FIRST HORIZON CORPORATION
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
TABLE OF ITEM 7 TOPICS
Introduction 61
Executive Overview 61
R esults of Operations 63
Analysis of Financial Condition 70
Capital 87
Risk Management 90
Repurchase Obligations 98
Market Uncertainties and Prospective Trends 99
Critical Accounting Policies and Estimates 102
Non-GAAP Information 104
[[Image Removed: fhn-20211231_g2.jpg]] 60 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents IntroductionFirst Horizon Corporation (NYSE common stock trading symbol "FHN") is a financial holding company headquartered inMemphis, Tennessee . FHN's principal subsidiary, and only banking subsidiary, isFirst 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 theU.S. AtDecember 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 condition and results of operations of FHN. It should be read in conjunction with the Consolidated Financial Statements and accompanying Notes to the Consolidated Financial Statements in Part II, Item 8 of this Form 10-K, as well as with the other information contained in this report. Executive Overview
Merger Agreement with Toronto-Dominion Bank
OnFebruary 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 , aDelaware corporation and indirect, wholly owned subsidiary of TD ("TD-US"), andFalcon Holdings Acquisition Co. , aDelaware 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 beforeNovember 27, 2022 , shareholders will receive an additional$0.65 per share of Company Common Stock on an annualized basis (or approximately5.4 cents per month) for the period fromNovember 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 theFirst 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 andTD 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
OnJuly 1, 2020 , FHN completed its merger of equals withIBERIABANK 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
[[Image Removed: fhn-20211231_g2.jpg]] 61 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
forward. FHN expects to achieve its targeted
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 available to common shareholders of$962 million , or$1.74 per diluted share, compared to net income of$822 million , or$1.89 per diluted share in 2020 which included a$533 million benefit, or$1.23 per diluted share, tied to an IBKC merger net purchase accounting gain. Net interest income of$2.0 billion increased$332 million from 2020 driven by an increase in average interest-earning assets as a result of the IBKC merger. Results also reflect the benefit of lower deposit costs, which helped to partially offset the impact of lower interest rates on earning assets. The provision for credit losses was a benefit of$310 million compared to an expense of$503 million in 2020, largely reflecting continued improvement in the overall macroeconomic outlook, positive credit grade migration, and lower loan balances. The provision expense for 2020 was impacted by the adoption of CECL, deterioration in the overall macroeconomic outlook attributable to the COVID-19 pandemic and additional provision related to acquired non-PCD loans. 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
FHN continued to maintain strong capital measures in 2021. The Tier 1 risk-based capital and total risk-based capital ratios atDecember 31, 2021 were 11.04% and 12.34%, respectively, compared to 10.74% and 12.57% atDecember 31, 2020 . The CET1 ratio was 9.92% atDecember 31, 2021 compared to 9.68% atDecember 31, 2020 .
[[Image Removed: fhn-20211231_g2.jpg]] 62 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
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 7.30.
(b)Calculated using net income divided by average assets.
(c)Calculated using net income available to common shareholders divided by average common equity.
(d)Calculated using net income available to common shareholders divided by average tangible common equity.
(e)Net interest margin is computed using total net interest income adjusted to an FTE basis assuming a statutory federal income tax rate of 21% and, where applicable, state income taxes.
(f)Ratio is noninterest income excluding securities gains (losses) to total revenue excluding securities gains (losses).
(g)Ratio is noninterest expense to total revenue excluding securities gains (losses).
Results of Operations-2021 compared to 2020
Net Interest Income
Net interest income is FHN's largest source of revenue and is the difference between the interest earned on interest-earning assets (generally loans, leases and investment securities) and the interest expense incurred in connection with interest-bearing liabilities (generally deposits and borrowed funds). The level of net interest income is primarily a function of the difference between the effective yield on average interest-earning assets and the effective cost of interest-bearing liabilities. These factors are influenced by the pricing and mix of interest-earning assets and interest-bearing liabilities which, in turn, are impacted by external factors such as local economic conditions, competition for loans and deposits, the monetary policy of the FRB and market interest rates. Net interest income of$2.0 billion in 2021 increased 20% from 2020 driven by the impact of the IBKC merger. Results also reflect the benefit of lower deposit costs
which helped to partially offset the impact of lower interest-earning asset yields and spreads.
FHN's net interest margin decreased 38 basis points from 2020 to 2.48% in 2021 and the net interest spread decreased 32 basis points to 2.36% over the same period. Net interest margin and net interest spread were unfavorably impacted by a 58 basis point decrease in earning asset yields, largely reflecting the impact of lower interest rates and higher levels of excess cash. The lower yield on earning assets was partially offset by a 26 basis point decrease in the cost of interest-bearing liabilities driven by lower deposit costs.
The following table presents the major components of net interest income and net interest margin:
[[Image Removed: fhn-20211231_g2.jpg]] 63 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
Table 7.2
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS/RATES
(Dollars in millions) 2021 2020 2019
Average Interest Average Interest Average Interest
Assets: Balance Income/Expense Yield/Rate Balance Income/Expense Yield/Rate Balance 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
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.
[[Image Removed: fhn-20211231_g2.jpg]] 64 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
The following table presents the change in interest income and interest expense due to changes in both average volume and average rate.
Table 7.3
ANALYSIS OF CHANGES IN NET INTEREST INCOME
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 (3) repurchase (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
(a) The changes in interest due to both rate and volume have been allocated to change due to rate and change due to volume in proportion to the absolute amounts of the changes in each.
(b) Variances are computed on a line-by-line basis and are non-additive.
[[Image Removed: fhn-20211231_g2.jpg]] 65 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents Provision for Credit Losses Provision for credit losses includes the provision for loan and lease losses and the provision for unfunded lending commitments. The provision for credit losses is the expense necessary to maintain the ALLL and the accrual for unfunded lending commitments at levels appropriate to absorb management's estimate of credit losses expected over the life of the loan and lease portfolio and the portfolio of unfunded loan commitments.
Provision for credit losses improved to a provision benefit of
$503 million in 2020, largely reflecting an improvement in the overall macroeconomic outlook, positive credit grade migration and lower loan balances. The provision in 2020 was driven by the adoption of CECL and the impact of the COVID-19 pandemic on loss expectations. Results in 2020 also reflect the impact of the IBKC merger and Truist branch acquisition, including$147 million related to non-PCD loans. For additional information about general asset quality trends refer to the Asset Quality section in this MD&A.
Noninterest Income
The following table presents the significant components of noninterest income for each of the periods presented:
Table 7.4
NONINTEREST 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 $1.5 billion in 2020, or 35%
and 47% of total revenue, respectively. The decrease in noninterest income in
2021 was driven by a $534 million reduction tied to the purchase accounting gain
recorded in 2020 related to the IBKC merger. Results also reflect the benefit of
higher fee income largely driven by the full-year impact of the IBKC merger.
Fixed income revenues are mainly generated from the purchase and sale of fixed
income securities as both principal and agent. Other noninterest revenues within
this line item consist principally of fees from derivative sales, portfolio
advisory services and loan sales. Fixed income fees of $406 million decreased
$17 million from exceptionally strong levels in 2020. Fixed income product
revenue decreased $10 million , reflecting slightly less favorable market
conditions, while revenue from other
products decreased $7 million , largely driven by lower fees from derivative and
loan sales, somewhat offset by higher fees from portfolio advisory services.
Fixed income average daily revenue of $1.4 million in 2021 decreased slightly
from $1.5 million in 2020.
