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
For the fiscal year ended December 31, 2023
- or -
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE 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
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 ☐ Non-accelerated filer ☐
Emerging Growth Company ☐
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. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-
based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to
§240.10D-1(b). ☐
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, 2023, the aggregate market value of registrant common stock held by non-affiliates of the registrant was
approximately $6.2 billion based on the closing stock price reported for that date.
At January 31, 2024, the registrant had 558,807,806 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 23, 2024 or provided in an amendment to this Annual Report: 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
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 1C. Cybersecurity
Item 2. Properties
Item 3.
Item 4. Mine Safety Disclosures
Supplemental Part I Information
Legal Proceedings
Part II
Item 5. Market for the Registrant’s Common Equity,
Related Stockholder Matters, and Issuer
Purchases of Equity Securities
[Reserved]
Item 6.
Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of
Operations
Item 7A. Quantitative and Qualitative Disclosures
Page
1
3
5
6
29
49
49
49
49
49
50
52
53
54
about Market Risk
100
MD&A and Financial Statement References:
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Signatures
Financial Statements and Supplementary Data
Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that
Prevent Inspections
Part III
Directors, Executive Officers and Corporate
Governance
Executive Compensation
Security Ownership of Certain Beneficial
Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions,
and Director Independence
Principal Accountant Fees and Services
Part IV
Exhibits and Financial Statement Schedules
Form 10-K Summary
Page
101
204
204
204
204
205
207
208
209
209
210
214
215
In this report: "2023 MD&A" and "2023 MD&A (Item 7)" generally refer to Management’s Discussion and Analysis of Financial
Condition and Results of Operations appearing in Item 7 within Part II of this report; and, "2023 Financial Statements" and
"2023 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
ASU
Bank
BOLI
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
Accounting Standards Update
First Horizon Bank
Bank-owned life insurance
BTFP
C&I
CAS
CARES Act
CBF
CCAR
CECL
CEO
CFPB
CMO
CODM
Bank Term Funding Program
Commercial, financial, and industrial loan
portfolio
Credit Assurance Services
Coronavirus Aid, Relief, and Economic
Security Act
Capital Bank Financial
Comprehensive Capital Analysis and
Review
Current expected credit loss
Chief Executive Officer
Consumer Financial Protection Bureau
Collateralized mortgage obligations
Chief Operating Decision-Maker
1
2023 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS and GLOSSARY
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
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
FICO
First Horizon First Horizon Corporation
FRB
Federal Reserve Board
Federal Housing Administration
Federal Home Loan Bank
First Horizon Corporation
FHN Financial; FHN's fixed income division
Fair Isaac Corporation
Federal Reserve Board
Federal Reserve Bank or the Federal
Reserve Board
Freddie Mac Federal Home Loan Mortgage Corporation
FTE
FTRESC
GAAP
Fully taxable equivalent
FT Real Estate Securities Company, Inc.
Generally accepted accounting principles
(U.S.)
Greenhouse Gas
Government National Mortgage
Association or Ginnie Mae
Government sponsored enterprises, in
this filing references Fannie Mae and
Freddie Mac
Home equity line of credit
Held for sale
Human Resources
Held to maturity
HTM
IBKC
IBERIABANK Corporation
IBKC merger FHN's merger of equals with IBKC that
ISDA
IRS
LGD
LIBOR
LIHTC
LLC
LMC
closed July 2020
International Swap and Derivatives
Association
Internal Revenue Service
Loss given default
London Inter-Bank Offered Rate
Low Income Housing Tax Credit
Limited Liability Company
Loans to mortgage companies
GHG
GNMA
GSE
HELOC
HFS
HR
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
SOFR
SVaR
TD
TD Merger
Agreement
TD
Transaction
TDR
TRUP
UPB
USDA
VaR
VIE
we/us/our
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 Market 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
Secure Overnight Funding Rate
Stressed Value-at-Risk
The Toronto-Dominion Bank
Merger agreement between FHN, TD, and
certain TD subsidiaries, signed in February
2022 and terminated in May 2023
The acquisition of FHN by TD
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
2
2023 FORM 10-K ANNUAL REPORT
Table of Contents
EXECUTIVE SUMMARY OF PRINCIPAL INVESTMENT RISKS
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 roughly 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 16, and
Risks from Economic Downturns and Changes which
begins on page 34.
• Credit Loss. Our lending business—accounting for about
half of our revenues—is 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. Even if the loan is
secured, our loss from a default 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. 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 10; and Credit
Risks beginning on page 36.
• 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 36.
• 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
2022, the key agency in the U.S. shifted to strong
tightening policy, raising short-term interest rates
multiple times. Tightening ended in 2023. 2022
represented a significant and abrupt change of policy
compared with 2020-21. Moreover, by the end of 2021
and during all of 2022, inflation in the U.S. had risen to
levels not seen in decades. In 2023, U.S. inflation abated
but at year-end remained higher than the desired policy
target. 2022's aggressive policy shift caused short-term
rates to rise substantially, and to exceed long-term rates
(a so-called yield curve inversion) many times in 2022
and during all of 2023. Over half of our loan portfolio
bears variable interest rates associated with short-term
reference rates, which reacted fairly quickly to the shifts
in environment. For additional information, see: the
Monetary Policy Shifts discussion within Significant
Business Developments Over Past Five Years, which
begins on page 10; the Cyclicality discussion within
Other Business Information, which begins on page 16;
Risks Associated with Monetary Events beginning on
page 34; Interest Rate and Yield Curve Risks beginning
on page 44; and discussion under the caption Federal
Reserve Policy in Transition within the Market
Uncertainties and Prospective Trends section of our
2023 MD&A (Item 7), which begins on page 92.
• Funding Balance. In our lending business, we aggregate
money, from deposits and borrowings, 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 are
larger than our lending needs, generally we can cut back
short-term borrowing or invest excess funds in
securities, 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 selling
investments or increasing deposit or borrowing volumes
and costs, or, most likely, we might have to take some
combination of those actions. For additional
information, see Liquidity and Funding Risks beginning
on page 42.
• Deposit Instability. A large portion of bank deposits can
be removed by depositors very quickly. Public
confidence in banks therefore is a key foundation for
the banking business. If deposits are removed quickly by
a large cohort of depositors at the same time due to a
sudden loss of confidence, the resulting "run on the
bank" can cause the bank to become insolvent. All
banks share the risk of a run. In first half of 2023 three
3
2023 FORM 10-K ANNUAL REPORT
EXECUTIVE SUMMARY OF PRINCIPAL INVESTMENT RISKS
Table of Contents
large regional U.S. banks failed after very substantial
runs on their deposits. Most other regional banks,
including our Bank, experienced significant deposit
outflows during this period as public confidence in all
but the largest banks was shaken. Although we
launched a deposit campaign which proved to be
successful, future runs always are possible, and future
campaigns may not work. For additional information,
see Liquidity and Funding Risks beginning on page 42.
• 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 14, and Traditional
Competition Risks beginning on page 29.
• 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, increasingly sophisticated
technological systems 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. These rewards have
incented U.S. 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 2020, typically it
creates internal disruption and expense for a time while
we integrate systems, consolidate branches, and take
other consolidation-related actions. Moreover, in our
industry, the market tends to discount, for a time, the
stock price of banks that engage in major mergers, in
part due to the transaction and integration expenses
mentioned above coupled with the risk that the
combination may not achieve management’s strategic
or tactical objectives. For additional information, see:
Significant Business Developments Over Past Five Years
beginning on page 10; the Strategic Transactions
discussion within the Other Business Information section
which begins on page 16; and Traditional Strategic Risks
beginning on page 30.
• Industry Disruption. Technological innovation, and the
associated changes in client preferences, are radically
transforming our industry and how financial services are
delivered to clients. Being a consistent innovation
leader is practically impossible for a bank our size, while
keeping pace is expensive and difficult. Moreover, rapid
innovation has the potential to be destructive of
traditional business models and companies in our
industry, as it has done and is doing in other industries.
For additional information, see Industry Disruption
beginning on page 31.
• 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 clients, and to protect the federal
government’s deposit insurance fund and program;
none exists to protect or enhance our profitability or
protect 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 38.
• 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.
Unfortunately, it is not practical to emphasize security
to the exclusion of other business needs. Typically, the
more a system is built to be robustly secure, the less
that system can be flexible and adaptable. Moreover, a
high-security system can be associated with sub-optimal
user experience (client frustration). For additional
information, see Operational Risks beginning on page 32
and Cybersecurity Risks beginning on page 33.
• Expense Control. Banks in the U.S. are focused on
reducing operating costs as much as possible while
maintaining competitive or superior service. Expense
control is viewed as crucial for long-term success. For
additional information, see Operational Risks beginning
on page 32, and Risks of Expense Control beginning on
page 40.
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
29.
4
2023 FORM 10-K ANNUAL REPORT
Table of Contents
Forward-Looking Statements
FORWARD-LOOKING STATEMENTS
This report on Form 10-K, including materials incorporated
into it, contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of
1995 with respect to FHN's beliefs, plans, goals,
expectations, and estimates. Forward-looking statements
are not a representation of historical information, but
instead pertain to future operations, strategies, financial
results or other developments. The words “believe,”
“expect,” “anticipate,” “intend,” “estimate,” “should,” “is
likely,” “will,” “going forward,” and other expressions that
indicate future events and trends identify forward-looking
statements.
Forward-looking statements are necessarily based upon
estimates and assumptions that are inherently subject to
significant business, operational, economic and
competitive uncertainties and contingencies, many of
which are beyond our control, and many of which, with
respect to future business decisions and actions (including
acquisitions and divestitures), are subject to change.
Examples of uncertainties and contingencies include,
among other important factors:
• global, general and local economic and business
conditions, including economic recession or
depression;
• 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;
• reputational risk and potential adverse reactions or
changes to business or employee relationships; 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 2023 MD&A (Item 7), among others.
5
2023 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, 2023, we had total
consolidated assets of $82 billion. We provide diversified
financial services through our subsidiaries, principally First
Horizon Bank. The Bank is a Tennessee banking
corporation headquartered in Memphis, Tennessee.
During 2023 approximately 27% of our consolidated
revenues were provided by fee and other noninterest
income, and approximately 73% of revenues were
provided by net interest income.
As a financial holding company, we coordinate the
financial resources of the consolidated enterprise and
maintain systems of financial, operational, and
administrative control intended to coordinate selected
policies and activities, including as described in Item 9A of
Part II.
The Bank
The Bank was founded in 1864 as First National Bank of
Memphis. During 2023, 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
December 31, 2023, the Bank had $82 billion in total
assets, $66 billion in total deposits, and $61 billion in total
loans (including certain leases, before considering the
allowance for loan and lease losses).
Principal Businesses, Brands, & Locations
Our principal brands at year-end 2023 are summarized in
Table 1.1.
Table 1.2
Table 1.1
Principal Businesses & Brands at Year-End
Businesses
Banking & financial
services generally
Fixed income / capital
markets
Mortgage lending
Insurance brokerage &
management services
Wealth management &
brokerage services
Principal Brands
First Horizon &
First Horizon Bank
FHN Financial
First Horizon Bank
First Horizon Advisors
First Horizon Advisors
At December 31, 2023, First Horizon’s subsidiaries had
over 450 business locations in 24 U.S. states, excluding
off-premises ATMs. Most of those locations were banking
centers. At year-end, the Bank had 415 retail banking
centers in twelve states, as shown in Table 1.2.
Retail Banking Centers at Year-End
State
Arkansas
South Carolina
State
Tennessee
North Carolina
#
135
79
Florida
Louisiana
Alabama
Georgia
76
56
13
13
Texas
Virginia
Mississippi
New York
#
12
10
8
8
4
1
Many banking centers contain special-service areas such
as wealth management and mortgage lending.
At year-end 2023, First Horizon also had over fifty client-
service offices not physically within banking centers,
including fixed income, home mortgage, wealth
management, and commercial loan offices. The largest
groups of those offices were: 27 fixed income offices in 17
states across the U.S.; and 9 stand-alone mortgage lending
offices in 6 states. First Horizon also has operational and
administrative offices.
6
2023 FORM 10-K ANNUAL REPORT
ITEM 1. BUSINESS
Table of Contents
Loans
Loan Portfolios
Lending is a major source of revenue for us, and loans are
our largest asset type. Table 1.3 shows our total loans
(including certain leases) at year-end 2023, along with
some details regarding the composition of our loans. Most
of our loans are commercial.
As shown in Table 1.3, our loans are broken into two
major types, commercial and consumer. Each type is
broken into portfolios. Our three major portfolios are:
traditional, unsecured commercial, financial, and
industrial (“C&I”) loans; secured commercial real estate
(“CRE”) loans; and secured consumer real estate loans. A
fourth portfolio consists of consumer credit card and
other consumer debt.
Table 1.3
Loan Types & Portfolios1
Commercial
$47 B
Consumer
Total Loans
$14 B
$61 B
76 %
24 %
100 %
Commercial Portfolios
C&I
% of Type % of Total
53 %
70 %
CRE
30
23
Consumer Portfolios
Consumer real estate
% of Type % of Total
23 %
95 %
Credit card/other
5
1
1 Dollars and percentages at December 31, 2023.
Geographic Mix
Geographically, a significant majority of our loans
originate from five states: Florida, Tennessee, Texas,
North Carolina, and Louisiana. The geographic dispersion
of our loans varies considerably among our three major
loan portfolios, as shown in Table 1.4.
Table 1.4
Major Loan Portfolios1 by Geography
CRE ($14B)
C&I ($33B)
Cons. RE ($14B)
Tennessee 21 %
Florida 27 %
Florida 29 %
Florida 13 %
Texas 13 %
Tennessee 22 %
Texas 11 %
N. Carolina 12 %
Texas 11 %
N. Carolina
Louisiana
Georgia
California
7 %
6 %
5 %
5 %
All other 32 %
Georgia
Tennessee
Louisiana
9 %
9 %
8 %
All other 22 %
Louisiana
N. Carolina
New York
Georgia
8 %
7 %
5 %
5 %
All other
13 %
1 Dollars and percentages at December 31, 2023.
C&I Loans
The C&I portfolio, our largest portfolio by far, was $33
billion at December 31, 2023. Our C&I portfolio has an
industry concentration: about 18% of C&I loans are to
businesses in the financial services industry, which
includes finance and insurance companies and mortgage
lending companies. The rest of C&I covers a wide range of
industries, as shown in Table 1.5a.
Table 1.5a
8
12
12 %
C&I Loans1 by Industry/Line of Business
Finance and insurance
Real estate and rental and leasing (a)
Health care and social assistance
Accommodation and food service
Manufacturing
Wholesale trade
Loans to mortgage companies
Retail trade
Transportation and warehousing
Energy
Other C&I
7
7
26
7
5
4
6
6
1 Percentages of C&I portfolio at December 31, 2023.
(a) Leasing, rental of real estate, equipment, and goods.
CRE Loans
The CRE portfolio was $14 billion at December 31, 2023.
The largest property type within CRE is multi-family, as
shown in Table 1.5b. The next three largest property types
were office, retail, and industrial. At year-end, nearly half
of the office loans were for medical industry office space.
Table 1.5b
CRE Loans1 by Industry/Line of Business
Multi-family
31 %
Office
Retail
Industrial
Hospitality
Land/land development
Other CRE
1 Percentages of CRE portfolio at December 31, 2023.
Consumer Loans
20
16
16
10
2
5
Consumer loans totaled $14 billion at December 31, 2023.
As shown in Table 1.3 above, a substantial majority of
consumer loans consists of home equity loans, mortgages,
and other secured consumer real estate loans.
Further information regarding our loans is provided in
Note 3 beginning on page 131 appearing in our 2023
Financial Statements (Item 8), and under the captions
Analysis of Financial Condition and Asset Quality,
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2023 FORM 10-K ANNUAL REPORT
Table of Contents
beginning on pages 62 and 65, respectively, of our 2023
MD&A (Item 7).
ITEM 1. BUSINESS
Deposits
Deposits comprise our largest resource to fund lending.
Deposits overall also tend to be our lowest-cost funding
source. At year-end 2023, we had total deposits of $66
billion. Most of our deposits are held in our regional
banking and specialty banking segments. Table 1.6
provides a deposit overview at December 31, 2023.
Further information regarding deposits is provided: in
Note 8 beginning on page 148 appearing in our 2023
Financial Statements (Item 8); under the caption Deposits
beginning on page 75 appearing in our 2023 MD&A (Item
7); and in other parts of this report referenced under
Deposits.
Table 1.6
Deposit1 Overview
Client Types % of Total
Acct Types % of Total
FDIC Insured Status % of Total
Source % of Total
Commercial
Consumer
55%
45%
Savings
Time deposits
Other interest
Noninterest
38%
10%
26%
26%
Estimated Insured
Est. Uninsured - Total
Est. Uninsured - Collateralized
59%
41%
8%
Tennessee
Florida
Louisiana
N. Carolina
All other
38%
18%
12%
12%
20%
1 Percentages of deposits at December 31, 2023.
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. Currently,
we operate through three segments: regional banking,
specialty banking, and corporate. In this report, segment
information related to periods prior to our most recent
segment change 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 2023
MD&A (Item 7) and in our 2023 Financial Statements
(Item 8), especially in Note 19—Business Segment
Information. Note 19 begins on page 172.
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 the revenues they generate
have a very different mix of net interest income vs.
noninterest income. In addition, regional banking is larger
than specialty banking by many financial measures. Table
1.7 provides high-level financial information for each of
those two segments, highlighting these points.
Table 1.7
Regional vs Specialty Banking Snapshot
(Dollars in millions)
2023 Average assets
2023 Net interest income
2023 Noninterest income
2023 Pre-tax income
Regional
Specialty
$ 45,858
$ 20,161
$ 2,354
$
433
$ 1,262
$
$
$
518
209
313
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
• energy finance
• healthcare finance
• tax credit finance
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2023 FORM 10-K ANNUAL REPORT
ITEM 1. BUSINESS
Table of Contents
• corporate banking
• correspondent banking
• mortgage origination
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 1.4
primarily because of specialty banking business lines.
Revenues and earnings from three of the business lines in
the specialty banking segment are significantly more
Services We Provide
volatile over time than those in regional banking. In
addition to being sensitive to economic conditions
generally, those specialty business lines can be very
strongly impacted or benefited by changes in interest
rates or in the shape of the yield curve. Those business
lines are fixed income/capital markets, mortgage
warehouse lending, and mortgage origination. Because
they can perform well when other business lines are
subdued, and vice-versa, we sometimes refer to these as
our counter-cyclical businesses. 2023 overall was a
subdued year for these businesses as interest rates
continued to rise before leveling, and the yield curve was
inverted the entire year.
At December 31, 2023, 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
• 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—2023 Compared to 2022
beginning on page 56 of our 2023 MD&A (Item 7).
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2023 FORM 10-K ANNUAL REPORT
Table of Contents
ITEM 1. BUSINESS
Significant Business Developments Over Past Five Years
Selected Financial Data Past Five Years
Table 1.8 provides selected data concerning revenues, expenses, assets, liabilities, shareholders’ equity, and certain other
metrics for the past five years.
Table 1.8
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in millions; financial condition data shown period-end, as of December 31)
2023
2022
2021
2020
2019
Net interest income $
Noninterest income
Net income available to common shareholders
Total loans and leases
Provision (benefit) for credit losses
Net Charge-offs
Net interest margin
Total assets
Total deposits
Total term borrowings
Total liabilities
Preferred stock
Total shareholders’ equity (financial statement)
Common Equity Tier 1 Capital (regulatory)
$
2,540
927
865
61,292
260
170
3.42 %
81,661
65,780
1,150
72,370
520
9,291
8,104
$
2,392
815
868
58,102
95
59
3.10 %
78,953
63,489
1,597
70,406
1,014
8,547
7,032
$
1,994
1,076
962
54,859
(310)
2
2.48 %
89,092
74,895
1,590
80,598
520
8,494
6,367
$
1,662
1,492
822
58,232
503
120
2.86 %
84,209
69,982
1,670
75,902
470
8,307
6,110
1,210
654
435
31,061
45
27
3.28 %
43,311
32,430
791
38,235
96
5,076
3,409
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;
• rigorous expense management with continued
investment in revenue generating initiatives;
• managing business units and products with a strong
emphasis on risk-adjusted returns on invested capital;
• 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.
Examples of our implementation of these priorities
include:
• In July 2020, we completed a merger of equals
transaction with IBERIABANK Corporation and
purchased 30 branches from Truist Bank, making
2020 a transformative year. See IBKC Merger of
Equals in 2020 and 30-Branch Acquisition in 2020 in
this Item below for additional information. In
February 2022, we completed the principal systems
conversion work related to that merger.
• As shown in Table 1.8, 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 2020 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. Deposits normalized
(fell) in 2022. The banking crisis in 2023 prompted us
to launch a deposit-gathering campaign in second
quarter, which was successful.
• 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, 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
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2023 FORM 10-K ANNUAL REPORT
ITEM 1. BUSINESS
Table of Contents
enhanced our digital banking products and services.
These activities were significantly paused during the
period when the TD transaction was pending.
• In 2022 interest rates rose aggressively. This improved
our lending margins during the year as we were able
to raise average lending rates faster than average
funding rates. In 2023 the rates and amounts we paid
for deposits rose appreciably, but the impact was
moderated by continued increases in lending rates
along with a decrease in our borrowings.
• Until 2022, when interest rates in the U.S. began to
rise significantly, lending was strong in certain
Events Impacting Year-to-Year Comparisons
specialty areas, such as lending to mortgage
companies, where demand was strongly stimulated
by low interest rates. Mortgage-related lending and
services fell significantly in 2022, which continued
throughout 2023.
• Similarly, 2022's rising rate environment and
significant financial market volatility negatively
impacted our fixed income and capital markets
business compared to earlier years in this period. That
adverse environment continued throughout 2023.
TD Transaction 2022-2023
In February 2022, we agreed to be acquired by TD in a
merger transaction. Our shareholders approved the TD
transaction in May 2022. In May 2023, after TD failed to
obtain timely regulatory approval, we and TD agreed to
terminate the transaction. See Toronto-Dominion
Transaction below for further information.
Preparation for the consummation of the TD transaction
resulted in significant noninterest expense in 2022 and
2023 unrelated to the ordinary course of business. TD paid
us a termination fee which substantially increased 2023
noninterest income, and we used part of that fee to
support community charities.
As part of the TD transaction, in 2022 TD paid us $494
million to purchase shares of our Series G convertible
preferred stock. After the transaction terminated, the
Series G stock was converted into our common stock in
2023 at a conversion price of $25 per common share.
Regional Bank Failures in 2023
Over the weekend of March 11, 2023, the FDIC closed two
large regional banks that had experienced a run on their
deposits. On May 1, 2023, the FDIC closed a third large
regional bank after a slower but extended run on its
deposits. During this period most regional bank stock
prices fell significantly and experienced substantial
volatility.
Although stock price drops and fluctuations do not directly
impact our financial results or position, we took action to
maintain client confidence in our financial stability when
the TD transaction terminated just a few days after the
third bank failure. Those actions included a significant
deposit-acquisition campaign and a rapid uptick in
marketing efforts. Also, a special FDIC assessment,
prompted by the bank failures and applied to all large and
regional banks in the U.S., was recognized by us as a
significant expense item in 2023.
Stock Purchase Moratorium in 2022-2023
After announcing the TD transaction in 2022, we halted
our stock purchase program except for tax withholding
related to stock awards. When the TD transaction
terminated in the midst of market turmoil surrounding
three U.S. regional bank failures, and facing the prospect
of possible new regulatory requirements (stemming from
those failures) which would directly affect our capital, we
continued the moratorium for all of 2023. The moratorium
ended in first quarter 2024.
Gain on Sale of Business
In third quarter of 2022, we sold our title services
business, recognizing a $22 million pre-tax gain.
IBKC Merger of Equals in 2020
In July 2020, we closed our merger of equals with
IBERIABANK Corporation (“IBKC”). IBKC was the parent
company of IBERIABANK based in Lafayette, Louisiana. At
year-end 2019, IBKC had $31.7 billion of total assets—
nearly 75% of our size at that time—and operated over
190 banking centers in 11 states: Louisiana, Texas,
Arkansas, Tennessee, Mississippi, Alabama, Georgia,
Florida, North and South Carolina, and New York. IBKC’s
largest concentrations of banking centers were in
Louisiana and Florida. We and IBKC offered many of the
same financial services before the merger, but IBKC
exceeded us in several areas, most notably in equipment
financing, mortgage, and title services. 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
was included in our income or expense for 2020. As a
result, our 2020 operating results consisted of
approximately two quarters of legacy First Horizon alone
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.
30-Branch Acquisition in 2020
In July 2020, we purchased 30 branches in North Carolina
(20), Virginia (8), and Georgia (2) from SunTrust Bank (now
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ITEM 1. BUSINESS
Table of Contents
Truist Bank). Those branches are in markets which we did
not serve previously, 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 2020 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 pre-tax 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 expense, especially in
2020 and 2021.
Low Credit Loss Rates
During this period, our provision expense and net charge-
offs have, for the most part, been lower than historical
norms. Provision expense spiked in 2020 when the very
sudden COVID recession triggered significant upward
revisions in our expected credit losses, and provision
expense was negative in 2021 when a sizeable portion of
the 2020 loss reserves were released as loss expectations
moderated substantially. Net charge-offs during those
years similarly were higher in 2020 and lower in 2021,
though the deviations from the norm were much less
severe. If 2020 and 2021 are viewed together as a single
period, annual provision expense and net charge-offs
were similar to levels in 2022. When loan losses are low,
differences from year to year can be idiosyncratic, driven
by just one or a few clients. In 2023, loss levels increased
but continued to be low in general; however, a single
commercial loan default drove an uptick in provision
expense and net charge-offs for the year.
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. Also in 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. In
2022 our provision expense and underlying credit loss
trends returned to a more normal pattern.
PPP
In 2020, the U.S. government created a temporary
Paycheck Protection Program, or PPP, in response to the
COVID-19 pandemic. The PPP allowed qualifying
employers to take out qualifying bank loans that were
guaranteed by the federal government. The loans later
were forgiven, often within a year, with the bank made
whole by the program. The program ended in 2021. Our
PPP revenues were approximately $122 million in 2021,
but only $21 million in 2022.
Fixed Income Volatility
In 2019 moderate market volatility and the downward
direction of interest rates resulted in much higher trading
volume and noninterest income in our fixed income
business, which largely continued in 2020 and 2021.
During most of 2022 the Federal Reserve aggressively
raised rates, resulting in a significant fall-off in fixed
income revenues, which continued in 2023. See the Fixed
Income discussion under Cyclicality within the Other
Business Information section of this Item, which begins on
page 16, for additional information.
Monetary Policy Shifts
Interest rates were low by historical standards in the first
three of this five-year period, and generally fell during
those years. This environment lowered our net interest
margin from 2019 to 2021. 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. In
2022, the Federal Reserve began to raise short-term rates
in large (as much as 75 basis point) moves, and ceased its
asset-buying program. This was in reaction to price
inflation experienced in the U.S. during much of 2021 and
in 2022. In 2023 short-term rate increases slowed
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2023 FORM 10-K ANNUAL REPORT
ITEM 1. BUSINESS
Table of Contents
substantially and then stopped entirely, while long-term
rates rose and then fluctuated.
During the last half of 2022 and all of 2023 the traditional
two-year/ten-year yield curve for U.S. Treasury debt was
inverted, meaning the two-year rate exceeded the ten-
year. Historically, inversion is not common, and extended
periods of inversion are quite rare. Although several
factors likely contributed to the current inversion, we
believe a key factor in this instance, especially in 2023,
was that markets tried to anticipate when, and how
aggressively, the Federal Reserve would start cutting
short-term rates in order to avoid or mitigate a recession.
Our net interest margin improved in 2022 and, despite the
inversion, improved again in 2023.
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
27; under the caption Risks Associated with Monetary
Significant Trends Past Five Years
Noteworthy trends during these five years included:
• Net interest margin declined from 2019 to 2021.
However, net interest income rose in 2020 as loan
balances increased with the IBERIABANK merger. Net
interest income expanded again in 2022 and 2023 as
margins improved with the rising-rate environment,
and loan growth continued following that merger.
• 2020 and 2021 enjoyed a substantial increase in
noninterest income following the IBERIABANK
merger, especially in relation to consumer mortgage
originations and related services. Fixed income
revenues were high during those years as well. The
rising rates in 2022 negatively impacted mortgage and
fixed income revenues in 2022 and in 2023. The
uptick in 2023's noninterest income was driven by the
fee paid to FHN when the TD transaction terminated.
• The large deposit uptick in 2020 was driven
substantially by the IBERIABANK and 30-branch
Toronto-Dominion Transaction
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”) and certain TD subsidiaries. Under that agreement,
TD was to acquire FHN for an all-cash purchase price of
$25 per FHN common share, with the price modestly
increasing if the transaction closed later than a certain
date.
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
Events beginning on page 34 within Item 1A; and under
the caption Federal Reserve Policy in Transition within the
Market Uncertainties and Prospective Trends section of
2023 MD&A (Item 7), which begins on page 92.
Mortgage-Related Businesses
We lend to mortgage lending companies, we originate
mortgage loans, and (until 2022) we provided title and
related services, all of which 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 1.8, 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 low interest rate environment that
ended in 2022. All three were adversely impacted when
rates rose in 2022.
transactions. Also in 2020 and 2021, the 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. Deposits in
2022 fell as the PPP impact receded and competitive
pricing (rate) pressures increased. Deposits grew
again in 2023 as a result of a successful deposit
acquisition campaign.
• 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.
On February 9, 2023, FHN and TD agreed to extend the
outside date for the transaction to close until May 27,
2023. Subsequent to the extension, TD informed FHN that
TD did not expect that the necessary regulatory approvals
to be received in time to complete the transaction by May
27, 2023. On May 4, 2023, FHN and TD agreed to
terminate the transaction.
businesses during those years. Exited businesses are
managed in our corporate segment.
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ITEM 1. BUSINESS
Table of Contents
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.
Key traditional competitors in many of our markets
include Bank of America N.A., Fifth Third Bank National
Association, First-Citizens Bank & Trust Company (dba
First Citizens Bank), Hancock Whitney Bank, Huntington
National Bank, JPMorgan Chase Bank National Association,
Regions Bank, Pinnacle Bank, PNC Bank National
Association, Synovus Bank, Truist Bank, and Wells Fargo
Bank N.A., 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
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.
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 and new ones, have developed
highly-interactive systems and applications. These services
compete directly with traditional banks in offering
personal financial advice. The low-cost, high-speed nature
of these “robo-advisor” services can be especially
attractive to younger, less-affluent clients and potential
clients. We and other traditional banks offer similar
services, but doing so risks cannibalizing traditional
business models for these services.
In recent years, certain financial companies or their
affiliates that traditionally were not banks have been able
to compete more directly with the Bank for deposits and
other traditional banking services and products. The trend
of increasing fluidity across traditional boundaries is likely
to continue. Non-traditional companies competing with us
for traditional banking products and services include
investment banks, brokerage firms, insurance company
affiliates, peer-to-peer lending arrangers, non-bank
deposit acceptors, companies offering payment
facilitation services, and extremely short-term consumer
loan companies.
Competition for clients related to regional and specialty
banking products and services is most pronounced in rate
pricing (loan rates, loan spreads, and deposit rates),
services pricing, scope of services offered, quality of
service, convenience, and ease of use for self-service areas
such as online and mobile banking. In 2022 and 2023, rate
pricing competition for deposits was more intense than
had been true in recent earlier years.
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ITEM 1. BUSINESS
Table of Contents
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
For the past 160 years, our culture has been a catalyst to
our success. Our culture is centered around our people
and their performance, promoting teamwork and
collaboration to achieve results. We prioritize a healthy
work environment, which enhances morale and associate
satisfaction, ultimately leading to increased productivity
and engagement. In 2023, we retained 90% of our
associate base, including a 97% of our leadership team,
indicative of our ability to attract and retain top talent
even in challenging circumstances.
At the center of all that we do are our Purpose, Values and
Commitment, holding ourselves to the highest standards
of ethical conduct and operational excellence.
Our Purpose: To help our clients unlock their full potential
with capital and counsel.
Our Values:
• Put Clients First – Go above and beyond to listen,
understand and solve the client’s needs. Follow through
and exceed expectations every step of the way.
• Care About People – Treat others with respect and
dignity. Foster a culture of collaboration. Demonstrate
kindness and empathy for all.
• Commit to Excellence in Everything We Do – Conduct
business with professionalism and dignity. Embody a
“can do” spirit that gets results for our clients.
• Elevate Equity – Providing fair and equitable
opportunities for associates is at the center of our
diversity and inclusion efforts.
• Foster Team Success – Measure wins in terms of “we”
not “me.” Take pride in company success. Be invested in
a shared vision for future growth.
Commitment: As teammates and as individuals, we must
own the moment. We listen, understand and deliver.
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.
Understanding the changing needs and expectations of
our workforce is central to our success. As evidenced
during the pandemic, our ability to remain nimble and
responsive allows us to serve our clients and communities
without disruption even when business conditions change.
We want our associates to be inspired and empowered to
perform at their best. We seek their input through formal
surveys and through the Firstpower Council, a group of
associates representing various areas of the company that
provide direct feedback on opportunities to enhance our
culture and organizational effectiveness.
The overall well-being of every associate is important to
us. In addition to competitive health care benefits,
wellness programs and parental and care-giver support,
we offer professional development opportunities through
mentoring and career development programs. Associates
can actively engage with their colleagues at work and be
involved in the community in a variety of ways, including
through volunteerism and by participating in one or more
of our associate resource groups (of which there are 10,
with two additional groups set to launch in 2024).
Creating a diverse workforce and inclusive work
environment is a fundamental aspect of our Firstpower
culture. This commitment starts at the top of the
organization with Board of Directors oversight and
executive leadership support and is embedded throughout
our organization and business priorities.
Our objective is not only to attract a diverse team, but
also to create an environment in which different
backgrounds, opinions and perspectives are valued. We
continuously focus on:
▪ Actively seeking representation of diverse talent
▪ Strengthening leadership capabilities and
accountability
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2023 FORM 10-K ANNUAL REPORT
ITEM 1. BUSINESS
Table of Contents
▪ Fostering inclusion and equality through fairness and
transparency
▪ Better serving diverse markets and clients
Investing in the well-being of communities
▪
▪ Our 10 commitments, which include expanding
outreach and access for historically underserved
groups
We made measurable progress in 2023 with the addition
of diverse candidates in leadership roles, the launch of
Year-End Statistical Information
At December 31, 2023*:
• First Horizon had 7,378 associates, or 7,249 full-time-
equivalent associates and 129 part-time equivalent
associates, not including contract labor for certain
services:
new Associate Resource Groups, greater use of metrics to
gauge our progress and the release of a new Corporate
Diversity Statement.
We remain committed to creating a more equitable
society, and that starts with our associates, our clients,
and the communities we serve. We do this by providing
capital and counsel and committing to excellence in
everything we do.
◦ 54% female and 46% male
◦ 2% have disabilities
• Of the managers, First Horizon had 36 members of the
CEO's Operating Committee (composed of the CEO and
leaders from across the organization):
◦ 66% white, 20% African American, 9% Hispanic, 3%
◦ 86% white, 11% African American, 0% Hispanic, 3%
Asian, and 2% other races or ethnicities
Asian, and 0% other races or ethnicities
◦ 63% female and 37% male
◦ 4% have disabilities
• Of those, First Horizon had 1,200 corporate managers:
◦ 76% white, 13% African American, 7% Hispanic, 2%
Asian, and 2% other 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 five years are
described in Significant Developments over the Past Five
Years beginning on page 10 of this report.
Subsidiaries
FHN’s consolidated operating subsidiaries at
December 31, 2023 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. The FHN
Financial Municipal Advisors division of the Bank is
registered with the SEC as a municipal adviser.
• Martin & Company, Inc. and First Horizon Advisors,
Inc. are registered with the SEC as investment
advisers.
◦ 44% female and 56% male
__________
* Data compiled from information provided by associates.
The most significant transactions in the past five years are
our merger of equals with IBKC and our 30-branch
purchase, both in 2020. IBKC’s assets comprised roughly
three-sevenths of our combined assets immediately after
closing in July 2020. We completed systems integration for
the IBKC merger in February 2022.
• 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.
• First Horizon Insurance Services, Inc. and FHIS, Inc. are
licensed as insurance agencies in all states where they
do business for which licensing is required.
• First Horizon Advisors, Inc. is licensed as an insurance
agency in the states where it does business for which
licensing is required for the sale of annuity products.
• Our financial subsidiaries under the Gramm-Leach-
Bliley Act are: FHIS, Inc.; FHN Financial Securities
Corp.; First Horizon Advisors, Inc.; First Horizon
Insurance Agency, Inc.; and First Horizon Insurance
Services, Inc.
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Table of Contents
Client Concentration
ITEM 1. BUSINESS
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
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
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 funding costs down while higher
long rates will support the rates we can charge on lending.
But if rates fall low enough (as they did in 2020-21), 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.
certain asset and liability balances, principally in the
fourth quarter (consumer mortgages, commercial lending
related to consumer mortgages, and certain associate-
related reserves) and first quarter (consumer mortgages
and commercial lending related to consumer mortgages).
Further information on these topics is presented: within
Item 1A (which begins on page 29), 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 2023 MD&A (Item 7), in
Executive Overview (page 55), Interest Rate Risk
Management (page 84), and Market Uncertainties and
Prospective Trends (page 92).
Fixed Income
Our fixed income and capital markets business, reported
as part of our specialty banking segment, is significantly
affected by interest rate cycles which, in turn, are affected
by general economic and business cycles.
In broad terms, the typical impact of Federal Reserve
interest and monetary policy on our fixed income business
is summarized in Table 1.9.
Table 1.9
Typical Impact of Fed Policy on
Fixed Income Performance
Fixed Income
Performance Tends to be
Federal Reserve Policy Phase
Easing
Neutral
Tightening
Weaker
Average
Stronger
“Tightening” can include actions by the Federal Reserve to
raise short-term interest rates, push long-term rates up,
tighten credit, shrink the money supply, and decelerate
economic activity. “Easing” can include actions by the
Federal Reserve to lower short-term interest rates, push
long-term rates down, 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 pushing long-
term rates down, or steepen the curve by taking the
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ITEM 1. BUSINESS
Table of Contents
opposite actions. Complicating any forecast, the Federal
Reserve can directly affect short-term rates but can only
influence long-term rates, which are market-driven and
which can defy the Federal Reserve's intentions. 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 1.10.
Table 1.10
Key Drivers of
Fixed Income Performance
Driver
If Driver Is:
FI Revenues Tend to Be:
Interest rates
Market
volatility
Yield curve
Credit spreads
Depository
Liquidity
Economy
outlook
Rising/up
Falling/down
Extreme
(low or high)
Moderate
Flat or
Inverted
Steep
Tighter
Wider
Lower
Greater
Positive
Negative
Lower
Higher
Lower
Higher
Lower
Higher
Lower
Higher
Lower
Higher
Lower
Higher
In many circumstances these drivers deliver mixed
impacts on fixed income performance, with some pushing
higher while others push lower, or with some drivers
pushing weakly while others are stronger. If most or all
drivers strongly push in the same direction at the same
time, fixed income performance usually is strongly
impacted. Revenue levels in a strongly “higher” year can
be more than double what they are in a strongly “lower”
year. As a result, fixed income performance can be highly
variable from year to year.
Mortgage-Related Businesses
The strength or weakness of consumer mortgage lending
activity in the U.S. impacts two businesses of ours:
mortgage origination and related 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
2024 is likely to be an inflection year, making outlook
predictions more uncertain than usual. However, early in
2024, the two most important market factors in 2024
appear likely to be (i) whether, when, and by how much
the Federal Reserve will decide to implement short-term
rate decreases, and (ii) whether the U.S. economy will
slide into recession and, if so, how deep and long it will be.
Both factors, especially the first, assume that inflation in
the U.S. will not start to increase in 2024. Resumption of
rising prices could prompt the Federal Reserve to resume
short-term rate increases which, in turn, could increase
the risk of a recession.
Additional information concerning market uncertainties
and trends appears in Market Uncertainties and
Prospective Trends within 2023 MD&A (Item 7) beginning
on page 92, especially under the caption Inflation,
Recession, and Federal Reserve Policy.
Other Business Information Associated with this Report
For additional information concerning our business, refer to 2023 MD&A (Item 7) beginning on page 54.
Business Information External to this Report
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. Near the top of the
Investor Relations homepage there is a "SEC Filings" link in
the banner. 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 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 205. No information external to
this report and its exhibits, unless specifically noted
otherwise, is incorporated into this report.
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ITEM 1. BUSINESS
Table of Contents
Supervision and Regulation
Scope of this Section
This section describes certain of the material elements of
the regulatory framework applicable to bank and financial
holding companies and their subsidiaries, and to
companies engaged in securities and insurance activities.
It also provides certain specific information about us. To
the extent that the following information describes
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
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, 2023,
the FDIC reports that the Bank held approximately 14% 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,
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.
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
requirements for many topics related to the Bank,
mentioning state requirements only where significant.
The Bank is insured by, and subject to regulation by, the
FDIC and is subject to regulation in certain respects by the
CFPB. The Bank is also subject to various requirements
and restrictions under federal and state law, including
requirements to maintain reserves against deposits,
restrictions on the types and amounts of loans that may
be made and the interest that may be charged, limitations
on the types of investments that may be made, activities
that may 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 16.
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
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ITEM 1. BUSINESS
connection with extensions of credit, leases or sales of
property, or furnishing products or services.
depositors and the Federal Deposit Insurance Fund, not to
protect our Bank or our security holders.
The regulatory framework governing banks and the
financial industry is intended primarily to protect
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
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.
As a practical matter, as we approach $100 billion, we will
have to prepare for Category IV compliance. Doing that
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 our shareholders.
The Corporation
Under Tennessee corporate law, we are not permitted to
pay cash dividends if, after giving effect to such payment,
we would not be able to pay our debts as they become
due in the usual course of business or our total assets
would be less than the sum of our total liabilities plus any
amounts needed to satisfy any preferential rights if we
were dissolving. In addition, in deciding whether or not to
declare a dividend of any particular size, our Board must
consider our current and prospective capital, liquidity, and
other needs, including the needs of the Bank which we are
obligated to support.
$250 billion or more are regulated much more severely in
many important ways than we are. As a result, under
current law, compliance requirements, 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 primarily on rules which apply to FHN
based on our current asset size.
will require us to invest in systems and staffing. As a
result, a portion of the compliance costs associated with
Category IV status will be borne before we reach the
Category IV threshold.
Also, Category IV compliance requirements are proposed
to be expanded. If adopted, compliance costs and
restrictions would increase substantially. A few of the
proposed changes would apply to companies having $50
to $100 billion in total assets, like us.
The Bank
Under Tennessee corporate law, the Bank (like the
Corporation, discussed above) may not pay a dividend if
the Bank would not be able to pay its debts when due or if
the Bank’s assets would be inadequate, in a dissolution, to
pay liabilities and preferential rights. Similarly, the Bank’s
Board must consider current and prospective needs in
making a decision to declare a dividend.
