Fair Value of Assets and Liabilities

12 Months Ended

Dec. 31, 2021

Fair Value Disclosures [Abstract]

Fair Value of Assets and Liabilities

Fair Value of Assets and 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.

Recurring Fair Value Measurements

The following tables present the balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 and 2020: 

Tables 8.24.1a-b

BALANCES OF ASSETS & LIABILITIES

MEASURED AT FAIR VALUE ON A RECURRING BASIS

	December 31, 2021
(Dollars in millions)	Level 1		Level 2		Level 3		Total
Trading securities:
U.S. treasuries	$	—	$	85	$	—	$	85
Government agency issued MBS	—		464		—		464
Government agency issued CMO	—		62		—		62
Other U.S. government agencies	—		276		—		276
States and municipalities	—		34		—		34
Corporate and other debt	—		642		—		642
Interest-only strips (elected fair value)	—		—		38		38
Total trading securities	—		1,563		38		1,601
Loans held for sale (elected fair value)	—		230		28		258
Securities available for sale:
Government agency issued MBS	—		5,055		—		5,055
Government agency issued CMO	—		2,257		—		2,257
Other U.S. government agencies	—		850		—		850
States and municipalities	—		545		—		545
Total securities available for sale	—		8,707		—		8,707
Other assets:
Deferred compensation mutual funds	125		—		—		125
Equity, mutual funds, and other	25		—		—		25
Derivatives, forwards and futures	12		—		—		12
Derivatives, interest rate contracts	—		311		—		311
Derivatives, other	—		1		—		1
Total other assets	162		312		—		474
Total assets	$	162	$	10,812	$	66	$	11,040
Trading liabilities:
U.S. treasuries	$	—	$	334	$	—	$	334
Government issued agency MBS	—		1		—		1
Corporate and other debt	—		91		—		91
Total trading liabilities	—		426		—		426
Other liabilities:
Derivatives, forwards and futures	11		—		—		11
Derivatives, interest rate contracts	—		93		—		93
Derivatives, other	—		1		23		24
Total other liabilities	11		94		23		128
Total liabilities	$	11	$	520	$	23	$	554

	December 31, 2020
(Dollars in millions)	Level 1		Level 2		Level 3		Total
Trading securities:
U.S. treasuries	$	—	$	81	$	—	$	81
Government agency issued MBS	—		633		—		633
Government agency issued CMO	—		212		—		212
Other U.S. government agencies	—		62		—		62
States and municipalities	—		7		—		7
Corporate and other debt	—		181		—		181
Total trading securities	—		1,176		—		1,176
Loans held for sale (elected fair value)	—		393		12		405
Loans held for investment (elected fair value)	—		—		16		16
Securities available for sale:
U.S. treasuries	—		613		—		613
Government agency issued MBS	—		3,812		—		3,812
Government agency issued CMO	—		2,406		—		2,406
Other U.S. government agencies	—		684		—		684
States and municipalities	—		460		—		460
Corporate and other debt	—		40		—		40
Interest-only strips (elected fair value)	—		—		32		32
Total securities available for sale	—		8,015		32		8,047
Other assets:
Deferred compensation mutual funds	118		—		—		118
Equity, mutual funds, and other	25		—		—		25
Derivatives, forwards and futures	63		—		—		63
Derivatives, interest rate contracts	—		702		—		702
Derivatives, other	—		4		—		4
Total other assets	206		706		—		912
Total assets	$	206	$	10,290	$	60	$	10,556
Trading liabilities:
U.S. treasuries	$	—	$	307	$	—	$	307
Government agency issued MBS	—		3		—		3
Corporate and other debt	—		43		—		43
Total trading liabilities	—		353		—		353
Other liabilities:
Derivatives, forwards and futures	71		—		—		71
Derivatives, interest rate contracts	—		60		—		60
Derivatives, other	—		4		14		18
Total other liabilities	71		64		14		149
Total liabilities	$	71	$	417	$	14	$	502

Changes in Recurring Level 3 Fair Value Measurements

The changes in Level 3 assets and liabilities measured at fair value for the years ended December 31, 2021, 2020 and 2019 on a recurring basis are summarized as follows: 