Deposit transactions and cash management fees of
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
[[Image Removed: fhn-20211231_g2.jpg]] 66 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
annuity and mutual funds sales. These fees and commissions totaled$88 million in 2021, an increase of 33% compared to$66 million in 2020 driven by the impact of the IBKC merger and an increase in annuity income and advisory fees.
Trust services and investment management income of
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
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
Legal and professional fees decreased
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.
[[Image Removed: fhn-20211231_g2.jpg]] 67 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
Amortization of intangible assets of$56 million in 2021 increased$16 million compared to 2020 primarily due to amortization tied to the intangible assets created from the IBKC merger.
Advertising and public relations of
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
Foundation in connection with the IBKC merger and a$15 million donation of Paycheck Protection Plan fees to theFirst Horizon Foundation to assist low- and moderate-income communities in 2020. Contributions in 2021 reflect an increase in other contributions to theFirst Horizon Foundation . The$52 million increase in other expense in 2021 was largely attributable to$19 million in derivative valuation adjustments on prior Visa Class B share sales and increases in customer relations, loan closing, fraud, and travel and entertainment expenses. Income Taxes FHN recorded income tax expense of$274 million in 2021 compared to$76 million in 2020, resulting in an effective tax rate of 21.4% and 8.2% respectively. The lower effective tax rate in 2020 was primarily the result of the purchase accounting gain from the IBKC merger, which was not included in taxable income. FHN's effective tax rate is favorably affected by recurring items such as bank-owned life insurance, tax-exempt income, and tax credits and other tax benefits from tax credit investments. The effective rate is unfavorably affected by the non-deductibility of portions of:FDIC premium, executive compensation and merger expenses. FHN's effective tax rate also may be affected by items that may occur in any given period but are not consistent from period to period, such as changes in unrecognized tax benefits. The rate also may be affected by items resulting from business combinations. A deferred tax asset or deferred tax liability is recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax consequence is calculated by applying current enacted statutory tax rates to these temporary differences in future years. FHN's net DTA was$52 million and less than$1 million atDecember 31, 2021 and 2020, respectively.
As of
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 ofDecember 31, 2021 and 2020, respectively. Based on current analysis, FHN believes that its ability to realize the DTA is more likely than not. FHN monitors its DTA and the need for a valuation allowance on a quarterly basis. A significant adverse change in FHN's taxable earnings outlook could result in the need for a valuation allowance. FHN and its eligible subsidiaries are included in a consolidated federal income tax return. FHN files separate returns for subsidiaries that are not eligible to be included in a consolidated federal income tax return. Based on the laws of the applicable states where it conducts business operations, FHN either files consolidated, combined, or separate returns. The statute of limitations for FHN's consolidated federal income tax returns remains open for tax years 2018 through 2020. Additionally, 2016 - 2017 could be subject to limited review related to refund claims filed. IBKC's federal consolidated tax returns for 2016, 2017 and 2018 are currently under examination by theIRS . 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.
Business Segment Results
During 2020, FHN reorganized its internal management structure and, accordingly, its segment reporting structure. Historically, FHN's primary business segments were Regional Banking, Fixed Income, Corporate, and Non-strategic. The closing of the FHN and IBKC merger of equals transaction prompted organizational changes to better integrate and execute the combined Company's 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
[[Image Removed: fhn-20211231_g2.jpg]] 68 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
additional disclosures related to FHN's operating segments.
Regional Banking
The Regional Banking segment generated pre-tax income of$1.3 billion in 2021 compared to$273 million in 2020, reflecting the impact of the IBKC merger and a decrease in the provision for credit losses resulting from improvement in the macroeconomic outlook, positive credit grade migration and lower loan balances. Net interest income increased$500 million , or 40%, in 2021, largely driven by merger-related earning asset growth. Results also reflect the benefit of lower deposit costs which helped to partially offset the impact of lower interest-earning asset yields and spreads.
Noninterest income increased
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
Net interest income increased
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
Corporate Pre-tax loss for the Corporate segment was$705 million for 2021 compared to pre-tax income of$122 million for 2020. Results for 2021 reflect a decline in revenue largely tied to the IBKC purchase accounting gain in 2020, a$215 million decrease in net interest income resulting from the impact of funds transfer pricing, and a$26 million loss on the redemption of legacy IBKC trust preferred securities in 2021. In addition, noninterest expense increased$94 million , largely attributable to merger and integration-related costs including asset impairments associated with the reduction of leased office space and banking center optimization as well as$19 million in derivative valuation adjustments on prior Visa Class B share sales.
Results of Operations-2020 compared to 2019
For a description of FHN's results of operations for 2020, see Results of Operations - 2020 compared to 2019 in Item 7 in the 2020 Form 10-K.
[[Image Removed: fhn-20211231_g2.jpg]] 69 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
Analysis of Financial Condition
The following table presents the carrying value of securities by category as of
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
FHN's investment portfolio consists principally of debt securities available for sale. FHN maintains a highly-rated securities portfolio consisting primarily of government agency issued mortgage-backed securities and collateralized mortgage obligations. The securities portfolio provides a source of income and liquidity and is an important tool used to balance the interest rate risk of the loan and deposit portfolios. The securities portfolio is periodically evaluated in light of established ALM objectives, changing market conditions that could affect the profitability of the portfolio, the regulatory environment, and the level of interest rate risk to which FHN is exposed. These evaluations may result in steps taken to adjust the overall balance sheet positioning. During the third quarter of 2021, in order to improve net
interest income and moderate a portion of its overly asset sensitive interest rate risk position, FHN began deploying excess cash into the investment portfolio by purchasing securities classified as held to maturity.
Investment securities were$9.4 billion and$8.1 billion onDecember 31, 2021 and 2020, representing 11% and 10% of total assets, respectively. See Note 3 -Investment Securities for more information about the securities portfolio.
The following table presents an analysis of the amortized cost, remaining contractual maturities, and weighted-average yields by contractual maturity for the debt securities portfolio.
[[Image Removed: fhn-20211231_g2.jpg]] 70 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
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 4.8 years.
(b) Weighted average yields were calculated using amortized cost on a fully-taxable equivalent basis, assuming a 25% tax rate where applicable.
Loans and Leases
Period-end loans and leases decreased$3.4 billion , or 6%, to$54.9 billion as ofDecember 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$46.2 billion in 2020 primarily from the full
year inclusion of acquired IBKC loans in 2021, offset by declines in PPP loans and other consumer real estate loan activity.
The following table provides detail regarding FHN's loans and leases:
Table 7.8
LOANS AND LEASES
2021 Growth 2020 Growth 2019 Growth
(Dollars in millions) 2021 Percent of total Rate 2020 (a) Percent of total Rate (a) 2019 Percent of total Rate
Commercial:
Commercial, financial, and industrial (b)$ 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
(b) Includes equipment financing loans and leases.
[[Image Removed: fhn-20211231_g2.jpg]] 71 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
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$978 million , attributable to Regional Banking growth. Growth in other specialty lending areas within Specialty Banking, such as real estate rental and leasing, also meaningfully contributed to the overall growth in non-PPP C&I loans from 2020. Commercial real
estate loans decreased 1% to
Total consumer loans decreased 9%, or
The following table provides detail of contractual maturities atDecember 31, 2021 . Table 7.9 CONTRACTUAL MATURITIES OF LOANS AND LEASES After 1 Year After 5 Years Within 5 Within 15 (Dollars in millions) Within 1 Year Years Years After 15 Years Total Commercial, financial, and industrial$ 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
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
Total maturities over one year$ 22,876
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 inU.S. home mortgages but can also consist of junior lien and jumbo loans secured by residential property. These loans are primarily sold to private companies that are unaffiliated with the GSEs on a servicing-released basis.
