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, 2021
- 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
(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 1/400th 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
Depositary Shares, each representing a 1/4,000th interest in
a share of Non-Cumulative Perpetual Preferred Stock, Series F
Trading
Symbol(s)
FHN
FHN PR B
FHN PR C
FHN PR D
FHN PR E
FHN PR F
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
Table of Contents
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
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, 2021, the aggregate market value of registrant common stock held by non-affiliates of the registrant was
approximately $9.4 billion based on the closing stock price reported for that date. At January 31, 2022, the registrant had
533,633,668 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 26, 2022: Part III of this Report
DOCUMENTS INCORPORATED BY REFERENCE:
Auditor Name:
KPMG LLP
Auditor Location: Memphis, TN
Auditor Firm ID: 185
TABLE OF CONTENTS and GLOSSARY
Table of Contents
ITEM
Glossary
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
Item 7A. Quantitative and Qualitative Disclosures about
3
5
6
9
31
54
54
55
55
56
58
59
60
Page
ITEM
Page
Item 8.
Financial Statements and Supplementary Data
107
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
213
213
213
214
216
217
220
220
221
227
228
Market Risk
106
Signatures
MD&A and Financial Statement References:
In this report: "2021 MD&A" and "2021 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, "2021 Financial Statements" and "2021 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
The following is a list of common acronyms and terms used throughout this report:
ACL
AFS
AIR
ALCO
ALLL
ALM
AOCI
ASC
Associate
Allowance for credit losses
Available for sale
Accrued interest receivable
Asset/Liability Committee
Allowance for loan and lease losses
Asset/liability management
Accumulated other comprehensive
income
FASB Accounting Standards Codification
Person employed by FHN
ASU
Bank
BOLI
C&I
CAS
CARES Act
CBF
CCAR
Accounting Standards Update
First Horizon Bank
Bank-owned life insurance
Commercial, financial, and industrial loan
portfolio
Credit Assurance Services
Coronavirus Aid, Relief, and Economic
Security Act
Capital Bank Financial
Comprehensive Capital Analysis and Review
3
2021 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS and GLOSSARY
Current expected credit loss
CECL
Chief Executive Officer
CEO
CFPB
Consumer Financial Protection Bureau
Collateralized mortgage obligations
CMO
First Horizon Corporation
Company
Corporation First Horizon Corporation
CRA
CRE
CRMC
DTA
DTL
EAD
ECP
EPS
Fannie Mae
FASB
FDIC
Federal
Reserve
Fed
FHA
FHLB
FHN
FHNF
Community Reinvestment Act
Commercial Real Estate
Credit Risk Management Committee
Deferred tax asset
Deferred tax liability
Exposure as default
Equity Compensation Plan
Earnings per share
Federal National Mortgage Association
Financial Accounting Standards Board
Federal Deposit Insurance Corporation
Federal Reserve Board
Federal Housing Administration
Federal Home Loan Bank
First Horizon Corporation
Federal Reserve Board
FHN Financial; FHN's fixed income division
Fair Isaac Corporation
FICO
First Horizon First Horizon Corporation
FRB
Federal Reserve Bank or the Federal
Reserve Board
Freddie Mac
Federal Home Loan Mortgage Corporation
FTE
FTRESC
GAAP
GSE
Fully taxable equivalent
FT Real Estate Securities Company, Inc.
Generally accepted accounting principles
Government sponsored enterprises, in
this filing references Fannie Mae and
Freddie Mac
HELOC
Home equity line of credit
HFS
HTM
IBKC
ISDA
IRS
LGD
LIBOR
LIHTC
LLC
Held for sale
Held to maturity
IBERIABANK Corporation
International Swap and Derivatives
Association
Internal Revenue Service
Loss given default
London Inter-Bank Offered Rate
Low Income Housing Tax Credit
Limited Liability Company
LMC
LOCOM
LRRD
LTV
MBS
MD&A
NAICS
NII
NM
NMTC
NPA
Non-PCD
NPL
OREO
PCAOB
PCD
PCI
PD
PM
PPP
PSU
RE
RM
ROA
ROU
RPL
SBA
SEC
SVaR
TD
TDBNA
TD-US
TD Merger
Agreement
Proposed TD
Merger
TDR
TRUP
UPB
USDA
VaR
VIE
we/us/our
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
North American Industry Classification
System
Net interest income
Not meaningful
New Markets Tax Credit
Nonperforming asset
Non-Purchased Credit Deteriorated
Financial Assets
Nonperforming loan
Other Real Estate-owned
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
Right of use
Reasonably possible loss
Small Business Administration
Securities and Exchange Commission
Stressed Value-at-Risk
The Toronto-Dominion Bank
TD Bank, N.A.
TD Bank US Holding Company
Merger agreement between FHN, TD, TD-
US, and a TD-US subsidiary
The merger transactions contemplated by
the TD Merger Agreement
Troubled Debt Restructuring
Trust preferred loan
Unpaid principal balance
United States Department of Agriculture
Value-at-Risk
Variable Interest Entities
First Horizon Corporation
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2021 FORM 10-K ANNUAL REPORT
EXECUTIVE SUMMARY OF PRINCIPAL INVESTMENT RISKS
Table of Contents
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 the Cyclicality discussion
within Other Business Information, which begins on
page 18, and Risks from Economic Downturns and
Changes which begins on page 38.
• 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 past two years demonstrated
this volatility, based on the economic and business
disruptions associated with the COVID-19 pandemic in
the first half of 2020, followed by several fairly
sudden changes in business circumstances and
expectations over the next 18 months. For additional
information, see: the discussion captioned CECL
Accounting and COVID-19 within the Significant
Business Developments Over Past Five Years section of
Item 1, which begins on page 12; Credit Risks
beginning on page 40; and Risks Related to COVID-19
Pandemic beginning on page 42.
• 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 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 imbalance between loss
and profit can amplify the potential for volatility in
our earnings. For additional information, see Credit
Risks beginning on page 40.
• 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. In 2021 the key agency in the U.S.
announced its intention to cause interest rates
generally to rise, gradually in late 2021 and 2022. This
represented a significant change of policy compared
with 2020. Moreover, by the end of 2021 inflation in
the U.S. had risen to levels not seen in decades,
suggesting the announced policy shift may be
executed more quickly or robustly than first thought.
In early 2022, that agency announced details which,
coupled with market reaction to date, lead us to
expect that the yield curve will flatten during the year
as rates generally rise. Over half of our loan portfolio
bears variable interest rates associated with short-
term reference rates; those loans should react fairly
quickly to agency increases in short-term rates. For
additional information, see: the Monetary Policy
Shifts discussion within Significant Business
Developments Over Past Five Years, which begins on
page 12; the Cyclicality discussion within Other
Business Information, which begins on page 18; Risks
Associated with Monetary Events beginning on page
38; Interest Rate and Yield Curve Risks beginning on
page 48; and discussion under the caption Federal
Reserve Policy in Transition within the Market
Uncertainties and Prospective Trends section of our
2021 MD&A (Item 7), which begins on page 99.
• 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 margins can be weaker as a result. If
sources become too small, we might have to forego
profitable lending or increase funding by increasing
deposit or borrowing volumes and costs. For
additional information, see Liquidity and Funding
Risks beginning on page 46.
5
2021 FORM 10-K ANNUAL REPORT
Table of Contents
EXECUTIVE SUMMARY OF PRINCIPAL INVESTMENT RISKS
• Competition. Competition for clients and talent in our
industry is intense and unlikely to abate. Competition
for clients pressures us to make interest rate and
other concessions on lending and on deposits, which
reduce our margins. Competition for revenue-
producing talent is a key method of obtaining new
client relationships in many parts of our industry, and
pressures us to increase compensation expense. For
additional information, see Competition beginning on
page 16, and Traditional Competition Risks beginning
on page 33.
• 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 12; the Strategic Transactions
discussion within the Other Business Information
section which begins on page 18; and Traditional
Strategic and Macro Risks beginning on page 34.
• 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 35.
• 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 43.
• Security & Technology. Fraud and theft have always
been significant risks for banks; we experience fraud
and theft loss every year. Technology has allowed
fraud and theft 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 can be
associated with a sub-optimal user experience. For
additional information, see Operational Risks
beginning on page 36.
• Expense Control. In the current low-interest-rate
environment, banks in the U.S. are focused on
reducing operating costs as much as possible. For
additional information, see Operational Risks
beginning on page 36, and Risks of Expense Control
beginning on page 45.
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
31.
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
6
2021 FORM 10-K ANNUAL REPORT
FORWARD-LOOKING STATEMENTS
Table of Contents
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;
• the occurrence of any event, change or other
circumstances that could give rise to the right of one
or both of the parties to terminate the TD Merger
Agreement;
• the outcome of any legal proceedings that may be
instituted against FHN, TD, or TD-US, including
potential litigation that may be instituted against FHN
or its directors or officers related to the Proposed TD
Merger or the TD Merger Agreement;
• the timing and completion of the Proposed TD
Merger, including the possibility that the Proposed TD
Merger will not close when expected or at all because
required regulatory, shareholder, or other approvals
are not received or other conditions to the closing are
not satisfied on a timely basis or at all, or are
obtained subject to conditions that are not
anticipated;
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2021 FORM 10-K ANNUAL REPORT
Table of Contents
FORWARD-LOOKING STATEMENTS
• the risk that any announcements relating to the
Important Other Information
In connection with the proposed transaction, FHN intends
to file relevant materials with the SEC, including
preliminary and definitive proxy statements on Schedule
14A.
This Annual Report on Form 10-K does not constitute an
offer to sell or a solicitation of an offer to buy any
securities or a solicitation of any vote or approval.
SHAREHOLDERS OF FHN ARE URGED TO READ, WHEN
AVAILABLE, ALL RELEVANT DOCUMENTS (INCLUDING ANY
AMENDMENTS OR SUPPLEMENTS THERETO) FILED WITH
THE SEC, INCLUDING FHN’S PROXY STATEMENT, BECAUSE
THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT
FHN AND THE PROPOSED TRANSACTION.
Investors and shareholders will be able to obtain a free
copy of the proxy statement as well as other relevant
documents when filed with the SEC without charge at the
SEC’s website (http://www.sec.gov). Copies of the proxy
statement and the filings with the SEC that will be
incorporated by reference in the proxy statement will also
be available once filed, without charge, by directing a
request to Clyde A. Billings Jr., First Horizon Corporation,
165 Madison, Memphis, TN 38103, telephone (901)
523-4444.
Proposed TD Merger could have adverse effects on
the market price of the common stock of FHN;
• certain restrictions during the pendency of the
Proposed TD Merger that may impact FHN’s ability to
pursue certain business opportunities or strategic
transactions;
• the possibility that the Proposed TD Merger may be
more expensive to complete than anticipated,
including as a result of unexpected factors or events;
• the diversion of management’s attention from
ongoing business operations and opportunities
caused by the Proposed TD Merger;
• reputational risk and potential adverse reactions or
changes to business or employee relationships,
including those resulting from the announcement of
the Proposed TD Merger; 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, 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 2021 MD&A (Item 7), among others.
8
2021 FORM 10-K ANNUAL REPORT
Table of Contents
ITEM 1. BUSINESS
PART I
Item 1. Business
Our Businesses
Overview
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.” At December 31, 2021, we had total
consolidated assets of $89 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.
The Bank
The Bank was founded in 1864 as First National Bank of
Memphis. During 2021, through its various business lines,
including consolidated subsidiaries, the Bank reported
revenues (net interest income plus noninterest income) of
approximately $3 billion. The Bank generated a substantial
majority of First Horizon’s consolidated revenue. At
During 2021 approximately 35% of our consolidated
revenues were provided by fee and other noninterest
income, and approximately 65% 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.
December 31, 2021, the Bank had $89 billion in total
assets, $76 billion in total deposits, and $54 billion in total
loans and leases (net of unearned income and net of
allowance for loan and lease losses).
Principal Businesses, Brands, & Locations
At year-end 2021 our principal businesses were conducted
mostly under two or three brands. Brand integration from
the IBKC merger was delayed until February 2022, after
which we began phasing out certain brands. Our principal
brands at year-end are summarized in Table 1.1.
At December 31, 2021, First Horizon’s subsidiaries had
over 500 business locations in 22 U.S. states, excluding
off-premises ATMs. Most of those locations were banking
centers. At year-end, First Horizon had 427 banking
centers in twelve states, as shown in Table 1.2.
Table 1.1
Table 1.2
Principal Businesses & Brands At Year-End
Businesses
Banking & financial
services generally
Brands
• First Horizon & First Horizon Bank
• IBERIABANK
Fixed income /
capital markets
Mortgage lending
• FHN Financial
• First Horizon Bank
• IBERIABANK Mortgage
Title services
• Lenders Title Group
Insurance brokerage &
management services
• First Horizon Advisors
Wealth management &
brokerage services
• First Horizon Advisors
• IBERIA Wealth Management
Banking Centers at Year-End
State
Tennessee
Florida
North Carolina
Louisiana
Alabama
Arkansas
State
Georgia
South Carolina
Texas
Virginia
Mississippi
New York
#
140
83
79
57
13
12
#
12
10
8
8
4
1
Many banking centers contain special-service areas such
as wealth management and mortgage lending.
At year-end 2021, First Horizon also had client-service
offices not physically within banking centers, including
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2021 FORM 10-K ANNUAL REPORT
ITEM 1. BUSINESS
Table of Contents
fixed income, title services, home mortgage, wealth
management, and commercial loan offices. The largest
groups of those offices were: 29 fixed income offices in 16
states across the U.S.; 30 title services offices in Arkansas,
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 2021, we had total loans (net of unearned
income) of $55 billion, total net loans (net of unearned
income and net of allowance for loan and lease losses) of
$54 billion, and total deposits of $75 billion. 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, 2021 or averaged over the year 2021.
Table 1.3
Loans & Deposits by Type
Deposits2
Savings
Time deposits
Other interest
Noninterest
37 %
6 %
22 %
35 %
Loans1
Commercial
Consumer
79 %
21 %
Commercial Portfolios
C&I
CRE
72 %
28 %
Consumer Portfolios
Real estate
92 %
Credit card/other
8 %
1 Percentages at December 31, 2021; includes certain leases.
2 Percentages of average deposits for 2021.
Percentages may not add to 100% due to rounding.
Table 1.5
Tennessee, and Louisiana; and 15 stand-alone mortgage
lending offices in 9 states. First Horizon also has
operational and administrative offices.
The C&I portfolio, more than half of total loans, was $31
billion on December 31, 2021. 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 Loans1 by Line of Business
15 %
Mortgage lending companies
Finance & Insurance
11 %
Real estate rental & leasing
Health care & social assistance
Accommodation & food service
Manufacturing
Wholesale trade
Retail trade
9 %
8 %
7 %
6 %
6 %
5 %
Other C&I
33 %
1 Percentages of C&I portfolio at December 31, 2021.
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.
C&I Loans ($31B)1
Tennessee
Florida
Texas
North Carolina
Louisiana
California
Georgia
All other states
Major Loan Portfolios by Geography
CRE Loans ($12B)1
Consumer RE Loans ($11B)1
20 %
12 %
10 %
7 %
7 %
7 %
5 %
32 %
Florida
Texas
North Carolina
Louisiana
Tennessee
Georgia
All other states
26 %
12 %
11 %
10 %
9 %
8 %
24 %
Florida
Tennessee
Louisiana
North Carolina
Texas
New York
32 %
23 %
10 %
8 %
7 %
5 %
All other states
15 %
1 Dollars and percentages within each portfolio at December 31, 2021.
Further information regarding deposits and our other
major sources of funding is provided in Notes 9, 10, and
11 beginning on pages 154, 155, and 156, respectively,
appearing in our 2021 Financial Statements (Item 8), and
under the captions Deposits, Short-term Borrowings, and
Term Borrowings beginning on pages 85, 86, and 86,
respectively, of our 2021 MD&A (Item 7). Further
information regarding our loans is provided in Note 4
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2021 FORM 10-K ANNUAL REPORT
ITEM 1. BUSINESS
Table of Contents
beginning on page 139 appearing in our 2021 Financial
Statements (Item 8), and under the captions Analysis of
Financial Condition and Asset Quality, beginning on pages
70 and 73, respectively, of our 2021 MD&A (Item 7).
Business Segments
Segment Overview
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 in this Item 1 below), we changed our
segments. Before the merger, we operated through four
business segments: regional banking, fixed income,
corporate, and non-strategic. Currently, we operate
through three segments: regional banking, specialty
banking, and corporate. In this report, segment
information related to prior periods has been reclassified
to conform with current segments.
Financial and other additional information concerning our
segments—including information concerning assets,
revenues, and financial results—appears in our 2021
MD&A (Item 7) and in our 2021 Financial Statements
(Item 8), especially in Note 20—Business Segment
Information. Note 20 begins on page 178.
Regional and Specialty Banking Segments
By far most of our loans and deposits are in the regional
banking and specialty banking segments. Similarly, those
segments are the sources of most of our revenues and
expenses. The two segments create and use financial
resources differently, and they generate different types of
revenues. Most notably: regional banking provides a
majority of our net interest income (mainly from lending),
while specialty banking provides more noninterest income
(mainly from fees). In addition, regional banking is larger
than specialty banking by many financial measures. Table
1.6 provides high-level financial information for each of
those two segments, highlighting these points.
Table 1.6
Regional vs Specialty Banking Snapshot
(Dollars in millions)
2021 Average assets
2021 Net interest income
2021 Noninterest income
2021 Pretax income
Regional
Specialty
$ 45,445
$ 20,803
$ 1,764
$
438
$ 1,280
$
$
$
619
597
709
Regional and Specialty Lines of Business
The principal lines of business in the regional banking
segment are:
• commercial banking (larger business enterprises)
• business banking (smaller business enterprises)
• consumer banking
• private client and wealth management
The principal lines of business in the specialty banking
segment are:
• fixed income/capital markets
• professional commercial real estate (Pro-CRE)
• mortgage warehouse lending
• asset-based (secured) lending
• franchise finance
• equipment finance
• corporate banking
• correspondent banking
• mortgage origination and title services
Geographically, regional banking's businesses mainly serve
our traditional markets associated with our banking center
footprint. Many of the businesses within specialty banking
have much broader geographic reach. For example: our
fixed income business has offices from Hawaii to
Massachusetts; and California is listed in Table 1.5
primarily because of specialty banking business lines.
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Table of Contents
Services We Provide
ITEM 1. BUSINESS
At December 31, 2021, we provided the following services
through our subsidiaries and divisions:
• trust, fiduciary, and agency services
• credit card products
• general banking services for consumers, businesses,
• equipment finance services
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
• 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—2021 Compared to 2020
beginning on page 63 of our 2021 MD&A (Item 7).
Significant Business Developments Over Past Five Years
Selected Financial Data Past Five Years
Table 1.7 provides selected data concerning revenues, expenses, assets, liabilities, and shareholders’ equity for the past five
years.
Table 1.7
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in millions; financial condition data shown period-end, as of December 31)
Net interest income $
Provision 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
2021
2020
2019
2018
2017
1,994 $
(310)
1,076
962
54,859
89,092
74,895
1,590
80,598
520
8,494
1,662 $
503
1,492
822
58,232
84,209
69,982
1,670
75,902
470
8,307
1,210 $
45
654
435
31,061
43,311
32,430
791
38,235
96
5,076
1,220 $
8
723
539
27,536
40,832
32,683
1,171
36,047
96
4,785
842
(1)
490
159
27,659
41,423
30,620
1,218
36,843
96
4,580
Priorities & Developments
Over the past five years, our strategic priorities have
focused on:
• targeted and opportunistic expansion of consumer
and commercial banking products and markets;
• targeted and opportunistic expansion of commercial
lending, mainly through strategic and tactical
transactions, talent development, and talent
acquisitions;
• managing business units and products with a strong
emphasis on risk-adjusted returns on invested capital;
• providing exceptional client service and experience as
a primary means to differentiate us from competitors;
and
• investment in scalable technology and other
infrastructure to attract and retain clients and to
support expansion.
• rigorous expense management with continued
investment in revenue generating initiatives;
Examples of our implementation of these priorities
include:
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2021 FORM 10-K ANNUAL REPORT
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ITEM 1. BUSINESS
• 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. In February 2022, we
completed the main systems conversion work related
to that merger.
• As shown in Table 1.7, the COVID-19 pandemic
caused us to recognize substantial provision for credit
losses in 2020, and reduced our transaction volume
and revenues. See the discussion captioned CECL
Accounting and COVID-19 within Events Impacting
Year-to-Year Comparisons, immediately below. In
2021, a large portion of that provision expense was
effectively reversed, resulting in a provision credit for
the year.
• The pandemic also resulted in strong deposit growth
in 2020 and 2021, despite interest rates being
extremely low. We believe federal assistance and
stimulus programs in 2020 and early 2021 significantly
bolstered deposits in both years.
• 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. In
another 2017 transaction, we acquired a national
leader in trading, securitization, and analysis of Small
Business Association loans.
• 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.
• Throughout this period, but especially in 2021, 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. These efforts are expected to continue.
• Lending has been strong in certain specialty areas,
such as lending to mortgage companies, where
demand is strongly stimulated by the low interest
rates in effect during this period.
Events Impacting Year-to-Year Comparisons
IBKC Merger of Equals in 2020
30-Branch Acquisition 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).
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 consist of approximately two
quarters of legacy First Horizon plus approximately 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.
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 a provision
for credit losses, 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 substantial noninterest expenses in 2020 and
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ITEM 1. BUSINESS
Table of Contents
in 2021. Additional significant expenses related to
integration and optimization will be incurred in 2022.
Low Credit Loss Rates through 2019
During 2017-2019, 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 and, accordingly, our
provision was significantly elevated in 2020.
In 2021, we recognized net provision credit (negative
expense) in the year overall, as a portion of credit loss
accrued in 2020 was effectively reversed and underlying
credit loss trends remained modest in most portfolios.
Fixed Income Volatility
In 2017 and 2018, 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. In 2021, performance
in fixed income started to moderate as market conditions
started to change again, and we expect moderation to
continue into 2022. See the Fixed Income discussion under
Cyclicality within the Other Business Information section of
this Item, which begins on page 18, for additional
information.
Sale of Visa Class B Stock in 2018
In 2018, we sold our remaining legacy stock holdings of
Visa for a large gain, 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 in 2017 and 2018. Short-term rates were reduced in
2019 and again in 2020, the latter in response to the
pandemic. An asset-buying program by the Federal
Reserve put downward pressure on long-term interest
rates as well, especially in 2020 and 2021. 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 2020-21 resulted in
historically low net interest margin levels for us.
During much of 2021, the Federal Reserve kept short-term
rates low and maintained an asset-buying program
intended to put downward pressure on long-term rates.
Late in 2021, and continuing into 2022, the Federal
Reserve has signaled that its asset-buying program will
cease, that it expects to start raising short-term rates in
reaction to price inflation experienced in the U.S. during
much of 2021, and that it expects to reduce its asset
holdings once buying has stopped.
Additional information concerning monetary policy and
changes to it appears: within the Effect of Governmental
Policies and Proposals section of Item 1 beginning on page
29; under the caption Risks Associated with Monetary
Events beginning on page 38 within Item 1A; and under
the caption Federal Reserve Policy in Transition within the
Market Uncertainties and Prospective Trends section of
2021 MD&A (Item 7), which begins on page 99.
Mortgage-Related Businesses
We lend to mortgage lending companies, we originate
mortgage loans, and we provide title and related services
that depend significantly on new and refinanced home
mortgage activity. Lending to mortgage companies has
been a significant business for us in all five years shown in
Table 1.7, while the latter two businesses were
insignificant for us until our merger with IBKC in 2020.
All three mortgage-related businesses benefited
substantially from the recent low interest rate
environment. As discussed above, we expect mortgage
rates to rise in 2022, which should moderate revenues and
income in all three businesses compared to 2021.
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Significant Trends Past Five Years
ITEM 1. BUSINESS
Noteworthy trends during these five years included:
• The large deposit upticks in 2017 and 2020 were
• 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 and 2021, though loan balances
increased substantially with the IBERIABANK merger.
• In 2017, an overall downward 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 2017 downward trend reversed in
2019-21 as interest rates declined, market volatility
increased, and fixed income revenues improved
markedly. Also, 2020 and 2021 enjoyed a substantial
increase in noninterest income following the
IBERIABANK merger, especially in relation to
consumer mortgage originations and related services.
Exited Businesses
Over the past five years, we have focused primarily on
regional banking and specialty banking products and
services. We have partially or fully exited some smaller
businesses during those years. Exited businesses are
driven substantially by the Capital Bank, IBERIABANK,
and 30-branch transactions. Also in 2020 and 2021,
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 when interest
rates were extremely low. That core growth is masked
in some years by our deliberate reductions in market-
indexed deposits, which tend to be higher rate, and in
other years by those large transactions.
• Throughout 2020, and to a lesser extent in 2021,
economic and business disruption related to the
COVID-19 pandemic created substantial challenges
for our clients and for our company. The disruptions
in late 2021 from yet another new variant of the virus
have continued in early 2022.
managed in our corporate segment currently, and were
managed in our non-strategic segment before 2020.
2022 Merger Agreement with Toronto-Dominion Bank
On February 27, 2022, FHN entered into an Agreement
and Plan of Merger (the “TD Merger Agreement”) with
The Toronto-Dominion Bank, a Canadian chartered bank
(“TD”), TD Bank US Holding Company, a Delaware
corporation and indirect, wholly owned subsidiary of TD
(“TD-US”), and Falcon Holdings Acquisition Co., a
Delaware corporation and wholly owned subsidiary of TD-
US (“Merger Sub”).
Pursuant to the TD Merger Agreement, FHN and Merger
Sub will merge (the “First Holding Company Merger”),
with FHN continuing as the surviving entity in the merger.
Following the First Holding Company Merger, at the
election of TD, FHN and TD-US will merge (the “Second
Holding Company Merger” and, together with the First
Holding Company Merger, the “Holding Company
Mergers”), with TD-US continuing as the surviving entity in
the merger.
Upon the terms and subject to the conditions set forth in
the TD Merger Agreement, each share of FHN common
stock, par value $0.625 per share, (“Company Common
Stock”), issued and outstanding immediately prior to the
effective time of the First Holding Company Merger (the
“First Effective Time”) will be converted into the right to
receive $25.00 (USD) per share in cash, without interest.
If the transaction does not close on or before November
27, 2022, shareholders will receive an additional $0.65 per
share of Company Common Stock on an annualized basis
(or approximately 5.4 cents per month) for the period
from November 27, 2022 through the day immediately
prior to the closing. Each outstanding share of FHN’s
preferred stock, series B, C, D, E and F, will remain issued
outstanding in connection with the First Holding Company
Merger. If TD elects to effect the Second Holding Company
Merger, at the effective time of the Second Holding
Company Merger, each outstanding share of FHN’s
preferred stock will be converted into a share of a newly
created, corresponding series of TD-US having terms as
described in the Merger Agreement.
Following the completion of the First Holding Company
Merger, at such time as determined by TD, First Horizon
Bank and TD Bank, N.A., a national banking association
(“TDBNA”) will merge, with TDBNA surviving as a
subsidiary of TD-US (the “Bank Merger” and together with
the Holding Company Mergers, the “Proposed TD
Merger”).
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2021 FORM 10-K ANNUAL REPORT
ITEM 1. BUSINESS
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In connection with the execution of the TD Merger
Agreement, TD has agreed to purchase from FHN shares
of non-voting Perpetual Convertible Preferred Stock,
Series G, a new series of preferred stock of FHN (the
“Series G Convertible Preferred Stock”) in a private
placement transaction having an aggregate liquidation
preference and purchase price of approximately $493.5
million, pursuant to a securities purchase agreement
between FHN and TD entered into concurrently with the
execution and delivery of the TD Merger Agreement. The
Series G Convertible Preferred Stock is convertible into up
to 4.9% of the outstanding shares of Company Common
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
Banking Competition
Our regional banking business primarily competes in those
areas within the southern U.S. where we have banking
center locations, summarized in Table 1.2. 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. In our company, that trend is most
evident in our specialty banking segment.
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. Cross-institutional management
features may contribute to 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 as franchise
finance, mortgage warehouse lending, asset-based
lending, and certain other specialty businesses (see Fixed
Income Competition below) are multi-regional or national
in scope rather than being heavily centered on banking
center locations.
Stock in certain circumstances, including the closing of the
Proposed TD Merger.
Additional information regarding the Proposed TD Merger,
the TD Merger Agreement, and the issuance of Series G
Convertible Preferred Stock will be included under Item
1.01 “Entry into a Material Definitive Agreement”, Item
3.02 “Unregistered Sales of Equity Securities”, Item 5.03
“Amendments to Articles of Incorporation or Bylaws;
Change in Fiscal Year”, and Item 8.01 “Other Events” in a
Current Report on Form 8-K to be filed by FHN after this
report on Form 10-K is filed.
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.
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.
Key traditional competitors in many of our markets
include Wells Fargo Bank N.A., Bank of America N.A., First-
In recent years, certain financial companies or their
affiliates that traditionally were not banks have been able
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2021 FORM 10-K ANNUAL REPORT
ITEM 1. BUSINESS
Table of Contents
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
Fixed Income Competition
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).
Additional Information About Competition
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
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 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
facilitation services (such as PayPal and pre-paid debit
card issuers), and extremely short-term consumer loan
companies. An example of a non-traditional company
offering a broad range of financial services is SoFi, an
online/mobile company in operation for about a decade,
that recently was approved in the U.S. to become a bank.
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.
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.
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
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ITEM 1. BUSINESS
Table of Contents
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
Year-End Statistical Information
At December 31, 2021*:
• First Horizon had 7,867 associates, or 7,676 full-time-
equivalent associates, not including contract labor for
certain services:
◦ 69% white, 18% African American, 9% Hispanic, 2%
Asian, and 2% two or more races or ethnicities
◦ 63% female and 37% male
• Of those, First Horizon had 1,215 corporate managers:
◦ 79% white, 12% African American, 6% Hispanic, 2%
Asian, and 1% two or more races or ethnicities
Other Business 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 2021 Financial Statements
(Item 8), beginning on page 134 of this report.
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
Subsidiaries
FHN’s consolidated operating subsidiaries at
December 31, 2021 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
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
◦ 54% female and 46% male
• Of the managers, First Horizon had the CEO and 9
members of the CEO's Executive Management
Committee:
◦ 80% white, 10% African American, 0% Hispanic or
Asian, and 10% two or more races or ethnicities
◦ 50% female and 50% male
__________
* Data compiled from information provided by associates. Percentages
may not add to 100% due to rounding.
assets comprised roughly one-fourth of our combined
assets immediately after closing in November 2017. We
completed systems integration for the Capital Bank
transaction in 2018, and we completed systems
integration with IBKC in February 2022.
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.
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. and FHN Financial
Securities Corp. are registered as broker-dealers with
the SEC and all states where they conduct business
for which registration is required.
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2021 FORM 10-K ANNUAL REPORT
ITEM 1. BUSINESS
Table of Contents
• First Horizon Insurance Services, Inc., FHIS, Inc., First
Horizon Insurance Agency, Inc., Lenders Title
Company, United Title & Abstract L.L.C., and United
Title of Louisiana, Inc. are licensed as insurance
agencies in all states where they do business for
which licensing is required. First Horizon Insurance
Agency, Inc. and United Title & Abstract L.L.C. are
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.
Client Concentration
• Our financial subsidiaries under the Gramm-Leach-
Bliley Act are: FHIS, Inc.; FHN Financial Securities
Corp.; First Horizon Advisors, Inc.; First Horizon
Insurance Agency, Inc.; and First Horizon Insurance
Services, Inc.
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
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 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
and margins), 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
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).
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 (which begins on page 31), in Risk from Economic
Downturns and Changes, Risks Associated with Monetary
Events, Liquidity and Funding Risks, and Interest Rate and
Yield Curve Risks; and, within 2021 MD&A (Item 7), in
Executive Overview (page 61), Interest Rate Risk
Management (page 93), and Market Uncertainties and
Prospective Trends (page 99).
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.
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2021 FORM 10-K ANNUAL REPORT
Weaker
Average
Stronger
Mortgage Origination and Related Services
ITEM 1. BUSINESS
Table of Contents
In broad terms, the typical impact of Federal Reserve
interest and monetary policy on our fixed income business
is summarized in Table 1.8.
Table 1.8
Typical Impact of Fed Policy on
Fixed Income Performance
Federal Reserve Policy Phase
Easing
Neutral
Tightening
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 1.9.
Table 1.9
Key Drivers of
Fixed Income Performance
Driver
If Driver Is:
FI Revenues Tend to Be:
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.
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.
Market Outlook
The single most important market factor in 2022 for FHN
likely will be when, and to what extent, short-term and
long-term interest rates rise from the very low levels seen
in 2020 and 2021. A key corollary will be how rate changes
affect the shape of the yield curve. Early in 2022, when
this report was prepared and filed, long-term rates in the
markets have risen modestly in reaction to, and perhaps in
anticipation of, Federal Reserve actions. FHN believes it is
likely that the Federal Reserve will act to cause long and
short rates to rise during the year, though FHN cannot
predict the timing or degree of effectiveness of those
actions.
Additional information concerning market uncertainties
and trends appears in Market Uncertainties and
Prospective Trends within 2021 MD&A (Item 7) beginning
on page 99, especially under the captions Federal Reserve
Policy in Transition and COVID-19 Pandemic.
Other Business Information Associated with this Report
For additional information concerning our business, refer to 2021 MD&A (Item 7).
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Business Information External to this Report
ITEM 1. BUSINESS
Our current primary internet address is
www.firsthorizon.com. A link to the Investor Relations
section of our internet website appears near the bottom
of the home page of our website. Within the Investor
Relations homepage there is a "Learn More" link
associated with "SEC Filings." Clicking that link makes
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
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
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 a
broader range of activities that are “financial in nature.”
See Financial Activities other than Banking within this
Supervision and Regulation discussion 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 and Community
Reinvestment Act (“CRA”), both within this Supervision
and Regulation discussion below.
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
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
214. No information external to this report and its
exhibits, unless specifically noted otherwise, is
incorporated into this report.
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.
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, 2021,
the FDIC reports that the Bank held approximately 15% 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, 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
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ITEM 1. BUSINESS
Table of Contents
requirements for many topics related to the Bank,
mentioning state requirements only where significant.
From 1864 until 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. In 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
Regulatory Tiers Based on Asset Size
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
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
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, 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.
that may 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 within this Item 1 under the Other Business
Information discussion above, which begins on page 18.
In addition to the impact of regulation, commercial banks
are affected significantly by the actions of the Federal
Reserve as it attempts to control interest rates, 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.
$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.
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.
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.
The Corporation
The Bank
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
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
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2021 FORM 10-K ANNUAL REPORT
ITEM 1. BUSINESS
Table of Contents
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
dividend restrictions imposed under applicable federal
and state rules, the Bank’s total amount available for
dividends, without obtaining regulatory approval, was
$1.1 billion at January 1, 2022. 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 2021 MD&A (Item 7) beginning on
page 95 of this report; and under the caption Restrictions
on dividends in Note 13—Regulatory Capital and
Restrictions of our 2021 Financial Statements (Item 8),
beginning on page 159.
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 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
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 us
and 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
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 within this Supervision and Regulation
discussion below, 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.
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 or our nonbank subsidiaries;
the Bank’s loans or extensions of credit to third parties
collateralized by the securities or obligations of us or our
nonbank subsidiaries; the issuance of guaranties,
acceptances, and letters of credit on behalf of us or our
nonbank subsidiaries; and certain bank transactions with
us or our nonbank subsidiaries, or with respect to which
we or our nonbank subsidiaries act as agent, participate,
or have a financial interest.
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2021 FORM 10-K ANNUAL REPORT
ITEM 1. BUSINESS
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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, 2021, our Common Equity Tier 1
Capital Ratio was 9.92% and the Bank’s was 10.75%.
• 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, 2021, our Tier 1
Capital Ratio was 11.04% and the Bank’s was 11.22%.
• 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, 2021, our
Total Capital Ratio was 12.34% and the Bank’s was
12.41%.
• 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,
2021, our Leverage ratio was 8.08% and the Bank’s
was 8.20%.
• 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, 2021.
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 indicators 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.
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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
Table 1.10
five capital categories. The specific requirements
applicable to us are summarized in Table 1.10.
REQUIREMENTS FOR PCA CAPITALIZATION CATEGORIES
• 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
Well capitalized
maintain specific capital levels
Adequately
capitalized
• 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
Failure to maintain any requirement to be adequately capitalized
Significantly
Undercapitalized
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%
Critically
Undercapitalized
Failure to maintain a level of tangible equity equal to at least 2% of total
assets
At December 31, 2021, 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
Liquidity Coverage Ratio
The liquidity coverage ratio, or LCR, refers to the amount
of liquid assets (cash, cash equivalents, or short-term
securities) banks are required to keep on hand to meet a
hypothetically projected total net cash outflows over a
forward-looking 30-day period of stress. The stressed
outflow estimate is based a standard set of hypothetical
assumptions set forth in regulatory requirements. The LCR
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.
is designed to ensure banks hold a buffer of high-quality
liquid assets so that they can meet their short-term
liquidity needs and remain stable and strong in a stressed
environment. Liquid assets generally provide low income
levels compared to other investments, so a higher LCR
requirement can negatively impact a bank's earnings.
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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 minimum LCR
requirement increases based on a bank’s asset size.
Category IV banks, with at least $100 billion in assets, are
not subject to LCR requirements unless they have at least
$50 billion in weighted short-term wholesale funding.
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
Cross-Guarantee Liability
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
Interstate Branching & Mergers
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
Community Reinvestment Act (“CRA”)
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
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.
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.
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.
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
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ITEM 1. BUSINESS
Table of Contents
can prevent a bank holding company from becoming a
financial holding company. In its most recent CRA
assessment, for 2020, the Bank received ratings of "High
Financial Activities other than Banking
Federal Law
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 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
Interchange Fee Restrictions
Satisfactory" in Lending and in Service, "Outstanding" in
Investment, and "Satisfactory" overall.
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, 2021, we are a financial holding
company and the Bank has a number of financial
subsidiaries, as discussed in Subsidiaries within this Item 1
under the Other Business Information discussion, which
begins on page 18.
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.
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.
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ITEM 1. BUSINESS
Table of Contents
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
Data Security & Portability
Security & Privacy
Federal law requires banks to implement a comprehensive
information security program that includes administrative,
technical, and physical safeguards. Banks are required to
have appropriate data governance practices and risk
management processes as key functions supporting its
operational resilience.
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
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 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
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
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.
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.
Portability & Client Control
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. Affiliate and non-affiliate sharing
initiated by the Bank generally is permitted with client
consent.
Increasingly, banks are being required to permit, enable,
and support client control of client data, including the
sharing of client data with Bank affiliates and with outside
organizations. These requirements, which still are
evolving, are intended to foster data portability for clients
and greater competition among financial services firms.