In addition, in order to pay cash dividends, the Bank must
obtain the prior approval of the Federal Reserve and the
TDFI Commissioner if the total of all dividends declared by
the Bank’s board of directors in any calendar year exceeds
the total of (i) the Bank’s retained net income for that year
plus (ii) the Bank’s retained net income for the preceding
two years, less certain required capital transfers, as
applicable. Below that ceiling, approval generally is not
required (but see Other Factors Affecting Dividends
immediately following this discussion). Applying the
dividend restrictions imposed under applicable federal
and state rules, the Bank’s total amount available for
dividends, without obtaining regulatory approval, was
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2023 FORM 10-K ANNUAL REPORT
ITEM 1. BUSINESS
Table of Contents
$1.2 billion at January 1, 2024. 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 2023 MD&A (Item 7) beginning on
page 88 of this report; and under the caption Restrictions
on dividends in Note 12—Regulatory Capital and
Restrictions of our 2023 Financial Statements (Item 8),
beginning on page 154.
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
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.
Transactions with Affiliates
The Bank’s ability to lend or extend credit to us or our
other affiliates is restricted. The Bank and its subsidiaries
generally may not extend credit to us or to any other
affiliate of ours 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 the Bank's 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
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
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 our 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.
type, amount, and quality of collateral which must secure
such extensions of credit is regulated.
There are similar legal restrictions on: the Bank’s
purchases of or investments in the securities of and
purchases of assets from us or other affiliates; the Bank’s
loans or extensions of credit to third parties collateralized
by the securities or obligations of us or other affiliates; the
issuance of guaranties, acceptances, and letters of credit
on behalf of us or other affiliates; and certain Bank
transactions with us or other affiliates, or with respect to
which we or other affiliates act as agent, participate, or
have a financial interest.
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, 2023, our Common Equity Tier 1
Capital Ratio was 11.40% and the Bank’s was 11.40%.
• 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
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ITEM 1. BUSINESS
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, 2023, our Tier 1
Capital Ratio was 12.42% and the Bank’s was 11.82%.
• 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, 2023, our
Total Capital Ratio was 13.96% and the Bank’s was
13.17%.
• 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,
2023, our Leverage ratio was 10.69% and the Bank’s
was 10.20%.
• 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
Prompt Corrective Action (PCA)
Federal banking regulators must take “prompt corrective
action” regarding FDIC-insured depository institutions
(such as the Bank) that do not meet minimum capital
requirements. For this purpose, insured depository
that takes into account certain off-balance sheet
exposures.
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. In addition, an 8% capital surcharge applies to certain
covered institutions, not including us or the Bank.
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.
institutions are divided into five capital categories. The
specific requirements applicable to our Bank are
summarized in Table 1.11.
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Table 1.11
ITEM 1. BUSINESS
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, 2023, 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 outflow 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
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
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.
levels compared to other investments, so a higher LCR
requirement can negatively impact a bank's earnings.
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 currently. 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.
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ITEM 1. BUSINESS
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 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
exceeded; regulators must assess the transaction for
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
compliance, and that assessment is made public. The
Bank’s LMI operations and activities traditionally are
critical focal points in those assessments.
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.
incremental systemic risk; and the acquiring bank must
have at least “satisfactory” standing under the federal
Community Reinvestment Act (discussed immediately
below). Moreover, mergers and acquisitions that are large
enough are subject to anti-trust review and approval by
the U.S. Department of Justice.
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.
A CRA rating below “Satisfactory” can slow or halt a bank’s
plans to expand by branching, acquisition, or merger, and
can prevent a bank holding company from becoming a
financial holding company. In its most recent CRA
assessment, for 2020, the Bank received ratings of "High
Satisfactory" in Lending and in Service, "Outstanding" in
Investment, and "Satisfactory" overall. The next CRA
assessment is expected to be completed in 2024.
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ITEM 1. BUSINESS
Table of Contents
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 creditworthiness or other criteria
Interchange Fee Restrictions
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, 2023, 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 16.
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.
Regulatory changes proposed in 2023, if adopted, would
lower that cap.
Volcker Rule
The so-called Volcker rule (1) generally prohibits banks
from engaging in proprietary trading, which is engaging as
principal (for the bank’s own account) in any purchase or
sale of one or more of certain types of financial
instruments, and (2) limits banks’ ability to invest in or
sponsor hedge funds or private equity funds.
Consumer Regulation by the CFPB
The CFPB adopts and administers significant rules
affecting consumer lending and consumer financial
services. Key rules for the Bank include detailed regulation
of mortgage servicing practices and detailed regulation of
mortgage origination and underwriting practices. The
latter rules, among other things, establish the definition of
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ITEM 1. BUSINESS
Table of Contents
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.
In 2022, a federal appellate court ruled that structural
aspects related to the CFPB's creation (in 2010) and
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. The 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 currently. Even so, banks are likely to be affected
by broader legislative and regulatory responses to the
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 in 2023 fully adjusted rates
ranged from 2.5 to 42 basis points annually. (A basis point
is equal to 0.01%.) For 2023 the FDIC implemented a
temporary increase generally equal to 2 basis points. Also,
for eight quarters starting in 2024, the FDIC has imposed a
special assessment, of 3.36 basis points per quarter,
intended to replenish the DIF in the aftermath of three
large regional bank failures that occurred in March and
May of 2023.
Key factors in the grid include: the institution’s risk
category (I to IV); whether the institution is deemed large
and highly complex; whether the institution qualifies for
an unsecured debt adjustment; and whether the
institution is burdened with a brokered deposit
adjustment. Other factors can impact the base against
operation were unconstitutional; the court therefore
invalidated a CFPB rule at issue in that case. Later, a
different appellate court in a separate case ruled the
opposite way. The question has been appealed to the U.S.
Supreme Court. If the U.S. Supreme Court affirms the first
ruling, the legal validity of CFPB rules and actions generally
could be called into question.
perceived problems. Two prominent responses 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 and data. 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.
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.
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ITEM 1. BUSINESS
Table of Contents
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
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 rules which could
significantly change the regulation of incentive
compensation programs at financial institutions. The
against such an institution, including federal funds and
letters of credit, in the “liquidation or other resolution” of
such an institution by any receiver.
the rule could limit operations that require intensive use
of capital, such as underwriting and trading.
One of our subsidiaries is a registered investment adviser
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,
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 19 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
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2023 FORM 10-K ANNUAL REPORT
ITEM 1. BUSINESS
Table of Contents
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
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
Sources & Availability of Funds
Information concerning the sources and availability of
funds for our businesses can be found in our 2023 MD&A
(Item 7), including the subsection entitled Liquidity Risk
Management beginning on page 88, which material is
incorporated herein by reference.
Significant Business Developments section of Item 1,
which begins on page 10; under the caption Risks
Associated with Monetary Events beginning on page 34
within Item 1A; and under the caption Inflation, Recession,
and the Federal Reserve within the Market Uncertainties
and Prospective Trends section of our 2023 MD&A (Item
7), which begins on page 92.
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.
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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
Traditional Competition Risks
Traditional Strategic Risks
Industry Disruption
Operational Risks
Cybersecurity Risks
Risks from Economic Downturns & Changes
Risks Associated with Monetary Events
Risks Related to Businesses We May Exit
Reputation Risks
Credit Risks
Service Risks
Regulatory, Legislative, and Legal Risks
TABLE OF ITEM 1A TOPICS
Page
Topic
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 Risks
Share Owning & Governance Risks
29
30
31
32
33
34
34
35
36
36
38
38
Page
40
41
42
42
44
44
45
45
46
46
47
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, 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 1A beginning on
page 31) 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.
Competitive pressures shift with the business and rate
environment. Over much of 2020 and 2021, with deposits
relatively abundant, the competitive focus on lending and
fee-based services was relatively high. In 2023, after the
major market transitions in 2022 discussed in Risks
Associated with Monetary Events starting on page 34,
competition for deposits became much more significant.
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
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Table of Contents
pressure on revenues from affected items, upward
pressure on marketing and other promotional costs, or
both. For additional information regarding competition for
clients, refer to Competition within Item 1 beginning on
page 14 of this report.
We compete for talent. Our most significant competitors
for clients also tend to be our most significant competitors
Traditional Strategic Risks
We may be unable to successfully implement our
strategies to operate and grow our regional and specialty
banking businesses. Although our current strategies are
expected to evolve as business conditions change,
currently our primary strategies are to (1) invest resources
in our banking businesses, (2) seek to exploit growth
opportunities, especially within the markets we serve, and
(3) seek to exploit opportunities to cut cost without
significant revenue impact. Organic growth is expected to
be coordinated with a focus on strong and stable returns
on capital.
Organically, over the past several years we have enhanced
our market share in our regional banking markets with
targeted hires and marketing, and we have invested
resources in specialty commercial lending and private
client banking. 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.
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 we believe are significant to us at present.
for top talent. See Operational Risks below within this
Item 1A for additional information concerning this risk.
We compete to raise capital in the equity and debt
markets. See Liquidity and Funding Risks beginning on
page 42 of this Item 1A for additional information
concerning this risk.
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. 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;
• our ability to integrate the acquired business’
operations, clients, and properties quickly and cost-
effectively;
• our ability to manage cultural assimilation risks
associated with growth through acquisitions, which
can be an often-overlooked and often-critical failure
point in mergers;
• our ability to combine the franchise values of the two
companies without significant loss from re-branding
and other similar changes; and
• our ability to retain core clients and key associates.
A type of strategic acquisition—a so-called “merger of
equals” where the company we nominally acquire has
similar size, operating contribution, or value—presents
unique opportunities but also unique risks. Those special
risks 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.
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The IBKC merger in 2020 presented those risks. In fact, the
completion of systems integration was delayed several
months, resulting in increased integration expense.
Although the proximate reason for the delay was a 2021
hurricane event impacting key markets, the overall length
of the integration period likely would have been
significantly less if we had merely been integrating a small
bank's systems with ours.
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.
For example, companies which claim to offer applications
and services based on artificial intelligence 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 securities trading offered by certain large
firms, may amplify this trend.
Other technologies, services, and systems based wholly or
in part on artificial intelligence are proliferating within our
industry and among many of our commercial clients,
resulting in an environment which is changing rapidly. Our
challenge is to maintain critical stability and security while
also being nimble enough to adapt quickly to changing
circumstances and client demands.
We believe that, over the course of the technology-
driven evolution of our industry which is well underway,
the “winners” will be those institutions which can know
their clients and make those clients feel they are known,
even when many clients increasingly do not visit banking
centers or have face-to-face live interaction. Two keys to
achieving a psychological connection with such clients are
(1) data management and analytics, using artificial
intelligence processes, which allow an institution to
provide a differentiated, personalized experience for the
client at the point of interaction, and (2) seamless
integration of real-time client contact with a human being
through voice, chat, or other means.
A critical factor in successful data analytics, allowing real-
time differentiated interaction with clients, is how
traditionally uncaptured, unstructured, or siloed data is
acquired, managed, and accessed. 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,
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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
continue 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 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 mainly
Operational Risks
Fraud is a major, and increasing, operational risk for us
and all banks. Two traditional areas—deposit fraud (check
forging, check kiting, wire fraud, etc.) and loan fraud—
continue to be major sources of fraud attempts and actual
loss. Fraud directed against clients—generally using
deception to persuade clients to transfer funds—has
emerged as a third large source of fraud loss. The methods
used to perpetrate and combat fraud continue to evolve
as technology changes. In addition to cybersecurity risk
(discussed below), new technologies—including the use of
artificial intelligence—have made it easier for bad actors
to obtain and use client personal information, mimic
communications to or from clients, mimic 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
responsive (detecting, halting, and remediating actual
attacks). Our regulators require us to report actual and
suspected fraud promptly, and regulators often advise
banks of new schemes so that the entire industry can
adapt as quickly as possible. However, some level of fraud
loss is unavoidable, and the risk of a major loss cannot be
eliminated.
Our ability to conduct and grow our businesses is
dependent in part upon our ability to create, maintain,
expand, and evolve an appropriate operational and
organizational infrastructure, manage expenses, and
recruit and retain personnel with the ability to manage a
complex business. Operational risk can arise in many
ways, including: errors related to failed or inadequate
physical, operational, information technology, or other
processes; faulty or disabled computer or other
technology systems; fraud, theft, physical security
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.
breaches, electronic data and related security breaches
(see Cybersecurity Risks below), 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.
We expect to make significant investments over the next
several years in operational systems that are unlikely to
result in significant immediate returns. In 2021 we
started to invest significantly in new platforms and
processes to modernize operations, provide a better client
experience, reduce ongoing operating costs or otherwise
improve efficiencies, and support future growth. We
expect significant investments of that sort to grow over
the next several years as we prepare for business growth
and increased regulatory demands. Investments of that
sort are expensive. Although we believe they are
necessary for our future and are appropriate for our
company at this time, the financial returns on these
investments will be highly uncertain and, at best, likely to
occur only over a long time horizon. In addition,
investments of this sort lay the foundation for growth; if
growth does not materialize, many of these investments
may have little practical value.
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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 requirements. Additional
information concerning operational risks and our
management of them, all of which is incorporated into
this Item 1A by this reference, appears under the caption
Operational Risk Management beginning on page 85 of
our 2023 MD&A (Item 7).
The delivery of financial services to clients and others
increasingly depends upon technologies, systems, and
multi-party infrastructures which are new, creating or
enhancing several risks discussed elsewhere. Examples of
the risks created or enhanced by the widespread and
rapid adoption of relatively untested technologies include:
security incursions; operational malfunctions or other
disruptions; and legal claims of patent or other intellectual
property infringement.
Competition for talent is substantial and increasing.
Moreover, revenue retention and growth in some
business lines depends substantially upon top talent. In
Cybersecurity Risks
An information technology security (cybersecurity)
breach or other similar incident is a major type of
operational risk. A cybersecurity 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. However, even with significant
loss prevention and mitigation systems, the risk of a
financially or reputationally significant incursion cannot be
eliminated. Given the high volume of daily transactions in
modern banking, the question is not whether we will
experience a significant and costly incursion, but when.
For that reason, the key goals of our processes are: block
or prevent as many incursions as is practical, and detect
and mitigate rapidly those that get through. The
difference between a minor and a major incursion often
comes down to how quickly it is detected and countered.
recent years the cost to us of hiring and retaining top
revenue-producing talent has increased, and that trend is
likely to continue. The primary tools we use to attract and
retain talent are: salaries; commission, incentive, and
retention compensation programs; retirement benefits;
change in control severance benefits; health and other
welfare benefits; and our corporate culture. To the extent
we are unable to use these tools effectively, we face the
risk that, over time, our best talent will leave us and we
will be unable to replace those persons effectively.
Incentives might operate poorly or have unintended
adverse effects. Incentive programs are difficult to design
well, and even if well-designed, often they must be
updated to address changes in our business. A poorly
designed incentive program—where goals are too
difficult, too easy, or not well related to desired outcomes
—could provide little useful motivation to key associates,
could increase turnover, and could impact client
retention. Moreover, even where those pitfalls are
avoided, incentive programs may create unintended
adverse consequences. For example, a program focused
entirely on revenue production, without proper controls,
may result in costs growing faster than revenues.
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
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expect our systems and regulatory requirements will
continue to evolve as technology and criminal techniques
also continue to evolve.
Additional information concerning cybersecurity risks and
our management of them, all of which is incorporated into
this Item 1A by this reference, appears under the caption
Cybersecurity Risk Management beginning on page 86 of
our 2023 MD&A (Item 7).
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 these third-party incursions,
they can increase fraud impacting accounts at our Bank
and can cause us to take costly steps to avoid significant
theft loss to our Bank and to 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.
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
In recent years, the Federal Reserve has implemented,
reversed, and reversed again 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
2008-09 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. During 2022, the Federal Reserve
switched to a tightening policy. It raised short term rates
significantly and rapidly over most of the year. Those
actions triggered a significant decline in the values of most
categories of U.S. stocks and bonds; significantly raised
recessionary expectations for the U.S.; and inverted the
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yield curve in the U.S. Short-term rate rises in 2023 were
few and modest, and ended mid-year. Long-term rates
rose during 2023 but slowly and unevenly. The 2022 yield
curve inversion continued throughout 2023 and continues
in 2024.
Additional information concerning monetary policy risks is
presented: under the caption Cyclicality within the Other
Business Information section of Item 1, which starts on
page 16; within the Effect of Governmental Policies and
Proposals section of Item 1 beginning on page 27; in
Interest Rate and Yield Curve Risks beginning on page 44;
and under the caption Inflation, Recession, and Federal
Reserve Policy within the Market Uncertainties and
Prospective Trends section of our 2023 MD&A (Item 7),
beginning on page 92.
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, encourage borrowing,
expand the money supply, and stimulate economic
activity, while tightening strategies are intended to
increase interest rates, discourage borrowing, tighten the
money supply, and restrain economic activity. However,
as noted above, in 2022 short term rates rose faster than
long term rates to the point that the yield curve inverted
for much of the final two quarters of the year; that
inversion continued for all of 2023. It is not clear when the
inversion is likely to end.
Many external factors may interfere with the effects of
the Federal Reserve's plans or cause them to be changed,
perhaps 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 44.
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
• our ability to mitigate the loss of any pre-tax 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.
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
changing business and regulatory environment. Actions of
this sort typically are elevated in the first few years after a
significant merger. For example, in 2021 we closed/
consolidated several dozen banking locations in the wake
of the 2020 IBKC merger, and we divested our title
insurance business in 2022. Other dispositions have
occurred in recent years and likely will continue in the
future. 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
actions to avoid or minimize negative effects on
retained businesses;
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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
We face the risk that our clients may not repay their
loans and that the realizable value of collateral and other
credit support 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. For example, net charge-offs
were $13 million in 2017 and remained 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
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. Net charge-offs rose in 2022 to a more
normal, but still low, $59 million. In 2023 they rose again
to $170 million, driven partly by continuing normalization
but also, significantly, by a single commercial credit loss. If
the U.S. experiences an economic recession in the future,
net charge offs generally could increase substantially.
Even absent a recession, upward-trending normalization is
likely to continue.
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.
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 Risks beginning on
page 46, 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
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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.
Our credit and other loan-management models could be
wrong, or could become wrong if external factors
change. 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 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 (which ended
in 2022) elevated the traditional challenge for lenders
and investors to balance taking on higher risk against the
desire for higher income or yield. This challenge applied
not only to credit risk in lending activities but also to
default and rate risks regarding investments. Even though
short term rates are higher currently, long term rates
continue to lag driven in part by market expectations that
short rates may soon be cut again. In any case, even if less
acute today, that traditional risk-versus-yield challenge
remains in place.
As interest rates rise, default risk generally also rises. As
borrowers’ obligations to pay interest increases, 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. This effect can be amplified or hastened if
the rate hikes are accompanied by recession. Even if no
recession results, the full effects of the 2022-23 rate hikes
may not yet be fully reflected in loan 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. That trend
reversed starting in 2022, which may signal the start of a
new multi-year cycle. If a new cycle has started, we cannot
predict how long the new cycle will run or how high credit
losses will reach.
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, and in 2021, were historically unusual and
might not be repeated. It is extremely difficult for banks,
and for investors, to know when an upturn in credit loss is
merely idiosyncratic or instead portends a major credit
cycle change.
The composition of our loans inherently increases our
sensitivity to certain credit risks. At December 31, 2023,
approximately 53% of total loans and leases consisted of
the commercial, financial, and industrial (C&I) portfolio,
approximately 23% of total loans and leases consisted of
the commercial real estate (CRE) portfolio, and
approximately 23% consisted of the consumer real estate
portfolio.
Two large components of the C&I portfolio at year end
were loans to finance and insurance companies and loans
to mortgage companies. Taken together, approximately
18% of the C&I portfolio was sensitive to impacts on the
financial services industry. As discussed elsewhere in this
Item 1A with respect to our company, the financial
services industry is more sensitive to interest rate and
yield curve changes, monetary policy, regulatory policy,
changes in real estate and other asset values, and changes
in general economic conditions, than many other
industries. Negative impacts on the industry could
dampen new lending in these lines of business and could
create credit impacts for the loans in our portfolio.
The stability and value of the CRE portfolio depends
substantially upon the financial health of the underlying
real estate assets and upon commercial real estate market
values generally. Many CRE assets are rental properties,
and for those occupancy and vacancy rates are critical
factors along with business trends that impact tenants.
Most of the remainder are owner-occupied, significantly
dependent on the financial health of the borrower. Part of
our rental CRE consists of traditional office space. The
COVID pandemic disrupted traditional office space
demand and utilization. It is highly uncertain what
demand and utilization likely will be once that disruption
fully ends.
The consumer real estate portfolio contains a number of
concentrations which affect credit risk assessment of the
portfolio.
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• 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 89%
of the consumer real estate portfolio consists of loans
secured on a first-lien basis.
• Geographic concentration. At year end, about 62% of
the consumer real estate portfolio related to clients in
three states: Florida, Tennessee, and Texas.
The consumer real estate category is highly sensitive to
economic impacts on consumer clients and on residential
real estate values. Job loss or downward job migration, as
well as significant life events such as divorce, death, or
disability, can significantly impact credit evaluations of the
portfolio. Also, regulatory changes, discussed above and
elsewhere in this Item 1A, are more likely to affect the
consumer category and our accounting estimates of credit
loss than other loan types.
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
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 2020-22, 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 65 of our 2023 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 85 of our 2023
MD&A (Item 7).
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
limit our ability to pursue certain business opportunities.
See Supervision and Regulation within Item 1 of this
report, beginning on page 19, 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
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starts on page 19. 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 19; under the captions Capital,
Capital Risk Management and Adequacy, and Market
Uncertainties and Prospective Trends beginning on pages
77, 85, and 92, respectively, of our 2023 MD&A (Item);
and under the caption Regulatory Capital in Note 12—
Regulatory Capital and Restrictions, beginning on page
154 of our 2023 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. Compliance costs
associated with those and other over-$100-billion
regulations are expected to be significant. New
regulations proposed in 2023 would substantially increase
capital and other requirements, various restrictions, and
costs. Moreover, we expect that a significant portion of
those compliance costs, with or without the new
regulations, will need to be borne as we approach the
$100 billion tier, rather than commence abruptly when we
enter the tier, as we upgrade compliance systems,
processes, and staffing before they are fully needed.
Additional information concerning these risks, which is
incorporated into this Item 1A by this reference, appears
in: the Supervision & Regulation section of Item 1 which
starts on page 19; and under the caption Other Regulatory
Proposals within the section captioned Market
Uncertainties and Prospective Trends beginning on page
92 of our 2023 MD&A (Item 7).
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 46;
under the captions Repurchase Obligations, Market
Uncertainties and Prospective Trends, and Contingent
Liabilities beginning on pages 91, 92, and 98, respectively,
of our 2023 MD&A (Item 7); and under the caption
Contingencies in Note 16—Contingencies and Other
Disclosures, beginning on page 162 of our 2023 Financial
Statements (Item 8).
Political dysfunction and volatility within the federal
government, both at the regulatory and Congressional
levels, 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, as
well as that of our commercial clients. 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
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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
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, federal 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 U.S.
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.
For example, we engage a third party to estimate our
Scope 1 and 2 location-based emissions, even though not
legally required. Whether or not legally required, any such
actions that we take increase our operating costs. In
addition, such expectations could pressure us to re-
evaluate business relationships with certain clients, or
groups of clients, that have suboptimal reputations for
emissions.
Recent state laws and federal disclosure proposals
concerning greenhouse gas (GHG) emissions could
impose significant additional costs upon us. In 2023 the
state of California enacted two laws which, taken
together, will require most larger companies doing
business in California to report annually their greenhouse
gas ("GHG") emissions, with an external assurance
requirement, and to report biennially their climate-related
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
financial risks and risk-mitigation measures. The U.S.
Securities and Exchange Commission ("SEC") has
proposed, but not yet adopted, rules that would require
all U.S. companies with publicly-traded securities to report
annually their GHG emissions and related climate-oriented
information. If applicable to us, direct compliance costs
will include creating systems to measure or estimate and
capture relevant data, staffing, and engagement of
vendors, including a firm to provide required assurances
(somewhat analogous to a financial statement auditor).
Potentially of more significance: obtaining data could,
depending upon how the new regimes are implemented,
require us to obtain GHG-related information from clients,
including clients that are not public companies and that do
no business in California. If so, effectively we could be
required to impose costs and/or inconveniences on
clients. Other banks in our markets, particularly those that
are both private and not doing business in California,
could provide financial services without those
requirements, putting us at a competitive disadvantage.
Additional information concerning these risks, which is
incorporated into this Item 1A by this reference, appears
under the caption Greenhouse Gas (GHG) Reporting
Regimes within the section captioned Market
Uncertainties and Prospective Trends beginning on page
92 of our 2023 MD&A (Item 7).
Although currently no bank regulatory proposal
applicable to us has been published, future regulations
could discourage us from lending to or serving 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.
General regulation of greenhouse gas emissions, carbon
taxation schemes, government subsidies for "green"
industries over carbon-intensive ones, and other such
political/governmental actions could substantially and
directly impact us or our clients. Even if we are not
directly impacted in any significant manner by such
actions, impacts on clients could have a significant impact
on us.
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.
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We have also focused on the economic profit generated
by our business activities and prospects. Economic profit
analysis attempts to relate ordinary profit to the capital
employed to create that profit with the goal of achieving
higher risk-adjusted (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 judgment regarding capital allocation and
risk. Mistakes in those judgments could result in a mis-
allocation of resources and diminished profitability over
the long run.
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 national health insurance laws
impacting our healthcare-industry clients in middle
Tennessee; and automotive industry plant closures.
Significant cost increases and uncertainties impacting
clients and communities in our coastal markets may
jeopardize the substantial growth trends of those
markets. A significant part of our growth prospects are
concentrated in the major gulf coast markets and several
markets on the southern Atlantic seacoast of the U.S.
Many of our fastest growing markets, including most
significantly those in Florida, can be impacted significantly
by hurricanes and other severe coastal weather events. As
those markets grow, our economic commitment to them
grows, as does our financial exposure to those events.
In 2023 and this year it has been widely reported that the
economic costs of hurricane events in the U.S. gulf and
southern Atlantic coastal areas have been rising
significantly. We believe that rising costs are directly
related to growth in those areas.
For example, much of the growth in Florida has been
along the coasts moving out from older cities. A gulf coast
hurricane 50 or 60 years ago had a fair chance of making
landfall in a relatively unpopulated area. Now, the chances
of directly hitting a population center are much higher,
the average population in that center is much higher, and
the average value per building is much higher.
Despite our efforts, our costs could rise due to adverse
structural changes, market shifts, or inflationary
pressures. For example: in 2021 and 2022, compensation
costs rose markedly due to high-demand/low-supply
circumstances beyond our control.
Regulatory compliance expense will increase
substantially when we reach $100 billion in assets, which
is the next regulatory tier above us now. Moreover, we
expect such costs to increase significantly as we
approach that size. Additional information concerning
these expenses appears in Regulatory, Legislative, and
Legal Risks within this Item 1A beginning on page 38.
The reported significant increase in casualty risks and
costs is being reflected in property insurance practices
which currently are in significant flux. The insurance
industry is being forced to revise its risk assessment and
premium pricing practices in coastal areas as loss
experience has deviated from earlier predictions,
sometimes badly. In Florida, for example, some smaller
carriers have failed, some larger carriers have left markets,
and remaining carriers have significantly increased the
premiums of hurricane-related insurance, narrowed
coverage, or both.
Coastal states such as Florida and Louisiana have created
last-resort insurance pools for residents who cannot
obtain or afford private property insurance. However, as
the costs borne by those pools increase, either the
premiums will have to rise or general taxation will have to
cover the difference. In addition, those programs
generally do not help business clients.
State and local building and water-control codes are being
revised, but often unevenly and often not retroactive to
pre-existing structures and developments. The current
transition period could be lengthy.
The availability, reliability, and cost of adequate property
insurance is a significant concern for us as well as our
clients in affected markets. Instability in property
insurance has made, and will continue to make, our
business decisions more difficult. That instability increases
our risks of loan loss and business downturn.
More fundamentally, elevated insurance and casualty
costs blunt a key factor driving growth in many of these
high-growth markets: lower costs of living. If market
growth slows, our business will be impacted.
Additional information concerning these risks, which is
incorporated into this Item 1A by this reference, appears
under the caption Coastal Market Growth and Rising Costs
within the section captioned Market Uncertainties and
Prospective Trends beginning on page 92 of our 2023
MD&A (Item 7).
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We have international assets, mainly in the form of loans
and letters of credit. Holding non-U.S. assets creates a
number of risks: the risk that taxes, fees, prohibitions, and
other barriers and constraints may be created or
increased by the U.S. or other countries that would impact
our holdings; the risk that currency exchange rates could
move unfavorably so as to diminish the U.S. dollar value of
assets, or to enlarge the U.S. dollar value of liabilities; and
the risk that legal recourse against foreign counterparties
Insurance
Our property and casualty insurance may not cover, or
may be inadequate to fully cover, the risks that we face,
and we 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
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 condition, and cash flows. In
general, the costs of our funding directly impact our costs
of doing business and, therefore, can positively or
negatively affect our financial results. Our funding
requirements in 2023 were met principally by deposits, by
financing from other financial institutions, and by funds
obtained from the capital markets.
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.
economic conditions and with public perception of risk in
the banking industry or of risk in our Bank in particular.
That shift can be sudden and extreme. If public
confidence fails, deposit levels in our Bank could fall,
perhaps fairly quickly if a tipping point is reached, as
depositors seek safety and are able to move their funds
rapidly. In the mildest version of this scenario, we could be
forced to raise interest we pay on our deposits, raising
costs appreciably. In a severe case, deposit flight could
render the Bank insolvent.
Deposits traditionally have provided our most affordable
funds and deposits by far are the largest portion of our
funding. However, deposit trends can shift with
In the first half of 2023, actual events resulted in many of
these impacts. Three large U.S. regional banks failed,
largely as a result of massive deposit run-off. Along with
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2023 FORM 10-K ANNUAL REPORT
ITEM 1A. RISK FACTORS
Table of Contents
most other regional banks, we experienced significant but
much more modest levels of run-off. We believe
significant portions of the outgoing deposits transferred
either to a few of the very largest U.S. banks or to money
market funds which, though not FDIC insured, are
supported by U.S. Treasury debt.
We countered our 2023 outflows with a significant deposit
campaign. Our 2023 campaign was successful, but at the
cost of significant increases in deposit rates. Fortunately,
our new deposits were substantial enough to allow us to
reduce borrowings. Also, the campaign's "promotional"
rates for accounts started to revert to more typical rate
levels late in 2023 which, though higher than in 2022,
should reduce overall deposit costs in 2024.
In the aftermath of the 2023 bank failures, the following
factors appear to have been key to institutional risk:
deposits not insured by FDIC insurance were much more
likely to depart rapidly when risk perceptions changed
suddenly; deposit clients who were not traditional clients
with primary banking relationships were much more likely
to depart rapidly; and deposits concentrated in fewer,
high-balance accounts (with FDIC insurance coverage on
only a small portion of the balances) were much more
likely to depart rapidly than deposits spread among many
more-typical clients and accounts. All banks, including our
Bank, faced all three of these factors to an extent. Banks
with higher-than-usual levels of one or more of these
factors tended to be more strongly impacted by the
banking crisis events in the first half of 2023.
Deposit levels may be affected, fairly quickly, by changes
in monetary policy. The Federal Reserve currently has
paused its 2022-23 tightening policy. The Federal Reserve
has indicated it intends to consider whether and when to
cut short-term rates in 2024 based on economic events
during the year, including inflationary pressures,
employment data, and overall economic activity.
Additional information concerning monetary policy
changes appears under the caption Risks Associated with
Monetary Events beginning on page 34 within this Item
1A, and under the caption Federal Reserve Policy in
Transition within the Market Uncertainties and
Prospective Trends section of 2023 MD&A (Item 7), which
begins on page 92.
The market among banks for deposits may be impacted
by regulatory funding and liquidity requirements.
Regulatory rules generally provide favorable treatment for
core deposits. Institutions with less than $100 billion of
assets are not required to maintain a minimum Liquidity
Coverage ratio. At or above $100 billion, the requirement
increases with size and certain activities. The largest
banks, which must maintain the highest minimum ratio,
may be incented to compete for core deposits vigorously.
Although mid-sized banks, like ours, are only lightly
impacted by this rule, if some large banks in our markets
take aggressive actions we could lose deposit share or be
compelled to adjust our deposit pricing and practices in
ways that could increase our costs.
Continued availability of Federal Home Loan Bank
funding depends on policies set by the federal
government and, ultimately, by the U.S. Congress; for
that reason, long-term continuation of current programs
is beyond our control. We have and use credit facilities
with one of the Federal Home Loan Banks. Those facilities
provide funding quickly when we need it, up to program
limits. The curtailment or elimination of our access to
Federal Home Loan Bank programs would significantly
alter how we plan for and manage routine and
contingency funding situations.
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. 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 are 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.
For additional information concerning these risks, see
Interest Rate and Yield Curve Risks beginning on page 44.
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.
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Credit Ratings
Our credit ratings directly affect the availability and cost
of our unsecured funding. Our holding company (the
Corporation) and our Bank currently receive ratings from
rating agencies for unsecured borrowings. A rating below
investment grade typically reduces availability and
increases the cost of market-based funding. A debt rating
of Baa3 or higher by Moody’s Investors Service, or BBB- or
higher by Fitch Ratings, is considered investment grade for
many purposes. At December 31, 2023, both rating
agencies rated the unsecured senior debt of the
Corporation and of the Bank as investment grade. 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,
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
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).
Inversion normally is rare, but has happened several times
in the past few years. In fact inversion has been
continuous since the second half of 2022 through early
2024. 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
to buy, sell, or hold securities, is subject to revision or
withdrawal at any time, and should be evaluated
independently of any other rating.
Reductions in our credit ratings could result in
counterparties reducing or terminating their
relationships with us. Some parties with whom we do
business 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.
revenues of our fixed income business. During late 2022
our net interest margin overall did not compress, but
actually expanded, as we were able to increase average
loan rates faster than average funding rates. In 2023, our
net interest margin compressed throughout much of the
year as funding costs accelerated, but still expanded on a
full year basis compared to 2022. Although compression
eased late in 2023, margins are likely to continue below
late 2022 levels as long as the yield curve remains
inverted.
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.
Generally, we try to moderate our use of these products
when rates are rising.
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.
Over a business cycle period of many years, substantial
revenue reduction in fixed income is unavoidable during
the "down" part of the cycle. The most recent revenue
reduction started in 2022, and we cannot predict when it
will end.
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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 $1.2 billion for 2023 and
$1.4 billion for 2022. Average fixed income trading
liabilities (short positions) were $301 million and $480
million for 2023 and 2022, respectively. Average loans
held for sale in our fixed income business were $552
million and $693 million for 2023 and 2022, respectively.
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 82 of our
2023 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.
Two of our mortgage-related businesses—mortgage
origination 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. experienced extremely low interest rates
for several years, ending in early 2022. Rising rates in 2022
substantially curtailed our income from these businesses.
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ITEM 1A. RISK FACTORS
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For example, by late 2022 consumer mortgage
refinancings fell to extremely low levels. These impacts
largely continued throughout 2023. Although lower
mortgage rates in the future, if and when they occur,
should moderate these impacts, it is very unlikely that the
low rate environment of 2020-21 will return. 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 16; in Risks Associated with Monetary Events
beginning on page 34; in Interest Rate and Yield Curve
Risks beginning on page 44; and under the caption
Inflation, Recession, and Federal Reserve Policy within the
Market Uncertainties and Prospective Trends section of
our 2023 MD&A (Item 7), beginning on page 92.
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
Pre-2009 Mortgage Business Risks
We have risks from the mortgage-related businesses that
legacy First Horizon exited in 2008, including mortgage
loan repurchase and loss-reimbursement risk, 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 Risks
The preparation of our consolidated financial statements
in conformity with U.S. generally accepted accounting
principles requires management to make significant
estimates that affect the financial statements. The
estimate that is consistently one of our most critical is the
level of the allowance for credit losses. However, other
estimates can be highly significant at discrete times or
during periods of varying length, for example the
valuation (or impairment) of our deferred tax assets.
Estimates are made at specific points in time. As actual
events unfold, estimates are adjusted accordingly. Due to
the inherently uncertain nature of these estimates, it is
possible that, at some time in the future, we may
significantly increase the allowance for credit losses and/
or sustain credit losses that are significantly higher than
the provided allowance, or we may recognize a significant
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 its loss.
Some government mortgage programs could impose
penalties on us for misrepresentations at the time of
obtaining benefits under the program. Penalties can be
severe, up to three times the agency’s loss. As a result,
mortgage origination processes need to emphasize being
thorough and correct, in compliance with all agency
standards. Those processes tend to slow the mortgage
lending 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 experiences difficulty with
the mortgage loan. Failure to follow the applicable rules
can result in significant penalties or other loss for us.
them, all of which is incorporated into this Item 1A by this
reference, is set forth: under the captions Repurchase
Obligations beginning on page 91, and Contingent
Liabilities beginning on page 98, of our 2023 MD&A (Item
7); and under the captions Exposures from pre-2009
Mortgage Business and Mortgage Loan Repurchase and
Foreclosure Liability, both within Note 16—Contingencies
and Other Disclosures of our 2023 Financial Statements
(Item 8), which Note begins on page 162.
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
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2023 FORM 10-K ANNUAL REPORT
ITEM 1A. RISK FACTORS
Table of Contents
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 impacts the measurement
and recognition of credit losses for certain assets,
including most loans. 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. That acceleration could happen again,
especially if a recession occurs or is expected to occur.
Additional information concerning ASU 2016-13 appears
in Note 1—Significant Accounting Policies within our 2023
Financial Statements (Item 8) beginning on page 115, 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
10, all of which information is incorporated into this Item
1A by reference.
In comparison with former (pre-2020) standards, CECL
accounting tends 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 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,
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 future
years 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 $1.2 billion at
January 1, 2024.
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
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ITEM 1A. RISK FACTORS
Table of Contents
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 ordinary preferred stock raises
regulatory capital without issuing or diluting 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 governs the rights
of the depositary shares related to our Series B, C, and D
preferred stock (respectively), provides 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 agreements 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.
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2023 FORM 10-K ANNUAL REPORT
ITEM 1B. UNRESOLVED STAFF COMMENTS THRU ITEM 4. MINE SAFETY DISCLOSURES
Table of Contents
Item 1B. Unresolved Staff Comments
Not applicable.
Item 1C. Cybersecurity
The Cybersecurity Risk Management section within our 2023 MD&A (Item 7), beginning on page 86 of this report, is
incorporated herein by reference.
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.
section of Item 1 of this report, which begins on page 6;
that information is incorporated into this Item 2 by this
reference.
Our banking centers, our fixed income and capital markets
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 2023 is provided under the caption Principal
Businesses, Brands, & Locations within the Our Businesses
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, 2023, we believe our physical properties
are suitable and adequate for the businesses we conduct.
Item 3. Legal Proceedings
The Contingencies section from Note 16—Contingencies and Other Disclosures, beginning on page 162 of this report within
our 2023 Financial Statements (Item 8), is incorporated herein by reference.
Item 4. Mine Safety Disclosures
Not applicable.
49
2023 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, 2024. The executive officers generally are
elected at the April meeting of our Board of Directors for a
term of one year and until their successors are elected
and qualified.
Mr. Jordan has an Employment Agreement with us. Under
it, Mr. Jordan will continue to be employed as President
and Chief Executive Officer for a term expiring August 3,
2028. Mr. Jordan’s employment will terminate when that
term expires unless the parties mutually agree later to
extend the term. Our mandatory retirement policy is
waived during the Employment Agreement's term.
Name & Age
Terry L. Akins
Age: 60
Elizabeth A.
Ardoin
Age: 54
Hope
Dmuchowski
Age: 45
Principal
Financial Officer
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.
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.
Jeff L. Fleming
Age: 62
Principal
Accounting
Officer
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).
D. Bryan Jordan
Age: 62
Principal
Executive Officer
President and Chief Executive Officer (2008) and Chairman of the Board (2012-2020 and since 2022) 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. He resumed being
Chairman in 2022 on the second anniversary of the IBKC merger. 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.
50
2023 FORM 10-K ANNUAL REPORT
Table of Contents
Name & Age
Tammy S.
LoCascio
Age: 55
David T.
Popwell
Age: 64
Anthony J.
Restel
Age: 54
Susan L.
Springfield
Age: 59
SUPPLEMENTAL PART I INFORMATION
Current (Year First Elected to Office) and Recent Offices & Positions
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.
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 in 2020, 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
51
2023 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, 2023, there were
approximately 8,712 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 common shares from time to time for general
purposes and for our 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 2023 is presented in
Tables 7.20a and 7.20b, and the surrounding notes and
other text under the caption Common Stock Purchase
Programs beginning on page 79 of our 2023 MD&A (Item
7), which information is incorporated herein by this
reference.
Total Shareholder Return Performance Graph
The “Total Shareholder Return 2018-2023” 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 2018-2023” performance
graph nor Table 5.1 shall be incorporated by reference into
any such filings.
The “Total Shareholder Return 2018-2023” performance
graph compares the yearly percentage change in our
cumulative total shareholder return with returns based on
the Standard and Poor’s 500 and Keefe, Bruyette & Woods
(KBW) Regional and Nasdaq Bank Indices. The graph
assumes $100 is invested on December 31, 2018 and
dividends are reinvested. Returns are market-
capitalization weighted.
At year-end 2019 and earlier, FHN was included in the
KBW Regional Bank Index. At year-end 2020 and later,
FHN is included in the KBW Nasdaq Bank Index. The
change in index resulted from the merger of equals in
2020 between FHN and IBERIABANK Corporation.
52
2023 FORM 10-K ANNUAL REPORT
ITEM 5. MARKET FOR COMMON EQUITY, STOCKHOLDER MATTERS, & EQUITY PURCHASES AND ITEM 6.
Table of Contents
At year-end 2022, FHN's stock price was significantly
boosted by the then-pending acquisition of FHN by TD for
an all-cash purchase price of over $25 per FHN share.
After TD was unable to obtain regulatory approval, the TD
Transaction was terminated by the parties in May 2023.
Table 5.1
TOTAL SHAREHOLDER RETURN DATA
2019
2018
2020
2021
2022
2023
First Horizon Corporation (FHN)
$ 100.00 $ 130.43 $ 106.73 $ 141.55 $ 217.90 $ 131.82
S&P 500 Index
100.00
131.47
155.65
200.29
163.98
207.04
KBW Regional Bank Index (KRX)
100.00
123.87
113.11
154.57
143.87
143.30
KBW Nasdaq Bank Index (BKX)
100.00
136.12
122.09
168.90
132.76
131.58
Data source: Bloomberg
Item 6. [Reserved]
53
2023 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 & Estimates
Accounting Changes
Non-GAAP Information
55
55
56
62
77
81
91
92
96
98
98
54
2023 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
commercial, private banking, consumer, small business,
wealth and trust management, retail brokerage, capital
markets, fixed income, and mortgage banking services.
