FIRST HORIZON CORP (FHN) FY 2022 MD&A

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

TABLE OF ITEM 7 TOPICS

Introduction

First Horizon Corporation (NYSE common stock trading symbol “FHN”) is a financial holding company headquartered in Memphis, Tennessee. FHN’s principal subsidiary, and only banking subsidiary, is First Horizon Bank. Through the Bank and other subsidiaries, FHN offers regional banking, mortgage lending, specialized commercial lending, commercial leasing and equipment financing, brokerage, wealth management, capital markets, and other financial services to commercial, consumer, and governmental clients throughout the U.S.

At December 31, 2022, FHN had over 450 business locations in 24 states, including over 400 banking centers in 12 states, and employed more than 7,500 associates.

This MD&A should be read in conjunction with the accompanying audited Consolidated Financial Statements and Notes to the Consolidated Financial Statements in Part II, Item 8 of this Form 10-K, as well as with the other information contained in this report.

Executive Overview

Merger Agreement with Toronto-Dominion Bank

On February 27, 2022, FHN entered into an Agreement and Plan of Merger (the “TD Merger Agreement”) with The Toronto-Dominion Bank, a Canadian chartered bank (“TD”), TD Bank US Holding Company, a Delaware corporation and indirect, wholly owned subsidiary of TD (“TD-US”), and Falcon Holdings Acquisition Co., a Delaware corporation and wholly owned subsidiary of TD-US (“Merger Sub”).

Pursuant to the TD Merger Agreement, FHN and Merger Sub will merge (the “First Holding Company Merger”), with FHN continuing as the surviving entity in the merger. Following the First Holding Company Merger, at the election of TD, FHN and TD-US will merge (the “Second Holding Company Merger” and, together with the First Holding Company Merger, the “Holding Company Mergers”), with TD-US continuing as the surviving entity in the merger.

Upon the terms and subject to the conditions set forth in the TD Merger Agreement, each share of FHN common stock, par value $0.625 per share, (“Company Common Stock”), issued and outstanding immediately prior to the effective time of the First Holding Company Merger (the “First Effective Time”) will be converted into the right to receive $25.00 (USD) per share in cash, without interest. Because the transaction did not close on or before November 27, 2022, shareholders will receive an additional $0.65 per share of Company Common Stock on an annualized basis (or approximately 5.4 cents per month) for the period from November 27, 2022 through the day immediately prior to the closing. Each outstanding share of FHN’s preferred stock, series B, C, D, E and F, will remain issued outstanding in connection with the First Holding Company Merger. If TD elects to effect the Second Holding Company Merger, at the effective time of the Second Holding Company Merger, each outstanding share of FHN’s preferred stock will be converted into a share of a newly created, corresponding series of TD-US having terms as described in the TD Merger Agreement.

Following the completion of the First Holding Company Merger, at such time as determined by TD, First Horizon Bank and TD Bank, N.A., a national banking association (“TDBNA”) will merge, with TDBNA surviving as a subsidiary of TD-US (the “Bank Merger” and together with the Holding Company Mergers, the “Pending TD Merger”).

In connection with the TD Merger Agreement, TD purchased from FHN shares of non-voting Perpetual Convertible Preferred Stock, Series G, a new series of preferred stock of FHN (the “Series G Convertible Preferred Stock”) in a private placement transaction having an aggregate liquidation preference and purchase price of approximately $494 million, pursuant to a securities purchase agreement between FHN and TD entered into concurrently with the execution and delivery of the TD Merger Agreement. The Series G Convertible Preferred Stock is convertible into up to 4.9% of the outstanding shares of Company Common Stock in certain circumstances, including the closing of the Pending TD Merger or the termination of the TD Merger Agreement.

The Pending TD Merger is subject to customary closing conditions, including approvals from U.S. and Canadian regulatory authorities. FHN's shareholders approved the Pending TD Merger on May 31, 2022.

On February 9, 2023, FHN and TD agreed to extend the outside date to May 27, 2023. Subsequent to the extension, TD recently informed FHN that TD does not expect that the necessary regulatory approvals will be received in time to complete the Pending TD Merger by May 27, 2023, and that TD cannot provide a new projected closing date at this time. TD has initiated discussions with FHN regarding a potential further extension of the outside date. There can be no assurance that an extension will ultimately be agreed or that TD will satisfy all regulatory requirements so that the regulatory approvals required to complete the Pending TD Merger will be received.

Either TD or First Horizon may unilaterally elect to terminate the TD Merger Agreement in certain circumstances set forth in the TD Merger Agreement.

Refer to 2022 Merger Agreement with Toronto-Dominion Bank in Item 1, beginning on page 15, for additional information.

2022 Financial Performance Summary

FHN reported net income available to common shareholders of $868 million, or $1.53 per diluted share, compared to net income of $962 million, or $1.74 per diluted share in 2021.

Net interest income of $2.4 billion increased $398 million from 2021 reflecting the benefit of higher rates partially offset by higher funding costs. The net interest margin increased 62 basis points to 3.10% compared to 2.48% in 2021. Earning asset yields increased 79 basis points while the cost of interest-bearing liabilities increased 30 basis points.

Provision for credit losses increased to $95 million compared to a benefit of $310 million in 2021, largely reflecting the impact of loan growth and deterioration in the macroeconomic forecast.

Noninterest income of $815 million decreased $261 million from 2021, largely driven by lower fixed income and mortgage banking and title income.

Noninterest expense of $2.0 billion decreased $143 million from 2021 largely attributable to lower personnel expense.

Period-end loans and leases of $58.1 billion increased $3.2 billion from December 31, 2021 reflecting commercial loan growth of $1.8 billion, or 4%, and consumer loan growth of $1.4 billion, or 12%. Commercial loan growth was tempered by a decrease of $2.3 billion in loans to mortgage companies and a decrease of $962 million in PPP loans.