However, they also significantly increase data security
risks because they create additional access channels for
bad actors to try to exploit, or they make accessing
existing channels easier or faster.
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.
against such an institution, including federal funds and
letters of credit, in the “liquidation or other resolution” of
such an institution by any receiver.
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ITEM 1. BUSINESS
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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
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,
Compensation & 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
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.
insurance agents and their activities are also subject to
regulation by the states, including, among other things,
licensing and marketing and sales practices.
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.
Effect of Government Policies & Proposals
The Bank is affected by the policies of regulatory
authorities, including the Federal Reserve, the TDFI, and
the CFPB. See Supervision and Regulation beginning on
page 21 for additional information.
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.
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 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 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
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ITEM 1. BUSINESS
Table of Contents
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. Additional
information concerning monetary policy changes appears:
under the caption Monetary Policy Shifts within the
Significant Business Developments section of Item 1,
which begins on page 12; under the caption Risks
Associated with Monetary Events beginning on page 38
within Item 1A; and under the caption Federal Reserve
Policy in Transition within the Market Uncertainties and
Prospective Trends section of our 2021 MD&A (Item 7),
which begins on page 99.
Sources & Availability of Funds
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.
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 2021 MD&A (Item 7),
including the subsection entitled Liquidity Risk Management beginning on page 95, which material is incorporated herein by
reference.
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ITEM 1A. RISK FACTORS
Table of Contents
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.
Topic
Risks related to the Proposed TD Merger
Traditional Competition Risks
Traditional Strategic & Macro Risks
Industry Disruption
Operational Risks
Risks from Economic Downturns & 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
TABLE OF ITEM 1A TOPICS
Page
Topic
31
33
34
35
36
38
38
39
40
40
42
42
Regulatory, Legislative, and Legal Risks
Risks of Expense Control
Geographic Risks
Insurance
Liquidity & Funding Risks
Credit Ratings
Interest Rate & Yield Curve Risks
Asset Inventories & Market Risks
Mortgage Business Risks
Pre-2009 Mortgage Business Risks
Accounting & Tax Risks
Share Owning & Governance Risks
Page
43
45
45
46
46
47
48
49
50
51
51
52
Risks Related to the Proposed TD Merger
The announcement and pendency of the Proposed TD
Merger may adversely affect our business, financial
condition, and results of operations. Uncertainty about
the effect of the Proposed TD Merger on our associates,
clients, and other parties may have an adverse effect on
our business, financial condition, and results of operations
regardless of whether the Proposed TD Merger is
completed. These risks to our business include, among
others, the following, all of which may be exacerbated by
a delay in the completion of the Proposed TD Merger: (i)
the impairment of our ability to attract, retain, and
motivate its employees; (ii) the diversion of significant
management time and attention from ongoing business
operations towards the completion of the Proposed TD
Merger; (iii) difficulties maintaining relationships with
clients, suppliers and other business partners; (iv) delays
or deferments of certain business decisions by our clients,
suppliers and other business partners; (v) the inability to
pursue alternative business opportunities or make
appropriate changes to our business because the TD
Merger Agreement requires us to, subject to certain
exceptions, conduct its business in the ordinary course of
business and to not engage in certain kinds of transactions
prior to the completion of the Proposed TD Merger
without the prior written consent of TD (such consent not
to be unreasonably conditioned, withheld or delayed),
even if such actions could prove beneficial; (vi) litigation
relating to the Proposed TD Merger and the costs and
uncertainties related thereto; and (vii) the incurrence of
significant costs, expenses, and fees for professional
services and other transaction costs in connection with
the Proposed TD Merger.
Regulatory approvals may not be received, may take
longer than expected, or may impose conditions that are
not presently anticipated. Before the Proposed TD
Merger may be completed, various approvals, consents,
and non-objections must be obtained from the Federal
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Reserve and various other bank regulatory, antitrust, and
other authorities in the United States. In determining
whether to grant these approvals, such regulatory
authorities consider a variety of factors, including the
regulatory standing of each party. These approvals could
be delayed or not obtained at all, including due to: an
adverse development in either party’s regulatory standing
or in any other factors considered by regulators when
granting such approvals; governmental, political or
community group inquiries, investigations or opposition;
or changes in legislation or the political environment
generally. The Federal Reserve has stated that if material
weaknesses are identified by examiners before a banking
organization applies to engage in expansionary activity,
the Federal Reserve will expect the banking organization
to resolve all such weaknesses before applying for such
expansionary activity. The Federal Reserve has also stated
that if issues arise during the processing of an application
for expansionary activity, it will expect the applicant
banking organization to withdraw its application pending
resolution of any supervisory concerns.
The approvals that are granted may impose terms and
conditions, limitations, obligations, or costs, or may place
restrictions on the conduct of the combined company’s
business, or may require changes to the terms of the
transactions contemplated by the TD Merger Agreement
and related bank merger agreement. There can be no
assurance that regulators will not impose any such
conditions, limitations, obligations or restrictions and that
such conditions, limitations, obligations or restrictions will
not have the effect of delaying the completion of any of
the transactions contemplated by the TD Merger
Agreement and Bank Merger Agreement, imposing
additional material costs on us. In addition, there can be
no assurance that any such conditions, terms, obligations
or restrictions will not result in the delay or abandonment
of the Proposed TD Merger. Additionally, the completion
of the Proposed TD Merger is conditioned on the absence
of certain orders, injunctions, or decrees by any court or
regulatory agency of competent jurisdiction that would
prohibit or make illegal the completion of any of the
transactions contemplated by the TD Merger Agreement
and related bank merger agreement.
In addition, despite the parties’ commitments to use their
reasonable best efforts to comply with conditions
imposed by regulators, under the terms of TD Merger
Agreement and related bank merger agreement, neither
us nor TBD will be required, and neither party will be
permitted without the prior written consent of the other
party, to take actions or agree to conditions that would
reasonably be expected to have a material adverse effect
on the combined company and its subsidiaries, taken as a
whole, after giving effect to the mergers.
The TD Merger Agreement may be terminated in
accordance with its terms, and the Proposed TD Merger
may not be completed. The TD Merger Agreement is
subject to a number of conditions which must be fulfilled
in order to complete the Proposed TD Merger. Those
conditions include: (i) the approval of the Proposed TD
Merger by the requisite vote of our shareholders; (ii) the
receipt of all required regulatory approvals which are
necessary to close the Proposed TD Merger and the
expiration of all statutory waiting periods without the
imposition of any materially burdensome regulatory
condition; (iii) the absence of any order, injunction,
decree, or other legal restraint preventing the completion
of the Proposed TD Merger or any of the other
transactions contemplated by the TD Merger Agreement
or by the related bank merger agreement, or making the
completion of the Proposed TD Merger illegal; (iv) subject
to certain exceptions, the accuracy of the representations
and warranties of each party, generally subject to a
material adverse effect qualification; and (v) the prior
performance in all material respects by each party of the
obligations required to be performed by it at or prior to
the closing date.
These conditions to the closing may not be fulfilled in a
timely manner or at all, and, accordingly, the Proposed TD
Merger may not be completed. In addition, the parties can
mutually decide to terminate TD Merger Agreement at
any time, before or after shareholder approval. Also,
either TD or we may elect unilaterally to terminate the TD
Merger Agreement in certain circumstances.
Failure to complete the Proposed TD Merger could
negatively impact us. If the Proposed TD Merger is not
completed for any reason, including as a result of our
shareholders failing to approve the Proposed TD Merger
or as a result of failure to obtain all needed regulatory
approvals, there may be various adverse consequences
and we may experience negative reactions from the
financial markets and from our clients and associates.
For example, our business may be impacted adversely by
the failure to pursue other beneficial opportunities due to
the focus of management on the Proposed TD Merger.
Additionally, if the TD Merger Agreement is terminated,
the market price of our common stock could decline
because, after announcement of the Proposed TD Merger,
we expect our market price to reflect the consideration to
be paid under the TD Merger Agreement; a termination of
the Proposed TD Merger would likely have a negative
effect on our market price. We also could be subject to
litigation related to any failure to complete the Proposed
TD Merger or to proceedings commenced against us to
perform our obligations under the TD Merger Agreement.
If the TD Merger Agreement is terminated under certain
circumstances, we may be required to pay to TD a
termination fee of up to $435.5 million.
Additionally, we expect to incur substantial expenses in
connection with the negotiation and completion of the
transactions contemplated by the TD Merger Agreement
and related bank merger agreement, as well as the costs
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and expenses of preparing, filing, printing, and mailing a
proxy statement, and all filing and other fees paid in
connection with the Proposed TD Merger. If the Proposed
TD Merger is not completed, we would have to pay a large
portion of these expenses without realizing the expected
benefits of the Proposed TD Merger.
We will be subject to business uncertainties and
contractual restrictions while the Proposed TD Merger is
pending. Uncertainty about the effect of the Proposed TD
Merger on associates and clients may have an adverse
effect on us. These uncertainties may impair our ability to
attract, retain and motivate key personnel until the
Proposed TD Merger is completed, and could cause clients
and others that deal with us to seek to change existing
business relationships with us. In addition, subject to
certain exceptions, we have agreed to operate our
business in the ordinary course prior to the closing, and
we are restricted from making certain acquisitions and
taking other specified actions without the consent of TD
until the Proposed TD Merger is completed. These
restrictions may prevent us from pursuing attractive
business opportunities that may arise prior to the
completion of the Proposed TD Merger.
The TD Merger Agreement contain provisions that could
discourage a potential competing acquirer that might be
willing to pay more to acquire or merge with us. The TD
Merger Agreement contains provisions that restrict our
ability to, among other things, initiate, solicit, knowingly
encourage or knowingly facilitate, inquiries or proposals
with respect to, or, subject to certain exceptions generally
related to the exercise of fiduciary duties by our board of
directors, engage in any negotiations concerning, or
provide any confidential or nonpublic information or data
relating to, any alternative acquisition proposals. These
provisions, which include a termination fee of up to
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 within this Item
$435.5 million payable by us under certain circumstances,
might discourage a potential competing acquirer that
might have an interest in acquiring all or a significant part
of us from considering or proposing that acquisition even
if, in the case of a potential acquisition of us, it were
prepared to pay consideration with a higher per share
price to our shareholders than what is contemplated in
the Proposed TD Merger, or might result in a potential
competing acquirer proposing to pay a lower per share
price to acquire us than it might otherwise have proposed
to pay.
Shareholder litigation could prevent or delay the
completion of the Proposed TD Merger or otherwise
negatively impact our business and operations. One or
more of our shareholders may file lawsuits against us and/
or our directors and officers in connection with the
Proposed TD Merger. One of the conditions to the closing
is that no order, injunction, or decree issued by any court
or governmental entity of competent jurisdiction or other
legal restraint preventing the consummation of the
Proposed TD Merger or any of the other transactions
contemplated by the TD Merger Agreement and related
bank merger agreement be in effect. If any plaintiff were
successful in obtaining an injunction prohibiting us from
completing the Proposed TD Merger, then such injunction
may delay or prevent the effectiveness of the Proposed TD
Merger and could result in significant costs to us, including
any cost associated with the indemnification of directors
and officers of each company. If a lawsuit is filed, we may
incur costs in connection with the defense or settlement
of any shareholder lawsuits filed in connection with the
Proposed TD Merger. Such litigation could have an
adverse effect on our financial condition and results of
operations and could prevent or delay the completion of
the Proposed TD Merger.
1A beginning on page 35) 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. Examples of
less-regulated activities include check-cashing services,
independent ATM services, and “peer-to-peer” lending,
where investors provide debt financing or other 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
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clients, refer to Competition within Item 1 beginning on
page 16 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 below within this
Item 1A for additional information concerning this risk.
Traditional Strategic & Macro Risks
We may be unable to successfully implement our
strategy to operate and grow our regional and specialty
banking businesses. Although our current strategy is
expected to evolve as business conditions change, in 2022
our primary strategies are to (1) invest resources in our
banking businesses before and after we complete the
integration of the businesses and operations of First
Horizon and IBKC, (2) seek to exploit opportunities for cost
and revenue synergies, (3) seek to exploit growth
opportunities, especially within the markets we serve, and
(4) seek to exploit opportunities to cut cost without
significant revenue impact. Organic growth, including
exploitation of revenue synergies, is expected to be
coordinated with a focus on strong and stable returns on
capital.
Organically, over the past several years we enhanced our
market share in our regional banking markets with
targeted hires and marketing, and we invested resources
in specialty commercial lending and private client banking.
After the completion of the IBKC merger in 2020, we
started to invest significantly in new platforms and
processes to modernize legacy operations, provide a
better client experience, reduce ongoing operating costs,
and support future growth of the combined franchise. We
expect investments of that sort to continue in 2022.
Investments of that sort are expensive in the near term;
although we believe they are necessary for our future and
are appropriate for our company at this time, the financial
returns on these investments are highly uncertain.
In the future more generally, 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.
The TD Merger Agreement restricts us from making
certain acquisitions and taking other specified actions
while the Proposed TD Merger is pending without the
consent of TD, and requires us to operate in the ordinary
course of business. These restrictions may prevent us from
pursuing attractive business opportunities that may arise
prior to the completion of the Proposed TD Merger or may
otherwise adversely affect our ongoing business and
operations. See Risks Related to the Proposed TD Merger
beginning on page 31 for a discussion of additional risks
related to the Proposed TD Merger.
We compete to raise capital in the equity and debt
markets. See Liquidity and Funding Risks beginning on
page 46 of this Item 1A for additional information
concerning this risk.
.
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;
• our ability to achieve and maintain growth in our
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 that we closed in 2020, and
to the extent we engage in future bank or non-bank
business acquisitions, we face various additional risks,
including:
• 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
target business’ loan portfolios;
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• 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.
These risks may be exacerbated by the Proposed TD
Merger. See Risks Related to the Proposed TD Merger
beginning on page 31 for a discussion of additional risks
related to the Proposed TD Merger.
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 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.
The nature of technology-driven disruption to our
industry is changing, in some cases seeking to displace
traditional financial service providers 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.
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 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.
The IBKC merger continued to present these special risks
in 2021 and early in 2022. We expect them to diminish as
the integration processes wind down this year.
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 decentralize financial services,
reducing the demand for banks as secure deposit-keepers
and financial 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
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acquired, managed, and accessed. While many banks are
attempting to address this business need in various ways,
it remains unclear which approaches will be successful in
the long run. 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 traditional attitudes often
associated with banking. This has required, and will
continue to require, an evolution in our corporate culture
which, in turn, creates implementation risk. In this
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 actual 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 communications and signatures, and
otherwise create false instructions and documents that
appear genuine.
Our anti-fraud actions are both preventive (anticipating
lines of attack, educating associates and clients, etc.) and
evolutionary 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
clients, we may experience elevated loan losses and loss
of ongoing business which we may not be able to
recapture with new clients.
As an illustration, the COVID-19 pandemic drove
substantial changes in the preferences and practices of
customers of many industries, including those of many of
our clients. In some cases the changes in customer
behaviors may be temporary, and in others the changes
may be more permanent. For example, we have a
significant franchise finance business, largely involving the
restaurant industry. Those clients of ours which, before
the pandemic, had robust mobile app, drive-through, and
home delivery channels weathered the pandemic much
better, on average, than others in that industry. Although
traditional dine-in demand should increase once the
pandemic is no longer a major public concern, it is not
certain when or whether that demand will return to pre-
pandemic levels.
responsive (detecting, halting, and 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
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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.
An information technology security (cybersecurity)
breach or other incident can cause significant damage,
and can be difficult to detect even after it occurs. Among
other things, that damage can occur due to outright theft,
loss or extortion of our funds or our clients’ funds, fraud
or identity theft perpetrated on clients, loss of confidential
or proprietary information, business disruption, or
adverse publicity associated with a breach or incident 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.
Cybersecurity incidents happen frequently; they are an
unavoidable part of doing business. Often, but not
always, we detect and block the attempt. Often, but not
always, the number of clients impacted is modest and our
loss is minimal or none. Even with significant loss
prevention and mitigation systems, the risk of a financially
or reputationally significant incursion cannot be
eliminated. Common categories of cybersecurity incidents
relevant to us, as a bank, include: account takeover, client
spoofing, and payment fraud; ransomware and other
malware; client interface attacks (attempts to shut down
or slow down our website or mobile app); and cloud
(remote server) incursions. Common vulnerabilities
include: clients and associates that fall victim to malicious
emails or other communications and inappropriately share
credentials allowing access to accounts or systems; older
software or systems that do not have up-to-date security
and are not sufficiently isolated from other systems; third-
party software vulnerabilities; and third-party systems
vulnerabilities. We believe the bad actors have a range of
motivations, including: illegal profit; politically or
geopolitically motivated disruption; and vandalism. Bad
actors can range from amateurs to criminal organizations
to nation-states.
Because of the potential for 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. We manage this risk by assessing the
adequacy of cybersecurity prevention and detection
systems and programs of critical vendors.
The operational functions of business counterparties, or
businesses with which we have no relationship, may
experience disruptions that could adversely impact us
and over which we may have limited or no control.
Although these events cannot be predicted individually,
over time and in the aggregate they happen as surely as
loan losses. For example, when a major U.S. consumer-
oriented firm experiences a data systems incursion
resulting in the theft of credit and debit card information,
online account information, and other data, it impacts
thousands or sometimes millions of people. Frequently,
many of those affected are our clients. Although our
systems are not breached by third-party incursions, these
events can increase account fraud and can cause us to
take 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
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
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reference, appears under the caption Operational Risk
Management beginning on page 94 of our 2021 MD&A
(Item 7).
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.
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 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
.
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.
We face the risk that our competitors may seek to use
the Proposed TD Merger to target our clients. See Risks
Related to the Proposed TD Merger beginning on page 31
for a discussion of additional risks related to the Proposed
TD Merger.
Risks from Economic Downturns & 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 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.
Because all banks are sensitive to the risk of downturns,
the stock prices of all banks typically decline, sometimes
substantially, if the market believes that a downturn has
become more likely or is imminent. This effect can and
often does occur indiscriminately, initially without much
regard to different risk postures of different banks.
Risks Associated with Monetary Events
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. To illustrate: 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, 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. During 2021, the Federal Reserve significantly
reduced its "easing" actions that held down long-term
rates. For 2022, the Federal Reserve has indicated that it
expects to end all easing and to begin raising short-term
rates, subject in all events to changes in economic data.
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Normalizing (raising) interest rates in 2022, and possibly
later, is likely to have several significant impacts on our
businesses even if (as expected) rates remain low by
historical norms. Key among those: (1) income from loans
should increase, but so should our cost of deposits, and
the levels or timing of those two increases may be uneven
or unsynchronized so that our net interest margin could
become less predictable during the transition period; (2) a
key negative feature of the past low-rate environment has
been a flatter than normal yield curve, and although it is
possible rising rates will steepen the curve, it is also
possible that the yield curve will flatten (see the next
paragraph) or fluctuate unpredictably during the
transition period; (3) higher rates, rising rates, and a
flatter yield curve each tend to adversely impact our fixed
income revenues; and (4) higher rates tend to adversely
impact three mortgage-related businesses, consisting of
origination, title services, and lending to mortgage
companies, and changes in those businesses can be
significant and sudden in reaction to changes in mortgage
rates.
Recent statements by the Federal Reserve indicate an
expectation to reduce its asset holdings in 2022, which will
put upward pressure on long-term interest rates. We
believe these statements were driven by a concern that,
as short and long rates rise, short rates will rise faster,
resulting in a flatter yield curve. Reducing the Federal
Reserve's asset holdings would be intended to blunt that
flattening.
The discussion above is qualified by several key unknowns:
(1) although the Federal Reserve can directly change
extremely short-term interest rates, its ability to affect
long-term rates is indirect and tempered by market forces
it cannot control; (2) we do not know what the Federal
Reserve actually will do since all statements of possible or
expected future actions are subject to future economic
events and data; (3) the U.S. economy is in a transitional
period, and economic events and data have frequently
defied prediction over the past few quarters; and (4) even
if overall events and trends follow current expectations,
interest rates and the yield curve could experience periods
of volatility as short-term economic imbalances work
themselves out in the markets.
Additional information concerning these monetary policy
transition risks is presented: under the caption Cyclicality
within the Other Business Information section of Item 1,
which starts on page 18; within the Effect of
Governmental Policies and Proposals section of Item 1
beginning on page 29; in Interest Rate and Yield Curve
Risks beginning on page 48; and under the caption Federal
Reserve Policy in Transition within the Market
Uncertainties and Prospective Trends section of our 2021
MD&A (Item 7), beginning on page 99.
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 48.
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 Central America, Europe, and Asia,
and increasingly in South America. Although our direct
exposure to non-US-dollar-denominated assets or non-US
sovereign debt is insignificant, 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 (1) sovereign debt default
(default by one or more governments in their borrowings),
(2) bank and/or corporate debt default, (3) market and
other liquidity disruptions, and, if stresses become
especially severe, (4) the collapse of governments,
alliances, or currencies, and (5) 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.
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 consider possible
closures and divestitures as we continue to adapt to a
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changing business and regulatory environment. Actions of
this sort typically are elevated in the first few years after a
significant merger. Following our 2017 merger with Capital
Bank Financial, we closed/consolidated several banking
locations and we sold a few of the smaller operating
businesses that did not fit well with our strategic outlook.
In 2021 we closed/consolidated several dozen banking
locations in the wake of the 2020 IBKC merger, and other
exiting actions may follow. 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 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
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.
Credit Risks
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.
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. 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 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, net charge-offs unexpectedly rose
to $120 million, driven strongly by the COVID-induced
recession starting in March. Net charge-offs in 2021 fell
sharply to $2 million, a very low level historically. We
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believe this favorable outcome was substantially affected
by our client selection and underwriting processes, along
with our willingness to work with borrowers throughout
the pandemic. We do not think it likely that net charge-
offs in the future will remain at 2021's low level.
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.
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 51, 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, starting in 2020,
such an accounting change was made and, when the
COVID recession occurred starting in March, provision for
credit losses significantly increased. 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. A recent and still-current example of
challenges we face in modeling stems from the COVID-19
pandemic and its related impacts on clients, the economy,
and governmental interventions and accommodations.
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 loan losses in 2020 rose sharply with the
COVID-19 pandemic and its recession, though in many
cases actual losses, reflected in net charge offs, did not
later materialize. Our expectations for credit loss abated
dramatically in 2021, and significant amounts of the 2020
loss reserves were released, resulting in provision credits
(negative expenses). We do not know what the new
“normal” level of provision for credit loss will be once the
impacts of the pandemic have fully ended, or what long-
term impact the pandemic will have on the credit cycle.
The low provision and net charge-off levels experienced
before 2020 were historically unusual and might not be
repeated. 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.
Based on the foregoing discussions, we expect loan loss
provision expense and net charge-offs to be higher than
2021 during the next several years. We hope to offset
that headwind with loan growth and, if interest rates rise
and the yield curve steepens, higher margins. Loan growth
in 2022 will be blunted by run-off of pandemic-era short-
term lending under special government programs, and
may be blunted if rates rise too much or too quickly.
The composition of our loans inherently increases our
sensitivity to certain credit risks. At December 31, 2021,
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 15% 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
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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 65% 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
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
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 2% 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 2020-2021, 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 Asset
Quality beginning on page 73 of our 2021 MD&A (Item 7).
programs, 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 page 94 of our 2021
MD&A (Item 7).
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, continues to adversely impact U.S. and global
manufacturing and delivery processes, and is likely to
continue to harm our businesses and results of
operations in ways that are difficult to predict.
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: market pricing deteriorated in virtually all
sectors and asset classes except U.S. Treasury securities;
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 several relief laws.
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 favorable accounting and regulatory
treatment (for lenders) of certain loan payment deferrals.
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In 2020, 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.
Starting in late 2020, and accelerating in 2021, vaccines
were distributed throughout the U.S. and the physical and
commercial shutdowns started to abate. Late in 2021,
monoclonal antibody treatments and new anti-viral
medications offered hope that infected people could
avoid the worst outcomes of the virus more effectively
than with earlier treatments. Additional strains of
COVID-19 have emerged worldwide, a few of which have
caused some earlier restrictions to reappear but without
the very large economic shocks experienced in 2020. It
appears likely that further new strains will continue to
appear, as they do with influenza. It also appears likely
that a "return to normal" in 2022 or 2023 will be uneven
and delayed at best, and that "normal" behavior patterns
in the U.S. may become somewhat different than they
were pre-COVID.
Within the U.S., governmental reactions to the pandemic
in 2021 have been, and in 2022 very likely will continue to
be, inconsistent from state to state and from city to city.
Worldwide, these inconsistencies have been more
pronounced, including enforced quarantine of large
population segments if any outbreak is detected in some
countries, closed borders in some countries, and virtually
no restrictions at all in some countries. This situation,
coupled with unpredictable work slowdowns associated
with illness outbreaks, likely has contributed significantly
to global supply chain and related difficulties that were
commonplace in 2021.
We are not able to predict the impact of these still-
changing circumstances on our businesses. 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 and treatments 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 treatments, 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 continued
to work largely on a remote basis into early 2022. In
addition, associates have become ill unpredictably, which
occasionally slowed or modestly disrupted certain
functions or processes. More significant disruptions in the
future could adversely impact our businesses, financial
condition, and results of operations.
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). The Federal
Reserve has indicated its expectations to end easing, and
begin raising short-term interest rates, in 2022, but the
timing and degree of normalization cannot be predicted.
Additional information is presented: under the caption
Cyclicality within the Other Business Information section of
Item 1, which starts on page 18; Risks Associated with
Monetary Events beginning on page 38; in Interest Rate
and Yield Curve Risks beginning on page 48; and under the
caption Federal Reserve Policy in Transition within the
Market Uncertainties and Prospective Trends section of
our 2021 MD&A (Item 7), beginning on page 99.
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 substantially increased provision for credit
losses in 2020. Another sudden adverse change in
circumstances could result in another round of
unexpected provision expense along with a reduction of
noninterest income.
In 2022, certain commercial loans will run off, and a
portion of certain deposit accounts may diminish. In 2020
and 2021, in response to the pandemic, the U.S.
guaranteed a category of commercial loans under the
paycheck protection program ("PPP"), and further created
rounds of direct-to-citizen cash payment programs. At
December 31, 2021, we had $1 billion of PPP loans
outstanding, nearly all of which we expect to be paid in
2022.
Regulatory, Legislative, & 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, investment
management, 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
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limit our ability to pursue certain business opportunities.
See Supervision and Regulation within Item 1 of this
report, beginning on page 21, 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 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 within
the Supervision & Regulation section of Item 1 which
starts on page 21. 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)
within the Supervision & Regulation section of Item 1
which starts on page 21; under the captions Capital,
Capital Risk Management and Adequacy, and Market
Uncertainties and Prospective Trends beginning on pages
87, 94, and 99, respectively, of our 2021 MD&A (Item);
and under the caption Regulatory Capital in Note 13—
Regulatory Capital and Restrictions, beginning on page
159 of our 2021 Financial Statements (Item 8).
Regulation of banks is tiered based on asset size; we are
close to reaching $100 billion, which is the next tier
above us. Regulatory restrictions and costs tend to
increase based on asset tier. The two most significant
impacts on us of crossing the $100 billion threshold are:
becoming subject to Category IV enhanced prudential
standards; and becoming at-risk for being subject to a
liquidity coverage ratio requirement. Additional
information appears in the Supervision & Regulation
section of Item 1 which starts on page 21. To reach the
next tier will require only modest organic growth for
another two or three years, and even a modest bank
acquisition is likely to put us over $100 billion.
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. Matters of that sort
are pending currently; it is unlikely we will ever experience
a time when no litigation matter is outstanding. We
manage litigation 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 51;
under the captions Repurchase Obligations, Market
Uncertainties and Prospective Trends, and Contingent
Liabilities beginning on pages 98, 99, and 103,
respectively, of our 2021 MD&A (Item 7); and under the
caption Contingencies in Note 17—Contingencies and
Other Disclosures, beginning on page 168 of our 2021
Financial Statements (Item 8).
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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.
Banks in the U.S. already operate under privacy-protection
laws and rules, but banking industry regulations in this
area might be enlarged in response to this concern.
Public expectations concerning corporate controls on
emissions of carbon dioxide, methane, and other
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.
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 horizon or are speculative for other reasons.
Changes of that sort could curtail our ability to pursue
profitable business opportunities.
We have also focused on the economic profit generated
by our business activities and prospects 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
mis-allocation 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: in 2021
and early 2022, compensation costs have risen markedly
due to market forces beyond our control; and the overall
cost of our health insurance benefit is highly dependent
upon regulatory factors and market forces which also are
beyond our control.
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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
regional 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. assets creates a
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.
Liquidity & Funding Risks
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.
We own certain bank-owned life insurance policies as
assets on our balance sheet. Some of those policies are
“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.
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
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negatively affect our financial results. Our funding
requirements in 2021 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 interest we pay on our deposits, which could shrink
our net interest margin if loan rates do not rise
correspondingly.
In the past three years, interest rates paid on deposits
have fallen to remarkably low levels, and stock market
values (broadly speaking) have climbed. Contrary to the
expectations outlined in the paragraph above, 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 in the
stock markets, another sizable portion are highly risk-
averse in light of the severe volatility experienced by the
stock markets in 2018, 2019, and 2020. Deposit levels in
2020 and 2021 also were buoyed by Federal pandemic
assistance, particularly direct cash payments to most
citizens.
Deposit levels may be affected, fairly quickly, by changes
in monetary policy. The Federal Reserve currently is
changing monetary policy from easing to tightening. The
Federal Reserve has indicated it intends to end easing, and
begin tightening, based on economic events during the
year, including inflationary pressures, employment data,
and overall economic activity. Easing thus far has involved
reducing the growth rate of the Federal Reserve's balance
sheet (bond purchases), eventually to zero. If the Federal
Reserve decides to shrink its balance sheet in order to
quickly remove excess liquidity from the banking system,
long-term interest rates may increase suddenly, and
deposit levels may decrease significantly as clients move
funds into bonds and similar instruments. Additional
information concerning monetary policy changes appears
under the caption Risks Associated with Monetary Events
beginning on page 38 within this Item 1A, and under the
caption Federal Reserve Policy in Transition within the
Market Uncertainties and Prospective Trends section of
2021 MD&A (Item 7), which begins on page 99.
The market among banks for deposits may be impacted
by capital rules. Those rules generally provide favorable
Credit Ratings
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 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
2020 we issued and sold $150 million of preferred stock,
along with a total of $1.3 billion of senior and
subordinated notes. In 2021, we issued and sold another
$150 million of preferred stock. 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. These include, 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 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 48.
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.
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
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many purposes. At December 31, 2021, 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 & Yield Curve Risks
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 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,
at various maturities, applicable to assets and liabilities.
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.
The U.S. is transitioning away from “easing,” with the
Federal Reserve indicating its expectations that bond
purchases will end. In addition, short-term interest rates
could be raised, starting in 2022. This significant change
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 derivative
counterparties. FHN could be asked to post collateral of an
undetermined amount based on changes in credit ratings
and derivative value.
in direction, and in the underlying economics that are
prompting the change, create opportunities and risks for
us. The cessation of easing should result in upward
pressure on long-term interest rates, steepening the yield
curve and potentially providing a significant financial
benefit to us. Raising short-term rates may re-flatten the
yield curve and moderate or even end that benefit, unless
long-term rates continue to rise in tandem with short
rates. See Risks Associated with Monetary Events
beginning on page 38 of this report for additional
information. Moreover, the Federal Reserve appears to be
taking these actions over concerns about monetary
inflation and economic slowdown. An economic slowdown
would adversely impact us even if rate moves, in isolation,
would provide a benefit. See Risks from Economic
Downturns beginning on page 38 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 and value of our fixed income investments, and 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 ("FCA"),
which regulates the London InterBank Offered Rate
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("LIBOR"), announced that it intends to halt persuading or
compelling banks to submit rates for the calculation of
LIBOR. In 2021, the FCA announced that tenors of U.S.
dollar ("USD") LIBOR will no longer be published as
follows:
• One week and 2-month USD LIBOR will not be
published after December 31, 2021; and
• All other USD LIBOR tenors (e.g., overnight, 1-month,
3-month, 6-month and 12-month tenors) will not be
published after June 30, 2023.
In the U.S., multiple alternative reference rates have
become accepted alternatives to LIBOR. These alternatives
include:
SOFR and Term SOFR. The Alternative Reference Rates
Committee (“ARRC”) is a group of private-market
participants convened by the Federal Reserve Board and
the Federal Reserve Bank of New York ("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 New York
Fed 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. Currently there is market-accepted
practice to fully address this first difference of SOFR from
LIBOR. In response to the second difference, CME Group
began to publish Term SOFR, a forward-looking rate with
1-month, 3-month and 6-month tenors. Term SOFR is
based on SOFR futures contracts. The ARRC has
recommended conventions for Term SOFR rates and has
recommended CME Group as the administrator for Term
SOFR.
AMERIBOR. Another alternative, the American Interbank
Offered Rate (“AMERIBOR”) Index, is produced by the
American Financial Exchange. AMERIBOR is based on
actual transaction data involving credit decisions by many
financial institutions, on an unsecured basis.
BSBY. The Bloomberg short-term bank yield index ("BSBY")
is a proprietary rate index calculated and published by
Bloomberg Index Services Limited. BSBY is based on actual
transaction data involving unsecured credit.
FHN ceased originating new loans using LIBOR, and began
making all three of those alternatives available to most
commercial clients, in late 2021. For consumer adjustable
rate mortgages, FHN offers only SOFR as the reference
rate, which FHN believes has become the leading
alternative in the U.S. for that category of loans.
Outstanding loans affected by the 2021 discontinuance of
LIBOR were transitioned to a new reference rate. The one-
week and two-month USD LIBOR tenors were not
commonly used, however; as a result, early in 2022, most
of FHN's outstanding pre-2022 loans which use a
reference rate continue to use LIBOR.
The impacts of this transition began late in 2021 and will
continue for several years. Competitive pressures
continue to constrain our ability to set terms using an
alternative reference rate, and the industry has only
modest experience with how these alternative rates
behave in a variety of contexts and, therefore, what the
risks are to the bank, and to the client, if conditions
change after a loan is made. As a result, it is unclear how
this transition, and the fully post-LIBOR environment
starting in mid-2023, will impact our loan spreads and net
interest margin overall.
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. As
mentioned above, we are not able to determine the
impact on us that LIBOR discontinuance will have.
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. We have risk that an adverse outcome of the
LIBOR transition after the scheduled 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.
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. Accounting
and tax agencies have issued guidance that may ease the
transition, or at least clarify the outcomes in various
situations.
Additional information concerning the risks associated
with LIBOR discontinuance and our management of them,
all of which is incorporated into this Item 1A by this
reference, appears under the caption LIBOR and Reference
Rate Reform within the Market Uncertainties and
Prospective Trends section of our 2021 MD&A (Item 7),
which begins on page 99.
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Asset Inventories & Market Risks
ITEM 1A. RISK FACTORS
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 interest rate risk
and credit 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 2021, 2020,
and 2019. Average fixed income trading liabilities (short
positions) were $540 million, $457 million, and $503
million for 2021, 2020, and 2019, respectively. Average
loans held for sale in our fixed income business were $563
million, $554 million, and $485 million for 2021, 2020, and
2019. 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 caption
Market Risk Management beginning on page 91 of our
2021 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.
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
Mortgage Business Risks
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 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.
Three of our mortgage-related businesses—mortgage
origination, title services, and lending to mortgage
companies—are highly sensitive to interest rates and
rate cycles. When rates are higher, client activity (and our
related income) tends to be muted. Lower rates tend to
foster higher activity. The U.S. has experienced extremely
low interest rates for several years. Late in 2021, and
continuing in 2022, the Federal Reserve has indicated its
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intention to start normalizing (raising) interest rates.
Although the prospect of rate increases might result in
higher client activity for a brief time, and although the
increases being publicly discussed early in 2022 would
leave rates still very low by historical norms, we expect
that rising rates in 2022 and possibly later will curtail our
income from these businesses. That reduction in business
could be significant and fairly sudden. Additional
information concerning rates and their impacts upon us is
presented: under the caption Cyclicality within the Other
Business Information section of Item 1, which starts on
page 18; in Risks Associated with Monetary Events
beginning on page 38; in Interest Rate and Yield Curve
Risks beginning on page 48; and under the caption Federal
Reserve Policy in Transition within the Market
Uncertainties and Prospective Trends section of our 2021
MD&A (Item 7), beginning on page 99.
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.
Pre-2009 Mortgage Business Risks
We have risks from the mortgage-related businesses
legacy First Horizon 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
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 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 valuation
changes can be significant and difficult to predict.
them, all of which is incorporated into this Item 1A by this
reference, is set forth: under the captions Repurchase
Obligations beginning on page 98, and Contingent
Liabilities beginning on page 103, of our 2021 MD&A (Item
7); and under the captions Exposures from pre-2009
Mortgage Business and Mortgage Loan Repurchase and
Foreclosure Liability, both within Note 17—Contingencies
and Other Disclosures of our 2021 Financial Statements
(Item 8), which Note begins on page 168.
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
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2021 FORM 10-K ANNUAL REPORT
ITEM 1A. RISK FACTORS
Table of Contents
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
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 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 appears in Note 1—Significant Accounting
Policies within our 2021 Financial Statements (Item 8)
beginning on page 122, and in Item 1 under the caption
CECL Accounting and COVID-19 within the section entitled
Significant Business Developments Over Past Five Years,
which begins 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, 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.
Share Owning & 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
shareholders, and to service our outstanding debt.
Regulatory constraints might constrain or prevent the
Bank from declaring and paying dividends to us in 2022
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2021 FORM 10-K ANNUAL REPORT
ITEM 1A. RISK FACTORS
Table of Contents
without regulatory approval. Applying the dividend
restrictions imposed under applicable federal and state
rules, the Bank’s total amount available for dividends,
without obtaining regulatory approval, was $1.1 billion at
January 1, 2022.
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 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 shareholders 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 shareholders 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
shareholders. We may also issue equity securities directly
as consideration for acquisitions we may make that would
be dilutive to shareholders 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. In 2020, we issued to
former IBKC shareholders common 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
shareholders. 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 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.
53
2021 FORM 10-K ANNUAL REPORT
ITEM 1B. UNRESOLVED STAFF COMMENTS AND ITEM 2. PROPERTIES
Table of Contents
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 loan origination, processing, and 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
consolidated banking center locations in 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 2021 is provided under the caption
Principal Businesses, Brands, & Locations within the Our
Businesses section of Item 1 of this report, which begins
on page 9; that 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, 2021, we believe our physical properties
are suitable and adequate for the businesses we conduct.
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2021 FORM 10-K ANNUAL REPORT
Table of Contents
ITEM 3. LEGAL PROCEEDINGS AND ITEM 4. MINE SAFETY DISCLOSURES
Item 3. Legal Proceedings
The Contingencies section from Note 17-Contingencies and Other Disclosures, beginning on page 168 of this report within our
2021 Financial Statements (Item 8), is incorporated herein by reference.
Item 4. Mine Safety Disclosures
Not applicable.
