Loans

The following table provides the balance of loans, net of unearned income, by portfolio segment as of March 31, 2019 and December 31, 2018:



	March 31		December 31
(Dollars in thousands)	2019		2018
Commercial:
Commercial, financial, and industrial	$	17,176,112	$	16,514,328
Commercial real estate	3,946,943		4,030,870
Consumer:
Consumer real estate (a)	6,151,503		6,249,516
Permanent mortgage	209,260		222,448
Credit card & other	506,230		518,370
Loans, net of unearned income	$	27,990,048	$	27,535,532
Allowance for loan losses	184,911		180,424
Total net loans	$	27,805,137	$	27,355,108


(a)	Balances as of March 31, 2019 and December 31, 2018, include $15.0 million and $16.2 million of restricted real estate loans, respectively. See Note 14—Variable Interest Entities for additional information.

COMPONENTS OF THE LOAN PORTFOLIO

The loan portfolio is disaggregated into segments and then further disaggregated into classes for certain disclosures. GAAP defines a portfolio segment as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. A class is generally determined based on the initial measurement attribute (i.e., amortized cost or purchased credit-impaired), risk characteristics of the loan, and FHN’s method for monitoring and assessing credit risk. Commercial loan portfolio segments include commercial, financial and industrial (“C&I”) and commercial real estate ("CRE"). Commercial classes within C&I include general C&I, loans to mortgage companies, the trust preferred loans (“TRUPS”) (i.e. long-term unsecured loans to bank and insurance-related businesses) portfolio and purchased credit-impaired (“PCI”) loans. Loans to mortgage companies include commercial lines of credit to qualified mortgage companies primarily for the temporary warehousing of eligible mortgage loans prior to the borrower’s sale of those mortgage loans to third party investors. Commercial classes within CRE include income CRE, residential CRE and PCI loans. Consumer loan portfolio segments include consumer real estate, permanent mortgage, and the credit card and other portfolio. Consumer classes include home equity lines of credit (“HELOCs”), real estate (“R/E”) installment and PCI loans within the consumer real estate segment, permanent mortgage (which is both a segment and a class), and credit card and other.

Concentrations

FHN has a concentration of residential real estate loans (23 percent of total loans), the majority of which is in the consumer real estate segment (22 percent of total loans). Loans to finance and insurance companies total $2.6 billion (15 percent of the C&I portfolio, or 9 percent of the total loans). FHN had loans to mortgage companies totaling $2.3 billion (13 percent of the C&I segment, or 8 percent of total loans) as of March 31, 2019. As a result, 28 percent of the C&I segment is sensitive to impacts on the financial services industry.

Purchased Credit-Impaired Loans

The following table presents a rollforward of the accretable yield for the three months ended March 31, 2019 and 2018:



	Three Months Ended March 31
(Dollars in thousands)	2019			2018
Balance, beginning of period	$	13,375		$	15,623
Accretion	(1,673		)	(2,137		)
Adjustment for payoffs	(462		)	(612		)
Adjustment for charge-offs	(176		)	(551		)
Increase/(decrease) in accretable yield (a)	2,718			3,178
Other	—			(178		)
Balance, end of period	$	13,782		$	15,323


(a)	Includes changes in the accretable yield due to both transfers from the nonaccretable difference and the impact of changes in the expected timing and amounts of the cash flows.

At March 31, 2019, the ALLL related to PCI loans was $3.4 million compared to $4.0 million at December 31, 2018. A loan loss provision credit related to PCI loans of $.4 million was recognized during the three months ended March 31, 2019, compared to a loan loss provision expense of $.8 million during the three months ended March 31, 2018.

The following table reflects the outstanding principal balance and carrying amounts of the acquired PCI loans as of March 31, 2019 and December 31, 2018:



	March 31, 2019				December 31, 2018
(Dollars in thousands)	Carrying value		Unpaid balance		Carrying value		Unpaid balance
Commercial, financial and industrial	$	34,619	$	38,575	$	38,873	$	44,259
Commercial real estate	8,402		9,301		15,197		17,232
Consumer real estate	28,723		32,464		30,723		34,820
Credit card and other	1,127		1,377		1,627		1,879
Total	$	72,871	$	81,717	$	86,420	$	98,190

Impaired Loans

The following tables provide information at March 31, 2019 and December 31, 2018, by class related to individually impaired loans and consumer TDRs, regardless of accrual status. Recorded investment is defined as the amount of the investment in a loan, excluding any valuation allowance but including any direct write-down of the investment. For purposes of this disclosure, PCI loans and the TRUPS valuation allowance have been excluded.



