ANNUAL REPORT 2017
CORPORATE OVERVIEW
Our Commitment
At First Horizon National Corp. we are committed to
our customers, our people, our communities and our
shareholders. We demonstrate that commitment through
financial performance and corporate responsibility. We
make investments that benefit our stakeholders because
when they prosper, so do we. In 2017 we continued to
make progress toward a future of sustained success – a
future based on our 154-year history of earning the trust of
Tennesseans, on our core regional banking and fixed income
businesses, on the dedication of our 6,000 employees,
on our support for the communities we serve and on the
confidence of our shareholders.
Our People
We know that a company is only as strong as its people.
We seek to attract, develop and retain the best people and
empower them to serve our customers in exceptional ways.
Our employee focus and our distinctive corporate culture –
Firstpower – have earned us national recognition as one
of the best companies to work for in America. Firstpower
promotes accountability, adaptability, integrity and
relationships, the pillars of our culture. First Horizon has
been recognized as an outstanding employer by American
Banker and Working Mother magazines and the National
Association for Female Executives.
Our Core Businesses
Regional banking: First Tennessee Bank has provided
financial services in local communities since 1864. Today
we have more than 300 offices across the southern U.S. We
have the top deposit market share in Tennessee, according
to the latest FDIC figures. Our focus on consistently
offering a distinctive customer experience has resulted in
one of the highest customer retention rates of any bank
in the country. Personal service, advanced technology
and helpful employees set First Tennessee apart. We are
consistently named best bank in newspaper reader surveys
in the communities we serve.
In 2017 we closed our merger with Capital Bank and added
to our growing presence in the Carolinas, Virginia and
Florida – our Mid-Atlantic region. In 2014 we opened an
office in Houston, Texas that continues to excel. In these
new markets our services include commercial real estate,
private client, commercial banking, wealth management
and corporate and commercial lending. FTB Advisors, our
wealth management team, offers access to the same products
available from national brokerage firms delivered by local
professionals who care about our communities and customers.
Our goal is to be easy to do business with, to be the best
at serving customers in all our business lines. We offer a
full range of products, convenient locations and hours,
and the latest advances in mobile banking. We’ve been
recognized by InformationWeek magazine as one of the
most innovative users of technology. In fact, First Tennessee
was the first bank in our markets to offer mobile banking
for commercial customers and mobile check deposit
to consumers, and our customers have enthusiastically
embraced these new ways of doing business. Above all, our
knowledgeable employees strive to be proactive and help
customers manage their money and make sound financial
decisions for the future. That adds up to a distinctive
customer experience – our competitive advantage. More
information is available at www.FirstTennessee.com,
www.CapitalBank-US.com or at any of our convenient
offices.
Fixed income: FTN Financial is an industry leader in
fixed income sales, trading and strategies for institutional
customers in the U.S. and abroad. The strength of FTN
Financial’s platform is its extensive fixed income distribution
network of 4,700 institutional customers worldwide,
including approximately half of all U.S. banks with portfolios
over $100 million. FTN Financial also provides investment
services and balance sheet management solutions.
With 28 offices across the country, FTN Financial provides
a broad spectrum of financial services for the investment
and banking communities through the integration of
traditional capital markets securities activities, loan sales,
portfolio advisory services and derivative sales.
In 2017, FTN Financial’s performance again
demonstrated the strength of our fixed income platform,
anchored in our experienced sales and trading resources
and deep customer relationships. More information can
be found at www.FTNFinancial.com.
Our Communities
We share the hopes of our neighbors for a better place
to live and work. In addition to the financial services
we provide and the jobs and spending we bring to local
economies, we express our corporate citizenship through
our volunteer spirit and community investment.
Our employee volunteer program has received national
recognition from the Financial Services Roundtable. In
2017, our volunteers donated more than 24,000 hours of
community service, and we supported their efforts through
leadership grants to nearly 200 nonprofits and more than
380 matching gifts.
In 2017, our First Tennessee Community Development
Fund awarded grants to 150 organizations to support low to
moderate income residents in the communities we serve.
We established the First Tennessee Foundation in 1993 to
invest in the communities we serve. Through this private
charitable foundation, we make donations in a way that
engages our employees, responds inclusively to needs and
promotes progress and prosperity throughout Tennessee
and across our footprint. Since its inception, the First
Tennessee Foundation has donated more than $80 million
to meet community needs. In 2017, our Foundation
awarded grants to nearly 600 nonprofits. More information
can be found at www.FirstTennesseeFoundation.com.
We focus our community investment in key areas:
Financial literacy and education: To plant the seeds
of success, we give to help educate young people. Our
volunteers provide tutoring to students, with a special
emphasis on financial literacy. The Tennessee Financial
Literacy Commission has named us an outstanding
corporate partner. We have partnered with Operation
HOPE, a national nonprofit, to offer free credit counseling
workshops at several of our locations. We support local
schools, colleges and universities across our footprint.
Economic development: To encourage jobs and growth,
we support Chambers of Commerce, regional development
initiatives and small business resources. We have helped
secure grants for nonprofits to develop hundreds of units
of affordable housing. We have developed flexible banking
products to expand access for the underserved.
Health and human services: We are one of the largest
United Way supporters in Tennessee. Our executives serve
in community-wide leadership roles, and our employees
volunteer in agencies working to better our communities.
To ensure that our employees and neighbors have access
to top-quality care, First Tennessee supports healthcare
institutions throughout the state.
Arts and culture: Because art plays a vital role in a
healthy community, the First Tennessee Foundation is a
long-time supporter. Arts organizations, museums, theaters,
symphonies and cultural institutions throughout the state
receive support.
Our World
Concern for environmental sustainability is part of the way
we do business. In addition to the company’s commitment,
the First Tennessee Foundation supports green projects
across the state such as nature conservancy, bike trails and
historic preservation. Examples of our sustainable practices:
•
In 2017, our recycling program with Cintas Document
Management helped us save the equivalent of an
estimated 24,000 trees, enough energy to supply
365 homes a year, nearly 23 million gallons of water,
nearly 2 million pounds of solid waste and the
equivalent of the greenhouse gasses produced by
519 cars each year.
• We continue to use less paper and cardboard and recycle
an average of 5 tons of paper a month.
• To reduce water consumption, we use indigenous plants
for landscaping at all new facilities.
• Buildings are designed with a goal of enhancing energy
efficiency and sustainability, from window blinds to the
heating and cooling systems to motion-sensor lighting
and low-volume flush valves and faucets.
• Recycled products are used in carpeting, wallpaper,
fabrics and parking abutments.
• At our facilities, air conditioning equipment uses
environmentally friendly refrigerant, and we continue
to upgrade aging equipment at our locations, using
environmentally friendly refrigerant and improving air
quality and efficiency.
• Our First Operations West facility generates
approximately $14,000 in savings per year in energy
consumption, via onsite solar panels.
• At our Corporate Headquarters, we use water
reclamation to reduce the amount of water used during
the summer months by taking condensate water and
injecting it back into our cooling towers.
• Enterprise-wide, we are replacing all light sources with
energy efficient LED lamps and fixtures.
Our Promise
We promise to be the best at serving our customers, one
opportunity at a time. We will continue to advance our
people, support our communities and reward our investors.
Carrying on our 154-year tradition, First Horizon is
building for a bright future.
CHAIRMAN’S LETTER
SIGNIFICANT TRANSFORMATION, SMOOTH INTEGRATION
Dear Fellow First Horizon Shareholders:
First Horizon experienced a transformational year in 2017,
closing our merger with Capital Bank – the largest in our
company’s history. The merger resulted in a $41 billion
organization and prepares us for growth in very attractive
markets. The Capital Bank merger also positions us to
continue to invest in industry-leading products and services
to meet evolving customer needs.
Thanks to the hard work and dedication of our people, we
are on track to substantially complete the integration in the
second quarter of 2018.
First Horizon’s merger with Capital Bank created
the fourth-largest regional bank headquartered in the
Southeast, with more than 300 branches in eight states.
Our company now has a meaningful presence in attractive,
high-growth markets in the Carolinas and South Florida,
along with an expanded footprint in Middle Tennessee.
We believe these markets, which have above-average
population growth and robust economies, will be significant
performance drivers for our company.
Capital Deployment Actions and Enhanced Merger
Economics
When we announced our merger with Capital Bank in May
2017, we estimated cost savings of $65 million through
vendor savings, technology, corporate functions and bank
operations. Within six months we increased that amount
significantly to $85 million. We now estimate revenue
synergies of $25 million to $30 million over the next two to
three years.
Revenue synergies include:
Commercial
• Selling a full product suite across a larger client base
• Expanding treasury management services and clients
• Growing our balance sheet with a higher lending
capacity
• Generating organic growth through expanded
geographic opportunities
Consumer
•
Increasing branch deposit-gathering efficiencies in the
Capital Bank network
•
Introducing private client / wealth management services
to the Capital Bank network
• Expanding Capital Bank mortgage platforms in the
First Horizon network
• Achieving peer-level credit card penetration
In 2017, we completed the acquisition of Coastal Securities,
a national leader in the trading, securitization and analysis
of Small Business Administration loans. Coastal also trades
United States Department of Agriculture loans and fixed
income products and provides municipal underwriting
and advisory services. The Coastal Securities transaction
broadened depth and diversity for product offerings in the
fixed income business.
Also in 2017, First Tennessee Bank National Association
acquired PMC, a leading provider of institutional debt
capital and commercial mortgage loan servicing, which
expanded the capabilities of our commercial real estate
platform.
In addition to deploying capital through acquisitions, we
increased our annual common dividend rate by 29 percent
to $0.36 per share, and in early 2018 we increased it again
by 33 percent to $0.48 per share.
Innovation, technology spur new opportunities
The rate of technological change in financial services is
unprecedented. As fintech continues to transform our
industry, First Horizon is prepared to meet new challenges
and pursue new opportunities. We recognize the changing
landscape of banking, driven by customers seeking
expanded digital banking services. As new, disruptive
technologies are introduced to the market, we will continue
to offer our customers leading edge solutions to their
day-to-day business challenges. We have upgraded our
digital banking platform and our mobile app, and we are
engaging with technology firms to optimize transactions
as customer preferences shift. Our improvements have
generated impressive results, and in 2017 First Tennessee
was ranked by Money as the top bank in Tennessee.
Our company is dedicated to exploring ways we can utilize
technology and innovation to offer differentiated service
to existing customers, attract new ones and operate more
efficiently. We believe our adaptability will enable us to
thrive in an ever-changing environment.
Strong foundation, solid growth
First Horizon’s impressive performance during 2017 was
driven by strong fundamentals. We demonstrated healthy
growth in our balance sheet, maintained stable credit
quality, and remain well positioned to deliver on strategic
priorities and create long-term value for our shareholders.
During the past year, we generated solid growth in loans
and deposits at First Tennessee. From 2016 to 2017, our
regional bank average loans grew 13 percent, average
deposits were up 11 percent, and revenue was up 12 percent
from increased net interest income and higher fee income.
Balance sheet growth was driven by our focus on specialty
lending areas that are higher return businesses and generate
strong levels of economic profit. Asset quality trends
remained strong, reflecting disciplined underwriting from
our experienced bankers.
Despite challenging conditions that led to lower sales
volumes in 2017, FTN Financial remains an industry leader
in fixed income, sales, trading and strategies for institutional
customers. In recent years, FTN Financial has transacted
business with about 40 percent of all domestic depositories
with portfolios over $100 million.
Strategic focus, increased performance
As we celebrate our 154th year, we remain committed to
strengthening our customer relationships, expanding our
presence across our markets and improving and growing all
lines of business.
Commitment to our Bonefish strategy is producing
long-term earnings power and solid returns for our
shareholders. By concentrating on efficiency, productivity
and economic profit, First Horizon is a more responsive
and higher return company.
The efficiency model enables us to work smarter to
streamline processes and perform sharper to increase
profitability. As we engage in an ever-evolving industry,
we have continued to increase loans and deposits, we have
maintained our No. 1 market share position in Tennessee,
and we are pursuing new growth opportunities in new
markets.
Our investments over the past few years in our specialty
lending areas such as franchise finance, music industry
banking and healthcare continue to deliver strong results.
Our experienced bankers who are leading these segments
are helping our company grow its business throughout our
footprint and with customers across the country.
We expect to achieve our Bonefish ROTCE target by
year-end 2018. Our merger with Capital Bank accelerates
our hitting the targets by bringing scale and efficiency
to our company. Tax reform and potential rate hikes will
further accelerate reaching these goals.
Exceptional culture, continued excellence
Building on our exceptional culture and our tradition of
excellence, First Horizon is consistently recognized as
one of the top workplaces in the country. We focus on
attracting, recruiting and retaining the best and brightest
employees who are dedicated to providing differentiated
service that sets us apart. Recently we distributed
$1,000 bonuses to approximately 70 percent of our
employees, increased the minimum pay level of employees
to $15 an hour, and contributed $16.5 million to our
Foundation.
Our commitment to diversity and inclusion has created
a culture where employees are engaged and empowered.
During the past year we were once again named one of the
Top 60 Companies for Executive Women by the National
Association for Female Executives, and one of the nation’s
top employers by American Banker and Working Mother
magazines. In 2017, First Horizon was also named one
of the 25 Best Companies for Multicultural Women by
Working Mother magazine, and First Tennessee was
honored by American Banker as No. 5 on its list of Top 10
Most Reputable Banks in the nation.
The drivers of our success are our dedicated employees,
whose contributions create engaging workplaces and
vibrant communities. During 2017, our employees logged
more than 24,000 hours of volunteer service at charitable
and civic organizations and participated in nearly
5,300 unique volunteer events.
Our corporate citizenship delivers a similarly powerful
impact. In 2017, the First Tennessee Foundation awarded
grants to nearly 600 nonprofits across our footprint, and
our First Tennessee Community Development Fund
awarded grants to 150 organizations that support the
needs of low to moderate income communities. These
combined contributions reached nearly $11 million in the
communities we serve. When our communities thrive we
thrive, and our actions prove our commitment to this belief.
Harnessing momentum, maximizing opportunities
We enter 2018 with great momentum, fueled by the
transformational merger with Capital Bank. The power of
these two brands will open up exciting new avenues for us
and increase opportunities for growth.
With our expanded footprint and capabilities, we are able
to offer the same products and services from Houston to
Memphis, from Nashville to Knoxville, from Raleigh to
Naples. Our growing presence reflects a company that is
stronger than ever and prepared for an outstanding future.
We are proud of our impressive gains of the past year and
excited about the opportunities ahead. As we build on the
momentum of our legacy of 154 years, we remain dedicated
to providing differentiated service for our customers and
increasing returns for shareholders.
Thank you to our employees for their dedication, to our
customers for their trust, and to our communities for their
support. We appreciate the investment and confidence of
our shareholders, and we will continue to work hard to
justify that trust as we build a bright future together.
Sincerely,
D. Bryan Jordan
Chairman, President and CEO
First Horizon National Corp.
March 1, 2018
2017 HIGHLIGHTS
• Completed merger with Capital Bank, creating the fourth largest
regional bank in the Southeast with $41 billion in assets and
more than 300 branches
• Total revenue was up 4 percent, driven by 16 percent increase
in net interest income
• Net interest margin rose 18 basis points
• Regional banking grew average loans 13 percent, increased
average deposits 11 percent and maintained No. 1 market
share in Tennessee
• Increased dividend 29 percent in 2017 and by 33 percent in
2018
• Closed acquisitions of Coastal Securities and PMC
• Invested tax gains into its people and communities through
charitable contributions, employee bonuses and pay increases
• Expanded partnership with Operation HOPE by opening five
new offices in Tennessee and one in Mississippi, promoting
economic empowerment in distressed neighborhoods and
offering free credit counseling workshops,
• Distributed nearly $11 million through grants from the First
Tennessee Foundation and Community Development Fund
Note: All growth comparisons are from 2016-2017. Deposit
market share ranking is based on FDIC data as of June 30, 2017.
©2018 First Horizon National Corporation
FINANCIAL INFORMATION AND DISCUSSION
TABLE OF CONTENTS
Selected Financial and Operating Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
General Information
Forward-Looking Statements
Financial Summary – 2017 compared to 2016
Business Line Review – 2017 compared to 2016
Income Statement Review – 2017 compared to 2016; 2016 compared to 2015
Statement of Condition Review – 2017 compared to 2016
Capital - 2017 compared to 2016
Asset Quality – Trend Analysis of 2017 compared to 2016
Risk Management
Repurchase Obligations, Off-Balance Sheet Arrangements, and Other Contractual Obligations
Market Uncertainties and Prospective Trends
Critical Accounting Policies
Quarterly Financial Information
Non-GAAP Information
Glossary of Selected Financial Terms and Acronyms
Report of Management on Internal Control over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Condition
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Consolidated Historical Statements of Income
Consolidated Average Balance Sheets and Related Yields and Rates
Total Shareholder Return Performance Graph
FIRST HORIZON NATIONAL CORPORATION
2
3
3
5
6
7
9
19
24
27
47
57
63
64
68
69
70
76
77
79
80
81
82
83
84
182
184
186
SELECTED FINANCIAL AND OPERATING DATA
(Dollars in millions except per share data)
Income/(loss) from continuing operations
Income/(loss) from discontinued operations, net of tax
Net income/(loss)
Income/(loss) available to common shareholders
Common Stock Data
Earnings/(loss) per common share from continuing operations
Earnings/(loss) per common share
Diluted earnings/(loss) per common share from continuing operations
Diluted earnings/(loss) per common share
Cash dividends declared per common share
Book value per common share
Closing price of common stock per share:
High
Low
Year-end
Cash dividends per common share/year-end closing price
Cash dividends per common share/diluted earnings per common share
Year-end price/earnings ratio
Market capitalization
Average shares (thousands)
Average diluted shares (thousands)
Period-end shares outstanding (thousands)
Volume of shares traded (thousands)
Selected Average Balances
Total assets
Total loans, net of unearned income
Securities available-for-sale
Earning assets
Total deposits
Total term borrowings
Common equity
Total equity
Selected Period-End Balances
Total assets
Total loans, net of unearned income
Securities available-for-sale
Earning assets
Total deposits
Total term borrowings
Common equity
Total equity
Selected Ratios
Return on average common equity (a)
Return on average tangible common equity (b) (c)
Return on average assets (d)
Net interest margin (e)
Allowance for loan losses to loans
Net charge-offs to average loans
Total period-end equity to period-end assets
Tangible common equity to tangible assets (c)
Common equity tier 1 ratio
2017
2016
2015
2014
2013
$
$
177.0 $
-
177.0
159.3
238.5 $
-
238.5
220.8
0.66 $
0.66
0.65
0.65
0.36
12.82
0.95 $
0.95
0.94
0.94
0.28
9.90
97.3 $
-
97.3
79.7
0.34 $
0.34
0.34
0.34
0.24
9.42
234.0 $
-
234.0
216.3
0.92 $
0.92
0.91
0.91
0.20
9.35
37.8
0.5
38.4
21.1
0.09
0.09
0.09
0.09
0.20
8.87
20.76
16.05
19.99
20.61
11.62
20.01
16.20
12.31
14.52
13.91
11.18
13.58
12.55
9.72
11.65
1.7%
70.6%
42.7x
1.4%
29.8%
21.3x
1.8%
55.4%
30.75x
1.7%
222.2%
129.4x
$ 6,531.5 $ 4,674.8 $ 3,464.3 $ 3,180.7 $ 2,753.7
237,972
234,189
239,794
236,266
236,370
238,587
787,295
562,553
234,997
236,735
234,220
592,399
232,700
235,292
233,624
574,196
241,436
244,453
326,736
790,153
1.5%
22.0%
14.9x
$29,924.8 $27,427.2 $25,636.0 $23,993.0 $24,399.9
15,726.4
16,624.4
3,180.4
3,692.3
21,772.0
23,456.2
16,340.2
18,753.7
1,942.3
1,557.2
2,135.6
2,190.1
2,518.8
2,581.2
15,521.0
3,548.4
21,825.2
16,401.7
1,591.0
2,200.9
2,592.0
18,303.9
4,002.1
25,180.1
20,898.8
1,130.2
2,300.4
2,691.5
20,104.0
4,021.6
27,461.0
23,072.1
1,077.3
2,579.3
2,970.3
$41,423.3 $28,555.2 $26,192.6 $25,665.4 $23,782.4
15,389.1
17,686.5
3,398.5
3,929.8
21,168.4
23,971.5
16,735.0
19,967.5
1,737.8
1,312.7
2,097.3
2,248.5
2,488.4
2,639.6
16,230.2
3,556.6
23,470.9
18,068.9
1,877.3
2,190.5
2,581.6
19,589.5
3,943.5
26,280.2
22,672.4
1,040.7
2,314.0
2,705.1
27,658.9
5,170.3
36,953.4
30,620.4
1,218.1
4,189.4
4,580.5
6.18%
7.23
0.59
3.12
0.69
0.06
11.06
6.57
8.88
9.60%
10.59
0.87
2.94
1.03
0.10
9.47
7.42
9.94
3.64%
3.97
0.38
2.83
1.19
0.19
10.08
7.82
10.45
9.83%
10.62
0.98
2.92
1.43
0.31
10.06
7.91
N/A
0.99%
1.07
0.16
2.96
1.65
0.50
10.46
8.19
N/A
See accompanying notes to consolidated financial statements.
Numbers may not add due to rounding.
N/A - Not applicable
(a) Calculated using net income/(loss) available to common shareholders divided by average common equity.
(b) Calculated using adjusted tangible common equity divided by risk weighted assets.
(c) Represents a non-GAAP measure which is reconciled in the non-GAAP to GAAP reconciliation in table 33.
(d) Calculated using net income divided by average assets.
(e) Net interest margin is computed using total net interest income adjusted to a FTE basis assuming a statutory federal income tax rate of 35
percent and, where applicable, state income taxes.
2
FIRST HORIZON NATIONAL CORPORATION
F I R S T H O R I Z O N N A T I O N A L C O R P O R A T I O N
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S O F F I N A N C I A L
C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
GENERAL INFORMATION
First Horizon National Corporation (“FHN”) began as a community bank chartered in 1864 and as of
December 31, 2017, was one of the 30 largest publicly traded banking organizations in the United States in terms
of asset size.
FHN is the parent company of First Tennessee Bank National Association (“FTBNA”). FTBNA’s principal divisions
and subsidiaries operate under the brands of First Tennessee Bank, Capital Bank, FTB Advisors, and FTN
Financial. FHN offers regional banking, wealth management and capital market services through the First Horizon
family of companies. First Tennessee Bank, Capital Bank, and FTB Advisors provide consumer and commercial
banking and wealth management services. FTN Financial (“FTNF”), which operates partly through a division of
FTBNA and partly through subsidiaries, is an industry leader in fixed income sales, trading, and strategies for
institutional clients in the U.S. and abroad. FTBNA has over 350 banking offices in eight southeastern U.S. states,
and FTNF has 28 offices in 18 states across the U.S.
FHN is composed of the following operating segments:
• Regional banking segment offers financial products and services, including traditional lending and deposit
taking, to consumer and commercial customers in Tennessee, North Carolina, South Carolina, Florida and
other selected markets. Regional banking also provides investments, financial planning, trust services and
asset management, mortgage banking, credit card, and cash management. Additionally, the regional
banking segment includes correspondent banking which provides credit, depository, and other banking
related services to other financial institutions nationally.
• Fixed income segment consists of fixed income securities sales, trading, and strategies for institutional
clients in the U.S. and abroad, as well as loan sales, portfolio advisory services, and derivative sales.
• Corporate segment consists of unallocated corporate expenses, expense on subordinated debt issuances,
bank-owned life insurance, unallocated interest income associated with excess equity, net impact of raising
incremental capital, revenue and expense associated with deferred compensation plans, funds management,
tax credit investment activities, derivative valuation adjustments related to prior sales of Visa Class B shares,
gain/(loss) on extinguishment of debt, and acquisition- and integration-related costs.
• Non-strategic segment consists of the wind-down national consumer lending activities, legacy mortgage
banking elements including servicing fees, and the associated ancillary revenues and expenses related to
these businesses. Non-strategic also includes the wind-down trust preferred loan portfolio and exited
businesses.
On November 30, 2017, FHN completed its acquisition of Capital Bank Financial Corporation (“CBF”) and its
subsidiaries, including Capital Bank Corporation for an aggregate of 92,043,171 shares of FHN common stock and
$423.6 million in cash in a transaction valued at $2.2 billion. CBF operated 178 branches in North and South
Carolina, Tennessee, Florida and Virginia at the time of closing.
On October 2, 2017, FTBNA acquired the operations and certain assets of Professional Mortgage Company, Inc.
(“PMC”). PMC was a provider of institutional debt capital and commercial mortgage loan servicing. Eleven
professionals joined FTBNA’s commercial real estate (“CRE”) team as a result of the transaction, expanding the
capabilities of its CRE platform.
On April 3, 2017, FTNF acquired substantially all of the assets and assumed substantially all of the liabilities of
Coastal Securities, Inc. (“Coastal”), a national leader in the trading, securitization, and analysis of Small Business
Administration (“SBA”) loans, for approximately $131 million in cash. Coastal, which was based in Houston, TX,
FIRST HORIZON NATIONAL CORPORATION
3
also traded United States Department of Agriculture (“USDA”) loans and fixed income products and provided
municipal underwriting and municipal advisory services to its clients. Coastal’s government-guaranteed loan
products were combined with FTNF’s existing SBA trading activities to establish an additional major product sector
for FTNF.
On September 16, 2016, FTBNA acquired $537.4 million of unpaid principal balance (“UPB”) in restaurant
franchise loans from GE Capital. The acquired loans were combined with existing FTBNA relationships to establish
a franchise finance specialty banking business.
On October 2, 2015, FHN completed its acquisition of TrustAtlantic Financial Corporation (“TrustAtlantic Financial”
or “TAF”), and its wholly owned bank subsidiary TrustAtlantic Bank (“TAB”), for an aggregate of 5.1 million shares
of FHN common stock and $23.9 million in cash in a transaction valued at $96.7 million. The fair value of the
acquired assets totaled $445.3 million, including $281.9 million in loans. FHN also assumed $344.1 million of TAB
deposits.
In relation to all acquisitions, FHN’s operating results include the operating results of the acquired assets and
assumed liabilities subsequent to the acquisition date. Refer to Note 2 - Acquisitions and Divestitures for additional
information.
For the purpose of this management’s discussion and analysis (“MD&A”), earning assets have been expressed as
averages, unless otherwise noted, and loans have been disclosed net of unearned income. The following financial
discussion should be read with the accompanying audited Consolidated Financial Statements and Notes in this
report.
ADOPTION OF ACCOUNTING UPDATES
Issued in February 2018, ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income,” provides an election for reclassification from accumulated other comprehensive income to
retained earnings for stranded tax effects solely resulting from the Tax Cuts and Jobs Act (“the Tax Act”). The
stranded tax effects were created because current accounting requirements indicate that all changes in deferred
tax assets and liabilities due to changes in enacted tax rates be recorded through tax provision, even when the
deferred tax asset or liability was originally created with an offset to accumulated comprehensive income. For FHN,
this includes net deferred tax assets related to net unrealized losses on available-for-sale (“AFS”) securities, net
actuarial losses for pension and postretirement plans, and the effective portion of cash flow hedging activities. The
provisions of ASU 2018-02 do not apply to past or future changes in tax rates. Adoption of ASU 2018-02 is
required for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early
adoption is permitted in any interim period for which financial statements have not yet been issued. FHN elected
early adoption as of December 31, 2017 and made a reclassification of $57.5 million from accumulated other
comprehensive income to retained earnings.
Non-GAAP Measures
Certain measures are included in the narrative and tables in this MD&A that are “non-GAAP”, meaning (under
U.S. financial reporting rules) they are not presented in accordance with generally accepted accounting principles
(“GAAP”) in the U.S. and also are not codified in U.S. banking regulations currently applicable to FHN. Although
other entities may use calculation methods that differ from those used by FHN for non-GAAP measures, FHN’s
management believes such measures are relevant to understanding the capital position or financial results of FHN.
Non-GAAP measures are reported to FHN’s management and Board of Directors through various internal reports.
Presentation of regulatory measures, even those which are not GAAP, provide a meaningful base for comparability
to other financial institutions subject to the same regulations as FHN, as demonstrated by their use by banking
regulators in reviewing capital adequacy of financial institutions. Although not GAAP terms, these regulatory
measures are not considered “non-GAAP” under U.S. financial reporting rules as long as their presentation
conforms to regulatory standards. Regulatory measures used in this MD&A include: common equity tier 1 capital,
4
FIRST HORIZON NATIONAL CORPORATION
generally defined as common equity less goodwill, other intangibles, and certain other required regulatory
deductions; tier 1 capital, generally defined as the sum of core capital (including common equity and instruments
that cannot be redeemed at the option of the holder) adjusted for certain items under risk based capital
regulations; and risk-weighted assets (“RWA”), which is a measure of total on- and off-balance sheet assets
adjusted for credit and market risk, used to determine regulatory capital ratios.
The non-GAAP measures presented in this filing are return on average tangible common equity (“ROTCE”),
tangible common equity to tangible assets and adjusted tangible common equity to risk-weighted assets. Refer to
table 33 for a reconciliation of the non-GAAP to GAAP measures and presentation of the most comparable GAAP
items.
FORWARD-LOOKING STATEMENTS
This MD&A contains forward-looking statements with respect to FHN’s beliefs, plans, goals, expectations, and
estimates. Forward-looking statements are not a representation of historical information but instead pertain to future
operations, strategies, financial results, or other developments. The words “believe,” “expect,” “anticipate,”
“intend,” “estimate,” “should,” “is likely,” “will,” “going forward,” and other expressions that indicate future events
and trends identify forward-looking statements.
Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to
significant business, operational, economic and competitive uncertainties and contingencies, many of which are
beyond FHN’s control, and many of which, with respect to future business decisions and actions (including
acquisitions and divestitures), are subject to change. Examples of uncertainties and contingencies include, among
other important factors: global, general and local economic and business conditions, including economic recession
or depression; the stability or volatility of values and activity in the residential housing and commercial real estate
markets; potential requirements for FHN to repurchase, or compensate for losses from, previously sold or
securitized mortgages or securities based on such mortgages; potential claims alleging mortgage servicing failures,
individually, on a class basis, or as master servicer of securitized loans; potential claims relating to participation in
government programs, especially lending or other financial services programs; expectations of and actual timing
and amount of interest rate movements, including the slope and shape of the yield curve, which can have a
significant impact on a financial services institution; market and monetary fluctuations, including fluctuations in
mortgage markets; inflation or deflation; customer, investor, competitor, regulatory, and legislative responses to any
or all of these conditions; the financial condition of borrowers and other counterparties; competition within and
outside the financial services industry; geopolitical developments including possible terrorist activity; natural
disasters; effectiveness and cost-efficiency of FHN’s hedging practices; technological changes; fraud, theft, or other
incursions through conventional, electronic, or other means affecting FHN directly or affecting its customers,
business counterparties or competitors; demand for FHN’s product offerings; new products and services in the
industries in which FHN operates; the increasing use of new technologies to interact with customers and others;
and critical accounting estimates. Other factors are those inherent in originating, selling, servicing, and holding
loans and loan-based assets, including prepayment risks, pricing concessions, fluctuation in U.S. housing and
other real estate prices, fluctuation of collateral values, and changes in customer profiles. Additionally, the actions
of the Securities and Exchange Commission (“SEC”), the Financial Accounting Standards Board (“FASB”), the
Office of the Comptroller of the Currency (“OCC”), the Board of Governors of the Federal Reserve System (“Federal
Reserve” or “Fed”), the Federal Deposit Insurance Corporation (“FDIC”), the Financial Industry Regulatory
Authority (“FINRA”), the U.S. Department of the Treasury (“U.S. Treasury”), the Municipal Securities Rulemaking
Board (“MSRB”), the Consumer Financial Protection Bureau (“CFPB”), the Financial Stability Oversight Council
(“Council”), the Public Company Accounting Oversight Board (“PCAOB”), and other regulators and agencies;
pending, threatened, or possible future regulatory, administrative, and judicial outcomes, actions, and proceedings;
current or future Executive orders; changes in laws and regulations applicable to FHN; and FHN’s success in
executing its business plans and strategies and managing the risks involved in the foregoing, could cause actual
results to differ, perhaps materially, from those contemplated by the forward-looking statements.
FHN assumes no obligation to update or revise any forward-looking statements that are made in this Annual
Report to Shareholders for the period ended December 31, 2017 of which this MD&A is a part or otherwise from
time to time. Actual results could differ and expectations could change, possibly materially, because of one or
more factors, including those presented in this Forward-Looking Statements section, in other sections of this
FIRST HORIZON NATIONAL CORPORATION
5
MD&A, in other parts of and exhibits to this Annual Report to Shareholders, or in FHN’s Annual Report on
Form 10-K for the period ended December 31, 2017 into which this MD&A has been incorporated, and in
documents incorporated into the Form 10-K.
FINANCIAL SUMMARY – 2017 COMPARED TO 2016
FHN reported net income available to common shareholders of $159.3 million, or $.65 per diluted share,
compared to net income of $220.8 million, or $.94 per diluted share in 2016. The decline in net income available
to common shareholders in 2017 was due to higher noninterest expense, an increase in income taxes, and a
decrease in noninterest income, somewhat mitigated by an increase in net interest income and a decline in the
provision for loan losses. Various factors significantly impacted reported earnings in 2017 including acquisitions and
other strategic transactions expected to boost growth, returns and profitability. Additional factors affecting reported
results were increased interest rates, tax reform, certain legacy mortgage matters, and the steady economic
environment.
During 2017, FHN continued to execute on strategic priorities by strengthening core businesses, controlling costs
and prudently managing the balance sheet. FHN invested in its core businesses by focusing on higher-return
specialty lending areas; making strategic hires; upgrading digital banking platforms; and expanding into growth
markets both organically and through acquisitions. Management successfully deployed capital through profitable
loan growth, dividend increases, and acquisitions.
FHN completed three acquisitions in 2017, significantly strengthening FHN’s ability to grow and improve returns
over the long-term. In November 2017, FHN closed the acquisition of CBF, a $10 billion bank headquartered in
North Carolina. The CBF acquisition expands FHN’s presence in high-growth, attractive geographic markets;
provides scale and efficiency; and, accelerates the achievement of FHN’s long-term financial goals on return,
profitability and productivity. In April 2017, FHN completed the purchase of Coastal, a national leader in the
trading, securitization and analysis of SBA loans. The Coastal transaction provided a broadened depth and diversity
for product offerings in the fixed income business. In October 2017, FHN closed on its purchase of PMC, a
leading provider of institutional debt capital and commercial mortgage loan servicing which will expand the
capabilities of FHN’s commercial real estate platform.
In December 2017, congress enacted the Tax Act, reducing the federal statutory tax rate from 35 percent to
21 percent for FHN. The rate reduction on January 1, 2018 should benefit financial results in the future; however,
the enactment of the rate reduction affected FHN’s deferred tax balances and negatively impacted FHN’s 2017
operating results. Earlier in 2017, FHN recognized favorable effective tax rate adjustments primarily associated with
the reversal of a capital loss deferred tax valuation allowance which somewhat offset the overall increase in
provision for income taxes.
The economic environment remained steady-to-improving in 2017 with GDP growth throughout the year, low
unemployment rates, and muted inflation. Organic loan growth and additional loans added through acquisitions
coupled with a modest increase in short-term interest rates bolstered FHN’s net interest income (“NII”) and net
interest margin (“NIM”); favorably impacting revenues in 2017 relative to the prior year. While the economic
improvement positively impacted FHN’s NII in 2017, higher rates and a lack of interest rate volatility negatively
impacted fee income from FTNF due to the counter-cyclical impact of the interest rate environment which led to
lower fixed income sales revenue in 2017.
Asset quality trends were stable in 2017 reflecting continued strong underwriting standards. Allowance for loan
losses continued to decline, decreasing 6 percent in 2017 as a result of the run-off of non-strategic loan balances
partially offset by organic loan growth. Net charge-offs and nonperforming loans declined 35 percent and
10 percent, respectively, both reflecting strong credit quality in 2017. The addition of loans as a result of the CBF
acquisition increased the diversification of the loan portfolio across geographic markets and various lending areas,
including higher-return specialty areas.
Return on average common equity (“ROE”) and ROTCE for 2017 were 6.18 percent and 7.23 percent,
respectively, compared to 9.60 percent and 10.59 percent in 2016. Return on average assets (“ROA”) was
6
FIRST HORIZON NATIONAL CORPORATION
.59 percent in 2017 compared to .87 percent in 2016. The tangible common equity to tangible assets ratio was
6.57 percent in 2017 compared to 7.42 percent in 2016. Common equity tier 1, Tier 1, Total capital, and
Leverage ratios were 8.88 percent, 9.83 percent, 11.10 percent, and 10.31 percent on December 31, 2017,
compared to 9.94 percent, 11.17 percent, 12.24 percent, and 9.35 percent, respectively, on December 31, 2016.
Total period-end assets were $41.4 billion on December 31, 2017, a 45 percent increase from $28.6 billion on
December 31, 2016. Total period-end equity was $4.6 billion on December 31, 2017, up from $2.7 billion on
December 31, 2016.
BUSINESS LINE REVIEW – 2017 COMPARED TO 2016
Regional Banking
Pre-tax income within the regional banking segment increased 36 percent to $456.1 million in 2017 from
$336.1 million in 2016. The increase in pre-tax income was primarily driven by higher revenue and a decline in
loan loss provision, which more than offset an increase in expenses.
Total revenue increased 12 percent, or $116.7 million, to $1.1 billion in 2017, from $990.8 million in 2016, driven
by an increase in NII. The increase in NII was largely due to the favorable impact of higher interest rates on loans,
higher average balances of commercial loans and noninterest-bearing deposits, as well as loan and deposit growth
associated with the CBF acquisition. Noninterest income was $258.6 million and $249.0 million in 2017 and 2016,
respectively. The increase in noninterest income was largely driven by a $5.6 million increase in brokerage,
management fees, and commission income from the Bank’s wealth management group due to increases in
recurring revenue driven primarily by growth in FHN’s advisory business and favorable market conditions.
Additionally, increases in fees from deposit transactions and cash management activities, mortgage banking
income, and bankcard income also contributed to the increase in noninterest income in 2017. Deposit transactions
and cash management activities increased $2.0 million in 2017 largely driven by higher fee income associated with
cash management activities, which offset a decline in non-sufficient funds (“NSF”)/overdraft fees driven by
changes in consumer behavior and a modification of billing practices. Fees associated with mortgage banking
activities increased $1.7 million in 2017 and were primarily related to FHN’s Community Reinvestment Act (“CRA”)
initiatives. Bankcard income increased $1.1 million relative to the prior year primarily due to an increase in
interchange income as a result of increased volume due to the CBF acquisition. FHN recognized $.4 million in net
securities gains for 2017 primarily resulting from the call of a $4.4 million held-to-maturity municipal bond in
second quarter 2017. Gains on the sale of fixed assets decreased $2.0 million in 2017 and fees from derivative
transactions decreased $2.0 million both reducing noninterest income in 2017 compared to 2016.
Provision expense was $21.6 million in 2017 down from $38.9 million in 2016. The net decrease in provision in
2017 compared to the prior year was primarily due to continued strong performance in both the commercial and
consumer portfolios. The provision in 2017 was favorably affected by historically lower net charge-offs which
continue to drive lower loss rates.
Noninterest expense increased 2 percent to $629.7 million in 2017 from $615.8 million in 2016. The increase in
expenses was primarily driven by an increase in personnel-related expenses due to strategic hires in expansion
markets and specialty areas, higher incentive expense associated with loan/deposit growth, retention initiatives, and
$19.1 million attributable to CBF activities ($10.7 million of which relates to a 27 percent increase in headcount
for one month). Additionally, FHN recognized $4.1 million in special employee bonuses which also contributed to
the increase in personnel expense in 2017. To a lesser extent FDIC premium expense, occupancy, computer
software, intangible asset amortization, and expenses associated with equipment rentals, deprecation and
maintenance all increased relative to 2016, negatively impacting regional banking expenses. The increase in FDIC
premium expense was due in large part to organic and acquisition-related balance sheet growth, as well as the net
loss recognized in fourth quarter 2017. The other expense categories increased primarily due to the CBF
acquisition. The regional banking segment recognized a $15.9 million net decline in loss accruals related to legal
matters favorably impacting expenses in 2017. Additionally, a recovery from a vendor recognized in first quarter
2017 related to previous overbillings also positively impacted expenses in 2017.
FIRST HORIZON NATIONAL CORPORATION
7
Fixed Income
Pre-tax income in the fixed income segment was $24.2 million in 2017 compared to $50.5 million in 2016. The
decline in results in 2017 was driven by lower fee income, somewhat offset by a decline in expenses and an
increase in NII.
NII increased from $10.8 million in 2016 to $18.0 million in 2017, primarily driven by an increase in loans held-
for-sale as a result of the Coastal acquisition. Fixed income product revenue decreased 24 percent to
$173.9 million in 2017 from $229.7 million in 2016, as average daily revenue (“ADR”) declined to $696 thousand
in 2017 from $919 thousand in 2016. This decline reflects lower activity due to challenging market conditions
(interest rate increases, a flattening yield curve, and low levels of market volatility). Other product revenue was
$43.2 million in 2017 up from $39.7 million in the prior year, primarily driven by increases in fees from loan sales,
which more than offset declines in fees from derivative sales and portfolio advisory services.
Noninterest expense decreased 8 percent, or $18.6 million, to $210.9 million in 2017 from $229.6 million in 2016.
The expense decline during 2017 was primarily the result of lower variable compensation associated with the
decrease in fixed income sales revenue in 2017. A portion of the expense decline was somewhat offset by an
increase in legal fees and increased amortization and other expenses associated with the Coastal acquisition.
Corporate
The pre-tax loss for the corporate segment was $189.4 million and $104.4 million for 2017 and 2016, respectively.
Net interest expense was $58.9 million in 2017 compared to $65.9 million in 2016. The improvement in net
interest expense for 2017 was largely driven by a higher yielding securities portfolio. Noninterest income (including
securities gain/losses) was $8.9 million in 2017, compared to $20.4 million in 2016. Noninterest income declined
in 2017 compared to the prior year due in large part to a $14.3 million loss from the repurchase of equity
securities previously included in a financing transaction. Additionally, net gains on the sale of securities decreased
$1.1 million in 2017, largely the result of a $1.7 million gain from an exchange of approximately $294 million of
available-for-sale (“AFS”) debt securities recognized in 2016. Deferred compensation income, which fluctuates with
changes in the market value of the underlying investments and is mirrored by changes in deferred compensation
expense which is included in personnel expense, increased $3.3 million in 2017 partially mitigating the decline in
noninterest income.
Noninterest expense was $139.4 million in 2017 compared to $58.9 million in 2016. The increase in noninterest
expense was largely due to a $53.6 million increase in acquisition- and integration-related expenses primarily
associated with the CBF and Coastal acquisitions, $5.7 million of special employee bonuses, and $8.8 million of
charitable contributions to the First Tennessee Foundation made in 2017. To a lesser extent, higher deferred
compensation expense also contributed to the expense increase in 2017, but was offset by $6.5 million of deferred
compensation BOLI gains recognized in 2017. Advertising and public relations expense decreased $1.7 million in
2017 due in large part to a promotional branding campaign and higher expenses associated with CRA initiatives
recognized in 2016. Additionally, a $2.1 million decrease in negative valuation adjustments associated with
derivatives related to prior sales of Visa Class B shares offset a portion of the overall expense increase.
Non-Strategic
The non-strategic segment had pre-tax income of $18.0 million in 2017 compared to $63.0 million in 2016. The
decline in results was primarily driven by higher expenses and a lower loan loss provision credit in 2017 relative to
the prior year, coupled with a decline in revenues.
Total revenue decreased $16.2 million to $39.9 million in 2017 from $56.0 million in 2016. NII declined
19 percent to $34.3 million in 2017 consistent with the run-off of the non-strategic loan portfolios. Noninterest
income (including securities gains/losses) was $5.6 million in 2017 compared to $13.7 million in 2016. The
decrease in noninterest income was largely attributable to a decline in mortgage banking income due in large part
to $4.4 million of recoveries recognized in 2016 associated with prior legacy mortgage servicing sales and a
$1.5 million gain in 2016 related to the reversal of a contingency accrual associated with prior sales of mortgage
servicing rights (“MSR”).
8
FIRST HORIZON NATIONAL CORPORATION
The provision for loan losses within the non-strategic segment was a provision credit of $21.6 million in 2017
compared to a provision credit of $27.9 million in the prior year. Overall, the non-strategic segment continued to
reflect stable performance combined with lower loan balances as reserves declined by $12.5 million to $35.4 in
December 31, 2017, nearly all of which was in the consumer real estate portfolio. Losses remain historically low as
the non-strategic segment experienced an increase in net recoveries of $5.9 million in 2017 compared to the prior
year.
Noninterest expense was $43.6 million in 2017 compared to $20.9 million in 2016. The increase in noninterest
expense was primarily due to a $25.7 million net increase in loss accruals related to legal matters. Additionally, a
smaller repurchase and foreclosure provision expense reversal related to the settlement of certain repurchase
claims in 2017 relative to 2016 ($22.5 million and $32.7 million, respectively) also contributed to the increase in
expense. An $11.9 million decrease in legal fees favorably impacted non-strategic expenses in 2017.
INCOME STATEMENT REVIEW – 2017 COMPARED TO 2016; 2016 COMPARED TO 2015
Total consolidated revenue increased 4 percent, or $51.0 million to $1.3 billion in 2017, driven by a 16 percent
increase in net interest income, which more than offset lower fee income from fixed income product revenue. Total
consolidated expense increased 11 percent to $1.0 billion in 2017 from $925.2 million in 2016. The expense
increase was primarily driven by an increase in acquisition-related expenses associated with the CBF and Coastal
acquisitions, and to a lesser extent an increase in accruals related to loss contingencies and litigation matters.
In 2016 and 2015, total consolidated revenue was $1.3 billion and $1.2 billion, respectively, largely driven by
increases in net interest income and fixed income product revenue. Total consolidated expense decreased
12 percent to $925.2 million in 2016 from $1.1 billion in 2015 primarily driven by a decline in accruals related to
loss contingencies and litigation matters and a mortgage repurchase provision expense reversal recognized in 2016,
somewhat offset by higher personnel expense in 2016 compared to 2015.
NET INTEREST INCOME
Net interest income increased 16 percent to $842.3 million in 2017 from $729.1 million in 2016. On a fully
taxable equivalent (“FTE”) basis, NII increased 16 percent to $855.9 million in 2017 from $740.7 million in 2016.
As detailed in Table 1 – Analysis of Changes in Net Interest Income, the increase in NII was primarily driven by
organic loan growth within the regional banking commercial loan portfolio, the positive impact of higher market
rates on loans and other earning assets, and commercial and consumer loans added through the CBF acquisition,
somewhat offset by lower average balances of consumer loans and loans to mortgage companies. An increase in
loans held-for-sale (“HFS”) added through the Coastal and CBF acquisitions also improved NII in 2017 relative to
2016. The negative impact of higher market rates on deposits and other funding sources and the continued run-off
of the non-strategic loan portfolios negatively impacted NII in 2017. Average earning assets were $27.5 billion and
$25.2 billion in 2017 and 2016, respectively. The 9 percent increase in average earning assets in 2017 was
primarily driven by organic loan growth within FHN’s regional banking activities, loans added as part of the CBF
acquisition, higher average balances of excess cash held at the Federal Reserve (“Fed”) and an increase in loans
held-for-sale ("HFS") associated with the Coastal and CBF acquisitions. These increases were somewhat offset by
continued run-off of the non-strategic loan portfolios, a decrease in securities purchased under agreements to
resell and lower average balances of fixed income trading securities relative to 2016.
Net interest income was $729.1 million in 2016, a 12 percent increase from $653.7 million in 2015. On an FTE
basis, NII increased to $740.7 million in 2016 from $664.4 million in 2015. The increase in NII was the result of
loan growth within Regional Banking, the positive impact of higher interest rates on loans, lower long-term funding
costs due to lower average balances, and a larger investment securities portfolio. These increases were partially
offset by the continued run-off the non-strategic loan portfolios, the negative impact of higher market rates on
deposits, lower average balances of trading securities, and a decrease in cash basis interest income in 2016
relative to 2015.
FIRST HORIZON NATIONAL CORPORATION
9
Table 1 – Analysis of Changes in Net Interest Income
(Fully taxable equivalent (“FTE”))
(Dollars in thousands)
Interest income – FTE:
Loans
Loans held-for-sale
Investment securities:
U.S. government agencies
States and municipalities
Corporates and other debt
Other
Total investment securities
Trading securities
Other earning assets:
Federal funds sold
Securities purchased under agreements to resell
Interest-bearing cash
Total other earning assets
Total change in interest income – earning assets –
FTE
Interest expense:
Interest-bearing deposits:
Savings
Time Deposits
Other interest-bearing deposits
Total interest-bearing deposits
Federal funds purchased
Securities sold under agreements to repurchase
Trading liabilities
Other short-term borrowings
Term borrowings
Total change in interest expense - interest-bearing
liabilities
Net interest income – FTE
2017 Compared to 2016
Increase / (Decrease) Due to (a)
2016 Compared to 2015
Increase / (Decrease) Due to (a)
Rate (b)
Volume (b)
Total
Rate (b)
Volume (b)
Total
$69,059
408
$70,022
11,603
$139,081
12,011
$16,071
245
$ 64,325
(196)
$80,396
49
6,167
63
-
1,063
7,660
4,559
137
4,681
3,902
10,011
$21,039
1,741
12,891
35,827
2,536
3,664
2,245
1,958
8,359
230
(365)
223
662
383
(507)
47
(53)
2,046
749
6,397
(302)
223
1,725
8,043
4,052
184
4,628
5,948
10,760
(2,192)
336
1
(2,643)
(4,532)
(1,861)
24
1,483
1,901
2,797
7,791
(377)
505
114
8,067
(2,260)
(44)
(56)
(713)
(202)
5,599
(41)
506
(2,529)
3,535
(4,121)
(20)
1,427
1,188
2,595
$173,947
$82,454
$ 1,872
1,349
1,233
$ 22,911
3,090
14,124
$ 6,075
42
5,093
$ 1,541
1,312
773
$ 7,616
1,354
5,866
4,298
(884)
161
(1,777)
3,828
(1,424)
40,125
1,652
3,825
468
5,786
6,935
$ 58,791
$115,156
11,289
1,569
84
(1,788)
(6)
1,563
3,546
(347)
36
812
228
(10,847)
14,836
1,222
120
(976)
222
(9,284)
$ 6,140
$76,314
Certain previously reported amounts have been reclassified to agree with current presentations.
(a) The changes in interest due to both rate and volume have been allocated to change due to rate and change due to volume in proportion to
the absolute and amounts of the changes in each.
(b) Variances are computed on a line-by-line basis and are non-additive.
For purposes of computing yields and the net interest margin, FHN adjusts net interest income to reflect tax
exempt income on an equivalent pre-tax basis which provides comparability of net interest income arising from
both taxable and tax-exempt sources. The consolidated net interest margin improved to 3.12 percent in 2017 from
2.94 percent in 2016. The net interest spread increased to 2.91 percent in 2017 from 2.80 percent in 2016, and
the impact of free funding was 21 basis points and 14 basis points in 2017 and 2016, respectively. The
improvement in NIM in 2017 relative to 2016 was largely the result of the positive impact of higher market rates
and an increase in average deposits, somewhat offset by an increase in average excess cash held at the Fed
during 2017.
The consolidated net interest margin was 2.94 percent in 2016 compared to 2.83 percent in 2015. The positive
impact of higher interest rates on loans, lower long-term funding costs, a decrease in average excess cash held at
the Fed and higher average balances of loans to mortgage companies during 2016 all contributed to the increase
in NIM in 2016 relative to 2015, but were somewhat mitigated by the continued run-off of the nonstrategic loan
portfolios, the negative impact of higher market rates on deposits, and a decrease in cash basis interest income
relative to 2015.
The activity levels and related funding for FHN’s fixed income activities affect the net interest margin. Generally
fixed income activities compress the margin, especially where there are elevated levels of trading inventory,
because of the strategy to reduce market risk by economically hedging a portion of its inventory on the balance
sheet. As a result, FHN’s consolidated margin cannot be readily compared to that of other bank holding
10
FIRST HORIZON NATIONAL CORPORATION
companies. Table 2 – Net Interest Margin details the computation of the net interest margin for the past three
years.
Table 2 – Net Interest Margin
Assets:
Earning assets:
Loans, net of unearned income:
Commercial loans
Consumer loans
Total loans, net of unearned income
Loans held-for-sale
Investment securities:
U.S. government agencies
States and municipalities (a)
Corporates and other debt
Other (b)
Total investment securities
Trading securities
Other earning assets:
Federal funds sold
Securities purchased under agreements to resell (c)
Interest bearing cash
Total other earning assets
Interest income / total earning assets
Liabilities:
Interest-bearing liabilities:
Interest-bearing deposits:
Savings
Other interest-bearing deposits
Time deposits
Total interest-bearing deposits
Federal funds purchased
Securities sold under agreements to repurchase
Fixed income trading liabilities
Other short-term borrowings
Term borrowings
Interest expense / total interest-bearing liabilities
Net interest spread
Effect of interest-free sources used to fund earning assets
Net interest margin (d)
2017
2016
2015
4.08%
4.23
4.12
4.73
2.56
9.36
4.98
3.49
2.62
3.04
1.63
0.69
0.96
0.85
3.65%
0.47%
0.40
0.90
0.48
1.06
0.72
2.26
1.28
3.35
0.74
2.91%
0.21
3.12%
3.64%
4.07
3.77
4.43
2.40
7.95
5.25
2.67
2.43
2.66
1.11
0.06
0.51
0.28
3.29%
0.23%
0.19
0.77
0.26
0.52
0.08
1.95
0.67
2.58
0.49
2.80%
0.14
2.94%
3.51%
3.96
3.67
4.23
2.46
3.52
4.94
4.08
2.54
2.81
1.01
(0.12)
0.25
0.10
3.19%
0.16%
0.09
0.73
0.19
0.26
0.06
2.18
0.67
2.47
0.49
2.70%
0.13
2.83%
Certain previously reported amounts have been reclassified to agree with current presentation.
(a) 2016 increase driven by payoff of lower yielding municipal bonds in fourth quarter 2015.
(b) 2016 decrease driven by a decline in the dividend rate of FHN’s holdings of federal reserve bank stock.