55
2021 FORM 10-K ANNUAL REPORT
Table of Contents
Supplemental Part I Information
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, 2022. 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
Terry L. Akins
Age: 58
Elizabeth A.
Ardoin
Age: 52
Daryl G. Byrd
Age: 67
Hope
Dmuchowski
Age: 43
Principal
Financial Officer
Jeff L. Fleming
Age: 60
Principal
Accounting
Officer
D. Bryan Jordan
Age: 60
Principal
Executive Officer
Tammy S.
LoCascio
Age: 53
Current (Year First Elected to Office) and Recent Offices & Positions
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).
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.
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. Mr. Byrd's term of office will end July 1, 2022.
Senior Executive Vice President—Chief Financial Officer of First Horizon & the Bank (2021)
Ms. Dmuchowski was elected to her current position in November 2021. Previously, she was Executive
Vice President, Head of Financial Planning and Analysis and Management Reporting for Truist Financial
Corp. (Sept.-Nov. 2021); Executive Vice President, Chief Financial Officer Corporate Banking, Commercial
Banking and Corporate Groups for Truist (2019-2021); Executive Vice President, Chief Financial Officer
Group Director for BB&T Corp. (2017-2019); and Sr. Vice President, Chief Financial and Operations
Officer—Enterprise Operations Services for BB&T (2013-2017). Her career with BB&T, a predecessor of
Truist, started in 2007.
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 First Horizon 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 Operating Officer of First Horizon & the Bank (2021)
Following the closing of the merger of equals between First Horizon and IBKC in 2020, 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 Executive Vice President—Consumer Banking (2017-2020). In that role she led the retail, private
client/wealth management, mortgage, and small business units.
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2021 FORM 10-K ANNUAL REPORT
Table of Contents
Name & Age
David T.
Popwell
Age: 62
Anthony J.
Restel
Age: 52
Susan L.
Springfield
Age: 57
SUPPLEMENTAL PART I INFORMATION
Current (Year First Elected to Office) and Recent Offices & Positions
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.
President—Regional Banking of First Horizon & the Bank (2021)
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. From July
to November 2021, Mr. Restel also acted as interim Chief Financial Officer. 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).
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
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2021 FORM 10-K ANNUAL REPORT
ITEM 5. MARKET FOR COMMON EQUITY, STOCKHOLDER MATTERS, & EQUITY PURCHASES AND ITEM 6.
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. At December 31, 2021, there were
approximately 9,426 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.
Additional information concerning repurchase activity
during the final three months of 2021 is presented in
Tables 7.22a and 7.22b, and the surrounding notes and
other text under the caption Common Stock Purchase
Programs beginning on page 89 of our 2021 MD&A (Item
7), which information is incorporated herein by this
reference.
Total Shareholder Return Performance Graph
The “Total Shareholder Return 2016-2021” performance
graph appearing on the next page, along with Table 5.1, 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, neither
the “Total Shareholder Return 2016-2021” performance
graph nor Table 5.1 shall be incorporated by reference into
any such filings.
The “Total Shareholder Return 2016-2021” performance
graph compares the yearly percentage change in our
cumulative total shareholder return with 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, 2016
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 2021 and 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.
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2021 FORM 10-K ANNUAL REPORT
ITEM 5. MARKET FOR COMMON EQUITY, STOCKHOLDER MATTERS, & EQUITY PURCHASES AND ITEM 6.
Table of Contents
Table 5.1
TOTAL SHAREHOLDER RETURN DATA
2017
2018
2016
2019
2020
2021
First Horizon Corporation
$ 100.00 $ 101.94 $
68.98 $
89.97 $
73.62 $
97.64
S&P 500 Index
100.00
121.82
116.47
153.13
181.29
233.28
KBW Nasdaq Bank Index (BKX)
100.00
118.59
97.59
132.84
119.15
164.83
KBW Regional Bank Index (KRX)
100.00
101.81
84.00
104.05
95.02
129.84
Source: Bloomberg
Item 6. [reserved]
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2021 FORM 10-K ANNUAL REPORT
Table of Contents
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations
TABLE OF ITEM 7 TOPICS
Introduction
Executive Overview
Results of Operations
Analysis of Financial Condition
Capital
Risk Management
Repurchase Obligations
Market Uncertainties and Prospective Trends
Critical Accounting Policies and Estimates
Non-GAAP Information
61
61
63
70
87
90
98
99
102
104
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2021 FORM 10-K ANNUAL REPORT
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
Introduction
First Horizon Corporation (NYSE common stock trading
symbol “FHN”) is a financial holding company
headquartered in Memphis, Tennessee. FHN’s principal
subsidiary, and only banking subsidiary, is First Horizon
Bank. Through the Bank and other subsidiaries, FHN offers
regional banking, mortgage lending, title insurance,
specialized commercial lending, commercial leasing and
equipment financing, brokerage, wealth management,
capital markets, and other financial services to
commercial, consumer, and governmental clients
throughout the U.S. At December 31, 2021, FHN had over
500 business locations in 22 states, including over 400
Executive Overview
banking centers in 12 states, and employed more than
7,500 associates.
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.
Merger Agreement with Toronto-Dominion Bank
On February 27, 2022, FHN entered into an Agreement
and Plan of Merger (the “TD Merger Agreement”) with
The Toronto-Dominion Bank, a Canadian chartered bank
(“TD”), TD Bank US Holding Company, a Delaware
corporation and indirect, wholly owned subsidiary of TD
(“TD-US”), and Falcon Holdings Acquisition Co., a
Delaware corporation and wholly owned subsidiary of TD-
US (“Merger Sub”).
Pursuant to the TD Merger Agreement, FHN and Merger
Sub will merge (the “First Holding Company Merger”),
with FHN continuing as the surviving entity in the merger.
Following the First Holding Company Merger, at the
election of TD, FHN and TD-US will merge (the “Second
Holding Company Merger” and, together with the First
Holding Company Merger, the “Holding Company
Mergers”), with TD-US continuing as the surviving entity in
the merger.
Upon the terms and subject to the conditions set forth in
the TD Merger Agreement, each share of FHN common
stock, par value $0.625 per share, (“Company Common
Stock”), issued and outstanding immediately prior to the
effective time of the First Holding Company Merger (the
“First Effective Time”) will be converted into the right to
receive $25.00 (USD) per share in cash, without interest. If
the transaction does not close on or before November 27,
2022, shareholders will receive an additional $0.65 per
share of Company Common Stock on an annualized basis
(or approximately 5.4 cents per month) for the period
from November 27, 2022 through the day immediately
prior to the closing. Each outstanding share of FHN’s
preferred stock, series B, C, D, E and F, will remain issued
outstanding in connection with the First Holding Company
IBKC Merger of Equals
Merger. If TD elects to effect the Second Holding Company
Merger, at the effective time of the Second Holding
Company Merger, each outstanding share of FHN’s
preferred stock will be converted into a share of a newly
created, corresponding series of TD-US having terms as
described in the Merger Agreement.
Following the completion of the First Holding Company
Merger, at such time as determined by TD, First Horizon
Bank and TD Bank, N.A., a national banking association
(“TDBNA”) will merge, with TDBNA surviving as a
subsidiary of TD-US (the “Bank Merger” and together with
the Holding Company Mergers, the “Proposed TD
Merger”).
In connection with the execution of the TD Merger
Agreement, TD has agreed to purchase from FHN shares
of non-voting Perpetual Convertible Preferred Stock,
Series G, a new series of preferred stock of FHN (the
“Series G Convertible Preferred Stock”) in a private
placement transaction having an aggregate liquidation
preference and purchase price of approximately $493.5
million, pursuant to a securities purchase agreement
between FHN and TD entered into concurrently with the
execution and delivery of the TD Merger Agreement. The
Series G Convertible Preferred Stock is convertible into up
to 4.9% of the outstanding shares of Company Common
Stock in certain circumstances, including the closing of the
Proposed TD Merger.
Refer to 2022 Merger Agreement with Toronto-Dominion
Bank in Item 1, beginning on page 15, for additional
information.
On July 1, 2020, FHN completed its merger of equals with
IBERIABANK Corporation. FHN's financial results for 2021
reflect the first full calendar year of operations for the
combined Company. Results for 2020 reflect legacy FHN
results prior to the completion of the merger and results
from both FHN and IBKC from the merger closing date
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2021 FORM 10-K ANNUAL REPORT
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
forward. FHN expects to achieve its targeted $200 million
of pre-tax annualized merger cost saves by the fourth
quarter of 2022.
Banking Center Optimization
Banking clients’ utilization of digital capabilities to transact
and purchase products and services has been on the rise,
and the impact of the COVID-19 pandemic has accelerated
this trend. In connection with the IBKC merger and the
related impact of the pandemic, FHN conducted a
comprehensive analysis of its enterprise-wide digital
2021 Financial Performance Summary
FHN reported net income available to common
shareholders of $962 million, or $1.74 per diluted share,
compared to net income of $822 million, or $1.89 per
diluted share in 2020 which included a $533 million
benefit, or $1.23 per diluted share, tied to an IBKC merger
net purchase accounting gain.
Net interest income of $2.0 billion increased $332 million
from 2020 driven by an increase in average interest-
earning assets as a result of the IBKC merger. Results also
reflect the benefit of lower deposit costs, which helped to
partially offset the impact of lower interest rates on
earning assets.
The provision for credit losses was a benefit of $310
million compared to an expense of $503 million in 2020,
largely reflecting continued improvement in the overall
macroeconomic outlook, positive credit grade migration,
and lower loan balances. The provision expense for 2020
was impacted by the adoption of CECL, deterioration in
the overall macroeconomic outlook attributable to the
COVID-19 pandemic and additional provision related to
acquired non-PCD loans.
platforms and its banking center network. As a result, FHN
determined that it was prudent to accelerate banking
center closures in certain markets, resulting in the closure
of 65 banking centers in 2021 and 10 banking centers in
first quarter 2022.
Noninterest income of $1.1 billion decreased $416 million
from 2020, largely driven by the $533 million purchase
accounting gain from the IBKC merger in 2020. Results
also reflect higher fee income from the full-year impact of
the IBKC merger.
Noninterest expense of $2.1 billion increased $378 million
from 2020 driven by the impact of the IBKC merger.
FHN continued to maintain strong capital measures in
2021. The Tier 1 risk-based capital and total risk-based
capital ratios at December 31, 2021 were 11.04% and
12.34%, respectively, compared to 10.74% and 12.57% at
December 31, 2020. The CET1 ratio was 9.92% at
December 31, 2021 compared to 9.68% at December 31,
2020.
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2021 FORM 10-K ANNUAL REPORT
Table of Contents
Table 7.1
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
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)
Noninterest income to total revenue (f)
Efficiency ratio (g)
Allowance for loan and lease losses to total loans and leases
Net charge-offs (recoveries) 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,
2019
2020
2021
974
$
1,436
$
1.89
$
$
$
$
$
$
$
1.74
1.15 %
12.53 %
16.46 %
2.48 %
34.77 %
68.56 %
1.22 %
— %
9.53 %
6.73 %
0.60
$
14.39
11.00
$
$
631
1.38
1.08 %
9.60 %
1.33 %
13.66 %
19.03 %
14.71 %
2.86 %
47.41 %
54.37 %
1.65 %
0.26 %
3.28 %
35.08 %
66.15 %
0.64 %
0.09 %
9.86 %
11.72 %
6.89 %
7.48 %
0.60
13.59
10.23
$
$
$
0.56
15.04
10.02
9.92 %
9.68 %
9.20 %
$
8,713
$
7,082
$
5,158
(a) Represents a non-GAAP measure which is reconciled in the non-GAAP to GAAP reconciliation in Table 7.30.
(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 noninterest 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—2021 compared to 2020
Net Interest Income
Net interest income is FHN's largest source of revenue and
is the difference between the interest earned on interest-
earning assets (generally loans, leases and investment
securities) and the interest expense incurred in
connection with interest-bearing liabilities (generally
deposits and borrowed funds). The level of net interest
income is primarily a function of the difference between
the effective yield on average interest-earning assets and
the effective cost of interest-bearing liabilities. These
factors are influenced by the pricing and mix of interest-
earning assets and interest-bearing liabilities which, in
turn, are impacted by external factors such as local
economic conditions, competition for loans and deposits,
the monetary policy of the FRB and market interest rates.
Net interest income of $2.0 billion in 2021 increased 20%
from 2020 driven by the impact of the IBKC merger.
Results also reflect the benefit of lower deposit costs
which helped to partially offset the impact of lower
interest-earning asset yields and spreads.
FHN's net interest margin decreased 38 basis points from
2020 to 2.48% in 2021 and the net interest spread
decreased 32 basis points to 2.36% over the same period.
Net interest margin and net interest spread were
unfavorably impacted by a 58 basis point decrease in
earning asset yields, largely reflecting the impact of lower
interest rates and higher levels of excess cash. The lower
yield on earning assets was partially offset by a 26 basis
point decrease in the cost of interest-bearing liabilities
driven by lower deposit costs.
The following table presents the major components of net
interest income and net interest margin:
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2021 FORM 10-K ANNUAL REPORT
Table of Contents
Table 7.2
(Dollars in millions)
Assets:
Loans and leases:
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS/RATES
2021
Interest
Income/
Expense
Average
Balance
Yield/
Rate
Average
Balance
2020
Interest
Income/
Expense
Yield/
Rate
Average
Balance
2019
Interest
Income/
Expense
Yield/
Rate
Commercial loans and leases
$ 44,325 $ 1,498
Consumer loans
Total loans and leases
Loans held for sale
Investment securities
Trading securities
Federal funds sold
Securities purchased under agreements to
resell (a)
Interest-bearing deposits with banks
11,973
56,298
956
8,623
1,366
37
584
13,123
33
3.44
123
1.43
2.17
0.15
30
—
—
17
3.38 % $ 36,146 $ 1,324
407
10,037
3.92
3.66 % $ 22,385 $ 1,091
4.87 %
4.05
6,804
311
4.57
469
1,967
3.49
46,183
1,731
3.75
29,189
1,402
4.80
835
6,464
1,433
42
30
3.60
106
1.64
35
—
2.44
0.21
2
(0.09)
5
0.13
2.68 % $ 58,468 $ 1,909
505
3,006
0.45
0.14
578
4,510
1,415
48
555
871
31
5.39
121
2.69
47
3.33
1
2.63
11
20
1.96
2.18
Total earning assets / Total interest income
$ 80,987 $ 2,170
3.26 % $ 37,166 $ 1,633
4.39 %
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
Liabilities and Shareholders' Equity:
Interest-bearing deposits:
Savings
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 deposits
Other liabilities
Total liabilities
Shareholders' equity
Noncontrolling interest
Total shareholders' equity
1,261
1,836
712
(834)
3,647
852
1,696
604
(700)
3,426
602
1,575
467
(191)
2,125
$ 87,609
$ 64,346
$ 41,744
$ 27,283 $
15,688
4,281
47,252
36
20
25
81
0.13 % $ 19,780 $
0.13
11,973
0.57
0.17
4,347
82
31
39
0.41 % $ 11,663 $
144
1.24 %
0.26
0.90
8,345
4,262
79
84
0.94
1.97
36,100
152
0.42
24,270
307
1.27
949
1
0.12
862
3
0.34
1,235
540
124
1,645
4
6
—
72
0.30
1.11
0.09
4.37
1,109
457
626
1,578
6
6
5
0.50
1.24
0.84
64
4.02
1,117
738
701
503
538
15
2.08
15
13
11
53
2.07
2.48
2.10
4.77
$ 51,745 $
164
0.32 % $ 40,732 $
236
0.58 % $ 27,867 $
414
1.49 %
25,879
1,506
79,130
8,184
295
8,479
15,779
1,226
57,737
6,314
295
6,609
$ 64,346
8,133
824
36,824
4,625
295
4,920
$ 41,744
Total liabilities and shareholders' equity
$ 87,609
Net earnings assets / Net interest income
(TE) / Net interest spread
Taxable equivalent adjustment
$ 29,242 $ 2,006
(12)
2.36 % $ 17,736 $ 1,673
(11)
0.12
2.68 % $ 9,299 $ 1,219
2.90 %
0.18
(9)
0.38
Net interest income / Net interest margin (b)
$ 1,994
2.48 %
$ 1,662
2.86 %
$ 1,210
3.28 %
(a) Negative yield is driven by negative market rates on reverse repurchase agreements.
(b) Calculated using total net interest income adjusted for FTE assuming a statutory federal income tax rate of 21%, and where applicable, state income taxes.
64
2021 FORM 10-K ANNUAL REPORT
Table of Contents
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
The following table presents the change in interest income and interest expense due to changes in both average volume and
average rate.
Table 7.3
ANALYSIS OF CHANGES IN NET INTEREST INCOME
(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
2021 Compared to 2020
2020 Compared to 2019
Increase (Decrease) Due to (a)
Increase (Decrease) Due to (a)
Rate (b)
Volume (b)
Total
Rate (b)
Volume (b)
Total
$
(119) $
354 $
235
$
(361) $
689 $
328
(1)
(15)
(4)
—
(3)
—
(3)
4
31
(1)
—
1
13
14
3
16
(5)
—
(2)
13
11
(12)
(58)
(12)
(1)
(8)
(30)
(39)
11
42
—
—
(1)
15
14
(1)
(16)
(12)
(1)
(9)
(15)
(25)
Total change in interest income - earning assets
$
(142) $
402 $
260
$
(482) $
756 $
274
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
$
(69) $
23 $
(46) $
(129) $
66 $
(14)
(11)
(71)
(2)
(3)
—
(4)
8
(47)
(72)
(248)
(14)
(13)
(6)
(9)
(9)
2
25
93
2
5
(1)
2
20
(63)
(45)
(47)
(155)
(12)
(8)
(7)
(7)
11
(14)
(19)
(102)
(2)
(3)
(1)
1
5
—
8
31
—
—
1
(5)
3
30
Total change in interest expense - interest-bearing
liabilities
(102)
(72)
(299)
121
(178)
Net interest income
$
(40) $
372 $
332
$
(183) $
635 $
452
(a) The changes in interest due to both rate and volume have been allocated to change due to rate and change due to volume in proportion to the absolute
amounts of the changes in each.
(b) Variances are computed on a line-by-line basis and are non-additive.
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2021 FORM 10-K ANNUAL REPORT
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
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 improved to a provision benefit
of $310 million in 2021, compared to an expense of
Noninterest Income
$503 million in 2020, largely reflecting an improvement in
the overall macroeconomic outlook, positive credit grade
migration and lower loan balances. The provision in 2020
was driven by the adoption of CECL and the impact of the
COVID-19 pandemic on loss expectations. Results in 2020
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.
The following table presents the significant components of noninterest income for each of the periods presented:
Table 7.4
(Dollars in millions)
Noninterest income
Fixed income
Deposit transactions and cash
management
Mortgage banking and title income
Brokerage, management fees and
commissions
Card and digital banking fees
Trust services and investment
management
Other service charges and fees
Securities gains (losses), net
Purchase accounting gain
Other income
NONINTEREST INCOME
2021 vs. 2020
2020 vs. 2019
2021
2020
2019
$ Change % Change
$ Change
% Change
$
406 $
423 $
279 $
(17)
(4) % $
144
175
154
88
78
51
44
13
(1)
68
148
129
66
60
39
26
(6)
533
74
132
10
55
49
30
21
—
—
78
27
25
22
18
12
18
19
18 %
19 %
33 %
30 %
31 %
69 %
NM
(534)
(100) %
(6)
(8) %
16
119
11
11
9
5
(6)
533
(4)
52 %
12 %
NM
20 %
22 %
30 %
24 %
(100) %
100 %
(5) %
128 %
Total noninterest income
$
1,076 $
1,492 $
654 $
(416)
(28) % $
838
NM – Not meaningful
Noninterest income totaled $1.1 billion in 2021 and
$1.5 billion in 2020, or 35% and 47% of total revenue,
respectively. The decrease in noninterest income in 2021
was driven by a $534 million reduction tied to the
purchase accounting gain recorded in 2020 related to the
IBKC merger. Results also reflect the benefit of higher fee
income largely driven by the full-year impact of the IBKC
merger.
Fixed income revenues are mainly generated from the
purchase and sale of fixed income securities as both
principal and agent. Other noninterest revenues within
this line item consist principally of fees from derivative
sales, portfolio advisory services and loan sales. Fixed
income fees of $406 million decreased $17 million from
exceptionally strong levels in 2020. Fixed income product
revenue decreased $10 million, reflecting slightly less
favorable market conditions, while revenue from other
products decreased $7 million, largely driven by lower
fees from derivative and loan sales, somewhat offset by
higher fees from portfolio advisory services. Fixed income
average daily revenue of $1.4 million in 2021 decreased
slightly from $1.5 million in 2020.
Deposit transactions and cash management fees of
$175 million increased $27 million, or 18%, from 2020,
primarily driven by the impact of the IBKC merger and
Truist branch acquisition.
Mortgage banking and title income of $154 million
increased $25 million from $129 million in 2020 as the
benefit of the IBKC merger was partially offset by a
strategic shift in origination mix toward portfolio loans as
well as lower spreads on sales of mortgage loans.
Brokerage, management fees and commissions include
fees for portfolio management, trade commissions, and
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2021 FORM 10-K ANNUAL REPORT
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
annuity and mutual funds sales. These fees and
commissions totaled $88 million in 2021, an increase of
33% compared to $66 million in 2020 driven by the impact
of the IBKC merger and an increase in annuity income and
advisory fees.
Trust services and investment management income of
$51 million increased $12 million from 2020, driven by the
impact of the IBKC merger as well as new business and
market appreciation.
Noninterest Expense
The IBKC merger also drove the increases in card and
digital banking fees and other service charges and fees in
2021 compared to 2020.
Other income in 2021 included a $26 million loss on the
redemption of legacy IBKC trust preferred securities.
The following table presents the significant components of noninterest expense for each of the periods presented:
Table 7.5
(Dollars in millions)
Noninterest expense
Personnel expense
Net occupancy expense
Computer software
Operations services
Legal and professional fees
Contract employment and outsourcing
Amortization of intangible assets
Equipment expense
Communications and delivery
Advertising and public relations
Impairment of long-lived assets
Contributions
Other expense
NONINTEREST EXPENSE
2021 vs. 2020
2020 vs. 2019
2021
2020
2019
$ Change % Change
$ Change % Change
$
1,210 $
1,033 $
695
$
177
17 % $
338
137
116
80
68
67
56
47
37
37
34
14
116
85
56
84
24
40
42
31
18
7
41
80
61
46
72
13
25
34
25
34
23
11
193
141
114
21
31
24
(16)
43
16
5
6
19
27
(27)
52
378
18 %
36 %
43 %
(19) %
NM
40 %
12 %
19 %
NM
NM
(66) %
37 %
36
24
10
12
11
15
8
6
(16)
(16)
30
27
22 % $
485
49 %
45 %
39 %
22 %
17 %
85 %
60 %
24 %
24 %
(47) %
(70) %
NM
24 %
39 %
Total noninterest expense
$
2,096 $
1,718 $
1,233
$
NM - Not meaningful
Total noninterest expense of $2.1 billion increased $378
million, or 22%, driven by the impact of the IBKC merger,
mitigated in part by a reduction in noninterest expense as
a result of expense discipline and merger cost saves. Total
merger/acquisition integration expense was $187 million
in 2021 compared to $155 million in 2020.
Personnel expense of $1.2 billion increased $177 million
from 2020 driven by the full-year impact of the IBKC
merger and Truist branch acquisition. Results also reflect
lower merger/acquisition integration expenses of $10
million, primarily severance and retention costs, and the
benefit of merger cost saves. Deferred compensation
expense, a component of personnel expense, increased $9
million in 2021, largely due to $6 million from litigation
tied to a company that was fully divested over ten years
ago.
The increases in net occupancy expense and computer
software expense in 2021 were both driven by the impact
of the IBKC merger and Truist branch acquisition.
Operations services expense increased $24 million, or
43%, to $80 million in 2021, driven by the impact of the
IBKC merger and a $7 million increase in merger/
acquisition integration expense.
Legal and professional fees decreased $16 million, or 19%,
to $68 million in 2021, driven by an $18 million decline in
merger/acquisition integration expense.
Contract employment and outsourcing increased
$43 million driven by the impact of the IBKC merger,
higher contractor costs tied to investments in new
systems and an $11 million increase in merger/acquisition
integration expense.
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ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
Amortization of intangible assets of $56 million in 2021
increased $16 million compared to 2020 primarily due to
amortization tied to the intangible assets created from the
IBKC merger.
Advertising and public relations of $37 million increased
$19 million from 2020 largely driven by a $10 million
increase in merger/acquisition integration expense.
Impairment of long-lived assets of $34 million and
$7 million in 2021 and 2020, respectively, was primarily
related to merger integration efforts associated with
reduction of leased office space and banking center
optimization.
Contributions decreased $27 million in 2021, primarily due
to a $20 million contribution to the Louisiana First Horizon
Income Taxes
FHN recorded income tax expense of $274 million in 2021
compared to $76 million in 2020, resulting in an effective
tax rate of 21.4% and 8.2% respectively. The lower
effective tax rate in 2020 was primarily the result of the
purchase accounting gain from the IBKC merger, which
was not included in taxable income.
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 portions of: FDIC
premium, executive compensation and merger expenses.
FHN's effective tax rate also may be affected by items that
may occur in any given period but are not consistent from
period to period, such as changes in unrecognized tax
benefits. The rate also may be affected by items resulting
from business combinations.
A deferred tax asset or deferred tax liability is recognized
for the tax consequences of temporary differences
between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. The tax
consequence is calculated by applying current enacted
statutory tax rates to these temporary differences in
future years. FHN’s net DTA was $52 million and less than
$1 million at December 31, 2021 and 2020, respectively.
As of December 31, 2021, FHN had deferred tax asset
balances related to federal and state income tax
carryforwards of $38 million and $2 million, which will
Business Segment Results
During 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. The closing of the FHN and IBKC merger of
equals transaction prompted organizational changes to
better integrate and execute the combined Company's
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 in 2020. Contributions in 2021 reflect
an increase in other contributions to the First Horizon
Foundation.
The $52 million increase in other expense in 2021 was
largely attributable to $19 million in derivative valuation
adjustments on prior Visa Class B share sales and
increases in customer relations, loan closing, fraud, and
travel and entertainment expenses.
expire at various dates. Refer to Note 15 - Income Taxes
for additional information.
FHN’s gross DTA after valuation allowance was $448
million and $471 million as of December 31, 2021 and
2020, respectively. Based on current analysis, FHN
believes that its ability to realize the DTA is more likely
than not. FHN monitors its DTA and the need for a
valuation allowance on a quarterly basis. A significant
adverse change in FHN’s taxable earnings outlook could
result in the need for a valuation allowance.
FHN and its eligible subsidiaries are included in a
consolidated federal income tax return. FHN files separate
returns for subsidiaries that are not eligible to be included
in a consolidated federal income tax return. Based on the
laws of the applicable states where it conducts business
operations, FHN either files consolidated, combined, or
separate returns. The statute of limitations for FHN’s
consolidated federal income tax returns remains open for
tax years 2018 through 2020. Additionally, 2016 – 2017
could be subject to limited review related to refund claims
filed. IBKC's federal consolidated tax returns for 2016,
2017 and 2018 are currently under examination by the
IRS. On occasion, as federal or state auditors examine the
tax returns of FHN and its subsidiaries, FHN may extend
the statute of limitations for a reasonable period.
Otherwise, the statutes of limitations remain open only
for tax years in accordance with federal and state statutes.
See Note 15 - Income Taxes for additional information.
strategic priorities across all lines of businesses. As a
result, FHN revised its reportable segments to include
Regional Banking, Specialty Banking and Corporate.
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
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2021 FORM 10-K ANNUAL REPORT
Table of Contents
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
additional disclosures related to FHN's operating
segments.
which helped to partially offset the impact of lower
interest-earning asset yields and spreads.
Regional Banking
The Regional Banking segment generated pre-tax income
of $1.3 billion in 2021 compared to $273 million in 2020,
reflecting the impact of the IBKC merger and a decrease in
the provision for credit losses resulting from improvement
in the macroeconomic outlook, positive credit grade
migration and lower loan balances.
Net interest income increased $500 million, or 40%, in
2021, largely driven by merger-related earning asset
growth. Results also reflect the benefit of lower deposit
costs which helped to partially offset the impact of lower
interest-earning asset yields and spreads.
Noninterest income increased $93 million, or 27%, largely
attributable to increases in fee income driven by the
impact of the IBKC merger.
Noninterest expense of $1.2 billion in 2021, increased
$207 million, or 22%, from 2020, primarily as a result of
the impact of the IBKC merger, mitigated in part by
expense discipline and the benefit of merger cost saves.
Specialty Banking
Pre-tax income in the Specialty Banking segment
increased $171 million to $709 million in 2021, largely
driven by a decrease of $180 million in the provision for
credit losses.
Net interest income increased $47 million, or 8%, in 2021
largely driven by merger-related earning asset growth.
Results also reflect the benefit of lower deposit costs
Noninterest income increased $21 million, or 4%, from
2020. Mortgage banking and title income increased $24
million, or 19%, as the benefit of the IBKC merger was
offset by an intentional shift in origination mix toward
portfolio loans as well as lower gain on sale spreads. Fixed
income was down $16 million, or 4%, from 2020,
reflecting slightly less favorable market conditions and
lower fees from derivative and loan sales, somewhat
offset by higher fees from portfolio advisory services.
Noninterest expense increased $77 million, or 16%, to
$571 million in 2021, largely attributable to higher
personnel and outside services costs from the impact of
the IBKC merger.
Corporate
Pre-tax loss for the Corporate segment was $705 million
for 2021 compared to pre-tax income of $122 million for
2020. Results for 2021 reflect a decline in revenue largely
tied to the IBKC purchase accounting gain in 2020, a $215
million decrease in net interest income resulting from the
impact of funds transfer pricing, and a $26 million loss on
the redemption of legacy IBKC trust preferred securities in
2021. In addition, noninterest expense increased $94
million, largely attributable to merger and integration-
related costs including asset impairments associated with
the reduction of leased office space and banking center
optimization as well as $19 million in derivative valuation
adjustments on prior Visa Class B share sales.
Results of Operations—2020 compared to 2019
For a description of FHN's results of operations for 2020, see Results of Operations - 2020 compared to 2019 in Item 7 in the
2020 Form 10-K.
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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:
Table 7.6
COMPOSITION OF SECURITIES PORTFOLIO
(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
Total securities available for sale
Securities held to maturity:
Government agency issued MBS and CMO
Corporate and other debt
Total securities held to maturity
Total investment securities
2021
2020
Balance
Mix
Balance
Mix
$
$
$
$
$
—
7,312
850
—
545
—
— % $
78
613
6,218
9
—
6
—
684
40
460
32
8 %
77
9
—
6
—
8,707
93 % $
8,047
100 %
712
—
712
7 % $
—
7 % $
—
10
10
— %
—
— %
9,419
100 % $
8,057
100 %
(a) Includes securities issued by government sponsored entities which are not backed by the full faith and credit of the U.S. Government.
FHN’s investment portfolio consists principally of debt
securities available for sale. FHN maintains a highly-rated
securities portfolio consisting primarily of government
agency issued mortgage-backed securities and
collateralized mortgage obligations. 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.
During the third quarter of 2021, in order to improve net
interest income and moderate a portion of its overly asset
sensitive interest rate risk position, FHN began deploying
excess cash into the investment portfolio by purchasing
securities classified as held to maturity.
Investment securities were $9.4 billion and $8.1 billion on
December 31, 2021 and 2020, representing 11% and 10%
of total assets, respectively. See Note 3 - Investment
Securities for more information about the securities
portfolio.
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.
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Table 7.7
CONTRACTUAL MATURITIES OF INVESTMENT SECURITIES
As of December 31, 2021
Within 1 year
After 1 year
Within 5 years
Amount
Yield
(b)
Amount
Yield
(b)
After 5 years
Within 10 years
Amount
Yield
(b)
After 10 years
Amount
Yield
(b)
$
19
1.33 % $
532
1.64 % $ 1,259
1.45 % $
5,548
1.53 %
12
2.88
5
0.69
49
2.04
100
0.69
197
1.41
154
1.41
603
1.64
276
2.30
$
36
1.80 % $
681
1.53 % $ 1,610
1.44 % $
6,427
1.57 %
—
— %
—
— %
—
— %
712
1.82 %
$
—
— % $
—
— % $
—
— % $
712
1.82 %
(Dollars in millions)
Securities available for sale:
Government agency issued
MBS and CMO (a)
Other U.S. government
agencies
States and municipalities
Total securities available for
sale
Securities held to maturity:
Government agency issued
MBS and CMO (a)
Total securities held to
maturity
(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 4.8 years.
(b) Weighted average yields were calculated using amortized cost on a fully-taxable equivalent basis, assuming a 25% tax rate where applicable.
Loans and Leases
Period-end loans and leases decreased $3.4 billion, or 6%,
to $54.9 billion as of December 31, 2021, driven by a $2.2
billion decrease in commercial loans primarily tied to a
$3.0 billion decrease in PPP loans, offset by other C&I
growth, and a $1.2 billion decrease in consumer loans.
Average loans and leases increased to $56.3 billion in 2021
compared to $46.2 billion in 2020 primarily from the full
Table 7.8
year inclusion of acquired IBKC loans in 2021, offset by
declines in PPP loans and other consumer real estate loan
activity.
The following table provides detail regarding FHN's loans
and leases:
(Dollars in millions)
2021
Percent
of total
2021
Growth
Rate
2020 (a)
Percent
of total
2020
Growth
Rate (a)
2019
Percent
of total
2019
Growth
Rate
LOANS AND LEASES
Commercial:
Commercial, financial,
and industrial (b)
Commercial real estate
Total commercial
Consumer:
Consumer real estate
Credit card and other
Total consumer
$
31,068
57 %
(6) % $
33,104
57 %
65 % $
20,051
65 %
21 %
12,109
43,177
10,772
910
11,682
22
79
20
1
21
(1)
(5)
(8)
(19)
(9)
12,275
45,379
11,725
1,128
12,853
21
78
20
2
22
183
86
90
127
93
4,337
24,388
6,177
496
6,673
14
79
20
1
21
8
19
(5)
(4)
(5)
Total loans and leases
$
54,859
100 %
(6) % $
58,232
100 %
87 % $
31,061
100 %
13 %
(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.
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C&I loans are the largest component of the loan and lease
portfolio, comprising 57% of total loans and leases in both
2021 and 2020. C&I loans decreased 6%, or $2.0 billion,
from 2020 largely driven by a decrease in PPP loans and
loans to mortgage companies. Excluding PPP loans, C&I
loans increased $978 million, attributable to Regional
Banking growth. Growth in other specialty lending areas
within Specialty Banking, such as real estate rental and
leasing, also meaningfully contributed to the overall
growth in non-PPP C&I loans from 2020. Commercial real
estate loans decreased 1% to $12.1 billion in 2021,
attributable to a decline in Specialty Banking loans.
Total consumer loans decreased 9%, or $1.2 billion, from
the end of 2020, largely driven by paydowns in real estate
installment loans and home equity lines of credit.
The following table provides detail of contractual
maturities at December 31, 2021.
Table 7.9
CONTRACTUAL MATURITIES OF LOANS AND LEASES
(Dollars in millions)
Within 1 Year
After 1 Year
Within 5
Years
After 5 Years
Within 15
Years
After 15 Years
Total
Commercial, financial, and industrial
$
8,174 $
15,095 $
7,023 $
776 $
Commercial real estate
Consumer real estate
Credit card and other
Total loans and leases
2,007
93
336
6,939
414
428
3,085
1,706
82
78
8,559
64
31,068
12,109
10,772
910
$
10,610 $
22,876 $
11,896 $
9,477 $
54,859
For maturities over one year at fixed interest rates:
Commercial, financial, and industrial
$
4,479 $
4,294 $
498 $
Commercial real estate
Consumer real estate
Credit card and other
1,954
297
118
1,103
1,380
74
44
3,076
24
9,271
3,101
4,753
216
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.
6,848 $
6,851 $
3,642 $
17,341
10,616 $
2,729 $
278 $
13,623
4,985
117
310
1,982
326
8
34
5,483
40
7,001
5,926
358
16,028 $
5,045 $
5,835 $
26,908
22,876 $
11,896 $
9,477 $
44,249
Loans Held for Sale
In 2020, FHN obtained IBKC's mortgage banking
operations which includes 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 and jumbo
loans secured by residential property. These loans are
primarily sold to private companies that are unaffiliated
with the GSEs on a servicing-released basis.
The legacy FHN loans HFS portfolio consists of small
business, other consumer loans, mortgage warehouse,
USDA, student, and home equity loans.
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On December 31, 2021, loans HFS were $1.2 billion, a
$150 million increase compared to December 31, 2020.
On an average basis, HFS loans increased to $956 million
in 2021 from $835 million in 2020, generally driven by the
additional volume of mortgage loans originated with the
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
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.
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. 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
IBKC merger. Held-for-sale consumer mortgage loans
secured by residential real estate in process of foreclosure
totaled $3 million and $2 million at December 31, 2021
and 2020, respectively.
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.
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 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.
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
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Table of Contents
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 totaled $31.1 billion as of December 31,
2021 and is comprised of loans used for general business
purposes. Products offered in the C&I portfolio include
term loan financing of owner-occupied real estate and
fixed assets, PPP loans, direct financing and sales-type
leases, working capital lines of credit, and trade credit
enhancement through letters of credit.
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
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.
Historically, these loans typically have had variable rates
tied to the LIBOR or prime rate of interest plus or minus
the appropriate margin. However, with the upcoming
cessation of LIBOR, FHN no longer references LIBOR in
new loan contracts, and the existing portfolio of loans tied
to LIBOR is being repriced to alternative reference rates.
A $3.0 billion decrease in PPP loans drove the total
decrease from December 31, 2020. Excluding PPP loans,
C&I growth was $978 million, or 3%. The largest
geographical concentrations of balances as of
December 31, 2021 were in Tennessee (20%), Florida
(12%), Texas (10%), North Carolina (7%), Louisiana (7%),
California (7%), and Georgia (5%), with no other state
representing more than 5% of the portfolio.
The following table provides the composition of the C&I
portfolio by industry as of December 31, 2021 and 2020.
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.
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C&I PORTFOLIO BY INDUSTRY
December 31, 2021
December 31, 2020
Amount
Percent
Amount
Percent
Table of Contents
Table 7.10
(Dollars in millions)
Industry:
Loans to mortgage companies
Finance and insurance
Real estate rental & leasing (a)
Health care and social assistance
Accommodation & food service
Manufacturing
Wholesale trade
Retail trade
$
4,518
3,483
2,771
2,413
2,221
1,950
1,845
1,532
1,325
9,010
15 % $
11
9
8
7
6
6
5
4
29
5,404
3,130
2,365
2,689
2,303
1,907
2,079
1,531
1,686
16 %
10
7
8
7
6
6
5
5
10,010
33,104
30
100 %
Energy
Other (professional, construction, transportation, etc) (b)
Total C&I loan portfolio
$
31,068
100 % $
(a) Leasing, rental of real estate, equipment, and goods.