The legacy FHN loans HFS portfolio consists of small business, other consumer
loans, mortgage warehouse,
[[Image Removed: fhn-20211231_g2.jpg]] 72 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
OnDecember 31, 2021 , loans HFS were$1.2 billion , a$150 million increase compared toDecember 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
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 theExecutive 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
[[Image Removed: fhn-20211231_g2.jpg]] 73 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
underwriting process and when determining the assignment of internal loan grades. Reliance on the guaranty as a viable secondary source of repayment is a function of an analysis proving capability to pay, factoring in, among other things, liquidity and direct/indirect cash flows. FHN also considers the volume and amount of guaranties provided for all global indebtedness and the likelihood of realization. FHN presumes a guarantor's willingness to perform until there is any current or prior indication or future expectation that the guarantor may not willingly and voluntarily perform under the terms of the guaranty. In FHN's risk grading approach, it is deemed that financial support becomes necessary generally at a point when the loan would otherwise be graded substandard, reflecting a well-defined weakness. At that point, provided willingness and capacity to support are appropriately demonstrated, a strong, legally enforceable guaranty can mitigate the risk of default or loss, justify a less severe rating, and consequently reduce the level of allowance or charge-off that might otherwise be deemed appropriate.
C&I
The C&I portfolio totaled$31.1 billion as ofDecember 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 fromDecember 31, 2020 . Excluding PPP loans, C&I growth was$978 million , or 3%. The largest geographical concentrations of balances as ofDecember 31, 2021 were inTennessee (20%),Florida (12%),Texas (10%),North Carolina (7%),Louisiana (7%),California (7%), andGeorgia (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 ofDecember 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 theU.S. business economy.
[[Image Removed: fhn-20211231_g2.jpg]] 74 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
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 ofDecember 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, onDecember 31, 2021 , FHN did not have any other concentrations of C&I loans in any single industry of 10% or more of total loans.
Loans to Mortgage Companies
The balance of loans to mortgage companies was 15% of the C&I portfolio as ofDecember 31, 2021 , and 16% of the C&I portfolio as ofDecember 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 ofDecember 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 ofDecember 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 theSmall 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 ofDecember 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 ofDecember 31, 2021 , and FHN assigned a risk weight of zero to PPP loans for regulatory capital purposes.
[[Image Removed: fhn-20211231_g2.jpg]] 75 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
For these loans, there were remaining net lender fees of approximately$17 million to be paid to FHN as ofDecember 31, 2021 . During 2021, FHN continued to work with its clients that have applied for and received PPP loan forgiveness. ThroughDecember 31, 2021 , approximately$5 billion of the original$6 billion in PPP loans originated by FHN andIBERIABANK prior to acquisition had been forgiven by the SBA.
The CRE portfolio totaled
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, sinceJanuary 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 ofDecember 31, 2021 were inFlorida (26%),Texas (12%),North Carolina (11%),Louisiana (10%),Tennessee (9%), andGeorgia (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
The consumer real estate portfolio totaled
The largest geographical concentrations of balances in the consumer real estate portfolio as ofDecember 31, 2021 were inFlorida (32%),Tennessee (23%),Louisiana (10%),North Carolina (8%),Texas (7%), andNew York (5%), with no other state representing more than 5% of the portfolio. As ofDecember 31, 2021 , approximately 87% of the consumer real estate portfolio was in a first lien position. As ofDecember 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 ofDecember 31, 2020 . Generally, performance of this portfolio is affected by life events that affect borrowers' finances, the level of unemployment, and home prices.
[[Image Removed: fhn-20211231_g2.jpg]] 76 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
As ofDecember 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 ofDecember 31, 2021 andDecember 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
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
Repayment Repayment
(Dollars in millions) Amount Percent 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.
[[Image Removed: fhn-20211231_g2.jpg]] 77 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
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 ofDecember 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
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
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
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
[[Image Removed: fhn-20211231_g2.jpg]] 78 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
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
[[Image Removed: fhn-20211231_g2.jpg]] 79 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
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
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.
[[Image Removed: fhn-20211231_g2.jpg]] 80 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
(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
(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(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 ofDecember 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.
[[Image Removed: fhn-20211231_g2.jpg]] 81 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
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
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
To the extent that loans were past due as of
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 ofDecember 31, 2021 , an increase of$23 million compared toDecember 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 ofDecember 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.
[[Image Removed: fhn-20211231_g2.jpg]] 82 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
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,
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 fromDecember 31, 2020 to$597 million onDecember 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
[[Image Removed: fhn-20211231_g2.jpg]] 83 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
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, theLoan 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 theU.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 onDecember 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 ofDecember 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.
[[Image Removed: fhn-20211231_g2.jpg]] 84 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
The following table provides a summary of TDRs for the periods ended
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
Deposits
Total deposits were$74.9 billion as ofDecember 31, 2021 , up$4.9 billion from$70.0 billion as ofDecember 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
[[Image Removed: fhn-20211231_g2.jpg]] 85 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
Table 7.18
DEPOSITS
2021 Growth 2020 Growth
(Dollars in millions) 2021 Percent of Total Rate 2020 Percent of Total 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)
Portion of
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 ofDecember 31, 2021 andDecember 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 onDecember 31, 2021 , an$80 million decrease from$1.7 billion onDecember 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.
[[Image Removed: fhn-20211231_g2.jpg]] 86 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents 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 onDecember 31, 2021 from$8.3 billion onDecember 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,
The following tables provide a reconciliation of shareholders' equity from the Consolidated Balance Sheets to Common Equity Tier 1, Tier 1 andTotal 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
[[Image Removed: fhn-20211231_g2.jpg]] 87 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
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
For bothFHN 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 ofDecember 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 bothFHN and First Horizon Bank decreased fromDecember 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
[[Image Removed: fhn-20211231_g2.jpg]] 88 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
For 2021,FHN and First Horizon Bank completed a company run stress test using the Comprehensive Capital Analysis and Review (CCAR) Resubmission scenarios published inFebruary 2021 . Results of these tests indicate that bothFHN 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 onJune 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
OnJanuary 23, 2018 , FHN announced a$250 million share purchase authority with an expiration date ofJanuary 31, 2020 . OnJanuary 29, 2019 , FHN announced a$250 million increase in that authority (to$500 million total) along with an extension of the expiration date toJanuary 31, 2021 . The 2018 program has been terminated, as described in the next paragraph.
