First Horizon (FHN) Risk Factors

To a significant degree our banking business is exposed to economic, regulatory, natural disaster, and other risks that primarily impact the south-eastern and south-central U.S. states where we do most of our regional banking business. If those regions of the U.S. were to experience adversity not shared by other parts of the country, we are likely to experience adversity to a degree not shared by those competitors which have a broader or different regional footprint. Examples of these kinds of risks include: earthquakes in Memphis; hurricanes in Florida, Louisiana, the Carolina coasts, or the Texas coast; a major change in health insurance laws impacting the many healthcare companies in middle Tennessee; and automotive industry plant closures.

Starting in late February 2020, financial market volatility increased dramatically based on concerns that COVID-19, and the steps being undertaken in many countries to mitigate its spread, would significantly disrupt economic activity. In March 2020, financial market volatility increased further, with several one-day stock market swings that resulted in significant market declines. Additionally: market pricing deteriorated in virtually all sectors and asset classes except U.S. Treasury securities; many states and cities in the U.S. declared health emergencies, lockdowns, travel restrictions, and quarantines, prohibiting gatherings of more than a small number of people and ordering or urging most businesses and workplaces to close or operate on a very restricted basis; the Federal Reserve lowered short-term interest rates and started a “quantitative easing” program intended to lower longer-term interest rates and foster access to credit; the effective yields of 10-year and 30-year U.S. Treasury securities achieved record low rates; and the U.S. Congress enacted several relief laws. Government actions in the U.S. have included loan programs administered by banks and other private-sector lenders, liquidity programs administered by the U.S. Treasury, and favorable accounting and regulatory treatment (for lenders) of certain loan payment deferrals. In 2020, the economic effects of these and related actions and events in the U.S. included: large numbers of partial or full business closures; large numbers of people were furloughed or laid off; large increases in unemployment; large numbers of workers worked from home; and large numbers of consumers were unwilling to undertake significant discretionary spending. In addition, worldwide demand for oil fell, resulting in significant drops in oil prices and in the values of oil-related assets. Starting in late 2020, and accelerating in 2021, vaccines were distributed throughout the U.S. and the physical and commercial shutdowns started to abate. Late in 2021, monoclonal antibody treatments and new anti-viral medications offered hope that infected people could avoid the worst outcomes of the virus more effectively than with earlier treatments. Additional strains of COVID-19 have emerged worldwide, a few of which have caused some earlier restrictions to reappear but without the very large economic shocks experienced in 2020. It appears likely that further new strains will continue to appear, as they do with influenza. It also appears likely that a "return to normal" in 2022 or 2023 will be uneven and delayed at best, and that "normal" behavior patterns in the U.S. may become somewhat different than they were pre-COVID. Within the U.S., governmental reactions to the pandemic in 2021 have been, and in 2022 very likely will continue to be, inconsistent from state to state and from city to city. Worldwide, these inconsistencies have been more pronounced, including enforced quarantine of large population segments if any outbreak is detected in some countries, closed borders in some countries, and virtually no restrictions at all in some countries. This situation, coupled with unpredictable work slowdowns associated with illness outbreaks, likely has contributed significantly to global supply chain and related difficulties that were commonplace in 2021. We are not able to predict the impact of these still-changing circumstances on our businesses. The full extent of impacts resulting from the COVID-19 pandemic and other events beyond our control will depend on uncertain future developments, including new information which may emerge concerning the severity of new COVID strains, the effectiveness of vaccines and treatments on existing and new strains, and further actions governments may take to slow the spread of the virus, treat the ill, distribute the vaccines and treatments, and assist affected businesses. In addition, the pandemic has resulted in modest operational disruptions for us. Clients’ physical access to banking centers has been restricted off and on in many markets, and many non-client-facing associates continued to work largely on a remote basis into early 2022. In addition, associates have become ill unpredictably, which occasionally slowed or modestly disrupted certain functions or processes. More significant disruptions in the future could adversely impact our businesses, financial condition, and results of operations.

Two keys to achieving a psychological connection with such clients are (1) data management and analytics, using artificial intelligence processes, which allow an institution to provide a differentiated, personalized experience for the client at the point of interaction, and (2) seamless integration of real-time client contact with a human being through voice, chat, or other means.

This has required, and will continue to require, an evolution in our corporate culture which, in turn, creates implementation risk. In this evolutionary process it is critical that we not lose sight of how our clients experience working with us and our systems, including those clients who still want traditionally-delivered services, those who seek and embrace the latest innovations, and those who just want services to be convenient, personalized, and understandable.

Our reputation is, therefore, a key asset for us. Our reputation is affected principally by our business practices and how those practices are perceived and understood by others. Adverse perceptions regarding the practices of our competitors, or our industry as a whole, also may adversely impact our reputation. In addition, negative perceptions relating to parties with whom we have important relationships may adversely impact our reputation. Senior management oversees processes for reputation risk monitoring, assessment, and management. Damage to our reputation could hinder our ability to access the capital markets or otherwise impact our liquidity, could hamper our ability to attract new clients and retain existing ones, could impact the market value of our stock, could create or aggravate regulatory difficulties, and could undermine our ability to attract and retain talented associates, among other things. Adverse impacts on our reputation, or the reputation of our industry, also may result in greater regulatory and/or legislative scrutiny, which may lead to laws or regulations that change or constrain our business or operations. Events that result in damage to our reputation also may increase our litigation risk.

Additional information concerning operational risks and our management of them, all of which is incorporated into this Item 1A by this reference, appears under the caption Operational Risk Management beginning on page 94 of our 2021 MD&A (Item 7).