(b) Industries in this category each comprise less than 5% for 2021.
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. Loans
to mortgage companies and borrowers in the finance and
insurance industry were 26% of FHN’s C&I loan portfolio
as of December 31, 2021, 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, 2021, 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 15% of
the C&I portfolio as of December 31, 2021, and 16% of the
C&I portfolio as of December 31, 2020, and includes
balances related to both home purchase and refinance
activity. This portfolio generally fluctuates with mortgage
rates and seasonal factors and 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 decrease in loans
to mortgage companies year over year was due to existing
home supply shortages, construction labor and materials
shortages, and a rise in mortgage rates. In 2021,
approximately 48% of the loans funded were home
purchases and 52% were refinance transactions.
Finance and Insurance
The finance and insurance component represents 11% of
the C&I portfolio as of December 31, 2021 compared to
10% at the end of 2020 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, 2021, asset-based lending to consumer
finance companies represents approximately $1.4 billion
of the finance and insurance component.
Paycheck Protection Program
In 2020, Congress created the Paycheck Protection
Program (PPP) in response to the economic disruption
associated with the COVID-19 pandemic. Under the PPP,
qualifying businesses could 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 is still paid from the program.
The C&I portfolio as of December 31, 2021 included 8,372
loans made under the PPP with an aggregate principal
balance of $1.0 billion, which are fully government
guaranteed with the SBA. Due to the government
guarantee and forgiveness provisions, PPP loans are
considered to have no credit risk and do not affect the
amount of provision and ALLL recorded. As a result, no
ALLL was recorded for PPP loans as of December 31, 2021,
and FHN assigned a risk weight of zero to PPP loans for
regulatory capital purposes.
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For these loans, there were remaining net lender fees of
approximately $17 million to be paid to FHN as of
December 31, 2021. During 2021, FHN continued to work
with its clients that have applied for and received PPP loan
forgiveness. Through December 31, 2021, approximately
$5 billion of the original $6 billion in PPP loans originated
by FHN and IBERIABANK prior to acquisition had been
forgiven by the SBA.
Commercial Real Estate
The CRE portfolio totaled $12.1 billion as of December 31,
2021, a $166 million, or 1%, decrease compared to
December 31, 2020.
The CRE portfolio includes both financings for commercial
construction and non-construction loans. This portfolio
contains loans and draws on lines and letters of credit for
the construction and mini-permanent financing of income-
producing real estate.
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 between 50% and 80% depending on the
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
Consumer Loan Portfolios
Consumer Real Estate
The consumer real estate portfolio totaled $10.8 billion as
of December 31, 2021 and is primarily composed of home
equity lines and installment loans.
The largest geographical concentrations of balances in the
consumer real estate portfolio as of December 31, 2021
were in Florida (32%), Tennessee (23%), Louisiana (10%),
North Carolina (8%), Texas (7%), and New York (5%), with
no other state representing more than 5% of the portfolio.
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 provide loan funding. 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. However, since January 1, 2022, no
new loan contracts reference LIBOR, and the existing
portfolio of loans tied to LIBOR is being repriced to
alternative reference rates.
The credit administration and ongoing monitoring consists
of multiple internal control processes. Construction loans
are closed by a centralized control unit and construction
loan management is administered centrally for loans $3
million and over. 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.
The largest geographical concentrations of CRE balances
as of December 31, 2021 were in Florida (26%), Texas
(12%), North Carolina (11%), Louisiana (10%), Tennessee
(9%), and Georgia (8%) with no other state representing
more than 5% of the portfolio. Subcategories of income-
producing CRE loans consist of multi-family (25%), office
(24%), retail (19%), industrial (12%), hospitality (11%),
land/land development (2%), and other (7%).
As of December 31, 2021, approximately 87% of the
consumer real estate portfolio was in a first lien position.
As of December 31, 2021, the weighted average FICO
score at origination of this portfolio was 755 and the
refreshed FICO scores averaged 754, no significant change
from FICO scores of 753 and 763, respectively, as of
December 31, 2020. Generally, performance of this
portfolio is affected by life events that affect borrowers’
finances, the level of unemployment, and home prices.
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Table of Contents
As of December 31, 2021 and 2020, FHN had held-to-
maturity consumer mortgage loans secured by real estate
totaling $20 million and $36 million, respectively, that
were in the process of foreclosure.
HELOCs comprised $2.0 billion and $2.4 billion of the
consumer real estate portfolio as of December 31, 2021
and December 31, 2020, respectively. 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, 2021, approximately 88% of FHN's
HELOCs were in the draw period compared to 86% at the
end of the prior year. Based on when draw periods are
scheduled to end per the line agreement, it is expected
that $431 million, or 24%, 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.
Table 7.11
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, 2021
December 31, 2020
Repayment
Amount
Percent
Repayment
Amount
Percent
$
$
43
42
50
136
160
1,324
1,755
2 % $
2
3
8
9
76
100 % $
73
66
62
67
187
1,662
2,117
4 %
3
3
3
8
79
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.
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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
Allowance for Credit Losses
The ACL is maintained at a level sufficient to provide
appropriate reserves to absorb estimated future credit
losses in accordance with GAAP. For additional
information regarding the ACL, see Notes 1 and 5 of this
Report.
The ALLL was $670 million as of December 31, 2021, or
1.22% of total loans and leases, a decrease of $293 million
Consolidated Net Charge-offs
Net charge-offs were $2 million in 2021 compared to $120
million in 2020. As a percentage of average total loans and
leases, net charge-offs improved 26 basis points from
2020.
Net charge-offs in the C&I portfolio were $13 million, a
decrease of $107 million from 2020, driven by lower
energy-related charge-offs as well as continued
improvement in overall asset quality. Net charge-offs in
Table 7.12
future draws on accounts in order to mitigate risk of loss
to FHN.
Credit Card and Other
The credit card and other consumer loan portfolio, which
is primarily within the Regional Banking segment,
decreased $218 million from the prior year-end to $910
million as of December 31, 2021, driven by net
repayments of consumer construction loans.
or 43 basis points from the end of 2020, reflecting
improvement in the macroeconomic forecast, positive
credit grade migration, and lower loan balances. The ACL
to total loans and leases ratio decreased to 1.34% as of
December 31, 2021 from 1.80% as of December 31, 2020.
the commercial real estate portfolio were minimal in both
2021 and 2020.
In the consumer portfolio, net recoveries of $22 million in
consumer real estate loans were offset by net charge-offs
of $11 million in credit card and other loans. Net
recoveries in the consumer loan portfolio in 2020 were $1
million.
ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES AND CHARGE-OFFS
(Dollars in millions)
Allowance for loan and lease losses
C&I
CRE
Consumer real estate
Credit card and other
Total allowance for loan and lease losses
Reserve for remaining unfunded commitments
C&I
CRE
Consumer real estate
Credit card and other
Total reserve for remaining unfunded commitments
Allowance for credit losses
C&I
CRE
$
$
$
$
$
2021
December 31
2020
2019
$
$
$
$
$
334
154
163
19
670
46
12
8
—
66
380
166
$
$
$
$
$
453
242
242
26
963
65
10
10
—
85
518
252
123
36
28
13
200
4
2
—
—
6
127
38
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Consumer real estate
Credit card and other
Total allowance for credit losses
Period-end loans and leases
C&I
CRE
Consumer real estate
Credit card and other
$
$
171
19
736
31,068
12,109
10,772
910
$
$
252
26
1,048
$
28
13
206
33,104
12,275
11,725
1,128
$
20,051
4,337
6,177
496
Total period-end loans and leases
$
54,859
$
58,232
$
31,061
ALLL / loans and leases %
C&I
CRE
Consumer real estate
Credit card and other
Total ALLL / loans and leases %
ACL / loans and leases %
C&I
CRE
Consumer real estate
Credit card and other
Total ACL / loans and leases %
Net charge-offs (recoveries)
C&I
CRE
Consumer real estate
Credit card and other
Total net charge-offs
Average loans and leases
C&I
CRE
Consumer real estate
Credit card and other
1.07 %
1.27 %
1.51 %
2.14 %
1.22 %
1.22 %
1.37 %
1.59 %
2.09 %
1.34 %
13
—
(22)
11
2
32,010
12,314
10,969
1,005
$
$
$
1.37 %
1.97 %
2.07 %
2.34 %
1.65 %
1.56 %
2.05 %
2.15 %
2.30 %
1.80 %
120
$
1
(10)
9
120
$
0.62 %
0.83 %
0.45 %
2.68 %
0.64 %
0.63 %
0.88 %
0.45 %
2.62 %
0.66 %
27
1
(12)
11
27
27,638
$
18,283
8,508
9,191
846
4,102
6,299
505
$
$
$
Total average loans and leases
$
56,298
$
46,183
$
29,189
Charge-off %
C&I
CRE
Consumer real estate
Credit card and other
Total charge-off %
ALLL / net charge-offs
C&I
CRE
Consumer real estate
0.04 %
0.01 %
NM
1.05 %
— %
2,645 %
13,189 %
NM
0.43 %
0.01 %
NM
1.04 %
0.26 %
376 %
43,670 %
NM
0.15 %
0.02 %
NM
2.25 %
0.09 %
453 %
5,213 %
NM
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ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
185 %
30,641 %
299 %
808 %
117 %
739 %
Table of Contents
Credit card and other
Total ALLL / net charge-offs
NM - not meaningful
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 on which FHN continues to receive payments,
including residential real estate loans where the borrower
has been discharged of personal obligation through
bankruptcy. NPAs consist of nonperforming loans and
OREO (excluding OREO from government insured
mortgages).
Reflecting an overall improvement in asset quality, total
NPAs (including NPL HFS) decreased $121 million to $285
million as of December 31, 2021, and the ratio of
nonperforming loans to total loans decreased 16 basis
points to 0.50%. The decrease in nonperforming loans
was driven primarily by the CRE and consumer real estate
portfolios.
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 7.13
NONACCRUAL/NONPERFORMING LOANS, FORECLOSED ASSETS, & OTHER DISCLOSURES (a) (b)
(Dollars in millions)
Nonperforming loans and leases
C&I
CRE
Consumer real estate
Credit card and 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)
Nonperforming loans and leases to total loans and leases
C&I
CRE
Consumer real estate
Credit card and other
Total NPL %
ALLL / NPLs
C&I
CRE
Consumer real estate
Credit card and other
Total ALLL / NPLs
2021
December 31
2020
2019
$
125
$
9
138
3
275
7
3
285
$
$
$
$
$
$
144
58
182
2
386
5
15
406
$
$
$
$
0.40 %
0.08 %
1.29 %
0.31 %
0.50 %
268 %
1,671 %
118 %
699 %
244 %
0.43 %
0.48 %
1.56 %
0.18 %
0.66 %
315 %
415 %
133 %
1313 %
249 %
74
2
86
—
162
4
16
182
0.37 %
0.04 %
1.39 %
0.07 %
0.52 %
166 %
1,973 %
33 %
3892 %
124 %
(a) Balances for 2019 do not include PCI loans even though the client may be contractually past due. PCI loans were recorded at fair value upon
acquisition and accreted interest income over the remaining life of the loan. PCI loans were transitioned to PCD status upon adoption of CECL.
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ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
(b) Unless otherwise noted, increases in balances from 2019 to 2020 were primarily driven by acquired nonperforming assets.
(c) Under the original terms of the loans, estimated interest income would have been approximately $19 million, $18 million, and $11 million
during 2021, 2020 and 2019, 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 $1 million, $2 million, and $2 million at December 31, 2021, 2020, and 2019, respectively.
(f) Balances do not include government-insured foreclosed real estate. Balances for 2019 also do not include PCI loans. PCI loans were
transitioned to PCD status upon adoption of CECL.
The following table provides nonperforming assets by
business segment:
Table 7.14
NONPERFORMING ASSETS BY SEGMENT
2021
December 31
2020
2019
(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
Nonperforming loans and leases to total loans and leases
Regional Banking
Specialty Banking
Corporate
Consolidated
NPA % (d)
Regional Banking
Specialty Banking
Corporate
Consolidated
$
$
$
$
$
$
163
$
78
34
275
$
2
—
1
3
$
$
165
$
78
35
278
$
0.43 %
0.48
5.39
0.50 %
0.44 %
0.48
5.51
0.51 %
216
117
53
386
$
$
12
$
1
2
15
$
228
118
55
401
$
$
0.54 %
0.68
5.70
0.66 %
0.57 %
0.68
5.87
0.69 %
45
68
49
162
12
1
3
16
57
69
52
178
0.27 %
0.51
5.22
0.52 %
0.34 %
0.52
5.48
0.57 %
(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 $1 million, $5 million, and $10 million as of December 31,
2021, 2020, and 2019, respectively.
(d) Ratio is non-performing assets related to the loan and lease portfolio to total loans plus foreclosed real estate and other assets.
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Lending Assistance for Borrowers
In addition to PPP loans, other customer support
initiatives in response to the COVID-19 pandemic 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 customers as of December 31,
2021 and December 31, 2020.
Table 7.15
(Dollars in millions)
Commercial:
C&I
CRE
Total Commercial
Consumer:
HELOC
Real estate installment loans
Credit card and other
Total Consumer
Total
CUSTOMER DEFERRALS
December 31,
2021
December 31,
2020
$
$
$
$
$
9 $
26
35 $
5 $
44
—
49 $
84 $
104
194
298
14
202
4
220
518
Commercial deferrals as of December 31, 2021 were
comprised primarily of private client (59% or $21 million)
and general commercial (40% or $14 million).
deferral, they were excluded from loans past due 30 to 89
days and loans past due 90 days or more in the table and
discussion below.
To the extent that loans were past due as of December 31,
2021 or December 31, 2020 and had been granted a
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. Loans 90 days or more
past due and still accruing were $40 million as of
December 31, 2021, an increase of $23 million compared
to December 31, 2020, primarily from consumer real
estate loans. Loans 30 to 89 days past due increased $8
million from year-end 2020 to $108 million as of
December 31, 2021, as a higher level of C&I loans past due
were offset by lower consumer real estate loans past due
less than 90 days, most notably in the CRE and consumer
real estate portfolios.
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Table 7.16
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
ACCRUING DELINQUENCIES & OTHER CREDIT DISCLOSURES
(Dollars in millions)
Accruing loans and leases 30+ days past due
C&I
CRE
Consumer real estate
Credit card and other
Total accruing loans and leases 30+ days past due
Accruing loans and leases 30+ days past due %
C&I
CRE
Consumer real estate
Credit card and other
Total accruing loans and leases 30+ days past due %
Accruing loans and leases 90+ days past due (a) (b) (c)
C&I
CRE
Consumer real estate
Credit card and other
Total accruing loans and leases 90+ days past due
Loans held for sale
30 to 89 days past due (b)
30 to 89 days past due - guaranteed portion (b) (d)
90+ days past due (b)
90+ days past due - guaranteed portion (b) (d)
$
$
$
$
$
2021
December 31
2020
2019
$
58
13
70
7
$
15
23
69
10
148
$
117
$
0.19 %
0.11
0.65
0.76
0.27 %
0.05 %
0.19
0.58
0.87
0.20 %
$
$
$
5
—
33
2
40
7
2
24
12
$
$
$
—
—
16
1
17
6
5
12
10
9
1
43
5
58
0.05 %
0.02
0.70
0.93
0.19 %
2
—
18
2
22
4
3
6
6
(a) Excludes loans classified as held for sale.
(b) Amounts are not included in nonperforming/nonaccrual loans.
(c) Amounts are also included in accruing loans and leases 30+ days past due.
(d) Guaranteed loans include FHA, VA, and GNMA loans repurchased through the GNMA buyout program.
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 2021, potential problem assets in the loan
portfolio decreased $121 million from December 31, 2020
to $597 million on December 31, 2021. The decrease was
attributable to an overall improvement in asset quality.
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.
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 2021 and
2020 that met the TDR relief provisions outlined in either
the CARES Act, as extended by the CAA, or revised
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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.
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 real estate 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 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.
FHN had $206 million and $307 million portfolio loans
classified as held-for-investment TDRs on December 31,
2021 and 2020, respectively, a decrease of $101 million
between periods. For these TDRs, including specific
reserves, FHN had an allowance for loan and lease losses
of $12 million and $15 million, or 6% and 5% of TDR
balances, as of December 31, 2021 and 2020, respectively.
Additionally, FHN had $35 million and $42 million of HFS
loans classified as TDRs at year-end 2021 and 2020,
respectively.
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Table of Contents
The following table provides a summary of TDRs for the
periods ended December 31, 2021 and 2020.
TROUBLED DEBT RESTRUCTURINGS
December 31, 2021
December 31, 2020
Table 7.17
(Dollars in millions)
Held for investment:
Commercial loans:
Current
Delinquent
Non-accrual
Total commercial loans
Consumer real estate:
Current
Delinquent
Non-accrual (a)
Total consumer real estate
Credit card and other:
Current
Delinquent
Non-accrual
Total credit card and other
Total held for investment
Held for sale:
Current
Delinquent
Non-accrual
Total held for sale
Total troubled debt restructurings
$
$
$
$
$
53 $
—
35
88
60 $
4
53
117
1
—
—
1
206 $
27 $
7
1
35
241 $
82
—
84
166
77
2
61
140
1
—
—
1
307
36
5
1
42
349
(a) Balances as of December 31, 2021 and 2020, include $12 million and $11 million, respectively, of discharged
bankruptcies.
Deposits
Total deposits were $74.9 billion as of December 31, 2021,
up $4.9 billion from $70.0 billion as of December 31, 2020,
driven by a $5.7 billion increase in non-interest bearing
deposits as a result of elevated liquidity tied to
government stimulus associated with the COVID-19
pandemic. Growth in noninterest-bearing deposits was
partially offset by a $1.6 billion decline in time deposits.
The following tables summarize FHN's total deposits and
estimated uninsured total deposits for 2021, 2020, and
2019, as well as the maturities of FHN's uninsured time
deposits as of December 31, 2021. See Table 7.2 - Average
Balances, Net Interest Income and Yields/Rates in this
Report for information on average deposits including
average rates paid.
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Table 7.18
DEPOSITS
(Dollars in millions)
Savings
Time deposits
Other interest-bearing deposits
Total interest-bearing deposits
Noninterest-bearing deposits
2021
Percent
of Total
2021
Growth
Rate
2020
Percent
of Total
2020
Growth
Rate
2019
Percent
of Total
2019
Growth
Rate
$ 26,457
35 %
(3) % $
27,324
39 %
134 % $
11,665
36 %
(3) %
3,500
17,055
47,012
27,883
5
23
63
37
(31)
11
(2)
26
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
Total deposits
$ 74,895
100 %
7 % $
69,982
100 %
116 % $
32,430
100 %
(1) %
Table 7.19
UNINSURED DEPOSITS
For the Year Ended December 31,
(Dollars in millions)
2021
2020
2019
Uninsured deposits
$
39,756 $
33,057 $
12,176
Table 7.20
UNINSURED TIME DEPOSITS BY MATURITY
(Dollars in millions)
December 31, 2021
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
515
212
117
124
62
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 as of December 31,
2021 and December 31, 2020.
Short-term borrowings balances fluctuate largely based on
the level of FHLB borrowing as a result of loan demand,
deposit levels and balance sheet funding strategies.
Trading liabilities fluctuate based on various factors,
Term Borrowings
including levels of trading securities and hedging
strategies. Federal funds purchased fluctuates depending
on the amount of excess funding of FHN's correspondent
bank customers. Balances of securities sold under
agreements to repurchase fluctuate based on cost
attractiveness relative to FHLB borrowing levels and the
ability to pledge securities toward such transactions. See
Note 10 - Short-Term Borrowings for additional
information.
Term borrowings include senior and subordinated
borrowings with original maturities greater than one year.
Total term borrowings were $1.6 billion on December 31,
2021, an $80 million decrease from $1.7 billion on
December 31, 2020.
During 2021, FHN redeemed $94 million of legacy IBKC
junior subordinated debt underlying multiple issuances of
trust preferred securities. The redemption resulted in a
loss on debt extinguishment of $26 million. See Note 11 -
Term Borrowings for additional information.
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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 $187 million to $8.5 billion on
December 31, 2021 from $8.3 billion on December 31,
2020. Significant changes included net income of $1.0
billion and the issuance of $145 million in Series F
preferred stock, which were offset by $416 million in
common share repurchases, $364 million in common and
preferred dividends, a $148 decrease in AOCI, and $100
million from the call of Series A preferred stock.
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 7.21a
(Dollars in millions)
FHN shareholders’ equity
REGULATORY CAPITAL DATA
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,
2021
December 31,
2020
8,199 $
114
(520)
7,793 $
8,012
191
(470)
7,733
(1,711)
(1,757)
36
255
(3)
(2)
(1)
6,367 $
426
295
7,088 $
830
7,918 $
64,183 $
63,601
87,683
86,953
(108)
260
(12)
(5)
(1)
6,110
377
295
6,782
1,153
7,935
63,140
62,508
82,347
81,709
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Table 7.21b
(Dollars in millions)
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
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
REGULATORY RATIOS & AMOUNTS
December 31, 2021
Amount
Ratio
December 31, 2020
Amount
Ratio
9.92 % $
6,367
9.68 % $
10.75
6,838
10.46
11.04
11.22
12.34
12.41
8.08
8.20
9.53
6.73
9.20
7,088
10.74
7,133
10.93
7,918
12.57
7,893
12.52
7,088
7,133
8.24
8.36
9.86
6.89
8.82
6,110
6,537
6,782
6,832
7,935
7,827
6,782
6,832
Total period-end equity to period-end assets
Tangible common equity to tangible assets (c)
Adjusted tangible common equity to risk weighted assets (c)
(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, 2021.
(b) The $94 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 7.30.
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, 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, 2021, both 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
Stress Testing
The Economic Growth, Regulatory Relief, and Consumer
Protection Act, along with an interagency regulatory
statement effectively exempted both FHN and First
December 31, 2021 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 2021 relative to 2020
primarily from the net positive impact of net income less
dividends and share repurchases. FHN's Tier 1 Capital ratio
further benefited from the issuance in 2021 of its Series F
preferred stock, partially offset by the retirement of its
Series A preferred stock. FHN's Total Capital ratio as of
December 31, 2021 was unfavorably impacted by the
retirement of legacy IBKC trust preferred securities, which
qualified as Tier 2 capital. The Tier 1 Leverage ratio for
both FHN and First Horizon Bank decreased from
December 31, 2020 as a result of an increase in average
assets.
During 2022, capital ratios are expected to remain above
well-capitalized standards plus the required capital
conservation buffer.
Horizon Bank from Dodd-Frank Act stress testing
requirements starting in 2018.
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For 2021, FHN and First Horizon Bank completed a
company run stress test using the Comprehensive Capital
Analysis and Review (CCAR) Resubmission scenarios
published in February 2021. 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 2021 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 June 28, 2021. Neither
FHN’s stress test posting, nor any other material found on
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.
FHN’s Board has not authorized a preferred stock
purchase program.
General Purchase Program
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 (to $500 million total) along with
an extension of the expiration date to January 31, 2021.
The 2018 program has been terminated, as described in
the next paragraph.
On January 27, 2021, FHN announced that its Board
approved a new $500 million common share purchase
program that was to expire on January 31, 2023, replacing
Table 7.22a
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.
the 2018 program, which was terminated. On October 26,
2021, FHN announced that the 2021 program had been
increased by $500 million and extended to October 31,
2023. Like the 2018 program, the 2021 program is not tied
to any compensation plan. 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.
As of December 31, 2021, $401 million in purchases had
been made life-to-date under this authority at an average
price per share of $16.60, or $16.58 excluding
commissions.
COMMON STOCK PURCHASES—GENERAL PROGRAM
(Dollar values and volume in thousands,
except per share data)
2021
October 1 to October 31
November 1 to November 30
December 1 to December 31
Total
(a) Represents total costs including commissions paid
Compensation Plans Purchase Program
A consolidated compensation plan share purchase
program was announced on August 6, 2004. This program
consolidated into a single share purchase program all of
the previously authorized compensation plan share
programs, as well as the renewal of the authorization to
purchase shares for use in connection with two
compensation plans for which the share purchase
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
1,120 $
4,475 $
2,925 $
8,520 $
17.00
17.19
16.40
16.89
1,120 $
4,475 $
2,925 $
8,520
723,523
646,603
598,646
authority had expired. The total amount authorized under
this consolidated compensation plan share purchase
program 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
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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, 2021, the
Table 7.22b
maximum number of shares that may be purchased under
the program was 23 million shares. Management currently
does not anticipate purchasing a material number of
shares under this authority during 2022.
COMMON STOCK PURCHASES—COMPENSATION PLANS PROGRAM
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
* $
2
5
8 $
16.73
17.30
16.26
16.59
*
2
5
8
23,150
23,148
23,143
(Volume in thousands, except per share
data)
2021
October 1 to October 31
November 1 to November 30
December 1 to December 31
Total
* Amount is less than 500 shares
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,
liquidity, market, capital adequacy, operational,
compliance, legal, 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 appetite
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
appetite 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 appetite
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 appetite 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
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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.
4.
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 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.
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.
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,
Independent Assurance Functions: Internal Audit,
Credit Assurance Services, Compliance Testing, 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. Compliance Testing and
Model Validation report to the Chief Risk Officer and
report annually to the Audit Committee of the Board.
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% confidence level with 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.
A summary of FHN's VaR and SVaR measures for 1-day
and 10-day time horizons is presented in the following
table:
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Table 7.23
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
(Dollars in millions)
1-day
VaR
SVaR
10-day
VaR
SVaR
(Dollars in millions)
1-day
VaR
SVaR
10-day
VaR
SVaR
$
$
VaR & SVaR MEASURES
Year Ended December 31, 2021
Mean
High
Low
As of
December 31, 2021
1 $
4
4 $
7
1 $
2
5
18
21
27
1
11
2
5
5
22
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
FHN’s overall VaR measure includes both interest rate risk and credit spread risk. Separate measures of these component risks
are as follows:
Table 7.24
(Dollars in millions)
Interest rate risk
Credit spread risk
SCHEDULE OF RISKS INCLUDED IN VaR
As of December 31, 2021
As of December 31, 2020
1-day
10-day
1-day
10-day
$
1 $
1
1 $
1
1 $
2
2
6
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,
FHNF’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
at the levels indicated by its VaR measures.
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 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 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-
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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
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 for 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
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.
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, 2021,
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 as shown in the table below.
Table 7.25
INTEREST RATE SENSITIVITY
Shifts in Interest Rates
(in bps)
% Change in Projected Net
Interest Income
+25
+50
+100
+200
3.7%
7.6%
16.4%
29.5%
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 0.8%. 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 2.7%, assuming the absence of
negative rates. These hypothetical scenarios are used to
create a risk 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 impacted by the
disruption from the COVID-19 pandemic and its variants as
well as the low-rate environment. The impact of
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government stimulus programs and other developments
have also influenced net interest income results, although
the impacts from these programs have abated, and
interest rates are expected to increase in the future. FHN
continues to monitor 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
Capital Risk Management & 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 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
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 Resilience
• Records Management
• Compliance/Legal (including Bank Secrecy Act)
• Program Governance
• Fiduciary
• Security/Fraud
• Financial (including disclosure controls and
procedures)
• Information Technology (including cybersecurity)
• Model
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.
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.
• Vendor
• Insurance
Management, measurement, and reporting of operational
risk are overseen by the Operational Risk, Fiduciary,
Financial Governance, FHN Financial Risk, and Strategic
Investment 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 in
measuring and managing material operational risks and
providing for a culture of awareness and accountability.
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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 and other
key Corporate Governance Committees. Key executives
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
Liquidity Risk Management
Among other things, ALCO is 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 of which the objective 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
from the business segments, legal, compliance, risk
management, and service functions are represented on
the Committees. 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.
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 credit 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.
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 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
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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, 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 customer repurchase
agreements, access to the overnight and term Federal
Funds markets, incremental borrowing capacity at the
FHLB ($14.5 billion was available at December 31, 2021),
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 provides
inexpensive, predictable pricing. The FDIC insures these
deposits to the extent authorized by law. Generally, these
limits are $250,000 per account owner for interest-bearing
and noninterest-bearing accounts. The ratio of average
loans, excluding loans HFS and restricted real estate loans,
to average core deposits was 80% on December 31, 2021
compared to 99% on December 31, 2020.
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 have the ability to
generate liquidity by issuing senior or subordinated
unsecured debt, preferred equity, and common equity,
subject to market conditions and compliance with
applicable regulatory requirements. In May 2021, FHN
issued $150 million of Series F Non-Cumulative Perpetual
Preferred Stock and in July 2021 redeemed its $100
million Series A Non-Cumulative Perpetual Preferred
Stock. As of December 31, 2021, FHN had outstanding
$1.3 billion in senior and subordinated unsecured debt
and $520 million in non-cumulative perpetual preferred
stock. As of December 31, 2021, First Horizon Bank and
subsidiaries had outstanding preferred shares of $295
million, which are reflected as noncontrolling interest on
the Consolidated Balance Sheet.
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 recently completed
years plus the current year-to-date period. 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 $1.1 billion as of January 1, 2022.
Consequently, on that date the Bank could pay common
dividends up to that amount to its sole common
shareholder, 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 $770 million in
2021 and $180 million in 2020. In January 2022, First
Horizon Bank declared and paid a common dividend to the
parent company in the amount of $180 million. First
Horizon Bank paid preferred dividends in each quarter of
2021 and 2020 and declared preferred dividends in the
first quarter of 2022 which are payable in April 2022.
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, as well as
applicable regulatory restrictions (including capital
conservation buffer requirements) and availability of
funds to FHN through a dividend from First Horizon Bank.
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 3, 2022. FHN paid cash dividends of $1,625 per
Series E preferred share and $1,175 per Series F preferred
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share on January 10, 2022 and $331.25 per Series B
preferred share and $165 per Series C preferred share on
February 1, 2022. In addition, in January 2022, the Board
approved cash dividends per share in the following
amounts:
Table 7.26
CASH DIVIDENDS APPROVED BUT NOT PAID
Dividend/
Share
Record Date
Payment Date
in the consolidated financial statements. Such activities
include traditional off-balance sheet credit-related
financial instruments. FHN enters into commitments to
extend credit to borrowers, including loan commitments,
lines of credit, standby letters of credit, and commercial
letters of credit. Many of the commitments are expected
to expire unused or be only partially used; therefore, the
total amount of commitments does not necessarily
represent future cash requirements and are not included
in the table below. See Note 17 - Contingencies and Other
Disclosures for more information.
0.15
3/11/2022
4/1/2022
Contractual Obligations
Common Stock
Preferred Stock
Series C
Series D
Series E
Series F
$
$
$
$
$
165.00
4/14/2022
305.00
4/14/2022
5/2/2022
5/2/2022
1,625.00
3/25/2022
4/11/2022
1,175.00
3/25/2022
4/11/2022
Off-Balance Sheet Arrangements
In the normal course of business, FHN is a party to a
number of activities that contain credit, market and
operational risk that are not reflected in whole or in part
Table 7.27
The following table sets forth contractual obligations
representing required and potential cash outflows as of
December 31, 2021. 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.
CONTRACTUAL OBLIGATIONS
as of December 31, 2021
(Dollars in millions)
Contractual obligations:
Time deposit maturities (b) (c)
Term borrowings (b) (d)
Annual rental commitments under noncancelable leases
(b) (e)
Purchase obligations
Total contractual obligations
Payments due by period (a)
Less than
1 year -
3 years -
After 5
1 year
< 3 years
< 5 years
years
Total
$
3,006 $
344 $
122 $
28 $
—
49
160
456
85
145
350
76
56
807
238
13
3,500
1,613
448
374
$
3,215 $
1,030 $
604 $
1,086 $
5,935
(a) Excludes a $92 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.
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
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agreements with certain derivative counterparties as
discussed in Note 22 - Derivatives.
The following table provides FHN’s most recent credit
ratings:
Table 7.28
First Horizon Corporation
CREDIT RATINGS
Moody's (a)
Fitch (b)
Overall credit rating: Long-term/Short-term/Outlook
Baa3/--/Stable
BBB/F2/Positive
Long-term senior debt
Subordinated debt (c)
Junior subordinated debt (c)
Preferred stock
First Horizon Bank
Baa3
Baa3
Ba1
Ba2
BBB
BBB-
BB-
BB-
Overall credit rating: Long-term/Short-term/Outlook
Baa3/P-2/Stable
BBB/F2/Positive
Long-term/short-term deposits
Long-term/short-term senior debt (c)
Subordinated debt
Preferred stock
FT Real Estate Securities Company, Inc.
Preferred stock
A3/P-2
Baa3/P-2
Baa3
Ba2
Ba1
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; ratings affirmed and outlook revised to Positive on May 18, 2021.
(c) Ratings are preliminary/implied.
Repurchase Obligations
Prior to September 2008, legacy First Horizon 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.
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
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.
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.
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Repurchase and Foreclosure Liability
FHN's repurchase and foreclosure liability, primarily
related to its pre-2009 mortgage business, 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 recorded as necessary through the repurchase
and foreclosure provision. The repurchase and foreclosure
liability was $17 million and $16 million as of
December 31, 2021 and 2020, respectively.
Market Uncertainties & 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, government
actions intended to stimulate the economy, and
government actions and proposals which could have
negative impacts on the economy at large or on certain
businesses. Additional risks relate to how the COVID-19
Federal Reserve Policy in Transition
In March 2020, the Federal Reserve "eased" by lowering
short-term interest rates and starting an asset purchase
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.
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 associated with the COVID-19 pandemic,
including the Paycheck Protection Program, offset a
portion of the net interest margin decline.
During 2021, easing policy continued. For most of the year
interest rates fluctuated but remained very low,
continuing to adversely impact FHN's net interest margin.
Late in 2021 the Federal Reserve announced that it will
moderate and eventually reverse its easing policy, starting
by reducing ("tapering") its asset purchases. The Federal
Reserve's public comments suggest (without any
guarantee) that tapering will conclude early in 2022, after
COVID-19 Pandemic
The COVID-19 pandemic caused extraordinary disruption
that negatively impacted the economy and business
activity, especially lending (other than lending related to
home mortgages). The impact of the pandemic on FHN's
performance is discussed further in Results of Operations
within this Item 7 beginning on page 63. During the course
of 2021, FHN saw the lending pipeline improve in several
areas (unrelated to home mortgages) as COVID-19
restrictions were partially or fully eased in most of FHN's
pandemic continues to affect FHN’s clients, political
uncertainty, changes in federal policies (including those
publicly discussed, formally proposed, or recently
implemented) and the potential impacts of those changes
on our businesses and clients, and whether FHN’s
strategic initiatives will succeed.
which no further asset purchases will be made, and that
hikes in short-term rates will commence in 2022, possibly
in the first quarter. FHN cannot predict whether short
term interest rates will be raised during the taper period
or at any other point in time.
Long term interest rates started to rise late in 2021,
continuing in 2022, though they remain very low by
historical standards. Public expectations related to
tapering, coupled with public Federal Reserve comments
and concerns about inflation in the U.S., likely have been
significant contributors to recent changes in long-term
rates.
Recently the Federal Reserve has indicated an expectation
to reduce its asset holdings in 2022 after purchases have
stopped. Although not currently expected, it is possible
that the Federal Reserve may decide to sell assets, rather
than merely letting them mature, in an effort to increase
long term interest rates more quickly or more robustly.
markets. Late in 2021 and continuing into early 2022, the
Omicron variant of the COVID-19 virus has triggered
reinstatement of some restrictions in some markets. Even
so, broadly speaking FHN expects the impact of COVID-19
restrictions to continue to diminish over the rest of this
year with further progress in vaccination rates and in
treatments for those who are infected. However, as
demonstrated by variants that arose in 2021, the risk of
resurgence remains.
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FHN continues to closely monitor the impact of the
pandemic and its effects on FHN's clients and
communities and on the financial markets. Throughout
the pandemic, FHN has worked with clients to discuss
challenges and solutions, provide line draws and new
LIBOR & Reference Rate Reform
LIBOR
The London Inter-Bank Offered Rate ("LIBOR") has been
the most widely used reference rate in the world for many
years. A substantial majority of FHN's floating rate loans
use LIBOR, denominated in U.S. Dollars ("USD"), as the
reference rate to determine the interest rate paid by the
client/borrower. In addition, certain floating-rate
securities issued by FHN use USD LIBOR as the reference
rate.
LIBOR is based on a mix of transaction-based data and
expert judgment about market conditions. It is published
in different tenors, which are time periods such as 1-week,
1-month, 12-month, etc.
LIBOR Discontinuance
About a decade ago, evidence emerged that some
members of the panel that set LIBOR may have
manipulated the published LIBOR rates rather than using
strictly good-faith judgments. Several banks were fined.
In 2017, the Chief Executive of the United Kingdom
Financial Conduct Authority (the “FCA”)—the
governmental regulator of LIBOR—announced that it
intends to halt persuading or compelling banks to submit
rates for the calculation of LIBOR after 2021. In 2021, the
FCA announced that tenors of USD LIBOR will no longer be
published as follows:
• One week and 2-month USD LIBOR will not be
published after December 31, 2021; and
• All other USD LIBOR tenors (e.g., overnight, 1-month,
3-month, 6-month and 12-month tenors) will not be
published after June 30, 2023.
U.S. Regulatory Position
In 2020, the Federal Reserve, the OCC, and the FDIC jointly
encouraged U.S. banks to transition away from LIBOR for
new contracts as soon as practicable and, in any event, by
December 31, 2021. They noted that entering into new
contracts that use LIBOR as a reference rate after
December 31, 2021 would create safety and soundness
risks.
Alternatives to LIBOR
LIBOR became the market-preferred reference rate
because it was perceived by lenders and borrowers as
being superior to alternatives in a wide range of
circumstances. FHN believes that no single alternative
reference rate will immediately replace LIBOR for USD
transactions. Instead, FHN believes it is likely that different
extensions to existing clients, provide support for small
businesses (including lending through the PPP), and
provide lending and deposit assistance through deferrals
and waived fees.
alternatives will be used in different circumstances.
Although it is difficult to predict which alternatives will be
favored by market participants in any particular situation,
at this time it seems likely that the following alternative
reference rates may be used by market participants once
USD LIBOR is discontinued:
• SOFR. The Alternative Reference Rates Committee
(“ARRC”) is a group of private-market and financial
regulator participants convened by the Federal
Reserve and the New York Federal Reserve Bank 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 based on
actual transaction data for the U.S. Treasury
repurchase market. Accordingly, SOFR represents a
riskless secured overnight rate.
