FHN continually measures this risk through the use of models that measure value-at-risk and earnings-at-risk.

Derivative Instruments

FHN enters into various derivative contracts both to facilitate client transactions and as a risk management tool. Where contracts have been created for clients, FHN enters into upstream transactions with dealers to offset its risk exposure. Contracts with dealers that require central clearing are novated to a clearing agent who becomes FHN’s counterparty. Derivatives are also used as a risk management tool to hedge FHN’s exposure to changes in interest rates or other defined market risks.

Forward contracts are over-the-counter contracts where two parties agree to purchase and sell a specific quantity of a financial instrument at a specified price, with delivery or settlement at a specified date. Futures contracts are exchange-traded contracts where two parties agree to purchase and sell a specific quantity of a financial instrument at a specified price, with delivery or settlement at a specified date. Interest rate option contracts give the purchaser the right, but not the obligation, to buy or sell a specified quantity of a financial instrument, at a specified price, during a specified period of time. Caps and floors are options that are linked to a notional principal amount and an underlying indexed interest rate. Interest rate swaps involve the exchange of interest payments at specified intervals between two parties without the exchange of any underlying principal. Swaptions are options on interest rate swaps that give the purchaser the right, but not the obligation, to enter into an interest rate swap agreement during a specified period of time.

Trading Activities

FHNF trades U.S. Treasury, U.S. Agency, government-guaranteed loan, mortgage-backed, corporate and municipal fixed income securities, and other securities for distribution to clients. When these securities settle on a delayed basis, they are considered forward contracts. FHNF also enters into interest rate contracts, including caps, swaps, and floors, for its clients. In addition, FHNF enters into futures and option contracts to economically hedge interest rate risk associated with a portion of its securities inventory. These transactions are measured at fair value, with changes in fair value recognized in noninterest income. Related assets and liabilities are recorded on the Consolidated Balance Sheets as derivative assets and derivative liabilities within other assets and other liabilities. The FHNF Risk Committee and the Credit Risk Management Committee collaborate to mitigate credit risk related to these transactions. Credit risk is controlled through credit approvals, risk control limits, and ongoing monitoring procedures. Total trading revenues were $27 million and $61 million for the three months ended March 31, 2023 and 2022, respectively.

Trading revenues are inclusive of both derivative and non-derivative financial instruments and are included in fixed income on the Consolidated Statements of Income.

The following table summarizes derivatives associated with FHNF's trading activities as of March 31, 2023 and December 31, 2022:


DERIVATIVES ASSOCIATED WITH TRADING
	March 31, 2023
(Dollars in millions)	Notional		Assets		Liabilities
Customer interest rate contracts	$	3,312	$	11	$	207
Offsetting upstream interest rate contracts	3,312		94		15
Option contracts written	110		—		1
Forwards and futures purchased	1,607		9		1
Forwards and futures sold	1,757		1		10


	December 31, 2022
(Dollars in millions)	Notional		Assets		Liabilities
Customer interest rate contracts	$	3,076	$	3	$	270
Offsetting upstream interest rate contracts	3,076		91		6
Option contracts purchased	40		—		—
Forwards and futures purchased	1,127		5		2
Forwards and futures sold	1,256		4		5

Interest Rate Risk Management

FHN’s ALCO focuses on managing market risk by controlling and limiting earnings volatility attributable to changes in interest rates. Interest rate risk exists to the extent that interest-earning assets and interest-bearing liabilities have different maturity or repricing characteristics. FHN uses derivatives, primarily swaps, that are designed to moderate the impact on earnings as interest rates change. Interest paid or received for swaps utilized by FHN to hedge the fair value of long-term debt is recognized as an adjustment of the interest expense of the liabilities whose risk is being managed. FHN’s interest rate risk management policy is to use derivatives to hedge interest rate risk or market value of assets or liabilities,

not to speculate. In addition, FHN has entered into certain interest rate swaps and caps as a part of a product offering to commercial clients that includes customer derivatives paired with upstream offsetting market instruments that, when completed, are designed to mitigate interest rate risk. These contracts do not qualify for hedge accounting and are measured at fair value with gains or losses included in current earnings in noninterest expense on the Consolidated Statements of Income.

