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FIRST HORIZON CORP - Quarter Report: 2021 March (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________  
FORM 10-Q
_____________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from         to                     
Commission File Number 001-15185
____________________________________ 
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(Exact name of registrant as specified in its charter)
 ______________________________________  
TN 62-0803242
(State or other jurisdiction
incorporation of organization)
 (IRS Employer
Identification No.)
165 Madison Avenue
Memphis,Tennessee 38103
(Address of principal executive office) (Zip Code)

(Registrant’s telephone number, including area code) (901) 523-4444

(Former name, former address and former fiscal year, if changed since last report)



Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Exchange on which Registered
$.625 Par Value Common Capital Stock FHNNew York Stock Exchange LLC
Depositary Shares, each representing a 1/4,000th interest in
a share of Non-Cumulative Perpetual Preferred Stock, Series A
FHN PR ANew York Stock Exchange LLC
Depositary Shares, each representing a 1/400th interest in
a share of Non-Cumulative Perpetual Preferred Stock, Series B
FHN PR BNew York Stock Exchange LLC
Depositary Shares, each representing a 1/400th interest in
a share of Non-Cumulative Perpetual Preferred Stock, Series C
FHN PR CNew York Stock Exchange LLC
Depositary Shares, each representing a 1/400th interest in
a share of Non-Cumulative Perpetual Preferred Stock, Series D
FHN PR DNew York Stock Exchange LLC
Depositary Shares, each representing a 1/4,000th interest in
a share of Non-Cumulative Perpetual Preferred Stock, Series E
FHN PR ENew York Stock Exchange LLC
Depositary Shares, each representing a 1/4,000th interest in
a share of Non-Cumulative Perpetual Preferred Stock, Series F*
FHN PR FNew York Stock Exchange LLC
* Denotes class of security issued and outstanding on the date this report is filed, but not at March 31, 2021. Listing on the New York Stock Exchange is expected, but not final at time of filing.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated filer Non-accelerated filer 
Smaller reporting companyEmerging Growth Company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No


APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class  
Outstanding on March 31, 2021
Common Stock, $.625 par value  552,374,489



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Table of Contents



GLOSSARY OF ACRONYMS AND TERMS

The following is a list of common acronyms and terms used throughout this report:


ACLAllowance for credit losses
ADRAverage daily revenue
AFSAvailable for sale
AIRAccrued interest receivable
ALCOAsset/Liability Committee
ALLLAllowance for loan and lease losses
ALMAsset/liability management
AOCIAccumulated other comprehensive income
ASCFASB Accounting Standards Codification
AssociatePerson employed by FHN
ASUAccounting Standards Update
BankFirst Horizon Bank
BOLIBank-owned life insurance
C&ICommercial, financial, and industrial loan portfolio
CARES ActCoronavirus Aid, Relief, and Economic Security Act
CBFCapital Bank Financial
CCARComprehensive Capital Analysis and Review
CDCertificate of deposit
CECLCurrent expected credit loss
CEOChief Executive Officer
CFPBConsumer Financial Protection Bureau
CMOCollateralized mortgage obligations
CompanyFirst Horizon Corporation
CorporationFirst Horizon Corporation
CRACommunity Reinvestment Act
CRECommercial Real Estate
CRMCCredit Risk Management Committee
DSCRDebt service coverage ratios
DTADeferred tax asset
DTIDebt-to-income
DTLDeferred tax liability
EPSEarnings per share
ESOPEmployee stock ownership plan
FASBFinancial Accounting Standards Board
FDICFederal Deposit Insurance Corporation

Federal ReserveFederal Reserve Board
FFPFederal funds purchased
FFSFederal funds sold
FHAFederal Housing Administration
FHLBFederal Home Loan Bank
FHLMC /
Freddie Mac
Federal Home Loan Mortgage Corporation
FHNFirst Horizon Corporation
FHNFFHN Financial; FHN's fixed income division
FICOFair Isaac Corporation
FINRAFinancial Industry Regulatory Authority
FNMA / Fannie MaeFederal National Mortgage Association
First HorizonFirst Horizon Corporation
FRBFederal Reserve Bank or the Federal Reserve Board
FTBNAFirst Tennessee Bank National Association (former name of the Bank)
FTEFully taxable equivalent
FTHCFirst Tennessee Housing Corporation
FTNFFTN Financial (former name of FHNF)
FTNMCFirst Tennessee New Markets Corporation
FTRESCFT Real Estate Securities Company, Inc.
GAAPGenerally accepted accounting principles (U.S.)
GNMAGovernment National Mortgage Association or Ginnie Mae
GSEGovernment sponsored enterprises, in this report references Fannie Mae and Freddie Mac
HELOCHome equity line of credit
HFSHeld for Sale
HTMHeld to maturity
HUDDepartment of Housing and Urban Development
IBKCIBERIABANK Corporation
IBKC mergerFHN's merger of equals with IBKC that closed July 2020
ISDAInternational Swap and Derivatives Association
IRSInternal Revenue Service

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LGDLoss given default
LIBORLondon Inter-Bank Offered Rate
LIHTCLow Income Housing Tax Credit
LLCLimited Liability Company
LMCLoans to mortgage companies
LOCOMLower of cost or market
LRRDLoan Rehab and Recovery Department
LTVLoan-to-value
MBSMortgage-backed securities
MD&AManagement’s Discussion and Analysis of Financial Condition and Results of Operations
MSRMortgage servicing rights
MSRBMunicipal Securities Rulemaking Board
NAICSNorth American Industry Classification System
NIINet interest income
NIMNet interest margin
NMNot meaningful
NMTCNew Market Tax Credit
NOLNet operating loss
NPANonperforming asset
Non-PCDNon-Purchased Credit Deteriorated Financial Assets
NPLNonperforming loan
NSFNon-sufficient funds
OCCOffice of the Comptroller of the Currency
OISOvernight indexed swap
OREOOther Real Estate Owned
OTCOne-time close, a mortgage product which allowed simplified conversion of a construction loan to permanent financing
OTTIOther than temporary impairment
PCAOBPublic Company Accounting Oversight Board
PCDPurchased Credit Deteriorated Financial Assets
PCIPurchased credit impaired
PDProbability of default
PMPortfolio managers
PPPPaycheck Protection Program
PSUPerformance Stock Unit
REReal estate
RMRelationship managers
ROAReturn on assets
ROCEReturn on average common shareholders' equity

ROTCEReturn on tangible common equity
ROURight-of-use
RPLReasonably Possible Loss
RSURestricted stock unit
RULCReserve for unfunded lending commitments
RWARisk-weighted assets
SBASmall Business Administration
SECSecurities and Exchange Commission
SVaRStressed Value-at-Risk
TATangible assets
TCETangible common equity
TDRTroubled Debt Restructuring
TRUPTrust preferred loan
UPBUnpaid principal balance
USDAUnited States Department of Agriculture
VaRValue-at-Risk
VIEVariable Interest Entities
we / us / ourFirst Horizon Corporation
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Forward-Looking Statements
This report, including material incorporated into it, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements pertain to FHN's beliefs, plans, goals, expectations, and estimates. Forward-looking statements are not a representation of historical information, but instead pertain to future operations, strategies, financial results, or other developments. Forward-looking statements can be identified by the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “should,” “is likely,” “will,” “going forward,” and other expressions that indicate future events and trends.
Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, operational, economic, and competitive uncertainties and contingencies, many of which are beyond FHN’s control, and many of which, with respect to future business decisions and actions (including acquisitions and divestitures), are subject to change and could cause FHN’s actual future results and outcomes to differ materially from those contemplated or implied by forward-looking statements or historical performance. Examples of uncertainties and contingencies include, among other important factors:
the possibility that the anticipated benefits of the IBKC merger will not be realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in any or all of FHN’s market areas;
the possibility that the IBKC merger may be more expensive to integrate than anticipated, including as a result of unexpected factors or events;
potential adverse reactions or changes to business or associate relationships resulting from the IBKC merger;
the potential impacts on FHN’s businesses and clients of the COVID-19 pandemic, including negative impacts from quarantines and other public restrictions, market declines and volatility, and changes in client behavior;
potential claims alleging mortgage servicing failures, individually, on a class basis, or as master servicer of securitized loans;
potential claims relating to participation in government programs, especially lending or other financial services programs;
global, general and local economic and business conditions, including economic recession or depression;
the stability or volatility of values and activity in the residential housing and commercial real estate markets;
expectations of and actual timing and amount of interest rate movements, including the slope and shape of the yield curve, which can have a significant impact on a financial services institution;
market and monetary fluctuations, including fluctuations in mortgage markets;
the financial condition of borrowers and other counterparties;
competition within and outside the financial services industry;
the occurrence of natural or man-made disasters, including pestilence, conflicts, or terrorist attacks, or other adverse external events;
the effectiveness and cost-efficiency of FHN’s hedging practices;
fraud, theft, or other incursions through conventional, electronic, or other means directly or indirectly affecting FHN or its clients, business counterparties, or competitors;
FHN’s ability to adapt products and services to changing industry standards and client preferences;
risks inherent in originating, selling, servicing, and holding loans and loan-based assets, including prepayment risks, pricing concessions, fluctuation in U.S. housing and other real estate prices, fluctuation of collateral values, and changes in client profiles;
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changes in the regulation of the U.S. financial services industry;
changes in laws, regulations, and administrative actions, including executive orders, whether or not specific to the financial services industry;
changes in accounting policies, standards, and interpretations;
evolving capital and liquidity standards under applicable regulatory rules;
accounting policies and processes requiring management to make estimates about matters that are uncertain; and
other factors that may affect the future results of FHN.
FHN cautions readers of this report that the list above is not exhaustive as of the date of this report. Further,
FHN assumes no obligation to update or revise any forward-looking statements that are made in this report or in any other statement, release, report, or filing from time to time. Actual results could differ and FHN’s estimates and expectations could change, possibly materially, because of one or more factors, including those factors listed above or presented elsewhere in this report or those factors listed in material incorporated by reference into this report. In evaluating forward-looking statements and assessing FHN’s prospects, readers of this report should carefully consider the factors mentioned above along with the additional risk and uncertainty factors discussed in Item 1A of Part II of this report and in the forepart, and in Items 1, 1A, and 7, of FHN’s most recent Annual Report on Form 10-K, along with any additional factors which might materially affect future results and outcomes.
Non-GAAP Information
Certain measures included in this report are “non-GAAP,” meaning they are not presented in accordance with U.S. GAAP and also are not codified in U.S. banking regulations currently applicable to FHN. Although other entities may use calculation methods that differ from those used by FHN for non-GAAP measures, FHN’s management believes such measures are relevant to understanding the financial condition, capital position, and financial results of FHN and its business segments. Non-GAAP measures are reported to FHN’s management and Board of Directors through various internal reports. The non-GAAP measures presented in this report are: pre-provision net revenue, return on average tangible common equity, tangible common equity to tangible assets, adjusted tangible common equity to risk-weighted assets, and tangible book value per common share. Table 20 appearing in the MD&A (Item 2 of Part I) of this report provides a reconciliation of non-GAAP items presented in this report to the most comparable GAAP presentation.
Presentation of regulatory measures, even those which are not GAAP, provide a meaningful base for comparability to other financial institutions subject to the same regulations as FHN, as demonstrated by their use by banking regulators in reviewing capital adequacy of financial institutions. Although not GAAP terms, these regulatory measures are not considered “non-GAAP” under U.S. financial reporting rules as long as their presentation conforms to regulatory standards. Regulatory measures used in this report 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.
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PART I. FINANCIAL INFORMATION
 
Item 1.     Financial Statements

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CONSOLIDATED BALANCE SHEETS
(Unaudited)December 31,
March 31,
(Dollars in millions, except per share amounts)20212020
Assets
Cash and due from banks$1,169 $1,203 
Interest-bearing deposits with banks11,635 8,351 
Federal funds sold and securities purchased under agreements to resell520 445 
Trading securities1,076 1,176 
Securities available for sale at fair value8,351 8,047 
Loans held for sale (including $449 and $405 at fair value, respectively)
811 1,022 
Loans and leases (including $17 and $16 at fair value, respectively)
58,600 58,232 
Allowance for loan and lease losses(914)(963)
Net loans and leases57,686 57,269 
Premises and equipment719 759 
Goodwill 1,511 1,511 
Other intangible assets339 354 
Other assets3,696 4,072 
Total assets$87,513 $84,209 
Liabilities
Noninterest-bearing deposits$25,046 $22,173 
Interest-bearing deposits48,120 47,809 
Total deposits73,166 69,982 
Trading liabilities454 353 
Short-term borrowings2,203 2,198 
Term borrowings1,671 1,670 
Other liabilities1,712 1,699 
Total liabilities79,206 75,902 
Equity
Preferred stock, Non-cumulative perpetual, no par value; authorized 5,000,000 shares; issued 26,250 shares
470 470 
Common stock, $0.625 par value; authorized 700,000,000 shares; issued 552,374,489 and 555,030,652 shares, respectively
345 347 
Capital surplus5,036 5,074 
Retained earnings2,402 2,261 
Accumulated other comprehensive loss, net(241)(140)
FHN shareholders' equity8,012 8,012 
Noncontrolling interest295 295 
Total equity8,307 8,307 
Total liabilities and equity$87,513 $84,209 
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF INCOME
 Three Months Ended
March 31,
(Dollars in millions, except per share data; shares in thousands) (Unaudited)20212020
Interest income
Interest and fees on loans and leases$507 $327 
Interest and fees on loans held for sale7 
Interest on securities available for sale29 27 
Interest on trading securities7 13 
Interest on other earning assets2 
Total interest income552 378 
Interest expense
Interest on deposits24 54 
Interest on trading liabilities1 
Interest on short-term borrowings1 10 
Interest on term borrowings18 
Total interest expense44 75 
Net interest income508 303 
Provision for credit losses(45)154 
Net interest income after provision for credit losses553 149 
Noninterest income
Fixed income126 96 
Mortgage banking and title income53 
Deposit transactions and cash management42 30 
Brokerage, management fees and commissions20 16 
Trust services and investment management12 
Bankcard income11 
Other income34 16 
Total noninterest income298 174 
Noninterest expense
Personnel expense318 183 
Net occupancy expense37 20 
Computer software28 16 
Legal and professional fees14 
Operations services16 12 
Equipment expense11 
Amortization of intangible assets14 
Other expense106 48 
Total noninterest expense544 302 
Income before income taxes307 21 
Income tax expense71 
Net income236 16 
Net income attributable to noncontrolling interest3 
Net income attributable to controlling interest233 13 
Preferred stock dividends8 
Net income available to common shareholders225 12 
Basic earnings per common share$0.41 $0.04 
Diluted earnings per common share $0.40 $0.04 
Weighted average common shares552,249 311,597 
Diluted average common shares557,532 313,170 
Certain previously reported amounts have been reclassified to agree with current presentation.
See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 Three Months Ended
March 31,
(Dollars in millions) (Unaudited)20212020
Net income$236 $16 
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities available for sale(103)89 
Net unrealized gains (losses) on cash flow hedges(2)13 
Net unrealized gains (losses) on pension and other postretirement plans4 
Other comprehensive income (loss)(101)104 
Comprehensive income135 120 
Comprehensive income attributable to noncontrolling interest3 
Comprehensive income attributable to controlling interest$132 $117 
Income tax expense (benefit) of items included in Other comprehensive income:
Net unrealized gains (losses) on securities available for sale$(33)$29 
Net unrealized gains (losses) on cash flow hedges(1)
Net unrealized gains (losses) on pension and other postretirement plans1 
See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Three months ended March 31, 2021
Preferred StockCommon Stock
(Dollars in millions, except per share data; shares in thousands) (unaudited)SharesAmountSharesAmountCapital
Surplus
Retained EarningsAccumulated
Other
Comprehensive
Income (Loss) (a)
Noncontrolling InterestTotal
Balance, December 31, 202026,250 $470 555,031 $347 $5,074 $2,261 $(140)$295 $8,307 
Net income — — — — — 233 — 236 
Other comprehensive income (loss)— — — — — — (101)— (101)
Comprehensive income (loss)— — — — — 233 (101)135 
Cash dividends declared:
Preferred stock— — — — — (8)— — (8)
Common stock ($0.15 per share)
— — — — — (84)— — (84)
Common stock repurchased (b)— — (3,864)(2)(60)— — — (62)
Common stock issued for:
Stock options and restricted stock - equity awards— — 1,208 — 12 — — — 12 
Stock-based compensation expense— — — — 10 — — — 10 
Dividends declared - noncontrolling interest of subsidiary preferred stock— — — — — — — (3)(3)
Balance, March 31, 202126,250 $470 552,375 $345 $5,036 $2,402 $(241)$295 $8,307 
(a) Due to the nature of the preferred stock issued by FHN and its subsidiaries, all components of Other comprehensive income (loss) have been attributed solely to FHN as the controlling interest holder.
(b) Includes $59 million repurchased under share repurchase programs.

Three months ended March 31, 2020
Preferred StockCommon Stock
(Dollars in millions, except per share data; shares in thousands) (unaudited)SharesAmountSharesAmountCapital
Surplus
Retained EarningsAccumulated
Other
Comprehensive
Income (Loss) (a)
Noncontrolling InterestTotal
Balance, December 31, 20191,000 $96 311,469 $195 $2,931 $1,798 $(239)$295 $5,076 
Adjustment to reflect adoption of ASU 2016-13— — — — — (96)— — (96)
Beginning balance, as adjusted 1,000 96 311,469 195 2,931 1,702 (239)295 4,980 
Net income — — — — — 13 — 16 
Other comprehensive income (loss)— — — — — — 104 — 104 
Comprehensive income (loss)— — — — — 13 104 120 
Cash dividends declared:
Preferred stock ($1,550 per share)
— — — — — (1)— — (1)
Common stock ($0.15 per share)
— — — — — (48)— — (48)
Common stock repurchased— — (141)— (2)— — — (2)
Common stock issued for:
Stock options and restricted stock - equity awards— — 652 — — — — 
Stock-based compensation expense— — — — — — — 
Dividends declared - noncontrolling interest of subsidiary preferred stock— — — — — — — (3)(3)
Other (b)— — (117)— (1)— — — (1)
Balance, March 31, 20201,000 $96 311,863 $195 $2,939 $1,666 $(135)$295 $5,056 
(a)Due to the nature of the preferred stock issued by FHN and its subsidiaries, all components of Other comprehensive income (loss) have been attributed solely to FHN as the controlling interest holder.
(b)Represents shares canceled in connection with the resolution of remaining Capital Bank Financial Corporation ("CBF") dissenters' appraisal process.

See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS

 Three months ended March 31,
(Dollars in millions) (Unaudited)20212020
Operating Activities
Net income$236 $16 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision (provision credit) for credit losses(45)154 
Deferred income tax expense (benefit)(3)(19)
Depreciation and amortization of premises and equipment16 11 
Amortization of intangible assets14 
Net other amortization and accretion(14)
Net (increase) decrease in derivatives322 (324)
Stock-based compensation expense10 
Net (gains) losses on sale/disposal of fixed assets34 — 
Loans held for sale:
Purchases and originations(943)(588)
Gross proceeds from settlements and sales683 181 
(Gain) loss due to fair value adjustments and other(35)(1)
Other operating activities, net789 (846)
Total adjustments828 (1,416)
Net cash provided by (used in) operating activities1,064 (1,400)
Investing Activities
Proceeds from sales of securities available for sale26 
Proceeds from maturities of securities available for sale591 224 
Purchases of securities available for sale(1,065)(214)
Proceeds from sales of premises and equipment1 
Purchases of premises and equipment(10)(8)
Proceeds from BOLI1 
Net increase in loans and leases(338)(2,312)
Net increase in interest-bearing deposits with banks(3,284)(188)
Other investing activities, net6 
Net cash used in investing activities(4,072)(2,482)
Financing Activities
Common stock:
Stock options exercised12 
Cash dividends paid(84)(44)
Repurchase of shares (62)(2)
Cancellation of common shares (2)
Cash dividends paid - preferred stock - noncontrolling interest(3)(3)
Cash dividends paid - preferred stock(8)(2)
Net increase in deposits3,190 1,990 
Net increase in short-term borrowings4 1,807 
Increases (decreases) in restricted and secured term borrowings (3)
Net cash provided by financing activities3,049 3,745 
Net increase (decrease) in cash and cash equivalents41 (137)
Cash and cash equivalents at beginning of period1,648 1,267 
Cash and cash equivalents at end of period$1,689 $1,130 
Supplemental Disclosures
Total interest paid$39 $84 
Total taxes paid2 
Total taxes refunded4 — 
Transfer from loans to OREO 
Transfer from loans HFS to trading securities498 398 
Transfer from loans to loans HFS (3)— 
Certain previously reported amounts have been reclassified to agree with current presentation.
See accompanying notes to consolidated financial statements. 
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Notes to the Consolidated Financial Statements (Unaudited)

Note 1 – Basis of Presentation and Accounting Policies

The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and notes necessary for complete financial statements in accordance with GAAP. In the opinion of management, the accompanying unaudited consolidated financial statements contain all significant adjustments, consisting of normal and recurring items, considered necessary for fair presentation. These interim financial statements should be read in conjunction with FHN's audited consolidated financial statements and notes in FHN's Annual Report on Form 10-K for the year ended December 31, 2020. Operating results for the interim period are not necessarily indicative of the results that may be expected for the full year.

All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts reported in prior years have been reclassified to conform to the current period presentation. See the Glossary of Acronyms and Terms included in this Report for terms used herein.

Accounting Changes With Extended Transition Periods

In March 2020, the FASB issued ASU 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting” which provides several optional expedients and exceptions to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The provisions of ASU 2020-04 primarily affect 1) contract modifications (e.g., loans, leases, debt, and derivatives) made in anticipation that a reference rate (e.g., LIBOR) will be discontinued and 2) the application of hedge accounting for existing relationships affected by those modifications. The provisions of ASU 2020-04 are effective upon release and apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by ASU 2020-04 do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. FHN has been identifying contracts affected by reference rate reform and developing modification
plans for those contracts. FHN has elected to utilize the optional expedients and exceptions provided by ASU 2020-04 for certain contract modifications. FHN anticipates that it will continue to utilize the expedients and exceptions in situations where they mitigate potential accounting outcomes that do not faithfully represent management’s intent or risk management activities, consistent with the purpose of the standard.

In January 2021, the FASB issued ASU 2021-01, "Scope" to expand the scope of ASU 2020-04 to apply to certain contract modifications that were implemented in October 2020 by derivative clearinghouses for the use of Secure Overnight Funding Rate (SOFR) in discounting, margining and price alignment for centrally cleared derivatives, including derivatives utilized in hedging relationships. ASU 2021-01 also applies to derivative contracts affected by the change in discounting convention regardless of whether they are centrally cleared (i.e., bi-lateral contracts can also be modified) and regardless of whether they reference LIBOR. ASU 2021-01 was effective immediately upon issuance with retroactive application permitted. FHN elected to retroactively apply the provisions of ASU 2021-01 because FHN's centrally cleared derivatives were affected by the change in discounting convention and because FHN has other bi-lateral derivative contracts that may be modified to conform to the use of SOFR for discounting. Adoption did not have a significant effect on FHN's reported financial condition or earnings.
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Note 2 – Acquisitions and Divestitures

On July 1, 2020, FHN and IBERIABANK Corporation closed their merger-of-equals transaction. FHN issued approximately 243 million shares of FHN common stock, plus three new series of preferred stock (Series B, Series C, and Series D) in a transaction valued at $2.5 billion. At the time of closing, IBKC operated 319 offices in 12 states, mostly in the southern U.S.

The merger-of-equals transaction has been accounted for as a business combination.
Accordingly, the assets acquired and liabilities assumed are generally presented at their fair values as of the merger date. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change.


The following schedule details a preliminary allocation of merger consideration to the valuations of the identifiable tangible and intangible assets acquired and liabilities assumed from IBKC as of July 1, 2020.
(Dollars in millions)IBERIABANK Corporation
Assets:
Cash and due from banks$395 
Interest-bearing deposits with banks1,683 
Securities available for sale at fair value3,544 
Loans held for sale320 
Loans and leases (a)25,921 
Allowance for loan and lease losses(284)
Other intangible assets240 
Premises and equipment311 
OREO
Other assets1,156 
Total assets acquired$33,295 
Liabilities:
Deposits$28,232 
Short-term borrowings209 
Term borrowings1,200 
Other liabilities618 
Total liabilities assumed$30,259 
Net assets acquired$3,036 
Consideration paid:
Consideration for outstanding common stock$2,243 
Consideration for equity awards28 
Consideration for preferred stock 231 
Total consideration paid$2,502 
Preliminary purchase accounting gain $(534)
(a)     Includes $1.3 billion of initial net investments in sales-type and direct financing leases.

In relation to the merger-of-equals transaction, FHN recorded a preliminary $533 million purchase accounting gain in 2020 and an additional $1 million purchase accounting gain during the first quarter of 2021, representing the shortfall of the purchase price under the acquisition accounting value of net assets
acquired, net of deferred taxes. The preliminary purchase accounting gain is not taxable. Due to the fact that certain back office functions (including loan processing) have not been integrated, the ongoing evaluation of post-merger activity, and the extended information gathering and management review
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Note 2 – Acquisitions and Divestitures (Continued)
processes required to properly record acquired assets and liabilities, FHN considers its valuations of IBKC's loans and leases, other assets, tax receivables and payables, other liabilities and acquired contingencies to be provisional as management continues to identify and assess information regarding the nature of these assets and liabilities and reviews the associated valuation assumptions and methodologies. Accordingly, the amounts recorded for current and deferred tax assets and liabilities are also considered provisional as FHN continues to evaluate the nature and extent of permanent and temporary (timing) differences between the book and tax bases of the acquired assets and liabilities assumed. Additionally, the accounting policies of both FHN and IBKC are in the process of being reviewed in detail. Upon completion of such review, conforming adjustments or financial statement reclassification may be determined.
All measurement period adjustments made during the first three months of 2021 have been deemed insignificant individually and in the aggregate. FHN will finalize its valuation of the IBKC merger-of-equals transaction within the measurement period (i.e., no
later than July 1, 2021). See Note 2, Acquisitions and Divestitures, in the 2020 Annual Report on Form 10-K for the year ended December 31, 2020, for a description of the methods used to determine the fair values of significant assets acquired and liabilities assumed presented above.
On July 17, 2020, First Horizon Bank completed its purchase of 30 branches from Truist Bank. As of December 31, 2020, the valuation of the acquired assets and liabilities assumed from the Truist branches acquisition was final. In relation to the acquisition, FHN recorded $78 million in goodwill, representing the excess of acquisition consideration over the estimated fair value of net assets acquired. All goodwill has been attributed to FHN's Regional Banking segment (refer to Note 7 - Intangible Assets for additional information). This goodwill was the result of expected synergies, operational efficiencies and other factors. Expenses related to FHN's merger and integration activities are recorded in FHN's Corporate segment.

Total merger and integration expense recognized for the three months ended March 31, 2021 and 2020 are presented in the table below:
Three Months Ended
March 31,
(Dollars in millions)20212020
Personnel expense (a)$21 $
Legal and professional fees (b)3 
Net occupancy expense (c)3 — 
Other expense (d)43 
Total$70 $
Certain previously reported amounts have been reclassified to agree with current presentation.
(a)    Primarily comprised of fees for severance and retention.
(b)    Primarily comprised of fees for legal, accounting, and merger consultants.    
(c)    Primarily relates to expenses associated with lease exits.
(d)    Consists of fees for operations services, communications and delivery, equipment rentals, depreciation and maintenance, supplies, travel and entertainment, computer software, advertising and public relations, contract termination charges, internal technology development costs, costs of shareholder matters and asset impairments.


In addition to the transactions mentioned above, FHN acquires or divests assets from time to time in transactions that are considered business combinations or divestitures but are not material to FHN individually or in the aggregate.
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Note 3 – Investment Securities
The following tables summarize FHN’s investment securities on March 31, 2021 and December 31, 2020:
 March 31, 2021
(Dollars in millions)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Securities available for sale:
U.S. treasuries$610 $— $— $610 
Government agency issued MBS4,009 68 (39)4,038 
Government agency issued CMO2,463 19 (41)2,441 
Other U.S. government agencies733 (13)725 
Corporate and other debt40 — — 40 
States and municipalities467 (1)475 
$8,322 $101 $(94)8,329 
AFS securities recorded at fair value through earnings:
SBA-interest only strips (a)22 
Total securities available for sale (b)$8,351 
 
(a)SBA-interest only strips are recorded at elected fair value. See Note 17 - Fair Value of Assets and Liabilities for additional information.
(b)Includes $7.0 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes.
 December 31, 2020
(Dollars in millions)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Securities available for sale:
U.S. treasuries$613 $— $— $613 
Government agency issued MBS3,722 92 (2)3,812 
Government agency issued CMO2,380 29 (3)2,406 
Other U.S. government agencies672 12 — 684 
Corporate and other debt40 (1)40 
States and municipalities445 15 — 460 
$7,872 $149 $(6)8,015 
AFS securities recorded at fair value through earnings:
SBA-interest only strips (a)32 
Total securities available for sale (b)$8,047 
 
(a)SBA-interest only strips are recorded at elected fair value. See Note 17 - Fair Value of Assets and Liabilities for additional information.
(b)Includes $6.4 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes.