(c) 2015 driven by negative market rates on reverse repurchase agreements.
(d) Calculated using total net interest income adjusted for FTE assuming a statutory federal income tax rate of 35 percent, and no where
applicable, state income taxes.
FHN’s net interest margin is primarily impacted by its balance sheet mix including the levels of fixed and floating
rate loans, rate sensitive and non-rate sensitive liabilities, cash levels, trading inventory levels as well as loan fees
and cash basis income. FHN’s balance sheet is positioned to benefit from a rise in short-term interest rates. For
2018, NIM will also depend on loan accretion levels, the extent of Fed interest rate increases, and the competitive
pricing environment for core deposits.
FIRST HORIZON NATIONAL CORPORATION
11
PROVISION FOR LOAN LOSSES
The provision for loan losses is the charge to earnings that management determines to be necessary to maintain
the ALLL at a sufficient level reflecting management’s estimate of probable incurred losses in the loan portfolio.
The provision for loan losses was $0 in 2017 compared to $11.0 million in 2016 and $9.0 million in 2015. During
2017 and 2016, the continued overall improvement in the loan portfolio and declining non-strategic balances
contributed to the declines of 6 percent and 4 percent in the allowance for loan losses relative to the prior years,
respectively. Additionally, net charge-offs declined 35 percent and 39 percent, respectively, during 2017 and 2016
relative to the prior years. For additional information about the provision for loan losses refer to the Regional
Banking and Non-Strategic sections of the Business Line Review section in this MD&A. For additional information
about general asset quality trends refer to Asset Quality – Trend Analysis of 2017 Compared to 2016 in this
MD&A.
NONINTEREST INCOME
Noninterest income (including securities gains/(losses)) was $490.2 million in 2017 compared to $552.4 million in
2016 and $517.3 million in 2015. In 2017 noninterest income was 37 percent of total revenue compared to
43 percent and 44 percent in 2016 and 2015, respectively. The decrease in noninterest income in 2017 relative to
2016 was primarily driven by a 19 percent decrease in fixed income non-interest income, as well as a
$14.3 million loss from the repurchase of equity securities previously included in a financing transaction recognized
in 2017. The increase in noninterest income in 2016 relative to 2015 was primarily driven by higher fixed income
sales revenue. FHN’s noninterest income for the last three years is provided in Table 3 - Noninterest Income. The
following discussion provides additional information about various line items reported in the following table.
Table 3 – Noninterest Income
Compound
Annual Growth
Rates
(Dollars in thousands)
2017
2016
2015
17/16
17/15
Noninterest income:
Fixed income
Deposit transactions and cash management
Brokerage, management fees and commissions
Trust services and investment management
Bankcard income
Bank-owned life insurance
Debt securities gains/(losses), net
Equity securities gains/(losses),net
All other income and commissions:
Other service charges
ATM interchange fees
Deferred compensation
Electronic banking fees
Letter of credit fees
Mortgage banking
Insurance commissions
Gain/(loss) on extinguishment of debt (a)
Other
Total all other income and commissions
Total noninterest income
NM - Not meaningful
* Amount less than one percent.
$216,625
110,592
48,514
28,420
25,467
15,124
483
109
12,532
12,425
6,322
5,082
4,661
4,649
2,514
(14,329)
11,029
44,885
$490,219
$268,561
108,553
42,911
27,727
24,430
14,687
1,485
(144)
11,731
11,965
3,025
5,477
4,103
10,215
2,981
–
14,734
64,231
$552,441
$231,337
112,843
46,496
27,577
22,238
14,726
1,836
(458)
11,610
11,917
(1,369)
5,840
4,621
3,870
2,627
5,793
15,821
60,730
$517,325
(19)%
2%
13%
2%
4%
3%
(67)%
NM
7%
4%
NM
(7)%
14%
(54)%
(16)%
NM
(25)%
(30)%
(11)%
(3)%
(1)%
2%
2%
7%
1%
(49)%
NM
4%
2%
NM
(7)%
*
10%
(2)%
NM
(17)%
(14)%
(3)%
(a) Loss on extinguishment of debt for 2017 relates to the repurchase of equity securities previously included in a financing transaction.
12
FIRST HORIZON NATIONAL CORPORATION
Fixed Income Noninterest Income
The major component of fixed income revenue is generated from the purchase and sale of fixed income securities
as both principal and agent. Other noninterest revenues within this line item consist principally of fees from loan
sales, portfolio advisory services, and derivative sales. Securities inventory positions are procured for distribution to
customers by the sales staff. Fixed income noninterest income decreased 19 percent in 2017 to $216.6 million
from $268.6 million in 2016, reflecting lower activity due to challenging market conditions (interest rate increases,
a flattening yield curve, and low levels of market volatility). Revenue from other products increased 10 percent, or
$3.8 million, to $42.7 million from $38.9 million in 2016, driven by increases in fees from loan sales, which more
than offset declines in fees from derivative sales and portfolio advisory services.
Fixed income noninterest income was $268.6 million in 2016, up from $231.3 million in 2015, reflecting more
favorable market conditions during most of 2016, including increased rate and market volatility, as well as
expansion of the distribution platform. In late 2016, trading activity was somewhat muted due to a sharp rate
increase and market uncertainties following the U.S. presidential election. Revenue from other products increased
$3.4 million to $38.9 million in 2016, largely driven by increases in fees from loan sales, derivative sales and
portfolio advisory services.
Table 4 – Fixed Income Noninterest Income
Compound
Annual Growth
Rates
(Dollars in thousands)
2017
2016
2015
17/16
17/15
Noninterest income:
Fixed income
Other product revenue
Total fixed income noninterest income
$173,910
42,715
$216,625
$229,659
38,902
$268,561
$195,877
35,460
$231,337
(24)%
10%
(19)%
(6)%
10%
(3)%
Deposit Transactions and Cash Management
Fees from deposit transactions and cash management include fees for services related to consumer and
commercial deposit products (such as service charges on checking accounts), cash management products and
services such as electronic transaction processing (Automated Clearing House and Electronic Data Interchange),
account reconciliation services, cash vault services, lockbox processing, and information reporting to large
corporate clients. Deposit transactions and cash management activities increased to $110.6 million in 2017 from
$108.6 million in 2016 largely driven by higher fee income associated with cash management activities, which
offset a decline in NSF/overdraft fees driven by changes in consumer behavior and a modification of billing
practices. In 2016, deposit transactions and cash management income decreased to $108.6 million from
$112.8 million in 2015, primarily related to lower NSF fee income driven by changes in consumer behavior.
Brokerage, Management Fees and Commissions
Brokerage, management fees and commissions include fees for portfolio management, trade commissions, and
annuity and mutual funds sales. Noninterest income from brokerage, management fees and commissions
increased 13 percent, or $5.6 million, to $48.5 million in 2017. The increase was due in large part to increases in
recurring revenue driven primarily by growth in FHN’s advisory business and favorable market conditions.
Noninterest income from brokerage, management fees and commissions was $42.9 million and $46.5 million in
2016 and 2015, respectively. The decline in income in 2016 compared to 2015 was primarily driven by a
reduction in annuity income as a result of market conditions and lower variable annuity sales as practices were
adjusted to meet the standards of a changing regulatory environment. The decline was also affected by a shift in
product and fee structures, which caused a temporary decline in revenues but better met client needs and should
result in revenue streams over the life of the product.
Bankcard Income
Bankcard income is derived from fees charged for processing and supporting credit card transactions including
interchange, late charges, membership fees, miscellaneous merchant fees, cash advance fees, currency conversion
FIRST HORIZON NATIONAL CORPORATION
13
fees, and research fees. Bankcard income increased 4 percent to $25.5 million in 2017 from $24.4 million in
2016. The increase in bankcard income relative to the prior year was primarily due to an increase in interchange
income driven by higher volume due in large part to the CBF acquisition. Bankcard income increased 10 percent
in 2016 to $24.4 million from $22.2 million in 2015, primarily driven by volume incentives received in 2016 driven
by a significant new relationship.
Securities Gains/(Losses)
In 2017 FHN recognized net securities gains of $.6 million compared to $1.3 million and $1.4 million in 2016 and
2015, respectively. The 2017 net gain was primarily the result of the call of a $4.4 million held-to-maturity
municipal bond within the regional banking segment. The 2016 net gain was largely driven by a $1.5 million net
gain from the exchanges of approximately $736 million of AFS debt securities, partially offset by $.2 million of
other-than-temporary impairment (“OTTI”) adjustments. The 2015 net gain was largely driven by a $1.8 million
gain from an exchange of approximately $335 million of AFS debt securities, partially offset by $.7 million of OTTI
adjustments.
Other Noninterest Income
Other income includes revenues from other service charges, ATM and interchange fees, revenue related to
deferred compensation plans (which are mirrored by changes in noninterest expense), electronic banking fees,
letter of credit fees, mortgage banking (primarily within the non-strategic and regional banking segments),
insurance commissions, gains/(losses) on the extinguishment of debt, and various other fees.
Revenue from all other income and commissions was $44.9 million in 2017 compared to $64.2 million in 2016.
The decrease in all other income and commissions was primarily driven by a $14.3 million loss from the
repurchase of equity securities previously included in a financing transaction recognized in 2017, a $5.6 million
decrease in mortgage banking income, and a $2.1 million decrease in gains on the sales of properties. The decline
in mortgage banking income was due in large part to $4.4 million of recoveries recognized in 2016 associated with
prior legacy mortgage servicing sales and a $1.5 million gain related to the reversal of a contingency accrual
associated with prior sales of MSR, but was somewhat mitigated by a $1.7 million increase in new originations
within the regional banking segment related to CRA initiatives. For 2017, all other income and commissions was
favorably impacted by a $3.3 million increase in deferred compensation income, offsetting a portion of the overall
decline in revenues from all other income and commissions. Deferred compensation income fluctuates with
changes in the market value of the underlying investments and is mirrored by changes in deferred compensation
expense which is included in personnel expense.
Revenue from all other income and commissions increased to $64.2 million in 2016 from $60.7 million in 2015.
For 2016 all other income and commissions was favorably impacted by increases in mortgage banking and
deferred compensation income, and higher fee income associated with derivative sales. These increases were
somewhat offset by a $5.8 million gain recognized in 2015 on the extinguishment of junior subordinated notes
underlying $200 million of trust preferred debt and a $1.3 million decrease in 2016 in gains on the sales of
properties. The increase in mortgage banking income was driven by gains recognized in 2016 related to prior
legacy mortgage servicing sales and the reversal of a contingency accrual associated with prior sales of MSR
previously mentioned.
NONINTEREST EXPENSE
Total noninterest expense increased 11 percent, or $98.5 million, to $1.0 billion in 2017 from $925.2 million in
2016. The increase in expense was primarily driven by higher acquisition- and integration-related expense
associated with the CBF and Coastal acquisitions. To a lesser extent, a smaller repurchase and foreclosure
provision expense reversal related to the settlement of certain repurchase claims in 2017 relative to 2016, a net
increase in loss accruals related to litigation and regulatory matters, and an increase in personnel expense also
contributed to the expense increase in 2017. Legal fees decreased in 2017, favorably impacting expense relative to
2016.
In 2016, total noninterest expense decreased 12 percent, or $128.6 million, to $925.2 from $1.1 billion. The
decrease in noninterest expense was driven by a reduction in accruals related to loss contingencies and litigation
matters primarily within the non-strategic segment and, to a lesser extent, a mortgage repurchase and foreclosure
provision expense reversal, somewhat offset by higher personnel expense relative to 2015. FHN’s noninterest
14
FIRST HORIZON NATIONAL CORPORATION
expense for the last three years is provided in Table 5 - Noninterest Expense. The following discussion provides
additional information about various line items reported in the following table.
Table 5 – Noninterest Expense
(Dollars in thousands)
2017
2016
2015
Compound
Annual Growth
Rates
17/16
17/15
Noninterest expense:
Employee compensation, incentives and benefits
Occupancy
Computer software
Professional fees
Operations services
Equipment rentals, depreciation and maintenance
FDIC premium expense
Advertising and public relations
Communications and courier
Contract employment and outsourcing
Legal fees
Amortization of intangible assets
Repurchase and foreclosure provision/(provision credit)
All other expense:
Litigation and regulatory matters
Travel and entertainment
Other insurance and taxes
Customer relations
Employee training and dues
Supplies
Tax credit investments
Miscellaneous loan costs
OREO
Other (a)
Total all other expense
Total noninterest expense
NM - Not Meaningful
$ 589,411 $562,948 $ 511,633
51,117
44,724
18,922
39,261
30,864
18,027
19,187
15,820
14,494
16,287
5,253
-
50,880
45,122
19,169
41,852
27,385
21,585
21,612
14,265
10,061
21,558
5,198
(32,722)
54,646
48,234
47,929
43,823
29,543
26,818
19,214
17,624
14,954
12,076
8,728
(22,527)
NM
5%
7%
7%
7%
3%
4%
59%
5%
6%
8% (2)%
24% 22%
(11)% *
6%
24%
2%
49%
(44)% (14)%
68% 29%
31% NM
40,517
11,462
9,686
5,750
5,551
4,106
3,468
2,751
1,006
48,891
133,188
187,607
30,469
9,590
10,275
12,941
10,891
5,382
6,255
5,390
5,691
3,827
4,434
4,582
3,349
2,656
2,586
2,104
773
34,123
41,568
268,202
116,291
$1,023,661 $925,204 $1,053,791
33% (54)%
12%
9%
(11)% (13)%
(8)% 3%
(2)% 1%
(7)% 4%
4% (13)%
2%
6%
30% (31)%
18% 20%
15% (30)%
11% (1)%
* Amount is less than one percent.
For more detailed information about acquisition- and integration-related expenses related to the CBF acquisition refer to Note 2 – Acquisitions
and Divestitures.
(a) 2017 includes $8.8 million of charitable contributions to the First Tennessee Foundation. An additional contribution of 65,000 Visa Class B
shares with a cost basis of $0 was also made in 2017.
Employee Compensation, Incentives, and Benefits
Employee compensation, incentives, and benefits (personnel expense), the largest component of noninterest
expense, increased 5 percent, or $26.5 million, to $589.4 million in 2017 from $562.9 million in 2016. The
increase in personnel expense was driven by several factors. Within the regional banking segment personnel
expense increased due to strategic hires in expansion markets and specialty areas, higher incentive expense
associated with loan/deposit growth, retention initiatives, and $19.1 million attributable to CBF activities
($10.7 million of which relates to a 27 percent increase in headcount for one month). In 2017, FHN recognized
$9.9 million of special bonuses, $3.0 million related to higher deferred compensation expense, and a $2.6 million
increase in pension fund expense which also contributed to the increase in personnel expense compared to 2016.
Personnel expense within the fixed income segment decreased in 2017 largely driven by a decrease in variable
compensation associated with lower fixed income sales revenue relative to 2016, offsetting a portion of the overall
increase in personnel expense. Additionally, personnel expense was favorably impacted by $6.5 million of deferred
compensation BOLI gains recognized in 2017.
Personnel expense increased 10 percent, or $51.3 million, to $562.9 million in 2016 from $511.6 million in 2015.
The increase in personnel expense in 2016 was driven in part by an increase in variable compensation associated
FIRST HORIZON NATIONAL CORPORATION
15
with higher fixed income product sales revenue within FHN’s fixed income operating segment relative to 2015.
Within the regional bank, expenses associated with strategic hires in expansion markets and specialty areas
increased $9.6 million from 2015 to 2016. Additionally, higher incentive expense associated with loan growth and
retention initiatives increased $4.5 million relative to 2015 and a year-over-year increase in headcount related to
the TAB acquisition contributed $3.9 million to the increase in personnel expense within the regional bank in
2016. Personnel expense in 2015 was favorably impacted by an $8.3 million gain related to an amendment of
certain employee benefit plans recognized in third quarter 2015, which also contributed to the increase in
personnel-related expenses in 2016. Deferred compensation expense increased in 2016, relative to 2015, further
contributing to the personnel expense increase in 2016. These increases were partially offset by a decline in
pension expense relative to 2015 due to a change in the discount rates used in the calculation of pension and
post retirement interest costs.
Occupancy
Occupancy expense increased to $54.6 million in 2017 from $50.9 in 2016, primarily driven by higher rental
expense due to the CBF and Coastal acquisitions. Additionally, an increase in depreciation expense due to the
completion of renovations to consolidated space made to the headquarters and other strategic locations during
2017 also increased occupancy relative to 2016.
In 2016, occupancy expense decreased to $50.9 million from $51.1 million in 2015. The decrease in occupancy
expense was the result of a decline in sublease income related to the sale of a building in 2015, somewhat offset
by $.9 million of lease abandonment expense related to efficiency initiatives and higher rent expense in 2016
associated with sale-leaseback transactions recognized in 2016.
Computer Software
Computer software expense was $48.2 million, $45.1 million, and $44.7 million in 2017, 2016, and 2015,
respectively. The increase in computer software expense is the result of FHN’s focus on technology-related
projects, as well as an increase in computer software expense as a result of one month of expense related to the
inclusion of Capital Bank.
Professional Fees
Professional fees increased $28.8 million to $47.9 million in 2017 primarily driven by acquisition- and integration-
related expenses primarily associated with the CBF and Coastal acquisitions. Professional fees were $19.2 million
and $18.9 million in 2016 and 2015, respectively.
Operations Services
Operations services expense increased 5 percent, or $2.0 million to $43.8 million in 2017, primarily related to an
increase in thirty party fees associated with the CBF and Coastal acquisitions. In 2016, expenses from operations
services were $41.9 million compared to $39.3 million in 2015, primarily related to an increase in third party fees
associated with FHN’s online digital banking platform.
FDIC Premium Expense
FDIC premium expense was $26.8 million in 2017, compared to $21.6 million and $18.0 million in 2016 and
2015, respectively. The increase in FDIC premium expense was due in large part to balance sheet growth, both
organically and with the CBF and Coastal acquisitions for 2017. Additionally, the net loss recognized in fourth
quarter 2017 also contributed to the increase in FDIC premium expense.
Advertising and Public Relations
Expenses associated with advertising and public relations decreased to $19.2 million in 2017 compared in
$21.6 million and $19.2 million in 2016 and 2015, respectively. In 2016, FHN recognized higher advertising and
public relations expense due in large part to a promotional branding campaign and higher expenses associated
with CRA initiatives.
16
FIRST HORIZON NATIONAL CORPORATION
Contract Employment and Outsourcing
Expenses associated with contract employment and outsourcing increased 49 percent, or $4.9 million, to
$15.0 million in 2017, primarily driven by acquisition- and integration-related projects primarily associated with the
CBF acquisition and an increase in technology-related projects as compared to 2016. Expenses associated with
contract employment and outsourcing decreased 31 percent, or $4.4 million, to $10.1 million in 2016. The
decrease was attributable to a lower number of technology-related projects in 2016 relative to 2015 coupled with
the completion of a large operations efficiency project in 2015.
Legal Fees
Legal fees were $12.1 million, $21.6 million, and $16.3 million in 2017, 2016, and 2015, respectively. Legal fees
fluctuate primarily based on the status, timing, type, and composition of cases or other projects.
Amortization of Intangibles
Amortization expense was $8.7 million in 2017, up from $5.2 million in 2016 and $5.3 million in 2015. The
increase was due to amortization expense as a result of the CBF and Coastal acquisitions.
Repurchase and Foreclosure Provision
During 2017 and 2016, FHN recognized a $22.5 million and a $32.7 million pre-tax expense reversal of mortgage
repurchase and foreclosure provision primarily as a result of the settlement/recoveries of certain repurchase claims.
The mortgage repurchase and foreclosure provision expense was $0 in 2015.
Other Noninterest Expense
Other expense includes losses from litigation and regulatory matters, travel and entertainment expense, other
insurance and tax expense, customer relations expense, costs associated with employee training and dues,
supplies, tax credit investments expenses, miscellaneous loan costs, expenses associated with OREO, and various
other expenses.
All other expense increased 15 percent, or $16.9 million, to $133.2 million in 2017 from $116.3 million in 2016.
The increase was primarily driven by a $10.0 million increase in pre-tax loss accruals related to legal matters and
$8.8 million of charitable contributions to the First Tennessee Foundation. Additionally, FHN recognized
$9.0 million in acquisition-and integration-related costs in 2017 and a $2.0 million vendor payment adjustment
which also contributed to the expense increase in 2017. Offsetting a portion of the expense increase, FHN
experienced a $2.0 million decrease in negative valuation adjustments associated with derivatives related to prior
sales of Visa Class B shares, as well as a $1.2 million decrease in other insurance and taxes driven by favorable
adjustments to franchise taxes related to community reinvestment efforts.
All other expense decreased 57 percent to $116.3 million in 2016 from $268.2 million in 2015. The decrease in
expense between 2016 and 2015 was primarily driven by a $157.1 million net decline in accruals related to loss
contingencies and legal matters, from $187.6 million in 2015 to $30.5 million in 2016. The decrease in accruals
related to loss contingencies and legal matters was largely associated with the 2015 DOJ/HUD settlement of
potential claims related to FHN’s underwriting and origination of FHA-insured mortgage loans within the non-
strategic segment. To a much smaller extent, a decline in other insurance and taxes in 2016 associated with
favorable adjustments to franchise taxes related to community reinvestment efforts, and a $1.2 million decrease in
tax credit investments due in large part to a $2.8 million impairment recognized in 2015 also contributed to the
2016 expense decline. FHN recognized a $3.9 million net increase in fixed asset impairments and lease
abandonment charges related to branch closures in 2016 relative to 2015, offsetting a portion of the expense
decline. Additionally, a $1.9 million net increase in negative valuation adjustments associated with derivatives
related to prior sales of Visa Class B shares resulted in higher expenses in 2016.
FIRST HORIZON NATIONAL CORPORATION
17
INCOME TAXES
FHN recorded an income tax provision of $131.9 million in 2017, compared to $106.8 million in 2016 and
$10.9 million in 2015. FHN’s effective tax rates for 2017, 2016, 2015 were approximately 42.7 percent,
30.9 percent and 10.1 percent, respectively. The increase in the effective tax rates in 2017 compared to 2016 and
2015 was primarily driven by $82 million of tax expense related to the effects of federal tax reform, this was
partially offset by the reversal of a capital loss valuation allowance which lowered taxes by $40.4 million. The
reversal of the capital loss valuation allowance was attributable to the utilization of the carryforward against capital
gains realized in 2017.
On December 22, 2017, the Tax Cuts and Jobs Act “Tax Act” was signed into law. The Tax Act reduces the federal
statutory tax rate from 35 percent to 21 percent. Although the rate reduction was not effective until January 1, 2018,
ASC Topic 740 requires an adjustment in 2017 of deferred tax balances to reflect the new effective tax rate.
The $82 million increase in tax expense related to the Tax Act is primarily based on the decrease in FHN’s net
deferred tax balance resulting from a decrease in the federal tax rate. This amount will be adjusted during the
measurement period related to the CBF acquisition and as deferred tax items are finalized for the 2017 return.
Although the initial effect of the Tax Act resulted in a tax increase during 2017, the changes under the Tax Act will
favorably impact First Horizon’s financial results and operations in future years due to the reduced federal statutory
rate.
The company’s effective tax rate is favorably affected by recurring items such as bank-owned life insurance, tax-
exempt income, and credits and other tax benefits from affordable housing investments. The company’s effective
tax rate also may be affected by items that may occur in any given period but are not consistent from period to
period, such as changes in the deferred tax asset valuation allowance and changes in unrecognized tax benefits.
A deferred tax asset (“DTA”) or deferred tax liability (“DTL”) is recognized for the tax consequences of temporary
differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities.
The tax consequence is calculated by applying enacted statutory tax rates, applicable to future years, to these
temporary differences. As of December 31, 2017, FHN’s net DTA was $221.8 million compared with
$199.6 million at December 31, 2016 and $259.3 million at December 31, 2015. FHN’s gross DTA (net of a
valuation allowance) and gross DTL were $353.2 million and $131.4 million, respectively. FHN’s net DTA increased
by $137.7 million on November 30, 2017 upon the merger of CBF into FHN. The $82 million adjustment related
to the Tax Act, discussed above, includes tax expense related to a decrease in the acquired net DTA from CBF by
approximately $48 million due to the adjustment of the DTA to the lower federal tax rate.
As of December 31, 2017, FHN had deferred tax asset balances related to federal and state income tax
carryforwards of $126.8 million and $19.8 million, which will expire at various dates.
As of December 31, 2017, FHN had fully utilized all federal capital loss carryovers. As of December 31, 2016,
FHN had a valuation allowance of $40.4 million against its federal capital loss carryforwards.
FHN’s gross DTA after valuation allowance was $353.2 million and $297.0 million as of December 31, 2017 and
2016, respectively. Based on current analysis, FHN believes that its ability to realize the remaining DTA is more
likely than not. FHN monitors its DTA and the need for a valuation allowance on a quarterly basis. A significant
adverse change in FHN’s taxable earnings outlook could result in the need for a valuation allowance.
FHN and its eligible subsidiaries are included in a consolidated federal income tax return. FHN files separate
returns for subsidiaries that are not eligible to be included in a consolidated federal income tax return. Based on
the laws of the applicable states where it conducts business operations, FHN either files consolidated, combined,
or separate returns. The federal tax returns for Capital Bank Financial Corporation for 2010 - 2012 are under
examination by the IRS. With few exceptions, FHN returns are no longer subject to federal or state and local tax
examinations by tax authorities for years before 2013. FHN is currently under federal examination for 2013 - 2015
and is also under examination in several states.
See also Note 15 – Income Taxes for additional information.
18
FIRST HORIZON NATIONAL CORPORATION
STATEMENT OF CONDITION REVIEW – 2017 COMPARED TO 2016
Total period-end assets were $41.4 billion on December 31, 2017, up 45 percent from $28.6 billion on
December 31, 2016. Average assets increased to $29.9 billion in 2017 from $27.4 billion in 2016. The increase in
average assets compared to 2016 is primarily attributable to net increases in the loan portfolios, loans held-for-sale
(“HFS”), and interest bearing cash, as well as, goodwill and other intangible assets added during 2017 as a result
of the CBF and Coastal acquisitions. On a period-end basis, the increase was primarily due to the CBF acquisition
which resulted in net increases in the loan portfolios, a larger investment securities portfolio, and increases to
goodwill and other intangible assets. Increases in loans HFS and fixed income inventory also contributed to the
increase in period-end assets on December 31, 2017, as did nearly all line items on the balance sheet due to the
acquisition of CBF.
Total period-end liabilities were $36.8 billion on December 31, 2017, a 43 percent increase from $25.9 billion on
December 31, 2016. Average liabilities increased to $27.0 billion in 2017, from $24.7 billion in 2016. The increase
in period end and average liabilities was primarily the result of the CBF and Coastal acquisitions. The increase in
average liabilities was due to an increase in deposits, and to a lesser extent an increase in other short-term
borrowings. Lower average balances of federal funds purchased and trading liabilities during 2017 compared to the
prior year offset a portion of the overall increase in liabilities. Higher deposit balances and an increase in other
short-term borrowings (primarily FHLB borrowings) at December 31, 2017 were the primary drivers of the increase
in liabilities on a period-end basis.
EARNING ASSETS
Earning assets consist of loans, investment securities, other earning assets such as trading securities, interest-
bearing cash, and loans HFS. Average earning assets increased to $27.5 billion in 2017 from $25.2 billion in
2016. A more detailed discussion of the major line items follows.
Loans
Period-end loans increased 41 percent to $27.7 billion as of December 31, 2017 from $19.6 billion on
December 31, 2016. Average loans for 2017 were $20.1 billion compared to $18.3 billion for 2016. The increase
in average loan balances was primarily due to organic growth in several of the commercial loan portfolios within
FHN’s regional banking segment excluding the CBF merger, coupled with commercial and consumer loans added
through the CBF acquisition in fourth quarter 2017. Continued run-off of consumer loans portfolios within the non-
strategic segment negatively impacted loan balances on an average basis in 2017, somewhat offsetting a portion of
the overall increase in average loan balances. Additionally, lower average balances of loans to mortgage companies
also offset a portion of the increase in average loans. The increase in period-end loans was primarily the result of
the addition of $7.3 billion in loans from the CBF acquisition and organic growth within FHN’s ex-CBF regional
banking segment, somewhat offset by run-off within the non-strategic portfolios.
FIRST HORIZON NATIONAL CORPORATION
19
Table 6 – Average Loans
(Dollars in thousands)
2017
Percent
of total
2017
Growth
Rate
Percent
of total
2016
Growth
Rate
2016
Percent
of total
2015
Growth
Rate
2015
Commercial:
Commercial, financial,
and industrial
Commercial real estate
Total commercial
Consumer:
Consumer real estate (a)
Permanent mortgage
Credit card, OTC and
other
Total consumer
Total loans, net of
unearned income
$12,367,420
2,365,763
14,733,183
4,588,833
407,552
374,474
5,370,859
61% 13% $10,932,679
1,938,939
12
22
60%
11
15% $ 9,477,376
1,425,813
36
57%
9
73
23
2
2
27
14
12,871,618
(1)
(7)
4
(1)
4,635,213
437,524
359,515
5,432,252
71
25
2
2
29
18
10,903,189
(5)
(11)
2
(5)
4,879,083
489,190
352,977
5,721,250
66
29
3
2
34
16%
17
16
(6)
(18)
1
(7)
$20,104,042
100% 10% $18,303,870
100%
10% $16,624,439
100%
7%
(a) 2017, 2016, and 2015 include $29.3 million, $43.4 million, and $65.6 million of restricted and secured real estate loans, respectively.
C&I loans are the largest component of the commercial portfolio, comprising 84 percent of average commercial
loans in both 2017 and 2016. Average C&I loans increased 13 percent, or $1.4 billion, from 2016 due to net loan
growth within several of the regional bank’s portfolios including franchise finance, commercial, and international,
somewhat offset by lower balances of loans to mortgage companies. Average commercial real estate loans
increased 22 percent to $2.4 billion in 2017 because of growth in expansion markets and increased funding under
existing commitments. In addition, the fourth quarter 2017 CBF acquisition also contributed to the increase.
Average consumer loans declined 1 percent from a year ago to $5.4 billion in 2017. The consumer real estate
portfolio (home equity lines and installment loans) declined $46.4 million to $4.6 billion, as the continued wind-
down of portfolios within the non-strategic segment outpaced a $353.9 million increase in real estate installment
loans within the regional banking segment primarily from new originations combined with the impact of the CBF
acquisition. The permanent mortgage portfolio declined $30.0 million to $407.6 million in 2017 driven by run-off of
legacy assets within the non-strategic segment offset by some growth in mortgage loans within regional banking,
primarily related to FHN’s CRA initiatives. Credit Card and Other increased $15.0 million to $374.4 million.
The following table provides a detail of contractual maturities of commercial loans on December 31, 2017.
Table 7 – Contractual Maturities of Commercial Loans on December 31, 2017
(Period-end)
(Dollars in thousands)
Commercial, financial, and industrial
Commercial real estate
Total commercial loans
For maturities over one year:
Interest rates - floating
Interest rates - fixed
Total maturities over one year
Within 1 Year
After 1 Year
Within 5 Years
After 5 Years
Total
$3,822,516
972,077
$ 7,987,389
2,517,059
$4,247,368
725,559
$16,057,273
4,214,695
$4,794,593
$10,504,448
$4,972,927
$20,271,968
$ 7,452,550
3,051,898
$3,748,117
1,224,810
$11,200,667
4,276,708
$10,504,448
$4,972,927
$15,477,375
20
FIRST HORIZON NATIONAL CORPORATION
Because of various factors, the contractual maturities of consumer loans are not indicative of the actual lives of
such loans. A significant component of FHN’s loan portfolio consists of consumer real estate loans – a majority of
which are home equity lines of credit and home equity installment loans. Typical home equity lines originated by
FHN are variable rate 5/15, 10/10, or 10/20 lines. In a 5/15 line, a borrower may draw on the loan for 5 years
and pay interest only during that period (“the draw period”), and for the next 15 years the customer pays principal
and interest and may no longer draw on that line. A 10/10 loan has a 10 year draw period followed by a 10-year
principal-and-interest repayment period, and a 10/20 loan has a 10 year draw period followed by a 20-year
principal-and-interest repayment period. Therefore, the contractual maturity for 5/15 and 10/10 home equity lines
is 20 years and the contractual maturity for 10/20 home equity lines is 30 years. Numerous factors can contribute
to the actual life of a home equity line or installment loan. In normalized market conditions, the average life of
home equity line and installment loan portfolios is significantly less than the contractual period as indicated by
historical trends. More recent indicators suggest that the average life of these portfolios could be longer when
compared to that observed in normalized market conditions. This could be attributed to the reduced availability of
new credit in the marketplace, weak performance of the housing market for much of the past ten years, and a
historically low interest rate environment which is likely to have slowed prepayment rates. However, the actual
average life of home equity lines and loans is difficult to predict and changes in any of these factors could result in
changes in projections of average lives.
Investment Securities
FHN’s investment portfolio consists principally of debt securities including government agency issued mortgage-
backed securities (“MBS”) and government agency issued collateralized mortgage obligations (“CMO”),
substantially all of which are classified as AFS. FHN utilizes the securities portfolio as a source of income, liquidity
and collateral for repurchase agreements, for public funds, and as a tool for managing risk of interest rate
movements. Table 8 – Contractual Maturities of Investment Securities on December 31, 2017 (Amortized Cost)
shows information pertaining to the composition, yields, and contractual maturities of the investment portfolio.
Investment securities increased to $5.2 billion on December 31, 2017 from $4.0 billion on December 31, 2016
primarily due to the acquisition of CBF. Average investment securities were $4.0 billion in 2017 and 2016,
representing 15 percent and 16 percent of average earning assets in 2017 and 2016, respectively. FHN manages
the size and mix of the investment portfolio to assist in asset liability management, provide liquidity, and optimize
risk adjusted returns.
Government agency issued MBS, CMO, and other agencies averaged $3.8 billion in 2017 and 2016. U.S. treasury
securities and corporate and municipal bonds averaged $16.2 million in 2017 compared to $15.2 million in 2016.
Investments in equity securities averaged $190.3 million in 2016 compared with $186.4 million in 2016. A majority
of the equity security balances include restricted investments in the Federal Home Loan Bank (“FHLB”) and
Federal Reserve Bank (“FRB”) which averaged $151.4 million and $156.0 million in 2017 and 2016, respectively.
On December 31, 2017, AFS investment securities had $35.7 million of net unrealized losses compared to
$27.9 million of net unrealized losses on December 31, 2016. See Note 3 - Investment Securities for additional
detail.
FIRST HORIZON NATIONAL CORPORATION
21
Table 8 – Contractual Maturities of Investment Securities on December 31, 2017 (Amortized Cost)
(Period-end)
(Dollars in thousands)
Securities available-for-sale:
Government agency issued MBS
and CMO (a)
U.S. treasuries
Corporates and other debt
Other (b)
Total securities available-for-sale
Securities held-to-maturity:
State and municipalities
Corporate bonds
Total securities held-to-maturity
Within 1 year
After 1 year
Within 5 years
After 5 years
Within 10 years
After 10 years
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
$20,038
-
-
-
$20,038
1.84% $109,181
100
55,799
-
1.84% $165,080
-
-
-
2.17% $266,588
-
1.51
-
4.26
-
-
2.88% $266,588
3.11% $4,487,073
-
-
265,863
3.11% $4,752,936
-
-
-
2.53%
-
-
3.4
2.58%
$
$
-
-
-
-% $
-
-% $
-
-
-
-
-% $
10,000
-
-% $ 10,000
-% $
5.25
5.25% $
-
-
-
-%
-
-%
(a) Represents government agency-issued mortgage-backed securities and collateralized mortgage obligations which, when adjusted for early
pay downs, have an estimated average life of 5.1 years.
(b) The amount classified as maturing after 10 years represents equity securities with no stated maturity.
Loans Held-for-Sale
Loans HFS consists of small business, other consumer loans, the mortgage warehouse, USDA, student, and home
equity loans. On December 31, 2017 loans HFS were $699.4 million compared to $111.2 million on December 31,
2016. The average balance of loans HFS increased to $370.6 million from $124.3 million in 2016. The increase in
period-end and average loans HFS was primarily driven by the Coastal acquisition in second quarter 2017, which
resulted in an increase in small business loans and the addition of USDA loans, as well as the addition of other
consumer loans acquired as part of the CBF acquisition in fourth quarter 2017.
Other Earning Assets
Other earning assets include trading securities, securities purchased under agreements to resell (“asset repos”),
federal funds sold (“FFS”), and interest-bearing deposits with the Fed and other financial institutions. Other earning
assets averaged $3.0 billion in 2017, up from $2.7 billion in 2016. The increase in other earning assets was
primarily driven by higher levels of interest-bearing cash primarily driven by higher average balances of customer
deposits. A decrease in average asset repos and fixed income trading securities in 2017 compared with 2016
offset a portion of the overall increase in other earning assets. Asset repos are used in fixed income trading activity
and generally fluctuate with the level of fixed income trading liabilities (short-positions) as securities collateral from
asset repo transactions are used to fulfill trades. Fixed income’s trading inventory fluctuates daily based on
customer demand. Other earning assets were $3.4 billion and $2.6 billion on December 31, 2017 and 2016,
respectively. The increase in other earning assets on a period-end basis was primarily driven by an increase in
fixed income trading securities, as well as increases in interest-bearing cash and asset repos.
Non-earning assets
Period-end non-earning assets increased to $4.5 billion on December 31, 2017 from $2.3 billion on December 31,
2016. The increase in non-earning assets was primarily due to increases in goodwill, premises and equipment, and
intangible assets associated with the CBF and Coastal acquisitions. Other assets also increased from December 31,
2016 to December 31, 2017 largely driven by increases in deferred tax assets associated with the CBF acquisition,
and BOLI assets acquired in the CBF acquisition.
Deposits
Average deposits were $23.1 billion during 2017, up 10 percent from $20.9 billion during 2016. As noted in the
table below, the composition of deposits remained consistent in 2017 with interest-bearing deposits comprising
72 percent of total deposits. As a percentage of total deposits, market-indexed deposits decreased 1 percent and
commercial interest deposits increased 1 percent compared with 2016. Period-end deposits were $30.6 billion on
December 31, 2017, up 35 percent from $22.7 billion on December 31, 2016. The increase in period-end and
22
FIRST HORIZON NATIONAL CORPORATION
average deposits was due primarily to the addition of $8.1 billion of deposits associated with the CBF acquisition;
however, due to the late-year timing of the acquisition, the impact was much less on an average basis.
Table 9 – Average Deposits
(Dollars in thousands)
2017
Percent
of Total
2017
Growth
Rate
2016
Percent
of Total
2016
Growth
Rate
Percent
of Total
2015
Growth
Rate
2015
Interest-bearing deposits:
Consumer interest
Commercial interest
Market-indexed (a)
Total interest-bearing
deposits
Noninterest-bearing
deposits
$ 9,467,518
3,187,034
3,986,095
41% 11% $ 8,537,255
2,812,222
14
3,788,420
17
13
5
41%
13
18
5% $ 8,140,316
2,717,454
3
2,567,213
48
43%
14
14
7%
(2)
90
16,640,647
6,431,489
72
28
10
12
15,137,897
5,760,873
72
28
13
8
13,424,983
5,328,762
72
28
14
14
Total deposits
$23,072,136
100% 10% $20,898,770
100% 11% $18,753,745
100% 14%
(a) Market-indexed deposits are tied to an index not administered by FHN and are comprised of insured network deposits, correspondent
banking deposits, and trust/sweep deposits.
Short-Term Borrowing
Short-term borrowings (federal funds purchased (“FFP”), securities sold under agreements to repurchase, trading
liabilities, and other short-term borrowings) averaged $2.3 billion in 2017 and $2.0 billion in 2016. As noted in the
table below other short-term borrowings and securities sold under agreements to repurchase increased during
2017, while trading liabilities and FFP decreased during 2017 compared to the prior year. Other short-term
borrowings balances fluctuate largely based on the level of FHLB borrowing as a result of loan demand, deposit
levels and balance sheet funding strategies. Securities sold under agreements to repurchase increased primarily as
a result of the Coastal and CBF acquisitions. Average FFP fluctuates depending on the amount of excess funding
of FHN’s correspondent bank customers and average trading liabilities fluctuates based on expectations of
customer demand. Period-end short-term borrowings were $4.3 billion on December 31, 2017 and $1.5 billion in
2016. The increase in period-end short-term borrowings was primarily due to an increase in FHLB borrowings. See
Note 9 – Short-Term Borrowings for additional information.
Table 10 – Average Short-Term Borrowings
(Dollars in thousands)
Short-term borrowings
Federal funds purchased
Securities sold under agreements
to repurchase
Trading liabilities
Other short-term borrowings
Percent
of Total
2017
Growth
Rate
2016
Percent
of Total
2016
Growth
Rate
2015
Percent
of Total
2015
Growth
Rate
2017
$ 447,137
20% (24)% $ 589,223
30% (16)% $ 705,054
36% (36)%
578,666
685,891
554,502
26
30
24
36
(11)
NM
425,452
771,039
198,440
21
39
10
15
5
20
370,097
733,189
164,951
19
37
8
(17)
16
(69)
Total short-term borrowings
2,266,196
100% 14% $1,984,154
100%
1% $1,973,291
100% (27)%
NM – Not meaningful
Term Borrowings
Term borrowings include senior and subordinated borrowings with original maturities greater than one year. Term
borrowings were $1.2 billion on December 31, 2017 compared to $1.0 billion on December 31, 2016, primarily
due to the addition of junior subordinated debentures underlying $206 million of trust preferred debt acquired in
association with the CBF acquisition. Average term borrowings were $1.1 billion in 2017 and 2016. See Note 10 –
Term Borrowings for additional information.
FIRST HORIZON NATIONAL CORPORATION
23
Other Liabilities
Period-end other liabilities increased to $.7 billion on December 31, 2017 from $.6 billion on December 31, 2016.
CAPITAL – 2017 COMPARED TO 2016
Management’s objectives are to provide capital sufficient to cover the risks inherent in FHN’s businesses, to
maintain excess capital to well-capitalized standards, and to assure ready access to the capital markets. Period-end
equity increased to $4.6 billion on December 31, 2017 from $2.7 billion on December 31, 2016 due in large part
to $1.8 billion of equity issued in connection with the CBF acquisition on November 30, 2017. Average equity
increased to $3.0 billion in 2017 from $2.7 billion in 2016. The increase in average equity was due to net income
recognized since 2016, partially offset by common and preferred dividends paid, and the average impact of the
equity issued in association with the CBF acquisition previously mentioned. Average equity was negatively impacted
by a decline in accumulated other comprehensive income in 2017, offsetting a portion of the increase in average
equity. The decline in average accumulated other comprehensive income was largely the result of unrealized losses
recognized on the AFS securities portfolio, as well as an increase of net actuarial losses for pension and post
retirement plans and results of cash flow hedges.
As previously mentioned, effective February 14, 2018 FHN elected early adoption of ASU 2018-02,
“Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which resulted in a
reclassification of $57.5 million out of period-end AOCI into retained earnings. This reclassification is reflected in
FHN’s and FTBNA’s regulatory capital balances and ratios as of December 31, 2017.
The following tables provide a reconciliation of Shareholders’ equity from the Consolidated Statements of Condition
to Common Equity Tier 1, Tier 1 and Total Regulatory Capital as well as certain selected capital ratios:
Table 11 – Regulatory Capital and Ratios
(Dollars in thousands)
Shareholders’ equity
FHN non-cumulative perpetual preferred
Common equity
Regulatory adjustments:
Disallowed goodwill and other intangibles
Net unrealized (gains)/losses on securities available-for-sale
Net unrealized (gains)/losses on pension and other postretirement plans
Net unrealized (gains)/losses on cash flow hedges
Disallowed deferred tax assets
Other deductions from common equity tier 1
Common equity tier 1
FHN non-cumulative perpetual preferred
Qualifying noncontrolling interest – FTBNA preferred stock
Other deductions from tier 1
Tier 1 capital
Tier 2 capital
Total regulatory capital
Risk-Weighted Assets
First Horizon National Corporation
First Tennessee Bank National Association
Average Assets for Leverage
First Horizon National Corporation
First Tennessee Bank National Association
December 31, 2017 December 31, 2016
$ 4,285,057
(95,624)
$ 2,409,653
(95,624)
$ 4,189,433
$ 2,314,029
(1,480,725)
26,834
288,227
7,764
(69,065)
(313)
$ 2,962,155
95,624
257,080
(33,381)
$ 3,281,478
422,276
$ 3,703,754
(165,292)
17,232
229,157
1,265
(18,027)
(377)
$ 2,377,987
95,624
256,811
(58,551)
$ 2,671,871
254,139
$ 2,926,010
$33,373,877
32,786,547
$23,914,158
23,447,251
31,824,751
31,016,187
28,581,251
27,710,158
24
FIRST HORIZON NATIONAL CORPORATION
Common Equity Tier 1
First Horizon National Corporation
First Tennessee Bank National Association
Tier 1
First Horizon National Corporation
First Tennessee Bank National Association
Total
First Horizon National Corporation
First Tennessee Bank National Association
Tier 1 Leverage
First Horizon National Corporation
First Tennessee Bank National Association
Other Capital Ratios
Total period-end equity to tangible assets
Tangible common equity to tangible assets (a)
Adjusted tangible common equity to risk weighted assets (a)
December 31, 2017
December 31, 2016
Ratio
Amount
Ratio
Amount
8.88% $2,962,155
3,041,420
9.28
9.94% $2,377,987
2,298,080
9.80
9.83
10.12
11.10
10.74
10.31
10.70
11.06
6.57
7.91
3,281,478
3,317,684
11.17
10.83
2,671,871
2,538,382
3,703,754
3,520,670
12.24
11.78
2,926,010
2,762,271
2,671,871
2,538,382
3,281,478
3,317,684
9.35
9.16
9.47
7.42
8.86
(a) Tangible common equity to tangible assets and Adjusted tangible common equity to risk-weighted assets are non-GAAP measures and are
reconciled to Total equity to total assets (GAAP) in the Non-GAAP to GAAP Reconciliation – Table 33.
Banking regulators define minimum capital ratios for bank holding companies and their bank subsidiaries. Based
on the capital rules and definitions prescribed by the banking regulators, should any depository institution’s capital
ratios decline below predetermined levels, it would become subject to a series of increasingly restrictive regulatory
actions. The system categorizes a depository institution’s capital position into one of five categories ranging from
well-capitalized to critically under-capitalized. For an institution the size of FHN to qualify as well-capitalized,
Common Equity Tier 1, Tier 1 Capital, Total Capital, and Leverage capital ratios must be at least 6.5 percent,
8 percent, 10 percent, and 5 percent, respectively. As of December 31, 2017, each of FHN and FTBNA had
sufficient capital to qualify as a well-capitalized institution. For both FHN and FTBNA, regulatory capital ratios
declined in 2017 relative to 2016 primarily due to the impact of increased disallowed intangible assets related to
the CBF and Coastal acquisitions and increased risk-weighted assets primarily as a result of the increase in period
end loans from the CBF acquisition. During 2018, capital ratios are expected to remain above well-capitalized
standards.
In March 2014, the OCC, Federal Reserve, and FDIC issued final supervisory guidance for stress tests pursuant to
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Reform Act”). Under these
requirements, bank holding companies with $10 billion to $50 billion in assets must conduct an annual stress test
to determine whether capital is likely to be adequate to absorb losses under hypothetical economic scenarios
provided by the regulators.
In July 2017, FHN submitted results of its annual Dodd-Frank Act Stress Test, commonly known as DFAST, to the
OCC and the Federal Reserve. A summary of the results was posted in October 2017 to FHN’s investor relations
website. (Neither FHN’s stress test posting, nor any other material found on FHN’s website generally, is part of this
report or incorporated herein.)
Common Stock Purchase Programs
Pursuant to board authority, FHN may repurchase shares of its common stock from time to time and will evaluate
the level of capital and take action designed to generate or use capital, as appropriate, for the interests of the
shareholders, subject to legal and regulatory restrictions. Two common stock purchase programs currently
authorized are discussed below. FHN’s board has not authorized a preferred stock purchase program.
FIRST HORIZON NATIONAL CORPORATION
25
Table 12 – Issuer Purchases of Common Stock
General Program. On January 22, 2014, FHN announced a $100 million share purchase authority with an
expiration date of January 31, 2016. On July 21, 2015, FHN announced a $100 million increase in that
authority along with an extension of the expiration date to January 31, 2017, and on April 26, 2016, FHN
announced a $150 million increase and further extension to January 31, 2018. As of December 31, 2017, the
program authorized total purchases of up to $350 million and expired on January 31, 2018. As of
December 31, 2017, $160.3 million in purchases had been made under this authority at an average price per
share of $12.86, $12.84 excluding commissions. During 2017, FHN did not repurchase any common shares
under the program. In 2016 FHN repurchased $93.5 million of common shares under the program.
In January 2018, FHN’s board of directors approved a new $250 million common share purchase program that
will expire on January 31, 2020. The new program is not tied to any compensation plan, and replaces the
general share purchase program previously mentioned, which was terminated by the board. Purchases may be
made in the open market or through privately negotiated transactions and are subject to market conditions,
accumulation of excess equity, prudent capital management, and legal and regulatory restrictions.
General Repurchase Authority:
(Dollar values and volume in
thousands, except per share data)
2017
October 1 to October 31
November 1 to November 30
December 1 to December 31
Total
Total number
of shares
purchased
Average price
paid per share
Total number of
shares purchased
as part of publicly
announced programs
Maximum approximate
dollar value that may
yet be purchased
under the programs
-
-
-
-
N/A
N/A
N/A
N/A
-
-
-
-
$189,690
$189,690
$189,690(a)
N/A – Not applicable
(a) On December 31, 2017 the maximum dollar value of shares that may be purchased under the program was $189.7 million. In January
2018, the current plan was terminated and FHN’s board of directors approved a new $250.0 million common share repurchase program.
Compensation Plan Program. A consolidated compensation plan share purchase program was announced on
August 6, 2004. This program consolidated into a single share purchase program all of the previously
authorized compensation plan share programs as well as the renewal of the authorization to purchase shares for
use in connection with two compensation plans for which the share purchase authority had expired. The total
amount authorized under this consolidated compensation plan share purchase program, inclusive of a program
amendment on April 24, 2006, is 29.6 million shares calculated before adjusting for stock dividends
distributed through January 1, 2011. The authorization has been reduced for that portion which relates to
compensation plans for which no options remain outstanding. The shares may be purchased over the option
exercise period of the various compensation plans on or before December 31, 2023. On December 31, 2017,
the maximum number of shares that may be purchased under the program was 25.4 million shares. Purchases
may be made in the open market or through privately negotiated transactions and are subject to market
conditions, accumulation of excess equity, prudent capital management, and legal and regulatory restrictions.
Management currently does not anticipate purchasing a material number of shares under this authority during
2018.
26
FIRST HORIZON NATIONAL CORPORATION
Compensation Plan-Related Repurchase Authority:
(Volume in thousands, except per share data)
2017
October 1 to October 31
November 1 to November 30
December 1 to December 31
Total
Total number
of shares
purchased
Average price
paid per share
Total number of
shares purchased
as part of publicly
announced programs
Maximum number
of shares that may
yet be purchased
under the programs
12
1
1
14
$19.02
$18.63
$20.09
$19.10
12
1
1
14
25,446
25,446
25,444
ASSET QUALITY – TREND ANALYSIS OF 2017 COMPARED TO 2016
Loan Portfolio Composition
FHN groups its loans into portfolio segments based on internal classifications reflecting the manner in which the
ALLL is established and how credit risk is measured, monitored, and reported. From time to time, and if conditions
are such that certain subsegments are uniquely affected by economic or market conditions or are experiencing
greater deterioration than other components of the loan portfolio, management may determine the ALLL at a more
granular level. Commercial loans are composed of commercial, financial, and industrial (“C&I”) and commercial
real estate (“CRE”). Consumer loans are composed of consumer real estate; permanent mortgage; and credit card
and other. FHN has a concentration of residential real estate loans (24 percent of total loans), the majority of
which is in the consumer real estate portfolio (23 percent of total loans). Industry concentrations are discussed
under the heading C&I below.
Acquired Loans
On November 30, 2017, FHN completed its acquisition of CBF. The acquisition included $7.6 billion in unpaid
principal balance of loans with an estimated fair value of $7.4 billion. Acquired loans were initially recorded at fair
value which was estimated by discounting expected cash flows at the acquisition date. The expected cash flows
include all contractually expected amounts and incorporate an estimate for future expected credit losses, pre-
payment assumptions and yield requirement for a market participant, among other things. Because an expectation
of credit losses is embedded in the fair value estimate, there is no carryover of allowance for loan losses. See
Note 4 - Loans for additional information regarding the acquisition.
Certain loans acquired were designated as purchased credit-impaired (“PCI”) loans. PCI loans are loans that have
exhibited deterioration of credit quality between origination and the time of acquisition and for which the timely
collection of the interest and principal is no longer reasonably assured. FHN considered several factors when
determining whether a loan met the definition of a PCI loan at the time of acquisition including accrual status, loan
grade, delinquency trends, pre-acquisition charge-offs, as well as both originated versus refreshed credit scores
and ratios when available.
On December 31, 2017, the unpaid principal balance and the carrying value of PCI loans (inclusive of the CBF
acquisition and prior franchise finance loan purchase and two previous bank acquisitions) were $199.7 million and
$176.4 million, respectively.
Underwriting Policies and Procedures
The following sections describe each portfolio as well as general underwriting procedures for each. As economic
and real estate conditions develop, enhancements to underwriting and credit policies and procedures may be
necessary or desirable. Loan policies and procedures for all portfolios are reviewed by credit risk working groups
and management risk committees comprised of business line managers and credit administration professionals as
well as by various other reviewing bodies within FHN. Policies and procedures are approved by key executive
and/or senior managers leading the applicable credit risk working groups as well as by management risk
committees. The credit risk working groups and management risk committees strive to ensure that the approved
FIRST HORIZON NATIONAL CORPORATION
27
policies and procedures address the associated risks and establish reasonable underwriting criteria that
appropriately mitigate risk. Policies and procedures are reviewed, revised and re-issued periodically at established
review dates or earlier if changes in the economic environment, portfolio performance, the size of portfolio or
industry concentrations, or regulatory guidance warrant an earlier review. In 2017, we expanded our borrower limits
in association with the expansion of our overall portfolio through the acquisition of CBF. Additionally, we also
revised our Portfolio Concentration, Country Exposure, and Automated Clearing House limits to more appropriately
align with our overall risk appetite and to provide more granularity into some of our portfolio sub segments. These
changes were approved by management risk committees and the Executive and Risk Committee of the Board in
order to enhance and support loan growth while also minimizing incremental credit risk.