Tables 8.24.2a-b-c

CHANGES IN LEVEL 3 ASSETS & LIABILITIES MEASURED AT FAIR VALUE

	Year Ended December 31, 2021
(Dollars in millions)	Interest-only strips			Loans held for sale			Loans held for investment			Net  derivative liabilities
Balance on January 1, 2021	$	32		$	12		$	16		$	(14)
Total net gains (losses) included in net income	3			1			—			(19)
Purchases	—			10			—			—
Sales	(68)			(18)			—			—
Settlements	—			(3)			(2)			10
Net transfers into (out of) Level 3	71		(b)	26		(e)	(14)		(e)	—
Balance on December 31, 2021	$	38		$	28		$	—		$	(23)
Net unrealized gains (losses) included in net income	$	(2)	(c)	$	1	(a)	$	—		$	(19)	(d)

	Year Ended December 31, 2020
(Dollars in millions)	Trading securities			Interest-only strips- AFS			Loans held for sale			Loans held for investment		Net  derivative liabilities
Balance on January 1, 2020	$	1		$	19		$	14		$	—	$	(23)
Acquired	—			—			—			14		—
Total net gains (losses) included in net income	(1)			(6)			1			—		(1)
Purchases	—			6			—			—		—
Sales	—			(11)			—			(4)		—
Settlements	—			—			(3)			(3)		10
Net transfers into (out of) Level 3	—			24		(b)	—			9		—
Balance on December 31, 2020	$	—		$	32		$	12		$	16	$	(14)
Net unrealized gains (losses) included in net income	$	—	(a)	$	(4)	(c)	$	1	(a)	$	—	$	(1)	(d)

	Year Ended December 31, 2019
(Dollars in millions)	Trading securities			Interest-only strips- AFS			Loans held for sale			Net  derivative liabilities
Balance on January 1, 2019	$	2		$	10		$	16		$	(32)
Total net gains (losses) included in net income	—			(5)			2			(4)
Purchases	—			—			—			—
Sales	—			(47)			—			—
Settlements	(1)			—			(4)			13
Net transfers into (out of) Level 3	—			61		(b)	—			—
Balance on December 31, 2019	$	1		$	19		$	14		$	(23)
Net unrealized gains (losses) included in net income	$	—	(a)	$	(2)	(c)	$	2	(a)	$	(4)	(d)

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

(b)Transfers into interest-only strips 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 Statements of Income.

(d)Included in other expense.

(e)The loans held for investment at fair value option portfolio was transferred to the loans held for sale portfolio on April 1, 2021.

There were no net unrealized gains (losses) for Level 3 assets and liabilities included in other comprehensive income as of December 31, 2021, 2020 and 2019.

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 Consolidated Balance Sheets at December 31, 2021, 2020 and 2019, respectively, the following tables provide the level of valuation assumptions used to determine each adjustment and the related carrying value. 

Tables 8.24.3a-b-c

LEVEL OF VALUATION ASSUMPTIONS FOR ASSETS

MEASURED AT FAIR VALUE ON A NON-RECURRING BASIS

	Carrying value at December 31, 2021								Year Ended December 31, 2021
(Dollars in millions)	Level 1		Level 2		Level 3		Total		Net gains (losses)
Loans held for sale—SBAs and USDA	$	—	$	852	$	1	$	853	$	(2)
Loans held for sale—first mortgages	—		—		1		1		—
Loans and leases (a)	—		—		84		84		(13)
OREO (b)	—		—		3		3		(1)
Other assets (c)	—		—		30		30		(2)
									$	(18)

	Carrying value at December 31, 2020								Year Ended December 31, 2020
(Dollars in millions)	Level 1		Level 2		Level 3		Total		Net gains (losses)
Loans held for sale—SBAs and USDA	$	—	$	508	$	1	$	509	$	(3)
Loans held for sale—first mortgages	—		—		1		1		—
Loans and leases (a)	—		—		77		77		(12)
OREO (b)	—		—		15		15		(1)
Other assets (c)	—		—		9		9		(2)
									$	(18)

	Carrying value at December 31, 2019								Year Ended December 31, 2019
(Dollars in millions)	Level 1		Level 2		Level 3		Total		Net gains (losses)
Loans held for sale—SBAs and USDA	$	—	$	493	$	1	$	494	$	(2)
Loans held for sale—first mortgages	—		—		1		1		—
Loans and leases (a)	—		—		42		42		(7)
OREO (b)	—		—		16		16		(1)
Other assets (c)	—		—		11		11		(2)
									$	(12)

(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 credit losses.