	March 31, 2019						December 31, 2018
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
Impaired loans with no related allowance recorded:
Commercial:
General C&I	$	68,629	$	71,101	$	—	$	42,902	$	45,387	$	—
Income CRE	1,522		1,522		—		1,589		1,589		—
Total	$	70,151	$	72,623	$	—	$	44,491	$	46,976	$	—
Consumer:
HELOC (a)	$	6,548	$	13,869	$	—	$	8,645	$	16,648	$	—
R/E installment loans (a)	5,910		6,693		—		4,314		4,796		—
Permanent mortgage (a)	3,449		5,851		—		3,601		6,003		—
Total	$	15,907	$	26,413	$	—	$	16,560	$	27,447	$	—
Impaired loans with related allowance recorded:
Commercial:
General C&I	$	11,786	$	11,786	$	2,512	$	2,802	$	2,802	$	149
TRUPS	2,838		3,700		925		2,888		3,700		925
Income CRE	357		357		—		377		377		—
Total	$	14,981	$	15,843	$	3,437	$	6,067	$	6,879	$	1,074
Consumer:
HELOC	$	63,546	$	66,801	$	8,378	$	66,482	$	69,610	$	11,241
R/E installment loans	43,949		44,898		6,464		38,993		39,851		6,743
Permanent mortgage	65,930		76,289		9,081		67,245		78,010		9,419
Credit card & other	684		684		446		695		695		337
Total	$	174,109	$	188,672	$	24,369	$	173,415	$	188,166	$	27,740
Total commercial	$	85,132	$	88,466	$	3,437	$	50,558	$	53,855	$	1,074
Total consumer	$	190,016	$	215,085	$	24,369	$	189,975	$	215,613	$	27,740
Total impaired loans	$	275,148	$	303,551	$	27,806	$	240,533	$	269,468	$	28,814


(a)	All discharged bankruptcy loans are charged down to an estimate of net realizable value and do not carry any allowance.



	Three Months Ended March 31
	2019				2018
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance recorded:
Commercial:
General C&I	$	55,765	$	180	$	15,954	$	175
Income CRE	1,556		13		791		12
Residential CRE	—		—		248		—
Total	$	57,321	$	193	$	16,993	$	187
Consumer:
HELOC (a)	$	7,597	$	—	$	9,257	$	—
R/E installment loans (a)	5,112		—		3,914		—
Permanent mortgage (a)	3,525		—		5,217		—
Total	$	16,234	$	—	$	18,388	$	—
Impaired loans with related allowance recorded:
Commercial:
General C&I	$	7,294	$	—	$	22,891	$	—
TRUPS	2,863		—		3,047		—
Income CRE	367		4		806		—
Residential CRE	—		—		398		—
Total	$	10,524	$	4	$	27,142	$	—
Consumer:
HELOC	$	65,013	$	522	$	71,654	$	577
R/E installment loans	41,471		270		42,110		267
Permanent mortgage	66,588		552		77,725		578
Credit card & other	690		5		648		3
Total	$	173,762	$	1,349	$	192,137	$	1,425
Total commercial	$	67,845	$	197	$	44,135	$	187
Total consumer	$	189,996	$	1,349	$	210,525	$	1,425
Total impaired loans	$	257,841	$	1,546	$	254,660	$	1,612


(a)	All discharged bankruptcy loans are charged down to an estimate of net realizable value and do not carry any allowance.