On
the 2018 program, which was terminated. OnOctober 26, 2021 , FHN announced that the 2021 program had been increased by$500 million and extended toOctober 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
Table 7.22a
COMMON STOCK PURCHASES-GENERAL PROGRAM
Total number of Maximum approximate
(Dollar values and volume in Total number shares purchased dollar value that may
thousands, except per share of shares Average price as part of publicly yet be purchased under
data) purchased paid per share (a) announced programs 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 onAugust 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 throughJanuary 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 beforeDecember 31, 2023 . Purchases may be
[[Image Removed: fhn-20211231_g2.jpg]] 89 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
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 ofDecember 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 Total number of Maximum number Total number shares purchased of shares that may (Volume in thousands, except per of shares Average price as part of publicly yet be purchased share data) purchased paid per share announced programs 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 FHN to business strategy and reputational, liquidity, market, capital adequacy, operational, compliance, legal, and credit risks that require ongoing oversight and management. FHN has an enterprise-wide approach to risk governance, measurement, management, and reporting including an economic capital allocation process that is tied to risk profiles used to measure risk-adjusted returns. Through an enterprise-wide risk governance structure and a statement of risk appetite approved by the Board, management continually evaluates the balance of risk/return and earnings volatility with shareholder value. FHN's enterprise-wide risk governance structure begins with the Board. The Board, working with theExecutive & Risk Committee of the Board, establishes FHN's risk appetite by approving policies and limits that provide standards for the nature and the level of risk FHN is willing to assume. The Board regularly receives reports on management's performance against FHN's risk appetite primarily through the Board's Executive & Risk and Audit Committees. To further support the risk governance provided by the Board, FHN has established accountabilities, control processes, procedures, and a management governance structure designed to align risk management with risk-taking throughout FHN. The control procedures are aligned with FHN's four components of risk governance: (1) Specific Risk Committees; (2) theRisk 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 andChief 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
[[Image Removed: fhn-20211231_g2.jpg]] 90 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
and senior management to focus management on key risks in FHN and emerging trends that may change FHN's risk profile. The Chief Risk Officer has overall responsibility and accountability for enterprise risk management and aggregate risk reporting. 3.Business Unit Risk Management: FHN's business units are responsible for identifying, acknowledging, quantifying, mitigating, and managing all risks arising within their respective units. They determine and execute their business strategies, which puts them closest to the changing nature of risks and they are best able to take the needed actions to manage and mitigate those risks. The business units are supported by the risk management organization that helps identify and consider risks when making business decisions. Management processes, structure, and policies are designed to help ensure compliance with laws and regulations as well as provide 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 Board. Internal Audit reports quarterly to the Audit Committee of the Board, while CAS reports quarterly to theExecutive & Risk Committee of the Board. Compliance Testing and Model Validation report to the Chief Risk Officer and report annually to the Audit Committee of the Board.
Market Risk Management
Market risk is the risk that changes in market conditions will adversely impact the value of assets or liabilities, or otherwise negatively impact FHN's earnings. Market risk is inherent in the financial instruments associated with FHN's operations, primarily trading activities within FHN Financial, but also through non-trading activities which are primarily affected by interest rate risk that is managed by the ALCO within FHN. FHN is exposed to market risk related to the trading securities inventory and loans held for sale maintained by FHN Financial in connection with its fixed income distribution activities. Various types of securities inventory positions are procured for distribution to clients by the sales staff. When these securities settle on a delayed basis, they are considered forward contracts. Refer to the "Determination of Fair Value - Trading securities and trading liabilities" section of Note 24 - Fair Value of Assets and Liabilities, which section is incorporated into this MD&A by this reference. FHN's market risk appetite is approved by theExecutive & Risk Committee of the Board of Directors and executed through management policies and procedures of ALCO and the FHN Financial Risk Committee. These policies contain various market risk limits including, for example, VaR limits for the trading securities inventory, and individual position limits and sector limits for products with credit risk, among others. Risk measures are computed and reviewed on a daily basis to ensure compliance with market risk management policies.
Value-at-Risk and Stress Testing
VaR is a statistical risk measure used to estimate the potential loss in value from adverse market movements over an assumed fixed holding period within a stated confidence level. FHN employs a model to compute daily VaR measures for its trading securities inventory. FHN computes VaR using historical simulation with a 1-year lookback period at a 99% confidence level with 1-day and 10-day time horizons. Additionally, FHN computes a Stressed VaR measure. The SVaR computation uses the same model but with model inputs reflecting historical data from a continuous 12-month period that reflects a period of significant financial stress appropriate for our trading securities portfolio.
A summary of FHN's VaR and SVaR measures for 1-day and 10-day time horizons is presented in the following table:
[[Image Removed: fhn-20211231_g2.jpg]] 91 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
Table 7.23
VaR & SVaR MEASURES
Year Ended December 31, 2021 As of
(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 (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 7.24
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
The potential risk of loss reflected by FHN's VaR measures assumes the trading
securities inventory is static. Because FHN Financial procures fixed income
securities for purposes of distribution to clients, its trading securities
inventory turns over regularly. Additionally, FHNF traders actively manage the
trading securities inventory continuously throughout each trading day.
Accordingly, FHNF's trading securities inventory is highly dynamic, rather than
static. As a result, it would be rare for FHNF to incur a negative revenue day
in its fixed income activities at the levels indicated by its VaR measures.
In addition to being used in FHN's daily market risk management process, the VaR
and SVaR measures are also used by FHN in computing its regulatory market risk
capital requirements in accordance with the Market Risk Capital rules. For
additional information regarding FHN's capital adequacy refer to the Capital
section of this MD&A.
FHN also performs stress tests on its trading securities portfolio to calculate the potential loss under various
assumed market scenarios. Key assumed stresses used in those tests are:
Down 25 bps - assumes an instantaneous downward move in interest rates of 25 basis points at all points on the interest rate yield curve.
Up 25 bps - assumes an instantaneous upward move in interest rates of 25 basis points at all points on the interest rate yield curve.
Curve flattening - assumes an instantaneous flattening of the interest rate yield curve through an increase in short-term rates and a decrease in long-term rates. The 2-year point on theTreasury yield curve is assumed to increase 15 basis points and the 10-year point on theTreasury 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-
[[Image Removed: fhn-20211231_g2.jpg]] 92 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
term rates. The 2-year point on theTreasury yield curve is assumed to decrease 15 basis points and the 10-year point on theTreasury 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
Model Validation
Trading risk management personnel within FHN Financial have primary responsibility for model risk management
with respect to the model used by FHN to compute its VaR measures and perform stress testing on the trading inventory. Among other procedures, these personnel monitor model results and perform periodic backtesting as part of an ongoing process of validating the accuracy of the model. These model risk management activities are subject to annual review byFHN's Model Validation Group , an independent assurance group charged with oversight responsibility for FHN's model risk management.
Interest Rate Risk Management
Interest rate risk is the risk to earnings or capital arising from movement in interest rates. ALCO is responsible for overseeing the management of existing and emerging interest rate risk for the company within risk tolerances established by the Board. FHN primarily manages interest rate risk by structuring the balance sheet to maintain a desired level of associated earnings and to protect the economic value of FHN's capital. Net interest income and the value of equity are affected by changes in the level of market interest rates because of the differing repricing characteristics of assets and liabilities, the exercise of prepayment options held by loan clients, the early withdrawal options held by deposit clients, and changes in the basis between and changing shapes of the various yield curves used to price assets and liabilities. To isolate the repricing, basis, option, and yield curve components of overall interest rate risk, FHN employs Gap, Earnings at Risk, and Economic Value of Equity analyses generated by a balance sheet simulation model.
Net Interest Income Simulation Analysis
The information provided in this section, including the discussion regarding the outcomes of simulation analysis and rate shock analysis, is forward-looking. Actual results, if the assumed scenarios were to occur, could differ because of interest rate movements, the ability of management to execute its business plans, and other factors, including those presented in the Forward-Looking Statements section of this Report. Management uses a simulation model to measure interest rate risk and to formulate strategies to improve balance sheet positioning, earnings, or both, within FHN's interest rate risk, liquidity, and capital guidelines. Interest rate exposure is measured by forecasting 12 months of NII under various interest rate scenarios and comparing the percentage change in NII for each scenario to a base case scenario where interest rates remain unchanged. Assumptions are made regarding future balance sheet composition, interest rate movements, and loan and 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 ofDecember 31, 2021 , NII exposures over the next 12 months assuming rate shocks of plus 25 basis points, 50 basis points, 100 basis points, and 200 basis points are estimated to have favorable variances as shown in the table below. Table 7.25 INTEREST RATE SENSITIVITY Shifts in Interest Rates (in bps) % Change in Projected Net Interest Income +25 3.7% +50 7.6% +100 16.4% +200 29.5% A steepening yield curve scenario where long-term rates increase by 50 basis points and short-term rates are static, results in a favorable NII variance of 0.8%. A flattening yield curve scenario where long-term rates decrease by 50 basis points and short-term rates are static, results in an unfavorable NII variance of 1.1%. Rate shocks of minus 25 basis points and 50 basis points result in unfavorable NII variances of 1.9% and 2.7%, assuming the absence of negative rates. These hypothetical scenarios are used to create a risk measurement framework, and do not necessarily represent management's current view of future interest rates or market developments.