COMMERCIAL LOAN PORTFOLIOS
FHN’s commercial loan approval process grants lending authority based upon job description, experience, and
performance. The lending authority is delegated to the business line (Market Managers, Departmental Managers,
Regional Presidents, Relationship Managers (“RM”) and Portfolio Managers (“PM”)) and to Credit Risk Managers.
While individual limits vary, the predominant amount of approval authority is vested with the Credit Risk Management
function. Portfolio, industry, and borrower concentration limits for the various portfolios are established by executive
management and approved by the Executive and Risk Committee of the Board.
FHN’s commercial lending process incorporates a RM and PM for most commercial credits. The PM is responsible
for assessing the credit quality of the borrower, beginning with the initial underwriting and continuing through the
servicing period, while the RM is primarily responsible for communications with the customer and maintaining the
relationship. Other specialists and the assigned RM/PM are organized into units called deal teams. Deal teams are
constructed with specific job attributes that facilitate FHN’s ability to identify, mitigate, document, and manage
ongoing risk. PMs and credit analysts provide enhanced analytical support during loan origination and servicing,
including monitoring of the financial condition of the borrower and tracking compliance with loan agreements. Loan
closing officers and the construction loan management unit specialize in loan documentation and the management
of the construction lending process. FHN strives to identify problem assets early through comprehensive policies
and guidelines, targeted portfolio reviews, and an emphasis on frequent grading. For smaller commercial credits,
generally $3 million or less, FHN utilizes a centralized underwriting unit in order to originate and grade small
business loans more efficiently and consistently.
FHN may utilize availability of guarantors/sponsors to support commercial lending decisions during the credit
underwriting process and when determining the assignment of internal loan grades. Reliance on the guaranty as a
viable secondary source of repayment is a function of an analysis proving capability to pay, factoring in, among
other things, liquidity and direct/indirect cash flows. FHN also considers the volume and amount of guaranties
provided for all global indebtedness and the likelihood of realization. FHN presumes a guarantor’s willingness to
perform until there is any current or prior indication or future expectation that the guarantor may not willingly and
voluntarily perform under the terms of the guaranty. In FHN’s risk grading approach, it is deemed that financial
support becomes necessary generally at a point when the loan would otherwise be graded substandard, reflecting
a well-defined weakness. At that point, provided willingness and capacity to support are appropriately
demonstrated, a strong, legally enforceable guaranty can mitigate the risk of default or loss, justify a less severe
rating, and consequently reduce the level of allowance or charge-off that might otherwise be deemed appropriate.
C&I
The C&I portfolio was $16.1 billion on December 31, 2017, and is comprised of loans used for general business
purposes. Typical products include working capital lines of credit, term loan financing of owner-occupied real
estate and fixed assets, and trade credit enhancement through letters of credit. The largest geographical
concentrations of balances as of December 31, 2017, are in Tennessee (36 percent), North Carolina (13 percent),
Florida (6 percent), California (6 percent), Texas (5 percent), Georgia (4 percent), and South Carolina (4 percent),
with no other state representing more than 3 percent of the portfolio.
C&I loans are underwritten in accordance with a well-defined credit origination process. This process includes
applying minimum underwriting standards as well as separation of origination and credit approval roles on
28
FIRST HORIZON NATIONAL CORPORATION
transaction sizes over PM authorization limits. Underwriting typically includes due diligence of the borrower and the
applicable industry of the borrower, analysis of the borrower’s available financial information, identification and
analysis of the various sources of repayment and identification of the primary risk attributes. Stress testing the
borrower’s financial capacity, adherence to loan documentation requirements, and assigning credit risk grades
using internally developed scorecards are also used to help quantify the risk when appropriate. Underwriting
parameters also include loan-to-value ratios (“LTVs”) which vary depending on collateral type, use of guaranties,
loan agreement requirements, and other recommended terms such as equity requirements, amortization, and
maturity. Approval decisions also consider various financial ratios and performance measures of the borrowers,
such as cash flow and balance sheet leverage, liquidity, coverage of fixed charges, and working capital.
Additionally, approval decisions consider the capital structure of the borrower, sponsorship, and quality/value of
collateral. Generally, guideline and policy exceptions are identified and mitigated during the approval process.
Pricing of C&I loans is based upon the determined credit risk specific to the individual borrower. These loans
typically have variable rates tied to the London Inter-Bank Offered Rate (“LIBOR”) or the prime rate of interest plus
or minus the appropriate margin.
The following table provides the composition of the C&I portfolio by industry as of December 31, 2017 and 2016.
For purposes of this disclosure, industries are determined based on the North American Industry Classification
System (“NAICS”) industry codes used by Federal statistical agencies in classifying business establishments for the
collection, analysis, and publication of statistical data related to the U.S. business economy.
Table 13 – C&I Loan Portfolio by Industry
(Dollars in thousands)
Amount
Percent
Amount
Percent
December 31, 2017
December 31, 2016
Industry:
Finance & insurance
Loans to mortgage companies
Real estate rental & leasing (a)
Health care & social assistance
Manufacturing
Accommodation & food service
Wholesale trade
Retail trade
Other (transportation, education, arts,
entertainment, etc) (b)
Total C&I loan portfolio
$ 2,859,769
2,099,961
1,408,299
1,201,285
1,184,861
1,145,944
1,060,642
831,790
4,264,722
$16,057,273
18%
13
9
7
7
7
7
5
27
100%
$ 2,573,713
2,045,189
769,457
893,629
762,947
987,973
826,226
488,189
2,800,764
$12,148,087
21%
17
6
7
6
8
7
4
24
100%
(a) Leasing, rental of real estate, equipment, and goods.
(b) Industries in this category each comprise less than 5 percent for 2017.
Industry Concentrations
Loan concentrations are considered to exist for a financial institution when there are loans to numerous borrowers
engaged in similar activities that would cause them to be similarly impacted by economic or other conditions.
31 percent of FHN’s C&I portfolio (Finance and insurance plus Loans to mortgage companies) could be affected
by items that uniquely impact the financial services industry. Except “Finance and Insurance” and “Loans to
Mortgage Companies”, as discussed below, on December 31, 2017, FHN did not have any other concentrations of
C&I loans in any single industry of 10 percent or more of total loans.
Finance and Insurance
The finance and insurance component represents 18 percent of the C&I portfolio and includes TRUPS (i.e., long-
term unsecured loans to bank and insurance-related businesses), loans to bank holding companies, and asset-
based lending to consumer finance companies. As of December 31, 2017, asset-based lending to consumer
finance companies represents approximately $1.2 billion of the finance and insurance component.
FIRST HORIZON NATIONAL CORPORATION
29
TRUPS lending was originally extended as a form of “bridge” financing to participants in the pooled trust preferred
securitization program offered primarily to smaller banking (generally less than $15 billion in total assets) and
insurance institutions through FHN’s fixed income business. Origination of TRUPS lending ceased in early 2008.
Individual TRUPS are re-graded at least quarterly as part of FHN’s commercial loan review process. The terms of
these loans generally include a scheduled 30 year balloon payoff and include an option to defer interest for up to
20 consecutive quarters. As of December 31, 2017, and December 31, 2016, one TRUP relationship was on
interest deferral.
As of December 31, 2017, the unpaid principal balance (“UPB”) of trust preferred loans totaled $332.5 million
($206.2 million of bank TRUPS and $126.3 million of insurance TRUPS) with the UPB of other bank-related loans
totaling $262.4 million. Inclusive of a valuation allowance on TRUPS of $25.5 million, total reserves (ALLL plus the
valuation allowance) for TRUPS and other bank-related loans were $26.8 million or 5 percent of outstanding UPB.
Loans to Mortgage Companies
The balance of loans to mortgage companies was 13 percent of the C&I portfolio as of December 31, 2017, and
17 percent of the C&I portfolio as of December 31, 2016, and includes balances related to both home purchase
and refinance activity. This portfolio class, which generally fluctuates with mortgage rates and seasonal factors,
includes commercial lines of credit to qualified mortgage companies primarily for the temporary warehousing of
eligible mortgage loans prior to the borrower’s sale of those mortgage loans to third party investors. Generally,
lending to mortgage lenders increases when there is a decline in mortgage rates and decreases when rates rise.
C&I Asset Quality Trends
Overall, the C&I portfolio trends remain strong in 2017, continuing in line with recent historical performance. The
C&I ALLL increased $8.8 million from December 31, 2016, to $98.2 million as of December 31, 2017. The
allowance as a percentage of period-end loans decreased to .61 percent as of December 31, 2017, from
.74 percent as of December 31, 2016. The decrease in allowance to loans reflects the addition of loans acquired
from CBF at fair value which includes an estimate of life of loan credit losses. Nonperforming C&I loans decreased
$1.6 million from December 31, 2016, to $31.2 million on December 31, 2017. The nonperforming loan (“NPL”)
ratio decreased 8 basis points from December 31, 2016, to .19 percent of C&I loans as of December 31, 2017.
The 30+ delinquency ratio increased to .19 percent as of December 31, 2017, from .08 percent as of December
31, 2016, driven by one large relationship, a portion of which is a purchased credit-impaired loan, and the addition
of loans as a result of the CBF acquisition. Net charge-offs were $13.1 million in 2017 compared to $11.7 million
in 2016. The following table shows C&I asset quality trends by segment.
30
FIRST HORIZON NATIONAL CORPORATION
Table 14 – C&I Asset Quality Trends by Segment
(Dollars in thousands)
Regional Bank
Period-end loans
Nonperforming loans
Allowance for loan losses as of January 1
Charge-offs
Recoveries
Provision/(provision credit) for loan losses
Allowance for loan losses as of December 31
Accruing restructured loans
Nonaccruing restructured loans
Total troubled debt restructurings
30+ Delinq. % (a)
NPL %
Net charge-offs %
Allowance / loans %
Allowance / net charge-offs
Non-Strategic
2017
2016
2015
2014
2013
December 31
$
$15,639,060
28,086
88,010
(17,657)
4,516
21,981
96,850
14,186
3,484
17,670
$
$
$
$
$11,728,160
28,619
72,213
(18,196)
6,719
27,274
88,010
20,151
14,183
34,334
$
$
$
$
$10,014,752
22,793
61,998
(17,994)
11,969
16,240
72,213
4,358
14,284
18,642
$
$
$
$
$8,553,080
20,627
72,310
(14,832)
9,003
(4,483)
61,998
19,214
9,632
28,846
$
$
$
$
$7,431,430
43,691
78,181
(22,274)
10,167
6,236
72,310
8,515
27,345
35,860
$
$
$
0.20%
0.18
0.11
0.62%
7.38x
0.08%
0.24
0.11
0.75%
7.67x
0.08%
0.23
0.07
0.72%
11.99x
0.05%
0.24
0.08
0.72%
10.63x
0.14%
0.59
0.17
0.97%
5.72x
Period-end loans
Nonperforming loans
Allowance for loan losses as of January 1
Charge-offs
Recoveries
Provision/(provision credit) for loan losses
Allowance for loan losses as of December 31
$
$
$
418,213
3,067
1,388
-
52
(79)
1,361
$
$
$
419,927
4,117
1,424
(264)
76
152
1,388
$
$
$
421,638
3,520
5,013
(4,412)
1,370
(547)
1,424
$
$ 454,206
11,983
14,136
(5,660)
663
(4,126)
5,013
$
$
$ 492,146
36,068
18,010
(662)
2,320
(5,532)
14,136
$
30+ Delinq. % (a)
NPL %
Net charge-offs %
Allowance / loans %
Allowance / net charge-offs
Consolidated
Period-end loans
Nonperforming loans
Allowance for loan losses as of January 1
Charge-offs
Recoveries
Provision/(provision credit) for loan losses
Allowance for loan losses as of December 31
Accruing restructured loans
Nonaccruing restructured loans
Total troubled debt restructurings
30+ Delinq. % (a)
NPL %
Net charge-offs %
Allowance / loans %
Allowance / net charge-offs
-%
0.73
NM
0.33%
NM
-%
0.98
0.04
0.33%
7.39x
0.02%
0.83
0.69
0.34%
0.47x
0.05%
2.64
1.07
1.10%
1.00x
0.06%
7.33
NM
2.87%
NM
$
$16,057,273
31,153
89,398
(17,657)
4,568
21,902
98,211
14,186
3,484
17,670
$
$
$
$
$12,148,087
32,736
73,637
(18,460)
6,795
27,426
89,398
20,151
14,183
34,334
$
$
$
$
$10,436,390
26,313
67,011
(22,406)
13,339
15,693
73,637
4,358
14,284
18,642
$
$
$
$
$9,007,286
32,610
86,446
(20,492)
9,666
(8,609)
67,011
19,214
9,632
28,846
$
$
$
$
$7,923,576
79,759
96,191
(22,936)
12,487
704
86,446
8,515
27,345
35,860
$
$
$
0.19%
0.19
0.11
0.61%
7.51x
0.08%
0.27
0.11
0.74%
7.66x
0.08%
0.25
0.10
0.71%
8.12x
0.05%
0.36
0.13
0.74%
6.19x
0.13%
1.01
0.13
1.09%
8.27x
NM - Not meaningful
Loans are expressed net of unearned income.
(a) 30+ Delinquency % includes all accounts delinquent more than one month and still accruing interest.
Commercial Real Estate
The CRE portfolio was $4.2 billion on December 31, 2017. The CRE portfolio includes both financings for
commercial construction and nonconstruction loans. The largest geographical concentrations of balances as of
December 31, 2017, are in North Carolina (31 percent), Tennessee (20 percent), Florida (13 percent), South
Carolina (9 percent), Georgia (7 percent), and Texas (6 percent), with no other state representing more than
FIRST HORIZON NATIONAL CORPORATION
31
3 percent of the portfolio. This portfolio is segregated between the income-producing CRE class which contains
loans, draws on lines and letters of credit to commercial real estate developers for the construction and mini-
permanent financing of income-producing real estate, and the residential CRE class. Subcategories of income CRE
consist of multi-family (24 percent), retail (21 percent), office (21 percent), industrial (11 percent), hospitality (10
percent), land/land development (1 percent) and other (12 percent).
The residential CRE class includes loans to residential builders and developers for the purpose of constructing
single-family homes, condominiums, and town homes. Active residential CRE lending has been modest with new
originations primarily targeted in select markets. We have relationships with existing strategic clients, and we are
seeking new clients on a selective basis. FHN desires a “strategic” residential CRE borrower to have solid
experience, effective process and controls, appropriate risk tolerance, and a sound financial position that we
believe can sustain their operations through the inevitable real estate cycles.
Income CRE loans are underwritten in accordance with credit policies and underwriting guidelines that are
reviewed at least annually and revised as necessary based on market conditions. Loans are underwritten based
upon project type, size, location, sponsorship, and other market-specific data. Generally, minimum requirements for
equity, debt service coverage ratios (“DSCRs”), and level of pre-leasing activity are established based on perceived
risk in each subcategory. Loan-to-value (value is defined as the lower of cost or market) limits are set below
regulatory prescribed ceilings and generally range between 50 and 80 percent depending on underlying product
set. Term and amortization requirements are set based on prudent standards for interim real estate lending. Equity
requirements are established based on the quality and liquidity of the primary source of repayment. For example,
more equity would be required for a speculative construction project or land loan than for a property fully leased to
a credit tenant or a roster of tenants. Typically, a borrower must have at least 15 percent of cost invested in a
project before FHN will fund loan dollars. Income properties are required to achieve a DSCR greater than or equal
to 125 percent at inception or stabilization of the project based on loan amortization and a minimum underwriting
interest rate. Some product types that possess a greater risk profile require a higher level of equity, as well as a
higher DSCR threshold. A proprietary minimum underwriting interest rate is used to calculate compliance with
underwriting standards. Generally, specific levels of pre-leasing must be met for construction loans on income
properties. A global cash flow analysis is performed at the sponsor level. The majority of the portfolio is on a
floating rate basis tied to appropriate spreads over LIBOR.
The credit administration and ongoing monitoring consists of multiple internal control processes. Construction loans
are closed and administered by a centralized control unit. Underwriters and credit approval personnel stress the
borrower’s/project’s financial capacity utilizing numerous attributes such as interest rates, vacancy, and discount
rates. Key information is captured from the various portfolios and then stressed at the aggregate level. Results are
utilized to assist with the assessment of the adequacy of the ALLL and to steer portfolio management strategies.
CRE Asset Quality Trends
The CRE portfolio had continued stable performance as of December 31, 2017, with nonperforming loans down
$1.4 million from December 31, 2016 and net recoveries in 2017. The allowance decreased $5.4 million from
December 31, 2016, to $28.4 million as of December 31, 2017. Allowance as a percentage of loans decreased
92 basis points from December 31, 2016, to .67 percent as of December 31, 2017. The decrease in allowance to
loans reflects the addition of loans acquired from CBF at fair value which includes an estimate of life of loan credit
losses. Nonperforming loans as a percentage of total CRE loans improved 10 basis points from 2016 to
.03 percent as of December 31, 2017. Accruing delinquencies as a percentage of period-end loans increased to
.11 percent as of December 31, 2017, from .01 percent as of December 31, 2016, primarily driven by the
addition of loans as a result of the CBF acquisition. FHN recognized net recoveries of $.8 million in 2017
compared to net recoveries of $.6 million in 2016. The following table shows commercial real estate asset quality
trends by segment.
32
FIRST HORIZON NATIONAL CORPORATION
Table 15 – Commercial Real Estate Asset Quality Trends by Segment
(Dollars in thousands)
Regional Bank
Period-end loans
Nonperforming loans
Allowance for loan losses as of January 1
Charge-offs
Recoveries
Provision/(provision credit) for loan losses
Allowance for loan losses as of December 31
Accruing restructured loans
Nonaccruing restructured loans
Total troubled debt restructurings
30+ Delinq. % (a)
NPL %
Net charge-offs %
Allowance / loans %
Allowance / net charge-offs
Non-Strategic
Period-end loans
Nonperforming loans
Allowance for loan losses as of January 1
Charge-offs
Recoveries
Provision/(provision credit) for loan losses
Allowance for loan losses as of December 31
Accruing restructured loans
Nonaccruing restructured loans
Total troubled debt restructurings
30+ Delinq. % (a)
NPL %
Net charge-offs %
Allowance / loans %
Allowance / net charge-offs
Consolidated
Period-end loans
Nonperforming loans
2017
2016
2015
2014
2013
December 31
$4,214,695
1,393
$2,135,523
2,776
$1,674,871
8,684
$1,273,220
14,571
$1,124,131
15,146
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$33,852
(195)
915
(6,145)
28,427
1,125
1,282
2,407
0.11%
0.03
NM
0.67%
NM
-
-
-
-
51
(51)
-
-
-
-
-%
-
NM
-%
NM
$
$
$
$
$
$
$
$
$
25,159
(1,371)
1,816
8,248
33,852
1,736
1,388
3,124
0.01%
0.13
NM
1.59%
NM
-
-
-
-
111
(111)
-
-
-
-
-%
-
NM
-%
NM
$
$
$
$
$
$
$
$
$
18,158
(3,441)
1,450
8,992
25,159
5,039
3,969
9,008
0.27%
0.52
0.14
1.50%
12.63x
64
-
416
(109)
426
(733)
-
-
-
-
-%
-
NM
-%
NM
$
$
$
$
$
$
$
$
$
9,873
(3,331)
3,764
7,852
18,158
4,588
6,947
11,535
0.14%
1.14
NM
1.43%
NM
4,497
785
730
(410)
386
(290)
416
3,095
568
3,663
-%
17.47
0.41
9.25%
16.43x
18,385
(3,021)
2,798
(8,289)
9,873
11,977
7,861
19,838
0.91%
1.35
NM
0.88%
NM
9,148
2,955
1,612
(481)
1,477
(1,878)
730
3,274
906
4,180
-%
32.30
NM
7.98%
NM
$4,214,695
1,393
$2,135,523
2,776
$1,674,935
8,684
$1,277,717
15,356
$1,133,279
18,101
Allowance for loan losses as of January 1
Charge-offs
Recoveries
Provision/(provision credit) for loan losses
Allowance for loan losses as of December 31
Accruing restructured loans
Nonaccruing restructured loans
Total troubled debt restructurings
30+ Delinq. % (a)
NPL %
Net charge-offs %
Allowance / loans %
Allowance / net charge-offs
$
$
$
$
33,852
(195)
966
(6,196)
28,427
1,125
1,282
2,407
$
$
$
$
25,159
(1,371)
1,927
8,137
33,852
1,736
1,388
3,124
$
$
$
$
0.11%
0.03
NM
0.67%
NM
0.01%
0.13
NM
1.59%
NM
$
$
$
$
18,574
(3,550)
1,876
8,259
25,159
5,039
3,969
9,008
0.27%
0.52
0.12
1.50%
15.03x
NM–Not meaningful
Loans are expressed net of unearned income.
(a) 30+ Delinquency % includes all accounts delinquent more than one month and still accruing interest.
FIRST HORIZON NATIONAL CORPORATION
10,603
(3,741)
4,150
7,562
18,574
7,683
7,515
15,198
$
$
$
$
19,997
(3,502)
4,275
(10,167)
10,603
15,251
8,767
24,018
0.14%
1.20
NM
1.45%
NM
0.90%
1.60
NM
0.94%
NM
33
CONSUMER LOAN PORTFOLIOS
Consumer Real Estate
The consumer real estate portfolio was $6.4 billion on December 31, 2017, and is primarily composed of home
equity lines and installment loans including restricted balances (loans consolidated under ASC 810). The largest
geographical concentrations of balances as of December 31, 2017, are in Tennessee (51 percent), North Carolina
(16 percent), Florida (13 percent), and California (4 percent), with no other state representing more than 3 percent
of the portfolio. As of December 31, 2017, approximately 76 percent of the consumer real estate portfolio was in a
first lien position. At origination, weighted average FICO score of this portfolio was 752 and refreshed FICO scores
averaged 756 as of December 31, 2017, as compared to 750 and 747, respectively, as of December 31, 2016. As
of December 31, 2017, approximately $1.4 billion, or 21 percent, of the consumer real estate portfolio consisted of
stand-alone second liens while $.2 billion, or 3 percent, were second liens whose first liens are owned or serviced
by FHN. We obtain first lien performance information from third parties and through loss mitigation activities, and
we place a stand-alone second lien loan on nonaccrual if we discover that there are performance issues with the
first lien loan. Generally, performance of this portfolio is affected by life events that affect borrowers’ finances, the
level of unemployment, and home prices.
Home equity lines of credit (“HELOCs”) comprise $1.8 billion of the consumer real estate portfolio as of
December 31, 2017. FHN’s HELOCs typically have a 5 or 10 year draw period followed by a 10 or 20 year
repayment period, respectively. During the draw period, a borrower is able to draw on the line and is only required
to make interest payments. The line is automatically frozen if a borrower becomes 45 days or more past due on
payments. Once the draw period has concluded, the line is closed and the borrower is required to make both
principal and interest payments monthly until the loan matures. The principal payment generally is fully amortizing,
but payment amounts will adjust when variable rates reset to reflect changes in the prime rate.
As of December 31, 2017, approximately 72 percent of FHN’s HELOCs are in the draw period compared to
approximately 62 percent as of December 31, 2016. Based on when draw periods are scheduled to end per the
line agreement, it is expected that $528.4 million, or 40 percent of HELOCs currently in the draw period, will enter
the repayment period during the next 60 months. Delinquencies and charge-off rates for HELOCs that have
entered the repayment period are initially higher than HELOCs still in the draw period because of the increased
minimum payment requirement; however, after some seasoning, performance of these loans usually begins to
stabilize. The home equity lines of the consumer real estate portfolio are being monitored closely for those nearing
the end of the draw period and borrowers are initially being contacted at least 24 months before the repayment
period begins to remind the customer of the terms of their agreement and to inform them of options. The following
table shows the HELOCs currently in the draw period and expected timing of conversion to the repayment period.
Table 16 – HELOC Draw To Repayment Schedule
(Dollars in thousands)
Months remaining in draw period:
0-12
13-24
25-36
37-48
49-60
>60
Total
December 31, 2017
December 31, 2016
Repayment
Amount
Percent
Repayment
Amount
Percent
$ 138,333
88,188
99,109
96,997
105,753
792,723
10% $ 212,665
127,662
73,331
68,768
68,792
514,126
7
8
7
8
60
20%
12
7
6
7
48
$1,321,103
100% $1,065,344
100%
Underwriting
For the majority of loans in this portfolio, underwriting decisions are made through a centralized loan underwriting
center. To obtain a consumer real estate loan, the loan applicant(s) in most cases must first meet a minimum
34
FIRST HORIZON NATIONAL CORPORATION
qualifying FICO score. Minimum FICO score requirements are established by management for both loans secured
by real estate as well as non-real estate loans. Management also establishes maximum loan amounts, loan-to-value
ratios, and Debt-to-Income (“DTI”) ratios for each consumer real estate product. Applicants must have the financial
capacity (or available income) to service the debt by not exceeding a calculated DTI ratio. The amount of the loan
is limited to a percentage of the lesser of the current value or sales price of the collateral. Identified guideline and
policy exceptions require established mitigating factors that have been approved for use by Credit Risk
Management.
HELOC interest rates are variable and adjust with movements in the index rate stated in the loan agreement. Such
loans can have elevated risks of default, particularly in a rising interest rate environment, potentially stressing
borrower capacity to repay the loan at the higher interest rate. FHN’s current underwriting practice requires HELOC
borrowers to qualify based on a fully indexed, fully amortized payment methodology. FHN’s underwriting guidelines
require borrowers to qualify at an interest rate that is 200 basis points above the note rate. This mitigates risk to
FHN in the event of a sharp rise in interest rates over a relatively short time horizon.
HELOC Portfolio Risk Management
FHN performs continuous HELOC account review processes in order to identify higher-risk home equity lines and
initiate preventative and corrective actions. The reviews consider a number of account activity patterns and
characteristics such as the number of times delinquent within recent periods, changes in credit bureau score since
origination, score degradation, performance of the first lien, and account utilization. In accordance with FHN’s
interpretation of regulatory guidance, FHN may block future draws on accounts in order to mitigate risk of loss to
FHN.
Consumer Real Estate Asset Quality Trends
Overall, performance of the consumer real estate portfolio remained strong in 2017. The non-strategic segment is a
run-off portfolio and while the absolute dollars of delinquencies and nonaccruals declined compared to
December 31, 2016, 30+ accruing delinquencies and nonperforming loans ratios deteriorated. That trend of
increasing deterioration in the non-strategic segment is likely to continue and may become more skewed as the
portfolio shrinks unevenly, with stronger borrowers exiting the portfolio more rapidly than others. The ALLL
decreased $13.0 million from December 31, 2016, to $37.4 million as of December 31, 2017, with the majority of
the decline attributable to the non-strategic segment. The balance of nonperforming loans declined $11.3 million to
$71.5 million on December 31, 2017. Loans delinquent 30 or more days and still accruing declined from
$42.1 million as of December 31, 2016, to $41.5 million as of December 31, 2017. The portfolio realized net
recoveries of $9.6 million in 2017 compared to net recoveries of $1.7 million in 2016. The following table shows
consumer real estate asset quality trends by segment.
FIRST HORIZON NATIONAL CORPORATION
35
Table 17 – Consumer Real Estate Asset Quality Trends by Segment
(Dollars in thousands)
Regional Bank
Period-end loans
Nonperforming loans
Allowance for loan losses as of January 1
Charge-offs
Recoveries
Provision/(provision credit) for loan losses
Allowance for loan losses as of December 31
Accruing restructured loans
Nonaccruing restructured loans
Total troubled debt restructurings
30+ Delinq. % (a)
NPL %
Net charge-offs %
Allowance / loans %
Allowance / net charge-offs
Non-Strategic
Period-end loans
Nonperforming loans
Allowance for loan losses as of January 1
Charge-offs
Recoveries
Provision/(provision credit) for loan losses
Allowance for loan losses as of December 31
Accruing restructured loans
Nonaccruing restructured loans
Total troubled debt restructurings
30+ Delinq. % (a)
NPL %
Net charge-offs %
Allowance / loans %
Allowance / net charge-offs
Consolidated
Period-end loans
Nonperforming loans
Allowance for loan losses as of January 1
Charge-offs
Recoveries
Provision/(provision credit) for loan losses
Allowance for loan losses as of December 31
Accruing restructured loans
Nonaccruing restructured loans
Total troubled debt restructurings
30+ Delinq. % (a)
NPL %
Net charge-offs %
Allowance / loans %
Allowance / net charge-offs
2017
2016
2015
2014
2013
December 31
$
$5,774,411
22,678
19,010
(3,491)
4,342
(3,454)
16,407
31,970
12,405
44,375
$
$
$
$
$3,642,894
18,865
29,108
(5,346)
4,863
(9,615)
19,010
36,784
10,694
47,478
$
$
$
$
$3,515,459
23,935
32,180
(8,414)
4,660
682
29,108
36,912
13,723
50,635
$
$
$
$
$3,384,746
28,953
31,474
(10,780)
3,551
7,935
32,180
40,841
14,229
55,070
$
$
$
$
$3,278,365
27,939
25,291
(10,261)
5,057
11,387
31,474
41,304
14,636
55,940
$
$
$
0.40%
0.39
NM
0.28%
NM
0.49%
0.52
0.01
0.52%
39.42x
0.52%
0.68
0.11
0.83%
7.76x
0.57%
0.86
0.22
0.95%
4.45x
0.65%
0.85
0.16
0.96%
6.05x
$
$ 593,344
48,809
31,347
(9,665)
18,381
(19,099)
20,964
$
$
$ 880,858
63,947
51,506
(16,647)
18,856
(22,368)
31,347
$
$
$1,251,059
87,157
80,831
(21,654)
19,235
(26,906)
51,506
$
$
$1,663,325
91,679
95,311
(34,611)
19,273
858
80,831
$
$2,055,006
89,659
$ 103,658
(63,381)
16,303
38,731
95,311
$
$
$
54,702
29,818
84,520
$
68,217
37,765
$
67,942
47,107
$
71,389
46,766
$
83,459
31,023
$ 105,982
$ 115,049
$ 118,155
$ 114,482
3.06%
8.23
NM
3.53%
NM
2.76%
7.26
NM
3.56%
NM
2.34%
6.97
0.17
4.12%
21.29x
2.17%
5.51
0.82
4.86%
5.27x
1.89%
4.36
2.04
4.64%
2.02x
$
$6,367,755
71,487
50,357
(13,156)
22,723
(22,553)
37,371
86,672
42,223
$ 128,895
$
$
$
$4,523,752
82,812
80,614
(21,993)
23,719
(31,983)
$
50,357
$ 105,001
48,459
$ 153,460
$4,766,518
111,092
$ 113,011
(30,068)
23,895
(26,224)
$
80,614
$ 104,854
60,830
$ 165,684
$5,048,071
120,632
$ 126,785
(45,391)
22,824
8,793
$ 113,011
$ 112,230
60,995
$ 173,225
$5,333,371
117,598
$ 128,949
(73,642)
21,360
50,118
$ 126,785
$ 124,763
45,659
$ 170,422
0.65%
1.12
NM
0.59%
NM
0.93%
1.83
NM
1.11%
NM
1.00%
2.33
0.13
1.69%
13.06x
1.10%
2.39
0.43
2.24%
5.01x
1.13%
2.20
0.95
2.38%
2.42x
NM - Not meaningful
Loans are expressed net of unearned income.
(a) 30+ Delinquency % includes all accounts delinquent more than one month and still accruing interest.
36
FIRST HORIZON NATIONAL CORPORATION
Permanent Mortgage
The permanent mortgage portfolio was $.4 billion on December 31, 2017. This portfolio is primarily composed of
jumbo mortgages and one-time-close (“OTC”) completed construction loans in the non-strategic segment that were
originated through legacy businesses. The regional banking segment primarily includes recently acquired mortgage
loans associated with FHN’s CRA initiatives. The corporate segment includes loans that were previously included in
off-balance sheet proprietary securitization trusts. These loans were brought back into the loan portfolios at fair
value through the execution of cleanup calls due to the relatively small balances left in the securitization and
should continue to run-off. Approximately 19 percent of loan balances as of December 31, 2017, are in California,
but the remainder of the portfolio is somewhat geographically diverse. Non-strategic and corporate segment run-off,
partially offset by increases in the regional banking segment, contributed to the $23.8 million net decrease in
permanent mortgage period-end balances from December 31, 2016, to December 31, 2017.
The permanent mortgage portfolios within the non-strategic and corporate segments are run-off portfolios. As a
result, asset quality metrics are becoming skewed as the portfolio shrinks and some of the stronger borrowers
payoff or refinance elsewhere. The ALLL decreased $.7 million as of December 31, 2017, from $16.3 million as of
December 31, 2016. TDR reserves (which are estimates of losses for the expected life of the loan) comprise
78 percent of the ALLL for the permanent mortgage portfolio as of December 31, 2017. Consolidated accruing
delinquencies as a percentage of total loans decreased 51 basis points from December 31, 2016 to 1.85 percent
as of December 31, 2017. Nonperforming loans decreased $.8 million from December 31, 2016, to $26.4 million
as of December 31, 2017. The portfolio experienced net recoveries of $.3 million in 2017 compared to net
recoveries of $.8 million in 2016. The following table shows permanent mortgage asset quality trends by segment.
FIRST HORIZON NATIONAL CORPORATION
37
Table 18 – Permanent Mortgage Asset Quality Trends by Segment
(Dollars in thousands)
Regional Bank
Period-end loans (a)
Nonperforming loans
Allowance for loan losses as of January 1
Charge-offs
Recoveries
Provision/(provision credit) for loan losses
Allowance for loan losses as of December 31
Accruing restructured loans
Nonaccruing restructured loans
Total troubled debt restructurings
30+ Delinq. % (b)
NPL %
Net charge-offs %
Allowance / loans %
Allowance / net charge-offs
Corporate
Period-end loans
Nonperforming loans
Allowance for loan losses as of December 31 (c)
Accruing restructured loans
Nonaccruing restructured loans
Total troubled debt restructurings
30+ Delinq. % (b)
NPL %
Allowance / loans % (c)
Non-Strategic
Period-end loans
Nonperforming loans
Allowance for loan losses as of January 1
Charge-offs
Recoveries
Provision/(provision credit) for loan losses
Allowance for loan losses as of December 31
Accruing restructured loans
Nonaccruing restructured loans
Total troubled debt restructurings
30+ Delinq. % (b)
NPL %
Net charge-offs %
Allowance / loans %
Allowance / net charge-offs
Consolidated
Period-end loans
Nonperforming loans
Allowance for loan losses as of January 1
Charge-offs
Recoveries
Provision/(provision credit) for loan losses
Allowance for loan losses as of December 31
Accruing restructured loans
Nonaccruing restructured loans
Total troubled debt restructurings
30+ Delinq. % (b)
NPL %
Net charge-offs %
Allowance / loans %
Allowance / net charge-offs
2017
2016
December 31
2015
2014
2013
$116,914
427
$ 76,973
393
$ 21,162
443
$ 10,852
503
$ 12,623
535
$
$
$
$
1,215
-
-
1,317
2,532
615
326
941
$
$
$
$
140
-
-
1,075
1,215
563
315
878
$
$
$
$
0.35%
0.37
-
2.17%
NM
0.72%
0.51
-
1.58%
NM
$
$
$
$
167
(14)
-
(13)
140
720
364
1,084
2.08%
2.09
0.14
0.66%
9.96x
$
$
$
$
245
(19)
-
(59)
167
1,254
-
1,254
5.75%
4.64
0.16
1.54%
8.88x
117
-
-
128
245
597
466
1,063
7.77%
4.23
-
1.94%
NM
$ 53,556
2,157
$ 71,380
1,186
$ 97,450
1,677
$135,538
3,045
$174,621
4,598
N/A
3,637
-
3,637
$
$
N/A
3,792
-
3,792
$
$
N/A
3,992
-
3,992
$
$
N/A
5,494
-
5,494
$
$
N/A
2,691
204
2,895
$
$
3.98%
4.03
N/A
4.37%
1.66
N/A
2.92%
1.72
N/A
2.32%
2.25
N/A
2.34%
2.63
N/A
$228,837
23,806
$ 15,074
(2,179)
2,509
(2,371)
$ 13,033
$ 64,102
16,114
$274,772
25,602
$ 18,807
(1,591)
2,403
(4,545)
$ 15,074
$ 71,896
17,360
$335,511
29,532
$ 18,955
(3,127)
1,687
1,292
$ 18,807
$ 78,719
18,666
$392,571
30,530
$ 22,246
(5,872)
2,314
267
$ 18,955
$ 84,701
22,010
$474,998
33,038
$ 24,811
(9,934)
2,473
4,896
$ 22,246
$ 94,532
22,968
$ 80,216
$ 89,256
$ 97,385
$106,711
$117,500
2.12%
10.40
NM
5.70%
NM
2.29%
9.32
NM
5.49%
NM
1.88%
8.80
0.40
5.61%
13.07x
1.40%
7.78
0.83
4.83%
5.32x
2.59%
6.96
1.42
4.68%
2.98x
$399,307
26,390
$ 16,289
(2,179)
2,509
(1,054)
$ 15,565
$ 68,354
16,440
$423,125
27,181
$ 18,947
(1,591)
2,403
(3,470)
$ 16,289
$ 76,251
17,675
$454,123
31,652
$ 19,122
(3,141)
1,687
1,279
$ 18,947
$ 83,431
19,030
$538,961
34,078
$ 22,491
(5,891)
2,314
208
$ 19,122
$ 91,449
22,010
$662,242
38,171
$ 24,928
(9,934)
2,473
5,024
$ 22,491
$ 97,820
23,638
$ 84,794
$ 93,926
$102,461
$113,459
$121,458
1.85%
6.61
NM
3.90%
NM
2.36%
6.42
NM
3.85%
NM
2.11%
6.97
0.30
4.17%
13.04x
1.72%
6.32
0.60
3.55%
5.34x
2.62%
5.76
1.00
3.40%
3.01x
NM - Not meaningful
Loans are expressed net of unearned income.
(a) The increase in Regional Bank is primarily due to FHN’s CRA initiatives.
(b) 30+ Delinquency % includes all accounts delinquent more than one month and still accruing interest.
(c) An allowance has not been established for these loans as the valuation adjustment taken upon exercise of clean-up calls included expected losses.
38
FIRST HORIZON NATIONAL CORPORATION
Credit Card and Other
The credit card and other portfolio, which is primarily within the regional banking segment, was $.6 billion as of
December 31, 2017, and primarily includes automobile loans, credit card receivables, and other consumer-related
credits. The allowance decreased to $10.0 million as of December 31, 2017, from $12.2 million as of
December 31, 2016. Loans 30 days or more delinquent and accruing as a percentage of loans increased 7 basis
points from December 31, 2016, to 1.24 percent as of December 31, 2017. In 2017, FHN recognized $10.1
million of net charge-offs in the credit card and other portfolio, compared to net charge-offs of $10.6 million in
2016. The following table shows credit card and other asset quality trends by segment.
Table 19 – Credit Card and Other Asset Quality Trends by Segment
(Dollars in thousands)
Regional Bank
Period-end loans
Nonperforming loans
Allowance for loan losses as of January 1
Charge-offs
Recoveries
Provision/(provision credit) for loan losses
Allowance for loan losses as of December 31
Accruing restructured loans
Nonaccruing restructured loans
Total troubled debt restructurings
30+ Delinq. % (a)
NPL %
Net charge-offs %
Allowance / loans %
Allowance / net charge-offs
Non-Strategic
Period-end loans
Nonperforming loans
Allowance for loan losses as of January 1
Charge-offs
Recoveries
Provision/(provision credit) for loan losses
Allowance for loan losses as of December 31
Accruing restructured loans
Nonaccruing restructured loans
Total troubled debt restructurings
30+ Delinq. % (a)
NPL %
Net charge-offs %
Allowance / loans %
Allowance / net charge-offs
Consolidated
Period-end loans
Nonperforming loans
Allowance for loan losses as of January 1
Charge-offs
Recoveries
Provision/(provision credit) for loan losses
Allowance for loan losses as of December 31
Accruing restructured loans
Nonaccruing restructured loans
Total troubled debt restructurings
30+ Delinq. % (a)
NPL %
Net charge-offs %
Allowance / loans %
Allowance / net charge-offs
2017
2016
December 31
2015
2014
2013
$
$
$613,540
75
$ 11,995
(12,962)
2,913
7,948
9,894
564
-
564
1.25%
0.01
2.73
1.61%
0.98x
$
$351,198
-
$ 10,966
(13,983)
3,297
11,715
$ 11,995
274
$
-
274
1.16%
-
3.05
3.42%
1.12x
$
$344,405
620
$ 14,310
(15,542)
3,555
8,643
$ 10,966
314
$
-
314
1.07%
0.18
3.51
3.18%
0.91x
$
$
$
$
$
$
$
$
$
$
$
6,359
121
177
(245)
202
(47)
87
29
-
29
0.95%
1.89
0.64
1.36%
1.99x
7,835
142
919
(241)
324
(825)
177
32
-
32
1.73%
1.82
NM
2.26%
NM
$
$
$
$ 10,131
737
420
(1,149)
298
1,350
919
63
-
63
1.47%
7.28
7.75
9.07%
1.08x
$
$
$
$619,899
196
$ 12,172
(13,207)
3,115
7,901
9,981
593
-
593
1.24%
0.03
2.69
1.61%
0.99x
$
$359,033
142
$ 11,885
(14,224)
3,621
10,890
$ 12,172
306
$
-
306
1.17%
0.04
2.95
3.39%
1.15x
$
$354,536
1,357
$ 14,730
(16,691)
3,853
9,993
$ 11,885
377
$
-
377
1.08%
0.38
3.64
3.35%
0.93x
$
$
$345,859
-
7,125
(13,781)
3,026
17,940
$ 14,310
406
$
-
406
1.38%
-
3.22
4.14%
1.33x
$
$
$
$
$320,607
12
6,235
(10,533)
2,421
9,002
7,125
370
-
370
1.30%
-
2.73
2.22%
0.88x
$
$
$
$
$ 12,272
763
359
(1,150)
105
1,106
420
127
-
127
2.48%
6.22
7.37
3.43%
0.40x
$
$
$
$
$ 15,999
1,385
663
(871)
248
319
359
175
-
175
2.33%
8.66
3.68
2.25%
0.58x
$
$
$358,131
763
7,484
(14,931)
3,131
19,046
$ 14,730
533
$
-
533
1.42%
0.21
3.39
4.11%
1.25x
$
$
$
$
$336,606
1,397
6,898
(11,404)
2,669
9,321
7,484
545
-
545
1.35%
0.42
2.78
2.22%
0.86x
$
NM - Not meaningful
Loans are expressed net of unearned income.
(a) 30+ Delinquency % includes all accounts delinquent more than one month and still accruing interest.
FIRST HORIZON NATIONAL CORPORATION
39
Allowance for Loan Losses
Management’s policy is to maintain the ALLL at a level sufficient to absorb estimated probable incurred losses in
the loan portfolio. The total allowance for loan losses decreased to $189.6 million on December 31, 2017, from
$202.1 million on December 31, 2016. The ALLL as of December 31, 2017, reflects strong asset quality with the
consumer real estate portfolio continuing to stabilize, historically low levels of net charge-offs, and declining non-
strategic balances. The ratio of allowance for loan losses to total loans, net of unearned income, decreased to
.69 percent on December 31, 2017, from 1.03 percent on December 31, 2016. The decrease in the allowance to
loans ratio reflects the addition of loans acquired from CBF at fair value which includes an estimate of life of loan
credit losses.
The provision for loan losses is the charge to or release of earnings necessary to maintain the ALLL at a sufficient
level reflecting management’s estimate of probable incurred losses in the loan portfolio. Year-to-date provision
expense was zero in 2017 compared to $11.0 million in 2016 reflecting continued strong performance in the
commercial and consumer portfolios.
FHN expects asset quality trends to remain relatively stable for the near term if the growth of the economy
continues. The C&I portfolio is expected to continue to show stable trends but short-term variability (both positive
and negative) is possible, primarily due to the size of the credits within this portfolio. The CRE portfolio metrics
should be relatively consistent as FHN expects stable property values over the near term; however, oversupply of
any CRE product type, changes in the lending environment, or economic uncertainty could result in decreased
property values (which could happen abruptly). The remaining non-strategic consumer real estate and permanent
mortgage portfolios should continue to steadily wind down. Asset quality metrics within non-strategic are becoming
skewed as the portfolio continues to shrink, with stronger credits exiting the portfolio more rapidly than others.
Continued stabilization in performance of the consumer real estate portfolio assumes an ongoing economic
recovery as consumer delinquency and loss rates are correlated with life events that affect borrowers’ finances,
unemployment trends, and strength of the housing market.
Consolidated Net Charge-offs
Overall, net charge-offs continue to be at historical lows. Net charge-offs were $12.5 million in 2017 compared to
$19.2 million in 2016.
The commercial portfolio experienced $12.3 million of net charge-offs in 2017 compared to $11.1 million in 2016.
In addition, the consumer real estate portfolio experienced net recoveries of $9.6 million in 2017 compared to net
recoveries of $1.7 million in 2016. Permanent mortgage and credit card and other remained relatively flat
compared to a year ago.
40
FIRST HORIZON NATIONAL CORPORATION
The following table provides consolidated asset quality information for the years 2013 through 2017:
Table 20 – Analysis of Allowance for Loan Losses and Charge-offs
(Dollars in thousands)
Allowance for loan losses:
Beginning balance
Provision for loan losses
Charge-offs:
Commercial, financial, and industrial
Commercial real estate
Consumer real estate
Permanent mortgage
Credit card and other
Total charge-offs
Recoveries:
Commercial, financial, and industrial
Commercial real estate
Consumer real estate
Permanent mortgage
Credit card and other
Total recoveries
Net charge-offs
Ending balance
$
Reserve for unfunded commitments
Total of allowance for loan losses and reserve
for unfunded commitments
Loans and commitments:
Total period end loans, net of unearned income
Remaining unfunded commitments
Average loans, net of unearned income
Reserve Rates
Total commercial loans
Allowance/loans % (a)
Period end loans % of total loans
Consumer real estate
Allowance/loans % (a)
Period end loans % of total loans
Permanent mortgage
Allowance/loans %
Period end loans % of total loans
Credit card and other
Allowance/loans % (a)
Period end loans % of total loans
Allowance and net charge-off ratios
Allowance to total loans % (a)
Net charge-offs to average loans %
Allowance to net charge-offs
2017
2016
2015
2014
2013
$
202,068
-
$
210,242
11,000
$
232,448
9,000
$
253,809
27,000
$
276,963
55,000
17,657
195
13,156
2,179
13,207
46,394
4,568
966
22,723
2,509
3,115
33,881
12,513
189,555
5,079
$
18,460
1,371
21,993
1,591
14,224
57,639
6,795
1,927
23,719
2,403
3,621
38,465
19,174
202,068
5,312
$
22,406
3,550
30,068
3,141
16,691
75,856
13,339
1,876
23,895
1,687
3,853
44,650
31,206
210,242
5,926
$
20,492
3,741
45,391
5,891
14,931
90,446
9,666
4,150
22,824
2,314
3,131
42,085
48,361
232,448
4,770
$
22,936
3,502
73,642
9,934
11,404
121,418
12,487
4,275
21,360
2,473
2,669
43,264
78,154
253,809
3,017
$
194,634
$
207,380
$
216,168
$
237,218
$
256,826
$27,658,929
$19,589,520
$17,686,502
$16,230,166
$15,389,074
$10,678,485
$20,104,042
$ 8,744,649
$18,303,870
$ 7,903,294
$16,624,439
$ 7,231,879
$15,520,972
$ 7,469,553
$15,726,374
0.62%
73
0.86%
73
0.82%
68
0.83%
63
1.07%
59
0.59
23
3.90
1
1.61
2
0.69
0.06
15.15x
1.11
23
3.85
2
3.39
2
1.03
0.10
10.54x
1.69
27
4.17
3
3.35
2
1.19
0.19
6.74x
2.24
31
3.55
3
4.11
2
1.43
0.31
4.81x
2.38
35
3.40
4
2.22
2
1.65
0.50
3.25x
(a) 2017 decrease in allowance to loans reflects the addition of loans acquired from CBF at fair value which includes an estimate of life of loan
credit losses.
Nonperforming Assets
Nonperforming loans are loans placed on nonaccrual if it becomes evident that full collection of principal and
interest is at risk, impairment has been recognized as a partial charge-off of principal balance due to insufficient
collateral value and past due status, or on a case-by-case basis if FHN continues to receive payments but there
are other borrower-specific issues. Included in nonaccruals are loans that FHN continues to receive payments
including residential real estate loans where the borrower has been discharged of personal obligation through
bankruptcy, and second liens, regardless of delinquency status, behind first liens that are 90 or more days past
due, are bankruptcies, or are TDRs. These, along with OREO, excluding OREO from government insured
mortgages, represent nonperforming assets (“NPAs”).
FIRST HORIZON NATIONAL CORPORATION
41
Total nonperforming assets (including NPLs HFS) increased to $177.2 million on December 31, 2017, from
$164.6 million on December 31, 2016, primarily driven by an increase in OREO. OREO, excluding OREO from
government insured mortgages, increased $28.3 million to $39.6 million as of December 31, 2017, driven by the
CBF acquisition. This increase was offset by a decline in portfolio nonperforming loans of $15.0 million from
December 31, 2016, to $130.6 million on December 31, 2017. While all portfolios declined or remained flat, the
decline in nonperforming loans was primarily driven by the consumer real estate portfolio which declined
$11.3 million. This decrease in the consumer real estate portfolio was largely driven by payoffs. The nonperforming
assets ratio (nonperforming assets excluding NPLs HFS to total period-end loans plus OREO and other assets)
decreased to .61 percent as of December 31, 2017, compared to .80 percent as of December 31, 2016.
The ratio of the ALLL to NPLs in the loan portfolio was 1.45 times as of December 31, 2017, compared to
1.39 times as of December 31, 2016. Certain nonperforming loans in both the commercial and consumer
portfolios are deemed collateral-dependent and are charged down to an estimate of collateral value less costs to
sell. Because loss content has been recognized through a partial charge-off, typically reserves are not recorded.
Table 21 – Nonaccrual/Nonperforming Loans, Foreclosed Assets, and Other Disclosures (a)
(Dollars in thousands)
Commercial:
Commercial, financial, and industrial
Commercial real estate
Total commercial
Consumer:
Consumer real estate
Permanent mortgage
Credit card & other (b)
Total consumer
Total nonperforming loans (c) (d)
Nonperforming loans held-for-sale (d)
Foreclosed real estate and other assets
Foreclosed real estate from GNMA loans
Total foreclosed real estate and other assets
Total nonperforming assets (d) (e)
Troubled debt restructurings (f):
Accruing restructured loans
Nonaccruing restructured loans (d) (g)
Total troubled debt restructurings (f)
Ratios:
2017
2016
December 31
2015
2014
2013
$ 31,153
1,393
32,546
$ 32,736
2,776
35,512
$ 26,313
8,684
34,997
$ 32,610
15,356
47,966
$ 79,759
18,101
97,860
71,487
26,390
196
98,073
130,619
6,971
39,566
3,816
43,382
82,812
27,181
142
110,135
145,647
7,741
11,235
5,002
16,237
111,092
31,652
1,357
144,101
179,098
7,846
24,977
8,086
33,063
120,632
34,078
763
155,473
203,439
7,643
30,430
9,492
39,922
117,598
38,171
1,397
157,166
255,026
61,139
45,753
25,809
71,562
$177,156
$164,623
$211,921
$241,512
$361,918
$170,930
63,429
$234,359
$203,445
81,705
$285,150
$198,059
98,113
$296,172
$231,109
100,152
$331,261
$246,894
105,409
$352,303
Allowance to nonperforming loans in the loan portfolio (d)
1.45x
1.39x
1.17x
1.14x
1.00x
(a) Balances do not include PCI loans even though the customer may be contractually past due. PCI loans were recorded at fair value upon
acquisition and accrete interest income over the remaining life of the loan.
(b) Nonperforming loans in this category are primarily one-time-close construction loans.
(c) Under the original terms of the loans, estimated interest income would have been approximately $10 million, $8 million, and $9 million
during 2017, 2016 and 2015, respectively.
(d) Excludes loans that are 90 or more days past due and still accruing interest.
(e) Balances do not include PCI loans or government-insured foreclosed real estate.
(f) Excludes TDRs that are classified as held-for-sale nearly all of which are accounted for under the fair value option.
(g) Amounts also included in nonperforming loans above.
42
FIRST HORIZON NATIONAL CORPORATION
The following table provides nonperforming assets by business segment:
Table 22 – Nonperforming Assets by Segment
(Dollars in thousands)
Nonperforming loans (a) (b)
Regional bank
Non-strategic
Consolidated
Foreclosed real estate (c)
Regional bank
Non-strategic
Consolidated
Nonperforming Assets (a) (b) (c)
Regional bank
Non-strategic
Consolidated
NPL %
Regional bank
Non-strategic
Consolidated
NPA % (d)
Regional bank
Non-strategic
Consolidated
2017
2016
December 31
2015
2014
2013
$ 54,816
75,803
$ 51,839
93,808
$ 58,152
120,946
$ 67,699
135,740
$ 91,922
163,104
$130,619
$145,647
$179,098
$203,439
$255,026
$ 34,844
4,722
$
5,081
6,154
$ 16,298
8,679
$ 20,451
9,979
$ 28,806
16,947
$ 39,566
$ 11,235
$ 24,977
$ 30,430
$ 45,753
$ 89,660
80,525
$ 56,920
99,962
$ 74,450
129,625
$ 88,150
145,719
$120,727
180,052
$170,185
$156,882
$204,075
$233,869
$300,779
0.21%
6.08%
0.47%
0.34%
6.43%
0.61%
0.29%
5.92%
0.74%
0.32%
6.29%
0.80%
0.36%
5.99%
1.01%
0.47%
6.39%
1.15%
0.48%
5.37%
1.25%
0.64%
5.74%
1.44%
0.74%
5.35%
1.66%
0.98%
5.88%
1.95%
(a) Excludes loans that are 90 or more days past due and still accruing interest.
(b) Excludes loans classified as held-for-sale.
(c) Excludes foreclosed real estate and receivables related to government insured mortgages of $5.2 million, $6.6 million, $9.0 million, $9.5
million, and $25.8 million during 2017, 2016, 2015, 2014, and 2013, respectively.
