FIRST HORIZON CORP00000369662021FYfalsehttp://fasb.org/us-gaap/2021-01-31#AccountingStandardsUpdate201602Memberhttp://fasb.org/us-gaap/2021-01-31#AccountingStandardsUpdate201613Memberimmaterialimmaterialimmaterialimmaterialimmaterialnothttp://fasb.org/us-gaap/2021-01-31#AccountingStandardsUpdate201613Memberhttp://fasb.org/us-gaap/2021-01-31#OtherAssetshttp://fasb.org/us-gaap/2021-01-31#OtherAssetshttp://fasb.org/us-gaap/2021-01-31#OtherAssetshttp://fasb.org/us-gaap/2021-01-31#OtherAssetshttp://fasb.org/us-gaap/2021-01-31#OtherLiabilitieshttp://fasb.org/us-gaap/2021-01-31#OtherLiabilitieshttp://fasb.org/us-gaap/2021-01-31#OtherLiabilitieshttp://fasb.org/us-gaap/2021-01-31#OtherLiabilities.054
0000036966 fhn:FicoScore660To699Member us-gaap:ConsumerPortfolioSegmentMember us-gaap:HomeEquityMember 2019-12-31 0000036966 fhn:LowIncomeHousingTaxCreditsMemberMember 2017-01-01 2017-12-31 0000036966 srt:MaximumMember us-gaap:FairValueInputsLevel3Member fhn:LoansHeldForSaleSmallBusinessAdministrationMember us-gaap:MeasurementInputConstantPrepaymentRateMember us-gaap:ValuationTechniqueDiscountedCashFlowMember 2019-12-31Table of ContentsUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.D.C. 20549
FORM 10-K
|
| | | | |
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20192021
- or -
|
| | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 SECURITIES EXCHANGE ACT OF 1934
|
For the Transition period from __________ to__________
Commission File Number: 001-15185
FIRST HORIZON NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
|
| | | | | | | | | | |
| TN | | 62-0803242 |
(State or other jurisdiction
incorporation of organization)
| | (IRS Employer
Identification No.)
|
| | |
| 165 Madison Avenue | | |
| Memphis, | Tennessee | | 38103 |
| (Address of principal executive office) | | (Zip Code) |
Registrant’s telephone number, including area code: 901-523-4444
901-523-4444
Securities registered pursuant to Section 12(b) of the Act:
|
| | | | | | | |
| Title of Each Class | Trading Symbol(s) | Name of Exchange on which Registered |
| $.625 Par Value Common Capital Stock | FHN | New York Stock Exchange LLC |
Depositary Shares, each representing a 1/400th interest in
a share of Non-Cumulative Perpetual Preferred Stock, Series B | FHN PR B | New York Stock Exchange LLC |
|
Depositary Shares, each representing a 1/400th interest in
a share of Non-Cumulative Perpetual Preferred Stock, Series C | FHN PR C | New York Stock Exchange LLC |
|
Depositary Shares, each representing a 1/400th interest in
a share of Non-Cumulative Perpetual Preferred Stock, Series D | FHN PR D | New York Stock Exchange LLC |
|
Depositary Shares, each representing a 1/4,000th interest in
a share of Non-Cumulative Perpetual Preferred Stock,
A
E | FHN PR AE | New York Stock Exchange LLC |
|
Depositary Shares, each representing a 1/4,000th interest in
a share of Non-Cumulative Perpetual Preferred Stock, Series F | FHN PR F | New York Stock Exchange LLC |
|
Securities registered pursuant to Section 12(g) of the Act: None
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 | ☒ | | Accelerated filer | ☐ | | Non-accelerated filer | | ☐ |
| Smaller reporting company | ☐ | | 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. ☒
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, 2019,2021, the aggregate market value of registrant common stock held by non-affiliates of the registrant was approximately $4.6$9.4 billion based on the closing stock price reported for that date. At January 31, 2020,2022, the registrant had 311,602,613533,633,668 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement to be furnished to shareholders in connection with the Annual Meeting of shareholders scheduled for April 28, 2020:26, 2022: Part III of this Report
Auditor Name: KPMG LLP Auditor Location: Memphis, TN Auditor Firm ID: 185
|
| | | | |
TABLE OF CONTENTS OF ANNUAL REPORT ON FORM 10-Kand GLOSSARY |
|
| | | | | | |
| ITEM | | Page | | ITEM | | Page |
| | | | | | | |
| Forward-Looking Statements | | | Item 8. | Financial Statements and Supplementary Data | |
| Part I | | Item 9. | Changes in and Disagreements with Accountants | |
| Item 1. | Business | | | | on Accounting and Financial Disclosure | |
| Statistical Information Required by Guide 3 | | | Item 9A. | Controls and Procedures | |
| Item 1A. | Risk Factors | | | Item 9B. | Other Information | |
| Item 1B. | Unresolved Staff Comments | | | Part III |
| Item 2. | Properties | | | Item 10. | Directors and Executive Officers of the Registrant | |
| Item 3. | Legal Proceedings | | | Item 11. | Executive Compensation | |
| Item 4. | Mine Safety Disclosures | | | Item 12. | Security Ownership of Certain Beneficial Owners | |
| Supplemental Part I Information | | | | and Management and Related Stockholder Matters | |
| Part II | | Item 13. | Certain Relationships and Related Transactions | |
| Item 5. | Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer | | | Item 14. | Principal Accountant Fees and Services | |
| | Purchases of Equity Securities | | | Part IV |
| Item 6. | Selected Financial Data | | | Item 15. | Exhibits and Financial Statement Schedules | |
| Item 7. | Management’s Discussion and Analysis of | | | Item 16. | Form 10-K Summary | |
| | Financial Condition and Results of Operations | | | Signatures | | |
| Item 7A. | Quantitative and Qualitative Disclosures about Market Risk | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| ITEM | | Page | | ITEM | | Page |
| | | | | | |
| Glossary | | | Item 8. | Financial Statements and Supplementary Data | |
| Executive Summary of Principal Investment Risks | | | | | |
| Forward-Looking Statements | | | Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | |
| Part I | | | |
| Item 1. | Business | | | Item 9A. | Controls and Procedures | |
| Item 1A. | Risk Factors | | | Item 9B. | Other Information | |
| Item 1B. | Unresolved Staff Comments | | | Part III |
| Item 2. | Properties | | | Item 10. | Directors and Executive Officers of the Registrant | |
| Item 3. | Legal Proceedings | | | Item 11. | Executive Compensation | |
| Item 4. | Mine Safety Disclosures | | | Item 12. | Security Ownership of Certain Beneficial Owners | |
| Supplemental Part I Information | | | | and Management and Related Stockholder Matters | |
| Part II | | | |
| Item 5. | Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer | | | Item 13. | Certain Relationships and Related Transactions | |
| Purchases of Equity Securities | | | Item 14. | Principal Accountant Fees and Services | |
| Item 6. | [reserved] | | | Part IV |
| Item 7. | Management’s Discussion and Analysis of | | | Item 15. | Exhibits and Financial Statement Schedules | |
| Financial Condition and Results of Operations | | | Item 16. | Form 10-K Summary | |
| Item 7A. | Quantitative and Qualitative Disclosures about Market Risk | | | Signatures | | |
MD&A and Financial Statement References:
In this report: "2019"2021 MD&A" and "2019"2021 MD&A (Item 7)" generally refer to "Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations," inclusive of "GlossaryGlossary of Selected Financial Terms"Terms and "Acronyms,"Acronyms, appearing in Item 7 within Part II of this report on pages 42 through 111;report; and, "2019"2021 Financial Statements" and "2019"2021 Financial Statements (Item 8)" generally refer to our Consolidated Statements of Condition,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 on pages 117 through 217.report.
Glossary
The following is a list of common acronyms and terms used throughout this report: |
| | | | |
FORWARD-LOOKING STATEMENTSACL | Allowance for credit losses |
| AFS | Available for sale |
| AIR | Accrued interest receivable |
| ALCO | Asset/Liability Committee |
| ALLL | Allowance for loan and lease losses |
| ALM | Asset/liability management |
| AOCI | Accumulated other comprehensive income |
| ASC | FASB Accounting Standards Codification |
| Associate | Person employed by FHN |
| | | | | |
| ASU | Accounting Standards Update |
| Bank | First Horizon Bank |
| BOLI | Bank-owned life insurance |
| C&I | Commercial, financial, and industrial loan portfolio |
| CAS | Credit Assurance Services |
| CARES Act | Coronavirus Aid, Relief, and Economic Security Act |
| CBF | Capital Bank Financial |
| CCAR | Comprehensive Capital Analysis and Review |
| | | | | | | | |
| 3 | 2021 FORM 10-K ANNUAL REPORT |
| | |
| TABLE OF CONTENTS and GLOSSARY |
| | | | | |
| CECL | Current expected credit loss |
| CEO | Chief Executive Officer |
| CFPB | Consumer Financial Protection Bureau |
| CMO | Collateralized mortgage obligations |
| Company | First Horizon Corporation |
| Corporation | First Horizon Corporation |
| CRA | Community Reinvestment Act |
| CRE | Commercial Real Estate |
| CRMC | Credit Risk Management Committee |
| DTA | Deferred tax asset |
| DTL | Deferred tax liability |
| EAD | Exposure as default |
| ECP | Equity Compensation Plan |
| EPS | Earnings per share |
| Fannie Mae | Federal National Mortgage Association |
| FASB | Financial Accounting Standards Board |
| FDIC | Federal Deposit Insurance Corporation |
| Federal Reserve | Federal Reserve Board |
| Fed | Federal Reserve Board |
| FHA | Federal Housing Administration |
| FHLB | Federal Home Loan Bank |
| FHN | First Horizon Corporation |
| FHNF | FHN Financial; FHN's fixed income division |
| FICO | Fair Isaac Corporation |
| First Horizon | First Horizon Corporation |
| FRB | Federal Reserve Bank or the Federal Reserve Board |
| Freddie Mac | Federal Home Loan Mortgage Corporation |
| FTE | Fully taxable equivalent |
| FTRESC | FT Real Estate Securities Company, Inc. |
| GAAP | Generally accepted accounting principles |
| GSE | Government sponsored enterprises, in this filing references Fannie Mae and Freddie Mac |
| HELOC | Home equity line of credit |
| HFS | Held for sale |
| HTM | Held to maturity |
| IBKC | IBERIABANK Corporation |
| ISDA | International Swap and Derivatives Association |
| IRS | Internal Revenue Service |
| LGD | Loss given default |
| LIBOR | London Inter-Bank Offered Rate |
| LIHTC | Low Income Housing Tax Credit |
| LLC | Limited Liability Company |
| | | | | |
| LMC | Loans to mortgage companies |
| LOCOM | Lower of cost or market |
| LRRD | Loan Rehab and Recovery Department |
| LTV | Loan-to-value |
| MBS | Mortgage-backed securities |
| MD&A | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| NAICS | North American Industry Classification System |
| NII | Net interest income |
| NM | Not meaningful |
| NMTC | New Markets Tax Credit |
| NPA | Nonperforming asset |
| Non-PCD | Non-Purchased Credit Deteriorated Financial Assets |
| NPL | Nonperforming loan |
| OREO | Other Real Estate-owned |
| PCAOB | Public Company Accounting Oversight Board |
| PCD | Purchased Credit Deteriorated Financial Assets |
| PCI | Purchased credit impaired |
| PD | Probability of default |
| PM | Portfolio managers |
| PPP | Paycheck Protection Program |
| PSU | Performance Stock Unit |
| RE | Real estate |
| RM | Relationship managers |
| ROA | Return on Assets |
| ROU | Right of use |
| RPL | Reasonably possible loss |
| SBA | Small Business Administration |
| SEC | Securities and Exchange Commission |
| SVaR | Stressed Value-at-Risk |
| TD | The Toronto-Dominion Bank |
| TDBNA | TD Bank, N.A. |
| TD-US | TD Bank US Holding Company |
| TD Merger Agreement | Merger agreement between FHN, TD, TD-US, and a TD-US subsidiary |
| Proposed TD Merger | The merger transactions contemplated by the TD Merger Agreement |
| TDR | Troubled Debt Restructuring |
| TRUP | Trust preferred loan |
| UPB | Unpaid principal balance |
| USDA | United States Department of Agriculture |
| VaR | Value-at-Risk |
| VIE | Variable Interest Entities |
| we/us/our | First Horizon Corporation |
| | | | | | | | |
| 4 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| 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 a cyclical manner which is difficult to predict, which in turn makes our performance difficult to predict. For additional information, see the Cyclicality discussion within Other Business Information, which begins on page 18, and Risks from Economic Downturns and Changes whichbegins on page 38. •Credit Loss. Our lending business—accounting for about half of our revenues—is critically dependent on our clients being able to pay us back. That ability often depends on economic conditions, but many individual factors can be critical as well. If a client defaults on a loan, generally we will experience a financial loss which often is only reduced, not eliminated, by collateral supporting the loan. Accounting rules require us to evaluate current expected credit loss (CECL) each quarter, booking losses based on our expectations. That process can result in a highly volatile pattern of recognizing credit loss each quarter. The past two years demonstrated this volatility, based on the economic and business disruptions associated with the COVID-19 pandemic in the first half of 2020, followed by several fairly sudden changes in business circumstances and expectations over the next 18 months. For additional information, see: the discussion captioned CECL Accounting and COVID-19 within the Significant Business Developments Over Past Five Years section of Item 1, which begins on page 12; Credit Risks beginning on page 40; and Risks Related to COVID-19 Pandemic beginning on page 42. •Loan Loss vs Loan Profit. Lending generally is a high-volume, low-margin business. This means that we often need the profits from many loans to make up for losses from one loan. For our earnings to be strong, we need to hold loan losses to a very low level, which makes our management of credit quality
a critical function for us. This imbalance between loss and profit can amplify the potential for volatility in our earnings. For additional information, see Credit Risks beginning on page 40. •Interest Rate Conditions. Interest rates and, especially, the shape of the yield curve, are critical drivers of our profit margin from lending. If the yield curve is flat—with long-term rates only slightly higher than short-term rates—our lending margins shrink, and so does our net interest income. Interest rate policy is controlled by federal agencies and by market forces, not by us. In 2021 the key agency in the U.S. announced its intention to cause interest rates generally to rise, gradually in late 2021 and 2022. This represented a significant change of policy compared with 2020. Moreover, by the end of 2021 inflation in the U.S. had risen to levels not seen in decades, suggesting the announced policy shift may be executed more quickly or robustly than first thought. In early 2022, that agency announced details which, coupled with market reaction to date, lead us to expect that the yield curve will flatten during the year as rates generally rise. Over half of our loan portfolio bears variable interest rates associated with short-term reference rates; those loans should react fairly quickly to agency increases in short-term rates. For additional information, see: the Monetary Policy Shifts discussion within Significant Business Developments Over Past Five Years, which begins on page 12; the Cyclicality discussion within Other Business Information, which begins on page 18; Risks Associated with Monetary Events beginning on page 38; Interest Rate and Yield Curve Risks beginning on page 48; and discussion under the caption Federal Reserve Policy in Transition within the Market Uncertainties and Prospective Trends section of our 2021 MD&A (Item 7), which begins on page 99. •Funding Balance. In our lending business, we aggregate money and lend it out at rates which more than cover our costs. We constantly must balance our funding sources (deposits and borrowings) with our funding needs (lending). Imbalances tend to hurt our earnings. If sources become too large, generally we can cut back short-term borrowing or invest the excess, but our margins can be weaker as a result. If sources become too small, we might have to forego profitable lending or increase funding by increasing deposit or borrowing volumes and costs. For additional information, see Liquidity and Funding Risks beginning on page 46.
| | | | | | | | |
| 5 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| EXECUTIVE SUMMARY OF PRINCIPAL INVESTMENT RISKS |
| | |
•Competition. Competition for clients and talent in our industry is intense and unlikely to abate. Competition for clients pressures us to make interest rate and other concessions on lending and on deposits, which reduce our margins. Competition for revenue-producing talent is a key method of obtaining new client relationships in many parts of our industry, and pressures us to increase compensation expense. For additional information, see Competition beginning on page 16, and Traditional Competition Risks beginning on page 33. •Banking Consolidation. Since the advent of nation-wide branching in the 1980s, the banking industry has experienced several waves of substantial consolidation. In the past twenty years, technological improvements have allowed institutions to become extremely large while maintaining adequate client service, and, due to cost efficiencies associated with scalable technology, have rewarded the largest institutions disproportionately, incenting banks to grow larger, faster. Consolidation can abruptly change the competitive environment in our markets. In addition, when we participate in consolidating actions, as we did in 2017 and 2020, typically it creates internal disruption and expense for a time while we integrate systems, consolidate branches, and take other consolidation-related actions. Moreover, in our industry, the market tends to discount, for a time, the stock price of banks that engage in major mergers, in part due to the transaction and integration expenses mentioned above coupled with the risk that the combination may not achieve management’s strategic or tactical objectives. For additional information, see: Significant Business Developments Over Past Five Years beginning on page 12; the Strategic Transactions discussion within the Other Business Information section which begins on page 18; and Traditional Strategic and Macro Risks beginning on page 34. •Industry Disruption. Technological innovation, and the associated changes in client preferences, are radically transforming our industry and how financial services are delivered to clients. Keeping pace is expensive and difficult, while being a consistent innovation leader is practically impossible for a bank our size. Moreover, rapid innovation has the potential to be destructive of traditional companies in our
industry, as it has done and is doing in other industries. For additional information, see Industry Disruption beginning on page 35. •Regulated Industry. Our principal businesses are heavily regulated. Our two primary banking regulators can examine us, cause us to change our business operations, and significantly restrict our ability to pursue lines of business, in ways not applicable to companies in most other industries. We also have several secondary regulators, each with significant though less-encompassing powers. The primary missions of the regulators are to protect the banking system as a whole, to protect the federal government’s deposit insurance fund and program, and to protect clients; none exists to enhance our profitability or promote the interests of our investors. Moreover, regulators are government agencies, and as such can experience significant policy changes when the elected branches of government experience such changes. For additional information, see Regulatory, Legislative, and Legal Risks beginning on page 43. •Security & Technology. Fraud and theft have always been significant risks for banks; we experience fraud and theft loss every year. Technology has allowed fraud and theft risks to grow substantially. Bad actors can impact us from around the world, day or night, both directly and through our clients or vendors. Typically, the more a system is built to be secure and robust, the less that system can be flexible and adaptable. Moreover, high-security often can be associated with a sub-optimal user experience. For additional information, see Operational Risks beginning on page 36. •Expense Control. In the current low-interest-rate environment, banks in the U.S. are focused on reducing operating costs as much as possible. For additional information, see Operational Risks beginning on page 36, and Risks of Expense Control beginning on page 45. For a more complete discussion of the risks associated with our businesses and operations and investment in our securities, see Item 1A—Risk Factors, beginning on page 31.
Forward-Looking Statements
This report on Form 10-K, including materials incorporated into it, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995 with respect to ourFHN's beliefs, plans, goals, expectations, and estimates. Forward-looking statements are not a representation of historical information, but
| | | | | | | | |
| 6 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| FORWARD-LOOKING STATEMENTS |
| | |
instead pertain to future operations, strategies, financial results or other developments. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “should,” “is likely,” “will,” “going forward,” and other expressions that indicate future events and trends identify forward-looking statements.
Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, operational, economic and competitive uncertainties and contingencies, many of which are beyond our control, and many of which, with respect to future business decisions and actions (including acquisitions and divestitures), are subject to change. Examples of uncertainties and contingencies include,
among other important factors:
•the possibility that the anticipated benefits of the IBKC merger will not be realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in any or all of FHN’s market areas;
•the possibility that the IBKC merger may be more expensive to integrate than anticipated, including as a result of unexpected factors or events;
•potential adverse reactions or changes to business or associate relationships resulting from the IBKC merger;
•global, general and local economic and business conditions, including economic recession or depression;
•the potential impacts on FHN’s businesses of the COVID-19 pandemic, including negative impacts from quarantines, market declines, and volatility, and changes in client behavior related to the COVID-19 pandemic;
•the stability or volatility of values and activity in the residential housing and commercial real estate markets;
•potential requirements for usFHN 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; inflation or deflation; customer, investor, competitor, regulatory, and legislative responses to any or all of these conditions;
•the financial condition of borrowers and other counterparties;
•competition within and
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 2
outside the financial services industry; geopolitical developments including possible
•the occurrence of natural or man-made disasters, global pandemics, conflicts, or terrorist activity; natural disasters; attacks, or other adverse external events;
•effectiveness and cost-efficiency of ourFHN’s hedging practices; technological changes;
•fraud, theft, or other incursions through conventional, electronic, or other means directly or indirectly affecting usFHN or our customers,its clients, business counterparties or competitors; demand for our product offerings; new
•the ability to adapt products and services in the industries in which we operate; the increasing use of new technologies to interact with customerschanging industry standards and others; and critical accounting estimates. Other factors are thoseclient 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 customer profiles.client profiles;
Additionally, •the actionschanges in the regulation of the Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), the Tennessee Department of Financial Institutions (TDFI) and its Commissioner, the Board of Governors of the Federal Reserve System (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the Financial Industry Regulatory Authority (FINRA), the U.S. Department of the Treasury (Treasury), the Municipal Securities Rulemaking Board (MSRB), the
financial services industry;Consumer Financial Protection Bureau (CFPB), the Financial Stability Oversight Council (Council), the Public Company Accounting Oversight Board (PCAOB), and other regulators and agencies; pending, threatened, or possible future regulatory, administrative, and judicial outcomes, actions, and proceedings; current or future Executive orders; •changes in laws, regulations, and regulationsadministrative 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 us;make estimates about matters that are uncertain;
•the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the TD Merger Agreement;
•the outcome of any legal proceedings that may be instituted against FHN, TD, or TD-US, including potential litigation that may be instituted against FHN or its directors or officers related to the Proposed TD Merger or the TD Merger Agreement;
•the timing and our success in executing ourcompletion of the Proposed TD Merger, including the possibility that the Proposed TD Merger will not close when expected or at all because required regulatory, shareholder, or other approvals are not received or other conditions to the closing are not satisfied on a timely basis or at all, or are obtained subject to conditions that are not anticipated;
| | | | | | | | |
| 7 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| FORWARD-LOOKING STATEMENTS |
| | |
•the risk that any announcements relating to the Proposed TD Merger could have adverse effects on the market price of the common stock of FHN;
•certain restrictions during the pendency of the Proposed TD Merger that may impact FHN’s ability to pursue certain business plansopportunities or strategic transactions;
•the possibility that the Proposed TD Merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events;
•the diversion of management’s attention from ongoing business operations and strategies and managing the risks involved in the foregoing, could cause actual results to differ, perhaps materially, from those contemplatedopportunities caused by the forward-looking statements.Proposed TD Merger;
We assume•reputational risk and potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement of the Proposed TD Merger; and
•other factors that may affect future results of FHN.
FHN assumes no obligation to update or revise any forward-looking statements that are made in this report on Form 10-K or in any other statement, release, report, or filing from time to time. Actual results could differ and expectations could change, possibly materially, because of one or more factors, including those factors listed above or presented elsewhere in this report, or in those factors listed in material incorporated by reference into this report. In evaluating forward-looking statements and assessing our prospects, readers of this report should carefully consider the factors mentioned above along with the additional risk factors discussed in Items 1 and 1A of this report and in 20192021 MD&A (Item 7), among others.
Important Other Information
In connection with the proposed transaction, FHN intends to file relevant materials with the SEC, including preliminary and definitive proxy statements on Schedule 14A.
This Annual Report on Form 10-K does not constitute an offer to sell or a solicitation of an offer to buy any securities or a solicitation of any vote or approval. SHAREHOLDERS OF FHN ARE URGED TO READ, WHEN AVAILABLE, ALL RELEVANT DOCUMENTS (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) FILED WITH THE SEC, INCLUDING FHN’S PROXY STATEMENT, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT FHN AND THE PROPOSED TRANSACTION.
Investors and shareholders will be able to obtain a free copy of the proxy statement as well as other relevant documents when filed with the SEC without charge at the SEC’s website (http://www.sec.gov). Copies of the proxy statement and the filings with the SEC that will be incorporated by reference in the proxy statement will also be available once filed, without charge, by directing a request to Clyde A. Billings Jr., First Horizon Corporation, 165 Madison, Memphis, TN 38103, telephone (901) 523-4444.
|
| | | | | | | |
PART I | 8 | 2021 FORM 10-K ANNUAL REPORT |
------------
ITEM 1. BUSINESS
------------
|
| | | | | | | |
Our BusinessesITEM 1. BUSINESS |
| | |
Item 1. Business
Our Businesses
Overview
First Horizon National Corporation (“FHN,” “First Horizon,” the “Corporation,” “we,” or “us”) 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 are 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, 2019,2021, we had total consolidated assets of $43.3$89 billion.
We provide diversified financial services primarily through our principal subsidiary, First Horizon Bank (the “Bank”).Bank. The Bank is a Tennessee banking corporation headquartered in Memphis, Tennessee. The Bank and its subsidiaries conduct the Bank’s traditional and specialty banking businesses principally under the FIRST HORIZON BANK brand, its wealth management business principally under the First Horizon Advisors brand, and its fixed income business principally under the FHN FINANCIAL Financial brand.
The Bank was founded in 1864 as First National Bank of Memphis. FHN was incorporated in 1968 to be the Bank’s holding company.
During 20192021 approximately 35% of our consolidated revenues were provided by fee and other noninterest income, and approximately 65% of revenues were provided by net interest income.
As a financial holding company, we coordinate the financial resources of the consolidated enterprise and maintain systems of financial, operational, and administrative control intended to coordinate selected policies and activities, including as described in Item 9A of Part IIII.
The Bank
The Bank was founded in 1864 as First National Bank of this report.Memphis. During 2021, through its various business lines, including consolidated subsidiaries, the Bank reported revenues (net interest income plus noninterest income) of approximately $3 billion. The Bank generated a substantial majority of First Horizon’s consolidated revenue. At
December 31, 2021, the Bank had $89 billion in total assets, $76 billion in total deposits, and $54 billion in total loans and leases (net of unearned income and net of allowance for loan and lease losses).
Principal Businesses, Brands, & Locations
At year-end 2021 our principal businesses were conducted mostly under two or three brands. Brand integration from the IBKC merger was delayed until February 2022, after which we began phasing out certain brands. Our principal brands at year-end are summarized in Table 1.1.
Table 1.1
Principal Businesses & Brands At Year-End
| | | | | |
| Businesses | Brands |
| Banking & financial services generally | •First Horizon & First Horizon Bank •IBERIABANK |
Fixed income /
capital markets | •FHN Financial |
| Mortgage lending | •First Horizon Bank •IBERIABANK Mortgage |
| Title services | •Lenders Title Group |
| Insurance brokerage & management services | •First Horizon Advisors |
| Wealth management & brokerage services | •First Horizon Advisors •IBERIA Wealth Management |
At December 31, 2021, First Horizon’s subsidiaries had over 500 business locations in 22 U.S. states, excluding off-premises ATMs. Most of those locations were banking centers. At year-end, First Horizon had 427 banking centers in twelve states, as shown in Table 1.2.
Table 1.2
Banking Centers at Year-End
| | | | | | | | | | | | | | |
| State | # | | State | # |
| Tennessee | 140 | | Georgia | 12 |
| Florida | 83 | | South Carolina | 10 |
| North Carolina | 79 | | Texas | 8 |
| Louisiana | 57 | | Virginia | 8 |
| Alabama | 13 | | Mississippi | 4 |
| Arkansas | 12 | | New York | 1 |
Many banking centers contain special-service areas such as wealth management and mortgage lending.
At year-end 2021, First Horizon also had client-service offices not physically within banking centers, including
| | | | | | | | |
| 9 | 2021 FORM 10-K ANNUAL REPORT |
fixed income, title services, home mortgage, wealth management, and commercial loan offices. The largest groups of those offices were: 29 fixed income offices in 16 states across the U.S.; 30 title services offices in Arkansas,
Tennessee, and Louisiana; and 15 stand-alone mortgage lending offices in 9 states. First Horizon also has operational and administrative offices.
Loans & Deposits
Lending and deposit-taking are core businesses for us. Our largest resource to fund our lending is our deposit base. At year-end 2021, we had total loans (net of unearned income) of $55 billion, total net loans (net of unearned income and net of allowance for loan and lease losses) of $54 billion, and total deposits of $75 billion. Most of our loans and deposits are held in our regional banking and specialty banking segments. Most of our loans are commercial, and most of them are traditional, unsecured commercial, financial, and industrial loans, or “C&I” loans. The other two major loan portfolios are secured commercial real estate loans, or “CRE” loans, and secured consumer real estate loans. Table 1.3 provides an overview of our loan and deposit balances at December 31, 2021 or averaged over the year 2021.
Table 1.3
Loans & Deposits by Type
| | | | | | | | | | | | | | |
Loans1 | | Deposits2 |
| Commercial | 79 | % | | Savings | 37 | % |
| Consumer | 21 | % | | Time deposits | 6 | % |
| Commercial Portfolios | | Other interest | 22 | % |
| C&I | 72 | % | | Noninterest | 35 | % |
| CRE | 28 | % | | | |
| Consumer Portfolios | | | |
| Real estate | 92 | % | | | |
| Credit card/other | 8 | % | | | |
1 Percentages at December 31, 2021; includes certain leases.
2 Percentages of average deposits for 2021.
Percentages may not add to 100% due to rounding.
The C&I portfolio, more than half of total loans, was $31 billion on December 31, 2021. Within C&I, about 26% of loans are to businesses in the financial services industry, including mortgage lending companies, with the rest in a wide range of industries, as shown in Table 1.4.
Table 1.4
C&I Loans1 by Line of Business
| | | | | | | | |
| Mortgage lending companies | 15 | % | |
| Finance & Insurance | 11 | % | |
| | |
| Real estate rental & leasing | 9 | % | |
| | |
| Health care & social assistance | 8 | % | |
| Accommodation & food service | 7 | % | |
| Manufacturing | 6 | % | |
| Wholesale trade | 6 | % | |
| | |
| | |
| Retail trade | 5 | % | |
| Other C&I | 33 | % | |
1 Percentages of C&I portfolio at December 31, 2021.
Percentages may not add to 100% due to rounding.
Geographically, a significant majority of our loans originate from five states: Tennessee, Florida, Louisiana, North Carolina, and Texas. The geographic dispersion of our loans varies considerably among our three major loan portfolios, as shown in Table 1.5.
Table 1.5
Major Loan Portfolios by Geography
| | | | | | | | | | | | | | | | | | | | | | | |
C&I Loans ($31B)1 | | CRE Loans ($12B)1 | | Consumer RE Loans ($11B)1 |
| Tennessee | 20 | % | | Florida | 26 | % | | Florida | 32 | % |
| Florida | 12 | % | | Texas | 12 | % | | Tennessee | 23 | % |
| Texas | 10 | % | | North Carolina | 11 | % | | Louisiana | 10 | % |
| North Carolina | 7 | % | | Louisiana | 10 | % | | North Carolina | 8 | % |
| Louisiana | 7 | % | | Tennessee | 9 | % | | Texas | 7 | % |
| California | 7 | % | | Georgia | 8 | % | | New York | 5 | % |
| Georgia | 5 | % | | All other states | 24 | % | | All other states | 15 | % |
| All other states | 32 | % | | | | | | |
1 Dollars and percentages within each portfolio at December 31, 2021.
Further information regarding deposits and our other major sources of funding is provided in Notes 9, 10, and 11 beginning on pages 154, 155, and 156, respectively, appearing in our 2021 Financial Statements (Item 8), and under the captions Deposits, Short-term Borrowings, and Term Borrowings beginning on pages 85, 86, and 86, respectively, of our 2021 MD&A (Item 7). Further information regarding our loans is provided in Note 4
| | | | | | | | |
| 10 | 2021 FORM 10-K ANNUAL REPORT |
beginning on page 139 appearing in our 2021 Financial Statements (Item 8), and under the captions Analysis of Financial Condition and Asset Quality, beginning on pages 70 and 73, respectively, of our 2021 MD&A (Item 7). Business Segments
Segment Overview
Our financial results of operations are reported through operational business segments which are not closely related to the legal structure of our subsidiaries. We operateAs a result of our recent merger of equals with IBERIABANK Corporation (see Significant Business Developments over Past Five Years in this Item 1 below), we changed our segments. Before the merger, we operated through four business segments: regional banking, fixed income, corporate, and non-strategic. We sometimes refer toCurrently, we operate through three segments: regional banking, fixed income,specialty banking, and corporate as our “core” businesscorporate. In this report, segment information related to prior periods has been reclassified to conform with current segments.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 3
Financial and other additional information concerning our segments-includingsegments—including information concerning assets, revenues, and financial results-appearsresults—appears in our 20192021 MD&A (Item 7) and in Note 20-Business Segment Information, of our 20192021 Financial Statements (Item 8), especially in Note 20—Business Segment Information. Note 20 begins on page 178. Regional and Specialty Banking Segments
By far most of our loans and deposits are in the regional banking and specialty banking segments. Similarly, those segments are the sources of most of our revenues and expenses. The Bank
During 2019, through its various business lines, including consolidated subsidiaries, the Bank generated gross revenue (net interest income plus noninterest income)two segments create and use financial resources differently, and they generate different types of approximately $2.3 billion and generatedrevenues. Most notably: regional banking provides a substantial majority of our consolidated revenuenet interest income (mainly from continuing operations. At December 31, 2019, the Bank had $43.1 billion in total assets, $32.8 billion in total deposits, and $30.9 billion in total loans (net of unearned income)lending), while specialty banking provides more noninterest income (mainly from fees). Among Tennessee headquartered banks, the Bank ranked 1st in Tennessee deposit market share at June 30, 2019 based on FDIC data.
Physical Business Locations
At December 31, 2019, FHN’s subsidiaries had over 300 business locations in 20 U.S. states, excluding off-premises ATMs. Almost allIn addition, regional banking is larger than specialty banking by many financial measures. Table 1.6 provides high-level financial information for each of those locations were banking centerstwo segments, highlighting these points.
Table 1.6
Regional vs Specialty Banking Snapshot
| | | | | | | | | | | |
| (Dollars in millions) | Regional | | Specialty |
| 2021 Average assets | $ | 45,445 | | | $ | 20,803 | |
| 2021 Net interest income | $ | 1,764 | | | $ | 619 | |
| 2021 Noninterest income | $ | 438 | | | $ | 597 | |
| 2021 Pretax income | $ | 1,280 | | | $ | 709 | |
Regional and FHN Financial offices.
At year-end, the Bank had 272 banking centers in seven states:
Banking Centers at Year End
|
| | | |
| State | # | State | # |
| Tennessee | 158 | Mississippi | 5 |
| North Carolina | 68 | Georgia | 1 |
| Florida | 29 | Texas | 1 |
| South Carolina | 10 | | |
The Bank also has other customer-service offices, including 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 loan offices, as well as operationalreal estate (Pro-CRE)
•mortgage warehouse lending
•asset-based (secured) lending
•franchise finance
•equipment finance
•corporate banking
•correspondent banking
•mortgage origination and administrative offices.title services
At December 31, 2019, FHN Financial’sGeographically, 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 other products and services were offered through 29 officesCalifornia is listed in 18 states across the U.S.Table 1.5 primarily because of specialty banking business lines.
| | | | | | | | |
| 11 | 2021 FORM 10-K ANNUAL REPORT |
Services We Provide
At December 31, 2019,2021, we provided the following services through our subsidiaries and divisions:
•general banking services for consumers, businesses, financial institutions, and governments
through FHN Financial: •fixed income sales and trading; underwriting of bank-eligible securities and other fixed-income securities eligible for underwriting by financial subsidiaries; loan sales; advisory services; and derivative sales
•mortgage banking services
•title insurance and loan-closing services
•brokerage services
•correspondent banking
•transaction processing: nationwide check clearing
services and remittance processing
•trust, fiduciary, and agency services
•credit card products
•equipment finance services
•investment and financial advisory services
•mutual fund sales as agent
•retail insurance sales as agent
mortgage banking services
Information about the net interest income and noninterest income we obtained from our largest categories of products and services appears under the caption “Income Statement Review-2019Results of Operations—2021 Compared to 2018” 2020 beginning on page 4863 of our 20192021 MD&A (Item 7), which information is incorporated into this Item 1 by reference. Loans & Deposits
Our largest asset would be our loan portfolio-if all of our loans were viewed collectively-and lending is a critical, core business for us. Similarly, our largest resource is our deposit base, and deposit-taking also is a critical, core business. At year-end 2019, we had total net loans of $30.9 billion and total deposits of $32.4 billion. Most of our loans and deposits are held in our regional banking segment. The tables below provide an overview of our loan and deposit balances at December 31, 2019 or averaged over the year 2019.
Geographically, nearly half of our loans originate from Tennessee and North Carolina, with no other state accounting for 10%. Three-fourths of our deposits are associated with Tennessee, and 90% are from Tennessee and North Carolina.
Loans & Deposits by Geography
|
| | | | |
| Reg’l Bank’g Loans* | | All Deposits** |
| Tennessee | 34% | | Tennessee | 75% |
| North Carolina | 13% | | North Carolina | 15% |
| Florida | 9% | | Florida | 6% |
| California | 6% | | South Carolina | 2% |
| Texas | 6% | | All other | 2% |
| All other | 32% | | | |
* At December 31, 2019.
** At June 30, 2019. Source: FDIC.
Only about one fourth of our loans, but over 40% of our deposits, are with consumers.
Loans & Deposits by Type
|
| | | | | | |
| All Loans* | | All Deposits* |
| Consumer | 23 | % | | Consumer Interest | 42 | % |
| Commercial | 77 | % | | Comm’l Interest | 20 | % |
| | | | Noninterest | 25 | % |
| | | | Market Indexed | 13 | % |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 4Table 1.7 provides selected data concerning revenues, expenses, assets, liabilities, and shareholders’ equity for the past five years.
*Averages for 2019.SELECTED CONSOLIDATED FINANCIAL DATA
These tables show that our lending outside of Tennessee is funded(Dollars in significant part by deposits from our Tennessee markets, and a significant portion of funding for our commercial lending comes from consumer deposits. Keeping our funding uses and sources in balance is a critical function for us. Excess deposits most typically are invested in investments permitted by our regulators, while excess lending most typically is funded with borrowing. Because loans and deposits fluctuate constantly, we maintain access to significant non-deposit liquidity sources, primarily short-term borrowing.
Most of our commercial loans are traditional, unsecured “commercial,millions; financial and industrial,” or “C&I,” loans, and most of the rest are secured “commercial real estate,” or “CRE,” loans. Within C&I, nearly 36% of loans are to businesses in the financial services industry, including mortgage lending companies, and the rest are in a wide range of industries.
Commercial Loans by Line of Business
|
| | | | | | |
| All Commercial Loans* | | All C&I Loans* |
| C&I | 82 | % | | Mortg. Lenders | 22 | % |
| CRE | 18 | % | | Finance & Insur. | 14 | % |
| | | | Health care | 8 | % |
| | | | Real estate rental | 7 | % |
| | | | Hospitality | 7 | % |
| | | | Wholesale trade | 7 | % |
| | | | Manufacturing | 6 | % |
| | | | Public Admin. | 4 | % |
| | | | Retail trade | 4 | % |
| | | | Other C&I | 21 | % |
| *At December 31, 2019. | | | |
The C&I portfolio was $20.1 billion on December 31, 2019, and is comprised of loans used for general business purposes. Typical products include working capital lines of credit, term loan financing of owner-occupied real estate and fixed assets, and trade credit enhancement through letters of credit. The largest geographical concentrations of C&I balancescondition data shown period-end, as of December 31, 2019, are in Tennessee (31%), North Carolina (10%), California (9%), Texas (6%), Florida (6%),Georgia (4%), and South Carolina (3%), with no other state representing more than 3% of the C&I portfolio.31)
Further information regarding our loans is provided in Note 4-Loans within our 2019 Financial Statements (Item 8), and under the captions “Statement of Condition Review-2019 Compared to 2018” beginning on page 59, and “Asset Quality-Trend Analysis of 2019 compared to 2018” beginning on page 65, of our 2019 MD&A (Item 7), which disclosures are incorporated into this Item 1 by reference.
| | | | | | | | | | | | | | | | | |
| 2021 | 2020 | 2019 | 2018 | 2017 |
| Net interest income | $ | 1,994 | | $ | 1,662 | | $ | 1,210 | | $ | 1,220 | | $ | 842 | |
| Provision for credit losses | (310) | | 503 | | 45 | | 8 | | (1) | |
| Noninterest income | 1,076 | | 1,492 | | 654 | | 723 | | 490 | |
| Net income available to common shareholders | 962 | | 822 | | 435 | | 539 | | 159 | |
| Total loans and leases | 54,859 | | 58,232 | | 31,061 | | 27,536 | | 27,659 | |
| Total assets | 89,092 | | 84,209 | | 43,311 | | 40,832 | | 41,423 | |
| Total deposits | 74,895 | | 69,982 | | 32,430 | | 32,683 | | 30,620 | |
| Total term borrowings | 1,590 | | 1,670 | | 791 | | 1,171 | | 1,218 | |
| Total liabilities | 80,598 | | 75,902 | | 38,235 | | 36,047 | | 36,843 | |
| Preferred stock | 520 | | 470 | | 96 | | 96 | | 96 | |
| Total shareholders’ equity | 8,494 | | 8,307 | | 5,076 | | 4,785 | | 4,580 | |
|
| | | | |
Significant BusinessPriorities & Developments Over Past Five Years |
Over the past five years, keyour strategic priorities for us have included:focused on:
•targeted and opportunistic expansion of consumer and commercial banking products and marketsmarkets;
•targeted and opportunistic expansion of commercial lending, mainly through acquisitionstrategic and tactical transactions, talent development, and talent acquisitionsacquisitions;
vigorous discipline•rigorous expense management with continued investment in controlling expenses not closely related to revenue productiongenerating initiatives;
•managing our business units and products with a strong emphasis on risk-adjusted returns on invested capitalcapital;
robust emphasis on •providing exceptional customerclient service and experience as a primary means to differentiate us from competitors
competitors; and•investment in scalable technology and other infrastructure to attract and retain business,clients and to support expansion.
Examples of our implementation of these priorities include:
| | | | | | | | |
| 12 | 2021 FORM 10-K ANNUAL REPORT |
•In July 2020, we completed a merger of equals transaction with IBERIABANK Corporation and purchased 30 branches from Truist Bank, making 2020 a transformative year. See IBKC Merger of Equals and 30-Branch Acquisition in this Item below for additional information. In February 2022, we completed the main systems conversion work related to that merger.
•As shown in Table 1.7, the COVID-19 pandemic caused us to recognize substantial provision for credit losses in 2020, and reduced our transaction volume and revenues. See the discussion captioned CECL Accounting and COVID-19 within Events Impacting Year-to-Year Comparisons, immediately below. In 2021, a large portion of that provision expense was effectively reversed, resulting in a provision credit for the year.
•The pandemic also resulted in strong deposit growth in 2020 and 2021, despite interest rates being extremely low. We believe federal assistance and stimulus programs in 2020 and early 2021 significantly bolstered deposits in both years.
•In 2017 we acquiredmerged with Capital Bank Financial Corp., which had $10 billion of total assets and nearly 200 banking centers in four southeasternsouthern U.S. states. In another 2017 transaction, we acquired a national leader in trading, securitization, and analysis of Small Business Association loans.
Other acquisitions during this period include TrustAtlantic Bank (2015) and a restaurant franchise finance business and portfolio (2016).
•We have made key talent hires in critical areas throughout our company, with the main focus on organically growing economically profitable business lines inside and outside our traditional markets.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 5
We•Throughout this period, but especially in 2021, we have pruned and adapted our physical banking center network to reflect long-term trends in customerclient usage of physical banking centers, and correspondingly are making more efficient use of other physical facilities. Correspondingly, we have expanded and enhanced our digital banking products and services. These efforts are expected to continue.
Organic and acquisitive loan growth in regional banking has more than offset loan attrition from the non-strategic segment, where legacy loan portfolios are in long-term wind-down.
Organic commercial loan growth•Lending has been strong in certain specialty lending areas, such as lending to mortgage companies, where margins tenddemand is strongly stimulated by the low interest rates in effect during this period.
Events Impacting Year-to-Year Comparisons
IBKC Merger of Equals in 2020
In July 2020, we closed our merger of equals with IBERIABANK Corporation (“IBKC”). IBKC was the parent company of IBERIABANK based in Lafayette, Louisiana. At year-end 2019, IBKC had $31.7 billion of total assets—nearly 75% of our size at that time—and operated over 190 banking centers in 11 states: Louisiana, Texas, Arkansas, Tennessee, Mississippi, Alabama, Georgia, Florida, North and South Carolina, and New York. IBKC’s largest concentrations of banking centers were in Louisiana and Florida. We and IBKC offered many of the same financial services before the merger, but IBKC exceeded us in several areas, most notably in equipment financing, mortgage, and title services.
After closing, our board expanded to be better but outstanding balances tend17 directors, of which nine are from legacy First Horizon and eight are from legacy IBKC. IBKC shareholders collectively were issued 243 million First Horizon common shares (on a net basis).
Under applicable accounting guidance, none of the income or expense recognized by IBKC prior to fluctuate seasonallythe merger is included in our income or expense for 2020. As a result, our 2020 operating results consist of approximately two quarters of legacy First Horizon plus approximately two quarters of combined First Horizon and cyclically.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.
The following table provides selected data concerning revenues, expenses, assets, liabilities,
30-Branch Acquisition in 2020
In July 2020, we purchased 30 branches in North Carolina (20), Virginia (8), and shareholders’ equityGeorgia (2) from SunTrust Bank (now Truist Bank). Those branches are in markets which we did not serve before July, or in which we did not have a leading market position. Along with the branch facilities, we acquired $0.4 billion of related loans and assumed $2.2 billion of deposits.
Large Accounting Impacts from IBKC Merger
Under applicable accounting guidance, closing the IBKC merger in July created two substantial impacts on our operating results for 2020. First, although we were required to record IBKC’s loans at fair value on the closing date, we also were required to recognize, as a provision for credit losses, an estimate of current expected credit losses for certain acquired loans. A similar process, with much smaller numbers, occurred for the past five years.loans associated with the 30-branch purchase. The overall incremental expense, recorded in third quarter 2020, was $147 million. Moreover, we were required to record, on a preliminary basis, a nontaxable purchase accounting gain from the merger of $533 million, driven by the stock market decline in 2020 associated with the COVID-19 pandemic. The net result of those two impacts was a $386 million uplift to our pretax income in 2020 unrelated to the ordinary operation of our businesses.
Expenses related to IBKC Merger
Closing the IBKC merger, integrating the business operations and systems, and making the changes necessary to achieve intended cost and other synergies resulted in substantial noninterest expenses in 2020 and
SELECTED CONSOLIDATED REVENUE, EXPENSE, ASSET, LIABILITY, AND EQUITY DATA
(Dollars in millions; period-end financial condition data shown as of December 31)
|
| | | | | |
| | 2019 | 2018 | 2017 | 2016 | 2015 |
| Net interest income | $ 1,210.2 | $ 1,220.3 | $ 842.3 | $ 729.1 | $ 653.7 |
| Provision for loan losses | 47.0 | 7.0 | 0 | 11.0 | 9.0 |
| Noninterest income | 654.1 | 722.8 | 490.2 | 552.4 | 517.3 |
| Provision for mortgage repurchase losses | (1.0) | (1.0) | (22.5) | (32.7) | 0 |
| Litigation and regulatory matters expense | 2.9 | 0.6 | 40.5 | 30.5 | 187.6 |
| Net income available to common shareholders | 434.7 | 538.8 | 159.3 | 220.8 | 79.7 |
| Total loans (net of unearned income) | 31,061.1 | 27,535.5 | 27,658.9 | 19,589.5 | 17,686.5 |
| Total assets | 43,310.9 | 40,832.3 | 41,423.4 | 28,555.2 | 26,192.6 |
| Total deposits | 32,429.5 | 32,683.0 | 30,620.4 | 22,672.4 | 19,967.5 |
| Total term borrowings | 791.4 | 1,171.0 | 1,218.1 | 1,040.7 | 1,312.7 |
| Total liabilities | 38,234.9 | 36,046.9 | 36,842.9 | 25,850.1 | 23,553.1 |
| Preferred stock Series A | 95.6 | 95.6 | 95.6 | 95.6 | 95.6 |
| Total shareholders’ equity | 5,076.0 | 4,785.4 | 4,580.5 | 2,705.1 | 2,639.6 |
Key Factors
Several factors complicate comparisons among the past five years. Key among those are:
| | | | | | | | |
• | Capital Bank. Many year-end financial figures increased substantially in 2017 due to the Capital Bank transaction. Full-year operating results were less noticeably impacted until 2018, because the Capital transaction closed late in 2017.13
| 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
•ITEM 1. BUSINESS |
Tax Reform. Corporate tax reform in December, 2017 resulted in significant negative adjustments to net deferred tax asset balance, driving a large net loss in fourth quarter that year. Financial results in 2018 and 2019, in contrast, benefited significantly from lower tax rates compared to earlier years.Table of Contents |
| |
• | Interest Rate Policy. Although interest rates during each of these years were quite low by historical standards, they were raised modestly starting in 2015, more vigorously in 2018, and then reduced three times in 2019. These changes impacted our net interest margin up and down. 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.
|
| |
• | Sale of Visa Class B Stock. In 2018 we sold our remaining legacy stock holdings of Visa, recognizing a
|
in 2021. Additional significant expenses related to integration and optimization will be incurred in 2022.
Low Credit Loss Rates through 2019
pretaxDuring 2017-2019, our provision for credit losses was unusually low, though in 2019 it began to normalize. When provision is low, differences from year to year can be idiosyncratic, driven by just a few clients.
CECL Accounting and COVID-19
Starting in 2020, accounting guidance changed, requiring us to recognize “current expected credit loss” on all loans. The new guidance had the effect of accelerating, compared to prior guidance, the recognition of provision expense at times when general economic conditions deteriorate in a rapid manner. Starting in March 2020, government and public reaction to the COVID-19 pandemic caused substantial and rapid, and previously unexpected, business disruption and economic deterioration. Those events substantially changed our expectations for future credit loss and, accordingly, our provision was significantly elevated in 2020.
In 2021, we recognized net provision credit (negative expense) in the year overall, as a portion of credit loss accrued in 2020 was effectively reversed and underlying credit loss trends remained modest in most portfolios.
Fixed Income Volatility
In 2017 and 2018, market conditions were quite subdued for our fixed income business. Starting in 2019, however, increased market volatility and the downward direction of interest rates resulted in much higher trading volume and noninterest income in that business. In 2021, performance in fixed income started to moderate as market conditions started to change again, and we expect moderation to continue into 2022. See the Fixed Income discussion under Cyclicality within the Other Business Information section of this Item, which begins on page 18, for additional information. Sale of Visa Class B Stock in 2018
In 2018, we sold our remaining legacy stock holdings of Visa for a large gain, that significantly increasedincreasing noninterest income that year.
Capital Bank Merger in 2017
Many year-end balance sheet figures (loans, deposits, etc.) increased substantially in 2017 due to the Capital Bank transaction. Full-year operating results were less noticeably impacted until 2018, because the Capital Bank transaction closed late in 2017.
Tax Reform in 2017
Corporate tax reform in December 2017 resulted in significant negative adjustments to net deferred tax asset
balance, driving a large net loss in fourth quarter that year. Financial results after 2017, in contrast, benefited significantly from lower tax rates compared to earlier years.
Monetary Policy Shifts
Although interest rates during each of these years were quite low by historical standards, short-term rates were raised in 2017 and 2018. Short-term rates were reduced in 2019 and again in 2020, the latter in response to the pandemic. An asset-buying program by the Federal Reserve put downward pressure on long-term interest rates as well, especially in 2020 and 2021. These changes impacted our net interest margin, raising and lowering it over this period. Net interest margin is a measure of the profit we make on loans and other earning assets in relation to our cost of deposits and other funding sources. Because funding costs cannot realistically fall below zero, the very low rate environment during 2020-21 resulted in historically low net interest margin levels for us.
During much of 2021, the Federal Reserve kept short-term rates low and maintained an asset-buying program intended to put downward pressure on long-term rates. Late in 2021, and continuing into 2022, the Federal Reserve has signaled that its asset-buying program will cease, that it expects to start raising short-term rates in reaction to price inflation experienced in the U.S. during much of 2021, and that it expects to reduce its asset holdings once buying has stopped.
Additional information concerning monetary policy and changes to it appears: within the Effect of Governmental Policies and Proposals section of Item 1 beginning on page 29; under the caption Risks Associated with Monetary Events beginning on page 38 within Item 1A; and under the caption Federal Reserve Policy in Transition within the Market Uncertainties and Prospective Trends section of 2021 MD&A (Item 7), which begins on page 99. Mortgage-Related Businesses
We lend to mortgage lending companies, we originate mortgage loans, and we provide title and related services that depend significantly on new and refinanced home mortgage activity. Lending to mortgage companies has been a significant business for us in all five years shown in Table 1.7, while the latter two businesses were insignificant for us until our merger with IBKC in 2020.
All three mortgage-related businesses benefited substantially from the recent low interest rate environment. As discussed above, we expect mortgage rates to rise in 2022, which should moderate revenues and income in all three businesses compared to 2021.
| | | | | | | | |
• | Very low loan loss rates. During these five years, our provision for loan losses was unusually low. When provision is low, differences from year to year can be idiosyncratic, driven by one or just a few customers.14
| 2021 FORM 10-K ANNUAL REPORT |
Significant Trends Past Five Years
Noteworthy trends during this period include:these five years included:
Net loan growth has driven asset growth. Overall growth has been strong despite run-off of non-strategic loans. The large increase in 2017 was driven by the Capital Bank merger, and 2018 was impacted by the Capital Bank systems integration effort. Growth in 2016 (vs. 2015) and in 2019 (vs. 2018) was organic.
•Growth in net interest income was significant through 2018, driven by net loan growth, interest rate increases, and (in 2018) the Capital Bank merger. Growth flattened in 2019 as net loan growth, especially in mortgage warehouse lending, was offset by net interest ratemargin declines.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 6
Through 2018,•In 2017, an overall down-trenddownward trend in noninterest income was due mainly to lower fixed income revenues, driven by challenging market conditions. The large increase in 2018 was mainly due to the Visa stock sale. Thatsale, along with an uptick following the Capital Bank merger. The 2017 downward trend reversed in 20192019-21 as interest rates declined, market volatility increased, and fixed income revenues improved.improved markedly. Also, 2020 and 2021 enjoyed a substantial increase in noninterest income following the IBERIABANK merger, especially in relation to consumer mortgage originations and related services.
Deposits grew significantly through 2018. Much of that growth was organic, helped by a rising rate environment.
•The large uptickdeposit upticks in 2017 wasand 2020 were driven substantially by the Capital Bank, transaction. TotalIBERIABANK, and 30-branch transactions. Also in 2020 and 2021, the federal Paycheck Protection Program (“PPP”) contributed to deposit growth moderatedas proceeds from PPP loans boosted average deposit account balances. Organic growth in 2019, as solid regionaldeposits from core banking depositclients grew throughout this period, even when interest rates were extremely low. That core growth offsetis masked in some years by our deliberate reductions in (more expensive) market-indexed deposits.deposits, which tend to be higher rate, and in other years by those large transactions.
•Throughout 2020, and to a lesser extent in 2021, economic and business disruption related to the COVID-19 pandemic created substantial challenges for our clients and for our company. The disruptions in late 2021 from yet another new variant of the virus have continued in early 2022.
Exited BusinessesThe Bank
SinceThe Bank was founded in 1864 as First National Bank of Memphis. During 2021, through its various business lines, including consolidated subsidiaries, the 2008-09 recession, we have focused on traditional bankingBank 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, 2021, the Bank had $89 billion in total assets, $76 billion in total deposits, and fixed$54 billion in total loans and leases (net of unearned income products and services. We exited our legacy nation-wide mortgage banking business in 2008, though we continue to manage related legal exposuresnet of allowance for loan and the wind-down of a still-sizable loan portfolio. We partially or fully exited other businesses since 2008. Exited businesses are managed in our non-strategic segment.
At year-end 2021 our principal businesses were conducted mostly under two or three brands. Brand integration from the IBKC merger was delayed until February 2022, after which we began phasing out certain brands. Our principal brands at year-end are summarized in Table 1.1.
Table 1.1
Principal Businesses & Brands At Year-End
|
| | | | |
Significant Business Developments Expected in 2020Businesses | Brands |
| Banking & financial services generally | •First Horizon & First Horizon Bank •IBERIABANK |
Fixed income /
capital markets | •FHN Financial |
| Mortgage lending | •First Horizon Bank •IBERIABANK Mortgage |
| Title services | •Lenders Title Group |
| Insurance brokerage & management services | •First Horizon Advisors |
| Wealth management & brokerage services | •First Horizon Advisors •IBERIA Wealth Management |
At December 31, 2021, First Horizon’s subsidiaries had over 500 business locations in 22 U.S. states, excluding off-premises ATMs. Most of those locations were banking centers. At year-end, First Horizon had 427 banking centers in twelve states, as shown in Table 1.2.
Table 1.2
Banking Centers at Year-End
| | | | | | | | | | | | | | |
| State | # | | State | # |
| Tennessee | 140 | | Georgia | 12 |
| Florida | 83 | | South Carolina | 10 |
| North Carolina | 79 | | Texas | 8 |
| Louisiana | 57 | | Virginia | 8 |
| Alabama | 13 | | Mississippi | 4 |
| Arkansas | 12 | | New York | 1 |
Many banking centers contain special-service areas such as wealth management and mortgage lending.
At year-end 2021, First Horizon also had client-service offices not physically within banking centers, including
| | | | | | | | |
| 9 | 2021 FORM 10-K ANNUAL REPORT |
fixed income, title services, home mortgage, wealth management, and commercial loan offices. The largest groups of those offices were: 29 fixed income offices in 16 states across the U.S.; 30 title services offices in Arkansas,
Tennessee, and Louisiana; and 15 stand-alone mortgage lending offices in 9 states. First Horizon also has operational and administrative offices.
Loans & Deposits
We signed agreements lateLending and deposit-taking are core businesses for us. Our largest resource to fund our lending is our deposit base. At year-end 2021, we had total loans (net of unearned income) of $55 billion, total net loans (net of unearned income and net of allowance for loan and lease losses) of $54 billion, and total deposits of $75 billion. Most of our loans and deposits are held in 2019 for two transactions that we expect to close in 2020. The largerour regional banking and specialty banking segments. Most of our loans are commercial, and most of them willare traditional, unsecured commercial, financial, and industrial loans, or “C&I” loans. The other two major loan portfolios are secured commercial real estate loans, or “CRE” loans, and secured consumer real estate loans. Table 1.3 provides an overview of our loan and deposit balances at December 31, 2021 or averaged over the year 2021.
Table 1.3
Loans & Deposits by Type
| | | | | | | | | | | | | | |
Loans1 | | Deposits2 |
| Commercial | 79 | % | | Savings | 37 | % |
| Consumer | 21 | % | | Time deposits | 6 | % |
| Commercial Portfolios | | Other interest | 22 | % |
| C&I | 72 | % | | Noninterest | 35 | % |
| CRE | 28 | % | | | |
| Consumer Portfolios | | | |
| Real estate | 92 | % | | | |
| Credit card/other | 8 | % | | | |
1 Percentages at December 31, 2021; includes certain leases.
2 Percentages of average deposits for 2021.
Percentages may not add to 100% due to rounding.
The C&I portfolio, more than half of total loans, was $31 billion on December 31, 2021. Within C&I, about 26% of loans are to businesses in the financial services industry, including mortgage lending companies, with the rest in a wide range of industries, as shown in Table 1.4.
Table 1.4
C&I Loans1 by Line of Business
| | | | | | | | |
| Mortgage lending companies | 15 | % | |
| Finance & Insurance | 11 | % | |
| | |
| Real estate rental & leasing | 9 | % | |
| | |
| Health care & social assistance | 8 | % | |
| Accommodation & food service | 7 | % | |
| Manufacturing | 6 | % | |
| Wholesale trade | 6 | % | |
| | |
| | |
| Retail trade | 5 | % | |
| Other C&I | 33 | % | |
1 Percentages of C&I portfolio at December 31, 2021.
Percentages may not add to 100% due to rounding.
Geographically, a significant majority of our loans originate from five states: Tennessee, Florida, Louisiana, North Carolina, and Texas. The geographic dispersion of our loans varies considerably among our three major loan portfolios, as shown in Table 1.5.
Table 1.5
Major Loan Portfolios by Geography
| | | | | | | | | | | | | | | | | | | | | | | |
C&I Loans ($31B)1 | | CRE Loans ($12B)1 | | Consumer RE Loans ($11B)1 |
| Tennessee | 20 | % | | Florida | 26 | % | | Florida | 32 | % |
| Florida | 12 | % | | Texas | 12 | % | | Tennessee | 23 | % |
| Texas | 10 | % | | North Carolina | 11 | % | | Louisiana | 10 | % |
| North Carolina | 7 | % | | Louisiana | 10 | % | | North Carolina | 8 | % |
| Louisiana | 7 | % | | Tennessee | 9 | % | | Texas | 7 | % |
| California | 7 | % | | Georgia | 8 | % | | New York | 5 | % |
| Georgia | 5 | % | | All other states | 24 | % | | All other states | 15 | % |
| All other states | 32 | % | | | | | | |
1 Dollars and percentages within each portfolio at December 31, 2021.
Further information regarding deposits and our other major sources of funding is provided in Notes 9, 10, and 11 beginning on pages 154, 155, and 156, respectively, appearing in our 2021 Financial Statements (Item 8), and under the captions Deposits, Short-term Borrowings, and Term Borrowings beginning on pages 85, 86, and 86, respectively, of our 2021 MD&A (Item 7). Further information regarding our loans is provided in Note 4
| | | | | | | | |
| 10 | 2021 FORM 10-K ANNUAL REPORT |
beginning on page 139 appearing in our 2021 Financial Statements (Item 8), and under the captions Analysis of Financial Condition and Asset Quality, beginning on pages 70 and 73, respectively, of our 2021 MD&A (Item 7). Business Segments
Segment Overview
Our financial results of operations are reported through operational business segments which are not closely related to the legal structure of our subsidiaries. As a result of our recent merger of equals with IBERIABANK Corporation (see Significant Business Developments over Past Five Years in this Item 1 below), we changed our segments. Before the merger, we operated through four business segments: regional banking, fixed income, corporate, and non-strategic. Currently, we operate through three segments: regional banking, specialty banking, and corporate. In this report, segment information related to prior periods has been reclassified to conform with current segments.
Financial and other additional information concerning our segments—including information concerning assets, revenues, and financial results—appears in our 2021 MD&A (Item 7) and in our 2021 Financial Statements (Item 8), especially in Note 20—Business Segment Information. Note 20 begins on page 178. Regional and Specialty Banking Segments
By far most of our loans and deposits are in the regional banking and specialty banking segments. Similarly, those segments are the sources of most of our revenues and expenses. The two segments create and use financial resources differently, and they generate different types of revenues. Most notably: regional banking provides a majority of our net interest income (mainly from lending), while specialty banking provides more noninterest income (mainly from fees). In addition, regional banking is larger than specialty banking by many financial measures. Table 1.6 provides high-level financial information for each of those two segments, highlighting these points.
Table 1.6
Regional vs Specialty Banking Snapshot
| | | | | | | | | | | |
| (Dollars in millions) | Regional | | Specialty |
| 2021 Average assets | $ | 45,445 | | | $ | 20,803 | |
| 2021 Net interest income | $ | 1,764 | | | $ | 619 | |
| 2021 Noninterest income | $ | 438 | | | $ | 597 | |
| 2021 Pretax income | $ | 1,280 | | | $ | 709 | |
Regional and Specialty Lines of Business
The principal lines of business in the regional banking segment are:
•commercial banking (larger business enterprises)
•business banking (smaller business enterprises)
•consumer banking
•private client and wealth management
The principal lines of business in the specialty banking segment are:
•fixed income/capital markets
•professional commercial real estate (Pro-CRE)
•mortgage warehouse lending
•asset-based (secured) lending
•franchise finance
•equipment finance
•corporate banking
•correspondent banking
•mortgage origination and title services
Geographically, regional banking's businesses mainly serve our traditional markets associated with our banking center footprint. Many of the businesses within specialty banking have much broader geographic reach. For example: our fixed income business has offices from Hawaii to Massachusetts; and California is listed in Table 1.5 primarily because of specialty banking business lines.
| | | | | | | | |
| 11 | 2021 FORM 10-K ANNUAL REPORT |
Services We Provide
At December 31, 2021, we provided the following services through our subsidiaries and divisions:
•general banking services for consumers, businesses, financial institutions, and governments
•fixed income sales and trading; underwriting of bank-eligible securities and other fixed-income securities eligible for underwriting by financial subsidiaries; loan sales; advisory services; and derivative sales
•mortgage banking services
•title insurance and loan-closing services
•brokerage services
•correspondent banking
•transaction processing: nationwide check clearing services and remittance processing
•trust, fiduciary, and agency services
•credit card products
•equipment finance services
•investment and financial advisory services
•mutual fund sales as agent
•retail insurance sales as agent
Information about the net interest income and noninterest income we obtained from our largest categories of products and services appears under the caption Results of Operations—2021 Compared to 2020 beginning on page 63 of our 2021 MD&A (Item 7). Significant Business Developments Over Past Five Years
Selected Financial Data Past Five Years
Table 1.7 provides selected data concerning revenues, expenses, assets, liabilities, and shareholders’ equity for the past five years.
Table 1.7
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in millions; financial condition data shown period-end, as of December 31)
| | | | | | | | | | | | | | | | | |
| 2021 | 2020 | 2019 | 2018 | 2017 |
| Net interest income | $ | 1,994 | | $ | 1,662 | | $ | 1,210 | | $ | 1,220 | | $ | 842 | |
| Provision for credit losses | (310) | | 503 | | 45 | | 8 | | (1) | |
| Noninterest income | 1,076 | | 1,492 | | 654 | | 723 | | 490 | |
| Net income available to common shareholders | 962 | | 822 | | 435 | | 539 | | 159 | |
| Total loans and leases | 54,859 | | 58,232 | | 31,061 | | 27,536 | | 27,659 | |
| Total assets | 89,092 | | 84,209 | | 43,311 | | 40,832 | | 41,423 | |
| Total deposits | 74,895 | | 69,982 | | 32,430 | | 32,683 | | 30,620 | |
| Total term borrowings | 1,590 | | 1,670 | | 791 | | 1,171 | | 1,218 | |
| Total liabilities | 80,598 | | 75,902 | | 38,235 | | 36,047 | | 36,843 | |
| Preferred stock | 520 | | 470 | | 96 | | 96 | | 96 | |
| Total shareholders’ equity | 8,494 | | 8,307 | | 5,076 | | 4,785 | | 4,580 | |
Priorities & Developments
Over the past five years, our strategic priorities have focused on:
•targeted and opportunistic expansion of consumer and commercial banking products and markets;
•targeted and opportunistic expansion of commercial lending, mainly through strategic and tactical transactions, talent development, and talent acquisitions;
•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:
| | | | | | | | |
| 12 | 2021 FORM 10-K ANNUAL REPORT |
•In July 2020, we completed a merger of equals transaction with IBERIABANK Corporation and purchased 30 branches from Truist Bank, making 2020 a transformative year. See IBKC Merger of Equals and 30-Branch Acquisition in this Item below for additional information. In February 2022, we completed the main systems conversion work related to that merger.
•As shown in Table 1.7, the COVID-19 pandemic caused us to recognize substantial provision for credit losses in 2020, and reduced our transaction volume and revenues. See the discussion captioned CECL Accounting and COVID-19 within Events Impacting Year-to-Year Comparisons, immediately below. In 2021, a large portion of that provision expense was effectively reversed, resulting in a provision credit for the year.
•The pandemic also resulted in strong deposit growth in 2020 and 2021, despite interest rates being extremely low. We believe federal assistance and stimulus programs in 2020 and early 2021 significantly transformbolstered deposits in both years.
•In 2017 we merged with Capital Bank Financial Corp., which had $10 billion of total assets and nearly 200 banking centers in four southern U.S. states. In another 2017 transaction, we acquired a national leader in trading, securitization, and analysis of Small Business Association loans.
•We have made key talent hires in critical areas throughout our company, in terms of size, geographic reach, and the scope of financial services we offer.
30-Branch Acquisition
In the fourth quarter of 2019 we announced an agreement to purchase 30 branches in North Carolina (20), Virginia (8), and Georgia (2) from SunTrust Bank (now Truist Bank). Those branches are in markets we do not serve currently, or in which we do not have a leading market position. Along with the branch facilities,main focus on organically growing economically profitable business lines inside and outside our traditional markets.
•Throughout this period, but especially in 2021, we will acquire related loanshave pruned and assume deposits. Atadapted our physical banking center network to reflect long-term trends in client usage of banking centers, and are making more efficient use of other physical facilities. Correspondingly, we have expanded and enhanced our digital banking products and services. These efforts are expected to continue.
•Lending has been strong in certain specialty areas, such as lending to mortgage companies, where demand is strongly stimulated by the time of announcement, we estimated the loans to be $0.4 billion and the deposits to be $2.4 billion. The 30-branch acquisition is scheduled to closelow interest rates in the second quarter of 2020.effect during this period.
Events Impacting Year-to-Year Comparisons
IBKC Merger of Equals in 2020
In the fourth quarterJuly 2020, we closed our merger of 2019 we announced a merger-of-equals agreementequals with IBERIABANK Corporation (“IBKC”). IBKC iswas the parent company of IBERIABANK based in Lafayette, Louisiana. At the time of announcement,year-end 2019, IBKC with $32had $31.7 billion of total assets, hadassets—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 arewere in Louisiana
and Florida. We and IBKC offersoffered many of the same financial services that we offer,before the merger, but exceedsIBKC exceeded us in several areas, most notably in equipment financing, mortgage, and title insurance.services.
The combined company, on a September 30, 2019 pro-forma basis which includes the 30-branch acquisition, would have had $78 billion in assets, $59 billion in deposits, and $55 billion in loans. After closing, our board will expandexpanded to 17 directors, of which nine will beare from legacy FHNFirst Horizon and eight will beare from legacy IBKC. IBKC shareholders will receive 4.584 shares of our common stock for each IBKC common share held, and collectively will bewere issued 44% of our post-closing outstanding common shares. In order to accommodate a stock issuance of that size, we must amend our corporate charter to increase the number of243 million First Horizon common shares (on a net basis).
Under applicable accounting guidance, none of the income or expense recognized by IBKC prior to the merger is included in our income or expense for 2020. As a result, our 2020 operating results consist of approximately two quarters of legacy First Horizon plus approximately two quarters of combined First Horizon and IBKC. In addition, operating results in 2020 were significantly affected by merger-related expenses and by two significant accounting impacts, described in Large Accounting Impacts from IBKC Merger below.
30-Branch Acquisition in 2020
In July 2020, we purchased 30 branches in North Carolina (20), Virginia (8), and Georgia (2) from SunTrust Bank (now Truist Bank). Those branches are authorized to issue.in markets which we did not serve before July, or in which we did not have a leading market position. Along with the branch facilities, we acquired $0.4 billion of related loans and assumed $2.2 billion of deposits.
TheLarge Accounting Impacts from IBKC transaction is subject to approval by shareholders of both companies, regulatory approvals, and other customary contractual conditions. We expect to hold a special meeting of our shareholders to vote on the IBKC transaction, including related amendments to our corporate charter, in the second quarter of 2020, and we expectMerger
Under applicable accounting guidance, closing the IBKC merger in July created two substantial impacts on our operating results for 2020. First, although we were required to closerecord 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 mid-2020.third quarter 2020, was $147 million. Moreover, we were required to record, on a preliminary basis, a nontaxable purchase accounting gain from the merger of $533 million, driven by the stock market decline in 2020 associated with the COVID-19 pandemic. The net result of those two impacts was a $386 million uplift to our pretax income in 2020 unrelated to the ordinary operation of our businesses.
|
| | | | | | | |
Other General Information | 13 | 2021 FORM 10-K ANNUAL REPORT |
Strategic Transactions
An element of our business strategy is to consider acquisitions and divestitures that would enhance long-term shareholder value. Significant acquisitions and divestitures which closed during the past three years are described in
Note 2-Acquisitions and Divestitures, of our 2019 Financial Statements (Item 8), which information is incorporated into this Item 1 by this reference.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 7
As mentioned above, in November 2017 we legally closed our acquisition of Capital Bank. In May 2018 we completed systems integration for that transaction.
Also as mentioned above, in November 2019 we agreed to acquire 30 branches in three southeastern states, and we entered into a merger-of-equals agreement with IBKC. Both are expected to close in 2020. The IBKC merger will significantly transform our company in terms of size, geographic reach, and the scope of financial services we offer.
Subsidiaries
FHN’s consolidated operating subsidiaries at December 31, 2019 are listed in Exhibit 21.
The Bank is a government securities dealer. The FHN Financial division of the Bank is registered with the SEC as a municipal securities dealer and the FHN Financial Municipal Advisors division of the Bank is registered with the SEC as a municipal adviser. The Bank is supervised and regulated as described in “Supervision and Regulation” in this Item below.
Martin and Company, Inc., First Horizon Advisors, Inc., and FHN Financial Main Street Advisors, LLC are registered with the SEC as investment advisers. First Horizon Advisors, Inc. and FHN Financial Securities Corp. are registered as broker-dealers with the SEC and all states where they conduct business for which registration is required. First Horizon Insurance Services, Inc., FHIS, Inc., and First Horizon Insurance Agency, Inc. are licensed as insurance agencies in all states where they do business for which licensing is required. FHN Financial Securities Corp., First Horizon Advisors, Inc., First Horizon Insurance Services, Inc., FHIS, Inc., and First Horizon Insurance Agency, Inc. are financial subsidiaries under the Gramm-Leach-Bliley Act. 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. First Horizon Insurance Agency, Inc. is inactive.
Customer Concentration
Neither we nor any of our significant subsidiaries is dependent upon a single customer or very few customers.
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 for the regional banking and fixed income segments, and somewhat diminished certain revenues for the regional banking segment, principally in the first quarter each year. In addition, we experience seasonal variation in certain asset and liability balances, principally in the fourth (commercial lending related to consumer mortgages, certain trading balances, and certain employee-related reserves) and first (mortgage-related lending) quarters.
Employees
At December 31, 2019, FHN and its subsidiaries had 5,017 employees, or 4,994 full-time-equivalent employees, not including contract labor for certain services.
Other Information Associated with this Report
For additional information concerning our business, refer to our 2019 MD&A (Item 7), incorporated herein by reference.
External Information
Our current internet address is www.firsthorizon.com. In the Investor Relations section of our internet website, under the SEC Filings tab, we make available to the public, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and amendments thereto as soon as reasonably practicable after we file such material with, or furnish such material to, the Securities and Exchange Commission. Additional information regarding materials available on our website is provided in Item 10 of this report beginning on page 219. No information external to this report and its exhibits, unless specifically noted otherwise, is incorporated into this report.
|
| | | | | | | |
Supervision and RegulationITEM 1. BUSINESS |
| | |
in 2021. Additional significant expenses related to integration and optimization will be incurred in 2022.
Low Credit Loss Rates through 2019
During 2017-2019, our provision for credit losses was unusually low, though in 2019 it began to normalize. When provision is low, differences from year to year can be idiosyncratic, driven by just a few clients.
ScopeCECL Accounting and COVID-19
Starting in 2020, accounting guidance changed, requiring us to recognize “current expected credit loss” on all loans. The new guidance had the effect of accelerating, compared to prior guidance, the recognition of provision expense at times when general economic conditions deteriorate in a rapid manner. Starting in March 2020, government and public reaction to the COVID-19 pandemic caused substantial and rapid, and previously unexpected, business disruption and economic deterioration. Those events substantially changed our expectations for future credit loss and, accordingly, our provision was significantly elevated in 2020.
In 2021, we recognized net provision credit (negative expense) in the year overall, as a portion of credit loss accrued in 2020 was effectively reversed and underlying credit loss trends remained modest in most portfolios.
Fixed Income Volatility
In 2017 and 2018, market conditions were quite subdued for our fixed income business. Starting in 2019, however, increased market volatility and the downward direction of interest rates resulted in much higher trading volume and noninterest income in that business. In 2021, performance in fixed income started to moderate as market conditions started to change again, and we expect moderation to continue into 2022. See the Fixed Income discussion under Cyclicality within the Other Business Information section of this SectionItem, which begins on page 18, for additional information. This section describes certainSale of Visa Class B Stock in 2018
In 2018, we sold our remaining legacy stock holdings of Visa for a large gain, significantly increasing noninterest income that year.
Capital Bank Merger in 2017
Many year-end balance sheet figures (loans, deposits, etc.) increased substantially in 2017 due to the material elements ofCapital Bank transaction. Full-year operating results were less noticeably impacted until 2018, because the regulatory framework applicableCapital Bank transaction closed late in 2017.
Tax Reform in 2017
Corporate tax reform in December 2017 resulted in significant negative adjustments to bank and financial holding companies and their subsidiaries, and to companies engaged in securities and insurance activities. It also provides certain specific information about us. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety bynet deferred tax asset
express referencebalance, driving a large net loss in fourth quarter that year. Financial results after 2017, in contrast, benefited significantly from lower tax rates compared to earlier years.
Monetary Policy Shifts
Although interest rates during each of these years were quite low by historical standards, short-term rates were raised in 2017 and 2018. Short-term rates were reduced in 2019 and again in 2020, the particular statutory and regulatory provisions. A changelatter in applicable statutes, regulations, or regulatory policy may have a material effect on our business.
Overview
FHN
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 8
FHN 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 subjectresponse to the regulation and supervision of, and to examinationpandemic. An asset-buying program by the Federal Reserve underput downward pressure on long-term interest rates as well, especially in 2020 and 2021. These changes impacted our net interest margin, raising and lowering it over this period. Net interest margin is a measure of the BHCA. We are requiredprofit we make on loans and other earning assets in relation to file withour 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 annual reportskept short-term rates low and such additional information asmaintained an asset-buying program intended to put downward pressure on long-term rates. Late in 2021, and continuing into 2022, the Federal Reserve may require pursuanthas signaled that its asset-buying program will cease, that it expects to start raising short-term rates in reaction to price inflation experienced in the BHCA.U.S. during much of 2021, and that it expects to reduce its asset holdings once buying has stopped.
A bank holding company that is not a financial holding company is limitedAdditional information concerning monetary policy and changes to engaging in “banking”it appears: within the Effect of Governmental Policies and activities found by the Federal Reserve to be “closely related to banking.” Eligible bank holding companies that elect to become financial holding companies may affiliate with securities firms and insurance companies and engage in activities that are “financial in nature.” “Financial” activities are broader in scope than those which are “closely related to banking.” See “Financial Activities other than Banking”Proposals section of Item 1 beginning on page 14 below.
The Federal Reserve may approve an application by a bank holding company to acquire a bank located outside29; under 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 Banking and Branching”caption Risks Associated with Monetary Events beginning on page 13,38 within Item 1A; and “Community Reinvestment Act (“CRA”)” beginningunder the caption Federal Reserve Policy in Transition within the Market Uncertainties and Prospective Trends section of 2021 MD&A (Item 7), which begins on page 13.99.Mortgage-Related Businesses
We lend to mortgage lending companies, we originate mortgage loans, and we provide title and related services that depend significantly on new and refinanced home mortgage activity. Lending to mortgage companies has been a significant business for us in all five years shown in Table 1.7, while the latter two businesses were insignificant for us until our merger with IBKC in 2020.
All three mortgage-related businesses benefited substantially from the recent low interest rate environment. As discussed above, we expect mortgage rates to rise in 2022, which should moderate revenues and income in all three businesses compared to 2021.
| | | | | | | | |
| 14 | 2021 FORM 10-K ANNUAL REPORT |
Significant Trends Past Five Years
Noteworthy trends during these five years included:
•Growth in net interest income was significant through 2018, driven by net loan growth, interest rate increases, and (in 2018) the Capital Bank merger. Growth flattened in 2019 as net loan growth, especially in mortgage warehouse lending, was offset by net interest margin declines. Margin declines continued in 2020 and 2021, though loan balances increased substantially with the IBERIABANK merger.
•In 2017, an overall downward trend in noninterest income was due mainly to lower fixed income revenues, driven by challenging market conditions. The Tennesseelarge increase in 2018 was mainly due to the Visa stock sale, along with an uptick following the Capital Bank Structure Act of 1974, amongmerger. The 2017 downward trend reversed in 2019-21 as interest rates declined, market volatility increased, and fixed income revenues improved markedly. Also, 2020 and 2021 enjoyed a substantial increase in noninterest income following the IBERIABANK merger, especially in relation to consumer mortgage originations and related services.
•The large deposit upticks in 2017 and 2020 were driven substantially by the Capital Bank, IBERIABANK, and 30-branch transactions. Also in 2020 and 2021, the federal Paycheck Protection Program (“PPP”) contributed to deposit growth as proceeds from PPP loans boosted average deposit account balances. Organic growth in deposits from core banking clients grew throughout this period, even when interest rates were extremely low. That core growth is masked in some years by our deliberate reductions in market-indexed deposits, which tend to be higher rate, and in other things, prohibits (subjectyears by those large transactions.
•Throughout 2020, and to certain exceptions) a bank holding companylesser extent in 2021, economic and business disruption related to the COVID-19 pandemic created substantial challenges for our clients and for our company. The disruptions in late 2021 from 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 moreyet another new variant of the total depositsvirus have continued in insured depository institutions in Tennessee. As of June 30, 2019, we estimate that we held approximately 15.39% of such deposits.early 2022.
The Bank
The Bank was founded in 1864 as First National Bank of Memphis. During 2021, through its various business lines, including consolidated subsidiaries, the Bank reported revenues (net interest income plus noninterest income) of approximately $3 billion. The Bank generated a substantial majority of First Horizon’s consolidated revenue. At
December 31, 2021, the Bank had $89 billion in total assets, $76 billion in total deposits, and $54 billion in total loans and leases (net of unearned income and net of allowance for loan and lease losses).
Principal Businesses, Brands, & Locations
At year-end 2021 our principal businesses were conducted mostly under two or three brands. Brand integration from the IBKC merger was delayed until February 2022, after which we began phasing out certain brands. Our principal brands at year-end are summarized in Table 1.1.
Table 1.1
Principal Businesses & Brands At Year-End
| | | | | |
| Businesses | Brands |
| Banking & financial services generally | •First Horizon & First Horizon Bank •IBERIABANK |
Fixed income /
capital markets | •FHN Financial |
| Mortgage lending | •First Horizon Bank •IBERIABANK Mortgage |
| Title services | •Lenders Title Group |
| Insurance brokerage & management services | •First Horizon Advisors |
| Wealth management & brokerage services | •First Horizon Advisors •IBERIA Wealth Management |
At December 31, 2021, First Horizon’s subsidiaries had over 500 business locations in 22 U.S. states, excluding off-premises ATMs. Most of those locations were banking centers. At year-end, First Horizon had 427 banking centers in twelve states, as shown in Table 1.2.
Table 1.2
Banking Centers at Year-End
| | | | | | | | | | | | | | |
| State | # | | State | # |
| Tennessee | 140 | | Georgia | 12 |
| Florida | 83 | | South Carolina | 10 |
| North Carolina | 79 | | Texas | 8 |
| Louisiana | 57 | | Virginia | 8 |
| Alabama | 13 | | Mississippi | 4 |
| Arkansas | 12 | | New York | 1 |
Many banking centers contain special-service areas such as wealth management and mortgage lending.
At year-end 2021, First Horizon also had client-service offices not physically within banking centers, including
| | | | | | | | |
| 9 | 2021 FORM 10-K ANNUAL REPORT |
fixed income, title services, home mortgage, wealth management, and commercial loan offices. The largest groups of those offices were: 29 fixed income offices in 16 states across the U.S.; 30 title services offices in Arkansas,
Tennessee, and Louisiana; and 15 stand-alone mortgage lending offices in 9 states. First Horizon also has operational and administrative offices.
Loans & Deposits
Lending and deposit-taking are core businesses for us. Our largest resource to fund our lending is our deposit base. At year-end 2021, we had total loans (net of unearned income) of $55 billion, total net loans (net of unearned income and net of allowance for loan and lease losses) of $54 billion, and total deposits of $75 billion. Most of our loans and deposits are held in our regional banking and specialty banking segments. Most of our loans are commercial, and most of them are traditional, unsecured commercial, financial, and industrial loans, or “C&I” loans. The other two major loan portfolios are secured commercial real estate loans, or “CRE” loans, and secured consumer real estate loans. Table 1.3 provides an overview of our loan and deposit balances at December 31, 2021 or averaged over the year 2021.
Table 1.3
Loans & Deposits by Type
| | | | | | | | | | | | | | |
Loans1 | | Deposits2 |
| Commercial | 79 | % | | Savings | 37 | % |
| Consumer | 21 | % | | Time deposits | 6 | % |
| Commercial Portfolios | | Other interest | 22 | % |
| C&I | 72 | % | | Noninterest | 35 | % |
| CRE | 28 | % | | | |
| Consumer Portfolios | | | |
| Real estate | 92 | % | | | |
| Credit card/other | 8 | % | | | |
1 Percentages at December 31, 2021; includes certain leases.
2 Percentages of average deposits for 2021.
Percentages may not add to 100% due to rounding.
The C&I portfolio, more than half of total loans, was $31 billion on December 31, 2021. Within C&I, about 26% of loans are to businesses in the financial services industry, including mortgage lending companies, with the rest in a wide range of industries, as shown in Table 1.4.
Table 1.4
C&I Loans1 by Line of Business
| | | | | | | | |
| Mortgage lending companies | 15 | % | |
| Finance & Insurance | 11 | % | |
| | |
| Real estate rental & leasing | 9 | % | |
| | |
| Health care & social assistance | 8 | % | |
| Accommodation & food service | 7 | % | |
| Manufacturing | 6 | % | |
| Wholesale trade | 6 | % | |
| | |
| | |
| Retail trade | 5 | % | |
| Other C&I | 33 | % | |
1 Percentages of C&I portfolio at December 31, 2021.
Percentages may not add to 100% due to rounding.
Geographically, a significant majority of our loans originate from five states: Tennessee, Florida, Louisiana, North Carolina, and Texas. The geographic dispersion of our loans varies considerably among our three major loan portfolios, as shown in Table 1.5.
Table 1.5
Major Loan Portfolios by Geography
| | | | | | | | | | | | | | | | | | | | | | | |
C&I Loans ($31B)1 | | CRE Loans ($12B)1 | | Consumer RE Loans ($11B)1 |
| Tennessee | 20 | % | | Florida | 26 | % | | Florida | 32 | % |
| Florida | 12 | % | | Texas | 12 | % | | Tennessee | 23 | % |
| Texas | 10 | % | | North Carolina | 11 | % | | Louisiana | 10 | % |
| North Carolina | 7 | % | | Louisiana | 10 | % | | North Carolina | 8 | % |
| Louisiana | 7 | % | | Tennessee | 9 | % | | Texas | 7 | % |
| California | 7 | % | | Georgia | 8 | % | | New York | 5 | % |
| Georgia | 5 | % | | All other states | 24 | % | | All other states | 15 | % |
| All other states | 32 | % | | | | | | |
1 Dollars and percentages within each portfolio at December 31, 2021.
Further information regarding deposits and our other major sources of funding is provided in Notes 9, 10, and 11 beginning on pages 154, 155, and 156, respectively, appearing in our 2021 Financial Statements (Item 8), and under the captions Deposits, Short-term Borrowings, and Term Borrowings beginning on pages 85, 86, and 86, respectively, of our 2021 MD&A (Item 7). Further information regarding our loans is provided in Note 4
| | | | | | | | |
| 10 | 2021 FORM 10-K ANNUAL REPORT |
beginning on page 139 appearing in our 2021 Financial Statements (Item 8), and under the captions Analysis of Financial Condition and Asset Quality, beginning on pages 70 and 73, respectively, of our 2021 MD&A (Item 7). Business Segments
Segment Overview
Our financial results of operations are reported through operational business segments which are not closely related to the legal structure of our subsidiaries. As a result of our recent merger of equals with IBERIABANK Corporation (see Significant Business Developments over Past Five Years in this Item 1 below), we changed our segments. Before the merger, we operated through four business segments: regional banking, fixed income, corporate, and non-strategic. Currently, we operate through three segments: regional banking, specialty banking, and corporate. In this report, segment information related to prior periods has been reclassified to conform with current segments.
Financial and other additional information concerning our segments—including information concerning assets, revenues, and financial results—appears in our 2021 MD&A (Item 7) and in our 2021 Financial Statements (Item 8), especially in Note 20—Business Segment Information. Note 20 begins on page 178. Regional and Specialty Banking Segments
By far most of our loans and deposits are in the regional banking and specialty banking segments. Similarly, those segments are the sources of most of our revenues and expenses. The two segments create and use financial resources differently, and they generate different types of revenues. Most notably: regional banking provides a majority of our net interest income (mainly from lending), while specialty banking provides more noninterest income (mainly from fees). In addition, regional banking is larger than specialty banking by many financial measures. Table 1.6 provides high-level financial information for each of those two segments, highlighting these points.
Table 1.6
Regional vs Specialty Banking Snapshot
| | | | | | | | | | | |
| (Dollars in millions) | Regional | | Specialty |
| 2021 Average assets | $ | 45,445 | | | $ | 20,803 | |
| 2021 Net interest income | $ | 1,764 | | | $ | 619 | |
| 2021 Noninterest income | $ | 438 | | | $ | 597 | |
| 2021 Pretax income | $ | 1,280 | | | $ | 709 | |
Regional and Specialty Lines of Business
The principal lines of business in the regional banking segment are:
•commercial banking (larger business enterprises)
•business banking (smaller business enterprises)
•consumer banking
•private client and wealth management
The principal lines of business in the specialty banking segment are:
•fixed income/capital markets
•professional commercial real estate (Pro-CRE)
•mortgage warehouse lending
•asset-based (secured) lending
•franchise finance
•equipment finance
•corporate banking
•correspondent banking
•mortgage origination and title services
Geographically, regional banking's businesses mainly serve our traditional markets associated with our banking center footprint. Many of the businesses within specialty banking have much broader geographic reach. For example: our fixed income business has offices from Hawaii to Massachusetts; and California is listed in Table 1.5 primarily because of specialty banking business lines.
| | | | | | | | |
| 11 | 2021 FORM 10-K ANNUAL REPORT |
Services We Provide
At December 31, 2021, we provided the following services through our subsidiaries and divisions:
•general banking services for consumers, businesses, financial institutions, and governments
•fixed income sales and trading; underwriting of bank-eligible securities and other fixed-income securities eligible for underwriting by financial subsidiaries; loan sales; advisory services; and derivative sales
•mortgage banking services
•title insurance and loan-closing services
•brokerage services
•correspondent banking
•transaction processing: nationwide check clearing services and remittance processing
•trust, fiduciary, and agency services
•credit card products
•equipment finance services
•investment and financial advisory services
•mutual fund sales as agent
•retail insurance sales as agent
Information about the net interest income and noninterest income we obtained from our largest categories of products and services appears under the caption Results of Operations—2021 Compared to 2020 beginning on page 63 of our 2021 MD&A (Item 7). Significant Business Developments Over Past Five Years
Selected Financial Data Past Five Years
Table 1.7 provides selected data concerning revenues, expenses, assets, liabilities, and shareholders’ equity for the past five years.
Table 1.7
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in millions; financial condition data shown period-end, as of December 31)
| | | | | | | | | | | | | | | | | |
| 2021 | 2020 | 2019 | 2018 | 2017 |
| Net interest income | $ | 1,994 | | $ | 1,662 | | $ | 1,210 | | $ | 1,220 | | $ | 842 | |
| Provision for credit losses | (310) | | 503 | | 45 | | 8 | | (1) | |
| Noninterest income | 1,076 | | 1,492 | | 654 | | 723 | | 490 | |
| Net income available to common shareholders | 962 | | 822 | | 435 | | 539 | | 159 | |
| Total loans and leases | 54,859 | | 58,232 | | 31,061 | | 27,536 | | 27,659 | |
| Total assets | 89,092 | | 84,209 | | 43,311 | | 40,832 | | 41,423 | |
| Total deposits | 74,895 | | 69,982 | | 32,430 | | 32,683 | | 30,620 | |
| Total term borrowings | 1,590 | | 1,670 | | 791 | | 1,171 | | 1,218 | |
| Total liabilities | 80,598 | | 75,902 | | 38,235 | | 36,047 | | 36,843 | |
| Preferred stock | 520 | | 470 | | 96 | | 96 | | 96 | |
| Total shareholders’ equity | 8,494 | | 8,307 | | 5,076 | | 4,785 | | 4,580 | |
Priorities & Developments
Over the past five years, our strategic priorities have focused on:
•targeted and opportunistic expansion of consumer and commercial banking products and markets;
•targeted and opportunistic expansion of commercial lending, mainly through strategic and tactical transactions, talent development, and talent acquisitions;
•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:
| | | | | | | | |
| 12 | 2021 FORM 10-K ANNUAL REPORT |
•In July 2020, we completed a merger of equals transaction with IBERIABANK Corporation and purchased 30 branches from Truist Bank, making 2020 a transformative year. See IBKC Merger of Equals and 30-Branch Acquisition in this Item below for additional information. In February 2022, we completed the main systems conversion work related to that merger.
•As shown in Table 1.7, the COVID-19 pandemic caused us to recognize substantial provision for credit losses in 2020, and reduced our transaction volume and revenues. See the discussion captioned CECL Accounting and COVID-19 within Events Impacting Year-to-Year Comparisons, immediately below. In 2021, a large portion of that provision expense was effectively reversed, resulting in a provision credit for the year.
•The pandemic also resulted in strong deposit growth in 2020 and 2021, despite interest rates being extremely low. We believe federal assistance and stimulus programs in 2020 and early 2021 significantly bolstered deposits in both years.
•In 2017 we merged with Capital Bank Financial Corp., which had $10 billion of total assets and nearly 200 banking centers in four southern U.S. states. In another 2017 transaction, we acquired a national leader in trading, securitization, and analysis of Small Business Association loans.
•We have made key talent hires in critical areas throughout our company, with the main focus on organically growing economically profitable business lines inside and outside our traditional markets.
•Throughout this period, but especially in 2021, we have pruned and adapted our physical banking center network to reflect long-term trends in client usage of banking centers, and are making more efficient use of other physical facilities. Correspondingly, we have expanded and enhanced our digital banking products and services. These efforts are expected to continue.
•Lending has been strong in certain specialty areas, such as lending to mortgage companies, where demand is strongly stimulated by the low interest rates in effect during this period.
Events Impacting Year-to-Year Comparisons
IBKC Merger of Equals in 2020
In July 2020, we closed our merger of equals with IBERIABANK Corporation (“IBKC”). IBKC was the parent company of IBERIABANK based in Lafayette, Louisiana. At year-end 2019, IBKC had $31.7 billion of total assets—nearly 75% of our size at that time—and operated over 190 banking centers in 11 states: Louisiana, Texas, Arkansas, Tennessee, Mississippi, Alabama, Georgia, Florida, North and South Carolina, and New York. IBKC’s largest concentrations of banking centers were in Louisiana and Florida. We and IBKC offered many of the same financial services before the merger, but IBKC exceeded us in several areas, most notably in equipment financing, mortgage, and title services.
After closing, our board expanded to 17 directors, of which nine are from legacy First Horizon and eight are from legacy IBKC. IBKC shareholders collectively were issued 243 million First Horizon common shares (on a net basis).
Under applicable accounting guidance, none of the income or expense recognized by IBKC prior to the merger is included in our income or expense for 2020. As a result, our 2020 operating results consist of approximately two quarters of legacy First Horizon plus approximately two quarters of combined First Horizon and IBKC. In addition, operating results in 2020 were significantly affected by merger-related expenses and by two significant accounting impacts, described in Large Accounting Impacts from IBKC Merger below.
30-Branch Acquisition in 2020
In July 2020, we purchased 30 branches in North Carolina (20), Virginia (8), and Georgia (2) from SunTrust Bank (now Truist Bank). Those branches are in markets which we did not serve before July, or in which we did not have a leading market position. Along with the branch facilities, we acquired $0.4 billion of related loans and assumed $2.2 billion of deposits.
Large Accounting Impacts from IBKC Merger
Under applicable accounting guidance, closing the IBKC merger in July created two substantial impacts on our operating results for 2020. First, although we were required to record IBKC’s loans at fair value on the closing date, we also were required to recognize, as a provision for credit losses, an estimate of current expected credit losses for certain acquired loans. A similar process, with much smaller numbers, occurred for the loans associated with the 30-branch purchase. The overall incremental expense, recorded in third quarter 2020, was $147 million. Moreover, we were required to record, on a preliminary basis, a nontaxable purchase accounting gain from the merger of $533 million, driven by the stock market decline in 2020 associated with the COVID-19 pandemic. The net result of those two impacts was a $386 million uplift to our pretax income in 2020 unrelated to the ordinary operation of our businesses.
Expenses related to IBKC Merger
Closing the IBKC merger, integrating the business operations and systems, and making the changes necessary to achieve intended cost and other synergies resulted in substantial noninterest expenses in 2020 and
| | | | | | | | |
| 13 | 2021 FORM 10-K ANNUAL REPORT |
in 2021. Additional significant expenses related to integration and optimization will be incurred in 2022.
Low Credit Loss Rates through 2019
During 2017-2019, our provision for credit losses was unusually low, though in 2019 it began to normalize. When provision is low, differences from year to year can be idiosyncratic, driven by just a few clients.
CECL Accounting and COVID-19
Starting in 2020, accounting guidance changed, requiring us to recognize “current expected credit loss” on all loans. The new guidance had the effect of accelerating, compared to prior guidance, the recognition of provision expense at times when general economic conditions deteriorate in a rapid manner. Starting in March 2020, government and public reaction to the COVID-19 pandemic caused substantial and rapid, and previously unexpected, business disruption and economic deterioration. Those events substantially changed our expectations for future credit loss and, accordingly, our provision was significantly elevated in 2020.
In 2021, we recognized net provision credit (negative expense) in the year overall, as a portion of credit loss accrued in 2020 was effectively reversed and underlying credit loss trends remained modest in most portfolios.
Fixed Income Volatility
In 2017 and 2018, market conditions were quite subdued for our fixed income business. Starting in 2019, however, increased market volatility and the downward direction of interest rates resulted in much higher trading volume and noninterest income in that business. In 2021, performance in fixed income started to moderate as market conditions started to change again, and we expect moderation to continue into 2022. See the Fixed Income discussion under Cyclicality within the Other Business Information section of this Item, which begins on page 18, for additional information. Sale of Visa Class B Stock in 2018
In 2018, we sold our remaining legacy stock holdings of Visa for a large gain, significantly increasing noninterest income that year.
Capital Bank Merger in 2017
Many year-end balance sheet figures (loans, deposits, etc.) increased substantially in 2017 due to the Capital Bank transaction. Full-year operating results were less noticeably impacted until 2018, because the Capital Bank transaction closed late in 2017.
Tax Reform in 2017
Corporate tax reform in December 2017 resulted in significant negative adjustments to net deferred tax asset
balance, driving a large net loss in fourth quarter that year. Financial results after 2017, in contrast, benefited significantly from lower tax rates compared to earlier years.
Monetary Policy Shifts
Although interest rates during each of these years were quite low by historical standards, short-term rates were raised in 2017 and 2018. Short-term rates were reduced in 2019 and again in 2020, the latter in response to the pandemic. An asset-buying program by the Federal Reserve put downward pressure on long-term interest rates as well, especially in 2020 and 2021. These changes impacted our net interest margin, raising and lowering it over this period. Net interest margin is a measure of the profit we make on loans and other earning assets in relation to our cost of deposits and other funding sources. Because funding costs cannot realistically fall below zero, the very low rate environment during 2020-21 resulted in historically low net interest margin levels for us.
During much of 2021, the Federal Reserve kept short-term rates low and maintained an asset-buying program intended to put downward pressure on long-term rates. Late in 2021, and continuing into 2022, the Federal Reserve has signaled that its asset-buying program will cease, that it expects to start raising short-term rates in reaction to price inflation experienced in the U.S. during much of 2021, and that it expects to reduce its asset holdings once buying has stopped.
Additional information concerning monetary policy and changes to it appears: within the Effect of Governmental Policies and Proposals section of Item 1 beginning on page 29; under the caption Risks Associated with Monetary Events beginning on page 38 within Item 1A; and under the caption Federal Reserve Policy in Transition within the Market Uncertainties and Prospective Trends section of 2021 MD&A (Item 7), which begins on page 99. Mortgage-Related Businesses
We lend to mortgage lending companies, we originate mortgage loans, and we provide title and related services that depend significantly on new and refinanced home mortgage activity. Lending to mortgage companies has been a significant business for us in all five years shown in Table 1.7, while the latter two businesses were insignificant for us until our merger with IBKC in 2020.
All three mortgage-related businesses benefited substantially from the recent low interest rate environment. As discussed above, we expect mortgage rates to rise in 2022, which should moderate revenues and income in all three businesses compared to 2021.
| | | | | | | | |
| 14 | 2021 FORM 10-K ANNUAL REPORT |
Significant Trends Past Five Years
Noteworthy trends during these five years included:
•Growth in net interest income was significant through 2018, driven by net loan growth, interest rate increases, and (in 2018) the Capital Bank merger. Growth flattened in 2019 as net loan growth, especially in mortgage warehouse lending, was offset by net interest margin declines. Margin declines continued in 2020 and 2021, though loan balances increased substantially with the IBERIABANK merger.
•In 2017, an overall downward trend in noninterest income was due mainly to lower fixed income revenues, driven by challenging market conditions. The large increase in 2018 was mainly due to the Visa stock sale, along with an uptick following the Capital Bank merger. The 2017 downward trend reversed in 2019-21 as interest rates declined, market volatility increased, and fixed income revenues improved markedly. Also, 2020 and 2021 enjoyed a substantial increase in noninterest income following the IBERIABANK merger, especially in relation to consumer mortgage originations and related services.
•The large deposit upticks in 2017 and 2020 were driven substantially by the Capital Bank, IBERIABANK, and 30-branch transactions. Also in 2020 and 2021, the federal Paycheck Protection Program (“PPP”) contributed to deposit growth as proceeds from PPP loans boosted average deposit account balances. Organic growth in deposits from core banking clients grew throughout this period, even when interest rates were extremely low. That core growth is masked in some years by our deliberate reductions in market-indexed deposits, which tend to be higher rate, and in other years by those large transactions.
•Throughout 2020, and to a lesser extent in 2021, economic and business disruption related to the COVID-19 pandemic created substantial challenges for our clients and for our company. The disruptions in late 2021 from yet another new variant of the virus have continued in early 2022.
Exited Businesses
Over the past five years, we have focused primarily on regional banking and specialty banking products and services. We have partially or fully exited some smaller businesses during those years. Exited businesses are
managed in our corporate segment currently, and were managed in our non-strategic segment before 2020.
2022 Merger Agreement with Toronto-Dominion Bank
On February 27, 2022, FHN entered into an Agreement and Plan of Merger (the “TD Merger Agreement”) with The Toronto-Dominion Bank, a Canadian chartered bank (“TD”), TD Bank US Holding Company, a Delaware corporation and indirect, wholly owned subsidiary of TD (“TD-US”), and Falcon Holdings Acquisition Co., a Delaware corporation and wholly owned subsidiary of TD-US (“Merger Sub”).
Pursuant to the TD Merger Agreement, FHN and Merger Sub will merge (the “First Holding Company Merger”), with FHN continuing as the surviving entity in the merger. Following the First Holding Company Merger, at the election of TD, FHN and TD-US will merge (the “Second Holding Company Merger” and, together with the First Holding Company Merger, the “Holding Company Mergers”), with TD-US continuing as the surviving entity in the merger.
Upon the terms and subject to the conditions set forth in the TD Merger Agreement, each share of FHN common stock, par value $0.625 per share, (“Company Common Stock”), issued and outstanding immediately prior to the effective time of the First Holding Company Merger (the
“First Effective Time”) will be converted into the right to receive $25.00 (USD) per share in cash, without interest. If the transaction does not close on or before November 27, 2022, shareholders will receive an additional $0.65 per share of Company Common Stock on an annualized basis (or approximately 5.4 cents per month) for the period from November 27, 2022 through the day immediately prior to the closing. Each outstanding share of FHN’s preferred stock, series B, C, D, E and F, will remain issued outstanding in connection with the First Holding Company Merger. If TD elects to effect the Second Holding Company Merger, at the effective time of the Second Holding Company Merger, each outstanding share of FHN’s preferred stock will be converted into a share of a newly created, corresponding series of TD-US having terms as described in the Merger Agreement.
Following the completion of the First Holding Company Merger, at such time as determined by TD, First Horizon Bank and TD Bank, N.A., a national banking association (“TDBNA”) will merge, with TDBNA surviving as a subsidiary of TD-US (the “Bank Merger” and together with the Holding Company Mergers, the “Proposed TD Merger”).
| | | | | | | | |
| 15 | 2021 FORM 10-K ANNUAL REPORT |
In connection with the execution of the TD Merger Agreement, TD has agreed to purchase from FHN shares of non-voting Perpetual Convertible Preferred Stock, Series G, a new series of preferred stock of FHN (the “Series G Convertible Preferred Stock”) in a private placement transaction having an aggregate liquidation preference and purchase price of approximately $493.5 million, pursuant to a securities purchase agreement between FHN and TD entered into concurrently with the execution and delivery of the TD Merger Agreement. The Series G Convertible Preferred Stock is convertible into up to 4.9% of the outstanding shares of Company Common
Stock in certain circumstances, including the closing of the Proposed TD Merger.
Additional information regarding the Proposed TD Merger, the TD Merger Agreement, and the issuance of Series G Convertible Preferred Stock will be included under Item 1.01 “Entry into a Material Definitive Agreement”, Item 3.02 “Unregistered Sales of Equity Securities”, Item 5.03 “Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year”, and Item 8.01 “Other Events” in a Current Report on Form 8-K to be filed by FHN after this report on Form 10-K is filed.
Competition
In all aspects of the businesses in which we engage, we face substantial competition from banks doing business in our markets as well as from savings and loan associations, credit unions, other financial institutions, consumer finance companies, trust companies, investment
counseling firms, money market and other mutual funds, insurance companies and agencies, securities firms, mortgage banking companies, hedge funds, and other firms offering financial products or services.
Banking 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 Wells Fargo Bank N.A., Bank of America N.A., First-
Citizens Bank & Trust Company (dba First Citizens Bank), Synovus Bank, Truist Bank, Regions Bank, JPMorgan Chase Bank National Association, PNC Bank National Association, BankUnited, Hancock Whitney Bank, and Pinnacle Bank, among many others including many community banks and credit unions.
A number of recent technologies created or operated by non-banks have been integrated into the financial systems used by traditional banks, such as the evolution of ATM cards into debit/credit cards and the evolution of debit/credit cards into smart phones. These sorts of incrementally evolutionary technologies often have expanded the market for banking services overall while siphoning a portion of the revenues from those services away from banks. Prior methods of delivering those services were disrupted, but often at a pace which all but the weakest banks could accommodate.
Recently, some evolutionary pressures have arisen which may prove to be less incremental and more disruptive. For example, in financial planning and wealth management, companies that are not traditional banks, including both long-established firms (such as Vanguard) and new ones (such as Betterment), have developed highly-interactive systems and applications. These services compete directly with traditional banks in offering personal financial advice. The low-cost, high-speed nature of these “robo-advisor” services can be especially attractive to younger, less-affluent clients and potential clients. We and other traditional banks offer similar services, but doing so risks cannibalizing traditional business models for these services.
In recent years, certain financial companies or their affiliates that traditionally were not banks have been able
| | | | | | | | |
| 16 | 2021 FORM 10-K ANNUAL REPORT |
to compete more directly with the Bank for deposits and other traditional banking services and products. Increased fluidity across traditional boundaries is likely to continue. Non-traditional companies competing with us for traditional banking products and services include investment banks, brokerage firms, insurance company affiliates, peer-to-peer lending arrangers, non-bank deposit acceptors, companies offering payment
facilitation services (such as PayPal and pre-paid debit card issuers), and extremely short-term consumer loan companies. An example of a non-traditional company offering a broad range of financial services is SoFi, an online/mobile company in operation for about a decade, that recently was approved in the U.S. to become a bank.
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).
Both client groups are widely dispersed geographically, predominantly within the U.S. We have many competitors within both groups, including major U.S. and international securities firms as well as numerous regional and local firms.
Additional Information 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
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.
Human Resources Management
Firstpower Culture
Our principal business is providing financial services to our clients. Although many financial services can be delivered through technology today, we believe that our clients’ experiences with our associates is a critical way we differentiate from our competitors. Specifically, we ask our associates to take advantage of every opportunity to anticipate client needs and exceed client expectations.
For this “differentiated experience” strategy to succeed, we must build and nurture a diverse and inclusive workplace culture that strives to attract, hire, and retain the best people available by compensating and, just as importantly, treating people fairly; ensure that associates have opportunities for professional growth and advancement within the company; support associates with appropriate workplace resources and training; promote constructive collegiality and a sense of workplace community; encourage innovation and the development of better ways to address business challenges; publicly recognize within the company associate achievements, both great and small; and promote behaviors that provide clients with best-in-class service. At First Horizon, we call that culture “Firstpower.”
We have evolved Firstpower as a part of our MOE to incorporate aspects of both organizations—expanded expertise, resources and geographic footprint—into the culture of our company. We have developed the following
Purpose, Promise and Principles to guide our associates on our core values and philosophies.
Our Purpose: First Horizon is a relationship-driven leading provider of financial solutions.
Our Promise: To strengthen the lives of our associates, clients and communities.
Our Principles:
•Great Place To Work – offer a collaborative and inclusive workplace that promotes associate development, performance and success
•Build Strong Relationships – exceed clients’ expectations by understanding their unique needs
•Deliver Results – consistently deliver shareholder value
•Give Back – invest in strategic partnerships to build strong communities
•Fortitude – lead with integrity, accountability, agility, resilience and compassion
We use many tools and resources—programs, events, promotions, communication channels—to nurture and enhance our Firstpower culture. We focus on offering a variety of opportunities that promote mentoring, wellness, internships, diversity, inclusion, volunteering, informal shout-outs and formal recognitions, career
| | | | | | | | |
| 17 | 2021 FORM 10-K ANNUAL REPORT |
management and continuing education, resource groups, and parental and care-giver support.
We believe that Firstpower is responsible for awards and recognitions we have received. Our recent recognitions have included: Forbes’ America’s Best Large Employers; Forbes’ World’s Best Banks; Fortune’s Best Workplaces in Finance and Insurance; National Association for Female Executives – Top 50 Companies for Executive Women; Dave Thomas’ Adoption-Friendly Workplaces; Diversity Best Practices Inclusion; and Bloomberg 2019 Gender-Equality Index.
In addition to our Firstpower culture, we have developed five strategic pillars for our Diversity, Equity and Inclusion
program that builds upon our track record of success, helps to ensure adoption throughout our organization, and defines a path for sustainable progress. We enable our DEI strategy through:
•Ensuring representation of diverse talent
•Strengthening leadership capabilities and accountability
•Fostering inclusion and equality through fairness and transparency
•Better serving diverse markets and clients
•Investing in the well-being of communities
Year-End Statistical Information
At December 31, 2021*:
•First Horizon had 7,867 associates, or 7,676 full-time-equivalent associates, not including contract labor for certain services:
◦69% white, 18% African American, 9% Hispanic, 2% Asian, and 2% two or more races or ethnicities
◦63% female and 37% male
•Of those, First Horizon had 1,215 corporate managers:
◦79% white, 12% African American, 6% Hispanic, 2% Asian, and 1% two or more races or ethnicities
◦54% female and 46% male
•Of the managers, First Horizon had the CEO and 9 members of the CEO's Executive Management Committee:
◦80% white, 10% African American, 0% Hispanic or Asian, and 10% two or more races or ethnicities
◦50% female and 50% male
__________
* Data compiled from information provided by associates. Percentages may not add to 100% due to rounding.
Other Business Information
Strategic Transactions
An element of our business strategy is to consider acquisitions and divestitures that would enhance long-term shareholder value. Significant acquisitions and divestitures which closed during the past three years are described in Note 2 to our 2021 Financial Statements (Item 8), beginning on page 134 of this report. The most significant transactions in the past five years are our merger of equals with IBKC in 2020 and our merger with Capital Bank Financial Corp. in 2017. IBKC’s assets comprised roughly three-sevenths of our combined assets immediately after closing in July 2020. Capital Bank’s
assets comprised roughly one-fourth of our combined assets immediately after closing in November 2017. We completed systems integration for the Capital Bank transaction in 2018, and we completed systems integration with IBKC in February 2022.
Other significant transactions include our purchase of 30 banking centers in July 2020, with over $2 billion of associated deposits, and our acquisition of Coastal Securities, Inc. in 2017, a leader in trading and securitizing SBA loans.
Subsidiaries
FHN’s consolidated operating subsidiaries at December 31, 2021 are listed in Exhibit 21. Technical and regulatory details follow:
•The Bank is supervised and regulated as described in Supervision and Regulation in this Item below.
•The Bank is a government securities dealer. The FHN Financial division of the Bank is registered with the SEC as a municipal securities dealer and the FHN
Financial Municipal Advisors division of the Bank is registered with the SEC as a municipal adviser.
•Martin and Company, Inc., First Horizon Advisors, Inc., and FHN Financial Main Street Advisors, LLC are registered with the SEC as investment advisers.
•First Horizon Advisors, Inc. and FHN Financial Securities Corp. are registered as broker-dealers with the SEC and all states where they conduct business for which registration is required.
| | | | | | | | |
| 18 | 2021 FORM 10-K ANNUAL REPORT |
•First Horizon Insurance Services, Inc., FHIS, Inc., First Horizon Insurance Agency, Inc., Lenders Title Company, United Title & Abstract L.L.C., and United Title of Louisiana, Inc. are licensed as insurance agencies in all states where they do business for which licensing is required. First Horizon Insurance Agency, Inc. and United Title & Abstract L.L.C. are inactive.
•First Horizon Advisors, Inc. is licensed as an insurance agency in the states where it does business for which licensing is required for the sale of annuity products.
•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.
Client Concentration
Neither we nor any of our significant subsidiaries is dependent upon a single client or very few clients.
Calendar-Year Seasonality
We do not experience material seasonality. We do experience seasonal variation in certain revenues, expenses, and credit trends. Historically, these variations have somewhat increased certain expenses and diminished certain revenues for the regional and specialty banking segments, principally in the first quarter each year. In addition, we experience seasonal variation in certain asset and liability balances, principally in the
fourth quarter (consumer mortgages, related title services, commercial lending related to consumer mortgages, certain trading balances, and certain associate-related reserves) and first quarter (consumer mortgages, related title services, and commercial lending related to consumer mortgages).
Cyclicality
Banking
Financial services facilitate commercial and consumer economic activities in critical ways. In many key respects, modern financial services make modern types and volumes of economic activity possible. Put 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 deposit costs down while higher long rates will support the rates we can charge on lending. But if rates fall low enough (as they have in recent years), the yield curve will flatten and our margins will suffer. Moreover, the Federal Reserve tends to lower rates in response to, or to avoid, a weakening economy. Economic weakness tends to diminish client borrowing and other activities which benefit our performance.
Further information on these topics is presented: within Item 1A (which begins on page 31), in Risk from Economic Downturns and Changes, Risks Associated with Monetary Events, Liquidity and Funding Risks, and Interest Rate and Yield Curve Risks; and, within 2021 MD&A (Item 7), in Executive Overview (page 61), Interest Rate Risk Management (page 93), and Market Uncertainties and Prospective Trends (page 99). Fixed Income
Our fixed income and capital markets business, reported as part of our specialty banking segment, is significantly affected by interest rate cycles which, in turn, are affected by general economic and business cycles.
| | | | | | | | |
| 19 | 2021 FORM 10-K ANNUAL REPORT |
In broad terms, the typical impact of Federal Reserve interest and monetary policy on our fixed income business is summarized in Table 1.8.
Table 1.8
Typical Impact of Fed Policy on
Fixed Income Performance
| | | | | | | | | | | |
| Federal Reserve Policy Phase |
| Tightening | Neutral | Easing |
| Fixed Income Performance Tends to be | Weaker | Average | Stronger |
“Tightening” can include actions by the Federal Reserve to raise short-term interest rates, raise long-term rates, tighten credit, shrink the money supply, and decelerate economic activity. “Easing” can include actions by the Federal Reserve to lower short-term interest rates, lower long-term rates, loosen credit, expand the money supply, and accelerate economic activity. Expectations of policy actions can have impacts similar to the actions themselves.
In terms of tightening vs. easing, the Federal Reserve policy phase sometimes is clearly known, but sometimes is not. Although Federal Reserve actions at a given time can consistently support one phase, often they are a mix. For example, The Federal Reserve may want to flatten the yield curve by raising short-term rates while lowering long-term rates, or steepen the curve by taking the opposite actions. Also, major exogenous factors, such as the COVID-19 pandemic, can significantly impact the capital markets and the performance of our fixed income business. In broad terms, these relationships are summarized in Table 1.9.
Table 1.9
Key Drivers of
Fixed Income Performance
| | | | | | | | |
| Driver | If Driver Is: | FI Revenues Tend to Be: |
| Interest rates | Rising | Lower |
| Falling | Higher |
| Market volatility | Low | Lower |
| Moderate | Higher |
| Yield curve | Flatter | Lower |
| Steeper | Higher |
| Credit spreads | Narrower | Lower |
| Wider | Higher |
| Economy outlook | Positive | Lower |
| Negative | Higher |
In many circumstances these drivers deliver mixed impacts on fixed income performance, with some pushing higher while others push lower, or with some drivers pushing weakly while others are stronger. If most or all drivers strongly push in the same direction at the same time, fixed income performance usually is strongly impacted. Revenue levels in a strongly “higher” year can be more than double what they are in a strongly “lower” year. As a result, fixed income performance can be highly variable from year to year.
Mortgage Origination and Related Services
The strength of consumer mortgage lending activity in the U.S. impacts three businesses of ours: mortgage origination and related services, title services, and commercial lending to other mortgage lenders.
Mortgage lending activity is strongly linked to interest rate cycles. Activity tends to be inversely related to prevailing mortgage rates: when rates are high, home-buying and refinancing decrease, and when rates are low, home-buying and refinancing increase. Moreover, expectations about near-term future mortgage rates can accelerate or delay those impacts, as borrowers rush to avoid future rate increases or wait for future rate decreases.
Market Outlook
The single most important market factor in 2022 for FHN likely will be when, and to what extent, short-term and long-term interest rates rise from the very low levels seen in 2020 and 2021. A key corollary will be how rate changes affect the shape of the yield curve. Early in 2022, when this report was prepared and filed, long-term rates in the markets have risen modestly in reaction to, and perhaps in anticipation of, Federal Reserve actions. FHN believes it is likely that the Federal Reserve will act to cause long and short rates to rise during the year, though FHN cannot predict the timing or degree of effectiveness of those actions.
Additional information concerning market uncertainties and trends appears in Market Uncertainties and Prospective Trends within 2021 MD&A (Item 7) beginning on page 99, especially under the captions Federal Reserve Policy in Transition and COVID-19 Pandemic. Other Business Information Associated with this Report
For additional information concerning our business, refer to 2021 MD&A (Item 7).
| | | | | | | | |
| 20 | 2021 FORM 10-K ANNUAL REPORT |
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. Within the Investor Relations homepage there is a "Learn More" link associated with "SEC Filings." Clicking that link makes available to the public, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and amendments
thereto as soon as reasonably practicable after we file such material with, or furnish such material to, the Securities and Exchange Commission. Additional information regarding materials available on our website is provided in Item 10 of this report beginning on page 214. No information external to this report and its exhibits, unless specifically noted otherwise, is incorporated into this report. Supervision and Regulation
Scope of this Section
This section describes certain of the material elements of the regulatory framework applicable to bank and financial holding companies and their subsidiaries, and to companies engaged in securities and insurance activities. It also provides certain specific information about us. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by express reference to each of the particular statutory and regulatory provisions. A change in applicable statutes, regulations, or regulatory policy may have a material effect on our business.
Overview
The Corporation
First Horizon Corporation is a bank holding company and financial holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the “BHCA”), and is registered with the Federal Reserve. We are subject to the regulation and supervision of, and to examination by, the Federal Reserve under the BHCA. We are required to file with the Federal Reserve annual reports and such additional information as the Federal Reserve may require pursuant to the BHCA.
A bank holding company that is not a financial holding company is limited to engaging in “banking” and activities found by the Federal Reserve to be “closely related to banking.” Eligible bank holding companies that elect to become financial holding companies may affiliate with securities firms and insurance companies and engage in 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, 2021, the FDIC reports that the Bank held approximately 15% of such deposits.
The Bank
First Horizon Bank, our most significant subsidiary, is a Tennessee banking corporation subject to the regulation and supervision of, and to examination by, the TDFI. In addition to general supervision and examination powers, the TDFI has the power to approve mergers with the Bank, the Bank’s issuance of preferred stock or capital notes, the establishment of banking centers, and many other corporate actions.
The Bank has chosen to be a member of the Federal Reserve; asReserve. As a result, the Federal Reserve is the Bank’s primary federal regulator. As a member, bank, the Bank must buy and hold stock in its district Federal Reserve Bank equal to 6% of the Bank’s capital stock and surplus. The Bank is paid a dividend on its investment at a rate which varies with ten-year U.S. Treasury rates, capped at 6%. The Bank cannot sell its investment in Federal Reserve Bank stock, and the investment provides the Bank with no control over the Federal Reserve System.
Tennessee law requires the Bank, as a member of the Federal Reserve, to comply with federal capital and many other regulatory requirements in lieu of, or sometimes in addition to, state requirements. For that reason, this “SupervisionSupervision and Regulation”Regulation section focuses on federal
| | | | | | | | |
| 21 | 2021 FORM 10-K ANNUAL REPORT |
requirements for many topics related to the Bank, mentioning state requirements only where significant.
From 1864 until October 2019, the Bank was a national banking association subject to the regulation and supervision of, and to examination by, the Office of the Comptroller of the Currency. During October,In 2019, the Bank converted from a national bank to a Tennessee state bank. Conversion did not significantly alter the scope of the Bank’s activities: Tennessee law generally allows a Tennessee state bank to take any action that a Tennessee-based national bank could take.
The Bank is insured by, and subject to regulation by, the FDIC and is subject to regulation in certain respects by the CFPB. The Bank is also subject to various requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be made and the interest that may be charged, limitations on the types of investments that may be made, activities
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” beginningSubsidiaries within this Item 1 under the Other Business Information discussion above, which begins on page 8 of this report.18. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve as it attempts to control interest rates, money supply, and credit availability in order to influence the economy. Also, the Bank and certain of its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with extensions of credit, leases or sales of property, or furnishing products or services.
The regulatory framework governing banks and the financial industry is intended primarily for the protection ofto protect depositors and the Federal Deposit Insurance Fund, not for the protection ofto protect our Bank or our security holders.
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 $250
$250 billion or more are regulated much more severely in many important ways than we are. As a result, under
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 9
current law, compliance costs and restrictions grow with size, they tend to change abruptly as a company crosses to the next tier, and we are in a middle tier in many respects.
The remainder of this “Supervision Supervision and Regulation” Regulation discussion focuses on current rules which apply to FHN based on our current asset size.
Large-Bank Supervision Risk Categories
Federal regulators have established four risk-based categories for applying enhanced prudential standards (enhanced for larger banks). Category I applies to the global systemically important companies. Categories II, III, and IV apply (with certain exceptions) to institutions with total consolidated assets of at least $700 billion, $250
billion, and $100 billion, respectively. Currently, we and the Bank are below Category IV’s floor and therefore, generally, we are not subject to enhanced prudential standards. We expect that, immediately after closing the IBKC merger and 30-branch acquisition mentioned in this Item 1 above, we will continue to be below Category IV’s floor.
Payment of Dividends
FHNFirst Horizon Corporation is a legal entity separate and distinct from theFirst Horizon Bank and other subsidiaries. FHN’sOur principal source of cash flow, including cash flow to pay dividends on itsour 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 FHN,us, as well as by FHNus to itsours shareholders.
FHNThe Corporation
Under Tennessee corporate law, FHN iswe are not permitted to pay cash dividends if, after giving effect to such payment, FHNwe would not be able to pay itsour debts as they become
due in the usual course of business or itsour total assets would be less than the sum of itsour 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 FHN iswe are obligated to support.
The Bank
Under Tennessee corporate law, the Bank (like FHN,the Corporation, discussed above) may not pay a dividend if the Bank would not be able to pay its debts when due or if
| | | | | | | | |
| 22 | 2021 FORM 10-K ANNUAL REPORT |
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
“OtherOther Factors Affecting
Dividends”Dividends immediately following this discussion). Applying the
dividend restrictions imposed under applicable
federal and state rules,
the Bank’s total amount available for dividends, without obtaining regulatory approval, was $1.1 billion at January 1,
2020, the Bank could legally declare cash dividends on the Bank's common or preferred stock totaling approximately $331.2 million without obtaining approval.2022. The application of those restrictions to the Bank is discussed in more detail in the following sections, all of which is incorporated into this Item 1 by reference: under the caption
“LiquidityLiquidity Risk Management”Management in our 20192021 MD&A (Item 7) beginning on page 9095 of this report; and under the caption “RestrictionsRestrictions on dividends”dividends in Note 12-Regulatory13—Regulatory Capital and Restrictions of our 20192021 Financial Statements (Item 8), beginning on page 164 of this report.159.Other Factors Affecting Dividends
If, in the opinion of the Federal Reserve, FHNwe or the Bank isare engaged in or is 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 FHNus or the Bank to cease and desist from that practice. The federal banking agencies have indicated that paying dividends that deplete a depository institution’s or holding
company’s capital base to an inadequate level would be an unsafe and unsound banking practice.
In addition, under the Federal Deposit Insurance Act, an FDIC-insured depository institution (such as the Bank) may not make any capital distributions, pay any management fees to its holding company, or pay any dividend if it is undercapitalized or if such payment would cause it to become undercapitalized.
The payment of cash dividends by FHNus or by the Bank also may be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines and requirements imposed by debt covenants. For example, as discussed under “Capital Adequacy” starting on page 11, FHN'sCapital Adequacy within this Supervision and Regulation discussion below, our ability to pay dividends would be restricted if its capital ratios fell below minimum regulatory requirements plus a capital conservation buffer.
The Federal Reserve generally requires insured banks and bank holding companies to pay dividends only out of current operating earnings. The Federal Reserve has released a supervisory letter advising, among other things, that a bank holding company should inform the Federal Reserve and should eliminate, defer, or significantly reduce its dividends if (i) the bank holding company’s net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) the bank holding company’s prospective rate of earnings is not consistent with the bank holding company’s capital needs and overall
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 10
current and prospective financial condition; or (iii) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
Transactions with Affiliates
The Bank’s ability to lend or extend credit to FHN and its parent company or nonbank subsidiaries (including for purposes of this paragraph, in certain situations, subsidiaries of the Bank) is restricted. The Bank and its subsidiaries generally may not extend credit to FHNus or to any other affiliate in an amount which exceeds 10% of the Bank’s capital stock and surplus and may not extend credit in the aggregate to us and all such affiliates in an amount which exceeds 20% of its capital stock and surplus. Extensions of credit and other transactions between the Bank and FHNus or such other affiliates must be on terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the Bank as those prevailing at the time for comparable transactions with non-affiliated companies. Further, the type, amount, and quality of
collateral which must secure such extensions of credit is regulated.
There are similar legal restrictions on: the Bank’s purchases of or investments in the securities of and purchases of assets from FHN and itsus or our nonbank subsidiaries; the Bank’s loans or extensions of credit to third parties collateralized by the securities or obligations of FHN and itsus or our nonbank subsidiaries; the issuance of guaranties, acceptances, and letters of credit on behalf of FHN and itsus or our nonbank subsidiaries; and certain bank transactions with FHN and itsus or our nonbank subsidiaries, or with respect to which FHN and itswe or our nonbank subsidiaries act as agent, participate, or have a financial interest.
| | | | | | | | |
| 23 | 2021 FORM 10-K ANNUAL REPORT |
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 standardsU.S. rules require the following:
| |
• | Common Equity Tier 1 Capital Ratio. For all supervised financial institutions, including FHN•Common Equity Tier 1 Capital Ratio. For all supervised financial institutions, including us and the Bank, the ratio of Common Equity Tier 1 Capital to risk-weighted assets (“Common Equity Tier 1 Capital ratio”) must be at least 4.5%. To be “well capitalized” the Common Equity Tier 1 Capital ratio must be at least 6.5%. Common Equity Tier 1 Capital consists of core components of Tier 1 Capital. The core components consist of common stock plus retained earnings net of goodwill, other intangible assets, and certain other required deduction items. At December 31, 2021, our Common Equity Tier 1 Capital Ratio was 9.92% and the Bank’s was 10.75%. •Tier 1 Capital Ratio. For all supervised financial institutions, including us and the Bank, the ratio of Tier 1 Capital to risk-weighted assets must be at least 4.5%. To be “well capitalized” the Common Equity Tier 1 Capital ratio must be at least 6.5%. Common Equity Tier 1 Capital consists of core components of Tier 1 Capital. The core components consist of common stock plus retained earnings net of goodwill, other intangible assets, and certain other required deduction items. At December 31, 2019, FHN’s Common Equity Tier 1 Capital Ratio was 9.20% and the Bank’s was 9.38%. |
| |
• | Tier 1 Capital Ratio. For all supervised financial institutions, including FHN and the Bank, the ratio of Tier 1 Capital to risk-weighted assets must be at least
|
6%. To be “well capitalized” the Tier 1 Capital ratio must be at least 8%. Tier 1 Capital consists of the Tier 1 core components discussed in the bulleted paragraph immediately above, plus non-cumulative perpetual preferred stock, a limited amount of minority interests in the equity accounts of consolidated subsidiaries, and a limited amount of cumulative perpetual preferred stock, net of goodwill, other intangible assets, and certain other required deduction items. At December 31, 2019, FHN’s2021, our Tier 1 Capital Ratio was 10.15%11.04% and the Bank’s was 10.18%11.22%.
•Total Capital Ratio. For all supervised financial institutions, including us and the Bank, the ratio of Total Capital to risk-weighted assets must be at least 8%. To be “well capitalized” the Total Capital ratios must be at least 10%. At December 31, 2021, our Total Capital Ratio was 12.34% and the Bank’s was 12.41%.
•Capital Conservation Buffer. If a capital conservation buffer of an additional 2.5% above the minimum required Common Equity Tier 1 Capital ratio, Tier 1 Capital ratio, and Total Capital ratio is not maintained, special restrictions would apply to capital distributions, such as dividends and stock repurchases, and on certain compensatory bonuses.
•Leverage Ratio—Base. For all supervised financial institutions, including us or the Bank, the Leverage ratio must be at least 4%. To be “well capitalized” the Leverage ratio must be at least 5%. The Leverage ratio is Tier 1 Capital divided by quarterly average assets net of goodwill, certain other intangible assets, and certain required deduction items. At December 31,
2021, our Leverage ratio was 8.08% and the Bank’s was 8.20%.
| |
• | Total Capital Ratio. For all supervised financial institutions, including FHN 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, 2019, FHN’s Total Capital Ratio was 11.22% and the Bank’s was 10.77%.
|
| |
• | 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 FHN 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, 2019, FHN’s Leverage ratio was 9.04% and the Bank’s was 9.12%.
|
| |
• | Leverage Ratio-Supplemental. For the largest internationally active supervised financial institutions, not including FHN•Leverage Ratio—Supplemental. For the largest internationally active supervised financial institutions, not including us or the Bank, a minimum supplementary Leverage ratio must be maintained that takes into account certain off-balance sheet exposures. |
| |
• | Liquidity Coverage Ratio. This requirement does not apply to institutions with assets of less than $100 billion, and so does not apply to FHN or the Bank. For larger institutions, the requirement applies based on which Category a bank is in. Categories IV, III, and II apply to banks with $100 billion, $250 billion, and $750 billion, respectively, subject to several exceptions based on certain holdings, activities, or exposures. Category I includes systemically important institutions.
|
FHN believes that both FHNtakes into account certain off-balance sheet exposures.
We believe that we and the Bank were in compliance with applicable minimum capital requirements as of December 31, 2019.2021.
Federal regulators have incorporated market and interest-rate risk components into its risk-based capital standards. Those standards explicitly identify concentration of credit risk and certain risks arising from non-traditional activities, and the management of such risks, as important qualitative
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 11
factors to consider in assessing an institution’s overall capital adequacy.
Federal regulators’ market risk rules are applicable to covered institutions-thoseinstitutions—those with aggregate trading assets and trading liabilities of at least 10% of their total assets or at least $1 billion. FHNWe and the Bank are covered institutions under the rule. The rules specify the methodology for calculating the amount of risk-weighted assets related to trading assets and include, among other things, the addition of a component for stressed value at risk. The rule eliminates the use of credit ratings in calculating specific risk capital requirements for certain debt and securitization positions. Alternative standards of creditworthiness are used for specific standardized risks, such as exposures to sovereign debt, public sector entities, other banking institutions, corporate debt, and securitizations. In addition, an 8% capital surcharge applies to certain covered institutions, not including FHNus or the Bank.
Moreover, the Federal Reserve has indicated that it considers a “Tangible Tier 1 Capital Leverage Ratio” (deducting all intangibles) and other indiciaindicators 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 “PromptPrompt 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.
| | | | | | | | |
| 24 | 2021 FORM 10-K ANNUAL REPORT |
Prompt Corrective Action (PCA)
Federal banking regulators must take “prompt corrective action” regarding FDIC-insured depository institutions that do not meet minimum capital requirements. For this purpose, insured depository institutions are divided into
five capital categories. The specific requirements applicable to us are summarized in the following table.
REQUIREMENTS FOR PCA CAPITALIZATION CATEGORIES
|
| | | | |
| Well capitalized | •Common Equity Tier 1 Capital ratio of at least 6.5% •Tier 1 Capital ratio of at least 8% •Total Capital ratio of at least 10% •Leverage ratio of at least 5% •Not subject to a directive, order, or written agreement to meet and maintain specific capital levels |
| 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, 2019,2021, the Bank had sufficient capital to qualify as “well capitalized” under the regulatory capital requirements discussed above. An institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating. Institutions generally are not allowed to publicly disclose examination results.
An FDIC-insured depository institution generally is prohibited from making any capital distribution (including payment of dividends) or paying any management fee to its
holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to restrictions on borrowing from the Federal Reserve System. In addition, undercapitalized depository institutions are subject to growth limitations and are required to submit capital restoration plans. An insured depository institution’s holding company must guarantee the capital plan, up to an amount equal to the lesser of 5% of the depository institution’s assets at the time it becomes
undercapitalized or the amount of the capital deficiency when the institution fails to comply with the plan, for the
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 12
plan to be accepted by the applicable federal regulatory authority. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital. If a depository institution fails to submit an acceptable plan, it is treated as if it were significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject to appointment of a receiver or conservator, generally within 90 days of the date on which they become critically undercapitalized.
Liquidity Coverage Ratio
The liquidity coverage ratio, or LCR, refers to the amount of liquid assets (cash, cash equivalents, or short-term securities) banks are required to keep on hand to meet a hypothetically projected total net cash outflows over a forward-looking 30-day period of stress. The stressed outflow estimate is based a standard set of hypothetical assumptions set forth in regulatory requirements. The LCR
is designed to ensure banks hold a buffer of high-quality liquid assets so that they can meet their short-term liquidity needs and remain stable and strong in a stressed environment. Liquid assets generally provide low income levels compared to other investments, so a higher LCR requirement can negatively impact a bank's earnings.
| | | | | | | | |
| 25 | 2021 FORM 10-K ANNUAL REPORT |
The LCR requirement does not apply to institutions with assets of less than $100 billion, and so does not apply to us or the Bank. For larger institutions, the minimum LCR requirement increases based on a bank’s asset size.
Category IV banks, with at least $100 billion in assets, are not subject to LCR requirements unless they have at least $50 billion in weighted short-term wholesale funding.
Holding Company Structure and Support of Subsidiary Banks
Because FHN iswe are a holding company, itsour 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 FHNwe may itself be a creditor with recognized claims against the subsidiary. In addition, depositors of a bank, and the FDIC as their subrogee, would be entitled to priority over the other creditors in the event of liquidation of a bank subsidiary.the bank.
Under Federal Reserve policy FHN iswe are expected to act as a source of financial strength to, and to commit resources to
support, the Bank. This support may be required at times even though,if, absent such Federal Reserve policy, FHNwe 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.
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
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 theour only depository institution owned by FHN.subsidiary. If FHNwe 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 such estimated losses against FHN’sour other subsidiary bank(s), and a potential loss of FHN’sour investment in itsour subsidiary banks.
Interstate Branching and& 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 incremental systemic risk; and the acquiring bank must have at least “satisfactory” standing under the federal Community Reinvestment Act (discussed immediately below).
Once a bank has established branches in a state through de novo or acquired branching or through an interstate merger transaction, the bank may then establish or acquire additional branches within that state to the same extent that a bank chartered in that state is allowed to establish or acquire branches within the state.
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 generallytraditionally are critical focal points in those assessments. The next CRA assessment is expected in 2020 or 2021.
A CRA rating below “satisfactory” can slow or halt a bank’s plans to expand by branching, acquisition, or merger, and
| | | | | | | | |
| 26 | 2021 FORM 10-K ANNUAL REPORT |
can prevent a bank holding company from becoming a financial holding company. The Bank received a rating of “Satisfactory” inIn its most recent CRA assessment, issuedfor 2020, the Bank received ratings of "High
Satisfactory" in 2017.Lending and in Service, "Outstanding" in Investment, and "Satisfactory" overall.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 13
Late in 2019, certain federal regulatory agencies proposed changes to their regulations under the CRA. Although highly technical, the proposal prompted several federal legislators to submit letters in opposition. The Federal Reserve did not join the proposal, so technically the proposal does not apply to FHN or the Bank. However, this proposal could lead to some type of CRA regulatory reform that the Federal Reserve does join or, possibly, legislation amending the CRA.
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) | (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 one of the one hundred largest banks, the bank must meet the long-term debt rating or alternative standards adopted by the Federal Reserve and the U.S. Secretary of the Treasury from time to time. If this fifth requirement ceases to be met after a bank controls or holds an interest in a financial subsidiary, the bank cannot invest additional capital in that subsidiary until the requirement again is met. |
(2) The bank and its depository institution affiliates must each be well-capitalized and well-managed.
(3) The aggregate consolidated total assets of all of the bank’s financial subsidiaries must not exceed the lesser of: 45% of the bank’s consolidated total assets; or $50 billion (subject to indexing for inflation).
(4) The bank must have in place adequate policies and procedures to identify and manage financial and operational risks and to preserve the separate identities and limited liability of the bank and the financial subsidiary.
(5) If the bank is among the 100 largest banks, the bank must meet the long-term debt rating or alternative
standards adopted by the Federal Reserve and the U.S. Secretary of the Treasury from time to time. If this fifth requirement ceases to be met after a bank controls or holds an interest in a financial subsidiary, the bank cannot invest additional capital in that subsidiary until the requirement again is met.
No new activity may be commenced unless the bank and all of its depository institution affiliates have at least “satisfactory” Community Reinvestment ActCRA 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 customerclient information.
At December 31, 2019, FHN is2021, we are a financial holding company and the Bank has a number of financial subsidiaries, as discussed in “Subsidiaries” beginningSubsidiaries within this Item 1 under the Other Business Information discussion, which begins on page 8 of this report.18. Tennessee Law
Tennessee law does not expressly restrict the activities of a bank holding company or its non-bank affiliates. However, no Tennessee bank may maintain a branch office on the premises of an affiliate if the affiliate is engaged in activities that are not permissible for a bank holding company, a financial holding company, a national bank, or a national bank subsidiary under federal law. Tennessee law permits Tennessee banks to establish subsidiaries and to engage in any activities permissible for a national bank located in Tennessee, subject to compliance with Tennessee regulations relating to the conduct of such activities for the purpose of maintaining bank safety and soundness.
Interchange Fee Restrictions
Regulations severely cap interchange fees which the Bank may charge merchants for debit card transactions.
Volcker Rule
The Volcker rule (1) generally prohibits banks from engaging in proprietary trading, which is engaging as principal (for the bank’s own account) in any purchase or sale of one or more of certain types of financial
instruments, and (2) limits banks’ ability to invest in or sponsor hedge funds or private equity funds.
| | | | | | | | |
| 27 | 2021 FORM 10-K ANNUAL REPORT |
Consumer Regulation by the CFPB
The CFPB adopts and administers significant rules affecting consumer lending and consumer financial services. Key rules for the Bank include detailed regulation of mortgage servicing practices and detailed regulation of mortgage origination and underwriting practices. The latter rules, among other things, establish the definition of
a “qualified mortgage” using traditional underwriting practices involving down payments, credit history, income levels and verification, and so forth. The rules do not prohibit, but do tend to discourage, lenders from originating non-qualified mortgages.
Data PrivacySecurity & Portability
Security & Privacy
Federal law restricts the Bank’s ability to share certain information with affiliates and non-affiliates for marketing
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 14
and/or non-marketing purposes, or to contact customers with marketing offers. Federal law also 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 customersclients worldwide. Those firms have gathered large amounts of personal details about millions of people, and today have the ability to analyze that data and act on that analysis very quickly. These firms seek to understand enough about a person to know what a person wants before the person does.
Banks (as mentioned above) already are subject to significant privacy regulations. Probably for that reason, the banking industry is not at the political center of these concerns today. Even so, banks are likely to be affected by broader legislative and regulatory responses to the perceived problems. Two prominent responses to date
include the European Union General Data Protection Regulation and the California Data Privacy Protection Act. Neither is a banking industry regulation, but both apply to banks in relation to certain customers.clients. To date, neither has had a material impact on the Bank.
Portability & Client Control
Federal law restricts the Bank’s ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or to contact clients with marketing offers. Affiliate and non-affiliate sharing initiated by the Bank generally is permitted with client consent.
Increasingly, banks are being required to permit, enable, and support client control of client data, including the sharing of client data with Bank affiliates and with outside organizations. These requirements, which still are evolving, are intended to foster data portability for clients and greater competition among financial services firms. However, they also significantly increase data security risks because they create additional access channels for bad actors to try to exploit, or they make accessing existing channels easier or faster.
FDIC Insurance Assessments; DIFA
U.S. bank deposits generally are insured by the Deposit Insurance Fund (“DIF”)., administered by the FDIC. The system of FDIC insurance premium rates charged consists of a rate grid structure in which base rates range from 5 to 35 basis points annually, and fully adjusted rates range from 2.5 to 45 basis points annually. (A basis point is equal to 0.01%.) Key factors in the grid include: the institution’s risk category (I to IV); whether the institution is deemed large and highly complex; whether the institution qualifies for an unsecured debt adjustment; and whether the institution is burdened with a brokered deposit
adjustment. Other factors can impact the base against which the applicable rate is applied, including (for example) whether a net loss is realized. A basis point is equal to 0.01%.
Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by a federal bank regulatory agency.
Depositor Preference
Federal law provides that deposits and certain claims for administrative expenses and employeeassociate compensation against an insured depository institution would be afforded a priority over other general unsecured claims
against such an institution, including federal funds and letters of credit,
in the “liquidation or other resolution” of such an institution by any receiver.
| | | | | | | | |
| 28 | 2021 FORM 10-K ANNUAL REPORT |
Securities Regulation
Certain of our subsidiaries are subject to various securities laws and regulations and capital adequacy requirements promulgated by the regulatory and exchange authorities of the jurisdictions in which they operate.
Our registered broker-dealer subsidiaries are subject to the SEC’s net capital rule, Rule 15c3-1. That rule requires the maintenance of minimum net capital and limits the ability of the broker-dealer to transfer large amounts of capital to a parent company or affiliate. Compliance with
the rule could limit operations that require intensive use of capital, such as underwriting and trading.
Certain of our subsidiaries are registered investment advisers which are regulated under the Investment Advisers Act of 1940. Advisory contracts with clients automatically terminate under these laws upon an assignment of the contract by the investment adviser unless appropriate consents are obtained.
Insurance Activities
Certain of our subsidiaries sell various types of insurance as agent in a number of states. Insurance activities are subject to regulation by the states in which such business is transacted. Although most of such regulation focuses on insurance companies and their insurance products,
insurance agents and their activities are also subject to regulation by the states, including, among other things, licensing and marketing and sales practices.
Compensation and& Risk Management
The Federal Reserve has issued guidance intended to ensure that incentive compensation arrangements at financial organizations take into account risk and are consistent with safe and sound practices. The guidance is based on three “key principles” calling for incentive compensation plans to: appropriately balance risks and rewards; be compatible with effective controls and risk management; and be backed up by strong corporate governance. In response: we operate an enhanced risk management process for assessing risk in incentive compensation plans; several key incentive programs use a net profit approach rather than a revenues-only approach; and mandatory deferral features are used in several key programs, including an executive program.
In 2016 federal agencies proposed regulations which could significantly change the regulation of incentive compensation programs at financial institutions. The
proposal would create four tiers of institutions based on asset size. Institutions in the top two tiers would be subject to rules much more detailed and proscriptive than are currently in effect. If interpreted aggressively by the regulators, the proposed rules could be used to prevent, as a practical matter, larger institutions from engaging in
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 15
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. FHNWe and the Bank currently would fall into the third tier, where the impactlower of the proposed rules would be substantially more modest, and would move up to the second tier after the IBKC merger
closes.those top two tiers. However, prompted by post-2016 legislation which significantly raised several statutory asset-size tiers, if this proposal were finalized now,today, the $50 billion floor might be raised significantly, allowing FHNus to remain in the third tier. FHNWe cannot predict what final rules may be adopted, nor how they willmay be implemented.
|
| | | | |
Effect of Governmental Policies |
The Bank is affected by the policies of regulatory authorities, including the Federal Reserve, the TDFI, and the CFPB. See Supervision and Regulation beginning on page 21 for additional information. The Federal Reserve also sets and manages monetary policy for the U.S. In this latter role, the Federal Reserve’s mandate from Congress is to pursue price stability and full employment.
Among the instruments of monetary policy used by the Federal Reserve are: purchases and sales of U.S. government and other securities in the marketplace; changes in the discount rate, which is the rate any depository institution must pay to borrow from the Federal Reserve; changes in the reserve requirements of
depository institutions; changes in the rate paid on banks’ required and excess reserve deposits at the Federal Reserve; and changes in the federal funds rate, which is the rate at which depository institutions lend balances to each other overnight. These instruments are intended to influence
economic and monetary growth, interest rate levels, and inflation.
The monetary policies of the Federal Reserve and other governmental policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. Because of changing conditions in the national and international economies and in the money markets, as well as the result of actions by monetary and fiscal authorities, it is not possible to predict with certainty future changes in
| | | | | | | | |
| 29 | 2021 FORM 10-K ANNUAL REPORT |
interest rates, deposit levels, loan demand, or the business and results of our operations, of FHN and the Bank, or whether changing economic conditions will have a positive or negative effect on operations and earnings.
Additional information concerning monetary policy changes appears: under the caption Monetary Policy Shifts within the Significant Business Developments section of Item 1, which begins on page 12; under the caption Risks Associated with Monetary Events beginning on page 38 within Item 1A; and under the caption Federal Reserve Policy in Transition within the Market Uncertainties and Prospective Trends section of our 2021 MD&A (Item 7), which begins on page 99.
Bills occasionally are introduced in the United States Congress, and 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.
Sources & Availability of Funds
In all aspects of the businesses in which we engage, we face substantial competition from banks doing business in our markets as well as from savings and loan associations, credit unions, other financial institutions, consumer finance companies, trust companies, investment counseling firms, money market and other mutual funds, insurance companies and agencies, securities firms, mortgage banking companies, hedge funds, and other firms offering financial products or services.
Regional Banking
Our regional banking business primarily competes in several areas within the southeast U.S. where we have banking center locations. However, competition in our industry is trending away from the traditional geographic
footprint model. That trend is happening throughout the industry, but the rate of change is highly uneven among different types of customers, products, and services.
Our regional banking business serves both consumer and commercial customers. The consumer business remains strongly linked to our physical banking center locations, even as our delivery of financial services to consumers becomes 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 customer location. Increasingly, however, consumers are able to manage their funds and financial affairs at multiple
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 16
financial institutions through only one of them. If cross- institutional management features become popular, they may hasten a de-linking of consumers to traditional banking center networks.
The commercial business also has a geographic linkage, but it is weaker. Some areas of our commercial banking business, particularly in specialty lending, are broadly regional or even national in scope rather than being heavily centered on banking center locations.
Key traditional competitors in many of our markets include Wells Fargo Bank N.A., Bank of America N.A., First-Citizens Bank & Trust Company (dba First Citizens Bank), Pinnacle Bank (headquartered in Tennessee), Synovus Bank, Truist Bank, and Regions Bank, among many others including many community banks and credit unions. Additional key competitors in south Florida are JPMorgan Chase Bank National Association, PNC Bank National Association, and BankUnited.
A number of recent technologies created or operated by non-banks have been integrated into the financial systems used by traditional banks, such as the evolution of ATM cards into debit/credit cards and the evolution of debit/credit cards into smart phones. These sorts of incrementally evolutionary technologies often have expanded the market for banking services overall while siphoning a portion of the revenues from those services away from banks. Prior methods of delivering those services were disrupted, but often at a pace which all but the weakest banks could accommodate.
Recently, some evolutionary pressures have arisen which may prove to be less incremental and more disruptive. For example, in financial planning and wealth management, companies that are not traditional banks, including both long-established firms (such as Vanguard) and new ones (such as Betterment), have developed highly-interactive systems and applications. These services compete directly with traditional banks in offering personal financial advice. The low-cost, high-speed nature of these “robo-advisor” services can be especially attractive to younger, less-
affluent customers and potential customers. 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. Increased fluidity across traditional boundaries is likely to continue. Non-traditional companies competing with us for traditional banking products and services include investment banks, brokerage firms, insurance company affiliates, peer-to-peer lending arrangers, non-bank deposit acceptors, companies offering payment facilitation services (such as PayPal and pre-paid debit card issuers), and extremely short-term consumer loan companies.
Fixed Income
Our fixed income business serves institutional customers, broadly segregated into depositories (including banks, thrifts, and credit unions) and non-depositories (including money managers, insurance companies, governmental units and agencies, public funds, pension funds, and hedge funds). Both customer segments are widely dispersed geographically, predominantly within the U.S. We have many competitors within both segments including major U.S. and international securities firms as well as numerous regional and local firms.
Additional Information
For additional information on the competitive position of FHN and the Bank, refer to the “General” subsection above of this Item 1. Also, refer to the subsections entitled “Supervision and Regulation” and “Effect of Governmental Policies,” both of which are relevant to an analysis of our competitors. Due to the intense competition in the financial services industry we can make no representation that our competitive position has or will remain constant, nor can we predict how it may change in the future.
|
| | | | |
Sources and Availability of Funds |
Information concerning the sources and availability of funds for our businesses can be found in our 20192021 MD&A (Item 7), including the subsection entitled
“Liquidity Risk Management” beginning on pages 90 and 91 of this Report,page 95, which material is are incorporated herein by reference.
---------------------------------
Statistical Information Required by Guide 3
---------------------------------
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 17
The statistical information required to be displayed under Item 1 pursuant to Guide 3, “Statistical Disclosure by Bank Holding Companies,” of the Exchange Act Industry Guides is incorporated herein
by reference to our 2019 Financial Statements (Item 8) and our 2019 MD&A (Item 7). Certain information not contained in those Items, but required by Guide 3, is presented in the following tables.
|
| | | | | | | |
FIRST HORIZON NATIONAL CORPORATION | 30 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
ADDITIONAL GUIDE 3 STATISTICAL INFORMATIONITEM 1A. RISK FACTORS |
ON DECEMBER 31 |
(Unaudited) | |
|
| | | | | | | | | | | | |
| Investment Portfolio | | | | | |
| | | | | | | |
| (Dollars in thousands) | 2019 | | 2018 | | 2017 |
| Securities available-for-sale: | | | | | |
| Government agency issued mortgage-backed securities & collateralized mortgage obligations | $ | 4,019,009 |
| | $ | 4,378,801 |
| | $ | 4,847,234 |
|
| U.S. treasuries | | 100 |
| | 98 |
| | 99 |
|
| Other U.S. government agencies* | 306,092 |
| | 149,786 |
| | — |
|
| States and municipalities | 60,526 |
| | 32,573 |
| | — |
|
| Corporate and other debt securities | 40,540 |
| | 55,310 |
| | 55,782 |
|
| Other | 19,136 |
| | 9,902 |
| | 267,140 |
|
| | Total securities available-for-sale | $ | 4,445,403 |
| | $ | 4,626,470 |
| | $ | 5,170,255 |
|
| Securities held-to-maturity: | | | | | |
| Equity and other | $ | 10,000 |
| | $ | 10,000 |
| | $ | 10,000 |
|
| | Total securities held-to-maturity | $ | 10,000 |
| | $ | 10,000 |
| | $ | 10,000 |
|
*Includes securities issued by government sponsored entities which are not backed by the full faith and credit of the U.S. Government.
|
| | | | | | | | | | | | | | | | | | | | | | |
| Loan Portfolio | | | | | | | | | |
| | | | | | | | | | | | | |
| (Dollars in thousands) | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Commercial: | | | | | | | | | |
| | Commercial, financial, and industrial | $ | 20,051,091 |
| | $ | 16,514,328 |
| | $ | 16,057,273 |
| | $ | 12,148,087 |
| | $ | 10,436,390 |
|
| | Commercial real estate | 4,337,017 |
| | 4,030,870 |
| | 4,214,695 |
| | 2,135,523 |
| | 1,674,935 |
|
| Total Commercial | 24,388,108 |
| | 20,545,198 |
| | 20,271,968 |
| | 14,283,610 |
| | 12,111,325 |
|
| Consumer: | | | | | | | | | |
| | Consumer real estate | 6,006,749 |
| | 6,249,516 |
| | 6,479,242 |
| | 4,523,752 |
| | 4,766,518 |
|
| | Permanent mortgage | 170,390 |
| | 222,448 |
| | 287,820 |
| | 423,125 |
| | 454,123 |
|
| | Credit card and other | 495,864 |
| | 518,370 |
| | 619,899 |
| | 359,033 |
| | 354,536 |
|
| Total Consumer | 6,673,003 |
| | 6,990,334 |
| | 7,386,961 |
| | 5,305,910 |
| | 5,575,177 |
|
| | | Total Loans | $ | 31,061,111 |
| | $ | 27,535,532 |
| | $ | 27,658,929 |
| | $ | 19,589,520 |
| | $ | 17,686,502 |
|
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 18
|
| | | | | | | | | | | | |
| Short-Term Borrowings | | | | | |
| | | | | | | |
| (Dollars in thousands) | 2,019 | | 2,018 | | 2,017 |
| Federal funds purchased | $ | 548,344 |
| | $ | 256,567 |
| | $ | 399,820 |
|
| Securities sold under agreements to repurchase | 716,925 |
| | 762,592 |
| | 656,602 |
|
| Trading liabilities | 505,581 |
| | 335,380 |
| | 638,515 |
|
| Other short-term borrowings | 2,253,045 |
| | 114,764 |
| | 2,626,213 |
|
| | Total | $ | 4,023,895 |
| | $ | 1,469,303 |
| | $ | 4,321,150 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Maturities of Certificates of Deposit $100,000 and more on December 31, 2019 |
| | | | | | | | | | |
| | 0-3 | | 3-6 | | 6-12 | | Over 12 | | |
| (Dollars in thousands) | Months | | Months | | Months | | Months | | Total |
| Certificates of deposits $100,000 and more | $ | 847,872 |
| | $ | 895,228 |
| | $ | 552 |
| | $ | 421,340 |
| | $ | 2,164,992 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| Contractual Maturities of Commercial Loans on December 31, 2019 |
| | | | | | | | | | | |
| | | | | After 1 year | | After 5 years | | | | |
| (Dollars in thousands) | Within 1 year | | Within 5 years | | Within 10 years | | After 10 Years | | Total |
| Commercial, financial, and industrial | $ | 7,585,357 |
| | $ | 9,276,468 |
| | $ | 2,178,626 |
| | $ | 1,010,640 |
| | $ | 20,051,091 |
|
| Commercial real estate | 899,229 |
| | 2,583,227 |
| | 738,183 |
| | 116,378 |
| | 4,337,017 |
|
| Total | $ | 8,484,586 |
| | $ | 11,859,695 |
| | $ | 2,916,809 |
| | $ | 1,127,018 |
| | $ | 24,388,108 |
|
| For maturities over one year: | | | | | | | | | |
| | Interest rates - floating | | | $ | 8,764,153 |
| | $ | 1,615,535 |
| | $ | 812,593 |
| | 11,192,281 |
|
| | Interest rates - fixed | | | 3,095,542 |
| | 1,301,274 |
| | 314,425 |
| | 4,711,241 |
|
| Total | | | $ | 11,859,695 |
| | $ | 2,916,809 |
| | $ | 1,127,018 |
| | $ | 15,903,522 |
|
----------------
ITEMItem 1A. RISK FACTORS
----------------
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 19
This Item outlines specific risks that could affect the ability of our various businesses to compete, change our risk profile, or materially impact our operating results or financial condition. Our operating environment continues to evolve and new risks continue to emerge. To address that challenge we have a risk management governance structure that oversees processes for monitoring evolving risks and oversees various initiatives designed to manage and control our potential exposure.
This Item highlights risks that could impact us in material ways by causing future results to differ materially from
past results, by causing future results to differ materially from current expectations, or by causing material changes in our financial condition. In this Item we have outlined risks that we believe are important to us at the present time. However, other risks may prove to be important in the future, and new risks may emerge at any time. We cannot predict all potential developments that could materially affect our financial performance or condition.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 20
TABLE OF ITEM 1A TOPICS
| | | | | | | | | | | | | | | | | | | | |
| Topic | Page | | Topic | Page |
| Risks related to the Proposed TD Merger | | | Regulatory, Legislative, and Legal Risks | |
| Traditional Competition Risks | | | Risks of Expense Control | |
| Traditional Strategic & Macro Risks | | | Geographic Risks | |
| Industry Disruption | | | Insurance | |
| Operational Risks | | | Liquidity & Funding Risks | |
| Risks from Economic Downturns & Changes | | | Credit Ratings | |
| Risks Associated with Monetary Events | | | Interest Rate & Yield Curve Risks | |
| Risks Related to Businesses We May Exit | | | Asset Inventories & Market Risks | |
| Reputation Risks | | | Mortgage Business Risks | |
| Credit Risks | | | Pre-2009 Mortgage Business Risks | |
| Service Risks | | | Accounting & Tax Risks | |
| Risks related to COVID-19 Pandemic | | | Share Owning & Governance Risks | |
Risks Related to the Proposed TD Merger
The announcement and pendency of the Proposed TD Merger may adversely affect our business, financial condition, and results of operations. Uncertainty about the effect of the Proposed TD Merger on our associates, clients, and other parties may have an adverse effect on our business, financial condition, and results of operations regardless of whether the Proposed TD Merger is completed. These risks to our business include, among others, the following, all of which may be exacerbated by a delay in the completion of the Proposed TD Merger: (i) the impairment of our ability to attract, retain, and motivate its employees; (ii) the diversion of significant management time and attention from ongoing business operations towards the completion of the Proposed TD Merger; (iii) difficulties maintaining relationships with clients, suppliers and other business partners; (iv) delays or deferments of certain business decisions by our clients, suppliers and other business partners; (v) the inability to pursue alternative business opportunities or make
|
| | | | | | | |
| Topic | Page | | | Topic | Page |
| Traditional Competition Risks | 20 |
| | | Regulatory, Legislative, and Legal Risks | 29 |
|
| Traditional Strategic and Macro Risks | 20 |
| | | Risks of Expense Control | 30 |
|
| Industry Disruption | 22 |
| | | Geographic Risks | 31 |
|
| Operational Risks | 23 |
| | | Insurance | 31 |
|
| Risks from Economic Downturns and Changes | 24 |
| | | Liquidity and Funding Risks | 32 |
|
| Risks Associated with Monetary Events | 25 |
| | | Credit Ratings | 32 |
|
| Risks Related to Businesses We May Exit | 25 |
| | | Interest Rate and Yield Curve Risks | 33 |
|
| Legacy Mortgage Business Risks | 26 |
| | | Asset Inventories and Market Risks | 34 |
|
| Reputation Risks | 26 |
| | | Accounting & Tax Risks | 35 |
|
| Credit Risks | 27 |
| | | Stock-Holding and Governance Risks | 36 |
|
| Service Risks | 29 |
| | | | |
appropriate changes to our business because the TD Merger Agreement requires us to, subject to certain exceptions, conduct its business in the ordinary course of business and to not engage in certain kinds of transactions prior to the completion of the Proposed TD Merger without the prior written consent of TD (such consent not to be unreasonably conditioned, withheld or delayed), even if such actions could prove beneficial; (vi) litigation relating to the Proposed TD Merger and the costs and uncertainties related thereto; and (vii) the incurrence of significant costs, expenses, and fees for professional services and other transaction costs in connection with the Proposed TD Merger.
Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated. Before the Proposed TD Merger may be completed, various approvals, consents, and non-objections must be obtained from the Federal
|
| | | | | | | |
| 31 | 2021 FORM 10-K ANNUAL REPORT |
Reserve and various other bank regulatory, antitrust, and other authorities in the United States. In determining whether to grant these approvals, such regulatory authorities consider a variety of factors, including the regulatory standing of each party. These approvals could be delayed or not obtained at all, including due to: an adverse development in either party’s regulatory standing or in any other factors considered by regulators when granting such approvals; governmental, political or community group inquiries, investigations or opposition; or changes in legislation or the political environment generally. The Federal Reserve has stated that if material weaknesses are identified by examiners before a banking organization applies to engage in expansionary activity, the Federal Reserve will expect the banking organization to resolve all such weaknesses before applying for such expansionary activity. The Federal Reserve has also stated that if issues arise during the processing of an application for expansionary activity, it will expect the applicant banking organization to withdraw its application pending resolution of any supervisory concerns.
The approvals that are granted may impose terms and conditions, limitations, obligations, or costs, or may place restrictions on the conduct of the combined company’s business, or may require changes to the terms of the transactions contemplated by the TD Merger Agreement and related bank merger agreement. There can be no assurance that regulators will not impose any such conditions, limitations, obligations or restrictions and that such conditions, limitations, obligations or restrictions will not have the effect of delaying the completion of any of the transactions contemplated by the TD Merger Agreement and Bank Merger Agreement, imposing additional material costs on us. In addition, there can be no assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the Proposed TD Merger. Additionally, the completion of the Proposed TD Merger is conditioned on the absence of certain orders, injunctions, or decrees by any court or regulatory agency of competent jurisdiction that would prohibit or make illegal the completion of any of the transactions contemplated by the TD Merger Agreement and related bank merger agreement.
In addition, despite the parties’ commitments to use their reasonable best efforts to comply with conditions imposed by regulators, under the terms of TD Merger Agreement and related bank merger agreement, neither us nor TBD will be required, and neither party will be permitted without the prior written consent of the other party, to take actions or agree to conditions that would reasonably be expected to have a material adverse effect on the combined company and its subsidiaries, taken as a whole, after giving effect to the mergers.
The TD Merger Agreement may be terminated in accordance with its terms, and the Proposed TD Merger may not be completed. The TD Merger Agreement is
subject to a number of conditions which must be fulfilled in order to complete the Proposed TD Merger. Those conditions include: (i) the approval of the Proposed TD Merger by the requisite vote of our shareholders; (ii) the receipt of all required regulatory approvals which are necessary to close the Proposed TD Merger and the expiration of all statutory waiting periods without the imposition of any materially burdensome regulatory condition; (iii) the absence of any order, injunction, decree, or other legal restraint preventing the completion of the Proposed TD Merger or any of the other transactions contemplated by the TD Merger Agreement or by the related bank merger agreement, or making the completion of the Proposed TD Merger illegal; (iv) subject to certain exceptions, the accuracy of the representations and warranties of each party, generally subject to a material adverse effect qualification; and (v) the prior performance in all material respects by each party of the obligations required to be performed by it at or prior to the closing date.
These conditions to the closing may not be fulfilled in a timely manner or at all, and, accordingly, the Proposed TD Merger may not be completed. In addition, the parties can mutually decide to terminate TD Merger Agreement at any time, before or after shareholder approval. Also, either TD or we may elect unilaterally to terminate the TD Merger Agreement in certain circumstances.
Failure to complete the Proposed TD Merger could negatively impact us. If the Proposed TD Merger is not completed for any reason, including as a result of our shareholders failing to approve the Proposed TD Merger or as a result of failure to obtain all needed regulatory approvals, there may be various adverse consequences and we may experience negative reactions from the financial markets and from our clients and associates.
For example, our business may be impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the Proposed TD Merger. Additionally, if the TD Merger Agreement is terminated, the market price of our common stock could decline because, after announcement of the Proposed TD Merger, we expect our market price to reflect the consideration to be paid under the TD Merger Agreement; a termination of the Proposed TD Merger would likely have a negative effect on our market price. We also could be subject to litigation related to any failure to complete the Proposed TD Merger or to proceedings commenced against us to perform our obligations under the TD Merger Agreement. If the TD Merger Agreement is terminated under certain circumstances, we may be required to pay to TD a termination fee of up to $435.5 million.
Additionally, we expect to incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the TD Merger Agreement and related bank merger agreement, as well as the costs
| | | | | | | | |
| 32 | 2021 FORM 10-K ANNUAL REPORT |
and expenses of preparing, filing, printing, and mailing a proxy statement, and all filing and other fees paid in connection with the Proposed TD Merger. If the Proposed TD Merger is not completed, we would have to pay a large portion of these expenses without realizing the expected benefits of the Proposed TD Merger.
We will be subject to business uncertainties and contractual restrictions while the Proposed TD Merger is pending. Uncertainty about the effect of the Proposed TD Merger on associates and clients may have an adverse effect on us. These uncertainties may impair our ability to attract, retain and motivate key personnel until the Proposed TD Merger is completed, and could cause clients and others that deal with us to seek to change existing business relationships with us. In addition, subject to certain exceptions, we have agreed to operate our business in the ordinary course prior to the closing, and we are restricted from making certain acquisitions and taking other specified actions without the consent of TD until the Proposed TD Merger is completed. These restrictions may prevent us from pursuing attractive business opportunities that may arise prior to the completion of the Proposed TD Merger.
The TD Merger Agreement contain provisions that could discourage a potential competing acquirer that might be willing to pay more to acquire or merge with us. The TD Merger Agreement contains provisions that restrict our ability to, among other things, initiate, solicit, knowingly encourage or knowingly facilitate, inquiries or proposals with respect to, or, subject to certain exceptions generally related to the exercise of fiduciary duties by our board of directors, engage in any negotiations concerning, or provide any confidential or nonpublic information or data relating to, any alternative acquisition proposals. These provisions, which include a termination fee of up to
$435.5 million payable by us under certain circumstances, might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of us from considering or proposing that acquisition even if, in the case of a potential acquisition of us, it were prepared to pay consideration with a higher per share price to our shareholders than what is contemplated in the Proposed TD Merger, or might result in a potential competing acquirer proposing to pay a lower per share price to acquire us than it might otherwise have proposed to pay.
Shareholder litigation could prevent or delay the completion of the Proposed TD Merger or otherwise negatively impact our business and operations. One or more of our shareholders may file lawsuits against us and/or our directors and officers in connection with the Proposed TD Merger. One of the conditions to the closing is that no order, injunction, or decree issued by any court or governmental entity of competent jurisdiction or other legal restraint preventing the consummation of the Proposed TD Merger or any of the other transactions contemplated by the TD Merger Agreement and related bank merger agreement be in effect. If any plaintiff were successful in obtaining an injunction prohibiting us from completing the Proposed TD Merger, then such injunction may delay or prevent the effectiveness of the Proposed TD Merger and could result in significant costs to us, including any cost associated with the indemnification of directors and officers of each company. If a lawsuit is filed, we may incur costs in connection with the defense or settlement of any shareholder lawsuits filed in connection with the Proposed TD Merger. Such litigation could have an adverse effect on our financial condition and results of operations and could prevent or delay the completion of the Proposed TD Merger.
Traditional Competition Risks
We are subject to intense competition for customers,clients, and the nature of that competition is changing quicklyquickly.. Our primary areas of competition for customersinclude: consumer and commercial deposits, commercial loans, consumer loans including home mortgages and lines of credit, financial planning and wealth management, fixed income products and services, title insurance services, and other consumer and commercial financial products and services. Our competitors in these areas include national, state, and non-US banks, savings and loan associations, credit unions, consumer finance companies, trust companies, investment counseling firms, money market and other mutual funds, insurance companies and agencies, securities firms, mortgage banking companies, hedge funds, and other financial services companies (traditional and otherwise) that serve the markets which we serve.in our markets. The emergence of non-traditional, disruptive service providers (see “Industry Disruption”Industry Disruption within this Item
1A beginning on page 22)35) has intensified the competitive environment. Some competitors are traditional banks, subject to the same regulatory framework as we are, while others are not banks and in many cases experience a significantly different or reduced degree of regulation. Long-standing examplesExamples of less-regulated activityactivities include check-cashing and
services, independent ATM services. A recent example of unregulated activity is so-calledservices, and “peer-to-peer” lending, where investors provide debt financing and/or other capital directly to borrowers.
We expect that competition will continue to grow more intense with respect to most of our products and services.Heightened competition tends to put downward pressure on revenues from affected items, upward pressure on marketing and other promotional costs, or both. For additional information regarding competition for customers,
| | | | | | | | |
| 33 | 2021 FORM 10-K ANNUAL REPORT |
clients, refer to “Competition”Competition within Item 1 beginning on page 16 of this report. We compete for talent.for talent. Our most significant competitors for customersclients also aretend to be our most significant competitors for top talent. See “Operational Risks”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 2346 of this Item 1A for additional information concerning this risk. We competeto raisecapitalin the equity and debt markets. See “Liquidity and Funding Risks” beginning on page 32 of this Item 1A for additional information concerning this risk.
|
| | | | |
Traditional Strategic andTraditional Strategic & Macro Risks |
We may be unable to successfully implement our strategy to operate and grow our commercialregional and consumerspecialty banking businesses and our fixed income business. businesses.Although our current strategy is expected to evolve as business conditions change, at presentin 2022 our strategy is primarilyprimary strategies are to (1) invest resources in our banking businesses before and fixed income businesses. Growthafter we complete the integration of the businesses and operations of First Horizon and IBKC, (2) seek to exploit opportunities for cost and revenue synergies, (3) seek to exploit growth opportunities, especially within the markets we serve, and (4) seek to exploit opportunities to cut cost without significant revenue impact. Organic growth, including exploitation of revenue synergies, is expected to be coordinated
with a focus on strong and stable returns on capital. In
Organically, over the past fourseveral years we have mixed organic growth with tactical acquisitions and a strategic acquisition (Capital Bank). In 2020 we expect to close a tactical acquisition of 30 bank branches and a strategic merger-of-equals with IBKC.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 21
Organically, we have enhanced our market share in our traditionalregional banking markets with targeted hires and marketing, expanded into other southeast U.S. markets with similar characteristics, and expanded withwe invested resources in specialty commercial lending and private client bankingbanking. After the completion of the IBKC merger in 2020, we started to invest significantly in new platforms and processes to modernize legacy operations, provide a better client experience, reduce ongoing operating costs, and support future growth of the combined franchise. We expect investments of that sort to continue in 2022. Investments of that sort are expensive in the Houston, Texas market. We have made similar moves innear term; although we believe they are necessary for our fixed income business.future and are appropriate for our company at this time, the financial returns on these investments are highly uncertain.
In the future more generally, we expect to continue to nurture profitable organic growth, especially after we combine and integrate the 30 branches and IBKC with our existing banking centers and operations.growth. We may pursue other acquisitions or strategic transactions if appropriate opportunities, within or outside of our current markets, present themselves.
The TD Merger Agreement restricts us from making certain acquisitions and taking other specified actions while the Proposed TD Merger is pending without the consent of TD, and requires us to operate in the ordinary course of business. These restrictions may prevent us from pursuing attractive business opportunities that may arise prior to the completion of the Proposed TD Merger or may otherwise adversely affect our ongoing business and operations. See Risks Related to the Proposed TD Merger beginning on page 31 for a discussion of additional risks related to the Proposed TD Merger. .
