Fair Value Of Assets And Liabilities

9 Months Ended

Sep. 30, 2017

Fair Value Disclosures [Abstract]

Fair Value Of Assets And Liabilities

Fair Value of Assets & Liabilities

FHN groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. This hierarchy requires FHN to maximize the use of observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Each fair value measurement is placed into the proper level based on the lowest level of significant input. These levels are:

• Level 1—Valuation is based upon quoted prices for identical instruments traded in active markets.

• Level 2—Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

• Level 3—Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models, and similar techniques.

Transfers between fair value levels are recognized at the end of the fiscal quarter in which the associated change in inputs occurs.

Recurring Fair Value Measurements

The following table presents the balance of assets and liabilities measured at fair value on a recurring basis as of September 30, 2017:

	September 30, 2017
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Trading securities—fixed income:
U.S. treasuries	$	—	$	157,483	$	—	$	157,483
Government agency issued MBS	—		155,260		—		155,260
Government agency issued CMO	—		244,321		—		244,321
Other U.S. government agencies	—		186,573		—		186,573
States and municipalities	—		61,290		—		61,290
Corporate and other debt	—		655,976		5		655,981
Equity, mutual funds, and other	—		6,194		—		6,194
Total trading securities—fixed income	—		1,467,097		5		1,467,102
Trading securities—mortgage banking	—		—		2,300		2,300
Loans held-for-sale	—		1,727		20,081		21,808
Securities available-for-sale:
U.S. treasuries	—		100		—		100
Government agency issued MBS	—		2,087,505		—		2,087,505
Government agency issued CMO	—		1,685,995		—		1,685,995
Interest-only strips	—		—		3,123		3,123
Equity, mutual funds, and other	24,756		—		—		24,756
Total securities available-for-sale	24,756		3,773,600		3,123		3,801,479
Other assets:
Deferred compensation assets	34,951		—		—		34,951
Derivatives, forwards and futures	10,003		—		—		10,003
Derivatives, interest rate contracts	—		70,971		—		70,971
Derivatives, other	—		2		—		2
Total other assets	44,954		70,973		—		115,927
Total assets	$	69,710	$	5,313,397	$	25,509	$	5,408,616
Trading liabilities—fixed income:
U.S. treasuries	$	—	$	424,461	$	—	$	424,461
Government agency issued CMO	—		1,372		—		1,372
Other U.S. government agencies	—		998		—		998
Corporate and other debt	—		152,197		—		152,197
Total trading liabilities—fixed income	—		579,028		—		579,028
Other liabilities:
Derivatives, forwards and futures	7,627		—		—		7,627
Derivatives, interest rate contracts	—		69,988		—		69,988
Derivatives, other	—		1		5,530		5,531
Total other liabilities	7,627		69,989		5,530		83,146
Total liabilities	$	7,627	$	649,017	$	5,530	$	662,174

The following table presents the balance of assets and liabilities measured at fair value on a recurring basis as of December 31, 2016:

	December 31, 2016
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Trading securities—fixed income:
U.S. treasuries	$	—	$	146,988	$	—	$	146,988
Government agency issued MBS	—		256,611		—		256,611
Government agency issued CMO	—		150,058		—		150,058
Other U.S. government agencies	—		52,314		—		52,314
States and municipalities	—		60,351		—		60,351
Corporate and other debt	—		227,934		5		227,939
Equity, mutual funds, and other	—		242		—		242
Total trading securities—fixed income	—		894,498		5		894,503
Trading securities—mortgage banking	—		—		2,568		2,568
Loans held-for-sale	—		2,345		21,924		24,269
Securities available-for-sale:
U.S. treasuries	—		100		—		100
Government agency issued MBS	—		2,208,687		—		2,208,687
Government agency issued CMO	—		1,547,958		—		1,547,958
Equity, mutual funds, and other	25,249		—		—		25,249
Total securities available-for-sale	25,249		3,756,745		—		3,781,994
Other assets:
Mortgage servicing rights	—		—		985		985
Deferred compensation assets	32,840		—		—		32,840
Derivatives, forwards and futures	33,587		—		—		33,587
Derivatives, interest rate contracts	—		88,025		—		88,025
Derivatives, other	—		42		—		42
Total other assets	66,427		88,067		985		155,479
Total assets	$	91,676	$	4,741,655	$	25,482	$	4,858,813
Trading liabilities—fixed income:
U.S. treasuries	$	—	$	381,229	$	—	$	381,229
Other U.S. government agencies	—		844		—		844
Corporate and other debt	—		179,775		—		179,775
Total trading liabilities—fixed income	—		561,848		—		561,848
Other liabilities:
Derivatives, forwards and futures	33,274		—		—		33,274
Derivatives, interest rate contracts	—		96,371		—		96,371
Derivatives, other	—		7		6,245		6,252
Total other liabilities	33,274		96,378		6,245		135,897
Total liabilities	$	33,274	$	658,226	$	6,245	$	697,745

Changes in Recurring Level 3 Fair Value Measurements

The changes in Level 3 assets and liabilities measured at fair value for the three months ended September 30, 2017 and 2016, on a recurring basis are summarized as follows:

	Three Months Ended September 30, 2017
(Dollars in thousands)	Trading securities				Interest- only strips- AFS				Loans held- for-sale				Net  derivative liabilities
Balance on July 1, 2017	$	2,464			$	1,163			$	20,587			$	(5,700	)
Total net gains/(losses) included in:
Net income	92				(160		)		390				(129		)
Purchases	—				—				43				—
Settlements	(251		)		—				(939		)		299
Net transfers into/(out of) Level 3	—				2,120			(b)	—			(d)	—
Balance on September 30, 2017	$	2,305			$	3,123			$	20,081			$	(5,530	)
Net unrealized gains/(losses) included in net income	$	62		(a)	$	(72	)	(c)	$	390		(a)	$	(129	)	(e)