• Term SOFR. Published by CME Group, Term SOFR is a
forward-looking rate, with 1-month, 3-month and 6-
month tenors, and is based on SOFR futures
contracts. The ARRC has recommended conventions
for Term SOFR rates and has recommended CME
Group as the administrator for Term SOFR.
• AMERIBOR. The American Interbank Offered Rate
(“AMERIBOR”) Index is produced by the American
Financial Exchange. AMERIBOR is based on actual
transaction data involving credit decisions by many
financial institutions, on an unsecured basis.
• BSBY. The Bloomberg short-term bank yield index
("BSBY") is a proprietary rate index calculated and
published by Bloomberg Index Services Limited. BSBY
is based on actual transaction data involving
unsecured credit.
• Prime. Although traditional prime rates (with each
bank setting its own) are not likely to regain the
prominence they had decades ago when U.S. banks
were much smaller and the industry was more
fragmented, for some clients and products banks may
increase their usage of prime rates.
The alternatives listed above were made available to the
majority of FHN’s commercial clients starting in November
2021. In accordance with the U.S. regulatory position, FHN
ceased entering into new LIBOR based contracts as of
December 31, 2021. Other alternative reference rates are
being developed and FHN may consider them at a future
time.
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Each alternative reference rate has advantages and
disadvantages compared with other alternatives in various
circumstances. Despite being supported by the Federal
Reserve's ARRC, SOFR may not gain the level of market
acceptance and usage that USD LIBOR enjoyed within the
U.S. Key aspects of SOFR that support this view are: (a)
SOFR fundamentally is an overnight rate, and so is not
easily or reliably translated into typical LIBOR tenors; and
(b) SOFR is both secured and riskless, and so does not
necessarily track a bank's cost of funds very well. For a
bank, it is critical to avoid significant mismatches over
time between its (variable) cost of funds and its (variable)
interest income. Term SOFR attempts to address some of
these shortcomings, but not all of them.
All of the alternative reference rates selected by FHN to
date meet the International Organization of Securities
Commissions (IOSCO) Principles for Financial Benchmarks,
as affirmed by the rate administrator and/or an
independent auditor. While banking regulators have
stated that banks are free to choose the index rates they
offer clients, some public sector officials have urged
caution in using the new credit sensitive alternative
reference rates, primarily due to the robustness of
underlying data used to derive the rates. More specifically,
there is concern of an “inverted pyramid” effect where a
large number of financial contracts could be priced using
an index derived from a relatively low volume of
transactions. In an interagency statement on October 20,
2021, U.S. banking regulatory agencies noted that
“supervised institutions should understand how their
chosen reference rate is constructed and be aware of any
fragilities associated with that rate and the markets that
underlie it”. IOSCO has also warned of the potential for
the “inverted pyramid” problem and will monitor how the
IOSCO label is used by administrators.
FHN is monitoring the credit sensitive reference rates and
regulatory guidance around use of such rates. FHN plans
to limit use of credit sensitive rates to commercial loans
(~2% of global USD LIBOR market) and related customer
swaps (pending development of derivatives markets for
these rates). Additionally, FHN expects that each financial
contract will contain fallback language to guide transition
from a credit sensitive rate to an alternative should that
action be deemed necessary in the future.
FHN's Actions to Date & Transition Plans
Starting in 2019, legacy First Horizon and legacy
IBERIABANK both modernized the fallback language used
in their loan documentation to better handle how floating
rate loans would be re-set if LIBOR ceased to be published
during the loan term.
In the fourth quarter of 2021, FHN ceased using USD
LIBOR for new lending and renegotiated terms with clients
whose loans are based on 1-week or 2-month USD LIBOR,
which ceased publication at the end of 2021. Only a small
portion of FHN's clients had such loans.
On the consumer side, the only LIBOR-based product FHN
currently offers was adjustable rate mortgages. For new
originations, these products transitioned to SOFR
beginning in November 2021. SOFR is emerging as a
market standard for adjustable rate mortgages and is the
conforming convention for Fannie Mae and Freddie Mac.
For all products, FHN developed a go-to-market strategy
which included pricing considerations, associate training,
and client communications. All required systems,
processes, and reporting were updated to accommodate
the transition. Each of the leading alternatives mentioned
above is undergoing further development and refinement,
and it remains unclear which alternative(s) FHN and its
clients generally will prefer, and in which situations. Given
these considerations, FHN's plans may change to meet
evolving market conditions and preferences.
FHN has established a LIBOR Transition Office to assist
associates in working with their clients to re-negotiate
terms of loan and derivative contracts that extend past
the June 30, 2023 cessation date for the remaining USD
LIBOR tenors noted above.
While FHN has exposure to LIBOR in various contracts (e.g.
securities, derivatives), FHN's primary exposure to LIBOR is
in floating rate loans to customers and derivative
contracts issued to customers through FHN Financial.
Below is a summary of these exposures as of December
31, 2021:
Table 7.29
LIBOR EXPOSURES
(Dollars in billions)
Commercial loans (a)
$
Consumer loans (a)
Customer swaps (b)
As of
December 31,
2021
Mature after
June 2023
25 $
4
11
17
4
10
(a) Amounts represent outstanding loan balances as of December 31,
2021.
(b) FHN has entered into offsetting upstream transactions with dealers to
offset its market risk exposure.
FHN is assessing the potential impacts on LIBOR-based
securities and derivative instruments.
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Table of Contents
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Financial Accounting Aspects
U.S. Tax Accommodation
In 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 in 2021 with ASU 2021-01, "Scope". Refer to the
Accounting Changes Issued but Not Currently Effective
section of Note 1 - Significant Accounting Policies for
additional information.
In December 2021, the FASB voted to extend the relief
under Topic 848 (Reference Rate Reform) by two years,
from December 31, 2022 to December 31, 2024.
On December 30, 2021, the IRS released final guidance
that is intended to facilitate the transition of existing
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 & 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 and leases's estimated life.
FHN believes that the principal 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
and associated weighting selected by management 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 prior
estimates, as necessary, are made in the period in which
these factors and other relevant considerations indicate
that loss levels vary from previous estimates.
Selection and weighting of macroeconomic forecasts are
the most significant inputs in quantitative ALLL
calculations. Due to the sensitivity of the ALLL
determination to macroeconomic forecasts, changes in
those forecasts can result in materially different results
between reporting periods. In the determination of the
ALLL as of December 31, 2021, FHN utilized Moody's
Baseline, S1 (more favorable) and S3 (adverse) scenarios
for the calculation of the ALLL. FHN placed the most
weight on Moody's Baseline scenario but also included
weightings for S1 and S3 scenarios, primarily to reflect the
uncertainty of macroeconomic forecasts related to the
ongoing economic impacts from the COVID-19 pandemic.
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Due to the dynamic relationship of macroeconomic inputs
in modeling calculations, quantifying the effects of
changing individual inputs is highly challenging.
Additionally, management applies judgment in developing
qualitative adjustments that are considered necessary to
appropriately reflect elements of credit risk that are not
captured in the quantitative model results. To provide
some hypothetical sensitivity analysis, FHN prepared two
alternate quantitative calculations, applying 100%
weighting to Moody's Baseline and S3 (adverse) scenarios.
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
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
These hypothetical calculations resulted in a 2.5%
reduction and 17.5% increase, respectively, in ALLL in
comparison to the ALLL recorded at December 31, 2021,
inclusive of qualitative adjustments that are affected by
the weighting of forecast scenarios.
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.
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 determining if a tax
position should be recognized and 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. Revisions in estimates may
be material to operating results for any given period.
See Note 15 - Income Taxes for additional information
including discussion of valuation allowances related to
deferred tax assets and the potential impact of
unrecognized tax benefits on future earnings.
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 and difficult to estimate.
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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 regarding FHN's existing material
contingent liabilities, including those with and without loss
accruals, and discussion of reasonably possible loss
amounts for pending litigation matters.
Accounting Changes with Extended Transition Periods
Refer to Note 1 – Significant Accounting Policies for a
detail of accounting changes with extended transition
periods, which section is incorporated into this MD&A by
this reference.
Non-GAAP Information
Certain measures are included in this report 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 and its business segments. Non-GAAP measures are
reported to FHN’s management and Board of Directors
through various internal reports.
The non-GAAP measures presented in this report are: pre-
provision net revenue, return on average tangible
common equity, tangible common equity to tangible
assets, adjusted tangible common equity to risk-weighted
assets, tangible book value per common share, and loans
and leases excluding PPP loans. Table 7.30 appearing in
the MD&A (Item 7 of Part II) of this report provides a
reconciliation of non-GAAP items presented in this report
to the most comparable GAAP presentation.
Presentation of regulatory measures, even those which
are not GAAP, provide a meaningful base for
Table 7.30
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 following table provides a reconciliation of non-GAAP
items presented in this MD&A to the most comparable
GAAP presentation:
(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)
NON-GAAP TO GAAP RECONCILIATION
2021
2020
2019
$ 1,994
$ 1,662
$ 1,210
1,076
3,070
2,096
1,492
3,154
1,718
654
1,864
1,233
$
974
$ 1,436
$
631
$ 8,494
$ 8,307
$ 5,076
295
295
295
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ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
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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
520
7,679
1,809
5,870
(36)
470
7,542
1,865
5,677
108
96
4,685
1,563
3,122
31
(D) Adjusted tangible common equity (Non-GAAP)
$ 5,906
$ 5,569
$ 3,091
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)
(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
Ratios
$ 89,092
$ 84,209
$ 43,311
1,809
1,865
1,563
$ 87,283
$ 82,344
$ 41,748
$ 8,479
$ 6,609
$ 4,920
295
506
7,678
1,836
295
297
6,017
1,696
295
96
4,529
1,575
$ 5,842
$ 4,321
$ 2,954
$
962
$
822
$
435
$ 64,183
$ 63,140
$ 37,046
533,577
555,031
311,469
(A)/(E) Total period-end equity to period-end assets (GAAP)
9.53 %
9.86 %
11.72 %
(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)
6.73
9.20
12.53
16.46
6.89
8.82
13.66
19.03
7.48
8.34
9.60
14.71
(B)/(K) Book value per common share (GAAP)
$ 14.39
$ 13.59
$ 15.04
(C)/(K) Tangible book value per common share (Non-GAAP)
$ 11.00
$ 10.23
$ 10.02
Loans and leases excluding PPP loans (Non-GAAP)
Commercial loans and leases excluding PPP loans
PPP loans
Total commercial loans and leases
Total consumer loans
Total loans and leases
(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.
$ 42,139
$ 41,327
1,038
4,052
43,177
45,379
11,682
12,853
$ 54,859
$ 58,232
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Table of Contents
ITEM 7A. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk
The information called for by this Item is incorporated
herein by reference to: 2021 MD&A (Item 7), which begins
on page 60 of this report; Note 22-Derivatives, which
begins on page 184 of this report; and Note 23-Master
Netting and Similar Agreements - Repurchase, Reverse
Repurchase, and Securities Borrowing Transactions, which
begins on page 191 of this report. Within 2021 MD&A,
these sections are especially pertinent to this Item 7A:
Market Risk Management and Interest Rate Risk
Management which begin, respectively, on pages 91 and
93 of this report. Notes 22 and 23 are part of our 2021
Financial Statements (Item 8).
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Table of Contents
ITEM 8 TOPICS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Item 8. Financial Statements and
Supplementary Data
TABLE OF ITEM 8 TOPICS
Report of Management on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Income
Statements of Comprehensive Income
Statements of Changes in Equity
Statements of Cash Flows
Notes to the Consolidated Financial Statements
Note 1 Significant Accounting Policies
Note 2 Acquisitions and Divestitures
Note 3 Investment Securities
Note 4 Loans and Leases
Note 5 Allowance for Credit Losses
Note 6 Premises, Equipment, and Leases
Note 7 Goodwill and Other Intangible Assets
Note 8 Mortgage Banking Activity
Note 9 Deposits
Note 10 Short-Term Borrowings
Note 11 Term Borrowings
Note 12 Preferred Stock
Note 13 Regulatory Capital and Restrictions
Note 14 Components of Other Comprehensive Income (Loss)
Note 15 Income Taxes
Note 16 Earnings Per Share
Note 17 Contingencies and Other Disclosures
Note 18 Retirement Plans and Other Employee Benefits
Note 19 Stock Options, Restricted Stock, and Dividend Reinvestment Plans
109
111
114
115
117
118
120
122
122
134
136
139
146
149
152
153
154
155
156
158
159
162
163
167
168
170
175
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ITEM 8 TOPICS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 20 Business Segment Information
Note 21 Variable Interest Entities
Note 22 Derivatives
Note 23 Master Netting and Similar Agreements - Repurchase, Reverse Repurchase, and Securities
Borrowing Transactions
Note 24 Fair Value of Assets and Liabilities
Note 25 Restructuring, Repositioning, and Efficiency
Note 26 Parent Company Financial Information
Note 27 Subsequent Events
178
181
184
191
193
209
210
212
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Table of Contents
MANAGEMENT REPORT ON ICOFR
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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, 2021. 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, 2021.
KPMG LLP, the independent registered public accounting firm that audited First Horizon Corporation's financial statements,
issued an audit report on First Horizon Corporation’s internal control over financial reporting. That report appears on the
following page.
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OPINION ON ICOFR
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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, 2021, 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, 2021, 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, 2021 and 2020, 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, 2021, and the related notes (collectively, the consolidated financial statements), and our report
dated March 1, 2022 expressed an unqualified opinion on those consolidated financial statements.
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.
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
March 1, 2022
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Table of Contents
OPINION ON CONSOLIDATED FINANCIAL STATEMENTS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations
and its cash flows for each of the years in the three-year period ended December 31, 2021, 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, 2021, 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 March 1, 2022 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Change in Accounting Principle
As discussed in Notes 1 and 5 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 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 Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates 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 a critical audit matter 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 matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of the allowance for loan losses for loans collectively evaluated for impairment
As discussed in Notes 1 and 5 to the consolidated financial statements, the Company’s total allowance for loan losses
as of December 31, 2021 was $670 million, of which a portion related to the allowance for loan losses for loans
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OPINION ON CONSOLIDATED FINANCIAL STATEMENTS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
collectively evaluated for impairment (the collective ALLL). The collective ALLL includes the measure of expected
credit losses on a collective (pooled) basis for those loans that share similar risk characteristics. The Company
estimated the collective ALLL using a current expected credit 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 credit losses are the product of multiplying the Company’s estimates
of probability of default (PD), loss given default (LGD), and individual loan level exposure at default (EAD), including
amortization and prepayment assumptions, on an undiscounted basis. The Company uses models or assumptions to
develop expected loss forecasts, which incorporate a weighting approach for multiple macroeconomic forecasts 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 periods, for the
remaining estimated 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, generally 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 differences in economic
conditions 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 of the
collective ALLL due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation
of the collective ALLL methodology, including the methods and models used to estimate the PD, LGD, and
prepayments and their significant assumptions, which included the reasonable and supportable forecast period, the
economic forecast scenarios and macroeconomic assumptions. The assessment also included the evaluation of
certain qualitative adjustments and their significant assumptions. The significant assumptions are sensitive to
variation, such that minor changes in the assumption can cause significant changes in the estimates. 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 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 estimate, including controls over the:
•
•
•
•
•
assessment of the collective ALLL methodology
performance monitoring of the PD, LGD and prepayment models
continued use and appropriateness of changes to the PD, LGD, and prepayment models, including 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 estimate 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
evaluating judgments made by the Company relative to the 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 the model documentation to determine whether the models are suitable for their intended use
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OPINION ON CONSOLIDATED FINANCIAL STATEMENTS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
•
•
•
evaluating the selection of the economic forecast scenarios by comparing to the Company’s business
environment and relevant industry practices
evaluating the length of the reasonable and supportable forecast period by comparing to specific portfolio
risk characteristics and trends
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 the underlying quantitative models.
We also assessed the sufficiency of the audit evidence obtained related to the collective ALLL estimate 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
March 1, 2022
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Table of Contents
CONSOLIDATED BALANCE SHEETS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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
Securities held to maturity (fair value of $705 and $10, respectively)
Loans held for sale (including $258 and $405 at fair value, respectively)
Loans and leases (including $— and $16 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 26,750 and 26,250 shares, respectively
Common stock, $0.625 par value; authorized 700,000,000 shares; issued 533,576,766
and 555,030,652 shares, respectively
Capital surplus
Retained earnings
Accumulated other comprehensive loss, net
FHN shareholders' equity
Noncontrolling interest
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
December 31,
2021
2020
$
1,147 $
14,907
641
1,601
8,707
712
1,172
54,859
(670)
54,189
665
1,511
298
3,542
1,203
8,351
445
1,176
8,047
10
1,022
58,232
(963)
57,269
759
1,511
354
4,062
$
$
89,092 $
84,209
27,883 $
47,012
74,895
426
2,124
1,590
1,563
80,598
520
333
4,743
2,891
(288)
8,199
295
8,494
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
$
89,092 $
84,209
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Table of Contents
CONSOLIDATED STATEMENTS OF INCOME
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Consolidated Statements of Income
(Dollars in millions, except per share data; shares in thousands)
2021
2020
2019
Year Ended December 31
Interest income
Interest and fees on loans and leases
Interest and fees on loans held for sale
Interest on investment securities
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
Card and digital banking fees
Trust services and investment management
Other service charges and fees
Securities gains (losses), net
Purchase accounting gain
Other income
Total noninterest income
Noninterest expense
Personnel expense
Net occupancy expense
Computer software
Operations services
Legal and professional fees
Contract employment and outsourcing
Amortization of intangible assets
Equipment expense
Communications and delivery
Advertising and public relations
Impairment of long-lived assets
Contributions
Other expense
Total noninterest expense
Income before income taxes
$
1,957 $
33
1,722 $
30
121
30
17
2,158
81
6
5
72
164
1,994
(310)
2,304
406
175
154
88
78
51
44
13
(1)
68
105
35
6
1,898
152
6
14
64
236
1,662
503
1,159
423
148
129
66
60
39
26
(6)
533
74
1,076
1,492
1,210
137
116
1,033
116
85
80
68
67
56
47
37
37
34
14
193
2,096
1,284
56
84
24
40
42
31
18
7
41
141
1,718
933
1,394
31
121
47
31
1,624
307
13
41
53
414
1,210
45
1,165
279
132
10
55
49
30
21
—
—
78
654
695
80
61
46
72
13
25
34
25
34
23
11
114
1,233
586
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Table of Contents
CONSOLIDATED STATEMENTS OF INCOME
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Income tax expense
Net income
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
See accompanying notes to consolidated financial statements.
274
76
1,010 $
857 $
11
12
999 $
845 $
37
962 $
1.76 $
1.74 $
23
822 $
1.90 $
1.89 $
$
$
$
$
$
134
452
11
441
6
435
1.39
1.38
546,354
551,241
432,125
433,717
313,637
315,657
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Table of Contents
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Consolidated Statements of Comprehensive Income
(Dollars in millions)
Net income
Year Ended December 31
2021
2020
2019
$
1,010 $
857 $
452
Other comprehensive income (loss), net of tax:
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.
(144)
(10)
6
(148)
862
11
77
9
13
99
956
12
851 $
944 $
(46) $
25 $
(3)
2
3
3
107
15
15
137
589
11
578
35
5
5
117
2021 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
318,573
$
200
$ 3,029
$ 1,542
$
(376) $
295 $ 4,786
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Table of Contents
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Consolidated Statements of Changes in Equity
(Dollars in millions, except per share data; shares in
thousands)
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
Common stock ($.56 per share)
Common stock repurchased (b)
Common stock issued for:
Stock options exercised and restricted stock awards
Stock-based compensation expense
Dividends declared - noncontrolling interest of
subsidiary preferred stock
Balance, December 31, 2019
Adjustment to reflect adoption of ASU 2016-13
Beginning balance, as adjusted
Net income
Other comprehensive income (loss)
Comprehensive income (loss)
Cash dividends declared:
Preferred stock
Common stock ($.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 exercised and restricted stock awards
Net income
Other comprehensive income (loss)
Comprehensive income (loss)
Cash dividends declared:
Preferred stock
Common stock ($0.60 per share)
Preferred stock issuance (1,500 shares issued at
$100,000 per share net of offering costs)
Call of preferred stock
Common stock repurchased (b)
Common stock issued for:
Stock options exercised and restricted stock awards
Stock-based compensation expense
Dividends declared - noncontrolling interest of
subsidiary preferred stock
1,000
$
—
1,000
—
—
—
—
—
—
—
—
—
1,000
—
1,000
—
—
—
—
—
1,500
—
—
96
—
96
—
—
—
—
—
—
—
—
—
96
—
96
—
—
—
—
—
144
—
—
318,573
—
—
—
—
—
(9,100)
1,996
—
—
311,469
—
311,469
—
—
—
—
—
—
(426)
—
1,726
—
—
—
—
—
—
—
—
—
—
1,500
(1,000)
145
(95)
—
—
—
—
—
—
—
—
200
—
—
—
—
—
(6)
1
—
—
195
—
195
—
—
—
—
—
—
—
—
152
—
—
—
347
—
—
—
—
—
—
—
—
(1)
3,029
1,541
—
—
—
—
—
(128)
8
22
—
441
—
441
(6)
(178)
—
—
—
—
2,931
1,798
—
(96)
2,931
1,702
—
—
—
—
—
—
(4)
7
2,115
32
—
(7)
845
—
845
(23)
(263)
—
—
—
—
—
—
—
5,074
2,261
—
—
—
—
—
—
—
999
—
999
(32)
(332)
—
(5)
—
—
—
—
—
—
—
—
—
(25,063)
(16)
(400)
—
—
—
3,609
—
—
2
—
—
26
43
—
Issued in business combination (c)
23,750
230
243,015
Stock-based compensation expense
Dividends declared - noncontrolling interest of
subsidiary preferred stock
Other (d)
—
—
—
—
—
—
—
—
(753)
Balance, December 31, 2020
26,250
470
555,031
—
(376)
—
137
137
—
—
—
—
—
—
(239)
—
(239)
—
99
99
—
—
—
—
—
—
—
—
—
(140)
—
(148)
(148)
—
—
—
—
—
—
—
—
—
295
11
—
11
—
—
—
—
—
(11)
295
—
295
12
—
12
—
—
—
—
—
—
—
(12)
—
295
11
—
11
—
—
—
—
—
—
—
(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)
8,307
1,010
(148)
862
(32)
(332)
145
(100)
(416)
28
43
(11)
(11)
Balance, December 31, 2021
26,750
$
520
533,577
$
333
$ 4,743
$ 2,891
$
(288) $
295 $ 8,494
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Table of Contents
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
(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.
(b) 2021, 2020, and 2019 include $401 million, $4 million, and $130 million, respectively, repurchased under share repurchase programs.
(c) See Note 2- Acquisitions and Divestitures for additional information.
(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.
See accompanying notes to consolidated financial statements.
119
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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS
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:
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 trading securities
Net (increase) decrease in derivatives
Purchase accounting gain
Stock-based compensation expense
Securities (gains) losses, net
Loss on debt extinguishment
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
Purchases of securities held to maturity
Proceeds from prepayments of securities held to maturity
Proceeds from sales of premises and equipment
Purchases of premises and equipment
Proceeds from sales and pay downs 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
Cancellation of common shares
Preferred stock issuance
Call of preferred stock
Cash dividends paid - preferred stock - noncontrolling interest
Year Ended December 31
2020
2019
2021
$
1,010 $
857 $
452
(310)
—
61
56
(67)
1,824
412
1
43
(13)
26
29
(8)
(6,644)
4,451
(205)
75
(269)
741
68
2,771
(3,736)
(720)
17
42
(53)
—
22
3,509
(6,556)
—
19
(4,617)
28
(333)
(416)
—
145
(100)
(11)
503
(18)
52
40
(30)
1,912
(223)
(533)
32
6
—
8
(5)
(4,710)
2,907
(81)
(545)
(685)
172
629
4,099
(4,740)
—
—
12
(58)
—
12
(819)
(6,187)
2,071
14
(4,967)
7
(222)
(4)
(7)
144
—
(12)
45
14
44
25
(3)
1,423
(134)
—
22
—
—
22
(5)
(2,075)
818
(7)
189
378
830
192
800
(630)
—
—
20
(49)
20
14
(3,570)
795
—
18
(2,390)
9
(171)
(134)
—
—
—
(11)
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2021 FORM 10-K ANNUAL REPORT
Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Cash dividends paid - preferred stock
Net increase (decrease) in deposits
Net increase (decrease) in short-term borrowings
Increases (decreases) in term borrowings
Net cash provided by (used in) financing activities
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
See accompanying notes to consolidated financial statements.
(33)
4,919
(75)
(108)
4,016
140
1,648
1,788 $
170 $
258
30
4
2,232
31
(17)
7,143
(1,529)
(327)
5,176
381
1,267
1,648 $
261 $
105
36
2
1,742
9
(6)
(253)
2,384
(396)
1,422
(138)
1,405
1,267
411
71
28
9
1,321
31
$
$
121
2021 FORM 10-K ANNUAL REPORT
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Table of Contents
NOTE 1—SIGNIFICANT ACCOUNTING POLICIES
Notes to the Consolidated Financial Statements
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.
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.
Merger with IBERIABANK Corporation
Fixed Income
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.
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
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
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
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.
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Brokerage, Management Fees and Commissions
Statements of Cash Flows
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.
Card and Digital Banking Fees
Card and digital banking fees include 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, 2021, accounts receivable related to
products and services on non-interest income were
$12 million. For the year ended December 31, 2021, 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, 2021. 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, 2021, 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.
For purposes of these statements, cash and due from
banks, federal funds sold, and securities purchased under
agreements to resell are considered cash and cash
equivalents. Federal funds are usually sold for one-day
periods, and securities purchased under agreements to
resell are short-term, highly liquid investments.
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 were
classified in securities AFS and valued at elected fair value
in periods prior to October 1, 2021 at which time they
were transferred to trading securities. 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.
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 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 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 debt securities based on its policy to write off
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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 debt securities is
included within other assets in the Consolidated Balance
Sheet.
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 2021.
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 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.
• Fair Value Option Election. These loans consist of
originated fixed rate single-family residential
mortgage loans that are 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, gains on
sale are recognized through noninterest income. Net
unrealized losses, if any, are recognized through a
valuation allowance that is also recorded as a charge
to noninterest income.
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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. Loan commitment
fees are generally deferred and amortized on a straight-
line basis over the commitment period.
Equipment financing leases to commercial clients 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 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 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. Consumer loans are
generally placed into nonaccrual status no later than 90
days past due.
• The accrual status policy for commercial TDRs follows
the same internal policies and procedures as other
commercial portfolio loans.
• Residential real estate loans discharged through
Chapter 7 bankruptcy and not reaffirmed by the
borrower (“discharged bankruptcies”) are placed on
nonaccrual and are reported as TDRs. They are not
returned to accrual status even if current and
performing in the future.
• Current second lien residential real estate loans that
are junior to first liens are placed on nonaccrual
status if in bankruptcy.
• 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.
When commercial and consumer loans within each
portfolio segment and class are placed on nonaccrual
status, accrued but uncollected interest is reversed and
charged against interest income. 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.
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NOTE 1—SIGNIFICANT ACCOUNTING POLICIES
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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 segment, 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-offs against
the allowance related to such acquired PCD loans do not
result in an income statement impact.
Purchased Credit-Deteriorated Loans
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.
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.
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.
Management's estimate of expected credit losses in the
loan and lease portfolio is recorded in the ALLL and the
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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
methodologies 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". ASC 326-20 was adopted on
January 1, 2020 and for periods prior to that 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 probably 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 purchased credit impaired 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.
Subsequent to December 31, 2019, 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
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
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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.
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.
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
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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
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.
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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 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 net occupancy expense in the
Consolidated Statements of Income.
Investment Tax Credit
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
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recorded amount, FHN would 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. 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.
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 cash
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.
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,
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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. Business
combinations are included in the financial statements
from the respective dates of acquisition. 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.
2022 Merger Agreement with Toronto-Dominion Bank
On February 27, 2022, FHN entered into an Agreement
and Plan of Merger (the “TD Merger Agreement”) with
The Toronto-Dominion Bank, a Canadian chartered bank
(“TD”), TD Bank US Holding Company, a Delaware
corporation and indirect, wholly owned subsidiary of TD
(“TD-US”), and Falcon Holdings Acquisition Co., a
Delaware corporation and direct, wholly owned subsidiary
of TD-US (“Merger Sub”). Refer to Note 27 – Subsequent
Events, beginning on page 212, for additional information
regarding the proposed transaction. Merger and
integration expenses related to the Proposed TD Merger
will be recorded in FHN’s Corporate segment. No such
expenses were recognized during 2021.
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 identified
contracts affected by reference rate reform and
developed modification plans for those contracts. FHN has
elected to utilize the optional expedients and exceptions
provided by ASU 2020-04 for certain contract
modifications that have already been implemented. FHN
anticipates that it will continue to utilize the expedients
and exceptions for future modifications in situations
where they mitigate potential accounting outcomes that
do not faithfully represent management’s intent or risk
management activities, consistent with the purpose of the
standard.
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The FASB has voted to approve an extension of the
transition window for ASU 2020-04 until December 31,
2024, consistent with key USD LIBOR tenors continuing to
be published through June 30, 2023.
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 FHN's centrally cleared
derivatives were affected by the change in discounting
convention and because FHN 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
results of operations.
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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 2—Acquisitions and Divestitures
IBKC Merger of Equals
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 was accounted for as a
business combination. Accordingly, the assets acquired
Table 8.2.1
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 the 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.
MERGER CONSIDERATION ALLOCATIONS
IBERIABANK Corporation
(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
$
$
$
$
$
$
$
$
395
1,683
3,544
320
25,921
(284)
240
311
9
1,153
33,292
28,232
209
1,200
618
30,259
3,033
2,243
28
231
2,502
(531)
Consideration paid:
Consideration for outstanding common stock
Consideration for equity awards
Consideration for preferred stock
Total consideration paid
Purchase accounting gain
(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
$531 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 purchase accounting gain is not taxable. The
valuation of the IBKC merger-of-equals transaction was
final as of June 30, 2021.
On July 17, 2020, First Horizon Bank completed its
purchase of 30 branches from Truist Bank. As of December
31, 2020, the valuation of the acquired assets and
liabilities assumed from the Truist branches acquisition
was final. 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 -
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Goodwill and Other Intangible Assets for additional
information). This goodwill was the result of expected
synergies, operational efficiencies and other factors.
Total merger and integration expense recognized for the
years ended December 31, 2021 and 2020 are presented
in the following table:
Expenses related to FHN's merger and integration
activities are recorded in FHN's Corporate segment.
Table 8.2.2
(Dollars in millions)
Personnel expense (a)
Impairment of long-lived assets
Legal and professional fees (b)
Contract employment and outsourcing
Advertising and public relations
Contribution expense (c)
Other expense (d)
Total
MERGER & INTEGRATION EXPENSE
2021
2020
$
$
56 $
34
21
12
10
—
54
187 $
66
6
39
1
—
20
23
155
(a) Primarily comprised of fees for severance and retention.
(b) Primarily comprised of fees for legal, accounting, and merger consultants.
(c) Comprised of contribution expense related to the establishment of the Louisiana First Horizon Foundation.
(d) Consists of operation services, communications and delivery, equipment expense, supplies, travel and entertainment, computer software, occupancy
expense (including costs associated with lease exits) and costs of shareholder matters.
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.
2022 Merger Agreement with Toronto-Dominion Bank
On February 27, 2022, FHN entered into the TD Merger
Agreement with TD, TD-US, and Merger Sub. Refer to Note
27—Subsequent Events for additional information
regarding the proposed transaction. Merger and
integration expenses related to the Proposed TD Merger
will be recorded in FHN’s Corporate segment. No such
expenses were recognized during 2021.
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NOTE 3—INVESTMENT SECURITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 3—Investment Securities
The following tables summarize FHN’s investment securities as of December 31, 2021 and 2020:
Table 8.3.1a
INVESTMENT SECURITIES AT YE 2021
(Dollars in millions)
Securities available for sale:
Government agency issued MBS
Government agency issued CMO
Other U.S. government agencies
States and municipalities
Total securities available for sale (a)
Securities held to maturity:
Government agency issued MBS
Government agency issued CMO
Total securities held to maturity
December 31, 2021
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
Fair
Value
$
5,062 $
42 $
(49) $
2,296
861
535
8
4
11
(47)
(15)
(1)
8,754 $
65 $
(112) $
509 $
203
712 $
— $
—
— $
(5) $
(2)
(7) $
$
$
$
5,055
2,257
850
545
8,707
504
201
705
(a) Includes $6.5 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes.
Table 8.3.1b
INVESTMENT SECURITIES AT YE 2020
(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 $
— $
— $
3,722
2,380
672
40
445
92
29
12
1
15
$
7,872 $
149 $
(2)
(3)
—
(1)
—
(6)
$
— $
— $
613
3,812
2,406
684
40
460
8,015
32
8,047
10
10
Securities held to maturity:
Corporate and other debt
Total securities held to maturity
$
$
10 $
10 $
— $
— $
(a) SBA interest-only strips were recorded at elected fair value. See Note 24 - Fair Value of Assets and Liabilities for additional information.
(b) Includes $6.4 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes.
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NOTE 3—INVESTMENT SECURITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
The amortized cost and fair value by contractual maturity for the debt securities portfolio as of December 31, 2021 is provided
below:
Table 8.3.2
DEBT SECURITIES PORTFOLIO MATURITIES
(Dollars in millions)
Within 1 year
After 1 year through 5 years
After 5 years through 10 years
After 10 years
Subtotal
Held to Maturity
Available for Sale
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$
— $
— $
17 $
—
—
—
—
—
—
—
—
705
149
351
879
1,396
7,358
705 $
8,754 $
18
149
349
879
1,395
7,312
8,707
Government agency issued MBS and CMO (a)
Total
$
712
712 $
(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 AFS securities for the years ended
December 31, 2021, 2020 and 2019 were insignificant.
Gross losses on sales of AFS securities were insignificant
for the year ended December 31, 2021, $4 million for the
year ended 2020, and insignificant for the year ended
December 31, 2019. Cash proceeds from the sales of AFS
Table 8.3.3a
securities during 2021, 2020 and 2019 were $68 million,
$629 million, and $192 million, respectively.
The following tables provide information on investments
within the available-for-sale portfolio that had unrealized
losses as of December 31, 2021 and 2020:
AFS INVESTMENT SECURITIES WITH UNREALIZED LOSSES AT YE 2021
As of December 31, 2021
Less than 12 months
12 months or longer
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$
2,973 $
(41) $
184 $
(8) $
3,157 $
1,436
459
68
(37)
(11)
(1)
248
90
—
(10)
(4)
—
1,684
549
68
(49)
(47)
(15)
(1)
$
4,936 $
(90) $
522 $
(22) $
5,458 $
(112)
(Dollars in millions)
Government agency issued MBS
Government agency issued CMO
Other U.S. government agencies
States and municipalities
Total
Table 8.3.3b
AFS INVESTMENT SECURITIES WITH UNREALIZED LOSSES AT YE 2020
(Dollars in millions)
U.S. treasuries
Government agency issued MBS
Government agency issued CMO
Other U.S. government agencies
States and municipalities
Total
Less than 12 months
As of December 31, 2020
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)
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
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NOTE 3—INVESTMENT SECURITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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 $23 million and $22 million as of December 31, 2021
and 2020, respectively. Consistent with FHN's review of
the related securities, there were no credit-related write
downs of AIR for AFS debt securities during the reporting
period. Additionally, for AFS debt securities with
unrealized losses, 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 HTM securities, an allowance for credit losses is
required to absorb estimated lifetime credit losses. Total
AIR not included in the fair value or amortized cost basis
of HTM debt securities was $1 million as of December 31,
2021. FHN has assessed the risk of credit loss and has
determined that zero allowance for credit losses for HTM
securities was necessary as of December 31, 2021 and
2020. 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.
The carrying amount of equity investments without a
readily determinable fair value was $70 million and $57
million at December 31, 2021 and 2020, respectively. The
year-to-date 2021 and 2020 gross amounts of upward and
downward valuation adjustments were not significant.
Unrealized gains of $3 million and $7 million were
recognized during 2021 and 2020, respectively, for equity
investments with readily determinable fair values.
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NOTE 4—LOANS & LEASES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 4—Loans and Leases
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.
The following table provides the amortized cost basis of
loans and leases by portfolio segment and class as of
December 31, 2021 and 2020, excluding accrued interest
of $134 million and $180 million, respectively, which is
included in other assets in the Consolidated Balance
Sheets.
LOANS AND LEASES BY PORTFOLIO SEGMENT
Table 8.4.1
(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
Net loans and leases
December 31,
2021
2020
$
26,550 $
4,518
31,068
12,109
1,964
8,808
10,772
910
54,859 $
(670)
54,189 $
$
$
27,700
5,404
33,104
12,275
2,420
9,305
11,725
1,128
58,232
(963)
57,269
(a) Includes equipment financing leases of $792 million and $587 million, respectively, as of December 31, 2021 and 2020.
(b) Includes PPP loans fully guaranteed by the SBA of $1.0 billion and $4.1 billion as of December 31, 2021 and 2020.
Restrictions
Loans and leases with carrying values of $36.6 billion and
$38.6 billion were pledged as collateral for borrowings at
December 31, 2021 and 2020, respectively.
At December 31, 2021 and 2020, FHN had pledged
$6.9 billion and $7.8 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, 2021, FHN had loans to mortgage
companies totaling $4.5 billion and loans to finance and
insurance companies total $3.5 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
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NOTE 4—LOANS & LEASES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
identified a segment of its commercial portfolio that
required 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 commercial 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
Table 8.4.2a
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,
2021 and 2020:
C&I PORTFOLIO AT YE 2021
December 31, 2021
(Dollars in millions)
2021
2020
2019
2018
2017
Credit Quality Indicator:
Prior to
2017
LMC (a)
Revolving
Loans
Revolving
Loans Converted
to Term Loans
(b)
Total
Pass (PD grades 1 through 12) (c)
$ 7,372
$ 3,576
$ 3,439
$ 1,455
$ 1,193
$ 2,267
$ 4,518
$
6,386 $
13 $
30,219
Special Mention (PD grade 13)
Substandard, Doubtful, or Loss (PD
grades 14,15, and 16)
25
24
39
61
50
67
48
103
36
24
43
48
—
—
100
129
4
48
345
504
Total C&I
$ 7,421
$ 3,676
$ 3,556
$ 1,606
$ 1,253
$ 2,358
$ 4,518
$
6,615 $
65 $
31,068
(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) C&I loans converted from revolving to term in 2021 were not material.
(c) Includes PPP loans.