(b)Represents the fair value and related 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 2021, FHN recognized $34 million of fixed asset impairments and $3 million of leased asset impairments. In 2020, FHN recognized $7 million of fixed asset impairments and $6 million of leased asset impairments. These impairments were primarily related to continuing acquisition integration efforts associated with reduction of

leased office space and banking center optimization. These amounts were primarily recognized in the Corporate segment.

In 2019, FHN recognized $4 million of impairments related to dispositions of acquired properties and $1 million of

leased asset impairments related to continuing acquisition integration efforts associated with reduction of leased office space and banking center optimization. Related to its restructuring, repositioning, and efficiency efforts, FHN recognized $13 million of impairments for tangible long-lived assets and lease assets. Related to its rebranding initiative, FHN recognized $7 million of impairments for long-lived tangible assets, primarily signage. These amounts were primarily recognized in the Corporate segment.

Lease asset impairments recognized represent the reduction in value of the right-of-use assets associated with leases that are being exited in advance of the contractual lease expiration.

Impairments are measured using a discounted cash flow methodology, which is considered a Level 3 valuation.

Impairments of long-lived tangible assets reflect locations where the associated land and building are either owned

or leased. The fair values of owned sites were determined using estimated sales prices from appraisals and broker opinions less estimated costs to sell with adjustments upon final disposition. The fair values of owned assets in leased sites (e.g., leasehold improvements) 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. Impairment adjustments recognized upon disposition of a location are considered Level 2 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 December 31, 2021 and 2020:  

Tables 8.24.4a-b

UNOBSERVABLE INPUTS USED

IN LEVEL 3 FAIR VALUE MEASUREMENTS

(Dollars in millions)					Values Utilized
Level 3 Class	Fair Value at December 31, 2021		Valuation Techniques	Unobservable Input	Range	Weighted Average (d)
Trading securities - SBA interest-only strips	$	38	Discounted cash flow	Constant prepayment rate	11%-12%	11%
				Bond equivalent yield	11% - 14%	11%
Loans held for sale - residential real estate	$	29	Discounted cash flow	Prepayment speeds - First mortgage	4% - 12%	5%
				Foreclosure losses	54% - 66%	65%
				Loss severity trends - First mortgage	1% - 14% of UPB	8%
Loans held for sale - unguaranteed interest in SBA loans	$	1	Discounted cash flow	Constant prepayment rate	8% - 12%	10%
				Bond equivalent yield	11%	11%
Derivative liabilities, other	$	23	Discounted cash flow	Visa covered litigation resolution amount	$5.8 billion - $6.2 billion	$6.0 billion
				Probability of resolution scenarios	15% - 35%	24%
				Time until resolution	12 - 36 months	25 months
Loans and leases (a)	$	84	Appraisals from comparable properties	Marketability adjustments for specific properties	0% - 10% of appraisal	NM
			Other collateral valuations	Borrowing base certificates adjustment	20% - 50% of gross value	NM
				Financial Statements/Auction values adjustment	0% - 25% of reported value	NM
OREO (b)	$	3	Appraisals from comparable properties	Adjustment for value changes since appraisal	0% - 10% of appraisal	NM
Other assets (c)	$	30	Discounted cash flow	Adjustments to current sales yields for specific properties	0% - 15% adjustment to yield	NM
			Appraisals from comparable properties	Marketability adjustments for specific properties	0% - 25% of appraisal	NM

NM - Not meaningful

(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 credit 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.

(d)Weighted averages are determined by the relative fair value of the instruments or the relative contribution to an instrument's fair value.