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 customersclients in our banking market areas;
•our ability to achieve and maintain growth in our earnings while pursuing new business opportunities;
in our fixed income business, our ability to maintain or strengthen our existing customer relationships while at the same time identifying and successfully executing upon opportunities to provide new or existing products and services to new or existing customers;
•our ability to maintain a high level of customerclient service while optimizing our physical banking center count due to changing customerclient demand, all while expanding our remote banking services and expanding or enhancing our information processing, technology, compliance, and other operational infrastructures effectively and efficiently;
•our ability to manage the liquidity and capital requirements associated with growth, especially organic growth and cash-funded acquisitions; and
•our ability to manage effectively and efficiently the changes and adaptations necessitated by a complex, burdensome, and evolving regulatory environment.
We have in place strategies designed to achieve those elements that are significant to us at present. Our challenge is to execute those strategies and adjust them, or adopt new strategies, as conditions change.
Failure to achieve one or more key elements needed for successful business acquisitions would adversely affect our business and earnings. ToIn relation to the IBKC merger and the 30-branch acquisition that we closed in 2020, and to the extent we engage in future bank or non-bank business acquisitions, (including the two currently pending), we face various additional risks, including:
•our ability to realize planned or hoped-for 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;
| | | | | | | | |
| 34 | 2021 FORM 10-K ANNUAL REPORT |
•our ability to integrate the acquired business’ operations, customers,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 customersclients and key employees.associates.
In fourth quarter 2019, we re-branded our businesses and began re-branding our banking centers. That effort makes us somewhat more sensitive, for a time, to the risk that customers will experience confusion or “branding fatigue,” whichThese risks may be exacerbated in 2020 when we completeby the re-branding of our banking centers, convert the 30 acquired branches, and begin to convert IBKC businesses and locationsProposed TD Merger. See Risks Related to the First Horizon brands. Proposed TD MergerFortunately, some beginning on page 31 for a discussion of additional risks related to the 30 branches, and most of IBKC’s branches, do not overlap with our banking center markets, which should help mitigate ill effects.Proposed TD Merger.A type of strategic acquisition-aacquisition—a so-called “merger of equals” where the company we nominally acquire has similar size, operating contribution, or value-presentsvalue—presents unique opportunities but also unique risks.Those special risks which are present in the IBKC transaction, include:
•the potential for elevated and duplicative operating expenses if we are unable to integrate the two companies efficiently in a reasonable amount of time; and
•the potential for a significant increase in the time horizon that may be needed before substantial economies of scale can be realized or substantial revenue synergies can be developed effectively.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 22
Through technological innovations and changes in customerclient habits, the manner in which customersclients 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 customerclient 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 are beginning to compete much more directly with traditional financial services companies in areas involving personal advice, including high-margin services such as financial planning and wealth management. The low-cost, high-speed nature of these “robo-advisor” services can be especially attractive to younger, less-affluent customersclients and potential customers,clients, as well as persons interested in “self-service” investment management. Other industry changes, such as zero-commission trading offered by certain large firms able to use trading as a loss-leader, may amplify this trend.
Similarly, inventions based on blockchain technology eventually may be the foundation for greatly enhancing transactional security throughout the banking industry, but also eventually may greatly reducedecentralize financial services, reducing the needdemand for banks as financialsecure deposit-keepers and financial intermediaries.
We believe that, over the course of the technology-driven evolution of our industry which is well underway, the “winners” will be those institutions which can know their customersclients and make those customersclients feel they are known, even when many customersclients increasingly do not visit banking centers or have face-to-face live interaction. Two keys to achieving a psychological connection with such customersclients are (1) data management and analytics, using artificial intelligence processes, which allow an institution to provide a differentiated, personalized experience for the customerclient at the point of interaction, and (2) seamless integration of real-time customerclient contact with a human being through voice, chat, or otherwise.other means.
A critical factor in successful data analytics, allowing real-time differentiated interaction with customers,clients, is how traditionally uncaptured, unstructured, or siloed data is
| | | | | | | | |
| 35 | 2021 FORM 10-K ANNUAL REPORT |
acquired, managed, and accessed. SomeWhile many banks are experimenting with different methods of addressingattempting to address this business need and morein various ways, it remains unclear which approaches will follow.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 customerclient contact in a manner which most customersclients 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 customer’sclient’s differentiated experience with us by recognizing and responding to customerclient needs.
Technological innovation has tended to reduce barriers to entry based on cost. Put another way, once someone finds a new, better method to accomplish a task in our industry, often others are able to replicate or improve on that method, sometimes quite rapidly. Key risks for us, therefore, are whether we will be able: to catch up to breakthroughs quickly enough to avoid customerclient attrition; to adopt and enhance breakthroughs frequently enough, and without significant technical failures, to attract customersclients from competitors; and, if we are able to truly innovate, to press our advantage quickly before competitors adopt it.
To thrive as our industry is disrupted, we will need to embrace some of the attitudes of a technology company,
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 23
and shed some of the traditional attitudes of a traditional bank.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 customersclients experience working with us and our systems, including those customersclients who still want traditionally-delivered services, those who seek and embrace the latest innovations, and those who just want services to be convenient, personalized, and understandable.
Just as disruptive business changes driven by new technologies and new customerclient preferences can adversely impact us and our entire industry, similar events can adversely impact our commercial customers.
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.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 customers,clients, we may experience elevated loan losses and loss of ongoing business which we may not be able to recapture with new customers.clients.
Fraud is a major, and increasing, operational risk for us and all banks. Two traditional areas, deposit fraud (check kiting, wire fraud, etc.) and loan fraud, continue to be major sources of fraud attempts and actual loss. The methods used to perpetrate and combat fraud continue to evolve as technology changes. In addition to cybersecurity risk (discussed below), new technologies have made it easier for bad actors to obtain and use client personal information, mimic communications and signatures, and otherwise create false instructions and documents that appear genuine.
Our anti-fraud actions are both preventive (anticipating lines of attack, educating employeesassociates and customers,clients, etc.) and
responsive (remediating(detecting, halting, and remediating actual attacks). Our regulators require us and all banks to report fraud promptly. Regulatorspromptly, 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
| | | | | | | | |
| 36 | 2021 FORM 10-K ANNUAL REPORT |
physical, operational, information technology, or other processes; faulty or disabled computer or other technology systems; fraud, theft, physical security breaches, electronic data and related security breaches, or other criminal conduct by employeesassociates 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.vice-versa. Also, our efforts to control expenses, which is a significant priority for us, increases our operational challenges as we strive to maintain customerclient service and compliance at high quality and low cost.
A seriousAn information technology security (cybersecurity) breach or other incident can cause significant damage, and at the same timecan 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 customers,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 employees, customers,associates, clients, and certain vendors, all of whom legitimately have access to some portion of our systems, as well as outsiders with no legitimate access.
Cybersecurity incidents happen frequently; they are an unavoidable part of doing business. Often, but not always, we detect and block the attempt. Often, but not always, the number of clients impacted is modest and our loss is minimal or none. Even with significant loss prevention and mitigation systems, the risk of a financially or reputationally significant incursion cannot be eliminated. Common categories of cybersecurity incidents relevant to us, as a bank, include: account takeover, client spoofing, and payment fraud; ransomware and other malware; client interface attacks (attempts to shut down or slow down our website or mobile app); and cloud (remote server) incursions. Common vulnerabilities include: clients and associates that fall victim to malicious emails or other communications and inappropriately share credentials allowing access to accounts or systems; older software or systems that do not have up-to-date security and are not sufficiently isolated from other systems; third-party software vulnerabilities; and third-party systems vulnerabilities. We believe the bad actors have a range of motivations, including: illegal profit; politically or geopolitically motivated disruption; and vandalism. Bad actors can range from amateurs to criminal organizations to nation-states.
Because of the potentiallypotential 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 have tomust comply with applicable banking and other regulations pertaining to bank safety and customerclient 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 employeesassociates to recognize red flags associated with fraud, theft, and other electronic crimes, and we educate our customersclients as well through regular and episodic security-oriented communications. We expect our systems and regulatory requirements to continue to evolve as technology and criminal techniques also continue to evolve.
The operational functions we outsource to third parties may experience similar disruptions that could adversely impact us and over which we may have limited control and, in some cases, limited ability to obtain an alternate vendor quickly. To the extent we rely on third party vendors to perform or assist operational functions, the challenge of managing the associated risks may become more difficult. We manage this risk by assessing the adequacy of cybersecurity prevention and detection systems and programs of critical vendors.
The operational functions of business counterparties, or businesses with which we have no relationship, may experience disruptions that could adversely impact us and over which we may have limited or no control. Although these events cannot be predicted individually, over time and in the aggregate they happen as surely as loan losses. For example, in recent years severalwhen a major U.S. retailers,consumer-oriented firm experiences a major electronic mail provider, and a major credit reporting
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 24
firm all experienced data systems incursions reportedlyincursion resulting in the theftstheft of credit and debit card information, online account information, and other data, ofit impacts thousands or sometimes millions of customers. Retailer incursions affect cards issued and deposit accounts maintained bypeople. Frequently, many banks, includingof those affected are our Bank.clients. Although our systems are not breached in retailerby third-party incursions, these events can increase account fraud and can cause us to reissue a significant number of account cards and take other costly steps to avoid significant theft loss to our Bank and our customers.clients. Our ability to recoup our losses may be limited legally or practically in many situations. Other possiblePossible points of incursion or disruption not within our control include retailers, utilities, insurers, health care service providers, internet service and electronic mail providers, social media portals, distant-server (“cloud”) service providers, electronic data security providers, telecommunications companies, and smart phone manufacturers.
Failure to build and maintain, or outsource, the necessary operational infrastructure, failure of that infrastructure to perform its functions, or failure of our disaster preparedness plans if primary infrastructure components suffer damage, can lead to risk of loss of service to customers,clients, legal actions, and noncompliance with applicable regulatory standards. Additional information concerning operational risks and our management of them, all of which is incorporated into this Item 1A by this
| | | | | | | | |
| 37 | 2021 FORM 10-K ANNUAL REPORT |
reference, appears under the caption “OperationalOperational Risk Management”Management beginning on page 8994 of our 20192021 MD&A (Item 7).
The delivery of financial services to customersclients and others increasingly depends upon technologies, systems, and multi-party infrastructures which are new, creating or enhancing several risks discussed elsewhere.Examples of the risks created or enhanced by the widespread and rapid adoption of relatively untested technologies include: security incursions; operational malfunctions or other disruptions; and legal claims of patent or other intellectual property infringement.
Competition for talent is substantial and increasing. Moreover, revenue growth in some business lines increasingly depends upon top talent.talent. In recent years the cost to us of hiring and retaining top revenue-producing talent has increased, and that trend is likely to continue. The primary tools we use to attract and retain talent are: salaries; commission, incentive, and retention compensation programs; retirement benefits; change in control severance benefits; health and other welfare benefits; and our corporate culture. To the extent we are
unable to use these tools effectively, we face the risk that, over time, our best talent will leave us and we will be unable to replace those persons effectively.
Incentives might operate poorly or have unintended adverse effectseffects.. 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-whereprogram—where goals are too difficult, too easy, or not well related to desired outcomes-couldoutcomes—could provide little useful motivation to key employees,associates, could increase turnover, and could impact customerclient 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.
|
| | | | |
Risk from Economic Downturns andRisks 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 customersclients 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.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 25
|
| | | | |
| Risks Associated with Monetary Events |
The Federal Reserve has implemented significant economic strategies that have impacted interest rates, inflation, asset values, and the shape of the yield curve. These strategies have had, and will continue to have, a significant impact on our business and on many of our customers. clients.In To illustrate: in response to the recession in 2008 and the following uneven recovery, the Federal Reserve implemented a series of domestic monetary initiatives designed to lower rates and make credit easier to obtain. The Federal Reserve changed course in 2015, raising rates fiveseveral times by 2017, in each case by a modest 25 basis points. It then raised rates four times, for a total of 100 basis points, inthrough 2018. The last two raises were followed by substantial volatilityraise in the U.S. stock market, and the last raise2018 was accompanied by a substantial and broad stock market
decline. In 2019 the Federal Reserve changed course again, cuttingbegan to lower rates. In 2020, in response to economic disruption associated with the COVID-19 pandemic, the Federal Reserve quickly reduced short-term rates a total of 75 basis points.to extremely low levels and acted to influence the markets to reduce long-term rates as well. During 2021, the first two months of 2020,Federal Reserve significantly reduced its "easing" actions that held down long-term rates. For 2022, the Federal Reserve has signaled no clear up or down intentions forindicated that it expects to end all easing and to begin raising short-term rates, indicating that future actions will depend uponsubject in all events to changes in economic data.
| | | | | | | | |
| 38 | 2021 FORM 10-K ANNUAL REPORT |
Normalizing (raising) interest rates in 2022, and possibly later, is likely to have several significant impacts on our businesses even if (as expected) rates remain low by historical norms. Key among those: (1) income from loans should increase, but so should our cost of deposits, and the levels or timing of those two increases may be uneven or unsynchronized so that our net interest margin could become less predictable during the transition period; (2) a key negative feature of the past low-rate environment has been a flatter than normal yield curve, and although it is possible rising rates will steepen the curve, it is also possible that the yield curve will flatten (see the next paragraph) or fluctuate unpredictably during the transition period; (3) higher rates, rising rates, and a flatter yield curve each tend to adversely impact our fixed income revenues; and (4) higher rates tend to adversely impact three mortgage-related businesses, consisting of origination, title services, and lending to mortgage companies, and changes in those businesses can be significant and sudden in reaction to changes in mortgage rates.
Recent statements by the Federal Reserve indicate an expectation to reduce its asset holdings in 2022, which will put upward pressure on long-term interest rates. We believe these statements were driven by a concern that, as short and long rates rise, short rates will rise faster, resulting in a flatter yield curve. Reducing the Federal Reserve's asset holdings would be intended to blunt that flattening.
The discussion above is qualified by several key unknowns: (1) although the Federal Reserve can directly change extremely short-term interest rates, its ability to affect long-term rates is indirect and tempered by market forces it cannot control; (2) we do not know what the Federal Reserve actually will do since all statements of possible or expected future actions are subject to future economic events and data; (3) the U.S. economy is in a transitional period, and economic events and data have frequently defied prediction over the past few quarters; and (4) even if overall events and trends follow current expectations, interest rates and the yield curve could experience periods of volatility as short-term economic imbalances work themselves out in the markets.
Additional information concerning these monetary policy transition risks is presented: under the caption Cyclicality within the Other Business Information section of Item 1, which starts on page 18; within the Effect of Governmental Policies and Proposals section of Item 1 beginning on page 29; in Interest Rate and Yield Curve Risks beginning on page 48; and under the caption Federal Reserve Policy in Transition within the Market Uncertainties and Prospective Trends section of our 2021 MD&A (Item 7), beginning on page 99. Federal Reserve strategies can, and often are intended to, affect the domestic money supply, inflation, interest rates, and the shape of the yield curve.Effects on the yield curve often are most pronounced at the short end of the curve, which is of particular importance to us and other banks. Among other things, easing strategies are intended to lower interest rates, flatten the yield curve, expand the money supply, and stimulate economic activity, while tightening strategies are intended to increase interest rates, steepen the yield curve, tighten the money supply, and restrain economic activity.
Many external factors may interfere with the effects of these plans or cause them to be changed, sometimes quickly. Such factors include significant economic trends or events as well as significant international monetary
policies and events. Such strategies also can affect the U.S. and world-wide financial systems in ways that may be difficult to predict. Risks associated with interest rates and the yield curve are discussed in this Item 1A under the caption
“InterestInterest Rate and Yield Curve Risks”Risks beginning on page 33.48.We may be adversely affected by economic and political situations outside the U.S. The U.S. economy, and the businesses of many of our customers,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 Central and South America. Although we have littleour 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 (i)(1) sovereign debt default (default by one or more governments in their borrowings), (ii)(2) bank and/or corporate debt default, (iii)(3) market and other liquidity disruptions, and, if stresses become especially severe, (iv)(4) the collapse of governments, alliances, or currencies, and (v)(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 customers;clients; impacts upon the U.S. economy, especially in the areas of employment rates, real estate values, interest rates, and inflation/deflation rates; and impacts upon us from our regulatory environment, which can change substantially and unpredictably from possible political response to major financial disruptions.
|
| | | | |
| Risks Related to Businesses We May Exit |
We may be unable to successfully implement a disposition or wind-down of businesses or units which no
longer fit our strategic plans.We could haveconsider possible closures and divestitures as we continue to adapt to a
| | | | | | | | |
| 39 | 2021 FORM 10-K ANNUAL REPORT |
changing business and regulatory environment. Actions of this sort typically are elevated in the first few years after a significant merger. Following our 2017 merger with Capital Bank Financial, we closed/consolidated several banking locations and we sold a few of the smaller operating businesses that did not fit well with our strategic outlook. In 2021 we closed/consolidated several dozen banking locations in the wake of the 2020 IBKC merger, and other exiting actions may follow. Key risks associated with exiting a business include:
•our ability to price a sale transaction appropriately and otherwise negotiate acceptable terms;
•our ability to identify and implement key customer,client, personnel, technology systems, and other transition
avoid or minimize negative effects on retained businesses;
•our ability to mitigate the loss of any pretax income that the exited business produced;
•our ability to assess and manage any loss of synergies that the exited business had with our retained businesses; and
•our ability to manage capital, liquidity, and other challenges that may arise if an exit results in significant legacy cash expenditures or financial loss.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 26
|
| | | | |
Legacy Mortgage BusinessReputation Risks |
We have risks from the mortgage-related businesses we exited, including mortgage loan repurchase and loss-reimbursement risk, claims of improper foreclosure practices, claims of non-compliance with contractual and regulatory requirements, and the risk of higher default rates on loans made by our former businesses. In 2008 we exited our national mortgage and related lending businesses. However, in our non-strategic segment we still retain as assets a significant amount of loans that those businesses created. Most of those loans are secured by residential or other real estate situated across the U.S. We retain the risk of liability to customers and contractual parties with whom we dealt in the course of operating those businesses. These legacy assets and obligations continue to impose risks on us. Key risks include:
We are contending with, and defending litigation matters associated with, indemnity claims arising out of our former (pre-2009) mortgage origination and sale activities. The outcome of those matters is uncertain; losses in excess of current accruals (reserves) could be material. Although some types of new claims and actions no longer are legally viable due to the passage of time, others could still arise.
We could be subject to claims that servicing-related actions were done improperly, or improperly were not done. Although we may be able to demand indemnity in cases where servicing was performed on our behalf by another institution, there is risk that such an indemnity demand could be refused by the institution or rejected by an appropriate court.
Additional information concerning risks related to our former mortgage businesses and our management of them, all of which is incorporated into this Item 1A by this reference, is set forth: under the captions “Repurchase Obligations, Off-Balance Sheet Arrangements, and Other Contractual Obligations” beginning on page 93, “Obligations from Pre-2009 Mortgage Businesses” beginning on page 93, “Repurchase Accrual Methodology” beginning on page 93, “Foreclosure Practices” beginning on page 96, and “Contingent Liabilities” beginning on page 99 of our 2019 MD&A (Item 7); and under the captions “Material Matters” and “Exposures from pre-2009 Mortgage Business,” both beginning on page 173, within Note 17-Contingencies and Other Disclosures, of our 2019 Financial Statements (Item 8).
We have exposures related to the mortgage servicing obligations and assets which we retained after we generally sold our mortgage businesses in 2008, especially in relation to the subservicing arrangements we made between 2008 and the sale of substantially all our remaining servicing assets completed in 2014. When we sold our origination and servicing businesses in 2008 we retained significant servicing obligations and assets. Since then we engaged subservicers to provide loan servicing to borrowers and trustees on our behalf when we have been unable to divest those obligations. Complaints against the servicing provided often are directed first to us, as the servicer of record.
Additional information concerning risks related to former servicing and foreclosure practices and our management of them, all of which is incorporated into this Item 1A by this reference, is set forth under the captions “Repurchase Accrual Methodology” beginning on page 93, “Foreclosure Practices” beginning on page 96, and “Contingent Liabilities” beginning on page 99 of our 2019 MD&A (Item 7; and under the caption “Exposures from pre-2009 Mortgage Business” beginning on page 173, within Note 17-Contingencies and Other Disclosures, of our 2019 Financial Statements (Item 8).
Several large purchasers of mortgage-backed securities have filed suits against the trustees for those securitizations asserting various theories of liability. The trustee of our securitizations is defending such matters, and many of our securitizations are among those alleged to have been purchased by the plaintiffs. The claims for damages are based in part on allegations that the trustee did not properly or timely act against the originators of the securitizations or the servicers of the loans, and further assert that the trustee has affirmative duties to act which were not set forth in the legal trust documents. Some of the legal theories advanced are untested or unsettled. Although we are not a defendant in these proceedings, these complex suits may progress or evolve so as to compel us to defend ourselves or our trustee, and could create financial exposure for us.
Our ability to conduct and grow our businesses, and to obtain and retain customers,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,
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 27
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 customersclients 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 employees,associates, among other things. Adverse impacts on our reputation, or the reputation of our industry, also may result in greater regulatory and/or legislative scrutiny, which may lead to laws or regulations that change or constrain our business or operations. Events that result in damage to our reputation also may increase our litigation risk.
Political and social fragmentation in the U.S., combined with access to social media platforms, can increase reputation risk in ways that might not be easily avoided by traditional means. The predominant culture within the banking industry remains traditional: in order to preserve their business reputations, banks generally prefer to avoid
direct, public involvement in political or social controversy. Increasingly, though, certain groups-havinggroups—having highly specific political or social agendas and with the ability to communicate their views effectively using social media platforms-haveplatforms—have made it more difficult to maintain a traditional approach. One group, for example, may publicly criticize a bank for having, as a customer,client, a business which “exploits” persons of limited financial means, while another group may criticize a bank for failing to have, as a customer,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 customerclient based on the customer’sclient’s industry or a specific business practice because that industry or practice, though legal, is objectionable to that group. While the potential for such demands has always existed, special interest groups today are more able and willing to publicize their criticisms, and some are willing to use factual exaggerations and inflammatory language in stating their views to the public. Those criticisms, in turn, ultimately may be acted upon by legislators or regulators.
We face the risk that our customersclients may not repay their loans and that the realizable value of collateral may be insufficient to avoid a charge-off. We also face risks that other counterparties, in a wide range of situations, may fail to honor their obligations to pay us. In our business some level of credit charge-offs is unavoidable and overall levels of credit charge-offs can vary substantially over time. In the most recentlast pre-COVID credit cycle, net charge-offs
were $131.8$132 million in 2007, and increased to $572.8$573 million and $832.3$832 million in 2008 and 2009, respectively. Beginning in 2010, net charge-offs began to decline, $12.5reaching $13 million inby 2017 $16.1 million in 2018, and $27.1 million inremaining historically very low through 2019. In recent years, our loan loss reserves also have declined from high levels. The allowance for loan loss was $200.32020, net charge-offs unexpectedly rose to $120 million, as of December 31, 2019, down substantially from $896.9driven strongly by the COVID-induced recession starting in March. Net charge-offs in 2021 fell sharply to $2 million, and $849.2 million at year-end 2009 and 2008, respectively. We have experienceda very low levelslevel historically. We
| | | | | | | | |
| 40 | 2021 FORM 10-K ANNUAL REPORT |
believe this favorable outcome was substantially affected by our client selection and underwriting processes, along with our willingness to work with borrowers throughout the pandemic. We do not think it likely that net charge-offs in recent years, and have experienced some loan-loss recoveries from loans that were charged off during the last down cycle. Net charge-offs should increasefuture will remain at some point when the credit cycle moves into its next phase.2021's low level.
Our ability to manage credit risks depends primarily upon our ability to assess the creditworthiness of loan customersclients 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 “AccountingAccounting & Tax Risks” Risks beginning on page 35,51, these guidelines and rules could change and cause provision expense or charge-offs to be more volatile, or to be recognized on an accelerated basis, for reasons not always related to the underlying performance of our portfolio. (InIn fact, as mentioned there, starting January 1,in 2020, such an accounting change is applicable to us.)was made and, when the COVID recession occurred starting in March, provision for credit losses significantly increased. Moreover, the SEC or PCAOB could take accounting positions applicable to our holding company that may be inconsistent with those taken by the Federal Reserve OCC, or other banking regulators. A significant challenge for us is to keep the credit and other models and approaches we use to originate and manage loans updated to take into account changes in the competitive environment, in real estate prices and other collateral values, in the economy, and in the regulatory environment, among other things, based on our experience originating loans and servicing loan portfolios. Changes in modeling could have significant impacts upon our reported
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 28
financial results and condition. In addition, we use those models and approaches to manage our loan portfolios and lending businesses. To the extent our models and approaches are not consistent with underlying real-world conditions, our management decisions could be misguided or otherwise affected with substantial adverse consequences to us. A recent and still-current example of challenges we face in modeling stems from the COVID-19 pandemic and its related impacts on clients, the economy, and governmental interventions and accommodations.
The recent low-interest rate environment has elevated the traditional challenge for lenders and investors to balance taking on higher risk against the desire for higher income or yield. This challenge applies not only to credit
risk in lending activities but also to default and rate risks regarding investments.
IfWhen interest rates eventually rise, default risk likely also rises. will rise.As borrowers’ obligations to pay interest increase, financial weaknesses generally become more evident. Initially this results in lower consumer credit scores and lower commercial loan grading, and later results in higher default rates.
CreditRealized credit losses tend to increase and decrease in a cyclical manner. Althoughmanner, although the duration and timing of any given credit cycle is impossible to predict accurately, it is clear thataccurately. Through 2019 we and other U.S. banks recently have experienced an extended period of very low credit losses.
The credit cycle was disrupted by COVID-19. Our expectation for loan losses in 2020 rose sharply with the COVID-19 pandemic and that period followed several yearsits 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 extremely high losses. It is inevitable thatthe 2020 loss reserves were released, resulting in provision credits (negative expenses). We do not know what the new “normal” level of provision for credit lossesloss will rise well beyond currentbe 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 when the next cycle begins.experienced before 2020 were historically unusual and might not be repeated. It is extremely difficult for banks, and for investors, to know when an uptick in credit loss is merely idiosyncratic or instead portends a major credit cycle change.
Based on the foregoing discussions, we expect loan loss provision expense and net charge-offs to be higher than 2021 during the next several years. We hope to offset that headwind with loan growth and, if interest rates rise and the yield curve steepens, higher margins. Loan growth in 2022 will be blunted by run-off of pandemic-era short-term lending under special government programs, and may be blunted if rates rise too much or too quickly.
The composition of our loan portfolioloans inherently increases our sensitivity to certain credit risks.At December 31, 2019,2021, approximately 65%57% of total loans and leases consisted of the commercial, financial, and industrial (C&I) category,portfolio, while approximately 19%20% consisted of the consumer real estate category.portfolio.
The largest component of the C&I categoryportfolio at year end was loans to mortgage companies, a component which represented about 22%15% of the C&I categoryportfolio at that time. The second largest component was loans to finance and insurance companies. As a result, approximately 36%26% of the C&I categoryportfolio 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
| | | | | | | | |
| 41 | 2021 FORM 10-K ANNUAL REPORT |
real estate and other asset values, and changes in general economic conditions, than many other industries. Negative impacts on the industry could dampen new lending in these lines of business and could create credit impacts for the loans in our portfolio.
The consumer real estate categoryportfolio contains a number of concentrations which affect credit risk assessment of the category.
portfolio.•Product concentration.The consumer real estate portfolio consists primarily of consumer installment loans, and much of the remainder consists of home equity lines of credit.
| |
• | Product concentration. The consumer real estate category consists primarily of consumer installment loans, and much of the remainder consists of home equity lines of credit.•Collateral concentration. This entire category is secured by residential real estate. Approximately 14% of the consumer real estate portfolio consists of loans secured on a second-lien basis.
•Geographic concentration. At year end, about 65% of the consumer real estate portfolio related to clients in three states: Florida, Tennessee, and Louisiana. |
| |
• | Collateral concentration. This entire category is secured by residential real estate. Approximately 20% of the category consists of loans secured on a second-lien basis.
|
| |
• | Geographic concentration. At year end about 54% of the category related to Tennessee customers, 15% related to North Carolina, 13% related to Florida, 3% related to California, and no other state represented more than 3% of the category.
|
| |
• | Legacy concentration. We still have approximately $.8 billion of loans originated before 2009 by our legacy national mortgage lending business. Those include loans we originated and did not sell, along with loans we have repurchased in the course of resolving claims with loan buyers. Our legacy loan portfolio continues to shrink, but the rate of shrinkage is slowing.
|
The consumer real estate category is highly sensitive to economic impacts on consumer customersclients and on residential real estate values. Job loss or downward job migration, as well as significant life events such as divorce, death, or disability, can significantly impact credit evaluations of the
portfolio. Also, regulatory changes, discussed above and elsewhere in this Item 1A, are more likely to affect the consumer category and our accounting estimates of credit loss than other loan types.
Volatility in the oil &and gas industry can impact us. Our Houston office specializes in commercial lending. That office significantly focuses on three areas: energy, commercial real estate (CRE), and commercial, financial, & industrial (C&I). MuchAt year-end, approximately 2% of our Houston business is connected, at least in part,total loans were directly related to the energy industry, especially oil and gas production and distribution.industry. In addition to general credit and other risks mentioned elsewhere in this Item 1A, the energy businessthese businesses and their related assets are sensitive to a number of factors specific to that industry. Key among those is global demand for energy and other products from oil and gas in relation to supply. The shifting balance between demand and supply is expressed most simply in prices. Significant oil-price volatility, such as that experienced in 2020-2021, can and often does impact our overall business in this industry by increasing provisioning and charge-offs, and by reducing demand for loans. Another set of risks specific to that industry relate to environmental concerns, including the risks of increased regulation or other governmental intervention, and the risks of adverse changes in consumption habits or public perceptions generally.
Additional information concerning credit risks and our management of them is set forth under the captions “Asset Quality-Trend Analysis of 2019 Compared to 2018”caption Asset Quality beginning on page 65, “Commercial Loan Portfolios” beginning on page 65, “Consumer Loan Portfolios” beginning on page 71, “Credit Risk Management” beginning on page 90, and “Allowance for Loan Losses” beginning on page 9773 of our 20192021 MD&A (Item 7).
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 29
Weprovidea wide range ofservices to customers,clients, and the provision of these services maycreateclaims against us thatweprovided them in a manner that harmed the customerclient or a third party, orwas not compliant with applicable laws or rules. Our services include lending, loan servicing, fiduciary, custodial, depositary, funds management, insurance, and advisory services, among others. We manage these risks primarily through training
programs, 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
“OperationalOperational Risk Management”Management and “ComplianceCompliance Risk Management”, beginning on pages 89 and 90, respectively,page 94 of our 20192021 MD&A (Item 7).
The COVID-19 pandemic has led to periods of significant volatility in financial, commodities (including oil and gas) and other markets, has adversely affected our ability to conduct normal business, has adversely affected our clients, continues to adversely impact U.S. and global manufacturing and delivery processes, and is likely to continue to harm our businesses and results of operations in ways that are difficult to predict.
Starting in late February 2020, financial market volatility increased dramatically based on concerns that COVID-19, and the steps being undertaken in many countries to mitigate its spread, would significantly disrupt economic activity. In March 2020, financial market volatility increased further, with several one-day stock market swings that resulted in significant market declines. Additionally: market pricing deteriorated in virtually all
sectors and asset classes except U.S. Treasury securities; many states and cities in the U.S. declared health emergencies, lockdowns, travel restrictions, and quarantines, prohibiting gatherings of more than a small number of people and ordering or urging most businesses and workplaces to close or operate on a very restricted basis; the Federal Reserve lowered short-term interest rates and started a “quantitative easing” program intended to lower longer-term interest rates and foster access to credit; the effective yields of 10-year and 30-year U.S. Treasury securities achieved record low rates; and the U.S. Congress enacted several relief laws. Government actions in the U.S. have included loan programs administered by banks and other private-sector lenders, liquidity programs administered by the U.S. Treasury, and favorable accounting and regulatory treatment (for lenders) of certain loan payment deferrals.
|
| | | | | | | |
Regulatory, Legislative, and Legal Risks | 42 | 2021 FORM 10-K ANNUAL REPORT |
In 2020, the economic effects of these and related actions and events in the U.S. included: large numbers of partial or full business closures; large numbers of people were furloughed or laid off; large increases in unemployment; large numbers of workers worked from home; and large numbers of consumers were unwilling to undertake significant discretionary spending. In addition, worldwide demand for oil fell, resulting in significant drops in oil prices and in the values of oil-related assets.
Starting in late 2020, and accelerating in 2021, vaccines were distributed throughout the U.S. and the physical and commercial shutdowns started to abate. Late in 2021, monoclonal antibody treatments and new anti-viral medications offered hope that infected people could avoid the worst outcomes of the virus more effectively than with earlier treatments. Additional strains of COVID-19 have emerged worldwide, a few of which have caused some earlier restrictions to reappear but without the very large economic shocks experienced in 2020. It appears likely that further new strains will continue to appear, as they do with influenza. It also appears likely that a "return to normal" in 2022 or 2023 will be uneven and delayed at best, and that "normal" behavior patterns in the U.S. may become somewhat different than they were pre-COVID.
Within the U.S., governmental reactions to the pandemic in 2021 have been, and in 2022 very likely will continue to be, inconsistent from state to state and from city to city. Worldwide, these inconsistencies have been more pronounced, including enforced quarantine of large population segments if any outbreak is detected in some countries, closed borders in some countries, and virtually no restrictions at all in some countries. This situation, coupled with unpredictable work slowdowns associated with illness outbreaks, likely has contributed significantly to global supply chain and related difficulties that were commonplace in 2021.
We are not able to predict the impact of these still-changing circumstances on our businesses. The full extent of impacts resulting from the COVID-19 pandemic and other events beyond our control will depend on uncertain future developments, including new information which may emerge concerning the severity of new COVID strains, the effectiveness of vaccines and treatments on existing and new strains, and further actions governments may take to slow the spread of the virus, treat the ill, distribute
the vaccines and treatments, and assist affected businesses.
In addition, the pandemic has resulted in modest operational disruptions for us. Clients’ physical access to banking centers has been restricted off and on in many markets, and many non-client-facing associates continued to work largely on a remote basis into early 2022. In addition, associates have become ill unpredictably, which occasionally slowed or modestly disrupted certain functions or processes. More significant disruptions in the future could adversely impact our businesses, financial condition, and results of operations.
Changes in interest rates due to Federal Reserve actions and market forces, mentioned above, negatively impacted our net interest margin (a measure of the average profit margin applicable to lending). The Federal Reserve has indicated its expectations to end easing, and begin raising short-term interest rates, in 2022, but the timing and degree of normalization cannot be predicted. Additional information is presented: under the caption Cyclicality within the Other Business Information section of Item 1, which starts on page 18; Risks Associated with Monetary Events beginning on page 38; in Interest Rate and Yield Curve Risks beginning on page 48; and under the caption Federal Reserve Policy in Transition within the Market Uncertainties and Prospective Trends section of our 2021 MD&A (Item 7), beginning on page 99. Our clients and vendors have been adversely impacted by governmental and societal responses to COVID-19. Those impacts on clients reduced noninterest income, created downward loan migration (a reduction in loan-grading), and substantially increased provision for credit losses in 2020. Another sudden adverse change in circumstances could result in another round of unexpected provision expense along with a reduction of noninterest income.
In 2022, certain commercial loans will run off, and a portion of certain deposit accounts may diminish. In 2020 and 2021, in response to the pandemic, the U.S. guaranteed a category of commercial loans under the paycheck protection program ("PPP"), and further created rounds of direct-to-citizen cash payment programs. At December 31, 2021, we had $1 billion of PPP loans outstanding, nearly all of which we expect to be paid in 2022.
Regulatory, Legislative, & Legal Risks
The regulatory environment continues to be challenging. We operate in a heavily regulated industry. Our regulatory burdens, including both operating restrictions and ongoing compliance costs, are substantial.
We are subject to many banking, deposit, insurance, securities brokerage and underwriting, investment
management, and consumer lending regulations in addition to the rules applicable to all companies publicly traded in the U.S. securities markets and, in particular, on the New York Stock Exchange. Failure to comply with applicable regulations could result in financial, structural, and operational penalties. In addition, efforts to comply with applicable regulations may increase our costs and/or
| | | | | | | | |
| 43 | 2021 FORM 10-K ANNUAL REPORT |
limit our ability to pursue certain business opportunities. See “SupervisionSupervision and Regulation” inRegulation within Item 1 of this report, beginning on page 8,21, for additional information concerning financial industry regulations. Federal and state regulations significantly limit the types of activities in which we, as a financial institution, may engage. In addition, we are subject to a wide array of other regulations that govern other aspects of how we conduct our business, such as in the areas of employment and intellectual property. Federal and state legislative and regulatory authorities increasingly consider changing these regulations or adopting new ones. Such actions could further limit the amount of interest or fees we can charge, could further restrict our ability to collect loans or realize on collateral, could affect the terms or profitability of the products and services we offer, or could materially affect us in other ways. The following paragraphs highlight certain specific important risk areas related to regulatory matters currently. These paragraphs do not describe these risks exhaustively, and they do not describe all such risks that we face currently. Moreover, the importance of specific risks will grow or diminish as circumstances change.
We and our Bank both are required to maintain certain regulatory capital levels and ratios. U.S. capital standards are discussed in Item 1 of this report, in tabular and narrative form, under the caption “Capital Adequacy” startingCapital Adequacy within the Supervision & Regulation section of Item 1 which starts on page 11.21. Pressures to maintain appropriate capital levels and address business needs in a changing economy may lead to actions that could be dilutive or otherwise adverse to our shareholders. Such actions could include: reduction or elimination of dividends; the issuance of common or preferred stock, or securities convertible into stock; or the issuance of any class of stock having rights that are adverse to those of the holders of our existing classes of common or preferred stock.
Additional information concerning these risks and our management of them, all of which is incorporated into this Item 1A by this reference, appears: under the captions “Capital Adequacy”Capital Adequacy and “PromptPrompt Corrective Action (PCA)” in within the Supervision & Regulation section of Item 1 of this report beginningwhich starts on pages 11 and 12, respectively;page 21; under the captions “Capital-2019 Compared to 2018,” “CapitalCapital, Capital Risk Management and Adequacy”, and “Market Market Uncertainties and Prospective Trends”Trends beginning on pages 63, 89,87, 94, and 96,99, respectively, of our 20192021 MD&A (Item); and under the caption “Regulatory Capital”Regulatory Capital in Note 12-Regulatory13—Regulatory Capital and Restrictions, beginning on page 164159 of our 20192021 Financial Statements (Item 8). Regulation of banks is tiered based on asset size; we are close to reaching $100 billion, which is the next tier above us. Regulatory restrictions and costs tend to increase based on asset tier. The two most significant impacts on us of crossing the $100 billion threshold are: becoming subject to Category IV enhanced prudential
standards; and becoming at-risk for being subject to a liquidity coverage ratio requirement. Additional information appears in the Supervision & Regulation section of Item 1 which starts on page 21. To reach the next tier will require only modest organic growth for another two or three years, and even a modest bank acquisition is likely to put us over $100 billion. Legal disputes are an unavoidable part of business, and the outcome of pending or threatened litigation cannot be predicted with any certainty.We face the risk of litigation from customers, employees,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 thoselitigation 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
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 30
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 “LegacyPre-2009 Mortgage Business Risks”Risks beginning on page 26 of this report;51; under the captions “RepurchaseRepurchase Obligations Off-Balance Sheet Arrangements, and Other Contractual Obligations,” “Repurchase Accrual Methodology,” “Market, Market Uncertainties and Prospective Trends”, and “Contingent Liabilities”Contingent Liabilities beginning on pages 93, 93, 96,98, 99, and 99,103, respectively, of our 20192021 MD&A (Item 7); and under the caption “Contingencies”Contingencies in Note 17-Contingencies17—Contingencies and Other Disclosures, beginning on page 172168 of our 20192021 Financial Statements (Item 8).
| | | | | | | | |
| 44 | 2021 FORM 10-K ANNUAL REPORT |
Political dysfunction and volatility within the federal government, both at the regulatory and Congressional level, creates significant potential for major and abrupt shifts in federal policy regarding bank regulation, taxes, and the economy, any of which could have significant impacts on our business and financial performance. Moreover, political conflict within and among branches of government, and within and among government agencies, can rise to a level where day-to-day functions could be interrupted or impaired.
Data privacy is becoming a major political concern. The laws governing it are new, and are likely to evolve and expand.Many non-regulated, non-banking companies have gathered large amounts of personal details about millions of people, and have the ability to analyze that data and act on that analysis very quickly. This situation has prompted governmental responses. Two prominent responses are the European Union General Data Protection Regulation and the California DataConsumer Privacy Protection Act. Neither is a banking industry regulation, but both apply to banks in relation to certain customers.clients. Further general regulation to protect data privacy appears likely,likely. Banks in the U.S. already operate under privacy-protection laws and rules, but banking industry regulations in this area might be enlarged as well.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, environmental regulations do not require us to monitor the direct or indirect greenhouse gas emissions associated with building, operating, or maintaining our physical facilities, nor are we taxed or fined in relation to those emissions, because such gases generally are not considered to be pollutants under federal law. Changing expectations could pressure us to physically measure, monitor, and curtail direct emissions and to estimate indirect emissions or impacts, and eventually could result in legal requirements to take those actions or to pay for measured or estimated emissions. Whether or not legally required, any such actions that we take would increase our operating costs. In addition, such expectations could pressure us to discontinue business relationships with certain customers,clients, or groups of customers,clients, that have suboptimal reputations for emissions.
Our ability to successfully manage expenses is important to our long-term survival and prosperitysuccess, 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-whetherchange—whether by acquisition, expansion, or contraction-additionalcontraction—additional expenses can arise from asset purchases, structural reorganization, evolving business strategies, and changing regulations, among other things.
We manage controllable expenses and risk through a variety of means, including selectively outsourcing or multi-sourcing various functions and procurement coordination and processes. In recent years we have actively sought to make strategic businesses more efficient
primarily by investing in technology, re-thinking and right-sizing our physical facilities, and re-thinking and right-sizing our workforce and incentive programs. These efforts usually entail additional near-term expenses in the form of technology purchases and implementation, facility closure or renovation costs, and severance costs, while expected benefits typically are realized with some uncertainty in the future.
We have also focused our attention on the economic profit generated by our business activities and prospects rather than emphasizing revenues or ordinary profit. Economic profit analysis attempts to relate ordinary profit to the capital employed to create that profit with the goal of achieving higher (more efficient) returns on capital
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 31
employed overall. Activities with higher capital usage bear a greater burden in economic profit analysis. The process is intended to allow us to more efficiently manage investment and utilization of resources. Economic profit analysis involves significant judgment regarding capital allocation. Mistakes in those judgments could result in a misallocationmis-allocation of resources and diminished profitability over the long run.
Despite our efforts, our costs could rise due to adverse structural changes or market shifts. For example,example: in 2021 and early 2022, compensation costs have risen markedly due to market forces beyond our control; and the overall cost of our health insurance benefit is highly dependent upon regulatory factors and market forces which also are beyond our control.
|
| | | | | | | |
Geographic Risks | 45 | 2021 FORM 10-K ANNUAL REPORT |
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 Tennesseethe south-eastern and neighboringsouth-central U.S. states where we do most of our traditionalregional banking business. If those regions of the southeastern U.S. were to experience adversity not shared by other parts of the country, we are likely to experience adversity to a degree not shared by those competitors which have a broader or different regional footprint. Examples of these kinds of risks include: earthquakes in Memphis; hurricanes in Florida, Louisiana, the Carolina coasts, or the Texas coast; a major change in health insurance laws impacting the many healthcare companies in middle Tennessee; and automotive industry plant closures.
We have international assets, mainly in the form of loans and letters of creditcredit. . Holding non-U.S. assets creates a number
number of risks: the risk that taxes, fees, prohibitions, and other barriers and constraints may be created or increased by the U.S. or other countries that would impact our holdings; the risk that currency exchange rates could move unfavorably so as to diminish the U.S. dollar value of assets, or to enlarge the U.S. dollar value of liabilities; and the risk that legal recourse against foreign counterparties may be limited in unexpected ways. Our ability to manage those and other risks depends upon a number of factors, including: our ability to recognize and anticipate differences in legal, cultural, and other expectations applicable to customers,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.
Our property and casualty insurance may not cover or may be inadequate to cover the risks that we face, and we are or may be adversely affected by a default by insurers. We use insurance to manage a number of risks, including damage or destruction of property as well as legal and other liability. Not all such risks are insured, in any given insured situation our insurance may be inadequate to cover all loss, and many risks we face are uninsurable. For those risks that are insured, we also face the risks that the insurer may default on its obligations or that the insurer may refuse to honor them. We treat the risk of default as a type of credit risk, which we manage by reviewing the insurers that we use and by striving to use more than one insurer when practical. The risk of refusal, whether due to honest disagreement or bad faith, is inherent in any contractual situation.
A portion of our consumer loan portfolio involves mortgage default insurance. If a default insurer were to experience a significant credit downgrade or were to become insolvent, that could adversely affect the carrying value of loans insured by that company, which could result in an immediate increase in our loan loss provision or write-down of the carrying value of those loans on our balance sheet and, in either case, a corresponding impact
on our financial results. If many default insurers were to experience downgrades or insolvency at the same time, the risk of a financial impact would be amplified.
We own certain bank-owned life insurance policies as assets on our books.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 employeeassociate health-insurance benefit program. We estimate future expenditures and establish accruals (reserves) based
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 32
on the estimates. If actual expenditures were to exceed our estimates in a future period, our future expenses could be adversely and unexpectedly increased.
|
| | | | |
Liquidity andLiquidity & Funding Risks |
Liquidity is essential to our business model and a lack of liquidity, or an increase in the cost of liquidity, may materially and adversely affect our businesses, results of
operations, financial conditions and cash flows. In general, the costs of our funding directly impact our costs of doing business and, therefore, can positively or
| | | | | | | | |
| 46 | 2021 FORM 10-K ANNUAL REPORT |
negatively affect our financial results. Our funding requirements in 20192021 were met principally by deposits, by financing from other financial institutions, and by funds obtained from the capital markets.
Deposits traditionally have provided our most affordable funds and by far the largest portion of funding. However, deposit trends can shift with economic conditions. If interest rates rise,fall, deposit levels in our Bank might fall, perhaps fairly quickly if a tipping point is reached, as depositors become more comfortable with risk and seek higher returns in other vehicles. This could pressure us to raise interest we pay on our deposit rates,deposits, which could shrink our net interest margin if loan rates do not rise correspondingly.
In the past three years, interest rates paid on deposits have fallen to remarkably low levels, and stock market values (broadly speaking) have climbed. Contrary to the expectations outlined in the paragraph above, deposit levels also have climbed. While difficult to explain definitively, it is possible that while a sizable portion of available capital holders are comfortable with risk in the stock markets, another sizable portion are highly risk-averse in light of the severe volatility experienced by the stock markets in 2018, 2019, and 2020. Deposit levels in 2020 and 2021 also were buoyed by Federal pandemic assistance, particularly direct cash payments to most citizens.
Deposit levels may be affected, fairly quickly, by changes in monetary policy. The Federal Reserve currently is changing monetary policy from easing to tightening. The Federal Reserve has indicated it intends to end easing, and begin tightening, based on economic events during the year, including inflationary pressures, employment data, and overall economic activity. Easing thus far has involved reducing the growth rate of the Federal Reserve's balance sheet (bond purchases), eventually to zero. If the Federal Reserve decides to shrink its balance sheet in order to quickly remove excess liquidity from the banking system, long-term interest rates may increase suddenly, and deposit levels may decrease significantly as clients move funds into bonds and similar instruments. Additional information concerning monetary policy changes appears under the caption Risks Associated with Monetary Events beginning on page 38 within this Item 1A, and under the caption Federal Reserve Policy in Transition within the Market Uncertainties and Prospective Trends section of 2021 MD&A (Item 7), which begins on page 99. The market among banks for deposits may be impacted by current capital rules.rules. Those rules generally provide favorable
treatment for core deposits. Institutions with less than $100 billion of assets are not required to maintain a minimum Liquidity Coverage ratio. At or above $100 billion, the requirement increases with size and certain activities. The largest banks, which must maintain the highest minimum ratio, may be incented to compete for core deposits vigorously. Although mid-sized banks, like ours, are only lightly impacted by this rule, if some large banks in our markets take aggressive actions we could lose deposit share or be compelled to adjust our deposit pricing and practices in ways that could increase our costs.
We also depend upon financing from private institutional or other investors by means of the capital markets. In 20152020 we issued $500and sold $150 million of preferred stock, along with a total of $1.3 billion of senior holding-company notes due 2020. The 2015 notes refinanced an earlier five-year notes issue.and subordinated notes. In 2021, we issued and sold another $150 million of preferred stock. Presently we believe we could access the capital markets again if we desired to do so. Risk remains, however, that capital markets may become unavailable to us for reasons beyond our control.
A number of more general factors could make funding more difficult, more expensive, or unavailable on affordable terms, including,terms. Theseinclude, but not limited to, our financial results, organizational or political changes, adverse impacts on our reputation, changes in the activities of our business partners, disruptions in the capital markets, specific events that adversely impact the financial services industry, counterparty availability, changes affecting our loan portfolio or other assets, changes affecting our corporate and regulatory structure, interest rate fluctuations, ratings agency actions, general economic conditions, and the legal, regulatory, accounting, and tax environments governing our funding transactions. In addition, our ability to raise funds is strongly affected by the general state of the U.S. and world economies and financial markets as well as the policies and capabilities of the U.S. government and its agencies, and may remain or become increasingly difficult due to economic and other factors beyond our control. Changes associated with LIBOR also may impact our funding ability; see Interest Rate and Yield Curve Risks beginning on page 48. Events affecting interest rates, markets, and other factors may adversely affect the demand for our products and services in our fixed income business.As a result, disruptions in those areas may adversely impact our earnings in that business unit.
Our credit ratings directly affect the availability and cost of our unsecured funding. FHNOur holding company (the Corporation) and theour Bank currently receive ratings from several rating agencies for unsecured borrowings. A rating
below investment grade typically reduces availability and increases the cost of market-based funding. A debt rating of Baa3 or higher by Moody’s Investors Service, or BBB- or higher by Fitch Ratings, is considered investment grade for
| | | | | | | | |
| 47 | 2021 FORM 10-K ANNUAL REPORT |
many purposes. At December 31, 2019,2021, both rating agencies rated the unsecured senior debt of FHNthe Corporation and of the Bank as investment grade. The ratings outlook was stable from
Moody’s and from Fitch for both FHNthe Corporation and the Bank. To the extent that in the future we depend on institutional borrowing and the capital markets for funding and capital, we could experience reduced liquidity and increased cost of unsecured funding if our debt ratings were lowered further, particularly if lowered below investment grade. In addition, other actions by ratings agencies can create uncertainty about our ratings in the future and thus can adversely affect the cost and availability of funding, including placing us on negative outlook or on watchlist. Please note that a credit rating is not a recommendation to
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 33
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 may have internal policies restricting the business that can be done with financial institutions, such as the Bank, that have credit ratings lower than a certain threshold.
Reductions in our credit ratings could allow some counterparties to terminate and immediately force us to
settle certain derivatives agreements, and could force us to provide additional collateral with respect to certain derivatives agreements.Under our margin agreements, we are required to post collateral in the amount of our derivative liability positions with most derivative counterparties. At this time, those of our ISDA master agreements which have ratings triggers reference the lower of Standard & Poor’s Financial Services LLC or Moody’s ratings. If a credit rating downgrade had occurred as of December 31, 2019, the maximum specified additional collateral we would have been requiredFHN could be asked to post would have been approximately $1 million.collateral of an undetermined amount based on changes in credit ratings and derivative value.
|
| | | | |
Interest Rate andInterest 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 significantconsiderable portion of our funding comes from short-term and demand deposits, while a significantsizeable 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 segmentbusiness 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 simply shows theis a reflection of interest rates, at various maturities, applicable to shortassets and long term debt.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 equal to long-term rates;the same; and it is inverted when short-term rates exceed long-term rates. Historically, the yield curve is usually is upwardly slopedupward sloping (higher rates for longer terms). However, the yield curve can be relatively flat or inverted (sloped downward)(downward sloping), which has happened several times in 2018 and 2019.the past few years. A flat or inverted yield curve tends to decrease net interest margin, which would adversely impact our lending businesses, and it tends to reduce demand for long-term debt securities, which would adversely impact the revenues of our fixed income business.
We appear toThe U.S. is transitioning away from “easing,” with the Federal Reserve indicating its expectations that bond purchases will end. In addition, short-term interest rates could be raised, starting in a waiting period 2022. This significant change
in terms of interest rate policy;direction, and in the uncertainties ofunderlying economics that are prompting the direction, magnitude,change, create opportunities and timing of future rate actions could adversely affectrisks for us. The Federal Reserve raised short-termcessation of easing should result in upward pressure on long-term interest rates, by 0.25% four times in 2018 and reduced rates by 0.25% three times in 2019. The 2018 actions flattened the yield curve. The 2019 actions steepened the curve only very modestly. The Federal Reserve has signaled no direction for rate changes in 2020 or 2021. If rates in fact
remain stable and market participants come to expect long-term stability,steepening the yield curve
and potentially providing a significant financial benefit to us. Raising short-term rates may
steepenre-flatten the yield curve and moderate or even end that benefit, unless long-term rates continue to
a more normal shape, which should benefit us. However,rise in
the meantime, in many respects the impact on us of uncertain interest rate policy is likely to be uneven,tandem with
benefits and detriments that are difficult to predict.short rates. See
“RisksRisks Associated with Monetary Events” Events beginning on page 2538 of this report for additional information. Moreover, the Federal Reserve appears to be taking these actions over concerns about monetary inflation and economic slowdown. An economic slowdown would adversely impact us even if rate moves, in isolation, would provide a benefit. See Risks from Economic Downturns beginning on page 38 for additional information.Market-indexed deposit products are very sensitive to changes in short-term rates, and our use of them increases our exposure to such changes.If market rates rise, an increase in those deposit rates may be necessary before we are able to effect similar increases in loan rates.
Expectations by the market regarding the direction of future interest rate movements can impact the demand for and value of our fixed income investments, which in turnand can impact the revenues of our fixed income business. ThatThis risk is most apparent during times when strong expectations have not yet been reflected in market rates, or when expectations are especially weak or uncertain.
The likelyexpected discontinuance of LIBOR as a viable benchmark rate after 2021 may adversely affect our business and our operating results.In 2017, the Chief Executive of the United Kingdom Financial Conduct Authority ("FCA"), which regulates the London InterBank Offered Rate (LIBOR)
| | | | | | | | |
| 48 | 2021 FORM 10-K ANNUAL REPORT |
("LIBOR"), announced that it intends to halt persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, LIBOR as currently operated may not continue after 2021. It is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions toLIBOR. In 2021, the administratorFCA announced that tenors of LIBOR or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. There are serious doubts thatU.S. dollar ("USD") LIBOR will continueno longer be published as follows:
•One week and 2-month USD LIBOR will not be published after 2021 in a form thatDecember 31, 2021; and
•All other USD LIBOR tenors (e.g., overnight, 1-month, 3-month, 6-month and 12-month tenors) will not be practical.published after June 30, 2023.
At this time, it is not clear which rate orIn the U.S., multiple alternative reference rates mayhave become accepted alternatives to LIBOR. These alternatives include:
SOFR and Term SOFR.The leading alternative rate inAlternative Reference Rates Committee (“ARRC”) is a group of private-market participants convened by the U.S., the Secured Overnight Financing Rate (SOFR) published byFederal Reserve Board and the Federal Reserve Bank of New York ("New York Fed") to help ensure a successful transition from USD LIBOR to a more robust reference rate. The ARRC has recommended the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative. SOFR is published by the New York Fed but is not directly comparable to LIBOR and cannot easily or simply be substituted for it in outstanding instruments. Key differences between the two are: SOFR is
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 34
based on secured lending, LIBOR is not; and SOFR historically has been published only as an overnight rate, while LIBOR is published in severalmany short-term forward looking maturity periods. (Starting in March 2020,tenors.
Since SOFR is based on secured lending, it is generally considered a compounded average SOFR will be published for periods of 30, 90, and 120 days, which“risk-free rate” whereas LIBOR includes an implicit credit spread. Currently there is intendedmarket-accepted practice to fully address the latter difference.) It is impossible to predict the effectthis first difference of SOFR from LIBOR. In response to the second difference, CME Group began to publish Term SOFR, a forward-looking rate with 1-month, 3-month and 6-month tenors. Term SOFR is based on SOFR futures contracts. The ARRC has recommended conventions for Term SOFR rates and has recommended CME Group as the administrator for Term SOFR.
AMERIBOR. Another alternative, the American Interbank Offered Rate (“AMERIBOR”) Index, is produced by the American Financial Exchange. AMERIBOR is based on actual transaction data involving credit decisions by many financial institutions, on an unsecured basis.
BSBY. The Bloomberg short-term bank yield index ("BSBY") is a proprietary rate index calculated and published by Bloomberg Index Services Limited. BSBY is based on actual transaction data involving unsecured credit.
FHN ceased originating new loans using LIBOR, and began making all three of those alternatives available to most
commercial clients, in late 2021. For consumer adjustable rate mortgages, FHN offers only SOFR as the reference rate, which FHN believes has become the leading alternative in the U.S. for that category of loans. Outstanding loans affected by the 2021 discontinuance of LIBOR were transitioned to a new reference rate. The one-week and two-month USD LIBOR tenors were not commonly used, however; as a result, early in 2022, most of FHN's outstanding pre-2022 loans which use a reference rate continue to use LIBOR.
The impacts of this transition began late in 2021 and will continue for several years. Competitive pressures continue to constrain our ability to set terms using an alternative reference rate, and the industry has only modest experience with how these alternative rates behave in a variety of contexts and, therefore, what the risks are to the bank, and to the client, if conditions change after a loan is made. As a result, it is unclear how this transition, and the fully post-LIBOR environment starting in mid-2023, will impact our loan spreads and net interest margin overall.
As a lender, an owner of securities, or any other alternatives on the value of LIBOR-based securities and variable rate loans.
Oura contractual counterparty, our primary exposures to LIBOR are in variable-rate loans and in hedging transactions. WeAs mentioned above, we are not able to determine the impact on us that LIBOR discontinuance will have. The simplicity and long history of using LIBOR, the lack of a definite alternative, and the possibility that different alternatives ultimately may be used in different circumstances, means that LIBOR continues to be used in many new instruments.
In addition, it is not known how a transition away from LIBOR, or to a new version of LIBOR, will impact our ability to use hedge accounting after 2021. However, accounting and tax agencies have issued preliminary guidance that should ease that transition.
A few instruments issued by us, including the Bank’s Class A Non-Cumulative Perpetual Preferred Stockcertain series of preferred stock and
certain trust preferred obligations, have floating rate terms based on LIBOR, or have fixed rates that later will convert to floating rate terms based on LIBOR. As mentioned above, it is not known whether LIBOR will continue after 2021 in a workable form. We have risk that an adverse outcome of the LIBOR transition after 2021the scheduled discontinuation could increase our interest, dividend, and other costs relative to those instruments. We may not be able to refinance those instruments on terms that reduce those costs to the level we would have expected if LIBOR were to continue indefinitely, unchanged. Additionally, a
The transition from LIBOR could adverselymay impact or change our ability to use hedge accounting, practices.which could impact us as a lender, a securities owner, a counterparty, or an issuer. Accounting and tax agencies have issued guidance that may ease the transition, or at least clarify the outcomes in various situations.
|
| | | | | | | |
Asset Inventories and Market Risks | 49 | 2021 FORM 10-K ANNUAL REPORT |
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 customers,clients, and we are exposed to certain market risks attributable principally to creditinterest rate risk and interest ratecredit risk associated with those assets. We manage the risks of holding inventories of securities and loans through certain market risk management policies and procedures, including, for example, hedging activities and Value-at-Risk (“VaR”) limits, trading policies, modeling, and stress analyses. Average fixed income trading securities (long positions) were $1.4 billion for 2019, $1.6 billion for 2018,2021, 2020, and $1.2 billion for 2017.2019. Average fixed income trading liabilities (short positions) were $0.5 billion, $0.7 billion,$540 million, $457 million, and $0.7 billion$503 million for 2019, 2018,2021, 2020, and 2017,2019, respectively. Average loans held for sale in our fixed income business were $0.5 billion, $0.6 billion,$563 million, $554 million, and $0.3 billion$485 million for 2019, 2018,2021, 2020, and 2017.2019. Additional information concerning these risks and our management of them, all of which is incorporated into this Item 1A by this reference, appears under the caption “MarketMarket Risk Management”Management beginning on page 8791 of our 20192021 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
customers. 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
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
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 35
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 employeeassociate 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 latterlast example these hedged items include certain term borrowings and certain held-to-maturity loans.
Hedging creates certain risks for us, including the risk that the other party to the hedge transaction will fail to perform (counterparty risk, which is a type of credit risk), and the risk that the hedge will not fully protect us from loss as intended (hedge failure risk). Unexpected counterparty failure or hedge failure could have a significant adverse effect on our liquidity and earnings.
Three of our mortgage-related businesses—mortgage origination, title services, and lending to mortgage companies—are highly sensitive to interest rates and rate cycles. When rates are higher, client activity (and our
related income) tends to be muted. Lower rates tend to foster higher activity. The U.S. has experienced extremely low interest rates for several years. Late in 2021, and continuing in 2022, the Federal Reserve has indicated its
|
| | | | | | | |
| 50 | 2021 FORM 10-K ANNUAL REPORT |
intention to start normalizing (raising) interest rates. Although the prospect of rate increases might result in higher client activity for a brief time, and although the increases being publicly discussed early in 2022 would leave rates still very low by historical norms, we expect that rising rates in 2022 and possibly later will curtail our income from these businesses. That reduction in business could be significant and fairly sudden. Additional information concerning rates and their impacts upon us is presented: under the caption Cyclicality within the Other Business Information section of Item 1, which starts on page 18; in Risks Associated with Monetary Events beginning on page 38; in Interest Rate and Yield Curve Risks beginning on page 48; and under the caption Federal Reserve Policy in Transition within the Market Uncertainties and Prospective Trends section of our 2021 MD&A (Item 7), beginning on page 99. We have contractual risks from our mortgage business. Our traditional mortgage business primarily consists of helping clients obtain home mortgages which we sell, rather than hold, or which qualify for a government-guarantee program. The mortgage terms conform to the requirements of the mortgage buyers or government agencies, and we make representations to those buyers or agencies concerning conformity of each mortgage at origination. Although the buyers and agencies generally take the risk that a mortgage defaults, we retain the risk that our representations were materially incorrect. In such a case, the buyer or agency generally has the power to force us to take the loan back for its face value, or to make the buyer or agency whole for loss.
Some government mortgage programs could impose penalties on us for misrepresentations at the time of obtaining benefits under the program. Penalties can be severe, up to three times the agency’s loss. As a result, mortgage origination processes need to emphasize being thorough and correct, in compliance with all agency standards. Those processes tend to slow the mortgage lending process for clients, and increase the complexity of the paperwork.
The mortgage servicing business creates regulatory risks. Servicing requires continual interaction with consumer clients. Federal, state, and sometimes local laws regulate when and how we interact with consumer clients. The requirements can be complex and difficult for us to administer, especially if a client is having difficulty with the mortgage loan. Failure to follow the applicable rules can result in significant penalties or other loss for us.
The mortgage servicing business creates financial reporting valuation risks. Our contractual right to service a loan generally is viewed as an asset for financial reporting purposes. Servicing rights are initially recognized at fair value, which affects the gains recognized upon sale of the related loans. Thereafter, servicing rights are amortized and reviewed for impairment. The valuations of servicing rights are dependent upon a number of inputs and assumptions that require management judgment. If our servicing rights become large in relation to our overall size, especially in volatile times, the impact of valuation changes can be significant and difficult to predict.
Pre-2009 Mortgage Business Risks
We have risks from the mortgage-related businesses legacy First Horizon exited in 2008, including mortgage loan repurchase and loss-reimbursement risk, claims of improper foreclosure practices, and claims of non-compliance with contractual and regulatory requirements. In 2008 we exited our national mortgage and related lending businesses. We retain the risk of liability to clients and contractual parties with whom we dealt in the course of operating those businesses.
Additional information concerning risks related to our former mortgage businesses and our management of
them, all of which is incorporated into this Item 1A by this reference, is set forth: under the captions Repurchase Obligations beginning on page 98, and Contingent Liabilities beginning on page 103, of our 2021 MD&A (Item 7); and under the captions Exposures from pre-2009 Mortgage Business and Mortgage Loan Repurchase and Foreclosure Liability, both within Note 17—Contingencies and Other Disclosures of our 2021 Financial Statements (Item 8), which Note begins on page 168. Accounting & Tax Risks
The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make significant estimates that affect the financial statements. The estimate that is consistently one of our most critical is the level of the allowance for credit losses.However, other estimates can be highly significant at discrete times or
during periods of varying length, for example the valuation (or impairment) of our deferred tax assets. Estimates are made at specific points in time. As actual events unfold, estimates are adjusted accordingly. Due to the inherent nature of these estimates, it is possible that, at some time in the future, we may significantly increase the allowance for credit losses and/or sustain credit losses
| | | | | | | | |
| 51 | 2021 FORM 10-K ANNUAL REPORT |
that are significantly higher than the provided allowance, or we may recognize a significant provision for impairment of assets, or we may make some other adjustment that will differ materially from the estimates that we make today. Moreover, in some cases, especially concerning litigation and other contingency matters where critical information is inadequate, often we are unable to make estimates until fairly late in a lengthy process.
We lack first-hand visibility regarding certain loans,A significant merger or acquisition requires us to make many estimates, including the fair values of acquired assets and liabilities. With larger transactions, fair value and other estimations can take up to four quarters to finalize. These estimates, and their revisions, can have a substantial effect on the presentation of our financial condition and operating results after the transaction closes. In addition, the excess of the value “paid” by us in the merger or acquisition over the fair value of the assets oracquired, net of liabilities which increases the riskassumed, is recorded as goodwill. Goodwill is subject to periodic impairment assessment, a process that our estimatescan result in impairment expense which may be inaccurate. For example, interagency supervisory guidance related to practices for loanssignificant and lines of credit secured by junior liens on 1-4 family residential properties requires that the performance of the first lien should be considered when assessing the collectability and inherent loss of a performing junior lien. We own and service a consumer real estate portfolio that is primarily composed of home equity lines and installment loans. As of December 31, 2019, that amount was $6.0 billion. As of December 31, 2019, approximately $.9 billion, or 15%, of the consumer real estate portfoliosudden.
consisted of stand-alone second liens while $.1 billion, or 2%, were second liens whose first liens are owned or serviced by FHN. We are not able to actively monitor the performance status of the first liens that are serviced by others. We obtain first lien performance information from third parties and through loss mitigation activities, and we place a stand-alone second lien loan on nonaccrual if we discover that there are performance issues with the first lien loan. It is possible that if our evaluation methods change or information sources otherwise improve our additions to nonperforming loans may be material.
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 revisesrevised the measurement and recognition of credit losses for certain assets, including most loans, in a manner that will substantially and adversely changechanged when and how we recognize loan loss. ASU 2016-13 iswas effective for us on January 1, 2020. Under ASU 2016-13, when we make or acquire a new loan, that is covered by the standard, we will beare 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 currentpre-2020 accounting standard
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 36
delays delayed recognition of credit loss until loss iswas “probable” (very likely). We adopted ASU 2016-13 and CECL accounting starting in 2020, with the impact on regulatory capital having a short phase-in period. Starting in
2020, recognition of estimated credit loss will bewas significantly accelerated compared to pre-CECL practice.practice, which was aggravated by the actual and projected effects of the pandemic. Additional information concerning ASU 2016-13 and its effects upon us appears in Note 1-Summary of 1—Significant Accounting Policies within our 20192021 Financial Statements (Item 8), under the heading “Accounting Changes Issued but Not Currently Effective” beginning on page 132,122, and in Item 1 under the caption CECL Accounting and COVID-19 within the section entitled Significant Business Developments Over Past Five Years, which begins on page 12, all of which information is incorporated into this Item 1A by reference. In comparison with former (pre-2020) standards, CECL accounting likely will:will continue to: result in a significant increase in our loan loss provision for credit losses (expense) and allowance (reserve) during any period of loan growth, including organic growth and growth created by acquisition or merger; through the increased provision, adversely impact our earnings and, correspondingly, our regulatory capital levels; and enhance volatility in loan loss provision and allowance levels from quarter to quarter and year to year, especially during times when the economy is in transition.transition or experiencing significant volatility. Moreover, once fully phased in, CECL creates an incentive for banks to reduce new lending in the “down” part of the economic cycle in order to reduce loss
recognition and conserve regulatory capital. That perverse incentive could, nationwide, prolong a down cycle in the economy and delay a recovery.
Changes in regulatory rules can create significant accounting impacts for us.Because we operate in a regulated industry, we prepare regulatory financial reports based on regulatory accounting standards. Changes in those standards can have significant impacts upon us in terms of regulatory compliance. In addition, such changes can impact our ordinary financial reporting, and uncertainties related to regulatory changes can create uncertainties in our financial reporting.
Our Controlscontrols and Procedures May Failprocedures may fail or Be Circumvented.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.
|
| | | | |
Stock-Holding andShare 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. WeFirst Horizon Corporation primarily depend depends
upon common dividends from the Bank for cash to fund dividends we pay to our common and preferred stockholders,shareholders, and to service our outstanding debt. Regulatory constraints might constrain or prevent the Bank from declaring and paying dividends to us in 2020 2022
| | | | | | | | |
| 52 | 2021 FORM 10-K ANNUAL REPORT |
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 rules,approval, was $1.1 billion at January 1, 2020, the Bank could legally declare cash dividends on the Bank's common or preferred stock of approximately $331.2 million without obtaining regulatory approval.2022.
Also, we are required to provide financial support to the Bank. Accordingly, at any given time a portion of our funds may haveneed to be used for that purpose and therefore would be unavailable for dividends.
Furthermore, the Federal Reserve has issued policy statements generally requiring insured banks and bank holding companies only to pay dividends out of current operating earnings. The Federal Reserve has released a supervisory letter advising bank holding companies, among other things, that as a general matter a bank holding company should inform the Federal Reserve and should eliminate, defer or significantly reduce its dividends if (i) the bank holding company’s net income available to
shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) the bank holding company’s prospective rate of earnings is not consistent with the bank holding company’s capital needs and overall current and prospective financial condition; or (iii) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
Our stockholdersshareholders may suffer dilution if we raisecapital throughpublic or privateequity 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 stockholdersshareholders will be reduced, the new equity securities may have rights and preferences superior to those of our common or outstanding preferred stock, and additional issuances could be at a sales price which is dilutive to current stockholders.shareholders. We may also issue equity securities directly as consideration for acquisitions we may make that would be dilutive to stockholdersshareholders in terms of voting power and share-of-ownership, and could be dilutive financially or economically.
The IBKC merger, for example, will resultresulted in a significant increase in our outstanding shares. We estimate that immediately after the IBKC merger, FHN will issueIn 2020, we issued to former IBKC shareholders FHN common
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 37
shares representing about 44% of our post-closing outstanding shares; legacy FHN shareholders will own only about 56% of the post-closing outstanding shares. We hope to mitigate the financial and economic (per-share) dilutive effects of that issuance by integrating IBKC’s businesses and operations with our current businesses and operations effectively and at an acceptable level of cost, and as a result achieving net expense reductions and net revenue increases in comparison with the two companies on a stand-alone basis. A key risk is that we will fail to achieve one or more of those results.
Our issuance of preferred stock raises regulatory capital without issuing common shares, but creates or expands our general obligation to pay all preferred dividends ahead of any common dividends. Currently we have twosix series of preferred stock outstanding, one issued by the Bank and onefive by FHN. After the IBKC merger closes, FHN will have outstanding three additional series of preferred stock.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 usus.. These provisions could make it more difficult for a third party to acquire us even if an acquisition might be at a price attractive to many of our stockholders.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.bylaws and by the terms of the deposit agreements. Our bylaws have an exclusive forum clause which provides,provide that, unless we
consent in writing to an alternative forum, that 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 theour right of FHN,or name, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employeeassociate of FHNours to FHNus or itsour shareholders, (iii) any action asserting a claim against FHNus or any director, officer or other employeeassociate of FHNours arising pursuant to any provision of the Tennessee Business Corporation Act, of FHN’sour charter or of its bylaws or (iv) any action asserting a claim against FHNus or any director, officer or other employeeassociate of FHNours that is governed by the internal affairs doctrine. In addition, each deposit agreement between us and the depositary, which govern the rights of the depositary shares related to our Series B, C, and D preferred stock, provide that any action or proceeding arising out of or relating in any way to the deposit agreement may only be brought in a state court located in the State of New York or in the United States District Court for the Southern District of New York.
The bylaws’foregoing exclusive forum clauseclauses may have the effect of discouraging lawsuits against FHNus or itsour directors, officers or other employees,associates, or against the depositary, as applicable. The clauseExclusive forum clauses may also may lead to increased costs to bring a claim, or may limit the ability of holders of FHN’sour common stock or depositary shares to bring a claim in a judicial forum they find favorable.
In addition, to the fullest extent permitted by law, the exclusive forum clause willclauses in our bylaws and deposit agreement could apply to any actions or proceedings described in the four categories specified above that arise or purport tomay arise under the federal securities laws, including those underdepending on the Securities Actnature of 1933, as amended, and/or the Securities Exchange Act of 1934, as amended.claim alleged. To the extent thethese exclusive forum clause restrictsclauses 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 the clause. Thesuch provisions. These exclusive forum clause doesprovisions do not mean that holders of FHN’sour common stock or depositary shares have waived FHN’sour obligations to comply with the federal securities laws and the rules and regulations thereunder.
---------------------------
| | | | | | | | |
| 53 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
ITEM 1B. UNRESOLVED STAFF COMMENTS AND ITEM 2. PROPERTIES |
| | |
Item 1B. UNRESOLVED STAFF COMMENTS
---------------------------
Not applicable.
-------------
ITEMItem 2. PROPERTIES
-------------Properties
We own or lease no single physical property that we consider to be materially important to our financial condition or results from operations.
Our banking centers, (in our Regional Banking segment)fixed income and capital markets offices, our title services offices, our wealth management offices, and our FHN Financialloan origination, processing, and other physical offices, (in our Fixed Income segment), in the aggregate, remain important to our ability to deliver financial services to a large portion of our customers.clients. For many years, banking center usage by customersclients has slowly declined, and for many years we
have
slowly 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
centerscenter and
FHN Financial offices,other client-facing facilities, at year-end
20192021 is provided
inunder the caption Principal Businesses, Brands, & Locations within the Our Businesses section of Item 1 of this report, under the caption “Physical Business Locations” beginningwhich begins on page 4, which9; that information is incorporated into this Item 2 by this reference.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 38
In addition to the banking centers and FHN Financialother 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 FHN Financialother 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, 2019,2021, we believe our physical properties are suitable and adequate for the businesses we conduct.
| | | | | | | | |
| 54 | 2021 FORM 10-K ANNUAL REPORT |
------------------- | | | | | | | | |
ITEM 3. LEGAL PROCEEDINGS AND ITEM 4. MINE SAFETY DISCLOSURES |
| | |
ITEM
Item 3. LEGAL PROCEEDINGSLegal Proceedings
-------------------
The “Contingencies”Contingencies section from Note 17-Contingencies and Other Disclosures, appearingbeginning on pages 172-174page 168 of this report within our 2019 2021 Financial Statements (Item 8), is incorporated herein by reference.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 39
-----------------------
ITEMItem 4. MINE SAFETY DISCLOSURES
-----------------------
Not applicable.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 40
--------------------------
SUPPLEMENTAL PART I INFORMATION
--------------------------
|
| | | | | | | |
Executive Officers | 55 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| 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, 2020.2022. The executive officers generally are elected at the April meeting of our Board of Directors (following
(following the annual meeting of shareholders) for a term of one year and until their successors are elected and qualified.
|
| | | | |
| Name & Age | Current (Year First Elected to Office) and Recent Offices & Positions |
John M. DanielTerry L. Akins
Age: 6558 | Senior Executive Vice President-Chief Human ResourcesPresident—Chief Risk Officer of FHNFirst Horizon & the Bank (2006)(2020) Mr. Daniel joined FHN asFollowing the closing of the merger of equals between First Horizon and IBKC, Ms. Akins assumed the role of Senior Executive Vice President—Chief Risk Officer of First Horizon and the Bank. Prior to the merger, she had several roles with IBERIABANK Corporation and IBERIABANK starting in 2002, the most recent of which was Senior Executive Vice President and Chief Risk Officer (2017-2020).
|
Elizabeth A. Ardoin Age: 52 | Senior Executive Vice President—Chief Communications Officer of First Horizon & the Bank (2020) Following the closing of the merger of equals between First Horizon and IBKC, Ms. Ardoin assumed the role of Senior Executive Vice President—Chief Communications Officer of First Horizon and the Bank. Prior to the merger, she had several roles with IBERIABANK Corporation and IBERIABANK starting in charge2002, the most recent of human resources in 2006. From 2001 to 2006, Mr. Danielwhich was theSenior Executive Vice President in chargeand 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. |
Daryl G. Byrd Age: 67 | Executive Chairman of the Board of First Horizon & the Bank (2020) Following the closing of the merger of equals between First Horizon and IBKC, Mr. Byrd assumed the role of Executive Chairman of the Board of First Horizon and the Bank. Prior to the merger, he served as President (1999-2020) and Chief Executive Officer (2000-2020) of IBERIABANK Corporation and IBERIABANK. Mr. Byrd's term of office will end July 1, 2022. |
Hope Dmuchowski Age: 43 Principal Financial Officer | 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 RegionsTruist Financial Corporation.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: 5860 Principal Accounting Officer | Executive Vice President-ChiefPresident—Chief Accounting Officer and Corporate Controller of FHNFirst Horizon & the Bank (2012); principal accounting officer Mr. Fleming becameassumed the role of Executive Vice President-ChiefPresident—Chief Accounting Officer and Corporate Controller in 2012. He first joined FHNPreviously, starting in the Accounting Division in 1984. From 2010 to 20111984, he washeld several positions with us, most recently (before his current role) Executive Vice President-CorporatePresident—Corporate Controller from 2008 to 2010 he was Senior Vice President-Corporate Controller and from 2004 to 2008 he was Senior Vice President - Director of Corporate Accounting.(2010-2011). |
D. Bryan Jordan Age: 5860 Principal Executive Officer | President and Chief Executive Officer (2008) and Chairman of the Board (2012) of FHNFirst Horizon & the Bank; principal executive officerBank Mr. Jordan became President and Chief Executive Officer in 2008,2008. He was Chairman of the Board from 2012 until we closed the merger of equals between First Horizon and was elected ChairmanIBKC in 2012.2020. From 2007 until 2008 Mr. Jordan was Executive Vice President and Chief Financial Officer of FHNFirst 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. |
Michael E. KisberTammy S. LoCascio
Age: 6153 | President-FHN FinancialSenior Executive Vice President—Chief Operating Officer of FHNFirst Horizon & the Bank (2011)(2021)
Mr. Kisber became PresidentFollowing the closing of the Bank’s FHN Financial divisionmerger of equals between First Horizon and IBKC in 2011. He joined FHN Financial in 1993 as a sales representative. In 2006 he became Head2020, Ms. LoCascio assumed the role of Sales and anSenior Executive Vice President,President—Chief Human Resources Officer of First Horizon and the Bank. Prior to the merger, starting in 2008 he became Director of Fixed Income.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.
|
| | | | | | | | |
| 56 | 2021 FORM 10-K ANNUAL REPORT |
|
| | | | | | | |
| SUPPLEMENTAL PART I INFORMATION |
William C. Losch III
| | |
Executive Vice President-Chief Financial Officer of FHN | | | | | |
Name & the Bank (2009); principal financial officerMr. Losch joined FHN as Executive Vice President-Chief Financial Officer in 2009. From 1997Age
| Current (Year First Elected to 2009, Mr. Losch was with Wachovia CorporationOffice) and its predecessors. Most recently he served as Senior Vice President and Chief Financial Officer of its Retail and Small Business Banking unit from 2003 to 2005, and as Senior Vice President and Chief Financial Officer of its General Bank unit from 2006 to 2009.Recent Offices & Positions |
David T. Popwell Age: 6062 | President-BankingPresident—Specialty Banking of FHNFirst Horizon & the Bank (2013)(2020)
Following the closing of the merger of equals between First Horizon and IBKC, Mr. Popwell became Presidentassumed the role of the Bank’s regional banking business in 2013. In 2011 and 2012 Mr. Popwell was Executive Vice President-RegionalPresident—Specialty Banking and Banking Chief Operating Officer for FHNof First Horizon and the Bank. From 2008Prior to 2011 Mr. Popwellthe merger, starting in 2007, he served in several roles, the most recent of which (before his current role) was thePresident—Regional Banking Chief Operating Officer of the Bank, and from 2007 to 2008 Mr. Popwell was the Market Manager for the Bank’s Mid-South Market.(2013-2020). From 2004 to 2007 Mr. Popwell was President of SunTrust Bank-Memphis,Bank—Memphis, and prior to that was an Executive Vice President of National Commerce Financial Corp. |
Anthony J. Restel Age: 52 | President—Regional Banking of First Horizon & the Bank (2021) Following the closing of the merger of equals between First Horizon and IBKC, Mr. Restel assumed the role of Senior Executive Vice President—Chief Operating Officer of First Horizon and the Bank. From July to November 2021, Mr. Restel also acted as interim Chief Financial Officer. Prior to the merger, he had several roles with IBERIABANK Corporation and IBERIABANK starting in 2001, the most recent of which was Vice Chairman and Chief Financial Officer (2005-2020). During his tenure as Chief Financial Officer, Mr. Restel also served as Chief Credit Officer of IBERIABANK (2007-2009). |
Susan L. Springfield Age: 5557 | Senior Executive Vice President-ChiefPresident—Chief Credit Officer of First Horizon & the Bank (2013) Ms. Springfield assumed the role of Executive Vice President—Chief Credit Officer of FHNFirst Horizon & the Bank (2013) Ms. Springfield became Executive Vice President-Chief Credit Officer in 2013. She has2013, with “Senior” added to her title in 2020. Previously, starting in 1998, she served the Bank in various capacities since 1998. Most recently: in 2011 sheseveral roles, the most recent of which (before her current role) was Executive Vice President-Commercial Banking; from 2009 to 2010 she was Executive Vice President - President—Commercial Credit Risk Executive; and from 2005 to 2008 she was Executive Vice President-Commercial Credit Risk Manager.
|
Charles T. Tuggle, Jr.
Age: 71
| Executive Vice President-General Counsel of FHN & the Bank (2008)
Mr. Tuggle became Executive Vice President-General Counsel in 2008. From 2003 to 2007 Mr. Tuggle was an Executive Vice President of the Bank’s FHN Financial division; during that time prior to 2007 Mr. Tuggle served as Chief Risk Officer of FHN Financial. From 1998 to 2003 Mr. Tuggle was Chairman and Chief Executive Officer of the law firm Baker, Donelson, Bearman, Caldwell & Berkowitz, PC.
|
Yousef A. Valine
Age: 60
| Executive Vice President-Chief Operating and Risk Officer of FHN & the Bank(2018)
Mr. Valine became Executive Vice President-Chief Operating and Risk Officer in 2018. He joined FHN in 2009 as Executive Vice President-Corporate Risk Management, and became Executive Vice President-Chief Risk Officer in 2010. From 1985 until 2009, Mr. Valine was with Wachovia Corporation, most recently serving as Executive Vice President and Chief Operating Officer of its enterprise-wide risk management division from 2007 until 2009, as the head of its Institutional Risk Group in 2006, and as its chief operational risk officer in 2005.Banking (2011-2013).
|
Selected Other Corporate Officers
Clyde A. Billings, Jr.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 41Senior Vice President, Assistant General Counsel, and Corporate Secretary
In addition, in November, 2019, FHN designated Tammy S. LoCascio to replace John M. Daniel as Executive Vice President-Chief Human Resources Officer of FHN and of the Bank following the closing of the IBKC merger in 2020. Ms. LoCascio and FHN signed a retention agreement at the time of her designation, the form of which was filed as an exhibit to FHN’s Current Report on Form 8-K filed on November 7, 2019, and which is listed as Exhibit 10.6(j) in Item 15 of this report.
Dane P. Smith
Senior Vice President
Corporate Treasurer
|
| |
Name & Age | Current (Year First Elected to Office) and Recent Offices & Positions |
Tammy S. LoCascio
Age: 51
| Executive Vice President-Consumer Banking of the Bank (2016)
Ms. LoCascio joined FHN in 2011. She has held several positions with the Bank, most recently Executive Vice President-Director of Retail Banking. In her current role, she leads the Retail, Private Client/Wealth Management, Mortgage, and Small Business units.
|
|
| | | | |
PART II | 57 | 2021 FORM 10-K ANNUAL REPORT |
--------------------------------------
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS, AND
ISSUER PURCHASES OF EQUITY SECURITIES
--------------------------------------
|
| | | | | | | |
Market for Our Common Stock; DividendsITEM 5. MARKET FOR COMMON EQUITY, STOCKHOLDER MATTERS, & EQUITY PURCHASES AND ITEM 6. |
| | |
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Market for Our Common Stock; Common Shareholders
Our sole class of common stock, $0.625 par value, is listed and trades on the New York Stock Exchange LLC under the symbol FHN. As ofFHN. At December 31, 2019,2021, there were
approximately 8,5439,426 shareholders of record of our common stock. Additional information is incorporated herein by reference to the following: Table 31-Summary of Quarterly Financial Information (page 100), Selected
Financial and Operating Data table (page 43), and “Liquidity Risk Management” (beginning on page 90) within our 2019 MD&A (Item 7); and “Restrictions on dividends” within Note 12-Regulatory Capital and Restrictions, appearing on page 165 of our 2019 Financial Statements (Item 8).
Sales of Unregistered Common and Preferred Stock
|
| | | | |
Sales of Unregistered Common and Preferred Stock |
Common Stock.Stock. Not applicable.
Preferred Stock.Stock. Not applicable.
|
| | | | |
| Repurchases by Us of Our Common Stock |
Under authorizations from our Board of Directors, we may repurchase shares from time to time for general purposes and for our stock option and other compensation plans, subject to market conditions, accumulation of excess equity, prudent capital management, and legal and regulatory restrictions. We evaluate the level of capital and take action designed to generate or use capital as appropriate for the interests of the shareholders.
Additional information concerning repurchase activity during the final three months of 20192021 is presented in Tables 13a7.22a and 13b,7.22b, and the surrounding notes and other text under the caption “Common Common Stock Purchase Programs” Programs beginning on page 6589 of our 20192021 MD&A (Item 7), which information is incorporated herein by this reference.
Total Shareholder Return Performance Graph
The “Total Shareholder Return 2016-2021” performance graph appearing on the next page, along with Table 5.1, is “furnished” and not “filed” as part of this report, and is not deemed to be soliciting material. Notwithstanding anything to the contrary set forth in this report or in any of our previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate future filings by reference, including this annual report in whole or in part, neither the following Total“Total Shareholder Return Performance Graph2016-2021” performance graph nor Table 5.1 shall not be incorporated by reference into any such filings.
The following“Total Shareholder Return 2016-2021” performance graph compares the yearly percentage change in our cumulative total shareholder return with returns based on the Standards and Poor'sPoor’s 500 and Keefe, Bruyette & Woods (KBW) Nasdaq and Regional Bank Indices. The following graph assumes $100 is invested on December 31, 20142016 and dividends are reinvested. Returns are market-capitalization weighted.
At year-end 2019 and earlier, First Horizon was included in the KBW Regional Bank Index. At year-end 2021 and 2020, First Horizon is included in the KBW Nasdaq Bank Index. The change in index resulted from the merger of equals in 2020 between First Horizon and IBERIABANK Corporation.
| | | | | | | | |
| 58 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
ITEM 5. MARKET FOR COMMON EQUITY, STOCKHOLDER MATTERS, & EQUITY PURCHASES AND ITEM 6. |
| | |
Table 5.1
TOTAL SHAREHOLDER RETURN DATA
| | | | | | | | | | | | | | | | | | | | |
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 |
| First Horizon Corporation | $ | 100.00 | | $ | 101.94 | | $ | 68.98 | | $ | 89.97 | | $ | 73.62 | | $ | 97.64 | |
| S&P 500 Index | 100.00 | | 121.82 | | 116.47 | | 153.13 | | 181.29 | | 233.28 | |
| KBW Nasdaq Bank Index (BKX) | 100.00 | | 118.59 | | 97.59 | | 132.84 | | 119.15 | | 164.83 | |
| KBW Regional Bank Index (KRX) | 100.00 | | 101.81 | | 84.00 | | 104.05 | | 95.02 | | 129.84 | |
Source: Bloomberg
Item 6. [reserved]
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 42
| | | | | | | | |
| 59 | 2021 FORM 10-K ANNUAL REPORT |
-----------------------
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The information called for by this Item is incorporated herein by reference to the Selected Financial and Operating Data table appearing on page 43 of our 2019 MD&A (Item 7).
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 43
---------------------------
ITEM 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
---------------------------
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 44
SELECTED FINANCIAL AND OPERATING DATA
|
| | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions except per share data) | 2019 | | 2018 | | 2017 | | 2016 | | 2015 | |
| Net income | $ | 452.4 |
| | $ | 556.5 |
| | $ | 177.0 |
| | $ | 238.5 |
| | $ | 97.3 |
| |
| Income available to common shareholders | 434.7 |
| | 538.8 |
| | 159.3 |
| | 220.8 |
| | 79.7 |
| |
| Common Stock Data | | | | | | | | | | |
| Earnings per common share | $ | 1.39 |
| | $ | 1.66 |
| | $ | 0.66 |
| | $ | 0.95 |
| | $ | 0.34 |
| |
| Diluted earnings per common share | 1.38 |
| | 1.65 |
| | 0.65 |
| | 0.94 |
| | 0.34 |
| |
| Cash dividends declared per common share | 0.56 |
| | 0.48 |
| | 0.36 |
| | 0.28 |
| | 0.24 |
| |
| Book value per common share | 15.04 |
| | 13.79 |
| | 12.82 |
| | 9.90 |
| | 9.42 |
| |
| Closing price of common stock per share: | | | | | | | | | | |
| | High | 17.28 |
| | 20.61 |
| | 20.76 |
| | 20.61 |
| | 16.20 |
| |
| | Low | 13.37 |
| | 12.40 |
| | 16.05 |
| | 11.62 |
| | 12.31 |
| |
| | Year-end | 16.56 |
| | 13.16 |
| | 19.99 |
| | 20.01 |
| | 14.52 |
| |
| Cash dividends per common share/year-end closing price | 3.4 |
| % | 3.6 |
| % | 1.8 |
| % | 1.4 |
| % | 1.7 |
| % |
| Cash dividends per common share/diluted earnings per common share | 40.6 |
| % | 29.1 |
| % | 55.4 |
| % | 29.8 |
| % | 70.6 |
| % |
| Year-end price/earnings ratio | 12.0 |
| x | 8.0 |
| x | 30.8 |
| x | 21.3 |
| x | 42.7 |
| x |
| Market capitalization | $ | 5,157.9 |
| | $ | 4,192.4 |
| | $ | 6,531.5 |
| | $ | 4,674.8 |
| | $ | 3,464.3 |
| |
| Average shares (thousands) | 313,637 |
| | 324,375 |
| | 241,436 |
| | 232,700 |
| | 234,189 |
| |
| Average diluted shares (thousands) | 315,657 |
| | 327,445 |
| | 244,453 |
| | 235,292 |
| | 236,266 |
| |
| Period-end shares outstanding (thousands) | 311,469 |
| | 318,573 |
| | 326,736 |
| | 233,624 |
| | 238,587 |
| |
| Volume of shares traded (thousands) | 824,843 |
| | 898,276 |
| | 790,153 |
| | 574,196 |
| | 562,553 |
| |
| Selected Average Balances | | | | | | | | | | |
| Total assets | $ | 41,744.3 |
| | $ | 40,225.5 |
| | $ | 29,924.8 |
| | $ | 27,427.2 |
| | $ | 25,636.0 |
| |
| Total loans, net of unearned income | 29,188.6 |
| | 27,213.8 |
| | 20,104.0 |
| | 18,303.9 |
| | 16,624.4 |
| |
| Securities available-for-sale | 4,500.1 |
| | 4,718.3 |
| | 4,021.6 |
| | 4,002.1 |
| | 3,692.3 |
| |
| Earning assets | 37,165.5 |
| | 35,676.6 |
| | 27,461.0 |
| | 25,180.1 |
| | 23,456.2 |
| |
| Total deposits | 32,403.0 |
| | 30,903.1 |
| | 23,072.1 |
| | 20,898.8 |
| | 18,753.7 |
| |
| Total term borrowings | 1,117.0 |
| | 1,211.9 |
| | 1,077.3 |
| | 1,130.2 |
| | 1,557.2 |
| |
| Common equity | 4,529.8 |
| | 4,226.5 |
| | 2,579.3 |
| | 2,300.4 |
| | 2,190.1 |
| |
| Total equity | 4,920.9 |
| | 4,617.5 |
| | 2,970.3 |
| | 2,691.5 |
| | 2,581.2 |
| |
| Selected Period-End Balances | | | | | | | | | | |
| Total assets | $ | 43,310.9 |
| | $ | 40,832.3 |
| | $ | 41,423.4 |
| | $ | 28,555.2 |
| | $ | 26,192.6 |
| |
| Total loans, net of unearned income | 31,061.1 |
| | 27,535.5 |
| | 27,658.9 |
| | 19,589.5 |
| | 17,686.5 |
| |
| Securities available-for-sale | 4,445.4 |
| | 4,626.5 |
| | 5,170.3 |
| | 3,943.5 |
| | 3,929.8 |
| |
| Earning assets | 38,572.1 |
| | 36,201.0 |
| | 36,953.5 |
| | 26,280.2 |
| | 23,971.5 |
| |
| Total deposits | 32,429.5 |
| | 32,683.0 |
| | 30,620.4 |
| | 22,672.4 |
| | 19,967.5 |
| |
| Total term borrowings | 791.4 |
| | 1,171.0 |
| | 1,218.1 |
| | 1,040.7 |
| | 1,312.7 |
| |
| Common equity | 4,685.0 |
| | 4,394.3 |
| | 4,189.4 |
| | 2,314.0 |
| | 2,248.5 |
| |
| Total equity | 5,076.0 |
| | 4,785.4 |
| | 4,580.5 |
| | 2,705.1 |
| | 2,639.6 |
| |
| Selected Ratios | | | | | | | | | | |
| Return on average common equity (a) | 9.60 |
| % | 12.75 |
| % | 6.18 |
| % | 9.60 |
| % | 3.64 |
| % |
| Return on average tangible common equity (b) (c) | 14.71 |
| | 20.28 |
| | 7.23 |
| | 10.59 |
| | 3.97 |
| |
| Return on average assets (d) | 1.08 |
| | 1.38 |
| | 0.59 |
| | 0.87 |
| | 0.38 |
| |
| Net interest margin (e) | 3.28 |
| | 3.45 |
| | 3.12 |
| | 2.94 |
| | 2.83 |
| |
| Allowance for loan losses to loans | 0.64 |
| | 0.66 |
| | 0.69 |
| | 1.03 |
| | 1.19 |
| |
| Net charge-offs to average loans | 0.09 |
| | 0.06 |
| | 0.06 |
| | 0.10 |
| | 0.19 |
| |
| Total period-end equity to period-end assets | 11.72 |
| | 11.72 |
| | 11.06 |
| | 9.47 |
| | 10.08 |
| |
| Tangible common equity to tangible assets (c) | 7.48 |
| | 7.15 |
| | 6.57 |
| | 7.42 |
| | 7.82 |
| |
| Common equity tier 1 ratio | 9.20 |
| | 9.77 |
| | 8.88 |
| | 9.94 |
| | 10.45 |
| |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
See accompanying notesItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
TABLE OF ITEM 7 TOPICS
| | | | | | | | |
| 60 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Introduction
First Horizon Corporation (NYSE common stock trading symbol “FHN”) is a financial holding company headquartered in Memphis, Tennessee. FHN’s principal subsidiary, and only banking subsidiary, is First Horizon Bank. Through the Bank and other subsidiaries, FHN offers regional banking, mortgage lending, title insurance, specialized commercial lending, commercial leasing and equipment financing, brokerage, wealth management, capital markets, and other financial services to commercial, consumer, and governmental clients throughout the U.S. At December 31, 2021, FHN had over 500 business locations in 22 states, including over 400
banking centers in 12 states, and employed more than 7,500 associates.
The following discussion and analysis is intended to assist readers in understanding the consolidated financial statements.condition and results of operations of FHN. It should be read in conjunction with the Consolidated Financial Statements and accompanying Notes to the Consolidated Financial Statements in Part II, Item 8 of this Form 10-K, as well as with the other information contained in this report.
Numbers may
Executive Overview
Merger Agreement with Toronto-Dominion Bank
On February 27, 2022, FHN entered into an Agreement and Plan of Merger (the “TD Merger Agreement”) with The Toronto-Dominion Bank, a Canadian chartered bank (“TD”), TD Bank US Holding Company, a Delaware corporation and indirect, wholly owned subsidiary of TD (“TD-US”), and Falcon Holdings Acquisition Co., a Delaware corporation and wholly owned subsidiary of TD-US (“Merger Sub”).
Pursuant to the TD Merger Agreement, FHN and Merger Sub will merge (the “First Holding Company Merger”), with FHN continuing as the surviving entity in the merger. Following the First Holding Company Merger, at the election of TD, FHN and TD-US will merge (the “Second Holding Company Merger” and, together with the First Holding Company Merger, the “Holding Company Mergers”), with TD-US continuing as the surviving entity in the merger.
Upon the terms and subject to the conditions set forth in the TD Merger Agreement, each share of FHN common stock, par value $0.625 per share, (“Company Common Stock”), issued and outstanding immediately prior to the effective time of the First Holding Company Merger (the “First Effective Time”) will be converted into the right to receive $25.00 (USD) per share in cash, without interest. If the transaction does not add dueclose on or before November 27, 2022, shareholders will receive an additional $0.65 per share of Company Common Stock on an annualized basis (or approximately 5.4 cents per month) for the period from November 27, 2022 through the day immediately prior to rounding.the closing. Each outstanding share of FHN’s preferred stock, series B, C, D, E and F, will remain issued outstanding in connection with the First Holding Company
N/A- Not applicable
(a) Calculated usingMerger. If TD elects to effect the Second Holding Company Merger, at the effective time of the Second Holding Company Merger, each outstanding share of FHN’s preferred stock will be converted into a share of a newly created, corresponding series of TD-US having terms as described in the Merger Agreement.
Following the completion of the First Holding Company Merger, at such time as determined by TD, First Horizon Bank and TD Bank, N.A., a national banking association (“TDBNA”) will merge, with TDBNA surviving as a subsidiary of TD-US (the “Bank Merger” and together with the Holding Company Mergers, the “Proposed TD Merger”).
In connection with the execution of the TD Merger Agreement, TD has agreed to purchase from FHN shares of non-voting Perpetual Convertible Preferred Stock, Series G, a new series of preferred stock of FHN (the “Series G Convertible Preferred Stock”) in a private placement transaction having an aggregate liquidation preference and purchase price of approximately $493.5 million, pursuant to a securities purchase agreement between FHN and TD entered into concurrently with the execution and delivery of the TD Merger Agreement. The Series G Convertible Preferred Stock is convertible into up to 4.9% of the outstanding shares of Company Common Stock in certain circumstances, including the closing of the Proposed TD Merger.
Refer to 2022 Merger Agreement with Toronto-Dominion Bank in Item 1, beginning on page 15, for additional information. IBKC Merger of Equals
On July 1, 2020, FHN completed its merger of equals with IBERIABANK Corporation. FHN's financial results for 2021 reflect the first full calendar year of operations for the
combined Company. Results for 2020 reflect legacy FHN results prior to the completion of the merger and results from both FHN and IBKC from the merger closing date
| | | | | | | | |
| 61 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
forward. FHN expects to achieve its targeted $200 million of pre-tax annualized merger cost saves by the fourth quarter of 2022.
Banking Center Optimization
Banking clients’ utilization of digital capabilities to transact and purchase products and services has been on the rise, and the impact of the COVID-19 pandemic has accelerated this trend. In connection with the IBKC merger and the related impact of the pandemic, FHN conducted a comprehensive analysis of its enterprise-wide digital
platforms and its banking center network. As a result, FHN determined that it was prudent to accelerate banking center closures in certain markets, resulting in the closure of 65 banking centers in 2021 and 10 banking centers in first quarter 2022.
2021 Financial Performance Summary
FHN reported net income/(loss)income available to common shareholders dividedof $962 million, or $1.74 per diluted share, compared to net income of $822 million, or $1.89 per diluted share in 2020 which included a $533 million benefit, or $1.23 per diluted share, tied to an IBKC merger net purchase accounting gain.
Net interest income of $2.0 billion increased $332 million from 2020 driven by an increase in average common equity.interest-earning assets as a result of the IBKC merger. Results also reflect the benefit of lower deposit costs, which helped to partially offset the impact of lower interest rates on earning assets.
(b) Calculated using net income/(loss) availableThe provision for credit losses was a benefit of $310 million compared to common shareholders dividedan expense of $503 million in 2020, largely reflecting continued improvement in the overall macroeconomic outlook, positive credit grade migration, and lower loan balances. The provision expense for 2020 was impacted by average tangible common equity.the adoption of CECL, deterioration in the overall macroeconomic outlook attributable to the COVID-19 pandemic and additional provision related to acquired non-PCD loans.
(c)
Noninterest income of $1.1 billion decreased $416 million from 2020, largely driven by the $533 million purchase accounting gain from the IBKC merger in 2020. Results also reflect higher fee income from the full-year impact of the IBKC merger.
Noninterest expense of $2.1 billion increased $378 million from 2020 driven by the impact of the IBKC merger.
FHN continued to maintain strong capital measures in 2021. The Tier 1 risk-based capital and total risk-based capital ratios at December 31, 2021 were 11.04% and 12.34%, respectively, compared to 10.74% and 12.57% at December 31, 2020. The CET1 ratio was 9.92% at December 31, 2021 compared to 9.68% at December 31, 2020.
| | | | | | | | |
| 62 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Table 7.1
KEY PERFORMANCE INDICATORS
| | | | | | | | | | | | | | | | | | |
| For the years ended December 31, | |
| (Dollars in millions, except per share data) | 2021 | | 2020 | | 2019 | |
| Pre-provision net revenue (a) | $ | 974 | | | $ | 1,436 | | | $ | 631 | | |
| Diluted earnings per common share | $ | 1.74 | | | $ | 1.89 | | | $ | 1.38 | | |
| Return on average assets (b) | 1.15 | % | | 1.33 | % | | 1.08 | % | |
| Return on average common equity (c) | 12.53 | % | | 13.66 | % | | 9.60 | % | |
| Return on average tangible common equity (a) (d) | 16.46 | % | | 19.03 | % | | 14.71 | % | |
| Net interest margin (e) | 2.48 | % | | 2.86 | % | | 3.28 | % | |
| Noninterest income to total revenue (f) | 34.77 | % | | 47.41 | % | | 35.08 | % | |
| Efficiency ratio (g) | 68.56 | % | | 54.37 | % | | 66.15 | % | |
| Allowance for loan and lease losses to total loans and leases | 1.22 | % | | 1.65 | % | | 0.64 | % | |
| Net charge-offs (recoveries) to average loans and leases | — | % | | 0.26 | % | | 0.09 | % | |
| Total period-end equity to period-end assets | 9.53 | % | | 9.86 | % | | 11.72 | % | |
| Tangible common equity to tangible assets (a) | 6.73 | % | | 6.89 | % | | 7.48 | % | |
| Cash dividends declared per common share | $ | 0.60 | | | $ | 0.60 | | | $ | 0.56 | | |
| Book value per common share | $ | 14.39 | | | $ | 13.59 | | | $ | 15.04 | | |
| Tangible book value per common share (a) | $ | 11.00 | | | $ | 10.23 | | | $ | 10.02 | | |
| Common equity Tier 1 | 9.92 | % | | 9.68 | % | | 9.20 | % | |
| Market capitalization | $ | 8,713 | | | $ | 7,082 | | | $ | 5,158 | | |
(a)Represents a non-GAAP measure which is reconciled in the non-GAAP to GAAP reconciliation in table 32.Table 7.30.
(d) (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 aan FTE basis assuming a statutory federal income tax rate of 21 percent21% and, where applicable, state income taxes.
(f)Ratio is noninterest income excluding securities gains (losses) to total revenue excluding securities gains (losses).
(g)Ratio is noninterest expense to total revenue excluding securities gains (losses).
Results of Operations—2021 compared to 2020
Net Interest Income
Net interest income is FHN's largest source of revenue and is the difference between the interest earned on interest-earning assets (generally loans, leases and investment securities) and the interest expense incurred in 2019connection with interest-bearing liabilities (generally deposits and 2018borrowed funds). The level of net interest income is primarily a function of the difference between the effective yield on average interest-earning assets and 35 percentthe 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 2017,turn, are impacted by external factors such as local economic conditions, competition for loans and deposits, the monetary policy of the FRB and market interest rates.
Net interest income of $2.0 billion in 2021 increased 20% from 2020 driven by the impact of the IBKC merger. Results also reflect the benefit of lower deposit costs
which helped to partially offset the impact of lower interest-earning asset yields and spreads.
FHN's net interest margin decreased 38 basis points from 2020 to 2.48% in 2021 and the net interest spread decreased 32 basis points to 2.36% over the same period. Net interest margin and net interest spread were unfavorably impacted by a 58 basis point decrease in earning asset yields, largely reflecting the impact of lower interest rates and higher levels of excess cash. The lower yield on earning assets was partially offset by a 26 basis point decrease in the cost of interest-bearing liabilities driven by lower deposit costs.
The following table presents the major components of net interest income and net interest margin:
| | | | | | | | |
| 63 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Table 7.2
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS/RATES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 |
| Assets: | | Average Balance | | Interest Income/Expense | | Yield/Rate | | Average Balance | | Interest Income/Expense | | Yield/Rate | | Average Balance | | Interest Income/Expense | | Yield/Rate |
| | | | | | | | | | | | | | | | | | |
| Loans and leases: | | | | | | | | | | | | | | | | | | |
| Commercial loans and leases | | $ | 44,325 | | | $ | 1,498 | | | 3.38 | % | | $ | 36,146 | | | $ | 1,324 | | | 3.66 | % | | $ | 22,385 | | | $ | 1,091 | | | 4.87 | % |
| Consumer loans | | 11,973 | | | 469 | | | 3.92 | | | 10,037 | | | 407 | | | 4.05 | | | 6,804 | | | 311 | | | 4.57 | |
| Total loans and leases | | 56,298 | | | 1,967 | | | 3.49 | | | 46,183 | | | 1,731 | | | 3.75 | | | 29,189 | | | 1,402 | | | 4.80 | |
| Loans held for sale | | 956 | | | 33 | | | 3.44 | | | 835 | | | 30 | | | 3.60 | | | 578 | | | 31 | | | 5.39 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Investment securities | | 8,623 | | | 123 | | | 1.43 | | | 6,464 | | | 106 | | | 1.64 | | | 4,510 | | | 121 | | | 2.69 | |
| Trading securities | | 1,366 | | | 30 | | | 2.17 | | | 1,433 | | | 35 | | | 2.44 | | | 1,415 | | | 47 | | | 3.33 | |
| | | | | | | | | | | | | | | | | | |
| Federal funds sold | | 37 | | | — | | | 0.15 | | | 42 | | | — | | | 0.21 | | | 48 | | | 1 | | | 2.63 | |
| Securities purchased under agreements to resell (a) | | 584 | | | — | | | (0.09) | | | 505 | | | 2 | | | 0.45 | | | 555 | | | 11 | | | 1.96 | |
| Interest-bearing deposits with banks | | 13,123 | | | 17 | | | 0.13 | | | 3,006 | | | 5 | | | 0.14 | | | 871 | | | 20 | | | 2.18 | |
| | | | | | | | | | | | | | | | | | |
| Total earning assets / Total interest income | | $ | 80,987 | | | $ | 2,170 | | | 2.68 | % | | $ | 58,468 | | | $ | 1,909 | | | 3.26 | % | | $ | 37,166 | | | $ | 1,633 | | | 4.39 | % |
| | | | | | | | | | | | | | | | | | |
| Cash and due from banks | | 1,261 | | | | | | | 852 | | | | | | | 602 | | | | | |
| Goodwill and other intangible assets, net | | 1,836 | | | | | | | 1,696 | | | | | | | 1,575 | | | | | |
| Premises and equipment, net | | 712 | | | | | | | 604 | | | | | | | 467 | | | | | |
| Allowance for loan and lease losses | | (834) | | | | | | | (700) | | | | | | | (191) | | | | | |
| Other assets | | 3,647 | | | | | | | 3,426 | | | | | | | 2,125 | | | | | |
| Total assets | | $ | 87,609 | | | | | | | $ | 64,346 | | | | | | | $ | 41,744 | | | | | |
| | | | | | | | | | | | | | | | | | |
| Liabilities and Shareholders' Equity: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Interest-bearing deposits: | | | | | | | | | | | | | | | | | | |
| Savings | | $ | 27,283 | | | $ | 36 | | | 0.13 | % | | $ | 19,780 | | | $ | 82 | | | 0.41 | % | | $ | 11,663 | | | $ | 144 | | | 1.24 | % |
| Other interest-bearing deposits | | 15,688 | | | 20 | | | 0.13 | | | 11,973 | | | 31 | | | 0.26 | | | 8,345 | | | 79 | | | 0.94 | |
| Time deposits | | 4,281 | | | 25 | | | 0.57 | | | 4,347 | | | 39 | | | 0.90 | | | 4,262 | | | 84 | | | 1.97 | |
| Total interest-bearing deposits | | 47,252 | | | 81 | | | 0.17 | | | 36,100 | | | 152 | | | 0.42 | | | 24,270 | | | 307 | | | 1.27 | |
| Federal funds purchased | | 949 | | | 1 | | | 0.12 | | | 862 | | | 3 | | | 0.34 | | | 738 | | | 15 | | | 2.08 | |
| Securities sold under agreements to repurchase | | 1,235 | | | 4 | | | 0.30 | | | 1,109 | | | 6 | | | 0.50 | | | 701 | | | 15 | | | 2.07 | |
| Trading liabilities | | 540 | | | 6 | | | 1.11 | | | 457 | | | 6 | | | 1.24 | | | 503 | | | 13 | | | 2.48 | |
| Other short-term borrowings | | 124 | | | — | | | 0.09 | | | 626 | | | 5 | | | 0.84 | | | 538 | | | 11 | | | 2.10 | |
| Term borrowings | | 1,645 | | | 72 | | | 4.37 | | | 1,578 | | | 64 | | | 4.02 | | | 1,117 | | | 53 | | | 4.77 | |
| Total interest-bearing liabilities / Total interest expense | | $ | 51,745 | | | $ | 164 | | | 0.32 | % | | $ | 40,732 | | | $ | 236 | | | 0.58 | % | | $ | 27,867 | | | $ | 414 | | | 1.49 | % |
| | | | | | | | | | | | | | | | | | |
| Noninterest-bearing deposits | | 25,879 | | | | | | | 15,779 | | | | | | | 8,133 | | | | | |
| Other liabilities | | 1,506 | | | | | | | 1,226 | | | | | | | 824 | | | | | |
| Total liabilities | | 79,130 | | | | | | | 57,737 | | | | | | | 36,824 | | | | | |
| | | | | | | | | | | | | | | | | | |
| Shareholders' equity | | 8,184 | | | | | | | 6,314 | | | | | | | 4,625 | | | | | |
| Noncontrolling interest | | 295 | | | | | | | 295 | | | | | | | 295 | | | | | |
| Total shareholders' equity | | 8,479 | | | | | | | 6,609 | | | | | | | 4,920 | | | | | |
| Total liabilities and shareholders' equity | | $ | 87,609 | | | | | | | $ | 64,346 | | | | | | | $ | 41,744 | | | | | |
| | | | | | | | | | | | | | | | | | |
| Net earnings assets / Net interest income (TE) / Net interest spread | | $ | 29,242 | | | $ | 2,006 | | | 2.36 | % | | $ | 17,736 | | | $ | 1,673 | | | 2.68 | % | | $ | 9,299 | | | $ | 1,219 | | | 2.90 | % |
| Taxable equivalent adjustment | | | | (12) | | | 0.12 | | | | | (11) | | | 0.18 | | | | | (9) | | | 0.38 | |
| Net interest income / Net interest margin (b) | | | | $ | 1,994 | | | 2.48 | % | | | | $ | 1,662 | | | 2.86 | % | | | | $ | 1,210 | | | 3.28 | % |
| | | | | | | | | | | | | | | | | | |
(a) Negative yield is driven by negative market rates on reverse repurchase agreements.
(b) Calculated using total net interest income adjusted for FTE assuming a statutory federal income tax rate of 21%, and where applicable, state income taxes.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 45
| | | | | | | | |
| 64 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
FIRST HORIZON NATIONAL CORPORATIONTable 7.3
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCHANGES IN NET INTEREST INCOME
CONDITION AND RESULTS OF OPERATIONS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 Compared to 2020 | | 2020 Compared to 2019 |
| | Increase (Decrease) Due to (a) | | Increase (Decrease) Due to (a) |
| (Dollars in millions) | | Rate (b) | | Volume (b) | | Total | | Rate (b) | | Volume (b) | | Total |
| Interest income: | | | | | | | | | | | | |
| Loans and leases | | $ | (119) | | | $ | 354 | | | $ | 235 | | | $ | (361) | | | $ | 689 | | | $ | 328 | |
| Loans held for sale | | (1) | | | 4 | | | 3 | | | (12) | | | 11 | | | (1) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Investment securities | | (15) | | | 31 | | | 16 | | | (58) | | | 42 | | | (16) | |
| Trading securities | | (4) | | | (1) | | | (5) | | | (12) | | | — | | | (12) | |
| Other earning assets: | | | | | | | | | | | | |
| Federal funds sold | | — | | | — | | | — | | | (1) | | | — | | | (1) | |
| Securities purchased under agreements to resell | | (3) | | | 1 | | | (2) | | | (8) | | | (1) | | | (9) | |
| Interest-bearing deposits with banks | | — | | | 13 | | | 13 | | | (30) | | | 15 | | | (15) | |
| Total other earning assets | | (3) | | | 14 | | | 11 | | | (39) | | | 14 | | | (25) | |
| Total change in interest income - earning assets | | $ | (142) | | | $ | 402 | | | $ | 260 | | | $ | (482) | | | $ | 756 | | | $ | 274 | |
| Interest expense: | | | | | | | | | | | | |
| Interest-bearing deposits: | | | | | | | | | | | | |
| Savings | | $ | (69) | | | $ | 23 | | | $ | (46) | | | $ | (129) | | | $ | 66 | | | $ | (63) | |
| Time deposits | | (14) | | | — | | | (14) | | | (47) | | | 2 | | | (45) | |
| Other interest-bearing deposits | | (19) | | | 8 | | | (11) | | | (72) | | | 25 | | | (47) | |
| Total interest-bearing deposits | | (102) | | | 31 | | | (71) | | | (248) | | | 93 | | | (155) | |
| Federal funds purchased | | (2) | | | — | | | (2) | | | (14) | | | 2 | | | (12) | |
| Securities sold under agreements to repurchase | | (3) | | | — | | | (3) | | | (13) | | | 5 | | | (8) | |
| Trading liabilities | | (1) | | | 1 | | | — | | | (6) | | | (1) | | | (7) | |
| Other short-term borrowings | | 1 | | | (5) | | | (4) | | | (9) | | | 2 | | | (7) | |
| Term borrowings | | 5 | | | 3 | | | 8 | | | (9) | | | 20 | | | 11 | |
| Total change in interest expense - interest-bearing liabilities | | (102) | | | 30 | | | (72) | | | (299) | | | 121 | | | (178) | |
| Net interest income | | $ | (40) | | | $ | 372 | | | $ | 332 | | | $ | (183) | | | $ | 635 | | | $ | 452 | |
| | | | | | | | | | | | |
GENERAL INFORMATION(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.
First Horizon National Corporation (“FHN”) began as(b) Variances are computed on a community bank chartered in 1864. FHN's sole class of common stock, $.625 par value, is listedline-by-line basis and trades onare non-additive.
| | | | | | | | |
| 65 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Provision for Credit Losses
Provision for credit losses includes the New York Stock Exchange LLC underprovision for loan and lease losses and the symbol FHN.
FHNprovision for unfunded lending commitments. The provision for credit losses is the parent companyexpense necessary to maintain the ALLL and the accrual for unfunded lending commitments at levels appropriate to absorb management’s estimate of First Horizon Bank (formerly First Tennessee Bank National Association ("FTBNA")). First Horizon Bank's principal divisionscredit losses expected over the life of the loan and subsidiaries operate underlease portfolio and the brandsportfolio of First Horizon Bank, First Horizon Advisors (formerly FTB Advisors), and FHN Financial (formerly FTN Financial or "FTNF"). FHN offers regional banking, wealth management and capital market services through the First Horizon familyunfunded loan commitments.
Provision for credit losses improved to a provision benefit of companies. First Horizon Bank and First Horizon Advisors provide consumer and commercial banking and wealth management services. FHN Financial, which operates partly through a division$310 million in 2021, compared to an expense of First Horizon Bank and partly through subsidiaries, is
$503 million in 2020, largely reflecting an industry leader in fixed income sales, trading, and strategies for institutional clientsimprovement in the U.S.overall macroeconomic outlook, positive credit grade migration and abroad. First Horizon Bank has over 270 banking officeslower loan balances. The provision in seven southeastern U.S. states,2020 was driven by the adoption of CECL and FHN Financial has 29 offices in 18 states across the U.S.
FHN is composedimpact of the COVID-19 pandemic on loss expectations. Results in 2020 also reflect the impact of the IBKC merger and Truist branch acquisition, including $147 million related to non-PCD loans. For additional information about general asset quality trends refer to the Asset Quality section in this MD&A.
Noninterest Income
The following operating segments:table presents the significant components of noninterest income for each of the periods presented:
Table 7.4
Regional banking segment offers financial productsNONINTEREST INCOME
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | 2021 vs. 2020 | | 2020 vs. 2019 |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | $ Change | | % Change | | $ Change | | % Change |
| Noninterest income | | | | | | | | | | | | | | |
| Fixed income | | $ | 406 | | | $ | 423 | | | $ | 279 | | | $ | (17) | | | (4) | % | | $ | 144 | | | 52 | % |
| Deposit transactions and cash management | | 175 | | | 148 | | | 132 | | | 27 | | | 18 | % | | 16 | | | 12 | % |
| Mortgage banking and title income | | 154 | | | 129 | | | 10 | | | 25 | | | 19 | % | | 119 | | | NM |
| Brokerage, management fees and commissions | | 88 | | | 66 | | | 55 | | | 22 | | | 33 | % | | 11 | | | 20 | % |
| Card and digital banking fees | | 78 | | | 60 | | | 49 | | | 18 | | | 30 | % | | 11 | | | 22 | % |
| Trust services and investment management | | 51 | | | 39 | | | 30 | | | 12 | | | 31 | % | | 9 | | | 30 | % |
| Other service charges and fees | | 44 | | | 26 | | | 21 | | | 18 | | | 69 | % | | 5 | | | 24 | % |
| Securities gains (losses), net | | 13 | | | (6) | | | — | | | 19 | | | NM | | (6) | | | (100) | % |
| Purchase accounting gain | | (1) | | | 533 | | | — | | | (534) | | | (100) | % | | 533 | | | 100 | % |
| Other income | | 68 | | | 74 | | | 78 | | | (6) | | | (8) | % | | (4) | | | (5) | % |
| Total noninterest income | | $ | 1,076 | | | $ | 1,492 | | | $ | 654 | | | $ | (416) | | | (28) | % | | $ | 838 | | | 128 | % |
NM – Not meaningful
Noninterest income totaled $1.1 billion in 2021 and services, including traditional lending$1.5 billion in 2020, or 35% and deposit taking,47% of total revenue, respectively. The decrease in noninterest income in 2021 was driven by a $534 million reduction tied to consumer and commercial customers primarilythe purchase accounting gain recorded in 2020 related to the southeast U.S. and other selected markets. Regional bankingIBKC merger. Results also provides investments, wealth management, financial planning, trust services and asset management, mortgage banking, credit card, and cash management. Additionally,reflect the regional banking segment includes correspondent banking which provides credit, depository, and other banking related services to other financial institutions nationally.benefit of higher fee income largely driven by the full-year impact of the IBKC merger.
Fixed income segment consistsrevenues are mainly generated from the purchase and sale of fixed income securities sales, trading, underwriting,as both principal and strategies for institutional clients in the U.S. and abroad, as well as loanagent. Other noninterest revenues within this line item consist principally of fees from derivative sales, portfolio advisory services and loan sales. Fixed income fees of $406 million decreased $17 million from exceptionally strong levels in 2020. Fixed income product revenue decreased $10 million, reflecting slightly less favorable market conditions, while revenue from other
products decreased $7 million, largely driven by lower fees from derivative sales.and loan sales, somewhat offset by higher fees from portfolio advisory services. Fixed income average daily revenue of $1.4 million in 2021 decreased slightly from $1.5 million in 2020.
Corporate segment consistsDeposit transactions and cash management fees of unallocated corporate$175 million increased $27 million, or 18%, from 2020, primarily driven by the impact of the IBKC merger and Truist branch acquisition.
Mortgage banking and title income of $154 million increased $25 million from $129 million in 2020 as the benefit of the IBKC merger was partially offset by a strategic shift in origination mix toward portfolio loans as well as lower spreads on sales of mortgage loans.
Brokerage, management fees and commissions include fees for portfolio management, trade commissions, and
| | | | | | | | |
| 66 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
annuity and mutual funds sales. These fees and commissions totaled $88 million in 2021, an increase of 33% compared to $66 million in 2020 driven by the impact of the IBKC merger and an increase in annuity income and advisory fees.
Trust services and investment management income of $51 million increased $12 million from 2020, driven by the impact of the IBKC merger as well as new business and market appreciation.
The IBKC merger also drove the increases in card and digital banking fees and other service charges and fees in 2021 compared to 2020.
Other income in 2021 included a $26 million loss on the redemption of legacy IBKC trust preferred securities.
Noninterest Expense
The following table presents the significant components of noninterest expense for each of the periods presented:
Table 7.5
NONINTEREST EXPENSE
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | 2021 vs. 2020 | | 2020 vs. 2019 |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | $ Change | | % Change | | $ Change | | % Change |
| Noninterest expense | | | | | | | | | | | | | | |
| Personnel expense | | $ | 1,210 | | | $ | 1,033 | | | $ | 695 | | | $ | 177 | | | 17 | % | | $ | 338 | | | 49 | % |
| Net occupancy expense | | 137 | | | 116 | | | 80 | | | 21 | | 18 | % | | 36 | | 45 | % |
| Computer software | | 116 | | | 85 | | | 61 | | | 31 | | 36 | % | | 24 | | 39 | % |
| Operations services | | 80 | | | 56 | | | 46 | | | 24 | | 43 | % | | 10 | | 22 | % |
| Legal and professional fees | | 68 | | | 84 | | | 72 | | | (16) | | | (19) | % | | 12 | | 17 | % |
| Contract employment and outsourcing | | 67 | | | 24 | | | 13 | | | 43 | | NM | | 11 | | 85 | % |
| Amortization of intangible assets | | 56 | | | 40 | | | 25 | | | 16 | | 40 | % | | 15 | | 60 | % |
| Equipment expense | | 47 | | | 42 | | | 34 | | | 5 | | 12 | % | | 8 | | 24 | % |
| Communications and delivery | | 37 | | 31 | | 25 | | 6 | | 19 | % | | 6 | | 24 | % |
| Advertising and public relations | | 37 | | 18 | | 34 | | 19 | | NM | | (16) | | | (47) | % |
| Impairment of long-lived assets | | 34 | | | 7 | | | 23 | | | 27 | | NM | | (16) | | | (70) | % |
| Contributions | | 14 | | | 41 | | | 11 | | | (27) | | | (66) | % | | 30 | | NM |
| Other expense | | 193 | | 141 | | 114 | | 52 | | 37 | % | | 27 | | 24 | % |
| Total noninterest expense | | $ | 2,096 | | | $ | 1,718 | | | $ | 1,233 | | | $ | 378 | | | 22 | % | | $ | 485 | | | 39 | % |
NM - Not meaningful
Total noninterest expense of $2.1 billion increased $378 million, or 22%, driven by the impact of the IBKC merger, mitigated in part by a reduction in noninterest expense as a result of expense discipline and merger cost saves. Total merger/acquisition integration expense was $187 million in 2021 compared to $155 million in 2020.
Personnel expense of $1.2 billion increased $177 million from 2020 driven by the full-year impact of the IBKC merger and Truist branch acquisition. Results also reflect lower merger/acquisition integration expenses of $10 million, primarily severance and retention costs, and the benefit of merger cost saves. Deferred compensation expense, a component of personnel expense, increased $9 million in 2021, largely due to $6 million from litigation tied to a company that was fully divested over ten years ago.
The increases in net occupancy expense and computer software expense in 2021 were both driven by the impact of the IBKC merger and Truist branch acquisition.
Operations services expense increased $24 million, or 43%, to $80 million in 2021, driven by the impact of the IBKC merger and a $7 million increase in merger/acquisition integration expense.
Legal and professional fees decreased $16 million, or 19%, to $68 million in 2021, driven by an $18 million decline in merger/acquisition integration expense.
Contract employment and outsourcing increased $43 million driven by the impact of the IBKC merger, higher contractor costs tied to investments in new systems and an $11 million increase in merger/acquisition integration expense.
| | | | | | | | |
| 67 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Amortization of intangible assets of $56 million in 2021 increased $16 million compared to 2020 primarily due to amortization tied to the intangible assets created from the IBKC merger.
Advertising and public relations of $37 million increased $19 million from 2020 largely driven by a $10 million increase in merger/acquisition integration expense.
Impairment of long-lived assets of $34 million and $7 million in 2021 and 2020, respectively, was primarily related to merger integration efforts associated with reduction of leased office space and banking center optimization.
Contributions decreased $27 million in 2021, primarily due to a $20 million contribution to the Louisiana First Horizon
Foundation in connection with the IBKC merger and a $15 million donation of Paycheck Protection Plan fees to the First Horizon Foundation to assist low- and moderate-income communities in 2020. Contributions in 2021 reflect an increase in other contributions to the First Horizon Foundation.
The $52 million increase in other expense in 2021 was largely attributable to $19 million in derivative valuation adjustments on subordinated debt issuances,prior Visa Class B share sales and increases in customer relations, loan closing, fraud, and travel and entertainment expenses.
Income Taxes
FHN recorded income tax expense of $274 million in 2021 compared to $76 million in 2020, resulting in an effective tax rate of 21.4% and 8.2% respectively. The lower effective tax rate in 2020 was primarily the result of the purchase accounting gain from the IBKC merger, which was not included in taxable income.
FHN’s effective tax rate is favorably affected by recurring items such as bank-owned life insurance, unallocated interesttax-exempt income, associated with excess equity, net impact of raising incremental capital, revenue and expense associated with deferred compensation plans, funds management,tax credits and other tax benefits from tax credit investment activities, derivative valuation adjustments relatedinvestments. The effective rate is unfavorably affected by the non-deductibility of portions of: FDIC premium, executive compensation and merger expenses. FHN's effective tax rate also may be affected by items that may occur in any given period but are not consistent from period to prior salesperiod, such as changes in unrecognized tax benefits. The rate also may be affected by items resulting from business combinations.
A deferred tax asset or deferred tax liability is recognized for the tax consequences of Visa Class B shares, gain/(loss) on extinguishment of debt, acquisition- and integration-related costs, expenses associated with rebranding initiatives, and various charges related to restructuring, repositioning, and efficiency efforts.
Non-strategic segment consists of run-off consumer lending activities, pre-2009 mortgage banking elements,temporary differences between the financial statement carrying amounts and the associated ancillary revenuestax bases of existing assets and expenses relatedliabilities. The tax consequence is calculated by applying current enacted statutory tax rates to these businesses. Non-strategic also includes the wind-down trust preferred loan portfoliotemporary differences in future years. FHN’s net DTA was $52 million and exited businesses.
On November 4, 2019, FHN and IBERIABANK Corporation ("IBKC") announced that they had entered into an agreement and plan of merger under which IBKC will merge with FHN in a merger-of-equals transaction. IBKC, headquartered in Lafayette, Louisiana, has 319 offices in 12 states, mostly in the southern and southeastern U.S., and has reported $31.7 billion of total assets, $24.0 billion in loans, and $25.2 billion in deposits,less than $1 million at December 31, 2019. IBKC's common stock2021 and 2020, respectively.
As of December 31, 2021, FHN had deferred tax asset balances related to federal and state income tax carryforwards of $38 million and $2 million, which will
expire at various dates. Refer to Note 15 - Income Taxes for additional information.
FHN’s gross DTA after valuation allowance was $448 million and $471 million as of December 31, 2021 and 2020, respectively. Based on current analysis, FHN believes that its ability to realize the DTA is listedmore likely than not. FHN monitors its DTA and the need for a valuation allowance on The NASDAQ Stock Market, LLC undera quarterly basis. A significant adverse change in FHN’s taxable earnings outlook could result in the symbol IBKC. Underneed for a valuation allowance.
FHN and its eligible subsidiaries are included in a consolidated federal income tax return. FHN files separate returns for subsidiaries that are not eligible to be included in a consolidated federal income tax return. Based on the merger agreement, each share of IBKC common stock will be converted into 4.584 shares of FHN common stock. After closing, FHN expects IBKC common shares will be converted into approximately 44 percentlaws of the then-outstanding sharesapplicable states where it conducts business operations, FHN either files consolidated, combined, or separate returns. The statute of FHN common stock. The merger agreement requires FHN to expand its board of directors to seventeen persons; after closing, eight board positions willlimitations for FHN’s consolidated federal income tax returns remains open for tax years 2018 through 2020. Additionally, 2016 – 2017 could be held by current IBKC directors, and nine will be held by current FHN directors. FHN expects the transaction to close in mid-2020, subject to regulatory approvals, approvallimited review related to refund claims filed. IBKC's federal consolidated tax returns for 2016, 2017 and 2018 are currently under examination by the shareholdersIRS. On occasion, as federal or state auditors examine the tax returns of FHN and its subsidiaries, FHN may extend the statute of IBKC, and other customary closing conditions.
On November 8, 2019, FHN announced an agreement for First Horizon Bank to purchase 30 branches from SunTrust Bank in conjunction with SunTrust Banks, Inc.'s merger with BB&T Corporation, which created Truist Financial Corp. As part of the agreement, FHN will assume approximately $2.4 billion of branch depositslimitations for a 3.40 percent deposit premiumreasonable period. Otherwise, the statutes of limitations remain open only for tax years in accordance with federal and purchase approximately $410 million of branch loans. The branches are in communities in North Carolina (20 branches), Virginia (8
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 46
branches), and Georgia (2 branches). FHN expects the purchase to close in second quarter 2020, subject to customary closing conditions.
On November 30, 2017, FHN completed its merger with Capital Bank Financial Corporation ("CBF") for an aggregate of 92,042,232 shares of FHN common stock and $423.6 million in cash in a transaction valued at $2.2 billion. In second quarter 2018, FHN canceled 2,373,220 FHN common shares which had been issued but set aside for certain CBF shareholders who had commenced a dissenter appraisal process.
In first quarter 2018, FHN divested two branches, including approximately $30 million of deposits and $2 million of loans. The branches, both in Greeneville, Tennessee, were divested in connection with First Horizon's agreement with the U.S. Department of Justice and commitments to the Board of Governors of the Federal Reserve System, which were entered into in connection with a customary review of FHN's merger with CBF.
In second quarter 2018, FHN sold approximately $120 million UPB of its subprime auto loans. These loans, originally acquired as part of the CBF acquisition, did not fit within FHN's risk profile.
In second quarter 2019, FHN sold a subsidiary acquired as part of the CBF acquisition, that did not fit within FHN's risk profile. The sale resulted in the removal of approximately $25 million UPB of subprime consumer loans from Loans held-for-sale on FHN's Consolidated Statements of Condition.
On April 3, 2017, FHN Financial acquired substantially all of the assets and assumed substantially all of the liabilities of Coastal Securities, Inc. (“Coastal”), a national leader in the trading, securitization, and analysis of Small Business Administration (“SBA”) loans, for approximately $131 million in cash. Coastal, which was based in Houston, TX, also traded United States Department of Agriculture (“USDA”) loans and fixed income products and provided municipal underwriting and municipal advisory services to its clients. Coastal’s government-guaranteed loan products were combined with FHN Financial's existing SBA trading activities to establish an additional major product sector for FHN Financial.
In relation to all acquisitions, FHN's operating results include the operating results of the acquired assets and assumed liabilities subsequent to the acquisition date. Refer tostate statutes. See Note 215 - Acquisitions and DivestituresIncome Taxes for additional information.
For the purpose of this management’s discussion
Business Segment Results
During 2020, FHN reorganized its internal management structure and, analysis (“MD&A”), earning assets have been expressed as averages, unless otherwise noted,accordingly, its segment reporting structure. Historically, FHN's primary business segments were Regional Banking, Fixed Income, Corporate, and loans have been disclosed net of unearned income.Non-strategic. The following financial discussion should be read with the accompanying audited Consolidated Financial Statements and Notes in this report.
ADOPTION OF ACCOUNTING UPDATES
Effective January 1, 2019, FHN adopted the provisions of ASU 2016-02 "Leases" and related ASUs on a prospective basis which resulted in the recognition of approximately $185 million of lease assets and approximately $204 million of lease liabilities. See Note 1– Summary of Significant Accounting Policies for additional information.
Non-GAAP Measures
Certain measures are included in the narrative and tables in this MD&A that are “non-GAAP”, meaning (under U.S. financial reporting rules) they are not presented in accordance with generally accepted accounting principles (“GAAP”) in the U.S. and also are not codified in U.S. banking regulations currently applicable to FHN. Although other entities may use calculation methods that differ from those used by FHN for non-GAAP measures, FHN’s management believes such measures are relevant to understanding the capital position or financial results of FHN. Non-GAAP measures are reported to FHN’s management and Board of Directors through various internal reports.
Presentation of regulatory measures, even those which are not GAAP, provide a meaningful base for comparability to other financial institutions subject to the same regulations as FHN, as demonstrated by their use by banking regulators in reviewing capital adequacy of financial institutions. Although not GAAP terms, these regulatory measures are not considered “non-GAAP” under U.S. financial reporting rules as long as their presentation conforms to regulatory standards. Regulatory measures used in this MD&A include: common equity tier 1 capital, generally defined as common equity less goodwill, other intangibles, and certain other required regulatory deductions; tier 1 capital, generally defined as the sum of core capital (including common equity and instruments that cannot be redeemed at the optionclosing of the holder) adjusted for certain items under risk based capital regulations;FHN and risk-weighted assets (“RWA”), which is a measure of total on- and off-balance sheet assets adjusted for credit and market risk, used to determine regulatory capital ratios.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 47
The non-GAAP measures presented in this filing are return on average tangible common equity (“ROTCE”), tangible common equity to tangible assets and adjusted tangible common equity to risk-weighted assets. Refer to table 32 for a reconciliation of the non-GAAP to GAAP measures and presentation of the most comparable GAAP items.
FORWARD-LOOKING STATEMENTS
This MD&A 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 FHN’s 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; inflation or deflation; customer, investor, competitor, regulatory, and legislative responses to any or all of these conditions; the financial condition of borrowers and other counterparties; competition within and outside the financial services industry; geopolitical developments including possible terrorist activity; natural disasters; effectiveness and cost-efficiency of FHN’s hedging practices; technological changes; fraud, theft, or other incursions through conventional, electronic, or other means directly or indirectly affecting FHN or its customers, business counterparties or competitors; demand for FHN’s product offerings; new products and services in the industries in which FHN operates; the increasing use of new technologies to interact with customers and others; and critical accounting estimates. Other factors are those 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 customer profiles. Additionally, the actions of the Securities and Exchange Commission (“SEC”), the Financial Accounting Standards Board (“FASB”), the Tennessee Department of Financial Institutions ("TDFI") and its Commissioner, the Board of Governors of the Federal Reserve System (“Federal Reserve” or “Fed”), the Federal Deposit Insurance Corporation (“FDIC”), the Financial Industry Regulatory Authority (“FINRA”), the U.S. Department of the Treasury (“U.S. Treasury”), the Municipal Securities Rulemaking Board (“MSRB”), the Consumer Financial Protection Bureau (“CFPB”), the Office of the Comptroller of the Currency ("OCC"), the Financial Stability Oversight Council (“Council”), the Public Company Accounting Oversight Board (“PCAOB”), and other regulators and agencies; pending, threatened, or possible future regulatory, administrative, and judicial outcomes, actions, and proceedings; current or future Executive orders; changes in laws and regulations applicable to FHN; and FHN’s success in executing its business plans and strategies and managing the risks involved in the foregoing, could cause actual results to differ, perhaps materially, from those contemplated by the forward-looking statements.
FHN assumes no obligation to update or revise any forward-looking statements that are made in this Annual Report to Shareholders for the period ended December 31, 2019 of which this MD&A is a part or otherwise from time to time. Actual results could differ and expectations could change, possibly materially, because of one or more factors, including those presented in this Forward-Looking Statements section, in other sections of this MD&A, in other parts of this Annual Report to Shareholders, or in FHN's Annual Report on Form 10-K for the period ended December 31, 2019 into which this MD&A has been incorporated, and in exhibits to and documents incorporated into the Form 10-K.
FINANCIAL SUMMARY - 2019 COMPARED TO 2018
FHN reported net income available to common shareholders of $434.7 million, or $1.38 per diluted share, compared to net income of $538.8 million, or $1.65 per diluted share in 2018. In 2019, operating results were impacted by a modest decrease in net interest income and lower noninterest income compared to the prior year. In 2018, operating results were favorably impacted by a $212.9 million pre-tax gain from the sale of FHN’s remaining Visa Class B shares. In 2019, FHN invested in strategic initiatives, which led to restructuring, rebranding and acquisition-related expenses. Various factors that significantly impacted reported earnings in 2019 included the steady economic environment, efficiency initiatives, prudent investments in key markets as well as strength in our countercyclical fixed income business. Strategic transactions are expected to boost growth, returns and profitability.
While the economic environment remained relatively strong in 2019, with GDP growth throughout the year, low unemployment rates, and muted inflation, actions by the Federal Reserve, including three interest rate cuts during 2019, placed pressure on FHN’s net interest income (“NII”) and net interest margin (“NIM”). Profitable balance sheet growth and strong loan and deposit pricing disciplines helped defend FHN's NII and NIM in this challenging interest rate environment. Additionally, FHN effectively leveraged its key countercyclical fixed income business, capitalizing on lower interest rates and market volatility which led to higher profits within fixed income positively impacting fee income in 2019.
FHN continued to execute on strategic priorities in 2019 by focusing on higher returns, profitable balance sheet growth in key markets and specialty areas, transforming the customer experience, and optimizing the expense base. Beginning in 2019, FHN initiated a company-wide review of business practices with the goal of optimizing its expense base to improve profitability which resulted in $39.8 million of restructuring charges. FHN invested in technology and infrastructure with enhanced mobile banking and an improved consumer platform, and enhanced its presence with strategic talent in growth markets. Additionally, FHN’s enhanced focus on efficiency and expense discipline created broad-based cost savings across multiple expense line items. In 2019, management successfully deployed capital through organic loan growth, share repurchases and a dividend increase.
In fourth quarter 2019, FHN unified the legacy business and Capital Bank brands under the First Horizon name. Additionally, capitalizing on strength and balance sheet capacity from the execution of the CBF acquisition, FHN announced aIBKC merger of equals with IBERIABANK Corporation, as well as, an agreementtransaction prompted organizational changes to better integrate and execute the combined Company's
strategic priorities across all lines of businesses. As a result, FHN revised its reportable segments to include Regional Banking, Specialty Banking and Corporate. Segment results for First Horizon Bankyears prior to purchase 30 branches from SunTrust Bank. These actions led2020 have been recast to adjust for the recognitionrealignment of $21.3 million and $39.0 million, respectively of rebranding and acquisition-related charges in 2019, compared with $97.5 million of acquisition expenses in 2018.the segment reporting structure. See Note 20 - Business Segment Information for
Asset quality trends remained steady in 2019 reflecting steady economic conditions and continued strong credit risk management. The allowance for loan losses increased 11 percent from $180.4 million on December 31, 2018
| | | | | | | | |
| 68 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
additional disclosures related to $200.3 million on December 31, 2019, primarily driven by commercial loan growth and grade migration. The ratio of annual net charge-offs to average loans were .09 percent for 2019, up slightly from .06 percent for 2018, and the ratio of 30+ delinquencies to total loans declined from .27 percent to .19 percent.
Return on average common equity (“ROCE”) and ROTCE for 2019 were 9.60 percent and 14.71 percent, respectively, compared to 12.75 percent and 20.28 percent in 2018. Return on average assets (“ROA”) was 1.08 percent in 2019 compared to 1.38 percent in 2018. The 2018 metrics were favorably impacted by the third quarter 2018 gain on the sale of FHN's remaining Visa Class B shares. The tangible common equity to tangible assets ratio was 7.48 percent in 2019 compared to 7.15 percent in 2018. Common equity tier 1, Tier 1, Total capital, and Leverage ratios were 9.20 percent, 10.15 percent, 11.22 percent, and 9.04 percent on December 31, 2019, compared to 9.77 percent, 10.80 percent, 11.94 percent, and 9.09 percent, respectively, on December 31, 2018. Total period-end assets increased to $43.3 billion on December 31, 2019 from $40.8 billion on December 31, 2018. Total period-end equity was $5.1 billion on December 31, 2019, up from $4.8 billion on December 31, 2018.operating segments.
BUSINESS LINE REVIEW - 2019 COMPARED TO 2018
Regional BankingNONINTEREST INCOME
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | 2021 vs. 2020 | | 2020 vs. 2019 |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | $ Change | | % Change | | $ Change | | % Change |
| Noninterest income | | | | | | | | | | | | | | |
| Fixed income | | $ | 406 | | | $ | 423 | | | $ | 279 | | | $ | (17) | | | (4) | % | | $ | 144 | | | 52 | % |
| Deposit transactions and cash management | | 175 | | | 148 | | | 132 | | | 27 | | | 18 | % | | 16 | | | 12 | % |
| Mortgage banking and title income | | 154 | | | 129 | | | 10 | | | 25 | | | 19 | % | | 119 | | | NM |
| Brokerage, management fees and commissions | | 88 | | | 66 | | | 55 | | | 22 | | | 33 | % | | 11 | | | 20 | % |
| Card and digital banking fees | | 78 | | | 60 | | | 49 | | | 18 | | | 30 | % | | 11 | | | 22 | % |
| Trust services and investment management | | 51 | | | 39 | | | 30 | | | 12 | | | 31 | % | | 9 | | | 30 | % |
| Other service charges and fees | | 44 | | | 26 | | | 21 | | | 18 | | | 69 | % | | 5 | | | 24 | % |
| Securities gains (losses), net | | 13 | | | (6) | | | — | | | 19 | | | NM | | (6) | | | (100) | % |
| Purchase accounting gain | | (1) | | | 533 | | | — | | | (534) | | | (100) | % | | 533 | | | 100 | % |
| Other income | | 68 | | | 74 | | | 78 | | | (6) | | | (8) | % | | (4) | | | (5) | % |
| Total noninterest income | | $ | 1,076 | | | $ | 1,492 | | | $ | 654 | | | $ | (416) | | | (28) | % | | $ | 838 | | | 128 | % |
Pre-taxNM – Not meaningful
Noninterest income within the regional banking segment increased 2 percent to $671.1 milliontotaled $1.1 billion in 2019 from $658.3 million in 2018. The increase in pre-tax income was primarily driven by an increase in fee income2021 and lower expenses, somewhat offset by an increase in loan loss provision expense.
Total revenue increased $16.9 million to $1.5 billion in 2019 driven by an increase in noninterest income. Noninterest income in 2019 increased 6 percent to $329.8 million from $311.8 million in 2018. The increase in noninterest income was largely driven by increases in fees from derivative sales, other service charges,2020, or 35% and ATM interchange fees. The increase in ATM interchange fees was primarily driven by the conversion47% of CBF debit cards to Visa in first quarter 2019. These increases were somewhat offset by lower fees from deposit transactions and cash management activities in 2019 as a result of a decline in NSF fee income and lower cash management fees driven by changes in consumer behavior. NII was flat in 2019 at $1.2 billion.
Provision expense was $66.1 million and $24.6 million in 2019 and 2018, respectively. The increase in provision expense for 2019 was primarily the result of increased reserves due to commercial loan growth, grade migration, three charge-offs, and a relationship that was downgraded in first quarter 2019.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 48
Noninterest expense decreased 5 percent to $789.0 million in 2019 from $826.3 million in 2018. The decrease in expense was primarily driven by broad-based cost savings across multiple expense categories driven by strategic focus on expense optimization, lower personnel-related expenses and lower FDIC premium expense which decreased in 2019 primarily due to the end of an FDIC assessment surcharge starting with fourth quarter 2018.
Fixed Income
Pre-tax income in the fixed income segment was $67.8 million in 2019 compared to $11.1 million in 2018. The improvement in results in 2019 was driven by higher noninterest income which outpaced an increase in expenses and lower NII.
Noninterest income increased 69 percent, or $113.7 million, to $278.4 million in 2019 from $164.8 million in 2018. Fixed income producttotal revenue, increased to $228.4 million in 2019 from $132.3 million in 2018, as average daily revenue (“ADR”) increased to $914 thousand in 2019 from $531 thousand in the prior year. The increase in ADR was largely due to declining interest rates and increased market volatility. Other product revenue increased to $50.0 million in 2019 from $32.5 million in 2018, driven by higher fees from derivative and loan sales and an increase in fees for portfolio advisory services. NII was $26.0 million and $35.8 million in 2019 and 2018, respectively. The decline in NII was due in large part to lower spreads on inventory positions coupled with lower average balances of trading securities compared to the prior year.
Noninterest expense increased 25 percent, or $47.3 million, to $236.7 million in 2019 from $189.4 million in 2018. The expense increase during 2019 was primarily due to higher variable compensation associated with an increase in fixed income product revenue and a $7.5 million net impact related to the resolution of legal matters recognized in 2019.
Corporate
The pre-tax loss for the corporate segment was $195.1 million and $2.9 million for 2019 and 2018, respectively. In third quarter 2018, FHN recognized a $212.9 million pre-tax gain from the sale of Visa Class B shares which positively impacted noninterest income for 2018.
Net interest expense was $40.8 million in 2019 compared to $64.2 million in 2018. Net interest expense was favorably impacted in 2019 by a reduction of market-indexed deposits due to strong lower cost deposit growth in Regional Banking and higher average balances of cash, somewhat offset by lower average balances of investment securities. Noninterest income (including securities gain/losses) was $41.4 million and $239.3 million in 2019 and 2018, respectively. The decrease in noninterest income in 20192021 was driven by a $534 million reduction tied to the previously mentioned $212.9 millionpurchase accounting gain recorded in 2020 related to the IBKC merger. Results also reflect the benefit of higher fee income largely driven by the full-year impact of the IBKC merger.
Fixed income revenues are mainly generated from the purchase and sale of FHN’s remaining Visa shares recognizedfixed income securities as both principal and agent. Other noninterest revenues within this line item consist principally of fees from derivative sales, portfolio advisory services and loan sales. Fixed income fees of $406 million decreased $17 million from exceptionally strong levels in 2018. Additionally2020. Fixed income product revenue decreased $10 million, reflecting slightly less favorable market conditions, while revenue from other
products decreased $7 million, largely driven by lower dividendfees from derivative and loan sales, somewhat offset by higher fees from portfolio advisory services. Fixed income recognizedaverage daily revenue of $1.4 million in 2019 compared to 20182021 decreased slightly from $1.5 million in 2020.
Deposit transactions and cash management fees of $175 million increased $27 million, or 18%, from 2020, primarily driven by the impact of the IBKC merger and Truist branch acquisition.
Mortgage banking and title income of $154 million increased $25 million from $129 million in 2020 as the benefit of the IBKC merger was partially offset by a $1.8 million decreasestrategic shift in gainsorigination mix toward portfolio loans as well as lower spreads on sales of propertiesmortgage loans.
Brokerage, management fees and commissions include fees for portfolio management, trade commissions, and
| | | | | | | | |
| 66 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
annuity and mutual funds sales. These fees and commissions totaled $88 million in 2021, an increase of 33% compared to $66 million in 2020 driven by the impact of the IBKC merger and an increase in annuity income and advisory fees.
Trust services and investment management income of $51 million increased $12 million from 2020, driven by the impact of the IBKC merger as well as new business and market appreciation.
The IBKC merger also contributeddrove the increases in card and digital banking fees and other service charges and fees in 2021 compared to 2020.
Other income in 2021 included a $26 million loss on the declineredemption of legacy IBKC trust preferred securities.
Noninterest Expense
The following table presents the significant components of noninterest expense for each of the periods presented:
Table 7.5
NONINTEREST EXPENSE
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | 2021 vs. 2020 | | 2020 vs. 2019 |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | $ Change | | % Change | | $ Change | | % Change |
| Noninterest expense | | | | | | | | | | | | | | |
| Personnel expense | | $ | 1,210 | | | $ | 1,033 | | | $ | 695 | | | $ | 177 | | | 17 | % | | $ | 338 | | | 49 | % |
| Net occupancy expense | | 137 | | | 116 | | | 80 | | | 21 | | 18 | % | | 36 | | 45 | % |
| Computer software | | 116 | | | 85 | | | 61 | | | 31 | | 36 | % | | 24 | | 39 | % |
| Operations services | | 80 | | | 56 | | | 46 | | | 24 | | 43 | % | | 10 | | 22 | % |
| Legal and professional fees | | 68 | | | 84 | | | 72 | | | (16) | | | (19) | % | | 12 | | 17 | % |
| Contract employment and outsourcing | | 67 | | | 24 | | | 13 | | | 43 | | NM | | 11 | | 85 | % |
| Amortization of intangible assets | | 56 | | | 40 | | | 25 | | | 16 | | 40 | % | | 15 | | 60 | % |
| Equipment expense | | 47 | | | 42 | | | 34 | | | 5 | | 12 | % | | 8 | | 24 | % |
| Communications and delivery | | 37 | | 31 | | 25 | | 6 | | 19 | % | | 6 | | 24 | % |
| Advertising and public relations | | 37 | | 18 | | 34 | | 19 | | NM | | (16) | | | (47) | % |
| Impairment of long-lived assets | | 34 | | | 7 | | | 23 | | | 27 | | NM | | (16) | | | (70) | % |
| Contributions | | 14 | | | 41 | | | 11 | | | (27) | | | (66) | % | | 30 | | NM |
| Other expense | | 193 | | 141 | | 114 | | 52 | | 37 | % | | 27 | | 24 | % |
| Total noninterest expense | | $ | 2,096 | | | $ | 1,718 | | | $ | 1,233 | | | $ | 378 | | | 22 | % | | $ | 485 | | | 39 | % |
NM - Not meaningful
Total noninterest expense of $2.1 billion increased $378 million, or 22%, driven by the impact of the IBKC merger, mitigated in part by a reduction in noninterest income. These decreases were partially mitigated by higher deferred compensation incomeexpense as a result of expense discipline and merger cost saves. Total merger/acquisition integration expense was $187 million in 2021 compared to $155 million in 2020.
Personnel expense of $1.2 billion increased $177 million from 2020 driven by equity market valuations.
Noninterestthe full-year impact of the IBKC merger and Truist branch acquisition. Results also reflect lower merger/acquisition integration expenses of $10 million, primarily severance and retention costs, and the benefit of merger cost saves. Deferred compensation expense, a component of personnel expense, increased to $195.7$9 million in 20192021, largely due to $6 million from $177.9litigation tied to a company that was fully divested over ten years ago.
The increases in net occupancy expense and computer software expense in 2021 were both driven by the impact of the IBKC merger and Truist branch acquisition.
Operations services expense increased $24 million, or 43%, to $80 million in 2018. The increase in expense for 2019 was primarily2021, driven by $39.8 millionthe impact of restructuring costs associated with efficiency initiatives, $21.3 million in rebranding expenses,the IBKC merger and a $16.1$7 million increase in deferred compensationmerger/acquisition integration expense. Additionally, charitable contributions
Legal and professional fees decreased $16 million, or 19%, to $68 million in 2021, driven by an $18 million decline in merger/acquisition integration expense.
Contract employment and outsourcing increased $43 million driven by the impact of $11.0the IBKC merger, higher contractor costs tied to investments in new systems and an $11 million made in 2019 also contributed to the overall expense increase in 2019. These increases were somewhat offset by a $58.5merger/acquisition integration expense.
| | | | | | | | |
| 67 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Amortization of intangible assets of $56 million decrease in acquisition- and integration-related expenses as well as broad-based cost savings driven by strategic-focus on expense optimization2021 increased $16 million compared to the prior year.
Non-Strategic
The non-strategic segment had pre-tax income of $41.9 million in 2019 compared to $47.5 million in 2018. The decrease in pre-tax income was primarily driven by lower revenues, somewhat offset by lower expenses relative to the prior year.
Total revenue decreased to $33.1 million in 2019 from $58.3 million in 2018. NII decreased 44 percent to $28.6 million in 2019,2020 primarily due to continued run-offamortization tied to the intangible assets created from the IBKC merger.
Advertising and public relations of the loan portfolios. Noninterest income decreased to $4.5$37 million increased $19 million from 2020 largely driven by a $10 million increase in merger/acquisition integration expense.
Impairment of long-lived assets of $34 million and $7 million in 2019 from $7.02021 and 2020, respectively, was primarily related to merger integration efforts associated with reduction of leased office space and banking center optimization.
Contributions decreased $27 million in 2018. In 2018, FHN recognized $4.12021, primarily due to a $20 million contribution to the Louisiana First Horizon
Foundation in connection with the IBKC merger and a $15 million donation of gains onPaycheck Protection Plan fees to the reversals of previousFirst Horizon Foundation to assist low- and moderate-income communities in 2020. Contributions in 2021 reflect an increase in other contributions to the First Horizon Foundation.
The $52 million increase in other expense in 2021 was largely attributable to $19 million in derivative valuation adjustments related to theon prior Visa Class B share sales and payoffincreases in customer relations, loan closing, fraud, and travel and entertainment expenses.
Income Taxes
FHN recorded income tax expense of TRUPS loans recognized within the non-strategic segment$274 million in 2021 compared to $1.1 million of gains on the sale and payoff of TRUPS loans in 2019.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 49
The provision for loan losses within the non-strategic segment was a provision credit of $19.1$76 million in 2019 compared to a provision credit of $17.6 million in the prior year. Overall, the non-strategic segment continued to reflect stable performance combined with lower loan balances2020, resulting in a $9.8 million declinean effective tax rate of 21.4% and 8.2% respectively. The lower effective tax rate in reserves to $17.6 million on December 31, 2019. Losses remain historically low as the non-strategic segment had net recoveries of $9.2 million in 2019 compared to net recoveries of $7.2 million a year ago.
Noninterest expense was $10.2 million in 2019, down from $28.4 million in 2018. The decline in noninterest expense relative to the prior year2020 was primarily the result of an $8.3the purchase accounting gain from the IBKC merger, which was not included in taxable income.
FHN’s effective tax rate is favorably affected by recurring items such as bank-owned life insurance, tax-exempt income, and tax credits and other tax benefits from tax credit investments. The effective rate is unfavorably affected by the non-deductibility of portions of: FDIC premium, executive compensation and merger expenses. FHN's effective tax rate also may be affected by items that may occur in any given period but are not consistent from period to period, such as changes in unrecognized tax benefits. The rate also may be affected by items resulting from business combinations.
A deferred tax asset or deferred tax liability is recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax consequence is calculated by applying current enacted statutory tax rates to these temporary differences in future years. FHN’s net DTA was $52 million pre-tax expense reversaland less than $1 million at December 31, 2021 and 2020, respectively.
As of December 31, 2021, FHN had deferred tax asset balances related to the settlement of litigation matters in 2019. Additionally, lower personnel expensesfederal and legal fees also contributed to the overall decrease in noninterest expense compared to the prior year.
INCOME STATEMENT REVIEW - 2019 COMPARED TO 2018; 2018 COMPARED TO 2017
Total consolidated revenue was $1.9 billion, a 4 percent decrease from the prior year, driven by a decrease in noninterest income and lower net interest income. Total consolidated expenses were $1.2 billion, a 1 percent increase from 2018, primarily driven by restructuring and rebranding expense and higher fixed income variable compensation expense, somewhat offset by lower acquisition- and integration-related expenses and broad-based cost savings across multiple line items driven by strategic focus on expense optimization.
In 2018, total consolidated revenue increased 46 percent, or $610.6 million to $1.9 billion in 2018, driven by a 45 percent increase in NII due to the full-year inclusion of Capital Bank and rate increases and a 47 percent increase in noninterest income primarily due to the gain on the sale of Visa Class B shares. Total consolidated expenses increased 19 percent to $1.2 billion in 2018 from $1.0 billion in 2017. The expense increase was primarily driven by a full-year inclusion of Capital Bank and an increase in acquisition- and integration-related expenses associated with the CBF acquisition.
NET INTEREST INCOME
Net interest income was $1.2 billion in 2019, a 1 percent decrease from 2018. On a fully taxable equivalent ("FTE") basis, NII also decreased 1 percent to $1.2 billion in 2019 compared to 2018. As detailed in Table 1 - Analysis of Changes in Net Interest Income, as an increase in deposit costs and lower loan accretion were mitigated with strong commercial loan and deposit growth and higher loan yields. Average earning assets increased 4 percent to $37.2 billion in 2019 from $35.7 billion in 2018. The increase in average earning assets in 2019 was primarily driven by loan growth. To a much lesser extent an increase in interest-bearing cash also increased average earning assets in 2019, but these increases were somewhat offset by a smaller available-for-sale ("AFS") securities portfolio, a decrease in loans held-for-sale ("HFS") and declines in other earning assets in 2019 relative to the prior year.
Net interest income increased 45 percent to $1.2 billion in 2018 from $842.3 million in 2017. On a FTE basis, NII increased 44 percent to $1.2 billion in 2018 from $855.9 million in 2017. The increase in NII was largely due to loans added through the CBF acquisition including CBF loan accretion. Additionally, the favorable impact of higher interest rates on loans and higher average balances of available-for-sale securities and trading securities also contributed to the increase in NII, but were somewhat offset by the negative impact of higher market interest rates on deposits and other funding sources. Average earning assets increased 30 percent to $35.7 billion in 2018 from $27.5 billion in 2017. The increase in average earning assets in 2018 was primarily due to the full-year inclusion of Capital Bank, organic loan growth within FHN’s regional banking activities, a larger securities portfolio, higher average balances of fixed income trading securities and increases in loans HFS. These increases were somewhat offset by continued run-off of the Non-strategic loan portfolios.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 50
Table 1 - Analysis of Changes in Net Interest Income
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2019 Compared to 2018 | | 2018 Compared to 2017 |
| (Fully taxable equivalent ("FTE")) | | Increase / (Decrease) Due to (a) | | Increase / (Decrease) Due to (a) |
| (Dollars in thousands) | | Rate (b) |
| | Volume (b) | | Total | | Rate (b) |
| | Volume (b) | | Total |
| Interest income - FTE: | | | | | | | | | | | | |
| Loans | | $ | 12,877 |
| | $ | 94,753 |
| | $ | 107,630 |
| | $ | 140,951 |
| | $ | 324,564 |
| | $ | 465,515 |
|
| Loans held-for-sale | | (5,620 | ) | | (8,361 | ) | | (13,981 | ) | | 6,901 |
| | 20,690 |
| | 27,591 |
|
| Investment securities: | | | | | | | | | | | | |
| U.S. government agencies | | (6,789 | ) | | (6,618 | ) | | (13,407 | ) | | 5,392 |
| | 21,921 |
| | 27,313 |
|
| States and municipalities | | (50 | ) | | 1,225 |
| | 1,175 |
| | (91 | ) | | 430 |
| | 339 |
|
| Corporates and other debt | | 58 |
| | (341 | ) | | (283 | ) | | (9 | ) | | 2,157 |
| | 2,148 |
|
| Other | | 138 |
| | 2,769 |
| | 2,907 |
| | (3,431 | ) | | (1,014 | ) | | (4,445 | ) |
| Total investment securities | | (3,669 | ) | | (5,939 | ) | | (9,608 | ) | | 6,345 |
| | 19,010 |
| | 25,355 |
|
| Trading securities | | (5,519 | ) | | (6,627 | ) | | (12,146 | ) | | 8,992 |
| | 14,014 |
| | 23,006 |
|
| Other earning assets: | | | | | | | | | | | | |
| Federal funds sold | | 63 |
| | 259 |
| | 322 |
| | 280 |
| | 206 |
| | 486 |
|
| Securities purchased under agreements to resell | | 2,203 |
| | (3,454 | ) | | (1,251 | ) | | 7,039 |
| | (45 | ) | | 6,994 |
|
| Interest-bearing cash | | 2,001 |
| | 5,182 |
| | 7,183 |
| | 6,685 |
| | (4,314 | ) | | 2,371 |
|
| Total other earning assets | | 5,027 |
| | 1,227 |
| | 6,254 |
| | 13,357 |
| | (3,506 | ) | | 9,851 |
|
| Total change in interest income - earning assets - FTE | | | | | | $ | 78,149 |
| | | | | | $ | 551,318 |
|
| Interest expense: | | | | | | | | | | | | |
| Interest-bearing deposits: | | | | | | | | | | | | |
| Savings | | $ | 32,924 |
| | $ | 3,679 |
| | $ | 36,603 |
| | $ | 53,109 |
| | $ | 12,120 |
| | $ | 65,229 |
|
| Time Deposits | | 21,644 |
| | 9,287 |
| | 30,931 |
| | 11,479 |
| | 28,505 |
| | 39,984 |
|
| Other interest-bearing deposits | | 20,094 |
| | 3,037 |
| | 23,131 |
| | 22,039 |
| | 9,187 |
| | 31,226 |
|
| Total interest-bearing deposits | | 77,073 |
| | 13,592 |
| | 90,665 |
| | 98,135 |
| | 38,304 |
| | 136,439 |
|
| Federal funds purchased | | 832 |
| | 6,854 |
| | 7,686 |
| | 3,425 |
| | (481 | ) | | 2,944 |
|
| Securities sold under agreements to repurchase | | 3,395 |
| | (180 | ) | | 3,215 |
| | 4,693 |
| | 1,154 |
| | 5,847 |
|
| Trading liabilities | | (2,193 | ) | | (4,664 | ) | | (6,857 | ) | | 3,958 |
| | (67 | ) | | 3,891 |
|
| Other short-term borrowings | | 4,451 |
| | (10,927 | ) | | (6,476 | ) | | 3,839 |
| | 8,118 |
| | 11,957 |
|
| Term borrowings | | 4,545 |
| | (4,329 | ) | | 216 |
| | 12,103 |
| | 4,906 |
| | 17,009 |
|
| Total change in interest expense - interest-bearing liabilities | | | | | | $ | 88,449 |
| | | | | | $ | 178,087 |
|
| Net interest income - FTE | | | | | | $ | (10,300 | ) | | | | | | $ | 373,231 |
|
(a) The changes in interest due to both rate and volume have been allocated to change due to rate and change due to volume in proportion to the absolute and amounts of the changes in each.
(b) Variances are computed on a line-by-line basis and are non-additive.
For purposes of computing yields and the net interest margin, FHN adjusts net interest income to reflect tax exempt income on an equivalent pre-tax basis which provides comparability of net interest income arising from both taxable and tax-exempt sources. The consolidated net interest margin was 3.28 percent in 2019 compared to 3.45 percent in 2018. The net interest spread was 2.90 percent in 2019 compared to 3.15 percent in 2018, and the impact of free funding was 38 basis points and 30 basis points in 2019 and 2018, respectively. The decrease in NIM in 2019 relative to 2018 was largely driven by an unfavorable rate environment and lower loan accretion.
In 2018, the consolidated net interest margin improved to 3.45 percent from 3.12 percent in 2017, largely driven by the result of CBF loan accretion, the positive impact of higher market rates and an increase in average deposits which allowed for reduction in higher cost funding.
The activity levels and related funding for FHN’s fixed income activities affect the net interest margin. Generally, fixed income activities compress the margin, especially where there are elevated levels of trading inventory, because of the strategy to reduce market risk by economically hedging a portion of its inventory on the balance sheet. As a result, FHN’s consolidated margin
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 51
cannot be readily compared to that of other bank holding companies. Table 2 - Net Interest Margin details the computation of the net interest margin for the past three years.
Table 2—Net Interest Margin |
| | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| Assets: | | | | | |
| Earning assets: | | | | | |
| Loans, net of unearned income: | | | | | |
| Commercial loans | 4.87 | % | | 4.84 | % | | 4.08 | % |
| Consumer loans | 4.57 |
| | 4.51 |
| | 4.23 |
|
| Total loans, net of unearned income | 4.80 |
| | 4.76 |
| | 4.12 |
|
| Loans held-for-sale | 5.39 |
| | 6.23 |
| | 4.73 |
|
| Investment securities: | | | | | |
| U.S. government agencies | 2.55 |
| | 2.70 |
| | 2.56 |
|
| States and municipalities | 3.62 |
| | 4.03 |
| | 9.36 |
|
| Corporates and other debt | 4.53 |
| | 4.42 |
| | 4.98 |
|
| Other (a) | 34.33 |
| | 31.65 |
| | 3.49 |
|
| Total investment securities | 2.69 |
| | 2.77 |
| | 2.62 |
|
| Trading securities | 3.33 |
| | 3.70 |
| | 3.04 |
|
| Other earning assets: | | | | | |
| Federal funds sold | 2.63 |
| | 2.47 |
| | 1.63 |
|
| Securities purchased under agreements to resell | 1.96 |
| | 1.63 |
| | 0.69 |
|
| Interest bearing cash | 2.18 |
| | 1.89 |
| | 0.96 |
|
| Total other earning assets | 2.11 |
| | 1.77 |
| | 0.85 |
|
| Interest income / total earning assets | 4.39 | % | | 4.36 | % | | 3.65 | % |
| Liabilities: | | | | | |
| Interest-bearing liabilities: | | | | | |
| Interest-bearing deposits: | | | | | |
| Savings | 1.24 | % | | 0.95 | % | | 0.47 | % |
| Other interest-bearing deposits | 0.94 |
| | 0.70 |
| | 0.40 |
|
| Time deposits | 1.97 |
| | 1.44 |
| | 0.90 |
|
| Total interest-bearing deposits | 1.27 |
| | 0.95 |
| | 0.48 |
|
| Federal funds purchased | 2.08 |
| | 1.89 |
| | 1.06 |
|
| Securities sold under agreements to repurchase | 1.89 |
| | 1.40 |
| | 0.72 |
|
| Fixed income trading liabilities | 2.48 |
| | 2.83 |
| | 2.26 |
|
| Other short-term borrowings | 2.34 |
| | 1.82 |
| | 1.28 |
|
| Term borrowings | 4.77 |
| | 4.38 |
| | 3.35 |
|
| Interest expense / total interest-bearing liabilities | 1.49 |
| | 1.21 |
| | 0.74 |
|
| Net interest spread | 2.90 | % | | 3.15 | % | | 2.91 | % |
| Effect of interest-free sources used to fund earning assets | 0.38 |
| | 0.30 |
| | 0.21 |
|
Net interest margin (b) | 3.28 | % | | 3.45 | % | | 3.12 | % |
(a) 2018 increase driven by the adoption of ASU 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities" which resulted in the reclassification of interest and dividend income on equity securities to noninterest income on a prospective basis. The remaining balance is primarily comprised of higher-yielding SBA IO strips.
(b) Calculated using total net interest income adjusted for FTE assuming a statutory federalstate income tax ratecarryforwards of 21 percent in 2019$38 million and 2018 and 35 percent in 2017, and where applicable, state income taxes.$2 million, which will
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 52
FHN’s net interest margin is primarily impacted by its balance sheet mix including the levels of fixedgross DTA after valuation allowance was $448 million and floating rate loans, rate sensitive and non-rate sensitive liabilities, cash levels, trading inventory levels as well as loan fees and cash basis income. FHN’s balance sheet is positioned to benefit from a rise in short-term interest rates. For 2020, NIM will also depend on the extent of Federal Reserve interest rate increases, loan accretion levels, and the competitive pricing environment for core deposits.
PROVISION FOR LOAN LOSSES
The provision for loan losses is the charge to earnings that management determines to be necessary to maintain the ALLL at a sufficient level reflecting management's estimate of probable incurred losses in the loan portfolio. The provision for loan losses was $47.0 million in 2019 compared to $7.0 million in 2018 and $0 million in 2017. The increase in provision expense for 2019 was primarily the result of increased reserves due to commercial loan growth and grade migration. For 2019, FHN's asset quality metrics remained stable. Year-to-date net charge-offs as a percentage of average loans were .09 percent and .06 percent for the years ended December 31, 2019 and 2018, respectively. The ALLL increased $19.9 million from year-end 2018 to $200.3$471 million as of December 31, 2019. For2021 and 2020, respectively. Based on current analysis, FHN believes that its ability to realize the DTA is more likely than not. FHN monitors its DTA and the need for a valuation allowance on a quarterly basis. A significant adverse change in FHN’s taxable earnings outlook could result in the need for a valuation allowance.
FHN and its eligible subsidiaries are included in a consolidated federal income tax return. FHN files separate returns for subsidiaries that are not eligible to be included in a consolidated federal income tax return. Based on the laws of the applicable states where it conducts business operations, FHN either files consolidated, combined, or separate returns. The statute of limitations for FHN’s consolidated federal income tax returns remains open for tax years 2018 through 2020. Additionally, 2016 – 2017 could be subject to limited review related to refund claims filed. IBKC's federal consolidated tax returns for 2016, 2017 and 2018 are currently under examination by the IRS. On occasion, as federal or state auditors examine the tax returns of FHN and its subsidiaries, FHN may extend the statute of limitations for a reasonable period. Otherwise, the statutes of limitations remain open only for tax years in accordance with federal and state statutes. See Note 15 - Income Taxes for additional information about the provision for loan losses refer to theinformation.
Business Segment Results
During 2020, FHN reorganized its internal management structure and, accordingly, its segment reporting structure. Historically, FHN's primary business segments were Regional Banking, Fixed Income, Corporate, and Non-Strategic sectionsNon-strategic. The closing of the FHN and IBKC merger of equals transaction prompted organizational changes to better integrate and execute the combined Company's
strategic priorities across all lines of businesses. As a result, FHN revised its reportable segments to include Regional Banking, Specialty Banking and Corporate. Segment results for years prior to 2020 have been recast to adjust for the realignment of the segment reporting structure. See Note 20 - Business Line Review section in this MD&A. For Segment Information for
| | | | | | | | |
| 68 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
additional information about general asset quality trends referdisclosures related to Asset Quality - Trend Analysis of 2019 Compared to 2018 in this MD&A.FHN's operating segments.
