Allowance For Loan Losses

9 Months Ended

Sep. 30, 2014

Loans And Leases Receivable Allowance [Abstract]

Note 5 - Allowance for Loan Losses

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 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. Additionally, management considers the inherent uncertainty of quantitative models that are driven by historical loss data. 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.

Commercial

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.

Retail

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.

Individually Impaired

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 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.

The following table provides a rollforward of the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2014 and 2013:
				Commercial		Consumer		Permanent		Credit Card
(Dollars in thousands)			C&I	Real Estate		Real Estate		Mortgage		and Other			Total
Balance as of July 1, 2013		$	93,502	$	13,931	$	120,848	$	27,103	$	6,550	$	261,934
Charge-offs			(4,869)		(515)		(16,412)		(1,366)		(2,884)		(26,046)
Recoveries			3,242		587		4,398		841		754		9,822
Provision			(495)		(3,010)		11,992		(1,022)		2,535		10,000
Balance as of September 30, 2013			91,380		10,993		120,826		25,556		6,955		255,710
Balance as of January 1, 2013		$	96,191	$	19,997	$	128,949	$	24,928	$	6,898	$	276,963
Charge-offs			(16,201)		(2,612)		(58,792)		(6,577)		(8,236)		(92,418)
Recoveries			9,839		2,703		14,932		1,609		2,082		31,165
Provision			1,551		(9,095)		35,737		5,596		6,211		40,000
Balance as of September 30, 2013			91,380		10,993		120,826		25,556		6,955		255,710
Allowance - individually evaluated for impairment			15,702		1,581		38,426		18,646		212		74,567
Allowance - collectively evaluated for impairment			75,678		9,412		82,400		6,910		6,743		181,143
Loans, net of unearned as of September 30, 2013:
	Individually evaluated for impairment		102,729		30,266		170,401		128,124		648		432,168
	Collectively evaluated for impairment		7,636,501		1,103,800		5,286,758		569,570		331,499		14,928,128
	Purchased credit-impaired loans (a)		7,712		39,645		888		-		15		48,260
Total loans, net of unearned		$	7,746,942	$	1,173,711	$	5,458,047	$	697,694	$	332,162	$	15,408,556
Balance as of July 1, 2014		$	68,591	$	15,821	$	118,037	$	23,727	$	17,452	$	243,628
Charge-offs			(3,741)		(1,789)		(13,465)		(1,047)		(3,642)		(23,684)
Recoveries			5,219		312		5,669		686		811		12,697
Provision			(199)		1,106		8,154		(3,145)		84		6,000
Balance as of September 30, 2014			69,870		15,450		118,395		20,221		14,705		238,641
Balance as of January 1, 2014		$	86,446	$	10,603	$	126,785	$	22,491	$	7,484	$	253,809
Charge-offs			(14,997)		(3,163)		(33,803)		(4,144)		(11,033)		(67,140)
Recoveries			8,338		2,323		16,113		1,958		2,240		30,972
Provision			(9,917)		5,687		9,300		(84)		16,014		21,000
Balance as of September 30, 2014			69,870		15,450		118,395		20,221		14,705		238,641
Allowance - individually evaluated for impairment			6,039		1,104		41,492		17,329		255		66,219
Allowance - collectively evaluated for impairment			63,783		11,613		76,845		2,892		14,450		169,583
Allowance - purchased credit-impaired loans			48		2,733		58		-		-		2,839
Loans, net of unearned as of September 30, 2014:
	Individually evaluated for impairment		46,862		22,365		174,532		118,537		548		362,844
	Collectively evaluated for impairment		8,425,391		1,221,636		4,955,813		454,252		351,958		15,409,050
	Purchased credit-impaired loans		5,076		34,393		643		-		11		40,123
Total loans, net of unearned		$	8,477,329	$	1,278,394	$	5,130,988	$	572,789	$	352,517	$	15,812,017

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

September 30, 2013 balances by portfolio have been re-presented to agree with current presentation.