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Note 3 – Investment Securities (Continued)
The amortized cost and fair value by contractual maturity for the available-for-sale debt securities portfolio on March 31, 2021 is provided below:
 Available for Sale
(Dollars in millions)Amortized
Cost
Fair
Value
Within 1 year$758 $759 
After 1 year through 5 years146 148 
After 5 years through 10 years345 348 
After 10 years601 617 
Subtotal1,850 1,872 
Government agency issued MBS and CMO (a)6,472 6,479 
Total$8,322 $8,351 
 
(a)Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Gross gains and losses on sales of debt investment securities and cash proceeds from the sale of available-for-sale securities for the three months ended March 31, 2021 and 2020 were insignificant.
The following tables provide information on investments within the available-for-sale portfolio that had unrealized losses as of March 31, 2021 and December 31, 2020:

 As of March 31, 2021
 Less than 12 months12 months or longerTotal
(Dollars in millions)Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Government agency issued MBS$1,772 $(39)$— $— $1,772 $(39)
Government agency issued CMO1,508 (41)— — 1,508 (41)
Other U.S. government agencies405 (13)— — 405 (13)
States and municipalities 82 (1)— — 82 (1)
Total$3,767 $(94)$ $ $3,767 $(94)
 
 As of December 31, 2020
 Less than 12 months12 months or longerTotal
(Dollars in millions)Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
U.S. treasuries$307 $— $— $— $307 $— 
Government agency issued MBS426 (2)— — 426 (2)
Government agency issued CMO586 (3)— — 586 (3)
Other U.S. government agencies80 (1)— — 80 (1)
States and municipalities — — — — 
Total$1,400 $(6)$— $— $1,400 $(6)
FHN has evaluated all AFS debt securities that were in unrealized loss positions in accordance with its accounting policy for recognition of credit losses. No AFS debt securities were determined to have credit losses because the primary cause of the decline in value was attributable to changes in interest rates. Total AIR not included in
the fair value or amortized cost basis of AFS debt securities was $24 million and $22 million as of March 31, 2021 and December 31, 2020, respectively. Consistent with FHN's review of the related securities, there were no credit-related write downs of AIR for AFS debt securities during the reporting period. Additionally, for AFS debt securities with unrealized losses, FHN does not intend to sell
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Note 3 – Investment Securities (Continued)
them and it is more-likely-than-not that FHN will not be required to sell them prior to recovery. Therefore, no write downs of these investments to fair value occurred during the reporting period.
The carrying amount of equity investments without a readily determinable fair value was $70 million and $57 million at March 31, 2021 and December 31, 2020, respectively. The year-to-date 2021 and 2020 gross amounts of upward and downward valuation adjustments were not significant.
Unrealized gains of $3 million were recognized in the three months ended March 31, 2021 and 2020, respectively, for equity investments with readily determinable fair values.


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Note 4 – Loans and Leases
The loans and lease portfolio is disaggregated into portfolio segments and then further disaggregated into classes for certain disclosures. GAAP defines a portfolio segment as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. A class is generally a disaggregation of a portfolio segment and is generally determined based on risk characteristics of the loan and FHN’s method for monitoring and assessing credit risk and performance. FHN's loan and lease portfolio segments are commercial and consumer. The classes of loans and leases are: (1)
commercial, financial, and industrial, which includes commercial and industrial loans and leases and loans to mortgage companies, (2) commercial real estate, (3) consumer real estate, which includes both real estate installment and home equity lines of credit, and (4) credit card and other.
The following table provides the amortized cost basis of loans and leases by portfolio segment and class as of March 31, 2021 and December 31, 2020, excluding accrued interest of $182 million and $180 million, respectively, which is included in Other assets in the Consolidated Balance Sheets.
(Dollars in millions)March 31, 2021December 31, 2020
Commercial:
Commercial and industrial (a) (b)$28,421 $27,700 
Loans to mortgage companies5,530 5,404 
   Total commercial, financial, and industrial 33,951 33,104 
Commercial real estate12,470 12,275 
Consumer:
HELOC2,270 2,420 
Real estate installment loans8,783 9,305 
   Total consumer real estate11,053 11,725 
Credit card and other1,126 1,128 
Loans and leases$58,600 $58,232 
Allowance for loan and lease losses(914)(963)
Net loans and leases$57,686 $57,269 
(a)Includes equipment financing leases of $614 million and $587 million, respectively, as of March 31, 2021 and December 31, 2020.
(b)Includes PPP loans fully guaranteed by the SBA of $5.1 billion and $4.1 billion as of March 31, 2021 and December 31, 2020, respectively.

Restrictions

Loans and leases with carrying values of $38.1 million and $38.6 billion were pledged as collateral for borrowings at March 31, 2021 and December 31, 2020, respectively.

Concentrations of Credit Risk
Most of the FHN’s business activity is with clients located in the southern United States. FHN’s lending activity is concentrated in its market areas within those states. As of March 31, 2021, FHN had loans to mortgage companies of $5.5 billion and loans to finance and insurance companies of $3.1 billion. As a result, 25% of the C&I portfolio is sensitive to impacts on the financial services industry.

Credit Quality Indicators

FHN employs a dual grade commercial risk grading methodology to assign an estimate for the probability of default and the loss given default for each commercial loan using factors specific to various industry, portfolio, or product segments that result in a rank ordering of risk and the assignment of grades PD 1 to PD 16. This credit grading system is intended to identify and measure the credit quality of the loan and lease portfolio by analyzing the migration between grading categories. It is also integral to the estimation methodology utilized in determining the ALLL since an allowance is established for pools of commercial loans based on the credit grade assigned. Each PD grade corresponds to an estimated one-year default probability percentage. PD grades are continually evaluated, but require a formal scorecard annually. As a response to the COVID-19 pandemic, FHN identified a segment of its commercial portfolio that requires a quarterly re-
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Note 4 – Loans and Leases (Continued)
grading process. As borrowers recover, they can be removed from the quarterly re-grading process with credit officer concurrence.
PD 1 through PD 12 are “pass” grades. PD grades 13-16 correspond to the regulatory-defined categories of special mention (13), substandard (14), doubtful (15), and loss (16). Special mention loans and leases have potential weaknesses that, if left uncorrected, may result in deterioration of FHN's credit position at some future date. Substandard commercial loans and
leases have well-defined weaknesses and are characterized by the distinct possibility that FHN will sustain some loss if the deficiencies are not corrected. Doubtful commercial loans and leases have the same weaknesses as substandard loans and leases with the added characteristics that the probability of loss is high and collection of the full amount is improbable.

The following tables provide the amortized cost basis of the commercial loan portfolio by year of origination and credit quality indicator as of March 31, 2021 and December 31, 2020:
March 31, 2021
 C&I
(Dollars in millions)20212020201920182017Prior to 2017LMC (a)Revolving
 Loans
Revolving
Loans converted
to term loans (b)
Total
Credit Quality Indicator:
Pass (PD grades 1 through 12) (c)$2,368 $7,915 $4,572 $2,174 $1,600 $3,038 $5,530 $5,535 $14 $32,746 
Special Mention (PD grade 13)5 68 65 51 28 81  189 7 494 
Substandard, Doubtful, or Loss (PD grades 14,15, and 16)35 148 80 124 35 94  148 47 711 
Total C&I loans$2,408 $8,131 $4,717 $2,349 $1,663 $3,213 $5,530 $5,872 $68 $33,951 
(a)     LMC includes non-revolving commercial lines of credit to qualified mortgage companies primarily for the temporary warehousing of eligible mortgage loans prior to the borrower's sale of those mortgage loans to third party investors. The loans are of short duration with maturities less than one year.
(b)    C&I loans converted from revolving to term in 2021 were not material.
(c)    2021 and 2020 balances include PPP loans.
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Note 4 – Loans and Leases (Continued)
December 31, 2020
C&I
(Dollars in millions)20202019201820172016Prior to 2016LMC (a)Revolving
 Loans
Revolving
Loans converted
to term loans (b)
Total
Credit Quality Indicator:
Pass (PD grades 1 through 12) (c)$9,060 $5,138 $2,628 $1,748 $1,161 $2,145 $5,404 $4,571 $60 $31,915 
Special Mention (PD grade 13)89 93 70 31 37 64 — 127 512 
Substandard, Doubtful, or Loss (PD grades 14,15, and 16)182 77 114 50 42 58 — 95 59 677 
Total C&I loans$9,331 $5,308 $2,812 $1,829 $1,240 $2,267 $5,404 $4,793 $120 $33,104 
(a)    LMC includes non-revolving commercial lines of credit to qualified mortgage companies primarily for the temporary warehousing of eligible mortgage loans prior to the borrower's sale of those mortgage loans to third party investors. The loans are of short duration with maturities less than one year.
(b)    $50 million of C&I loans were converted from revolving to term in 2020.
(c)    2020 balances include PPP loans.

March 31, 2021
CRE
(Dollars in millions)20212020201920182017Prior to 2017Revolving
 Loans
Revolving
Loans converted
to term loans
Total
Credit Quality Indicator:
Pass (PD grades 1 through 12) $514 $2,346 $3,350 $1,612 $1,024 $2,652 $320 $ $11,818 
Special Mention (PD grade 13) 74 38 178 77 109   476 
Substandard, Doubtful, or Loss (PD grades 14,15, and 16) 18 12 21 43 57 25  176 
Total CRE loans$514 $2,438 $3,400 $1,811 $1,144 $2,818 $345 $ $12,470 

December 31, 2020
CRE
(Dollars in millions)20202019201820172016Prior to 2016Revolving
 Loans
Revolving
Loans converted
to term loans
Total
Credit Quality Indicator:
Pass (PD grades 1 through 12)$2,477 $3,311 $1,750 $1,140 $946 $1,800 $259 $19 $11,702 
Special Mention (PD grade 13)48 24 117 75 71 54 — — 389 
Substandard, Doubtful, or Loss (PD grades 14,15, and 16)30 13 21 42 27 33 18 — 184 
Total CRE loans$2,555 $3,348 $1,888 $1,257 $1,044 $1,887 $277 $19 $12,275 



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Note 4 – Loans and Leases (Continued)
The consumer portfolio is comprised primarily of smaller-balance loans which are very similar in nature in that most are standard products and are backed by residential real estate. Because of the similarities of consumer loan-types, FHN is able to utilize the FICO score, among other attributes, to assess the credit quality of consumer borrowers. FICO scores are refreshed on a quarterly basis in an attempt to reflect the recent risk profile of the borrowers. Accruing delinquency amounts are indicators of asset quality within the credit card and other consumer portfolio.

The following table reflects the amortized cost basis by year of origination and refreshed FICO scores for
consumer real estate loans as of March 31, 2021 and December 31, 2020. Within consumer real estate, classes include HELOC and real estate installment. HELOCs are loans which during their draw period are classified as revolving loans. Once the draw period ends and the loan enters its repayment period, the loan converts to a term loan and is classified as revolving loans converted to term loans. All loans classified in the following tables as revolving loans or revolving loans converted to term loans are HELOCs. Real estate installment loans are originated as a fixed term loan and are classified below in their vintage year. All loans in the following tables classified in a vintage year are real estate installment loans.
March 31, 2021
 Consumer Real Estate
(Dollars in millions)20212020201920182017Prior to 2017Revolving
 Loans
Revolving
Loans converted
to term loans (a)
Total
FICO score 740 or greater$131 $1,195 $1,060 $613 $529 $2,230 $1,200 $150 $7,108 
FICO score 720-7398 163 142 91 69 249 179 27 928 
FICO score 700-71915 129 103 75 72 267 173 31 865 
FICO score 660-69913 121 120 115 69 329 238 53 1,058 
FICO score 620-6591 40 57 31 21 134 83 35 402 
FICO score less than 620 108 58 32 41 50 302 56 45 692 
Total$276 $1,706 $1,514 $966 $810 $3,511 $1,929 $341 $11,053 
(a) $11 million of HELOC loans were converted from revolving to term in 2021.

December 31, 2020
 Consumer Real Estate
(Dollars in millions)20202019201820172016Prior to 2016Revolving
 Loans
Revolving Loans converted to term loansTotal
FICO score 740 or greater$1,186 $1,167 $703 $610 $674 $1,719 $1,275 $159 $7,493 
FICO score 720-739157 158 100 77 92 197 186 29 996 
FICO score 700-719122 107 78 76 73 221 177 34 888 
FICO score 660-699130 141 123 75 85 296 264 59 1,173 
FICO score 620-65945 61 37 28 35 127 92 36 461 
FICO score less than 620 107 36 52 54 95 261 61 48 714 
Total$1,747 $1,670 $1,093 $920 $1,054 $2,821 $2,055 $365 $11,725 


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Note 4 – Loans and Leases (Continued)
The following tables reflect the amortized cost basis by year of origination and refreshed FICO scores for credit card and other loans as of March 31, 2021 and December 31, 2020.
March 31, 2021
 Credit Card and Other
(Dollars in millions)20212020201920182017Prior to 2017Revolving
 Loans
Revolving
Loans converted
to term loans (a)
Total
FICO score 740 or greater$13 $51 $43 $53 $32 $119 $279 $6 $596 
FICO score 720-7392 8 7 6 7 30 36 2 98 
FICO score 700-7193 8 7 8 6 38 35 2 107 
FICO score 660-6992 29 10 14 8 52 41 3 159 
FICO score 620-6591 4 4 6 4 31 19 1 70 
FICO score less than 620 11 9 6 7 10 30 21 2 96 
Total$32 $109 $77 $94 $67 $300 $431 $16 $1,126 
(a) $2 million of other consumer loans were converted from revolving to term in 2021.

December 31, 2020
 Credit Card and Other
(Dollars in millions)20202019201820172016Prior to 2016Revolving
 Loans
Revolving Loans converted to term loansTotal
FICO score 740 or greater$57 $52 $59 $37 $23 $116 $159 $$508 
FICO score 720-73927 91 159 
FICO score 700-71938 37 116 
FICO score 660-69930 12 15 48 46 172 
FICO score 620-65910 24 20 77 
FICO score less than 620 14 11 26 20 96 
Total$122 $91 $107 $78 $63 $279 $373 $15 $1,128 

Nonaccrual and Past Due Loans and Leases
Loans and leases are placed on nonaccrual if it becomes evident that full collection of principal and interest is at risk, impairment has been recognized as a partial charge-off of principal balance due to insufficient collateral value and past due status, or on a case-by-case basis if FHN continues to receive payments but there are other borrower-specific issues. Included in nonaccrual are loans for which FHN continues to receive payments including residential real estate loans where the borrower has been discharged of personal obligation through bankruptcy.
Past due loans are loans contractually past due as to interest or principal payments, but which have not yet been put on nonaccrual status. In accordance with revised Interagency Guidance issued in 2020, FHN is not required to designate loans with deferrals granted in response to COVID-19 as past due because of such deferrals. If a borrower defers payment, this may result in no contractual payments being past due, and as such, loans would not be considered past due during the period of deferral, and as a result, are excluded from loans past due 30-89 days and loans 90+ days past due in the tables below.

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Note 4 – Loans and Leases (Continued)
The following table reflects accruing and non-accruing loans and leases by class on March 31, 2021 and December 31, 2020:
March 31, 2021
 AccruingNon-Accruing 
(Dollars in millions)Current30-89
Days
Past Due
90+
Days
Past Due
Total
Accruing
Current30-89
Days
Past Due
90+
Days
Past Due
Total
Non-
Accruing
Total
Loans
Commercial, financial, and industrial:
C&I (a) (b)$28,251 $26 $— $28,277 $102 $$35 $144 $28,421 
Loans to mortgage companies5,530 — — 5,530 — — —  5,530 
Total commercial, financial, and industrial33,781 26 — 33,807 102 35 144 33,951 
Commercial real estate:
CRE 12,392 11 — 12,403 20 44 67 12,470 
Consumer real estate:
HELOC2,198 2,213 43 12 57 2,270 
Real estate installment loans8,623 33 8,660 72 43 123 8,783 
Total consumer real estate10,821 39 13 10,873 115 10 55 180 11,053 
Credit card and other:
Credit card273 — 275 — — —  275 
Other845 — 848 3 851 
Total credit card and other1,118 — 1,123 3 1,126 
Total loans and leases$58,112 $81 $13 $58,206 $238 $21 $135 $394 $58,600 

(a) $100 million of C&I loans are nonaccrual loans that have been specifically reviewed for impairment with no related allowance.
(b) C&I loans include TRUPS loans of $210 million, which is net of an amortizing discount of $18 million.

December 31, 2020
 AccruingNon-Accruing 
(Dollars in millions)Current30-89
Days
Past Due
90+
Days
Past Due
Total
Accruing
Current30-89
Days
Past Due
90+
Days
Past Due
Total
Non-
Accruing
Total
Loans
Commercial, financial, and industrial:
C&I (a) (b)$27,541 $15 $— $27,556 $88 $12 $44 $144 $27,700 
Loans to mortgage companies5,404 — — 5,404 — — — — 5,404 
Total commercial, financial, and industrial32,945 15 — 32,960 88 12 44 144 33,104 
Commercial real estate:
CRE 12,194 23 — 12,217 10 42 58 12,275 
Consumer real estate:
HELOC2,336 13 11 2,360 43 14 60 2,420 
Real estate installment loans9,138 40 9,183 63 50 122 9,305 
Total consumer real estate11,474 53 16 11,543 106 12 64 182 11,725 
Credit card and other:
Credit card279 283 — — — — 283 
Other838 — 844 — 845 
Total credit card and other1,117 1,127 — 1,128 
Total loans and leases, net of unearned income$57,730 $100 $17 $57,847 $205 $66 $115 $386 $58,232 

(a) $101 million of C&I loans are nonaccrual loans that have been specifically reviewed for impairment with no related allowance.
(b) C&I loans include TRUPs loans of $210 million, which is net of an amortizing discount of $18 million.

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Note 4 – Loans and Leases (Continued)
Collateral-Dependent Loans

Collateral-dependent loans are defined as loans for which repayment is expected to be derived substantially through the operation or sale of the collateral and where the borrower is experiencing financial difficulty. At a minimum, the estimated value of the collateral for each loan equals the current book value.

As of March 31, 2021 and December 31, 2020, FHN had commercial loans with amortized cost of approximately $247 million and $167 million that was based on the value of underlying collateral. Collateral-dependent C&I and CRE loans totaled $180 million and $67 million, respectively, at March 31, 2021. The collateral for these loans generally consists of business assets including land, buildings, equipment and financial assets. During the three months ended March 31, 2021, FHN recognized charge-offs of approximately $13 million on these loans related to reductions in estimated collateral values.

Consumer HELOC and real estate installment loans with amortized cost based on the value of underlying real estate collateral were approximately $9 million and $24 million, respectively, as of March 31, 2021, and $9 million and $26 million, respectively, as of December 31, 2020. Charge-offs during the three months ended March 31, 2021 were not significant for collateral-dependent consumer loans.
Troubled Debt Restructurings
As part of FHN’s ongoing risk management practices, FHN attempts to work with borrowers when necessary to extend or modify loan terms to better align with their current ability to repay. Extensions and modifications to loans are made in accordance with internal policies and guidelines which conform to regulatory guidance. Each occurrence is unique to the borrower and is evaluated separately.
A modification is classified as a TDR if the borrower is experiencing financial difficulty and it is determined
that FHN has granted a concession to the borrower. FHN may determine that a borrower is experiencing financial difficulty if the borrower is currently in default on any of its debt, or if it is probable that a borrower may default in the foreseeable future. Many aspects of a borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty. Concessions could include extension of the maturity date, reductions of the interest rate (which may make the rate lower than current market for a new loan with similar risk), reduction or forgiveness of accrued interest, or principal forgiveness. The assessments of whether a borrower is experiencing (or is likely to experience) financial difficulty, and whether a concession has been granted, are subjective in nature and management’s judgment is required when determining whether a modification is classified as a TDR. In accordance with regulatory guidance, certain loan modifications that might ordinarily have qualified as TDRs were not accounted for as TDRs and have been excluded from the disclosures below. For loan modifications that were made during the three months ended March 31, 2021 or the year ended December 31, 2020 that met the TDR relief provisions outlined in either the CARES Act, as extended by the CAA, or revised Interagency Guidance, FHN has excluded these modifications from consideration as TDRs, and has excluded loans with these qualifying modifications from designation as TDRs in the information and discussion that follows.
On March 31, 2021 and December 31, 2020, FHN had $288 million and $307 million of portfolio loans classified as TDRs, respectively. For TDRs in the loan portfolio, FHN had loan loss reserves of $11 million, or 4% as of March 31, 2021, and $12 million, or 4% as of December 31, 2020. Additionally, $41 million and $42 million of loans held for sale as of March 31, 2021 and December 31, 2020, respectively, were classified as TDRs.

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Note 4 – Loans and Leases (Continued)
The following tables present the end of period balance for loans modified in a TDR during the periods indicated:
 Three Months Ended March 31, 2021Three Months Ended March 31, 2020
(Dollars in millions)NumberPre-Modification Outstanding Recorded  InvestmentPost-Modification Outstanding Recorded  InvestmentNumberPre-Modification Outstanding Recorded  InvestmentPost-Modification Outstanding Recorded  Investment
Commercial, financial, and industrial:
C&I17 $8 $8 $$
Commercial real estate:
 CRE1 12 10 — — — 
Consumer real estate:
HELOC12 2 2 
Real estate installment loans9 2 2 10 
Total consumer real estate21 4 4 18 
Credit card and other13   24 — — 
Total TDRs52 $24 $22 45 $$
The following tables present TDRs which re-defaulted during the three months ended March 31, 2021 and 2020, and as to which the modification occurred 12 months or less prior to the re-default. For purposes of this disclosure, FHN generally defines payment default as 30 or more days past due.
 Three Months Ended March 31, 2021Three Months Ended March 31, 2020
(Dollars in millions)NumberRecorded
Investment
NumberRecorded
Investment
Commercial, financial, and industrial:
C&I7 $1 — $— 
Commercial real estate:
 CRE  — — 
Consumer real estate:
HELOC1  
Real estate installment loans3 2 — 
Total consumer real estate4 2 
Credit card and other  — 
Total TDRs11 $3 16 $

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Note 5 – Allowance for Credit Losses
Management's estimate of expected credit losses in the loan and lease portfolios is recorded in the ALLL and the RULC, collectively the ACL. The ALLL and the RULC are reported on the Consolidated Balance Sheets in the Allowance for loan and lease losses and in Other liabilities, respectively. Provision for credit losses related to the loans and leases portfolio and the unfunded lending commitments are reported in the Consolidated Statements of Income as Provision for credit losses.
The ACL is maintained at a level management believes to be appropriate to absorb expected lifetime credit losses over the contractual life of the loan and lease portfolio and unfunded lending commitments. The determination of the ACL is based on periodic evaluation of the loan and lease portfolios and unfunded lending commitments considering a number of relevant underling factors, including key assumptions and evaluation of quantitative and qualitative information.
In accordance with its accounting policy elections, FHN does not recognize a separate allowance for expected credit losses for AIR and records reversals
of AIR as reductions of interest income. FHN reverses previously accrued but uncollected interest when an asset is placed on nonaccrual status. As of March 31, 2021 and December 31, 2020, FHN recognized approximately $1 million in allowance for expected credit losses on COVID-19 deferrals that do not qualify for the election which is not reflected in the table below. AIR and the related allowance for expected credit losses is included as a component of Other assets.
The total amount of interest reversals from loans placed on nonaccrual status and the amount of income recognized on nonaccrual loans during the three months ended ended March 31, 2021 and 2020 were not material.
Expected credit losses for unfunded commitments are estimated for periods where the commitment is not unconditionally cancellable. The measurement of expected credit losses for unfunded commitments mirrors that of loans and leases with the additional estimate of future draw rates (timing and amount).
The following table provides a rollforward of the ALLL and RULC by portfolio type for the three months ended March 31, 2021 and 2020:
(Dollars in millions)Commercial, Financial, and Industrial (a)Commercial Real EstateConsumer Real EstateCredit Card and OtherTotal
Allowance for loan and lease losses:
Balance as of January 1, 2021$453 $242 $242 $26 $963 
Charge-offs(16)(3)(1)(3)(23)
Recoveries15 
Provision (provision credit) for loan and lease losses (1)(8)(25)(6)(41)
Balance as of March 31, 2021$442 $232 $222 $18 $914 
Reserve for remaining unfunded commitments:
Balance as of January 1, 2021$65 $10 $10 $— $85 
Provision (provision credit) for remaining unfunded commitments (3)(2)— (4)
Balance as of March 31, 2021$62 $11 $$— $81 
Allowance for loan losses:
Balance as of January 1, 2020, as adjusted (b)$142 $29 $121 $15 $307 
Charge-offs(7)(1)(2)(4)(14)
Recoveries 
Provision for loan losses 119 19 — 145 
Balance as of March 31, 2020$255 $48 $122 $19 $444 
Reserve for remaining unfunded commitments:
Balance as of January 1, 2020, as adjusted (b)$21 $$$— $30 
Provision for remaining unfunded commitments— — 
Balance as of March 31, 2020$27 $$$— $39 
(a) C&I loans as of March 31, 2021 include $5.1 billion in PPP loans which due to the government guarantee and forgiveness provisions are considered to have no credit risk and therefore have no allowance for loan and lease losses.
(b) Balance, as adjusted, reflects the adoption of ASU 2016-13 (CECL) effective January 1, 2020.
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Note 5- Allowance for Credit Losses (Continued)

The difference in the ACL as of March 31, 2021 as compared to December 31, 2020 reflects improvement in the macroeconomic outlook.

In developing credit loss estimates for its loan and lease portfolios, FHN selected Moody’s baseline forecast as the primary source for its macroeconomic inputs, which included assumptions that were generally in line with Blue Chip Economic Indicators, including unemployment rates for 2021 and 2022 and GDP growth rates for the same periods, as well as assumptions around further business disruption related to COVID-19 and an unchanged target Fed funds range until mid 2023.

As there can be no certainty that actual economic performance will precisely follow any specific macroeconomic forecast, FHN also evaluated other macroeconomic forecasts provided by Moody’s and adjusted the modeled outputs through a qualitative adjustment to account for uncertainties inherent in the macroeconomic forecast process. Additionally, where macroeconomic forecast variables used in the models did not take into effect the impact of federal stimulus and bank-supported payment deferral and forbearance programs on the timing of grade migration and recognition of loss content, management adjusted model outputs qualitatively to account for this assistance.
During the year ended December 31, 2020 and the three months ended March 31, 2021, FHN also considered stressed loan portfolios or industries that are most exposed to the effects of the COVID-19 pandemic and added qualitative adjustments, where needed, to account for the risks not captured in modeled results. Management also made qualitative adjustments to reflect estimated recoveries based on a review of prior charge off and recovery levels, for default risk associated with large balances with individual borrowers, for estimated loss amounts not reflected in historical factors due to specific portfolio risk, and for instances where limited data for acquired loans is considered to affect modeled results.
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Note 6 – Mortgage Banking Activity
On July 1, 2020, as part of the IBKC merger, FHN obtained IBKC's mortgage banking operations which includes origination and servicing of residential first lien mortgages that conform to standards established by GSEs that are major investors in U.S. home mortgages, but can also consist of junior lien loans secured by residential property. These loans are primarily sold to private companies that are unaffiliated with the GSEs on a servicing-released basis. Gains and losses on these mortgage loans are included in Mortgage banking and title income on the
Consolidated Statements of Income. Prior to the merger, FHN’s mortgage banking operations were not significant; however, at March 31, 2021, FHN had approximately $53 million of loans that remained from pre-2009 Mortgage Business operations. Activity related to the pre-2009 mortgage loans was primarily limited to payments and write-offs in 2020 and 2021, with no new originations or loan sales, and only an insignificant amount of repurchases. These loans are excluded from the disclosure below.
The following table summarizes activity relating to residential mortgage loans held for sale as of the three months ended March 31, 2021 and the year ended December 31, 2020.

(Dollars in millions)March 31, 2021December 31, 2020
Balance at beginning of period$409 $
Acquired 320 
Originations and purchases446 2,499 
Sales, net of gains(421)(2,405)
Mortgage loans transferred from (to) held for investment3 (9)
Balance at end of period$437 $409 

Mortgage Servicing Rights
Effective with the IBKC merger, FHN made an election to record mortgage servicing rights at the lower of cost or market value and amortize over the remaining servicing life of the loans, with consideration given to prepayment assumptions. Mortgage servicing rights are included in Other assets on the Consolidated Balance Sheets. Mortgage servicing rights had the following carrying values as of the periods indicated.
March 31, 2021
(Dollars in millions)Gross Carrying AmountAccumulated AmortizationNet Carrying Amount
Mortgage servicing rights$31 $(4)$27 
December 31, 2020
(Dollars in millions)Gross Carrying AmountAccumulated AmortizationNet Carrying Amount
Mortgage servicing rights$28 $(3)$25 
In addition, there was an insignificant amount of non-mortgage and commercial servicing rights as of March 31, 2021 and December 31, 2020. Total mortgage servicing fees included in Mortgage banking and title income were $1 million for the three months ended March 31, 2021, and were insignificant for the three months ended March 31, 2020.
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Note 7 – Goodwill and Other Intangible Assets

Goodwill

On July 1, 2020, FHN completed its merger-of-equals transaction with IBKC. In connection with the merger, FHN recorded a $534 million purchase accounting gain, based on preliminary fair value estimates.