	Three Months Ended September 30, 2016
(Dollars in thousands)	Trading securities				Loans  held-for-sale				Securities available- for-sale			Mortgage servicing rights, net			Net  derivative liabilities
Balance on July 1, 2016	$	2,826			$	25,738			$	1,500		$	1,406		$	(6,835	)
Total net gains/(losses) included in:
Net income	304				1,604				—			—			(4		)
Purchases	—				198				—			—			—
Settlements	(346		)		(2,146		)		(1,500		)	(160		)	299
Net transfers into/(out of) Level 3	—				(2,858		)	(d)	—			—			—
Balance on September 30, 2016	$	2,784			$	22,536			$	—		$	1,246		$	(6,540	)
Net unrealized gains/(losses) included in net income	$	244		(a)	$	1,604		(a)	$	—		$	—		$	(4	)	(e)

(a) Primarily included in mortgage banking income on the Consolidated Condensed Statements of Income.

(b) Transfers into interest-only strips - AFS level 3 measured on a recurring basis reflect movements from loans held-for-sale (Level 2 nonrecurring).

(c) Primarily included in fixed income on the Consolidated Condensed Statements of Income.

(d) Transfers out of loans held-for-sale level 3 measured on a recurring basis generally reflect movements into OREO (level 3 nonrecurring).

(e) Included in Other expense.

Changes in Recurring Level 3 Fair Value Measurements

The changes in Level 3 assets and liabilities measured at fair value for the nine months ended September 30, 2017 and 2016, on a recurring basis are summarized as follows:

	Nine Months Ended September 30, 2017
(Dollars in thousands)	Trading securities				Interest-only strips- AFS				Loans held- for-sale				Net  derivative liabilities
Balance on January 1, 2017	$	2,573			$	—			$	21,924			$	(6,245	)
Total net gains/(losses) included in:
Net income	380				107				1,722				(179		)
Purchases	—				1,413				118				—
Sales	—				(3,291		)		—				—
Settlements	(648		)		—				(3,340		)		894
Net transfers into/(out of) Level 3	—				4,894			(b)	(343		)	(d)	—
Balance on September 30, 2017	$	2,305			$	3,123			$	20,081			$	(5,530	)
Net unrealized gains/(losses) included in net income	$	264		(a)	$	(122	)	(c)	$	1,722		(a)	$	(179	)	(e)

	Nine Months Ended September 30, 2016
(Dollars in thousands)	Trading securities				Loans  held-for-sale				Securities available- for-sale			Mortgage servicing rights, net			Net  derivative liabilities
Balance on January 1, 2016	$	4,377			$	27,418			$	1,500		$	1,841		$	(4,810	)
Total net gains/(losses) included in:
Net income	506				2,375				—			31			(2,627		)
Purchases	—				673				—			—			—
Sales	—				—				—			(205		)	—
Settlements	(2,099		)		(4,643		)		(1,500		)	(421		)	897
Net transfers into/(out of) Level 3	—				(3,287		)	(d)	—			—			—
Balance on September 30, 2016	$	2,784			$	22,536			$	—		$	1,246		$	(6,540	)
Net unrealized gains/(losses) included in net income	$	324		(a)	$	2,375		(a)	$	—		$	—		$	(2,627	)	(e)

(a) Primarily included in mortgage banking income on the Consolidated Condensed Statements of Income.

(b) Transfers into interest-only strips - AFS level 3 measured on a recurring basis reflect movements from loans held-for-sale (Level 2 nonrecurring).

(c) Primarily included in fixed income on the Consolidated Condensed Statements of Income.

(d) Transfers out of loans held-for-sale level 3 measured on a recurring basis generally reflect movements into OREO (level 3 nonrecurring).

(e) Included in Other expense.

Nonrecurring Fair Value Measurements

From time to time, FHN may be required to measure certain other financial assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or market (“LOCOM”) accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis which were still held on the balance sheet at September 30, 2017, and December 31, 2016, respectively, the following tables provide the level of valuation assumptions used to determine each adjustment and the related carrying value.

	Carrying value at September 30, 2017
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Loans held-for-sale—SBAs and USDA	$	—	$	244,089	$	1,484	$	245,573
Loans held-for-sale—first mortgages	—		—		611		611
Loans, net of unearned income (a)	—		—		23,210		23,210
OREO (b)	—		—		7,877		7,877
Other assets (c)	—		—		27,394		27,394

	Carrying value at December 31, 2016
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Loans held-for-sale—SBAs	$	—	$	4,286	$	—	$	4,286
Loans held-for-sale—first mortgages	—		—		638		638
Loans, net of unearned income (a)	—		—		31,070		31,070
OREO (b)	—		—		11,235		11,235
Other assets (c)	—		—		29,609		29,609

(a) Represents carrying value of loans for which adjustments are required to be based on the appraised value of the collateral less estimated costs to sell.

(b) Represents the fair value of foreclosed properties that were measured subsequent to their initial classification as OREO. Balance excludes OREO related to government insured mortgages.

(c) Represents tax credit investments accounted for under the equity method.