Table 8.4.2b
C&I PORTFOLIO AT YE 2020
December 31, 2020
(Dollars in millions)
2020
2019
2018
2017
2016
Credit Quality Indicator:
Prior to
2016
LMC (a)
Revolving
Loans
Revolving
Loans Converted
to Term Loans
(b)
Total
Pass (PD grades 1 through 12) (c)
$ 9,060 $ 5,138 $ 2,628 $ 1,748 $ 1,161 $ 2,145 $ 5,404 $
4,571 $
60 $
31,915
Special Mention (PD grade 13)
Substandard, Doubtful, or Loss (PD
grades 14,15, and 16)
89
182
93
77
70
114
31
50
37
42
64
58
—
—
127
95
1
59
512
677
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) Includes PPP loans.
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Table of Contents
Table 8.4.2c
(Dollars in millions)
Credit Quality Indicator:
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 4—LOANS & LEASES
CRE PORTFOLIO AT YE 2021
December 31, 2021
2021
2020
2019
2018
2017
Prior to
2017
Revolving
Loans
Revolving
Loans Converted
to Term Loans
Total
Pass (PD grades 1 through 12)
$ 3,441 $ 2,065 $ 2,514 $
929 $
691 $ 1,822 $
204 $
— $
Special Mention (PD grade 13)
Substandard, Doubtful, or Loss (PD grades
14,15, and 16)
4
47
26
—
52
24
125
3
20
33
65
32
—
12
—
—
Total CRE
$ 3,492 $ 2,091 $ 2,590 $ 1,057 $
744 $ 1,919 $
216 $
— $
11,666
292
151
12,109
Table 8.4.2d
CRE PORTFOLIO AT YE 2020
December 31, 2020
(Dollars in millions)
2020
2019
2018
2017
2016
Credit Quality Indicator:
Prior to
2016
Revolving
Loans
Revolving
Loans Converted
to Term Loans
Total
Pass (PD grades 1 through 12)
$ 2,477
$ 3,311
$ 1,750
$ 1,140 $
946 $ 1,800 $
259 $
19 $
11,702
Special Mention (PD grade 13)
Substandard, Doubtful, or Loss (PD grades
14,15, and 16)
48
30
24
13
117
21
75
42
71
27
54
33
—
18
—
—
389
184
Total CRE
$ 2,555
$ 3,348
$ 1,888
$ 1,257 $ 1,044 $ 1,887 $
277 $
19 $
12,275
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 tables reflect the amortized cost basis by
year of origination and refreshed FICO scores for
Table 8.4.3a
consumer real estate loans as of December 31, 2021 and
2020. Within consumer real estate, classes include HELOC
and real estate installment loans. 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 fixed term loans
and are classified below in their vintage year. All loans in
the following tables classified in a vintage year are real
estate installment loans.
CONSUMER REAL ESTATE PORTFOLIO AT YE 2021
December 31, 2021
(Dollars in millions)
2021
2020
2019
2018
2017
Prior to
2017
Revolving
loans
Revolving
Loans
converted
to term
loans (a)
Total
FICO score 740 or greater
$
1,594 $
1,156 $
825 $
473 $
394 $
1,335 $
1,086 $
115 $
6,978
FICO score 720-739
FICO score 700-719
FICO score 660-699
FICO score 620-659
FICO score less than 620
236
143
164
42
26
171
112
131
36
84
109
81
120
55
42
61
68
106
23
32
44
45
44
13
45
209
153
246
118
272
162
141
204
66
42
21
23
44
27
33
1,013
766
1,059
380
576
Total
$
2,205 $
1,690 $
1,232 $
763 $
585 $
2,333 $
1,701 $
263 $ 10,772
(a) $43 million of HELOC loans were converted from revolving to term in 2021.
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Table 8.4.3b
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 4—LOANS & LEASES
CONSUMER REAL ESTATE PORTFOLIO AT YE 2020
December 31, 2020
(Dollars in millions)
2020
2019
2018
2017
2016
Prior to
2016
Revolving
loans
Revolving
Loans
converted
to term
loans (a)
Total
FICO score 740 or greater
$
1,186 $
1,167 $
703 $
610 $
674 $
1,719 $
1,275 $
159 $
7,493
FICO score 720-739
FICO score 700-719
FICO score 660-699
FICO score 620-659
FICO score less than 620
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 tables reflect the amortized cost basis by year of origination and refreshed FICO scores for credit card and other
loans as of December 31, 2021 and 2020.
Table 8.4.4a
CREDIT CARD & OTHER PORTFOLIO AT YE 2021
December 31, 2021
(Dollars in millions)
2021
2020
2019
2018
2017
Prior to
2017
Revolving
loans
Revolving
Loans
converted
to term
loans
Total
FICO score 740 or greater
$
56 $
35 $
29 $
23 $
13 $
56 $
200 $
11 $
423
FICO score 720-739
FICO score 700-719
FICO score 660-699
FICO score 620-659
FICO score less than 620
14
8
25
4
24
5
5
6
3
3
4
4
5
2
3
3
4
6
4
4
4
3
4
3
4
17
17
31
18
16
46
42
98
22
18
3
1
2
1
1
96
84
177
57
73
Total
$
131 $
57 $
47 $
44 $
31 $
155 $
426 $
19 $
910
(a) $9 million of other consumer loans were converted from revolving to term in 2021.
Table 8.4.4b
CREDIT CARD & OTHER PORTFOLIO AT YE 2020
December 31, 2020
(Dollars in millions)
2020
2019
2018
2017
2016
Prior to
2016
Revolving
loans
Revolving
Loans
converted
to term
loans
FICO score 740 or greater
$
57 $
52 $
59 $
37 $
23 $
116 $
159 $
5 $
FICO score 720-739
FICO score 700-719
FICO score 660-699
FICO score 620-659
FICO score less than 620
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
Total
508
159
116
172
77
96
Total
$
122 $
91 $
107 $
78 $
63 $
279 $
373 $
15 $
1,128
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
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NOTE 4—LOANS & LEASES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
continues to receive payments but there are other
borrower-specific 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
Table 8.4.5a
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. When qualifying COVID-19 deferral periods end,
the related loans are subject to past due reporting.
The following tables reflect accruing and non-accruing
loans and leases by class on December 31, 2021 and 2020:
ACCRUING & NON-ACCRUING LOANS & LEASES AT YE 2021
(Dollars in millions)
Current
Accruing
30-89
Days
Past Due
90+
Days
Past Due
December 31, 2021
Non-Accruing
Total
Accruing
Current
30-89
Days
Past Due
90+
Days
Past Due
Total
Non-
Accruing
Total
Loans
Commercial, financial, and
industrial:
C&I (a)
Loans to mortgage
companies
Total commercial,
financial, and industrial
Commercial real estate:
CRE (b)
Consumer real estate:
HELOC (c)
Real estate installment
loans (d)
Total consumer real
estate
Credit card and other:
Credit card
Other
Total credit card and
other
$
26,367 $
53 $
5 $
26,425 $
97 $
1 $
27 $
125 $
26,550
4,518
30,885
12,087
1,906
8,658
10,564
292
608
900
—
53
13
7
30
37
2
3
5
—
5
—
6
27
33
2
—
2
4,518
30,943
12,100
1,919
8,715
10,634
296
611
907
—
97
6
34
44
78
—
1
1
—
1
1
2
3
5
—
—
—
—
27
2
9
46
55
—
2
2
—
125
9
45
93
4,518
31,068
12,109
1,964
8,808
138
10,772
—
3
3
296
614
910
Total loans and leases
$
54,436 $
108 $
40 $
54,584 $
182 $
7 $
86 $
275 $
54,859
(a) $99 million of C&I loans are nonaccrual loans that have been specifically reviewed for impairment with no related allowance.
(b) $5 million of CRE loans are nonaccrual loans that have been specifically reviewed for impairment with no related allowance.
(c) $7 million of HELOC loans are nonaccrual loans that have been specifically reviewed for impairment with no related allowance.
(d) $50 million of real estate installment loans are nonaccrual loans that have been specifically reviewed for impairment with no related allowance.
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Table of Contents
Table 8.4.5b
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 4—LOANS & LEASES
ACCRUING & NON-ACCRUING LOANS & LEASES AT YE 2020
(Dollars in millions)
Current
Accruing
30-89
Days
Past Due
90+
Days
Past Due
December 31, 2020
Non-Accruing
Total
Accruing
Current
30-89
Days
Past Due
90+
Days
Past Due
Total
Non-
Accruing
Total
Loans
Commercial, financial, and
industrial:
C&I (a)
Loans to mortgage
companies
Total commercial,
financial, and industrial
Commercial real estate:
CRE (b)
Consumer real estate:
HELOC
Real estate installment
loans
Total consumer real
estate
Credit card and other:
Credit card
Other
Total credit card and
other
$
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
—
88
10
43
63
11,543
106
283
844
1,127
—
1
1
—
12
42
3
9
12
—
—
—
—
44
6
14
50
64
—
1
1
—
144
58
60
122
182
—
2
2
5,404
33,104
12,275
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.
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, 2021 and 2020, FHN had commercial
loans with amortized cost of approximately $120 million
and $167 million, respectively, that were based on the
value of underlying collateral. Collateral-dependent C&I
and CRE loans totaled $115 million and $5 million,
respectively, at December 31, 2021. The collateral for
these loans generally consists of business assets including
land, buildings, equipment and financial assets. During the
years ended December 31, 2021 and 2020, FHN
recognized total charge-offs of approximately $26 million
and $36 million, respectively, on these loans related to
reductions in estimated collateral values.
Consumer HELOC and installment loans with amortized
cost based on the value of underlying real estate collateral
were approximately $7 million and $20 million,
respectively, as of December 31, 2021, and $9 million and
$26 million, respectively, as of December 31, 2020.
Charge-offs on collateral-dependent consumer loans were
$1 million during the year ended December 31, 2021, and
were not significant during the year ended December 31,
2020.
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 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)
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NOTE 4—LOANS & LEASES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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
TDRs and have been excluded from the disclosures below.
For loan modifications that were made during the years
ended December 31, 2021 and 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 TDRs, 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 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 real estate 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
Table 8.4.6
interest rate prior to modification is achieved. 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, 2021 and 2020, FHN had $206 million
and $307 million of portfolio loans classified as TDRs,
respectively. Additionally, $35 million and $42 million of
loans held for sale as of December 31, 2021 and 2020,
respectively, were classified as TDRs.
The following table presents the end of period balance for
loans modified in a TDR during the years ended
December 31, 2021 and 2020:
LOANS MODIFIED IN A TDR
2021
2020
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)
C&I
CRE
HELOC
Real estate installment loans
Credit card and other
32 $
37 $
1
25
87
51
12
3
14
—
Total TDRs
196 $
66 $
34
10
3
14
—
61
112 $
195 $
19
64
117
56
15
5
20
1
368 $
236 $
188
15
5
19
1
228
The following table presents TDRs which re-defaulted during 2021 and 2020, 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.
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Table 8.4.7
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 4—LOANS & LEASES
LOANS MODIFIED IN A TDR THAT RE-DEFAULTED
(Dollars in millions)
Number
C&I
CRE
HELOC
Real estate installment loans
Credit card and other
Total TDRs
2021
18 $
6
1
9
4
38 $
Recorded
Investment
Number
5
19
—
5
—
29
2020
9 $
—
8
18
24
59 $
Recorded
Investment
1
—
—
1
—
2
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. See Note 1 - Significant Accounting Policies for
further discussion of FHN's ACL methodology.
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), including amortization and prepayment
assumptions, on an undiscounted basis. FHN uses models
or assumptions to develop the expected loss forecasts,
which incorporate multiple macroeconomic forecasts 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. In
order to capture the unique risks of the loan portfolio
within the PD, LGD, and prepayment models, FHN
segments the portfolio into pools, generally incorporating
loan grades for commercial loans. As there can be no
certainty that actual economic performance will precisely
follow any specific macroeconomic forecast, 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
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 or statistical models. The
quantitative evaluation of the adequacy of the ACL utilizes
a weighting approach for multiple economic forecast
scenarios 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 quantitative
calculations.
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, 2021 and 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,
2021 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 decrease in the ACL as of December 31, 2021 as
compared to December 31, 2020 reflects an improvement
in the macroeconomic outlook, positive grade migration,
and lower loan balances, which was offset slightly by
higher C&I loan balances excluding PPP loans.
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NOTE 5—ALLOWANCE FOR CREDIT LOSSES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
In developing credit loss estimates for its loan and lease
portfolios, FHN utilized multiple Moody’s forecast
scenarios for its macroeconomic inputs. Each scenario
included assumptions around the COVID-19 pandemic and
its impact on various sections of the economy. The
heaviest weight was placed on the baseline forecast,
which assumed positive real GDP growth over the forecast
horizon and return to full employment by year-end 2022.
During the years ended December 31, 2021 and 2020,
FHN also considered stressed loan portfolios or industries
that are most exposed to the effects of the COVID-19
pandemic and added qualitative adjustments, where
needed, to account for the risks not captured in modeled
results. 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.
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NOTE 5—ALLOWANCE FOR CREDIT LOSSES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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, 2021, 2020 and 2019:
Table 8.5.1
ROLLFORWARD OF ALLL & RESERVE FOR UNFUNDED LENDING COMMITMENTS
Commercial,
Financial, and
Industrial (a)
Commercial
Real Estate
Consumer
Real Estate
Credit Card
and Other
Total
$
453 $
242 $
242 $
26 $
(Dollars in millions)
Allowance for loan and lease losses:
Balance as of January 1, 2021
Charge-offs
Recoveries
Provision for loan and lease losses
Balance as of December 31, 2021
Reserve for remaining unfunded commitments:
Balance as of January 1, 2021
Provision for unfunded lending commitments
Balance as of December 31, 2021
Allowance for credit losses as of December 31, 2021
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 remaining unfunded 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 credit losses as of December 31, 2020
Allowance for loan losses
Balance as of January 1, 2019
Charge-offs
Recoveries
Provision for loan losses
Balance as of December 31, 2019
Reserve for remaining unfunded commitments:
Balance as of January 1, 2019
Provision for unfunded lending commitments
Balance as of December 31, 2019
(34)
21
(106)
334
65
(19)
46
(5)
5
(88)
154
10
2
12
(5)
27
(101)
163
10
(2)
8
(15)
4
4
19
—
—
—
380 $
166 $
171 $
19 $
123 $
36 $
28 $
13 $
19
142
(129)
9
138
293
453
4
17
21
12
32
65
(7)
29
(5)
4
100
114
242
2
1
3
26
(19)
10
93
121
(8)
18
44
67
242
—
6
6
3
1
10
2
15
(14)
5
5
15
26
—
—
—
—
—
—
963
(59)
57
(291)
670
85
(19)
66
736
200
107
307
(156)
36
287
489
963
6
24
30
41
14
85
518 $
252 $
252 $
26 $
1,048
99 $
31 $
37 $
13 $
(34)
7
51
123
4
—
4
(1)
1
5
36
3
(1)
2
(8)
20
(21)
28
—
—
—
(16)
4
12
13
—
—
—
180
(59)
32
47
200
7
(1)
6
$
$
$
$
Allowance for credit losses as of December 31, 2019
$
127 $
38 $
28 $
13 $
206
(a) C&I loans as of December 31, 2021 and 2020 include $1.0 billion and $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 allowance for loan and lease losses.
(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 ASC 326, 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.
(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.
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NOTE 6—PREMISES, EQUIPMENT, & LEASES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 6—Premises, Equipment, and Leases
Premises and equipment were comprised of the following
at December 31, 2021 and 2020:
Table 8.6.1
PREMISES & EQUIPMENT
December 31,
2021
(Dollars in millions)
December 31,
2020
Land
Buildings
Leasehold improvements
Furniture, fixtures, and equipment
Fixed assets held for sale (a)
Total premises and equipment
Less accumulated depreciation and
amortization
$
163 $
543
74
276
16
182
594
73
269
18
1,072
1,136
Premises and equipment, net
$
665 $
(a) Primarily comprised of land and buildings.
In 2021 and 2020, FHN recognized $37 million and $12
million, respectively, of fixed asset impairments and lease
abandonment charges related to branch closures which
were included in other expense on the Consolidated
Statements of Income. In 2021, FHN had $6 million of net
gains related to the sales of bank branches which was
included in other income on the Consolidated Statements
of Income. Similar net gains in 2020 were not material.
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.
(407)
(377)
759
The following table provides details of the classification of
FHN's right-of-use assets and lease liabilities included in
the Consolidated Balance Sheets.
Table 8.6.2
(Dollars in millions)
Lease right-of-use assets:
Operating lease right-of-use assets
Finance lease right-of-use assets
Total lease right-of-use assets
Lease liabilities:
Operating lease liabilities
Finance lease liabilities
Total lease liabilities
RIGHT-OF-USE ASSETS & LEASE LIABILITIES
December 31, 2021
December 31, 2020
Classification
Other assets
Other assets
$
$
Other liabilities
$
Other liabilities
$
345 $
3
348 $
382 $
4
386 $
367
4
371
407
4
411
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, 2021 and 2020.
Table 8.6.3
REMAINING LEASE TERMS
& DISCOUNT RATES
December 31,
2021
December 31,
2020
Weighted Average Remaining
Lease Terms
Operating leases
Finance leases
12.37 years
12.49 years
10.61 years
11.45 years
Weighted Average Discount Rate
Operating leases
Finance leases
2.35 %
2.85 %
2.39 %
3.05 %
The following table provides a detail of the components of
lease expense and other lease information for the years
ended December 31, 2021, 2020, and 2019:
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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 6—PREMISES, EQUIPMENT, & LEASES
Table of Contents
Table 8.6.4
LEASE EXPENSE &
OTHER INFORMATION
(Dollars in millions)
2021
2020
2019
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
48 $
(1)
47 $
39 $
(1)
38 $
25
—
25
3 $
6 $
3
53
41
23
19
—
216
2
48
1
The following table provides a detail of the maturities of
FHN's operating and finance lease liabilities as of
December 31, 2021:
Table 8.6.5
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 1 to 23 years, some of which contain
options to extend the lease for various periods of time
and/or to purchase the equipment subject to the lease at
various points in time. 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, 2021 and 2020 were as follows:
LEASE LIABILITY MATURITIES
Table 8.6.6
(Dollars in millions)
December 31, 2021
LEASE NET INVESTMENTS
(Dollars in millions)
December 31,
2021
December 31,
2020
Lease receivable
$
729 $
Unearned income
Guaranteed residual
Unguaranteed residual
(135)
97
102
Total net investment
$
793 $
535
(108)
92
68
587
Interest income for direct financing or sales-type leases
totaled $26 million and $11 million for the years ended
December 31, 2021 and 2020, respectively. There was no
profit or loss recognized at the commencement date for
direct financing or sales-type leases for the years ended
December 31, 2021 and 2020.
2022
2023
2024
2025
2026
2027 and thereafter
Total lease payments
Less lease liability interest
Total lease liability
$
$
49
45
40
39
37
238
448
(62)
386
FHN had no aggregate undiscounted contractual
obligations for lease arrangements that have not
commenced as of December 31, 2021.
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
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NOTE 6—PREMISES, EQUIPMENT, & LEASES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Maturities of the Company's lease receivables as of
December 31, 2021 were as follows:
Table 8.6.7
LEASE RECEIVABLE MATURITIES
(Dollars in millions)
December 31, 2021
$
2022
2023
2024
2025
2026
2027 and thereafter
Total future minimum lease payments $
136
122
96
73
57
245
729
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Table of Contents
NOTE 7—GOODWILL & OTHER INTANGIBLE ASSETS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 7—Goodwill and Other Intangible Assets
Goodwill
On July 1, 2020, FHN completed its merger-of-equals
transaction with IBKC. In connection with the merger, FHN
recorded a $531 million purchase accounting gain, based
on 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 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, 2021. 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 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
Table 8.7.2
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 is a summary of goodwill by reportable
segment included in the Consolidated Balance Sheets as of
December 31, 2021:
Table 8.7.1
(Dollars in millions)
December 31, 2018
Additions
December 31, 2019
Additions
December 31, 2020
Additions
December 31, 2021
GOODWILL
Regional
Banking
Specialty
Banking
Total
$
$
$
$
802 $
631 $
1,433
—
—
—
802 $
631 $
1,433
78
—
78
880 $
631 $
1,511
—
—
—
880 $
631 $
1,511
Other intangible assets
The following table, which excludes fully amortized
intangibles, presents other intangible assets included in
the Consolidated Balance Sheets:
OTHER INTANGIBLE ASSETS
December 31, 2021
December 31, 2020
(Dollars in millions)
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Value
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Value
Core deposit intangibles
$
371 $
(128) $
243 $
371 $
(81) $
Client relationships
Other (a)
Total
37
41
(11)
(12)
26
29
37
41
(8)
(6)
$
449 $
(151) $
298 $
449 $
(95) $
290
29
35
354
(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 $56 million, $40 million, and
$25 million for the years ended December 31, 2021, 2020
and 2019, respectively. The following table shows the
aggregated amortization expense estimated, as of
December 31, 2021, for the next five years:
Table 8.7.3
ESTIMATED AMORTIZATION EXPENSE
(Dollars in millions)
2022
2023
2024
2025
2026
$
51
48
44
38
33
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Table of Contents
NOTE 8—MORTGAGE BANKING ACTIVITY
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 8—Mortgage Banking Activity
On July 1, 2020 as part of the IBKC merger, FHN obtained
IBKC mortgage banking operations which includes
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 and jumbo 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. At December 31, 2021, FHN had
approximately $45 million of loans that remained from
pre-2009 Mortgage Business operations of legacy First
Horizon. Activity related to the pre-2009 mortgage loans
was primarily limited to payments and write-offs in 2021
and 2020, with no new originations or loan sales, and only
an insignificant amount of repurchases. These loans are
excluded from the disclosure below.
The following table summarizes activity relating to
residential mortgage loans held for sale for the years
ended December 31, 2021 and 2020:
Table 8.8.1
MORTGAGE LOAN ACTIVITY
(Dollars in millions)
Balance at beginning of period
Acquired
Originations and purchases
Sales, net of gains
Mortgage loans transferred
from (to) held for investment
Balance at end of period
2021
2020
$
409 $
—
2,836
4
320
2,499
(3,025)
(2,405)
30
$
250 $
(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.
Table 8.8.2
MORTGAGE SERVICING RIGHTS
(Dollars in millions)
Mortgage servicing rights
(Dollars in millions)
Mortgage servicing rights
December 31, 2021
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$
39 $
(9) $
30
December 31, 2020
Gross
Carrying
Amount
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, 2021 and 2020. Total mortgage servicing fees included
in mortgage banking and title income were $4 million and
$2 million for the years ended December 31, 2021 and
2020, respectively.
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NOTE 9—DEPOSITS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 9—Deposits
The composition of deposits is presented in the following
table:
uninsured as of December 31, 2021 and 2020,
respectively.
DEPOSITS
Scheduled maturities of time deposits as of December 31,
2021 were as follows:
2020
Table 8.9.2
Table 8.9.1
(Dollars in millions)
Savings
Time deposits
Other interest-bearing deposits
Total interest-bearing
deposits
Noninterest-bearing deposits
Total deposits
2021
26,457 $
$
3,500
17,055
47,012
27,883
74,895 $
$
27,324
5,070
15,415
47,809
22,173
69,982
Time deposits in denominations that exceed the FDIC
insurance limit of $250,000 at December 31, 2021 and
2020 were $859 million and $1.4 billion, respectively. Of
those deposits, $515 million and $925 million were
TIME DEPOSIT MATURITIES
(Dollars in millions)
2022
2023
2024
2025
2026
2027 and after
Total
$
3,006
229
115
79
43
28
$
3,500
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NOTE 10—SHORT-TERM BORROWINGS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 10—Short-Term Borrowings
A summary of short-term borrowings for the years 2021, 2020 and 2019 is presented in the following table:
Table 8.10.1
(Dollars in millions)
2021
Average balance
Year-end balance
Maximum month-end outstanding
Average rate for the year
Average rate at year-end
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
SHORT-TERM BORROWINGS
Trading Liabilities
Federal Funds
Purchased
Securities Sold
Under
Agreements to
Repurchase
Other Short-term
Borrowings
$
$
$
$
$
$
540
426
685
1.11 %
1.62 %
457
353
983
1.24 %
0.77 %
503
506
754
2.48 %
2.07 %
$
$
$
949
775
1,037
0.12 %
0.10 %
862
845
1,487
0.34 %
0.10 %
738
548
1,282
2.08 %
1.55 %
$
$
$
1,235
1,247
1,615
0.30 %
0.11 %
1,109
1,187
1,661
0.50 %
0.26 %
701
717
772
2.07 %
1.72 %
124
102
146
0.09 %
0.08 %
626
166
4,061
0.84 %
0.09 %
538
2,253
2,276
2.10 %
2.14 %
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, 2021,
fixed income trading securities with a fair value of $33
million were pledged to secure other short-term
borrowings.
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NOTE 11—TERM BORROWINGS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 11—Term Borrowings
Term borrowings include senior and subordinated
borrowings with original maturities greater than one year.
The following table presents information pertaining to
term borrowings as of December 31, 2021 and 2020:
Table 8.11.1
(Dollars in millions)
First Horizon Bank:
Subordinated notes (a)
TERM BORROWINGS
Maturity date – May 1, 2030 - 5.75%
Other collateralized borrowings - Maturity date – December 22, 2037
0.50% on December 31, 2021 and 0.52% on December 31, 2020 (b)
Other collateralized borrowings - SBA loans (c)
First Horizon Corporation:
Senior notes
Maturity date – May 26, 2023 - 3.55%
Maturity date – May 26, 2025 - 4.00%
Junior subordinated debentures (d)
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 - 1.88% on December 31, 2021 and 1.90% on December 31, 2020
Maturity date - December 15, 2035 - 1.57% on December 31, 2021 and 1.59% on December 31, 2020
Maturity date - March 15, 2036 - 1.60% on December 31, 2021 and 1.62% on December 31, 2020
Maturity date - March 15, 2036 - 1.74% on December 31, 2021 and 1.76% on December 31, 2020
Maturity date - June 30, 2036 - 1.54% on December 31, 2021 and 1.56% on December 31, 2020
Maturity date - July 7, 2036 - 1.67% on December 31, 2021 and 1.79% on December 31, 2020
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 - 1.85% on December 31, 2021 and 1.87% on December 31, 2020
Maturity date - September 6, 2037 - 1.61% on December 31, 2021 and 1.66% on December 31, 2020
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, 0.93% to 4.95% on December 31,
2021; 1.27% to 4.95% on December 31, 2020
FT Real Estate Securities Company, Inc.:
Cumulative preferred stock (e)
Maturity date – March 31, 2031 – 9.50%
Total
2021
2020
$
447 $
447
87
6
448
349
—
—
—
—
—
—
3
18
9
12
27
18
—
—
52
9
—
—
—
—
59
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
1,590 $
46
1,670
$
(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.
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NOTE 11—TERM BORROWINGS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
(c) Collateralized borrowings associated with SBA loan sales that did not meet sales criteria. The loans have remaining terms of 4 to 25 years. These
borrowings had a weighted average interest rate of 4.10% and 3.90% on December 31, 2021 and 2020, respectively.
(d) Acquired in conjunction with the acquisitions of CBF and merger with IBKC. The legacy IBKC junior subordinated debentures were early redeemed in
2021. A portion qualifies for Tier 2 capital under the risk-based capital guidelines.
(e) Qualifies for Tier 2 capital under the risk-based capital guidelines for both First Horizon Bank and First Horizon Corporation up to certain limits for
minority interest capital instruments.
Annual principal repayment requirements as of
December 31, 2021 are as follows:
Table 8.11.2
ANNUAL PRINCIPAL REPAYMENT SCHEDULE
(Dollars in millions)
2022
2023
2024
2025
2026 and after
$
—
450
6
350
807
In conjunction with its acquisitions, 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. During 2021, FHN redeemed
$94 million of legacy IBKC junior subordinated debt
underlying multiple issuances of trust preferred securities.
The redemption resulted in a loss on debt extinguishment
of $26 million. A portion of FHN's remaining junior
subordinated notes qualifies as Tier 2 capital under the
risk-based capital guidelines.
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NOTE 12—PREFERRED STOCK
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 12—Preferred Stock
FHN Preferred Stock
The following table presents a summary of FHN's non-cumulative perpetual preferred stock:
Table 8.12.1
(Dollars in millions)
FHN PREFERRED STOCK
December 31,
2021
2020
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
Series F
1/31/2013
4/10/2018
6.200 %
Quarterly
— $
7/2/2020
8/1/2025
6.625 % (b)
Semi-annually
7/2/2020
5/1/2026
6.600 % (c)
Quarterly
7/2/2020
5/1/2024
6.100 % (d)
Semi-annually
5/28/2020
10/10/2025
5/3/2021
7/10/2026
6.500 %
4.700 %
Quarterly
Quarterly
8,000
5,750
10,000
1,500
1,500
26,750 $
— $
80
58
100
150
150
538 $
— $
77
59
94
145
145
520 $
95
77
59
94
145
—
470
(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%
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, 2021, 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.
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.
During 2021, FHN issued $150 million of 4.70% Series F
Non-Cumulative Perpetual Preferred Stock (the Series F
Preferred Stock). The Series F Preferred Stock is
redeemable at FHN's option, in whole or in part, on or
after July 10, 2026. Earlier redemption is possible, at FHN's
election, if certain regulatory capital events occur. The
$145 million carrying value of the Series F Preferred Stock
currently qualifies as Tier 1 Capital.
During 2021, FHN redeemed all outstanding shares of
Series A Preferred Stock. The difference between the
$100 million liquidation preference and the carrying value
of the Series A Preferred Stock resulted in a $5 million
deemed dividend that was included in EPS for the year
ended December 31, 2021.
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 both First Horizon Bank
and FHN. On December 31, 2021 and 2020, $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%
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NOTE 13—REGULATORY CAPITAL & RESTRICTIONS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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, 2021, FHN
and First Horizon Bank met all capital adequacy
requirements to which they were subject. As of
December 31, 2021, 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.
The actual capital amounts and ratios of FHN and First
Horizon Bank are presented in the following table.
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Table 8.13.1
(Dollars in millions)
On December 31, 2021
Actual:
Total Capital
Tier 1 Capital
Common Equity Tier 1
Leverage
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 13—REGULATORY CAPITAL & RESTRICTIONS
CAPITAL AMOUNTS & RATIOS
First Horizon Corporation
First Horizon Bank
Amount
Ratio
Amount
Ratio
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, 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
$
$
7,918
7,088
6,367
7,088
5,135
3,851
2,888
3,507
7,935
6,782
6,110
6,782
5,051
3,788
2,841
3,294
12.34 % $
11.04
9.92
8.08
8.00
6.00
4.50
4.00
12.57 % $
10.74
9.68
8.24
8.00
6.00
4.50
4.00
7,893
7,133
6,838
7,133
5,088
3,816
2,862
3,478
6,360
5,088
4,134
4,348
7,827
6,832
6,537
6,832
5,001
3,751
2,813
3,268
6,251
5,001
4,063
4,085
12.41 %
11.22
10.75
8.20
8.00
6.00
4.50
4.00
10.00
8.00
6.50
5.00
12.52
10.93
10.46
8.36
8.00
6.00
4.50
4.00
10.00
8.00
6.50
5.00
Restrictions on cash and due from banks
Restrictions on dividends
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,
2021 and 2020, First Horizon Bank was not required to
maintain cash reserves after the consideration of $464
million and $397 million in average vault cash respectively.
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, 2021,
First Horizon Bank had undivided profits of $2.2 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
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NOTE 13—REGULATORY CAPITAL & RESTRICTIONS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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 period. 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 $1.1
billion at January 1, 2022. First Horizon Bank declared and
paid common dividends to the parent company in the
amount of $770 million in 2021 and $180 million in 2020.
During 2021 and 2020, 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 to pay dividends only 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 $812 million, on December 31,
2021. 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, 2021, the parent company had covered
transactions of less than $1 million from First Horizon
Bank, and 840 Denning LLC, a parent company subsidiary,
had a covered transaction of $2 million. Two of the bank’s
financial subsidiaries, FHN Financial Securities Corp. and
First Horizon Advisors, Inc., had covered transactions from
First Horizon Bank totaling $400 million and $51 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, 2021. First Horizon Bank’s total
covered transactions with all affiliates including the parent
company on December 31, 2021 were $453 million.
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NOTE 14—COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS)
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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, 2021, 2020, and 2019:
Table 8.14.1
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
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
Net unrealized gains (losses)
Amounts reclassified from AOCI
Other comprehensive income (loss)
Balance as of December 31, 2021
Securities AFS
Cash Flow
Hedges
Pension and
Post-retirement
Plans
Total
$
(76) $
(12) $
(288) $
107
—
107
31
74
3
77
108
(144)
—
(144)
$
(36) $
11
4
15
3
15
(6)
9
12
(3)
(7)
(10)
2 $
8
7
15
(273)
3
10
13
(260)
(2)
8
6
(254) $
(376)
126
11
137
(239)
92
7
99
(140)
(149)
1
(148)
(288)
Reclassifications from AOCI, and related tax effects, were as follows:
Table 8.14.2
(Dollars in millions)
Details about AOCI
Securities AFS:
RECLASSIFICATIONS FROM AOCI
2021
2020
2019
Affected line item in the statement
where net income is presented
Realized (gains) losses on securities AFS
$
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)
— $
—
—
(9)
2
(7)
10
(2)
Total reclassification from AOCI
8
1 $
$
4 $
— Securities gains (losses), net
(1)
3
(8)
2
(6)
13
(3)
10
7 $
Income tax expense
—
—
5
Interest and fees on loans and leases
(1)
Income tax expense
4
10 Other expense
(3)
Income tax expense
7
11
162
2021 FORM 10-K ANNUAL REPORT
Table of Contents
NOTE 15—INCOME TAXES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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:
Table 8.15.1
(Dollars in millions)
Consolidated Statements of Income:
Income tax expense
Consolidated Statements of Changes in Equity:
Income tax expense (benefit) related to:
INCOME TAX EXPENSE
2021
2020
2019
$
274 $
76 $
134
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
2
(46)
(3)
227 $
3
25
3
107 $
$
The components of income tax expense (benefit) for the years ended December 31, were as follows:
Table 8.15.2
(Dollars in millions)
Current:
Federal
State
Deferred:
Federal
State
Total
INCOME TAX EXPENSE COMPONENTS
2021
2020
2019
$
235 $
39
(1)
1
274 $
$
80 $
14
(15)
(3)
76 $
5
35
5
179
106
14
5
9
134
A reconciliation of expected income tax expense (benefit) at the federal statutory rate of 21% for 2021, 2020, and 2019,
respectively to the total income tax expense follows:
163
2021 FORM 10-K ANNUAL REPORT
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 15—INCOME TAXES
RECONCILIATION FROM STATUTORY RATES
As of December 31, 2021, FHN had net deferred tax asset balances related to federal and state income tax carryforwards of
$38 million and $2 million, respectively, which will expire at various dates as follows:
TAX CARRYFORWARD DTA EXPIRATION DATES
Table of Contents
Table 8.15.3
(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
Other
Total
Table 8.15.4
(Dollars in millions)
Losses - federal
Net operating losses - states
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
2021
2020
2019
$
21 %
270
$
21 %
196
$
21 %
123
32
(7)
(1)
(10)
8
(14)
(4)
4
—
(4)
$
274
$
9
(6)
(1)
(8)
13
(9)
(5)
(9)
(112)
8
76
15
(5)
(1)
(6)
11
(4)
—
4
—
(3)
$
134
Expiration
Dates
Net Deferred Tax
Asset Balance
2026 - 2035
$
2027 - 2040
38
2
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, 2021, FHN's net DTA was $52 million
compared to less than $1 million at December 31, 2020.
At December 31, 2021, FHN's gross DTA (net of a valuation
allowance) and gross DTL were $448 million and $396
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, 2021
and 2020 were as follows:
164
2021 FORM 10-K ANNUAL REPORT
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 15—INCOME TAXES
COMPONENTS OF DTAs & DTLs
Table of Contents
Table 8.15.5
(Dollars in millions)
Deferred tax assets:
Loss reserves
Employee benefits
Accrued expenses
Depreciation and amortization
Lease liability
Federal loss carryforwards
State loss carryforwards
Investment in debt securities (ASC 320) (a)
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
2021
2020
$
161 $
83
16
13
94
38
2
12
29
448
$
— $
—
4
86
18
85
198
5
396
$
52 $
205
86
7
—
100
44
9
—
20
471
83
35
11
93
15
89
135
10
471
—
(a) Tax effects of unrealized gains and losses are tracked on a security-by-security basis.
The total unrecognized tax benefits at December 31, 2021
and 2020, was $92 million and $70 million, respectively.
To the extent such unrecognized tax benefits as of
December 31, 2021 are subsequently recognized, $42
million of tax benefits could impact tax expense and FHN’s
effective tax rate in future periods.
FHN is currently under audit in several jurisdictions. It is
reasonably possible that the unrecognized tax benefits
related to federal and state exposures could decrease by
$58 million during 2022 if audits are completed and
settled and if the applicable statutes of limitations expire
as scheduled.
FHN recognizes interest accrued and penalties related to
unrecognized tax benefits within income tax expense. FHN
had approximately $14 million and $11 million accrued for
the payment of interest as of December 31, 2021 and
2020, respectively. The total amount of interest and
penalties recognized in the Consolidated Statements of
Income during 2021 and 2020 was an expense of $3
million and $8 million, respectively.
The rollforward of unrecognized tax benefits is shown in
the following table:
165
2021 FORM 10-K ANNUAL REPORT
Table of Contents
Table 8.15.6
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 15—INCOME TAXES
ROLLFORWARD OF UNRECOGNIZED TAX BENEFITS
(Dollars in millions)
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
Increases related to prior year tax positions
Increases related to current year tax positions
Lapse of statutes
Balance at December 31, 2021
$
$
$
24
56
1
(10)
(1)
70
24
1
(3)
92
166
2021 FORM 10-K ANNUAL REPORT
Table of Contents
NOTE 16—EARNINGS PER SHARE
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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:
Table 8.16.1
NET INCOME & COMMON SHARE RECONCILIATIONS
(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
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
Table 8.16.2
2021
2020
2019
1,010
$
857
$
11
999
37
12
845
23
962
$
822
$
452
11
441
6
435
546,354
4,887
551,241
432,125
1,592
433,717
1.76
1.74
$
$
1.90
1.89
$
$
313,637
2,020
315,657
1.39
1.38
$
$
$
$
than the weighted-average market price for the period) or
the performance conditions have not been met:
ANTI-DILUTIVE EQUITY AWARDS
(Shares in thousands)
Stock options excluded from the calculation of diluted EPS
2021
2020
2019
1,366
4,595
Weighted average exercise price of stock options excluded from the
calculation of diluted EPS
Other equity awards excluded from the calculation of diluted EPS
$
20.44
$
1,531
17.47
$
3,639
2,359
21.12
2,224
167
2021 FORM 10-K ANNUAL REPORT
Table of Contents
NOTE 17—CONTINGENCIES & OTHER DISCLOSURES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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, 2021,
the aggregate amount of liabilities established for all such
loss contingency matters was $2 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, 2021, 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 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
At December 31, 2021, no pending or known threatened
matters were material loss contingency matters, as
described above.
