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First Horizon (FHN) Risk Analysis
Risk Overview Q4, 2021
Source: the company's latest filing for the period ended Dec 31, 2021, filed Mar 01, 2022
Risk Change Over Time
No filing history is available.
- Share Price & Shareholder Rights - Risk 1Certain legal rights of holders of our common stock and of depositary shares related to our preferred stock to pursue claims against us or the depositary, as applicable, are limited by our bylaws and by the terms of the deposit agreements.
Our bylaws provide that, unless we consent in writing to an alternative forum, a state or federal court located within Shelby County in the State of Tennessee will be the sole and exclusive forum for (i) any derivative action or proceeding brought in our right or name, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other associate of ours to us or our shareholders, (iii) any action asserting a claim against us or any director, officer or other associate of ours arising pursuant to any provision of the Tennessee Business Corporation Act, of our charter or bylaws or (iv) any action asserting a claim against us or any director, officer or other associate of ours that is governed by the internal affairs doctrine. In addition, each deposit agreement between us and the depositary, which govern the rights of the depositary shares related to our Series B, C, and D preferred stock, provide that any action or proceeding arising out of or relating in any way to the deposit agreement may only be brought in a state court located in the State of New York or in the United States District Court for the Southern District of New York. The foregoing exclusive forum clauses may have the effect of discouraging lawsuits against us or our directors, officers or other associates, or against the depositary, as applicable. Exclusive forum clauses may also lead to increased costs to bring a claim, or may limit the ability of holders of our common stock or depositary shares to bring a claim in a judicial forum they find favorable. In addition, the exclusive forum clauses in our bylaws and deposit agreement could apply to actions or proceedings that may arise under the federal securities laws, depending on the nature of the claim alleged. To the extent these exclusive forum clauses restrict the courts in which holders of our common stock or depositary shares may bring claims arising under the federal securities laws, there is uncertainty as to whether a court would enforce such provisions. These exclusive forum provisions do not mean that holders of our common stock or depositary shares have waived our obligations to comply with the federal securities laws and the rules and regulations thereunder.
- Share Price & Shareholder Rights - Risk 2Our shareholders may suffer dilution if we raise capital through public or private equity financings to fund our operations, to increase our capital, or to expand.
If we raise funds by issuing equity securities or instruments that are convertible into equity securities, the percentage ownership of our current common shareholders will be reduced, the new equity securities may have rights and preferences superior to those of our common or outstanding preferred stock, and additional issuances could be at a sales price which is dilutive to current shareholders. We may also issue equity securities directly as consideration for acquisitions we may make that would be dilutive to shareholders in terms of voting power and share-of-ownership, and could be dilutive financially or economically.
- Accounting & Financial Operations - Risk 3One such accounting change, ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” substantially revised the measurement and recognition of credit losses for certain assets, including most loans, in a manner that substantially changed when and how we recognize loan loss. ASU 2016-13 was effective for us on January 1, 2020.
Under ASU 2016-13, when we make or acquire a new loan, we are required to recognize immediately the “current expected credit loss,” or “CECL,” of that loan. We will also re-evaluate CECL each quarter that the loan is outstanding. CECL is the difference between our cost and the net amount we expect to collect over the life of the loan using certain estimation methods that incorporate macroeconomic forecasts and our experience with other, similar loans. In contrast, the pre-2020 accounting standard delayed recognition until loss was “probable” (very likely). We adopted ASU 2016-13 and CECL accounting starting in 2020, with the impact on regulatory capital having a phase-in period. Starting in 2020, recognition of estimated credit loss was significantly accelerated compared to pre-CECL practice, which was aggravated by the actual and projected effects of the pandemic. Additional information concerning ASU 2016-13 appears in Note 1—Significant Accounting Policies within our 2021 Financial Statements (Item 8) beginning on page 122, and in Item 1 under the caption CECL Accounting and COVID-19 within the section entitled Significant Business Developments Over Past Five Years, which begins on page 12, all of which information is incorporated into this Item 1A by reference.
- Debt & Financing - Risk 4Expectations by the market regarding the direction of future interest rate movements can impact the demand for and value of our fixed income investments, and can impact the revenues of our fixed income business.
This risk is most apparent during times when strong expectations have not yet been reflected in market rates, or when expectations are especially weak or uncertain.
- Debt & Financing - Risk 5We have risks from the mortgage-related businesses legacy First Horizon exited in 2008, including mortgage loan repurchase and loss-reimbursement risk, claims of improper foreclosure practices, and claims of non-compliance with contractual and regulatory requirements.
In 2008 we exited our national mortgage and related lending businesses. We retain the risk of liability to clients and contractual parties with whom we dealt in the course of operating those businesses. Additional information concerning risks related to our former mortgage businesses and our management of them, all of which is incorporated into this Item 1A by this reference, is set forth: under the captions Repurchase Obligations beginning on page 98, and Contingent Liabilities beginning on page 103, of our 2021 MD&A (Item 7); and under the captions Exposures from pre-2009 Mortgage Business and Mortgage Loan Repurchase and Foreclosure Liability, both within Note 17—Contingencies and Other Disclosures of our 2021 Financial Statements (Item 8), which Note begins on page 168.