On July 17, 2020, FHN completed its purchase of 30 branches from Truist Bank. In relation to the acquisition, FHN recorded $78 million in goodwill, based on fair value estimates. See Note 2 - Acquisitions and Divestitures for additional information regarding these transactions.

FHN performed the required annual goodwill impairment test as of October 1, 2020. The annual impairment test did not indicate impairment in any of FHN’s reporting units as of the testing date. Following the testing date, management evaluated the events and circumstances that could indicate that goodwill might be impaired and concluded that a subsequent interim test was not necessary.
As further discussed in Note 13 - Business Segment Information, FHN reorganized its management reporting structure during the fourth quarter of 2020 and, accordingly, its segment reporting structure and goodwill reporting units. In connection with the reorganization, management reallocated goodwill to the new reporting units using a relative fair value approach.

Accounting estimates and assumptions were made about FHN’s future performance and cash flows, as well as other prevailing market factors (e.g., interest rates, economic trends, etc.) when determining fair value as part of the goodwill impairment test. While management used the best information available to estimate future performance for each reporting unit, future adjustments to management’s projections may be necessary if conditions differ substantially from the assumptions used in making the estimates.


The following is a summary of goodwill by reportable segment included in the Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020.
(Dollars in millions)Regional
Banking
Specialty BankingTotal
December 31, 2019$802 $631 $1,433 
Additions78 — 78 
December 31, 2020$880 $631 $1,511 
December 31, 2020$880 $631 $1,511 
Additions and adjustments— — — 
March 31, 2021$880 $631 $1,511 

Other intangible assets

The following table, which excludes fully amortized intangibles, presents other intangible assets included in the Consolidated Balance Sheets:
 March 31, 2021December 31, 2020
(Dollars in millions)Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Value
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Value
Core deposit intangibles$371 $(93)$278 $371 $(81)$290 
Customer relationships37 (9)28 37 (8)29 
Other (a)41 (8)33 41 (6)35 
Total$449 $(110)$339 $449 $(95)$354 
(a)Includes noncompete covenants and purchased credit card intangible assets. Also includes title plant intangible assets and state banking licenses which are not subject to amortization.
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Note 8 - Preferred Stock

The following table presents a summary of FHN's non-cumulative perpetual preferred stock:

(Dollars in millions)March 31, 2021December 31, 2020
Issuance DateEarliest Redemption Date (a)Annual Dividend RateDividend PaymentsShares OutstandingLiquidation AmountCarrying AmountCarrying Amount
Series A1/31/20134/10/20186.200 %Quarterly1,000 $100 $96 $96 
Series B7/2/20208/1/20256.625 %(b)Semi-annually8,000 80 77 77 
Series C7/2/20205/1/20266.600 %(c)Quarterly5,750 58 59 59 
Series D7/2/20205/1/20246.100 %(d)Semi-annually10,000 100 93 93 
Series E5/28/202010/10/20256.500 %Quarterly1,500 150 145 145 
26,250 $488 $470 $470 
(a) Denotes earliest optional redemption date. Earlier redemption is possible, at FHN's election, if certain regulatory capital events occur.
(b) Fixed dividend rate will reset on August 1, 2025 to three-month LIBOR plus 4.262%.
(c) Fixed dividend rate will reset on May 1, 2026 to three-month LIBOR plus 4.920%.
(d) Fixed dividend rate will reset on May 1, 2024 to three-month LIBOR plus 3.859%.

Subsidiary Preferred Stock
First Horizon Bank has issued 300,000 shares of Class A Non-Cumulative Perpetual Preferred Stock (Class A Preferred Stock) with a liquidation preference of $1,000 per share. Dividends on the Class A Preferred Stock, if declared, accrue and are payable each quarter, in arrears, at a floating rate equal to the greater of the three month LIBOR plus 0.85% or 3.75% per annum. These securities qualify fully as Tier 1 capital for First Horizon Bank, while for FHN they qualify partially as Tier 1 capital and partially as Tier 2 capital. On March 31, 2021 and December 31, 2020, $295 million of Class A Preferred Stock was recognized as Noncontrolling interest on the Consolidated Balance Sheets.
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Note 9 – Components of Other Comprehensive Income (Loss)
The following table provides the changes in accumulated other comprehensive income (loss) by component, net of tax, for the three months ended March 31, 2021 and 2020:
(Dollars in millions)Securities AFSCash Flow
Hedges
Pension and
Post-retirement
Plans
Total
Balance as of January 1, 2021$108 $12 $(260)$(140)
Net unrealized gains (losses)(103)(3)(104)
Amounts reclassified from AOCI— 
Other comprehensive income (loss)(103)(2)(101)
Balance as of March 31, 2021$5 $10 $(256)$(241)
(Dollars in millions)Securities AFSCash Flow
Hedges
Pension and
Post-retirement
Plans
Total
Balance as of January 1, 2020$31 $$(273)$(239)
Net unrealized gains (losses)89 13 — 102 
Amounts reclassified from AOCI— — 
Other comprehensive income (loss)89 13 104 
Balance as of March 31, 2020$120 $16 $(271)$(135)
Reclassifications from AOCI, and related tax effects, were as follows:
(Dollars in millions)Three Months Ended
March 31,
 
Details about AOCI20212020Affected line item in the statement where net income is presented
Cash flow hedges:
Realized (gains) losses on cash flow hedges$2 $— Interest and fees on loans and leases
Tax expense (benefit)(1)— Income tax expense
1 — 
Pension and Postretirement Plans:
Amortization of prior service cost and net actuarial (gain) loss4 All other expense
Tax expense (benefit)(2)(1)Income tax expense
2 
Total reclassification from AOCI$3 $

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Note 10 – Earnings Per Share
The computations of basic and diluted earnings per common share were as follows:
 Three Months Ended
March 31,
(Dollars in millions, except per share data; shares in thousands)20212020
Net income $236 $16 
Net income attributable to noncontrolling interest3 
Net income attributable to controlling interest23313
Preferred stock dividends8 1
Net income available to common shareholders22512 
Weighted average common shares outstanding—basic552,249 311,597 
Effect of dilutive securities5,283 1,573 
Weighted average common shares outstanding—diluted557,532 313,170 
Basic earnings per common share$0.41 $0.04 
Diluted earnings per common share$0.40 $0.04 
The following table presents outstanding options and other equity awards that were excluded from the calculation of diluted earnings per share because they were either anti-dilutive (the exercise price was higher than the weighted-average market price for the period) or the performance conditions have not been met:
 
 Three Months Ended
March 31,
(Shares in thousands)20212020
Stock options excluded from the calculation of diluted EPS3,827 3,031 
Weighted average exercise price of stock options excluded from the calculation of diluted EPS$18.11 $18.73 
Other equity awards excluded from the calculation of diluted EPS2,784 4,264 

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Note 11 – Contingencies and Other Disclosures
CONTINGENCIES
Contingent Liabilities Overview
Contingent liabilities arise in the ordinary course of business. Often they are related to lawsuits, arbitration, mediation, and other forms of litigation. Various litigation matters currently are threatened or pending against FHN and its subsidiaries. Also, FHN at times receives requests for information, subpoenas, or other inquiries from federal, state, and local regulators, from other government authorities, and from other parties concerning various matters relating to FHN’s current or former businesses. Certain matters of that sort are pending at most times, and FHN generally cooperates when those matters arise. Pending and threatened litigation matters sometimes are settled by the parties, and sometimes pending matters are resolved in court or before an arbitrator, or are withdrawn. Regardless of the manner of resolution, frequently the most significant changes in status of a matter occur over a short time period, often following a lengthy period of little substantive activity. In view of the inherent difficulty of predicting the outcome of these matters, particularly where the claimants seek very large or indeterminate damages, or where the cases present novel legal theories or involve a large number of parties, or where claims or other actions may be possible but have not been brought, FHN cannot reasonably determine what the eventual outcome of the matters will be, what the timing of the ultimate resolution of these matters may be, or what the eventual loss or impact related to each matter may be. FHN establishes a loss contingency liability for a litigation matter when loss is both probable and reasonably estimable as prescribed by applicable financial accounting guidance. If loss for a matter is probable and a range of possible loss outcomes is the best estimate available, accounting guidance requires a liability to be established at the low end of the range.
Based on current knowledge, and after consultation with counsel, management is of the opinion that loss contingencies related to threatened or pending litigation matters should not have a material adverse effect on the consolidated financial condition of FHN, but may be material to FHN’s operating results for any particular reporting period depending, in part, on the results from that period.
Material Loss Contingency Matters
Summary
As used in this Note, except for matters that are reported as having been substantially settled or otherwise substantially resolved, FHN's “material loss
contingency matters” generally fall into at least one of the following categories: (i) FHN has determined material loss to be probable and has established a material loss liability in accordance with applicable financial accounting guidance; (ii) FHN has determined material loss to be probable but is not reasonably able to estimate an amount or range of material loss liability; or (iii) FHN has determined that material loss is not probable but is reasonably possible, and the amount or range of that reasonably possible material loss is estimable. As defined in applicable accounting guidance, loss is reasonably possible if there is more than a remote chance of a material loss outcome for FHN. FHN provides contingencies note disclosures for certain pending or threatened litigation matters each quarter, including all matters mentioned in categories (i) or (ii) and, occasionally, certain matters mentioned in category (iii). In addition, in this Note, certain other matters, or groups of matters, are discussed relating to FHN’s pre-2009 mortgage origination and servicing businesses. In all litigation matters discussed in this Note, unless settled or otherwise resolved, FHN believes it has meritorious defenses and intends to pursue those defenses vigorously.
FHN reassesses the liability for litigation matters each quarter as the matters progress. At March 31, 2021, the aggregate amount of liabilities established for all such loss contingency matters was $1 million. These liabilities are separate from those discussed under the heading “Mortgage Loan Repurchase and Foreclosure Liability” below.
In each material loss contingency matter, except as otherwise noted, there is more than a remote chance that any of the following outcomes will occur: the plaintiff will substantially prevail; the defense will substantially prevail; the plaintiff will prevail in part; or the matter will be settled by the parties. At March 31, 2021, FHN estimates that for all material loss contingency matters, estimable reasonably possible losses in future periods in excess of currently established liabilities could aggregate in a range from zero to less than $1 million.
As a result of the general uncertainties discussed above and the specific uncertainties discussed for each matter mentioned below, it is possible that the ultimate future loss experienced by FHN for any particular matter may materially exceed the amount, if any, of currently established liability for that matter.
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Note 11 – Contingencies and Other Disclosures (Continued)
Material Matters
A former shareholder of CBF has filed a putative class action suit, Searles v. DeMartini et al, No. 2020-0136 (Del. Chancery), against certain former directors, officers, and shareholders of CBF, alleging, among other things, that defendants breached certain fiduciary duties in connection with CBF's merger with FHN in 2017. Plaintiff claims unspecified damages related to the merger consideration and opportunity loss. FHN is unable to estimate an RPL range for this matter due to significant uncertainties regarding: whether a class will be certified and, if so, the composition of the class; the amount of potential damages that might be awarded, if any; of any such damages amount, the amount that FHN would be obliged to indemnify; whether applicable insurance will be sufficient to cover FHN's exposure; and the outcome of discovery.
Exposures from pre-2009 Mortgage Business
FHN is contending with indemnification claims related to "other whole loans sold," which were mortgage loans originated by FHN before 2009 and sold outside of an FHN securitization. These claims generally assert that FHN-originated loans contributed to losses in connection with mortgage loans securitized by the buyer of the loans. The claims generally do not include specific deficiencies for specific loans sold by FHN. Instead, the claims generally assert that FHN is liable for a share of the claimant's loss estimated by assessing the totality of the other whole loans sold by FHN to claimant in relation to the totality of the larger number of loans securitized by claimant. FHN is unable to estimate an RPL range for these matters due to significant uncertainties regarding: the number of, and the facts underlying, the loan originations which claimants assert are indemnifiable; the applicability of FHN’s contractual indemnity covenants to those facts and originations; and, in those cases where an indemnity claim may be supported, whether any legal defenses, counterclaims, other counter-positions, or third-party claims might eliminate or reduce claims against FHN or their impact on FHN.
FHN also has indemnification claims related to servicing obligations. The most significant is from Nationstar Mortgage LLC, currently doing business as “Mr. Cooper.” Nationstar was the purchaser of FHN’s mortgage servicing obligations and assets in 2013 and 2014 and, was FHN’s subservicer. Nationstar asserts several categories of indemnity obligations in connection with mortgage loans under the subservicing arrangement and under the purchase transaction. This matter currently is not in litigation, but litigation in the future is possible. FHN is unable to
estimate an RPL range for this matter due to significant uncertainties regarding: the exact nature of each of Nationstar’s claims and its position in respect of each; the number of, and the facts underlying, the claimed instances of indemnifiable events; the applicability of FHN’s contractual indemnity covenants to those facts and events; and, in those cases where the facts and events might support an indemnity claim, whether any legal defenses, counterclaims, other counter-positions, or third-party claims might eliminate or reduce claims against FHN or their impact on FHN.
FHN has additional potential exposures related to its pre-2009 mortgage businesses. A few of those matters have become litigation which FHN currently estimates are immaterial, some are non-litigation claims or threats, some are mere subpoenas or other requests for information, and in some areas FHN has no indication of any active or threatened dispute. Some of those matters might eventually result in settlements, and some might eventually result in adverse litigation outcomes, but none are included in the material loss contingency liabilities mentioned above or in the RPL range mentioned above..
Mortgage Loan Repurchase and Foreclosure Liability
FHN’s repurchase and foreclosure liability, primarily related to its pre-2009 mortgage businesses, is comprised of accruals to cover estimated loss content in the active pipeline (consisting of mortgage loan repurchase, make-whole, foreclosure/servicing demands and certain related exposures), estimated future inflows, and estimated loss content related to certain known claims not currently included in the active pipeline. FHN compares the estimated probable incurred losses determined under the applicable loss estimation approaches for the respective periods with current reserve levels. Changes in the estimated required liability levels are recorded as necessary through the repurchase and foreclosure provision.
Based on currently available information and experience to date, FHN has evaluated its loan repurchase, make-whole, foreclosure, and certain related exposures and has accrued for losses of $16 million as of March 31, 2021 and December 31, 2020. Accrued liabilities for FHN’s estimate of these obligations are reflected in Other liabilities on the Consolidated Balance Sheets. Charges/expense reversals to increase/decrease the liability are included within Other income on the Consolidated Statements of Income. The estimates are based upon currently available information and fact patterns that exist as of each balance sheet date and could be subject to future changes. Changes to any one of
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Note 11 – Contingencies and Other Disclosures (Continued)
these factors could significantly impact the estimate of FHN’s liability.
OTHER DISCLOSURES
Indemnification Agreements and Guarantees
In the ordinary course of business, FHN enters into indemnification agreements for legal proceedings against its directors and officers and standard representations and warranties for underwriting agreements, merger and acquisition agreements, loan sales, contractual commitments, and various other business transactions or arrangements.
The extent of FHN’s obligations under these agreements depends upon the occurrence of future events; therefore, it is not possible to estimate a maximum potential amount of payouts that could be required by such agreements.
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Note 12 – Retirement Plans

FHN sponsors a noncontributory, qualified defined benefit pension plan to employees hired or re-hired on or before September 1, 2007. Pension benefits are based on years of service, average compensation near retirement or other termination, and estimated social security benefits at age 65. Benefits under the plan are “frozen” so that years of service and compensation changes after 2012 do not affect the benefit owed. Minimum contributions are based upon actuarially determined amounts necessary to fund the total benefit obligation. Decisions to contribute to the plan are based upon pension funding requirements under the Pension Protection Act, the maximum amount deductible under the Internal Revenue Code, the actual performance of plan assets, and trends in the regulatory environment. FHN made no contributions to the qualified pension plan in 2020. Management does not currently anticipate that FHN will make a contribution to the qualified pension plan for the remainder of 2021.
FHN also maintains non-qualified plans including a supplemental retirement plan that covers certain employees whose benefits under the qualified pension plan have been limited by tax rules. These other non-qualified plans are unfunded, and contributions to these plans cover all benefits paid under the non-qualified plans. Payments made under the non-qualified plans were $5 million for 2020. FHN anticipates making benefit payments under the non-qualified plans of $5 million in 2021.
Service cost is included in Personnel expense in the Consolidated Statements of Income. All other components of net periodic benefit cost are included in Other expense.
For more information on FHN's pension plan and other postretirement benefit plans, see Note 18 - Pension, Savings and Other Employee Benefits in FHN's 2020 Annual Report on Form 10-K.
The components of net periodic benefit cost for the three months ended March 31 were as follows:
 Pension Benefits
(Dollars in millions)20212020
Components of net periodic benefit cost
Interest cost$4 $
Expected return on plan assets(4)(6)
Amortization of unrecognized:
Actuarial (gain) loss2 
Other2 — 
Net periodic benefit cost$4 $

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Note 13 – Business Segment Information
During the fourth quarter of 2020, FHN reorganized its internal management structure and, accordingly, its segment reporting structure. Historically, FHN's reportable business segments were Regional Banking, Fixed Income, Corporate, and Non-strategic. On July 1, 2020, FHN and IBKC closed their merger of equals transaction. This transaction prompted organizational changes to better integrate and execute the combined Company's strategic priorities across all lines of businesses. As a result, FHN revised its reportable segments as described below. Prior period segment information has been reclassified to conform to the current period presentation.

FHN is composed of the following operating segments:

Regional Banking segment offers financial products and services, including traditional lending and deposit taking, to consumer and commercial clients primarily in the southern U.S. and other selected markets. Regional Banking also provides investment, wealth management, financial planning, trust and asset management services for consumer clients.

Specialty Banking segment consists of lines of business that deliver product offerings and services with specialized industry knowledge. Specialty Banking’s lines of business include asset-based lending, mortgage warehouse lending, commercial real estate, franchise finance, correspondent banking, equipment finance, mortgage, and title insurance. In addition to traditional lending and deposit taking, Specialty Banking also delivers treasury management solutions, loan syndications, international banking and SBA lending. Additionally, Specialty Banking has
a line of business focused on fixed income securities sales, trading, underwriting, and strategies for institutional clients in the U.S. and abroad, as well as loan sales, portfolio advisory services, and derivative sales.

Corporate segment consists primarily of corporate support functions including risk management, audit, accounting, finance, executive office, and corporate communications. Shared support services such as human resources, properties, technology, credit risk and bank operations are allocated to the activities of Regional Banking, Specialty Banking and Corporate. Additionally, the Corporate segment includes centralized management of capital and funding to support the business activities of the company including management of wholesale funding, liquidity, and capital management and allocation. The Corporate segment also includes the revenue and expense associated with run-off businesses such as pre-2009 mortgage banking elements, run-off consumer and trust preferred loan portfolios, and other exited businesses.
Periodically, FHN adapts its segments to reflect managerial or strategic changes. FHN may also modify its methodology of allocating expenses and equity among segments which could change historical segment results. Business segment revenue, expense, asset, and equity levels reflect those which are specifically identifiable or which are allocated based on an internal allocation method. Because the allocations are based on internally developed assignments and allocations, to an extent they are subjective. Generally, all assignments and allocations have been consistently applied for all periods presented.

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Note 13 – Business Segment Information (Continued)
The following tables reflect financial information for each reportable business segment for the three months ended March 31 2021 and 2020:
Three Months Ended March 31, 2021
(Dollars in millions)Regional BankingSpecialty BankingCorporateConsolidated
Net interest income (expense)$426 $159 $(77)$508 
Provision for credit losses(32)(7)(6)(45)
Noninterest income100 185 13 298 
Noninterest expense (a)272 154 118 544 
Income (loss) before income taxes286 197 (176)307 
Income tax expense (benefit)66 47 (42)71 
Net income (loss)$220 $150 $(134)$236 
Average assets$42,371 $21,503 $21,527 $85,401 
(a) Includes $33 million in asset impairments related to IBKC merger integration efforts in the Corporate segment.
Three Months Ended March 31, 2020
(Dollars in millions)Regional BankingSpecialty BankingCorporateConsolidated
Net interest income (expense)$194 $109 $— $303 
Provision for credit losses98 54 154 
Noninterest income73 104 (3)174 
Noninterest expense173 111 18 302 
Income (loss) before income taxes(4)48 (23)21 
Income tax expense (benefit)(2)11 (4)
Net income (loss)$(2)$37 $(19)$16 
Average assets$19,044 $16,890 $7,618 $43,552 
Certain previously reported amounts have been reclassified to agree with current presentation.

The following tables reflect a disaggregation of FHN’s noninterest income by major product line and reportable segment for the three months ended March 31, 2021 and 2020:
Three months ended March 31, 2021
(Dollars in millions)Regional BankingSpecialty BankingCorporateConsolidated
Noninterest income:
Fixed income (a)$1 $125 $ $126 
Mortgage banking and title income 52 1 53 
Deposit transactions and cash management38 3 1 42 
Brokerage, management fees and commissions20   20 
Trust services and investment management12   12 
Bankcard income11   11 
Other income (b)18 5 11 34 
Total noninterest income$100 $185 $13 $298 
(a)Includes $10 million of underwriting, portfolio advisory, and other noninterest income in scope of ASC 606, "Revenue From Contracts With Customers."
(b)Includes other service charges, ATM and interchange fees, electronic banking fees, and insurance commissions in scope of ASC 606.

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Three months ended March 31, 2020
(Dollars in millions)Regional BankingSpecialty BankingCorporateConsolidated
Noninterest income:
Fixed income (a)$— $96 $— $96 
Mortgage banking and title income— — 
Deposit transactions and cash management26 30 
Brokerage, management fees and commissions16 — — 16 
Trust services and investment management— — 
Bankcard income— 
Other income (b)18 (4)16 
Total noninterest income$73 $104 $(3)$174 
Certain previously reported amounts have been reclassified to agree with current presentation.

(a)Includes $9 million of underwriting, portfolio advisory, and other noninterest income in scope of ASC 606, "Revenue From Contracts With Customers."
(b)Includes other service charges, ATM and interchange fees, electronic banking fees, and insurance commissions in scope of ASC 606.

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Note 14 – Variable Interest Entities
FHN makes equity investments in various entities that are considered VIEs, as defined by GAAP. A VIE typically does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties. The Company’s variable interest arises from contractual, ownership or other monetary interests in the entity, which change with fluctuations in the fair value of the entity's net assets. FHN consolidates a VIE if FHN is the primary beneficiary of the entity. FHN is the primary beneficiary of a VIE if FHN's variable interest provides it with the power to direct the activities that most significantly impact the VIE and the right to receive benefits (or the obligation to absorb losses) that could potentially be significant to the VIE. To determine whether or not a variable interest held could potentially be significant to the VIE, FHN considers both qualitative and quantitative factors regarding the nature, size and form of its involvement with the VIE. FHN assesses whether or not it is the primary beneficiary of a VIE on an ongoing basis.

Consolidated Variable Interest Entities
FHN has established certain rabbi trusts related to deferred compensation plans offered to its employees. FHN contributes employee cash compensation deferrals to the trusts and directs the underlying investments made by the trusts. The assets of these trusts are available to FHN’s creditors only in the event that FHN becomes insolvent. These trusts are considered VIEs as there is no equity at risk in the trusts since FHN provided the equity interest to its employees in exchange for services rendered. FHN is considered the primary beneficiary of the rabbi trusts as it has the power to direct the activities that most significantly impact the economic performance of the rabbi trusts through its ability to direct the underlying investments made by the trusts. Additionally, FHN could potentially receive benefits or absorb losses that are significant to the trusts due to its right to receive any asset values in excess of liability payoffs and its obligation to fund any liabilities to employees that are in excess of a rabbi trust’s assets.
The following table summarizes the carrying value of assets and liabilities associated with rabbi trusts used for deferred compensation plans which are consolidated by FHN as of March 31, 2021 and December 31, 2020:
(Dollars in millions)March 31, 2021December 31, 2020
Assets:
Other assets$200 $195 
Total assets$200 $195 
Liabilities:
Other liabilities$173 $165 
Total liabilities$173 $165 
Nonconsolidated Variable Interest Entities
Low Income Housing Tax Credit Partnerships. Through designated wholly-owned subsidiaries, First Horizon Bank, makes equity investments as a limited partner in various partnerships that sponsor affordable housing projects utilizing the LIHTC. The purpose of these investments is to achieve a satisfactory return on capital and to support FHN’s community reinvestment initiatives. LIHTC partnerships are managed by unrelated general partners that have the power to direct the activities which most significantly affect the performance of the partnerships. FHN is therefore not the primary beneficiary of any LIHTC partnerships. Accordingly, FHN does not consolidate these VIEs and accounts for these investments in other assets on the Consolidated Balance Sheets.
FHN accounts for all qualifying LIHTC investments under the proportional amortization method. Under this method an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance as a component of income tax expense. LIHTC investments that do not qualify for the proportional amortization method are accounted for using the equity method. Expenses associated with these investments were not material for the three months ended March 31, 2021 and 2020.
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Note 14 – Variable Interest Entities (Continued)
The following table summarizes the impact to Income tax expense on the Consolidated Statements of Income for the three months ended March 31, 2021 and 2020 for LIHTC investments accounted for under the proportional amortization method.
Three Months Ended
March 31,
(Dollars in millions)20212020
Income tax expense (benefit):
Amortization of qualifying LIHTC investments$9 $
Low income housing tax credits(9)(5)
Other tax benefits related to qualifying LIHTC investments(3)(3)

Other Tax Credit Investments. Through designated subsidiaries, First Horizon Bank periodically makes equity investments as a non-managing member in various LLCs that sponsor community development projects utilizing the NMTC. First Horizon Bank also makes equity investments as a limited partner or non-managing member in entities that receive tax credits from solar and historic tax credits. The purpose of these investments is to achieve a satisfactory return on capital and to support FHN’s community reinvestment initiatives. These entities are considered VIEs as First Horizon Bank's subsidiaries represent the holders of the equity investment at risk, but do not have the ability to direct the activities that most significantly affect the performance of the entities.
Small Issuer Trust Preferred Holdings. First Horizon Bank holds variable interests in trusts which have issued mandatorily redeemable preferred capital securities (“trust preferreds”) for smaller banking and insurance enterprises. First Horizon Bank has no voting rights for the trusts’ activities. The trusts’ only assets are junior subordinated debentures of the issuing enterprises. The creditors of the trusts hold no recourse to the assets of First Horizon Bank. Since First Horizon Bank is solely a holder of the trusts’ securities, it has no rights which would give it the power to direct the activities that most significantly impact the trusts’ economic performance and thus it is not considered the primary beneficiary of the trusts. First Horizon Bank has no contractual requirements to provide financial support to the trusts.
On-Balance Sheet Trust Preferred Securitization. In 2007, First Horizon Bank executed a securitization of certain small issuer trust preferreds for which the underlying trust meets the definition of a VIE as the holders of the equity investment at risk do not have the power through voting rights, or similar rights, to direct the activities that most significantly impact the entity’s economic performance. Since First Horizon Bank did not retain servicing or other decision making rights, First Horizon Bank is not the primary beneficiary as it does not have the power to direct the activities that most significantly impact the trust’s
economic performance. Accordingly, First Horizon Bank has accounted for the funds received through the securitization as a term borrowing in its Consolidated Balance Sheets. First Horizon Bank has no contractual requirements to provide financial support to the trust.
Holdings in Agency Mortgage-Backed Securities. FHN holds securities issued by various Agency securitization trusts. Based on their restrictive nature, the trusts meet the definition of a VIE since the holders of the equity investments at risk do not have the power through voting rights, or similar rights, to direct the activities that most significantly impact the entities’ economic performance. FHN could potentially receive benefits or absorb losses that are significant to the trusts based on the nature of the trusts’ activities and the size of FHN’s holdings. However, FHN is solely a holder of the trusts’ securities and does not have the power to direct the activities that most significantly impact the trusts’ economic performance, and is not considered the primary beneficiary of the trusts. FHN has no contractual requirements to provide financial support to the trusts.

