FIRST HORIZON CORP

FHN’s future results could be affected both positively and negatively by several known trends. Key among those are changes in the U.S. and global economy and outlook, government actions affecting interest rates, and government actions and proposals which could have positive or negative impacts on the economy at large or on certain businesses, industries, or sectors. Additional risks relate to political uncertainty, changes in federal

policies (including those publicly discussed, formally proposed, or recently implemented) and the potential impacts of those changes on our businesses and clients, and whether FHN’s strategic initiatives will succeed.

In addition to trends and events noted elsewhere in this MD&A, FHN believes the following trends and events are noteworthy at this time.

Inflation, Recession, and Federal Reserve Policy

Economic Overview

The post-COVID economy in the U.S. has been marked by: strong inflation, which began in 2021, peaked in 2022, and abated, though not fully, in 2023; the Federal Reserve implementing a "tightening" policy in 2022 to contain inflation by rapidly increasing short-term interest rates and ending asset purchases; low unemployment rates; moderate economic growth; and a profoundly inverted yield curve in 2022 and 2023. Key aspects were:

•Although the U.S. economy flirted with recession in 2022, it did not officially enter one. In 2023 recession expectations moderated significantly. Early in 2024, recession expectations for the rest of this year generally are low.

•The rise in short-term interest rates by the Federal Reserve in 2022 was both rapid and substantial, taking the overnight Fed Funds rate from 0.20% in March 2022 to 4.65% a year later. Hikes after that were much more modest and infrequent.

•In response to 2022's extremely rapid and vigorous tightening of monetary policy, the inflation rate in the U.S. now is well below 2022's levels. However, many measures of inflation remain higher than the Federal Reserve's stated long-term goal of 2%.

•Early in 2024 the Federal Reserve has signaled that hikes have ended and that a short term rate cut might become appropriate. No policy or timing commitments have been made. Future actions continue to depend upon future data. Some concern remains that recent

inflation data, which has been good, may prove to be transitory.

•Monetary tightening often creates yield curve inversion for a time. In the current cycle, traditional inversion (when ten-year treasury rates are below two-year rates) has been both very deep and unusually sustained, with the current inversion having begun in the summer of 2022.

•Many factors likely contributed to the current sustained inversion. The immediate cause, of course, was that demand for long-term treasury debt remained high, depressing yields, even though short yields were higher. FHN believes that a significant factor behind that demand preference in 2023 was continuing market expectations that the Federal Reserve would start to reduce short-term rates "soon" in order to avoid or mitigate a recession. Early in 2024, Federal Reserve communications suggest that no rate-cut action is likely "soon".

•A short-term rate cut by the Federal Reserve should lessen inversion, but only if long-term rates do not likewise drop.

Key events and circumstances are noted in the following discussions.

Federal Reserve and Rates

The Federal Reserve raised short-term rates several times in 2022 and in the first part of 2023. All but one of the raises in 2022 were 75 and 50 basis points each—

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aggressive by historical standards—while the 2023 raises were the more-typical 25 basis points each. The Federal Reserve has expressed its intent to bring inflation under control even at the risk of creating or deepening an economic recession. The Federal Reserve has indicated that future decisions will be heavily impacted by economic data, especially inflation-rate and -trend data, available at each decision point. Most recently the Federal Reserve has indicated, based on late-2023 data, an expectation that its next action, at an unspecified future point, will be a rate cut.

FHN cannot predict exactly when or how much short-term rates will be changed, how market-driven long-term rates will behave, nor how those actions may affect financial markets, during 2024.

Yield Curve

Unusual yield curve effects, including inversion, are common when monetary policy changes. A traditional measure of inversion occurs when the two-year U.S. Treasury rate is higher than the ten-year rate. Traditional inversion has been sustained continuously since the summer of 2022, an unusually long period. The degree of inversion has varied during that period, but generally has been much deeper than is typical. Sustained traditional yield curve inversion is viewed, with statistical support, as a harbinger of economic recession, but recession has not yet occurred and the U.S. economy currently does not appear close to entering one.

The most recent period with deep and longer-lasting inversion was over 40 years ago. That 4-5 year period was marked by stagflation (low economic growth coupled with high inflation), followed by extremely robust interest rate hikes and a severe recession.