- Corporate Activity and Growth - Risk 6We may be unable to successfully implement our strategy to operate and grow our regional and specialty banking businesses.
Although our current strategy is expected to evolve as business conditions change, in 2022 our primary strategies are to (1) invest resources in our banking businesses before and after we complete the integration of the businesses and operations of First Horizon and IBKC, (2) seek to exploit opportunities for cost and revenue synergies, (3) seek to exploit growth opportunities, especially within the markets we serve, and (4) seek to exploit opportunities to cut cost without significant revenue impact. Organic growth, including exploitation of revenue synergies, is expected to be coordinated with a focus on strong and stable returns on capital. Organically, over the past several years we enhanced our market share in our regional banking markets with targeted hires and marketing, and we invested resources in specialty commercial lending and private client banking. After the completion of the IBKC merger in 2020, we started to invest significantly in new platforms and processes to modernize legacy operations, provide a better client experience, reduce ongoing operating costs, and support future growth of the combined franchise. We expect investments of that sort to continue in 2022. Investments of that sort are expensive in the near term; although we believe they are necessary for our future and are appropriate for our company at this time, the financial returns on these investments are highly uncertain. In the future more generally, we expect to continue to nurture profitable organic growth. We may pursue acquisitions or strategic transactions if appropriate opportunities, within or outside of our current markets, present themselves. The TD Merger Agreement restricts us from making certain acquisitions and taking other specified actions while the Proposed TD Merger is pending without the consent of TD, and requires us to operate in the ordinary course of business. These restrictions may prevent us from pursuing attractive business opportunities that may arise prior to the completion of the Proposed TD Merger or may otherwise adversely affect our ongoing business and operations. See Risks Related to the Proposed TD Merger beginning on page 31 for a discussion of additional risks related to the Proposed TD Merger.
- Corporate Activity and Growth - Risk 7The operational functions of business counterparties, or businesses with which we have no relationship, may experience disruptions that could adversely impact us and over which we may have limited or no control.
Although these events cannot be predicted individually, over time and in the aggregate they happen as surely as loan losses. For example, when a major U.S. consumer-oriented firm experiences a data systems incursion resulting in the theft of credit and debit card information, online account information, and other data, it impacts thousands or sometimes millions of people. Frequently, many of those affected are our clients. Although our systems are not breached by third-party incursions, these events can increase account fraud and can cause us to take costly steps to avoid significant theft loss to our Bank and our clients. Our ability to recoup our losses may be limited legally or practically in many situations. Possible points of incursion or disruption not within our control include retailers, utilities, insurers, health care service providers, internet service and electronic mail providers, social media portals, distant-server (“cloud”) service providers, electronic data security providers, telecommunications companies, and smart phone manufacturers.
Risk Highlights Q4, 2021
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 111
- Share Price & Shareholder Rights - Risk 1Provisions of Tennessee law, and certain provisions of our charter and bylaws, could make it more difficult for a third party to acquire control of us or could have the effect of discouraging a third party from attempting to acquire control of us.
These provisions could make it more difficult for a third party to acquire us even if an acquisition might be at a price attractive to many of our shareholders. In addition, federal banking laws prohibit non-financial-industry companies from owning a bank, and require regulatory approval of any change in control of a bank.
- Share Price & Shareholder Rights - Risk 2Our issuance of preferred stock raises regulatory capital without issuing common shares, but creates or expands our general obligation to pay all preferred dividends ahead of any common dividends.
Currently we have six series of preferred stock outstanding, one issued by the Bank and five by First Horizon Corporation. Subject to capital needs and market conditions, additional series may be issued in the future.
- Share Price & Shareholder Rights - Risk 3The IBKC merger, for example, resulted in a significant increase in our outstanding shares.
In 2020, we issued to former IBKC shareholders common shares representing about 44% of our post-closing outstanding shares.
- Share Price & Shareholder Rights - Risk 4Significant changes to the securities market’s performance can have a material impact upon our assets, liabilities, and financial results.
We have a number of assets and obligations that are linked, directly or indirectly, to major securities markets. Significant changes in market performance can have a material impact upon our assets, liabilities, and financial results. An example of that linkage is our obligation to fund our pension plan so that it may satisfy benefit claims in the future. Our pension funding obligations generally depend upon actuarial estimates of benefits claims, the discount rate used to estimate the present values of those claims, and estimates of plan asset values. Our obligations to fund the plan can be affected by changes in any of those three factors. Accordingly, our obligations diminish if the plan’s investments perform better than expectations or if estimates are changed anticipating better performance, and can grow if those investments perform poorly or if expectations worsen. A rise in interest rates is likely to negatively impact the values of fixed income assets held in the plan, but would also result in an increase in the discount rate used to measure the present value of future benefit payments. Similarly, our obligations can be impacted by changes in mortality tables or other actuarial inputs. We manage the risk of rate changes by investing plan assets in fixed income securities having maturities aligned with the expected timing of payouts. Because there are no new participants, the actuarial-input risk should slowly diminish over time. Changes in our funding obligation generally translate into positive or negative changes in our pension expense over time, which in turn affects our financial performance. Our obligations and expenses relative to the plan can be affected by many other things, including changes in our participating associate population and changes to the plan itself. Although we have taken actions intended to moderate future volatility in this area, risk of some level of volatility is unavoidable.