At December 31, 2023, FHN had over 450 business
locations in 24 states, including over 400 banking centers
Executive Overview
Significant Events and Transactions
in 12 states, and employed approximately 7,300
associates.
This MD&A should be read in conjunction with the
accompanying audited Consolidated Financial Statements
and 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.
TD Merger Termination
FDIC Special Assessment
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),
and certain TD subsidiaries. On May 4, 2023, FHN and TD
mutually terminated the TD Merger Agreement. Under
the terms of the termination agreement, TD made a $200
million cash payment to FHN, in addition to the $25
million fee reimbursement due to FHN pursuant to the TD
Merger Agreement. Of the $200 million cash payment,
FHN contributed $50 million to the First Horizon
Foundation.
2023 Financial Performance Summary
FHN reported net income available to common
shareholders of $865 million, or $1.54 per diluted share,
compared to net income of $868 million, or $1.53 per
diluted share in 2022.
Net interest income of $2.5 billion increased $148 million
from 2022 largely driven by higher earning asset yields
and loan growth, partially offset by higher funding costs.
The net interest margin increased 32 basis points to 3.42%
compared to 3.10% in 2022.
Provision for credit losses increased to $260 million
compared to of $95 million in 2022, largely driven by loan
growth, an uncertain macroeconomic outlook, and
modest grade migration. Net charge-offs were $170
million compared to $59 million in 2022, largely reflecting
the impact of an idiosyncratic credit loss on a single
relationship.
Noninterest income of $927 million increased $112 million
from 2022, largely driven by the gain on merger
termination partially offset by lower fixed income and
mortgage banking and title income.
In November 2023, the FDIC approved a final rule to
implement a special assessment on banks to replenish the
deposit insurance fund in connection with the three large
bank failures in 2023. The special assessment will be 13.4
basis points per year imposed on certain deposits over
eight quarters, starting with the first quarterly assessment
period of 2024. FHN recognized an estimated expense of
$68 million for the entire assessment in the fourth quarter
of 2023.
Noninterest expense of $2.1 billion increased $126 million
from 2022, largely attributable to the FDIC special
assessment and the contribution to the First Horizon
Foundation discussed above.
Period-end loans and leases of $61.3 billion increased
$3.2 billion from December 31, 2022 reflecting
commercial loan growth of $1.8 billion, or 4%, and
consumer loan growth of $1.4 billion, or 10%.
Period-end deposits of $65.8 billion increased $2.3 billion,
or 4%, from December 31, 2022 driven by an $8.6 billion
increase in interest-bearing deposits offset by a
$6.3 billion decrease in noninterest-bearing deposits.
Tier 1 risk-based capital and total risk-based capital ratios
at December 31, 2023 were 12.42% and 13.96%,
respectively, compared to 11.92% and 13.33% at
December 31, 2022. The CET1 ratio was 11.40% at
December 31, 2023 compared to 10.17% at December 31,
2022.
55
2023 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,
2021
2022
2023
1,388
$
1,254
$
1.53
$
$
974
1.74
$
$
$
$
$
1.54
1.12 %
11.01 %
14.11 %
3.42 %
26.82 %
59.90 %
1.26 %
0.28 %
11.38 %
8.48 %
0.60
$
15.17
12.13
$
$
1.08 %
11.81 %
15.58 %
3.10 %
24.99 %
61.24 %
1.18 %
0.11 %
10.83 %
7.12 %
0.60
13.48
10.23
$
$
$
1.15 %
12.53 %
16.46 %
2.48 %
34.77 %
68.56 %
1.22 %
— %
9.53 %
6.73 %
0.60
14.39
11.00
11.40 %
10.17 %
9.92 %
$
7,913
$ 13,159
$
8,713
(a) Represents a non-GAAP measure which is reconciled in the non-GAAP to GAAP reconciliation in Table 7.28.
(b) Calculated using net income divided by average assets.
(c) Calculated using net income available to common shareholders divided by average common equity.
(d) Calculated using net income available to common shareholders divided by average tangible common equity.
(e) Net interest margin is computed using total net interest income adjusted to an FTE basis assuming a statutory federal income tax rate
of 21% and, where applicable, state income taxes.
(f) Ratio is 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—2023 compared to 2022
Net Interest Income
Net interest income is FHN's largest source of revenue and
is the difference between the interest earned on interest-
earning assets (generally loans, leases and investment
securities) and the interest expense incurred in
connection with interest-bearing liabilities (generally
deposits and borrowed funds). The level of net interest
income is primarily a function of the difference between
the effective yield on average interest-earning assets and
the effective cost of interest-bearing liabilities. These
factors are influenced by the pricing and mix of interest-
earning assets and interest-bearing liabilities which, in
turn, are impacted by external factors such as local
economic conditions, competition for loans and deposits,
the monetary policy of the FRB and market interest rates.
Net interest income of $2.5 billion in 2023 increased
$148 million, or 6%, from 2022. The increase was largely
driven by higher earning asset yields and loan growth
partially offset by higher funding costs.
FHN's net interest margin increased 32 basis points to
3.42% in 2023 compared to 2022 while the net interest
spread decreased 41 basis points to 2.44% over the same
period. The net interest margin was favorably impacted by
a 203 basis point increase in earning asset yields, largely
reflecting the impact of higher interest rates and lower
levels of excess cash. In addition, the tax-equivalent
adjustment was favorably impacted by higher rates on
floating rate tax-free commercial loans. The cost of
interest-bearing liabilities increased 244 basis points
largely driven by higher deposit costs.
Total average earning assets decreased $2.8 billion in
2023 largely from a decrease in interest-bearing deposits
with banks partially offset by an increase in loans and
leases. Total average interest-bearing liabilities increased
$4.3 billion driven by increases in short-term borrowings
and interest-bearing deposits.
The following table presents the major components of net
interest income and net interest margin:
56
2023 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
2023
Interest
Income/
Expense
Average
Balance
Yield/
Rate
Average
Balance
2022
Interest
Income/
Expense
Yield/
Rate
Average
Balance
2021
Interest
Income/
Expense
Yield/
Rate
Commercial loans and leases
$ 46,175 $ 2,958
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
13,994
60,169
664
9,912
1,179
61
318
2,504
6.41 % $ 43,691 $ 1,823
479
12,261
4.48
4.18 % $ 44,325 $ 1,498
3.38 %
3.89
11,973
469
3.92
630
3,588
5.96
55,952
2,302
4.11
56,298
1,967
3.49
51
7.71
250
2.52
78
6.62
4
5.56
884
9,976
1,438
191
39
4.41
200
2.01
58
4.04
4
2.09
956
8,623
1,366
37
15
130
6
4.81
87
5.20
5.50 % $ 77,635 $ 2,696
522
8,672
1.12
1.00
584
13,123
33
3.44
123
1.43
30
—
—
17
2.17
0.15
(0.09)
0.13
Total earning assets / Total interest income
$ 74,807 $ 4,116
3.47 % $ 80,987 $ 2,170
2.68 %
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
1,012
1,720
596
(740)
4,288
1,217
1,777
636
(648)
3,600
1,261
1,836
712
(834)
3,647
$ 81,683
$ 84,217
$ 87,609
$ 23,547 $
15,300
679
351
2.88 % $ 24,292 $
2.30
15,641
6,095
236
3.87
2,963
94
72
18
0.39 % $ 27,283 $
0.47
0.60
15,688
4,281
Total interest-bearing deposits
44,942
1,266
2.82
42,896
184
0.43
47,252
36
20
25
81
0.13 %
0.13
0.57
0.17
Federal funds purchased
349
18
5.12
1,426
301
2,688
1,335
52
12
3.66
4.16
140
5.19
72
5.39
699
881
480
229
1,596
11
1.56
949
1
0.12
7
0.77
12
2.56
5
2.26
72
4.51
1,235
540
124
1,645
4
6
—
72
0.30
1.11
0.09
4.37
$ 51,041 $ 1,560
3.06 % $ 46,781 $
291
0.62 % $ 51,745 $
164
0.32 %
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
19,341
2,396
72,778
8,610
295
8,905
Total liabilities and shareholders' equity
$ 81,683
26,851
2,006
75,638
8,284
295
8,579
$ 84,217
25,879
1,506
79,130
8,184
295
8,479
$ 87,609
Net earnings assets / Net interest income
(TE) / Net interest spread
Taxable equivalent adjustment
$ 23,766 $ 2,556
(16)
2.44 % $ 30,854 $ 2,405
(13)
0.98
2.85 % $ 29,242 $ 2,006
2.36 %
0.25
(12)
0.12
Net interest income / Net interest margin (b)
$ 2,540
3.42 %
$ 2,392
3.10 %
$ 1,994
2.48 %
(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.
57
2023 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
(Dollars in millions)
Interest income:
Loans and leases (c)
Loans held for sale
Investment securities (c)
Trading securities
Other earning assets:
Federal funds sold
ANALYSIS OF CHANGES IN NET INTEREST INCOME
2023 Compared to 2022
2022 Compared to 2021
Increase (Decrease) Due to (a)
Increase (Decrease) Due to (a)
Rate (b)
Volume (b)
Total
Rate (b)
Volume (b)
Total
$
1,101 $
185 $
1,286
$
347 $
(12) $
335
24
51
32
3
13
143
159
(12)
(1)
(12)
(3)
(4)
(100)
(107)
12
50
20
—
9
43
52
9
56
27
3
6
77
86
(3)
21
1
1
—
(8)
(7)
6
77
28
4
6
69
79
Securities purchased under agreements to resell
Interest-bearing deposits with banks
Total other earning assets
Total change in interest income - earning assets
$
1,367 $
53 $
1,420
$
525 $
— $
525
Interest expense:
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
$
588 $
(3) $
585
$
63 $
(5) $
280
183
1,051
15
39
6
15
13
(1)
35
31
(8)
6
(6)
120
(13)
279
218
1,082
7
45
—
135
—
53
1
117
10
4
7
5
2
(1)
(8)
(14)
—
(1)
(1)
—
(2)
Total change in interest expense - interest-bearing
liabilities
1,139
130
1,269
145
(18)
Net interest income, taxable-equivalent
$
228 $
(77) $
151
$
380 $
18 $
58
52
(7)
103
10
3
6
5
—
127
398
(a) The changes in interest due to both rate and volume have been allocated to change due to rate and change due to volume in proportion to the absolute
amounts of the changes in each.
(b) Variances are computed on a line-by-line basis and are non-additive.
(c) Reflects taxable-equivalent adjustments, using the statutory federal income tax rate of 21%, and where applicable, state income taxes.
58
2023 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 increased to $260 million in
2023, compared to $95 million in 2022. The increase in
Noninterest Income
provision during 2023 was reflective of loan growth,
macroeconomic uncertainty, and modest grade migration.
Net charge-offs were $170 million in 2023 compared to
$59 million in 2022. The higher level of net charge-offs in
2023 largely reflects the impact of a $72 million
idiosyncratic credit loss on a single relationship in the third
quarter.
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
Deposit transactions and cash
management
Fixed income
Brokerage, management fees and
commissions
Card and digital banking fees
Other service charges and fees
Trust services and investment
management
Mortgage banking and title income
Gain on merger termination
Securities gains (losses), net
Other income
Total noninterest income
$
NM – Not meaningful
NONINTEREST INCOME
2023
2022
2021
2023 vs. 2022
%
Change
$ Change
2022 vs. 2021
$ Change % Change
$
179 $
133
171 $
205
175 $
406
90
77
54
47
23
225
(4)
103
927 $
92
84
54
88
78
44
48
68
—
18
75
815 $
51
154
—
13
67
1,076 $
8
(72)
(2)
(7)
—
(1)
(45)
225
(22)
28
112
5 % $
(35)
(2)
(8)
—
(2)
(66)
100
(122)
37
14 % $
(4)
(201)
(2) %
(50)
4
6
10
(3)
(86)
—
5
8
(261)
5
8
23
(6)
(56)
—
38
12
(24) %
Noninterest income of $927 million increased $112 million
from $815 million in 2022, largely driven by the gain on
merger termination partially offset by declines in fixed
income and mortgage banking and title income.
Noninterest income represented 27% and 25% of total
revenue for 2023 and 2022, respectively.
Fixed income declined $72 million, or 35%, for 2023
compared to 2022. Fixed income product revenue
decreased $62 million, largely driven by less favorable
market conditions. Revenue from other products
decreased $10 million, largely driven by lower fees from
loan and derivative sales in addition to lower fees from
investment advisory services.
Mortgage banking and title income of $23 million
decreased $45 million from $68 million in 2022 largely
driven by the divestiture of the title services business in
third quarter 2022 and lower origination volume given the
impact of higher long-term rates. Results in 2022 also
reflected a $12 million gain on sale of mortgage servicing
rights.
Deferred compensation income (included in other income)
increased $35 million in 2023, reflecting fluctuations in
equity market valuations relative to the prior year. This
increase is largely offset in noninterest expense.
In addition, other income included a gain of $9 million on
the disposition of FHN Financial Main Street Advisors
assets in 2023 and a gain of $22 million from the sale of
the title services business in 2022.
Noninterest income results also reflect securities losses of
$4 million in 2023 compared to gains of $18 million in
2022.
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ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
Noninterest Expense
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
Deposit insurance expense
Computer software
Operations services
Advertising and public relations
Contributions
Legal and professional fees
Contract employment and outsourcing
Amortization of intangible assets
Equipment expense
Communications and delivery
Impairment of long-lived assets
Other expense
NONINTEREST EXPENSE
2023
2022
2021
$ Change
% Change
$ Change
% Change
2023 vs. 2022
2022 vs. 2021
$
1,100 $
1,101 $
1,210
$
123
122
111
87
71
61
49
49
47
42
35
—
128
32
113
87
50
7
62
54
51
45
37
—
137
24
116
80
37
14
68
67
56
47
37
34
182
186
169
(1)
(5)
90
(2)
—
21
54
(13)
(5)
(4)
(3)
(2)
—
(4)
— % $
(109)
(9) %
(4)
281
(2)
—
42
771
(21)
(9)
(8)
(7)
(5)
—
(2)
(9)
8
(3)
7
13
(7)
(6)
(13)
(5)
(2)
—
(34)
17
(7)
33
(3)
9
35
(50)
(9)
(19)
(9)
(4)
—
(100)
10
(7) %
Total noninterest expense
$
2,079 $
1,953 $
2,096
$
126
6 % $
(143)
NM - Not meaningful
Noninterest expense of $2.1 billion increased $126 million,
or 6%, from 2022, largely driven by higher deposit
insurance expense and contributions.
Personnel expense of $1.1 billion declined negligibly in
2023, reflecting lower incentive-based compensation
expense offset by higher deferred compensation and
regular salaries and benefits expense.
In November 2023, the FDIC approved a special
assessment on banks to replenish the deposit insurance
fund in connection with the three large bank failures in
2023. The special assessment will be collected at an
annual rate of approximately 13.4 basis points imposed on
certain deposits over an anticipated total of eight
quarters, starting with the first quarterly assessment
period of 2024. FHN recognized the entire assessment of
Income Taxes
FHN recorded income tax expense of $212 million in 2023
compared to $247 million in 2022, resulting in an effective
tax rate of 18.8% and 21.3% respectively.
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-deductible portions of: FDIC premium,
executive compensation and merger expenses. FHN's
$68 million as an expense in the fourth quarter of 2023
when the FDIC published its final action.
The increase in contributions in 2023 was primarily related
to the $50 million contribution made to the First Horizon
Foundation from the $200 million cash payment received
for the TD Merger termination.
Advertising and public relations expense increased $21
million from 2022, driven by a deposit campaign in the
second quarter of 2023 and brand awareness initiatives.
The $13 million decline in legal and professional fees in
2023 was largely attributable to lower merger and
integration related expense.
Total merger and integration expense was $51 million for
2023 compared to $136 million for 2022.
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. The reduction in the rate
from 2022 was primarily related to the benefit from the
settlement of uncertain tax positions related to prior
merger related items which was partially offset by the
additional tax expense from the surrender of bank-owned
life insurance policies.
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ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
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 were $215 million and
$313 million at December 31, 2023 and 2022, respectively.
As of December 31, 2023, FHN had deferred tax asset
balances related to federal and state income tax
carryforwards of $32 million and $3 million, which will
expire at various dates. Refer to Note 14 - Income Taxes
for additional information.
FHN’s gross DTA after valuation allowance was $737
million and $761 million as of December 31, 2023 and
2022, 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.
Business Segment Results
FHN's reportable segments include Regional Banking,
Specialty Banking, and Corporate. See Note 19 - Business
Segment Information for additional disclosures related to
FHN's segments.
Regional Banking
The Regional Banking segment generated pre-tax income
of $1.3 billion in 2023 compared to $1.1 billion in 2022, an
increase of $185 million, largely from a $390 million
increase in revenue driven by higher net interest income.
The increase in revenue was partially offset by a
$130 million increase in provision for credit losses and a
$75 million increase in noninterest expense.
Net interest income of $2.4 billion increased $400 million
reflecting the benefit of higher interest rates and average
loan balances, partially offset by higher funding costs.
The increase in the provision for credit losses largely
reflected loan growth, macroeconomic uncertainty, and
modest grade migration.
The increase in noninterest expense was largely driven by
higher personnel, deposit insurance, advertising and
public relations, and technology-related expenses.
Specialty Banking
Pre-tax income of $313 million in the Specialty Banking
segment decreased $96 million compared to 2022 largely
reflecting a $142 million decrease in revenue tied to lower
fixed income, mortgage banking and title income, and net
interest income. The decrease in revenue was partially
offset by a decrease in noninterest expense.
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 2020 through 2022. IBKC’s federal consolidated
tax returns for 2016 – 2018 were audited by the IRS. The
statute of limitations for those years was extended
through October 2024 for purposes of an appeal which
was settled in 2023. On occasion, as federal or state
auditors examine the tax returns of FHN and its
subsidiaries, FHN may extend the statute of limitations for
a reasonable period. Otherwise, the statutes of limitations
remain open only for tax years in accordance with federal
and state statutes. See Note 14 - Income Taxes for
additional information.
Fixed income of $133 million decreased $72 million,
largely driven by less favorable market conditions.
Mortgage banking and title income of $23 million
decreased $45 million largely driven by the divestiture of
the title services business in third quarter 2022 and lower
origination volume given the impact of higher long-term
rates. Results in 2022 also reflected a $12 million gain on
sale of mortgage servicing rights.
Noninterest expense of $364 million decreased
$82 million largely due to lower incentive-based
compensation expense tied to the decline in fixed income
and mortgage banking and title income.
Corporate
Pre-tax loss for the Corporate segment was $447 million
for 2023 compared to $327 million for 2022.
Noninterest income increased $225 million largely driven
by the gain on merger termination. Noninterest income
results also reflect an increase of $35 million in deferred
compensation income, lower securities gains of
$22 million, and a $22 million gain on sale of the title
business in 2022.
Noninterest expense of $414 million for 2023 increased
$133 million compared to 2022 largely driven by higher
deposit insurance expense, a $50 million contribution to
the First Horizon Foundation, and higher personnel
expense. Merger and integration expense was $51 million
in 2023 compared to $136 million in 2022.
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ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
Results of Operations—2022 compared to 2021
For a description of FHN's results of operations for 2022, see Results of Operations - 2022 compared to 2021 in Item 7 in the
2022 Form 10-K which is incorporated herein by reference.
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
2023
2022
(Dollars in millions)
Balance
Mix
Balance
Mix
Securities available for sale at fair value:
Government agency issued MBS and CMO
Other U.S. government agencies (a)
States and municipalities
Total securities available for sale
Securities held to maturity at amortized cost:
Government agency issued MBS and CMO
Total investment securities
$
$
$
$
6,630
1,172
589
8,391
68 % $
12
6
7,076
1,163
597
86 % $
8,836
69 %
12
6
87 %
1,323
14 % $
1,371
13 %
9,714
100 % $
10,207
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 securities 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.
Investment securities were $9.7 billion and $10.2 billion
on December 31, 2023 and 2022, representing 12% and
13% of total assets, respectively. See Note 2 - 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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2023 FORM 10-K ANNUAL REPORT
Table of Contents
Table 7.7
(Dollars in millions)
Securities available for sale:
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
CONTRACTUAL MATURITIES OF INVESTMENT SECURITIES
Within 1 year
Amount
Yield
(b)
After 1 year
Within 5 years
As of December 31, 2023
After 5 years
Within 10 years
After 10 years
Total
Amount
Yield
(b)
Amount
Yield
(b)
Amount
Yield
(b)
Amount
Yield
(b)
Government agency issued MBS
and CMO (a)
$
Other U.S. government agencies
States and municipalities
Total securities available for sale $
29
—
36
65
2.30 % $ 980
1.86 % $ 1,060
2.22 % $ 5,479
2.07 % $ 7,548
2.34 %
—
2.38
12
87
1.70
0.73
219
1.98
1,090
2.97
1,321
3.04
178
1.72
326
2.74
627
2.66
2.34 % $ 1,079
1.77 % $ 1,457
2.12 % $ 6,895
2.24 % $ 9,496
2.46 %
Securities held to maturity:
Government agency issued MBS
and CMO (a)
$ —
— % $ 148
3.56 % $ 170
3.44 % $ 1,005
2.73 % $ 1,323
2.91 %
Total securities held to maturity $ —
— % $ 148
3.56 % $ 170
3.44 % $ 1,005
2.73 % $ 1,323
2.91 %
(a) Represents government agency-issued mortgage-backed securities and collateralized mortgage obligations which, when adjusted for early paydowns,
have an estimated average life of 5.6 years.
(b) Weighted average yields were calculated using amortized cost on a fully-taxable equivalent basis, assuming a 24% tax rate where applicable.
Loans and Leases
Period-end loans and leases increased $3.2 billion, or 5%,
to $61.3 billion as of December 31, 2023, driven by a $1.8
billion increase in commercial loans and a $1.4 billion
increase in consumer loans. Average loans and leases
increased to $60.2 billion in 2023 compared to $56.0
billion in 2022, primarily driven by a $2.5 billion increase
Table 7.8
in commercial loans and a $1.7 billion increase in
consumer loans.
The following table provides detail regarding FHN's
period-end loans and leases:
LOANS AND LEASES
(Dollars in millions)
2023
Percent
of total
2023
Growth
Rate
2022
Percent
of total
2022
Growth
Rate
2021
Percent
of total
2021
Growth
Rate
Commercial:
Commercial, financial,
and industrial (a)
Commercial real estate
Total commercial
Consumer:
Consumer real estate
Credit card and other
Total consumer
$
32,633
53 %
3 % $
31,781
55 %
2 % $
31,068
57 %
(6) %
14,216
46,849
13,650
793
14,443
23
76
23
1
24
7
4
11
(6)
10
13,228
45,009
12,253
840
13,093
23
78
21
1
22
9
4
14
(8)
12
12,109
43,177
10,772
910
11,682
22
79
20
1
21
(1)
(5)
(8)
(19)
(9)
(6) %
Total loans and leases
$
61,292
100 %
5 % $
58,102
100 %
6 % $
54,859
100 %
(a) Includes equipment financing loans and leases.
C&I loans increased 3%, or $852 million, from 2022,
largely driven by growth in the real estate and rental and
leasing and transportation and warehousing industry
sectors, as well as diversified growth across multiple other
industries. These increases were partially offset by a
decline of $239 million in loans to mortgage companies.
Commercial real estate loans increased 7% to $14.2 billion
in 2023, largely driven by growth in multi-family and
industrial property loans. Consumer loans increased 10%,
or $1.4 billion, from the end of 2022, largely driven by
growth in real estate installment loans.
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2023 FORM 10-K ANNUAL REPORT
Table of Contents
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
The following table provides detail of the contractual maturities of loans and leases at December 31, 2023.
Table 7.9
(Dollars in millions)
CONTRACTUAL MATURITIES OF LOANS AND LEASES
Within 1 Year
After 1 Year
Within 5 Years
After 5 Years
Within 15
Years
After 15 Years
Total
Commercial, financial, and industrial
$
6,864 $
17,159 $
7,666 $
944 $
Commercial real estate
Consumer real estate
Credit card and other
Total loans and leases
2,641
74
208
8,691
241
313
2,834
1,369
75
50
11,966
197
32,633
14,216
13,650
793
$
9,787 $
26,404 $
11,944 $
13,157 $
61,292
For maturities over one year at fixed interest rates:
Commercial, financial, and industrial
$
4,492 $
5,211 $
734 $
10,437
Commercial real estate
Consumer real estate
Credit card and other
Total loans and leases at fixed interest rates
For maturities over one year at floating interest rates:
Commercial, financial, and industrial
Commercial real estate
Consumer real estate
Credit card and other
Total loans and leases at floating interest rates
Total maturities over one year
Because of various factors, the contractual maturities of
consumer loans are not indicative of the actual lives of
such loans. A significant component of FHN’s loan
portfolio consists of consumer real estate loans, a majority
of which are home equity lines of credit and home equity
installment loans. These loans have an initial period where
the borrower is only required to pay the periodic interest.
After the interest-only period, the loan will require the
payment of both principal and interest over the remaining
term. Numerous factors can contribute to the actual life of
a home equity line or installment loan. As a result, the
actual average life of home equity lines and loans is
difficult to predict and changes in any of these factors
could result in changes in projections of average lives.
Loans Held for Sale
Loans held for sale primarily consists of government
guaranteed loans under SBA and USDA lending programs.
$
$
$
$
2,441
181
76
1,129
1,180
43
36
3,325
171
3,606
4,686
290
7,190 $
7,563 $
4,266 $
19,019
12,666 $
2,456 $
209 $
15,331
6,250
60
238
1,705
188
32
15
8,641
26
7,970
8,889
296
19,214 $
4,381 $
8,891 $
32,486
26,404 $
11,944 $
13,157 $
51,505
Smaller amounts of other consumer and home equity
loans are also included in loans HFS. Additionally, FHN's
mortgage banking operations 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
non-conforming loans are primarily sold to private
companies that are unaffiliated with the GSEs on a
servicing-released basis. For further detail, see Note 7 -
Mortgage Banking Activity.
On December 31, 2023 and 2022, loans HFS were $502
million and $590 million, respectively. Held-for-sale
consumer mortgage loans secured by residential real
estate in process of foreclosure totaled $2 million and
$3 million for December 31, 2023 and 2022, respectively.
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ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
Asset Quality
Loan and Lease Portfolio Composition
FHN groups its loans into portfolio segments based on
internal classifications reflecting the manner in which the
ALLL is established and how credit risk is measured,
monitored, and reported. From time to time, and if
conditions are such that certain subsegments are uniquely
affected by economic or market conditions or are
experiencing greater deterioration than other
components of the loan portfolio, management may
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 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
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
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. FHN has a concentration of
residential real estate loans of 23% and 21% of total loans
in 2023 and 2022, respectively. Industry concentrations
are discussed under the C&I heading below.
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.
management unit specialize in loan documentation and
the management of the construction lending process. FHN
strives to identify problem assets early through
comprehensive policies and guidelines, targeted portfolio
reviews, more frequent servicing on lower rated
borrowers, and an emphasis on frequent grading. For
smaller commercial credits, generally $5 million or less,
and income-producing CRE credits greater than $10
million to non-professional real estate developers and
smaller professional real estate investors/developers, FHN
utilizes a centralized underwriting unit in order to
originate and grade small business loans more efficiently
and consistently.
FHN may utilize availability of guarantors/sponsors to
support commercial lending decisions during the credit
underwriting process and when determining the
assignment of internal loan grades. Reliance on the
guaranty as a viable secondary source of repayment is a
function of an analysis proving capability to pay, factoring
in, among other things, liquidity and direct/indirect cash
flows. FHN also considers the volume and amount of
guaranties provided for all global indebtedness and the
likelihood of realization. FHN presumes a guarantor’s
willingness to perform until there is any current or prior
indication or future expectation that the guarantor may
not willingly and voluntarily perform under the terms of
the guaranty. In FHN’s risk grading approach, it is deemed
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2023 FORM 10-K ANNUAL REPORT
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
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
C&I loans are the largest component of the loan and lease
portfolio, comprising 53% and 55% of total loans and
leases at December 31, 2023 and 2022, respectively. The
C&I portfolio 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, direct financing and sales-type leases,
working capital lines of credit, and trade credit
enhancement through letters of credit.
Income-producing 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
Table 7.10a
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 cessation of
LIBOR, FHN no longer references LIBOR in new loan
contracts, and substantially all of the existing portfolio of
loans tied to LIBOR has been repriced to alternative
reference rates.
The largest geographical concentrations of balances as of
December 31, 2023 were in Tennessee (21%), Florida
(13%), Texas (11%), North Carolina (7%), Louisiana (6%),
Georgia (5%), and California (5%) with no other state
representing 5% or more of the portfolio.
The following table provides the composition of the C&I
portfolio by industry as of December 31, 2023 and 2022.
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.
C&I PORTFOLIO BY INDUSTRY
(Dollars in millions)
Industry:
Finance and insurance
Real estate and rental and leasing (a)
Health care and social assistance
Accommodation and food service
Manufacturing
Wholesale trade
Loans to mortgage companies
Retail trade
Transportation and warehousing
Energy
Other (professional, construction, education, etc.) (b)
Total C&I loan portfolio
(a) Leasing, rental of real estate, equipment, and goods.
(b) Industries in this category each comprise less than 5% for 2023.
December 31, 2023
December 31, 2022
Amount
Percent
Amount
Percent
$
4,083
3,858
2,676
2,288
2,267
2,147
2,019
1,866
1,580
1,293
8,556
12 % $
12
8
7
7
7
6
6
5
4
26
4,120
3,277
2,657
2,238
2,206
2,212
2,258
1,835
1,432
1,364
8,182
13 %
10
8
7
7
7
7
6
4
4
27
$
32,633
100 % $
31,781
100 %
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ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
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 18% and 20% of FHN’s C&I loan
portfolio as of December 31, 2023 and 2022, respectively,
and as a result could be affected by items that uniquely
impact the financial services industry. Loans to borrowers
in the real estate and rental and leasing industry were
12% and 10% of FHN's C&I portfolio as of December 31,
2023 and 2022, respectively. As of December 31, 2023,
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
Loans to mortgage companies were 6% of the C&I
portfolio as of December 31, 2023 and 7% of the C&I
portfolio as of December 31, 2022. This portfolio 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. Balances in
this portfolio generally fluctuate with mortgage rates and
seasonal factors. Generally, new loan originations to
mortgage lenders increase when there is a decline in
mortgage rates and decrease when rates rise; in 2023,
rates rose. In periods of economic uncertainty, this trend
may not occur even if interest rates are declining. In 2023,
approximately 90% of the loan originations were home
purchases and 10% were refinance transactions.
Finance and Insurance
The finance and insurance component represented 12% of
the C&I portfolio as of December 31, 2023 compared to
13% at the end of 2022 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, 2023, asset-based lending to consumer
finance companies represents approximately $2.0 billion
of the finance and insurance component.
Real Estate and Rental and Leasing
Loans to borrowers in the real estate and rental and
leasing industry were 12% and 10% of FHN's C&I portfolio
as of December 31, 2023 and 2022, respectively. This
portfolio primarily consists of equipment financing loans
and leases to clients across FHN's footprint in a broad
range of industries and asset types. This portfolio also
includes a smaller balance of loans and leases for solar
and wind generating facilities.
Commercial Real Estate
The CRE portfolio totaled $14.2 billion as of December 31,
2023, a $1.0 billion, or 7%, increase compared to
December 31, 2022.
The CRE portfolio includes both financings for commercial
construction and non-construction loans. This portfolio
contains loans, draws on lines, and letters of credit to
commercial real estate developers 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. The
residential CRE class is not currently an area of growth for
the bank.
Income-producing CRE loans
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 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
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 generally
required to achieve a debt service coverage ratio greater
than or equal to 1.25x 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, where
applicable. A global cash flow analysis is performed at the
sponsor level.
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
67
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ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
personnel stress the borrower’s/project’s financial
capacity utilizing numerous attributes such as interest
rates, vacancy, capitalization rates, and debt service
coverage ratios under various scenarios. 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.
Table 7.10b
The largest geographical concentrations of CRE balances
as of December 31, 2023 were in Florida (27%), Texas
(13%), North Carolina (12%), Georgia (9%), Tennessee
(9%), and Louisiana (8%), with no other state representing
more than 5% of the portfolio.
The following table represents subcategories of CRE loans
by property type:
CRE PORTFOLIO BY PROPERTY TYPE
Property Type:
Multi-family
Office
Retail
Industrial
Hospitality
Land/land development
Other CRE (a)
Total CRE loan portfolio
(a) Property types in this category each comprise less than 5% for 2023.
Consumer Loan Portfolios
Consumer Real Estate
The consumer real estate portfolio is primarily composed
of home equity lines and installment loans. This portfolio
totaled $13.7 billion and $12.3 billion as of December 31,
2023 and 2022, respectively. The largest geographical
concentrations of balances in the consumer real estate
portfolio as of December 31, 2023 were in Florida (29%),
Tennessee (22%), Texas (11%), Louisiana (8%), North
Carolina (7%), New York (5%), and Georgia (5%), with no
other state representing 5% or more of the portfolio.
As of December 31, 2023, approximately 89% of the
consumer real estate portfolio was in a first lien position.
At origination, the weighted average FICO score of this
portfolio was 759 and the refreshed FICO scores averaged
756 as of December 31, 2023, no significant change from
FICO scores of 757 and 754, respectively, as of
December 31, 2022. Generally, performance of this
portfolio is affected by life events that affect borrowers’
finances, the level of unemployment, and home prices.
As of December 31, 2023 and 2022, FHN had held-to-
maturity consumer mortgage loans secured by real estate
totaling $29 million and $42 million, respectively, that
were in the process of foreclosure.
HELOCs comprised $2.2 billion and $2.0 billion of the
consumer real estate portfolio for December 31, 2023 and
2022, respectively. FHN’s HELOCs typically have a 5 or 10
December 31, 2023
December 31, 2022
Amount
Percent
Amount
Percent
$
4,409
2,782
2,310
2,236
1,467
307
705
31 % $
20
16
16
10
2
5
3,484
2,814
2,331
2,076
1,418
309
796
27 %
21
18
16
11
2
5
$
14,216
100 % $
13,228
100 %
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, 2023, approximately 94% of FHN's
HELOCs were in the draw period compared to 92% at the
end of 2022. Based on when draw periods are scheduled
to end per the line agreement, it is expected that $571
million, or 27%, of HELOCs currently in the draw period
will enter the repayment period during the next 60
months, based on current terms. 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, over time, performance of these loans usually
begins to stabilize. HELOCs nearing the end of the draw
period are closely monitored.
The following table shows the HELOCs currently in the
draw period and expected timing of conversion to the
repayment period.
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2023 FORM 10-K ANNUAL REPORT
Table of Contents
Table 7.11
(Dollars in millions)
Months remaining in draw period:
0-12
13-24
25-36
37-48
49-60
>60
Total
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
HELOC DRAW TO REPAYMENT SCHEDULE
December 31, 2023
December 31, 2022
Repayment
Amount
Percent
Repayment
Amount
Percent
$
$
30
90
110
163
178
1,530
2,101
1 % $
4
5
8
9
73
100 % $
31
40
109
135
204
1,356
1,875
2 %
2
6
7
11
72
100 %
Underwriting
For 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)
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
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 4 to the
consolidated financial statements included as a part of this
Report.
The ALLL increased to $773 million as of December 31,
2023, or 1.26% of total loans and leases, compared to
guidelines require borrowers to qualify at an interest rate
that is 200 basis points above the note rate. This mitigates
risk to FHN in the event of a sharp rise in interest rates
over a relatively short time horizon.
HELOC Portfolio Risk Management
FHN performs continuous HELOC account reviews to
identify higher-risk home equity lines and initiate
preventative and corrective actions. The reviews consider
a number of account activity patterns and characteristics
such as the number of times delinquent within recent
periods, changes in credit bureau score since origination,
score degradation, performance of the first lien, and
account utilization. In accordance with FHN’s
interpretation of regulatory guidance, FHN may block
future draws on accounts in order to mitigate risk of loss
to FHN.
Credit Card and Other
The credit card and other consumer loan portfolio totaled
$793 million as of December 31, 2023 and $840 million as
of December 31, 2022. This portfolio primarily consists of
consumer-related credits, including home equity and
other personal consumer loans, credit card receivables,
and automobile loans. The $47 million decrease was
driven by net repayments, partially offset by an increase in
consumer construction loans.
$685 million, or 1.18% of total loans and leases, at the end
of 2022. The ACL to total loans and leases ratio increased
to 1.40% as of December 31, 2023 from 1.33% as of
December 31, 2022. The increase in the ALLL balance
reflects the impact of loan growth, an evolving
macroeconomic outlook, and modest grade migration.
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ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
Consolidated Net Charge-offs
Net charge-offs were $170 million in 2023 compared to
$59 million in 2022. As a percentage of average total loans
and leases, net charge-offs increased 17 basis points from
2022.
Net charge-offs in the C&I portfolio were $142 million, an
increase of $89 million from 2022, primarily driven by a
$72 million idiosyncratic charge-off related to one client
relationship.
Table 7.12
ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES AND CHARGE-OFFS
2023
December 31,
2022
2021
(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
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
$
$
$
$
$
$
$
$
$
$
$
$
$
$
339
172
233
29
773
49
22
12
—
83
388
194
245
29
856
32,633
14,216
13,650
793
$
$
$
$
$
$
$
308
146
200
31
685
55
22
10
—
87
363
168
210
31
772
31,781
13,228
12,253
840
Total period-end loans and leases
$
61,292
$
58,102
$
ALLL / loans and leases %
C&I
CRE
Consumer real estate
Credit card and other
Total ALLL / loans and leases %
1.04 %
1.21
1.71
3.63
1.26 %
0.97 %
1.10
1.63
3.72
1.18 %
334
154
163
19
670
46
12
8
—
66
380
166
171
19
736
31,068
12,109
10,772
910
54,859
1.07 %
1.27
1.51
2.14
1.22 %
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2023 FORM 10-K ANNUAL REPORT
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
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
1.19 %
1.36
1.79
3.63
1.40 %
142
$
15
(5)
18
170
$
1.14 %
1.27
1.71
3.72
1.33 %
53
—
(14)
20
59
$
32,390
13,785
13,179
815
30,969
12,722
11,397
864
$
$
$
$
$
$
Total average loans and leases
$
60,169
$
55,952
$
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
Credit card and other
Total ALLL / net charge-offs
NM - not meaningful
Nonperforming Assets
0.44 %
0.10
NM
2.18
0.28 %
239 %
1,097
NM
162
455 %
0.17 %
—
NM
2.39
0.11 %
578 %
NM
NM
151
1,155 %
1.22 %
1.37
1.59
2.09
1.34 %
13
—
(22)
11
2
32,010
12,314
10,969
1,005
56,298
0.04 %
0.01
NM
1.05
— %
2,645 %
13,189
NM
185
30,641 %
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 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. NPAs consist of nonperforming loans and
leases and OREO (excluding OREO from government-
insured mortgages).
Total NPAs increased $142 million to $469 million as of
December 31, 2023, largely driven by an increase in non-
accrual CRE loans predominantly in the office sector. As
remote work became more prevalent over the last few
years, office vacancy rates have risen industry-wide, which
in conjunction with a higher level of interest rates,
increased pressure on cash flows and valuations. The ratio
of nonperforming loans and leases to total loans and
leases increased 21 basis points to 0.75%.
71
2023 FORM 10-K ANNUAL REPORT
Table of Contents
Table 7.13
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
NONPERFORMING ASSETS
(Dollars in millions)
Nonperforming loans and leases
C&I
CRE
Consumer real estate
Credit card and other
Total nonperforming loans and leases (a) (c)
Nonperforming loans held for sale (a)
Foreclosed real estate and other assets (b)
Total nonperforming assets (a) (b)
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
2023
December 31,
2022
2021
$
$
$
$
184
136
140
2
462
3
4
469
$
153
$
9
152
2
316
8
3
327
$
$
$
$
$
$
125
9
138
3
275
7
3
285
0.57 %
0.48 %
0.40 %
0.96
1.02
0.30
0.07
1.24
0.27
0.08
1.29
0.31
0.75 %
0.54 %
0.50 %
184 %
202 %
268 %
126
167
1,202
1,554
131
1,364
1,671
118
699
167 %
217 %
244 %
(a) Excludes loans and leases that are 90 or more days past due and still accruing interest.
(b) Excludes government-insured foreclosed real estate. Foreclosed real estate from GNMA loans were insignificant at December 31, 2023 and
2022 and were $1 million at December 31, 2021.
(c) Under the original terms of the loans, estimated interest income would have been approximately $35 million, $21 million, and $19 million
during 2023, 2022 and 2021, respectively.
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ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
The following table provides nonperforming assets by business segment:
Table 7.14
NONPERFORMING ASSETS BY SEGMENT
(Dollars in millions)
Nonperforming loans and leases (a) (b)
Regional Banking
Specialty Banking
Corporate
Consolidated
Foreclosed real estate (c)
Regional Banking
Specialty Banking
Corporate
Consolidated
Nonperforming Assets (a) (b) (c)
Regional Banking
Specialty Banking
Corporate
Consolidated
Nonperforming loans and leases to total loans and leases
Regional Banking
Specialty Banking
Corporate
Consolidated
NPA % (d)
Regional Banking
Specialty Banking
Corporate
Consolidated
$
$
$
$
$
$
2023
December 31,
2022
2021
$
$
$
$
$
$
323
116
23
462
1
3
—
4
324
119
23
466
0.74 %
0.68
4.87
0.75 %
0.74 %
0.70
4.96
0.76 %
227
$
60
29
316
$
—
$
2
1
3
$
227
$
62
30
319
$
0.54 %
0.37
6.28
0.54 %
0.55 %
0.39
6.54
0.55 %
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 %
(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. Foreclosed real estate from GNMA loans were insignificant at
December 31, 2023 and 2022 and were $1 million at December 31, 2021.
(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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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 $21 million as of
December 31, 2023 compared to $33 million as of
December 31, 2022. Loans 30 to 89 days past due and still
accruing were $85 million as of December 31, 2023
compared to $105 million as of December 31, 2022,
largely reflecting lower past due commercial loan
balances.
Table 7.15
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)
$
$
$
$
$
2023
December 31,
2022
2021
$
32
8
57
8
$
61
11
55
11
105
$
138
$
0.10 %
0.06
0.42
1.03
0.17 %
0.19 %
0.08
0.44
1.28
0.24 %
1
—
17
3
21
$
$
12
$
8
9
4
$
$
$
11
—
18
4
33
10
7
16
6
58
13
70
7
148
0.19 %
0.11
0.65
0.76
0.27 %
5
—
33
2
40
7
2
24
12
(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.
assets has been included in management’s analysis for
assessing the adequacy of the allowance for loan and
lease losses.
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.
Potential problem assets in the loan portfolio increased
$174 million to $666 million as of December 31, 2023.The
current expectation of losses from potential problem
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ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Modifications to Borrowers Experiencing Financial Difficulty
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. 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. See
Note 1 - Significant Accounting Policies, Note 3 - Loans and
Leases and Note 4 - Allowance for Credit Losses for further
discussion regarding troubled 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
individually reviewed for expected credit losses, 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, term extensions or entering into short sale
agreements. Principal forgiveness may be granted in
specific workout circumstances.