(Dollars in millions)					Values Utilized
Level 3 Class	Fair Value at December 31, 2020		Valuation Techniques	Unobservable Input	Range	Weighted Average (d)
Securities - SBA interest-only strips	$	32	Discounted cash flow	Constant prepayment rate	12%	12%
				Bond equivalent yield	15% - 17%	15%
Loans held for sale - residential real estate	$	13	Discounted cash flow	Prepayment speeds - First mortgage	5% - 15%	5%
				Foreclosure losses	59% - 70%	63%
				Loss severity trends - First mortgage	3% - 19% of UPB	12%
Loans held for sale - unguaranteed interest in SBA loans	$	1	Discounted cash flow	Constant prepayment rate	8% - 12%	10%
				Bond equivalent yield	7%-8%	7%
Loans held for investment	$	16	Discounted cash flow	Constant prepayment rate	0% - 26%	11%
				Constant default rate	0%-14%	1%
				Loss severity trends	0% - 100%	11%
Derivative liabilities, other	$	14	Discounted cash flow	Visa covered litigation resolution amount	$5.4 billion - $6.0 billion	$5.8 billion
				Probability of resolution scenarios	10% - 50%	16%
				Time until resolution	3 - 27 months	19 months
Loans and leases (a)	$	77	Appraisals from comparable properties	Marketability adjustments for specific properties	0% - 10% of appraisal	NM
			Other collateral valuations	Borrowing base certificates adjustment	20% - 50% of gross value	NM
				Financial Statements/Auction values adjustment	0% - 25% of reported value	NM
OREO (b)	$	15	Appraisals from comparable properties	Adjustment for value changes since appraisal	0% - 10% of appraisal	NM
Other assets (c)	$	9	Discounted cash flow	Adjustments to current sales yields for specific properties	0% - 15% adjustment to yield	NM
			Appraisals from comparable properties	Marketability adjustments for specific properties	0% - 25% of appraisal	NM

NM - Not meaningful

(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 credit 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.

(d)Weighted averages are determined by the relative fair value of the instruments or the relative contribution to an instrument's fair value.

Trading Securities - SBA interest-only strips

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. SBA interest-only strips were transferred from AFS to trading securities on October 1, 2021.

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.

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.

Loans held for investment

Constant prepayment rate, constant default rate and loss severity trends are significant unobservable inputs used in the fair value measurement of loans held for investment. Increases (decreases) in each of these inputs in isolation result in negative (positive) effects on the valuation of the associated loans.

Derivative liabilities

In conjunction with pre-2020 sales of Visa Class B shares, FHN and the purchasers 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.

Loans and leases 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. 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.

Fair Value Option

FHN has elected the fair value option on a prospective basis for substantially all types of mortgage loans originated for sale purposes except for mortgage origination operations which utilize the platform acquired from CBF. 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 relating to mortgage banking operations conducted prior to the IBKC merger 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.

FHN also had a portion of mortgage loans held for investment for which the fair value option was elected

upon origination and which were accounted for at fair value. This portion of mortgage loans held for investment at fair value option was transferred to the loans held for sale portfolio on April 1, 2021.

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

Tables 8.24.5a-b

DIFFERENCES BETWEEN FAIR VALUE CARRYING AMOUNTS

AND CONTRACTUAL AMOUNTS OF RESIDENTIAL REAL ESTATE LOANS

	December 31, 2021
(Dollars in millions)	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	$	258	$	264	$	(6)
Nonaccrual loans	4		7		(3)
	December 31, 2020
(Dollars in millions)	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	$	405	$	442	$	(37)
Nonaccrual loans	2		5		(3)
Loans held for investment reported at fair value:
Total loans	16		17		(1)
Nonaccrual loans	1		1		—

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: 

Table 8.24.6

CHANGES IN FAIR VALUE RECOGNIZED IN NET INCOME

	Year Ended December 31,
(Dollars in millions)	2021		2020		2019
Changes in fair value included in net income:
Mortgage banking and title noninterest income
Loans held for sale	$	(10)	$	4	$	2

For the years ended December 31, 2021, 2020 and 2019, the amount for residential real estate loans held for sale included an insignificant amount of gains 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 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 trading 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

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 Balance Sheets and for estimating the fair value of financial instruments for which fair value is disclosed.

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, benchmark yields, 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 - SBA interest-only strips

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 FHN 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. SBA interest-

only strips were transferred from AFS to trading on October 1, 2021.

Securities available for sale and held to maturity

Valuations of debt securities are performed using observable inputs obtained from market transactions in similar securities. Typical inputs include benchmark yields, consensus prepayment speeds and credit spreads. Trades from similar securities and broker quotes are used to support these valuations.

Loans held for sale

FHN determines the fair value of loans held for sale using either current transaction prices or discounted cash flow models. Fair values are determined 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.

Fair value of residential real estate loans held for sale determined using a discounted cash flow model incorporates both observable and unobservable inputs. Inputs in the discounted cash flow model 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.