FHN's net interest income has been impacted by the disruption from the COVID-19 pandemic and its variants as well as the low-rate environment. The impact of
[[Image Removed: fhn-20211231_g2.jpg]] 93 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
government stimulus programs and other developments have also influenced net interest income results, although the impacts from these programs have abated, and interest rates are expected to increase in the future. FHN continues to monitor current economic trends and potential exposures closely.
Fair Value Shock Analysis
Interest rate risk and the slope of the yield curve also affect the fair value of FHN's trading inventory that is reflected in noninterest income.
Generally, low or declining interest rates with a positively sloped yield curve tend to increase income through higher demand for fixed income products. Additionally, the fair value of FHN's trading inventory can fluctuate as a result of differences between current interest rates and the interest rates of fixed income securities in the trading inventory.
Derivatives
In the normal course of business, FHN utilizes various financial instruments (including derivative contracts and
credit-related agreements) to manage the risk of loss arising from adverse changes in the fair value of certain financial instruments generally caused by changes in interest rates, including FHN's securities inventory, certain term borrowings, and certain loans. Additionally, FHN may enter into derivative contracts in order to meet clients' needs. However, such derivative contracts are typically offset with a derivative contract entered into with an upstream counterparty in order to mitigate risk associated with changes in interest rates. The simulation models and related hedging strategies discussed above exclude the dynamics related to how fee income and noninterest expense may be affected by actual changes in interest rates or expectations of changes. See Note 22 - Derivatives for additional discussion of these instruments.
Capital Risk Management & Adequacy
The capital management objectives of FHN are to provide capital sufficient to cover the risks inherent in FHN's businesses, to maintain excess capital to well-capitalized standards and Board policy, and to assure ready access to the capital markets.The Capital & Stress Testing Committee , chaired by the Corporate Treasurer, reports to ALCO and is responsible for capital management oversight and provides a forum for addressing management issues related to capital adequacy. This committee reviews sources and uses of capital, key capital ratios, segment economic capital allocation methodologies, coordinates the annual enterprise-wide stress testing process, and other factors in monitoring and managing current capital levels, as well as potential future sources and uses of capital.The Capital & Stress Testing Committee also recommends capital management policies, which are submitted for approval to ALCO and theExecutive & Risk Committee and the Board as necessary.
Operational Risk Management
Operational risk is the risk of loss from inadequate or failed internal processes, people, or systems or from external events including data or network security breaches of FHN or of third parties affecting FHN or its clients. This risk is inherent in all businesses. Operational risk is divided into the following risk areas, which have been established at the corporate level to address these risks across the entire organization:
•Business Resilience
•Records Management
•Compliance/Legal (including Bank Secrecy Act)
•Program Governance •Fiduciary •Security/Fraud
•Financial (including disclosure controls and procedures)
•Information Technology (including cybersecurity)
•Model •Vendor •Insurance Management, measurement, and reporting of operational risk are overseen by the Operational Risk, Fiduciary, Financial Governance, FHN Financial Risk, and Strategic Investment Board Committees. Key representatives from the business segments, operating units, and supporting units are represented on these committees as appropriate. These governance committees manage the individual operational risk types across FHN by setting standards, monitoring activity, initiating actions, and reporting exposures and results. Key Committee activities and decisions are reported to the appropriate governance committee or included in the Enterprise Risk Report, a quarterly analysis of risk within the organization that is provided to theExecutive 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.
[[Image Removed: fhn-20211231_g2.jpg]] 94 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
Compliance Risk Management
Compliance risk is the risk of legal or regulatory sanctions, material financial loss, or loss to reputation as a result of failure to comply with laws, regulations, rules, self-regulatory organization standards, and codes of conduct applicable to FHN's activities. Management, measurement, and reporting of compliance risk are overseen by the Operational Risk Committee and other key Corporate Governance Committees. Key executives from the business segments, legal, compliance, risk management, and service functions are represented on the Committees. Summary reports of Committee activities and decisions are provided to the appropriate governance committees. Reports include the status of regulatory activities, internal compliance program initiatives, compliance testing results and evaluation of emerging compliance risk areas. Credit Risk Management
Credit risk is the risk of loss due to adverse changes in a borrower's or counterparty's ability to meet its financial obligations under agreed upon terms. FHN is subject to credit risk in lending, trading, investing, liquidity/funding, and asset management activities although lending activities have the most exposure to credit risk. The nature and amount of credit risk depends on the types of transactions, the structure of those transactions, collateral received, the use of guarantors and the parties involved.
FHN assesses and manages credit risk through a series of policies, processes, measurement systems, and controls. The Credit Risk Management Committee is responsible for overseeing the management of existing and emerging credit risks in the company within the broad risk tolerances established by the Board. The CRMC reports through the Management Risk Committee. The Credit Risk Management function, led by the Chief Credit Officer, provides strategic and tactical credit leadership by maintaining policies, overseeing credit approval, assessing new credit products, strategies and processes, and managing portfolio composition and performance. While the Credit Risk function oversees FHN's credit risk management, there is significant coordination between the business lines and the Credit Risk function in order to manage FHN's credit risk and maintain strong asset quality. The Credit Risk function recommends portfolio, industry/sector, and individual client limits to theExecutive & 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 credit losses. The CRMC reviews on a periodic basis various reports issued by assurance functions which provide an independent assessment of the adequacy of loan servicing, grading accuracy, and other key functions. Additionally, CRMC is presented with and discusses various portfolios, lending activity and lending-related projects. All of the above activities are subject to independent review byFHN'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 theExecutive & Risk Committee of the Board. CAS is charged with providing theExecutive & Risk Committee of the Board and executive management with independent, objective, and timely assessments of FHN's portfolio quality, credit policies, and credit risk management processes.
