The allowance for loan losses ("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 retail loans, both determined in accordance with ASC 450-20-50. The reserve factors applied to these pools are an estimate of probable incurred losses based on management's evaluation of historical net losses from loans with similar characteristics and are subject to qualitative adjustments by management to reflect current events, trends, and conditions (including economic considerations and trends). The slow economic recovery, performance of the housing market, unemployment levels, labor participation rate, the regulatory environment, regulatory guidance, and both positive and negative portfolio segment-specific trends, are examples of additional factors considered by management in determining the ALLL. The ALLL also includes 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, reserves are established using historical net loss factors by grade level, loan product, and business segment. An assessment of the quality of individual commercial loans is made utilizing credit grades assigned internally based on a dual grading system which estimates both the PD and loss severity in the event of default. PD grades range from 1-16 while estimated loss severities, or LGD grades, range from 1-12. 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. The appropriate relationship team performs the process of categorizing commercial loans into the appropriate credit grades, initially as a component of the approval of the loan, and subsequently throughout the life of the loan as part of the servicing regimen. The proper loan grade for larger exposures is confirmed by a senior credit officer in the approval process. To determine the most appropriate credit grade for each loan, the credit risk grading system employs scorecards for particular categories of loans that consist of a number of objective and subjective measures that are weighted in a manner that produces a rank ordering of risk within pass-graded credits. Loan grading discipline is regularly reviewed by Credit Risk Assurance 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.

The ALLL for smaller-balance homogenous retail loans is determined based on pools of similar loan types that have similar credit risk characteristics. FHN manages retail loan credit risk on a class basis. Reserves by 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 retail loans reflect inherent losses in the portfolio that are expected to be recognized over the following twelve months.

Generally, classified nonaccrual commercial loans over $1 million and all commercial and consumer loans classified as TDRs are deemed to be impaired and are individually assessed for impairment measurement in accordance with ASC 310-10-35. For all commercial portfolio segments, 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. For loans measured using the DCF method or by observable market prices, if the recorded investment in the impaired loan exceeds this amount, a specific allowance is established as a component of the ALLL until such time as a loss is expected and recognized; for impaired collateral-dependent loans, FHN will charge off the full difference between the book value and the best estimate of net realizable value.

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 in 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.

The following table provides a rollforward of the allowance for loan losses by portfolio segment for the three months ended March 31, 2014 and 2013:
				Commercial		Consumer		Permanent		Credit Card
(Dollars in thousands)		C&I		Real Estate		Real Estate		Mortgage		and Other		Total
Balance as of January 1, 2013		$	96,191	$	19,997	$	128,949	$	24,928	$	6,898	$	276,963
Charge-offs			(4,436)		(1,381)		(23,996)		(3,387)		(2,900)		(36,100)
Recoveries			2,496		646		5,504		144		565		9,355
Provision			(8,146)		(4,124)		20,960		3,763		2,547		15,000
Balance as of March 31, 2013			86,105		15,138		131,417		25,448		7,110		265,218
Allowance - individually evaluated for impairment			15,463		156		40,778		22,239		231		78,867
Allowance - collectively evaluated for impairment			70,642		14,982		90,639		3,209		6,879		186,351
Loans, net of unearned as of March 31, 2013:
	Individually evaluated for impairment		111,036		43,501		165,927		120,054		747		441,265
	Collectively evaluated for impairment		7,980,150		1,072,378		5,424,253		673,228		298,396		15,448,405
Total loans, net of unearned		$	8,091,186	$	1,115,879	$	5,590,180	$	793,282	$	299,143	$	15,889,670
Balance as of January 1, 2014		$	86,446	$	10,603	$	126,785	$	22,491	$	7,484	$	253,809
Charge-offs			(5,807)		(627)		(12,264)		(2,218)		(3,776)		(24,692)
Recoveries			1,602		279		4,974		578		696		8,129
Provision			(9,509)		5,268		3,914		1,670		8,657		10,000
Balance as of March 31, 2014			72,732		15,523		123,409		22,521		13,061		247,246
Allowance - individually evaluated for impairment			5,187		1,495		43,653		19,211		236		69,782
Allowance - collectively evaluated for impairment			67,477		12,207		79,746		3,310		12,825		175,565
Allowance - purchased credit impaired loans			68		1,821		10		-		-		1,899
Loans, net of unearned as of March 31, 2014:
	Individually evaluated for impairment		54,968		26,701		173,577		121,843		772		377,861
	Collectively evaluated for impairment		7,691,266		1,086,829		5,083,734		500,399		333,020		14,695,248
	Purchased credit impaired loans		6,761		38,888		703		-		-		46,352
Total loans, net of unearned		$	7,752,995	$	1,152,418	$	5,258,014	$	622,242	$	333,792	$	15,119,461

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