Period-end deposits of $63.5 billion decreased $11.4 billion, or 15%, from December 31, 2021 driven by a $7.0 billion decrease in interest-bearing deposits and a $4.4 billion decrease in noninterest-bearing deposits. The decline in deposit balances largely reflects the continued downward trend from mid-2021 highs driven by elevated liquidity related to the COVID-19 pandemic.

Tier 1 risk-based capital and total risk-based capital ratios at December 31, 2022 were 11.92% and 13.33%, respectively, compared to 11.04% and 12.34% at December 31, 2021. The CET1 ratio was 10.17% at December 31, 2022 compared to 9.92% at December 31, 2021.

Table 7.1

KEY PERFORMANCE INDICATORS

(a)Represents a non-GAAP measure which is reconciled in the non-GAAP to GAAP reconciliation in Table 7.29.

(b)Calculated using net income divided by average assets.

(c)Calculated using net income available to common shareholders divided by average common equity.

(d)Calculated using net income available to common shareholders divided by average tangible common equity.

(e)Net interest margin is computed using total net interest income adjusted to an FTE basis assuming a statutory federal income tax rate of 21% and, where applicable, state income taxes.

(f)Ratio is noninterest income excluding securities gains (losses) to total revenue excluding securities gains (losses).

(g)Ratio is noninterest expense to total revenue excluding securities gains (losses).

Results of Operations—2022 compared to 2021

Net Interest Income

Net interest income is FHN's largest source of revenue and is the difference between the interest earned on interest-earning assets (generally loans, leases and investment securities) and the interest expense incurred in connection with interest-bearing liabilities (generally deposits and borrowed funds). The level of net interest income is primarily a function of the difference between the effective yield on average interest-earning assets and the effective cost of interest-bearing liabilities. These factors are influenced by the pricing and mix of interest-earning assets and interest-bearing liabilities which, in turn, are impacted by external factors such as local economic conditions, competition for loans and deposits, the monetary policy of the FRB and market interest rates.

Net interest income of $2.4 billion in 2022 increased $398 million, or 20%, from 2021 largely driven by higher earning asset yields partially offset by higher interest-bearing liability costs.

FHN's net interest margin increased 62 basis points to 3.10% in 2022 compared to 2021 and the net interest spread increased 49 basis points to 2.85% over the same period. Net interest margin and net interest spread were favorably impacted by a 79 basis point increase in earning asset yields, largely reflecting the impact of higher interest rates and lower levels of excess cash. The higher yield on earning assets was partially offset by a 30 basis point increase in the cost of interest-bearing liabilities largely driven by higher deposit costs.

Total average earning assets decreased $3.4 billion in 2022 largely from a decrease in interest-bearing deposits with banks partially offset by an increase in investment securities.

The following table presents the major components of net interest income and net interest margin:

Table 7.2

AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS/RATES

(a) Negative yield is driven by negative market rates on reverse repurchase agreements.

(b) Calculated using total net interest income adjusted for FTE assuming a statutory federal income tax rate of 21%, and where applicable, state income taxes.

The following table presents the change in interest income and interest expense due to changes in both average volume and average rate.

Table 7.3

ANALYSIS OF CHANGES IN NET INTEREST INCOME

(a)     The changes in interest due to both rate and volume have been allocated to change due to rate and change due to volume in proportion to the absolute amounts of the changes in each.

(b)    Variances are computed on a line-by-line basis and are non-additive.

Provision for Credit Losses

Provision for credit losses includes the provision for loan and lease losses and the provision for unfunded lending commitments. The provision for credit losses is the expense necessary to maintain the ALLL and the accrual for unfunded lending commitments at levels appropriate to absorb management’s estimate of credit losses expected over the life of the loan and lease portfolio and the portfolio of unfunded loan commitments.

Provision for credit losses increased to $95 million in 2022, compared to a benefit of $310 million in 2021. The

increase in provision during 2022 was reflective of loan growth and deterioration in the macroeconomic forecast. The provision benefit in 2021 reflected an improved macroeconomic outlook, positive credit grade migration, and lower loan balances.

For additional information about general asset quality trends refer to the Asset Quality section in this MD&A.

Noninterest Income

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

Table 7.4

NONINTEREST INCOME

NM – Not meaningful

Noninterest income of $815 million decreased $261 million from $1.1 billion in 2021, largely reflecting declines in fixed income and mortgage banking and title income. Noninterest income represented 25% and 35% of total revenue for 2022 and 2021, respectively.

Fixed income declined $201 million, or 50%, for 2022 compared to 2021. Fixed income product revenue decreased $203 million, largely driven by macroeconomic uncertainty and volatility and the impact of increasing interest rates. Revenue from other products increased $2 million, largely driven by higher fees from loan sales.

Mortgage banking and title income of $68 million decreased $86 million from $154 million in 2021 driven by lower origination volume given the impact of higher long-term rates, partially offset by a $12 million gain on sale of mortgage servicing rights.

Noninterest income results also reflect a decline of $30 million in deferred compensation income largely driven by equity market valuations relative to the prior year and a gain of $22 million from the sale of FHN's title services business in 2022.

Noninterest Expense

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

Table 7.5

NONINTEREST EXPENSE

NM - Not meaningful

Noninterest expense of $2.0 billion decreased $143 million, or 7%, from 2021. Personnel expense of $1.1 billion decreased $109 million from 2021 largely attributable to lower incentive-based compensation and deferred compensation costs. Contract employment and outsourcing expense decreased $13 million from 2021 and occupancy expense decreased $9 million largely reflecting the benefit of IBKC merger cost savings.

Noninterest expense results also reflect a decrease tied to $34 million in impairment of long-lived assets in 2021

related to merger integration efforts associated with reduction of leased office space and banking center optimization.

The $25 million increase in other expense in 2022 was largely attributable to $22 million in derivative valuation adjustments on prior Visa Class B share sales.

Total merger and integration expense was $136 million for 2022 compared to $187 million for 2021.