(d) Ratio is non-performing assets related to the loan portfolio to total loans plus foreclosed real estate and other assets.
Table 23 provides an activity rollforward of OREO balances for December 31, 2017 and 2016. The balance of
OREO, exclusive of inventory from government insured mortgages, increased to $39.6 million as of December 31,
2017, from $11.2 million as of December 31, 2016, primarily driven by the acquisition of CBF. In addition, FHN
has executed sales of existing OREO and continued efforts to avoid foreclosures by restructuring loans and working
with borrowers. Moreover, property values have stabilized which also affects the balance of OREO.
Table 23 – Rollforward of OREO
(Dollars in thousands)
Beginning balance, January 1
Valuation adjustments
New foreclosed property
Acquired foreclosed property
Disposals
Ending balance, December 31 (a)
2017
2016
$ 11,235
(996)
6,340
33,928
(10,941)
$ 24,977
(2,041)
9,347
-
(21,048)
$ 39,566
$ 11,235
(a) Excludes OREO and receivables related to government insured mortgages of $5.2 million and $6.6 million as of December 31, 2017 and
2016, respectively.
Past Due Loans and Potential Problem Assets
Past due loans are loans contractually past due as to interest or principal payments, but which have not yet been
put on nonaccrual status. Loans in the portfolio that are 90 days or more past due and still accruing were
$41.6 million on December 31, 2017, compared to $23.4 million on December 31, 2016. The increase was due in
FIRST HORIZON NATIONAL CORPORATION
43
large part to one relationship, which is a purchased credit-impaired loan. Loans 30 to 89 days past due increased
to $50.9 million on December 31, 2017, from $42.6 million on December 31, 2016.
Potential problem assets represent those assets where information about possible credit problems of borrowers has
caused management to have serious doubts about the borrower’s ability to comply with present repayment terms
and includes loans past due 90 days or more and still accruing. This definition is believed to be substantially
consistent with the standards established by the OCC for loans classified as substandard. Potential problem assets
in the loan portfolio were $327.2 million on December 31, 2017 compared to $290.4 million on December 31,
2016. The increase year-over-year in potential problem assets was due to a net increase in classified commercial
loans driven by a few credits. The current expectation of losses from potential problem assets has been included
in management’s analysis for assessing the adequacy of the allowance for loan losses.
Table 24 – Accruing Delinquencies and Other Credit Disclosures
(Dollars in thousands)
Loans past due 90 days or more and still accruing (a) (b):
Commercial:
Commercial, financial, and industrial
Commercial real estate
Total commercial
Consumer:
Consumer real estate
Permanent mortgage
Credit card & other
Total consumer
2017
2016
December 31
2015
2014
2013
$ 19,654
2,051
$
21,705
14,433
3,460
1,970
19,863
$
257
-
257
$
1,083
161
1,244
770
115
885
$
1,810
1,078
2,888
16,110
5,428
1,590
23,128
16,668
3,991
1,398
22,057
16,695
5,640
2,025
24,360
21,484
6,129
1,763
29,376
Total loans past due 90 days or more and still accruing (a) (b)
$ 41,568
$ 23,385
$ 23,301
$ 25,245
$ 32,264
Loans 30 to 89 days past due
Loans 30 to 89 days past due – guaranteed (c)
Loans held-for-sale 30 to 89 days past due (b)
Loans held-for-sale 30 to 89 days past due – guaranteed
portion (b) (c)
Loans held-for-sale 90 days past due (b)
Loans held-for-sale 90 days past due – guaranteed portion (b) (c)
Potential problem assets (d)
(a) Excludes loans classified as held-for-sale.
(b) Amounts are not included in nonperforming/nonaccrual loans.
(c) Guaranteed loans include FHA, VA, and GNMA loans repurchased through the GNMA buyout program.
(d) Includes past due loans.
$ 50,884
85
13,419
$ 42,570
89
6,462
$ 50,896
-
7,133
$ 50,531
175
6,895
$ 70,298
187
14,538
5,975
10,885
9,451
$327,214
6,248
14,868
14,657
$290,354
7,133
17,230
17,131
$208,706
6,013
25,455
24,255
$267,797
11,660
37,599
35,118
$343,359
Troubled Debt Restructuring and Loan Modifications
As part of FHN’s ongoing risk management practices, FHN attempts to work with borrowers when appropriate to
extend or modify loan terms to better align with their current ability to repay. Extensions and modifications to loans
are made in accordance with internal policies and guidelines which conform to regulatory guidance. Each
occurrence is unique to the borrower and is evaluated separately. In a situation where an economic concession
has been granted to a borrower that is experiencing financial difficulty, FHN identifies and reports that loan as a
Troubled Debt Restructuring (“TDR”). See Note 4 – Loans for further discussion regarding TDRs and loan
modifications.
Commercial Loan Modifications
As part of FHN’s credit risk management governance processes, the Loan Rehab and Recovery Department
(“LRRD”) is responsible for managing most commercial relationships with borrowers whose financial condition has
deteriorated to such an extent that the credits are being considered for impairment, classified as substandard or
worse, placed on nonaccrual status, foreclosed or in process of foreclosure, or in active or contemplated litigation.
LRRD has the authority and responsibility to enter into workout and/or rehabilitation agreements with troubled
44
FIRST HORIZON NATIONAL CORPORATION
commercial borrowers in order to mitigate and/or minimize the amount of credit losses recognized from these
problem assets. While every circumstance is different, LRRD will generally use forbearance agreements (generally
6-12 months) as an element of commercial loan workouts, which include reduced interest rates, reduced
payments, release of guarantor, or entering into short sale agreements.
The individual impairment assessments completed on commercial loans in accordance with the Accounting
Standards Codification Topic related to Troubled Debt Restructurings (“ASC 310-40”) include loans classified as
TDRs as well as loans that may have been modified yet not classified as TDRs by management. For example, a
modification of loan terms that management would generally not consider to be a TDR could be a temporary
extension of maturity to allow a borrower to complete an asset sale whereby the proceeds of such transaction are
to be paid to satisfy the outstanding debt. Additionally, a modification that extends the term of a loan but does not
involve reduction of principal or accrued interest, in which the interest rate is adjusted to reflect current market
rates for similarly situated borrowers, is not considered a TDR. Nevertheless, each assessment will take into
account any modified terms and will be comprehensive to ensure appropriate impairment assessment. If individual
impairment is identified, management will either hold specific reserves on the amount of impairment, or, if the loan
is collateral dependent, write down the carrying amount of the asset to the net realizable value of the collateral.
Consumer Loan Modifications
FHN does not currently participate in any of the loan modification programs sponsored by the U.S. government but
does generally structure modified consumer loans using the parameters of the former Home Affordable
Modification Program (“HAMP”). Generally, a majority of loans modified under any such proprietary programs are
classified as TDRs.
Within the HELOC and R/E installment loans classes of the consumer portfolio segment, TDRs are typically
modified by reducing the interest rate (in increments of 25 basis points to a minimum of 1 percent for up to
5 years) and a possible maturity date extension to reach an affordable housing debt-to-income ratio. After 5 years,
the interest rate generally returns to the original interest rate prior to modification; for certain modifications, the
modified interest rate increases 2 percent per year until the original interest rate prior to modification is achieved.
Permanent mortgage TDRs are typically modified by reducing the interest rate (in increments of 25 basis points to
a minimum of 2 percent for up to 5 years) and a possible maturity date extension to reach an affordable housing
debt-to-income ratio. After 5 years, the interest rate steps up 1 percent every year until it reaches the Federal
Home Loan Mortgage Corporation Weekly Survey Rate cap. Contractual maturities may be extended to 40 years on
permanent mortgages and to 30 years for consumer real estate loans. Within the credit card class of the consumer
portfolio segment, TDRs are typically modified through either a short-term credit card hardship program or a
longer-term credit card workout program. In the credit card hardship program, borrowers may be granted rate and
payment reductions for 6 months to 1 year. In the credit card workout program, customers are granted a rate
reduction to 0 percent and term extensions for up to 5 years to pay off the remaining balance.
Following classification as a TDR, modified loans within the consumer portfolio, which were previously evaluated for
impairment on a collective basis determined by their smaller balances and homogenous nature, become subject to
the impairment guidance in ASC 310-10-35, which requires individual evaluation of the debt for impairment.
However, as applicable accounting guidance allows, FHN may aggregate certain smaller-balance homogeneous
TDRs and use historical statistics, such as aggregated charge-off amounts and average amounts recovered, along
with a composite effective interest rate to measure impairment when such impaired loans have risk characteristics
in common.
On December 31, 2017 and December 31, 2016, FHN had $234.4 million and $285.2 million portfolio loans
classified as TDRs, respectively. For TDRs in the loan portfolio, FHN had loan loss reserves of $37.3 million and
$44.9 million, or 16 percent of TDR balances, as of December 31, 2017 and December 31, 2016. Additionally,
FHN had $63.2 million and $69.3 million of HFS loans classified as TDRs as of December 31, 2017 and
December 31, 2016, respectively. Total held-to-maturity TDRs decreased by $50.8 million with the majority of the
decline attributable to consumer real estate, commercial and permanent mortgage loans.
FIRST HORIZON NATIONAL CORPORATION
45
The following table provides a summary of TDRs for the periods ended December 31, 2017 and 2016:
Table 25 – Troubled Debt Restructurings
(Dollars in thousands)
Held-to-maturity:
Permanent mortgage:
Current
Delinquent
Non-accrual (a)
Total permanent mortgage
Consumer real estate:
Current
Delinquent
Non-accrual (b)
Total consumer real estate
Credit card and other:
Current
Delinquent
Non-accrual
Total credit card and other
Commercial loans:
Current
Delinquent
Non-accrual
Total commercial loans
Total held-to-maturity
Held-for-sale:
Current
Delinquent
Non-accrual
Total held-for-sale
Total troubled debt restructurings
As of
December 31, 2017
As of
December 31, 2016
$ 63,891
4,463
16,440
84,794
84,697
1,975
42,223
128,895
544
49
-
593
15,311
-
4,766
20,077
$234,359
$ 43,455
13,269
6,515
63,239
$297,598
$ 73,500
2,751
17,675
93,926
100,383
4,618
48,459
153,460
288
18
-
306
21,887
-
15,571
37,458
$285,150
$ 46,625
16,436
6,283
69,344
$354,494
(a) Balances as of December 31, 2017 and 2016, include $5.1 million and $5.3 million, respectively, of discharged bankruptcies.
(b) Balances as of December 31, 2017 and 2016, include $13.4 million and $15.3 million, respectively, of discharged bankruptcies.
46
FIRST HORIZON NATIONAL CORPORATION
RISK MANAGEMENT
FHN derives revenue from providing services and, in many cases, assuming and managing risk for profit which
exposes the Company to business strategy and reputational, interest rate, liquidity, market, capital adequacy,
operational, compliance, and credit risks that require ongoing oversight and management. FHN has an enterprise-
wide approach to risk governance, measurement, management, and reporting including an economic capital
allocation process that is tied to risk profiles used to measure risk-adjusted returns. Through an enterprise-wide
risk governance structure and a statement of risk tolerance approved by the Board, management continually
evaluates the balance of risk/return and earnings volatility with shareholder value.
FHN’s enterprise-wide risk governance structure begins with the Board. The Board, working with the Executive &
Risk Committee of the Board, establishes the Company’s risk tolerance by approving policies and limits that
provide standards for the nature and the level of risk the Company is willing to assume. The Board regularly
receives reports on management’s performance against the Company’s risk tolerance primarily through the Board’s
Executive & Risk and Audit Committees.
To further support the risk governance provided by the Board, FHN has established accountabilities, control
processes, procedures, and a management governance structure designed to align risk management with risk-
taking throughout the Company. The control procedures are aligned with FHN’s four components of risk
governance: (1) Specific Risk Committees; (2) the Risk Management Organization; (3) Business Unit Risk
Management; and (4) Independent Assurance Functions.
1. Specific Risk Committees: The Board has delegated authority to the Chief Executive Officer (“CEO”) to
manage Business Strategy and Reputation Risk, and the general business affairs of the Company under the
Board’s oversight. The CEO utilizes the executive management team and the Executive Risk Management
Committee to carry out these duties and to analyze existing and emerging strategic and reputation risks
and determines the appropriate course of action. The Executive Risk Management Committee is comprised
of the CEO and certain officers designated by the CEO. The Executive Risk Management Committee is
supported by a set of specific risk committees focused on unique risk types (e.g. liquidity, credit,
operational, etc). These risk committees provide a mechanism that assembles the necessary expertise and
perspectives of the management team to discuss emerging risk issues, monitor the Company’s risk-taking
activities, and evaluate specific transactions and exposures. These committees also monitor the direction
and trend of risks relative to business strategies and market conditions and direct management to respond
to risk issues.
2. The Risk Management Organization: The Company’s risk management organization, led by the Chief Risk
Officer and Chief Credit Officer, provides objective oversight of risk-taking activities. The risk management
organization translates FHN’s overall risk tolerance into approved limits and formal policies and is supported
by corporate staff functions, including the Corporate Secretary, Legal, Finance, Human Resources, and
Technology. Risk management also works with business units and functional experts to establish
appropriate operating standards and monitor business practices in relation to those standards. Additionally,
risk management proactively works with business units and senior management to focus management on
key risks in the Company and emerging trends that may change FHN’s risk profile. The Chief Risk Officer
has overall responsibility and accountability for enterprise risk management and aggregate risk reporting.
3. Business Unit Risk Management: The Company’s business units are responsible for identifying,
acknowledging, quantifying, mitigating, and managing all risks arising within their respective units. They
determine and execute their business strategies, which puts them closest to the changing nature of risks
and they are best able to take the needed actions to manage and mitigate those risks. The business units
are supported by the risk management organization that helps identify and consider risks when making
business decisions. Management processes, structure, and policies are designed to help ensure compliance
with laws and regulations as well as provide organizational clarity for authority, decision-making, and
accountability. The risk governance structure supports and promotes the escalation of material items to
executive management and the Board.
FIRST HORIZON NATIONAL CORPORATION
47
4. Independent Assurance Functions: Internal Audit, Credit Assurance Services (“CAS”), and Model Validation
provide an independent and objective assessment of the design and execution of the Company’s internal
control system, including management processes, risk governance, and policies and procedures. These
groups’ activities are designed to provide reasonable assurance that risks are appropriately identified and
communicated; resources are safeguarded; significant financial, managerial, and operating information is
complete, accurate, and reliable; and employee actions are in compliance with the Company’s policies and
applicable laws and regulations. Internal Audit and CAS report to the Chief Audit Executive, who is appointed
by and reports to the Audit Committee of the Board. Internal Audit reports quarterly to the Audit Committee
of the Board, while CAS reports quarterly to the Executive & Risk Committee of the Board. Model Validation
reports to the Chief Risk Officer and reports annually to the Audit Committee of the Board.
MARKET RISK MANAGEMENT
Market risk is the risk that changes in market conditions will adversely impact the value of assets or liabilities, or
otherwise negatively impact FHN’s earnings. Market risk is inherent in the financial instruments associated with
FHN’s operations, primarily trading activities within FHN’s fixed income segment, but also through non-trading
activities which are primarily affected by interest rate risk that is managed by the Asset Liability Committee
(“ALCO”) within FHN.
FHN is exposed to market risk related to the trading securities inventory and loans held for sale maintained by its
Fixed Income division in connection with its fixed income distribution activities. Market risk is the risk of loss in the
value of the fixed income trading securities inventory and loans held for sale due to changes in market prices.
Various types of securities inventory positions are procured for distribution to customers by the sales staff. When
these securities settle on a delayed basis, they are considered forward contracts. Refer to the "Determination of
Fair Value - Trading securities and trading liabilities" section of Note 24 - Fair Value of Assets and Liabilities
beginning on page 172 of this report, which section is incorporated into this MD&A by this reference.
FHN’s market risk appetite is approved by the Executive and Risk Committee of the Board of Directors and
executed through management policies and procedures of ALCO and the FTN Financial Risk Committee. These
policies contain various market risk limits including, for example, overall balance sheet size limits for Fixed Income,
VaR limits for the trading securities inventory, and individual position limits and sector limits for products with
credit risk, among others. Risk measures are computed and reviewed on a daily basis to ensure compliance with
market risk management policies.
VaR and Stress Testing
VaR is a statistical risk measure to estimate the potential loss in value from adverse market movements over an
assumed fixed holding period within a stated confidence level. FHN employs a model to compute daily VaR
measures for its trading securities inventory. FHN computes VaR using historical simulation with a 1-year lookback
period at a 99 percent confidence level and 1-day and 10-day time horizons. Additionally, FHN computes a
Stressed VaR ("SVaR") measure. The SVaR computation uses the same model but with model inputs reflecting
historical data from a continuous 12-month period that reflects a period of significant financial stress appropriate
for our trading securities portfolio.
A summary of FHN’s VaR and SVaR measures for 1-day and 10-day time horizons is as follows:
Table 26 – VaR and SVaR Measures
(Dollars in thousands)
1-day
VaR
SVaR
10-day
VaR
SVaR
48
Year Ended
December 31, 2017
Mean
High
Low
As of
December 31, 2017
$ 1,529
4,704
$ 3,310
8,301
$ 521
1,775
3,560
15,511
8,039
28,232
870
4,916
$ 1,287
6,230
3,059
19,813
FIRST HORIZON NATIONAL CORPORATION
(Dollars in thousands)
1-day
VaR
SVaR
10-day
VaR
SVaR
Year Ended
December 31, 2016
Mean
High
Low
As of
December 31, 2016
$
821
3,643
$ 1,745
5,789
$ 393
1,748
2,088
11,671
5,852
18,483
751
3,263
$ 932
2,830
2,136
6,443
FHN’s overall VaR measure includes both interest rate risk and credit spread risk. Separate measures of these
component risks are as follows:
Table 27 – Schedule of Risks Included in VaR
(Dollars in thousands)
Interest rate risk
Credit spread risk
As of
December 31, 2017
As of
December 31, 2016
1-day
$930
305
10-day
$2,084
471
1-day
$917
537
10-day
$1,771
1,391
The potential risk of loss reflected by FHN’s VaR measures assumes the trading securities inventory is static.
Because FHN’s Fixed Income division procures fixed income securities for purposes of distribution to customers,
its trading securities inventory turns over regularly. Additionally, Fixed Income traders actively manage the trading
securities inventory continuously throughout each trading day. Accordingly, FHN’s trading securities inventory is
highly dynamic, rather than static. As a result, it would be rare for Fixed Income to incur a negative revenue day
in its fixed income activities of the level indicated by its VaR measurements.
In addition to being used in FHN’s daily market risk management process, the VaR and SVaR measures are also
used by FHN in computing its regulatory market risk capital requirements in accordance with the Market Risk
Capital rules. For additional information regarding FHN’s capital adequacy refer to the "Capital" section of this
MD&A.
FHN also performs stress tests on its trading securities portfolio to calculate the potential loss under various
assumed market scenarios. Key assumed stresses used in those tests are:
Down 25 bps – assumes an instantaneous downward move in interest rates of 25 basis points at all points on
the interest rate yield curve.
Up 25 bps – assumes an instantaneous upward move in interest rates of 25 basis points at all points on the
interest rate yield curve.
Curve flattening – assumes an instantaneous flattening of the interest rate yield curve through an increase in
short-term rates and a decrease in long-term rates. The 2-year point on the Treasury yield curve is assumed to
increase 15 basis points and the 10-year point on the Treasury yield curve is assumed to decrease 15 basis
points. Shifts in other points on the yield curve are predicted based on their correlation to the 2-year and
10-year points.
Curve steepening – assumes an instantaneous steepening of the interest rate yield curve through a decrease in
short-term rates and an increase in long-term rates. The 2-year point on the Treasury yield curve is assumed to
decrease 15 basis points and the 10-year point on the Treasury yield curve is assumed to increase 15 basis
points. Shifts in other points on the yield curve are predicted based on their correlation to the 2-year and
10-year points.
Credit spread widening – assumes an instantaneous increase in credit spreads (the difference between yields on
Treasury securities and non-Treasury securities) of 25 basis points.
FIRST HORIZON NATIONAL CORPORATION
49
Model Validation
Trading risk management personnel within Fixed Income have primary responsibility for model risk management
with respect to the model used by FHN to compute its VaR measures and perform stress testing on the trading
inventory. Among other procedures, these personnel monitor model results and perform periodic backtesting as
part of an ongoing process of validating the accuracy of the model. These model risk management activities are
subject to annual review by FHN’s Model Validation Group, an independent assurance group charged with
oversight responsibility for FHN’s model risk management.
INTEREST RATE RISK MANAGEMENT
Interest rate risk is the risk to earnings or capital arising from movement in interest rates. ALCO is responsible for
overseeing the management of existing and emerging interest rate risk in the company within risk tolerances
established by the Board. FHN primarily manages interest rate risk by structuring the balance sheet to maintain a
desired level of associated earnings and to protect the economic value of FHN’s capital.
Net interest income and the value of equity are affected by changes in the level of market interest rates because
of the differing repricing characteristics of assets and liabilities, the exercise of prepayment options held by loan
and deposit customers, and changes in the basis between and changing shapes of the various yield curves used
to price assets and liabilities. To isolate the repricing, basis, option, and yield curve components of overall interest
rate risk, FHN employs Gap, Earnings at Risk, and Economic Value of Equity analyses generated by a balance
sheet simulation model.
Net Interest Income Simulation Analysis
The information provided in this section, including the discussion regarding the outcomes of simulation analysis
and rate shock analysis, is forward-looking. Actual results, if the assumed scenarios were to occur, could differ
because of interest rate movements, the ability of management to execute its business plans, and other factors,
including those presented in the Forward-Looking Statements section of this MD&A.
Management uses a simulation model to measure interest rate risk and to formulate strategies to improve balance
sheet positioning, earnings, or both, within FHN’s interest rate risk, liquidity, and capital guidelines. Interest rate
exposure is measured by forecasting 12 months of NII under various interest rate scenarios and comparing the
percentage change in NII for each scenario to a base case scenario where interest rates remain unchanged.
Assumptions are made regarding future balance sheet composition, interest rate movements, and loan and deposit
pricing. In addition, assumptions are made about the magnitude of asset prepayments and earlier than anticipated
deposit withdrawals. The results of these scenarios help FHN develop strategies for managing exposure to interest
rate risk. While management believes the assumptions used and scenarios selected in its simulations are
reasonable, simulation modeling provides only an estimate, not a precise calculation, of exposure to any given
change in interest rates.
Based on a static balance sheet as of December 31, 2017, net interest income exposure over the next 12 months
assuming a rate shock of plus 25 basis points, 50 basis points, 100 basis points, and 200 basis points is
estimated to have a favorable variance of 0.9 percent, 1.8 percent, 3.3 percent, and 6.2 percent, respectively of
base net interest income. A steepening yield curve scenario where long-term rates increase by 50 basis points and
short-term rates are static, results in a favorable variance in net interest income of 0.8 percent of base net interest
income. A flattening yield curve scenario where long-term rates decrease by 50 basis points and short-term rates
are static, results in an unfavorable variance in net interest income of 1.3 percent of base net interest income. A
rate shock of minus 50 basis points results in an unfavorable variance in net interest income of 3.7 percent of
base net interest income. These hypothetical scenarios are used to create a risk measurement framework, and do
not necessarily represent management’s current view of future interest rates or market developments.
The recent movement of short-term interest rates higher after a prolonged period of very low interest rates has had
a positive effect on FHN’s net interest income and net interest margin. Given recent strength in the economy, the
upward trend in interest rates, and market expectations for higher rates in the future, FHN has employed a
moderately asset sensitive position. While it is expected that rates will continue to move higher, the movement of
rates off the zero boundary during the past year has created the possibility that rates could decline in the future.
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FIRST HORIZON NATIONAL CORPORATION
FHN continues to monitor economic conditions and remains prepared to take any actions to mitigate exposure to
falling interest rates should that occur.
Fair Value Shock Analysis
Interest rate risk and the slope of the yield curve also affect the fair value of Fixed Income’s trading inventory that
is reflected in Fixed Income’s noninterest income.
Generally, low or declining interest rates with a positively sloped yield curve tend to increase Fixed Income’s
income through higher demand for fixed income products. Additionally, the fair value of Fixed Income’s trading
inventory can fluctuate as a result of differences between current interest rates and the interest rates of fixed
income securities in the trading inventory.
Derivatives
In the normal course of business, FHN utilizes various financial instruments (including derivative contracts and
credit-related agreements) to manage interest rate risk of certain term borrowings, and certain loans. The Fixed
Income segment utilizes various financial instruments (including derivative contracts and credit-related agreements)
to manage the risk of loss arising from adverse changes in the fair value of certain financial instruments generally
caused by changes in interest rates including Fixed Income’s securities inventory, certain term borrowings, and
certain loans. Additionally, Fixed Income or Regional Banking may enter into derivative contracts in order to meet
customers’ needs. However, such derivative contracts are typically offset with a derivative contract entered into with
an upstream counterparty in order to mitigate risk associated with changes in interest rates.
The simulation models and related hedging strategies discussed above exclude the dynamics related to how fee
income and noninterest expense may be affected by actual changes in interest rates or expectations of changes.
See Note 22 – Derivatives for additional discussion of these instruments.
CAPITAL MANAGEMENT AND ADEQUACY
The capital management objectives of FHN are to provide capital sufficient to cover the risks inherent in FHN’s
businesses, to maintain excess capital to well-capitalized standards, and to assure ready access to the capital
markets. The Capital Management Committee, chaired by the Senior Vice President and Corporate Treasurer,
reports to ALCO and is responsible for capital management oversight and provides a forum for addressing
management issues related to capital adequacy. This committee reviews sources and uses of capital, key capital
ratios, segment economic capital allocation methodologies, and other factors in monitoring and managing current
capital levels, as well as potential future sources and uses of capital. The Capital Management Committee also
recommends capital management policies, which are submitted for approval to ALCO and the Executive & Risk
Committee and the Board as necessary.
OPERATIONAL RISK MANAGEMENT
Operational risk is the risk of loss from inadequate or failed internal processes, people, or systems or from external
events including data or network security breaches of FHN or of third parties affecting FHN or its customers. This
risk is inherent in all businesses. Operational risk is divided into the following risk areas, which have been
established at the corporate level to address these risks across the entire organization:
• Business Continuity Planning/Records Management
• Compliance/Legal
• Program Governance
• Fiduciary
• Financial Crimes (including Bank Secrecy Act, know your customer, security, and fraud)
FIRST HORIZON NATIONAL CORPORATION
51
• Financial (including disclosure controls and procedures)
• Information Technology (including cybersecurity)
• Vendor
Management, measurement, and reporting of operational risk are overseen by the Operational Risk, Fiduciary,
Financial Governance, FTN Financial Risk, and Investment Rationalization Board Committees. Key representatives
from the business segments, operating units, and supporting units are represented on these committees as
appropriate. These governance committees manage the individual operational risk types across the company by
setting standards, monitoring activity, initiating actions, and reporting exposures and results. Key Committee
activities and decisions are reported to the appropriate governance committee or included in the Enterprise Risk
Report, a quarterly analysis of risk within the organization that is provided to the Executive and Risk Committee.
Emphasis is dedicated to refinement of processes and tools to aid in measuring and managing material operational
risks and providing for a culture of awareness and accountability.
COMPLIANCE RISK MANAGEMENT
Compliance risk is the risk of legal or regulatory sanctions, material financial loss, or loss to reputation as a result
of failure to comply with laws, regulations, rules, related self-regulatory organization standards, and codes of
conduct applicable to FHN’s activities. Management, measurement, and reporting of compliance risk are overseen
by the Operational Risk Committee. Key executives from the business segments, legal, risk management, and
service functions are represented on the Committee. Summary reports of Committee activities and decisions are
provided to the appropriate governance committees. Reports include the status of regulatory activities, internal
compliance program initiatives, and evaluation of emerging compliance risk areas.
CREDIT RISK MANAGEMENT
Credit risk is the risk of loss due to adverse changes in a borrower’s or counterparty’s ability to meet its financial
obligations under agreed upon terms. FHN is subject to credit risk in lending, trading, investing, liquidity/funding,
and asset management activities although lending activities have the most exposure to credit risk. The nature and
amount of credit risk depends on the types of transactions, the structure of those transactions, collateral received,
the use of guarantors and the parties involved.
FHN assesses and manages credit risk through a series of policies, processes, measurement systems, and
controls. The Credit Risk Management Committee (“CRMC”) is responsible for overseeing the management of
existing and emerging credit risks in the company within the broad risk tolerances established by the Board. The
CRMC reports through the Executive Risk Management Committee. The Credit Risk Management function, led by
the Chief Credit Officer, provides strategic and tactical credit leadership by maintaining policies, overseeing credit
approval, assessing new credit products, strategies and processes, and managing portfolio composition and
performance.
While the Credit Risk function oversees FHN’s credit risk management, there is significant coordination between
the business lines and the Credit Risk function in order to manage FHN’s credit risk and maintain strong asset
quality. The Credit Risk function recommends portfolio, industry/sector, and individual customer limits to the
Executive & Risk Committee of the Board for approval. Adherence to these approved limits is vigorously monitored
by Credit Risk who provides recommendations to slow or cease lending to the business lines as commitments near
established lending limits. Credit Risk also ensures subject matter experts are providing oversight, support and
credit approvals, particularly in the specialty lending areas where industry-specific knowledge is required.
Management emphasizes general portfolio servicing such that emerging risks are spotted early enough to correct
potential deficiencies, prevent further credit deterioration, and mitigate credit losses.
The Credit Risk Management function assesses the asset quality trends and results, as well as lending processes,
adherence to underwriting guidelines (portfolio-specific underwriting guidelines are discussed further in the Asset
Quality Trends section), and utilizes this information to inform management regarding the current state of credit
quality and as a factor of the estimation process for determining the allowance for loan losses. The CRMC reviews
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FIRST HORIZON NATIONAL CORPORATION
on a periodic basis various reports issued by assurance functions which provide an independent assessment of the
adequacy of loan servicing, grading accuracy, and other key functions. Additionally, CRMC is presented with and
discusses various portfolios, lending activity and lending-related projects.
All of the above activities are subject to independent review by FHN’s Credit Assurance Services Group. CAS
reports to the Chief Audit Executive, who is appointed by and reports to the Audit Committee of the Board, and
provides quarterly reports to the Executive & Risk Committee of the Board. CAS is charged with providing the
Executive & Risk Committee of the Board and executive management with independent, objective, and timely
assessments of FHN’s portfolio quality, credit policies, and credit risk management processes.
FIRST HORIZON NATIONAL CORPORATION
53
LIQUIDITY RISK MANAGEMENT
ALCO also focuses on liquidity management: the funding of assets with liabilities of appropriate duration, while
mitigating the risk of unexpected cash needs. ALCO and the Board of Directors have adopted a Liquidity Policy.
The objective of the Liquidity Policy is to ensure that FHN meets its cash and collateral obligations promptly, in a
cost-effective manner and with the highest degree of reliability. The maintenance of adequate levels of asset and
liability liquidity should provide FHN with the ability to meet both expected and unexpected cash and collateral
needs. Key liquidity ratios, asset liquidity levels and the amount available from funding sources are reported to
ALCO on a regular basis. FHN’s Liquidity Policy establishes liquidity limits that are deemed appropriate for FHN’s
risk profile.
In accordance with the Liquidity Policy, ALCO manages FHN’s exposure to liquidity risk through a dynamic, real
time forecasting methodology. Base liquidity forecasts are reviewed by ALCO and are updated as financial
conditions dictate. In addition to the baseline liquidity reports, robust stress testing of assumptions and funds
availability are periodically reviewed. FHN maintains a contingency funding plan that may be executed, should
unexpected difficulties arise in accessing funding that affects FHN, the industry as a whole, or both. Subject to
market conditions and compliance with applicable regulatory requirements from time to time, funds are available
from a number of sources including the available-for-sale securities portfolio, dealer and commercial customer
repurchase agreements, access to the overnight and term Federal Funds markets, incremental borrowing capacity
at the FHLB ($1.3 billion was available at December 31, 2017), brokered deposits, loan sales, syndications, and
access to the Federal Reserve Banks.
Core deposits are a significant source of funding and have historically been a stable source of liquidity for banks.
Generally, core deposits represent funding from a financial institution’s customer base which provide inexpensive,
predictable pricing. The Federal Deposit Insurance Corporation insures these deposits to the extent authorized by
law. Generally, these limits are $250 thousand per account owner for interest bearing and non-interest bearing
accounts. The ratio of total loans, excluding loans HFS and restricted real estate loans, to core deposits was
101 percent on December 31, 2017 compared to 105 percent on December 31, 2016.
FHN also may use unsecured short-term borrowings as a source of liquidity. Currently, the largest concentration of
unsecured borrowings is federal funds purchased from bank correspondent customers. These funds are considered
to be substantially more stable than funds purchased in the national broker markets for federal funds due to the
long, historical, and reciprocal nature of banking services provided by FHN to these correspondent banks. The
remainder of FHN’s wholesale short-term borrowings is securities sold under agreements to repurchase
transactions accounted for as secured borrowings with Regional Banking’s business customers or Fixed Income’s
broker dealer counterparties.
Both FHN and FTBNA may access the debt markets in order to provide funding through the issuance of senior or
subordinated unsecured debt subject to market conditions and compliance with applicable regulatory requirements.
In 2014, FTBNA issued $400 million of fixed rate senior notes due in December 2019. In October 2015, FHN
issued $500 million of fixed rate senior notes due in December 2020.
Both FHN and FTBNA have the ability to generate liquidity by issuing preferred equity, and (for FHN) by issuing
common equity, subject to market conditions and compliance with applicable regulatory requirements. In January
2013, FHN issued $100 million of Non-Cumulative Perpetual Preferred Stock, Series A. As of December 31, 2017,
FTBNA and subsidiaries had outstanding preferred shares of $295.4 million, which are reflected as noncontrolling
interest on the Consolidated Statements of Condition.
Parent company liquidity is primarily provided by cash flows stemming from dividends and interest payments
collected from subsidiaries. These sources of cash represent the primary sources of funds to pay cash dividends to
shareholders and principal and interest to debt holders of FHN. The amount paid to the parent company through
FTBNA common dividends is managed as part of FHN’s overall cash management process, subject to applicable
regulatory restrictions. Certain regulatory restrictions exist regarding the ability of FTBNA to transfer funds to FHN
in the form of cash, common dividends, loans, or advances. At any given time, the pertinent portions of those
regulatory restrictions allow FTBNA to declare preferred or common dividends without prior regulatory approval in
an aggregate amount equal to FTBNA’s retained net income for the two most recent completed years plus the
current year to date. For any period, FTBNA’s ‘retained net income’ generally is equal to FTBNA’s regulatory net
income reduced by the preferred and common dividends declared by FTBNA. Excess dividends in either of the
two most recent completed years may be offset with available retained net income in the two years immediately
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FIRST HORIZON NATIONAL CORPORATION
preceding it. Applying the dividend restrictions imposed under applicable federal rules as outlined above, the
Bank’s total amount available for dividends was negative $156.7 million as of December 31, 2017. Consequently,
on that date the Bank could not pay common dividends to its sole common stockholder, FHN, or to its preferred
shareholders without prior regulatory approval. However, at January 1, 2018, under those dividend restrictions, the
Bank could legally declare cash dividends on the Bank’s common or preferred stock of approximately $51.1 million
without obtaining regulatory approval. FTBNA applied for and received approval from the OCC to declare and pay
common dividends to FHN for $250 million in both 2017 and 2016. FTBNA declared and paid preferred dividends
in each quarter of 2017 and 2016, with OCC approval as necessary. Additionally, FTBNA declared preferred
dividends in first quarter 2018 payable in April 2018.
Payment of a dividend to shareholders of FHN is dependent on several factors which are considered by the Board.
These factors include FHN’s current and prospective capital, liquidity, and other needs, applicable regulatory
restrictions, and also availability of funds to FHN through a dividend from FTBNA. Additionally, the Federal Reserve
and the OCC generally require insured banks and bank holding companies to pay cash dividends only out of
current operating earnings. Consequently, the decision of whether FHN will pay future dividends and the amount of
dividends will be affected by current operating results. FHN paid a cash dividend of $.09 per common share on
January 2, 2018, and in January 2018 the Board approved a $.12 per common share cash dividend payable on
April 2, 2018, to shareholders of record on March 9, 2018. FHN paid a cash dividend of $1,550.00 per preferred
share on January 10, 2018, and in January 2018 the Board approved a $1,550.00 per preferred share cash
dividend payable on April 10, 2018, to shareholders of record on March 23, 2018.
CREDIT RATINGS
FHN is currently able to fund a majority of the balance sheet through core deposits, which are generally not as
sensitive to FHN’s credit ratings as other types of funding. However, maintaining adequate credit ratings on debt
issues and preferred stock is critical to liquidity should FHN need to access funding from other sources, including
from long-term debt issuances and certain brokered deposits, at an attractive rate. The availability and cost of
funds other than core deposits is also dependent upon marketplace perceptions of the financial soundness of
FHN, which include such factors as capital levels, asset quality, and reputation. The availability of core deposit
funding is stabilized by federal deposit insurance, which can be removed only in extraordinary circumstances, but
may also be influenced to some extent by the same factors that affect other funding sources. FHN’s credit ratings
are also referenced in various respects in agreements with certain derivative counterparties as discussed in
Note 22 – Derivatives.
The following table provides FHN’s most recent credit ratings:
Table 28 – Credit Ratings
First Horizon National Corporation
Overall credit rating: Long-term/Short-term/Outlook
Long-term senior debt
Subordinated debt
Preferred stock
First Tennessee Bank National Association
Overall credit rating: Long-term/Short-term/Outlook
Long-term/short-term deposits
Long-term/short-term senior debt
Subordinated debt
Preferred stock
FT Real Estate Securities Company, Inc.
Preferred stock
Moody’s (a)
Fitch (b)
Baa3/–/Stable
Baa3
Baa3
Ba2
Baa3/P-2/Stable
A3/P-2
Baa3/P-2
Baa3
Ba2
Ba1
BBB–/F3/Positive
BBB-
BB+
B
BBB-/F3/Positive
BBB/F3
BBB-/F3
BB+
B
A rating is not a recommendation to buy, sell, or hold securities and is subject to revision or withdrawal at any time and should be evaluated
independently of any other rating.
(a) Last change in ratings was on May 14, 2015; ratings/outlook affirmed on May 5, 2017.
(b) Last change in ratings was on December 13, 2012; outlook revised to positive on January 23, 2017 and ratings/outlook affirmed on
December 15, 2017.
FIRST HORIZON NATIONAL CORPORATION
55
CASH FLOWS
The Consolidated Statements of Cash Flows provide information on cash flows from operating, investing, and
financing activities for the years ended December 31, 2017, 2016, and 2015. The level of cash and cash
equivalents increased $414.3 million during 2017 and $6.7 million in 2016 compared to a decrease of
$40.3 million in 2015. During 2017, cash provided by financing activities was greater than cash used by operating
and investing activities, whereas in 2016 and 2015 the cash provided by operating and financing activities was
more than cash provided by investing activities.
Net cash provided by financing activities was $1.8 billion in 2017 compared to $2.3 billion in 2016. In 2017, FHN
had financing cash inflows of $2.1 billion related to an increase in short-term borrowings, primarily FHLB
borrowings used to fund loan growth; however, these were somewhat offset by a decrease in deposit balances and
an increase in cash dividends relative to 2016. Net cash used by investing activities was $1.3 billion in 2017 as
compared to $2.5 billion in 2016. Investing outflows in 2017 were primarily driven by increases in loan balances
and interest-bearing cash of $808.4 million and $121.4 million, respectively, as well as $336.6 million of net cash
payments associated with the CBF and Coastal acquisitions. Net cash used by operating activities was $17.4
million in 2017 compared to net cash provided by operating activities of $182.7 million in 2016. Operating cash
flows in 2017 were negatively impacted by a net increase in loans HFS within the fixed income segment as well as
cash outflows of $384.2 million related to fixed income activities, but were favorably impacted by cash-related net
income items and a $226.2 million net decrease in operating assets and liabilities.
Net cash provided by financing activities was $2.3 billion in 2016 compared to $111.0 million in 2015. In 2016,
financing cash inflows were positively affected by a $2.7 billion increase in deposits, due in large part to increases
in insured network deposits and commercial customer deposits, but were somewhat offset by $267.5 million in
payments of long-term borrowings, which included the maturity of $250 million of subordinated notes. Additionally,
share repurchases and dividend payments negatively affected financing cash flows in 2016, offsetting a portion of
the increase in cash provided by financing activities. Net cash provided by operating activities was $182.7 million
in 2016 compared to $367.0 million in 2015. Operating cash flows in 2016 were favorably driven by cash-related
net income items, but were negatively affected by a $165.0 million cash contribution to the qualified pension plan
in third quarter and net changes in operating assets and liabilities of $43.7 million. Net cash used by investing
activities was $2.5 billion in 2016 compared to $518.4 million in 2015. Investing cash outflows in 2016 were
primarily attributable to loan growth within the regional bank, including the purchase of $537.4 million UPB of
franchise finance loans in third quarter. Additionally, a $457.2 million increase in interest-bearing cash, as well as
net cash outflows related to the purchases of AFS securities and premises and equipment also negatively impacted
investing cash flows in 2016.
Net cash used by investing activities was $518.4 million in 2015. Cash outflows in 2015 were primarily attributable
to loan growth within the regional bank and a $332.2 million net decrease in cash related to the available-for-sale
securities portfolio, as purchases were greater than cash inflows from sales and maturities. These cash outflows
were somewhat offset by a $1.0 billion decrease in interest-bearing cash which positively affected cash flows from
investing activities. Net cash provided by operating activities was $367.0 million in 2015. Operating cash flows in
2015 were favorably driven by cash-related net income items and a $266.7 million net increase in cash related to
fixed income activities, but were somewhat offset by cash outflows related to operating assets and liabilities of
$118.0 million. Net cash provided by financing activities was $111.0 million in 2015. In 2015 financing cash
inflows were favorably impacted by a $1.6 billion increase in deposits, largely the result of an increase in
commercial customer deposits and the timing of a new correspondent banking product which resulted in a shift in
funding from short-term borrowings. Additionally, proceeds from the issuance of $500.0 million of senior notes in
2015 positively affected financing cash flows. These inflows were partially offset by cash outflows related to long-
term debt, including the maturity of $500 million of senior notes and $304 million of subordinated notes, as well
as the redemption of $206 million of junior subordinated debt underlying trust preferred securities. Additionally, an
$816.3 million decrease in short-term borrowings, due in part to the shift in funding associated with the new
product offering in correspondent banking previously mentioned, as well as dividends paid and share repurchases
negatively impacted cash from financing activities in 2015.
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FIRST HORIZON NATIONAL CORPORATION
REPURCHASE OBLIGATIONS, OFF-BALANCE SHEET ARRANGEMENTS, AND OTHER CONTRACTUAL OBLIGATIONS
Obligations from Legacy Mortgage Businesses
Overview
Prior to September 2008 FHN originated loans through its legacy mortgage business, primarily first lien home
loans, with the intention of selling them. Sales typically were effected either as non-recourse whole loan sales or
through non-recourse proprietary securitizations. Conventional conforming single-family residential mortgage loans
were sold predominately to two GSEs: Fannie Mae and Freddie Mac. Also, federally insured or guaranteed whole
loans were pooled, and payments to investors were guaranteed through Ginnie Mae. Many mortgage loan
originations, especially nonconforming mortgage loans, were sold to investors, or certificate-holders, predominantly
through FH proprietary securitizations but also, to a lesser extent, through other whole loans sold to private non-
Agency purchasers. FHN used only one trustee for all of its FH proprietary securitizations. FHN also originated
mortgage loans eligible for FHA insurance or VA guaranty. In addition, FHN originated and sold HELOCs and
second lien mortgages through other whole loans sold to private purchasers and, to a lesser extent, through FH
proprietary securitizations. Currently, only one FH securitization of HELOCs remains outstanding.
For non-recourse loan sales, FHN has exposure for repurchase of loans, make-whole damages, or other related
damages, arising from claims that FHN breached its representations and warranties made at closing to the
purchasers, including GSEs, other whole loan purchasers, and the trustee of FH proprietary securitizations.
During the time these legacy activities were conducted, FHN frequently sold mortgage loans “with servicing
retained.” As a result, FHN accumulated substantial amounts of MSR on its balance sheet, as well as contractual
servicing obligations and related deposits and receivables. FHN conducted a significant servicing business under its
First Horizon Home Loans brand.
MI was required by GSE rules for certain of the loans sold to GSEs and was also provided for certain of the loans
that were securitized. MI generally was provided for first lien loans sold or securitized having an LTV ratio at
origination of greater than 80 percent.
In 2007, market conditions deteriorated to the point where mortgage-backed securitizations could no longer be sold
economically; FHN’s last securitization occurred that year. FHN continued selling mortgage loans to GSEs until
August 31, 2008, when FHN sold its national mortgage origination and servicing platforms along with a portion of
its servicing assets and obligations. FHN then contracted to have its remaining servicing obligations sub-serviced.
Since the platform sale FHN has sold substantially all remaining servicing assets and obligations in several
transactions.
Repurchase and Make-Whole Obligations
Starting in 2009 FHN received a high number of claims either to repurchase loans from the purchaser or to pay
the purchaser to “make them whole” for economic losses incurred. These claims have been driven primarily by
loan delinquencies. In repurchase or make-whole claims a loan purchaser typically asserts that specified loans
violated representations and warranties FHN made when the loans were sold. A significant majority of claims
received overall have come from GSEs, and the remainder are from purchasers of other whole loan sales. FHN has
not received a loan repurchase or make-whole claim from the FH proprietary securitization trustee.
Generally, FHN reviews each claim and MI cancellation notice individually. FHN’s responses include appeal,
provide additional information, deny the claim (rescission), repurchase the loan or remit a make-whole payment, or
reflect cancellation of MI.
After several years resolving repurchase and make-whole claims with each GSE on a loan-by-loan basis, in 2013
and 2014 FHN entered into DRAs with the GSEs, resolving a substantial majority of potential claims. Starting in
2014 the overall number of such claims diminished substantially, primarily as a result of the DRAs. Each DRA
resolved obligations associated with loans originated from 2000 to 2008, but certain obligations and loans were
excluded. Under each DRA, FHN remains responsible for repurchase obligations related to certain excluded
defects (such as title defects and violations of the GSE’s Charter Act) and FHN continues to have loan repurchase
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or monetary compensation obligations under the DRAs related to private mortgage insurance rescissions,
cancellations, and denials (with certain exceptions). FHN also has exposure related to loans where there has been
a prior bulk sale of servicing, as well as certain other whole-loan sales. With respect to loans where there has been
a prior bulk sale of servicing, FHN is not responsible for MI cancellations and denials to the extent attributable to
the acts of the current servicer.
While large portions of repurchase claims from the GSEs were settled with the DRAs, comprehensive settlement of
repurchase, make-whole, and indemnity claims with non-Agency claimants is not practical. Such claims that are
not resolved by the parties can, and sometimes have, become litigation.
FH Proprietary Securitization Actions
FHN has potential financial exposure from FH proprietary securitizations outside of the repurchase/make-whole
process. Several investors in certificates sued FHN and others starting in 2009, and several underwriters or other
counterparties have demanded that FHN indemnify and defend them in securitization lawsuits. The pending suits
generally assert that disclosures made to investors in the offering and sale of certificates were legally deficient. A
number of those matters have settled or otherwise been resolved. See Note 17 – Contingencies and Other
Disclosures for a discussion of certain actions pending against FHN in relation to FH proprietary securitizations.
Servicing Obligations
FHN’s national servicing business was sold as part of the platform sale in 2008. A significant amount of MSR was
sold at that time, and a significant amount was retained. The related servicing activities, including foreclosure and
loss mitigation practices, not sold in 2008 were outsourced through a three-year subservicing arrangement (the
“2008 subservicing agreement”) with the platform buyer (the “2008 subservicer”). The 2008 subservicing
agreement expired in 2011 when FHN entered into a replacement agreement with a new subservicer (the “2011
subservicer”). In fourth quarter 2013, FHN contracted to sell a substantial majority of its remaining servicing
obligations and servicing assets (including advances) to the 2011 subservicer. The servicing was transferred to the
buyer in stages, and was substantially completed in first quarter 2014. The servicing still retained by FHN is not
significant and continues to be subserviced.
As servicer, FHN had contractual obligations to the owners of the loans (primarily GSEs) and securitization trustees
to handle billing, custodial, and other tasks related to each loan. Each subservicer undertook to perform those
obligations on FHN’s behalf during the applicable subservicing period, although FHN legally remained the servicer
of record for those loans that were subserviced.
The 2008 subservicer has been subject to a consent decree, and entered into a settlement agreement, with
regulators related to alleged deficiencies in servicing and foreclosure practices. The 2008 subservicer has made
demands of FHN, under the 2008 subservicing agreement, to pay certain resulting costs and damages totaling
$43.5 million. FHN disagrees with those demands and has made no payments. This disagreement has the
potential to result in litigation and, in any such future litigation, the claim against FHN may be substantial.
As mentioned in Note 17 – Contingencies and Other Disclosures – FHN has received a notice of indemnification
claims from its 2011 subservicer, Nationstar Mortgage LLC, currently doing business as “Mr. Cooper.” The notice
asserts several categories of indemnity obligations by FHN to Nationstar in connection with mortgage loans under
the subservicing arrangement and under the purchase transaction. This matter currently is not in formal litigation,
but litigation in the future is possible.
Origination Data
From 2005 through 2008, FHN originated and sold $69.5 billion of mortgage loans to the Agencies. This includes
$57.6 billion of loans sold to GSEs and $11.9 billion of loans guaranteed by Ginnie Mae. Although FHN conducted
these businesses before 2005, GSE loans originated in 2005 through 2008 account for a substantial majority of all
repurchase requests/make-whole claims received since the 2008 platform sale.
From 2005 through 2007, $26.7 billion of mortgage loans were included in FH proprietary securitizations. The last
FH securitization occurred in 2007. On December 31, 2017, the remaining UPB of loans held in FH proprietary
securitizations was $3.0 billion, comprised of $2.2 billion of Alt-A loans and $.8 billion of Jumbo loans.
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Mortgage-Related Glossary
Agencies
the two GSEs and Ginnie
Mae
certificates
securities sold to investors
representing interests in
mortgage loan
securitizations
DOJ U.S. Department of
Justice
DRA
definitive resolution
agreement with a GSE
Fannie Mae, Fannie, FNMA
FH proprietary
securitization
Federal National Mortgage
Association
securitization of mortgages
sponsored by FHN under
its First Horizon brand
FHA
Federal Housing
Administration
HELOC
home equity line of credit
HUD Dept. of Housing and
Urban Development
LTV
MI
loan-to-value, a ratio of
the loan amount divided
by the home value
private mortgage
insurance, insuring against
borrower payment default
MSR mortgage servicing rights
nonconforming loans
loans that did not conform
to Agency program
requirements
other whole loans sold mortgage loans sold to
private, non-Agency
purchasers
FHN’s sale of its national
mortgage origination and
servicing platforms in
2008
pipeline of mortgage
repurchase, make-whole,
& certain related claims
against FHN
Freddie Mac, Freddie,
FHLMC
Federal Home Loan
Mortgage Corporation
2008 platform sale,
platform sale, 2008 sale
Ginnie Mae, Ginnie, GNMA Government National
Mortgage Association
pipeline or active pipeline
GSEs
Fannie Mae and Freddie
Mac
VA
Veterans Administration
Active Pipeline
FHN accumulates the amount of repurchase requests, make-whole claims, and certain other related claims into
the “active pipeline.” The active pipeline includes the amount of claims for loan repurchase, make-whole
payments, loans as to which MI has been canceled, and information requests from purchasers of loans originated
and sold through FHN’s legacy mortgage banking business. MI was required for certain of the loans sold to GSEs
or that were securitized. Although unresolved MI cancellation notices are not formal repurchase requests, FHN
includes those loans in the active pipeline. Additionally, FHN is responsible for covering losses for purchasers to
the extent there is a shortfall in MI insurance coverage (MI curtailment). Generally, the amount of a loan subject to
a repurchase/make-whole claim, or with open MI issues, remains in the active pipeline throughout the resolution
process with a claimant. Through June 2016 the active pipeline decreased, due in part to settlements and other
resolutions, but also due to significant reductions in inflows. The pipeline is now relatively flat at a much lower level
due to a slower pace of inflows and resolutions. On December 31, 2017, the active pipeline was $44.1 million,
down from $51.7 million on December 31, 2016.
The following table provides the number and unpaid principal amount of loans in the active repurchase request
pipeline, including related unresolved MI notices and other requests as of December 31, 2017 and 2016.
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Table 29 – Active Pipeline
(Dollars in thousands)
Repurchase/make whole requests:
Agencies
Non-Agency whole loan-related
MI
Other requests (a)
Total
December 31, 2017
December 31, 2016
Number
Amount
Number
Amount
32
118
85
49
284
$ 4,661
17,927
13,843
7,637
$44,068
23
126
147
37
333
$ 4,196
19,214
23,171
5,122
$51,703
(a) Other requests typically include requests for additional information from both GSE and non-GSE purchasers.
On December 31, 2017, Agencies accounted for approximately 55 percent of the total active pipeline, inclusive of
MI cancellation notices, MI curtailments, and all other claims. MI curtailment requests, the largest portion of the
active pipeline, are intended only to cover the shortfall in MI insurance proceeds. As a result, FHN’s loss from MI
curtailments as a percentage of UPB generally is significantly lower than that of a repurchase or make-whole
claim. At December 31, 2017, the active pipeline contained no loan repurchase or make-whole requests from the
FH proprietary securitization trustee related to first lien mortgage loans based on claims related to breaches of
representations and warranties related to origination.
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Repurchase Accrual Methodology
Over the past several years FHN’s approach for determining the adequacy of the repurchase and foreclosure
reserve has evolved, sometimes substantially, based on changes in information available. Repurchase/make-whole
rates vary based on purchaser, vintage, and claim type. For those loans repurchased or covered by a make-whole
payment, cumulative average loss severities range between 50 and 60 percent of the UPB.
Repurchase Accrual Approach
Repurchase/Make-whole and Damages obligations and estimates for probable incurred losses associated with loan
populations excluded from the DRAs are significant components of FHN’s remaining repurchase liability as of
December 31, 2017. Other components of that liability primarily relate to other whole loans sold, MI rescissions,
and loans included in bulk servicing sales effected prior to the DRAs.