For assets measured on a nonrecurring basis which were still held on the consolidated balance sheet at period end, the following table provides information about the fair value adjustments recorded during the three and nine months ended September 30, 2017 and 2016:

	Net gains/(losses) Three Months Ended September 30						Net gains/(losses) Nine months ended September 30
(Dollars in thousands)	2017			2016			2017			2016
Loans held-for-sale—SBAs and USDA	$	(86	)	$	—		$	(1,259	)	$	—
Loans held-for-sale—first mortgages	6			10			22			17
Loans, net of unearned income (a)	(2,388		)	461			(1,456		)	(3,249		)
OREO (b)	(41		)	(711		)	(662		)	(1,561		)
Other assets (c)	(762		)	(788		)	(2,646		)	(2,325		)
	$	(3,271	)	$	(1,028	)	$	(6,001	)	$	(7,118	)

(a) Write-downs on these loans are recognized as part of provision for loan losses.

(b) Represents losses of foreclosed properties that were measured subsequent to their initial classification as OREO. Balance excludes OREO related to government insured mortgages.

(c) Represents tax credit investments accounted for under the equity method.

In third quarter 2017, FHN’s Corporate segment recognized $2.0 million of impairments on long-lived technology assets associated with an expansion of processing capacity that will be required upon completion of the merger with CBF. The fair values of the assets impaired were determined using a discounted cash flow approach which reflected short estimated remaining lives and considered estimated salvage values. The measurement methodologies are considered Level 3 valuations. In first quarter 2016, FHN’s Regional Banking segment recognized $3.7 million of impairments on long-lived assets associated with efforts to more efficiently utilize its bank branch locations. The affected branch locations represented a mixture of owned and leased sites. The fair values of owned sites were determined using estimated sales prices from appraisals less estimated costs to sell. The fair values of leased sites were determined using a discounted cash flow approach, based on the revised estimated useful lives of the related assets. Both measurement methodologies are considered Level 3 valuations.

Level 3 Measurements

The following tables provide information regarding the unobservable inputs utilized in determining the fair value of level 3 recurring and non-recurring measurements as of September 30, 2017 and December 31, 2016:

(Dollars in thousands)
Level 3 Class	Fair Value at September 30, 2017		Valuation Techniques	Unobservable Input	Values Utilized
Available-for-sale- securities SBA-interest only strips	$	3,123	Discounted cash flow	Constant prepayment rate	9% - 10%
				Bond equivalent yield	14%- 19%
Loans held-for-sale - residential real estate	20,692		Discounted cash flow	Prepayment speeds - First mortgage	2% - 12%
				Prepayment speeds - HELOC	3% - 12%
				Foreclosure losses	50% - 70%
				Loss severity trends - First mortgage	5% - 50% of UPB
				Loss severity trends - HELOC	15% - 100% of UPB
Loans held-for-sale- unguaranteed interest in SBA loans	1,484		Discounted cash flow	Constant prepayment rate	8% - 12%
				Bond equivalent yield	9% - 10%
Derivative liabilities, other	5,530		Discounted cash flow	Visa covered litigation resolution amount	$4.4 billion - $5.2 billion
				Probability of resolution scenarios	10% - 30%
				Time until resolution	18 - 48 months
Loans, net of unearned income (a)	23,210		Appraisals from comparable properties	Marketability adjustments for specific properties	0% - 10% of appraisal
			Other collateral valuations	Borrowing base certificates adjustment	20% - 50% of gross value
				Financial Statements/Auction values adjustment	0% - 25% of reported value
OREO (b)	7,877		Appraisals from comparable properties	Adjustment for value changes since appraisal	0% - 10% of appraisal
Other assets (c)	27,394		Discounted cash flow	Adjustments to current sales yields for specific properties	0% - 15% adjustment to yield
			Appraisals from comparable properties	Marketability adjustments for specific properties	0% - 25% of appraisal

(a) Represents carrying value of loans for which adjustments are required to be based on the appraised value of the collateral less estimated costs to sell. Write-downs on these loans are recognized as part of provision for loan losses.

(b) Represents the fair value of foreclosed properties that were measured subsequent to their initial classification as OREO. Balance excludes OREO related to government insured mortgages.

(c) Represents tax credit investments accounted for under the equity method.

(Dollars in thousands)
Level 3 Class	Fair Value at December 31, 2016		Valuation Techniques	Unobservable Input	Values Utilized
Loans held-for-sale - residential real estate	$	22,562	Discounted cash flow	Prepayment speeds - First mortgage	2% - 13%
				Prepayment speeds - HELOC	3% - 15%
				Foreclosure Losses	50% - 70%
				Loss severity trends - First mortgage	5% - 50% of UPB
				Loss severity trends - HELOC	15% - 100% of UPB
Derivative liabilities, other	6,245		Discounted cash flow	Visa covered litigation resolution amount	$4.4 billion - $5.2 billion
				Probability of resolution scenarios	10% - 30%
				Time until resolution	24 - 54 months
Loans, net of unearned income (a)	31,070		Appraisals from comparable properties	Marketability adjustments for specific properties	0% - 10% of appraisal
			Other collateral valuations	Borrowing base certificates adjustment	20% - 50% of gross value
				Financial Statements/Auction values adjustment	0% - 25% of reported value
OREO (b)	11,235		Appraisals from comparable properties	Adjustment for value changes since appraisal	0% - 10% of appraisal
Other assets (c)	29,609		Discounted cash flow	Adjustments to current sales yields for specific properties	0% - 15% adjustment to yield
			Appraisals from comparable properties	Marketability adjustments for specific properties	0% - 25% of appraisal

(a) Represents carrying value of loans for which adjustments are required to be based on the appraised value of the collateral less estimated costs to sell. Write-downs on these loans are recognized as part of provision for loan losses.