Income Taxes

FHN recorded income tax expense of $247 million in 2022 compared to $274 million in 2021, resulting in an effective tax rate of 21.3% and 21.4% 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 portions of: FDIC premium, executive compensation and merger expenses. FHN's effective tax rate also may be affected by items that may occur in any given period but are not consistent from period to period, such as changes in unrecognized tax benefits. The rate also may be affected by items resulting from business combinations.

A deferred tax asset or deferred tax liability is recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax consequence is calculated by applying current enacted statutory tax rates to these temporary differences in future years. FHN’s net DTA were $313 million and $52 million at December 31, 2022 and 2021, respectively.

As of December 31, 2022, FHN had deferred tax asset balances related to federal and state income tax carryforwards of $34 million and $2 million, which will expire at various dates. Refer to Note 14 - Income Taxes for additional information.

FHN’s gross DTA after valuation allowance was $761 million and $448 million as of December 31, 2022 and

2021, respectively. Based on current analysis, FHN believes that its ability to realize the DTA is more likely than not. FHN monitors its DTA and the need for a valuation allowance on a quarterly basis. A significant adverse change in FHN’s taxable earnings outlook could result in the need for a valuation allowance.

FHN and its eligible subsidiaries are included in a consolidated federal income tax return. FHN files separate returns for subsidiaries that are not eligible to be included in a consolidated federal income tax return. Based on the laws of the applicable states where it conducts business operations, FHN either files consolidated, combined, or

separate returns. The statute of limitations for FHN’s consolidated federal income tax returns remains open for tax years 2019 through 2021. Additionally, 2016 – 2018 could be subject to limited review related to refund claims filed. IBKC's federal consolidated tax returns for 2016, 2017 and 2018 are currently under examination by the IRS. On occasion, as federal or state auditors examine the tax returns of FHN and its subsidiaries, FHN may extend the statute of limitations for a reasonable period. Otherwise, the statutes of limitations remain open only for tax years in accordance with federal and state statutes. See Note 14 - Income Taxes for additional information.

Business Segment Results

FHN's reportable segments include Regional Banking, Specialty Banking, and Corporate. See Note 19 - Business Segment Information for additional disclosures related to FHN's segments.

Regional Banking

The Regional Banking segment generated pre-tax income of $1.1 billion in 2022 compared to $1.3 billion in 2021, a decrease of $222 million, largely driven by a $323 million increase in provision for credit losses. The increase in provision was the result of loan growth and deterioration in the macroeconomic forecast. Results also reflect a $196 million increase in revenue, largely from higher net interest income, and a $95 million increase in noninterest expense largely tied to higher personnel expense and fraud losses.

Net interest income of $2.0 billion increased $190 million reflecting the benefit of higher interest rates and average loan balances, partially offset by higher funding costs.

Specialty Banking

Pre-tax income of $414 million in the Specialty Banking segment decreased $296 million compared to 2021 driven by a $349 million decrease in revenue and a $78 million increase in provision for credit losses, offset by a $131 million decrease in noninterest expense.

The decline in revenue was primarily attributable to lower fixed income and mortgage banking and title income. Fixed income of $205 million decreased $201 million, largely driven by macroeconomic uncertainty and volatility and the impact of increasing interest rates. Mortgage banking and title income of $68 million decreased $84

million largely driven by a decline in mortgage sales volume and margin compression as well as the divestiture of the title services business.

The increase in provision for credit losses was primarily attributable to loan growth and deterioration in the macroeconomic forecast.

Noninterest expense decreased largely due to a decline in personnel expense tied to a decrease in incentive-based compensation.

Corporate

Pre-tax loss for the Corporate segment of $325 million for 2022 improved $393 million compared to 2021.

Net interest expense decreased $271 million reflecting the impact of funds transfer pricing. Noninterest income of $60 million increased $19 million compared to the prior year. Noninterest income results reflect the impact of a $26 million loss on retirement of legacy IBKC trust preferred securities in 2021, the $22 million gain on sale of the title services business in 2022, and higher securities gains. These increases were partially offset by lower deferred compensation income of $30 million.

Noninterest expense of $279 million for 2022 decreased $107 million compared to 2021 largely reflecting lower deferred compensation expense in the current year, as well as the impact of impairments on long-lived assets related to acquisition integration efforts in 2021. Merger and integration expenses were $136 million compared to $187 million in 2021.

Results of Operations—2021 compared to 2020

For a description of FHN's results of operations for 2021, see Results of Operations - 2021 compared to 2020 in Item 7 in the 2021 Form 10-K, as amended, which is incorporated herein by reference.

Analysis of Financial Condition

Investment Securities

The following table presents the carrying value of securities by category as of December 31 for the years indicated:

Table 7.6

COMPOSITION OF SECURITIES PORTFOLIO

(a) Includes securities issued by government sponsored entities which are not backed by the full faith and credit of the U.S. Government.

FHN’s investment portfolio consists principally of debt securities available for sale. FHN maintains a highly-rated securities portfolio consisting primarily of government agency issued mortgage-backed securities and collateralized mortgage obligations. The securities portfolio provides a source of income and liquidity and is an important tool used to balance the interest rate risk of the loan and deposit portfolios. The securities portfolio is periodically evaluated in light of established ALM objectives, changing market conditions that could affect the profitability of the portfolio, the regulatory environment, and the level of interest rate risk to which FHN is exposed. These evaluations may result in steps taken to adjust the overall balance sheet positioning.

Investment securities were $10.2 billion and $9.4 billion on December 31, 2022 and 2021, representing 13% and 11% of total assets, respectively. See Note 2 - Investment Securities for more information about the securities portfolio.

The following table presents an analysis of the amortized cost, remaining contractual maturities, and weighted-average yields by contractual maturity for the debt securities portfolio.

Table 7.7

CONTRACTUAL MATURITIES OF INVESTMENT SECURITIES

(a)    Represents government agency-issued mortgage-backed securities and collateralized mortgage obligations which, when adjusted for early pay downs, have an estimated average life of 6 years.