NONINTEREST INCOME
Noninterest income (including securities gains/(losses)) was $654.1 million in 2019 compared to $722.8 million in 2018 and $490.2 million in 2017. Noninterest income was 35 percent of total revenue in 2019 compared to 37 percent of total revenue in 2018 and 2017. Noninterest income in 2019 was primarily driven by higher fixed income product revenue. Additionally, market-driven increases in deferred compensation income, increases in derivative sales within the Regional Banking and Fixed Income segments, and higher bank fees relative to 2018 also contributed to noninterest income levels in 2019. For 2018, the increase in noninterest income was primarily driven by a gain on the sale of FHN's remaining Visa Class B shares in third quarter 2018, partially offset by a decrease in fixed income sales revenue. To a lesser extent, the full-year inclusion of Capital Bank in 2018 and a $14.3 million loss from the repurchase of equity securities previously included in a financing transaction recognized in 2017 also contributed to the year-over-year increase in noninterest income. The increase was partially offset by a decrease in fixed income sales revenue in 2018. FHN’s noninterest income for the last three years is provided in Table 3 - Noninterest Income. The discussion following provides additional information about various line items reported in the following table.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 53
Table 3—Noninterest Income |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Compound Annual Growth Rates |
| (Dollars in thousands) | | 2019 | | 2018 | | 2017 | | 19/18 | | 19/17 |
| Noninterest income: | | | | | | | | | | | | |
| Fixed income | | $ | 278,789 |
| | $ | 167,882 |
| | $ | 216,625 |
| | 66 |
| % | | 13 |
| % |
| Deposit transactions and cash management | | 131,663 |
| | 133,281 |
| | 110,592 |
| | (1 | ) | % | | 9 |
| % |
| Brokerage, management fees and commissions | | 55,467 |
| | 54,803 |
| | 48,514 |
| | 1 |
| % | | 7 |
| % |
| Trust services and investment management | | 29,511 |
| | 29,806 |
| | 28,420 |
| | (1 | ) | % | | 2 |
| % |
| Bankcard income | | 28,308 |
| | 29,304 |
| | 26,435 |
| | (3 | ) | % | | 3 |
| % |
| Bank-owned life insurance ("BOLI") | | 19,210 |
| | 18,955 |
| | 15,124 |
| | 1 |
| % | | 13 |
| % |
| Debt securities gains/(losses), net | | (267 | ) | | 52 |
| | 483 |
| | NM |
| | | NM |
| |
| Equity securities gains/(losses), net (a) | | 441 |
| | 212,896 |
| | 109 |
| | NM |
| | | NM |
| |
| All other income and commissions: | | | | | | | | | | | | |
| Other service charges | | 20,986 |
| | 15,122 |
| | 12,532 |
| | 39 |
| % | | 29 |
| % |
| ATM and interchange fees | | 16,539 |
| | 13,354 |
| | 12,425 |
| | 24 |
| % | | 15 |
| % |
| Deferred compensation (b) | | 11,223 |
| | (3,224 | ) | | 6,322 |
| | NM |
| | | 33 |
| % |
| Mortgage banking | | 10,055 |
| | 10,587 |
| | 4,649 |
| | (5 | ) | % | | 47 |
| % |
| Dividend income (c) | | 7,186 |
| | 10,555 |
| | — |
| | (32 | ) | % | | NM |
| |
Letter of credit fees
| | 5,582 |
| | 5,298 |
| | 4,661 |
| | 5 |
| % | | 9 |
| % |
| Electronic banking fees | | 4,927 |
| | 5,134 |
| | 5,082 |
| | (4 | ) | % | | (2 | ) | % |
| Insurance commissions | | 2,125 |
| | 2,096 |
| | 2,514 |
| | 1 |
| % | | (8 | ) | % |
| Gain/(loss) on extinguishment of debt | | 58 |
| | (15 | ) | | (14,329 | ) | | NM |
| | | NM |
| |
| Other | | 32,277 |
| | 16,902 |
| | 10,061 |
| | 91 |
| % | | 79 |
| % |
| Total all other income and commissions | | 110,958 |
| | 75,809 |
| | 43,917 |
| | 46 |
| % | | 59 |
| % |
| Total noninterest income | | $ | 654,080 |
| | $ | 722,788 |
| | $ | 490,219 |
| | (10 | ) | % | | 16 |
| % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | 2021 vs. 2020 | | 2020 vs. 2019 |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | $ Change | | % Change | | $ Change | | % Change |
| Noninterest income | | | | | | | | | | | | | | |
| Fixed income | | $ | 406 | | | $ | 423 | | | $ | 279 | | | $ | (17) | | | (4) | % | | $ | 144 | | | 52 | % |
| Deposit transactions and cash management | | 175 | | | 148 | | | 132 | | | 27 | | | 18 | % | | 16 | | | 12 | % |
| Mortgage banking and title income | | 154 | | | 129 | | | 10 | | | 25 | | | 19 | % | | 119 | | | NM |
| Brokerage, management fees and commissions | | 88 | | | 66 | | | 55 | | | 22 | | | 33 | % | | 11 | | | 20 | % |
| Card and digital banking fees | | 78 | | | 60 | | | 49 | | | 18 | | | 30 | % | | 11 | | | 22 | % |
| Trust services and investment management | | 51 | | | 39 | | | 30 | | | 12 | | | 31 | % | | 9 | | | 30 | % |
| Other service charges and fees | | 44 | | | 26 | | | 21 | | | 18 | | | 69 | % | | 5 | | | 24 | % |
| Securities gains (losses), net | | 13 | | | (6) | | | — | | | 19 | | | NM | | (6) | | | (100) | % |
| Purchase accounting gain | | (1) | | | 533 | | | — | | | (534) | | | (100) | % | | 533 | | | 100 | % |
| Other income | | 68 | | | 74 | | | 78 | | | (6) | | | (8) | % | | (4) | | | (5) | % |
| Total noninterest income | | $ | 1,076 | | | $ | 1,492 | | | $ | 654 | | | $ | (416) | | | (28) | % | | $ | 838 | | | 128 | % |
NM – Not meaningful
| |
(a) | Equity securities gains/(losses) for 2018 relates to the gain on the sale of FHN's remaining Visa Class B shares. |
| |
(b) | Amounts are driven by market conditions and are mirrored by changes in deferred compensation expense which is included in employee compensation expense. |
| |
(c) | Effective January 1, 2018, FHN adopted ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” and began recording dividend income from FRB and FHLB holdings in Other income. Prior to 2018, these amounts were included in Interest income on the Consolidated Statements of Income. |
Noninterest income totaled $1.1 billion in 2021 and $1.5 billion in 2020, or 35% and 47% of total revenue, respectively. The decrease in noninterest income in 2021 was driven by a $534 million reduction tied to the purchase accounting gain recorded in 2020 related to the IBKC merger. Results also reflect the benefit of higher fee income largely driven by the full-year impact of the IBKC merger.
Fixed Income Noninterest Income
The major component of fixed income revenue isrevenues are mainly generated from the purchase and sale of fixed income securities as both principal and agent. Other noninterest revenues within this line item consist principally of fees from loanderivative sales, portfolio advisory services and derivativeloan sales. Securities inventory positions are procured for distribution to customers by the sales staff. Fixed income noninterestfees of $406 million decreased $17 million from exceptionally strong levels in 2020. Fixed income increased 66 percent or $110.9product revenue decreased $10 million, to $278.8 million in 2019 from $167.9 million in 2018, largely due to declining interest rates and increasedreflecting slightly less favorable market volatility. Revenueconditions, while revenue from other
products increased 41 percent, or $14.8decreased $7 million, to $50.4 million in 2019, largely driven by higherlower fees from derivative and loan sales, as well as an increase insomewhat offset by higher fees forfrom portfolio advisory services.
Fixed income noninterest income decreased 23 percent in 2018 to $167.9 million from $216.6average daily revenue of $1.4 million in 2017, reflecting lower activity due to challenging market conditions (expected interest rate increases, a flattening yield curve, and low levels of market volatility). Revenue2021 decreased slightly from other products decreased 17 percent, or $7.1 million, to $35.6 million from $42.7$1.5 million in 2017, largely driven by a decline in fee income from loan sales, somewhat offset by $4.1 million of gains on the sales and payoff of TRUPS loans in the Non-strategic segment and increases in fees from derivative sales.2020.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 54
Table 4—Fixed Income Noninterest Income |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Compound Annual Growth Rates |
(Dollars in thousands) | | 2019 | | 2018 | | 2017 | | 19/18 | | 19/17 |
| Noninterest income: | | | | | | | | | | | | |
| Fixed income | | $ | 228,423 |
| | $ | 132,283 |
| | $ | 173,910 |
| | 73 |
| % | | 15 | % |
| Other product revenue | | 50,366 |
| | 35,599 |
| | 42,715 |
| | 41 |
| % | | 9 | % |
| Total fixed income noninterest income | | $ | 278,789 |
| | $ | 167,882 |
| | $ | 216,625 |
| | 66 |
| % | | 13 | % |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 55
Deposit Transactions and Cash Management
Fees from 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. Deposit transactions and cash management activities decreased to $131.7fees of $175 million increased $27 million, or 18%, from 2020, primarily driven by the impact of the IBKC merger and Truist branch acquisition.
Mortgage banking and title income of $154 million increased $25 million from $129 million in 2019 from $133.3 million2020 as the benefit of the IBKC merger was partially offset by a strategic shift in 2018. Lower NSF fee income and cash management fees contributed to the year-over-year decrease in fees from deposit transactions and cash management activities in 2019 compared to the prior year. In 2018, deposit transactions and cash management income increased to $133.3 million from $110.6 million in 2017, largely associated with the inclusionorigination mix toward portfolio loans as well as lower spreads on sales of Capital Bank. Fees from deposit transactions and cash management activities were negatively impacted in first quarter 2017 due to changes in consumer behavior and a modification of billing practices, which further contributed to the year-over-year increase in 2018.
Brokerage, Management Fees and Commissions
Brokerage, management fees and commissions include fees for portfolio management, trade commissions, and
| | | | | | | | |
| 66 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
annuity and mutual funds sales. Noninterest income from brokerage, managementThese fees and commissions increased to $55.5totaled $88 million in 2019 and $54.82021, an increase of 33% compared to $66 million in 2018, up2020 driven by the impact of the IBKC merger and an increase in annuity income and advisory fees.
Trust services and investment management income of $51 million increased $12 million from $48.5 million in 2017. The increase was due in large part to2020, driven by the continued growthimpact of FHN’s advisorythe IBKC merger as well as new business and favorable market conditions. An increase inappreciation.
The IBKC merger also drove the sales of structured products also contributed to the increase in 2018.
Bank-owned Life Insurance
Income from bank-owned life insurance (“BOLI”) increased to $19.2 million and $19.0 million in 2019 and 2018, respectively, from $15.1 million in 2017. The increases in 2018card and 2019 were driven by higher BOLI policy gains recognized in 2018 and 2019.
Securities Gains/(Losses)
Net securities gain/(losses) were not material in 2019 and 2017 compared to $212.9 million in 2018. The 2018 net gain was primarily related to FHN's sale of its remaining holdings of Visa Class B shares.
Other Noninterest Income
All other income and commissions includes revenues from other service charges, ATM and interchange fees, revenue related to deferred compensation plans (which are mirrored by changes in noninterest expense), mortgage banking (primarily within the non-strategic and regional banking segments), dividend income, letter of credit fees, electronicdigital banking fees insurance commissions, gains/(losses) on the extinguishment of debt, and various other fees.
Revenue from all other income and commissions increased 46 percent or $35.1 million to $111.0 million in 2019 from $75.8 million in 2018. The increase in all other income and commissions was largely due to a $14.4 million increase in deferred compensation income driven by changes in equity market valuations and increases from derivative sales within the Regional Banking segment. Additionally, increases in other service charges and ATM interchange fees also contributedin 2021 compared to 2020.
Other income in 2021 included a $26 million loss on the increase in all other income and commissionsredemption of legacy IBKC trust preferred securities.
Noninterest Expense
The following table presents the significant components of noninterest expense for 2019. Deferred compensation income fluctuates with changes in the market valueeach of the underlying investments and are mirrored by changes in deferred compensation expense which is included in employee compensation expense. These increases were somewhat offset by a $3.4 million decrease in dividend income and a $2.5 million decrease of gains on sales of properties relative to the prior year.periods presented:
Revenue from all other income and commissions increased to $75.8 million in 2018 from $43.9 million in 2017. In 2017, FHN recognized a $14.3 million loss from the repurchase of equity securities previously included in a financing transaction which contributed to the year-over-year increase in other noninterest income in 2018. Additionally, effective January 1, 2018, FHN adopted ASU 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities" and began recording dividend income from FRB and FHLB holdings in other income which also contributed to the increase in other noninterest income in 2018 relative to the prior year, as previously these amounts were included in Interest income. Increases in mortgage banking income and other service charges related to the full-year inclusion of Capital Bank, $5.5 million in collections from CBF loans that were fully charged off prior to acquisition, and $5.0 million of gains on the sales of properties recognized in 2018 also contributed to the increase in other noninterest income. For 2018, all other income and commissions was unfavorably impacted by a $9.5 million decrease in deferred compensation income.Table 7.5
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 56
NONINTEREST EXPENSE
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | 2021 vs. 2020 | | 2020 vs. 2019 |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | $ Change | | % Change | | $ Change | | % Change |
| Noninterest expense | | | | | | | | | | | | | | |
| Personnel expense | | $ | 1,210 | | | $ | 1,033 | | | $ | 695 | | | $ | 177 | | | 17 | % | | $ | 338 | | | 49 | % |
| Net occupancy expense | | 137 | | | 116 | | | 80 | | | 21 | | 18 | % | | 36 | | 45 | % |
| Computer software | | 116 | | | 85 | | | 61 | | | 31 | | 36 | % | | 24 | | 39 | % |
| Operations services | | 80 | | | 56 | | | 46 | | | 24 | | 43 | % | | 10 | | 22 | % |
| Legal and professional fees | | 68 | | | 84 | | | 72 | | | (16) | | | (19) | % | | 12 | | 17 | % |
| Contract employment and outsourcing | | 67 | | | 24 | | | 13 | | | 43 | | NM | | 11 | | 85 | % |
| Amortization of intangible assets | | 56 | | | 40 | | | 25 | | | 16 | | 40 | % | | 15 | | 60 | % |
| Equipment expense | | 47 | | | 42 | | | 34 | | | 5 | | 12 | % | | 8 | | 24 | % |
| Communications and delivery | | 37 | | 31 | | 25 | | 6 | | 19 | % | | 6 | | 24 | % |
| Advertising and public relations | | 37 | | 18 | | 34 | | 19 | | NM | | (16) | | | (47) | % |
| Impairment of long-lived assets | | 34 | | | 7 | | | 23 | | | 27 | | NM | | (16) | | | (70) | % |
| Contributions | | 14 | | | 41 | | | 11 | | | (27) | | | (66) | % | | 30 | | NM |
| Other expense | | 193 | | 141 | | 114 | | 52 | | 37 | % | | 27 | | 24 | % |
| Total noninterest expense | | $ | 2,096 | | | $ | 1,718 | | | $ | 1,233 | | | $ | 378 | | | 22 | % | | $ | 485 | | | 39 | % |
NM - Not meaningful
Total noninterest expense of $2.1 billion increased 1 percent,$378 million, or $9.622%, driven by the impact of the IBKC merger, mitigated in part by a reduction in noninterest expense as a result of expense discipline and merger cost saves. Total merger/acquisition integration expense was $187 million in 2021 compared to $155 million in 2020.
Personnel expense of $1.2 billion increased $177 million from 2020 driven by the full-year impact of the IBKC merger and Truist branch acquisition. Results also reflect lower merger/acquisition integration expenses of $10 million, primarily severance and retention costs, and the benefit of merger cost saves. Deferred compensation expense, a component of personnel expense, increased $9 million in 2019. 2021, largely due to $6 million from litigation tied to a company that was fully divested over ten years ago.
The slightincreases in net occupancy expense and computer software expense in 2021 were both driven by the impact of the IBKC merger and Truist branch acquisition.
Operations services expense increased $24 million, or 43%, to $80 million in 2021, driven by the impact of the IBKC merger and a $7 million increase in noninterest expensesmerger/acquisition integration expense.
Legal and professional fees decreased $16 million, or 19%, to $68 million in 2019 was2021, driven by an $18 million decline in merger/acquisition integration expense.
Contract employment and outsourcing increased $43 million driven by the impact of the IBKC merger, higher contractor costs tied to investments in new systems and an $11 million increase in merger/acquisition integration expense.
| | | | | | | | |
| 67 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Amortization of intangible assets of $56 million in 2021 increased $16 million compared to 2020 primarily due to amortization tied to the intangible assets created from the IBKC merger.
Advertising and public relations of $37 million increased $19 million from 2020 largely driven by restructuring and rebranding expenses and higher fixed income variable compensation. These increases were somewhat offset by lower acquisition-and integration-related expenses compared to 2018 and broad-based cost saving across multiple line items driven by strategic focus on expense optimization.
Total noninterest expense increased 19 percent, or $198.3 million, to $1.2 billion in 2018 from $1.0 billion in 2017. The increase in noninterest expenses in 2018 was primarily due to the full-year inclusion of Capital Bank expenses compared to one month of expenses included in 2017. Higher acquisition- and integration-related expenses primarily associated with the CBF acquisition, higher personnel-related expenses, and a smaller repurchase and foreclosure provision expense reversal related to the settlement of certain repurchase claims in 2018 relative to 2017, also contributed to the expense increase in 2018. A decrease in loss accruals related to legal matters in 2018 favorably impacted expense relative to 2017, offsetting a portion of the overall expense increase.
FHN’s noninterest expense for the last three years is provided in Table 5 - Noninterest Expense. The discussion following provides additional information about various line items reported in the following table.
Table 5—Noninterest Expense |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Compound Annual Growth Rates |
(Dollars in thousands) | | 2019 | | 2018 | | 2017 | | 19/18 | | 19/17 |
| Noninterest expense: | | | | | | | | | | | | |
| Employee compensation, incentives and benefits | | $ | 695,351 |
| | $ | 658,223 |
| | $ | 587,465 |
| | 6 |
| % | | 9 |
| % |
| Occupancy | | 80,271 |
| | 85,009 |
| | 54,646 |
| | (6 | ) | % | | 21 |
| % |
| Computer software | | 60,721 |
| | 60,604 |
| | 48,234 |
| | * |
|
| | 12 |
| % |
| Professional fees | | 55,218 |
| | 45,799 |
| | 47,929 |
| | 21 |
| % | | 7 |
| % |
| Operations services | | 46,006 |
| | 56,280 |
| | 43,823 |
| | (18 | ) | % | | 2 |
| % |
| Advertising and public relations | | 34,359 |
| | 24,752 |
| | 19,214 |
| | 39 |
| % | | 34 |
| % |
| Equipment rentals, depreciation and maintenance | | 33,998 |
| | 39,132 |
| | 29,543 |
| | (13 | ) | % | | 7 |
| % |
| Communications and courier | | 25,080 |
| | 30,032 |
| | 17,624 |
| | (16 | ) | % | | 19 |
| % |
| Amortization of intangible assets | | 24,834 |
| | 25,855 |
| | 8,728 |
| | (4 | ) | % | | 69 |
| % |
| FDIC premium expense | | 19,890 |
| | 31,642 |
| | 26,818 |
| | (37 | ) | % | | (14 | ) | % |
| Legal fees | | 16,880 |
| | 11,149 |
| | 12,076 |
| | 51 |
| % | | 18 |
| % |
| Contract employment and outsourcing | | 12,865 |
| | 18,522 |
| | 14,954 |
| | (31 | ) | % | | (7 | ) | % |
| All other expense: | | | | | | | |
|
|
| |
|
|
|
Travel and entertainment
| | 12,119 |
| | 16,442 |
| | 11,462 |
| | (26 | ) | % | | 3 |
| % |
| Other insurance and taxes | | 10,179 |
| | 9,684 |
| | 9,686 |
| | 5 |
| % | | 3 |
| % |
| Customer relations | | 9,098 |
| | 5,583 |
| | 5,750 |
| | 63 |
| % | | 26 |
| % |
| Supplies | | 6,918 |
| | 6,917 |
| | 4,106 |
| | * |
| | | 30 |
| % |
| Employee training and dues | | 5,141 |
| | 7,218 |
| | 5,551 |
| | (29 | ) | % | | (4 | ) | % |
| Miscellaneous loan costs | | 4,128 |
| | 3,732 |
| | 2,751 |
| | 11 |
| % | | 22 |
| % |
| Litigation and regulatory matters | | 2,923 |
| | 644 |
| | 40,517 |
| | NM |
| | | (73 | ) | % |
| Non-service components of net periodic pension and post-retirement cost | | 2,304 |
| | 5,251 |
| | 2,144 |
| | (56 | ) | % | | 4 |
| % |
| Tax credit investments | | 1,809 |
| | 4,712 |
| | 3,468 |
| | (62 | ) | % | | (28 | ) | % |
| OREO | | 1,479 |
| | 2,630 |
| | 1,006 |
| | (44 | ) | % | | 21 |
| % |
| Repurchase and foreclosure provision/(provision credit) | | (1,007 | ) | | (1,039 | ) | | (22,527 | ) | | (3 | ) | % | | NM |
| |
| Other | | 71,039 |
| | 73,223 |
| | 48,693 |
| | (3 | ) | % | | 21 |
| % |
| Total all other expense | | 126,130 |
| | 134,997 |
| | 112,607 |
| | (7 | ) | % | | 6 |
| % |
| Total noninterest expense | | $ | 1,231,603 |
| | $ | 1,221,996 |
| | $ | 1,023,661 |
| | 1 |
| % | | 10 |
| % |
NM-Not Meaningful
*Amount is less than one percent.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 57
Employee Compensation, Incentives, and Benefits
Employee compensation, incentives, and benefits (personnel expense), the largest component of noninterest expense, increased 6 percent, or $37.1 million, to $695.4 million in 2019 from $658.2 million in 2018. The increase in personnel expense was primarily driven by an increase in variable compensation associated with higher fixed income sales revenue and severance-related costs associated with restructuring, repositioning, and efficiency initiatives recognized in 2019. Additionally, a $15.7$10 million increase in deferred compensation expense driven by equity market valuations also contributed to the increase in personnel expense in 2019. These expense increases were somewhat offset by a $6.2merger/acquisition integration expense.
Impairment of long-lived assets of $34 million decrease in acquisition- and integration-related expenses and a reduction in headcount relative to the prior year.
Personnel expense increased 12 percent, or $70.8 million, to $658.2$7 million in 2018 from $587.52021 and 2020, respectively, was primarily related to merger integration efforts associated with reduction of leased office space and banking center optimization.
Contributions decreased $27 million in 2017,2021, primarily due to a 30 percent increase in headcount$20 million contribution to the Louisiana First Horizon
Foundation in connection with the CBF acquisition. Within the regional banking segment, personnel expense increased due toIBKC merger and a $15 hourly wage floor, strategic hiresmillion donation of Paycheck Protection Plan fees to the First Horizon Foundation to assist low- and moderate-income communities in expansion markets and specialty areas, and higher incentive expense associated with loan and deposit growth. Personnel expense within2020. Contributions in 2021 reflect an increase in other contributions to the fixed income segment decreasedFirst Horizon Foundation.
The $52 million increase in 2018, largely driven by lower variable compensation associated with lower fixed income sales revenue relative to 2017. Additionally, a $10.3 million decrease in deferred compensationother expense in 2018 as well as decreases in special performance, acquisition, and integration-related personnel expenses also offset a portion of the increase in personnel expense in 2018 relative2021 was largely attributable to 2017.
Occupancy
Occupancy expense decreased to $80.3$19 million in 2019, from $85.0derivative valuation adjustments on prior Visa Class B share sales and increases in customer relations, loan closing, fraud, and travel and entertainment expenses.
Income Taxes
FHN recorded income tax expense of $274 million in 2018. The decrease in occupancy expense in 2019 was primarily due2021 compared to lower lease abandonment expense associated with acquisition- and integration-related expenses in 2019 relative to the prior year. Occupancy expense increased to $85.0$76 million in 2018 from $54.6 million2020, resulting in 2017,an effective tax rate of 21.4% and 8.2% respectively. The lower effective tax rate in 2020 was primarily driven by higher rental expense due to the full-year inclusion of Capital Bank. Additionally, FHN recognized $5.3 million of acquisition- and integration-related expenses primarily associated with lease abandonment expense in 2018.
Computer Software
Computer software expense was $60.7 million and $60.6 million in 2019 and 2018, respectively. Computer software increased $12.4 million in 2018 to $60.6 million from $48.2 million in 2017. The increase in computer software expense in 2018 was the result of the inclusion of a full-year of Capital Bank (compared to one month in 2017), as well as FHN’s focus on technology-related projects. To a lesser extent, acquisition- and integration-related expenses primarily associated with the CBF acquisition also contributed to the increase in computer software expense for 2018.
Professional Fees
Professional fees increased $9.4 million to $55.2 million in 2019 from $45.8 million in 2018. In 2019, the increase in professional fees was primarily driven by higher restructuring costs associated with the identification of efficiency opportunities within the organization, strategic initiatives and rebranding expenses recognized in 2019, somewhat offset by lower acquisition- and integration-related expenses relative to 2018. Professional fees decreased to $45.8 million in 2018 from $47.9 million in 2017. In 2018, the decrease in professional fees was due to lower acquisition- and integration-related expenses primarily associated with the CBF acquisition relative to 2017, somewhat offset by strategic investments to analyze growth potential and product mix for new markets.
Operations Services
Operations services expense decreased 18 percent, or $10.3 million to $46.0 million in 2019 from $56.3 million in 2018, primarily driven by vendor consolidation following the completion of integration of the CBF merger. Additionally, lower acquisition- and integration-related expenses also contributed to the decrease in 2019 compared to the prior year. Operations services expense was $56.3 million in 2018 compared $43.8 million in 2017. The increase in operations services expense was primarily related to an increase in third party fees associated with the inclusion of Capital Bank operating expenses, as well as higher acquisition- and integration-related expenses primarily related to the CBF acquisition.
Advertising and Public Relations
Expenses associated with advertising and public relations increased to $34.4 million from $24.8 million in 2018 and $19.2 million in 2017. In 2019, FHN recognized higher advertising expense due in large part to FHN’s rebranding initiative, as well
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 58
as promotional branding campaigns and target marketing in new markets. The increase in 2018 relative to 2017 was due in large part to promotional branding campaigns and targeted marketing in new markets.
Equipment Rentals, Depreciation, and Maintenance
Equipment rentals, depreciation, and maintenance expense decreased 13 percent, or $5.1million, to $34.0 million for 2019, from $39.1 million in 2018. The decrease in equipment rentals, depreciation, and maintenance expense in both periods was due in large part to branch optimization, consolidation efforts and planned CBF merger synergies. Equipment rentals, depreciation, and maintenance expense was $39.1 million in 2018 compared to $29.5 million in 2017. The increase in equipment rentals, depreciation, and maintenance expense in was due in large part to the full-year inclusion of Capital Bank in 2018 and higher acquisition- and integration-related expenses primarily related to the CBF acquisition.
Communication and Courier
Expenses associated with communications and courier decreased 16 percent, or $5.0 million, to $25.1 million in 2019 from $30.0 million in 2018, primarily driven by branch optimization, vendor consolidation efforts and planned CBF merger synergies. Additionally, a $1.2 million decrease in acquisition- and integration-related expenses also contributed to the expense decrease in 2019. Expenses associated with communication and courier increased to $30.0 million in 2018 from $17.6 million in 2017, primarily driven by the full-year inclusion of Capital Bank in 2018. To a lesser extent, an increase in acquisition- and integration-related expenses also contributed to the expense increase in 2018.
Amortization of Intangible Assets
Amortization expense was $24.8 million in 2019, compared to $25.9 million in 2018 and $8.7 million in 2017. The increase in amortization expense from 2017 was primarily due to the full-year inclusion of intangibles related to the Capital Bank acquisition in 2018.
FDIC Premium Expense
FDIC premium expense decreased 37 percent, or $11.8 million from $31.6 million in 2018 to $19.9 million in 2019. The decrease in FDIC premium expense is primarily due to the end of an FDIC assessment surcharge starting with fourth quarter 2018. FDIC premium expense increased to $31.6 million in 2018 from $26.8 million in 2017 primarily due to the CBF acquisition, as well as organic growth. In fourth quarter 2018, the FDIC assessment surcharge initiated in third quarter 2016 expired offsetting a portion of the overall increase in FDIC premium expense for 2018.
Legal Fees
Legal fees increased to $16.9 million in 2019 from $11.1 million in 2018 and $12.1 million in 2017. Legal fees fluctuate primarily based on the status, timing, type, and composition of cases or other projects.
Contract Employment and Outsourcing
Expenses associated with contract employment and outsourcing decreased 31 percent, or $5.7 million to $12.9 million in 2019. The decrease was primarily driven by the completion of acquisition- and integration- related projects primarily associated with the CBF acquisition. Expenses associated with contract employment and outsourcing increased 24 percent, or $3.6 million, to $18.5 million in 2018 compared to $15.0 million in 2017, primarily driven by acquisition- and integration-related projects primarily associated with the CBF acquisition.
Other Noninterest Expense
Other expense includes travel and entertainment expense, other insurance and tax expense, customer relations expense, supplies, employee training and dues, miscellaneous loan costs, losses from litigation and regulatory matters, expenses associated with the non-service components of net periodic pension and post-retirement cost, tax credit investments, expenses associated with OREO, expenses/expense reversals associated with FHN’s repurchase and foreclosure provision, and various other expenses.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 59
All other expense decreased $8.9 million to $126.1 million in 2019 from $135.0 in 2018, primarily due to a $38.3 million decrease in acquisition- and integration-related expenses. FHN’s strategic focus on expense optimization also contributed to the overall decline in other noninterest expense in 2019, but was somewhat offset by a $23.1 million increase in costs associated with restructuring and rebranding initiatives primarily related to assets impairments. Additionally, a $10.8 million increase in charitable contributions, as well as increases in customer relations and loss accruals related to legal matters, somewhat offset a portion of the overall expense decline in 2019.
All other expense was $135.0 million in 2018 compared to $112.6 million in 2017. The increase was primarily due to a $35.8 million increase of acquisition- and integration-related costs primarily associated with the CBF acquisition, including contract termination charges, costs of shareholder matters and asset impairments related to the integration, as well as other miscellaneous expenses. A smaller pre-tax expense reversal of mortgage repurchase and foreclosure provision in 2018 compared to 2017 also contributed to the increase in all other expense in 2018. Additionally, a $4.1 million increase in Visa derivative valuation adjustments recognized in 2018, higher expenses associated with travel and entertainment, supplies, and employee training and dues largely due to the inclusion of Capital Bank, higher pension expense and an increase in the reserve for unfunded commitments also contributed to the increase in other noninterest expense relative to the prior year. These expense increases were largely offset by a $39.9 million net decrease in loss accruals related to legal matters and $8.8 million of charitable contributions made to FHN's foundation in 2017.
INCOME TAXES
FHN recorded an income tax provision of $133.3 million in 2019, compared to $157.6 million in 2018 and $131.9 million in 2017. The effective tax rates for 2019, 2018, and 2017 were approximately 22.8 percent, 22.1 percent, and 42.7 percent, respectively.
The increase in the effective tax rates in 2019 compared to 2018 was related to a $5.1 million decrease in net discrete tax benefits realized during 2019. The larger discrete tax benefit in 2018 was primarily related to trailing benefitspurchase accounting gain from the reductionIBKC merger, which was not included in the federal corporate income tax rate under the Tax Cuts and Jobs Act “Tax Act,” which lowered the statutory rate to 21 percent from 35 percent effective January 1, 2018.taxable income.
The decrease in the effective tax rates in 2018 compared to 2017 was primarily driven by the reduction in the federal corporate income tax rate under the Tax Act. The tax rate in 2017 was adversely affected by approximately $82 million of tax expense primarily related to the revaluation of the net deferred tax asset based on a 21 percent tax rate as a result of the passage of the Tax Act in 2017. This was partially offset by the reversal of a capital loss valuation allowance which decreased federal and state taxes by $40.4 million.
The company’sFHN’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 affordable housingtax credit investments. The company’seffective rate is unfavorably affected by the non-deductibility of portions of: FDIC premium, executive compensation and merger expenses. FHN's effective tax rate also may be affected by items that may occur in any given period but are not consistent from period to period, such as changes in unrecognized tax benefits.
A deferred tax asset (“DTA”) or deferred tax liability (“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 current enacted statutory tax rates applicable to future years, to these temporary differences. As of December 31, 2019,differences in future years. FHN’s net DTA was $69.0$52 million compared with $127.9and less than $1 million at December 31, 20182021 and $221.8 million at December 31, 2017.
As of December 31, 2019,2021, FHN had deferred tax asset balances related to federal and state income tax carryforwards of $43.8$38 million and $1.2$2 million, which will
expire at various dates. Refer to Note 15 - Income Taxes for additional information.
FHN’s gross DTA after valuation allowance was $250.6$448 million and $254.6$471 million as of December 31, 20192021 and 2018,2020, respectively. Based on current analysis, FHN believes that its ability to realize the remaining DTA is more likely than not. FHN monitors its DTA and the need for a valuation allowance on a quarterly basis. A significant adverse change in FHN’s taxable earnings outlook could result in the need for a valuation allowance.
FHN and its eligible subsidiaries are included in a consolidated federal income tax return. FHN files separate returns for subsidiaries that are not eligible to be included in a consolidated federal income tax return. Based on the laws of the applicable states where it conducts business operations, FHN either files consolidated, combined, or separate returns. The statute of limitations for FHN’s consolidated federal
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 60
income tax returns remains open for tax years 2018 through 2020. Additionally, 2016 – 2017 could be subject to limited review related to refund claims filed. IBKC's federal consolidated tax returns for 2016, 2017 and 2018 are currently under audit for 2013 through 2015 and the statutes for those years have been extended through December 31, 2020. Federal tax refund claims for Capital Bank Financial Corporation for 2010 - 2012 are under examination by the IRS. SeveralOn occasion, as federal or state auditors examine the tax returns of FHN’sFHN 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 returns are currently under examination.statutes. See Note 15 - Income Taxes for additional information.
RESTRUCTURING, REPOSITIONING, AND EFFICIENCY INITIATIVESBusiness Segment Results
During 2020, FHN reorganized its internal management structure and, accordingly, its segment reporting structure. Historically, FHN's primary business segments were Regional Banking, Fixed Income, Corporate, and Non-strategic. The closing of the FHN and IBKC merger of equals transaction prompted organizational changes to better integrate and execute the combined Company's
Beginning
strategic priorities across all lines of businesses. As a result, FHN revised its reportable segments to include Regional Banking, Specialty Banking and Corporate. Segment results for years prior to 2020 have been recast to adjust for the realignment of the segment reporting structure. See Note 20 - Business Segment Information for
| | | | | | | | |
| 68 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
additional disclosures related to FHN's operating segments.
Regional Banking
The Regional Banking segment generated pre-tax income of $1.3 billion in first quarter 2019, FHN initiated a company-wide review of business practices with the goal of optimizing its expense base2021 compared to improve profitability and create capacity to reinvest savings into technology and revenue production activities. The net charges for restructuring, repositioning, and efficiency initiatives were $39.8$273 million in 2019, primarily associated with professional fees, asset impairments, and severance and other employee costs. Due to the broad nature of the actions being taken, many components of expense are expected to benefit from the current efficiency initiatives. See Note 25 - Restructuring, Repositioning, and Efficiency for additional information.
STATEMENT OF CONDITION REVIEW - 2019 COMPARED TO 2018
Total period-end assets were $43.3 billion on December 31, 2019, up 6 percent from $40.8 billion on December 31, 2018. Average assets increased 4 percent to $41.7 billion in 2019 from $40.2 billion in 2018. The increase in period-end assets was primarily driven by strong loan growth. Additionally, an increase in securities purchased under agreement to resell and a net increase in non-earning assets (including right-of-use (“ROU”) assets) also contributed to the increase in period-end assets. These increases were somewhat offset by a net decrease in other earning assets (primarily interest-bearing cash), AFS securities, and loans HFS. The increase in average assets was also primarily driven by strong loan growth, somewhat offset by decreases in AFS securities, loans HFS, and a net decrease in other earning assets. Effective January 1, 2019, FHN adopted ASU 2016-02, “Leases” and all related ASUs and began recording ROU lease assets and lease liabilities in Other assets and Other liabilities which contributed to the increase in period-end and average assets and liabilities in 2019 relative to the prior year.
Total period-end liabilities were $38.2 billion on December 31, 2019, a 6 percent increase from $36.0 billion on December 31, 2018, driven by a net increase in short-term borrowings (primarily other short-term borrowings) and lease liabilities, somewhat offset by decreases in term borrowings and deposits. Average liabilities increased 3 percent to $36.8 billion in 2019, from $35.6 billion in 2018. The increase in average liabilities was largely driven by higher deposit levels in 2019 and the addition of lease liabilities, somewhat offset by a net decrease in short-term borrowings in 2019 relative to the prior year.
EARNING ASSETS
Earning assets consist of loans, investment securities, other earning assets such as trading securities, interest-bearing cash, and loans HFS. Average earning assets increased to $37.2 billion in 2019 from $35.7 billion in 2018. A more detailed discussion of the major line items follows.
Loans
Period-end loans were $31.1 billion on December 31, 2019, up from $27.5 billion on December 31, 2018. Average loans increased $2.0 billion to $29.2 billion in 2019 from $27.2 billion in 2018. The increase in period-end and average loan balances compared to the prior year was primarily due to strong loan growth within the Regional Banking portfolios.
In third quarter 2019, FHN corrected a previous mis-classification of commercial loans and reclassified approximately $410 million of market investor CRE loans from the C&I portfolio to the CRE portfolio. These loans were identified during an internal review and assessment by management of certain loan populations, a portion of which relate to loans acquired as part of the Capital Bank merger. The reclassification of these loan balances between regional banking portfolios did not have an impact on FHN’s consolidated period-end or average balance sheet and had an immaterial effect on the allowance for loan losses. No adjustments were made to prior periods as2020, reflecting the impact of the reclassification, includingIBKC merger and a decrease in the effectprovision for credit losses resulting from improvement in the macroeconomic outlook, positive credit grade migration and lower loan balances.
Net interest income increased $500 million, or 40%, in 2021, largely driven by merger-related earning asset growth. Results also reflect the benefit of lower deposit costs which helped to partially offset the impact of lower interest-earning asset yields and spreads.
Noninterest income increased $93 million, or 27%, largely attributable to increases in fee income driven by the impact of the IBKC merger.
Noninterest expense of $1.2 billion in 2021, increased $207 million, or 22%, from 2020, primarily as a result of the impact of the IBKC merger, mitigated in part by expense discipline and the benefit of merger cost saves.
Specialty Banking
Pre-tax income in the Specialty Banking segment increased $171 million to $709 million in 2021, largely driven by a decrease of $180 million in the provision for credit losses.
Net interest income increased $47 million, or 8%, in 2021 largely driven by merger-related earning asset growth. Results also reflect the benefit of lower deposit costs
which helped to partially offset the impact of lower interest-earning asset yields and spreads.
Noninterest income increased $21 million, or 4%, from 2020. Mortgage banking and title income increased $24 million, or 19%, as the benefit of the IBKC merger was offset by an intentional shift in origination mix toward portfolio loans as well as lower gain on sale spreads. Fixed income was down $16 million, or 4%, from 2020, reflecting slightly less favorable market conditions and lower fees from derivative and loan sales, somewhat offset by higher fees from portfolio advisory services.
Noninterest expense increased $77 million, or 16%, to $571 million in 2021, largely attributable to higher personnel and outside services costs from the impact of the IBKC merger.
Corporate
Pre-tax loss for the Corporate segment was $705 million for 2021 compared to pre-tax income of $122 million for 2020. Results for 2021 reflect a decline in revenue largely tied to the IBKC purchase accounting gain in 2020, a $215 million decrease in net interest income resulting from the impact of funds transfer pricing, and a $26 million loss on the allowanceredemption of legacy IBKC trust preferred securities in 2021. In addition, noninterest expense increased $94 million, largely attributable to merger and integration-related costs including asset impairments associated with the reduction of leased office space and banking center optimization as well as $19 million in derivative valuation adjustments on prior Visa Class B share sales.
Results of Operations—2020 compared to 2019
For a description of FHN's results of operations for loan losses was deemed2020, see Results of Operations - 2020 compared to be immaterial 2019 in all periods.
The following table provides detail regarding FHN's average loans.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 61
Table 6—Average Loans
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | 2019 | | Percent of total | | 2019 Growth Rate | | 2018 | | Percent of total | | 2018 Growth Rate | | 2017 (a) | | Percent of total | | 2017 Growth Rate |
| Commercial: | | | | | | | | | | | | | | | | | | |
| Commercial, financial, and industrial | | $ | 18,282,655 |
| | 63 | % | | 15 | % | | $ | 15,872,929 |
| | 58 | % | | 28 | % | | $ | 12,367,420 |
| | 61 | % | | 13 | % |
| Commercial real estate | | 4,102,065 |
| | 14 |
| | (2 | ) | | 4,206,206 |
| | 16 |
| | 78 |
| | 2,365,763 |
| | 12 |
| | 22 |
|
| Total commercial | | 22,384,720 |
| | 77 |
| | 11 |
| | 20,079,135 |
| | 74 |
| | 36 |
| | 14,733,183 |
| | 73 |
| | 14 |
|
| Consumer: | | | | | | | | | | | |
| | | | | | |
| Consumer real estate (b) | | 6,103,091 |
| | 21 |
| | (4 | ) | | 6,328,936 |
| | 23 |
| | 35 |
| | 4,678,569 |
| | 23 |
| | * |
|
| Permanent mortgage | | 195,735 |
| | 1 |
| | (23 | ) | | 253,122 |
| | 1 |
| | (20 | ) | | 317,816 |
| | 2 |
| | (20 | ) |
| Credit card and other | | 505,092 |
| | 1 |
| | (9 | ) | | 552,635 |
| | 2 |
| | 48 |
| | 374,474 |
| | 2 |
| | 4 |
|
| Total consumer | | 6,803,918 |
| | 23 |
| | (5 | ) | | 7,134,693 |
| | 26 |
| | 33 |
| | 5,370,859 |
| | 27 |
| | (1 | ) |
| Total loans, net of unearned income | | $ | 29,188,638 |
| | 100 | % | | 7 | % | | $ | 27,213,828 |
| | 100 | % | | 35 | % | | $ | 20,104,042 |
| | 100 | % | | 10 | % |
* Amount is less than one percent.
(a) 2017 includes the average impact of one month of balances related to the CBF acquisition.
| | | | | | | | |
(b) | 2019, 2018 and 2017 include $12.4 million, $19.3 million, and $29.3 million of restricted and secured real estate loans, respectively. 69
| 2021 FORM 10-K ANNUAL REPORT |
C&I loans are the largest component of the loan portfolio comprising 63 percent of total loans in 2019 and 58 percent in 2018. C&I loans increased 15 percent, or $2.4 billion, from 2018, largely driven by strong loan growth within the mortgage warehouse lending and commercial portfolios of Regional Banking. Growth in other specialty lending areas within Regional Banking, such as energy and healthcare also meaningfully contributed to the overall growth in average C&I loans in 2019 compared to 2018. Commercial real estate loans experienced a net decrease of 2 percent to $4.1 billion in 2019, primarily driven by loan payoffs and strategic run-off.
Average consumer loans declined 5 percent, or $.3 billion, from 2018 to $6.8 billion in 2019, largely driven by declines in real estate installment loans and home equity lines of credit within the Regional Banking segment, and continued wind-down of portfolios within the Non-strategic segment.
The following table provides a detail of contractual maturities of commercial loans on December 31, 2019.
Table 7—Contractual Maturities of Commercial Loans on December 31, 2019
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
(Period-end) (Dollars in thousands) | Within 1 Year | | After 1 Year Within 5 Years | | After 5 Years Within 10 Years | | After 10 Years | | Total |
| Commercial, financial, and industrial | $ | 7,585,357 |
| | $ | 9,276,468 |
| | $ | 2,178,626 |
| | $ | 1,010,640 |
| | $ | 20,051,091 |
|
| Commercial real estate | 899,229 |
| | 2,583,227 |
| | 738,183 |
| | 116,378 |
| | 4,337,017 |
|
| Total commercial loans | $ | 8,484,586 |
| | $ | 11,859,695 |
| | $ | 2,916,809 |
| | $ | 1,127,018 |
| | $ | 24,388,108 |
|
| For maturities over one year: | | | | | | | | | |
| | Interest rates - floating | | | $ | 8,764,153 |
| | $ | 1,615,535 |
| | $ | 812,593 |
| | $ | 11,192,281 |
|
| | Interest rates - fixed | | | 3,095,542 |
| | 1,301,274 |
| | 314,425 |
| | 4,711,241 |
|
| Total maturities over one year | | | $ | 11,859,695 |
| | $ | 2,916,809 |
| | $ | 1,127,018 |
| | $ | 15,903,522 |
|
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
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. Typical home equity lines originated by FHN are variable rate 5/15, 10/10, or 10/20 lines. In a 5/15 line, a borrower may draw on the loan for 5 years and pay interest only during that period (“the draw period”), and for the next 15 years the customer pays principal and interest and may no longer draw on that line. A 10/10 loan has a 10 year draw period followed by a 10-year principal-and-interest repayment period, and a 10/20 loan has a 10 year draw period followed by a 20-year principal-and-interest repayment period. Therefore, the contractual maturity for 5/15 and 10/10
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 62
home equity lines is 20 years and the contractual maturity for 10/20 home equity lines is 30 years. 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.
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
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | | | |
| (Dollars in millions) | Balance | | Mix | | Balance | | Mix | | | | | | |
| Securities available for sale: | | | | | | | | | | | | | |
| U.S. treasuries | $ | — | | | — | % | | $ | 613 | | | 8 | % | | | | | | |
| Government agency issued MBS and CMO | 7,312 | | | 78 | | | 6,218 | | | 77 | | | | | | | |
| Other U.S. government agencies (a) | 850 | | | 9 | | | 684 | | | 9 | | | | | | | |
| Corporate and other debt | — | | | — | | | 40 | | | — | | | | | | | |
| States and municipalities | 545 | | | 6 | | | 460 | | | 6 | | | | | | | |
| SBA interest-only strips | — | | | — | | | 32 | | | — | | | | | | | |
| Total securities available for sale | $ | 8,707 | | | 93 | % | | $ | 8,047 | | | 100 | % | | | | | | |
| Securities held to maturity: | | | | | | | | | | | | | |
| Government agency issued MBS and CMO | $ | 712 | | | 7 | % | | $ | — | | | — | % | | | | | | |
| Corporate and other debt | — | | | — | | | 10 | | | — | | | | | | | |
| Total securities held to maturity | $ | 712 | | | 7 | % | | $ | 10 | | | — | % | | | | | | |
| Total investment securities | $ | 9,419 | | | 100 | % | | $ | 8,057 | | | 100 | % | | | | | | |
| | | | | | | | | | | | | |
(a) Includes securities issued by government sponsored entities which are not backed by the full faith and credit of the U.S. Government.
FHN’s investment portfolio consists principally of debt securities includingavailable for sale. FHN maintains a highly-rated securities portfolio consisting primarily of government agency issued mortgage-backed securities (“MBS”) and government agency issued collateralized mortgage obligations (“CMO”), substantially all of which are classified as AFS. FHN utilizes theobligations. The securities portfolio asprovides a source of income and liquidity and collateral for repurchase agreements, for public funds,is an important tool used to balance the interest rate risk of the loan and as a tool for managing riskdeposit 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 movements. Table 8 - Contractual Maturitiesrisk to which FHN is exposed. These evaluations may result in steps taken to adjust the overall balance sheet positioning. During the third quarter of Investment Securities on December 31, 2019 (Amortized Cost) shows information pertaining2021, in order to the composition, yields,improve net
interest income and contractual
maturitiesmoderate a portion of its overly asset sensitive interest rate risk position, FHN began deploying excess cash into the investment portfolio. portfolio by purchasing securities classified as held to maturity.
Investment securities were $4.5$9.4 billion and $4.6$8.1 billion on December 31, 20192021 and 2018,2020, representing 11% and 10% of total assets, respectively. Average investment securities were $4.5 billion and $4.7 billion in 2019 and 2018, representing 12 percent and 13 percent of average earning assets in 2019 and 2018, respectively. The decrease in period-end and average investment securities was driven by FHN's reinvestment strategy in 2019. A portion of this decrease was somewhat offset by unrealized gains within the securities portfolio driven by lower interest rates in 2019 relative to the prior year. FHN manages the size and mix of the investment portfolio to assist in asset liability management, provide liquidity, and optimize risk adjusted returns.
Government agency issued MBS, CMO, and other agencies averaged $4.4 billion and $4.6 billion in 2019 and 2018, respectively. U.S. treasury securities and corporate and municipal bonds averaged $102.4 million in 2019 compared to $76.5 million in 2018. On December 31, 2019, AFS investment securities had $41.3 million of net unrealized gains compared to $100.6 million of net unrealized losses on December 31, 2018. See Note 3 - Investment Securities for additional detail.more information about the securities portfolio.
Table 8—Contractual Maturities of Investment Securities on December 31, 2019 (Amortized Cost)
| | | | | | | | |
| 70 | 2021 FORM 10-K ANNUAL REPORT |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | After 1 year | | After 5 years | | | | | |
| | Within 1 year | | Within 5 years | | Within 10 years | | After 10 years | |
| (Period-end)(Dollars in thousands) | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | |
| Securities available-for-sale: | | | | | | | | | | | | | | | | |
| Government agency issued MBS and CMO (a) | $ | — |
| | — |
| % | $ | 177,643 |
| | 2.49 |
| % | $ | 335,886 |
| | 2.93 |
| % | $ | 3,470,625 |
| | 2.45 |
| % |
| U.S. treasuries |
|
| |
|
| | 100 |
| | 1.51 |
| | — |
| | — |
| | — |
| | — |
| |
| Other U.S. government agencies | 34,922 |
| | 2.48 |
| | 168,949 |
| | 2.74 |
| | — |
| | — |
| | 99,592 |
| | 2.15 |
| |
| States and municipalities | — |
| | — |
| | — |
| | — |
| | 755 |
| | 3.82 |
| | 56,477 |
| | 3.69 |
| |
| Corporates and other debt | — |
| | — |
| | 40,054 |
| | 4.61 |
| | — |
| | — |
| | — |
| | — |
| |
| Total securities available-for-sale | $ | 34,922 |
| | 2.48 |
| % | $ | 386,746 |
| | 2.82 |
| % | $ | 336,641 |
| | 2.93 |
| % | $ | 3,626,694 |
| | 2.46 |
| % |
| Securities held-to-maturity: | | | | | | | | | | | | | | | | |
| Corporate bonds | $ | — |
| | — |
| % | $ | — |
| | — |
| % | $ | 10,000 |
| | 5.25 |
| % | $ | — |
| | — |
| % |
| Total securities held-to-maturity | $ | — |
| | — |
| % | $ | — |
| | — |
| % | $ | 10,000 |
| | 5.25 |
| % | $ | — |
| | — |
| % |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Table 7.7
CONTRACTUAL MATURITIES OF INVESTMENT SECURITIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2021 |
| | | | | After 1 year | | After 5 years | | | | | |
| Within 1 year | | Within 5 years | | Within 10 years | | After 10 years | |
| (Dollars in millions) | Amount | | Yield (b) | | Amount | | Yield (b) | | Amount | | Yield (b) | | Amount | | Yield (b) | |
| Securities available for sale: | | | | | | | | | | | | | | | | |
| Government agency issued MBS and CMO (a) | $ | 19 | | | 1.33 | | % | $ | 532 | | | 1.64 | | % | $ | 1,259 | | | 1.45 | | % | $ | 5,548 | | | 1.53 | | % |
| | | | | | | | | | | | | | | | |
| Other U.S. government agencies | 12 | | | 2.88 | | | 49 | | | 2.04 | | | 197 | | | 1.41 | | | 603 | | | 1.64 | | |
| States and municipalities | 5 | | | 0.69 | | | 100 | | | 0.69 | | | 154 | | | 1.41 | | | 276 | | | 2.30 | | |
| | | | | | | | | | | | | | | | |
| Total securities available for sale | $ | 36 | | | 1.80 | | % | $ | 681 | | | 1.53 | | % | $ | 1,610 | | | 1.44 | | % | $ | 6,427 | | | 1.57 | | % |
| Securities held to maturity: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Government agency issued MBS and CMO (a) | — | | | — | | % | — | | | — | | % | — | | | — | | % | 712 | | | 1.82 | | % |
| Total securities held to maturity | $ | — | | | — | | % | $ | — | | | — | | % | $ | — | | | — | | % | $ | 712 | | | 1.82 | | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(a) Represents government agency-issued mortgage-backed securities and collateralized mortgage obligations which, when adjusted for early pay downs, have an estimated average life of 4.34.8 years.
(b) Weighted average yields were calculated using amortized cost on a fully-taxable equivalent basis, assuming a 25% tax rate where applicable. Loans Held-for-Saleand Leases
Period-end loans and leases decreased $3.4 billion, or 6%, to $54.9 billion as of December 31, 2021, driven by a $2.2 billion decrease in commercial loans primarily tied to a $3.0 billion decrease in PPP loans, offset by other C&I growth, and a $1.2 billion decrease in consumer loans. Average loans and leases increased to $56.3 billion in 2021 compared to $46.2 billion in 2020 primarily from the full
year inclusion of acquired IBKC loans in 2021, offset by declines in PPP loans and other consumer real estate loan activity.
The following table provides detail regarding FHN's loans and leases:
Table 7.8
LOANS AND LEASES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | 2021 | | Percent of total | | 2021 Growth Rate | | 2020 (a) | | Percent of total | | 2020 Growth Rate (a) | | 2019 | | Percent of total | | 2019 Growth Rate |
| Commercial: | | | | | | | | | | | | | | | | | | |
| Commercial, financial, and industrial (b) | | $ | 31,068 | | | 57 | % | | (6) | % | | $ | 33,104 | | | 57 | % | | 65 | % | | $ | 20,051 | | | 65 | % | | 21 | % |
| Commercial real estate | | 12,109 | | | 22 | | | (1) | | | 12,275 | | | 21 | | | 183 | | | 4,337 | | | 14 | | | 8 | |
| Total commercial | | 43,177 | | | 79 | | | (5) | | | 45,379 | | | 78 | | | 86 | | | 24,388 | | | 79 | | | 19 | |
| Consumer: | | | | | | | | | | | | | | | | | | |
| Consumer real estate | | 10,772 | | | 20 | | | (8) | | | 11,725 | | | 20 | | | 90 | | | 6,177 | | | 20 | | | (5) | |
| Credit card and other | | 910 | | | 1 | | | (19) | | | 1,128 | | | 2 | | | 127 | | | 496 | | | 1 | | | (4) | |
| Total consumer | | 11,682 | | | 21 | | | (9) | | | 12,853 | | | 22 | | | 93 | | | 6,673 | | | 21 | | | (5) | |
| Total loans and leases | | $ | 54,859 | | | 100 | % | | (6) | % | | $ | 58,232 | | | 100 | % | | 87 | % | | $ | 31,061 | | | 100 | % | | 13 | % |
| | | | | | | | | | | | | | | | | | |
(a) 2020 includes the impact of balances related to the IBKC merger on July 1, 2020 and Truist Bank branch acquisition on July 17, 2020.
(b) Includes equipment financing loans and leases.
| | | | | | | | |
| 71 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
C&I loans are the largest component of the loan and lease portfolio, comprising 57% of total loans and leases in both 2021 and 2020. C&I loans decreased 6%, or $2.0 billion, from 2020 largely driven by a decrease in PPP loans and loans to mortgage companies. Excluding PPP loans, C&I loans increased $978 million, attributable to Regional Banking growth. Growth in other specialty lending areas within Specialty Banking, such as real estate rental and leasing, also meaningfully contributed to the overall growth in non-PPP C&I loans from 2020. Commercial real
estate loans decreased 1% to $12.1 billion in 2021, attributable to a decline in Specialty Banking loans.
Total consumer loans decreased 9%, or $1.2 billion, from the end of 2020, largely driven by paydowns in real estate installment loans and home equity lines of credit.
The following table provides detail of contractual maturities at December 31, 2021.
Table 7.9
CONTRACTUAL MATURITIES OF LOANS AND LEASES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| (Dollars in millions) | Within 1 Year | | After 1 Year
Within 5 Years | | After 5 Years Within 15 Years | | After 15 Years | | Total |
| Commercial, financial, and industrial | $ | 8,174 | | | $ | 15,095 | | | $ | 7,023 | | | $ | 776 | | | $ | 31,068 | |
| Commercial real estate | 2,007 | | | 6,939 | | | 3,085 | | | 78 | | | 12,109 | |
| Consumer real estate | 93 | | | 414 | | | 1,706 | | | 8,559 | | | 10,772 | |
| Credit card and other | 336 | | | 428 | | | 82 | | | 64 | | | 910 | |
| Total loans and leases | $ | 10,610 | | | $ | 22,876 | | | $ | 11,896 | | | $ | 9,477 | | | $ | 54,859 | |
| | | | | | | | | |
| For maturities over one year at fixed interest rates: | | | | | | | | |
| Commercial, financial, and industrial | | | $ | 4,479 | | | $ | 4,294 | | | $ | 498 | | | $ | 9,271 | |
| Commercial real estate | | | 1,954 | | | 1,103 | | | 44 | | | 3,101 | |
| Consumer real estate | | | 297 | | | 1,380 | | | 3,076 | | | 4,753 | |
| Credit card and other | | | 118 | | | 74 | | | 24 | | | 216 | |
| Total loans and leases at fixed interest rates | | | $ | 6,848 | | | $ | 6,851 | | | $ | 3,642 | | | $ | 17,341 | |
| | | | | | | | | |
| For maturities over one year at floating interest rates: | | | | | | | | |
| Commercial, financial, and industrial | | | $ | 10,616 | | | $ | 2,729 | | | $ | 278 | | | $ | 13,623 | |
| Commercial real estate | | | 4,985 | | | 1,982 | | | 34 | | | 7,001 | |
| Consumer real estate | | | 117 | | | 326 | | | 5,483 | | | 5,926 | |
| Credit card and other | | | 310 | | | 8 | | | 40 | | | 358 | |
| Total loans and leases at floating interest rates | | $ | 16,028 | | | $ | 5,045 | | | $ | 5,835 | | | $ | 26,908 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Total maturities over one year | | | $ | 22,876 | | | $ | 11,896 | | | $ | 9,477 | | | $ | 44,249 | |
| | | | | | | | | |
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
In 2020, FHN obtained IBKC's mortgage banking operations which includes origination and servicing of residential first lien mortgages that conform to standards established by GSEs that are major investors in U.S. home mortgages but can also consist of junior lien and jumbo loans secured by residential property. These loans are primarily sold to private companies that are unaffiliated with the GSEs on a servicing-released basis.
The legacy FHN loans HFS portfolio consists of small business, other consumer loans, the mortgage warehouse, USDA, student, and home equity loansloans.
| | | | | | | | |
| 72 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
On December 31, 2021, loans HFS were $1.2 billion, a $150 million increase compared to December 31, 2020. On an average basis, HFS loans increased to $956 million in 2021 from $835 million in 2020, generally driven by the additional volume of mortgage loans originated with the
IBKC merger. Held-for-sale consumer mortgage loans secured by residential real estate in process of foreclosure totaled $3 million and $2 million at December 31, 2021 and 2020, respectively.
Asset Quality
Loan and Lease Portfolio Composition
FHN groups its loans into portfolio segments based on internal classifications reflecting the manner in which the ALLL is established and how credit risk is measured, monitored, and reported. From time to time, and if conditions are such that certain subsegments are uniquely affected by economic or market conditions or are experiencing greater deterioration than other
components of the loan portfolio, management may determine the ALLL at a more granular level. Commercial loans are composed of C&I loans and CRE loans. Consumer loans are composed of consumer real estate loans and credit card and other loans.
Underwriting Policies and Procedures
The following sections describe each portfolio as well as general underwriting procedures for each. As economic and real estate conditions develop, enhancements to underwriting and credit policies and procedures may be necessary or desirable. Loan policies and procedures for all portfolios are reviewed by credit risk working groups and management risk committees comprised of business line managers and credit administration professionals as well as by various other reviewing bodies within FHN. Policies and procedures are approved by key executives and/or senior managers leading the applicable credit risk working groups as well as by management risk committees.
The credit risk working groups and management risk committees strive to ensure that the approved policies and procedures address the associated risks and establish reasonable underwriting criteria that appropriately mitigate risk. Policies and procedures are reviewed, revised and re-issued periodically at established review dates or earlier if changes in the economic environment, portfolio performance, the size of portfolio or industry concentrations, or regulatory guidance warrant an earlier review.
Commercial Loan and Lease Portfolios
FHN’s commercial loan approval process grants lending authority based upon job description, experience, and performance. The lending authority is delegated to the business line (Market Managers, Departmental Managers, Regional Presidents, Relationship Managers (RM) and Portfolio Managers (PM) and to Credit Risk Managers. While individual limits vary, the predominant amount of approval authority is vested with the Credit Risk Management function. Portfolio, industry, and borrower concentration limits for the various portfolios are established by executive management and approved by the Executive and Risk Committee of the Board.
FHN’s commercial lending process incorporates an RM and a PM for most commercial credits. The RM is primarily responsible for communications with the borrower and maintaining the relationship, while the PM is responsible for assessing the credit quality of the borrower, beginning with the initial underwriting and continuing through the servicing period. Other specialists and the assigned RM/PM are organized into units called deal teams. Deal teams are constructed with specific job attributes that facilitate
FHN’s ability to identify, mitigate, document, and manage ongoing risk. PMs and credit analysts provide enhanced analytical support during loan origination and servicing, including monitoring of the financial condition of the borrower and tracking compliance with loan agreements. Loan closing officers and the construction loan management unit specialize in loan documentation and the management of the construction lending process. FHN strives to identify problem assets early through comprehensive policies and guidelines, targeted portfolio reviews, more frequent servicing on lower rated borrowers, and an emphasis on frequent grading. For smaller commercial credits, generally $5 million or less, and income-producing CRE credits greater than $10 million to non-professional real estate developers and smaller professional real estate investors/developers, FHN utilizes a centralized underwriting unit in order to originate and grade small business loans more efficiently and consistently.
FHN may utilize availability of guarantors/sponsors to support commercial lending decisions during the credit
| | | | | | | | |
| 73 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
underwriting process and when determining the assignment of internal loan grades. Reliance on the guaranty as a viable secondary source of repayment is a function of an analysis proving capability to pay, factoring in, among other things, liquidity and direct/indirect cash flows. FHN also considers the volume and amount of guaranties provided for all global indebtedness and the likelihood of realization. FHN presumes a guarantor’s willingness to perform until there is any current or prior indication or future expectation that the guarantor may not willingly and voluntarily perform under the terms of the guaranty. In FHN’s risk grading approach, it is deemed that financial support becomes necessary generally at a point when the loan would otherwise be graded substandard, reflecting a well-defined weakness. At that point, provided willingness and capacity to support are appropriately demonstrated, a strong, legally enforceable guaranty can mitigate the risk of default or loss, justify a less severe rating, and consequently reduce the level of allowance or charge-off that might otherwise be deemed appropriate.
C&I
The C&I portfolio totaled $31.1 billion as of December 31, 2021 and is comprised of loans used for general business purposes. Products offered in the C&I portfolio include term loan financing of owner-occupied real estate and fixed assets, PPP loans, direct financing and sales-type leases, working capital lines of credit, and trade credit enhancement through letters of credit.
C&I loans are underwritten in accordance with a well-defined credit origination process. This process includes applying minimum underwriting standards as well as separation of origination and credit approval roles on transaction sizes over PM authorization limits. Underwriting typically includes due diligence of the borrower and the applicable industry of the borrower, analysis of the borrower’s available financial information, identification and analysis of the various sources of repayment and identification of the primary risk
attributes. Stress testing the borrower’s financial capacity, adherence to loan documentation requirements, and assigning credit risk grades using internally developed scorecards are also used to help quantify the risk when appropriate. Underwriting parameters also include loan-to-value ratios which vary depending on collateral type, use of guaranties, loan agreement requirements, and other recommended terms such as equity requirements, amortization, and maturity. Approval decisions also consider various financial ratios and performance measures of the borrowers, such as cash flow and balance sheet leverage, liquidity, coverage of fixed charges, and working capital. Additionally, approval decisions consider the capital structure of the borrower, sponsorship, and quality/value of collateral. Generally, guideline and policy exceptions are identified and mitigated during the approval process. Pricing of C&I loans is based upon the determined credit risk specific to the individual borrower. Historically, these loans typically have had variable rates tied to the LIBOR or prime rate of interest plus or minus the appropriate margin. However, with the upcoming cessation of LIBOR, FHN no longer references LIBOR in new loan contracts, and the existing portfolio of loans tied to LIBOR is being repriced to alternative reference rates.
A $3.0 billion decrease in PPP loans drove the total decrease from December 31, 2020. Excluding PPP loans, C&I growth was $978 million, or 3%. The averagelargest geographical concentrations of balances as of December 31, 2021 were in Tennessee (20%), Florida (12%), Texas (10%), North Carolina (7%), Louisiana (7%), California (7%), and Georgia (5%), with no other state representing more than 5% of the portfolio.
The following table provides the composition of the C&I portfolio by industry as of December 31, 2021 and 2020. For purposes of this disclosure, industries are determined based on the NAICS industry codes used by Federal statistical agencies in classifying business establishments for the collection, analysis, and publication of statistical data related to the U.S. business economy.
| | | | | | | | |
| 74 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Table 7.10
C&I PORTFOLIO BY INDUSTRY
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| (Dollars in millions) | | Amount | | Percent | | Amount | | Percent |
| Industry: | | | | | | | | |
| Loans to mortgage companies | | $ | 4,518 | | | 15 | % | | $ | 5,404 | | | 16 | % |
| Finance and insurance | | 3,483 | | | 11 | | | 3,130 | | | 10 | |
| Real estate rental & leasing (a) | | 2,771 | | | 9 | | | 2,365 | | | 7 | |
| Health care and social assistance | | 2,413 | | | 8 | | | 2,689 | | | 8 | |
| | | | | | | | |
| Accommodation & food service | | 2,221 | | | 7 | | | 2,303 | | | 7 | |
| Manufacturing | | 1,950 | | | 6 | | | 1,907 | | | 6 | |
| Wholesale trade | | 1,845 | | | 6 | | | 2,079 | | | 6 | |
| | | | | | | | |
| Retail trade | | 1,532 | | | 5 | | | 1,531 | | | 5 | |
| Energy | | 1,325 | | | 4 | | | 1,686 | | | 5 | |
| Other (professional, construction, transportation, etc) (b) | | 9,010 | | | 29 | | | 10,010 | | | 30 | |
| Total C&I loan portfolio | | $ | 31,068 | | | 100 | % | | $ | 33,104 | | | 100 | % |
| | | | | | | | |
(a)Leasing, rental of real estate, equipment, and goods.
(b)Industries in this category each comprise less than 5% for 2021.
Industry Concentrations
Loan concentrations are considered to exist for a financial institution when there are loans to numerous borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. Loans to mortgage companies and borrowers in the finance and insurance industry were 26% of FHN’s C&I loan portfolio as of December 31, 2021, and as a result could be affected by items that uniquely impact the financial services industry. Except Loans to Mortgage Companies and Finance and Insurance, as discussed below, on December 31, 2021, FHN did not have any other concentrations of C&I loans in any single industry of 10% or more of total loans.
Loans to Mortgage Companies
The balance of loans HFSto mortgage companies was 15% of the C&I portfolio as of December 31, 2021, and 16% of the C&I portfolio as of December 31, 2020, and includes balances related to both home purchase and refinance activity. This portfolio generally fluctuates with mortgage rates and seasonal factors and includes commercial lines of credit to qualified mortgage companies primarily for the temporary warehousing of eligible mortgage loans prior to the borrower’s sale of those mortgage loans to third party investors. Generally, lending to mortgage lenders increases when there is a decline in mortgage rates and decreases when rates rise. The decrease in loans to mortgage companies year over year was due to existing home supply shortages, construction labor and materials shortages, and a rise in mortgage rates. In 2021, approximately 48% of the loans funded were home purchases and 52% were refinance transactions.
Finance and Insurance
The finance and insurance component represents 11% of the C&I portfolio as of December 31, 2021 compared to 10% at the end of 2020 and includes TRUPs (i.e., long-term unsecured loans to bank and insurance-related businesses), loans to bank holding companies, and asset-based lending to consumer finance companies. As of December 31, 2021, asset-based lending to consumer finance companies represents approximately $1.4 billion of the finance and insurance component.
Paycheck Protection Program
In 2020, Congress created the Paycheck Protection Program (PPP) in response to the economic disruption associated with the COVID-19 pandemic. Under the PPP, qualifying businesses could receive loans from private lenders, such as FHN, that are fully guaranteed by the Small Business Administration. These loans potentially are partly or fully forgivable, depending upon the borrower’s use of the funds and maintenance of employment levels. To the extent forgiven, the borrower is relieved from payment while the lender is still paid from the program.
The C&I portfolio as of December 31, 2021 included 8,372 loans made under the PPP with an aggregate principal balance of $1.0 billion, which are fully government guaranteed with the SBA. Due to the government guarantee and forgiveness provisions, PPP loans are considered to have no credit risk and do not affect the amount of provision and ALLL recorded. As a result, no ALLL was recorded for PPP loans as of December 31, 2021, and FHN assigned a risk weight of zero to PPP loans for regulatory capital purposes.
| | | | | | | | |
| 75 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
For these loans, there were remaining net lender fees of approximately $17 million to be paid to FHN as of December 31, 2021. During 2021, FHN continued to work with its clients that have applied for and received PPP loan forgiveness. Through December 31, 2021, approximately $5 billion of the original $6 billion in PPP loans originated by FHN and IBERIABANK prior to acquisition had been forgiven by the SBA.
Commercial Real Estate
The CRE portfolio totaled $12.1 billion as of December 31, 2021, a $166 million, or 1%, decrease compared to December 31, 2020.
The CRE portfolio includes both financings for commercial construction and non-construction loans. This portfolio contains loans and draws on lines and letters of credit for the construction and mini-permanent financing of income-producing real estate.
Residential CRE loans include loans to residential builders and developers for the purpose of constructing single-family homes, condominiums, and town homes, and on a limited basis, for developing residential subdivisions. After the fulfillment of existing commitments over the near term, the residential CRE class will be in a wind-down state with the expectation of full runoff in the foreseeable future.
Income-producing CRE loans are underwritten in accordance with credit policies and underwriting guidelines that are reviewed at least annually and revised as necessary based on market conditions. Loans are underwritten based upon project type, size, location, sponsorship, and other market-specific data. Generally, minimum requirements for equity, debt service coverage ratios, and level of pre-leasing activity are established based on perceived risk in each subcategory. Loan-to-value (value is defined as the lower of cost or market) limits are set below regulatory prescribed ceilings and generally range between 50% and 80% depending on the underlying product set. Term and amortization requirements are set based on prudent standards for interim real estate lending. Equity requirements are established based on the quality and liquidity of the
primary source of repayment. For example, more equity would be required for a speculative construction project or land loan than for a property fully leased to a credit tenant or a roster of tenants. Typically, a borrower must have at least 15% of cost invested in a project before FHN will provide loan funding. Income properties are required to achieve a debt service coverage ratio greater than or equal to 125% at inception or stabilization of the project based on loan amortization and a minimum underwriting interest rate. Some product types that possess a greater risk profile require a higher level of equity, as well as a higher debt service coverage ratio threshold. A proprietary minimum underwriting interest rate is used to calculate compliance with underwriting standards. Generally, specific levels of pre-leasing must be met for construction loans on income properties. A global cash flow analysis is performed at the sponsor level. The majority of the portfolio is on a floating rate basis tied to appropriate spreads over LIBOR. However, since January 1, 2022, no new loan contracts reference LIBOR, and the existing portfolio of loans tied to LIBOR is being repriced to alternative reference rates.
The credit administration and ongoing monitoring consists of multiple internal control processes. Construction loans are closed by a centralized control unit and construction loan management is administered centrally for loans $3 million and over. Underwriters and credit approval personnel stress the borrower’s/project’s financial capacity utilizing numerous attributes such as interest rates, vacancy, and discount rates. Key information is captured from the various portfolios and then stressed at the aggregate level. Results are utilized to assist with the assessment of the adequacy of the ALLL and to steer portfolio management strategies.
The largest geographical concentrations of CRE balances as of December 31, 2021 were in Florida (26%), Texas (12%), North Carolina (11%), Louisiana (10%), Tennessee (9%), and Georgia (8%) with no other state representing more than 5% of the portfolio. Subcategories of income-producing CRE loans consist of multi-family (25%), office (24%), retail (19%), industrial (12%), hospitality (11%), land/land development (2%), and other (7%).
Consumer Loan Portfolios
Consumer Real Estate
The consumer real estate portfolio totaled $10.8 billion as of December 31, 2021 and is primarily composed of home equity lines and installment loans.
The largest geographical concentrations of balances in the consumer real estate portfolio as of December 31, 2021 were in Florida (32%), Tennessee (23%), Louisiana (10%), North Carolina (8%), Texas (7%), and New York (5%), with no other state representing more than 5% of the portfolio.
As of December 31, 2021, approximately 87% of the consumer real estate portfolio was in a first lien position. As of December 31, 2021, the weighted average FICO score at origination of this portfolio was 755 and the refreshed FICO scores averaged 754, no significant change from FICO scores of 753 and 763, respectively, as of December 31, 2020. Generally, performance of this portfolio is affected by life events that affect borrowers’ finances, the level of unemployment, and home prices.
| | | | | | | | |
| 76 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
As of December 31, 2021 and 2020, FHN had held-to-maturity consumer mortgage loans secured by real estate totaling $20 million and $36 million, respectively, that were in the process of foreclosure.
HELOCs comprised $2.0 billion and $2.4 billion of the consumer real estate portfolio as of December 31, 2021 and December 31, 2020, respectively. FHN’s HELOCs typically have a 5 or 10 year draw period followed by a 10 or 20 year repayment period, respectively. During the draw period, a borrower is able to draw on the line and is only required to make interest payments. The line is frozen if a borrower becomes past due on payments. Once the draw period has concluded, the line is closed and the borrower is required to make both principal and interest payments monthly until the loan matures. The principal payment generally is fully amortizing, but payment amounts will adjust when variable rates reset to reflect changes in the prime rate.
As of December 31, 2021, approximately 88% of FHN's HELOCs were in the draw period compared to 86% at the
end of the prior year. Based on when draw periods are scheduled to end per the line agreement, it is expected that $431 million, or 24%, of HELOCs currently in the draw period will enter the repayment period during the next 60 months. Generally, delinquencies for HELOCs that have entered the repayment period are initially higher than HELOCs still in the draw period because of the increased minimum payment requirement; however, after some seasoning, performance of these loans usually begins to stabilize. The home equity lines of the consumer real estate portfolio are monitored closely for those nearing the end of the draw period and borrowers are initially contacted at least 6 months before the repayment period begins to remind the client of the terms of their agreement and to inform them of options.
The following table shows the HELOCs currently in the draw period and expected timing of conversion to the repayment period.
Table 7.11
HELOC DRAW TO REPAYMENT SCHEDULE
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2021 | | December 31, 2020 |
| (Dollars in millions) | | Repayment
Amount | | Percent | | Repayment
Amount | | Percent |
| Months remaining in draw period: | | | | | | | | |
| 0-12 | | $ | 43 | | | 2 | % | | $ | 73 | | | 4 | % |
| 13-24 | | 42 | | | 2 | | | 66 | | | 3 | |
| 25-36 | | 50 | | | 3 | | | 62 | | | 3 | |
| 37-48 | | 136 | | | 8 | | | 67 | | | 3 | |
| 49-60 | | 160 | | | 9 | | | 187 | | | 8 | |
| >60 | | 1,324 | | | 76 | | | 1,662 | | | 79 | |
| Total | | $ | 1,755 | | | 100 | % | | $ | 2,117 | | | 100 | % |
| | | | | | | | |
Underwriting
For the majority of loans in this portfolio, underwriting decisions are made through a centralized loan underwriting center. To obtain a consumer real estate loan, the loan applicant(s) in most cases must first meet a minimum qualifying FICO score. Minimum FICO score requirements are established by management for both loans secured by real estate as well as non-real estate loans. Management also establishes maximum loan amounts, loan-to-value ratios, and debt-to-income ratios for each consumer real estate product. Applicants must have the financial capacity (or available income) to service the debt by not exceeding a calculated debt-to-income ratio. The amount of the loan is limited to a percentage of the lesser of the current appraised value or sales price of the collateral. Identified guideline and policy exceptions
require established mitigating factors that have been approved for use by Credit Risk Management.
HELOC interest rates are variable and adjust with movements in the index rate stated in the loan agreement. Such loans can have elevated risks of default, particularly in a rising interest rate environment, potentially stressing borrower capacity to repay the loan at the higher interest rate. FHN’s current underwriting practice requires HELOC borrowers to qualify based on a sensitized interest rate (above the current note rate), fully amortized payment methodology. FHN’s underwriting guidelines require borrowers to qualify at an interest rate that is 200 basis points above the note rate. This mitigates risk to FHN in the event of a sharp rise in interest rates over a relatively short time horizon.
| | | | | | | | |
| 77 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
HELOC Portfolio Risk Management
FHN performs continuous HELOC account reviews in order to identify higher-risk home equity lines and initiate preventative and corrective actions. The reviews consider a number of account activity patterns and characteristics such as the number of times delinquent within recent periods, changes in credit bureau score since origination, score degradation, performance of the first lien, and account utilization. In accordance with FHN’s interpretation of regulatory guidance, FHN may block
future draws on accounts in order to mitigate risk of loss to FHN.
Credit Card and Other
The credit card and other consumer loan portfolio, which is primarily within the Regional Banking segment, decreased $218 million from the prior year-end to $578.0 million$910 million as of December 31, 2021, driven by net repayments of consumer construction loans.
Allowance for Credit Losses
The ACL is maintained at a level sufficient to provide appropriate reserves to absorb estimated future credit losses in 2019accordance with GAAP. For additional information regarding the ACL, see Notes 1 and 5 of this Report.
The ALLL was $670 million as of December 31, 2021, or 1.22% of total loans and leases, a decrease of $293 million
or 43 basis points from $724.0 the end of 2020, reflecting improvement in the macroeconomic forecast, positive credit grade migration, and lower loan balances. The ACL to total loans and leases ratio decreased to 1.34% as of December 31, 2021 from 1.80% as of December 31, 2020.
Consolidated Net Charge-offs
Net charge-offs were $2 million in 2018. On2021 compared to $120 million in 2020. As a percentage of average total loans and leases, net charge-offs improved 26 basis points from 2020.
Net charge-offs in the C&I portfolio were $13 million, a decrease of $107 million from 2020, driven by lower energy-related charge-offs as well as continued improvement in overall asset quality. Net charge-offs in
the commercial real estate portfolio were minimal in both 2021 and 2020.
In the consumer portfolio, net recoveries of $22 million in consumer real estate loans were offset by net charge-offs of $11 million in credit card and other loans. Net recoveries in the consumer loan portfolio in 2020 were $1 million.
Table 7.12
ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES AND CHARGE-OFFS
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31 | | | | |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | | | |
| Allowance for loan and lease losses | | | | | | | | | | |
| C&I | | $ | 334 | | | $ | 453 | | | $ | 123 | | | | | |
| CRE | | 154 | | | 242 | | | 36 | | | | | |
| Consumer real estate | | 163 | | | 242 | | | 28 | | | | | |
| Credit card and other | | 19 | | | 26 | | | 13 | | | | | |
| Total allowance for loan and lease losses | | $ | 670 | | | $ | 963 | | | $ | 200 | | | | | |
| | | | | | | | | | | |
| Reserve for remaining unfunded commitments | | | | | | | | | | |
| C&I | | $ | 46 | | | $ | 65 | | | $ | 4 | | | | | |
| CRE | | 12 | | | 10 | | | 2 | | | | | |
| Consumer real estate | | 8 | | | 10 | | | — | | | | | |
| Credit card and other | | — | | | — | | | — | | | | | |
| Total reserve for remaining unfunded commitments | | $ | 66 | | | $ | 85 | | | $ | 6 | | | | | |
| | | | | | | | | | | |
| Allowance for credit losses | | | | | | | | | | |
| C&I | | $ | 380 | | | $ | 518 | | | $ | 127 | | | | | |
| CRE | | 166 | | | 252 | | | 38 | | | | | |
| | | | | | | | |
| 78 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consumer real estate | | 171 | | | 252 | | | 28 | | | | | |
| Credit card and other | | 19 | | | 26 | | | 13 | | | | | |
| Total allowance for credit losses | | $ | 736 | | | $ | 1,048 | | | $ | 206 | | | | | |
| | | | | | | | | | | |
| Period-end loans and leases | | | | | | | | | | |
| C&I | | $ | 31,068 | | | $ | 33,104 | | | $ | 20,051 | | | | | |
| CRE | | 12,109 | | | 12,275 | | | 4,337 | | | | | |
| Consumer real estate | | 10,772 | | | 11,725 | | | 6,177 | | | | | |
| Credit card and other | | 910 | | | 1,128 | | | 496 | | | | | |
| Total period-end loans and leases | | $ | 54,859 | | | $ | 58,232 | | | $ | 31,061 | | | | | |
| | | | | | | | | | | |
| ALLL / loans and leases % | | | | | | | | | | |
| C&I | | 1.07 | % | | 1.37 | % | | 0.62 | % | | | | |
| CRE | | 1.27 | % | | 1.97 | % | | 0.83 | % | | | | |
| Consumer real estate | | 1.51 | % | | 2.07 | % | | 0.45 | % | | | | |
| Credit card and other | | 2.14 | % | | 2.34 | % | | 2.68 | % | | | | |
| Total ALLL / loans and leases % | | 1.22 | % | | 1.65 | % | | 0.64 | % | | | | |
| | | | | | | | | | | |
| ACL / loans and leases % | | | | | | | | | | |
| C&I | | 1.22 | % | | 1.56 | % | | 0.63 | % | | | | |
| CRE | | 1.37 | % | | 2.05 | % | | 0.88 | % | | | | |
| Consumer real estate | | 1.59 | % | | 2.15 | % | | 0.45 | % | | | | |
| Credit card and other | | 2.09 | % | | 2.30 | % | | 2.62 | % | | | | |
| Total ACL / loans and leases % | | 1.34 | % | | 1.80 | % | | 0.66 | % | | | | |
| | | | | | | | | | | |
| Net charge-offs (recoveries) | | | | | | | | | | |
| C&I | | $ | 13 | | | $ | 120 | | | $ | 27 | | | | | |
| CRE | | — | | | 1 | | | 1 | | | | | |
| Consumer real estate | | (22) | | | (10) | | | (12) | | | | | |
| Credit card and other | | 11 | | | 9 | | | 11 | | | | | |
| Total net charge-offs | | $ | 2 | | | $ | 120 | | | $ | 27 | | | | | |
| | | | | | | | | | | |
| Average loans and leases | | | | | | | | | | |
| C&I | | $ | 32,010 | | | $ | 27,638 | | | $ | 18,283 | | | | | |
| CRE | | 12,314 | | | 8,508 | | | 4,102 | | | | | |
| Consumer real estate | | 10,969 | | | 9,191 | | | 6,299 | | | | | |
| Credit card and other | | 1,005 | | | 846 | | | 505 | | | | | |
| Total average loans and leases | | $ | 56,298 | | | $ | 46,183 | | | $ | 29,189 | | | | | |
| | | | | | | | | | | |
| Charge-off % | | | | | | | | | | |
| C&I | | 0.04 | % | | 0.43 | % | | 0.15 | % | | | | |
| CRE | | 0.01 | % | | 0.01 | % | | 0.02 | % | | | | |
| Consumer real estate | | NM | | NM | | NM | | | | |
| Credit card and other | | 1.05 | % | | 1.04 | % | | 2.25 | % | | | | |
| Total charge-off % | | — | % | | 0.26 | % | | 0.09 | % | | | | |
| | | | | | | | | | | |
| ALLL / net charge-offs | | | | | | | | | | |
| C&I | | 2,645 | % | | 376 | % | | 453 | % | | | | |
| CRE | | 13,189 | % | | 43,670 | % | | 5,213 | % | | | | |
| Consumer real estate | | NM | | NM | | NM | | | | |
| | | | | | | | |
| 79 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Credit card and other | | 185 | % | | 299 | % | | 117 | % | | | | |
| Total ALLL / net charge-offs | | 30,641 | % | | 808 | % | | 739 | % | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
NM - not meaningful
Nonperforming Assets
Nonperforming loans are loans placed on nonaccrual if it becomes evident that full collection of principal and interest is at risk, if impairment has been recognized as a partial charge-off of principal balance due to insufficient collateral value and past due status, or (on a case-by-case basis), if FHN continues to receive payments but there are other borrower-specific issues. Included in nonaccruals are loans on which FHN continues to receive payments, including residential real estate loans where the borrower has been discharged of personal obligation through bankruptcy. NPAs consist of nonperforming loans and OREO (excluding OREO from government insured mortgages).
Reflecting an overall improvement in asset quality, total NPAs (including NPL HFS) decreased $121 million to $285 million as of December 31, 2021, and the ratio of nonperforming loans to total loans decreased 16 basis points to 0.50%. The decrease in nonperforming loans was driven primarily by the CRE and consumer real estate portfolios.
Certain nonperforming loans in both the commercial and consumer portfolios are deemed collateral-dependent and are charged down to an estimate of collateral value less costs to sell. Because the estimated loss has been recognized through a partial charge-off, typically an ALLL is not recorded.
Table 7.13
NONACCRUAL/NONPERFORMING LOANS, FORECLOSED ASSETS, & OTHER DISCLOSURES (a) (b)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31 | | | | |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| Nonperforming loans and leases | | | | | | | | | | |
| C&I | | $ | 125 | | | $ | 144 | | | $ | 74 | | | | | |
| CRE | | 9 | | | 58 | | | 2 | | | | | |
| Consumer real estate | | 138 | | | 182 | | | 86 | | | | | |
| Credit card and other | | 3 | | | 2 | | | — | | | | | |
| Total nonperforming loans and leases (c) (d) | | $ | 275 | | | $ | 386 | | | $ | 162 | | | | | |
| | | | | | | | | | | |
| Nonperforming loans held-for-sale (d) | | $ | 7 | | | $ | 5 | | | $ | 4 | | | | | |
| Foreclosed real estate and other assets (e) | | 3 | | | 15 | | | 16 | | | | | |
| Total nonperforming assets (d) (f) | | $ | 285 | | | $ | 406 | | | $ | 182 | | | | | |
| | | | | | | | | | | |
| Nonperforming loans and leases to total loans and leases | | | | | | | | | | |
| C&I | | 0.40 | % | | 0.43 | % | | 0.37 | % | | | | |
| CRE | | 0.08 | % | | 0.48 | % | | 0.04 | % | | | | |
| Consumer real estate | | 1.29 | % | | 1.56 | % | | 1.39 | % | | | | |
| Credit card and other | | 0.31 | % | | 0.18 | % | | 0.07 | % | | | | |
| Total NPL % | | 0.50 | % | | 0.66 | % | | 0.52 | % | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| ALLL / NPLs | | | | | | | | | | |
| C&I | | 268 | % | | 315 | % | | 166 | % | | | | |
| CRE | | 1,671 | % | | 415 | % | | 1,973 | % | | | | |
| Consumer real estate | | 118 | % | | 133 | % | | 33 | % | | | | |
| Credit card and other | | 699 | % | | 1313 | % | | 3892 | % | | | | |
| Total ALLL / NPLs | | 244 | % | | 249 | % | | 124 | % | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
(a)Balances for 2019 do not include PCI loans HFSeven though the client may be contractually past due. PCI loans were recorded at fair value upon acquisition and accreted interest income over the remaining life of the loan. PCI loans were transitioned to PCD status upon adoption of CECL.
| | | | | | | | |
| 80 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
(b) $593.8 millioUnless otherwise noted, increases in balances from 2019 to 2020 were primarily driven by acquired nonperforming assets.
(c)nUnder the original terms of the loans, estimated interest income would have been approximately $19 million, $18 million, and $11 million during 2021, 2020 and 2019, respectively.
(d)Excludes loans and leases that are 90 or more days past due and still accruing interest.
(e)Foreclosed real estate from GNMA loans totaled $1 million, $2 million, and $2 million at December 31, 2021, 2020, and 2019, respectively.
(f)Balances do not include government-insured foreclosed real estate. Balances for 2019 also do not include PCI loans. PCI loans were transitioned to PCD status upon adoption of CECL.
The following table provides nonperforming assets by business segment:
Table 7.14
NONPERFORMING ASSETS BY SEGMENT
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31 | | | | |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | | | |
| Nonperforming loans and leases (a) (b) | | | | | | | | | | |
| Regional Banking | | $ | 163 | | | $ | 216 | | | $ | 45 | | | | | |
| Specialty Banking | | 78 | | | 117 | | | 68 | | | | | |
| Corporate | | 34 | | | 53 | | | 49 | | | | | |
| Consolidated | | $ | 275 | | | $ | 386 | | | $ | 162 | | | | | |
| | | | | | | | | | | |
| Foreclosed real estate (c) | | | | | | | | | | |
| Regional Banking | | $ | 2 | | | $ | 12 | | | $ | 12 | | | | | |
| Specialty Banking | | — | | | 1 | | | 1 | | | | | |
| Corporate | | 1 | | | 2 | | | 3 | | | | | |
| Consolidated | | $ | 3 | | | $ | 15 | | | $ | 16 | | | | | |
| | | | | | | | | | | |
| Nonperforming Assets (a) (b) (c) | | | | | | | | | | |
| Regional Banking | | $ | 165 | | | $ | 228 | | | $ | 57 | | | | | |
| Specialty Banking | | 78 | | | 118 | | | 69 | | | | | |
| Corporate | | 35 | | | 55 | | | 52 | | | | | |
| Consolidated | | $ | 278 | | | $ | 401 | | | $ | 178 | | | | | |
| | | | | | | | | | | |
| Nonperforming loans and leases to total loans and leases | | | | | | | | | | |
| Regional Banking | | 0.43 | % | | 0.54 | % | | 0.27 | % | | | | |
| Specialty Banking | | 0.48 | | | 0.68 | | | 0.51 | | | | | |
| Corporate | | 5.39 | | | 5.70 | | | 5.22 | | | | | |
| Consolidated | | 0.50 | % | | 0.66 | % | | 0.52 | % | | | | |
| | | | | | | | | | | |
| NPA % (d) | | | | | | | | | | |
| Regional Banking | | 0.44 | % | | 0.57 | % | | 0.34 | % | | | | |
| Specialty Banking | | 0.48 | | | 0.68 | | | 0.52 | | | | | |
| Corporate | | 5.51 | | | 5.87 | | | 5.48 | | | | | |
| Consolidated | | 0.51 | % | | 0.69 | % | | 0.57 | % | | | | |
| | | | | | | | | | | |
(a)Excludes loans and leases that are 90 or more days past due and still accruing interest.
(b)Excludes loans classified as held for sale.
(c)Excludes foreclosed real estate and receivables related to government-insured mortgages of $1 million, $5 million, and $10 million as of December 31, 2021, 2020, and 2019, respectively.
(d)Ratio is non-performing assets related to the loan and lease portfolio to total loans plus foreclosed real estate and other assets.
| | | | | | | | |
| 81 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Lending Assistance for Borrowers
In addition to PPP loans, other customer support initiatives in response to the COVID-19 pandemic include incremental lending assistance for borrowers through delayed payment programs and fee waivers.
The following table provides the UPB of loans related to deferrals granted to FHN’s customers as of December 31, 2021 and December 31, 2020.
Table 7.15
CUSTOMER DEFERRALS
| | | | | | | | | | | | | | |
| (Dollars in millions) | | December 31, 2021 | | December 31, 2020 |
| Commercial: | | | | |
| C&I | | $ | 9 | | | $ | 104 | |
| | | | |
| CRE | | 26 | | | 194 | |
| Total Commercial | | $ | 35 | | | $ | 298 | |
| Consumer: | | | | |
| HELOC | | $ | 5 | | | $ | 14 | |
| Real estate installment loans | | 44 | | | 202 | |
| Credit card and other | | — | | | 4 | |
| Total Consumer | | $ | 49 | | | $ | 220 | |
| Total | | $ | 84 | | | $ | 518 | |
| | | | |
| | | | |
Commercial deferrals as of December 31, 2021 were comprised primarily of private client (59% or $21 million) and general commercial (40% or $14 million).
To the extent that loans were past due as of December 31, 2021 or December 31, 2020 and had been granted a
deferral, they were excluded from loans past due 30 to 89 days and loans past due 90 days or more in the table and discussion below.
Past Due Loans and Potential Problem Assets
Past due loans are loans contractually past due as to interest or principal payments, but which have not yet been put on nonaccrual status. Loans 90 days or more past due and still accruing were $40 million as of December 31, 2021, an increase of $23 million compared to $679.1December 31, 2020, primarily from consumer real estate loans. Loans 30 to 89 days past due increased $8
million from year-end 2020 to $108 million as of December 31, 2021, as a higher level of C&I loans past due were offset by lower consumer real estate loans past due less than 90 days, most notably in the CRE and consumer real estate portfolios.
| | | | | | | | |
| 82 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Table 7.16
ACCRUING DELINQUENCIES & OTHER CREDIT DISCLOSURES
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31 | | | | |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | | | |
| Accruing loans and leases 30+ days past due | | | | | | | | | | |
| C&I | | $ | 58 | | | $ | 15 | | | $ | 9 | | | | | |
| CRE | | 13 | | | 23 | | | 1 | | | | | |
| Consumer real estate | | 70 | | | 69 | | | 43 | | | | | |
| Credit card and other | | 7 | | | 10 | | | 5 | | | | | |
| Total accruing loans and leases 30+ days past due | | $ | 148 | | | $ | 117 | | | $ | 58 | | | | | |
| | | | | | | | | | | |
| Accruing loans and leases 30+ days past due % | | | | | | | | | | |
| C&I | | 0.19 | % | | 0.05 | % | | 0.05 | % | | | | |
| CRE | | 0.11 | | | 0.19 | | | 0.02 | | | | | |
| Consumer real estate | | 0.65 | | | 0.58 | | | 0.70 | | | | | |
| Credit card and other | | 0.76 | | | 0.87 | | | 0.93 | | | | | |
| Total accruing loans and leases 30+ days past due % | | 0.27 | % | | 0.20 | % | | 0.19 | % | | | | |
| | | | | | | | | | | |
| Accruing loans and leases 90+ days past due (a) (b) (c) | | | | | | | | | | |
| C&I | | $ | 5 | | | $ | — | | | $ | 2 | | | | | |
| CRE | | — | | | — | | | — | | | | | |
| Consumer real estate | | 33 | | | 16 | | | 18 | | | | | |
| Credit card and other | | 2 | | | 1 | | | 2 | | | | | |
| Total accruing loans and leases 90+ days past due | | $ | 40 | | | $ | 17 | | | $ | 22 | | | | | |
| | | | | | | | | | | |
| Loans held for sale | | | | | | | | | | |
| 30 to 89 days past due (b) | | $ | 7 | | | $ | 6 | | | $ | 4 | | | | | |
| 30 to 89 days past due - guaranteed portion (b) (d) | | 2 | | | 5 | | | 3 | | | | | |
| 90+ days past due (b) | | 24 | | | 12 | | | 6 | | | | | |
| 90+ days past due - guaranteed portion (b) (d) | | 12 | | | 10 | | | 6 | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
(a)Excludes loans classified as held for sale.
(b)Amounts are not included in nonperforming/nonaccrual loans.
(c)Amounts are also included in accruing loans and leases 30+ days past due.
(d)Guaranteed loans include FHA, VA, and GNMA loans repurchased through the GNMA buyout program.
Potential problem assets represent those assets where information about possible credit problems of borrowers has caused management to have serious doubts about the borrower’s ability to comply with present repayment terms and includes loans past due 90 days or more and still accruing. This definition is believed to be substantially consistent with the standards established by the Federal banking regulators for loans classified as substandard. At
year-end 2021, potential problem assets in the loan portfolio decreased $121 million from December 31, 2020 to $597 million on December 31, 2018.2021. The decrease was attributable to an overall improvement in period-endasset quality. The current expectation of losses from potential problem assets has been included in management’s analysis for assessing the adequacy of the allowance for loan and lease losses.
Troubled Debt Restructuring and Loan Modifications
As part of FHN’s ongoing risk management practices, FHN attempts to work with borrowers when appropriate to extend or modify loan terms to better align with their current ability to repay. Extensions and modifications to loans are made in accordance with internal policies and guidelines which conform to regulatory guidance. Each occurrence is unique to the borrower and is evaluated
separately. In a situation where an economic concession has been granted to a borrower that is experiencing financial difficulty, FHN identifies and reports that loan as a TDR.
For loan modifications that were made during 2021 and 2020 that met the TDR relief provisions outlined in either the CARES Act, as extended by the CAA, or revised
d average
| | | | | | | | |
| 83 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Interagency Guidance, FHN has excluded these modifications from consideration as a TDR, and has excluded loans HFS was primarily drivenwith these qualifying modifications from designation as a TDR in the information and discussion that follows. See Note 1 - Significant Accounting Policies and Note 4 – Loans and Leases for further discussion regarding TDRs and loan modifications.
Commercial Loan Modifications
As part of FHN’s credit risk management governance processes, the Loan Rehab and Recovery Department (LRRD) is responsible for managing most commercial relationships with borrowers whose financial condition has deteriorated to such an extent that the credits are being considered for impairment, classified as substandard or worse, placed on nonaccrual status, foreclosed or in process of foreclosure, or in active or contemplated litigation. LRRD has the authority and responsibility to enter into workout and/or rehabilitation agreements with troubled commercial borrowers in order to mitigate and/or minimize the amount of credit losses recognized from these problem assets. While every circumstance is different, LRRD will generally use forbearance agreements (generally 6-12 months) as an element of commercial loan workouts, which might include reduced interest rates, reduced payments, release of guarantor, or entering into short sale agreements.
The individual impairment assessments completed on commercial loans in accordance with the Accounting Standards Codification Topic related to Troubled Debt Restructurings (“ASC 310-40”) include loans classified as TDRs as well as loans that may have been modified yet not classified as TDRs by decreases in small business loans, somewhat offset by increases in USDA loans. In second quarter 2019,management. For example, a modification of loan terms that management would generally not consider to be a TDR could be a temporary extension of maturity to allow a borrower to complete an asset sale whereby the saleproceeds of such transaction are to be paid to satisfy the outstanding debt. Additionally, a modification that extends the term of a subsidiary resultedloan but does not involve reduction of principal or accrued interest, in which the removalinterest rate is adjusted to reflect current market rates for similarly situated borrowers, is not considered a TDR. Nevertheless, each assessment will take into account any modified terms and will be comprehensive to ensure appropriate impairment assessment. If individual impairment is identified, management will either hold specific reserves on the amount of approximately $25 million UPBimpairment, or, if the loan is collateral dependent, write down the carrying amount of subprimethe asset to the net realizable value of the collateral.
Consumer Loan Modifications
FHN does not currently participate in any of the loan modification programs sponsored by the U.S. government but does generally structure modified consumer loans which also contributedusing the parameters of the former Home Affordable Modification Program. Generally, a majority of loans
modified under any such proprietary programs are classified as TDRs.
Within the HELOC and real estate installment loans classes of the consumer portfolio segment, TDRs are typically modified by reducing the interest rate (in increments of 25 basis points to a minimum of 1% for up to 5 years) and a possible maturity date extension to reach an affordable housing debt-to-income ratio. After 5 years, the interest rate generally returns to the decreaseoriginal interest rate prior to modification; for certain modifications, the modified interest rate increases 2% per year until the original interest rate prior to modification is achieved. Permanent mortgage TDRs are typically modified by reducing the interest rate (in increments of 25 basis points to a minimum of 2% for up to 5 years) and a possible maturity date extension to reach an affordable housing debt-to-income ratio. After 5 years, the interest rate steps up 1 percent every year until it reaches the Federal Home Loan Mortgage Corporation Weekly Survey Rate cap. Contractual maturities may be extended to 40 years on permanent mortgages and to 30 years for consumer real estate loans. Within the credit card class of the consumer portfolio segment, TDRs are typically modified through either a short-term credit card hardship program or a longer-term credit card workout program. In the credit card hardship program, borrowers may be granted rate and payment reductions for 6 months to 1 year. In the credit card workout program, clients are granted a rate reduction to 0% and term extensions for up to 5 years to pay off the remaining balance.
Following classification as a TDR, modified loans within the consumer portfolio, which were previously evaluated for impairment on a collective basis determined by their smaller balances and homogenous nature, become subject to the impairment guidance in both period-endASC 310-10-35, which requires individual evaluation of the debt for impairment. However, as applicable accounting guidance allows, FHN may aggregate certain smaller-balance homogeneous TDRs and use historical statistics, such as aggregated charge-off amounts and average balances, but was somewhat offset by the remaining UPB relatedamounts recovered, along with a composite effective interest rate to a mortgage lending relationship that converted to the underlying collateral during third quarter 2019.measure impairment when such impaired loans have risk characteristics in common.
Other Earning Assets
Other earning assets include trading securities, securities purchased under agreements to resell ("asset repos"), federal funds sold (“FFS”),FHN had $206 million and interest-bearing deposits with the Federal Reserve and other financial institutions. Other earning assets averaged $2.9 billion and $3.0 billion in 2019 and 2018, respectively,$307 million portfolio loans classified as decreases in asset repos and fixed income trading securities were largely offset by an increase in interest-bearing cash. Asset repos are used in fixed income trading activity and generally fluctuate with the level of fixed income trading liabilities (short-positions) as securities collateral from asset repo transactions are used to fulfill trades. Fixed income's trading inventory fluctuates daily based on customer demand. Other earning assets were $2.5 billion and $3.3 billionheld-for-investment TDRs on December 31, 20192021 and 2018,2020, respectively, a decrease of $101 million between periods. For these TDRs, including specific reserves, FHN had an allowance for loan and lease losses of $12 million and $15 million, or 6% and 5% of TDR balances, as of December 31, 2021 and 2020, respectively. The decline in other earning assets on a period-end basis was primarily driven by decreases in interest-bearing cashAdditionally, FHN had $35 million and federal funds sold, somewhat offset by an increase in asset repos. The decrease in interest-bearing cash$42 million of HFS loans classified as TDRs at year-end 2019 was primarily driven by strong loan growth2021 and balance sheet funding strategies.2020, respectively.
| | | | | | | | |
| 84 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
The following table summarizes FHN's average other earning assetsprovides a summary of TDRs for 2019, 2018,the periods ended December 31, 2021 and 2017.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 63
Table 9—Average Other Earning Assets7.17
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | 2019 | | Percent of Total | | 2019 Growth Rate | | 2018 | | Percent of Total | | 2018 Growth Rate | | 2017 (a) | | Percent of Total | | 2017 Growth Rate |
| Other earning assets | | | | | | | | | | | | | | | | | | |
| Trading securities | | $ | 1,415,242 |
| | 49 | % | | (12 | )% | | $ | 1,603,767 |
| | 53 | % | | 34 | % | | $ | 1,195,442 |
| | 41 | % | | (1 | )% |
| Interest-bearing cash | | 870,725 |
| | 30 |
| | 40 |
| | 623,583 |
| | 21 |
| | (36 | ) | | 978,958 |
| | 33 |
| | 46 |
|
| Securities purchased under agreements to resell | | 555,264 |
| | 19 |
| | (26 | ) | | 745,519 |
| | 25 |
| | (1 | ) | | 752,063 |
| | 25 |
| | (9 | ) |
| Federal funds sold | | 47,552 |
| | 2 |
| | 27 |
| | 37,587 |
| | 1 |
| | 38 |
| | 27,225 |
| | 1 |
| | 16 |
|
| Total other earning assets | | $ | 2,888,783 |
| | 100 | % | | (4 | )% | | $ | 3,010,456 |
| | 100 | % | | 2 | % | | $ | 2,953,688 |
| | 100 | % | | 8 | % |
| | | | | | | | | | | | | | |
| (Dollars in millions) | |
December 31, 2021 | |
December 31, 2020 |
| Held for investment: | | | | |
| Commercial loans: | | | | |
| Current | | $ | 53 | | | $ | 82 | |
| Delinquent | | — | | | — | |
| Non-accrual | | 35 | | | 84 | |
| Total commercial loans | | 88 | | | 166 | |
| Consumer real estate: | | | | |
| Current | | $ | 60 | | | $ | 77 | |
| Delinquent | | 4 | | | 2 | |
| Non-accrual (a) | | 53 | | | 61 | |
| Total consumer real estate | | 117 | | | 140 | |
| Credit card and other: | | | | |
| Current | | 1 | | | 1 | |
| Delinquent | | — | | | — | |
| Non-accrual | | — | | | — | |
| Total credit card and other | | 1 | | | 1 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Total held for investment | | $ | 206 | | | $ | 307 | |
| | | | |
| Held for sale: | | | | |
| Current | | $ | 27 | | | $ | 36 | |
| Delinquent | | 7 | | | 5 | |
| Non-accrual | | 1 | | | 1 | |
| Total held for sale | | 35 | | | 42 | |
| | | | |
| Total troubled debt restructurings | | $ | 241 | | | $ | 349 | |
| | | | |
(a)2017 includes the average impactBalances as of one month of balances related to the CBF acquisition.
Non-earning assets
Period-end non-earning assets increased to $4.7 billion on December 31, 2019 from $4.62021 and 2020, include $12 million and $11 million, respectively, of discharged bankruptcies.
Deposits
Total deposits were $74.9 billion onas of December 31, 2018. The2021, up $4.9 billion from $70.0 billion as of December 31, 2020, driven by a $5.7 billion increase was duein non-interest bearing deposits as a result of elevated liquidity tied to the recognition of ROU assetsgovernment stimulus associated with the adoption of ASU 2016-02, "Leases," and increasesCOVID-19 pandemic. Growth in derivative assets and LIHTC investments,noninterest-bearing deposits was partially offset by decreasesa $1.6 billion decline in cashtime deposits.
The following tables summarize FHN's total deposits and net deferred tax assets.
Deposits
estimated uninsured total deposits for 2021, 2020, and 2019, as well as the maturities of FHN's uninsured time deposits as of December 31, 2021. See Table 7.2 - Average deposits were $32.4 billion during 2019, up 5 percent from $30.9 billion during 2018. The increaseBalances, Net Interest Income and Yields/Rates in this Report for information on average deposits was largely due to FHN's strategic focus on growing deposits. As noted in the table below, the composition of deposits remained relatively consistent in 2019, with interest-bearing deposits comprising 75 percent of total deposits. Market-indexed deposits as a percentage of total deposits decreased from 15 percent in 2018 to 13 percent in 2019, while commercial interest deposits increased as a percentage of total deposits.including average rates paid.
Period-end deposits were $32.4 billion on December 31, 2019, down 1 percent from $32.7 billion on December 31, 2018. The decline was primarily due to a decrease in market-indexed deposits which more than offset an influx of consumer interest deposits and non-interest bearing deposits. The following table summarizes FHN's average deposits for 2019, 2018 and 2017.
Table 10—Average Deposits
| | | | | | | | |
| 85 | 2021 FORM 10-K ANNUAL REPORT |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | 2019 | | Percent of Total | | 2019 Growth Rate | | 2018 | | Percent of Total | | 2018 Growth Rate | | 2017 (a) | | Percent of Total | | 2017 Growth Rate |
| Interest-bearing deposits: | | | | | | | | | | | | | | | | | | |
| Consumer interest | | $ | 13,595,470 |
| | 42 | % | | 7 | % | | $ | 12,700,135 |
| | 41 | % | | 34 | % | | $ | 9,467,518 |
| | 41 | % | | 11 | % |
| Commercial interest | | 6,409,769 |
| | 20 |
| | 13 |
| | 5,660,480 |
| | 18 |
| | 78 |
| | 3,187,034 |
| | 14 |
| | 13 |
|
| Market-indexed (b) | | 4,265,234 |
| | 13 |
| | (6 | ) | | 4,541,835 |
| | 15 |
| | 14 |
| | 3,986,095 |
| | 17 |
| | 5 |
|
| Total interest-bearing deposits | | 24,270,473 |
| | 75 |
| | 6 |
| | 22,902,450 |
| | 74 |
| | 38 |
| | 16,640,647 |
| | 72 |
| | 10 |
|
| Noninterest-bearing deposits | | 8,132,575 |
| | 25 |
| | 2 |
| | 8,000,642 |
| | 26 |
| | 24 |
| | 6,431,489 |
| | 28 |
| | 12 |
|
| Total deposits | | $ | 32,403,048 |
| | 100 | % | | 5 | % | | $ | 30,903,092 |
| | 100 | % | | 34 | % | | $ | 23,072,136 |
| | 100 | % | | 10 | % |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
(a) 2017 includes the average impact of one month of balances related to the CBF acquisition.Table 7.18
(b) Market-indexed deposits are tied to an index not administered by FHN and are comprised of insured network deposits, correspondent banking deposits, and trust/sweep deposits.DEPOSITS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | 2021 | | Percent of Total | | 2021 Growth Rate | | 2020 | | Percent of Total | | 2020 Growth Rate | | 2019 | | Percent of Total | | 2019 Growth Rate |
| Savings | | $ | 26,457 | | | 35 | % | | (3) | % | | $ | 27,324 | | | 39 | % | | 134 | % | | $ | 11,665 | | | 36 | % | | (3) | % |
| Time deposits | | 3,500 | | | 5 | | | (31) | | | 5,070 | | | 7 | | | 40 | | | 3,618 | | | 11 | | | (12) | |
| Other interest-bearing deposits | | 17,055 | | | 23 | | | 11 | | | 15,415 | | | 22 | | | 77 | | | 8,718 | | | 27 | | | 4 | |
| Total interest-bearing deposits | | 47,012 | | | 63 | | | (2) | | | 47,809 | | | 68 | | | 99 | | | 24,001 | | | 74 | | | (2) | |
| Noninterest-bearing deposits | | 27,883 | | | 37 | | | 26 | | | 22,173 | | | 32 | | | 163 | | | 8,429 | | | 26 | | | 4 | |
| Total deposits | | $ | 74,895 | | | 100 | % | | 7 | % | | $ | 69,982 | | | 100 | % | | 116 | % | | $ | 32,430 | | | 100 | % | | (1) | % |
| | | | | | | | | | | | | | | | | | |
Table 7.19
UNINSURED DEPOSITS
| | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 |
| Uninsured deposits | | $ | 39,756 | | | $ | 33,057 | | | $ | 12,176 | |
| | | | | | |
Table 7.20
UNINSURED TIME DEPOSITS BY MATURITY
| | | | | | | | |
| (Dollars in millions) | | December 31, 2021 |
| Portion of U.S. time deposits in excess of insurance limit | | $ | 515 | |
| Time deposits otherwise uninsured with a maturity of: | | |
| 3 months or less | | 212 | |
| Over 3 months through 6 months | | 117 | |
| Over 6 months through 12 months | | 124 | |
| Over 12 months | | 62 | |
Short-Term Borrowings
Short-term borrowings (federalinclude federal funds purchased, (“FFP”)), securities sold under agreements to repurchase, trading liabilities, and other short-term borrowings) averaged $2.5 billion in 2019 and $2.8 billion in 2018. As noted in the table below, the decrease inborrowings. Total short-term borrowings was largely due to decreases in other short-term borrowingswere $2.6 billion as of December 31, 2021 and trading liabilities. Other short-termDecember 31, 2020.
Short-term borrowings balances fluctuate largely based on the level of FHLB borrowing as a result of loan demand, deposit levels and balance sheet funding strategies. Trading liabilities fluctuate based on various factors,
including levels of trading securities and hedging strategies. Federal funds purchases increased in 2019, as an additional source of wholesale funding for FHN's balance sheet
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 64
activities. Period-end short-term borrowings were $4.0 billion on December 31, 2019 and $1.5 billion on December 31, 2018. The increase in period-end short-term borrowings was primarily due to an increase in FHLB borrowings. Additionally, increases in FFP and trading liabilities also contributed to the increase in short-term borrowings on December 31, 2019. FFPpurchased fluctuates depending on the amount of excess funding of FHN’sFHN'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 910 - Short-Term Borrowings for additional information.
The following table summarizes FHN's average short-term borrowings for 2019, 2018 and 2017.
Table 11—Average Short-Term Borrowings |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | 2019 | | Percent of Total | | 2019 Growth Rate | | 2018 | | Percent of Total | | 2018 Growth Rate | | 2017 (a) | | Percent of Total | | 2017 Growth Rate |
| Short-term borrowings | | | | | | | | | | | | | | | | | | |
| Federal funds purchased | | $ | 737,715 |
| | 30 | % | | 82 | % | | $ | 405,110 |
| | 14 | % | | (9 | )% | | $ | 447,137 |
| | 20 | % | | (24 | )% |
| Securities sold under agreements to repurchase | | 701,164 |
| | 28 |
| | (2 | ) | | 713,841 |
| | 25 |
| | 23 |
| | 578,666 |
| | 26 |
| | 36 |
|
| Trading liabilities | | 503,302 |
| | 20 |
| | (26 | ) | | 682,943 |
| | 24 |
| | * |
| | 685,891 |
| | 30 |
| | (11 | ) |
| Other short-term borrowings | | 538,249 |
| | 22 |
| | (49 | ) | | 1,046,585 |
| | 37 |
| | 89 |
| | 554,502 |
| | 24 |
| | NM |
|
| Total short-term borrowings | | $ | 2,480,430 |
| | 100 | % | | (13 | )% | | $ | 2,848,479 |
| | 100 | % | | 26 | % | | $ | 2,266,196 |
| | 100 | % | | 14 | % |
NM - Not meaningful
* Amount is less than one percent
(a) 2017 includes the average impact of one month of balances related to the CBF acquisition.
Term Borrowings
Term borrowings include senior and subordinated borrowings with original maturities greater than one year. AverageTotal term borrowings were $1.1 billion in 2019 and $1.2 billion in 2018. Term borrowings were $.8$1.6 billion on December 31, 2019, down2021, an $80 million decrease from $1.2$1.7 billion on December 31, 2018.2020.
During 2021, FHN redeemed $94 million of legacy IBKC junior subordinated debt underlying multiple issuances of trust preferred securities. The decreaseredemption resulted in period-end and average term borrowings was primarily driven by the redemptiona loss on debt extinguishment of $400.0 million senior debt in fourth quarter 2019.$26 million. See Note 1011 - Term Borrowings for additional information.
Other Liabilities
Period-end other liabilities were $1.0 billion on December 31, 2019, up from $.7 billion on December 31, 2018. The increase was primarily due to the recognition of lease liabilities associated with the adoption of ASU 2016-02, "Leases" and an increase in fixed income payables, somewhat offset by a decrease in derivative liabilities.
CAPITAL - 2019 COMPARED TO 2018 | | | | | | | | |
| 86 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Capital
Management’s objectives are to provide capital sufficient to cover the risks inherent in FHN’s businesses, to maintain excess capital to well-capitalized standards, and to assure ready access to the capital markets. Period-end
Total equity increased $187 million to $5.1$8.5 billion on December 31, 20192021 from $4.8$8.3 billion on December 31, 2018. Average equity increased to $4.9 billion in 2019 from $4.6 billion in 2018. The increase in period-end and average equity was due to2020. Significant changes included net income recognizedof $1.0 billion and the issuance of $145 million in 2019, somewhatSeries F preferred stock, which were offset by $416 million in
common share repurchases, $364 million in common and preferred dividends, paid and share repurchases (mentioned below). Aa $148 decrease in accumulated other comprehensive income ("AOCI") also contributed toAOCI, and $100 million from the increase in period-end and average equity and was largely the resultcall of a decrease in unrealized losses associated with AFS debt securities.Series A preferred stock.
The following tables provide a reconciliation of Shareholders’shareholders’ equity from the Consolidated Statements of ConditionBalance Sheets to Common Equity Tier 1, Tier 1 and Total Regulatory Capital as well as certain selected capital ratios:
Table 12—Regulatory Capital and Ratios7.21a
REGULATORY CAPITAL DATA
| | | | | | | | | | | | | | |
| (Dollars in millions) | | December 31, 2021 | | December 31, 2020 |
| FHN shareholders’ equity | | $ | 8,199 | | | $ | 8,012 | |
| Modified CECL transitional amount (a) | | 114 | | | 191 | |
| FHN non-cumulative perpetual preferred | | (520) | | | (470) | |
| Common equity tier 1 before regulatory adjustments | | $ | 7,793 | | | $ | 7,733 | |
| Regulatory adjustments: | | | | |
| Disallowed goodwill and other intangibles | | (1,711) | | | (1,757) | |
| Net unrealized (gains) losses on securities available for sale | | 36 | | | (108) | |
| Net unrealized (gains) losses on pension and other postretirement plans | | 255 | | | 260 | |
| Net unrealized (gains) losses on cash flow hedges | | (3) | | | (12) | |
| Disallowed deferred tax assets | | (2) | | | (5) | |
| Other deductions from common equity tier 1 | | (1) | | | (1) | |
| Common equity tier 1 | | $ | 6,367 | | | $ | 6,110 | |
| FHN non-cumulative perpetual preferred (b) | | 426 | | | 377 | |
| Qualifying noncontrolling interest—First Horizon Bank preferred stock | | 295 | | | 295 | |
| Tier 1 capital | | $ | 7,088 | | | $ | 6,782 | |
| Tier 2 capital | | 830 | | | 1,153 | |
| Total regulatory capital | | $ | 7,918 | | | $ | 7,935 | |
| Risk-Weighted Assets | | | | |
| First Horizon Corporation | | $ | 64,183 | | | $ | 63,140 | |
| First Horizon Bank | | 63,601 | | | 62,508 | |
| Average Assets for Leverage | | | | |
| First Horizon Corporation | | 87,683 | | | 82,347 | |
| First Horizon Bank | | 86,953 | | | 81,709 | |
| | | | | | | | |
| 87 | 2021 FORM 10-K ANNUAL REPORT |
|
| | | | | | | | |
(Dollars in thousands) | | December 31, 2019 | | December 31, 2018 |
| Shareholders’ equity | | $ | 4,780,577 |
| | $ | 4,489,949 |
|
| FHN non-cumulative perpetual preferred | | (95,624 | ) | | (95,624 | ) |
| Common equity | | $ | 4,684,953 |
| | $ | 4,394,325 |
|
| Regulatory adjustments: | | | | |
| Disallowed goodwill and other intangibles | | (1,505,971 | ) | | (1,529,532 | ) |
| Net unrealized (gains)/losses on securities available-for-sale | | (31,079 | ) | | 75,736 |
|
| Net unrealized (gains)/losses on pension and other postretirement plans | | 273,914 |
| | 288,768 |
|
| Net unrealized (gains)/losses on cash flow hedges | | (3,227 | ) | | 12,112 |
|
| Disallowed deferred tax assets | | (8,610 | ) | | (17,637 | ) |
| Other deductions from common equity tier 1 | | (1,044 | ) | | (70 | ) |
| Common equity tier 1 | | $ | 3,408,936 |
| | $ | 3,223,702 |
|
| FHN non-cumulative perpetual preferred | | 95,624 |
| | 95,624 |
|
| Qualifying noncontrolling interest—First Horizon Bank preferred stock | | 255,890 |
| | 246,047 |
|
| Tier 1 capital | | $ | 3,760,450 |
| | $ | 3,565,373 |
|
| Tier 2 capital | | 394,435 |
| | 374,744 |
|
| Total regulatory capital | | $ | 4,154,885 |
| | $ | 3,940,117 |
|
| Risk-Weighted Assets | | | | |
| First Horizon National Corporation | | $ | 37,045,782 |
| | $ | 33,002,595 |
|
| First Horizon Bank | | 36,626,993 |
| | 32,592,577 |
|
| Average Assets for Leverage | | | | |
| First Horizon National Corporation | | 41,583,446 |
| | 39,221,755 |
|
| First Horizon Bank | | 40,867,365 |
| | 38,381,985 |
|
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 65
| | | | | | | | | | | | | December 31, 2021 | | December 31, 2020 |
| | | December 31, 2019 | | December 31, 2018 | |
| | | Ratio | | Amount | | Ratio | | Amount | |
| (Dollars in millions) | | (Dollars in millions) | | Ratio | | Amount | | Ratio | | Amount |
| Common Equity Tier 1 | | | | | | | | | Common Equity Tier 1 | | | | | | | | |
| First Horizon National Corporation | | 9.20 | % | | $ | 3,408,936 |
| | 9.77 | % | | $ | 3,223,702 |
| |
| First Horizon Corporation | | First Horizon Corporation | | 9.92 | % | | $ | 6,367 | | | 9.68 | % | | $ | 6,110 | |
| First Horizon Bank | | 9.38 |
| | 3,433,867 |
| | 9.81 |
| | 3,197,725 |
| First Horizon Bank | | 10.75 | | | 6,838 | | | 10.46 | | | 6,537 | |
| Tier 1 | | | | | | | | | Tier 1 | |
| First Horizon National Corporation | | 10.15 |
| | 3,760,450 |
| | 10.80 |
| | 3,565,373 |
| |
| First Horizon Corporation | | First Horizon Corporation | | 11.04 | | | 7,088 | | | 10.74 | | | 6,782 | |
| First Horizon Bank | | 10.18 |
| | 3,728,683 |
| | 10.72 |
| | 3,492,541 |
| First Horizon Bank | | 11.22 | | | 7,133 | | | 10.93 | | | 6,832 | |
| Total | | | | | | | | | Total | |
| First Horizon National Corporation | | 11.22 |
| | 4,154,885 |
| | 11.94 |
| | 3,940,117 |
| |
| First Horizon Corporation | | First Horizon Corporation | | 12.34 | | | 7,918 | | | 12.57 | | | 7,935 | |
| First Horizon Bank | | 10.77 |
| | 3,944,613 |
| | 11.32 |
| | 3,689,180 |
| First Horizon Bank | | 12.41 | | | 7,893 | | | 12.52 | | | 7,827 | |
| Tier 1 Leverage | | | | | | | | | Tier 1 Leverage | |
| First Horizon National Corporation | | 9.04 |
| | 3,760,450 |
| | 9.09 |
| | 3,565,373 |
| |
| First Horizon Corporation | | First Horizon Corporation | | 8.08 | | | 7,088 | | | 8.24 | | | 6,782 | |
| First Horizon Bank | | 9.12 |
| | 3,728,683 |
| | 9.10 |
| | 3,492,541 |
| First Horizon Bank | | 8.20 | | | 7,133 | | | 8.36 | | | 6,832 | |
| Other Capital Ratios | | | | | | | | | Other Capital Ratios | |
| Total period-end equity to tangible assets | | 11.72 |
| | | | 11.72 |
| | | |
| Tangible common equity to tangible assets (a) | | 7.48 |
| | | | 7.15 |
| | | |
| Adjusted tangible common equity to risk weighted assets (a) | | 8.34 |
| | | | 8.73 |
| | | |
| Total period-end equity to period-end assets | | Total period-end equity to period-end assets | | 9.53 | | | 9.86 | | |
| Tangible common equity to tangible assets (c) | | Tangible common equity to tangible assets (c) | | 6.73 | | | 6.89 | | |
| Adjusted tangible common equity to risk weighted assets (c) | | Adjusted tangible common equity to risk weighted assets (c) | | 9.20 | | | 8.82 | | |
(a) The modified CECL transitional amount is calculated as defined in the final rule issued by the banking regulators on August 26, 2020 and includes the full amount of the impact to retained earnings from the initial adoption of CECL plus 25% of the change in the adjusted allowance for credit losses since FHN’s initial adoption of CECL through December 31, 2021.
(b) The $94 million carrying value of the Series D preferred stock does not qualify as Tier 1 capital because the earliest redemption date is less than five years from the issuance date.
(c) Tangible common equity to tangible assets and Adjustedadjusted tangible common equity to risk-weighted assets are non-GAAP measures and are reconciled to Totaltotal equity to total assets (GAAP) in the Non-GAAP to GAAP Reconciliation - Table 32.7.30.
Banking regulators define minimum capital ratios for bank holding companies and their bank subsidiaries. Based on the capital rules and definitions prescribed by the banking regulators, should any depository institution’s capital ratios decline below predetermined levels, it would become subject to a series of increasingly restrictive regulatory actions. The system categorizes a depository institution’s capital position into one of five categories ranging from well-capitalized to critically under-capitalized. For an institution the size of FHN to qualify as well-capitalized, Common Equity Tier 1, Tier 1 Capital, Total Capital, and Leverage capital ratios must be at least 6.5 percent, 8 percent, 10 percent,6.50%, 8.00%, 10.00%, and 5 percent,5.00%, respectively. Furthermore, beginning January 1, 2019, a capital conservation buffer of 50 basis points above these levels must be maintained on the Common Equity Tier 1, Tier 1 Capital and Total Capital ratios to avoid restrictions on dividends, share repurchases and certain discretionary bonuses. As of December 31, 2019, each of2021, 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, 2021 are calculated under the final rule issued by the banking regulators in late August 2020 to delay the effects of CECL on regulatory capital for two years, followed by a three-year transition period.
For both FHN and First Horizon Bank, the risk-based regulatory capital ratios decreasedincreased in 20192021 relative to 20182020 primarily due to increased risk-weighted assets driven by loan growth which was partially offset byfrom the net positive impact of net income less dividends and share repurchases duringrepurchases. FHN's Tier 1 Capital ratio further benefited from the issuance in 2019.2021 of its Series F preferred stock, partially offset by the retirement of its Series A preferred stock. FHN's Total Capital ratio as of December 31, 2021 was unfavorably impacted by the retirement of legacy IBKC trust preferred securities, which qualified as Tier 2 capital. The Tier 1 leverageLeverage ratio was relatively flat for both FHNCFHN and First Horizon Bank decreased from December 31, 2020 as a result of an increase in average assets for leverage in fourth quarter of 2019 increased relative to fourth quarter of 2018. assets.
During 2020,2022, capital ratios are expected to remain above well-capitalized standards.standards plus the required capital conservation buffer.
Stress Testing
The Economic Growth, Regulatory Relief, and Consumer Protection Act, along with an interagency regulatory statement effectively exempted both FHN and FTBNAFirst
Horizon Bank from Dodd-Frank Act ("DFA") stress testing requirements starting within 2018.
| | | | | | | | |
| 88 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
For 2019, even though no longer required,2021, FHN and First Horizon Bank completed a company run stress test using DFAthe Comprehensive Capital Analysis and Review (CCAR) Resubmission scenarios and requirements previouslypublished in effect.February 2021. Results of these tests indicate that both FHN and First Horizon Bank would be able to maintain capital well in excess of Basel III Adequately Capitalized standards under the hypothetical severe global recession of the 2019 DFA2021 CCAR Resubmission Severely Adverse scenario. A summary of those results was posted in the “News & Events-Stress Testing Results” section on FHN’s investor relations website on December 6, 2019.June 28, 2021. Neither FHN’s stress test posting, nor any other material found on
FHN’s website generally, is part of this report or incorporated herein.
First HorizonFHN anticipates that it will continue performing an annual enterprise wideenterprise-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.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 66
Common Stock Purchase ProgramsUnderwriting Policies and Procedures
PursuantThe following sections describe each portfolio as well as general underwriting procedures for each. As economic and real estate conditions develop, enhancements to boardunderwriting and credit policies and procedures may be necessary or desirable. Loan policies and procedures for all portfolios are reviewed by credit risk working groups and management risk committees comprised of business line managers and credit administration professionals as well as by various other reviewing bodies within FHN. Policies and procedures are approved by key executives and/or senior managers leading the applicable credit risk working groups as well as by management risk committees.
The credit risk working groups and management risk committees strive to ensure that the approved policies and procedures address the associated risks and establish reasonable underwriting criteria that appropriately mitigate risk. Policies and procedures are reviewed, revised and re-issued periodically at established review dates or earlier if changes in the economic environment, portfolio performance, the size of portfolio or industry concentrations, or regulatory guidance warrant an earlier review.
Commercial Loan and Lease Portfolios
FHN’s commercial loan approval process grants lending authority based upon job description, experience, and performance. The lending authority is delegated to the business line (Market Managers, Departmental Managers, Regional Presidents, Relationship Managers (RM) and Portfolio Managers (PM) and to Credit Risk Managers. While individual limits vary, the predominant amount of approval authority is vested with the Credit Risk Management function. Portfolio, industry, and borrower concentration limits for the various portfolios are established by executive management and approved by the Executive and Risk Committee of the Board.
FHN’s commercial lending process incorporates an RM and a PM for most commercial credits. The RM is primarily responsible for communications with the borrower and maintaining the relationship, while the PM is responsible for assessing the credit quality of the borrower, beginning with the initial underwriting and continuing through the servicing period. Other specialists and the assigned RM/PM are organized into units called deal teams. Deal teams are constructed with specific job attributes that facilitate
FHN’s ability to identify, mitigate, document, and manage ongoing risk. PMs and credit analysts provide enhanced analytical support during loan origination and servicing, including monitoring of the financial condition of the borrower and tracking compliance with loan agreements. Loan closing officers and the construction loan management unit specialize in loan documentation and the management of the construction lending process. FHN strives to identify problem assets early through comprehensive policies and guidelines, targeted portfolio reviews, more frequent servicing on lower rated borrowers, and an emphasis on frequent grading. For smaller commercial credits, generally $5 million or less, and income-producing CRE credits greater than $10 million to non-professional real estate developers and smaller professional real estate investors/developers, FHN utilizes a centralized underwriting unit in order to originate and grade small business loans more efficiently and consistently.
FHN may repurchase sharesutilize availability of its common stock from timeguarantors/sponsors to timesupport commercial lending decisions during the credit
| | | | | | | | |
| 73 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
underwriting process and will evaluatewhen determining the assignment of internal loan grades. Reliance on the guaranty as a viable secondary source of repayment is a function of an analysis proving capability to pay, factoring in, among other things, liquidity and direct/indirect cash flows. FHN also considers the volume and amount of guaranties provided for all global indebtedness and the likelihood of realization. FHN presumes a guarantor’s willingness to perform until there is any current or prior indication or future expectation that the guarantor may not willingly and voluntarily perform under the terms of the guaranty. In FHN’s risk grading approach, it is deemed that financial support becomes necessary generally at a point when the loan would otherwise be graded substandard, reflecting a well-defined weakness. At that point, provided willingness and capacity to support are appropriately demonstrated, a strong, legally enforceable guaranty can mitigate the risk of default or loss, justify a less severe rating, and consequently reduce the level of allowance or charge-off that might otherwise be deemed appropriate.
C&I
The C&I portfolio totaled $31.1 billion as of December 31, 2021 and is comprised of loans used for general business purposes. Products offered in the C&I portfolio include term loan financing of owner-occupied real estate and fixed assets, PPP loans, direct financing and sales-type leases, working capital lines of credit, and take action designedtrade credit enhancement through letters of credit.
C&I loans are underwritten in accordance with a well-defined credit origination process. This process includes applying minimum underwriting standards as well as separation of origination and credit approval roles on transaction sizes over PM authorization limits. Underwriting typically includes due diligence of the borrower and the applicable industry of the borrower, analysis of the borrower’s available financial information, identification and analysis of the various sources of repayment and identification of the primary risk
attributes. Stress testing the borrower’s financial capacity, adherence to generateloan documentation requirements, and assigning credit risk grades using internally developed scorecards are also used to help quantify the risk when appropriate. Underwriting parameters also include loan-to-value ratios which vary depending on collateral type, use of guaranties, loan agreement requirements, and other recommended terms such as equity requirements, amortization, and maturity. Approval decisions also consider various financial ratios and performance measures of the borrowers, such as cash flow and balance sheet leverage, liquidity, coverage of fixed charges, and working capital. Additionally, approval decisions consider the capital structure of the borrower, sponsorship, and quality/value of collateral. Generally, guideline and policy exceptions are identified and mitigated during the approval process. Pricing of C&I loans is based upon the determined credit risk specific to the individual borrower. Historically, these loans typically have had variable rates tied to the LIBOR or use capital,prime rate of interest plus or minus the appropriate margin. However, with the upcoming cessation of LIBOR, FHN no longer references LIBOR in new loan contracts, and the existing portfolio of loans tied to LIBOR is being repriced to alternative reference rates.
A $3.0 billion decrease in PPP loans drove the total decrease from December 31, 2020. Excluding PPP loans, C&I growth was $978 million, or 3%. The largest geographical concentrations of balances as appropriate,of December 31, 2021 were in Tennessee (20%), Florida (12%), Texas (10%), North Carolina (7%), Louisiana (7%), California (7%), and Georgia (5%), with no other state representing more than 5% of the portfolio.
The following table provides the composition of the C&I portfolio by industry as of December 31, 2021 and 2020. For purposes of this disclosure, industries are determined based on the NAICS industry codes used by Federal statistical agencies in classifying business establishments for the interestscollection, analysis, and publication of statistical data related to the U.S. business economy.
| | | | | | | | |
| 74 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Table 7.10
C&I PORTFOLIO BY INDUSTRY
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| (Dollars in millions) | | Amount | | Percent | | Amount | | Percent |
| Industry: | | | | | | | | |
| Loans to mortgage companies | | $ | 4,518 | | | 15 | % | | $ | 5,404 | | | 16 | % |
| Finance and insurance | | 3,483 | | | 11 | | | 3,130 | | | 10 | |
| Real estate rental & leasing (a) | | 2,771 | | | 9 | | | 2,365 | | | 7 | |
| Health care and social assistance | | 2,413 | | | 8 | | | 2,689 | | | 8 | |
| | | | | | | | |
| Accommodation & food service | | 2,221 | | | 7 | | | 2,303 | | | 7 | |
| Manufacturing | | 1,950 | | | 6 | | | 1,907 | | | 6 | |
| Wholesale trade | | 1,845 | | | 6 | | | 2,079 | | | 6 | |
| | | | | | | | |
| Retail trade | | 1,532 | | | 5 | | | 1,531 | | | 5 | |
| Energy | | 1,325 | | | 4 | | | 1,686 | | | 5 | |
| Other (professional, construction, transportation, etc) (b) | | 9,010 | | | 29 | | | 10,010 | | | 30 | |
| Total C&I loan portfolio | | $ | 31,068 | | | 100 | % | | $ | 33,104 | | | 100 | % |
| | | | | | | | |
(a)Leasing, rental of real estate, equipment, and goods.
(b)Industries in this category each comprise less than 5% for 2021.
Industry Concentrations
Loan concentrations are considered to exist for a financial institution when there are loans to numerous borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. Loans to mortgage companies and borrowers in the finance and insurance industry were 26% of FHN’s C&I loan portfolio as of December 31, 2021, and as a result could be affected by items that uniquely impact the financial services industry. Except Loans to Mortgage Companies and Finance and Insurance, as discussed below, on December 31, 2021, FHN did not have any other concentrations of C&I loans in any single industry of 10% or more of total loans.
Loans to Mortgage Companies
The balance of loans to mortgage companies was 15% of the shareholders, subject to legalC&I portfolio as of December 31, 2021, and regulatory restrictions. Two common stock purchase programs currently authorized are discussed below. FHN’s board has not authorized a preferred stock purchase program.
Table 13a—Issuer Purchases of Common Stock - General Authority
On January 23, 2018, FHN announced a $250 million share purchase authority with an expiration date of January 31, 2020. On January 29, 2019, FHN announced a $250 million increase in that authority along with an extension16% of the expiration dateC&I portfolio as of December 31, 2020, and includes balances related to Januaryboth home purchase and refinance activity. This portfolio generally fluctuates with mortgage rates and seasonal factors and includes commercial lines of credit to qualified mortgage companies primarily for the temporary warehousing of eligible mortgage loans prior to the borrower’s sale of those mortgage loans to third party investors. Generally, lending to mortgage lenders increases when there is a decline in mortgage rates and decreases when rates rise. The decrease in loans to mortgage companies year over year was due to existing home supply shortages, construction labor and materials shortages, and a rise in mortgage rates. In 2021, approximately 48% of the loans funded were home purchases and 52% were refinance transactions.
Finance and Insurance
The finance and insurance component represents 11% of the C&I portfolio as of December 31, 2021. Purchases may be made in2021 compared to 10% at the open market or through privately negotiated transactionsend of 2020 and are subjectincludes TRUPs (i.e., long-term unsecured loans to market conditions, accumulation of excess equity, prudent capital management,bank and legalinsurance-related businesses), loans to bank holding companies, and regulatory restrictions.asset-based lending to consumer finance companies. As of December 31, 2019, $229.32021, asset-based lending to consumer finance companies represents approximately $1.4 billion of the finance and insurance component.
Paycheck Protection Program
In 2020, Congress created the Paycheck Protection Program (PPP) in response to the economic disruption associated with the COVID-19 pandemic. Under the PPP, qualifying businesses could receive loans from private lenders, such as FHN, that are fully guaranteed by the Small Business Administration. These loans potentially are partly or fully forgivable, depending upon the borrower’s use of the funds and maintenance of employment levels. To the extent forgiven, the borrower is relieved from payment while the lender is still paid from the program.
The C&I portfolio as of December 31, 2021 included 8,372 loans made under the PPP with an aggregate principal balance of $1.0 billion, which are fully government guaranteed with the SBA. Due to the government guarantee and forgiveness provisions, PPP loans are considered to have no credit risk and do not affect the amount of provision and ALLL recorded. As a result, no ALLL was recorded for PPP loans as of December 31, 2021, and FHN assigned a risk weight of zero to PPP loans for regulatory capital purposes.
| | | | | | | | |
| 75 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
For these loans, there were remaining net lender fees of approximately $17 million to be paid to FHN as of December 31, 2021. During 2021, FHN continued to work with its clients that have applied for and received PPP loan forgiveness. Through December 31, 2021, approximately $5 billion of the original $6 billion in purchasesPPP loans originated by FHN and IBERIABANK prior to acquisition had been made under this authorityforgiven by the SBA.
Commercial Real Estate
The CRE portfolio totaled $12.1 billion as of December 31, 2021, a $166 million, or 1%, decrease compared to December 31, 2020.
The CRE portfolio includes both financings for commercial construction and non-construction loans. This portfolio contains loans and draws on lines and letters of credit for the construction and mini-permanent financing of income-producing real estate.
Residential CRE loans include loans to residential builders and developers for the purpose of constructing single-family homes, condominiums, and town homes, and on a limited basis, for developing residential subdivisions. After the fulfillment of existing commitments over the near term, the residential CRE class will be in a wind-down state with the expectation of full runoff in the foreseeable future.
Income-producing CRE loans are underwritten in accordance with credit policies and underwriting guidelines that are reviewed at an average price per shareleast 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 $15.09, $15.07 excluding commissions. Management currently does not anticipate purchasingpre-leasing activity are established based on perceived risk in each subcategory. Loan-to-value (value is defined as the lower of cost or market) limits are set below regulatory prescribed ceilings and generally range between 50% and 80% depending on the underlying product set. Term and amortization requirements are set based on prudent standards for interim real estate lending. Equity requirements are established based on the quality and liquidity of the
primary source of repayment. For example, more equity would be required for a material numberspeculative construction project or land loan than for a property fully leased to a credit tenant or a roster of shares under this authority during the first halftenants. Typically, a borrower must have at least 15% of 2020 duecost invested in a project before FHN will provide loan funding. Income properties are required to the pending merger of equals with IBKC.
|
| | | | | | | | | | | | |
| (Dollar values and volume in thousands, except per share data) | | 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 |
| 2019 | | | | | | | | |
| October 1 to October 31 | | — |
| | N/A | | — |
| | $ | 270,654 |
|
| November 1 to November 30 | | — |
| | N/A | | — |
| | $ | 270,654 |
|
| December 1 to December 31 | | — |
| | N/A | | — |
| | $ | 270,654 |
|
| Total | | — |
| | N/A | | — |
| | |
| (a) Represents total costs including commissions paid | | | | | | | | |
| N/A - Not applicable | | | | | | | | |
Table 13b—Issuer Purchase of Common Stock - Compensation Authority
A consolidated compensation plan share purchase program was announced on August 6, 2004. This program consolidated intoachieve a single share purchase program alldebt service coverage ratio greater than or equal to 125% at inception or stabilization of the previously authorized compensation plan share programsproject based on loan amortization and a minimum underwriting interest rate. Some product types that possess a greater risk profile require a higher level of equity, as well as a higher debt service coverage ratio threshold. A proprietary minimum underwriting interest rate is used to calculate compliance with underwriting standards. Generally, specific levels of pre-leasing must be met for construction loans on income properties. A global cash flow analysis is performed at the renewalsponsor level. The majority of the authorizationportfolio is on a floating rate basis tied to purchase shares for use in connection with two compensation plans for which the share purchase authority had expired. The total amount authorized under this consolidated compensation plan share purchase program, inclusive of a program amendment on April 24, 2006, is 29.6 million shares calculated before adjusting for stock dividends distributed throughappropriate spreads over LIBOR. However, since January 1, 2011. 2022, no new loan contracts reference LIBOR, and the existing portfolio of loans tied to LIBOR is being repriced to alternative reference rates.
The authorization has been reducedcredit 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 that portion which relatesloans $3 million and over. Underwriters and credit approval personnel stress the borrower’s/project’s financial capacity utilizing numerous attributes such as interest rates, vacancy, and discount rates. Key information is captured from the various portfolios and then stressed at the aggregate level. Results are utilized to compensation plans for which no options remain outstanding. The shares may be purchased overassist with the option exercise periodassessment of the various compensation plans on or before December 31, 2023. Purchases may be made inadequacy of the open market or through privately negotiated transactionsALLL and are subject to market conditions, accumulationsteer portfolio management strategies.
The largest geographical concentrations of excess equity, prudent capital management, and legal and regulatory restrictions. AsCRE balances as of December 31, 2019, the maximum number of shares that may be purchased under the program was 24.5 million shares. Management currently does not anticipate purchasing a material number of shares under this authority during 2020.
|
| | | | | | | | | | | | | |
| (Volume in thousands, except per share data) | | 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 |
| 2019 | | | | | | | | |
October 1 to October 31
| | — |
| | N/A |
| | — |
| | 24,884 |
|
November 1 to November 30
| | — |
| | N/A |
| | — |
| | 24,884 |
|
December 1 to December 31
| | 48 |
| | $ | 15.94 |
| | 48 |
| | 24,457 |
|
| Total | | 48 |
| | $ | 15.94 |
| | 48 |
| | |
| N/A - Not applicable | | | | | | | | |
ASSET QUALITY - TREND ANALYSIS OF 2019 COMPARED TO 2018
Loan Portfolio Composition
FHN groups its loans into portfolio segments based on internal classifications reflecting the manner2021 were in which the ALLL is establishedFlorida (26%), Texas (12%), North Carolina (11%), Louisiana (10%), Tennessee (9%), 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 deteriorationGeorgia (8%) with no other state representing more than other components5% of the loanportfolio. Subcategories of income-producing CRE loans consist of multi-family (25%), office (24%), retail (19%), industrial (12%), hospitality (11%), land/land development (2%), and other (7%).
Consumer Loan Portfolios
Consumer Real Estate
The consumer real estate portfolio management may determine the ALLL at a more granular level. Commercial loans aretotaled $10.8 billion as of December 31, 2021 and is primarily composed of commercial, financial,home equity lines and industrial (“C&I”) and commercial real estate (“CRE”). Consumer loans are composedinstallment loans.
The largest geographical concentrations of consumer real estate; permanent mortgage; and credit card and other. FHN has a concentration of residential real estate loans (20 percent of total loans), the majority of which isbalances in the consumer real estate portfolio (19 percentas of December 31, 2021 were in Florida (32%), Tennessee (23%), Louisiana (10%), North Carolina (8%), Texas (7%), and New York (5%), with no other state representing more than 5% of the portfolio.
As of December 31, 2021, approximately 87% of the consumer real estate portfolio was in a first lien position. As of December 31, 2021, the weighted average FICO score at origination of this portfolio was 755 and the refreshed FICO scores averaged 754, no significant change from FICO scores of 753 and 763, respectively, as of December 31, 2020. Generally, performance of this portfolio is affected by life events that affect borrowers’ finances, the level of unemployment, and home prices.
| | | | | | | | |
| 76 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
As of December 31, 2021 and 2020, FHN had held-to-maturity consumer mortgage loans secured by real estate totaling $20 million and $36 million, respectively, that were in the process of foreclosure.
HELOCs comprised $2.0 billion and $2.4 billion of the consumer real estate portfolio as of December 31, 2021 and December 31, 2020, respectively. FHN’s HELOCs typically have a 5 or 10 year draw period followed by a 10 or 20 year repayment period, respectively. During the draw period, a borrower is able to draw on the line and is only required to make interest payments. The line is frozen if a borrower becomes past due on payments. Once the draw period has concluded, the line is closed and the borrower is required to make both principal and interest payments monthly until the loan matures. The principal payment generally is fully amortizing, but payment amounts will adjust when variable rates reset to reflect changes in the prime rate.
As of December 31, 2021, approximately 88% of FHN's HELOCs were in the draw period compared to 86% at the
end of the prior year. Based on when draw periods are scheduled to end per the line agreement, it is expected that $431 million, or 24%, of HELOCs currently in the draw period will enter the repayment period during the next 60 months. Generally, delinquencies for HELOCs that have entered the repayment period are initially higher than HELOCs still in the draw period because of the increased minimum payment requirement; however, after some seasoning, performance of these loans usually begins to stabilize. The home equity lines of the consumer real estate portfolio are monitored closely for those nearing the end of the draw period and borrowers are initially contacted at least 6 months before the repayment period begins to remind the client of the terms of their agreement and to inform them of options.
The following table shows the HELOCs currently in the draw period and expected timing of conversion to the repayment period.
Table 7.11
HELOC DRAW TO REPAYMENT SCHEDULE
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2021 | | December 31, 2020 |
| (Dollars in millions) | | Repayment
Amount | | Percent | | Repayment
Amount | | Percent |
| Months remaining in draw period: | | | | | | | | |
| 0-12 | | $ | 43 | | | 2 | % | | $ | 73 | | | 4 | % |
| 13-24 | | 42 | | | 2 | | | 66 | | | 3 | |
| 25-36 | | 50 | | | 3 | | | 62 | | | 3 | |
| 37-48 | | 136 | | | 8 | | | 67 | | | 3 | |
| 49-60 | | 160 | | | 9 | | | 187 | | | 8 | |
| >60 | | 1,324 | | | 76 | | | 1,662 | | | 79 | |
| Total | | $ | 1,755 | | | 100 | % | | $ | 2,117 | | | 100 | % |
| | | | | | | | |
Underwriting
For the majority of loans in this portfolio, underwriting decisions are made through a centralized loan underwriting center. To obtain a consumer real estate loan, the loan applicant(s) in most cases must first meet a minimum qualifying FICO score. Minimum FICO score requirements are established by management for both loans secured by real estate as well as non-real estate loans. Management also establishes maximum loan amounts, loan-to-value ratios, and debt-to-income ratios for each consumer real estate product. Applicants must have the financial capacity (or available income) to service the debt by not exceeding a calculated debt-to-income ratio. The amount of the loan is limited to a percentage of the lesser of the current appraised value or sales price of the collateral. Identified guideline and policy exceptions
require established mitigating factors that have been approved for use by Credit Risk Management.
HELOC interest rates are variable and adjust with movements in the index rate stated in the loan agreement. Such loans can have elevated risks of default, particularly in a rising interest rate environment, potentially stressing borrower capacity to repay the loan at the higher interest rate. FHN’s current underwriting practice requires HELOC borrowers to qualify based on a sensitized interest rate (above the current note rate), fully amortized payment methodology. FHN’s underwriting guidelines require borrowers to qualify at an interest rate that is 200 basis points above the note rate. This mitigates risk to FHN in the event of a sharp rise in interest rates over a relatively short time horizon.
| | | | | | | | |
| 77 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
HELOC Portfolio Risk Management
FHN performs continuous HELOC account reviews in order to identify higher-risk home equity lines and initiate preventative and corrective actions. The reviews consider a number of account activity patterns and characteristics such as the number of times delinquent within recent periods, changes in credit bureau score since origination, score degradation, performance of the first lien, and account utilization. In accordance with FHN’s interpretation of regulatory guidance, FHN may block
future draws on accounts in order to mitigate risk of loss to FHN.
Credit Card and Other
The credit card and other consumer loan portfolio, which is primarily within the Regional Banking segment, decreased $218 million from the prior year-end to $910 million as of December 31, 2021, driven by net repayments of consumer construction loans.
Allowance for Credit Losses
The ACL is maintained at a level sufficient to provide appropriate reserves to absorb estimated future credit losses in accordance with GAAP. For additional information regarding the ACL, see Notes 1 and 5 of this Report.
The ALLL was $670 million as of December 31, 2021, or 1.22% of total loans)loans and leases, a decrease of $293 million
or 43 basis points from the end of 2020, reflecting improvement in the macroeconomic forecast, positive credit grade migration, and lower loan balances. The ACL to total loans and leases ratio decreased to 1.34% as of December 31, 2021 from 1.80% as of December 31, 2020.
Consolidated Net Charge-offs
Net charge-offs were $2 million in 2021 compared to $120 million in 2020. As a percentage of average total loans and leases, net charge-offs improved 26 basis points from 2020.
Net charge-offs in the C&I portfolio were $13 million, a decrease of $107 million from 2020, driven by lower energy-related charge-offs as well as continued improvement in overall asset quality. Net charge-offs in
the commercial real estate portfolio were minimal in both 2021 and 2020.
In the consumer portfolio, net recoveries of $22 million in consumer real estate loans were offset by net charge-offs of $11 million in credit card and other loans. Net recoveries in the consumer loan portfolio in 2020 were $1 million.
Table 7.12
ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES AND CHARGE-OFFS
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31 | | | | |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | | | |
| Allowance for loan and lease losses | | | | | | | | | | |
| C&I | | $ | 334 | | | $ | 453 | | | $ | 123 | | | | | |
| CRE | | 154 | | | 242 | | | 36 | | | | | |
| Consumer real estate | | 163 | | | 242 | | | 28 | | | | | |
| Credit card and other | | 19 | | | 26 | | | 13 | | | | | |
| Total allowance for loan and lease losses | | $ | 670 | | | $ | 963 | | | $ | 200 | | | | | |
| | | | | | | | | | | |
| Reserve for remaining unfunded commitments | | | | | | | | | | |
| C&I | | $ | 46 | | | $ | 65 | | | $ | 4 | | | | | |
| CRE | | 12 | | | 10 | | | 2 | | | | | |
| Consumer real estate | | 8 | | | 10 | | | — | | | | | |
| Credit card and other | | — | | | — | | | — | | | | | |
| Total reserve for remaining unfunded commitments | | $ | 66 | | | $ | 85 | | | $ | 6 | | | | | |
| | | | | | | | | | | |
| Allowance for credit losses | | | | | | | | | | |
| C&I | | $ | 380 | | | $ | 518 | | | $ | 127 | | | | | |
| CRE | | 166 | | | 252 | | | 38 | | | | | |
| | | | | | | | |
| 78 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consumer real estate | | 171 | | | 252 | | | 28 | | | | | |
| Credit card and other | | 19 | | | 26 | | | 13 | | | | | |
| Total allowance for credit losses | | $ | 736 | | | $ | 1,048 | | | $ | 206 | | | | | |
| | | | | | | | | | | |
| Period-end loans and leases | | | | | | | | | | |
| C&I | | $ | 31,068 | | | $ | 33,104 | | | $ | 20,051 | | | | | |
| CRE | | 12,109 | | | 12,275 | | | 4,337 | | | | | |
| Consumer real estate | | 10,772 | | | 11,725 | | | 6,177 | | | | | |
| Credit card and other | | 910 | | | 1,128 | | | 496 | | | | | |
| Total period-end loans and leases | | $ | 54,859 | | | $ | 58,232 | | | $ | 31,061 | | | | | |
| | | | | | | | | | | |
| ALLL / loans and leases % | | | | | | | | | | |
| C&I | | 1.07 | % | | 1.37 | % | | 0.62 | % | | | | |
| CRE | | 1.27 | % | | 1.97 | % | | 0.83 | % | | | | |
| Consumer real estate | | 1.51 | % | | 2.07 | % | | 0.45 | % | | | | |
| Credit card and other | | 2.14 | % | | 2.34 | % | | 2.68 | % | | | | |
| Total ALLL / loans and leases % | | 1.22 | % | | 1.65 | % | | 0.64 | % | | | | |
| | | | | | | | | | | |
| ACL / loans and leases % | | | | | | | | | | |
| C&I | | 1.22 | % | | 1.56 | % | | 0.63 | % | | | | |
| CRE | | 1.37 | % | | 2.05 | % | | 0.88 | % | | | | |
| Consumer real estate | | 1.59 | % | | 2.15 | % | | 0.45 | % | | | | |
| Credit card and other | | 2.09 | % | | 2.30 | % | | 2.62 | % | | | | |
| Total ACL / loans and leases % | | 1.34 | % | | 1.80 | % | | 0.66 | % | | | | |
| | | | | | | | | | | |
| Net charge-offs (recoveries) | | | | | | | | | | |
| C&I | | $ | 13 | | | $ | 120 | | | $ | 27 | | | | | |
| CRE | | — | | | 1 | | | 1 | | | | | |
| Consumer real estate | | (22) | | | (10) | | | (12) | | | | | |
| Credit card and other | | 11 | | | 9 | | | 11 | | | | | |
| Total net charge-offs | | $ | 2 | | | $ | 120 | | | $ | 27 | | | | | |
| | | | | | | | | | | |
| Average loans and leases | | | | | | | | | | |
| C&I | | $ | 32,010 | | | $ | 27,638 | | | $ | 18,283 | | | | | |
| CRE | | 12,314 | | | 8,508 | | | 4,102 | | | | | |
| Consumer real estate | | 10,969 | | | 9,191 | | | 6,299 | | | | | |
| Credit card and other | | 1,005 | | | 846 | | | 505 | | | | | |
| Total average loans and leases | | $ | 56,298 | | | $ | 46,183 | | | $ | 29,189 | | | | | |
| | | | | | | | | | | |
| Charge-off % | | | | | | | | | | |
| C&I | | 0.04 | % | | 0.43 | % | | 0.15 | % | | | | |
| CRE | | 0.01 | % | | 0.01 | % | | 0.02 | % | | | | |
| Consumer real estate | | NM | | NM | | NM | | | | |
| Credit card and other | | 1.05 | % | | 1.04 | % | | 2.25 | % | | | | |
| Total charge-off % | | — | % | | 0.26 | % | | 0.09 | % | | | | |
| | | | | | | | | | | |
| ALLL / net charge-offs | | | | | | | | | | |
| C&I | | 2,645 | % | | 376 | % | | 453 | % | | | | |
| CRE | | 13,189 | % | | 43,670 | % | | 5,213 | % | | | | |
| Consumer real estate | | NM | | NM | | NM | | | | |
| | | | | | | | |
| 79 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Credit card and other | | 185 | % | | 299 | % | | 117 | % | | | | |
| Total ALLL / net charge-offs | | 30,641 | % | | 808 | % | | 739 | % | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
NM - not meaningful
Nonperforming Assets
Nonperforming loans are loans placed on nonaccrual if it becomes evident that full collection of principal and interest is at risk, if impairment has been recognized as a partial charge-off of principal balance due to insufficient collateral value and past due status, or (on a case-by-case basis), if FHN continues to receive payments but there are other borrower-specific issues. Included in nonaccruals are loans on which FHN continues to receive payments, including residential real estate loans where the borrower has been discharged of personal obligation through bankruptcy. NPAs consist of nonperforming loans and OREO (excluding OREO from government insured mortgages).
Reflecting an overall improvement in asset quality, total NPAs (including NPL HFS) decreased $121 million to $285 million as of December 31, 2021, and the ratio of nonperforming loans to total loans decreased 16 basis points to 0.50%. Industry concentrationsThe decrease in nonperforming loans was driven primarily by the CRE and consumer real estate portfolios.
Certain nonperforming loans in both the commercial and consumer portfolios are discusseddeemed collateral-dependent and are charged down to an estimate of collateral value less costs to sell. Because the estimated loss has been recognized through a partial charge-off, typically an ALLL is not recorded.
Table 7.13
NONACCRUAL/NONPERFORMING LOANS, FORECLOSED ASSETS, & OTHER DISCLOSURES (a) (b)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31 | | | | |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| Nonperforming loans and leases | | | | | | | | | | |
| C&I | | $ | 125 | | | $ | 144 | | | $ | 74 | | | | | |
| CRE | | 9 | | | 58 | | | 2 | | | | | |
| Consumer real estate | | 138 | | | 182 | | | 86 | | | | | |
| Credit card and other | | 3 | | | 2 | | | — | | | | | |
| Total nonperforming loans and leases (c) (d) | | $ | 275 | | | $ | 386 | | | $ | 162 | | | | | |
| | | | | | | | | | | |
| Nonperforming loans held-for-sale (d) | | $ | 7 | | | $ | 5 | | | $ | 4 | | | | | |
| Foreclosed real estate and other assets (e) | | 3 | | | 15 | | | 16 | | | | | |
| Total nonperforming assets (d) (f) | | $ | 285 | | | $ | 406 | | | $ | 182 | | | | | |
| | | | | | | | | | | |
| Nonperforming loans and leases to total loans and leases | | | | | | | | | | |
| C&I | | 0.40 | % | | 0.43 | % | | 0.37 | % | | | | |
| CRE | | 0.08 | % | | 0.48 | % | | 0.04 | % | | | | |
| Consumer real estate | | 1.29 | % | | 1.56 | % | | 1.39 | % | | | | |
| Credit card and other | | 0.31 | % | | 0.18 | % | | 0.07 | % | | | | |
| Total NPL % | | 0.50 | % | | 0.66 | % | | 0.52 | % | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| ALLL / NPLs | | | | | | | | | | |
| C&I | | 268 | % | | 315 | % | | 166 | % | | | | |
| CRE | | 1,671 | % | | 415 | % | | 1,973 | % | | | | |
| Consumer real estate | | 118 | % | | 133 | % | | 33 | % | | | | |
| Credit card and other | | 699 | % | | 1313 | % | | 3892 | % | | | | |
| Total ALLL / NPLs | | 244 | % | | 249 | % | | 124 | % | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
(a)Balances for 2019 do not include PCI loans even though the client may be contractually past due. PCI loans were recorded at fair value upon acquisition and accreted interest income over the remaining life of the loan. PCI loans were transitioned to PCD status upon adoption of CECL.
| | | | | | | | |
| 80 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
(b)Unless otherwise noted, increases in balances from 2019 to 2020 were primarily driven by acquired nonperforming assets.
(c)Under the original terms of the loans, estimated interest income would have been approximately $19 million, $18 million, and $11 million during 2021, 2020 and 2019, respectively.
(d)Excludes loans and leases that are 90 or more days past due and still accruing interest.
(e)Foreclosed real estate from GNMA loans totaled $1 million, $2 million, and $2 million at December 31, 2021, 2020, and 2019, respectively.
(f)Balances do not include government-insured foreclosed real estate. Balances for 2019 also do not include PCI loans. PCI loans were transitioned to PCD status upon adoption of CECL.
The following table provides nonperforming assets by business segment:
Table 7.14
NONPERFORMING ASSETS BY SEGMENT
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31 | | | | |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | | | |
| Nonperforming loans and leases (a) (b) | | | | | | | | | | |
| Regional Banking | | $ | 163 | | | $ | 216 | | | $ | 45 | | | | | |
| Specialty Banking | | 78 | | | 117 | | | 68 | | | | | |
| Corporate | | 34 | | | 53 | | | 49 | | | | | |
| Consolidated | | $ | 275 | | | $ | 386 | | | $ | 162 | | | | | |
| | | | | | | | | | | |
| Foreclosed real estate (c) | | | | | | | | | | |
| Regional Banking | | $ | 2 | | | $ | 12 | | | $ | 12 | | | | | |
| Specialty Banking | | — | | | 1 | | | 1 | | | | | |
| Corporate | | 1 | | | 2 | | | 3 | | | | | |
| Consolidated | | $ | 3 | | | $ | 15 | | | $ | 16 | | | | | |
| | | | | | | | | | | |
| Nonperforming Assets (a) (b) (c) | | | | | | | | | | |
| Regional Banking | | $ | 165 | | | $ | 228 | | | $ | 57 | | | | | |
| Specialty Banking | | 78 | | | 118 | | | 69 | | | | | |
| Corporate | | 35 | | | 55 | | | 52 | | | | | |
| Consolidated | | $ | 278 | | | $ | 401 | | | $ | 178 | | | | | |
| | | | | | | | | | | |
| Nonperforming loans and leases to total loans and leases | | | | | | | | | | |
| Regional Banking | | 0.43 | % | | 0.54 | % | | 0.27 | % | | | | |
| Specialty Banking | | 0.48 | | | 0.68 | | | 0.51 | | | | | |
| Corporate | | 5.39 | | | 5.70 | | | 5.22 | | | | | |
| Consolidated | | 0.50 | % | | 0.66 | % | | 0.52 | % | | | | |
| | | | | | | | | | | |
| NPA % (d) | | | | | | | | | | |
| Regional Banking | | 0.44 | % | | 0.57 | % | | 0.34 | % | | | | |
| Specialty Banking | | 0.48 | | | 0.68 | | | 0.52 | | | | | |
| Corporate | | 5.51 | | | 5.87 | | | 5.48 | | | | | |
| Consolidated | | 0.51 | % | | 0.69 | % | | 0.57 | % | | | | |
| | | | | | | | | | | |
(a)Excludes loans and leases that are 90 or more days past due and still accruing interest.
(b)Excludes loans classified as held for sale.
(c)Excludes foreclosed real estate and receivables related to government-insured mortgages of $1 million, $5 million, and $10 million as of December 31, 2021, 2020, and 2019, respectively.
(d)Ratio is non-performing assets related to the loan and lease portfolio to total loans plus foreclosed real estate and other assets.
| | | | | | | | |
| 81 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Lending Assistance for Borrowers
In addition to PPP loans, other customer support initiatives in response to the COVID-19 pandemic include incremental lending assistance for borrowers through delayed payment programs and fee waivers.
The following table provides the UPB of loans related to deferrals granted to FHN’s customers as of December 31, 2021 and December 31, 2020.
Table 7.15
CUSTOMER DEFERRALS
| | | | | | | | | | | | | | |
| (Dollars in millions) | | December 31, 2021 | | December 31, 2020 |
| Commercial: | | | | |
| C&I | | $ | 9 | | | $ | 104 | |
| | | | |
| CRE | | 26 | | | 194 | |
| Total Commercial | | $ | 35 | | | $ | 298 | |
| Consumer: | | | | |
| HELOC | | $ | 5 | | | $ | 14 | |
| Real estate installment loans | | 44 | | | 202 | |
| Credit card and other | | — | | | 4 | |
| Total Consumer | | $ | 49 | | | $ | 220 | |
| Total | | $ | 84 | | | $ | 518 | |
| | | | |
| | | | |
Commercial deferrals as of December 31, 2021 were comprised primarily of private client (59% or $21 million) and general commercial (40% or $14 million).
To the extent that loans were past due as of December 31, 2021 or December 31, 2020 and had been granted a
deferral, they were excluded from loans past due 30 to 89 days and loans past due 90 days or more in the table and discussion below.
Past Due Loans and Potential Problem Assets
Past due loans are loans contractually past due as to interest or principal payments, but which have not yet been put on nonaccrual status. Loans 90 days or more past due and still accruing were $40 million as of December 31, 2021, an increase of $23 million compared to December 31, 2020, primarily from consumer real estate loans. Loans 30 to 89 days past due increased $8
million from year-end 2020 to $108 million as of December 31, 2021, as a higher level of C&I loans past due were offset by lower consumer real estate loans past due less than 90 days, most notably in the CRE and consumer real estate portfolios.
| | | | | | | | |
| 82 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Table 7.16
ACCRUING DELINQUENCIES & OTHER CREDIT DISCLOSURES
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31 | | | | |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | | | |
| Accruing loans and leases 30+ days past due | | | | | | | | | | |
| C&I | | $ | 58 | | | $ | 15 | | | $ | 9 | | | | | |
| CRE | | 13 | | | 23 | | | 1 | | | | | |
| Consumer real estate | | 70 | | | 69 | | | 43 | | | | | |
| Credit card and other | | 7 | | | 10 | | | 5 | | | | | |
| Total accruing loans and leases 30+ days past due | | $ | 148 | | | $ | 117 | | | $ | 58 | | | | | |
| | | | | | | | | | | |
| Accruing loans and leases 30+ days past due % | | | | | | | | | | |
| C&I | | 0.19 | % | | 0.05 | % | | 0.05 | % | | | | |
| CRE | | 0.11 | | | 0.19 | | | 0.02 | | | | | |
| Consumer real estate | | 0.65 | | | 0.58 | | | 0.70 | | | | | |
| Credit card and other | | 0.76 | | | 0.87 | | | 0.93 | | | | | |
| Total accruing loans and leases 30+ days past due % | | 0.27 | % | | 0.20 | % | | 0.19 | % | | | | |
| | | | | | | | | | | |
| Accruing loans and leases 90+ days past due (a) (b) (c) | | | | | | | | | | |
| C&I | | $ | 5 | | | $ | — | | | $ | 2 | | | | | |
| CRE | | — | | | — | | | — | | | | | |
| Consumer real estate | | 33 | | | 16 | | | 18 | | | | | |
| Credit card and other | | 2 | | | 1 | | | 2 | | | | | |
| Total accruing loans and leases 90+ days past due | | $ | 40 | | | $ | 17 | | | $ | 22 | | | | | |
| | | | | | | | | | | |
| Loans held for sale | | | | | | | | | | |
| 30 to 89 days past due (b) | | $ | 7 | | | $ | 6 | | | $ | 4 | | | | | |
| 30 to 89 days past due - guaranteed portion (b) (d) | | 2 | | | 5 | | | 3 | | | | | |
| 90+ days past due (b) | | 24 | | | 12 | | | 6 | | | | | |
| 90+ days past due - guaranteed portion (b) (d) | | 12 | | | 10 | | | 6 | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
(a)Excludes loans classified as held for sale.
(b)Amounts are not included in nonperforming/nonaccrual loans.
(c)Amounts are also included in accruing loans and leases 30+ days past due.
(d)Guaranteed loans include FHA, VA, and GNMA loans repurchased through the GNMA buyout program.
Potential problem assets represent those assets where information about possible credit problems of borrowers has caused management to have serious doubts about the borrower’s ability to comply with present repayment terms and includes loans past due 90 days or more and still accruing. This definition is believed to be substantially consistent with the standards established by the Federal banking regulators for loans classified as substandard. At
year-end 2021, potential problem assets in the loan portfolio decreased $121 million from December 31, 2020 to $597 million on December 31, 2021. The decrease was attributable to an overall improvement in asset quality. The current expectation of losses from potential problem assets has been included in management’s analysis for assessing the adequacy of the allowance for loan and lease losses.
Troubled Debt Restructuring and Loan Modifications
As part of FHN’s ongoing risk management practices, FHN attempts to work with borrowers when appropriate to extend or modify loan terms to better align with their current ability to repay. Extensions and modifications to loans are made in accordance with internal policies and guidelines which conform to regulatory guidance. Each occurrence is unique to the borrower and is evaluated
separately. In a situation where an economic concession has been granted to a borrower that is experiencing financial difficulty, FHN identifies and reports that loan as a TDR.
For loan modifications that were made during 2021 and 2020 that met the TDR relief provisions outlined in either the CARES Act, as extended by the CAA, or revised
| | | | | | | | |
| 83 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Interagency Guidance, FHN has excluded these modifications from consideration as a TDR, and has excluded loans with these qualifying modifications from designation as a TDR in the information and discussion that follows. See Note 1 - Significant Accounting Policies and Note 4 – Loans and Leases for further discussion regarding TDRs and loan modifications.
Commercial Loan Modifications
As part of FHN’s credit risk management governance processes, the Loan Rehab and Recovery Department (LRRD) is responsible for managing most commercial relationships with borrowers whose financial condition has deteriorated to such an extent that the credits are being considered for impairment, classified as substandard or worse, placed on nonaccrual status, foreclosed or in process of foreclosure, or in active or contemplated litigation. LRRD has the authority and responsibility to enter into workout and/or rehabilitation agreements with troubled commercial borrowers in order to mitigate and/or minimize the amount of credit losses recognized from these problem assets. While every circumstance is different, LRRD will generally use forbearance agreements (generally 6-12 months) as an element of commercial loan workouts, which might include reduced interest rates, reduced payments, release of guarantor, or entering into short sale agreements.
The individual impairment assessments completed on commercial loans in accordance with the Accounting Standards Codification Topic related to Troubled Debt Restructurings (“ASC 310-40”) include loans classified as TDRs as well as loans that may have been modified yet not classified as TDRs by management. For example, a modification of loan terms that management would generally not consider to be a TDR could be a temporary extension of maturity to allow a borrower to complete an asset sale whereby the proceeds of such transaction are to be paid to satisfy the outstanding debt. Additionally, a modification that extends the term of a loan but does not involve reduction of principal or accrued interest, in which the interest rate is adjusted to reflect current market rates for similarly situated borrowers, is not considered a TDR. Nevertheless, each assessment will take into account any modified terms and will be comprehensive to ensure appropriate impairment assessment. If individual impairment is identified, management will either hold specific reserves on the amount of impairment, or, if the loan is collateral dependent, write down the carrying amount of the asset to the net realizable value of the collateral.
Consumer Loan Modifications
FHN does not currently participate in any of the loan modification programs sponsored by the U.S. government but does generally structure modified consumer loans using the parameters of the former Home Affordable Modification Program. Generally, a majority of loans
modified under any such proprietary programs are classified as TDRs.
Within the HELOC and real estate installment loans classes of the consumer portfolio segment, TDRs are typically modified by reducing the interest rate (in increments of 25 basis points to a minimum of 1% for up to 5 years) and a possible maturity date extension to reach an affordable housing debt-to-income ratio. After 5 years, the interest rate generally returns to the original interest rate prior to modification; for certain modifications, the modified interest rate increases 2% per year until the original interest rate prior to modification is achieved. Permanent mortgage TDRs are typically modified by reducing the interest rate (in increments of 25 basis points to a minimum of 2% for up to 5 years) and a possible maturity date extension to reach an affordable housing debt-to-income ratio. After 5 years, the interest rate steps up 1 percent every year until it reaches the Federal Home Loan Mortgage Corporation Weekly Survey Rate cap. Contractual maturities may be extended to 40 years on permanent mortgages and to 30 years for consumer real estate loans. Within the credit card class of the consumer portfolio segment, TDRs are typically modified through either a short-term credit card hardship program or a longer-term credit card workout program. In the credit card hardship program, borrowers may be granted rate and payment reductions for 6 months to 1 year. In the credit card workout program, clients are granted a rate reduction to 0% and term extensions for up to 5 years to pay off the remaining balance.
Following classification as a TDR, modified loans within the consumer portfolio, which were previously evaluated for impairment on a collective basis determined by their smaller balances and homogenous nature, become subject to the impairment guidance in ASC 310-10-35, which requires individual evaluation of the debt for impairment. However, as applicable accounting guidance allows, FHN may aggregate certain smaller-balance homogeneous TDRs and use historical statistics, such as aggregated charge-off amounts and average amounts recovered, along with a composite effective interest rate to measure impairment when such impaired loans have risk characteristics in common.
FHN had $206 million and $307 million portfolio loans classified as held-for-investment TDRs on December 31, 2021 and 2020, respectively, a decrease of $101 million between periods. For these TDRs, including specific reserves, FHN had an allowance for loan and lease losses of $12 million and $15 million, or 6% and 5% of TDR balances, as of December 31, 2021 and 2020, respectively. Additionally, FHN had $35 million and $42 million of HFS loans classified as TDRs at year-end 2021 and 2020, respectively.
| | | | | | | | |
| 84 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
The following table provides a summary of TDRs for the periods ended December 31, 2021 and 2020.
Table 7.17
TROUBLED DEBT RESTRUCTURINGS
| | | | | | | | | | | | | | |
| (Dollars in millions) | |
December 31, 2021 | |
December 31, 2020 |
| Held for investment: | | | | |
| Commercial loans: | | | | |
| Current | | $ | 53 | | | $ | 82 | |
| Delinquent | | — | | | — | |
| Non-accrual | | 35 | | | 84 | |
| Total commercial loans | | 88 | | | 166 | |
| Consumer real estate: | | | | |
| Current | | $ | 60 | | | $ | 77 | |
| Delinquent | | 4 | | | 2 | |
| Non-accrual (a) | | 53 | | | 61 | |
| Total consumer real estate | | 117 | | | 140 | |
| Credit card and other: | | | | |
| Current | | 1 | | | 1 | |
| Delinquent | | — | | | — | |
| Non-accrual | | — | | | — | |
| Total credit card and other | | 1 | | | 1 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Total held for investment | | $ | 206 | | | $ | 307 | |
| | | | |
| Held for sale: | | | | |
| Current | | $ | 27 | | | $ | 36 | |
| Delinquent | | 7 | | | 5 | |
| Non-accrual | | 1 | | | 1 | |
| Total held for sale | | 35 | | | 42 | |
| | | | |
| Total troubled debt restructurings | | $ | 241 | | | $ | 349 | |
| | | | |
(a)Balances as of December 31, 2021 and 2020, include $12 million and $11 million, respectively, of discharged bankruptcies.
Deposits
Total deposits were $74.9 billion as of December 31, 2021, up $4.9 billion from $70.0 billion as of December 31, 2020, driven by a $5.7 billion increase in non-interest bearing deposits as a result of elevated liquidity tied to government stimulus associated with the COVID-19 pandemic. Growth in noninterest-bearing deposits was partially offset by a $1.6 billion decline in time deposits.