(b) Represents the fair value of foreclosed properties that were measured subsequent to their initial classification as OREO. Balance excludes OREO related to government insured mortgages.

(c) Represents tax credit investments accounted for under the equity method.

Securities AFS. Increases (decreases) in estimated prepayment rates and bond equivalent yields negatively (positively) affect the value of SBA interest only strips. Management additionally considers whether the loans underlying related SBA-interest only strips are delinquent, in default or prepaying, and adjusts the fair value down 20 - 100% depending on the length of time in default.

Loans held-for-sale. Foreclosure losses and prepayment rates are significant unobservable inputs used in the fair value measurement of FHN’s residential real estate loans held-for-sale. Loss severity trends are also assessed to evaluate the reasonableness of fair value estimates resulting from discounted cash flows methodologies as well as to estimate fair value for newly repurchased loans and loans that are near foreclosure. Significant increases (decreases) in any of these inputs in isolation would result in significantly lower (higher) fair value measurements. All observable and unobservable inputs are re-assessed quarterly. Fair value measurements are reviewed at least quarterly by FHN’s Corporate Accounting Department.

Increases (decreases) in estimated prepayment rates and bond equivalent yields negatively (positively) affect the value of unguaranteed interests in SBA loans. Unguaranteed interest in SBA loans held-for-sale are carried at less than the outstanding balance due to credit risk estimates. Credit risk adjustments may be reduced if prepayment is likely or as consistent payment history is realized. Management also considers other factors such as delinquency or default and adjusts the fair value accordingly.

Derivative liabilities. In conjunction with the sales of portions of its Visa Class B shares, FHN and the purchaser 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. FHN uses a discounted cash flow methodology in order to estimate the fair value of FHN’s derivative liabilities associated with its prior sales of Visa Class B shares. The methodology includes estimation of both the resolution amount for Visa’s Covered Litigation matters as well as the length of time until the resolution occurs. Significant increases (decreases) in either of these inputs in isolation would result in significantly higher (lower) fair value measurements for the derivative liabilities. Additionally, FHN performs a probability weighted multiple resolution scenario to calculate the estimated fair value of these derivative liabilities. Assignment of higher (lower) probabilities to the larger potential resolution scenarios would result in an increase (decrease) in the estimated fair value of the derivative liabilities. Since this estimation process requires application of judgment in developing significant unobservable inputs used to determine the possible outcomes and the probability weighting assigned to each scenario, these derivatives have been classified within Level 3 in fair value measurements disclosures. The valuation inputs and process are discussed with senior and executive management when significant events affecting the estimate of fair value occur. Inputs are compared to information obtained from the public issuances and filings of Visa, Inc. as well as public information released by other participants in the applicable litigation matters.

Loans, net of unearned income and Other Real Estate Owned. Collateral-dependent loans and OREO are primarily valued using appraisals based on sales of comparable properties in the same or similar markets. Multiple appraisal firms are utilized to ensure that estimated values are consistent between firms. This process occurs within FHN’s Credit Risk Management (commercial) and Default Servicing functions (primarily consumer). The Credit Risk Management Committee reviews dispositions and additions of OREO annually. Back testing is performed during the year through comparison to ultimate disposition values. Other collateral (receivables, inventory, equipment, etc.) is valued through borrowing base certificates, financial statements and/or auction valuations. These valuations are discounted based on the quality of reporting, knowledge of the marketability/collectability of the collateral and historical disposition rates.

Other assets – tax credit investments. The estimated fair value of tax credit investments accounted for under the equity method is generally determined in relation to the yield (i.e., future tax credits to be received) an acquirer of these investments would expect in relation to the yields experienced on current new issue and/or secondary market transactions. Thus, as tax credits are recognized, the future yield to a market participant is reduced, resulting in consistent impairment of the individual investments. Individual investments are reviewed for impairment quarterly, which may include the consideration of additional marketability discounts related to specific investments which typically includes consideration of the underlying property’s appraised value. Unusual valuation adjustments and the associated triggering events are discussed with senior and executive management when appropriate. A portfolio review is conducted annually, with the assistance of a third party, to assess the reasonableness of current valuations.

Fair Value Option

FHN has elected the fair value option on a prospective basis for almost all types of mortgage loans originated for sale purposes under the Financial Instruments Topic (“ASC 825”). FHN determined that the election reduces certain timing differences and better matches changes in the value of such loans with changes in the value of derivatives and forward delivery commitments used as economic hedges for these assets at the time of election.

Repurchased loans are recognized within loans held-for-sale at fair value at the time of repurchase, which includes consideration of the credit status of the loans and the estimated liquidation value. FHN has elected to continue recognition of these loans at fair value in periods subsequent to reacquisition. Due to the credit-distressed nature of the vast majority of repurchased loans and the related loss severities experienced upon repurchase, FHN believes that the fair value election provides a more timely recognition of changes in value for these loans that occur subsequent to repurchase. Absent the fair value election, these loans would be subject to valuation at the LOCOM value, which would prevent subsequent values from exceeding the initial fair value, determined at the time of repurchase, but would require recognition of subsequent declines in value. Thus, the fair value election provides for a more timely recognition of any potential future recoveries in asset values while not affecting the requirement to recognize subsequent declines in value.

The following tables reflect the differences between the fair value carrying amount of residential real estate loans held-for-sale measured at fair value in accordance with management’s election and the aggregate unpaid principal amount FHN is contractually entitled to receive at maturity.