The individual expected credit loss assessments
completed on commercial loans are used in evaluating the
appropriateness of qualitative adjustments to
quantitatively modeled loss expectations for loans that
are not considered collateral dependent. If a loan is
collateral dependent, the carrying amount of a loan is
written down to the net realizable value of the collateral.
Each assessment considers any modified terms and is
comprehensive to ensure appropriate assessment of
expected credit losses.
Deposits
Total deposits of $65.8 billion as of December 31, 2023
increased $2.3 billion from $63.5 billion as of
December 31, 2022. Interest-bearing deposits increased
$8.6 billion and noninterest-bearing deposits decreased
$6.3 billion. Deposit growth in 2023 reflected the impact
of FHN's deposit marketing campaigns launched in the
second quarter. Promotional rates associated with these
offerings moderated toward the end of the year, but
overall were higher than prior periods contributing to an
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.
Within the HELOC and real estate installment loans classes
of the consumer portfolio segment, troubled loans 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 troubled loans 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, troubled loans 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.
Consumer loans may also be modified through court-
imposed principal reductions in bankruptcy proceedings,
which FHN is required to honor unless a borrower
reaffirms the related debt.
increase in funding costs. The rate guarantees on money
market deposits in the campaign were short-term and
repriced in the back half of the fourth quarter. FHN
continues to focus on building and deepening
relationships to retain new clients from its promotional
campaigns.
FHN continues to maintain a well-diversified and stable
funding mix across its footprint:
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ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
•
•
•
At December 31, 2023, commercial deposits were
$35.9 billion, or 55% of total deposits and
consumer deposits were $29.9 billion, or 45% of
total deposits. At December 31, 2022,
commercial deposits were $34.4 billion, or 54%
of total deposits and consumer deposits were
$29.1 billion, or 46% of total deposits.
At December 31, 2023, 38% of deposits were
associated with Tennessee, 18% with Florida,
12% with Louisiana, and 12% with North Carolina,
with no other state above 10%. These
percentages were virtually unchanged from the
previous year-end.
Total estimated uninsured deposits were
$26.8 billion, or 41% of total deposits, and
$30.3 billion, or 48% of total deposits, as of
December 31, 2023 and 2022, respectively.
• Of the uninsured deposits at December 31, 2023,
$5.3 billion, or 8% of total deposits, were
collateralized. At December 31, 2022,
collateralized deposits were $5.0 billion, or 8% of
total deposits.
The following tables summarize the major components of
FHN's total deposits and total estimated uninsured
deposits for 2023, 2022, and 2021 and the maturities of
FHN's uninsured time deposits as of December 31, 2023.
See Table 7.2 - Average Balances, Net Interest Income and
Yields/Rates in this Report for information on average
deposits including average rates paid.
Table 7.16
(Dollars in millions)
Savings
Time deposits
Other interest-bearing deposits
Total interest-bearing deposits
Noninterest-bearing deposits
DEPOSITS
2023
Percent
of Total
2023
Growth
Rate
2022
Percent
of Total
2022
Growth
Rate
$ 25,082
38 %
14 % $
21,971
35 %
(17) %
6,804
16,690
48,576
17,204
10
26
74
26
136
10
21
(27)
2,887
15,165
40,023
23,466
4
24
63
37
(18)
(11)
(15)
(16)
Total deposits
$ 65,780
100 %
4 % $
63,489
100 %
(15) %
Table 7.17
ESTIMATED UNINSURED DEPOSITS
For the Year Ended December 31,
(Dollars in millions)
2023
2022
Uninsured deposits
$
26,752 $
30,304
Table 7.18
UNINSURED TIME DEPOSITS BY MATURITY
(Dollars in millions)
December 31, 2023
December 31, 2022
Portion of U.S. time deposits in excess of insurance limit
$
1,143 $
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
304
519
282
38
643
198
147
225
73
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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 $3.1 billion and $2.8 billion as of
December 31, 2023 and December 31, 2022, respectively.
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 9 - Short-Term Borrowings for additional
information.
Term borrowings include senior and subordinated
borrowings with original maturities greater than one year.
Total term borrowings were $1.2 billion and $1.6 billion as
of December 31, 2023 and December 31, 2022,
respectively. The decrease in term borrowings was
attributable to the retirement of $450 million in senior
notes in May 2023. See Note 10 - Term Borrowings for
additional information.
Capital
Management’s objectives are to provide capital sufficient
to cover the risks inherent in FHN’s businesses, to
maintain excess capital to well-capitalized standards, and
to ensure ready access to the capital markets.
Total equity of $9.3 billion increased $744 million
compared to December 31, 2022. Significant changes
included net income of $916 million and a $180 million
increase in AOCI offset by $367 million in common and
preferred dividends.
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:
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Table 7.19a
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
REGULATORY CAPITAL DATA
(Dollars in millions)
FHN shareholders’ equity
Modified CECL transitional amount (a)
FHN non-cumulative perpetual preferred
Common equity tier 1 before regulatory adjustments
Regulatory adjustments:
Disallowed goodwill and other intangibles
Net unrealized (gains) losses on securities available for sale
Net unrealized (gains) losses on pension and other postretirement plans
Net unrealized (gains) losses on cash flow hedges
Common equity tier 1
FHN non-cumulative perpetual preferred (b)
Qualifying noncontrolling interest—First Horizon Bank preferred stock
REGULATORY RATIOS & AMOUNTS
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
Table 7.19b
(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
December 31,
2023
December 31,
2022
$
$
$
$
$
$
$
$
8,996 $
57
(520)
8,533 $
(1,617) $
836
273
79
8,104 $
426
295
8,825 $
1,097
9,922 $
71,074 $
70,635
82,540 $
81,898
8,252
85
(1,014)
7,323
(1,658)
972
269
126
7,032
920
295
8,247
975
9,222
69,163
68,728
79,583
78,923
December 31, 2023
Amount
Ratio
December 31, 2022
Amount
Ratio
11.40 % $
11.40
12.42
11.82
13.96
13.17
10.69
10.20
11.38
8.48
10.72
8,104
8,055
8,825
8,350
9,922
9,303
8,825
8,350
7,032
7,405
8,247
7,700
9,222
8,532
8,247
7,700
10.17 % $
10.77
11.92
11.20
13.33
12.41
10.36
9.76
10.83
7.12
9.35
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 includes 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, 2023.
(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 7.28.
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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.
Stress Testing
The Economic Growth, Regulatory Relief, and Consumer
Protection Act, along with an interagency regulatory
statement effectively exempted both FHN and First
Horizon Bank from Dodd-Frank Act stress testing
requirements starting in 2018.
For 2023, FHN and First Horizon Bank completed a
company run stress test using the Comprehensive Capital
Analysis and Review (CCAR) scenarios published in
February 2023. 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 2023 CCAR Severely Adverse scenario. A summary
of those results was posted in the “Fixed Income - Stress
Common Stock Purchase Programs
If and as authorized by its Board of Directors, 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 authorized two
common stock purchase programs, described below, that
operated and expired during the fourth quarter of 2023. In
2024, FHN's Board replaced one of those programs. FHN’s
Board has not authorized a preferred stock purchase
program.
2021 General Purchase Program
On January 27, 2021, FHN announced that its Board of
Directors approved a new $500 million common share
purchase program that was to expire on January 31, 2023.
On October 26, 2021, FHN announced that the 2021
program had been increased by $500 million and
As of December 31, 2023, 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 December 31, 2023 are calculated under the
final rule issued by the banking regulators in 2020 to delay
the effects of CECL on regulatory capital for two years,
followed by a three-year transition period.
For FHN, the Tier 1 and Total risk-based regulatory capital
ratios increased in 2023 relative to 2022 primarily from
the impact of net income less dividends. The increase in
the Common Equity Tier 1 ratio for FHN was largely driven
by the conversion of the Series G Preferred Stock to
common stock.
During 2024, capital ratios are expected to remain above
well-capitalized standards plus the required capital
conservation buffer.
Test Results” section on FHN’s investor relations website
on September 29, 2023. Neither FHN’s stress test posting,
nor any other material found on FHN’s website generally,
is part of this report or incorporated herein.
FHN anticipates that it will continue performing an annual
enterprise-wide stress test as part of its capital and risk
management process. Results of this test will be
presented to executive management and the Board.
The disclosures in this “Stress Testing” section include
forward-looking statements. Please refer to “Forward-
Looking Statements” for additional information
concerning the characteristics and limitations of
statements of that type.
extended to October 31, 2023. The 2021 program was not
further extended.
The 2021 program was not tied to any compensation plan.
Purchases could 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 were subject to
various factors, including FHN's capital position, financial
performance, expected capital impacts of strategic
initiatives, market conditions, business conditions, and
regulatory considerations. FHN did not purchase shares
under this program during blackout periods when senior
executives were prohibited from purchasing FHN stock on
the open market.
As of expiration at October 31, 2023, $401 million in
purchases had been made under the 2021 program at an
average price per share of $16.60, or $16.58 excluding
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ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
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commissions. The pendency of the TD Transaction
resulted in no purchases under the 2021 program since
the Transaction was announced in 2022. No additional
Table 7.20a
purchases were made under the 2021 program in 2023
before it expired.
COMMON STOCK PURCHASES—2021 GENERAL PROGRAM
(Dollar values and volume in thousands,
except per share data)
2023
October 1 to October 31
November 1 to November 30
December 1 to December 31
Total
Total number
of shares
purchased
Average price
paid per share
(a)
Total number of
shares purchased
as part of publicly
announced programs
Maximum approximate
dollar value that may
yet be purchased under
the programs (b)
—
—
—
—
N/A
N/A
N/A
N/A
— $
—
—
—
598,646
—
—
(a) Represents total costs including commissions paid
(b) For October, value given as of immediately prior to program expiration on October 31, 2023.
2024 General Purchase Program
On January 23, 2024, FHN announced that its Board of
Directors approved a new $650 million common share
purchase program that is scheduled to expire on January
31, 2025. The 2024 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
are subject to various factors, including FHN's capital
position, financial performance, expected capital impacts
of strategic initiatives, market conditions, business
conditions, and regulatory considerations. FHN does not
purchase shares under this program during blackout
periods when senior executives are prohibited from
purchasing FHN stock on the open market.
2004 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 compensation
plans for which the share purchase authority had expired.
The primary objectives of this program were to mitigate
dilution resulting from shares issued in connection with
FHN's various stock-based compensation plans, and to
implement automatic stock purchases related to tax
withholding obligations associated with stock-based
awards. For many years, the program was used entirely
for the second objective.
The total amount authorized under this consolidated
compensation plan share purchase program was
29.6 million shares calculated before adjusting for stock
dividends distributed through January 1, 2011. The
authorization was reduced for that portion which related
to compensation plans for which no stock option awards
remain outstanding. The program expired on
December 31, 2023. Prior to expiration, purchases could
have been made in the open market or through privately
negotiated transactions and were subject to various
factors including FHN's capital position, financial
performance, capital impacts of strategic initiatives,
market conditions and regulatory considerations.
However, as mentioned above, even though general
repurchases were authorized, for many years FHN's use of
this program was limited to automatically withholding
shares associated with vested stock awards to cover tax
obligations.
As of December 31, 2023, immediately prior to expiration,
the maximum number of shares that could be purchased
under the program was 22 million shares.
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Table 7.20b
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
COMMON STOCK PURCHASES—2004 COMPENSATION PLANS PROGRAM
(Volume in thousands, except per share
data)
2023
October 1 to October 31
November 1 to November 30
December 1 to December 31
Total
Total number
of shares
purchased
Average price
paid per share
Total number of
shares purchased
as part of publicly
announced programs
Maximum number
of shares that may
yet be purchased
under the programs (a)
31 $
1
23
55 $
10.71
11.74
13.35
11.82
31
1
23
55
21,724
21,723
21,700
(a) For December, number given as of immediately prior to program expiration on December 31, 2023.
Automatic Off-Market Tax Withholding Purchases
The 2004 compensation plans program has not been
renewed or replaced with a formal program. After 2023,
as authorized by FHN's Board and the Board's
Compensation Committee, FHN will continue to make
automatic stock purchases by withholding shares
associated with stock-based awards to cover tax
Risk Management
FHN derives revenue from providing services and, in many
cases, assuming and managing risk for profit which
exposes FHN to strategic, 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 Risk Appetite Statement 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 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 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.
obligations associated with those awards. Those limited,
off-market purchases no longer will be connected to a
traditional, announced purchase program. As has been
true in the past, automatic tax withholding purchases are
not subject to trading blackouts which affect senior
executives or the general purchase program.
1. Specific Risk Committees: The Board has delegated
authority to the Chief Executive Officer to manage
Strategic Risk and Reputational 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 reputational 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
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practices in relation to those standards. Additionally,
risk management proactively works with business units
and senior management to focus management on key
risks in FHN and emerging trends that may change
FHN’s risk profile. The Chief Risk Officer has overall
responsibility and accountability for enterprise risk
management and aggregate risk reporting.
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. Business units have designated control
processes to help mitigate their identified risks and
business units attest to the effectiveness of those
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 23 - 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 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,
controls. The risk governance structure supports and
promotes the escalation of material items to executive
management and the Board.
Independent Assurance Functions: Internal Audit,
Credit Assurance Services (CAS), 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 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 7.21
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, 2023
Mean
High
Low
As of
December 31, 2023
3 $
6
4 $
8
2 $
3
8
24
11
34
4
12
3
6
10
28
Year Ended December 31, 2022
Mean
High
Low
As of
December 31, 2022
2 $
5
4 $
7
2 $
4
8
24
11
34
3
18
3
6
10
29
FHN’s overall VaR measure includes both interest rate risk and credit spread risk. Separate measures of these component risks
are as follows:
Table 7.22
(Dollars in millions)
Interest rate risk
Credit spread risk
SCHEDULE OF RISKS INCLUDED IN VaR
As of December 31, 2023
As of December 31, 2022
1-day
10-day
1-day
10-day
$
1 $
1
2 $
1
1 $
1
3
2
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, Net Interest Income 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, 2023,
NII exposures over the next 12 months assuming rate
shocks of plus/minus 25 basis points, plus/minus 50 basis
points, plus/minus 100 basis points, and plus 200 basis
points are estimated to have variances as shown in the
table below.
Table 7.23
INTEREST RATE SENSITIVITY
Shifts in Interest Rates
(in bps)
% Change in Projected Net
Interest Income
-100
-50
-25
+25
+50
+100
+200
(3.6)%
(1.7)%
(0.9)%
0.7%
1.4%
2.6%
3.3%
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 0.4%. 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 0.5%. 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.
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Short-term interest rates have reached their highest levels
in 15 years, which coupled with market disruption from
recent high profile bank failures, has increased
competitive pressures on deposit costs.
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 yield curve was inverted for much of the last half of
2022, and throughout 2023. The inverted yield curve
indicates market expectations that short-term rates have
likely peaked and then could decline in future periods.
Market participants are now projecting multiple rate cuts
in 2024 while the December 2023 Fed Dot plot has
indicated three 25 basis point cuts in 2024. FHN continues
to monitor current economic trends and potential
exposures closely. For additional information, see Yield
Curve within Market Uncertainties and Prospective Trends
below.
Fair Value Shock Analysis
Interest rate risk and the slope of the yield curve also
affect the fair value of FHN's trading inventory that is
reflected in noninterest income.
Generally, low or declining interest rates with a positively
sloped yield curve tend to increase income through higher
demand for fixed income products. Additionally, the fair
value of FHN's trading inventory can fluctuate as a result
of differences between current interest rates and the
interest rates of fixed income securities in the trading
inventory.
Derivatives
In the normal course of business, FHN utilizes various
financial instruments (including derivative contracts and
credit-related agreements) to manage the risk of loss
arising from adverse changes in the fair value of certain
financial instruments generally caused by changes in
interest rates, including FHN's securities inventory, certain
term borrowings, and certain loans. Additionally, FHN may
enter into derivative contracts in order to meet clients'
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
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
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 21 - Derivatives for additional
discussion of these instruments.
LIBOR & Reference Rate Reform
In March 2022, Congress passed the Adjustable Interest
Rate (LIBOR) Act. The legislation addresses loans that
remained on LIBOR as of the June 30, 2023 cessation date,
and that either have no fallback provisions or that contain
fallback provisions that do not identify a specific
benchmark replacement. Per the legislation, at the final
cessation of USD LIBOR, banks may cause such loans to fall
back to a SOFR-based benchmark rate, with such rate to
be selected by the Federal Reserve Board. The LIBOR Act
also provides safe harbor from liability for banks that
select the Board-selected replacement benchmark rate at
the cessation of LIBOR.
In December 2022, the Federal Reserve Board issued
Regulation ZZ, its final rule to implement the Adjustable
Interest Rate (LIBOR) Act.
FHN has complied with the terms of the LIBOR Act and
Regulation ZZ and amended substantially all of its
contracts away from LIBOR as of June 30, 2023. For most
financial products, the most common alternative
reference rates have been SOFR-based benchmarks. This
is true for both new originations and legacy LIBOR
contracts that were subject to amendment or a transition
by their terms.
committee reviews sources and uses of capital, key capital
ratios, segment economic capital allocation
methodologies, coordinates the annual enterprise-wide
stress testing process, and considers 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 Risk Committee of the Board as necessary.
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
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• Compliance/Legal (including Bank Secrecy Act)
• Program Governance
• Fiduciary
• Security/Fraud
• Financial (including disclosure controls and
procedures)
• Information Technology (including cybersecurity; see
the next section below)
• Model
• Vendor
• Insurance
Management, measurement, and reporting of operational
risk are overseen by the Operational Risk, Fiduciary,
Cybersecurity Risk Management
Overview
As mentioned immediately above, FHN's operational risk
function is divided into several risk areas. Each area has
been established at the corporate level to address risks in
that area across the entire organization. One of those
areas—information technology ("IT") risk—includes
cybersecurity risk management.
As FHN manages it, IT risk includes cybersecurity risk,
which in turn includes the risks from cyber fraud, cyber
theft, cyber vandalism, cyber ransom, data and system
security, and other unauthorized incursions into FHN's IT
systems. IT risk management also includes IT system
reliability, data integrity, IT aspects of regulatory
compliance, and risks associated with the use of artificial
intelligence tools and systems. The discussion in this
section focuses on cybersecurity. Additional information
on this topic is presented in Cybersecurity Risks within
Item 1A beginning on page 33.
Key Cybersecurity Risk Management Goals
Cybersecurity risk management has two primary goals:
defend FHN and its clients from fraudulent and other
unauthorized incursions; and, when an incursion happens,
detect and respond as soon as practical. The optimal
cybersecurity program will defend as much as is practical
while also detecting rapidly those incursions that get
through.
Management Structure & Key Processes
Operational risk is managed by FHN's Operational Risk
("Op Risk") Committee. Members of the Op Risk
Committee include senior-level representatives from
these teams or departments: Enterprise Risk
Management, Operations, Model Risk, Enterprise Data,
Enterprise Technology, Enterprise Technology Risk
Management, Credit and Credit Risk Management, Legal,
Security, Internal Audit, Deposit & Loan Operations, Retail
and Digital Banking, Regional Bank Products, Mortgage
Banking, Accounting, and Fixed Income/Bond Trading. The
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 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.
Op Risk Committee reports to FHN's Management Risk
Committee, which is headed by FHN's Chief Risk Officer,
who reports to FHN's Chief Executive Officer.
IT risk is managed by the IT Risk Working Group, overseen
by the Op Risk Committee. The IT Risk Working Group
meets quarterly to discuss emerging cyber risks,
regulatory changes, vendor risk, audits, and outstanding-
issue resolution. The Group also provides updates to the
Op Risk Committee on IT aspects of compliance, policies,
and security standards. Members of the IT Risk Working
Group include the head of Enterprise Technology along
with personnel from nearly all of the teams and
departments represented in Op Risk.
FHN also has a Cybersecurity Working Group. The
Cybersecurity Working Group, which is outside of the risk
management hierarchy, meets quarterly. Its primary
functions are to provide cybersecurity awareness to the
executive leadership team and to provide high-level
support if a significant cybersecurity event occurs. In
connection with awareness, (a) external vendors,
consultants, law enforcement, and other persons are
invited to speak on industry-wide cybersecurity topics to
provide an independent view of external threats facing
the industry; and (b) members of the Enterprise
Technology team provide updates regarding how FHN is
addressing current risks and threats. The Cybersecurity
Working Group includes: FHN's CEO; the heads of FHN's
banking segments; the heads of Risk Management,
Enterprise Technology, Security, Operations, and Legal;
and senior personnel in the other teams and departments
represented in the IT Risk Working Group.
Key leaders within these committees and groups and for
these processes are FHN's Chief Information Officer and
Chief Information Security Officer. The Chief Information
Officer has substantial banking, IT, and related experience:
had roles at FHN since 2009 related to IT and data systems
culminating in CIO since 2020; prior to joining FHN, had
roles at a large regional bank, including technology leader
of the bank's electronic payments platform related to
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treasury management and enterprise IT architect; and,
earned an MS in computer science as well as an MBA. The
Chief Information Security Officer has over twenty years
of banking, IT, and related experience: oversees
information security and many related systems and
processes; has established risk-based security programs to
meet regulatory requirements and align with business
needs; and has implemented numerous data protection,
data access, and identity management systems.
FHN has a written Computer Security Incident Response
Plan ("CSIRP") outlining FHN's incident response and
communication processes. FHN's Chief Information
Security Officer or certain other managers have the
authority to initiate the execution of the CSIRP if an
incident occurs. A working group called the Computer
Security Incident Response Team has primary
responsibility to implement or coordinate many of the
CSIRP actions, along with FHN's IT Risk Working Group.
Key goals of the CSIRP are to: contain, remediate, and
recover; mitigate impact on FHN and clients; report
findings to Op Risk and other senior management; and
manage external communications. The Cybersecurity
Working Group is informed of incidents that appear to
have a significant risk of becoming material.
FHN engages third party vendors to conduct several
periodic cybersecurity reviews: Network Penetration
testing; Cyber Security Maturity Assessment; Red Team
(simulated cyber attack) testing; SOX (financial reporting
controls and data integrity) testing; and, PCI-DSS
(proprietary data security standard for payment systems)
attestation of compliance and SOC 1 Type II reports
(attesting to the design and operation of cybersecurity
systems) for lockbox and electronic bill pay. The frequency
of these reviews ranges from several times per year to
every three years. FHN also has a cybersecurity incident
specialty firm on retainer for incident response, as
needed.
FHN has a dedicated Third-Party Risk Management (TPRM)
department reporting to the Chief Risk Officer. TPRM
engages the IT Risk Working Group to perform
cybersecurity assessments for new vendors during
onboarding, re-assessments of existing vendors on a risk-
based cadence, and continuous monitoring of critical
third-parties.
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
Board Oversight
The Board's Risk Committee oversees all risk management
functions for the enterprise, including op risk, IT risk, and
cybersecurity risk. The Board's Information Technology
Committee oversees management of FHN's IT systems,
including their adequacy now and in the future, and their
security. In relation to cybersecurity risk management, the
functions of the two Committees overlap to an extent.
The Risk Committee, as well as the full Board, each
quarter receive a risk management update from FHN's
Chief Risk Officer. Each update includes a written
presentation covering all major risk areas, including op
risk, and each is supported by a detailed Enterprise Risk
Report which is available to all directors. Major topics in
the op risk portion of the Enterprise Risk Report each
quarter include fraud and related incidents; process
management, which includes many processes related to
cybersecurity defenses; and information security, which
addresses core cybersecurity processes and incidents.
Tactical, Operational & Other Impacts
The measures FHN takes to manage cybersecurity risk
affect how associates and clients use FHN's platforms and
systems. For every safeguard considered or implemented,
FHN must weigh potential and actual inconveniences
against security concerns. Practical realities make it
impossible to maximize security and ignore resulting
restrictions on the ability of associates and clients to
conduct banking and financial business. Primarily for that
reason, cybersecurity risks are and will be a major risk
management concern, and losses from incursions will be
impossible to avoid. As mentioned above, FHN's goals are
to prevent what can be prevented, and detect and
respond to incursions that get through as quickly as
possible.
For those incursions that are not blocked, FHN's processes
are designed to detect them quickly enough so that the
financial and operational impact on FHN is zero or modest.
But the risk of a major incursion occurring cannot be
reduced to zero. A major incursion could have a material
financial impact on FHN's business operations and
earnings.
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 and internal audit results and
evaluation of emerging compliance risk areas.
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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 (CRMC) 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 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
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. After the banking crisis in the first half
of 2023, ALCO and the Board examined the liquidity risk
management framework and policies to ensure alignment
with evolving regulatory expectations, industry best
practices, and the company’s risk appetite. The
maintenance of adequate levels of asset and liability
liquidity should provide FHN with the ability to meet both
expected and unexpected cash and collateral needs. Key
liquidity ratios, asset liquidity levels, and the amount
available from funding sources are reported to ALCO on a
regular basis. FHN’s Liquidity Policy establishes liquidity
limits that are deemed appropriate for FHN’s risk profile.
experts are providing oversight, support and credit
approvals, particularly in the specialty lending areas where
industry-specific knowledge is required. Management
emphasizes general portfolio servicing such that emerging
risks are able to be spotted early enough to correct
potential deficiencies, prevent further credit
deterioration, and mitigate credit losses.
The Credit Risk Management function assesses the asset
quality trends and results, as well as lending processes,
adherence to underwriting guidelines (portfolio-specific
underwriting guidelines are discussed further in the Asset
Quality Trends section), and utilizes this information to
inform management regarding the current state of credit
quality and as a factor of the estimation process for
determining the allowance for 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 Risk Committee of the
Board. CAS is charged with providing the 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.
In accordance with the Liquidity Policy, ALCO manages
FHN’s exposure to liquidity risk through a dynamic, real
time forecasting methodology. Base liquidity forecasts are
reviewed by ALCO and are updated as financial conditions
dictate. In addition to the baseline liquidity reports, robust
stress testing of assumptions and funds availability are
periodically reviewed. FHN maintains a contingency
funding plan that may be executed should unexpected
difficulties arise in accessing funding that affects FHN, the
industry, or both. As of December 31, 2023, available
liquidity sources included cash, incremental borrowing
capacity at the FHLB, access to Federal Reserve Bank
borrowings through the discount window and the Bank
Term Funding Program, and unencumbered securities.
Additional sources of liquidity included dealer and
commercial customer repurchase agreements, access to
the overnight and term Federal Funds markets, brokered
deposits, loan sales, and syndications. The FRB Bank Term
Funding Program will expire on March 11, 2024. The table
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below details FHN’s sources of available liquidity at
December 31, 2023.
Table 7.24
(Dollars in
millions)
Cash on
deposit with
FRB (a)
FHLB
FRB:
Discount
Window
BTFP
Unencumbered
securities (b)
AVAILABLE LIQUIDITY
as of December 31, 2023
Total
Capacity
Outstanding
Borrowings
Available
Liquidity
$
1,201 $
— $
1,201
9,352
23,417
834
812
—
—
—
—
9,352
23,417
834
812
Total Available Liquidity
$
35,616
(a) Included in interest-bearing deposits with banks on the
Consolidated Balance Sheets.
(b) Subject to market haircuts on collateral.
Generally, a primary source of funding for a bank is core
deposits from the bank's client base. The period-end
loans-to-deposits ratio was 93% and 92% as of
December 31, 2023 and December 31, 2022, respectively.
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. As of December 31,
2023, FHN had outstanding $797 million in senior and
subordinated unsecured debt and $520 million in non-
cumulative perpetual preferred stock. As of December 31,
2023, First Horizon Bank and subsidiaries had outstanding
preferred shares of $295 million, which are reflected as
noncontrolling interest on the Consolidated Balance
Sheets.
Parent company liquidity is primarily provided by cash
flows stemming from dividends and interest payments
collected from subsidiaries. These sources of cash
represent the primary sources of funds to pay cash
dividends to shareholders and principal and interest to
debt holders of FHN. The amount paid to the parent
company through First Horizon Bank common dividends is
managed as part of FHN’s overall cash management
process, subject to applicable regulatory restrictions.
Certain regulatory restrictions exist regarding the ability of
First Horizon Bank to transfer funds to FHN in the form of
cash, common dividends, loans, or advances. At any given
time, the pertinent portions of those regulatory
restrictions allow First Horizon Bank to declare preferred
or common dividends without prior regulatory approval in
an aggregate amount equal to First Horizon Bank’s
retained net income for the two most 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 $1.2 billion as of January 1, 2024.
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.
In March 2022, FHN agreed to suspend the Dividend
Reinvestment Plan in connection with the TD Transaction.
During the suspension period, dividend payments of FHN
are not automatically reinvested in additional shares of
FHN common stock and participants in the Plan are not
able to purchase shares of FHN common stock through
optional cash investments under the Plan.
First Horizon Bank declared and paid common dividends
to the parent company in the amount of $220 million in
2023 and $435 million in 2022. In January 2024, First
Horizon Bank declared and paid a common dividend to the
parent company in the amount of $310 million. First
Horizon Bank declared and paid preferred dividends in
each quarter of 2023 and 2022. Additionally, First Horizon
Bank declared preferred dividends in first quarter 2024,
payable in April 2024.
Payment of a dividend to shareholders of FHN is
dependent on several factors which are considered by the
Board. These factors include FHN’s current and
prospective capital, liquidity, and other needs, applicable
regulatory restrictions (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.
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FHN paid a cash dividend of $0.15 per common share on
January 2, 2024. FHN paid cash dividends of $1,625 per
Series E preferred share and $1,175 per Series F preferred
share on January 10, 2024 and $331.25 per Series B
preferred share and $165 per Series C preferred share on
February 1, 2024. In addition, in January 2024, the Board
approved cash dividends per share in the following
amounts:
Table 7.25
CASH DIVIDENDS APPROVED BUT NOT PAID
Common Stock
Preferred Stock
Series C
Series D
Series E
Series F
$
$
$
$
$
Dividend/
Share
Record Date
Payment Date
0.15
3/15/2024
4/1/2024
165.00
4/16/2024
305.00
4/16/2024
5/1/2024
5/1/2024
1,625.00
3/26/2024
4/10/2024
1,175.00
3/26/2024
4/10/2024
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 7.26
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. Based on its available liquidity and
available borrowing capacity, FHN anticipates it will
continue to have sufficient funds to meet its current
commitments. See Note 16 - Contingencies and Other
Disclosures for more information.
Contractual Obligations
The following table sets forth contractual obligations
representing required and potential cash outflows as of
December 31, 2023. 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, 2023
(Dollars in millions)
Contractual obligations:
Time deposit maturities (b) (c)
Short-term borrowings (b) (d)
Term borrowings (b) (e)
Annual rental commitments under noncancelable leases
(b) (f)
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
$
6,528 $
194 $
75 $
7 $
3,058
6
44
—
350
85
224
9,860 $
$
120
749 $
—
—
76
30
181 $
—
812
204
3
1,026 $
6,804
3,058
1,168
409
377
11,816
(a) Excludes a $15 million liability for unrecognized tax benefits as the timing of payment cannot be reasonably estimated.
(b) Amounts do not include interest.
(c) See Note 8 - Deposits for further details.
(d) See Note 9 - Short-Term Borrowings for further details.
(e) See Note 10 - Term Borrowings for further details.
(f) See Note 5 - 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
directly tied to FHN’s credit ratings as are 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
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core deposit funding is stabilized by federal deposit
insurance, which can be removed only in extraordinary
circumstances, but may also be influenced to some extent
by the same factors that affect other funding sources.
FHN’s credit ratings are also referenced in various respects
in agreements with certain derivative counterparties as
discussed in Note 21 - Derivatives.
The following table provides FHN’s most recent credit
ratings:
Table 7.27
First Horizon Corporation
CREDIT RATINGS
Moody's (a)
Fitch (b)
Overall credit rating: Long-term/Short-term/Outlook
Baa3/--/NEG
BBB/F2/Stable
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/NEG
BBB/F2/Stable
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. Outlook changed to negative (“NEG”) and ratings affirmed on May 5, 2023.
(b) Last change in ratings was on May 6, 2020. Outlook changed to stable (“Stable”) and ratings affirmed on May 5, 2023.
(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 16 - 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
Repurchase and Foreclosure Liability
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.
As discussed in Note 16 - Contingencies and Other
Disclosures, FHN's repurchase and foreclosure liability,
primarily related to its pre-2009 mortgage origination,
sale, securitization, and servicing businesses, is comprised
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of accruals to cover estimated loss content in the active
pipeline, estimated future inflows, and estimated loss
content related to certain known claims not currently
included in the active pipeline. The active pipeline consists
of mortgage loan repurchase and make-whole demands
from loan purchasers or securitization participants,
foreclosure/servicing demands from borrowers, and
certain related exposures. 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 cancellation 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 total repurchase and
foreclosure liability, which includes both the legacy
pre-2009 business and the current mortgage business,
was $16 million as of both December 31, 2023 and 2022.
Market Uncertainties and Prospective Trends
FHN’s future results could be affected both positively and
negatively by several known trends. Key among those are
changes in the U.S. and global economy and outlook,
government actions affecting interest rates, and
government actions and proposals which could have
positive or negative impacts on the economy at large or
on certain businesses, industries, or sectors. Additional
risks relate to 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.
In addition to trends and events noted elsewhere in this
MD&A, FHN believes the following trends and events are
noteworthy at this time.
Inflation, Recession, and Federal Reserve Policy
Economic Overview
The post-COVID economy in the U.S. has been marked by:
strong inflation, which began in 2021, peaked in 2022, and
abated, though not fully, in 2023; the Federal Reserve
implementing a "tightening" policy in 2022 to contain
inflation by rapidly increasing short-term interest rates
and ending asset purchases; low unemployment rates;
moderate economic growth; and a profoundly inverted
yield curve in 2022 and 2023. Key aspects were:
• Although the U.S. economy flirted with recession in
2022, it did not officially enter one. In 2023 recession
expectations moderated significantly. Early in 2024,
recession expectations for the rest of this year
generally are low.
• The rise in short-term interest rates by the Federal
Reserve in 2022 was both rapid and substantial, taking
the overnight Fed Funds rate from 0.20% in March
2022 to 4.65% a year later. Hikes after that were much
more modest and infrequent.
• In response to 2022's extremely rapid and vigorous
tightening of monetary policy, the inflation rate in the
U.S. now is well below 2022's levels. However, many
measures of inflation remain higher than the Federal
Reserve's stated long-term goal of 2%.
• Early in 2024 the Federal Reserve has signaled that
hikes have ended and that a short term rate cut might
become appropriate. No policy or timing commitments
have been made. Future actions continue to depend
upon future data. Some concern remains that recent
inflation data, which has been good, may prove to be
transitory.
• Monetary tightening often creates yield curve
inversion for a time. In the current cycle, traditional
inversion (when ten-year treasury rates are below two-
year rates) has been both very deep and unusually
sustained, with the current inversion having begun in
the summer of 2022.
• Many factors likely contributed to the current
sustained inversion. The immediate cause, of course,
was that demand for long-term treasury debt
remained high, depressing yields, even though short
yields were higher. FHN believes that a significant
factor behind that demand preference in 2023 was
continuing market expectations that the Federal
Reserve would start to reduce short-term rates "soon"
in order to avoid or mitigate a recession. Early in 2024,
Federal Reserve communications suggest that no rate-
cut action is likely "soon".
• A short-term rate cut by the Federal Reserve should
lessen inversion, but only if long-term rates do not
likewise drop.
Key events and circumstances are noted in the following
discussions.
Federal Reserve and Rates
The Federal Reserve raised short-term rates several times
in 2022 and in the first part of 2023. All but one of the
raises in 2022 were 75 and 50 basis points each—
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aggressive by historical standards—while the 2023 raises
were the more-typical 25 basis points each. The Federal
Reserve has expressed its intent to bring inflation under
control even at the risk of creating or deepening an
economic recession. The Federal Reserve has indicated
that future decisions will be heavily impacted by economic
data, especially inflation-rate and -trend data, available at
each decision point. Most recently the Federal Reserve
has indicated, based on late-2023 data, an expectation
that its next action, at an unspecified future point, will be
a rate cut.
FHN cannot predict exactly when or how much short-term
rates will be changed, how market-driven long-term rates
will behave, nor how those actions may affect financial
markets, during 2024.
Yield Curve
Unusual yield curve effects, including inversion, are
common when monetary policy changes. A traditional
measure of inversion occurs when the two-year U.S.
Treasury rate is higher than the ten-year rate. Traditional
inversion has been sustained continuously since the
summer of 2022, an unusually long period. The degree of
inversion has varied during that period, but generally has
been much deeper than is typical. Sustained traditional
yield curve inversion is viewed, with statistical support, as
a harbinger of economic recession, but recession has not
yet occurred and the U.S. economy currently does not
appear close to entering one.
The most recent period with deep and longer-lasting
inversion was over 40 years ago. That 4-5 year period was
marked by stagflation (low economic growth coupled with
high inflation), followed by extremely robust interest rate
hikes and a severe recession.
Yield curve flattening and inversion generally reduces the
profit FHN can make from lending by compressing FHN's
net interest margin, and also generally reduces FHN's
revenues from bond trading. These impacts have occurred
and are continuing during the current inversion. Refer to
Interest Rate & Yield Curve Risks, located in Item 1A. Risk
Factors beginning on page 44, for a discussion of the risks
to FHN associated with flattening and inversion.
Recession
The U.S. economy contracted (experienced negative
growth) during the first two quarters of 2022, in both
cases modestly. Although two consecutive quarters of
contraction often coincides with recession, in 2022 it did
not. The economy expanded in each quarter since then.
Recession expectations in the U.S. were high in 2022 and
first quarter 2023. They moderated significantly after that.
Current recession expectations generally are low.
Banking Crisis
In March 2023, two large regional U.S. banks failed after
sudden large deposit outflows, and a major Swiss bank
was acquired by another bank at the behest of regulators.
In the aftermath of the two U.S. failures, bank investors
and clients across the U.S. became more focused on
deposit mix, funding risk management, and other safety-
soundness concerns. The market values of virtually all U.S.
bank stocks fell quickly and strongly in March, with a few
falling about 90%.
Following these failures, the media published stories
about actual and possible bank runs by depositors. Most
U.S. banks saw net outflows of deposits in 2022 and early
2023 as the impacts of COVID-19 crisis programs faded
and rates available from non-bank-account investments
improved. According to Federal Reserve data, starting in
mid-March, the two failures triggered an abrupt and
substantial net deposit outflow from all but the largest
U.S. banks. The March crisis shock was short-lived,
however. During the final week of March both large and
small U.S. banks collectively experienced net inflows of
deposits, roughly mirroring the first week of March,
before the crisis emerged.
The two U.S. bank failures resulted in Congressional calls
for higher regulation of mid-sized regional banks,
especially for those with $100 billion or more of assets.
In early May a third large regional U.S. bank failed after
experiencing very large deposit outflows in March.
Although this failure was widely anticipated, volatility in
regional bank stocks reappeared in May. By June bank-
stock volatility had abated again, but with regional bank
prices well below pre-crisis levels.
The three failed U.S. banks had a few characteristics that
FHN believes were significant negative factors
contributing to loss of confidence by depositors, in
addition to having an unusual customer mix: well-above-
median levels of deposits not covered by FDIC insurance;
significant portions of the 2020-21 pandemic deposit
inflows invested in longer-term fixed-rate debt securities;
and very high (in relation to regulatory capital) market
value losses on those investments when rates rose in 2022
and early 2023. These factors made those banks
unusually susceptible to a cascade of negative effects
when deposit levels diminished, for the entire industry,
starting in 2022 as customers sought better returns in the
rising rate environment.
Market Volatility & Valuations
As a result of the prospects for recession, coupled with the
uncertainties associated with war in eastern Europe,
financial markets world-wide were volatile during much of
2022. Volatility overall has moderated somewhat in 2023,
but volatile episodes have continued. War in the Middle
East that started in October 2023 had a much more muted
financial impact than was true in 2022.
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Financial asset values broadly fell in 2022, especially
during the second and third quarters. By mid-year 2023,
broad stock indices largely had recovered from 2022's low
points, but longer-term fixed-rate debt investments
remained well below previous values. By year-end 2023,
stock values in most (but not all) sectors had recouped
much of their earlier losses, and debt investment values
generally improved somewhat from their lows when long-
term rates fell in anticipation of possible short-term rate
cuts in 2024 by the Federal Reserve.
Impacts on FHN
In 2022, FHN benefited significantly from rising rates as
the rise in lending rates outpaced the rise in deposit and
other funding rates. In the first quarter of 2023, that
outpacing ended, and FHN's net interest margin started to
compress. FHN was able to reverse the compression
during the year fueled in part by using increased deposits
and capital to reduce borrowings. Going forward, although
net interest margin levels may improve modestly while
short term rates remain steady, margins are not likely to
improve appreciably until the yield curve inversion
mentioned above has ended and the curve takes at least a
moderately steep slope.
In 2022 and early 2023, FHN experienced a normalization
of deposit levels since first quarter 2020 as it allowed
surge deposits resulting from COVID-driven stimulus
programs to move off its balance sheet. Net deposit
outflows ranged from roughly $2.0 to $4.0 billion in each
of the last three quarters of 2022, and fell again by
roughly $2.5 billion in first quarter 2023. That outflow
trend ended in second quarter as FHN had net deposit
inflows of $4.0 billion. For the year 2023, net deposits
Other Regulatory Proposals
In 2023 the Board of Governors of the Federal Reserve
and other regulators proposed regulatory changes that
would, if implemented, significantly increase regulatory
constraints and costs on all U.S. banks with assets over
$100 billion. A few new requirements would apply to
banks, like FHN, with assets over $50 billion, but by far the
main impacts would fall on banks greater than $100 billion
in assets.
The proposals touch upon many regulatory requirements,
including debt and equity capital requirements, credit risk
standards, asset risk-weighting, and resolution planning.
The increased requirements also would entail additional
compliance costs.
The triggering of significant cost increases based on a
single threshold financial measure—$100 billion in assets
—has been in place for many years and has impacted the
U.S. banking industry. Compliance restrictions and costs
increase as the threshold is approached but a step-up
increased over $2 billion. However, FHN increased deposit
rates appreciably in 2023, particularly in May and June.
The May and June 2023 deposit inflows mainly consisted
of ordinary accounts with "promo" rates, and of
certificates of deposit, or CDs, with very attractive fixed
rates. The promo rates ended late in 2023, and a large
group of those CDs matured during that time. A challenge
for FHN is to retain as many of those deposit dollars, and
depositor customers, as is reasonably practical while
moderating the rates FHN pays.
In addition, some of FHN's businesses have been
negatively impacted by rising rates. Rate increases have
pushed home mortgage rates in the U.S. much higher than
in early 2022, reducing demand. FHN's direct mortgage
lending and lending to mortgage companies saw business
decline significantly in 2022 and 2023. Moreover, FHN's
revenues from bond trading and related activities fell
significantly in 2022 and 2023 due to rising rates coupled
with elevated market volatility.