In determining the loss content of GSE loans subject to repurchase requests excluded from the DRAs (primarily
loans included in bulk sales), FHN applies a vintage level estimate of loss to all loans sold to the GSEs that were
not included in the settlements and which have not had a prior repurchase resolution. First, pre-payment, default,
and claim rate estimates are applied by vintage to estimate the aggregate claims expected but not yet resolved.
Historical loss factors for each sale vintage and repurchase rates are then applied to estimate total loss content.
Loss content related to other whole loan sales is estimated by applying the historical average repurchase and loss
severity rates to the current UPB in the active pipeline to calculate estimated losses attributable to the current
pipeline. FHN then uses an internal model to calculate loss content by applying historical average repurchase and
loss severity rates to historical average inflows. For purposes of estimating loss content, FHN also considers MI
cancellations. When assessing loss content related to loans where MI has been cancelled, FHN applies historical
loss factors (including repurchase rates and loss severity ratios) to the total unresolved MI cancellations in the
active pipeline, as well as applying these factors to historical average inflows to estimate loss content. Additionally,
FHN identifies estimated losses related to MI curtailment requests. Management also evaluates the nature of
claims from purchasers and/or servicers of loans sold to determine if qualitative adjustments are appropriate.
Repurchase and Foreclosure Liability
The repurchase and foreclosure liability is comprised of reserves to cover estimated loss content in the active
pipeline, as well as estimated loss content related to certain known claims not currently included in the active
pipeline. FHN compares the estimated probable incurred losses determined under the applicable loss estimation
approaches described above for the respective periods with current reserve levels. Changes in the estimated
required liability levels are recorded as necessary through the repurchase and foreclosure provision.
The following table provides a rollforward of the legacy mortgage repurchase liability during 2017 and 2016:
Table 30 – Reserves for Repurchase and Foreclosure Losses
(Dollars in thousands)
Legacy Mortgage
Beginning balance
Provision/(provision credit) for repurchase and foreclosure losses (a)
Net realized losses
2017
2016
$ 65,309
(22,527)
(9,226)
$114,947
(32,722)
(16,916)
Balance on December 31
(a) Year ended December 31, 2017 and 2016 include $20.0 million and $31.4 million, respectively, related to the settlement of certain
$ 33,556
$ 65,309
repurchase claims.
Other FHN Mortgage Exposures
At December 31, 2017, FHN had not accrued a liability for exposure for repurchase of first-lien loans related to
FH proprietary securitizations arising from claims from the trustee that FHN breached its representations and
warranties in FH proprietary securitizations at closing. FHN’s trustee is a defendant in lawsuits in which the
plaintiffs have asserted that the trustee has duties to review loans and otherwise to act against FHN outside of the
duties specified in the applicable trust documents; FHN is not a defendant and is not able to assess what, if any,
exposure FHN may have as a result of them.
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FHN is defending, directly or as indemnitor, certain pending lawsuits brought by purchasers of certificates in FH
proprietary securitizations or their assignees. FHN believes a new lawsuit based on federal securities claims that
offering disclosures were deficient cannot be brought at this time due to the running of applicable limitation
periods, but other investor claims, based on other legal theories, might still be possible. Due to the sales of MSR
from 2008 through 2014, FHN has limited visibility into current loan information such as principal payoffs,
refinance activity, delinquency trends, and loan modification activity.
Many non-GSE purchasers of whole loans from FHN included those loans in their own securitizations. Regarding
such other whole loans sold, FHN made representations and warranties concerning the loans and provided
indemnity covenants to the purchaser/securitizer. Typically the purchaser/securitizer assigned key contractual rights
against FHN to the securitization trustee. As mentioned above, repurchase, make-whole, indemnity, and other
monetary claims related to specific loans are included in the active pipeline and repurchase reserve. In addition,
currently the following categories of actions are pending which involve FHN and other whole loans sold: (i) FHN
has received indemnification requests from purchasers of loans or their assignees in cases where FHN is not a
defendant; (ii) FHN has received subpoenas seeking loan reviews in cases where FHN is not a defendant; and
(iii) FHN has received repurchase, indemnity, and other demands from purchasers or their assignees. At
December 31, 2017, FHN’s repurchase and foreclosure liability included certain known exposures from other
whole loans sold.
Other Contractual Obligations
Pension obligations are funded by FHN to provide current and future benefits to participants in FHN’s
noncontributory, defined benefit pension plan. On December 31, 2017, the annual measurement date, pension
obligations (representing the present value of estimated future benefit payments), including obligations of the
unfunded plans, were $840.9 million with $881.2 million of assets (measured at current fair value) in the qualified
plan’s trust to fund the qualified plan’s obligations. The discount rate for 2017 of 3.76 percent for the qualified
pension plan and 3.59 percent for the nonqualified supplemental executive retirement plan was determined by
using a hypothetical AA yield curve represented by a series of annualized individual discount rates from one-half to
thirty years. The discount rates for the pension and nonqualified supplemental executive retirement plans are
selected based on data specific to FHN’s plans and participant populations. See Note 18 - Pension, Savings, and
Other Employee Benefits for additional information. As of December 31, 2017, the plan assets exceeded the
projected benefit obligation and the accumulated benefit obligation for the qualified pension plan. Decisions to
contribute to the plan are based upon pension funding requirements under the Pension Protection Act, the
maximum amount deductible under the Internal Revenue Code, the actual performance of plan assets, and trends
in the regulatory environment. FHN contributed $165 million to the qualified pension plan in third quarter 2016.
No contributions were made to the qualified pension plan in 2017. In December 2017 FHN contributed
$5.1 million to pension plans acquired from CBF, resulting in those plans being almost fully funded. Management
has assessed the need for future contributions, and does not currently anticipate that FHN will make a contribution
to the qualified pension plan in 2018.
The nonqualified pension plans and other postretirement benefit plans, excluding the retiree medical plan, are
unfunded. Benefit payments under the non-qualified plans were $5.4 million in 2017. FHN anticipates 2018
benefit payments to be $5.7 million.
FHN has various other financial obligations which may require future cash payments. The following table sets forth
contractual obligations representing required and potential cash outflows as of December 31, 2017. Purchase
obligations represent obligations under agreements to purchase goods or services that are enforceable and legally
binding on FHN and that specify all significant terms, including fixed or minimum quantities to be purchased;
fixed, minimum, or variable price provisions; and the approximate timing of the transaction. In addition, FHN
enters into commitments to extend credit to borrowers, including loan commitments, standby letters of credit, and
commercial letters of credit. These commitments do not necessarily represent future cash requirements in that
these commitments often expire without being drawn upon and are not included in the table.
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Table 31 – Contractual Obligations
(Dollars in thousands)
Contractual obligations:
Payments due by period (a)
Less than
1 year
1 year -
< 3 years
3 years -
< 5 years
After 5
years
Total
Time deposit maturities (b) (c)
Term borrowings (b) (d)
Annual rental commitments under noncancelable
leases (b) (e)
Purchase obligations
Total contractual obligations
$2,001,083
7,401
$ 767,798
900,000
$538,543
209
$ 15,497
353,866
$3,322,921
1,261,476
29,862
83,879
52,844
58,848
39,015
16,841
59,069
8,893
180,790
168,461
$2,122,225
$1,779,490
$594,608
$437,325
$4,933,648
(a) Excludes a $4.3 million liability for unrecognized tax benefits as the timing of payment cannot be reasonably estimated.
(b) Amounts do not include interest.
(c) See Note 8 – Time Deposit Maturities for further details.
(d) See Note 10 – Term Borrowings for further details.
(e) See Note 6 – Premises, Equipment and Leases for further details.
MARKET UNCERTAINTIES AND PROSPECTIVE TRENDS
FHN’s future results could be affected both positively and negatively by several known trends. Key among those
are FHN’s strategic initiatives, changes in the U.S. economy and outlook, government actions affecting interest
rates, and potential changes in federal policies. In addition, legacy matters in the non-strategic segment are likely
to continue to impact FHN’s annual results in ways which are both difficult to predict and unrelated to current
operations.
FHN has prioritized expense discipline to include reducing or controlling certain expenses and investing in revenue-
producing activities and critical infrastructure. FHN has actively pursued acquisition opportunities while maintaining
a disciplined approach to valuations. FHN remains committed to organic growth through customer retention, key
hires, targeted incentives, and other traditional means.
Performance by FHN, and the entire U.S. financial services industry, is affected considerably by the overall health
of the U.S. economy. The most recent recession ended in 2009. Growth during the economic expansion since
2009 largely has been muted, compared to earlier recoveries, and somewhat inconsistent from one quarter to the
next. Though the economic expansion is over 8 years old, currently the U.S. economy does not appear to be
weakening or falling back into recession. In fact, during 2017 many signs pointed to economic strengthening. A
continuation of the current expansion would support, rather than hinder, future loan and other financial activity
growth by our customers.
Starting in 2015 through 2017, the Federal Reserve has raised short-term interest rates five times, in each case by
25 basis points, signaling a willingness to continue to raise rates in a measured fashion depending on economic
data and trends. If the Fed continues to raise rates, FHN’s net interest margin in the future is likely to continue an
improving trend. A steeper yield curve should also bolster activity within FHN’s Fixed Income business. However, if
future economic data shows a risk of lower growth or recession, interest rates may stall or even fall, which likely
would adversely impact FHN’s net interest margin. Falling and/or moderately volatile interest rates, however, should
enhance activity within FHN’s Fixed Income business. Also, if Fed actions cause long-term rates to rise slower than
short-term rates, then the yield curve would flatten, which would adversely impact FHN’s net interest margin.
FHN cannot predict the timing, resolution and effects of potential new legislation. The potential legislative actions
which currently seem the most likely to be impactful to FHN include general regulatory reform and financial
regulatory reform, both of which can affect the overall economy and FHN customers as well as FHN directly.
Lastly, while FHN has made significant progress in resolving matters from the legacy mortgage business, some
matters remain unresolved. The timing or financial impact of resolution of these matters, most of which are in
litigation, cannot be predicted with accuracy. Accordingly, the non-strategic segment is expected to occasionally and
unexpectedly impact FHN’s overall quarterly results negatively or positively with reserve accruals or releases. Also,
although new legacy matters of significance arise at a much slower pace than in years past and some formerly
common legal claims no longer can be made due to the passage of time, potential for new legacy matters remains.
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Foreclosure Practices
All lenders are affected by the heightened regulation of servicing, foreclosure, and loss mitigation practices, at both
federal and state levels, implemented since 2009. In addition, FHN retains exposure for potential deficiencies in
servicing related to its legacy servicing business and subservicing arrangements. Further details regarding these
legacy matters are provided in “Obligations from Legacy Mortgage Businesses – Overview – Servicing Obligations”
under “Repurchase Obligations, Off-Balance Sheet Arrangements, and Other Contractual Obligations.”
CRITICAL ACCOUNTING POLICIES
ALLOWANCE FOR LOAN LOSSES
Management’s policy is to maintain the ALLL at a level sufficient to absorb estimated probable incurred losses in
the loan portfolio. Management performs periodic and systematic detailed reviews of its loan portfolio to identify
trends and to assess the overall collectability of the loan portfolio. Accounting standards require that loan losses be
recorded when management determines it is probable that a loss has been incurred and the amount of the loss
can be reasonably estimated. Management believes the accounting estimate related to the ALLL is a “critical
accounting estimate” as: (1) changes in it can materially affect the provision for loan losses and net income, (2) it
requires management to predict borrowers’ likelihood or capacity to repay, often under uncertain economic
conditions, and (3) it requires management to distinguish between losses incurred as of a balance sheet date and
losses expected to be incurred in the future. Accordingly, this is a highly subjective process and requires
significant judgment since it is often difficult to determine when specific loss events may actually occur. The ALLL
is increased by the provision for loan losses and recoveries and is decreased by charged-off loans. Principal loan
amounts are charged off against the ALLL in the period in which the loan or any portion of the loan is deemed to
be uncollectible. This critical accounting estimate applies to the regional banking, non-strategic, and corporate
segments. A management committee comprised of representatives from Risk Management, Finance, Credit, and
Treasury performs a quarterly review of the assumptions used in FHN’s ALLL analytical models, makes qualitative
assessments of the loan portfolio, and determines if qualitative adjustments should be recommended to the
modeled results. On a quarterly basis, as a part of Enterprise Risk reporting and discussion, management
addresses credit reserve adequacy and credit losses with the Executive and Risk Committee of FHN’s Board of
Directors.
FHN believes that the critical assumptions underlying the accounting estimates made by management include:
(1) the commercial loan portfolio has been properly risk graded based on information about borrowers in specific
industries and specific issues with respect to single borrowers; (2) borrower specific information made available to
FHN is current and accurate; (3) the loan portfolio has been segmented properly and individual loans have similar
credit risk characteristics and will behave similarly; (4) known significant loss events that have occurred were
considered by management at the time of assessing the adequacy of the ALLL; (5) the adjustments for economic
conditions utilized in the allowance for loan losses estimate represent actual incurred losses; (6) the period of
history used for historical loss factors are most reflective of the current environment; (7) the estimate of the time it
takes for a loss event to occur and loss to be recognized (the loss emergence period) is most reflective of the
current environment; and (8) the reserve rates, as well as other adjustments estimated by management for current
events, trends, and conditions, utilized in the process reflect an estimate of losses that have been incurred as of
the date of the financial statements.
While management uses the best information available to establish the ALLL, future adjustments to the ALLL and
methodology may be necessary if economic or other conditions differ substantially from the assumptions used in
making the estimates. Such adjustments to original estimates, as necessary, are made in the period in which these
factors and other relevant considerations indicate that loss levels vary from previous estimates.
See Note 1 – Summary of Significant Accounting Policies and Note 5 – Allowance for Loan Losses for detail
regarding FHN’s processes, models, and methodology for determining the ALLL.
REPURCHASE AND FORECLOSURE LIABILITY
Repurchase Accrual Methodology
FHN has established a liability for loan repurchase, make-whole payments, indemnity, and certain other monetary
obligations related to national mortgage loan origination and servicing businesses which FHN sold in 2008. The
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information, including the definitions of certain terms, contained in “Obligations from Legacy Mortgage Businesses”
under “Repurchase Obligations, Off-Balance Sheet Arrangements, and Other Contractual Obligations” above should
be reviewed before reading this section.
Estimating probable losses associated with FHN’s repurchase obligations for alleged breaches of representations
and warranties related to prior Agency and other whole loan sales requires significant management judgment and
assumptions. The loss estimation process relies on historical observed trends that may or may not be
representative of future actual results. Those trends include observed loss severities, resolution statistics,
delinquency trends, and historical average loan sizes. Additionally, the level of repurchase/make-whole request and
associated losses are affected by external factors such as GSE review practices and selection criteria (for loans sold
to GSEs excluded from the DRAs), housing prices, actions of purchasers and/or servicers of previously sold loans,
actions of MI companies, and economic conditions, all of which could change in the future.
In making these estimates and assumptions FHN has contemplated, among other things, the DRAs, estimates of
FHN’s repurchase or monetary exposure related to loans excluded from the DRAs, and estimates of FHN’s
repurchase or monetary exposure related to certain other whole loan sales. Additionally, FHN continues to monitor
claims included in the active pipeline, claims from other parties for which loans are not identified, historical
repurchase rates, and loss severities.
Based on currently available information and experience to date, FHN has evaluated its exposure under these
obligations and accordingly had reserved for losses of $34.2 million and $66.0 million as of December 31, 2017
and 2016, respectively, including a smaller amount related to equity-lending junior lien loan sales. Accrued
liabilities for FHN’s estimate of these obligations are reflected in Other liabilities on the Consolidated Statements of
Condition. Charges to increase/(decrease) the liability are included within Repurchase and foreclosure provision on
the Consolidated Statements of Income. The estimate is based upon currently available information and fact
patterns that exist as of the balance sheet date and could be subject to future changes. Changes to any one of
these factors could significantly impact the estimate of FHN’s liability. FHN continues to monitor trends in claims
activity, loss severities, success rates, GSE review practices, MI cancellations, and the status of other claims in
order to assess the adequacy of the repurchase liability. At December 31, 2017, FHN had not accrued a liability
for exposure for repurchase of first-lien loans related to FH proprietary securitizations arising from claims from the
trustee that FHN breached its representations and warranties in FH proprietary securitizations at closing.
GOODWILL AND ASSESSMENT OF IMPAIRMENT
FHN’s policy is to assess goodwill for impairment at the reporting unit level on an annual basis or between annual
assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of a
reporting unit below its carrying amount. Impairment is the condition that exists when the carrying amount of
goodwill exceeds its implied fair value. FHN also allocates goodwill to the disposal of portions of reporting units in
accordance with applicable accounting standards. FHN performs impairment analysis when these disposal actions
indicate that an impairment of goodwill may exist. Reporting units have been defined as the same level as the
operating business segments.
Companies are permitted to make a qualitative assessment of whether it is more likely than not that the fair value
of a reporting unit is less than its carrying amount, including goodwill, when determining whether the quantitative
assessment should be performed. If FHN concludes that it is more likely than not that a reporting unit’s fair value
is less than its carrying value, or if management elects, the quantitative analysis is performed. In 2017, FHN
performed a qualitative analysis for its regional banking and fixed income reporting units and determined that it
was more likely than not that the fair values of both reporting units exceed their carrying values. In performing its
evaluation, FHN considered both positive and negative factors that could affect the status of the regional banking
and fixed income reporting units since the most recent quantitative analysis, which was performed in 2016. The
factors included trends in revenues and expenses, changes in financial projections, macroeconomic considerations
including interest rates, changes in the carrying values of the reporting units and available market pricing evidence.
In 2016, FHN engaged an independent valuation expert to assist in the computation of the fair value estimates of
each reporting unit as part of its annual assessment. The 2016 assessment for the regional banking reporting unit
utilized three separate methodologies: a discounted cash flow model, a comparison to similar public companies’
trading values, and a comparison to recent acquisition values. A weighted average calculation was performed to
determine the estimated fair value of the regional banking reporting unit. A discounted cash flow methodology was
FIRST HORIZON NATIONAL CORPORATION
65
utilized in determining the fair value of the fixed income reporting unit. The most recent valuations as of October 1,
2016, indicated no goodwill impairment in either of the reporting units with goodwill. As of the most recent
quantitative assessment, the fair values of regional banking and fixed income substantially exceeded their carrying
values.
Management believes the accounting estimates associated with determining fair value as part of the goodwill
impairment test is a “critical accounting estimate” because estimates and assumptions are made about FHN’s
future performance and cash flows, as well as other prevailing market factors (e.g., interest rates, economic trends,
etc.). FHN’s policy allows management to make the determination of fair value using appropriate valuation
methodologies and inputs, including utilization of market observable data and internal cash flow models. If a
charge to operations for impairment results, this amount would be reported separately as a component of
noninterest expense. This critical accounting estimate applies to the regional banking and fixed income business
reporting units. As of December 31, 2017, the corporate and non-strategic reporting units had no associated
goodwill.
When performed, the quantitative impairment testing process conducted by FHN begins by assigning net assets
and goodwill to each reporting unit. FHN then completes “step one” of the impairment test by comparing the fair
value of each reporting unit with the value (carrying amount) of its net assets, with goodwill included in the
computation of the carrying amount. The carrying value of a reporting unit is based on the amount of allocated
equity as determined by FHN’s internal management methodologies. FHN does not maintain a record of equity
consistent with GAAP at the reporting unit level. Allocated equity is utilized in certain internal performance
measures for segments, including return on tangible common equity. In determining the amount of equity allocated
to each reporting unit, FHN utilizes a risk-adjusted methodology that incorporates each reporting unit’s credit,
market, interest rate, operational, legal, and compliance risks. Unallocated equity is retained in the corporate
reporting unit, which has no goodwill. As of the most recent measurement date unallocated equity primarily related
to FHN’s capital deployment initiatives, including potential share buybacks, potential dividend increases, and
potential acquisitions.
If the fair value of a reporting unit exceeds its carrying amount, goodwill of that reporting unit is not considered
impaired, and “step two” of the impairment test is not necessary. If the carrying amount of a reporting unit
exceeds its fair value, step two of the impairment test would be performed to determine the amount of impairment.
Step two of the impairment test requires a comparison of the carrying amount of the reporting unit’s goodwill to
the “implied fair value” of that goodwill. The implied fair value of goodwill is computed by assuming all assets and
liabilities of the reporting unit would be adjusted to the current fair value, with the offset as an adjustment to
goodwill. This adjusted goodwill balance would be the implied fair value used in step two. An impairment charge
would be recognized for the amount by which the carrying amount of goodwill exceeds its implied fair value.
In connection with obtaining the independent valuation in 2016, management provided certain data and
information that was utilized in the estimation of fair value. This information included budgeted and forecasted
earnings of FHN at the reporting unit level. Management believes that this information is a critical assumption
underlying the estimate of fair value. Other assumptions critical to the process were also made, including discount
rates, interest rate changes, asset and liability growth rates, and other income and expense estimates.
While management uses the best information available to estimate future performance for each reporting unit,
future adjustments to management’s projections may be necessary if conditions differ substantially from the
assumptions used in making the estimates.
INCOME TAXES
FHN is subject to the income tax laws of the U.S. and the states and jurisdictions in which it operates. FHN
accounts for income taxes in accordance with ASC 740, Income Taxes. Significant judgments and estimates are
required in the determination of the consolidated income tax expense. FHN income tax expense, deferred tax
assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and
future taxes to be paid.
Income tax expense consists of both current and deferred taxes. Current income tax expense is an estimate of
taxes to be paid or refunded for the current period and includes income tax expense related to uncertain tax
positions. A DTA or a DTL is recognized for the tax consequences of temporary differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities. Deferred taxes can be affected by
66
FIRST HORIZON NATIONAL CORPORATION
changes in tax rates applicable to future years, either as a result of statutory changes or business changes that
may change the jurisdictions in which taxes are paid. Additionally, DTAs are subject to a “more likely than not”
test to determine whether the full amount of the DTAs should be realized in the financial statements. FHN
evaluates the likelihood of realization of the DTA based on both positive and negative evidence available at the
time, including (as appropriate) scheduled reversals of DTLs, projected future taxable income, tax planning
strategies, and recent financial performance. Realization is dependent on generating sufficient taxable income prior
to the expiration of the carryforwards attributable to or generated with respect to the DTA. In projecting future
taxable income, FHN incorporates assumptions including the amount of future state and federal pretax operating
income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning
strategies. These assumptions require significant judgment about the forecasts of future taxable income and are
consistent with the plans and estimates used to manage the underlying business. If the “more likely than not” test
is not met, a valuation allowance must be established against the DTA.
The income tax laws of the jurisdictions in which FHN operate are complex and subject to different interpretations
by the taxpayer and the relevant government taxing authorities. In establishing a provision for income tax expense,
FHN must make judgments and interpretations about the application of these inherently complex tax laws.
Interpretations may be subjected to review during examination by taxing authorities and disputes may arise over
the respective tax positions. FHN attempts to resolve disputes that may arise during the tax examination and audit
process. However, certain disputes may ultimately be resolved through the federal and state court systems.
FHN monitors relevant tax authorities and revises estimates of accrued income taxes on a quarterly basis. Changes
in estimates may occur due to changes in income tax laws and their interpretation by the courts and regulatory
authorities. Revisions of estimates may also result from income tax planning and from the resolution of income tax
controversies. Such revisions in estimates may be material to operating results for any given period.
See also Note 15 – Income Taxes for additional information.
CONTINGENT LIABILITIES
A liability is contingent if the amount or outcome is not presently known, but may become known in the future as
a result of the occurrence of some uncertain future event. FHN estimates its contingent liabilities based on
management’s estimates about the probability of outcomes and their ability to estimate the range of exposure.
Accounting standards require that a liability be recorded if management determines that it is probable that a loss
has occurred and the loss can be reasonably estimated. In addition, it must be probable that the loss will be
confirmed by some future event. As part of the estimation process, management is required to make assumptions
about matters that are by their nature highly uncertain.
The assessment of contingent liabilities, including legal contingencies, involves the use of critical estimates,
assumptions, and judgments. Management’s estimates are based on their belief that future events will validate the
current assumptions regarding the ultimate outcome of these exposures. However, there can be no assurance that
future events, such as court decisions or decisions of arbitrators, will not differ from management’s assessments.
Whenever practicable, management consults with third-party experts (e.g., attorneys, accountants, claims
administrators, etc.) to assist with the gathering and evaluation of information related to contingent liabilities. Based
on internally and/or externally prepared evaluations, management makes a determination whether the potential
exposure requires accrual in the financial statements.
See Note 17 – Contingencies and Other Disclosures for additional information.
ACCOUNTING CHANGES ISSUED BUT NOT CURRENTLY EFFECTIVE
Refer to Note 1–Summary of Significant Accounting Policies for a detail of accounting standards that have been
issued but are not currently effective, which section is incorporated into this MD&A by this reference.
FIRST HORIZON NATIONAL CORPORATION
67
Table 32 – Summary of Quarterly Financial Information
(Dollars in millions except per share data)
Summary income information:
Interest income
Interest expense
Provision/(provision credit) for loan losses
Noninterest income
Noninterest expense
Net income/(loss)
Income/(loss) available to common shareholders
Earnings/(loss) per common share
Diluted earnings/(loss) per common share
Common stock information:
Closing price per share:
High
Low
Period-end
Cash dividends declared per share
2017
2016
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
$287.6 $248.1 $235.3 $218.8
29.1
(1.0)
116.9
222.2
58.4
54.0
34.6
(2.0)
127.7
217.9
95.2
90.8
45.5
3.0
133.2
346.7
(48.4)
(52.8)
38.3
-
112.4
236.9
71.8
67.3
$219.9 $207.0 $197.4 $193.7
21.6
3.0
134.3
226.9
52.2
$ 53.3 $ 63.2 $ 56.5 $ 47.8
21.1
4.0
145.5
226.8
60.9
21.8
4.0
148.5
233.6
67.6
24.3
-
124.1
237.9
57.7
$ (0.20) $ 0.29 $ 0.39 $ 0.23
0.23
(0.20)
0.38
0.28
$ 0.23 $ 0.27 $ 0.24 $ 0.20
0.20
0.23
0.27
0.24
$20.55 $19.15 $19.06 $20.76
17.90
18.50
0.09
16.91
17.42
0.09
16.05
19.15
0.09
18.02
19.99
0.09
$20.61 $15.48 $14.70 $14.19
11.62
13.10
0.07
12.54
13.78
0.07
14.71
20.01
0.07
13.13
15.23
0.07
68
FIRST HORIZON NATIONAL CORPORATION
NON-GAAP INFORMATION
The following table provides a reconciliation of non-GAAP items presented in this MD&A to the most comparable
GAAP presentation:
Table 33 – Non-GAAP to GAAP Reconciliation
(Dollars in thousands)
2017
2016
2015
2014
2013
Tangible Common Equity (Non-GAAP)
(A) Total equity (GAAP)
Less: Noncontrolling interest (a)
Less: Preferred stock (a)
Total common equity
Less: Intangible assets (GAAP) (b)
(B) Tangible common equity (Non-GAAP)
Less: Unrealized gains/ (losses) on AFS
securities, net of tax
(C) Adjusted tangible common equity
(Non-GAAP)
Tangible Assets (Non-GAAP)
(D) Total assets (GAAP)
Less: Intangible assets (GAAP) (b)
$4,580,488
295,431
95,624
4,189,433
1,571,242
$ 2,705,084
295,431
95,624
$ 2,639,586
295,431
95,624
$ 2,581,590
295,431
95,624
$ 2,488,377
295,431
95,624
2,314,029
212,388
2,248,531
217,522
2,190,535
175,450
2,097,322
163,931
2,618,191
2,101,641
2,031,009
2,015,085
1,933,391
(21,997)
(17,232)
3,394
18,581
(11,241)
$2,640,188
$ 2,118,873
$ 2,027,615
$ 1,996,504
$ 1,944,632
$41,423,388
1,571,242
$28,555,231
212,388
26,192,637
217,522
$25,665,423
175,450
$23,782,395
163,931
(E) Tangible assets (Non-GAAP)
$39,852,146
$28,342,843
$25,975,115
$25,489,973
$23,618,464
Average Tangible Common Equity (Non-GAAP)
Average total equity (GAAP)
Less: Average noncontrolling interest (a)
Less: Average preferred stock (a)
$2,970,308
295,431
95,624
$ 2,691,478
295,431
95,624
$ 2,581,187
295,431
95,624
$ 2,591,967
295,431
95,624
$ 2,518,772
295,345
87,785
(F) Total average common equity
Less: Average intangible assets (GAAP) (b)
$2,579,253
376,306
$ 2,300,423
214,915
$ 2,190,132
183,127
$ 2,200,912
163,282
$ 2,135,642
161,632
(G) Average tangible common equity
(Non-GAAP)
Net Income Available to Common Shareholders
(H) Net income available to common
shareholders
Risk Weighted Assets
(I) Risk weighted assets (c)
Ratios
(A)/(D) Total period-end equity to period-end
$2,202,947
$ 2,085,508
$ 2,007,005
$ 2,037,630
$ 1,974,010
$159,315
$
220,846
$
79,679
$
216,319
$
21,066
$33,373,877
$23,914,158
$21,812,015
$19,452,656
$18,878,594
assets (GAAP)
11.06%
9.47%
10.08%
10.06%
10.46%
(B)/(E) Tangible common equity to tangible
assets (“TCE/TA”) (Non-GAAP) (d)
(C)/(I) Adjustable tangible common equity to
risk weighted assets ("TCE/RWA")
(Non-GAAP) (d)
(H)/(F) Return on average common equity
(“ROE”) (GAAP) (d)
(H)/(G) Return on average tangible common
equity (“ROTCE”) (Non-GAAP) (d)
6.57
7.91
6.18
7.23
7.42
7.82
7.91
8.19
8.86
9.60
10.59
9.30
3.64
3.97
10.26
9.83
10.62
10.30
0.99
1.07
(a) Included in Total equity on the Consolidated Statements of Condition.
(b) Includes Goodwill and other intangible assets, net of amortization.
(c) Defined by and calculated in conformity with bank regulations applicable to FHN.
(d) See Glossary of Terms for definition of ratio.
FIRST HORIZON NATIONAL CORPORATION
69
GLOSSARY OF SELECTED FINANCIAL TERMS
Adjusted Tangible Common Equity to Risk Weighted Assets (“TCE/RWA”) – Common equity excluding intangible
assets and unrealized gains/(losses) on available-for-sale securities divided by risk weighted assets.
Allowance for Loan Losses (“ALLL”) – Valuation reserve representing the amount considered by management to be
adequate to cover estimated probable incurred losses in the loan portfolio.
Agencies – In this annual report, Agencies are collectively GSEs plus GNMA.
Basis Point – The equivalent of one-hundredth of one percent. One hundred basis points equals one percent. This
unit is generally used to measure spreads and movements in interest yields and rates and in measures based on
interest yields and rates.
Book Value Per Common Share – A ratio determined by dividing common equity at the end of a period by the
number of common shares outstanding at the end of that period.
Commercial and Standby Letters of Credit – Commercial letters of credit are issued or confirmed by an entity to
ensure the payment of its customers’ payables and receivables. Standby letters of credit are issued by an entity to
ensure its customers’ performance in dealing with others.
Commitment to Extend Credit (“Unfunded Commitments”) – Agreements to make or acquire a loan or lease as long
as agreed-upon terms (e.g., expiration date, covenants, or notice) are met. Generally these commitments have
fixed expiration dates or other termination clauses and may require payment of a fee.
Common Equity Tier 1 – A measure of a company’s capital position under U.S. Basel III capital rules, which
includes common equity less goodwill, other intangibles and certain other required regulatory deductions as defined
in those rules.
Core Businesses – Management treats regional banking, fixed income, and corporate as FHN’s core businesses.
Non-strategic has significant legacy assets and operations that are being wound down.
Core Deposits – Core deposits consist of all interest-bearing and noninterest-bearing deposits, except brokered
deposits and certificates of deposit over $250,000. They include checking interest deposits, money market deposit
accounts, time and other savings, plus demand deposits.
Derivative Financial Instrument – A contract or agreement whose value is derived from changes in interest rates,
foreign exchange rates, prices of securities or commodities, or financial or commodity indices.
Diluted Earnings/(Loss) Per Common Share (“Diluted EPS”) – Net income/(loss) available to common shareholders,
divided by weighted average shares outstanding plus the effect of common stock equivalents that have the
potential to be converted into common shares.
Discharged Bankruptcies – Residential real estate secured loans where the borrower has been discharged from
personal liability through bankruptcy proceedings. Such loans that have not been reaffirmed by the borrower are
charged down to estimated collateral value less disposition costs (net realizable value) and are reported as
nonaccruing TDRs.
Discounted Cash Flow (“DCF Method”) – A valuation method based on the present value of expected future
payments discounted at the loan’s effective interest rate.
Earning Assets – Assets that generate interest or dividend income or yield-related fee income, such as loans and
investment securities.
Earnings/(Loss) Per Common Share (“EPS”) – Net income/(loss) available to common shareholders, divided by the
weighted average number of common shares outstanding.
Fully Taxable Equivalent (“FTE”) – Reflects the amount of tax-exempt income adjusted to a level that would yield
the same after-tax income had that income been subject to taxation.
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FIRST HORIZON NATIONAL CORPORATION
GLOSSARY OF SELECTED FINANCIAL TERMS (continued)
Forward Contracts – Contracts representing commitments either to purchase or sell at a specified future date a
specified security or financial instrument at a specified price, and may be settled in cash or through delivery.
Government Sponsored Entities ("GSEs") – In this annual report, the term "GSEs" includes Fannie Mae and Freddie
Mac.
Individually Impaired Loans – Generally, commercial loans over $1 million that are not expected to pay all
contractually due principal and interest, and consumer loans that have experienced a troubled debt restructuring
and are individually evaluated for impairment.
Interest Rate Caps and Floors – Contracts with notional principal amounts that require the seller, in exchange for a
fee, to make payments to the purchaser if a specified market interest rate exceeds a fixed upper “capped” level or
falls below a fixed lower “floor” level on specified future dates.
Interest Rate Option – A contract that grants the holder (purchaser), for a fee, the right to either purchase or sell a
financial instrument at a specified price within a specified period of time or on a specified date from or to the
writer (seller) of the option.
Interest Rate Swap – An agreement in which two entities agree to exchange, at specified intervals, interest payment
streams calculated on an agreed-upon notional principal amount with at least one stream based on a floating rate
index.
Interest Rate Swaptions – Options on interest rate swaps that give the purchaser the right, but not the obligation, to
enter into an interest rate swap agreement during a specified period of time.
Leverage Ratio – Ratio consisting of Tier 1 capital divided by quarterly average assets adjusted for certain
unrealized gains/(losses) on available-for-sale securities less certain regulatory disallowances applied to Common
Equity Tier 1 capital and Tier 1 capital including goodwill, certain other intangible assets, the disallowable portion of
deferred tax assets and other disallowed assets, and other regulatory adjustments.
Lower of Cost or Market (“LOCOM”) – A method of accounting for certain assets by recording them at the lower of
their historical cost or their current market value.
Market Capitalization – Market value of a company. Computed by multiplying the number of shares outstanding by
the current stock price.
Market-Indexed Deposits – Deposits with pricing tied to an index not administered by FHN. For FHN these are
comprised of insured network deposits, correspondent banking deposits, and trust/sweep deposits.
Mortgage Backed Securities (“MBS”) – Investment securities backed by a pool of mortgages or trust deeds. Principal
and interest payments on the underlying mortgages are used to pay principal and interest on the securities.
Mortgage Warehouse – Mortgage loans that have been closed and funded and are awaiting sale and delivery into the
secondary market. Also includes loans that management does not have the intent to hold for the foreseeable future.
Mortgage Servicing Rights (“MSR”) – The right to service mortgage loans, generally owned by someone else, for a
fee. Loan servicing includes collecting payments; remitting funds to investors, insurance companies, and taxing
authorities; collecting delinquent payments; and foreclosing on properties when necessary.
Net Interest Margin (“NIM”) – Expressed as a percentage, net interest margin is a ratio computed by dividing a
day-weighted fully taxable equivalent net interest income by average earning assets.
Net Interest Spread – The difference between the average yield earned on earning assets on a fully taxable
equivalent basis and the average rate paid for interest-bearing liabilities.
FIRST HORIZON NATIONAL CORPORATION
71
GLOSSARY OF SELECTED FINANCIAL TERMS (continued)
Nonaccrual or Nonperforming Loans (“NPLs”) – Loans on which interest accruals have been discontinued due to the
borrower’s financial difficulties. Interest income on these loans is generally reported on a cash basis as it is
collected after recovery of principal.
Non-GAAP – Certain measures contained within MD&A are not formally defined by GAAP or codified in the federal
banking regulations. A reconciliation of these Non-GAAP measures may be found in table 33 of MD&A.
Nonperforming Assets (“NPAs”) – Interest-earning assets on which interest income is not being accrued, real estate
properties acquired through foreclosure and other assets obtained through the foreclosure process.
Origination Fees – A fee charged to the borrower by the lender to originate a loan. Usually stated as a percentage
of the face value of the loan.
Provision for Loan Losses – The periodic charge to earnings for inherent losses in the loan portfolio.
Purchased Credit-Impaired (“PCI”) Loans – Acquired loans that have exhibited deterioration of credit quality between
origination and the time of acquisition and for which the timely collection of the interest and principal is no longer
reasonably assured.
Purchase Obligation – An agreement to purchase goods or services that is enforceable and legally binding and that
specifies all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable
price provisions; and the approximate timing of the transaction.
Restricted Real Estate Loans and Secured Borrowings – Includes restricted loans that are assets of a consolidated
variable interest entity (“VIE”) that can be used only to settle obligations of the consolidated VIE and loans from
nonconsolidated VIE in which the securitization did not qualify for sale treatment per GAAP. These loans secure
long-term borrowings of the respective VIE.
Return on Average Assets (“ROA”) – A measure of profitability that is calculated by dividing net income by total
average assets.
Return on Average Common Shareholders’ Equity (“ROE”) – A measure of profitability that indicates what an
institution earned on its shareholders’ investment. ROE is calculated by dividing net income available to common
shareholders by total average common equity.
Return on Average Tangible Common Equity (“ROTCE”) – A Non-GAAP measure of profitability that is calculated by
dividing net income available to common shareholders by average tangible common equity.
Risk-Weighted Assets – A regulatory risk-based calculation that takes into account the broad differences in risks
among a banking organization’s assets and off-balance sheet financial instruments.
Tangible Common Equity to Tangible Assets (“TCE/TA”) – A ratio which may be used to evaluate a company’s
capital position. TCE/TA includes common equity less goodwill and other intangible assets over tangible assets.
Tangible assets includes a company’s total assets less goodwill and other intangible assets.
Tier 1 Capital Ratio – Ratio consisting of shareholders’ equity adjusted for certain unrealized gains/(losses) on
available-for-sale securities, reduced by goodwill, certain other intangible assets, the disallowable portion of
mortgage servicing rights and other disallowed assets divided by risk-weighted assets.
Total Capital Ratio – Ratio consisting of Tier 1 capital plus the allowable portion of the allowance for loan losses
and qualifying subordinated debt divided by risk-weighted assets.
Troubled Debt Restructuring (“TDR”) – A loan is identified and reported as a TDR when FHN has granted an
economic concession to a borrower experiencing financial difficulty.
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FIRST HORIZON NATIONAL CORPORATION
ACRONYMS
ADR
AFS
ALCO
ALLL
ALR
AOCI
ASC
ASU
BOLI
C&I
CAS
CBF
CD
CECL
CEO
CFH
CFPB
CMO
CRA
CRE
CRMC
DFAST
DOJ
DRA
DSCR
DTA
DTI
DTL
ECP
EPS
ESOP
FASB
FDIC
FFP
FFS
FH
FHA
FHLB
FHLMC
FHN
FICO
FINRA
FNMA
FRB
FTBNA
FTE
Average daily revenue
Available-for-sale
Asset/Liability Committee
Allowance for loan losses
Average loss rate
Accumulated Other Comprehensive Income
FASB Accounting Standards Codification
Accounting Standards Update
Bank-owned life insurance
Commercial, financial, and industrial loan portfolio
Credit Assurance Services
Capital Bank Financial
Certificate of deposit
Current Expected Credit Loss
Chief Executive Officer
Coastal Financial Holdings
Consumer Financial Protection Bureau
Collateralized mortgage obligations
Community Reinvestment Act
Commercial Real Estate
Credit Risk Management Committee
Dodd-Frank Act Stress Test
U.S. Department of Justice
Definitive resolution agreement
Debt service coverage ratios
Deferred tax asset
Debt-to-income
Deferred tax liability
Equity Compensation Plan
Earnings per share
Employee stock ownership plan
Financial Accounting Standards Board
Federal Deposit Insurance Corporation
Federal funds purchased
Federal funds sold
First Horizon
Federal Housing Administration
Federal Home Loan Bank
Federal Home Loan Mortgage Corporation or Freddie Mac
First Horizon National Corporation
Fair Isaac Corporation
Financial Industry Regulatory Authority
Federal National Mortgage Association or Fannie Mae
Federal Reserve Bank or the Fed
First Tennessee Bank National Association
Fully taxable equivalent
FIRST HORIZON NATIONAL CORPORATION
73
ACRONYMS (continued)
FTHC
FTNF
FTNMC
FTRESC
GAAP
GNMA
GSE
HAMP
HELOC
HFS
HTM
HUD
IPO
ISDA
IRS
LEP
LGD
LIBOR
LIHTC
LLC
LOCOM
LRRD
LTV
MBS
MD&A
MI
MSR
MSRB
NAICS
NII
NIM
NMTC
NOL
NPA
NPL
NSF
OCC
OIS
ORE
OTC
OTTI
PCAOB
PCI
PD
PM
74
First Tennessee Housing Corporation
FTN Financial
First Tennessee New Markets Corporation
FT Real Estate Securities Company, Inc.
Generally accepted accounting principles
Government National Mortgage Association or Ginnie Mae
Government sponsored enterprises, in this filing references Fannie Mae and Freddie Mac
Home Affordable Modification Program
Home equity lines of credit
Held-for-sale
Held-to-maturity
Department of Housing and Urban Development
Initial public offering
International Swap and Derivatives Association
Internal Revenue Service
Loss emergence period
Loss given default
London Inter-Bank Offered Rate
Low Income Housing Tax Credit
Limited Liability Company
Lower of cost or market
Loan Rehab and Recovery Department
Loan-to-value
Mortgage-backed securities
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Private mortgage insurance
Mortgage servicing rights
Municipal Securities Rulemaking Board
North American Industry Classification System
Net interest income
Net interest margin
New Market Tax Credit
Net operating loss
Nonperforming asset
Nonperforming loan
Non-sufficient funds
Office of the Comptroller of the Currency
Overnight indexed swap
Other Real Estate-owned
One-time close, a mortgage product which allowed simplified conversion of a construction loan to
permanent financing
Other than temporary impairment
Public Company Accounting Oversight Board
Purchased credit impaired
Probability of default
Portfolio managers
FIRST HORIZON NATIONAL CORPORATION
ACRONYMS (continued)
PMC
PreTSL
PSU
R/E
REIT
Res CRE
RM
ROA
ROE
ROTCE
RPL
RSU
RWA
SBA
SEC
SVaR
TA
TAB
TAF
TCE
TDR
TRUP
UPB
USDA
UTB
VA
VaR
VIE
Professional Mortgage Company, Inc.
Preferred Term Securities Limited
Performance Stock Unit
Real estate
Real estate investment trust
Residential commercial real estate construction loan portfolio or residential CRE
Relationship managers
Return on assets
Return on common equity
Return on tangible common equity
Reasonably Possible Loss
Restricted stock unit
Risk-weighted assets
Small Business Administration
Securities and Exchange Commission
Stressed Value-at-Risk
Tangible assets
TrustAtlantic Bank
TrustAtlantic Financial Corporation
Tangible common equity
Troubled Debt Restructuring
Trust preferred loan
Unpaid principal balance
United States Department of Agriculture
Unrecognized tax benefit
Veterans Administration
Value-at-Risk
Variable Interest Entities
FIRST HORIZON NATIONAL CORPORATION
75
REPORT OF MANAGEMENT
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management at First Horizon National Corporation is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of
1934. First Horizon National Corporation’s internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles.
Even effective internal controls, no matter how well designed, have inherent limitations such as the possibility of
human error or of circumvention or overriding of controls, and consideration of cost in relation to benefit of a
control. Moreover, effectiveness must necessarily be considered according to the existing state of the art of internal
control. Further, because of changes in conditions, the effectiveness of internal controls may diminish over time.
Management assessed the effectiveness of First Horizon National Corporation’s internal control over financial
reporting as of December 31, 2017. This assessment was based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
Based on our assessment and those criteria, management believes that First Horizon National Corporation
maintained effective internal control over financial reporting as of December 31, 2017.
On November 30, 2017, we acquired Capital Bank Financial Corp. (“CBF”) and its subsidiaries, including
Capital Bank Corporation, by merger. See Note 2 – Acquisitions and Divestitures of our consolidated financial
statements for additional information. CBF represented approximately 20% of our consolidated total assets as of
December 31, 2017 and 5% of income before income taxes for the year then ended. As permitted by the
Securities and Exchange Commission, management has elected to exclude CBF from its assessment of internal
control over financial reporting as of December 31, 2017.
First Horizon National Corporation’s independent auditors have issued an attestation report on First Horizon
National Corporation’s internal control over financial reporting. That report appears on the following page.
76
FIRST HORIZON NATIONAL CORPORATION
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
First Horizon National Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited First Horizon National Corporation and subsidiaries’ (the “Company”) internal control over
financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (“PCAOB”), the consolidated statements of condition of the Company as of December 31, 2017
and 2016, and the related consolidated statements of income, comprehensive income, equity, and cash flows
for each of the years in the three-year period ended December 31, 2017, and related notes, and our report
dated February 28, 2018 expressed an unqualified opinion on those consolidated financial statements.
On November 30, 2017, the Company acquired Capital Bank Financial Corp. (“CBF”) and its subsidiaries, including
Capital Bank Corporation, by merger. CBF represented approximately 20% of consolidated total assets as of
December 31, 2017 and 5% of income before income taxes for the year then ended. As permitted by the
Securities and Exchange Commission, management elected to exclude CBF from its assessment of internal control
over financial reporting as of December 31, 2017. Our audit of internal control over financial reporting of the
Company also excluded an evaluation of the internal control over financial reporting of Capital Bank Financial Corp.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of
Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Memphis, Tennessee
February, 28, 2018
FIRST HORIZON NATIONAL CORPORATION
77
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
First Horizon National Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of condition of First Horizon National Corporation and
subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of income,
comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31,
2017, and the related notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company as of December
31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year
period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017,
based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2018 expressed an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. This report
includes a paragraph stating that management excluded from its assessment of the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2017, Capital Bank Financial Corp.’s
(“CBF”) internal control over financial reporting. Our audit of internal control over financial reporting of the
Company also excluded an evaluation of the internal control over financial reporting of CBF.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these consolidated financial statements based on our audits. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the
risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our
opinion.
We have served as the Company’s auditor since 2002.
Memphis, Tennessee
February 28, 2018
78
FIRST HORIZON NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(Dollars in thousands, except per share amounts)
Assets:
Cash and due from banks
Federal funds sold
Securities purchased under agreements to resell (Note 23)
Total cash and cash equivalents
Interest-bearing cash
Trading securities
Loans held-for-sale (a)
Securities available-for-sale (Note 3)
Securities held-to-maturity (Note 3)
Loans, net of unearned income (Note 4) (b)
Less: Allowance for loan losses (Note 5)
Total net loans
Goodwill (Note 7)
Other intangible assets, net (Note 7)
Fixed income receivables
Premises and equipment, net (December 31, 2017 and 2016 include $53.2 million and
$5.8 million, respectively, classified as held-for-sale) (Note 6)
Other real estate owned (“OREO”) (c)
Derivative assets (Note 22)
Other assets
Total assets
Liabilities and equity:
Deposits:
Savings (December 31, 2017 includes $22.6 million classified as held-for-sale)
Time deposits net (December 31, 2017 includes $8.0 million classified as held-for-
sale)(Note 8)
Other interest-bearing deposits
Interest-bearing
Noninterest-bearing (December 31, 2017 includes $4.8 million classified as held-for-sale)
Total deposits
Federal funds purchased (Note 9)
Securities sold under agreements to repurchase (Note 9 and Note 23)
Trading liabilities (Note 9)
Other short-term borrowings (Note 9)
Term borrowings (Note 10)
Fixed income payables
Derivative liabilities (Note 22)
Other liabilities
Total liabilities
Equity:
First Horizon National Corporation Shareholders’ Equity:
Preferred stock – Series A, non-cumulative perpetual, no par value, liquidation preference of
$100,000 per share – (shares authorized – 1,000; shares issued – 1,000 on December
31, 2017 and 2016) (Note 11)
Common stock – $.625 par value (shares authorized – 400,000,000; shares issued –
326,736,214 on December 31, 2017 and 233,623,686 on December 31, 2016)
Capital surplus
Undivided profits
Accumulated other comprehensive loss, net (Note 14)
Total First Horizon National Corporation Shareholders’ Equity
Noncontrolling interest (Note 11)
Total equity
Total liabilities and equity
December 31
2017
2016
$
639,073
87,364
725,609
1,452,046
1,185,600
1,416,345
699,377
5,170,255
10,000
27,658,929
189,555
27,469,374
1,386,853
184,389
68,693
532,251
43,382
81,634
1,723,189
$41,423,388
$
373,274
50,838
613,682
1,037,794
1,060,034
897,071
111,248
3,943,499
14,347
19,589,520
202,068
19,387,452
191,371
21,017
57,411
289,385
16,237
121,654
1,406,711
$28,555,231
$10,872,665
$ 9,428,197
3,322,921
8,401,773
22,597,359
8,023,003
30,620,362
399,820
656,602
638,515
2,626,213
1,218,097
48,996
85,061
549,234
36,842,900
1,355,133
5,948,439
16,731,769
5,940,594
22,672,363
414,207
453,053
561,848
83,177
1,040,656
21,002
135,897
467,944
25,850,147
95,624
95,624
204,211
3,147,613
1,160,434
(322,825)
4,285,057
295,431
4,580,488
$41,423,388
146,015
1,386,636
1,029,032
(247,654)
2,409,653
295,431
2,705,084
$28,555,231
See accompanying notes to consolidated financial statements.
(a) December 31, 2017 and 2016 include $11.7 million and $19.3 million, respectively, of held-for-sale consumer mortgage loans secured by
residential real estate in process of foreclosure.
(b) December 31, 2017 and 2016 include $22.7 million and $28.5 million, respectively, of held-to-maturity consumer mortgage loans secured
by residential real estate in process of foreclosure.
(c) December 31, 2017 and 2016 include $6.3 million and $8.1 million, respectively, of foreclosed residential real estate.
FIRST HORIZON NATIONAL CORPORATION
79
CONSOLIDATED STATEMENTS OF INCOME
(Dollars and shares in thousands except per share data, unless otherwise noted)
Interest income:
Interest and fees on loans
Interest on investment securities available-for-sale
Interest on investment securities held-to-maturity
Interest on loans held-for-sale
Interest on trading securities
Interest on other earning assets
Total interest income
Interest expense:
Interest on deposits:
Savings
Time deposits
Other interest-bearing deposits
Interest on trading liabilities
Interest on short-term borrowings
Interest on term borrowings
Total interest expense
Net interest income
Provision/(provision credit) for loan losses
Net interest income after provision/(provision credit) for loan losses
Noninterest income:
Fixed income
Deposit transactions and cash management
Brokerage, management fees and commissions
Trust services and investment management
Bankcard income
Bank-owned life insurance
Debt securities gains/(losses), net (Note 3 and Note 14)
Equity securities gains/(losses), net (Note 3)
All other income and commissions (Note 13)
Total noninterest income
Year Ended December 31
2016
2015
2017
$ 816,806
105,019
591
17,517
34,991
15,006
$ 679,917
96,671
789
5,506
30,779
4,247
$ 600,313
93,626
283
5,457
35,074
1,652
989,930
817,909
736,405
42,519
13,111
24,481
15,468
16,000
36,037
147,616
842,314
-
842,314
216,625
110,592
48,514
28,420
25,467
15,124
483
109
44,885
490,219
19,608
10,021
10,357
15,000
4,736
29,103
88,825
729,084
11,000
718,084
268,561
108,553
42,911
27,727
24,430
14,687
1,485
(144)
64,231
552,441
11,992
8,667
4,491
15,976
3,172
38,387
82,685
653,720
9,000
644,720
231,337
112,843
46,496
27,577
22,238
14,726
1,836
(458)
60,730
517,325
Adjusted gross income after provision/(provision credit) for loan losses
1,332,533
1,270,525
1,162,045
Noninterest expense:
Employee compensation, incentives, and benefits
Occupancy
Computer software
Professional fees
Operations services
Equipment rentals, depreciation, and maintenance
FDIC premium expense
Advertising and public relations
Communications and courier
Contract employment and outsourcing
Legal fees
Amortization of intangible assets
Repurchase and foreclosure provision/(provision credit)
All other expense (Note 13)
Total noninterest expense
Income/(loss) before income taxes
Provision/(benefit) for income taxes (Note 15)
Net income/(loss)
Net income attributable to noncontrolling interest
Net income/(loss) attributable to controlling interest
Preferred stock dividends
Net income/(loss) available to common shareholders
Basic earnings/(loss) per share (Note 16)
Diluted earnings/(loss) per share (Note 16)
Weighted average common shares (Note 16)
Diluted average common shares (Note 16)
Cash dividends declared per common share
Certain previously reported amounts have been reclassified to agree with current presentation.
See accompanying notes to consolidated financial statements.