The following tables summarize FHN's total deposits and estimated uninsured total deposits for 2021, 2020, and 2019, as well as the maturities of FHN's uninsured time deposits as of December 31, 2021. See Table 7.2 - Average Balances, Net Interest Income and Yields/Rates in this Report for information on average deposits including average rates paid.
| | | | | | | | |
| 85 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Table 7.18
DEPOSITS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | 2021 | | Percent of Total | | 2021 Growth Rate | | 2020 | | Percent of Total | | 2020 Growth Rate | | 2019 | | Percent of Total | | 2019 Growth Rate |
| Savings | | $ | 26,457 | | | 35 | % | | (3) | % | | $ | 27,324 | | | 39 | % | | 134 | % | | $ | 11,665 | | | 36 | % | | (3) | % |
| Time deposits | | 3,500 | | | 5 | | | (31) | | | 5,070 | | | 7 | | | 40 | | | 3,618 | | | 11 | | | (12) | |
| Other interest-bearing deposits | | 17,055 | | | 23 | | | 11 | | | 15,415 | | | 22 | | | 77 | | | 8,718 | | | 27 | | | 4 | |
| Total interest-bearing deposits | | 47,012 | | | 63 | | | (2) | | | 47,809 | | | 68 | | | 99 | | | 24,001 | | | 74 | | | (2) | |
| Noninterest-bearing deposits | | 27,883 | | | 37 | | | 26 | | | 22,173 | | | 32 | | | 163 | | | 8,429 | | | 26 | | | 4 | |
| Total deposits | | $ | 74,895 | | | 100 | % | | 7 | % | | $ | 69,982 | | | 100 | % | | 116 | % | | $ | 32,430 | | | 100 | % | | (1) | % |
| | | | | | | | | | | | | | | | | | |
Table 7.19
UNINSURED DEPOSITS
| | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 |
| Uninsured deposits | | $ | 39,756 | | | $ | 33,057 | | | $ | 12,176 | |
| | | | | | |
Table 7.20
UNINSURED TIME DEPOSITS BY MATURITY
| | | | | | | | |
| (Dollars in millions) | | December 31, 2021 |
| Portion of U.S. time deposits in excess of insurance limit | | $ | 515 | |
| Time deposits otherwise uninsured with a maturity of: | | |
| 3 months or less | | 212 | |
| Over 3 months through 6 months | | 117 | |
| Over 6 months through 12 months | | 124 | |
| Over 12 months | | 62 | |
Short-Term Borrowings
Short-term borrowings include federal funds purchased, securities sold under agreements to repurchase, trading liabilities, and other short-term borrowings. Total short-term borrowings were $2.6 billion as of December 31, 2021 and December 31, 2020.
Short-term borrowings balances fluctuate largely based on the level of FHLB borrowing as a result of loan demand, deposit levels and balance sheet funding strategies. Trading liabilities fluctuate based on various factors,
including levels of trading securities and hedging strategies. Federal funds purchased fluctuates depending on the amount of excess funding of FHN's correspondent bank customers. Balances of securities sold under agreements to repurchase fluctuate based on cost attractiveness relative to FHLB borrowing levels and the ability to pledge securities toward such transactions. See Note 10 - Short-Term Borrowings for additional information.
Term Borrowings
Term borrowings include senior and subordinated borrowings with original maturities greater than one year. Total term borrowings were $1.6 billion on December 31, 2021, an $80 million decrease from $1.7 billion on December 31, 2020.
During 2021, FHN redeemed $94 million of legacy IBKC junior subordinated debt underlying multiple issuances of trust preferred securities. The redemption resulted in a loss on debt extinguishment of $26 million. See Note 11 - Term Borrowings for additional information.
| | | | | | | | |
| 86 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Capital
Management’s objectives are to provide capital sufficient to cover the risks inherent in FHN’s businesses, to maintain excess capital to well-capitalized standards, and to assure ready access to the capital markets.
Total equity increased $187 million to $8.5 billion on December 31, 2021 from $8.3 billion on December 31, 2020. Significant changes included net income of $1.0 billion and the issuance of $145 million in Series F preferred stock, which were offset by $416 million in
common share repurchases, $364 million in common and preferred dividends, a $148 decrease in AOCI, and $100 million from the call of Series A preferred stock.
The following tables provide a reconciliation of shareholders’ equity from the Consolidated Balance Sheets to Common Equity Tier 1, Tier 1 and Total Regulatory Capital as well as certain selected capital ratios:
Table 7.21a
REGULATORY CAPITAL DATA
| | | | | | | | | | | | | | |
| (Dollars in millions) | | December 31, 2021 | | December 31, 2020 |
| FHN shareholders’ equity | | $ | 8,199 | | | $ | 8,012 | |
| Modified CECL transitional amount (a) | | 114 | | | 191 | |
| FHN non-cumulative perpetual preferred | | (520) | | | (470) | |
| Common equity tier 1 before regulatory adjustments | | $ | 7,793 | | | $ | 7,733 | |
| Regulatory adjustments: | | | | |
| Disallowed goodwill and other intangibles | | (1,711) | | | (1,757) | |
| Net unrealized (gains) losses on securities available for sale | | 36 | | | (108) | |
| Net unrealized (gains) losses on pension and other postretirement plans | | 255 | | | 260 | |
| Net unrealized (gains) losses on cash flow hedges | | (3) | | | (12) | |
| Disallowed deferred tax assets | | (2) | | | (5) | |
| Other deductions from common equity tier 1 | | (1) | | | (1) | |
| Common equity tier 1 | | $ | 6,367 | | | $ | 6,110 | |
| FHN non-cumulative perpetual preferred (b) | | 426 | | | 377 | |
| Qualifying noncontrolling interest—First Horizon Bank preferred stock | | 295 | | | 295 | |
| Tier 1 capital | | $ | 7,088 | | | $ | 6,782 | |
| Tier 2 capital | | 830 | | | 1,153 | |
| Total regulatory capital | | $ | 7,918 | | | $ | 7,935 | |
| Risk-Weighted Assets | | | | |
| First Horizon Corporation | | $ | 64,183 | | | $ | 63,140 | |
| First Horizon Bank | | 63,601 | | | 62,508 | |
| Average Assets for Leverage | | | | |
| First Horizon Corporation | | 87,683 | | | 82,347 | |
| First Horizon Bank | | 86,953 | | | 81,709 | |
| | | | | | | | |
| 87 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Table 7.21b
REGULATORY RATIOS & AMOUNTS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2021 | | December 31, 2020 |
| (Dollars in millions) | | Ratio | | Amount | | Ratio | | Amount |
| Common Equity Tier 1 | | | | | | | | |
| First Horizon Corporation | | 9.92 | % | | $ | 6,367 | | | 9.68 | % | | $ | 6,110 | |
| First Horizon Bank | | 10.75 | | | 6,838 | | | 10.46 | | | 6,537 | |
| Tier 1 | | | | | | | | |
| First Horizon Corporation | | 11.04 | | | 7,088 | | | 10.74 | | | 6,782 | |
| First Horizon Bank | | 11.22 | | | 7,133 | | | 10.93 | | | 6,832 | |
| Total | | | | | | | | |
| First Horizon Corporation | | 12.34 | | | 7,918 | | | 12.57 | | | 7,935 | |
| First Horizon Bank | | 12.41 | | | 7,893 | | | 12.52 | | | 7,827 | |
| Tier 1 Leverage | | | | | | | | |
| First Horizon Corporation | | 8.08 | | | 7,088 | | | 8.24 | | | 6,782 | |
| First Horizon Bank | | 8.20 | | | 7,133 | | | 8.36 | | | 6,832 | |
| Other Capital Ratios | | | | | | | | |
| Total period-end equity to period-end assets | | 9.53 | | | | | 9.86 | | | |
| Tangible common equity to tangible assets (c) | | 6.73 | | | | | 6.89 | | | |
| Adjusted tangible common equity to risk weighted assets (c) | | 9.20 | | | | | 8.82 | | | |
(a) The modified CECL transitional amount is calculated as defined in the final rule issued by the banking regulators on August 26, 2020 and includes the full amount of the impact to retained earnings from the initial adoption of CECL plus 25% of the change in the adjusted allowance for credit losses since FHN’s initial adoption of CECL through December 31, 2021.
(b) The $94 million carrying value of the Series D preferred stock does not qualify as Tier 1 capital because the earliest redemption date is less than five years from the issuance date.
(c) Tangible common equity to tangible assets and adjusted tangible common equity to risk-weighted assets are non-GAAP measures and are reconciled to total equity to total assets (GAAP) in the Non-GAAP to GAAP Reconciliation - Table 7.30.
Banking regulators define minimum capital ratios for bank holding companies and their bank subsidiaries. Based on the capital rules and definitions prescribed by the banking regulators, should any depository institution’s capital ratios decline below predetermined levels, it would become subject to a series of increasingly restrictive regulatory actions. The system categorizes a depository institution’s capital position into one of five categories ranging from well-capitalized to critically under-capitalized. For an institution the size of FHN to qualify as well-capitalized, Common Equity Tier 1, Tier 1 Capital, Total Capital, and Leverage capital ratios must be at least 6.50%, 8.00%, 10.00%, and 5.00%, respectively. Furthermore, a capital conservation buffer of 50 basis points above these levels must be maintained on the Common Equity Tier 1, Tier 1 Capital and Total Capital ratios to avoid restrictions on dividends, share repurchases and certain discretionary bonuses. As of December 31, 2021, both FHN and First Horizon Bank had sufficient capital to qualify as well-capitalized institutions and to meet the capital conservation buffer requirement. Capital ratios for both FHN and First Horizon Bank as of
December 31, 2021 are calculated under the heading C&I below.final rule issued by the banking regulators in late August 2020 to delay the effects of CECL on regulatory capital for two years, followed by a three-year transition period.
For both FHN and First Horizon Bank, the risk-based regulatory capital ratios increased in 2021 relative to 2020 primarily from the net positive impact of net income less dividends and share repurchases. FHN's Tier 1 Capital ratio further benefited from the issuance in 2021 of its Series F preferred stock, partially offset by the retirement of its Series A preferred stock. FHN's Total Capital ratio as of December 31, 2021 was unfavorably impacted by the retirement of legacy IBKC trust preferred securities, which qualified as Tier 2 capital. The Tier 1 Leverage ratio for both FHN and First Horizon Bank decreased from December 31, 2020 as a result of an increase in average assets.
During 2022, capital ratios are expected to remain above well-capitalized standards plus the required capital conservation buffer.
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.
| | | | | | | | |
| 88 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
For 2021, FHN and First Horizon Bank completed a company run stress test using the Comprehensive Capital Analysis and Review (CCAR) Resubmission scenarios published in February 2021. Results of these tests indicate that both FHN and First Horizon Bank would be able to maintain capital well in excess of Basel III Adequately Capitalized standards under the hypothetical severe global recession of the 2021 CCAR Resubmission Severely Adverse scenario. A summary of those results was posted in the “News & Events-Stress Testing Results” section on FHN’s investor relations website on June 28, 2021. Neither FHN’s stress test posting, nor any other material found on
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.
Underwriting Policies and Procedures
The following sections describe each portfolio as well as general underwriting procedures for each. As economic and real estate conditions develop, enhancements to underwriting and credit policies and procedures may be necessary or desirable. Loan policies and procedures for all portfolios are reviewed by credit risk working groups and management risk committees comprised of business line managers and credit administration professionals as well as by various other reviewing bodies within FHN. Policies and procedures are approved by key executives and/or senior managers leading the applicable credit risk working groups as well as by management risk committees.
The credit risk working groups and management risk committees strive to ensure that the approved policies and procedures address the associated risks and establish reasonable underwriting criteria that appropriately mitigate risk. Policies and procedures are reviewed, revised and re-issued periodically at 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. For example, in 2017 FHN expanded its borrower limits in association with the expansion of its overall portfolio through the acquisition of CBF
Commercial Loan and revised its Portfolio Concentration, Country Exposure, and Automated Clearing House limits to more appropriately align with its overall risk appetite and to provide more granularity into some of its portfolio sub segments. Additionally, in 2019 FHN expanded borrower limits within certain portfolios (such as loans to mortgage companies) to support FHN's strategic plan. These changes were approved by management risk committees and the Executive and Risk Committee of the Board in order to enhance and support loan growth while also minimizing incremental credit risk.Lease Portfolios
COMMERCIAL LOAN 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”)(RM) and Portfolio Managers (“PM”))(PM) and to Credit Risk Managers. While individual limits vary, the predominant amount of approval authority is vested with the Credit Risk Management function. Portfolio, industry, and borrower concentration limits for the various portfolios are established by executive management and approved by the Executive and Risk Committee of the Board.
FHN’s commercial lending process incorporates an RM and a PM for most commercial credits. The RM is primarily responsible for communications with the customerborrower and maintaining the relationship, while the PM is responsible for assessing the credit quality of the borrower, beginning with the initial underwriting and continuing through the servicing period. Other specialists and the assigned RM/PM are organized into units called deal teams. Deal teams are constructed with specific job attributes that facilitate
FHN’s ability to identify, mitigate, document, and manage ongoing risk. PMs and credit analysts provide enhanced analytical support during loan origination and servicing, including monitoring of the financial condition of the borrower and tracking compliance with loan agreements. Loan closing officers and the construction loan management unit specialize in loan documentation and the management of the construction lending process. FHN strives to identify problem assets early through comprehensive policies and guidelines, targeted portfolio reviews, more frequent servicing on lower rated borrowers, and an emphasis on frequent grading. For smaller commercial credits, generally $3$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
| | | | | | | | |
| 73 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
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
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 67
cash flows. FHN also considers the volume and amount of guaranties provided for all global indebtedness and the likelihood of realization. FHN presumes a guarantor’s willingness to perform until there is any current or prior indication or future expectation that the guarantor may not willingly and voluntarily perform under the terms of the guaranty. In FHN’s risk grading approach, it is deemed that financial support becomes necessary generally at a point when the loan would otherwise be graded substandard, reflecting a well-defined weakness. At that point, provided willingness and capacity to support are appropriately demonstrated, a strong, legally enforceable guaranty can mitigate the risk of default or loss, justify a less severe rating, and consequently reduce the level of allowance or charge-off that might otherwise be deemed appropriate.
C&I
The C&I portfolio was $20.1totaled $31.1 billion onas of December 31, 2019,2021 and is comprised of loans used for general business purposes. Typical productspurposes. Products offered in the C&I portfolio include working capital lines of credit, term loan financing of owner-occupied real estate and fixed assets, PPP loans, direct financing and sales-type leases, working capital lines of credit, and trade credit enhancement through letters of credit. The largest geographical concentrations of balances as of December 31, 2019, are in Tennessee (31 percent), North Carolina (10 percent), California (9 percent), Texas (6 percent), Florida (6 percent), Georgia (4 percent), and South Carolina (3 percent), with no other state representing more than 3 percent of the portfolio.
C&I loans are underwritten in accordance with a well-defined credit origination process. This process includes applying minimum underwriting standards as well as separation of origination and credit approval roles on transaction sizes over PM authorization limits. Underwriting typically includes due diligence of the borrower and the applicable industry of the borrower, analysis of the borrower’s available financial information, identification and analysis of the various sources of repayment and identification of the primary risk
attributes. Stress testing the borrower’s financial capacity, adherence to loan documentation requirements, and assigning credit risk grades using internally developed scorecards are also used to help quantify the risk when appropriate. Underwriting parameters also include loan-to-value ratios (“LTVs”) 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. TheseHistorically, these loans typically have had variable rates tied to the London Inter-Bank Offered Rate (“LIBOR”)LIBOR or the prime rate of interest plus or minus the appropriate margin. However, with the upcoming cessation of LIBOR, FHN no longer references LIBOR in new loan contracts, and the existing portfolio of loans tied to LIBOR is being repriced to alternative reference rates.
A $3.0 billion decrease in PPP loans drove the total decrease from December 31, 2020. Excluding PPP loans, C&I growth was $978 million, or 3%. The largest geographical concentrations of balances as of December 31, 2021 were in Tennessee (20%), Florida (12%), Texas (10%), North Carolina (7%), Louisiana (7%), California (7%), and Georgia (5%), with no other state representing more than 5% of the portfolio.
The following table provides the composition of the C&I portfolio by industry as of December 31, 20192021 and 2018.2020. For purposes of this disclosure, industries are determined based on the North American Industry Classification System (“NAICS”)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.
Table 14—C&I Loan Portfolio by Industry
|
| | | | | | | | | | | | | | |
| | | December 31, 2019 | | December 31, 2018 |
(Dollars in thousands) | | Amount | | Percent | | Amount | | Percent |
Industry: | | | | | | | | |
| Loans to mortgage companies | | $ | 4,410,883 |
| | 22 | % | | $ | 2,023,746 |
| | 12 | % |
| Finance & insurance | | 2,778,411 |
| | 14 |
| | 2,766,041 |
| | 17 |
|
| Health care & social assistance | | 1,499,178 |
| | 8 |
| | 1,309,983 |
| | 8 |
|
| Real estate rental & leasing (a) | | 1,454,336 |
| | 7 |
| | 1,548,903 |
| | 9 |
|
| Wholesale trade | | 1,372,147 |
| | 7 |
| | 1,166,590 |
| | 7 |
|
| Accommodation & food service | | 1,364,833 |
| | 7 |
| | 1,171,333 |
| | 7 |
|
| Manufacturing | | 1,150,701 |
| | 6 |
| | 1,245,230 |
| | 8 |
|
| Other (transportation, education, arts, entertainment, etc) (b) | | 6,020,602 |
| | 29 |
| | 5,282,502 |
| | 32 |
|
| Total C&I loan portfolio | | $ | 20,051,091 |
| | 100 | % | | $ | 16,514,328 |
| | 100 | % |
| | | | | | | | |
(a) | Leasing, rental of real estate, equipment, and goods. 74 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
(b)ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| Industries in this category each comprise less than 5 percent for 2019. | |
C&I PORTFOLIO BY INDUSTRY
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| (Dollars in millions) | | Amount | | Percent | | Amount | | Percent |
| Industry: | | | | | | | | |
| Loans to mortgage companies | | $ | 4,518 | | | 15 | % | | $ | 5,404 | | | 16 | % |
| Finance and insurance | | 3,483 | | | 11 | | | 3,130 | | | 10 | |
| Real estate rental & leasing (a) | | 2,771 | | | 9 | | | 2,365 | | | 7 | |
| Health care and social assistance | | 2,413 | | | 8 | | | 2,689 | | | 8 | |
| | | | | | | | |
| Accommodation & food service | | 2,221 | | | 7 | | | 2,303 | | | 7 | |
| Manufacturing | | 1,950 | | | 6 | | | 1,907 | | | 6 | |
| Wholesale trade | | 1,845 | | | 6 | | | 2,079 | | | 6 | |
| | | | | | | | |
| Retail trade | | 1,532 | | | 5 | | | 1,531 | | | 5 | |
| Energy | | 1,325 | | | 4 | | | 1,686 | | | 5 | |
| Other (professional, construction, transportation, etc) (b) | | 9,010 | | | 29 | | | 10,010 | | | 30 | |
| Total C&I loan portfolio | | $ | 31,068 | | | 100 | % | | $ | 33,104 | | | 100 | % |
| | | | | | | | |
(a)Leasing, rental of real estate, equipment, and goods.
(b)Industries in this category each comprise less than 5% for 2021.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 68
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. 36 percent of FHN’s C&I portfolio (Finance and insurance plusconditions. Loans to mortgage companies)companies and borrowers in the finance and insurance industry were 26% of FHN’s C&I loan portfolio as of December 31, 2021, and as a result could be affected by items that uniquely impact the financial services industry. Except “LoansLoans to Mortgage Companies”Companies and “FinanceFinance and Insurance”Insurance, as discussed below, onDecember 31, 2019,2021, FHN did not have any other concentrations of C&I loans in any single industry of 10 percent10% or more of total loans.
Loans to Mortgage Companies
The balance of loans to mortgage companies was 22 percent15% of the C&I portfolio as of December 31, 2019,2021, and 12 percent16% of the C&I portfolio as of December 31, 2018,2020, and includes balances related to both home purchase and refinance activity. This portfolio class, which generally fluctuates with mortgage rates and seasonal factors and includes commercial lines of credit to qualified mortgage companies primarily for the temporary warehousing of eligible mortgage loans prior to the borrower’s sale of those mortgage loans to third party investors. Generally, lending to mortgage lenders increases when there is a decline in mortgage rates and decreases when rates rise. The increasedecrease in loans to mortgage companies year over year was due to higherexisting home purchasingsupply shortages, construction labor and refinance activity, as well as market share growth.materials shortages, and a rise in mortgage rates. In 2019, 60 percent2021, approximately 48% of the loans funded were home purchases and 40 percent52% were refinance transactions.
Finance and Insurance
The finance and insurance component represents 14 percent11% of the C&I portfolio as of December 31, 2021 compared to 10% at the end of 2020 and includes TRUPSTRUPs (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, 2019,2021, asset-based lending to consumer finance companies represents approximately $1.2$1.4 billion of the finance and insurance component.
TRUPS lending was originally extended as a form of “bridge” financingPaycheck Protection Program
In 2020, Congress created the Paycheck Protection Program (PPP) in response to participants in the pooled trust preferred securitization program offered primarily to smaller banking (generally less than $15 billion in total assets) and insurance institutions through FHN’s fixed income business. Origination of TRUPS lending ceased in early 2008. Individual TRUPS are re-graded at least quarterly as part of FHN’s commercial loan review process. During second quarter 2018, FHN revised the grading approacheconomic disruption associated with the TRUPS portfolio to align with its scorecard grading methodologies which resulted in upgrades to a majorityCOVID-19 pandemic. Under the PPP, qualifying businesses could receive loans from private lenders, such as FHN, that are fully guaranteed by the Small Business Administration. These loans potentially are partly or fully forgivable, depending upon the borrower’s use of this portfolio. The termsthe funds and maintenance of these loans generally include a scheduled 30 year balloon payoff and include an option to defer interest for up to 20 consecutive quarters. As of December 31, 2018, one TRUP relationship was on interest deferral. This relationship returned to accrual in fourth quarter 2019.employment levels. To the extent forgiven, the borrower is relieved from payment while the lender is still paid from the program.
As of December 31, 2019, the UPB of trust preferred loans totaled $238.4 million ($177.7 million of bank TRUPS and $60.7 million of insurance TRUPS) with the UPB of other bank-related loans totaling $304.6 million. Inclusive of a valuation allowance on TRUPS of $19.1 million, total reserves (ALLL plus the valuation allowance) for TRUPS and other bank-related loans were $19.4 million or 4 percent of outstanding UPB.
C&I Asset Quality Trends
Overall, theThe C&I portfolio trends remained strong in 2019, continuing in line with recent historical performance. The C&I ALLL increased $23.5 million from December 31, 2018, to $122.5 million as of December 31, 2019. The allowance as2021 included 8,372 loans made under the PPP with an aggregate principal balance of $1.0 billion, which are fully government guaranteed with the SBA. Due to the government guarantee and forgiveness provisions, PPP loans are considered to have no credit risk and do not affect the amount of provision and ALLL recorded. As a percentage of period-end loans increased to .61 percent as of December 31, 2019, from .60 percent as of December 31, 2018. Nonperforming C&I loans increased $34.5 million from December 31, 2018, to $74.3 million on December 31, 2019, primarily driven by three credits which were partially offset by payments, returns to accrual status, or other resolutions. The nonperforming loan (“NPL”) ratio increased 13 basis points from December 31, 2018, to .37 percent of C&Iresult, no ALLL was recorded for PPP loans as of December 31, 2019. The 30+ delinquency ratio decreased2021, and FHN assigned a risk weight of zero to .05 percentPPP loans for regulatory capital purposes.
| | | | | | | | |
| 75 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
For these loans, there were remaining net lender fees of approximately $17 million to be paid to FHN as of December 31, 2019, from .06 percent as of2021. During 2021, FHN continued to work with its clients that have applied for and received PPP loan forgiveness. Through December 31, 2018. Net charge-offs were $27.0 million2021, approximately $5 billion of the original $6 billion in 2019 comparedPPP loans originated by FHN and IBERIABANK prior to $11.3 million in 2018, primarily drivenacquisition had been forgiven by two credits. The following table shows C&I asset quality trends by segment.the SBA.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 69
Table 15—C&I Asset Quality Trends by Segment
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | December 31 |
| (Dollars in thousands) | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Regional Bank | | | | | | | | | | |
| | Period-end loans | | $ | 19,721,457 |
| | $ | 16,148,242 |
| | $ | 15,639,060 |
| | $ | 11,728,160 |
| | $ | 10,014,752 |
|
| | Nonperforming loans | | 74,312 |
| | 36,888 |
| | 28,086 |
| | 28,619 |
| | 22,793 |
|
| | Allowance for loan losses as of January 1 | | $ | 97,617 |
| | $ | 96,850 |
| | $ | 88,010 |
| | $ | 72,213 |
| | $ | 61,998 |
|
| | Charge-offs | | (33,750 | ) | | (15,492 | ) | | (17,657 | ) | | (18,196 | ) | | (17,994 | ) |
| | Recoveries | | 6,706 |
| | 4,151 |
| | 4,516 |
| | 6,719 |
| | 11,969 |
|
| | Provision/(provision credit) for loan losses | | 51,853 |
| | 12,108 |
| | 21,981 |
| | 27,274 |
| | 16,240 |
|
| | Allowance for loan losses as of December 31 | | $ | 122,426 |
| | $ | 97,617 |
| | $ | 96,850 |
| | $ | 88,010 |
| | $ | 72,213 |
|
| | Accruing restructured loans | | $ | 9,949 |
| | $ | 13,001 |
| | $ | 14,186 |
| | $ | 20,151 |
| | $ | 4,358 |
|
| | Nonaccruing restructured loans | | 32,250 |
| | 23,738 |
| | 3,484 |
| | 14,183 |
| | 14,284 |
|
| | Total troubled debt restructurings | | $ | 42,199 |
| | $ | 36,739 |
| | $ | 17,670 |
| | $ | 34,334 |
| | $ | 18,642 |
|
| | 30+ Delinq. % (a) | | 0.05 | % | | 0.06 | % | | 0.19 | % | | 0.08 | % | | 0.08 | % |
| | NPL % | | 0.38 |
| | 0.23 |
| | 0.18 |
| | 0.24 |
| | 0.23 |
|
| | Net charge-offs % | | 0.15 |
| | 0.07 |
| | 0.11 |
| | 0.11 |
| | 0.07 |
|
| | Allowance / loans % | | 0.62 | % | | 0.60 | % | | 0.62 | % | | 0.75 | % | | 0.72 | % |
| | Allowance / net charge-offs | | 4.53 | x | | 8.61 | x | | 7.37 | x | | 7.67 | x | | 11.99 | x |
| Non-Strategic | | | | | | | | | | |
| | Period-end loans | | $ | 329,634 |
| | $ | 366,086 |
| | $ | 418,213 |
| | $ | 419,927 |
| | $ | 421,638 |
|
| | Nonperforming loans | | — |
| | 2,888 |
| | 3,067 |
| | 4,117 |
| | 3,520 |
|
| | Allowance for loan losses as of January 1 | | $ | 1,330 |
| | $ | 1,361 |
| | $ | 1,388 |
| | $ | 1,424 |
| | $ | 5,013 |
|
| | Charge-offs | | (28 | ) | | — |
| | — |
| | (264 | ) | | (4,412 | ) |
| | Recoveries | | 38 |
| | 50 |
| | 52 |
| | 76 |
| | 1,370 |
|
| | Provision/(provision credit) for loan losses | | (1,280 | ) | | (81 | ) | | (79 | ) | | 152 |
| | (547 | ) |
| | Allowance for loan losses as of December 31 | | $ | 60 |
| | $ | 1,330 |
| | $ | 1,361 |
| | $ | 1,388 |
| | $ | 1,424 |
|
| | 30+ Delinq. % (a) | | — | % | | 0.47 | % | | — | % | | — | % | | 0.02 | % |
| | NPL % | | — |
| | 0.79 |
| | 0.73 |
| | 0.98 |
| | 0.83 |
|
| | Net charge-offs % | | NM | | NM | | NM | | 0.04 |
| | 0.69 |
|
| | Allowance / loans % | | 0.02 | % | | 0.36 | % | | 0.33 | % | | 0.33 | % | | 0.34 | % |
| | Allowance / net charge-offs | | NM | | NM | | NM | | 7.39 | x | | 0.47 | x |
| Consolidated | | | | | | | | | | |
| | Period-end loans | | $ | 20,051,091 |
| | $ | 16,514,328 |
| | $ | 16,057,273 |
| | $ | 12,148,087 |
| | $ | 10,436,390 |
|
| | Nonperforming loans | | 74,312 |
| | 39,776 |
| | 31,153 |
| | 32,736 |
| | 26,313 |
|
| | Allowance for loan losses as of January 1 | | $ | 98,947 |
| | $ | 98,211 |
| | $ | 89,398 |
| | $ | 73,637 |
| | $ | 67,011 |
|
| | Charge-offs | | (33,778 | ) | | (15,492 | ) | | (17,657 | ) | | (18,460 | ) | | (22,406 | ) |
| | Recoveries | | 6,744 |
| | 4,201 |
| | 4,568 |
| | 6,795 |
| | 13,339 |
|
| | Provision/(provision credit) for loan losses | | 50,573 |
| | 12,027 |
| | 21,902 |
| | 27,426 |
| | 15,693 |
|
| | Allowance for loan losses as of December 31 | | $ | 122,486 |
| | $ | 98,947 |
| | $ | 98,211 |
| | $ | 89,398 |
| | $ | 73,637 |
|
| | Accruing restructured loans | | $ | 9,949 |
| | $ | 13,001 |
| | $ | 14,186 |
| | $ | 20,151 |
| | $ | 4,358 |
|
| | Nonaccruing restructured loans | | 32,250 |
| | 23,738 |
| | 3,484 |
| | 14,183 |
| | 14,284 |
|
| | Total troubled debt restructurings | | $ | 42,199 |
| | $ | 36,739 |
| | $ | 17,670 |
| | $ | 34,334 |
| | $ | 18,642 |
|
| | 30+ Delinq. % (a) | | 0.05 | % | | 0.06 | % | | 0.19 | % | | 0.08 | % | | 0.08 | % |
| | NPL % | | 0.37 |
| | 0.24 |
| | 0.19 |
| | 0.27 |
| | 0.25 |
|
| | Net charge-offs % | | 0.15 |
| | 0.07 |
| | 0.11 |
| | 0.11 |
| | 0.10 |
|
| | Allowance / loans % | | 0.61 | % | | 0.60 | % | | 0.61 | % | | 0.74 | % | | 0.71 | % |
| | Allowance / net charge-offs | | 4.53 | x | | 8.76 | x | | 7.50 | x | | 7.66 | x | | 8.12 | x |
Certain previously reported amounts have been reclassified to agree with current presentation.
NM—Not meaningful
Loans are expressed net of unearned income.
| |
(a) | 30+ Delinquency % includes all accounts delinquent more than one month and still accruing interest. |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 70
Commercial Real Estate
The CRE portfolio was $4.3totaled $12.1 billion onas of December 31, 2019. 2021, a $166 million, or 1%, decrease compared to December 31, 2020.
The CRE portfolio includes both financings for commercial construction and nonconstructionnon-construction loans. The largest geographical concentrations of balances as of December 31, 2019, are in North Carolina (29 percent), Tennessee (21 percent), Florida (12 percent), Texas (9 percent), South Carolina (8 percent), and Georgia (6 percent), with no other state representing more than 3 percent of the portfolio. This portfolio is segregated between the income-producing CRE and residential CRE classes. The income-producing CRE class contains loans and draws on lines and letters of credit to commercial real estate developers for the construction and mini-permanent financing of income-producing real estate. Subcategories of income
Residential CRE consist of office (28 percent), multi-family (20 percent), retail (19 percent), industrial (14 percent), hospitality (11 percent), land/land development (2 percent) and other (6 percent).
The residential CRE class includesloans 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. Subsequent toAfter the Capital Bank merger completed in 2017, activefulfillment of existing commitments over the near term, the residential CRE lending is now primarily focusedclass will be in certain core markets. Nearly all new originations are to “strategic” clients. FHN considers a “strategic” residential CRE borrower as a homebuilder who demonstrateswind-down state with the ability to withstand cyclical downturns, maintains active development and investment activities providing for regular financing opportunities, and is fundamentally sound as evidenced by a prudent loan structure, appropriate covenants and recourse, and capable and willing sponsorsexpectation of full runoff in markets with positive homebuilding and economic dynamics.the foreseeable future.
IncomeIncome-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, (“DSCRs”), and level of pre-leasing activity are established based on perceived risk in each subcategory. Loan-to-value (value is defined as the lower of cost or market) limits are set below regulatory prescribed ceilings and generally range between 5050% and 80 percent80% 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 percent15% of cost invested in a project before FHN will fundprovide loan dollars.funding. Income properties are required to achieve a DSCRdebt service coverage ratio greater than or equal to 125 percent125% 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 DSCRdebt service coverage ratio threshold. A proprietary minimum underwriting interest rate is used to calculate compliance with underwriting standards. Generally, specific levels of pre-leasing must be met for construction loans on income properties. A global cash flow analysis is performed at the sponsor level. The majority of the portfolio is on a floating rate basis tied to appropriate spreads over LIBOR. However, since January 1, 2022, no new loan contracts reference LIBOR, and the existing portfolio of loans tied to LIBOR is being repriced to alternative reference rates.
The credit administration and ongoing monitoring consists of multiple internal control processes. Construction loans are closed and administered by a centralized control unit.unit and construction loan management is administered centrally for loans $3 million and over. Underwriters and credit approval personnel stress the borrower’s/project’s financial capacity utilizing numerous attributes such as interest rates, vacancy, and discount rates. Key information is captured from the various portfolios and then stressed at the aggregate level. Results are utilized to assist with the assessment of the adequacy of the ALLL and to steer portfolio management strategies.
The largest geographical concentrations of CRE Asset Quality Trends
The CRE portfolio had continued stable performancebalances as of December 31, 2019. The allowance increased $4.8 million from December 31, 2018, to $36.1 million as2021 were in Florida (26%), Texas (12%), North Carolina (11%), Louisiana (10%), Tennessee (9%), and Georgia (8%) with no other state representing more than 5% of December 31, 2019, driven by organic loan growth. Allowance as a percentagethe portfolio. Subcategories of loans increased 5 basis points from December 31, 2018, to .83 percent as of December 31, 2019. Nonperforming loans decreased $1.2 million from December 31, 2018, to $1.8 million as of December 31, 2018. Nonperforming loans as a percentage of totalincome-producing CRE loans decreased 3 basis points from 2018 to .04 percent asconsist of December 31, 2019. Accruing delinquencies as a percentage of period-end loans decreased to .02 percent as of December 31, 2019, from .06 percent as of December 31, 2018. FHN recognized net charge-offs of $.7 million in 2019 compared $.4 million in 2018. The following table shows commercial real estate asset quality trends by segment.multi-family (25%), office (24%), retail (19%), industrial (12%), hospitality (11%), land/land development (2%), and other (7%).
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 71
Table 16—Commercial Real Estate Asset Quality Trends by Segment
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | December 31 |
| (Dollars in thousands) | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Regional Bank | | | | | | | | | | |
| | Period-end loans | | $ | 4,292,199 |
| | $ | 3,955,237 |
| | $ | 4,214,695 |
| | $ | 2,135,523 |
| | $ | 1,674,871 |
|
| | Nonperforming loans | | 1,825 |
| | 2,991 |
| | 1,393 |
| | 2,776 |
| | 8,684 |
|
| | Allowance for loan losses as of January 1 | | $ | 28,248 |
| | $ | 28,427 |
| | $ | 33,852 |
| | $ | 25,159 |
| | $ | 18,158 |
|
| | Charge-offs | | (1,181 | ) | | (783 | ) | | (195 | ) | | (1,371 | ) | | (3,441 | ) |
| | Recoveries | | 489 |
| | 312 |
| | 915 |
| | 1,816 |
| | 1,450 |
|
| | Provision/(provision credit) for loan losses | | 6,173 |
| | 292 |
| | (6,145 | ) | | 8,248 |
| | 8,992 |
|
| | Allowance for loan losses as of December 31 | | $ | 33,729 |
| | $ | 28,248 |
| | $ | 28,427 |
| | $ | 33,852 |
| | $ | 25,159 |
|
| | Accruing restructured loans | | $ | 608 |
| | $ | 1,076 |
| | $ | 1,125 |
| | $ | 1,736 |
| | $ | 5,039 |
|
| | Nonaccruing restructured loans | | 592 |
| | 429 |
| | 1,282 |
| | 1,388 |
| | 3,969 |
|
| | Total troubled debt restructurings | | $ | 1,200 |
| | $ | 1,505 |
| | $ | 2,407 |
| | $ | 3,124 |
| | $ | 9,008 |
|
| | 30+ Delinq. % (a) | | 0.02 | % | | 0.06 | % | | 0.15 | % | | 0.01 | % | | 0.27 | % |
| | NPL % | | 0.04 |
| | 0.08 |
| | 0.03 |
| | 0.13 |
| | 0.52 |
|
| | Net charge-offs % | | 0.02 |
| | 0.01 |
| | NM | | NM | | 0.14 |
|
| | Allowance / loans % | | 0.79 | % | | 0.71 | % | | 0.67 | % | | 1.59 | % | | 1.50 | % |
| | Allowance / net charge-offs | | 48.69 | x | | 60.00 | x | | NM | | NM | | 12.63 | x |
| Non-Strategic | | | | | | | | | | |
| | Period-end loans | | $ | 44,818 |
| | $ | 75,633 |
| | $ | — |
| | $ | — |
| | $ | 64 |
|
| | Nonperforming loans | | — |
| | — |
| | — |
| | — |
| | — |
|
| | Allowance for loan losses as of January 1 | | $ | 3,063 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 416 |
|
| | Charge-offs | | — |
| | — |
| | — |
| | — |
| | (109 | ) |
| | Recoveries | | — |
| | 27 |
| | 51 |
| | 111 |
| | 426 |
|
| | Provision/(provision credit) for loan losses | | (680 | ) | | 3,036 |
| | (51 | ) | | (111 | ) | | (733 | ) |
| | Allowance for loan losses as of December 31 | | $ | 2,383 |
| | $ | 3,063 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | Accruing restructured loans | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | Nonaccruing restructured loans | | — |
| | — |
| | — |
| | — |
| | — |
|
| | Total troubled debt restructurings | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | 30+ Delinq. % (a) |
| — | % | | — | % | | — | % | | — | % | | — | % |
| | NPL % | | — |
| | — |
| | — |
| | — |
| | — |
|
| | Net charge-offs % | | NM | | NM | | NM | | NM | | NM |
| | Allowance / loans % | | 5.32 | % | | 4.05 | % | | — | % | | — | % | | — | % |
| | Allowance / net charge-offs | | NM | | NM | | NM | | NM | | NM |
| Consolidated | | | | | | | | | |
|
|
| | Period-end loans | | $ | 4,337,017 |
| | $ | 4,030,870 |
| | $ | 4,214,695 |
| | $ | 2,135,523 |
| | $ | 1,674,935 |
|
| | Nonperforming loans | | 1,825 |
| | 2,991 |
| | 1,393 |
| | 2,776 |
| | 8,684 |
|
| | Allowance for loan losses as of January 1 | | $ | 31,311 |
| | $ | 28,427 |
| | $ | 33,852 |
| | $ | 25,159 |
| | $ | 18,574 |
|
| | Charge-offs | | (1,181 | ) | | (783 | ) | | (195 | ) | | (1,371 | ) | | (3,550 | ) |
| | Recoveries | | 489 |
| | 339 |
| | 966 |
| | 1,927 |
| | 1,876 |
|
| | Provision/(provision credit) for loan losses | | 5,493 |
| | 3,328 |
| | (6,196 | ) | | 8,137 |
| | 8,259 |
|
| | Allowance for loan losses as of December 31 | | $ | 36,112 |
| | $ | 31,311 |
| | $ | 28,427 |
| | $ | 33,852 |
| | $ | 25,159 |
|
| | Accruing restructured loans | | $ | 608 |
| | $ | 1,076 |
| | $ | 1,125 |
| | $ | 1,736 |
| | $ | 5,039 |
|
| | Nonaccruing restructured loans | | 592 |
| | 429 |
| | 1,282 |
| | 1,388 |
| | 3,969 |
|
| | Total troubled debt restructurings | | $ | 1,200 |
| | $ | 1,505 |
| | $ | 2,407 |
| | $ | 3,124 |
| | $ | 9,008 |
|
| | 30+ Delinq. % (a) | | 0.02 | % | | 0.06 | % | | 0.15 | % | | 0.01 | % | | 0.27 | % |
| | NPL % | | 0.04 |
| | 0.07 |
| | 0.03 |
| | 0.13 |
| | 0.52 |
|
| | Net charge-offs % | | 0.02 |
| | 0.01 |
| | NM | | NM | | 0.12 |
|
| | Allowance / loans % | | 0.83 | % | | 0.78 | % | | 0.67 | % | | 1.59 | % | | 1.50 | % |
| | Allowance / net charge-offs | | 52.13 | x | | 70.47 | x | | NM | | NM | | 15.03 | x |
Certain previously reported amounts have been reclassified to agree with current presentation.
NM—Not meaningful
Loans are expressed net of unearned income.
| |
(a) | 30+ Delinquency % includes all accounts delinquent more than one month and still accruing interest. |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 72
CONSUMER LOAN PORTFOLIOS
Consumer Real Estate
The consumer real estate portfolio was $6.0totaled $10.8 billion onas of December 31, 2019,2021 and is primarily composed of home equity lines and installment loans.
The largest geographical concentrations of balances in the consumer real estate portfolio as of December 31, 2019, are2021 were in Florida (32%), Tennessee (54 percent)(23%), Louisiana (10%), North Carolina (15 percent)(8%), Florida (13 percent)Texas (7%), and California (3 percent)New York (5%), with no other state representing more than 3 percent5% of the portfolio.
As of December 31, 2019,2021, approximately 83 percent87% of the consumer real estate portfolio was in a first lien position. As of December 31, 2019,2021, the weighted average FICO score at origination of this portfolio was 755 and the refreshed FICO scores averaged 753, compared to754, no significant change from FICO scores of 753 and 752,763, respectively, as of December 31, 2018. As of December 31, 2019, approximately $.9 billion, or 15 percent, of the consumer real estate portfolio consisted of stand-alone second liens while $.1 billion, or 2 percent, were second liens whose first liens are owned or serviced by FHN. FHN obtains first lien performance information from third parties and through loss mitigation activities, and places a stand-alone second lien loan on nonaccrual if we discover that there are performance issues with the first lien loan.2020. Generally, performance of this portfolio is affected by life events that affect borrowers’ finances, the level of unemployment, and home prices.
Home equity lines
| | | | | | | | |
| 76 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
As of credit (“HELOCs”) comprise $1.3December 31, 2021 and 2020, FHN had held-to-maturity consumer mortgage loans secured by real estate totaling $20 million and $36 million, respectively, that were in the process of foreclosure.
HELOCs comprised $2.0 billion and $2.4 billion of the consumer real estate portfolio as of December 31, 2019.2021 and December 31, 2020, respectively. FHN’s HELOCs typically have a 5 or 10 year draw period followed by a 10 or 20 year repayment period, respectively. During the draw period, a borrower is able to draw on the line and is only required to make interest payments. The line is automatically frozen if a borrower becomes 45 days or more 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, 2019,2021, approximately 76 percent88% of FHN's HELOCs were in the draw period compared to 72 percent as86% at the
end of December 31, 2018.the prior year. Based on when draw periods are scheduled to end per the line agreement, it is expected that $315.1$431 million, or 32 percent24%, of HELOCs currently in the draw period will enter the repayment period during the next 60 months. Generally, delinquencies for HELOCs that have entered the repayment period are initially higher than HELOCs still in the draw period because of the increased minimum payment requirement; however, after some seasoning, performance of these loans usually begins to stabilize. The home equity lines of the consumer real estate portfolio are monitored closely for those nearing the end of the draw period and borrowers are initially contacted at least 246 months before the repayment period begins to remind the customerclient of the terms of their agreement and to inform them of options.
The following table shows the HELOCs currently in the draw period and expected timing of conversion to the repayment period.
Table 17—7.11
HELOC Draw To Repayment ScheduleDRAW TO REPAYMENT SCHEDULE
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2021 | | December 31, 2020 |
| (Dollars in millions) | | Repayment
Amount | | Percent | | Repayment
Amount | | Percent |
| Months remaining in draw period: | | | | | | | | |
| 0-12 | | $ | 43 | | | 2 | % | | $ | 73 | | | 4 | % |
| 13-24 | | 42 | | | 2 | | | 66 | | | 3 | |
| 25-36 | | 50 | | | 3 | | | 62 | | | 3 | |
| 37-48 | | 136 | | | 8 | | | 67 | | | 3 | |
| 49-60 | | 160 | | | 9 | | | 187 | | | 8 | |
| >60 | | 1,324 | | | 76 | | | 1,662 | | | 79 | |
| Total | | $ | 1,755 | | | 100 | % | | $ | 2,117 | | | 100 | % |
| | | | | | | | |
|
| | | | | | | | | | | | | | |
| | | December 31, 2019 | | December 31, 2018 |
| (Dollars in thousands) | | Repayment Amount | | Percent | | Repayment Amount | | Percent |
| Months remaining in draw period: | | | | | | | | |
| 0-12 | | $ | 47,455 |
| | 5 | % | | $ | 67,523 |
| | 6 | % |
| 13-24 | | 58,843 |
| | 6 |
| | 69,154 |
| | 6 |
|
| 25-36 | | 65,833 |
| | 7 |
| | 75,074 |
| | 7 |
|
| 37-48 | | 67,692 |
| | 7 |
| | 86,308 |
| | 8 |
|
| 49-60 | | 75,246 |
| | 7 |
| | 90,018 |
| | 8 |
|
| >60 | | 666,001 |
| | 68 |
| | 715,390 |
| | 65 |
|
| Total | | $ | 981,070 |
| | 100 | % | | $ | 1,103,467 |
| | 100 | % |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 73
Underwriting
For the majority of loans in this portfolio, underwriting decisions are made through a centralized loan underwriting center. To obtain a consumer real estate loan, the loan applicant(s) in most cases must first meet a minimum qualifying FICO score. Minimum FICO score requirements are established by management for both loans secured by real estate as well as non-real estate loans. Management also establishes maximum loan amounts, loan-to-value ratios, and Debt-to-Income (“DTI”)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 DTIdebt-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 fully indexed,sensitized interest rate (above the current note rate), fully amortized payment methodology. FHN’s underwriting guidelines require borrowers to qualify at an interest rate that is 200 basis points above the note rate. This mitigates risk to FHN in the event of a sharp rise in interest rates over a relatively short time horizon.
| | | | | | | | |
| 77 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
HELOC Portfolio Risk Management
FHN performs continuous HELOC account review processesreviews in order to identify higher-risk home equity lines and initiate preventative and corrective actions. The reviews consider a number of account activity patterns and characteristics such as the number of times delinquent within recent periods, changes in credit bureau score since origination, score degradation, performance of the first lien, and account utilization. In accordance with FHN’s interpretation of regulatory guidance, FHN may block
future draws on accounts in order to mitigate risk of loss to FHN.
Consumer Real Estate Asset Quality Trends
Overall, performance of the consumer real estate portfolio remained strong in 2019 despite deterioration in the non-strategic segment of some metrics compared to prior year. The non-strategic segment is a run-off portfolio and while the absolute dollars of nonaccruals declined compared to December 31, 2018, nonperforming loans ratios deteriorated. That trend of increasing deterioration of ratios in the non-strategic segment is likely to continue and may become more skewed as the portfolio shrinks unevenly, with stronger borrowers exiting the portfolio more rapidly than others. The ALLL decreased $6.8 million from December 31, 2018, to $19.6 million as of December 31, 2019, with the majority of the decline attributable to the non-strategic segment. The balance of nonperforming loans decreased $11.3 million to $71.3 million on December 31, 2019. Loans delinquent 30 or more days and still accruing decreased from $46.5 million as of December 31, 2018, to $36.6 million as of December 31, 2019. The portfolio realized net recoveries of $9.2 million in 2019 compared to net recoveries of $10.3 million in 2018. The following table shows consumer real estate asset quality trends by segment.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 74
Table 18—Consumer Real Estate Asset Quality Trends by Segment
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | December 31 |
| (Dollars in thousands) | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Regional Bank | | | | | | | | | | |
| | Period-end loans | | $ | 5,734,800 |
| | $ | 5,844,778 |
| | $ | 5,885,953 |
| | $ | 3,713,321 |
| | $ | 3,528,126 |
|
| | Nonperforming loans | | 36,806 |
| | 39,080 |
| | 22,678 |
| | 18,865 |
| | 23,935 |
|
| | Allowance for loan losses as of January 1 | | $ | 14,479 |
| | $ | 18,859 |
| | $ | 20,077 |
| | $ | 29,156 |
| | $ | 32,180 |
|
| | Charge-offs | | (4,189 | ) | | (4,609 | ) | | (3,491 | ) | | (5,346 | ) | | (8,414 | ) |
| | Recoveries | | 4,864 |
| | 4,026 |
| | 4,342 |
| | 4,863 |
| | 4,660 |
|
| | Provision/(provision credit) for loan losses | | (1,925 | ) | | (3,797 | ) | | (2,069 | ) | | (8,596 | ) | | 730 |
|
| | Allowance for loan losses as of December 31 | | $ | 13,229 |
| | $ | 14,479 |
| | $ | 18,859 |
| | $ | 20,077 |
| | $ | 29,156 |
|
| | Accruing restructured loans | | $ | 29,277 |
| | $ | 30,146 |
| | $ | 31,970 |
| | $ | 36,784 |
| | $ | 36,912 |
|
| | Nonaccruing restructured loans | | 16,079 |
| | 17,334 |
| | 12,405 |
| | 10,694 |
| | 13,723 |
|
| | Total troubled debt restructurings | | $ | 45,356 |
| | $ | 47,480 |
| | $ | 44,375 |
| | $ | 47,478 |
| | $ | 50,635 |
|
| | 30+ Delinq. % (a) | | 0.50 | % | | 0.58 | % | | 0.40 | % | | 0.48 | % | | 0.52 | % |
| | NPL % | | 0.64 |
| | 0.67 |
| | 0.39 |
| | 0.51 |
| | 0.68 |
|
| | Net charge-offs % | | NM |
| | 0.01 |
| | NM | | 0.01 |
| | 0.11 |
|
| | Allowance / loans % | | 0.23 | % | | 0.25 | % | | 0.32 | % | | 0.54 | % | | 0.83 | % |
| | Allowance / net charge-offs | | NM |
| | 24.77 | x | | NM | | 41.63 | x | | 7.77 | x |
| Non-Strategic | | | | | | | | | | |
| | Period-end loans | | $ | 271,949 |
| | $ | 404,738 |
| | $ | 593,289 |
| | $ | 880,858 |
| | $ | 1,251,059 |
|
| | Nonperforming loans | | 34,507 |
| | 43,568 |
| | 48,809 |
| | 63,947 |
| | 87,157 |
|
| | Allowance for loan losses as of January 1 | | $ | 11,960 |
| | $ | 20,964 |
| | $ | 31,347 |
| | $ | 51,506 |
| | $ | 80,831 |
|
| | Charge-offs | | (3,592 | ) | | (4,748 | ) | | (9,665 | ) | | (16,647 | ) | | (21,654 | ) |
| | Recoveries | | 12,136 |
| | 15,640 |
| | 18,381 |
| | 18,856 |
| | 19,235 |
|
| | Provision/(provision credit) for loan losses | | (14,109 | ) | | (19,896 | ) | | (19,099 | ) | | (22,368 | ) | | (26,906 | ) |
| | Allowance for loan losses as of December 31 | | $ | 6,395 |
| | $ | 11,960 |
| | $ | 20,964 |
| | $ | 31,347 |
| | $ | 51,506 |
|
| | Accruing restructured loans | | $ | 29,798 |
| | $ | 41,125 |
| | $ | 54,702 |
| | $ | 68,217 |
| | $ | 67,942 |
|
| | Nonaccruing restructured loans | | 25,499 |
| | 29,829 |
| | 29,818 |
| | 37,765 |
| | 47,107 |
|
| | Total troubled debt restructurings | | $ | 55,297 |
| | $ | 70,954 |
| | $ | 84,520 |
| | $ | 105,982 |
| | $ | 115,049 |
|
| | 30+ Delinq. % (a) | | 3.01 | % | | 3.07 | % | | 3.06 | % | | 2.76 | % | | 2.34 | % |
| | NPL % | | 12.69 |
| | 10.76 |
| | 8.23 |
| | 7.26 |
| | 6.97 |
|
| | Net charge-offs % | | NM | | NM | | NM | | NM | | 0.17 |
|
| | Allowance / loans % | | 2.35 | % | | 2.95 | % | | 3.53 | % | | 3.56 | % | | 4.12 | % |
| | Allowance / net charge-offs | | NM | | NM | | NM | | NM | | 21.29 | x |
| Consolidated | | | | | | | | | | |
| | Period-end loans | | $ | 6,006,749 |
| | $ | 6,249,516 |
| | $ | 6,479,242 |
| | $ | 4,594,179 |
| | $ | 4,779,185 |
|
| | Nonperforming loans | | 71,313 |
| | 82,648 |
| | 71,487 |
| | 82,812 |
| | 111,092 |
|
| | Allowance for loan losses as of January 1 | | $ | 26,439 |
| | $ | 39,823 |
| | $ | 51,424 |
| | $ | 80,662 |
| | $ | 113,011 |
|
| | Charge-offs | | (7,781 | ) | | (9,357 | ) | | (13,156 | ) | | (21,993 | ) | | (30,068 | ) |
| | Recoveries | | 17,000 |
| | 19,666 |
| | 22,723 |
| | 23,719 |
| | 23,895 |
|
| | Provision/(provision credit) for loan losses | | (16,034 | ) | | (23,693 | ) | | (21,168 | ) | | (30,964 | ) | | (26,176 | ) |
| | Allowance for loan losses as of December 31 | | $ | 19,624 |
| | $ | 26,439 |
| | $ | 39,823 |
| | $ | 51,424 |
| | $ | 80,662 |
|
| | Accruing restructured loans | | $ | 59,075 |
| | $ | 71,271 |
| | $ | 86,672 |
| | $ | 105,001 |
| | $ | 104,854 |
|
| | Nonaccruing restructured loans | | 41,578 |
| | 47,163 |
| | 42,223 |
| | 48,459 |
| | 60,830 |
|
| | Total troubled debt restructurings | | $ | 100,653 |
| | $ | 118,434 |
| | $ | 128,895 |
| | $ | 153,460 |
| | $ | 165,684 |
|
| | 30+ Delinq. % (a) | | 0.61 | % | | 0.74 | % | | 0.64 | % | | 0.92 | % | | 1.00 | % |
| | NPL % | | 1.19 |
| | 1.32 |
| | 1.10 |
| | 1.80 |
| | 2.32 |
|
| | Net charge-offs % | | NM | | NM | | NM | | NM | | 0.13 |
|
| | Allowance / loans % | | 0.33 | % | | 0.42 | % | | 0.61 | % | | 1.12 | % | | 1.69 | % |
| | Allowance / net charge-offs | | NM | | NM | | NM | | NM | | 13.07 | x |
NM—Not meaningful
Loans are expressed net of unearned income.
| |
(a) | 30+ Delinquency % includes all accounts delinquent more than one month and still accruing interest. |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 75
Permanent Mortgage
The permanent mortgage portfolio was $.2 billion on December 31, 2019. This portfolio is primarily composed of jumbo mortgages and one-time-close (“OTC”) completed construction loans in the non-strategic segment that were originated through pre-2009 mortgage businesses. The corporate segment includes loans that were previously included in off-balance sheet proprietary securitization trusts. These loans were brought back into the loan portfolios at fair value through the execution of cleanup calls due to the relatively small balances left in the securitization and should continue to run-off. Approximately 27 percent of loan balances as of December 31, 2019, are in California, but the remainder of the portfolio is somewhat geographically diverse. Non-strategic and corporate segment run-off primarily contributed to the $52.1 million decrease in permanent mortgage period-end balances from December 31, 2018, to December 31, 2019.
Permanent Mortgage Asset Quality Trends
The permanent mortgage portfolios within the non-strategic and corporate segments are run-off portfolios. As a result, asset quality metrics are becoming skewed as the portfolios shrink and some of the stronger borrowers payoff or refinance elsewhere. The ALLL decreased $2.2 million as of December 31, 2019, from $11 million as of December 31, 2018. TDR reserves (which are estimates of losses for the expected life of the loan) comprise 88 percent of the ALLL for the permanent mortgage portfolio as of December 31, 2019. Consolidated accruing delinquencies decreased $.8 million from December 31, 2018 to $6.3 million as of December 31, 2019. Nonperforming loans decreased $7.4 million from December 31, 2018, to $14.3 million as of December 31, 2019. The portfolio experienced net recoveries of $2.8 million in 2019 compared to net recoveries of $.9 million in 2018. The following table shows permanent mortgage asset quality trends by segment.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 76
Table 19—Permanent Mortgage Asset Quality Trends by Segment
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | December 31 |
| (Dollars in thousands) | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Regional Bank | | | | | | | | | | |
| | Period-end loans | | $ | 3,655 |
| | $ | 3,988 |
| | $ | 5,427 |
| | $ | 6,546 |
| | $ | 8,495 |
|
| | Nonperforming loans | | 208 |
| | 346 |
| | 427 |
| | 393 |
| | 443 |
|
| | Allowance for loan losses as of January 1 | | $ | 76 |
| | $ | 80 |
| | $ | 148 |
| | $ | 92 |
| | $ | 167 |
|
| | Charge-offs | | — |
| | — |
| | — |
| | — |
| | (14 | ) |
| | Recoveries | | — |
| | — |
| | — |
| | — |
| | — |
|
| | Provision/(provision credit) for loan losses | | 35 |
| | (4 | ) | | (68 | ) | | 56 |
| | (61 | ) |
| | Allowance for loan losses as of December 31 | | $ | 111 |
| | $ | 76 |
| | $ | 80 |
| | $ | 148 |
| | $ | 92 |
|
| | Accruing restructured loans | | $ | 496 |
| | $ | 684 |
| | $ | 615 |
| | $ | 563 |
| | $ | 720 |
|
| | Nonaccruing restructured loans | | 179 |
| | 249 |
| | 326 |
| | 315 |
| | 364 |
|
| | Total troubled debt restructurings | | $ | 675 |
| | $ | 933 |
| | $ | 941 |
| | $ | 878 |
| | $ | 1,084 |
|
| | 30+ Delinq. % (a) | | 6.79 | % | | 7.32 | % | | 7.62 | % | | 8.43 | % | | 5.17 | % |
| | NPL % | | 5.71 |
| | 8.69 |
| | 7.86 |
| | 6.00 |
| | 5.21 |
|
| | Net charge-offs % | | NM |
| | — |
| | — |
| | — |
| | 0.15 |
|
| | Allowance / loans % | | 3.02 | % | | 1.90 | % | | 1.48 | % | | 2.25 | % | | 1.08 | % |
| | Allowance / net charge-offs | | NM | | NM | | NM | | NM | | 6.54 | x |
| Corporate | | | | | | | | | | |
| | Period-end loans | | $ | 31,473 |
| | $ | 39,221 |
| | $ | 53,556 |
| | $ | 71,380 |
| | $ | 97,450 |
|
| | Nonperforming loans | | 1,327 |
| | 1,707 |
| | 2,157 |
| | 1,186 |
| | 1,677 |
|
| | Allowance for loan losses as of December 31 (b) | | N/A | | N/A | | N/A | | N/A | | N/A |
| | Accruing restructured loans | | $ | 2,457 |
| | $ | 2,557 |
| | $ | 3,637 |
| | $ | 3,792 |
| | $ | 3,992 |
|
| | Nonaccruing restructured loans | | — |
| | — |
| | — |
| | — |
| | — |
|
| | Total troubled debt restructurings | | $ | 2,457 |
| | $ | 2,557 |
| | $ | 3,637 |
| | $ | 3,792 |
| | $ | 3,992 |
|
| | 30+ Delinq. % (a) | | 5.29 | % | | 4.37 | % | | 3.98 | % | | 4.37 | % | | 2.92 | % |
| | NPL % | | 4.22 |
| | 4.35 |
| | 4.03 |
| | 1.66 |
| | 1.72 |
|
| | Allowance / loans % (b) | | N/A | | N/A | | N/A | | N/A | | N/A |
| Non-Strategic | | | | | | | | | | |
| | Period-end loans | | $ | 135,262 |
| | $ | 179,239 |
| | $ | 228,837 |
| | $ | 274,772 |
| | $ | 335,511 |
|
| | Nonperforming loans | | 12,846 |
| | 19,657 |
| | 23,806 |
| | 25,602 |
| | 29,532 |
|
| | Allowance for loan losses as of January 1 | | $ | 10,924 |
| | $ | 13,033 |
| | $ | 15,074 |
| | $ | 18,807 |
| | $ | 18,955 |
|
| | Charge-offs | | (393 | ) | | (477 | ) | | (2,179 | ) | | (1,591 | ) | | (3,127 | ) |
| | Recoveries | | 3,148 |
| | 1,421 |
| | 2,509 |
| | 2,403 |
| | 1,687 |
|
| | Provision/(provision credit) for loan losses | | (4,971 | ) | | (3,053 | ) | | (2,371 | ) | | (4,545 | ) | | 1,292 |
|
| | Allowance for loan losses as of December 31 | | $ | 8,708 |
| | $ | 10,924 |
| | $ | 13,033 |
| | $ | 15,074 |
| | $ | 18,807 |
|
| | Accruing restructured loans | | $ | 48,132 |
| | $ | 53,240 |
| | $ | 64,102 |
| | $ | 71,896 |
| | $ | 78,719 |
|
| | Nonaccruing restructured loans | | 10,329 |
| | 14,116 |
| | 16,114 |
| | 17,360 |
| | 18,666 |
|
| | Total troubled debt restructurings | | $ | 58,461 |
| | $ | 67,356 |
| | $ | 80,216 |
| | $ | 89,256 |
| | $ | 97,385 |
|
| | 30+ Delinq. % (a) | | 3.28 | % | | 2.87 | % | | 2.12 | % | | 2.29 | % | | 1.88 | % |
| | NPL % | | 9.50 |
| | 10.97 |
| | 10.40 |
| | 9.32 |
| | 8.80 |
|
| | Net charge-offs % | | NM | | NM | | NM | | NM | | 0.40 |
|
| | Allowance / loans % | | 6.44 | % | | 6.10 | % | | 5.70 | % | | 5.49 | % | | 5.61 | % |
| | Allowance / net charge-offs | | NM | | NM | | NM | | NM |
| | 13.07 | x |
| Consolidated | | | | | | | | | | |
| | Period-end loans | | $ | 170,390 |
| | $ | 222,448 |
| | $ | 287,820 |
| | $ | 352,698 |
| | $ | 441,456 |
|
| | Nonperforming loans | | 14,381 |
| | 21,710 |
| | 26,390 |
| | 27,181 |
| | 31,652 |
|
| | Allowance for loan losses as of January 1 | | $ | 11,000 |
| | $ | 13,113 |
| | $ | 15,222 |
| | $ | 18,899 |
| | $ | 19,122 |
|
| | Charge-offs | | (393 | ) | | (477 | ) | | (2,179 | ) | | (1,591 | ) | | (3,141 | ) |
| | Recoveries | | 3,148 |
| | 1,421 |
| | 2,509 |
| | 2,403 |
| | 1,687 |
|
| | Provision/(provision credit) for loan losses | | (4,936 | ) | | (3,057 | ) | | (2,439 | ) | | (4,489 | ) | | 1,231 |
|
| | Allowance for loan losses as of December 31 | | $ | 8,819 |
| | $ | 11,000 |
| | $ | 13,113 |
| | $ | 15,222 |
| | $ | 18,899 |
|
| | Accruing restructured loans | | $ | 51,085 |
| | $ | 56,481 |
| | $ | 68,354 |
| | $ | 76,251 |
| | $ | 83,431 |
|
| | Nonaccruing restructured loans | | 10,508 |
| | 14,365 |
| | 16,440 |
| | 17,675 |
| | 19,030 |
|
| | Total troubled debt restructurings | | $ | 61,593 |
| | $ | 70,846 |
| | $ | 84,794 |
| | $ | 93,926 |
| | $ | 102,461 |
|
| | 30+ Delinq. % (a) | | 3.72 | % | | 3.21 | % | | 2.57 | % | | 2.83 | % | | 2.17 | % |
| | NPL % | | 8.44 |
| | 9.76 |
| | 9.17 |
| | 7.71 |
| | 7.17 |
|
| | Net charge-offs % | | NM | | NM | | NM | | NM | | 0.30 |
|
| | Allowance / loans % | | 5.18 | % | | 4.95 | % | | 4.56 | % | | 4.32 | % | | 4.28 | % |
| | Allowance / net charge-offs | | NM | | NM | | NM | | NM |
| | 13.00 | x |
NM—Not meaningful
Loans are expressed net of unearned income.
| |
(a) | 30+ Delinquency % includes all accounts delinquent more than one month and still accruing interest. |
| |
(b) | An allowance has not been established for these loans as the valuation adjustment taken upon exercise of clean-up calls included expected losses. |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 77
Credit Card and Other
The credit card and other consumer loan portfolio, which is primarily within the regional bankingRegional Banking segment, was $.5 billion as of December 31, 2019, and primarily includes automobile loans, credit card receivables, and other consumer-related credits. The allowance increaseddecreased $218 million from the prior year-end to $13.3$910 million as of December 31, 2019, from $12.72021, driven by net repayments of consumer construction loans.
Allowance for Credit Losses
The ACL is maintained at a level sufficient to provide appropriate reserves to absorb estimated future credit losses in accordance with GAAP. For additional information regarding the ACL, see Notes 1 and 5 of this Report.
The ALLL was $670 million as of December 31, 2018. Loans 30 days2021, or more delinquent1.22% of total loans and accruingleases, a decrease of $293 million
or 43 basis points from the end of 2020, reflecting improvement in the macroeconomic forecast, positive credit grade migration, and lower loan balances. The ACL to total loans and leases ratio decreased $3.9 million from December 31, 2018, to $4.6 million1.34% as of December 31, 2019. In 2019, FHN recognized $11.42021 from 1.80% as of December 31, 2020.
Consolidated Net Charge-offs
Net charge-offs were $2 million in 2021 compared to $120 million in 2020. As a percentage of average total loans and leases, net charge-offs improved 26 basis points from 2020.
Net charge-offs in the C&I portfolio were $13 million, a decrease of $107 million from 2020, driven by lower energy-related charge-offs as well as continued improvement in overall asset quality. Net charge-offs in
the commercial real estate portfolio were minimal in both 2021 and 2020.
In the consumer portfolio, net recoveries of $22 million in consumer real estate loans were offset by net charge-offs of $11 million in credit card and other loans. Net recoveries in the consumer loan portfolio compared to net charge-offs of $15.6 million in 2018. The following table shows credit card and other asset quality trends by segment.2020 were $1 million.
Table 7.12
ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES AND CHARGE-OFFS
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31 | | | | |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | | | |
| Allowance for loan and lease losses | | | | | | | | | | |
| C&I | | $ | 334 | | | $ | 453 | | | $ | 123 | | | | | |
| CRE | | 154 | | | 242 | | | 36 | | | | | |
| Consumer real estate | | 163 | | | 242 | | | 28 | | | | | |
| Credit card and other | | 19 | | | 26 | | | 13 | | | | | |
| Total allowance for loan and lease losses | | $ | 670 | | | $ | 963 | | | $ | 200 | | | | | |
| | | | | | | | | | | |
| Reserve for remaining unfunded commitments | | | | | | | | | | |
| C&I | | $ | 46 | | | $ | 65 | | | $ | 4 | | | | | |
| CRE | | 12 | | | 10 | | | 2 | | | | | |
| Consumer real estate | | 8 | | | 10 | | | — | | | | | |
| Credit card and other | | — | | | — | | | — | | | | | |
| Total reserve for remaining unfunded commitments | | $ | 66 | | | $ | 85 | | | $ | 6 | | | | | |
| | | | | | | | | | | |
| Allowance for credit losses | | | | | | | | | | |
| C&I | | $ | 380 | | | $ | 518 | | | $ | 127 | | | | | |
| CRE | | 166 | | | 252 | | | 38 | | | | | |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 78
Table 20—Credit Card and Other Asset Quality Trends by Segment
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | December 31 |
| (Dollars in thousands) | | 2019 | | 2018 | | 2017 (b) | | 2016 | | 2015 |
| Regional Bank | | | | | | | | | | |
| | Period-end loans | | $ | 460,742 |
| | $ | 432,529 |
| | $ | 439,745 |
| | $ | 351,198 |
| | $ | 344,405 |
|
| | Nonperforming loans | | 36 |
| | 34 |
| | 75 |
| | — |
| | 620 |
|
| | Allowance for loan losses as of January 1 | | $ | 12,595 |
| | $ | 9,894 |
| | $ | 11,995 |
| | $ | 10,966 |
| | $ | 14,310 |
|
| | Charge-offs | | (12,502 | ) | | (14,143 | ) | | (12,736 | ) | | (13,983 | ) | | (15,542 | ) |
| | Recoveries | | 3,224 |
| | 3,227 |
| | 2,905 |
| | 3,297 |
| | 3,555 |
|
| | Provision/(provision credit) for loan losses | | 9,918 |
| | 13,617 |
| | 7,730 |
| | 11,715 |
| | 8,643 |
|
| | Allowance for loan losses as of December 31 | | $ | 13,235 |
| | $ | 12,595 |
| | $ | 9,894 |
| | $ | 11,995 |
| | $ | 10,966 |
|
| | Accruing restructured loans | | $ | 615 |
| | $ | 658 |
| | $ | 564 |
| | $ | 274 |
| | $ | 314 |
|
| | Nonaccruing restructured loans | | — |
| | — |
| | — |
| | — |
| | — |
|
| | Total troubled debt restructurings | | $ | 615 |
| | $ | 658 |
| | $ | 564 |
| | $ | 274 |
| | $ | 314 |
|
| | 30+ Delinq. % (a) | | 0.69 | % | | 0.89 | % | | 0.76 | % | | 1.16 | % | | 1.07 | % |
| | NPL % | | 0.01 |
| | 0.01 |
| | 0.02 |
| | — |
| | 0.18 |
|
| | Net charge-offs % | | 2.08 |
| | 2.55 |
| | 2.67 |
| | 3.05 |
| | 3.51 |
|
| | Allowance / loans % | | 2.87 | % | | 2.91 | % | | 2.25 | % | | 3.42 | % | | 3.18 | % |
| | Allowance / net charge-offs | | 1.43 | x | | 1.15 | x | | 1.01 | x | | 1.12 | x | | 0.91 | x |
| Non-Strategic | | | | | | | | | | |
| | Period-end loans | | $ | 35,122 |
| | $ | 85,841 |
| | $ | 180,154 |
| | $ | 7,835 |
| | $ | 10,131 |
|
| | Nonperforming loans | | 298 |
| | 590 |
| | 121 |
| | 142 |
| | 737 |
|
| | Allowance for loan losses as of January 1 | | $ | 132 |
| | $ | 87 |
| | $ | 177 |
| | $ | 919 |
| | $ | 420 |
|
| | Charge-offs | | (3,098 | ) | | (5,545 | ) | | (471 | ) | | (241 | ) | | (1,149 | ) |
| | Recoveries | | 1,011 |
| | 812 |
| | 210 |
| | 324 |
| | 298 |
|
| | Provision/(provision credit) for loan losses | | 1,986 |
| | 4,778 |
| | 171 |
| | (825 | ) | | 1,350 |
|
| | Allowance for loan losses as of December 31 | | $ | 31 |
| | $ | 132 |
| | $ | 87 |
| | $ | 177 |
| | $ | 919 |
|
| | Accruing restructured loans | | $ | 38 |
| | $ | 37 |
| | $ | 29 |
| | $ | 32 |
| | $ | 63 |
|
| | Nonaccruing restructured loans | | — |
| | — |
| | — |
| | — |
| | — |
|
| | Total troubled debt restructurings | | $ | 38 |
| | $ | 37 |
| | $ | 29 |
| | $ | 32 |
| | $ | 63 |
|
| | 30+ Delinq. % (a) | | 4.05 | % | | 5.35 | % | | 2.41 | % | | 1.73 | % | | 1.47 | % |
| | NPL % | | 0.85 |
| | 0.69 |
| | 0.07 |
| | 1.82 |
| | 7.28 |
|
| | Net charge-offs % | | 3.60 |
| | 3.78 |
| | 3.82 |
| | NM | | 7.75 |
|
| | Allowance / loans % | | 0.09 | % | | 0.15 | % | | 0.05 | % | | 2.26 | % | | 9.07 | % |
| | Allowance / net charge-offs | | 0.01 | x | | 0.03 | x | | 0.33 | x | | NM | | 1.08 | x |
| Consolidated | | | | | | | | | | |
| | Period-end loans | | $ | 495,864 |
| | $ | 518,370 |
| | $ | 619,899 |
| | $ | 359,033 |
| | $ | 354,536 |
|
| | Nonperforming loans | | 334 |
| | 624 |
| | 196 |
| | 142 |
| | 1,357 |
|
| | Allowance for loan losses as of January 1 | | $ | 12,727 |
| | $ | 9,981 |
| | $ | 12,172 |
| | $ | 11,885 |
| | $ | 14,730 |
|
| | Charge-offs | | (15,600 | ) | | (19,688 | ) | | (13,207 | ) | | (14,224 | ) | | (16,691 | ) |
| | Recoveries | | 4,235 |
| | 4,039 |
| | 3,115 |
| | 3,621 |
| | 3,853 |
|
| | Provision/(provision credit) for loan losses | | 11,904 |
| | 18,395 |
| | 7,901 |
| | 10,890 |
| | 9,993 |
|
| | Allowance for loan losses as of December 31 | | $ | 13,266 |
| | $ | 12,727 |
| | $ | 9,981 |
| | $ | 12,172 |
| | $ | 11,885 |
|
| | Accruing restructured loans | | $ | 653 |
| | $ | 695 |
| | $ | 593 |
| | $ | 306 |
| | $ | 377 |
|
| | Nonaccruing restructured loans | | — |
| | — |
| | — |
| | — |
| | — |
|
| | Total troubled debt restructurings | | $ | 653 |
| | $ | 695 |
| | $ | 593 |
| | $ | 306 |
| | $ | 377 |
|
| | 30+ Delinq. % (a) | | 0.93 | % | | 1.63 | % | | 1.24 | % | | 1.17 | % | | 1.08 | % |
| | NPL % | | 0.07 |
| | 0.12 |
| | 0.03 |
| | 0.04 |
| | 0.38 |
|
| | Net charge-offs % | | 2.25 |
| | 2.83 |
| | 2.69 |
| | 2.95 |
| | 3.64 |
|
| | Allowance / loans % | | 2.68 | % | | 2.46 | % | | 1.61 | % | | 3.39 | % | | 3.35 | % |
| | Allowance / net charge-offs | | 1.17 | x | | 0.81 | x | | 0.99 | x | | 1.15 | x | | 0.93 | x |
NM—Not meaningful
Loans are expressed net of unearned income.
| | | | | | | | |
(a) | 30+ Delinquency % includes all accounts delinquent more than one month and still accruing interest. 78 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
(b)ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| In 3Q18, the acquired CBF indirect auto portfolio was retrospectively re-classed through 4Q17 from the Regional Banking segment to the Non-Strategic segment. | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consumer real estate | | 171 | | | 252 | | | 28 | | | | | |
| Credit card and other | | 19 | | | 26 | | | 13 | | | | | |
| Total allowance for credit losses | | $ | 736 | | | $ | 1,048 | | | $ | 206 | | | | | |
| | | | | | | | | | | |
| Period-end loans and leases | | | | | | | | | | |
| C&I | | $ | 31,068 | | | $ | 33,104 | | | $ | 20,051 | | | | | |
| CRE | | 12,109 | | | 12,275 | | | 4,337 | | | | | |
| Consumer real estate | | 10,772 | | | 11,725 | | | 6,177 | | | | | |
| Credit card and other | | 910 | | | 1,128 | | | 496 | | | | | |
| Total period-end loans and leases | | $ | 54,859 | | | $ | 58,232 | | | $ | 31,061 | | | | | |
| | | | | | | | | | | |
| ALLL / loans and leases % | | | | | | | | | | |
| C&I | | 1.07 | % | | 1.37 | % | | 0.62 | % | | | | |
| CRE | | 1.27 | % | | 1.97 | % | | 0.83 | % | | | | |
| Consumer real estate | | 1.51 | % | | 2.07 | % | | 0.45 | % | | | | |
| Credit card and other | | 2.14 | % | | 2.34 | % | | 2.68 | % | | | | |
| Total ALLL / loans and leases % | | 1.22 | % | | 1.65 | % | | 0.64 | % | | | | |
| | | | | | | | | | | |
| ACL / loans and leases % | | | | | | | | | | |
| C&I | | 1.22 | % | | 1.56 | % | | 0.63 | % | | | | |
| CRE | | 1.37 | % | | 2.05 | % | | 0.88 | % | | | | |
| Consumer real estate | | 1.59 | % | | 2.15 | % | | 0.45 | % | | | | |
| Credit card and other | | 2.09 | % | | 2.30 | % | | 2.62 | % | | | | |
| Total ACL / loans and leases % | | 1.34 | % | | 1.80 | % | | 0.66 | % | | | | |
| | | | | | | | | | | |
| Net charge-offs (recoveries) | | | | | | | | | | |
| C&I | | $ | 13 | | | $ | 120 | | | $ | 27 | | | | | |
| CRE | | — | | | 1 | | | 1 | | | | | |
| Consumer real estate | | (22) | | | (10) | | | (12) | | | | | |
| Credit card and other | | 11 | | | 9 | | | 11 | | | | | |
| Total net charge-offs | | $ | 2 | | | $ | 120 | | | $ | 27 | | | | | |
| | | | | | | | | | | |
| Average loans and leases | | | | | | | | | | |
| C&I | | $ | 32,010 | | | $ | 27,638 | | | $ | 18,283 | | | | | |
| CRE | | 12,314 | | | 8,508 | | | 4,102 | | | | | |
| Consumer real estate | | 10,969 | | | 9,191 | | | 6,299 | | | | | |
| Credit card and other | | 1,005 | | | 846 | | | 505 | | | | | |
| Total average loans and leases | | $ | 56,298 | | | $ | 46,183 | | | $ | 29,189 | | | | | |
| | | | | | | | | | | |
| Charge-off % | | | | | | | | | | |
| C&I | | 0.04 | % | | 0.43 | % | | 0.15 | % | | | | |
| CRE | | 0.01 | % | | 0.01 | % | | 0.02 | % | | | | |
| Consumer real estate | | NM | | NM | | NM | | | | |
| Credit card and other | | 1.05 | % | | 1.04 | % | | 2.25 | % | | | | |
| Total charge-off % | | — | % | | 0.26 | % | | 0.09 | % | | | | |
| | | | | | | | | | | |
| ALLL / net charge-offs | | | | | | | | | | |
| C&I | | 2,645 | % | | 376 | % | | 453 | % | | | | |
| CRE | | 13,189 | % | | 43,670 | % | | 5,213 | % | | | | |
| Consumer real estate | | NM | | NM | | NM | | | | |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 79
Allowance for Loan Losses
Management’s policy is to maintain the ALLL at a level sufficient to absorb estimated probable incurred losses in the loan portfolio. The total allowance for loan losses increased to $200.3 million on December 31, 2019, from $180.4 million on December 31, 2018. The ALLL as of December 31, 2019, reflects strong asset quality with the consumer real estate portfolio continuing to stabilize, historically low levels of net charge-offs, and declining non-strategic balances. The ratio of allowance for loan losses to total loans, net of unearned income, decreased to .64 percent on December 31, 2019, from .66 percent on December 31, 2018.
The provision for loan losses is the charge to (or release of) earnings necessary to maintain the ALLL at a sufficient level reflecting management’s estimate of probable incurred losses in the loan portfolio. Provision expense was $47.0 million in 2019 compared to $7.0 million in 2018. The increase in provision expense was primarily the result of increased reserves due to commercial loan growth, grade migration, two charge-offs, and a relationship that was downgraded in first quarter 2019.
FHN expects asset quality trends to remain relatively stable for the near term if the growth of the economy continues. The C&I portfolio is expected to continue to show stable trends but short-term variability (both positive and negative) is possible, primarily due to the size of the credits within this portfolio. The CRE portfolio metrics should be relatively consistent as FHN expects stable property values over the near term; however, oversupply of any CRE product type, changes in the lending environment, or economic uncertainty could result in decreased property values (which could happen abruptly). The remaining non-strategic consumer real estate and permanent mortgage portfolios should continue to steadily wind down. Asset quality metrics within non-strategic are becoming skewed as the portfolios continue to shrink, with stronger credits exiting the portfolios more rapidly than others. Continued stabilization in performance of the consumer real estate portfolio assumes an ongoing positive economic outlook as consumer delinquency and loss rates are correlated with life events that affect borrowers' finances, unemployment trends, and strength of the housing market.
Effective January 1, 2020, FHN adopted the provisions of ASU 2016-13, "Measurement of Credit Losses on Financial Instruments," and related ASUs. Refer to Note 1 - Summary of Significant Accounting Policies for additional information about the standard and its impact on FHN.
Consolidated Net Charge-offs
Net charge-offs were $27.1 million in 2019 compared to $16.1 million in 2018.
The commercial portfolio experienced $27.7 million of net charge-offs in 2019 compared to $11.7 million in 2018. Commercial charge-offs were driven by a $9.2 million partial charge-off on an energy credit and a $7.8 million partial charge-off on a healthcare credit. In addition, the consumer portfolio experienced $.6 million of net recoveries in 2019 compared to $4.4 million of net charge-offs in 2018. The net decrease in consumer portfolio net charge-offs was driven by the credit card and other portfolio.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 80
The following table provides consolidated asset quality information for the years 2015 through 2019:
Table 21—Analysis of Allowance for Loan Losses and Charge-offs
|
| | | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Allowance for loan losses: | | | | | | | | | | |
| Beginning balance | | $ | 180,424 |
| | $ | 189,555 |
| | $ | 202,068 |
| | $ | 210,242 |
| | $ | 232,448 |
|
| Provision for loan losses | | 47,000 |
| | 7,000 |
| | — |
| | 11,000 |
| | 9,000 |
|
| Charge-offs: | | | | | | | | | | |
| | Commercial, financial, and industrial | | 33,778 |
| | 15,492 |
| | 17,657 |
| | 18,460 |
| | 22,406 |
|
| | Commercial real estate | | 1,181 |
| | 783 |
| | 195 |
| | 1,371 |
| | 3,550 |
|
| | Consumer real estate | | 7,781 |
| | 9,357 |
| | 13,156 |
| | 21,993 |
| | 30,068 |
|
| | Permanent mortgage | | 393 |
| | 477 |
| | 2,179 |
| | 1,591 |
| | 3,141 |
|
| | Credit card and other | | 15,600 |
| | 19,688 |
| | 13,207 |
| | 14,224 |
| | 16,691 |
|
| Total charge-offs | | 58,733 |
| | 45,797 |
| | 46,394 |
| | 57,639 |
| | 75,856 |
|
| Recoveries: | | | | | | | | | | |
| | Commercial, financial, and industrial | | 6,744 |
| | 4,201 |
| | 4,568 |
| | 6,795 |
| | 13,339 |
|
| | Commercial real estate | | 489 |
| | 339 |
| | 966 |
| | 1,927 |
| | 1,876 |
|
| | Consumer real estate | | 17,000 |
| | 19,666 |
| | 22,723 |
| | 23,719 |
| | 23,895 |
|
| | Permanent mortgage | | 3,148 |
| | 1,421 |
| | 2,509 |
| | 2,403 |
| | 1,687 |
|
| | Credit card and other | | 4,235 |
| | 4,039 |
| | 3,115 |
| | 3,621 |
| | 3,853 |
|
| Total recoveries | | 31,616 |
| | 29,666 |
| | 33,881 |
| | 38,465 |
| | 44,650 |
|
| Net charge-offs | | 27,117 |
| | 16,131 |
| | 12,513 |
| | 19,174 |
| | 31,206 |
|
| Ending balance | | $ | 200,307 |
| | $ | 180,424 |
| | $ | 189,555 |
| | $ | 202,068 |
| | $ | 210,242 |
|
| Reserve for unfunded commitments | | 6,101 |
| | 7,618 |
| | 5,079 |
| | 5,312 |
| | 5,926 |
|
| Total of allowance for loan losses and reserve for unfunded commitments | | $ | 206,408 |
| | $ | 188,042 |
| | $ | 194,634 |
| | $ | 207,380 |
| | $ | 216,168 |
|
| Loans and commitments: | | | | | | | | | | |
| Total period end loans, net of unearned income | | $ | 31,061,111 |
| | $ | 27,535,532 |
| | $ | 27,658,929 |
| | $ | 19,589,520 |
| | $ | 17,686,502 |
|
| Remaining unfunded commitments | | $ | 12,355,220 |
| | $ | 10,884,975 |
| | $ | 10,678,485 |
| | $ | 8,744,649 |
| | $ | 7,903,294 |
|
| Average loans, net of unearned income | | $ | 29,188,638 |
| | $ | 27,213,828 |
| | $ | 20,104,042 |
| | $ | 18,303,870 |
| | $ | 16,624,439 |
|
| Reserve Rates | | | | | | | | | | |
| Total commercial loans | | | | | | | | | | |
| | Allowance/loans % (a) | | 0.65 | % | | 0.63 | % | | 0.62 | % | | 0.86 | % | | 0.82 | % |
| | Period end loans % of total loans | | 79 |
| | 74 |
| | 73 |
| | 73 |
| | 68 |
|
| Consumer real estate | | | | | | | | | | |
| | Allowance/loans % (a) | | 0.33 |
| | 0.42 |
| | 0.61 |
| | 1.12 |
| | 1.69 |
|
| | Period end loans % of total loans | | 19 |
| | 23 |
| | 23 |
| | 23 |
| | 27 |
|
| Permanent mortgage | | | | | | | | | | |
| | Allowance/loans % | | 5.18 |
| | 4.95 |
| | 4.56 |
| | 4.32 |
| | 4.28 |
|
| | Period end loans % of total loans | | 1 |
| | 1 |
| | 1 |
| | 2 |
| | 2 |
|
| Credit card and other | | | | | | | | | | |
| | Allowance/loans % (a) | | 2.68 |
| | 2.46 |
| | 1.61 |
| | 3.39 |
| | 3.35 |
|
| | Period end loans % of total loans | | 2 |
| | 2 |
| | 2 |
| | 2 |
| | 2 |
|
| Allowance and net charge-off ratios | | | | | | | | | | |
| Allowance to total loans % (a) | | 0.64 |
| | 0.66 |
| | 0.69 |
| | 1.03 |
| | 1.19 |
|
| Net charge-offs to average loans % | | 0.09 |
| | 0.06 |
| | 0.06 |
| | 0.10 |
| | 0.19 |
|
| Allowance to net charge-offs | | 7.39 | x | | 11.18 | x | | 15.15 | x | | 10.54 | x | | 6.74 | x |
Numbers may not add due to rounding.
| | | | | | | | |
(a) | 2017 decrease in allowance to loans reflects the addition of loans acquired from CBF at fair value which includes an estimate of life of loan credit losses. 79 | 2021 FORM 10-K ANNUAL REPORT |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 81
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Credit card and other | | 185 | % | | 299 | % | | 117 | % | | | | |
| Total ALLL / net charge-offs | | 30,641 | % | | 808 | % | | 739 | % | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
NM - not meaningful
Nonperforming Assets
Nonperforming loans are loans placed on nonaccrual if it becomes evident that full collection of principal and interest is at risk, if impairment has been recognized as a partial charge-off of principal balance due to insufficient collateral value and past due status, or on(on a case-by-case basisbasis), if FHN continues to receive payments but there are other borrower-specific issues. Included in nonaccruals are loans thaton which FHN continues to receive payments, including residential real estate loans where the borrower has been discharged of personal obligation through bankruptcy,bankruptcy. NPAs consist of nonperforming loans and second liens, regardless of delinquency status, behind first liens that are 90 or more days past due, are bankruptcies, or are TDRs. These, along with OREO excluding(excluding OREO from government insured mortgages, represent nonperforming assets (“NPAs”)mortgages).
Total nonperforming assets
Reflecting an overall improvement in asset quality, total NPAs (including NPLsNPL HFS) increaseddecreased $121 million to $181.9$285 million on December 31, 2019, from $175.5 million on December 31, 2018. The nonperforming assets ratio (nonperforming assets excluding NPLs HFS to total period-end loans plus OREO and other assets) was .57 percent as of December 31, 2019, compared to .62 percent as of December 31, 2018.
The2021, and the ratio of nonperforming loans to total loans decreased 16 basis points to 0.50%. The decrease in nonperforming loans was driven primarily by the ALLL to NPLs in the loan portfolio was 1.24 times as of December 31, 2019, compared to 1.22 times as of December 31, 2018. CRE and consumer real estate portfolios.
Certain nonperforming loans in both the commercial and consumer portfolios are deemed collateral-dependent and are charged down to an estimate of collateral value less costs to sell. Because the estimated loss content has been recognized through a partial charge-off, typically reserves arean ALLL is not recorded.
Table 7.13
Table 22—Nonaccrual/Nonperforming Loans, Foreclosed Assets,
NONACCRUAL/NONPERFORMING LOANS, FORECLOSED ASSETS, & OTHER DISCLOSURES (a) (b)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31 | | | | |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| Nonperforming loans and leases | | | | | | | | | | |
| C&I | | $ | 125 | | | $ | 144 | | | $ | 74 | | | | | |
| CRE | | 9 | | | 58 | | | 2 | | | | | |
| Consumer real estate | | 138 | | | 182 | | | 86 | | | | | |
| Credit card and other | | 3 | | | 2 | | | — | | | | | |
| Total nonperforming loans and leases (c) (d) | | $ | 275 | | | $ | 386 | | | $ | 162 | | | | | |
| | | | | | | | | | | |
| Nonperforming loans held-for-sale (d) | | $ | 7 | | | $ | 5 | | | $ | 4 | | | | | |
| Foreclosed real estate and other assets (e) | | 3 | | | 15 | | | 16 | | | | | |
| Total nonperforming assets (d) (f) | | $ | 285 | | | $ | 406 | | | $ | 182 | | | | | |
| | | | | | | | | | | |
| Nonperforming loans and leases to total loans and leases | | | | | | | | | | |
| C&I | | 0.40 | % | | 0.43 | % | | 0.37 | % | | | | |
| CRE | | 0.08 | % | | 0.48 | % | | 0.04 | % | | | | |
| Consumer real estate | | 1.29 | % | | 1.56 | % | | 1.39 | % | | | | |
| Credit card and other | | 0.31 | % | | 0.18 | % | | 0.07 | % | | | | |
| Total NPL % | | 0.50 | % | | 0.66 | % | | 0.52 | % | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| ALLL / NPLs | | | | | | | | | | |
| C&I | | 268 | % | | 315 | % | | 166 | % | | | | |
| CRE | | 1,671 | % | | 415 | % | | 1,973 | % | | | | |
| Consumer real estate | | 118 | % | | 133 | % | | 33 | % | | | | |
| Credit card and other | | 699 | % | | 1313 | % | | 3892 | % | | | | |
| Total ALLL / NPLs | | 244 | % | | 249 | % | | 124 | % | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
(a)Balances for 2019 do not include PCI loans even though the client may be contractually past due. PCI loans were recorded at fair value upon acquisition and Other Disclosures (a)accreted interest income over the remaining life of the loan. PCI loans were transitioned to PCD status upon adoption of CECL.
|
| | | | | | | | | | | | | | | | | | | | | |
| | | December 31 |
| (Dollars in thousands) | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Commercial: | | | | | | | | | | |
| | Commercial, financial, and industrial (b) | | $ | 74,312 |
| | $ | 39,776 |
| | $ | 31,153 |
| | $ | 32,736 |
| | $ | 26,313 |
|
| | Commercial real estate | | 1,825 |
| | 2,991 |
| | 1,393 |
| | 2,776 |
| | 8,684 |
|
| | Total commercial | | 76,137 |
| | 42,767 |
| | 32,546 |
| | 35,512 |
| | 34,997 |
|
| Consumer: | | | | | | | | | | |
| | Consumer real estate | | 71,313 |
| | 82,648 |
| | 71,487 |
| | 82,812 |
| | 111,092 |
|
| | Permanent mortgage | | 14,381 |
| | 21,710 |
| | 26,390 |
| | 27,181 |
| | 31,652 |
|
| | Credit card & other | | 334 |
| | 624 |
| | 196 |
| | 142 |
| | 1,357 |
|
| | Total consumer | | 86,028 |
| | 104,982 |
| | 98,073 |
| | 110,135 |
| | 144,101 |
|
| | Total nonperforming loans (c) (d) | | 162,165 |
| | 147,749 |
| | 130,619 |
| | 145,647 |
| | 179,098 |
|
| Nonperforming loans held-for-sale (d) | | 4,047 |
| | 5,328 |
| | 6,971 |
| | 7,741 |
| | 7,846 |
|
| Foreclosed real estate and other assets | | 15,660 |
| | 22,387 |
| | 39,566 |
| | 11,235 |
| | 24,977 |
|
| Foreclosed real estate from GNMA loans | | 2,178 |
| | 2,903 |
| | 3,816 |
| | 5,002 |
| | 8,086 |
|
| | Total foreclosed real estate and other assets | | 17,838 |
| | 25,290 |
| | 43,382 |
| | 16,237 |
| | 33,063 |
|
| | Total nonperforming assets (d) (e) | | $ | 181,872 |
| | $ | 175,464 |
| | $ | 177,156 |
| | $ | 164,623 |
| | $ | 211,921 |
|
| Troubled debt restructurings (f): | | | | | | | | | | |
| | Accruing restructured loans | | $ | 121,370 |
| | $ | 142,524 |
| | $ | 170,930 |
| | $ | 203,445 |
| | $ | 198,059 |
|
| | Nonaccruing restructured loans (d) (g) | | 84,928 |
| | 85,695 |
| | 63,429 |
| | 81,705 |
| | 98,113 |
|
| | Total troubled debt restructurings (f) | | $ | 206,298 |
| | $ | 228,219 |
| | $ | 234,359 |
| | $ | 285,150 |
| | $ | 296,172 |
|
| Ratios: | | | | | | | | | | |
| | Allowance to nonperforming loans in the loan portfolio (d) | | 1.24 | x | | 1.22 | x | | 1.45 | x | | 1.39 | x | | 1.17 | x |
| | | | | | | | |
(a) | Balances do not include PCI loans even though the customer may be contractually past due. PCI loans were recorded at fair value upon acquisition and accrete interest income over the remaining life of the loan. 80 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
(b) | 2019 increase driven by three relationships transferring to nonaccrual.ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
(c) | Under the original terms of the loans, estimated interest income would have been approximately $11 million, $9 million, and $10 million during 2019, 2018 and 2017, respectively. |
| |
(d) | Excludes loans that are 90 or more days past due and still accruing interest. |
| |
(e) | Balances do not include PCI loans or government-insured foreclosed real estate. |
| |
(f) | Excludes TDRs that are classified as held-for-sale nearly all of which are accounted for under the fair value option. |
| |
(g) | Amounts also included in nonperforming loans above. |
(b)Unless otherwise noted, increases in balances from 2019 to 2020 were primarily driven by acquired nonperforming assets.
(d)Excludes loans and leases that are 90 or more days past due and still accruing interest.
(e)Foreclosed real estate from GNMA loans totaled $1 million, $2 million, and $2 million at December 31, 2021, 2020, and 2019, respectively.
(f)Balances do not include government-insured foreclosed real estate. Balances for 2019 also do not include PCI loans. PCI loans were transitioned to PCD status upon adoption of CECL.
The following table provides nonperforming assets by business segment:
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 82
Table 23—Nonperforming Assets by Segment |
| | | | | | | | | | | | | | | | | | | | | |
| | | December 31 |
| (Dollars in thousands) | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Nonperforming loans (a) (b) | | | | | | | | | | |
| | Regional bank | | $ | 114,514 |
| | $ | 81,046 |
| | $ | 54,816 |
| | $ | 51,839 |
| | $ | 58,152 |
|
| | Non-strategic | | 47,651 |
| | 66,703 |
| | 75,803 |
| | 93,808 |
| | 120,946 |
|
| | Consolidated | | $ | 162,165 |
| | $ | 147,749 |
| | $ | 130,619 |
| | $ | 145,647 |
| | $ | 179,098 |
|
| Foreclosed real estate (c) | | | | | | | | | | |
| | Regional bank | | $ | 12,347 |
| | $ | 18,535 |
| | $ | 34,679 |
| | $ | 5,081 |
| | $ | 16,298 |
|
| | Non-strategic | | 3,313 |
| | 3,852 |
| | 4,887 |
| | 6,154 |
| | 8,679 |
|
| | Consolidated | | $ | 15,660 |
| | $ | 22,387 |
| | $ | 39,566 |
| | $ | 11,235 |
| | $ | 24,977 |
|
| Nonperforming Assets (a) (b) (c) | | | | | | | | | | |
| | Regional bank | | $ | 126,861 |
| | $ | 99,581 |
| | $ | 89,495 |
| | $ | 56,920 |
| | $ | 74,450 |
|
| | Non-strategic | | 50,964 |
| | 70,555 |
| | 80,690 |
| | 99,962 |
| | 129,625 |
|
| | Consolidated | | $ | 177,825 |
| | $ | 170,136 |
| | $ | 170,185 |
| | $ | 156,882 |
| | $ | 204,075 |
|
| NPL % | | | | | | | | | | |
| | Regional bank | | 0.38 | % | | 0.31 | % | | 0.21 | % | | 0.29 | % | | 0.37 | % |
| | Non-strategic | | 5.83 | % | | 6.00 | % | | 5.34 | % | | 5.92 | % | | 5.99 | % |
| | Consolidated | | 0.52 | % | | 0.54 | % | | 0.47 | % | | 0.74 | % | | 1.01 | % |
| NPA % (d) | | | | | | | | | | |
| | Regional bank | | 0.42 | % | | 0.38 | % | | 0.34 | % | | 0.32 | % | | 0.48 | % |
| | Non-strategic | | 6.21 | % | | 6.33 | % | | 5.66 | % | | 6.29 | % | | 6.39 | % |
| | Consolidated | | 0.57 | % | | 0.62 | % | | 0.61 | % | | 0.80 | % | | 1.15 | % |
Certain previously reported amounts have been reclassifiedNONPERFORMING ASSETS BY SEGMENT
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31 | | | | |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | | | |
| Nonperforming loans and leases (a) (b) | | | | | | | | | | |
| Regional Banking | | $ | 163 | | | $ | 216 | | | $ | 45 | | | | | |
| Specialty Banking | | 78 | | | 117 | | | 68 | | | | | |
| Corporate | | 34 | | | 53 | | | 49 | | | | | |
| Consolidated | | $ | 275 | | | $ | 386 | | | $ | 162 | | | | | |
| | | | | | | | | | | |
| Foreclosed real estate (c) | | | | | | | | | | |
| Regional Banking | | $ | 2 | | | $ | 12 | | | $ | 12 | | | | | |
| Specialty Banking | | — | | | 1 | | | 1 | | | | | |
| Corporate | | 1 | | | 2 | | | 3 | | | | | |
| Consolidated | | $ | 3 | | | $ | 15 | | | $ | 16 | | | | | |
| | | | | | | | | | | |
| Nonperforming Assets (a) (b) (c) | | | | | | | | | | |
| Regional Banking | | $ | 165 | | | $ | 228 | | | $ | 57 | | | | | |
| Specialty Banking | | 78 | | | 118 | | | 69 | | | | | |
| Corporate | | 35 | | | 55 | | | 52 | | | | | |
| Consolidated | | $ | 278 | | | $ | 401 | | | $ | 178 | | | | | |
| | | | | | | | | | | |
| Nonperforming loans and leases to total loans and leases | | | | | | | | | | |
| Regional Banking | | 0.43 | % | | 0.54 | % | | 0.27 | % | | | | |
| Specialty Banking | | 0.48 | | | 0.68 | | | 0.51 | | | | | |
| Corporate | | 5.39 | | | 5.70 | | | 5.22 | | | | | |
| Consolidated | | 0.50 | % | | 0.66 | % | | 0.52 | % | | | | |
| | | | | | | | | | | |
| NPA % (d) | | | | | | | | | | |
| Regional Banking | | 0.44 | % | | 0.57 | % | | 0.34 | % | | | | |
| Specialty Banking | | 0.48 | | | 0.68 | | | 0.52 | | | | | |
| Corporate | | 5.51 | | | 5.87 | | | 5.48 | | | | | |
| Consolidated | | 0.51 | % | | 0.69 | % | | 0.57 | % | | | | |
| | | | | | | | | | | |
(a)Excludes loans and leases that are 90 or more days past due and still accruing interest.
(b)Excludes loans classified as held for sale.
(c)Excludes foreclosed real estate and receivables related to agree with current presentation.
| |
(a) | Excludes loans 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 insuredgovernment-insured mortgages of $10.4 million, $3.1 million, $5.2 million, $6.6 million, and $9.0 million during 2019, 2018, 2017, 2016, and 2015, respectively. |
| |
(d) | Ratio is non-performing assets related to the loan portfolio to total loans plus foreclosed real estate and other assets. |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 83
The following table provides an activity rollforward of OREO balances for December 31, 2019$1 million, $5 million, and 2018. The balance of OREO, exclusive of inventory from government insured mortgages, decreased to $15.7$10 million as of December 31, 2021, 2020, and 2019, from $22.4 millionrespectively.
(d)Ratio is non-performing assets related to the loan and lease portfolio to total loans plus foreclosed real estate and other assets.
| | | | | | | | |
| 81 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Lending Assistance for Borrowers
In addition to PPP loans, other customer support initiatives in response to the COVID-19 pandemic include incremental lending assistance for borrowers through delayed payment programs and fee waivers.
The following table provides the UPB of loans related to deferrals granted to FHN’s customers as of December 31, 2018, driven by the sale of OREO, primarily those acquired from CBF. Moreover, property values have stabilized which also affects the balance of OREO.2021 and December 31, 2020.
Table 24—Rollforward7.15
CUSTOMER DEFERRALS
| | | | | | | | | | | | | | |
| (Dollars in millions) | | December 31, 2021 | | December 31, 2020 |
| Commercial: | | | | |
| C&I | | $ | 9 | | | $ | 104 | |
| | | | |
| CRE | | 26 | | | 194 | |
| Total Commercial | | $ | 35 | | | $ | 298 | |
| Consumer: | | | | |
| HELOC | | $ | 5 | | | $ | 14 | |
| Real estate installment loans | | 44 | | | 202 | |
| Credit card and other | | — | | | 4 | |
| Total Consumer | | $ | 49 | | | $ | 220 | |
| Total | | $ | 84 | | | $ | 518 | |
| | | | |
| | | | |
Commercial deferrals as of OREODecember 31, 2021 were comprised primarily of private client (59% or $21 million) and general commercial (40% or $14 million).
To the extent that loans were past due as of December 31, 2021 or December 31, 2020 and had been granted a
|
| | | | | | | | |
| (Dollars in thousands) | | 2019 | | 2018 |
| Beginning balance, January 1 | | $ | 22,387 |
| | $ | 39,566 |
|
| Valuation adjustments | | (927 | ) | | (2,599 | ) |
| New foreclosed property | | 8,550 |
| | 12,148 |
|
| Disposals | | (14,350 | ) | | (26,728 | ) |
| Ending balance, December 31 (a) | | $ | 15,660 |
| | $ | 22,387 |
|
| |
(a) | Excludes OREO and receivables related to government insured mortgages of $10.4 million and $3.1 million as of December 31, 2019 and 2018, respectively. |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 84
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 in the portfolio that are 90 days or more past due and still accruing were $21.9$40 million onas of December 31, 2019,2021, an increase of $23 million compared to $32.5 million on December 31, 2018.2020, primarily from consumer real estate loans. Loans 30 to 89 days past due decreasedincreased $8
million from year-end 2020 to $36.1$108 million onas of December 31, 2019, from $42.7 million on December 31, 2018.2021, as a higher level of C&I loans past due were offset by lower consumer real estate loans past due less than 90 days, most notably in the CRE and consumer real estate portfolios.
| | | | | | | | |
| 82 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Table 7.16
ACCRUING DELINQUENCIES & OTHER CREDIT DISCLOSURES
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31 | | | | |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | | | |
| Accruing loans and leases 30+ days past due | | | | | | | | | | |
| C&I | | $ | 58 | | | $ | 15 | | | $ | 9 | | | | | |
| CRE | | 13 | | | 23 | | | 1 | | | | | |
| Consumer real estate | | 70 | | | 69 | | | 43 | | | | | |
| Credit card and other | | 7 | | | 10 | | | 5 | | | | | |
| Total accruing loans and leases 30+ days past due | | $ | 148 | | | $ | 117 | | | $ | 58 | | | | | |
| | | | | | | | | | | |
| Accruing loans and leases 30+ days past due % | | | | | | | | | | |
| C&I | | 0.19 | % | | 0.05 | % | | 0.05 | % | | | | |
| CRE | | 0.11 | | | 0.19 | | | 0.02 | | | | | |
| Consumer real estate | | 0.65 | | | 0.58 | | | 0.70 | | | | | |
| Credit card and other | | 0.76 | | | 0.87 | | | 0.93 | | | | | |
| Total accruing loans and leases 30+ days past due % | | 0.27 | % | | 0.20 | % | | 0.19 | % | | | | |
| | | | | | | | | | | |
| Accruing loans and leases 90+ days past due (a) (b) (c) | | | | | | | | | | |
| C&I | | $ | 5 | | | $ | — | | | $ | 2 | | | | | |
| CRE | | — | | | — | | | — | | | | | |
| Consumer real estate | | 33 | | | 16 | | | 18 | | | | | |
| Credit card and other | | 2 | | | 1 | | | 2 | | | | | |
| Total accruing loans and leases 90+ days past due | | $ | 40 | | | $ | 17 | | | $ | 22 | | | | | |
| | | | | | | | | | | |
| Loans held for sale | | | | | | | | | | |
| 30 to 89 days past due (b) | | $ | 7 | | | $ | 6 | | | $ | 4 | | | | | |
| 30 to 89 days past due - guaranteed portion (b) (d) | | 2 | | | 5 | | | 3 | | | | | |
| 90+ days past due (b) | | 24 | | | 12 | | | 6 | | | | | |
| 90+ days past due - guaranteed portion (b) (d) | | 12 | | | 10 | | | 6 | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
(a)Excludes loans classified as held for sale.
(b)Amounts are not included in nonperforming/nonaccrual loans.
(c)Amounts are also included in accruing loans and leases 30+ days past due.
(d)Guaranteed loans include FHA, VA, and GNMA loans repurchased through the GNMA buyout program.
Potential problem assets represent those assets where information about possible credit problems of borrowers has caused management to have serious doubts about the borrower’s ability to comply with present repayment terms and includes loans past due 90 days or more and still accruing. This definition is believed to be substantially consistent with the standards established by the Federal banking regulators for loans classified as substandard. PotentialAt
year-end 2021, potential problem assets in the loan portfolio were $346.9decreased $121 million from December 31, 2020 to $597 million on December 31, 2019, compared2021. The decrease was attributable to $317.0 million on December 31, 2018. The increase year-over-yearan overall improvement in potential problem assets was due to a net increase in classified commercial loans within the C&I portfolio.asset quality. The current expectation of losses from potential problem assets has been included in management’s analysis for assessing the adequacy of the allowance for loan losses.
Table 25—Accruing Delinquencies and Other Credit Disclosureslease losses.
|
| | | | | | | | | | | | | | | | | | | | | |
| | | December 31 |
| (Dollars in thousands) | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Loans past due 90 days or more and still accruing (a) (b): | | | | | | | | | | |
| Commercial: | | | | | | | | | | |
| | Commercial, financial, and industrial | | $ | 2,035 |
| | $ | 1,775 |
| | $ | 19,654 |
| | $ | 257 |
| | $ | 1,083 |
|
| | Commercial real estate | | 95 |
| | 1,752 |
| | 2,051 |
| | — |
| | 161 |
|
| Total commercial | | 2,130 |
| | 3,527 |
| | 21,705 |
| | 257 |
| | 1,244 |
|
| Consumer: | | | | | | | | | | |
| | Consumer real estate | | 14,083 |
| | 22,246 |
| | 14,433 |
| | 16,110 |
| | 16,668 |
|
| | Permanent mortgage | | 4,032 |
| | 4,562 |
| | 3,460 |
| | 5,428 |
| | 3,991 |
|
| | Credit card & other | | 1,614 |
| | 2,126 |
| | 1,970 |
| | 1,590 |
| | 1,398 |
|
| Total consumer | | 19,729 |
| | 28,934 |
| | 19,863 |
| | 23,128 |
| | 22,057 |
|
| Total loans past due 90 days or more and still accruing (a) (b) | | $ | 21,859 |
| | $ | 32,461 |
| | $ | 41,568 |
| | $ | 23,385 |
| | $ | 23,301 |
|
| | | | | | | | | | | | |
| Loans 30 to 89 days past due | | $ | 36,052 |
| | $ | 42,703 |
| | $ | 50,884 |
| | $ | 42,570 |
| | $ | 50,896 |
|
| Loans 30 to 89 days past due - guaranteed (c) | | — |
| | 82 |
| | 85 |
| | 89 |
| | — |
|
| Loans held-for-sale 30 to 89 days past due (b) | | 3,732 |
| | 5,790 |
| | 13,419 |
| | 6,462 |
| | 7,133 |
|
| Loans held-for-sale 30 to 89 days past due - guaranteed portion (b) (c) | | 3,424 |
| | 4,848 |
| | 5,975 |
| | 6,248 |
| | 7,133 |
|
| Loans held-for-sale 90 days past due (b) | | 6,484 |
| | 7,368 |
| | 10,885 |
| | 14,868 |
| | 17,230 |
|
| Loans held-for-sale 90 days past due - guaranteed portion (b) (c) | | 6,417 |
| | 7,237 |
| | 9,451 |
| | 14,657 |
| | 17,131 |
|
| Potential problem assets (d) | | $ | 346,896 |
| | $ | 316,952 |
| | $ | 327,214 |
| | $ | 290,354 |
| | $ | 208,706 |
|
| |
(a) | Excludes loans classified as held-for-sale. |
| |
(b) | Amounts are not included in nonperforming/nonaccrual loans. |
| |
(c) | Guaranteed loans include FHA, VA, and GNMA loans repurchased through the GNMA buyout program. |
| |
(d) | Includes past due loans. |
Troubled Debt Restructuring and Loan Modifications
As part of FHN’s ongoing risk management practices, FHN attempts to work with borrowers when appropriate to extend or modify loan terms to better align with their current ability to repay. Extensions and modifications to loans are made in accordance with internal policies and guidelines which conform to regulatory guidance. Each occurrence is unique to the borrower and is evaluated
separately. In a situation where an economic concession has been granted to a borrower that is experiencing financial difficulty, FHN identifies and reports that loan as a Troubled Debt Restructuring (“TDR”).TDR.
For loan modifications that were made during 2021 and 2020 that met the TDR relief provisions outlined in either the CARES Act, as extended by the CAA, or revised
| | | | | | | | |
| 83 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Interagency Guidance, FHN has excluded these modifications from consideration as a TDR, and has excluded loans with these qualifying modifications from designation as a TDR in the information and discussion that follows. See Note 1 - Significant Accounting Policies and Note 4 – Loans and Leases for further discussion regarding TDRs and loan modifications.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 85
Commercial Loan Modifications
As part of FHN’s credit risk management governance processes, the Loan Rehab and Recovery Department (“LRRD”)(LRRD) is responsible for managing most commercial relationships with borrowers whose financial condition has deteriorated to such an extent that the credits are being considered for impairment, classified as substandard or worse, placed on nonaccrual status, foreclosed or in process of foreclosure, or in active or contemplated litigation. LRRD has the authority and responsibility to enter into workout and/or rehabilitation agreements with troubled commercial borrowers in order to mitigate and/or minimize the amount of credit losses recognized from these problem assets. While every circumstance is different, LRRD will generally use forbearance agreements (generally 6-12 months) as an element of commercial loan workouts, which might include reduced interest rates, reduced payments, release of guarantor, or entering into short sale agreements.
The individual impairment assessments completed on commercial loans in accordance with the Accounting Standards Codification Topic related to Troubled Debt Restructurings (“ASC 310-40”) include loans classified as TDRs as well as loans that may have been modified yet not classified as TDRs by management. For example, a modification of loan terms that management would generally not consider to be a TDR could be a temporary extension of maturity to allow a borrower to complete an asset sale whereby the proceeds of such transaction are to be paid to satisfy the outstanding debt. Additionally, a modification that extends the term of a loan but does not involve reduction of principal or accrued interest, in which the interest rate is adjusted to reflect current market rates for similarly situated borrowers, is not considered a TDR. Nevertheless, each assessment will take into account any modified terms and will be comprehensive to ensure appropriate impairment assessment. If individual impairment is identified, management will either hold specific reserves on the amount of impairment, or, if the loan is collateral dependent, write down the carrying amount of the asset to the net realizable value of the collateral.
Consumer Loan Modifications
FHN does not currently participate in any of the loan modification programs sponsored by the U.S. government but does generally structure modified consumer loans using the parameters of the former Home Affordable Modification Program (“HAMP”).Program. Generally, a majority of loans
modified under any such proprietary programs are classified as TDRs.
Within the HELOC and R/Ereal estate installment loans classes of the consumer portfolio segment, TDRs are typically modified by reducing the interest rate (in increments of 25 basis points to a minimum of 1 percent1% 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 percent2% per year until the original interest rate prior to modification is achieved. Permanent mortgage TDRs are typically modified by reducing the interest rate (in increments of 25 basis points to a minimum of 2 percent2% for up to 5 years) and a possible maturity date extension to reach an affordable housing debt-to-income ratio. After 5 years, the interest rate steps up 1 percent every year until it reaches the Federal Home Loan Mortgage Corporation Weekly Survey Rate cap. Contractual maturities may be extended to 40 years on permanent mortgages and to 30 years for consumer real estate loans. Within the credit card class of the consumer portfolio segment, TDRs are typically modified through either a short-term credit card hardship program or a longer-term credit card workout program. In the credit card hardship program, borrowers may be granted rate and payment reductions for 6 months to 1 year. In the credit card workout program, customersclients are granted a rate reduction to 0 percent0% and term extensions for up to 5 years to pay off the remaining balance.
Following classification as a TDR, modified loans within the consumer portfolio, which were previously evaluated for impairment on a collective basis determined by their smaller balances and homogenous nature, become subject to the impairment guidance in ASC 310-10-35, which requires individual evaluation of the debt for impairment. However, as applicable accounting guidance allows, FHN may aggregate certain smaller-balance homogeneous TDRs and use historical statistics, such as aggregated charge-off amounts and average amounts recovered, along with a composite effective interest rate to measure impairment when such impaired loans have risk characteristics in common.
On December 31, 2019 and December 31, 2018, FHN had $206.3$206 million and $228.2$307 million portfolio loans classified as held-for-investment TDRs respectively.on December 31, 2021 and 2020, respectively, a decrease of $101 million between periods. For these TDRs, in the loan portfolio,including specific reserves, FHN had an allowance for loan loss reservesand lease losses of $19.7$12 million and $27.7$15 million, or 106% and 12 percent5% of TDR balances, as of December 31, 20192021 and December 31, 2018,2020, respectively. Additionally, FHN had $51.1$35 million and $57.8$42 million of HFS loans classified as TDRs as of December 31, 2019at year-end 2021 and December 31, 2018,2020, respectively. Total held-to-maturity TDRs decreased by $21.9 million with the decline attributable to consumer real estate and permanent mortgage partially offset by an increase in commercial.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 86
| | | | | | | | |
| 84 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
The following table provides a summary of TDRs for the periods ended December 31, 20192021 and 2018:2020.
Table 26—Troubled Debt Restructurings7.17
TROUBLED DEBT RESTRUCTURINGS
| | | | | | | | | | | | | | |
| (Dollars in millions) | |
December 31, 2021 | |
December 31, 2020 |
| Held for investment: | | | | |
| Commercial loans: | | | | |
| Current | | $ | 53 | | | $ | 82 | |
| Delinquent | | — | | | — | |
| Non-accrual | | 35 | | | 84 | |
| Total commercial loans | | 88 | | | 166 | |
| Consumer real estate: | | | | |
| Current | | $ | 60 | | | $ | 77 | |
| Delinquent | | 4 | | | 2 | |
| Non-accrual (a) | | 53 | | | 61 | |
| Total consumer real estate | | 117 | | | 140 | |
| Credit card and other: | | | | |
| Current | | 1 | | | 1 | |
| Delinquent | | — | | | — | |
| Non-accrual | | — | | | — | |
| Total credit card and other | | 1 | | | 1 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Total held for investment | | $ | 206 | | | $ | 307 | |
| | | | |
| Held for sale: | | | | |
| Current | | $ | 27 | | | $ | 36 | |
| Delinquent | | 7 | | | 5 | |
| Non-accrual | | 1 | | | 1 | |
| Total held for sale | | 35 | | | 42 | |
| | | | |
| Total troubled debt restructurings | | $ | 241 | | | $ | 349 | |
| | | | |
(a)Balances as of December 31, 2021 and 2020, include $12 million and $11 million, respectively, of discharged bankruptcies.
Deposits
|
| | | | | | | | |
| (Dollars in thousands) | | As of December 31, 2019 | | As of December 31, 2018 |
| Held-to-maturity: | | | | |
| Permanent mortgage: | | | | |
| Current | | $ | 49,086 |
| | $ | 54,114 |
|
| Delinquent | | 1,999 |
| | 2,367 |
|
| Non-accrual (a) | | 10,508 |
| | 14,365 |
|
| Total permanent mortgage | | 61,593 |
| | 70,846 |
|
| Consumer real estate: | | | | |
| Current | | 56,439 |
| | 68,960 |
|
| Delinquent | | 2,635 |
| | 2,311 |
|
| Non-accrual (b) | | 41,579 |
| | 47,163 |
|
| Total consumer real estate | | 100,653 |
| | 118,434 |
|
| Credit card and other: | | | | |
| Current | | 615 |
| | 665 |
|
| Delinquent | | 38 |
| | 30 |
|
| Non-accrual | | — |
| | — |
|
| Total credit card and other | | 653 |
| | 695 |
|
| Commercial loans: | | | | |
| Current | | 10,558 |
| | 13,246 |
|
| Delinquent | | — |
| | 831 |
|
| Non-accrual | | 32,841 |
| | 24,167 |
|
| Total commercial loans | | 43,399 |
| | 38,244 |
|
| Total held-to-maturity | | $ | 206,298 |
| | $ | 228,219 |
|
| Held-for-sale: | | | | |
| Current | | $ | 39,014 |
| | $ | 42,574 |
|
| Delinquent | | 8,008 |
| | 10,041 |
|
| Non-accrual | | 4,106 |
| | 5,209 |
|
| Total held-for-sale | | 51,128 |
| | 57,824 |
|
| Total troubled debt restructurings | | $ | 257,426 |
| | $ | 286,043 |
|
Total deposits were $74.9 billion as of December 31, 2021, up $4.9 billion from $70.0 billion as of December 31, 2020, driven by a $5.7 billion increase in non-interest bearing deposits as a result of elevated liquidity tied to government stimulus associated with the COVID-19 pandemic. Growth in noninterest-bearing deposits was partially offset by a $1.6 billion decline in time deposits.
The following tables summarize FHN's total deposits and estimated uninsured total deposits for 2021, 2020, and 2019, as well as the maturities of FHN's uninsured time deposits as of December 31, 2021. See Table 7.2 - Average Balances, Net Interest Income and Yields/Rates in this Report for information on average deposits including average rates paid.
| | | | | | | | |
(a) | Balances as of December 31, 2019 and 2018, include $2.3 million and $3.6 million, respectively, of discharged bankruptcies. 85 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
(b)ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| Balances as of | |
Table 7.18
DEPOSITS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | 2021 | | Percent of Total | | 2021 Growth Rate | | 2020 | | Percent of Total | | 2020 Growth Rate | | 2019 | | Percent of Total | | 2019 Growth Rate |
| Savings | | $ | 26,457 | | | 35 | % | | (3) | % | | $ | 27,324 | | | 39 | % | | 134 | % | | $ | 11,665 | | | 36 | % | | (3) | % |
| Time deposits | | 3,500 | | | 5 | | | (31) | | | 5,070 | | | 7 | | | 40 | | | 3,618 | | | 11 | | | (12) | |
| Other interest-bearing deposits | | 17,055 | | | 23 | | | 11 | | | 15,415 | | | 22 | | | 77 | | | 8,718 | | | 27 | | | 4 | |
| Total interest-bearing deposits | | 47,012 | | | 63 | | | (2) | | | 47,809 | | | 68 | | | 99 | | | 24,001 | | | 74 | | | (2) | |
| Noninterest-bearing deposits | | 27,883 | | | 37 | | | 26 | | | 22,173 | | | 32 | | | 163 | | | 8,429 | | | 26 | | | 4 | |
| Total deposits | | $ | 74,895 | | | 100 | % | | 7 | % | | $ | 69,982 | | | 100 | % | | 116 | % | | $ | 32,430 | | | 100 | % | | (1) | % |
| | | | | | | | | | | | | | | | | | |
Table 7.19
UNINSURED DEPOSITS
| | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 |
| Uninsured deposits | | $ | 39,756 | | | $ | 33,057 | | | $ | 12,176 | |
| | | | | | |
Table 7.20
UNINSURED TIME DEPOSITS BY MATURITY
| | | | | | | | |
| (Dollars in millions) | | December 31, 2019 and 2018, include $10.3 million and $13.0 million, respectively,2021 |
Portion of discharged bankruptcies.U.S. time deposits in excess of insurance limit | | $ | 515 | |
| Time deposits otherwise uninsured with a maturity of: | | |
| 3 months or less | | 212 | |
| Over 3 months through 6 months | | 117 | |
| Over 6 months through 12 months | | 124 | |
| Over 12 months | | 62 | |
Short-Term Borrowings
Short-term borrowings include federal funds purchased, securities sold under agreements to repurchase, trading liabilities, and other short-term borrowings. Total short-term borrowings were $2.6 billion as of December 31, 2021 and December 31, 2020.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 87Short-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,
including levels of trading securities and hedging strategies. Federal funds purchased fluctuates depending on the amount of excess funding of FHN's correspondent bank customers. Balances of securities sold under agreements to repurchase fluctuate based on cost attractiveness relative to FHLB borrowing levels and the ability to pledge securities toward such transactions. See Note 10 - Short-Term Borrowings for additional information.
Term Borrowings
Term borrowings include senior and subordinated borrowings with original maturities greater than one year. Total term borrowings were $1.6 billion on December 31, 2021, an $80 million decrease from $1.7 billion on December 31, 2020.
During 2021, FHN redeemed $94 million of legacy IBKC junior subordinated debt underlying multiple issuances of trust preferred securities. The redemption resulted in a loss on debt extinguishment of $26 million. See Note 11 - Term Borrowings for additional information.
| | | | | | | | |
| 86 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Capital
Management’s objectives are to provide capital sufficient to cover the risks inherent in FHN’s businesses, to maintain excess capital to well-capitalized standards, and to assure ready access to the capital markets.
Total equity increased $187 million to $8.5 billion on December 31, 2021 from $8.3 billion on December 31, 2020. Significant changes included net income of $1.0 billion and the issuance of $145 million in Series F preferred stock, which were offset by $416 million in
common share repurchases, $364 million in common and preferred dividends, a $148 decrease in AOCI, and $100 million from the call of Series A preferred stock.
The following tables provide a reconciliation of shareholders’ equity from the Consolidated Balance Sheets to Common Equity Tier 1, Tier 1 and Total Regulatory Capital as well as certain selected capital ratios:
Table 7.21a
REGULATORY CAPITAL DATA
| | | | | | | | | | | | | | |
| (Dollars in millions) | | December 31, 2021 | | December 31, 2020 |
| FHN shareholders’ equity | | $ | 8,199 | | | $ | 8,012 | |
| Modified CECL transitional amount (a) | | 114 | | | 191 | |
| FHN non-cumulative perpetual preferred | | (520) | | | (470) | |
| Common equity tier 1 before regulatory adjustments | | $ | 7,793 | | | $ | 7,733 | |
| Regulatory adjustments: | | | | |
| Disallowed goodwill and other intangibles | | (1,711) | | | (1,757) | |
| Net unrealized (gains) losses on securities available for sale | | 36 | | | (108) | |
| Net unrealized (gains) losses on pension and other postretirement plans | | 255 | | | 260 | |
| Net unrealized (gains) losses on cash flow hedges | | (3) | | | (12) | |
| Disallowed deferred tax assets | | (2) | | | (5) | |
| Other deductions from common equity tier 1 | | (1) | | | (1) | |
| Common equity tier 1 | | $ | 6,367 | | | $ | 6,110 | |
| FHN non-cumulative perpetual preferred (b) | | 426 | | | 377 | |
| Qualifying noncontrolling interest—First Horizon Bank preferred stock | | 295 | | | 295 | |
| Tier 1 capital | | $ | 7,088 | | | $ | 6,782 | |
| Tier 2 capital | | 830 | | | 1,153 | |
| Total regulatory capital | | $ | 7,918 | | | $ | 7,935 | |
| Risk-Weighted Assets | | | | |
| First Horizon Corporation | | $ | 64,183 | | | $ | 63,140 | |
| First Horizon Bank | | 63,601 | | | 62,508 | |
| Average Assets for Leverage | | | | |
| First Horizon Corporation | | 87,683 | | | 82,347 | |
| First Horizon Bank | | 86,953 | | | 81,709 | |
| | | | | | | | |
| 87 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Table 7.21b
REGULATORY RATIOS & AMOUNTS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2021 | | December 31, 2020 |
| (Dollars in millions) | | Ratio | | Amount | | Ratio | | Amount |
| Common Equity Tier 1 | | | | | | | | |
| First Horizon Corporation | | 9.92 | % | | $ | 6,367 | | | 9.68 | % | | $ | 6,110 | |
| First Horizon Bank | | 10.75 | | | 6,838 | | | 10.46 | | | 6,537 | |
| Tier 1 | | | | | | | | |
| First Horizon Corporation | | 11.04 | | | 7,088 | | | 10.74 | | | 6,782 | |
| First Horizon Bank | | 11.22 | | | 7,133 | | | 10.93 | | | 6,832 | |
| Total | | | | | | | | |
| First Horizon Corporation | | 12.34 | | | 7,918 | | | 12.57 | | | 7,935 | |
| First Horizon Bank | | 12.41 | | | 7,893 | | | 12.52 | | | 7,827 | |
| Tier 1 Leverage | | | | | | | | |
| First Horizon Corporation | | 8.08 | | | 7,088 | | | 8.24 | | | 6,782 | |
| First Horizon Bank | | 8.20 | | | 7,133 | | | 8.36 | | | 6,832 | |
| Other Capital Ratios | | | | | | | | |
| Total period-end equity to period-end assets | | 9.53 | | | | | 9.86 | | | |
| Tangible common equity to tangible assets (c) | | 6.73 | | | | | 6.89 | | | |
| Adjusted tangible common equity to risk weighted assets (c) | | 9.20 | | | | | 8.82 | | | |
(a) The modified CECL transitional amount is calculated as defined in the final rule issued by the banking regulators on August 26, 2020 and includes the full amount of the impact to retained earnings from the initial adoption of CECL plus 25% of the change in the adjusted allowance for credit losses since FHN’s initial adoption of CECL through December 31, 2021.
(b) The $94 million carrying value of the Series D preferred stock does not qualify as Tier 1 capital because the earliest redemption date is less than five years from the issuance date.
(c) Tangible common equity to tangible assets and adjusted tangible common equity to risk-weighted assets are non-GAAP measures and are reconciled to total equity to total assets (GAAP) in the Non-GAAP to GAAP Reconciliation - Table 7.30.
Banking regulators define minimum capital ratios for bank holding companies and their bank subsidiaries. Based on the capital rules and definitions prescribed by the banking regulators, should any depository institution’s capital ratios decline below predetermined levels, it would become subject to a series of increasingly restrictive regulatory actions. The system categorizes a depository institution’s capital position into one of five categories ranging from well-capitalized to critically under-capitalized. For an institution the size of FHN to qualify as well-capitalized, Common Equity Tier 1, Tier 1 Capital, Total Capital, and Leverage capital ratios must be at least 6.50%, 8.00%, 10.00%, and 5.00%, respectively. Furthermore, a capital conservation buffer of 50 basis points above these levels must be maintained on the Common Equity Tier 1, Tier 1 Capital and Total Capital ratios to avoid restrictions on dividends, share repurchases and certain discretionary bonuses. As of December 31, 2021, both FHN and First Horizon Bank had sufficient capital to qualify as well-capitalized institutions and to meet the capital conservation buffer requirement. Capital ratios for both FHN and First Horizon Bank as of
RISK MANAGEMENTDecember 31, 2021 are calculated under the final rule issued by the banking regulators in late August 2020 to delay the effects of CECL on regulatory capital for two years, followed by a three-year transition period.
For both FHN and First Horizon Bank, the risk-based regulatory capital ratios increased in 2021 relative to 2020 primarily from the net positive impact of net income less dividends and share repurchases. FHN's Tier 1 Capital ratio further benefited from the issuance in 2021 of its Series F preferred stock, partially offset by the retirement of its Series A preferred stock. FHN's Total Capital ratio as of December 31, 2021 was unfavorably impacted by the retirement of legacy IBKC trust preferred securities, which qualified as Tier 2 capital. The Tier 1 Leverage ratio for both FHN and First Horizon Bank decreased from December 31, 2020 as a result of an increase in average assets.
During 2022, capital ratios are expected to remain above well-capitalized standards plus the required capital conservation buffer.
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.
| | | | | | | | |
| 88 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
For 2021, FHN and First Horizon Bank completed a company run stress test using the Comprehensive Capital Analysis and Review (CCAR) Resubmission scenarios published in February 2021. Results of these tests indicate that both FHN and First Horizon Bank would be able to maintain capital well in excess of Basel III Adequately Capitalized standards under the hypothetical severe global recession of the 2021 CCAR Resubmission Severely Adverse scenario. A summary of those results was posted in the “News & Events-Stress Testing Results” section on FHN’s investor relations website on June 28, 2021. Neither FHN’s stress test posting, nor any other material found on
FHN’s website generally, is part of this report or incorporated herein.
FHN anticipates that it will continue performing an annual enterprise-wide stress test as part of its capital and risk management process. Results of this test will be presented to executive management and the Board.
The disclosures in this “Stress Testing” section include forward-looking statements. Please refer to “Forward-Looking Statements” for additional information concerning the characteristics and limitations of statements of that type.
Common Stock Purchase Programs
Pursuant to Board authority, FHN may repurchase shares of its common stock from time to time and will evaluate the level of capital and take action designed to generate or use capital, as appropriate, for the interests of the shareholders, subject to legal and regulatory restrictions. FHN’s Board has not authorized a preferred stock purchase program.
General Purchase Program
On January 23, 2018, FHN announced a $250 million share purchase authority with an expiration date of January 31, 2020. On January 29, 2019, FHN announced a $250 million increase in that authority (to $500 million total) along with an extension of the expiration date to January 31, 2021. The 2018 program has been terminated, as described in the next paragraph.
On January 27, 2021, FHN announced that its Board approved a new $500 million common share purchase program that was to expire on January 31, 2023, replacing
the 2018 program, which was terminated. On October 26, 2021, FHN announced that the 2021 program had been increased by $500 million and extended to October 31, 2023. Like the 2018 program, the 2021 program is not tied to any compensation plan. Purchases may be made in the open market or through privately negotiated transactions, including under Rule 10b5-1 plans as well as accelerated share repurchase and other structured transactions. The timing and exact amount of common share repurchases will be subject to various factors, including FHN's capital position, financial performance, capital impacts of strategic initiatives, market conditions and regulatory considerations.
As of December 31, 2021, $401 million in purchases had been made life-to-date under this authority at an average price per share of $16.60, or $16.58 excluding commissions.
Table 7.22a
COMMON STOCK PURCHASES—GENERAL PROGRAM
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollar values and volume in thousands, except per share data) | | 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 |
| 2021 | | | | | | | | |
| October 1 to October 31 | | 1,120 | | | $ | 17.00 | | | 1,120 | | | $ | 723,523 | |
| November 1 to November 30 | | 4,475 | | | $ | 17.19 | | | 4,475 | | | $ | 646,603 | |
| December 1 to December 31 | | 2,925 | | | $ | 16.40 | | | 2,925 | | | $ | 598,646 | |
| Total | | 8,520 | | | $ | 16.89 | | | 8,520 | | | |
|
|
|
(a) Represents total costs including commissions paid
Compensation Plans Purchase Program
A consolidated compensation plan share purchase program was announced on August 6, 2004. This program consolidated into a single share purchase program all of the previously authorized compensation plan share programs, as well as the renewal of the authorization to purchase shares for use in connection with two compensation plans for which the share purchase
authority had expired. The total amount authorized under this consolidated compensation plan share purchase program is 29.6 million shares calculated before adjusting for stock dividends distributed through January 1, 2011. The authorization has been reduced for that portion which relates to compensation plans for which no options remain outstanding. The shares may be purchased over the option exercise period of the various compensation plans on or before December 31, 2023. Purchases may be
| | | | | | | | |
| 89 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
made in the open market or through privately negotiated transactions and are subject to various factors, including FHN's capital position, financial performance, capital impacts of strategic initiatives, market conditions, and regulatory considerations. As of December 31, 2021, the
maximum number of shares that may be purchased under the program was 23 million shares. Management currently does not anticipate purchasing a material number of shares under this authority during 2022.
Table 7.22b
COMMON STOCK PURCHASES—COMPENSATION PLANS PROGRAM
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Volume in thousands, except per share data) | | 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 |
| 2021 | | | | | | | | |
| October 1 to October 31 | | * | | $ | 16.73 | | | * | | 23,150 | |
| November 1 to November 30 | | 2 | | | 17.30 | | | 2 | | | 23,148 | |
| December 1 to December 31 | | 5 | | | 16.26 | | | 5 | | | 23,143 | |
| Total | | 8 | | | $ | 16.59 | | | 8 | | | |
| | | | | | | | |
* Amount is less than 500 shares
Risk Management
FHN derives revenue from providing services and, in many cases, assuming and managing risk for profit which exposes the CompanyFHN to business strategy and reputational, interest rate, liquidity, market, capital adequacy, operational, compliance, legal, and credit risks that require ongoing oversight and management. FHN has an enterprise-wide approach to risk governance, measurement, management, and reporting including an economic capital allocation process that is tied to risk profiles used to measure risk-adjusted returns. Through an enterprise-wide risk governance structure and a statement of risk toleranceappetite approved by the Board, management continually evaluates the balance of risk/return and earnings volatility with shareholder value.
FHN’s enterprise-wide risk governance structure begins with the Board. The Board, working with the Executive & Risk Committee of the Board, establishes the Company’sFHN’s risk toleranceappetite by approving policies and limits that provide standards for the nature and the level of risk the CompanyFHN is willing to assume. The Board regularly receives reports on management’s performance against the Company’sFHN’s risk toleranceappetite primarily through the Board’s Executive & Risk and Audit Committees.
To further support the risk governance provided by the Board, FHN has established accountabilities, control processes, procedures, and a management governance structure designed to align risk management with risk-taking throughout the Company.FHN. The control procedures are aligned with FHN’s four components of risk governance: (1) Specific Risk Committees; (2) the Risk Management Organization; (3) Business Unit Risk Management; and (4) Independent Assurance Functions.
1.Specific Risk Committees: The Board has delegated authority to the Chief Executive Officer to manage Business Strategy and Reputation Risk, and the general business affairs of FHN under the Board’s oversight. The CEO utilizes the executive management team and the Management Risk Committee to carry out these duties and to analyze existing and emerging strategic and reputation risks and determines the appropriate course of action. The Management Risk Committee is comprised of the CEO and certain officers designated by the CEO. The Management Risk Committee is supported by a set of specific risk committees focused on unique risk types (e.g. liquidity, credit, operational, etc.). These risk committees provide a mechanism that assembles the necessary expertise and perspectives of the management team to discuss emerging risk issues, monitor FHN’s risk-taking activities, and evaluate specific transactions and exposures. These committees also monitor the direction and trend of risks relative to business strategies and market conditions and direct management to respond to risk issues.
2.The Risk Management Organization: FHN’s risk management organization, led by the Chief Risk Officer and Chief Credit Officer, provides objective oversight of risk-taking activities. The risk management organization translates FHN’s overall risk appetite into approved limits and formal policies and is supported by corporate staff functions, including the Corporate Secretary, Legal, Finance, Human Resources, and Technology. Risk management also works with business units and functional experts to establish appropriate operating standards and monitor business practices in relation to those standards. Additionally, risk management proactively works with business units
| | | | | | | | |
1. | Specific Risk Committees: The Board has delegated authority to the Chief Executive Officer (“CEO”) to manage Business Strategy and Reputation Risk, and the general business affairs of the Company under the Board’s oversight. The CEO utilizes the executive management team and the Executive Risk Management Committee to carry out these duties and to analyze existing and emerging strategic and reputation risks and determines the appropriate course of action. The Executive Risk Management Committee is comprised of the CEO and certain officers designated by the CEO. The Executive Risk Management 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 the Company’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. 90 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
2.ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
The Risk Management Organization: The Company’s risk management organization, led by the Chief Risk Officer and Chief Credit Officer, provides objective oversight |
| |
3. | Business Unit Risk Management: The Company’s business units are responsible for identifying, acknowledging, quantifying, mitigating, and managing all risks arising within their respective units. They determine and execute their business strategies, which puts them closest to the changing nature of risks and they are best able to take the needed actions to manage and mitigate those risks. The business units are supported by the risk management organization that helps identify and consider risks when making business decisions. Management processes, structure, and policies are designed to help ensure compliance with laws and regulations as well as provide organizational clarity for authority, decision-making, and accountability. The risk governance structure supports and promotes the escalation of material items to executive management and the Board. |
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. | Independent Assurance Functions: Internal Audit, Credit Assurance Services (“CAS”),3.Business Unit Risk Management: FHN’s business units are responsible for identifying, acknowledging, quantifying, mitigating, and managing all risks arising within their respective units. They determine and execute their business strategies, which puts them closest to the changing nature of risks and they are best able to take the needed actions to manage and mitigate those risks. The business units are supported by the risk management organization that helps identify and consider risks when making business decisions. Management processes, structure, and policies are designed to help ensure compliance with laws and regulations as well as provide organizational clarity for authority, decision-making, and accountability. The risk governance structure supports and promotes the escalation of material items to executive management and the Board. 4.Independent Assurance Functions: Internal Audit, Credit Assurance Services, Compliance Testing, and Model Validation provide an independent and objective assessment of the design and execution of FHN’s internal control system, including management processes, risk governance, and policies and procedures. These groups’ activities are designed to provide reasonable assurance that risks are appropriately identified and communicated; resources are safeguarded; significant financial, managerial, and operating information is complete, accurate, and reliable; and employee actions are in compliance with FHN’s policies and applicable laws and regulations. Internal Audit and CAS report to the Chief Audit Executive, who is appointed by and reports to the Audit Committee of the design and execution of the Company’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 the Company’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 |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 88
Board. Internal Audit reports quarterly to the Audit Committee of the Board, while CAS reports quarterly to the Executive & Risk Committee of the Board. Compliance Testing and Model Validation reportsreport to the Chief Risk Officer and reportsreport annually to the Audit Committee of the Board.
MARKET RISK MANAGEMENTMarket 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’s fixed income segment,FHN Financial, but also through non-trading activities which are primarily affected by interest rate risk that is managed by the Asset Liability Committee (“ALCO”)ALCO within FHN.
FHN is exposed to market risk related to the trading securities inventory and loans held-for-saleheld for sale maintained by its Fixed Income divisionFHN Financial in connection with its fixed income distribution activities. Various types of securities inventory positions are procured for distribution to customersclients by the sales staff. When these securities settle on a delayed basis, they are considered forward contracts. Refer to the "Determination of Fair Value - Trading securities and trading liabilities" section of Note 24 - Fair Value of Assets and Liabilities, which section is incorporated into this MD&A by this reference.
FHN’s market risk appetite is approved by the Executive & Risk Committee of the Board of Directors and executed through management policies and procedures of ALCO and the FHN Financial Risk Committee. These policies contain various market risk limits including, for example, overall balance sheet size limits for Fixed Income,
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.
VaRValue-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 percent99% confidence level andwith 1-day and 10-day time horizons. Additionally, FHN computes a Stressed VaR ("SVaR") 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.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 89
A summary of FHN's VaR and SVaR measures for 1-day and 10-day time horizons is as follows:presented in the following table:
Table 27—VaR and SVaR Measures
| | | | | | | | |
| 91 | 2021 FORM 10-K ANNUAL REPORT |
|
| | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2019 | | As of
December 31, 2019 |
| (Dollars in thousands) | | Mean | | High | | Low | |
| 1-day | | | | | | | | |
| VaR | | $ | 1,068 |
| | $ | 1,907 |
| | $ | 503 |
| | $ | 1,325 |
|
| SVaR | | 6,198 |
| | 9,629 |
| | 3,157 |
| | 4,579 |
|
| 10-day | | | | | | | | |
| VaR | | 2,824 |
| | 7,000 |
| | 1,499 |
| | 2,233 |
|
| SVaR | | 17,367 |
| | 28,086 |
| | 8,803 |
| | 14,975 |
|
| | | | | | | | | |
| | | Year Ended December 31, 2018 | | As of
December 31, 2018 |
| (Dollars in thousands) | | Mean | | High | | Low | |
| 1-day | | | | | | | | |
| VaR | | $ | 1,728 |
| | $ | 2,660 |
| | $ | 1,148 |
| | $ | 1,878 |
|
| SVaR | | 9,191 |
| | 11,918 |
| | 6,576 |
| | 8,881 |
|
| 10-day | | | | | | | | |
| VaR | | 3,735 |
| | 5,124 |
| | 2,601 |
| | 3,258 |
|
| SVaR | | 24,762 |
| | 32,343 |
| | 16,257 |
| | 21,621 |
|
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2021 | | As of
December 31, 2021 |
| (Dollars in millions) | | Mean | | High | | Low | |
| 1-day | | | | | | | | |
| VaR | | $ | 1 | | | $ | 4 | | | $ | 1 | | | $ | 2 | |
| SVaR | | 4 | | | 7 | | | 2 | | | 5 | |
| 10-day | | | | | | | | |
| VaR | | 5 | | | 21 | | | 1 | | | 5 | |
| SVaR | | 18 | | | 27 | | | 11 | | | 22 | |
| | | | | | | | |
| | | Year Ended December 31, 2020 | | As of
December 31, 2020 |
| (Dollars in millions) | | Mean | | High | | Low | |
| 1-day | | | | | | | | |
| VaR | | $ | 3 | | | $ | 7 | | | $ | 1 | | | $ | 2 | |
| SVaR | | 5 | | | 18 | | | 1 | | | 2 | |
| 10-day | | | | | | | | |
| VaR | | 13 | | | 25 | | | 2 | | | 10 | |
| SVaR | | 18 | | | 43 | | | 6 | | | 10 | |
FHN’s overall VaR measure includes both interest rate risk and credit spread risk. Separate measures of these component risks are as follows:
Table 28—Schedule of Risks Included in7.24
SCHEDULE OF RISKS INCLUDED IN VaR
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, 2021 | | As of December 31, 2020 |
| (Dollars in millions) | | 1-day | | 10-day | | 1-day | | 10-day |
| Interest rate risk | | $ | 1 | | | $ | 1 | | | $ | 1 | | | $ | 2 | |
| Credit spread risk | | 1 | | | 1 | | | 2 | | | 6 | |
|
| | | | | | | | | | | | | | | | |
| | | As of December 31, 2019 | | As of December 31, 2018 |
| (Dollars in thousands) | | 1-day | | 10-day | | 1-day | | 10-day |
| Interest rate risk | | $ | 693 |
| | $ | 3,929 |
| | $ | 618 |
| | $ | 1,514 |
|
| Credit spread risk | | 417 |
| | 828 |
| | 394 |
| | 596 |
|
The potential risk of loss reflected by FHN’s VaR measures assumes the trading securities inventory is static. Because FHN’s Fixed Income divisionFHN Financial procures fixed income securities for purposes of distribution to customers,clients, its trading securities inventory turns over regularly. Additionally, Fixed IncomeFHNF traders actively manage the trading securities inventory continuously throughout each trading day. Accordingly, FHN’sFHNF’s trading securities inventory is highly dynamic, rather than static. As a result, it would be rare for Fixed IncomeFHNF to incur a negative revenue day in its fixed income activities ofat the levellevels indicated by its VaR measurements.
In addition to being used in FHN’s daily market risk management process, the VaR and SVaR measures are also used by FHN in computing its regulatory market risk capital requirements in accordance with the Market Risk Capital rules. For additional information regarding FHN's capital adequacy refer to the "Capital"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-termlong-
| | | | | | | | |
| 92 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
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 Fixed IncomeFHN Financial have primary responsibility for model risk management
with respect to the model used by FHN to compute its VaR measures and perform stress testing on the trading inventory. Among other procedures, these personnel monitor model results and perform periodic backtesting as part of an ongoing process of validating the accuracy of the model. These model risk management activities are subject to annual review by FHN’s Model Validation Group, an independent assurance group charged with oversight responsibility for FHN’s model risk management.
INTEREST RATE RISK MANAGEMENT
Interest Rate Risk 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 infor 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 customers,clients, the early withdrawal options held by deposit customers,clients, and changes in the basis between and changing shapes of the various yield curves used to price assets and liabilities. To isolate the repricing, basis, option, and yield curve components of overall interest rate risk, FHN employs Gap, Earnings at Risk, and Economic Value of Equity analyses generated by a balance sheet simulation model.
Net Interest Income Simulation Analysis
The information provided in this section, including the discussion regarding the outcomes of simulation analysis and rate shock analysis, is forward-looking. Actual results, if the assumed scenarios were to occur, could differ because of interest rate movements, the ability of management to execute its business plans, and other factors, including those presented in the Forward-Looking Statements section of this MD&A.
Management uses a simulation model to measure interest rate risk and to formulate strategies to improve balance sheet positioning, earnings, or both, within FHN’s interest rate risk, liquidity, and capital guidelines. Interest rate exposure is measured by forecasting 12 months of NII under various interest rate scenarios and comparing the percentage change in NII for each scenario to a base case scenario where interest rates remain unchanged. Assumptions are made regarding future balance sheet composition, interest rate movements, and loan and
deposit pricing. In addition, assumptions are made about the magnitude of asset prepayments and earlier than anticipated deposit withdrawals. The results of these scenarios help FHN develop strategies for managing exposure to interest rate risk. While management believes the assumptions used and scenarios selected in its simulations are reasonable, simulation modeling provides only an estimate, not a precise calculation, of exposure to any given change in interest rates.
Based on a static balance sheet as of December 31, 2019,2021, NII exposures over the next 12 months assuming rate shocks of plus 25 basis points, 50 basis points, 100 basis points, and 200 basis points are estimated to have favorable variances of .5 percent, .8 percent, 2.1 percent, and 3.5 percent, respectively compared to base NII. as shown in the table below.
Table 7.25
INTEREST RATE SENSITIVITY
| | | | | | | | |
Shifts in Interest Rates
(in bps) | | % Change in Projected Net Interest Income |
| +25 | | 3.7% |
| +50 | | 7.6% |
| +100 | | 16.4% |
| +200 | | 29.5% |
A steepening yield curve scenario where long-term
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 90
rates increase by 50 basis points and short-term rates are static, results in a favorable NII variance of .7 percent.0.8%. A flattening yield curve scenario where long-term rates decrease by 50 basis points and short-term rates are static, results in an unfavorable NII variance of 1.1 percent.1.1%. Rate shocks of minus 25 basis points and 50 basis points result in unfavorable NII variances of 1.0 percent1.9% and 2.7 percent.2.7%, assuming the absence of negative rates. These hypothetical scenarios are used to create a risk measurement framework, and do not necessarily represent management’s current view of future interest rates or market developments.
DuringFHN’s net interest income has been impacted by the past few years,disruption from the movementCOVID-19 pandemic and its variants as well as the low-rate environment. The impact of short term
| | | | | | | | |
| 93 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
government stimulus programs and other developments have also influenced net interest income results, although the impacts from these programs have abated, and interest rates higher after a prolonged period of very low interest rates has had an overall positive effect on FHN's NII and NIM. More recently, the Federal Reserve has lowered short term interest rates. However, competitive pressures have caused FHN’s deposit costsare expected to fall slower than the long term “through the cycle” assumptions made in its simulation model. Of the many assumptions made in its simulation model, deposit pricing and deposit mix are two that can have a meaningful impact on measured results. For example,increase in the analysis presented above, interest bearing deposit rates are assumedfuture. FHN continues to decrease by 25 basis points in the -50 basis point scenario. If interest bearing deposit costs were to decline 5 percent less than currently assumed in the -50 basis point scenario, the 2.7 percent unfavorable variance in NII disclosed above for that scenario would deteriorate to a 2.9 percent unfavorable variance.monitor current economic trends and potential exposures closely.
Fair Value Shock Analysis
Interest rate risk and the slope of the yield curve also affect the fair value of Fixed Income’sFHN's trading inventory that is reflected in Fixed Income’s noninterest income.
Generally, low or declining interest rates with a positively sloped yield curve tend to increase Fixed Income’s income through higher demand for fixed income products. Additionally, the fair value of Fixed Income’sFHN'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 Fixed Income’sFHN's securities inventory, certain term borrowings, and certain loans. Additionally, Fixed Income or Regional BankingFHN may enter into derivative contracts in order to meet customers'clients' needs. However, such derivative contracts are typically offset with a derivative contract entered into with an upstream counterparty in order to mitigate risk associated with changes in interest rates.
The simulation models and related hedging strategies discussed above exclude the dynamics related to how fee income and noninterest expense may be affected by actual changes in interest rates or expectations of changes. See Note 22 - Derivatives for additional discussion of these instruments.
CAPITAL RISK MANAGEMENT AND ADEQUACYCapital 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 Management& Stress Testing Committee, chaired by the Senior Vice President and Corporate Treasurer, reports to ALCO and is responsible for capital management oversight and provides a forum for addressing management issues related to capital adequacy. This committee reviews sources and uses of capital, key capital
ratios, segment economic capital allocation methodologies, coordinates the annual enterprise-wide stress testing process, and other factors in monitoring and managing current capital levels, as well as potential future sources and uses of capital. The Capital Management& Stress Testing Committee also recommends capital management policies, which are submitted for approval to ALCO and the Executive & Risk Committee and the Board as necessary.
OPERATIONAL RISK MANAGEMENTOperational 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 customers.clients. This risk is inherent in all businesses. Operational risk is divided into the following risk areas, which have been established at the corporate level to address these risks across the entire organization:
Business Continuity Planning/•Records Management
•Compliance/Legal
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 91
Program Governance
Fiduciary
Financial Crimes (including Bank Secrecy Act, know your customer, security, and fraud)Act)
•Program Governance
•Fiduciary
•Security/Fraud
•Financial (including disclosure controls and procedures)
•Information Technology (including cybersecurity)
Vendor•Model
•Vendor
•Insurance
Management, measurement, and reporting of operational risk are overseen by the Operational Risk, Fiduciary, Financial Governance, FHN Financial Risk, and Strategic Investment Rationalization Board Committees. Key representatives from the business segments, operating units, and supporting units are represented on these committees as appropriate. These governance committees manage the individual operational risk types across the CompanyFHN by setting standards, monitoring activity, initiating actions, and reporting exposures and results. Key Committee activities and decisions are reported to the appropriate governance committee or included in the Enterprise Risk Report, a quarterly analysis of risk within the organization that is provided to the Executive and Risk Committee. Emphasis is dedicated to refinement of processes and tools to aid in measuring and managing material operational risks and providing for a culture of awareness and accountability.
COMPLIANCE RISK MANAGEMENT
| | | | | | | | |
| 94 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
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.Committee and other key Corporate Governance Committees. Key executives
from the business segments, legal, compliance, risk management, and service functions are represented on the Committee.Committees. Summary reports of Committee activities and decisions are provided to the appropriate governance committees. Reports include the status of regulatory activities, internal compliance program initiatives, compliance testing results and evaluation of emerging compliance risk areas.
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 ExecutiveManagement Risk Management 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 customerclient limits to the Executive & Risk Committee of the Board for approval. Adherence to these approved limits is vigorously monitored by Credit Risk which provides recommendations to slow or cease lending to the business lines as commitments near established lending limits. Credit Risk also ensures subject matter experts are
providing oversight, support and credit approvals, particularly in the specialty lending areas where industry-specific knowledge is required. Management emphasizes general portfolio servicing such that emerging risks are able to be spotted early enough to correct potential deficiencies, prevent further credit deterioration, and mitigate credit losses.
The Credit Risk Management function assesses the asset quality trends and results, as well as lending processes, adherence to underwriting guidelines (portfolio-specific underwriting guidelines are discussed further in the Asset Quality Trends section), and utilizes this information to inform management regarding the current state of credit quality and as a factor of the estimation process for determining the allowance for loancredit losses. The CRMC reviews on a periodic basis various reports issued by assurance functions which provide an independent assessment of the adequacy of loan servicing, grading accuracy, and other key functions. Additionally, CRMC is presented with and discusses various portfolios, lending activity and lending-related projects.
All of the above activities are subject to independent review by FHN’s Credit Assurance Services Group. CAS reports to the Chief Audit Executive, who is appointed by and reports to the Audit Committee of the Board, and provides quarterly reports to the Executive & Risk Committee of the Board. CAS is charged with providing the Executive & Risk Committee of the Board and executive management with independent, objective, and timely assessments of FHN’s portfolio quality, credit policies, and credit risk management processes.
LIQUIDITY RISK MANAGEMENTLiquidity Risk Management
Among other things, ALCO also focuses onis 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. ThePolicy of which the objective of the Liquidity Policy is to ensure that FHN meets its cash and collateral obligations promptly, in a cost-effective manner and with the highest degree of reliability. The maintenance of adequate levels of asset and liability liquidity should provide FHN with the
ability to meet both expected and unexpected cash and collateral needs. Key liquidity ratios, asset liquidity levels, and the amount available from funding sources are reported to ALCO on a regular basis. FHN’s Liquidity Policy establishes liquidity limits that are deemed appropriate for FHN’s risk profile.
In accordance with the Liquidity Policy, ALCO manages FHN’s exposure to liquidity risk through a dynamic, real
| | | | | | | | |
| 95 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
time forecasting methodology. Base liquidity forecasts are reviewed by ALCO and are updated as financial conditions dictate. In addition to the baseline liquidity reports, robust stress testing of assumptions and funds availability are periodically reviewed. FHN maintains a contingency funding plan that may be executed should unexpected difficulties arise in accessing funding that affects FHN, the industry, as a whole, or both. Subject to market conditions and compliance with applicable regulatory requirements from time to time, funds are available from a number of sources, including the available-for-sale securities portfolio, dealer and commercial customer repurchase agreements, access to the overnight and term Federal Funds markets, incremental borrowing capacitycapacity at the FHLBFHLB ($3.414.5 billion was available at December 31, 2019)2021), brokered deposits, loan sales, syndications, and access to the Federal Reserve Banks.Bank.
Core deposits are a significant source of funding and have historically been a stable source of liquidity for banks. Generally, core deposits represent funding from a financial institution's customerclient base which provideprovides inexpensive, predictable pricing. The Federal Deposit Insurance CorporationFDIC insures these deposits to the extent authorized by law. Generally, these limits are $250 thousand$250,000 per account owner for interest bearinginterest-bearing and non-interest bearingnoninterest-bearing accounts. The ratio of totalaverage loans, excluding loans HFS and restricted real estate loans, to average core deposits was 98 percent80% on December 31, 20192021 compared to 100 percent99% on December 31, 2018.2020.
FHN may also may use unsecured short-term borrowings as a source of liquidity. Currently, the largest concentration of unsecured borrowings is federalFederal funds purchased from correspondent bank customers. These fundsclients 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 isconsists of securities sold under agreements to repurchase transactions accounted for as secured borrowings with Regional Banking’s business customersclients or Fixed Income’s broker dealer counterparties.
Both FHN and First Horizon Bank may access the debt markets in order to provide funding through the issuance of senior or subordinated unsecured debt subject to market conditions and compliance with applicable regulatory requirements. In 2014, First Horizon Bank issued $400 million of fixed rate senior notes due in December 2019. In October 2015, FHN issued $500 million of fixed rate senior notes due in December 2020. First Horizon Bank early redeemed the $400 million senior debt on November 1, 2019.
Both FHN and First Horizon Bank have the ability to generate liquidity by issuing senior or subordinated unsecured debt, preferred equity, and (for FHN) by issuing common equity, subject to market conditions and compliance with applicable regulatory requirements. In January 2013,May 2021, FHN issued $100$150 million of Series F Non-Cumulative Perpetual Preferred Stock and in July 2021 redeemed its $100 million Series A.A Non-Cumulative Perpetual Preferred Stock. As of December 31, 2019,2021, FHN had outstanding $1.3 billion in senior and subordinated unsecured debt and $520 million in non-cumulative perpetual preferred stock. As of December 31, 2021, First Horizon Bank and subsidiaries had outstanding preferred shares of $295.4$295 million, which are reflected as noncontrolling interest on the Consolidated Statements of Condition.Balance Sheet.
Parent company liquidity is primarily provided by cash flows stemming from dividends and interest payments collected from subsidiaries. These sources of cash represent the primary sources of funds to pay cash dividends to shareholders and principal and interest to debt holders of FHN. The amount paid to the parent company through First Horizon Bank common dividends is managed as part of FHN’s overall cash management process, subject to applicable regulatory restrictions. Certain regulatory restrictions exist regarding the ability of First Horizon Bank to transfer funds to FHN in the form of cash, common dividends, loans, or advances. At any given time, the pertinent portions of those regulatory restrictions allow First Horizon Bank to declare preferred or common dividends without prior regulatory approval in an aggregate amount equal to First Horizon Bank’s retained net income for the two most recentrecently completed years plus the current year to date.year-to-date period. For any period, First Horizon Bank’s
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 92
‘retained "retained net income’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 $331.2 million$1.1 billion as of January 1, 2020.2022. Consequently, on that date the Bank could pay common dividends up to that amount to its sole common stockholder,shareholder, FHN, or to its preferred shareholders without prior regulatory approval. Additionally, a capital conservation buffer must be maintained (as described in the Capital section of this Report) to avoid restrictions on dividends.
First Horizon Bank declared and paid common dividends to the parent company in the amount of $345.0$770 million in 20192021 and $420.0$180 million in 2018.2020. In January 2020,2022, First Horizon Bank declared and paid a common dividend to the parent company in the amount of $65$180 million. During 2019 and 2018, First Horizon Bank declaredpaid preferred dividends in each quarter of 2021 and paid dividends on its preferred stock quarterly. Additionally, First Horizon Bank2020 and declared preferred dividends in the first quarter 2020of 2022 which are payable in April 2020.
Payment of a dividend to shareholders of FHN is dependent on several factors which are considered by the Board. These factors include FHN’s current and prospective capital, liquidity, and other needs, as well as applicable regulatory restrictions (including capital conservation buffer requirements) and also availability of funds to FHN through a dividend from First Horizon Bank. Beginning January 1, 2019, FHN and First Horizon Bank each must maintain a capital conservation buffer or else face dividend restrictions. The buffer is an extra one-half percent above well-capitalized levels (equal to an extra 2.5 percent above minimum levels) for each of three capital ratios: Common Equity Tier 1, Tier 1, and Total Capital. The restrictions would apply to FHN or First Horizon Bank if the buffer is not met for any of those ratios. Additionally, banking regulators generally require insured banks and bank holding companies to pay cash dividends only out of current operating earnings. Consequently, the decision of whether FHN will pay future dividends and the amount of dividends will be affected by current operating results.
FHN paid a cash dividend of $.14$0.15 per common share on January 2, 2020, and in January 2020 the Board approved a $.15 per common share cash dividend payable on April 1, 2020, to shareholders of record on March 13, 2020.3, 2022. FHN paid a cash dividenddividends of $1,550.00$1,625 per Series E preferred share and $1,175 per Series F preferred
| | | | | | | | |
| 96 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
share on January 10, 2020,2022 and $331.25 per Series B preferred share and $165 per Series C preferred share on February 1, 2022. In addition, in January 20202022, the Board approved cash dividends per share in the following amounts:
Table 7.26
CASH DIVIDENDS APPROVED BUT NOT PAID
| | | | | | | | | | | | | | | | | | | | |
| | Dividend/Share | | Record Date | | Payment Date |
| Common Stock | | $ | 0.15 | | | 3/11/2022 | | 4/1/2022 |
| Preferred Stock | | | | | | |
| | | | | | |
| Series C | | $ | 165.00 | | | 4/14/2022 | | 5/2/2022 |
| Series D | | $ | 305.00 | | | 4/14/2022 | | 5/2/2022 |
| | | | | | |
| Series E | | $ | 1,625.00 | | | 3/25/2022 | | 4/11/2022 |
| Series F | | $ | 1,175.00 | | | 3/25/2022 | | 4/11/2022 |
Off-Balance Sheet Arrangements
In the normal course of business, FHN is a $1,550.00 perparty to a number of activities that contain credit, market and operational risk that are not reflected in whole or in part
in the consolidated financial statements. Such activities include traditional off-balance sheet credit-related financial instruments. FHN enters into commitments to extend credit to borrowers, including loan commitments, lines of credit, standby letters of credit, and commercial letters of credit. Many of the commitments are expected to expire unused or be only partially used; therefore, the total amount of commitments does not necessarily represent future cash requirements and are not included in the table below. See Note 17 - Contingencies and Other Disclosures for more information.
Contractual Obligations
The following table sets forth contractual obligations representing required and potential cash outflows as of December 31, 2021. Purchase obligations represent obligations under agreements to purchase goods or services that are enforceable and legally binding on FHN and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction.
Table 7.27
CONTRACTUAL OBLIGATIONS
as of December 31, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments due by period (a) |
| | Less than | | 1 year - | | 3 years - | | After 5 | | |
| (Dollars in millions) | | 1 year | | < 3 years | | < 5 years | | years | | Total |
| Contractual obligations: | | | | | | | | | |
| Time deposit maturities (b) (c) | $ | 3,006 | | | $ | 344 | | | $ | 122 | | | $ | 28 | | | $ | 3,500 | |
| Term borrowings (b) (d) | — | | | 456 | | | 350 | | | 807 | | | 1,613 | |
| Annual rental commitments under noncancelable leases (b) (e) | 49 | | | 85 | | | 76 | | | 238 | | | 448 | |
| Purchase obligations | 160 | | | 145 | | | 56 | | | 13 | | | 374 | |
| Total contractual obligations | $ | 3,215 | | | $ | 1,030 | | | $ | 604 | | | $ | 1,086 | | | $ | 5,935 | |
| | | | | | | | | | |
(a)Excludes a $92 million liability for unrecognized tax benefits as the timing of payment cannot be reasonably estimated.
(b)Amounts do not include interest.
(c)See Note 9 - Deposits for further details.
(d)See Note 11 - Term Borrowings for further details.
(e)See Note 6 - Premises, Equipment and Leases for further details.
Credit Ratings
FHN is currently able to fund a majority of the balance sheet through core deposits, which are generally not as sensitive to FHN’s credit ratings as other types of funding. However, maintaining adequate credit ratings on debt issues and preferred share cash dividend payable on April 10, 2020,stock is critical to shareholdersliquidity 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 record on March 26, 2020.funds other than core deposits is also dependent upon
marketplace perceptions of the financial soundness of FHN, which include such factors as capital levels, asset quality, and reputation. The availability of core deposit funding is stabilized by federal deposit insurance, which can be removed only in extraordinary circumstances, but may also be influenced to some extent by the same factors that affect other funding sources. FHN’s credit ratings are also referenced in various respects in
| | | | | | | | |
| 97 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
agreements with certain derivative counterparties as discussed in Note 22 - Derivatives.
The following table provides FHN’s most recent credit ratings:
Table 7.28
CREDIT RATINGS
FHN is currently able to fund a majority of the balance sheet through core deposits, which are generally not as sensitive to FHN’s credit ratings as other types of funding. However, maintaining adequate credit ratings on debt issues and preferred stock is critical to liquidity should FHN need to access funding from other sources, including from long-term debt issuances and certain brokered deposits, at an attractive rate. The availability and cost of funds other than core deposits is also dependent upon marketplace perceptions of the financial soundness of FHN, which include such factors as capital levels, asset quality, and reputation. The availability of core deposit funding is stabilized by federal deposit insurance, which can be removed only in extraordinary circumstances, but may also be influenced to some extent by the same factors that affect other funding sources. FHN’s credit ratings are also referenced in various respects in agreements with certain derivative counterparties as discussed in Note 22 - Derivatives.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 93
The following table provides FHN’s most recent credit ratings:
Table 29 - Credit Ratings
|
| | | | | | | | | | | | | | | | |
| | Moody's (a) | | Fitch (b) | |
First Horizon National Corporation | | | | |
| Overall credit rating: Long-term/Short-term/Outlook | Baa3/--/Stable | | BBB/F2/StablePositive | |
| Long-term senior debt | Baa3 | | BBB | |
| Subordinated debt (c) | Baa3 | | BBB- | |
| Junior subordinated debt (c) | Ba1 | | BB- | |
| Preferred stock | Ba2 | | B+BB- | |
| First Horizon Bank | | | | |
| Overall credit rating: Long-term/Short-term/Outlook | Baa3/P-2/Stable | | BBB/F2/StablePositive | |
| Long-term/short-term deposits | A3/P-2 | | BBB+/F2 | |
| Long-term/short-term senior debt (c) | Baa3/P-2 | | BBB/F2 | |
| Subordinated debt (c) | Baa3 | | BBB- | |
| Preferred stock | Ba2 | | B+BB- | |
| FT Real Estate Securities Company, Inc. | | |
| Preferred stock | Ba1 | |
| |
A rating is not a recommendation to buy, sell, or hold securities and is subject to revision or withdrawal at any time and should be evaluated independently of any other rating.
(a) Last change in ratings was on May 14, 2015; ratings/outlook affirmed on November 5, 2019.
(b) Last change in ratings was on May 20, 2019; ratings/6, 2020; ratings affirmed and outlook affirmedrevised to Positive on November 5, 2019.May 18, 2021.
(c) Ratings are preliminary/implied.
CASH FLOWS
The Consolidated Statements of Cash Flows provide information on cash flows from operating, investing, and financing activities for the years ended December 31, 2019, 2018, and 2017. The level of cash and cash equivalents decreased $138.4 million during 2019 compared to a decrease of $46.7 million during 2018 and an increase of $414.3 million in 2017.
Net cash used by investing activities was $2.4 billion in 2019, largely driven by an increase in loan balances somewhat offset by a decrease in interest-bearing cash and a net decrease in AFS debt securities, as maturities and sales outpaced purchases. Net cash provided by financing activities was $1.4 billion in 2019, primarily driven by an increase in short-term borrowings somewhat offset by a decrease in term borrowings, deposits, share repurchases and cash dividends paid during 2019. The increase in short-term borrowings was primarily the result of an increase in FHLB borrowings, which fluctuate largely based on loan demand, deposit levels and balance sheet funding strategies. The decrease in term borrowing was primarily the result of FHN's redemption of $400 million of senior debt during fourth quarter 2019. Net cash provided by operating activities was $830.3 million in 2019 due in large part to net cash inflows of $1.4 billion related to a decrease in fixed income trading securities and favorably driven cash-related net income items. Cash outflows of $1.3 billion related to loans HFS negatively impacted operating cash flows during 2019 as purchases of government guaranteed loans outpaced sales, including the sale of approximately $25 million UPB of subprime consumer loans in 2019.
Net cash used in financing activities was $761.4 million in 2018, driven by a decrease in short-term borrowings and to a lesser extent cash dividends paid and share repurchases, somewhat offset by an increase in deposits. The decrease in short-term borrowings was primarily the result of a decline in FHLB borrowings. The increase in deposits was due in large part to increases in savings and time deposits as a result of FHN's strategic focus on growing deposits. Net cash provided by investing activities was $480.4 million in 2018, driven by proceeds from the sales of FHN's remaining Visa Class B shares and net decreases in the AFS and loan portfolios. Proceeds from the sales and payoffs of TRUPS loans and OREO during 2018 also favorably impacted cash flows in 2018. A decrease in interest-bearing cash, cash paid associated with the cancellation of common shares in connection with CBF dissenting shareholders, and cash paid related to the divestiture of two branches negatively impacted investing cash flows during 2018. Net cash provided by operating cash flows was $234.3 million in 2018. A $1.0 billion net decrease in fixed income trading activities and favorably driven cash-related net income items positively impacted operating cash flows in 2018, but were somewhat offset by cash outflows of $1.4 billion related to a net increase in
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 94
loans HFS, as purchases of government guaranteed loans outpaced sales, including the sale of approximately $120 million of subprime auto loans.
Net cash provided by financing activities was $1.8 billion in 2017, largely driven by cash inflows of $2.1 billion related to an increase in short-term borrowings, primarily FHLB borrowings used to fund loan growth; however these were somewhat offset by a decrease in deposit balances and cash dividends. Net cash used by investing activities was $1.3 billion in 2017 primarily driven by increases in loan balances and interest-bearing cash of $808.4 million and $121.4 million, respectively, as well as $336.6 million of net cash payments associated with the CBF and Coastal acquisitions. Net cash used by operating activities was $28.8 million in 2017 as operating cash flows were negatively impacted by a net increase in loans HFS within the fixed income segment as well as cash outflows of $384.2 million related to fixed income activities, but were favorably impacted by cash-related net income items and a $223.8 million net decrease in operating assets and liabilities.
REPURCHASE OBLIGATIONS, OFF-BALANCE SHEET ARRANGEMENTS, AND OTHER CONTRACTUAL OBLIGATIONS
Obligations from Pre-2009 Mortgage Businesses
Prior to September 2008, FHNlegacy First Horizon originated loans through its pre-2009 mortgagemortgage business, primarily first lien home loans, with the intention of selling them. Sales typically were effected either as non-recourse whole loan sales or through non-recourse proprietary securitizations. Conventional conforming single-family residential mortgage loans were sold predominately to two government-sponsored entities, or "GSEs": Fannie Mae and Freddie Mac. Also, federally insured or guaranteed whole loans were pooled, and payments to investors were guaranteed through Ginnie Mae. Many mortgage loan originations, especially nonconforming mortgage loans, were sold to investors, or certificate-holders, predominantly through First Horizon proprietary securitizations but also, to a lesser extent, through other whole loans sold to private non-Agency purchasers. FHN used only one trustee for all of its First Horizon proprietary securitizations. In addition to First Horizon proprietary securitization and other whole loan sales activities, FHN also originated and sometimes sold or securitized second-lien, line of credit, and government-insured mortgage loans.
From these pre-2009 activities, FHN has incurred substantial losses stemming from obligations to repurchase loans, pay make-whole amounts, or otherwise resolve claims that loans which FHN originated, or FHN's servicing of those loans, were deficient in a manner for which FHN was liable. Many years ago, FHN established a repurchase and foreclosure liability, or reserve, in connection with those claims. FHN has settled many claims, and the reserve is reduced each time a claim is settled. As discussed in Note 17 - Contingencies and Other Disclosures, FHN's principal remaining exposures for those activities relate to (i) indemnification claims by underwriters, loan purchasers, and other parties which assert that FHN-originated loans caused or contributed to losses which FHN is legally obliged to indemnify, and (ii) indemnification or other claims related to FHN's servicing of pre-2009 mortgage loans.
Servicing Obligations
FHN's national servicing business was sold as part of the platform sale in 2008. A significant amount of mortgage servicing rights ("MSR") was sold at that time, and a significant amount was retained. The related servicing activities, including foreclosure and loss mitigation practices, not sold in 2008 were outsourced including a subservicing arrangement initiated in 2011 (the "2011 subservicer"). In fourth quarter 2013 and first quarter 2014, FHN sold and transferred a substantial majority of its remaining servicing obligations and servicing assets (including advances) to the 2011 subservicer. The servicing still retained by FHN is not significant and continues to be subserviced.
As servicer, FHN had contractual obligations to the owners of the loans (primarily GSEs) and securitization trustees to handle billing, custodial, and other tasks related to each loan. Each subservicer undertook to perform those obligations on FHN's behalf during the applicable subservicing period, although FHN legally remained the servicer of record for those loans that were subserviced.
As mentioned in Note 17 - Contingencies and Other Disclosures - FHN has received a notice of indemnification claims from its 2011 subservicer, Nationstar Mortgage LLC, currently doing business as "Mr. Cooper." The notice asserts several categories of indemnity obligations by FHN to Nationstar in connection with mortgage loans under the subservicing arrangement and under the purchase transaction. This matter currently is not in formal litigation, but litigation in the future is possible.