Asset Quality Indicators

FHN employs a dual grade commercial risk grading methodology to assign an estimate for the probability of default (“PD”) and the loss given default (“LGD”) for each commercial loan using factors specific to various industry, portfolio, or product segments that result in a rank ordering of risk and the assignment of grades PD 1 to PD 16. This credit grading system is intended to identify and measure the credit quality of the loan portfolio by analyzing the migration of loans between grading categories. It is also integral to the estimation methodology utilized in determining the allowance for loan losses since an allowance is established for pools of commercial loans based on the credit grade assigned. Each PD grade corresponds to an estimated one-year default probability percentage; a PD 1 has the lowest expected default probability, and probabilities increase as grades progress down the scale. PD 1 through PD 12 are “pass” grades. PD grades 13-16 correspond to the regulatory-defined categories of special mention (13), substandard (14), doubtful (15), and loss (16). Pass loan grades are required to be reassessed annually or earlier whenever there has been a material change in the financial condition of the borrower or risk characteristics of the relationship. All commercial loans over $1 million and certain commercial loans over $500,000 that are graded 13 or worse are reassessed on a quarterly basis. Loan grading discipline is regularly reviewed internally by Credit Assurance Services to determine if the process continues to result in accurate loan grading across the portfolio. FHN may utilize availability of guarantors/sponsors to support lending decisions during the credit underwriting process and when determining the assignment of internal loan grades. LGD grades are assigned based on a scale of 1-12 and represent FHN’s expected recovery based on collateral type in the event a loan defaults. See Note 5 – Allowance for Loan Losses for further discussion on the credit grading system.

The following tables provide the balances of commercial loan portfolio classes with associated allowance, disaggregated by PD grade as of March 31, 2019 and December 31, 2018:



	March 31, 2019
(Dollars in thousands)	General C&I		Loans to Mortgage Companies		TRUPS (a)		Income CRE		Residential CRE		Total		Percentage of Total		Allowance for Loan Losses
PD Grade:
1	$	635,273	$	—	$	—	$	11,997	$	—	$	647,270	3	%	$	100
2	849,658		—		—		2,144		26		851,828		4		267
3	720,323		689,936		3,314		291,517		179		1,705,269		8		338
4	1,201,020		478,359		32,498		513,082		112		2,225,071		11		806
5	1,904,650		347,923		96,052		855,280		20,311		3,224,216		15		10,033
6	1,992,100		400,889		33,815		636,472		44,286		3,107,562		15		9,700
7	2,794,923		94,626		11,446		544,211		30,322		3,475,528		17		18,677
8	1,344,591		172,050		—		280,323		24,944		1,821,908		9		20,047
9	1,460,633		104,832		45,117		377,027		17,672		2,005,281		9		16,042
10	492,043		12,579		18,536		73,040		3,924		600,122		3		8,739
11	395,393		—		—		63,318		2,112		460,823		2		10,353
12	289,203		146		—		48,454		5,586		343,389		2		6,172
13	223,362		—		5,786		51,615		238		281,001		1		9,652
14,15,16	204,958		—		—		37,703		832		243,493		1		21,591
Collectively evaluated for impairment	14,508,130		2,301,340		246,564		3,786,183		150,544		20,992,761		100		132,517
Individually evaluated for impairment	80,415		—		2,838		1,879		—		85,132		—		3,437
Purchased credit-impaired loans	36,825		—		—		6,043		2,294		45,162		—		2,141
Total commercial loans	$	14,625,370	$	2,301,340	$	249,402	$	3,794,105	$	152,838	$	21,123,055	100	%	$	138,095



	December 31, 2018
(Dollars in thousands)	General C&I		Loans to Mortgage Companies		TRUPS (a)		Income CRE		Residential CRE		Total		Percentage of Total		Allowance for Loan Losses
PD Grade:
1	$	610,177	$	—	$	—	$	12,586	$	—	$	622,763	3	%	$	100
2	835,776		—		—		1,688		29		837,493		4		274
3	782,362		716,971		—		289,594		147		1,789,074		9		315
4	1,223,092		394,862		43,220		563,243		—		2,224,417		11		686
5	1,920,034		277,814		77,751		798,509		14,150		3,088,258		15		8,919
6	1,722,136		365,341		45,609		657,628		33,759		2,824,473		14		8,141
7	2,690,784		96,603		11,446		538,909		26,135		3,363,877		16		16,906
8	1,337,113		53,224		—		265,901		20,320		1,676,558		8		18,545
9	1,472,852		96,292		45,117		455,184		29,849		2,099,294		10		15,454
10	490,795		13,260		18,536		60,803		3,911		587,305		3		8,675
11	311,967		—		—		66,986		788		379,741		2		7,973
12	244,867		9,379		—		82,574		5,717		342,537		2		6,972
13	285,987		—		5,786		55,408		251		347,432		2		10,094
14,15,16	224,853		—		—		28,835		837		254,525		1		23,307
Collectively evaluated for impairment	14,152,795		2,023,746		247,465		3,877,848		135,893		20,437,747		100		126,361
Individually evaluated for impairment	45,704		—		2,888		1,966		—		50,558		—		1,074
Purchased credit-impaired loans	41,730		—		—		12,730		2,433		56,893		—		2,823
Total commercial loans	$	14,240,229	$	2,023,746	$	250,353	$	3,892,544	$	138,326	$	20,545,198	100	%	$	130,258