	September 30, 2017
(Dollars in thousands)	Fair value carrying amount		Aggregate unpaid principal		Fair value carrying amount less aggregate unpaid principal
Residential real estate loans held-for-sale reported at fair value:
Total loans	$	21,808	$	30,686	$	(8,878	)
Nonaccrual loans	6,428		11,551		(5,123		)
Loans 90 days or more past due and still accruing	44		175		(131		)
	December 31, 2016
(Dollars in thousands)	Fair value carrying amount		Aggregate unpaid principal		Fair value carrying amount less aggregate unpaid principal
Residential real estate loans held-for-sale reported at fair value:
Total loans	$	24,269	$	35,262	$	(10,993	)
Nonaccrual loans	6,775		12,910		(6,135		)
Loans 90 days or more past due and still accruing	211		331		(120		)

Assets and liabilities accounted for under the fair value election are initially measured at fair value with subsequent changes in fair value recognized in earnings. Such changes in the fair value of assets and liabilities for which FHN elected the fair value option are included in current period earnings with classification in the income statement line item reflected in the following table:

	Three Months Ended September 30				Nine Months Ended September 30
(Dollars in thousands)	2017		2016		2017		2016
Changes in fair value included in net income:
Mortgage banking noninterest income
Loans held-for-sale	$	390	$	1,604	$	1,722	$	2,375

For the three months ended September 30, 2017, and 2016, the amounts for residential real estate loans held-for-sale include gains of $.1 million and $.5 million, respectively, in pretax earnings that are attributable to changes in instruments-specific credit risk. For the nine months ended September 30, 2017, and 2016, the amounts for residential real estate loans held-for-sale included gains of $.5 million and $.7 million, respectively, in pretax earnings that are attributable to changes in instrument-specific credit risk. The portion of the fair value adjustments related to credit risk was determined based on estimated default rates and estimated loss severities. Interest income on residential real estate loans held-for-sale measured at fair value is calculated based on the note rate of the loan and is recorded in the interest income section of the Consolidated Condensed Statements of Income as interest on loans held-for-sale.

FHN has elected to account for retained interest-only strips from guaranteed SBA loans recorded in available-for-sale securities at fair value through earnings. Since these securities are subject to the risk that prepayments may result in FHN not recovering all or a portion of its recorded investment, the fair value election results in a more timely recognition of the effects of estimated prepayments through earnings rather than being recognized through other comprehensive income with periodic review for other-than-temporary impairment. Gains or losses are recognized through fixed income revenues and are presented in the recurring measurements table.

Determination of Fair Value

In accordance with ASC 820-10-35, fair values are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following describes the assumptions and methodologies used to estimate the fair value of financial instruments recorded at fair value in the Consolidated Condensed Statements of Condition and for estimating the fair value of financial instruments for which fair value is disclosed under ASC 825-10-50.

Short-term financial assets. Federal funds sold, securities purchased under agreements to resell, and interest bearing deposits with other financial institutions and the Federal Reserve are carried at historical cost. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.

Trading securities and trading liabilities. Trading securities and trading liabilities are recognized at fair value through current earnings. Trading inventory held for broker-dealer operations is included in trading securities and trading liabilities. Broker-dealer long positions are valued at bid price in the bid-ask spread. Short positions are valued at the ask price. Inventory positions are valued using observable inputs including current market transactions, LIBOR and U.S. treasury curves, credit spreads, and consensus prepayment speeds. Trading loans are valued using observable inputs including current market transactions, swap rates, mortgage rates, and consensus prepayment speeds.

Trading securities also include retained interests in prior mortgage securitizations that qualify as financial assets, which include primarily principal-only strips. FHN uses inputs including yield curves, credit spreads, and prepayment speeds to determine the fair value of principal-only strips.

Securities available-for-sale. Securities available-for-sale includes the investment portfolio accounted for as available-for-sale under ASC 320-10-25, federal bank stock holdings, and short-term investments in mutual funds. Valuations of available-for-sale securities are performed using observable inputs obtained from market transactions in similar securities. Typical inputs include LIBOR and U.S. treasury curves, consensus prepayment estimates, and credit spreads. When available, broker quotes are used to support these valuations.

Investments in the stock of the Federal Reserve Bank and Federal Home Loan Banks are recognized at historical cost in the Consolidated Condensed Statements of Condition which is considered to approximate fair value. Short-term investments in mutual funds are measured at the funds’ reported closing net asset values. Investments in equity securities are valued using quoted market prices when available. Cost method investments are valued at historical cost less any recorded impairment due to the illiquid nature of these investments.

Interest only strips are valued at elected fair value based on an income approach using an internal valuation model. The internal valuation model includes assumptions regarding projections of future cash flows, prepayment rates, default rates and interest only strip terms. These securities bear the risk of loan prepayment or default that may result in the Company not recovering all or a portion of its recorded investment. When appropriate, valuations are adjusted for various factors including default or prepayment status of the underlying SBA loans. Because of the inherent uncertainty of valuation, those estimated values may be higher or lower than the values that would have been used had a ready market for the securities existed, and may change in the near term.

Securities held-to-maturity. Securities held-to-maturity reflects debt securities for which management has the positive intent and ability to hold to maturity. To the extent possible, valuations of held-to-maturity securities are performed using observable inputs obtained from market transactions in similar securities. Typical inputs include LIBOR and U.S. treasury curves and credit spreads. Debt securities with limited trading activity are valued using a discounted cash flow model that incorporates a combination of observable and unobservable inputs. Primary observable inputs include contractual cash flows, the treasury curve and credit spreads from similar instruments. Significant unobservable inputs include estimated credit spreads for individual issuers and instruments as well as prepayment speeds, as applicable.