Repurchase Accrual Methodology
FHN’s approach for determining the adequacy of the repurchase and foreclosure reserve has evolved, sometimes substantially, based on changes in information available. Repurchase/make-whole rates vary based on purchaser, vintage, and claim type. For those loans repurchased or covered by a make-whole payment, cumulative average loss severities range between 50 and 60 percent of the UPB.
Repurchase Accrual Approach
In determining potential loss content, claims are analyzed by purchaser, vintage, and claim type. FHN considers various inputs including claim rate estimates, historical average repurchase and loss severity rates, mortgage insurance cancellations, and mortgage insurance curtailment requests. Inputs are applied to claims in the
active pipeline, as well as to historical average inflows to estimate loss content related to potential future inflows. Management also evaluates the nature of claims from purchasers and/or servicers of loans sold to determine if qualitative adjustments are appropriate.
| | | | | | | | |
| 98 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Repurchase and Foreclosure Liability
TheFHN's repurchase and foreclosure liability, primarily related to its pre-2009 mortgage business, is comprised of accruals to cover estimated loss content in the active pipeline (consisting of mortgage loan repurchase, make-whole, foreclosure/servicing demands and certain related exposures), estimated future inflows, and estimated loss content related to certain known claims not currently included in the active pipeline. The
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 95
liability contemplates repurchase/make-whole and damages obligations and estimates for probable incurred losses associated with loan populations excluded from the settlements with the
GSEs, as well as other whole loans sold, mortgage insurance cancellations rescissions, and loans included in bulk servicing sales effected prior to the settlements with the GSEs. FHN compares the estimated probable incurred losses determined under the applicable loss estimation approaches for the respective periods with current reserve levels. Changes in the estimated required liability levels are recorded as necessary through the repurchase and foreclosure provision. The repurchase and foreclosure liability decreased to $14.5was $17 million on December 31, 2019 from $32.3and $16 million on December 31, 2018, primarily driven by a $12.6 million payment related to a complete settlement with a single party during second quarter 2019.
Other Contractual Obligations
Pension obligations are funded by FHN to provide current and future benefits to participants in FHN’s noncontributory, defined benefit pension plan. On December 31, 2019, the annual measurement date, pension obligations (representing the present value of estimated future benefit payments), including obligations of the unfunded plans, were $835.9 million with $826.1 million of assets (measured at current fair value) in the qualified plan’s trust to fund the qualified plan’s obligations. The discount rate for 2019 of 3.31 percent for the qualified pension plan and 3.08 percent for the nonqualified supplemental executive retirement plan was determined by using a hypothetical AA yield curve represented by a series of annualized individual discount rates from one-half to thirty years. The discount rates for the pension and nonqualified supplemental executive retirement plans are selected based on data specific to FHN’s plans and participant populations. See Note 18 - Pension, Savings, and Other Employee Benefits for additional information. As of December 31, 2019, the plan assets exceeded the projected benefit obligation and the accumulated benefit obligation for the qualified pension plan. Decisions to contribute to the plan are based upon pension funding requirements under the Pension Protection Act, the maximum amount deductible under the Internal Revenue Code, the actual performance of plan assets, and trends in the regulatory environment. FHN made no contributions to
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 96
the qualified pension plan in 2019 and 2017, and made an insignificant contribution to the qualified pension plan in 2018. Management does not currently anticipate that FHN will make a contribution to the qualified pension plan in 2020.
The nonqualified pension plans and other postretirement benefit plans, excluding the retiree medical plan, are unfunded. Benefit payments under the non-qualified plans were $5.2 million in 2019. FHN anticipates 2020 benefit payments to be $5.2 million.
FHN has various other financial obligations which may require future cash payments. The following table sets forth contractual obligations representing required and potential cash outflows as of December 31, 2019. Purchase obligations represent obligations under agreements to purchase goods or services that are enforceable2021 and legally binding on FHN and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. In addition, FHN enters into commitments to extend credit to borrowers, including loan commitments, standby letters of credit, and commercial letters of credit. These commitments do not necessarily represent future cash requirements in that these commitments often expire without being drawn upon and are not included in the table.2020, respectively.
Table 30—Contractual Obligations as of December 31, 2019Market Uncertainties & Prospective Trends
|
| | | | | | | | | | | | | | | | | | | | |
| | | Payments due by period (a) |
| | | Less than | | 1 year - | | 3 years - | | After 5 | | |
| (Dollars in thousands) | 1 year | | < 3 years | | < 5 years | | years | | Total |
| Contractual obligations: | | | | | | | | | |
| Time deposit maturities (b) (c) | $ | 2,824,792 |
| | $ | 641,798 |
| | $ | 133,059 |
| | $ | 18,688 |
| | $ | 3,618,337 |
|
| Term borrowings (b) (d) | 500,000 |
| | 236 |
| | — |
| | 316,661 |
| | 816,897 |
|
| Annual rental commitments under noncancelable leases (b) (e) | 26,594 |
| | 48,180 |
| | 44,911 |
| | 156,524 |
| | 276,209 |
|
| Purchase obligations | 92,844 |
| | 63,796 |
| | 24,383 |
| | 3,976 |
| | 184,999 |
|
| Total contractual obligations | $ | 3,444,230 |
| | $ | 754,010 |
| | $ | 202,353 |
| | $ | 495,849 |
| | $ | 4,896,442 |
|
| |
(a) | Excludes a $24.4 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 - Time Deposit Maturities for further details. |
| |
(d) | See Note 10 - Term Borrowings for further details. |
| |
(e) | See Note 6 - Premises, Equipment and Leases for further details. |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 97
MARKET UNCERTAINTIES AND PROSPECTIVE TRENDS
FHN’s future results could be affected both positively and negatively by several known trends. Key among those are FHN’s strategic initiatives, changes in the U.S. and global economy and outlook, government actions affecting interest rates, government actions intended to stimulate the economy, and government actions and proposals which could have negative impacts on the economy at large or on certain businesses. Additional risks relate to how the COVID-19
pandemic continues to affect FHN’s clients, political uncertainty, and potential changes in federal policies including changes to the government's approach to tariffs(including those publicly discussed, formally proposed, or recently implemented) and the potential impact toimpacts of those changes on our customers. In addition, pre-2009 mortgage business mattersbusinesses and clients, and whether FHN’s strategic initiatives will succeed.
Federal Reserve Policy in the Non-strategic segment could continue to impact FHN’s quarterly results in ways which are both difficult to predict and unrelated to current operations.Transition
FHN has prioritized expense discipline to include reducing or controlling certain expenses including realization of expense efficiencies from the merger with CBF and investing in revenue-producing activities, customer-facing technology, and critical infrastructure. FHN remains committed to organic growth through customer retention, key hires, targeted incentives, and other traditional means.
Performance by FHN, and the entire U.S. financial services industry, is affected considerably by the overall health of the U.S. and global economy and outlook. Furthermore, FHN may be indirectly impacted by global events that impact our customers and their businesses. The most recent recession ended in 2009. During the U.S. economic expansion since 2009, growth was muted compared to earlier recoveries. In the past several years, growth has been more robust and more volatile, impacted (up or down) by several significant events such as U.S. tax and regulatory reform, protracted U.S. tariffs and trade negotiations with major foreign trading partners, and, in 2019, an abrupt change in U.S. interest rate policy. Because few expansions last longer than ten years, it is uncertain how much longer the current expansion will continue even though, currently, indications of impending weakness are modest and mixed.
In 2018,March 2020, the Federal Reserve raised"eased" by lowering short-term interest rates by .25 percent four times following similar, but less frequent, raisesand starting in 2015. These actions, along with a decline in long-terman asset purchase program intended to lower longer-term interest rates flattenedand foster access to credit. The effective yields of 10-year and 30-year U.S. Treasury securities achieved record low rates. These changes in interest rates and the yield curve. Earlyvolatility in 2019,the market negatively impacted FHN’s net interest margin. Amortization of net processing fees related to government relief programs associated with the COVID-19 pandemic, including the Paycheck Protection Program, offset a portion of the net interest margin decline.
During 2021, easing policy continued. For most of the year interest rates fluctuated but remained very low, continuing to adversely impact FHN's net interest margin. Late in 2021 the Federal Reserve signaled the possibility of pausingannounced that it will moderate and eventually reverse its easing policy, starting by reducing ("tapering") its asset purchases. The Federal Reserve's public comments suggest (without any guarantee) that tapering will conclude early in 2022, after
which no further increasesasset purchases will be made, and that hikes in short-term rates will commence in 2022, possibly in the first quarter. FHN cannot predict whether short term interest rates while economic trends were evaluated. Thewill be raised during the taper period or at any other point in time.
Long term interest rates started to rise late in 2021, continuing in 2022, though they remain very low by historical standards. Public expectations related to tapering, coupled with public Federal Reserve implemented .25 percent cutscomments and concerns about inflation in the U.S., likely have been significant contributors to short-termrecent changes in long-term rates.
Recently the Federal Reserve has indicated an expectation to reduce its asset holdings in 2022 after purchases have stopped. Although not currently expected, it is possible that the Federal Reserve may decide to sell assets, rather than merely letting them mature, in an effort to increase long term interest rates three times during 2019. This volatilitymore quickly or more robustly.
COVID-19 Pandemic
The COVID-19 pandemic caused extraordinary disruption that negatively impacted the economy and business activity, especially lending (other than lending related to home mortgages). The impact of the pandemic on FHN's performance is discussed further in 2019 contributedResults of Operations within this Item 7 beginning on page 63. During the course of 2021, FHN saw the lending pipeline improve in several areas (unrelated to improved performancehome mortgages) as COVID-19 restrictions were partially or fully eased in mortgage warehousemost of FHN's markets. Late in 2021 and continuing into early 2022, the Omicron variant of the COVID-19 virus has triggered reinstatement of some restrictions in some markets. Even so, broadly speaking FHN expects the impact of COVID-19 restrictions to continue to diminish over the rest of this year with further progress in vaccination rates and in treatments for those who are infected. However, as demonstrated by variants that arose in 2021, the risk of resurgence remains.
| | | | | | | | |
| 99 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
FHN continues to closely monitor the impact of the pandemic and its effects on FHN's clients and communities and on the financial markets. Throughout the pandemic, FHN has worked with clients to discuss challenges and solutions, provide line draws and new
extensions to existing clients, provide support for small businesses (including lending through the PPP), and provide lending and deposit assistance through deferrals and waived fees.
LIBOR & Reference Rate Reform
LIBOR
The London Inter-Bank Offered Rate ("LIBOR") has been the most widely used reference rate in the Regional Banking segmentworld for many years. A substantial majority of FHN's floating rate loans use LIBOR, denominated in U.S. Dollars ("USD"), as the reference rate to determine the interest rate paid by the client/borrower. In addition, certain floating-rate securities issued by FHN use USD LIBOR as the reference rate.
LIBOR is based on a mix of transaction-based data and FHN's Fixed Income segment. In 2020, loweredexpert judgment about market conditions. It is published in different tenors, which are time periods such as 1-week, 1-month, 12-month, etc.
LIBOR Discontinuance
About a decade ago, evidence emerged that some members of the panel that set LIBOR may have manipulated the published LIBOR rates will put downward pressure on FHN's net interest margin, and 2019's volatility may abate. However, current expectations that rates are stable, at current (relatively low) levels, appear to have benefited the economy by, at a minimum, removing 2018's threat of rising rate.rather than using strictly good-faith judgments. Several banks were fined.
In 2017, the Chief Executive of the United Kingdom Financial Conduct Authority which regulates (the “FCA”)—the London InterBank Offered Rate (“LIBOR”), governmental regulator of LIBOR—announced that it intends to halt persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. As a result,In 2021, the FCA announced that tenors of USD LIBOR will no longer be published as follows:
•One week and 2-month USD LIBOR will not be published after December 31, 2021; and
•All other USD LIBOR tenors (e.g., overnight, 1-month, 3-month, 6-month and 12-month tenors) will not be published after June 30, 2023.
U.S. Regulatory Position
In 2020, the Federal Reserve, the OCC, and the FDIC jointly encouraged U.S. banks to transition away from LIBOR for new contracts as soon as practicable and, in any event, by December 31, 2021. They noted that entering into new contracts that use LIBOR as currently operateda reference rate after December 31, 2021 would create safety and soundness risks.
Alternatives to LIBOR
LIBOR became the market-preferred reference rate because it was perceived by lenders and borrowers as being superior to alternatives in a wide range of circumstances. FHN believes that no single alternative reference rate will immediately replace LIBOR for USD transactions. Instead, FHN believes it is likely that different
alternatives will be used in different circumstances. Although it is difficult to predict which alternatives will be favored by market participants in any particular situation, at this time it seems likely that the following alternative reference rates may be used by market participants once USD LIBOR is discontinued:
•SOFR. The Alternative Reference Rates Committee (“ARRC”) is a group of private-market and financial regulator participants convened by the Federal Reserve and the New York Federal Reserve Bank to help ensure a successful transition from USD LIBOR to a more robust reference rate. The ARRC has recommended the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative. SOFR is based on actual transaction data for the U.S. Treasury repurchase market. Accordingly, SOFR represents a riskless secured overnight rate.
•Term SOFR. Published by CME Group, Term SOFR is a forward-looking rate, with 1-month, 3-month and 6-month tenors, and is based on SOFR futures contracts. The ARRC has recommended conventions for Term SOFR rates and has recommended CME Group as the administrator for Term SOFR.
•AMERIBOR. The American Interbank Offered Rate (“AMERIBOR”) Index is produced by the American Financial Exchange. AMERIBOR is based on actual transaction data involving credit decisions by many financial institutions, on an unsecured basis.
•BSBY. The Bloomberg short-term bank yield index ("BSBY") is a proprietary rate index calculated and published by Bloomberg Index Services Limited. BSBY is based on actual transaction data involving unsecured credit.
•Prime. Although traditional prime rates (with each bank setting its own) are not likely to regain the prominence they had decades ago when U.S. banks were much smaller and the industry was more fragmented, for some clients and products banks may increase their usage of prime rates.
The alternatives listed above were made available to the majority of FHN’s commercial clients starting in November 2021. In accordance with the U.S. regulatory position, FHN ceased entering into new LIBOR based contracts as of December 31, 2021. Other alternative reference rates are being developed and FHN may consider them at a future time.
| | | | | | | | |
| 100 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Each alternative reference rate has advantages and disadvantages compared with other alternatives in various circumstances. Despite being supported by the Federal Reserve's ARRC, SOFR may not continue after 2021. FHNgain the level of market acceptance and usage that USD LIBOR enjoyed within the U.S. Key aspects of SOFR that support this view are: (a) SOFR fundamentally is an overnight rate, and so is not currently ableeasily or reliably translated into typical LIBOR tenors; and (b) SOFR is both secured and riskless, and so does not necessarily track a bank's cost of funds very well. For a bank, it is critical to predict the impact that the transition from LIBOR will have on the Company; however, because FHN has instruments with floating rate terms based on LIBOR, FHN may experience increases inavoid significant mismatches over time between its (variable) cost of funds and its (variable) interest dividends, and other costs relative to these instruments subsequent to 2021. Additionally, the transition from LIBOR could impact or change FHN’s hedge accounting practices. FHN has initiated efforts to 1) develop an inventory of affected loans, securities, and derivatives, 2) evaluate and draft modifications as neededincome. Term SOFR attempts to address loans outstanding atsome of these shortcomings, but not all of them.
All of the timealternative reference rates selected by FHN to date meet the International Organization of LIBOR retirement, 3) obtainSecurities Commissions (IOSCO) Principles for Financial Benchmarks, as affirmed by the rate administrator and/or an understandingindependent auditor. While banking regulators have stated that banks are free to choose the index rates they offer clients, some public sector officials have urged caution in using the new credit sensitive alternative reference rates, primarily due to the robustness of underlying data used to derive the rates. More specifically, there is concern of an “inverted pyramid” effect where a large number of financial contracts could be priced using an index derived from a relatively low volume of transactions. In an interagency statement on October 20, 2021, U.S. banking regulatory agencies noted that “supervised institutions should understand how their chosen reference rate is constructed and be aware of any fragilities associated with that rate and the markets that underlie it”. IOSCO has also warned of the potential effects for applicablethe “inverted pyramid” problem and will monitor how the IOSCO label is used by administrators.
FHN is monitoring the credit sensitive reference rates and regulatory guidance around use of such rates. FHN plans to limit use of credit sensitive rates to commercial loans (~2% of global USD LIBOR market) and related customer swaps (pending development of derivatives markets for these rates). Additionally, FHN expects that each financial contract will contain fallback language to guide transition from a credit sensitive rate to an alternative should that action be deemed necessary in the future.
FHN's Actions to Date & Transition Plans
Starting in 2019, legacy First Horizon and legacy IBERIABANK both modernized the fallback language used in their loan documentation to better handle how floating rate loans would be re-set if LIBOR ceased to be published during the loan term.
In the fourth quarter of 2021, FHN ceased using USD LIBOR for new lending and renegotiated terms with clients whose loans are based on 1-week or 2-month USD LIBOR, which ceased publication at the end of 2021. Only a small portion of FHN's clients had such loans.
On the consumer side, the only LIBOR-based product FHN currently offers was adjustable rate mortgages. For new originations, these products transitioned to SOFR beginning in November 2021. SOFR is emerging as a market standard for adjustable rate mortgages and is the conforming convention for Fannie Mae and Freddie Mac.
For all products, FHN developed a go-to-market strategy which included pricing considerations, associate training, and client communications. All required systems, processes, and reporting were updated to accommodate the transition. Each of the leading alternatives mentioned above is undergoing further development and refinement, and it remains unclear which alternative(s) FHN and its clients generally will prefer, and in which situations. Given these considerations, FHN's plans may change to meet evolving market conditions and preferences.
FHN has established a LIBOR Transition Office to assist associates in working with their clients to re-negotiate terms of loan and derivative contracts that extend past the June 30, 2023 cessation date for the remaining USD LIBOR tenors noted above.
While FHN has exposure to LIBOR in various contracts (e.g. securities, derivatives), FHN's primary exposure to LIBOR is in floating rate loans to customers and derivative contracts issued to customers through FHN Financial. Below is a summary of these exposures as of December 31, 2021:
Table 7.29
LIBOR EXPOSURES | | | | | | | | |
| (Dollars in billions) | As of
December 31, 2021 | Mature after
June 2023 |
| Commercial loans (a) | $ | 25 | | $ | 17 | |
| Consumer loans (a) | 4 | | 4 | |
| Customer swaps (b) | 11 | | 10 | |
| | |
(a) Amounts represent outstanding loan balances as of December 31, 2021.
(b) FHN has entered into offsetting upstream transactions with dealers to offset its market risk exposure.
FHN is assessing the potential impacts on LIBOR-based securities and derivatives and 4) assess revisions to product pricing structures based on alternative reference rates. Bothderivative instruments.
| | | | | | | | |
| 101 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Financial Accounting Aspects
In 2020, the FASB issued ASU 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides several optional expedients and exceptions to ease the potential burden in accounting for reference rate reform. The scope of ASU 2020-04 was expanded in 2021 with ASU 2021-01, "Scope". Refer to the Accounting Changes Issued but Not Currently Effective section of Note 1 - Significant Accounting Policies for additional information.
In December 2021, the FASB voted to extend the relief under Topic 848 (Reference Rate Reform) by two years, from December 31, 2022 to December 31, 2024.
U.S. Tax Accommodation
On December 30, 2021, the IRS have released proposalsfinal guidance that areis intended to facilitate the transition of existing contracts from LIBOR to new reference rates without triggering modification accounting or taxable exchange treatment for those contracts. Each proposal contains specificThis guidance thatspecifies what must be met in order to qualify for the beneficial transition approach and FHN is considering this guidance in its transition plans.
Lastly, while FHN has resolved most matters from the pre-2009 mortgage business, some remain unresolved. The timing or financial impact of resolution of these matters cannot be predicted with accuracy. Accordingly, the non-strategic segment is expected to occasionally
Critical Accounting Policies & Estimates
Allowance for Loan and unexpectedly impact FHN’s overall quarterly results negatively or positively with reserve accruals or releases. Also, although new pre-2009 mortgage business matters of significance arise at a much slower pace than in years past and some formerly common legal claims no longer can be made due to the passage of time, potential for new pre-2009 mortgage business matters remains.
Foreclosure Practices
FHN retains exposure for potential deficiencies in servicing related to its pre-2009 mortgage servicing business and subservicing arrangements. Further details regarding these matters are provided in "Obligations from Pre-2009 Mortgage Businesses - Servicing Obligations" under "Repurchase Obligations, Off-Balance Sheet Arrangements, and Other Contractual Obligations."
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 98
CRITICAL ACCOUNTING POLICIES
ALLOWANCE FOR LOAN LOSSES
Management’s policy is to maintain the ALLL at a level sufficient to absorb estimated probable incurredexpected 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 loan portfolio. Accounting standards require that loan losses be recorded when management
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 99
determines it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. 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, often underincluding evaluation of inherently uncertain future economic conditions, and (3) prepayment activity must be projected to estimate the life of loans that often are shorter than contractual terms, (4) it requires management to distinguish between losses incurred asestimation of a balance sheet datereasonable 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 tofuture recoveries of amounts previously charged off must be incurred in the future.estimated. Accordingly, this is a highly subjective process and requires significant judgment since it is often difficult to determine when specificevaluate current and future economic conditions in relation to an overall credit cycle and estimate the timing and extent of loss events may actually occur. The ALLL is increased by the provision for loan lossesthat are expected to occur prior to end of a loan’s and recoveries and is decreased by charged-off loans. Principal loan amounts are charged off against the ALLL in the period in which the loan or any portion of the loan is deemed to be uncollectible. This critical accounting estimate applies to the regional banking, non-strategic, and corporate segments. A management committee comprised of representatives from Risk Management, Finance, Credit, and Treasury performs a quarterly review of the assumptions used in FHN’s ALLL analytical models, makes qualitative assessments of the loan portfolio, and determines if qualitative adjustments should be recommended to the modeled results. On a quarterly basis, as a part of Enterprise Risk reporting and discussion, management addresses credit reserve adequacy and credit losses with the Executive and Risk Committee of FHN’s Board of Directors.leases's estimated life.
FHN believes that the criticalprincipal 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) known significant loss events thatthe lives for loan portfolio pools have occurred were consideredbeen estimated properly, including consideration of expected prepayments; (5) the economic forecasts utilized
and associated weighting selected by management at the time of assessing the adequacy of the ALLL; (5) the adjustments for economic conditions utilized in the allowancemodeling 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 losses estimate represent actual incurred losses; (6)portfolio segments have been properly determined; (8) the reversion methodologies and timeframes for migration from the reasonable and supportable period to the use of history used for historical loss factorsrates are most reflectivereasonable; (9) expected recoveries of the current environment; (7) the estimate of the time it takes for a loss event to occur and loss to be recognized (the loss emergence period) is most reflective of the current environment; and (8) the reserve rates, as well as other adjustments estimated by management for current events, trends, and conditions, utilized in the process reflect an estimate of losses thatprior charge off amounts have been incurredproperly estimated; and (10) qualitative adjustments to modeled loss results reasonably reflect expected future credit losses as of the date of the financial statements.
While management uses the best information available to establish the ALLL, future adjustments to the ALLL and methodology may be necessary if economic or other conditions differ substantially from the assumptions used in making the estimates. Such adjustments to originalprior estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels vary from previous estimates.
Selection and weighting of macroeconomic forecasts are the most significant inputs in quantitative ALLL calculations. Due to the sensitivity of the ALLL determination to macroeconomic forecasts, changes in those forecasts can result in materially different results between reporting periods. In the determination of the ALLL as of December 31, 2021, FHN utilized Moody's Baseline, S1 (more favorable) and S3 (adverse) scenarios for the calculation of the ALLL. FHN placed the most weight on Moody's Baseline scenario but also included weightings for S1 and S3 scenarios, primarily to reflect the uncertainty of macroeconomic forecasts related to the ongoing economic impacts from the COVID-19 pandemic.
| | | | | | | | |
| 102 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
Due to the dynamic relationship of macroeconomic inputs in modeling calculations, quantifying the effects of changing individual inputs is highly challenging. Additionally, management applies judgment in developing qualitative adjustments that are considered necessary to appropriately reflect elements of credit risk that are not captured in the quantitative model results. To provide some hypothetical sensitivity analysis, FHN prepared two alternate quantitative calculations, applying 100% weighting to Moody's Baseline and S3 (adverse) scenarios.
These hypothetical calculations resulted in a 2.5% reduction and 17.5% increase, respectively, in ALLL in comparison to the ALLL recorded at December 31, 2021, inclusive of qualitative adjustments that are affected by the weighting of forecast scenarios.
See Note 1 - Summary of Significant Accounting Policies and Note 5 - Allowance for LoanCredit Losses for detail regarding FHN’s processes, models, and methodology for determining the ALLL.
INCOME TAXESIncome 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."Income Taxes". Significant judgments and estimates are required in the determination of the consolidated income tax expense. FHN income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid.
Income tax expense consists of both current and deferred taxes. Current income tax expense is an estimate of taxes to be paid or refunded for the current period and includes income tax expense related to uncertain tax positions. A DTA or a DTL is recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Deferred taxes can be affected by changes in tax rates applicable to future years, either as a result of statutory changes or business changes that may change the jurisdictions in which taxes are paid. Additionally, DTAs are subject to a “more likely than not” test to determine whether the full amount of the DTAs should be realized in the financial statements. FHN evaluates the likelihood of realization of the DTA based on both positive and negative evidence available at the time, including (as appropriate) scheduled reversals of DTLs, projected future taxable income, tax planning strategies, and recent financial performance. Realization is dependent on generating sufficient taxable income prior to the expiration of the carryforwards attributable to or generated with respect to the DTA. In projecting future taxable income, FHN incorporates assumptions including the amount of future state and federal pretax operating income, the reversal of temporary differences, and the
implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates used to manage the underlying business. If the “more likely than not” test is not met, a valuation allowance must be established against the DTA.
The income tax laws of the jurisdictions in which FHN operate are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities. In determining if a tax position should be recognized and in establishing a provision for income tax expense, FHN must make
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 100
judgments and interpretations about the application of these inherently complex tax laws. Interpretations may be subjected to review during examination by taxing authorities and disputes may arise over the respective tax positions. FHN attempts to resolve disputes that may arise during the tax examination and audit process. However, certain disputes may ultimately be resolved through the federal and state court systems.
FHN monitors relevant tax authorities and revises estimates of accrued income taxes on a quarterly basis. Changes in estimates may occur due to changes in income tax laws and their interpretation by the courts and regulatory authorities. Revisions of estimates may also result from income tax planning and from the resolution of income tax controversies. Such revisionsRevisions in estimates may be material to operating results for any given period.
See also Note 15 - Income Taxes for additional information.information including discussion of valuation allowances related to deferred tax assets and the potential impact of unrecognized tax benefits on future earnings.
CONTINGENT LIABILITIESContingent 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.uncertain and difficult to estimate.
| | | | | | | | |
| 103 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
The assessment of contingent liabilities, including legal contingencies, involves the use of critical estimates, assumptions, and judgments. Management’s estimates are based on their belief that future events will validate the current assumptions regarding the ultimate outcome of these exposures. However, there can be no assurance that future events, such as court decisions or decisions of arbitrators, will not differ from management’s assessments. Whenever practicable, management consults with third-party experts (e.g., attorneys, accountants, claims administrators, etc.) to assist with the
gathering and evaluation of information related to contingent liabilities. Based on internally and/or externally prepared evaluations, management makes a determination whether the potential exposure requires accrual in the financial statements.
See Note 17 - Contingencies and Other Disclosures for additional information.information regarding FHN's existing material contingent liabilities, including those with and without loss accruals, and discussion of reasonably possible loss amounts for pending litigation matters.
ACCOUNTING CHANGES ISSUED BUT NOT CURRENTLY EFFECTIVE
Refer to Note 1 – Summary of Significant Accounting Policies for a detail of accounting standards that have been issued but are not currently effective,changes with extended transition
periods, which section is incorporated into this MD&A by this reference.
Non-GAAP Information
Certain measures are included in this report are “non-GAAP”, meaning they are not presented in accordance with U.S. GAAP and also are not codified in U.S. banking regulations currently applicable to FHN. Although other entities may use calculation methods that differ from those used by FHN for non-GAAP measures, FHN’s management believes such measures are relevant to understanding the capital position or financial results of FHN and its business segments. Non-GAAP measures are reported to FHN’s management and Board of Directors through various internal reports.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 101The non-GAAP measures presented in this report are: pre-provision net revenue, return on average tangible common equity, tangible common equity to tangible assets, adjusted tangible common equity to risk-weighted assets, tangible book value per common share, and loans and leases excluding PPP loans. Table 7.30 appearing in the MD&A (Item 7 of Part II) of this report provides a reconciliation of non-GAAP items presented in this report to the most comparable GAAP presentation.
Table 31 - Summarycomparability to other financial institutions subject to the same regulations as FHN, as demonstrated by their use by banking regulators in reviewing capital adequacy of Quarterly Financial Information
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2019 | | 2018 |
| | | Fourth | | Third | | Second | | First | | Fourth | | Third | | Second | | First |
| (Dollars in millions except per share data) | Quarter | | Quarter | | Quarter | | Quarter | | Quarter | | Quarter | | Quarter | | Quarter |
| Summary income information: | | | | | | | | | | | | | | | |
| Interest income | $ | 404.1 |
| | $ | 407.5 |
| | $ | 412.1 |
| | $ | 400.6 |
| | $ | 401.2 |
| | $ | 393.7 |
| | $ | 387.8 |
| | $ | 363.4 |
|
| Interest expense | 92.7 |
| | 106.8 |
| | 108.5 |
| | 106.1 |
| | 98.7 |
| | 88.0 |
| | 76.9 |
| | 62.2 |
|
| Provision/(provision credit) for loan losses | 10.0 |
| | 15.0 |
| | 13.0 |
| | 9.0 |
| | 6.0 |
| | 2.0 |
| | — |
| | (1.0 | ) |
| Noninterest income | 183.3 |
| | 171.7 |
| | 158.0 |
| | 141.0 |
| | 110.3 |
| | 349.0 |
| | 127.5 |
| | 136.0 |
|
| Noninterest expense | 327.4 |
| | 307.7 |
| | 300.4 |
| | 296.1 |
| | 281.9 |
| | 294.0 |
| | 332.8 |
| | 313.3 |
|
| Net income/(loss) | 121.3 |
| | 113.9 |
| | 113.7 |
| | 103.4 |
| | 100.8 |
| | 274.7 |
| | 86.0 |
| | 95.0 |
|
| Income/(loss) available to common shareholders | $ | 116.8 |
| | $ | 109.5 |
| | $ | 109.3 |
| | $ | 99.0 |
| | $ | 96.3 |
| | $ | 270.3 |
| | $ | 81.6 |
| | $ | 90.6 |
|
| Earnings/(loss) per common share | $ | 0.38 |
| | $ | 0.35 |
| | $ | 0.35 |
| | $ | 0.31 |
| | $ | 0.30 |
| | $ | 0.83 |
| | $ | 0.25 |
| | $ | 0.28 |
|
| Diluted earnings/(loss) per common share | 0.37 |
| | 0.35 |
| | 0.35 |
| | 0.31 |
| | 0.30 |
| | 0.83 |
| | 0.25 |
| | 0.27 |
|
| Common stock information: | | | | | | | | | | | | | | | |
| Closing price per share: | | | | | | | | | | | | | | | |
| | High | $ | 17.28 |
| | $ | 16.69 |
| | $ | 15.21 |
| | $ | 15.77 |
| | $ | 17.51 |
| | $ | 18.85 |
| | $ | 19.56 |
| | $ | 20.61 |
|
| | Low | 15.41 |
| | 14.66 |
| | 13.41 |
| | 13.37 |
| | 12.40 |
| | 17.03 |
| | 17.84 |
| | 18.35 |
|
| | Period-end | 16.56 |
| | 16.20 |
| | 14.93 |
| | 13.98 |
| | 13.16 |
| | 17.26 |
| | 17.84 |
| | 18.83 |
|
| Cash dividends declared per share | 0.14 |
| | 0.14 |
| | 0.14 |
| | 0.14 |
| | 0.12 |
| | 0.12 |
| | 0.12 |
| | 0.12 |
|
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 102
NON-GAAP INFORMATIONfinancial 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:
Table 7.30
NON-GAAP TO GAAP RECONCILIATION
| | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions; shares in thousands) | | 2021 | | 2020 | | 2019 | | | | |
| Pre-provision Net Revenue (Non-GAAP) | | | | | | | | | | |
| Net interest income (GAAP) | | $ | 1,994 | | | $ | 1,662 | | | $ | 1,210 | | | | | |
| Plus: Noninterest income (GAAP) | | 1,076 | | | 1,492 | | | 654 | | | | | |
| Total Revenues (GAAP) | | 3,070 | | | 3,154 | | | 1,864 | | | | | |
| Less: Noninterest expense (GAAP) | | 2,096 | | | 1,718 | | | 1,233 | | | | | |
| Pre-provision Net Revenue (Non-GAAP) | | $ | 974 | | | $ | 1,436 | | | $ | 631 | | | | | |
| Tangible Common Equity (Non-GAAP) | | | | | | | | | | |
| (A) Total equity (GAAP) | | $ | 8,494 | | | $ | 8,307 | | | $ | 5,076 | | | | | |
| Less: Noncontrolling interest (a) | | 295 | | | 295 | | | 295 | | | | | |
Table 32—Non-GAAP to GAAP Reconciliation
| | | | | | | | |
| 104 | 2021 FORM 10-K ANNUAL REPORT |
|
| | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Tangible Common Equity (Non-GAAP) | | | | |
| | | | |
| | |
| (A) Total equity (GAAP) | | $ | 5,076,008 |
| | $ | 4,785,380 |
| | $ | 4,580,488 |
| | $ | 2,705,084 |
| | $ | 2,639,586 |
|
| Less: Noncontrolling interest (a) | | 295,431 |
| | 295,431 |
| | 295,431 |
| | 295,431 |
| | 295,431 |
|
| Less: Preferred stock (a) | | 95,624 |
| | 95,624 |
| | 95,624 |
| | 95,624 |
| | 95,624 |
|
| Total common equity | | 4,684,953 |
| | 4,394,325 |
| | 4,189,433 |
| | 2,314,029 |
| | 2,248,531 |
|
| Less: Intangible assets (GAAP) (b) | | 1,562,987 |
| | 1,587,822 |
| | 1,571,242 |
| | 212,388 |
| | 217,522 |
|
| (B) Tangible common equity (Non-GAAP) | | 3,121,966 |
| | 2,806,503 |
| | 2,618,191 |
| | 2,101,641 |
| | 2,031,009 |
|
| Less: Unrealized gains/(losses) on AFS securities, net of tax | | 31,079 |
| | (75,736 | ) | | (21,997 | ) | | (17,232 | ) | | 3,394 |
|
| (C) Adjusted tangible common equity (Non-GAAP) | | $ | 3,090,887 |
| | $ | 2,882,239 |
| | $ | 2,640,188 |
| | $ | 2,118,873 |
| | $ | 2,027,615 |
|
| Tangible Assets (Non-GAAP) | | |
| | |
| | | | |
| | |
| (D) Total assets (GAAP) | | $ | 43,310,900 |
| | $ | 40,832,258 |
| | $ | 41,423,388 |
| | $ | 28,555,231 |
| | $ | 26,192,637 |
|
| Less: Intangible assets (GAAP) (b) | | 1,562,987 |
| | 1,587,822 |
| | 1,571,242 |
| | 212,388 |
| | 217,522 |
|
| (E) Tangible assets (Non-GAAP) | | $ | 41,747,913 |
| | $ | 39,244,436 |
| | $ | 39,852,146 |
| | $ | 28,342,843 |
| | $ | 25,975,115 |
|
| Average Tangible Common Equity (Non-GAAP) | | |
| | |
| | | | |
| | |
| Average total equity (GAAP) | | $ | 4,920,899 |
| | $ | 4,617,529 |
| | $ | 2,970,308 |
| | $ | 2,691,478 |
| | $ | 2,581,187 |
|
| Less: Average noncontrolling interest (a) | | 295,431 |
| | 295,431 |
| | 295,431 |
| | 295,431 |
| | 295,431 |
|
| Less: Average preferred stock (a) | | 95,624 |
| | 95,624 |
| | 95,624 |
| | 95,624 |
| | 95,624 |
|
| (F) Total average common equity | | $ | 4,529,844 |
| | $ | 4,226,474 |
| | $ | 2,579,253 |
| | $ | 2,300,423 |
| | $ | 2,190,132 |
|
| Less: Average intangible assets (GAAP) (b) | | 1,575,338 |
| | 1,569,987 |
| | 376,306 |
| | 214,915 |
| | 183,127 |
|
| (G) Average tangible common equity (Non-GAAP) | | $ | 2,954,506 |
| | $ | 2,656,487 |
| | $ | 2,202,947 |
| | $ | 2,085,508 |
| | $ | 2,007,005 |
|
| Net Income Available to Common Shareholders | | |
| | |
| | | | |
| | |
| (H) Net income available to common shareholders | | $ | 434,708 |
| | $ | 538,842 |
| | $ | 159,315 |
| | $ | 220,846 |
| | $ | 79,679 |
|
| Risk Weighted Assets | | |
| | |
| | | | |
| | |
| (I) Risk weighted assets (c) | | $ | 37,045,782 |
| | $ | 33,002,595 |
| | $ | 33,373,877 |
| | $ | 23,914,158 |
| | $ | 21,812,015 |
|
| Ratios | | | | | | | | | | |
| (A)/(D) Total period-end equity to period-end assets (GAAP) | | 11.72 | % | | 11.72 | % | | 11.06 | % | | 9.47 | % | | 10.08 | % |
| (B)/(E) Tangible common equity to tangible assets | | | | | | | | | | |
| (“TCE/TA”) (Non-GAAP) (d) | | 7.48 |
| | 7.15 |
| | 6.57 |
| | 7.42 |
| | 7.82 |
|
| (C)/(I) Adjusted tangible common equity to | | | | | | | | | | |
| risk weighted assets ("TCE/RWA") (Non-GAAP) (d) | | 8.34 |
| | 8.73 |
| | 7.91 |
| | 8.86 |
| | 9.30 |
|
| (H)/(F) Return on average common equity | | | | | | | | | | |
(“ROCE”) (GAAP) (d)
| | 9.60 |
| | 12.75 |
| | 6.18 |
| | 9.60 |
| | 3.64 |
|
| (H)/(G) Return on average tangible common | | | | | | | | | | |
equity (“ROTCE”) (Non-GAAP) (d)
| | 14.71 |
| | 20.28 |
| | 7.23 |
| | 10.59 |
| | 3.97 |
|
| | | | | | | | |
| ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Less: Preferred stock (a) | | 520 | | | 470 | | | 96 | | | | | |
| (B) Total common equity | | 7,679 | | | 7,542 | | | 4,685 | | | | | |
| Less: Goodwill and other intangible assets (GAAP) (b) | | 1,809 | | | 1,865 | | | 1,563 | | | | | |
| (C) Tangible common equity (Non-GAAP) | | 5,870 | | | 5,677 | | | 3,122 | | | | | |
| Less: Unrealized gains (losses) on AFS securities, net of tax | | (36) | | | 108 | | | 31 | | | | | |
| (D) Adjusted tangible common equity (Non-GAAP) | | $ | 5,906 | | | $ | 5,569 | | | $ | 3,091 | | | | | |
| Tangible Assets (Non-GAAP) | | | | | | | | | | |
| (E) Total assets (GAAP) | | $ | 89,092 | | | $ | 84,209 | | | $ | 43,311 | | | | | |
| Less: Goodwill and other intangible assets (GAAP) (b) | | 1,809 | | | 1,865 | | | 1,563 | | | | | |
| (F) Tangible assets (Non-GAAP) | | $ | 87,283 | | | $ | 82,344 | | | $ | 41,748 | | | | | |
| Average Tangible Common Equity (Non-GAAP) | | | | | | | | | | |
| Average total equity (GAAP) | | $ | 8,479 | | | $ | 6,609 | | | $ | 4,920 | | | | | |
| Less: Average noncontrolling interest (a) | | 295 | | | 295 | | | 295 | | | | | |
| Less: Average preferred stock (a) | | 506 | | | 297 | | | 96 | | | | | |
| (G) Total average common equity | | 7,678 | | | 6,017 | | | 4,529 | | | | | |
| Less: Average goodwill and other intangible assets (GAAP) (b) | | 1,836 | | | 1,696 | | | 1,575 | | | | | |
| (H) Average tangible common equity (Non-GAAP) | | $ | 5,842 | | | $ | 4,321 | | | $ | 2,954 | | | | | |
| Net Income Available to Common Shareholders | | | | | | | | | | |
| (I) Net income available to common shareholders | | $ | 962 | | | $ | 822 | | | $ | 435 | | | | | |
| Risk Weighted Assets | | | | | | | | | | |
| (J) Risk weighted assets (c) | | $ | 64,183 | | | $ | 63,140 | | | $ | 37,046 | | | | | |
| Period-end shares outstanding | | | | | | | | | | |
| (K) Period-end shares outstanding | | 533,577 | | | 555,031 | | | 311,469 | | | | | |
| Ratios | | | | | | | | | | |
| (A)/(E) Total period-end equity to period-end assets (GAAP) | | 9.53 | % | | 9.86 | % | | 11.72 | % | | | | |
| (C)/(F) Tangible common equity to tangible assets (Non-GAAP) | | 6.73 | | | 6.89 | | | 7.48 | | | | | |
| (D)/(J) Adjusted tangible common equity to risk weighted assets (Non-GAAP) | | 9.20 | | | 8.82 | | | 8.34 | | | | | |
| (I)/(G) Return on average common equity (GAAP) | | 12.53 | | | 13.66 | | | 9.60 | | | | | |
| (I)/(H) Return on average tangible common equity (Non-GAAP) | | 16.46 | | | 19.03 | | | 14.71 | | | | | |
| (B)/(K) Book value per common share (GAAP) | | $ | 14.39 | | | $ | 13.59 | | | $ | 15.04 | | | | | |
| (C)/(K) Tangible book value per common share (Non-GAAP) | | $ | 11.00 | | | $ | 10.23 | | | $ | 10.02 | | | | | |
| Loans and leases excluding PPP loans (Non-GAAP) | | | | | | | | | | |
| Commercial loans and leases excluding PPP loans | | $ | 42,139 | | | $ | 41,327 | | | | | | | |
| PPP loans | | 1,038 | | | 4,052 | | | | | | | |
| Total commercial loans and leases | | 43,177 | | | 45,379 | | | | | | | |
| Total consumer loans | | 11,682 | | | 12,853 | | | | | | | |
| Total loans and leases | | $ | 54,859 | | | $ | 58,232 | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
(a)Included in Totaltotal equity on the Consolidated Statements of Condition.Balance Sheets.
(b)Includes Goodwillgoodwill and other intangible assets, net of amortization.
(c)Defined by and calculated in conformity with bank regulations applicable to FHN.
(d)See Glossary of Terms for definition of ratio.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 103
GLOSSARY OF SELECTED FINANCIAL TERMS
Adjusted Tangible Common Equity to Risk Weighted Assets (“TCE/RWA”) - Common equity excluding intangible assets and unrealized gains/(losses) on available-for-sale securities divided by risk weighted assets.
Allowance for Loan Losses (“ALLL”) - Valuation reserve representing the amount considered by management to be adequate to cover estimated probable incurred losses in the loan portfolio.
Agencies - In this annual report, Agencies are collectively GSEs plus GNMA.
Basis Point -The equivalent of one-hundredth of one percent. One hundred basis points equals one percent. This unit is generally used to measure spreads and movements in interest yields and rates and in measures based on interest yields and rates.
Book Value Per Common Share - A ratio determined by dividing common equity at the end of a period by the number of common shares outstanding at the end of that period.
Commercial and Standby Letters of Credit -Commercial letters of credit are issued or confirmed by an entity to ensure the payment of its customers’ payables and receivables. Standby letters of credit are issued by an entity to ensure its customers’ performance in dealing with others.
Commitment to Extend Credit ("Unfunded Commitments") - Agreements to make or acquire a loan or lease as long as agreed-upon terms (e.g., expiration date, covenants, or notice) are met. Generally these commitments have fixed expiration dates or other termination clauses and may require payment of a fee.
Common Equity Tier 1 - A measure of a company's capital position under U.S. Basel III capital rules, which includes common equity less goodwill, other intangibles and certain other required regulatory deductions as defined in those rules.
Core Businesses -Management treats regional banking, fixed income, and corporate as FHN's core businesses. Non-strategic has significant pre-2009 mortgage businesses assets and operations that are being wound down.
Core Deposits -Core deposits consist of all interest-bearing and noninterest-bearing deposits, except brokered deposits and certificates of deposit over $250,000. They include checking interest deposits, money market deposit accounts, time and other savings, plus demand deposits.
Derivative Financial Instrument -A contract or agreement whose value is derived from changes in interest rates, foreign exchange rates, prices of securities or commodities, or financial or commodity indices.
Diluted Earnings/(Loss) Per Common Share (“Diluted EPS”) - Net income/(loss) available to common shareholders, divided by weighted average shares outstanding plus the effect of common stock equivalents that have the potential to be converted into common shares.
Discharged Bankruptcies -Residential real estate secured loans where the borrower has been discharged from personal liability through bankruptcy proceedings. Such loans that have not been reaffirmed by the borrower are charged down to estimated collateral value less disposition costs (net realizable value) and are reported as nonaccruing TDRs.
Discounted Cash Flow (“DCF Method”) -A valuation method based on the present value of expected future payments discounted at the loan’s effective interest rate.
Earning Assets -Assets that generate interest or dividend income or yield-related fee income, such as loans and investment securities.
Earnings/(Loss) Per Common Share (“EPS”) - Net income/(loss) available to common shareholders, divided by the weighted average number of common shares outstanding.
Fully Taxable Equivalent (“FTE”) - Reflects the amount of tax-exempt income adjusted to a level that would yield the same after-tax income had that income been subject to taxation.
Forward Contracts -Contracts representing commitments either to purchase or sell at a specified future date a specified security or financial instrument at a specified price, and may be settled in cash or through delivery.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 104
GLOSSARY OF SELECTED FINANCIAL TERMS (continued)
Government Sponsored Entities ("GSEs") -In this annual report, the term "GSEs" includes Fannie Mae and Freddie Mac.
Individually Impaired Loans -Generally, commercial loans over $1 million that are not expected to pay all contractually due principal and interest, and consumer loans that have experienced a troubled debt restructuring and are individually evaluated for impairment.
Interest Rate Caps and Floors - Contracts with notional principal amounts that require the seller, in exchange for a fee, to make payments to the purchaser if a specified market interest rate exceeds a fixed upper “capped” level or falls below a fixed lower “floor” level on specified future dates.
Interest Rate Option -A contract that grants the holder (purchaser), for a fee, the right to either purchase or sell a financial instrument at a specified price within a specified period of time or on a specified date from or to the writer (seller) of the option.
Interest Rate Swap -An agreement in which two entities agree to exchange, at specified intervals, interest payment streams calculated on an agreed-upon notional principal amount with at least one stream based on a floating rate index.
Interest Rate Swaptions - 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.
Leverage Ratio -Ratio consisting of Tier 1 capital divided by quarterly average assets adjusted for certain unrealized gains/(losses) on available-for-sale securities less certain regulatory disallowances applied to Common Equity Tier 1 capital and Tier 1 capital including goodwill, certain other intangible assets, the disallowable portion of deferred tax assets and other disallowed assets, and other regulatory adjustments.
Lower of Cost or Market (“LOCOM”) - A method of accounting for certain assets by recording them at the lower of their historical cost or their current market value.
Market Capitalization - Market value of a company. Computed by multiplying the number of shares outstanding by the current stock price.
Market-Indexed Deposits - Deposits with pricing tied to an index not administered by FHN. For FHN these are comprised of insured network deposits, correspondent banking deposits, and trust/sweep deposits.
Mortgage Backed Securities ("MBS") - Investment securities backed by a pool of mortgages or trust deeds. Principal and interest payments on the underlying mortgages are used to pay principal and interest on the securities.
Mortgage Warehouse - Mortgage loans that have been closed and funded and are awaiting sale and delivery into the secondary market. Also includes loans that management does not have the intent to hold for the foreseeable future.
Mortgage Servicing Rights (“MSR”) -The right to service mortgage loans, generally owned by someone else, for a fee. Loan servicing includes collecting payments; remitting funds to investors, insurance companies, and taxing authorities; collecting delinquent payments; and foreclosing on properties when necessary.
Net Interest Margin (“NIM”) -Expressed as a percentage, net interest margin is a ratio computed by dividing a day-weighted fully taxable equivalent net interest income by average earning assets.
Net Interest Spread - The difference between the average yield earned on earning assets on a fully taxable equivalent basis and the average rate paid for interest-bearing liabilities.
Nonaccrual or Nonperforming Loans (“NPLs”) -Loans on which interest accruals have been discontinued due to the borrower's financial difficulties. Interest income on these loans is generally reported on a cash basis as it is collected after recovery of principal.
Non-GAAP -Certain measures contained within MD&A are not formally defined by GAAP or codified in the federal banking regulations. A reconciliation of these Non-GAAP measures may be found in table 32 of MD&A.
Nonperforming Assets (“NPAs”) -Interest-earning assets on which interest income is not being accrued, real estate properties acquired through foreclosure and other assets obtained through the foreclosure process.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 105
GLOSSARY OF SELECTED FINANCIAL TERMS (continued)
Non-Purchased Credit Deteriorated (“Non-PCD”) Financial Assets - Acquired individual financial assets (or acquired groups of financial assets with similar risk characteristics) that, as of the date of acquisition, do not have a more-than-insignificant deterioration in credit quality since origination, as determined by an acquirer’s assessment.
Origination Fees - A fee charged to the borrower by the lender to originate a loan. Usually stated as a percentage of the face value of the loan.
Provision for Loan Losses -The periodic charge to earnings for inherent losses in the loan portfolio.
Purchased Credit-Impaired (“PCI”) Loans -Acquired loans that have exhibited deterioration of credit quality between origination and the time of acquisition and for which the timely collection of the interest and principal is no longer reasonably assured.
Purchased Credit Deteriorated (“PCD”) Financial Assets - Acquired individual financial assets (or acquired groups of financial assets with similar risk characteristics) that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by an acquirer’s assessment.
Purchase Obligation - An agreement to purchase goods or services that is enforceable and legally binding and that specifies all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction.
Restricted Real Estate Loans and Secured Borrowings -Includes restricted loans that are assets of a consolidated variable interest entity (“VIE”) that can be used only to settle obligations of the consolidated VIE and loans from nonconsolidated VIE in which the securitization did not qualify for sale treatment per GAAP. These loans secure long-term borrowings of the respective VIE.
Return on Average Assets (“ROA”) -A measure of profitability that is calculated by dividing net income by total average assets.
Return on Average Common Shareholders’ Equity (“ROCE”) -A measure of profitability that indicates what an institution earned on its shareholders' investment. ROCE is calculated by dividing net income available to common shareholders by total average common equity.
Return on Average Tangible Common Equity (“ROTCE”) - A Non-GAAP measure of profitability that is calculated by dividing net income available to common shareholders by average tangible common equity.
Risk-Weighted Assets -A regulatory risk-based calculation that takes into account the broad differences in risks among a banking organization's assets and off-balance sheet financial instruments.
Tangible Common Equity to Tangible Assets (“TCE/TA”) - A ratio which may be used to evaluate a company’s capital position. TCE/TA includes common equity less goodwill and other intangible assets over tangible assets. Tangible assets includes a company’s total assets less goodwill and other intangible assets.
Tier 1 CapitalRatio - Ratio consisting of shareholders' equity adjusted for certain unrealized gains/(losses) on available-for-sale securities, reduced by goodwill, certain other intangible assets, the disallowable portion of mortgage servicing rights and other disallowed assets divided by risk-weighted assets.
Total CapitalRatio - Ratio consisting of Tier 1 capital plus the allowable portion of the allowance for loan losses and qualifying subordinated debt divided by risk-weighted assets.
Troubled Debt Restructuring (“TDR”) - A loan is identified and reported as a TDR when FHN has granted an economic concession to a borrower experiencing financial difficulty.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 106
ACRONYMS
ADR Average daily revenue
AFS Available-for-sale
ALCO Asset/Liability Committee
ALLL Allowance for loan losses
AOCI Accumulated Other Comprehensive Income
ASC FASB Accounting Standards Codification
ASU Accounting Standards Update
BOLI Bank-owned life insurance
C&I Commercial, financial, and industrial loan portfolio
CAS Credit Assurance Services
CBF Capital Bank Financial
CD Certificate of deposit
CECL Current Expected Credit Loss
CEO Chief Executive Officer
CFPB Consumer Financial Protection Bureau
CMO Collateralized mortgage obligations
CRA Community Reinvestment Act
CRE Commercial Real Estate
CRMC Credit Risk Management Committee
DFA Dodd-Frank Act
DRA Definitive resolution agreement
DSCR Debt service coverage ratios
DTA Deferred tax asset
DTI Debt-to-income
DTL Deferred tax liability
ECP Equity Compensation Plan
EPS Earnings per share
ESOP Employee stock ownership plan
FASB Financial Accounting Standards Board
FDIC Federal Deposit Insurance Corporation
FFP Federal funds purchased
FFS Federal funds sold
FH First Horizon
FHA Federal Housing Administration
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation or Freddie Mac
FHN First Horizon National Corporation
FICO Fair Isaac Corporation
FINRA Financial Industry Regulatory Authority
FNMA Federal National Mortgage Association or Fannie Mae
FRB Federal Reserve Bank or the Fed
FTBNA First Tennessee Bank National Association
FTE Fully taxable equivalent
FTHC First Tennessee Housing Corporation
FTNF FTN Financial
FTNMC First Tennessee New Markets Corporation
FTRESC FT Real Estate Securities Company, Inc.
GAAP Generally accepted accounting principles
GNMA Government National Mortgage Association or Ginnie Mae
GSE Government sponsored enterprises, in this filing references Fannie Mae and Freddie Mac
HAMP Home Affordable Modification Program
HELOC Home equity lines of credit
HFS Held-for-sale
HTM Held-to-maturity
HUD Department of Housing and Urban Development
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 107
IBKC IBERIABANK Corporation
IPO Initial public offering
ISDA International Swap and Derivatives Association
IRS Internal Revenue Service
LEP Loss emergence period
LGD Loss given default
LIBOR London Inter-Bank Offered Rate
LIHTC Low Income Housing Tax Credit
LLC Limited Liability Company
LOCOM Lower of cost or market
LRRD Loan Rehab and Recovery Department
LTV Loan-to-value
MBS Mortgage-backed securities
MD&A Management’s Discussion and Analysis of Financial Condition and Results of Operations
MI Private mortgage insurance
MSR Mortgage servicing rights
MSRB Municipal Securities Rulemaking Board
NAICS North American Industry Classification System
NII Net interest income
NIM Net interest margin
NMTC New Market Tax Credit
NOL Net operating loss
NPA Nonperforming asset
Non-PCD Non-Purchased Credit Deteriorated Financial Assets
NPL Nonperforming loan
NSF Non-sufficient funds
OCC Office of the Comptroller of the Currency
OIS Overnight indexed swap
OREO Other Real Estate-owned
| | | | | | | | |
OTC | One-time close, a mortgage product which allowed simplified conversion of a construction loan to permanent financing 105 | 2021 FORM 10-K ANNUAL REPORT |
OTTI Other than temporary impairment
PCAOB Public Company Accounting Oversight Board
PCD Purchased Credit Deteriorated Financial Assets
PCI Purchased credit impaired
PD Probability of default
PM Portfolio managers
PSU Performance Stock Unit
R/E Real estate
REIT Real estate investment trust
RM Relationship managers
ROA Return on assets
ROCE Return on average common shareholders' equity
ROTCE Return on tangible common equity
RPL Reasonably Possible Loss
RSU Restricted stock unit
RWA Risk-weighted assets
SBA Small Business Administration
SEC Securities and Exchange Commission
SVaR Stressed Value-at-Risk
TA Tangible assets
TCE Tangible common equity
TDR Troubled Debt Restructuring
TRUP Trust preferred loan
UPB Unpaid principal balance
USDA United States Department of Agriculture
UTB Unrecognized tax benefit
VaR Value-at-Risk
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 108
VIE Variable Interest Entities
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 109
CONSOLIDATED HISTORICAL STATEMENTS OF INCOME (Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Growth Rates |
| (Dollars in millions except per share data) | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 | | 19/18 | | 19/15** |
| Interest income: | | | | | | | | | | | | | | |
| Interest and fees on loans | | $ | 1,394.4 |
| | $ | 1,286.5 |
| | $ | 816.8 |
| | $ | 679.9 |
| | $ | 600.3 |
| | 8% | | 23% |
| Interest on investment securities available-for-sale | | 120.6 |
| | 130.4 |
| | 105.0 |
| | 96.7 |
| | 93.6 |
| | (8)% | | 7% |
| Interest on investment securities held-to-maturity | | 0.5 |
| | 0.5 |
| | 0.6 |
| | 0.8 |
| | 0.3 |
| | (5)% | | 15% |
| Interest on loans held-for-sale | | 31.1 |
| | 45.1 |
| | 17.5 |
| | 5.5 |
| | 5.5 |
| | (31)% | | 55% |
| Interest on trading securities | | 46.6 |
| | 58.7 |
| | 35.0 |
| | 30.8 |
| | 35.1 |
| | (21)% | | 7% |
| Interest on other earning assets | | 31.1 |
| | 24.9 |
| | 15.0 |
| | 4.2 |
| | 1.7 |
| | 25% | | NM |
| Total interest income | | 1,624.3 |
| | 1,546.0 |
| | 989.9 |
| | 817.9 |
| | 736.4 |
| | 5% | | 22% |
| Interest expense: | | | | | | | | | | | | | | |
| Interest on deposits: | | | | | | | | | | | | | | |
| Savings | | 144.4 |
| | 107.7 |
| | 42.5 |
| | 19.6 |
| | 12.0 |
| | 34% | | 86% |
| Time deposits | | 84.0 |
| | 53.1 |
| | 13.1 |
| | 10.0 |
| | 8.7 |
| | 58% | | 76% |
| Other interest-bearing deposits | | 78.8 |
| | 55.7 |
| | 24.5 |
| | 10.4 |
| | 4.5 |
| | 41% | | NM |
| Interest on trading liabilities | | 12.5 |
| | 19.4 |
| | 15.5 |
| | 15.0 |
| | 16.0 |
| | (36)% | | (6)% |
| Interest on short-term borrowings | | 41.2 |
| | 36.7 |
| | 16.0 |
| | 4.7 |
| | 3.2 |
| | 12% | | 90% |
| Interest on term borrowings | | 53.3 |
| | 53.0 |
| | 36.0 |
| | 29.1 |
| | 38.4 |
| | 1% | | 9% |
| Total interest expense | | 414.2 |
| | 325.7 |
| | 147.6 |
| | 88.8 |
| | 82.7 |
| | 27% | | 50% |
| Net interest income | | 1,210.2 |
| | 1,220.3 |
| | 842.3 |
| | 729.1 |
| | 653.7 |
| | (1)% | | 17% |
| Provision for loan losses | | 47.0 |
| | 7.0 |
| | — |
| | 11.0 |
| | 9.0 |
| | NM | | 51% |
| Net interest income after provision for loan losses | | 1,163.2 |
| | 1,213.3 |
| | 842.3 |
| | 718.1 |
| | 644.7 |
| | (4)% | | 16% |
| Noninterest income: | | | | | | | | | | | | | | |
| Fixed income | | 278.8 |
| | 167.9 |
| | 216.6 |
| | 268.6 |
| | 231.3 |
| | 66% | | 5% |
| Deposit transactions and cash management | | 131.7 |
| | 133.3 |
| | 110.6 |
| | 108.6 |
| | 112.8 |
| | (1)% | | 4% |
| Brokerage, management fees and commissions | | 55.5 |
| | 54.8 |
| | 48.5 |
| | 42.9 |
| | 46.5 |
| | 1% | | 5% |
| Trust services and investment management | | 29.5 |
| | 29.8 |
| | 28.4 |
| | 27.7 |
| | 27.6 |
| | (1)% | | 2% |
| Bankcard income | | 28.3 |
| | 29.3 |
| | 26.4 |
| | 25.1 |
| | 23.3 |
| | (3)% | | 5% |
| Bank-owned life insurance | | 19.2 |
| | 19.0 |
| | 15.1 |
| | 14.7 |
| | 14.7 |
| | 1% | | 7% |
| Debt securities gains/(losses), net | | (0.3 | ) | | 0.1 |
| | 0.5 |
| | 1.5 |
| | 1.8 |
| | NM | | NM |
| Equity securities gains/(losses), net | | 0.4 |
| | 212.9 |
| | 0.1 |
| | (0.1 | ) | | (0.5 | ) | | NM | | NM |
| All other income and commissions | | 111.0 |
| | 75.8 |
| | 43.9 |
| | 63.5 |
| | 59.6 |
| | 46% | | 17% |
| Total noninterest income | | 654.1 |
| | 722.8 |
| | 490.2 |
| | 552.4 |
| | 517.3 |
| | (10)% | | 6% |
| Adjusted gross income after provision for loan losses | | 1,817.3 |
| | 1,936.1 |
| | 1,332.5 |
| | 1,270.5 |
| | 1,162.0 |
| | (6)% | | 12% |
| Noninterest expense: | | | | | | | | | | | | | | |
| Employee compensation, incentives, and benefits | | 695.4 |
| | 658.2 |
| | 587.5 |
| | 563.8 |
| | 512.8 |
| | 6% | | 8% |
| Occupancy | | 80.3 |
| | 85.0 |
| | 54.6 |
| | 50.9 |
| | 51.1 |
| | (6)% | | 12% |
| Computer software | | 60.7 |
| | 60.6 |
| | 48.2 |
| | 45.1 |
| | 44.7 |
| | * | | 8% |
| Professional fees | | 55.2 |
| | 45.8 |
| | 47.9 |
| | 19.2 |
| | 18.9 |
| | 21% | | 31% |
| Operations services | | 46.0 |
| | 56.3 |
| | 43.8 |
| | 41.9 |
| | 39.3 |
| | (18)% | | 4% |
| Advertising and public relations | | 34.4 |
| | 24.8 |
| | 19.2 |
| | 21.6 |
| | 19.2 |
| | 39% | | 16% |
| Equipment rentals, depreciation, and maintenance | | 34.0 |
| | 39.1 |
| | 29.5 |
| | 27.4 |
| | 30.9 |
| | (13)% | | 2% |
| Communications and courier | | 25.1 |
| | 30.0 |
| | 17.6 |
| | 14.3 |
| | 15.8 |
| | (16)% | | 12% |
| Amortization of intangible assets | | 24.8 |
| | 25.9 |
| | 8.7 |
| | 5.2 |
| | 5.3 |
| | (4)% | | 47% |
| FDIC premium expense | | 19.9 |
| | 31.6 |
| | 26.8 |
| | 21.6 |
| | 18.0 |
| | (37)% | | 3% |
| Legal fees | | 16.9 |
| | 11.1 |
| | 12.1 |
| | 21.6 |
| | 16.3 |
| | 52% | | 1% |
| Contract employment and outsourcing | | 12.9 |
| | 18.5 |
| | 15.0 |
| | 10.1 |
| | 14.5 |
| | (30)% | | (3)% |
| All other expense | | 126.1 |
| | 135.0 |
| | 112.6 |
| | 82.7 |
| | 267.0 |
| | (7)% | | (17)% |
| Total noninterest expense | | 1,231.6 |
| | 1,222.0 |
| | 1,023.7 |
| | 925.2 |
| | 1,053.8 |
| | 1% | | 4% |
| Income/(loss) before income taxes | | 585.7 |
| | 714.1 |
| | 308.9 |
| | 345.3 |
| | 108.3 |
| | (18)% | | 53% |
| Provision/(benefit) for income taxes | | 133.3 |
| | 157.6 |
| | 131.9 |
| | 106.8 |
| | 10.9 |
| | (15)% | | 87% |
| Net income/(loss) | | 452.4 |
| | 556.5 |
| | 177.0 |
| | 238.5 |
| | 97.3 |
| | (19)% | | 47% |
| Net income attributable to noncontrolling interest | | 11.5 |
| | 11.5 |
| | 11.5 |
| | 11.5 |
| | 11.4 |
| | * | | * |
| Net income/(loss) attributable to controlling interest | | 440.9 |
| | 545.0 |
| | 165.5 |
| | 227.0 |
| | 85.9 |
| | (19)% | | 51% |
| Preferred Stock Dividends | | 6.2 |
| | 6.2 |
| | 6.2 |
| | 6.2 |
| | 6.2 |
| | * | | * |
| Net income/(loss) available to common shareholders | | $ | 434.7 |
| | $ | 538.8 |
| | $ | 159.3 |
| | $ | 220.8 |
| | $ | 79.7 |
| | (19)% | | 53% |
| Fully taxable equivalent adjustment | | $ | 8.6 |
| | $ | 8.8 |
| | $ | 13.6 |
| | $ | 11.6 |
| | $ | 10.7 |
| | (2)% | | (5)% |
| Basic earnings/(loss) per common share | | $ | 1.39 |
| | $ | 1.66 |
| | $ | 0.66 |
| | $ | 0.95 |
| | $ | 0.34 |
| | (16)% | | 42% |
| Diluted earnings/(loss) per common share | | $ | 1.38 |
| | $ | 1.65 |
| | $ | 0.65 |
| | $ | 0.94 |
| | $ | 0.34 |
| | (16)% | | 42% |
| | | | | | | | |
| ITEM 7A. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
| | |
Certain previously reported amounts have been reclassified to agree with current presentation.
Numbers may not add to total due to rounding.
NM- not meaningful
*Amount is less than one percent.
** Compound annual growth rate.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 110
CONSOLIDATED AVERAGE BALANCE SHEET AND RELATED YIELDS AND RATES (Unaudited)
|
| | | | | | | | | | | | | |
| | | | 2019 | |
| (Fully taxable equivalent) | Average | | Interest Income/ | | Average Yields/ | |
| (Dollars in millions) | Balance | | Expense | | Rates | |
| Assets: | | | | | | |
| Earning assets: | | | | | | |
Loans, net of unearned income (a) | $ | 29,188.6 |
| | $ | 1,402.1 |
| | 4.80 |
| % |
| Loans held-for-sale | 578.0 |
| | 31.1 |
| | 5.39 |
| |
| Investment securities: | | | | | | |
| | U.S. government agencies | 4,392.8 |
| | 112.1 |
| | 2.55 |
| |
| | States and municipalities | 44.7 |
| | 1.6 |
| | 3.62 |
| |
| | Corporates and other debt | 57.6 |
| | 2.6 |
| | 4.53 |
| |
| | Other | 15.0 |
| | 5.2 |
| | 34.33 |
| |
| | | Total investment securities | 4,510.1 |
| | 121.5 |
| | 2.69 |
| |
| Trading securities | 1,415.2 |
| | 47.2 |
| | 3.33 |
| |
| Other earning assets: | | | | | | |
| | Federal funds sold | 47.5 |
| | 1.2 |
| | 2.63 |
| |
| | Securities purchased under agreements to resell (b) | 555.3 |
| | 10.9 |
| | 1.96 |
| |
| | Interest-bearing cash | 870.7 |
| | 19.0 |
| | 2.18 |
| |
| | | Total other earning assets | 1,473.5 |
| | 31.1 |
| | 2.11 |
| |
| Total earning assets | 37,165.4 |
| | 1,633.0 |
| | 4.39 |
| |
| Allowance for loan losses | (190.8 | ) | | | | | |
| Cash and due from banks | 601.8 |
| | | | | |
| Fixed income receivables | 68.1 |
| | | | | |
| Premises and equipment, net | 466.5 |
| | | | | |
| Other assets | 3,633.2 |
| | | | | |
| Total assets/Interest income | $ | 41,744.2 |
| | $ | 1,633.0 |
| | | |
| Liabilities and shareholders' equity: |
| Interest-bearing liabilities: | | | | | | |
| Interest-bearing deposits: | | | | | | |
| | Savings | $ | 11,663.5 |
| | $ | 144.4 |
| | 1.24 |
| % |
| | Other interest-bearing deposits | 8,345.3 |
| | 78.8 |
| | 0.94 |
| |
| | Time deposits | 4,261.7 |
| | 84.0 |
| | 1.97 |
| |
| | | Total interest-bearing deposits | 24,270.5 |
| | 307.2 |
| | 1.27 |
| |
| Federal funds purchased | 737.7 |
| | 15.4 |
| | 2.08 |
| |
| Securities sold under agreements to repurchase | 701.2 |
| | 13.2 |
| | 1.89 |
| |
| Fixed income trading liabilities | 503.3 |
| | 12.5 |
| | 2.48 |
| |
| Other short-term borrowings | 538.2 |
| | 12.6 |
| | 2.34 |
| |
| Term borrowings | 1,117.0 |
| | 53.3 |
| | 4.77 |
| |
| Total interest-bearing liabilities | 27,867.9 |
| | 414.2 |
| | 1.49 |
| |
| Noninterest-bearing deposits | 8,132.6 |
| | | | | |
| Fixed income payables | 28.8 |
| | | | | |
| Other liabilities | 794.1 |
| | | | | |
| Total liabilities | 36,823.4 |
| | | | | |
| Shareholders' equity | 4,625.5 |
| | | | | |
| Noncontrolling interest | 295.4 |
| | | | | |
| Total equity | 4,920.9 |
| | | | | |
| Total liabilities and equity/Interest expense | $ | 41,744.3 |
| | $ | 414.2 |
| | | |
| Net interest income-tax equivalent basis/Yield | | | $ | 1,218.8 |
| | 3.28 |
| % |
| Fully taxable equivalent adjustment | | | (8.6 | ) | | | |
| Net interest income | | | $ | 1,210.2 |
| | | |
| Net interest spread | | | | | 2.90 |
| % |
| Effect of interest-free sources used to fund earning assets | | | | | 0.38 |
| |
| Net interest margin | | | | | 3.28 |
| % |
Certain previously reported amounts have been reclassified to agree with current presentation.
YieldsItem 7A. Quantitative and corresponding income amounts are adjusted to a FTE basis assuming a statutory federal income tax rate of 21 percent in 2019 and 2018 and 35 percent in 2017, and, where applicable, state income taxes.
Earning asset yields are expressed net of unearned income. Rates are expressed net of unamortized debenture cost for long-term debt. Net interest margin is computed using total net interest income.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 111
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2018 | | | 2017 | | | Average | | Average |
| Average | | Interest Income/ | | Average Yields/ | | | Average | | Interest Income/ | | Average Yields/ | | | Balance Growth | | Balance Growth |
| Balance | | Expense | | Rates | | | Balance | | Expense | | Rates | | | 19/17 | | 19/17 (b) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| $ | 27,213.8 |
| | $ | 1,294.5 |
| | 4.76 |
| % | | $ | 20,104.0 |
| | $ | 829.0 |
| | 4.12 |
| % | | 7 | % | | 20 | % |
| 724.0 |
| | 45.1 |
| | 6.23 |
| | | 370.6 |
| | 17.5 |
| | 4.73 |
| | | (20 | )% | | 25 | % |
| | | | | | | | | | | | | | | | | |
| 4,644.8 |
| | 125.4 |
| | 2.70 |
| | | 3,824.8 |
| | 98.1 |
| | 2.56 |
| | | (5 | )% | | 7 | % |
| 11.0 |
| | 0.4 |
| | 4.03 |
| | | 1.1 |
| | 0.1 |
| | 9.36 |
| | | NM |
| | NM |
|
| 65.5 |
| | 2.9 |
| | 4.42 |
| | | 15.0 |
| | 0.8 |
| | 4.98 |
| | | (12 | )% | | 96 | % |
| 7.0 |
| | 2.3 |
| | 31.65 |
| | | 191.8 |
| | 6.7 |
| | 3.49 |
| | | NM |
| | (72 | )% |
| 4,728.3 |
| | 131.0 |
| | 2.77 |
| | | 4,032.7 |
| | 105.7 |
| | 2.62 |
| | | (5 | )% | | 6 | % |
| 1,603.8 |
| | 59.3 |
| | 3.70 |
| | | 1,195.4 |
| | 36.3 |
| | 3.04 |
| | | (12 | )% | | 9 | % |
| | | | | | | | | | | | | | | | | |
| 37.6 |
| | 0.9 |
| | 2.47 |
| | | 27.2 |
| | 0.4 |
| | 1.63 |
| | | 26 | % | | 32 | % |
| 745.5 |
| | 12.2 |
| | 1.63 |
| | | 752.1 |
| | 5.2 |
| | 0.69 |
| | | (26 | )% | | (14 | )% |
| 623.6 |
| | 11.8 |
| | 1.89 |
| | | 979.0 |
| | 9.4 |
| | 0.96 |
| | | 40 | % | | (6 | )% |
| 1,406.7 |
| | 24.9 |
| | 1.77 |
| | | 1,758.3 |
| | 15.0 |
| | 0.85 |
| | | 5 | % | | (8 | )% |
| 35,676.6 |
| | 1,554.8 |
| | 4.36 |
| | | 27,461.0 |
| | 1,003.5 |
| | 3.65 |
| | | 4 | % | | 16 | % |
| (187.7 | ) | | | | | | | (198.6 | ) | | | | | | | NM |
| | NM |
|
| 585.4 |
| | | | | | | 377.9 |
| | | | | | | 3 | % | | 26 | % |
| 55.9 |
| | | | | | | 60.1 |
| | | | | | | 22 | % | | 6 | % |
| 521.8 |
| | | | | | | 310.5 |
| | | | | | | (11 | )% | | 23 | % |
| 3,573.5 |
| | | | | | | 1,913.9 |
| | | | | | | 2 | % | | 38 | % |
| $ | 40,225.5 |
| | $ | 1,554.8 |
| | | | | $ | 29,924.8 |
| | $ | 1,003.5 |
| | | | | 4 | % | | 18 | % |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| $ | 11,289.2 |
| | $ | 107.7 |
| | 0.95 |
| % | | $ | 9,113.9 |
| | $ | 42.5 |
| | 0.47 |
| % | | 3 | % | | 13 | % |
| 7,931.6 |
| | 55.7 |
| | 0.70 |
| | | 6,062.9 |
| | 24.5 |
| | 0.40 |
| | | 5 | % | | 17 | % |
| 3,681.7 |
| | 53.1 |
| | 1.44 |
| | | 1,463.8 |
| | 13.1 |
| | 0.90 |
| | | 16 | % | | 71 | % |
| 22,902.4 |
| | 216.5 |
| | 0.95 |
| | | 16,640.6 |
| | 80.1 |
| | 0.48 |
| | | 6 | % | | 21 | % |
| 405.1 |
| | 7.7 |
| | 1.89 |
| | | 447.1 |
| | 4.7 |
| | 1.06 |
| | | 82 | % | | 28 | % |
| 713.8 |
| | 10.0 |
| | 1.40 |
| | | 578.6 |
| | 4.2 |
| | 0.72 |
| | | (2 | )% | | 10 | % |
| 682.9 |
| | 19.4 |
| | 2.83 |
| | | 685.9 |
| | 15.5 |
| | 2.26 |
| | | (26 | )% | | (14 | )% |
| 1,046.6 |
| | 19.1 |
| | 1.82 |
| | | 554.5 |
| | 7.1 |
| | 1.28 |
| | | (49 | )% | | (1 | )% |
| 1,211.9 |
| | 53.0 |
| | 4.38 |
| | | 1,077.3 |
| | 36.0 |
| | 3.35 |
| | | (8 | )% | | 2 | % |
| 26,962.9 |
| | 325.7 |
| | 1.21 |
| | | 19,984.0 |
| | 147.6 |
| | 0.74 |
| | | 3 | % | | 18 | % |
| 8,000.6 |
| | | | | | | 6,431.5 |
| | | | | | | 2 | % | | 12 | % |
| 20.2 |
| | | | | | | 35.3 |
| | | | | | | 43 | % | | (10 | )% |
| 624.3 |
| | | | | | | 503.7 |
| | | | | | | 27 | % | | 26 | % |
| 35,608.0 |
| | | | | | | 26,954.5 |
| | | | | | | 3 | % | | 17 | % |
| 4,322.1 |
| | | | | | | 2,674.9 |
| | | | | | | 7 | % | | 31 | % |
| 295.4 |
| | | | | | | 295.4 |
| | | | | | | * |
| | * |
|
| 4,617.5 |
| | | | | | | 2,970.3 |
| | | | | | | 7 | % | | 29 | % |
| $ | 40,225.5 |
| | $ | 325.7 |
| | | | | $ | 29,924.8 |
| | $ | 147.6 |
| | | | | 4 | % | | 18 | % |
| | | $ | 1,229.1 |
| | 3.45 |
| % | | | | $ | 855.9 |
| | 3.12 |
| % | | | | |
| | | (8.8 | ) | | | | | | | (13.6 | ) | | | | | | | |
| | | $ | 1,220.3 |
| | | | | | | $ | 842.3 |
| | | | | | | |
| | | | | 3.15 |
| % | | | | | | 2.91 |
| % | | | | |
| | | | | 0.30 |
| | | | | | | 0.21 |
| | | | | |
| | | | | 3.45 |
| % | | | | | | 3.12 |
| % | | | | |
NM - Not meaningful
* Amount is less than one percent.
(a) Includes loans on nonaccrual status.
(b) Compound annual growth rate.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 112
Additional Item 7 Information
The disclosures captioned “Statistical Information Required by Guide 3,” appearing on pages 18-19 of this report at the end of Item 1 in Part I, is incorporated into this Item 7 by reference.
---------------------------
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
---------------------------
The information called for by this Item is incorporated herein by reference to: our 20192021 MD&A (Item 7); and to, which begins on page 60 of this report; Note 22-Derivatives, which begins on page 184 of this report; and Note 23-Master Netting and Similar Agreements - Repurchase, Reverse Repurchase, and Securities Borrowing Transactions, which appear, respectively,begins on pages 192-198 and 199-
200 of our 2019 Financial Statements (Item 8). Within our 2019 MD&A, these sections are especially pertinent to this Item 7A: “MarketMarket Risk Management”Management and “InterestInterest Rate Risk Management” appearing,Management which begin, respectively, on pages 87-8891 and 88-8993 of this report.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 113
| | | | | | | | |
| 106 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| ITEM 8 TOPICS | |
Item 8. Financial Statements and Supplementary Data
TABLE OF ITEM 8 TOPICS
| | | | | | | | |
| 107 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| ITEM 8 TOPICS | |
| | | | | | | | |
| 108 | 2021 FORM 10-K ANNUAL REPORT |
------------------------
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
------------------------
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 114
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| MANAGEMENT REPORT ON ICOFR | |
REPORT OF MANAGEMENTReport of Management on Internal Control over Financial Reporting
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management at First Horizon National 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 National 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 National Corporation’s internal control over financial reporting as of December 31, 2019.2021. This assessment was based on criteria established inInternal 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 National Corporation maintained effective internal control over financial reporting as of December 31, 2019.2021.
KPMG LLP, the independent registered public accounting firm that audited First Horizon National Corporation’s independent auditors haveCorporation's financial statements, issued an attestationaudit report on First Horizon National Corporation’s internal control over financial reporting. That report appears on the following page.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 115 | | | | | | | | |
| 109 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| OPINION ON ICOFR | |
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
First Horizon National Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited First Horizon National Corporation and subsidiaries’subsidiaries' (the Company) internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of conditionbalance sheets of the Company as of December 31, 20192021 and 2018,2020, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2019,2021, and the related notes (collectively, the consolidated financial statements), and our report dated February 27, 2020March 1, 2022 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Memphis, Tennessee
February 27, 2020
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 116
| | | | | | | | |
| 110 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| OPINION ON CONSOLIDATED FINANCIAL STATEMENTS | |
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
First Horizon National Corporation:
Opinion on the ConsolidatedFinancial Statements
We have audited the accompanying consolidated statements of conditionbalance sheets of First Horizon National Corporation and subsidiaries’subsidiaries (the Company) as of December 31, 20192021 and 2018,2020, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three‑yearthree-year period ended December 31, 2019,2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192021 and 2018,2020, and the results of its operations and its cash flows for each of the years in the three‑yearthree-year period ended December 31, 2019,2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 27, 2020March 1, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Notes 1 and 5 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASC 326, Financial Instruments — Credit Losses.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment.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 related tofor loans collectively evaluated for impairment
As discussed in Notes 1 and 5 to the consolidated financial statements, the Company's allowance for loan losses related to loans collectively evaluated for impairment (Collective ALLL) was $172,426 thousand of theCompany’s total allowance for loan losses as of $200,307 thousand at December 31, 2019.2021 was $670 million, of which a portion related to the allowance for loan losses for loans
| | | | | | | | |
| 111 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| OPINION ON CONSOLIDATED FINANCIAL STATEMENTS | |
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 Collectivecollective ALLL using a current expected credit losses methodology which is based on relevant information about historical netexperience, current conditions, and reasonable and supportable forecasts that affect the collectability of the loan balances. The expected credit losses are the product of multiplying the Company’s estimates of probability of default (PD), loss factors by gradegiven default (LGD), and individual loan level exposure at default (EAD), including amortization and prepayment assumptions, on an undiscounted basis. The Company uses models or assumptions to develop expected loss forecasts, which incorporate a weighting approach for multiple macroeconomic forecasts over a four year reasonable and supportable forecast period. After the reasonable and supportable forecast period, the Company immediately reverts to its historical loss averages, evaluated over the historical observation periods, for the remaining estimated life of the loans. In order to capture the unique risks of the loan product,portfolio within the PD, LGD, and business segmentprepayment models, the Company segments the portfolio into pools, generally incorporating loan grades for commercial loans; and segmented roll-rate models that incorporate various factors that include historical delinquency trends, experienced loss frequencies, and experienced loss severities for consumer loans. The Company subjected the historical net loss factors touses qualitative adjustments to reflectadjust historical loss information in situations where current events, trends, and conditions (including economic considerations and trends), which are not fully capturedloan characteristics differ from those in the historical net loss information and for differences in economic conditions and other factors.
We identified the assessment of the Collectivecollective ALLL as a critical audit matter because there is amatter. A high degree of subjectivity in performing procedures over key factorsaudit effort, including specialized skills and assumptions usedknowledge, and subjective and complex auditor judgment was involved in the Collectiveassessment of the collective ALLL due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the collective ALLL methodology, which included (1)including the average amount of time it takes for a loss to be confirmed after a loss event has occurred (loss emergence period), (2) the historical data period used to estimate loss rates,methods and (3) the internal commercial loan grades. The loss emergence period,
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 117
historical data period used to estimate loss rates, and internal commercial loan grades were challenging to test as the Collective ALLL is sensitive to changes in those assumptions. The assessment of internal commercial loan grades required the use of significant judgment as well as industry knowledge and experience. There was a high level of subjectivity in performing test procedures related to internal and external factorsmodels used to estimate the PD, LGD, and prepayments and their significant assumptions, which included the reasonable and supportable forecast period, the economic forecast scenarios and macroeconomic assumptions. The assessment also included the evaluation of certain qualitative adjustments.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 includedmatter. We evaluated the following. Wedesign and tested the operating effectiveness of certain internal controls overrelated to the Company's CollectiveCompany’s measurement of the collective ALLL process,estimate, including controls to (1) develop and approveover the:
•assessment of the Collectivecollective ALLL methodology (2) determine
•performance monitoring of the keyPD, LGD and prepayment models
•continued use and appropriateness of changes to the PD, LGD, and prepayment models, including the significant assumptions used in the PD, LGD, and prepayment models
•development of the qualitative adjustments, including the significant assumptions used in the measurement of the qualitative adjustments
•analysis of the collective ALLL results, trends, and ratios.
We evaluated the Company’s process to develop the collective ALLL estimate by testing certain sources of data, factors, and assumptions (3) developthat the qualitativeCompany used, and considered the relevance and reliability of such data, factors, and (4) evaluate the estimate in total. Weassumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:
performing a methodology assessment and to evaluate that
•evaluating the Company’s collective ALLL methodology is sufficiently structured, transparent, and repeatable to produce afor compliance with U.S. generally accepted accounting principles compliant estimate;
•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
| | | | | | | | |
| 112 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| OPINION ON CONSOLIDATED FINANCIAL STATEMENTS | |
•evaluating the key factors and assumptions, specifically the loss emergence period, historical data period used to estimate loss rates, and internal and external factors;
performing credit file evaluations on a selection of loansthe economic forecast scenarios by comparing to assess the commercial loan grades;Company’s business environment and relevant industry practices
•evaluating the length of the reasonable and supportable forecast period by comparing to specific portfolio risk characteristics and trends
•evaluating the methodology and metrics used byto develop the Company to assess internalqualitative adjustments and external factors related to qualitative adjustments; and
performing sensitivity analyses over the effect of internal and external factors to assess their impactthose adjustments on the qualitative componentcollective ALLL compared with relevant credit risk factors and consistency with credit trends and identified limitations of the Collective ALLL.
We evaluated the cumulative results of the procedures performed to assessalso assessed the sufficiency of the audit evidence obtained related to the Collective ALLL.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 27, 2020March 1, 2022
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 118
CONSOLIDATED STATEMENTS OF CONDITION
|
| | | | | | | | |
| | | December 31 |
| (Dollars in thousands, except per share amounts) | | 2019 | | 2018 |
| Assets: | | | | |
| Cash and due from banks | | $ | 633,728 |
| | $ | 781,291 |
|
| Federal funds sold | | 46,536 |
| | 237,591 |
|
| Securities purchased under agreements to resell (Note 23) | | 586,629 |
| | 386,443 |
|
| Total cash and cash equivalents | | 1,266,893 |
| | 1,405,325 |
|
| Interest-bearing cash | | 482,405 |
| | 1,277,611 |
|
| Trading securities | | 1,346,207 |
| | 1,448,168 |
|
| Loans held-for-sale (a) | | 593,790 |
| | 679,149 |
|
| Securities available-for-sale (Note 3) | | 4,445,403 |
| | 4,626,470 |
|
| Securities held-to-maturity (Note 3) | | 10,000 |
| | 10,000 |
|
| Loans, net of unearned income (Note 4) (b) | | 31,061,111 |
| | 27,535,532 |
|
| Less: Allowance for loan losses (Note 5) | | 200,307 |
| | 180,424 |
|
| Total net loans | | 30,860,804 |
| | 27,355,108 |
|
| Goodwill (Note 7) | | 1,432,787 |
| | 1,432,787 |
|
| Other intangible assets, net (Note 7) | | 130,200 |
| | 155,034 |
|
| Fixed income receivables | | 40,114 |
| | 38,861 |
|
Premises and equipment, net (December 31, 2019 and 2018 include $9.7 million and $19.6 million, respectively, classified as held-for-sale) (Note 6) | | 455,006 |
| | 494,041 |
|
| Other real estate owned (“OREO”) (c) | | 17,838 |
| | 25,290 |
|
| Derivative assets (Note 22) | | 183,115 |
| | 81,475 |
|
| Other assets | | 2,046,338 |
| | 1,802,939 |
|
| Total assets | | $ | 43,310,900 |
| | $ | 40,832,258 |
|
| Liabilities and equity: | | | | |
| Deposits: | | | | |
| Savings | | $ | 11,664,906 |
| | $ | 12,064,072 |
|
| Time deposits, net | | 3,618,337 |
| | 4,105,777 |
|
| Other interest-bearing deposits | | 8,717,341 |
| | 8,371,826 |
|
| Interest-bearing | | 24,000,584 |
| | 24,541,675 |
|
| Noninterest-bearing | | 8,428,951 |
| | 8,141,317 |
|
| Total deposits | | 32,429,535 |
| | 32,682,992 |
|
| Federal funds purchased (Note 9) | | 548,344 |
| | 256,567 |
|
| Securities sold under agreements to repurchase (Note 9 and Note 23) | | 716,925 |
| | 762,592 |
|
| Trading liabilities (Note 9) | | 505,581 |
| | 335,380 |
|
| Other short-term borrowings (Note 9) | | 2,253,045 |
| | 114,764 |
|
| Term borrowings (Note 10) | | 791,368 |
| | 1,170,963 |
|
| Fixed income payables | | 49,535 |
| | 9,572 |
|
| Derivative liabilities (Note 22) | | 67,480 |
| | 133,713 |
|
| Other liabilities | | 873,079 |
| | 580,335 |
|
| Total liabilities | | 38,234,892 |
| | 36,046,878 |
|
| Equity: | | | | |
| First Horizon National Corporation Shareholders’ Equity: | | | | |
| Preferred stock - Series A, non-cumulative perpetual, no par value, liquidation preference of $100,000 per share - (shares authorized - 1,000; shares issued - 1,000 on December 31, 2019 and 2018) (Note 11) | | 95,624 |
| | 95,624 |
|
| Common stock - $.625 par value (shares authorized - 400,000,000; shares issued - 311,469,056 on December 31, 2019 and 318,573,400 on December 31, 2018) | | 194,668 |
| | 199,108 |
|
| Capital surplus | | 2,931,451 |
| | 3,029,425 |
|
| Undivided profits | | 1,798,442 |
| | 1,542,408 |
|
| Accumulated other comprehensive loss, net (Note 14) | | (239,608 | ) | | (376,616 | ) |
| Total First Horizon National Corporation Shareholders’ Equity | | 4,780,577 |
| | 4,489,949 |
|
| Noncontrolling interest (Note 11) | | 295,431 |
| | 295,431 |
|
| Total equity | | 5,076,008 |
| | 4,785,380 |
|
| Total liabilities and equity | | $ | 43,310,900 |
| | $ | 40,832,258 |
|
See accompanying notes to consolidated financial statements. | | | | | | | | |
(a) | December 31, 2019 and 2018 include $6.8 million and $8.4 million, respectively, of held-for-sale consumer mortgage loans secured by residential real estate in process of foreclosure. 113 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
(b)ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| December 31, 2019 and 2018 include $18.8 million and $28.6 million, respectively, of held-to-maturity consumer mortgage loans secured by residential real estate in process of foreclosure. |
| CONSOLIDATED BALANCE SHEETS | |
(c) | December 31, 2019 and 2018 include $9.2 million and $9.7 million, respectively, of foreclosed residential real estate. |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 119
| | | | | | | | | | | | | | |
| | December 31, |
| (Dollars in millions, except per share amounts) | | 2021 | | 2020 |
| Assets | | | | |
| Cash and due from banks | | $ | 1,147 | | | $ | 1,203 | |
| Interest-bearing deposits with banks | | 14,907 | | | 8,351 | |
| Federal funds sold and securities purchased under agreements to resell | | 641 | | | 445 | |
| Trading securities | | 1,601 | | | 1,176 | |
| Securities available for sale at fair value | | 8,707 | | | 8,047 | |
| Securities held to maturity (fair value of $705 and $10, respectively) | | 712 | | | 10 | |
| Loans held for sale (including $258 and $405 at fair value, respectively) | | 1,172 | | | 1,022 | |
| Loans and leases (including $— and $16 at fair value, respectively) | | 54,859 | | | 58,232 | |
| Allowance for loan and lease losses | | (670) | | | (963) | |
| Net loans and leases | | 54,189 | | | 57,269 | |
| Premises and equipment | | 665 | | | 759 | |
| Goodwill | | 1,511 | | | 1,511 | |
| Other intangible assets | | 298 | | | 354 | |
| Other assets | | 3,542 | | | 4,062 | |
| Total assets | | $ | 89,092 | | | $ | 84,209 | |
| | | | |
| Liabilities | | | | |
| Noninterest-bearing deposits | | $ | 27,883 | | | $ | 22,173 | |
| Interest-bearing deposits | | 47,012 | | | 47,809 | |
| Total deposits | | 74,895 | | | 69,982 | |
| Trading liabilities | | 426 | | | 353 | |
| Short-term borrowings | | 2,124 | | | 2,198 | |
| Term borrowings | | 1,590 | | | 1,670 | |
| Other liabilities | | 1,563 | | | 1,699 | |
| Total liabilities | | 80,598 | | | 75,902 | |
| | | | |
| Equity | | | | |
| Preferred stock, Non-cumulative perpetual, no par value; authorized 5,000,000 shares; issued 26,750 and 26,250 shares, respectively | | 520 | | | 470 | |
| Common stock, $0.625 par value; authorized 700,000,000 shares; issued 533,576,766 and 555,030,652 shares, respectively | | 333 | | | 347 | |
| Capital surplus | | 4,743 | | | 5,074 | |
| Retained earnings | | 2,891 | | | 2,261 | |
| Accumulated other comprehensive loss, net | | (288) | | | (140) | |
| FHN shareholders' equity | | 8,199 | | | 8,012 | |
| Noncontrolling interest | | 295 | | | 295 | |
| Total equity | | 8,494 | | | 8,307 | |
| Total liabilities and equity | | $ | 89,092 | | | $ | 84,209 | |
| | | | |
CONSOLIDATED STATEMENTS OF INCOME |
| | | | | | | | | | | | |
| | | Year Ended December 31 |
| (Dollars and shares in thousands except per share data, unless otherwise noted) | | 2019 | | 2018 | | 2017 |
| Interest income: | | | | | | |
| Interest and fees on loans | | $ | 1,394,442 |
| | $ | 1,286,470 |
| | $ | 816,806 |
|
| Interest on investment securities available-for-sale | | 120,558 |
| | 130,376 |
| | 105,019 |
|
| Interest on investment securities held-to-maturity | | 525 |
| | 525 |
| | 591 |
|
| Interest on loans held-for-sale | | 31,127 |
| | 45,108 |
| | 17,517 |
|
| Interest on trading securities | | 46,576 |
| | 58,684 |
| | 34,991 |
|
| Interest on other earning assets | | 31,112 |
| | 24,858 |
| | 15,006 |
|
| Total interest income | | 1,624,340 |
| | 1,546,021 |
| | 989,930 |
|
| Interest expense: | | | | | | |
| Interest on deposits: | | | | | | |
| Savings | | 144,350 |
| | 107,748 |
| | 42,519 |
|
| Time deposits | | 84,027 |
| | 53,096 |
| | 13,111 |
|
| Other interest-bearing deposits | | 78,839 |
| | 55,707 |
| | 24,481 |
|
| Interest on trading liabilities | | 12,502 |
| | 19,359 |
| | 15,468 |
|
| Interest on short-term borrowings | | 41,172 |
| | 36,747 |
| | 16,000 |
|
| Interest on term borrowings | | 53,263 |
| | 53,047 |
| | 36,037 |
|
| Total interest expense | | 414,153 |
| | 325,704 |
| | 147,616 |
|
| Net interest income | | 1,210,187 |
| | 1,220,317 |
| | 842,314 |
|
| Provision/(provision credit) for loan losses | | 47,000 |
| | 7,000 |
| | — |
|
| Net interest income after provision/(provision credit) for loan losses | | 1,163,187 |
| | 1,213,317 |
| | 842,314 |
|
| Noninterest income: | | | | | | |
| Fixed income | | 278,789 |
| | 167,882 |
| | 216,625 |
|
| Deposit transactions and cash management | | 131,663 |
| | 133,281 |
| | 110,592 |
|
| Brokerage, management fees and commissions | | 55,467 |
| | 54,803 |
| | 48,514 |
|
| Trust services and investment management | | 29,511 |
| | 29,806 |
| | 28,420 |
|
| Bankcard income | | 28,308 |
| | 29,304 |
| | 26,435 |
|
| Bank-owned life insurance ("BOLI") | | 19,210 |
| | 18,955 |
| | 15,124 |
|
| Debt securities gains/(losses), net (Note 3 and Note 14) | | (267 | ) | | 52 |
| | 483 |
|
| Equity securities gains/(losses), net (Note 3) | | 441 |
| | 212,896 |
| | 109 |
|
| All other income and commissions (Note 13) | | 110,958 |
| | 75,809 |
| | 43,917 |
|
| Total noninterest income | | 654,080 |
| | 722,788 |
| | 490,219 |
|
| Adjusted gross income after provision/(provision credit) for loan losses | | 1,817,267 |
| | 1,936,105 |
| | 1,332,533 |
|
| Noninterest expense: | | | | | | |
| Employee compensation, incentives, and benefits | | 695,351 |
| | 658,223 |
| | 587,465 |
|
| Occupancy | | 80,271 |
| | 85,009 |
| | 54,646 |
|
| Computer software | | 60,721 |
| | 60,604 |
| | 48,234 |
|
| Professional fees | | 55,218 |
| | 45,799 |
| | 47,929 |
|
| Operations services | | 46,006 |
| | 56,280 |
| | 43,823 |
|
| Advertising and public relations | | 34,359 |
| | 24,752 |
| | 19,214 |
|
| Equipment rentals, depreciation, and maintenance | | 33,998 |
| | 39,132 |
| | 29,543 |
|
| Communications and courier | | 25,080 |
| | 30,032 |
| | 17,624 |
|
| Amortization of intangible assets | | 24,834 |
| | 25,855 |
| | 8,728 |
|
| FDIC premium expense | | 19,890 |
| | 31,642 |
| | 26,818 |
|
| Legal fees | | 16,880 |
| | 11,149 |
| | 12,076 |
|
| Contract employment and outsourcing | | 12,865 |
| | 18,522 |
| | 14,954 |
|
| All other expense (Note 13) | | 126,130 |
| | 134,997 |
| | 112,607 |
|
| Total noninterest expense | | 1,231,603 |
| | 1,221,996 |
| | 1,023,661 |
|
| Income/(loss) before income taxes | | 585,664 |
| | 714,109 |
| | 308,872 |
|
| Provision/(benefit) for income taxes (Note 15) | | 133,291 |
| | 157,602 |
| | 131,892 |
|
| Net income/(loss) | | $ | 452,373 |
| | $ | 556,507 |
| | $ | 176,980 |
|
| Net income attributable to noncontrolling interest | | 11,465 |
| | 11,465 |
| | 11,465 |
|
| Net income/(loss) attributable to controlling interest | | $ | 440,908 |
| | $ | 545,042 |
| | $ | 165,515 |
|
| Preferred stock dividends | | 6,200 |
| | 6,200 |
| | 6,200 |
|
| Net income/(loss) available to common shareholders | | $ | 434,708 |
| | $ | 538,842 |
| | $ | 159,315 |
|
| Basic earnings/(loss) per share (Note 16) | | $ | 1.39 |
| | $ | 1.66 |
| | $ | 0.66 |
|
| Diluted earnings/(loss) per share (Note 16) | | $ | 1.38 |
| | $ | 1.65 |
| | $ | 0.65 |
|
| Weighted average common shares (Note 16) | | 313,637 |
| | 324,375 |
| | 241,436 |
|
| Diluted average common shares (Note 16) | | 315,657 |
| | 327,445 |
| | 244,453 |
|
| Cash dividends declared per common share | | $ | 0.56 |
| | $ | 0.48 |
| | $ | 0.36 |
|
Certain previously reported amounts have been reclassified to agree with current presentation.
See accompanying notes to consolidated financial statements.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 120
| | | | | | | | |
| 114 | 2021 FORM 10-K ANNUAL REPORT |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
| | | | | | | | | | | | |
| | | Year Ended December 31 |
| (Dollars in thousands) | | 2019 | | 2018 | | 2017 |
| Net income/(loss) | | $ | 452,373 |
| | $ | 556,507 |
| | $ | 176,980 |
|
| Other comprehensive income/(loss), net of tax: | | | | | | |
| Net unrealized gains/(losses) on securities available-for-sale | | 106,815 |
| | (48,897 | ) | | (4,765 | ) |
| Net unrealized gains/(losses) on cash flow hedges | | 15,339 |
| | (4,142 | ) | | (5,101 | ) |
| Net unrealized gains/(losses) on pension and other postretirement plans | | 14,854 |
| | (541 | ) | | (7,759 | ) |
| Other comprehensive income/(loss) | | 137,008 |
| | (53,580 | ) | | (17,625 | ) |
| Comprehensive income | | 589,381 |
| | 502,927 |
| | 159,355 |
|
| Comprehensive income attributable to noncontrolling interest | | 11,465 |
| | 11,465 |
| | 11,465 |
|
| Comprehensive income attributable to controlling interest | | $ | 577,916 |
| | $ | 491,462 |
| | $ | 147,890 |
|
| Income tax expense/(benefit) of items included in Other comprehensive income: | | | | | | |
| Net unrealized gains/(losses) on securities available-for-sale | | $ | 35,062 |
| | $ | (16,054 | ) | | $ | (2,955 | ) |
| Net unrealized gains/(losses) on cash flow hedges | | 5,035 |
| | (1,360 | ) | | (3,163 | ) |
| Net unrealized gains/(losses) on pension and other postretirement plans | | 4,876 |
| | (177 | ) | | (832 | ) |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| CONSOLIDATED STATEMENTS OF INCOME | |
Consolidated Statements of Income
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31 |
| (Dollars in millions, except per share data; shares in thousands) | | 2021 | | 2020 | | 2019 |
| Interest income | | | | | | |
| Interest and fees on loans and leases | | $ | 1,957 | | | $ | 1,722 | | | $ | 1,394 | |
| Interest and fees on loans held for sale | | 33 | | | 30 | | | 31 | |
| Interest on investment securities | | 121 | | | 105 | | | 121 | |
| Interest on trading securities | | 30 | | 35 | | 47 |
| Interest on other earning assets | | 17 | | 6 | | 31 |
| Total interest income | | 2,158 | | | 1,898 | | | 1,624 | |
| Interest expense | | | | | | |
| Interest on deposits | | 81 | | | 152 | | | 307 | |
| Interest on trading liabilities | | 6 | | | 6 | | | 13 | |
| Interest on short-term borrowings | | 5 | | 14 | | 41 |
| Interest on term borrowings | | 72 | | | 64 | | | 53 | |
| Total interest expense | | 164 | | | 236 | | | 414 | |
| Net interest income | | 1,994 | | | 1,662 | | | 1,210 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Provision for credit losses | | (310) | | | 503 | | | 45 | |
| Net interest income after provision for credit losses | | 2,304 | | | 1,159 | | | 1,165 | |
| Noninterest income | | | | | | |
| Fixed income | | 406 | | | 423 | | | 279 | |
| Deposit transactions and cash management | | 175 | | | 148 | | | 132 | |
| Mortgage banking and title income | | 154 | | | 129 | | | 10 | |
| Brokerage, management fees and commissions | | 88 | | | 66 | | | 55 | |
| Card and digital banking fees | | 78 | | | 60 | | | 49 | |
| Trust services and investment management | | 51 | | | 39 | | | 30 | |
| Other service charges and fees | | 44 | | | 26 | | | 21 | |
| Securities gains (losses), net | | 13 | | | (6) | | | — | |
| Purchase accounting gain | | (1) | | | 533 | | | — | |
| | | | | | |
| Other income | | 68 | | | 74 | | | 78 | |
| Total noninterest income | | 1,076 | | | 1,492 | | | 654 | |
| Noninterest expense | | | | | | |
| Personnel expense | | 1,210 | | | 1,033 | | | 695 | |
| Net occupancy expense | | 137 | | | 116 | | | 80 | |
| Computer software | | 116 | | | 85 | | | 61 | |
| Operations services | | 80 | | | 56 | | | 46 | |
| Legal and professional fees | | 68 | | | 84 | | | 72 | |
| Contract employment and outsourcing | | 67 | | | 24 | | | 13 | |
| Amortization of intangible assets | | 56 | | | 40 | | | 25 | |
| Equipment expense | | 47 | | | 42 | | | 34 | |
| Communications and delivery | | 37 | | 31 | | 25 |
| Advertising and public relations | | 37 | | 18 | | 34 |
| Impairment of long-lived assets | | 34 | | | 7 | | | 23 | |
| Contributions | | 14 | | | 41 | | | 11 | |
| Other expense | | 193 | | 141 | | 114 |
| Total noninterest expense | | 2,096 | | | 1,718 | | | 1,233 | |
| Income before income taxes | | 1,284 | | | 933 | | | 586 | |
| | | | | | | | |
| 115 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| CONSOLIDATED STATEMENTS OF INCOME | |
| | | | | | | | | | | | | | | | | | | | |
| Income tax expense | | 274 | | 76 | | 134 |
| Net income | | $ | 1,010 | | | $ | 857 | | | $ | 452 | |
| Net income attributable to noncontrolling interest | | 11 | | 12 | | 11 |
| Net income attributable to controlling interest | | $ | 999 | | | $ | 845 | | | $ | 441 | |
| Preferred stock dividends | | 37 | | 23 | | 6 |
| Net income available to common shareholders | | $ | 962 | | | $ | 822 | | | $ | 435 | |
| Basic earnings per share | | $ | 1.76 | | | $ | 1.90 | | | $ | 1.39 | |
| Diluted earnings per share | | $ | 1.74 | | | $ | 1.89 | | | $ | 1.38 | |
| Weighted average common shares | | 546,354 | | | 432,125 | | | 313,637 | |
| Diluted average common shares | | 551,241 | | | 433,717 | | | 315,657 | |
| | | | | | |
| | | | | | |
See accompanying notes to consolidated financial statements.
| | | | | | | | |
| 116 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |
Consolidated Statements of Comprehensive Income
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31 |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 |
| Net income | | $ | 1,010 | | | $ | 857 | | | $ | 452 | |
| Other comprehensive income (loss), net of tax: | | | | | | |
| Net unrealized gains (losses) on securities available for sale | | (144) | | | 77 | | | 107 | |
| Net unrealized gains (losses) on cash flow hedges | | (10) | | | 9 | | | 15 | |
| Net unrealized gains (losses) on pension and other postretirement plans | | 6 | | | 13 | | | 15 | |
| Other comprehensive income (loss) | | (148) | | | 99 | | | 137 | |
| Comprehensive income | | 862 | | | 956 | | | 589 | |
| Comprehensive income attributable to noncontrolling interest | | 11 | | | 12 | | | 11 | |
| Comprehensive income attributable to controlling interest | | $ | 851 | | | $ | 944 | | | $ | 578 | |
| Income tax expense (benefit) of items included in other comprehensive income: | | | | | | |
| Net unrealized gains (losses) on securities available for sale | | $ | (46) | | | $ | 25 | | | $ | 35 | |
| Net unrealized gains (losses) on cash flow hedges | | (3) | | | 3 | | | 5 | |
| Net unrealized gains (losses) on pension and other postretirement plans | | 2 | | | 3 | | | 5 | |
| | | | | | |
See accompanying notes to consolidated financial statements.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 121
CONSOLIDATED STATEMENTS OF EQUITY
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars and shares in thousands, except per share data) | | Common
Shares | | Total | | Preferred
Stock | | Common
Stock | | Capital
Surplus | | Undivided
Profits | | Accumulated
Other
Comprehensive
Income/(Loss) (a) | | Noncontrolling Interest |
| Balance, December 31, 2016 | | 233,624 |
| | $ | 2,705,084 |
| | $ | 95,624 |
| | $ | 146,015 |
| | $ | 1,386,636 |
| | $ | 1,029,032 |
| | $ | (247,654 | ) | | $ | 295,431 |
|
| Adjustment to reflect adoption of ASU 2016-09 | | — |
| | — |
| | — |
| | — |
| | 230 |
| | (230 | ) | | — |
| | — |
|
| Beginning balance, as adjusted | | 233,624 |
| | 2,705,084 |
| | 95,624 |
| | 146,015 |
| | 1,386,866 |
| | 1,028,802 |
| | (247,654 | ) | | 295,431 |
|
| Net income/(loss) | | — |
| | 176,980 |
| | — |
| | — |
| | — |
| | 165,515 |
| | — |
| | 11,465 |
|
| Other comprehensive income/(loss) | | — |
| | (17,625 | ) | | — |
| | — |
| | — |
| | — |
| | (17,625 | ) | | — |
|
| Comprehensive income/(loss) | | — |
| | 159,355 |
| | — |
| | — |
| | — |
| | 165,515 |
| | (17,625 | ) | | 11,465 |
|
| Cash dividends declared: | |
| |
| |
| |
| |
| |
| |
| |
|
| Preferred stock ($6,200 per share) | | — |
| | (6,200 | ) | | — |
| | — |
| | — |
| | (6,200 | ) | | — |
| | — |
|
| Common stock ($.36 per share) | | — |
| | (85,174 | ) | | — |
| | — |
| | — |
| | (85,174 | ) | | — |
| | — |
|
| Common stock repurchased | | (297 | ) | | (5,554 | ) | | — |
| | (185 | ) | | (5,369 | ) | | — |
| | — |
| | — |
|
| Common stock issued for: | |
| |
| |
| |
| |
| |
| |
| |
|
| Stock options and restricted stock - equity awards | | 1,107 |
| | 6,092 |
| | — |
| | 692 |
| | 5,400 |
| | — |
| | — |
| | — |
|
| Equity issued for acquisitions | | 92,302 |
| | 1,797,723 |
| | — |
| | 57,689 |
| | 1,740,034 |
| | — |
| | — |
| | — |
|
| Stock-based compensation expense | | — |
| | 20,627 |
| | — |
| | — |
| | 20,627 |
| | — |
| | — |
| | — |
|
| Dividends declared - noncontrolling interest of subsidiary preferred stock | | — |
| | (11,465 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (11,465 | ) |
| Other | | — |
| | — |
| | — |
| | — |
| | 55 |
| | (55 | ) | | — |
| | — |
|
| Balance, December 31, 2017 | | 326,736 |
| | 4,580,488 |
| | 95,624 |
| | 204,211 |
| | 3,147,613 |
| | 1,102,888 |
| | (265,279 | ) | | 295,431 |
|
| Adjustment to reflect adoption of ASU 2018-02 | | — |
| | — |
| | — |
| | — |
| | — |
| | 57,546 |
| | (57,546 | ) | | — |
|
| Balance, December 31, 2017, as adjusted | | 326,736 |
| | 4,580,488 |
| | 95,624 |
| | 204,211 |
| | 3,147,613 |
| | 1,160,434 |
| | (322,825 | ) | | 295,431 |
|
| Adjustment to reflect adoption of ASU 2016-01 and 2017-12 | | — |
| | 67 |
| | — |
| | — |
| | — |
| | 278 |
| | (211 | ) | | — |
|
| Beginning balance, as adjusted | | 326,736 |
| | 4,580,555 |
| | 95,624 |
| | 204,211 |
| | 3,147,613 |
| | 1,160,712 |
| | (323,036 | ) | | 295,431 |
|
| Net income/(loss) | | — |
| | 556,507 |
| | — |
| | — |
| | — |
| | 545,042 |
| | — |
| | 11,465 |
|
| Other comprehensive income/(loss) | | — |
| | (53,580 | ) | | — |
| | — |
| | — |
| | — |
| | (53,580 | ) | | — |
|
| Comprehensive income/(loss) | | — |
| | 502,927 |
| | — |
| | — |
| | — |
| | 545,042 |
| | (53,580 | ) | | 11,465 |
|
| Cash dividends declared: | | | | | | | | | | | | | | | | |
| Preferred stock ($6,200 per share) | | — |
| | (6,200 | ) | | — |
| | — |
| | — |
| | (6,200 | ) | | — |
| | — |
|
| Common stock ($.48 per share) | | — |
| | (157,146 | ) | | — |
| | — |
| | — |
| | (157,146 | ) | | — |
| | — |
|
| Common stock repurchased (b) | | (6,708 | ) | | (104,768 | ) | | — |
| | (4,192 | ) | | (100,576 | ) | | — |
| | — |
| | — |
|
| Common stock issued for: | | | | | | | | | | | | | | | | |
| Stock options and restricted stock - equity awards | | 926 |
| | 4,480 |
| | — |
| | 578 |
| | 3,902 |
| | — |
| | — |
| | — |
|
| Acquisition equity adjustment (c) | | (2,374 | ) | | (46,041 | ) | | — |
| | (1,484 | ) | | (44,557 | ) | | — |
| | — |
| | — |
|
| Stock-based compensation expense | | — |
| | 23,171 |
| | — |
| | — |
| | 23,171 |
| | — |
| | — |
| | — |
|
| Dividends declared - noncontrolling interest of subsidiary preferred stock | | — |
| | (11,465 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (11,465 | ) |
| Other | | (7 | ) | | (133 | ) | | — |
| | (5 | ) | | (128 | ) | | — |
| | — |
| | — |
|
| Balance, December 31, 2018 | | 318,573 |
| | 4,785,380 |
| | 95,624 |
| | 199,108 |
| | 3,029,425 |
| | 1,542,408 |
| | (376,616 | ) | | 295,431 |
|
| Adjustment to reflect adoption of ASU 2016-02 | | — |
| | (1,011 | ) | | — |
| | — |
| | — |
| | (1,011 | ) | | — |
| | — |
|
| Beginning balance, as adjusted | | 318,573 |
| | 4,784,369 |
| | 95,624 |
| | 199,108 |
| | 3,029,425 |
| | 1,541,397 |
| | (376,616 | ) | | 295,431 |
|
| Net income/(loss) | | — |
| | 452,373 |
| | — |
| | — |
| | — |
| | 440,908 |
| | — |
| | 11,465 |
|
| Other comprehensive income/(loss) | | — |
| | 137,008 |
| | — |
| | — |
| | — |
| | — |
| | 137,008 |
| | — |
|
| Comprehensive income/(loss) | | — |
| | 589,381 |
| | — |
| | — |
| | — |
| | 440,908 |
| | 137,008 |
| | 11,465 |
|
| Cash dividends declared: | | | | | | | | | | | | | | | | |
| Preferred stock ($6,200 per share) | | — |
| | (6,200 | ) | | — |
| | — |
| | — |
| | (6,200 | ) | | — |
| | — |
|
| Common stock ($.56 per share) | | — |
| | (177,663 | ) | | — |
| | — |
| | — |
| | (177,663 | ) | | — |
| | — |
|
| Common stock repurchased (b) | | (9,100 | ) | | (134,813 | ) | | — |
| | (5,687 | ) | | (129,126 | ) | | — |
| | — |
| | — |
|
| Common stock issued for: | | | | | | | | | | | | | | | | |
| Stock options and restricted stock - equity awards | | 1,996 |
| | 9,669 |
| | — |
| | 1,247 |
| | 8,422 |
| | — |
| | — |
| | — |
|
| Stock-based compensation expense | | — |
| | 22,730 |
| | — |
| | — |
| | 22,730 |
| | — |
| | — |
| | — |
|
| Dividends declared - noncontrolling interest of subsidiary preferred stock | | — |
| | (11,465 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (11,465 | ) |
| Balance, December 31, 2019 | | 311,469 |
| | $ | 5,076,008 |
| | $ | 95,624 |
| | $ | 194,668 |
| | $ | 2,931,451 |
| | $ | 1,798,442 |
| | $ | (239,608 | ) | | $ | 295,431 |
|
See accompanying notes to consolidated financial statements.
| | | | | | | | |
(a) | Due to the nature of the preferred stock issued by FHN and its subsidiaries, all components of Other comprehensive income/(loss) have been attributed solely to FHN as the controlling interest holder. 117 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
(b)ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| 2019 and 2018 include $129.9 million and $99.4 million, respectively, repurchased under share repurchase programs.CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | |
Consolidated Statements of Changes in Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred Stock | | Common Sock | | | | | | | | | | |
| (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, 2018 | | 1,000 | | | $ | 96 | | | 318,573 | | | $ | 200 | | | $ | 3,029 | | | $ | 1,542 | | | $ | (376) | | | $ | 295 | | | $ | 4,786 | |
| Adjustment to reflect adoption of ASU 2016-02 | | — | | | — | | | — | | | — | | | — | | | (1) | | | — | | | — | | | (1) | |
| Beginning balance, as adjusted | | 1,000 | | | 96 | | | 318,573 | | | 200 | | | 3,029 | | | 1,541 | | | (376) | | | 295 | | | 4,785 | |
| Net income | | — | | | — | | | — | | | — | | | — | | | 441 | | | — | | | 11 | | | 452 | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | — | | | — | | | 137 | | | — | | | 137 | |
| Comprehensive income (loss) | | — | | | — | | | — | | | — | | | — | | | 441 | | | 137 | | | 11 | | | 589 | |
| Cash dividends declared: | | | | | | | | | | | | | | | | | | |
| Preferred stock | | — | | | — | | | — | | | — | | | — | | | (6) | | | — | | | — | | | (6) | |
| Common stock ($.56 per share) | | — | | | — | | | — | | | — | | | — | | | (178) | | | — | | | — | | | (178) | |
| Common stock repurchased (b) | | — | | | — | | | (9,100) | | | (6) | | | (128) | | | — | | | — | | | — | | | (134) | |
| Common stock issued for: | | | | | | | | | | | | | | | | | | |
| Stock options exercised and restricted stock awards | | — | | | — | | | 1,996 | | | 1 | | | 8 | | | — | | | — | | | — | | | 9 | |
| Stock-based compensation expense | | — | | | — | | | — | | | — | | | 22 | | | — | | | — | | | — | | | 22 | |
| Dividends declared - noncontrolling interest of subsidiary preferred stock | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (11) | | | (11) | |
| Balance, December 31, 2019 | | 1,000 | | | 96 | | | 311,469 | | | 195 | | | 2,931 | | | 1,798 | | | (239) | | | 295 | | | 5,076 | |
| Adjustment to reflect adoption of ASU 2016-13 | | — | | | — | | | — | | | — | | | — | | | (96) | | | — | | | — | | | (96) | |
| Beginning balance, as adjusted | | 1,000 | | | 96 | | | 311,469 | | | 195 | | | 2,931 | | | 1,702 | | | (239) | | | 295 | | | 4,980 | |
| Net income | | — | | | — | | | — | | | — | | | — | | | 845 | | | — | | | 12 | | | 857 | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | — | | | — | | | 99 | | | — | | | 99 | |
| Comprehensive income (loss) | | — | | | — | | | — | | | — | | | — | | | 845 | | | 99 | | | 12 | | | 956 | |
| Cash dividends declared: | | | | | | | | | | | | | | | | | | |
| Preferred stock | | — | | | — | | | — | | | — | | | — | | | (23) | | | — | | | — | | | (23) | |
| Common stock ($.60 per share) | | — | | | — | | | — | | | — | | | — | | | (263) | | | — | | | — | | | (263) | |
| Preferred stock issuance (1,500 shares issued at $100,000 per share net of offering costs) | | 1,500 | | | 144 | | | — | | | — | | | — | | | — | | | — | | | — | | | 144 | |
| Common stock repurchased (b) | | — | | | — | | | (426) | | | — | | | (4) | | | — | | | — | | | — | | | (4) | |
| Common stock issued for: | | | | | | | | | | | | | | | | | | |
| Stock options exercised and restricted stock awards | | — | | | — | | | 1,726 | | | — | | | 7 | | | — | | | — | | | — | | | 7 | |
| Issued in business combination (c) | | 23,750 | | | 230 | | | 243,015 | | | 152 | | | 2,115 | | | — | | | — | | | — | | | 2,497 | |
| Stock-based compensation expense | | — | | | — | | | — | | | — | | | 32 | | | — | | | — | | | — | | | 32 | |
| Dividends declared - noncontrolling interest of subsidiary preferred stock | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (12) | | | (12) | |
| Other (d) | | — | | | — | | | (753) | | | — | | | (7) | | | — | | | — | | | — | | | (7) | |
| Balance, December 31, 2020 | | 26,250 | | | 470 | | | 555,031 | | | 347 | | | 5,074 | | | 2,261 | | | (140) | | | 295 | | | 8,307 | |
| Net income | | — | | | — | | | — | | | — | | | — | | | 999 | | | — | | | 11 | | | 1,010 | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | — | | | — | | | (148) | | | — | | | (148) | |
| Comprehensive income (loss) | | — | | | — | | | — | | | — | | | — | | | 999 | | | (148) | | | 11 | | | 862 | |
| Cash dividends declared: | | | | | | | | | | | | | | | | | | |
| Preferred stock | | — | | | — | | | — | | | — | | | — | | | (32) | | | — | | | — | | | (32) | |
| Common stock ($0.60 per share) | | — | | | — | | | — | | | — | | | — | | | (332) | | | — | | | — | | | (332) | |
| Preferred stock issuance (1,500 shares issued at $100,000 per share net of offering costs) | | 1,500 | | | 145 | | | — | | | — | | | — | | | — | | | — | | | — | | | 145 | |
| Call of preferred stock | | (1,000) | | | (95) | | | — | | | — | | | — | | | (5) | | | — | | | — | | | (100) | |
| Common stock repurchased (b) | | — | | | — | | | (25,063) | | | (16) | | | (400) | | | — | | | — | | | — | | | (416) | |
| Common stock issued for: | | | | | | | | | | | | | | | | | | |
| Stock options exercised and restricted stock awards | | — | | | — | | | 3,609 | | | 2 | | | 26 | | | — | | | — | | | — | | | 28 | |
| Stock-based compensation expense | | — | | | — | | | — | | | — | | | 43 | | | — | | | — | | | — | | | 43 | |
| Dividends declared - noncontrolling interest of subsidiary preferred stock | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (11) | | | (11) | |
| Balance, December 31, 2021 | | 26,750 | | | $ | 520 | | | 533,577 | | | $ | 333 | | | $ | 4,743 | | | $ | 2,891 | | | $ | (288) | | | $ | 295 | | | $ | 8,494 | |
| | | | | | | | |
(c) | See Note 2- Acquisitions and Divestitures for additional information. 118 | 2021 FORM 10-K ANNUAL REPORT |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 122
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| | | | | | | | | | | | |
| | | First Horizon National Corporation |
| | | Year Ended December 31 |
| (Dollars in thousands) | | 2019 | | 2018 | | 2017 |
| Operating Activities | | | | | | |
| Net income/(loss) | | $ | 452,373 |
| | $ | 556,507 |
| | $ | 176,980 |
|
| Adjustments to reconcile net income/(loss) to net cash provided/(used) by operating activities: | | | | | | |
| Provision/(provision credit) for loan losses | | 47,000 |
| | 7,000 |
| | — |
|
| Provision/(benefit) for deferred income taxes | | 14,357 |
| | 103,557 |
| | 121,001 |
|
| Depreciation and amortization of premises and equipment | | 43,785 |
| | 47,232 |
| | 34,703 |
|
| Amortization of intangible assets | | 24,834 |
| | 25,855 |
| | 8,728 |
|
| Net other amortization and accretion | | (3,380 | ) | | (13,962 | ) | | 27,493 |
|
| Net (increase)/decrease in derivatives | | (134,009 | ) | | 41,687 |
| | (26,662 | ) |
| Fair value adjustment on interest-only strips | | 4,725 |
| | 398 |
| | (1,021 | ) |
| Repurchase and foreclosure provision/(provision credit) | | — |
| | — |
| | (20,000 | ) |
| (Gains)/losses and write-downs on OREO, net | | 624 |
| | (626 | ) | | (61 | ) |
| Litigation and regulatory matters | | (8,443 | ) | | (836 | ) | | 40,250 |
|
| Stock-based compensation expense | | 22,730 |
| | 23,171 |
| | 20,627 |
|
| Gain on sale and pay down of held-to-maturity loans | | (1,105 | ) | | (3,777 | ) | | — |
|
| Equity securities (gains)/losses, net | | (441 | ) | | (212,896 | ) | | (109 | ) |
| Debt securities (gains)/losses, net | | 267 |
| | (52 | ) | | (483 | ) |
| (Gain)/loss on extinguishment of debt | | (58 | ) | | 15 |
| | 14,329 |
|
| Net (gains)/losses on sale/disposal of fixed assets | | 22,172 |
| | (1,320 | ) | | 6,657 |
|
| Qualified pension plan contributions | | (509 | ) | | (353 | ) | | (5,100 | ) |
| (Gain)/loss on BOLI | | (4,978 | ) | | (4,217 | ) | | (9,012 | ) |
| Loans held-for-sale: | | | | | | |
| Purchases and originations | | (2,075,042 | ) | | (2,345,030 | ) | | (2,001,708 | ) |
| Gross proceeds from settlements and sales | | 817,863 |
| | 919,187 |
| | 1,780,047 |
|
| (Gain)/loss due to fair value adjustments and other (a) | | (7,196 | ) | | 19,932 |
| | (6,624 | ) |
| Net (increase)/decrease in: | | | | | | |
| Trading securities | | 1,422,617 |
| | 1,356,797 |
| | (381,057 | ) |
| Fixed income receivables | | (1,253 | ) | | 29,832 |
| | (11,282 | ) |
| Interest receivable | | 4,546 |
| | (15,372 | ) | | (34,352 | ) |
| Other assets | | (116,888 | ) | | 32,950 |
| | 240,629 |
|
| Net increase/(decrease) in: | | | | | | |
| Trading liabilities | | 170,201 |
| | (303,135 | ) | | 76,667 |
|
| Fixed income payables | | 39,963 |
| | (39,424 | ) | | (68,495 | ) |
| Interest payable | | 339 |
| | 15,165 |
| | 5,934 |
|
| Other liabilities | | 95,200 |
| | (3,980 | ) | | (16,877 | ) |
| Total adjustments | | 377,921 |
| | (322,202 | ) | | (205,778 | ) |
| Net cash provided/(used) by operating activities | | 830,294 |
| | 234,305 |
| | (28,798 | ) |
| Investing Activities | | | | | | |
| Available-for-sale securities: | | | | | | |
| Sales | | 191,681 |
| | 20,751 |
| | 936,958 |
|
| Maturities | | 800,147 |
| | 675,526 |
| | 583,014 |
|
| Purchases | | (629,649 | ) | | (473,205 | ) | | (1,558,990 | ) |
| Proceeds from sale of equity investment | | 1,440 |
| | — |
| | — |
|
| Held-to-maturity securities: | | | | | | |
| Prepayments and maturities | | — |
| | — |
| | 4,740 |
|
| Premises and equipment: | | | | | | |
| Sales | | 20,058 |
| | 30,464 |
| | 3,416 |
|
| Purchases | | (49,159 | ) | | (47,986 | ) | | (53,046 | ) |
| Proceeds from sale of Visa Class B shares | | — |
| | 240,206 |
| | — |
|
| Proceeds from sales of OREO | | 15,824 |
| | 30,824 |
| | 13,468 |
|
| Proceeds from sales and pay down of loans classified as held-to-maturity | | 20,100 |
| | 50,498 |
| | — |
|
| Proceeds from BOLI | | 14,407 |
| | 12,860 |
| | 11,440 |
|
| Net (increase)/decrease in: | | | | | | |
| Loans | | (3,570,386 | ) | | 105,267 |
| | (808,399 | ) |
| Interests retained from securitizations classified as trading securities | | 489 |
| | 800 |
| | 865 |
|
| Interest-bearing cash | | 795,206 |
| | (92,011 | ) | | (121,434 | ) |
| Cash paid related to divestitures | | — |
| | (27,599 | ) | | — |
|
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 123
|
| | | | | | | | | | | | |
| Cash (paid)/received for acquisitions, net | | — |
| | (46,023 | ) | | (336,634 | ) |
| Net cash provided/(used) by investing activities | | (2,389,842 | ) | | 480,372 |
| | (1,324,602 | ) |
| Financing Activities | | | | | | |
| Common stock: | | | | | | |
| Stock options exercised | | 9,665 |
| | 4,482 |
| | 6,132 |
|
| Cash dividends paid | | (171,076 | ) | | (138,706 | ) | | (79,904 | ) |
| Repurchase of shares (b) | | (134,813 | ) | | (104,768 | ) | | (5,554 | ) |
| Cash dividends paid - preferred stock - noncontrolling interest | | (11,465 | ) | | (11,465 | ) | | (11,434 | ) |
| Cash dividends paid - Series A preferred stock | | (6,200 | ) | | (6,200 | ) | | (6,200 | ) |
| Term borrowings: | | | | | | |
| Issuance | | — |
| | — |
| | 121,184 |
|
| Payments/maturities | | (405,562 | ) | | (69,025 | ) | | (147,413 | ) |
| Increases in restricted and secured term borrowings | | 9,635 |
| | 20,477 |
| | 7,960 |
|
| Net increase/(decrease) in: | | | | | | |
| Deposits | | (253,459 | ) | | 2,092,519 |
| | (197,158 | ) |
| Short-term borrowings | | 2,384,391 |
| | (2,548,712 | ) | | 2,080,039 |
|
| Net cash provided/(used) by financing activities | | 1,421,116 |
| | (761,398 | ) | | 1,767,652 |
|
| Net increase/(decrease) in cash and cash equivalents | | (138,432 | ) | | (46,721 | ) | | 414,252 |
|
| Cash and cash equivalents at beginning of period | | 1,405,325 |
| | 1,452,046 |
| | 1,037,794 |
|
| Cash and cash equivalents at end of period | | $ | 1,266,893 |
| | $ | 1,405,325 |
| | $ | 1,452,046 |
|
| Supplemental Disclosures | | | | | | |
| Total interest paid | | $ | 410,883 |
| | $ | 307,578 |
| | $ | 140,373 |
|
| Total taxes paid | | 70,505 |
| | 42,817 |
| | 54,417 |
|
| Total taxes refunded | | 27,889 |
| | 48,455 |
| | 8,285 |
|
| Transfer from loans to OREO | | 8,996 |
| | 12,106 |
| | 6,624 |
|
| Transfer from loans HFS to trading securities | | 1,321,145 |
| | 1,389,420 |
| | 1,004,416 |
|
| Transfer from loans to loans HFS | | 31,465 |
| | — |
| | — |
|
Certain previously reported amounts(a)Due to the nature of the preferred stock issued by FHN and its subsidiaries, all components of other comprehensive income (loss) have been reclassifiedattributed solely to agreeFHN as the controlling interest holder.(b)2021, 2020, and 2019 include $401 million, $4 million, and $130 million, respectively, repurchased under share repurchase programs.
(c)See Note 2- Acquisitions and Divestitures for additional information.
(d)Represents shares canceled in connection with current presentation.the resolution of remaining CBF dissenters' appraisal process and to cover taxes on the IBKC equity compensation grants that automatically vested as part of the merger.
See accompanying notes to consolidated financial statements.
| | | | | | | | |
(a) | 2018 includes $107.4 million related to the sale of approximately $120 million UPB of subprime auto loans. See Note 2 - Acquisitions and Divestitures for additional information. 119 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
(b)ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| 2019 and 2018 include $129.9 million and $99.4 million, respectively, repurchased under share repurchase programs.CONSOLIDATED STATEMENTS OF CASH FLOWS | |
| | | | | | | | | | | | | | | | | | | | |
| | |
| | | Year Ended December 31 |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 |
| Operating Activities | | | | | | |
| Net income | | $ | 1,010 | | | $ | 857 | | | $ | 452 | |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | | |
| Provision for credit losses | | (310) | | | 503 | | | 45 | |
| Deferred income tax expense (benefit) | | — | | | (18) | | | 14 | |
| Depreciation and amortization of premises and equipment | | 61 | | | 52 | | | 44 | |
| Amortization of intangible assets | | 56 | | | 40 | | | 25 | |
| Net other amortization and accretion | | (67) | | | (30) | | | (3) | |
| Net (increase) decrease in trading securities | | 1,824 | | | 1,912 | | | 1,423 | |
| Net (increase) decrease in derivatives | | 412 | | | (223) | | | (134) | |
| Purchase accounting gain | | 1 | | | (533) | | | — | |
| Stock-based compensation expense | | 43 | | | 32 | | | 22 | |
| Securities (gains) losses, net | | (13) | | | 6 | | | — | |
| Loss on debt extinguishment | | 26 | | | — | | | — | |
| Net (gains) losses on sale/disposal of fixed assets | | 29 | | | 8 | | | 22 | |
| (Gain) loss on BOLI | | (8) | | | (5) | | | (5) | |
| Loans held for sale: | | | | | | |
| Purchases and originations | | (6,644) | | | (4,710) | | | (2,075) | |
| Gross proceeds from settlements and sales | | 4,451 | | | 2,907 | | | 818 | |
| | | | | | |
| (Gain) loss due to fair value adjustments and other | | (205) | | | (81) | | | (7) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Other operating activities, net | | 75 | | | (545) | | | 189 | |
| Total adjustments | | (269) | | | (685) | | | 378 | |
| Net cash provided by (used in) operating activities | | 741 | | | 172 | | | 830 | |
| Investing Activities | | | | | | |
| Proceeds from sales of securities available for sale | | 68 | | | 629 | | | 192 | |
| Proceeds from maturities of securities available for sale | | 2,771 | | | 4,099 | | | 800 | |
| Purchases of securities available for sale | | (3,736) | | | (4,740) | | | (630) | |
| Purchases of securities held to maturity | | (720) | | | — | | | — | |
| Proceeds from prepayments of securities held to maturity | | 17 | | | — | | | — | |
| Proceeds from sales of premises and equipment | | 42 | | | 12 | | | 20 | |
| Purchases of premises and equipment | | (53) | | | (58) | | | (49) | |
| Proceeds from sales and pay downs of loans classified as held to maturity | | — | | | — | | | 20 | |
| Proceeds from BOLI | | 22 | | | 12 | | | 14 | |
| Net (increase) decrease in loans and leases | | 3,509 | | | (819) | | | (3,570) | |
| Net (increase) decrease in interest-bearing deposits with banks | | (6,556) | | | (6,187) | | | 795 | |
| Cash (paid) received for acquisitions, net | | — | | | 2,071 | | | — | |
| Other investing activities, net | | 19 | | | 14 | | | 18 | |
| Net cash provided by (used in) investing activities | | (4,617) | | | (4,967) | | | (2,390) | |
| Financing Activities | | | | | | |
| Common stock: | | | | | | |
| Stock options exercised | | 28 | | | 7 | | | 9 | |
| Cash dividends paid | | (333) | | | (222) | | | (171) | |
| Repurchase of shares | | (416) | | | (4) | | | (134) | |
| Cancellation of common shares | | — | | | (7) | | | — | |
| Preferred stock issuance | | 145 | | | 144 | | | — | |
| Call of preferred stock | | (100) | | | — | | | — | |
| Cash dividends paid - preferred stock - noncontrolling interest | | (11) | | | (12) | | | (11) | |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 124
| | | | | | | | |
| 120 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |
| | | | | | | | | | | | | | | | | | | | |
| Cash dividends paid - preferred stock | | (33) | | | (17) | | | (6) | |
| Net increase (decrease) in deposits | | 4,919 | | | 7,143 | | | (253) | |
| Net increase (decrease) in short-term borrowings | | (75) | | | (1,529) | | | 2,384 | |
| | | | | | |
| Increases (decreases) in term borrowings | | (108) | | | (327) | | | (396) | |
| Net cash provided by (used in) financing activities | | 4,016 | | | 5,176 | | | 1,422 | |
| Net increase (decrease) in cash and cash equivalents | | 140 | | | 381 | | | (138) | |
| Cash and cash equivalents at beginning of period | | 1,648 | | | 1,267 | | | 1,405 | |
| Cash and cash equivalents at end of period | | $ | 1,788 | | | $ | 1,648 | | | $ | 1,267 | |
| Supplemental Disclosures | | | | | | |
| Total interest paid | | $ | 170 | | | $ | 261 | | | $ | 411 | |
| Total taxes paid | | 258 | | | 105 | | | 71 | |
| Total taxes refunded | | 30 | | | 36 | | | 28 | |
| Transfer from loans to OREO | | 4 | | | 2 | | | 9 | |
| Transfer from loans HFS to trading securities | | 2,232 | | | 1,742 | | | 1,321 | |
| Transfer from loans to loans HFS | | 31 | | | 9 | | | 31 | |
See accompanying notes to consolidated financial statements.
| | | | | | | | |
| 121 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 1—SIGNIFICANT ACCOUNTING POLICIES | |
Notes to the Consolidated Financial Statements
Note 1 – Summary of 1—Significant Accounting Policies
Basis of Accounting.Accounting
The consolidated financial statements of First Horizon National Corporation (“FHN”),FHN, including its subsidiaries, have been prepared in conformity with accounting principles generally accepted in the United States of America and follow general practices within the industries in which it operates. This preparation requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions are based on information available as of the date of the financial statements and could differ from actual results.
Merger with IBERIABANK Corporation
On July 1, 2020, FHN and IBERIABANK Corporation closed their merger of equals transaction. Historical periods prior to the closing of the merger only reflect results of legacy FHN operations. Subsequent to closing, results reflect all post-merger activity. Refer to Note 2 – Acquisitions and Divestitures for additional information regarding the transaction.
Reclassification
In connection with the IBKC merger, certain captions in the Consolidated Balance Sheets and Consolidated Statements of Income, loan categories, and business activities within the segments were realigned. Amounts reported in prior periods' consolidated financial statements, which represent FHN's pre-merger financial results, have been reclassified to conform to the current presentation.
Principles of Consolidation and Basis of Presentation.
The consolidated financial statements include the accounts of FHN and other entities in which it has a controlling financial interest. Variable Interest Entities (“VIEs”) 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. For purposes of comparability, certain prior period amounts have been reclassified to conform to current year presentation.
Business Combinations. FHN accounts for acquisitions meeting the definition of a business combination in accordance with ASC 805, "Business Combinations," which requires acquired assets and liabilities (other than tax, certain benefit plan balances, and starting in 2019 certain lease-related assets and liabilities) to be recorded at fair value. Business combinations are included in the financial statements from the respective dates of acquisition. Acquisition related costs are expensed as incurred.Revenues
Revenues. Revenue is recognized when the performance obligations under the terms of a contract with a customerclient 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 Accounting Standards Update ("ASU") 2014-09,ASC 606, "Revenue from Contracts with Customers", and all related amendments, 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 includes mortgage servicing income, title income, mortgage loan originations and sales, derivative settlements, as well as any changes in fair value recorded on mortgage loans and derivatives. Mortgage banking income from 1) sale of loans, 2) settlement of derivatives, 3) changes in fair value of loans, derivatives and servicing rights and 4) servicing of loans are not within the scope of revenue from contracts with customers. Title income is earned when FHN fulfills its performance obligation at the point in time when the services are completed.
Deposit Transactions and Cash Management. 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.
| | | | | | | | |
| 122 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 1—SIGNIFICANT ACCOUNTING POLICIES | |
Brokerage, Management Fees and Commissions. Commissions
Brokerage, management fees and commissions include fees for portfolio management, trade commissions, and annuity and mutual fund sales. Asset-based management fees are charged based on the market value of the client’s assets. The services associated with these revenues, which include investment advice and active management of client assets are generally performed and recognized over a month or quarter. Transactional revenues are based on the size and number of transactions executed at the client’s direction and are generally recognized on the trade date.
Trust Services and Investment Management. Management
Trust services and investment management fees include investment management, personal trust, employee benefits, and custodial trust services. Obligations for trust services are generally satisfied over time but may be satisfied at points in time for certain activities that are transactional in nature.
Bankcard Income. Bankcard income includesCard 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 ASU 2014-09.ASC 606.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 125
Note 1 – Summary of Significant Accounting Policies (Continued)
Contract Balances. As of December 31, 2019,2021, accounts receivable related to products and services on non-interest income were $8.7$12 million. For the year ended December 31, 2019,2021, FHN had no material impairment losses on non-interest accounts receivable and there were no material contract assets, contract liabilities or deferred contract costs recorded on the Consolidated Statement of ConditionBalance Sheets as of December 31, 2019.2021. Credit risk is assessed on these accounts receivable each reporting period and the amount of estimated uncollectible receivables is not material.
Transaction Price Allocated to Remaining Performance Obligations. Obligations
For the year ended December 31, 2019,2021, revenue recognized from performance obligations related to prior periods was not material. Revenue expected to be recognized in any future year related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less and contracts where revenue is recognized as invoiced, is not material.
Refer to Note 20 - Business Segment Information for a reconciliation of disaggregated revenue by major product line and reportable segment.
Statements of Cash Flows
For purposes of these statements, cash and due from banks, federal funds sold, and securities purchased under agreements to resell are considered cash and cash equivalents. Federal funds are usually sold for one-day periods, and securities purchased under agreements to resell are short-term, highly liquid investments.
Debt Investment Securities. Available-for-sale ("AFS") and held-to-maturity (“HTM”) securities are reviewed quarterly for possible other-than-temporary impairment (“OTTI”). The review includes an analysis of the facts and circumstances of each individual investment such as the degree of loss, the length of time the fair value has been below cost, the expectation for that security’s performance, the creditworthiness of the issuer and FHN’s intent and ability to hold the security. Securities
Debt securities that may be sold prior to maturity are classified as AFS and are carried at fair value. The unrealized gains and losses on debt securities AFS, including securities for which no credit impairment exists, are excluded from earnings and are reported, net of tax, as a component of other comprehensive income within shareholders’ equity and the Consolidated Statements of Comprehensive Income. Debt securities which management has the intent and ability to hold to maturity are reported at amortized cost. Interest-onlyInterest only strips that arewere classified asin securities AFS areand valued at elected fair value.value in periods prior to October 1, 2021 at which time they were transferred to trading securities. See Note 24 - Fair Value of Assets and Liabilities for additional information.
Realized gains and losses (i.e., from sales) for debt investment securities are determined by the specific identification method and reported in noninterest income. Declines in value judged to be other-than-temporary based on FHN’s analysis
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 factsissuer, the effects of interest rate changes since purchase and circumstances related toobservable market information such as issuer-specific credit spreads. Credit losses for AFS debt securities are generally recognized through establishment of an individual investment, including securitiesallowance 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 are also determined byor if it is more-likely-than-not that it will be compelled to sell a security with an unrecognized loss, the specific identification method. For HTMdifference 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 OTTI recognized is typically credit-related and is reported in noninterest income. For impaired AFSwhen assessing whether these securities have experienced credit impairment. Additionally, FHN has elected to not measure an allowance for credit losses on AIR for debt securities that FHN does not intendbased on its policy to sell and will not be required to sell prior to recovery butwrite off
| | | | | | | | |
| 123 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 1—SIGNIFICANT ACCOUNTING POLICIES | |
uncollectible interest in a timely manner, which generally occurs when delinquency reaches no more than 90 days for which credit losses exist, the OTTIall security types. Any such write offs are recognized is separated between the total impairment related to credit losses which is reported in noninterest income, and the impairment related to all other factors which is excluded from earnings and reported, net of tax, as a componentreduction of interest income. AIR for debt securities is included within other comprehensive income within shareholders’ equity andassets in the Statements of Comprehensive Income.Consolidated Balance Sheet.
Equity Investment Securities. Securities
Equity securities are classified in Otherother assets.
National banks chartered by the federal government are, and banks 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 ("FRB").Bank. Given this requirement, FRB stock may not be sold, traded, or pledged as collateral for loans. Membership in the Federal Home Loan Bank (“FHLB”) 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 2019, initially as a national bank and later as a state member bank.2021.
Other equity investments primarily consist of mutual funds which are marked to fair value through earnings. Smaller balances of equity investments without a readily determinable fair value are recorded at cost minus impairment with adjustments through earnings for observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
Fed Funds Sold and Purchased
Fed funds sold and purchased represent unsecured overnight funding arrangements between participants in the Federal Reserve system primarily to assist banks in meeting their regulatory cash reserve requirements. Fed Funds sold are evaluated for credit risk each reporting period. Due to the short duration of each transaction and the history of no credit losses, no credit loss has been recognized.
Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase. 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 customersclients 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.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 126
Note 1 – Summary of Significant Accounting Policies (Continued)
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 Securitiessecurities purchased under agreements to resell in the Consolidated Statements of Condition.Balance Sheets. These transactions are not considered purchases and the securities borrowed are not recognized by FHN. FHN does not conduct securities lending transactions.
Securities purchased under agreements to resell and securities borrowing arrangements are evaluated for credit risk each reporting period. As presented in Note 23 - Master Netting and Similar Agreements - Repurchase, Reverse Repurchase, and Securities Borrowing Transactions, these agreements are collateralized by the related securities and collateral maintenance provisions with counterparties, including replenishment and adjustment on a transaction specific basis. This collateral includes both the securities collateral for each transaction as well as offsetting securities sold under agreements to repurchase with the same counterparty. Given the history of no credit losses and collateralized nature of these transactions, no credit loss has been recognized.
Loans Held-for-Sale. Held for Sale
Loans originated or purchased for which management lacks the intent to hold are included in loans held-for-saleheld for sale in the Consolidated StatementsBalance Sheets. FHN generally accounts for loans held for sale at the lower of Condition. FHN has elected the fairamortized cost or market value, option on a prospective basiswith an exception for certain mortgage loans held-for-saleheld for sale and repurchased loans that are not governmentally insured. Such loansinsured which are carried at fair value, with changes in the fair value recognized in the other income section of the Consolidated Statements of Income. For mortgage loans originated for sale for whichunder the fair value option was elected, loan origination fees were recorded by FHN when earnedof 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 related direct loan origination costslosses 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 when incurred. See Note 24 - Fair Value of Assets and Liabilities for additional information. FHN accounts for all other loans held-for-sale at the lower of cost or market value (“LOCOM”).through noninterest income. Net unrealized losses, if any, are recognized through a valuation allowance that is also recorded as a charge to noninterest income.
Loans.
| | | | | | | | |
| 124 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 1—SIGNIFICANT ACCOUNTING POLICIES | |
Loans and Leases
Generally, loans are stated at principal amounts outstanding, net of unearned income. Interest on loans is recognized on an accrual basis at the applicable interest rate on the principal amount outstanding. Loan origination fees and direct costs as well as premiums and discounts are amortized as level yield adjustments over the respective loan terms. Unamortized net fees or costs, premiums and discounts are recognized in interest income upon early repayment of the loans. Cash collections from loans that were fully charged off prior to acquisition are recognized in noninterest income. Loan commitment fees are generally deferred and amortized on a straight-line basis over the commitment period.
NonaccrualEquipment financing leases to commercial clients are primarily classified as direct financing 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.
The accrual status policy for commercial troubled debt restructurings (“TDRs”) follows the same internal policies and procedures as other commercial portfolio loans.
Residential real estate secured loans discharged in bankruptcy that have not been reaffirmed by the borrower (“discharged bankruptcies”) are placed on nonaccrual regardless of delinquency status andsales-type leases. Equipment financing leases are reported as TDRs.
Current second lien residential real estate loans that are junior to first liens are placed on nonaccrual status if the first lien is 90 or more days past due, is a bankruptcy, or is a troubled debt restructuring.
Consumer real estate (HELOC and residential real estate installment loans), if not already on nonaccrual per above situations, are placed on nonaccrual if the loan is 30 or more days delinquent at the time of modification and is also determined to be a TDR.
Government guaranteed/insured residential mortgage loans remain on accrual (even if the loan falls into one of the above categories) because the collection of principal and interest is reasonably assured.
For commercial and consumer loans within each portfolio segment and class that have been placed on nonaccrual status, accrued but uncollected interest is reversed and charged against interest income when the loan is placed on nonaccrual status. Management may elect to continue the accrual of interest when the estimated net realizable value of collateral is sufficient to recover the principal balance and accrued interest. Interest payments received on nonaccrual loans are normally applied to outstanding principal first. Once all principal has been received, additional interest payments are recognized on a cash basis as interest income.
Generally, commercial and consumer loans within each portfolio segment and class that have been placed on nonaccrual status can be returned to accrual status if all principal and interest is current and FHN expects full repayment of the remaining contractual principal and interest. This typically requires that a borrower make payments in accordance with the contractual terms for a sustained period of time (generally for a minimum of six months) before being returned to accrual status. For TDRs, FHN may also consider a borrower’s sustained historical repayment performance for a reasonable time prior to the restructuring in assessing whether the borrower can meet the restructured terms, as it may indicate whether the borrower is capable of servicing the level of debt under the modified terms.
Residential real estate loans discharged through Chapter 7 bankruptcy and not reaffirmed by the borrower are not returned to accrual status. For current second liens that have been placed on nonaccrual because the first lien is 90 or more days past due or is a TDR or bankruptcy, the second lien may be returned to accrual upon pay-off or cure of the first lien.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 127
Note 1 – Summary of Significant Accounting Policies (Continued)
Charge-offs. For all commercial and consumer loan portfolio segments, all losses of principal are charged to the allowance for loan losses ("ALLL") in the period inlease investment, which the loan is deemed to be uncollectible.
For consumer loans, the timing of a full or partial charge-off generally depends on the loan type and delinquency status. Generally, for the consumer real estate and permanent mortgage portfolio segments, a loan will be either partially or fully charged-off when it becomes 180 days past due. At this time, if the collateral value does not support foreclosure, balances are fully charged-off and other avenues of recovery are pursued. If the collateral value supports foreclosure, the loan is charged-down to net realizable value (collateral value less estimated costs to sell) and is placed on nonaccrual status. For residential real estate loans discharged in Chapter 7 bankruptcy and not reaffirmed by the borrower, the fair value of the collateral position is assessed at the time FHN is made aware of the discharge and the loan is charged down to the net realizable value (collateral value less estimated costs to sell). Within the credit card and other portfolio segment, credit cards and installment loans secured by automobiles are normally charged-off upon reaching 180 days past due while other non-real estate consumer loans are charged-off upon reaching 120 days past due.
Impaired Loans. Impaired loans include nonaccrual commercial loans greater than $1 million and modified consumer and commercial loans that have been classified as a TDR and are individually measured for impairment under the guidance of ASC 310. TDRs are always reported as such unless the TDR has exhibited sustained performance, was reported as a TDR over a year-end, and the modified terms were market-based at the time of modification.
Purchased Credit-Impaired Loans.ASC 310-30 “Accounting for Certain Loans or Debt Securities Acquired in a Transfer,” provides guidance for acquired loans that have exhibited deterioration of credit quality between origination and the time of acquisition and for which the timely collection of the interest and principal is not reasonably assured (“PCI loans”). PCI loans are initially recorded at fair value which is estimated by discounting expected cash flows at acquisition date. The expected cash flows include all contractually expected amounts (including interest) and incorporate an estimate for future expected credit losses, pre-payment assumptions, and yield requirement for a market participant, among other things. To the extent possible, certain PCI loans were aggregated into pools with composite interest rate and cash flows expected to be collected for the pool. Aggregation into loan pools is based upon common risk characteristics that include similar credit risk or risk ratings, and one or more predominant risk characteristics. Each PCI pool is accounted for as a single unit.
Accretable yield is initially established at acquisition and is the excess of cash flows expected at acquisition over the initial investment in the loan and is recognized in interest income over the remaining life of the loan, or pool of loans. Nonaccretable difference is initially established at acquisition and is the difference between the contractually required payments at acquisition and the cash flows expected to be collected at acquisition. FHN estimates expected cash flows for PCI loans on a quarterly basis. Increases in expected cash flows from the last measurement result in reversal of any nonaccretable difference (or allowance for loan losses to the extent any has previously been recorded) with a prospective positive impact on interest income. Decreases to the expected cash flows result in an increase in the allowance for loan losses through provision expense.
FHN does not report PCI loans as nonperforming loans due to the accretion of interest income. Additionally, PCI loans that have been pooled and subsequently modified will not be reported as troubled debt restructurings since the pool is the unit of measurement.
Allowance for Loan Losses. The ALLL is maintained at a level that management determines is sufficient to absorb estimated probable incurred losses in the loan portfolio. The ALLL is increased by the provision for loan losses and loan recoveries and is decreased by loan charge-offs. The ALLL is determined in accordance with ASC 450-20-50 "Contingencies - Accruals for Loss Contingencies" and is composed of reserves for commercial loans evaluated based on pools of credit graded loans and reserves for pools of smaller-balance homogeneous consumer and commercial loans. The reserve factors applied to these pools are an estimate of probable incurred losses based on management’s evaluation of historical net losses from loans with similar characteristics. Additionally, the ALLL includes specific reserves established in accordance with ASC 310-10-35 for loans determined by management to be individually impaired as well as reserves associated with PCI loans. Management uses analytical models to estimate probable incurred losses in the loan portfolio as of the balance sheet date. The models, which are primarily driven by historical losses, are carefully reviewed to identify trends that may not be captured in the historical loss factors used in the models. Management uses qualitative adjustments for those items not yet captured in the models like current events, recent trends in the portfolio, current underwriting guidelines, and local and macroeconomic trends, among other things.
The nature of the process by which FHN determines the appropriate ALLL requires the exercise of considerable judgment. See Note 5 - Allowance for Loan Losses for a discussion of FHN’s ALLL methodology and a description of the models utilized in the estimation process for the commercial and consumer loan portfolios.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 128
Note 1 – Summary of Significant Accounting Policies (Continued)
Key components of the estimation process are as follows: (1) commercial loans determined by management to be individually impaired loans are evaluated individually and specific reserves are determined based on the difference between the outstanding loan amount and the estimated net realizable value of the collateral (if collateral dependent), the present value of expected future cash flows or by observable market prices; (2) individual commercial loans not considered to be individually impaired are segmented based on similar credit risk characteristics and evaluated on a pool basis; (3) reserve rates for the commercial segment are calculated based on historical net charge-offs and are subject to adjustment by management to reflect current events, trends, and conditions (including economic considerations and trends); (4) management’s estimate of probable incurred losses reflects the reserve rates applied against the balance of loans in the commercial segment of the loan portfolio; (5) consumer loans are generally segmented based on loan type; (6) reserve amounts for each consumer portfolio segment are calculated using analytical models based on delinquency trends and net loss experience and are subject to adjustment by management to reflect current events, trends, and conditions (including economic considerations and trends); and (7) the reserve amount for each consumer portfolio segment reflects management’s estimate of probable incurred losses in the consumer segment of the loan portfolio.
Impairment related to individually impaired loans is measured in accordance with ASC 310-10. For all commercial portfolio segments, commercial TDRs and other individually impaired commercial loans are measured based on the present value of expected future payments discounted at the loan’s effective interest rate (“the DCF method”), observable market prices, or for loans that are solely dependent on the collateral for repayment, the net realizable value (collateral value less estimated costs to sell). Impaired loans also include consumer TDRs.
Future adjustments to the ALLL 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.
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 ("OREO"). 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 All other expense on the Consolidated Statements of Income. Properties acquired by foreclosure in compliance with HUD servicing guidelines prior to January 1, 2015, are included in “OREO” and are carried at the estimated amount of the underlying government insurance or guarantee. On December 31, 2019, FHN had $2.2 million of these properties.
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.
Intangible Assets. Intangible assets consist of “Other intangible assets” and “Goodwill.” Other intangible assets represent customer 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. Goodwill represents the excesssum of cost over net assets of acquired businesses less identifiable intangible assets. On an annual basis, FHN assesses goodwill for impairment.
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
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 129
Note 1 – Summary of Significant Accounting Policies (Continued)
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 Statements of Condition. Amounts of collateral posted or received have not been netted with the related derivatives unless the collateral amounts are considered legal settlements of the related derivative positions. See Note 22 - Derivatives for discussion on netting of derivatives.
FHN prepares written hedge documentation, identifying the risk management objective and designating the derivative instrument as a fair value hedge or cash flow hedge as applicable, or as a free-standing derivative instrument entered into as an economic hedge or to meet customers’ 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. Prior to 2018, ineffectiveness in debt and cash flow hedges was recorded in noninterest expense. Starting in 2018, for fair value hedges, the entire change in the fair value of the hedging instrument included in the assessment of effectiveness is recorded to the same financial statement line item (e.g., interest expense) used to present the earnings effect of the hedged item. For cash flow hedges, the entire fair value change of the hedging instrument that is included in the assessment of hedge effectiveness is initially recorded in other comprehensive income and later recycled into earnings as the hedged transaction(s) affect net income with the income statement effects recorded in the same financial statement line item used to present the earnings effect of the hedged item (e.g., interest income). For free-standing derivative instruments, changes in fair values are recognized currently in earnings. See Note 22 - Derivatives for additional information.
Cash flows from derivative contracts are reported as operating activities on the Consolidated Statements of Cash Flows.
Leases. At inception, all arrangements are evaluated to determine if they contain aminimum lease which is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Control is deemed to exist when a lessor has granted and a lessee has received both the right to obtain substantially all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset throughout the period of use.
Lessee. As a lessee, FHN recognizes lease (right-of-use) assets and lease liabilities for all leasing arrangements with lease terms that are greater than one year. The lease asset and lease liability are recognized at the present value of estimated future lease payments including estimated renewal periods, with the discount rate reflecting a fully-collateralized rate matching the estimated lease term. Renewal options are included in the estimated lease term if they are considered reasonably certain of exercise. Periods covered by termination options are included in the lease term if it is reasonably certain they will not be exercised. Additionally, prepaid or accrued lease payments, lease incentives and initial direct costs related to lease arrangements are recognized within the right-of-use asset. Each lease is classified as a financing or operating lease which depends on the relationship of the lessee’s rights to the economic value of the leased asset. For finance leases, interest on the lease liability is recognized separately from amortization of the right-of-use asset in earnings, resulting in higher expense in the earlier portion of the lease term. For operating leases, a single lease cost is calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis. Substantially all of FHN’s lessee arrangements are classified as operating leases. For leases with a term of 12 months or less, FHN does not to recognize lease assets and lease liabilities and expense is 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 theresidual 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
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 130
Note 1 – Summary of Significant Accounting Policies (Continued)
cash flows and the prospective expense recognition for that lease follows the accelerated expense recognition methodology applicable to finance leases, even if it remains classified as an operating lease.
Sublease arrangements are accounted for consistent with the lessor accounting described below. Sublease arrangements are evaluated to determine if changes to estimates for the primary lease are warranted or if the sublease terms reflect impairment of the related lease asset.
Lease assets are recognized in Other assets and lease liabilities are recognized in Other liabilities in the Consolidated Statements of Condition. 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. Currently, 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. Leaseless unearned interest income. Interest income is not significant for any reporting periods and is classifiedaccrued as a reduction of Occupancy expense in the Consolidated Statements of Income.
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 ("DTAs") and liabilities ("DTLs") 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 the provision for income taxes.
FHN records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) it is determined whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority is recognized. FHN's ASC 740 policy is to recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. Accrued interest and penalties are included within the related tax asset/liability line in the consolidated balance sheet.
FHN and its eligible subsidiaries are included in a consolidated federal income tax return. FHN files separate returns for subsidiaries that are not eligible to be included in a consolidated federal income tax return. Based on the laws of the applicable state where it conducts business operations, FHN either files consolidated, combined, or separate returns. FHN’s federal consolidated tax returns are currently under audit for 2013 through 2015 and the statutes for those years have been extended through December 31, 2020. Federal tax refund claims for Capital Bank Financial Corporation for 2010 - 2012 are under examination by the IRS. Several of FHN’s state returns are currently under examination.
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
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 131
Note 1 – Summary of Significant Accounting Policies (Continued)
method in this calculation. Diluted earnings per share does not reflect an adjustment for potentially dilutive shares in periods in which a net loss available to common shareholders exists.
Equity Compensation. FHN accounts for its employee stock-based compensation plans using the grant date fair value of an award to determine the expense to be recognized over the life of the award. Stock options are valued using an option-pricing model, such as Black-Scholes. Restricted and performance shares and share units are valued at the stock price on the grant date. Awards with post-vesting transfer restrictions are discounted using models that reflect market considerations for illiquidity. For awards with service vesting criteria, expense is recognized using the straight-line method over the requisite service period (generally the vesting period). Forfeitures are recognized when they occur. For awards vesting based on a performance measure, anticipated performance is projected to determine the number of awards expected to vest, and the corresponding aggregate expense is adjusted to reflect the elapsed portion of the performance period. If a performance period extends beyond the required service term, total expense is adjusted for changes in estimated achievement through the end of the performance period. Some performance awards include a total shareholder return modifier (“TSR Modifier”) that operates after determination of the performance criteria, affecting only the quantity of awards issued if the minimum performance threshold is attained. The effect of the TSR Modifier is included in the grant date fair value of the related performance awards using a Monte Carlo valuation technique. The fair value of equity awards with cash payout requirements, as well as awards for which fair value cannot be estimated at grant date, is remeasured each reporting period through vesting date. Performance awards with pre-grant date achievement criteria are expensed over the period from the start of the performance period through the end of the service vesting term. Awards are amortized using the nonsubstantive vesting methodology which requires that expense associated with awards having only service vesting criteria that continue vesting after retirement be recognized over a period ending no later than an employee’s retirement eligibility date.
Repurchase and Foreclosure Provision. The repurchase and foreclosure provision is the charge to earnings necessary to maintain the liability at a level that reflects management’s best estimate of losses associated with the repurchase of loans previously transferred in whole loans sales or securitizations, or make whole requests as of the balance sheet date. See Note 17 - Contingencies and Other Disclosures for discussion related to FHN’s obligations to repurchase such loans.
Legal Costs. Generally, legal costs are expensed as incurred.Costs related to equity issuances are netted against Capital surplus. Costs related to debt issuances are included in debt issuance costs that are recorded within Term borrowings.
Contingency Accruals. Contingent liabilities arise in the ordinary course of business, including those related to lawsuits, arbitration, 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.
Summary of Accounting Changes. Effective January 1, 2019, FHN adopted the provisions of ASU 2016-02, “Leases,” which requires a lessee to recognize in its statement of condition a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. ASU 2016-02 leaves lessor accounting largely unchanged from prior standards. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. All other leases must be classified as financing or operating leases 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.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 132
Note 1 – Summary of Significant Accounting Policies (Continued)
Effective January 1, 2019, FHN adopted the provisions of ASU 2018-11, “Leases - Targeted Improvements,” which provides an election for a cumulative effect adjustment to retained earnings upon initial adoption of ASU 2016-02. Alternatively, under the initial guidance of ASU 2016-02, lessees and lessors are required to recognize and measure leases at the beginning of the earliest comparative period presented using a modified retrospective approach. Both adoption alternatives include a number of optional practical expedients that entities may elect to apply, which would result in continuing to account for leases that commence before the effective date in accordance with previous requirements (unless the lease is modified) except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous requirements. ASU 2016-02 also requires expanded qualitative and quantitative disclosures to assess the amount, timing, and uncertainty of cash flows arising from lease arrangements. Upon adoption, FHN utilized the cumulative effect transition alternative provided by ASU 2018-11. FHN utilized the lease classification practical expedients and the short-term lease exemption upon adoption. FHN also has elected to determine the discount rate on leases as of the effective date and elected to use hindsight in determining lease terms as well as impairments of lease assets resulting from lease abandonments upon adoption. The table below summarizes the impact of adopting ASU 2016-02 as of January 1, 2019, for line items in the Consolidated Statements of Condition. Lease assets of approximately $185 million are included in Other Assets. Lease liabilities of approximately $204 million are included in Other Liabilities. The after-tax decrease in Undivided Profits reflects the recognition of deferred gains associated with prior sale-leaseback transactions, revisions to the estimated useful lives of leasehold improvements and adjustments of lease expense to reflect revised lease duration estimates.
|
| | | | |
| | |
| (Dollars in thousands) | | January 1, 2019 |
| | | |
| Loans, net of unearned income | | $ | 3,450 |
|
| Premises and equipment, net | | 2,718 |
|
| Other assets | | 183,884 |
|
| Other liabilities | | (191,010 | ) |
| Undivided profits | | 1,011 |
|
Effective January 1, 2019, FHN adopted the provisions of ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). Capitalized implemented costs are required to be expensedearned over the term of the hosting arrangement which includes the non-cancellable period of the arrangement plus periods covered by (1) an option to extend the arrangement if the customer is reasonably certain to exercise that option, (2) an option to terminate the arrangement if the customer is reasonably certain not to exercise the termination option, and (3) an option to extend (or not to terminate) the arrangement in which exercise of the option is in the control of the vendor. ASU 2018-15 also requires application of the impairment guidance applicable to long-lived assets to the capitalized implementation costs. Amortization expense related to capitalized implementation costs must be presented in the same line item in the statement of income as the fees associated with the hosting element (service) of the arrangement and payments for capitalized implementation costs will be classified in the statement of cash flows in the same manner as payments made for fees associated with the hosting element. Capitalized implementation costs will be presented in the statement of financial position in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented. FHN elected early adoption of ASU 2018-15 using the prospective transition method and the effects of adoption were not significant.
In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” which makes several revisions and clarifications to the accounting for these items. The revisions related to ASU 2016-03 (Topic 326) are discussed below. ASU 2019-04 clarifies several aspects of fair hedge accounting, including the application to partial term fair value hedges. ASU 2019-04 provides an election regarding the timing for amortization of basis adjustments to hedged items in fair value hedges, indicating that amortization may, but is not required to, commence prior to the end of the hedge relationship. ASU 2019-04 also provides additional guidance related to the application of the hypothetical derivative method and first-payments-received method in cash flow hedges. Further, ASU 2019-04 indicates that remeasurement of an equity security without a readily determinable fair value when an orderly transaction is identified for an identical or similar investment of the same issuer represents a non-recurring fair value measurement and the related disclosure requirements apply to the remeasurement event. The hedging updates are effective at the beginning of the first annual reporting period after issuance with early adoption permitted. The financial instruments measurement and disclosure changes are effective for fiscal years and interim periods beginning after December
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 133
Note 1 – Summary of Significant Accounting Policies (Continued)
15, 2019 with early adoption permitted. FHN early adopted these portions of ASU 2019-04 in second quarter 2019 and the effects were not significant based on its existing accounting practices.
Accounting Changes Issued but Not Currently Effective
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” which revises the measurement and recognition of credit losses for assets measured at amortized cost (e.g., held-to-maturity (“HTM”) loans and debt securities) and available-for-sale (“AFS”) debt securities. Under ASU 2016-13, for assets measured at amortized cost, the current expected credit loss (“CECL”) is measured as the difference between amortized cost and the net amount expected to be collected. This represents a departure from existing GAAP as the “incurred loss” methodology for recognizing credit losses delays recognition until it is probable a loss has been incurred. Under CECL the full amount of expected credit losses will be recognized at the time of loan origination. The measurement of current expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Additionally, current disclosures of credit quality indicators in relation to the amortized cost of financing receivables will be further disaggregated by year of origination. ASU 2016-13 leaves the methodology for measuring credit losses on AFS debt securities largely unchanged, with the maximum credit loss representing the difference between amortized cost and fair value. However, such credit losses will be recognized through an allowance for credit losses, which permits recovery of previously recognized credit losses if circumstances change.
ASU 2016-13 also revises the recognition of credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”). For PCD assets, the initial allowance for credit losses is added to the purchase price. Only subsequent changes in the allowance for credit losses are recorded as a credit loss expense for PCD assets. Interest income for PCD assets will be recognizedlease based on the effective interest rate, excludingnet investment in leases. Fees incurred to originate the discount embedded in the purchase price that is attributable to the acquirer’s assessment of credit losses at acquisition. Currently, credit losses for purchased credit-impaired assetslease are included in the initial basisdeferred and recognized as an adjustment of the assets with subsequent declines in credit resulting in expense while subsequent improvements in credit are reflected as an increase inyield on the future yieldlease.
FHN has elected to exclude accrued interest receivable from the assets. For non-PCD assets, expected credit losses will be recognized through earnings upon acquisition and the entire premium or discount will be accreted to interest income over the remaining life of the loan.
The provisions of ASU 2016-13 will be generally adopted through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in the year of adoption. Prospective implementation is required for debt securities for which an other-than-temporary-impairment (“OTTI”) had been previously recognized. Amounts previously recognized in accumulated other comprehensive income (“AOCI”) as of the date of adoption that relate to improvements in cash flows expected to be collected will continue to be accreted into income over the remaining life of the asset. Recoveries of amounts previously written off relating to improvements in cash flows after the date of adoption will be recorded in earnings when received. A prospective transition approach will be used for existing PCD assets where, upon adoption, the amortized cost basis will be increased to offset the initial recognition of the allowance for credit losses. Thus, an entity will not be required to reassesson its purchased financial assets that exist as of the date of adoption to determine whether they would have met at acquisition the new criteria of more-than-insignificant credit deterioration since origination. An entity will accrete the remaining noncredit discount (based on the revised amortized cost basis) into interest income at the effective interest rate at the adoption date.
ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. FHN’s most significant implementation activities included review ofheld-for-investment loan portfolio segments and classes, identification and evaluation of collateral dependent loans and loans secured by collateral replenishment arrangements, selection of measurement methodologies and related model development, data accumulation and verification, development of loan life estimates, identification of reasonable and supportable forecast periods, selection of timelines and methods for reversion to unadjusted historical information, multiple preliminary analyses including parallel runs against existing loan loss estimation processes, and design and evaluation of internal controls over the new estimation processes. FHN will utilize undiscounted cash flow methods for loans except for troubled debt restructurings, which require use of discounted cash flow methodologies.
Based on implementation efforts, FHN expects to incur a decrease to Undivided profits of approximately $100 million as of January 1, 2020, related to an increase in the allowance for loan losses as well as an increase in the reserve for unfunded commitments. A significant portion of this impact relates to increased reserves within the consumer portfolios, given the longer contractual maturities associated with many of these products as well as reserves related to acquired loans. FHN expects the coverage ratio for total loans to be approximately 100 basis points at adoption but would expect future coverage to be affected by changes in economic forecasts, portfolio composition and loan terms. The total impact from adoption to FHN's regulatory
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 134
Note 1 – Summary of Significant Accounting Policies (Continued)
capital ratio CET1 is anticipated to be a decrease of approximately 7 basis points in 2020. Management is in the final stages of documenting the accounting, reporting and governance processes associated with the adoption of ASU 2016-13.
FHN also assessed several asset classes other than loans that are within the scope of CECL and determined that the adoption effects for the change in measurement of credit risk were minimal for these classes. This includes Fed funds sold which have no history of credit losses due to their short (typically overnight) duration and counterparty risk assessment processes. This also includes securities borrowed and securities purchased under agreements to resell which have collateral maintenance agreements that incorporate master netting provisions resulting in minimal uncollateralized positions as of any date as evidenced by the disclosures provided in Note 23 - Master Netting and Similar Agreements-Repurchase, Reverse Repurchase, and Securities Borrowing Transactions. Additionally,portfolio. FHN has also evaluated the composition of its AFS securities and determined that the changes in ASU 2016-13 will not have a significant effect on the current portfolio.
ASU 2019-04 provides an election to either not measure or measure separately an allowance for credit losses for accrued interest receivable (“AIR"). Entities electing to not measure an allowance for AIR must write off uncollectible interest in a timely manner. Additionally, an election is provided for the write off of uncollectible interest to be recorded either as a reversal of interest income or a charge against the allowance for credit losses or a combination of both. Disclosures are required depending upon which elections are made.
ASU 2019-04 also clarifies that when loans and securities are transferred between balance sheet categories (e.g., loans from held-for-investment to held-for-sale or securities from held-to-maturity to available-for-sale) the associated allowance for credit losses should be reversed to income and prospective accounting follows the requirements for the new classification. Further, ASU 2019-04 clarifies that recoveries should be incorporated within the estimation of the allowance for credit losses. Expected recoveries should not exceed the aggregate amount of prior write offs and expected future write offs. The inclusion of expected recoveries in the measurement of expected credit losses may result in a negative credit allowance in certain circumstances. Additionally, for collateral dependent financial assets, the allowance for credit losses that is added to the amortized cost basis should not exceed amounts previously written off.
ASU 2019-04 also makes several changes when a discounted cash flow approach is used to measure expected credit losses. ASU 2019-04 removes ASU 2016-03’s prohibition of using projections of future interest rate environments when using a discounted cash flow method to measure expected credit losses on variable-rate financial instruments. If an entity uses projections or expectations of future interest rate environments in estimating expected cash flows, the same assumptions should be used in determining the effective interest rate used to discount those expected cash flows. The effective interest rate should also be adjusted to consider the effects of expected prepayments on the timing of expected future cash flows. ASU 2019-04 provides an election to adjust the effective interest rate used in discounting expected cash flows to isolate credit risk in measuring the allowance for credit losses. Further, the discount rate should not be adjusted for subsequent changes in expected prepayments if a financial asset is restructured in a troubled debt restructuring.
Related to collateral-dependent financial assets, ASU 2019-04 requires inclusion of estimated costs to sell in the measurement of expected credit losses in situations where the entity intends to sell rather than operate the collateral. Additionally, the estimated costs to sell should be undiscounted when the entity intends to sell rather than operate the collateral.
Finally, ASU 2019-04 specifies that contractual renewal or extension options, except those treated as derivatives, should be included in the determination of the contractual term for a financial asset when included in the original or modified contract as of the reporting date if they are not unconditionally cancellable by the entity.
The effective date and transition requirements for these components of ASU 2019-04 are consistent with the requirements for ASU 2016-13 and FHN incorporated these changes and revisions within its implementation efforts. Based on its previous existing practices for the timely write off uncollectible AIR, FHN elected to not measure an allowance for credit losses on AIR for AIR andloans held for investment based on its policy to continue recognition of related write offsoff uncollectible interest in a timely manner, which occurs when a loan is placed on nonaccrual status. Such write-offs are recognized as a reversalreduction of interest income.
In May 2019, the FASB issued ASU 2019-05, “Financial Instruments - Credit Losses, Targeted Transition Relief,” which provides an option to irrevocably elect the fair value option AIR for certain financialheld-for-investment loans is included within other assets previously measured at amortized cost basis that are in the scopeConsolidated Balance Sheets.
