Allowance for Loan Losses

As discussed in Note 1 - Summary of Significant Accounting Polices, the ALLL includes the following components: reserves for commercial loans evaluated based on pools of credit graded loans and reserves for pools of smaller-balance homogeneous consumer loans, both determined in accordance with ASC 450-20-50, and to a lesser extent, reserves determined in accordance with ASC 310-10-35 for loans determined by management to be individually impaired and an allowance associated with PCI loans.

For commercial loans, ASC 450-20-50 reserves are established using historical net loss factors by grade level, loan product, and business segment. The ALLL for smaller-balance homogeneous consumer loans is determined based on pools of similar loan types that have similar credit risk characteristics. ASC 450-20-50 reserves for the consumer portfolio are determined using segmented roll-rate models that incorporate various factors including historical delinquency trends, experienced loss frequencies, and experienced loss severities. Generally, reserves for consumer loans reflect inherent losses in the portfolio that are expected to be recognized over the following twelve months. The historical net loss factors for both commercial and consumer ASC 450-20-50 reserve models are subject to qualitative adjustments by management to reflect current events, trends, and conditions (including economic considerations and trends), which are not fully captured in the historical net loss factors. The pace of the economic recovery, performance of the housing market, unemployment levels, labor participation rate, the regulatory environment, regulatory guidance, and portfolio segment-specific trends, are examples of additional factors considered by management in determining the ALLL. Additionally, management considers the inherent uncertainty of quantitative models that are driven by historical loss data. Management evaluates the periods of historical losses that are the basis for the loss rates used in the quantitative models and selects historical loss periods that are believed to be the most reflective of losses inherent in the loan portfolio as of the balance sheet date. Management also periodically reviews an analysis of the loss emergence period which is the amount of time it takes for a loss to be confirmed (initial charge-off) after a loss event has occurred. FHN performs extensive studies as it relates to the historical loss periods used in the model and the loss emergence period and model assumptions are adjusted accordingly.

Impairment related to individually impaired loans is measured in accordance with ASC 310-10. For all commercial portfolio segments, commercial TDRs and other individually impaired commercial loans are measured based on the present value of expected future payments discounted at the loan’s effective interest rate (“the DCF method”), observable market prices, or for loans that are solely dependent on the collateral for repayment, the net realizable value (collateral value less estimated costs to sell). Impaired loans also include consumer TDRs. Generally, the allowance for TDRs in all consumer portfolio segments is determined by estimating the expected future cash flows using the modified interest rate (if an interest rate concession), incorporating payoff and net charge-off rates specific to the TDRs within the portfolio segment being assessed, and discounted using the pre-modification interest rate. The discount rates of variable rate TDRs are adjusted to reflect changes in the interest rate index to which the rates are tied. The discounted cash flows are then compared to the outstanding principal balance in order to determine required reserves. Residential real estate loans discharged through bankruptcy are collateral-dependent and are charged down to net realizable value (collateral value less estimated costs to sell).

The following table provides a rollforward of the allowance for loan losses by portfolio segment for December 31, 2017, 2016 and 2015:



(Dollars in thousands)	C&I			Commercial Real Estate			Consumer Real Estate			Permanent Mortgage			Credit Card and Other			Total
Balance as of January 1, 2017	$	89,398		$	33,852		$	50,357		$	16,289		$	12,172		$	202,068
Charge-offs	(17,657		)	(195		)	(13,156		)	(2,179		)	(13,207		)	(46,394		)
Recoveries	4,568			966			22,723			2,509			3,115			33,881
Provision/(provision credit) for loan losses	21,902			(6,196		)	(22,553		)	(1,054		)	7,901			—
Balance as of December 31, 2017	98,211			28,427			37,371			15,565			9,981			189,555
Allowance - individually evaluated for impairment	6,044			132			23,175			12,105			311			41,767
Allowance - collectively evaluated for impairment	89,358			28,291			13,841			3,460			9,670			144,620
Allowance - purchased credit-impaired loans	2,809			4			355			—			—			3,168
Loans, net of unearned as of December 31, 2017:
Individually evaluated for impairment	43,024			2,407			128,895			84,794			593			259,713
Collectively evaluated for impairment	15,909,110			4,181,908			6,200,330			314,513			613,806			27,219,667
Purchased credit-impaired loans	105,139			30,380			38,530			—			5,500			179,549
Total loans, net of unearned income	$	16,057,273		$	4,214,695		$	6,367,755		$	399,307		$	619,899		$	27,658,929
Balance as of January 1, 2016	$	73,637		$	25,159		$	80,614		$	18,947		$	11,885		$	210,242
Charge-offs	(18,460		)	(1,371		)	(21,993		)	(1,591		)	(14,224		)	(57,639		)
Recoveries	6,795			1,927			23,719			2,403			3,621			38,465
Provision/(provision credit) for loan losses	27,426			8,137			(31,983		)	(3,470		)	10,890			11,000
Balance as of December 31, 2016	89,398			33,852			50,357			16,289			12,172			202,068
Allowance - individually evaluated for impairment	4,219			194			28,802			12,470			133			45,818
Allowance - collectively evaluated for impairment	85,015			33,503			21,151			3,819			12,039			155,527
Allowance - purchased credit-impaired loans	164			155			404			—			—			723
Loans, net of unearned as of December 31, 2016:
Individually evaluated for impairment	47,962			3,124			153,460			93,926			306			298,778
Collectively evaluated for impairment	12,059,593			2,127,481			4,368,716			329,199			358,675			19,243,664
Purchased credit-impaired loans	40,532			4,918			1,576			—			52			47,078
Total loans, net of unearned income	$	12,148,087		$	2,135,523		$	4,523,752		$	423,125		$	359,033		$	19,589,520
Balance as of January 1, 2015	$	67,011		$	18,574		$	113,011		$	19,122		$	14,730		$	232,448
Charge-offs	(22,406		)	(3,550		)	(30,068		)	(3,141		)	(16,691		)	(75,856		)
Recoveries	13,339			1,876			23,895			1,687			3,853			44,650
Provision/(provision credit) for loan losses	15,693			8,259			(26,224		)	1,279			9,993			9,000
Balance as of December 31, 2015	73,637			25,159			80,614			18,947			11,885			210,242
Allowance - individually evaluated for impairment	3,643			481			31,278			15,463			167			51,032
Allowance - collectively evaluated for impairment	69,980			23,519			48,828			3,484			11,717			157,528
Allowance - purchased credit-impaired loans	14			1,159			508			—			1			1,682
Loans, net of unearned as of December 31, 2015:
Individually evaluated for impairment	30,472			9,055			165,684			102,461			377			308,049
Collectively evaluated for impairment	10,389,841			1,644,792			4,596,654			351,662			354,106			17,337,055
Purchased credit-impaired loans	16,077			21,088			4,180			—			53			41,398
Total loans, net of unearned income	$	10,436,390		$	1,674,935		$	4,766,518		$	454,123		$	354,536		$	17,686,502