Loans held-for-sale. Residential real estate loans held-for-sale are valued using current transaction prices and/or values on similar assets when available, including committed bids for specific loans or loan portfolios. Uncommitted bids may be adjusted based on other available market information. For all other loans FHN determines the fair value of residential real estate loans held-for-sale using a discounted cash flow model which incorporates both observable and unobservable inputs. Inputs include current mortgage rates for similar products, estimated prepayment rates, foreclosure losses, and various loan performance measures (delinquency, LTV, credit score). Adjustments for delinquency and other differences in loan characteristics are typically reflected in the model’s discount rates. Loss severity trends and the value of underlying collateral are also considered in assessing the appropriate fair value for severely delinquent loans and loans in foreclosure. The valuation of HELOCs also incorporates estimated cancellation rates for loans expected to become delinquent.

The Company utilizes quoted market prices of similar instruments or broker and dealer quotations to value the SBA and USDA guaranteed loans. The Company values SBA-unguaranteed interests in loans held-for-sale based on individual loan characteristics, such as industry type and pay history which generally follows an income approach. Furthermore, these valuations are adjusted for changes in prepayment estimates and are reduced due to restrictions on trading. The fair value of other non-residential real estate loans held-for-sale is approximated by their carrying values based on current transaction values.

Loans, net of unearned income. Loans, net of unearned income are recognized at the amount of funds advanced, less charge-offs and an estimation of credit risk represented by the allowance for loan losses. The fair value estimates for disclosure purposes differentiate loans based on their financial characteristics, such as product classification, vintage, loan category, pricing features, and remaining maturity.

The fair value of floating rate loans is estimated through comparison to recent market activity in loans of similar product types, with adjustments made for differences in loan characteristics. In situations where market pricing inputs are not available, fair value is considered to approximate book value due to the monthly repricing for commercial and consumer loans, with the exception of floating rate 1-4 family residential mortgage loans which reprice annually and will lag movements in market rates. The fair value for floating rate 1-4 family mortgage loans is calculated by discounting future cash flows to their present value. Future cash flows are discounted to their present value by using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same time period. Prepayment assumptions based on historical prepayment speeds and industry speeds for similar loans have been applied to the floating rate 1-4 family residential mortgage portfolio.

The fair value of fixed rate loans is estimated through comparison to recent market activity in loans of similar product types, with adjustments made for differences in loan characteristics. In situations where market pricing inputs are not available, fair value is estimated by discounting future cash flows to their present value. Future cash flows are discounted to their present value by using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same time period. Prepayment assumptions based on historical prepayment speeds and industry speeds for similar loans have been applied to the fixed rate mortgage and installment loan portfolios.

For all loan portfolio classes, adjustments are made to reflect liquidity or illiquidity of the market. Such adjustments reflect discounts that FHN believes are consistent with what a market participant would consider in determining fair value given current market conditions.

Individually impaired loans are measured using either a discounted cash flow methodology or the estimated fair value of the underlying collateral less costs to sell, if the loan is considered collateral-dependent. In accordance with accounting standards, the discounted cash flow analysis utilizes the loan’s effective interest rate for discounting expected cash flow amounts. Thus, this analysis is not considered a fair value measurement in accordance with ASC 820. However, the results of this methodology are considered to approximate fair value for the applicable loans. Expected cash flows are derived from internally-developed inputs primarily reflecting expected default rates on contractual cash flows. For loans measured using the estimated fair value of collateral less costs to sell, fair value is estimated using appraisals of the collateral. Collateral values are monitored and additional write-downs are recognized if it is determined that the estimated collateral values have declined further. Estimated costs to sell are based on current amounts of disposal costs for similar assets. Carrying value is considered to reflect fair value for these loans.

Derivative assets and liabilities. The fair value for forwards and futures contracts is based on current transactions involving identical securities. Futures contracts are exchange-traded and thus have no credit risk factor assigned as the risk of non-performance is limited to the clearinghouse used.

Valuations of other derivatives (primarily interest rate related swaps) are based on inputs observed in active markets for similar instruments. Typical inputs include the LIBOR curve, Overnight Indexed Swap (“OIS”) curve, option volatility, and option skew. In measuring the fair value of these derivative assets and liabilities, FHN has elected to consider credit risk based on the net exposure to individual counterparties. Credit risk is mitigated for these instruments through the use of mutual margining and master netting agreements as well as collateral posting requirements. For derivative contracts with daily cash margin requirements that are considered settlements, the daily margin amount is netted within derivative assets or liabilities. Any remaining credit risk related to interest rate derivatives is considered in determining fair value through evaluation of additional factors such as customer loan grades and debt ratings. Foreign currency related derivatives also utilize observable exchange rates in the determination of fair value. The determination of fair value for FHN’s derivative liabilities associated with its prior sales of Visa Class B shares are classified within Level 3 in the fair value measurements disclosure as previously discussed in the unobservable inputs discussion.

OREO. OREO primarily consists of properties that have been acquired in satisfaction of debt. These properties are carried at the lower of the outstanding loan amount or estimated fair value less estimated costs to sell the real estate. Estimated fair value is determined using appraised values with subsequent adjustments for deterioration in values that are not reflected in the most recent appraisal.

Nonearning assets. For disclosure purposes, nonearning financial assets include cash and due from banks, accrued interest receivable, and fixed income receivables. Due to the short-term nature of cash and due from banks, accrued interest receivable, and fixed income receivables, the fair value is approximated by the book value.