Commercial Loan Troubled Debt Restructurings. For certain troubled commercial loans, First Horizon Bank restructures the terms of the borrower’s debt in an effort to increase the probability of receipt of amounts contractually due. Following a troubled debt restructuring, the borrower entity typically meets the definition of a VIE as the initial determination of whether an entity is a VIE must be reconsidered as events have proven that the entity’s equity is not sufficient to permit it to finance its activities without additional subordinated financial support or a restructuring of the terms of its financing. As First Horizon Bank does not have the power to direct the activities that most significantly impact such troubled commercial borrowers’ operations, it is not considered the primary beneficiary even in situations where, based on the size of the financing provided, First Horizon Bank is exposed to potentially significant benefits and losses of the borrowing entity. First Horizon Bank has no contractual requirements to
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Note 14 – Variable Interest Entities (Continued)
provide financial support to the borrowing entities beyond certain funding commitments established upon restructuring of the terms of the debt that allows for preparation of the underlying collateral for sale.

Proprietary Trust Preferred Issuances. In conjunction with its acquisitions, FHN acquired junior subordinated debt underlying multiple issuances of trust preferred debt. All of the trusts are considered VIEs because the ownership interests from the capital
contributions to these trusts are not considered “at risk” in evaluating whether the holders of the equity investments at risk in the trusts have the ability to direct the activities that most significantly impact the entities’ economic performance. Thus, FHN cannot be the trusts’ primary beneficiary because its ownership interests in the trusts are not considered variable interests as they are not considered “at risk”. Consequently, none of the trusts are consolidated by FHN.


The following table summarizes FHN’s nonconsolidated VIEs as of March 31, 2021:
(Dollars in millions) 
Maximum
Loss Exposure
Liability
Recognized
Classification
Type 
Low income housing partnerships$345 $126 (a)
Other tax credit investments (b)68 42 Other assets
Small issuer trust preferred holdings (c)210 — Loans and leases
On-balance sheet trust preferred securitization32 83 (d)
Holdings of agency mortgage-backed securities (c)7,053 — (e)
Commercial loan troubled debt restructurings (f)169 — Loans and leases
Proprietary trust preferred issuances (g)— 287 Term borrowings
(a)Maximum loss exposure represents $219 million of current investments and $126 million of accrued contractual funding commitments. Accrued funding commitments represent unconditional contractual obligations for future funding events and are also recognized in Other liabilities. FHN currently expects to be required to fund these accrued commitments by the end of 2024.
(b)Maximum loss exposure represents the value of current investments.
(c)Maximum loss exposure represents the value of current investments. A liability is not recognized as FHN is solely a holder of the trusts’ securities.
(d)Includes $112 million classified as Loans and leases and $2 million classified as Trading securities which are offset by $83 million classified as Term borrowings.
(e)Includes $0.6 billion classified as Trading securities and $6.5 billion classified as Securities available for sale.
(f)Maximum loss exposure represents $166 million of current receivables and $3 million of contractual funding commitments on loans related to commercial borrowers involved in a troubled debt restructuring.
(g)No exposure to loss due to nature of FHN's involvement.
The following table summarizes FHN’s nonconsolidated VIEs as of December 31, 2020:
(Dollars in millions)Maximum
Loss Exposure
Liability
Recognized
Classification
Type 
Low income housing partnerships$338 $132 (a)
Other tax credit investments (b)64 42 Other assets
Small issuer trust preferred holdings (c)210 — Loans and leases
On-balance sheet trust preferred securitization32 82 (d)
Holdings of agency mortgage-backed securities (c)7,063 — (e)
Commercial loan troubled debt restructurings (f)186 — Loans and leases
Proprietary trust preferred issuances (g)  287 Term borrowings
(a)Maximum loss exposure represents $206 million of current investments and $132 million of accrued contractual funding commitments. Accrued funding commitments represent unconditional contractual obligations for future funding events and are also recognized in Other liabilities. FHN currently expects to be required to fund these accrued commitments by the end of 2024.
(b)Maximum loss exposure represents current investments.
(c)Maximum loss exposure represents the value of current investments. A liability is not recognized as FHN is solely a holder of the trusts’ securities.
(d)Includes $112 million classified as Loans and leases and $2 million classified as Trading securities which are offset by $82 million classified as Term borrowings.
(e)Includes $0.8 billion classified as Trading securities and $6.2 billion classified as Securities available for sale.
(f)Maximum loss exposure represents $176 million of current receivables and $10 million of contractual funding commitments on loans related to commercial borrowers involved in a troubled debt restructuring.
(g)No exposure to loss due to nature of FHN's involvement.
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Note 15 – Derivatives

In the normal course of business, FHN utilizes various financial instruments (including derivative contracts and credit-related agreements) through its fixed income and risk management operations, as part of its risk management strategy and as a means to meet clients’ needs. Derivative instruments are subject to credit and market risks in excess of the amount recorded on the balance sheet as required by GAAP. The contractual or notional amounts of these financial instruments do not necessarily represent the amount of credit or market risk. However, they can be used to measure the extent of involvement in various types of financial instruments. Controls and monitoring procedures for these instruments have been established and are routinely reevaluated. The ALCO controls, coordinates, and monitors the usage and effectiveness of these financial instruments.
Credit risk represents the potential loss that may occur if a party to a transaction fails to perform according to the terms of the contract. The measure of credit exposure is the replacement cost of contracts with a positive fair value. FHN manages credit risk by entering into financial instrument transactions through national exchanges, primary dealers or approved counterparties, and by using mutual margining and master netting agreements whenever possible to limit potential exposure. FHN also maintains collateral posting requirements with certain counterparties to limit credit risk. Daily margin posted or received with central clearinghouses is considered a legal settlement of the related derivative contracts which results in a net presentation for each contract in the Consolidated Balance Sheets. Treatment of daily margin as a settlement has no effect on hedge accounting or gains/losses for the applicable derivative contracts. On March 31, 2021 and December 31, 2020, respectively, FHN had $234 million and $280 million of cash receivables and $122 million and $166 million of cash payables related to collateral posting under master netting arrangements, inclusive of collateral posted related to contracts with adjustable collateral posting thresholds and over-collateralized positions, with derivative counterparties. With exchange-traded contracts, the credit risk is limited to the clearinghouse used. For non-exchange traded instruments, credit risk may occur when there is a gain in the fair value of the financial instrument and the counterparty fails to perform according to the terms of the contract and/or when the collateral proves to be of insufficient value. See additional discussion regarding master netting agreements and collateral posting requirements later in this note under the heading “Master Netting and Similar Agreements.” Market risk represents the potential loss due to the decrease in the value of a financial instrument caused
primarily by changes in interest rates or the prices of debt instruments. FHN manages market risk by establishing and monitoring limits on the types and degree of risk that may be undertaken. FHN continually measures this risk through the use of models that measure value-at-risk and earnings-at-risk.
Derivative Instruments. FHN enters into various derivative contracts both to facilitate client transactions and as a risk management tool. Where contracts have been created for clients, FHN enters into upstream transactions with dealers to offset its risk exposure. Contracts with dealers that require central clearing are novated to a clearing agent who becomes FHN’s counterparty. Derivatives are also used as a risk management tool to hedge FHN’s exposure to changes in interest rates or other defined market risks.
Forward contracts are over-the-counter contracts where two parties agree to purchase and sell a specific quantity of a financial instrument at a specified price, with delivery or settlement at a specified date. Futures contracts are exchange-traded contracts where two parties agree to purchase and sell a specific quantity of a financial instrument at a specified price, with delivery or settlement at a specified date. Interest rate option contracts give the purchaser the right, but not the obligation, to buy or sell a specified quantity of a financial instrument, at a specified price, during a specified period of time. Caps and floors are options that are linked to a notional principal amount and an underlying indexed interest rate. Interest rate swaps involve the exchange of interest payments at specified intervals between two parties without the exchange of any underlying principal. Swaptions are options on interest rate swaps that give the purchaser the right, but not the obligation, to enter into an interest rate swap agreement during a specified period of time.
Trading Activities
FHNF trades U.S. Treasury, U.S. Agency, government-guaranteed loan, mortgage-backed, corporate and municipal fixed income securities, and other securities for distribution to clients. When these securities settle on a delayed basis, they are considered forward contracts. FHNF also enters into interest rate contracts, including caps, swaps, and floors, for its clients. In addition, FHNF enters into futures and option contracts to economically hedge interest rate risk associated with a portion of its securities inventory. These transactions are measured at fair value, with changes in fair value
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Note 15 – Derivatives (Continued)
recognized in noninterest income. Related assets and liabilities are recorded on the Consolidated Balance Sheets as derivative assets and derivative liabilities within Other assets and Other liabilities. The FHNF Risk Committee and the Credit Risk Management Committee collaborate to mitigate credit risk related to these transactions. Credit risk is controlled through credit approvals, risk control limits, and ongoing
monitoring procedures. Total trading revenues were $115 million and $78 million for the three months ended March 31, 2021 and 2020, respectively. Trading revenues are inclusive of both derivative and non-derivative financial instruments, and are included in Fixed income on the Consolidated Statements of Income.
The following tables summarize derivatives associated with FHNF's trading activities as of March 31, 2021 and December 31, 2020:
 
 March 31, 2021
(Dollars in millions)NotionalAssetsLiabilities
Customer interest rate contracts$3,877 $111 $60 
Offsetting upstream interest rate contracts3,877 6 13 
Option contracts purchased3   
Forwards and futures purchased15,777 12 108 
Forwards and futures sold16,495 119 8 
 
 December 31, 2020
(Dollars in millions)NotionalAssetsLiabilities
Customer interest rate contracts$3,950 $207 $
Offsetting upstream interest rate contracts3,950 17 
Forwards and futures purchased10,795 62 — 
Forwards and futures sold11,633 65 

Interest Rate Risk Management
FHN’s ALCO focuses on managing market risk by controlling and limiting earnings volatility attributable to changes in interest rates. Interest rate risk exists to the extent that interest-earning assets and interest-bearing liabilities have different maturity or repricing characteristics. FHN uses derivatives, primarily swaps, that are designed to moderate the impact on earnings as interest rates change. Interest paid or received for swaps utilized by FHN to hedge the fair value of long term debt is recognized as an adjustment of the interest expense of the liabilities whose risk is being managed. FHN’s interest rate risk management policy is to use derivatives to hedge interest rate risk or market value of assets or liabilities, not to speculate. In addition, FHN has entered into certain interest rate swaps and caps as a
part of a product offering to commercial clients that includes customer derivatives paired with upstream offsetting market instruments that, when completed, are designed to mitigate interest rate risk. These contracts do not qualify for hedge accounting and are measured at fair value with gains or losses included in current earnings in Noninterest expense on the Consolidated Statements of Income.
FHN had designated a derivative transaction in a hedging strategy to manage interest rate risk on $500 million of senior debt prior to its maturity in December 2020. This transaction qualified for hedge accounting using the long-haul method. FHN early redeemed the $500 million senior debt in November 2020.

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Note 15 – Derivatives (Continued)
The following tables summarize FHN’s derivatives associated with interest rate risk management activities as of March 31, 2021 and December 31, 2020:
 
 March 31, 2021
(Dollars in millions)NotionalAssetsLiabilities
Customer Interest Rate Contracts Hedging 
Hedging Instruments and Hedged Items: 
Customer interest rate contracts$7,057 $255 $30 
Offsetting upstream interest rate contracts7,057 4 24 

 December 31, 2020
(Dollars in millions)NotionalAssetsLiabilities
Customer Interest Rate Contracts Hedging
Hedging Instruments and Hedged Items: 
Customer interest rate contracts$6,868 $436 $
Offsetting upstream interest rate contracts6,868 35 

The following table summarizes gains (losses) on FHN’s derivatives associated with interest rate risk management activities for the three months ended March 31, 2021 and 2020:
Three Months Ended
March 31,
20212020
(Dollars in millions)Gains (Losses)Gains (Losses)
Customer Interest Rate Contracts Hedging
Hedging Instruments and Hedged Items:
Customer interest rate contracts (a)$214 $196 
Offsetting upstream interest rate contracts (a)(214)(196)
Debt Hedging
Hedging Instruments:
Interest rate swaps (b)$ $
Hedged Items:
Term borrowings (a) (c) (4)
(a)Gains (losses) included in Other expense within the Consolidated Statements of Income.
(b)Gains (losses) included in Interest expense.
(c)Represents gains and losses attributable to changes in fair value due to interest rate risk as designated in ASC 815-20 hedging relationships.

Cash Flow Hedges
Prior to 2021, FHN had pay floating, receive fixed interest rate swaps designed to manage its exposure to the variability in cash flows related to interest payments on debt instruments, which primarily consisted of held-to-maturity trust preferred loans. In conjunction with the IBKC merger, FHN acquired interest rate contracts (floors and collars) which have been re-designated as cash flow hedges. The debt
instruments primarily consist of held-to-maturity commercial loans that have variable interest payments based on 1-month LIBOR.
In a cash flow hedge, the entire change in the fair value of the interest rate swap included in the assessment of hedge effectiveness is initially recorded in OCI and is subsequently reclassified from OCI to current period earnings (interest income or interest expense) in the same period that the hedged item affects earnings.


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Note 15 – Derivatives (Continued)
The following tables summarize FHN’s derivative activities associated with cash flow hedges as of March 31, 2021 and December 31, 2020:
 March 31, 2021
(Dollars in millions)NotionalAssetsLiabilities
Cash Flow Hedges 
Hedging Instruments: 
Interest rate contracts$1,250 $27 $ 
Hedged Items:
Variability in cash flows related to debt instruments (primarily loans)N/A$1,250 N/A
 
 December 31, 2020
(Dollars in millions)NotionalAssetsLiabilities
Cash Flow Hedges
Hedging Instruments: 
Interest rate contracts$1,250 $32 $— 
Hedged Items:
Variability in cash flows related to debt instruments (primarily loans)N/A$1,250 N/A
The following table summarizes gains (losses) on FHN’s derivatives associated with cash flow hedges for the three months ended March 31, 2021 and 2020:
Three Months Ended
March 31,
20212020
(Dollars in millions)Gains (Losses)Gains (Losses)
Cash Flow Hedges
Hedging Instruments:
Interest rate contracts (a)$8 $17 
       Gain (loss) recognized in Other comprehensive income (loss)(3)13 
       Gain (loss) reclassified from AOCI into Interest income1 — 
(a)Approximately $25 million of pre-tax gains are expected to be reclassified into earnings in the next twelve months.


Other Derivatives

As part of the IBKC merger, FHN acquired mortgage banking operations that include the origination and sale of loans into the secondary market. As part of the origination of loans, FHN enters into interest rate lock commitments with borrowers. Additionally, FHN enters into forward sales contracts with buyers for delivery of loans at a future date.

Both of these contracts qualify as freestanding derivatives and are recognized at fair value through earnings. The notional and fair values of these contracts are presented in the table below. Balances and activity for periods prior to the IBKC merger were not significant.


March 31, 2021
(Dollars in millions)NotionalAssetsLiabilities
Mortgage Banking Hedges
Option contracts written$702 $9 $1 
Forward contracts purchased878 14  

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Note 15 – Derivatives (Continued)
December 31, 2020
(Dollars in millions)NotionalAssetsLiabilities
Mortgage Banking Hedges
Option contracts written$667 $20 $— 
Forward contracts purchased725 — 
The following table summarizes gains (losses) on FHN's derivatives associated with mortgage banking activities for the three month period ended March 31, 2021.
Three Months Ended
March 31,
2021
(Dollars in millions)Gains (Losses)
Mortgage Banking Hedges
Option contracts written$(11)
Forward contracts purchased23 

In conjunction with the sale of its Visa Class B shares, FHN entered into derivative transactions whereby FHN will make or receive cash payments whenever the conversion ratio of the Visa Class B shares into Visa Class A shares is adjusted. As of March 31, 2021 and December 31, 2020, the derivative liabilities associated with the sales of Visa Class B shares were $20 million and $13 million, respectively. See Note 17 - Fair Value of Assets & Liabilities for discussion of the valuation inputs and processes for these Visa-related derivatives.
FHN utilizes cross currency swaps and cross currency interest rate swaps to economically hedge its exposure to foreign currency risk and interest rate risk associated with non-U.S. dollar denominated loans. As of March 31, 2021 and December 31, 2020, these loans were valued at $10 million and $12 million, respectively. The balance sheet amount and the gains/losses associated with these derivatives were not significant.
Related to its loan participation/syndication activities, FHN enters into risk participation agreements, under which it assumes exposure for, or receives indemnification for, borrowers’ performance on underlying interest rate derivative contracts. As of March 31, 2021 and December 31, 2020, the notional values of FHN’s risk participations were $237 million and $233 million of derivative assets and $501 million and $464 million of derivative liabilities, respectively. Assuming all underlying third party customers referenced in the swap contracts defaulted at March 31, 2021 and December 31, 2020, the exposure from these agreements would not be material based on the fair value of the underlying swaps.
In conjunction with the IBKC merger, FHN obtained certain certificates of deposit with the rate of return based on an equity index which is considered an embedded derivative as a written option that must be separately recognized. The risks of the written option are offset by purchasing an option with terms that mirror the written option, which is also carried at fair value on the Company’s Consolidated Balance Sheets. As of March 31, 2021 and December 31, 2020, FHN had recognized $2 million and $1 million, respectively, of both assets and liabilities associated with these contracts.

Master Netting and Similar Agreements
FHN uses master netting agreements, mutual margining agreements and collateral posting requirements to minimize credit risk on derivative contracts. Master netting and similar agreements are used when counterparties have multiple derivatives contracts that allow for a “right of setoff,” meaning that a counterparty may net offsetting positions and collateral with the same counterparty under the contract to determine a net receivable or payable. The following discussion provides an overview of these arrangements which may vary due to the derivative type and market in which a derivative transaction is executed.

Interest rate derivatives are subject to agreements consistent with standard agreement forms of the ISDA. Currently, all interest rate derivative contracts are entered into as over-the-counter transactions and collateral posting requirements are based on the net asset or liability position with each respective counterparty. For contracts that require central clearing, novation to a counterparty with access to a clearinghouse occurs and initial margin is posted.
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Note 15 – Derivatives (Continued)
Cash margin received (posted) that is considered settlements for the derivative contracts is included in the respective derivative asset (liability) value. Cash margin that is considered collateral received (posted) for interest rate derivatives is recognized as a liability (asset) on FHN’s Consolidated Balance Sheets.
Interest rate derivatives with clients that are smaller financial institutions typically require posting of collateral by the counterparty to FHN. This collateral is subject to a threshold with daily adjustments based upon changes in the level or fair value of the derivative position. Positions and related collateral can be netted in the event of default. Collateral pledged by a counterparty is typically cash or securities. The securities pledged as collateral are not recognized within FHN’s Consolidated Balance Sheets. Interest rate derivatives associated with lending arrangements share the collateral with the related loan(s). The derivative and loan positions may be netted in the event of default. For disclosure purposes, the entire collateral amount is allocated to the loan.
Interest rate derivatives with larger financial institutions entered into prior to required central clearing typically contain provisions whereby the collateral posting thresholds under the agreements adjust based on the credit ratings of both counterparties. If the credit rating of FHN and/or First Horizon Bank is lowered, FHN could be required to post additional collateral with the counterparties. Conversely, if the credit rating of FHN and/or First Horizon Bank is increased, FHN could have collateral released and be required to post less collateral in the future. Also, if a counterparty’s credit ratings were to decrease, FHN and/or First Horizon Bank could require the posting of additional collateral; whereas if a counterparty’s credit ratings were to increase, the counterparty could require the release of excess collateral. Collateral for these arrangements is adjusted daily based on changes in the net fair value position with each counterparty.
The net fair value, determined by individual counterparty, of all derivative instruments with adjustable collateral posting thresholds was $85 million of assets and $33 million of liabilities on March 31, 2021, and $200 million of assets and $5
million of liabilities on December 31, 2020. As of March 31, 2021 and December 31, 2020, FHN had received collateral of $248 million and $320 million and posted collateral of $5 million and $34 million, respectively, in the normal course of business related to these agreements.
Certain agreements entered into prior to required central clearing also contain accelerated termination provisions, inclusive of the right of offset, if a counterparty’s credit rating falls below a specified level. If a counterparty’s debt rating (including FHN’s and First Horizon Bank’s) were to fall below these minimums, these provisions would be triggered, and the counterparties could terminate the agreements and require immediate settlement of all derivative contracts under the agreements. The net fair value, determined by individual counterparty, of all interest rate derivative instruments with credit-risk-related contingent accelerated termination provisions was $102 million of assets and $40 million of liabilities on March 31, 2021, and $216 million of assets and $17 million of liabilities on December 31, 2020. As of March 31, 2021 and December 31, 2020, FHN had received collateral of $265 million and $343 million and posted collateral of $10 million and $53 million, respectively, in the normal course of business related to these contracts.
FHNF buys and sells various types of securities for its clients. When these securities settle on a delayed basis, they are considered forward contracts, and are generally not subject to master netting agreements. For futures and options, FHN transacts through a third party, and the transactions are subject to margin and collateral maintenance requirements. In the event of default, open positions can be offset along with the associated collateral.
For this disclosure, FHN considers the impact of master netting and other similar agreements which allow FHN to settle all contracts with a single counterparty on a net basis and to offset the net derivative asset or liability position with the related securities and cash collateral. The application of the collateral cannot reduce the net derivative asset or liability position below zero, and therefore any excess collateral is not reflected in the following tables.
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Note 15 – Derivatives (Continued)
The following table provides details of derivative assets and collateral received as presented on the Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020:
 
    Gross amounts not offset in the Balance Sheets 
(Dollars in millions)Gross amounts
of recognized
assets
Gross amounts
offset in the
Balance Sheets
Net amounts of
assets presented
in the Balance Sheets (a)
Derivative
liabilities
available for
offset
Collateral
received
Net amount
Derivative assets:
March 31, 2021
Interest rate derivative contracts$412 $ $412 $(42)$(232)$138 
Forward contracts131  131 (33)(5)93 
$543 $ $543 $(75)$(237)$231 
December 31, 2020
Interest rate derivative contracts$702 $— $702 $(7)$(327)$368 
Forward contracts63 — 63 (14)(20)29 
$765 $— $765 $(21)$(347)$397 
(a)Included in Other assets on the Consolidated Balance Sheets. As of March 31, 2021 and December 31, 2020, $16 million and $4 million, respectively, of derivative assets have been excluded from these tables because they are generally not subject to master netting or similar agreements.
The following table provides details of derivative liabilities and collateral pledged as presented on the Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020:
 
    Gross amounts not offset
 in the Balance Sheets
 
(Dollars in millions)Gross amounts
of recognized
liabilities
Gross amounts
offset in the
Balance Sheets
Net amounts of
liabilities presented
in the Balance Sheets (a)
Derivative
assets 
available for
offset
Collateral
pledged
Net amount
Derivative liabilities:
March 31, 2021
Interest rate derivative contracts$128 $ $128 $(42)$(12)$74 
Forward contracts115  115 (33)(34)48 
$243 $ $243 $(75)$(46)$122 
December 31, 2020
Interest rate derivative contracts$60 $— $60 $(7)$(31)$22 
Forward contracts65 — 65 (14)(51)— 
$125 $— $125 $(21)$(82)$22 
(a)Included in Other liabilities on the Consolidated Balance Sheets. As of March 31, 2021 and December 31, 2020, $21 million and $22 million, respectively, of derivative liabilities (primarily Visa-related derivatives) have been excluded from these tables because they are generally not subject to master netting or similar agreements.
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Note 16 – Master Netting and Similar Agreements—Repurchase, Reverse Repurchase, and Securities Borrowing Transactions
For repurchase, reverse repurchase and securities borrowing transactions, FHN and each counterparty have the ability to offset all open positions and related collateral in the event of default. Due to the nature of these transactions, the value of the collateral for each transaction approximates the value of the corresponding receivable or payable. For repurchase agreements through FHN’s fixed income business (securities purchased under agreements to resell and securities sold under agreements to repurchase), transactions are collateralized by securities and/or government guaranteed loans which are delivered on the settlement date and are maintained throughout the term of the transaction. For FHN’s repurchase agreements through banking activities (securities sold under agreements to repurchase), securities are typically pledged at settlement and not released until maturity. For asset positions, the collateral is not included on FHN’s Consolidated Balance Sheets. For
liability positions, securities collateral pledged by FHN is generally represented within FHN’s trading or available-for-sale securities portfolios.
For this disclosure, FHN considers the impact of master netting and other similar agreements that allow FHN to settle all contracts with a single counterparty on a net basis and to offset the net asset or liability position with the related securities collateral. The application of the collateral cannot reduce the net asset or liability position below zero, and therefore any excess collateral is not reflected in the tables below.
Securities purchased under agreements to resell is included in Federal funds sold and securities purchased under agreements to resell in the Consolidated Balance Sheets. Securities sold under agreements to repurchase is included in Short-term borrowings.
The following table provides details of securities purchased under agreements to resell and collateral pledged by counterparties as of March 31, 2021 and December 31, 2020:
 
    Gross amounts not offset in the
Balance Sheets
 
(Dollars in millions)Gross amounts
of recognized
assets
Gross amounts
offset in the
Balance Sheets
Net amounts of
assets presented
in the Balance Sheets
Offsetting
securities sold
under agreements
to repurchase
Securities collateral
(not recognized on
FHN’s Balance Sheets)
Net amount
Securities purchased under agreements to resell:
March 31, 2021$463 $ $463 $ $(461)$2 
December 31, 2020380 — 380 — (379)
The following table provides details of securities sold under agreements to repurchase and collateral pledged by FHN as of March 31, 2021 and December 31, 2020:
 
    Gross amounts not offset in the
Balance Sheets
 
(Dollars in millions)Gross amounts
of recognized
liabilities
Gross amounts
offset in the
Balance Sheets
Net amounts of
liabilities presented
in the Balance Sheets
Offsetting
securities
purchased under
agreements to resell
Securities/
government
guaranteed loans
collateral
Net amount
Securities sold under agreements to repurchase:
March 31, 2021$1,098 $ $1,098 $ $(1,098)$ 
December 31, 20201,187 — 1,187 — (1,187)— 
Due to the short duration of securities sold under agreements to repurchase and the nature of collateral involved, the risks associated with these transactions are considered minimal.
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Note 16 – Master Netting and Similar Agreements—Repurchase, Reverse Repurchase, and Securities Borrowing Transactions (Continued)
The following tables provide details, by collateral type, of the remaining contractual maturity of securities sold under agreements to repurchase as of March 31, 2021 and December 31, 2020:
 
 March 31, 2021
(Dollars in millions)Overnight and
Continuous
Up to 30 DaysTotal
Securities sold under agreements to repurchase:
U.S. treasuries$294 $ $294 
Government agency issued MBS584  584 
Government agency issued CMO13  13 
Other U.S. government agencies82  82 
Government guaranteed loans (SBA and USDA)125  125 
Total securities sold under agreements to repurchase$1,098 $ $1,098 
December 31, 2020
(Dollars in millions)Overnight and
Continuous
Up to 30 DaysTotal
Securities sold under agreements to repurchase:
U.S. treasuries$284 $— $284 
Government agency issued MBS616 — 616 
Government agency issued CMO10 — 10 
Other U.S. government agencies151 — 151 
Government guaranteed loans (SBA and USDA)126 — 126 
Total securities sold under agreements to repurchase$1,187 $— $1,187 
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Note 17 – Fair Value of Assets and Liabilities
FHN groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. This hierarchy requires FHN to maximize the use of observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Each fair value measurement is placed into the proper level based on the lowest level of significant input. These levels are:
 
Level 1—Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2—Valuation is based upon quoted prices for similar instruments in active
markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3—Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models, and similar techniques.
