Liquidity Risk Management
Among other things, ALCO is responsible for liquidity management: the funding of assets with liabilities of appropriate duration, while mitigating the risk of unexpected cash needs. ALCO and the Board of Directors have adopted a Liquidity Policy of which the objective is to ensure that FHN meets its cash and collateral obligations promptly, in a cost-effective manner and with the highest degree of reliability. The maintenance of adequate levels of asset and liability liquidity should provide FHN with the
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
[[Image Removed: fhn-20211231_g2.jpg]] 95 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
time forecasting methodology. Base liquidity forecasts are reviewed by ALCO and are updated as financial conditions dictate. In addition to the baseline liquidity reports, robust stress testing of assumptions and funds availability are periodically reviewed. FHN maintains a contingency funding plan that may be executed should unexpected difficulties arise in accessing funding that affects FHN, the industry, or both. Subject to market conditions and compliance with applicable regulatory requirements from time to time, funds are available from a number of sources, including the available-for-sale securities portfolio, dealer and commercial customer repurchase agreements, access to the overnight and term Federal Funds markets, incremental borrowing capacity at the FHLB ($14.5 billion was available atDecember 31, 2021 ), brokered deposits, loan sales, syndications, and access to theFederal Reserve Bank . Core deposits are a significant source of funding and have historically been a stable source of liquidity for banks. Generally, core deposits represent funding from a financial institution's client base which provides inexpensive, predictable pricing. TheFDIC insures these deposits to the extent authorized by law. Generally, these limits are$250,000 per account owner for interest-bearing and noninterest-bearing accounts. The ratio of average loans, excluding loans HFS and restricted real estate loans, to average core deposits was 80% onDecember 31, 2021 compared to 99% onDecember 31, 2020 . FHN may also use unsecured short-term borrowings as a source of liquidity. Federal funds purchased from correspondent bank clients are considered to be substantially more stable than funds purchased in the national broker markets for federal funds due to the long, historical, and reciprocal nature of banking services provided by FHN to these correspondent banks. The remainder of FHN's wholesale short-term borrowings consists of securities sold under agreements to repurchase transactions accounted for as secured borrowings with business clients or broker dealer counterparties. BothFHN and First Horizon Bank have the ability to generate liquidity by issuing senior or subordinated unsecured debt, preferred equity, and common equity, subject to market conditions and compliance with applicable regulatory requirements. InMay 2021 , FHN issued$150 million of Series F Non-Cumulative Perpetual Preferred Stock and inJuly 2021 redeemed its$100 million Series A Non-Cumulative Perpetual Preferred Stock. As ofDecember 31, 2021 , FHN had outstanding$1.3 billion in senior and subordinated unsecured debt and$520 million in non-cumulative perpetual preferred stock. As ofDecember 31, 2021 ,First Horizon Bank and subsidiaries had outstanding preferred shares of$295 million , which are reflected as noncontrolling interest on the Consolidated Balance Sheet. Parent company liquidity is primarily provided by cash flows stemming from dividends and interest payments collected from subsidiaries. These sources of cash represent the primary sources of funds to pay cash dividends to shareholders and principal and interest to debt holders of FHN. The amount paid to the parent company throughFirst 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 ofFirst 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 allowFirst Horizon Bank to declare preferred or common dividends without prior regulatory approval in an aggregate amount equal toFirst Horizon Bank's retained net income for the two most recently completed years plus the current year-to-date period. For any period,First Horizon Bank's "retained net income" generally is equal toFirst Horizon Bank's regulatory net income reduced by the preferred and common dividends declared byFirst Horizon Bank . Applying the dividend restrictions imposed under applicable federal and state rules as outlined above, the Bank's total amount available for dividends was$1.1 billion as ofJanuary 1, 2022 . Consequently, on that date the Bank could pay common dividends up to that amount to its sole common shareholder, FHN, or to its preferred shareholders without prior regulatory approval. Additionally, a capital conservation buffer must be maintained (as described in the Capital section of this Report) to avoid restrictions on dividends. FirstHorizon Bank declared and paid common dividends to the parent company in the amount of$770 million in 2021 and$180 million in 2020. InJanuary 2022 ,First Horizon Bank declared and paid a common dividend to the parent company in the amount of$180 million . FirstHorizon Bank paid preferred dividends in each quarter of 2021 and 2020 and declared preferred dividends in the first quarter of 2022 which are payable inApril 2022 . Payment of a dividend to shareholders of FHN is dependent on several factors which are considered by the Board. These factors include FHN's current and prospective capital, liquidity, and other needs, as well as applicable regulatory restrictions (including capital conservation buffer requirements) and availability of funds to FHN through a dividend fromFirst Horizon Bank . Additionally, banking regulators generally require insured banks and bank holding companies to pay cash dividends only out of current operating earnings. Consequently, the decision of whether FHN will pay future dividends and the amount of dividends will be affected by current operating results. FHN paid a cash dividend of$0.15 per common share onJanuary 3, 2022 . FHN paid cash dividends of$1,625 per Series E preferred share and$1,175 per Series F preferred
[[Image Removed: fhn-20211231_g2.jpg]] 96 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
share onJanuary 10, 2022 and$331.25 per Series B preferred share and$165 per Series C preferred share onFebruary 1, 2022 . In addition, inJanuary 2022 , the Board approved cash dividends per share in the following amounts: Table 7.26 CASH DIVIDENDS APPROVED BUT NOT PAID Dividend/Share Record Date Payment Date 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 party 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 ofDecember 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
- 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
(b)Amounts do not include interest.
(c)See Note 9 - Deposits for further details.
(d)See Note 11 - Term Borrowings for further details.
(e)See Note 6 - Premises, Equipment and Leases for further details.
Credit Ratings
FHN is currently able to fund a majority of the balance sheet through core deposits, which are generally not as sensitive to FHN's credit ratings as other types of funding. However, maintaining adequate credit ratings on debt issues and preferred stock is critical to liquidity should FHN need to access funding from other sources, including from long-term debt issuances and certain brokered deposits, at an attractive rate. The availability and cost of funds other than core deposits is also dependent upon marketplace perceptions of the financial soundness of FHN, which include such factors as capital levels, asset quality, and reputation. The availability of core deposit funding is stabilized by federal deposit insurance, which can be removed only in extraordinary circumstances, but may also be influenced to some extent by the same factors that affect other funding sources. FHN's credit ratings are also referenced in various respects in
[[Image Removed: fhn-20211231_g2.jpg]] 97 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
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
Moody's (a) Fitch (b)
First Horizon Corporation
Overall credit rating: Long-term/Short-term/Outlook Baa3/--/Stable BBB/F2/Positive
Long-term senior debt Baa3 BBB
Subordinated debt (c) Baa3 BBB-
Junior subordinated debt (c) Ba1 BB-
Preferred stock Ba2 BB-
First
Overall credit rating: Long-term/Short-term/Outlook Baa3/P-2/Stable BBB/F2/Positive
Long-term/short-term deposits A3/P-2 BBB+/F2
Long-term/short-term senior debt (c) Baa3/P-2 BBB/F2
Subordinated debt Baa3 BBB-
Preferred stock Ba2 BB-
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
(b) Last change in ratings was on
(c) Ratings are preliminary/implied.
Repurchase Obligations
Prior toSeptember 2008 , legacyFirst Horizon originated loans through its pre-2009 mortgage business, primarily first lien home loans, with the intention of selling them. As discussed in Note 17 - Contingencies and Other Disclosures, FHN's principal remaining exposures for those activities relate to (i) indemnification claims by underwriters, loan purchasers, and other parties which assert that FHN-originated loans caused or contributed to losses which FHN is legally obliged to indemnify, and (ii) indemnification or other claims related to FHN's servicing of pre-2009 mortgage loans. 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.
[[Image Removed: fhn-20211231_g2.jpg]] 98 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
Repurchase and Foreclosure Liability
FHN's repurchase and foreclosure liability, primarily related to its pre-2009 mortgage business, is comprised of accruals to cover estimated loss content in the active pipeline (consisting of mortgage loan repurchase, make-whole, foreclosure/servicing demands and certain related exposures), estimated future inflows, and estimated loss content related to certain known claims not currently included in the active pipeline. The liability contemplates repurchase/make-whole and damages obligations and estimates for probable incurred losses associated with loan populations excluded from the settlements with the GSEs, as well as other whole loans sold, mortgage insurance cancellations rescissions, and loans included in bulk servicing sales effected prior to the settlements with the GSEs. FHN compares the estimated probable incurred losses determined under the applicable loss estimation approaches for the respective periods with current reserve levels. Changes in the estimated required liability levels are recorded as necessary through the repurchase and foreclosure provision. The repurchase and foreclosure liability was$17 million and$16 million as ofDecember 31, 2021 and 2020, respectively.