Yield curve flattening and inversion generally reduces the profit FHN can make from lending by compressing FHN's net interest margin, and also generally reduces FHN's revenues from bond trading. These impacts have occurred and are continuing during the current inversion. Refer to Interest Rate & Yield Curve Risks, located in Item 1A. Risk Factors beginning on page 44, for a discussion of the risks to FHN associated with flattening and inversion.

Recession

The U.S. economy contracted (experienced negative growth) during the first two quarters of 2022, in both cases modestly. Although two consecutive quarters of contraction often coincides with recession, in 2022 it did not. The economy expanded in each quarter since then.

Recession expectations in the U.S. were high in 2022 and first quarter 2023. They moderated significantly after that. Current recession expectations generally are low.

Banking Crisis

In March 2023, two large regional U.S. banks failed after sudden large deposit outflows, and a major Swiss bank was acquired by another bank at the behest of regulators. In the aftermath of the two U.S. failures, bank investors and clients across the U.S. became more focused on deposit mix, funding risk management, and other safety-soundness concerns. The market values of virtually all U.S. bank stocks fell quickly and strongly in March, with a few falling about 90%.

Following these failures, the media published stories about actual and possible bank runs by depositors. Most U.S. banks saw net outflows of deposits in 2022 and early 2023 as the impacts of COVID-19 crisis programs faded and rates available from non-bank-account investments improved. According to Federal Reserve data, starting in mid-March, the two failures triggered an abrupt and substantial net deposit outflow from all but the largest U.S. banks. The March crisis shock was short-lived, however. During the final week of March both large and small U.S. banks collectively experienced net inflows of deposits, roughly mirroring the first week of March, before the crisis emerged.

The two U.S. bank failures resulted in Congressional calls for higher regulation of mid-sized regional banks, especially for those with $100 billion or more of assets.

In early May a third large regional U.S. bank failed after experiencing very large deposit outflows in March. Although this failure was widely anticipated, volatility in regional bank stocks reappeared in May. By June bank-stock volatility had abated again, but with regional bank prices well below pre-crisis levels.

The three failed U.S. banks had a few characteristics that FHN believes were significant negative factors contributing to loss of confidence by depositors, in addition to having an unusual customer mix: well-above-median levels of deposits not covered by FDIC insurance; significant portions of the 2020-21 pandemic deposit inflows invested in longer-term fixed-rate debt securities; and very high (in relation to regulatory capital) market value losses on those investments when rates rose in 2022 and early 2023. These factors made those banks unusually susceptible to a cascade of negative effects when deposit levels diminished, for the entire industry, starting in 2022 as customers sought better returns in the rising rate environment.

Market Volatility & Valuations

As a result of the prospects for recession, coupled with the uncertainties associated with war in eastern Europe, financial markets world-wide were volatile during much of 2022. Volatility overall has moderated somewhat in 2023, but volatile episodes have continued. War in the Middle East that started in October 2023 had a much more muted financial impact than was true in 2022.

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Financial asset values broadly fell in 2022, especially during the second and third quarters. By mid-year 2023, broad stock indices largely had recovered from 2022's low points, but longer-term fixed-rate debt investments remained well below previous values. By year-end 2023, stock values in most (but not all) sectors had recouped much of their earlier losses, and debt investment values generally improved somewhat from their lows when long-term rates fell in anticipation of possible short-term rate cuts in 2024 by the Federal Reserve.

Impacts on FHN

In 2022, FHN benefited significantly from rising rates as the rise in lending rates outpaced the rise in deposit and other funding rates. In the first quarter of 2023, that outpacing ended, and FHN's net interest margin started to compress. FHN was able to reverse the compression during the year fueled in part by using increased deposits and capital to reduce borrowings. Going forward, although net interest margin levels may improve modestly while short term rates remain steady, margins are not likely to improve appreciably until the yield curve inversion mentioned above has ended and the curve takes at least a moderately steep slope.