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Note 17 – Fair Value of Assets and Liabilities (Continued)
Recurring Fair Value Measurements
The following tables present the balances of assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020:
 March 31, 2021
(Dollars in millions)Level 1Level 2Level 3Total
Trading securities:
U.S. treasuries$— $51 $— $51 
Government agency issued MBS— 384 — 384 
Government agency issued CMO— 190 — 190 
Other U.S. government agencies— 237 — 237 
States and municipalities— 10 — 10 
Corporate and other debt— 204 — 204 
Total trading securities— 1,076 — 1,076 
Loans held for sale (elected fair value)— 437 12 449 
Loans held for investment (elected fair value)— — 17 17 
Securities available for sale:
U.S. treasuries— 610 — 610 
Government agency issued MBS— 4,038 — 4,038 
Government agency issued CMO— 2,441 — 2,441 
Other U.S. government agencies— 725 — 725 
States and municipalities— 475 — 475 
Corporate and other debt— 40 — 40 
Interest-only strips (elected fair value)— — 22 22 
Total securities available for sale— 8,329 22 8,351 
Other assets:
Deferred compensation mutual funds122 — — 122 
Equity, mutual funds, and other25 — — 25 
Derivatives, forwards and futures145 — — 145 
Derivatives, interest rate contracts— 414 — 414 
Derivatives, other— — 
Total other assets292 416 — 708 
Total assets$292 $10,258 $51 $10,601 
Trading liabilities:
U.S. treasuries$— $361 $— $361 
Other U.S.government agencies— 20 — 20 
Government agency issued MBS— — 
Corporate and other debt— 65 — 65 
Total trading liabilities— 454 — 454 
Other liabilities:
Derivatives, forwards and futures116 — — 116 
Derivatives, interest rate contracts— 128 — 128 
Derivatives, other— 21 23 
Total other liabilities116 130 21 267 
Total liabilities$116 $584 $21 $721 

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Note 17 – Fair Value of Assets and Liabilities (Continued)
 December 31, 2020
(Dollars in millions)Level 1Level 2Level 3Total
Trading securities:
U.S. treasuries$— $81 $— $81 
Government agency issued MBS— 633 — 633 
Government agency issued CMO— 212 — 212 
Other U.S. government agencies— 62 — 62 
States and municipalities— — 
Corporate and other debt— 181 — 181 
Total trading securities— 1,176 — 1,176 
Loans held for sale (elected fair value)— 393 12 405 
Loans held for investment (elected fair value)— — 16 16 
Securities available for sale:
U.S. treasuries— 613 — 613 
Government agency issued MBS— 3,812 — 3,812 
Government agency issued CMO— 2,406 — 2,406 
Other U.S. government agencies— 684 — 684 
States and municipalities— 460 — 460 
Corporate and other debt— 40 — 40 
Interest-only strips (elected fair value)— — 32 32 
Total securities available for sale— 8,015 32 8,047 
Other assets:
Deferred compensation mutual funds118 — — 118 
Equity, mutual funds, and other25 — — 25 
Derivatives, forwards and futures63 — — 63 
Derivatives, interest rate contracts— 702 — 702 
Derivatives, other— — 
Total other assets206 706 — 912 
Total assets$206 $10,290 $60 $10,556 
Trading liabilities:
U.S. treasuries$— $307 $— $307 
Government agency issued MBS— — 
Corporates and other debt— 43 — 43 
Total trading liabilities— 353 — 353 
Other liabilities:
Derivatives, forwards and futures71 — — 71 
Derivatives, interest rate contracts— 60 — 60 
Derivatives, other— 14 18 
Total other liabilities71 64 14 149 
Total liabilities$71 $417 $14 $502 




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Note 17 – Fair Value of Assets and Liabilities (Continued)
Changes in Recurring Level 3 Fair Value Measurements
The changes in Level 3 assets and liabilities measured at fair value for the three months ended March 31, 2021 and 2020 on a recurring basis are summarized as follows:
 Three Months Ended March 31, 2021 
(Dollars in millions)Interest- only strips- AFSLoans held
for sale
Loans held for investmentNet  derivative
liabilities
Balance on January 1, 2021$32 $12 $16 $(14)
Total net gains (losses) included in net income— (9)
Purchases— — — — 
Sales(27)— — — 
Settlements— (1)(2)
Net transfers into (out of) Level 312 (b)— — 
Balance on March 31, 2021$22 $12 $17 $(21)
Net unrealized gains (losses) included in net income$(c)$(a)$— $(9)(d)
 
 Three Months Ended March 31, 2020 
(Dollars in millions)Trading
securities
Interest-only-strips-AFSLoans held for saleNet  derivative
liabilities
Balance on January 1, 2020$$19  $14 $(23)
Total net gains (losses) included in net income— (1) — — 
Purchases— — — 
Sales— (8)— — 
Settlements— — (1)
Net transfers into (out of) Level 3— (b)— — 
Balance on March 31, 2020$$23  $13 $(21)
Net unrealized gains (losses) included in net income$— (a)$(1)(c)$— (a)$— (d)
(a)Primarily included in mortgage banking and title income on the Consolidated Statements of Income.
(b)Transfers into interest-only strips - AFS level 3 measured on a recurring basis reflect movements from loans held for sale (Level 2 nonrecurring).
(c)Primarily included in Fixed income on the Consolidated Statements of Income.
(d)Included in Other expense.

There were no net unrealized gains (losses) for Level 3 assets and liabilities included in other comprehensive income as of March 31, 2021 and 2020.







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Note 17 – Fair Value of Assets and Liabilities (Continued)
Nonrecurring Fair Value Measurements
From time to time, FHN may be required to measure certain other financial assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or market (LOCOM) accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis which were still held on the Consolidated Balance Sheets at March 31, 2021, and December 31, 2020, respectively, the following tables provide the level of valuation assumptions used to determine each adjustment and the related carrying value.
 Carrying value at March 31, 2021
(Dollars in millions)Level 1Level 2Level 3Total
Loans held for sale—SBAs and USDA$— $299 $$300 
Loans held for sale—first mortgages— — 
Loans and leases (a)— — 69 69 
OREO (b)— — 11 11 
Other assets (c)— — 11 11 
 
 Carrying value at December 31, 2020
(Dollars in millions)Level 1Level 2Level 3Total
Loans held for sale—SBAs and USDA$— $508 $$509 
Loans held for sale—first mortgages— — 
Loans and leases (a)— — 77 77 
OREO (b)— — 15 15 
Other assets (c)— — 
(a)Represents carrying value of loans for which adjustments are required to be based on the appraised value of the collateral less estimated costs to sell. Write-downs on these loans are recognized as part of provision for credit losses.
(b)Represents the fair value and related losses of foreclosed properties that were measured subsequent to their initial classification as OREO. Balance excludes OREO related to government insured mortgages.
(c)Represents tax credit investments accounted for under the equity method.
For assets measured on a nonrecurring basis which were still held on the Consolidated Balance Sheets at period end, the following table provides information about the fair value adjustments recorded during the three months ended March 31, 2021 and 2020: 
Net gains (losses)
Three Months Ended March 31
(Dollars in millions)20212020
Loans held for sale—SBAs and USDA$(1)$(1)
Loans and leases (a)(7)(5)
$(8)$(6)
(a)Write-downs on these loans are recognized as part of provision for credit losses.



















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Note 17 – Fair Value of Assets and Liabilities (Continued)
For the three months ended March 31, 2021, FHN recognized $33 million of fixed asset impairments and $3 million of impairments for lease assets primarily related to continuing acquisition integration efforts associated with reduction of leased office space and branch optimization. These amounts were primarily recognized in the Corporate segment.

For the three months ended March 31, 2020, FHN recognized an insignificant amount of impairment.

Lease asset impairments recognized represent the reduction in value of the right-of-use assets associated with leases that are being exited in advance of the contractual lease expiration.
Impairments are measured using a discounted cash flow methodology, which is considered a Level 3 valuation.
Impairments of long-lived tangible assets reflect locations where the associated land and building are either owned or leased. The fair values of owned sites were determined using estimated sales prices from appraisals and broker opinions less estimated costs to sell with adjustments upon final disposition. The fair values of owned assets in leased sites (e.g., leasehold improvements) were determined using a discounted cash flow approach, based on the revised estimated useful lives of the related assets. Both measurement methodologies are considered Level 3 valuations. Impairment adjustments recognized upon disposition of a location are considered Level 2 valuations.





























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Note 17 – Fair Value of Assets and Liabilities (Continued)
Level 3 Measurements

The following tables provide information regarding the unobservable inputs utilized in determining the fair value of Level 3 recurring and non-recurring measurements as of March 31, 2021 and December 31, 2020: 
(Dollars in millions)Values Utilized
Level 3 ClassFair Value at March 31, 2021Valuation TechniquesUnobservable InputRangeWeighted Average (d)
Available for sale securities SBA-interest only strips$22 Discounted cash flowConstant prepayment rate12%12%
Bond equivalent yield
10% - 13%
11%
Loans held for sale - residential real estate$13 Discounted cash flowPrepayment speeds - First mortgage
4% - 13%
5%
Foreclosure losses
57% - 65%
62%
Loss severity trends - First mortgage
9% - 17%
of UPB
12%
Loans held for sale - unguaranteed interest in SBA loans$Discounted cash flowConstant prepayment rate
8% - 12%
10%
Bond equivalent yield8%8%
Loans held for investment$17 Discounted cash flowConstant prepayment rate
0% - 46%
31%
Constant default rate
0% - 15%
1%
Loss severity trends
0% - 93%
7%
Derivative liabilities, other$21 Discounted cash flowVisa covered litigation resolution amount
$5.4 billion - $6.0 billion
$5.8 billion
Probability of resolution scenarios
10% - 50%
16%
   Time until resolution
12 - 36 months
26 months
Loans and leases (a)$69 Appraisals from comparable propertiesMarketability adjustments for specific properties
0% - 10%
of appraisal
NM
Other collateral valuationsBorrowing base certificates adjustment
20% - 50% of gross value
NM
   Financial Statements/Auction values adjustment
0% - 25%
of reported value
NM
OREO (b)$11 Appraisals from comparable propertiesAdjustment for value changes since appraisal
0% - 10%
of appraisal
NM
Other assets (c)$11 Discounted cash flowAdjustments to current sales yields for specific properties
0% - 15% adjustment to yield
NM
  Appraisals from comparable propertiesMarketability adjustments for specific properties
0% - 25%
of appraisal
NM
 NM - Not meaningful
(a)Represents carrying value of loans for which adjustments are required to be based on the appraised value of the collateral less estimated costs to sell. Write-downs on these loans are recognized as part of provision for credit losses.
(b)Represents the fair value of foreclosed properties that were measured subsequent to their initial classification as OREO. Balance excludes OREO related to government insured mortgages.
(c)Represents tax credit investments accounted for under the equity method.
(d)Weighted averages are determined by the relative fair value of the instruments or the relative contribution to an instrument's fair value.
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Note 17 – Fair Value of Assets and Liabilities (Continued)
(Dollars in millions)Values Utilized
Level 3 ClassFair Value at December 31, 2020Valuation TechniquesUnobservable InputRangeWeighted Average (d)
Available for sale securities SBA-interest only strips$32 Discounted cash flowConstant prepayment rate12%12%
Bond equivalent yield
15% - 17%
15%
Loans held for sale - residential real estate$13 Discounted cash flowPrepayment speeds - First mortgage
5% - 15%
5%
Foreclosure losses
59% - 70%
63%
Loss severity trends - First mortgage
3% - 19%
of UPB
12%
Loans held for sale - unguaranteed interest in SBA loans$Discounted cash flowConstant prepayment rate
8% - 12%
10%
Bond equivalent yield
7% - 8%
7%
Loans held for investment$16 Discounted cash flowConstant prepayment rate
0% - 26%
11%
Constant default rate
0% - 14%
1%
Loss severity trends
0% - 100%
11%
Derivative liabilities, other$14 Discounted cash flowVisa covered litigation resolution amount
$5.4 billion - $6.0 billion
$5.8 billion
Probability of resolution scenarios
10% - 50%
16%
Time until resolution
3 - 27 months
19 months
Loans and leases (a)$77 Appraisals from comparable propertiesMarketability adjustments for specific properties
0% - 10%
of appraisal
NM
Other collateral valuationsBorrowing base certificates adjustment
20% - 50% of gross value
NM
Financial Statements/Auction values adjustment
0% - 25%
of reported value
NM
OREO (b)$15 Appraisals from comparable propertiesAdjustment for value changes since appraisal
0% - 10%
of appraisal
NM
Other assets (c)$Discounted cash flowAdjustments to current sales yields for specific properties
0% - 15% adjustment to yield
NM
Appraisals from comparable propertiesMarketability adjustments for specific properties
0% - 25%
of appraisal
NM
NM - Not meaningful
(a)Represents carrying value of loans for which adjustments are required to be based on the appraised value of the collateral less estimated costs to sell. Write-downs on these loans are recognized as part of provision for credit losses.
(b)Represents the fair value of foreclosed properties that were measured subsequent to their initial classification as OREO. Balance excludes OREO related to government insured mortgages.
(c)Represents tax credit investments accounted for under the equity method.
(d)Weighted averages are determined by the relative fair value of the instruments or the relative contribution to an instrument's fair value.


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Note 17 – Fair Value of Assets and Liabilities (Continued)
Securities AFS. Increases (decreases) in estimated prepayment rates and bond equivalent yields negatively (positively) affect the value of SBA interest only strips. Management additionally considers whether the loans underlying related SBA-interest only strips are delinquent, in default or prepaying, and adjusts the fair value down 20 - 100% depending on the length of time in default.

Loans held for sale. Foreclosure losses and prepayment rates are significant unobservable inputs used in the fair value measurement of FHN’s residential real estate loans held for sale. Loss severity trends are also assessed to evaluate the reasonableness of fair value estimates resulting from discounted cash flows methodologies as well as to estimate fair value for newly repurchased loans and loans that are near foreclosure. Significant increases (decreases) in any of these inputs in isolation would result in significantly lower (higher) fair value measurements. All observable and unobservable inputs are re-assessed quarterly.

Increases (decreases) in estimated prepayment rates and bond equivalent yields negatively (positively) affect the value of unguaranteed interests in SBA loans. Unguaranteed interest in SBA loans held for sale are carried at less than the outstanding balance due to credit risk estimates. Credit risk adjustments may be reduced if prepayment is likely or as consistent payment history is realized. Management also considers other factors such as delinquency or default and adjusts the fair value accordingly.

Loans held for investment. Constant prepayment rate, constant default rate and loss severity trends are significant unobservable inputs used in the fair value measurement of loans held for investment. Increases (decreases) in each of these inputs in isolation result in negative (positive) effects on the valuation of the associated loans.

Derivative liabilities. In conjunction with the sales of its Visa Class B shares, FHN and the purchasers entered into derivative transactions whereby FHN will make, or receive, cash payments whenever the conversion ratio of the Visa Class B shares into Visa Class A shares is adjusted. FHN uses a discounted cash flow methodology in order to estimate the fair value of FHN’s derivative liabilities associated with its prior sales of Visa Class B shares. The methodology includes estimation of both the resolution amount for Visa’s Covered Litigation matters as well as the length of time until the resolution occurs. Significant increases (decreases) in either of these inputs in isolation would result in significantly higher (lower) fair value measurements for the derivative liabilities.
Additionally, FHN performs a probability weighted multiple resolution scenario to calculate the estimated fair value of these derivative liabilities. Assignment of higher (lower) probabilities to the larger potential resolution scenarios would result in an increase (decrease) in the estimated fair value of the derivative liabilities. Since this estimation process requires application of judgment in developing significant unobservable inputs used to determine the possible outcomes and the probability weighting assigned to each scenario, these derivatives have been classified within Level 3 in fair value measurements disclosures.
Loans and leases and Other Real Estate Owned. Collateral-dependent loans and OREO are primarily valued using appraisals based on sales of comparable properties in the same or similar markets. Other collateral (receivables, inventory, equipment, etc.) is valued through borrowing base certificates, financial statements and/or auction valuations. These valuations are discounted based on the quality of reporting, knowledge of the marketability/collectability of the collateral and historical disposition rates.
Other assets – tax credit investments. The estimated fair value of tax credit investments accounted for under the equity method is generally determined in relation to the yield (i.e., future tax credits to be received) an acquirer of these investments would expect in relation to the yields experienced on current new issue and/or secondary market transactions. Thus, as tax credits are recognized, the future yield to a market participant is reduced, resulting in consistent impairment of the individual investments. Individual investments are reviewed for impairment quarterly, which may include the consideration of additional marketability discounts related to specific investments which typically includes consideration of the underlying property’s appraised value.
Fair Value Option
FHN has elected the fair value option on a prospective basis for substantially all types of mortgage loans originated for sale purposes except for mortgage origination operations which utilize the platform acquired from CBF. FHN determined that the election reduces certain timing differences and better matches changes in the value of such loans with changes in the value of derivatives and forward delivery commitments used as economic hedges for these assets at the time of election.
Repurchased loans relating to mortgage banking operations conducted prior to the IBKC merger are recognized within loans held for sale at fair value at
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Note 17 – Fair Value of Assets and Liabilities (Continued)
the time of repurchase, which includes consideration of the credit status of the loans and the estimated liquidation value. FHN has elected to continue recognition of these loans at fair value in periods subsequent to reacquisition. Due to the credit-distressed nature of the vast majority of repurchased loans and the related loss severities experienced upon repurchase, FHN believes that the fair value election provides a more timely recognition of changes in value for these loans that occur subsequent to repurchase. Absent the fair value election, these loans would be subject to valuation at the LOCOM value, which would prevent subsequent
values from exceeding the initial fair value, determined at the time of repurchase, but would require recognition of subsequent declines in value. Thus, the fair value election provides for a more timely recognition of any potential future recoveries in asset values while not affecting the requirement to recognize subsequent declines in value.
FHN also has a portion of mortgage loans held for investment for which the fair value option was elected upon origination and which continue to be accounted for at fair value.
The following tables reflect the differences between the fair value carrying amount of residential real estate loans held for sale and held for investment measured at fair value in accordance with management’s election and the aggregate unpaid principal amount FHN is contractually entitled to receive at maturity.
 March 31, 2021
(Dollars in millions)Fair value
carrying
amount
Aggregate
unpaid
principal
Fair value carrying amount
less aggregate unpaid
principal
Residential real estate loans held for sale reported at fair value:
Total loans$449 $445 $4 
Nonaccrual loans2 5 (3)
Loans held for investment reported at fair value:
Total loans$17 $17 $ 
Nonaccrual loans1 1  
 December 31, 2020
(Dollars in millions)Fair value
carrying
amount
Aggregate
unpaid
principal
Fair value carrying amount
less aggregate unpaid
principal
Residential real estate loans held for sale reported at fair value:
Total loans$405 $442 $(37)
Nonaccrual loans(3)
Loans held for investment reported at fair value:
Total loans$16 $17 $(1)
Nonaccrual loans— 

Assets and liabilities accounted for under the fair value election are initially measured at fair value with subsequent changes in fair value recognized in earnings. Such changes in the fair value of assets and liabilities for which FHN elected the fair value option are included in current period earnings with classification in the income statement line item reflected in the following table:
 Three Months Ended
March 31,
(Dollars in millions)20212020
Changes in fair value included in net income:
Mortgage banking noninterest income
Loans held for sale$(9)$— 


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Note 17 – Fair Value of Assets and Liabilities (Continued)
For the three months ended March 31, 2021 and 2020, the amount for residential real estate loans held for sale included an insignificant amount of gains in pretax earnings that is attributable to changes in instrument-specific credit risk. The portion of the fair value adjustments related to credit risk was determined based on estimated default rates and estimated loss severities. Interest income on residential real estate loans held for sale measured at fair value is calculated based on the note rate of the loan and is recorded in the interest income section of the Consolidated Statements of Income as interest on loans held for sale.
FHN has elected to account for retained interest-only strips from guaranteed SBA loans recorded in available-for-sale securities at fair value through earnings. Since these securities are subject to the risk that prepayments may result in FHN not recovering all or a portion of its recorded investment, the fair value election results in a more timely recognition of the effects of estimated prepayments through earnings rather than being recognized through other comprehensive income with periodic review for other-than-temporary impairment. Gains or losses are recognized through fixed income revenues and are presented in the recurring measurements table.
Determination of Fair Value
Fair values are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following describes the assumptions and methodologies used to estimate the fair value of financial instruments recorded at fair value in the Consolidated Balance Sheets and for estimating the fair value of financial instruments for which fair value is disclosed.
Short-term financial assets. Federal funds sold, securities purchased under agreements to resell, and interest bearing deposits with other financial institutions and the Federal Reserve are carried at historical cost. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.
Trading securities and trading liabilities. Trading securities and trading liabilities are recognized at fair value through current earnings. Trading inventory held for broker-dealer operations is included in trading securities and trading liabilities. Broker-dealer long positions are valued at bid price in the bid-ask spread. Short positions are valued at the ask price. Inventory positions are valued using observable inputs including current market transactions,
benchmark yields, credit spreads, and consensus prepayment speeds. Trading loans are valued using observable inputs including current market transactions, swap rates, mortgage rates, and consensus prepayment speeds.
Securities available for sale. Valuations of available-for-sale securities are performed using observable inputs obtained from market transactions in similar securities. Typical inputs include benchmark yields, consensus prepayment speeds, and credit spreads. Trades from similar securities and broker quotes are used to support these valuations.
Interest only strips are valued at elected fair value based on an income approach using an internal valuation model. The internal valuation model includes assumptions regarding projections of future cash flows, prepayment rates, default rates and interest only strip terms. These securities bear the risk of loan prepayment or default that may result in FHN not recovering all or a portion of its recorded investment. When appropriate, valuations are adjusted for various factors including default or prepayment status of the underlying SBA loans. Because of the inherent uncertainty of valuation, those estimated values may be higher or lower than the values that would have been used had a ready market for the securities existed, and may change in the near term.
Loans held for sale. FHN determines the fair value of loans held for sale using either current transaction prices or discounted cash flow models. Fair values are determined using current transaction prices and/or values on similar assets when available, including committed bids for specific loans or loan portfolios. Uncommitted bids may be adjusted based on other available market information.
Fair value of residential real estate loans held for sale determined using a discounted cash flow model incorporates both observable and unobservable inputs. Inputs in the discounted cash flow model include current mortgage rates for similar products, estimated prepayment rates, foreclosure losses, and various loan performance measures (delinquency, LTV, credit score). Adjustments for delinquency and other differences in loan characteristics are typically reflected in the model’s discount rates. Loss severity trends and the value of underlying collateral are also considered in assessing the appropriate fair value for severely delinquent loans and loans in foreclosure. The valuation of HELOCs also incorporates estimated cancellation rates for loans expected to become delinquent.

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Note 17 – Fair Value of Assets and Liabilities (Continued)
Non-mortgage consumer loans held for sale are valued using committed bids for specific loans or loan portfolios or current market pricing for similar assets with adjustments for differences in credit standing (delinquency, historical default rates for similar loans), yield, collateral values and prepayment rates. If pricing for similar assets is not available, a discounted cash flow methodology is utilized, which incorporates all of these factors into an estimate of investor required yield for the discount rate.
FHN utilizes quoted market prices of similar instruments or broker and dealer quotations to value the SBA and USDA guaranteed loans. FHN values SBA-unguaranteed interests in loans held for sale based on individual loan characteristics, such as industry type and pay history which generally follows an income approach. Furthermore, these valuations are adjusted for changes in prepayment estimates and are reduced due to restrictions on trading. The fair value of other non-residential real estate loans held for sale is approximated by their carrying values based on current transaction values.
Mortgage loans held for investment at fair value option. The fair value of mortgage loans held for investment at fair value option is determined by a third party using a discounted cash flow model using various assumptions about future loan performance (constant prepayment rate, constant default rate and loss severity trends) and market discount rates.
Loans held for investment. The fair values of mortgage loans are estimated using an exit price methodology that is based on present values using the interest rate that would be charged for a similar loan to a borrower with similar risk, weighted for varying maturity dates and adjusted for a liquidity discount based on the estimated time period to complete a sale transaction with a market participant.
Other loans and leases are valued based on present values using the interest rate that would be charged for a similar instrument to a borrower with similar risk, applicable to each category of instruments, and adjusted for a liquidity discount based on the estimated time period to complete a sale transaction with a market participant.
For loans measured using the estimated fair value of collateral less costs to sell, fair value is estimated using appraisals of the collateral. Collateral values are monitored and additional write-downs are recognized if it is determined that the estimated collateral values have declined further. Estimated costs to sell are based on current amounts of disposal costs for similar assets. Carrying value is considered to reflect fair value for these loans.
Derivative assets and liabilities. The fair value for forwards and futures contracts is based on current transactions involving identical securities. Futures contracts are exchange-traded and thus have no credit risk factor assigned as the risk of non-performance is limited to the clearinghouse used.
Valuations of other derivatives (primarily interest rate contracts) are based on inputs observed in active markets for similar instruments. Typically inputs include benchmark yields, option volatility and option skew. Starting in October 2020, centrally cleared derivatives are discounted using SOFR as required by clearinghouses. In measuring the fair value of these derivative assets and liabilities, FHN has elected to consider credit risk based on the net exposure to individual counterparties. Credit risk is mitigated for these instruments through the use of mutual margining and master netting agreements as well as collateral posting requirements. For derivative contracts with daily cash margin requirements that are considered settlements, the daily margin amount is netted within derivative assets or liabilities. Any remaining credit risk related to interest rate derivatives is considered in determining fair value through evaluation of additional factors such as client loan grades and debt ratings. Foreign currency related derivatives also utilize observable exchange rates in the determination of fair value. The determination of fair value for FHN’s derivative liabilities associated with its prior sales of Visa Class B shares are classified within Level 3 in the fair value measurements disclosure as previously discussed in the unobservable inputs discussion.
The fair value of risk participations is determined in reference to the fair value of the related derivative contract between the borrower and the lead bank in the participation structure, which is determined consistent with the valuation process discussed above. This value is adjusted for the pro rata portion of the reference derivative’s notional value and an assessment of credit risk for the referenced borrower.
OREO. OREO primarily consists of properties that have been acquired in satisfaction of debt. These properties are carried at the lower of the outstanding loan amount or estimated fair value less estimated costs to sell the real estate. Estimated fair value is determined using appraised values with subsequent adjustments for deterioration in values that are not reflected in the most recent appraisal.
Other assets. For disclosure purposes, other assets consist of tax credit investments, FRB and FHLB Stock, deferred compensation mutual funds and equity investments (including other mutual funds) with readily determinable fair values. Tax credit
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Note 17 – Fair Value of Assets and Liabilities (Continued)
investments accounted for under the equity method are written down to estimated fair value quarterly based on the estimated value of the associated tax credits which incorporates estimates of required yield for hypothetical investors. The fair value of all other tax credit investments is estimated using recent transaction information with adjustments for differences in individual investments. Deferred compensation mutual funds are recognized at fair value, which is based on quoted prices in active markets.
Investments in the stock of the Federal Reserve Bank and Federal Home Loan Banks are recognized at historical cost in the Consolidated Balance Sheets which is considered to approximate fair value. Investments in mutual funds are measured at the funds’ reported closing net asset values. Investments in equity securities are valued using quoted market prices when available.
Defined maturity deposits. The fair value of these deposits is estimated by discounting future cash flows to their present value. Future cash flows are discounted by using the current market rates of similar instruments applicable to the remaining maturity. For disclosure purposes, defined maturity deposits include all time deposits.
Short-term financial liabilities. The fair value of federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings are approximated by the book value. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.
Loan commitments. Fair values of these commitments are based on fees charged to enter into similar agreements taking into account the remaining terms of the agreements and the counterparties’ credit standing.
Other commitments. Fair values of these commitments are based on fees charged to enter into similar agreements.
The following fair value estimates are determined as of a specific point in time utilizing various assumptions and estimates. The use of assumptions and various valuation techniques, as well as the absence of secondary markets for certain financial instruments, reduces the comparability of fair value disclosures between financial institutions. Due to market illiquidity, the fair values for loans and leases, loans held for sale, and term borrowings as of March 31, 2021 and December 31, 2020, involve the use of significant internally-developed pricing assumptions for certain components of these line items. The assumptions and valuations utilized for this disclosure are considered to reflect inputs that market participants would use in transactions involving these instruments as of the measurement date. The valuations of legacy assets, particularly consumer loans and TRUPS loans within the Corporate segment, are influenced by changes in economic conditions since origination and risk perceptions of the financial sector. These considerations affect the estimate of a potential acquirer’s cost of capital and cash flow volatility assumptions from these assets and the resulting fair value measurements may depart significantly from FHN’s internal estimates of the intrinsic value of these assets.
Assets and liabilities that are not financial instruments have not been included in the following table such as the value of long-term relationships with deposit and trust clients, premises and equipment, goodwill and other intangibles, deferred taxes, and certain other assets and other liabilities. Additionally, these measurements are solely for financial instruments as of the measurement date and do not consider the earnings potential of our various business lines. Accordingly, the total of the fair value amounts does not represent, and should not be construed to represent, the underlying value of FHN.