Market Uncertainties & Prospective Trends
FHN's future results could be affected both positively and negatively by several known trends. Key among those are changes in theU.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, changes in federal policies (including those publicly discussed, formally proposed, or recently implemented) and the potential impacts of those changes on our businesses and clients, and whether FHN's strategic initiatives will succeed.
Federal Reserve Policy in Transition
InMarch 2020 , theFederal Reserve "eased" by lowering short-term interest rates and starting an asset purchase program intended to lower longer-term interest rates and foster access to credit. The effective yields of 10-year and 30-yearU.S. Treasury securities achieved record low rates. These changes in interest rates and the volatility in the market negatively impacted FHN's net interest margin. Amortization of net processing fees related to government relief programs associated with the COVID-19 pandemic, including the Paycheck Protection Program, offset a portion of the net interest margin decline.
During 2021, easing policy continued. For most of the year interest rates
fluctuated but remained very low, continuing to adversely impact FHN's net
interest margin. Late in 2021 the
which no further asset purchases will be made, and that hikes in short-term rates will commence in 2022, possibly in the first quarter. FHN cannot predict whether short term interest rates will be raised during the taper period or at any other point in time. Long term interest rates started to rise late in 2021, continuing in 2022, though they remain very low by historical standards. Public expectations related to tapering, coupled with publicFederal Reserve comments and concerns about inflation in theU.S. , likely have been significant contributors to recent changes in long-term rates. Recently theFederal Reserve has indicated an expectation to reduce its asset holdings in 2022 after purchases have stopped. Although not currently expected, it is possible that theFederal Reserve may decide to sell assets, rather than merely letting them mature, in an effort to increase long term interest rates more quickly or more robustly.
COVID-19 Pandemic
The COVID-19 pandemic caused extraordinary disruption that negatively impacted the economy and business activity, especially lending (other than lending related to home mortgages). The impact of the pandemic on FHN's performance is discussed further in Results of Operations within this Item 7 beginning on page
63 . During the course of 2021, FHN saw the lending pipeline improve in several areas (unrelated to home mortgages) as COVID-19 restrictions were partially or fully eased in most of FHN's
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.
[[Image Removed: fhn-20211231_g2.jpg]] 99 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
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 world for many years. A substantial majority of FHN's
floating rate loans use LIBOR, denominated in U.S. Dollars ("USD"), as the
reference rate to determine the interest rate paid by the client/borrower. In
addition, certain floating-rate securities issued by FHN use USD LIBOR as the
reference rate.
LIBOR is based on a mix of transaction-based data and expert judgment about market conditions. It is published in different tenors, which are time periods such as 1-week, 1-month, 12-month, etc.
LIBOR Discontinuance
About a decade ago, evidence emerged that some members of the panel that set LIBOR may have manipulated the published LIBOR rates rather than using strictly good-faith judgments. Several banks were fined. In 2017, the Chief Executive of theUnited Kingdom Financial Conduct Authority (the "FCA")-the governmental regulator of LIBOR-announced that it intends to halt persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. In 2021, theFCA 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
•All other USD LIBOR tenors (e.g., overnight, 1-month, 3-month, 6-month and
12-month tenors) will not be published after
In 2020, the
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
•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
•Prime. Although traditional prime rates (with each bank setting its own) are not likely to regain the prominence they had decades ago whenU.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 inNovember 2021 . In accordance with theU.S. regulatory position, FHN ceased entering into new LIBOR based contracts as ofDecember 31, 2021 . Other alternative reference rates are being developed and FHN may consider them at a future time.
[[Image Removed: fhn-20211231_g2.jpg]] 100 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
Each alternative reference rate has advantages and disadvantages compared with other alternatives in various circumstances. Despite being supported by theFederal Reserve's ARRC, SOFR may not gain the level of market acceptance and usage that USD LIBOR enjoyed within theU.S. Key aspects of SOFR that support this view are: (a) SOFR fundamentally is an overnight rate, and so is not easily or reliably translated into typical LIBOR tenors; and (b) SOFR is both secured and riskless, and so does not necessarily track a bank's cost of funds very well. For a bank, it is critical to avoid significant mismatches over time between its (variable) cost of funds and its (variable) interest income. Term SOFR attempts to address some of these shortcomings, but not all of them. All of the alternative reference rates selected by FHN to date meet theInternational Organization of Securities Commissions (IOSCO) Principles for Financial Benchmarks , as affirmed by the rate administrator and/or an independent auditor. While banking regulators have stated that banks are free to choose the index rates they offer clients, some public sector officials have urged caution in using the new credit sensitive alternative reference rates, primarily due to the robustness of underlying data used to derive the rates. More specifically, there is concern of an "inverted pyramid" effect where a large number of financial contracts could be priced using an index derived from a relatively low volume of transactions. In an interagency statement onOctober 20, 2021 ,U.S. banking regulatory agencies noted that "supervised institutions should understand how their chosen reference rate is constructed and be aware of any fragilities associated with that rate and the markets that underlie it". IOSCO has also warned of the potential for the "inverted pyramid" problem and will monitor how the IOSCO label is used by administrators. FHN is monitoring the credit sensitive reference rates and regulatory guidance around use of such rates. FHN plans to limit use of credit sensitive rates to commercial loans (~2% of global USD LIBOR market) and related customer swaps (pending development of derivatives markets for these rates). Additionally, FHN expects that each financial contract will contain fallback language to guide transition from a credit sensitive rate to an alternative should that action be deemed necessary in the future.
FHN's Actions to Date & Transition Plans
Starting in 2019, legacyFirst Horizon and legacyIBERIABANK 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 inNovember 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 theJune 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
Table 7.29
LIBOR EXPOSURES
As of Mature after
(Dollars in billions) December 31, 2021 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
FHN is assessing the potential impacts on LIBOR-based securities and derivative instruments.
[[Image Removed: fhn-20211231_g2.jpg]] 101 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents 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
On
Critical Accounting Policies & Estimates
Allowance for Loan and Lease Losses
Management's policy is to maintain the ALLL at a level sufficient to absorb expected credit losses in the loan and lease portfolio. Management performs periodic and systematic detailed reviews of its loan and lease portfolio to identify trends and to assess the overall collectability of the portfolio. Management believes the accounting estimate related to the ALLL is a "critical accounting estimate" as: (1) changes in it can materially affect the provision for loan and lease losses and net income, (2) it requires management to predict borrowers' likelihood or capacity to repay, including evaluation of inherently uncertain future economic conditions, (3) prepayment activity must be projected to estimate the life of loans that often are shorter than contractual terms, (4) it requires estimation of a reasonable and supportable forecast period for credit losses for loan portfolio segments before reversion to historical loss levels over the remaining life of a loan and (5) expected future recoveries of amounts previously charged off must be estimated. Accordingly, this is a highly subjective process and requires significant judgment since it is difficult to evaluate current and future economic conditions in relation to an overall credit cycle and estimate the timing and extent of loss events that are expected to occur prior to end of a loan's and leases's estimated life. FHN believes that the principal assumptions underlying the accounting estimates made by management include: (1) the commercial loan portfolio has been properly risk graded based on information about borrowers in specific industries and specific issues with respect to single borrowers; (2) borrower specific information made available to FHN is current and accurate; (3) the loan portfolio has been segmented properly and individual loans have similar credit risk characteristics and will behave similarly; (4) the lives for loan portfolio pools have been estimated properly, including consideration of expected prepayments; (5) the economic forecasts utilized and associated weighting selected by management in the modeling of expected credit losses are reflective of future economic conditions; (6) entity-specific historical loss information has been properly assessed for all loan portfolio segments as the initial basis for estimating expected credit losses; (7) the reasonable and supportable periods for loan portfolio segments have been properly determined; (8) the reversion methodologies and timeframes for migration from the reasonable and supportable period to the use of historical loss rates are reasonable; (9) expected recoveries of prior charge off amounts have been properly estimated; and (10) qualitative adjustments to modeled loss results reasonably reflect expected future credit losses as of the date of the financial statements. While management uses the best information available to establish the ALLL, future adjustments to the ALLL and methodology may be necessary if economic or other conditions differ substantially from the assumptions used in making the estimates. Such adjustments to prior estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels vary from previous estimates. Selection and weighting of macroeconomic forecasts are the most significant inputs in quantitative ALLL calculations. Due to the sensitivity of the ALLL determination to macroeconomic forecasts, changes in those forecasts can result in materially different results between reporting periods. In the determination of the ALLL as ofDecember 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.