(b)    Weighted average yields were calculated using amortized cost on a fully-taxable equivalent basis, assuming a 24% tax rate where applicable.

Loans and Leases

Period-end loans and leases increased $3.2 billion, or 6%, to $58.1 billion as of December 31, 2022, driven by a $1.8 billion increase in commercial loans and a $1.4 billion increase in consumer loans. Average loans and leases decreased to $56.0 billion in 2022 compared to $56.3 billion in 2021, primarily driven by a $634 million decrease

in commercial loans, offset by a $288 million increase in consumer loans.

The following table provides detail regarding FHN's loans and leases:

Table 7.8

LOANS AND LEASES

(a) Includes equipment financing loans and leases.

(b) 2020 includes the impact of the IBKC merger and Truist Bank branch acquisition.

C&I loans are the largest component of the loan and lease portfolio, comprising 55% and 57% of total loans and leases at year-end 2022 and 2021, respectively. C&I loans increased 2%, or $713 million, from 2021, largely driven by growth in the finance and insurance, real estate rental and

leasing, and wholesale trade industry sectors. These increases were partially offset by declines of $2.3 billion in loans to mortgage companies and $962 million in PPP loans. Commercial real estate loans increased 9% to $13.2 billion in 2022, largely driven by growth in industrial and

multi-family property loans. Consumer loans increased 12%, or $1.4 billion, from the end of 2021, largely driven by growth in real estate installment loans.

The following table provides detail of the contractual maturities of loans and leases at December 31, 2022.

Table 7.9

CONTRACTUAL MATURITIES OF LOANS AND LEASES

Because of various factors, the contractual maturities of consumer loans are not indicative of the actual lives of such loans. A significant component of FHN’s loan portfolio consists of consumer real estate loans, a majority of which are home equity lines of credit and home equity installment loans. These loans have an initial period where the borrower is only required to pay the periodic interest. After the interest-only period, the loan will require the payment of both principal and interest over the remaining term. Numerous factors can contribute to the actual life of a home equity line or installment loan. As a result, the actual average life of home equity lines and loans is difficult to predict and changes in any of these factors could result in changes in projections of average lives.

Loans Held for Sale

In 2020, FHN obtained IBKC's mortgage banking operations which includes origination and servicing of residential first lien mortgages that conform to standards

established by GSEs that are major investors in U.S. home mortgages but can also consist of junior lien and jumbo loans secured by residential property. These non-conforming loans are primarily sold to private companies that are unaffiliated with the GSEs on a servicing-released basis. For further detail, see Note 7 - Mortgage Banking Activity.

The legacy FHN loans HFS portfolio consists of small business, other consumer loans, mortgage warehouse, USDA, and home equity loans.

On December 31, 2022, loans HFS were $590 million, a $582 million decrease compared to December 31, 2021, largely driven by lower mortgage origination volume given the impact of higher long-term rates. Held-for-sale consumer mortgage loans secured by residential real estate in process of foreclosure totaled $3 million for both December 31, 2022 and 2021.

Asset Quality

Loan and Lease Portfolio Composition

FHN groups its loans into portfolio segments based on internal classifications reflecting the manner in which the ALLL is established and how credit risk is measured, monitored, and reported. From time to time, and if conditions are such that certain subsegments are uniquely affected by economic or market conditions or are experiencing greater deterioration than other components of the loan portfolio, management may

determine the ALLL at a more granular level. Commercial loans are composed of C&I loans and CRE loans. Consumer loans are composed of consumer real estate loans and credit card and other loans. FHN has a concentration of residential real estate loans of 21% and 20% of total loans in 2022 and 2021, respectively. Industry concentrations are discussed under the C&I heading below.

Underwriting Policies and Procedures

The following sections describe each portfolio as well as general underwriting procedures for each. As economic and real estate conditions develop, enhancements to underwriting and credit policies and procedures may be necessary or desirable. Loan policies and procedures for all portfolios are reviewed by credit risk working groups and management risk committees comprised of business line managers and credit administration professionals as well as by various other reviewing bodies within FHN. Policies and procedures are approved by key executives and/or senior managers leading the applicable credit risk working groups as well as by management risk committees.

The credit risk working groups and management risk committees strive to ensure that the approved policies and procedures address the associated risks and establish reasonable underwriting criteria that appropriately mitigate risk. Policies and procedures are reviewed, revised and re-issued periodically at established review dates or earlier if changes in the economic environment, portfolio performance, the size of portfolio or industry concentrations, or regulatory guidance warrant an earlier review.

Commercial Loan and Lease Portfolios

FHN’s commercial loan approval process grants lending authority based upon job description, experience, and performance. The lending authority is delegated to the business line (Market Managers, Departmental Managers, Regional Presidents, Relationship Managers (RM) and Portfolio Managers (PM)) and to Credit Risk Managers. While individual limits vary, the predominant amount of approval authority is vested with the Credit Risk Management function. Portfolio, industry, and borrower concentration limits for the various portfolios are established by executive management and approved by the Risk Committee of the Board.

FHN’s commercial lending process incorporates an RM and a PM for most commercial credits. The RM is primarily responsible for communications with the borrower and maintaining the relationship, while the PM is responsible for assessing the credit quality of the borrower, beginning with the initial underwriting and continuing through the servicing period. Other specialists and the assigned RM/PM are organized into units called deal teams. Deal teams are constructed with specific job attributes that facilitate FHN’s ability to identify, mitigate, document, and manage ongoing risk. PMs and credit analysts provide enhanced analytical support during loan origination and servicing, including monitoring of the financial condition of the borrower and tracking compliance with loan agreements.