(a)	Balances as of March 31, 2019 and December 31, 2018, presented net of a $20.2 million valuation allowance.

The consumer portfolio is comprised primarily of smaller-balance loans which are very similar in nature in that most are standard products and are backed by residential real estate. Because of the similarities of consumer loan-types, FHN is able to utilize the Fair Isaac Corporation (“FICO”) score, among other attributes, to assess the credit quality of consumer borrowers. FICO scores are refreshed on a quarterly basis in an attempt to reflect the recent risk profile of the borrowers. Accruing delinquency amounts are indicators of asset quality within the credit card and other consumer portfolio.

The following table reflects the percentage of balances outstanding by average, refreshed FICO scores for the HELOC, real estate installment, and permanent mortgage classes of loans as of March 31, 2019 and December 31, 2018:



	March 31, 2019						December 31, 2018
	HELOC		R/E Installment Loans		Permanent Mortgage		HELOC		R/E Installment Loans		Permanent Mortgage
FICO score 740 or greater	61.0	%	72.2	%	52.0	%	61.4	%	71.3	%	51.8	%
FICO score 720-739	8.8		8.3		8.3		8.5		8.8		7.6
FICO score 700-719	7.8		6.9		9.9		7.6		7.0		10.6
FICO score 660-699	10.9		7.2		14.8		10.9		7.6		14.7
FICO score 620-659	5.0		2.7		7.0		5.1		2.8		6.5
FICO score less than 620 (a)	6.5		2.7		8.0		6.5		2.5		8.8
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%


(a)	For this group, a majority of the loan balances had FICO scores at the time of the origination that exceeded 620 but have since deteriorated as the loans have seasoned.

Nonaccrual and Past Due Loans

The following table reflects accruing and non-accruing loans by class on March 31, 2019:



	Accruing								Non-Accruing
(Dollars in thousands)	Current		30-89 Days Past Due		90+ Days Past Due		Total Accruing		Current		30-89 Days Past Due		90+ Days Past Due		Total Non- Accruing		Total Loans
Commercial (C&I):
General C&I	$	14,508,455	$	7,741	$	191	$	14,516,387	$	61,711	$	147	$	10,300	$	72,158	$	14,588,545
Loans to mortgage companies	2,301,340		—		—		2,301,340		—		—		—		—		2,301,340
TRUPS (a)	246,564		—		—		246,564		—		—		2,838		2,838		249,402
Purchased credit-impaired loans	33,056		2,210		1,559		36,825		—		—		—		—		36,825
Total commercial (C&I)	17,089,415		9,951		1,750		17,101,116		61,711		147		13,138		74,996		17,176,112
Commercial real estate:
Income CRE	3,785,127		292		—		3,785,419		—		45		2,598		2,643		3,788,062
Residential CRE	150,300		238		—		150,538		—		6		—		6		150,544
Purchased credit-impaired loans	7,448		818		71		8,337		—		—		—		—		8,337
Total commercial real estate	3,942,875		1,348		71		3,944,294		—		51		2,598		2,649		3,946,943
Consumer real estate:
HELOC	1,380,487		9,735		7,321		1,397,543		48,772		4,223		8,370		61,365		1,458,908
R/E installment loans	4,623,499		10,037		7,982		4,641,518		15,151		2,685		3,395		21,231		4,662,749
Purchased credit-impaired loans	24,480		1,628		3,738		29,846		—		—		—		—		29,846
Total consumer real estate	6,028,466		21,400		19,041		6,068,907		63,923		6,908		11,765		82,596		6,151,503
Permanent mortgage	184,237		1,494		2,579		188,310		11,874		95		8,981		20,950		209,260
Credit card & other:
Credit card	193,754		992		969		195,715		—		—		—		—		195,715
Other	305,267		3,067		473		308,807		155		67		211		433		309,240
Purchased credit-impaired loans	717		325		233		1,275		—		—		—		—		1,275
Total credit card & other	499,738		4,384		1,675		505,797		155		67		211		433		506,230
Total loans, net of unearned income	$	27,744,731	$	38,577	$	25,116	$	27,808,424	$	137,663	$	7,268	$	36,693	$	181,624	$	27,990,048