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 a
securitization organized by FHN. These claims generally
assert that FHN-originated loans contributed to losses in
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2021 FORM 10-K ANNUAL REPORT
Table of Contents
NOTE 17—CONTINGENCIES & OTHER DISCLOSURES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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 $17 million and $16 million as of
December 31, 2021 and December 31, 2020, 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. 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.
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.
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.
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
169
2021 FORM 10-K ANNUAL REPORT
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Table of Contents
NOTE 18—RETIREMENT PLANS & OTHER EMPLOYEE BENEFITS
Note 18—Retirement Plans 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 a contribution of $6 million to
the qualified pension plan in 2021, and no contributions
were made in 2020 and 2019. Management does not
currently anticipate that FHN will make a contribution to
the qualified pension plan in 2022.
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 2021. FHN anticipates making benefit
payments under the non-qualified plans of $5 million in
2022.
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%
match for the first 6% 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 $51 million for 2021, $37 million for 2020,
and $28 million for 2019.
Other Employee Benefits
FHN provides postretirement life insurance benefits to
certain employees and also provides postretirement
medical insurance benefits to retirement-eligible
employees, including certain prescription drug benefits.
The postretirement medical plan is contributory with FHN
contributing a fixed amount for certain participants.
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 30 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.
The discount rates for the three years ended 2021 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 30
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
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:
170
2021 FORM 10-K ANNUAL REPORT
Table 8.18.1
Discount rate
Qualified pension
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)
Table of Contents
NOTE 18—RETIREMENT PLANS & OTHER EMPLOYEE BENEFITS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
ACTUARIAL ASSUMPTIONS FOR DEFINED BENEFIT PLANS
2021
2.95%
2.65%
1.99%
Benefit Obligations
2020
2.63%
2.24%
1.41%
2019
3.31%
3.08%
2.57%
2021
2.64%
2.24%
1.41%
Net Periodic Benefit Cost
2020
3.31%
3.08%
2.57%
2019
4.43%
4.26%
3.83%
2.43%-3.07%
1.92% - 2.81%
2.85% - 3.44%
1.93%-2.81%
2.87% - 3.44%
4.04% - 4.56%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
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, 2021, 2020 and
2019 and interest crediting rates for the respective years
were as follows:
2.30%
3.45%
4.80%
5.80%
6.40%
6.85%
1.00%
0.90%
0.05%
Table 8.18.2
PROJECTED BENEFIT OBLIGATION
& CREDITING RATE
(Dollars in millions)
2021
2020
2019
Projected benefit obligation
$
12
$
15
$
16
Interest crediting rate
9.07 %
8.20 %
9.66 %
The components of net periodic benefit cost for the plan
years 2021, 2020 and 2019 were as follows:
Table 8.18.3
COMPONENTS OF NET PERIODIC BENEFIT COST
(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
2020
2021
2019
2021
Other Benefits
2020
2019
$
$
17 $
(20)
10
7 $
24 $
(26)
13
11 $
30 $
(37)
10
3 $
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 hybrid
methodology which recognizes liability-hedging assets at
current fair value while return-seeking assets use a
calculated value that recognizes changes in fair value 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 2021 and 2020:
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NOTE 18—RETIREMENT PLANS & OTHER EMPLOYEE BENEFITS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Table 8.18.4
BENEFIT OBLIGATIONS & PLAN ASSETS
(Dollars in millions)
Change in benefit obligation
Benefit obligation, beginning of year
Interest cost
Actuarial (gain) loss (a)
Actual benefits paid
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
2021
2020
2021
2020
$
$
$
$
$
$
$
893 $
836 $
17
(26)
(39)
845 $
896 $
(18)
10
(3)
(2)
(34)
849 $
4 $
37 $
(33)
4 $
24
70
(37)
893 $
826 $
103
4
(36)
(1)
—
896 $
3 $
40 $
(37)
3 $
46 $
1
(5)
(1)
41 $
23 $
3
1
(1)
—
—
26 $
(15) $
23 $
(38)
(15) $
42
1
4
(1)
46
20
3
1
(1)
—
—
23
(23)
20
(43)
(23)
(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) 2021 amount represents settlements of certain retired participants in the qualified pension plan that occurred during the year.
The projected benefit obligation for unfunded plans was as follows:
Table 8.18.5
(Dollars in millions)
BENEFIT OBLIGATION - UNFUNDED PLANS
Pension Benefits
Other Benefits
2021
2020
2021
2020
Projected benefit obligation
$
33 $
37 $
38 $
43
The qualified pension plan was overfunded by $37 million
and $41 million as of December 31, 2021 and 2020,
respectively. Because of the pension freeze at the end of
2012, as of both December 31, 2021 and 2020, the
pension benefit obligation is equivalent to the
accumulated benefit obligation. FHN's funded post
retirement plan was also in an overfunded status as of
December 31, 2021 and 2020.
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, 2021 and 2020 consist of:
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NOTE 18—RETIREMENT PLANS & OTHER EMPLOYEE BENEFITS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Table 8.18.6
PRE-TAX ACTUARIAL GAINS (LOSSES) REFLECTED IN AOCI
(Dollars in millions)
Amounts recognized in accumulated other
comprehensive income
Net actuarial (gain) loss
Pension Benefits
Other Benefits
2021
2020
2021
2020
$
342 $
342 $
(6) $
1
The pre-tax amounts recognized in other comprehensive income during 2021, 2020, and 2019 were as follows:
Table 8.18.7
PRE-TAX AMOUNTS RECOGNIZED IN OCI
(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
Other Benefits
2021
2020
2019
2021
2020
2019
$
13 $
(8) $
(14) $
(7) $
3 $
5
Net actuarial gain (loss)
(10)
Total recognized in other comprehensive income
$
3 $
(13)
(21) $
(10)
(24) $
—
(7) $
—
3 $
—
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% of a plan’s projected benefit obligation as
of the beginning of the year or 10% 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:
Table 8.18.8
EXPECTED BENEFIT PAYMENTS
(Dollars in millions)
2022
2023
2024
2025
2026
2027-2031
Plan Assets
Pension
Benefits
Other
Benefits
$
40 $
42
43
45
46
232
2
2
2
2
2
11
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, 2021 and 2020, 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, 2021 and 2020, by asset category classified
using the Fair Value measurement hierarchy, is shown in
the tables below. See Note 24 – Fair Value of Assets and
Liabilities for more details about fair value measurements.
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Table of Contents
Tables 8.18.9a-b
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 18—RETIREMENT PLANS & OTHER EMPLOYEE BENEFITS
FAIR VALUE OF PENSION ASSETS
December 31, 2021
(Dollars in millions)
Level 1
Level 2
Level 3
Total
Cash equivalents and money market funds
$
45 $
— $
— $
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
—
—
—
45 $
15
445
344
804 $
—
—
—
— $
December 31, 2020
Level 1
Level 2
Level 3
Total
23 $
— $
— $
$
$
—
—
—
$
23 $
6
488
379
873 $
—
—
—
— $
45
15
445
344
849
23
6
488
379
896
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.
Tables 8.18.10a-b
The fair value of FHN’s retiree medical plan assets at
December 31, 2021 and 2020 by asset category are as
follows:
(Dollars in millions)
Mutual funds:
Equity mutual funds
Fixed income mutual funds
Total
(Dollars in millions)
Mutual funds:
Equity mutual funds
Fixed income mutual funds
Total
FAIR VALUE OF RETIREE MEDICAL PLAN ASSETS
Level 1
Level 2
Level 3
Total
December 31, 2021
$
$
$
$
17 $
9
26 $
— $
—
— $
— $
—
— $
Level 1
Level 2
Level 3
Total
December 31, 2020
15 $
8
23 $
— $
—
— $
— $
—
— $
17
9
26
15
8
23
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Table of Contents
NOTE 19—STOCK OPTIONS, RESTRICTED STOCK, & DIVIDEND REINVESTMENT PLANS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 19—Stock Options, Restricted Stock, and Dividend Reinvestment Plans
Equity Compensation Plans
FHN currently has one plan which authorizes the grant of
new stock-based awards, the 2021 Incentive Plan (the IP).
New awards under the IP may be granted to any of FHN's
directors, officers, or associates. The IP was approved by
shareholders in April 2021. Most awards outstanding at
year end were granted under predecessor plans which
are no longer active.
The IP authorizes a broad range of award types, including
restricted shares, stock units, cash units, and stock
options. Stock units may be paid in shares or cash,
depending upon the terms of the award. The IP also
authorizes the grant of stock appreciation rights, though
no such grants have been made under the IP or recent
predecessor plans. 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 IP 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, 2021, there were 12,329,976 shares
available for new awards under the IP. This includes the
new/additional shares originally authorized under the IP
along with shares underlying ECP awards that have been
forfeited or canceled since the IP was approved by
shareholders, net of shares underlying IP awards that are
outstanding or have been paid.
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 generally begins no
earlier than the third anniversary of grant and rarely
extends beyond the fifth anniversary of grant.
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 from 2014 to 2020 have a post-vest
holding period of two years. PSUs granted after 2020 no
longer have the 2-year holding period. 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 2021 or outstanding on December 31, 2021: the
2016 units vested in 2019 and their two year post-vesting
holding period ended during 2021, 2017 and 2018 units
vested in 2020 and 2021 at the 104.2% and 133.3%
payout level, respectively, and remain in a two year post-
vesting holding period; the three-year performance period
of the 2019 units has ended but performance is measured
relative to peers and has not yet been determined; and,
the three-year performance periods for the 2020 and
2021 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 grant, require a payment deferral of two years,
and settle in shares after the deferral period. Director
stock units granted after the IBKC merger no longer have
the 2-year holding period. In 2021 and 2020, each director
received $122,000 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, 2021, is presented below:
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NOTE 19—STOCK OPTIONS, RESTRICTED STOCK, & DIVIDEND REINVESTMENT PLANS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Table 8.19.1
RESTRICTED AND PERFORMANCE EQUITY AWARD ACTIVITY
January 1, 2021
Shares/units granted
Shares/units vested/distributed
Shares/units canceled
December 31, 2021
Shares/
Units (a)
Weighted average
grant date fair value
(per share) (b)
8,270,216 $
4,330,371
(637,689)
(2,666,010)
9,296,888 $
12.47
13.56
12.31
13.05
13.14
(a) Includes only units that settle in shares; nonvested performance units are included at 100% payout level.
(b) The weighted average grant date fair value for shares/units granted in 2020 and 2019 was $12.47 and $16.25, respectively.
On December 31, 2021, there was $73 million of
unrecognized compensation cost related to nonvested
restricted stock awards. That cost is expected to be
recognized over a weighted-average period of two years.
The total grant date fair value of shares vested during
2021, 2020 and 2019, was $36 million, $24 million, and
$15 million, respectively.
Stock option awards
In 2021 FHN ended its only remaining stock option
program, making only one grant related to a 2020
commitment. Options under that program, for executives,
have service-vesting requirements and seven-year terms.
In the past, 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
Table 8.19.2
later than the fourth anniversary of grant, and all such
options expire seven 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.
The summary of stock option activity for the year ended
December 31, 2021, is shown below:
STOCK OPTION ACTIVITY
Options
Outstanding
Weighted
Average
Exercise Price
(per share)
Weighted Average
Remaining
Contractual Term
(years)
Aggregate
Intrinsic Value
(millions)
January 1, 2021
Options granted
Options exercised
Options expired/canceled
December 31, 2021
Options exercisable
Options expected to vest
7,749,082 $
155,124
(2,302,642)
(620,635)
4,980,929 $
3,697,062
1,283,867
15.20
14.44
11.88
22.44
15.81
15.95
15.15
3.99 $
3.51
4.39
7
6
1
The total intrinsic value of options exercised during 2021,
2020 and 2019 was $12 million, $3 million, and $4 million,
respectively. On December 31, 2021, there was less than
$1 million of unrecognized compensation cost related to
nonvested stock options. That cost is expected to be
recognized over a weighted-average period of 2.7 years.
FHN granted or converted 155,124, 4,182,737 and
530,787 stock options with a weighted average fair value
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NOTE 19—STOCK OPTIONS, RESTRICTED STOCK, & DIVIDEND REINVESTMENT PLANS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
of $3.39, $2.13, and $2.69 per option at grant date in
2021, 2020 and 2019, respectively.
converted in 2021, 2020, and 2019 with the following
assumptions:
FHN used the Black-Scholes Option Pricing Model to
estimate the fair value of stock options granted or
Table 8.19.3
STOCK OPTION FAIR VALUE ASSUMPTIONS
Expected dividend yield
Expected weighted-average lives of options granted
Expected weighted-average volatility
Expected volatility range
Risk-free interest rate
2021
4.16%
6.29 years
38.44%
37.86%-39.02%
0.62%
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%
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 IP 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 2022.
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.
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
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,
2021, there were 461,142 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 $43 million, $32 million, and $22
million for 2021, 2020, and 2019, respectively. The
corresponding total income tax benefits recognized were
$10 million in 2021, $8 million in 2020, and $6 million in
2019.
Authorization
Consistent with Tennessee state law, only authorized, but
unissued, stock may be utilized in connection with any
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Table of Contents
NOTE 20—BUSINESS SEGMENT INFORMATION
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 20—Business Segment Information
FHN's operating segments are composed of the following:
• 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, and international
banking. 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. During 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. The
closing of the FHN and IBKC merger-of-equals transaction
prompted organizational changes to better integrate and
execute the combined Company's strategic priorities
across all lines of businesses. As a result, segment
information for 2020 has been reclassified to conform to
the current period presentation.
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.
The following tables present financial information for each
reportable business segment for the years ended
December 31:
Tables 8.20.1a-b-c
(Dollars in millions)
Net interest income (expense)
Provision for credit losses
Noninterest income
Noninterest expense (b)(c)(f)
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Average assets
Depreciation and amortization
Expenditures for long-lived assets
SEGMENT FINANCIAL INFORMATION
2021
Regional Banking
Specialty Banking
Corporate
Consolidated
$
$
$
1,764 $
(229)
438
1,151
1,280
298
982 $
45,445 $
(71)
27
619 $
(64)
597
571
709
171
538 $
(389) $
(17)
41
374
(705)
(195)
(510) $
1,994
(310)
1,076
2,096
1,284
274
1,010
20,803 $
21,361 $
87,609
(2)
3
101
7
28
37
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Table of Contents
NOTE 20—BUSINESS SEGMENT INFORMATION
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
(Dollars in millions)
Net interest income (expense)
Provision for credit losses (e)
Noninterest income (a)
Noninterest expense (b)(c)(d)
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Average assets
Depreciation and amortization
Expenditures for long-lived assets
(Dollars in millions)
Net interest income (expense)
Provision for credit losses
Noninterest income
Noninterest expense (b)(c)(d)(f)
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Average assets
Depreciation and amortization
Expenditures for long-lived assets
Regional Banking
2020
Specialty Banking
Corporate
Consolidated
$
1,264 $
572 $
(174) $
392
345
944
273
56
217 $
32,782 $
(42)
283
116
576
494
538
131
407 $
(5)
571
280
122
(111)
233 $
1,662
503
1,492
1,718
933
76
857
19,822 $
11,742 $
64,346
4
6
84
90
46
379
Regional Banking
2019
Specialty Banking
833 $
389 $
24
293
678
424
97
327 $
18,236 $
22
29
37
315
347
320
79
241 $
15,517 $
14
4
Corporate
Consolidated
(12) $
(16)
46
208
(158)
(42)
(116) $
7,991 $
29
16
1,210
45
654
1,233
586
134
452
41,744
65
49
$
$
$
$
$
(a) 2020 includes a $533 million purchase accounting gain associated with the IBKC merger in the Corporate segment.
(b) 2019 includes restructuring-related costs associated with efficiency initiatives; refer to Note 25 - Restructuring, Repositioning, and Efficiency for
additional information. 2021, 2020 and 2019 include merger-related expenses; refer to Note 2 - Acquisitions and Divestitures for additional information.
(c) 2021 and 2020 includes$37 million and $13 million, respectively, in asset impairments related to IBKC merger integration efforts in the Corporate
segment. 2019 includes $25 million of asset impairments associated with acquisition, restructuring, and rebranding initiatives.
(d) 2020 and 2019 include $41 million and $11 million, respectively, of contributions to FHN's foundations.
(e) Increase in provision for credit losses in 2020 is primarily due to the 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.
(f) 2021 and 2019 include $19 million and $4 million, respectively, in derivative valuation adjustments related to prior sales of Visa Class B shares in the
Corporate segment.
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Table of Contents
NOTE 20—BUSINESS SEGMENT INFORMATION
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
The following tables reflect a disaggregation of FHN’s noninterest income by major product line and reportable segment for
the years ended December 31, 2021, 2020, and 2019:
NONINTEREST INCOME DETAIL BY SEGMENT
December 31, 2021
Regional Banking
Specialty Banking
Corporate
Consolidated
Tables 8.20.2a-b-c
(Dollars in millions)
Noninterest income:
Fixed income (a)
Deposit transactions and cash management
Mortgage banking and title income
Brokerage, management fees and commissions
Card and digital banking fees
Trust services and investment management
Other service charges and fees
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
Card and digital banking fees
Trust services and investment management
Other service charges and fees
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
Card and digital banking fees
Trust services and investment management
Other service charges and fees
Other income (c)
$
— $
157
—
88
67
51
23
—
—
52
406 $
12
152
—
3
—
17
—
—
7
$
438 $
597 $
— $
6
2
—
8
—
4
13
(1)
9
41 $
406
175
154
88
78
51
44
13
(1)
68
1,076
Regional Banking
Specialty Banking
Corporate
Consolidated
December 31, 2020
$
1 $
131
—
66
50
39
18
—
—
40
422 $
11
128
—
2
—
7
—
—
6
— $
6
1
—
8
—
1
(6)
533
28
423
148
129
66
60
39
26
(6)
533
74
$
345 $
576 $
571 $
1,492
Regional Banking
Specialty Banking
Corporate
Consolidated
December 31, 2019
$
— $
114
—
55
41
30
16
37
278 $
1 $
11
8
—
2
—
5
11
7
2
—
6
—
—
30
279
132
10
55
49
30
21
78
Total noninterest income
$
293 $
315 $
46 $
654
(a) 2021, 2020 and 2019, include $44million , $39 million and $34 million, respectively, of underwriting, portfolio advisory, and other noninterest income in scope of ASC 606,
"Revenue From Contracts With Customers."
(b) Represents noninterest income excluded from the scope of ASC 606. Amount is presented for informational purposes to reconcile total noninterest income.
(c)
Includes letter of credit fees and insurance commissions in scope of ASC 606.
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NOTE 21—VARIABLE INTEREST ENTITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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 that
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 for the proportional amortization
method are accounted for using the equity method.
Expenses associated with non-qualifying LIHTC
investments were not material during 2021, 2020, and
2019.
The following table summarizes the impact to income tax
expense on the Consolidated Statements of Income for
the years ended December 31, 2021, 2020 and 2019 for
LIHTC investments accounted for under the proportional
amortization method.
Table 8.21.2
LIHTC IMPACTS ON TAX EXPENSE
(Dollars in millions)
2021
2020
2019
Income tax expense (benefit):
Amortization of qualifying
LIHTC investments
Low income housing tax
credits
Other tax benefits related to
qualifying LIHTC
investments
$
26 $
23 $
15
(32)
(22)
(14)
(7)
(10)
(6)
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, 2021 and 2020:
Table 8.21.1
(Dollars in millions)
Assets:
Other assets
Liabilities:
Other liabilities
CONSOLIDATED VIEs
December 31,
2021
December 31,
2020
$
$
205 $
179 $
195
165
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Table of Contents
NOTE 21—VARIABLE INTEREST ENTITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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 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 that 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 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.
The following tables summarize FHN’s nonconsolidated
VIEs as of December 31, 2021 and 2020:
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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 21—VARIABLE INTEREST ENTITIES
NONCONSOLIDATED VIEs AT YE 2021
Table of Contents
Table 8.21.3
(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
Classification
$
382 $
129
(a)
77
195
27
8,550
98
—
56
—
87
—
—
Other assets
Loans and leases
(d)
(e)
Loans and leases
167
Term borrowings
(a) Maximum loss exposure represents $253 million of current investments and $129 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 $87 million classified as term
borrowings.
(e) Includes $526 million classified as trading securities, $712 million classified as securities held to maturity and $7.3 billion classified as securities available
for sale.
(f) Maximum loss exposure represents $94 million of current receivables and $4 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.
NONCONSOLIDATED VIEs AT YE 2020
Table 8.21.4
(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
Classification
$
338 $
132
(a)
64
210
32
7,063
186
—
42
—
82
—
—
Other assets
Loans and leases
(d)
(e)
Loans and leases
287
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 $845 million 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.
183
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Table of Contents
NOTE 22—DERIVATIVES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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, 2021 and 2020, respectively, FHN had $181
million and $280 million of cash receivables and $102
million and $166 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
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 $360 million, $371 million and $228 million
for the years ended December 31, 2021, 2020 and 2019,
respectively. Trading revenues are inclusive of both
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Table of Contents
NOTE 22—DERIVATIVES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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, 2021
and 2020:
Table 8.22.1a-b
DERIVATIVES ASSOCIATED WITH TRADING
(Dollars in millions)
Customer interest rate contracts
Offsetting upstream interest rate contracts
Option contracts purchased
Forwards and futures purchased
Forwards and futures sold
(Dollars in millions)
Customer interest rate contracts
Offsetting upstream interest rate contracts
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 includes customer
Notional
December 31, 2021
Assets
Liabilities
$
3,587 $
84 $
3,587
13
4,430
5,044
4
—
2
10
Notional
December 31, 2020
Assets
Liabilities
$
3,950 $
207 $
3,950
10,795
11,633
2
62
1
41
8
—
9
2
7
17
—
65
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 a derivative transaction in a hedging
strategy to manage interest rate risk on $500 million of
senior debt prior to its maturity in December 2020. This
transaction qualified for hedge accounting using the long-
haul method. FHN early redeemed the $500 million senior
debt in November 2020.
The following tables summarize FHN’s derivatives
associated with interest rate risk management activities as
of December 31, 2021 and 2020:
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Table of Contents
Table 8.22.2a-b
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 22—DERIVATIVES
DERIVATIVES ASSOCIATED WITH INTEREST RATE RISK MANAGEMENT
(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
Notional
December 31, 2021
Assets
Liabilities
$
8,037 $
202 $
8,037
4
Notional
December 31, 2020
Assets
Liabilities
$
6,868 $
436 $
6,868
5
29
15
1
35
The following table summarizes gains (losses) on FHN’s derivatives associated with interest rate risk management activities for
the years ended December 31, 2021, 2020, and 2019:
Table 8.22.3
DERIVATIVE GAINS (LOSSES) ASSOCIATED WITH INTEREST RATE RISK MANAGEMENT
(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)
2021
Gains (Losses)
Year Ended December 31,
2020
Gains (Losses)
2019
Gains (Losses)
$
$
(268) $
268
357 $
(357)
— $
2 $
—
(2)
92
(92)
13
(13)
(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
Prior to 2021, FHN had 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 consisted 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 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, 2021
and 2020:
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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 22—DERIVATIVES
DERIVATIVES ASSOCIATED WITH CASH FLOW HEDGES
Notional
December 31, 2021
Assets
Liabilities
Table of Contents
Table 8.22.4a-b
(Dollars in millions)
Cash Flow Hedges
Hedging Instruments:
Interest rate contracts
Hedged Items:
(Dollars in millions)
Cash Flow Hedges
Hedging Instruments:
Interest rate contracts
Hedged Items:
Variability in cash flows related to debt instruments (primarily loans)
N/A $
1,100
$
1,100 $
13 $
Notional
December 31, 2020
Assets
Liabilities
$
1,250 $
32 $
—
N/A
—
N/A
Variability in cash flows related to debt instruments (primarily loans)
N/A $
1,250
The following table summarizes gains (losses) on FHN’s derivatives associated with cash flow hedges for the years ended
December 31, 2021, 2020, and 2019:
Table 8.22.5
DERIVATIVE GAINS (LOSSES) ASSOCIATED WITH CASH FLOW HEDGES
(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
2021
Gains (Losses)
Year Ended December 31,
2020
Gains (Losses)
2019
Gains (Losses)
$
29 $
3 $
(3)
(7)
15
(6)
21
11
4
(a) Approximately $15 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.
Table 8.22.6a-b
DERIVATIVES ASSOCIATED WITH MORTGAGE BANKING HEDGES
(Dollars in millions)
Mortgage Banking Hedges
Option contracts written
Forward contracts written
December 31, 2021
Notional
Assets
Liabilities
$
241 $
404
4 $
—
—
—
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NOTE 22—DERIVATIVES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
(Dollars in millions)
Mortgage Banking Hedges
Option contracts written
Forward contracts written
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 years
ended December 31, 2021 and 2020:
Table 8.22.7
DERIVATIVE GAINS (LOSSES) ASSOCIATED WITH MORTGAGE BANKING HEDGES
(Dollars in millions)
Mortgage Banking Hedges
Option contracts written
Forward contracts written
In conjunction with pre-2020 sales of Visa Class B shares,
FHN 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. As of December 31, 2021 and
December 31, 2020, the derivative liabilities associated
with the sales of Visa Class B shares were $23 million and
$13 million, respectively. For the year ended December
31, 2021, FHN recognized $19 million in derivative
valuation adjustments related to prior sales of Visa Class B
shares. These derivative adjustments were insignificant for
the year ended December 31, 2020. See Note 24 - Fair
Value of Assets and Liabilities for discussion of the
valuation inputs and processes for these Visa-related
derivatives.
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,
2021 and 2020, these loans were valued at $7 million and
$12 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
Year Ended
December 31,
2021
Gains (Losses)
2020
Gains (Losses)
$
15 $
11
15
(37)
the participation. As of December 31, 2021 and 2020, the
notional values of FHN’s risk participations were $257
million and $233 million of derivative assets and $500
million and $464 million of derivative liabilities,
respectively. 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 credit loss estimates for its loan portfolio.
These credit risk estimates are included in the
determination of fair value for the risk participations.
Assuming all underlying third party customers referenced
in the swap contracts defaulted at December 31, 2021 and
2020, the exposure from these agreements would not be
material based on the fair value of the underlying swaps.
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, 2021 and 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
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NOTE 22—DERIVATIVES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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.
Interest rate derivatives with larger financial institutions
entered into prior to required central clearing typically
contain provisions whereby the collateral posting
thresholds under the agreements adjust based on the
credit ratings of both counterparties. If the credit rating of
FHN and/or First Horizon Bank is lowered, FHN could be
required to post additional collateral with the
counterparties. Conversely, if the credit rating of FHN and/
or First Horizon Bank is increased, FHN could have
collateral released and be required to post less collateral
in the future. Also, if a counterparty’s credit ratings were
to decrease, FHN and/or First Horizon Bank could require
the posting of additional collateral; whereas if a
counterparty’s credit ratings were to increase, the
counterparty could require the release of excess
collateral. Collateral for these arrangements is adjusted
daily based on changes in the net fair value position with
each counterparty.
The net fair value, determined by individual counterparty,
of all derivative instruments with adjustable collateral
posting thresholds was $67 million of assets and $26
million of liabilities on December 31, 2021, and $200
million of assets and $5 million of liabilities on
December 31, 2020. As of December 31, 2021 and 2020,
FHN had received collateral of $205 million and $320
million and posted collateral of $14 million and $34
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
$74 million of assets and $30 million of liabilities on
December 31, 2021, and $216 million of assets and $17
million of liabilities on December 31, 2020. As of
December 31, 2021 and 2020, FHN had received collateral
of $213 million and $343 million and posted collateral of
$18 million and $53 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 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, 2021 and 2020:
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Table 8.22.8
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 22—DERIVATIVES
DERIVATIVE ASSETS & COLLATERAL RECEIVED
(Dollars in millions)
Derivative assets:
December 31, 2021
Interest rate derivative
contracts
Forward contracts
December 31, 2020
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
$
$
$
$
311 $
12
323 $
702 $
63
765 $
— $
—
— $
— $
—
— $
311 $
(32) $
(181) $
12
(4)
(3)
323 $
(36) $
(184) $
702 $
(7) $
(327) $
63
(14)
(20)
765 $
(21) $
(347) $
98
5
103
368
29
397
(a) Included in other assets on the Consolidated Balance Sheets. As of December 31, 2021 and 2020, $2 million and $4 million, respectively, of derivative
assets have been excluded from these tables because they are generally not subject to master netting or similar agreements.
The following table provides details of derivative liabilities and collateral pledged as presented on the Consolidated Balance
Sheets as of December 31, 2021 and 2020:
Table 8.22.9
DERIVATIVE LIABILITIES & COLLATERAL PLEDGED
(Dollars in millions)
Derivative liabilities:
December 31, 2021
Interest rate derivative
contracts
Forward contracts
December 31, 2020
Interest rate derivative
contracts
Forward contracts
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
Gross amounts not offset
in the Balance Sheets
$
$
$
$
93 $
10
103 $
60 $
65
125 $
— $
—
— $
— $
—
— $
93 $
10
103 $
(32) $
(38) $
(4)
(1)
(36) $
(39) $
60 $
65
125 $
(7) $
(14)
(21) $
(31) $
(51)
(82) $
23
5
28
22
—
22
(a) Included in other liabilities on the Consolidated Balance Sheets. As of December 31, 2021 and 2020, $24 million and $22 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.
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NOTE 23—MASTER NETTING & SIMILAR AGREEMENTS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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, 2021 and
2020:
Table 8.23.1
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
Gross
amounts
of recognized
assets
Gross
amounts
offset in the
Balance
Sheets
Net amounts of
assets presented
in the Balance
Sheets
Gross amounts not offset in the
Balance Sheets
Offsetting
securities sold
under
agreements
to repurchase
Securities
collateral
(not recognized on
FHN’s Balance
Sheets)
Net
amount
(Dollars in millions)
Securities purchased under
agreements to resell:
2021
2020
$
488 $
380
— $
—
488 $
380
(10) $
—
(476) $
(379)
2
1
The following table provides details of securities sold under agreements to repurchase and collateral pledged by FHN as of
December 31, 2021 and 2020:
Table 8.23.2
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
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
Offsetting securities
purchased under
agreements to
resell
Securities/
government
guaranteed
loans
collateral
Net
amount
$
1,247 $
1,187
— $
—
1,247 $
1,187
(10) $
(1,237) $
—
(1,187)
—
—
(Dollars in millions)
Securities sold under
agreements to
repurchase:
2021
2020
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NOTE 23—MASTER NETTING & SIMILAR AGREEMENTS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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, 2021 and 2020:
Tables 8.23.3a-b
MATURITIES OF SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
December 31, 2021
(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
(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)
Overnight and
Continuous
Up to 30 Days
Total
$
$
33 $
— $
1,068
31
115
—
—
—
1,247 $
— $
December 31, 2020
Overnight and
Continuous
Up to 30 Days
Total
$
284 $
— $
616
10
151
126
—
—
—
—
33
1,068
31
115
1,247
284
616
10
151
126
Total securities sold under agreements to repurchase
$
1,187 $
— $
1,187
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NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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.
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, 2021 and 2020:
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Tables 8.24.1a-b
(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
Interest-only strips (elected fair value)
Total trading securities
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
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
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
BALANCES OF ASSETS & LIABILITIES
MEASURED AT FAIR VALUE ON A RECURRING BASIS
Level 1
Level 2
Level 3
Total
December 31, 2021
$
— $
85 $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
125
25
12
—
—
162
464
62
276
34
642
—
1,563
230
5,055
2,257
850
545
8,707
—
—
—
311
1
312
—
—
—
—
—
38
38
28
—
—
—
—
—
—
—
—
—
—
—
85
464
62
276
34
642
38
1,601
258
5,055
2,257
850
545
8,707
125
25
12
311
1
474
162 $
10,812 $
66 $
11,040
— $
334 $
— $
—
—
—
11
—
—
11
1
91
426
—
93
1
94
—
—
—
—
—
23
23
$
11 $
520 $
23 $
334
1
91
426
11
93
24
128
554
$
$
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NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
(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 agency issued 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
$
— $
81 $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
118
25
63
—
—
206
633
212
62
7
181
1,176
393
—
613
3,812
2,406
684
460
40
—
8,015
—
—
—
702
4
706
—
—
—
—
—
—
12
16
—
—
—
—
—
—
32
32
—
—
—
—
—
—
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
206 $
10,290 $
60 $
10,556
— $
307 $
— $
—
—
—
71
—
—
71
3
43
353
—
60
4
64
—
—
—
—
—
14
14
$
71 $
417 $
14 $
307
3
43
353
71
60
18
149
502
$
$
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NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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, 2021, 2020 and 2019 on
a recurring basis are summarized as follows:
Tables 8.24.2a-b-c
CHANGES IN LEVEL 3 ASSETS & LIABILITIES MEASURED AT FAIR VALUE
Year Ended December 31, 2021
Loans held
for
investment
Interest-only
strips
Loans held
for sale
Net
derivative
liabilities
(Dollars in millions)
Balance on January 1, 2021
Total net gains (losses) included in net income
Purchases
Sales
Settlements
Net transfers into (out of) Level 3
Balance on December 31, 2021
Net unrealized gains (losses) included in net income
$
$
$
$
32
3
—
(68)
—
$
12
1
10
(18)
(3)
$
16
—
—
—
(2)
71 (b)
38
$
(2) (c) $
26 (e)
28
$
1 (a) $
(14) (e)
—
—
$
$
(14)
(19)
—
—
10
—
(23)
(19) (d)
Year Ended December 31, 2020
Trading
securities
Interest-
only strips-
AFS
Loans held
for sale
Loans held
for
investment
Net
derivative
liabilities
$
(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
Balance on December 31, 2019
Net unrealized gains (losses) included in net income
1
—
(1)
—
—
—
—
—
$
$
19
—
(6)
6
(11)
—
24 (b)
$
32
$
14
—
1
—
—
(3)
—
12
$
— $
14
—
—
(4)
(3)
9
(23)
—
(1)
—
—
10
—
$
16 $
(14)
— (a) $
(4) (c) $
1 (a) $
— $
(1) (d)
Year Ended December 31, 2019
Trading
securities
Interest-only
strips- AFS
Loans held
for sale
Net
derivative
liabilities
$
$
$
2
—
—
—
(1)
—
1
$
$
— (a) $
$
10
(5)
—
(47)
—
61 (b)
19
$
(2) (c) $
16
2
—
—
(4)
—
14
$
(32)
(4)
—
—
13
—
$
(23)
2 (a) $
(4) (d)
(a) Primarily included in mortgage banking and title income on the Consolidated Statements of Income.
(b) Transfers into interest-only strips 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) Included in other expense.
(e) The loans held for investment at fair value option portfolio was transferred to the loans held for sale portfolio on April 1, 2021.
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There were no net unrealized gains (losses) for Level 3
assets and liabilities included in other comprehensive
income as of December 31, 2021, 2020 and 2019.
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
Tables 8.24.3a-b-c
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, 2021, 2020 and 2019, respectively, the
following tables provide the level of valuation
assumptions used to determine each adjustment and the
related carrying value.
LEVEL OF VALUATION ASSUMPTIONS FOR ASSETS
MEASURED AT FAIR VALUE ON A NON-RECURRING BASIS
(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)
(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, 2021
Level 1
Level 2
Level 3
Total
Year Ended December 31,
2021
Net gains (losses)
$
— $
—
852 $
—
1 $
1
853 $
1
—
—
—
—
—
—
84
3
30
84
3
30
$
(2)
—
(13)
(1)
(2)
(18)
Carrying value at December 31, 2020
Level 1
Level 2
Level 3
Total
Year Ended December 31,
2020
Net gains (losses)
$
— $
508 $
1 $
509 $
—
—
—
—
—
—
—
—
1
77
15
9
1
77
15
9
$
(3)
—
(12)
(1)
(2)
(18)
Carrying value at December 31, 2019
Year Ended December 31,
2019
(Dollars in millions)
Level 1
Level 2
Level 3
Total
Net gains (losses)
Loans held for sale—SBAs and USDA
$
— $
493 $
1 $
494 $
Loans held for sale—first mortgages
Loans and leases (a)
OREO (b)
Other assets (c)
—
—
—
—
—
—
—
—
1
42
16
11
1
42
16
11
$
(2)
—
(7)
(1)
(2)
(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 2021, FHN recognized $34 million of fixed asset
impairments and $3 million of leased asset impairments.
In 2020, FHN recognized $7 million of fixed asset
impairments and $6 million of leased asset impairments.
These impairments were primarily related to continuing
acquisition integration efforts associated with reduction of
leased office space and banking center optimization.
These amounts were primarily recognized in the
Corporate segment.
In 2019, FHN recognized $4 million of impairments related
to dispositions of acquired properties and $1 million of
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leased asset impairments related to continuing acquisition
integration efforts associated with reduction of leased
office space and banking center optimization. Related to
its restructuring, repositioning, and efficiency efforts, FHN
recognized $13 million of impairments 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. These
amounts were primarily recognized in the Corporate
segment.
Lease asset impairments recognized represent the
reduction in value of the right-of-use assets associated
with leases that are being exited in advance of the
contractual lease expiration.
Impairments are measured using a discounted cash flow
methodology, which is considered a Level 3 valuation.
Impairments of long-lived tangible assets reflect locations
where the associated land and building are either owned
or leased. The fair values of owned sites were determined
using estimated sales prices from appraisals and broker
opinions less estimated costs to sell with adjustments
upon final disposition. The fair values of owned assets in
leased sites (e.g., leasehold improvements) were
determined using a discounted cash flow approach, based
on the revised estimated useful lives of the related assets.
Both measurement methodologies are considered Level 3
valuations. Impairment adjustments recognized upon
disposition of a location are considered Level 2 valuations.
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, 2021 and 2020:
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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
UNOBSERVABLE INPUTS USED
IN LEVEL 3 FAIR VALUE MEASUREMENTS
Fair Value at
December 31,
2021
Valuation Techniques
Unobservable Input
Range
Weighted
Average (d)
Values Utilized
Table of Contents
Tables 8.24.4a-b
(Dollars in millions)
Level 3 Class
Trading securities - SBA
interest-only strips
Loans held for sale -
residential real estate
Loans held for sale -
unguaranteed interest
in SBA loans
Derivative liabilities,
other
$
$
$
$
38
Discounted cash flow
29
Discounted cash flow
1
Discounted cash flow
23
Discounted cash flow
Loans and leases (a)
$
84
Appraisals from
comparable properties
Other collateral
valuations
OREO (b)
Other assets (c)
$
$
Appraisals from
comparable properties
3
30
Discounted cash flow
Appraisals from
comparable properties
Constant prepayment
rate
Bond equivalent yield
Prepayment speeds -
First mortgage
Foreclosure losses
Loss severity trends -
First mortgage
Constant prepayment
rate
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
11%-12%
11% - 14%
4% - 12%
54% - 66%
1% - 14% of
UPB
8% - 12%
11%
$5.8 billion -
$6.2 billion
15% - 35%
12 - 36
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
11%
11%
5%
65%
8%
10%
11%
$6.0 billion
24%
25 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.