589,411
54,646
48,234
47,929
43,823
29,543
26,818
19,214
17,624
14,954
12,076
8,728
(22,527)
133,188
562,948
50,880
45,122
19,169
41,852
27,385
21,585
21,612
14,265
10,061
21,558
5,198
(32,722)
116,291
511,633
51,117
44,724
18,922
39,261
30,864
18,027
19,187
15,820
14,494
16,287
5,253
-
268,202
1,023,661
925,204
1,053,791
308,872
131,892
345,321
106,810
108,254
10,941
$ 176,980
$ 238,511
11,465
11,465
$ 165,515
$ 227,046
6,200
6,200
$ 159,315
$ 220,846
0.66
0.65
$
$
241,436
244,453
0.95
0.94
232,700
235,292
$
$
$
$
$
$
$
$
97,313
11,434
85,879
6,200
79,679
0.34
0.34
234,189
236,266
0.36
$
0.28
$
0.24
80
FIRST HORIZON NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
Net income/(loss)
Other comprehensive income/(loss), net of tax:
Net unrealized gains/(losses) on securities available-for-sale
Net unrealized gains/(losses) on cash flow hedges
Net unrealized gains/(losses) on pension and other postretirement plans
Other comprehensive income/(loss)
Comprehensive income
Comprehensive income attributable to noncontrolling interest
Comprehensive income attributable to controlling interest
Income tax expense/(benefit) of items included in Other comprehensive income:
Net unrealized gains/(losses) on securities available-for-sale
Net unrealized gains/(losses) on cash flow hedges
Net unrealized gains/(losses) on pension and other postretirement plans
See accompanying notes to consolidated financial statements.
Year Ended December 31
2017
2016
2015
$176,980
$238,511
$ 97,313
(4,765)
(5,101)
(7,759)
(20,626)
(1,265)
(11,571)
(15,187)
-
(10,759)
(17,625)
(33,462)
(25,946)
159,355
205,049
11,465
11,465
71,367
11,434
$147,890
$193,584
$ 59,933
$ (2,955) $ (12,810) $ (9,445)
-
(6,689)
(780)
(7,172)
(3,163)
(832)
FIRST HORIZON NATIONAL CORPORATION
81
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars and shares in thousands, except per share data)
Common
Shares
Total
Preferred
Stock
Common
Stock
Capital
Surplus
Undivided
Profits
234,220 $2,581,590 $95,624 $146,387 $1,380,809 $ 851,585
85,879
-
97,313
(25,946)
-
-
-
-
-
-
-
-
-
-
85,879
(25,946)
11,434
Accumulated
Other
Comprehensive
Income/(Loss) (a)
Noncontrolling
Interest
$(188,246)
-
(25,946)
$295,431
11,434
-
238,587
-
-
2,639,586
238,511
(33,462)
95,624
-
-
149,117
-
-
1,439,303
-
-
874,303
227,046
-
(214,192)
-
(33,462)
Balance, December 31, 2014
Net income/(loss)
Other comprehensive income/(loss)
Comprehensive income/(loss)
Cash dividends declared:
Preferred stock ($6,200 per share)
Common stock ($.24 per share)
Common stock repurchased (b)
Common stock issued for:
Stock options and restricted stock – equity awards
Equity issued for acquisition
Tax benefit/(benefit reversal) – stock-based compensation
expense
Stock-based compensation expense
Dividends declared – noncontrolling interest of subsidiary
preferred stock
Balance, December 31, 2015
Net income/(loss)
Other comprehensive income/(loss):
Comprehensive income/(loss)
Cash dividends declared:
Preferred stock ($6,200 per share)
Common stock ($.28 per share)
Common stock repurchased (b)
Common stock issued for:
-
71,367
-
-
(2,277)
1,550
5,094
-
-
-
(6,200)
(56,961)
(32,648)
6,929
72,791
356
13,796
(11,434)
-
-
-
-
-
-
-
-
-
-
205,049
-
-
(7,653)
(6,200)
(66,160)
(97,396)
Stock options and restricted stock – equity awards
2,690
22,521
Tax benefit/(benefit reversal) – stock-based
compensation expense
Stock-based compensation expense
Dividends declared – noncontrolling interest of subsidiary
preferred stock
Other
Balance, December 31, 2016
Adjustment to reflect adoption of ASU 2016-09
Beginning balance, as adjusted
Net income/(loss)
Other comprehensive income/(loss)
Comprehensive income/(loss)
Cash dividends declared:
Preferred stock ($6,200 per share)
Common stock ($.36 per share)
Common stock repurchased
Common stock issued for:
Stock options and restricted stock - equity awards
Equity issued for acquisitions
Stock-based compensation expense
Dividends declared – noncontrolling interest of
subsidiary preferred stock
Other
-
-
-
-
233,624
-
233,624
-
-
1,613
17,536
(11,465)
-
2,705,084
-
2,705,084
176,980
(17,625)
-
159,355
-
-
(297)
(6,200)
(85,174)
(5,554)
1,107
92,302
-
6,092
1,797,723
20,627
-
-
(11,465)
-
-
-
(1,423)
969
3,184
-
-
-
-
-
(31,225)
(6,200)
(56,961)
-
5,960
69,607
356
13,796
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
227,046
(33,462)
-
-
(4,783)
-
-
(92,613)
(6,200)
(66,160)
-
1,681
20,840
-
-
-
-
1,613
17,536
-
(43)
-
-
-
-
43
-
-
-
-
-
-
-
-
95,624
-
95,624
-
-
146,015
-
1,386,636
230
1,029,032
(230)
146,015
-
-
1,386,866
-
-
1,028,802
165,515
-
(247,654)
-
(247,654)
-
(17,625)
-
-
-
-
-
-
-
-
-
-
-
165,515
(17,625)
-
-
(185)
-
-
(5,369)
(6,200)
(85,174)
-
692
57,689
-
5,400
1,740,034
20,627
-
-
-
55
-
-
-
-
(55)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(11,434)
295,431
11,465
-
11,465
-
-
-
-
-
-
(11,465)
-
295,431
-
295,431
11,465
-
11,465
-
-
-
-
-
-
(11,465)
-
295,431
-
295,431
Balance, December 31, 2017
Adjustment to reflect adoption of ASU 2018-02
326,736
-
4,580,488
-
95,624
-
204,211
-
3,147,613
-
1,102,888
57,546
(265,279)
(57,546)
Ending balance, as adjusted
326,736
4,580,488
95,624
204,211
3,147,613
1,160,434
(322,825)
Certain previously reported amounts have been reclassified to agree with current presentation.
See accompanying notes to consolidated financial statements.
(a) Due to the nature of the preferred stock issued by FHN and its subsidiaries, all components of Other comprehensive income/(loss) have
been attributed solely to FHN as the controlling interest holder.
(b) 2016 and 2015 include $93.5 million and $28.4 million, respectfully, repurchased under share repurchase programs.
82
FIRST HORIZON NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Operating
Activities
activities:
Net income/(loss)
Adjustments to reconcile net income/(loss) to net cash provided/(used) by operating
Provision/(provision credit) for loan losses
Provision/(benefit) for deferred income taxes
Depreciation and amortization of premises and equipment
Amortization of intangible assets
Net other amortization and accretion
Net (increase)/decrease in derivatives
Fair value adjustment on interest-only strips
Repurchase and foreclosure provision/(provision credit)
(Gains)/losses and write-downs on OREO, net
Litigation and regulatory matters
Stock-based compensation expense
Equity securities (gains)/losses, net
Debt securities (gains)/losses, net
(Gain)/loss on extinguishment of debt
Net (gains)/losses on sale/disposal of fixed assets
Qualified pension plan contributions
Loans held-for-sale:
Purchases and originations
Gross proceeds from settlements and sales
(Gain)/loss due to fair value adjustments and other
Net (increase)/decrease in:
Trading securities
Fixed income receivables
Interest receivable
Other assets
Net increase/(decrease) in:
Trading liabilities
Fixed income payables
Interest payable
Other liabilities
Investing
Activities
Financing
Activities
Total adjustments
Net cash provided/(used) by operating activities
Available-for-sale securities:
Sales
Maturities
Purchases
Held-to-maturity securities:
Prepayments and maturities
Purchases
Premises and equipment:
Sales
Purchases
Proceeds from sales of OREO
Net (increase)/decrease in:
Loans (a)
Interests retained from securitizations classified as trading securities
Interest-bearing cash
Cash (paid)/received for acquisitions, net
Net cash provided/(used) by investing activities
Common stock:
Stock options exercised
Cash dividends paid
Repurchase of shares (b)
Cash dividends paid - preferred stock - noncontrolling interest
Cash dividends paid - Series A preferred stock
Term borrowings:
Issuance
Payments/maturities
Increases in restricted and secured term borrowings
Net increase/(decrease) in:
Deposits
Short-term borrowings
Net cash provided/(used) by financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental Total interest paid
Disclosures
Total taxes paid
Total taxes refunded
Transfer from loans to OREO
Year Ended December 31
2016
238,511 $
2017
176,980 $
2015
97,313
$
-
121,001
34,703
8,728
27,493
(26,662)
(1,021)
(20,000)
(61)
40,250
20,627
(109)
(483)
14,329
6,657
(5,100)
(2,001,708)
1,780,047
(6,624)
(381,057)
(11,282)
(34,352)
243,057
76,667
(68,495)
5,934
(16,877)
(194,338)
(17,358)
11,000
79,604
32,387
5,198
27,088
1,886
-
(31,400)
8
13,400
17,536
144
(1,485)
-
3,447
(165,000)
(165,887)
181,136
(155)
(18,050)
6,249
1,627
(7,191)
(4,171)
(2,070)
(4,535)
(36,546)
(55,780)
182,731
9,000
24,196
35,780
5,253
19,710
(6,617)
-
-
1,258
15,118
13,796
458
(1,836)
(5,793)
454
-
(9,731)
25,587
(913)
311,210
(21,172)
4,804
(78,824)
(28,295)
4,915
(9,124)
(39,153)
270,081
367,394
936,958
583,014
(1,558,990)
444,222
736,956
(1,239,912)
69,650
664,335
(1,066,194)
4,740
-
3,416
(53,046)
13,468
-
-
11,396
(62,554)
27,135
-
(10,000)
41,143
(39,947)
23,253
(808,399)
865
(121,434)
(336,634)
(1,336,042)
(1,931,026)
2,429
(457,198)
-
(2,468,552)
(1,216,419)
1,731
1,019,131
(5,087)
(518,404)
6,132
(79,904)
(5,554)
(11,434)
(6,200)
22,479
(63,504)
(97,396)
(11,434)
(6,200)
7,219
(53,947)
(32,648)
(11,559)
(6,200)
121,184
(147,413)
7,960
100
(267,527)
-
495,555
(1,026,708)
-
(197,158)
2,080,039
1,767,652
414,252
1,037,794
1,555,280
2,705,757
(816,324)
10,277
110,668
2,292,552
(40,342)
6,731
1,071,405
1,031,063
$ 1,452,046 $ 1,037,794 $ 1,031,063
90,722
$
14,990
33,909
16,728
92,456 $
11,609
3,950
10,317
54,417
8,285
6,624
140,373 $
Certain previously reported amounts have been reclassified to agree with current presentation.
See accompanying notes to consolidated financial statements.
(a) 2016 includes $537.4 million UPB of loans acquired from GE Capital.
(b) 2016 and 2015 include $93.5 million and $28.4 million, respectively, repurchased under share repurchase programs.
FIRST HORIZON NATIONAL CORPORATION
83
Notes to the Consolidated Financial Statements
Note 1 (cid:2) Summary of Significant Accounting Policies
Basis of Accounting. The consolidated financial statements of First Horizon National Corporation (“FHN”),
including its subsidiaries, have been prepared in conformity with accounting principles generally accepted in the
United States of America and follow general practices within the industries in which it operates. This
preparation requires management to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. These estimates and assumptions are based on information
available as of the date of the financial statements and could differ from actual results.
Principles of Consolidation and Basis of Presentation. The consolidated financial statements include the accounts
of FHN and other entities in which it has a controlling financial interest. Variable Interest Entities (“VIEs”) for
which FHN or a subsidiary has been determined to be the primary beneficiary are also consolidated. Affiliates
for which FHN is not considered the primary beneficiary and in which FHN does not have a controlling financial
interest are accounted for by the equity method. These investments are included in other assets, and FHN’s
proportionate share of income or loss is included in noninterest income. All significant intercompany
transactions and balances have been eliminated. For purposes of comparability, certain prior period amounts
have been reclassified to conform to current year presentation.
Business Combinations. FHN accounts for acquisitions meeting the definition of a business combination in
accordance with ASC 805, “Business Combinations,” which requires acquired assets and liabilities (other than
tax and certain benefit plan balances) to be recorded at fair value. Business combinations are included in the
financial statements from the respective dates of acquisition. Acquisition related costs are expensed as
incurred.
Revenue Recognition. FHN derives a significant portion of its revenues from fee-based services. Noninterest
income from transaction-based fees is generally recognized when the transactions are completed. Noninterest
income from service-based fees is generally recognized over the period in which FHN provides the service.
Deposit Transactions and Cash Management. Deposit transactions and cash management include fees for services
related to consumer and commercial deposit products (such as service charges on checking accounts), cash
management products and services such as electronic transaction processing (Automated Clearing House and
Electronic Data Interchange), account reconciliation services, cash vault services, lockbox processing, and
information reporting to large corporate clients.
Insurance Commissions. Insurance commissions are derived from the sale of insurance products, including acting
as an independent agent to provide life, long-term care, and disability insurance.
Trust Services and Investment Management. Trust services and investment management fees include investment
management, personal trust, employee benefits, and custodial trust services.
Brokerage, Management Fees and Commissions. Brokerage, management fees and commissions include fees for
portfolio management, trade commissions, and annuity and mutual fund sales.
Statements of Cash Flows. For purposes of these statements, cash and due from banks, federal funds sold, and
securities purchased under agreements to resell are considered cash and cash equivalents. Federal funds are
usually sold for one-day periods, and securities purchased under agreements to resell are short-term, highly
liquid investments.
Trading Activities. Securities purchased in connection with underwriting or dealer activities (long positions) are
carried at fair market value as trading securities. Gains and losses, both realized and unrealized, on these
securities are reflected in fixed income noninterest income. Trading liabilities include securities that FHN has
sold to other parties but does not own (short positions). FHN is obligated to purchase securities at a future date
to cover the short positions. Assets and liabilities for unsettled trades are recorded on the Consolidated
84
FIRST HORIZON NATIONAL CORPORATION
Note 1 (cid:2) Summary of Significant Accounting Policies (continued)
Statements of Condition as “Fixed income receivables” or “Fixed income payables.” Retained interests from
sales and securitizations of first lien mortgages are recognized at fair value as trading securities with gains and
losses, both realized and unrealized, recognized in other income on the Consolidated Statements of Income.
Cash receipts and payments are classified in investing activities on the Consolidated Statements of Cash Flows
based on the purpose for which such financial assets were retained.
Investment Securities. Investment securities are reviewed quarterly for possible other-than-temporary impairment
(“OTTI”). The review includes an analysis of the facts and circumstances of each individual investment such as
the degree of loss, the length of time the fair value has been below cost, the expectation for that security’s
performance, the creditworthiness of the issuer and FHN’s intent and ability to hold the security. Debt
securities that may be sold prior to maturity and equity securities are classified as securities available-for-sale
(“AFS”) and are carried at fair value. The unrealized gains and losses on securities available-for-sale, including
debt securities for which no credit impairment exists, are excluded from earnings and are reported, net of tax,
as a component of other comprehensive income within shareholders’ equity and the Statements of
Comprehensive Income. Debt securities which management has the intent and ability to hold to maturity
(“HTM”) are reported at amortized cost. Interest-only strips that are classified as securities AFS are valued at
elected fair value. See Note 24 - Fair Value of Assets and Liabilities for additional information.
Realized gains and losses for investment securities are determined by the specific identification method and
reported in noninterest income. Declines in value judged to be other-than-temporary based on FHN’s analysis of
the facts and circumstances related to an individual investment, including securities that FHN has the intent to
sell, are also determined by the specific identification method. For HTM debt securities, OTTI recognized is
typically credit-related and is reported in noninterest income. For impaired AFS debt securities that FHN does
not intend to sell and will not be required to sell prior to recovery but for which credit losses exist, the OTTI
recognized is separated between the total impairment related to credit losses which is reported in noninterest
income, and the impairment related to all other factors which is excluded from earnings and reported, net of
tax, as a component of other comprehensive income within shareholders’ equity and the Statements of
Comprehensive Income.
National banks chartered by the federal government are, by law, members of the Federal Reserve System. Each
member bank is required to own stock in its regional Federal Reserve Bank ("FRB"). Given this requirement, FRB
stock may not be sold, traded, or pledged as collateral for loans. Membership in the Federal Home Loan Bank
(“FHLB”) network requires ownership of capital stock. Member banks are entitled to borrow funds from the FHLB
and are required to pledge mortgage loans as collateral. Investments in the FHLB are non-transferable and,
generally, membership is maintained primarily to provide a source of liquidity as needed. Other equity investments
include mutual funds which are recognized at net asset value as well as various cost method investments that are
subject to impairment reviews when recovery of the recorded investment is considered uncertain.
Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase. FHN enters
into short-term securities purchased under agreements to resell transactions which are accounted for as
collateralized financings except where FHN does not have an agreement to sell the same or substantially the
same securities before maturity at a fixed or determinable price. All of FHN’s securities purchased under
agreements to resell are recognized as collateralized financings. Securities delivered under these transactions
are delivered to either the dealer custody account at the FRB or to the applicable counterparty. Securities sold
under agreements to repurchase are offered to cash management customers as an automated, collateralized
investment account. Securities sold under agreements to repurchase are also used by the consumer/commercial
bank to obtain favorable borrowing rates on its purchased funds. All of FHN’s securities sold under agreements
to repurchase are secured borrowings.
Collateral is valued daily and FHN may require counterparties to deposit additional securities or cash as
collateral, or FHN may return cash or securities previously pledged by counterparties, or FHN may be required
to post additional securities or cash as collateral, based on the contractual requirements for these transactions.
FHN’s fixed income business utilizes securities borrowing arrangements as part of its trading operations.
Securities borrowing transactions generally require FHN to deposit cash with the securities lender. The amount
FIRST HORIZON NATIONAL CORPORATION
85
Note 1 (cid:2) Summary of Significant Accounting Policies (continued)
of cash advanced is recorded within Securities purchased under agreements to resell in the Consolidated
Statements of Condition. These transactions are not considered purchases and the securities borrowed are not
recognized by FHN. FHN does not conduct securities lending transactions.
Loans Held-for-Sale. Loans originated or purchased in which management lacks the intent to hold are included
in loans held-for-sale in the Consolidated Statements of Condition. FHN has elected the fair value option on a
prospective basis for certain mortgage loans held-for-sale, which includes loans originated subsequent to 2007
and repurchased loans that are not governmentally insured. Such loans are carried at fair value, with changes in
the fair value recognized in the other income section of the Consolidated Statements of Income. For mortgage
loans originated for sale for which the fair value option is elected, loan origination fees are recorded by FHN
when earned and related direct loan origination costs are recognized when incurred. See Note 24 - Fair Value of
Assets and Liabilities for additional information. FHN accounts for all other loans held-for-sale at the lower of
cost or market value (“LOCOM”).
Loans. Generally, loans are stated at principal amounts outstanding, net of unearned income. Interest on loans
is recognized on an accrual basis at the applicable interest rate on the principal amount outstanding. Loan
origination fees and direct costs as well as premiums and discounts are amortized as level yield adjustments
over the respective loan terms. Unamortized net fees or costs are recognized upon early repayment of the loans
or charge-off. Loan commitment fees are generally deferred and amortized on a straight-line basis over the
commitment period. Due to the timing of the merger completion, the loan accounting policies of both FHN and
CBF are in the process of being reviewed in detail. Upon completion of such review, conforming adjustments or
financial statement reclassification may be determined.
Nonaccrual and Past Due Loans. Generally, loans are placed on nonaccrual status if it becomes evident that full
collection of principal and interest is at risk, impairment has been recognized as a partial charge-off of principal
balance due to insufficient collateral value and past due status, or on a case-by-case basis if FHN continues to
receive payments, but there are other borrower-specific issues.
• The accrual status policy for commercial troubled debt restructurings (“TDRs”) follows the same internal
policies and procedures as other commercial portfolio loans.
• Residential real estate secured loans discharged in bankruptcy that have not been reaffirmed by the
borrower (“discharged bankruptcies”) are placed on nonaccrual regardless of delinquency status and are
reported as TDRs.
• Current second lien residential real estate loans that are junior to first liens are placed on nonaccrual status
if the first lien is 90 or more days past due, is a bankruptcy, or is a troubled debt restructuring.
• Consumer real estate (HELOC and residential real estate installment loans), if not already on nonaccrual per
above situations, are placed on nonaccrual if the loan is 30 or more days delinquent at the time of
modification and is also determined to be a TDR.
• Government guaranteed/insured residential mortgage loans remain on accrual (even if the loan falls into one
of the above categories) because the collection of principal and interest is reasonably assured.
For commercial and consumer loans within each portfolio segment and class that have been placed on nonaccrual
status, accrued but uncollected interest is reversed and charged against interest income when the loan is placed
on nonaccrual status. Management may elect to continue the accrual of interest when the estimated net realizable
value of collateral is sufficient to recover the principal balance and accrued interest. Interest payments received on
nonaccrual loans are normally applied to outstanding principal first. Once all principal has been received, additional
interest payments are recognized on a cash basis as interest income.
Generally, commercial and consumer loans within each portfolio segment and class that have been placed on
nonaccrual status can be returned to accrual status if all principal and interest is current and FHN expects full
repayment of the remaining contractual principal and interest. This typically requires that a borrower make
86
FIRST HORIZON NATIONAL CORPORATION
Note 1 (cid:2) Summary of Significant Accounting Policies (continued)
payments in accordance with the contractual terms for a sustained period of time (generally for a minimum of six
months) before being returned to accrual status. For TDRs, FHN may also consider a borrower’s sustained
historical repayment performance for a reasonable time prior to the restructuring in assessing whether the borrower
can meet the restructured terms, as it may indicate whether the borrower is capable of servicing the level of debt
under the modified terms.
Residential real estate loans discharged through Chapter 7 bankruptcy and not reaffirmed by the borrower are not
returned to accrual status. For current second liens that have been placed on nonaccrual because the first lien is
90 or more days past due or is a TDR or bankruptcy, the second lien may be returned to accrual upon pay-off or
cure of the first lien.
Charge-offs. For all commercial and consumer loan portfolio segments, all losses of principal are charged to the
allowance for loan losses ("ALLL") in the period in which the loan is deemed to be uncollectible.
For consumer loans, the timing of a full or partial charge-off generally depends on the loan type and
delinquency status. Generally, for the consumer real estate and permanent mortgage portfolio segments, a loan
will be either partially or fully charged-off when it becomes 180 days past due. At this time, if the collateral
value does not support foreclosure, balances are fully charged-off and other avenues of recovery are pursued. If
the collateral value supports foreclosure, the loan is charged-down to net realizable value (collateral value less
estimated costs to sell) and is placed on nonaccrual status. For residential real estate loans discharged in
Chapter 7 bankruptcy and not reaffirmed by the borrower, the fair value of the collateral position is assessed at
the time FHN is made aware of the discharge and the loan is charged down to the net realizable value
(collateral value less estimated costs to sell). Within the credit card and other portfolio segment, credit cards
and installment loans secured by automobiles are normally charged-off upon reaching 180 days past due while
other non-real estate consumer loans are charged-off upon reaching 120 days past due.
Impaired Loans. Impaired loans include nonaccrual commercial loans greater than $1 million and modified
consumer and commercial loans that have been classified as a TDR and are individually measured for
impairment under the guidance of ASC 310. TDRs are always reported as such unless the TDR has exhibited
sustained performance, was reported as a TDR over a year-end, and the modified terms were market-based at
the time of modification.
Purchased Credit-Impaired Loans. ASC 310-30 “Accounting for Certain Loans or Debt Securities Acquired in a
Transfer,” provides guidance for acquired loans that have exhibited deterioration of credit quality between
origination and the time of acquisition and for which the timely collection of the interest and principal is not
reasonably assured (“PCI loans”). PCI loans are initially recorded at fair value which is estimated by discounting
expected cash flows at acquisition date. The expected cash flows include all contractually expected amounts
(including interest) and incorporate an estimate for future expected credit losses, pre-payment assumptions, and
yield requirement for a market participant, among other things. To the extent possible, certain PCI loans were
aggregated into pools with composite interest rate and cash flows expected to be collected for the pool.
Aggregation into loan pools is based upon common risk characteristics that include similar credit risk or risk
ratings, and one or more predominant risk characteristics. Each PCI pool is accounted for as a single unit.
Accretable yield is initially established at acquisition and is the excess of cash flows expected at acquisition
over the initial investment in the loan and is recognized in interest income over the remaining life of the loan,
or pool of loans. Nonaccretable difference is initially established at acquisition and is the difference between
the contractually required payments at acquisition and the cash flows expected to be collected at acquisition.
FHN estimates expected cash flows for PCI loans on a quarterly basis. Increases in expected cash flows from
the last measurement result in reversal of any nonaccretable difference (or allowance for loan losses to the
extent any has previously been recorded) with a prospective positive impact on interest income. Decreases to
the expected cash flows result in an increase in the allowance for loan losses through provision expense.
FHN does not report PCI loans as nonperforming loans due to the accretion of interest income. Additionally, PCI
loans that have been pooled and subsequently modified will not be reported as troubled debt restructurings
since the pool is the unit of measurement.
FIRST HORIZON NATIONAL CORPORATION
87
Note 1 (cid:2) Summary of Significant Accounting Policies (continued)
Allowance for Loan Losses. The ALLL is maintained at a level that management determines is sufficient to
absorb estimated probable incurred losses in the loan portfolio. The ALLL is increased by the provision for loan
losses and loan recoveries and is decreased by loan charge-offs. The ALLL is determined in accordance with
ASC 450-20-50 "Contingencies - Accruals for Loss Contingencies" and is composed of reserves for commercial
loans evaluated based on pools of credit graded loans and reserves for pools of smaller-balance homogeneous
consumer and commercial loans. 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.
Additionally, the ALLL includes specific reserves established in accordance with ASC 310-10-35 for loans
determined by management to be individually impaired as well as reserves associated with PCI loans.
Management uses analytical models to estimate probable incurred losses in the loan portfolio as of the balance
sheet date. The models, which are primarily driven by historical losses, are carefully reviewed to identify trends
that may not be captured in the historical loss factors used in the models. Management uses qualitative
adjustments for those items not yet captured in the models like current events, recent trends in the portfolio,
current underwriting guidelines, and local and macroeconomic trends, among other things.
The nature of the process by which FHN determines the appropriate ALLL requires the exercise of considerable
judgment. See Note 5 – Allowance for Loan Losses for a discussion of FHN’s ALLL methodology and a
description of the models utilized in the estimation process for the commercial and consumer loan portfolios.
Key components of the estimation process are as follows: (1) commercial loans determined by management to
be individually impaired loans are evaluated individually and specific reserves are determined based on the
difference between the outstanding loan amount and the estimated net realizable value of the collateral (if
collateral dependent), the present value of expected future cash flows or by observable market prices; (2)
individual commercial loans not considered to be individually impaired are segmented based on similar credit
risk characteristics and evaluated on a pool basis; (3) reserve rates for the commercial segment are calculated
based on historical net charge-offs and are subject to adjustment by management to reflect current events,
trends, and conditions (including economic considerations and trends); (4) management’s estimate of probable
incurred losses reflects the reserve rates applied against the balance of loans in the commercial segment of the
loan portfolio; (5) consumer loans are generally segmented based on loan type; (6) reserve amounts for each
consumer portfolio segment are calculated using analytical models based on delinquency trends and net loss
experience and are subject to adjustment by management to reflect current events, trends, and conditions
(including economic considerations and trends); and (7) the reserve amount for each consumer portfolio
segment reflects management’s estimate of probable incurred losses in the consumer segment of the loan
portfolio.
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.
Future adjustments to the ALLL may be necessary if economic or other conditions differ substantially from the
assumptions used in making the estimates or, if required by regulators, based upon information at the time of
their examinations or upon future regulatory guidance. Such adjustments to original estimates, as necessary, are
made in the period in which these factors and other relevant considerations indicate that loss levels vary from
previous estimates.
Premises and Equipment. Premises and equipment are carried at cost less accumulated depreciation and
amortization and include additions that materially extend the useful lives of existing premises and equipment.
All other maintenance and repair expenditures are expensed as incurred. Premises and equipment held-for-sale
are generally valued at appraised values which reference recent disposition values for similar property types but
also consider marketability discounts for vacant properties. The valuations of premises and equipment held-for-
sale are reduced by estimated costs to sell. Gains and losses on dispositions are reflected in noninterest income
and expense, respectively.
88
FIRST HORIZON NATIONAL CORPORATION
Note 1 (cid:2) Summary of Significant Accounting Policies (continued)
Depreciation and amortization are computed on the straight-line method over the estimated useful lives of the
assets and are recorded as noninterest expense. Leasehold improvements are amortized over the lesser of the
lease periods or the estimated useful lives using the straight-line method. Useful lives utilized in determining
depreciation for furniture, fixtures and equipment and for buildings are three to fifteen and seven to forty-five
years, respectively.
Other Real Estate Owned ("OREO"). Real estate acquired by foreclosure or other real estate-owned 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. At the time
acquired, and in conjunction with the transfer from loans to OREO, there is a charge-off against the ALLL if the
estimated fair value less costs to sell is less than the loan’s cost basis. Subsequent declines in fair value and
gains or losses on dispositions, if any, are charged to All other expense on the Consolidated Statements of
Income. Prior to January 1, 2015, properties acquired by foreclosure in compliance with HUD servicing
guidelines are included in “OREO” and are carried at the estimated amount of the underlying government
insurance or guarantee. On December 31, 2017, FHN had $3.8 million of these properties.
Required developmental costs associated with acquired property under construction are capitalized and included
in determining the estimated net realizable value of the property, which is reviewed periodically, and any write-
downs are charged against current earnings.
Intangible Assets. Intangible assets consist of “Other intangible assets” and “Goodwill.” Other intangible assets
represent customer lists and relationships, acquired contracts, covenants not to compete and premium on
purchased deposits, which are amortized over their estimated useful lives. Intangible assets related to acquired
deposit bases are primarily amortized over 10 years using an accelerated method. Management evaluates
whether events or circumstances have occurred that indicate the remaining useful life or carrying value of
amortizing intangibles should be revised. Goodwill represents the excess of cost over net assets of acquired
businesses less identifiable intangible assets. On an annual basis, FHN assesses goodwill for impairment.
Derivative Financial Instruments. FHN accounts for derivative financial instruments in accordance with ASC 815
which requires recognition of all derivative instruments on the balance sheet as either an asset or liability
measured at fair value through adjustments to either accumulated other comprehensive income within
shareholders’ equity or current earnings. Fair value is defined as the price that would be received to sell a
derivative asset or paid to transfer a derivative liability in an orderly transaction between market participants on
the transaction date. Fair value is determined using available market information and appropriate valuation
methodologies. FHN has elected to present its derivative assets and liabilities gross on the Consolidated
Statements of Condition. Amounts of collateral posted or received have not been netted with the related
derivatives unless the collateral amounts are considered legal settlements of the related derivative positions. See
Note 22 – Derivatives for discussion on netting of derivatives.
FHN prepares written hedge documentation, identifying the risk management objective and designating the
derivative instrument as a fair value hedge or cash flow hedge as applicable, or as a free-standing derivative
instrument entered into as an economic hedge or to meet customers’ needs. All transactions designated as
ASC 815 hedges must be assessed at inception and on an ongoing basis as to the effectiveness of the
derivative instrument in offsetting changes in fair value or cash flows of the hedged item. For a fair value
hedge, changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset
or liability attributable to the hedged risk are recognized currently in earnings. For a cash flow hedge, changes
in the fair value of the derivative instrument, to the extent that it is effective, are recorded in accumulated
other comprehensive income and subsequently reclassified to earnings as the hedged transaction impacts net
income. Any ineffective portion of a cash flow hedge is recognized currently in earnings. For free-standing
derivative instruments, changes in fair values are recognized currently in earnings. See Note 22 – Derivatives for
additional information.
Cash flows from derivative contracts are reported as operating activities on the Consolidated Statements of Cash
Flows.
FIRST HORIZON NATIONAL CORPORATION
89
Note 1 (cid:2) Summary of Significant Accounting Policies (continued)
Advertising and Public Relations. Advertising and public relations costs are generally expensed as incurred.
Income Taxes. FHN accounts for income taxes using the asset and liability method pursuant to ASC 740,
“Income Taxes,” which requires the recognition of deferred tax assets ("DTAs") and liabilities ("DTLs") for the
expected future tax consequences of events that have been included in the financial statements. Under this
method, FHN’s deferred tax assets and liabilities are determined based on differences between financial
statement carrying amounts and the corresponding tax basis of certain assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates
on DTAs and DTLs is recognized in income in the period that includes the enactment date.
Additionally, DTAs are subject to a “more likely than not” test to determine whether the full amount of the
DTAs should be recognized in the financial statements. FHN evaluates the likelihood of realization of the DTA
based on both positive and negative evidence available at the time, including (as appropriate) scheduled
reversals of DTLs, projected future taxable income, tax planning strategies, and recent financial performance. If
the “more likely than not” test is not met, a valuation allowance must be established against the DTA. In the
event FHN determines that DTAs are realizable in the future in excess of their net recorded amount, FHN would
make an adjustment to the valuation allowance, which would reduce the provision for income taxes.
FHN records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which
(1) it is determined whether it is more likely than not that the tax positions will be sustained on the basis of
the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not
recognition threshold, the largest amount of tax benefit that is more than 50 percent likely to be realized upon
ultimate settlement with the related tax authority is recognized. FHN’s ASC 740 policy is to recognize interest
and penalties related to unrecognized tax benefits as a component of income tax expense. Accrued interest and
penalties are included within the related tax asset/liability line in the consolidated balance sheet.
FHN and its eligible subsidiaries are included in a consolidated federal income tax return. FHN files separate
returns for subsidiaries that are not eligible to be included in a consolidated federal income tax return. Based
on the laws of the applicable state where it conducts business operations, FHN either files consolidated,
combined, or separate returns. The federal tax returns for Capital Bank Financial Corporation for 2010-2012 are
under examination by the IRS. With few exceptions, FHN returns are no longer subject to federal or state and
local tax examinations by tax authorities for years before 2013. FHN is currently under federal examination for
2013-2015 and is also under examination in several states.
Earnings per Share. Earnings per share is computed by dividing net income or loss available to common
shareholders by the weighted average number of common shares outstanding for each period. Diluted earnings
per share in net income periods is computed by dividing net income available to common shareholders by the
weighted average number of common shares outstanding adjusted to include the number of additional common
shares that would have been outstanding if the potential dilutive common shares resulting from performance
shares or units, restricted shares or units, and options granted under FHN’s equity compensation plans and
deferred compensation arrangements had been issued. FHN utilizes the treasury stock method in this
calculation. Diluted earnings per share does not reflect an adjustment for potentially dilutive shares in periods
in which a net loss available to common shareholders exists.
Equity Compensation. FHN accounts for its employee stock-based compensation plans using the grant date fair
value of an award to determine the expense to be recognized over the life of the award. Stock options are
valued using an option-pricing model, such as Black-Scholes. Restricted and performance shares and share
units are valued at the stock price on the grant date. Awards with post-vesting transfer restrictions are
discounted using models that reflect market considerations for illiquidity. For awards with service vesting
criteria, expense is recognized using the straight-line method over the requisite service period (generally the
vesting period). Forfeitures are recognized when they occur. For awards vesting based on a performance
measure, anticipated performance is projected to determine the number of awards expected to vest, and the
corresponding aggregate expense is adjusted to reflect the elapsed portion of the performance period. If a
performance period extends beyond the required service term, total expense is adjusted for changes in
estimated achievement through the end of the performance period. The fair value of equity awards with cash
payout requirements, as well as awards for which fair value cannot be estimated at grant date, is remeasured
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Note 1 (cid:2) Summary of Significant Accounting Policies (continued)
each reporting period through vesting date. Performance awards with pre-grant date achievement criteria are
expensed over the period from the start of the performance period through the end of the service vesting term.
Awards are amortized using the nonsubstantive vesting methodology which requires that expense associated with
awards having only service vesting criteria that continue vesting after retirement be recognized over a period
ending no later than an employee’s retirement eligibility date.
Repurchase and Foreclosure Provision. The repurchase and foreclosure provision is the charge to earnings
necessary to maintain the liability at a level that reflects management’s best estimate of losses associated with
the repurchase of loans previously transferred in whole loans sales or securitizations, or make whole requests as
of the balance sheet date. See Note 17 - Contingencies and Other Disclosures for discussion related to FHN’s
obligations to repurchase such loans.
Legal Costs. Generally, legal costs are expensed as incurred.
Contingency Accruals. Contingent liabilities arise in the ordinary course of business, including those related to
lawsuits, arbitration, mediation, and other forms of litigation. FHN establishes loss contingency liabilities for
matters when loss is both probable and reasonably estimable in accordance with ASC 450-20-50
“Contingencies - Accruals for Loss Contingencies”. If loss for a matter is probable and a range of possible loss
outcomes is the best estimate available, accounting guidance generally requires a liability to be established at
the low end of the range. Expected recoveries from insurance and indemnification arrangements are recognized
if they are considered equally as probable and reasonably estimable as the related loss contingency up to the
recognized amount of the estimated loss. Gain contingencies and expected recoveries from insurance and
indemnification arrangements in excess of the associated recorded estimated losses are recognized when
received. Recognized recoveries are recorded as offsets to the related expense in the Consolidated Statements of
Income. The favorable resolution of a gain contingency generally results in the recognition of other income in
the Consolidated Statements of Income. Contingencies assumed in business combinations are evaluated through
the end of the one-year post-closing measurement period. If the acquisition-date fair value of the contingency
can be determined during the measurement period, recognition occurs as part of the acquisition-date fair value
of the acquired business. If the acquisition-date fair value of the contingency cannot be determined, but loss is
considered probable as of the acquisition date and can be reasonably estimated within the measurement period,
then the estimated amount is recorded within acquisition accounting. If the requirements for inclusion of the
contingency as part of the acquisition are not met, subsequent recognition of the contingency is included in
earnings.
Summary of Accounting Changes. Effective January 1, 2017, FHN adopted the provisions of Accounting
Standards Update (“ASU”) 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which
makes several revisions to equity compensation accounting. Under the new guidance all excess tax benefits and
deficiencies that occur when an award vests, is exercised, or expires are recognized in income tax expense as
discrete period items. Previously, these transactions were typically recorded directly within equity. Consistent
with this change, excess tax benefits and deficiencies are no longer included within estimated proceeds when
performing the treasury stock method for calculation of diluted earnings per share. Excess tax benefits are also
recognized at the time an award is exercised or vests compared to the previous requirement to delay recognition
until the deduction reduces taxes payable. The presentation of excess tax benefits in the statement of cash
flows shifted to an operating activity from the prior classification as a financing activity.
ASU 2016-09 also provides an accounting policy election to recognize forfeitures of awards as they occur when
estimating stock-based compensation expense rather than the previous requirement to estimate forfeitures from
inception. FHN has elected to recognize forfeitures as they occur. Further, ASU 2016-09 permits employers to
use a net-settlement feature to withhold taxes on equity compensation awards up to the maximum statutory tax
rate without affecting the equity classification of the award. Under previous guidance, withholding of equity
awards in excess of the minimum statutory requirement resulted in liability classification for the entire award.
The related cash remittance by the employer for employee taxes is treated as a financing activity in the
statement of cash flows. Transition to the new guidance was accomplished through a combination of
retrospective (cash flows), cumulative-effect adjustment to equity (forfeitures) and prospective methodologies
(tax windfalls and shortfalls). The effects of adopting ASU 2016-09 were not significant.
FIRST HORIZON NATIONAL CORPORATION
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Note 1 (cid:2) Summary of Significant Accounting Policies (continued)
Effective January 1, 2017, FHN early adopted the provisions of ASU 2016-16, “Intra-Entity Transfers of Assets
Other Than Inventory” which requires recognition of the income tax consequences of an intra-entity transfer of
an asset other than inventory when the transfer occurs. Therefore, ASU 2016-16 reverses the previous
requirement to delay recognition of the tax consequences of these transactions until the associated assets are
sold to an outside party. Adoption of ASU 2016-16 did not have a significant effect on FHN.
In December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No.
118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” which provides guidance on the
timing of recognition for the effects of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). Under SAB No.
118, companies are provided a measurement period of up to one year from enactment of the Tax Act to
evaluate and record its effects. Companies are expected to make final adjustments when the required
information is available. Companies are required to record provisional amounts when sufficient information to
make a reasonable estimate is available. SAB No. 118 contains several disclosure requirements regarding a
company’s assessment and recording the effects of the Tax Act, including the amounts recorded and the status
of estimating potential additional effects. SAB No. 118 was effective immediately upon issuance and FHN has
included the required disclosures in Note 15 - Income Taxes.
Issued in February 2018, ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income,” provides an election for reclassification from accumulated other comprehensive income
to retained earnings for stranded tax effects solely resulting from the Tax Act. The stranded tax effects were
created because current accounting requirements indicate that all changes in deferred tax assets and liabilities
due to changes in enacted tax rates be recorded through tax provision, even when the deferred tax asset or
liability was originally created with an offset to accumulated comprehensive income. For FHN, this includes net
deferred tax assets related to net unrealized losses on AFS securities, net actuarial losses for pension and
postretirement plans, and the effective portion of cash flow hedging activities. The provisions of ASU 2018-02
do not apply to past or future changes in tax rates. Adoption of ASU 2018-02 is required for fiscal years
beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted
in any interim period for which financial statements have not yet been issued. FHN elected early adoption as of
December 31, 2017 and made a reclassification of $57.5 million from accumulated other comprehensive
income to retained earnings.
Accounting Changes Issued but Not Currently Effective
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09 does not
change revenue recognition for financial assets. The core principle of ASU 2014-09 is that an entity should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. This is
accomplished through a five-step recognition framework involving 1) the identification of contracts with customers,
2) identification of performance obligations, 3) determination of the transaction price, 4) allocation of the
transaction price to the performance obligations and 5) recognition of revenue as performance obligations are
satisfied. Additionally, qualitative and quantitative information is required for disclosure regarding the nature,
amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In February
2016, the FASB issued ASU 2016-08, “Principal versus Agent Considerations,” which provides additional guidance
on whether an entity should recognize revenue on a gross or net basis, based on which party controls the
specified good or service before that good or service is transferred to a customer. In April 2016, the FASB issued
ASU 2016-10, “Identifying Performance Obligations and Licensing,” which clarifies the original guidance included
in ASU 2014-09 for identification of the goods or services provided to customers and enhances the implementation
guidance for licensing arrangements. ASU 2016-12, “Narrow-Scope Improvements and Practical Expedients,” was
issued in May 2016 to provide additional guidance for the implementation and application of ASU 2014-09.
“Technical Corrections and Improvements” ASU 2016-20 was issued in December 2016 and provides further
guidance on certain issues. These ASUs are effective in annual reporting periods beginning after December 15,
2017, including interim periods within that reporting period. Transition to the new requirements may be made by
retroactively revising prior financial statements (with certain practical expedients permitted) or by a cumulative
effect through retained earnings. If the latter option is selected, additional disclosures are required for
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Note 1 (cid:2) Summary of Significant Accounting Policies (continued)
comparability. FHN has elected to adopt the provisions of the revenue recognition standards through the
cumulative effect alternative. Additionally, FHN evaluated the effects of the revenue standards on its recognition
and presentation practices and determined that there are no significant effects on the timing of recognition, which
results in no cumulative effect adjustment being required. FHN determined that in situations where its broker-
dealer operations serve as the lead underwriter, the associated revenues and expenses will be presented gross, on
a prospective basis starting in first quarter 2018. The effect on 2018 revenues and expenses will not be significant.
In February 2017, the FASB issued ASU 2017-05, “Clarifying the Scope of Asset Derecognition Guidance and
Accounting for Partial Sales of Nonfinancial Assets” which clarifies the meaning and application of the term "in
substance nonfinancial asset" in transactions involving both financial and nonfinancial assets. If substantially all of
the fair value of the assets that are promised to the counterparty in a contract are concentrated in nonfinancial
assets, then all of the financial assets promised to the counterparty are in substance nonfinancial assets within the
scope of revenue recognition guidance for nonfinancial assets. ASU 2017-05 also clarifies that an entity should
identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counterparty and
derecognize each asset when a counterparty obtains control of it with the amount of revenue recognized based on
the allocation guidance provided in ASU 2014-09. ASU 2017-05 also requires an entity to derecognize a distinct
nonfinancial asset or distinct in substance nonfinancial asset in a partial sale transaction when it 1) does not have
(or ceases to have) a controlling financial interest in the legal entity that holds the asset in accordance with Topic
810 and 2) transfers control of the asset in accordance with the provisions of ASU 2014-09. Once an entity
transfers control of a distinct nonfinancial asset or distinct in substance nonfinancial asset, it is required to
measure any noncontrolling interest it receives (or retains) at fair value. ASU 2017-05 has the same effective date
and transition provisions as ASU 2014-09 and the two standards must be adopted simultaneously although the
transition methods may be different. FHN has elected to adopt ASU 2017-05 through the cumulative effect
approach. FHN has determined that there are no significant effects on the timing of revenue recognition, which
results in no cumulative effect adjustment being required.
In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial
Liabilities.” ASU 2016-01 makes several revisions to the accounting, presentation and disclosure for financial
instruments. Equity investments (except those accounted for under the equity method, those that result in
consolidation of the investee, and those held by entities subject to specialized industry accounting which already
apply fair value through earnings) are required to be measured at fair value with changes in fair value recognized
in net income. This excludes FRB and FHLB stock holdings which are specifically exempted from the provisions of
ASU 2016-01. An entity may elect to measure equity investments that do not have readily determinable market
values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly
transactions for the identical or similar instruments from the same issuer. ASU 2016-01 also requires a qualitative
impairment review for equity investments without readily determinable fair values, with measurement at fair value
required if impairment is determined to exist. For liabilities for which fair value has been elected, ASU 2016-01
revises current accounting to record the portion of fair value changes resulting from instrument-specific credit risk
within other comprehensive income rather than earnings. FHN has not elected fair value accounting for any
existing financial liabilities. Additionally, ASU 2016-01 clarifies that the need for a valuation allowance on a
deferred tax asset related to available-for-sale securities should be assessed in combination with all other deferred
tax assets rather than being assessed in isolation. ASU 2016-01 also makes several changes to existing fair value
presentation and disclosure requirements, including a provision that all disclosures must use an exit price concept
in the determination of fair value. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal years. Transition is through a cumulative effect adjustment to retained
earnings for equity investments with readily determinable fair values. Equity investments without readily
determinable fair values, for which the accounting election is made, will have any initial fair value marks recorded
through earnings prospectively after adoption.
Upon adoption, FHN reclassified all equity investments out of available-for-sale securities, leaving only debt
securities within this classification. FHN evaluated the nature of its current equity investments and determined that
substantially all qualify for the election available to assets without readily determinable fair values, including its
holdings of Visa Class B shares. Accordingly, FHN has applied this election and any future fair value marks for
these investments will be recognized through earnings on a prospective basis subsequent to adoption. The
requirements of ASU 2016-01 related to assessment of deferred tax assets and disclosure of the fair value of
FIRST HORIZON NATIONAL CORPORATION
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Note 1 (cid:2) Summary of Significant Accounting Policies (continued)
financial instruments did not have a significant effect on FHN because its current accounting and disclosure
practices conform to the requirements of ASU 2016-01.
In February 2016, the FASB issued ASU 2016-02, “Leases,” which requires a lessee to recognize in its statement
of condition a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to
use the underlying asset for the lease term. ASU 2016-02 leaves lessor accounting largely unchanged from prior
standards. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy
election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this
election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. All
other leases must be classified as financing or operating leases which depends on the relationship of the lessee’s
rights to the economic value of the leased asset. For finance leases, interest on the lease liability is recognized
separately from amortization of the right-of-use asset in earnings, resulting in higher expense in the earlier portion
of the lease term. For operating leases, a single lease cost is calculated so that the cost of the lease is allocated
over the lease term on a generally straight-line basis.
In transition to ASU 2016-02, lessees and lessors are required to recognize and measure leases at the beginning
of the earliest period presented using a modified retrospective approach. The modified retrospective approach
includes a number of optional practical expedients that entities may elect to apply, which would result in
continuing to account for leases that commence before the effective date in accordance with previous
requirements (unless the lease is modified) except that lessees are required to recognize a right-of-use asset and a
lease liability for all operating leases at each reporting date based on the present value of the remaining minimum
rental payments that were tracked and disclosed under previous requirements. ASU 2016-02 also requires
expanded qualitative and quantitative disclosures to assess the amount, timing, and uncertainty of cash flows
arising from lease arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. FHN is evaluating the impact of ASU 2016-02 on its current
accounting and disclosure practices. An alternative cumulative effect transition methodology has been proposed,
but not yet issued, which FHN anticipates that it would elect if available.
In March 2016, the FASB issued ASU 2016-04, “Recognition of Breakage of Certain Prepaid Stored-Value
Products,” which indicates that liabilities related to the sale of prepaid stored-value products are considered
financial liabilities and should have a breakage estimate applied for estimated unused funds. ASU 2016-04 does
not apply to stored-value products that can only be redeemed for cash, are subject to escheatment or are linked to
a segregated bank account. ASU 2016-04 is effective for fiscal years beginning after December 15, 2017, and
interim periods within those fiscal years. The adoption of ASU 2016-04 did not have a significant effect on FHN’s
current accounting and disclosure practices.
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” which
revises the measurement and recognition of credit losses for assets measured at amortized cost (e.g., held-to-
maturity (“HTM”) loans and debt securities) and available-for-sale (“AFS”) debt securities. Under ASU 2016-13, for
assets measured at amortized cost, the current expected credit loss (“CECL”) is measured as the difference
between amortized cost and the net amount expected to be collected. This represents a departure from existing
GAAP as the “incurred loss” methodology for recognizing credit losses delays recognition until it is probable a loss
has been incurred. The measurement of current expected credit losses is based on relevant information about past
events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the
collectability of the reported amount. Additionally, current disclosures of credit quality indicators in relation to the
amortized cost of financing receivables will be further disaggregated by year of origination. ASU 2016-13 leaves the
methodology for measuring credit losses on AFS debt securities largely unchanged, with the maximum credit loss
representing the difference between amortized cost and fair value. However, such credit losses will be recognized
through an allowance for credit losses, which permits recovery of previously recognized credit losses if
circumstances change.
ASU 2016-13 also revises the recognition of credit losses for purchased financial assets with a more-than
insignificant amount of credit deterioration since origination (“PCD assets”). For PCD assets, the initial allowance
for credit losses is added to the purchase price. Only subsequent changes in the allowance for credit losses are
recorded as a credit loss expense for PCD assets. Interest income for PCD assets will be recognized based on the
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FIRST HORIZON NATIONAL CORPORATION
Note 1 (cid:2) Summary of Significant Accounting Policies (continued)
effective interest rate, excluding the discount embedded in the purchase price that is attributable to the acquirer’s
assessment of credit losses at acquisition. Currently, credit losses for purchased credit-impaired assets are
included in the initial basis of the assets with subsequent declines in credit resulting in expense while subsequent
improvements in credit are reflected as an increase in the future yield from the assets.
The provisions of ASU 2016-13 will be generally adopted through a cumulative-effect adjustment to retained
earnings as of the beginning of the first reporting period in the year of adoption. Prospective implementation is
required for debt securities for which an other-than-temporary-impairment (“OTTI”) had been previously
recognized. Amounts previously recognized in accumulated other comprehensive income (“AOCI”) as of the date of
adoption that relate to improvements in cash flows expected to be collected will continue to be accreted into
income over the remaining life of the asset. Recoveries of amounts previously written off relating to improvements
in cash flows after the date of adoption will be recorded in earnings when received. A prospective transition
approach will be used for existing PCD assets where, upon adoption, the amortized cost basis will be adjusted to
reflect the addition of the allowance for credit losses. Thus, an entity will not be required to reassess its purchased
financial assets that exist as of the date of adoption to determine whether they would have met at acquisition the
new criteria of more-than-insignificant credit deterioration since origination. An entity will accrete the remaining
noncredit discount (based on the revised amortized cost basis) into interest income at the effective interest rate at
the adoption date.
ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within
those fiscal years. Early adoption is permitted in fiscal years beginning after December 15, 2018. FHN continues to
evaluate the impact of ASU 2016-13. FHN has met with industry experts, initiated training for key employees
associated with the new standard, and defined an initial approach that it is currently testing. Once testing is
completed, FHN will begin to develop the formal models and processes that will be required to implement the new
standard.
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments,”
which clarifies multiple cash flow presentation issues including providing guidance as to classification on the cash
flow statement for certain cash receipts and cash payments where diversity in practice exists. ASU 2016-15 is
effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.
The provisions of ASU 2016-15 will be applied retroactively and will result in proceeds from bank-owned life
insurance (“BOLI”) being classified as an investing activity rather than their prior classification as an operating
activity.
In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net
Periodic Postretirement Benefit Cost,” which requires the disaggregation of the service cost component from the
other components of net benefit cost for pension and postretirement plans. Service cost must be included in the
same income statement line item as other compensation-related expenses. All other components of net benefit cost
are required to be presented in the income statement separately from the service cost component, with disclosure
of the line items where these amounts are recorded. The presentation requirements of ASU 2017-07 must be
applied retrospectively and adoption is required for annual periods beginning after December 15, 2017, including
interim periods within those annual periods. FHN’s disclosures for pension and postretirement costs provide details
of the service cost and all other components for expenses recognized for its applicable benefit plans. These
amounts are currently included in Employee compensation, incentives, and benefits expense in the Consolidated
Statements of Income. Upon adoption of ASU 2017-07 FHN will reclassify the expense components other than
service cost into All other expense and revise its disclosures accordingly. The amounts to be reclassified are
presented in Note 11 – Pension, Savings, and Other Employee Benefits in FHN’s Quarterly Report on Form 10-Q
for the quarter ended September 30, 2017 and in Note 18-Pension, Savings, and Other Employee Benefits in in
these financial statements.
In March 2017, the FASB issued ASU 2017-08, “Premium Amortization on Purchased Callable Debt Securities,”
which shortens the amortization period for securities that have explicit, noncontingent call features that are callable
at fixed prices and on preset dates. In contrast to the current requirement for premium amortization to extend to
the contractual maturity date, ASU 2017-08 requires the premium to be amortized to the earliest call date. ASU
2017-08 does not change the amortization of discounts, which will continue to be amortized to maturity. The new
FIRST HORIZON NATIONAL CORPORATION
95
Note 1 (cid:2) Summary of Significant Accounting Policies (continued)
guidance does not apply to either 1) debt securities where the prepayment date is not preset or the price is not
known in advance or 2) debt securities that qualify for amortization based on estimated prepayment rates. ASU
2017-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15,
2018 with early adoption permitted. Transition is accomplished through a cumulative-effect adjustment directly to
retained earnings as of the beginning of the year of adoption. While there is no effect for its current investments,
FHN has elected to early adopt the provisions of ASU 2017-08 in first quarter 2018.