Non-mortgage consumer loans held for sale are valued using committed bids for specific loans or loan portfolios or current market pricing for similar assets with adjustments for differences in credit standing (delinquency, historical default rates for similar loans), yield, collateral values and prepayment rates. If pricing for similar assets is not available, a discounted cash flow methodology is utilized, which incorporates all of these factors into an estimate of investor required yield for the discount rate.

FHN utilizes quoted market prices of similar instruments or broker and dealer quotations to value the SBA and USDA guaranteed loans. FHN 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.

Mortgage loans held for investment at fair value option

The fair value of mortgage loans held for investment at fair value option is determined by a third party using a discounted cash flow model using various assumptions about future loan performance (constant prepayment rate, constant default rate and loss severity trends) and market discount rates.

Loans held for investment

The fair values of mortgage loans are estimated using an exit price methodology that is based on present values using the interest rate that would be charged for a similar loan to a borrower with similar risk, weighted for varying maturity dates and adjusted for a liquidity discount based on the estimated time period to complete a sale transaction with a market participant.

Other loans and leases are valued based on present values using the interest rate that would be charged for a similar instrument to a borrower with similar risk, applicable to each category of instruments, and adjusted for a liquidity discount based on the estimated time period to complete a sale transaction with a market participant.

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 contracts) are based on inputs observed in active markets for similar instruments. Typically inputs include benchmark yields, option volatility and option skew. Starting in October 2020, centrally cleared derivatives are discounted using SOFR as required by clearinghouses. 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 client 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.

The fair value of risk participations is determined in reference to the fair value of the related derivative contract between the borrower and the lead bank in the participation structure, which is determined consistent with the valuation process discussed above. This value is adjusted for the pro rata portion of the reference derivative’s notional value and an assessment of credit risk for the referenced borrower.

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.

Other assets

For disclosure purposes, other assets consist of tax credit investments, FRB and FHLB Stock, deferred compensation mutual funds and equity investments (including other mutual funds) with readily determinable fair values. 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 mutual funds are recognized at fair value, which is based on quoted prices in active markets.

Investments in the stock of the Federal Reserve Bank and Federal Home Loan Banks are recognized at historical cost in the Consolidated Balance Sheets which is considered to approximate fair value. 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.

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.

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.

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 and leases, loans held for sale, and term borrowings as of December 31, 2021 and December 31, 2020, 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 and TRUPS loans within the Corporate segment, 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 clients, 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 tables summarize the book value and estimated fair value of financial instruments recorded in the Consolidated Balance Sheets as of December 31, 2021 and December 31, 2020:

Tables 8.24.7a-b

BOOK VALUE AND ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

	December 31, 2021
	Book Value		Fair Value
(Dollars in millions)			Level 1		Level 2		Level 3		Total
Assets:
Loans and leases, net of allowance for loan and lease losses
Commercial:
Commercial, financial and industrial	$	30,734	$	—	$	—	$	31,020	$	31,020
Commercial real estate	11,955		—		—		11,986		11,986
Consumer:
Consumer real estate	10,609		—		—		11,111		11,111
Credit card and other	891		—		—		906		906
Total loans and leases, net of allowance for loan and lease losses	54,189		—		—		55,023		55,023
Short-term financial assets:
Interest-bearing deposits with banks	14,907		14,907		—		—		14,907
Federal funds sold	153		—		153		—		153
Securities purchased under agreements to resell	488		—		488		—		488
Total short-term financial assets	15,548		14,907		641		—		15,548
Trading securities (a)	1,601		—		1,563		38		1,601
Loans held for sale:
Mortgage loans (elected fair value) (a)	258		—		230		28		258
USDA & SBA loans - LOCOM	853		—		855		1		856
Other loans - LOCOM	24		—		24		—		24
Mortgage loans - LOCOM	37		—		—		37		37
Total loans held for sale	1,172		—		1,109		66		1,175
Securities available for sale (a)	8,707		—		8,707		—		8,707
Securities held to maturity	712		—		705		—		705
Derivative assets (a)	324		12		312		—		324
Other assets:
Tax credit investments	456		—		—		450		450
Deferred compensation mutual funds	125		125		—		—		125
Equity, mutual funds, and other (b)	257		25		—		232		257
Total other assets	838		150		—		682		832
Total assets	$	83,091	$	15,069	$	13,037	$	55,809	$	83,915
Liabilities:
Defined maturity deposits	$	3,500	$	—	$	3,524	$	—	$	3,524
Trading liabilities (a)	426		—		426		—		426
Short-term financial liabilities:
Federal funds purchased	775		—		775		—		775
Securities sold under agreements to repurchase	1,247		—		1,247		—		1,247
Other short-term borrowings	102		—		102		—		102
Total short-term financial liabilities	2,124		—		2,124		—		2,124
Term borrowings:
Real estate investment trust-preferred	46		—		—		47		47
Term borrowings—new market tax credit investment	59		—		—		58		58
Secured borrowings	6		—		—		6		6
Junior subordinated debentures	148		—		—		150		150
Other long term borrowings	1,331		—		1,452		—		1,452
Total term borrowings	1,590		—		1,452		261		1,713
Derivative liabilities (a)	128		11		94		23		128
Total liabilities	$	7,768	$	11	$	7,620	$	284	$	7,915