- Share Price & Shareholder Rights - Risk 5A few instruments issued by us, including certain series of preferred stock and certain trust preferred obligations, have floating rate terms based on LIBOR, or have fixed rates that later will convert to floating rate terms based on LIBOR.
We have risk that an adverse outcome of the LIBOR transition after the scheduled discontinuation could increase our interest, dividend, and other costs relative to those instruments. We may not be able to refinance those instruments on terms that reduce those costs to the level we would have expected if LIBOR were to continue indefinitely, unchanged.
- Share Price & Shareholder Rights - Risk 6ChangedCertain legal rights of holders of our common stock and of depositary shares related to our preferred stock to pursue claims against us or the depositary, as applicable, are limited by our bylaws and by the terms of the deposit agreements.
Our bylaws provide that, unless we consent in writing to an alternative forum, a state or federal court located within Shelby County in the State of Tennessee will be the sole and exclusive forum for (i) any derivative action or proceeding brought in our right or name, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other associate of ours to us or our shareholders, (iii) any action asserting a claim against us or any director, officer or other associate of ours arising pursuant to any provision of the Tennessee Business Corporation Act, of our charter or bylaws or (iv) any action asserting a claim against us or any director, officer or other associate of ours that is governed by the internal affairs doctrine. In addition, each deposit agreement between us and the depositary, which govern the rights of the depositary shares related to our Series B, C, and D preferred stock, provide that any action or proceeding arising out of or relating in any way to the deposit agreement may only be brought in a state court located in the State of New York or in the United States District Court for the Southern District of New York. The foregoing exclusive forum clauses may have the effect of discouraging lawsuits against us or our directors, officers or other associates, or against the depositary, as applicable. Exclusive forum clauses may also lead to increased costs to bring a claim, or may limit the ability of holders of our common stock or depositary shares to bring a claim in a judicial forum they find favorable. In addition, the exclusive forum clauses in our bylaws and deposit agreement could apply to actions or proceedings that may arise under the federal securities laws, depending on the nature of the claim alleged. To the extent these exclusive forum clauses restrict the courts in which holders of our common stock or depositary shares may bring claims arising under the federal securities laws, there is uncertainty as to whether a court would enforce such provisions. These exclusive forum provisions do not mean that holders of our common stock or depositary shares have waived our obligations to comply with the federal securities laws and the rules and regulations thereunder.
- Share Price & Shareholder Rights - Risk 7ChangedOur shareholders may suffer dilution if we raise capital through public or private equity financings to fund our operations, to increase our capital, or to expand.
If we raise funds by issuing equity securities or instruments that are convertible into equity securities, the percentage ownership of our current common shareholders will be reduced, the new equity securities may have rights and preferences superior to those of our common or outstanding preferred stock, and additional issuances could be at a sales price which is dilutive to current shareholders. We may also issue equity securities directly as consideration for acquisitions we may make that would be dilutive to shareholders in terms of voting power and share-of-ownership, and could be dilutive financially or economically.
- Share Price & Shareholder Rights - Risk 8AddedShareholder litigation could prevent or delay the completion of the Proposed TD Merger or otherwise negatively impact our business and operations.
One or more of our shareholders may file lawsuits against us and/or our directors and officers in connection with the Proposed TD Merger. One of the conditions to the closing is that no order, injunction, or decree issued by any court or governmental entity of competent jurisdiction or other legal restraint preventing the consummation of the Proposed TD Merger or any of the other transactions contemplated by the TD Merger Agreement and related bank merger agreement be in effect. If any plaintiff were successful in obtaining an injunction prohibiting us from completing the Proposed TD Merger, then such injunction may delay or prevent the effectiveness of the Proposed TD Merger and could result in significant costs to us, including any cost associated with the indemnification of directors and officers of each company. If a lawsuit is filed, we may incur costs in connection with the defense or settlement of any shareholder lawsuits filed in connection with the Proposed TD Merger. Such litigation could have an adverse effect on our financial condition and results of operations and could prevent or delay the completion of the Proposed TD Merger.
- Share Price & Shareholder Rights - Risk 9AddedBecause all banks are sensitive to the risk of downturns, the stock prices of all banks typically decline, sometimes substantially, if the market believes that a downturn has become more likely or is imminent.
This effect can and often does occur indiscriminately, initially without much regard to different risk postures of different banks.
See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.