Other assets. For disclosure purposes, other assets consist of tax credit investments and deferred compensation assets that are considered financial assets. Tax credit investments accounted for under the equity method are written down to estimated fair value quarterly based on the estimated value of the associated tax credits which incorporates estimates of required yield for hypothetical investors. The fair value of all other tax credit investments is estimated using recent transaction information with adjustments for differences in individual investments. Deferred compensation assets are recognized at fair value, which is based on quoted prices in active markets.

Defined maturity deposits. The fair value of these deposits is estimated by discounting future cash flows to their present value. Future cash flows are discounted by using the current market rates of similar instruments applicable to the remaining maturity. For disclosure purposes, defined maturity deposits include all time deposits.

Undefined maturity deposits. In accordance with ASC 825, the fair value of these deposits is approximated by the book value. For the purpose of this disclosure, undefined maturity deposits include demand deposits, checking interest accounts, savings accounts, and money market accounts.

Short-term financial liabilities. The fair value of federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings are approximated by the book value. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.

Term borrowings. The fair value of term borrowings is based on quoted market prices or dealer quotes for the identical liability when traded as an asset. When pricing information for the identical liability is not available, relevant prices for similar debt instruments are used with adjustments being made to the prices obtained for differences in characteristics of the debt instruments. If no relevant pricing information is available, the fair value is approximated by the present value of the contractual cash flows discounted by the investor’s yield which considers FHN’s and FTBNA’s debt ratings. Secured borrowings also consider the values of the associated assets and whether overcollateralization exists.

Other noninterest-bearing liabilities. For disclosure purposes, other noninterest-bearing financial liabilities include accrued interest payable and fixed income payables. Due to the short-term nature of these liabilities, the book value is considered to approximate fair value.

Loan commitments. Fair values of these commitments are based on fees charged to enter into similar agreements taking into account the remaining terms of the agreements and the counterparties’ credit standing.

Other commitments. Fair values of these commitments are based on fees charged to enter into similar agreements.

The following fair value estimates are determined as of a specific point in time utilizing various assumptions and estimates. The use of assumptions and various valuation techniques, as well as the absence of secondary markets for certain financial instruments, reduces the comparability of fair value disclosures between financial institutions. Due to market illiquidity, the fair values for loans, net of unearned income, loans held-for-sale, and term borrowings as of September 30, 2017 and December 31, 2016, involve the use of significant internally-developed pricing assumptions for certain components of these line items. The assumptions and valuations utilized for this disclosure are considered to reflect inputs that market participants would use in transactions involving these instruments as of the measurement date. The valuations of legacy assets, particularly consumer loans within the non-strategic segment and TRUP loans, are influenced by changes in economic conditions since origination and risk perceptions of the financial sector. These considerations affect the estimate of a potential acquirer’s cost of capital and cash flow volatility assumptions from these assets and the resulting fair value measurements may depart significantly from FHN’s internal estimates of the intrinsic value of these assets.

Assets and liabilities that are not financial instruments have not been included in the following table such as the value of long-term relationships with deposit and trust customers, premises and equipment, goodwill and other intangibles, deferred taxes, and certain other assets and other liabilities. Additionally, these measurements are solely for financial instruments as of the measurement date and do not consider the earnings potential of our various business lines. Accordingly, the total of the fair value amounts does not represent, and should not be construed to represent, the underlying value of FHN.

The following table summarizes the book value and estimated fair value of financial instruments recorded in the Consolidated Condensed Statements of Condition as of September 30, 2017:

	September 30, 2017
	Book Value		Fair Value
(Dollars in thousands)			Level 1		Level 2		Level 3		Total
Assets:
Loans, net of unearned income and allowance for loan losses
Commercial:
Commercial, financial and industrial	$	12,693,639	$	—	$	—	$	12,658,237	$	12,658,237
Commercial real estate	2,221,332		—		—		2,208,208		2,208,208
Consumer:
Consumer real estate	4,328,778		—		—		4,252,704		4,252,704
Permanent mortgage	387,363		—		—		392,407		392,407
Credit card & other	340,112		—		—		340,168		340,168
Total loans, net of unearned income and allowance for loan losses	19,971,224		—		—		19,851,724		19,851,724
Short-term financial assets:
Interest-bearing cash	604,326		604,326		—		—		604,326
Federal funds sold	76,316		—		76,316		—		76,316
Securities purchased under agreements to resell	663,637		—		663,637		—		663,637
Total short-term financial assets	1,344,279		604,326		739,953		—		1,344,279
Trading securities (a)	1,469,402		—		1,467,097		2,305		1,469,402
Loans held-for-sale (a)	339,780		—		246,441		94,000		340,441
Securities available-for-sale (a) (b)	3,963,138		24,756		3,773,600		164,782		3,963,138
Securities held-to-maturity	10,000		—		—		9,985		9,985
Derivative assets (a)	80,976		10,003		70,973		—		80,976
Other assets:
Tax credit investments	120,701		—		—		121,435		121,435
Deferred compensation assets	34,951		34,951		—		—		34,951
Total other assets	155,652		34,951		—		121,435		156,386
Nonearning assets:
Cash & due from banks	347,802		347,802		—		—		347,802
Fixed income receivables	68,750		—		68,750		—		68,750
Accrued interest receivable	70,058		—		70,058		—		70,058
Total nonearning assets	486,610		347,802		138,808		—		486,610
Total assets	$	27,821,061	$	1,021,838	$	6,436,872	$	20,244,231	$	27,702,941
Liabilities:
Deposits:
Defined maturity	$	1,112,098	$	—	$	1,108,919	$	—	$	1,108,919
Undefined maturity	20,987,156		—		20,987,156		—		20,987,156
Total deposits	22,099,254		—		22,096,075		—		22,096,075
Trading liabilities (a)	579,028		—		579,028		—		579,028
Short-term financial liabilities:
Federal funds purchased	292,650		—		292,650		—		292,650
Securities sold under agreements to repurchase	516,867		—		516,867		—		516,867
Other short-term borrowings	1,637,419		—		1,637,419		—		1,637,419
Total short-term financial liabilities	2,446,936		—		2,446,936		—		2,446,936
Term borrowings:
Real estate investment trust-preferred	46,083		—		—		49,350		49,350
Term borrowings—new market tax credit investment	18,000		—		—		17,959		17,959
Secured borrowings	42,585		—		—		42,184		42,184
Other long term borrowings	952,839		—		968,297		—		968,297
Total term borrowings	1,059,507		—		968,297		109,493		1,077,790
Derivative liabilities (a)	83,146		7,627		69,989		5,530		83,146
Other noninterest-bearing liabilities:
Fixed income payables	44,304		—		44,304		—		44,304
Accrued interest payable	19,205		—		19,205		—		19,205
Total other noninterest-bearing liabilities	63,509		—		63,509		—		63,509
Total liabilities	$	26,331,380	$	7,627	$	26,223,834	$	115,023	$	26,346,484