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

(b)Level 1 primarily consists of mutual funds with readily determinable fair values. Level 3 includes restricted investments in FHLB-Cincinnati stock of $29 million and FRB stock of $203 million.

	December 31, 2020
	Book Value		Fair Value
(Dollars in millions)			Level 1		Level 2		Level 3		Total
Assets:
Loans and leases, net of allowance for loan and lease losses
Commercial:
Commercial, financial and industrial	$	32,651	$	—	$	—	$	32,582	$	32,582
Commercial real estate	12,033		—		—		12,079		12,079
Consumer:
Consumer real estate	11,483		—		—		11,903		11,903
Credit card and other	1,102		—		—		1,131		1,131
Total loans and leases, net of allowance for loan and lease losses	57,269		—		—		57,695		57,695
Short-term financial assets:
Interest-bearing deposits with banks	8,351		8,351		—		—		8,351
Federal funds sold	65		—		65		—		65
Securities purchased under agreements to resell	380		—		380		—		380
Total short-term financial assets	8,796		8,351		445		—		8,796
Trading securities (a)	1,176		—		1,176		—		1,176
Loans held for sale:
Mortgage loans (elected fair value) (a)	405		—		393		12		405
USDA & SBA loans - LOCOM	509		—		511		1		512
Other loans - LOCOM	31		—		31		—		31
Mortgage loans - LOCOM	77		—		—		77		77
Total loans held for sale	1,022		—		935		90		1,025
Securities available for sale (a)	8,047		—		8,015		32		8,047
Securities held to maturity	10		—		—		10		10
Derivative assets (a)	769		63		706		—		769
Other assets:
Tax credit investments	400		—		—		371		371
Deferred compensation mutual funds	118		118		—		—		118
Equity, mutual funds, and other (b)	288		25		—		263		288
Total other assets	806		143		—		634		777
Total assets	$	77,895	$	8,557	$	11,277	$	58,461	$	78,295
Liabilities:
Defined maturity deposits	$	5,070	$	—	$	5,083	$	—	$	5,083
Trading liabilities (a)	353		—		353		—		353
Short-term financial liabilities:
Federal funds purchased	845		—		845		—		845
Securities sold under agreements to repurchase	1,187		—		1,187		—		1,187
Other short-term borrowings	166		—		166		—		166
Total short-term financial liabilities	2,198		—		2,198		—		2,198
Term borrowings:
Real estate investment trust-preferred	46		—		—		47		47
Term borrowings—new market tax credit investment	45		—		—		45		45
Secured borrowings	15		—		—		15		15
Junior subordinated debentures	238		—		—		223		223
Other long term borrowings	1,326		—		1,455		—		1,455
Total term borrowings	1,670		—		1,455		330		1,785
Derivative liabilities (a)	149		71		64		14		149
Total liabilities	$	9,440	$	71	$	9,153	$	344	$	9,568

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

(b)Level 1 primarily consists of mutual funds with readily determinable fair values. Level 3 includes restricted investments in FHLB-Cincinnati stock of $61 million and FRB stock of $202 million.

The following table presents the contractual amount and fair value of unfunded loan commitments and standby and other commitments as of December 31, 2021 and December 31, 2020:

Table 8.24.8

UNFUNDED COMMITMENTS

	Contractual Amount				Fair Value
(Dollars in millions)	December 31, 2021		December 31, 2020		December 31, 2021		December 31, 2020
Unfunded Commitments:
Loan commitments	$	24,229	$	20,796	$	1	$	2
Standby and other commitments	810		751		6		6