A recession, if one were to occur, likely would have a
negative impact on FHN's businesses overall. Demand for
loans likely would fall, loan losses and provision expense
likely would rise, many commercial activities that generate
fee income likely would decline, and competition for
clients likely would sharpen. FHN already has experienced
some of these impacts. The deeper or longer a recession
lasts, the more significant these negative impacts are
likely to be for FHN. As mentioned above, recessionary
expectations have abated substantially since early 2023.
However, just as expectations in early 2023 proved to be
wrong, current expectations may be just as incorrect.
pattern remains. Banks near the threshold may be likely to
slow or even halt asset growth, at least for a period, and
start to implement the higher-level compliance systems.
Banks modestly over the threshold, in contrast, may be
likely to expand their asset base as quickly as possible to
generate additional revenues to cover those costs. Those
effects have added to the incentives for banks to
consolidate, and the proposed new rules are likely to
enhance that.
It appears likely that, if adopted as proposed, significant
parts of the proposals will be challenged in court as being
inconsistent with legislation enacted by Congress in 2018.
Such a challenge would be technical and complex, and
likely would take many years to resolve. Moreover, even if
a challenge of that sort were successful, many parts of the
proposals likely would remain intact and others might be
modified without being rescinded.
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Greenhouse Gas (GHG) Reporting Regimes
In October 2023 the state of California enacted two laws
which, taken together, will require most larger companies
doing business in California to report annually their
greenhouse gas ("GHG") emissions, with an external
assurance requirement, and to report biennially their
climate-related financial risks and risk-mitigation
measures. The U.S. Securities and Exchange Commission
("SEC") has proposed, but not yet adopted, rules that
would require all U.S. companies with publicly-traded
securities to report annually their GHG emissions. The
California laws include multi-year phase in periods and
encompass Scope 1, Scope 2, and Scope 3 GHG emissions.
The SEC proposal has Scope 1 and 2 reporting
requirements, along with Scope 3 requirements in certain
situations. The California governor stated in 2023 that the
new laws are likely to be subjected to technical
amendments in the next year or so. The SEC proposal is
not final and could change, perhaps substantially, when
adopted.
Three GHG Scopes
Scope 1 GHG emissions are those from a source the
company owns or controls directly, such as a
manufacturing plant. Scope 2 emissions are indirect
emissions from company activities, such as from power
consumed by company operations. Scope 1 and 2
emissions generally can be measured or estimated using
information a company normally can obtain without
significant external inquiry.
Scope 3 GHG emissions are those from sources and
activities that a company neither owns nor controls. Scope
3 emissions are from a wide range of sources that touch
upon a company, such as: vendors; employees
(commuting, business travel, etc.); and customers. Scope 3
information generally is unknown to a company without
significant external inquiry and/or estimation.
Potential Business Impacts
Direct compliance costs will include creating systems to
measure or estimate and capture relevant data, staffing,
and engagement of vendors, including a firm to provide
required assurances (somewhat analogous to a financial
statement auditor).
Coastal Market Growth and Rising Costs
FHN's principal markets are in the southern and
southeastern United States, including most of the major
gulf coast markets and several markets on the southern
Atlantic seacoast. Many of FHN's markets have
experienced significant population growth over at least
the past twenty years, outpacing the growth rate for the
U.S. as a whole. That population growth generally has
been accompanied by economic growth.
Potentially of more significance: California may require
inquiry of customers rather than merely estimation about
them. If FHN is allowed merely to estimate emissions from
customers, that process may be costly but would not
interfere with our business relationships. If, however, FHN
is required to support Scope 3 reporting by obtaining
GHG-related information from customers, including
customers that are not public companies and that do no
business in California, then the California disclosure laws
could interfere with FHN's business. In that case,
effectively FHN would be required to impose costs and/or
inconveniences on its customers. Other banks in FHN's
markets, particularly those that are private and not doing
business in California, could provide financial services
without those requirements, putting FHN at a competitive
disadvantage.
Potential & Actual Legal Challenges
The application of the California laws to companies
outside of California has been challenged in court, and
other challenges may be brought. Challenges from outside
the state have or may assert that the laws:
unconstitutionally burden interstate commerce,
unconstitutionally compel speech, or possibly violate
another constitutional protection or limitation. Current
and potential future challenges could take many years to
resolve. A key practical question will be whether the
courts impose a legal stay (a moratorium) on these laws
while challenges are pending.
Assuming the SEC adopts final regulations similar to those
proposed, it appears very likely that legal challenges will
be made based mainly on the fact that the SEC lacks
explicit Congressional authorization to create a regulatory
reporting regime pertaining to GHG emissions. As with the
California laws, a key question will be whether the courts
impose a stay on the rules while challenges are pending.
Assuming the SEC adopts final regulations similar to those
proposed, and further assuming that any legal challenge
leaves those rules entirely or largely intact, the California
laws might be challenged by public companies as having
been pre-empted by the SEC rules.
Many of FHN's fastest growing markets, including most
significantly those in Florida, can be impacted significantly
by hurricanes and other severe coastal weather events. As
those markets grow, FHN's economic commitment to
them grows, as does FHN's financial exposure to those
events.
In 2023 and this year it has been widely reported that the
economic costs of hurricane events in the U.S. gulf and
southern Atlantic coastal areas have been rising
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significantly. FHN believes that rising costs are directly
related to growth in those areas.
For example, much of the growth in Florida has been
along the coast moving out from older cities. A gulf coast
hurricane 50 or 60 years ago had a fair chance of making
landfall in a relatively unpopulated area. Now, the chances
of directly hitting a population center are much higher,
the average population in that center is much higher, and
the average value per building is much higher.
The reported significant increase in casualty risks and
costs is being reflected in property insurance practices
which currently are in significant flux. The insurance
industry is being forced to revise its risk assessment and
premium pricing practices in coastal areas as loss
experience has deviated from earlier predictions,
sometimes badly. In Florida, for example, some smaller
carriers have failed, some larger carriers have left markets,
and remaining carriers have significantly increased the
premiums of hurricane-related insurance, narrowed
coverage, or both.
Coastal states such as Florida and Louisiana have created
last-resort insurance pools for residents who cannot
obtain or afford private property insurance. However, as
the costs borne by those pools increase, either the
premiums will have to rise or general taxation will have to
cover the difference. In addition, those programs
generally do not help business clients.
State and local building and water-control codes are being
revised, but often unevenly and often not retroactive to
pre-existing structures and developments. The current
transition period could be lengthy.
The availability, reliability, and cost of adequate property
insurance is a significant concern for FHN as well as FHN's
clients in affected markets. Instability in property
insurance has made, and continues to make, FHN's
business decisions more difficult. That instability increases
FHN's risks of loan loss and business downturn.
More fundamentally, elevated insurance and casualty
costs blunt a key factor driving growth in many of these
high-growth markets: lower costs of living. If market
growth slows, FHN's business will be impacted.
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 the end of a loan’s and lease'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
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ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
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, 2023, FHN utilized Moody's
Baseline and S3 (adverse) scenarios for the calculation of
the ALLL. FHN placed the most weight on the Moody's
Baseline scenario but included the S3 scenario to reflect
the uncertainty of macroeconomic forecasts related to
ongoing economic conditions.
Due to the dynamic relationship of macroeconomic inputs
in modeling calculations, quantifying the effects of
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 pre-tax operating
income, the reversal of temporary differences, and the
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.
These hypothetical calculations resulted in an 8%
reduction and 24% increase, respectively, in ALLL in
comparison to the ALLL recorded at December 31, 2023,
inclusive of qualitative adjustments that are affected by
the weighting of forecast scenarios.
See Note 1 - Significant Accounting Policies and Note 4 -
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 14 - 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.
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ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
Contingent Liabilities
A liability is contingent if the amount or outcome is not
presently known, but may become known in the future as
a result of the occurrence of some uncertain future event.
FHN estimates its contingent liabilities based on
management’s estimates about the probability of
outcomes and their ability to estimate the range of
exposure. Accounting standards require that a liability be
recorded if management determines that it is probable
that a loss has occurred and the loss can be reasonably
estimated. In addition, it must be probable that the loss
will be confirmed by some future event. As part of the
estimation process, management is required to make
assumptions about matters that are by their nature highly
uncertain and difficult to estimate.
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
Accounting Changes
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 16 - 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.
Refer to Note 1 – Significant Accounting Policies for a
detail of accounting changes with extended transition
periods, a summary of accounting changes, and
accounting changes issued but not currently effective,
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, and tangible book value per common share. Table
7.28 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
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:
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ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
NON-GAAP TO GAAP RECONCILIATION
Table of Contents
Table 7.28
(Dollars in millions; shares in thousands)
Pre-provision Net Revenue (Non-GAAP)
Net interest income (GAAP)
Plus: Noninterest income (GAAP)
Total Revenues (GAAP)
Less: Noninterest expense (GAAP)
Pre-provision Net Revenue (Non-GAAP)
Tangible Common Equity (Non-GAAP)
(A) Total equity (GAAP)
Less: Noncontrolling interest (a)
Less: Preferred stock (a)
(B) Total common equity
Less: Goodwill and other intangible assets (GAAP) (b)
(C) Tangible common equity (Non-GAAP)
Less: Unrealized gains (losses) on AFS securities, net of tax
2023
2022
2021
$ 2,540
$ 2,392
$ 1,994
927
3,467
2,079
815
3,207
1,953
1,076
3,070
2,096
$ 1,388
$ 1,254
$
974
$ 9,291
$ 8,547
$ 8,494
295
520
8,476
1,696
6,780
(836)
295
1,014
7,238
1,745
5,493
295
520
7,679
1,809
5,870
(972)
(36)
(D) Adjusted tangible common equity (Non-GAAP)
$ 7,616
$ 6,465
$ 5,906
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
$ 81,661
$ 78,953
$ 89,092
1,696
1,745
1,809
$ 79,965
$ 77,208
$ 87,283
$ 8,905
$ 8,579
$ 8,479
295
758
7,852
1,720
295
935
7,349
1,777
295
506
7,678
1,836
$ 6,132
$ 5,572
$ 5,842
$
865
$
868
$
962
$ 71,074
$ 69,163
$ 64,183
558,839
537,101
533,577
(A)/(E) Total period-end equity to period-end assets (GAAP)
11.38 %
10.83 %
9.53 %
(C)/(F) Tangible common equity to tangible assets (Non-GAAP)
(D)/(J) Adjusted tangible common equity to risk weighted assets (Non-GAAP)
(I)/(G) Return on average common equity (GAAP)
(I)/(H) Return on average tangible common equity (Non-GAAP)
(B)/(K) Book value per common share (GAAP)
(C)/(K) Tangible book value per common share (Non-GAAP)
8.48
10.72
11.01
14.11
7.12
9.35
11.81
15.58
6.73
9.20
12.53
16.46
$ 15.17
$ 13.48
$ 14.39
$ 12.13
$ 10.23
$ 11.00
(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.
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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: 2023 MD&A (Item 7), which begins
on page 54 of this report; Note 21—Derivatives, which
begins on page 178 of this report; and Note 22—Master
Netting and Similar Agreements - Repurchase, Reverse
Repurchase, and Securities Borrowing Transactions, which
begins on page 185 of this report. Within 2023 MD&A,
these sections are especially pertinent to this Item 7A:
Market Risk Management and Interest Rate Risk
Management which begin, respectively, on pages 82 and
84 of this report. Notes 21 and 22 are part of our 2023
Financial Statements (Item 8).
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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Table of Contents
ITEM 8 TOPICS
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
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Note 1 Significant Accounting Policies
Note 2 Investment Securities
Note 3 Loans and Leases
Note 4 Allowance for Credit Losses
Note 5 Premises, Equipment, and Leases
Note 6 Goodwill and Other Intangible Assets
Note 7 Mortgage Banking Activity
Note 8 Deposits
Note 9 Short-Term Borrowings
Note 10 Term Borrowings
Note 11 Preferred Stock
Note 12 Regulatory Capital and Restrictions
Note 13 Components of Other Comprehensive Income (Loss)
Note 14 Income Taxes
Note 15 Earnings Per Share
Note 16 Contingencies and Other Disclosures
Note 17 Retirement Plans and Other Employee Benefits
Note 18 Stock Options, Restricted Stock, and Dividend Reinvestment Plans
103
104
108
109
111
112
113
115
115
128
131
140
143
146
147
148
149
150
152
154
156
157
161
162
164
169
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2023 FORM 10-K ANNUAL REPORT
Table of Contents
ITEM 8 TOPICS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 19 Business Segment Information
Note 20 Variable Interest Entities
Note 21 Derivatives
Note 22 Master Netting and Similar Agreements - Repurchase, Reverse Repurchase, and Securities
Borrowing Transactions
Note 23 Fair Value of Assets and Liabilities
Note 24 Parent Company Financial Information
172
175
178
185
187
202
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2023 FORM 10-K ANNUAL REPORT
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, 2023. 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, 2023.
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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Table of Contents
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, 2023, 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, 2023, 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, 2023 and 2022, 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, 2023, and the related notes (collectively, the consolidated financial statements), and our report
dated February 22, 2024 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
February 22, 2024
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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, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations
and its cash flows for each of the years in the three-year period ended December 31, 2023, 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, 2023, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated February 22, 2024 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
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 4 to the consolidated financial statements, the Company’s total allowance for loan losses
as of December 31, 2023 was $773 million, of which a portion related to the allowance for loan losses for loans
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 internal and
external information relating to past events, current conditions, and reasonable and supportable forecasts of future
conditions that affect the collectability of future cash flows. 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
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OPINION ON CONSOLIDATED FINANCIAL STATEMENTS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
default (EAD), including amortization and prepayment assumptions, on an undiscounted basis. The Company uses
models or assumptions to develop expected loss forecasts, inclusive of qualitative adjustments that are affected by
the weighting of multiple macroeconomic forecast scenarios 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, 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 selection of the economic forecast scenarios and
the weighting of each economic scenario. 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
selection of the economic scenarios and the weighting of each economic scenario
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
evaluating the selection of the economic forecast scenarios and the weighting applied to each scenario by
comparing them to the Company’s business environment and relevant industry practices
106
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Table of Contents
OPINION ON CONSOLIDATED FINANCIAL STATEMENTS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
•
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
February 22, 2024
107
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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 $1,161 and $1,209, respectively)
Loans held for sale (including $68 and $51 at fair value, respectively)
Loans and leases
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 31,686 shares, respectively
Common stock, $0.625 par value; authorized 700,000,000 shares; issued 558,838,694
and 537,100,615 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,
2023
2022
$
1,012 $
1,328
719
1,412
8,391
1,323
502
61,292
(773)
60,519
590
1,510
186
4,169
1,061
1,384
482
1,375
8,836
1,371
590
58,102
(685)
57,417
612
1,511
234
4,080
81,661 $
78,953
$
$
17,204 $
48,576
65,780
509
2,549
1,150
2,382
72,370
520
349
5,351
3,964
(1,188)
8,996
295
9,291
23,466
40,023
63,489
335
2,506
1,597
2,479
70,406
1,014
336
4,840
3,430
(1,368)
8,252
295
8,547
78,953
$
81,661 $
108
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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)
Year Ended December 31
2023
2022
2021
$
3,575 $
51
2,292 $
39
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 (benefit) for credit losses
Net interest income after provision for credit losses
Noninterest income
Deposit transactions and cash management
Fixed income
Brokerage, management fees and commissions
Card and digital banking fees
Other service charges and fees
Trust services and investment management
Mortgage banking and title income
Gain on merger termination
Securities gains (losses), net
Other income
Total noninterest income
Noninterest expense
Personnel expense
Net occupancy expense
Deposit insurance expense
Computer software
Operations services
Advertising and public relations
Contributions
Legal and professional fees
Contract employment and outsourcing
Amortization of intangible assets
Equipment expense
Communications and delivery
Impairment of long-lived assets
Other expense
Total noninterest expense
1,957
33
121
30
17
2,158
81
6
5
72
164
1,994
(310)
2,304
175
406
88
78
44
51
154
—
13
67
198
58
96
2,683
184
12
23
72
291
2,392
95
2,297
171
205
92
84
54
48
68
—
18
75
815
1,076
1,101
128
32
113
87
50
7
62
54
51
45
37
—
1,210
137
24
116
80
37
14
68
67
56
47
37
34
247
78
149
4,100
1,266
12
210
72
1,560
2,540
260
2,280
179
133
90
77
54
47
23
225
(4)
103
927
1,100
123
122
111
87
71
61
49
49
47
42
35
—
182
2,079
186
1,953
169
2,096
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Table of Contents
CONSOLIDATED STATEMENTS OF INCOME
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Income before income taxes
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.
$
$
$
$
$
1,128
212
1,159
247
916 $
912 $
19
12
897 $
900 $
32
865 $
1.58 $
1.54 $
32
868 $
1.62 $
1.53 $
1,284
274
1,010
11
999
37
962
1.76
1.74
548,410
561,732
535,033
566,004
546,354
551,241
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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
2023
2022
2021
$
916 $
912 $
1,010
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 (loss)
Comprehensive income attributable to noncontrolling interest
Comprehensive income (loss) 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.
137
47
(4)
180
1,096
19
(937)
(129)
(14)
(1,080)
(168)
12
1,077 $
(180) $
44 $
(302) $
15
(1)
(42)
(5)
(144)
(10)
6
(148)
862
11
851
(46)
(3)
2
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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)
Shares
Amount
Shares
Amount
Capital
Surplus
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss) (a)
Noncontrolling
Interest
Total
Balance, December 31, 2020
26,250
$
470
555,031
$
347
$ 5,074
$ 2,261
$
(140) $
295 $ 8,307
Preferred Stock
Common Stock
Net income
Other 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
—
—
—
—
—
—
—
—
1,500
(1,000)
145
(95)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(25,063)
(16)
(400)
—
—
—
—
—
—
—
3,609
—
—
Balance, December 31, 2021
26,750
520
533,577
Net income
Other comprehensive income (loss)
Cash dividends declared:
Preferred stock
Common stock ($0.60 per share)
—
—
—
—
Preferred stock issuance (4,936 shares issued at
$100,000 per share)
4,936
Common stock repurchased
Common stock issued for:
Stock options exercised and restricted stock awards
Stock-based compensation expense
Dividends declared - noncontrolling interest of
subsidiary preferred stock
—
—
—
—
—
—
—
—
494
—
—
—
—
—
—
—
—
—
(577)
4,101
—
—
Balance, December 31, 2022
31,686
1,014
537,101
Adjustment to reflect adoption of ASU 2022-02
Net income
Other comprehensive income (loss)
Cash dividends declared:
Preferred stock
Common stock ($0.60 per share)
Preferred stock conversion
Common stock repurchased
Common stock issued for:
Stock options exercised and restricted stock awards
Series G preferred stock conversion
Stock-based compensation expense
Dividends declared - noncontrolling interest of
subsidiary preferred stock
—
—
—
—
—
—
—
—
—
—
(4,936)
(494)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(807)
2,802
19,743
—
—
999
—
(32)
(332)
—
(5)
—
—
—
—
26
43
—
4,743
2,891
—
—
—
—
—
(12)
34
75
—
900
—
(32)
(329)
—
—
—
—
—
—
(148)
—
—
—
—
—
—
—
—
(288)
—
(1,080)
—
—
—
—
—
—
—
4,840
3,430
(1,368)
—
—
—
—
—
—
(9)
5
481
34
—
4
897
—
(32)
(335)
—
—
—
—
—
—
—
—
180
—
—
—
—
—
—
—
—
2
—
—
333
—
—
—
—
—
—
3
—
—
336
—
—
—
—
—
—
(1)
—
12
2
—
11
—
—
—
—
—
—
—
—
1,010
(148)
(32)
(332)
145
(100)
(416)
28
43
(11)
295
12
—
(11)
8,494
912
(1,080)
—
—
—
—
—
—
(32)
(329)
494
(12)
37
75
(12)
295
(12)
8,547
—
19
—
—
—
—
—
—
—
—
4
916
180
(32)
(335)
(494)
(10)
5
493
36
(19)
(19)
Balance, December 31, 2023
26,750
$
520
558,839
$
349
$ 5,351
$ 3,964
$
(1,188) $
295 $ 9,291
(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 includes $401 million repurchased under share repurchase programs.
See accompanying notes to consolidated financial statements.
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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:
Year Ended December 31
2023
2022
2021
$
916 $
912 $
1,010
Provision (benefit) 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 decrease in trading securities
Net (increase) decrease in derivatives
Stock-based compensation expense
Securities (gains) losses, net
Loss on debt extinguishment
Net (gains) losses on sale/disposal of fixed assets
Gain on divestiture
(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 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 BOLI
Net (increase) decrease in loans and leases
Net (increase) decrease in interest-bearing deposits with banks
Cash received for divestitures
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
Preferred stock issuance
Call of preferred stock
Cash dividends paid - preferred stock - noncontrolling interest
Cash dividends paid - preferred stock
Net increase (decrease) in deposits
260
44
55
47
—
1,163
(314)
36
4
—
—
(9)
(7)
(2,295)
1,183
(12)
228
383
1,299
—
856
(261)
—
53
1
(37)
14
(3,303)
56
11
5
(2,605)
5
(335)
(10)
—
—
(17)
(32)
95
91
59
51
(25)
2,120
524
75
(18)
—
(1)
—
(9)
(3,728)
2,310
107
(272)
1,379
2,291
—
1,351
(2,767)
(712)
55
18
(28)
22
(3,204)
13,523
—
75
8,333
36
(324)
(12)
494
—
(11)
(32)
(310)
—
61
56
(72)
1,824
412
43
(13)
26
29
—
(8)
(6,644)
4,451
(205)
65
(285)
725
68
2,771
(3,736)
(720)
17
42
(53)
22
3,525
(6,556)
—
19
(4,601)
28
(333)
(416)
145
(100)
(11)
(33)
2,289
(11,406)
4,919
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CONSOLIDATED STATEMENTS OF CASH FLOWS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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
Preferred stock conversion to common stock
See accompanying notes to consolidated financial statements.
$
$
43
(449)
1,494
188
1,543
1,731 $
1,428 $
123
19
4
1,212
7
493
382
4
(10,869)
(245)
1,788
1,543 $
280 $
20
7
3
1,893
—
—
(75)
(108)
4,016
140
1,648
1,788
170
258
30
4
2,232
31
—
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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.
TD Transaction
As previously disclosed, 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”), and certain TD
subsidiaries. On May 4, 2023, FHN and TD mutually
terminated the TD Merger Agreement. Under the terms of
the termination agreement, TD made a $200 million cash
payment to FHN, in addition to the $25 million fee
reimbursement due to FHN pursuant to the TD Merger
Agreement.
Merger and integration planning expenses related to the
transactions associated with the TD Merger Agreement
("TD Transaction") are recorded in FHN’s Corporate
segment. Expenses recognized during the years ended
December 31, 2023 and 2022 were $51 million and
$87 million, respectively.
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
from transaction-based fees is generally recognized
immediately upon completion of the transaction.
Noninterest income from service-based fees is generally
recognized over the period in which FHN provides the
service. Any services performed over time generally
require that FHN render services each period and
therefore FHN measures progress in completing these
services based upon the passage of time and recognizes
revenue as invoiced.
Following is a discussion of FHN's key revenues within the
scope of ASC 606, "Revenue from Contracts with
Customers", except as noted.
Fixed Income
Fixed income includes fixed income securities sales,
trading, and strategies, loan sales and derivative sales
which are not within the scope of revenue from contracts
with customers. Fixed income also includes investment
banking fees earned for services related to underwriting
debt securities and performing portfolio advisory services.
FHN's performance obligation for underwriting services is
satisfied on the trade date while advisory services is
satisfied over time.
Mortgage Banking and Title Income
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. Prior to the sale of this business during 2022,
title income was earned when FHN fulfilled its
performance obligation at the point in time when the
services were 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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NOTE 1—SIGNIFICANT ACCOUNTING POLICIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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, 2023 and 2022, accounts receivable
related to products and services on non-interest income
were $13 million and $12 million, respectively. For the
year ended December 31, 2023, 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, 2023.
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, 2023, 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 19 - 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.
Interest-Bearing Deposits With Banks
Interest-bearing deposits with banks primarily consist of
funds on deposit with the Federal Reserve and collateral
posted with derivative counterparties. Interest is earned
at overnight rates.
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. See Note 23 - 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
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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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
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
Sheets.
Equity Investments
Equity investments 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 2023.
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.
Federal Funds Sold and Purchased
Federal 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.
Federal 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 22 -
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 government insured which are accounted for
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.
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.
• Residential real estate loans discharged through
Chapter 7 bankruptcy and not reaffirmed by the
borrower (“discharged bankruptcies”) are placed on
nonaccrual. 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.
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.
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, the second lien may be
returned to accrual upon pay-off or cure of the first lien.
Charge-offs
For all commercial and consumer loan portfolio segments,
all losses of principal are charged to the ALLL in the period
in which the loan is deemed to be uncollectible.
For consumer loans, the timing of a full or partial charge-
off generally depends on the loan type and delinquency
status. Generally, for the consumer real estate 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 are normally charged-off
upon reaching 180 days past due while other non-real
estate consumer loans are charged-off or partially
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
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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 loan modifications, 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. The ACL is determined in accordance with ASC
326-20 "Financial Instruments - Credit Losses" which was
adopted on January 1, 2020. See Note 4 - 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
reserve for unfunded lending commitments, collectively
the ACL. The ACL is maintained at a level that
management determines is appropriate 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. 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)
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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, prior
to January 1, 2023, losses were estimated over the
estimated remaining life of reasonably expected TDRs
which could 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
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. Prior
to January 1, 2023, expected credit losses for TDRs were
measured in accordance with ASC 310-40, which generally
required a discounted cash flow methodology, whereby
the loans were measured based on the present value of
expected future payments discounted at the loan’s
original effective interest rate. Subsequent to December
31, 2022, in accordance with the provisions of ASU
2022-02, FHN has ceased recognition of TDRs and no
longer performs discounted cash flow calculations for
these loans to estimate expected credit losses. FHN now
monitors and discloses information associated with
modifications to borrowers experiencing financial
difficulty. For both commercial and consumer portfolio
segments, an adjustment to the ACL is generally not
recorded at the time of modification because FHN
includes these modified loans in its quantitative loss
estimation processes. In the event of principal forgiveness,
which primarily occurs for commercial loan workouts and
consumer loans experiencing bankruptcy, FHN records the
reduction in expected collectible principal balance as a
charge-off against the ALLL.
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
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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
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
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Note 21 - 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 21 - Derivatives for additional information.
Cash flows from derivative contracts are reported as
operating activities on the Consolidated Statements of
Cash Flows.
Leases
At inception, all arrangements are evaluated to determine
if they contain a lease, which is defined as a contract, or
part of a contract, that conveys the right to control the
use of identified property, plant, or equipment for a
period of time in exchange for consideration. Control is
deemed to exist when a lessor has granted and a lessee
has received both the right to obtain substantially all of
the economic benefits from use of the identified asset and
the right to direct the use of the identified asset
throughout the period of use.
Lessee
As a lessee, FHN recognizes lease (right-of-use) assets and
lease liabilities for all leasing arrangements with lease
terms that are greater than one year. The lease asset and
lease liability are recognized at the present value of
estimated future lease payments, including estimated
renewal periods, with the discount rate reflecting a fully-
collateralized rate matching the estimated lease term.
Renewal options are included in the estimated lease term
if they are considered reasonably certain of exercise.
Periods covered by termination options are included in
the lease term if it is reasonably certain they will not be
exercised. Additionally, prepaid or accrued lease
payments, lease incentives and initial direct costs related
to lease arrangements are recognized within the right-of-
use asset. Each lease is classified as a financing or
operating lease which depends on the relationship of the
lessee’s rights to the economic value of the leased asset.
For finance leases, interest on the lease liability is
recognized separately from amortization of the right-of-
use asset in earnings, resulting in higher expense in the
earlier portion of the lease term. For operating leases, a
single lease cost is calculated so that the cost of the lease
is allocated over the lease term on a generally straight-line
basis. Substantially all of FHN’s lessee arrangements are
classified as operating leases. For leases with a term of 12
months or less, FHN does not 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.
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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 leases
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
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 Sheets.
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.
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Equity Compensation
Legal Costs
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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.
Cash settled awards with payouts partially or fully based
on changes in share price are accounted for as liability
awards and are remeasured based on changes in their fair
value, until the end of the performance period.
Compensation cost for each reporting period is based on
the change in the fair value of the award within each
reporting period adjusted for the portion of required
service that occurred during the 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 16 -
Contingencies and Other Disclosures for discussion related
to FHN’s obligations to repurchase such loans.
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. Costs related to equity issuances are recorded
as a reduction of the proceeds from the related issuance.
Contingency Accruals
Contingent liabilities arise in the ordinary course of
business, including those related to lawsuits, arbitration,
mediation, and other forms of litigation. FHN establishes
loss contingency liabilities for matters when loss is both
probable and reasonably estimable in accordance with
ASC 450-20-50 “Contingencies – Accruals for Loss
Contingencies”. If loss for a matter is probable and a range
of possible loss outcomes is the best estimate available,
accounting guidance generally requires a liability to be
established at the low end of the range. Expected
recoveries from insurance and indemnification
arrangements are recognized if they are considered
equally as probable and reasonably estimable as the
related loss contingency up to the recognized amount of
the estimated loss. Gain contingencies and expected
recoveries from insurance and indemnification
arrangements in excess of the associated recorded
estimated losses are generally recognized when received.
Recognized recoveries are recorded as offsets to the
related expense in the Consolidated Statements of
Income. The favorable resolution of a gain contingency
generally results in the recognition of other income in the
Consolidated Statements of Income. Contingencies
assumed in business combinations are evaluated through
the end of the one-year post-closing measurement
period. If the acquisition-date fair value of the
contingency can be determined during the measurement
period, recognition occurs as part of the acquisition-date
fair value of the acquired business. If the acquisition-date
fair value of the contingency cannot be determined, but
loss is considered probable as of the acquisition date and
can be reasonably estimated within the measurement
period, then the estimated amount is recorded within
acquisition accounting. If the requirements for inclusion of
the contingency as part of the acquisition are not met,
subsequent recognition of the contingency is included in
earnings.
Business Combinations
Assets and liabilities acquired in business combinations
are generally recognized at their fair values as of the
acquisition date, with the related transaction costs
expensed in the period incurred. Specified items such as
net investment in leases as lessor, acquired operating
lease assets and liabilities as lessee, employee benefit
plans and income-tax related balances are recognized in
accordance with accounting guidance that results in
measurements that may differ from fair value. FHN may
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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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.
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 were 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.
Including the adoption of ASU 2022-06 (discussed below),
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, 2024, except for hedging relationships existing as of
December 31, 2024, that an entity has elected certain
optional expedients for and that are retained through the
end of the hedging relationship.
FHN identified contracts affected by reference rate
reform, developed modification plans for those contracts
and implemented those modifications before the last
quotation of LIBOR on June 30, 2023. FHN elected to
utilize the optional expedients and exceptions provided by
ASU 2020-04 for contract modifications that immediately
converted the reference rate within each contract. FHN
also elected that revisions to contractual fallback
provisions, including modifications in accordance with the
provisions of Regulation ZZ, did not require evaluation for
modification accounting. Additionally, FHN elected that
the revisions to derivative contracts implemented by
central clearinghouses to convert centrally cleared
derivative contracts from LIBOR to SOFR plus an
appropriate spread adjustment were not considered
changes requiring assessment for modification accounting.
During the transition period, for cash flow hedges that
reference 1-Month USD LIBOR, FHN applied expedients
related to 1) the assumption of probability of cash flows
when reference rates are changed on hedged items 2)
avoiding dedesignation when critical terms (i.e., reference
rates) change and 3) the allowed assumption of shared
risk exposure for hedged items. Additionally, for its cash
flow hedges that reference 1-Month Term SOFR, FHN
applied expedients related to 1) the allowed assumption
of shared risk exposure for hedged items and 2) multiple
allowed assumptions of conformity between hedged items
and the hedging instrument when assessing effectiveness.
FHN continued to utilize these expedients and exceptions
through the final cash flows affected by the quotation of
LIBOR.
In accordance with the provisions of ASU 2020-04,
effective immediately after the end of the transition
period for its cash flow hedges (i.e., no more cash flows
were affected by LIBOR), FHN elected that the cessation of
effectiveness assessments under the transition guidance
and subsequent initiation of hedge effectiveness
assessments under ASC 815 did not require dedesignation
of the hedge relationships.
In December 2022, the FASB issued ASU 2022-06,
"Deferral of the Sunset Date of Topic 848" which extends
the transition window for ASU 2020-04 from December
31, 2022 to 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 the
Secured 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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Summary of Accounting Changes
ASU 2022-01
In March 2022, the FASB issued ASU 2022-01, "Fair Value
Hedging — Portfolio Layer Method", which expanded
FHN's ability to hedge the benchmark interest rate risk of
portfolios of financial interests (or beneficial interests) in a
fair value hedge. The provisions of ASU 2022-01 also
permit FHN to apply the same portfolio hedging method
to both prepayable and non-prepayable financial assets,
namely by expanding the use of the "portfolio layer"
method to non-prepayable financial assets. ASU 2022-01
also permits multiple hedged layers to be designated as a
single closed portfolio to achieve hedge accounting.
Additionally, the ASU requires that basis adjustments
must be maintained on the closed portfolio of assets as a
whole, and not allocated to individual assets for active
portfolio layer method hedges. ASU 2022-01 was effective
for fiscal years beginning after December 15, 2022,
including interim periods within those fiscal years. FHN
may utilize the provisions of ASU 2022-01 in its future
hedging strategies.
ASU 2022-02
In March 2022, the FASB issued ASU 2022-02, “Troubled
Debt Restructurings and Vintage Disclosures” that
eliminates current TDR recognition and measurement
guidance and instead requires the Company to evaluate
whether the modification represents a new loan or a
continuation of an existing loan (which is consistent with
the accounting for other loan modifications). The
provisions of ASU 2022-02 also enhance existing
disclosure requirements and introduce new disclosures
related to certain modifications made to borrowers
experiencing financial difficulty. The provisions of this ASU
also require FHN to disclose current period gross write-
offs of loans and leases by year of origination.
ASU 2022-02 was effective for fiscal years beginning after
December 15, 2022, including interim periods within those
fiscal years. For the transition method related to the
recognition and measurement of TDRs, FHN elected to
apply the modified retrospective transition effective
January 1, 2023, resulting in a cumulative-effect reduction
in ALLL of $6 million and an increase to retained earnings
of $4 million, net of tax. The disclosure provisions of ASU
2022-02 were applied prospectively and presented in Note
3 – Loans and Leases and Note 4 – Allowance for Credit
Losses.
Accounting Changes Issued But Not Currently Effective
ASU 2023-02
In March 2023, the FASB issued ASU 2023-02, “Accounting
for Investments in Tax Credit Structures Using the
Proportional Amortization Method” which permits
investors to elect to account for their tax equity
investments, regardless of the tax credit program from
which the income tax credits are received, using the
proportional amortization method if certain conditions are
met. The proportional amortization method results in the
cost of the investment being amortized in proportion to
the income tax credits and other income tax benefits
received, with the amortization of the investment and the
income tax credits being presented net in the income
statement as a component of income tax provision
(benefit). Prior to ASU 2023-02, the proportional
amortization method was only available to qualifying low
income housing equity investments. An investor is
required to make an accounting policy election to apply
the proportional amortization method on a tax-credit-
program-by-tax-credit-program basis. An investor that
applies the proportional amortization method to
qualifying tax equity investments must account for the
receipt of the investment tax credits using the flow-
through method, even if the entity applies the deferral
method for other investment tax credits received. ASU
2023-02 also requires specific disclosures that must be
applied to all investments that generate income tax
credits and other income tax benefits from a tax credit
program for which the entity has elected to apply the
proportional amortization method.
ASU 2023-02 is effective for fiscal years beginning after
December 15, 2023, including interim periods within those
fiscal years. Early adoption is permitted for all entities in
any interim period. If ASU 2023-02 is adopted in an
interim period, it must be adopted as of the beginning of
the fiscal year that includes that interim period. Adoption
of ASU 2023-02 is applied on either a modified
retrospective (cumulative catch up) or a retrospective
(restatement of prior years) basis. FHN has assessed the
applicability of ASU 2023-02 to its tax credit program
equity investments and determined that it will make the
proportional method election for New Markets Tax Credit
and Historic Tax Credit programs. The use of the
proportional amortization method will continue for Low-
Income Housing Tax Credits. Upon adoption of ASU
2023-02 FHN will recognize a cumulative effect
adjustment to increase retained earnings for $8 million,
net of tax, on January 1, 2024.
ASU 2023-07
In November 2023, the FASB issued ASU 2023-07,
"Improvements to Reportable Segment Disclosures" that
requires public entities to provide disclosures of significant
segment expenses and other segment items on an annual
and interim basis and to provide in interim periods all
disclosures about a reportable segment's profit or loss and
assets that are currently required annually. The ASU
requires a public entity to disclose, for each reportable
segment, the significant expense categories and amounts
that are regularly provided to the chief operating decision-
maker (CODM) and included in each reported measure of
a segment's profit or loss. ASU 2023-07 also requires
disclosure of the title and position of the CODM and an
explanation of how the CODM uses the reported
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measure(s) of segment profit or loss in assessing segment
performance and deciding how to allocate resources.
ASU 2023-07 is effective for fiscal years beginning after
December 15, 2023 and for interim periods beginning
after December 15, 2024. Early adoption is permitted. The
guidance is applied retrospectively to all periods
presented in the financial statements, unless it is
impracticable. FHN is currently assessing the effects of
ASU 2023-07 on its reportable segment disclosures.
ASU 2023-09
In December 2023, the FASB issued ASU 2023-09,
"Improvements to Income Tax Disclosures" to enhance
transparency and decision usefulness of income tax
disclosures. The provisions of this ASU require
disaggregated information about a reporting entity's
effective tax rate reconciliation in both percentages and
reporting currency amounts. Certain categories of
reconciling items are required by the ASU with additional
categories required if a specified quantitative threshold is
met. Reporting entities are also required to provide a
qualitative discussion of the primary state and local
jurisdictions for income taxes and the type of reconciling
categories. ASU 2023-09 also requires disaggregation of
income taxes paid by jurisdiction.
For public business entities, ASU 2023-09 is effective for
annual periods beginning after December 31, 2024. The
guidance will be applied on a prospective basis with the
option to apply the standard retrospectively. Early
adoption is permitted. FHN is currently assessing the
impact of adopting ASU 2023-09 on its income tax
disclosures.
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NOTE 2—INVESTMENT SECURITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 2—Investment Securities
The following table summarizes FHN’s investment securities as of December 31, 2023 and 2022:
Table 8.2.1
(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
INVESTMENT SECURITIES
December 31, 2023
Gross
Unrealized
Losses
Gross
Unrealized
Gains
Amortized
Cost
Fair
Value
$
5,061 $
2 $
(579) $
2,487
1,321
627
—
2
3
(341)
(151)
(41)
9,496 $
7 $
(1,112) $
852 $
471
1,323 $
— $
—
— $
(96) $
(66)
(162) $
$
$
$
4,484
2,146
1,172
589
8,391
756
405
1,161
(a) Includes $8.9 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes.
(Dollars in millions)
Securities available for sale:
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, 2022
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Amortized
Cost
$
5,457 $
1 $
(695) $
2,682
1,325
658
—
—
1
(369)
(162)
(62)
10,122 $
2 $
(1,288) $
4,763
2,313
1,163
597
8,836
897 $
474
1,371 $
— $
—
— $
(109) $
(53)
788
421
(162) $
1,209
$
$
$
(a) Includes $6.5 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes.
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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
The amortized cost and fair value by contractual maturity for the debt securities portfolio as of December 31, 2023 is provided
below:
Table 8.2.2
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
Government agency issued MBS and CMO (a)
Total
Held to Maturity
Available for Sale
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$
$
— $
—
—
—
—
1,323
1,323 $
— $
—
—
—
—
1,161
1,161 $
36 $
99
397
1,416
1,948
7,548
9,496 $
36
95
364
1,266
1,761
6,630
8,391
(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.
There were no sales of AFS securities for the years ended
December 31, 2023 and 2022. Cash proceeds from the
sales of AFS securities were $68 million for 2021. Gross
gains and losses on the sales of AFS securities were
insignificant for the year ended December 31, 2021.
Table 8.2.3
The following tables provide information on investments
within the available-for-sale portfolio that had unrealized
losses as of December 31, 2023 and 2022:
AFS INVESTMENT SECURITIES WITH UNREALIZED LOSSES
As of December 31, 2023
12 months or longer
Less than 12 months
Total
(Dollars in millions)
Government agency issued MBS
Government agency issued CMO
Other U.S. government agencies
States and municipalities
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$
140 $
(2) $
4,231 $
(577) $
4,371 $
32
114
14
—
(2)
—
2,098
905
465
(341)
(149)
(41)
2,130
1,019
479
(579)
(341)
(151)
(41)
$
300 $
(4) $
7,699 $
(1,108) $
7,999 $
(1,112)
(Dollars in millions)
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, 2022
12 months or longer
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$
2,314 $
(249) $
2,350 $
(446) $
4,664 $
1,104
643
493
(123)
(67)
(48)
1,209
424
54
(246)
(95)
(14)
2,313
1,067
547
(695)
(369)
(162)
(62)
$
4,554 $
(487) $
4,037 $
(801) $
8,591 $
(1,288)
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. Total AIR
not included in the fair value or amortized cost basis of
AFS debt securities was $32 million as of both
December 31, 2023 and 2022. 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 periods. Additionally, for AFS debt securities
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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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 periods. There were no transfers to
or from AFS or HTM securities during the years ended
December 31, 2023, 2022, or 2021.
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 $3 million as of both
December 31, 2023 and 2022. FHN has assessed the risk of
credit loss and has determined that no allowance for
credit losses for HTM securities was necessary as of
December 31, 2023 and 2022. 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 $89 million and $79
million at December 31, 2023 and 2022, respectively. The
year-to-date gross amounts of upward and downward
valuation adjustments included a $6 million loss for 2023
and were insignificant for 2022.
Unrealized gains of $11 million, unrealized losses of
$11 million and unrealized gains of $3 million were
recognized during 2023, 2022, and 2021, respectively, for
equity investments with readily determinable fair values.
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NOTE 3—LOANS & LEASES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 3—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, 2023 and 2022, excluding accrued interest
of $287 million and $226 million, respectively, which is
included in other assets in the Consolidated Balance
Sheets.
LOANS AND LEASES BY PORTFOLIO SEGMENT
Table 8.3.1
(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 (c)
Loans and leases
Allowance for loan and lease losses
Net loans and leases
December 31,
2023
2022
$
30,614 $
2,019
32,633
14,216
2,219
11,431
13,650
793
61,292 $
(773)
60,519 $
$
$
29,523
2,258
31,781
13,228
2,028
10,225
12,253
840
58,102
(685)
57,417
(a) Includes equipment financing leases of $1.2 billion and $1.1 billion as of December 31, 2023 and 2022, respectively.