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Table of Contents

Note 17 – Fair Value of Assets and Liabilities (Continued)
The following tables summarize the book value and estimated fair value of financial instruments recorded in the Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020:
March 31, 2021
 Book
Value
Fair Value
(Dollars in millions)Level 1Level 2Level 3Total
Assets:
Loans and leases, net of allowance for loan and lease losses
Commercial:
Commercial, financial and industrial$33,509 $— $— $33,249 $33,249 
Commercial real estate12,238 — — 12,265 12,265 
Consumer:
Consumer real estate 10,831 — — 11,283 11,283 
Credit card and other1,108 — — 1,134 1,134 
Total loans and leases, net of allowance for loan and lease losses57,686 — — 57,931 57,931 
Short-term financial assets:
Interest-bearing deposits with banks11,635 11,635 — — 11,635 
Federal funds sold463 — 463 — 463 
Securities purchased under agreements to resell57 — 57 — 57 
Total short-term financial assets12,155 11,635 520 — 12,155 
Trading securities (a)1,076 — 1,076 — 1,076 
Loans held for sale:
Mortgage loans (elected fair value) (a)449 — 437 12 449 
USDA & SBA loans - LOCOM300 — 299 300 
Other loans - LOCOM— — 
Mortgage loans - LOCOM58 — — 58 58 
Total loans held for sale811 — 740 71 811 
Securities available for sale (a)8,351 — 8,329 22 8,351 
Derivative assets (a)561 145 416 — 561 
Other assets:
Tax credit investments410 — — 400 400 
Deferred compensation mutual funds122 122 — — 122 
Equity, mutual funds, and other (b)262 25 — 237 262 
Total other assets794 147 — 637 784 
Total assets$81,434 $11,927 $11,081 $58,661 $81,669 
Liabilities:
Defined maturity deposits$4,653 $— $4,664 $— $4,664 
Trading liabilities (a)454 — 454 — 454 
Short-term financial liabilities:
Federal funds purchased982 — 982 — 982 
Securities sold under agreements to repurchase1,098 — 1,098 — 1,098 
Other short-term borrowings122 — 122 — 122 
Total short-term financial liabilities2,202 — 2,202 — 2,202 
Term borrowings:
Real estate investment trust-preferred46 — — 47 47 
Term borrowings—new market tax credit investment45 — — 45 45 
Secured borrowings15 — — 15 15 
Junior subordinated debentures239 — — 237 237 
Other long term borrowings1,326 — 1,462 — 1,462 
Total term borrowings1,671 — 1,462 344 1,806 
Derivative liabilities (a)265 116 130 21 267 
Total liabilities$9,245 $116 $8,912 $365 $9,393 
(a)Classes are detailed in the recurring and nonrecurring measurement tables.
(b)Level 1 primarily consists of mutual funds with readily determinable fair values. Level 3 includes restricted investments in FHLB-Cincinnati stock of $34 million and FRB stock of $202 million.
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Note 17 – Fair Value of Assets and Liabilities (Continued)
 December 31, 2020
 Book
Value
Fair Value
(Dollars in millions)Level 1Level 2Level 3Total
Assets:
Loans and leases and allowance for loan and lease losses
Commercial:
Commercial, financial and industrial$32,651 $— $— $32,582 $32,582 
Commercial real estate12,033 — — 12,079 12,079 
Consumer:
Consumer real estate 11,483 — — 11,903 11,903 
Credit card and other1,102 — — 1,131 1,131 
Total loans and leases, net of allowance for loan and lease losses57,269 — — 57,695 57,695 
Short-term financial assets:
Interest-bearing deposits with banks8,351 8,351 — — 8,351 
Federal funds sold65 — 65 — 65 
Securities purchased under agreements to resell380 — 380 — 380 
Total short-term financial assets8,796 8,351 445 — 8,796 
Trading securities (a)1,176 — 1,176 — 1,176 
Loans held for sale:
Mortgage loans (elected fair value) (a)405 — 393 12 405 
USDA & SBA loans - LOCOM509 — 511 512 
Other loans - LOCOM31 — 31 — 31 
Mortgage loans - LOCOM77 — — 77 77 
Total loans held for sale1,022 — 935 90 1,025 
Securities available for sale (a) 8,047 — 8,015 32 8,047 
Derivative assets (a)770 63 706 — 769 
Other assets:
Tax credit investments400 — — 371 371 
Deferred compensation mutual funds118 118 — — 118 
Equity, mutual funds, and other (b)288 25 — 263 288 
Total other assets806 143 — 634 777 
Total assets$77,886 $8,557 $11,277 $58,451 $78,285 
Liabilities:
Defined maturity deposits$5,070 $— $5,083 $— $5,083 
Trading liabilities (a)353 — 353 — 353 
Short-term financial liabilities:
Federal funds purchased845 — 845 — 845 
Securities sold under agreements to repurchase1,187 — 1,187 — 1,187 
Other short-term borrowings166 — 166 — 166 
Total short-term financial liabilities2,198 — 2,198 — 2,198 
Term borrowings:
Real estate investment trust-preferred46 — — 47 47 
Term borrowings—new market tax credit investment45 — — 45 45 
Secured borrowings15 — — 15 15 
Junior subordinated debentures238 — — 223 223 
Other long term borrowings1,326 — 1,455 — 1,455 
Total term borrowings1,670 — 1,455 330 1,785 
Derivative liabilities (a)149 71 64 14 149 
Total liabilities$9,440 $71 $9,153 $344 $9,568 
(a)Classes are detailed in the recurring and nonrecurring measurement tables.
(b)Level 1 primarily consists of mutual funds with readily determinable fair values. Level 3 includes restricted investments in FHLB-Cincinnati stock of $61 million and FRB stock of $202 million.



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Table of Contents

Note 17 – Fair Value of Assets and Liabilities (Continued)
The following table presents the contractual amount and fair value of unfunded loan commitments and standby and other commitments as of March 31, 2021 and December 31, 2020:
 Contractual AmountFair Value
(Dollars in millions)March 31, 2021December 31, 2020March 31, 2021December 31, 2020
Unfunded Commitments:
Loan commitments$20,881 $20,796 $1 $
Standby and other commitments720 751 6 
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Note 18 – Other Events

Issuance of Series F Preferred Stock

On May 3, 2021, FHN issued 1,500 shares having an aggregate liquidation preference of $150 million of Series F Non-Cumulative Perpetual Preferred Stock for net proceeds of approximately $146 million. Dividends on the Series F Preferred Stock, if declared, accrue and are payable quarterly, in arrears, at a rate of 4.70% per annum. For the issuance, FHN issued depositary shares, each of which represents a fractional ownership interest in a share of FHN's preferred stock.


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Item 2.     Management's Discussion and Analysis of Financial Condition and Results of Operations

TABLE OF ITEM 2 TOPICS

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General Information
INTRODUCTION
First Horizon Corporation (FHN) is a financial holding company headquartered in Memphis, Tennessee. FHN provides diversified financial services primarily through it principal subsidiary, First Horizon Bank. First Horizon Bank's principal divisions and subsidiaries operate under the brands of First Horizon Bank, IBERIABANK, First Horizon Advisors, and FHN Financial. FHN offers regional banking, mortgage lending, title insurance, specialized commercial lending, commercial leasing and equipment financing, brokerage, wealth management and capital market services through the First Horizon family of companies. FHN Financial, which operates partly through a division of First Horizon Bank and partly through subsidiaries, is an industry leader in fixed income sales, trading, and strategies for institutional clients in the U.S. and abroad. First Horizon Bank has over 490 banking offices in 12 states and FHN Financial has 29 offices in 18 states across the U.S. In addition, FHN has 29 title services offices in three states and 15 stand-alone mortgage lending offices in seven states.
This MD&A should be read in conjunction with the accompanying unaudited Consolidated Financial Statements and Notes to Consolidated Financial Statements in Part I, Item 1, as well as other information contained in this document and FHN's 2020 Annual Report on Form 10-K.
Recent Events
Merger of Equals
On July 1, 2020, FHN completed its merger of equals with IBERIABANK Corporation. Reported results for FHN reflect legacy FHN prior to the completion of the merger and results from both FHN and IBKC from the merger closing date forward. As such, comparative income statement data in this MD&A for the first quarter of 2020 is only for legacy FHN.
COVID-19 Pandemic
Government and societal reaction to the COVID-19 pandemic caused extraordinary disruption to the U.S. economy, as well as to the local economies within
FHN's footprint, during the final three quarters of 2020 and continuing into the first quarter of 2021. Business activity, especially lending, declined throughout 2020 and into first quarter this year. In certain business lines, FHN reduced or stopped new lending because of the pandemic.
In the fourth quarter of 2020, two extremely effective vaccines were approved in the U.S. Administration of those vaccines began late in 2020, nationwide but on a narrowly targeted basis. In the first quarter of 2021, vaccine production and distribution increased, and a third vaccine was approved in the U.S. Public vaccination in the U.S. has accelerated during the first four months of 2021. In many of FHN's markets, COVID-19 restrictions at least partially were eased by the end of March or during April, and FHN believes further easing is likely in the rest of 2021. COVID-19 restrictions still had a substantial impact on FHN and its clients in the first quarter of 2021, but FHN expects those impacts to diminish over the rest of this year as the vaccinated percentage of the U.S. population continues to climb. Within the U.S. economy, broadly speaking, manufacturing has largely recovered while services continue to lag significantly, especially in hospitality and leisure.
Risk of resurgence remains as new virus variants continue to be identified around the world. As a result, FHN continues to closely monitor the pandemic and its effects on clients, especially credit quality, on FHN's communities, and on the financial markets. FHN continues to reach out to clients to discuss challenges and solutions, to provide line draws and new extensions to existing clients, to provide support for small businesses through the Paycheck Protection Program and other stimulus programs, and to provide lending and deposit assistance through deferrals and waived fees.
The pandemic has resulted in modest operational disruptions for FHN. Clients' physical access to banking centers has been restricted off and on in many markets and many non-client-facing associates have worked largely on a remote basis. FHN has also implemented additional sick time and child care assistance for associates.



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Financial Summary
Quarterly Financial Performance Summary

First Quarter 2021 versus Fourth Quarter 2020
First quarter 2021 net income available to common shareholders was $225 million, or $0.40 per diluted share, compared to $234 million, or $0.42 per diluted share, in fourth quarter 2020. First quarter 2021 results produced a return on average assets of 1.12% and a return on average common equity of 12.01% compared to 1.16% and 12.53% for fourth quarter 2020.
Net interest income of $508 million declined $14 million from fourth quarter 2020, driven by the impact of a decrease in average loans, day count and lower short-term rates partially offset by improved funding costs.
The provision for credit losses was a benefit of $45 million for the first quarter of 2021, compared to expense of $1 million for fourth quarter 2020, largely reflecting continued improvement in the overall macroeconomic outlook and a reduction in consumer loans.
Noninterest income of $298 million increased $10 million from fourth quarter 2020, primarily reflecting strong fixed income offset by decreases in mortgage banking and title income, deposit transaction and cash management fees, deferred compensation and derivative sales.
Noninterest expense of $544 million increased $36 million from fourth quarter 2020, largely as a result of IBKC merger integration expenses.
First Quarter 2021 versus First Quarter 2020
First quarter 2021 net income available to common shareholders was $225 million, or $0.40 per diluted share, compared to $12 million, or $0.04 per diluted share, in first quarter 2020 driven by the impact of the July 1, 2020 IBKC merger and a lower provision for credit losses. First quarter 2021 results produced a return on average assets of 1.12% and a return on average common equity of 12.01% compared to 0.15% and 1.05% for the first quarter 2020.
Net interest income increased 68% to $508 million compared to first quarter 2020, driven by an increase in average interest-earning assets as a result of the
IBKC merger and Truist branch acquisition. Results also reflect the benefit of deposit pricing discipline and PPP lending, which helped to partially offset the impact of lower interest rates.
The provision for credit losses was a benefit of $45 million for the first quarter of 2021, compared to expense of $154 million for first quarter 2020. The decrease in provision was primarily attributable to improvement in the overall macro-economic outlook.
Noninterest income of $298 million increased $124 million from first quarter 2020, primarily driven by the impact of the IBKC merger. Results also reflect an increase in fixed income revenue during the quarter.
Noninterest expense of $544 million increased $242 million from first quarter 2020, largely as a result of the IBKC merger. Noninterest expense for the first quarter of 2021 included $70 million in merger and acquisition-related costs compared to $6 million in first quarter 2020.
Financial Condition Summary
Total assets at March 31, 2021 of $87.5 billion increased $3.3 billion, or 4%, from $84.2 billion at December 31, 2020.
Period-end loans and leases of $58.6 billion increased $368 million, or 1%, from December 31, 2020 driven by a $1.0 billion increase in commercial loans primarily tied to PPP loans, offset by a $674 million decrease in consumer loans. Average loans and leases of $58.2 billion in first quarter 2021 increased $27.7 billion from $30.5 billion in first quarter 2020 primarily driven by the IBKC merger.
Period-end deposits of $73.2 billion increased $3.2 billion, or 5%, from December 31, 2020, largely reflecting growth in noninterest-bearing deposits from the impact of stimulus checks and PPP loan funding. Average deposits of $71.0 billion for first quarter 2021 increased from $32.9 billion for first quarter 2020.
FHN maintained strong capital measures. The Tier 1 risk-based capital and total risk-based capital ratios at March 31, 2021 were 11.05% and 12.84%, respectively, compared to 10.74% and 12.57% at December 31, 2020, respectively. The CET1 ratio was 9.97% at March 31, 2021 compared to 9.68% at December 31, 2020.
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Table 1 - Key Performance Indicators
As of or for the three months ended
(Dollars in millions, except per share data)March 31, 2021December 31, 2020March 31, 2020
Pre-provision net revenue (a)$262 $302 $175 
Diluted earnings per common share$0.40 $0.42 $0.04 
Return on average assets (b)1.12 %1.16 %0.15 %
Return on average common equity (c)12.01 %12.53 %1.05 %
Return on average tangible common equity (a) (d)15.90 %16.73 %1.59 %
Net interest margin (e)2.63 %2.71 %3.16 %
Noninterest income to total revenue (f)37.00 %35.86 %36.59 %
Efficiency ratio (g)67.54 %62.46 %63.26 %
Allowance for loan and lease losses to total loans and leases1.56 %1.65 %1.33 %
Net charge-offs to average loans and leases0.06 %0.19 %0.10 %
Total period-end equity to period-end assets9.49 %9.86 %10.71 %
Tangible common equity to tangible assets (a)6.64 %6.89 %6.81 %
Cash dividends declared per common share$0.15 $0.15 $0.15 
Book value per common share$13.65 $13.59 $14.96 
Tangible book value per common share (a)$10.29 $10.23 $9.96 
Common equity Tier 19.97 %9.68 %8.54 %
Market capitalization $9,341 $7,082 $2,514 
(a)    Represents a non-GAAP measure which is reconciled in the non-GAAP to GAAP reconciliation in Table 20.
(b)    Calculated using annualized net income divided by average assets.
(c)    Calculated using annualized net income available to common shareholders divided by average common equity.
(d)    Calculated using annualized 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
Net Interest Income/Net Interest Margin
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.
First Quarter 2021 versus Fourth Quarter 2020
Net interest income for first quarter 2021 decreased $14 million from fourth quarter 2020. This decrease
reflected a $23 million decrease in interest income, the result of lower average loan balances, a decrease in day count, and lower short-term rates. Partially offsetting the decrease in interest income was a $9 million decrease in interest expense, driven by deposit pricing discipline, as the rate on deposits decreased 6 basis points from fourth quarter 2020, as well as a $243 million decrease in average long-term borrowings.
The net interest margin was 2.63% in first quarter 2021, down 8 basis points from fourth quarter 2020, while the net interest spread of 2.52% in first quarter 2021 was down 7 basis points. The decline in net interest margin for the quarter ended March 31, 2021 was primarily the result of a 13 basis point decrease in earning asset yields, largely driven by an unfavorable mix shift to lower yielding assets.
Average earning assets increased $1.7 billion to $78.7 billion for first quarter 2021 from $77.0 billion for fourth quarter of 2020, primarily driven by a $3.1 billion increase in average interest-bearing cash,
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partially offset by a $1.6 billion decrease in average loans and leases from a reduction in new originations, continued payoffs, and a decrease in loans to mortgage companies, partially offset by growth in asset-based lending and commercial real estate. The mix shift also contributed to a decline in earning asset yield from the prior quarter.
First Quarter 2021 versus First Quarter 2020
Net interest income increased $205 million in first quarter 2021 from $303 million in first quarter 2020. The increase was primarily attributable to growth in average earning assets from the IBKC merger and Truist branch acquisition in third quarter 2020, deposit pricing discipline, and PPP lending, partially offset by the negative impact of lower interest yields on loans from the decline of LIBOR and Prime rates.
The net interest margin in first quarter 2021 was down 53 basis points from 3.16% in first quarter 2020. The net interest spread of 2.52% in first quarter 2021 was down 37 basis points from the first quarter 2020. The decline in net interest margin for the quarter ended March 31, 2021 was primarily the result of a 108 basis point decrease in earning asset yields, as the negative impact of lower short-term interest rates was partially offset by the benefit of purchase accounting accretion and PPP lending. An increase in average excess cash also negatively impacted net interest margin relative to the prior year. Driven by disciplined deposit pricing, the cost of interest-bearing liabilities decreased 71 basis points from first quarter 2020.
Average earning assets increased to $78.7 billion for first quarter 2021 from $38.8 billion for the same quarter of 2020, a $39.9 billion increase primarily driven by the IBKC merger and Truist branch acquisition.
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The following table presents the major components of net interest income and net interest margin.
Table 2—Average Balances, Net Interest Income and Yields/Rates
 
Three Months Ended
(Dollars in millions)March 31, 2021December 31, 2020March 31, 2020
Average BalanceInterest Income/ExpenseYield/Rate Average BalanceInterest Income/ExpenseYield/Rate Average BalanceInterest Income/ExpenseYield/Rate
Assets:
Loans and leases:
Commercial loans and leases$45,703 $382 3.39 %$46,596 $405 3.46 %$23,891 $257 4.33 %
Consumer loans12,519 128 4.13 13,224 129 3.89 6,633 71 4.33 
Total loans and leases58,222 510 3.55 59,820 534 3.56 30,524 328 4.33 
Loans held for sale842 7 3.16 1,030 3.22 590 4.67 
Investment securities8,321 29 1.41 8,213 27 1.29 4,467 28 2.51 
Trading securities1,418 7 2.03 1,292 2.05 1,831 13 2.91 
Federal funds sold45  0.12 34 — 0.15 10 — 1.05 
Securities purchased under agreements to resell (a)554  (0.14)405 — 0.02 817 1.13 
Interest-bearing deposits with banks9,269 2 0.10 6,201 0.10 549 1.13 
Total earning assets / Total interest income $78,671 $555 2.86 %$76,995 $578 2.99 %$38,788 $380 3.94 %
Cash and due from banks1,250 1,204 610 
Goodwill and other intangible assets, net 1,857 1,871 1,560 
Allowance for loan and lease losses (949)(985)(354)
Other assets 4,572 4,724 2,948 
Total assets $85,401 $83,809 $43,552 
Liabilities and Shareholders' Equity:
Interest-bearing deposits:
Savings$27,370 $12 0.19 %$27,090 $18 0.27 %$12,117 $26 0.87 %
Other interest-bearing deposits15,491 6 0.16 15,057 0.18 8,743 14 0.65 
Time deposits4,836 6 0.47 5,387 0.44 3,356 14 1.67 
Total interest-bearing deposits47,697 24 0.20 47,534 31 0.26 24,216 54 0.90 
Federal funds purchased996  0.10 831 — 0.10 747 1.19 
Securities sold under agreements to repurchase1,145 1 0.21 1,140 0.23 778 1.36 
Trading liabilities518 1 0.73 367 0.78 751 1.76 
Other short-term borrowings139  1.01 142 — 0.98 1,686 1.20 
Term borrowings1,670 18 4.39 1,913 20 4.16 791 4.01 
Total interest-bearing liabilities / Total interest expense$52,165 $44 0.34 %$51,927 $53 0.40 %$28,969 $75 1.05 %
Noninterest-bearing liabilities:
Noninterest-bearing deposits23,284 22,105 8,666 
Other liabilities1,603 1,568 915 
Total liabilities 77,052 75,600 38,550 
Shareholders' equity8,054 7,914 4,707 
Noncontrolling interest295 295 295 
Total shareholders' equity8,349 8,209 5,002 
Total liabilities and shareholders' equity$85,401 $83,809 $43,552 
Net earnings assets / Net interest income (TE) / Net interest spread$26,506 $511 2.52 %$25,068 $525 2.59 %$9,819 $305 2.89 %
Taxable equivalent adjustment(3)0.11 (3)0.12 (2)0.27 
Net interest income / Net interest margin (b)$508 2.63 %$522 2.71 %$303 3.16 %
(a) First quarter 2021 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
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.
Provision for Credit Losses
The 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.
The provision for credit losses benefit of $45 million compared to expense of $1 million in fourth quarter
2020, largely reflecting continued improvement in the overall macroeconomic outlook and a reduction in consumer loans. The provision for credit losses decreased $199 million from first quarter 2020 primarily from an improvement in the overall macroeconomic outlook.
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 3 - Noninterest Income
Three Months Ended1Q21 vs. 1Q201Q21 vs. 4Q20
(Dollars in millions)March 31, 2021December 31, 2020March 31, 2020$ Change% Change$ Change% Change
Noninterest income:
Fixed income$126 $104 $96 $30 31 %$22 21 %
Mortgage banking and title income53 57 51 NM(4)(7)%
Deposit transactions and cash management42 45 30 12 40 %(3)(7)%
Brokerage, management fees and commissions20 19 16 25 %%
Trust services and investment management 12 12 71 %— — %
Bankcard income11 12 57 %(1)(8)%
Other income34 39 16 18 NM(5)(13)%
Total noninterest income$298 $288 $174 $124 71 %$10 %
Certain previously reported amounts have been reclassified to agree with current presentation.
NM – Not meaningful

The following table summarizes FHN’s fixed income noninterest income for each of the periods presented:
Table 4—Fixed Income
 
Three Months Ended1Q21 vs. 1Q201Q21 vs. 4Q20
(Dollars in millions)March 31, 2021December 31, 2020March 31, 2020$ Change% Change$ Change% Change
Noninterest income:
Fixed income$115 $94 $78 $37 47 %$21 22 %
Other product revenue11 10 18 (7)(39 %)10 %
Total noninterest income$126 $104 $96 $30 31 %$22 21 %



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First Quarter 2021 versus Fourth Quarter 2020
Compared to fourth quarter 2020, noninterest income increased $10 million, or 3%, primarily reflecting strong fixed income. Fixed income increased $22 million, or 21%, driven by continued elevated liquidity and weak loan demand among fixed income customers, as well as interest rate volatility.This increase was partially offset by decreases in mortgage banking and title income, deposit transaction and cash management fees, deferred compensation and derivative sales.
First Quarter 2021 versus First Quarter 2020
Noninterest income of $298 million for first quarter 2021, increased $124 million, or 71%, compared to
first quarter 2020, primarily driven by the impact of the IBKC merger as well as strong fixed income revenue during the quarter. Fixed income increased $30 million, or 31%, from first quarter 2020. Fixed income product revenue of $115 million increased 47%, largely driven by favorable market conditions including market volatility and increased depository liquidity. Revenue from other products of $11 million decreased 39%, primarily driven by lower fees from derivative and loan sales.



Noninterest Expense

The following table presents the significant components of noninterest expense for each of the periods presented:

Table 5 - Noninterest Expense
Three Months Ended1Q21 vs. 1Q201Q21 vs. 4Q20
(Dollars in millions)March 31, 2021December 31, 2020March 31, 2020$ Change% Change$ Change% Change
Noninterest expense:
Personnel expense$318 $319 $183 $135 74 %$(1)NM
Net occupancy expense37 36 20 17 85 %%
Computer software28 27 16 12 75 %%
Legal and professional fees14 19 56 %(5)(26)%
Operations services16 17 12 33 %(1)(6)%
Equipment expense11 13 22 %(2)(15)%
Amortization of intangible assets14 15 NM(1)(7)%
Other expense106 62 48 58 NM4471 %
Total noninterest expense$544 $508 $302 $242 80 %$36 %
Certain previously reported amounts have been reclassified to agree with current presentation.
NM – Not meaningful


First Quarter 2021 versus Fourth Quarter 2020
Compared to fourth quarter 2020, noninterest expense increased $36 million, or 7%, driven by a $36 million increase in merger and acquisition related expense largely tied to IBKC merger integration costs. First quarter 2021 also included $10 million in derivative valuation adjustments related to prior Visa Class-B share sales.
First Quarter 2021 versus First Quarter 2020
Total noninterest expense of $544 million increased $242 million, or 80%, from first quarter 2020 primarily attributable to the impact of the IBKC merger and Truist branch acquisition. In addition to the impact of
the merger and branch acquisition, the increase in personnel expense reflects an increase in revenue-based compensation due to increases in fixed income and mortgage banking and an increase in deferred compensation expense driven by equity market valuations. Other expense in first quarter 2021 included $33 million in asset impairments related to IBKC merger integration efforts. Total merger and acquisition expense was $70 million in first quarter 2021 compared to $6 million in first quarter 2020.
Income Taxes
FHN recorded income tax expense of $71 million in first quarter 2021, compared to $56 million in fourth quarter 2020 and $5 million in first quarter 2020. The effective tax rate was approximately 23.2%, 18.7%,
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and 22.4% for the three months ended March 31, 2020, December 31, 2020 and March 31, 2020, respectively.
FHN’s effective tax rate is favorably affected by recurring items such as bank-owned life insurance, tax-exempt income, and tax credits and other tax benefits from tax credit investments. The effective rate is unfavorably affected by the non-deductibility of a portion of FHN's 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 enacted statutory tax rates, applicable to future years, to these temporary differences. As of March 31, 2021, FHN’s gross DTA and gross DTL were $472 million and $448 million, respectively, resulting in a net DTA of $24 million at March 31, 2021, compared with a net DTA of less than $1 million at December 31, 2020.
As of March 31, 2021, FHN had deferred tax asset balances related to federal and state income tax carryforwards of $39 million and $9 million, respectively, which will expire at various dates.
FHN believes that it will be able to realize the value of its DTA and that no valuation allowance is needed. FHN monitors its DTA and the need for a valuation allowance on a quarterly basis.

Business Segment Results
During fourth quarter 2020, FHN reorganized its internal management structure and, accordingly, its segment reporting structure. Historically, FHN's primary business segments were Regional Banking, Fixed Income, Corporate, and Non-strategic. On July 1, 2020, FHN and IBKC closed their merger of equals transaction. This transaction prompted organizational changes to better integrate and execute the combined Company's strategic priorities across all lines of businesses. As a result, FHN revised its reportable segments to include Regional Banking, Specialty Banking and Corporate. Segment results for the first quarter of 2020 have been recast to adjust for the realignment of the segment reporting structure. See Note 13 - Business Segment Information for additional disclosures related to FHN's operating segments.
Regional Banking
The Regional Banking segment generated pre-tax income of $286 million for first quarter 2021 compared to $231 million for fourth quarter 2020 and pre-tax loss of $4 million for first quarter 2020. The increase in first quarter 2021 compared to fourth quarter 2020 was primarily driven by a decrease in noninterest expense and lower provision for credit losses reflecting continued improvement in the overall macroeconomic outlook and a reduction in consumer loans. The increase for the first quarter 2021 compared to first quarter 2020 reflected an increase in revenue offset by an increase in noninterest expense resulting from the IBKC merger and a
decrease in the provision for credit losses resulting from improvement in the macroeconomic outlook.
Specialty Banking

The Specialty Banking segment generated pre-tax income of $197 million for first quarter 2021 compared to $194 million for fourth quarter 2020 and $48 million for first quarter 2020. First quarter 2021 results compared to fourth quarter 2020 included an increase in noninterest income and lower provision for credit losses partially offset by lower net interest income and higher noninterest expense. The increase for the first quarter 2021 compared to first quarter 2020 was driven by an increase in revenue offset by an increase in noninterest expense resulting from the IBKC merger and a decrease in the provision for credit losses resulting from improvement in the macroeconomic outlook.

Corporate

The Corporate segment generated pre-tax loss of $176 million for first quarter 2021 compared to $124 million for fourth quarter 2020 and $23 million for first quarter 2020. The increase in pre-tax loss for first quarter 2021 compared to first quarter 2020 reflected an increase in noninterest expense primarily from a $64 million increase in merger and integration-related costs and the impact of the IBKC merger and a decrease in net interest income resulting from the impact of funds transfer pricing, partially offset by an increase in noninterest income primarily resulting from an increase in deferred compensation income
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driven by equity market valuations relative to the prior year.

Financial Condition
Total period-end assets were $87.5 billion at March 31, 2021 compared to $84.2 billion at December 31, 2020. Asset growth during first quarter 2021 was driven by an increase in cash from deposit growth and by loan growth, primarily C&I loans from PPP loan originations.
Earning assets consist of loans and leases, loans held for sale, investment securities, and other earning assets, such as trading securities and interest-bearing deposits with banks. A detailed discussion of the major components of earning assets is provided in the following sections.
Loans and Leases
Period-end loans and leases increased $368 million, or 1% to $58.6 billion as of March 31, 2021 from $58.2 billion on December 31, 2020, driven by a $1.0 billion increase in commercial loans primarily tied to PPP loans, offset by a $674 million decrease in consumer loans. Average loans and leases decreased to $58.2 billion in first quarter 2021 compared to $59.8 billion in fourth quarter 2020 and increased from $30.5 billion in first quarter 2020 primarily from acquired loans during third quarter 2020.
The following table provides detail regarding FHN's loans and leases as of March 31, 2021 and December 31, 2020.
Table 6—Loans and Leases
 
As of March 31, 2021As of December 31, 2020
(Dollars in millions)AmountPercent of totalAmountPercent of totalGrowth Rate
Commercial:
Commercial, financial, and industrial (a)$33,951 58 %$33,104 57 %%
Commercial real estate 12,470 21 12,275 21 
Total commercial46,421 79 45,379 78 
Consumer:
Consumer real estate 11,053 19 11,725 20 (6)
Credit card and other1,126 2 1,128 — 
Total consumer12,179 21 12,853 22 (5)
Total loans and leases$58,600 100 %$58,232 100 %%
(a)Includes equipment financing loans and leases.