The following tables summarize FHN’s derivatives associated with interest rate risk management activities as of March 31, 2023 and December 31, 2022:


DERIVATIVES ASSOCIATED WITH INTEREST RATE RISK MANAGEMENT
	March 31, 2023
(Dollars in millions)	Notional		Assets		Liabilities
Customer Interest Rate Contracts Hedging
Hedging Instruments and Hedged Items:
Customer interest rate contracts	$	8,424	$	16	$	423
Offsetting upstream interest rate contracts	8,424		413		21


	December 31, 2022
(Dollars in millions)	Notional		Assets		Liabilities
Customer Interest Rate Contracts Hedging
Hedging Instruments and Hedged Items:
Customer interest rate contracts	$	8,377	$	3	$	570
Offsetting upstream interest rate contracts	8,377		351		5

The following table summarizes gains (losses) on FHN’s derivatives associated with interest rate risk management activities for the three months ended March 31, 2023 and 2022:


DERIVATIVE GAINS (LOSSES) ASSOCIATED WITH INTEREST RATE RISK MANAGEMENT
	Three Months Ended March 31,
	2023		2022
(Dollars in millions)	Gains (Losses)		Gains (Losses)
Customer Interest Rate Contracts Hedging
Hedging Instruments and Hedged Items:
Customer interest rate contracts (a)	$	160	$	353
Offsetting upstream interest rate contracts (a)	(160)		(353)

(a)Gains (losses) included in other expense within the Consolidated Statements of Income.

Cash Flow Hedges

Prior to 2021, FHN entered into pay floating, receive fixed interest rate swaps designed to manage its exposure to the variability in cash flows related to interest payments on debt instruments. In conjunction with the IBKC merger, FHN acquired interest rate contracts (floors and collars) which have been re-designated as cash flow hedges. The debt instruments primarily consist of held-to-maturity commercial loans that have variable interest payments based on 1-month LIBOR.

In 2022, FHN entered into interest rate contracts (floors and swaps) which have been designated as cash flow hedges. These hedges reference 1-month Term SOFR and FHN has made certain elections under ASU 2020-04 to

facilitate qualification for hedge accounting during the time that hedged items transition away from 1-Month LIBOR.

In a cash flow hedge, the entire change in the fair value of the interest rate derivatives included in the assessment of hedge effectiveness is initially recorded in OCI and is subsequently reclassified from OCI to current period earnings (interest income or interest expense) in the same period that the hedged item affects earnings.

The following tables summarize FHN’s derivative activities associated with cash flow hedges as of March 31, 2023 and December 31, 2022:

DERIVATIVES ASSOCIATED WITH CASH FLOW HEDGES

March 31, 2023

(Dollars in millions)

Notional

Assets

Liabilities

Cash Flow Hedges

Hedging Instruments:

Interest rate contracts

5,350

—

Hedged Items:

Variability in cash flows related to debt instruments (primarily loans)

N/A

5,350

N/A



	December 31, 2022
(Dollars in millions)	Notional		Assets		Liabilities
Cash Flow Hedges
Hedging Instruments:
Interest rate contracts	$	5,350	$	—	$	71
Hedged Items:
Variability in cash flows related to debt instruments (primarily loans)	N/A		$	5,350	N/A

The following table summarizes gains (losses) on FHN’s derivatives associated with cash flow hedges for the three months ended March 31, 2023 and 2022:


DERIVATIVE GAINS (LOSSES) ASSOCIATED WITH CASH FLOW HEDGES
	Three Months Ended March 31,
	2023		2022
(Dollars in millions)	Gains (Losses)		Gains (Losses)
Cash Flow Hedges
Hedging Instruments:
Interest rate contracts (a)	$	53	$	(32)
Gain (loss) recognized in other comprehensive income (loss)	33		(20)
Gain (loss) reclassified from AOCI into interest income	11		(1)

(a)Approximately $10 million of pre-tax losses are expected to be reclassified into earnings in the next twelve months.

Other Derivatives

FHN has mortgage banking operations that include the origination and sale of loans into the secondary market. As part of the origination of loans, FHN enters into interest rate lock commitments with borrowers. Additionally, FHN

enters into forward sales contracts with buyers for delivery of loans at a future date. Both of these contracts qualify as freestanding derivatives and are recognized at fair value through earnings. The notional and fair values of these contracts are presented in the table below.


DERIVATIVES ASSOCIATED WITH MORTGAGE BANKING HEDGES
	March 31, 2023
(Dollars in millions)	Notional		Assets		Liabilities
Mortgage Banking Hedges

Option contracts written	$	60	$	1	$	—
Forward contracts written	144		—		1


	December 31, 2022
(Dollars in millions)	Notional		Assets		Liabilities
Mortgage Banking Hedges

Option contracts written	$	35	$	—	$	—

Forward contracts written	61		—		—

The following table summarizes gains (losses) on FHN's derivatives associated with mortgage banking activities for the three months ended March 31, 2023 and 2022:


DERIVATIVE GAINS (LOSSES) ASSOCIATED WITH MORTGAGE BANKING HEDGES
	Three Months Ended March 31,
	2023		2022
(Dollars in millions)	Gains (Losses)		Gains (Losses)
Mortgage Banking Hedges

Option contracts written	$	(1)	$	(4)
Forward contracts written	(1)		18

In conjunction with pre-2020 sales of Visa Class B shares, FHN entered into derivative transactions whereby FHN will make or receive cash payments whenever the conversion ratio of the Visa Class B shares into Visa Class A shares is adjusted. As of March 31, 2023 and December 31, 2022, the derivative liabilities associated with the sales of Visa Class B shares were $21 million and $27 million, respectively. FHN recognized $22 million in derivative valuation adjustments related to prior sales of Visa Class B shares for the year ended December 31, 2022. See Note 16 - Fair Value of Assets and Liabilities for discussion of the valuation inputs and processes for these Visa-related derivatives.

FHN utilizes cross currency swaps and cross currency interest rate swaps to economically hedge its exposure to foreign currency risk and interest rate risk associated with non-U.S. dollar denominated loans. As of March 31, 2023 and December 31, 2022, these loans were valued at $14 million and $9 million, respectively. The balance sheet amount and the gains/losses associated with these derivatives were not significant.

Related to its loan participation/syndication activities, FHN enters into risk participation agreements, under which it assumes exposure for, or receives indemnification for, borrowers’ performance on underlying interest rate derivative contracts. FHN's counterparties in these contracts are other lending institutions involved in the loan participation/syndication arrangements for which the underlying interest rate derivative contract is intended to hedge interest rate risk for the borrower. FHN will make (other institution is the lead bank) or receive (FHN is the lead bank) payments for risk participations if the borrower defaults on its obligation to perform under the terms of its interest rate derivative agreement with the lead bank in the participation.

As of March 31, 2023 and December 31, 2022, the notional values of FHN’s risk participations were $312 million and $242 million of derivative assets and $831 million and $742 million of derivative liabilities, respectively. The notional value for risk participation/syndication agreements is consistent with the percentage of participation in the lending arrangement. FHN's

maximum exposure or benefit in the risk participation agreements is contingent on the fair value of the underlying interest rate derivative contracts for which the borrower is in a liability position at the time of default. FHN monitors the credit risk associated with the borrowers to which the risk participations relate through the same credit risk assessment process utilized for establishing credit loss estimates for its loan portfolio. These credit risk estimates are included in the determination of fair value for the risk participations. Assuming all underlying third-party customers referenced in the swap contracts defaulted at March 31, 2023 and December 31, 2022, the exposure from these agreements would not be material based on the fair value of the underlying swaps.

FHN holds certain certificates of deposit with the rate of return based on an equity index which is considered an embedded derivative as a written option that must be separately recognized. The risks of the written option are offset by purchasing an option with terms that mirror the written option, which is also carried at fair value on the Company’s Consolidated Balance Sheets. As of March 31, 2023 and December 31, 2022, FHN recognized an insignificant amount of assets and liabilities associated with these contracts.

Master Netting and Similar Agreements

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

Interest rate derivatives are subject to agreements consistent with standard agreement forms of the ISDA. Currently, all interest rate derivative contracts are entered into as over-the-counter transactions and collateral posting requirements are based on the net asset or liability position with each respective counterparty. For contracts that require central clearing, novation to a counterparty with access to a clearinghouse occurs and initial margin is posted.

Cash margin received (posted) that is considered settlements for the derivative contracts is included in the respective derivative asset (liability) value. Cash margin that is considered collateral received (posted) for interest rate derivatives is recognized as a liability (asset) on FHN’s Consolidated Balance Sheets.

Interest rate derivatives with clients that are smaller financial institutions typically require posting of collateral by the counterparty to FHN. This collateral is subject to a threshold with daily adjustments based upon changes in the level or fair value of the derivative position. Positions and related collateral can be netted in the event of default. Collateral pledged by a counterparty is typically cash or securities. The securities pledged as collateral are not recognized within FHN’s Consolidated Balance Sheets. Interest rate derivatives associated with lending arrangements share the collateral with the related loan(s). The derivative and loan positions may be netted in the event of default. For disclosure purposes, the entire collateral amount is allocated to the loan.

Interest rate derivatives with larger financial institutions entered into prior to required central clearing typically contain provisions whereby the collateral posting thresholds under the agreements adjust based on the credit ratings of both counterparties. If the credit rating of FHN and/or First Horizon Bank is lowered, FHN could be required to post additional collateral with the counterparties. Conversely, if the credit rating of FHN and/or First Horizon Bank is increased, FHN could have collateral released and be required to post less collateral in the future. Also, if a counterparty’s credit ratings were to decrease, FHN and/or First Horizon Bank could require the posting of additional collateral; whereas if a counterparty’s credit ratings were to increase, the counterparty could require the release of excess collateral. Collateral for these arrangements is adjusted daily based on changes in the net fair value position with each counterparty.