(a) TRUPS is presented net of the valuation allowance of $20.2 million.

The following table reflects accruing and non-accruing loans by class on December 31, 2018:



	Accruing								Non-Accruing
(Dollars in thousands)	Current		30-89 Days Past Due		90+ Days Past Due		Total Accruing		Current		30-89 Days Past Due		90+ Days Past Due		Total Non- Accruing		Total Loans
Commercial (C&I):
General C&I	$	14,153,275	$	8,234	$	102	$	14,161,611	$	26,325	$	5,537	$	5,026	$	36,888	$	14,198,499
Loans to mortgage companies	2,023,746		—		—		2,023,746		—		—		—		—		2,023,746
TRUPS (a)	247,465		—		—		247,465		—		—		2,888		2,888		250,353
Purchased credit-impaired loans	39,433		624		1,673		41,730		—		—		—		—		41,730
Total commercial (C&I)	16,463,919		8,858		1,775		16,474,552		26,325		5,537		7,914		39,776		16,514,328
Commercial real estate:
Income CRE	3,876,229		626		—		3,876,855		30		—		2,929		2,959		3,879,814
Residential CRE	135,861		—		—		135,861		32		—		—		32		135,893
Purchased credit-impaired loans	13,308		103		1,752		15,163		—		—		—		—		15,163
Total commercial real estate	4,025,398		729		1,752		4,027,879		62		—		2,929		2,991		4,030,870
Consumer real estate:
HELOC	1,443,651		11,653		10,129		1,465,433		49,009		3,314		8,781		61,104		1,526,537
R/E installment loans	4,652,658		10,470		6,497		4,669,625		15,146		1,924		4,474		21,544		4,691,169
Purchased credit-impaired loans	24,096		2,094		5,620		31,810		—		—		—		—		31,810
Total consumer real estate	6,120,405		24,217		22,246		6,166,868		64,155		5,238		13,255		82,648		6,249,516
Permanent mortgage	193,591		2,585		4,562		200,738		11,227		996		9,487		21,710		222,448
Credit card & other:
Credit card	188,009		2,133		1,203		191,345		—		—		—		—		191,345
Other	320,551		3,570		526		324,647		110		60		454		624		325,271
Purchased credit-impaired loans	746		611		397		1,754		—		—		—		—		1,754
Total credit card & other	509,306		6,314		2,126		517,746		110		60		454		624		518,370
Total loans, net of unearned income	$	27,312,619	$	42,703	$	32,461	$	27,387,783	$	101,879	$	11,831	$	34,039	$	147,749	$	27,535,532

Certain previously reported amounts have been reclassified to agree with current presentation.

(a) TRUPS is presented net of the valuation allowance of $20.2 million.

Troubled Debt Restructurings

As part of FHN’s ongoing risk management practices, FHN attempts to work with borrowers when necessary to extend or modify loan terms to better align with their current ability to repay. Extensions and modifications to loans are made in accordance with internal policies and guidelines which conform to regulatory guidance. Each occurrence is unique to the borrower and is evaluated separately.