C&I loans are the largest component of the loan portfolio, comprising 58% of total loans at the end of the first quarter 2021 and 57% at year-end 2020. C&I loans increased 3% from December 31, 2020, largely driven by PPP lending and higher balances within Specialty Banking, primarily from mortgage warehouse lending and growth in both the accommodation and food services and healthcare industries. Commercial real estate loans increased 2% to $12.5 billion in first quarter 2021 driven by growth in Regional Banking and Corporate CRE loans.
Total consumer loans decreased 5% from 2020 to $12.2 billion as of March 31, 2021, largely driven by paydowns in real estate installment loans and home
equity lines of credit within the Regional Banking segment.
Loans Held for Sale
In 2020, FHN obtained IBKC's mortgage banking operations, which includes origination and servicing of residential first lien mortgage loans, primarily fixed rate single-family residential mortgage loans originated by IBKC and committed to be sold in the secondary market. The legacy FHN loans HFS portfolio consists of small business, other consumer loans, the mortgage warehouse, USDA, student, and home equity loans.
On March 31, 2021 and December 31, 2020, loans HFS were $811 million and $1.0 billion, respectively. The decrease in loans HFS was primarily driven by a
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seasonal slowdown in mortgage volume, as well as a reduction in refinance activity impacted by a recent rise in mortgage interest rates. Held-for-sale consumer mortgage loans secured by residential real estate in process of foreclosure totaled $2 million at both March 31, 2021 and December 31, 2020.

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 and leases are composed of C&I loans and leases and CRE loans. Consumer loans are composed of consumer real estate loans and credit card and other loans. FHN has a concentration of residential real estate loans (19% of total loans). Industry concentrations are discussed under the heading C&I below.
Credit underwriting guidelines are outlined in Item 7 of FHN’s Annual Report on Form 10-K for the year ended December 31, 2020 in the Loan Portfolio Composition discussion in the Asset Quality Section.
FHN’s credit underwriting guidelines and loan product offerings as of March 31, 2021 are generally consistent with those reported and disclosed in FHN’s Form 10-K for the year ended December 31, 2020.
Commercial Loan and Lease Portfolios
C&I
The C&I portfolio totaled $34.0 billion as of March 31, 2021 and $33.1 billion as of December 31, 2020 and is comprised of loans and leases used for general business purposes. Products offered in the C&I portfolio include term loan financing of owner-occupied real estate and fixed assets, direct financing and sales-type leases, working capital lines of credit, and trade credit enhancement through letters of credit. The largest geographical concentrations of balances in the C&I portfolio as of March 31, 2021 were in Tennessee (21%), Florida (12%), Texas (9%), Louisiana (8%), North Carolina (8%), California (7%), and Georgia (5%). No other state represented more than 5% of the portfolio.
The following table provides the composition of the C&I portfolio by industry as of March 31, 2021, and December 31, 2020. For purposes of this disclosure, industries are determined based on the North American Industry Classification System (NAICS) industry codes used by Federal statistical agencies in classifying business establishments for the collection, analysis, and publication of statistical data related to the U.S. business economy.
Table 7 — C&I Loan Portfolio by Industry
 
 March 31, 2021December 31, 2020
(Dollars in millions) 
AmountPercentAmountPercent
Industry: 
Loans to mortgage companies$5,530 16 %$5,404 16 %
Finance and insurance3,113 9 3,130 10 
Health care and social assistance2,832 8 2,689 
Accommodation and food service 2,480 7 2,303 
Real estate rental and leasing (a)2,377 7 2,365 
Wholesale trade2,133 6 2,079 
Manufacturing1,968 6 1,907 
Energy1,637 5 1,686 
Retail trade1,566 5 1,531 
Professional, scientific, and technical1,567 5 1,457 
Other (construction, transportation, etc.) (b)8,748 26 8,553 26 
Total C&I loan portfolio$33,951 100 %$33,104 100 %
(a)Leasing, rental of real estate, equipment, and goods.
(b)Industries in this category each comprise less than 5% for 2021.


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Industry Concentrations
Loan concentrations exist 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 25% of FHN’s C&I loan portfolio as of March 31, 2021, and as a result could be affected by items that uniquely impact the financial services industry. As of March 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
Loans to mortgage companies were 16% of the C&I portfolio as of March 31, 2021 and December 31, 2020. 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, new loan originations to mortgage lenders increases when there is a decline in mortgage rates and decreases when rates rise. In periods of economic uncertainty, this trend may not occur even if interest rates are declining. In first quarter 2021, 33% of the loan originations were home purchases and 67% were refinance transactions.
Finance and Insurance
The finance and insurance component represents 9% of the C&I portfolio as of March 31, 2021 compared to 10% as of December 31, 2020, and includes TRUPs (i.e., long-term unsecured loans to bank and insurance-related businesses), loans to bank holding companies, and asset-based lending to consumer finance companies. As of March 31, 2021, asset-based lending to consumer finance companies represents approximately $1.2 billion of the finance and insurance component.
TRUPs lending was originally extended as a form of “bridge” financing to participants in the pooled trust preferred securitization program offered primarily to smaller banking (generally less than $15 billion in total assets) and insurance institutions through FHN’s fixed income business. Origination of TRUPs lending ceased in early 2008. Individual TRUPs are re-graded at least quarterly as part of FHN’s commercial loan review process. The terms of these loans generally include a scheduled 30 year balloon payoff and include an option to defer interest for up to 20 consecutive quarters. As of March 31, 2021, the unpaid principal balance (UPB) of trust preferred loans totaled $228 million. Including an amortizing discount of $18 million, total reserves (ALLL plus the
amortizing discount) for TRUPs and other bank-related loans were $28 million, or 12% of outstanding UPB. As of March 31, 2021, TRUPs loans included $7 million of loans on nonaccrual, which represented a single loan relationship.
Paycheck Protection Program
In 2020, Congress created the Paycheck Protection Program (PPP). Under the PPP, qualifying businesses may receive loans from private lenders, such as FHN, that are fully guaranteed by the Small Business Administration. These loans potentially are partly or fully forgivable, depending upon the borrower’s use of the funds and maintenance of employment levels. To the extent forgiven, the borrower is relieved from payment while the lender is still paid from the program. Congress made revisions to the PPP during first quarter 2021, and may make further revisions in the future.

At March 31, 2021, FHN had 44,717 of PPP loans with an aggregate principal balance of $5.1 billion. For these loans, FHN anticipates being paid net lender fees of approximately $81 million in relation to the PPP loans held at March 31, 2021.
Because PPP loans carry a full SBA guarantee, they do not have any credit risk and will not affect the amount of provision and ALLL recorded. As a result, no ALLL is recorded for PPP loans as of March 31, 2021, and FHN has assigned a risk weight of zero to PPP loans for regulatory capital purposes.
Commercial Real Estate
The CRE portfolio totaled $12.5 billion and $12.3 billion as of March 31, 2021 and December 31, 2020, respectively. The CRE portfolio reflects financings for both commercial construction and nonconstruction loans. The largest geographical concentrations of CRE loan balances as of March 31, 2021 were in Florida (28%), Louisiana (11%), Texas (11%), North Carolina (11%), Tennessee (9%), and Georgia (9%). No other state represented more than 5% of the portfolio. This portfolio contains loans, draws on lines, and letters of credit to commercial real estate developers for the construction and mini-permanent financing of income-producing real estate. Subcategories of the CRE portfolio consist of multi-family (27%), office (22%), retail (18%), industrial (11%), hospitality (11%), land/land development (2%), and other (9%).



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Consumer Loan Portfolios
Consumer Real Estate
The consumer real estate portfolio totaled $11.1 billion and $11.7 billion as of March 31, 2021 and December 31, 2020, respectively , and is primarily composed of home equity lines and installment loans. The largest geographical concentrations of balances as of March 31, 2021, were in Florida (32%), Tennessee (25%), Louisiana (10%), North Carolina (8%), and Texas (5%). No other state represented more than 5% of the portfolio.
As of March 31, 2021, approximately 85% of the consumer real estate portfolio was in a first lien position. At origination, the weighted average FICO score of this portfolio was 753 and the refreshed FICO scores averaged 765 as of March 31, 2021, no significant change from FICO scores of 753 and 763, respectively, as of December 31, 2020. Generally, performance of this portfolio is affected by life events that affect borrowers’ finances, the level of unemployment, and home prices.
As of March 31, 2021 and December 31, 2020, FHN had held-for-investment consumer mortgage loans secured by real estate that were in the process of foreclosure totaling $34 million and $36 million, respectively.
HELOCs comprised $2.3 billion of the consumer real estate portfolio as of March 31, 2021. 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 ended, 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 both March 31, 2021 and December 31, 2020, approximately 86% of FHN's HELOCs were in the draw period. It is expected that $438 million, or 22% of HELOCs currently in the draw period, will enter the repayment period during the next 60 months, based on current terms. Generally, delinquencies for HELOCs that have entered the repayment period are initially higher than HELOCs still in the draw period because of the increased minimum payment requirement. However, over time, performance of these loans usually begins to stabilize. HELOCs are monitored closely for those nearing the end of the draw period.
The following table presents HELOCs currently in the draw period and expected timing of conversion to the repayment period.

Table 8—HELOC Draw To Repayment Schedule
 
 March 31, 2021December 31, 2020
(Dollars in millions)Repayment
Amount
PercentRepayment
Amount
Percent
Months remaining in draw period:
0-12$65 3 %$73 %
13-2458 3 66 
25-3654 3 62 
37-4878 4 67 
49-60183 9 187 
>601,551 78 1,662 79 
Total$1,989 100 %$2,117 100 %

Credit Card and Other
The credit card and other portfolio, which is primarily within the Regional Banking segment, totaled $1.1 billion as of March 31, 2021 and primarily includes consumer-related credits, including home equity and other personal consumer loans, credit card receivables, and automobile loans. There was no
significant change in the balance of this portfolio from December 31, 2020.
Allowance for Loan and Lease Losses
Management’s policy is to maintain the ALLL at a level sufficient to recognize current expected credit losses on the amortized cost basis of the loan and lease portfolio. The total allowance for loan and lease
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losses decreased to $914 million on March 31, 2021 from $963 million on December 31, 2020. The ALLL as of March 31, 2021 reflects the improvement in the economic forecast from year-end 2020. As a result, the ratio of ALLL to total loans and leases decreased 9 basis points from December 31, 2020 to 1.56% on March 31, 2021.
The provision for loan and lease losses is the charge to or release of earnings necessary to maintain the ALLL at a sufficient level reflecting management’s estimate of current expected losses on the amortized cost basis of the loan and lease portfolio. Provision credit was $41 million in first quarter 2021 compared to a provision expense of $145 million in first quarter 2020. The decrease is primarily attributable to an improving economic forecast, as first quarter 2020 was negatively impacted by the economic uncertainty around the COVID-19 pandemic.
Asset quality trends may continue to be impacted by the economic uncertainty attributable to the COVID-19 pandemic. The C&I portfolio reflects a broad mix of categories with the heaviest concentration in loans to mortgage companies which carry minimal credit risk. The C&I portfolio as of March 31, 2021 includes $5.1 billion of loans made under the Paycheck Protection Program of the SBA. PPP loans are fully government guaranteed with the SBA. Due to the government guarantee and forgiveness provisions, PPP loans are considered to have no credit risk.
The CRE portfolio metrics may continue to be impacted by the COVID-19 pandemic due to travel and occupancy restrictions set by state and local governments affecting the hospitality and retail industries. The consumer portfolio may also continue to be impacted by the COVID-19 pandemic if consumer unemployment continues to remain elevated and clients are unable to continue making loan payments. The consumer portfolio, however, is high quality with no subprime and minimal exposure to other traditional categories of high risk lending.
Consolidated Net Charge-offs
Net charge-offs in first quarter 2021 were $8 million, an annualized charge-off percentage of 0.06% of total loans and leases, consistent with net charge-offs of $8 million in first quarter 2020.
Net charge-offs in first quarter 2021 in the commercial portfolio were $11 million compared to $6 million in first quarter 2020. Net charge-offs were impacted by higher energy charge-offs in the current quarter, as well as a larger commercial portfolio from acquired loans in third quarter 2020.
Net recoveries in the consumer portfolio were $3 million in first quarter 2021, driven by consumer real estate recoveries in the Corporate segment, compared to $2 million in net charge-offs in first quarter 2020.
Table 9—Analysis of Allowance for Loan and Lease Losses and Charge-offs
(Dollars in millions)
Allowance for loan and lease losses (a)March 31, 2021December 31, 2020March 31, 2020
C&I$442 $453 $255 
CRE232 242 48 
Consumer real estate222 242 122 
Credit card and other18 26 19 
Total allowance for loan and lease losses$914 $963 $444 
Period-end loans and leases
C&I$33,951 $33,104 $22,124 
CRE12,470 12,275 4,640 
Consumer real estate11,053 11,725 6,119 
Credit card and other1,126 1,128 495 
Total period-end loans and leases$58,600 $58,232 $33,378 
ALLL / loans and leases % (a)
C&I1.30 %1.37 %1.15 %
CRE1.86 %1.97 %1.03 %
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Consumer real estate2.00 %2.07 %2.00 %
Credit card and other1.63 %2.34 %3.91 %
Total ALLL / loans and leases %1.56 %1.65 %1.33 %
Quarter-to-date net charge-offs (recoveries)
C&I$10 $31 $
CRE1 (1)— 
Consumer real estate(5)(3)(1)
Credit card and other2 
Total net charge-offs$8 $29 $
Average loans and leases (b)
C&I$33,279 $34,196 $19,470 
CRE12,424 12,400 4,422 
Consumer real estate11,400 12,030 6,134 
Credit card and other1,119 1,194 498 
Total average loans and leases$58,222 $59,820 $30,524 
Charge-off %
C&I0.12 %0.36 %0.12 %
CRE0.06 %NM— %
Consumer real estateNMNMNM
Credit card and other0.65 %0.68 %2.23 %
Total charge-off %0.06 %0.19 %0.10 %
ALLL / annualized net charge-offs
C&I11.47 x3.67 x10.89 x
CRE33.31 xNMNM
Consumer real estateNMNMNM
Credit card and other2.53 x3.23 x1.74 x
Total ALLL / net charge-offs28.14 x8.41 x13.80 x
ALLL / NPLs
C&I3.07 x3.15 x2.65 x
CRE3.45 x4.15 x21.75 x
Consumer real estate1.23 x1.33 x1.34 x
Credit card and other7.49 x13.13 x53.69 x
Total ALLL / NPLs2.32 x2.49 x2.34 x
NM - not meaningful
(a)The increase in the ALLL from first quarter 2020 was primarily attributable to the allowance recorded on acquired non-PCD loans and the decline in the economic forecast attributable to the COVID-19 pandemic, while the decrease from fourth quarter 2020 was from an improvement in the overall economic forecast.
(b)The increase in period-end and average loans and leases from 1st quarter 2020 is primarily the result of $26.3 billion in acquired loans and leases in third quarter 2020.
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Nonperforming Assets
Nonperforming loans are loans placed on nonaccrual if it becomes evident that full collection of principal and interest is at risk, if impairment has been recognized as a partial charge-off of principal balance due to insufficient collateral value and past due status, or (on a case-by-case basis), if FHN continues to receive payments but there are other borrower-specific issues. Included in nonaccruals are loans that FHN continues to receive payments, including residential real estate loans where the borrower has been discharged of personal obligation through bankruptcy. NPAs consist of nonperforming loans and OREO (excluding OREO from government insured mortgages).
Total NPAs (including NPLs HFS) increased to $410 million as of March 31, 2021 from $406 million as of
December 31, 2020. Despite the marginal increase, the nonperforming assets ratio (nonperforming assets excluding NPLs HFS to total period-end loans plus OREO) was 0.69% as of both March 31, 2021 and December 31, 2020. The ratio of the ALLL to NPLs was 2.3 times as of March 31, 2021 compared to 2.5 times as of December 31, 2020.
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 10—Nonperforming Assets by Loan Portfolio
(Dollars in millions)March 31, 2021December 31, 2020
Nonperforming loans and leases
C&I$144 $144 
CRE67 58 
Consumer real estate180 182 
Credit card and other3 
Total nonperforming loans and leases (a)$394 $386 
Nonperforming loans held for sale (a)$5 $
Foreclosed real estate and other assets (b)11 15 
Total nonperforming assets (a) (c)$410 $406 
Nonperforming loans and leases to total loans and leases
C&I0.42 %0.43 %
CRE0.54 %0.48 %
Consumer real estate1.63 %1.56 %
Credit card and other0.22 %0.18 %
Total NPL %0.67 %0.66 %
(a)Excludes loans and leases that are 90 or more days past due and still accruing interest.
(b)Foreclosed real estate from GNMA loans totaled $2 million at both March 31, 2021 and December 31, 2020.
(c)Balances do not include government-insured foreclosed real estate.


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The following table provides nonperforming assets by business segment:

Table 11—Nonperforming Assets by Segment
(Dollars in millions)March 31, 2021December 31, 2020
Nonperforming loans and leases (a) (b)
Regional Banking$226 $216 
Specialty Banking111 117 
Corporate57 53 
Consolidated$394 $386 
Foreclosed real estate (c)
Regional Banking$10 $12 
Specialty Banking 
Corporate1 
Consolidated$11 $15 
Nonperforming Assets (a) (b) (c)
Regional Banking$236 $228 
Specialty Banking111 118 
Corporate58 55 
Consolidated$405 $401 
Nonperforming loans and leases to loans and leases
Regional Banking0.56 %0.54 %
Specialty Banking0.64 0.68 
Corporate6.20 5.70 
Consolidated0.67 %0.66 %
NPA % (d)
Regional Banking0.58 %0.57 %
Specialty Banking0.64 0.68 
Corporate6.28 5.87 
Consolidated0.69 %0.69 %
(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 $4 million and $5 million at March 31, 2021, and December 31, 2020, respectively.
(d)Ratio is non-performing assets to total loans and leases plus foreclosed real estate.


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 that have been processed through March 31, 2021.
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Table 12 - Customer Deferrals
(Dollars in millions)As of March 31, 2021
Commercial:
C&I$51 
CRE178 
Total Commercial$229 
Consumer:
HELOC$12 
R/E installment loans138 
Credit card and other6 
Total Consumer156 
Total$385 
Commercial deferrals were comprised primarily of general commercial (59% or $135 million) and professional commercial real estate (38% or $86 million).

To the extent that loans were past due at March 31, 2021 or December 31, 2020 and had been granted a deferral, they were excluded from loans past due 30 to 89 days and loans past due 90 days or more in the table and discussion below.
Past Due Loans and Potential Problem Assets
Past due loans are loans contractually past due as to interest or principal payments, but which have not yet been put on nonaccrual status. Loans in the portfolio that are 90 days or more past due and still accruing were $13 million on March 31, 2021, compared to $17 million on December 31, 2020. The decrease was primarily driven by consumer real estate loans. Loans 30 to 89 days past due were $81 million on March 31, 2021, compared to $100 million on December 31, 2020. The decrease included a $14 million decrease in consumer real estate loans, a $12 million decrease in CRE loans, and a $4 million decrease in credit card and other consumer loans, partially offset by an increase in C&I loans past due 30 to 89 days.
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Table 13—Accruing Delinquencies
(Dollars in millions)March 31, 2021December 31, 2020
Accruing loans and leases 30+ days past due
C&I$26 $15 
CRE11 23 
Consumer real estate52 69 
Credit card and other5 10 
Total 30+ Delinquency$94 $117 
Accruing loans and leases 30+ days past due %
C&I0.08 %0.05 %
CRE0.09 %0.19 %
Consumer real estate0.47 %0.58 %
Credit card and other0.45 %0.87 %
Total 30+ Delinquency %0.16 %0.20 %
Accruing loans and leases 90+ days past due (a) (b) (c):
C&I$ $— 
CRE — 
Consumer real Estate13 16 
Credit card and other 
Total accruing loans and leases 90+ days past due $13 $17 
Loans held for sale
30 to 89 days past due (b)7 
30 to 89 days past due - guaranteed portion (b) (d)6 
90+ days past due (b)13 12 
90+ days past due - guaranteed portion (b) (d)11 10 
(a)Excludes loans classified as held for sale.
(b)Amounts are not included in nonperforming/nonaccrual loans.
(c)Amounts are also included in accruing loans and leases 30+ days past due.
(d)Guaranteed loans include FHA, VA, and GNMA loans repurchased through the GNMA buyout program.


Potential problem assets represent those assets where information about possible credit problems of borrowers has caused management to have serious doubts about the borrower’s ability to comply with present repayment terms and includes loans past due 90 days or more and still accruing. This definition is believed to be substantially consistent with the standards established by Federal banking regulators for loans classified as substandard. Potential problem assets in the loan portfolio were $738 million on March 31, 2021 and $718 million on December 31, 2020. The increase in potential problem assets was from a net increase in classified commercial loans within the C&I portfolio from a limited number of
customer migrations to substandard loans in the current quarter. 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 Restructurings 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
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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 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 4 – Loans and Leases for further discussion regarding TDRs and loan modifications.
On March 31, 2021 and December 31, 2020, FHN had $288 million and $307 million portfolio loans classified as TDRs, respectively. For TDRs in the loan portfolio, FHN had loan loss reserves of $11 million and $12 million, or 4% of TDR balances as of both March 31, 2021 and December 31, 2020, respectively. Additionally, FHN had $41 million and $42 million of HFS loans classified as TDRs as of March 31, 2021 and December 31, 2020, respectively.
The following table provides a summary of TDRs for the periods ended March 31, 2021 and December 31, 2020:
Table 14—Troubled Debt Restructurings 
(Dollars in millions)As of
March 31, 2021
As of
December 31, 2020
Held-to-maturity:
Consumer real estate:
Current$71 $77 
Delinquent2 
Non-accrual (a)57 61 
Total consumer real estate130 140 
Credit card and other:
Current1 
Delinquent — 
Non-accrual — 
Total credit card and other1 
Commercial loans:
Current74 82 
Delinquent — 
Non-accrual83 84 
Total commercial loans157 166 
Total held-to-maturity$288 $307 
Held-for-sale:
Current$35 $36 
Delinquent5 
Non-accrual1 
Total held-for-sale41 42 
Total troubled debt restructurings$329 $349 
 
(a)Balances as of March 31, 2021 and December 31, 2020, include $13 million and $11 million, respectively, of discharged bankruptcies.
Investment Securities
FHN’s investment portfolio consists principally of debt securities, including government agency issued mortgage-backed securities and government agency issued collateralized mortgage obligations, all of
which are classified as AFS. The securities portfolio provides a source of income and liquidity and is an important tool used to balance the interest rate risk of the loan and deposit portfolios. The securities portfolio is periodically evaluated in light of established ALM objectives, changing market
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conditions that could affect the profitability of the portfolio, the regulatory environment, and the level of interest rate risk to which FHN is exposed.
Investment securities were $8.4 billion on March 31, 2021, up from $8.0 billion on December 31, 2020 and represented approximately 10% of total assets for both periods. See Note 3 - Investment Securities for more information about the securities portfolio, including gross unrealized gains and losses by type
of security, contractual maturities, and securities pledged.
Deposits
Total deposits as of March 31, 2021 increased 5% to $73.2 billion from $70.0 billion on December 31, 2020 driven by an increase in non-interest bearing deposits largely reflecting the impact of government stimulus checks and PPP loan funding.
The following table summarizes the major components of deposits as of March 31, 2021 and December 31, 2020.
Table 15— Deposits
 
 March 31, 2021December 31, 2020 
(Dollars in millions)AmountPercent of totalAmountPercent of totalChangePercent
Savings$27,023 37 %$27,324 39 %$(301)(1)%
Time deposits4,653 6 5,070 (417)(8)
Other interest-bearing deposits16,444 23 15,415 22 1,029 
Interest-bearing deposits48,120 66 47,809 68 311 
Noninterest-bearing deposits25,046 34 22,173 32 2,873 13 
Total deposits$73,166 100 %$69,982 100 %$3,184 %


Short-Term Borrowings
Total short-term borrowings were $2.2 billion as of March 31, 2021 and December 31, 2020.
Short-term borrowings balances fluctuate largely based on the level of FHLB borrowing as a result of loan demand, deposit levels and balance sheet funding strategies. Federal funds purchased fluctuates depending on the amount of excess funding of FHN’s correspondent bank customers. Balances of securities sold under agreements to
resell fluctuate based on cost attractiveness relative to FHLB borrowing levels and the ability to pledge securities toward such transactions.
Term Borrowings
Term borrowings include senior and subordinated borrowings with original maturities greater than one year. Term borrowings were $1.7 billion as of March 31, 2021 and December 31, 2020.
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 was $8.3 billion at both March 31, 2021 and December 31, 2020.
Significant changes included net income of $236 million which was offset by a decrease in AOCI of $101 million, $92 million in common and preferred dividends, and $62 million in common share repurchases.
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The following tables provide a reconciliation of shareholders’ equity from the Consolidated Balance Sheets to Common Equity Tier 1, Tier 1 and Total Regulatory Capital as well as certain selected capital ratios:
Table 16—Regulatory Capital and Ratios
(Dollars in millions)March 31, 2021December 31, 2020
Shareholders’ equity$8,012 $8,012 
Modified CECL transitional amount (a)178 191 
FHN non-cumulative perpetual preferred(470)(470)
Common equity tier 1 before regulatory adjustments $7,720 $7,733 
Regulatory adjustments:
Disallowed goodwill and other intangibles(1,745)(1,757)
Net unrealized (gains) losses on securities available for sale(5)(108)
Net unrealized (gains) losses on pension and other postretirement plans256 260 
Net unrealized (gains) losses on cash flow hedges(10)(12)
Disallowed deferred tax assets(1)(5)
Other deductions from common equity tier 1(1)(1)
Common equity tier 1$6,214 $6,110 
FHN non-cumulative perpetual preferred (b)377 377 
Qualifying noncontrolling interest— First Horizon Bank preferred stock295 295 
Tier 1 capital$6,886 $6,782 
Tier 2 capital1,120 1,153 
Total regulatory capital$8,006 $7,935 
Risk-Weighted Assets
First Horizon Corporation$62,339 $63,140 
First Horizon Bank61,610 62,508 
Average Assets for Leverage
First Horizon Corporation83,959 82,347 
First Horizon Bank83,242 81,709 

 March 31, 2021December 31, 2020
 RatioAmountRatioAmount
Common Equity Tier 1
First Horizon Corporation9.97 %$6,214 9.68 %$6,110 
First Horizon Bank10.72 6,606 10.46 6,537 
Tier 1
First Horizon Corporation11.05 6,886 10.74 6,782 
First Horizon Bank11.20 6,901 10.93 6,832 
Total
First Horizon Corporation12.84 8,006 12.57 7,935 
First Horizon Bank12.75 7,855 12.52 7,827 
Tier 1 Leverage
First Horizon Corporation8.20 6,886 8.24 6,782 
First Horizon Bank8.29 6,901 8.36 6,832 
Other Capital Ratios
Total period-end equity to period-end assets9.49 9.86 
Tangible common equity to tangible assets (c)6.64 6.89 
Adjusted tangible common equity to risk weighted assets (c)9.12 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 March 31, 2021 and December 31, 2020.
(b)The $93 million carrying value of the Series D preferred stock does not qualify as Tier 1 capital because the earliest redemption date is less than five years from the issuance date.
(c)Tangible common equity to tangible assets and Adjusted tangible common equity to risk-weighted assets are non-GAAP measures and are reconciled to total equity to total assets (GAAP) in the Non-GAAP to GAAP Reconciliation - Table 20.
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Banking regulators define minimum capital ratios for bank holding companies and their bank subsidiaries. Based on the capital rules and definitions prescribed by the banking regulators, should any depository institution’s capital ratios decline below predetermined levels, it would become subject to a series of increasingly restrictive regulatory actions.
The system categorizes a depository institution’s capital position into one of five categories ranging from well-capitalized to critically under-capitalized. For an institution the size of FHN to qualify as well-capitalized, Common Equity Tier 1, Tier 1 Capital, Total Capital, and Leverage capital ratios must be at least 6.50%, 8.00%, 10.00%, and 5.00%, respectively. Furthermore, a capital conservation buffer of 50 basis points above these levels must be maintained on the Common Equity Tier 1, Tier 1 Capital and Total Capital ratios to avoid restrictions on dividends, share repurchases and certain discretionary bonuses.
As of March 31, 2021, each of FHN and First Horizon Bank had sufficient capital to qualify as well-capitalized institutions and to meet the capital conservation buffer requirement. Capital ratios for both FHN and First Horizon Bank are calculated under the final rule issued by the banking regulators in 2020 to delay the effects of CECL on regulatory capital for two years, followed by a three-year transition period.
For both FHN and First Horizon Bank, the risk-based regulatory capital ratios increased in first quarter 2021 relative to fourth quarter 2020 primarily from the impact of net income less dividends and share repurchases during the first three months of 2021 and a decrease in risk weighted assets, primarily from loan activity. During 2021, capital ratios are expected
to remain above well-capitalized standards plus the required capital conservation buffer.
Common Stock Purchase Programs
General Authority
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.
On January 27, 2021, FHN announced that its Board of Directors approved a new $500 million common share purchase program that will expire on January 31, 2023. The new program is not tied to any compensation plan, and replaced the previous general share repurchase program, which was terminated by the Board. Purchases may be made in the open market or through privately negotiated transactions, including under Rule 10b5-1 plans as well as accelerated share repurchase and other structured transactions. The timing and exact amount of common share repurchases will be subject to various factors, including FHN's capital position, financial performance, capital impacts of strategic initiatives, market conditions and regulatory considerations.
As of March 31, 2021, $59 million in purchases had been made under this authority at an average price per share of $16.12, or $16.10 excluding commissions.
Table 17a—Issuer Purchases of Common Stock - General Authority
(Dollar values and volume in thousands, except per share data)Total number
of shares
purchased
Average price
paid per share (a)
Total number of
shares purchased
as part of publicly
announced programs
Maximum approximate dollar value that may yet be purchased under the programs
2021
January 1 to January 31— N/A— $500,000 
February 1 to February 282,128 15.59 2,128 466,828 
March 1 to March 311,515 16.88 1,515 441,258 
Total3,643 $16.12 3,643 
N/A - not applicable
(a) Represents total costs including commissions paid.