(b) Includes PPP loans fully guaranteed by the SBA of $29 million and $76 million as of December 31, 2023 and 2022, respectively.
Includes $180 million and $193 million of commercial credit card balances as of December 31, 2023 and 2022, respectively.
(c)
Restrictions
Loans and leases with carrying values of $46.1 billion and
$38.3 billion were pledged as collateral for borrowings at
December 31, 2023 and 2022, respectively.
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, 2023, FHN had loans to mortgage
companies of $2.0 billion and loans to finance and
insurance companies of $4.1 billion. As a result, 18% of
the C&I portfolio 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.
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
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NOTE 3—LOANS & LEASES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
in deterioration of FHN's credit position at some future
date. Substandard commercial loans and leases have well-
defined weaknesses and are characterized by the distinct
possibility that FHN will sustain some loss if the
deficiencies are not corrected. Doubtful commercial loans
and leases have the same weaknesses as substandard
loans and leases with the added characteristics that the
Table 8.3.2
probability of loss is high and collection of the full amount
is improbable.
The following table provides the amortized cost basis of
the commercial loan portfolio by year of origination and
credit quality indicator as of December 31, 2023 and 2022:
C&I PORTFOLIO
December 31, 2023
(Dollars in millions)
2023
2022
2021
2020
2019
Credit Quality Indicator:
Prior to
2019
LMC (a)
Revolving
Loans
Revolving
Loans
Converted
to Term Loans
Total
Pass (PD grades 1 through 12) (b)
$ 4,009
$ 5,638
$ 3,507
$ 1,636
$ 1,666
$ 3,449
$ 2,014
$
9,087 $
327 $
31,333
Special Mention (PD grade 13)
Substandard, Doubtful, or Loss (PD
grades 14,15, and 16)
75
41
60
135
64
94
56
51
101
57
39
100
—
5
186
187
—
49
599
701
Total C&I loans
$ 4,125
$ 5,833
$ 3,665
$ 1,743
$ 1,806
$ 3,606
$ 2,019
$
9,460 $
376 $
32,633
December 31, 2022
(Dollars in millions)
2022
2021
2020
2019
2018
Credit Quality Indicator:
Prior to
2018
LMC (a)
Revolving
Loans
Revolving
Loans
Converted
to Term Loans
Total
Pass (PD grades 1 through 12) (b)
$ 7,456 $ 3,634 $ 1,803 $ 1,912 $ 1,112 $ 3,170 $ 2,258 $
9,166 $
371 $
30,882
Special Mention (PD grade 13)
Substandard, Doubtful, or Loss (PD
grades 14,15, and 16)
17
36
56
48
17
41
125
34
8
25
80
55
—
—
126
134
—
97
429
470
Total C&I loans
$ 7,509 $ 3,738 $ 1,861 $ 2,071 $ 1,145 $ 3,305 $ 2,258 $
9,426 $
468 $
31,781
(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) Includes PPP loans.
Table 8.3.3
CRE PORTFOLIO
December 31, 2023
(Dollars in millions)
Credit Quality Indicator:
2023
2022
2021
2020
2019
Prior to
2019
Revolving
Loans
Revolving
Loans
Converted
to Term Loans
Total
Pass (PD grades 1 through 12)
$
853 $ 3,473 $ 3,518 $ 1,162 $ 1,216 $ 2,853 $
393 $
18 $
13,486
Special Mention (PD grade 13)
Substandard, Doubtful, or Loss (PD grades
14,15, and 16)
5
—
1
2
129
5
86
11
175
175
82
59
—
—
—
—
478
252
Total CRE loans
$
858 $ 3,476 $ 3,652 $ 1,259 $ 1,566 $ 2,994 $
393 $
18 $
14,216
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NOTE 3—LOANS & LEASES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
December 31, 2022
(Dollars in millions)
2022
2021
2020
2019
2018
Credit Quality Indicator:
Prior to
2018
Revolving
Loans
Revolving
Loans Converted
to Term Loans
Total
Pass (PD grades 1 through 12)
$ 2,637
$ 3,324
$ 1,488
$ 1,855 $
808 $ 2,565 $
274 $
20 $
12,971
Special Mention (PD grade 13)
Substandard, Doubtful, or Loss (PD grades
14,15, and 16)
—
1
3
4
3
12
37
50
68
31
5
31
1
11
—
—
117
140
Total CRE loans
$ 2,638
$ 3,331
$ 1,503
$ 1,942 $
907 $ 2,601 $
286 $
20 $
13,228
The consumer portfolio is comprised primarily of smaller-
balance loans which are very similar in nature in that most
are standard products and are backed by residential real
estate. Because of the similarities of consumer loan types,
FHN is able to utilize the FICO score, among other
attributes, to assess the credit quality of consumer
borrowers. FICO scores are refreshed on a quarterly basis
in an attempt to reflect the recent risk profile of the
borrowers. Accruing delinquency amounts are indicators
of asset quality within the credit card and other consumer
portfolio.
The following table reflects the amortized cost basis by
year of origination and refreshed FICO scores for
Table 8.3.4
consumer real estate loans as of December 31, 2023 and
2022. 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 a revolving loan converted to a term loan. 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
December 31, 2023
(Dollars in millions)
2023
2022
2021
2020
2019
Prior to
2019
Revolving
Loans
Revolving
Loans
Converted
to Term
Loans
Total
FICO score 740 or greater
$
1,572 $
2,099 $
1,720 $
730 $
465 $
1,332 $
1,522 $
50 $
9,490
FICO score 720-739
FICO score 700-719
FICO score 660-699
FICO score 620-659
FICO score less than 620
205
154
170
11
18
286
232
198
20
19
227
193
113
23
15
107
81
83
22
20
88
52
53
36
12
230
224
290
106
225
192
159
168
36
24
15
17
18
7
11
1,350
1,112
1,093
261
344
Total
$
2,130 $
2,854 $
2,291 $
1,043 $
706 $
2,407 $
2,101 $
118 $ 13,650
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NOTE 3—LOANS & LEASES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
December 31, 2022
(Dollars in millions)
2022
2021
2020
2019
2018
Prior to
2018
Revolving
Loans
Revolving
Loans
Converted
to Term
Loans
Total
FICO score 740 or greater
$
2,154 $
1,847 $
819 $
523 $
278 $
1,294 $
1,297 $
63 $
8,275
FICO score 720-739
FICO score 700-719
FICO score 660-699
FICO score 620-659
FICO score less than 620
292
242
214
21
15
246
206
137
24
19
116
93
90
25
32
98
55
55
41
12
34
35
62
20
23
238
226
278
105
256
183
142
192
47
16
18
22
23
9
16
1,225
1,021
1,051
292
389
Total
$
2,938 $
2,479 $
1,175 $
784 $
452 $
2,397 $
1,877 $
151 $ 12,253
The following table reflects the amortized cost basis by year of origination and refreshed FICO scores for credit card and other
loans as of December 31, 2023 and 2022.
Table 8.3.5
CREDIT CARD & OTHER PORTFOLIO
December 31, 2023
(Dollars in millions)
2023
2022
2021
2020
2019
Prior to
2019
Revolving
Loans
Revolving
Loans
Converted
to Term
Loans
Total
FICO score 740 or greater
$
52 $
26 $
10 $
5 $
3 $
27 $
207 $
5 $
335
FICO score 720-739
FICO score 700-719
FICO score 660-699
FICO score 620-659
FICO score less than 620
5
5
4
2
12
3
4
3
1
9
1
1
1
1
6
1
1
1
—
8
1
1
1
—
13
5
4
8
3
24
25
23
7
103
168
1
1
—
—
1
Total
$
80 $
46 $
20 $
16 $
19 $
150 $
454 $
8 $
41
42
41
14
320
793
December 31, 2022
(Dollars in millions)
2022
2021
2020
2019
2018
Prior to
2018
Revolving
Loans
Revolving
Loans
Converted
to Term
Loans
Total
FICO score 740 or greater
$
36 $
14 $
10 $
10 $
4 $
25 $
291 $
6 $
396
FICO score 720-739
FICO score 700-719
FICO score 660-699
FICO score 620-659
FICO score less than 620
3
3
3
1
7
2
3
2
3
6
2
1
1
1
6
1
1
1
—
10
—
—
2
—
7
4
4
7
3
30
33
30
18
71
174
1
1
1
—
1
Total
$
53 $
30 $
21 $
23 $
13 $
114 $
576 $
10 $
43
46
47
26
282
840
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NOTE 3—LOANS & LEASES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Nonaccrual and Past Due Loans and Leases
Loans and leases are placed on nonaccrual if it becomes
evident that full collection of principal and interest is at
risk, impairment has been recognized as a partial charge-
off of principal balance due to insufficient collateral value
and past due status, or on a case-by-case basis if FHN
continues to receive payments but there are other
borrower-specific issues. Included in nonaccrual are loans
for which FHN continues to receive payments including
Table 8.3.6
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.
The following table reflects accruing and non-accruing
loans and leases by class on December 31, 2023 and 2022:
ACCRUING & NON-ACCRUING LOANS & LEASES
(Dollars in millions)
Current
Accruing
30-89
Days
Past Due
90+
Days
Past Due
December 31, 2023
Non-Accruing
Total
Accruing
Current
30-89
Days
Past Due
90+
Days
Past Due
Total
Non-
Accruing
Total
Loans and
Leases
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
$
30,403 $
31 $
1 $
30,435 $
108 $
18 $
53 $
179 $
30,614
2,013
32,416
14,072
2,158
11,295
13,453
271
512
783
1
32
8
11
29
40
3
2
5
—
1
—
4
13
17
3
—
3
2,014
5
32,449
113
14,080
2,173
11,337
13,510
277
514
791
41
30
43
73
—
1
1
—
18
—
6
6
12
—
—
—
—
53
95
10
45
55
—
1
1
5
2,019
184
32,633
136
14,216
46
94
2,219
11,431
140
13,650
—
2
2
277
516
793
Total loans and leases
$
60,724 $
85 $
21 $
60,830 $
228 $
30 $
204 $
462 $
61,292
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NOTE 3—LOANS & LEASES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
(Dollars in millions)
Current
Accruing
30-89
Days
Past Due
90+
Days
Past Due
December 31, 2022
Non-Accruing
Total
Accruing
Current
30-89
Days
Past Due
90+
Days
Past Due
Total
Non-
Accruing
Total
Loans and
Leases
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
$
29,309 $
50 $
11 $
29,370 $
64 $
10 $
79 $
153 $
29,523
2,258
31,567
13,208
1,967
10,079
12,046
287
540
827
—
50
11
12
25
37
5
2
7
—
11
—
5
13
18
4
—
4
2,258
31,628
13,219
1,984
10,117
12,101
296
542
838
—
64
7
32
56
88
—
1
1
—
10
—
4
5
9
—
—
—
—
79
2
8
47
55
—
1
1
—
2,258
153
31,781
9
44
108
152
—
2
2
13,228
2,028
10,225
12,253
296
544
840
Total loans and leases
$
57,648 $
105 $
33 $
57,786 $
160 $
19 $
137 $
316 $
58,102
(a) $178 million and $147 million of C&I loans are nonaccrual loans that have been specifically reviewed for impairment with no related allowance in 2023
and 2022, respectively.
(b) $129 million and $5 million of CRE loans are nonaccrual loans that have been specifically reviewed for impairment with no related allowance for 2023 and
2022, respectively.
(c) $4 million and $5 million of HELOC loans are nonaccrual loans that have been specifically reviewed for impairment with no related allowance for 2023
and 2022, respectively.
(d) $10 million and $7 million of real estate installment loans are nonaccrual loans that have been specifically reviewed for impairment with no related
allowance for 2023 and 2022, respectively.
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, 2023 and 2022, FHN had commercial
loans with amortized cost of approximately $250 million
and $124 million, respectively, that were based on the
value of underlying collateral. Collateral-dependent C&I
and CRE loans totaled $117 million and $133 million,
respectively, at December 31, 2023. The collateral for
these loans generally consists of business assets including
land, buildings, equipment and financial assets. During the
years ended December 31, 2023 and 2022, FHN
recognized total charge-offs of approximately $144 million
and $10 million, respectively, on these loans related to
reductions in estimated collateral values.
Consumer HELOC and real estate installment loans with
amortized cost based on the value of underlying real
estate collateral were approximately $6 million and
$27 million, respectively, as of December 31, 2023, and
$7 million and $26 million, respectively, as of
December 31, 2022. Charge-offs were $1 million for
collateral-dependent consumer loans during the year
ended December 31, 2023, and $2 million during the year
ended December 31, 2022.
Loan Modifications to Troubled Borrowers
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. Modifications could include
extension of the maturity date, reductions of the interest
rate, reduction or forgiveness of accrued interest, or
principal forgiveness. Combinations of these modifications
may also be made for individual loans. Extensions and
modifications to loans are made in accordance with
internal policies and guidelines which conform to
regulatory guidance. Principal reductions may be made in
limited circumstances, typically for specific commercial
loan workouts, and in the event of borrower bankruptcy.
136
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NOTE 3—LOANS & LEASES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Each occurrence is unique to the borrower and is
evaluated separately.
Troubled loans are considered those in which the
borrower is experiencing financial difficulty. The
assessment of whether a borrower is experiencing
financial difficulty can be subjective in nature and
management’s judgment may be required in making this
determination. 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 absent a
modification. Many aspects of a borrower’s financial
situation are assessed when determining whether they
are experiencing financial difficulty.
Troubled commercial loans are typically modified through
forbearance agreements which could include reduced
interest rates, reduced payments, term extension, or
entering into short sale agreements. Principal reductions
may occur in specific circumstances.
Modifications for troubled consumer loans are generally
structured using parameters of U.S. government-
sponsored programs. For HELOC and real estate
installment loans, troubled loans are typically modified by
an interest rate reduction and a possible maturity date
extension to reach an affordable housing debt-to-income
ratio. Despite the absence of a loan modification by FHN,
the discharge of personal liability through bankruptcy
proceedings is considered a court-imposed modification.
For the credit card portfolio, troubled loan modifications
are typically enacted 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 six months to one year. In the credit card workout
program, borrowers are granted a rate reduction to 0%
and a term extension for up to five years.
Modifications to Borrowers Experiencing Financial
Difficulty
For periods subsequent to December 31, 2022,
information regarding loans modified when a borrower is
experiencing financial difficulty are included in the tables
below.
The following tables present the amortized cost basis at
the end of the reporting period of loans modified to
borrowers experiencing financial difficulty, disaggregated
by class of financing receivable and type of modification
made, as well as the financial effect of the modifications
made as of December 31, 2023:
Table 8.3.7
LOAN MODIFICATIONS TO BORROWERS EXPERIENCING FINANCIAL DIFFICULTY
December 31, 2023
Interest Rate Reduction
(Dollars in millions)
Balance
% of Total Class
Financial Effect
Reduced weighted-average contractual interest rate from 8.60% to
5.00%
Reduced weighted-average contractual interest rate from 11.20% to
0.00%
2
—
2
— %
—
— %
Consumer real estate
Credit card and other (a)
Total
(Dollars in millions)
C&I
CRE
Consumer real estate
Total
$
$
$
$
December 31, 2023
Term Extension
Balance
% of Total Class
90
40
2
132
0.3 %
0.3
—
0.2 %
Financial Effect
Added a weighted-average 1 year to the life of loans, which reduced
monthly payment amounts for the borrowers
Added a weighted-average 0.8 year to the life of loans, which
reduced monthly payment amounts for the borrowers
Added a weighted-average 12 years to the life of loans, which
reduced monthly payment amounts for the borrowers
December 31, 2023
Principal Forgiveness
(Dollars in millions)
Balance
% of Total Class
Financial Effect
Consumer real estate
Total
$
$
2
2
— %
— %
137
$1.3 million of the principal of consumer loans was legally discharged
in bankruptcy during the period and the borrowers have not re-
affirmed the debt as of period end
2023 FORM 10-K ANNUAL REPORT
Table of Contents
NOTE 3—LOANS & LEASES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
(Dollars in millions)
Balance
% of Total Class
3
3
— %
— %
December 31, 2023
Payment Deferrals
Financial Effect
Payment deferral for 11 months, with a balloon payment at the end
of the term
Consumer real estate
Total
(Dollars in millions)
C&I (a)
Consumer real estate
Total
(Dollars in millions)
C&I
Total
(Dollars in millions)
CRE
Total
$
$
$
$
$
$
$
$
December 31, 2023
Combination - Term Extension and Interest Rate Reduction
Balance
% of Total Class
—
6
6
— %
—
— %
Financial Effect
Added a weighted-average 1.2 years to the life of loans and reduced
weighted-average contractual interest rate from 13.00% to 11.50%
Added a weighted-average 14.3 years to the life of loans and
reduced weighted-average contractual interest rate from 5.00% to
4.70%
Combination - Term Extension, Interest Rate Reduction, and Interest Forgiveness
Balance
% of Total Class
Financial Effect
December 31, 2023
2
2
— %
— %
Added a weighted-average 3.7 years to the life of loans, reduced
weighted-average contractual interest rate from 11.25% to 7.50%
and provided less than $1 million in interest forgiveness
Combination - Term Extension, Interest Rate Reduction, and Interest Deferrals
Balance
% of Total Class
Financial Effect
December 31, 2023
15
15
0.1 %
— %
Added a weighted-average 1 year to the life of loans, reduced
weighted-average contractual interest rate from 8.65% to 8.00% and
provided less than $1 million in deferred interest
(a) Balance less than $1 million.
The balance of loan modifications to borrowers
experiencing financial difficulty that had a payment
default during the period totaled $28 million as of
December 31, 2023. FHN closely monitors the
performance of the loans that are modified to borrowers
experiencing financial difficulty to understand the
effectiveness of its modification efforts.
The following table depicts the performance of loans that have been modified in the last 12 months:
Table 8.3.8
PERFORMANCE OF LOANS THAT HAVE BEEN MODIFIED IN THE LAST 12 MONTHS
December 31, 2023
(Dollars in millions)
Current
30-89 Days Past Due
90+ Days Past Due
Non-Accruing
C&I
CRE
Consumer real estate
Credit card and other
Total
$
$
70 $
— $
— $
8
4
—
—
—
—
—
—
—
82 $
— $
— $
22
47
11
—
80
138
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Table of Contents
NOTE 3—LOANS & LEASES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Troubled Debt Restructurings
Prior to January 1, 2023, a modification was classified as a
TDR if the borrower was experiencing financial difficulty
and it was determined that FHN granted a concession to
the borrower. Concessions represented modifications that
FHN would not otherwise consider if a borrower had not
been experiencing financial difficulty. Evaluation of
whether a concession was granted, was subjective in
nature and management’s judgment was required in
making the determination of whether a modification was
classified as a TDR. All non-reaffirmed residential real
estate loans discharged in Chapter 7 bankruptcy were
considered concessions and classified as nonaccruing
TDRs.
On December 31, 2022, FHN had $180 million of portfolio
loans classified as TDRs. Additionally, $30 million of loans
held for sale as of December 31, 2022 were classified as
TDRs.
The following table presents the end of period balance for loans modified in a TDR during the year ended December 31, 2022:
Table 8.3.9
LOANS MODIFIED IN A TDR
Year Ended December 31, 2022
Pre-Modification
Outstanding
Recorded Investment
Post-Modification
Outstanding
Recorded Investment
Number
(Dollars in millions)
C&I
CRE
HELOC
Real estate installment loans
Credit card and other
6 $
30 $
1
98
181
81
1
7
41
12
Total TDRs
367 $
91 $
24
1
7
41
12
85
The following table presents TDRs which re-defaulted during 2022, 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.
Table 8.3.10
LOANS MODIFIED IN A TDR THAT RE-DEFAULTED
(Dollars in millions)
C&I
CRE
HELOC
Real estate installment loans
Credit card and other
Total TDRs
Year Ended December 31, 2022
Number
Recorded
Investment
5 $
—
22
54
17
98 $
—
—
1
15
—
16
139
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Table of Contents
NOTE 4—ALLOWANCE FOR CREDIT LOSSES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 4—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
referred to as the Allowance for Credit Losses, or 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 at 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 where current loan characteristics
or current or forecasted economic conditions differ from
historical periods.
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 3 - 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 component utilizes economic forecast
information 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 is also
affected by qualitative factors that FHN considers to
reflect current judgment of various events and risks that
are not measured in the quantitative calculations,
including alternative economic forecasts.
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. 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 years ended
December 31, 2023, 2022, and 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 increase in the ACL balance as of December 31, 2023
as compared to December 31, 2022 largely reflects loan
growth during the period, an evolving macroeconomic
outlook, and modest grade migration. In developing credit
loss estimates for its loan and lease portfolios, FHN
utilized a baseline and a downside forecast scenario from
Moody’s for its macroeconomic inputs. As of
December 31, 2023, among other things, FHN's scenario
selection process factored in the outlook for production,
inflation, interest rates, employment, real estate prices,
and international conflict. FHN selected one scenario as its
base case, which was the Moody's baseline scenario. The
heaviest weight was placed on this scenario. A smaller
weight was placed on the FHN-selected downside
scenario.
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.
The following table provides a rollforward of the ALLL and
the reserve for unfunded lending commitments by
portfolio type for December 31, 2023, 2022 and 2021:
140
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Table of Contents
Table 8.4.1
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 4—ALLOWANCE FOR CREDIT LOSSES
ROLLFORWARD OF ALLL & RESERVE FOR UNFUNDED LENDING COMMITMENTS
(Dollars in millions)
Allowance for loan and lease losses:
Balance as of January 1, 2023
Adoption of ASU 2022-02 (b)
Charge-offs (c)
Recoveries
Provision for loan and lease losses
Balance as of December 31, 2023
Reserve for remaining unfunded commitments:
Balance as of January 1, 2023
Provision for unfunded lending commitments
Balance as of December 31, 2023
Allowance for credit losses as of December 31, 2023
Allowance for loan and lease losses:
Balance as of January 1, 2022
Charge-offs
Recoveries
Provision for loan and lease losses
Balance as of December 31, 2022
Reserve for remaining unfunded commitments:
Balance as of January 1, 2022
Provision for unfunded lending commitments
Balance as of December 31, 2022
Allowance for credit losses as of December 31, 2022
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
Commercial,
Financial, and
Industrial (a)
Commercial
Real Estate
Consumer
Real Estate
Credit Card
and Other
Total
$
308 $
146 $
200 $
31 $
$
$
$
$
1
(156)
14
172
339
55
(6)
49
—
(17)
2
41
172
22
—
22
(7)
(4)
9
35
233
10
2
12
—
(22)
4
16
29
—
—
—
388 $
194 $
245 $
29 $
334 $
154 $
163 $
19 $
(62)
9
27
308
46
9
55
(1)
1
(8)
146
12
10
22
(5)
19
23
200
8
2
10
(25)
5
32
31
—
—
—
363 $
168 $
210 $
31 $
453 $
242 $
242 $
26 $
(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
—
—
—
Allowance for credit losses as of December 31, 2021
$
380 $
166 $
171 $
19 $
685
(6)
(199)
29
264
773
87
(4)
83
856
670
(93)
34
74
685
66
21
87
772
963
(59)
57
(291)
670
85
(19)
66
736
(a) C&I loans as of December 31, 2023, 2022, and 2021 include $29 million, $76 million, and $1.0 billion in PPP loans, respectively, 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) See Note 1 for additional information.
(c) Charge-offs in the C&I portfolio in 2023 include $72 million from a single credit from a company in bankruptcy.
141
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NOTE 4—ALLOWANCE FOR CREDIT LOSSES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
The following table represents gross charge-offs by year of origination for the year ended December 31, 2023:
Table 8.4.2
GROSS CHARGE-OFFS
(Dollars in millions)
2023
2022
2021
2020
2019
Prior to
2019
Revolving
Loans
Total
C&I
CRE
Consumer real estate
Credit card and other
$
1 $
17 $
82 $
5 $
10 $
34 $
7 $
—
—
12
—
1
1
—
—
—
—
—
—
2
—
—
15
3
2
—
—
7
Total
$
13 $
19 $
82 $
5 $
12 $
54 $
14 $
156
17
4
22
199
142
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Table of Contents
NOTE 5—PREMISES, EQUIPMENT, & LEASES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 5—Premises, Equipment, and Leases
Premises and equipment was comprised of the following
at December 31, 2023 and 2022:
Table 8.5.1
PREMISES & EQUIPMENT
December 31,
2023
(Dollars in millions)
December 31,
2022
Land
Buildings
Leasehold improvements
Furniture, fixtures, and equipment
Fixed assets held for sale (a)
Total premises and equipment
Less accumulated depreciation and
amortization
$
163 $
554
84
295
—
163
544
82
277
1
1,096
1,067
(506)
(455)
612
Premises and equipment, net
$
590 $
(a) Primarily comprised of land and buildings.
Both fixed asset and leased asset impairments were
immaterial for 2023 and 2022. In 2021, FHN recognized
$34 million of fixed asset impairments and $3 million of
leased asset impairments which is included in other
expense on the Consolidated Statements of Income.
Net gains related to the sales of bank branches were
immaterial for 2023 and 2022. In 2021, FHN had $6 million
of net gains related to the sales of bank branches which is
included in other income on the Consolidated Statements
of Income.
First Horizon as Lessee
FHN has operating, financing, and short-term leases for
branch locations, corporate offices and certain equipment.
Substantially all of these leases are classified as operating
leases.
The following table provides details of the classification of
FHN's right-of-use assets and lease liabilities included in
the Consolidated Balance Sheets.
Table 8.5.2
(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, 2023
December 31, 2022
Classification
Other assets
Other assets
$
$
Other liabilities
$
Other liabilities
$
306 $
3
309 $
342 $
3
345 $
331
3
334
367
4
371
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, 2023 and 2022.
Table 8.5.3
REMAINING LEASE TERMS
& DISCOUNT RATES
December 31,
2023
December 31,
2022
Weighted Average Remaining
Lease Terms
Operating leases
Finance leases
11.79 years
12.22 years
9.15 years
9.83 years
Weighted Average Discount Rate
Operating leases
Finance leases
2.84 %
2.39 %
2.69 %
2.62 %
143
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NOTE 5—PREMISES, EQUIPMENT, & LEASES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
The following table provides a detail of the components of
lease expense and other lease information for the years
ended December 31, 2023, 2022, and 2021:
Table 8.5.4
LEASE EXPENSE &
OTHER INFORMATION
(Dollars in millions)
2023
2022
2021
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:
45 $
47 $
(2)
(2)
43 $
45 $
48
(1)
47
1 $
1 $
3
46
50
53
Operating leases
11
31
19
The following table provides a detail of the maturities of
FHN's operating and finance lease liabilities as of
December 31, 2023:
Table 8.5.5
LEASE LIABILITY MATURITIES
(Dollars in millions)
December 31, 2023
2024
2025
2026
2027
2028
2029 and thereafter
Total lease payments
Less lease liability interest
Total lease liability
$
$
44
43
42
41
35
204
409
(64)
345
FHN had no aggregate undiscounted contractual
obligations for lease arrangements that have not
commenced as of December 31, 2023.
First Horizon as Lessor
As a lessor, FHN engages in the leasing of equipment to
commercial clients primarily through direct financing and
sales-type leases. Direct financing and sales-type leases
are similar to other forms of installment lending in that
lessors generally do not retain benefits and risks incidental
to ownership of the property subject to leases. Such
arrangements are essentially financing transactions that
permit lessees to acquire and use property. As lessor, the
sum of all minimum lease payments over the lease term
and the estimated residual value, less unearned interest
income, is recorded as the net investment in the lease on
the commencement date and is included in loans and
leases in the Consolidated Balance Sheets. Interest income
is accrued as earned over the term of the lease based on
the net investment in leases. Fees incurred to originate
the lease are deferred on the commencement date and
recognized as an adjustment of the yield on the lease.
FHN’s portfolio of direct financing and sales-type leases
contains terms of 2 to 23 years, some of 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, 2023 and 2022 were as follows:
Table 8.5.6
LEASE NET INVESTMENTS
(Dollars in millions)
December 31,
2023
December 31,
2022
Lease receivable
$
1,143 $
Unearned income
Guaranteed residual
Unguaranteed residual
(244)
147
189
984
(198)
121
153
Total net investment
$
1,235 $
1,060
Interest income for direct financing or sales-type leases
totaled $50 million, $34 million, and $26 million for the
years ended December 31, 2023, 2022, and 2021,
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, 2023, 2022, and
2021.
144
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NOTE 5—PREMISES, EQUIPMENT, & LEASES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Maturities of the Company's lease receivables as of
December 31, 2023 were as follows:
Table 8.5.7
LEASE RECEIVABLE MATURITIES
(Dollars in millions)
December 31, 2023
2024
2025
2026
2027
2028
2029 and thereafter
$
214
193
168
132
98
338
Total future minimum lease payments $
1,143
145
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Table of Contents
NOTE 6—GOODWILL & OTHER INTANGIBLE ASSETS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 6—Goodwill and Other Intangible Assets
Goodwill
FHN performed the required annual goodwill impairment
test as of October 1, 2023. The annual qualitative
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 it is not more likely than not
that goodwill was impaired. If there are any triggering
events between annual periods, management will
evaluate whether an impairment analysis is warranted.
Accounting estimates and assumptions were made about
FHN’s future performance and cash flows, as well as other
prevailing market factors (e.g., interest rates, economic
trends, etc.) when determining fair value as part of the
goodwill impairment test. While management used the
best information available to estimate future performance
for each reporting unit, future adjustments to
management’s projections may be necessary if conditions
differ substantially from the assumptions used in making
the estimates.
The following is a summary of goodwill by reportable
segment included in the Consolidated Balance Sheets as of
December 31, 2023:
Table 8.6.2
Table 8.6.1
(Dollars in millions)
December 31, 2020
Additions
December 31, 2021
Additions
December 31, 2022
Additions
Divestitures (a)
GOODWILL
Regional
Banking
Specialty
Banking
Total
$
$
$
880 $
631 $
1,511
—
—
—
880 $
631 $
1,511
—
—
—
880 $
631 $
1,511
—
—
—
(1)
—
(1)
December 31, 2023
$
880 $
630 $
1,510
(a) Reduction in goodwill is related to the divestiture of FHN
Financial Main Street Advisors assets in December 2023.
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, 2023
December 31, 2022
(Dollars in millions)
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Value
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Value
Core deposit intangibles
$
368 $
(208) $
160 $
371 $
(171) $
Client relationships
Other (a)
Total
32
27
(16)
(17)
16
10
32
27
(13)
(12)
$
427 $
(241) $
186 $
430 $
(196) $
200
19
15
234
(a) Includes non-compete covenants and purchased credit card intangible assets. Also includes state banking licenses which are not subject to amortization.
Amortization expense was $47 million, $51 million, and
$56 million for the years ended December 31, 2023, 2022
and 2021, respectively. The following table shows the
aggregated amortization expense estimated, as of
December 31, 2023, for the next five years:
Table 8.6.3
ESTIMATED AMORTIZATION EXPENSE
(Dollars in millions)
2024
2025
2026
2027
2028
$
44
38
33
29
17
146
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NOTE 7—MORTGAGE BANKING ACTIVITY
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 7—Mortgage Banking Activity
FHN originates mortgage loans for sale into the secondary
market. These loans primarily consist 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.
At December 31, 2023, FHN had approximately $34 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 2023, 2022, and 2021, 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, 2023, 2022, and 2021:
Table 8.7.1
MORTGAGE LOAN ACTIVITY
(Dollars in millions)
Balance at beginning of
period
Originations and
purchases
Sales, net of gains
Mortgage loans
transferred from (to) held
for investment
Balance at end of period
2023
2022
2021
$
44 $
250 $
409
692
1,275
2,836
(674)
(1,481)
(3,025)
—
—
30
$
62 $
44 $
250
Mortgage Servicing Rights
FHN records mortgage servicing rights at the lower of cost
or market value and amortizes them 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 periods
indicated in the table below.
Table 8.7.2
MORTGAGE SERVICING RIGHTS
(Dollars in millions)
Mortgage servicing rights
(Dollars in millions)
Mortgage servicing rights
December 31, 2023
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$
25 $
(7) $
18
December 31, 2022
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$
21 $
(5) $
16
In addition, there was an insignificant amount of non-
mortgage and commercial servicing rights as of December
31, 2023 and 2022. Total mortgage servicing fees included
in mortgage banking and title income were $4 million for
each of the years ended December 31, 2023, 2022, and
2021. Mortgage servicing rights with a net carrying
amount of $21 million were sold during 2022, resulting in
a gain of $12 million for the year ended December 31,
2022 which is included in mortgage banking and title
income on the Consolidated Statements of Income.
147
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NOTE 8—DEPOSITS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 8—Deposits
The composition of deposits is presented in the following
table:
Scheduled maturities of time deposits as of December 31,
2023 were as follows:
DEPOSITS
TIME DEPOSIT MATURITIES
Table 8.8.2
Table 8.8.1
(Dollars in millions)
Savings
Time deposits
Other interest-bearing deposits
Total interest-bearing
deposits
Noninterest-bearing deposits
Total deposits
2023
25,082 $
$
6,804
16,690
48,576
17,204
65,780 $
$
2022
(Dollars in millions)
21,971
2,887
15,165
40,023
23,466
63,489
2024
2025
2026
2027
2028
2029 and after
Total
$
6,528
138
56
52
23
7
$
6,804
Time deposits in denominations that exceed the FDIC
insurance limit of $250,000 at December 31, 2023 and
2022 were $1.8 billion and $936 million, respectively.
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NOTE 9—SHORT-TERM BORROWINGS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 9—Short-Term Borrowings
A summary of short-term borrowings for the years 2023, 2022 and 2021 is presented in the following table:
Table 8.9.1
(Dollars in millions)
2023
Average balance
Year-end balance
Maximum month-end outstanding
Average rate for the year
Average rate at year-end
2022
Average balance
Year-end balance
Maximum month-end outstanding
Average rate for the year
Average rate at year-end
2021
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
$
$
$
301
509
509
4.16 %
4.48 %
480
335
700
2.56 %
3.67 %
540
426
685
1.11 %
1.62 %
$
$
349
302
622
5.12 %
5.40 %
$
1,426
1,921
1,957
3.66 %
3.98 %
$
699
$
881
$
400
1,023
1.56 %
4.40 %
949
775
1,037
0.12 %
0.10 %
$
1,013
1,211
0.77 %
2.19 %
1,235
1,247
1,615
0.30 %
0.11 %
$
$
2,688
326
7,476
5.19 %
5.36 %
229
1,093
1,093
2.26 %
4.30 %
124
102
146
0.09 %
0.08 %
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, 2023,
there were no fixed income trading securities pledged to
secure other short-term borrowings.
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NOTE 10—TERM BORROWINGS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 10—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, 2023 and 2022:
Table 8.10.1
(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
5.95% on December 31, 2023 and 5.07% on December 31, 2022 (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 - June 28, 2035 - 7.33% on December 31, 2023 and 6.45% on December 31, 2022
Maturity date - December 15, 2035 - 7.02% on December 31, 2023 and 6.14% on December 31, 2022
Maturity date - March 15, 2036 - 7.05% on December 31, 2023 and 6.17% on December 31, 2022
Maturity date - March 15, 2036 - 7.19% on December 31, 2023 and 6.31% on December 31, 2022
Maturity date - June 30, 2036 - 6.91% on December 31, 2023 and 6.05% on December 31, 2022
Maturity date - July 7, 2036 - 7.21% on December 31, 2023 and 5.63% on December 31, 2022
Maturity date - June 15, 2037 - 7.30% on December 31, 2023 and 6.42% on December 31, 2022
Maturity date - September 6, 2037 - 7.05% on December 31, 2023 and 6.16% on December 31, 2022
Notes payable - New market tax credit investments; 7 to 35 year term, 0.93% to 4.95%
FT Real Estate Securities Company, Inc.:
Cumulative preferred stock (e)
Maturity date – March 31, 2031 – 9.50%
Total
2023
2022
$
448 $
448
88
3
—
349
3
18
9
12
28
19
52
9
65
87
3
450
349
3
18
9
12
27
18
52
9
66
47
1,150 $
46
1,597
$
(a) Qualifies for Tier 2 capital under the risk-based capital guidelines for First Horizon Bank as well as First Horizon Corporation up to certain limits for
minority interest capital instruments.
(b) Secured by trust preferred loans.
(c) Collateralized borrowings associated with SBA loan sales that did not meet sales criteria. The loans have remaining terms of 2 to 25 years. These
borrowings had a weighted average interest rate of 4.81% and 5.13% on December 31, 2023 and 2022, respectively.
(d) Acquired in conjunction with the acquisition of CBF. 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.
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NOTE 10—TERM BORROWINGS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Annual principal repayment requirements as of
December 31, 2023 are as follows:
Table 8.10.2
ANNUAL PRINCIPAL REPAYMENT SCHEDULE
(Dollars in millions)
2024
2025
2026
2027
2028 and after
$
6
350
—
—
812
In conjunction with its acquisition of CBF, 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 11—PREFERRED STOCK
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 11—Preferred Stock
FHN Preferred Stock
The following table presents a summary of FHN's non-cumulative perpetual preferred stock:
Table 8.11.1
(Dollars in millions)
PREFERRED STOCK
December 31,
2023
2022
Issuance
Date
Earliest
Redemption
Date (a)
Annual
Dividend
Rate
Dividend
Payments
Shares
Outstanding
Liquidation
Amount
Carrying
Amount
Carrying
Amount
Series B
Series C
Series D
Series E
Series F
Series G
7/2/2020
8/1/2025
6.625 % (b)
Semi-annually
8,000 $
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
2/28/2022
2/28/2027
6.500 %
4.700 %
N/A
Quarterly
Quarterly
N/A
5,750
10,000
1,500
1,500
—
26,750 $
80 $
58
100
150
150
—
538 $
77 $
59
94
145
145
—
520 $
77
59
94
145
145
494
1,014
N/A - not applicable
(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 CME Term SOFR plus 4.52361% (0.26161% plus 4.262%).
(c) Fixed dividend rate will reset on May 1, 2026 to three-month CME Term SOFR plus 5.18161% (0.26161% plus 4.920%).
(d) Fixed dividend rate will reset on May 1, 2024 to three-month CME Term SOFR plus 4.12061% (0.26161% plus 3.859%).
On February 28, 2022, in connection with the execution of
the TD Merger Agreement, FHN issued $494 million of
Series G Perpetual Convertible Preferred Stock (the Series
G Convertible Preferred Stock). The Series G Convertible
Preferred Stock was convertible into up to 4.9% of the
outstanding shares of FHN common stock in certain
circumstances, including termination of the TD Merger
Agreement. Because regulatory approval of the TD
Transaction was not obtained, conversion occurred,
effective June 26, 2023, at a fixed rate of 4,000 shares of
common stock for each share of Series G Convertible
Preferred Stock, resulting in 19,742,776 additional
common shares outstanding.
The $494 million carrying value of the Series G Convertible
Preferred Stock qualified as Tier 1 Capital as of December
31, 2022 and qualified as Common Equity Tier 1 Capital
upon conversion to common stock on June 26, 2023.
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
CME Term SOFR plus 1.11161% (0.26161% 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, 2023 and 2022, $295 million of Class A Preferred Stock
was recognized as noncontrolling interest on the
Consolidated Balance Sheets.
FT Real Estate Securities Company, Inc. (FTRESC), an
indirect subsidiary of FHN, has issued 50 shares of 9.50%
Cumulative Preferred Stock, Class B (Class B Preferred
Shares), with a liquidation preference of $1 million per
share; of those shares, 47 were issued to nonaffiliates.
FTRESC is a real estate investment trust established for
the purpose of acquiring, holding, and managing real
estate mortgage assets. Dividends on the Class B Preferred
Shares are cumulative and are payable semi-annually. At
December 31, 2023, the Class B Preferred Shares 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.
LIBOR Change to SOFR
On March 5, 2021, the U.K.'s Financial Conduct Authority
announced that all tenors of LIBOR would cease
publication or no longer be representative after June 30,
2023. On March 15, 2022, the Adjustable Interest Rate
(LIBOR) Act was enacted in the U.S. The LIBOR Act
provides that LIBOR will transition to a replacement
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NOTE 11—PREFERRED STOCK
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
benchmark based on the Secured Overnight Financing
Rate (SOFR), plus a spread adjustment, in such covered
contracts. Subsequently, the FRB adopted Regulation ZZ
that identified CME Term SOFR, a forward term rate based
on SOFR administered by CME Group Benchmark
Administration, Ltd., plus a spread adjustment, as the
replacement rate for securities for any interest rate
calculations after June 30, 2023.
On April 25, 2023, FHN announced that each reference to
LIBOR in each applicable securities contract (which term
includes preferred stock and related depositary shares)
will transition to CME Term SOFR, plus a tenor-based
spread adjustment, on the first business day after June 30,
2023 pursuant to the LIBOR Act and the implementing
regulations. The information presented in this Note
reflects that transition.
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NOTE 12—REGULATORY CAPITAL & RESTRICTIONS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 12—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, 2023, FHN
and First Horizon Bank met all capital adequacy
requirements to which they were subject. As of
December 31, 2023, 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.
CAPITAL AMOUNTS & RATIOS
First Horizon Corporation
First Horizon Bank
Amount
Ratio
Amount
Ratio
Table 8.12.1
(Dollars in millions)
December 31, 2023
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
December 31, 2022
Actual:
Total Capital
Tier 1 Capital
Common Equity Tier 1
Leverage
$
$
9,922
8,825
8,104
8,825
5,686
4,264
3,198
3,302
9,222
8,247
7,032
8,247
154
13.96 %
$
12.42
11.40
10.69
8.00
6.00
4.50
4.00
13.33 %
$
11.92
10.17
10.36
9,303
8,350
8,055
8,350
5,651
4,238
3,179
3,276
7,064
5,651
4,591
4,095
8,532
7,700
7,405
7,700
13.17 %
11.82
11.40
10.20
8.00
6.00
4.50
4.00
10.00
8.00
6.50
5.00
12.41 %
11.20
10.77
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Table of Contents
NOTE 12—REGULATORY CAPITAL & RESTRICTIONS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Minimum Requirement for Capital Adequacy Purposes:
Total Capital
Tier 1 Capital
Common Equity Tier 1
Leverage
5,533
4,150
3,112
3,183
8.00
6.00
4.50
4.00
Minimum Requirement to be Well Capitalized Under
Prompt Corrective Action Provisions:
Total Capital
Tier 1 Capital
Common Equity Tier 1
Leverage
Restrictions on cash and due from banks
Effective March 26, 2020, the Federal Reserve reduced its
reserve requirement to zero, and as a result, on December
31, 2023 and 2022, First Horizon Bank was not required to
maintain cash reserves.
Restrictions on dividends
Cash dividends are paid by FHN from its assets, which are
mainly provided by dividends from its subsidiaries. Certain
regulatory restrictions exist regarding the ability of First
Horizon Bank to transfer funds to FHN in the form of cash,
dividends, loans, or advances. As of December 31, 2023,
First Horizon Bank had undivided profits of $3.3 billion, of
which a limited amount was available for distribution to
FHN as dividends without prior regulatory approval. At
any given time, the pertinent portions of those regulatory
restrictions allow First Horizon Bank to declare preferred
or common dividends without prior regulatory approval in
an amount equal to First Horizon Bank's retained net
income for the two most recent completed years plus the
current year-to-date 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 $1.2
billion at January 1, 2024. First Horizon Bank declared and
paid common dividends to the parent company in the
amount of $220 million in 2023 and $435 million in 2022.
