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Allowance for Credit Losses
 3 Months Ended
Mar. 31, 2023
Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]  
Allowance for Credit Losses Allowance for Credit Losses
Management's estimate of expected credit losses in the loan and lease portfolios is recorded in the ALLL and the reserve for unfunded lending commitments, collectively referred to as the Allowance for Credit Losses, or the ACL. The ALLL and the reserve for unfunded lending commitments are reported on the Consolidated Balance Sheets in the allowance for loan and lease losses and in other liabilities, respectively. Provision for credit losses related to the loans and leases portfolio and the unfunded lending commitments are reported in the Consolidated Statements of Income as provision for credit losses.
The ACL is maintained at a level management believes to be appropriate to absorb expected lifetime credit losses over the contractual life of the loan and lease portfolio and unfunded lending commitments. The determination of the ACL is based on periodic evaluation of the loan and lease portfolios and unfunded lending commitments considering a number of relevant underlying factors, including key assumptions and evaluation of quantitative and qualitative information.
The expected loan losses are the product of multiplying FHN’s estimates of probability of default (PD), loss given default (LGD), and individual loan level exposure at default (EAD), including amortization and prepayment assumptions, on an undiscounted basis. FHN uses models or assumptions to develop the expected loss forecasts, which incorporate multiple macroeconomic forecasts over a four-year reasonable and supportable forecast period. After the reasonable and supportable forecast period, the Company immediately reverts to its historical loss averages, evaluated over the historical observation period, for the remaining estimated life of the loans. In order to capture the unique risks of the loan portfolio within the PD, LGD, and prepayment models, FHN segments the portfolio into pools, generally incorporating loan grades for commercial loans. As there can be no certainty that actual economic performance will precisely follow any specific macroeconomic forecast, FHN uses qualitative adjustments where current loan characteristics or current or forecasted economic conditions differ from historical periods.
The evaluation of quantitative and qualitative information is performed through assessments of groups of assets that share similar risk characteristics and certain individual loans and leases that do not share similar risk characteristics with the collective group. As described in Note 3 - Loans and Leases, loans are grouped generally by product type and significant loan portfolios are assessed for credit losses using analytical or statistical models. The quantitative component utilizes economic forecast information as its foundation and is primarily based on analytical models that use known or estimated data as of the balance sheet date and forecasted data over the reasonable and supportable period. The ACL is also
affected by qualitative factors that FHN considers to reflect current judgment of various events and risks that are not measured in the quantitative calculations, including alternative economic forecasts.
In accordance with its accounting policy elections, FHN does not recognize a separate allowance for expected credit losses for AIR and records reversals of AIR as reductions of interest income. FHN reverses previously accrued but uncollected interest when an asset is placed on nonaccrual status. AIR and the related allowance for expected credit losses is included as a component of other assets. The total amount of interest reversals from loans placed on nonaccrual status and the amount of income recognized on nonaccrual loans during the three months ended March 31, 2023 and 2022 were not material.
Expected credit losses for unfunded commitments are estimated for periods where the commitment is not unconditionally cancellable. The measurement of expected credit losses for unfunded commitments mirrors that of loans and leases with the additional estimate of future draw rates (timing and amount).
Prior to January 1, 2023, TDRs were reflected in FHN’s estimate of expected credit losses as described in Note 1 - Significant Accounting Policies, in its 2022 Form 10-K. Subsequent to December 31, 2022, in accordance with the provisions of ASU 2022-02, FHN has ceased recognition of TDRs and no longer performs discounted cash flow calculations for these loans to estimate expected credit losses. As described in Note 3 – Loans and Leases, FHN now monitors and discloses information associated with modifications to borrowers experiencing financial difficulty. For both commercial and consumer portfolio segments, an adjustment to the ACL is generally not recorded at the time of modification because FHN includes these modified loans in its quantitative loss estimation processes. In the event of principal forgiveness, which primarily occurs for commercial loan workouts and consumer loans experiencing bankruptcy, FHN records the reduction in expected collectible principal balance as a charge-off against the ALLL.
The increase in the ACL balance as of March 31, 2023 as compared to December 31, 2022 largely reflects potential economic instability projected in the macroeconomic forecasts resulting from inflation and interest rate increases. In developing credit loss estimates for its loan and lease portfolios, FHN utilized two Moody’s forecast scenarios for its macroeconomic inputs. As of March 31, 2023, FHN's scenario selection process focused on key economic drivers such as unemployment and economic activity including recession risk. Risks considered include: the effects of inflation, rising interest rates, supply chain disruptions, labor/wage constraints, and international conflict. FHN selected one scenario as its base case, which
was the Moody's baseline growth scenario. The heaviest weight was placed on the FHN-selected downside scenario. A smaller weight was placed on the baseline forecast which assumed positive real GDP growth over the forecast horizon. No weighting was applied to the more positive macroeconomic scenario.
Management also made qualitative adjustments to reflect estimated recoveries based on a review of prior charge-off and recovery levels, for default risk associated with large
balances with individual borrowers, for estimated loss amounts not reflected in historical factors due to specific portfolio risk, and for instances where limited data for acquired loans is considered to affect modeled results.
The following table provides a rollforward of the ALLL and the reserve for unfunded lending commitments by portfolio type for the three months ended March 31, 2023 and 2022:

ROLLFORWARD OF ALLL & RESERVE FOR UNFUNDED LENDING COMMITMENTS
(Dollars in millions)Commercial, Financial, and Industrial (a)Commercial Real EstateConsumer Real EstateCredit Card and OtherTotal
Allowance for loan and lease losses:
Balance as of January 1, 2023$308 $146 $200 $31 $685 
Adoption of ASU 2022-021 — (7)— (6)
Charge-offs(14)(2)(1)(5)(22)
Recoveries3 — 2 1 6 
Provision for loan and lease losses 27 6 15 4 52 
Balance as of March 31, 2023$325 $150 $209 $31 $715 
Reserve for remaining unfunded commitments:
Balance as of January 1, 202355 22 10 — 87 
Provision for remaining unfunded commitments (2)(1)1 — (2)
Balance as of March 31, 202353 21 11 — 85 
Allowance for credit losses as of March 31, 2023$378 $171 $220 $31 $800 
Allowance for loan and lease losses:
Balance as of January 1, 2022$334 $154 $163 $19 $670 
Charge-offs(13)— (1)(5)(19)
Recoveries 3 — 5 1 9 
Provision for loan and lease losses (37)(3)(3)5 (38)
Balance as of March 31, 2022$287 $151 $164 $20 $622 
Reserve for remaining unfunded commitments:
Balance as of January 1, 2022$46 $12 $8 $— $66 
Provision for remaining unfunded commitments (3)— 1 — (2)
Balance as of March 31, 202243 12 9 — 64 
Allowance for credit losses as of March 31, 2022$330 $163 $173 $20 $686 
(a) C&I loans as of March 31, 2023 and 2022 include $53 million and $642 million in PPP loans, respectively, which due to the government guarantee and forgiveness provisions are considered to have no credit risk and therefore have no allowance for loan and lease losses.

The table below presents gross charge-offs by year of origination as of March 31, 2023:

 GROSS CHARGE-OFFS
(Dollars in millions)20232022202120202019Prior to 2019Revolving LoansTotal
C&I$— $5 $— $1 $— $6 $2 $14 
CRE— — — — 2 — — 2 
Consumer Real Estate— — — — — 1 — 1 
Credit Card and Other— — — — — 3 2 5 
Total$— $5 $— $1 $2 $10 $4 $22