FHN has continued to accrue interest on loans for which payment deferrals have been extended to borrowers affected by the COVID-19 pandemic. Deferrals are typically made in increments of ASU 2016-13, applied on an instrument-by-instrument basis. The fair value optionthree or six months. Cumulative deferrals of six months or longer are beyond FHN's normal write-off practices for accrued interest. Therefore, these interest deferrals do not qualify for FHN's election doesto not apply to held-to-maturity debt securities. The effective date and transition requirements for ASU 2019-05 are consistent with the requirements for ASU 2016-13. FHN did not elect to apply the fair value option to any asset classes that are in scope for CECL.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 135
Note 1 – Summary of Significant Accounting Policies (Continued)
In November 2019, the FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses” which clarifies that expected recoveries should be included in the amortized cost basis previously written off or expected to be written off in the valuationrecognize a credit loss allowance for PCD assets. ASU 2019-11 also clarifies that recoveries or expected recoveries of the unamortized noncredit discount or premium should not be included in the allowance for credit losses. ASU 2019-11 provides specific transition relief for existing troubled debt restructurings and extends the disclosure relief of ASU 2019-04 for accrued interest receivable balances to additional relevant disclosures involving amortized cost basis. Related to the assessment of credit risk for collateralized assets, ASU 2019-11 indicates that an entity should assess whether it reasonably expects the borrower will be able to continually replenish collateral securing the financial asset to apply the practical expedient of ASU 2016-13 while also requiring an estimation of expectedinterest. Accordingly, FHN has estimated credit losses for any difference between the amount of the amortized cost basis thatCOVID-19 interest deferrals which is greater than the fair value of the collateral securing the financial asset.
The effective date and transition requirements for ASU 2019-11 are consistent with the requirements for ASU 2016-13 and FHN incorporated these changes and revisionsincluded within its implementation efforts and the effects are embedded within the adoption effects of ASU 2016-13. Consistent with non-PCDAIR in other assets the effect of including recoveries and expected recoveries within the measurement of expected credit losses for PCD assets may result in a negative credit allowance in certain circumstances.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 136
Note 2 – Acquisitions and Divestitures
On November 4, 2019, FHN and IBERIABANK Corporation (“IBKC”) announced that they had entered into an agreement and plan of merger under which IBKC will merge with FHN in a merger-of-equals transaction. IBKC, headquartered in Lafayette, Louisiana, has 319 offices in 12 states, mostly in the southern and southeastern U.S., and has reported $31.7 billion of total assets, $24.0 billion in loans, and $25.2 billion in deposits, at December 31, 2019. IBKC's common stock is listed on The NASDAQ Stock Market, LLC under the symbol IBKC. Under the merger agreement, each share of IBKC common stock will be converted into 4.584 shares of FHN common stock. After closing, FHN expects IBKC common shares will be converted into approximately 44 percent of the then-outstanding shares of FHN common stock. The merger agreement requires FHN to expand its board of directors to 17 persons; after closing, 8 board positions will be held by current IBKC directors, and 9 will be held by current FHN directors. FHN expects the transaction to close mid-2020, subject to regulatory approvals, approval by the shareholders of FHN and of IBKC, and other customary conditions. Merger and integration expenses related to the pending merger of equals with IBKC are recorded in FHN’s Corporate segment.
Total merger expenses for the IBKC merger recognized during 2019 were as follows:
|
| | | | |
| | | Year Ended
December 31, |
| (Dollars in thousands) | | 2019 |
| Professional fees (a) | | $ | 8,228 |
|
| Employee compensation, incentives and benefits (b) | | 3,079 |
|
| Miscellaneous expense (c) | | 64 |
|
| Total IBKC merger expense | | $ | 11,371 |
|
(a) Primarily comprised of fees for legal, accounting, investment bankers, and merger consultants.
(b) Primarily comprised of fees for severance and retention.
(c) Primarily comprised of fees for travel and entertainment.
On November 8, 2019, FHN announced an agreement for First Horizon Bank to purchase 30 branches from SunTrust Bank in conjunction with SunTrust Banks, Inc.'s merger with BB&T Corporation, which created Truist Financial Corp. As part of the agreement, FHN will assume approximately $2.4 billion of branch deposits for a 3.40 percent deposit premium and purchase approximately $410 million of branch loans. The branches are in communities in North Carolina (20 branches), Virginia (8 branches), and Georgia (2 branches). FHN expects the purchase to close in second quarter 2020, subject to customary closing conditions.
On November 30, 2017, FHN completed its acquisition of Capital Bank Financial Corporation ("CBF") and its subsidiaries, including Capital Bank Corporation, for an aggregate of 92,042,232 shares of FHN common stock and $423.6 million in cash in a transaction valued at $2.2 billion. In second quarter 2018, FHN canceled 2,373,220 common shares which had been issued but set aside for certain shareholders of CBF who have commenced a dissenters' appraisal process resulting in a reduction in equity consideration and an increase in cash consideration of $46.0 million. In October 2019 this matter was resolved and the financial statement effects were not significant. CBF operated 178 branches in North and South Carolina, Tennessee, Florida and Virginia at the time of closing. In relation to the acquisition, FHN acquired approximately $9.8 billion in assets, including approximately $7.3 billion in loans and $1.2 billion in AFS securities, and assumed approximately $8.1 billion of CBF deposits.
The following schedule details acquired assets and liabilities and consideration paid, as well as adjustments to record the assets and liabilities at their estimated fair values as of November 30, 2017. These fair value measurements are based on third party and internal valuations.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 137
Note 2 – Acquisitions and Divestitures (Continued)
|
| | | | | | | | | | | | | | | | |
| | | Capital Bank Financial Corporation |
| | | As | | Purchase Accounting/Fair | | |
| | | Acquired | | Value Adjustments (unaudited) | | As recorded |
| (Dollars in thousands) | | (unaudited) | | 2017 | | 2018 (a) | | by FHN |
| Assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 205,999 |
| | $ | — |
| | $ | — |
| | $ | 205,999 |
|
| Trading securities | | 4,758 |
| | (4,758 | ) | (b) | — |
| | — |
|
| Loans held-for-sale | | — |
| | 134,003 |
| | (11,034 | ) | | 122,969 |
|
| Securities available-for-sale | | 1,017,867 |
| | 175,526 |
| | — |
| | 1,193,393 |
|
| Securities held-to-maturity | | 177,549 |
| | (177,549 | ) | | — |
| | — |
|
| Loans | | 7,596,049 |
| | (320,372 | ) | | 867 |
| | 7,276,544 |
|
| Allowance for loan losses | | (45,711 | ) | | 45,711 |
| | — |
| | — |
|
| CBF Goodwill | | 231,292 |
| | (231,292 | ) | | — |
| | — |
|
| Other intangible assets | | 24,498 |
| | 119,302 |
| | (2,593 | ) | | 141,207 |
|
| Premises and equipment | | 196,298 |
| | 37,054 |
| | (9,470 | ) | | 223,882 |
|
| OREO | | 43,077 |
| | (9,149 | ) | | (315 | ) | | 33,613 |
|
| Other assets | | 617,232 |
| | 41,320 |
| (c) | (22,422 | ) | (c) | 636,130 |
|
| Total assets acquired | | $ | 10,068,908 |
| | $ | (190,204 | ) | | $ | (44,967 | ) | | $ | 9,833,737 |
|
| | | | | | | | | |
| Liabilities: | | | | | | | | |
| Deposits | | $ | 8,141,593 |
| | $ | (849 | ) | | $ | (642 | ) | | $ | 8,140,102 |
|
| Securities sold under agreements to repurchase | | 26,664 |
| | — |
| | — |
| | 26,664 |
|
| Other short-term borrowings | | 390,391 |
| | — |
| | — |
| | 390,391 |
|
| Term borrowings | | 119,486 |
| | 67,683 |
| | — |
| | 187,169 |
|
| Other liabilities | | 59,995 |
| | 4,291 |
| | 1,631 |
| | 65,917 |
|
| Total liabilities assumed | | 8,738,129 |
| | 71,125 |
| | 989 |
| | 8,810,243 |
|
| Net assets acquired | | $ | 1,330,779 |
| | $ | (261,329 | ) | | $ | (45,956 | ) | | 1,023,494 |
|
| Consideration paid: | | | | | | | | |
| Equity | | | | | | | | (1,746,718 | ) |
| Cash | | | | | | | | (469,615 | ) |
| Total consideration paid | | | | | | | | (2,216,333 | ) |
| Goodwill | | | | | | | | $ | 1,192,839 |
|
| |
(a) | Amounts reflect adjustments made to provisional fair value estimates during the measurement period ending November 30, 2018. These adjustments were recorded in FHN's Consolidated Statement of Condition in 2018 with a corresponding adjustment to goodwill. |
| |
(b) | Amount represents a conformity adjustment to align with FHN presentation. |
| |
(c) | Amount primarily relates to a net deferred tax asset recorded for the effects of the purchase accounting adjustments and adjustments for acquired tax contingencies. |
In relation to the acquisition, FHN recorded goodwill of approximately $1.2 billion, representing the excess of acquisition consideration over the estimated fair value of net assets acquired. All goodwill has been attributed to FHN’s Regional Banking segment (refer to Note 7 - Intangible Assets for additional information). This goodwill is the result of 1) the addition of an experienced workforce, 2) expected synergies to be realized within overlapping banking markets, 3) operational efficiencies obtained through integration of back office functions and 4) proportionately lower net operating costs from a larger company scale. $17.0 million of goodwill was determined to be deductible for tax purposes as a result of tax bases carryover resulting from prior CBF acquisitions. FHN’s operating results for 2018 and 2017 include the operating results of the assets and liabilities acquired from CBF subsequent to the acquisition on November 30, 2017.
Following is a description of the methods used to determine the fair values of significant assets and liabilities presented above.
Cash and cash equivalents: The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets.
Securities available-for-sale: Fair values for securities are based on quoted prices where available. If quoted market prices are not available, fair value estimates are based on observable inputs obtained from market transactions in similar securities. Securities held-to-maturity were reclassified to securities available-for-sale based on FHN’s intent at closing.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 138
Note 2 – Acquisitions and Divestitures (Continued)
Loans and loans held-for-sale: Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan, amortization status and current discount rates. Loans were aggregated according to similar characteristics when applying various valuation techniques. The discount rate does not include a factor for credit losses as that has been included as a reduction to the estimated cash flows. Loans held-for-sale were classified according to FHN’s intent at closing. The valuation of loans held-for-sale reflects contractual or bid prices.
Intangible assets: Core deposit intangible ("CDI") represents the value of the relationships with deposit customers. The fair value was based on a discounted cash flow methodology that considered expected customer attrition rates, net maintenance cost of the deposit base, alternate costs of funds, and the interest costs associated with customer deposits. The CDI is being amortized over 10 years using an accelerated methodology based upon the period over which estimated economic benefits are estimated to be received. Lease intangibles are valued using a discounted cash flow methodology which compares the current contractual rental payments to estimated current market rents for the property.
Premises and Equipment: Land and buildings held-for-use are valued at appraised values, which reflect considerations of recent disposition values for similar property types with adjustments for characteristics of individual properties. Locations held-for-sale are valued at appraised values which also reference recent disposition values for similar property types but also considers marketability discounts for vacant properties. The valuations of locations held-for-sale are reduced by estimated costs to sell. Other fixed assets are valued using a discounted cash flow methodology which reflects estimates of the future value of the assets to a hypothetical buyer.
OREO: OREO properties are valued at estimated fair value less estimated costs to sell the real estate. Estimated fair value is determined using appraised values which includes consideration of recent disposition values for similar property types with adjustments for characteristics of individual properties.
Deposits: The fair values used for the demand and savings deposits by definition equal the amount payable on demand at the acquisition date. The fair values for time deposits are estimated using a discounted cash flow calculation using the remaining duration of the accounts and reflects the difference in interest rates currently being offered to the contractual interest rates on such time deposits.
Securities sold under agreements to repurchase and Other short-term borrowings: The carrying amount of these liabilities is a reasonable estimate of fair value based on the short-term nature of these liabilities.
Term borrowings: The fair values of long-term debt instruments are estimated based on quoted market prices for the instrument if available, or for similar instruments if not available, or by using discounted cash flow analysis, based on estimated current borrowing rates for similar types of instruments and considers whether the debt is currently callable. Estimated discount rates are determined from the perspective of the post-merger combined entity rather than the acquiree and/or original issuers.
The following table presents financial information regarding the former CBF operations included in FHN's Consolidated Statements of Income from the date of acquisition (November 30, 2017) through December 31, 2017. Additionally, the table presents unaudited proforma information as if the acquisition of CBF had occurred on January 1, 2016:Balance Sheets.
|
| | | | | | | | | | | |
| | Actual from acquisition date through | | Unaudited Pro Forma for |
| | | Year Ended December 31 |
| (Dollars in thousands) | December 31, 2017 | | 2017 | | 2016 |
| Net interest income | $ | 31,253 |
| | $ | 1,165,006 |
| | $ | 1,033,218 |
|
| Noninterest income | 6,192 |
| | 563,581 |
| | 638,493 |
|
| Pre-tax income | 16,534 |
| | 476,911 |
| | 458,667 |
|
| Net income available to common shareholders (a) | NM |
| | 274,416 |
| | 293,981 |
|
(a) Net income available to common shareholders is not meaningful for actual CBF results from the acquisition date through December 31, 2017 because of the effect of tax reform.The pro forma financial information and explanatory notes have been prepared to illustrate the effects of the merger between FHN and CBF under the acquisition method of accounting. The pro forma financial information is presented for illustrative purposes only and does not necessarily indicate the financial results of the combined companies had the companies actually been combined at the beginning of each period presented, nor does it necessarily indicate the results of operations in future
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 139
Note 2 – Acquisitions and Divestitures (Continued)
periods or the future financial position of the combined entities. Cost savings and other business synergies related to the acquisition are not reflected in the pro forma amounts.
This unaudited pro forma information combines the historical consolidated results of operations of FHN and CBF for the periods presented and gives effect to the following nonrecurring adjustments:
Fair value adjustments: Pro forma adjustment to net interest income of $34.5 million and $46.5 million for the years ended December 31, 2017 and 2016, respectively, to record estimated amortization of premiums and accretion of discounts on acquired loans, securities, deposits, and term borrowings.
CBF accretion/amortization: Pro forma adjustment to net interest income of $24.4 million and $25.9 million for the years ended December 31, 2017 and 2016, respectively, to eliminate CBF amortization of premiums and accretion of discounts on previously acquired loans, securities, and deposits.
Amortization of acquired intangibles: Pro forma adjustment to noninterest expense of $15.8 million and $18.0 million for the years ended December 31, 2017 and 2016, respectively, to record estimated amortization on acquired CDI and other lease intangibles.
Other adjustments: Pro forma results also include adjustments related to the removal of CBF's intangible amortization expense, amortization of previously acquired lease intangibles, and FHN's merger-related costs. Also includes adjustments to depreciation expense to record estimated fair value marks for CBF tangible assets, as well as income-tax effects of pro forma adjustments.
All expenses related to the merger and integration with CBF are recorded in FHN's Corporate segment. Integration activities were substantially completed in second quarter 2018.
Total CBF merger and integration expense recognized for the years ended December 31, 2019, 2018, and 2017 are presented in the table below:
|
| | | | | | | | | | | | |
| | | Years Ended
December 31, |
| (Dollars in thousands) | | 2019 | | 2018 | | 2017 |
| Professional fees (a) | | $ | 11,221 |
| | $ | 22,337 |
| | $ | 28,151 |
|
| Employee compensation, incentives and benefits (b) | | 1,189 |
| | 9,613 |
| | 17,077 |
|
| Contract employment and outsourcing (c) | | 240 |
| | 3,681 |
| | 1,270 |
|
| Occupancy (d) | | 1,453 |
| | 5,236 |
| | 15 |
|
| Miscellaneous expense (e) | | 2,072 |
| | 7,652 |
| | 1,291 |
|
| All other expense (f) | | 6,695 |
| | 43,874 |
| | 8,944 |
|
| Total | | $ | 22,870 |
| | $ | 92,393 |
| | $ | 56,748 |
|
(a) Primarily comprised of fees for legal, accounting, investment bankers, and merger consultants.
(b) Primarily comprised of fees for severance and retention.
(c) Primarily relates to fees for temporary assistance for merger and integration activities.
(d) Primarily relates to fees associated with lease exit accruals.
(e) Consists of fees for operations services, communications and courier, equipment rentals, depreciation, and maintenance, supplies, travel and entertainment, computer software, and advertising and public relations.
(f) Primarily relates to contract termination charges, costs of shareholder matters and asset impairments related to the integration, as well as other miscellaneous expenses.
In first quarter 2018, FHN divested 2 branches, including approximately $30 million of deposits and $2 million of loans. The branches, both in Greeneville, Tennessee, were divested in connection with First Horizon's agreement with the U.S. Department of Justice and commitments to the Board of Governors of the Federal Reserve System, which were entered into in connection with a customary review of FHN's merger with CBF.
In second quarter 2018, FHN sold approximately $120 million UPB of its subprime auto loans. These loans, originally acquired as part of the CBF acquisition, did not fit within FHN's risk profile. Based on the sales price, a measurement period adjustment to the acquisition-date fair value of the subprime auto loans was recorded in second quarter 2018. A measurement period
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 140
Note 2 – Acquisitions and Divestitures (Continued)
adjustment was made in fourth quarter 2018 for other consumer loans acquired from CBF based on pricing information received from potential buyers.
On April 3, 2017, FHN Financial (formerly FTN Financial or "FTNF") acquired substantially all of the assets and assumed substantially all of the liabilities of Coastal Securities, Inc. (“Coastal”), a national leader in the trading, securitization, and analysis of Small Business Administration (“SBA”) loans, for approximately $131 million in cash. Coastal, which was based in Houston, TX, also traded United States Department of Agriculture (“USDA”) loans and fixed income products and provided municipal underwriting and advisory services to its clients. Coastal’s government-guaranteed loan products, combined with FHN Financial’s existing SBA trading activities, have established an additional major product sector for FHN Financial.
The following schedule details acquired assets and liabilities and consideration paid, as well as adjustments to record the assets and liabilities at their estimated fair values as of April 3, 2017:
|
| | | | | | | | | | | | |
| | | Coastal Securities, Inc |
| | | Purchase Accounting/ |
| | | As | | Fair Value | | |
| | | Acquired | | Adjustments | | As recorded |
| (Dollars in thousands) | | (unaudited) | | (unaudited) | | by FHN |
| Assets: | | | | | | |
| Cash and cash equivalents | | $ | 7,502 |
| | $ | — |
| | $ | 7,502 |
|
| Interest-bearing cash | | 4,132 |
| | — |
| | 4,132 |
|
| Trading securities | | 423,662 |
| | (284,580 | ) | | 139,082 |
|
| Loans held-for-sale | | — |
| | 236,088 |
| | 236,088 |
|
| Investment securities | | — |
| | 1,413 |
| | 1,413 |
|
| Other intangible assets, net | | — |
| | 27,300 |
| | 27,300 |
|
| Premises and equipment, net | | 1,229 |
| | — |
| | 1,229 |
|
| Other assets | | 1,658 |
| | 14 |
| | 1,672 |
|
| Total assets acquired | | $ | 438,183 |
| | $ | (19,765 | ) | | $ | 418,418 |
|
| | | | | | | |
| Liabilities: | | | | | | |
| Securities sold under agreements to repurchase | | $ | 201,595 |
| | $ | — |
| | $ | 201,595 |
|
| Other short-term borrowings | | 33,509 |
| | — |
| | 33,509 |
|
| Fixed income payables | | 143,647 |
| | (47,158 | ) | | 96,489 |
|
| Other liabilities | | 958 |
| | (642 | ) | | 316 |
|
| Total liabilities assumed | | 379,709 |
| | (47,800 | ) | | 331,909 |
|
| Net assets acquired | | $ | 58,474 |
| | $ | 28,035 |
| | 86,509 |
|
| Consideration paid: | | | | | | |
| Cash | | | | | | (131,473 | ) |
| Goodwill | | | | | | $ | 44,964 |
|
In relation to the acquisition, FHN has recorded $45.0 million in goodwill, representing the excess of acquisition consideration over the estimated fair value of net assets acquired (refer to Note 7 - Intangible Assets for additional information), and all of which is expected to be deductible for tax purposes. The goodwill is the result of adding an experienced workforce, establishing an additional major product sector for FHN Financial, expected synergies, and other factors. FHN's operating results for 2017 include the operating results of the acquired assets and assumed liabilities of Coastal subsequent to the acquisition on April 3, 2017.
In addition to the transactions mentioned above, FHN acquires or divests assets from time to time in transactions that are considered business combinations or divestitures but are not material to FHN individually or in the aggregate. In April 2019, FHN sold a subsidiary acquired as part of the CBF acquisition that did not fit within FHN's risk profile. The sale resulted in the removal of approximately $25 million UPB of subprime consumer loans from Loans held-for-sale on FHN's Consolidated Statements of Condition.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 141
Note 3 – Investment Securities
The following tables summarize FHN’s investment securities on December 31, 2019 and 2018:
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2019 |
| (Dollars in thousands) | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| Securities available-for-sale: | | | | | | | | |
| U.S. treasuries | | $ | 100 |
| | $ | — |
| | $ | — |
| | $ | 100 |
|
| Government agency issued mortgage-backed securities (“MBS”) | | 2,316,381 |
| | 34,692 |
| | (2,556 | ) | | 2,348,517 |
|
| Government agency issued collateralized mortgage obligations (“CMO”) | | 1,667,773 |
| | 9,916 |
| | (7,197 | ) | | 1,670,492 |
|
| Other U.S. government agencies | | 303,463 |
| | 3,750 |
| | (1,121 | ) | | 306,092 |
|
| Corporates and other debt | | 40,054 |
| | 486 |
| | — |
| | 40,540 |
|
| State and municipalities | | 57,232 |
| | 3,324 |
| | (30 | ) | | 60,526 |
|
| | | $ | 4,385,003 |
| | $ | 52,168 |
| | $ | (10,904 | ) | | 4,426,267 |
|
| AFS securities recorded at fair value through earnings: | | | | | �� | | | |
| SBA-interest only strips (a) | | | | | | | | 19,136 |
|
| Total securities available-for-sale (b) | | | | | | | | $ | 4,445,403 |
|
| Securities held-to-maturity: | | | | | | | | |
| Corporates and other debt | | $ | 10,000 |
| | $ | 1 |
| | $ | — |
| | $ | 10,001 |
|
| Total securities held-to-maturity | | $ | 10,000 |
| | $ | 1 |
| | $ | — |
| | $ | 10,001 |
|
| |
(a) | SBA-interest only strips are recorded at elected fair value. See Note 24 - Fair Value of Assets and Liabilities for additional information. |
| |
(b) | Includes $3.8 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes. |
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2018 |
| (Dollars in thousands) | | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value |
| Securities available-for-sale: | | | | | | | | |
| U.S. treasuries | | $ | 100 |
| | $ | — |
| | $ | (2 | ) | | $ | 98 |
|
| Government agency issued MBS | | 2,473,687 |
| | 4,819 |
| | (58,400 | ) | | 2,420,106 |
|
| Government agency issued CMO | | 2,006,488 |
| | 888 |
| | (48,681 | ) | | 1,958,695 |
|
| Other U.S. government agencies | | 149,050 |
| | 809 |
| | (73 | ) | | 149,786 |
|
| Corporates and other debt | | 55,383 |
| | 388 |
| | (461 | ) | | 55,310 |
|
| State and municipalities | | 32,473 |
| | 314 |
| | (214 | ) | | 32,573 |
|
| | | $ | 4,717,181 |
| | $ | 7,218 |
| | $ | (107,831 | ) | | 4,616,568 |
|
| AFS securities recorded at fair value through earnings: | | | | | | | | |
| SBA-interest only strips (a) | | | | | | | | 9,902 |
|
| Total securities available-for-sale (b) | | | | | | | | $ | 4,626,470 |
|
| Securities held-to-maturity: | | | | | | | | |
| Corporates and other debt | | $ | 10,000 |
| | $ | — |
| | $ | (157 | ) | | $ | 9,843 |
|
| Total securities held-to-maturity | | $ | 10,000 |
| | $ | — |
| | $ | (157 | ) | | $ | 9,843 |
|
| |
(a) | SBA-interest only strips are recorded at elected fair value. See Note 24 - Fair Value of Assets and Liabilities for additional information. |
| |
(b) | Includes $3.8 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes. |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 142
Note 3 – Investment Securities (Continued)
The amortized cost and fair value by contractual maturity for the available-for-sale and held-to-maturity debt securities portfolios on December 31, 2019 are provided below:
|
| | | | | | | | | | | | | | | | |
| | | Held-to-Maturity | | Available-for-Sale |
| (Dollars in thousands) | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| Within 1 year | | $ | — |
| | $ | — |
| | $ | 35,022 |
| | $ | 35,211 |
|
| After 1 year; within 5 years | | — |
| | — |
| | 209,003 |
| | 213,108 |
|
| After 5 years; within 10 years | | 10,000 |
| | 10,001 |
| | 755 |
| | 3,332 |
|
| After 10 years | | — |
| | — |
| | 156,069 |
| | 174,743 |
|
| Subtotal | | 10,000 |
| | 10,001 |
| | 400,849 |
| | 426,394 |
|
| Government agency issued MBS and CMO (a) | | — |
| | — |
| | 3,984,154 |
| | 4,019,009 |
|
| Total | | $ | 10,000 |
| | $ | 10,001 |
| | $ | 4,385,003 |
| | $ | 4,445,403 |
|
| |
(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. |
The table below provides information on gross gains and gross losses from debt investment securities for the years ended December 31: Equity securities are included in 2017.
|
| | | | | | | | | | | | |
| | | Available-for-Sale |
| (Dollars in thousands) | | 2019 | | 2018 | | 2017 |
| Gross gains on sales of securities | | $ | — |
| | $ | 52 |
| | $ | 2,514 |
|
| Gross (losses) on sales of securities | | (267 | ) | | — |
| | (1,922 | ) |
| Net gain/(loss) on sales of securities (a) (b) | | (267 | ) | | 52 |
| | 592 |
|
| |
(a) | Cash proceeds from the sale of available-for-sale securities during 2019 were $191.7 million and were 0t material in 2018. Cash proceeds from sales during 2017 were $937.0 million. |
| |
(b) | 2017 includes a $.4 million gain associated with the call of a $4.4 million held-to-maturity municipal bond. |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 143
Note 3 – Investment Securities (Continued)
The following tables provide information on investments within the available-for-sale portfolio that had unrealized losses as of December 31, 2019 and 2018:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, 2019 |
| | | Less than 12 months | | 12 months or longer | | Total |
| (Dollars in thousands) | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| U.S. treasuries | | $ | — |
| | $ | — |
| | $ | 100 |
| | $ | — |
| | $ | 100 |
| | $ | — |
|
| Government agency issued MBS | | 174,983 |
| | (495 | ) | | 192,755 |
| | (2,061 | ) | | 367,738 |
| | (2,556 | ) |
| Government agency issued CMO | | 378,815 |
| | (1,970 | ) | | 361,124 |
| | (5,227 | ) | | 739,939 |
| | (7,197 | ) |
| Other U.S. government agencies | | 98,471 |
| | (1,121 | ) | | — |
| | — |
| | 98,471 |
| | (1,121 | ) |
| States and municipalities | | 3,551 |
| | (30 | ) | | — |
| | — |
| | 3,551 |
| | (30 | ) |
| Total temporarily impaired securities | | $ | 655,820 |
| | $ | (3,616 | ) | | $ | 553,979 |
| | $ | (7,288 | ) | | $ | 1,209,799 |
| | $ | (10,904 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, 2018 |
| | | Less than 12 months | | 12 months or longer | | Total |
| (Dollars in thousands) | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| U.S. treasuries | | $ | — |
| | $ | — |
| | $ | 98 |
| | $ | (2 | ) | | $ | 98 |
| | $ | (2 | ) |
| Government agency issued MBS | | 597,008 |
| | (12,335 | ) | | 1,537,106 |
| | (46,065 | ) | | 2,134,114 |
| | (58,400 | ) |
| Government agency issued CMO | | 290,863 |
| | (2,860 | ) | | 1,560,420 |
| | (45,821 | ) | | 1,851,283 |
| | (48,681 | ) |
| Other U.S. government agencies | | 29,776 |
| | (73 | ) | | — |
| | — |
| | 29,776 |
| | (73 | ) |
| Corporates and other debt | | 25,114 |
| | (344 | ) | | 15,008 |
| | (117 | ) | | 40,122 |
| | (461 | ) |
| States and municipalities | | 17,292 |
| | (214 | ) | | — |
| | — |
| | 17,292 |
| | (214 | ) |
| Total temporarily impaired securities | | $ | 960,053 |
| — |
| $ | (15,826 | ) | — |
| $ | 3,112,632 |
| — |
| $ | (92,005 | ) | | $ | 4,072,685 |
| | $ | (107,831 | ) |
FHN has reviewed debt investment securities that were in unrealized loss positions in accordance with its accounting policy for OTTI and does not consider them other-than-temporarily impaired. For debt securities with unrealized losses, FHN does not intend to sell them and it is more-likely-than-not that FHN will not be required to sell them prior to recovery. The decline in value is primarily attributable to changes in interest rates and not credit losses.
The carrying amount of equity investments without a readily determinable fair value was $25.6 million and $21.3 million at December 31, 2019 and 2018, respectively. The year-to-date 2019 and 2018 gross amounts of upward and downward valuation adjustments were not significant.
Unrealized gains of $7.0 million and unrealized losses of $1.5 million were recognized during 2019 and 2018, respectively, for equity investments with readily determinable fair values.
In 2018 FHN sold its remaining holdings of Visa Class B Shares resulting in a pre-tax gain of $212.9 million recognized within the Corporate segment. See the Other Derivatives section of Note 22 - Derivatives for more information regarding FHN’s Visa shares.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 144
Note 4 – Loans
The following table provides the balance of loans, net of unearned income, by portfolio segment as of December 31, 2019 and 2018:
|
| | | | | | | | |
| | | December 31 |
| (Dollars in thousands) | | 2019 | | 2018 |
| Commercial: (a) | | | | |
| Commercial, financial, and industrial | | $ | 20,051,091 |
| | $ | 16,514,328 |
|
| Commercial real estate | | 4,337,017 |
| | 4,030,870 |
|
| Consumer: | | | | |
| Consumer real estate (b) | | 6,006,749 |
| | 6,249,516 |
|
| Permanent mortgage | | 170,390 |
| | 222,448 |
|
| Credit card & other | | 495,864 |
| | 518,370 |
|
| Loans, net of unearned income | | $ | 31,061,111 |
| | $ | 27,535,532 |
|
| Allowance for loan losses | | 200,307 |
| | 180,424 |
|
| Total net loans | | $ | 30,860,804 |
| | $ | 27,355,108 |
|
| |
(a) | In third quarter 2019, FHN corrected a previous mis-classification of commercial loans and reclassified approximately $410 million of market investor CRE loans from the C&I portfolio to the CRE portfolio. These loans were identified during an internal review and assessment by management of certain loan populations, a portion of which relate to loans acquired as part of the Capital Bank merger. The reclassification of these loan balances between regional banking portfolios did not have an impact on FHN’s consolidated period-end or average balance sheet and had an immaterial effect on the allowance for loan losses. No adjustments were made to prior periods as the impact of the reclassification, including the effect on the allowance for loan losses was deemed to be immaterial in all periods. |
| |
(b) | Balance as of December 31, 2018 includes $16.2 million of restricted real estate loans. See Note 21—Variable Interest Entities for additional information. |
COMPONENTS OF THE LOAN PORTFOLIO
The loan portfolio is disaggregated into 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 determined based on the initial measurement attribute (i.e., amortized cost or purchased credit-impaired), risk characteristics of the loan, and FHN’s method for monitoring and assessing credit risk. Commercial loan portfolio segments include commercial, financial and industrial (“C&I”) and commercial real estate ("CRE"). Commercial classes within C&I include general C&I, loans to mortgage companies, the trust preferred loans (“TRUPS”) (i.e. long-term unsecured loans to bank and insurance-related businesses) portfolio and purchased credit-impaired (“PCI”) loans. Loans to mortgage companies include 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. Commercial classes within CRE include income CRE, residential CRE and PCI loans. Consumer loan portfolio segments include consumer real estate, permanent mortgage, and the credit card and other portfolio. Consumer classes include home equity lines of credit (“HELOCs”), real estate (“R/E”) installment and PCI loans within the consumer real estate segment, permanent mortgage (which is both a segment and a class), and credit card and other.
Concentrations
FHN has a concentration of residential real estate loans (20 percent of total loans), the majority of which is in the consumer real estate segment (19 percent of total loans). Loans to finance and insurance companies total $2.8 billion (14 percent of the C&I portfolio, or 9 percent of the total loans). FHN had loans to mortgage companies totaling $4.4 billion (22 percent of the C&I segment, or 14 percent of total loans) as of December 31, 2019. As a result, 36 percent of the C&I segment is sensitive to impacts on the financial services industry.
Restrictions
On December 31, 2019, $5.2 billion of commercial loans were pledged to secure potential discount window borrowings from the Federal Reserve Bank. As of December 31, 2019 and 2018, FHN pledged all of its first and second lien mortgages,
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 145
Note 4 – Loans (Continued)
HELOCs, excluding restricted real estate loans, and commercial real estate loans to secure potential borrowings from the FHLB-Cincinnati. Restricted loans secured borrowings associated with consolidated VIEs. See Note 21 - Variable Interest Entities for additional discussion.
Acquisition
Generally, the fair value for acquired loans is estimated using a discounted cash flow analysis with significant unobservable inputs (Level 3) including adjustments for expected credit losses, prepayment speeds, current market rates for similar loans, and an adjustment for investor-required yield given product-type and various risk characteristics.
At acquisition, FHN designated certain loans as PCI with the remaining loans accounted for under ASC 310-20, “Nonrefundable Fees and Other Costs”. Of the loans designated as PCI at acquisition, $4.7 million is held-for-sale. For loans accounted for under ASC 310-20, the difference between each loan’s book value and the estimated fair value at the time of the acquisition will be accreted into interest income over its remaining contractual life and the subsequent accounting and reporting will be similar to a loan in FHN’s originated portfolio.
Purchased Credit-Impaired Loans
The following table presents a rollforward of the accretable yield for the year ended December 31, 2019 and 2018:
|
| | | | | | | | |
| | | Year Ended December 31 |
| (Dollars in thousands) | | 2019 | | 2018 |
| Balance, beginning of period | | $ | 13,375 |
| | $ | 15,623 |
|
| Accretion | | (5,792 | ) | | (9,467 | ) |
| Adjustment for payoffs | | (2,438 | ) | | (3,896 | ) |
| Adjustment for charge-offs | | (479 | ) | | (1,115 | ) |
| Adjustment for pool excess recovery (a) | | — |
| | (123 | ) |
| Increase in accretable yield (b) | | 5,513 |
| | 12,791 |
|
| Disposals | | (4 | ) | | (240 | ) |
| Other | | (367 | ) | | (198 | ) |
| Balance, end of period | | $ | 9,808 |
| | $ | 13,375 |
|
| |
(a) | Represents the removal of accretable difference for the remaining loans in a pool which is now in a recovery state. |
| |
(b) | Includes changes in the accretable yield due to both transfers from the nonaccretable difference and the impact of changes in the expected timing of the cash flows. |
At December 31, 2019, the ALLL related to PCI loans was $2.0 million compared to $4.0 million at December 31, 2018. Net charge-offs related to PCI loans during 2019 were $5.8 million, compared to $6.7 million in 2018. The loan loss provision expense related to PCI loans during 2019 was $1.3 million, compared to $4.8 million during 2018.
The following table reflects the outstanding principal balance and carrying amounts of the acquired PCI loans as of December 31, 2019 and 2018:
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2019 | | December 31, 2018 |
| (Dollars in thousands) | | Carrying value | | Unpaid balance | | Carrying value | | Unpaid balance |
| Commercial, financial and industrial | | $ | 24,973 |
| | $ | 25,938 |
| | $ | 38,873 |
| | $ | 44,259 |
|
| Commercial real estate | | 5,078 |
| | 5,466 |
| | 15,197 |
| | 17,232 |
|
| Consumer real estate | | 23,681 |
| | 26,245 |
| | 30,723 |
| | 34,820 |
|
| Credit card and other | | 489 |
| | 567 |
| | 1,627 |
| | 1,879 |
|
| Total | | $ | 54,221 |
| | $ | 58,216 |
| | $ | 86,420 |
| | $ | 98,190 |
|
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 146
Note 4 – Loans (Continued)
Impaired Loans
The following tables provide information at December 31, 2019 and 2018, by class related to individually impaired loans and consumer TDRs, regardless of accrual status. Recorded investment is defined as the amount of the investment in a loan, excluding any valuation allowance but including any direct write-down of the investment. For purposes of this disclosure, PCI loans and the TRUPS valuation allowance have been excluded.
|
| | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2019 |
| (Dollars in thousands) | | Recorded
Investment | | Unpaid
Principal
Balance | | Related
Allowance | | Average Recorded
Investment | | Interest
Income
Recognized |
| Impaired loans with no related allowance recorded: | | | | | | | | | | |
| Commercial: | | | | | | | | | | |
| General C&I | | $ | 52,672 |
| | $ | 63,602 |
| | $ | — |
| | $ | 61,382 |
| | $ | 690 |
|
| Loans to mortgage companies | | — |
| | — |
| | — |
| | 9,314 |
| | — |
|
| Income CRE | | 1,563 |
| | 1,563 |
| | — |
| | 1,620 |
| | 33 |
|
| Total | | $ | 54,235 |
| | $ | 65,165 |
| | $ | — |
| | $ | 72,316 |
| | $ | 723 |
|
| Consumer: | | | | | | | | | | |
| HELOC (a) | | $ | 4,940 |
| | $ | 10,438 |
| | $ | — |
| | $ | 6,582 |
| | $ | — |
|
| R/E installment loans (a) | | 5,329 |
| | 6,105 |
| | — |
| | 5,335 |
| | — |
|
| Permanent mortgage (a) | | 2,264 |
| | 3,949 |
| | — |
| | 3,017 |
| | — |
|
| Total | | $ | 12,533 |
| | $ | 20,492 |
| | $ | — |
| | $ | 14,934 |
| | $ | — |
|
| Impaired loans with related allowance recorded: | | | | | | | | | | |
| Commercial: | | | | | | | | | | |
| General C&I | | $ | 29,766 |
| | $ | 31,536 |
| | $ | 6,196 |
| | $ | 14,328 |
| | $ | 4 |
|
| TRUPS | | — |
| | — |
| | — |
| | 2,445 |
| | — |
|
| Income CRE | | — |
| | — |
| | — |
| | 221 |
| | 9 |
|
| Total | | $ | 29,766 |
| | $ | 31,536 |
| | $ | 6,196 |
| | $ | 16,994 |
| | $ | 13 |
|
| Consumer: | | | | | | | | | | |
| HELOC | | $ | 55,522 |
| | $ | 59,122 |
| | $ | 7,016 |
| | $ | 61,294 |
| | $ | 1,868 |
|
| R/E installment loans | | 34,862 |
| | 35,780 |
| | 4,521 |
| | 40,181 |
| | 1,016 |
|
| Permanent mortgage | | 59,329 |
| | 68,341 |
| | 7,761 |
| | 63,630 |
| | 2,149 |
|
| Credit card & other | | 653 |
| | 653 |
| | 422 |
| | 694 |
| | 18 |
|
| Total | | $ | 150,366 |
| | $ | 163,896 |
| | $ | 19,720 |
| | $ | 165,799 |
| | $ | 5,051 |
|
| Total commercial | | $ | 84,001 |
| | $ | 96,701 |
| | $ | 6,196 |
| | $ | 89,310 |
| | $ | 736 |
|
| Total consumer | | $ | 162,899 |
| | $ | 184,388 |
| | $ | 19,720 |
| | $ | 180,733 |
| | $ | 5,051 |
|
| Total impaired loans | | $ | 246,900 |
| | $ | 281,089 |
| | $ | 25,916 |
| | $ | 270,043 |
| | $ | 5,787 |
|
| |
(a) | All discharged bankruptcy loans are charged down to an estimate of net realizable value and do not carry any allowance. |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 147
Note 4 – Loans (Continued)
|
| | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2018 |
| (Dollars in thousands) | | Recorded
Investment | | Unpaid
Principal
Balance | | Related
Allowance | | Average
Recorded
Investment | | Interest
Income
Recognized |
| Impaired loans with no related allowance recorded: | | | | | | | | | | |
| Commercial: | | | | | | | | | | |
| General C&I | | $ | 42,902 |
| | $ | 45,387 |
| | $ | — |
| | $ | 24,186 |
| | $ | 757 |
|
| Income CRE | | 1,589 |
| | 1,589 |
| | — |
| | 1,434 |
| | 51 |
|
| Residential CRE | | — |
| | — |
| | — |
| | 374 |
| | — |
|
| Total | | $ | 44,491 |
| | $ | 46,976 |
| | $ | — |
| | $ | 25,994 |
| | $ | 808 |
|
| Consumer: | | | | | | | | | | |
| HELOC (a) | | $ | 8,645 |
| | $ | 16,648 |
| | $ | — |
| | $ | 8,723 |
| | $ | — |
|
| R/E installment loans (a) | | 4,314 |
| | 4,796 |
| | — |
| | 4,300 |
| | — |
|
| Permanent mortgage (a) | | 3,601 |
| | 6,003 |
| | — |
| | 4,392 |
| | — |
|
| Total | | $ | 16,560 |
| | $ | 27,447 |
| | $ | — |
| | $ | 17,415 |
| | $ | — |
|
| Impaired loans with related allowance recorded: | | | | | | | | | | |
| Commercial: | | | | | | | | | | |
| General C&I | | $ | 2,802 |
| | $ | 2,802 |
| | $ | 149 |
| | $ | 16,011 |
| | $ | — |
|
| TRUPS | | 2,888 |
| | 3,700 |
| | 925 |
| | 2,981 |
| | — |
|
| Income CRE | | 377 |
| | 377 |
| | — |
| | 348 |
| | 10 |
|
| Residential CRE | | — |
| | — |
| | — |
| | 99 |
| | — |
|
| Total | | $ | 6,067 |
| | $ | 6,879 |
| | $ | 1,074 |
| | $ | 19,439 |
| | $ | 10 |
|
| Consumer: | | | | | | | | | | |
| HELOC | | $ | 66,482 |
| | $ | 69,610 |
| | $ | 11,241 |
| | $ | 69,535 |
| | $ | 2,273 |
|
| R/E installment loans | | 38,993 |
| | 39,851 |
| | 6,743 |
| | 40,118 |
| | 1,024 |
|
| Permanent mortgage | | 67,245 |
| | 78,010 |
| | 9,419 |
| | 73,259 |
| | 2,290 |
|
| Credit card & other | | 695 |
| | 695 |
| | 337 |
| | 626 |
| | 14 |
|
| Total | | $ | 173,415 |
| | $ | 188,166 |
| | $ | 27,740 |
| | $ | 183,538 |
| | $ | 5,601 |
|
| Total commercial | | $ | 50,558 |
| | $ | 53,855 |
| | $ | 1,074 |
| | $ | 45,433 |
| | $ | 818 |
|
| Total consumer | | $ | 189,975 |
| | $ | 215,613 |
| | $ | 27,740 |
| | $ | 200,953 |
| | $ | 5,601 |
|
| Total impaired loans | | $ | 240,533 |
| | $ | 269,468 |
| | $ | 28,814 |
| | $ | 246,386 |
| | $ | 6,419 |
|
| |
(a) | All discharged bankruptcy loans are charged down to an estimate of net realizable value and do not carry any allowance. |
Asset Quality Indicators
FHN employs a dual grade commercial risk grading methodology to assign an estimate for the probability of default (“PD”) and the loss given default (“LGD”) 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 portfolio by analyzing the migration of loans between grading categories. It is also integral to the estimation methodology utilized in determining the allowance for loan losses 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; a PD 1 has the lowest expected default probability, and probabilities increase as grades progress down the scale. 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). Pass loan grades are required to be reassessed annually or earlier whenever there has been a material change in the financial condition of the borrower or risk characteristics of the relationship. All commercial loans over $1 million and certain commercial loans over $500,000 that are graded 13 or worse are reassessed on a quarterly basis. Loan grading discipline is regularly reviewed internally by Credit Assurance Services to determine if the process continues to result in accurate loan grading across the portfolio. FHN may utilize availability of guarantors/sponsors to support lending decisions during the credit underwriting process and when determining the assignment of internal loan grades. LGD grades are assigned based on a scale of 1-12 and represent FHN’s expected recovery based on collateral type in the event a loan defaults. See Note 5 – Allowance for Loan Losses for further discussion on the credit grading system.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 148
Note 4 – Loans (Continued)
The following tables provide the balances of commercial loan portfolio classes with associated allowance, disaggregated by PD grade as of December 31, 2019 and 2018:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2019 |
| (Dollars in thousands) | | General C&I | | Loans to Mortgage Companies | | TRUPS (a) | | Income CRE | | Residential CRE | | Total | | Percentage of Total | | Allowance for Loan Losses |
| PD Grade: | | | | | | | | | | | | | | | | |
| 1 | | $ | 696,040 |
| | $ | — |
| | $ | — |
| | $ | 1,848 |
| | $ | — |
| | $ | 697,888 |
| | 3 | % | | $ | 69 |
|
| 2 | | 767,048 |
| | — |
| | — |
| | 48,906 |
| | 38 |
| | 815,992 |
| | 4 |
| | 165 |
|
| 3 | | 743,123 |
| | 877,210 |
| | 3,314 |
| | 474,067 |
| | 806 |
| | 2,098,520 |
| | 9 |
| | 274 |
|
| 4 | | 1,237,772 |
| | 692,971 |
| | 46,375 |
| | 680,223 |
| | 477 |
| | 2,657,818 |
| | 11 |
| | 738 |
|
| 5 | | 1,986,761 |
| | 670,402 |
| | 72,512 |
| | 993,628 |
| | 1,700 |
| | 3,725,003 |
| | 15 |
| | 8,265 |
|
| 6 | | 2,511,290 |
| | 1,410,387 |
| | 27,263 |
| | 717,062 |
| | 17,027 |
| | 4,683,029 |
| | 19 |
| | 12,054 |
|
| 7 | | 2,708,707 |
| | 509,616 |
| | 18,378 |
| | 641,345 |
| | 30,925 |
| | 3,908,971 |
| | 16 |
| | 20,409 |
|
| 8 | | 1,743,364 |
| | 136,771 |
| | — |
| | 269,407 |
| | 16,699 |
| | 2,166,241 |
| | 9 |
| | 22,514 |
|
| 9 | | 1,101,873 |
| | 77,139 |
| | 31,909 |
| | 169,586 |
| | 13,007 |
| | 1,393,514 |
| | 6 |
| | 17,484 |
|
| 10 | | 563,635 |
| | 21,229 |
| | 18,536 |
| | 59,592 |
| | 2,153 |
| | 665,145 |
| | 3 |
| | 10,197 |
|
| 11 | | 495,140 |
| | — |
| | — |
| | 81,682 |
| | 2,302 |
| | 579,124 |
| | 2 |
| | 13,454 |
|
| 12 | | 262,906 |
| | 15,158 |
| | — |
| | 28,807 |
| | 1,074 |
| | 307,945 |
| | 1 |
| | 8,471 |
|
| 13 | | 232,823 |
| | — |
| | — |
| | 32,966 |
| | 1,126 |
| | 266,915 |
| | 1 |
| | 8,142 |
|
| 14,15,16 | | 263,076 |
| | — |
| | — |
| | 43,400 |
| | 626 |
| | 307,102 |
| | 1 |
| | 29,318 |
|
| Collectively evaluated for impairment | | 15,313,558 |
| | 4,410,883 |
| | 218,287 |
| | 4,242,519 |
| | 87,960 |
| | 24,273,207 |
| | 100 |
| | 151,554 |
|
| Individually evaluated for impairment | | 82,438 |
| | — |
| | — |
| | 1,563 |
| | — |
| | 84,001 |
| | — |
| | 6,196 |
|
| Purchased credit-impaired loans | | 25,925 |
| | — |
| | — |
| | 4,155 |
| | 820 |
| | 30,900 |
| | — |
| | 848 |
|
| Total commercial loans | | $ | 15,421,921 |
| | $ | 4,410,883 |
| | $ | 218,287 |
| | $ | 4,248,237 |
| | $ | 88,780 |
| | $ | 24,388,108 |
| | 100 | % | | $ | 158,598 |
|
| |
(a) | Balances presented net of a $19.1 million valuation allowance. |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 149
Note 4 – Loans (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2018 |
| (Dollars in thousands) | | General C&I | | Loans to Mortgage Companies | | TRUPS (a) | | Income CRE | | Residential CRE | | Total | | Percentage of Total | | Allowance for Loan Losses |
| PD Grade: | | | | | | | | | | | | | | | | |
| 1 | | $ | 610,177 |
| | $ | — |
| | $ | — |
| | $ | 12,586 |
| | $ | — |
| | $ | 622,763 |
| | 3 | % | | $ | 100 |
|
| 2 | | 835,776 |
| | — |
| | — |
| | 1,688 |
| | 29 |
| | 837,493 |
| | 4 |
| | 274 |
|
| 3 | | 782,362 |
| | 716,971 |
| | — |
| | 289,594 |
| | 147 |
| | 1,789,074 |
| | 9 |
| | 315 |
|
| 4 | | 1,223,092 |
| | 394,862 |
| | 43,220 |
| | 563,243 |
| | — |
| | 2,224,417 |
| | 11 |
| | 686 |
|
| 5 | | 1,920,034 |
| | 277,814 |
| | 77,751 |
| | 798,509 |
| | 14,150 |
| | 3,088,258 |
| | 15 |
| | 8,919 |
|
| 6 | | 1,722,136 |
| | 365,341 |
| | 45,609 |
| | 657,628 |
| | 33,759 |
| | 2,824,473 |
| | 14 |
| | 8,141 |
|
| 7 | | 2,690,784 |
| | 96,603 |
| | 11,446 |
| | 538,909 |
| | 26,135 |
| | 3,363,877 |
| | 16 |
| | 16,906 |
|
| 8 | | 1,337,113 |
| | 53,224 |
| | — |
| | 265,901 |
| | 20,320 |
| | 1,676,558 |
| | 8 |
| | 18,545 |
|
| 9 | | 1,472,852 |
| | 96,292 |
| | 45,117 |
| | 455,184 |
| | 29,849 |
| | 2,099,294 |
| | 10 |
| | 15,454 |
|
| 10 | | 490,795 |
| | 13,260 |
| | 18,536 |
| | 60,803 |
| | 3,911 |
| | 587,305 |
| | 3 |
| | 8,675 |
|
| 11 | | 311,967 |
| | — |
| | — |
| | 66,986 |
| | 788 |
| | 379,741 |
| | 2 |
| | 7,973 |
|
| 12 | | 244,867 |
| | 9,379 |
| | — |
| | 82,574 |
| | 5,717 |
| | 342,537 |
| | 2 |
| | 6,972 |
|
| 13 | | 285,987 |
| | — |
| | 5,786 |
| | 55,408 |
| | 251 |
| | 347,432 |
| | 2 |
| | 10,094 |
|
| 14,15,16 | | 224,853 |
| | — |
| | — |
| | 28,835 |
| | 837 |
| | 254,525 |
| | 1 |
| | 23,307 |
|
| Collectively evaluated for impairment | | 14,152,795 |
| | 2,023,746 |
| | 247,465 |
| | 3,877,848 |
| | 135,893 |
| | 20,437,747 |
| | 100 |
| | 126,361 |
|
| Individually evaluated for impairment | | 45,704 |
| | — |
| | 2,888 |
| | 1,966 |
| | — |
| | 50,558 |
| | — |
| | 1,074 |
|
| Purchased credit-impaired loans | | 41,730 |
| | — |
| | — |
| | 12,730 |
| | 2,433 |
| | 56,893 |
| | — |
| | 2,823 |
|
| Total commercial loans | | $ | 14,240,229 |
| | $ | 2,023,746 |
| | $ | 250,353 |
| | $ | 3,892,544 |
| | $ | 138,326 |
| | $ | 20,545,198 |
| | 100 | % | | $ | 130,258 |
|
| |
(a) | Balances presented net of a $20.2 million valuation allowance. In 3Q18, FHN sold $55.5 million of TRUPS loans with a $5.0 million valuation allowance. Upon sale, a gain of $3.8 million was recognized in the Non-Strategic segment within Fixed Income in the Consolidated Statement of Income. An additional TRUPS loan with a principal balance of $3.0 million and a valuation of $.3 million was paid off in fourth quarter 2018. |
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 Fair Isaac Corporation (“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 percentage of balances outstanding by average, refreshed FICO scores for the HELOC, real estate installment, and permanent mortgage classes of loans as of December 31, 2019 and 2018:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2019 | | December 31, 2018 |
| | | HELOC | | R/E Installment Loans | | Permanent Mortgage | | HELOC | | R/E Installment Loans | | Permanent Mortgage |
| FICO score 740 or greater | | 62.0 | % | | | 72.9 | % | | | 44.8 | % | | | 61.4 | % | | | 71.3 | % | | | 51.8 | % | |
| FICO score 720-739 | | 8.6 |
| | | 8.3 |
| | | 9.7 |
| | | 8.5 |
| | | 8.8 |
| | | 7.6 |
| |
| FICO score 700-719 | | 7.6 |
| | | 6.1 |
| | | 12.3 |
| | | 7.6 |
| | | 7.0 |
| | | 10.6 |
| |
| FICO score 660-699 | | 10.8 |
| | | 7.7 |
| | | 16.3 |
| | | 10.9 |
| | | 7.6 |
| | | 14.7 |
| |
| FICO score 620-659 | | 4.7 |
| | | 2.6 |
| | | 9.7 |
| | | 5.1 |
| | | 2.8 |
| | | 6.5 |
| |
| FICO score less than 620 (a) | | 6.3 |
| | | 2.4 |
| | | 7.2 |
| | | 6.5 |
| | | 2.5 |
| | | 8.8 |
| |
| Total | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | |
| |
(a) | For this group, a majority of the loan balances had FICO scores at the time of the origination that exceeded 620 but have since deteriorated as the loans have seasoned. |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 150
Note 4 – Loans (Continued)
Nonaccrual and Past Due Loans
Generally, loans are placed on nonaccrual status if it becomes evident that full collection of principal and interest is at risk, impairment has been recognized as a partial charge-off of principal balance due to insufficient collateral value and past due status, or on a case-by-case basis if FHN continues to receive payments, but there are other borrower-specific issues. Consumer loans are generally placed into nonaccrual status no later than 90 days past due.
•The accrual status policy for commercial TDRs follows the same internal policies and procedures as other commercial portfolio loans.
•Residential real estate loans discharged through Chapter 7 bankruptcy and not reaffirmed by the borrower (“discharged bankruptcies”) are placed on nonaccrual and are reported as TDRs. They are not returned to accrual status even if current and performing in the future.
•Current second lien residential real estate loans that are junior to first liens are placed on nonaccrual status if in bankruptcy.
•Consumer real estate (HELOC and residential real estate installment loans), if not already on nonaccrual per above situations, are placed on nonaccrual if the loan is 30 or more days delinquent at the time of modification and is also determined to be a TDR.
When commercial and consumer loans within each portfolio segment and class are placed on nonaccrual status, accrued but uncollected interest is reversed and charged against interest income. Management may elect to continue the accrual of interest when the estimated net realizable value of collateral is sufficient to recover the principal balance and accrued interest. Interest payments received on nonaccrual loans are normally applied to outstanding principal first. Once all principal has been received, additional interest payments are recognized on a cash basis as interest income.
Generally, commercial and consumer loans within each portfolio segment and class that have been placed on nonaccrual status can be returned to accrual status if all principal and interest is current and FHN expects full repayment of the remaining contractual principal and interest. This typically requires that a borrower make payments in accordance with the contractual terms for a sustained period of time (generally for a minimum of six months) before being returned to accrual status. For TDRs, FHN may also consider a borrower’s sustained historical repayment performance for a reasonable time prior to the restructuring in assessing whether the borrower can meet the restructured terms, as it may indicate whether the borrower is capable of servicing the level of debt under the modified terms.
Residential real estate loans discharged through Chapter 7 bankruptcy and not reaffirmed by the borrower are not returned to accrual status. For current second liens that have been placed on nonaccrual because the first lien is 90 or more days past due or is a TDR or bankruptcy, the second lien may be returned to accrual upon pay-off or cure of the first lien.
| | | | | | | | |
| 125 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 1—SIGNIFICANT ACCOUNTING POLICIES | |
Charge-offs
For all commercial and consumer loan portfolio segments, all losses of principal are charged to the ALLL in the period in which the loan is deemed to be uncollectible.
For consumer loans, the timing of a full or partial charge-off generally depends on the loan type and delinquency status. Generally, for the consumer real estate segment, a loan will be either partially or fully charged-off when it becomes 180 days past due. At this time, if the collateral value does not support foreclosure, balances are fully charged-off and other avenues of recovery are pursued. If the collateral value supports foreclosure, the loan is charged-down to net realizable value (collateral value less estimated costs to sell) and is placed on nonaccrual status. For residential real estate loans discharged in Chapter 7 bankruptcy and not reaffirmed by the borrower, the fair value of the collateral position is assessed at the time FHN is made aware of the discharge and the loan is charged down to the net realizable value (collateral value less estimated costs to sell). Within the credit card and other portfolio segment, credit cards and installment loans secured by automobiles are normally charged-off upon reaching 180 days past due while other non-real estate consumer loans are charged-off upon reaching 120 days past due.
For acquired PCD loans where all or a portion of the loan balance had been charged off prior to acquisition, and for which active collection efforts are still underway, the ALLL recorded at acquisition is immediately charged off if required by FHN’s existing charge off policy. Additionally, FHN is required to consider its existing policies in determining whether to charge off any financial assets, regardless of whether a charge-off was recorded by the predecessor company. The initial ALLL recognized on PCD assets includes the gross-up of the loan balance reduced by immediate charge-offs for loans previously charged off by the predecessor company or which meet FHN’s charge-off policy on the date of acquisition. Charge-offs against the allowance related to such acquired PCD loans do not result in an income statement impact.
Purchased Credit-Deteriorated Loans
At the time of acquisition FHN evaluates all acquired loans to determine if they have experienced a more-than-insignificant deterioration in credit quality since origination. PCD loans can be identified on either an 1) individual or 2) pooled basis when the loans share similar risk characteristics. FHN evaluates various absolute factors to assist in the identification of PCD loans, including criteria such as, existing PCD status, risk rating of special mention or lower, nonaccrual or impaired status, identification of prior TDRs, and delinquency status. FHN also utilizes relative factors to identify PCD loans such as commercial loan grade migration, expansion of borrower credit spreads, declines in external risk ratings and changes in consumer loan characteristics (e.g., FICO
decline or LTV increase). In addition, factors reflective of broad economic considerations are also considered in identifying PCD loans. These include industry, collateral type, and geographic location for the borrower’s operations. Internal factors for origination of new loans that are similar to the acquired loans are also evaluated to assess loans for PCD status, including increases in required yields, necessity of borrowers’ providing additional collateral and/or guarantees and changes in acceptable loan duration. Other indicators may also be used to evaluate loans for PCD status depending on borrower-specific communications and actions, such public statements, initiation of loan modification discussions and obtaining emergency funding from alternate sources.
Upon acquisition, the expected credit losses are allocated to the purchase price of individual PCD loans to determine each individual asset's amortized cost basis, typically resulting in a reduction of the discount that is accreted prospectively to interest income. At the acquisition date and prospectively, only the unpaid principal balance is incorporated within the estimation of expected credit losses for PCD loans. Otherwise, the process for estimation of expected credit losses is consistent with that discussed below. As discussed below FHN applies undiscounted cash flow methodologies for the estimation of expected credit losses, which results in the calculated amount of credit losses at acquisition that is added to the amortized cost basis of the related PCD loans to exceed the discounted value of estimated credit losses included in the loan valuation.
For PCD loans where all or a portion of the loan balance has been previously written-off, or would be subject to write-off under FHN’s charge-off policy, the initial ALLL included as part of the grossed-up loan balance at acquisition was immediately written-off, resulting in a zero period-end allowance balance and no impact on the ALLL rollforward.
Allowance for Credit Losses
The nature of the process by which FHN determines the appropriate ACL requires the exercise of considerable judgment. See Note 5 - Allowance for Credit Losses for a discussion of FHN’s ACL methodology and a description of the models utilized in the estimation process for the commercial and consumer loan portfolios.
Future adjustments to the ACL may be necessary if economic or other conditions differ substantially from the assumptions used in making the estimates or, if required by regulators, based upon information at the time of their examinations or upon future regulatory guidance. Such adjustments to original estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels vary from previous estimates.
Management's estimate of expected credit losses in the loan and lease portfolio is recorded in the ALLL and the
| | | | | | | | |
| 126 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 1—SIGNIFICANT ACCOUNTING POLICIES | |
reserve for unfunded lending commitments, collectively the ACL. The ACL is maintained at a level that management determines is sufficient to absorb current expected credit losses in the loan and lease portfolio and unfunded lending commitments. Management uses analytical models to estimate expected credit losses in the loan and lease portfolio and unfunded lending commitments as of the balance sheet date. The models are carefully reviewed to identify trends that may not be captured in the modeled loss estimates. Management uses qualitative adjustments for those items not reflected in the modeled loss information such as recent changes from the macroeconomic forecasts utilized in model calculations, results of additional stressed modeling scenarios, observed and/or expected changes affecting borrowers in specific industries or geographic areas, exposure to large lending relationships and expected recoveries of prior charge offs. Qualitative adjustments are also used to accommodate for the imprecision of certain assumptions and uncertainties inherent in the model calculations as well as to align certain differences in models used by acquired loan portfolios to the methodologies described herein. Loans accounted for at elected fair value are excluded from CECL measurements.
The ALLL is increased by the provision for loan and lease losses and is decreased by loan charge-offs. The ALLL is determined in accordance with ASC 326-20 "Financial Instruments - Credit Losses". ASC 326-20 was adopted on January 1, 2020 and for periods prior to that was determined in accordance with ASC 450-20-50 "Contingencies - Accruals for Loss Contingencies" and was composed of reserves for commercial loans evaluated based on pools of credit-graded loans and reserves for pools of smaller-balance homogeneous consumer and commercial loans. The reserve factors applied to these pools were an estimate of probably incurred losses based on management's evaluation of historical net losses from loans with similar characteristics. Additionally, the ALLL included specific reserves established in accordance with ASC 310-10-35 for loans determined by management to be individually impaired as well as reserves associated with purchased credit impaired loans. Management used analytical models to estimate probable incurred losses in the loan portfolio as of the balance sheet date. The models, which were primarily driven by historical losses, were carefully reviewed to identify trends that may not have been captured in the historical loss factors used in the models. Management used qualitative adjustments for those items not yet captured in the models like then-current events, recent trends in the portfolio, current underwriting guidelines, and local and macroeconomic trends, among other things.
Subsequent to December 31, 2019, credit loss estimation is based on the amortized cost of loans, which includes the following:
1.Unpaid principal balance for originated assets or acquisition price for purchased assets
2.Accrued interest (see elections discussed previously)
3.Accretion or amortization of premium, discount, and net deferred fees or costs
4.Collection of cash
5.Charge-offs
Premiums, discounts and net deferred origination costs/fees affect the calculated amount of expected credit losses but they are not considered when determining the amount of expected credit losses that are recorded.
Under CECL, a loan must be pooled when it shares similar risk characteristics with other loans. Loans that do not share similar risk characteristics are evaluated individually. Expected credit loss is estimated for the remaining life of loan(s), which is limited to the remaining contractual term(s), adjusted for prepayment estimates, which are included as separate inputs into modeled loss estimates. Renewals and extensions are not anticipated unless they are included in existing loan documentation and are not unconditionally cancellable by the lender. However, losses are estimated over the estimated remaining life of reasonably expected TDRs which can extend beyond the current remaining contractual term.
Management has developed multiple current expected credit losses models which segment the loan and lease portfolio by borrower type and loan or lease type to estimate expected lifetime expected credit losses for loans and leases that share similar risk characteristics. Estimates of expected credit losses incorporate consideration of available information that is relevant to assessing the collectability of future cash flows. This includes internal and external information relating to past events, current conditions and reasonable and supportable forecasts of future conditions. FHN utilizes internal and external historical loss information, as applicable, for all available historical periods as the initial point for estimating expected credit losses. Given the duration of historical information available, FHN considers its internal loss history to fully incorporate the effects of prior credit cycles. The historical loss information may be adjusted in situations where current loan characteristics (e.g., underwriting criteria) differ from those in existence at the time the historical losses occurred. Historical loss information is also adjusted for differences in economic conditions, macroeconomic forecasts and other factors management considers relevant over a period extending beyond the measurement date which is considered reasonable and supportable.
FHN generally measures expected credit losses using undiscounted cash flow methodologies. Credit enhancements (e.g., guarantors) that are not freestanding are considered in the estimation of uncollectible cash
| | | | | | | | |
| 127 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 1—SIGNIFICANT ACCOUNTING POLICIES | |
flows. Estimation of expected credit losses for loan agreements involving collateral maintenance provisions include consideration of the value of the collateral and replenishment requirements, with the maximum loss limited to the difference between the amortized cost of the loan and the fair value of the collateral. Expected credit losses for loans for which foreclosure is probable are measured at the fair value of collateral, less estimated costs to sell when disposition through sale is anticipated. Additionally, for borrowers experiencing financial difficulty certain loans are valued at the fair value of collateral when repayment is expected to be provided substantially through the operation of the collateral. The fair value of the collateral is reduced for estimated costs to sell when repayment is expected through sale of the collateral. Expected credit losses for TDRs are measured in accordance with ASC 310-40, which generally requires a discounted cash flow methodology, whereby the loans are measured based on the present value of expected future payments discounted at the loan’s original effective interest rate.
Expected recoveries of previously charged-off amounts are also included as a qualitative adjustment in the estimation of expected credit losses, which reduces the amount of the allowance recognized. Estimates of recoveries on previously charged-off assets included in the allowance for loan losses do not exceed the aggregate of amounts previously written off and expected to be written off for an individual loan or pool.
Since CECL requires the estimation of credit losses for the entire expected life of loans, loss estimates are highly sensitive to changes in macroeconomic forecasts, especially when those forecasts change dramatically in short time periods. Additionally, under CECL credit loss estimates are more likely to increase rapidly in periods of loan growth.
Expected credit losses for unfunded commitments are estimated for periods where the commitment is not unconditionally cancellable by FHN. The measurement of expected credit losses for unfunded commitments mirrors that of loans with the additional estimate of future draw rates (timing and amount).The liability for credit losses inherent in lending-related commitments, such as letters of credit and unfunded loan commitments, is included in Other liabilities on the Consolidated Balance Sheets and established through a charge to the provision for credit losses.
Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation and amortization and include additions that materially extend the useful lives of existing premises and equipment. All other maintenance and repair expenditures are expensed as incurred. Premises and equipment held for sale are generally valued at appraised values which reference recent disposition
values for similar property types but also consider marketability discounts for vacant properties. The valuations of premises and equipment held for sale are reduced by estimated costs to sell. Impairments, and any subsequent recoveries, are recorded in noninterest expense. Gains and losses on dispositions are reflected in noninterest income and expense, respectively.
Depreciation and amortization are computed on the straight-line method over the estimated useful lives of the assets and are recorded as noninterest expense. Leasehold improvements are amortized over the lesser of the lease periods or the estimated useful lives using the straight-line method. Useful lives utilized in determining depreciation for furniture, fixtures and equipment and for buildings are three years to fifteen years and seven years to forty-five years, respectively.
Other Real Estate Owned
Real estate acquired by foreclosure or other real estate-owned consists of properties that have been acquired in satisfaction of debt. These properties are carried at the lower of the outstanding loan amount or estimated fair value less estimated costs to sell the real estate. At the time acquired, and in conjunction with the transfer from loans to OREO, there is a charge-off against the ALLL if the estimated fair value less costs to sell is less than the loan’s cost basis. Subsequent declines in fair value and gains or losses on dispositions, if any, are charged to other expense on the Consolidated Statements of Income.
Required developmental costs associated with acquired property under construction are capitalized and included in determining the estimated net realizable value of the property, which is reviewed periodically, and any write-downs are charged against current earnings.
Goodwill and Other Intangible Assets
Goodwill represents the excess of cost over net assets of acquired businesses less identifiable intangible assets. On an annual basis, or more frequently if necessary, FHN assesses goodwill for impairment. Other intangible assets primarily represent client lists and relationships, acquired contracts, covenants not to compete and premium on purchased deposits, which are amortized over their estimated useful lives. Intangible assets related to acquired deposit bases are primarily amortized over 10 years using an accelerated method. Management evaluates whether events or circumstances have occurred that indicate the remaining useful life or carrying value of amortizing intangibles should be revised. Other intangibles also include smaller amounts of non-amortizing intangibles for title plant and state banking licenses.
Servicing Rights
FHN recognizes the rights to service mortgage and other loans as separate assets, which are recorded in other assets in the Consolidated Balance Sheets, when
| | | | | | | | |
| 128 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 1—SIGNIFICANT ACCOUNTING POLICIES | |
purchased or when servicing is contractually separated from the underlying loans by sale with servicing rights retained. For loan sales with servicing retained, a servicing right, generally an asset, is recorded at fair value at the time of sale for the right to service the loans sold. All servicing rights are identified by class and amortized over the remaining life of the loan with periodic reviews for impairment.
Transfers of Financial Assets
Transfers of financial assets, or portions thereof which meet the definition of a participating interest, are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when 1) the assets have been legally isolated from FHN, 2) the transferee has the right to pledge or exchange the assets with no conditions that constrain the transferee and provide more than a trivial benefit to FHN, and 3) FHN does not maintain effective control over the transferred assets. If the transfer does not satisfy all three criteria, the transaction is recorded as a secured borrowing. If the transfer is accounted for as a sale, the transferred assets are derecognized from FHN’s balance sheet and a gain or loss on sale is recognized. If the transfer is accounted for as a secured borrowing, the transferred assets remain on FHN’s balance sheet and the proceeds from the transaction are recognized as a liability.
Derivative Financial Instruments
FHN accounts for derivative financial instruments in accordance with ASC 815 which requires recognition of all derivative instruments on the balance sheet as either an asset or liability measured at fair value through adjustments to either accumulated other comprehensive income within shareholders’ equity or current earnings. Fair value is defined as the price that would be received to sell a derivative asset or paid to transfer a derivative liability in an orderly transaction between market participants on the transaction date. Fair value is determined using available market information and appropriate valuation methodologies. FHN has elected to present its derivative assets and liabilities gross on the Consolidated Balance Sheets. Amounts of collateral posted or received have not been netted with the related derivatives unless the collateral amounts are considered legal settlements of the related derivative positions. See Note 22 - Derivatives for discussion on netting of derivatives.
FHN prepares written hedge documentation, identifying the risk management objective and designating the derivative instrument as a fair value hedge or cash flow hedge as applicable, or as a free-standing derivative instrument entered into as an economic hedge or to meet clients’ needs. All transactions designated as ASC 815 hedges must be assessed at inception and on an ongoing basis as to the effectiveness of the derivative instrument in offsetting changes in fair value or cash flows of the
hedged item. For a fair value hedge, changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability attributable to the hedged risk are recognized currently in earnings. For a cash flow hedge, changes in the fair value of the derivative instrument are recorded in accumulated other comprehensive income and subsequently reclassified to earnings as the hedged transaction impacts net income. For fair value hedges, the entire change in the fair value of the hedging instrument included in the assessment of effectiveness is recorded to the same financial statement line item (e.g., interest expense) used to present the earnings effect of the hedged item. For cash flow hedges, the entire fair value change of the hedging instrument that is included in the assessment of hedge effectiveness is initially recorded in other comprehensive income and later recycled into earnings as the hedged transaction(s) affect net income with the income statement effects recorded in the same financial statement line item used to present the earnings effect of the hedged item (e.g., interest income). For free-standing derivative instruments, changes in fair values are recognized currently in earnings. See Note 22 - Derivatives for additional information.
Cash flows from derivative contracts are reported as operating activities on the Consolidated Statements of Cash Flows.
Leases
At inception, all arrangements are evaluated to determine if they contain a lease, which is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Control is deemed to exist when a lessor has granted and a lessee has received both the right to obtain substantially all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset throughout the period of use.
Lessee
As a lessee, FHN recognizes lease (right-of-use) assets and lease liabilities for all leasing arrangements with lease terms that are greater than one year. The lease asset and lease liability are recognized at the present value of estimated future lease payments, including estimated renewal periods, with the discount rate reflecting a fully-collateralized rate matching the estimated lease term. Renewal options are included in the estimated lease term if they are considered reasonably certain of exercise. Periods covered by termination options are included in the lease term if it is reasonably certain they will not be exercised. Additionally, prepaid or accrued lease payments, lease incentives and initial direct costs related to lease arrangements are recognized within the right-of-use asset. Each lease is classified as a financing or operating lease which depends on the relationship of the lessee’s rights to the economic value of the leased asset.
| | | | | | | | |
| 129 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 1—SIGNIFICANT ACCOUNTING POLICIES | |
For finance leases, interest on the lease liability is recognized separately from amortization of the right-of-use asset in earnings, resulting in higher expense in the earlier portion of the lease term. For operating leases, a single lease cost is calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis. Substantially all of FHN’s lessee arrangements are classified as operating leases. For leases with a term of 12 months or less, FHN does not to recognize lease assets and lease liabilities and expense is generally recognized on a straight-line basis over the lease term.
Lease assumptions and classification are reassessed upon the occurrence of events that result in changes to the estimated lease term or consideration. Modifications to lease contracts are evaluated to determine 1) if a right to use an additional asset has been obtained, 2) if only the lease term and/or consideration have been revised or 3) if a full or partial termination has occurred. If an additional right-of use-asset has been obtained, the modification is treated as a separate contract and its classification is evaluated as a new lease arrangement. If only the lease term or consideration are changed, the lease liability is revalued with an offset to the lease asset and the lease classification is re-assessed. If a modification results in a full or partial termination of the lease, the lease liability is revalued through earnings along with a proportionate reduction in the value of the related lease asset and subsequent expense recognition is similar to a new lease arrangement.
Lease assets are evaluated for impairment when triggering events occur, such as a change in management intent regarding the continued occupation of the leased space. If a lease asset is impaired, it is written down to the present value of estimated future cash flows and the prospective expense recognition for that lease follows the accelerated expense recognition methodology applicable to finance leases, even if it remains classified as an operating lease.
Sublease arrangements are accounted for consistent with the lessor accounting described below. Sublease arrangements are evaluated to determine if changes to estimates for the primary lease are warranted or if the sublease terms reflect impairment of the related lease asset.
Lease assets are recognized in Other assets and lease liabilities are recognized in Other liabilities in the Consolidated Balance Sheets. Since substantially all of its leasing arrangements relate to real estate, FHN records lease expense, and any related sublease income, within Occupancy expense in the Consolidated Statements of Income.
Lessor
As a lessor, FHN also evaluates its lease arrangements to determine whether a finance lease or an operating lease exists and utilizes the rate implicit in the lease
arrangement as the discount rate to calculate the present value of future cash flows. Depending upon the terms of the individual agreements, finance leases represent either sales-type or direct financing leases, both of which require de-recognition of the asset being leased with offsetting recognition of a lease receivable that is evaluated for impairment similar to loans. Other than equipment lease entered into as part of commercial lease financing arrangements, all of FHN's lessor arrangements are considered operating leases.
Lease income for operating leases is recognized over the life of the lease, generally on a straight line basis. Lease incentives and initial direct costs are capitalized and amortized over the estimated life of the lease. Lease income is not significant for any reporting periods and is classified as a reduction of net occupancy expense in the Consolidated Statements of Income.
Investment Tax Credit
FHN has elected to utilize the deferral method for acquired investments that generate investment tax credits. This includes both solar and historic tax credit investments. Under this approach the investment tax credits are recorded as an offset to the related investment on the balance sheet. Credit amounts are recognized in earnings over the life of the investment within the same income or expense accounts as used for the investment.
Advertising and Public Relations
Advertising and public relations costs are generally expensed as incurred.
Income Taxes
FHN accounts for income taxes using the asset and liability method pursuant to ASC 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, FHN’s deferred tax assets and liabilities are determined based on differences between financial statement carrying amounts and the corresponding tax basis of certain assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on DTAs and DTLs is recognized in income in the period that includes the enactment date.
Additionally, DTAs are subject to a “more likely than not” test to determine whether the full amount of the DTAs should be recognized in the financial statements. FHN evaluates the likelihood of realization of the DTA based on both positive and negative evidence available at the time, including (as appropriate) scheduled reversals of DTLs, projected future taxable income, tax planning strategies, and recent financial performance. If the “more likely than not” test is not met, a valuation allowance must be established against the DTA. In the event FHN determines that DTAs are realizable in the future in excess of their net
| | | | | | | | |
| 130 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 1—SIGNIFICANT ACCOUNTING POLICIES | |
recorded amount, FHN would make an adjustment to the valuation allowance, which would reduce income tax expense.
FHN records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) it is determined whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority is recognized. FHN's ASC 740 policy is to recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. Accrued interest and penalties are included within the related tax asset/liability line in the Consolidated Balance Sheet.
FHN and its eligible subsidiaries are included in a consolidated federal income tax return. FHN files separate returns for subsidiaries that are not eligible to be included in a consolidated federal income tax return. Based on the laws of the applicable state where it conducts business operations, FHN either files consolidated, combined, or separate returns.
Earnings per Share
Earnings per share is computed by dividing net income or loss available to common shareholders by the weighted average number of common shares outstanding for each period. Diluted earnings per share in net income periods is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding adjusted to include the number of additional common shares that would have been outstanding if the potential dilutive common shares resulting from performance shares and units, restricted shares and units, and options granted under FHN’s equity compensation plans and deferred compensation arrangements had been issued. FHN utilizes the treasury stock method in this calculation. Diluted earnings per share does not reflect an adjustment for potentially dilutive shares in periods in which a net loss available to common shareholders exists.
Equity Compensation
FHN accounts for its employee stock-based compensation plans using the grant date fair value of an award to determine the expense to be recognized over the life of the award. Stock options are valued using an option-pricing model, such as Black-Scholes. Restricted and performance shares and share units are valued at the stock price on the grant date. For awards with service vesting criteria, expense is recognized using the straight-line method over the requisite service period (generally the vesting period). Forfeitures are recognized when they occur. For awards vesting based on a performance measure, anticipated performance is projected to
determine the number of awards expected to vest, and the corresponding aggregate expense is adjusted to reflect the elapsed portion of the performance period. If a performance period extends beyond the required service term, total expense is adjusted for changes in estimated achievement through the end of the performance period. Some performance awards include a total shareholder return modifier (“TSR Modifier”) that operates after determination of the performance criteria, affecting only the quantity of awards issued if the minimum performance threshold is attained. The effect of the TSR Modifier is included in the grant date fair value of the related performance awards using a Monte Carlo valuation technique. The fair value of equity awards with cash payout requirements, as well as awards for which fair value cannot be estimated at grant date, is remeasured each reporting period through vesting date. Performance awards with pre-grant date achievement criteria are expensed over the period from the start of the performance period through the end of the service vesting term. Awards are amortized using the nonsubstantive vesting methodology which requires that expense associated with awards having only service vesting criteria that continue vesting after retirement be recognized over a period ending no later than an employee’s retirement eligibility date.
Phantom stock awards are accounted for as liability awards and are remeasured at each reporting period based on changes in their fair value, which is based on changes in common share prices, until the date of cash settlement. Compensation cost for each reporting period until settlement is based on the change (or a portion of the change, depending on the percentage of the requisite service that has been rendered at the reporting date) in the fair value of the phantom stock award for each reporting period.
Repurchase and Foreclosure Provision
The repurchase and foreclosure provision is the charge to earnings necessary to maintain the liability at a level that reflects management’s best estimate of losses associated with the repurchase of loans previously transferred in whole loans sales or securitizations, or make whole requests as of the balance sheet date. See Note 17 - Contingencies and Other Disclosures for discussion related to FHN’s obligations to repurchase such loans.
Legal Costs
Generally, legal costs are expensed as incurred.Costs related to equity issuances are netted against capital surplus. Costs related to debt issuances are included in debt issuance costs that are recorded within term borrowings.
Contingency Accruals
Contingent liabilities arise in the ordinary course of business, including those related to lawsuits, arbitration,
| | | | | | | | |
| 131 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 1—SIGNIFICANT ACCOUNTING POLICIES | |
mediation, and other forms of litigation. FHN establishes loss contingency liabilities for matters when loss is both probable and reasonably estimable in accordance with ASC 450-20-50 “Contingencies - Accruals for Loss Contingencies”. If loss for a matter is probable and a range of possible loss outcomes is the best estimate available, accounting guidance generally requires a liability to be established at the low end of the range. Expected recoveries from insurance and indemnification arrangements are recognized if they are considered equally as probable and reasonably estimable as the related loss contingency up to the recognized amount of the estimated loss. Gain contingencies and expected recoveries from insurance and indemnification arrangements in excess of the associated recorded estimated losses are generally recognized when received. Recognized recoveries are recorded as offsets to the related expense in the Consolidated Statements of Income. The favorable resolution of a gain contingency generally results in the recognition of other income in the Consolidated Statements of Income. Contingencies assumed in business combinations are evaluated through the end of the one-year post-closing measurement period. If the acquisition-date fair value of the contingency can be determined during the measurement period, recognition occurs as part of the acquisition-date fair value of the acquired business. If the acquisition-date fair value of the contingency cannot be determined, but loss is considered probable as of the acquisition date and can be reasonably estimated within the measurement period, then the estimated amount is recorded within acquisition accounting. If the requirements for inclusion of the contingency as part of the acquisition are not met, subsequent recognition of the contingency is included in earnings.
Business Combinations
Assets and liabilities acquired in business combinations are generally recognized at their fair values as of the acquisition date, with the related transaction costs expensed in the period incurred. Specified items such as net investment in leases as lessor, acquired operating lease assets and liabilities as lessee, employee benefit plans and income-tax related balances are recognized in accordance with accounting guidance that results in measurements that may differ from fair value. FHN may record provisional amounts at the time of acquisition based on available information. The provisional valuation estimates may be adjusted for a period of up to one year (“measurement period”) from the date of acquisition if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. Business combinations are included in the financial statements from the respective dates of acquisition. Adjustments recorded during the measurement period are recognized in the current reporting period.
The excess of purchase price over the valuation of specifically identified assets and liabilities is recorded as goodwill. In certain circumstances the net values of assets and liabilities acquired may exceed the purchase price, which is recognized within non-interest income as a purchase accounting gain.
2022 Merger Agreement with Toronto-Dominion Bank
On February 27, 2022, FHN entered into an Agreement and Plan of Merger (the “TD Merger Agreement”) with The Toronto-Dominion Bank, a Canadian chartered bank (“TD”), TD Bank US Holding Company, a Delaware corporation and indirect, wholly owned subsidiary of TD (“TD-US”), and Falcon Holdings Acquisition Co., a Delaware corporation and direct, wholly owned subsidiary of TD-US (“Merger Sub”). Refer to Note 27 – Subsequent Events, beginning on page 212, for additional information regarding the proposed transaction. Merger and integration expenses related to the Proposed TD Merger will be recorded in FHN’s Corporate segment. No such expenses were recognized during 2021. Accounting Changes With Extended Transition Periods
In March 2020, the FASB issued ASU 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting” which provides several optional expedients and exceptions to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The provisions of ASU 2020-04 primarily affect 1) contract modifications (e.g., loans, leases, debt, and derivatives) made in anticipation that a reference rate (e.g., LIBOR) will be discontinued and 2) the application of hedge accounting for existing relationships affected by those modifications. The provisions of ASU 2020-04 are effective upon release and apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by ASU 2020-04 do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. FHN has identified contracts affected by reference rate reform and developed modification plans for those contracts. FHN has elected to utilize the optional expedients and exceptions provided by ASU 2020-04 for certain contract modifications that have already been implemented. FHN anticipates that it will continue to utilize the expedients and exceptions for future modifications in situations where they mitigate potential accounting outcomes that do not faithfully represent management’s intent or risk management activities, consistent with the purpose of the standard.
| | | | | | | | |
| 132 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 1—SIGNIFICANT ACCOUNTING POLICIES | |
The FASB has voted to approve an extension of the transition window for ASU 2020-04 until December 31, 2024, consistent with key USD LIBOR tenors continuing to be published through June 30, 2023.
In January 2021, the FASB issued ASU 2021-01, "Scope" to expand the scope of ASU 2020-04 to apply to certain contract modifications that were implemented in October 2020 by derivative clearinghouses for the use of Secure Overnight Funding Rate (SOFR) in discounting, margining and price alignment for centrally cleared derivatives, including derivatives utilized in hedging relationships. ASU 2021-01 also applies to derivative contracts affected by the change in discounting convention regardless of whether they are centrally cleared (i.e., bi-lateral contracts can also be modified) and regardless of whether they reference LIBOR. ASU 2021-01 was effective immediately upon issuance with retroactive application permitted. FHN elected to retroactively apply the provisions of ASU 2021-01 because FHN's centrally cleared derivatives were affected by the change in discounting convention and because FHN has other bi-lateral derivative contracts that may be modified to conform to the use of SOFR for discounting. Adoption did not have a significant effect on FHN's reported financial condition or results of operations.
| | | | | | | | |
| 133 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 2—ACQUISITIONS & DIVESTITURES | |
Note 2—Acquisitions and Divestitures
IBKC Merger of Equals
On July 1, 2020, FHN and IBERIABANK Corporation closed their merger-of-equals transaction. FHN issued approximately 243 million shares of FHN common stock, plus 3 new series of preferred stock (Series B, Series C, and Series D) in a transaction valued at $2.5 billion. At the time of closing, IBKC operated 319 offices in 12 states, mostly in the southern U.S.
The merger-of-equals transaction was accounted for as a business combination. Accordingly, the assets acquired
and liabilities assumed are generally presented at their fair values as of the merger date. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change.
The following schedule details the allocation of merger consideration to the valuations of the identifiable tangible and intangible assets acquired and liabilities assumed from IBKC as of July 1, 2020.
Table 8.2.1
MERGER CONSIDERATION ALLOCATIONS
| | | | | | | | | | | | | | | | |
| | | |
| (Dollars in millions) | | | | | | IBERIABANK Corporation |
| Assets: | | | | | | |
| Cash and due from banks | | | | | | $ | 395 | |
| Interest-bearing deposits with banks | | | | | | 1,683 | |
| Securities available for sale at fair value | | | | | | 3,544 | |
| Loans held for sale | | | | | | 320 | |
| Loans and leases (a) | | | | | | 25,921 | |
| Allowance for loan and lease losses | | | | | | (284) | |
| Other intangible assets | | | | | | 240 | |
| Premises and equipment | | | | | | 311 | |
| OREO | | | | | | 9 | |
| Other assets | | | | | | 1,153 | |
| Total assets acquired | | | | | | $ | 33,292 | |
| Liabilities: | | | | | | |
| Deposits | | | | | | $ | 28,232 | |
| Short-term borrowings | | | | | | 209 | |
| Term borrowings | | | | | | 1,200 | |
| Other liabilities | | | | | | 618 | |
| Total liabilities assumed | | | | | | $ | 30,259 | |
| Net assets acquired | | | | | | $ | 3,033 | |
| Consideration paid: | | | | | | |
| Consideration for outstanding common stock | | | | | | $ | 2,243 | |
| Consideration for equity awards | | | | | | 28 | |
| Consideration for preferred stock | | | | | | 231 | |
| | | | | | |
| Total consideration paid | | | | | | $ | 2,502 | |
| Purchase accounting gain | | | | | | $ | (531) | |
(a) Includes $1.3 billion of initial net investments in sales-type and direct financing leases.
In relation to the merger-of-equals, FHN recorded a $531 million purchase accounting gain, representing the shortfall of the purchase price under the acquisition accounting value of net assets acquired, net of deferred taxes. The purchase accounting gain is not taxable. The valuation of the IBKC merger-of-equals transaction was final as of June 30, 2021.
On July 17, 2020, First Horizon Bank completed its purchase of 30 branches from Truist Bank. As of December 31, 2020, the valuation of the acquired assets and liabilities assumed from the Truist branches acquisition was final. In relation to the acquisition, FHN recorded $78 million in goodwill, representing the excess of acquisition consideration over the estimated fair value of net assets acquired. All goodwill has been attributed to FHN's Regional Banking segment (refer to Note 7 -
| | | | | | | | |
| 134 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 2—ACQUISITIONS & DIVESTITURES | |
Goodwill and Other Intangible Assets for additional information). This goodwill was the result of expected synergies, operational efficiencies and other factors.
Expenses related to FHN's merger and integration activities are recorded in FHN's Corporate segment.
Total merger and integration expense recognized for the years ended December 31, 2021 and 2020 are presented in the following table:
Table 8.2.2
MERGER & INTEGRATION EXPENSE
| | | | | | | | | | | | | | |
| (Dollars in millions) | | 2021 | | 2020 |
| Personnel expense (a) | | $ | 56 | | | $ | 66 | |
| Impairment of long-lived assets | | 34 | | | 6 | |
| Legal and professional fees (b) | | 21 | | | 39 | |
| Contract employment and outsourcing | | 12 | | | 1 | |
| Advertising and public relations | | 10 | | | — | |
| Contribution expense (c) | | — | | | 20 | |
| Other expense (d) | | 54 | | | 23 | |
| Total | | $ | 187 | | | $ | 155 | |
| | | | |
(a) Primarily comprised of fees for severance and retention.
(b) Primarily comprised of fees for legal, accounting, and merger consultants.
(c) Comprised of contribution expense related to the establishment of the Louisiana First Horizon Foundation.
(d) Consists of operation services, communications and delivery, equipment expense, supplies, travel and entertainment, computer software, occupancy expense (including costs associated with lease exits) and costs of shareholder matters.
In addition to the transactions mentioned above, FHN acquires or divests assets from time to time in transactions that are considered business combinations or divestitures but are not material to FHN individually or in the aggregate.
2022 Merger Agreement with Toronto-Dominion Bank
On February 27, 2022, FHN entered into the TD Merger Agreement with TD, TD-US, and Merger Sub. Refer to Note
27—Subsequent Events for additional information regarding the proposed transaction. Merger and integration expenses related to the Proposed TD Merger will be recorded in FHN’s Corporate segment. No such expenses were recognized during 2021.
| | | | | | | | |
| 135 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 3—INVESTMENT SECURITIES | |
Note 3—Investment Securities
The following tables summarize FHN’s investment securities as of December 31, 2021 and 2020:
Table 8.3.1a
INVESTMENT SECURITIES AT YE 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2021 |
| (Dollars in millions) | | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value |
| Securities available for sale: | | | | | | | | |
| | | | | | | | |
| Government agency issued MBS | | $ | 5,062 | | | $ | 42 | | | $ | (49) | | | $ | 5,055 | |
| Government agency issued CMO | | 2,296 | | | 8 | | | (47) | | | 2,257 | |
| Other U.S. government agencies | | 861 | | | 4 | | | (15) | | | 850 | |
| | | | | | | | |
| States and municipalities | | 535 | | | 11 | | | (1) | | | 545 | |
| Total securities available for sale (a) | | $ | 8,754 | | | $ | 65 | | | $ | (112) | | | $ | 8,707 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Securities held to maturity: | | | | | | | | |
| Government agency issued MBS | | $ | 509 | | | $ | — | | | $ | (5) | | | $ | 504 | |
| Government agency issued CMO | | 203 | | | — | | | (2) | | | 201 | |
| Total securities held to maturity | | $ | 712 | | | $ | — | | | $ | (7) | | | $ | 705 | |
| | | | | | | | |
(a)Includes $6.5 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes.
Table 8.3.1b
INVESTMENT SECURITIES AT YE 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2020 |
| (Dollars in millions) | | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value |
| Securities available for sale: | | | | | | | | |
| U.S. treasuries | | $ | 613 | | | $ | — | | | $ | — | | | $ | 613 | |
| Government agency issued MBS | | 3,722 | | | 92 | | | (2) | | | 3,812 | |
| Government agency issued CMO | | 2,380 | | | 29 | | | (3) | | | 2,406 | |
| Other U.S. government agencies | | 672 | | | 12 | | | — | | | 684 | |
| Corporate and other debt | | 40 | | | 1 | | | (1) | | | 40 | |
| States and municipalities | | 445 | | | 15 | | | — | | | 460 | |
| | $ | 7,872 | | | $ | 149 | | | $ | (6) | | | 8,015 | |
| AFS securities recorded at fair value through earnings: | | | | | | | | |
| SBA interest-only strips (a) | | | | | | | | 32 | |
| Total securities available for sale (b) | | | | | | | | $ | 8,047 | |
| | | | | | | | |
| Securities held to maturity: | | | | | | | | |
| Corporate and other debt | | $ | 10 | | | $ | — | | | $ | — | | | $ | 10 | |
| Total securities held to maturity | | $ | 10 | | | $ | — | | | $ | — | | | $ | 10 | |
| | | | | | | | |
(a)SBA interest-only strips were recorded at elected fair value. See Note 24 - Fair Value of Assets and Liabilities for additional information.
(b)Includes $6.4 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes.
| | | | | | | | |
| 136 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 3—INVESTMENT SECURITIES | |
The amortized cost and fair value by contractual maturity for the debt securities portfolio as of December 31, 2021 is provided below:
Table 8.3.2
DEBT SECURITIES PORTFOLIO MATURITIES
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Held to Maturity | | Available for Sale |
| (Dollars in millions) | | Amortized
Cost | | Fair
Value | | Amortized
Cost | | Fair
Value |
| Within 1 year | | $ | — | | | $ | — | | | $ | 17 | | | $ | 18 | |
| After 1 year through 5 years | | — | | | — | | | 149 | | | 149 | |
| After 5 years through 10 years | | — | | | — | | | 351 | | | 349 | |
| After 10 years | | — | | | — | | | 879 | | | 879 | |
| Subtotal | | — | | | — | | | 1,396 | | | 1,395 | |
| Government agency issued MBS and CMO (a) | | 712 | | | 705 | | | 7,358 | | | 7,312 | |
| Total | | $ | 712 | | | $ | 705 | | | $ | 8,754 | | | $ | 8,707 | |
| | | | | | | | |
(a)Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Gross gains on sales of AFS securities for the years ended December 31, 2021, 2020 and 2019 were insignificant. Gross losses on sales of AFS securities were insignificant for the year ended December 31, 2021, $4 million for the year ended 2020, and insignificant for the year ended December 31, 2019. Cash proceeds from the sales of AFS
securities during 2021, 2020 and 2019 were $68 million, $629 million, and $192 million, respectively.
The following tables provide information on investments within the available-for-sale portfolio that had unrealized losses as of December 31, 2021 and 2020:
Table 8.3.3a
AFS INVESTMENT SECURITIES WITH UNREALIZED LOSSES AT YE 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, 2021 |
| | | Less than 12 months | | 12 months or longer | | Total |
| (Dollars in millions) | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| | | | | | | | | | | | |
| Government agency issued MBS | | $ | 2,973 | | | $ | (41) | | | $ | 184 | | | $ | (8) | | | $ | 3,157 | | | $ | (49) | |
| Government agency issued CMO | | 1,436 | | | (37) | | | 248 | | | (10) | | | 1,684 | | | (47) | |
| Other U.S. government agencies | | 459 | | | (11) | | | 90 | | | (4) | | | 549 | | | (15) | |
| | | | | | | | | | | | |
| States and municipalities | | 68 | | | (1) | | | — | | | — | | | 68 | | | (1) | |
| Total | | $ | 4,936 | | | $ | (90) | | | $ | 522 | | | $ | (22) | | | $ | 5,458 | | | $ | (112) | |
| | | | | | | | | | | | |
Table 8.3.3b
AFS INVESTMENT SECURITIES WITH UNREALIZED LOSSES AT YE 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, 2020 |
| | | Less than 12 months | | 12 months or longer | | Total |
| (Dollars in millions) | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| U.S. treasuries | | $ | 307 | | | $ | — | | | $ | — | | | $ | — | | | $ | 307 | | | $ | — | |
| Government agency issued MBS | | 426 | | | (2) | | | — | | | — | | | 426 | | | (2) | |
| Government agency issued CMO | | 586 | | | (3) | | | — | | | — | | | 586 | | | (3) | |
| Other U.S. government agencies | | 80 | | | (1) | | | — | | | — | | | 80 | | | (1) | |
| | | | | | | | | | | | |
| States and municipalities | | 1 | | | — | | | — | | | — | | | 1 | | | — | |
| Total | | $ | 1,400 | | | $ | (6) | | | $ | — | | | $ | — | | | $ | 1,400 | | | $ | (6) | |
| | | | | | | | | | | | |
FHN has evaluated all AFS debt securities that were in unrealized loss positions in accordance with its accounting
policy for recognition of credit losses. No AFS debt securities were determined to have credit losses because
| | | | | | | | |
| 137 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 3—INVESTMENT SECURITIES | |
the primary cause of the decline in value was attributable to changes in interest rates. Total AIR not included in the fair value or amortized cost basis of AFS debt securities was $23 million and $22 million as of December 31, 2021 and 2020, respectively. Consistent with FHN's review of the related securities, there were no credit-related write downs of AIR for AFS debt securities during the reporting period. Additionally, for AFS debt securities with unrealized losses, FHN does not intend to sell them and it is more-likely-than-not that FHN will not be required to sell them prior to recovery. Therefore, no write downs of these investments to fair value occurred during the reporting period.
For HTM securities, an allowance for credit losses is required to absorb estimated lifetime credit losses. Total AIR not included in the fair value or amortized cost basis of HTM debt securities was $1 million as of December 31, 2021. FHN has assessed the risk of credit loss and has determined that zero allowance for credit losses for HTM
securities was necessary as of December 31, 2021 and 2020. The evaluation of credit risk includes consideration of third-party and government guarantees (both explicit and implicit), senior or subordinated status, credit ratings of the issuer, the effects of interest rate changes since purchase and observable market information such as issuer-specific credit spreads.
The carrying amount of equity investments without a readily determinable fair value was $70 million and $57 million at December 31, 2021 and 2020, respectively. The year-to-date 2021 and 2020 gross amounts of upward and downward valuation adjustments were not significant.
Unrealized gains of $3 million and $7 million were recognized during 2021 and 2020, respectively, for equity investments with readily determinable fair values.
| | | | | | | | |
| 138 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 4—LOANS & LEASES | |
Note 4—Loans and Leases
The loan and lease portfolio is disaggregated into portfolio segments and then further disaggregated into classes for certain disclosures. GAAP defines a portfolio segment as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. A class is generally a disaggregation of a portfolio segment and is generally determined based on risk characteristics of the loan and FHN’s method for monitoring and assessing credit risk and performance. FHN's loan and lease portfolio segments are commercial and consumer. The classes of loans and leases are: (1) commercial, financial, and industrial, which includes
commercial and industrial loans and leases and loans to mortgage companies, (2) commercial real estate, (3) consumer real estate, which includes both real estate installment and home equity lines of credit, and (4) credit card and other.
The following table reflectsprovides the amortized cost basis of loans and leases by portfolio segment and class as of December 31, 2021 and 2020, excluding accrued interest of $134 million and $180 million, respectively, which is included in other assets in the Consolidated Balance Sheets.
Table 8.4.1
LOANS AND LEASES BY PORTFOLIO SEGMENT
| | | | | | | | | | | | | | |
| | December 31, |
| (Dollars in millions) | | 2021 | | 2020 |
| Commercial: | | | | |
| Commercial and industrial (a) (b) | | $ | 26,550 | | | $ | 27,700 | |
| Loans to mortgage companies | | 4,518 | | | 5,404 | |
| Total commercial, financial, and industrial | | 31,068 | | | 33,104 | |
| Commercial real estate | | 12,109 | | | 12,275 | |
| Consumer: | | | | |
| HELOC | | 1,964 | | | 2,420 | |
| Real estate installment loans | | 8,808 | | | 9,305 | |
| Total consumer real estate | | 10,772 | | | 11,725 | |
| Credit card and other | | 910 | | | 1,128 | |
| Loans and leases | | $ | 54,859 | | | $ | 58,232 | |
| Allowance for loan and lease losses | | (670) | | | (963) | |
| Net loans and leases | | $ | 54,189 | | | $ | 57,269 | |
| | | | |
(a)Includes equipment financing leases of $792 million and $587 million, respectively, as of December 31, 2021 and 2020.
(b) Includes PPP loans fully guaranteed by the SBA of $1.0 billion and $4.1 billion as of December 31, 2021 and 2020.
Restrictions
Loans and leases with carrying values of $36.6 billion and $38.6 billion were pledged as collateral for borrowings at December 31, 2021 and 2020, respectively.
At December 31, 2021 and 2020, FHN had pledged $6.9 billion and $7.8 billion of commercial loans to secure potential discount window borrowings from the Federal Reserve Bank, which included all of its first and second lien mortgages, HELOCs, and commercial real estate loans to secure potential borrowings from the FHLB-Cincinnati.
Concentrations of Credit Risk
Most of the FHN’s business activity is with clients located in the southern United States. FHN’s lending activity is concentrated in its market areas within those states. As of December 31, 2021, FHN had loans to mortgage companies totaling $4.5 billion and loans to finance and insurance companies total $3.5 billion. As a result, 26% of
the C&I segment is sensitive to impacts on the financial services industry.
Credit Quality Indicators
FHN employs a dual grade commercial risk grading methodology to assign an estimate for the probability of default and the loss given default for each commercial loan using factors specific to various industry, portfolio, or product segments that result in a rank ordering of risk and the assignment of grades PD 1 to PD 16. This credit grading system is intended to identify and measure the credit quality of the loan and lease portfolio by analyzing the migration between grading categories. It is also integral to the estimation methodology utilized in determining the ALLL since an allowance is established for pools of commercial loans based on the credit grade assigned. Each PD grade corresponds to an estimated one-year default probability percentage. PD grades are continually evaluated, but require a formal scorecard annually. As a response to the COVID-19 pandemic, FHN
| | | | | | | | |
| 139 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 4—LOANS & LEASES | |
identified a segment of its commercial portfolio that required a quarterly re-grading process. As borrowers recover, they can be removed from the quarterly re-grading process with credit officer concurrence.
PD 1 through PD 12 are “pass” grades. PD grades 13-16 correspond to the regulatory-defined categories of special mention (13), substandard (14), doubtful (15), and loss (16). Special mention commercial loans and leases have potential weaknesses that, if left uncorrected, may result in deterioration of FHN's credit position at some future date. Substandard commercial loans and leases have well-defined weaknesses and are characterized by the distinct
possibility that FHN will sustain some loss if the deficiencies are not corrected. Doubtful commercial loans and leases have the same weaknesses as substandard loans and leases with the added characteristics that the probability of loss is high and collection of the full amount is improbable.
The following tables provide the amortized cost basis of the commercial loan and lease portfolio by year of origination and credit quality indicator as of December 31, 2021 and 2020:
Table 8.4.2a
C&I PORTFOLIO AT YE 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior to 2017 | | LMC (a) | | Revolving
Loans | | Revolving
Loans Converted
to Term Loans (b) | | Total |
| | | | | | | | | | | | | | | | | | | | |
| Credit Quality Indicator: | | | | | | | | | | | | | | | | | | | | |
| Pass (PD grades 1 through 12) (c) | | $ | 7,372 | | | $ | 3,576 | | | $ | 3,439 | | | $ | 1,455 | | | $ | 1,193 | | | $ | 2,267 | | | $ | 4,518 | | | $ | 6,386 | | | $ | 13 | | | $ | 30,219 | |
| Special Mention (PD grade 13) | | 25 | | | 39 | | | 50 | | | 48 | | | 36 | | | 43 | | | — | | | 100 | | | 4 | | | 345 | |
| Substandard, Doubtful, or Loss (PD grades 14,15, and 16) | | 24 | | | 61 | | | 67 | | | 103 | | | 24 | | | 48 | | | — | | | 129 | | | 48 | | | 504 | |
| Total C&I | | $ | 7,421 | | | $ | 3,676 | | | $ | 3,556 | | | $ | 1,606 | | | $ | 1,253 | | | $ | 2,358 | | | $ | 4,518 | | | $ | 6,615 | | | $ | 65 | | | $ | 31,068 | |
| | | | | | | | | | | | | | | | | | | | |
(a)LMC includes non-revolving commercial lines of credit to qualified mortgage companies primarily for the temporary warehousing of eligible mortgage loans prior to the borrower's sale of those mortgage loans to third party investors. The loans are of short duration with maturities less than one year.
(b) C&I loans converted from revolving to term in 2021 were not material.
(c) Includes PPP loans.
Table 8.4.2b
C&I PORTFOLIO AT YE 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | |
| (Dollars in millions) | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior to 2016 | | LMC (a) | | Revolving
Loans | | Revolving
Loans Converted
to Term Loans (b) | | Total |
| | | | | | | | | | | | | | | | | | | | |
| Credit Quality Indicator: | | | | | | | | | | | | | | | | | | | | |
| Pass (PD grades 1 through 12) (c) | | $ | 9,060 | | | $ | 5,138 | | | $ | 2,628 | | | $ | 1,748 | | | $ | 1,161 | | | $ | 2,145 | | | $ | 5,404 | | | $ | 4,571 | | | $ | 60 | | | $ | 31,915 | |
| Special Mention (PD grade 13) | | 89 | | | 93 | | | 70 | | | 31 | | | 37 | | | 64 | | | — | | | 127 | | | 1 | | | 512 | |
| Substandard, Doubtful, or Loss (PD grades 14,15, and 16) | | 182 | | | 77 | | | 114 | | | 50 | | | 42 | | | 58 | | | — | | | 95 | | | 59 | | | 677 | |
| Total C&I | | $ | 9,331 | | | $ | 5,308 | | | $ | 2,812 | | | $ | 1,829 | | | $ | 1,240 | | | $ | 2,267 | | | $ | 5,404 | | | $ | 4,793 | | | $ | 120 | | | $ | 33,104 | |
| | | | | | | | | | | | | | | | | | | | |
(a)LMC includes non-revolving commercial lines of credit to qualified mortgage companies primarily for the temporary warehousing of eligible mortgage loans prior to the borrower's sale of those mortgage loans to third party investors. The loans are of short duration with maturities less than one year.
(b) $50 million of C&I loans were converted from revolving to term in 2020.
(c) Includes PPP loans.
| | | | | | | | |
| 140 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 4—LOANS & LEASES | |
Table 8.4.2c
CRE PORTFOLIO AT YE 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior to 2017 | | Revolving
Loans | | Revolving
Loans Converted
to Term Loans | | Total |
| Credit Quality Indicator: | | | | | | | | | | | | | | | | | | |
| Pass (PD grades 1 through 12) | | $ | 3,441 | | | $ | 2,065 | | | $ | 2,514 | | | $ | 929 | | | $ | 691 | | | $ | 1,822 | | | $ | 204 | | | $ | — | | | $ | 11,666 | |
| Special Mention (PD grade 13) | | 4 | | | 26 | | | 52 | | | 125 | | | 20 | | | 65 | | | — | | | — | | | 292 | |
| Substandard, Doubtful, or Loss (PD grades 14,15, and 16) | | 47 | | | — | | | 24 | | | 3 | | | 33 | | | 32 | | | 12 | | | — | | | 151 | |
| Total CRE | | $ | 3,492 | | | $ | 2,091 | | | $ | 2,590 | | | $ | 1,057 | | | $ | 744 | | | $ | 1,919 | | | $ | 216 | | | $ | — | | | $ | 12,109 | |
| | | | | | | | | | | | | | | | | | |
Table 8.4.2d
CRE PORTFOLIO AT YE 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | |
| (Dollars in millions) | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior to 2016 | | Revolving
Loans | | Revolving
Loans Converted
to Term Loans | | Total |
| | | | | | | | | | | | | | | | | | |
| Credit Quality Indicator: | | | | | | | | | | | | | | | | | | |
| Pass (PD grades 1 through 12) | | $ | 2,477 | | | $ | 3,311 | | | $ | 1,750 | | | $ | 1,140 | | | $ | 946 | | | $ | 1,800 | | | $ | 259 | | | $ | 19 | | | $ | 11,702 | |
| Special Mention (PD grade 13) | | 48 | | | 24 | | | 117 | | | 75 | | | 71 | | | 54 | | | — | | | — | | | 389 | |
| Substandard, Doubtful, or Loss (PD grades 14,15, and 16) | | 30 | | | 13 | | | 21 | | | 42 | | | 27 | | | 33 | | | 18 | | | — | | | 184 | |
| Total CRE | | $ | 2,555 | | | $ | 3,348 | | | $ | 1,888 | | | $ | 1,257 | | | $ | 1,044 | | | $ | 1,887 | | | $ | 277 | | | $ | 19 | | | $ | 12,275 | |
| | | | | | | | | | | | | | | | | | |
The consumer portfolio is comprised primarily of smaller-balance loans which are very similar in nature in that most are standard products and are backed by residential real estate. Because of the similarities of consumer loan types, FHN is able to utilize the FICO score, among other attributes, to assess the credit quality of consumer borrowers. FICO scores are refreshed on a quarterly basis in an attempt to reflect the recent risk profile of the borrowers. Accruing delinquency amounts are indicators of asset quality within the credit card and other consumer portfolio.
The following tables reflect the amortized cost basis by year of origination and refreshed FICO scores for
consumer real estate loans as of December 31, 2021 and 2020. Within consumer real estate, classes include HELOC and real estate installment loans. HELOCs are loans which during their draw period are classified as revolving loans. Once the draw period ends and the loan enters its repayment period, the loan converts to a term loan and is classified as revolving loans converted to term loans. All loans classified in the following table as revolving loans or revolving loans converted to term loans are HELOCs. Real estate installment loans are originated as fixed term loans and are classified below in their vintage year. All loans in the following tables classified in a vintage year are real estate installment loans.
Table 8.4.3a
CONSUMER REAL ESTATE PORTFOLIO AT YE 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior to 2017 | | Revolving loans | | Revolving Loans converted to term loans (a) | | Total |
| FICO score 740 or greater | | $ | 1,594 | | | $ | 1,156 | | | $ | 825 | | | $ | 473 | | | $ | 394 | | | $ | 1,335 | | | $ | 1,086 | | | $ | 115 | | | $ | 6,978 | |
| FICO score 720-739 | | 236 | | | 171 | | | 109 | | | 61 | | | 44 | | | 209 | | | 162 | | | 21 | | | 1,013 | |
| FICO score 700-719 | | 143 | | | 112 | | | 81 | | | 68 | | | 45 | | | 153 | | | 141 | | | 23 | | | 766 | |
| FICO score 660-699 | | 164 | | | 131 | | | 120 | | | 106 | | | 44 | | | 246 | | | 204 | | | 44 | | | 1,059 | |
| FICO score 620-659 | | 42 | | | 36 | | | 55 | | | 23 | | | 13 | | | 118 | | | 66 | | | 27 | | | 380 | |
| FICO score less than 620 | | 26 | | | 84 | | | 42 | | | 32 | | | 45 | | | 272 | | | 42 | | | 33 | | | 576 | |
| Total | | $ | 2,205 | | | $ | 1,690 | | | $ | 1,232 | | | $ | 763 | | | $ | 585 | | | $ | 2,333 | | | $ | 1,701 | | | $ | 263 | | | $ | 10,772 | |
| | | | | | | | | | | | | | | | | | |
(a) $43 million of HELOC loans were converted from revolving to term in 2021.
| | | | | | | | |
| 141 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 4—LOANS & LEASES | |
Table 8.4.3b
CONSUMER REAL ESTATE PORTFOLIO AT YE 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | |
| (Dollars in millions) | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior to 2016 | | Revolving loans | | Revolving Loans converted to term loans (a) | | Total |
| FICO score 740 or greater | | $ | 1,186 | | | $ | 1,167 | | | $ | 703 | | | $ | 610 | | | $ | 674 | | | $ | 1,719 | | | $ | 1,275 | | | $ | 159 | | | $ | 7,493 | |
| FICO score 720-739 | | 157 | | | 158 | | | 100 | | | 77 | | | 92 | | | 197 | | | 186 | | | 29 | | | 996 | |
| FICO score 700-719 | | 122 | | | 107 | | | 78 | | | 76 | | | 73 | | | 221 | | | 177 | | | 34 | | | 888 | |
| FICO score 660-699 | | 130 | | | 141 | | | 123 | | | 75 | | | 85 | | | 296 | | | 264 | | | 59 | | | 1,173 | |
| FICO score 620-659 | | 45 | | | 61 | | | 37 | | | 28 | | | 35 | | | 127 | | | 92 | | | 36 | | | 461 | |
| FICO score less than 620 | | 107 | | | 36 | | | 52 | | | 54 | | | 95 | | | 261 | | | 61 | | | 48 | | | 714 | |
| Total | | $ | 1,747 | | | $ | 1,670 | | | $ | 1,093 | | | $ | 920 | | | $ | 1,054 | | | $ | 2,821 | | | $ | 2,055 | | | $ | 365 | | | $ | 11,725 | |
| | | | | | | | | | | | | | | | | | |
(a) $36 million of HELOC loans were converted from revolving to term in 2020.
The following tables reflect the amortized cost basis by year of origination and refreshed FICO scores for credit card and other loans as of December 31, 2021 and 2020.
Table 8.4.4a
CREDIT CARD & OTHER PORTFOLIO AT YE 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior to 2017 | | Revolving loans | | Revolving Loans converted to term loans | | Total |
| FICO score 740 or greater | | $ | 56 | | | $ | 35 | | | $ | 29 | | | $ | 23 | | | $ | 13 | | | $ | 56 | | | $ | 200 | | | $ | 11 | | | $ | 423 | |
| FICO score 720-739 | | 14 | | | 5 | | | 4 | | | 3 | | | 4 | | | 17 | | | 46 | | | 3 | | | 96 | |
| FICO score 700-719 | | 8 | | | 5 | | | 4 | | | 4 | | | 3 | | | 17 | | | 42 | | | 1 | | | 84 | |
| FICO score 660-699 | | 25 | | | 6 | | | 5 | | | 6 | | | 4 | | | 31 | | | 98 | | | 2 | | | 177 | |
| FICO score 620-659 | | 4 | | | 3 | | | 2 | | | 4 | | | 3 | | | 18 | | | 22 | | | 1 | | | 57 | |
| FICO score less than 620 | | 24 | | | 3 | | | 3 | | | 4 | | | 4 | | | 16 | | | 18 | | | 1 | | | 73 | |
| Total | | $ | 131 | | | $ | 57 | | | $ | 47 | | | $ | 44 | | | $ | 31 | | | $ | 155 | | | $ | 426 | | | $ | 19 | | | $ | 910 | |
| | | | | | | | | | | | | | | | | | |
(a) $9 million of other consumer loans were converted from revolving to term in 2021.
Table 8.4.4b
CREDIT CARD & OTHER PORTFOLIO AT YE 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | |
| (Dollars in millions) | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior to 2016 | | Revolving loans | | Revolving Loans converted to term loans | | Total |
| FICO score 740 or greater | | $ | 57 | | | $ | 52 | | | $ | 59 | | | $ | 37 | | | $ | 23 | | | $ | 116 | | | $ | 159 | | | $ | 5 | | | $ | 508 | |
| FICO score 720-739 | | 7 | | | 7 | | | 9 | | | 8 | | | 8 | | | 27 | | | 91 | | | 2 | | | 159 | |
| FICO score 700-719 | | 9 | | | 8 | | | 9 | | | 8 | | | 4 | | | 38 | | | 37 | | | 3 | | | 116 | |
| FICO score 660-699 | | 30 | | | 12 | | | 15 | | | 9 | | | 9 | | | 48 | | | 46 | | | 3 | | | 172 | |
| FICO score 620-659 | | 5 | | | 5 | | | 7 | | | 5 | | | 10 | | | 24 | | | 20 | | | 1 | | | 77 | |
| FICO score less than 620 | | 14 | | | 7 | | | 8 | | | 11 | | | 9 | | | 26 | | | 20 | | | 1 | | | 96 | |
| Total | | $ | 122 | | | $ | 91 | | | $ | 107 | | | $ | 78 | | | $ | 63 | | | $ | 279 | | | $ | 373 | | | $ | 15 | | | $ | 1,128 | |
| | | | | | | | | | | | | | | | | | |
Nonaccrual and Past Due Loans and Leases
Loans and leases are placed on nonaccrual if it becomes evident that full collection of principal and interest is at
risk, impairment has been recognized as a partial charge-off of principal balance due to insufficient collateral value and past due status, or on a case-by-case basis if FHN
| | | | | | | | |
| 142 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 4—LOANS & LEASES | |
continues to receive payments but there are other borrower-specific issues. Included in nonaccrual are loans for which FHN continues to receive payments including residential real estate loans where the borrower has been discharged of personal obligation through bankruptcy.
Past due loans are loans contractually past due as to interest or principal payments, but which have not yet been put on nonaccrual status. In accordance with revised Interagency Guidance issued in 2020, FHN is not required to designate loans with deferrals granted in response to COVID-19 as past due because of such deferrals. If a
borrower defers payment, this may result in no contractual payments being past due, and as such, loans would not be considered past due during the period of deferral, and as a result, are excluded from loans past due 30-89 days and loans 90+ days past due in the table below. When qualifying COVID-19 deferral periods end, the related loans are subject to past due reporting.
The following tables reflect accruing and non-accruing loans and leases by class on December 31, 2019:2021 and 2020:
Table 8.4.5a
ACCRUING & NON-ACCRUING LOANS & LEASES AT YE 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | | Accruing | | Non-Accruing | | |
| (Dollars in millions) | | Current | | 30-89
Days
Past Due | | 90+
Days
Past Due | | Total
Accruing | | Current | | 30-89
Days
Past Due | | 90+
Days
Past Due | | Total
Non-
Accruing | | Total
Loans |
| Commercial, financial, and industrial: | | | | | | | | | | | | | | | | | | |
| C&I (a) | | $ | 26,367 | | | $ | 53 | | | $ | 5 | | | $ | 26,425 | | | $ | 97 | | | $ | 1 | | | $ | 27 | | | $ | 125 | | | $ | 26,550 | |
| Loans to mortgage companies | | 4,518 | | | — | | | — | | | 4,518 | | | — | | | — | | | — | | | — | | | 4,518 | |
| Total commercial, financial, and industrial | | 30,885 | | | 53 | | | 5 | | | 30,943 | | | 97 | | | 1 | | | 27 | | | 125 | | | 31,068 | |
| Commercial real estate: | | | | | | | | | | | | | | | | | | |
| CRE (b) | | 12,087 | | | 13 | | | — | | | 12,100 | | | 6 | | | 1 | | | 2 | | | 9 | | | 12,109 | |
| | | | | | | | | | | | | | | | | | |
| Consumer real estate: | | | | | | | | | | | | | | | | | | |
| HELOC (c) | | 1,906 | | | 7 | | | 6 | | | 1,919 | | | 34 | | | 2 | | | 9 | | | 45 | | | 1,964 | |
| Real estate installment loans (d) | | 8,658 | | | 30 | | | 27 | | | 8,715 | | | 44 | | | 3 | | | 46 | | | 93 | | | 8,808 | |
| Total consumer real estate | | 10,564 | | | 37 | | | 33 | | | 10,634 | | | 78 | | | 5 | | | 55 | | | 138 | | | 10,772 | |
| Credit card and other: | | | | | | | | | | | | | | | | | | |
| Credit card | | 292 | | | 2 | | | 2 | | | 296 | | | — | | | — | | | — | | | — | | | 296 | |
| Other | | 608 | | | 3 | | | — | | | 611 | | | 1 | | | — | | | 2 | | | 3 | | | 614 | |
| Total credit card and other | | 900 | | | 5 | | | 2 | | | 907 | | | 1 | | | — | | | 2 | | | 3 | | | 910 | |
| Total loans and leases | | $ | 54,436 | | | $ | 108 | | | $ | 40 | | | $ | 54,584 | | | $ | 182 | | | $ | 7 | | | $ | 86 | | | $ | 275 | | | $ | 54,859 | |
| | | | | | | | | | | | | | | | | | |
(a) $99 million of C&I loans are nonaccrual loans that have been specifically reviewed for impairment with no related allowance.
(b) $5 million of CRE loans are nonaccrual loans that have been specifically reviewed for impairment with no related allowance.
(c) $7 million of HELOC loans are nonaccrual loans that have been specifically reviewed for impairment with no related allowance.
(d) $50 million of real estate installment loans are nonaccrual loans that have been specifically reviewed for impairment with no related allowance.
| | | | | | | | |
| 143 | 2021 FORM 10-K ANNUAL REPORT |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Accruing | | Non-Accruing | | |
| (Dollars in thousands) | | Current | | 30-89 Days Past Due | | 90+ Days Past Due | | Total Accruing | | Current | | 30-89 Days Past Due | | 90+ Days Past Due | | Total Non- Accruing | | Total Loans |
| Commercial (C&I): | | | | | | | | | | | | | | | | | | |
| General C&I | | $ | 15,314,292 |
| | $ | 7,155 |
| | $ | 237 |
| | $ | 15,321,684 |
| | $ | 36,564 |
| | $ | 14,385 |
| | $ | 23,363 |
| | $ | 74,312 |
| | $ | 15,395,996 |
|
| Loans to mortgage companies | | 4,410,883 |
| | — |
| | — |
| | 4,410,883 |
| | — |
| | — |
| | — |
| | — |
| | 4,410,883 |
|
| TRUPS (a) | | 218,287 |
| | — |
| | — |
| | 218,287 |
| | — |
| | — |
| | — |
| | — |
| | 218,287 |
|
| Purchased credit-impaired loans | | 23,840 |
| | 287 |
| | 1,798 |
| | 25,925 |
| | — |
| | — |
| | — |
| | — |
| | 25,925 |
|
| Total commercial (C&I) | | 19,967,302 |
| | 7,442 |
| | 2,035 |
| | 19,976,779 |
| | 36,564 |
| | 14,385 |
| | 23,363 |
| | 74,312 |
| | 20,051,091 |
|
| Commercial real estate: | | | | | | | | | | | | | | | | | | |
| Income CRE | | 4,242,044 |
| | 679 |
| | — |
| | 4,242,723 |
| | — |
| | 19 |
| | 1,340 |
| | 1,359 |
| | 4,244,082 |
|
| Residential CRE | | 87,487 |
| | 7 |
| | — |
| | 87,494 |
| | — |
| | 466 |
| | — |
| | 466 |
| | 87,960 |
|
| Purchased credit-impaired loans | | 4,752 |
| | 128 |
| | 95 |
| | 4,975 |
| | — |
| | — |
| | — |
| | — |
| | 4,975 |
|
| Total commercial real estate | | 4,334,283 |
| | 814 |
| | 95 |
| | 4,335,192 |
| | — |
| | 485 |
| | 1,340 |
| | 1,825 |
| | 4,337,017 |
|
| Consumer real estate: | | | | | | | | | | | | | | | | | | |
| HELOC | | 1,217,344 |
| | 9,156 |
| | 5,669 |
| | 1,232,169 |
| | 43,007 |
| | 4,227 |
| | 7,472 |
| | 54,706 |
| | 1,286,875 |
|
| R/E installment loans | | 4,662,783 |
| | 10,580 |
| | 5,138 |
| | 4,678,501 |
| | 13,001 |
| | 1,005 |
| | 2,601 |
| | 16,607 |
| | 4,695,108 |
|
| Purchased credit-impaired loans | | 18,720 |
| | 2,770 |
| | 3,276 |
| | 24,766 |
| | — |
| | — |
| | — |
| | — |
| | 24,766 |
|
| Total consumer real estate | | 5,898,847 |
| | 22,506 |
| | 14,083 |
| | 5,935,436 |
| | 56,008 |
| | 5,232 |
| | 10,073 |
| | 71,313 |
| | 6,006,749 |
|
| Permanent mortgage | | 149,663 |
| | 2,314 |
| | 4,032 |
| | 156,009 |
| | 7,709 |
| | 71 |
| | 6,601 |
| | 14,381 |
| | 170,390 |
|
| Credit card & other: | | | | | | | | | | | | | | | | | | |
| Credit card | | 198,917 |
| | 1,076 |
| | 1,178 |
| | 201,171 |
| | — |
| | — |
| | — |
| | — |
| | 201,171 |
|
| Other | | 291,700 |
| | 1,802 |
| | 337 |
| | 293,839 |
| | 101 |
| | 44 |
| | 189 |
| | 334 |
| | 294,173 |
|
| Purchased credit-impaired loans | | 323 |
| | 98 |
| | 99 |
| | 520 |
| | — |
| | — |
| | — |
| | — |
| | 520 |
|
| Total credit card & other | | 490,940 |
| | 2,976 |
| | 1,614 |
| | 495,530 |
| | 101 |
| | 44 |
| | 189 |
| | 334 |
| | 495,864 |
|
| Total loans, net of unearned income | | $ | 30,841,035 |
| | $ | 36,052 |
| | $ | 21,859 |
| | $ | 30,898,946 |
| | $ | 100,382 |
| | $ | 20,217 |
| | $ | 41,566 |
| | $ | 162,165 |
| | $ | 31,061,111 |
|
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 4—LOANS & LEASES | |
ACCRUING & NON-ACCRUING LOANS & LEASES AT YE 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | | Accruing | | Non-Accruing | | |
| (Dollars in millions) | | Current | | 30-89
Days
Past Due | | 90+
Days
Past Due | | Total
Accruing | | Current | | 30-89
Days
Past Due | | 90+
Days
Past Due | | Total
Non-
Accruing | | Total
Loans |
| Commercial, financial, and industrial: | | | | | | | | | | | | | | | | | | |
| C&I (a) | | $ | 27,541 | | | $ | 15 | | | $ | — | | | $ | 27,556 | | | $ | 88 | | | $ | 12 | | | $ | 44 | | | $ | 144 | | | $ | 27,700 | |
| Loans to mortgage companies | | 5,404 | | | — | | | — | | | 5,404 | | | — | | | — | | | — | | | — | | | 5,404 | |
| Total commercial, financial, and industrial | | 32,945 | | | 15 | | | — | | | 32,960 | | | 88 | | | 12 | | | 44 | | | 144 | | | 33,104 | |
| Commercial real estate: | | | | | | | | | | | | | | | | | | |
| CRE (b) | | 12,194 | | | 23 | | | — | | | 12,217 | | | 10 | | | 42 | | | 6 | | | 58 | | | 12,275 | |
| Consumer real estate: | | | | | | | | | | | | | | | | | | |
| HELOC | | 2,336 | | | 13 | | | 11 | | | 2,360 | | | 43 | | | 3 | | | 14 | | | 60 | | | 2,420 | |
| Real estate installment loans | | 9,138 | | | 40 | | | 5 | | | 9,183 | | | 63 | | | 9 | | | 50 | | | 122 | | | 9,305 | |
| Total consumer real estate | | 11,474 | | | 53 | | | 16 | | | 11,543 | | | 106 | | | 12 | | | 64 | | | 182 | | | 11,725 | |
| Credit card and other: | | | | | | | | | | | | | | | | | | |
| Credit card | | 279 | | | 3 | | | 1 | | | 283 | | | — | | | — | | | — | | | — | | | 283 | |
| Other | | 838 | | | 6 | | | — | | | 844 | | | 1 | | | — | | | 1 | | | 2 | | | 845 | |
| Total credit card and other | | 1,117 | | | 9 | | | 1 | | | 1,127 | | | 1 | | | — | | | 1 | | | 2 | | | 1,128 | |
| Total loans and leases | | $ | 57,730 | | | $ | 100 | | | $ | 17 | | | $ | 57,847 | | | $ | 205 | | | $ | 66 | | | $ | 115 | | | $ | 386 | | | $ | 58,232 | |
| | | | | | | | | | | | | | | | | | |
(a) TRUPS$101 million of C&I loans are nonaccrual loans that have been specifically reviewed for impairment with no related allowance.
Collateral-Dependent Loans
Collateral-dependent loans are defined as loans for which repayment is presented netexpected to be derived substantially through the operation or sale of the valuation allowancecollateral and where the borrower is experiencing financial difficulty. At a minimum, the estimated value of $19.1 million.the collateral for each loan equals the current book value.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 151
Note 4 – Loans (Continued)
The following table reflects accruing and non-accruing loans by class on December 31, 2018:2021 and 2020, FHN had commercial loans with amortized cost of approximately $120 million and $167 million, respectively, that were based on the value of underlying collateral. Collateral-dependent C&I and CRE loans totaled $115 million and $5 million, respectively, at December 31, 2021. The collateral for these loans generally consists of business assets including land, buildings, equipment and financial assets. During the years ended December 31, 2021 and 2020, FHN recognized total charge-offs of approximately $26 million and $36 million, respectively, on these loans related to reductions in estimated collateral values.
Consumer HELOC and installment loans with amortized cost based on the value of underlying real estate collateral were approximately $7 million and $20 million, respectively, as of December 31, 2021, and $9 million and $26 million, respectively, as of December 31, 2020. Charge-offs on collateral-dependent consumer loans were $1 million during the year ended December 31, 2021, and
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Accruing | | Non-Accruing | | |
| (Dollars in thousands) | | Current | | 30-89 Days Past Due | | 90+ Days Past Due | | Total Accruing | | Current | | 30-89 Days Past Due | | 90+ Days Past Due | | Total Non- Accruing | | Total Loans |
| Commercial (C&I): | | | | | | | | | | | | | | | | | | |
| General C&I | | $ | 14,153,275 |
| | $ | 8,234 |
| | $ | 102 |
| | $ | 14,161,611 |
| | $ | 26,325 |
| | $ | 5,537 |
| | $ | 5,026 |
| | $ | 36,888 |
| | $ | 14,198,499 |
|
| Loans to mortgage companies | | 2,023,746 |
| | — |
| | — |
| | 2,023,746 |
| | — |
| | — |
| | — |
| | — |
| | 2,023,746 |
|
| TRUPS (a) | | 247,465 |
| | — |
| | — |
| | 247,465 |
| | — |
| | — |
| | 2,888 |
| | 2,888 |
| | 250,353 |
|
| Purchased credit-impaired loans | | 39,433 |
| | 624 |
| | 1,673 |
| | 41,730 |
| | — |
| | — |
| | — |
| | — |
| | 41,730 |
|
| Total commercial (C&I) | | 16,463,919 |
| | 8,858 |
| | 1,775 |
| | 16,474,552 |
| | 26,325 |
| | 5,537 |
| | 7,914 |
| | 39,776 |
| | 16,514,328 |
|
| Commercial real estate: | | | | | | | | | | | | | | | | | | |
| Income CRE | | 3,876,229 |
| | 626 |
| | — |
| | 3,876,855 |
| | 30 |
| | — |
| | 2,929 |
| | 2,959 |
| | 3,879,814 |
|
| Residential CRE | | 135,861 |
| | — |
| | — |
| | 135,861 |
| | 32 |
| | — |
| | — |
| | 32 |
| | 135,893 |
|
| Purchased credit-impaired loans | | 13,308 |
| | 103 |
| | 1,752 |
| | 15,163 |
| | — |
| | — |
| | — |
| | — |
| | 15,163 |
|
| Total commercial real estate | | 4,025,398 |
| | 729 |
| | 1,752 |
| | 4,027,879 |
| | 62 |
| | — |
| | 2,929 |
| | 2,991 |
| | 4,030,870 |
|
| Consumer real estate: | | | | | | | | | | | | | | | | | | |
| HELOC | | 1,443,651 |
| | 11,653 |
| | 10,129 |
| | 1,465,433 |
| | 49,009 |
| | 3,314 |
| | 8,781 |
| | 61,104 |
| | 1,526,537 |
|
| R/E installment loans | | 4,652,658 |
| | 10,470 |
| | 6,497 |
| | 4,669,625 |
| | 15,146 |
| | 1,924 |
| | 4,474 |
| | 21,544 |
| | 4,691,169 |
|
| Purchased credit-impaired loans | | 24,096 |
| | 2,094 |
| | 5,620 |
| | 31,810 |
| | — |
| | — |
| | — |
| | — |
| | 31,810 |
|
| Total consumer real estate | | 6,120,405 |
| | 24,217 |
| | 22,246 |
| | 6,166,868 |
| | 64,155 |
| | 5,238 |
| | 13,255 |
| | 82,648 |
| | 6,249,516 |
|
| Permanent mortgage | | 193,591 |
| | 2,585 |
| | 4,562 |
| | 200,738 |
| | 11,227 |
| | 996 |
| | 9,487 |
| | 21,710 |
| | 222,448 |
|
| Credit card & other: | | | | | | | | | | | | | | | | | | |
| Credit card | | 188,009 |
| | 2,133 |
| | 1,203 |
| | 191,345 |
| | — |
| | — |
| | — |
| | — |
| | 191,345 |
|
| Other | | 320,551 |
| | 3,570 |
| | 526 |
| | 324,647 |
| | 110 |
| | 60 |
| | 454 |
| | 624 |
| | 325,271 |
|
| Purchased credit-impaired loans | | 746 |
| | 611 |
| | 397 |
| | 1,754 |
| | — |
| | — |
| | — |
| | — |
| | 1,754 |
|
| Total credit card & other | | 509,306 |
| | 6,314 |
| | 2,126 |
| | 517,746 |
| | 110 |
| | 60 |
| | 454 |
| | 624 |
| | 518,370 |
|
| Total loans, net of unearned income | | $ | 27,312,619 |
| | $ | 42,703 |
| | $ | 32,461 |
| | $ | 27,387,783 |
| | $ | 101,879 |
| | $ | 11,831 |
| | $ | 34,039 |
| | $ | 147,749 |
| | $ | 27,535,532 |
|
(a) TRUPS is presented net ofwere not significant during the valuation allowance of $20.2 million.year ended December 31, 2020.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 152
Note 4 – Loans (Continued)
Troubled Debt Restructurings
As part of FHN’s ongoing risk management practices, FHN attempts to work with borrowers when necessary to extend or modify loan terms to better align with their current ability to repay. Extensions and modifications to loans are made in accordance with internal policies and guidelines which conform to regulatory guidance. Each occurrence is unique to the borrower and is evaluated separately.
A modification is classified as a TDR if the borrower is experiencing financial difficulty and it is determined that FHN has granted a concession to the borrower. FHN may determine that a borrower is experiencing financial difficulty if the borrower is currently in default on any of its debt, or if it is probable that a borrower may default in the foreseeable future. Many aspects of a borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty. Concessions could include extension of the maturity date, reductions of the interest rate (which may make the rate lower than current market for a new loan with similar risk), reduction or forgiveness of accrued interest, or principal forgiveness. The assessments of whether a borrower is experiencing (or is likely to experience)
| | | | | | | | |
| 144 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 4—LOANS & LEASES | |
financial difficulty, and whether a concession has been granted, are subjective in nature and management’s judgment is required when determining whether a modification is classified as a TDR. In accordance with regulatory guidance, loans were not accounted for as TDRs and have been excluded from the disclosures below. For loan modifications that were made during the years ended December 31, 2021 and 2020 that met the TDR relief provisions outlined in either the CARES Act, as extended by the CAA, or revised Interagency Guidance, FHN has excluded these modifications from consideration as TDRs, and has excluded loans with these qualifying modifications from designation as a TDR in the information and discussion that follows. See Note 1 - Significant Accounting Policies for further discussion regarding TDRs and loan modifications.
For all classes within the commercial portfolio segment, TDRs are typically modified through forbearance agreements (generally 6 to 12 months). Forbearance agreements could include reduced interest rates, reduced payments, release of guarantor, or entering into short sale agreements.
FHN’s proprietary modification programs for consumer loans are generally structured using parameters of U.S. government-sponsored programs such as the former Home Affordable Modification Program (“HAMP”).Program. Within the HELOC and R/Ereal estate installment loans classes of the consumer portfolio segment, TDRs are typically modified by reducing the interest rate (in increments of 25 basis points to a minimum of 1 percent1% 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 percent2% per year until the original
interest rate prior to modification is achieved. Permanent mortgageMortgage TDRs are typically modified by reducing the interest rate (in increments of 25 basis points to a minimum of 2 percent2% 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 percent1% every year until it reaches the Federal Home Loan Mortgage Corporation Weekly Survey Rate cap. Contractual maturities may be extended to 40 years on permanent mortgages and to 30 years for consumer real estate loans.
Within the credit card class of the consumer portfolio segment, TDRs are typically modified through either a short-term credit card hardship program or a longer-term credit card workout program. In the credit card hardship program, borrowers may be granted rate and payment reductions for 6 months to 1 year. In the credit card workout program, customersclients are granted a rate reduction to 0 percent0% and term extensions for up to 5 years to pay off the remaining balance.
Despite the absence of a loan modification, the discharge of personal liability through bankruptcy proceedings is considered a concession. As a result, FHN classifies all non-reaffirmed residential real estate loans discharged in Chapter 7 bankruptcy as nonaccruing TDRs.
On December 31, 20192021 and 2018,2020, FHN had $206.3$206 million and $228.2$307 million of portfolio loans classified as TDRs, respectively. For TDRs in the loan portfolio, FHN had loan loss reservesAdditionally, $35 million and $42 million of $19.7 million, or 10 percentloans held for sale as of December 31, 2019,2021 and $27.7 million, or 12 percent as of December 31, 2018. Additionally, $51.1 million and $57.8 million of loans held-for-sale as of December 31, 2019 and 2018,2020, respectively, were classified as TDRs.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 153
Note 4 – Loans (Continued)
LOANS MODIFIED IN A TDR
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | 2020 |
| (Dollars in millions) | | Number | | Pre-Modification
Outstanding
Recorded Investment | | Post-Modification
Outstanding
Recorded Investment | | Number | | Pre-Modification
Outstanding
Recorded Investment | | Post-Modification
Outstanding
Recorded Investment |
| | | | | | | | | | | | |
| C&I | | 32 | | | $ | 37 | | | $ | 34 | | | 112 | | | $ | 195 | | | $ | 188 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| CRE | | 1 | | | 12 | | | 10 | | | 19 | | | 15 | | | 15 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| HELOC | | 25 | | | 3 | | | 3 | | | 64 | | | 5 | | | 5 | |
| Real estate installment loans | | 87 | | | 14 | | | 14 | | | 117 | | | 20 | | | 19 | |
| | | | | | | | | | | | |
| Credit card and other | | 51 | | | — | | | — | | | 56 | | | 1 | | | 1 | |
| Total TDRs | | 196 | | | $ | 66 | | | $ | 61 | | | 368 | | | $ | 236 | | | $ | 228 | |
| | | | | | | | | | | | |
The following tables reflect portfolio loans that were classified as TDRs during the year ended December 31, 2019 and 2018:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | 2019 | | 2018 |
| (Dollars in thousands) | | Number | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment | | Number | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment |
| Commercial (C&I): | | | | | | | | | | | | |
| General C&I | | 4 |
| | $ | 14,179 |
| | $ | 14,101 |
| | 9 |
| | $ | 27,639 |
| | $ | 27,190 |
|
| Total commercial (C&I) | | 4 |
| | 14,179 |
| | 14,101 |
| | 9 |
| | 27,639 |
| | 27,190 |
|
| Commercial real estate: | | | | | | | | | | | | |
| Income CRE | | — |
| | — |
| | — |
| | 4 |
| | 643 |
| | 637 |
|
| Total commercial real estate | | — |
| | — |
| | — |
| | 4 |
| | 643 |
| | 637 |
|
| Consumer real estate: | | | | | | | | | | | | |
| HELOC | | 74 |
| | 8,028 |
| | 7,946 |
| | 103 |
| | 9,406 |
| | 9,283 |
|
| R/E installment loans | | 96 |
| | 10,408 |
| | 10,445 |
| | 92 |
| | 8,077 |
| | 7,848 |
|
| Total consumer real estate | | 170 |
| | 18,436 |
| | 18,391 |
| | 195 |
| | 17,483 |
| | 17,131 |
|
| Permanent mortgage | | 8 |
| | 1,771 |
| | 1,798 |
| | 8 |
| | 1,001 |
| | 1,184 |
|
| Credit card & other | | 85 |
| | 379 |
| | 358 |
| | 132 |
| | 604 |
| | 570 |
|
| Total troubled debt restructurings | | 267 |
| | $ | 34,765 |
| | $ | 34,648 |
| | 348 |
| | $ | 47,370 |
| | $ | 46,712 |
|
| | | | | | | | | | | | | |
The following tables presenttable presents TDRs which re-defaulted during 20192021 and 2018,2020, and as to which the modification occurred 12 months or less prior to the re-default. For purposes of this disclosure, FHN generally defines payment default as 30 or more days past due.
|
| | | | | | | | | | | | | | |
| | | 2019 | | 2018 |
| (Dollars in thousands) | | Number | | Recorded Investment | | Number | | Recorded Investment |
| Commercial (C&I): | | | | | | | | |
| General C&I | | — |
| | $ | — |
| | 2 |
| | $ | 579 |
|
| Total commercial (C&I) | | — |
| | — |
| | 2 |
| | 579 |
|
| Consumer real estate: | | | | | | | | |
| HELOC | | 7 |
| | 1,141 |
| | 6 |
| | 239 |
|
| R/E installment loans | | 3 |
| | 98 |
| | 2 |
| | 146 |
|
| Total consumer real estate | | 10 |
| | 1,239 |
| | 8 |
| | 385 |
|
| Permanent mortgage | | 1 |
| | 7 |
| | 6 |
| | 749 |
|
| Credit card & other | | 32 |
| | 115 |
| | 49 |
| | 239 |
|
| Total troubled debt restructurings | | 43 |
| | $ | 1,361 |
| | 65 |
| | $ | 1,952 |
|
| | | | | | | | | |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 154 | | | | | | | | |
| 145 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 4—LOANS & LEASES | |
LOANS MODIFIED IN A TDR THAT RE-DEFAULTED
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | 2020 |
| (Dollars in millions) | | Number | | Recorded
Investment | | Number | | Recorded
Investment |
| | | | | | | | |
| C&I | | 18 | | | $ | 5 | | | 9 | | | $ | 1 | |
| | | | | | | | |
| | | | | | | | |
| CRE | | 6 | | | 19 | | | — | | | — | |
| | | | | | | | |
| | | | | | | | |
| HELOC | | 1 | | | — | | | 8 | | | — | |
| Real estate installment loans | | 9 | | | 5 | | | 18 | | | 1 | |
| | | | | | | | |
| Credit card and other | | 4 | | | — | | | 24 | | | — | |
| Total TDRs | | 38 | | | $ | 29 | | | 59 | | | $ | 2 | |
| | | | | | | | |
Note 5 – 5—Allowance for LoanCredit Losses
As discussedManagement's estimate of expected credit losses in the loan and lease portfolios is recorded in the ALLL and the reserve for unfunded lending commitments, collectively the ACL. See Note 1 - Summary of Significant Accounting Polices,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 ALLL includescontractual life of the following components: reservesloan and lease portfolio and unfunded lending commitments. The determination of the ACL is based on periodic evaluation of the loan and lease portfolios and unfunded lending commitments considering a number of relevant underling factors, including key assumptions and evaluation of quantitative and qualitative information.
The expected loan losses are the product of multiplying FHN’s estimates of probability of default (PD), loss given default (LGD), and individual loan level exposure as default (EAD), including amortization and prepayment assumptions, on an undiscounted basis. FHN uses models or assumptions to develop the expected loss forecasts, which incorporate multiple macroeconomic forecasts over a four year reasonable and supportable forecast period. After the reasonable and supportable forecast period, the Company immediately reverts to its historical loss averages, evaluated over the historical observation period, for the remaining estimated life of the loans. In order to capture the unique risks of the loan portfolio within the PD, LGD, and prepayment models, FHN segments the portfolio into pools, generally incorporating loan grades for commercial loans evaluated based on pools of credit graded loans and reserves for pools of smaller-balance homogeneous consumer loans, both determined in accordance with ASC 450-20-50, and to a lesser extent, reserves determined in accordance with ASC 310-10-35 for loans determined by management toloans. As there can be individually impaired and an allowance associated with PCI loans.
For commercial loans, ASC 450-20-50 reserves are established using historical net loss factors by grade level, loan product, and business segment. The ALLL for smaller-balance homogeneous consumer loans is determined based on pools of similar loan typesno certainty that have similar credit risk characteristics. ASC 450-20-50 reserves for the consumer portfolio are determined using segmented roll-rate models that incorporate various factors including historical delinquency trends, experienced loss frequencies, and experienced loss severities. Generally, reserves for consumer loans reflect inherent losses in the portfolio that are expected to be recognized over the following twelve months. The historical net loss factors for both commercial and consumer ASC 450-20-50 reserve models are subject toactual economic performance will precisely follow any specific macroeconomic forecast, FHN uses qualitative adjustments by management to reflectadjust historical loss information in situations where current events, trends, and conditions (including economic considerations and trends), which are not fully capturedloan characteristics differ from those in the historical net loss information and for differences in economic conditions and other factors.
The paceevaluation of quantitative and qualitative information is performed through assessments of groups of assets that share similar risk characteristics and certain individual loans and leases that do not share similar risk
characteristics with the collective group. As described in Note 4 - Loans and Leases, loans are grouped generally by product type and significant loan portfolios are assessed for credit losses using analytical or statistical models. The quantitative evaluation of the economic recovery, performanceadequacy of the housing market, unemployment levels, labor participation rate, the regulatory environment, regulatory guidance,ACL utilizes a weighting approach for multiple economic forecast scenarios as its foundation, and portfolio segment-specific trends, are examples of additional factors considered by management in determining the ALLL. Additionally, management considers the inherent uncertainty of quantitativeis primarily based on analytical models that are driven by historical loss data. Management evaluates the periods of historical losses that are the basis for the loss rates used in the quantitative models and selects historical loss periods that are believed to be the most reflective of losses inherent in the loan portfoliouse known or estimated data as of the balance sheet date. Managementdate and forecasted data over the reasonable and supportable period. The ACL may also periodically reviewsbe affected by a variety of qualitative factors that FHN considers to reflect current judgment of various events and risks that are not measured in the quantitative calculations.
In accordance with its accounting policy elections, FHN does not recognize a separate allowance for expected credit losses for AIR and records reversals of AIR as reductions of interest income. FHN reverses previously accrued but uncollected interest when an analysisasset is placed on nonaccrual status. As of December 31, 2021 and 2020, FHN recognized approximately $1 million in allowance for expected credit losses on COVID-19 deferrals that do not qualify for the loss emergence periodelection which is not reflected in the table below. AIR and the related allowance for expected credit losses is included as a component of other assets. The total amount of interest reversals from loans placed on nonaccrual status and the amount of time it takesincome recognized on nonaccrual loans during the year ended December 31, 2021 were not material.
Expected credit losses for aunfunded commitments are estimated for periods where the commitment is not unconditionally cancellable. The measurement of expected credit losses for unfunded commitments mirrors that of loans and leases with the additional estimate of future draw rates (timing and amount).
The decrease in the ACL as of December 31, 2021 as compared to December 31, 2020 reflects an improvement in the macroeconomic outlook, positive grade migration, and lower loan balances, which was offset slightly by higher C&I loan balances excluding PPP loans.
| | | | | | | | |
| 146 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 5—ALLOWANCE FOR CREDIT LOSSES | |
In developing credit loss estimates for its loan and lease portfolios, FHN utilized multiple Moody’s forecast scenarios for its macroeconomic inputs. Each scenario included assumptions around the COVID-19 pandemic and its impact on various sections of the economy. The heaviest weight was placed on the baseline forecast, which assumed positive real GDP growth over the forecast horizon and return to be confirmed (initial charge-off) after a loss event has occurred.full employment by year-end 2022.
During the years ended December 31, 2021 and 2020, FHN performs extensive studies as it relatesalso considered stressed loan portfolios or industries that are most exposed to the effects of the COVID-19
pandemic and added qualitative adjustments, where needed, to account for the risks not captured in modeled results. Management also made qualitative adjustments to reflect estimated recoveries based on a review of prior charge off and recovery levels, for default risk associated with large balances with individual borrowers, for estimated loss amounts not reflected in historical loss periods used in the modelfactors due to specific portfolio risk, and the loss emergence period and model assumptions are adjusted accordingly.
Impairment related to individually impairedfor instances where limited data for acquired loans is measured in accordance with ASC 310-10. For all commercial portfolio segments, commercial TDRs and other individually impaired commercial loans are measured based on the present value of expected future payments discounted at the loan’s effective interest rate (“the DCF method”), observable market prices, or for loans that are solely dependent on the collateral for repayment, the net realizable value (collateral value less estimated costsconsidered to sell). Impaired loans also include consumer TDRs. Generally, the allowance for TDRs in all consumer portfolio segments is determined by estimating the expected future cash flows using the modified interest rate (if an interest rate concession), incorporating payoff and net charge-off rates specific to the TDRs within the portfolio segment being assessed, and discounted using the pre-modification interest rate. The discount rates of variable rate TDRs are adjusted to reflect changes in the interest rate index to which the rates are tied. The discounted cash flows are then compared to the outstanding principal balance in order to determine required reserves. Residential real estate loans discharged through bankruptcy are collateral-dependent and are charged down to net realizable value (collateral value less estimated costs to sell).affect modeled results.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 155
| | | | | | | | |
| 147 | 2021 FORM 10-K ANNUAL REPORT |
Note 5 – Allowance for Loan Losses (Continued)
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 5—ALLOWANCE FOR CREDIT LOSSES | |
The following table provides a rollforward of the allowance for loan and lease losses and the reserve for unfunded lending commitments by portfolio segmenttype for December 31, 2019, 20182021, 2020 and 2017:2019:
Table 8.5.1
ROLLFORWARD OF ALLL & RESERVE FOR UNFUNDED LENDING COMMITMENTS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | Commercial, Financial, and Industrial (a) | | Commercial
Real Estate | | Consumer
Real Estate | | Credit Card
and Other | | Total |
| Allowance for loan and lease losses: | | | | | | | | | | |
| Balance as of January 1, 2021 | | $ | 453 | | | $ | 242 | | | $ | 242 | | | $ | 26 | | | $ | 963 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Charge-offs | | (34) | | | (5) | | | (5) | | | (15) | | | (59) | |
| Recoveries | | 21 | | | 5 | | | 27 | | | 4 | | | 57 | |
| | | | | | | | | | |
| Provision for loan and lease losses | | (106) | | | (88) | | | (101) | | | 4 | | | (291) | |
| Balance as of December 31, 2021 | | 334 | | | 154 | | | 163 | | | 19 | | | 670 | |
| | | | | | | | | | |
| Reserve for remaining unfunded commitments: | | | | | | | | | | |
| Balance as of January 1, 2021 | | 65 | | | 10 | | | 10 | | | — | | | 85 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Provision for unfunded lending commitments | | (19) | | | 2 | | | (2) | | | — | | | (19) | |
| Balance as of December 31, 2021 | | 46 | | | 12 | | | 8 | | | — | | | 66 | |
| | | | | | | | | | |
| Allowance for credit losses as of December 31, 2021 | | $ | 380 | | | $ | 166 | | | $ | 171 | | | $ | 19 | | | $ | 736 | |
| | | | | | | | | | |
| Allowance for loan and lease losses: | | | | | | | | | | |
| Balance as of January 1, 2020 | | $ | 123 | | | $ | 36 | | | $ | 28 | | | $ | 13 | | | $ | 200 | |
| Adoption of ASU 2016-13 | | 19 | | | (7) | | | 93 | | | 2 | | | 107 | |
| Balance as of January 1, 2020, as adjusted | | 142 | | | 29 | | | 121 | | | 15 | | | 307 | |
| | | | | | | | | | |
| Charge-offs (b) | | (129) | | | (5) | | | (8) | | | (14) | | | (156) | |
| Recoveries | | 9 | | | 4 | | | 18 | | | 5 | | | 36 | |
| Initial allowance on loans purchased with credit deterioration (b) | | 138 | | | 100 | | | 44 | | | 5 | | | 287 | |
| Provision for loan and lease losses (c) | | 293 | | | 114 | | | 67 | | | 15 | | | 489 | |
| Balance as of December 31, 2020 | | 453 | | | 242 | | | 242 | | | 26 | | | 963 | |
| | | | | | | | | | |
| Reserve for remaining unfunded commitments: | | | | | | | | | | |
| Balance as of January 1, 2020 | | 4 | | | 2 | | | — | | | — | | | 6 | |
| Adoption of ASU 2016-13 | | 17 | | | 1 | | | 6 | | | — | | | 24 | |
| Balance as of January 1, 2020, as adjusted | | 21 | | | 3 | | | 6 | | | — | | | 30 | |
| Initial reserve on loans acquired | | 12 | | | 26 | | | 3 | | | — | | | 41 | |
| Provision for unfunded lending commitments | | 32 | | | (19) | | | 1 | | | — | | | 14 | |
| Balance as of December 31, 2020 | | 65 | | | 10 | | | 10 | | | — | | | 85 | |
| | | | | | | | | | |
| Allowance for credit losses as of December 31, 2020 | | $ | 518 | | | $ | 252 | | | $ | 252 | | | $ | 26 | | | $ | 1,048 | |
| | | | | | | | | | |
| Allowance for loan losses | | | | | | | | | | |
| Balance as of January 1, 2019 | | $ | 99 | | | $ | 31 | | | $ | 37 | | | $ | 13 | | | $ | 180 | |
| Charge-offs | | (34) | | | (1) | | | (8) | | | (16) | | | (59) | |
| Recoveries | | 7 | | | 1 | | | 20 | | | 4 | | | 32 | |
| Provision for loan losses | | 51 | | | 5 | | | (21) | | | 12 | | | 47 | |
| Balance as of December 31, 2019 | | 123 | | | 36 | | | 28 | | | 13 | | | 200 | |
| | | | | | | | | | |
| Reserve for remaining unfunded commitments: | | | | | | | | | | |
| Balance as of January 1, 2019 | | 4 | | | 3 | | | — | | | — | | | 7 | |
| Provision for unfunded lending commitments | | — | | | (1) | | | — | | | — | | | (1) | |
| Balance as of December 31, 2019 | | 4 | | | 2 | | | — | | | — | | | 6 | |
| | | | | | | | | | |
| Allowance for credit losses as of December 31, 2019 | | $ | 127 | | | $ | 38 | | | $ | 28 | | | $ | 13 | | | $ | 206 | |
| | | | | | | | | | |
(a) C&I loans as of December 31, 2021 and 2020 include $1.0 billion and $4.1 billion in PPP loans which due to the government guarantee and forgiveness provisions are considered to have no credit risk and therefore have no allowance for loan and lease losses.
(b) The year ended December 31, 2020 excludes day 1 charge-offs and the related initial allowance on PCD loans is net of these amounts. Under ASC 326, the initial ALLL recognized on PCD assets included an additional $237 million for charged-off loans that had been written off prior to acquisition (whether full or partial) or which met FHN's charge-off policy at the time of acquisition. After charging these amounts off immediately upon acquisition, the net impact was $287 million of additional ALLL for PCD loans.
(c) Provision for loan and lease losses for the year ended December 31, 2020 includes $147 million recognized on non-PCD loans from the IBKC merger and Truist branch acquisition.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | C&I (a) | | Commercial Real Estate (a) | | Consumer Real Estate | | Permanent Mortgage | | Credit Card and Other | | Total |
| Balance as of January 1, 2019 | | $ | 98,947 |
| | $ | 31,311 |
| | $ | 26,439 |
| | $ | 11,000 |
| | $ | 12,727 |
| | $ | 180,424 |
|
| Charge-offs | | (33,778 | ) | | (1,181 | ) | | (7,781 | ) | | (393 | ) | | (15,600 | ) | | (58,733 | ) |
| Recoveries | | 6,744 |
| | 489 |
| | 17,000 |
| | 3,148 |
| | 4,235 |
| | 31,616 |
|
| Provision/(provision credit) for loan losses | | 50,573 |
| | 5,493 |
| | (16,034 | ) | | (4,936 | ) | | 11,904 |
| | 47,000 |
|
| Balance as of December 31, 2019 | | 122,486 |
| | 36,112 |
| | 19,624 |
| | 8,819 |
| | 13,266 |
| | 200,307 |
|
| Allowance - individually evaluated for impairment | | 6,196 |
| | — |
| | 11,537 |
| | 7,761 |
| | 422 |
| | 25,916 |
|
| Allowance - collectively evaluated for impairment | | 115,442 |
| | 36,112 |
| | 7,001 |
| | 1,058 |
| | 12,813 |
| | 172,426 |
|
| Allowance - purchased credit-impaired loans | | 848 |
| | — |
| | 1,086 |
| | — |
| | 31 |
| | 1,965 |
|
| Loans, net of unearned as of December 31, 2019: | | | | | | | | | | | | |
Individually evaluated for impairment | | 82,438 |
| | 1,563 |
| | 100,653 |
| | 61,593 |
| | 653 |
| | 246,900 |
|
Collectively evaluated for impairment | | 19,942,728 |
| | 4,330,479 |
| | 5,881,330 |
| | 108,797 |
| | 494,691 |
| | 30,758,025 |
|
Purchased credit-impaired loans | | 25,925 |
| | 4,975 |
| | 24,766 |
| | — |
| | 520 |
| | 56,186 |
|
| Total loans, net of unearned income | | $ | 20,051,091 |
| | $ | 4,337,017 |
| | $ | 6,006,749 |
| | $ | 170,390 |
| | $ | 495,864 |
| | $ | 31,061,111 |
|
| Balance as of January 1, 2018 | | $ | 98,211 |
| | $ | 28,427 |
| | $ | 39,823 |
| | $ | 13,113 |
| | $ | 9,981 |
| | $ | 189,555 |
|
| Charge-offs | | (15,492 | ) | | (783 | ) | | (9,357 | ) | | (477 | ) | | (19,688 | ) | | (45,797 | ) |
| Recoveries | | 4,201 |
| | 339 |
| | 19,666 |
| | 1,421 |
| | 4,039 |
| | 29,666 |
|
| Provision/(provision credit) for loan losses | | 12,027 |
| | 3,328 |
| | (23,693 | ) | | (3,057 | ) | | 18,395 |
| | 7,000 |
|
| Balance as of December 31, 2018 | | 98,947 |
| | 31,311 |
| | 26,439 |
| | 11,000 |
| | 12,727 |
| | 180,424 |
|
Allowance - individually evaluated for impairment | | 1,074 |
| | — |
| | 17,984 |
| | 9,419 |
| | 337 |
| | 28,814 |
|
Allowance - collectively evaluated for impairment | | 95,050 |
| | 31,311 |
| | 7,368 |
| | 1,581 |
| | 12,263 |
| | 147,573 |
|
| Allowance - purchased credit-impaired loans | | 2,823 |
| | — |
| | 1,087 |
| | — |
| | 127 |
| | 4,037 |
|
| Loans, net of unearned as of December 31, 2018: | | | | | | | | | | | | |
| Individually evaluated for impairment | | 48,592 |
| | 1,966 |
| | 118,434 |
| | 70,846 |
| | 695 |
| | 240,533 |
|
| Collectively evaluated for impairment | | 16,424,006 |
| | 4,013,741 |
| | 6,099,272 |
| | 151,602 |
| | 515,921 |
| | 27,204,542 |
|
| Purchased credit-impaired loans | | 41,730 |
| | 15,163 |
| | 31,810 |
| | — |
| | 1,754 |
| | 90,457 |
|
| Total loans, net of unearned income | | $ | 16,514,328 |
| | $ | 4,030,870 |
| | $ | 6,249,516 |
| | $ | 222,448 |
| | $ | 518,370 |
| | $ | 27,535,532 |
|
| Balance as of January 1, 2017 | | $ | 89,398 |
| | $ | 33,852 |
| | $ | 51,424 |
| | $ | 15,222 |
| | $ | 12,172 |
| | $ | 202,068 |
|
| Charge-offs | | (17,657 | ) | | (195 | ) | | (13,156 | ) | | (2,179 | ) | | (13,207 | ) | | (46,394 | ) |
| Recoveries | | 4,568 |
| | 966 |
| | 22,723 |
| | 2,509 |
| | 3,115 |
| | 33,881 |
|
| Provision/(provision credit) for loan losses | | 21,902 |
| | (6,196 | ) | | (21,168 | ) | | (2,439 | ) | | 7,901 |
| | — |
|
| Balance as of December 31, 2017 | | 98,211 |
| | 28,427 |
| | 39,823 |
| | 13,113 |
| | 9,981 |
| | 189,555 |
|
Allowance - individually evaluated for impairment | | 6,044 |
| | 132 |
| | 23,175 |
| | 12,105 |
| | 311 |
| | 41,767 |
|
Allowance - collectively evaluated for impairment | | 89,358 |
| | 28,291 |
| | 16,293 |
| | 1,008 |
| | 9,670 |
| | 144,620 |
|
| Allowance - purchased credit-impaired loans | | 2,809 |
| | 4 |
| | 355 |
| | — |
| | — |
| | 3,168 |
|
| Loans, net of unearned as of December 31, 2017 | | | | | | | | | | | | |
| Individually evaluated for impairment | | 43,024 |
| | 2,407 |
| | 128,895 |
| | 84,794 |
| | 593 |
| | 259,713 |
|
| Collectively evaluated for impairment | | 15,909,110 |
| | 4,181,908 |
| | 6,311,817 |
| | 203,026 |
| | 613,806 |
| | 27,219,667 |
|
| Purchased credit-impaired loans | | 105,139 |
| | 30,380 |
| | 38,530 |
| | — |
| | 5,500 |
| | 179,549 |
|
| Total loans, net of unearned income | | $ | 16,057,273 |
| | $ | 4,214,695 |
| | $ | 6,479,242 |
| | $ | 287,820 |
| | $ | 619,899 |
| | $ | 27,658,929 |
|
| | | | | | | | | | | | | |
| | | | | | | | |
a) | In third quarter 2019, FHN corrected a previous mis-classification of commercial loans and reclassified approximately $410 million of market investor CRE loans from the C&I portfolio to the CRE portfolio. These loans were identified during an internal review and assessment by management of certain loan populations, a portion of which relate to loans acquired as part of the Capital Bank merger. The reclassification of these loan balances between regional banking portfolios did not have an impact on FHN’s consolidated period-end or average balance sheet and had an immaterial effect on the allowance for loan losses. No adjustments were made to prior periods as the impact of the reclassification, including the effect on the allowance for loan losses was deemed to be immaterial in all periods. 148 | 2021 FORM 10-K ANNUAL REPORT |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 156
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 6—PREMISES, EQUIPMENT, & LEASES | |
Note 6 – 6—Premises, Equipment, and Leases
Premises and equipment onwere comprised of the following at December 31, are summarized below:2021 and 2020:
|
| | | | | | | | |
| (Dollars in thousands) | | 2019 | | 2018 |
| Land | | $ | 98,804 |
| | $ | 107,864 |
|
| Buildings | | 428,695 |
| | 461,665 |
|
| Leasehold improvements | | 50,032 |
| | 30,230 |
|
| Furniture, fixtures, and equipment | | 205,493 |
| | 196,469 |
|
| Fixed assets held-for-sale (a) | | 9,719 |
| | 19,617 |
|
| Premises and equipment, at cost | | 792,743 |
| | 815,845 |
|
| Less accumulated depreciation and amortization | | 337,737 |
| | 321,804 |
|
| Premises and equipment, net | | $ | 455,006 |
| | $ | 494,041 |
|
| | | | | | | | | | | | | | |
| (Dollars in millions) | | December 31, 2021 | | December 31, 2020 |
| Land | | $ | 163 | | | $ | 182 | |
| Buildings | | 543 | | | 594 | |
| Leasehold improvements | | 74 | | | 73 | |
| Furniture, fixtures, and equipment | | 276 | | | 269 | |
| Fixed assets held for sale (a) | | 16 | | | 18 | |
| Total premises and equipment | | 1,072 | | | 1,136 | |
| Less accumulated depreciation and amortization | | (407) | | | (377) | |
| Premises and equipment, net | | $ | 665 | | | $ | 759 | |
| | | | |
(a) Primarily comprised of land and buildings.
In 20192021 and 2018,2020, FHN recognized $26.9$37 million and $3.9$12 million, respectively, of fixed asset impairments and lease abandonment charges related to branch closures which arewere included in All other expensesexpense on the Consolidated Statements of Income. In 2018, $1.52021, FHN had $6 million of impairment recoveries were recorded upon disposition of the associated properties. In 2019 and 2018, FHN had net gains of $2.3 million and $4.3 million, respectively, related to the sales of bank branches which arewas included in All other income and commissions on the Consolidated Statements of Income. Similar net gains in 2020 were not material.
FHN has operating, financing, and short-term leases for branch locations, corporate offices and certain equipment. Substantially all of these leases are classified as operating leases.
The following table provides a detaildetails of the classification of FHN's right-of-use ("ROU") assets and lease liabilities included in the Consolidated Statement of Conditions.Balance Sheets.
Table 8.6.2
RIGHT-OF-USE ASSETS & LEASE LIABILITIES
| | | | | | | | | | | | | | |
| (Dollars in millions) | | December 31, 2021 | | December 31, 2020 |
| Lease right-of-use assets: | Classification | | | |
| Operating lease right-of-use assets | Other assets | $ | 345 | | | $ | 367 | |
| Finance lease right-of-use assets | Other assets | 3 | | | 4 | |
| Total lease right-of-use assets | | $ | 348 | | | $ | 371 | |
| | | | |
| Lease liabilities: | | | | |
| Operating lease liabilities | Other liabilities | $ | 382 | | | $ | 407 | |
| Finance lease liabilities | Other liabilities | 4 | | | 4 | |
| Total lease liabilities | | $ | 386 | | | $ | 411 | |
| | | | |
|
| | | | |
| (Dollars in thousands) | | December 31, 2019 |
| Lease Right-of-Use Assets: | Classification | |
| Operating lease right-of use assets | Other assets | $ | 201,873 |
|
| Finance lease right-of use assets | Other assets | 2,037 |
|
| Total Lease Right-of Use Assets | | $ | 203,910 |
|
| | | |
| Lease Liabilities: | | |
| Operating lease liabilities | Other liabilities | $ | 223,128 |
|
| Finance lease liabilities | Other liabilities | 2,708 |
|
| Total Lease Liabilities | | $ | 225,836 |
|
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, 2019.2021 and 2020.
|
| | |
Weighted Average Remaining Lease Terms | |
Operating leases | 12.36 years |
|
Finance leases | 9.61 years |
|
Weighted Average Discount Rate | |
Operating leases | 3.24 | % |
Finance leases | 4.77 | % |
Table 8.6.3
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 157
Note 6 – Premises, Equipment, and Leases (Continued)
| | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 | | |
| Weighted Average Remaining Lease Terms | | | | | |
| Operating leases | 12.37 years | | 12.49 years | | |
| Finance leases | 10.61 years | | 11.45 years | | |
| Weighted Average Discount Rate | | | | | |
| Operating leases | 2.35 | % | | 2.39 | % | | |
| Finance leases | 2.85 | % | | 3.05 | % | | |
The following table provides a detail of the components of lease expense and other lease information for the yearyears ended December 31, 2021, 2020, and 2019:
|
| | | |
| (Dollars in thousands) | 2019 |
| Lease cost | |
| Operating lease cost | $ | 24,797 |
|
| Finance lease cost: | |
| Amortization of right-of-use assets | 114 |
|
| Interest on lease liabilities | 135 |
|
| Short-term lease cost | 98 |
|
| Sublease income | (366 | ) |
| Total lease cost | $ | 24,778 |
|
| | |
| Other information | |
| (Gain)/loss on right-of-use asset impairment-Operating leases | $ | 2,551 |
|
| | |
| Cash paid for amounts included in the measurement of lease liabilities: | |
| Operating cash flows from operating leases | 23,053 |
|
| Operating cash flows from finance leases | 135 |
|
| Financing cash flows from finance leases | 142 |
|
| | |
| Right-of-use assets obtained in exchange for new lease obligations: | |
| Operating leases | 47,735 |
|
| Finance leases | 1,475 |
|
| | | | | | | | |
| 149 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 6—PREMISES, EQUIPMENT, & LEASES | |
Table 8.6.4
LEASE EXPENSE &
OTHER INFORMATION
| | | | | | | | | | | | | | | | | |
| (Dollars in millions) | 2021 | | 2020 | | 2019 |
| Lease cost | | | | | |
| Operating lease cost | $ | 48 | | | $ | 39 | | | $ | 25 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Sublease income | (1) | | | (1) | | | — | |
| Total lease cost | $ | 47 | | | $ | 38 | | | $ | 25 | |
| | | | | |
| Other information | | | | | |
| | | | | |
| (Gain) loss on right-of-use asset impairment - operating leases | $ | 3 | | | $ | 6 | | | $ | 3 | |
| | | | | |
| | | | | |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | |
| Operating cash flows from operating leases | 53 | | | 41 | | | 23 | |
| | | | | |
| | | | | |
| | | | | |
| Right-of-use assets obtained in exchange for new lease obligations: | | | | | |
| Operating leases | 19 | | | 216 | | | 48 | |
| Finance leases | — | | | 2 | | | 1 | |
The following table provides a detail of the maturities of FHN's operating and finance lease liabilities as of December 31, 2019:2021:
|
| | | | | |
| (Dollars in thousands) | | | December 31, 2019 |
| 2020 | | $ | 26,594 |
|
| 2021 | | 24,627 |
|
| 2022 | | 23,553 |
|
| 2023 | | 22,687 |
|
| 2024 | | 22,224 |
|
| 2025 and after | | 156,524 |
|
| Total lease payments | | 276,209 |
|
| Less lease liability interest | | (50,373 | ) |
| Total | | $ | 225,836 |
|
| | | | | |
| (Dollars in millions) | December 31, 2021 |
| 2022 | $ | 49 | |
| 2023 | 45 | |
| 2024 | 40 | |
| 2025 | 39 | |
| 2026 | 37 | |
| 2027 and thereafter | 238 | |
| Total lease payments | 448 | |
| Less lease liability interest | (62) | |
| Total lease liability | $ | 386 | |
| |
FHN had no aggregate undiscounted contractual obligations totaling $2.6 million for lease arrangements that have not commenced. Payments under these arrangements are expected to occur from 2020 through 2030.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 158
Note 6 – Premises, Equipment, and Leases (Continued)
Minimum future lease payments for noncancelable operating leases, primarily on premises, on December 31, 2018 are shown below.2021.
|
| | | |
| (Dollars in thousands) | December 31, 2018 |
| 2019 | $ | 27,524 |
|
| 2020 | 24,722 |
|
| 2021 | 20,954 |
|
| 2022 | 16,518 |
|
| 2023 | 13,174 |
|
| 2024 and after | 42,370 |
|
| Total minimum lease payments | $ | 145,262 |
|
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 159
Note 7 – Intangible Assets
The followingall minimum lease payments over the lease term and the estimated residual value, less unearned interest income, is a summary of other intangible assetsrecorded as the net investment in the lease on the commencement date and is included in loans and leases in the Consolidated StatementsBalance Sheets. Interest income is accrued as earned over the term of Condition:the lease based on the net investment in leases. Fees incurred to originate the lease are deferred on the commencement date and recognized as an adjustment of the yield on the lease.