In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities,”
which revises the financial reporting for hedging relationships through changes to both the designation and
measurement requirements for qualifying hedge relationships and the presentation of hedge results. ASU 2017-12
expands permissible risk component hedging strategies, including the designation of a contractually specified interest
rate (e.g., a bank’s prime rate) in hedges of cash flows from variable rate financial instruments. Additionally, ASU
2017-12 makes significant revisions to fair value hedging activities, including the ability to measure the fair value
changes for a hedged item solely for changes in the benchmark interest rate, permitting partial-term hedges, limiting
consideration of prepayment risk for hedged debt instruments solely to the effects of changes in the benchmark
interest rate and allowing for certain hedging strategies to be applied to closed portfolios of prepayable debt
instruments. ASU 2017-12 also provides elections for the exclusion of certain portions of a hedging instrument’s
change in fair value from the assessment of hedge effectiveness. If elected, the fair value changes of these excluded
components may be recognized immediately or recorded into other comprehensive income with recycling into
earnings using a rational and systematic methodology over the life of the hedging instrument.
Under ASU 2017-12 some of the documentation requirements for hedge accounting relationships are relaxed, but
the highly effective threshold has been retained. Hedge designation documentation and a prospective qualitative
assessment are still required at hedge inception, but the initial quantitative analysis may be delayed until the end
of the quarter the hedge is commenced. If certain criteria are met, an election can be made to perform future
effectiveness assessments using a purely qualitative methodology. ASU 2017-12 also revises the income statement
presentation requirements for hedging activities. For fair value hedges, the entire change in the fair value of the
hedging instrument included in the assessment of effectiveness is recorded to the same income statement line
item used to present the earnings effect of the hedged item. For cash flow hedges, the entire fair value change of
the hedging instrument that is included in the assessment of hedge effectiveness is initially recorded in other
comprehensive income and later recycled into earnings as the hedged transaction(s) affect net income with the
income statement effects recorded in the same financial statement line item used to present the earnings effect of
the hedged item.
ASU 2017-12 also makes revisions to the current disclosure requirements for hedging activities to reflect the
presentation of hedging results consistent with the changes to income statement classification and to improve the
disclosure of the hedging results on the balance sheet. ASU 2017-12 is effective for fiscal years beginning after
December 15, 2018 with early adoption permitted in any period after issuance. Adoption for all existing hedging
relationships is performed through a cumulative effect adjustment to the applicable balance sheet accounts with an
offset to retained earnings as of the beginning of the fiscal year.
FHN early adopted the provisions of ASU 2017-12 in the first quarter of 2018. Prospectively, FHN will record
components of hedging results for its fair value and cash flow hedges previously recognized in other expense
within either interest income or interest expense. Additionally, FHN made cumulative effect adjustments to the
hedged items, accumulated other comprehensive income and retained earnings as of the beginning of 2018. The
magnitude of the cumulative effect adjustments and prospective effects are insignificant for FHN’s existing hedge
relationships.
Note 2 (cid:2) Acquisitions and Divestitures
On November 30, 2017, FHN completed its acquisition of Capital Bank Financial Corporation (“CBF”) and its
subsidiaries, including Capital Bank Corporation for an aggregate of 92,043,171 shares of FHN common stock and
$423.6 million in cash in a transaction valued at $2.2 billion. CBF operated 178 branches in North and South
Carolina, Tennessee, Florida and Virginia at the time of closing.
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FIRST HORIZON NATIONAL CORPORATION
Note 2 (cid:2) Acquisitions and Divestitures (continued)
The following schedule details acquired assets and liabilities and consideration paid, as well as adjustments to
record the assets and liabilities at their estimated fair values as of November 30, 2017:
(Dollars in thousands)
Assets:
Cash and cash equivalents
Trading securities
Loans held-for-sale
Securities available-for-sale
Securities held-to-maturity
Loans
Allowance for loan losses
CBF Goodwill
Other intangible assets
Premises and equipment
OREO
Other assets
Total assets acquired
Liabilities:
Deposits
Securities sold under agreements to repurchase
Other short-term borrowings
Term borrowings
Other liabilities
Total liabilities assumed
Net assets acquired
Consideration paid:
Equity
Cash
Total consideration paid
Goodwill
Capital Bank Financial Corporation
Purchase Accounting/
Fair Value
Adjustments
(unaudited)
As
Acquired
(unaudited)
As recorded
by FHN
$
205,999
4,758
-
1,017,867
177,549
7,596,049
(45,711)
231,292
24,498
196,298
43,077
617,232
$
-
(4,758)(a)
$
134,003
175,526
(177,549)
(320,372)
45,711
(231,292)
119,302
37,054
(9,149)
41,320(b)
205,999
-
134,003
1,193,393
-
7,275,677
-
-
143,800
233,352
33,928
658,552
$10,068,908
$(190,204)
$ 9,878,704
$ 8,141,593
26,664
390,391
119,486
59,995
8,738,129
$
(849)
-
-
67,683
4,291
71,125
$ 1,330,779
$(261,329)
$ 8,140,744
26,664
390,391
187,169
64,286
8,809,254
1,069,450
(1,792,759)
(423,592)
(2,216,351)
$ 1,146,901
(a) Amount represents a conformity adjustment to align with FHN presentation.
(b) Amount primarily relates to a net deferred tax asset recorded for the effects of the purchase accounting adjustments.
Due to the timing of merger completion in relation to year end, the fact that back office functions (including loan
and deposit processing) still have not been integrated, the evaluation of post-merger activity, and the extended
information gathering and management review processes required to properly record acquired assets and liabilities,
FHN considers its valuations of CBF’s loans, loans held-for-sale, premises and equipment, OREO, other assets, tax
receivables and payables, core deposit intangibles, other potential intangibles, time deposits, acquired debt, lease
intangibles, other liabilities and acquired contingencies to be provisional as management continues to identify and
assess information regarding the nature of these assets and liabilities and reviews the associated valuation
assumptions and methodologies. Accordingly, the amounts recorded for current and deferred tax assets and
liabilities are also considered provisional as FHN continues to evaluate the nature and extent of permanent and
temporary (timing) differences between the book and tax bases of the acquired assets and liabilities assumed.
Additionally, the accounting policies of both FHN and CBF are in the process of being reviewed in detail. Upon
completion of such review, conforming adjustments or financial statement reclassification may be determined. See
Note 17 – Contingencies and Other Disclosures for additional information related to acquired contingencies.
FIRST HORIZON NATIONAL CORPORATION
97
Note 2 (cid:2) Acquisitions and Divestitures (continued)
In relation to the acquisition, FHN has recorded preliminary goodwill of $1.1 billion, representing the excess of
acquisition consideration over the estimated fair value of net assets acquired. All goodwill has been attributed to
FHN’s Regional Banking segment (refer to Note 7 – Intangible Assets for additional information). This goodwill is
the result of 1) the addition of an experienced workforce, 2) expected synergies to be realized within overlapping
banking markets, 3) operational efficiencies to be obtained through integration of back office functions and 4)
proportionately lower net operating costs from a larger company scale. $17.0 million of goodwill is expected to be
deductible for tax purposes as a result of tax bases carryover resulting from prior CBF acquisitions. FHN’s
operating results for 2017 include the operating results of the assets and liabilities acquired from CBF subsequent
to the acquisition on November 30, 2017.
Following is a description of the methods used to determine the fair values of significant assets and liabilities
presented above.
Cash and cash equivalents: The carrying amount of these assets is a reasonable estimate of fair value based on
the short-term nature of these assets.
Securities available-for-sale: Fair values for securities are based on quoted prices where available. If quoted
market prices are not available, fair value estimates are based on observable inputs obtained from market
transactions in similar securities. Securities held-to-maturity were reclassified to securities available-for-sale
based on FHN’s intent at closing.
Loans and loans held-for-sale: Fair values for loans were based on a discounted cash flow methodology that
considered factors including the type of loan and related collateral, classification status, fixed or variable
interest rate, term of loan, amortization status and current discount rates. Loans were aggregated according to
similar characteristics when applying various valuation techniques. The discount rate does not include a factor
for credit losses as that has been included as a reduction to the estimated cash flows. Loans held-for-sale were
classified according to FHN’s intent at closing.
Intangible assets: Core deposit intangible ("CDI") represents the value of the relationships with deposit
customers. The fair value was based on a discounted cash flow methodology that considered expected customer
attrition rates, net maintenance cost of the deposit base, alternate costs of funds, and the interest costs
associated with customer deposits. The CDI is being amortized over 10 years using an accelerated methodology
based upon the period over which estimated economic benefits are estimated to be received. Lease intangibles
are valued using a discounted cash flow methodology which compares the current contractual rental payments
to estimated current market rents for the property.
Premises and Equipment: Land and buildings held-for-use are valued at appraised values, which reflect
considerations of recent disposition values for similar property types with adjustments for characteristics of
individual properties. Locations held-for-sale are valued at appraised values which also reference recent disposition
values for similar property types but also considers marketability discounts for vacant properties. The valuations of
locations held-for-sale are reduced by estimated costs to sell. Other fixed assets are valued using a discounted
cash flow methodology which reflects estimates of the future value of the assets to a hypothetical buyer.
OREO: OREO properties are valued at estimated fair value less estimated costs to sell the real estate. Estimated
fair value is determined using appraised values which includes consideration of recent disposition values for
similar property types with adjustments for characteristics of individual properties.
Deposits: The fair values used for the demand and savings deposits by definition equal the amount payable on
demand at the acquisition date. The fair values for time deposits are estimated using a discounted cash flow
calculation using the remaining duration of the accounts and reflects the difference in interest rates currently
being offered to the contractual interest rates on such time deposits.
Securities sold under agreements to repurchase and Other short-term borrowings: The carrying amount of these
liabilities is a reasonable estimate of fair value based on the short-term nature of these liabilities.
98
FIRST HORIZON NATIONAL CORPORATION
Note 2 (cid:2) Acquisitions and Divestitures (continued)
Term borrowings: The fair values of long-term debt instruments are estimated based on quoted market prices for
the instrument if available, or for similar instruments if not available, or by using discounted cash flow analysis,
based on estimated current borrowing rates for similar types of instruments and considers whether the debt is
currently callable. Estimated discount rates are determined from the perspective of the post-merger combined
entity rather than the acquiree and/or original issuers.
The following table presents financial information regarding the former CBF operations included in FHN’s
Consolidated Statements of Income from the date of acquisition (November 30, 2017) through December 31,
2017. Additionally, the table presents unaudited proforma information as if the acquisition of CBF had occurred
on January 1, 2016:
(Dollars in thousands)
Net interest income
Noninterest income
Pre-tax income
Net income available to common shareholders (a)
Actual from acquisition
date through
December 31, 2017
Unaudited Pro Forma for
Year Ended December 31
2017
2016
$31,253
6,192
16,534
NM
$1,165,006
563,581
476,911
274,416
$1,033,218
638,493
458,667
293,981
(a) Net income available to common shareholders is not meaningful for actual CBF results from the acquisition date through December 31,
2017 because of the effect of tax reform.
The pro forma financial information and explanatory notes have been prepared to illustrate the effects of the merger
between FHN and CBF under the acquisition method of accounting. The pro forma financial information is presented
for illustrative purposes only and does not necessarily indicate the financial results of the combined companies had
the companies actually been combined at the beginning of each period presented, nor does it necessarily indicate
the results of operations in future periods or the future financial position of the combined entities. Cost savings and
other business synergies related to the acquisition are not reflected in the pro forma amounts.
This unaudited pro forma information combines the historical consolidated results of operations of FHN and CBF
for the periods presented and gives effect to the following nonrecurring adjustments:
Fair value adjustments: Pro forma adjust to net interest income of $34.5 million and $46.5 million for the
years ended December 31, 2017 and 2016, respectively, to record estimated amortization of premiums and
accretion of discounts on acquired loans, securities, deposits, and term borrowings.
CBF accretion/amortization: Pro forma adjustment to net interest income of $24.4 million and $25.9 million for
the years ended December 31, 2017 and 2016, respectively, to eliminate CBF amortization of premiums and
accretion of discounts and previously acquired loans, securities, and deposits.
Amortization of acquired intangibles: Pro forma adjustment to noninterest expense of $15.8 million and
$18.0 million for the years ended December 31, 2017 and 2016, respectively, to record estimated
amortization on acquired CDI and other lease intangibles.
Other adjustments: Pro forma results also include adjustments related to the removal of CBF’s intangible
amortization expense, amortization of previously acquired lease intangibles, and FHN’s merger-related costs.
Also includes adjustments to depreciation expense to record estimated fair value marks for CBF tangible assets,
as well as income-tax effects of pro forma adjustments.
FHN incurred $1.0 million of costs associated with the equity issued to CBF shareholders. These costs have
been netted against the balance of Capital surplus recognized for the equity portion of the purchase price. All
expenses related to the merger and integration with CBF are recorded in FHN’s Corporate segment. Integration
activities are expected to be substantially complete within 2018.
FIRST HORIZON NATIONAL CORPORATION
99
Note 2 (cid:2) Acquisitions and Divestitures (continued)
Total CBF merger and integration expenses recognized in 2017 are presented in the table below:
(Dollars in thousands)
Professional fees (a)
Employee compensation, incentives and benefits (b)
Contract employment and outsourcing (c)
Miscellaneous expense (d)
All other expense (e)
Total
$28,151
17,077
1,270
1,291
8,959
$56,748
(a) Primarily comprised of fees for investment bankers, legal, accounting, and merger consultants.
(b) Primarily comprised of fees for change in control, severance, and retention.
(c) Primarily relates to fees for temporary assistance for merger and integration activities.
(d) Consists of fees for operations services, travel and entertainment, communications and courier, advertising and public relations, computer
software, equipment rentals, deprecation, and maintenance, supplies, and occupancy.
(e) Primarily relates to asset impairments related to the integration and other miscellaneous expenses.
On April 3, 2017, FTN Financial acquired substantially all of the assets and assumed substantially all of the
liabilities of Coastal Securities, Inc. (“Coastal”), a national leader in the trading, securitization, and analysis of Small
Business Administration (“SBA”) loans, for approximately $131 million in cash. Coastal, which was based in
Houston, TX, also traded United States Department of Agriculture (“USDA”) loans and fixed income products and
provided municipal underwriting and advisory services to its clients. Coastal’s government-guaranteed loan
products, combined with FTN Financial’s existing SBA trading activities, have established an additional major
product sector for FTN Financial.
The following schedule details acquired assets and liabilities and consideration paid, as well as adjustments to
record the assets and liabilities at their estimated fair values as of April 3, 2017:
(Dollars in thousands)
Assets:
Cash and cash equivalents
Interest-bearing cash
Trading securities
Loans held-for-sale
Investment securities
Other intangible assets, net
Premises and equipment, net
Other assets
Total assets acquired
Liabilities:
Securities sold under agreements to repurchase
Other short-term borrowings
Fixed income payables
Other liabilities
Total liabilities assumed
Net assets acquired
Consideration paid:
Cash
Goodwill
Coastal Securities, Inc
Purchase Accounting/
Fair Value
Adjustments
(unaudited)
$
-
-
(284,580)
236,088
1,413
27,300
-
14
As
Acquired
(unaudited)
$
7,502
4,132
423,662
-
-
-
1,229
1,658
As recorded
by FHN
$
7,502
4,132
139,082
236,088
1,413
27,300
1,229
1,672
$438,183
$ (19,765)
$ 418,418
$201,595
33,509
143,647
958
379,709
$ 58,474
$
-
-
(47,158)
(642)
(47,800)
$ 28,035
$ 201,595
33,509
96,489
316
331,909
86,509
(131,473)
$ 44,964
100
FIRST HORIZON NATIONAL CORPORATION
Note 2 (cid:2) Acquisitions and Divestitures (continued)
In relation to the acquisition, FHN has recorded $45.0 million in goodwill, representing the excess of acquisition
consideration over the estimated fair value of net assets acquired (refer to Note 7 – Intangible Assets for additional
information), and all of which is expected to be deductible for tax purposes. The goodwill is the result of adding an
experienced workforce, establishing an additional major product sector for FTN Financial, expected synergies, and
other factors. FHN’s operating results for 2017 include the operating results of the acquired assets and assumed
liabilities of Coastal subsequent to the acquisition on April 3, 2017.
On September 16, 2016, FTBNA acquired $537.4 million in unpaid principal balance (“UPB”) of restaurant
franchise loans from GE Capital’s Southeast and Southwest regional portfolios. Subsequent to the acquisition the
acquired loans were combined with existing FTBNA relationships to establish a franchise finance specialty banking
business.
On October 2, 2015, FHN completed its acquisition of TrustAtlantic Financial Corporation (“TrustAtlantic Financial”
or “TAF”), and its wholly-owned bank subsidiary TrustAtlantic Bank (“TAB”), for an aggregate of 5,093,657 shares
of FHN common stock and $23.9 million in cash in a transaction valued at $96.7 million. Prior to the acquisition
TAF and TAB were headquartered in Raleigh, North Carolina, where TAB had five branches located in the
communities of Raleigh, Cary and Greenville. TAB merged into FTBNA on October 16, 2015 and the TAB
branches became First Tennessee branches upon closing that merger. The acquisition expanded and strengthened
FHN’s market share in its Mid-Atlantic region.
The following schedule details acquired assets and liabilities and consideration paid, as well as adjustments to
record the assets and liabilities at their estimated fair values as of October 2, 2015:
(Dollars in thousands)
Assets:
Cash and cash equivalents
Securities available-for-sale
Loans, net of unearned income
Allowance for loan losses
Core deposit intangible
TAF Goodwill
Premises and equipment, net
OREO
Deferred tax asset
Other assets
Total assets acquired
Liabilities:
Deposits
Other liabilities
Total liabilities assumed
Net assets acquired
Consideration paid:
Equity consideration
Cash
Total consideration paid
Goodwill
TrustAtlantic Financial Corporation
Purchase Accounting/
Fair Value
Adjustments
(unaudited)
As
Acquired
(unaudited)
As recorded
by FHN
$ 18,801
73,822
298,050
(4,639)
84
3,721
2,353
1,018
2,940
10,638
$406,788
$342,788
3,173
345,961
$ 60,827
$
-
(10)
(16,106)
4,639
1,866
(3,721)
1,214
(95)
4,262
1,135
$ (6,816)
$ 1,300
1,407
2,707
$ (9,523)
$ 18,801
73,812
281,944
-
1,950
-
3,567
923
7,202
11,773
$399,972
$344,088
4,580
348,668
51,304
(72,791)
(23,888)
(96,679)
$ 45,375
In relation to the acquisition, FHN recorded $45.4 million in goodwill, representing the excess of acquisition
consideration over the estimated fair value of net assets acquired (refer to Note 7 – Intangible Assets for additional
FIRST HORIZON NATIONAL CORPORATION
101
Note 2 (cid:2) Acquisitions and Divestitures (continued)
information). This goodwill is the result of expected operational synergies, expansion in the Mid-Atlantic region and
other factors, and only an immaterial amount of goodwill is expected to be deductible for tax purposes. FHN’s
operating results for 2017, 2016 and 2015 include the operating results of the acquired assets and assumed
liabilities of TAF subsequent to the acquisition on October 2, 2015.
In addition to the transactions mentioned above, FHN acquires or divests assets from time to time in transactions
that are considered business combinations or divestitures but are not material to FHN individually or in the
aggregate. The most recent transaction of that type closed in October 2017, when FTBNA acquired the operations
and certain assets of Professional Mortgage Company, Inc. (“PMC”). PMC is a provider of institutional debt capital
and commercial mortgage loan servicing. Eleven professionals joined FTBNA’s commercial real estate (“CRE”)
team as a result of the transaction, expanding the capabilities of its CRE platform.
Note 3 (cid:2) Investment Securities
The following tables summarize FHN’s investment securities on December 31, 2017 and 2016:
(Dollars in thousands)
Securities available-for-sale:
U.S. treasuries
Government agency issued mortgage-backed securities (“MBS”)
Government agency issued collateralized mortgage obligations (“CMO”)
Corporates and other debt
Equity and other (a)
AFS debt securities recorded at fair value through earnings:
SBA-interest only strips (b)
Total securities available-for-sale (c)
Securities held-to-maturity:
Corporates and other debt
Total securities held-to-maturity
December 31, 2017
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Amortized
Cost
$
100
2,580,442
2,302,439
55,799
265,863
$
-
10,538
1,691
23
7
$
(1)
(13,604)
(34,272)
(40)
-
$
99
2,577,376
2,269,858
55,782
265,870
$5,204,643
$12,259
$(47,917)
5,168,985
1,270
$5,170,255
$
$
10,000
10,000
$
$
-
-
$
$
(99)
(99)
$
$
9,901
9,901
(a) Includes restricted investments in FHLB-Cincinnati stock of $87.9 million and FRB stock of $134.6 million. The remainder is money market,
mutual funds, and cost method investments.
(b) SBA-interest only strips are recorded at elected fair value. See Note 24 – Fair Value of Assets and Liabilities for additional information.
(c) Includes $4.0 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other
purposes.
102
FIRST HORIZON NATIONAL CORPORATION
Note 3 (cid:2) Investment Securities (continued)
(Dollars in thousands)
Securities available-for-sale:
U.S. treasuries
Government agency issued MBS
Government agency issued CMO
Equity and other (a)
December 31, 2016
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Amortized
Cost
$
100
2,217,593
1,566,986
186,756
$
-
14,960
4,909
-
$
-
(23,866)
(23,937)
(2)
$
100
2,208,687
1,547,958
186,754
Total securities available-for-sale (b)
$3,971,435
$19,869
$(47,805)
$3,943,499
Securities held-to-maturity:
States and municipalities
Corporates and other debt
Total securities held-to-maturity
$
$
4,347
10,000
14,347
$
$
393
33
426
$
$
-
-
-
$
$
4,740
10,033
14,773
(a) Includes restricted investments in FHLB-Cincinnati stock of $87.9 million and FRB stock of $68.6 million. The remainder is money market,
mutual funds, and cost method investments.
(b) Includes $3.3 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other
purposes.
The amortized cost and fair value by contractual maturity for the available-for-sale and held-to-maturity securities
portfolios on December 31, 2017 are provided below:
(Dollars in thousands)
Within 1 year
After 1 year; within 5 years
After 5 years; within 10 years
After 10 years
Subtotal
Government agency issued MBS and CMO (a)
Equity and other
Total
Held-to-Maturity
Available-for-Sale
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$
-
-
10,000
-
10,000
-
-
$
$
$
-
-
9,901
-
9,901
-
55,899
-
-
55,899
-
55,900
1,085
166
57,151
-
-
4,882,881
265,863
4,847,234
265,870
$10,000
$9,901
$5,204,643
$5,170,255
(a) Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
The table below provides information on gross gains and gross losses from investment securities for the year ended
December 31:
(Dollars in thousands)
Gross gains on sales of securities
Gross (losses) on sales of securities
Net gain/(loss) on sales of securities (a) (b)
OTTI recorded (c)
Total securities gain/(loss), net
Available-for-Sale
2017
2016
2015
$ 2,514
(1,922)
$ 5,754
(4,213)
$ 5,630
(3,503)
592
1,541
2,127
-
(200)
(749)
$
592
$ 1,341
$ 1,378
(a) Proceeds from sales during 2017, 2016 and 2015 were $937.0 million, $444.2 million and $69.7 million, respectively. 2016 includes a $1.5
million net gain from exchanges of approximately $736 million of AFS debt securities; 2015 includes a $1.8 million gain from an exchange of
approximately $335 million of AFS debt securities.
(b) 2017 includes a $.4 million gain associated with the call of a $4.4 million held-to-maturity municipal bond.
(c) OTTI recorded is related to equity securities.
FIRST HORIZON NATIONAL CORPORATION
103
Note 3 (cid:2) Investment Securities (continued)
The following tables provide information on investments within the available-for-sale portfolio that had unrealized
losses as of December 31, 2017 and 2016:
(Dollars in thousands)
U.S. treasuries
Government agency issued MBS
Government agency issued CMO
Corporates and other debt
As of December 31, 2017
Less than 12 months
12 months or longer
Total
Fair
Value
$
99
1,455,476
1,043,987
15,294
Unrealized
Losses
$
(1)
(4,738)
(7,464)
(40)
$
Fair
Value
-
331,900
832,173
-
Unrealized
Losses
$
-
(8,866)
(26,808)
-
Fair
Value
$
99
1,787,376
1,876,160
15,294
Unrealized
Losses
$
(1)
(13,604)
(34,272)
(40)
Total temporarily impaired securities
$2,514,856
$(12,243)
$1,164,073
$(35,674)
$3,678,929
$(47,917)
(Dollars in thousands)
As of December 31, 2016
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Government agency issued MBS
Government agency issued CMO
$1,912,126
1,059,471
$(23,866)
(19,052)
$
-
116,527
$
-
(4,885)
$1,912,126
1,175,998
Unrealized
Losses
$(23,866)
(23,937)
Total debt securities
2,971,597
(42,918)
116,527
(4,885)
3,088,124
(47,803)
Equity
7
(2)
-
-
7
(2)
Total temporarily impaired securities
$2,971,604
$(42,920)
$116,527
$(4,885)
$3,088,131
$(47,805)
FHN has reviewed investment securities that were in unrealized loss positions in accordance with its accounting
policy for OTTI and does not consider them other-than-temporarily impaired. For debt securities with unrealized
losses, FHN does not intend to sell them and it is more-likely-than-not that FHN will not be required to sell them
prior to recovery. The decline in value is primarily attributable to changes in interest rates and not credit losses.
For equity securities, FHN has both the ability and intent to hold these securities for the time necessary to recover
the amortized cost.
104
FIRST HORIZON NATIONAL CORPORATION
Note 4 (cid:2) Loans
The following table provides the balance of loans, net of unearned income, by portfolio segment as of
December 31, 2017 and 2016:
(Dollars in thousands)
Commercial:
Commercial, financial, and industrial
Commercial real estate
Consumer:
Consumer real estate (a)
Permanent mortgage
Credit card & other
Loans, net of unearned income
Allowance for loan losses
Total net loans
December 31
2017
2016
$16,057,273
4,214,695
$12,148,087
2,135,523
6,367,755
399,307
619,899
4,523,752
423,125
359,033
$27,658,929
189,555
$19,589,520
202,068
$27,469,374
$19,387,452
(a) Balances as of December 31, 2017 and 2016, include $24.2 million and $35.9 million of restricted real estate loans, respectively. See
Note 21 – Variable Interest Entities for additional information.
COMPONENTS OF THE LOAN PORTFOLIO
The loan portfolio is disaggregated into segments and then further disaggregated into classes for certain
disclosures. GAAP defines a portfolio segment as the level at which an entity develops and documents a
systematic method for determining its allowance for credit losses. A class is generally determined based on the
initial measurement attribute (i.e., amortized cost or purchased credit-impaired), risk characteristics of the loan,
and FHN’s method for monitoring and assessing credit risk. Commercial loan portfolio segments include
commercial, financial and industrial (“C&I”) and commercial real estate ("CRE"). Commercial classes within C&I
include general C&I, loans to mortgage companies, the trust preferred loans (“TRUPS”) (i.e. long-term unsecured
loans to bank and insurance-related businesses) portfolio and purchased credit-impaired (“PCI”) loans. Loans to
mortgage companies include commercial lines of credit to qualified mortgage companies primarily for the
temporary warehousing of eligible mortgage loans prior to the borrower’s sale of those mortgage loans to third party
investors. Commercial classes within CRE include income CRE, residential CRE and PCI loans. Consumer loan
portfolio segments include consumer real estate, permanent mortgage, and the credit card and other portfolio.
Consumer classes include home equity lines of credit (“HELOCs”), real estate (“R/E”) installment and PCI loans
within the consumer real estate segment, permanent mortgage (which is both a segment and a class), and credit
card and other.
Concentrations
FHN has a concentration of residential real estate loans (24 percent of total loans), the majority of which is in the
consumer real estate segment (23 percent of total loans). Loans to finance and insurance companies total
$2.9 billion (18 percent of the C&I portfolio, or 10 percent of the total loans). FHN had loans to mortgage
companies totaling $2.1 billion (13 percent of the C&I segment, or 8 percent of total loans) as of December 31,
2017. As a result, 31 percent of the C&I segment is sensitive to impacts on the financial services industry.
Restrictions
On December 31, 2017, $4.6 billion of commercial loans were pledged to secure potential discount window
borrowings from the Federal Reserve Bank. Additionally, as of December 31, 2017 and 2016, FHN pledged all of
its first and second lien mortgages and HELOCs, excluding restricted real estate loans to secure potential
borrowings from the FHLB-Cincinnati. Restricted loans secure borrowings associated with consolidated VIEs. See
Note 21 – Variable Interest Entities for additional discussion.
FIRST HORIZON NATIONAL CORPORATION
105
Note 4 (cid:2) Loans (continued)
Acquisition
On November 30, 2017, FHN completed its acquisition of CBF. The acquisition included $7.6 billion in unpaid
balance of loans with a fair value of $7.4 billion of which $132.8 million is held-for-sale.
Generally, the fair value for the acquired loans is estimated using a discounted cash flow analysis with significant
unobservable inputs (Level 3) including adjustments for expected credit losses, prepayment speeds, current market
rates for similar loans, and an adjustment for investor-required yield given product-type and various risk
characteristics.
At acquisition, FHN designated certain loans as PCI with the remaining loans accounted for under ASC 310-20,
“Nonrefundable Fees and Other Costs”. Of the loans designated as PCI at acquisition, $5.0 million is held-for-sale.
For loans accounted for under ASC 310-20, the difference between each loan’s book value and the estimated fair
value at the time of the acquisition will be accreted into interest income over its remaining contractual life and the
subsequent accounting and reporting will be similar to a loan in FHN’s originated portfolio.
The following tables reflect FHN’s contractually required payments receivable, cash flows expected to be collected
and the fair value of the acquired loans at the acquisition date of November 30, 2017. These amounts are
considered provisional as management continues to identify and assess information regarding the nature of these
assets and reviews the associated valuation assumptions and methodologies.
(Dollars in thousands)
Contractually required payments including interest
Less: expected losses and foregone interest
Cash flows expected to be collected
Fair value of loans acquired (a)
(a) Includes $127.8 million of loans held-for-sale.
(Dollars in thousands)
Contractually required payments including interest
Less: nonaccretable difference
Cash flows expected to be collected
Less: accretable yield
Fair value of loans acquired (a)
(a) Includes $5.0 million of loans held-for-sale.
Non-PCI Loans
November 30, 2017
$9,182,610
(801,546)
8,381,064
$7,229,948
PCI Loans
November 30, 2017
$258,950
(77,022)
181,928
(13,957)
$167,971
The following table presents a rollforward of the accretable yield for the year ended December 31, 2017 and 2016:
(Dollars in thousands)
Balance, beginning of period
Addition
Accretion
Adjustment for payoffs
Adjustment for charge-offs
Adjustment for pool excess recovery (a)
Increase in accretable yield (b)
Other
Balance, end of period
Year Ended
December 31
2017
2016
$ 6,871
13,957
(3,564)
(1,917)
(45)
(222)
467
76
$15,623
$ 8,542
2,883
(3,963)
(6,409)
(674)
-
6,525
(33)
$ 6,871
(a) Represents the removal of accretable difference for the remaining loans in a pool which is now in a recovery state.
(b) Includes changes in the accretable yield due to both transfers from the nonaccretable difference and the impact of changes in the expected
timing of the cash flows.
At December 31, 2017, the ALLL related to PCI loans was $3.2 million compared to $.7 million at December 31,
2016. Net charge-offs related to PCI loans during 2017 were $.1 million, compared to $.4 million in 2016. The
loan loss provision expense related to PCI loans during 2017 was $2.5 million, compared to a loan loss provision
credit of $.5 million during 2016.
106
FIRST HORIZON NATIONAL CORPORATION
Note 4 (cid:2) Loans (continued)
The following table reflects the outstanding principal balance and carrying amounts of the acquired PCI loans as of
December 31, 2017 and 2016:
(Dollars in thousands)
Commercial, financial and industrial
Commercial real estate
Consumer real estate
Credit card and other
Total
Impaired Loans
December 31,
2017
December 31,
2016
Carrying
value
Unpaid
balance
$102,330
30,375
38,176
5,500
$115,296
35,472
42,568
6,351
Carrying
value
$40,368
4,763
1,172
52
Unpaid
balance
$41,608
6,514
1,677
64
$176,381
$199,687
$46,355
$49,863
The following tables provide information at December 31, 2017 and 2016, by class related to individually impaired
loans and consumer TDRs, regardless of accrual status. Recorded investment is defined as the amount of the
investment in a loan, excluding any valuation allowance but including any direct write-down of the investment. For
purposes of this disclosure, PCI loans and the TRUPs valuation allowance have been excluded.
(Dollars in thousands)
Impaired loans with no related allowance recorded:
Commercial:
General C&I
Income CRE
Total
Consumer:
HELOC (a)
R/E installment loans (a)
Permanent mortgage (a)
Total
Impaired loans with related allowance recorded:
Commercial:
General C&I
TRUPS
Income CRE
Residential CRE
Total
Consumer:
HELOC
R/E installment loans
Permanent mortgage
Credit card & other
Total
Total commercial
Total consumer
December 31, 2017
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
$
$
$
8,183
-
8,183
9,258
4,093
5,132
$ 17,372
-
$ 17,372
$ 19,193
4,663
7,688
$
$
$
$ 18,483
$ 31,544
$
-
-
-
-
-
-
-
$
$
7,810
-
7,810
$ 10,374
4,076
5,602
$ 20,052
$ 31,774
3,067
1,612
795
$ 38,256
3,700
1,612
1,263
$ 5,119
925
49
83
$ 29,183
3,139
1,695
1,106
$ 37,248
$ 44,831
$ 6,176
$ 35,123
$ 72,469
43,075
79,662
593
$ 75,207
43,827
90,934
593
$14,382
8,793
12,105
311
$ 77,454
48,473
81,422
406
$195,799
$210,561
$35,591
$207,755
$ 45,431
$ 62,203
$ 6,176
$ 42,933
$214,282
$242,105
$35,591
$227,807
$
$
$
$
-
-
-
-
-
-
-
$ 773
-
52
10
$ 835
$2,261
1,246
2,455
11
$5,973
$ 835
$5,973
$6,808
Total impaired loans
(a) All discharged bankruptcy loans are charged down to an estimate of net realizable value and do not carry any allowance.
$259,713
$304,308
$41,767
$270,740
FIRST HORIZON NATIONAL CORPORATION
107
Note 4 (cid:2) Loans (continued)
(Dollars in thousands)
Impaired loans with no related allowance recorded:
Commercial:
General C&I
Income CRE
Total
Consumer:
HELOC (a)
R/E installment loans (a)
Permanent mortgage (a)
Total
Impaired loans with related allowance recorded:
Commercial:
General C&I
TRUPS
Income CRE
Residential CRE
Total
Consumer:
HELOC
R/E installment loans
Permanent mortgage
Credit card & other
Total
Total commercial
Total consumer
December 31, 2016
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
$ 10,419
-
$ 16,636
-
$ 10,419
$ 16,636
$ 11,383
3,957
5,311
$ 21,662
4,992
7,899
$
$
$
$ 20,651
$ 34,553
$
-
-
-
-
-
-
-
$ 12,009
1,543
$ 13,552
$ 11,168
4,255
4,418
$ 19,841
$ 34,334
3,209
1,831
1,293
$ 34,470
3,700
2,209
1,761
$ 3,294
925
62
132
$ 30,836
3,274
3,757
1,360
$ 40,667
$ 42,140
$ 4,413
$ 39,227
$ 84,711
53,409
88,615
306
$ 87,126
54,559
100,983
306
$15,927
12,875
12,470
133
$ 87,659
57,906
91,838
345
$227,041
$242,974
$41,405
$237,748
$ 51,086
$ 58,776
$ 4,413
$ 52,779
$247,692
$277,527
$41,405
$257,589
$
$
$
$
-
-
-
-
-
-
-
$ 902
-
70
22
$ 994
$2,092
1,370
2,310
13
$5,785
$ 994
$5,785
$6,779
Total impaired loans
(a) All discharged bankruptcy loans are charged down to an estimate of net realizable value and do not carry any allowance.
$298,778
$336,303
$45,818
$310,368
Asset Quality Indicators
FHN employs a dual grade commercial risk grading methodology to assign an estimate for the probability of default
(“PD”) and the loss given default (“LGD”) for each commercial loan using factors specific to various industry,
portfolio, or product segments that result in a rank ordering of risk and the assignment of grades PD 1 to PD 16.
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. Each PD grade corresponds to an estimated one-year default probability percentage; a
PD 1 has the lowest expected default probability, and probabilities increase as grades progress down the scale.
PD 1 through PD 12 are “pass” grades. PD grades 13-16 correspond to the regulatory-defined categories of
special mention (13), substandard (14), doubtful (15), and loss (16). Pass loan grades are required to be
reassessed annually or earlier whenever there has been a material change in the financial condition of the
borrower or risk characteristics of the relationship. All commercial loans over $1 million and certain commercial
loans over $500,000 that are graded 13 or worse are reassessed on a quarterly basis. Loan grading discipline is
regularly reviewed internally by Credit Assurance Services to determine if the process continues to result in
108
FIRST HORIZON NATIONAL CORPORATION
Note 4 (cid:2) Loans (continued)
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.
LGD grades are assigned based on a scale of 1-12 and represent FHN’s expected recovery based on collateral
type in the event a loan defaults. See Note 5 – Allowance for Loan Losses for further discussion on the credit
grading system.
The following tables provide the balances of commercial loan portfolio classes with associated allowance,
disaggregated by PD grade as of December 31, 2017 and 2016:
(Dollars in thousands)
General
C&I
Loans to
Mortgage
Companies
TRUPS (a)
Income
CRE
Residential
CRE
Total
Percentage
of Total
Allowance
for Loan
Losses
December 31, 2017
PD Grade:
1
2
3
4
5
6
7
8
9
10
11
12
13
14,15,16
Collectively evaluated
for impairment
Individually evaluated
for impairment
Purchased credit-
impaired loans
Total commercial
loans
$
526,825 $
862,217
560,529
931,667
1,430,153
1,633,060
2,227,774
1,073,178
2,837,501
366,971
222,405
415,499
193,429
224,093
- $
-
652,982
629,432
328,477
335,169
47,720
35,266
70,915
-
-
-
-
-
- $
-
-
-
-
-
-
-
-
-
-
-
303,848
-
2,691
1,935
226,126
333,364
447,534
491,604
584,973
260,425
1,514,609
46,606
34,213
158,128
16,907
7,142
$
-
67
39
-
2,383
3,062
9,324
6,216
22,843
4,421
2,827
3,616
53
800
$
529,516
864,219
1,439,676
1,894,463
2,208,547
2,462,895
2,869,791
1,375,085
4,445,868
417,998
259,445
577,243
514,237
232,035
3% $
4
7
9
11
12
14
7
22
2
1
3
3
1
70
339
272
854
7,355
10,495
13,490
21,831
9,804
8,808
6,784
5,882
7,265
24,400
13,505,301
2,099,961
303,848
4,126,257
55,651
20,091,018
99
117,649
39,957
105,139
-
-
3,067
1,612
795
45,431
-
28,494
1,886
135,519
-
1
6,176
2,813
$13,650,397 $2,099,961 $306,915 $4,156,363
$58,332
$20,271,968
100% $126,638
FIRST HORIZON NATIONAL CORPORATION
109
Note 4 (cid:2) Loans (continued)
(Dollars in thousands)
General
C&I
Loans to
Mortgage
Companies TRUPS (a)
Income
CRE
Residential
CRE
Total
Percentage
of Total
Allowance
for Loan
Losses
December 31, 2016
PD Grade:
1
2
3
4
5
6
7
8
9
10
11
12
13
14,15,16
$ 465,179 $
791,183
491,386
978,282
1,232,401
1,540,519
1,556,117
963,359
611,774
355,359
238,230
170,531
121,276
194,572
-
-
462,486
332,107
275,209
614,109
317,283
30,974
4,299
8,663
-
-
-
59
$
-
-
-
-
-
-
-
-
-
-
-
-
304,236
-
$
1,078
11,742
153,670
222,422
365,653
338,344
352,390
425,503
105,277
50,484
20,600
15,395
6,748
16,313
$
-
87
-
-
702
9,338
2,579
2,950
4,417
9,110
6,541
4,168
311
1,659
$
466,257
803,012
1,107,542
1,532,811
1,873,965
2,502,310
2,228,369
1,422,786
725,767
423,616
265,371
190,094
432,571
212,603
3% $
6
8
11
13
17
16
10
5
3
2
1
3
1
77
403
304
953
6,670
10,403
14,010
25,986
13,857
8,400
6,556
6,377
4,225
20,297
Collectively evaluated
for impairment
Individually evaluated
for impairment
Purchased credit-
impaired loans
Total commercial
loans
9,710,168
2,045,189
304,236
2,085,619
41,862
14,187,074
99
118,518
44,753
40,532
-
-
3,209
1,831
1,293
51,086
-
4,583
335
45,450
1
-
4,413
319
$9,795,453 $2,045,189
$307,445
$2,092,033
$43,490
$14,283,610
100% $123,250
(a) Balances as of December 31, 2017 and 2016, presented net of a $25.5 million valuation allowance. Based on the underlying structure of
the notes, the best possible internal grade is “13”.
(b) The increase in loans year over year is not comparable to the change in allowance year over year as CBF loans are recorded at fair value.
The consumer portfolio is comprised primarily of smaller-balance loans which are very similar in nature in that
most are standard products and are backed by residential real estate. Because of the similarities of consumer
loan-types, FHN is able to utilize the Fair Isaac Corporation (“FICO”) score, among other attributes, to assess the
credit quality of consumer borrowers. FICO scores are refreshed on a quarterly basis in an attempt to reflect the
recent risk profile of the borrowers. Accruing delinquency amounts are indicators of asset quality within the credit
card and other consumer portfolio.
The following table reflects the percentage of balances outstanding by average, refreshed FICO scores for the
HELOC, real estate installment, and permanent mortgage classes of loans as of December 31, 2017 and 2016:
FICO score 740 or greater
FICO score 720-739
FICO score 700-719
FICO score 660-699
FICO score 620-659
FICO score less than 620 (a)
Total
December 31, 2017
R/E Installment
Loans
Permanent
Mortgage
73.1%
8.0
6.4
7.2
2.8
2.5
46.4%
12.8
9.2
14.8
7.3
9.5
HELOC
60.0%
8.7
8.3
11.1
4.9
7.0
HELOC
56.9%
8.8
8.6
13.2
5.6
6.9
December 31, 2016
R/E Installment
Loans
Permanent
Mortgage
70.3%
8.3
6.8
8.4
3.5
2.7
45.0%
9.5
9.2
17.1
9.1
10.1
100.0%
100.0%
100.0% 100.0%
100.0%
100.0%
(a) For this group, a majority of the loan balances had FICO scores at the time of the origination that exceeded 620 but have since deteriorated
as the loans have seasoned.
110
FIRST HORIZON NATIONAL CORPORATION
-
-
-
-
Note 4 (cid:2) Loans (continued)
Nonaccrual and Past Due Loans
The following table reflects accruing and non-accruing loans by class on December 31, 2017:
(Dollars in thousands)
Current
30-89 Days
Past Due
90+ Days
Past Due
Total
Accruing
Current
30-89 Days
Past Due
90+ Days
Past Due
Total Non-
Accruing
Total Loans
Accruing
Non-Accruing
Commercial (C&I):
General C&I
$13,508,635
$ 8,442
$
Loans to mortgage companies
2,099,961
TRUPS (a)
303,848
-
-
95 $13,517,172 $ 1,761
-
2,099,961
-
-
303,848
Purchased credit-impaired
loans
82,515
3,065
19,559
105,139
$ 7,019
-
-
-
$19,306 $ 28,086 $13,545,258
2,099,961
-
-
3,067
3,067
306,915
-
-
105,139
Total commercial (C&I)
15,994,959
11,507
19,654
16,026,120
1,761
7,019
22,373
31,153
16,057,273
Commercial real estate:
Income CRE
Residential CRE
Purchased credit-impaired
loans
4,126,411
55,655
26,501
Total commercial real estate
4,208,567
856
-
1,828
2,684
-
-
4,127,267
56
55,655
2,051
30,380
2,051
4,213,302
56
-
-
-
-
546
791
-
602
791
4,127,869
56,446
-
30,380
1,337
1,393
4,214,695
Consumer real estate:
HELOC
R/E installment loans
Purchased credit-impaired
loans
1,738,493
17,828
4,480,953
7,189
9,702
3,573
1,766,023
40,508
4,491,715
14,439
3,626
1,957
8,354
2,603
52,488
18,999
1,818,511
4,510,714
35,356
2,016
1,158
38,530
-
-
-
-
38,530
Total consumer real estate
6,254,802
27,033
14,433
6,296,268
54,947
5,583
10,957
71,487
6,367,755
Permanent mortgage
365,527
3,930
3,460
372,917
13,245
1,052
12,093
26,390
399,307
Credit card & other:
Credit card
Other
Purchased credit-impaired
loans
Total credit card & other
Total loans, net of unearned
193,940
415,070
2,993
612,003
1,371
2,666
1,693
5,730
1,053
103
196,364
417,839
814
5,500
1,970
619,703
-
31
-
31
-
-
-
-
-
165
-
165
-
196
196,364
418,035
-
5,500
196
619,899
income
$27,435,858
$50,884
$41,568 $27,528,310 $70,040
$13,654
$46,925 $130,619 $27,658,929
(a) TRUPS is presented net of the valuation allowance of $25.5 million.
FIRST HORIZON NATIONAL CORPORATION
111
Note 4 (cid:2) Loans (continued)
The following table reflects accruing and non-accruing loans by class on December 31, 2016:
(Dollars in thousands)
Current
30-89 Days
Past Due
90+ Days
Past Due
Total
Accruing
Current
30-89 Days
Past Due
90+ Days
Past Due
Total Non-
Accruing
Total Loans
Accruing
Non-Accruing
Commercial (C&I):
General C&I
Loans to mortgage
companies
TRUPS (a)
$ 9,720,231
$ 5,199
$
23 $ 9,725,453 $16,106
$ 374
$12,988
$ 29,468 $ 9,754,921
2,041,408
3,722
304,236
-
-
-
2,045,130
304,236
Purchased credit-impaired
loans
40,113
185
Total commercial (C&I)
12,105,988
9,106
Commercial real estate:
Income CRE
Residential CRE
Purchased credit-impaired
loans
2,085,455
42,182
4,809
Total commercial real estate
2,132,446
14
178
109
301
234
257
-
-
-
-
-
-
-
-
-
-
59
3,209
59
2,045,189
3,209
307,445
-
-
40,532
40,532
12,115,351
16,106
374
16,256
32,736
12,148,087
2,085,469
232
460
42,360
4,918
-
-
-
-
1,289
795
1,981
795
2,087,450
43,155
-
-
4,918
2,132,747
232
460
2,084
2,776
2,135,523
Consumer real estate:
HELOC
R/E installment loans
Purchased credit-impaired
loans
1,602,640
2,794,866
17,997
7,844
10,859
5,158
1,631,496
46,964
2,807,868
17,989
1,319
164
93
1,576
-
Total consumer real estate
4,398,825
26,005
16,110
4,440,940
64,953
Permanent mortgage
385,972
4,544
5,428
395,944
11,867
Credit card & other:
Credit card
Other
Purchased credit-impaired
loans
188,573
166,062
1,622
992
1,456
134
191,651
167,188
52
-
-
52
Total credit card & other
354,687
2,614
1,590
358,891
-
-
-
-
Total loans, net of unearned
4,201
2,383
-
6,584
2,194
-
-
-
-
8,922
2,353
60,087
22,725
1,691,583
2,830,593
-
-
1,576
11,275
82,812
4,523,752
13,120
27,181
423,125
-
142
-
142
-
142
-
142
191,651
167,330
52
359,033
income
$19,377,918
$42,570
$23,385 $19,443,873 $93,158
$9,612
$42,877
$145,647 $19,589,520
(a) TRUPS is presented net of the valuation allowance of $25.5 million.
112
FIRST HORIZON NATIONAL CORPORATION
Note 4 (cid:2) Loans (continued)
Troubled Debt Restructurings
As part of FHN’s ongoing risk management practices, FHN attempts to work with borrowers when necessary to
extend or modify loan terms to better align with their current ability to repay. Extensions and modifications to loans
are made in accordance with internal policies and guidelines which conform to regulatory guidance. Each
occurrence is unique to the borrower and is evaluated separately.
A modification is classified as a TDR if the borrower is experiencing financial difficulty and it is determined that
FHN has granted a concession to the borrower. FHN may determine that a borrower is experiencing financial
difficulty if the borrower is currently in default on any of its debt, or if it is probable that a borrower may default in
the foreseeable future. Many aspects of a borrower’s financial situation are assessed when determining whether
they are experiencing financial difficulty. Concessions could include extension of the maturity date, reductions of
the interest rate (which may make the rate lower than current market for a new loan with similar risk), reduction or
forgiveness of accrued interest, or principal forgiveness. The assessments of whether a borrower is experiencing (or
is likely to experience) financial difficulty, and whether a concession has been granted, are subjective in nature
and management’s judgment is required when determining whether a modification is classified as a TDR.
For all classes within the commercial portfolio segment, TDRs are typically modified through forbearance
agreements (generally 6 to 12 months). Forbearance agreements could include reduced interest rates, reduced
payments, release of guarantor, or entering into short sale agreements. FHN’s proprietary modification programs for
consumer loans are generally structured using parameters of U.S. government-sponsored programs such as the
former Home Affordable Modification Program (“HAMP”). Within the HELOC and R/E installment loans classes of
the consumer portfolio segment, TDRs are typically modified by reducing the interest rate (in increments of
25 basis points to a minimum of 1 percent for up to 5 years) and a possible maturity date extension to reach an
affordable housing debt-to-income ratio. After 5 years, the interest rate generally returns to the original interest rate
prior to modification; for certain modifications, the modified interest rate increases 2 percent per year until the
original interest rate prior to modification is achieved. Permanent mortgage TDRs are typically modified by reducing
the interest rate (in increments of 25 basis points to a minimum of 2 percent for up to 5 years) and a possible
maturity date extension to reach an affordable housing debt-to-income ratio. After 5 years, the interest rate steps
up 1 percent every year until it reaches the Federal Home Loan Mortgage Corporation Weekly Survey Rate cap.
Contractual maturities may be extended to 40 years on permanent mortgages and to 30 years for consumer real
estate loans. Within the credit card class of the consumer portfolio segment, TDRs are typically modified through
either a short-term credit card hardship program or a longer-term credit card workout program. In the credit card
hardship program, borrowers may be granted rate and payment reductions for 6 months to 1 year. In the credit
card workout program, customers are granted a rate reduction to 0 percent and term extensions for up to 5 years
to pay off the remaining balance.
Despite the absence of a loan modification, the discharge of personal liability through bankruptcy proceedings is
considered a concession. As a result, FHN classifies all non-reaffirmed residential real estate loans discharged in
Chapter 7 bankruptcy as nonaccruing TDRs.
On December 31, 2017 and 2016, FHN had $234.4 million and $285.2 million of portfolio loans classified as
TDRs, respectively. For TDRs in the loan portfolio, FHN had loan loss reserves of $37.3 million, or 16 percent as
of December 31, 2017, and $44.9 million, or 16 percent as of December 31, 2016. Additionally, $63.2 million and
$69.3 million of loans held-for-sale as of December 31, 2017 and 2016, respectively, were classified as TDRs.
FIRST HORIZON NATIONAL CORPORATION
113
Note 4 (cid:2) Loans (continued)
The following tables reflect portfolio loans that were classified as TDRs during the year ended December 31, 2017
and 2016:
(Dollars in thousands) Number
Commercial (C&I):
General C&I
Total commercial
(C&I)
Commercial real estate:
Income CRE
Total commercial
real estate
Consumer real estate:
HELOC
R/E installment loans
Total consumer real
estate
Permanent mortgage
Credit card & other
Total troubled debt
restructurings
5
5
1
1
143
53
196
34
91
327
2017
Pre-Modification
Outstanding
Recorded Investment
Post-Modification
Outstanding
Recorded Investment Number
Pre-Modification
Outstanding
Recorded Investment
Post-Modification
Outstanding
Recorded Investment
2016
$ 1,095
$ 1,086
1,095
1,086
199
199
12,739
4,092
16,831
5,078
572
198
198
12,422
4,027
16,449
5,045
550
$23,775
$23,328
8
8
1
1
236
51
287
13
23
332
$23,876
$22,026
23,876
22,026
100
100
21,173
4,918
26,091
4,811
116
99
99
20,937
5,193
26,130
4,802
110
$54,994
$53,167
The following tables present TDRs which re-defaulted during 2017 and 2016, and as to which the modification
occurred 12 months or less prior to the re-default. For purposes of this disclosure, FHN generally defines payment
default as 30 or more days past due.
(Dollars in thousands)
Commercial (C&I):
General C&I
Total commercial (C&I)
Commercial real estate:
Income CRE
Total commercial real estate
Consumer real estate:
HELOC
R/E installment loans
Total consumer real estate
Permanent mortgage
Credit card & other
Total troubled debt restructurings
2017
2016
Number
Recorded
Investment Number
Recorded
Investment
5
5
1
1
5
-
5
3
10
24
$11,498
11,498
88
88
776
-
776
715
77
$13,154
1
1
-
-
3
3
6
-
-
7
$
77
77
-
-
154
1,560
1,714
-
-
$1,791
114
FIRST HORIZON NATIONAL CORPORATION
Note 5 (cid:2) 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).