[[Image Removed: fhn-20211231_g2.jpg]] 102 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
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 atDecember 31, 2021 , inclusive of qualitative adjustments that are affected by the weighting of forecast scenarios.
See Note 1 - Significant Accounting Policies and Note 5 - Allowance for Credit Losses for detail regarding FHN's processes, models, and methodology for determining the ALLL.
Income Taxes
FHN is subject to the income tax laws of theU.S. and the states and jurisdictions in which it operates. FHN accounts for income taxes in accordance with ASC 740, "Income Taxes". Significant judgments and estimates are required in the determination of the consolidated income tax expense. FHN income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management's best estimate of current and future taxes to be paid. Income tax expense consists of both current and deferred taxes. Current income tax expense is an estimate of taxes to be paid or refunded for the current period and includes income tax expense related to uncertain tax positions. A DTA or a DTL is recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Deferred taxes can be affected by changes in tax rates applicable to future years, either as a result of statutory changes or business changes that may change the jurisdictions in which taxes are paid. Additionally, DTAs are subject to a "more likely than not" test to determine whether the full amount of the DTAs should be realized in the financial statements. FHN evaluates the likelihood of realization of the DTA based on both positive and negative evidence available at the time, including (as appropriate) scheduled reversals of DTLs, projected future taxable income, tax planning strategies, and recent financial performance. Realization is dependent on generating sufficient taxable income prior to the expiration of the carryforwards attributable to or generated with respect to the DTA. In projecting future taxable income, FHN incorporates assumptions including the amount of future state and federal pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates used to manage the underlying business. If the "more likely than not" test is not met, a valuation allowance must be established against the DTA. The income tax laws of the jurisdictions in which FHN operate are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities. In determining if a tax position should be recognized and in establishing a provision for income tax expense, FHN must make judgments and interpretations about the application of these inherently complex tax laws. Interpretations may be subjected to review during examination by taxing authorities and disputes may arise over the respective tax positions. FHN attempts to resolve disputes that may arise during the tax examination and audit process. However, certain disputes may ultimately be resolved through the federal and state court systems. FHN monitors relevant tax authorities and revises estimates of accrued income taxes on a quarterly basis. Changes in estimates may occur due to changes in income tax laws and their interpretation by the courts and regulatory authorities. Revisions of estimates may also result from income tax planning and from the resolution of income tax controversies. Revisions in estimates may be material to operating results for any given period. See Note 15 - Income Taxes for additional information including discussion of valuation allowances related to deferred tax assets and the potential impact of unrecognized tax benefits on future earnings.
Contingent Liabilities
A liability is contingent if the amount or outcome is not presently known, but may become known in the future as a result of the occurrence of some uncertain future event. FHN estimates its contingent liabilities based on management's estimates about the probability of outcomes and their ability to estimate the range of exposure. Accounting standards require that a liability be recorded if management determines that it is probable that a loss has occurred and the loss can be reasonably estimated. In addition, it must be probable that the loss will be confirmed by some future event. As part of the estimation process, management is required to make assumptions about matters that are by their nature highly uncertain and difficult to estimate.
[[Image Removed: fhn-20211231_g2.jpg]] 103 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents
The assessment of contingent liabilities, including legal contingencies, involves the use of critical estimates, assumptions, and judgments. Management's estimates are based on their belief that future events will validate the current assumptions regarding the ultimate outcome of these exposures. However, there can be no assurance that future events, such as court decisions or decisions of arbitrators, will not differ from management's assessments. Whenever practicable, management consults with third-party experts (e.g., attorneys, accountants, claims administrators, etc.) to assist with the gathering and evaluation of information related to contingent liabilities. Based on internally and/or externally prepared evaluations, management makes a determination whether the potential exposure requires accrual in the financial statements. See Note 17 - Contingencies and Other Disclosures for additional information regarding FHN's existing material contingent liabilities, including those with and without loss accruals, and discussion of reasonably possible loss amounts for pending litigation matters.
Accounting Changes with Extended Transition Periods
Refer to Note 1 - Significant Accounting Policies for a detail of accounting changes with extended transition
periods, which section is incorporated into this MD&A by this reference.
Non-GAAP Information
Certain measures are included in this report are "non-GAAP", meaning they are not presented in accordance withU.S. GAAP and also are not codified inU.S. banking regulations currently applicable to FHN. Although other entities may use calculation methods that differ from those used by FHN for non-GAAP measures, FHN's management believes such measures are relevant to understanding the capital position or financial results of FHN and its business segments. Non-GAAP measures are reported to FHN's management and Board of Directors through various internal reports. The non-GAAP measures presented in this report are: pre-provision net revenue, return on average tangible common equity, tangible common equity to tangible assets, adjusted tangible common equity to risk-weighted assets, tangible book value per common share, and loans and leases excluding PPP loans. Table 7.30 appearing in the MD&A (Item 7 of Part II) of this report provides a reconciliation of non-GAAP items presented in this report to the most comparable GAAP presentation.
Presentation of regulatory measures, even those which are not GAAP, provide a meaningful base for
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" underU.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
[[Image Removed: fhn-20211231_g2.jpg]] 104 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A)
Table of Contents 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 9.20 8.82 8.34 assets (Non-GAAP) (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 total equity on the Consolidated Balance Sheets.
(b)Includes goodwill and other intangible assets, net of amortization.
(c)Defined by and calculated in conformity with bank regulations applicable to FHN.
[[Image Removed: fhn-20211231_g2.jpg]] 105 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
ITEM 7A. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Table of Contents
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information called for by this Item is incorporated herein by reference to: 2021 MD&A (Item 7), which begins on page 60 of this report; Note 22-Derivatives, which begins on page 184 of this report; and Note 23-Master Netting and Similar Agreements - Repurchase, Reverse Repurchase, and Securities Borrowing Transactions, which begins on page 191 of this report. Within 2021 MD&A,
these sections are especially pertinent to this Item 7A: Market Risk Management and Interest Rate Risk Management which begin, respectively, on pages 91
and
93 of this report. Notes 22 and 23 are part of our 2021 Financial Statements (Item 8).
[[Image Removed: fhn-20211231_g2.jpg]] 106 2021 FORM 10-K ANNUAL REPORT
--------------------------------------------------------------------------------
© Edgar Online, source