During 2023 and 2022, First Horizon Bank declared and
paid dividends on its preferred stock according to the
payment terms of its issuances as noted in Note 11 -
Preferred Stock.
5,498
4,124
3,093
3,157
6,873
5,498
4,467
3,946
8.00
6.00
4.50
4.00
10.00
8.00
6.50
5.00
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 $951 million, on December 31,
2023. 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, 2023, the parent company had less than
$1 million in covered transactions 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 $387 million and $50 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 $1.9
billion, on December 31, 2023. First Horizon Bank’s total
covered transactions with all affiliates including the parent
company on December 31, 2023 were $438 million.
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NOTE 13—COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS)
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 13—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, 2023, 2022, and 2021:
Table 8.13.1
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
Balance as of December 31, 2020
Net unrealized gains (losses)
Amounts reclassified from AOCI
Other comprehensive income (loss)
Balance as of December 31, 2021
Net unrealized gains (losses)
Amounts reclassified from AOCI
Other comprehensive income (loss)
Balance as of December 31, 2022
Net unrealized gains (losses)
Amounts reclassified from AOCI
Other comprehensive income (loss)
Balance as of December 31, 2023
Securities AFS
Cash Flow
Hedges
Pension and
Post-retirement
Plans
Total
$
$
$
$
108 $
12 $
(260) $
(144)
—
(144)
(3)
(7)
(10)
(2)
8
6
(36) $
2 $
(254) $
(937)
—
(937)
(973) $
137
—
137
(144)
15
(129)
(127) $
(5)
52
47
(22)
8
(14)
(268) $
(11)
7
(4)
(140)
(149)
1
(148)
(288)
(1,103)
23
(1,080)
(1,368)
121
59
180
(836) $
(80) $
(272) $
(1,188)
Reclassifications from AOCI, and related tax effects, were as follows:
Table 8.13.2
(Dollars in millions)
Details about AOCI
Cash flow hedges:
RECLASSIFICATIONS FROM AOCI
2023
2022
2021
Affected line item in the statement
where net income is presented
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)
$
$
$
69 $
(17)
52 $
9 $
(2)
7
Total reclassification from AOCI
$
59 $
23 $
20 $
(9)
Interest and fees on loans and leases
(5)
2
Income tax expense
15 $
(7)
10 $
10 Other expense
(2)
8
(2)
Income tax expense
8
1
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NOTE 14—INCOME TAXES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 14—Income Taxes
The aggregate amount of income taxes included in the Consolidated Statements of Income and the Consolidated Statements
of Changes in Equity for the years ended December 31, were as follows:
Table 8.14.1
(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
2023
2022
2021
$
212 $
247 $
274
Net unrealized gains (losses) on pension and other postretirement plans
Net unrealized gains (losses) on securities available for sale
Net unrealized gains (losses) on cash flow hedges
(1)
44
15
(5)
(302)
(42)
Total
$
270 $
(102) $
The components of income tax expense (benefit) for the years ended December 31, were as follows:
Table 8.14.2
(Dollars in millions)
Current:
Federal
State
Deferred:
Federal
State
Total
INCOME TAX EXPENSE COMPONENTS
2023
2022
2021
$
140 $
123 $
28
37
7
212 $
33
87
4
247 $
$
2
(46)
(3)
227
235
39
(1)
1
274
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NOTE 14—INCOME TAXES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
A reconciliation of expected income tax expense (benefit) at the federal statutory rate of 21% for 2023, 2022, and 2021,
respectively, to the total income tax expense follows:
Table 8.14.3
(Dollars in millions)
Federal income tax rate
Tax computed at statutory rate
Increase (decrease) resulting from:
RECONCILIATION FROM STATUTORY RATES
2023
2022
2021
$
21 %
237
$
21 %
243
$
21 %
270
State income taxes, net of federal income tax benefit
Bank-owned life insurance
Tax-exempt interest
FDIC premium
Non-deductible expenses
LIHTC credits and benefits, net of amortization
Other tax credits
Other changes in unrecognized tax benefits
Termination of BOLI policies
Other
Total
$
34
(6)
(12)
11
9
(15)
(5)
(50)
21
(12)
212
31
(4)
(10)
7
4
(16)
(4)
(2)
—
(2)
$
247
$
32
(7)
(10)
5
3
(14)
(4)
4
—
(5)
274
As of December 31, 2023, FHN had net deferred tax asset balances related to federal and state income tax carryforwards of
$32 million and $3 million, respectively, which will expire at various dates as follows:
TAX CARRYFORWARD DTA EXPIRATION DATES
Table 8.14.4
(Dollars in millions)
Losses - federal
Net operating losses - states
Net operating losses - states
We believe it is more likely than not that the benefit from
certain state NOL carryforwards will not be realized. In
recognition of this risk, we have provided an immaterial
valuation allowance on the DTAs related to these state
NOL carryforwards. If our assumptions change and we
determine that we will be able to realize these NOLs, the
tax benefits related to any reversal of the valuation
allowance on DTAs will be recognized as a reduction of
income tax expense.
A DTA or DTL is recognized for the tax consequences of
temporary differences between the financial statement
carrying amounts and the tax bases of existing assets and
liabilities. The tax consequence is calculated by applying
enacted statutory tax rates, applicable to future years, to
these temporary differences. In order to support the
recognition of the DTA, FHN’s management must believe
that the realization of the DTA is more likely than not. FHN
evaluates the likelihood of realization of the DTA based on
both positive and negative evidence available at the time,
including (as appropriate) scheduled reversals of DTLs,
projected future taxable income, tax planning strategies,
Expiration Dates
2028 - 2035
2024 - 2033
2034 - 2041
$
Net Deferred Tax
Asset Balance
32
2
1
and recent financial performance. Realization is
dependent on generating sufficient taxable income prior
to the expiration of the carryforwards attributable to the
DTA. In projecting future taxable income, FHN
incorporates assumptions including the estimated amount
of future state and federal pre-tax operating income, the
reversal of temporary differences, and the
implementation of feasible and prudent tax planning
strategies. These assumptions require significant
judgment about the forecasts of future taxable income
and are consistent with the plans and estimates used to
manage the underlying business.
As of December 31, 2023, FHN's net DTA was $215 million
compared to $313 million at December 31, 2022. At
December 31, 2023, FHN's gross DTA (net of a valuation
allowance) and gross DTL were $737 million and $522
million, respectively. Although realization is not assured,
FHN believes that it meets the more-likely-than-not
requirement with respect to the net DTA after valuation
allowance.
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NOTE 14—INCOME TAXES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Temporary differences which gave rise to deferred tax assets and deferred tax liabilities on December 31, 2023 and 2022 were
as follows:
COMPONENTS OF DTAs & DTLs
2023
2022
Table 8.14.5
(Dollars in millions)
Deferred tax assets:
Loan valuations and loss reserves
Employee benefits
Accrued expenses
Depreciation and amortization
Lease liability
Federal loss carryforwards
State loss carryforwards
Securities available for sale and financial instruments (a)
Other
Gross deferred tax assets
Deferred tax liabilities:
Equity investments
Other intangible assets
Prepaid expenses
ROU lease asset
Leasing
Other
Gross deferred tax liabilities
Net deferred tax assets
$
$
$
107 $
128
21
37
85
32
3
296
28
737
31 $
75
20
76
316
4
522
215 $
108
93
22
24
91
34
2
355
32
761
3
80
17
82
265
1
448
313
(a) Tax effects of unrealized gains and losses are tracked on a security-by-security basis.
Total unrecognized tax benefits at December 31, 2023 and
2022 were $15 million and $89 million, respectively. To
the extent such unrecognized tax benefits as of
December 31, 2023 are subsequently recognized, $15
million of tax benefits could impact tax expense and FHN’s
effective tax rate in future periods.
During 2023, FHN settled audits which allowed it to
reduce unrecognized benefits by $76 million, this resulted
in a reduction of tax expense by $32 million. A reduction
of accrued interest related to unrecognized benefits
resulted in a reduction of tax expense of $14 million.
It is reasonably possible that the unrecognized tax benefits
related to federal and state exposures could decrease by
$1 million during 2024 if the applicable statutes of
limitations expire as scheduled. FHN recognizes interest
accrued and penalties related to unrecognized tax benefits
within income tax expense. FHN had approximately $3
million and $17 million accrued for the payment of
interest as of December 31, 2023 and 2022, respectively.
The total amount of interest and penalties recognized in
the Consolidated Statements of Income during 2023 and
2022 were a benefit of $14 million and an expense of $3
million, respectively.
The rollforward of unrecognized tax benefits is shown in
the following table:
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Table 8.14.6
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 14—INCOME TAXES
ROLLFORWARD OF UNRECOGNIZED TAX BENEFITS
(Dollars in millions)
Balance at December 31, 2021
Increases related to prior year tax positions
Increases related to current year tax positions
Decreases related to prior year tax positions
Balance at December 31, 2022
Increases related to prior year tax positions
Increases related to current year tax positions
Settlements
Lapse of statutes
Balance at December 31, 2023
$
$
$
92
3
1
(7)
89
1
2
(76)
(1)
15
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NOTE 15—EARNINGS PER SHARE
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 15—Earnings Per Share
The computations of basic and diluted earnings per common share were as follows:
Table 8.15.1
EARNINGS PER SHARE COMPUTATIONS
(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
2023
2022
2021
$
916
$
912
$
1,010
19
897
32
865
12
900
32
868
11
999
37
962
Weighted average common shares outstanding—basic
548,410
535,033
546,354
Effect of dilutive restricted stock, performance equity awards and
options
Effect of dilutive convertible preferred stock (a)
Weighted average common shares outstanding—diluted
3,802
9,520
561,732
7,830
23,141
566,004
Basic earnings per common share
Diluted earnings per common share
$
$
1.58
1.54
$
$
1.62
1.53
$
$
4,887
—
551,241
1.76
1.74
(a) On February 28, 2022, FHN issued $494 million of Series G Convertible Preferred Stock, which was converted into common stock on
June 26, 2023, following the termination of the TD Merger Agreement. Conversion occurred at the rate of 4,000 common shares per Series
G preferred share resulting in 19,742,776 additional common shares outstanding. 2023 includes the impact of the Series G based on the
final conversion rate and 2022 includes the impact based on the original maximum conversion rate. For more information on the
convertible features, including the conversion rate, see Note 11 - Preferred Stock.
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 8.15.2
than the weighted-average market price for the period) or
the performance conditions have not been met:
(Shares in thousands)
Stock options excluded from the calculation of diluted EPS
ANTI-DILUTIVE EQUITY AWARDS
2023
2022
2021
—
29
Weighted average exercise price of stock options excluded from the
calculation of diluted EPS
Other equity awards excluded from the calculation of diluted EPS
$
24.36
$
2,242
25.64
$
144
1,366
20.44
1,531
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NOTE 16—CONTINGENCIES & OTHER DISCLOSURES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 16—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 currently 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
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, 2023,
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, 2023, 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.
Mortgage Loan Repurchase and Foreclosure Liability
FHN’s repurchase and foreclosure liability, primarily
related to its pre-2009 mortgage origination, sale,
securitization and servicing businesses, is comprised of
accruals to cover estimated loss content in the active
pipeline, estimated future inflows, and estimated loss
content related to certain known claims not currently
included in the active pipeline. The active pipeline consists
of mortgage loan repurchase and make-whole demands
from loan purchasers or securitization participants,
foreclosure/servicing demands from borrowers, and
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NOTE 16—CONTINGENCIES & OTHER DISCLOSURES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
certain related exposures. FHN compares the estimated
probable incurred losses determined under the applicable
loss estimation approaches for the respective periods with
current reserve levels. Changes in the estimated required
liability levels are recorded as necessary through the
repurchase and foreclosure provision.
Based on currently available information and experience
to date, FHN has evaluated its loan repurchase, make-
whole, foreclosure, and certain related exposures and has
accrued for losses of $16 million as of both December 31,
2023 and 2022. 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.
The most significant outstanding claim associated with
FHN's pre-2009 business is a servicing indemnification
claim asserted by 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.
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.
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ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Table of Contents
NOTE 17—RETIREMENT PLANS & OTHER EMPLOYEE BENEFITS
Note 17—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 2023 and 2022. Management does not
currently anticipate that FHN will make a contribution to
the qualified pension plan in 2024.
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
$6 million for 2023. FHN anticipates making benefit
payments under the non-qualified plans of $5 million in
2024.
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 $48 million, $47 million, and $51 million for
2023, 2022, and 2021, respectively.
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 2023 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:
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Table 8.17.1
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)
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 17—RETIREMENT PLANS & OTHER EMPLOYEE BENEFITS
ACTUARIAL ASSUMPTIONS FOR DEFINED BENEFIT PLANS
2023
5.00%
4.90%
4.75%
Benefit Obligations
2022
5.20%
5.10%
4.94%
2021
2.95%
2.65%
1.99%
2023
5.20%
5.10%
4.94%
Net Periodic Benefit Cost
2022
2.96%
2.65%
1.99%
2021
2.64%
2.24%
1.41%
4.84% - 5.06%
5.04% - 5.25%
2.43% - 3.07%
4.88% - 5.25%
2.42% - 5.08%
1.93% - 2.81%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
5.15%
2.85%
2.30%
5.50%
5.95%
5.80%
N/A
1.05%
1.00%
Table 8.17.2
PROJECTED BENEFIT OBLIGATION
& CREDITING RATE
(Dollars in millions)
2023
2022
2021
Projected benefit obligation
$
8
$
10
$
12
Interest crediting rate
12.04 %
10.77 %
9.07 %
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, 2023, 2022 and
2021 and interest crediting rates for the respective years
were as follows:
The components of net periodic benefit cost for the plan years 2023, 2022 and 2021 were as follows:
Table 8.17.3
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
2022
2023
2021
2023
Other Benefits
2022
2021
$
$
33 $
(32)
13
14 $
20 $
(24)
12
8 $
17 $
(20)
10
7 $
2 $
(1)
(1)
— $
1 $
(2)
—
(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.
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NOTE 17—RETIREMENT PLANS & OTHER EMPLOYEE BENEFITS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
The following table presents the plans’ benefit obligations and plan assets for 2023 and 2022:
Table 8.17.4
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
2023
2022
2023
2022
663 $
845 $
32 $
33
20
(41)
675 $
641 $
35
3
(2)
(1)
(38)
638 $
(37) $
— $
(37)
(37) $
20
(163)
(39)
663 $
849 $
(172)
3
(2)
(1)
(36)
641 $
(22) $
4 $
(26)
(22) $
2
—
(3)
31 $
21 $
2
3
(3)
—
—
23 $
(8) $
21 $
(29)
(8) $
41
1
(9)
(1)
32
26
(4)
1
(2)
—
—
21
(11)
19
(30)
(11)
(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) Amounts represent 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 8.17.5
(Dollars in millions)
BENEFIT OBLIGATION - UNFUNDED PLANS
Pension Benefits
Other Benefits
2023
2022
2023
2022
Projected benefit obligation
$
24 $
26 $
29 $
30
The qualified pension plan was underfunded by $13
million and overfunded by $4 million as of December 31,
2023 and 2022, respectively. Because of the pension
freeze at the end of 2012, as of both December 31, 2023
and 2022, the pension benefit obligation is equivalent to
the accumulated benefit obligation. FHN's funded post
retirement plan was in an overfunded status as of
December 31, 2023 and 2022.
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, 2023 and 2022 consist of:
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Table 8.17.6
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 17—RETIREMENT PLANS & OTHER EMPLOYEE BENEFITS
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
2023
2022
2023
2022
$
367 $
363 $
(8) $
(8)
The pre-tax amounts recognized in other comprehensive income during 2023, 2022, and 2021 were as follows:
Table 8.17.7
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
2023
2022
2021
2023
2022
2021
$
17 $
32 $
13 $
— $
(3) $
(7)
Net actuarial gain (loss)
(13)
Total recognized in other comprehensive income
$
4 $
(11)
21 $
(10)
3 $
1
1 $
—
(3) $
—
(7)
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 8.17.8
EXPECTED BENEFIT PAYMENTS
(Dollars in millions)
2024
2025
2026
2027
2028
2029-2033
Pension
Benefits
Other
Benefits
$
44 $
46
47
48
48
239
2
2
2
2
2
11
Plan Assets
FHN’s overall investment goal is to create, over the life of
the pension plan and retiree medical plan, an adequate
pool of sufficiently liquid assets to support the qualified
pension benefit obligations to participants, retirees, and
beneficiaries, as well as to partially support the medical
obligations to retirees and beneficiaries. Thus, the
qualified pension plan and retiree medical plan seek to
achieve a level of investment return consistent with
changes in projected benefit obligations.
Qualified pension plan assets primarily consist of fixed
income securities which include U.S. treasuries, corporate
bonds of companies from diversified industries, municipal
bonds, and foreign bonds. Fixed income investments
generally have long durations consistent with the
estimated pension liabilities of FHN. This duration-
matching strategy is intended to hedge substantially all of
the plan’s risk associated with future benefit payments.
Retiree medical funds are kept in short-term investments,
primarily money market funds and mutual funds. On
December 31, 2023 and 2022, 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, 2023 and 2022, by asset category classified
using the Fair Value measurement hierarchy, is shown in
the table below. See Note 23 – Fair Value of Assets and
Liabilities for more details about fair value measurements.
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Table 8.17.9
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 17—RETIREMENT PLANS & OTHER EMPLOYEE BENEFITS
FAIR VALUE OF PENSION ASSETS
December 31, 2023
(Dollars in millions)
Level 1
Level 2
Level 3
Total
Cash equivalents and money market funds
$
6 $
— $
— $
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
—
—
—
6 $
9
317
306
632 $
—
—
—
— $
December 31, 2022
Level 1
Level 2
Level 3
Total
20 $
— $
— $
$
$
—
—
—
$
20 $
15
300
306
621 $
—
—
—
— $
6
9
317
306
638
20
15
300
306
641
The HR Investment and Risk Committee, 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.
Table 8.17.10
The fair value of FHN’s retiree medical plan assets at
December 31, 2023 and 2022 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, 2023
$
$
$
$
7 $
16
23 $
— $
—
— $
— $
—
— $
Level 1
Level 2
Level 3
Total
December 31, 2022
6 $
15
21 $
— $
—
— $
— $
—
— $
7
16
23
6
15
21
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NOTE 18—STOCK OPTIONS, RESTRICTED STOCK, & DIVIDEND REINVESTMENT PLANS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 18—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, 2023, there were 4,965,419 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 (in
relation to the maximum possible) 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 2023 or outstanding
on December 31, 2023: the 2018, 2019 and 2020 units
vested in 2021, 2022 and 2023 at the 133.3%, 187.5% and
187.5% payout level, respectively, and remain in a two
year post-vesting holding period; the three-year
performance period of the 2021 units has ended but
performance is measured relative to peers and has not yet
been determined; and, the three-year performance
periods for the 2022 and 2023 units have not ended.
Market condition award
In 2016, FHN made a special grant of performance stock
units to FHN’s CEO seven year performance period. The
award had no provision for pro-rated payment based on
partial performance. The award’s performance goal was
based on achievement of a specific level of total
shareholder return during the performance period and
vested in 2023.
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 vest
in the year following the year of grant and settle in shares.
In 2023 and 2022, each director received a base of
$122,000 or prorated equivalent of stock units,
representing a portion of their annual retainer. Prior to
2005, directors could elect to defer cash compensation in
the form of discount-priced stock options, one of which
remained outstanding at December 31, 2023, but has
since expired.
Stock and stock unit awards. A summary of restricted and
performance stock and unit activity during the year ended
December 31, 2023, is presented below:
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NOTE 18—STOCK OPTIONS, RESTRICTED STOCK, & DIVIDEND REINVESTMENT PLANS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Table 8.18.1
RESTRICTED AND PERFORMANCE EQUITY AWARD ACTIVITY
January 1, 2023
Shares/units granted
Shares/units vested/distributed
Shares/units canceled (c)
December 31, 2023
Shares/
Units (a)
Weighted average
grant date fair value
(per share) (b)
13,033,646 $
4,558,402
(2,880,586)
(3,393,758)
11,317,704 $
17.09
16.08
11.41
22.43
15.89
(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 2022 and 2021 was $17.09 and $13.14, respectively.
(c)
Includes 3,198,257 retention grants canceled in connection with the TD merger termination; replacement retention grants issued settle in cash upon
vesting and are excluded from this disclosure.
On December 31, 2023, there was $78 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
2023, 2022 and 2021, was $32 million, $29 million, and
$36 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 8.18.2
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. At December 31, 2023 an immaterial number of
grants remained outstanding, but have since expired.
The summary of stock option activity for the year ended
December 31, 2023, is shown below:
January 1, 2023
Options granted
Options exercised
Options expired/canceled
December 31, 2023
Options exercisable
Options expected to vest
STOCK OPTION ACTIVITY
Options
Outstanding
Weighted
Average
Exercise Price
(per share)
Weighted Average
Remaining
Contractual Term
(years)
Aggregate
Intrinsic Value
(millions)
2,437,446 $
—
(393,560)
(144,918)
1,898,968 $
1,617,760
281,208
15.72
—
13.49
14.05
16.31
16.44
15.53
2.87 $
2.62
4.33
—
—
—
The total intrinsic value of options exercised during 2023,
2022 and 2021 was $4 million, $17 million, and $12
million, respectively. On December 31, 2023, there was an
immaterial amount of unrecognized compensation cost
related to nonvested stock options. That cost is expected
to be recognized over a weighted-average period of
0.2 years.
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NOTE 18—STOCK OPTIONS, RESTRICTED STOCK, & DIVIDEND REINVESTMENT PLANS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
FHN did not grant or convert stock options in 2023 and
2022. FHN granted or converted 155,124 stock options
with a weighted average fair value of $3.39 per option at
grant date in 2021.
FHN used the Black-Scholes Option Pricing Model to
estimate the fair value of stock options granted or
converted in 2021 and with the following assumptions:
Table 8.18.3
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
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,
2023, there were 199,114 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 $36 million, $75 million, and $43
million for 2023, 2022, and 2021, respectively. The
corresponding total income tax benefits recognized were
$8 million, $18 million and $10 million in 2023, 2022, and
2021, respectively.
2021
4.16%
6.29 years
38.44%
37.86% - 39.02%
0.62%
Authorization
Consistent with Tennessee state law, only authorized, but
unissued, stock may be utilized in connection with any
issuance of FHN common stock which may be required as
a result of stock-based compensation awards. Prior
authorizations to repurchase shares issued in connection
with compensation plans expired on December 31, 2023.
After 2023, as authorized by FHN's Board and the Board's
Compensation Committee, FHN will continue to make
automatic stock purchases by withholding shares
associated with stock-based awards to cover tax
obligations associated with those awards. Those limited,
off-market purchases no longer will be connected to a
traditional, announced purchase program. As has been
true in the past, automatic tax withholding purchases are
not subject to trading blackouts which affect senior
executives or the general purchase program.
Dividend reinvestment plan
Prior to March 2022, the Dividend Reinvestment and Stock
Purchase Plan authorized 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 was the
average price paid. In March 2022, FHN agreed to suspend
the Dividend Reinvestment Plan in connection with the TD
Transaction. During the suspension period, dividend
payments of FHN are not automatically reinvested in
additional shares of FHN common stock and participants
in the Plan are not able to purchase shares of FHN
common stock through optional cash investments under
the Plan.
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NOTE 19—BUSINESS SEGMENT INFORMATION
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 19—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 commercial and consumer 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 (prior to July 2022)
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
Table 8.19.1
human resources, properties, technology, credit risk
and bank operations are allocated to the activities of
Regional Banking, Specialty Banking and Corporate.
Additionally, the Corporate segment includes
centralized management of capital and funding to
support the business activities of the company
including management of wholesale funding, liquidity,
and capital management and allocation. The
Corporate segment also includes the revenue and
expense associated with run-off businesses such as
pre-2009 mortgage banking elements, run-off
consumer and trust preferred loan portfolios, and
other exited businesses.
Periodically, FHN adapts its segments to reflect managerial
or strategic changes. FHN may also modify its methodology
of allocating expenses and equity among segments which
could change historical segment results. Business segment
revenue, expense, asset, and equity levels reflect those
which are specifically identifiable or which are allocated
based on an internal allocation method. Because the
allocations are based on internally developed assignments
and allocations, to an extent they are subjective. Generally,
all assignments and allocations have been consistently
applied for all periods presented.
The following table presents financial information for each
reportable business segment for the years ended
December 31:
(Dollars in millions)
Regional Banking
Specialty Banking
Corporate
Consolidated
SEGMENT FINANCIAL INFORMATION
2023
Net interest income (expense)
$
2,354 $
518 $
Provision for credit losses
Noninterest income (a)
Noninterest expense (b)(c)(e)
Income (loss) before income taxes
Income tax expense (benefit) (f)
Net income (loss)
Average assets
Depreciation and amortization
Expenditures for long-lived assets
224
433
1,301
1,262
296
966 $
45,858 $
60
29
$
$
50
209
364
313
76
237 $
(332) $
(14)
285
414
(447)
(160)
(287) $
2,540
260
927
2,079
1,128
212
916
20,161 $
15,664 $
81,683
—
4
42
1
102
34
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Table of Contents
NOTE 19—BUSINESS SEGMENT INFORMATION
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
(Dollars in millions)
Net interest income (expense)
Provision for credit losses
Noninterest income (a)
Noninterest expense (b)(e)
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 (benefit) for credit losses
Noninterest income (a)
Noninterest expense (b)(d)(e)
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Average assets
Depreciation and amortization
Expenditures for long-lived assets
Regional Banking
2022
Specialty Banking
$
1,954 $
557 $
94
443
1,226
1,077
253
824 $
42,297 $
24
18
Corporate
Consolidated
(119) $
(13)
60
281
(327)
(105)
(222) $
2,392
95
815
1,953
1,159
247
912
14
312
446
409
99
310 $
19,965 $
21,955 $
84,217
2
12
59
(6)
85
24
Regional Banking
2021
Specialty Banking
Corporate
Consolidated
1,764 $
(229)
438
1,136
1,295
303
992 $
41,527 $
(57)
27
620 $
(64)
597
573
708
172
536 $
(390) $
(17)
41
387
(719)
(201)
(518) $
1,994
(310)
1,076
2,096
1,284
274
1,010
20,789 $
25,293 $
87,609
4
3
98
7
45
37
$
$
$
$
$
(a) 2023 includes a $225 million gain on merger termination and a $6 million loss on equities valuation adjustments in the Corporate segment and a $7 million
gain on a small FHN Financial asset disposition in the Specialty Banking segment. 2022 includes a $12 million gain on sale of mortgage servicing rights in the
Specialty Banking segment and a $22 million gain related to the sale of the title insurance business, a $10 million gain on equity securities and a $6 million
gain related to a fintech investment in the Corporate segment. 2021 includes a loss of $26 million related to TRUPS redemption in the Corporate segment.
(b) 2023 includes $51 million in merger and integration planning expenses related to the TD Transaction in the Corporate Segment. 2022 and 2021 include
$136 million and $187 million, respectively, in merger and integration expenses related to the IBKC merger and TD Transaction in the Corporate segment.
(c) 2023 includes $10 million of restructuring costs, an FDIC special assessment of $68 million, and a $50 million contribution to the First Horizon Foundation
in the Corporate segment.
(d) 2021 includes $37 million in asset impairments related to IBKC merger integration efforts in the Corporate segment.
(e) 2023, 2022 and 2021 include $15 million, $22 million and $19 million, respectively, in derivative valuation adjustments related to prior Visa Class-B share
sales in the Corporate segment.
(f) 2023 includes $24 million in expense related to the surrender of bank owned life insurance policies and a $59 million benefit from merger-related tax items
in the Corporate segment.
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NOTE 19—BUSINESS SEGMENT INFORMATION
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
The following table presents a disaggregation of FHN’s noninterest income by major product line and reportable segment for
the years ended December 31, 2023, 2022, and 2021:
Table 8.19.2
(Dollars in millions)
Noninterest income:
NONINTEREST INCOME DETAIL BY SEGMENT
December 31, 2023
Regional Banking
Specialty Banking
Corporate
Consolidated
Deposit transactions and cash management
$
161 $
Fixed income (a)
Brokerage, management fees and commissions
Card and digital banking fees
Other service charges and fees
Trust services and investment management
Mortgage banking and title income
Gain on merger termination
Securities gains (losses), net (b)
Other income (c)
—
90
68
30
47
—
—
—
37
10 $
133
—
2
24
—
23
—
—
17
Total noninterest income
$
433 $
209 $
8 $
—
—
7
—
—
—
225
(4)
49
285 $
179
133
90
77
54
47
23
225
(4)
103
927
(Dollars in millions)
Noninterest income:
Regional Banking
Specialty Banking
Corporate
Consolidated
December 31, 2022
Deposit transactions and cash management
$
153 $
Fixed income (a)
Brokerage, management fees and commissions
Card and digital banking fees
Other service charges and fees
Trust services and investment management
Mortgage banking and title income
Securities gains (losses), net (b)
Other income (c)
—
92
75
32
48
—
—
43
9 $
205
—
2
22
—
68
—
6
9 $
—
—
7
—
—
—
18
26
171
205
92
84
54
48
68
18
75
Total noninterest income
$
443 $
312 $
60 $
815
(Dollars in millions)
Noninterest income:
Regional Banking
Specialty Banking
Corporate
Consolidated
December 31, 2021
Deposit transactions and cash management
$
157 $
Fixed income (a)
Brokerage, management fees and commissions
Card and digital banking fees
Other service charges and fees
Trust services and investment management
Mortgage banking and title income
Securities gains (losses), net (b)
Other income (c)
—
88
67
23
51
—
—
52
12 $
406
—
3
17
—
152
—
7
6 $
—
—
8
4
—
2
13
8
175
406
88
78
44
51
154
13
67
Total noninterest income
$
438 $
597 $
41 $
1,076
(a) 2023, 2022 and 2021, include $42 million, $43 million, and $44 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 20—VARIABLE INTEREST ENTITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 20—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 FHN is the
primary beneficiary of the entity. FHN is the primary
beneficiary of a VIE if FHN's 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, 2023 and 2022:
Table 8.20.1
(Dollars in millions)
Assets:
Other assets
Liabilities:
Other liabilities
CONSOLIDATED VIEs
December 31,
2023
December 31,
2022
$
$
177 $
150 $
181
150
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 which
most significantly affect the performance of the
partnerships. FHN is therefore not the primary beneficiary
of any LIHTC partnerships. Accordingly, FHN does not
consolidate these VIEs and accounts for these investments
in other assets on the Consolidated Balance Sheets.
FHN accounts for all qualifying LIHTC investments under
the proportional amortization method. Under this method
an entity amortizes the initial cost of the investment in
proportion to the tax credits and other tax benefits
received and recognizes the net investment performance
as a component of income tax expense. LIHTC investments
that do not qualify for the proportional amortization
method are accounted for using the equity method.
Expenses associated with non-qualifying LIHTC
investments were not material during 2023, 2022, and
2021.
The following table summarizes the impact to income tax
expense on the Consolidated Statements of Income for
the years ended December 31, 2023, 2022 and 2021 for
LIHTC investments accounted for under the proportional
amortization method.
Table 8.20.2
LIHTC IMPACTS ON TAX EXPENSE
(Dollars in millions)
2023
2022
2021
Income tax expense (benefit):
Amortization of qualifying
LIHTC investments
Low income housing tax
credits
Other tax benefits related to
qualifying LIHTC
investments
$
54 $
44 $
26
(55)
(48)
(32)
(13)
(12)
(7)
Other Tax Credit Investments
Through designated subsidiaries, First Horizon Bank
periodically makes equity investments as a non-managing
member in various LLCs that sponsor community
development projects utilizing the NMTC. First Horizon
Bank also makes equity investments as a limited partner
or non-managing member in entities that receive historic
tax credits. The purposes of these investments are to
achieve a satisfactory return on capital and to support
FHN’s community reinvestment initiatives. These entities
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NOTE 20—VARIABLE INTEREST ENTITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
are considered VIEs as First Horizon Bank's subsidiaries
represent the holders of the equity investment at risk, but
do not have the ability to direct the activities that most
significantly affect the performance of the entities.
Small Issuer Trust Preferred Holdings
First Horizon Bank holds variable interests in trusts which
have issued mandatorily redeemable preferred capital
securities (“trust preferreds”) for smaller banking and
insurance enterprises. First Horizon Bank has no voting
rights for the trusts’ activities. The trusts’ only assets are
junior subordinated debentures of the issuing enterprises.
The creditors of the trusts hold no recourse to the assets
of First Horizon Bank. Since First Horizon Bank is solely a
holder of the trusts’ securities, it has no rights which
would give it the power to direct the activities that most
significantly impact the trusts’ economic performance and
thus it is not considered the primary beneficiary of the
trusts. First Horizon Bank has no contractual requirements
to provide financial support to the trusts.
On-Balance Sheet Trust Preferred Securitization
In 2007, First Horizon Bank executed a securitization of
certain small issuer trust preferreds for which the
underlying trust meets the definition of a VIE, as the
holders of the equity investment at risk do not have the
power through voting rights, or similar rights, to direct the
activities that most significantly impact the entity’s
economic performance. Since First Horizon Bank did not
retain servicing or other decision-making rights, First
Horizon Bank is not the primary beneficiary as it does not
have the power to direct the activities that most
significantly impact the trust’s economic performance.
Accordingly, First Horizon Bank has accounted for the
funds received through the securitization as a term
borrowing in its Consolidated Balance Sheets. First
Horizon Bank has no contractual requirements to provide
financial support to the trust.
Holdings in Agency Mortgage-Backed Securities
FHN holds securities issued by various Agency
securitization trusts. Based on their restrictive nature, the
trusts meet the definition of a VIE since the holders of the
equity investments at risk do not have the power through
voting rights, or similar rights, to direct the activities that
most significantly impact the entities’ economic
performance. FHN could potentially receive benefits or
absorb losses that are significant to the trusts based on
the nature of the trusts’ activities and the size of FHN’s
holdings. However, FHN is solely a holder of the trusts’
securities and does not have the power to direct the
activities that most significantly impact the trusts’
economic performance and is not considered the primary
beneficiary of the trusts. FHN has no contractual
requirements to provide financial support to the trusts.
Commercial Loan Modifications to Borrowers
Experiencing Financial Difficulty
For certain troubled commercial loans, First Horizon Bank
modifies the terms of the borrower’s debt in an effort to
increase the probability of receipt of amounts
contractually due. Following a modification to borrowers
experiencing financial difficulty, 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, 2023 and 2022:
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Table of Contents
Table 8.20.3
(Dollars in millions)
Type:
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 20—VARIABLE INTEREST ENTITIES
NONCONSOLIDATED VIEs AT DECEMBER 31, 2023
Maximum
Loss Exposure
Liability
Recognized
Classification
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 modifications to borrowers experiencing
financial difficulty (f)
Proprietary trust preferred issuances (g)
$
587 $
79
173
26
8,402
129
—
223
64
—
88
—
—
167
(a)
Other assets
Loans and leases
(d)
(e)
Loans and leases
Term borrowings
(a) Maximum loss exposure represents $364 million of current investments and $223 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 $113 million classified as loans and leases and $2 million classified as trading securities, which are offset by $88 million classified as term
borrowings.
(e) Includes $450 million classified as trading securities, $1.3 billion classified as securities held to maturity, and $6.6 billion classified as securities available
for sale.
(f) Maximum loss exposure represents $129 million of current receivables with no additional contractual funding commitments on loans related to
commercial loan modifications to borrowers experiencing financial difficulty.
(g) No exposure to loss due to nature of FHN's involvement.
NONCONSOLIDATED VIEs AT DECEMBER 31, 2022
Table 8.20.4
(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
$
463 $
154
(a)
85
171
27
8,652
53
—
67
—
87
—
—
Other assets
Loans and leases
(d)
(e)
Loans and leases
167
Term borrowings
(a) Maximum loss exposure represents $309 million of current investments and $154 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 $205 million classified as trading securities, $1.4 billion classified as securities held to maturity, and $7.1 billion classified as securities available
for sale.
(f) Maximum loss exposure represents $53 million of current receivables with no additional 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.
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NOTE 21—DERIVATIVES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 21—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, 2023 and 2022, respectively, FHN had $406
million and $159 million of cash receivables and $33
million and $42 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 $97 million, $157 million and $360 million
for the years ended December 31, 2023, 2022 and 2021,
respectively. Trading revenues are inclusive of both
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NOTE 21—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 table summarizes derivatives associated
with FHNF's trading activities as of December 31, 2023
and 2022:
Table 8.21.1
DERIVATIVES ASSOCIATED WITH TRADING
(Dollars in millions)
Customer interest rate contracts
Offsetting upstream interest rate contracts
Forwards and futures purchased
Forwards and futures sold
(Dollars in millions)
Customer interest rate contracts
Offsetting upstream interest rate contracts
Option contracts purchased
Forwards and futures purchased
Forwards and futures sold
Interest Rate Risk Management
FHN’s ALCO focuses on managing market risk by
controlling and limiting earnings volatility attributable to
changes in interest rates. Interest rate risk exists to the
extent that interest-earning assets and interest-bearing
liabilities have different maturity or repricing
characteristics. FHN uses derivatives, primarily swaps, that
are designed to moderate the impact on earnings as
interest rates change. Interest paid or received for swaps
utilized by FHN to hedge the fair value of long-term debt is
recognized as an adjustment of the interest expense of
the liabilities whose risk is being managed. FHN’s interest
rate risk management policy is to use derivatives to hedge
interest rate risk or market value of assets or liabilities,
Table 8.21.2
Notional
December 31, 2023
Assets
Liabilities
$
4,067 $
22 $
4,273
777
912
135
9
—
Notional
December 31, 2022
Assets
Liabilities
$
3,076 $
3 $
3,076
40
1,127
1,256
91
—
5
4
197
23
—
9
270
6
—
2
5
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
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.
The following table summarizes FHN’s derivatives
associated with interest rate risk management activities as
of December 31, 2023 and 2022:
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, 2023
Assets
Liabilities
$
8,375 $
8,375
21 $
389
392
22
Notional
December 31, 2022
Assets
Liabilities
$
8,377 $
8,377
3 $
351
570
5
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NOTE 21—DERIVATIVES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
The following table summarizes gains (losses) on FHN’s derivatives associated with interest rate risk management activities for
the years ended December 31, 2023, 2022, and 2021:
Table 8.21.3
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)
2023
Gains (Losses)
Year Ended December 31,
2022
Gains (Losses)
2021
Gains (Losses)
$
195 $
(195)
(744) $
744
(268)
268
(a) Gains (losses) included in other expense within the Consolidated Statements of Income.
Cash Flow Hedges
Prior to 2021, FHN entered into 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. The debt instruments primarily
consist of held-to-maturity commercial loans that have
variable interest payments that historically were based on
1-month LIBOR. In second quarter 2023, the remaining
hedge was revised to reference 1-month Term SOFR after
the cessation of LIBOR-based cash flows. In conjunction
with the IBKC merger, FHN acquired interest rate
contracts (floors and collars) which were re-designated as
cash flow hedges. The debt instruments associated with
these hedges also primarily consisted of held-to-maturity
commercial loans that had variable interest payments that
were based on 1-month LIBOR. The last hedge acquired in
conjunction with the IBKC merger matured in second
quarter 2023.
In 2022, FHN entered into interest rate contracts (floors
and swaps) which have been designated as cash flow
hedges. These hedges reference 1-month Term SOFR and
FHN has made certain elections under ASU 2020-04 to
facilitate qualification for hedge accounting during the
time that hedged items transition away from 1-Month
LIBOR.
In a cash flow hedge, the entire change in the fair value of
the interest rate derivatives 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, 2023
and 2022:
DERIVATIVES ASSOCIATED WITH CASH FLOW HEDGES
Notional
December 31, 2023
Assets
Liabilities
Variability in cash flows related to debt instruments (primarily loans)
N/A $
5,200
Table 8.21.4
(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:
$
5,200 $
— $
Notional
December 31, 2022
Assets
Liabilities
$
5,350 $
— $
32
N/A
71
N/A
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2023 FORM 10-K ANNUAL REPORT
Variability in cash flows related to debt instruments (primarily loans)
N/A $
5,350
Table of Contents
NOTE 21—DERIVATIVES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
The following table summarizes gains (losses) on FHN’s derivatives associated with cash flow hedges for the years ended
December 31, 2023, 2022, and 2021:
Table 8.21.5
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
Year Ended December 31,
2022
2023
2021
Gains (Losses)
Gains (Losses)
Gains (Losses)
$
45 $
195 $
52
47
15
(129)
29
(3)
(7)
(a) Approximately $9 million of pre-tax losses are expected to be reclassified into earnings in the next twelve months.
Other Derivatives
FHN has 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
Table 8.21.6
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.
DERIVATIVES ASSOCIATED WITH MORTGAGE BANKING HEDGES
(Dollars in millions)
Mortgage Banking Hedges
Option contracts written
Forward contracts written
(Dollars in millions)
Mortgage Banking Hedges
Option contracts written
Forward contracts written
December 31, 2023
Notional
Assets
Liabilities
55 $
93
1 $
—
December 31, 2022
Notional
Assets
Liabilities
35 $
61
— $
—
—
1
—
—
$
$
The following table summarizes gains (losses) on FHN's derivatives associated with mortgage banking activities for the years
ended December 31, 2023 and 2022:
Table 8.21.7
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, 2023 and 2022, the
derivative liabilities associated with the sales of Visa Class
2023
Gains (Losses)
Year Ended December 31,
2022
Gains (Losses)
2021
Gains (Losses)
$
— $
1
3 $
32
15
11
B shares were $23 million and $27 million, respectively.
For the year ended December 31, 2023 and 2022, FHN
recognized $15 million and $22 million, respectively, in
derivative valuation adjustments related to prior sales of
Visa Class B shares. See Note 23 - Fair Value of Assets and
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NOTE 21—DERIVATIVES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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,
2023 and 2022, these loans were valued at $17 million
and $9 million, respectively. The balance sheet amount
and the gains/losses associated with these derivatives
were not significant.
Related to its loan participation/syndication activities, FHN
enters into risk participation agreements, under which it
assumes exposure for, or receives indemnification for,
borrowers’ performance on underlying interest rate
derivative contracts. FHN’s counterparties in these
contracts are other lending institutions involved in the
loan participation/syndication arrangements for which the
underlying interest rate derivative contract is intended to
hedge interest rate risk for the borrower. FHN will make
(other institution is the lead bank) or receive (FHN is the
lead bank) payments for risk participations if the borrower
defaults on its obligation to perform under the terms of its
interest rate derivative agreement with the lead bank in
the participation.
As of December 31, 2023 and 2022, the notional values of
FHN’s risk participations were $351 million and $242
million of derivative assets and $874 million and $742
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, 2023 and 2022, the exposure from these
agreements would not be material based on the fair value
of the underlying swaps.