FHN’s portfolio of direct financing and sales-type leases contains terms of 1 to 23 years, some of which contain options to extend the lease for various periods of time and/or to purchase the equipment subject to the lease at various points in time. These direct financing and sales-type leases typically include a payment structure set at lease inception and do not provide any additional services. Expenses associated with the leased equipment, such as maintenance and insurance, are paid by the lessee directly to third parties. The lease agreement typically contains an option for the purchase of the leased property by the lessee at the end of the lease term at either the property’s residual value or a specified price. In all cases, FHN expects to sell or re-lease the equipment at the end of the lease term. Due to the nature and structure of FHN’s direct financing and sales-type leases, there is no selling profit or loss on these transactions.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2019 | | December 31, 2018 |
| (Dollars in thousands) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Value | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Value |
| Core deposit intangibles | | $ | 157,150 |
| | $ | (47,372 | ) | | $ | 109,778 |
| | $ | 157,150 |
| | $ | (28,150 | ) | | $ | 129,000 |
|
| Customer relationships | | 77,865 |
| | (60,150 | ) | | 17,715 |
| | 77,865 |
| | (55,597 | ) | | 22,268 |
|
| Other (a) | | 5,622 |
| | (2,915 | ) | | 2,707 |
| | 5,622 |
| | (1,856 | ) | | 3,766 |
|
| Total | | $ | 240,637 |
| | $ | (110,437 | ) | | $ | 130,200 |
| | $ | 240,637 |
| | $ | (85,603 | ) | | $ | 155,034 |
|
Table 8.6.6
| |
(a) | Balance primarily includes noncompete covenants, as well as $.3 million related to state banking licenses not subject to amortization. |
Amortization expense was $24.8 million, $25.9LEASE NET INVESTMENTS
| | | | | | | | | | | |
| (Dollars in millions) | December 31, 2021 | | December 31, 2020 |
| Lease receivable | $ | 729 | | | $ | 535 | |
| Unearned income | (135) | | | (108) | |
| Guaranteed residual | 97 | | | 92 | |
| Unguaranteed residual | 102 | | | 68 | |
| Total net investment | $ | 793 | | | $ | 587 | |
| | | |
Interest income for direct financing or sales-type leases totaled $26 million and $8.7$11 million for the years ended December 31, 2019, 20182021 and 2017,2020, respectively. As ofThere was no profit or loss recognized at the commencement date for direct financing or sales-type leases for the years ended December 31, 2019 the estimated aggregated amortization expense is expected to be:2021 and 2020.
|
| | | | |
| (Dollars in thousands) | | |
| Year | | Amortization |
| 2020 | | $ | 21,159 |
|
| 2021 | | 19,547 |
|
| 2022 | | 17,412 |
|
| 2023 | | 16,117 |
|
| 2024 | | 14,679 |
|
Gross goodwill, accumulated impairments, and accumulated divestiture related write-offs were determined beginning January 1, 2002, when a change in accounting requirements resulted in goodwill being assessed for impairment rather than being amortized. Gross goodwill
| | | | | | | | |
| 150 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 6—PREMISES, EQUIPMENT, & LEASES | |
Maturities of $200.0 million with accumulated impairments and accumulated divestiture-related write-offs of $114.1 million and $85.9 million, respectively, were previously allocated to the non-strategic segment, resulting in $0 net goodwill allocated to the non-strategic segmentCompany's lease receivables as of December 31, 2019, 20182021 were as follows:
Table 8.6.7
LEASE RECEIVABLE MATURITIES
| | | | | |
| (Dollars in millions) | December 31, 2021 |
| 2022 | $ | 136 | |
| 2023 | 122 | |
| 2024 | 96 | |
| 2025 | 73 | |
| 2026 | 57 | |
| 2027 and thereafter | 245 | |
| Total future minimum lease payments | $ | 729 | |
| |
| | | | | | | | |
| 151 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 7—GOODWILL & OTHER INTANGIBLE ASSETS | |
Note 7—Goodwill and 2017.Other Intangible Assets
Goodwill
On July 1, 2020, FHN completed its merger-of-equals transaction with IBKC. In connection with the merger, FHN recorded a $531 million purchase accounting gain, based on fair value estimates.
On July 17, 2020, FHN completed its purchase of 30 branches from Truist Bank. In relation to the acquisition, FHN recorded $78 million in goodwill, based on fair value estimates. See Note 2 - Acquisitions and Divestitures for additional information regarding these transactions.
FHN performed the required annual goodwill impairment test as of October 1, 2021. The regional bankingannual 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 fixed income segments docircumstances that could indicate that goodwill might be impaired and concluded that a subsequent interim test was not have any accumulated impairments or divestiture related write-offs. necessary.
As further discussed in Note 20 - Business Segment Information, FHN reorganized its management reporting structure during 2020 and, accordingly, its segment reporting structure and goodwill reporting units. In connection with the reorganization, management reallocated goodwill to the new reporting units using a relative fair value approach.
Accounting estimates and assumptions were made about FHN’s future performance and cash flows, as well as other prevailing market factors (e.g., interest rates, economic
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 Statements of ConditionBalance Sheets as of December 31, 2021:
Table 8.7.1
GOODWILL
| | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | Regional
Banking | | Specialty
Banking | | Total |
| December 31, 2018 | | $ | 802 | | | $ | 631 | | | $ | 1,433 | |
| Additions | | — | | | — | | | — | |
| December 31, 2019 | | $ | 802 | | | $ | 631 | | | $ | 1,433 | |
| Additions | | 78 | | | — | | | 78 | |
| December 31, 2020 | | $ | 880 | | | $ | 631 | | | $ | 1,511 | |
| Additions | | — | | | — | | | — | |
| December 31, 2021 | | $ | 880 | | | $ | 631 | | | $ | 1,511 | |
| | | | | | |
Other intangible assets
The following table, which excludes fully amortized intangibles, presents other intangible assets included in the Consolidated Balance Sheets:
Table 8.7.2
OTHER INTANGIBLE ASSETS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2021 | | December 31, 2020 |
| (Dollars in millions) | | Gross Carrying
Amount | | Accumulated
Amortization | | Net Carrying
Value | | Gross Carrying
Amount | | Accumulated
Amortization | | Net Carrying
Value |
| Core deposit intangibles | | $ | 371 | | | $ | (128) | | | $ | 243 | | | $ | 371 | | | $ | (81) | | | $ | 290 | |
| Client relationships | | 37 | | | (11) | | | 26 | | | 37 | | | (8) | | | 29 | |
| Other (a) | | 41 | | | (12) | | | 29 | | | 41 | | | (6) | | | 35 | |
| Total | | $ | 449 | | | $ | (151) | | | $ | 298 | | | $ | 449 | | | $ | (95) | | | $ | 354 | |
| | | | | | | | | | | | |
(a)Includes noncompete covenants and purchased credit card intangible assets. Also includes title plant intangible assets and state banking licenses which are not subject to amortization.
Amortization expense was $56 million, $40 million, and $25 million for the years ended December 31, 2021, 2020 and 2019, 2018 and 2017.respectively. The following table shows the aggregated amortization expense estimated, as of December 31, 2021, for the next five years:
Table 8.7.3
ESTIMATED AMORTIZATION EXPENSE
| | | | | | | | |
| (Dollars in millions) | | |
| 2022 | | $ | 51 | |
| 2023 | | 48 | |
| 2024 | | 44 | |
| 2025 | | 38 | |
| 2026 | | 33 | |
| | | | | | | | |
| 152 | 2021 FORM 10-K ANNUAL REPORT |
|
| | | | | | | | | | | | |
| (Dollars in thousands) | | Regional Banking | | Fixed Income | | Total |
| December 31, 2016 | | $ | 93,367 |
| | $ | 98,004 |
| | $ | 191,371 |
|
| Additions (a) | | 1,150,518 |
| | 44,964 |
| | 1,195,482 |
|
| December 31, 2017 | | $ | 1,243,885 |
| | $ | 142,968 |
| | $ | 1,386,853 |
|
| Additions (a) | | 45,934 |
| | — |
| | 45,934 |
|
| December 31, 2018 | | $ | 1,289,819 |
| | $ | 142,968 |
| | $ | 1,432,787 |
|
| Additions | | — |
| | — |
| | — |
|
| December 31, 2019 | | $ | 1,289,819 |
| | $ | 142,968 |
| | $ | 1,432,787 |
|
(a) See Note 2 - Acquisitions and Divestitures for further details regarding goodwill related to acquisitions.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 160
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 8—MORTGAGE BANKING ACTIVITY | |
Note 8 – Time Deposit Maturities8—Mortgage Banking Activity
Following isOn July 1, 2020 as part of the IBKC merger, FHN obtained IBKC mortgage banking operations which includes origination and servicing of residential first lien mortgages that conform to standards established by GSEs that are major investors in U.S. home mortgages, but can also consist of junior lien and jumbo loans secured by residential property. These loans are primarily sold to private companies that are unaffiliated with the GSEs on a table of maturities for time deposits outstandingservicing-released basis. Gains and losses on December 31, 2019, which include Certificates of deposit under $100,000, Other time, and Certificates of deposit $100,000 and more. Certificates of deposit in increments of $100,000 or more totaled $2.2 billion on December 31, 2019, of this amount $.9 billion represents Certificates of deposit of $250,000 and more. Time depositsthese mortgage loans are included in Interest-bearing depositsmortgage banking and title income on the Consolidated Statements of Condition.Income. Prior to the merger, FHN’s mortgage banking operations were not significant. At December 31, 2021, FHN had approximately $45 million of loans that remained from pre-2009 Mortgage Business operations of legacy First Horizon. Activity related to the pre-2009 mortgage loans was primarily limited to payments and write-offs in 2021 and 2020, with no new originations or loan sales, and only an insignificant amount of repurchases. These loans are excluded from the disclosure below.
The following table summarizes activity relating to residential mortgage loans held for sale for the years ended December 31, 2021 and 2020:
Table 8.8.1
MORTGAGE LOAN ACTIVITY
| | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | 2021 | | 2020 | | | | |
| Balance at beginning of period | | $ | 409 | | | $ | 4 | | | | | |
| Acquired | | — | | | 320 | | | | | |
| Originations and purchases | | 2,836 | | | 2,499 | | | | | |
| Sales, net of gains | | (3,025) | | | (2,405) | | | | | |
| Mortgage loans transferred from (to) held for investment | | 30 | | | (9) | | | | | |
| | | | | | | | |
| Balance at end of period | | $ | 250 | | | $ | 409 | | | | | |
| | | | | | | | |
|
| | | | |
| (Dollars in thousands) | | |
| 2020 | | $ | 2,824,792 |
|
| 2021 | | 259,290 |
|
| 2022 | | 382,508 |
|
| 2023 | | 90,034 |
|
| 2024 | | 43,025 |
|
| 2025 and after | | 18,688 |
|
| Total | | $ | 3,618,337 |
|
Effective with the IBKC merger, FHN made an election to record mortgage servicing rights at the lower of cost or market value and amortize over the remaining servicing life of the loans, with consideration given to prepayment assumptions.
Mortgage servicing rights are included in other assets on the Consolidated Balance Sheets. Mortgage servicing rights had the following carrying values as of the period indicated.
Table 8.8.2
MORTGAGE SERVICING RIGHTS
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | |
| (Dollars in millions) | Gross
Carrying
Amount | | Accumulated
Amortization | | Net Carrying Amount | | | | | | |
| Mortgage servicing rights | $ | 39 | | | $ | (9) | | | $ | 30 | | | | | | | |
| | | | | | | | | | | |
| December 31, 2020 | | | | | | |
| (Dollars in millions) | Gross
Carrying
Amount | | Accumulated
Amortization | | Net Carrying Amount | | | | | | |
| Mortgage servicing rights | $ | 28 | | | $ | (3) | | | $ | 25 | | | | | | | |
| | | | | | | | | | | |
In addition, there was an insignificant amount of non-mortgage and commercial servicing rights as of December 31, 2021 and 2020. Total mortgage servicing fees included in mortgage banking and title income were $4 million and $2 million for the years ended December 31, 2021 and 2020, respectively.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 161
| | | | | | | | |
| 153 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 9—DEPOSITS | |
Note 9 – 9—Deposits
The composition of deposits is presented in the following table:
Table 8.9.1
DEPOSITS
| | | | | | | | | | | | | | |
| (Dollars in millions) | | 2021 | | 2020 |
| Savings | | $ | 26,457 | | | $ | 27,324 | |
| Time deposits | | 3,500 | | | 5,070 | |
| Other interest-bearing deposits | | 17,055 | | | 15,415 | |
| Total interest-bearing deposits | | 47,012 | | | 47,809 | |
| Noninterest-bearing deposits | | 27,883 | | | 22,173 | |
| Total deposits | | $ | 74,895 | | | $ | 69,982 | |
| | | | |
Time deposits in denominations that exceed the FDIC insurance limit of $250,000 at December 31, 2021 and 2020 were $859 million and $1.4 billion, respectively. Of those deposits, $515 million and $925 million were
uninsured as of December 31, 2021 and 2020, respectively.
Scheduled maturities of time deposits as of December 31, 2021 were as follows:
Table 8.9.2
TIME DEPOSIT MATURITIES
| | | | | | | | |
| (Dollars in millions) | | |
| 2022 | | $ | 3,006 | |
| 2023 | | 229 | |
| 2024 | | 115 | |
| 2025 | | 79 | |
| 2026 | | 43 | |
| 2027 and after | | 28 | |
| Total | | $ | 3,500 | |
| | |
| | | | | | | | |
| 154 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 10—SHORT-TERM BORROWINGS | |
Note 10—Short-Term Borrowings
Short-termA summary of short-term borrowings include federal funds purchasedfor the years 2021, 2020 and securities sold under agreements to repurchase, trading liabilities, and other borrowed funds.2019 is presented in the following table:
Table 8.10.1
SHORT-TERM BORROWINGS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | Trading Liabilities | | Federal Funds Purchased | | Securities Sold Under Agreements to Repurchase | | Other Short-term Borrowings |
| 2021 | | | | | | | | |
| Average balance | | $ | 540 | | | $ | 949 | | | $ | 1,235 | | | $ | 124 | |
| Year-end balance | | 426 | | | 775 | | | 1,247 | | | 102 | |
| Maximum month-end outstanding | | 685 | | | 1,037 | | | 1,615 | | | 146 | |
| Average rate for the year | | 1.11 | % | | 0.12 | % | | 0.30 | % | | 0.09 | % |
| Average rate at year-end | | 1.62 | % | | 0.10 | % | | 0.11 | % | | 0.08 | % |
| 2020 | | | | | | | | |
| Average balance | | $ | 457 | | | $ | 862 | | | $ | 1,109 | | | $ | 626 | |
| Year-end balance | | 353 | | | 845 | | | 1,187 | | | 166 | |
| Maximum month-end outstanding | | 983 | | | 1,487 | | | 1,661 | | | 4,061 | |
| Average rate for the year | | 1.24 | % | | 0.34 | % | | 0.50 | % | | 0.84 | % |
| Average rate at year-end | | 0.77 | % | | 0.10 | % | | 0.26 | % | | 0.09 | % |
| 2019 | | | | | | | | |
| Average balance | | $ | 503 | | | $ | 738 | | | $ | 701 | | | $ | 538 | |
| Year-end balance | | 506 | | | 548 | | | 717 | | | 2,253 | |
| Maximum month-end outstanding | | 754 | | | 1,282 | | | 772 | | | 2,276 | |
| Average rate for the year | | 2.48 | % | | 2.08 | % | | 2.07 | % | | 2.10 | % |
| Average rate at year-end | | 2.07 | % | | 1.55 | % | | 1.72 | % | | 2.14 | % |
| | | | | | | | |
Federal funds purchased and securities sold under agreements to repurchase generally have maturities of less than 90 days. Trading liabilities, which represent short positions in securities, are generally held for less than 90 days. Other short-term borrowings have original
maturities of one year or less. On December 31, 2019,2021, fixed income trading securities with a fair value of $41.3$33 million were pledged to secure other short-term borrowings.
The detail of short-term borrowings for the years 2019, 2018 and 2017 is presented in the following table:
|
| | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | Federal Funds Purchased | | Securities Sold Under Agreements to Repurchase | | Trading Liabilities | | Other Short-term Borrowings |
| 2019 | | | | | | | | |
| Average balance | | $ | 737,715 |
| | $ | 701,164 |
| | $ | 503,302 |
| | $ | 538,249 |
|
| Year-end balance | | 548,344 |
| | 716,925 |
| | 505,581 |
| | 2,253,045 |
|
| Maximum month-end outstanding | | 1,281,853 |
| | 772,092 |
| | 754,220 |
| | 2,276,139 |
|
| Average rate for the year | | 2.08 | % | | 1.89 | % | | 2.48 | % | | 2.34 | % |
| Average rate at year-end | | 1.55 |
| | 1.72 |
| | 2.07 |
| | 2.14 |
|
| 2018 | | | | | | | | |
| Average balance | | $ | 405,110 |
| | $ | 713,841 |
| | $ | 682,943 |
| | $ | 1,046,585 |
|
| Year-end balance | | 256,567 |
| | 762,592 |
| | 335,380 |
| | 114,764 |
|
| Maximum month-end outstanding | | 503,138 |
| | 891,425 |
| | 890,717 |
| | 2,229,155 |
|
| Average rate for the year | | 1.89 | % | | 1.40 | % | | 2.83 | % | | 1.82 | % |
| Average rate at year-end | | 2.50 |
| | 1.66 |
| | 3.21 |
| | 2.48 |
|
| 2017 | | | | | | | | |
| Average balance | | $ | 447,137 |
| | $ | 578,666 |
| | $ | 685,891 |
| | $ | 554,502 |
|
| Year-end balance | | 399,820 |
| | 656,602 |
| | 638,515 |
| | 2,626,213 |
|
| Maximum month-end outstanding | | 568,490 |
| | 743,684 |
| | 896,943 |
| | 2,626,213 |
|
| Average rate for the year | | 1.06 | % | | 0.72 | % | | 2.26 | % | | 1.28 | % |
| Average rate at year-end | | 1.48 |
| | 0.64 |
| | 2.22 |
| | 1.44 |
|
| | | | | | | | |
| 155 | 2021 FORM 10-K ANNUAL REPORT |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 162
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 11—TERM BORROWINGS | |
Note 10 – 11—Term Borrowings
Term borrowings include senior and subordinated borrowings with original maturities greater than one year. The following table presents information pertaining to Term Borrowings reported on FHN’s Consolidated Statementsterm borrowings as of Condition on December 31:31, 2021 and 2020:
|
| | | | | | | | |
(Dollars in thousands) | | 2019 | | 2018 |
| First Horizon Bank: | | | | |
| Senior capital notes (a) | | | | |
| Maturity date – December 1, 2019 – 2.95% | | $ | — |
| | $ | 395,872 |
|
| Other collateralized borrowings – Maturity date – December 22, 2037 | | | | |
| 2.19% on December 31, 2019 and 3.09% on December 31, 2018 (b) | | 80,908 |
| | 76,642 |
|
| Other collateralized borrowings - SBA loans (c) | | 21,975 |
| | 16,607 |
|
| First Horizon National Corporation: | | | | |
| Senior capital notes (a) | | | | |
| Maturity date – December 15, 2020 – 3.50% | | 497,656 |
| | 486,739 |
|
| Junior subordinated debentures (d) | | | | |
| Maturity date - June 28, 2035 - 3.57% on December 31, 2019 and 4.47% on December 31, 2018 | | 2,752 |
| | 2,730 |
|
| Maturity date - December 15, 2035 - 3.26% on December 31, 2019 and 4.16% on December 31, 2018 | | 17,642 |
| | 17,456 |
|
| Maturity date - March 15, 2036 - 3.29% on December 31, 2019 and 4.19% on December 31, 2018 | | 8,847 |
| | 8,757 |
|
| Maturity date - March 15, 2036 - 3.43% on December 31, 2019 and 4.33% on December 31, 2018 | | 11,692 |
| | 11,587 |
|
| Maturity date - June 30, 2036 - 3.28% on December 31, 2019 and 4.12% on December 31, 2018 | | 26,217 |
| | 25,931 |
|
| Maturity date - July 7, 2036 - 3.54% on December 31, 2019 and 3.99% on December 31, 2018 | | 17,964 |
| | 17,803 |
|
| Maturity date - June 15, 2037 - 3.54% on December 31, 2019 and 4.44% on December 31, 2018 | | 50,681 |
| | 50,278 |
|
| Maturity date - September 6, 2037 - 3.32% on December 31, 2019 and 4.17% on December 31, 2018 | | 8,798 |
| | 8,713 |
|
| FT Real Estate Securities Company, Inc.: | | | | |
| Cumulative preferred stock (e) | | | | |
| Maturity date – March 31, 2031 – 9.50% | | 46,236 |
| | 46,168 |
|
| First Horizon ABS Trusts: | | | | |
| Other collateralized borrowings (f) (g) | | | | |
| Maturity date – October 25, 2034 | | | | |
| 2.66% on December 31, 2018 | | — |
| | 2,981 |
|
| First Tennessee New Markets Corporation Investments: | | | | |
| Maturity date – August 08, 2036 – 2.38% (f) | | — |
| | 2,699 |
|
| Total | | $ | 791,368 |
| | $ | 1,170,963 |
|
TERM BORROWINGS
| | | | | | | | | | | | | | |
| (Dollars in millions) | | 2021 | | 2020 |
| First Horizon Bank: | | | | |
| Subordinated notes (a) | | | | |
| Maturity date – May 1, 2030 - 5.75% | | $ | 447 | | | $ | 447 | |
| Other collateralized borrowings - Maturity date – December 22, 2037 | | | | |
| 0.50% on December 31, 2021 and 0.52% on December 31, 2020 (b) | | 87 | | | 82 | |
| Other collateralized borrowings - SBA loans (c) | | 6 | | | 15 | |
| First Horizon Corporation: | | | | |
| Senior notes | | | | |
| | | | |
| Maturity date – May 26, 2023 - 3.55% | | 448 | | | 447 | |
| Maturity date – May 26, 2025 - 4.00% | | 349 | | | 348 | |
| Junior subordinated debentures (d) | | | | |
| Maturity date - July 31, 2031 - 3.51% on December 31, 2020 | | — | | | 7 | |
| Maturity date - November 15, 2032 - 3.50% on December 31, 2020 | | — | | | 9 | |
| Maturity date - March 26, 2033 - 3.40% on December 31, 2020 | | — | | | 5 | |
| Maturity date - June 17, 2033 - 3.40% on December 31, 2020 | | — | | | 9 | |
| Maturity date - March 17, 2034 - 3.02% on December 31, 2020 | | — | | | 6 | |
| Maturity date - September 20, 2034 - 2.25% on December 31, 2020 | | — | | | 8 | |
| Maturity date - June 28, 2035 - 1.88% on December 31, 2021 and 1.90% on December 31, 2020 | | 3 | | | 3 | |
| Maturity date - December 15, 2035 - 1.57% on December 31, 2021 and 1.59% on December 31, 2020 | | 18 | | | 18 | |
| Maturity date - March 15, 2036 - 1.60% on December 31, 2021 and 1.62% on December 31, 2020 | | 9 | | | 9 | |
| Maturity date - March 15, 2036 - 1.74% on December 31, 2021 and 1.76% on December 31, 2020 | | 12 | | | 12 | |
| Maturity date - June 30, 2036 - 1.54% on December 31, 2021 and 1.56% on December 31, 2020 | | 27 | | | 27 | |
| Maturity date - July 7, 2036 - 1.67% on December 31, 2021 and 1.79% on December 31, 2020 | | 18 | | | 18 | |
| Maturity date - October 7, 2036 - 1.88% on December 31, 2020 | | — | | | 6 | |
| Maturity date - December 30, 2036 - 1.84% on December 31, 2020 | | — | | | 10 | |
| Maturity date - June 15, 2037 - 1.85% on December 31, 2021 and 1.87% on December 31, 2020 | | 52 | | | 51 | |
| Maturity date - September 6, 2037 - 1.61% on December 31, 2021 and 1.66% on December 31, 2020 | | 9 | | | 9 | |
| Maturity date - September 15, 2037 - 1.65% on December 31, 2020 | | — | | | 7 | |
| Maturity date - December 15, 2037 - 2.76% on December 31, 2020 | | — | | | 10 | |
| Maturity date - December 15, 2037 - 2.97% on December 31, 2020 | | — | | | 10 | |
| Maturity date - June 15, 2038 - 3.72% on December 31, 2020 | | — | | | 6 | |
| Notes payable - New market tax credit investments; 7 to 35 year term, 0.93% to 4.95% on December 31, 2021; 1.27% to 4.95% on December 31, 2020 | | 59 | | | 45 | |
| FT Real Estate Securities Company, Inc.: | | | | |
| Cumulative preferred stock (e) | | | | |
| Maturity date – March 31, 2031 – 9.50% | | 46 | | | 46 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Total | | $ | 1,590 | | | $ | 1,670 | |
| | | | |
(a)Qualifies for Tier 2 capital under the risk-based capital guidelines for First Horizon Bank as well as First Horizon Corporation up to certain limits for minority interest capital instruments.
(b)Secured by trust preferred loans.
| | | | | | | | |
(a) | Changes in the fair value of debt attributable to interest rate risk are hedged. First Horizon Bank early redeemed the senior debt on November 1, 2019. Refer to Note 22 – Derivatives. 156 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
(b)ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| Secured by trust preferred loans. |
| NOTE 11—TERM BORROWINGS | |
(c) | Collateralized borrowings associated with SBA loan sales that did not meet sales criteria. The loans have remaining terms of 3 to 25 years. These borrowings had a weighted average interest rate of 3.95 percent on December 31, 2019 and 2018, respectively. |
| |
(d) | Acquired in conjunction with the acquisition of CBF. A portion qualifies for Tier 2 capital under the risk-based capital guidelines. |
| |
(e) | A portion qualifies for Tier 2 capital under the risk-based capital guidelines. |
| |
(f) | Debt retired during 2019. See Note 21- Variable Interest Entities for additional information. |
| |
(g) | On December 31, 2018, borrowings secured by $16.2 million of residential real estate loans. |
(d)Acquired in conjunction with the acquisitions of CBF and merger with IBKC. The legacy IBKC junior subordinated debentures were early redeemed in 2021. A portion qualifies for Tier 2 capital under the risk-based capital guidelines.
(e)Qualifies for Tier 2 capital under the risk-based capital guidelines for both First Horizon Bank and First Horizon Corporation up to certain limits for minority interest capital instruments.
Annual principal repayment requirements as of December 31, 20192021 are as follows:
|
| | | | |
(Dollars in thousands) | | |
| 2020 | | $ | 500,000 |
|
| 2021 | | — |
|
| 2022 | | 236 |
|
| 2023 | | — |
|
| 2024 | | — |
|
| 2025 and after | | 316,661 |
|
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 163
Note 10 – Term Borrowings (Continued)
| | | | | | | | |
| (Dollars in millions) | | |
| 2022 | | $ | — | |
| 2023 | | 450 | |
| 2024 | | 6 | |
| 2025 | | 350 | |
| 2026 and after | | 807 | |
In conjunction with the acquisition of CBF,its acquisitions, FHN acquiredobtained junior subordinated debentures, with aggregate par valueseach of $212.4 million. Each of these issuanceswhich is held by a wholly ownedwholly-owned trust that has issued trust preferred securities to external investors and loaned the funds to FHN as successor to CBF, 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. TheDuring 2021, FHN redeemed $94 million of legacy IBKC junior subordinated debentures are includeddebt underlying multiple issuances of trust preferred securities. The redemption resulted in the Consolidated Statementsa loss on debt extinguishment of Condition in Term borrowings.$26 million. A portion of FHN's remaining junior subordinated notes qualifyqualifies as Tier 2 capital under the risk-based capital guidelines. FHN retired $45.4 million of this debt and the related trust preferred securities in 2018.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 164
| | | | | | | | |
| 157 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 12—PREFERRED STOCK | |
Note 11 – 12—Preferred Stock
The following table presents a summary of FHN's non-cumulative perpetual preferred stock:
Table 8.12.1
FHN PREFERRED STOCK
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | December 31, |
| (Dollars in millions) | | | | | | | | | | | | 2021 | | 2020 |
| Issuance Date | | Earliest Redemption Date (a) | | Annual Dividend Rate | | Dividend Payments | | Shares Outstanding | | Liquidation Amount | | Carrying Amount | | Carrying Amount |
| | | | | | | | | | | | | | | |
| Series A | 1/31/2013 | | 4/10/2018 | | 6.200 | % | | Quarterly | | — | | | $ | — | | | $ | — | | | $ | 95 | |
| Series B | 7/2/2020 | | 8/1/2025 | | 6.625 | % | (b) | Semi-annually | | 8,000 | | | 80 | | | 77 | | | 77 | |
| Series C | 7/2/2020 | | 5/1/2026 | | 6.600 | % | (c) | Quarterly | | 5,750 | | | 58 | | | 59 | | | 59 | |
| Series D | 7/2/2020 | | 5/1/2024 | | 6.100 | % | (d) | Semi-annually | | 10,000 | | | 100 | | | 94 | | | 94 | |
| Series E | 5/28/2020 | | 10/10/2025 | | 6.500 | % | | Quarterly | | 1,500 | | | 150 | | | 145 | | | 145 | |
| Series F | 5/3/2021 | | 7/10/2026 | | 4.700 | % | | Quarterly | | 1,500 | | | 150 | | | 145 | | | — | |
| | | | | | | | | 26,750 | | | $ | 538 | | | $ | 520 | | | $ | 470 | |
| | | | | | | | | | | | | | | |
(a) Denotes earliest optional redemption date. Earlier redemption is possible, at FHN's election, if certain regulatory capital events occur.
(b) Fixed dividend rate will reset on August 1, 2025 to three-month LIBOR plus 4.262%
(c) Fixed dividend rate will reset on May 1, 2026 to three-month LIBOR plus 4.920%
(d) Fixed dividend rate will reset on May 1, 2024 to three-month LIBOR plus 3.859%
During 2021, FHN issued 1,000 shares having an aggregate liquidation preference$150 million of $100 million of4.70% Series F Non-Cumulative Perpetual Preferred Stock (the Series F Preferred Stock). The Series F Preferred Stock is redeemable at FHN's option, in whole or in part, on or after July 10, 2026. Earlier redemption is possible, at FHN's election, if certain regulatory capital events occur. The $145 million carrying value of the Series F Preferred Stock currently qualifies as Tier 1 Capital.
During 2021, FHN redeemed all outstanding shares of Series A Preferred Stock. The difference between the $100 million liquidation preference and the carrying value of the Series A Preferred Stock resulted in a $5 million deemed dividend that was included in EPS for net proceedsthe year ended December 31, 2021.
Subsidiary Preferred Stock
First Horizon Bank has issued 300,000 shares of approximately $96 million.Class A Non-Cumulative Perpetual Preferred Stock (Class A Preferred Stock) with a liquidation preference of $1,000 per share. Dividends on the SeriesClass A Preferred Stock, if declared, accrue and are payable quarterly,each quarter, in arrears, at a floating rate equal to the greater of 6.20 percentthe three month LIBOR plus 0.85% or 3.75% per annum. For the issuance, FHN issued depositary shares, each of which represents a 1/4000th fractional ownership interest in a share of FHN’s preferred stock. These securities qualify fully as Tier 1 capital.
Subsidiarycapital for both First Horizon Bank and FHN. On December 31, 2021 and 2020, $295 million of Class A Preferred Stock was recognized as noncontrolling interest on the Consolidated Balance Sheets.
In 2000 FT Real Estate Securities Company, Inc. (“FTRESC”)(FTRESC), an indirect subsidiary of FHN, has issued 50 shares of 9.50 percent 9.50%
Cumulative Preferred Stock, Class B (“Class(Class B Preferred Shares”)Shares), with a liquidation preference of $1.0$1 million per share; of those shares, 47 shares were issued to nonaffiliates. For all periods presented, these securities are presented in the Consolidated Statements of Condition as Term borrowings. FTRESC is a real estate investment trust (“REIT”) established for the purpose of acquiring, holding, and managing real estate mortgage assets. Dividends on the Class B Preferred Shares are cumulative and are payable semi-annually. At December 31, 2021, the Class B Preferred Shares partially qualified as Tier 2 regulatory capital. For all periods presented, these securities are presented in the Consolidated Balance Sheets as Term borrowings.
The Class B Preferred Shares are mandatorily redeemable on March 31, 2031, and redeemable at the discretion of FTRESC in the event that the Class B Preferred Shares cannot be accounted for as Tier 2 regulatory capital or there is more than an insubstantial risk that dividends paid with respect to the Class B Preferred Shares will not be fully deductible for tax purposes. At December 31, 2019 the Class B Preferred Shares partially qualified as Tier 2 regulatory capital. They are not subject to any sinking fund and are not convertible into any other securities of FTRESC, FHN, or any of its subsidiaries. In the event First Horizon Bank becomes undercapitalized, insolvent, or in danger of becoming undercapitalized, the shares are, however, automatically exchanged at the direction of the Federal banking regulators for preferred stock of First Horizon Bank, having substantially the same terms as the Class B Preferred Shares.
Additionally for all periods presented, subsidiaries have also issued $.6 million in aggregate of Cumulative Perpetual Preferred Stock, which has been recognized as Noncontrolling interest on the Consolidated Statements of Condition and which partially qualifies as Tier 2 capital. Other preferred shares are outstanding but are owned by FHN subsidiaries and are eliminated in consolidation.
In 2005 First Horizon Bank issued 300,000 shares of Class A Non-Cumulative Perpetual Preferred Stock (“Class A Preferred Stock”) with a liquidation preference of $1,000 per share. Dividends on the Class A Preferred Stock, if declared, accrue and are payable each quarter, in arrears, at a floating rate equal to the greater of the three month LIBOR plus .85 percent or 3.75 percent per annum. These securities qualify fully as Tier 1 capital for First Horizon Bank while for FHN consolidated they qualify partially as Tier 1 capital and partially as Tier 2 capital. On December 31, 2019 and 2018, $294.8 million of Class A Preferred Stock was recognized as Noncontrolling interest on the Consolidated Statements of Condition.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 165
| | | | | | | | |
| 158 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 13—REGULATORY CAPITAL & RESTRICTIONS | |
Note 12 – 13—Regulatory Capital and Restrictions
Regulatory Capital.Capital
FHN and First Horizon Bank areis 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 derivatives asoff-balance sheet items calculated underpursuant to regulatory accounting practices must be met.directives. Capital amounts and classification are also subject to qualitative judgment by the regulators such as capital components, asset risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require FHN and First Horizon Bank to maintain minimum amounts and ratios of Total, Tier 1, and Common Equity Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets (“Leverage”).
Management believes that, as of December 31, 2019,2021, FHN and First Horizon Bank met all capital adequacy requirements to which they were subject. As of December 31, 2021, First Horizon Bank was classified as
well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, an institution must maintain minimum Total Risk-Based, Tier 1 Risk-Based, Common Equity Tier 1 and Tier 1 Leverage ratios as set forth in the following table. Management believes that no events or changes have occurred subsequent to year-end that would change this designation.
Quantitative measures established by regulation to ensure capital adequacy require FHN to maintain minimum ratios as set forth in the following table. FHN and First Horizon Bank are also subject to a 2.5% capital conservation buffer which is an amount above the minimum levels designed to ensure that banks remain well-capitalized, even in adverse economic scenarios.
The actual capital amounts and ratios of FHN and First Horizon Bank are presented in the table below.following table.
|
| | | | | | | | | | | | | | |
| (Dollars in thousands) | | First Horizon National Corporation | | First Horizon Bank |
| Amount | | Ratio | | Amount | | Ratio |
| On December 31, 2019 | | | | | | | | |
| Actual: | | | | | | | | |
| Total Capital | | $ | 4,154,885 |
| | 11.22 | % | | $ | 3,944,613 |
| | 10.77 | % |
| Tier 1 Capital | | 3,760,450 |
| | 10.15 |
| | 3,728,683 |
| | 10.18 |
|
| Common Equity Tier 1 | | 3,408,936 |
| | 9.20 |
| | 3,433,867 |
| | 9.38 |
|
| Leverage | | 3,760,450 |
| | 9.04 |
| | 3,728,683 |
| | 9.12 |
|
| | | | | | | | | |
| Minimum Requirement for Capital Adequacy Purposes: | | | | | | | | |
| Total Capital | | 2,963,663 |
| | 8.00 |
| | 2,930,159 |
| | 8.00 |
|
| Tier 1 Capital | | 2,222,747 |
| | 6.00 |
| | 2,197,620 |
| | 6.00 |
|
| Common Equity Tier 1 | | 1,667,060 |
| | 4.50 |
| | 1,648,215 |
| | 4.50 |
|
| Leverage | | 1,663,338 |
| | 4.00 |
| | 1,634,695 |
| | 4.00 |
|
| | | | | | | | | |
| Minimum Requirement to be Well Capitalized Under Prompt Corrective Action Provisions: | | | | | | | | |
| Total Capital | | | | | | 3,662,699 |
| | 10.00 |
|
| Tier 1 Capital | | | | | | 2,930,159 |
| | 8.00 |
|
| Common Equity Tier 1 | | | | | | 2,380,755 |
| | 6.50 |
|
| Leverage | | | | | | 2,043,368 |
| | 5.00 |
|
| On December 31, 2018 | | | | | | | | |
| Actual: | | | | | | | | |
| Total Capital | | $ | 3,940,117 |
| | 11.94 | % | | $ | 3,689,180 |
| | 11.32 | % |
| Tier 1 Capital | | 3,565,373 |
| | 10.80 |
| | 3,492,541 |
| | 10.72 |
|
| Common Equity Tier 1 | | 3,223,702 |
| | 9.77 |
| | 3,197,725 |
| | 9.81 |
|
| Leverage | | 3,565,373 |
| | 9.09 |
| | 3,492,541 |
| | 9.10 |
|
| | | | | | | | | |
| Minimum Requirement for Capital Adequacy Purposes: | | | | | | | | |
| Total Capital | | 2,640,208 |
| | 8.00 |
| | 2,607,406 |
| | 8.00 |
|
| Tier 1 Capital | | 1,980,156 |
| | 6.00 |
| | 1,955,555 |
| | 6.00 |
|
| Common Equity Tier 1 | | 1,485,117 |
| | 4.50 |
| | 1,466,666 |
| | 4.50 |
|
| Leverage | | 1,568,870 |
| | 4.00 |
| | 1,535,279 |
| | 4.00 |
|
| | | | | | | | | |
| Minimum Requirement to be Well Capitalized Under Prompt Corrective Action Provisions: | | | | | | | | |
| Total Capital | | | | | | 3,259,258 |
| | 10.00 |
|
| Tier 1 Capital | | | | | | 2,607,406 |
| | 8.00 |
|
| Common Equity Tier 1 | | | | | | 2,118,518 |
| | 6.50 |
|
| Leverage | | | | | | 1,919,099 |
| | 5.00 |
|
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 166 | | | | | | | | |
| 159 | 2021 FORM 10-K ANNUAL REPORT |
Note 12 – Regulatory Capital and Restrictions (Continued)
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 13—REGULATORY CAPITAL & RESTRICTIONS | |
Table 8.13.1
CAPITAL AMOUNTS & RATIOS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | First Horizon Corporation | | First Horizon Bank |
| | Amount | | Ratio | | Amount | | Ratio |
| On December 31, 2021 | | | | | | | | |
| Actual: | | | | | | | | |
| Total Capital | | $ | 7,918 | | | 12.34 | % | | $ | 7,893 | | | 12.41 | % |
| Tier 1 Capital | | 7,088 | | | 11.04 | | | 7,133 | | | 11.22 | |
| Common Equity Tier 1 | | 6,367 | | | 9.92 | | | 6,838 | | | 10.75 | |
| Leverage | | 7,088 | | | 8.08 | | | 7,133 | | | 8.20 | |
| | | | | | | | |
| Minimum Requirement for Capital Adequacy Purposes: | | | | | | | | |
| Total Capital | | 5,135 | | | 8.00 | | | 5,088 | | | 8.00 | |
| Tier 1 Capital | | 3,851 | | | 6.00 | | | 3,816 | | | 6.00 | |
| Common Equity Tier 1 | | 2,888 | | | 4.50 | | | 2,862 | | | 4.50 | |
| Leverage | | 3,507 | | | 4.00 | | | 3,478 | | | 4.00 | |
| | | | | | | | |
| Minimum Requirement to be Well Capitalized Under Prompt Corrective Action Provisions: | | | | | | | | |
| Total Capital | | | | | | 6,360 | | | 10.00 | |
| Tier 1 Capital | | | | | | 5,088 | | | 8.00 | |
| Common Equity Tier 1 | | | | | | 4,134 | | | 6.50 | |
| Leverage | | | | | | 4,348 | | | 5.00 | |
| On December 31, 2020 | | | | | | | | |
| Actual: | | | | | | | | |
| Total Capital | | $ | 7,935 | | | 12.57 | % | | $ | 7,827 | | | 12.52 | |
| Tier 1 Capital | | 6,782 | | | 10.74 | | | 6,832 | | | 10.93 | |
| Common Equity Tier 1 | | 6,110 | | | 9.68 | | | 6,537 | | | 10.46 | |
| Leverage | | 6,782 | | | 8.24 | | | 6,832 | | | 8.36 | |
| | | | | | | | |
| Minimum Requirement for Capital Adequacy Purposes: | | | | | | | | |
| Total Capital | | 5,051 | | | 8.00 | | | 5,001 | | | 8.00 | |
| Tier 1 Capital | | 3,788 | | | 6.00 | | | 3,751 | | | 6.00 | |
| Common Equity Tier 1 | | 2,841 | | | 4.50 | | | 2,813 | | | 4.50 | |
| Leverage | | 3,294 | | | 4.00 | | | 3,268 | | | 4.00 | |
| | | | | | | | |
| Minimum Requirement to be Well Capitalized Under Prompt Corrective Action Provisions: | | | | | | | | |
| Total Capital | | | | | | 6,251 | | | 10.00 | |
| Tier 1 Capital | | | | | | 5,001 | | | 8.00 | |
| Common Equity Tier 1 | | | | | | 4,063 | | | 6.50 | |
| Leverage | | | | | | 4,085 | | | 5.00 | |
Restrictions on cash and due from banks.banks
Under the Federal Reserve Act and Regulation D, First Horizon Bank is required to maintain a certain amount of cash reserves. OnHowever, as a result of the COVID-19 pandemic, the Fed announced it has reduced its reserve requirement to zero, and as a result, on December 31, 20192021 and 2018,2020, First Horizon Bank's netBank was not required to maintain cash reserves were $396.1 million and $371.7 million, respectively, after the consideration of $273.7$464 million and $397 million in average vault cash. The remaining net reserve requirement for each year was met with Federal Reserve Bank deposits. Vault cash is reflected in Cash and due from banks on the Consolidated Statements of Condition and Federal Reserve Bank deposits are reflected as Interest-bearing cash.respectively.
Restrictions on dividends.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, 2019,2021, First Horizon Bank had undivided profits of $1.2$2.2 billion, of which a limited amount was available for distribution to FHN as dividends without prior regulatory approval. Certain regulatory restrictions exist regarding the ability of First Horizon Bank to transfer funds to FHN in the form of cash, dividends, loans, and advances. At any given time, the pertinent portions of those regulatory
| | | | | | | | |
| 160 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 13—REGULATORY CAPITAL & RESTRICTIONS | |
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.year-to-date period. For any period, First Horizon Bank’s ‘retained"retained net income’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 $331.2 million$1.1 billion at January 1, 2020.2022. First Horizon Bank declared and paid common dividends to the parent company in the amount of $345.0$770 million in 20192021 and $420.0$180 million in 2018. In January2020. During 2021 and 2020, First Horizon Bank declared and paid a common dividend to the parent company in the amount of $65.0 million. During 2019 and 2018, First Horizon Bank declared and paid dividends on its preferred stock quarterly. Additionally, First Horizon Bank declared preferred dividendsaccording to the payment terms of its issuances as noted in first quarter 2020 payable in April 2020.Note 12 - Preferred Stock.
The payment of cash dividends by FHN and First Horizon Bank may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines. Beginning January 1, 2019, the ability to pay dividends for both FHN and First Horizon Bank is restricted if capital ratios fall below regulatory minimums for Common Equity Tier 1, Tier 1, Total Capital ratios plus a 2.5 percent capital conservation buffer or 50 basis points above the capital ratios required to be considered well-capitalized. Furthermore, the Federal Reserve generally requires insured banks and bank holding companies only to pay 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.
Restrictions on intercompany transactions.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 percent10% of the bank’s capital stock and surplus, as defined, or $426.0$812 million, on December 31, 2019.2021. Covered transactions include a loan or extension of credit to an affiliate, a purchase of or an investment in securities issued by an affiliate, and the acceptance of securities issued by the affiliate as collateral for any loan or extension of credit. The equity investment, including retained earnings, in certain of a bank’s financial subsidiaries is also treated as a covered transaction. On December 31, 2019,2021, the parent company had covered transactions of $.8less than $1 million from First Horizon Bank, and two840 Denning LLC, a parent company subsidiary, had a covered transaction of $2 million. NaN of the bank’s financial subsidiaries, FHN Financial Securities Corp. and First Horizon Advisors, Inc., had covered transactions from First Horizon Bank totaling $390.4$400 million and $34.7$51 million, respectively. In addition, the aggregate amount of covered transactions with all affiliates, as defined, is limited to 20 percent20% of the bank’s capital stock and surplus, as defined, or $851.9 million,$1.6 billion, on December 31, 2019.2021. First Horizon Bank’s total covered transactions with all affiliates including the parent company on December 31, 20192021 were $425.9$453 million.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 167
Note 13 – Other Income and Other Expense
Following is detail of All other income and commissions and All other expense as presented in the Consolidated Statements of Income:
|
| | | | | | | | | | | | |
| (Dollars in thousands) | | 2019 | | 2018 | | 2017 |
| All other income and commissions: | | | | | | |
| Other service charges | | $ | 20,986 |
| | $ | 15,122 |
| | $ | 12,532 |
|
ATM and interchange fees
| | 16,539 |
| | 13,354 |
| | 12,425 |
|
| Deferred compensation (a) | | 11,223 |
| | (3,224 | ) | | 6,322 |
|
Mortgage banking
| | 10,055 |
| | 10,587 |
| | 4,649 |
|
| Dividend income (b) | | 7,186 |
| | 10,555 |
| | — |
|
Letter of credit fees
| | 5,582 |
| | 5,298 |
| | 4,661 |
|
| Electronic banking fees | | 4,927 |
| | 5,134 |
| | 5,082 |
|
| Insurance commissions | | 2,125 |
| | 2,096 |
| | 2,514 |
|
| Gain/(loss) on extinguishment of debt (c) | | 58 |
| | (15 | ) | | (14,329 | ) |
| Other | | 32,277 |
| | 16,902 |
| | 10,061 |
|
| Total | | $ | 110,958 |
| | $ | 75,809 |
| | $ | 43,917 |
|
| All other expense: | | | | | | |
| Travel and entertainment | | $ | 12,119 |
| | $ | 16,442 |
| | $ | 11,462 |
|
| Other insurance and taxes | | 10,179 |
| | 9,684 |
| | 9,686 |
|
| Customer relations | | 9,098 |
| | 5,583 |
| | 5,750 |
|
| Supplies | | 6,918 |
| | 6,917 |
| | 4,106 |
|
| Employee training and dues | | 5,141 |
| | 7,218 |
| | 5,551 |
|
| Miscellaneous loan costs | | 4,128 |
| | 3,732 |
| | 2,751 |
|
| Litigation and regulatory matters | | 2,923 |
| | 644 |
| | 40,517 |
|
| Non-service components of net periodic pension and post-retirement cost | | 2,304 |
| | 5,251 |
| | 2,144 |
|
| Tax credit investments | | 1,809 |
| | 4,712 |
| | 3,468 |
|
| OREO | | 1,479 |
| | 2,630 |
| | 1,006 |
|
| Repurchase and foreclosure provision/(provision credit) | | (1,007 | ) | | (1,039 | ) | | (22,527 | ) |
| Other | | 71,039 |
| | 73,223 |
| | 48,693 |
|
| Total | | $ | 126,130 |
| | $ | 134,997 |
| | $ | 112,607 |
|
Certain previously reported amounts have been reclassified to agree with current presentation.
| | | | | | | | |
(a) | Amounts are driven by market conditions and are mirrored by changes in deferred compensation expense which is included in employee compensation expense. 161 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
(b)ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| Effective January 1, 2018, FHN adopted ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” and began recording dividend income from FRB and FHLB holdings in Other income. Prior to 2018, these amounts were included in Interest income on the Consolidated Statements of Income. |
| NOTE 14—COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS) | |
(c) | Loss on extinguishment of debt for 2017 relates to the repurchase of equity securities previously included in a financing transaction. |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 168
Note 14 – 14—Components of Other Comprehensive Income/Income (Loss)
The following table provides the changes in accumulated other comprehensive income/income (loss) by component, net of tax, for the years ended December 31, 2019, 2018,2021, 2020, and 2017:2019:
|
| | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | Securities AFS | | Cash Flow
Hedges | | Pension and
Post-retirement
Plans | | Total |
| Balance as of December 31, 2016 | | $ | (17,232 | ) | | $ | (1,265 | ) | | $ | (229,157 | ) | | $ | (247,654 | ) |
| Net unrealized gains/(losses) | | (4,467 | ) | | (2,156 | ) | | (13,377 | ) | | (20,000 | ) |
| Amounts reclassified from AOCI | | (298 | ) | | (2,945 | ) | | 5,618 |
| | 2,375 |
|
| Other comprehensive income/(loss) | | (4,765 | ) | | (5,101 | ) | | (7,759 | ) | | (17,625 | ) |
| Balance as of December 31, 2017 | | (21,997 | ) | | (6,366 | ) | | (236,916 | ) | | (265,279 | ) |
| Adjustment to reflect adoption of ASU 2018-02 | | (4,837 | ) | | (1,398 | ) | | (51,311 | ) | | (57,546 | ) |
| Balance as of December 31, 2017, as adjusted | | (26,834 | ) | | (7,764 | ) | | (288,227 | ) | | (322,825 | ) |
| Adjustment to reflect adoption of ASU 2016-01 and ASU 2017-12 | | (5 | ) | | (206 | ) | | — |
| | (211 | ) |
| Beginning balance, as adjusted | | (26,839 | ) | | (7,970 | ) | | (288,227 | ) | | (323,036 | ) |
| Net unrealized gains/(losses) | | (48,858 | ) | | (6,284 | ) | | (9,435 | ) | | (64,577 | ) |
| Amounts reclassified from AOCI | | (39 | ) | | 2,142 |
| | 8,894 |
| | 10,997 |
|
| Other comprehensive income/(loss) | | (48,897 | ) | | (4,142 | ) | | (541 | ) | | (53,580 | ) |
| Balance as of December 31, 2018 | | (75,736 | ) | | (12,112 | ) | | (288,768 | ) | | (376,616 | ) |
| Net unrealized gains/(losses) | | 106,614 |
| | 11,234 |
| | 7,208 |
| | 125,056 |
|
| Amounts reclassified from AOCI | | 201 |
| | 4,105 |
| | 7,646 |
| | 11,952 |
|
| Other comprehensive income/(loss) | | 106,815 |
| | 15,339 |
| | 14,854 |
| | 137,008 |
|
| Balance as of December 31, 2019 | | $ | 31,079 |
| | $ | 3,227 |
| | $ | (273,914 | ) | | $ | (239,608 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | Securities AFS | | Cash Flow
Hedges | | Pension and
Post-retirement
Plans | | Total |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Balance as of December 31, 2018 | | $ | (76) | | | $ | (12) | | | $ | (288) | | | $ | (376) | |
| Net unrealized gains (losses) | | 107 | | | 11 | | | 8 | | | 126 | |
| Amounts reclassified from AOCI | | — | | | 4 | | | 7 | | | 11 | |
| Other comprehensive income (loss) | | 107 | | | 15 | | | 15 | | | 137 | |
| Balance as of December 31, 2019 | | 31 | | | 3 | | | (273) | | | (239) | |
| Net unrealized gains (losses) | | 74 | | | 15 | | | 3 | | | 92 | |
| Amounts reclassified from AOCI | | 3 | | | (6) | | | 10 | | | 7 | |
| Other comprehensive income (loss) | | 77 | | | 9 | | | 13 | | | 99 | |
| Balance as of December 31, 2020 | | 108 | | | 12 | | | (260) | | | (140) | |
| Net unrealized gains (losses) | | (144) | | | (3) | | | (2) | | | (149) | |
| Amounts reclassified from AOCI | | — | | | (7) | | | 8 | | | 1 | |
| Other comprehensive income (loss) | | (144) | | | (10) | | | 6 | | | (148) | |
| Balance as of December 31, 2021 | | $ | (36) | | | $ | 2 | | | $ | (254) | | | $ | (288) | |
| | | | | | | | |
Reclassifications from AOCI, and related tax effects, were as follows:
Table 8.14.2
|
| | | | | | | | | | | | | | |
| (Dollars in thousands) | | | | |
| Details about AOCI | | 2019 | | 2018 | | 2017 | | Affected line item in the statement where net income is presented |
| Securities AFS: | | | | | | | | |
| Realized (gains)/losses on securities AFS | | $ | 267 |
| | $ | (52 | ) | | $ | (483 | ) | | Debt securities gains/(losses), net |
| Tax expense/(benefit) | | (66 | ) | | 13 |
| | 185 |
| | Provision/(benefit) for income taxes |
| | | 201 |
| | (39 | ) | | (298 | ) | | |
| Cash flow hedges: | | | | | | | | |
| Realized (gains)/losses on cash flow hedges | | 5,452 |
| | 2,845 |
| | (4,771 | ) | | Interest and fees on loans |
| Tax expense/(benefit) | | (1,347 | ) | | (703 | ) | | 1,826 |
| | Provision/(benefit) for income taxes |
| | | 4,105 |
| | 2,142 |
| | (2,945 | ) | | |
| Pension and Postretirement Plans: | | | | | | | | |
| Amortization of prior service cost and net actuarial gain/(loss) | | 10,156 |
| | 11,814 |
| | 9,101 |
| | All other expense |
| Tax expense/(benefit) | | (2,510 | ) | | (2,920 | ) | | (3,483 | ) | | Provision/(benefit) for income taxes |
| | | 7,646 |
| | 8,894 |
| | 5,618 |
| | |
| Total reclassification from AOCI | | $ | 11,952 |
| | $ | 10,997 |
| | $ | 2,375 |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | | | |
| Details about AOCI | | 2021 | | 2020 | | 2019 | | Affected line item in the statement where net income is presented |
| Securities AFS: | | | | | | | | |
| Realized (gains) losses on securities AFS | | $ | — | | | $ | 4 | | | $ | — | | | Securities gains (losses), net |
| Tax expense (benefit) | | — | | | (1) | | | — | | | Income tax expense |
| | — | | | 3 | | | — | | | |
| Cash flow hedges: | | | | | | | | |
| Realized (gains) losses on cash flow hedges | | (9) | | | (8) | | | 5 | | | Interest and fees on loans and leases |
| Tax expense (benefit) | | 2 | | | 2 | | | (1) | | | Income tax expense |
| | (7) | | | (6) | | | 4 | | | |
| Pension and Postretirement Plans: | | | | | | | | |
| Amortization of prior service cost and net actuarial (gain) loss | | 10 | | | 13 | | | 10 | | | Other expense |
| Tax expense (benefit) | | (2) | | | (3) | | | (3) | | | Income tax expense |
| | 8 | | | 10 | | | 7 | | | |
| Total reclassification from AOCI | | $ | 1 | | | $ | 7 | | | $ | 11 | | | |
| | | | | | | | |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 169 | | | | | | | | |
| 162 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 15—INCOME TAXES | |
Note 15 – 15—Income Taxes
The aggregate amount of income taxes included in the Consolidated Statements of Income and the Consolidated Statements of Changes in Equity for the years ended December 31, were as follows:
Table 8.15.1
|
| | | | | | | | | | | | |
| (Dollars in thousands) | | 2019 | | 2018 | | 2017 |
| Consolidated Statements of Income: | | | | | | |
| Income tax expense/(benefit) | | $ | 133,291 |
| | $ | 157,602 |
| | $ | 131,892 |
|
| Consolidated Statements of Equity: | | |
| | |
| | |
|
| Income tax expense/(benefit) related to: | | |
| | |
| | |
|
| Net unrealized gains/(losses) on pension and other postretirement plans | | 4,876 |
| | (177 | ) | | (832 | ) |
| Net unrealized gains/(losses) on securities available-for-sale | | 35,062 |
| | (16,054 | ) | | (2,955 | ) |
| Net unrealized gains/(losses) on cash flow hedges | | 5,035 |
| | (1,360 | ) | | (3,163 | ) |
| Total | | $ | 178,264 |
| | $ | 140,011 |
| | $ | 124,942 |
|
| | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 |
| Consolidated Statements of Income: | | | | | | |
| Income tax expense | | $ | 274 | | | $ | 76 | | | $ | 134 | |
| Consolidated Statements of Changes in Equity: | | | | | | |
| Income tax expense (benefit) related to: | | | | | | |
| Net unrealized gains on pension and other postretirement plans | | 2 | | | 3 | | | 5 | |
| Net unrealized gains (losses) on securities available for sale | | (46) | | | 25 | | | 35 | |
| Net unrealized gains (losses) on cash flow hedges | | (3) | | | 3 | | | 5 | |
| | | | | | |
| Total | | $ | 227 | | | $ | 107 | | | $ | 179 | |
| | | | | | |
The components of income tax expense/expense (benefit) for the years ended December 31, were as follows:
Table 8.15.2
|
| | | | | | | | | | | | |
| (Dollars in thousands) | | 2019 | | 2018 | | 2017 |
| Current: | | | | | | |
| Federal | | $ | 105,294 |
| | $ | 44,088 |
| | $ | 10,012 |
|
| State | | 13,640 |
| | 9,957 |
| | 879 |
|
| Deferred: | | |
| | | | |
|
| Federal | | 5,091 |
| | 81,852 |
| | 114,059 |
|
| State | | 9,266 |
| | 21,705 |
| | 6,942 |
|
| Total | | $ | 133,291 |
| | $ | 157,602 |
| | $ | 131,892 |
|
| | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 |
| Current: | | | | | | |
| Federal | | $ | 235 | | | $ | 80 | | | $ | 106 | |
| State | | 39 | | | 14 | | | 14 | |
| | | | | | |
| Deferred: | | | | | | |
| Federal | | (1) | | | (15) | | | 5 | |
| State | | 1 | | | (3) | | | 9 | |
| | | | | | |
| Total | | $ | 274 | | | $ | 76 | | | $ | 134 | |
| | | | | | |
The Tax Cuts and Jobs Act “Tax Act” was signed into law at the end of 2017. The Tax Act reduced the federal statutory tax rate from 35 percent to 21 percent effective January 1, 2018. FHN recorded approximately $82 million of increase in tax expense related to the effects of the Tax Act during 2017 which was primarily related to an adjustment of DTA balances to the lower federal tax rate. In 2018, FHN recorded a tax benefit of $6.7 million related to the finalization of tax items for the 2017 tax return.
A reconciliation of expected income tax expense/expense (benefit) at the federal statutory rate of 21 percent21% for 2021, 2020, and 2019, and 2018, respectively and 35 percent for 2017 to the total income tax expense follows:
|
| | | | | | | | | | | | |
| (Dollars in thousands) | | 2019 | | 2018 | | 2017 |
| Federal income tax rate | | 21% | | 21% | | 35% |
| Tax computed at statutory rate | | $ | 122,989 |
| | $ | 149,963 |
| | $ | 108,105 |
|
| Increase/(decrease) resulting from: | | |
| | |
| | |
|
| State income taxes, net of federal income tax benefit | | 15,319 |
| | 24,553 |
| | 4,753 |
|
| Bank-owned life insurance (“BOLI”) | | (4,915 | ) | | (3,626 | ) | | (8,401 | ) |
| 401(k) – employee stock ownership plan (“ESOP”) | | (764 | ) | | (653 | ) | | (904 | ) |
| Tax-exempt interest | | (6,480 | ) | | (6,538 | ) | | (7,890 | ) |
| Non-deductible expenses | | 10,609 |
| | 8,301 |
| | 7,558 |
|
| LIHTC credits and benefits, net of amortization | | (4,419 | ) | | (7,178 | ) | | (5,327 | ) |
| Other tax credits | | — |
| | (2,825 | ) | | (2,480 | ) |
| Change in valuation allowance – DTA | | (74 | ) | | (73 | ) | | (40,473 | ) |
| Other changes in unrecognized tax benefits | | 4,044 |
| | 6,143 |
| | 46 |
|
| Effect of Tax Act | | — |
| | (6,746 | ) | | 82,027 |
|
| Other | | (3,018 | ) | | (3,719 | ) | | (5,122 | ) |
| Total | | $ | 133,291 |
| | $ | 157,602 |
| | $ | 131,892 |
|
| | | | | | | | |
| 163 | 2021 FORM 10-K ANNUAL REPORT |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 170
Note 15 – Income Taxes (Continued)
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 15—INCOME TAXES | |
Table 8.15.3
RECONCILIATION FROM STATUTORY RATES
| | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 |
| Federal income tax rate | | 21 | % | | 21 | % | | 21 | % |
| Tax computed at statutory rate | | $ | 270 | | | $ | 196 | | | $ | 123 | |
| Increase (decrease) resulting from: | | | | | | |
| State income taxes, net of federal income tax benefit | | 32 | | | 9 | | | 15 | |
| Bank-owned life insurance | | (7) | | | (6) | | | (5) | |
| 401(k) – employee stock ownership plan | | (1) | | | (1) | | | (1) | |
| Tax-exempt interest | | (10) | | | (8) | | | (6) | |
| Non-deductible expenses | | 8 | | | 13 | | | 11 | |
| LIHTC credits and benefits, net of amortization | | (14) | | | (9) | | | (4) | |
| Other tax credits | | (4) | | | (5) | | | — | |
| | | | | | |
| Other changes in unrecognized tax benefits | | 4 | | | (9) | | | 4 | |
| Purchase accounting gain | | — | | | (112) | | | — | |
| | | | | | |
| Other | | (4) | | | 8 | | | (3) | |
| Total | | $ | 274 | | | $ | 76 | | | $ | 134 | |
| | | | | | |
As of December 31, 2019,2021, FHN had net deferred tax asset balances related to federal and state income tax carryforwards of $43.8$38 million and $1.2$2 million, respectively, which will expire at various dates as follows:
Table 8.15.4
TAX CARRYFORWARD DTA EXPIRATION DATES
| | | | | | | | | | | | | | |
| (Dollars in millions) | | Expiration Dates | | Net Deferred Tax
Asset Balance |
| Losses - federal | | 2026 - 2035 | | $ | 38 | |
| | | | |
| Net operating losses - states | | 2027 - 2040 | | 2 | |
| | | | |
| | | | |
|
| | | | | | |
| (Dollars in thousands) | | Expiration Dates | | Net Deferred Tax Asset Balance |
| Losses-federal | | 2028-2033 | | $ | 43,774 |
|
| Net operating losses-states | | 2020-2022 | | 62 |
|
| Net operating losses-states | | 2025-2035 | | 1,124 |
|
A deferred tax asset (“DTA”)DTA or deferred tax liability (“DTL”)DTL is recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax consequence is calculated by applying enacted statutory tax rates, applicable to future years, to these temporary differences. In order to support the recognition of the DTA, FHN’s management must believe that the realization of the DTA is more likely than not. FHN evaluates the likelihood of realization of the DTA based on both positive and negative evidence available at the time, including (as appropriate) scheduled reversals of DTLs, projected future taxable income, tax planning strategies, and recent financial performance. Realization is dependent on generating sufficient taxable income prior to the expiration of the carryforwards attributable to the DTA. In projecting future taxable income, FHN incorporates assumptions including the estimated amount of future state and federal pretax operating income, the reversal of temporary differences, and the
implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates used to manage the underlying business.
As of December 31, 2019,2021, FHN's net DTA was $69.0$52 million compared to the $127.9less than $1 million at December 31, 2018.2020. At December 31, 2019,2021, FHN's gross DTA (net of a valuation allowance) and gross DTL were $250.6$448 million and $181.6$396 million, respectively. Although realization is not assured, FHN believes that it meets the more-likely-than-not requirement with respect to the net DTA after valuation allowance.
Temporary differences which gave rise to deferred tax assets and deferred tax liabilities on December 31, 20192021 and 20182020 were as follows:
| | | | | | | | |
| 164 | 2021 FORM 10-K ANNUAL REPORT |
|
| | | | | | | | |
| (Dollars in thousands) | | 2019 | | 2018 |
| Deferred tax assets: | | |
| | |
|
| Loss reserves | | $ | 58,251 |
| | $ | 65,015 |
|
| Employee benefits | | 68,254 |
| | 64,843 |
|
| Accrued expenses | | 4,340 |
| | 15,763 |
|
| Lease liability | | 55,543 |
| | — |
|
| Federal loss carryforwards | | 43,774 |
| | 49,821 |
|
| State loss carryforwards | | 1,186 |
| | 7,225 |
|
| Investment in debt securities (ASC 320) (a) | | — |
| | 24,863 |
|
| Other | | 19,255 |
| | 27,168 |
|
| Gross deferred tax assets | | 250,603 |
| | 254,698 |
|
| Valuation allowance | | — |
| | (74 | ) |
| Deferred tax assets after valuation allowance | | $ | 250,603 |
| | $ | 254,624 |
|
| Deferred tax liabilities: | | |
| | |
|
| Depreciation and amortization | | $ | 50,725 |
| | $ | 51,519 |
|
| Investment in debt securities (ASC 320) (a) | | 10,154 |
| | — |
|
| Equity investments | | 3,656 |
| | 7,705 |
|
| Other intangible assets | | 56,352 |
| | 57,632 |
|
| Prepaid expenses | | 10,024 |
| | 9,218 |
|
| ROU lease asset | | 50,151 |
| | — |
|
| Other | | 540 |
| | 683 |
|
| Gross deferred tax liabilities | | 181,602 |
| | 126,757 |
|
| Net deferred tax assets | | $ | 69,001 |
| | $ | 127,867 |
|
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 15—INCOME TAXES | |
Table 8.15.5
COMPONENTS OF DTAs & DTLs
| | | | | | | | | | | | | | |
| (Dollars in millions) | | 2021 | | 2020 |
| Deferred tax assets: | | | | |
| Loss reserves | | $ | 161 | | | $ | 205 | |
| Employee benefits | | 83 | | | 86 | |
| | | | |
| Accrued expenses | | 16 | | | 7 | |
| Depreciation and amortization | | 13 | | | — | |
| | | | |
| Lease liability | | 94 | | | 100 | |
| Federal loss carryforwards | | 38 | | | 44 | |
| State loss carryforwards | | 2 | | | 9 | |
| Investment in debt securities (ASC 320) (a) | | 12 | | | — | |
| Other | | 29 | | | 20 | |
| Gross deferred tax assets | | 448 | | | 471 | |
| | | | |
| | | | |
| Deferred tax liabilities: | | | | |
| Depreciation and amortization | | $ | — | | | $ | 83 | |
| Investment in debt securities (ASC 320) (a) | | — | | | 35 | |
| Equity investments | | 4 | | | 11 | |
| Other intangible assets | | 86 | | | 93 | |
| Prepaid expenses | | 18 | | | 15 | |
| | | | |
| ROU lease asset | | 85 | | | 89 | |
| Leasing | | 198 | | | 135 | |
| Other | | 5 | | | 10 | |
| Gross deferred tax liabilities | | 396 | | | 471 | |
| Net deferred tax assets | | $ | 52 | | | $ | — | |
| | | | |
(a) Tax effects of unrealized gains and losses are tracked on a security-by-security basis.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 171
Note 15 – Income Taxes (Continued)
The total unrecognized tax benefits (“UTB”) at December 31, 20192021 and 2018,2020, was $24.4$92 million and $20.2$70 million, respectively. To the extent such unrecognized tax benefits as of December 31, 20192021 are subsequently recognized, $18.4$42 million of tax benefits wouldcould impact tax expense and FHN’s effective tax rate in future periods.
FHN is currently inunder audit in several jurisdictions. It is reasonably possible that the UTBunrecognized tax benefits related to federal and state exposures could decrease by $6.7$58 million and $.5 million, respectively during 20202022 if audits are completed and settled and if the applicable statutes of limitations expire as scheduled.
FHN recognizes interest accrued and penalties related to UTBunrecognized tax benefits within income tax expense. FHN had approximately $2.9$14 million and $1.6$11 million accrued for the payment of interest as of December 31, 20192021 and 2018,2020, respectively. The total amount of interest and penalties recognized in the Consolidated Statements of Income during both 20192021 and 20182020 was an expense of $1.3 million.$3 million and $8 million, respectively.
The rollforward of unrecognized tax benefits is shown below:in the following table:
|
| | | | |
| (Dollars in thousands) | | |
| Balance at December 31, 2017 | | $ | 4,271 |
|
| Increases related to prior year tax positions | | 16,695 |
|
| Increases related to current year tax positions | | 1,576 |
|
| Settlements | | (2,080 | ) |
| Lapse of statutes | | (278 | ) |
| Balance at December 31, 2018 | | $ | 20,184 |
|
| Increases related to prior year tax positions | | 2,522 |
|
| Increases related to current year tax positions | | 2,170 |
|
| Lapse of statutes | | (460 | ) |
| Balance at December 31, 2019 | | $ | 24,416 |
|
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 172 | | | | | | | | |
| 165 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 15—INCOME TAXES | |
Table 8.15.6
ROLLFORWARD OF UNRECOGNIZED TAX BENEFITS
| | | | | | | | |
| (Dollars in millions) | | |
| Balance at December 31, 2019 | | $ | 24 | |
| Increases related to prior year tax positions | | 56 | |
| Increases related to current year tax positions | | 1 | |
| Settlements | | (10) | |
| Lapse of statutes | | (1) | |
| Balance at December 31, 2020 | | $ | 70 | |
| Increases related to prior year tax positions | | 24 | |
| Increases related to current year tax positions | | 1 | |
| | |
| Lapse of statutes | | (3) | |
| Balance at December 31, 2021 | | $ | 92 | |
| | |
| | | | | | | | |
| 166 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 16—EARNINGS PER SHARE | |
Note 16 – 16—Earnings Per Share
The following table provides reconciliations of net income to net income available to common shareholders and the difference between average basic common shares outstanding and average diluted common shares outstanding:
Table 8.16.1
NET INCOME & COMMON SHARE RECONCILIATIONS
| | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions, except per share data; shares in thousands) | | 2021 | | 2020 | | 2019 |
| Net income | | $ | 1,010 | | | $ | 857 | | | $ | 452 | |
| Net income attributable to noncontrolling interest | | 11 | | | 12 | | | 11 | |
| Net income attributable to controlling interest | | 999 | | | 845 | | | 441 | |
| Preferred stock dividends | | 37 | | | 23 | | | 6 | |
| Net income available to common shareholders | | $ | 962 | | | $ | 822 | | | $ | 435 | |
| | | | | | |
| Weighted average common shares outstanding—basic | | 546,354 | | | 432,125 | | | 313,637 | |
| Effect of dilutive securities | | 4,887 | | | 1,592 | | | 2,020 | |
| Weighted average common shares outstanding—diluted | | 551,241 | | | 433,717 | | | 315,657 | |
| | | | | | |
| Basic earnings per common share | | $ | 1.76 | | | $ | 1.90 | | | $ | 1.39 | |
| Diluted earnings per common share | | $ | 1.74 | | | $ | 1.89 | | | $ | 1.38 | |
| | | | | | |
|
| | | | | | | | | | | | |
| (Dollars and shares in thousands, except per share data) | | 2019 | | 2018 | | 2017 |
| Net income/(loss) | | $ | 452,373 |
| | $ | 556,507 |
| | $ | 176,980 |
|
| Net income attributable to noncontrolling interest | | 11,465 |
| | 11,465 |
| | 11,465 |
|
| Net income/(loss) attributable to controlling interest | | 440,908 |
| | 545,042 |
| | 165,515 |
|
| Preferred stock dividends | | 6,200 |
| | 6,200 |
| | 6,200 |
|
| Net income/(loss) available to common shareholders | | $ | 434,708 |
| | $ | 538,842 |
| | $ | 159,315 |
|
| | |
|
| | | | |
| Weighted average common shares outstanding—basic | | 313,637 |
| | 324,375 |
| | 241,436 |
|
| Effect of dilutive securities | | 2,020 |
| | 3,070 |
| | 3,017 |
|
| Weighted average common shares outstanding—diluted | | 315,657 |
| | 327,445 |
| | 244,453 |
|
| | | | | | | |
| Net income/(loss) per share available to common shareholders | | $ | 1.39 |
| | $ | 1.66 |
| | $ | 0.66 |
|
| Diluted income/(loss) per share available to common shareholders | | $ | 1.38 |
| | $ | 1.65 |
| | $ | 0.65 |
|
The following table presents outstanding options and other equity awards that were excluded from the calculation of diluted earnings per share because they were either anti-dilutive (the exercise price was higher
than the weighted-average market price for the period) or the performance conditions have not been met:
Table 8.16.2
ANTI-DILUTIVE EQUITY AWARDS
| | | | | | | | | | | | | | | | | | | | |
| (Shares in thousands) | | 2021 | | 2020 | | 2019 |
| Stock options excluded from the calculation of diluted EPS | | 1,366 | | | 4,595 | | | 2,359 | |
| Weighted average exercise price of stock options excluded from the calculation of diluted EPS | | $ | 20.44 | | | $ | 17.47 | | | $ | 21.12 | |
| Other equity awards excluded from the calculation of diluted EPS | | 1,531 | | | 3,639 | | | 2,224 | |
|
| | | | | | | | | | | | |
| (Shares in thousands) | | 2019 | | 2018 | | 2017 |
| Stock options excluded from the calculation of diluted EPS | | 2,359 |
| | 2,256 |
| | 2,468 |
|
| Weighted average exercise price of stock options excluded from the calculation of diluted EPS | | $ | 21.12 |
| | $ | 24.33 |
| | $ | 25.62 |
|
| Other equity awards excluded from the calculation of diluted EPS | | 2,224 |
| | 608 |
| | 176 |
|
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 173 | | | | | | | | |
| 167 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 17—CONTINGENCIES & OTHER DISCLOSURES | |
Note 17 – 17—Contingencies and Other Disclosures
CONTINGENCIESContingencies
Contingent Liabilities Overview
Contingent liabilities arise in the ordinary course of business. Often they are related to lawsuits, arbitration, mediation, and other forms of litigation. Various litigation matters are threatened or pending against FHN and its subsidiaries. Also, FHN at times receives requests for information, subpoenas, or other inquiries from federal, state, and local regulators, from other government authorities, and from other parties concerning various matters relating to FHN’s current or former businesses. Certain matters of that sort are pending at this time,most times, and FHN is cooperating ingenerally cooperates when those matters.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.arbitrator, or are withdrawn. Regardless of the manner of resolution, frequently the most significant changes in status of a matter occur over a short time period, often following a lengthy period of little substantive activity. In view of the inherent difficulty of predicting the outcome of these matters, particularly where the claimants seek very large or indeterminate damages, or where the cases present novel legal theories or involve a large number of parties, or where claims or other actions may be possible but have not been brought, FHN cannot reasonably determine what the eventual outcome of the matters will be, what the timing of the ultimate resolution of these matters may be, or what the eventual loss or impact related to each matter may be. FHN establishes a loss contingency liability for a litigation matter when loss is both probable and reasonably estimable as prescribed by applicable financial accounting guidance. If loss for a matter is probable and a range of possible loss outcomes is the best estimate available, accounting guidance requires a liability to be established at the low end of the range.
Based on current knowledge, and after consultation with counsel, management is of the opinion that loss contingencies related to threatened or pending litigation matters should not have a material adverse effect on the consolidated financial condition of FHN, but may be material to FHN’s operating results for any particular reporting period depending, in part, on the results from that period.
Material Loss Contingency Matters
Summary
As used in this Note, except for matters that are reported as having been substantially settled or otherwise substantially resolved, FHN's “material loss contingency matters” generally fall into at least one of the following categories: (i) FHN has determined material loss to be probable and has established a material loss liability in accordance with applicable financial accounting guidance;
(ii) FHN has determined material loss to be probable but is not reasonably able to estimate an amount or range of material loss liability; or (iii) FHN has determined that material loss is not probable but is reasonably possible, and that 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. Set forth below areFHN 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, 2019,2021, the aggregate amount of liabilities established for all such loss contingency matters was $.7$2 million. These liabilities are separate from those discussed under the heading “LoanMortgage Loan Repurchase and Foreclosure Liability”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, 2019,2021, FHN is unable to estimate anyestimates that for all material loss contingency matters, estimable reasonably possible losses ("RPLs") for contingency matters in future periods in excess of currently established liabilities.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.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 174
Note 17 - Contingencies and Other Disclosures (Continued)
Material Matters
FHN was one of multiple defendants in a consolidated putative class action suit: In re GSE Bonds Antitrust Litigation, No. 1:19-cv-01704-JSR (U.S. District Court S.D.N.Y.). The plaintiffs claim that defendants conspired to fix secondary market prices of government-sponsored enterprise (“GSE”) bonds from 2009 through 2015. During the third quarter, FHN reached a class settlement with the plaintiffs, subject to court approval, without admitting liability. Though still subject to court approval, the settlement was paid before year-end and therefore isAt December 31, 2021, no longer reflected in established liabilities.
On February 26, 2020, a former shareholder of Capital Bank Financial Corp. ("CBF") filed a putative class action suit, Searles v. DeMartini et al, No. 2020-0136 (Del. Chancery), against certain former directors, officers, and shareholders of CBF, alleging, among other things, that defendants breached certain fiduciary duties in connection with CBF's merger with FHN in 2017. Plaintiff claims unspecified damages related to the merger consideration and opportunity loss. FHN is unable to estimate an RPL range for this matter due to significant uncertainties regarding: whether a class will be certified and, if so, the composition of the class; the amount of potential damages that might be awarded, if any; of any such damages amount, the amount that FHN would be obliged to indemnify; the availability of applicable insurance; and the outcome of discovery, which has not yet begun.pending or known threatened matters were material loss contingency matters, as described above.
Exposures from pre-2009 Mortgage Business
FHN is contending with indemnification claims related to "other whole loans sold," which were mortgage loans originated by FHN before 2009 and sold outside of an FHN securitization.a securitization organized by FHN. These claims generally assert that FHN-originated loans contributed to losses in
| | | | | | | | |
| 168 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 17—CONTINGENCIES & OTHER DISCLOSURES | |
connection with mortgage loans securitized by the buyer of the loans. The claims generally do not include specific deficiencies for specific loans sold by FHN. Instead, the claims generally assert that FHN is liable for a share of the claimant's loss estimated by assessing the totality of the other whole loans sold by FHN to claimant in relation to the totality of the larger number of loans securitized by claimant. FHN is unable to estimate an RPL range for these matters due to significant uncertainties regarding: the number of, and the facts underlying, the loan originations which claimants assert are indemnifiable; the applicability of FHN’s contractual indemnity covenants to those facts and originations; and, in those cases where an indemnity claim may be supported, whether any legal defenses, counterclaims, other counter-positions, or third-party claims might eliminate or reduce claims against FHN or their impact on FHN.
FHN also has indemnification claims related to servicing obligations. The most significant is from Nationstar Mortgage LLC, currently doing business as “Mr. Cooper.” Nationstar was the purchaser of FHN’s mortgage servicing obligations and assets in 2013 and 2014 and, starting in 2011, was FHN’s subservicer. Nationstar asserts several categories of indemnity obligations in connection with mortgage loans under the subservicing arrangement and under the purchase transaction. This matter currently is not in litigation, but litigation in the future is possible. FHN is unable to estimate an RPL range for this matter due to significant uncertainties regarding: the exact nature of each of Nationstar’s claims and its position in respect of each; the number of, and the facts underlying, the claimed instances of indemnifiable events; the applicability of FHN’s contractual indemnity covenants to those facts and events; and, in those cases where the facts and events might support an indemnity claim, whether any legal defenses, counterclaims, other counter-positions, or third-party claims might eliminate or reduce claims against FHN or their impact on FHN.
FHN has additional potential exposures related to its pre-2009 mortgage businesses. A few of those matters have become litigation which FHN currently estimates are immaterial, some are non-litigation claims or threats, some are mere subpoenas or other requests for information, and in some areas FHN has no indication of any active or threatened dispute. Some of those matters might eventually result in settlements, and some might eventually result in adverse litigation outcomes, but none are included in the material loss contingency liabilities mentioned above or in the RPL range mentioned above.
Mortgage Loan Repurchase and Foreclosure Liability
FHN’s repurchase and foreclosure liability, primarily related to its pre-2009 mortgage businesses, is comprised of accruals to cover estimated loss content in the active pipeline (consisting of mortgage loan repurchase, make-whole, foreclosure/servicing demands and certain related
exposures), estimated future inflows, and estimated loss content related to certain known claims not currently included in the active pipeline. FHN compares the estimated probable incurred losses determined under the applicable loss estimation approaches for the respective periods with current reserve levels. Changes in the estimated required liability levels are recorded as necessary through the repurchase and foreclosure provision.
Based on currently available information and experience to date, FHN has evaluated its loan repurchase, make-whole, foreclosure, and certain related exposures and has accrued for losses of $14.5$17 million and $32.3$16 million as of December 31,
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 175
Note 17 - Contingencies and Other Disclosures (Continued)
2019 2021 and December 31, 2018,2020, respectively. Accrued liabilities for FHN’s estimate of these obligations are reflected in Otherother liabilities on the Consolidated Statements of Condition.Balance Sheets. Charges/expense reversals to increase/decrease the liability are included within Repurchase and foreclosure provision/(provision credit)other income on the Consolidated Statements of Income. The estimates are based upon currently available information and fact patterns that exist as of each balance sheet date and could be subject to future changes. Changes to any one of these factors could significantly impact the estimate of FHN’s liability.
OTHER DISCLOSURESOther 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.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 176
| | | | | | | | |
| 169 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 18—RETIREMENT PLANS & OTHER EMPLOYEE BENEFITS | |
Note 18 – Pension, Savings,18—Retirement Plans and Other Employee Benefits
Pension plan.Plan
FHN sponsors a noncontributory, qualified defined benefit pension plan to employees hired or re-hired on or before September 1, 2007. Pension benefits are based on years of service, average compensation near retirement or other termination, and estimated social security benefits at age 65. Benefits under the plan are “frozen” so that years of service and compensation changes after 2012 do not affect the benefit owed. Minimum contributions are based upon actuarially determined amounts necessary to fund the total benefit obligation. Decisions to contribute to the plan are based upon pension funding requirements under the Pension Protection Act, the maximum amount deductible under the Internal Revenue Code, the actual performance of plan assets, and trends in the regulatory environment. FHN made no contributionsa contribution of $6 million to the qualified pension plan in 20192021, and 2017,no contributions were made in 2020 and made an insignificant contribution to the qualified pension plan in 2018.2019. Management does not currently anticipate that FHN will make a contribution to the qualified pension plan in 2020.
FHN assumed 2 additional qualified pension plans in conjunction with the CBF acquisition. Both legacy CBF plans were frozen at the time of acquisition. As of December 31, 2018, the aggregate benefit obligation for the plans was $17.1 million and aggregate plan assets were $16.5 million. Benefit payments, expense and actuarial gains/losses related to these plans were insignificant for the first half of 2019 and 2018. In third quarter 2019, FHN settled these plans through the purchase of annuity contracts, making related contributions of $.5 million. Due to the insignificant financial statement impact, these two plans are not included in the disclosures that follow.2022.
FHN also maintains non-qualified plans including a supplemental retirement plan that covers certain employees whose benefits under the qualified pension plan have been limited by tax rules. These other non-qualified plans are unfunded, and contributions to these plans cover all benefits paid under the non-qualified plans. Payments made under the non-qualified plans were $5.2$5 million for 2019.2021. FHN anticipates making benefit payments under the non-qualified plans of $5.2$5 million in 2020.2022.
Savings plan.Plan
FHN provides all qualifying full-time employees with the opportunity to participate in FHN's tax qualifiedqualified 401(k) savings plan. The qualified plan allows employees to defer receipt of earned salary, up to tax law limits, on a tax-advantagedtax-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 percent100% match for the first 6 percent6% 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 $27.7$51 million for 2019, $29.32021, $37 million for 2018,2020, and $23.0$28 million for 2017.2019.
Other employee benefits.Employee Benefits
FHN provides postretirement life insurance benefits to certain employees and also provides postretirement medical insurance benefits to retirement-eligible employees.employees, including certain prescription drug benefits. The postretirement medical plan is contributory with FHN contributing a fixed amount for certain participants. FHN’s postretirement benefits include certain prescription drug benefits.
Actuarial assumptions.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 thirty30 years. Given its funded status, the asset allocation strategy for the qualified pension plan utilizes fixed income instruments that closely match the estimated duration of payment obligations. Consequently, FHN selected a 4.80 percent assumption for 2019 for the qualified defined benefit pension plan and a .05 percent assumption forpostretirement medical plan assets dedicated to employees who retired prior to January 1, 1993. FHN selected a 6.85 percent assumption for 2019 for postretirement medical plan assets dedicated to employees who retired after January 1, 1993.
The discount rates for the three years ended 20192021 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 thirty30 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
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 177
Note 18 – Pension, Savings, and Other Employee Benefits (Continued)
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:
|
| | | | | | | | | | | | |
| | | Benefit Obligations | | Net Periodic Benefit Cost |
| 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
| Discount rate | | | | | | | | | | | | |
| Qualified pension | | 3.31% | | 4.43% | | 3.76% | | 4.43% | | 3.75% | | 4.37% |
| Nonqualified pension | | 3.08% | | 4.26% | | 3.59% | | 4.26% | | 3.59% | | 4.07% |
| Other nonqualified pension | | 2.57% | | 3.83% | | 3.19% | | 3.83% | | 3.19% | | 3.39% |
| Postretirement benefits | | 2.85% - 3.44% | | 4.03% - 4.56% | | 3.37% - 3.87% | | 4.04% - 4.56% | | 3.35% - 3.87% | | 3.68% - 4.57% |
| Expected long-term rate of return | | | | | | | | | | | | |
Qualified pension/ postretirement benefits | | N/A | | N/A | | N/A | | 4.80% | | 4.20% | | 4.50% |
| Postretirement benefit (retirees post January 1, 1993) | | N/A | | N/A | | N/A | | 6.85% | | 5.95% | | 6.00% |
| Postretirement benefit (retirees prior to January 1, 1993) | | N/A | | N/A | | N/A | | 0.05% | | 2.15% | | 2.15% |
The rate of compensation increase previously had a significant effect on the actuarial assumptions used for the defined benefit pension plan. However, since
| | | | | | | | |
| 170 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 18—RETIREMENT PLANS & OTHER EMPLOYEE BENEFITS | |
Table 8.18.1
ACTUARIAL ASSUMPTIONS FOR DEFINED BENEFIT PLANS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Benefit Obligations | | Net Periodic Benefit Cost |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| Discount rate | | | | | | | | | | | | |
| Qualified pension | | 2.95% | | 2.63% | | 3.31% | | 2.64% | | 3.31% | | 4.43% |
| Nonqualified pension | | 2.65% | | 2.24% | | 3.08% | | 2.24% | | 3.08% | | 4.26% |
| Other nonqualified pension | | 1.99% | | 1.41% | | 2.57% | | 1.41% | | 2.57% | | 3.83% |
| Postretirement benefits | | 2.43%-3.07% | | 1.92% - 2.81% | | 2.85% - 3.44% | | 1.93%-2.81% | | 2.87% - 3.44% | | 4.04% - 4.56% |
| Expected long-term rate of return | | | | | | | | | | | | |
Qualified pension/
postretirement benefits | | N/A | | N/A | | N/A | | 2.30% | | 3.45% | | 4.80% |
| Postretirement benefit (retirees post January 1, 1993) | | N/A | | N/A | | N/A | | 5.80% | | 6.40% | | 6.85% |
| Postretirement benefit (retirees prior to January 1, 1993) | | N/A | | N/A | | N/A | | 1.00% | | 0.90% | | 0.05% |
Since the benefits in the defined benefit pension plan are frozen, the rate of compensation increase has no effect uponon qualified pension benefits.
FHN has 1 pension plan where participants' benefits are affected by interest crediting rates. The plan's projected benefit obligation as of December 31, 2019, 20182021, 2020 and 20172019 and interest crediting rates for the respective years are:were as follows:
|
| | | | | | | | | | | | |
| (Dollars in thousands) | | 2019 | | 2018 | | 2017 |
| Projected benefit obligation | | $ | 16,213 |
| | $ | 16,947 |
| | $ | 19,115 |
|
| Interest crediting rate | | 9.66 | % | | 10.12 | % | | 9.28 | % |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 178
Note 18 – Pension, Savings, and Other Employee Benefits (Continued)
| | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 |
| Projected benefit obligation | | $ | 12 | | | $ | 15 | | | $ | 16 | |
| Interest crediting rate | | 9.07 | % | | 8.20 | % | | 9.66 | % |
The components of net periodic benefit cost for the plan years 2021, 2020 and 2019 2018 and 2017 arewere as follows:
Table 8.18.3
COMPONENTS OF NET PERIODIC BENEFIT COST
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | Pension Benefits | | Other Benefits |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| Components of net periodic benefit cost | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Interest cost | | $ | 17 | | | $ | 24 | | | $ | 30 | | | $ | 1 | | | $ | 1 | | | $ | 1 | |
| Expected return on plan assets | | (20) | | | (26) | | | (37) | | | (1) | | | (1) | | | (1) | |
| Amortization of unrecognized: | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Actuarial (gain) loss | | 10 | | | 13 | | | 10 | | | — | | | — | | | — | |
| | | | | | | | | | | | |
| Net periodic benefit cost | | $ | 7 | | | $ | 11 | | | $ | 3 | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | Total Pension Benefits | | Other Benefits |
| 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
| Components of net periodic benefit cost | | | | | | | | | | | | |
| Service cost | | $ | 30 |
| | $ | 41 |
| | $ | 37 |
| | $ | 94 |
| | $ | 133 |
| | $ | 107 |
|
| Interest cost | | 30,207 |
| | 27,877 |
| | 29,380 |
| | 1,413 |
| | 1,309 |
| | 1,305 |
|
| Expected return on plan assets | | (36,908 | ) | | (32,897 | ) | | (36,015 | ) | | (1,136 | ) | | (1,074 | ) | | (947 | ) |
| Amortization of unrecognized: | | | | | | | | | | | | |
| Prior service cost/(credit) | | — |
| | — |
| | 52 |
| | 32 |
| | — |
| | 95 |
|
| Actuarial (gain)/loss | | 9,888 |
| | 12,102 |
| | 9,521 |
| | (493 | ) | | (387 | ) | | (567 | ) |
| Net periodic benefit cost | | 3,217 |
| | 7,123 |
| | 2,975 |
| | (90 | ) | | (19 | ) | | (7 | ) |
| ASC 715 settlement expense | | — |
| | — |
| | 43 |
| | 194 |
| | 99 |
| | — |
|
| Total periodic benefit costs | | $ | 3,217 |
| | $ | 7,123 |
| | $ | 3,018 |
| | $ | 104 |
| | $ | 80 |
| | $ | (7 | ) |
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 the fair value of plan assets over five years, as permitted by GAAP.
FHN utilizes a spot rate approach which applies duration-specific rates from the full yield curve to estimated future benefit payments for the determination of interest cost.
The following tables set forth the plans’ benefit obligations and plan assets for 20192021 and 2018:2020:
|
| | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | Total Pension Benefits | | Other Benefits |
| 2019 | | 2018 | | 2019 | | 2018 |
| Change in benefit obligation | | | | | | | | |
| Benefit obligation, beginning of year | | $ | 765,309 |
| | $ | 840,884 |
| | $ | 35,174 |
| | $ | 39,562 |
|
| Service cost | | 30 |
| | 41 |
| | 94 |
| | 133 |
|
| Interest cost | | 30,207 |
| | 27,877 |
| | 1,413 |
| | 1,309 |
|
| Plan Amendments | | — |
| | — |
| | 408 |
| | — |
|
| Actuarial (gain)/loss (a) | | 102,775 |
| | (68,724 | ) | | 6,848 |
| | (3,648 | ) |
| Actual benefits paid | | (38,450 | ) | | (34,769 | ) | | (1,641 | ) | | (2,182 | ) |
| Premium paid for annuity purchase (b) | | (23,997 | ) | | — |
| | — |
| | — |
|
| Benefit obligation, end of year | | $ | 835,874 |
| | $ | 765,309 |
| | $ | 42,296 |
| | $ | 35,174 |
|
| Change in plan assets | | | | | | | | |
| Fair value of plan assets, beginning of year | | $ | 730,953 |
| | $ | 811,244 |
| | $ | 17,432 |
| | $ | 18,753 |
|
| Actual return on plan assets | | 154,054 |
| | (49,470 | ) | | 3,355 |
| | (928 | ) |
| Employer contributions | | 3,510 |
| | 3,948 |
| | 1,259 |
| | 1,789 |
|
| Actual benefits paid – settlement payments | | — |
| | — |
| | (1,641 | ) | | (2,182 | ) |
| Actual benefits paid – other payments | | (38,450 | ) | | (34,769 | ) | | — |
| | — |
|
| Premium paid for annuity purchase (b) | | (23,997 | ) | | — |
| | — |
| | — |
|
| Fair value of plan assets, end of year | | $ | 826,070 |
| | $ | 730,953 |
| | $ | 20,405 |
| | $ | 17,432 |
|
| Funded (unfunded) status of the plans | | $ | (9,804 | ) | | $ | (34,356 | ) | | $ | (21,891 | ) | | $ | (17,742 | ) |
| Amounts recognized in the Statements of Condition | | | | | | | | |
| Other assets | | $ | 27,433 |
| | $ | 1,911 |
| | $ | 17,240 |
| | $ | 14,356 |
|
| Other liabilities | | (37,237 | ) | | (36,267 | ) | | (39,131 | ) | | (32,098 | ) |
| Net asset/(liability) at end of year | | $ | (9,804 | ) | | $ | (34,356 | ) | | $ | (21,891 | ) | | $ | (17,742 | ) |
| | | | | | | | |
(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. 171 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
(b)ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| 2019 amounts represent settlements of certain retired participants in the qualified pension plan that occurred during the year.NOTE 18—RETIREMENT PLANS & OTHER EMPLOYEE BENEFITS | |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 179BENEFIT OBLIGATIONS & PLAN ASSETS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | Pension Benefits | | Other Benefits |
| 2021 | | 2020 | | 2021 | | 2020 |
| Change in benefit obligation | | | | | | | | |
| Benefit obligation, beginning of year | | $ | 893 | | | $ | 836 | | | $ | 46 | | | $ | 42 | |
| | | | | | | | |
| Interest cost | | 17 | | | 24 | | | 1 | | | 1 | |
| | | | | | | | |
| Actuarial (gain) loss (a) | | (26) | | | 70 | | | (5) | | | 4 | |
| Actual benefits paid | | (39) | | | (37) | | | (1) | | | (1) | |
| | | | | | | | |
| Benefit obligation, end of year | | $ | 845 | | | $ | 893 | | | $ | 41 | | | $ | 46 | |
| Change in plan assets | | | | | | | | |
| Fair value of plan assets, beginning of year | | $ | 896 | | | $ | 826 | | | $ | 23 | | | $ | 20 | |
| Actual return on plan assets | | (18) | | | 103 | | | 3 | | | 3 | |
| Employer contributions | | 10 | | | 4 | | | 1 | | | 1 | |
| Actual benefits paid – settlement payments | | (3) | | | (36) | | | (1) | | | (1) | |
| Actual benefits paid – other payments | | (2) | | | (1) | | | — | | | — | |
| Premium paid for annuity purchase (b) | | (34) | | | — | | | — | | | — | |
| Fair value of plan assets, end of year | | $ | 849 | | | $ | 896 | | | $ | 26 | | | $ | 23 | |
| Funded (unfunded) status of the plans | | $ | 4 | | | $ | 3 | | | $ | (15) | | | $ | (23) | |
| Amounts recognized in the Balance Sheets | | | | | | | | |
| Other assets | | $ | 37 | | | $ | 40 | | | $ | 23 | | | $ | 20 | |
| Other liabilities | | (33) | | | (37) | | | (38) | | | (43) | |
| Net asset (liability) at end of year | | $ | 4 | | | $ | 3 | | | $ | (15) | | | $ | (23) | |
| | | | | | | | |
(a)Variances in the actuarial (gain) loss are due to normal activity such as changes in discount rates, updates to participant demographic information and revisions to life expectancy assumptions.
Note 18 – Pension, Savings, and Other Employee Benefits (Continued)
The projected benefit obligation for unfunded plans arewas as follows:
Table 8.18.5
|
| | | | | | | | | | | | | | | | |
| | | Total Pension Benefits | | Other Benefits |
| (Dollars in thousands | | 2019 | | 2018 | | 2019 | | 2018 |
| Projected benefit obligation | | $ | 37,237 |
| | $ | 36,267 |
| | $ | 39,131 |
| | $ | 32,098 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| (Dollars in millions) | | 2021 | | 2020 | | 2021 | | 2020 |
| Projected benefit obligation | | $ | 33 | | | $ | 37 | | | $ | 38 | | | $ | 43 | |
The qualified pension plan was overfunded by $37 million and $41 million as of December 31, 2019 by $27.4 million.2021 and 2020, respectively. Because of the pension freeze as ofat the end of 2012, as of both December 31, 2021 and 2020, the pension benefit obligation andis equivalent to the accumulated benefit obligation are the same as of December 31, 2019 and 2018. The qualified pension plan was overfunded as of December 31, 2018 by $1.9 million.obligation. FHN's funded post retirement plan was also in an overfunded status as of December 31, 20192021 and 2018.2020.
Unrecognized actuarial gains and losses and unrecognized prior service costs and credits are recognized as a component of accumulated other comprehensive income. Balances reflected in accumulated other comprehensive income on a pre-tax basis for the years ended December 31, 20192021 and 20182020 consist of:
|
| | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | Total Pension Benefits | | Other Benefits |
| 2019 | | 2018 | | 2019 | | 2018 |
| Amounts recognized in accumulated other comprehensive income | | | | | | | | |
| Prior service cost/(credit) | | $ | — |
| | $ | — |
| | $ | 408 |
| | $ | — |
|
| Net actuarial (gain)/loss | | 362,799 |
| | 387,058 |
| | (1,555 | ) | | (6,451 | ) |
| Total | | $ | 362,799 |
| | $ | 387,058 |
| | $ | (1,147 | ) | | $ | (6,451 | ) |
| | | | | | | | |
| 172 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 18—RETIREMENT PLANS & OTHER EMPLOYEE BENEFITS | |
Table 8.18.6
PRE-TAX ACTUARIAL GAINS (LOSSES) REFLECTED IN AOCI
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | Pension Benefits | | Other Benefits |
| 2021 | | 2020 | | 2021 | | 2020 |
| Amounts recognized in accumulated other comprehensive income | | | | | | | | |
| | | | | | | | |
| Net actuarial (gain) loss | | $ | 342 | | | $ | 342 | | | $ | (6) | | | $ | 1 | |
| | | | | | | | |
The pre-tax amounts recognized in other comprehensive income during 20192021, 2020, and 20182019 were as follows:
Table 8.18.7
|
| | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | Total Pension Benefits | | Other Benefits |
| 2019 | | 2018 | | 2019 | | 2018 |
| Changes in plan assets and benefit obligation recognized in other comprehensive income | | | | | | | | |
| Net actuarial (gain)/loss arising during measurement period | | $ | (14,371 | ) | | $ | 13,643 |
| | $ | 4,629 |
| | $ | (1,646 | ) |
| Prior service cost/(credit) arising during measurement period | | — |
| | — |
| | 408 |
| | — |
|
| Items amortized during the measurement period: | | | | | | | | |
| Prior service credit/(cost) | | — |
| | — |
| | (32 | ) | | — |
|
| Net actuarial gain/(loss) | | (9,888 | ) | | (12,102 | ) | | 299 |
| | 288 |
|
| Total recognized in other comprehensive income | | $ | (24,259 | ) | | $ | 1,541 |
| | $ | 5,304 |
| | $ | (1,358 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | Pension Benefits | | Other Benefits |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| Changes in plan assets and benefit obligation recognized in other comprehensive income | | | | | | | | | | | | |
| Net actuarial (gain) loss arising during measurement period | | $ | 13 | | | $ | (8) | | | $ | (14) | | | $ | (7) | | | $ | 3 | | | $ | 5 | |
| | | | | | | | | | | | |
| Items amortized during the measurement period: | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Net actuarial gain (loss) | | (10) | | | (13) | | | (10) | | | — | | | — | | | — | |
| Total recognized in other comprehensive income | | $ | 3 | | | $ | (21) | | | $ | (24) | | | $ | (7) | | | $ | 3 | | | $ | 5 | |
| | | | | | | | | | | | |
FHN utilizes the minimum amortization method in determining the amount of actuarial gains or losses to include in plan expense. Under this approach, the net deferred actuarial gain or loss that exceeds a threshold is amortized over the average remaining service period of active plan participants. The threshold is measured as the greater of: 10 percent10% of a plan’s projected benefit obligation as of the beginning of the year or 10 percent10% 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.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 180
Note 18 – Pension, Savings, and Other Employee Benefits (Continued)
The following table provides detail on expected benefit payments, which reflect expected future service, as appropriate:
|
| | | | | | | | |
| (Dollars in thousands) | | Pension Benefits | | Other Benefits |
| 2020 | | $ | 38,304 |
| | $ | 1,675 |
|
| 2021 | | 40,215 |
| | 1,744 |
|
| 2022 | | 41,152 |
| | 1,818 |
|
| 2023 | | 42,631 |
| | 1,897 |
|
| 2024 | | 43,752 |
| | 1,977 |
|
| 2025-2029 | | 231,267 |
| | 11,127 |
|
EXPECTED BENEFIT PAYMENTS
| | | | | | | | | | | | | | |
| (Dollars in millions) | | Pension
Benefits | | Other
Benefits |
| 2022 | | $ | 40 | | | $ | 2 | |
| 2023 | | 42 | | | 2 | |
| 2024 | | 43 | | | 2 | |
| 2025 | | 45 | | | 2 | |
| 2026 | | 46 | | | 2 | |
| 2027-2031 | | 232 | | | 11 | |
Plan assets.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, 20192021 and 2018,2020, FHN did not have any significant concentrations of risk within the plan assets related to the pension plan or the retiree medical plan.
The fair value of FHN’s pension plan assets at December 31, 20192021 and 2018,2020, by asset category classified using the Fair Value measurement hierarchy, is shown in the tabletables below. See Note 24 – Fair Value of Assets and Liabilities for more details about Fair Valuefair value measurements.
| | | | | | | | |
| 173 | 2021 FORM 10-K ANNUAL REPORT |
|
| | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | December 31, 2019 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Cash equivalents and money market funds | | $ | 9,300 |
| | $ | — |
| | $ | — |
| | $ | 9,300 |
|
| Fixed income securities: | | | | | | | | |
| U.S. treasuries | | — |
| | 5,377 |
| | — |
| | 5,377 |
|
| Corporate, municipal and foreign bonds | | — |
| | 514,965 |
| | — |
| | 514,965 |
|
| Common and collective funds: | | | | | | | | |
| Fixed income | | — |
| | 296,428 |
| | — |
| | 296,428 |
|
| Total | | $ | 9,300 |
| | $ | 816,770 |
| | $ | — |
| | $ | 826,070 |
|
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 18—RETIREMENT PLANS & OTHER EMPLOYEE BENEFITS | |
Tables 8.18.9a-b
FAIR VALUE OF PENSION ASSETS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Cash equivalents and money market funds | | $ | 45 | | | $ | — | | | $ | — | | | $ | 45 | |
| Fixed income securities: | | | | | | | | |
| U.S. treasuries | | — | | | 15 | | | — | | | 15 | |
| Corporate, municipal and foreign bonds | | — | | | 445 | | | — | | | 445 | |
| Common and collective funds: | | | | | | | | |
| Fixed income | | — | | | 344 | | | — | | | 344 | |
| Total | | $ | 45 | | | $ | 804 | | | $ | — | | | $ | 849 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | December 31, 2020 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Cash equivalents and money market funds | | $ | 23 | | | $ | — | | | $ | — | | | $ | 23 | |
| Fixed income securities: | | | | | | | | |
| U.S. treasuries | | — | | | 6 | | | — | | | 6 | |
| Corporate, municipal and foreign bonds | | — | | | 488 | | | — | | | 488 | |
| Common and collective funds: | | | | | | | | |
| Fixed income | | — | | | 379 | | | — | | | 379 | |
| Total | | $ | 23 | | | $ | 873 | | | $ | — | | | $ | 896 | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | December 31, 2018 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Cash equivalents and money market funds | | $ | 13,855 |
| | $ | — |
| | $ | — |
| | $ | 13,855 |
|
| Fixed income securities: | | | | | | | | |
| U.S. treasuries | | — |
| | 28,626 |
| | — |
| | 28,626 |
|
| Corporate, municipal and foreign bonds | | — |
| | 688,472 |
| | — |
| | 688,472 |
|
| Total | | $ | 13,855 |
| | $ | 717,098 |
| | $ | — |
| | $ | 730,953 |
|
The Pension and Savings Investment Committees, comprised of senior managers within the organization, meet regularly to review asset performance and potential portfolio revisions.
Adjustments to the qualified pension plan asset allocation primarily reflect changes in anticipated liquidity needs for plan benefits.
The fair value of FHN’s retiree medical plan assets at December 31, 20192021 and 20182020 by asset category are as follows:
FAIR VALUE OF RETIREE MEDICAL PLAN ASSETS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | | |
| Mutual funds: | | | | | | | | |
| Equity mutual funds | | $ | 17 | | | $ | — | | | $ | — | | | $ | 17 | |
| Fixed income mutual funds | | 9 | | | — | | | — | | | 9 | |
| Total | | $ | 26 | | | $ | — | | | $ | — | | | $ | 26 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | December 31, 2020 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | | |
| Mutual funds: | | | | | | | | |
| Equity mutual funds | | $ | 15 | | | $ | — | | | $ | — | | | $ | 15 | |
| Fixed income mutual funds | | 8 | | | — | | | — | | | 8 | |
| Total | | $ | 23 | | | $ | — | | | $ | — | | | $ | 23 | |
| | | | | | | | |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 181
| | | | | | | | |
| 174 | 2021 FORM 10-K ANNUAL REPORT |
Note 18 – Pension, Savings, and Other Employee Benefits (Continued)
|
| | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | December 31, 2019 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Cash equivalents and money market funds | | $ | 130 |
| | $ | — |
| | $ | — |
| | $ | 130 |
|
| Mutual funds: | | | | | | | | |
| Equity mutual funds | | 13,163 |
| | — |
| | — |
| | 13,163 |
|
| Fixed income mutual funds | | 7,112 |
| | — |
| | — |
| | 7,112 |
|
| Total | | $ | 20,405 |
| | $ | — |
| | $ | — |
| | $ | 20,405 |
|
|
| | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | December 31, 2018 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Cash equivalents and money market funds | | $ | 207 |
| | $ | — |
| | $ | — |
| | $ | 207 |
|
| Mutual funds: | | | | | | | | |
| Equity mutual funds | | 10,387 |
| | — |
| | — |
| | 10,387 |
|
| Fixed income mutual funds | | 6,838 |
| | — |
| | — |
| | 6,838 |
|
| Total | | $ | 17,432 |
| | $ | — |
| | $ | — |
| | $ | 17,432 |
|
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 182
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 19—STOCK OPTIONS, RESTRICTED STOCK, & DIVIDEND REINVESTMENT PLANS | |
Note 19 - 19—Stock Options, Restricted Stock, and Dividend Reinvestment Plans
Equity compensation plansCompensation Plans
FHN currently has 1one plan its shareholder-approved Equity Compensation Plan (“ECP”), which authorizes the grant of new stock-based awards, the 2021 Incentive Plan (the IP). New awards under the IP may be granted to employees and directors.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 the ECP, though older stock options and certain deferred stock units remain outstanding under severalpredecessor plans which are no longer are active.
The ECPIP 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 ECPIP also authorizes the grant of stock appreciation rights, though 0no such grants have been made.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 employeeassociate 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 ECPIP 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, 2019,2021, there were 6,350,06212,329,976 shares available for new awards under the ECP. TheIP. This includes the new/additional shares originally authorized under the IP along with shares underlying ECP imposes a separate limit on full-value (non-option) awards which is included withinthat have been forfeited or canceled since the overall limit; at December 31, 2019 there were 4,961,854IP was approved by shareholders, net of shares available to be granted as full-value awards.underlying IP awards that are outstanding or have been paid.
Service condition full-value awards.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 employees,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 rarelygenerally begins no earlier than the firstthird anniversary of grant and rarely extends beyond the fifth anniversary of grant. Annual programs tend to use multiple annual vesting dates while retention programs tend to use a single vesting date, but there are exceptions.
Performance condition awards.awards
Under FHN’s long-term incentive and corporate performance programs, performance stock units (“PSUs”)(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 afterfrom 2014 alsoto 2020 have a post-vest holding period of two years. PSUs granted after 2020 no longer have the 2-year holding period. Recent annual performance awards require pro-rated forfeiture for performance falling between a threshold level and a maximum. Performance awards sometimes are used to provide a narrow, targeted incentive to a single person or small group; one such award which includes a market performance condition to FHN’s Chief Executive Officer (“CEO”)CEO is discussed in the next paragraph. Of the annual program awards paid during 20192021 or outstanding on December 31, 2019:2021: the 20152016 units vested in 2019 and their two year post-vesting holding period ended during 2021, 2017 and 2018 units vested in 2020 and 2021 at the 104.2% and 133.3% payout level, respectively, and remain in a two year post-vesting holding period; performance conditions related to the 2016 units were met at the 104.2 percent payout level and vested in 2019; the three yearsthree-year performance period of the 20172019 units has ended but performance is measured relative to peers and has not yet been determined; and, the three yearsthree-year performance periods for the 20182020 and 20192021 units have not ended.
Market condition award.award
In 2016, FHN made a special grant of performance stock units to FHN’s CEO which will vest at the end of a performance period of seven years. The award has no provision for pro-rated payment based on partial performance. The award’s performance goal is based on achievement of a specific level of total shareholder return during the performance period.
Director awards.awards
Non-employee directors receive cash and annual grants of service-conditioned stock units under a program approved by the board of directors. Director stock units granted prior to the IBKC merger vest in the year following the year of grant, require a payment deferral of two years, and settle in shares after the deferral period. Director stock units granted after the IBKC merger no longer have the 2-year holding period. In 20192021 and 20182020, each director received $65,000$122,000 or prorated equivalent of stock units, representing a portion of their annual retainer. Effective with the IBKC merger on July 1, 2020, the annual grant of director stock units was increased to $122,000 or prorated equivalent of stock units and all directors then in office received a supplemental grant to bring all directors up to the new annual grant level. Prior to 2005, directors could elect to defer cash compensation in the form of discount-priced stock options, some of which remain outstanding.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 183
Note 19 - Stock Options, Restricted Stock, and Dividend Reinvestment Plans (Continued)
Stock and stock unit awards. A summary of restricted and performance stock and unit activity during the year ended December 31, 2019,2021, is presented below:
|
| | | | | | | |
| | | Shares/ Units (a) | | Weighted average grant date fair value (per share) (b) |
| January 1, 2019 | | 4,089,824 |
| | $ | 16.27 |
|
| Shares/units granted | | 1,761,343 |
| | 14.93 |
|
| Shares/units vested/distributed | | (1,042,270 | ) | | 13.99 |
|
| Shares/units cancelled | | (120,649 | ) | | 17.43 |
|
| December 31, 2019 | | 4,688,248 |
| | $ | 16.25 |
|
| | | | | | | | |
(a) | Includes only units that settle in shares and nonvested performance units are included at 100% payout level. 175 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
(b)ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| The weighted average grant date fair value for shares/units granted in 2018 and 2017 was $18.70 and $18.83, respectively.NOTE 19—STOCK OPTIONS, RESTRICTED STOCK, & DIVIDEND REINVESTMENT PLANS | |
Table 8.19.1
RESTRICTED AND PERFORMANCE EQUITY AWARD ACTIVITY
| | | | | | | | | | | | | | |
| | Shares/
Units (a) | | Weighted average
grant date fair value
(per share) (b) |
| January 1, 2021 | | 8,270,216 | | | $ | 12.47 | |
| Shares/units granted | | 4,330,371 | | | 13.56 | |
| Shares/units vested/distributed | | (637,689) | | | 12.31 | |
| Shares/units canceled | | (2,666,010) | | | 13.05 | |
| December 31, 2021 | | 9,296,888 | | | $ | 13.14 | |
| | | | |
(a)Includes only units that settle in shares; nonvested performance units are included at 100% payout level.
(b)The weighted average grant date fair value for shares/units granted in 2020 and 2019 was $12.47 and $16.25, respectively.
On December 31, 2019,2021, there was $29.5$73 million of unrecognized compensation cost related to nonvested restricted stock awards. That cost is expected to be recognized over a weighted-average period of 2.1two years. The total grant date fair value of shares vested during 2021, 2020 and 2019, 2018 and 2017, was $14.6$36 million, $12.6$24 million, and $9.9$15 million, respectively.
Stock option awards. Currentlyawards
In 2021 FHN operatesended its only a singleremaining stock option program, callingmaking only one grant related to a 2020 commitment. Options under that program, for annual grants of service-vested options to executives. executives, have service-vesting requirements and seven-year terms.
In the past, however, option programs varied widely in their uses and terms, and many old-program options, granted under the ECP or its predecessor plans, remain outstanding today. Except for substitute options (discussed below), allAll 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 substitute options, converted options and a special retention stock option award to the CEO in 2016, all options granted since 2008 vest fully no
later than the fourth anniversary of grant, and all such options expire 7seven years from the grant date. SubstituteCBF converted options can be issued underand 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 ECP in exchange for options of an acquired company that are canceled in a merger. The price, vesting, expiration, and other termsmerger agreement vest fully no later than the fifth anniversary of the substitute options economically mirror those of the canceled options. Converted options from CBF are all fully vestedgrant date and expire ten years from grant date. The 2016 retention award vests beginning on the fourth anniversary of grant and extends through the sixth anniversary of grant. A deferral program, which was discontinued in 2005, allowed for foregone compensation plus the exercise price to equal the fair market value of the stock on the date of grant if the grantee agreed to receive the options in lieu of compensation. Deferral options still outstanding expire 20 years from the grant date.
The summary of stock option activity for the year ended December 31, 2019,2021, is shown below:
Table 8.19.2
STOCK OPTION ACTIVITY
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Options
Outstanding | | Weighted
Average
Exercise Price
(per share) | | Weighted Average
Remaining
Contractual Term
(years) | | Aggregate
Intrinsic Value
(millions) |
| January 1, 2021 | | 7,749,082 | | | $ | 15.20 | | | | | |
| Options granted | | 155,124 | | | 14.44 | | | | | |
| Options exercised | | (2,302,642) | | | 11.88 | | | | | |
| Options expired/canceled | | (620,635) | | | 22.44 | | | | | |
| December 31, 2021 | | 4,980,929 | | | $ | 15.81 | | | 3.99 | | $ | 7 | |
| Options exercisable | | 3,697,062 | | | 15.95 | | | 3.51 | | 6 | |
| Options expected to vest | | 1,283,867 | | | 15.15 | | | 4.39 | | 1 | |
|
| | | | | | | | | | | | | |
| | | Options Outstanding | | Weighted Average Exercise Price (per share) | | Weighted Average Remaining Contractual Term (years) | | Aggregate Intrinsic Value (thousands) |
| January 1, 2019 | | 5,904,687 |
| | $ | 16.16 |
| | | | |
| Options granted | | 530,787 |
| | 15.43 |
| | | | |
| Options exercised | | (895,695 | ) | | 10.79 |
| | | | |
| Options expired/cancelled | | (607,998 | ) | | 27.94 |
| | | | |
| December 31, 2019 | | 4,931,781 |
| | 15.61 |
| | 3.08 | | $ | 13,385 |
|
| Options exercisable | | 3,347,210 |
| | 15.76 |
| | 2.32 | | 10,060 |
|
| Options expected to vest | | 1,584,571 |
| | 15.28 |
| | 4.68 | | 3,325 |
|
The total intrinsic value of options exercised during 2021, 2020 and 2019 2018 and 2017 was $4.4$12 million, $3.0$3 million, and $2.5$4 million, respectively. On December 31, 2019,2021, there was $1.4less than $1 million of unrecognized compensation cost related to
nonvested stock options. That cost is expected to be recognized over a weighted-average period of 2.52.7 years.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 184
Note 19 - Stock Options, Restricted Stock, and Dividend Reinvestment Plans (Continued)
FHN granted or converted 530,787, 394,296155,124, 4,182,737 and 1,483,323530,787 stock options with a weighted average fair value
| | | | | | | | |
| 176 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 19—STOCK OPTIONS, RESTRICTED STOCK, & DIVIDEND REINVESTMENT PLANS | |
of $2.69, $3.89,$3.39, $2.13, and $4.69$2.69 per option at grant date in 2019, 20182021, 2020 and 2017,2019, respectively.
FHN used the Black-Scholes Option Pricing Model to estimate the fair value of stock options granted or
converted in 2019, 2018,2021, 2020, and 20172019 with the following assumptions:
Table 8.19.3
STOCK OPTION FAIR VALUE ASSUMPTIONS
| | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
| Expected dividend yield | | 4.16% | | 3.77% | | 3.63% |
| Expected weighted-average lives of options granted | | 6.29 years | | 6.25 years | | 6.24 years |
| Expected weighted-average volatility | | 38.44% | | 23.94% | | 24.76% |
| Expected volatility range | | 37.86%-39.02% | | 23.32 - 24.56% | | 23.07 - 26.45% |
| Risk-free interest rate | | 0.62% | | 1.47% | | 2.53% |
|
| | | | | | |
| | | 2019 | | 2018 | | 2017 |
| Expected dividend yield | | 3.63% | | 2.57% | | 1.82% |
| Expected weighted-average lives of options granted | | 6.24 years | | 6.21 years | | 6.09 years |
| Expected weighted-average volatility | | 24.76% | | 24.61% | | 26.90% |
| Expected volatility range | | 23.07 - 26.45% | | 23.95 - 25.26% | | 24.36 - 29.44% |
| Risk-free interest rate | | 2.53% | | 2.69% | | 2.07% |
Expected lives of options granted are determined based on the vesting period, historical exercise patterns and contractual term of the options. FHN uses a blend of historical and implied volatility in determining expected volatility. A portion of the weighted average volatility rate is derived by compiling daily closing stock prices over a historical period approximating the expected lives of the options. Additionally, because of market volatility due to economic conditions and the impact on stock prices of financial institutions, FHN also incorporates a measure of implied volatility so as to incorporate more recent market conditions in the estimation of future volatility.
Phantom stock awards
As a result of the IBKC merger, FHN assumed phantom stock awards under various plans to officers and other key associates. The awards are subject to a vesting period of five years and are paid out in cash upon vesting. The amount paid per vesting period is calculated as the number of vested share equivalents multiplied by closing market price of a share of the Company's common stock on the vesting date. Share equivalents are calculated on the date of grant as the total award's dollar value divided by the closing market price of a share of the Company's common stock on the grant date. As of December 31, 2021, there were 461,142 share equivalents of phantom stock awards outstanding. See Note 1 - Significant Accounting Policies for more discussion on FHN's phantom stock awards.
Compensation Cost.Cost
The compensation cost that has been included in the Consolidated Statements of Income pertaining to stock-based awards was $22.7$43 million, $23.2$32 million, and $20.6$22 million for 2019, 2018,2021, 2020, and 2017,2019, respectively. The corresponding total income tax benefits recognized were $5.6$10 million in 2019, $5.72021, $8 million in 2018,2020, and $7.9$6 million in 2017.2019.
Authorization.Authorization
Consistent with Tennessee state law, only authorized, but unissued, stock may be utilized in connection with any
issuance of FHN common stock which may be required as a result of stock based compensation awards. FHN has obtained authorization from the Board of Directors to repurchase up to certain numbers of shares related to issuance under the ECPIP and several older stock award plans. These authorizations are automatically adjusted for stock splits and stock dividends. Repurchases are authorized to be made in the open market or through privately negotiated transactions and will be subject to market conditions, accumulation of excess equity, legal and regulatory restrictions, and prudent capital management. FHN does not currently expect to repurchase a material number of shares under the compensation plan-related repurchase program during 2020.2022.
Dividend reinvestment plan.plan
The Dividend Reinvestment and Stock Purchase Plan authorizes the sale of FHN’s common stock from stock acquired on the open market to shareholders who choose to invest all or a portion of their cash dividends or make optional cash payments of $25 to $10,000 per quarter without paying commissions. The price of stock purchased on the open market is the average price paid.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 185 | | | | | | | | |
| 177 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 20—BUSINESS SEGMENT INFORMATION | |
Note 20 - 20—Business Segment Information
FHN has 4 business segments: regional banking, fixed income, corporate, and non-strategic. The regional bankingFHN's operating segments are composed of the following:
•Regional Banking segment offers financial products and services, including traditional lending and deposit taking, to consumer and commercial customersclients primarily in the southeastsouthern U.S. and other selected markets. Regional bankingBanking also provides investments,investment, wealth management, financial planning, trust services 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 banking, credit card, and cash management. Additionally, the regional banking segment includeswarehouse lending, commercial real estate, franchise finance, correspondent banking, which provides credit, depository,equipment finance, mortgage, and other banking related servicestitle insurance. In addition to other financial institutions nationally. The fixed income segment consiststraditional 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. The corporate
•Corporate segment consists primarily of unallocated corporate expenses, expense on subordinated debt issuances, bank-owned life insurance, unallocated interest income associated with excess equity, net impactsupport functions including risk management, audit, accounting, finance, executive office, and corporate communications. Shared support services such as human resources, properties, technology, credit risk and bank operations are allocated to the activities of raising incrementalRegional 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 deferred compensation plans, funds management, tax credit investment activities, derivative valuation adjustments related to prior sales of Visa Class B shares, gain/(loss) on extinguishment of debt, acquisition- and integration-related costs, expenses associated with rebranding initiatives, and various charges related to restructuring, repositioning, and efficiency efforts. The non-strategic segment consists of run-off consumer lending activities,businesses such as pre-2009 mortgage banking elements, run-off consumer and the associated ancillary revenues and expenses related to these businesses. Non-strategic also includes the wind-down trust preferred loan portfolioportfolios, and other exited businesses.
Periodically, FHN adapts its segments to reflect managerial or strategic changes. During 2020, FHN reorganized its internal management structure and, accordingly, its segment reporting structure. Historically, FHN's reportable business segments were Regional Banking, Fixed Income, Corporate, and Non-strategic. The closing of the FHN and IBKC merger-of-equals transaction prompted organizational changes to better integrate and execute the combined Company's strategic priorities across all lines of businesses. As a result, segment information for 2020 has been reclassified to conform to the current period presentation.
FHN may also modify its methodology of allocating expenses and equity among segments which could change historical segment results. Business segment revenue, expense, asset, and equity levels reflect those which are specifically identifiable or which are allocated based on an internal allocation method. Because the allocations are based on internally developed assignments and allocations, to an extent they are subjective. Generally, all assignments and allocations have been consistently applied for all periods presented.
The following table reflects the amounts of consolidated revenue, expense, tax, and average assets, as well as, depreciation and amortization expense and expenditurestables present financial information for long lived assets for each reportable business segment for the years ended December 31:
Tables 8.20.1a-b-c
SEGMENT FINANCIAL INFORMATION
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 |
| (Dollars in millions) | | Regional Banking | | Specialty Banking | | Corporate | | Consolidated |
| Net interest income (expense) | | $ | 1,764 | | | $ | 619 | | | $ | (389) | | | $ | 1,994 | |
| Provision for credit losses | | (229) | | | (64) | | | (17) | | | (310) | |
| Noninterest income | | 438 | | | 597 | | | 41 | | | 1,076 | |
| Noninterest expense (b)(c)(f) | | 1,151 | | | 571 | | | 374 | | | 2,096 | |
| Income (loss) before income taxes | | 1,280 | | | 709 | | | (705) | | | 1,284 | |
| Income tax expense (benefit) | | 298 | | | 171 | | | (195) | | | 274 | |
| Net income (loss) | | $ | 982 | | | $ | 538 | | | $ | (510) | | | $ | 1,010 | |
| Average assets | | $ | 45,445 | | | $ | 20,803 | | | $ | 21,361 | | | $ | 87,609 | |
| Depreciation and amortization | | (71) | | | (2) | | | 101 | | | 28 | |
| Expenditures for long-lived assets | | 27 | | | 3 | | | 7 | | | 37 | |
|
| | | | | | | | | | | | |
| | | |
| (Dollars in thousands) | | 2019 | | 2018 | | 2017 |
| Consolidated | | | | | | |
| Net interest income | | $ | 1,210,187 |
| | $ | 1,220,317 |
| | $ | 842,314 |
|
| Provision/(provision credit) for loan losses | | 47,000 |
| | 7,000 |
| | — |
|
| Noninterest income | | 654,080 |
| | 722,788 |
| | 490,219 |
|
| Noninterest expense | | 1,231,603 |
| | 1,221,996 |
| | 1,023,661 |
|
| Income/(loss) before income taxes | | 585,664 |
| | 714,109 |
| | 308,872 |
|
| Provision/(benefit) for income taxes | | 133,291 |
| | 157,602 |
| | 131,892 |
|
| Net income/(loss) | | $ | 452,373 |
| | $ | 556,507 |
| | $ | 176,980 |
|
| Average assets | | $ | 41,744,264 |
| | $ | 40,225,459 |
| | $ | 29,924,813 |
|
| Depreciation and amortization | | $ | 65,239 |
| | $ | 59,125 |
| | $ | 70,924 |
|
| Expenditures for long-lived assets | | 49,159 |
| | 38,166 |
| | 287,642 |
|
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 186
Note 20 - Business Segment Information (Continued)
|
| | | | | | | | | | | | |
| | | | | | | |
| (Dollars in thousands) | | 2019 | | 2018 | | 2017 |
| Regional Banking | | | | | | |
| Net interest income | | $ | 1,196,318 |
| | $ | 1,197,471 |
| | $ | 844,439 |
|
| Provision/(provision credit) for loan losses | | 66,059 |
| | 24,643 |
| | 21,451 |
|
| Noninterest income | | 329,834 |
| | 311,763 |
| | 259,546 |
|
| Noninterest expense | | 789,033 |
| | 826,262 |
| | 628,050 |
|
| Income/(loss) before income taxes | | 671,060 |
| | 658,329 |
| | 454,484 |
|
| Provision/(benefit) for income taxes | | 158,148 |
| | 154,659 |
| | 162,348 |
|
| Net income/(loss) | | $ | 512,912 |
| | $ | 503,670 |
| | $ | 292,136 |
|
| Average assets | | $ | 30,785,775 |
| | $ | 28,366,987 |
| | $ | 19,469,287 |
|
| Depreciation and amortization | | $ | 31,719 |
| | $ | 31,316 |
| | $ | 45,734 |
|
| Expenditures for long-lived assets | | 35,207 |
| | 36,164 |
| | 274,992 |
|
| Fixed Income | | | | | | |
| Net interest income | | $ | 26,044 |
| | $ | 35,753 |
| | $ | 18,122 |
|
| Noninterest income | | 278,423 |
| | 164,769 |
| | 217,086 |
|
| Noninterest expense | | 236,660 |
| | 189,373 |
| | 206,427 |
|
| Income/(loss) before income taxes | | 67,807 |
| | 11,149 |
| | 28,781 |
|
| Provision/(benefit) for income taxes | | 16,137 |
| | 2,097 |
| | 9,698 |
|
| Net income/(loss) | | $ | 51,670 |
| | $ | 9,052 |
| | $ | 19,083 |
|
| Average assets | | $ | 2,961,655 |
| | $ | 3,297,579 |
| | $ | 2,539,899 |
|
| Depreciation and amortization | | $ | 8,150 |
| | $ | 9,603 |
| | $ | 8,036 |
|
| Expenditures for long-lived assets | | 909 |
| | 646 |
| | 1,877 |
|
| Corporate | | | | | | |
| Net interest income/(expense) | | $ | (40,774 | ) | | $ | (64,191 | ) | | $ | (59,261 | ) |
| Noninterest income (a) | | 41,357 |
| | 239,263 |
| | 8,887 |
|
| Noninterest expense (b) (c) (d) | | 195,683 |
| | 177,923 |
| | 144,333 |
|
| Income/(loss) before income taxes | | (195,100 | ) | | (2,851 | ) | | (194,707 | ) |
| Provision/(benefit) for income taxes | | (51,348 | ) | | (10,889 | ) | | (47,967 | ) |
| Net income/(loss) | | $ | (143,752 | ) | | $ | 8,038 |
| | $ | (146,740 | ) |
| Average assets | | $ | 6,951,611 |
| | $ | 7,090,069 |
| | $ | 6,370,951 |
|
| Depreciation and amortization | | $ | 27,649 |
| | $ | 23,285 |
| | $ | 16,764 |
|
| Expenditures for long-lived assets | | 12,560 |
| | 308 |
| | 8,951 |
|
| Non-Strategic | | | | | | |
| Net interest income | | $ | 28,599 |
| | $ | 51,284 |
| | $ | 39,014 |
|
| Provision/(provision credit) for loan losses | | (19,059 | ) | | (17,643 | ) | | (21,451 | ) |
| Noninterest income | | 4,466 |
| | 6,993 |
| | 4,700 |
|
| Noninterest expense | | 10,227 |
| | 28,438 |
| | 44,851 |
|
| Income/(loss) before income taxes | | 41,897 |
| | 47,482 |
| | 20,314 |
|
| Provision/(benefit) for income taxes | | 10,354 |
| | 11,735 |
| | 7,813 |
|
| Net income/(loss) | | $ | 31,543 |
| | $ | 35,747 |
| | $ | 12,501 |
|
| Average assets | | $ | 1,045,223 |
| | $ | 1,470,824 |
| | $ | 1,544,676 |
|
| Depreciation and amortization | | $ | (2,279 | ) | | $ | (5,079 | ) | | $ | 390 |
|
| Expenditures for long-lived assets | | 483 |
| | 1,048 |
| | 1,822 |
|
Certain previously reported amounts have been reclassified to agree with current presentation.
(a) 2018 includes a $212.9 million pre-tax gain from the sale of Visa Class B shares; 2017 includes a $14.3 million pre-tax loss from the repurchase of equity securities previously included in a financing transaction.
| | | | | | | | |
(b) | 2019 includes restructuring-related costs associated with efficiency initiatives; refer to Note 25 - Restructuring, Repositioning, and Efficiency for additional information. 2019 and 2018 include acquisition-related expenses; refer to Note 2 - Acquisitions and Divestitures for additional information 178 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
(c)ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| 2019 includes $21.3 million, respectively, of asset impairments, professional fees, and other customer-contact and technology-related expenses associated with rebranding initiatives.NOTE 20—BUSINESS SEGMENT INFORMATION | |
(d) | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 |
| (Dollars in millions) | | Regional Banking | | Specialty Banking | | Corporate | | Consolidated |
| Net interest income (expense) | | $ | 1,264 | | | $ | 572 | | | $ | (174) | | | $ | 1,662 | |
| Provision for credit losses (e) | | 392 | | | 116 | | | (5) | | | 503 | |
| Noninterest income (a) | | 345 | | | 576 | | | 571 | | | 1,492 | |
| Noninterest expense (b)(c)(d) | | 944 | | | 494 | | | 280 | | | 1,718 | |
| Income (loss) before income taxes | | 273 | | | 538 | | | 122 | | | 933 | |
| Income tax expense (benefit) | | 56 | | | 131 | | | (111) | | | 76 | |
| Net income (loss) | | $ | 217 | | | $ | 407 | | | $ | 233 | | | $ | 857 | |
| Average assets | | $ | 32,782 | | | $ | 19,822 | | | $ | 11,742 | | | $ | 64,346 | |
| Depreciation and amortization | | (42) | | | 4 | | | 84 | | | 46 | |
| Expenditures for long-lived assets | | 283 | | | 6 | | | 90 | | | 379 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 |
| (Dollars in millions) | | Regional Banking | | Specialty Banking | | Corporate | | Consolidated |
| Net interest income (expense) | | $ | 833 | | | $ | 389 | | | $ | (12) | | | $ | 1,210 | |
| Provision for credit losses | | 24 | | | 37 | | | (16) | | | 45 | |
| Noninterest income | | 293 | | | 315 | | | 46 | | | 654 | |
| Noninterest expense (b)(c)(d)(f) | | 678 | | | 347 | | | 208 | | | 1,233 | |
| Income (loss) before income taxes | | 424 | | | 320 | | | (158) | | | 586 | |
| Income tax expense (benefit) | | 97 | | | 79 | | | (42) | | | 134 | |
| Net income (loss) | | $ | 327 | | | $ | 241 | | | $ | (116) | | | $ | 452 | |
| Average assets | | $ | 18,236 | | | $ | 15,517 | | | $ | 7,991 | | | $ | 41,744 | |
| Depreciation and amortization | | 22 | | | 14 | | | 29 | | | 65 | |
| Expenditures for long-lived assets | | 29 | | | 4 | | | 16 | | | 49 | |
(a) 2020 includes a $533 million purchase accounting gain associated with the IBKC merger in the Corporate segment.
(b) 2019 includes restructuring-related costs associated with efficiency initiatives; refer to Note 25 - Restructuring, Repositioning, and 2017Efficiency for additional information. 2021, 2020 and 2019 include $11.0merger-related expenses; refer to Note 2 - Acquisitions and Divestitures for additional information.
(c) 2021 and 2020 includes$37 million and $8.8$13 million, respectively, in asset impairments related to IBKC merger integration efforts in the Corporate segment. 2019 includes $25 million of asset impairments associated with acquisition, restructuring, and rebranding initiatives.
(d) 2020 and 2019 include $41 million and $11 million, respectively, of contributions to FHN's foundation.foundations.
(f) 2021 and 2019 include $19 million and $4 million, respectively, in derivative valuation adjustments related to prior sales of Visa Class B shares in the Corporate segment.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 187
| | | | | | | | |
| 179 | 2021 FORM 10-K ANNUAL REPORT |
Note 20 - Business Segment Information (Continued)
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 20—BUSINESS SEGMENT INFORMATION | |
The following tables reflect a disaggregation of FHN’s noninterest income by major product line and reportable segment for the years ended December 31, 2021, 2020, and 2019:
Tables 8.20.2a-b-c
NONINTEREST INCOME DETAIL BY SEGMENT
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| (Dollars in millions) | | Regional Banking | | Specialty Banking | | Corporate | | Consolidated |
| Noninterest income: | | | | | | | | |
| Fixed income (a) | | $ | — | | | $ | 406 | | | $ | — | | | $ | 406 | |
| Deposit transactions and cash management | | 157 | | | 12 | | | 6 | | | 175 | |
| Mortgage banking and title income | | — | | | 152 | | | 2 | | | 154 | |
| Brokerage, management fees and commissions | | 88 | | | — | | | — | | | 88 | |
| Card and digital banking fees | | 67 | | | 3 | | | 8 | | | 78 | |
| Trust services and investment management | | 51 | | | — | | | — | | | 51 | |
| Other service charges and fees | | 23 | | | 17 | | | 4 | | | 44 | |
| Securities gains (losses), net (b) | | — | | | — | | | 13 | | | 13 | |
| Purchase accounting gain | | — | | | — | | | (1) | | | (1) | |
| Other income (c) | | 52 | | | 7 | | | 9 | | | 68 | |
| Total noninterest income | | $ | 438 | | | $ | 597 | | | $ | 41 | | | $ | 1,076 | |
| | | | | | | | |
| | | | | | | | |
| | December 31, 2020 |
| (Dollars in millions) | | Regional Banking | | Specialty Banking | | Corporate | | Consolidated |
| Noninterest income: | | | | | | | | |
| Fixed income (a) | | $ | 1 | | | $ | 422 | | | $ | — | | | $ | 423 | |
| Deposit transactions and cash management | | 131 | | | 11 | | | 6 | | | 148 | |
| Mortgage banking and title income | | — | | | 128 | | | 1 | | | 129 | |
| Brokerage, management fees and commissions | | 66 | | | — | | | — | | | 66 | |
| Card and digital banking fees | | 50 | | | 2 | | | 8 | | | 60 | |
| Trust services and investment management | | 39 | | | — | | | — | | | 39 | |
| Other service charges and fees | | 18 | | | 7 | | | 1 | | | 26 | |
| Securities gains (losses), net (b) | | — | | | — | | | (6) | | | (6) | |
| Purchase accounting gain | | — | | | — | | | 533 | | | 533 | |
| Other income (c) | | 40 | | | 6 | | | 28 | | | 74 | |
| Total noninterest income | | $ | 345 | | | $ | 576 | | | $ | 571 | | | $ | 1,492 | |
| |
| | | | | | | | |
| | December 31, 2019 |
| (Dollars in millions) | | Regional Banking | | Specialty Banking | | Corporate | | Consolidated |
| Noninterest income: | | | | | | | | |
| Fixed income (a) | | $ | — | | | $ | 278 | | | $ | 1 | | | $ | 279 | |
| Deposit transactions and cash management | | 114 | | | 11 | | | 7 | | | 132 | |
| Mortgage banking and title income | | — | | | 8 | | | 2 | | | 10 | |
| Brokerage, management fees and commissions | | 55 | | | — | | | — | | | 55 | |
| Card and digital banking fees | | 41 | | | 2 | | | 6 | | | 49 | |
| Trust services and investment management | | 30 | | | — | | | — | | | 30 | |
| Other service charges and fees | | 16 | | | 5 | | | — | | | 21 | |
| | | | | | | | |
| | | | | | | | |
| Other income (c) | | 37 | | | 11 | | | 30 | | | 78 | |
| Total noninterest income | | $ | 293 | | | $ | 315 | | | $ | 46 | | | $ | 654 | |
| | | | | | | | |
(a)2021, 2020 and 2019, 2018,include $44million , $39 million and 2017:$34 million, respectively, of underwriting, portfolio advisory, and other noninterest income in scope of ASC 606, "Revenue From Contracts With Customers."
(b)Represents noninterest income excluded from the scope of ASC 606. Amount is presented for informational purposes to reconcile total noninterest income.
(c)Includes letter of credit fees and insurance commissions in scope of ASC 606.
|
| | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2019 |
| (Dollars in thousands) | | Regional Banking | | Fixed Income | | Corporate | | Non-Strategic | | Consolidated |
| Noninterest income: | | | | | | | | | | |
| Fixed income (a) | | $ | 122 |
| | $ | 277,561 |
| | $ | — |
| | $ | 1,106 |
| | $ | 278,789 |
|
| Deposit transactions and cash management | | 124,832 |
| | 4 |
| | 6,610 |
| | 217 |
| | 131,663 |
|
| Brokerage, management fees and commissions | | 55,462 |
| | — |
| | — |
| | 5 |
| | 55,467 |
|
| Trust services and investment management | | 29,600 |
| | — |
| | (89 | ) | | — |
| | 29,511 |
|
| Bankcard income | | 28,540 |
| | 11 |
| | 248 |
| | (491 | ) | | 28,308 |
|
| BOLI (b) | | — |
| | — |
| | 19,210 |
| | — |
| | 19,210 |
|
| Debt securities gains/(losses), net (b) | | — |
| | — |
| | (267 | ) | | — |
| | (267 | ) |
| Equity securities gains/(losses), net (b) | | — |
| | — |
| | 441 |
| | — |
| | 441 |
|
| All other income and commissions (d) | | 91,278 |
| | 847 |
| | 15,204 |
| | 3,629 |
| | 110,958 |
|
| Total noninterest income | | $ | 329,834 |
| | $ | 278,423 |
| | $ | 41,357 |
| | $ | 4,466 |
| | $ | 654,080 |
|
| | | | | | | | | | | |
| | | December 31, 2018 |
| (Dollars in thousands) | | Regional Banking | | Fixed Income | | Corporate | | Non-Strategic | | Consolidated |
| Noninterest income: | | | | | | | | | | |
| Fixed income (a) | | $ | 417 |
| | $ | 163,382 |
| | $ | — |
| | $ | 4,083 |
| | $ | 167,882 |
|
| Deposit transactions and cash management | | 126,832 |
| | 12 |
| | 6,214 |
| | 223 |
| | 133,281 |
|
| Brokerage, management fees and commissions | | 54,800 |
| | — |
| | — |
| | 3 |
| | 54,803 |
|
| Trust services and investment management | | 29,852 |
| | — |
| | (46 | ) | | — |
| | 29,806 |
|
| Bankcard income | | 29,434 |
| | — |
| | 226 |
| | (356 | ) | | 29,304 |
|
| BOLI (b) | | — |
| | — |
| | 18,955 |
| | — |
| | 18,955 |
|
| Debt securities gains/(losses), net (b) | | — |
| | — |
| | 52 |
| | — |
| | 52 |
|
| Equity securities gains/(losses), net (b) (c) | | — |
| | — |
| | 212,896 |
| | — |
| | 212,896 |
|
| All other income and commissions (d) | | 70,428 |
| | 1,375 |
| | 966 |
| | 3,040 |
| | 75,809 |
|
| Total noninterest income | | $ | 311,763 |
| | $ | 164,769 |
| | $ | 239,263 |
| | $ | 6,993 |
| | $ | 722,788 |
|
| | |
| | | December 31, 2017 |
| (Dollars in thousands) | | Regional Banking | | Fixed Income | | Corporate | | Non-Strategic | | Consolidated |
| Noninterest income: | | | | | | | | | | |
| Fixed income | | $ | 430 |
| | $ | 216,195 |
| | $ | — |
| | $ | — |
| | $ | 216,625 |
|
| Deposit transactions and cash management | | 105,058 |
| | 3 |
| | 5,338 |
| | 193 |
| | 110,592 |
|
| Brokerage, management fees and commissions | | 48,513 |
| | — |
| | 1 |
| | — |
| | 48,514 |
|
| Trust services and investment management | | 28,491 |
| | — |
| | (71 | ) | | — |
| | 28,420 |
|
| Bankcard income | | 25,983 |
| | — |
| | 225 |
| | 227 |
| | 26,435 |
|
| BOLI | | — |
| | — |
| | 15,124 |
| | — |
| | 15,124 |
|
| Debt securities gains/(losses), net | | 386 |
| | — |
| | 97 |
| | — |
| | 483 |
|
| Equity securities gains/(losses), net | | — |
| | — |
| | 109 |
| | — |
| | 109 |
|
| All other income and commissions (e) | | 50,685 |
| | 888 |
| | (11,936 | ) | | 4,280 |
| | 43,917 |
|
| Total noninterest income | | $ | 259,546 |
| | $ | 217,086 |
| | $ | 8,887 |
| | $ | 4,700 |
| | $ | 490,219 |
|
Certain previously reported amounts have been reclassified to agree with current presentation.
| | | | | | | | |
(a) | For years ended 2019 and 2018, includes $33.7 million and $28.9 million, respectively, of underwriting, portfolio advisory, and other noninterest income in scope of Accounting Standards Codification ("ASC") 606, "Revenue From Contracts With Customers." 2019 and 2018 include $1.1 million and $4.1 million, respectively, of gains from the reversal of a previous valuation adjustment due to sales and payoffs of TRUPS loans excluded from the scope of ASC 606 in the Non-strategic segment. 180 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
(b)ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| Represents noninterest income excluded from the scope of ASC 606. Amount is presented for informational purposes to reconcile total non-interest income. |
| NOTE 21—VARIABLE INTEREST ENTITIES | |
(c) | Includes a pre-tax gain of $212.9 million from the sale of FHN's remaining holdings of Visa Class B shares. |
| |
(d) | Includes other service charges, ATM and interchange fees, electronic banking fees, and insurance commission in scope of ASC 606. |
| |
(e) | Corporate includes a $14.3 million pre-tax loss from the repurchase of equity securities previously included in a financing transaction. |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 188
Note 21 - 21—Variable Interest Entities
ASC 810 defines aFHN makes equity investments in various entities that are considered VIEs, as defined by GAAP. A VIE as a legal entity where (a) the equity investors, as a group, lacktypically does not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support (b) the equity investors, as a group, lack either, (1) the power through voting rights, or similar rights, to direct the activities of an entity that most significantly impact the entity’s economic performance, (2) the obligation to absorb the expected losses of the entity, or (3) the right to receive the expected residual returns of the entity, or (c) the entity is structured with non-substantive voting rights. Afrom other parties. The Company’s variable interest is aarises from contractual, ownership or other interest that fluctuatesmonetary interests in the entity, which change with changesfluctuations in the fair value of the VIE’sentity's net assets exclusive of variable interests. Under ASC 810, as amended,assets. FHN consolidates a VIE if it is the primary beneficiary of the entity. FHN is required to consolidatethe primary beneficiary of a VIE when it has aif its variable interest in a VIE that provides it with a controlling financial interest. For such purposes, the determination of whether a controlling financial interest exists is based on whether a single party has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performanceVIE and the obligation to absorb losses of the VIE or the right to receive benefits from(or the VIEobligation to absorb losses) that could potentially be significant.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
During much of 2019, FHN held variable interests in a proprietary HELOC securitization trust it established as a source of liquidity for consumer lending operations. Based on its restrictive nature, the trust was considered a VIE as the holders of equity at risk did not have the power through voting rights or similar rights to direct the activities that most significantly impacted the trust’s economic performance. The retention of mortgage service rights ("MSR") and a residual interest resulted in FHN potentially absorbing losses or receiving benefits that were significant to the trust. FHN was considered the primary beneficiary, as it was assumed to have the power, as Master Servicer, to most significantly impact the activities of the VIE. Consolidation of the trust resulted in the recognition of the trust proceeds as restricted borrowings since the cash flows on the securitized loans could only be used to settle the obligations due to the holders of trust securities. Through first quarter 2016 the trust experienced a rapid amortization period and FHN was obligated to provide subordinated funding. During the period, cash payments from borrowers were accumulated to repay outstanding debt securities while FHN continued to make advances to borrowers when they drew on their lines of credit. FHN then transferred the newly generated receivables into the securitization trust. FHN was reimbursed for these advances only after other parties in the securitization had received all of the cash flows to which they were entitled. Amounts funded from monoline insurance policies were considered restricted term borrowings in FHN’s Consolidated Statements of Condition. Except for recourse due to breaches of representations and warranties made by FHN in connection with the sale of the loans to the trust, the creditors of the trust held no recourse to the assets of FHN. This securitization was resolved in fourth quarter 2019.
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.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 189
Note 21 - Variable Interest Entities (Continued)
The following table summarizes VIEsthe carrying value of assets and liabilities associated with rabbi trusts used for deferred compensation plans which are consolidated by FHN as of December 31, 20192021 and December 31, 2018:2020:
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2019 | | December 31, 2018 |
| | | On-Balance Sheet Consumer Loan Securitization | | Rabbi Trusts Used for Deferred Compensation Plans | | On-Balance Sheet Consumer Loan Securitization | | Rabbi Trusts Used for Deferred Compensation Plans |
(Dollars in thousands) | | Carrying Value | | Carrying Value | | Carrying Value | | Carrying Value |
| Assets: | | | | | | | | |
| Cash and due from banks | | $ | — |
| | N/A |
| | $ | — |
| | N/A |
|
| Loans, net of unearned income | | — |
| | N/A |
| | 16,213 |
| | N/A |
|
| Less: Allowance for loan losses | | — |
| | N/A |
| | — |
| | N/A |
|
| Total net loans | | — |
| | N/A |
| | 16,213 |
| | N/A |
|
| Other assets | | — |
| | $ | 91,873 |
| | 35 |
| | $ | 78,446 |
|
| Total assets | | $ | — |
| | $ | 91,873 |
| | $ | 16,248 |
| | $ | 78,446 |
|
| Liabilities: | | | | | | | | |
| Term borrowings | | $ | — |
| | N/A |
| | $ | 2,981 |
| | N/A |
|
| Other liabilities | | — |
| | $ | 70,830 |
| | — |
| | $ | 56,700 |
|
| Total liabilities | | $ | — |
| | $ | 70,830 |
| | $ | 2,981 |
| | $ | 56,700 |
|
Table 8.21.1
CONSOLIDATED VIEs
| | | | | | | | | | | | | | | | |
| (Dollars in millions) | | | December 31, 2021 | | | December 31, 2020 |
| Assets: | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Other assets | | | $ | 205 | | | | $ | 195 | |
| | | | | | |
| Liabilities: | | | | | | |
| | | | | | |
| Other liabilities | | | $ | 179 | | | | $ | 165 | |
| | | | | | |
| | | | | | |
Nonconsolidated Variable Interest Entities
Low Income Housing Partnerships.Tax Credit Partnerships
Through designated wholly-owned subsidiaries, First Horizon Community Investment Group, Inc. ("FHCIG") (formerly First Tennessee Housing Corporation (“FTHC”)), a wholly-owned subsidiary of First Horizon Bank (formerly First Tennessee Bank National Association ("FTBNA"), makes equity investments as a limited partner in various partnerships that sponsor affordable housing projects utilizing the Low Income Housing Tax Credit (“LIHTC”) pursuant to Section 42 of the Internal Revenue Code.LIHTC. The purpose of these investments is to achieve a satisfactory return on capital and to support FHN’s community reinvestment initiatives. The activities of the limited partnerships include the identification, development, and operation of multi-family housing units that are leased to qualifying residential tenants generally within FHN’s primary geographic region. LIHTC partnerships are considered VIEs as FHCIG, the holder of the equity investment at risk, does notmanaged by unrelated general partners that have the abilitypower to direct the activities that most significantly affect the performance of the entity through voting rights or similar rights. FHCIG could absorb losses that are significant to the LIHTC partnerships as it has a risk of loss for its capital contributions and funding commitments to each partnership. The general partners are consideredpartnerships. FHN is therefore not the primary beneficiaries as managerial functions give thembeneficiary of any LIHTC partnerships. Accordingly, FHN does not consolidate these VIEs and accounts for these investments in other assets on the power to direct the activities that most significantly impact the entities’ economic performance and the managing members are exposed to all losses beyond FHCIG’s initial capital contributions and funding commitments.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 in the income statement as a component of income tax expense/(benefit).expense. LIHTC investments that do not qualify for the proportional amortization method are accounted for using the equity method. Expenses associated with thesenon-qualifying LIHTC investments were $1.3 million, $4.1 million,not material during 2021, 2020, and $1.8 million during 2019, 2018, and 2017, respectively. 2019.
The following table summarizes the impact to the Provision/(benefit) for income taxestax expense on the Consolidated Statements of Income for the years ended December 31, 2019, 20182021, 2020 and 20172019 for LIHTC investments accounted for under the proportional amortization method.
Table 8.21.2
|
| | | | | | | | | | | | |
| | | |
(Dollars in thousands) | | 2019 | | 2018 | | 2017 |
| Provision/(benefit) for income taxes: | | | | | | |
| Amortization of qualifying LIHTC investments | | $ | 15,482 |
| | $ | 10,793 |
| | $ | 14,037 |
|
| Low income housing tax credits | | (13,539 | ) | | (10,232 | ) | | (11,037 | ) |
| Other tax benefits related to qualifying LIHTC investments | | (5,677 | ) | | (7,370 | ) | | (5,045 | ) |
| | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 |
| Income tax expense (benefit): | | | | | | |
| Amortization of qualifying LIHTC investments | | $ | 26 | | | $ | 23 | | | $ | 15 | |
| Low income housing tax credits | | (32) | | | (22) | | | (14) | |
| Other tax benefits related to qualifying LIHTC investments | | (7) | | | (10) | | | (6) | |
| | | | | | | | |
| 181 | 2021 FORM 10-K ANNUAL REPORT |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 190
Note 21 - Variable Interest Entities (Continued)
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 21—VARIABLE INTEREST ENTITIES | |
Other Tax Credit Investments. First Tennessee New Markets Corporation (“FTNMC”), a wholly-owned subsidiary ofInvestments
Through designated subsidiaries, First Horizon Bank periodically makes equity investments through wholly-owned subsidiaries as a non-managing member in various limited liability companies (“LLCs”)LLCs that sponsor community development projects utilizing the New Market Tax Credit (“NMTC”) pursuant to Section 45 of the Internal Revenue Code.NMTC. First Horizon Bank also makes equity investments as a limited partner or non-managing member in entities that receive solar and historic tax credits. The purpose of these investments is to achieve a satisfactory return on capital and to support FHN’s community reinvestment initiatives. The activities of the LLCs include providing investment capital for low-income communities within FHN’s primary geographic region. A portion of the funding of FTNMC’s investment in a NMTC LLC is obtained via a loan from an unrelated third-party that is typically a community development enterprise. The NMTC LLCsThese entities are considered VIEs as FTNMC,First Horizon Bank's subsidiaries represent the holderholders of the equity investment at risk, doesbut do not have the ability to direct the activities that most significantly affect the performance of the entity through voting rights or similar rights. While FTNMC could absorb losses that are significant to the NMTC LLCs as it has a risk of loss for its initial capital contributions, the managing members are considered the primary beneficiaries as managerial functions give them the power to direct the activities that most significantly impact the NMTC LLCs’ economic performance and the managing members are exposed to all losses beyond FTNMC’s initial capital contributions. A NMTC relationship was resolved in 2019 resulting in a $2.7 million decline in the related debt.entities.
FHCIG also makes equity investments as a limited partner or non-managing member in entities that receive Historic Tax Credits pursuant to Section 47 of the Internal Revenue Code. As of December 31, 2019, there were no remaining investments. The purpose of these entities is the rehabilitation of historic buildings with the tax credits provided to incent private investment in the historic cores of cities and towns. These entities are considered VIEs as FHCIG, the holder of the equity investment at risk, does not have the ability to direct the activities that most significantly affect the performance of the entity through voting rights or similar rights. FHCIG could absorb losses that are significant to the entities as it has a risk of loss for its capital contributions and funding commitments to each partnership. The managing members are considered the primary beneficiaries as managerial functions give them the power to direct the activities that most significantly impact the entities’ economic performance and the managing members are exposed to all losses beyond FHCIG’s initial capital contributions and funding commitments.
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. These trusts meet 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 trusts’ economic performance. Based on the nature of the trusts’ activities and the size of First Horizon Bank’s holdings, First Horizon Bank could potentially receive benefits or absorb losses that are significant to the trusts regardless of whether a majority of a trust’s securities are held by First Horizon Bank. However, sinceSince First Horizon Bank is solely a holder of the trusts’ securities, it has no rights whichthat 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.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. First Horizon Bank could potentially receive benefits or absorb losses that are significant to the trust based on the size and priority of the interests it retained in the securities issued by the trust. However, sinceSince First Horizon Bank did not retain servicing or other decision makingdecision-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 Statements of Condition.Balance Sheets. First Horizon Bank has no contractual requirements to provide financial support to the trust.
Proprietary Residential Mortgage Securitizations. FHN holds variable interests (primarily principal-only strips) in proprietary residential mortgage securitization trusts it established prior to 2008 as a source of liquidity for its mortgage banking operations. Except for recourse due to breaches of representations and warranties made by FHN in connection with the sale of the loans to the trusts, the creditors of the trusts hold no recourse to the assets of FHN. Additionally, FHN has no contractual requirements to provide financial support to the trusts. Based on their restrictive nature, the trusts are considered VIEs as the holders of equity at risk do not have the power through voting rights, or similar rights, to direct the activities that most significantly impact the trusts’ economic performance. However, FHN did not have the ability to participate in significant portions of a securitization trust’s cash flows and FHN was not considered the primary beneficiary of the trust. Therefore, these trusts were not consolidated by FHN.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 191
Note 21 - Variable Interest Entities (Continued)
Holdings in Agency Mortgage-Backed Securities.Securities
FHN holds securities issued by various Agency securitization trusts. Based on their restrictive nature, the trusts meet the definition of a VIE since the holders of the
equity investments at risk do not have the power through voting rights, or similar rights, to direct the activities that most significantly impact the entities’ economic performance. FHN could potentially receive benefits or absorb losses that are significant to the trusts based on the nature of the trusts’ activities and the size of FHN’s holdings. However, FHN is solely a holder of the trusts’ securities and does not have the power to direct the activities that most significantly impact the trusts’ economic performance, and is not considered the primary beneficiary of the trusts. FHN has no contractual requirements to provide financial support to the trusts.
Commercial Loan Troubled Debt Restructurings.Restructurings
For certain troubled commercial loans, First Horizon Bank restructures the terms of the borrower’s debt in an effort to increase the probability of receipt of amounts contractually due. Following a troubled debt restructuring, the borrower entity typically meets the definition of a VIE as the initial determination of whether an entity is a VIE must be reconsidered as events have proven that the entity’s equity is not sufficient to permit it to finance its activities without additional subordinated financial support or a restructuring of the terms of its financing. As First Horizon Bank does not have the power to direct the activities that most significantly impact such troubled commercial borrowers’ operations, it is not considered the primary beneficiary even in situations where, based on the size of the financing provided, First Horizon Bank is exposed to potentially significant benefits and losses of the borrowing entity. First Horizon Bank has no contractual requirements to provide financial support to the borrowing entities beyond certain funding commitments established upon restructuring of the terms of the debt that allows for preparation of the underlying collateral for sale.
Sale Leaseback Transaction. First Horizon Bank has entered into an agreement with a single asset leasing entity for the sale and leaseback of an office building. In conjunction with this transaction, First Horizon Bank loaned funds to a related party of the buyer that were used for the purchase price of the building. First Horizon Bank also entered into a construction loan agreement with the single asset entity for renovation of the building. Since this transaction did not qualify as a sale prior to 2019, it was accounted for using the deposit method which created a net asset or liability for all cash flows between First Horizon Bank and the buyer. Upon adoption of ASU 2016-02 the transaction qualified as a seller-financed sale-leaseback. The buyer-lessor in this transaction meets the definition of a VIE as it does not have sufficient equity at risk since First Horizon Bank is providing the funding for the purchase and renovation. A related party of the buyer-lessor has the power to direct the activities that most significantly impact the operations and could potentially receive benefits or absorb losses that are significant to the transactions, making it the primary beneficiary. Therefore, First Horizon Bank does not consolidate the leasing entity.
Proprietary Trust Preferred Issuances.
In conjunction with the acquisition of CBF,its acquisitions, FHN acquired junior subordinated debt underlying multiple issuances of trust preferred debt by institutions previously acquired by CBF.debt. All of the remaining 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 power through voting rights, or similar rights,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.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 192
Note 21 - Variable Interest Entities (Continued)
The following table summarizestables summarize FHN’s nonconsolidated VIEs as of December 31, 2019:2021 and 2020:
|
| | | | | | | | | | |
(Dollars in thousands) | | Maximum Loss Exposure | | Liability Recognized | | Classification |
| Type: | | | | | | |
| Low income housing partnerships | | $ | 237,668 |
| | $ | 136,404 |
| | (a) |
| Other tax credit investments (b) (c) | | 6,282 |
| | — |
| | Other assets |
| Small issuer trust preferred holdings (d) | | 238,397 |
| | — |
| | Loans, net of unearned income |
| On-balance sheet trust preferred securitization | | 33,265 |
| | 80,908 |
| | (e) |
| Proprietary residential mortgage securitizations | | 941 |
| | — |
| | Trading securities |
| Holdings of agency mortgage-backed securities (d) | | 4,537,685 |
| | — |
| | (f) |
| Commercial loan troubled debt restructurings (g) | | 45,169 |
| | — |
| | Loans, net of unearned income |
| Sale-leaseback transaction | | 18,111 |
| | — |
| | (h) |
| Proprietary trust preferred issuances (i) | | — |
| | 167,014 |
| | Term borrowings |
| | | | | | | | |
(a) | Maximum loss exposure represents $101.3 million of current investments and $136.4 million of accrued contractual funding commitments. Accrued funding commitments represent unconditional contractual obligations for future funding events, and are also recognized in Other liabilities. FHN currently expects to be required to fund these accrued commitments by the end of 2023. 182 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
(b)ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| A liability is not recognized as investments are written down over the life of the related tax credit.NOTE 21—VARIABLE INTEREST ENTITIES | |
Table 8.21.3
NONCONSOLIDATED VIEs AT YE 2021
| | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | Maximum
Loss Exposure | | Liability
Recognized | | Classification |
| Type: | | | | | | |
| Low income housing partnerships | | $ | 382 | | | $ | 129 | | | (a) |
| Other tax credit investments (b) | | 77 | | | 56 | | | Other assets |
| Small issuer trust preferred holdings (c) | | 195 | | | — | | | Loans and leases |
| On-balance sheet trust preferred securitization | | 27 | | | 87 | | | (d) |
| | | | | | |
| Holdings of agency mortgage-backed securities (c) | | 8,550 | | | — | | | (e) |
| Commercial loan troubled debt restructurings (f) | | 98 | | | — | | | Loans and leases |
| | | | | | |
| Proprietary trust preferred issuances (g) | | — | | | 167 | | | Term borrowings |
(a) Maximum loss exposure represents $253 million of current investments and $129 million of accrued contractual funding commitments. Accrued funding commitments represent unconditional contractual obligations for future funding events, and are recognized in other liabilities. FHN currently expects to be required to fund these accrued commitments by the end of 2024.
(b) Maximum loss exposure represents the value of current investments.
(c) Maximum loss exposure represents the value of current investments. A liability is not recognized as FHN is solely a holder of the trusts’ securities.
(d) Includes $112 million classified as loans and leases, and $2 million classified as trading securities which are offset by $87 million classified as term borrowings.
(e) Includes $526 million classified as trading securities, $712 million classified as securities held to maturity and $7.3 billion classified as securities available for sale.
(f) Maximum loss exposure represents $94 million of current receivables and $4 million of contractual funding commitments on loans related to commercial borrowers involved in a troubled debt restructuring.
(g) No exposure to loss due to nature of FHN's involvement.
Table 8.21.4
NONCONSOLIDATED VIEs AT YE 2020
| | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | Maximum
Loss Exposure | | Liability
Recognized | | Classification |
| Type: | | | | | | |
| Low income housing partnerships | | $ | 338 | | | $ | 132 | | | (a) |
| Other tax credit investments (b) | | 64 | | | 42 | | | Other assets |
| Small issuer trust preferred holdings (c) | | 210 | | | — | | | Loans and leases |
| On-balance sheet trust preferred securitization | | 32 | | | 82 | | | (d) |
| | | | | | |
| Holdings of agency mortgage-backed securities (c) | | 7,063 | | | — | | | (e) |
| Commercial loan troubled debt restructurings (f) | | 186 | | | — | | | Loans and leases |
| | | | | | |
| Proprietary trust preferred issuances (g) | | — | | | 287 | | | Term borrowings |
(a)Maximum loss exposure represents $206 million of current investments and $132 million of accrued contractual funding commitments. Accrued funding commitments represent unconditional contractual obligations for future funding events, and are recognized in other liabilities. FHN currently expects to be required to fund these accrued commitments by the end of 2024.
(b)Maximum loss exposure represents the value of current investments.
(c)Maximum loss exposure represents the value of current investments. A liability is not recognized as FHN is solely a holder of the trusts’ securities.
(d)Includes $112 million classified as loans and leases and $2 million classified as trading securities, which are offset by $82 million classified as term borrowings.
(e)Includes $845 million classified as trading securities and $6.2 billion classified as securities available for sale.
(f)Maximum loss exposure represents $176 million of current receivables and $10 million of contractual funding commitments on loans related to commercial borrowers involved in a troubled debt restructuring.
(g)No exposure to loss due to nature of FHN's involvement.
| | | | | | | | |
(c) | Maximum loss exposure represents current investment balance. As of December 31, 2019, there were no investments funded through loans from community development enterprises. 183 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
(d)ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| Maximum loss exposure represents the value of current investments. A liability is not recognized as FHN is solely a holder of the trusts’ securities. |
| NOTE 22—DERIVATIVES | |
(e) | Includes $112.5 million classified as Loans, net of unearned income, and $1.7 million classified as Trading securities which are offset by $80.9 million classified as Term borrowings. |
| |
(f) | Includes $.5 billion classified as Trading securities and $4.0 billion classified as Securities available-for-sale. |
| |
(g) | Maximum loss exposure represents $43.4 million of current receivables and $1.8 million of contractual funding commitments on loans related to commercial borrowers involved in a troubled debt restructuring. |
| |
(h) | Maximum loss exposure represents the current loan balance plus additional funding commitments less amounts received from the buyer-lessor. |
| |
(i) | No exposure to loss due to nature of FHN's involvement. |
The following table summarizes FHN’s nonconsolidated VIEs as of December 31, 2018:
|
| | | | | | | | | | |
| (Dollars in thousands) | | Maximum Loss Exposure | | Liability Recognized | | Classification |
| Type: | | | | | | |
| Low income housing partnerships | | $ | 156,056 |
| | $ | 80,427 |
| | (a) |
| Other tax credit investments (b) (c) | | 3,619 |
| | — |
| | Other assets |
| Small issuer trust preferred holdings (d) | | 270,585 |
| | — |
| | Loans, net of unearned income |
| On-balance sheet trust preferred securitization | | 37,532 |
| | 76,642 |
| | (e) |
| Proprietary residential mortgage securitizations | | 1,524 |
| | — |
| | Trading securities |
| Holdings of agency mortgage-backed securities (d) | | 4,842,630 |
| | — |
| | (f) |
| Commercial loan troubled debt restructurings (g) | | 40,590 |
| | — |
| | Loans, net of unearned income |
| Sale-leaseback transaction | | 16,327 |
| | — |
| | (h) |
| Proprietary trust preferred issuances (i) | | — |
| | 167,014 |
| | Term borrowings |
| |
(a) | Maximum loss exposure represents $75.6 million of current investments and $80.4 million of accrued contractual funding commitments. Accrued funding commitments represent unconditional contractual obligations for future funding events, and are also recognized in Other liabilities. FHN currently expects to be required to fund these accrued commitments by the end of 2020. |
| |
(b) | A liability is not recognized as investments are written down over the life of the related tax credit. |
| |
(c) | Maximum loss exposure represents current investment balance. Of the initial investment, $2.7 million was funded through loans from community development enterprises. |
| |
(d) | Maximum loss exposure represents the value of current investments. A liability is not recognized as FHN is solely a holder of the trusts’ securities. |
| |
(e) | Includes $112.5 million classified as Loans, net of unearned income, and $1.7 million classified as Trading securities which are offset by $76.6 million classified as Term borrowings. |
| |
(f) | Includes $.5 billion classified as Trading securities and $4.4 billion classified as Securities available-for-sale. |
| |
(g) | Maximum loss exposure represents $38.2 million of current receivables and $2.3 million of contractual funding commitments on loans related to commercial borrowers involved in a troubled debt restructuring. |
| |
(h) | Maximum loss exposure represents the current loan balance plus additional funding commitments less amounts received from the buyer-lessor. |
| |
(i) | No exposure to loss due to nature of FHN's involvement. |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 193
Note 22 - 22—Derivatives
In the normal course of business, FHN utilizes various financial instruments (including derivative contracts and credit-related agreements) through its fixed income and risk management operations, as part of its risk management strategy and as a means to meet customers’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 Asset/Liability Committee (“ALCO”)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 Statements of Condition.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, 20192021 and 2018,2020, respectively, $136.6FHN had $181 million and $76.0$280 million of cash receivables and $53.0$102 million and $34.0$166 million of cash payables related to collateral posting under master netting arrangements, inclusive of collateral posted related to contracts with adjustable collateral posting thresholds and over-collateralized positions, with derivative counterparties. With exchange-traded contracts, the credit risk is limited to the clearinghouse used. For non-exchange traded instruments, credit risk may occur when there is a gain in the fair value of the financial instrument and the counterparty fails to perform according to the terms of the contract and/or when the collateral proves to be of insufficient value. See additional discussion regarding master netting agreements and collateral posting requirements later in this note under the heading “Master Netting and Similar Agreements.” Market risk represents the potential loss due to the decrease in the value of a financial instrument caused primarily by changes in interest rates or the prices of debt instruments. FHN manages market risk by establishing and monitoring limits on the types and degree of risk that may be undertaken.
FHN continually measures this risk through the use of models that measure value-at-risk and earnings-at-risk.
Derivative Instruments.Instruments
FHN enters into various derivative contracts both to facilitate customerclient transactions and as a risk management tool. Where contracts have been created for customers,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
FHN’s fixed income segmentFHNF trades U.S. Treasury, U.S. Agency, government-guaranteed loan, mortgage-backed, corporate and municipal fixed income securities, and other securities for distribution to customers.clients. When these securities settle on a delayed basis, they are considered forward contracts. Fixed incomeFHNF also enters into interest rate contracts, including caps, swaps, and floors for its customers.clients. In addition, fixed incomeFHNF 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 currently in fixed income noninterest income. Related assets and liabilities are recorded on the Consolidated Statements of ConditionBalance Sheets as Derivativederivative assets and Derivativederivative liabilities within other assets and other liabilities. The FHN FinancialFHNF Risk Committee and the Credit Risk Management Committee collaborate to mitigate credit risk related to these transactions. Credit risk is controlled through credit
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 194
Note 22 - Derivatives (Continued)
approvals, risk control limits, and ongoing monitoring procedures. Total trading revenues were $228.4$360 million, $132.3$371 million and $173.9$228 million for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, respectively. Trading revenues are inclusive of both
| | | | | | | | |
| 184 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 22—DERIVATIVES | |
derivative and non-derivative financial instruments, and are included in Fixedfixed income noninterest income.on the Consolidated Statements of Income.
The following tables summarize FHN’s derivatives associated with fixed incomeFHNF's trading activities as of December 31, 20192021 and 2018:2020:
Table 8.22.1a-b
DERIVATIVES ASSOCIATED WITH TRADING
| | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2021 |
| (Dollars in millions) | | Notional | | Assets | | Liabilities |
| Customer interest rate contracts | | $ | 3,587 | | | $ | 84 | | | $ | 41 | |
| Offsetting upstream interest rate contracts | | 3,587 | | | 4 | | | 8 | |
| Option contracts purchased | | 13 | | | — | | | — | |
| Forwards and futures purchased | | 4,430 | | | 2 | | | 9 | |
| Forwards and futures sold | | 5,044 | | | 10 | | | 2 | |
| | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2020 |
| (Dollars in millions) | | Notional | | Assets | | Liabilities |
| Customer interest rate contracts | | $ | 3,950 | | | $ | 207 | | | $ | 7 | |
| Offsetting upstream interest rate contracts | | 3,950 | | | 2 | | | 17 | |
| | | | | | |
| Forwards and futures purchased | | 10,795 | | | 62 | | | — | |
| Forwards and futures sold | | 11,633 | | | 1 | | | 65 | |
|
| | | | | | | | | | | | |
| | | December 31, 2019 |
| (Dollars in thousands) | | Notional | | Assets | | Liabilities |
| Customer Interest Rate Contracts | | $ | 2,697,522 |
| | $ | 65,768 |
| | $ | 6,858 |
|
| Offsetting Upstream Interest Rate Contracts | | 2,697,522 |
| | 2,583 |
| | 3,994 |
|
| Option Contracts Purchased | | 40,000 |
| | 131 |
| | — |
|
| Forwards and Futures Purchased | | 9,217,350 |
| | 17,029 |
| | 3,187 |
|
| Forwards and Futures Sold | | 9,403,112 |
| | 3,611 |
| | 16,620 |
|
|
| | | | | | | | | | | | |
| | | December 31, 2018 |
| (Dollars in thousands) | | Notional | | Assets | | Liabilities |
| Customer Interest Rate Contracts | | $ | 2,271,448 |
| | $ | 18,744 |
| | $ | 27,768 |
|
| Offsetting Upstream Interest Rate Contracts | | 2,271,448 |
| | 4,014 |
| | 9,041 |
|
| Option Contracts Purchased | | 20,000 |
| | 25 |
| | — |
|
| Forwards and Futures Purchased | | 4,684,177 |
| | 28,304 |
| | 181 |
|
| Forwards and Futures Sold | | 4,967,454 |
| | 522 |
| | 30,055 |
|
Interest Rate Risk Management
FHN’s ALCO focuses on managing market risk by controlling and limiting earnings volatility attributable to changes in interest rates. Interest rate risk exists to the extent that interest-earning assets and interest-bearing liabilities have different maturity or repricing characteristics. FHN uses derivatives, primarily swaps, that are designed to moderate the impact on earnings as interest rates change. Interest paid or received for swaps utilized by FHN to hedge the fair value of long term debt is recognized as an adjustment of the interest expense of the liabilities whose risk is being managed. FHN’s interest rate risk management policy is to use derivatives to hedge interest rate risk or market value of assets or liabilities, not to speculate. In addition, FHN has entered into certain interest rate swaps and caps as a part of a product offering to commercial customersclients 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 Noninterestnoninterest expense on the Consolidated Statements of Income.
FHN had designated a derivative transaction in a hedging strategy to manage interest rate risk on $400.0$500 million of senior debt issued by First Horizon Bank prior to its maturity in December 2019.2020. This transaction qualified for hedge accounting under ASC 815-20 using the long-haul method. FHN entered into a pay floating, receive fixed interest rate swap to hedge the interest rate risk of the senior debt. First Horizon bank early redeemed the $400.0$500 million senior debt onin November 1, 2019.