A modification is classified as a TDR if the borrower is experiencing financial difficulty and it is determined that FHN has granted a concession to the borrower. FHN may determine that a borrower is experiencing financial difficulty if the borrower is currently in default on any of its debt, or if it is probable that a borrower may default in the foreseeable future. Many aspects of a borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty. Concessions could include extension of the maturity date, reductions of the interest rate (which may make the rate lower than current market for a new loan with similar risk), reduction or forgiveness of accrued interest, or principal forgiveness. The assessments of whether a borrower is experiencing (or is likely to experience) financial difficulty, and whether a concession has been granted, are subjective in nature and management’s judgment is required when determining whether a modification is classified as a TDR.

For all classes within the commercial portfolio segment, TDRs are typically modified through forbearance agreements (generally 6 to 12 months). Forbearance agreements could include reduced interest rates, reduced payments, release of guarantor, or entering into short sale agreements. FHN’s proprietary modification programs for consumer loans are generally structured using parameters of U.S. government-sponsored programs such as the former Home Affordable Modification Program (“HAMP”). Within the HELOC and R/E installment loans classes of the consumer portfolio segment, TDRs are typically modified by reducing the interest rate (in increments of 25 basis points to a minimum of 1 percent for up to 5 years) and a possible maturity date extension to reach an affordable housing debt-to-income ratio. After 5 years, the interest rate generally returns to the original interest rate prior to modification; for certain modifications, the modified interest rate increases 2 percent per year until the original interest rate prior to modification is achieved. Permanent mortgage TDRs are typically modified by reducing the interest rate (in increments of 25 basis points to a minimum of 2 percent for up to 5 years) and a possible maturity date extension to reach an affordable housing debt-to-income ratio. After 5 years, the interest rate steps up 1 percent every year until it reaches the Federal Home Loan Mortgage Corporation Weekly Survey Rate cap. Contractual maturities may be extended to 40 years on permanent mortgages and to 30 years for consumer real estate loans. Within the credit card class of the consumer portfolio segment, TDRs are typically modified through either a short-term credit card hardship program or a longer-term credit card workout program. In the credit card hardship program, borrowers may be granted rate and payment reductions for 6 months to 1 year. In the credit card workout program, customers are granted a rate reduction to 0 percent and term extensions for up to 5 years to pay off the remaining balance.

Despite the absence of a loan modification, the discharge of personal liability through bankruptcy proceedings is considered a concession. As a result, FHN classifies all non-reaffirmed residential real estate loans discharged in Chapter 7 bankruptcy as nonaccruing TDRs.

On March 31, 2019 and December 31, 2018, FHN had $241.6 million and $228.2 million of portfolio loans classified as TDRs, respectively. For TDRs in the loan portfolio, FHN had loan loss reserves of $24.4 million, or 10 percent as of March 31, 2019, and $27.7 million, or 12 percent as of December 31, 2018. Additionally, $55.4 million and $57.8 million of loans held-for-sale as of March 31, 2019 and December 31, 2018, respectively, were classified as TDRs.

The following tables reflect portfolio loans that were classified as TDRs during the three months ended March 31, 2019 and 2018:



	March 31, 2019					March 31, 2018
(Dollars in thousands)	Number	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial (C&I):
General C&I	2	$	13,895	$	13,820	5	$	1,504	$	1,214
Total commercial (C&I)	2	13,895		13,820		5	1,504		1,214
Consumer real estate:
HELOC	19	2,104		2,084		30	2,760		2,733
R/E installment loans	44	5,977		5,934		5	611		612
Total consumer real estate	63	8,081		8,018		35	3,371		3,345
Permanent mortgage	3	1,448		1,479		1	275		273
Credit card & other	15	74		71		41	210		197
Total troubled debt restructurings	83	$	23,498	$	23,388	82	$	5,360	$	5,029

The following tables present TDRs which re-defaulted during the three months ended March 31, 2019 and 2018, and as to which the modification occurred 12 months or less prior to the re-default. For purposes of this disclosure, FHN generally defines payment default as 30 or more days past due.



	March 31, 2019			March 31, 2018
(Dollars in thousands)	Number	Recorded Investment		Number	Recorded Investment
Consumer real estate:
HELOC	1	33		2	69
Total consumer real estate	1	33		2	69
Permanent mortgage	—	—		1	112
Credit card & other	8	18		14	81
Total troubled debt restructurings	9	$	51	17	$	262