Compensation Authority
A consolidated compensation plan share purchase program was announced on August 6, 2004. This
program consolidated into a single share purchase program all of the previously authorized compensation plan share programs as well as the renewal of the authorization to purchase shares for
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use in connection with two compensation plans for which the share purchase authority had expired.
The total amount authorized under this consolidated compensation plan share purchase program is 29.6 million shares calculated before adjusting for stock dividends distributed through January 1, 2011. The authorization has been reduced for that portion which relates to compensation plans for which no options remain outstanding. The shares may be purchased over the option exercise period of the various compensation plans on or before
December 31, 2023. Purchases may be 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 market conditions and regulatory restrictions. As of March 31, 2021, the maximum number of shares that may be purchased under the program was 23.8 million shares. Management currently does not anticipate purchasing a material number of shares under this authority during 2021.

Table 17b—Issuer Purchase of Common Stock - Compensation Authority
(Volume in thousands, except per share data)Total number
of shares
purchased
Average price
paid per share
Total number of
shares purchased
as part of publicly
announced programs
Maximum number
of shares that may
yet be purchased
under the programs
2021
January 1 to January 31170 $13.54 170 23,861 
February 1 to February 2813.97 23,854 
March 1 to March 3144 16.69 44 23,810 
Total221 $14.18 221 

Risk Management
There have been no significant changes to FHN’s risk management practices as described under “Risk Management” included in Item 7 of FHN’s 2020 Annual Report on Form 10-K.
MARKET RISK MANAGEMENT
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 and 1-day and 10-day time horizons. Additionally, FHN computes a Stressed VaR measure. The SVaR computation uses the same model but with model inputs reflecting historical data from a continuous 12-month period that reflects a period of significant financial stress appropriate for our trading securities portfolio.


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A summary of FHN’s VaR and SVaR measures for 1-day and 10-day time horizons is as follows:
Table 18—VaR and SVaR Measures
 Three Months Ended
March 31, 2021
As of
March 31, 2021
(Dollars in millions)MeanHighLow 
1-day
VaR$3 $4 $1 $1 
SVaR3 4 2 3 
10-day
VaR12 21 1 4 
SVaR15 21 11 13 
 Three Months Ended
March 31, 2020
As of
March 31, 2020
(Dollars in millions)MeanHighLow 
1-day
VaR$$$$
SVaR18 
10-day
VaR25 19 
SVaR27 43 16 19 
 Year Ended
December 31, 2020
As of
December 31, 2020
(Dollars in millions)MeanHighLow 
1-day
VaR$$$$
SVaR18 
10-day
VaR13 25 10 
SVaR18 43 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 19—Schedule of Risks Included in VaR
 As of March 31, 2021As of March 31, 2020As of December 31, 2020
(Dollars in millions)1-day10-day1-day10-day1-day10-day
Interest rate risk$1 $2 $$$$
Credit spread risk 1 12 

The potential risk of loss reflected by FHN’s VaR measures assumes the trading securities inventory is static. Because FHN Financial procures fixed income securities for purposes of distribution to clients, its trading securities inventory turns over regularly. Additionally, FHNF traders actively manage the trading securities inventory continuously throughout each trading day. Accordingly, FHN’s trading securities inventory is highly dynamic, rather than
static. As a result, it would be rare for FHNF to incur a negative revenue day in its fixed income activities of the level indicated by its VaR measurements.
In addition to being used in FHN’s daily market risk management process, the VaR and SVaR measures are also used by FHN in computing its regulatory market risk capital requirements in accordance with the Market Risk Capital rules. For additional
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information regarding FHN's capital adequacy refer to the Capital section of this MD&A.
FHN also performs stress tests on its trading securities portfolio to calculate the potential loss under various assumed market scenarios. Key assumed stresses used in those tests are:

Down 25 bps - assumes an instantaneous downward move in interest rates of 25 basis points at all points on the interest rate yield curve.

Up 25 bps - assumes an instantaneous upward move in interest rates of 25 basis points at all points on the interest rate yield curve.

Curve flattening - assumes an instantaneous flattening of the interest rate yield curve through an increase in short-term rates and a decrease in long-term rates. The 2-year point on the Treasury yield curve is assumed to increase 15 basis points and the 10-year point on the Treasury yield curve is assumed to decrease 15 basis points. Shifts in other points on the yield curve are predicted based on their correlation to the 2-year and 10-year points.

Curve steepening - assumes an instantaneous steepening of the interest rate yield curve through a decrease in short-term rates and an increase in long-term rates. The 2-year point on the Treasury yield curve is assumed to decrease 15 basis points and the 10-year point on the Treasury yield curve is assumed to increase 15 basis points. Shifts in other points on the yield curve are predicted based on their correlation to the 2-year and 10-year points.
Credit spread widening - assumes an instantaneous increase in credit spreads (the difference between yields on Treasury securities and non-Treasury securities) of 25 basis points.
Model Validation
Trading risk management personnel within FHN Financial have primary responsibility for model risk management with respect to the model used by FHN to compute its VaR measures and perform stress testing on the trading inventory. Among other procedures, these personnel monitor model results and perform periodic backtesting as part of an ongoing process of validating the accuracy of the model. These model risk management activities are subject to annual review by FHN’s Model Validation Group, an independent assurance group charged with oversight responsibility for FHN’s model risk management.
INTEREST RATE RISK MANAGEMENT
Net Interest Income Simulation Analysis
The information provided in this section, including the discussion regarding the outcomes of simulation analysis and rate shock analysis, is forward-looking. Actual results, if the assumed scenarios were to occur, could differ because of interest rate movements, the ability of management to execute its business plans, and other factors, including those presented in the Forward-Looking Statements section of this Report.

Management uses a simulation model to measure interest rate risk and to formulate strategies to improve balance sheet positioning, earnings, or both, within FHN’s interest rate risk, liquidity, and capital guidelines. Interest rate exposure is measured by forecasting 12 months of NII under various interest rate scenarios and comparing the percentage change in NII for each scenario to a base case scenario where interest rates remain unchanged. Assumptions are made regarding future balance sheet composition, interest rate movements, and loan and deposit pricing. In addition, assumptions are made about the magnitude of asset prepayments and earlier than anticipated deposit withdrawals. The results of these scenarios help FHN develop strategies for managing exposure to interest rate risk. While management believes the assumptions used and scenarios selected in its simulations are reasonable, simulation modeling provides only an estimate, not a precise calculation, of exposure to any given change in interest rates.
Based on a static balance sheet as of March 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 of 2.5%, 4.7%, 9.3%, and 16.0%, respectively compared to base NII. A steepening yield curve scenario where long-term rates increase by 50 basis points and short-term rates are static, results in a favorable NII variance of 0.7%. A flattening yield curve scenario where long-term rates decrease by 50 basis points and short-term rates are static, results in an unfavorable NII variance of 0.9%. Rate shocks of minus 25 basis points and 50 basis points result in unfavorable NII variances of 1.7% and 2.0%, 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, and likely will continue to be, impacted by the disruption from the COVID-19 pandemic and the low rate environment.
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The increase in the unemployment rate, client loan deferral requests, the impact of government assistance programs, and other developments have influenced net interest income results. FHN is monitoring current economic trends and potential exposures closely.
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 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 ($13.9 billion was available as of March 31, 2021), brokered deposits, loan sales, syndications, and access to the Federal Reserve Bank.
Core deposits are a significant source of funding and have historically been a stable source of liquidity for banks. Generally, core deposits represent funding from a financial institution's customer base which provide inexpensive, predictable pricing. The ratio of total loans, excluding loans HFS and restricted real estate loans, to core deposits was 86% for March 31, 2021 and 97% for December 31, 2020.
FHN may also use unsecured short-term borrowings as a source of liquidity. Federal funds purchased from correspondent bank clients are considered to be
substantially more stable than funds purchased in the national broker markets for federal funds due to the long, historical, and reciprocal nature of banking services provided by FHN to these correspondent banks. The remainder of FHN’s wholesale short-term borrowings consists of securities sold under agreements to repurchase transactions accounted for as secured borrowings with business clients or broker dealer counterparties.
Both FHN and First Horizon Bank have the ability to generate liquidity by issuing senior or subordinated unsecured debt, preferred equity and common equity, subject to market conditions and compliance with applicable regulatory requirements. As of March 31, 2021, FHN had outstanding $1.3 billion in senior and subordinated unsecured debt and $470 million in non-cumulative perpetual preferred stock. As of March 31, 2021, First Horizon Bank and subsidiaries had outstanding preferred shares of $295 million, which are reflected as noncontrolling interest on the Consolidated Balance Sheets.
Parent company liquidity is primarily provided by cash flows stemming from dividends and interest payments collected from subsidiaries. These sources of cash represent the primary sources of funds to pay cash dividends to shareholders and principal and interest to debt holders of FHN. Applying the dividend restrictions imposed under applicable federal and state rules as outlined above, the Bank’s total amount available for dividends was $969 million as of April 1, 2021. First Horizon Bank declared and paid common dividends to the parent company in the amount of $183 million in first quarter 2021 and $65 million in first quarter 2020. First Horizon Bank declared preferred dividends in the first quarter of 2021 which were payable in April 2021 and declared and paid preferred dividends in each quarter of 2020.
Payment of a dividend to shareholders of FHN is dependent on several factors which are considered by the Board. These factors include FHN’s current and prospective capital, liquidity, and other needs, applicable regulatory restrictions, and availability of funds to FHN through a dividend from First Horizon Bank. Additionally, banking regulators generally require insured banks and bank holding companies to pay cash dividends only out of current operating earnings. Consequently, the decision of whether FHN will pay future dividends and the amount of dividends will be affected by current operating results. FHN paid a cash dividend of $0.15 per common share on April 1, 2021. FHN paid cash dividends of $1,550 per Series A preferred share and $1,625 per Series E preferred share on April 12, 2021 and $165 per Series C preferred share and $305 per Series D preferred share on May 3, 2021. In addition, in April 2021, the Board approved cash dividends per share in the following amounts:
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Dividend/ShareRecord DatePayment Date
Common Stock$0.15 06/11/202107/01/2021
Preferred Stock
Series A$1,550.00 06/25/202107/12/2021
Series B$331.25 07/16/202108/02/2021
Series C$165.00 07/16/202108/02/2021
Series E$1,625.00 06/25/202107/12/2021

Repurchase Obligations and Off-Balance Sheet Arrangements
Prior to September 2008, FHN originated loans through its pre-2009 mortgage business, primarily first lien home loans, with the intention of selling them. As discussed in Note 11 - Contingencies and Other Disclosures, FHN's principal remaining exposures for those activities relate to (i) indemnification claims by underwriters, loan purchasers, and other parties which assert that FHN-originated loans caused or contributed to losses which FHN is legally obliged to indemnify, and (ii) indemnification or other claims related to FHN's servicing of pre-2009 mortgage loans.
FHN’s approach for determining the adequacy of the repurchase and foreclosure reserve has evolved, sometimes substantially, based on changes in information available. Repurchase/make-whole rates vary based on purchaser, vintage, and claim type. For those loans repurchased or covered by a make-whole payment, cumulative average loss severities range between 50 and 60 percent of the UPB.
Repurchase Accrual Approach
In determining potential loss content, claims are analyzed by purchaser, vintage, and claim type. FHN considers various inputs including claim rate estimates, historical average repurchase and loss severity rates, mortgage insurance cancellations, and mortgage insurance curtailment requests. Inputs are applied to claims in the active pipeline, as well as to historical average inflows to estimate loss content related to potential future inflows. Management also evaluates the nature of claims from purchasers and/or servicers of loans sold to determine if qualitative adjustments are appropriate.

Repurchase and Foreclosure Liability
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 $16 million as of March 31, 2021 and December 31, 2020.

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 provides customers with off-balance sheet credit support through loan commitments, lines of credit, and standby 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. Based on its available liquidity and available borrowing capacity, FHN anticipates it will continue to have sufficient funds to meet its current commitments.

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Market Uncertainties and Prospective Trends
FHN’s future results could be affected both positively and negatively by several known trends. Key among those are changes in the U.S. and global economy and outlook, government actions affecting interest rates, and the availability and administration of stimulus relief for the economy. Additional impacts include how the pandemic affects FHN’s clients, as well as political uncertainty, potential changes in federal policies and the potential impact to our clients, and FHN’s strategic initiatives. The global COVID-19 pandemic has led to periods of significant volatility in financial commodities (including oil and gas) and other markets, and has adversely affected FHN’s and its clients' ability to conduct normal business, and could harm FHN’s business and future results of operations.
In March 2020, the Federal Reserve lowered short-term interest rates twice and started a “quantitative easing” program intended to lower longer-term interest rates and foster access to credit. The effective yields of 10-year and 30-year U.S. Treasury securities achieved record low rates and the U.S. Congress enacted relief legislation which, among other things, was intended to provide emergency credit to businesses at risk for failure from government and public actions related to the COVID-19 pandemic, and to mitigate the severity of an economic recession. These changes in interest rates and the volatility in the market negatively impacted FHN’s net interest margin. Amortization of net processing fees related to government relief programs, including the Paycheck Protection Program, has offset a portion of the net interest margin decline.
COVID-19 Pandemic
Government and societal reaction to the COVID-19 pandemic caused extraordinary disruption to the U.S. economy, as well as to the local economies within FHN's footprint, during the final three quarters of 2020 and continuing into the first quarter of 2021. Business activity, especially lending, declined throughout 2020 and into first quarter this year. In certain business lines, FHN reduced or stopped new lending because of the pandemic.
In the fourth quarter of 2020, two extremely effective vaccines were approved in the U.S. Administration of those vaccines began late in 2020, nationwide but on a narrowly targeted basis. In the first quarter of 2021, vaccine production and distribution increased, and a third vaccine was approved in the U.S. Public vaccination in the U.S. has accelerated during the first four months of 2021. In many of FHN's markets, COVID-19 restrictions at least partially were eased by the end of March or during April, and FHN believes further easing is likely in the rest of 2021. COVID-19 restrictions still had a substantial impact on FHN and its clients in the first quarter of 2021, but FHN expects those impacts to diminish over the rest of this year as the vaccinated percentage of the U.S. population continues to climb. Within the U.S. economy, broadly speaking, manufacturing has largely recovered while services continue to lag significantly, especially in hospitality and leisure.
Risk of resurgence remains as new virus variants continue to be identified around the world. As a result, FHN continues to closely monitor the pandemic and its effects on clients, especially credit quality, on FHN's communities, and on the financial markets. FHN continues to reach out to clients to discuss challenges and solutions, to provide line draws and new extensions to existing clients, to provide support for small businesses through the Paycheck Protection Program and other stimulus programs, and to provide lending and deposit assistance through deferrals and waived fees.

LIBOR Reform
In 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulates the London Inter-Bank Offered Rate (LIBOR), announced that it intends to halt persuading or compelling banks to submit rates for the calculation of LIBOR after 2021.
In March 2021, the United Kingdom’s Financial Conduct Authority (the “FCA”), the governmental regulator of the administrator of LIBOR, announced that U.S. Dollar LIBOR will no longer be representative as of:
One week and two month USD LIBOR after December 31, 2021; and
All other USD LIBOR tenors (e.g., overnight, 1-month, 3-month, 6-month and 12-month tenors) after June 30, 2023.

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The administrator of LIBOR thereafter announced that USD LIBOR will cease to be published immediately after the dates set out above.
Previous to these announcements, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation issued SR 20-27 to encourage banks to transition away from U.S. dollar LIBOR as soon as practicable and noted that entering into new contracts that use LIBOR as a reference rate after December 31, 2021 would create safety and soundness risks. As a result, market participants will be required to transition away from LIBOR beginning in 2021. FHN is not currently able to predict the impact that the transition from LIBOR will have on FHN; however, because FHN has instruments with floating rate terms based on LIBOR, FHN may experience increases in interest, dividends, and other costs relative to these instruments subsequent to 2021. Additionally, the transition from LIBOR could impact or change FHN’s hedge accounting practices.

FHN has initiated efforts to 1) develop an inventory of affected loans, securities, and derivatives, 2) evaluate and assess modifications as needed to address loans outstanding at the time of LIBOR discontinuance, 3) obtain an understanding of the potential effects for applicable securities and derivatives, 4) assess revisions to systems, processes, and pricing needed to implement alternative reference rates, and 5) update fallback language for all new loans that reference LIBOR.

In March 2020, the FASB issued ASU 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides several optional expedients and exceptions to ease the potential burden in accounting for reference rate
reform. The scope of ASU 2020-04 was expanded with the January 2021 issuance of ASU 2021-01, "Scope". Refer to the Accounting Changes Issued but Not Currently Effective section of Note 1 - Basis of Presentation and Accounting Policies for additional information. Additionally, the IRS has released guidance that is intended to facilitate the transition of existing contracts from LIBOR to new reference rates without triggering modification accounting or taxable exchange treatment for those contracts. This guidance specifies what must be met in order to qualify for the beneficial transition approach and FHN is considering this guidance in its transition plans.

Limited Data Security Incident

In mid-April, FHN became aware of a data security incident affecting a limited number of customer accounts. Based on its ongoing investigation, FHN determined that an unauthorized party had obtained login credentials from an unknown source and attempted access to client accounts. Using the credentials and exploiting a vulnerability in third-party security software, the unauthorized party gained unauthorized access to under 200 on-line client bank accounts, had access to personal information in those accounts, and fraudulently obtained an aggregate of less than $1 million from some of those accounts. FHN has remediated the software vulnerability, reset the passwords for the identified accounts, is working with the affected clients to close existing accounts and open new ones, has reimbursed clients for the stolen funds, and has notified the appropriate regulators and enforcement authorities. Based on its ongoing assessment of the incident to date, FHN does not believe that this event will have a material adverse effect on its business, results of operations, or financial condition.

Critical Accounting Policies and Estimates
FHN has made no significant changes in its critical accounting policies and estimates from those disclosed in its 2020 Annual Report on Form 10-K.
Accounting Changes With Extended Transition Periods
Refer to Note 1 – Basis of Presentation and Accounting Policies for a detail of accounting changes with extended transition periods, which section is incorporated into MD&A by this reference.
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Non-GAAP Information
Table 20—Non-GAAP to GAAP Reconciliation
Three Months Ended
(Dollars in millions; shares in thousands)March 31, 2021December 31, 2020March 31, 2020
Pre-provision Net Revenue (Non-GAAP)
Net interest income (GAAP)$508 $522 $303 
Plus: Noninterest income (GAAP)298 288 175 
Total revenues (GAAP)806 810 478 
Less: Noninterest expense (GAAP)544 508 302 
Pre-provision net revenue (Non-GAAP)$262 $302 $176 
Average Tangible Common Equity (Non-GAAP)
Average total equity (GAAP)$8,349 $8,209 $5,002 
Less: Average noncontrolling interest (a)295 295 295 
Less: Average preferred stock (a)470 470 96 
(A) Total average common equity$7,584 $7,444 $4,611 
Less: Average intangible assets (GAAP) (b)1,857 1,871 1,560 
(B) Average Tangible Common Equity (Non-GAAP)$5,727 $5,573 $3,051 
Net Income Available to Common Shareholders
(C) Net income available to common shareholders (annualized) (GAAP)$911 $933 $49 
Tangible Common Equity (Non-GAAP)
(D) Total equity (GAAP)$8,307 $8,307 $5,056 
Less: Noncontrolling interest (a)295 295 295 
Less: Preferred stock (a)470 470 96 
(E) Total common equity$7,542 $7,542 $4,665 
Less: Intangible assets (GAAP) (b)1,850 1,865 1,558 
(F) Tangible common equity (Non-GAAP)5,692 5,677 3,107 
Less: Unrealized gains (losses) on AFS securities, net of tax5 108 119 
(G) Adjusted tangible common equity (Non-GAAP)$5,687 $5,569 $2,988 
Tangible Assets (Non-GAAP)
(H) Total assets (GAAP)$87,513 $84,209 $47,197 
Less: Intangible assets (GAAP) (b)1,850 1,865 1,558 
(I) Tangible assets (Non-GAAP)$85,663 $82,344 $45,639 
Risk-Weighted Assets
(J) Risk-weighted assets (c)$62,339 $63,140 $40,055 
Period-end Shares Outstanding
(K) Period-end shares outstanding552,374 555,031 311,863 
Ratios
(C)/(A) Return on average common equity (GAAP) 12.01 %12.53 %1.05 %
(C)/(B) Return on average tangible common equity (Non-GAAP) 15.90 16.73 1.59 
(D)/(H) Total period-end equity to period-end assets (GAAP)9.49 9.86 10.71 
(F)/(I) Tangible common equity to tangible assets (Non-GAAP)6.64 6.89 6.81 
(G)/(J) Adjusted tangible common equity to risk weighted assets (Non-GAAP)9.12 8.82 7.46 
(E)/(K) Book value per common share (GAAP)$13.65 $13.59 $14.96 
(F)/(K) Tangible book value per common share (Non-GAAP)$10.29 $10.23 $9.96 
(a) Included in Total equity on the Consolidated Balance Sheets.
(b) Includes Goodwill and other intangible assets, net of amortization.
(c) Defined by and calculated in conformity with bank regulations applicable to FHN.

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Item 3.     Quantitative and Qualitative Disclosures about Market Risk

The information called for by this item is contained in
(a)
Management’s Discussion and Analysis of Financial Condition and Results of Operations included as Item 2 of Part I of this report, including in particular the section entitled “Risk Management” beginning on page 91 of this report and the subsections entitled “Market Risk Management” beginning on page 91 and “Interest Rate Risk Management” beginning on page 93 of this report, and
(b)
Note 15 to the Consolidated Financial Statements appearing on pages 42-48 of this report,
all of which materials are incorporated herein by reference. For additional information concerning market risk and our management of it, refer to: Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in Item 7 to FHN’s Annual Report on Form 10-K for the year ended December 31, 2020, including in particular the section entitled “Risk Management” beginning on page 87 of that Report and the subsections entitled “Market Risk Management” beginning on page 88 and “Interest Rate Risk Management” beginning on page 90 of that Report; and Note 22 to the Consolidated Financial Statements appearing on pages 202-209 of Item 8 to FHN’s Annual Report on Form 10-K for the year ended December 31, 2020.

Item 4.     Controls and Procedures
(a)Evaluation of Disclosure Controls and Procedures. FHN’s management, with the participation of FHN’s chief executive officer and chief financial officer, has evaluated the effectiveness of FHN’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this quarterly report. Based on that evaluation, the chief executive officer and the chief financial officer have concluded that FHN’s disclosure controls and procedures were effective as of the end of the period covered by this report.
(b)    Changes in Internal Control over Financial Reporting. Other than as explained below, there have not been any changes in our internal control over financial reporting during the first fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
On July 1, 2020, FHN and IBERIABANK Corporation ("IBKC") closed their merger-of-equals transaction. As permitted by Securities and Exchange Commission rules, we elected to exclude IBKC from our assessment of internal control over financial reporting as of December 31, 2020. Our integration of IBKC’s systems and processes with our own could cause changes to our internal controls over financial reporting in future periods.







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PART II. OTHER INFORMATION

Item 1.    Legal Proceedings
The “Contingencies” section of Note 11 to the Consolidated Financial Statements beginning on page 32 of this Report is incorporated into this Item by reference.

Item 1A.    Risk Factors

Changes from previous risk factor disclosures:

The following updates and restates the third highlighted topic under "Operational Risks" within Item 1A of FHN's annual report on Form 10-K for the year ended December 31, 2020, which appeared on page 30 of that report.

An information technology security (cybersecurity) breach or other incident can cause significant damage, and can be difficult to detect even after it occurs. Among other things, that damage can occur due to outright theft, loss or extortion of our funds or our clients’ funds, fraud or identity theft perpetrated on clients, loss of confidential or proprietary information, business disruption, or adverse publicity associated with a breach or incident and its potential effects. Perpetrators potentially can be associates, clients, and certain vendors, all of whom legitimately have access to some portion of our systems, as well as outsiders with no legitimate access. For example, in April 2021 we experienced a data security incident affecting a small number of client accounts. An unauthorized party gained access to certain client login credentials from an unknown source. Using those credentials and exploiting a vulnerability in third-party security software, the unauthorized party was able to fraudulently obtain funds from client accounts. Although our monetary loss from that incident was minimal, the incident illustrates that we are at risk for vulnerabilities not fully within our control, in this case related to third-party software and client credentials.

Because of the potential for very serious consequences associated with these risks, our electronic systems and their upgrades need to address internal and external security concerns to a high degree, and our systems must comply with applicable banking and other regulations pertaining to bank safety and client protection. Although many of our defenses are systemic and highly technical, others are much older and more basic. For example, periodically we train all our associates to recognize red flags associated with fraud, theft, and other electronic crimes, and we educate our clients as well through regular and episodic security-oriented communications. We expect our systems and regulatory requirements to continue to evolve as technology and criminal techniques also continue to evolve.


Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

 (a) & (b)Not Applicable
(c)
The "Common Stock Purchase Programs” section including tables 17(a) and 17(b) and explanatory discussions included in Item 2 of Part I of this report under the heading “First Horizon Corporation Management’s Discussion and Analysis of Financial Condition and Results of Operations,” beginning on page 90 of this report, is incorporated herein by reference.

Items 3., 4., and 5.

Not applicable
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1Q21 FORM 10-Q REPORT


Item 6.    Exhibits
(a) Exhibits
In the Exhibit Table below: the “Filed Here” column denotes each exhibit which is filed or furnished (as applicable) with this report; the “Mngt Exh” column denotes each exhibit that represents a management contract or compensatory plan or arrangement required to be identified as such; and the “Furnished” column denotes each exhibit that is “furnished” pursuant to 18 U.S.C. Section 1350 or otherwise, and is not “filed” as part of this Report or as a separate disclosure document.
In many agreements filed as exhibits, each party makes representations and warranties to other parties. Those representations and warranties are made only to and for the benefit of those other parties in the context of a business contract. Exceptions to such representations and warranties may be partially or fully waived by such parties, or not enforced by such parties, in their discretion. No such representation or warranty may be relied upon by any other person for any purpose.
EXHIBIT TABLE
Exh NoDescription of Exhibit to this ReportFiled HereMngt ExhFurn-ishedIncorporated by Reference to
FormExh No.Filing Date
4.10FHN agrees to furnish to the Securities and Exchange Commission upon request a copy of each instrument defining the rights of the holders of the senior and subordinated long-term debt of FHN and its consolidated subsidiaries.
10.1XX
10.2XX
10.3XX
10.4XX
10.5X8-K10.11/29/2021
10.6XProxy 2021App. A3/15/2021
31(a)X
31(b)X
32(a)XX
32(b)XX
XBRL Exhibits
101
The following financial information from First Horizon Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL: (i) Consolidated Balance Sheets at March 31, 2021 and December 31, 2020; (ii) Consolidated Statements of Income for the Three Months Ended March 31, 2021 and 2020; (iii) Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2021 and 2020; (iv) Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2021 and 2020; (v) Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020; (vi) Notes to Consolidated Financial Statements.
X
101. INSXBRL Instance Document -- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101. SCHInline XBRL Taxonomy Extension SchemaX
101. CALInline XBRL Taxonomy Extension Calculation LinkbaseX
101. LABInline XBRL Taxonomy Extension Label LinkbaseX
FIRST HORIZON CORPORATION
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Exh NoDescription of Exhibit to this ReportFiled HereMngt ExhFurn-ishedIncorporated by Reference to
FormExh No.Filing Date
101. PREInline XBRL Taxonomy Extension Presentation LinkbaseX
101. DEFInline XBRL Taxonomy Extension Definition LinkbaseX
104Cover Page Interactive Data File, formatted in Inline XBRL (included in Exhibit 101)X
FIRST HORIZON CORPORATION
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
FIRST HORIZON CORPORATION
(Registrant)                                 
Date: May 6, 2021 By: /s/ William C. Losch III
 Name: William C. Losch III
 Title: Senior Executive Vice President and Chief Financial Officer
  (Duly Authorized Officer and Principal Financial Officer)
FIRST HORIZON CORPORATION
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