FHN has designated a derivative transaction in a hedging strategy to manage interest rate risk on $500.0 million of senior debt which matures in December 2020. This qualifies for hedge accounting under ASC 815-20 using the long-haul method. FHN entered into a pay floating, receive fixed interest rate swap to hedge the interest rate risk of the senior debt.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 195
Note 22 - Derivatives (Continued)
The following tables summarize FHN’s derivatives associated with interest rate risk management activities as of December 31, 20192021 and 2018:2020:
| | | | | | | | |
| 185 | 2021 FORM 10-K ANNUAL REPORT |
|
| | | | | | | | | | | | |
| | | December 31, 2019 |
| (Dollars in thousands) | | Notional | | Assets | | Liabilities |
Customer Interest Rate Contracts Hedging | | | | | | |
Hedging Instruments and Hedged Items: | | | | | | |
| Customer Interest Rate Contracts | | $ | 3,044,067 |
| | $ | 90,394 |
| | $ | 3,515 |
|
| Offsetting Upstream Interest Rate Contracts | | 3,044,067 |
| | 3,537 |
| | 9,735 |
|
| Debt Hedging | | | | | | |
| Hedging Instruments: | | | | | | |
| Interest Rate Swaps | | $ | 500,000 |
| | N/A |
| | $ | 69 |
|
| Hedged Items: | | | | | | |
| Term Borrowings: | | | | | | |
| Par | | N/A |
| | N/A |
| | $ | 500,000 |
|
| Cumulative fair value hedging adjustments | | N/A |
| | N/A |
| | (1,604 | ) |
| Unamortized premium/(discount) and issuance costs | | N/A |
| | N/A |
| | (740 | ) |
| Total carrying value | | N/A |
| | N/A |
| | $ | 497,656 |
|
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 22—DERIVATIVES | |
Table 8.22.2a-b
|
| | | | | | | | | | | | |
| | | December 31, 2018 |
| (Dollars in thousands) | | Notional | | Assets | | Liabilities |
| Customer Interest Rate Contracts Hedging | | | | | | |
Hedging Instruments and Hedged Items: | | | | | | |
| Customer Interest Rate Contracts | | $ | 2,029,162 |
| | $ | 20,262 |
| | $ | 25,880 |
|
| Offsetting Upstream Interest Rate Contracts | | 2,029,162 |
| | 8,154 |
| | 9,153 |
|
| Debt Hedging | | | | | | |
| Hedging Instruments: | | | | | | |
| Interest Rate Swaps | | $ | 900,000 |
| | $ | 127 |
| | $ | 6 |
|
| Hedged Items: | | | | | | |
| Term Borrowings: | | | | | | |
| Par | | N/A |
| | N/A |
| | $ | 900,000 |
|
| Cumulative fair value hedging adjustments | | N/A |
| | N/A |
| | (15,094 | ) |
| Unamortized premium/(discount) and issuance costs | | N/A |
| | N/A |
| | (2,295 | ) |
| Total carrying value | | N/A |
| | N/A |
| | $ | 882,611 |
|
| | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2021 |
| (Dollars in millions) | | Notional | | Assets | | Liabilities |
| Customer Interest Rate Contracts Hedging | | | | | | |
| Hedging Instruments and Hedged Items: | | | | | | |
| Customer interest rate contracts | | $ | 8,037 | | | $ | 202 | | | $ | 29 | |
| Offsetting upstream interest rate contracts | | 8,037 | | | 4 | | | 15 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 196
Note 22 - Derivatives (Continued)
| | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2020 |
| (Dollars in millions) | | Notional | | Assets | | Liabilities |
| Customer Interest Rate Contracts Hedging | | | | | | |
| Hedging Instruments and Hedged Items: | | | | | | |
| Customer interest rate contracts | | $ | 6,868 | | | $ | 436 | | | $ | 1 | |
| Offsetting upstream interest rate contracts | | 6,868 | | | 5 | | | 35 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
The following table summarizes gains/gains (losses) on FHN’s derivatives associated with interest rate risk management activities for the years ended December 31, 2019, 2018,2021, 2020, and 2017:2019:
Table 8.22.3
DERIVATIVE GAINS (LOSSES) ASSOCIATED WITH INTEREST RATE RISK MANAGEMENT
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| (Dollars in millions) | | Gains (Losses) | | Gains (Losses) | | Gains (Losses) |
| Customer Interest Rate Contracts Hedging | | | | | | |
| Hedging Instruments and Hedged Items: | | | | | | |
| Customer interest rate contracts (a) | | $ | (268) | | | $ | 357 | | | $ | 92 | |
| Offsetting upstream interest rate contracts (a) | | 268 | | | (357) | | | (92) | |
| Debt Hedging | | | | | | |
| Hedging Instruments: | | | | | | |
| Interest rate swaps (b) | | $ | — | | | $ | 2 | | | $ | 13 | |
| Hedged Items: | | | | | | |
| Term borrowings (a) (c) | | — | | | (2) | | | (13) | |
(a)Gains (losses) included in other expense within the Consolidated Statements of Income.
(b)Gains (losses) included in interest expense.
(c)Represents gains and losses attributable to changes in fair value due to interest rate risk as designated in ASC 815-20 hedging relationships.
Cash Flow Hedges
|
| | | | | | | | | | | | |
| | | Year Ended December 31 |
| | | 2019 | | 2018 | | 2017 |
| (Dollars in thousands) | | Gains/(Losses) | | Gains/(Losses) | | Gains/(Losses) |
| Customer Interest Rate Contracts Hedging | | | | |
| Hedging Instruments and Hedged Items: | | | | | | |
| Customer Interest Rate Contracts (a) | | $ | 92,497 |
| | $ | 1,779 |
| | (10,703 | ) |
| Offsetting Upstream Interest Rate Contracts (a) | | (92,497 | ) | | (1,779 | ) | | 10,699 |
|
| Debt Hedging | | | | | | |
| Hedging Instruments: | | | | | | |
| Interest Rate Swaps (b) | | $ | 13,240 |
| | $ | (1,648 | ) | | $ | (7,766 | ) |
| Hedged Items: | | | | | | |
| Term Borrowings (a) (c) | | (13,234 | ) | | 1,622 |
| | 7,582 |
|
| |
(a) | Gains/losses included in All other expense within the Consolidated Statements of Income. |
| |
(b) | Gains/losses included in the Interest expense for 2019 and 2018, and All other expense for 2017 within the Consolidated Statement of Income. |
| |
(c) | Represents gains and losses attributable to changes in fair value due to interest rate risk as designated in ASC 815-20 hedging relationships. |
In first quarter 2016,Prior to 2021, FHN entered into ahad pay floating, receive fixed interest rate swap in a hedging strategyswaps designed to manage its exposure to the variability in cash flows related to the interest payments for the following five years on $250 million principal of debt instruments, which primarily consistconsisted of held-to-maturity trust preferred loans thatloans. In conjunction with the IBKC merger, FHN acquired interest rate contracts (floors and collars) which have variable interest payments based on 3-month LIBOR. In first quarter 2017, FHN initiatedbeen re-designated as cash flow hedges of $650 million notional amount that had initial durations between three years and seven years.hedges. The debt instruments primarily consist of held-to-maturity commercial loans that have variable interest payments based on 1-month LIBOR. These qualify for hedge accounting as
In a cash flow hedges under ASC 815-20. Subsequent to 2017, all changes inhedge, the fair value of these derivatives are recorded as a component of AOCI. Amounts are reclassified from AOCI to earnings as the hedged cash flows affect earnings. Prior to 2018, FHN measured ineffectiveness using the Hypothetical Derivative Method and AOCI was adjusted to an amount that reflected the lesser of either the cumulative change in fair value of the swaps or the cumulativeentire change in the fair value of the hypothetical derivative instruments. To the extent that any ineffectiveness existedinterest rate swap included in the assessment of hedge relationships, the amounts wereeffectiveness is initially recorded in OCI and is subsequently reclassified from OCI to current period earnings. Interest paidearnings (interest income or received for these swaps is recognized as an adjustment to interest income ofexpense) in the assets whose cash flows are being hedged.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 197
Note 22 - Derivatives (Continued)
The following tables summarize FHN’s derivative activities associated with cash flow hedges as of December 31, 20192021 and 2018:2020:
| | | | | | | | |
| 186 | 2021 FORM 10-K ANNUAL REPORT |
|
| | | | | | | | | | | | |
| | | December 31, 2019 |
| (Dollars in thousands) | | Notional | | Assets | | Liabilities |
Cash Flow Hedges | | | | | | |
Hedging Instruments: | | | | | | |
| Interest Rate Swaps | | $ | 900,000 |
| | N/A |
| | $ | 241 |
|
| Hedged Items: | | | | | | |
| Variability in Cash Flows Related to Debt Instruments (Primarily Loans) | | N/A |
| | $ | 900,000 |
| | N/A |
|
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 22—DERIVATIVES | |
Table 8.22.4a-b
DERIVATIVES ASSOCIATED WITH CASH FLOW HEDGES
| | | | | | | | | | | December 31, 2021 |
| | | December 31, 2018 | |
| (Dollars in thousands) | | Notional | | Assets | | Liabilities | |
| (Dollars in millions) | | (Dollars in millions) | | Notional | | Assets | | Liabilities |
| Cash Flow Hedges | | | | | | | Cash Flow Hedges | | | | | | |
Hedging Instruments: | | | | | | | Hedging Instruments: | |
| Interest Rate Swaps | | $ | 900,000 |
| | $ | 888 |
| | $ | 5 |
| |
| Interest rate contracts | | Interest rate contracts | | $ | 1,100 | | | $ | 13 | | | $ | — | |
| Hedged Items: | | | | | | | Hedged Items: | |
| Variability in Cash Flows Related to Debt Instruments (Primarily Loans) | | N/A |
| | $ | 900,000 |
| | N/A |
| |
| Variability in cash flows related to debt instruments (primarily loans) | | Variability in cash flows related to debt instruments (primarily loans) | | N/A | | $ | 1,100 | | | N/A |
| | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2020 |
| (Dollars in millions) | | Notional | | Assets | | Liabilities |
| Cash Flow Hedges | | | | | | |
| Hedging Instruments: | | | | | | |
| Interest rate contracts | | $ | 1,250 | | | $ | 32 | | | $ | — | |
| Hedged Items: | | | | | | |
| Variability in cash flows related to debt instruments (primarily loans) | | N/A | | $ | 1,250 | | | N/A |
The following table summarizes gains/gains (losses) on FHN’s derivatives associated with cash flow hedges for the years ended December 31, 2019, 2018,2021, 2020, and 2017:2019:
Table 8.22.5
DERIVATIVE GAINS (LOSSES) ASSOCIATED WITH CASH FLOW HEDGES
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| (Dollars in millions) | | Gains (Losses) | | Gains (Losses) | | Gains (Losses) |
| Cash Flow Hedges | | | | | | |
| Hedging Instruments: | | | | | | |
| Interest rate contracts (a) | | $ | 29 | | | $ | 3 | | | $ | 21 | |
| Gain (loss) recognized in other comprehensive income (loss) | | (3) | | | 15 | | | 11 | |
| Gain (loss) reclassified from AOCI into interest income | | (7) | | | (6) | | | 4 | |
(a)Approximately $15 million of pre-tax gains are expected to be reclassified into earnings in the next twelve months.
|
| | | | | | | | | | | | |
| | | Year Ended December 31 |
| | | 2019 | | 2018 | | 2017 |
| (Dollars in thousands) | | Gains/(Losses) | | Gains/(Losses) | | Gains/(Losses) |
| Cash Flow Hedges | | | | |
| Hedging Instruments: | | | | | | |
| Interest Rate Swaps (a) | | $ | 20,625 |
| | $ | (5,502 | ) | | $ | (8,264 | ) |
| Gain/(loss) recognized in Other comprehensive income/(loss) | | 11,234 |
| | (6,284 | ) | | (2,156 | ) |
| Gain/(loss) reclassified from AOCI into Interest income | | 4,105 |
| | 2,142 |
| | (2,945 | ) |
Other Derivatives
As part of the merger with IBKC, FHN acquired mortgage banking operations that include the origination and sale of loans into the secondary market. As part of the origination of loans, FHN enters into interest rate lock commitments with borrowers.
Additionally, FHN enters into forward sales contracts with buyers for delivery of loans at a future date. Both of these contracts qualify as freestanding derivatives and are recognized at fair value through earnings. The notional and fair values of these contracts are presented in the table below. Balances and activity for periods prior to the IBKC merger were not significant.
Table 8.22.6a-b
DERIVATIVES ASSOCIATED WITH MORTGAGE BANKING HEDGES
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| (Dollars in millions) | | Notional | | Assets | | Liabilities |
| Mortgage Banking Hedges | | | | | | |
| | | | | | |
| Option contracts written | | $ | 241 | | | $ | 4 | | | $ | — | |
| | | | | | |
| Forward contracts written | | 404 | | — | | | — | |
| | | | | | | | |
(a) | Approximately $1.0 million of cumulative gains are expected to be reclassified into earnings in the next twelve months. 187 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 22—DERIVATIVES | |
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| (Dollars in millions) | | Notional | | Assets | | Liabilities |
| Mortgage Banking Hedges | | | | | | |
| Option contracts written | | $ | 667 | | | $ | 20 | | | $ | — | |
| Forward contracts written | | 725 | | | — | | | 6 | |
The following table summarizes gains (losses) on FHN's derivatives associated with mortgage banking activities for the years ended December 31, 2021 and 2020:
Table 8.22.7
DERIVATIVE GAINS (LOSSES) ASSOCIATED WITH MORTGAGE BANKING HEDGES
| | | | | | | | | | | | | | | | | |
| | | Year Ended
December 31, |
| | | 2021 | | 2020 |
| (Dollars in millions) | | | Gains (Losses) | | Gains (Losses) |
| Mortgage Banking Hedges | | | | | |
| | | | | |
| Option contracts written | | | $ | 15 | | | $ | 15 | |
| | | | | |
| Forward contracts written | | | 11 | | | (37) | |
In conjunction with thepre-2020 sales of a portion of its Visa Class B shares, in 2010 and 2011, FHN and the purchaser entered into derivative transactions whereby FHN will make or receive cash payments whenever the conversion ratio of the Visa Class B shares into Visa Class A shares is adjusted. FHN is also required to make periodic financing payments to the purchasers until all of Visa's covered litigation matters are resolved. In third quarter 2018, FHN sold the remainder of its Visa Class B shares, entering into a similar derivative arrangement with the counterparty. All of these derivatives extend until the end of Visa’s Covered Litigation matters. In September 2018, Visa reached a preliminary settlement for one class of plaintiffs in its Payment Card Interchange matter, which later received final court approval in December 2019. In accordance with the agreement terms, several individual plaintiffs opted out of the settlement and have the opportunity to separately pursue resolution with Visa. Settlement has not been reached with the second class of plaintiffs in this matter and other covered litigation matters are also pending judicial resolution. Accordingly, the value and timing for completion of Visa’s Covered Litigation matters are uncertain.
The derivative transaction executed in third quarter 2018 includes a contingent accelerated termination clause based on the credit ratings of FHN and First Horizon Bank. FHN has not received or paid collateral related to this contract. As of December 31, 20192021 and December 31, 2018,2020, the derivative liabilities associated with the sales of Visa Class B shares were $22.8$23 million and $31.5$13 million, respectively. For the year ended December 31, 2021, FHN recognized $19 million in derivative valuation adjustments related to prior sales of Visa Class B shares. These derivative adjustments were insignificant for the year ended December 31, 2020. See Note 24 - Fair Value of Assets &and Liabilities for discussion of the valuation inputs and processes for these Visa-related derivatives.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 198
Note 22 - Derivatives (Continued)
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, 20192021 and December 31, 2018,2020, these loans were valued at $18.4$7 million and $11.0$12 million, respectively. The balance sheet amount and the gains/losses associated with these derivatives were not significant.
Related to its loan participation/syndication activities, FHN enters into risk participation agreements, under which it assumes exposure for, or receives indemnification for, borrowers’ performance on underlying interest rate derivative contracts. FHN’s counterparties in these contracts are other lending institutions involved in the loan participation/syndication arrangements for which the underlying interest rate derivative contract is intended to hedge interest rate risk for the borrower. FHN will make (other institution is the lead bank) or receive (FHN is the lead bank) payments for risk participations if the borrower defaults on its obligation to perform under the terms of its interest rate derivative agreement with the lead bank in
the participation. As of December 31, 2021 and 2020, the notional values of FHN’s risk participations were $257 million and $233 million of derivative assets and $500 million and $464 million of derivative liabilities, respectively. The notional value for risk participation/syndication agreements is consistent with the percentage of participation in the lending arrangement. FHN’s maximum exposure or benefit in the risk participation agreements is contingent on the fair value of the underlying interest rate derivative contracts for which the borrower is in a liability position at the time of default. FHN monitors the credit risk associated with the borrowers to which the risk participations relate through the same credit risk assessment process utilized for establishing credit loss estimates for its loan portfolio. These credit risk estimates are included in the determination of fair value for the risk participations. Assuming all underlying third party customers referenced in the swap contracts defaulted at December 31, 2021 and 2020, the exposure from these agreements would not be material based on the fair value of the underlying swaps.
In conjunction with the IBKC merger, FHN obtained certain certificates of deposit with the rate of return based on an equity index which is considered an embedded derivative as a written option that must be separately recognized. The risks of the written option are offset by purchasing an option with terms that mirror the written option, which is also carried at fair value on the Company’s Consolidated Balance Sheets. As of December 31, 2021 and 2020, FHN had recognized $1 million of both assets and liabilities associated with these contracts.
Master Netting and Similar Agreements
As previously discussed, 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
| | | | | | | | |
| 188 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 22—DERIVATIVES | |
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 International Swap and Derivatives Association (“ISDA”).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 Statements of Condition.Balance Sheet.
Interest rate derivatives with customersclients 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 Statements of Condition.Balance Sheets. Interest rate derivatives associated with lending arrangements share the collateral with the related loan(s). The derivative and loan positions may be netted in the event of default. For disclosure purposes, the entire collateral amount is allocated to the loan.
Interest rate derivatives with larger financial institutions entered into prior to required central clearing typically contain provisions whereby the collateral posting thresholds under the agreements adjust based on the credit ratings of both counterparties. If the credit rating of FHN and/or First Horizon Bank is lowered, FHN could be required to post additional collateral with the counterparties. Conversely, if the credit rating of FHN and/or First Horizon Bank is increased, FHN could have collateral released and be required to post less collateral in the future. Also, if a counterparty’s credit ratings were to decrease, FHN and/or First Horizon Bank could require the posting of additional collateral; whereas if a counterparty’s credit ratings were to increase, the counterparty could require the release of excess collateral. Collateral for these arrangements is adjusted daily based on changes in the net fair value position with each counterparty.
The net fair value, determined by individual counterparty, of all derivative instruments with adjustable collateral posting thresholds was $63.1$67 million of assets and $6.4$26 million of liabilities on December 31, 2019,2021, and $15.0$200 million of assets and $34.9$5 million of liabilities on December 31, 2018.2020. As of December 31, 20192021 and 2018,2020, FHN had received collateral of $148.5$205 million and $80.2$320 million and posted collateral of $18.4$14 million and $13.3$34 million, respectively, in the normal course of business related to these agreements.
Certain agreements entered into prior to required central clearing also contain accelerated termination provisions, inclusive of the right of offset, if a counterparty’s credit rating falls below a specified level. If a counterparty’s debt rating (including FHN’s and First Horizon Bank's) were to fall below these minimums, these provisions would be triggered, and the counterparties could terminate the agreements and require immediate settlement of all derivative contracts under the agreements. The net fair value, determined by individual counterparty, of all interest rate derivative instruments with credit-risk-related contingent accelerated termination provisions was $63.1$74 million of assets and $10.3$30 million of liabilities on December 31, 2019,2021, and $19.0$216 million of assets and $33.2$17 million of liabilities on December 31, 2018.2020. As of December 31, 20192021 and 2018,2020, FHN had received collateral of $148.5$213 million and $84.5$343 million and posted collateral of $22.7$18 million and $15.2$53 million, respectively, in the normal course of business related to these contracts.
FHN’s fixed income segmentFHNF buys and sells various types of securities for its customers.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
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 199
Note 22 - Derivatives (Continued)
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 Statements of ConditionBalance Sheets as of December 31, 20192021 and 2018:2020:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Gross amounts not offset in the Statements of Condition | | |
| (Dollars in thousands) | | Gross amounts of recognized assets | | Gross amounts offset in the Statements of Condition | | Net amounts of assets presented in the Statements of Condition (a) | | Derivative liabilities available for offset | | Collateral Received | | Net amount |
| Derivative assets: | | | | | | | | | | | | |
| December 31, 2019 (b) | | $ | 162,344 |
| | $ | — |
| | $ | 162,344 |
| | $ | (5,604 | ) | | $ | (143,334 | ) | | $ | 13,406 |
|
| December 31, 2018 (b) | | 52,562 |
| | — |
| | 52,562 |
| | (12,745 | ) | | (39,637 | ) | | 180 |
|
| | | | | | | | |
(a) | Included in Derivative assets on the Consolidated Statements of Condition. As of December 31, 2019 and 2018, $20.8 million and $28.9 million, respectively, of derivative assets (primarily fixed income forward contracts) have been excluded from these tables because they are generally not subject to master netting or similar agreements. 189 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
(b)ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| Amounts are comprised entirely of interest rate derivative contracts.NOTE 22—DERIVATIVES | |
Table 8.22.8
DERIVATIVE ASSETS & COLLATERAL RECEIVED
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Gross amounts not offset in the Balance Sheets | | |
| (Dollars in millions) | | 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 |
| Derivative assets: | | | | | | | | | | | | |
| December 31, 2021 | | | | | | | | | | | | |
| Interest rate derivative contracts | | $ | 311 | | | $ | — | | | $ | 311 | | | $ | (32) | | | $ | (181) | | | $ | 98 | |
| Forward contracts | | 12 | | | — | | | 12 | | | (4) | | | (3) | | | 5 | |
| | $ | 323 | | | $ | — | | | $ | 323 | | | $ | (36) | | | $ | (184) | | | $ | 103 | |
| | | | | | | | | | | | |
| December 31, 2020 | | | | | | | | | | | | |
| Interest rate derivative contracts | | $ | 702 | | | $ | — | | | $ | 702 | | | $ | (7) | | | $ | (327) | | | $ | 368 | |
| Forward contracts | | 63 | | | — | | | 63 | | | (14) | | | (20) | | | 29 | |
| | $ | 765 | | | $ | — | | | $ | 765 | | | $ | (21) | | | $ | (347) | | | $ | 397 | |
| | | | | | | | | | | | |
(a)Included in other assets on the Consolidated Balance Sheets. As of December 31, 2021 and 2020, $2 million and $4 million, respectively, of derivative assets have been excluded from these tables because they are generally not subject to master netting or similar agreements.
The following table provides details of derivative liabilities and collateral pledged as presented on the Consolidated Statements of ConditionBalance Sheets as of December 31, 20192021 and 2018:2020:
Table 8.22.9
DERIVATIVE LIABILITIES & COLLATERAL PLEDGED
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Gross amounts not offset in the Balance Sheets | | |
| (Dollars in millions) | | 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 |
| Derivative liabilities: | | | | | | | | | | | | |
| December 31, 2021 | | | | | | | | | | | | |
| Interest rate derivative contracts | | $ | 93 | | | $ | — | | | $ | 93 | | | $ | (32) | | | $ | (38) | | | $ | 23 | |
| Forward contracts | | 10 | | | — | | | 10 | | | (4) | | | (1) | | | 5 | |
| | $ | 103 | | | $ | — | | | $ | 103 | | | $ | (36) | | | $ | (39) | | | $ | 28 | |
| | | | | | | | | | | | |
| December 31, 2020 | | | | | | | | | | | | |
| Interest rate derivative contracts | | $ | 60 | | | $ | — | | | $ | 60 | | | $ | (7) | | | $ | (31) | | | $ | 22 | |
| Forward contracts | | 65 | | | — | | | 65 | | | (14) | | | (51) | | | — | |
| | $ | 125 | | | $ | — | | | $ | 125 | | | $ | (21) | | | $ | (82) | | | $ | 22 | |
| | | | | | | | | | | | |
(a)Included in other liabilities on the Consolidated Balance Sheets. As of December 31, 2021 and 2020, $24 million and $22 million, respectively, of derivative liabilities (primarily Visa-related derivatives) have been excluded from these tables because they are generally not subject to master netting or similar agreements.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Gross amounts not offset in the Statements of Condition | | |
| (Dollars in thousands) | | Gross amounts of recognized liabilities | | Gross amounts offset in the Statements of Condition | | Net amounts of liabilities presented in the Statements of Condition (a) | | Derivative assets available for offset | | Collateral pledged | | Net amount |
| Derivative liabilities: | | | | | | | | | | | | |
| December 31, 2019 (b) | | $ | 24,431 |
| | $ | — |
| | $ | 24,431 |
| | $ | (5,604 | ) | | $ | (18,689 | ) | | $ | 138 |
|
| December 31, 2018 (b) | | 71,853 |
| | — |
| | 71,853 |
| | (12,745 | ) | | (54,773 | ) | | 4,335 |
|
| | | | | | | | |
(a) | Included in Derivative liabilities on the Consolidated Statements of Condition. As of December 31, 2019 and 2018, $43.0 million and $61.9 million, respectively, of derivative liabilities (primarily Visa-related derivatives and fixed income forward contracts) have been excluded from these tables because they are generally not subject to master netting or similar agreements. 190 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
(b)ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| Amounts are comprised entirely of interest rate derivative contracts.NOTE 23—MASTER NETTING & SIMILAR AGREEMENTS | |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 200
Note 23 - 23—Master Netting and Similar Agreements -– Repurchase, Reverse Repurchase, and Securities Borrowing Transactions
For repurchase, reverse repurchase and securities borrowing transactions, FHN and each counterparty have the ability to offset all open positions and related collateral in the event of default. Due to the nature of these transactions, the value of the collateral for each transaction approximates the value of the corresponding receivable or payable. For repurchase agreements through FHN’s fixed income business (Securities(securities purchased under agreements to resell and Securitiessecurities 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(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 Statements of Condition.Balance Sheets. For liability positions, securities collateral pledged by FHN is generally represented within FHN’s trading or available-for-sale securities portfolios.
For this disclosure, FHN considers the impact of master netting and other similar agreements that allow FHN to settle all contracts with a single counterparty on a net basis and to offset the net asset or liability position with the related securities collateral. The application of the collateral cannot reduce the net asset or liability position below zero, and therefore any excess collateral is not reflected in the tables below.
Securities purchased under agreements to resell is included in federal funds sold and securities purchased under agreements to resell in the Consolidated Balance Sheets. Securities sold under agreements to repurchase is included in short-term borrowings.
The following table provides details of Securitiessecurities purchased under agreements to resell as presented on the Consolidated Statements of Condition and collateral pledged by counterparties as of December 31:31, 2021 and 2020:
Table 8.23.1
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Gross amounts not offset in the Statements of Condition | | |
| (Dollars in thousands) | | Gross amounts of recognized assets | | Gross amounts offset in the Statements of Condition | | Net amounts of assets presented in the Statements of Condition | | Offsetting securities sold under agreements to repurchase | | Securities collateral (not recognized on FHN’s Statements of Condition) | | Net amount |
| Securities purchased under agreements to resell: | | | | | | | | | | | | |
| 2019 | | $ | 586,629 |
| | $ | — |
| | $ | 586,629 |
| | $ | (21,004 | ) | | $ | (562,702 | ) | | $ | 2,923 |
|
| 2018 | | 386,443 |
| | — |
| | 386,443 |
| | (261 | ) | | (382,756 | ) | | 3,426 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Gross amounts not offset in the
Balance Sheets | | |
| (Dollars in millions) | | Gross amounts
of recognized
assets | | Gross amounts
offset in the
Balance Sheets | | Net amounts of
assets presented
in the Balance Sheets | | Offsetting
securities sold
under agreements
to repurchase | | Securities collateral
(not recognized on
FHN’s Balance Sheets) | | Net amount |
| Securities purchased under agreements to resell: | | | | | | | | | | | | |
| 2021 | | $ | 488 | | | $ | — | | | $ | 488 | | | $ | (10) | | | $ | (476) | | | $ | 2 | |
| 2020 | | 380 | | | — | | | 380 | | | — | | | (379) | | | 1 | |
| | | | | | | | | | | | |
The following table provides details of Securitiessecurities sold under agreements to repurchase as presented on the Consolidated Statements of Condition and collateral pledged by FHN as of December 31:31, 2021 and 2020:
Table 8.23.2
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Gross amounts not offset in the
Balance Sheets | | |
| (Dollars in millions) | | 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 |
| Securities sold under agreements to repurchase: | | | | | | | | | | | | |
| 2021 | | $ | 1,247 | | | $ | — | | | $ | 1,247 | | | $ | (10) | | | $ | (1,237) | | | $ | — | |
| 2020 | | 1,187 | | | — | | | 1,187 | | | — | | | (1,187) | | | — | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Gross amounts not offset in the Statements of Condition | | |
| (Dollars in thousands) | | Gross amounts of recognized liabilities | | Gross amounts offset in the Statements of Condition | | Net amounts of liabilities presented in the Statements of Condition | | Offsetting securities purchased under agreements to resell | | Securities/ government guaranteed loans collateral | | Net amount |
| Securities sold under agreements to repurchase: | | | | | | | | | | | | |
| 2019 | | $ | 716,925 |
| | $ | — |
| | $ | 716,925 |
| | $ | (21,004 | ) | | $ | (695,879 | ) | | $ | 42 |
|
| 2018 | | 762,592 |
| | — |
| | 762,592 |
| | (261 | ) | | (762,322 | ) | | 9 |
|
| | | | | | | | |
| 191 | 2021 FORM 10-K ANNUAL REPORT |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 201
Note 23 - Master Netting and Similar Agreements - Repurchase, Reverse Repurchase, and Securities Borrowing Transactions (Continued)
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 23—MASTER NETTING & SIMILAR AGREEMENTS | |
Due to the short duration of Securitiessecurities sold under agreements to repurchase and the nature of collateral involved, the risks associated with these transactions are considered minimal.
The following tables provide details, by collateral type, of the remaining contractual maturity of Securitiessecurities sold under agreements to repurchase as of December 31:31, 2021 and 2020:
Tables 8.23.3a-b
MATURITIES OF SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
| | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| (Dollars in millions) | Overnight and
Continuous | | Up to 30 Days | | Total |
| Securities sold under agreements to repurchase: | | | | | |
| U.S. treasuries | $ | 33 | | | $ | — | | | $ | 33 | |
| Government agency issued MBS | 1,068 | | | — | | | 1,068 | |
| | | | | |
| Other U.S. government agencies | 31 | | | — | | | 31 | |
| Government guaranteed loans (SBA and USDA) | 115 | | | — | | | 115 | |
| Total securities sold under agreements to repurchase | $ | 1,247 | | | $ | — | | | $ | 1,247 | |
| | | | | |
| | | | | |
| | December 31, 2020 |
| (Dollars in millions) | Overnight and
Continuous | | Up to 30 Days | | Total |
| Securities sold under agreements to repurchase: | | | | | |
| U.S. treasuries | $ | 284 | | | $ | — | | | $ | 284 | |
| Government agency issued MBS | 616 | | | — | | | 616 | |
| Government agency issued CMO | 10 | | | — | | | 10 | |
| Other U.S. government agencies | 151 | | | — | | | 151 | |
| Government guaranteed loans (SBA and USDA) | 126 | | | — | | | 126 | |
| Total securities sold under agreements to repurchase | $ | 1,187 | | | $ | — | | | $ | 1,187 | |
| | | | | |
|
| | | | | | | | | | | |
| | December 31, 2019 |
| (Dollars in thousands) | Overnight and Continuous | | Up to 30 Days | | Total |
| Securities sold under agreements to repurchase: | | | | | |
| U.S. treasuries | $ | 41,364 |
| | $ | — |
| | $ | 41,364 |
|
| Government agency issued MBS | 341,173 |
| | 4,545 |
| | 345,718 |
|
| Other U.S. government agencies | 54,924 |
| | — |
| | 54,924 |
|
| Government guaranteed loans (SBA and USDA) | 274,919 |
| | — |
| | 274,919 |
|
| Total Securities sold under agreements to repurchase | $ | 712,380 |
| | $ | 4,545 |
| | $ | 716,925 |
|
| | | | | | |
| | December 31, 2018 |
| (Dollars in thousands) | Overnight and Continuous | | Up to 30 Days | | Total |
| Securities sold under agreements to repurchase: | | | | | |
| U.S. treasuries | $ | 16,321 |
| | $ | — |
| | $ | 16,321 |
|
| Government agency issued MBS | 414,488 |
| | 5,220 |
| | 419,708 |
|
| Government agency issued CMO | 36,688 |
| | — |
| | 36,688 |
|
| Government guaranteed loans (SBA and USDA) | 289,875 |
| | — |
| | 289,875 |
|
| Total Securities sold under agreements to repurchase | $ | 757,372 |
| | $ | 5,220 |
| | $ | 762,592 |
|
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 202 | | | | | | | | |
| 192 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES | |
Note 24 - 24—Fair Value of Assets and Liabilities
FHN groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. This hierarchy requires FHN to maximize the use of observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Each fair value measurement is placed into the proper level based on the lowest level of significant input. These levels are:
•Level 1—1—Valuation is based upon quoted prices for identical instruments traded in active markets.
•Level 2—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—3—Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models, and similar techniques.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 203
Note 24 - Fair Value of Assets and Liabilities (Continued)
Recurring Fair Value Measurements
The following table presentstables present the balancebalances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2019:2021 and 2020:
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2019 |
| (Dollars in thousands) | | Level 1 | | Level 2 | | Level 3 | | Total |
| Trading securities—fixed income: | | | | | | | | |
| U.S. treasuries | | $ | — |
| | $ | 134,844 |
| | $ | — |
| | $ | 134,844 |
|
| Government agency issued MBS | | — |
| | 268,024 |
| | — |
| | 268,024 |
|
| Government agency issued CMO | | — |
| | 250,652 |
| | — |
| | 250,652 |
|
| Other U.S. government agencies | | — |
| | 124,972 |
| | — |
| | 124,972 |
|
| States and municipalities | | — |
| | 120,744 |
| | — |
| | 120,744 |
|
| Corporate and other debt | | — |
| | 445,253 |
| | — |
| | 445,253 |
|
| Equity, mutual funds, and other | | — |
| | 777 |
| | — |
| | 777 |
|
| Total trading securities—fixed income | | — |
| | 1,345,266 |
| | — |
| | 1,345,266 |
|
| Trading securities—mortgage banking | | — |
| | — |
| | 941 |
| | 941 |
|
| Loans held-for-sale (elected fair value) | | — |
| | — |
| | 14,033 |
| | 14,033 |
|
| Securities available-for-sale: | | | | | | | | |
| U.S. treasuries | | — |
| | 100 |
| | — |
| | 100 |
|
| Government agency issued MBS | | — |
| | 2,348,517 |
| | — |
| | 2,348,517 |
|
| Government agency issued CMO | | — |
| | 1,670,492 |
| | — |
| | 1,670,492 |
|
| Other U.S. government agencies | | — |
| | 306,092 |
| | — |
| | 306,092 |
|
| States and municipalities | | — |
| | 60,526 |
| | — |
| | 60,526 |
|
| Corporate and other debt | | — |
| | 40,540 |
| | — |
| | 40,540 |
|
| Interest-Only Strip (elected fair value) | | — |
| | — |
| | 19,136 |
| | 19,136 |
|
| Total securities available-for-sale | | — |
| | 4,426,267 |
| | 19,136 |
| | 4,445,403 |
|
| Other assets: | | | | | | | | |
| Deferred compensation mutual funds | | 46,815 |
| | — |
| | — |
| | 46,815 |
|
| Equity, mutual funds, and other | | 22,643 |
| | — |
| | — |
| | 22,643 |
|
| Derivatives, forwards and futures | | 20,640 |
| | — |
| | — |
| | 20,640 |
|
| Derivatives, interest rate contracts | | — |
| | 162,413 |
| | — |
| | 162,413 |
|
| Derivatives, other | | — |
| | 62 |
| | — |
| | 62 |
|
| Total other assets | | 90,098 |
| | 162,475 |
| | — |
| | 252,573 |
|
| Total assets | | $ | 90,098 |
| | $ | 5,934,008 |
| | $ | 34,110 |
| | $ | 6,058,216 |
|
| Trading liabilities—fixed income: | | | | | | | | |
| U.S. treasuries | | $ | — |
| | $ | 406,380 |
| | $ | — |
| | $ | 406,380 |
|
| Other U.S.government agencies | | — |
| | 88 |
| | — |
| | 88 |
|
| Government agency issued MBS | | — |
| | 33 |
| | — |
| | 33 |
|
| Corporate and other debt | | — |
| | 99,080 |
| | — |
| | 99,080 |
|
| Total trading liabilities—fixed income | | — |
| | 505,581 |
| | — |
| | 505,581 |
|
| Other liabilities: | | | | | | | | |
| Derivatives, forwards and futures | | 19,807 |
| | — |
| | — |
| | 19,807 |
|
| Derivatives, interest rate contracts | | — |
| | 24,412 |
| | — |
| | 24,412 |
|
| Derivatives, other | | — |
| | 466 |
| | 22,795 |
| | 23,261 |
|
| Total other liabilities | | 19,807 |
| | 24,878 |
| | 22,795 |
| | 67,480 |
|
| Total liabilities | | $ | 19,807 |
| | $ | 530,459 |
| | $ | 22,795 |
| | $ | 573,061 |
|
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 204
| | | | | | | | |
| 193 | 2021 FORM 10-K ANNUAL REPORT |
Note 24 - Fair Value of Assets and Liabilities (Continued)
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES | |
The following table presents the balance of assets and liabilities measured at fair value on a recurring basis as of December 31, 2018:Tables 8.24.1a-b
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2018 |
| (Dollars in thousands) | | Level 1 | | Level 2 | | Level 3 | | Total |
| Trading securities—fixed income: | | | | | | | | |
| U.S. treasuries | | $ | — |
| | $ | 169,799 |
| | $ | — |
| | $ | 169,799 |
|
| Government agency issued MBS | | — |
| | 133,373 |
| | — |
| | 133,373 |
|
| Government agency issued CMO | | — |
| | 330,456 |
| | — |
| | 330,456 |
|
| Other U.S. government agencies | | — |
| | 76,733 |
| | — |
| | 76,733 |
|
| States and municipalities | | — |
| | 54,234 |
| | — |
| | 54,234 |
|
| Corporates and other debt | | — |
| | 682,068 |
| | — |
| | 682,068 |
|
| Equity, mutual funds, and other | | — |
| | (19 | ) | | — |
| | (19 | ) |
| Total trading securities—fixed income | | — |
| | 1,446,644 |
| | — |
| | 1,446,644 |
|
| Trading securities—mortgage banking | | — |
| | — |
| | 1,524 |
| | 1,524 |
|
| Loans held-for-sale (elected fair value) | | — |
| | — |
| | 16,273 |
| | 16,273 |
|
| Securities available-for-sale: | | | | | | | | |
| U.S. treasuries | | — |
| | 98 |
| | — |
| | 98 |
|
| Government agency issued MBS | | — |
| | 2,420,106 |
| | — |
| | 2,420,106 |
|
| Government agency issued CMO | | — |
| | 1,958,695 |
| | — |
| | 1,958,695 |
|
| Other U.S. government agencies | | — |
| | 149,786 |
| | — |
| | 149,786 |
|
| States and municipalities | | — |
| | 32,573 |
| | — |
| | 32,573 |
|
| Corporate and other debt | | — |
| | 55,310 |
| | — |
| | 55,310 |
|
| Interest-only strips (elected fair value) | | — |
| | — |
| | 9,902 |
| | 9,902 |
|
| Total securities available-for-sale | | — |
| | 4,616,568 |
| | 9,902 |
| | 4,626,470 |
|
| Other assets: | |
|
| |
|
| |
|
| |
|
|
| Deferred compensation mutual funds | | 37,771 |
| | — |
| | — |
| | 37,771 |
|
| Equity, mutual funds, and other | | 22,248 |
| | — |
| | — |
| | 22,248 |
|
| Derivatives, forwards and futures | | 28,826 |
| | — |
| | — |
| | 28,826 |
|
| Derivatives, interest rate contracts | | — |
| | 52,214 |
| | — |
| | 52,214 |
|
| Derivatives, other | | — |
| | 435 |
| | — |
| | 435 |
|
| Total other assets | | 88,845 |
| | 52,649 |
| | — |
| | 141,494 |
|
| Total assets | | $ | 88,845 |
| | $ | 6,115,861 |
| | $ | 27,699 |
| | $ | 6,232,405 |
|
| Trading liabilities—fixed income: | | | | | | | | |
| U.S. treasuries | | $ | — |
| | $ | 207,739 |
| | $ | — |
| | $ | 207,739 |
|
| Other U.S. government agencies | | — |
| | 98 |
| | — |
| | 98 |
|
| Corporates and other debt | | — |
| | 127,543 |
| | — |
| | 127,543 |
|
| Total trading liabilities—fixed income | | — |
| | 335,380 |
| | — |
| | 335,380 |
|
| Other liabilities: | | | | | | | | |
| Derivatives, forwards and futures | | 30,236 |
| | — |
| | — |
| | 30,236 |
|
| Derivatives, interest rate contracts | | — |
| | 71,853 |
| | — |
| | 71,853 |
|
| Derivatives, other | | — |
| | 84 |
| | 31,540 |
| | 31,624 |
|
| Total other liabilities | | 30,236 |
| | 71,937 |
| | 31,540 |
| | 133,713 |
|
| Total liabilities | | $ | 30,236 |
| | $ | 407,317 |
| | $ | 31,540 |
| | $ | 469,093 |
|
MEASURED AT FAIR VALUE ON A RECURRING BASIS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2021 |
| (Dollars in millions) | | Level 1 | | Level 2 | | Level 3 | | Total |
| Trading securities: | | | | | | | | |
| U.S. treasuries | | $ | — | | | $ | 85 | | | $ | — | | | $ | 85 | |
| Government agency issued MBS | | — | | | 464 | | | — | | | 464 | |
| Government agency issued CMO | | — | | | 62 | | | — | | | 62 | |
| Other U.S. government agencies | | — | | | 276 | | | — | | | 276 | |
| States and municipalities | | — | | | 34 | | | — | | | 34 | |
| Corporate and other debt | | — | | | 642 | | | — | | | 642 | |
| Interest-only strips (elected fair value) | | — | | | — | | | 38 | | | 38 | |
| Total trading securities | | — | | | 1,563 | | | 38 | | | 1,601 | |
| | | | | | | | |
| Loans held for sale (elected fair value) | | — | | | 230 | | | 28 | | | 258 | |
| | | | | | | | |
| Securities available for sale: | | | | | | | | |
| | | | | | | | |
| Government agency issued MBS | | — | | | 5,055 | | | — | | | 5,055 | |
| Government agency issued CMO | | — | | | 2,257 | | | — | | | 2,257 | |
| Other U.S. government agencies | | — | | | 850 | | | — | | | 850 | |
| States and municipalities | | — | | | 545 | | | — | | | 545 | |
| | | | | | | | |
| Total securities available for sale | | — | | | 8,707 | | | — | | | 8,707 | |
| Other assets: | | | | | | | | |
| Deferred compensation mutual funds | | 125 | | | — | | | — | | | 125 | |
| Equity, mutual funds, and other | | 25 | | | — | | | — | | | 25 | |
| Derivatives, forwards and futures | | 12 | | | — | | | — | | | 12 | |
| Derivatives, interest rate contracts | | — | | | 311 | | | — | | | 311 | |
| Derivatives, other | | — | | | 1 | | | — | | | 1 | |
| Total other assets | | 162 | | | 312 | | | — | | | 474 | |
| Total assets | | $ | 162 | | | $ | 10,812 | | | $ | 66 | | | $ | 11,040 | |
| Trading liabilities: | | | | | | | | |
| U.S. treasuries | | $ | — | | | $ | 334 | | | $ | — | | | $ | 334 | |
| Government issued agency MBS | | — | | | 1 | | | — | | | 1 | |
| | | | | | | | |
| | | | | | | | |
| Corporate and other debt | | — | | | 91 | | | — | | | 91 | |
| Total trading liabilities | | — | | | 426 | | | — | | | 426 | |
| Other liabilities: | | | | | | | | |
| Derivatives, forwards and futures | | 11 | | | — | | | — | | | 11 | |
| Derivatives, interest rate contracts | | — | | | 93 | | | — | | | 93 | |
| Derivatives, other | | — | | | 1 | | | 23 | | | 24 | |
| Total other liabilities | | 11 | | | 94 | | | 23 | | | 128 | |
| Total liabilities | | $ | 11 | | | $ | 520 | | | $ | 23 | | | $ | 554 | |
| | | | | | | | |
| | | | | | | | |
| 194 | 2021 FORM 10-K ANNUAL REPORT |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 205
Note 24 - Fair Value of Assets and Liabilities (Continued)
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| (Dollars in millions) | | Level 1 | | Level 2 | | Level 3 | | Total |
| Trading securities: | | | | | | | | |
| U.S. treasuries | | $ | — | | | $ | 81 | | | $ | — | | | $ | 81 | |
| Government agency issued MBS | | — | | | 633 | | | — | | | 633 | |
| Government agency issued CMO | | — | | | 212 | | | — | | | 212 | |
| Other U.S. government agencies | | — | | | 62 | | | — | | | 62 | |
| States and municipalities | | — | | | 7 | | | — | | | 7 | |
| Corporate and other debt | | — | | | 181 | | | — | | | 181 | |
| | | | | | | | |
| Total trading securities | | — | | | 1,176 | | | — | | | 1,176 | |
| | | | | | | | |
| Loans held for sale (elected fair value) | | — | | | 393 | | | 12 | | | 405 | |
| Loans held for investment (elected fair value) | | — | | | — | | | 16 | | | 16 | |
| Securities available for sale: | | | | | | | | |
| U.S. treasuries | | — | | | 613 | | | — | | | 613 | |
| Government agency issued MBS | | — | | | 3,812 | | | — | | | 3,812 | |
| Government agency issued CMO | | — | | | 2,406 | | | — | | | 2,406 | |
| Other U.S. government agencies | | — | | | 684 | | | — | | | 684 | |
| States and municipalities | | — | | | 460 | | | — | | | 460 | |
| Corporate and other debt | | — | | | 40 | | | — | | | 40 | |
| Interest-only strips (elected fair value) | | — | | | — | | | 32 | | | 32 | |
| Total securities available for sale | | — | | | 8,015 | | | 32 | | | 8,047 | |
| Other assets: | | | | | | | | |
| Deferred compensation mutual funds | | 118 | | | — | | | — | | | 118 | |
| Equity, mutual funds, and other | | 25 | | | — | | | — | | | 25 | |
| Derivatives, forwards and futures | | 63 | | | — | | | — | | | 63 | |
| Derivatives, interest rate contracts | | — | | | 702 | | | — | | | 702 | |
| Derivatives, other | | — | | | 4 | | | — | | | 4 | |
| Total other assets | | 206 | | | 706 | | | — | | | 912 | |
| Total assets | | $ | 206 | | | $ | 10,290 | | | $ | 60 | | | $ | 10,556 | |
| Trading liabilities: | | | | | | | | |
| U.S. treasuries | | $ | — | | | $ | 307 | | | $ | — | | | $ | 307 | |
| | | | | | | | |
| Government agency issued MBS | | — | | | 3 | | | — | | | 3 | |
| Corporate and other debt | | — | | | 43 | | | — | | | 43 | |
| Total trading liabilities | | — | | | 353 | | | — | | | 353 | |
| Other liabilities: | | | | | | | | |
| Derivatives, forwards and futures | | 71 | | | — | | | — | | | 71 | |
| Derivatives, interest rate contracts | | — | | | 60 | | | — | | | 60 | |
| Derivatives, other | | — | | | 4 | | | 14 | | | 18 | |
| Total other liabilities | | 71 | | | 64 | | | 14 | | | 149 | |
| Total liabilities | | $ | 71 | | | $ | 417 | | | $ | 14 | | | $ | 502 | |
| | | | | | | | |
| | | | | | | | |
| 195 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES | |
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, 2019, 20182021, 2020 and 20172019 on a recurring basis are summarized as follows:
Tables 8.24.2a-b-c
CHANGES IN LEVEL 3 ASSETS & LIABILITIES MEASURED AT FAIR VALUE
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year Ended December 31, 2021 | |
| (Dollars in millions) | | | | Interest-only strips | | Loans held for sale | | Loans held for investment | | Net derivative
liabilities | |
| Balance on January 1, 2021 | | | | $ | 32 | | | $ | 12 | | | $ | 16 | | | $ | (14) | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total net gains (losses) included in net income | | | | 3 | | | 1 | | | — | | | (19) | | |
| Purchases | | | | — | | | 10 | | | — | | | — | | |
| Sales | | | | (68) | | | (18) | | | — | | | — | | |
| Settlements | | | | — | | | (3) | | | (2) | | | 10 | | |
| Net transfers into (out of) Level 3 | | | | 71 | | (b) | 26 | | (e) | (14) | | (e) | — | | |
| Balance on December 31, 2021 | | | | $ | 38 | | | $ | 28 | | | $ | — | | | $ | (23) | | |
| Net unrealized gains (losses) included in net income | | | | $ | (2) | | (c) | $ | 1 | | (a) | $ | — | | | $ | (19) | | (d) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2020 | |
| (Dollars in millions) | | Trading
securities | | Interest-only strips- AFS | | Loans held for sale | | Loans held for investment | | Net derivative
liabilities | |
| Balance on January 1, 2020 | | $ | 1 | | | $ | 19 | | | $ | 14 | | | $ | — | | | $ | (23) | | |
| Acquired | | — | | | — | | | — | | | 14 | | | — | | |
| Total net gains (losses) included in net income | | (1) | | | (6) | | | 1 | | | — | | | (1) | | |
| Purchases | | — | | | 6 | | | — | | | — | | | — | | |
| Sales | | — | | | (11) | | | — | | | (4) | | | — | | |
| Settlements | | — | | | — | | | (3) | | | (3) | | | 10 | | |
| Net transfers into (out of) Level 3 | | — | | | 24 | | (b) | — | | | 9 | | | — | | |
| Balance on December 31, 2020 | | $ | — | | | $ | 32 | | | $ | 12 | | | $ | 16 | | | $ | (14) | | |
| Net unrealized gains (losses) included in net income | | $ | — | | (a) | $ | (4) | | (c) | $ | 1 | | (a) | $ | — | | | $ | (1) | | (d) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2019 | |
| (Dollars in millions) | | Trading
securities | | Interest-only strips- AFS | | Loans held for sale | | Net derivative
liabilities | |
| Balance on January 1, 2019 | | $ | 2 | | | $ | 10 | | | $ | 16 | | | $ | (32) | | |
| | | | | | | | | |
| Total net gains (losses) included in net income | | — | | | (5) | | | 2 | | | (4) | | |
| Purchases | | — | | | — | | | — | | | — | | |
| Sales | | — | | | (47) | | | — | | | — | | |
| Settlements | | (1) | | | — | | | (4) | | | 13 | | |
| Net transfers into (out of) Level 3 | | — | | | 61 | | (b) | — | | | — | | |
| Balance on December 31, 2019 | | $ | 1 | | | $ | 19 | | | $ | 14 | | | $ | (23) | | |
| Net unrealized gains (losses) included in net income | | $ | — | | (a) | $ | (2) | | (c) | $ | 2 | | (a) | $ | (4) | | (d) |
(a)Primarily included in mortgage banking and title income on the Consolidated Statements of Income.
(b)Transfers into interest-only strips level 3 measured on a recurring basis reflect movements from loans held for sale (Level 2 nonrecurring).
(c)Primarily included in fixed income on the Consolidated Statements of Income.
(d)Included in other expense.
(e)The loans held for investment at fair value option portfolio was transferred to the loans held for sale portfolio on April 1, 2021.
|
| | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2019 | |
| (Dollars in thousands) | | Trading securities | | Interest-only strips- AFS | | Loans held- for-sale | | Net derivative liabilities | |
| Balance on January 1, 2019 | | $ | 1,524 |
| | $ | 9,902 |
| | $ | 16,273 |
| | $ | (31,540 | ) | |
| Total net gains/(losses) included in: | | | |
| | | | | |
| Net income | | (285 | ) | | (4,725 | ) | | 1,828 |
| | (3,946 | ) | |
| Purchases | | — |
| | 86 |
| | 10 |
| | — |
|
|
| Sales | | — |
| | (47,469 | ) | | — |
| | — |
| |
| Settlements | | (298 | ) | | — |
| | (4,078 | ) | | 12,691 |
| |
| Net transfers into/(out of) Level 3 | | — |
| | 61,342 |
| (b) | — |
| (d) | — |
| |
| Balance on December 31, 2019 | | $ | 941 |
| | $ | 19,136 |
| | $ | 14,033 |
| | $ | (22,795 | ) | |
| Net unrealized gains/(losses) included in net income | | $ | (66 | ) | (a) | $ | (1,984 | ) | (c) | $ | 1,828 |
| (a) | $ | (3,946 | ) | (e) |
|
| | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2018 | |
| (Dollars in thousands) | | Trading securities | | Interest-only strips- AFS | | Loans held- for-sale | | Net derivative liabilities | |
| Balance on January 1, 2018 | | $ | 2,151 |
| | $ | 1,270 |
| | $ | 18,926 |
| | $ | (5,645 | ) | |
| Total net gains/(losses) included in: | | | | | | | | | |
| Net income | | 173 |
| | (398 | ) | | 1,239 |
| | (4,677 | ) | |
| Purchases | | — |
| | — |
| | 62 |
| | (28,100 | ) | (f) |
| Sales | | — |
| | (16,840 | ) | | — |
| | — |
| |
| Settlements | | (800 | ) | | — |
| | (3,598 | ) | | 6,882 |
| |
| Net transfers into/(out of) Level 3 | | — |
| | 25,870 |
| (b) | (356 | ) | (d) | — |
| |
| Balance on December 31, 2018 | | $ | 1,524 |
| | $ | 9,902 |
| | $ | 16,273 |
| | $ | (31,540 | ) | |
| Net unrealized gains/(losses) included in net income | | $ | 6 |
| (a) | $ | (1,025 | ) | (c) | $ | 1,239 |
| (a) | $ | (4,677 | ) | (e) |
|
| | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2017 | |
| (Dollars in thousands) | | Trading securities | | Interest-only strips- AFS | | Loans held- for-sale | | Net derivative liabilities | |
| Balance on January 1, 2017 | | $ | 2,573 |
| | $ | — |
| | $ | 21,924 |
| | $ | (6,245 | ) | |
| Total net gains/(losses) included in: | | | | | | | | | |
| Net income | | 448 |
| | 1,021 |
| | 1,547 |
| | (596 | ) | |
| Purchases | | — |
| | 1,413 |
| | 168 |
| | — |
| |
| Sales | | (5 | ) | | (11,431 | ) | | — |
| | — |
| |
| Settlements | | (865 | ) | | — |
| | (4,346 | ) | | 1,196 |
| |
| Net transfers into/(out of) Level 3 | | — |
| | 10,267 |
| (b) | (367 | ) | (d) | — |
| |
| Balance on December 31, 2017 | | $ | 2,151 |
| | $ | 1,270 |
| | $ | 18,926 |
| | $ | (5,645 | ) | |
| Net unrealized gains/(losses) included in net income | | $ | 303 |
| (a) | $ | (171 | ) | (c) | $ | 1,547 |
| (a) | $ | (596 | ) | (e) |
| | | | | | | | |
(a) | Primarily included in mortgage banking income on the Consolidated Statements of Income. 196 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
(b)ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| Transfers into interest-only strips - AFS level 3 measured on a recurring basis reflect movements from loans held-for-sale (Level 2 nonrecurring). |
| NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES | |
(c) | Primarily included in fixed income on the Consolidated Statements of Income. |
| |
(d) | Transfers out of loans held-for-sale level 3 measured on a recurring basis generally reflect movements into OREO (level 3 nonrecurring). |
| |
(e) | Included in Other expense. |
| |
(f) | Increase related to Visa-related derivatives, see Note 22-Derivatives. |
There were no net unrealized gains/gains (losses) for Level 3 assets and liabilities included in other comprehensive income as of December 31, 2019, 20182021, 2020 and 2017.2019.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 206
Note 24 - Fair Value of Assets and Liabilities (Continued)
Nonrecurring Fair Value Measurements
From time to time, FHN may be required to measure certain other financial assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the
application of lower of cost or market (“LOCOM”)(LOCOM) accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis which were still held on the balance sheetConsolidated Balance Sheets at December 31, 2019, 20182021, 2020 and 2017,2019, respectively, the following tables provide the level of valuation assumptions used to determine each adjustment and the related carrying value.
Tables 8.24.3a-b-c
LEVEL OF VALUATION ASSUMPTIONS FOR ASSETS
MEASURED AT FAIR VALUE ON A NON-RECURRING BASIS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Carrying value at December 31, 2021 | | Year Ended December 31, 2021 |
| (Dollars in millions) | | Level 1 | | Level 2 | | Level 3 | | Total | | Net gains (losses) |
| Loans held for sale—SBAs and USDA | | $ | — | | | $ | 852 | | | $ | 1 | | | $ | 853 | | | $ | (2) | |
| Loans held for sale—first mortgages | | — | | | — | | | 1 | | | 1 | | | — | |
| Loans and leases (a) | | — | | | — | | | 84 | | | 84 | | | (13) | |
| OREO (b) | | — | | | — | | | 3 | | | 3 | | | (1) | |
| Other assets (c) | | — | | | — | | | 30 | | | 30 | | | (2) | |
| | | | | | | | | | $ | (18) | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Carrying value at December 31, 2020 | | Year Ended December 31, 2020 |
| (Dollars in millions) | | Level 1 | | Level 2 | | Level 3 | | Total | | Net gains (losses) |
| | | | | | | | | | |
| Loans held for sale—SBAs and USDA | | $ | — | | | $ | 508 | | | $ | 1 | | | $ | 509 | | | $ | (3) | |
| Loans held for sale—first mortgages | | — | | | — | | | 1 | | | 1 | | | — | |
| Loans and leases (a) | | — | | | — | | | 77 | | | 77 | | | (12) | |
| OREO (b) | | — | | | — | | | 15 | | | 15 | | | (1) | |
| Other assets (c) | | — | | | — | | | 9 | | | 9 | | | (2) | |
| | | | | | | | | | $ | (18) | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Carrying value at December 31, 2019 | | Year Ended December 31, 2019 |
| (Dollars in millions) | | Level 1 | | Level 2 | | Level 3 | | Total | | Net gains (losses) |
| | | | | | | | | | |
| Loans held for sale—SBAs and USDA | | $ | — | | | $ | 493 | | | $ | 1 | | | $ | 494 | | | $ | (2) | |
| Loans held for sale—first mortgages | | — | | | — | | | 1 | | | 1 | | | — | |
| Loans and leases (a) | | — | | | — | | | 42 | | | 42 | | | (7) | |
| OREO (b) | | — | | | — | | | 16 | | | 16 | | | (1) | |
| Other assets (c) | | — | | | — | | | 11 | | | 11 | | | (2) | |
| | | | | | | | | | $ | (12) | |
| | | | | | | | | | |
(a)Represents carrying value andof 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 adjustments recorded duringand 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 respective periods.equity method.
In 2021, FHN recognized $34 million of fixed asset impairments and $3 million of leased asset impairments. In 2020, FHN recognized $7 million of fixed asset impairments and $6 million of leased asset impairments. These impairments were primarily related to continuing acquisition integration efforts associated with reduction of
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Carrying value at December 31, 2019 | | Year Ended December 31, 2019 |
| (Dollars in thousands) | | Level 1 | | Level 2 | | Level 3 | | Total | | Net gains/(losses) |
| Loans held-for-sale—SBAs and USDA | | $ | — |
| | $ | 492,595 |
| | $ | 929 |
| | $ | 493,524 |
| | | $ | (1,817 | ) |
| Loans held-for-sale—first mortgages | | — |
| | — |
| | 516 |
| | 516 |
| | | 32 |
|
| Loans, net of unearned income (a) | | — |
| | — |
| | 42,208 |
| | 42,208 |
| | | (7,341 | ) |
| OREO (b) | | — |
| | — |
| | 15,660 |
| | 15,660 |
| | | (927 | ) |
| Other assets (c) | | — |
| | — |
| | 10,608 |
| | 10,608 |
| | | (1,809 | ) |
| | | | | | | | | | | | $ | (11,862 | ) |
leased office space and banking center optimization. These amounts were primarily recognized in the Corporate segment. |
| | | | | | | | | | | | | | | | | | | | | |
| | | Carrying value at December 31, 2018 | | Year Ended December 31, 2018 |
(Dollars in thousands) | | Level 1 | | Level 2 | | Level 3 | | Total | | Net gains/(losses) |
| Loans held-for-sale—other consumer | | $ | — |
| | $ | 18,712 |
| | $ | — |
| | $ | 18,712 |
| | | $ | (1,809 | ) |
| Loans held-for-sale—SBAs and USDA | | — |
| | 577,280 |
| | 1,011 |
| | 578,291 |
| | | (2,541 | ) |
| Loans held-for-sale—first mortgages | | — |
| | — |
| | 541 |
| | 541 |
| | | 13 |
|
| Loans, net of unearned income (a) | | — |
| | — |
| | 48,259 |
| | 48,259 |
| | | (841 | ) |
| OREO (b) | | — |
| | — |
| | 22,387 |
| | 22,387 |
| | | (2,599 | ) |
| Other assets (c) | | — |
| | — |
| | 8,845 |
| | 8,845 |
| | | (4,712 | ) |
| | | | | | | | | | | | $ | (12,489 | ) |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Carrying value at December 31, 2017 | | Year Ended December 31, 2017 |
(Dollars in thousands) | | Level 1 | | Level 2 | | Level 3 | | Total | | Net gains/(losses) |
| Loans held-for-sale—SBAs and USDA | | $ | — |
| | $ | 465,504 |
| | $ | 1,473 |
| | $ | 466,977 |
| | | $ | (1,629 | ) |
| Loans held-for-sale—first mortgages | | — |
| | — |
| | 618 |
| | 618 |
| | | 36 |
|
| Loans, net of unearned income (a) | | — |
| | — |
| | 26,666 |
| | 26,666 |
| | | (1,687 | ) |
| OREO (b) | | — |
| | — |
| | 39,566 |
| | 39,566 |
| | | (996 | ) |
| Other assets (c) | | — |
| | — |
| | 26,521 |
| | 26,521 |
| | | (3,468 | ) |
| | | | | | | | | | | | $ | (7,744 | ) |
| |
(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 loan 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. |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 207
Note 24 - Fair Value of Assets and Liabilities (Continued)
In 2019, FHN recognized $4.6$4 million of impairments and $.7 million of impairment reversals, respectively, related to dispositions of acquired properties and $1.5$1 million of
| | | | | | | | |
| 197 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES | |
leased asset impairments for lease assets related to continuing acquisition integration efforts associated with reduction of leased office space and branchbanking center optimization. Related to its restructuring, repositioning, and efficiency efforts, FHN recognized $14.0$13 million of impairments and $1.4 million of impairment reversals, respectively, for tangible long-lived assets and lease assets. Related to the Company'sits rebranding initiative, FHNrecognized $7.1$7 million of impairments within the Corporate segment for long-lived tangible assets, primarily signage, related to the company's rebranding initiative. signage. These amounts were primarily recognized in the Corporate segment.
In 2018, FHN recognized $3.9 million of impairments of long-lived assets in its Corporate segment primarily related to optimization efforts for its facilities. Also, in 2018, $1.5 million of impairment charges previously recognized in 2017 in the Corporate segment were reversed based on the disposition prices for the applicable locations.
In 2017, FHN recognized $3.0 million and $.8 million of impairments on long-lived assets in its corporate and regional banking segments, respectively, associated with efforts to more efficiently utilize its branch locations, including integration with branches acquired from CBF.
Lease asset impairments recognized in 2019 represent the reduction in value of the right-of-use assets associated with leases that are being exited in advance of the contractual lease expiration.
Impairments are measured using a discounted cash flow methodology, which is considered a Level 3 valuation.
For all periods, impairmentsImpairments of long-lived tangible assets reflect locations where the associated land and building are either owned
or leased. The fair values of owned sites were determined using estimated sales prices from appraisals and broker opinions less estimated costs to sell with adjustments upon final disposition. The fair values of owned assets in leased sites (e.g., leasehold improvements) were determined using a discounted cash flow approach, based on the revised estimated useful lives of the related assets. Both measurement methodologies are considered Level 3 valuations. Impairment adjustments recognized upon disposition of a location are considered Level 2 valuations.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 208
Note 24 - Fair Value of Assets and Liabilities (Continued)
Level 3 Measurements
The following tables provide information regarding the unobservable inputs utilized in determining the fair value of levelLevel 3 recurring and non-recurring measurements as of December 31, 20192021 and 2018: 2020: |
| | | | | | | | | | | | |
| (Dollars in thousands) | | |
| | | | | | | | | Values Utilized |
| Level 3 Class | | Fair Value at
December 31, 2019 | | Valuation Techniques | | Unobservable Input | | Range | | Weighted Average (d) |
| Available-for-sale- securities SBA-interest only strips | | $ | 19,136 |
| | Discounted cash flow | | Constant prepayment rate | | 12% | | 12% |
| | | | | | | Bond equivalent yield | | 16% - 17% | | 16% |
| Loans held-for-sale - residential real estate | | 14,549 |
| | Discounted cash flow | | Prepayment speeds - First mortgage | | 3% - 14% | | 4.1% |
| | | | | | | Prepayment speeds - HELOC | | 0% - 12% | | 7.6% |
| | | | | | | Foreclosure losses | | 50% - 66% | | 64% |
| | | | | | | Loss severity trends - First mortgage | | 3% - 24% of UPB | | 14.3% |
| | | | | | | Loss severity trends - HELOC | | 0% - 72% of UPB | | 50% |
| Loans held-for-sale- unguaranteed interest in SBA loans | | 929 |
| | Discounted cash flow | | Constant prepayment rate | | 8% - 12% | | 10% |
| | | | | | | Bond equivalent yield | | 9% | | 9% |
| Derivative liabilities, other | | 22,795 |
| | Discounted cash flow | | Visa covered litigation resolution amount | | $5.4 billion - $6.0 billion | | $5.8 billion |
| | | | | | | Probability of resolution scenarios | | 10% - 50% | | 16% |
| | | | | | | Time until resolution | | 15 - 39 months | | 29 months |
Loans, net of unearned
income (a) | | 42,208 |
| | Appraisals from comparable properties | | Marketability adjustments for specific properties | | 0% - 10% of appraisal | | NM |
| | | | | Other collateral valuations | | Borrowing base certificates adjustment | | 20% - 50% of gross value | | NM |
| | | | | | | Financial Statements/Auction values adjustment | | 0% - 25% of reported value | | NM |
| OREO (b) | | 15,660 |
| | Appraisals from comparable properties | | Adjustment for value changes since appraisal | | 0% - 10% of appraisal | | NM |
| Other assets (c) | | 10,608 |
| | Discounted cash flow | | Adjustments to current sales yields for specific properties | | 0% - 15% adjustment to yield | | NM |
| | | | | Appraisals from comparable properties | | Marketability adjustments for specific properties | | 0% - 25% of appraisal | | NM |
NM - Not meaningful.
| | | | | | | | |
(a) | Represents carrying value of loans for which adjustments are required to be based on the appraised value of the collateral less estimated costs to sell. Write-downs on these loans are recognized as part of provision for loan losses. 198 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
(b)ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| 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. |
| NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES | |
(c) | Represents tax credit investments accounted for under the equity method. |
| |
(d) | Weighted averages are determined by the relative fair value of the instruments or the relative contribution to an instrument's fair value |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 209IN LEVEL 3 FAIR VALUE MEASUREMENTS
Note 24 - Fair Value of Assets and Liabilities (Continued)
|
| | | | | | | | | | | | |
| (Dollars in thousands) | | | | | | | | | | |
| | | | | | | | | Values Utilized |
| Level 3 Class | | Fair Value at
December 31, 2018 | | Valuation Techniques | | Unobservable Input | | Range | | Weighted Average (d) |
| Available-for-sale- securities SBA-interest only strips | | $ | 9,902 |
| | Discounted cash flow | | Constant prepayment rate | | 11% - 12% | | 11% |
| | | | | | | Bond equivalent yield | | 14% - 15% | | 14% |
| Loans held-for-sale - residential real estate | | 16,815 |
| | Discounted cash flow | | Prepayment speeds - First mortgage | | 2% - 10% | | 3% |
| | | | | | | Prepayment speeds - HELOC | | 5% - 12% | | 7.5% |
| | | | | | | Foreclosure losses | | 50% - 66% | | 63% |
| |
| |
| | Loss severity trends - First mortgage | | 2% - 25% of UPB | | 17% |
| | | | | | | Loss severity trends - HELOC | | 50% - 100% of UPB | | 50% |
| Loans held-for-sale- unguaranteed interest in SBA loans | | 1,011 |
| | Discounted cash flow | | Constant prepayment rate | | 8% - 12% | | 10% |
| |
|
| |
| | Bond equivalent yield | | 9% | | 9% |
| Derivative liabilities, other | | 31,540 |
| | Discounted cash flow | | Visa covered litigation resolution amount | | $5.0 billion - $5.8 billion | | $5.6 billion |
| | | | | | | Probability of resolution scenarios | | 10% - 25% | | 23% |
| | | | | | | Time until resolution | | 18 - 48 months | | 36 months |
Loans, net of unearned
income (a) | | 48,259 |
| | Appraisals from comparable properties
| | Marketability adjustments for specific properties | | 0% - 10% of appraisal | | NM |
| | | | | Other collateral valuations | | Borrowing base certificates adjustment | | 20% - 50% of gross value | | NM |
| | | | | | | Financial Statements/Auction values adjustment | | 0% - 25% of reported value | | NM |
| OREO (b) | | 22,387 |
| | Appraisals from comparable properties | | Adjustment for value changes since appraisal | | 0% - 10% of appraisal | | NM |
| Other assets (c) | | 8,845 |
| | Discounted cash flow | | Adjustments to current sales yields for specific properties | | 0% - 15% adjustment to yield | | NM |
| | | | | Appraisals from comparable properties | | Marketability adjustments for specific properties | | 0% - 25% of appraisal | | NM |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | | | | | | | Values Utilized |
| Level 3 Class | | Fair Value at December 31, 2021 | | Valuation Techniques | | Unobservable Input | | Range | | Weighted Average (d) |
| Trading securities - SBA interest-only strips | | $ | 38 | | | Discounted cash flow | | Constant prepayment rate | | 11%-12% | | 11% |
| | | | | | Bond equivalent yield | | 11% - 14% | | 11% |
| Loans held for sale - residential real estate | | $ | 29 | | | Discounted cash flow | | Prepayment speeds - First mortgage | | 4% - 12% | | 5% |
| | | | | | | | | | |
| | | | | | Foreclosure losses | | 54% - 66% | | 65% |
| | | | | | Loss severity trends - First mortgage | | 1% - 14% of UPB | | 8% |
| | | | | | | | | | |
| Loans held for sale - unguaranteed interest in SBA loans | | $ | 1 | | | Discounted cash flow | | Constant prepayment rate | | 8% - 12% | | 10% |
| | | | | | Bond equivalent yield | | 11% | | 11% |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Derivative liabilities, other | | $ | 23 | | | Discounted cash flow | | Visa covered litigation resolution amount | | $5.8 billion - $6.2 billion | | $6.0 billion |
| | | | | | Probability of resolution scenarios | | 15% - 35% | | 24% |
| | | | | | Time until resolution | | 12 - 36 months | | 25 months |
| Loans and leases (a) | | $ | 84 | | | Appraisals from comparable properties | | Marketability adjustments for specific properties | | 0% - 10% of appraisal | | NM |
| | | | Other collateral valuations | | Borrowing base certificates adjustment | | 20% - 50% of gross value | | NM |
| | | | | | Financial Statements/Auction values adjustment | | 0% - 25% of reported value | | NM |
| OREO (b) | | $ | 3 | | | Appraisals from comparable properties | | Adjustment for value changes since appraisal | | 0% - 10% of appraisal | | NM |
| Other assets (c) | | $ | 30 | | | Discounted cash flow | | Adjustments to current sales yields for specific properties | | 0% - 15% adjustment to yield | | NM |
| | | | | Appraisals from comparable properties | | Marketability adjustments for specific properties | | 0% - 25% of appraisal | | NM |
NM - Not meaningful.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.
| | | | | | | | |
(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 loan losses. 199 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
(b)ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| 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. |
| NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES | |
(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 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | | | | | | | Values Utilized |
| Level 3 Class | | Fair Value at December 31, 2020 | | Valuation Techniques | | Unobservable Input | | Range | | Weighted Average (d) |
| Securities - SBA interest-only strips | | $ | 32 | | | Discounted cash flow | | Constant prepayment rate | | 12% | | 12% |
| | | | | | Bond equivalent yield | | 15% - 17% | | 15% |
| Loans held for sale - residential real estate | | $ | 13 | | | Discounted cash flow | | Prepayment speeds - First mortgage | | 5% - 15% | | 5% |
| | | | | | | | | | |
| | | | | | Foreclosure losses | | 59% - 70% | | 63% |
| | | | | | Loss severity trends - First mortgage | | 3% - 19% of UPB | | 12% |
| | | | | | | | | | |
| Loans held for sale - unguaranteed interest in SBA loans | | $ | 1 | | | Discounted cash flow | | Constant prepayment rate | | 8% - 12% | | 10% |
| | | | | | Bond equivalent yield | | 7%-8% | | 7% |
| Loans held for investment | | $ | 16 | | | Discounted cash flow | | Constant prepayment rate | | 0% - 26% | | 11% |
| | | | | | Constant default rate | | 0%-14% | | 1% |
| | | | | | Loss severity trends | | 0% - 100% | | 11% |
| Derivative liabilities, other | | $ | 14 | | | Discounted cash flow | | Visa covered litigation resolution amount | | $5.4 billion - $6.0 billion | | $5.8 billion |
| | | | | | Probability of resolution scenarios | | 10% - 50% | | 16% |
| | | | | | Time until resolution | | 3 - 27 months | | 19 months |
| Loans and leases (a) | | $ | 77 | | | Appraisals from comparable properties | | Marketability adjustments for specific properties | | 0% - 10% of appraisal | | NM |
| | | | Other collateral valuations | | Borrowing base certificates adjustment | | 20% - 50% of gross value | | NM |
| | | | | | Financial Statements/Auction values adjustment | | 0% - 25% of reported value | | NM |
| OREO (b) | | $ | 15 | | | Appraisals from comparable properties | | Adjustment for value changes since appraisal | | 0% - 10% of appraisal | | NM |
| Other assets (c) | | $ | 9 | | | Discounted cash flow | | Adjustments to current sales yields for specific properties | | 0% - 15% adjustment to yield | | NM |
| | | | Appraisals from comparable properties | | Marketability adjustments for specific properties | | 0% - 25% of appraisal | | NM |
NM - Not meaningful
(a)Represents carrying value of loans for which adjustments are required to be based on the appraised value of the collateral less estimated costs to sell. Write-downs on these loans are recognized as part of provision for credit losses.
(b)Represents the fair value of foreclosed properties that were measured subsequent to their initial classification as OREO. Balance excludes OREO related to government insured mortgages.
(c)Represents tax credit investments accounted for under the equity method.
(d)Weighted averages are determined by the relative fair value of the instruments or the relative contribution to an instrument's fair value.
Trading Securities AFS. - SBA interest-only strips
Increases (decreases) in estimated prepayment rates and bond equivalent yields negatively (positively) affect the
value of SBA interest onlyinterest-only strips. Management additionally considers whether the loans underlying related SBA-interest onlySBA
| | | | | | | | |
| 200 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES | |
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.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-saleheld 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
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 210
Note 24 - Fair Value of Assets and Liabilities (Continued)
history is realized. Management also considers other factors such as delinquency or default and adjusts the fair value accordingly.
Constant prepayment rate, constant default rate and loss severity trends are significant unobservable inputs used in the fair value measurement of loans held for investment. Increases (decreases) in each of these inputs in isolation result in negative (positive) effects on the valuation of the associated loans.
Derivative liabilities.liabilities
In conjunction with thepre-2020 sales of portions of its Visa Class B shares, FHN and the purchasers entered into derivative transactions whereby FHN will make, or receive, cash payments whenever the conversion ratio of the Visa Class B shares into Visa Class A shares is adjusted. FHN uses a discounted cash flow methodology in order to estimate the fair value of FHN’s derivative liabilities associated with its prior sales of Visa Class B shares. The methodology includes estimation of both the resolution amount for Visa’s Covered Litigation matters as well as the length of time until the resolution occurs. Significant increases (decreases) in either of these inputs in isolation would result in significantly higher (lower) fair value measurements for the derivative liabilities. Additionally, FHN performs a probability weighted multiple resolution scenario to calculate the estimated fair value of these derivative liabilities. Assignment of higher (lower) probabilities to the larger potential resolution scenarios
would result in an increase (decrease) in the estimated fair value of the derivative liabilities. Since this estimation process requires application of judgment in developing significant unobservable inputs used to determine the possible outcomes and the probability weighting assigned to each scenario, these derivatives have been classified within Level 3 in fair value measurements disclosures.
Loans net of unearned incomeand leases and Other Real Estate Owned.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.investments
The estimated fair value of tax credit investments accounted for under the equity method is generally determined in relation to the yield (i.e., future tax credits to be received) an acquirer of these investments would expect in relation to the yields experienced on current new issue and/or secondary market transactions. Thus, as tax credits are recognized, the future yield to a market participant is reduced, resulting in consistent impairment of the individual investments. Individual investments are reviewed for impairment quarterly, which may include the consideration of additional marketability discounts related to specific investments which typically includes consideration of the underlying property’s appraised value.
Fair Value Option
FHN has elected the fair value option on a prospective basis for almostsubstantially all types of mortgage loans originated for sale purposes under the Financial Instruments Topic (“ASC 825”) 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-saleheld for sale at fair value at the time of repurchase, which includes consideration of the credit status of the loans and the estimated liquidation value. FHN has elected to continue recognition of these loans at fair value in periods subsequent to reacquisition. Due to the credit-distressed nature of the vast majority of repurchased loans and the related loss severities experienced upon repurchase, FHN believes that the fair value election provides a more timely recognition of changes in value for these loans that occur subsequent to
| | | | | | | | |
| 201 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES | |
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.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 211
Note 24 - Fair Value of Assets and Liabilities (Continued)
The following tables reflect the differences between the fair value carrying amount of residential real estate loans held-for-saleheld 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.
Tables 8.24.5a-b
DIFFERENCES BETWEEN FAIR VALUE CARRYING AMOUNTS
AND CONTRACTUAL AMOUNTS OF RESIDENTIAL REAL ESTATE LOANS
| | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2021 |
| (Dollars in millions) | | Fair value
carrying
amount | | Aggregate
unpaid
principal | | Fair value carrying amount
less aggregate unpaid
principal |
| Residential real estate loans held for sale reported at fair value: | | | | | | |
| Total loans | | $ | 258 | | | $ | 264 | | | $ | (6) | |
| Nonaccrual loans | | 4 | | | 7 | | | (3) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | December 31, 2020 |
| (Dollars in millions) | | Fair value
carrying
amount | | Aggregate
unpaid
principal | | Fair value carrying amount
less aggregate unpaid
principal |
| Residential real estate loans held for sale reported at fair value: | | | | | | |
| Total loans | | $ | 405 | | | $ | 442 | | | $ | (37) | |
| Nonaccrual loans | | 2 | | | 5 | | | (3) | |
| | | | | | |
| Loans held for investment reported at fair value: | | | | | | |
| Total loans | | 16 | | | 17 | | | (1) | |
| Nonaccrual loans | | 1 | | | 1 | | | — | |
|
| | | | | | | | | | | | |
| | | December 31, 2019 |
| (Dollars in thousands) | | Fair value carrying amount | | Aggregate unpaid principal | | Fair value carrying amount less aggregate unpaid principal |
| Residential real estate loans held-for-sale reported at fair value: | | | | | | |
| Total loans | | $ | 14,033 |
| | $ | 19,278 |
| | $ | (5,245 | ) |
| Nonaccrual loans | | 3,532 |
| | 6,646 |
| | (3,114 | ) |
| Loans 90 days or more past due and still accruing | | 163 |
| | 268 |
| | (105 | ) |
| | | | | | | |
| | | December 31, 2018 |
| (Dollars in thousands) | | Fair value carrying amount | | Aggregate unpaid principal | | Fair value carrying amount less aggregate unpaid principal |
| Residential real estate loans held-for-sale reported at fair value: | | | | | | |
| Total loans | | $ | 16,273 |
| | $ | 23,567 |
| | $ | (7,294 | ) |
| Nonaccrual loans | | 4,536 |
| | 8,128 |
| | (3,592 | ) |
| Loans 90 days or more past due and still accruing | | 171 |
| | 281 |
| | (110 | ) |
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 8.24.6
CHANGES IN FAIR VALUE RECOGNIZED IN NET INCOME
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (Dollars in millions) | 2021 | | 2020 | | 2019 |
| Changes in fair value included in net income: | | | | | |
| Mortgage banking and title noninterest income | | | | | |
| Loans held for sale | $ | (10) | | | $ | 4 | | | $ | 2 | |
| | | | | |
|
| | | | | | | | | | | |
| | Year Ended December 31 |
| (Dollars in thousands) | 2019 | | 2018 | | 2017 |
| Changes in fair value included in net income: | | | | | |
| Mortgage banking noninterest income | | | | | |
| Loans held-for-sale | $ | 1,828 |
| | $ | 1,239 |
| | $ | 1,547 |
|
For the years ended December 31, 2021, 2020 and 2019, 2018 and 2017, the amountsamount for residential real estate loans held-for-saleheld for sale included gainsan insignificant amount of $.4 million, $.2 million, and $.5 million, respectively,gains in pretax earnings that are attributable to changes in instrument-specific credit risk. The portion of the fair value adjustments related to credit risk was determined based on estimated default rates and estimated loss severities. Interest income on residential real estate loans held-for-saleheld for sale measured at fair value is calculated based on the note rate of the loan and is recorded in the interest income
section of the Consolidated Statements of Income as interest on loans held-for-sale.held for sale.
FHN has elected to account for retained interest-only strips from guaranteed SBA loans recorded in available-for-saletrading securities at fair value through earnings. Since these securities are subject to the risk that prepayments may result in FHN not recovering all or a portion of its recorded investment, the fair value election results in a more timely recognition of the effects of estimated prepayments through earnings rather than being recognized through
| | | | | | | | |
| 202 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES | |
other comprehensive income with periodic review for other-than-temporary impairment. Gains or losses are recognized through fixed income revenues and are presented in the recurring measurements table.
Determination of Fair Value
In accordance with ASC 820-10-35, fairFair values are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following describes the assumptions and methodologies used to estimate the fair value of financial instruments recorded at fair value in the Consolidated Statements of ConditionBalance Sheets and for estimating the fair value of financial instruments for which fair value is disclosed under ASC 825-10-50.disclosed.
Short-term financial assets.assets
Federal funds sold, securities purchased under agreements to resell, and interest bearinginterest-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.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 212
Note 24 - Fair Value of Assets and Liabilities (Continued)
Trading securities and trading liabilities.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, LIBOR and U.S. treasury curves,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 also include retained interests in prior mortgage securitizations that qualify as financial assets, which include primarily principal-only strips. FHN uses inputs including yield curves, credit spreads, and prepayment speeds to determine the fair value of principal-only strips.- SBA interest-only strips
Securities available-for-sale. Securities available-for-sale includes the investment portfolio accounted for as available-for-sale under ASC 320-10-25. Valuations of available-for-sale securities are performed using observable inputs obtained from market transactions in similar securities. Typical inputs include LIBOR and U.S. treasury curves, consensus prepayment estimates, and credit spreads. When available, broker quotes are used to support these valuations.
Interest onlyInterest-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 onlyinterest-only strip terms. These securities bear the risk of loan prepayment or default that may result in the CompanyFHN 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. Residential real estateheld for sale
FHN determines the fair value of loans held-for-saleheld for sale using either current transaction prices or discounted cash flow models. Fair values are valueddetermined 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. For all other loans FHN determines the fair
Fair value of residential real estate loans held-for-saleheld for sale determined using a discounted cash flow model which 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-saleheld 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.
The CompanyFHN utilizes quoted market prices of similar instruments or broker and dealer quotations to value the SBA and USDA guaranteed loans. The CompanyFHN values SBA-unguaranteed interests in loans held-for-saleheld 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-saleheld for sale is approximated by their carrying values based on current transaction values.
Collateral-Dependent loans.
| | | | | | | | |
| 203 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES | |
Mortgage loans held for investment at fair value option
The fair value of mortgage loans held for investment at fair value option is determined by a third party using a discounted cash flow model using various assumptions about future loan performance (constant prepayment rate, constant default rate and loss severity trends) and market discount rates.
Loans held for investment
The fair values of mortgage loans are estimated using an exit price methodology that is based on present values using the interest rate that would be charged for a similar loan to a borrower with similar risk, weighted for varying maturity dates and adjusted for a liquidity discount based on the estimated time period to complete a sale transaction with a market participant.
Other loans and leases are valued based on present values using the interest rate that would be charged for a similar instrument to a borrower with similar risk, applicable to each category of instruments, and adjusted for a liquidity discount based on the estimated time period to complete a sale transaction with a market participant.
For loans measured using the estimated fair value of collateral less costs to sell, fair value is estimated using appraisals of the collateral. Collateral values are monitored and additional write-downs are recognized if it is determined that the estimated collateral values have declined further. Estimated costs to sell are based on current amounts of disposal costs for similar assets. Carrying value is considered to reflect fair value for these loans.
Derivative assets and liabilities.
The fair value for forwards and futures contracts is based on current transactions involving identical securities. Futures contracts are exchange-traded and thus have no credit risk factor assigned as the risk of non-performance is limited to the clearinghouse used.
Valuations of other derivatives (primarily interest rate related swaps)contracts) are based on inputs observed in active markets for similar instruments. TypicalTypically inputs include the LIBOR curve, Overnight Indexed Swap (“OIS”) curve,benchmark yields, option volatility and option skew. Starting in October 2020, centrally cleared derivatives are discounted using SOFR as required by clearinghouses. In measuring the fair value of these derivative assets and liabilities, FHN has elected to consider credit risk based on the net exposure to individual counterparties. Credit risk is mitigated for these instruments through the use of mutual margining and
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 213
Note 24 - Fair Value of Assets and Liabilities (Continued)
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 customerclient 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.
OREO.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.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 Statements of ConditionBalance 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.deposits
The fair value of these deposits is estimated by discounting future cash flows to their present value. Future cash flows are discounted by using the current market rates of similar instruments applicable to the remaining maturity. For disclosure purposes, defined maturity deposits include all time deposits.
| | | | | | | | |
| 204 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES | |
Short-term financial liabilities.liabilities
The fair value of federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings are approximated by the book value. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.
Loan commitments.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.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 net of unearned income,and leases, loans held-for-sale,held for sale, and term borrowings as of December 31, 20192021 and December 31, 2018,2020, involve the use of significant internally-developed pricing assumptions for certain components of these line items. The assumptions and valuations utilized for this disclosure
are considered to reflect inputs that market participants would use in transactions involving these instruments as of the measurement date. The valuations of legacy assets, particularly consumer loans within the Non-Strategic segment 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 customers,clients, premises and equipment, goodwill and other intangibles, deferred taxes, and certain other assets and other liabilities. Additionally, these measurements are solely for financial instruments as of the measurement date and do not consider the earnings potential of our various business lines. Accordingly, the total of the fair value amounts does not represent, and should not be construed to represent, the underlying value of FHN.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 214
Note 24 - Fair Value of Assets and Liabilities (Continued)
The following tables summarize the book value and estimated fair value of financial instruments recorded in the Consolidated Statements of ConditionBalance Sheets as of December 31, 20192021 and December 31, 2018:2020:
|
| | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2019 |
| | | Book Value | | Fair Value |
(Dollars in thousands) | | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | | | | | | | | | | |
| Loans, net of unearned income and allowance for loan losses | | | | | | | | | | |
| Commercial: | | | | | | | | | | |
| Commercial, financial and industrial | | $ | 19,928,605 |
| | $ | — |
| | $ | — |
| | $ | 20,096,397 |
| | $ | 20,096,397 |
|
| Commercial real estate | | 4,300,905 |
| | — |
| | — |
| | 4,300,489 |
| | 4,300,489 |
|
| Consumer: | | | | | | | | | | |
| Consumer real estate | | 5,987,125 |
| | — |
| | — |
| | 6,153,016 |
| | 6,153,016 |
|
| Permanent mortgage | | 161,571 |
| | — |
| | — |
| | 181,171 |
| | 181,171 |
|
| Credit card & other | | 482,598 |
| | — |
| | — |
| | 487,079 |
| | 487,079 |
|
| Total loans, net of unearned income and allowance for loan losses | | 30,860,804 |
| | — |
| | — |
| | 31,218,152 |
| | 31,218,152 |
|
| Short-term financial assets: | | | | | | | | | | |
| Interest-bearing cash | | 482,405 |
| | 482,405 |
| | — |
| | — |
| | 482,405 |
|
| Federal funds sold | | 46,536 |
| | — |
| | 46,536 |
| | — |
| | 46,536 |
|
| Securities purchased under agreements to resell | | 586,629 |
| | — |
| | 586,629 |
| | — |
| | 586,629 |
|
| Total short-term financial assets | | 1,115,570 |
| | 482,405 |
| | 633,165 |
| | — |
| | 1,115,570 |
|
| Trading securities (a) | | 1,346,207 |
| | — |
| | 1,345,266 |
| | 941 |
| | 1,346,207 |
|
| Loans held-for-sale | | | | | | | | | | |
| Mortgage loans (elected fair value) (a) | | 14,033 |
| | — |
| | — |
| | 14,033 |
| | 14,033 |
|
| USDA & SBA loans- LOCOM | | 493,525 |
| | — |
| | 495,323 |
| | 947 |
| | 496,270 |
|
| Other consumer loans- LOCOM | | 5,197 |
| | — |
| | 5,197 |
| | — |
| | 5,197 |
|
| Mortgage loans- LOCOM | | 81,035 |
| | — |
| | — |
| | 81,035 |
| | 81,035 |
|
| Total loans held-for-sale | | 593,790 |
| | — |
| | 500,520 |
| | 96,015 |
| | 596,535 |
|
| Securities available-for-sale (a) | | 4,445,403 |
| | — |
| | 4,426,267 |
| | 19,136 |
| | 4,445,403 |
|
| Securities held-to-maturity | | 10,000 |
| | — |
| | — |
| | 10,001 |
| | 10,001 |
|
| Derivative assets (a) | | 183,115 |
| | 20,640 |
| | 162,475 |
| | — |
| | 183,115 |
|
| Other assets: | | | | | | | | | | |
| Tax credit investments | | 247,075 |
| | — |
| | — |
| | 244,755 |
| | 244,755 |
|
| Deferred compensation mutual funds | | 46,815 |
| | 46,815 |
| | — |
| | — |
| | 46,815 |
|
| Equity, mutual funds, and other (b) | | 229,352 |
| | 22,643 |
| | — |
| | 206,709 |
| | 229,352 |
|
| Total other assets | | 523,242 |
| | 69,458 |
| | — |
| | 451,464 |
| | 520,922 |
|
| Total assets | | $ | 39,078,131 |
| | $ | 572,503 |
| | $ | 7,067,693 |
| | $ | 31,795,709 |
| | $ | 39,435,905 |
|
| Liabilities: | | | | | | | | | | |
| Defined maturity deposits | | $ | 3,618,337 |
| | $ | — |
| | $ | 3,631,090 |
| | $ | — |
| | $ | 3,631,090 |
|
| Trading liabilities (a) | | 505,581 |
| | — |
| | 505,581 |
| | — |
| | 505,581 |
|
| Short-term financial liabilities: | | | | | | | | | | |
| Federal funds purchased | | 548,344 |
| | — |
| | 548,344 |
| | — |
| | 548,344 |
|
| Securities sold under agreements to repurchase | | 716,925 |
| | — |
| | 716,925 |
| | — |
| | 716,925 |
|
| Other short-term borrowings | | 2,253,045 |
| | — |
| | 2,253,045 |
| | — |
| | 2,253,045 |
|
| Total short-term financial liabilities | | 3,518,314 |
| | — |
| | 3,518,314 |
| | — |
| | 3,518,314 |
|
| Term borrowings: | | | | | | | | | | |
| Real estate investment trust-preferred | | 46,236 |
| | — |
| | — |
| | 47,000 |
| | 47,000 |
|
| Secured borrowings | | 21,975 |
| | — |
| | — |
| | 21,975 |
| | 21,975 |
|
| Junior subordinated debentures | | 144,593 |
| | — |
| | — |
| | 142,375 |
| | 142,375 |
|
| Other long term borrowings | | 578,564 |
| | — |
| | 574,287 |
| | — |
| | 574,287 |
|
| Total term borrowings | | 791,368 |
| | — |
| | 574,287 |
| | 211,350 |
| | 785,637 |
|
| Derivative liabilities (a) | | 67,480 |
| | 19,807 |
| | 24,878 |
| | 22,795 |
| | 67,480 |
|
| Total liabilities | | $ | 8,501,080 |
| | $ | 19,807 |
| | $ | 8,254,150 |
| | $ | 234,145 |
| | $ | 8,508,102 |
|
| | | | | | | | |
(a) | Classes are detailed in the recurring and nonrecurring measurement tables. 205 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
(b)ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| Level 1 primarily consists of mutual funds with readily determinable fair value. Level 3 includes restricted investments in FHLB-Cincinnati stock of $76.0 million and FRB stock of $130.7 million.NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | | Book
Value | | Fair Value |
| (Dollars in millions) | | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | | | | | | | | | | |
| Loans and leases, net of allowance for loan and lease losses | | | | | | | | | | |
| Commercial: | | | | | | | | | | |
| Commercial, financial and industrial | | $ | 30,734 | | | $ | — | | | $ | — | | | $ | 31,020 | | | $ | 31,020 | |
| Commercial real estate | | 11,955 | | | — | | | — | | | 11,986 | | | 11,986 | |
| Consumer: | | | | | | | | | | |
| Consumer real estate | | 10,609 | | | — | | | — | | | 11,111 | | | 11,111 | |
| | | | | | | | | | |
| Credit card and other | | 891 | | | — | | | — | | | 906 | | | 906 | |
| Total loans and leases, net of allowance for loan and lease losses | | 54,189 | | | — | | | — | | | 55,023 | | | 55,023 | |
| Short-term financial assets: | | | | | | | | | | |
| Interest-bearing deposits with banks | | 14,907 | | | 14,907 | | | — | | | — | | | 14,907 | |
| Federal funds sold | | 153 | | | — | | | 153 | | | — | | | 153 | |
| Securities purchased under agreements to resell | | 488 | | | — | | | 488 | | | — | | | 488 | |
| Total short-term financial assets | | 15,548 | | | 14,907 | | | 641 | | | — | | | 15,548 | |
| Trading securities (a) | | 1,601 | | | — | | | 1,563 | | | 38 | | | 1,601 | |
| Loans held for sale: | | | | | | | | | | |
| Mortgage loans (elected fair value) (a) | | 258 | | | — | | | 230 | | | 28 | | | 258 | |
| USDA & SBA loans - LOCOM | | 853 | | | — | | | 855 | | | 1 | | | 856 | |
| Other loans - LOCOM | | 24 | | | — | | | 24 | | | — | | | 24 | |
| Mortgage loans - LOCOM | | 37 | | | — | | | — | | | 37 | | | 37 | |
| Total loans held for sale | | 1,172 | | | — | | | 1,109 | | | 66 | | | 1,175 | |
| Securities available for sale (a) | | 8,707 | | | — | | | 8,707 | | | — | | | 8,707 | |
| Securities held to maturity | | 712 | | | — | | | 705 | | | — | | | 705 | |
| Derivative assets (a) | | 324 | | | 12 | | | 312 | | | — | | | 324 | |
| Other assets: | | | | | | | | | | |
| Tax credit investments | | 456 | | | — | | | — | | | 450 | | | 450 | |
| Deferred compensation mutual funds | | 125 | | | 125 | | | — | | | — | | | 125 | |
| Equity, mutual funds, and other (b) | | 257 | | | 25 | | | — | | | 232 | | | 257 | |
| Total other assets | | 838 | | | 150 | | | — | | | 682 | | | 832 | |
| Total assets | | $ | 83,091 | | | $ | 15,069 | | | $ | 13,037 | | | $ | 55,809 | | | $ | 83,915 | |
| Liabilities: | | | | | | | | | | |
| Defined maturity deposits | | $ | 3,500 | | | $ | — | | | $ | 3,524 | | | $ | — | | | $ | 3,524 | |
| Trading liabilities (a) | | 426 | | | — | | | 426 | | | — | | | 426 | |
| Short-term financial liabilities: | | | | | | | | | | |
| Federal funds purchased | | 775 | | | — | | | 775 | | | — | | | 775 | |
| Securities sold under agreements to repurchase | | 1,247 | | | — | | | 1,247 | | | — | | | 1,247 | |
| Other short-term borrowings | | 102 | | | — | | | 102 | | | — | | | 102 | |
| Total short-term financial liabilities | | 2,124 | | | — | | | 2,124 | | | — | | | 2,124 | |
| Term borrowings: | | | | | | | | | | |
| Real estate investment trust-preferred | | 46 | | | — | | | — | | | 47 | | | 47 | |
| Term borrowings—new market tax credit investment | | 59 | | | — | | | — | | | 58 | | | 58 | |
| Secured borrowings | | 6 | | | — | | | — | | | 6 | | | 6 | |
| Junior subordinated debentures | | 148 | | | — | | | — | | | 150 | | | 150 | |
| Other long term borrowings | | 1,331 | | | — | | | 1,452 | | | — | | | 1,452 | |
| Total term borrowings | | 1,590 | | | — | | | 1,452 | | | 261 | | | 1,713 | |
| Derivative liabilities (a) | | 128 | | | 11 | | | 94 | | | 23 | | | 128 | |
| Total liabilities | | $ | 7,768 | | | $ | 11 | | | $ | 7,620 | | | $ | 284 | | | $ | 7,915 | |
| | | | | | | | | | |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 215
Note 24 - Fair Value of Assets and Liabilities (Continued)
|
| | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2018 |
| | | Book Value | | Fair Value |
| (Dollars in thousands) | | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | | | | | | | | | | |
| Loans, net of unearned income and allowance for loan losses | | | | | | | | | | |
| Commercial: | | | | | | | | | | |
| Commercial, financial and industrial | | $ | 16,415,381 |
| | $ | — |
| | $ | — |
| | $ | 16,438,272 |
| | $ | 16,438,272 |
|
| Commercial real estate | | 3,999,559 |
| | — |
| | — |
| | 3,997,736 |
| | 3,997,736 |
|
| Consumer: | | | | | | | | | | |
| Consumer real estate | | 6,223,077 |
| | — |
| | — |
| | 6,194,066 |
| | 6,194,066 |
|
| Permanent mortgage | | 211,448 |
| | — |
| | — |
| | 227,254 |
| | 227,254 |
|
| Credit card & other | | 505,643 |
| | — |
| | — |
| | 507,001 |
| | 507,001 |
|
| Total loans, net of unearned income and allowance for loan losses | | 27,355,108 |
| | — |
| | — |
| | 27,364,329 |
| | 27,364,329 |
|
| Short-term financial assets: | | | | | | | | | | |
| Interest-bearing cash | | 1,277,611 |
| | 1,277,611 |
| | — |
| | — |
| | 1,277,611 |
|
| Federal funds sold | | 237,591 |
| | — |
| | 237,591 |
| | — |
| | 237,591 |
|
| Securities purchased under agreements to resell | | 386,443 |
| | — |
| | 386,443 |
| | — |
| | 386,443 |
|
| Total short-term financial assets | | 1,901,645 |
| | 1,277,611 |
| | 624,034 |
| | — |
| | 1,901,645 |
|
| Trading securities (a) | | 1,448,168 |
| | — |
| | 1,446,644 |
| | 1,524 |
| | 1,448,168 |
|
| Loans held-for-sale: | | | | | | | | | | |
| Mortgage loans (elected fair value) (a) | | 16,273 |
| | — |
| | — |
| | 16,273 |
| | 16,273 |
|
| USDA & SBA loans- LOCOM | | 578,291 |
| | — |
| | 582,476 |
| | 1,015 |
| | 583,491 |
|
| Other consumer loans- LOCOM | | 25,134 |
| | — |
| | 6,422 |
| | 18,712 |
| | 25,134 |
|
| Mortgage loans- LOCOM | | 59,451 |
| | — |
| | — |
| | 59,451 |
| | 59,451 |
|
| Total loans held-for-sale | | 679,149 |
| | — |
| | 588,898 |
| | 95,451 |
| | 684,349 |
|
| Securities available-for-sale (a) | | 4,626,470 |
| | — |
| | 4,616,568 |
| | 9,902 |
| | 4,626,470 |
|
| Securities held-to-maturity | | 10,000 |
| | — |
| | — |
| | 9,843 |
| | 9,843 |
|
| Derivative assets (a) | | 81,475 |
| | 28,826 |
| | 52,649 |
| | — |
| | 81,475 |
|
| Other assets: | | | | | | | | | | |
| Tax credit investments | | 163,300 |
| | — |
| | — |
| | 159,452 |
| | 159,452 |
|
| Deferred compensation mutual funds | | 37,771 |
| | 37,771 |
| | — |
| | — |
| | 37,771 |
|
| Equity, mutual funds, and other (b) | | 240,780 |
| | 22,248 |
| | — |
| | 218,532 |
| | 240,780 |
|
| Total other assets | | 441,851 |
| | 60,019 |
| | — |
| | 377,984 |
| | 438,003 |
|
| Total assets | | 36,543,866 |
| | 1,366,456 |
| | 7,328,793 |
| | 27,859,033 |
| | 36,554,282 |
|
| Liabilities: | | | | | | | | | | |
| Defined maturity deposits | | $ | 4,105,777 |
| | $ | — |
| | $ | 4,082,822 |
| | $ | — |
| | $ | 4,082,822 |
|
| Trading liabilities (a) | | 335,380 |
| | — |
| | 335,380 |
| | — |
| | 335,380 |
|
| Short-term financial liabilities: | | | | | | | | | | |
| Federal funds purchased | | $ | 256,567 |
| | $ | — |
| | $ | 256,567 |
| | $ | — |
| | $ | 256,567 |
|
| Securities sold under agreements to repurchase | | 762,592 |
| | — |
| | 762,592 |
| | — |
| | 762,592 |
|
| Other short-term borrowings | | 114,764 |
| | — |
| | 114,764 |
| | — |
| | 114,764 |
|
| Total short-term financial liabilities | | 1,133,923 |
| | — |
| | 1,133,923 |
| | — |
| | 1,133,923 |
|
| Term borrowings: | | | | | | | | | | |
| Real estate investment trust-preferred | | 46,168 |
| | — |
| | — |
| | 47,000 |
| | 47,000 |
|
| Term borrowings—new market tax credit investment | | 2,699 |
| | — |
| | — |
| | 2,664 |
| | 2,664 |
|
| Secured borrowings | | 19,588 |
| | — |
| | — |
| | 19,588 |
| | 19,588 |
|
| Junior subordinated debentures | | 143,255 |
| | — |
| | — |
| | 134,266 |
| | 134,266 |
|
| Other long term borrowings | | 959,253 |
| | — |
| | 960,483 |
| | — |
| | 960,483 |
|
| Total term borrowings | | 1,170,963 |
| | — |
| | 960,483 |
| | 203,518 |
| | 1,164,001 |
|
| Derivative liabilities (a) | | 133,713 |
| | 30,236 |
| | 71,937 |
| | 31,540 |
| | 133,713 |
|
| Total liabilities | | 6,879,756 |
| | 30,236 |
| | 6,584,545 |
| | 235,058 |
| | 6,849,839 |
|
| | | | | | | | |
(a) | Classes are detailed in the recurring and nonrecurring measurement tables. 206 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
(b)ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| Level 1 primarity consists of mutual funds with readily determinable fair value. Level 3 includes restricted investments in FHLB-Cincinnati stock of $87.9 million and FRB stock of $130.7 million.NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2020 |
| | | Book
Value | | Fair Value |
| (Dollars in millions) | | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | | | | | | | | | | |
| Loans and leases, net of allowance for loan and lease losses | | | | | | | | | | |
| Commercial: | | | | | | | | | | |
| Commercial, financial and industrial | | $ | 32,651 | | | $ | — | | | $ | — | | | $ | 32,582 | | | $ | 32,582 | |
| Commercial real estate | | 12,033 | | | — | | | — | | | 12,079 | | | 12,079 | |
| Consumer: | | | | | | | | | | |
| Consumer real estate | | 11,483 | | | — | | | — | | | 11,903 | | | 11,903 | |
| Credit card and other | | 1,102 | | | — | | | — | | | 1,131 | | | 1,131 | |
| Total loans and leases, net of allowance for loan and lease losses | | 57,269 | | | — | | | — | | | 57,695 | | | 57,695 | |
| Short-term financial assets: | | | | | | | | | | |
| Interest-bearing deposits with banks | | 8,351 | | | 8,351 | | | — | | | — | | | 8,351 | |
| Federal funds sold | | 65 | | | — | | | 65 | | | — | | | 65 | |
| Securities purchased under agreements to resell | | 380 | | | — | | | 380 | | | — | | | 380 | |
| Total short-term financial assets | | 8,796 | | | 8,351 | | | 445 | | | — | | | 8,796 | |
| Trading securities (a) | | 1,176 | | | — | | | 1,176 | | | — | | | 1,176 | |
| Loans held for sale: | | | | | | | | | | |
| Mortgage loans (elected fair value) (a) | | 405 | | | — | | | 393 | | | 12 | | | 405 | |
| USDA & SBA loans - LOCOM | | 509 | | | — | | | 511 | | | 1 | | | 512 | |
| Other loans - LOCOM | | 31 | | | — | | | 31 | | | — | | | 31 | |
| Mortgage loans - LOCOM | | 77 | | | — | | | — | | | 77 | | | 77 | |
| Total loans held for sale | | 1,022 | | | — | | | 935 | | | 90 | | | 1,025 | |
| Securities available for sale (a) | | 8,047 | | | — | | | 8,015 | | | 32 | | | 8,047 | |
| Securities held to maturity | | 10 | | | — | | | — | | | 10 | | | 10 | |
| Derivative assets (a) | | 769 | | | 63 | | | 706 | | | — | | | 769 | |
| Other assets: | | | | | | | | | | |
| Tax credit investments | | 400 | | | — | | | — | | | 371 | | | 371 | |
| Deferred compensation mutual funds | | 118 | | | 118 | | | — | | | — | | | 118 | |
| Equity, mutual funds, and other (b) | | 288 | | | 25 | | | — | | | 263 | | | 288 | |
| Total other assets | | 806 | | | 143 | | | — | | | 634 | | | 777 | |
| Total assets | | $ | 77,895 | | | $ | 8,557 | | | $ | 11,277 | | | $ | 58,461 | | | $ | 78,295 | |
| Liabilities: | | | | | | | | | | |
| | | | | | | | | | |
| Defined maturity deposits | | $ | 5,070 | | | $ | — | | | $ | 5,083 | | | $ | — | | | $ | 5,083 | |
| Trading liabilities (a) | | 353 | | | — | | | 353 | | | — | | | 353 | |
| Short-term financial liabilities: | | | | | | | | | | |
| Federal funds purchased | | 845 | | | — | | | 845 | | | — | | | 845 | |
| Securities sold under agreements to repurchase | | 1,187 | | | — | | | 1,187 | | | — | | | 1,187 | |
| Other short-term borrowings | | 166 | | | — | | | 166 | | | — | | | 166 | |
| Total short-term financial liabilities | | 2,198 | | | — | | | 2,198 | | | — | | | 2,198 | |
| Term borrowings: | | | | | | | | | | |
| Real estate investment trust-preferred | | 46 | | | — | | | — | | | 47 | | | 47 | |
| Term borrowings—new market tax credit investment | | 45 | | | — | | | — | | | 45 | | | 45 | |
| Secured borrowings | | 15 | | | — | | | — | | | 15 | | | 15 | |
| Junior subordinated debentures | | 238 | | | — | | | — | | | 223 | | | 223 | |
| Other long term borrowings | | 1,326 | | | — | | | 1,455 | | | — | | | 1,455 | |
| Total term borrowings | | 1,670 | | | — | | | 1,455 | | | 330 | | | 1,785 | |
| Derivative liabilities (a) | | 149 | | | 71 | | | 64 | | | 14 | | | 149 | |
| Total liabilities | | $ | 9,440 | | | $ | 71 | | | $ | 9,153 | | | $ | 344 | | | $ | 9,568 | |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | | Contractual Amount | | Fair Value |
| (Dollars in thousands) | | December 31, 2019 | | December 31, 2018 | | December 31, 2019 | | December 31, 2018 |
| Unfunded Commitments: | | | | | | | | |
| Loan commitments | | $ | 12,355,220 |
| | $ | 10,884,975 |
| | $ | 3,656 |
| | $ | 2,551 |
|
| Standby and other commitments | | 459,268 |
| | 446,958 |
| | 5,513 |
| | 5,043 |
|
(b)Level 1 primarily consists of mutual funds with readily determinable fair values. Level 3 includes restricted investments in FHLB-Cincinnati stock of $61 million and FRB stock of $202 million.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 216
| | | | | | | | |
| 207 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 24—FAIR VALUE OF ASSETS AND LIABILITIES | |
The following table presents the contractual amount and fair value of unfunded loan commitments and standby and other commitments as of December 31, 2021 and December 31, 2020:
Table 8.24.8
UNFUNDED COMMITMENTS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Contractual Amount | | Fair Value |
| (Dollars in millions) | | December 31, 2021 | | December 31, 2020 | | December 31, 2021 | | December 31, 2020 |
| Unfunded Commitments: | | | | | | | | |
| Loan commitments | | $ | 24,229 | | | $ | 20,796 | | | $ | 1 | | | $ | 2 | |
| Standby and other commitments | | 810 | | | 751 | | | 6 | | | 6 | |
| | | | | | | | |
| 208 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 25—RESTRUCTURING, REPOSITIONING, & EFFICIENCY | |
Note 25 – 25—Restructuring, Repositioning, and Efficiency
In first quarterBeginning in 2019, FHN initiated a company-wide review of business practices with the goal of optimizing its expense base to improve profitability and create capacity to reinvest savings into technology and revenue production activities. Restructuring, repositioning, and efficiency charges related to these corporate-driven actions were $39.8not significant in 2021 and 2020 and were $40 million in 2019 and2019. These expenses are included in the corporateCorporate segment. Significant expenses recognized during 2019 resulted from the following actions:
•Severance and other employee costs of $10.5 million primarily related to efficiency initiatives within corporate and bank services functions which are classified as Employee compensation, incentives and benefitspersonnel expense within noninterest expense.
•Expense of $16.0 million largely related to the identification of efficiency opportunities within the organization which is reflected in Professionallegal and professional fees.
•Expense of $12.0 million related to costs associated with asset impairments which is reflected in Otherother expense.
Settlement of the obligations arising from current initiatives will be funded from operating cash flows.
Total expense recognized for the year ended December 31, 2019 is presented in the table below:
|
| | | | | | | |
| Dollars in thousands | | Year Ended December 31, 2019 |
| Employee compensation, incentives and benefits | | $ | 10,503 |
|
| Professional fees | | 16,014 |
|
| Occupancy | | 818 |
|
| Other | | 12,484 |
|
| Total restructuring and repositioning charges | | $ | 39,819 |
|
| | | | | | | | | | | |
| (Dollars in millions) | | | Year Ended December 31, 2019 |
| Personnel expense | | | $ | 11 | |
| Legal and professional fees | | | 16 | |
| Net occupancy expense | | | 1 | |
| Other | | | 12 | |
| Total restructuring, repositioning, and efficiency charges | | | $ | 40 | |
| | | |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 217
| | | | | | | | |
| 209 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 26—PARENT COMPANY FINANCIAL INFORMATION | |
Note 26 - 26—Parent Company Financial Information
Following are statements of the parent company:
Parent Company Balance Sheets
| | | Statements of Condition | | December 31 | |
| (Dollars in thousands) | | 2019 | | 2018 | |
| Balance Sheets | | Balance Sheets | | December 31, |
| (Dollars in millions) | | (Dollars in millions) | | 2021 | | 2020 |
| Assets: | | | | | Assets: | | | | |
| Cash | | $ | 369,268 |
| | $ | 334,485 |
| Cash | | $ | 724 | | | $ | 827 | |
| Notes receivable | | 2,716 |
| | 2,888 |
| Notes receivable | | 3 | | | 3 | |
| Allowance for loan losses | | — |
| | (925 | ) | |
| | Investments in subsidiaries: | | | | | Investments in subsidiaries: | |
| Bank | | 5,038,909 |
| | 4,741,105 |
| Bank | | 8,381 | | | 8,176 | |
| Non-bank | | 17,892 |
| | 20,281 |
| Non-bank | | 65 | | | 88 | |
| Other assets | | 171,121 |
| | 180,757 |
| Other assets | | 291 | | | 274 | |
| Total assets | | $ | 5,599,906 |
| | $ | 5,278,591 |
| Total assets | | $ | 9,464 | | | $ | 9,368 | |
| Liabilities and equity: | | | | | Liabilities and equity: | | | | |
| Accrued employee benefits and other liabilities | | $ | 177,080 |
| | $ | 158,648 |
| Accrued employee benefits and other liabilities | | $ | 321 | | | $ | 322 | |
| Term borrowings | | 642,249 |
| | 629,994 |
| Term borrowings | | 944 | | | 1,034 | |
| Total liabilities | | 819,329 |
| | 788,642 |
| Total liabilities | | 1,265 | | | 1,356 | |
| Total equity | | 4,780,577 |
| | 4,489,949 |
| Total equity | | 8,199 | | | 8,012 | |
| Total liabilities and equity | | $ | 5,599,906 |
| | $ | 5,278,591 |
| Total liabilities and equity | | $ | 9,464 | | | $ | 9,368 | |
|
Parent Company Statements of Income
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 |
| Dividend income: | | | | | | |
| Bank | | $ | 770 | | | $ | 180 | | | $ | 345 | |
| Non-bank | | — | | | — | | | 1 | |
| Total dividend income | | 770 | | | 180 | | | 346 | |
| | | | | | |
| Other income (loss) | | (26) | | | — | | | 1 | |
| Total income | | 744 | | | 180 | | | 347 | |
| Provision (provision credit) for credit losses | | — | | | — | | | (1) | |
| | | | | | |
| | | | | | |
| Interest expense - term borrowings | | 31 | | | 39 | | | 31 | |
| | | | | | |
| Personnel and other expense | | 89 | | | 54 | | | 53 | |
| Total expense | | 120 | | | 93 | | | 83 | |
| Income before income taxes | | 624 | | | 87 | | | 264 | |
| Income tax benefit | | (35) | | | (18) | | | (19) | |
| Income before equity in undistributed net income of subsidiaries | | 659 | | | 105 | | | 283 | |
| Equity in undistributed net income (loss) of subsidiaries: | | | | | | |
| Bank | | 332 | | | 736 | | | 160 | |
| Non-bank | | 8 | | | 4 | | | (2) | |
| Net income attributable to the controlling interest | | $ | 999 | | | $ | 845 | | | $ | 441 | |
| | | | | | |
|
| | | | | | | | | | | | |
| Statements of Income | | Year Ended December 31 |
| (Dollars in thousands) | | 2019 | | 2018 | | 2017 |
| Dividend income: | | | | | | |
| Bank | | $ | 345,000 |
| | $ | 420,000 |
| | $ | 250,000 |
|
| Non-bank | | 756 |
| | 1,386 |
| | 1,097 |
|
| Total dividend income | | 345,756 |
| | 421,386 |
| | 251,097 |
|
| Interest income | | 76 |
| | 29 |
| | — |
|
| Other income/(loss) | | 965 |
| | 83 |
| | 190 |
|
| Total income | | 346,797 |
| | 421,498 |
| | 251,287 |
|
| Provision/(provision credit) for loan losses | | (925 | ) | | — |
| | — |
|
| Interest expense: | | | | | | |
| Term borrowings | | 31,224 |
| | 31,315 |
| | 17,936 |
|
| Total interest expense | | 31,224 |
| | 31,315 |
| | 17,936 |
|
| Compensation, employee benefits and other expense | | 52,447 |
| | 53,401 |
| | 43,783 |
|
| Total expense | | 82,746 |
| | 84,716 |
| | 61,719 |
|
| Income/(loss) before income taxes | | 264,051 |
| | 336,782 |
| | 189,568 |
|
| Income tax(benefit)/expense | | (19,285 | ) | | (38,509 | ) | | 512 |
|
| Income/(loss) before equity in undistributed net income of subsidiaries | | 283,336 |
| | 375,291 |
| | 189,056 |
|
| Equity in undistributed net income/(loss) of subsidiaries: | | | | | | |
| Bank | | 160,257 |
| | 170,939 |
| | (24,255 | ) |
| Non-bank | | (2,685 | ) | | (1,188 | ) | | 714 |
|
| Net income/(loss) attributable to the controlling interest | | $ | 440,908 |
| | $ | 545,042 |
| | $ | 165,515 |
|
Certain previously reported amounts have been reclassified to agree with current presentation.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 218
Note 26 - Parent Company Financial Information (Continued)
|
| | | | | | | | | | | | |
| Statements of Cash Flows | | Year Ended December 31 |
| (Dollars in thousands) | | | 2019 | |
| 2018 | |
| 2017 |
| Operating activities: | | | | | | | | | |
| Net income/(loss) | | $ | 440,908 |
| | $ | 545,042 |
| | $ | 165,515 |
|
| Less undistributed net income/(loss) of subsidiaries | | | 157,572 |
| | | 169,751 |
| | | (23,541 | ) |
| Income/(loss) before undistributed net income of subsidiaries | | | 283,336 |
| | | 375,291 |
| | | 189,056 |
|
| Adjustments to reconcile income to net cash provided by operating activities: | | | | | | | | | |
| Depreciation, amortization, and other | | | (915 | ) | | | 15 |
| | | 15 |
|
| (Gain)/loss on securities | | | (317 | ) | | | (28 | ) | | | (109 | ) |
| Provision for deferred income taxes | | | 3,648 |
| | | 3,212 |
| | | 7,727 |
|
| Stock-based compensation expense | | | 21,909 |
| | | 22,398 |
| | | 19,625 |
|
| Net (increase)/decrease in interest receivable and other assets | | | 10,170 |
| | | 18,214 |
| | | 8,605 |
|
| Net (decrease)/increase in interest payable and other liabilities | | | 17,736 |
| | | (10,702 | ) | | | 13,172 |
|
| Total adjustments | | | 52,231 |
| | | 33,109 |
| | | 49,035 |
|
| Net cash provided/(used) by operating activities | | | 335,567 |
| | | 408,400 |
| | | 238,091 |
|
| Investing activities: | | | | | | | | | |
| Securities: | | | | | | | | | |
| Sales and prepayments | | | 1,457 |
| | | 65 |
| | | 318 |
|
| Premises and equipment: | | | | | | | | | |
| Sales/(purchases) | | | 19 |
| | | (43 | ) | | | 7 |
|
| Return on investment in subsidiary | | | 164 |
| | | 1,597 |
| | | 1,871 |
|
| Cash paid for business combination, net | | | — |
| | | (39,916 | ) | | | (126,149 | ) |
| Net cash provided/(used) by investing activities | | | 1,640 |
| | | (38,297 | ) | | | (123,953 | ) |
| Financing activities: | | | | | | | | | |
| Preferred stock: | | | | | | | | | |
| Cash dividends | | | (6,200 | ) | | | (6,200 | ) | | | (6,200 | ) |
| Common stock: | | | | | | | | | |
| Exercise of stock options | | | 9,665 |
| | | 4,482 |
| | | 6,132 |
|
| Cash dividends | | | (171,076 | ) | | | (138,706 | ) | | | (79,904 | ) |
| Repurchase of shares | | | (134,813 | ) | | | (104,768 | ) | | | (5,554 | ) |
| Term borrowings: | | | | | | | | | |
| Repayment of term borrowings | | | — |
| | | (45,364 | ) | | | — |
|
| Net cash (used)/provided by financing activities | | | (302,424 | ) | | | (290,556 | ) | | | (85,526 | ) |
| Net increase/(decrease) in cash and cash equivalents | | | 34,783 |
| | | 79,547 |
| | | 28,612 |
|
| Cash and cash equivalents at beginning of year | | | 334,485 |
| | | 254,938 |
| | | 226,326 |
|
| Cash and cash equivalents at end of year | | $ | 369,268 |
| | $ | 334,485 |
| | $ | 254,938 |
|
| Total interest paid | | $ | 29,169 |
| | $ | 29,186 |
| | $ | 17,321 |
|
| Income taxes received from subsidiaries | | | 43,418 |
| | | 49,056 |
| | | 23,020 |
|
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 219
Additional Item 8 Information
Table 31-Summary of Quarterly Financial Information, appearing on page 100 of our 2019 MD&A (Item 7), is incorporated into this Item 8 by reference.
------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
------------------------------------------
Not applicable.
--------------------------
ITEM 9A. CONTROLS AND PROCEDURES
--------------------------
|
| | | | | | | |
Evaluation | 210 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| NOTE 26—PARENT COMPANY FINANCIAL INFORMATION | |
Parent Company Statements of Cash Flows
| | | | | | | | | | | | | | | | | | | | |
| | |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 |
| Operating activities: | | | | | | |
| Net income | | $ | 999 | | | $ | 845 | | | $ | 441 | |
| Less undistributed net income of subsidiaries | | 340 | | | 740 | | | 158 | |
| Income before undistributed net income of subsidiaries | | 659 | | | 105 | | | 283 | |
| Adjustments to reconcile income to net cash provided by operating activities: | | | | | | |
| Depreciation, amortization, and other | | — | | | — | | | (1) | |
| | | | | | |
| (Gain) loss on derivative transactions | | — | | | 4 | | | — | |
| Deferred income tax expense | | 8 | | | 5 | | | 4 | |
| Stock-based compensation expense | | 43 | | | 32 | | | 22 | |
| Loss on extinguishment of debt | | 26 | | | — | | | — | |
| Other operating activities, net | | (11) | | | 21 | | | 28 | |
| | | | | | |
| Total adjustments | | 66 | | | 62 | | | 53 | |
| Net cash provided by operating activities | | 725 | | | 167 | | | 336 | |
| Investing activities: | | | | | | |
| | | | | | |
| Proceeds from sales and prepayments of securities | | 3 | | | — | | | 1 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Purchases of securities | | (10) | | | (5) | | | — | |
| (Investment in) return on subsidiary | | 8 | | | (2) | | | — | |
| Cash received for business combination, net | | — | | | 103 | | | — | |
| Net cash provided by (used in) investing activities | | 1 | | | 96 | | | 1 | |
| Financing activities: | | | | | | |
| | | | | | |
| Proceeds from issuance of preferred stock | | 145 | | | 144 | | | — | |
| Call of preferred stock | | (100) | | | — | | | — | |
| Cash dividends paid - preferred stock | | (33) | | | (17) | | | (6) | |
| Common stock: | | | | | | |
| | | | | | |
| Stock options exercised | | 28 | | | 7 | | | 9 | |
| Cash dividends paid | | (333) | | | (222) | | | (171) | |
| Repurchase of shares | | (416) | | | (4) | | | (134) | |
| | | | | | |
| Proceeds from issuance of term borrowings | | — | | | 795 | | | — | |
| Repayment of term borrowings | | (120) | | | (500) | | | — | |
| Other financing activities, net | | — | | | (8) | | | — | |
| Net cash provided by (used in) financing activities | | (829) | | | 195 | | | (302) | |
| Net increase (decrease) in cash and cash equivalents | | (103) | | | 458 | | | 35 | |
| Cash and cash equivalents at beginning of year | | 827 | | | 369 | | | 334 | |
| Cash and cash equivalents at end of year | | $ | 724 | | | $ | 827 | | | $ | 369 | |
| Total interest paid | | $ | 35 | | | $ | 33 | | | $ | 29 | |
| Income taxes received from subsidiaries | | 28 | | | 33 | | | 43 | |
| | | | | | | | |
| 211 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA |
| Table of Contents | NOTE 27—SUBSEQUENT EVENTS | |
Note 27—Subsequent Events
2022 Merger Agreement with Toronto-Dominion Bank
On February 27, 2022, FHN entered into an Agreement and Plan of Merger (the “TD Merger Agreement”) with The Toronto-Dominion Bank, a Canadian chartered bank (“TD”), TD Bank US Holding Company, a Delaware corporation and indirect, wholly owned subsidiary of TD (“TD-US”), and Falcon Holdings Acquisition Co., a Delaware corporation and wholly owned subsidiary of TD-US (“Merger Sub”).
Pursuant to the TD Merger Agreement, FHN and Merger Sub will merge (the “First Holding Company Merger”), with FHN continuing as the surviving entity in the merger. Following the First Holding Company Merger, at the election of TD, FHN and TD-US will merge (the “Second Holding Company Merger” and, together with the First Holding Company Merger, the “Holding Company Mergers”), with TD-US continuing as the surviving entity in the merger.
Upon the terms and subject to the conditions set forth in the TD Merger Agreement, each share of FHN common stock, par value $0.625 per share, (“Company Common Stock”), issued and outstanding immediately prior to the effective time of the First Holding Company Merger (the “First Effective Time”) will be converted into the right to receive $25.00 (USD) per share in cash, without interest. If the transaction does not close on or before November 27, 2022, shareholders will receive an additional $0.65 per share of Company Common Stock on an annualized basis (or approximately 5.4 cents per month) for the period from November 28, 2022 through the day immediately prior to the closing. Each outstanding share of FHN’s preferred stock, series B, C, D, E and F, will remain issued outstanding in connection with the First Holding Company Merger. If TD elects to effect the Second Holding Company Merger, at the effective time of the Second Holding Company Merger, each outstanding share of FHN’s preferred stock will be converted into a share of a newly created, corresponding series of TD-US having terms as described in the Merger Agreement.
Following the completion of the First Holding Company Merger, at such time as determined by TD, First Horizon Bank and TD Bank, N.A., a national banking association (“TDBNA”) will merge, with TDBNA surviving as a subsidiary of TD-US (the “Bank Merger” and together with the Holding Company Mergers, the “Proposed TD Merger”).
In connection with the execution of the TD Merger Agreement, TD has agreed to purchase from FHN shares of non-voting Perpetual Convertible Preferred Stock, Series G, a new series of preferred stock of FHN (the “Series G Convertible Preferred Stock”) in a private placement transaction having an aggregate liquidation preference and purchase price of approximately $493.5 million, pursuant to a securities purchase agreement between FHN and TD entered into concurrently with the execution and delivery of the TD Merger Agreement. The Series G Convertible Preferred Stock is convertible into up to 4.9% of the outstanding shares of Company Common Stock in certain circumstances, including the closing of the Proposed TD Merger.
Merger and integration expenses related to the Proposed TD Merger will be recorded in FHN’s Corporate segment. No such expenses were recognized during 2021.
| | | | | | | | |
| 212 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
ITEM 9. ACCOUNTANTS, ITEM 9A. CONTROLS & PROCEDURES, ITEM 9B. OTHER INFO, AND ITEM 9C. FOREIGN INSPECTIONS |
| | |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls & Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on
that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
|
| | | | |
| Reports on Internal Control over Financial Reporting |
The report of management required by Item 308(a) of Regulation S-K appears at page 109, and the attestation report required by Item 308(b) of Regulation S-K appearappears starting at pages 113-114page 110, of our 2019 2021 Financial Statements (Item 8) and. 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
--------------------
Item 9B. Other Information
Not applicable.
Not applicable.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 220
|
| | | | | | | |
PART III | 213 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 10. DIRECTORS & EXECUTIVE OFFICERS |
| | |
-------------------------------
ITEM
Item 10. DIRECTORS AND EXECUTIVE OFFICERSDirectors and Executive Officers of the Registrant
OF THE REGISTRANT
-------------------------------
In 20192021 there were no material amendments to the procedures, described in our 20202022 Proxy Statement under the caption “ShareholderShareholder Recommendations of Director Nominees; Shareholder Nominations”, by which security holders may recommend nominees to our Board of Directors.
In January 2019, our Board of Directors amended ourOur bylaws to createcontain a new 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 20202022 Proxy Statement under the captions: “Shareholdercaptions Shareholder Recommendations of Director Nominees;Shareholder Nominations”Nominations and “Shareholder 2023 Annual Meeting—Proposal and& 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;www.firsthorizon.com: click on “Investor Relations,” at the bottom of the web page, then hover over the Investor Relations box at the top of the page, then hover over “Corporate Governance,” and lastly click on “Governance Documents.”) A paper copy of the Code is available without charge upon written request addressed to our Corporate Secretary at our main office, 165 Madison Avenue, Memphis, Tennessee 38103. We intend to satisfy our disclosure obligations under Item 5.05 of Form 8-K related to Code amendments or waivers by posting such information on our internet website, the address for which is listed in this paragraph above.
Other information required by this Item related to the topics mentioned in the table belowTable 10.1 is incorporated herein by reference to the disclosures indicated in the table.Table.
Table 10.1
ITEM 10 TOPICS TABLE |
| | | | |
| Item 10 Topics | Incorporated Disclosures |
Directors and nominees for director of FHN, the Audit Committee of our Board of Directors, members of the Audit Committee, and audit committeeAudit Committee financial experts | “In our 2022 Proxy Statement: Independence & Categorical Standards” “Committee, Committee Charters & Committee Composition” “The , Audit Committee”, and “VoteVote Item 1-Election1—Election of Directors” in our 2020 Proxy StatementDirectors (excluding the Audit Committee Report and the statements regarding the existence and location of the Audit Committee’s charter) |
| Executive officers | “Executive Officers of the Registrant” inIn the Supplemental Part I Information following Item 4 of this Reportreport: Executive Officers of the Registrant, beginning on page 56 |
| Compliance with Section 16(a) of the Securities Exchange Act of 1934 | not applicableIn our 2022 Proxy Statement: Delinquent Section 16(a) Reports |
------------------------
ITEM 11. EXECUTIVE COMPENSATION
------------------------
| | | | | | | | |
| 214 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 10. DIRECTORS & EXECUTIVE OFFICERS |
| | |
First Horizon Directors
Table 10.2
OUR BOARD OF DIRECTORS
(at February 20, 2022)
| | | | | | | | | | | | | | |
Harry V. Barton, Jr. Age 67 CPA and Owner, Barton Advisory Services, LLC, an investment advisory firm | | Kenneth A. Burdick Age 63 Retired Executive Vice President, Products and Markets, Centene Corporation, a healthcare services company | | Daryl G. Byrd Age 67 Executive Chairman of the Board, First Horizon Corporation, a financial services company |
John N. Casbon Age 73 Executive Vice President, First American Title Insurance Company, a title insurance company | | John C. Compton Age 60 Partner, Clayton, Dubilier & Rice, LLC a private equity firm | | Wendy P. Davidson Age 52 President-Americas for the Performance Nutrition segment of Ireland-based Glanbia plc, a global nutrition company |
William H. Fenstermaker Age 73 Chairman and CEO, C.H. Fenstermaker and Associates, LLC, a surveying, mapping, engineering, and environmental consulting company | | D. Bryan Jordan Age 60 President and Chief Executive Officer, First Horizon Corporation, a financial services company | | J. Michael Kemp, Sr. Age 51 Founder and Chief Executive Officer, Kemp Management Solutions, a program management and consulting firm |
Rick E. Maples Age 63 Retired Co-Head of Investment Banking, Stifel, Nicolaus and Company, Incorporated, a financial services company | | Vicki R. Palmer Age 68 President, The Palmer Group, LLC a general consulting firm | | Colin V. Reed Age 74 Chairman of the Board and Chief Executive Officer, Ryman Hospitality Properties, Inc. a real estate investment trust |
E. Stewart Shea III Age 70 Private Investor | | Cecelia D. Stewart Age 63 Retired President, U.S. Consumer & Commercial Banking, Citigroup, Inc. a financial services company | | Rajesh Subramaniam Age 56 President and Chief Operating Officer, FedEx Corporation a provider of transportation, e-commerce, and business services |
Rosa Sugrañes Age 64 Founder and former Chief Executive Officer, Iberia Tiles, a ceramic tile distributor | | | | R. Eugene Taylor Age 74 Retired Chairman of the Board and Chief Executive Officer, Capital Bank Financial Corp., a financial services company |
| | | | | | | | |
| 215 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| 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 20202022 Proxy Statement, all of which are incorporated into this Item by reference: “The Statement: Compensation Committee” “Compensation, Compensation Committee Interlocks & Insider Participation” “Compensation, Director Compensation, Compensation Discussion & Analysis” “Recent, Recent Compensation” “Post-Employment, Post-Employment Compensation” “Director Compensation,” “Other Legal
The information called for by this Item is incorporated herein by reference, Pay Ratio of CEO to the following sections of our 2020 Proxy Statement, all of which are incorporated into this Item by reference: “The Compensation Committee,” “Compensation Committee Interlocks & Insider Participation,” “Compensation Discussion & Analysis,” “Recent Compensation,” “Post-Employment Compensation,” “Director Compensation,” “Other Legal
Disclosures,”Median Employee, and each Appendix to our Proxy Statement referenced in those sections.
The sub-section of our 20202022 Proxy Statement captioned “CompensationCompensation Risk”, within “The the Compensation Committee” 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
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 221
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 20202022 Proxy Statement within “The the Compensation Committee” Committee section under the sub-section
captioned “CompensationCompensation Committee Report.”Report. As permitted by the instructions for that Item, the information under that sub-section is not “filed” with this report.
-------------------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
-------------------------------------
|
| | | | | | | |
| 216 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 12. SECURITY OWNERSHIP & RELATED STOCKHOLDER MATTERS |
| | |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Securities Authorized for Issuance under Equity Compensation Plans
Equity Compensation Plan Information
The table belowTable 12.1 provides information as of December 31, 20192021 regarding shares of our common stock that may be issued under the following plans:
•2021 Incentive Plan ("2021 Plan")
•Equity Compensation Plan (“ECP”)
•IBERIABANK Corporation 2019 Stock Incentive Plan ("SIP")
•1997 Employee Stock Option Plan (“1997 Plan”)
•2002 and 1996 Bank Director and Advisory Board Member Deferral Plans (“Advisory Board Plans”)
•2000 Non-employee Directors’ Deferred Compensation Stock Option Plan (“2000 Directors’ Plan”)
•The following IBERIABANK Corporation plans (together with the SIP, the “IBKC Plans”): 2016 Stock Incentive Plan; and Amended and Restated 2010 Stock Incentive Plan
•The following Capital Bank Financial Corp. plans (“CBF Plans”): Capital Bank Financial Corp. 2013 Omnibus Compensation Plan; North American Financial Holdings 2010 Equity Incentive Plan;and FNB United Corp. 2012 Incentive Plan; and FNB United Corp. 2003 Stock Incentive Plan (“CBF Plans”)
Table 12.1
EQUITY COMPENSATION PLAN INFORMATION
As of December 31, 20192021
| | | | | | | | | | | | | | | | | | | | | | | |
| | A | | B | | C | |
| Plan Category | | Number of Securities to be Issued upon Exercise of Outstanding Options (1) | | Weighted Average Exercise Price of Outstanding Options (1) | | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding securities reflected in Col. A) | |
| Equity Compensation Plans Approved by Shareholders (2) | | 4,741,471 | | (3) | $15.56 | | 12,329,976 | | |
| Equity Compensation Plans Not Approved by Shareholders (4) | | 239,458 | | (4) | $20.75 | | — | | (4) |
| Totals for A & C, wtd avg for B | | 4,980,929 | | | $15.81 | | 12,329,976 | | |
(1) The numbers of shares covered by stock options and the related option prices have been adjusted proportionately to reflect the estimated economic effects of dividends distributed in common stock effective October 1, 2008 through January 1, 2011. The cumulative compound adjustment factor related to those dividends is 20.038%.
(2) Consists of the 2021 Plan, the ECP, the 2000 Directors’ Plans, the IBKC Plans, and the CBF Plans. The 2021 Plan was approved by shareholders in 2021 and remains active. The number of shares in Column C is entirely under the 2021 Plan; as provided in the 2021 Plan, the Col. C number includes the new/additional shares originally authorized under the 2021 Plan along with shares underlying ECP awards that have been forfeited or cancelled since the 2021 Plan was approved by shareholders, net of shares underlying 2021 Plan awards that are outstanding or have been paid. The ECP initially was approved by shareholders in 2003, most recently was re-approved in 2016, and has terminated. The 2000 Directors’ Plan was approved by shareholders in 2000, and has terminated. The IBKC Plans were approved by IBKC's shareholders in 2005, 2020, 2011, 2014, 2016, and 2019, and all have terminated. FHN and IBKC closed a merger-of-equals transaction in 2020, as a result of which FHN became the plan sponsor for the IBKC Plans and their awards. The CBF Plans were approved by shareholders of CBF or certain other predecessor companies, and all have terminated. FHN merged with CBF in 2017, as a result of which FHN became the plan sponsor for the CBF Plans and their awards."Terminated" means no new awards may be granted under the plan.
(3) Consists entirely of outstanding options issued under terminated plans approved by shareholders, 30,733 of which directly or indirectly were issued in connection with non-employee director cash deferrals of approximately $0.3 million.
(4) Consists of the 1997 Plan and the Advisory Board Plans, all of which have terminated. These outstanding options were issued directly or indirectly in connection with associate and advisory board cash deferrals of approximately $2.6 million.
|
| | | | | | | | |
| | | A | | B | | C | |
| Plan Category | | Number of Securities to be Issued upon Exercise of Outstanding Options (1) | | Weighted Average Exercise Price of Outstanding Options (1) | | Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(excluding securities
reflected in Col. A) | |
| Equity Compensation Plans Approved by Shareowners | (2) | 3,955,852 (3) |
| | $ 14.010/shr | | 6,350,062 | |
| Equity Compensation Plans Not Approved by Shareowners | (4) | 975,929 (4) |
| | 22.079/shr | | - | (4) |
| Total | | 4,931,781 |
| | $ 15.606/shr | | 6,350,062 | |
| | | | | | | | |
(1) | The numbers of shares covered by stock options and the related option prices have been adjusted proportionately to reflect the estimated economic effects of dividends distributed in common stock effective October 1, 2008 through January 1, 2011. The cumulative compound adjustment factor related to those dividends is 20.038%. 217 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
(2)ITEM 12. SECURITY OWNERSHIP & RELATED STOCKHOLDER MATTERS |
Consists |
| |
(3) | Includes 775,188 outstanding options issued under terminated plans approved by shareowners, 45,436 of which directly or indirectly were issued in connection with non-employee director cash deferrals of approximately $0.3 million. |
| |
(4) | Consists of the 1997 Plan and the Advisory Board Plans, all of which have terminated. These outstanding options were issued directly or indirectly in connection with employee and advisory board cash deferrals of approximately $5.2 million. |
Only the ECP still2021 Plan permits new awards;awards to be granted; all other plans have terminated. At December 31, 2019,2021, there were no shares issuable upon exercise of outstanding options under the 2021 Plan, and the total number of shares issuable upon exercise of outstanding options under the ECP was 3,180,664 shares; that number under the terminated plans was 1,751,1174,980,929 shares.
Shares covered by outstanding options are shown in column A.A of Table 12.1. Outstanding
equity awards other than options ("full-value awards"), consisting of unpaid stock units and restricted stock, are not included in any column.column in that Table. In total, 5,208,5159,296,888 shares are covered by unpaid full-value awards, other than options, all granted under the ECP. Of2021 Plan, the ECP, or the SIP.Of those, 4,736,5588,714,844 are covered by unvested awards, and 471,957582,044 are covered by awards that have vested but are
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 222
subject to an unfulfilled mandatory deferral period. In addition, there are 277,200227,830 fully vested deferral stock units outstanding that are the result of previously exercised options under terminated plans for which the receipt of the shares was deferred by the employee.associate.
Column C of Table 12.1 presents the total number of shares available for new awards under the ECP2021 Plan at December 31, 2019,2021, assuming eventual full exercise or vesting of all shares covered by awards outstanding on that date. Of that total, no more than 4,961,854 shares are available for newThe 2021 Plan permits the grant of options and full-value awards, other than options.as well as stock appreciation rights (none of which have been granted).
Of the options outstanding at December 31, 20192021 (the total under column A), approximately 21%5% were issued directly or indirectly in connection with employeeassociate and director cash deferral elections. We received over many years a total of approximately $5.0$2.5 million in employeeassociate cash deferrals and $0.5$0.4 million in non-employee director and advisory board retainer and meeting fee deferrals related to outstanding deferral options. The opportunity to defer portions of compensation in exchange for options has not been offered to employees,associates, directors, or advisory board members since 2004.
Description of Equity Compensation Plans Not Approved by Shareholders
The 1997 Plan
The 1997 Plan was adopted by the Board of Directors in 1996 and terminated in 2007. The 1997 Plan authorized the grant of nonqualified stock options.
Options were granted under the 1997 Plan prior to its termination pursuant to a management option program, covering a wide range of management-level employees.associates. The last management options granted under the 1997 Plan, with seven-year terms, expired in 2014. However, prior to 2005 certain employeesassociates could elect to defer a portion of their annual compensation into stock options under the 1997 Plan. DeferralMany deferral options still outstanding each had 20-year terms. Allterms, and they are the only options still outstanding under the 1997 Plan were issued directly or indirectly in connection with the deferral program.Plan.
All deferral options granted under the 1997 Plan had an
exercise price discounted from grant date fair market value: the aggregate exercise price plus the aggregate compensation foregone equaled the aggregate grant date fair market value. Options could be exercised using shares of FHN stock to pay the option price. When an option was exercised with shares, the option holder sometimes received a new (reload) option grant priced at then-current market (without a discount), covering the remainder of the deferral option's term.
As of December 31, 2019,2021, options covering 961,478232,254 shares of our common stock were outstanding under the 1997 Plan, no shares remained available for future option grants, and options covering 20,913,69621,027,943 shares had been exercised during the life of the plan. The 1997 Plan was filed most recently as Exhibit 10.2(d) in our Form 10-Q for the quarter ended June 30, 2009.
The Advisory Board Plans
The Advisory Board Plans were adopted by the Board of Directors in 2001 and 1996, and terminated in 2005 and 2002, respectively.
Options granted under the Advisory Board Plans were granted only to regional and advisory board members, or to directors of certain bank affiliates, in any case who were not employees.associates. The options were granted in lieu of the participants receiving retainers or attendance fees for bank board and advisory board meetings. The number of shares subject to grant equaled the amount of fees/retainers earned divided by one half of the fair market value of one share of common stock on the date of the option grant. The exercise price plus the amount of fees foregone equaled the fair market value of the stock on the grant date. The options were vested at the grant date. Those granted on or before January 2, 2004 had terms of twenty years.years, and are the only options still outstanding.
As of December 31, 2019,2021, options covering 14,4517,204 shares of our common stock were outstanding under the Advisory Board Plans, no shares remained available for future option grants, and options covering 86,66290,097 shares had been exercised during the life of the Plans. The Advisory Board Plans were included as Exhibits 10.1(f) and 10.1(g) to our Form 10-Q for the quarter ended June 30, 2009. At the time this report is filed, all options outstanding under the 1996 Advisory Board Plan at December 31, 2021 have either expired or been exercised.
|
| | | | | | | |
Beneficial Ownership | 218 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 12. SECURITY OWNERSHIP & RELATED STOCKHOLDER MATTERS |
| | |
Beneficial Ownership of Corporation Stock
The information required byfor this Item pursuant to Item 403(a) and (b) of Regulation S-K is incorporated herein
Information. That information is incorporated into this Item by reference to the “Stock Ownership Information” section of our 2020 Proxy Statement.reference.
Change in Control Arrangements |
| | | | |
Change in Control Arrangements |
FHN isWe are not aware of any arrangements which may result in a change in control of FHN.First Horizon Corporation.
| | | | | | | | |
| 219 | 2021 FORM 10-K ANNUAL REPORT |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 223
| | | | | | | | |
ITEM 13. CERTAIN RELATIONSHIPS & RELATED TRANSACTIONS AND ITEM 14. PRINCIPAL ACCOUNTANT FEES & SERVICES |
| | |
--------------------------
ITEMItem 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
--------------------------
The information called for by this Item is incorporated herein by reference topresented in the following sections of our 20202022 Proxy Statement, all of which areStatement: Independence & Categorical Standards; Related Party Transaction Procedures; and Transactions with Related Persons. That information is incorporated into this Item by reference: “Independence & Categorical Standards,” “Approval, Monitoring & Ratification Procedures for Related Party Transactions,” “Transactions with Related Persons,” and “Taylor Arrangements” (within the “Director Compensation Table” section). All other
references to the compensation of, and employment arrangements we had with, R. Eugene Taylor that appear in the “Director Compensation” section of our 2020 Proxy Statement similarly are incorporated into this Item by reference. Our independent directors and nominees are identified in the first paragraph of the “Independence”Independence discussion within the “IndependenceIndependence & Categorical Standards”Standards section of our 20202022 Proxy Statement.
------------------------------------
ITEMItem 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
------------------------------------
The Audit Committee of the Board of Directors has a policy providing for pre-approval of all audit and non-audit services to be performed by our registered public accounting firm that performs the audit of our consolidated financial statements (our “Auditor”). Services either may be approved in advance by the Audit Committee specifically on a case-by-case basis (“specific pre-approval”) or may be approved in advance (“advance pre-approval”). Advance pre-approval requires the Committee to identify in advance the specific types of service that may be provided and the fee limits applicable to such types of service, which limits may be expressed as a limit by type of service or by category of services. All requests to provide services that have been pre-approved in advance must be submitted to the Chief Accounting Officer prior to the provision of such services for a determination that the service to be provided is of the type and within the fee limit that has been pre-approved. Unless the type of service to be provided by our Auditor has received advance pre-approval under the policy and the fee for such service is within the limit pre-approved, the service will require specific pre-approval by the Committee.
The terms of and fee for the annual audit engagement must receive the specific pre-approval of the Committee. “Audit,” “Audit-related,” “Tax,” and “All Other” services, as those terms are defined in the policy, have the advance pre-approval of the Committee, but only to the extent
those services have been specified by the Committee and only in
amounts that do not exceed the fee limits specified by the Committee. Such advance pre-approval is to be for a term of 12 months following the date of pre-approval unless the Committee specifically provides for a different term. Unless the Committee specifically determines otherwise, the aggregate amount of the fees pre-approved for All Other services for the fiscal year must not exceed seventy-five percent (75%) of the aggregate amount of the fees pre-approved for the fiscal year for Audit services, Audit-related services, and those types of Tax services that represent tax compliance or tax return preparation. The policy delegates the authority to pre-approve services to be provided by our Auditor, other than the annual audit engagement and any changes thereto, to the chair of the Committee. The chair may not, however, make a determination that causes the 75% limit described above to be exceeded. Any service pre-approved by the chair will be reported to the Committee at its next regularly scheduled meeting.
Information regarding fees billed to FHN by our Auditor, KPMG LLP, for the two most recent fiscal years is incorporated herein by reference to the section of our 20202022 Proxy Statement captioned “VoteVote Item 3-Ratification of Appointment of Auditors.”2—Auditor Ratification. No services were approved by the Audit Committee pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X.
|
| | | | | | | |
PART IV | 220 | 2021 FORM 10-K ANNUAL REPORT |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 224
---------------------------------------
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
---------------------------------------
The following documents are filed as part of this report:
|
| | | | | | | |
Financial Statements and Related ReportsITEM 15. EXHIBITS & FINANCIAL STATEMENT SCHEDULES |
| | |
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 our 20192021 Financial Statements (Item 8) indicated below.in Table 15.1.
Table 15.1 |
| | | | |
| Item 8 Page |
| Statement, Note, or Report Incorporated into Item 15 |
113 |
| Report of Management on Internal Control over Financial Reporting |
114-116 |
| Reports of Independent Registered Public Accounting Firm |
117 |
| Consolidated Statements of ConditionBalance Sheets as of December 31, 20192021 and 20182020 |
118 |
| Consolidated Statements of Income for the years ended December 31, 2019, 2018,2021, 2020, and 20172019 |
119 |
| Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018,2021, 2020, and 20172019 |
120 |
| Consolidated Statements of Changes in Equity for the years ended December 31, 2019, 2018,2021, 2020, and 20172019 |
121-122 |
| Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018,2021, 2020, and 20172019 |
123-217 |
| Notes to the Consolidated Financial Statements |
|
| | | | |
| Financial Statement Schedules |
Not applicable.
Exhibits
In the exhibit table below: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 Reportreport or as a separate disclosure document; and the phrase “2019“2021 named executive officers” refers to those executive officers whose 20192021 compensation is described in FHN’s 2020our 2022 Proxy Statement. All references to “First Horizon National Corporation” or to "First Tennessee National Corporation" refer to us, under previous corporate names.
In many agreements filed as exhibits, each party makes representations and warranties to other parties. Those representations and warranties are made only to and for the benefit of those other parties in the context of a business contract. Exceptions to such representations and warranties may be partially or fully waived by such parties, or not enforced by such parties, in their discretion. No such representation or warranty may be relied upon by any other person for any purpose.
10-K EXHIBIT TABLE
|
| | | | | | | |
| Exh No | Description of Exhibit to this 10-K Report | Filed Here | Mngt Exh | Furn-ished | Incorporated by Reference to |
| Form | Exh No | Filing Date |
| | Corporate Exhibits | | | | | | |
| 2.1 | Agreement and Plan of Merger, dated as of Nov. 3, 2019, by and between First Horizon National Corporation and IBERIABANK Corporation | | | | 8-K | 2.1 | 11/7/2019 |
| 3.1 | Restated Charter of First Horizon National Corporation | | | | 8-K | 3.1 | 7/25/2018 |
| 3.2 | Bylaws of First Horizon National Corporation, as amended and restated effective January 28, 2020 | | | | 8-K | 3.1 | 2/3/2020 |
| 4.1 | Deposit Agreement, dated as of January 31, 2013, by and among FHN, Wells Fargo Bank, N.A., as depositary, and the holders from time to time of depositary receipts described therein | | | | 8-K | 4.1 | 1/31/2013 |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 225
|
| | | | | | | |
4.2 | 221 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 15. EXHIBITS & FINANCIAL STATEMENT SCHEDULES |
| | |
Table 15.2
10-K EXHIBIT TABLE
| | | | | | | | | | | | | | | | | | | | | | | |
| Exh No | Description of Exhibit to this 10-K Report | Filed Here | Mngt Exh | Furn-ished | Incorporated by Reference to |
| Form | Exh No | Filing Date |
| Corporate Exhibits | | | | | | |
| 2.1 | | X | | | | | |
| 3.1 | | | | | 8-K | 3.1 | 7/30/2021 |
| 3.2 | | | | | 8-K | 3.2 | 12/1/2020 |
| 4.1 | | | | | 8-K | 4.1 | 7/2/2020 |
| 4.2 | | | | | 8-K | 4.1 | 7/2/2020 |
| 4.3 | | | | | 8-K | 4.2 | 7/2/2020 |
| 4.4 | | | | | 8-K | 4.2 | 7/2/2020 |
| 4.5 | | | | | 8-K | 4.3 | 7/2/2020 |
| 4.6 | | | | | 8-K | 4.3 | 7/2/2020 |
| 4.7 | | | | | 8-K | 4.1 | 5/28/2020 |
| 4.8 | | | | | 8-K | 4.2 | 5/28/2020 |
| 4.9 | | | | | 8-K | 4.1 | 5/28/2020 |
| 4.10 | | | | | 8-K | 4.1 | 5/03/2021 |
| 4.11 | | | | | 8-K | 4.2 | 5/03/2021 |
| 4.12 | | | | | 8-K | 4.1 | 5/03/2021 |
| 4.13 | | | | | 10-Q
2Q21 | 4.4 | 8/5/2021 |
| 4.14 | FHN agrees to furnish to the Securities and Exchange Commission upon request a copy of each instrument defining the rights of the holders of the senior and subordinated long-term debt of FHN and its consolidated subsidiaries | | | | | | |
| Equity-Based Award Plans | | | | | | |
| 10.1 (a) | | | X | | Proxy 2021 | App. A | 3/15/2021 |
| 10.1 (b) | | | X | | Proxy 2016 | App. A | 3/14/2016 |
| 10.1 (c) | | | X | | 10-K 2020 | 10.1(b) | 2/25/2021 |
| 10.1 (d) | | | X | | 10-K 2020 | 10.1(c) | 2/25/2021 |
| | | | | | | | |
| 222 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 15. EXHIBITS & FINANCIAL STATEMENT SCHEDULES |
| | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Exh No | Description of Registrant’s Securities Registered PursuantExhibit to Section 12 of the Securities Exchange Act of 1934this 10-K Report | XFiled Here | Mngt Exh | Furn-ished | | | Incorporated by Reference to |
4.3Form | 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 subsidiariesExh No | | | | | | Filing Date |
| 10.1 (e) | Equity-Based Award Plans | | X | | 10-K 2020 | 10.1(d) | 2/25/2021 |
10.1 (a)(f) | Equity Compensation Plan (as amended and restated April 26, 2016) | | X | | Proxy 2016 | App. A | 3/14/2016 |
10.1 (b) | | | X | | 10-Q
2Q09
| 10.2(d) | X | | 10-Q
2Q09 | 10.2(d) | 8/6/2009 |
10.1 (c)(g) | | | X | | 10-Q
2Q09
| 10.1(e) | X | | 10-Q
2Q09 | 10.1(e) | 8/6/2009 |
| Performance-Based Equity Award Documents | | | | | | |
| 10.2 (a) | | | X | | 10-Q
1Q16
| 10.6 | X | | 10-Q
1Q16 | 10.6 | 5/6/2016 |
| 10.2 (b) | Form of Grant Notice for Executive Performance Stock Units [2017] | | X | | 10-Q
1Q17
| 10.1 | 5/8/2017 |
10.2 (c) | Form of Grant Notice for Executive Performance Stock Units [2018] | | X | | 10-Q
1Q18
| 10.1 | 5/8/2018 |
10.2 (d) | Form of Grant Notice for Executive Performance Stock Units [2019] | | X | | 10-Q
1Q19
| 10.1 | X | | 10-Q
1Q19 | 10.1 | 5/8/2019 |
| Stock Option Award Documents | | | | | | |
10.3 (a) | Form of Agreement To Defer Receipt Of Shares Following Option Exercise | | X | 10.2 (c) | 10-Q
2Q17
| 10.1 | 8/8/2017 |
10.3 (b) | Form of Stock Option Grant Notice, incorporated by reference to Exhibit 10.5(e) to FHN’s 2004 Annual Report on Form 10-K | | X | | 10-K
2004
| 10.5(e) | 3/14/2005 |
10.3 (c) | First Tennessee Stock Option Enhancement Program | | X | | 10-K
2006
| 10.5(o) | 2/28/2007 |
10.3 (d) | Form of Executive Stock Option Grant Notice [2013] | | X | | 10-Q 1Q13 | 10.2 | 5/8/2013 |
10.3 (e) | Form of Grant Notice for Executive Performance Stock Options [2014]Units [2020] | | X | | 10-Q 1Q14
1Q20 | 10.310.1 | 5/8/20142020 |
| 10.2 (d) | | | X | | 10-Q
1Q21 | 10.1 | 5/6/2021 |
| Stock Option Award Documents | | | | | | |
10.3 (f)(a) | | | X | | 10-Q
2Q17 | 10.1 | 8/8/2017 |
| 10.3 (b) | | | X | | 10-K
2004 | 10.5(e) | 3/14/2005 |
| 10.3 (c) | | | X | | 10-K
2006 | 10.5(o) | 2/28/2007 |
| 10.3 (d) | | | X | | 10-Q 1Q15 | 10.2 | 5/7/2015 |
10.3 (g)(e) | | | X | | 10-Q 1Q16 | 10.2 | 5/6/2016 |
10.3 (h)(f) | | | X | | 10-Q 1Q16 | 10.5 | 5/6/2016 |
10.3 (i)(g) | | | X | | 10-Q 1Q17 | 10.2 | 5/8/2017 |
10.3 (j)(h) | | | X | | 10-Q 1Q18 | 10.2 | 5/8/2018 |
10.3 (k)(i) | | | X | | 10-Q 1Q19 | 10.2 | 5/8/2019 |
| 10.3 (j) | Other Equity-Based Award Documents | | | | | | |
10.4 (a) | | | X | | 10-Q 1Q161Q20 | 10.410.2 | 5/6/20168/2020 |
10.4 (b)10.3 (k) | | | X | | 10-Q 1Q1710-K 2020 | 10.310.3(l) | 5/8/20172/25/2021 |
10.4 (c) | Form of Grant Notice for Executive Restricted Stock Units [2018]Other Equity-Based Award Documents | | X | | 10-Q 1Q18 | 10.3 | 5/8/2018 |
10.4 (d)(a) | | | X | | 10-Q 1Q19 | 10.3 | 5/8/2019 |
| 10.4 (b) | | | X | | 10-Q 1Q20 | 10.3 | 5/8/2020 |
| 10.4 (c) | | | X | | 10-Q 1Q21 | 10.2 | 5/6/2021 |
| 10.4 (d) | | | X | | 10-Q 1Q21 | 10.3 | 5/6/2021 |
| 10.4 (e) | | X | X | | 10-K 2019 | 10.4(e) | 2/28/2020 |
| 10.4 (f) | Sections | | X | | 10-Q 1Q1910-K 2020 | 10.410.4(f) | 5/8/20192/25/2021 |
| 10.4 (g) | | | X | | 10-Q 1Q21 | 10.4 | 5/6/2021 |
| Management Cash Incentive Plan Documents | | | | | | |
| | | | | | | | |
| 223 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 15. EXHIBITS & FINANCIAL STATEMENT SCHEDULES |
| | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Exh No | Description of Exhibit to this 10-K Report | Filed Here | Mngt Exh | Furn-ished | Incorporated by Reference to |
| Form | Exh No | Filing Date |
| 10.5 (a) | | | X | | 8-K | 10.1 | 10/27/2021 |
| 10.5 (b) | | | X | | Proxy 2016 | App B | 3/14/2016 |
10.5 | Other Exhibits relating to Employment, Retirement, Severance, or Separation | | | | |
| 10.6 (a) | | | X | | 8-K | 10.7(a2) | 2/26/2007 |
| 10.6 (b) | Portions | | X | | 10-Q
3Q07 | 10.7(a4) | 11/7/2007 |
| 10.6 (c) | | | X | | 10-Q
3Q07 | 10.7(a5) | 11/7/2007 |
| 10.6 (d) | | | X | | 8-K | 10.2 | 11/24/2008 |
| 10.6 (e) | | | X | | 8-K | 10.1 | 1/29/2021 |
| 10.6 (f) | | | X | | 10-Q 3Q07 | 10.7(e) | 11/7/2007 |
| 10.6 (g) | | | X | | 10-K
2009 | 10.7(d2) | 2/26/2010 |
| 10.6 (h) | | | X | | 10-Q 3Q11 | 10.2 | 11/8/2011 |
| 10.6 (i) | | | X | | 8-K | 10.1 | 7/17/2012 |
| 10.6 (j) | | | X | | 8-K | 10.1 | 11/7/2019 |
| 10.6 (k) | | | X | | 8-K | 10.2 | 11/7/2019 |
| 10.6 (l) | | | X | | 10-K 2020 | 10.6(l) | 2/25/2021 |
| 10.6 (m) | | | X | | 10-K 2020 | 10.6(m) | 2/25/2021 |
| 10.6 (n) | | | X | | 8-K | 99.1 | 11/7/2019 |
| 10.6 (o) | | | X | | 10-K 2020 | 10.6(o) | 2/25/2021 |
| 10.6 (p) | | | X | | 8-K | 10.1 | 7/2/2020 |
| 10.6 (q) | | | X | | 8-K | 10.1 | 9/30/2021 |
| 10.6 (r) | | | X | | 8-K | 10.1 | 11/9/2021 |
| Documents Related to FHN's bylaws, the charter of the Board's Compensation Committee,Other Deferral Plans and action by the Committee taken on July 18, 2006Programs | | X | | 10-Q 3Q17 | 10.2 | 11/7/2017 |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 226
|
| | | | | | | |
| | Other Exhibits relating to Employment, Retirement, Severance, or Separation | | | | | | |
| 10.6 (a) | February 2007 form of change-in-control severance agreement between FHN and its executive officers | | X | | 8-K | 10.7 (a2) | 2/26/2007 |
| 10.6 (b) | Form of Amendment to February 2007 form of change-in-control severance agreement between FHN and its executive officers | | X | | 10-Q 3Q07 | 10.7 (a4) | 11/7/2007 |
| 10.6 (c) | October 2007 form of change-in-control severance agreement between FHN and its executive officers | | X | | 10-Q 3Q07 | 10.7 (a5) | 11/7/2007 |
| 10.6 (d) | Form of Change in Control Severance Agreement offered to executive officers on or after November 14, 2008 | | X | | 8-K | 10.2 | 11/24/2008 |
| 10.6 (e) | Form of Pension Restoration Plan (amended and restated as of January 1, 2008) | | X | | 10-Q 3Q07 | 10.7(e) | 11/7/2007 |
| 10.6 (f) | Form of Amendment to Pension Restoration Plan | | X | | 10-K 2009 | 10.7 (d2) | 2/26/2010 |
| 10.6 (g) | Form of Amendment No. 3 to Pension Restoration Plan | | X | | 10-Q 3Q11 | 10.2 | 11/8/2011 |
| 10.6 (h) | Form of First Horizon National Corporation Savings Restoration Plan | | X | | 8-K | 10.1 | 7/17/2012 |
| 10.6 (i) | Letter agreement, dated as of November 3, 2019, by and between First Horizon National Corporation and D. Bryan Jordan | | X | | 8-K | 10.1 | 11/7/2019 |
| 10.6 (j) | Form of Retention Agreement | | X | | 8-K | 10.2 | 11/7/2019 |
| | Documents Related to Other Deferral Plans and Programs | | | | | | |
| 10.7 (a) | 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 | | X | | 10-Q 2Q17 | 10.4 | 8/8/2017 |
| 10.7 (b) | Form of Amendment to Directors and Executives Deferred Compensation Plan | | X | | 10-Q 3Q07 | 10.1 (a3) | 11/7/2007 |
| 10.7 (c) | Rate Applicable to Participating Directors and Officers Under the Directors and Executives Deferred Compensation Plan | | X | | 10-Q 3Q19 | 10.1 | 11/8/2019 |
| 10.7 (d) | Schedule of Deferral Agreements [Non-Employee Directors, 1995] | | X | | 10-K 2018 | 10.7(d) | 2/28/2019 |
| 10.7 (e) | Form of First Horizon National Corporation Deferred Compensation Plan as Amended and Restated [formerly known as First Tennessee National Corporation Nonqualified Deferred Compensation Plan] | | X | | 10-Q 3Q07 | 10.1(c) | 11/7/2007 |
| 10.7 (f) | Form of FHN Financial Deferred Compensation Plan Amended and Restated Effective January 1, 2008 | | X | | 10-Q 3Q07 | 10.1(j) | 11/7/2007 |
| 10.7 (g) | 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 | | X | | 8-K | 10(z) | 1/3/2005 |
| | Other Exhibits related to Management or Directors | | | | | | |
| 10.8 (a) | Survivor Benefits Plan, as amended and restated July 18, 2006 | | X | | 10-Q 3Q06 | 10.8 | 11/8/2006 |
| 10.8 (b) | Other Compensation and Benefit Arrangements for Non-employee Directors | X | X | | | | |
| 10.8 (c) | Description of Long-Term Disability Program | | X | | 10-Q 2Q17 | 10.2 | 8/8/2017 |
| 10.8 (d) | Form of Indemnity Agreement with directors and executive officers [2004 form] | | X | | 10-Q 2Q17 | 10.3 | 8/8/2017 |
| 10.8 (e) | Form of amendment to 2004 form of Indemnity Agreement with directors and executive officers | | X | | 8-K | 10.4 | 4/28/2008 |
| 10.8 (f) | Form of Indemnity Agreement with directors and executive officers (April 2008 revision) | | X | | 8-K | 10.5 | 4/28/2008 |
| 10.8 (g) | List of Certain Benefits Available to Executive Officers | X | X | | | | |
| 10.8 (h) | Description of 2020 Salary Rates for 2019 Named Executive Officers | X | X | | | | |
| | Other Exhibits | | | | | | |
| 14 | Code of Ethics for Senior Financial Officers | | | | 10-K 2008 | 14 | 2/26/2009 |
| 21 | Subsidiaries of First Horizon National Corporation | X | | | | | |
| 23 | Accountant’s Consents | X | | | | | |
| 24 | Power of Attorney | X | | | | | |
| 31(a) | Rule 13a-14(a) Certifications of CEO (pursuant to Section 302 of Sarbanes-Oxley Act of 2002) | X | | | | | |
| 31(b) | Rule 13a-14(a) Certifications of CFO (pursuant to Section 302 of Sarbanes-Oxley Act of 2002) | X | | | | | |
| 32(a) | 18 USC 1350 Certifications of CEO (pursuant to Section 906 of Sarbanes-Oxley Act of 2002) | X | | X | | | |
| 32(b) | 18 USC 1350 Certifications of CFO (pursuant to Section 906 of Sarbanes-Oxley Act of 2002) | X | | X | | | |
| 99.1 | Letter agreement, dated as of November 3, 2019, by and between First Horizon National Corporation and Daryl G. Byrd | | | | 8-K | 99.1 | 11/7/2019 |
| | XBRL Exhibits | | | | | | |
| 101 | The following financial information from First Horizon National Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019, formatted in Inline XBRL: (i) Consolidated Statements of Condition at December 31, 2019 and 2018 (ii) Consolidated Statements of Income for the Years Ended December 31, 2019, 2018, and 2017 (iii)Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019, 2018, and 2017 (iv)Consolidated Statements of Equity for the Years Ended December 31, 2019, 2018, and 2017 (v)Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018, and 2017 (vi)Notes to the Consolidated Financial Statements | X | | | | | |
| 101. INS | 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 | X | | | | | |
| 101. SCH | Inline XBRL Taxonomy Extension Schema | X | | | | | |
| 101. CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | X | | | | | |
| 101. DEF | Inline XBRL Taxonomy Extension Definition Linkbase | X | | | | | |
| 101. LAB | Inline XBRL Taxonomy Extension Label Linkbase | X | | | | | |
| 101. PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | X | | | | | |
| 104 | Cover Page Interactive Data File, formatted in Inline XBRL (included in Exhibit 101) | X | | | | | |
--------------------
ITEM 16. FORM 10-K SUMMARY
--------------------
Not applicable.
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 227
|
| | | | |
SIGNATURES10.7 (a) | | | X | | 10-Q 2Q17 | 10.4 | 8/8/2017 |
| 10.7 (b) | | | X | | 10-Q 3Q07 | 10.1(a3) | 11/7/2007 |
| 10.7 (c) | | | X | | 10-Q 3Q21 | 10.1 | 11/5/2021 |
| 10.7 (d) | | | X | | 10-K
2018 | 10.7(d) | 2/28/2019 |
| | | | | | | | |
| 224 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 15. EXHIBITS & FINANCIAL STATEMENT SCHEDULES |
| | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Exh No | Description of Exhibit to this 10-K Report | Filed Here | Mngt Exh | Furn-ished | Incorporated by Reference to |
| Form | Exh No | Filing Date |
| 10.7 (e) | | | X | | 10-Q 3Q07 | 10.1(c) | 11/7/2007 |
| 10.7 (f) | | | X | | 8-K | 10(z) | 1/3/2005 |
| Other Exhibits related to Management or Directors | | | | | | |
| 10.8 (a) | | | X | | 10-Q 3Q06 | 10.8 | 11/8/2006 |
| 10.8 (b) | | | X | | 10-K 2020 | 10.8(b) | 2/25/2021 |
| 10.8 (c) | | | X | | 10-Q 2Q17 | 10.2 | 8/8/2017 |
| 10.8 (d) | | | X | | 10-Q 2Q17 | 10.3 | 8/8/2017 |
| 10.8 (e) | | | X | | 8-K | 10.4 | 4/28/2008 |
| 10.8 (f) | | | X | | 8-K | 10.5 | 4/28/2008 |
| 10.8 (g) | | X | X | | | | |
| 10.8 (h) | | X | X | | | | |
| Other Exhibits | | | | | | |
| 14 | | | | | 10-K
2008 | 14 | 2/26/2009 |
| 21 | | X | | | | | |
| 23 | | X | | | | | |
| 24 | | X | | | | | |
| 31(a) | | X | | | | | |
| 31(b) | | X | | | | | |
| 32(a) | | X | | X | | | |
| 32(b) | | X | | X | | | |
| XBRL Exhibits | | | | | | |
| 101 | The following financial information from First Horizon Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021, formatted in Inline XBRL: (i) Consolidated Balance Sheets at December 31, 2021 and 2020 (ii) Consolidated Statements of Income for the Years Ended December 31, 2021, 2020, and 2019 (iii) Consolidated Statements of Comprehensive Income for the Years EndedDecember 31, 2021, 2020, and 2019. (iv) Consolidated Statements of Changes in Equity for the Years Ended December 31, 2021, 2020, and 2019. (v) Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020, and 2019. (vi) Notes to the Consolidated Financial Statements | X | | | | | |
| | | | | | | | |
| 225 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 15. EXHIBITS & FINANCIAL STATEMENT SCHEDULES |
| | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Exh No | Description of Exhibit to this 10-K Report | Filed Here | Mngt Exh | Furn-ished | Incorporated by Reference to |
| Form | Exh No | Filing Date |
| 101. INS | 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 | X | | | | | |
| 101. SCH | Inline XBRL Taxonomy Extension Schema | X | | | | | |
| 101. CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | X | | | | | |
| 101. DEF | Inline XBRL Taxonomy Extension Definition Linkbase | X | | | | | |
| 101. LAB | Inline XBRL Taxonomy Extension Label Linkbase | X | | | | | |
| 101. PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | X | | | | | |
| 104 | Cover Page Interactive Data File, formatted in Inline XBRL (included in Exhibit 101) | X | | | | | |
| | | | | | | | |
| 226 | 2021 FORM 10-K ANNUAL REPORT |
| | | | | | | | |
| ITEM 16. FORM 10-K SUMMARY |
| | |
Item 16. Form 10-K Summary
Not applicable.
| | | | | | | | |
| 227 | 2021 FORM 10-K ANNUAL REPORT |
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | | | | | | | | | | | | |
| | FIRST HORIZON NATIONAL CORPORATION |
| | | |
Date: February 27, 2020March 1, 2022 | | By: | | /s/ William C. Losch IIIHope Dmuchowski |
| | Name: | | William C. Losch IIIHope Dmuchowski |
| | Title: | | Senior Executive Vice President and Chief Financial Officer |
| | | | (Duly Authorized Officer and Principal Financial Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
| | | | | | | | | | | | | | | | | | | |
| Signature* | Title | DateDate* | Signature* | TitleSignature* | DateTitle | Date* |
D. Bryan Jordan D. Bryan Jordan | President, Chief Executive Officer, Chairman of the Board, and a Director (principal(principal executive officer) | February 27, 2020* | | William C. Losch IIIHope Dmuchowski
William C. Losch IIIHope Dmuchowski
| Senior Executive Vice President and Chief Financial Officer (principal(principal financial officer) | February 27, 2020* |
Jeff L. Fleming Jeff L. Fleming | Executive Vice President and Chief Accounting Officer (principal accounting officer) | February 27, 2020* | | Harry V. Barton, Jr. Harry V. Barton, Jr. | Director | * |
Kenneth A. Burdick Kenneth A. Burdick | Director | February 27, 2020* | | Daryl G. Byrd Daryl G. Byrd | Director | * |
John N. Casbon John N. Casbon | Director | * | | John C. Compton John C. Compton | Director | February 27, 2020* |
Wendy P. Davidson Wendy P. Davidson | Director | February 27, 2020* | | William H. Fenstermaker William H. Fenstermaker | Director | * |
Mark A. EmkesJ. Michael Kemp, Sr.
Mark A. EmkesJ. Michael Kemp, Sr.
| Director | February 27, 2020* | | Peter N. FossRick E. Maples
Peter N. FossRick E. Maples
| Director | February 27, 2020 |
Corydon J. Gilchrist
Corydon J. Gilchrist
| Director | February 27, 2020 | Scott M. Niswonger
Scott M. Niswonger
| Director | February 27, 2020* |
Vicki R. Palmer Vicki R. Palmer | Director | February 27, 2020* | | Colin V. Reed Colin V. Reed | Director | February 27, 2020* |
E. Stewart Shea III E. Stewart Shea III | Director | * | | Cecelia D. Stewart Cecelia D. Stewart | Director | February 27, 2020* |
Rajesh Subramaniam Rajesh Subramaniam | Director | February 27, 2020* | | Rosa Sugrañes Rosa Sugrañes | Director | * |
R. Eugene Taylor R. Eugene Taylor | Director | February 27, 2020* | Luke Yancy III
Luke Yancy III
| Director | February 27, 2020 | |
|
| | | | | | | | | | | | | |
| *By: /s/Clyde A. Billings, Jr. | March 1, 2022 | | |
| Clyde A. Billings, Jr. | February 27, 2020 | | |
| | Clyde A. Billings, Jr. | | |
| | As Attorney-in-Fact | | | |
FIRST HORIZON NATIONAL CORP. 2019 FORM 10-K ANNUAL REPORT 228
| | | | | | | | |
| 228 | 2021 FORM 10-K ANNUAL REPORT |