Loan closing officers and the construction loan management unit specialize in loan documentation and the management of the construction lending process. FHN strives to identify problem assets early through comprehensive policies and guidelines, targeted portfolio reviews, more frequent servicing on lower rated borrowers, and an emphasis on frequent grading. For smaller commercial credits, generally $5 million or less, and income-producing CRE credits greater than $10 million to non-professional real estate developers and smaller professional real estate investors/developers, FHN utilizes a centralized underwriting unit in order to originate and grade small business loans more efficiently and consistently.

FHN may utilize availability of guarantors/sponsors to support commercial lending decisions during the credit underwriting process and when determining the assignment of internal loan grades. Reliance on the guaranty as a viable secondary source of repayment is a function of an analysis proving capability to pay, factoring in, among other things, liquidity and direct/indirect cash flows. FHN also considers the volume and amount of guaranties provided for all global indebtedness and the likelihood of realization. FHN presumes a guarantor’s willingness to perform until there is any current or prior indication or future expectation that the guarantor may

not willingly and voluntarily perform under the terms of the guaranty. In FHN’s risk grading approach, it is deemed that financial support becomes necessary generally at a point when the loan would otherwise be graded substandard, reflecting a well-defined weakness. At that point, provided willingness and capacity to support are appropriately demonstrated, a strong, legally enforceable guaranty can mitigate the risk of default or loss, justify a less severe rating, and consequently reduce the level of allowance or charge-off that might otherwise be deemed appropriate.

C&I

The C&I portfolio totaled $31.8 billion and $31.1 billion as of December 31, 2022 and 2021, respectively, and is comprised of loans used for general business purposes. Products offered in the C&I portfolio include term loan financing of owner-occupied real estate and fixed assets, direct financing and sales-type leases, working capital lines of credit, and trade credit enhancement through letters of credit.

Income-producing C&I loans are underwritten in accordance with a well-defined credit origination process. This process includes applying minimum underwriting standards as well as separation of origination and credit approval roles on transaction sizes over PM authorization limits. Underwriting typically includes due diligence of the borrower and the applicable industry of the borrower, analysis of the borrower’s available financial information, identification and analysis of the various sources of repayment and identification of the primary risk attributes. Stress testing the borrower’s financial capacity, adherence to loan documentation requirements, and assigning credit risk grades using internally developed scorecards are also used to help quantify the risk when

appropriate. Underwriting parameters also include loan-to-value ratios which vary depending on collateral type, use of guaranties, loan agreement requirements, and other recommended terms such as equity requirements, amortization, and maturity. Approval decisions also consider various financial ratios and performance measures of the borrowers, such as cash flow and balance sheet leverage, liquidity, coverage of fixed charges, and working capital. Additionally, approval decisions consider the capital structure of the borrower, sponsorship, and quality/value of collateral. Generally, guideline and policy exceptions are identified and mitigated during the approval process. Pricing of C&I loans is based upon the determined credit risk specific to the individual borrower. Historically, these loans typically have had variable rates tied to the LIBOR or prime rate of interest plus or minus the appropriate margin. However, with the cessation of LIBOR, FHN no longer references LIBOR in new loan contracts, and the existing portfolio of loans tied to LIBOR is being repriced to alternative reference rates.

Excluding PPP loans, C&I growth was $1.7 billion, or 6%. The largest geographical concentrations of balances as of December 31, 2022 were in Tennessee (21%), Florida (13%), Texas (11%), North Carolina (7%), Louisiana (7%), California (5%), and Georgia (5%), with no other state representing more than 5% of the portfolio.

The following table provides the composition of the C&I portfolio by industry as of December 31, 2022 and 2021. For purposes of this disclosure, industries are determined based on the NAICS industry codes used by Federal statistical agencies in classifying business establishments for the collection, analysis, and publication of statistical data related to the U.S. business economy.

Table 7.10

C&I PORTFOLIO BY INDUSTRY

(a)Leasing, rental of real estate, equipment, and goods.

(b)Industries in this category each comprise less than 5% for 2022.

Industry Concentrations

Loan concentrations are considered to exist for a financial institution when there are loans to numerous borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. Loans to mortgage companies and borrowers in the finance and insurance industry were 20% of FHN’s C&I loan portfolio as of December 31, 2022, and as a result could be affected by items that uniquely impact the financial services industry. As of December 31, 2022, 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 include 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. Loans to mortgage companies were 7% of the C&I portfolio as of December 31, 2022 and 15% of the C&I portfolio as of December 31, 2021. This portfolio generally fluctuates with mortgage rates and seasonal factors and includes balances related to both home purchase and refinance activity. Generally, new loan originations to mortgage lenders increase when there is a decline in mortgage rates and decrease when rates rise; in 2022, rates rose. In periods of economic uncertainty, this trend may not occur even if interest rates are declining. In 2022, approximately 73% of the loan originations were home purchases and 27% were refinance transactions.

Finance and Insurance

The finance and insurance component represented 13% of the C&I portfolio as of December 31, 2022 compared to 11% at the end of 2021 and includes TRUPs (i.e., long-term unsecured loans to bank and insurance-related businesses), loans to bank holding companies, and asset-based lending to consumer finance companies. As of December 31, 2022, asset-based lending to consumer finance companies represents approximately $2.0 billion of the finance and insurance component.

Paycheck Protection Program

In 2020, Congress created the Paycheck Protection Program (PPP) in response to the economic disruption associated with the COVID-19 pandemic. Under the PPP, qualifying businesses could receive loans from private lenders, such as FHN, that are fully guaranteed by the Small Business Administration. These loans potentially are partly or fully forgivable, depending upon the borrower’s use of the funds and maintenance of employment levels. To the extent forgiven, the borrower is relieved from payment while the lender is still paid from the program.

As of December 31, 2022 and 2021, the C&I portfolio included $76 million and $1.0 billion, respectively, in PPP

loans. Due to the government guarantee and forgiveness provisions, PPP loans are considered to have no credit risk and do not affect the amount of provision and ALLL recorded. As a result, no ALLL was recorded for PPP loans as of December 31, 2022 and 2021 and for regulatory capital purposes these loans have been assigned a risk weight of zero.