The net fair value, determined by individual counterparty, of all derivative instruments with adjustable collateral

posting thresholds was $7 million of assets and $201 million of liabilities on March 31, 2023, and $5 million of assets and $268 million of liabilities on December 31, 2022. As of March 31, 2023 and December 31, 2022, FHN had received collateral of $94 million and $106 million and posted collateral of $94 million and $61 million, respectively, in the normal course of business related to these agreements.

Certain agreements entered into prior to required central clearing also contain accelerated termination provisions, inclusive of the right of offset, if a counterparty’s credit rating falls below a specified level. If a counterparty’s debt rating (including FHN’s and First Horizon Bank’s) were to fall below these minimums, these provisions would be triggered, and the counterparties could terminate the agreements and require immediate settlement of all derivative contracts under the agreements. The net fair value, determined by individual counterparty, of all interest rate derivative instruments with credit-risk-related contingent accelerated termination provisions was $476 million of assets and $201 million of liabilities on March 31, 2023, and $378 million of assets and $268 million of liabilities on December 31, 2022. As of March 31, 2023 and December 31, 2022, FHN had received collateral of $574 million and $479 million and posted collateral of $94 million and $61 million, respectively, in the normal course of business related to these contracts.

FHNF buys and sells various types of securities for its clients. When these securities settle on a delayed basis, they are considered forward contracts, and are generally not subject to master netting agreements. For futures and options, FHN transacts through a third party, and the transactions are subject to margin and collateral maintenance requirements. In the event of default, open positions can be offset along with the associated collateral.

For this disclosure, FHN considers the impact of master netting and other similar agreements which allow FHN to settle all contracts with a single counterparty on a net basis and to offset the net derivative asset or liability position with the related securities and cash collateral. The application of the collateral cannot reduce the net derivative asset or liability position below zero, and therefore any excess collateral is not reflected in the following tables.

The following table provides details of derivative assets and collateral received as presented on the Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022:


DERIVATIVE ASSETS & COLLATERAL RECEIVED
							Gross amounts not offset in the Balance Sheets
(Dollars in millions)	Gross amounts of recognized assets		Gross amounts offset in the Balance Sheets		Net amounts of assets presented in the Balance Sheets (a)		Derivative liabilities available for offset		Collateral received		Net amount
Derivative assets:
March 31, 2023
Interest rate derivative contracts	$	535	$	—	$	535	$	(45)	$	(481)	$	9
Forward contracts	11		—		11		(7)		(2)		2
	$	546	$	—	$	546	$	(52)	$	(483)	$	11

December 31, 2022
Interest rate derivative contracts	$	449	$	—	$	449	$	(58)	$	(378)	$	13
Forward contracts	9		—		9		(6)		(2)		1
	$	458	$	—	$	458	$	(64)	$	(380)	$	14

(a)Included in other assets on the Consolidated Balance Sheets. As of March 31, 2023 and December 31, 2022, $2 million and $2 million, respectively, of derivative assets have been excluded from these tables because they are generally not subject to master netting or similar agreements.

The following table provides details of derivative liabilities and collateral pledged as presented on the Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022:


DERIVATIVE LIABILITIES & COLLATERAL PLEDGED
							Gross amounts not offset in the Balance Sheets
(Dollars in millions)	Gross amounts of recognized liabilities		Gross amounts offset in the Balance Sheets		Net amounts of liabilities presented in the Balance Sheets (a)		Derivative assets available for offset		Collateral pledged		Net amount
Derivative liabilities:
March 31, 2023
Interest rate derivative contracts	$	687	$	—	$	687	$	(45)	$	(194)	$	448
Forward contracts	11		—		11		(7)		(3)		1
	$	698	$	—	$	698	$	(52)	$	(197)	$	449

December 31, 2022
Interest rate derivative contracts	$	921	$	—	$	921	$	(58)	$	(175)	$	688
Forward contracts	8		—		8		(6)		(1)		1
	$	929	$	—	$	929	$	(64)	$	(176)	$	689

(a)Included in other liabilities on the Consolidated Balance Sheets. As of March 31, 2023 and December 31, 2022, $24 million and $29 million, respectively, of derivative liabilities (primarily Visa-related derivatives) have been excluded from these tables because they are generally not subject to master netting or similar agreements.