In 2022 and early 2023, FHN experienced a normalization of deposit levels since first quarter 2020 as it allowed surge deposits resulting from COVID-driven stimulus programs to move off its balance sheet. Net deposit outflows ranged from roughly $2.0 to $4.0 billion in each of the last three quarters of 2022, and fell again by roughly $2.5 billion in first quarter 2023. That outflow trend ended in second quarter as FHN had net deposit inflows of $4.0 billion. For the year 2023, net deposits

increased over $2 billion. However, FHN increased deposit rates appreciably in 2023, particularly in May and June.

The May and June 2023 deposit inflows mainly consisted of ordinary accounts with "promo" rates, and of certificates of deposit, or CDs, with very attractive fixed rates. The promo rates ended late in 2023, and a large group of those CDs matured during that time. A challenge for FHN is to retain as many of those deposit dollars, and depositor customers, as is reasonably practical while moderating the rates FHN pays.

In addition, some of FHN's businesses have been negatively impacted by rising rates. Rate increases have pushed home mortgage rates in the U.S. much higher than in early 2022, reducing demand. FHN's direct mortgage lending and lending to mortgage companies saw business decline significantly in 2022 and 2023. Moreover, FHN's revenues from bond trading and related activities fell significantly in 2022 and 2023 due to rising rates coupled with elevated market volatility.

A recession, if one were to occur, likely would have a negative impact on FHN's businesses overall. Demand for loans likely would fall, loan losses and provision expense likely would rise, many commercial activities that generate fee income likely would decline, and competition for clients likely would sharpen. FHN already has experienced some of these impacts. The deeper or longer a recession lasts, the more significant these negative impacts are likely to be for FHN. As mentioned above, recessionary expectations have abated substantially since early 2023. However, just as expectations in early 2023 proved to be wrong, current expectations may be just as incorrect.

Other Regulatory Proposals

In 2023 the Board of Governors of the Federal Reserve and other regulators proposed regulatory changes that would, if implemented, significantly increase regulatory constraints and costs on all U.S. banks with assets over $100 billion. A few new requirements would apply to banks, like FHN, with assets over $50 billion, but by far the main impacts would fall on banks greater than $100 billion in assets.

The proposals touch upon many regulatory requirements, including debt and equity capital requirements, credit risk standards, asset risk-weighting, and resolution planning. The increased requirements also would entail additional compliance costs.

The triggering of significant cost increases based on a single threshold financial measure—$100 billion in assets—has been in place for many years and has impacted the U.S. banking industry. Compliance restrictions and costs increase as the threshold is approached but a step-up

pattern remains. Banks near the threshold may be likely to slow or even halt asset growth, at least for a period, and start to implement the higher-level compliance systems. Banks modestly over the threshold, in contrast, may be likely to expand their asset base as quickly as possible to generate additional revenues to cover those costs. Those effects have added to the incentives for banks to consolidate, and the proposed new rules are likely to enhance that.

It appears likely that, if adopted as proposed, significant parts of the proposals will be challenged in court as being inconsistent with legislation enacted by Congress in 2018. Such a challenge would be technical and complex, and likely would take many years to resolve. Moreover, even if a challenge of that sort were successful, many parts of the proposals likely would remain intact and others might be modified without being rescinded.

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Greenhouse Gas (GHG) Reporting Regimes

In October 2023 the state of California enacted two laws which, taken together, will require most larger companies doing business in California to report annually their greenhouse gas ("GHG") emissions, with an external assurance requirement, and to report biennially their climate-related financial risks and risk-mitigation measures. The U.S. Securities and Exchange Commission ("SEC") has proposed, but not yet adopted, rules that would require all U.S. companies with publicly-traded securities to report annually their GHG emissions. The California laws include multi-year phase in periods and encompass Scope 1, Scope 2, and Scope 3 GHG emissions. The SEC proposal has Scope 1 and 2 reporting requirements, along with Scope 3 requirements in certain situations. The California governor stated in 2023 that the new laws are likely to be subjected to technical amendments in the next year or so. The SEC proposal is not final and could change, perhaps substantially, when adopted.

Three GHG Scopes

Scope 1 GHG emissions are those from a source the company owns or controls directly, such as a manufacturing plant. Scope 2 emissions are indirect emissions from company activities, such as from power consumed by company operations. Scope 1 and 2 emissions generally can be measured or estimated using information a company normally can obtain without significant external inquiry.