FHN holds 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, 2023 and 2022, FHN had recognized an
insignificant amount of assets and liabilities associated
with these contracts.
Master Netting and Similar Agreements
FHN uses master netting agreements, mutual margining
agreements and collateral posting requirements to
minimize credit risk on derivative contracts. Master
netting and similar agreements are used when
counterparties have multiple derivatives contracts that
allow for a “right of setoff,” meaning that a counterparty
may net offsetting positions and collateral with the same
counterparty under the contract to determine a net
receivable or payable. The following discussion provides
an overview of these arrangements which may vary due to
the derivative type and market in which a derivative
transaction is executed.
Interest rate derivatives are subject to agreements
consistent with standard agreement forms of the ISDA.
Currently, all interest rate derivative contracts are entered
into as over-the-counter transactions and collateral
posting requirements are based on the net asset or
liability position with each respective counterparty. For
contracts that require central clearing, novation to a
counterparty with access to a clearinghouse occurs and
initial margin is posted.
Cash margin received (posted) that is considered
settlements for the derivative contracts is included in the
respective derivative asset (liability) value. Cash margin
that is considered collateral received (posted) for interest
rate derivatives is recognized as a liability (asset) on FHN’s
Consolidated Balance Sheets.
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
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
182
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Table of Contents
NOTE 21—DERIVATIVES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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 $12 million of assets and $188
million of liabilities on December 31, 2023, and $5 million
of assets and $268 million of liabilities on December 31,
2022. As of December 31, 2023 and 2022, FHN had
received collateral of $95 million and $106 million and
posted collateral of $83 million and $61 million,
respectively, in the normal course of business related to
these agreements.
Certain agreements 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 $12 million of assets and $188
million of liabilities on December 31, 2023, and $378
million of assets and $268 million of liabilities on
Table 8.21.8
December 31, 2022. As of December 31, 2023 and 2022,
FHN had received collateral of $95 million and $479
million and posted collateral of $83 million and $61
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, 2023 and 2022:
DERIVATIVE ASSETS & COLLATERAL RECEIVED
Gross amounts not offset in
the Balance Sheets
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
$
$
$
$
567 $
9
576 $
449 $
9
458 $
— $
—
— $
— $
—
— $
567 $
(75) $
(486) $
9
(4)
(3)
576 $
(79) $
(489) $
449 $
(58) $
(378) $
9
(6)
(2)
458 $
(64) $
(380) $
6
2
8
13
1
14
(Dollars in millions)
Derivative assets:
December 31, 2023
Interest rate derivative
contracts
Forward contracts
December 31, 2022
Interest rate derivative
contracts
Forward contracts
(a) Included in other assets on the Consolidated Balance Sheets. As of December 31, 2023 and 2022, $1 million and $2 million, respectively, of derivative
assets have been excluded from these tables because they are generally not subject to master netting or similar agreements.
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NOTE 21—DERIVATIVES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
The following table provides details of derivative liabilities and collateral pledged as presented on the Consolidated Balance
Sheets as of December 31, 2023 and 2022:
Table 8.21.9
DERIVATIVE LIABILITIES & COLLATERAL PLEDGED
(Dollars in millions)
Derivative liabilities:
December 31, 2023
Interest rate derivative
contracts
Forward contracts
December 31, 2022
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
$
$
$
$
666 $
9
675 $
921 $
8
929 $
— $
—
— $
— $
—
— $
666 $
(75) $
(164) $
9
(4)
(5)
675 $
(79) $
(169) $
921 $
(58) $
(175) $
8
(6)
(1)
929 $
(64) $
(176) $
427
—
427
688
1
689
(a) Included in other liabilities on the Consolidated Balance Sheets. As of December 31, 2023 and 2022, $24 million and $29 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 22—MASTER NETTING & SIMILAR AGREEMENTS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 22—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.
Table 8.22.1
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, 2023 and
2022:
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
$
519 $
353
— $
—
519 $
353
— $
(10)
(516) $
(340)
3
3
(Dollars in millions)
Securities purchased
under agreements to
resell:
2023
2022
The following table provides details of securities sold under agreements to repurchase and collateral pledged by FHN as of
December 31, 2023 and 2022:
Table 8.22.2
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Gross amounts
of recognized
liabilities
Gross amounts
offset in the
Balance Sheets
Net amounts of
liabilities presented
in the Balance
Sheets
Offsetting securities
purchased under
agreements to resell
Securities/
government
guaranteed loans
collateral
Net amount
Gross amounts not offset in the
Balance Sheets
$
1,921 $
1,013
— $
—
1,921 $
1,013
— $
(1,921) $
(10)
(1,003)
—
—
(Dollars in millions)
Securities sold under
agreements to
repurchase:
2023
2022
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.
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NOTE 22—MASTER NETTING & SIMILAR AGREEMENTS
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
The following table provides details, by collateral type, of the remaining contractual maturity of securities sold under
agreements to repurchase as of December 31, 2023 and 2022:
Table 8.22.3
MATURITIES OF SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
December 31, 2023
(Dollars in millions)
Securities sold under agreements to repurchase:
Government agency issued MBS
Government agency issued CMO
Other U.S. government agencies
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
Total securities sold under agreements to repurchase
Overnight and
Continuous
Up to 30 Days
Total
1,717 $
161
43
1,921 $
— $
—
—
— $
December 31, 2022
Overnight and
Continuous
Up to 30 Days
Total
10 $
— $
851
122
30
—
—
—
1,717
161
43
1,921
10
851
122
30
1,013 $
— $
1,013
$
$
$
$
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Table of Contents
NOTE 23—FAIR VALUE OF ASSETS AND LIABILITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 23—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.
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NOTE 23—FAIR VALUE OF ASSETS AND LIABILITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Recurring Fair Value Measurements
The following table presents the balances of assets and liabilities measured at fair value on a recurring basis as of
December 31, 2023 and 2022:
Table 8.23.1
BALANCES OF ASSETS & LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS
(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
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
December 31, 2023
Level 1
Level 2
Level 3
Total
$
— $
3 $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
102
34
9
—
145
114
336
152
17
777
—
1,399
42
4,484
2,146
1,172
589
8,391
—
—
—
568
568
—
—
—
—
—
13
13
26
—
—
—
—
—
—
—
—
—
—
3
114
336
152
17
777
13
1,412
68
4,484
2,146
1,172
589
8,391
102
34
9
568
713
$
$
145 $
10,400 $
39 $
10,584
— $
426 $
— $
—
—
—
10
—
—
10
1
82
509
—
666
—
666
—
—
—
—
—
23
23
426
1
82
509
10
666
23
699
$
10 $
1,175 $
23 $
1,208
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Table of Contents
NOTE 23—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
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 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
December 31, 2022
Level 1
Level 2
Level 3
Total
$
— $
101 $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
112
22
9
—
—
143
144
61
115
54
875
—
1,350
29
4,763
2,313
1,163
597
8,836
—
—
—
449
2
451
—
—
—
—
—
25
25
22
—
—
—
—
—
—
—
—
—
—
—
101
144
61
115
54
875
25
1,375
51
4,763
2,313
1,163
597
8,836
112
22
9
449
2
594
$
$
143 $
10,666 $
47 $
10,856
— $
275 $
— $
—
—
—
8
—
—
8
2
58
335
—
922
1
923
—
—
—
—
—
27
27
275
2
58
335
8
922
28
958
$
8 $
1,258 $
27 $
1,293
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NOTE 23—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, 2023, 2022 and 2021 on
a recurring basis are summarized as follows:
Table 8.23.2
CHANGES IN LEVEL 3 ASSETS & LIABILITIES MEASURED AT FAIR VALUE
(Dollars in millions)
Balance on January 1, 2023
Total net gains (losses) included in net income
Purchases
Sales
Settlements
Net transfers into (out of) Level 3
Balance on December 31, 2023
Net unrealized gains (losses) included in net income
(Dollars in millions)
Balance on January 1, 2022
Total net gains (losses) included in net income
Purchases
Sales
Settlements
Repayments
Net transfers into (out of) Level 3
Balance on December 31, 2022
Net unrealized gains (losses) included in net income
Year Ended December 31, 2023
Interest-only
strips
Loans held
for sale
Net
derivative
liabilities
$
$
$
$
25
(12)
—
(54)
—
54 (b)
13
$
(1) (c) $
22
4
3
(3)
(2)
2
26
$
$
4 (a) $
(27)
(15)
—
—
19
—
(23)
(15) (d)
Year Ended December 31, 2022
Interest-only
strips
Loans held
for sale
Net
derivative
liabilities
$
$
$
$
38
(7)
—
(76)
—
—
$
28
—
2
(12)
(2)
(1)
70 (b)
25
$
(2) (c) $
7
22
— (a) $
$
(23)
(23)
—
—
19
—
—
(27)
(23) (d)
(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
Year Ended December 31, 2021
Interest-only
strips
Loans held
for sale
Loans held
for
investment
Net
derivative
liabilities
$
$
$
$
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)
(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 on the Consolidated Statements of Income.
(e) The loans held for investment at fair value option portfolio was transferred to the loans held for sale portfolio on April 1, 2021.
There were no net unrealized gains (losses) for Level 3 assets and liabilities included in other comprehensive income as of
December 31, 2023, 2022 and 2021.
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NOTE 23—FAIR VALUE OF ASSETS AND LIABILITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Nonrecurring Fair Value Measurements
From time to time, FHN may be required to measure
certain other financial assets at fair value on a
nonrecurring basis in accordance with GAAP. These
adjustments to fair value usually result from the
application of lower of cost or market (LOCOM)
accounting or write-downs of individual assets. For assets
Table 8.23.3
measured at fair value on a nonrecurring basis which were
still held on the Consolidated Balance Sheets at
December 31, 2023, 2022 and 2021, respectively, the
following table provides 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 and leases (a)
OREO (b)
Other assets (c)
Carrying value at December 31, 2023
Year Ended December 31, 2023
Level 1
Level 2
Level 3
Total
Net gains (losses)
— $
406 $
— $
406 $
—
—
—
—
—
—
245
4
90
245
4
90
$
(3)
(42)
—
(7)
(52)
(Dollars in millions)
Loans held for sale—SBAs and USDA $
Loans and leases (a)
OREO (b)
Other assets (c)
Carrying value at December 31, 2022
Year Ended December 31, 2022
Level 1
Level 2
Level 3
Total
Net gains (losses)
— $
506 $
— $
506 $
—
—
—
—
—
—
135
3
91
135
3
91
$
(3)
(19)
—
(10)
(32)
(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
Year Ended December 31, 2021
Level 1
Level 2
Level 3
Total
Net gains (losses)
— $
852 $
1 $
853 $
—
—
—
—
—
—
—
—
1
84
3
80
1
84
3
80
$
(2)
—
(13)
(1)
(7)
(23)
(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.
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.
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NOTE 23—FAIR VALUE OF ASSETS AND LIABILITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
For the year ended December 31, 2023, FHN recognized
leased asset impairments of $1 million and fixed asset
impairments were immaterial. Both fixed asset and leased
asset impairments were immaterial for 2022. In 2021, FHN
recognized $34 million of fixed asset impairments and
$3 million of leased asset impairments. These
impairments were primarily related to acquisition
integration efforts associated with reduction of leased
office space and banking center optimization. These
amounts were primarily recognized in the Corporate
segment.
Level 3 Measurements
The following table provides information regarding the unobservable inputs utilized in determining the fair value of Level 3
recurring and non-recurring measurements as of December 31, 2023 and 2022:
Table 8.23.4
(Dollars in millions)
UNOBSERVABLE INPUTS USED IN LEVEL 3 FAIR VALUE MEASUREMENTS
Values Utilized
Level 3 Class
Trading securities - SBA
interest-only strips
Loans held for sale -
residential real estate
Derivative liabilities,
other
$
$
$
Fair Value at
December 31,
2023
Valuation Techniques
Discounted cash flow
13
26
Discounted cash flow
23
Discounted cash flow
Loans and leases (a)
$
245
Appraisals from
comparable properties
Other collateral
valuations
OREO (b)
Other assets (c)
$
$
4
Appraisals from
comparable properties
90
Discounted cash flow
Appraisals from
comparable properties
Unobservable Input
Constant prepayment
rate
Bond equivalent yield
Prepayment speeds -
First mortgage
Foreclosure losses
Loss severity trends -
First mortgage
Visa covered litigation
resolution amount
Probability of
resolution scenarios
Time until resolution
Marketability
adjustments for
specific properties
Borrowing base
certificates liquidation
adjustment
Financial Statements
liquidation adjustment
Auction appraisals
marketability
adjustment
Adjustment for value
changes since
appraisal
Adjustments to
current sales yields for
specific properties
Marketability
adjustments for
specific properties
Range
14% - 15%
18% - 21%
2% - 7%
64% - 68%
0% - 3% of
UPB
$5.7 billion -
$6.7 billion
10% - 25%
6 - 36
months
0% - 25% of
appraisal
25% - 50%
of gross
value
50% - 100%
of reported
value
0% - 10% of
reported
value
0% - 10% of
appraisal
0% - 15%
adjustment
to yield
0% - 25% of
appraisal
Weighted
Average (d)
14%
18%
3%
65%
2%
$6.3 billion
18%
24 months
NM
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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NOTE 23—FAIR VALUE OF ASSETS AND LIABILITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
(Dollars in millions)
Level 3 Class
Trading securities - SBA
interest-only strips
Loans held for sale -
residential real estate
Derivative liabilities,
other
$
$
$
Fair Value at
December 31,
2022
Valuation Techniques
Discounted cash flow
25
22
Discounted cash flow
27
Discounted cash flow
Loans and leases (a)
$
135
Appraisals from
comparable properties
Other collateral
valuations
OREO (b)
Other assets (c)
$
$
3
Appraisals from
comparable properties
91
Discounted cash flow
Appraisals from
comparable properties
Values Utilized
Unobservable Input
Constant prepayment
rate
Bond equivalent yield
Prepayment speeds -
First mortgage
Foreclosure losses
Loss severity trends -
First mortgage
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
Range
12% - 13%
17%
2% - 8%
63% - 75%
0% - 11% of
UPB
$5.6 billion -
$6.0 billion
5% - 25%
12 - 42
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
Weighted
Average (d)
12%
17%
3%
65%
5%
$5.9 billion
20%
28 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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NOTE 23—FAIR VALUE OF ASSETS AND LIABILITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Trading Securities - SBA interest-only strips
Increases (decreases) in estimated prepayment rates and
bond equivalent yields negatively (positively) affect the
value of SBA interest-only strips. Management additionally
considers whether the loans underlying related SBA
interest-only strips are delinquent, in default or prepaying,
and adjusts the fair value down 20 - 100% depending on
the length of time in default. 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.
FHN historically had a portion of mortgage loans held for
investment for which the fair value option was elected
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.
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 previously 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
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NOTE 23—FAIR VALUE OF ASSETS AND LIABILITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
repurchased loans and the related loss severities
experienced upon repurchase, FHN believes that the fair
value election provides a more timely recognition of
changes in value for these loans that occur subsequent to
repurchase. Absent the fair value election, these loans
would be subject to valuation at the LOCOM value, which
would prevent subsequent values from exceeding the
initial fair value, determined at the time of repurchase,
but would require recognition of subsequent declines in
value. Thus, the fair value election provides for a more
timely recognition of any potential future recoveries in
asset values while not affecting the requirement to
recognize subsequent declines in value.
The following table reflects the differences between the fair value carrying amount of residential real estate loans held for
sale 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.
Table 8.23.5
DIFFERENCES BETWEEN FAIR VALUE CARRYING AMOUNTS AND CONTRACTUAL AMOUNTS OF RESIDENTIAL
REAL ESTATE LOANS REPORTED AT FAIR VALUE
(Dollars in millions)
Residential real estate loans held for sale reported at fair value:
Total loans
Nonaccrual loans
Loans 90 days or more past due and still accruing
(Dollars in millions)
Residential real estate loans held for sale reported at fair value:
Total loans
Nonaccrual loans
Loans 90 days or more past due and still accruing
December 31, 2023
Fair value
carrying
amount
Aggregate
unpaid
principal
Fair value carrying amount
less aggregate unpaid
principal
$
68 $
73 $
2
1
5
1
(5)
(3)
—
December 31, 2022
Fair value
carrying
amount
Aggregate
unpaid
principal
Fair value carrying amount
less aggregate unpaid
principal
$
51 $
58 $
5
1
8
1
(7)
(3)
—
Assets and liabilities accounted for under the fair value election are initially measured at fair value with subsequent changes in
fair value recognized in earnings. Such changes in the fair value of assets and liabilities for which FHN elected the fair value
option are included in current period earnings with classification in the income statement line item reflected in the following
table:
Table 8.23.6
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, 2023, 2022 and 2021,
the amount for residential real estate loans held for sale
included an insignificant amount of gains in pre-tax
earnings that are attributable to changes in instrument-
specific credit risk. The portion of the fair value
adjustments related to credit risk was determined based
on estimated default rates and estimated loss severities.
Interest income on residential real estate loans held for
Year Ended December 31,
2022
2021
2023
$
1 $
(9) $
(10)
sale measured at fair value is calculated based on the note
rate of the loan and is recorded in the interest income
section of the Consolidated Statements of Income as
interest on loans held for sale.
Determination of Fair Value
Fair values are based on the price that would be received
to sell an asset or paid to transfer a liability in an orderly
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NOTE 23—FAIR VALUE OF ASSETS AND LIABILITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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.
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.
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NOTE 23—FAIR VALUE OF ASSETS AND LIABILITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Loans held for investment
The fair values of mortgage loans are estimated using an
exit price methodology that is based on present values
using the interest rate that would be charged for a similar
loan to a borrower with similar risk, weighted for varying
maturity dates and adjusted for a liquidity discount based
on the estimated time period to complete a sale
transaction with a market participant.
Other loans and leases are valued based on present values
using the interest rate that would be charged for a similar
instrument to a borrower with similar risk, applicable to
each category of instruments, and adjusted for a liquidity
discount based on the estimated time period to complete
a sale transaction with a market participant.
For loans measured using the estimated fair value of
collateral less costs to sell, fair value is estimated using
appraisals of the collateral. Collateral values are
monitored and additional write-downs are recognized if it
is determined that the estimated collateral values have
declined further. Estimated costs to sell are based on
current amounts of disposal costs for similar assets.
Carrying value is considered to reflect fair value for these
loans.
Derivative assets and liabilities
The fair value for forwards and futures contracts is based
on current transactions involving identical securities.
Futures contracts are exchange-traded and thus have no
credit risk factor assigned as the risk of non-performance
is limited to the clearinghouse used.
Valuations of other derivatives (primarily interest rate
contracts) are based on inputs observed in active markets
for similar instruments. Typical inputs include benchmark
yields, option volatility and option skew. Centrally cleared
derivatives are discounted using SOFR as required by
clearinghouses. In measuring the fair value of these
derivative assets and liabilities, FHN has elected to
consider credit risk based on the net exposure to
individual counterparties. Credit risk is mitigated for these
instruments through the use of mutual margining and
master netting agreements as well as collateral posting
requirements. For derivative contracts with daily cash
margin requirements that are considered settlements, the
daily margin amount is netted within derivative assets or
liabilities. Any remaining credit risk related to interest rate
derivatives is considered in determining fair value through
evaluation of additional factors such as client loan grades
and debt ratings. Foreign currency related derivatives also
utilize observable exchange rates in the determination of
fair value. The determination of fair value for
FHN’s derivative liabilities associated with its prior sales of
Visa Class B shares are classified within Level 3 in the fair
value measurements disclosure as previously discussed in
the unobservable inputs discussion.
The fair value of risk participations is determined in
reference to the fair value of the related derivative
contract between the borrower and the lead bank in the
participation structure, which is determined consistent
with the valuation process discussed above. This value is
adjusted for the pro rata portion of the reference
derivative’s notional value and an assessment of credit
risk for the referenced borrower.
OREO
OREO primarily consists of properties that have been
acquired in satisfaction of debt. These properties are
carried at the lower of the outstanding loan amount or
estimated fair value less estimated costs to sell the real
estate. Estimated fair value is determined using appraised
values with subsequent adjustments for deterioration in
values that are not reflected in the most recent appraisal.
Other assets
For disclosure purposes, other assets consist of tax credit
investments, FRB and FHLB Stock, deferred compensation
mutual funds and equity investments (including other
mutual funds) with readily determinable fair values. 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.
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.
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NOTE 23—FAIR VALUE OF ASSETS AND LIABILITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
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, 2023 and December 31, 2022, 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 table summarizes the book value and
estimated fair value of financial instruments recorded in
the Consolidated Balance Sheets as of December 31, 2023
and December 31, 2022:
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Table 8.23.7
(Dollars in millions)
Assets:
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
NOTE 23—FAIR VALUE OF ASSETS AND LIABILITIES
BOOK VALUE AND ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Book
Value
December 31, 2023
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
$
32,294
$
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
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
14,044
13,417
764
60,519
1,328
200
519
2,047
1,412
68
406
28
502
8,391
1,323
577
665
102
261
1,028
6,804
$
509
302
1,921
326
2,549
47
65
3
150
885
1,150
699
$
—
—
—
—
—
1,328
—
—
1,328
—
—
—
—
—
—
—
9
—
102
34
136
—
—
—
—
—
—
200
519
719
1,399
42
407
—
449
8,391
1,161
568
—
—
—
—
$
31,678
$
13,832
12,616
742
58,868
—
—
—
—
13
26
—
28
54
—
—
—
653
—
227
880
—
—
—
—
—
—
—
—
—
—
—
—
10
10
$
6,851
$
509
302
1,921
326
2,549
—
—
—
—
824
824
666
$
—
—
—
—
—
—
47
60
3
150
—
260
23
$
11,399
$
283
$
31,678
13,832
12,616
742
58,868
1,328
200
519
2,047
1,412
68
407
28
503
8,391
1,161
577
653
102
261
1,016
73,975
6,851
509
302
1,921
326
2,549
47
60
3
150
824
1,084
699
11,692
75,799
$
1,473
$
12,687
$
59,815
$
$
$
$
11,711
$
(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 $24
million and FRB stock of $203 million.
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NOTE 23—FAIR VALUE OF ASSETS AND LIABILITIES
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
(Dollars in millions)
Assets:
Book
Value
December 31, 2022
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
$
31,473
$
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
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
13,082
12,053
809
57,417
1,384
129
353
1,866
1,375
51
506
33
590
8,836
1,371
460
547
112
275
934
2,887
$
335
400
1,013
1,093
2,506
46
66
3
148
1,334
1,597
958
$
—
—
—
—
—
1,384
—
—
1,384
—
—
—
—
—
—
—
9
—
112
22
134
—
—
—
—
—
—
129
353
482
1,350
29
512
—
541
8,836
1,209
451
—
—
—
—
$
31,329
$
12,909
11,934
810
56,982
—
—
—
—
25
22
—
33
55
—
—
—
542
—
253
795
31,329
12,909
11,934
810
56,982
1,384
129
353
1,866
1,375
51
512
33
596
8,836
1,209
460
542
112
275
929
—
—
—
—
—
—
—
—
—
—
—
—
8
8
$
2,890
$
335
400
1,013
1,093
2,506
—
—
—
—
1,301
1,301
923
$
—
—
—
—
—
—
47
59
3
150
—
259
27
$
7,955
$
286
$
2,890
335
400
1,013
1,093
2,506
47
59
3
150
1,301
1,560
958
8,249
72,849
$
1,527
$
12,869
$
57,857
$
72,253
$
$
$
8,283
$
(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 $50
million and FRB stock of $203 million.
200
2023 FORM 10-K ANNUAL REPORT
Table of Contents
NOTE 23—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, 2023 and December 31, 2022:
Table 8.23.8
(Dollars in millions)
Unfunded Commitments:
Loan commitments
Standby and other commitments
UNFUNDED COMMITMENTS
Contractual Amount
Fair Value
December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022
$
24,579 $
746
25,953 $
754
1 $
8
1
7
201
2023 FORM 10-K ANNUAL REPORT
Table of Contents
NOTE 24—PARENT COMPANY FINANCIAL INFORMATION
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Note 24—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
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,
2023
2022
$
$
$
$
854 $
3
8,658
49
256
9,820 $
324 $
500
824
8,996
9,820 $
2023
Year Ended December 31,
2022
2021
$
220 $
—
220
226
446
21
114
135
311
24
287
613
(3)
897 $
435 $
16
451
22
473
31
128
159
314
(31)
345
561
(6)
900 $
1,335
3
7,861
42
251
9,492
293
948
1,241
8,251
9,492
770
—
770
(26)
744
31
89
120
624
(35)
659
332
8
999
202
2023 FORM 10-K ANNUAL REPORT
Table of Contents
NOTE 24—PARENT COMPANY FINANCIAL INFORMATION
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
Parent Company Statements of Cash Flows
(Dollars in millions)
Operating activities:
Net income
Less undistributed net income of subsidiaries
Income before undistributed net income of subsidiaries
Adjustments to reconcile income to net cash provided by operating
activities:
Deferred income tax expense
Stock-based compensation expense
Loss on extinguishment of debt
Gain on sale of title services business
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
Proceeds from business divestitures, net
Net cash provided by 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
Repayment of 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 year
Cash and cash equivalents at end of year
Total interest paid
Income taxes received from (paid to) subsidiaries
Year Ended December 31,
2022
2021
2023
$
897 $
900 $
610
287
8
36
—
—
1
45
332
21
(1)
(10)
—
10
—
—
(32)
5
(335)
(10)
(450)
(822)
(480)
1,335
555
345
7
76
—
(22)
2
63
408
8
(1)
13
22
42
494
—
(32)
36
(324)
(13)
—
161
611
724
$
$
855 $
33 $
(46)
1,335 $
35 $
42
999
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
203
2023 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 103, and the attestation
report required by Item 308(b) of Regulation S-K appears
starting at page 104, of our 2023 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
Form 8-K Information not previously reported
Not applicable.
Trading Plans of Directors and Executive Officers
During our most recent fiscal quarter, no director (see
Item 10 beginning on page 205) or executive officer (see
the Supplemental Part I Information beginning on page 50)
adopted or terminated (i) any contract, instruction, or
written plan for the purchase or sale of our securities
intended to satisfy the affirmative defense conditions of
SEC Rule 10b5-1(c) (a "Rule 10b5-1 trading arrangement");
and/or (ii) any "non-Rule 10b5-1 trading arrangement" as
defined in SEC Reg. S-K Item 408(c).
Item 9C. Disclosure Regarding Foreign
Jurisdictions that Prevent Inspections
Not applicable.
204
2023 FORM 10-K ANNUAL REPORT
Table of Contents
ITEM 10. DIRECTORS & EXECUTIVE OFFICERS
PART III
Item 10. Directors, Executive Officers and
Corporate Governance
Required Item 10 Information
In 2023, there were no material amendments to the
procedures, described in our 2024 Proxy Statement under
the caption Shareholder Recommendations and
Nominations, especially under the sub-caption Committee
Consideration of Shareholder Recommendations of
Nominees, 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 2024 Proxy
Statement under the captions Shareholder
Recommendations and Nominations and 2025 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 “Corporate
Governance” near the top of the page, then click on
“Governance Documents.” Scroll down the Governance
Documents page to find a link to the Code. 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.
We have adopted an Inside Information Policy and related
written Procedures for that Policy (collectively, our
"Insider Policy"). Our Insider Policy governs the purchase,
sale, and/or other dispositions of our securities by our
directors, officers, employees and certain other persons. It
is designed to promote compliance with insider trading
laws, rules, and regulations, and listing standards
applicable to us. By its terms as written, our Insider Policy
applies only to insiders (directors, officers, employees, and
certain other persons). In practice, senior management
applies the periodic and ad hoc blackout provisions to our
purchases of our securities in all market transactions, and
in all off-market transactions other than share-
withholding related to employee stock plan awards.
Exceptions to the blackout provisions must be approved
by our Chief Executive Officer in consultation with our
General Counsel. Our Inside Information Policy and its
Procedures have been filed or incorporated by reference
as Exhibits 19.1 and 19.2 to this report. In addition, the
following section of our 2024 Proxy Statement is
incorporated herein by reference: Policies on Insider
Trading and Hedging.
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, or is
provided in that Table.
205
2023 FORM 10-K ANNUAL REPORT
Table of Contents
Table 10.1
ITEM 10. DIRECTORS & EXECUTIVE OFFICERS
ITEM 10 TOPICS TABLE
Item 10 Topics
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
Responses or Incorporated Disclosures
In our 2024 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 50
Compliance with Section 16(a) of the Securities
Exchange Act of 1934
not applicable
First Horizon Directors
Table 10.2
Harry V. Barton, Jr.
Age 69
CPA and Owner,
Barton Advisory Services, LLC,
an investment advisory firm
John C. Compton
Age 62
Partner,
Clayton, Dubilier & Rice
a private equity firm
William H. Fenstermaker*
Age 75
Chairman and CEO,
C.H. Fenstermaker and Associates,
LLC, a surveying, mapping,
engineering, and environmental
consulting company
Rick E. Maples
Age 65
Retired Co-Head of Investment
Banking,
Stifel, Nicolaus and Company,
Incorporated,
a financial services company
Cecelia D. Stewart
Age 65
Retired President, U.S. Consumer &
Commercial Banking,
Citigroup, Inc.
a financial services company
OUR BOARD OF DIRECTORS
(at February 20, 2024)
Velia Carboni
Age 53
Exec. Vice President and Chief Digital
and Technology Officer,
VF Corporation, a provider of
branded lifestyle apparel, footwear
and accessories
Wendy P. Davidson
Age 54
President and Chief Executive Officer
The Hain Celestial Group, Inc.,
an organic and natural products
company
D. Bryan Jordan
Age 62
Chairman of the Board,
President and
Chief Executive Officer,
First Horizon Corporation,
a financial services company
Vicki R. Palmer
Age 70
President,
The Palmer Group, LLC
a general consulting firm
John N. Casbon*
Age 75
Retired Executive Vice President,
First American Title Insurance
Company,
a title insurance company
John W. Dietrich
Age 59
Executive Vice President and Chief
Financial Officer, FedEx Corporation,
a provider of transportation, e-
commerce and business services
J. Michael Kemp, Sr.
Age 53
Founder and Chief Executive Officer,
Kemp Management Solutions,
a program management and
consulting firm
Colin V. Reed
Age 76
Executive Chairman,
Ryman Hospitality Properties, Inc.
a real estate investment trust
Rosa Sugrañes
Age 66
Founder and former
Chief Executive Officer,
Iberia Tiles,
a ceramic tile distributor
R. Eugene Taylor
Age 76
Retired Chairman of the Board and
Chief Executive Officer,
Capital Bank Financial Corp.,
a financial services company
*Indicates a director who will retire when directors are elected for 2024-25 at the 2024 Annual Meeting of Shareholders.
206
2023 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 2024
Proxy Statement: Compensation Committee,
Compensation Committee Interlocks & Insider
Participation, Director Compensation, Policies on Insider
Trading and Hedging, Compensation Discussion &
Analysis, Recent Compensation, Post-Employment
Compensation, Pay Ratio of CEO to Median Employee, and
any Appendix to our Proxy Statement referenced in those
sections.
The sub-section of our 2024 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 2024 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.
As to the information required by Item 402(w) of
Regulation S-K: (i) refer to Clawback Policies & Practices
within Compensation Discussion & Analysis in our 2024
Proxy Statement; and (ii) the conditions for disclosures
beyond those incorporated by reference above have not
occurred. Our Erroneously Awarded Compensation
Recovery Policy has been filed as Exhibit 97 to this report,
as shown in Item 15.
207
2023 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
The information required for this Item pursuant to Item
201(d) of Regulation S-K is presented in our 2024 Proxy
Statement under the heading Equity Compensation Plan
Information. That information is incorporated into this
Item by reference.
Beneficial Ownership of Corporation Stock
The information required for this Item pursuant to Item
403(a) and (b) of Regulation S-K is presented in our 2024
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.
208
2023 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, and Director
Independence
The information called for by this Item is presented in the
following sections of our 2024 Proxy Statement:
That information is incorporated into this Item by
reference.
• within the Corporate Governance section: Related
Party Transaction Procedures and Transactions with
Related Persons
• within the Board Matters section: Independence &
Categorical Standards.
Our independent directors and nominees are identified in
the Independence discussion within the Independence &
Categorical Standards section of our 2024 Proxy
Statement, referenced above.
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, as well as
other information related to our Auditor, is incorporated
herein by reference to the section of our 2024 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.
209
2023 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 2023 Financial Statements (Item
8) indicated in Table 15.1.
Table 15.1
Item 8 Page
Statement, Note, or Report Incorporated into Item 15
103
104
108
109
111
112
113
115
Report of Management on Internal Control over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Income for the years ended December 31, 2023, 2022, and 2021
Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022, and 2021
Consolidated Statements of Changes in Equity for the years ended December 31, 2023, 2022, and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022, and 2021
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 “2023 named executive officers” refers to those
executive officers whose 2023 compensation is described
in our 2024 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.
210
2023 FORM 10-K ANNUAL REPORT
Table of Contents
Table 15.2
ITEM 15. EXHIBITS & FINANCIAL STATEMENT SCHEDULES
10-K EXHIBIT TABLE
Filed
Here
Mngt
Exh
Furn-
ished
Incorporated by Reference to
Form Exh No
Filing Date
Exh
No
3.1
3.2
3.3
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
Amended and Restated Charter of First Horizon Corporation
Articles of Amendment of the Restated Charter of FHN, related
to the Series G Preferred Stock [all Series G stock was converted
into common stock in 2023; none remains outstanding]
Bylaws of First Horizon Corporation, as amended and restated
January 22, 2024
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
4.13
4.14
10.1
(a)
10.1
(b)
10.1
(c)
10.1
(d)
Equity-Based Award Plans
2021 Incentive Plan (as amended January 23, 2024)
X
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
8-K
8-K
3.1
3.1
7/30/2021
3/3/2022
8-K
3.1
1/23/2024
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
Proxy
2016
10-K
2020
10-K
2020
App. A
3/14/2016
10.1(b)
2/25/2021
10.1(c)
2/25/2021
211
2023 FORM 10-K ANNUAL REPORT
Table of Contents
ITEM 15. EXHIBITS & FINANCIAL STATEMENT SCHEDULES
Exh
No
10.1
(e)
10.2
(a)
10.2
(b)
10.2
(c)
10.2
(d)
10.2
(e)
10.2
(f)
10.3
(a)
10.3
(b)
10.3
(c)
10.3
(d)
10.3
(e)
10.4
(a)
10.4
(b)
10.4
(c)
10.4
(d)
10.4
(e)
10.4
(f)
10.4
(g)
10.4
(h)
10.4
(i)
10.5
(a)
10.6
(e)
10.6
(f)
Description of Exhibit to this 10-K Report
2000 Non-Employee Directors’ Deferred Compensation Stock
Option Plan, as restated for amendments through Dec. 15, 2008
Performance-Based Equity Award Documents
Form of Grant Notice for Executive Performance Stock Units
[2021]
Form of Grant Notice for Executive Performance Stock Units
[2022]
Form of Grant Notice for Executive Performance Stock Units
[2023]
Form of Grant Notice for CEO Special Equity Performance Stock
Units [2023]
Form of Grant Notice for Executive Performance Stock Units
[2024]
Form of Grant Notice for Executive Special Performance Stock
Units [2024]
Stock Option Award Documents
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 [2021]
Form of Grant Notice for Executive Restricted Stock Units -
Special Bonus-Driven Award [2021]
Form of Grant Notice for Executive Restricted Stock Units [2022]
Form of Grant Notice for Executive Restricted Stock Units [2023]
Form of Grant Notice for Executive Restricted Stock Units [2024]
Form of Grant Notice for Executive Special Restricted Stock
Units [2024]
Form of Grant Notice for CEO Special Equity Restricted Stock
Units [2023]
Form of Grant Notice for Restricted Cash Units (Modified
Retention Program, Cliff Vesting) [2023]
Director Compensation Policy
Management Cash Incentive Plan Documents
Executive Bonus Plan
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
X
X
X
Incorporated by Reference to
Form Exh No
10-Q
2Q09
10.1(e)
Filing Date
8/6/2009
10-Q
1Q21
10-Q
1Q22
10-K
2022
10.1
5/6/2021
10.1
5/6/2022
10.2(e)
3/1/2023
8-K
10.3
8/4/2023
10-Q
1Q17
10-Q
1Q18
10-Q
1Q19
10-Q
1Q20
10-K
2020
10-Q
1Q21
10-Q
1Q21
10-Q
1Q22
10-K
2022
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
10.2
5/6/2021
10.3
5/6/2021
10.2
5/6/2022
10.4(e)
3/1/2023
8-K
10.4
8/4/2023
8-K
10.1
10/27/2021
Other Exhibits relating to Employment, Retirement, Severance, or Separation
Executive Change in Control Severance Plan
Form of Pension Restoration Plan (amended and restated as of
January 1, 2008)
X
X
8-K
10.1
1/29/2021
10-Q
3Q07
10.7(e)
11/7/2007
212
2023 FORM 10-K ANNUAL REPORT
Table of Contents
ITEM 15. EXHIBITS & FINANCIAL STATEMENT SCHEDULES
Filed
Here
Mngt
Exh
Furn-
ished
Description of Exhibit to this 10-K Report
Form of Amendment to Pension Restoration Plan
Form of Amendment No. 3 to Pension Restoration Plan
Form of First Horizon Corporation Savings Restoration Plan
Conformed copy of Employment Agreement dated August 3,
2023 with D. Bryan Jordan
Retention Agreement of Anthony J. Restel, dated November 3,
2019
Documents Related to Other Deferral Plans and Programs
Directors and Executives Deferred Compensation Plan [originally
adopted 1985], as amended and restated [2017], with forms of
deferral agreement and 2007 addendum to deferral agreement
Form of Amendment to Directors and Executives Deferred
Compensation Plan
Rate Applicable to Participating Directors under the Directors
and Executives Deferred Compensation Plan
Schedule of Deferral Agreements [Non-Employee Directors,
1995]
Form of First Horizon National Corporation Deferred
Compensation Plan as Amended and Restated [formerly known
as First Tennessee National Corporation Nonqualified Deferred
Compensation Plan]
Conformed copy of Amendment No. 1 to the First Horizon
National Corporation Deferred Compensation Plan [removing
"National" from the plan name]
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)
Exh
No
10.6
(g)
10.6
(h)
10.6
(i)
10.6
(j)
10.6
(k)
10.7
(a)
10.7
(b)
10.7
(c)
10.7
(d)
10.7
(e)
10.7
(f)
10.7
(g)
10.8
(a)
10.8
(b)
10.8
(c)
10.8
(d)
10.8
(e)
10.8
(f)
10.8
(g)
10.8
(h)
List of Certain Benefits Available to Certain Executive Officers
Description of 2024 Salary Rates for 2023 Named Executive
Officers
Other Exhibits
X
X
14
Code of Ethics for Senior Financial Officers
19.1 Inside Information Policy
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Incorporated by Reference to
Form Exh No
10-K
2009
10-Q
3Q11
10.7(d2)
10.2
Filing Date
2/26/2010
11/8/2011
8-K
8-K
8-K
10-Q
2Q17
10-Q
3Q07
10-Q
3Q23
10-K
2018
10-Q
3Q07
10.1
7/17/2012
10.2
8/4/2023
10.1
7/2/2020
10.4
8/8/2017
10.1(a3)
11/7/2007
10.1
11/7/2023
10.7(d)
2/28/2019
10.1(c)
11/7/2007
S-8 333-
273513
4.5
7/28/2023
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
2022
10-Q
2Q23
14
3/1/2023
19.1
8/4/2023
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2023 FORM 10-K ANNUAL REPORT
Table of Contents
ITEM 15. EXHIBITS & FINANCIAL STATEMENT SCHEDULES
Exh
No
Description of Exhibit to this 10-K Report
Filed
Here
Mngt
Exh
Furn-
ished
19.2 Inside Information Procedures
Incorporated by Reference to
Form Exh No
10-Q
2Q23
19.2
Filing Date
8/4/2023
X
X
21
23
24
31(a)
31(b)
32(a)
32(b)
97
101
101.
INS
101.
SCH
101.
CAL
101.
DEF
101.
LAB
101.
PRE
104
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)
Erroneously Awarded Compensation Recovery Policy
XBRL Exhibits
The following financial information from First Horizon
Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2023, formatted in Inline XBRL:
(i) Consolidated Balance Sheets at December 31, 2023 and 2022;
(ii) Consolidated Statements of Income for the Years Ended
December 31, 2023, 2022, and 2021;
(iii) Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 2023, 2022, and 2021;
(iv) Consolidated Statements of Changes in Equity for the Years
Ended December 31, 2023, 2022, and 2021;
(v) Consolidated Statements of Cash Flows for the Years Ended
December 31, 2023, 2022, and 2021; and
(vi) Notes to the Consolidated Financial Statements.
XBRL Instance Document-the instance document does not
appear in the Interactive Data File because its XBRL tags are
embedded within the Inline XBRL document
Inline XBRL Taxonomy Extension Schema
Inline XBRL Taxonomy Extension Calculation Linkbase
Inline XBRL Taxonomy Extension Definition Linkbase
Inline XBRL Taxonomy Extension Label Linkbase
Inline XBRL Taxonomy Extension Presentation Linkbase
Cover Page Interactive Data File, formatted in Inline XBRL
(included in Exhibit 101)
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Item 16. Form 10-K Summary
Not applicable.
214
2023 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: February 22, 2024
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*
D. Bryan Jordan
D. Bryan Jordan
Jeff L. Fleming
Jeff L. Fleming
Velia Carboni
Velia Carboni
John C. Compton
John C. Compton
John W. Dietrich
John W. Dietrich
J. Michael Kemp, Sr.
J. Michael Kemp, Sr.
Vicki R. Palmer
Vicki R. Palmer
Cecelia D. Stewart
Cecelia D. Stewart
R. Eugene Taylor
R. Eugene Taylor
Title
President, Chief Executive
Officer, Chairman of the
Board, and a Director
(principal executive officer)
Executive Vice President
and Chief Accounting
Officer (principal
accounting officer)
Director
Director
Director
Director
Director
Director
Director
Date*
Signature*
Hope Dmuchowski
Hope Dmuchowski
Harry V. Barton, Jr.
Harry V. Barton, Jr.
John N. Casbon
John N. Casbon
Wendy P. Davidson
Wendy P. Davidson
William H. Fenstermaker
William H. Fenstermaker
Rick E. Maples
Rick E. Maples
Colin V. Reed
Colin V. Reed
Rosa Sugrañes
Rosa Sugrañes
*
*
*
*
*
*
*
*
*
Title
Senior Executive Vice
President and Chief
Financial Officer
(principal financial officer)
Director
Director
Director
Director
Director
Director
Director
Date*
*
*
*
*
*
*
*
*
*By: /s/ Clyde A. Billings, Jr.
Clyde A. Billings, Jr.
As Attorney-in-Fact
February 22, 2024
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2023 FORM 10-K ANNUAL REPORT