For these loans, there were remaining net lender fees of less than $1 million to be paid to FHN as of December 31, 2022. During 2022, FHN continued to work with its clients that have applied for and received PPP loan forgiveness. Through December 31, 2022, over $5 billion of the original $6 billion in PPP loans originated by FHN and by IBERIABANK prior to the merger had been forgiven by the SBA.

Commercial Real Estate

The CRE portfolio totaled $13.2 billion as of December 31, 2022, a $1.1 billion, or 9%, increase compared to December 31, 2021.

The CRE portfolio includes both financings for commercial construction and non-construction loans. This portfolio contains loans, draws on lines, and letters of credit to commercial real estate developers for the construction and mini-permanent financing of income-producing real estate.

Residential CRE loans include loans to residential builders and developers for the purpose of constructing single-family homes, condominiums, and town homes, and on a limited basis, for developing residential subdivisions. After the fulfillment of existing commitments over the near term, the residential CRE class will be in a wind-down state with the expectation of full runoff in the foreseeable future.

Income-producing CRE loans

Income-producing CRE loans are underwritten in accordance with credit policies and underwriting guidelines that are reviewed at least annually and revised as necessary based on market conditions. Loans are underwritten based upon project type, size, location, sponsorship, and other market-specific data. Generally, minimum requirements for equity, debt service coverage ratios, and level of pre-leasing activity are established based on perceived risk in each subcategory. Loan-to-value (value is defined as the lower of cost or market) limits are set below regulatory prescribed ceilings and generally range between 50% and 80% depending on the underlying product set. Term and amortization requirements are set based on prudent standards for interim real estate lending. Equity requirements are established based on the quality and liquidity of the primary source of repayment. For example, more equity would be required for a speculative construction project or land loan than for a property fully leased to a credit tenant or a roster of tenants. Typically, a borrower must

have at least 15% of cost invested in a project before FHN will provide loan funding. Income properties are required to achieve a debt service coverage ratio greater than or equal to 125% at inception or stabilization of the project based on loan amortization and a minimum underwriting interest rate. Some product types that possess a greater risk profile require a higher level of equity, as well as a higher debt service coverage ratio threshold. A proprietary minimum underwriting interest rate is used to calculate compliance with underwriting standards. Generally, specific levels of pre-leasing must be met for construction loans on income properties. A global cash flow analysis is performed at the sponsor level. A large minority of the portfolio is on a floating rate basis tied to LIBOR. However, since January 1, 2022, no new loan contracts reference LIBOR, and the existing portfolio of loans tied to LIBOR is being repriced to alternative reference rates.

The credit administration and ongoing monitoring consists of multiple internal control processes. Construction loans

are closed by a centralized control unit and construction loan management is administered centrally for loans $3 million and over. Underwriters and credit approval personnel stress the borrower’s/project’s financial capacity utilizing numerous attributes such as interest rates, vacancy, and discount rates. Key information is captured from the various portfolios and then stressed at the aggregate level. Results are utilized to assist with the assessment of the adequacy of the ALLL and to steer portfolio management strategies.

The largest geographical concentrations of CRE balances as of December 31, 2022 were in Florida (25%), Texas (12%), North Carolina (11%), Georgia (10%), Louisiana (9%), and Tennessee (9%), with no other state representing more than 5% of the portfolio. Subcategories of income-producing CRE loans consist of multi-family (27%), office (21%), retail (18%), industrial (16%), hospitality (11%), land/land development (2%), and other (5%).

Consumer Loan Portfolios

Consumer Real Estate

The consumer real estate portfolio is primarily composed of home equity lines and installment loans. This portfolio totaled $12.3 billion as of December 31, 2022 and $10.8 billion as of December 31, 2021. The largest geographical concentrations of balances in the consumer real estate portfolio as of December 31, 2022 were in Florida (30%), Tennessee (22%), Louisiana (9%), Texas (9%), North Carolina (7%), and New York (5%), with no other state representing more than 5% of the portfolio.

As of December 31, 2022, approximately 88% of the consumer real estate portfolio was in a first lien position. As of December 31, 2022, the weighted average FICO score at origination of this portfolio was 757 and the refreshed FICO scores averaged 754, no significant change from FICO scores of 755 and 754, respectively, as of December 31, 2021. Generally, performance of this portfolio is affected by life events that affect borrowers’ finances, the level of unemployment, and home prices.

As of December 31, 2022 and 2021, FHN had held-to-maturity consumer mortgage loans secured by real estate totaling $42 million and $20 million, respectively, that were in the process of foreclosure.

HELOCs comprised $2.0 billion of the consumer real estate portfolio for both December 31, 2022 and December 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 concluded, the line is closed and the borrower is required to make both principal and interest payments monthly until the loan matures. The principal payment generally is fully amortizing, but payment amounts will adjust when variable rates reset to reflect changes in the prime rate.

As of December 31, 2022, approximately 92% of FHN's HELOCs were in the draw period compared to 88% at the end of 2021. Based on when draw periods are scheduled to end per the line agreement, it is expected that $519 million, or 28%, 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. HELOC's nearing the end of the draw period are closely monitored.

The following table shows the HELOCs currently in the draw period and expected timing of conversion to the repayment period.

Table 7.11

HELOC DRAW TO REPAYMENT SCHEDULE

Underwriting

For the majority of loans in this portfolio, underwriting decisions are made through a centralized loan underwriting center. To obtain a consumer real estate loan, the loan applicant(s) in most cases must first meet a minimum qualifying FICO score. Minimum FICO score requirements are established by management for both loans secured by real estate as well as non-real estate loans. Management also establishes maximum loan amounts, loan-to-value ratios, and debt-to-income ratios for each consumer real estate product. Applicants must have the financial capacity (or available income) to service the debt by not exceeding a calculated debt-to-income ratio. The amount of the loan is limited to a percentage of the lesser of the current appraised value or sales price of the collateral. Identified guideline and policy exceptions require established mitigating factors that have been approved for use by Credit Risk Management.