Scope 3 GHG emissions are those from sources and activities that a company neither owns nor controls. Scope 3 emissions are from a wide range of sources that touch upon a company, such as: vendors; employees (commuting, business travel, etc.); and customers. Scope 3 information generally is unknown to a company without significant external inquiry and/or estimation.

Potential Business Impacts

Direct compliance costs will include creating systems to measure or estimate and capture relevant data, staffing, and engagement of vendors, including a firm to provide required assurances (somewhat analogous to a financial statement auditor).

Potentially of more significance: California may require inquiry of customers rather than merely estimation about them. If FHN is allowed merely to estimate emissions from customers, that process may be costly but would not interfere with our business relationships. If, however, FHN is required to support Scope 3 reporting by obtaining GHG-related information from customers, including customers that are not public companies and that do no business in California, then the California disclosure laws could interfere with FHN's business. In that case, effectively FHN would be required to impose costs and/or inconveniences on its customers. Other banks in FHN's markets, particularly those that are private and not doing business in California, could provide financial services without those requirements, putting FHN at a competitive disadvantage.

Potential & Actual Legal Challenges

The application of the California laws to companies outside of California has been challenged in court, and other challenges may be brought. Challenges from outside the state have or may assert that the laws: unconstitutionally burden interstate commerce, unconstitutionally compel speech, or possibly violate another constitutional protection or limitation. Current and potential future challenges could take many years to resolve. A key practical question will be whether the courts impose a legal stay (a moratorium) on these laws while challenges are pending.

Assuming the SEC adopts final regulations similar to those proposed, it appears very likely that legal challenges will be made based mainly on the fact that the SEC lacks explicit Congressional authorization to create a regulatory reporting regime pertaining to GHG emissions. As with the California laws, a key question will be whether the courts impose a stay on the rules while challenges are pending.

Assuming the SEC adopts final regulations similar to those proposed, and further assuming that any legal challenge leaves those rules entirely or largely intact, the California laws might be challenged by public companies as having been pre-empted by the SEC rules.

Coastal Market Growth and Rising Costs

FHN's principal markets are in the southern and southeastern United States, including most of the major gulf coast markets and several markets on the southern Atlantic seacoast. Many of FHN's markets have experienced significant population growth over at least the past twenty years, outpacing the growth rate for the U.S. as a whole. That population growth generally has been accompanied by economic growth.

Many of FHN's fastest growing markets, including most significantly those in Florida, can be impacted significantly by hurricanes and other severe coastal weather events. As those markets grow, FHN's economic commitment to them grows, as does FHN's financial exposure to those events.

In 2023 and this year it has been widely reported that the economic costs of hurricane events in the U.S. gulf and southern Atlantic coastal areas have been rising

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significantly. FHN believes that rising costs are directly related to growth in those areas.

For example, much of the growth in Florida has been along the coast moving out from older cities. A gulf coast hurricane 50 or 60 years ago had a fair chance of making landfall in a relatively unpopulated area. Now, the chances of directly hitting a population center are much higher, the average population in that center is much higher, and the average value per building is much higher.

The reported significant increase in casualty risks and costs is being reflected in property insurance practices which currently are in significant flux. The insurance industry is being forced to revise its risk assessment and premium pricing practices in coastal areas as loss experience has deviated from earlier predictions, sometimes badly. In Florida, for example, some smaller carriers have failed, some larger carriers have left markets, and remaining carriers have significantly increased the premiums of hurricane-related insurance, narrowed coverage, or both.

Coastal states such as Florida and Louisiana have created last-resort insurance pools for residents who cannot

obtain or afford private property insurance. However, as the costs borne by those pools increase, either the premiums will have to rise or general taxation will have to cover the difference. In addition, those programs generally do not help business clients.

State and local building and water-control codes are being revised, but often unevenly and often not retroactive to pre-existing structures and developments. The current transition period could be lengthy.

The availability, reliability, and cost of adequate property insurance is a significant concern for FHN as well as FHN's clients in affected markets. Instability in property insurance has made, and continues to make, FHN's business decisions more difficult. That instability increases FHN's risks of loan loss and business downturn.

More fundamentally, elevated insurance and casualty costs blunt a key factor driving growth in many of these high-growth markets: lower costs of living. If market growth slows, FHN's business will be impacted.