First Horizon FHN Business Risk Report

I. Market Risks

A. Economic downturn impacting overall loan demand

An economic downturn can significantly affect First Horizon by reducing the overall demand for loans. As a regional bank, its revenues are closely tied to the economic conditions of the Southeastern U.S., where any economic slowdown could lead to decreased business activity and lower borrowing.

B. Volatility in interest rates affecting net interest margin

First Horizon is exposed to risks associated with fluctuations in interest rates. Changes in rates can impact the bank’s net interest margin, which is a vital component of its profitability. Interest rate volatility can affect the cost of funding and the rate at which loans are made.

II. Regulatory Risks

A. Compliance with changing banking regulations

As a financial institution, First Horizon must continuously adapt to meet changing banking regulations. Failure to comply with these changes can lead to fines, penalties, and a loss of trust among its customers and investors.

B. Legal implications of potential regulatory violations

Potential regulatory violations could expose First Horizon to legal challenges or sanctions. Such legal implications could damage its reputation, result in financial losses, and harm stakeholder relationships.

III. Cybersecurity Risks

A. Data breaches leading to potential client information exposure

Data breaches pose a significant threat to First Horizon, potentially leading to the exposure of sensitive client information. Such events can diminish customer trust, attract regulatory scrutiny, and lead to significant remediation costs.

B. Vulnerability to cyber attacks impacting operations

The banking sector, including First Horizon, is continuously targeted by cyber-attacks, which can disrupt critical operations and services. Sustained attacks might result in operational downtime and financial losses.

IV. Operational Risks

A. Technology failures disrupting banking services

Technology failures can lead to significant disruptions in First Horizon’s banking services, affecting everything from ATMs to online banking platforms. Such disruptions not only impact customer satisfaction but also the bank’s operational effectiveness.

B. Internal fraud or misconduct jeopardizing reputation

Incidents of internal fraud or misconduct could seriously jeopardize First Horizon’s reputation and client trust. Dealing with such issues can be costly and divert resources from other strategic areas.

V. Credit Risks

A. Increase in loan defaults due to economic instability

Economic instability can lead to an increase in loan defaults, which is a significant risk for First Horizon. Such defaults can affect the bank’s financial stability and lead to increased provision for credit losses.

B. Concentration risks in loan portfolios

First Horizon faces concentration risks in its loan portfolios, particularly if a large portion of loans is distributed to a single sector or demographic that may be hit by sector-specific downturns.

VI. Strategic Risks

A. Failure to adapt to industry changes and innovation

If First Horizon fails to adapt to continuous changes and innovations within the banking industry, it risks losing competitive edge, which could impact its market share and profitability.

B. Mergers and acquisitions not achieving intended synergies

First Horizon has grown, in part, through mergers and acquisitions. There is a risk that these strategic movements do not achieve the intended synergies, leading to underperformance and financial strain.

VII. Mitigation Strategies

A. Regular stress testing and scenario analysis

To mitigate these risks, First Horizon regularly conducts stress testing and scenario analysis to prepare and adjust strategies in response to potential financial stresses and market changes.

B. Investments in cybersecurity infrastructure and training

FHN invests in strengthening its cybersecurity infrastructure and training its staff to better detect and respond to cyber threats, thereby protecting customer data and operational integrity.

C. Continuous monitoring of regulatory environment and compliance measures

The bank continuously monitors changes in the regulatory environment to ensure compliance and minimize the risk of violations and associated penalties.

D. Diversification of loan portfolios to manage credit risks

First Horizon actively manages credit risks by diversifying its loan portfolios across various sectors and demographics to mitigate the impact of sector-specific downturns.

E. Robust internal controls and governance framework

To handle operational risks, including internal fraud, First Horizon maintains robust internal controls and a strong governance framework. This structure helps in early detection and management of any misconduct or operational failures.