(a) Classes are detailed in the recurring and nonrecurring measurement tables.

(b) Level 3 includes restricted investments in FHLB-Cincinnati stock of $87.9 million and FRB stock of $68.6 million.

The following table summarizes the book value and estimated fair value of financial instruments recorded in the Consolidated Statements of Condition as of December 31, 2016:

	December 31, 2016
	Book Value		Fair Value
(Dollars in thousands)			Level 1		Level 2		Level 3		Total
Assets:
Loans, net of unearned income and allowance for loan losses
Commercial:
Commercial, financial and industrial	$	12,058,689	$	—	$	—	$	11,918,374	$	11,918,374
Commercial real estate	2,101,671		—		—		2,078,306		2,078,306
Consumer:
Consumer real estate	4,473,395		—		—		4,385,669		4,385,669
Permanent mortgage	406,836		—		—		404,930		404,930
Credit card & other	346,861		—		—		347,577		347,577
Total loans, net of unearned income and allowance for loan losses	19,387,452		—		—		19,134,856		19,134,856
Short-term financial assets:
Interest-bearing cash	1,060,034		1,060,034		—		—		1,060,034
Federal funds sold	50,838		—		50,838		—		50,838
Securities purchased under agreements to resell	613,682		—		613,682		—		613,682
Total short-term financial assets	1,724,554		1,060,034		664,520		—		1,724,554
Trading securities (a)	897,071		—		894,498		2,573		897,071
Loans held-for-sale (a)	111,248		—		6,631		104,617		111,248
Securities available-for-sale (a) (b)	3,943,499		25,249		3,756,745		161,505		3,943,499
Securities held-to-maturity	14,347		—		—		14,773		14,773
Derivative assets (a)	121,654		33,587		88,067		—		121,654
Other assets:
Tax credit investments	100,105		—		—		98,400		98,400
Deferred compensation assets	32,840		32,840		—		—		32,840
Total other assets	132,945		32,840		—		98,400		131,240
Nonearning assets:
Cash & due from banks	373,274		373,274		—		—		373,274
Fixed income receivables	57,411		—		57,411		—		57,411
Accrued interest receivable	62,887		—		62,887		—		62,887
Total nonearning assets	493,572		373,274		120,298		—		493,572
Total assets	$	26,826,342	$	1,524,984	$	5,530,759	$	19,516,724	$	26,572,467
Liabilities:
Deposits:
Defined maturity	$	1,355,133	$	—	$	1,361,104	$	—	$	1,361,104
Undefined maturity	21,317,230		—		21,317,230		—		21,317,230
Total deposits	22,672,363		—		22,678,334		—		22,678,334
Trading liabilities (a)	561,848		—		561,848		—		561,848
Short-term financial liabilities:
Federal funds purchased	414,207		—		414,207		—		414,207
Securities sold under agreements to repurchase	453,053		—		453,053		—		453,053
Other short-term borrowings	83,177		—		83,177		—		83,177
Total short-term financial liabilities	950,437		—		950,437		—		950,437
Term borrowings:
Real estate investment trust-preferred	46,032		—		—		49,350		49,350
Term borrowings—new market tax credit investment	18,000		—		—		17,918		17,918
Borrowings secured by residential real estate	23,126		—		—		21,969		21,969
Other long term borrowings	953,498		—		965,066		—		965,066
Total term borrowings	1,040,656		—		965,066		89,237		1,054,303
Derivative liabilities (a)	135,897		33,274		96,378		6,245		135,897
Other noninterest-bearing liabilities:
Fixed income payables	21,002		—		21,002		—		21,002
Accrued interest payable	10,336		—		10,336		—		10,336
Total other noninterest-bearing liabilities	31,338		—		31,338		—		31,338
Total liabilities	$	25,392,539	$	33,274	$	25,283,401	$	95,482	$	25,412,157

(a) Classes are detailed in the recurring and nonrecurring measurement tables.

(b) Level 3 includes restricted investments in FHLB-Cincinnati stock of $87.9 million and FRB stock of $68.6 million.

The following table presents the contractual amount and fair value of unfunded loan commitments and standby and other commitments as of September 30, 2017 and December 31, 2016:

	Contractual Amount				Fair Value
(Dollars in thousands)	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016
Unfunded Commitments:
Loan commitments	$	8,868,115	$	8,744,649	$	2,388	$	2,924
Standby and other commitments	336,953		277,549		4,139		4,037