HELOC interest rates are variable and adjust with movements in the index rate stated in the loan agreement. Such loans can have elevated risks of default, particularly in a rising interest rate environment, potentially stressing borrower capacity to repay the loan at the higher interest rate. FHN’s current underwriting practice requires HELOC borrowers to qualify based on a sensitized interest rate (above the current note rate), fully

amortized payment methodology. FHN’s underwriting guidelines require borrowers to qualify at an interest rate that is 200 basis points above the note rate. This mitigates risk to FHN in the event of a sharp rise in interest rates over a relatively short time horizon.

HELOC Portfolio Risk Management

FHN performs continuous HELOC account reviews in order to identify higher-risk home equity lines and initiate preventative and corrective actions. The reviews consider a number of account activity patterns and characteristics such as the number of times delinquent within recent periods, changes in credit bureau score since origination, score degradation, performance of the first lien, and account utilization. In accordance with FHN’s interpretation of regulatory guidance, FHN may block future draws on accounts in order to mitigate risk of loss to FHN.

Credit Card and Other

The credit card and other consumer loan portfolio totaled $840 million as of December 31, 2022 and $910 million as of December 31, 2021. This portfolio primarily consists of consumer-related credits, including home equity and other personal consumer loans, credit card receivables, and automobile loans. The $70 million decrease was driven by net repayments.

Allowance for Credit Losses

The ACL is maintained at a level sufficient to provide appropriate reserves to absorb estimated future credit losses in accordance with GAAP. For additional information regarding the ACL, see Notes 1 and 4 of this Report.

The ALLL was $685 million as of December 31, 2022, or 1.18% of total loans and leases, compared to $670 million, or 1.22% of total loans and leases, at the end of 2021. The ACL to total loans and leases ratio decreased to 1.33% as of December 31, 2022 from 1.34% as of December 31, 2021.

Consolidated Net Charge-offs

Net charge-offs were $59 million in 2022 compared to $2 million in 2021. As a percentage of average total loans and leases, net charge-offs increased 11 basis points from 2021.

Net charge-offs in the C&I portfolio were $53 million, an increase of $40 million from 2021, driven by higher land and development related charge-offs. Net charge-offs in

the commercial real estate portfolio were minimal in both 2022 and 2021.

In the consumer portfolio, net recoveries of $14 million in consumer real estate loans were offset by net charge-offs of $20 million in credit card and other loans. Net recoveries in the consumer portfolio in 2021 were $11 million.

Table 7.12

ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES AND CHARGE-OFFS

NM - not meaningful

Nonperforming Assets

Nonperforming loans are loans placed on nonaccrual if it becomes evident that full collection of principal and interest is at risk, if impairment has been recognized as a partial charge-off of principal balance due to insufficient collateral value and past due status, or (on a case-by-case basis), if FHN continues to receive payments but there are other borrower-specific issues. Included in nonaccrual are loans for which FHN continues to receive payments, including residential real estate loans where the borrower has been discharged of personal obligation through

bankruptcy. NPAs consist of nonperforming loans and OREO (excluding OREO from government insured mortgages).

Total NPAs (including NPLs HFS) increased $42 million to $327 million as of December 31, 2022, and the ratio of nonperforming loans to total loans increased 4 basis points to 0.54%. The increase in nonperforming loans was largely driven by the C&I portfolio.

Table 7.13

NONPERFORMING ASSETS

(a) Excludes loans and leases that are 90 or more days past due and still accruing interest.

(b) Balances do not include government-insured foreclosed real estate. Foreclosed real estate from GNMA loans totaled less than $1 million, $1 million, and $2 million at December 31, 2022, 2021, and 2020, respectively.

(c) Under the original terms of the loans, estimated interest income would have been approximately $21 million, $19 million, and $18 million during 2022, 2021 and 2020, respectively

The following table provides nonperforming assets by business segment:

Table 7.14

NONPERFORMING ASSETS BY SEGMENT

(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 less than $1 million, $1 million, and $5 million as of December 31, 2022, 2021, and 2020, respectively.

(d)Ratio is non-performing assets related to the loan and lease portfolio to total loans plus foreclosed real estate and other assets.

Past Due Loans and Potential Problem Assets

Past due loans are loans contractually past due as to interest or principal payments, but which have not yet been put on nonaccrual status. Loans 90 days or more past due and still accruing were $33 million as of December 31, 2022 compared to $40 million as of

December 31, 2021. Loans 30 to 89 days past due were $105 million as of December 31, 2022 compared to $108 million as of December 31, 2021, largely reflecting lower commercial loan balances past due 30 to 89 days.

Table 7.15

ACCRUING DELINQUENCIES

(a)Excludes loans classified as held for sale.

(b)Amounts are not included in nonperforming/nonaccrual loans.

(c)Amounts are also included in accruing loans and leases 30+ days past due.

(d)Guaranteed loans include FHA, VA, and GNMA loans repurchased through the GNMA buyout program.

Potential problem assets represent those assets where information about possible credit problems of borrowers has caused management to have serious doubts about the borrower’s ability to comply with present repayment terms and includes loans past due 90 days or more and still accruing. This definition is believed to be substantially consistent with the standards established by the Federal banking regulators for loans classified as substandard. Potential problem assets in the loan portfolio decreased $105 million to $492 million as of December 31, 2022.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.

In addition to PPP loans, other customer support initiatives in response to the COVID-19 pandemic included incremental lending assistance for borrowers through delayed payment programs and fee waivers. To the extent that these loans were past due and had been granted a deferral, they were excluded from loans past due in the

table above. Customer deferrals were immaterial as of December 31, 2022 and were $84 million and $518 million as of December 31, 2021 and 2020, respectively.