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Fair Value at
December 31,
2020
Valuation Techniques
Unobservable Input
Range
Weighted
Average (d)
Values Utilized
32
Discounted cash flow
Constant prepayment
rate
12%
Bond equivalent yield
15% - 17%
(Dollars in millions)
Level 3 Class
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
$
$
$
$
$
13
Discounted cash flow
1
Discounted cash flow
16
Discounted cash flow
14
Discounted cash flow
Loans and leases (a)
$
77
Appraisals from
comparable properties
Other collateral
valuations
OREO (b)
Other assets (c)
$
$
Appraisals from
comparable properties
15
9
Discounted cash flow
Appraisals from
comparable properties
Prepayment speeds -
First mortgage
Foreclosure losses
Loss severity trends -
First mortgage
Constant prepayment
rate
Bond equivalent yield
Constant prepayment
rate
Constant default rate
Loss severity trends
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
5% - 15%
59% - 70%
3% - 19% of
UPB
8% - 12%
7%-8%
0% - 26%
0%-14%
0% - 100%
$5.4 billion -
$6.0 billion
10% - 50%
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
12%
15%
5%
63%
12%
10%
7%
11%
1%
11%
$5.8 billion
16%
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.
Trading Securities - SBA interest-only strips
Increases (decreases) in estimated prepayment rates and
bond equivalent yields negatively (positively) affect the
value of SBA interest-only strips. Management additionally
considers whether the loans underlying related SBA
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interest-only strips are delinquent, in default or prepaying,
and adjusts the fair value down 20 - 100% depending on
the length of time in default. SBA interest-only strips were
transferred from AFS to trading securities on October 1,
2021.
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 pre-2020 sales of Visa Class B shares,
FHN and the purchasers entered into derivative
transactions whereby FHN will make, or receive, cash
payments whenever the conversion ratio of the Visa Class
B shares into Visa Class A shares is adjusted. FHN uses a
discounted cash flow methodology in order to estimate
the fair value of FHN’s derivative liabilities associated with
its prior sales of Visa Class B shares. The methodology
includes estimation of both the resolution amount for
Visa’s Covered Litigation matters as well as the length of
time until the resolution occurs. Significant increases
(decreases) in either of these inputs in isolation would
result in significantly higher (lower) fair value
measurements for the derivative liabilities. Additionally,
FHN performs a probability weighted multiple resolution
scenario to calculate the estimated fair value of these
derivative liabilities. Assignment of higher (lower)
probabilities to the larger potential resolution scenarios
would result in an increase (decrease) in the estimated fair
value of the derivative liabilities. Since this estimation
process requires application of judgment in developing
significant unobservable inputs used to determine the
possible outcomes and the probability weighting assigned
to each scenario, these derivatives have been classified
within Level 3 in fair value measurements disclosures.
Loans and leases and Other Real Estate Owned
Collateral-dependent loans and OREO are primarily valued
using appraisals based on sales of comparable properties
in the same or similar markets. Other collateral
(receivables, inventory, equipment, etc.) is valued through
borrowing base certificates, financial statements and/or
auction valuations. These valuations are discounted based
on the quality of reporting, knowledge of the
marketability/collectability of the collateral and historical
disposition rates.
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 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
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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 had a portion of mortgage loans held for
investment for which the fair value option was elected
Tables 8.24.5a-b
upon origination and which were accounted for at fair
value. This portion of mortgage loans held for investment
at fair value option was transferred to the loans held for
sale portfolio on April 1, 2021.
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.
DIFFERENCES BETWEEN FAIR VALUE CARRYING AMOUNTS
AND CONTRACTUAL AMOUNTS OF RESIDENTIAL REAL ESTATE LOANS
(Dollars in millions)
Residential real estate loans held for sale reported at fair value:
Total loans
Nonaccrual loans
(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
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
Table 8.24.6
December 31, 2021
Fair value
carrying
amount
Aggregate
unpaid
principal
Fair value carrying amount
less aggregate unpaid
principal
258 $
4
264 $
7
(6)
(3)
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)
—
$
$
which FHN elected the fair value option are included in
current period earnings with classification in the income
statement line item reflected in the following table:
CHANGES IN FAIR VALUE RECOGNIZED IN NET INCOME
(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, 2021, 2020 and 2019,
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 fair value is calculated based on the note
rate of the loan and is recorded in the interest income
Year Ended December 31,
2020
2019
2021
$
(10) $
4 $
2
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 trading
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, the fair value election results in a more timely
recognition of the effects of estimated prepayments
through earnings rather than being recognized through
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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.
Trading securities - SBA interest-only strips
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. SBA interest-
only strips were transferred from AFS to trading on
October 1, 2021.
Securities available for sale and held to maturity
Valuations of debt securities are performed using
observable inputs obtained from market transactions in
similar securities. Typical inputs include benchmark yields,
consensus prepayment speeds and credit spreads. Trades
from similar securities and broker quotes are used to
support these valuations.
Loans held for sale
FHN determines the fair value of loans held for sale using
either current transaction prices or discounted cash flow
models. Fair values are determined using current
transaction prices and/or values on similar assets when
available, including committed bids for specific loans or
loan portfolios. Uncommitted bids may be adjusted based
on other available market information.
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.
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.
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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 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.
204
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Table of Contents
NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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, 2021 and December 31, 2020, 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.
The following tables summarize the book value and
estimated fair value of financial instruments recorded in
the Consolidated Balance Sheets as of December 31, 2021
and December 31, 2020:
205
2021 FORM 10-K ANNUAL REPORT
Table of Contents
Tables 8.24.7a-b
(Dollars in millions)
Assets:
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
BOOK VALUE AND ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Book
Value
December 31, 2021
Fair Value
Level 1
Level 2
Level 3
Total
Loans and leases, net of allowance for loan and lease losses
Commercial:
Commercial, financial and industrial
$
30,734
$
Commercial real estate
Consumer:
Consumer real estate
Credit card and 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 mutual funds
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
Term borrowings—new market tax credit investment
Secured borrowings
Junior subordinated debentures
Other long term borrowings
Total term borrowings
Derivative liabilities (a)
Total liabilities
11,955
10,609
891
54,189
14,907
153
488
15,548
1,601
258
853
24
37
1,172
8,707
712
324
456
125
257
838
3,500
$
426
775
1,247
102
2,124
46
59
6
148
1,331
1,590
128
$
—
—
—
—
—
14,907
—
—
14,907
—
—
—
—
—
—
—
—
12
—
125
25
150
—
—
—
—
—
—
153
488
641
1,563
230
855
24
—
1,109
8,707
705
312
—
—
—
—
$
31,020
$
11,986
11,111
906
55,023
—
—
—
—
38
28
1
—
37
66
—
—
—
450
—
232
682
31,020
11,986
11,111
906
55,023
14,907
153
488
15,548
1,601
258
856
24
37
1,175
8,707
705
324
450
125
257
832
—
—
—
—
—
—
—
—
—
—
—
—
11
11
$
3,524
$
426
775
1,247
102
2,124
—
—
—
—
1,452
1,452
94
$
—
—
—
—
—
—
47
58
6
150
—
261
23
$
7,620
$
284
$
3,524
426
775
1,247
102
2,124
47
58
6
150
1,452
1,713
128
7,915
83,091
$
15,069
$
13,037
$
55,809
$
83,915
$
$
$
7,768
$
(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 $29
million and FRB stock of $203 million.
206
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Table of Contents
NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
(Dollars in millions)
Assets:
Book
Value
December 31, 2020
Fair Value
Level 1
Level 2
Level 3
Total
Loans and leases, net of allowance for loan and lease losses
Commercial:
Commercial, financial and industrial
$
32,651
$
Commercial real estate
Consumer:
Consumer real estate
Credit card and 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 mutual funds
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
Term borrowings—new market tax credit investment
Secured borrowings
Junior subordinated debentures
Other long term borrowings
Total term borrowings
Derivative liabilities (a)
Total liabilities
12,033
11,483
1,102
57,269
8,351
65
380
8,796
1,176
405
509
31
77
1,022
8,047
10
769
400
118
288
806
5,070
$
353
845
1,187
166
2,198
46
45
15
238
1,326
1,670
149
$
—
—
—
—
—
8,351
—
—
8,351
—
—
—
—
—
—
—
—
63
—
118
25
143
—
—
—
—
—
—
65
380
445
1,176
393
511
31
—
935
8,015
—
706
—
—
—
—
$
32,582
$
12,079
11,903
1,131
57,695
—
—
—
—
—
12
1
—
77
90
32
10
—
371
—
263
634
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
10
769
371
118
288
777
—
—
—
—
—
—
—
—
—
—
—
—
71
71
$
5,083
$
353
845
1,187
166
2,198
—
—
—
—
1,455
1,455
64
$
—
—
—
—
—
—
47
45
15
223
—
330
14
$
9,153
$
344
$
5,083
353
845
1,187
166
2,198
47
45
15
223
1,455
1,785
149
9,568
77,895
$
8,557
$
11,277
$
58,461
$
78,295
$
$
$
9,440
$
(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 $61
million and FRB stock of $202 million.
207
2021 FORM 10-K ANNUAL REPORT
Table of Contents
NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
The following table presents the contractual amount and fair value of unfunded loan commitments and standby and other
commitments as of December 31, 2021 and December 31, 2020:
Table 8.24.8
(Dollars in millions)
Unfunded Commitments:
Loan commitments
Standby and other commitments
UNFUNDED COMMITMENTS
Contractual Amount
December 31,
2021
December 31,
2020
December 31,
2021
Fair Value
December 31,
2020
$
24,229 $
810
20,796 $
751
1 $
6
2
6
208
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Table of Contents
NOTE 25—RESTRUCTURING, REPOSITIONING, & EFFICIENCY
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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 2021 and 2020 and were
$40 million in 2019. These expenses are included in the
Corporate segment. Significant expenses resulted from
the following actions:
• Severance and other employee costs primarily related
to efficiency initiatives within 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.
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:
Table 8.25.1
RESTRUCTURING, REPOSITIONING, & EFFICIENCY EXPENSES
(Dollars in millions)
Personnel expense
Legal and professional fees
Net occupancy expense
Other
Total restructuring, repositioning, and efficiency charges
Year Ended December 31, 2019
$
$
11
16
1
12
40
209
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Table of Contents
NOTE 26—PARENT COMPANY FINANCIAL INFORMATION
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 26—Parent Company Financial Information
Following are statements of the parent company:
Parent Company Balance Sheets
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
Parent Company Statements of Income
(Dollars in millions)
Dividend income:
Bank
Non-bank
Total dividend income
Other income (loss)
Total income
Provision (provision credit) for credit losses
Interest expense - term borrowings
Personnel 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,
2021
2020
$
$
$
$
724 $
3
8,381
65
291
9,464 $
321 $
944
1,265
8,199
9,464 $
2021
Year Ended December 31,
2020
2019
$
770 $
—
770
(26)
744
—
31
89
120
624
(35)
659
332
8
999 $
180 $
—
180
—
180
—
39
54
93
87
(18)
105
736
4
845 $
827
3
8,176
88
274
9,368
322
1,034
1,356
8,012
9,368
345
1
346
1
347
(1)
31
53
83
264
(19)
283
160
(2)
441
210
2021 FORM 10-K ANNUAL REPORT
Table of Contents
NOTE 26—PARENT COMPANY FINANCIAL INFORMATION
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Parent Company Statements of Cash Flows
(Dollars in millions)
Operating activities:
Net income
2021
2020
2019
$
999 $
845 $
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
Loss on extinguishment of debt
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 for business combination, net
Net cash provided by (used in) investing activities
Financing activities:
Proceeds from issuance of preferred stock
Call 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 (decrease) 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
340
659
—
—
8
43
26
(11)
66
725
3
(10)
8
—
1
145
(100)
(33)
28
(333)
(416)
—
(120)
—
(829)
(103)
827
724 $
35 $
28
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
211
2021 FORM 10-K ANNUAL REPORT
Table of Contents
NOTE 27—SUBSEQUENT EVENTS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Following the completion of the First Holding Company
Merger, at such time as determined by TD, First Horizon
Bank and TD Bank, N.A., a national banking association
(“TDBNA”) will merge, with TDBNA surviving as a
subsidiary of TD-US (the “Bank Merger” and together with
the Holding Company Mergers, the “Proposed TD
Merger”).
In connection with the execution of the TD Merger
Agreement, TD has agreed to purchase from FHN shares
of non-voting Perpetual Convertible Preferred Stock,
Series G, a new series of preferred stock of FHN (the
“Series G Convertible Preferred Stock”) in a private
placement transaction having an aggregate liquidation
preference and purchase price of approximately $493.5
million, pursuant to a securities purchase agreement
between FHN and TD entered into concurrently with the
execution and delivery of the TD Merger Agreement. The
Series G Convertible Preferred Stock is convertible into up
to 4.9% of the outstanding shares of Company Common
Stock in certain circumstances, including the closing of the
Proposed TD Merger.
Merger and integration expenses related to the Proposed
TD Merger will be recorded in FHN’s Corporate segment.
No such expenses were recognized during 2021.
Note 27—Subsequent Events
2022 Merger Agreement with Toronto-Dominion Bank
On February 27, 2022, FHN entered into an Agreement
and Plan of Merger (the “TD Merger Agreement”) with
The Toronto-Dominion Bank, a Canadian chartered bank
(“TD”), TD Bank US Holding Company, a Delaware
corporation and indirect, wholly owned subsidiary of TD
(“TD-US”), and Falcon Holdings Acquisition Co., a
Delaware corporation and wholly owned subsidiary of TD-
US (“Merger Sub”).
Pursuant to the TD Merger Agreement, FHN and Merger
Sub will merge (the “First Holding Company Merger”),
with FHN continuing as the surviving entity in the merger.
Following the First Holding Company Merger, at the
election of TD, FHN and TD-US will merge (the “Second
Holding Company Merger” and, together with the First
Holding Company Merger, the “Holding Company
Mergers”), with TD-US continuing as the surviving entity in
the merger.
Upon the terms and subject to the conditions set forth in
the TD Merger Agreement, each share of FHN common
stock, par value $0.625 per share, (“Company Common
Stock”), issued and outstanding immediately prior to the
effective time of the First Holding Company Merger (the
“First Effective Time”) will be converted into the right to
receive $25.00 (USD) per share in cash, without interest. If
the transaction does not close on or before November 27,
2022, shareholders will receive an additional $0.65 per
share of Company Common Stock on an annualized basis
(or approximately 5.4 cents per month) for the period
from November 28, 2022 through the day immediately
prior to the closing. Each outstanding share of FHN’s
preferred stock, series B, C, D, E and F, will remain issued
outstanding in connection with the First Holding Company
Merger. If TD elects to effect the Second Holding Company
Merger, at the effective time of the Second Holding
Company Merger, each outstanding share of FHN’s
preferred stock will be converted into a share of a newly
created, corresponding series of TD-US having terms as
described in the Merger Agreement.
212
2021 FORM 10-K ANNUAL REPORT
ITEM 9. ACCOUNTANTS, ITEM 9A. CONTROLS & PROCEDURES, ITEM 9B. OTHER INFO, AND ITEM 9C. FOREIGN INSPECTIONS
Table of Contents
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls & 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 appears at page 109, and the attestation
report required by Item 308(b) of Regulation S-K appears
starting at page 110, of our 2021 Financial Statements
(Item 8). Both are incorporated herein by this reference.
Changes in Internal Control over Financial Reporting
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.
Item 9B. Other Information
Not applicable.
Item 9C. Disclosure Regarding Foreign
Jurisdictions that Prevent Inspections
Not applicable.
213
2021 FORM 10-K ANNUAL REPORT
Table of Contents
ITEM 10. DIRECTORS & EXECUTIVE OFFICERS
PART III
Item 10. Directors and Executive Officers of the
Registrant
Required Item 10 Information
In 2021 there were no material amendments to the
procedures, described in our 2022 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 2022 Proxy
Statement under the captions Shareholder
Recommendations of Director Nominees; Shareholder
Nominations and 2023 Annual Meeting—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 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.
Table 10.1
ITEM 10 TOPICS 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
In our 2022 Proxy Statement: Independence & Categorical Standards, Committee
Charters & Composition, Audit Committee, and Vote Item 1—Election of Directors
(excluding the Audit Committee Report and the statements regarding the
existence and location of the Audit Committee’s charter)
In the Supplemental Part I Information following Item 4 of this report: Executive
Officers of the Registrant, beginning on page 56
Compliance with Section 16(a) of the Securities
Exchange Act of 1934
In our 2022 Proxy Statement: Delinquent Section 16(a) Reports
214
2021 FORM 10-K ANNUAL REPORT
ITEM 10. DIRECTORS & EXECUTIVE OFFICERS
Table of Contents
First Horizon Directors
Table 10.2
Harry V. Barton, Jr.
Age 67
CPA and Owner,
Barton Advisory Services, LLC,
an investment advisory firm
John N. Casbon
Age 73
Executive Vice President,
First American Title Insurance
Company,
a title insurance company
William H. Fenstermaker
Age 73
Chairman and CEO,
C.H. Fenstermaker and Associates,
LLC,
a surveying, mapping, engineering,
and environmental consulting
company
Rick E. Maples
Age 63
Retired Co-Head of Investment
Banking,
Stifel, Nicolaus and Company,
Incorporated,
a financial services company
E. Stewart Shea III
Age 70
Private Investor
Rosa Sugrañes
Age 64
Founder and former
Chief Executive Officer,
Iberia Tiles,
a ceramic tile distributor
OUR BOARD OF DIRECTORS
(at February 20, 2022)
Kenneth A. Burdick
Age 63
Retired Executive Vice President,
Products and Markets,
Centene Corporation,
a healthcare services company
John C. Compton
Age 60
Partner,
Clayton, Dubilier & Rice, LLC
a private equity firm
D. Bryan Jordan
Age 60
President and
Chief Executive Officer,
First Horizon Corporation,
a financial services company
Vicki R. Palmer
Age 68
President,
The Palmer Group, LLC
a general consulting firm
Cecelia D. Stewart
Age 63
Retired President, U.S. Consumer &
Commercial Banking,
Citigroup, Inc.
a financial services company
Daryl G. Byrd
Age 67
Executive Chairman of the Board,
First Horizon Corporation,
a financial services company
Wendy P. Davidson
Age 52
President-Americas for the
Performance Nutrition segment of
Ireland-based Glanbia plc,
a global nutrition company
J. Michael Kemp, Sr.
Age 51
Founder and Chief Executive Officer,
Kemp Management Solutions,
a program management and
consulting firm
Colin V. Reed
Age 74
Chairman of the Board and
Chief Executive Officer,
Ryman Hospitality Properties, Inc.
a real estate investment trust
Rajesh Subramaniam
Age 56
President and
Chief Operating Officer,
FedEx Corporation
a provider of transportation, e-
commerce, and business services
R. Eugene Taylor
Age 74
Retired Chairman of the Board and
Chief Executive Officer,
Capital Bank Financial Corp.,
a financial services company
215
2021 FORM 10-K ANNUAL REPORT
Table of Contents
Item 11. Executive Compensation
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item is incorporated
herein by reference to the following sections of our 2022
Proxy Statement: Compensation Committee,
Compensation Committee Interlocks & Insider
Participation, Director Compensation, Compensation
Discussion & Analysis, Recent Compensation, Post-
Employment Compensation, Pay Ratio of CEO to Median
Employee, and each Appendix to our Proxy Statement
referenced in those sections.
The sub-section of our 2022 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 2022 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.
216
2021 FORM 10-K ANNUAL REPORT
Table of Contents
ITEM 12. SECURITY OWNERSHIP & RELATED STOCKHOLDER MATTERS
Item 12. Security Ownership of Certain
Beneficial Owners and Management and
Related Stockholder Matters
Securities Authorized for Issuance under Equity Compensation
Plans
Equity Compensation Plan Information
Table 12.1 provides information as of December 31, 2021
regarding shares of our common stock that may be issued
under the following plans:
• 2021 Incentive Plan ("2021 Plan")
• Equity Compensation Plan (“ECP”)
• IBERIABANK Corporation 2019 Stock Incentive Plan
("SIP")
• 1997 Employee Stock Option Plan (“1997 Plan”)
• 2002 and 1996 Bank Director and Advisory Board
Member Deferral Plans (“Advisory Board Plans”)
Table 12.1
• 2000 Non-employee Directors’ Deferred
Compensation Stock Option Plan (“2000 Directors’
Plan”)
• The following IBERIABANK Corporation plans
(together with the SIP, the “IBKC Plans”): 2016 Stock
Incentive Plan; and Amended and Restated 2010
Stock Incentive Plan
• The following Capital Bank Financial Corp. plans (“CBF
Plans”): Capital Bank Financial Corp. 2013 Omnibus
Compensation Plan; and FNB United Corp. 2012
Incentive Plan
EQUITY COMPENSATION PLAN INFORMATION
As of December 31, 2021
A
B
C
Number of Securities to be
Issued upon Exercise of
Outstanding Options (1)
Weighted Average
Exercise Price of
Outstanding Options (1)
Number of Securities
Remaining Available for
Future Issuance under
Equity Compensation
Plans (excluding securities
reflected in Col. A)
4,741,471 (3)
239,458 (4)
4,980,929
$15.56
$20.75
$15.81
12,329,976
— (4)
12,329,976
Plan Category
Equity Compensation Plans Approved
by Shareholders (2)
Equity Compensation Plans Not
Approved by Shareholders (4)
Totals for A & C, wtd avg for B
(1) The numbers of shares covered by stock options and the related option prices have been adjusted proportionately to reflect the estimated economic
effects of dividends distributed in common stock effective October 1, 2008 through January 1, 2011. The cumulative compound adjustment factor related
to those dividends is 20.038%.
(2) Consists of the 2021 Plan, the ECP, the 2000 Directors’ Plans, the IBKC Plans, and the CBF Plans. The 2021 Plan was approved by shareholders in 2021 and
remains active. The number of shares in Column C is entirely under the 2021 Plan; as provided in the 2021 Plan, the Col. C number includes the new/
additional shares originally authorized under the 2021 Plan along with shares underlying ECP awards that have been forfeited or cancelled since the 2021
Plan was approved by shareholders, net of shares underlying 2021 Plan awards that are outstanding or have been paid. The ECP initially was approved by
shareholders in 2003, most recently was re-approved in 2016, and has terminated. The 2000 Directors’ Plan was approved by shareholders in 2000, and
has terminated. The IBKC Plans were approved by IBKC's shareholders in 2005, 2020, 2011, 2014, 2016, and 2019, and all have terminated. FHN and IBKC
closed a merger-of-equals transaction in 2020, as a result of which FHN became the plan sponsor for the IBKC Plans and their awards. The CBF Plans were
approved by shareholders of CBF or certain other predecessor companies, and all have terminated. FHN merged with CBF in 2017, as a result of which
FHN became the plan sponsor for the CBF Plans and their awards."Terminated" means no new awards may be granted under the plan.
(3) Consists entirely of outstanding options issued under terminated plans approved by shareholders, 30,733 of which directly or indirectly were issued in
connection with non-employee director cash deferrals of approximately $0.3 million.
(4) Consists of the 1997 Plan and the Advisory Board Plans, all of which have terminated. These outstanding options were issued directly or indirectly in
connection with associate and advisory board cash deferrals of approximately $2.6 million.
217
2021 FORM 10-K ANNUAL REPORT
ITEM 12. SECURITY OWNERSHIP & RELATED STOCKHOLDER MATTERS
Table of Contents
Only the 2021 Plan permits new awards to be granted; all
other plans have terminated. At December 31, 2021, there
were no shares issuable upon exercise of outstanding
options under the 2021 Plan, and the total number of
shares issuable upon exercise of outstanding options
under the terminated plans was 4,980,929 shares.
Shares covered by outstanding options are shown in
column A of Table 12.1. Outstanding equity awards other
than options ("full-value awards"), consisting of unpaid
stock units and restricted stock, are not included in any
column in that Table. In total, 9,296,888 shares are
covered by unpaid full-value awards, all granted under the
2021 Plan, the ECP, or the SIP.Of those, 8,714,844 are
covered by unvested awards, and 582,044 are covered by
awards that have vested but are subject to an unfulfilled
mandatory deferral period. In addition, there are 227,830
fully vested deferral stock units outstanding that are the
result of previously exercised options under terminated
plans for which the receipt of the shares was deferred by
the associate.
Column C of Table 12.1 presents the total number of
shares available for new awards under the 2021 Plan at
December 31, 2021, assuming eventual full exercise or
vesting of all shares covered by awards outstanding on
that date. The 2021 Plan permits the grant of options and
full-value awards, as well as stock appreciation rights
(none of which have been granted).
Of the options outstanding at December 31, 2021 (the
total under column A), approximately 5% were issued
directly or indirectly in connection with associate and
director cash deferral elections. We received over many
years a total of approximately $2.5 million in associate
cash deferrals and $0.4 million in non-employee director
and advisory board retainer and meeting fee deferrals
related to outstanding deferral options. The opportunity
to defer portions of compensation in exchange for options
has not been offered to associates, directors, or advisory
board members since 2004.
Description of Equity Compensation Plans Not Approved by Shareholders
The 1997 Plan
The Advisory Board Plans
The 1997 Plan was adopted by the Board of Directors in
1996 and terminated in 2007. The 1997 Plan authorized
the grant of nonqualified stock options.
The Advisory Board Plans were adopted by the Board of
Directors in 2001 and 1996, and terminated in 2005 and
2002, respectively.
Options were granted under the 1997 Plan prior to its
termination pursuant to a management option program,
covering a wide range of management-level associates.
The last management options granted under the 1997
Plan, with seven-year terms, expired in 2014. However,
prior to 2005 certain associates could elect to defer a
portion of their annual compensation into stock options
under the 1997 Plan. Many deferral options had 20-year
terms, and they are the only options still outstanding
under the 1997 Plan.
All deferral options granted under the 1997 Plan had an
exercise price discounted from grant date fair market
value: the aggregate exercise price plus the aggregate
compensation foregone equaled the aggregate grant date
fair market value. Options could be exercised using shares
of FHN stock to pay the option price. When an option was
exercised with shares, the option holder sometimes
received a new (reload) option grant priced at then-
current market (without a discount), covering the
remainder of the deferral option's term.
As of December 31, 2021, options covering 232,254 shares
of our common stock were outstanding under the 1997
Plan, no shares remained available for future option
grants, and options covering 21,027,943 shares had been
exercised during the life of the plan. The 1997 Plan was
filed most recently as Exhibit 10.2(d) in our Form 10-Q for
the quarter ended June 30, 2009.
Options granted under the Advisory Board Plans were
granted only to regional and advisory board members, or
to directors of certain bank affiliates, in any case who
were not associates. The options were granted in lieu of
the participants receiving retainers or attendance fees for
bank board and advisory board meetings. The number of
shares subject to grant equaled the amount of fees/
retainers earned divided by one half of the fair market
value of one share of common stock on the date of the
option grant. The exercise price plus the amount of fees
foregone equaled the fair market value of the stock on the
grant date. The options were vested at the grant date.
Those granted on or before January 2, 2004 had terms of
twenty years, and are the only options still outstanding.
As of December 31, 2021, options covering 7,204 shares of
our common stock were outstanding under the Advisory
Board Plans, no shares remained available for future
option grants, and options covering 90,097 shares had
been exercised during the life of the Plans. The Advisory
Board Plans were included as Exhibits 10.1(f) and 10.1(g)
to our Form 10-Q for the quarter ended June 30, 2009. At
the time this report is filed, all options outstanding under
the 1996 Advisory Board Plan at December 31, 2021 have
either expired or been exercised.
218
2021 FORM 10-K ANNUAL REPORT
Table of Contents
ITEM 12. SECURITY OWNERSHIP & RELATED STOCKHOLDER MATTERS
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 2022
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.
219
2021 FORM 10-K ANNUAL REPORT
ITEM 13. CERTAIN RELATIONSHIPS & RELATED TRANSACTIONS AND ITEM 14. PRINCIPAL ACCOUNTANT FEES & SERVICES
Table of Contents
Item 13. Certain Relationships and Related
Transactions
The information called for by this Item is presented in the
following sections of our 2022 Proxy Statement:
Independence & Categorical Standards; Related Party
Transaction Procedures; 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 2022 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
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
2022 Proxy Statement captioned Vote Item 2—Auditor
Ratification. No services were approved by the Audit
Committee pursuant to Rule 2-01(c)(7)(i)(C) of Regulation
S-X.
220
2021 FORM 10-K ANNUAL REPORT
Table of Contents
ITEM 15. EXHIBITS & FINANCIAL STATEMENT SCHEDULES
PART IV
Item 15. Exhibits and Financial Statement
Schedules
Financial Statements & 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 2021 Financial Statements (Item
8) indicated in Table 15.1.
Table 15.1
Item 8 Page
109
110
114
115
117
118
120
122
Statement, Note, or Report Incorporated into Item 15
Report of Management on Internal Control over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Income for the years ended December 31, 2021, 2020, and 2019
Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020, and 2019
Consolidated Statements of Changes in Equity for the years ended December 31, 2021, 2020, and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020, and 2019
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 “2021 named executive officers” refers to those
executive officers whose 2021 compensation is described
in our 2022 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.
221
2021 FORM 10-K ANNUAL REPORT
Table of Contents
Table 15.2
ITEM 15. EXHIBITS & FINANCIAL STATEMENT SCHEDULES
10-K EXHIBIT TABLE
Exh
No
2.1
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Description of Exhibit to this 10-K Report
Corporate Exhibits
Agreement and Plan of Merger dated as of February 27, 2022,
between FHN, The Toronto-Dominion Bank, TD Bank US Holding
Company, and Falcon Holdings Acquisition Co. [conformed copy]
Amended and Restated Charter of First Horizon Corporation
Bylaws of First Horizon Corporation, as amended and restated
effective November 30, 2020
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
4.1 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 C]
Form of Depositary Receipt--Series C (included as part of Exhibit
4.3 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
4.5 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
4.7 to this report)
4.10
Deposit Agreement, dated as of May 3, 2021, by and among
First Horizon Corporation, Equiniti Trust Company, as
depositary, and the holders from time to time of the depositary
receipts described therein [Series F]
4.11 Form of certificate representing the Series F Preferred Stock
4.12 Form of Depositary Receipt-Series F representing the Depositary
Shares (included as part of Exhibit 4.10 to this report)
Description of 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
Filed
Here
Mngt
Exh
Furn-
ished
Incorporated by Reference to
Form Exh No
Filing Date
X
8-K
8-K
3.1
3.2
7/30/2021
12/1/2020
8-K
4.1
7/2/2020
8-K
4.1
7/2/2020
8-K
4.2
7/2/2020
8-K
4.2
7/2/2020
8-K
4.3
7/2/2020
8-K
4.3
7/2/2020
8-K
4.1
5/28/2020
8-K
8-K
8-K
8-K
8-K
10-Q
2Q21
4.2
4.1
5/28/2020
5/28/2020
4.1
5/03/2021
4.2
4.1
4.4
5/03/2021
5/03/2021
8/5/2021
Equity-Based Award Plans
2021 Incentive Plan
Equity Compensation Plan (as amended and restated April 26,
2016)
IBERIABANK Corporation 2019 Stock Incentive Plan
IBERIABANK Corporation 2016 Stock Incentive Plan
X
X
X
X
Proxy
2021
Proxy
2016
10-K
2020
10-K
2020
App. A
3/15/2021
App. A
3/14/2016
10.1(b)
2/25/2021
10.1(c)
2/25/2021
222
2021 FORM 10-K ANNUAL REPORT
4.13
4.14
10.1
(a)
10.1
(b)
10.1
(c)
10.1
(d)
Table of Contents
ITEM 15. EXHIBITS & FINANCIAL STATEMENT SCHEDULES
Exh
No
10.1
(e)
10.1
(f)
10.1
(g)
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)
10.4
(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
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
Form of Grant Notice for Special Retention Stock Units [2016]
Form of Grant Notice for Executive Performance Stock Units
[2019]
Form of Grant Notice for Executive Performance Stock Units
[2020]
Form of Grant Notice for Executive Performance Stock Units
[2021]
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 [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
Other Equity-Based Award Documents
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 Executive Restricted Stock Units [2021]
Form of Grant Notice for Executive Restricted Stock Units -
Special Bonus-Driven Award [2021]
Form of Grant Notice for Special Executive Restricted Stock:
IBKC Merger Closing Incentive Award [2019]
Form of IBERIABANK Corporation Restricted Stock Agreement
Director Compensation Policy, as adopted April 27, 2021
Management Cash Incentive Plan Documents
Filed
Here
Mngt
Exh
Furn-
ished
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
Incorporated by Reference to
10.1(d)
Form Exh No
10-K
2020
10-Q
2Q09
10-Q
2Q09
10.2(d)
10.1(e)
Filing Date
2/25/2021
8/6/2009
8/6/2009
10-Q
1Q16
10-Q
1Q19
10-Q
1Q20
10-Q
1Q21
10-Q
2Q17
10-K
2004
10-K
2006
10-Q
1Q15
10-Q
1Q16
10-Q
1Q16
10-Q
1Q17
10-Q
1Q18
10-Q
1Q19
10-Q
1Q20
10-K
2020
10-Q
1Q19
10-Q
1Q20
10-Q
1Q21
10-Q
1Q21
10-K
2019
10-K
2020
10-Q
1Q21
10.6
5/6/2016
10.1
5/8/2019
10.1
5/8/2020
10.1
5/6/2021
10.1
8/8/2017
10.5(e)
3/14/2005
10.5(o)
2/28/2007
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(l)
2/25/2021
10.3
5/8/2019
10.3
5/8/2020
10.2
5/6/2021
10.3
5/6/2021
10.4(e)
2/28/2020
10.4(f)
2/25/2021
10.4
5/6/2021
223
2021 FORM 10-K ANNUAL REPORT
Table of Contents
ITEM 15. EXHIBITS & FINANCIAL STATEMENT SCHEDULES
Exh
No
10.5
(a)
10.5
(b)
10.6
(a)
10.6
(b)
10.6
(c)
10.6
(d)
10.6
(e)
10.6
(f)
10.6
(g)
10.6
(h)
10.6
(i)
10.6
(j)
10.6
(k)
10.6
(l)
10.6
(m)
10.6
(n)
10.6
(o)
10.6
(p)
10.6
(q)
10.6
(r)
10.7
(a)
10.7
(b)
10.7
(c)
10.7
(d)
Description of Exhibit to this 10-K Report
Filed
Here
Mngt
Exh
Furn-
ished
Incorporated by Reference to
Form Exh No
Filing Date
Executive Bonus Plan
X
8-K
10.1
10/27/2021
X
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
X
X
X
X
Executive Change in Control Severance Plan
Form of Pension Restoration Plan (amended and restated as of
January 1, 2008)
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]
Amended and Restated Agreement, dated August 20, 2001,
between IBERIABANK Corporation and Daryl G. Byrd
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
Conformed copy of Separation Agreement and General Release
[Michael Brown]
Conformed copy of offer letter [Hope Dmuchowski]
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]
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Proxy
2016
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-K
2009
10-Q
3Q11
8-K
8-K
8-K
10-K
2020
10-K
2020
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
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
10.6(l)
2/25/2021
10.6(m)
2/25/2021
8-K
99.1
11/7/2019
10-K
2020
8-K
8-K
8-K
10-Q
2Q17
10-Q
3Q07
10-Q
3Q21
10-K
2018
10.6(o)
2/25/2021
10.1
7/2/2020
10.1
9/30/2021
10.1
11/9/2021
10.4
8/8/2017
10.1(a3)
11/7/2007
10.1
11/5/2021
10.7(d)
2/28/2019
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2021 FORM 10-K ANNUAL REPORT
Table of Contents
ITEM 15. EXHIBITS & FINANCIAL STATEMENT SCHEDULES
Exh
No
10.7
(e)
10.7
(f)
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
24
31(a)
31(b)
32(a)
32(b)
101
Description of Exhibit to this 10-K Report
Form of First Horizon National Corporation Deferred
Compensation Plan as Amended and Restated [formerly known
as First Tennessee National Corporation Nonqualified Deferred
Compensation Plan]
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 Certain Executive Officers
Description of 2022 Salary Rates for 2021 Named Executive
Officers
Other Exhibits
Code of Ethics for Senior Financial Officers
Subsidiaries of First Horizon Corporation
Accountant’s Consents
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, 2021, formatted in Inline XBRL:
(i) Consolidated Balance Sheets at December 31, 2021 and 2020
(ii) Consolidated Statements of Income for the Years Ended
December 31, 2021, 2020, and 2019
(iii) Consolidated Statements of Comprehensive Income for the
Years EndedDecember 31, 2021, 2020, and 2019.
(iv) Consolidated Statements of Changes in Equity for the Years
Ended December 31, 2021, 2020, and 2019.
(v) Consolidated Statements of Cash Flows for the Years Ended
December 31, 2021, 2020, and 2019.
(vi) Notes to the Consolidated Financial Statements
Filed
Here
Mngt
Exh
Furn-
ished
Incorporated by Reference to
Form Exh No
Filing Date
10-Q
3Q07
10.1(c)
11/7/2007
8-K
10(z)
1/3/2005
10-Q
3Q06
10-K
2020
10-Q
2Q17
10-Q
2Q17
8-K
8-K
10.8
11/8/2006
10.8(b)
2/25/2021
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
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
225
2021 FORM 10-K ANNUAL REPORT
Table of Contents
ITEM 15. EXHIBITS & FINANCIAL STATEMENT SCHEDULES
Exh
No
101.
INS
101.
SCH
101.
CAL
101.
DEF
101.
LAB
101.
PRE
104
Description of Exhibit to this 10-K Report
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)
Filed
Here
Mngt
Exh
Furn-
ished
Incorporated by Reference to
Form Exh No
Filing Date
X
X
X
X
X
X
X
226
2021 FORM 10-K ANNUAL REPORT
Table of Contents
Item 16. Form 10-K Summary
ITEM 16. FORM 10-K SUMMARY
Not applicable.
227
2021 FORM 10-K ANNUAL REPORT
Table of Contents
Signatures
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: March 1, 2022
FIRST HORIZON CORPORATION
By:
/s/ Hope Dmuchowski
Name:
Hope Dmuchowski
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*
Title
Date*
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
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
Hope Dmuchowski
Hope Dmuchowski
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
March 1, 2022
Title
Senior Executive Vice
President and Chief
Financial Officer (principal
financial officer)
Director
Director
Director
Director
Director
Director
Director
Director
Date*
*
*
*
*
*
*
*
*
*
228
2021 FORM 10-K ANNUAL REPORT