Troubled Debt Restructuring and Loan Modifications

As part of FHN’s ongoing risk management practices, FHN attempts to work with borrowers when appropriate to extend or modify loan terms to better align with their current ability to repay. Extensions and modifications to loans are made in accordance with internal policies and guidelines which conform to regulatory guidance. Each occurrence is unique to the borrower and is evaluated separately. In a situation where an economic concession has been granted to a borrower that is experiencing financial difficulty, FHN identifies and reports that loan as a TDR.

Loan modifications made during 2021 that met the TDR relief provisions outlined in either the CARES Act, as extended by the CAA, or revised Interagency Guidance, are excluded from consideration as a TDR, and are therefore excluded from designation as a TDR in the information and discussion that follows. See Note 1 - Significant Accounting Policies and Note 3 – Loans and Leases for further discussion regarding TDRs and loan modifications.

Commercial Loan Modifications

As part of FHN’s credit risk management governance processes, the Loan Rehab and Recovery Department (LRRD) is responsible for managing most commercial relationships with borrowers whose financial condition has deteriorated to such an extent that the credits are being considered for impairment, classified as substandard or worse, placed on nonaccrual status, foreclosed or in process of foreclosure, or in active or contemplated litigation. LRRD has the authority and responsibility to enter into workout and/or rehabilitation agreements with troubled commercial borrowers in order to mitigate and/or minimize the amount of credit losses recognized from these problem assets. While every circumstance is different, LRRD will generally use forbearance agreements (generally 6-12 months) as an element of commercial loan workouts, which might include reduced interest rates, reduced payments, release of guarantor, or entering into short sale agreements.

The individual impairment assessments completed on commercial loans in accordance with the Accounting Standards Codification Topic related to Troubled Debt Restructurings (“ASC 310-40”) include loans classified as TDRs as well as loans that may have been modified yet not classified as TDRs by management. For example, a modification of loan terms that management would generally not consider to be a TDR could be a temporary extension of maturity to allow a borrower to complete an asset sale whereby the proceeds of such transaction are to be paid to satisfy the outstanding debt. Additionally, a

modification that extends the term of a loan but does not involve reduction of principal or accrued interest, in which the interest rate is adjusted to reflect current market rates for similarly situated borrowers, is not considered a TDR. Nevertheless, each assessment will take into account any modified terms and will be comprehensive to ensure appropriate impairment assessment. If individual impairment is identified, management will either hold specific reserves on the amount of impairment, or, if the loan is collateral dependent, write down the carrying amount of the asset to the net realizable value of the collateral.

Consumer Loan Modifications

FHN does not currently participate in any of the loan modification programs sponsored by the U.S. government but does generally structure modified consumer loans using the parameters of the former Home Affordable Modification Program. Generally, a majority of loans modified under any such proprietary programs are classified as TDRs.

Within the HELOC and real estate installment loans classes of the consumer portfolio segment, TDRs are typically modified by reducing the interest rate (in increments of 25 basis points to a minimum of 1% for up to 5 years) and a possible maturity date extension to reach an affordable housing debt-to-income ratio. After 5 years, the interest rate generally returns to the original interest rate prior to modification; for certain modifications, the modified interest rate increases 2% per year until the original interest rate prior to modification is achieved. Permanent mortgage TDRs are typically modified by reducing the interest rate (in increments of 25 basis points to a minimum of 2% for up to 5 years) and a possible maturity date extension to reach an affordable housing debt-to-income ratio. After 5 years, the interest rate steps up 1 percent every year until it reaches the Federal Home Loan Mortgage Corporation Weekly Survey Rate cap. Contractual maturities may be extended to 40 years on permanent mortgages and to 30 years for consumer real estate loans. Within the credit card class of the consumer portfolio segment, TDRs are typically modified through either a short-term credit card hardship program or a longer-term credit card workout program. In the credit card hardship program, borrowers may be granted rate and payment reductions for 6 months to 1 year. In the credit card workout program, clients are granted a rate reduction to 0% and term extensions for up to 5 years to pay off the remaining balance.

Following classification as a TDR, modified loans within the consumer portfolio, which were previously evaluated for

impairment on a collective basis determined by their smaller balances and homogenous nature, become subject to the impairment guidance in ASC 310-10-35, which requires individual evaluation of the debt for impairment. However, as applicable accounting guidance allows, FHN may aggregate certain smaller-balance homogeneous TDRs and use historical statistics, such as aggregated charge-off amounts and average amounts recovered, along with a composite effective interest rate to measure impairment when such impaired loans have risk characteristics in common.

FHN had $180 million and $206 million in held-for-investment TDRs as of December 31, 2022 and 2021,

respectively. For these TDRs, FHN had an allowance for loan and lease losses of $12 million for both periods, including specific reserves, or 7% and 6% of TDR balances, as of December 31, 2022 and 2021, respectively. Additionally, FHN had $30 million and $35 million of HFS loans classified as TDRs as of December 31, 2022 and 2021, respectively.

The following table provides a summary of TDRs for the periods ended December 31, 2022 and 2021.

Table 7.16

TROUBLED DEBT RESTRUCTURINGS

(a)Balances as of both December 31, 2022 and 2021, include $12 million of discharged bankruptcies.

Deposits

Total deposits of $63.5 billion as of December 31, 2022 decreased $11.4 billion from $74.9 billion as of December 31, 2021 reflecting a continued downward trend from mid-2021 highs driven by excess liquidity associated with the COVID-19 pandemic. Interest-bearing

deposits decreased $7.0 billion and noninterest-bearing deposits decreased $4.4 billion. The following tables summarize FHN's total deposits and estimated uninsured total deposits for 2022, 2021, and 2020, as well as the maturities of FHN's uninsured time deposits as of

December 31, 2022. See Table 7.2 - Average Balances, Net Interest Income and Yields/Rates in this Report for

information on average deposits including average rates paid.

Table 7.17

DEPOSITS

Table 7.18

ESTIMATED UNINSURED DEPOSITS

Table 7.19

UNINSURED TIME DEPOSITS BY MATURITY