FIRST HORIZON NATIONAL CORPORATION
115
Note 5 (cid:2) Allowance for Loan Losses (continued)
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)
Balance as of January 1, 2017
Charge-offs
Recoveries
Provision/(provision credit) for loan losses
Balance as of December 31, 2017
Allowance – individually evaluated for
impairment
Allowance – collectively evaluated for
impairment
Allowance – purchased credit-impaired loans
Loans, net of unearned as of December 31,
2017:
Individually evaluated for impairment
Collectively evaluated for impairment
Purchased credit-impaired loans
Total loans, net of unearned income
Balance as of January 1, 2016
Charge-offs
Recoveries
Provision/(provision credit) for loan losses
Balance as of December 31, 2016
Allowance – individually evaluated for
impairment
Allowance – collectively evaluated for
impairment
Allowance – purchased credit-impaired
loans
Loans, net of unearned as of December 31,
2016:
Individually evaluated for impairment
Collectively evaluated for impairment
Purchased credit-impaired loans
Total loans, net of unearned income
Balance as of January 1, 2015
Charge-offs
Recoveries
Provision/(provision credit) for loan losses
Balance as of December 31, 2015
Allowance – individually evaluated for
impairment
Allowance – collectively evaluated for
impairment
Allowance – purchased credit-impaired
loans
Loans, net of unearned as of December 31,
2015:
Individually evaluated for impairment
Collectively evaluated for impairment
Purchased credit-impaired loans
Total loans, net of unearned income
C&I
Commercial
Real Estate
Consumer
Real Estate
Permanent
Mortgage
Credit Card
and Other
$
89,398 $
(17,657)
4,568
21,902
98,211
33,852 $
(195)
966
(6,196)
28,427
50,357
(13,156)
22,723
(22,553)
37,371
$ 16,289
(2,179)
2,509
(1,054)
15,565
$ 12,172
(13,207)
3,115
7,901
9,981
$
Total
202,068
(46,394)
33,881
-
189,555
6,044
89,358
2,809
132
23,175
12,105
311
41,767
28,291
4
13,841
355
3,460
-
9,670
-
144,620
3,168
43,024
15,909,110
105,139
128,895
6,200,330
38,530
$16,057,273 $4,214,695 $6,367,755
2,407
4,181,908
30,380
$
73,637 $
(18,460)
6,795
27,426
89,398
25,159 $
(1,371)
1,927
8,137
33,852
80,614
(21,993)
23,719
(31,983)
50,357
84,794
314,513
-
$399,307
$ 18,947
(1,591)
2,403
(3,470)
16,289
593
613,806
5,500
$619,899
$ 11,885
(14,224)
3,621
10,890
12,172
259,713
27,219,667
179,549
$27,658,929
$
210,242
(57,639)
38,465
11,000
202,068
4,219
194
28,802
12,470
133
45,818
85,015
33,503
21,151
3,819
12,039
155,527
164
155
404
-
-
723
47,962
12,059,593
40,532
153,460
4,368,716
1,576
$12,148,087 $2,135,523 $4,523,752
3,124
2,127,481
4,918
$
67,011 $
(22,406)
13,339
15,693
73,637
18,574 $ 113,011
(30,068)
(3,550)
23,895
1,876
(26,224)
8,259
80,614
25,159
93,926
329,199
-
$423,125
$ 19,122
(3,141)
1,687
1,279
18,947
306
358,675
52
$359,033
$ 14,730
(16,691)
3,853
9,993
11,885
298,778
19,243,664
47,078
$19,589,520
$
232,448
(75,856)
44,650
9,000
210,242
3,643
481
31,278
15,463
167
51,032
69,980
23,519
48,828
3,484
11,717
157,528
14
1,159
508
-
1
1,682
30,472
10,389,841
16,077
165,684
4,596,654
4,180
$10,436,390 $1,674,935 $4,766,518
9,055
1,644,792
21,088
102,461
351,662
-
$454,123
377
354,106
53
$354,536
308,049
17,337,055
41,398
$17,686,502
116
FIRST HORIZON NATIONAL CORPORATION
Note 6 (cid:2) Premises, Equipment, and Leases
Premises and equipment on December 31 are summarized below:
(Dollars in thousands)
Land
Buildings
Leasehold improvements
Furniture, fixtures, and equipment
Fixed assets held-for-sale (a)
Premises and equipment, at cost
Less accumulated depreciation and amortization
Premises and equipment, net
Certain previously reported amounts have been reclassified to agree with current presentation.
(a) Primarily comprised of land and buildings.
2017
2016
$104,454
472,619
26,640
194,057
53,195
850,965
318,714
$ 59,343
340,593
26,956
180,157
5,832
612,881
323,496
$532,251
$289,385
FHN is obligated under a number of noncancelable operating leases for premises with terms up to 30 years, which
may include the payment of taxes, insurance and maintenance costs. Operating leases for equipment are not
material.
In 2017 and 2016, FHN recognized $6.0 million and $5.0 million, respectively, of fixed asset impairments and
lease abandonment charges related to branch closures which are included in All other losses on the Consolidated
Statements of Income. In 2017 and 2016, FHN had net gains of $.4 million and $1.8 million, respectively, related
to the sales of bank branches which are included in All other income and commissions on the Consolidated
Statements of Income.
Minimum future lease payments for noncancelable operating leases, primarily on premises, on December 31, 2017
are shown below. Aggregate minimum income under sublease agreements for these periods is not material.
(Dollars in thousands)
2018
2019
2020
2021
2022
2023 and after
Total minimum lease payments
Payments required under capital leases are not material.
$ 29,862
27,602
25,242
21,987
17,028
59,069
$180,790
Rent expense incurred under all operating lease obligations for the years ended December 31 is as follows:
(Dollars in thousands)
Rent expense, gross
Sublease income
Rent expense, net
2017
2016
2015
$23,116
(631)
$20,812
(477)
$18,166
(5)
$22,485
$20,335
$18,161
FIRST HORIZON NATIONAL CORPORATION
117
Note 7 (cid:2) Intangible Assets
The following is a summary of other intangible assets included in the Consolidated Statements of Condition:
(Dollars in thousands)
Core deposit intangibles (a)
Customer relationships (a)
Other (a) (b)
Total
December 31, 2017
December 31, 2016
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Value
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Value
$160,650
77,865
5,622
$244,137
$ (8,176)
(50,777)
(795)
$152,474
27,088
4,827
$(59,748)
$184,389
$16,850
54,865
555
$72,270
$ (4,721)
(46,302)
(230)
$(51,253)
$12,129
8,563
325
$21,017
(a) 2017 increase primarily associated with the CBF and/or Coastal acquisitions.
(b) Balance primarily includes noncompete covenants, as well as $.3 million related to state banking licenses not subject to amortization.
Amortization expense was $8.7 million, $5.2 million, and $5.3 million for the years ended December 31, 2017,
2016, and 2015 respectively. As of December 31, 2017 the estimated aggregated amortization expense is
expected to be:
(Dollars in thousands)
Year
2018
2019
2020
2021
2022
Amortization
$26,174
25,108
21,422
19,787
17,631
Gross goodwill, accumulated impairments, and accumulated divestiture related write-offs were determined
beginning January 1, 2012, when a change in accounting requirements resulted in goodwill being assessed for
impairment rather than being amortized. Gross goodwill of $200.0 million with accumulated impairments and
accumulated divestiture-related write-offs of $114.1 million and $85.9 million, respectively, were previously
allocated to the non-strategic segment, resulting in $0 net goodwill allocated to the non-strategic segment as of
December 31, 2017 and 2016. The regional banking and fixed income segments do not have any accumulated
impairments or divestiture related write-offs. The following is a summary of goodwill by reportable segment included
in the Consolidated Statements of Condition as of December 31, 2017,2016 and 2015.
(Dollars in thousands)
December 31, 2014
Additions
December 31, 2015
Additions
December 31, 2016
Additions (a)
December 31, 2017
Regional
Banking
Fixed
Income
Total
$
$
47,928
45,375
93,303
64
$ 98,004
-
$ 145,932
45,375
$ 98,004
-
$ 191,307
64
$
93,367
1,150,518
$ 98,004
44,964
$ 191,371
1,195,482
$1,243,885
$142,968
$1,386,853
(a) See Note 2 – Acquisitions and Divestitures for further details regarding goodwill related to acquisitions.
Note 8 (cid:2) Time Deposit Maturities
Following is a table of maturities for time deposits outstanding on December 31, 2017, which include Certificates
of deposit under $100,000, Other time, and Certificates of deposit $100,000 and more. Certificates of deposit in
increments of $100,000 or more totaled $2.0 billion on December 31, 2017, of this amount $1.0 billion represents
Certificates of deposit of $250,000 and more. Time deposits are included in Interest-bearing deposits on the
Consolidated Statements of Condition.
118
FIRST HORIZON NATIONAL CORPORATION
Note 8 (cid:2) Time Deposit Maturities (continued)
(Dollars in thousands)
2018
2019
2020
2021
2022
2023 and after
Total
Note 9 (cid:2) Short-Term Borrowings
$2,001,083
612,010
155,788
131,580
406,963
15,497
$3,322,921
Short-term borrowings include federal funds purchased and securities sold under agreements to repurchase,
trading liabilities, and other borrowed funds.
Federal funds purchased and securities sold under agreements to repurchase generally have maturities of less than
90 days. Trading liabilities, which represent short positions in securities, are generally held for less than 90 days.
Other short-term borrowings have original maturities of one year or less. On December 31, 2017, fixed income
trading securities with a fair value of $68.9 million were pledged to secure other short-term borrowings.
The detail of short-term borrowings for the years 2017, 2016 and 2015 is presented in the following table:
(Dollars in thousands)
2017
Average balance
Year-end balance
Maximum month-end outstanding
Average rate for the year
Average rate at year-end
2016
Average balance
Year-end balance
Maximum month-end outstanding
Average rate for the year
Average rate at year-end
2015
Average balance
Year-end balance
Maximum month-end outstanding
Average rate for the year
Average rate at year-end
Federal Funds
Purchased
Securities Sold
Under Agreements
to Repurchase
Trading
Liabilities
Other
Short-term
Borrowings
$ 447,137
399,820
568,490
1.06%
1.48
$ 589,223
414,207
695,083
0.52%
0.73
$ 705,054
464,166
1,228,125
0.26%
0.50
$578,666
656,602
743,684
0.72%
0.64
$425,452
453,053
528,024
0.08%
0.08
$370,097
338,133
524,191
0.06%
0.09
$685,891
638,515
896,943
$ 554,502
2,626,213
2,626,213
2.26%
2.22
1.28%
1.44
$771,039
561,848
874,076
$ 198,440
83,177
792,736
1.95%
2.46
0.67%
0.96
$733,189
566,019
866,005
$ 164,951
137,861
339,468
2.18%
2.41
0.67%
0.82
FIRST HORIZON NATIONAL CORPORATION
119
Note 10 (cid:2) Term Borrowings
The following table presents information pertaining to Term Borrowings reported on FHN’s Consolidated Statements
of Condition on December 31:
(Dollars in thousands)
First Tennessee Bank National Association:
Senior capital notes (a)
Maturity date – December 1, 2019 – 2.95%
Other collateralized borrowings – Maturity date – December 22, 2037
1.89% on December 31, 2017 and 1.26% on December 31, 2016 (b)
Other collateralized borrowings – SBA loans (c)
Federal Home Loan Bank borrowings
Maturity date – August 2, 2018 – 0.00%
First Horizon National Corporation:
Senior capital notes (a)
Maturity date – December 15, 2020 – 3.50%
Junior subordinated debentures (d)
Maturity date – July 31, 2031 – 4.96%
Maturity date – July 31, 2031 – 4.96%
Maturity date – December 30, 2032 – 5.04%
Maturity date – June 26, 2033 – 4.77%
Maturity date – October 8, 2033 – 4.21%
Maturity date – February 8, 2034 – 4.23%
Maturity date – June 26, 2035 – 3.27%
Maturity date – December 15, 2035 – 2.96%
Maturity date – March 15, 2036 – 2.99%
Maturity date – March 15, 2036 – 3.13%
Maturity date – June 30, 2036 – 3.01%
Maturity date – July 7, 2036 – 2.91%
Maturity date – June 15, 2037 – 3.24%
Maturity date – September 6, 2037 – 2.94%
FT Real Estate Securities Company, Inc.:
Cumulative preferred stock (e)
Maturity date – March 31, 2031 – 9.50%
First Horizon ABS Trusts:
Other collateralized borrowings (f)
Maturity date – October 25, 2034
2017
2016
$ 396,105
$ 399,384
65,356
7,416
64,812
-
100
100
486,513
489,202
4,124
5,155
5,155
10,310
10,310
10,310
2,708
17,270
8,667
11,482
25,646
17,642
49,875
8,627
-
-
-
-
-
-
-
-
-
-
-
-
-
-
46,100
46,032
1.72% on December 31, 2017 and 0.93% on December 31, 2016
11,226
23,126
First Tennessee New Markets Corporation Investments:
Maturity date – October 25, 2018 – 4.97%
Maturity date – February 1, 2033 – 4.97%
Maturity date – August 08, 2036 – 2.38%
Total
7,301
8,000
2,699
7,301
8,000
2,699
$1,218,097
$1,040,656
(a) Changes in the fair value of debt attributable to interest rate risk are hedged. Refer to Note 22–Derivatives.
(b) Secured by trust preferred loans.
(c) Collateralized borrowings associated with SBA loan sales that did not meet sales criteria. The loans have remaining terms of 5 to 25 years.
These borrowings had a weighted average interest rate of 3.26 percent on December 31, 2017.
(d) Acquired in conjunction with the acquisition of CBF. A portion qualifies for Tier 2 capital under the risk-based capital guidelines.
(e) A portion qualifies for total capital under the risk-based capital guidelines.
(f) On December 31, 2017 and 2016, borrowings secured by $24.2 million and $35.9 million, respectively, of residential real estate loans.
120
FIRST HORIZON NATIONAL CORPORATION
Note 10 (cid:2) Term Borrowings (continued)
Annual principal repayment requirements as of December 31, 2017 are as follows:
(Dollars in thousands)
2018
2019
2020
2021
2022
2023 and after
$
7,401
400,000
500,000
-
209
353,866
In conjunction with the acquisition of CBF, FHN acquired junior subordinated debentures with aggregate par values
of $212.4 million. Each of these issuances is held by a wholly owned trust that has issued trust preferred
securities to external investors and loaned the funds to FHN, as successor to CBF, as junior subordinated debt.
The book value for each issuance represents the purchase accounting fair value as of the closing date less
accumulated amortization of the associated discount, as applicable. Through various contractual arrangements FHN
assumed a full and unconditional guarantee for each trust’s obligations with respect to the securities. While the
maturity dates are typically 30 years from the original issuance date, FHN has the option to redeem each of the
junior subordinated debentures at par either immediately or on any future interest payment date, which would
trigger redemption of the related trust preferred securities. The junior subordinated debentures are included in the
Consolidated Statements of Condition in Term borrowings. A portion of FHN’s junior subordinated notes qualify as
Tier 2 capital under the risk-based capital guidelines.
Note 11 (cid:2) Preferred Stock
FHN Preferred Stock
On January 31, 2013, FHN issued 1,000 shares having an aggregate liquidation preference of $100 million of
Non-Cumulative Perpetual Preferred Stock, Series A for net proceeds of approximately $96 million. Dividends on
the Series A Preferred Stock, if declared, accrue and are payable quarterly, in arrears, at a rate of 6.20% percent
per annum. For the issuance, FHN issued depositary shares, each of which represents a 1/4000th fractional
ownership interest in a share of FHN’s preferred stock. These securities qualify as Tier 1 capital.
Subsidiary Preferred Stock
In 2000 FT Real Estate Securities Company, Inc. (“FTRESC”), an indirect subsidiary of FHN, issued 50 shares of
9.50 percent Cumulative Preferred Stock, Class B (“Class B Preferred Shares”), with a liquidation preference of
$1.0 million per share; of those, 47 shares were issued to nonaffiliates. As of December 31, 2017, these securities
partially qualify as Tier 2 capital and are presented in the Consolidated Statements of Condition as Term
borrowings. FTRESC is a real estate investment trust (“REIT”) established for the purpose of acquiring, holding,
and managing real estate mortgage assets. Dividends on the Class B Preferred Shares are cumulative and are
payable semi-annually.
The Class B Preferred Shares are mandatorily redeemable on March 31, 2031, and redeemable at the discretion
of FTRESC in the event that the Class B Preferred Shares cannot be accounted for as Tier 2 regulatory capital or
there is more than an insubstantial risk that dividends paid with respect to the Class B Preferred Shares will not
be fully deductible for tax purposes. At December 31, 2017 the Class B Preferred Shares partially qualified as
Tier 2 regulatory capital and the shares will be fully phased out of Tier 2 regulatory capital in 2018. They are not
subject to any sinking fund and are not convertible into any other securities of FTRESC, FHN, or any of its
subsidiaries. The shares are, however, automatically exchanged at the direction of the Office of the Comptroller of
the Currency for preferred stock of FTBNA, having substantially the same terms as the Class B Preferred Shares in
the event FTBNA becomes undercapitalized, insolvent, or in danger of becoming undercapitalized.
Additionally for all periods presented, subsidiaries have also issued $.6 million in aggregate of Cumulative Perpetual
Preferred Stock, which has been recognized as Noncontrolling interest on the Consolidated Statements of
FIRST HORIZON NATIONAL CORPORATION
121
Note 11 (cid:2) Preferred Stock (continued)
Condition. Other preferred shares are outstanding but are owned by FHN subsidiaries and are eliminated in
consolidation.
In 2005 FTBNA issued 300,000 shares of Class A Non-Cumulative Perpetual Preferred Stock (“Class A Preferred
Stock”) with a liquidation preference of $1,000 per share. Dividends on the Class A Preferred Stock, if declared,
accrue and are payable each quarter, in arrears, at a floating rate equal to the greater of the three month LIBOR
plus .85 percent or 3.75 percent per annum. These securities qualify fully as Tier 1 capital for FTBNA while for
FHN consolidated they qualify partially as Tier 1 capital and partially as Tier 2 capital. On December 31, 2017 and
2016, $294.8 million of Class A Preferred Stock was recognized as Noncontrolling interest on the Consolidated
Statements of Condition.
Note 12 (cid:2) Regulatory Capital and Restrictions
Regulatory Capital. FHN and FTBNA are subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on
FHN’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective
action, specific capital guidelines that involve quantitative measures of assets, liabilities, and certain derivatives as
calculated under regulatory accounting practices must be met. Capital amounts and classification are also subject
to qualitative judgment by the regulators such as capital components, asset risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require FHN and FTBNA to maintain
minimum amounts and ratios of Total, Tier 1, and Common Equity Tier 1 capital to risk-weighted assets, and of
Tier 1 capital to average assets (“Leverage”). Management believes that, as of December 31, 2017, FHN and
FTBNA met all capital adequacy requirements to which they were subject.
122
FIRST HORIZON NATIONAL CORPORATION
Note 12 (cid:2) Regulatory Capital and Restrictions (continued)
The actual capital amounts and ratios of FHN and FTBNA are presented in the table below.
(Dollars in thousands)
On December 31, 2017
Actual:
Total Capital
Tier 1 Capital
Common Equity Tier 1
Leverage
Minimum Requirement for Capital Adequacy Purposes:
Total Capital
Tier 1 Capital
Common Equity Tier 1
Leverage
Minimum Requirement to be Well Capitalized Under Prompt Corrective
Action Provisions:
Total Capital
Tier 1 Capital
Common Equity Tier 1
Leverage
On December 31, 2016
Actual:
Total Capital
Tier 1 Capital
Common Equity Tier 1
Leverage
Minimum Requirement for Capital Adequacy Purposes:
Total Capital
Tier 1 Capital
Common Equity Tier 1
Leverage
Minimum Requirement to be Well Capitalized Under Prompt Corrective
Action Provisions:
Total Capital
Tier 1 Capital
Common Equity Tier 1
Leverage
First Horizon
National Corporation
First Tennessee Bank
National Association
Amount
Ratio
Amount
Ratio
$3,703,754
3,281,478
2,962,155
3,281,478
11.10%
9.83
8.88
10.31
$3,520,670
3,317,684
3,041,420
3,317,684
10.74%
10.12
9.28
10.70
2,669,910
2,002,433
1,501,824
1,272,990
8.00
6.00
4.50
4.00
2,622,924
1,967,193
1,475,395
1,240,647
8.00
6.00
4.50
4.00
3,278,655
2,622,924
2,131,126
1,550,809
10.00
8.00
6.50
5.00
$2,926,010
2,671,871
2,377,987
2,671,871
12.24%
11.17
9.94
9.35
$2,762,271
2,538,382
2,298,080
2,538,382
11.78%
10.83
9.80
9.16
1,913,133
1,434,849
1,076,137
1,143,250
8.00
6.00
4.50
4.00
1,875,780
1,406,835
1,055,126
1,108,406
8.00
6.00
4.50
4.00
2,344,725
1,875,780
1,524,071
1,385,508
10.00
8.00
6.50
5.00
Restrictions on cash and due from banks. Under the Federal Reserve Act and Regulation D, FTBNA is required to
maintain a certain amount of cash reserves. On December 31, 2017 and 2016, FTBNA’s net required reserves
were $278.4 million and $259.2 million, respectively, after the consideration of $255.2 million and $158.9 million
in average vault cash. The remaining net reserve requirement for each year was met with Federal Reserve Bank
deposits. Vault cash is reflected in Cash and due from banks on the Consolidated Statements of Condition and
Federal Reserve Bank deposits are reflected as Interest-bearing cash.
Restrictions on dividends. Cash dividends are paid by FHN from its assets, which are mainly provided by dividends
from its subsidiaries. Certain regulatory restrictions exist regarding the ability of FTBNA to transfer funds to FHN in
the form of cash, dividends, loans, or advances. As of December 31, 2017, FTBNA had undivided profits of
$869.1 million, of which none was available for distribution to FHN as dividends without prior regulatory approval
until January 1, 2018. At any given time, the pertinent portions of those regulatory restrictions allow FTBNA to
declare preferred or common dividends without prior regulatory approval in an amount equal to FTBNA’s retained
net income for the two most recent completed years plus the current year to date. For any period, FTBNA’s
‘retained net income’ generally is equal to FTBNA’s regulatory net income reduced by the preferred and common
dividends declared by FTBNA. Excess dividends in either of the two most recent completed years may be offset
with available retained net income in the two years immediately preceding it. Applying the dividend restrictions
FIRST HORIZON NATIONAL CORPORATION
123
Note 12 (cid:2) Regulatory Capital and Restrictions (continued)
imposed under applicable federal rules, FTBNA’s total amount available for dividends was negative $156.7 million
at December 31, 2017 and positive $51.1 million at January 1, 2018. FTBNA applied for and received approval
from the OCC to declare and pay common dividends to the parent company in the amount of in $250.0 million in
2017 and 2016. During 2017 and 2016, FTBNA declared and paid dividends on its preferred stock quarterly, with
OCC approval as necessary. Additionally, FTBNA declared preferred dividends in first quarter 2018 payable in April
2018.
The payment of cash dividends by FHN and FTBNA may also be affected or limited by other factors, such as the
requirement to maintain adequate capital above regulatory guidelines. For example, beginning in 2016, the ability
to pay dividends is restricted if capital ratios fall below regulatory minimums plus a prescribed capital conservation
buffer. Furthermore, the Federal Reserve and the OCC require insured banks and bank holding companies only to
pay dividends out of current operating earnings. Consequently, the decision of whether FHN will pay future
dividends and the amount of dividends will be affected by current operating results.
Restrictions on intercompany transactions. Under current Federal banking law, FTBNA may not enter into covered
transactions with any affiliate including the parent company and certain financial subsidiaries in excess of
10 percent of the bank’s capital stock and surplus, as defined, or $388.2 million, on December 31, 2017. Covered
transactions include a loan or extension of credit to an affiliate, a purchase of or an investment in securities issued
by an affiliate and the acceptance of securities issued by the affiliate as collateral for any loan or extension of
credit. The equity investment, including retained earnings, in certain of a bank’s financial subsidiaries is also
treated as a covered transaction. The parent company had covered transactions of $.9 million from FTBNA and
the bank’s financial subsidiary, FTN Financial Securities Corp., had a total equity investment from FTBNA of
$360.7 million on December 31, 2017. In addition, the aggregate amount of covered transactions with all affiliates,
as defined, is limited to 20 percent of the bank’s capital stock and surplus, as defined, or $766.3 million, on
December 31, 2017. FTBNA’s total covered transactions with all affiliates including the parent company on
December 31, 2017 were $361.7 million.
124
FIRST HORIZON NATIONAL CORPORATION
Note 13 (cid:2) Other Income and Other Expense
Following is detail of All other income and commissions and All other expense as presented in the Consolidated
Statements of Income:
(Dollars in thousands)
All other income and commissions:
Other service charges
ATM interchange fees
Deferred compensation
Electronic banking fees
Letter of credit fees
Mortgage banking
Insurance commissions
Gain/(loss) on extinguishment of debt (a)
Other
Total
All other expense:
Litigation and regulatory matters
Travel and entertainment
Other insurance and taxes
Customer relations
Employee training and dues
Supplies
Tax credit investments
Miscellaneous loan costs
OREO
Other (b)
Total
2017
2016
2015
$ 12,532
12,425
6,322
5,082
4,661
4,649
2,514
(14,329)
11,029
$ 11,731
11,965
3,025
5,477
4,103
10,215
2,981
-
14,734
$ 11,610
11,917
(1,369)
5,840
4,621
3,870
2,627
5,793
15,821
$ 44,885
$ 64,231
$ 60,730
$ 40,517
11,462
9,686
5,750
5,551
4,106
3,468
2,751
1,006
48,891
$ 30,469
10,275
10,891
6,255
5,691
4,434
3,349
2,586
773
41,568
$187,607
9,590
12,941
5,382
5,390
3,827
4,582
2,656
2,104
34,123
$133,188
$116,291
$268,202
(a) Loss on extinguishment of debt for 2017 relates to the repurchase of equity securities previously included in a financing transaction.
(b) 2017 includes $8.8 million of charitable contributions to the First Tennessee Foundation. An additional contribution of 65,000 Visa Class B
shares with a cost basis of $0 was also made in 2017.
FIRST HORIZON NATIONAL CORPORATION
125
Note 14 (cid:2) Components of Other Comprehensive Income/(Loss)
The following table provides the changes in accumulated other comprehensive income/(loss) by component, net of
tax, for the years ended December 31, 2017, 2016, and 2015:
(Dollars in thousands)
Balance as of December 31, 2014
Net unrealized gains/(losses)
Amounts reclassified from AOCI
Other comprehensive income/(loss)
Balance as of December 31, 2015
Net unrealized gains/(losses)
Amounts reclassified from AOCI
Other comprehensive income/(loss)
Balance as of December 31, 2016
Net unrealized gains/(losses)
Amounts reclassified from AOCI
Other comprehensive income/(loss)
Balance as of December 31, 2017
Adjustment to reflect adoption of ASU 2018-02
Securities AFS
Cash Flow
Hedges
Pension and
Post-retirement
Plans
$ 18,581
(14,055)
(1,132)
(15,187)
3,394
(19,709)
(917)
(20,626)
(17,232)
(4,467)
(298)
(4,765)
(21,997)
(4,837)
$
-
-
-
-
-
130
(1,395)
(1,265)
(1,265)
(2,156)
(2,945)
(5,101)
(6,366)
(1,398)
$(206,827)
(11,117)
358
Total
$(188,246)
(25,172)
(774)
(10,759)
(25,946)
(217,586)
(214,192)
(16,322)
4,751
(11,571)
(35,901)
2,439
(33,462)
(229,157)
(247,654)
(13,377)
5,618
(7,759)
(236,916)
(51,311)
(20,000)
2,375
(17,625)
(265,279)
(57,546)
Ending balance, as adjusted
$(26,834)
$(7,764)
$(288,227)
$(322,825)
Reclassifications from AOCI, and related tax effects, were as follows:
(Dollars in thousands)
Details about AOCI
Securities AFS:
2017
2016
2015
Affected line item in the statement where net
income is presented
Realized (gains)/losses on securities AFS
Tax expense/(benefit)
$ (483) $(1,485) $(1,836) Debt securities gains/(losses), net
185
568
704
Provision/(benefit) for income taxes
(298)
(917)
(1,132)
Cash flow hedges:
Realized (gains)/losses on cash flow hedges
Tax expense/(benefit)
(4,771)
1,826
(2,260)
865
(2,945)
(1,395)
Interest and fees on loans
Provision/(benefit) for income taxes
-
-
-
Pension and Postretirement Plans:
Amortization of prior service cost and net
actuarial gain/(loss)
Tax expense/(benefit)
9,101
(3,483)
7,697
(2,946)
Employee compensation, incentives, and
benefits
580
(222) Provision/(benefit) for income taxes
5,618
4,751
358
Total reclassification from AOCI
$ 2,375
$ 2,439
$ (774)
126
FIRST HORIZON NATIONAL CORPORATION
Note 15 (cid:2) Income Taxes
The aggregate amount of income taxes included in the Consolidated Statements of Income and the Consolidated
Statements of Equity for the years ended December 31, were as follows:
(Dollars in thousands)
Consolidated Statements of Income:
Income tax expense/(benefit)
Consolidated Statements of Equity:
Income tax expense/(benefit) related to:
Net unrealized gains/(losses) on pension and other postretirement plans
Net unrealized gains/(losses) on securities available-for-sale
Net unrealized gains/(losses) on cash flow hedges
Share based compensation
Total
2017
2016
2015
$131,892
$106,810
$10,941
(832)
(2,955)
(3,163)
-
(7,172)
(12,810)
(780)
(1,613)
(6,689)
(9,445)
-
(356)
$124,942
$ 84,435
$ (5,549)
The components of income tax expense/(benefit) for the years ended December 31, were as follows:
(Dollars in thousands)
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Total
2017
2016
2015
$ 10,012
879
-
$ 25,234
1,803
169
$ (5,059)
(8,258)
62
114,059
6,942
-
67,109
12,495
-
19,487
4,706
3
$131,892
$106,810
$10,941
On December 22, 2017, the Tax Cuts and Jobs Act “Tax Act” was signed into law. The Tax Act reduces the
federal statutory tax rate from 35 percent to 21 percent. Although the rate reduction was not effective until
January 1, 2018, GAAP required an adjustment in 2017 of deferred tax balances to reflect the new effective tax
rate. FHN recorded an $82 million increase in tax expense related to the effects of the Tax Act. This estimate will
be adjusted during the measurement period related to the CBF acquisition and as deferred tax items are finalized
for the 2017 tax return.
A reconciliation of expected income tax expense/(benefit) at the federal statutory rate of 35 percent to the total
income tax expense follows:
(Dollars in thousands)
Federal income tax rate
Tax computed at statutory rate
Increase/(decrease) resulting from:
State income taxes
Bank-owned life insurance (“BOLI”)
401(k) – employee stock ownership plan (“ESOP”)
Tax-exempt interest
Non-deductible expenses
LIHTC credits and benefits, net of amortization
Other tax credits
Change in valuation allowance – DTA
Other changes in unrecognized tax benefits
Effect of Tax Act
Other
Total
2017
35%
2016
35%
2015
35%
$108,105
$120,862
$37,889
4,753
(8,401)
(904)
(7,890)
7,558
(5,327)
(2,480)
(40,473)
46
82,027
(5,122)
9,918
(5,661)
(824)
(7,098)
1,079
(6,165)
(3,886)
(116)
616
-
(1,915)
7
(4,897)
(714)
(6,507)
887
(7,239)
(2,012)
(3,875)
(1,386)
-
(1,212)
$131,892
$106,810
$10,941
FIRST HORIZON NATIONAL CORPORATION
127
Note 15 (cid:2) Income Taxes (continued)
As of December 31, 2017, FHN had net deferred tax asset balances related to federal and state income tax
carryforwards of $126.8 million and $19.8 million, respectively, which will expire at various dates as follows:
(Dollars in thousands)
General business credits-federal
Losses-federal
Net operating losses-states
Net operating losses-states
Expiration Dates
2031-2037
2027-2035
2018-2022
2023-2035
Net Deferred Tax
Asset Balance
$64,835
62,010
1,092
18,709
A deferred tax asset (“DTA”) or deferred tax liability (“DTL”) is recognized for the tax consequences of temporary
differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities.
The tax consequence is calculated by applying enacted statutory tax rates, applicable to future years, to these
temporary differences. In order to support the recognition of the DTA, FHN’s management must believe that the
realization of the DTA is more likely than not. FHN evaluates the likelihood of realization of the DTA based on both
positive and negative evidence available at the time, including (as appropriate) scheduled reversals of DTLs,
projected future taxable income, tax planning strategies, and recent financial performance. Realization is dependent
on generating sufficient taxable income prior to the expiration of the carryforwards attributable to the DTA. In
projecting future taxable income, FHN incorporates assumptions including the estimated amount of future state
and federal pretax operating income, the reversal of temporary differences, and the implementation of feasible and
prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future
taxable income and are consistent with the plans and estimates used to manage the underlying business.
As of December 31, 2017, FHN’s net DTA was $221.8 million compared with the $199.6 million at December 31,
2016. FHN’s gross DTA (net of a valuation allowance) and gross DTL were $353.2 million and $131.4 million,
respectively. FHN’s net DTA increased by $137.7 million on November 30, 2017 upon the merger of CBF into
FHN. The provisional estimate of the effects of the Tax Act, discussed in this Note above, includes tax expense
related to a decrease in the acquired DTA from CBF by approximately $48.1 million due to the adjustment of the
DTA to the lower federal tax rate. As of December 31, 2017, FHN had fully utilized all capital loss carryovers. FHN
had a valuation allowance of $40.4 million against its 2012 federal capital loss carryforward as of December 31,
2016. Although realization is not assured, FHN believes that it meets the more-likely-than-not requirement with
respect to the net DTA after valuation allowance.
128
FIRST HORIZON NATIONAL CORPORATION
Note 15 (cid:2) Income Taxes (continued)
Temporary differences which gave rise to deferred tax assets and deferred tax liabilities on December 31, 2017
and 2016 were as follows:
(Dollars in thousands)
Deferred tax assets:
Loss reserves
Employee benefits
Equity investments
Accrued expenses
Capital loss carryforwards
Credit carryforwards
Federal loss carryforwards
State loss carryforwards
Investment in debt securities (ASC 320) (a)
Other
Gross deferred tax assets
Valuation allowance
Deferred tax assets after valuation allowance
Deferred tax liabilities:
Depreciation and amortization
Equity investments
Other intangible assets
Prepaid expenses
Real estate investment trust income
Other
Gross deferred tax liabilities
Net deferred tax assets
2017
2016
$ 91,390
50,404
28,547
16,052
-
64,835
62,010
19,801
8,811
11,512
$ 65,605
83,074
-
16,767
44,469
80,048
175
19,438
10,693
17,340
353,362
(147)
337,609
(40,593)
$353,215
$297,016
43,040
-
55,923
9,255
22,576
602
131,396
36,347
12,196
37,596
11,150
-
114
97,403
$221,819
$199,613
Certain previously reported amounts have been reclassified to agree with current presentation.
(a) Tax effects of unrealized gains and losses are tracked on a security-by-security basis.
The total unrecognized tax benefits (“UTB”) at December 31, 2017 and 2016, was $4.3 million and $4.2 million,
respectively. To the extent such unrecognized tax benefits as of December 31, 2017 are subsequently recognized,
$1.8 million of tax benefits would impact tax expense and FHN’s effective tax rate in future periods.
FHN is currently in audit in several jurisdictions. It is reasonably possible that the UTB related to state exposures
could decrease by $.5 million during 2018 if audits are completed and settled and if the applicable statutes of
limitations expire as scheduled.
FHN recognizes interest accrued and penalties related to UTB within income tax expense. FHN had approximately
$.4 million and $.3 million accrued for the payment of interest as of December 31, 2017 and 2016, respectively.
The total amount of interest and penalties recognized in the Consolidated Statements of Income during 2017 and
2016 was an expense of $.1 million and $.2 million, respectively.
The rollforward of unrecognized tax benefits is shown below:
(Dollars in thousands)
Balance at December 31, 2015
Increases related to prior year tax positions
Increases related to current year tax positions
Settlements
Balance at December 31, 2016
Increases related to prior year tax positions
Increases related to current year tax positions
Lapse of statutes
Balance at December 31, 2017
FIRST HORIZON NATIONAL CORPORATION
$3,673
951
27
(407)
$4,244
33
174
(180)
$4,271
129
Note 16 (cid:2) Earnings Per Share
The following table provides reconciliations of net income to net income available to common shareholders and the
difference between average basic common shares outstanding and average diluted common shares outstanding:
(Dollars and shares in thousands, except per share data)
Net income/(loss)
Net income attributable to noncontrolling interest
Net income/(loss) attributable to controlling interest
Preferred stock dividends
Net income/(loss) available to common shareholders
Weighted average common shares outstanding – basic
Effect of dilutive securities
Weighted average common shares outstanding – diluted
Net income/(loss) per share available to common shareholders
Diluted income/(loss) per share available to common shareholders
2017
2016
2015
$176,980
11,465
$238,511
11,465
$ 97,313
11,434
165,515
6,200
227,046
6,200
85,879
6,200
$159,315
$220,846
$ 79,679
241,436
3,017
232,700
2,592
234,189
2,077
244,453
235,292
236,266
$
$
0.66
0.65
$
$
0.95
0.94
$
$
0.34
0.34
The following table presents outstanding options and other equity awards that were excluded from the calculation
of diluted earnings per share because they were either anti-dilutive (the exercise price was higher than the
weighted-average market price for the period) or the performance conditions have not been met:
(Shares in thousands)
Stock options excluded from the calculation of diluted EPS
Weighted average exercise price of stock options excluded from the calculation of diluted EPS
Other equity awards excluded from the calculation of diluted EPS
2017
2016
2015
2,468
$25.62
176
2,610
$26.29
37
3,559
$24.40
98
Note 17 (cid:2) Contingencies and Other Disclosures
CONTINGENCIES
Contingent Liabilities Overview
Contingent liabilities arise in the ordinary course of business. Often they are related to lawsuits, arbitration,
mediation, and other forms of litigation. Various litigation matters are threatened or pending against FHN and its
subsidiaries. Also, FHN at times receives requests for information, subpoenas, or other inquiries from federal, state,
and local regulators, from other government authorities, and from other parties concerning various matters relating
to FHN’s current or former businesses. Certain matters of that sort are pending at this time, and FHN is
cooperating in those matters. Pending and threatened litigation matters sometimes are settled by the parties, and
sometimes pending matters are resolved in court or before an arbitrator. Regardless of the manner of resolution,
frequently the most significant changes in status of a matter occur over a short time period, often following a
lengthy period of little substantive activity. In view of the inherent difficulty of predicting the outcome of these
matters, particularly where the claimants seek very large or indeterminate damages, or where the cases present
novel legal theories or involve a large number of parties, or where claims or other actions may be possible but
have not been brought, FHN cannot reasonably determine what the eventual outcome of the matters will be, what
the timing of the ultimate resolution of these matters may be, or what the eventual loss or impact related to each
matter may be. FHN establishes a loss contingency liability for a litigation matter when loss is both probable and
reasonably estimable as prescribed by applicable financial accounting guidance. If loss for a matter is probable
and a range of possible loss outcomes is the best estimate available, accounting guidance requires a liability to be
established at the low end of the range.
Based on current knowledge, and after consultation with counsel, management is of the opinion that loss
contingencies related to threatened or pending litigation matters should not have a material adverse effect on the
130
FIRST HORIZON NATIONAL CORPORATION
Note 17 (cid:2) Contingencies and Other Disclosures (continued)
consolidated financial condition of FHN, but may be material to FHN’s operating results for any particular reporting
period depending, in part, on the results from that period.
Material Loss Contingency Matters
Summary
As used in this Note, except for some matters that are reported as having been substantially settled or otherwise
substantially resolved, FHN’s “material loss contingency matters” generally fall into at least one of the following
categories: (i) FHN has determined material loss to be probable and has established a material loss liability in
accordance with applicable financial accounting guidance; (ii) FHN has determined material loss to be probable
but is not reasonably able to estimate an amount or range of material loss liability; or (iii) FHN has determined that
material loss is not probable but is reasonably possible, and that the amount or range of that reasonably possible
material loss is estimable. As defined in applicable accounting guidance, loss is reasonably possible if there is
more than a remote chance of a material loss outcome for FHN. Set forth below are disclosures for certain
pending or threatened litigation matters, including all matters mentioned in (i) or (ii) and certain matters mentioned
in (iii). In addition, certain other matters, or groups of matters, are discussed relating to FHN’s former mortgage
origination and servicing businesses. In all litigation matters discussed, unless settled or otherwise resolved, FHN
believes it has meritorious defenses and intends to pursue those defenses vigorously.
FHN reassesses the liability for litigation matters each quarter as the matters progress. At December 31, 2017, the
aggregate amount of liabilities established for all such loss contingency matters was $41.6 million. These liabilities
are separate from those discussed under the heading “Repurchase and Foreclosure Liability” below.
In each material loss contingency matter, except as otherwise noted, there is more than a remote chance that any
of the following outcomes will occur: the plaintiff will substantially prevail; the defense will substantially prevail; the
plaintiff will prevail in part; or the matter will be settled by the parties. At December 31, 2017, FHN estimates that
for all material loss contingency matters, estimable reasonably possible losses in future periods in excess of
currently established liabilities could aggregate in a range from zero to approximately $28 million.
As a result of the general uncertainties discussed above and the specific uncertainties discussed for each matter
mentioned below, it is possible that the ultimate future loss experienced by FHN for any particular matter may
materially exceed the amount, if any, of currently established liability for that matter. That possibility exists both for
matters included in the estimated reasonably possible loss (“RPL”) range mentioned above and for matters not
included in that range.
Material Matters
FTBNA, as indirect successor to CommunityOne Bank (“C1”) through FTBNA’s merger with CBF in 2017, is
defending a consolidated lawsuit brought by approximately 34 alleged victims of a fraudulent scheme known as
“Black Diamond.” The action is pending in the U.S. District Court for the Western District of North Carolina
(Civ. Act. No. 3:15-cv-00403-RJC-DSC). The Black Diamond scheme ended in 2009 with the arrest of its principal.
The Black Diamond business entity had a depositary account with C1. The plaintiffs claim that the Black Diamond
account at C1 had the status of a “fiduciary account” under state law, and that C1 breached fiduciary duties owed
to plaintiffs (because of that status) by not discovering the fraudulent scheme. Plaintiffs demand restitution of
money lost in the scheme plus punitive damages and attorneys’ fees. The current RPL estimate for this matter is
subject to significant uncertainties regarding: whether the depositary account at issue will be determined to have
been a fiduciary account; the availability and scope of other significantly dispositive defenses; the dollar amounts
claimed; and the potential remedies that might be available or awarded.
FHN, along with multiple co-defendants, is defending lawsuits brought by investors which claim that offering
documents under which certificates relating to First Horizon branded securitizations were sold to them were
FIRST HORIZON NATIONAL CORPORATION
131
Note 17 (cid:2) Contingencies and Other Disclosures (continued)
materially deficient. One of those matters is viewed as material currently: Federal Deposit Insurance Corporation
(“FDIC”) as receiver for Colonial Bank, in the U.S. District Court for the Southern District of New York (Case
No. 12 Civ. 6166 (LLS)(MHD)). The plaintiff in that suit claims to have purchased (and later sold) certificates
totaling $83.4 million, relating to a number of separate securitizations. Plaintiff demands damages and prejudgment
interest, among several remedies sought. The current liability and RPL estimates for this matter are subject to
significant uncertainties regarding: the dollar amounts claimed; the potential remedies that might be available or
awarded; the outcome of any settlement discussions that may occur; the availability of significantly dispositive
defenses; and the incomplete status of the discovery process. Additional information concerning FHN’s former
mortgage businesses is provided below in “Obligations from Legacy Mortgage Businesses.”
Underwriters are co-defendants in the FDIC-New York matter and have demanded, under provisions in the
applicable underwriting agreements, that FHN indemnify them for their expenses and any losses they may incur. In
addition, FHN has received indemnity demands from underwriters in certain other suits as to which investors claim
to have purchased certificates in FH proprietary securitizations but as to which FHN has not been named a
defendant.
For most pending indemnity claims involving FH proprietary securitizations FHN is unable to estimate an RPL
range due to significant uncertainties regarding: claims as to which the claimant specifies no dollar amount; the
potential remedies that might be available or awarded; the availability of significantly dispositive defenses such as
statutes of limitations or repose; the outcome of potentially dispositive early-stage motions such as motions to
dismiss; the incomplete status of the discovery process; the lack of a precise statement of damages; and lack of
precedent claims. The alleged purchase prices of the certificates subject to pending indemnification claims,
excluding the FDIC-New York matter, total $409.9 million.
In late October, 2017, FHN received a notice of indemnification claims from Nationstar Mortgage LLC, currently
doing business as “Mr. Cooper.” Nationstar was the purchaser of FHN’s mortgage servicing obligations and assets
in 2013 and 2014 and, starting in 2011, FHN’s subservicer. The notice asserts several categories of indemnity
obligations by FHN to Nationstar in connection with mortgage loans under the subservicing arrangement and under
the purchase transaction. This matter currently is not in formal litigation, but litigation in the future is possible.
FHN is unable to estimate an RPL range for this matter due to significant uncertainties regarding: the exact nature
of each of Nationstar’s claims and its position in respect of each; the number of, and the facts underlying, the
claimed instances of indemnifiable events; the applicability of FHN’s contractual indemnity covenants to those facts
and events; and, in those cases where the facts and events might support an indemnity claim, whether any legal
defenses, counterclaims, other counter-positions, or third-party claims might eliminate or reduce claims against
FHN or their impact on FHN.
FHN has additional potential exposures related to its former mortgage businesses. A few of those matters have
become litigation which FHN currently estimates are immaterial, some are non-litigation claims or threats, some are
mere subpoenas or other requests for information, and in some areas FHN has no indication of any active or
threatened dispute. Some of those matters might eventually result in loan repurchases or make-whole payments
and could be included in the repurchase liability discussed below, and some might eventually result in damages or
other litigation-oriented liability, including indemnity payments, but none are included in the material loss
contingency liabilities mentioned above or in the RPL range mentioned above. Additional information concerning
such exposures is provided below in “Obligations from Legacy Mortgage Businesses.”
Material Gain Contingency Matter
In second quarter 2015 FHN reached an agreement with DOJ and HUD to settle potential claims related to FHN’s
underwriting and origination of loans insured by FHA. Under that agreement FHN paid $212.5 million. FHN
believes that certain insurance policies, having an aggregate policy limit of $75 million, provide coverage for FHN’s
losses and related costs. The insurers have denied and/or reserved rights to deny coverage. FHN sued the insurers
to enforce the policies under Tennessee law. The trial court granted summary judgment to the defendants, and
FHN has appealed. In connection with this litigation FHN seeks to partly recoup previously recognized expenses
associated with the settled matter. Under applicable financial accounting guidance FHN has determined that
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Note 17 (cid:2) Contingencies and Other Disclosures (continued)
although material gain from this litigation is not probable, there is a reasonably possible (more than remote)
chance of a material gain outcome for FHN. FHN cannot determine a probable outcome that may result from this
matter because of the uncertainty of the potential outcomes of the legal proceedings and also due to significant
uncertainties regarding: legal interpretation of the relevant contracts; potential remedies that might be available or
awarded; and the ultimate effect of counterclaims asserted by the defendants. Additional information concerning
FHN’s former mortgage businesses is provided below in “Obligations from Legacy Mortgage Businesses.”
Obligations from Legacy Mortgage Businesses
Loss contingencies mentioned above under “Material Matters” stem from FHN’s former mortgage origination and
servicing businesses. FHN retains potential for further exposure, in addition to the matters mentioned, from those
former businesses. The following discussion provides context and other information to enhance an understanding of
those matters and exposures.
Overview
Prior to September 2008 FHN originated loans through its legacy mortgage business, primarily first lien home
loans, with the intention of selling them. Sales typically were effected either as non-recourse whole-loan sales or
through non-recourse proprietary securitizations. Conventional conforming single-family residential mortgage loans
were sold predominately to two GSEs: Fannie Mae and Freddie Mac. Also, federally insured or guaranteed whole
loans were pooled, and payments to investors were guaranteed through Ginnie Mae. Many mortgage loan
originations, especially nonconforming mortgage loans, were sold to investors, or certificate-holders, predominantly
through FH proprietary securitizations but also, to a lesser extent, through other whole loans sold to private non-
Agency purchasers. FHN used only one trustee for all of its FH proprietary securitizations. FHN also originated
mortgage loans eligible for FHA insurance or VA guaranty. In addition, FHN originated and sold HELOCs and
second lien mortgages through other whole loans sold to private purchasers and, to a lesser extent, through FH
proprietary securitizations. Currently, only one FH securitization of HELOCs remains outstanding.
For non-recourse loan sales, FHN has exposure for repurchase of loans, make-whole damages, or other related
damages, arising from claims that FHN breached its representations and warranties made at closing to the
purchasers, including GSEs, other whole loan purchasers, and the trustee of FH proprietary securitizations.
During the time these legacy activities were conducted, FHN frequently sold mortgage loans “with servicing
retained.” As a result, FHN accumulated substantial amounts of MSR on its consolidated balance sheet, as well as
contractual servicing obligations and related deposits and receivables. FHN conducted a significant servicing
business under its First Horizon Home Loans brand.
MI was required by GSE rules for certain of the loans sold to GSEs and was also provided for certain of the loans
that were securitized. MI generally was provided for first lien loans sold or securitized having an LTV ratio at
origination of greater than 80 percent.
In 2007, market conditions deteriorated to the point where mortgage-backed securitizations no longer could be sold
economically; FHN’s last securitization occurred that year. FHN continued selling mortgage loans to GSEs until
August 31, 2008, when FHN sold its national mortgage origination and servicing platforms along with a portion of
its servicing assets and obligations. FHN contracted to have its remaining servicing obligations sub-serviced. Since
the platform sale FHN has sold substantially all remaining servicing assets and obligations.
Certain mortgage-related terms used in this “Contingencies” section are defined in “Mortgage-Related Glossary” at
the end of this Overview.
FIRST HORIZON NATIONAL CORPORATION
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Note 17 (cid:2) Contingencies and Other Disclosures (continued)
Repurchase and Make-Whole Obligations
Starting in 2009, FHN received a high number of claims either to repurchase loans from the purchaser or to pay
the purchaser to “make them whole” for economic losses incurred. These claims have been driven primarily by
loan delinquencies. In repurchase or make-whole claims a loan purchaser typically asserts that specified loans
violated representations and warranties FHN made when the loans were sold. A significant majority of claims
received overall have come from GSEs, and the remainder are from purchasers of other whole loan sales. FHN has
not received a loan repurchase or make-whole claim from the FH proprietary securitization trustee.
Generally, FHN reviews each claim and MI cancellation notice individually. FHN’s responses include appeal,
provide additional information, deny the claim (rescission), repurchase the loan or remit a make-whole payment, or
reflect cancellation of MI.
After several years resolving repurchase and make-whole claims with each GSE on a loan-by-loan basis, in 2013
and 2014 FHN entered into DRAs with the GSEs, resolving a substantial majority of potential claims. Starting in
2014, the overall number of such claims diminished substantially, primarily as a result of the DRAs. Each DRA
resolved obligations associated with loans originated from 2000 to 2008, but certain obligations and loans were
excluded. Under each DRA, FHN remains responsible for repurchase obligations related to certain excluded
defects (such as title defects and violations of the GSE’s Charter Act) and FHN continues to have loan repurchase
or monetary compensation obligations under the DRAs related to private mortgage insurance rescissions,
cancellations, and denials (with certain exceptions). FHN also has exposure related to loans where there has been
a prior bulk sale of servicing, as well as certain other whole-loan sales. With respect to loans where there has been
a prior bulk sale of servicing, FHN is not responsible for MI cancellations and denials to the extent attributable to
the acts of the current servicer.
While large portions of repurchase claims from the GSEs were settled with the DRAs, comprehensive settlement of
repurchase, make-whole, and indemnity claims with non-Agency claimants is not practical. Such claims that are
not resolved by the parties can, and sometimes have, become litigation.
FH Proprietary Securitization Actions
FHN has potential financial exposure from FH proprietary securitizations outside of the repurchase/make-whole
process. Several investors in certificates sued FHN and others starting in 2009, and several underwriters or other
counterparties have demanded that FHN indemnify and defend them in securitization lawsuits. The pending suits
generally assert that disclosures made to investors in the offering and sale of certificates were legally deficient.
Servicing Obligations
FHN’s national servicing business was sold as part of the platform sale in 2008. A significant amount of MSR was
sold at that time, and a significant amount was retained. The related servicing activities, including foreclosure and
loss mitigation practices, not sold in 2008 were outsourced through a three-year subservicing arrangement (the
“2008 subservicing agreement”) with the platform buyer (the “2008 subservicer”). The 2008 subservicing
agreement expired in 2011 when FHN entered into a replacement agreement with a new subservicer (the “2011
subservicer”). In fourth quarter 2013, FHN contracted to sell a substantial majority of its remaining servicing
obligations and servicing assets (including advances) to the 2011 subservicer. The servicing was transferred to the
buyer in stages, and was substantially completed in first quarter 2014. The servicing still retained by FHN
continues to be subserviced.
As servicer, FHN had contractual obligations to the owners of the loans (primarily GSEs) and securitization
trustees, to handle billing, custodial, and other tasks related to each loan. Each subservicer undertook to perform
those obligations on FHN’s behalf during the applicable subservicing period, although FHN legally remained the
servicer of record for those loans that were subserviced.
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Note 17 (cid:2) Contingencies and Other Disclosures (continued)
The 2008 subservicer has been subject to a consent decree, and entered into a settlement agreement with
regulators related to alleged deficiencies in servicing and foreclosure practices. The 2008 subservicer has made
demands of FHN, under the 2008 subservicing agreement, to pay certain resulting costs and damages totaling
$43.5 million. FHN disagrees with those demands and has made no payments. This disagreement has the
potential to result in litigation and, in any such future litigation, the claim against FHN may be substantial.
Origination Data
From 2005 through 2008, FHN originated and sold $69.5 billion of mortgage loans to the Agencies. This includes
$57.6 billion of loans sold to GSEs and $11.9 billion of loans guaranteed by Ginnie Mae. Although FHN conducted
these businesses before 2005, GSE loans originated in 2005 through 2008 account for a substantial majority of all
repurchase requests/make-whole claims received since the 2008 platform sale.
From 2005 through 2007, $26.7 billion of mortgage loans were included in FH proprietary securitizations. The last
FH securitization occurred in 2007.
FIRST HORIZON NATIONAL CORPORATION
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Note 17 (cid:2) Contingencies and Other Disclosures (continued)
Mortgage-Related Glossary
Agencies
the two GSEs and Ginnie
Mae
certificates
securities sold to investors
representing interests in
mortgage loan
securitizations
DOJ U.S. Department of
Justice
DRA
definitive resolution
agreement with a GSE
Fannie Mae, Fannie, FNMA
FH proprietary
securitization
Federal National Mortgage
Association
securitization of mortgages
sponsored by FHN under
its First Horizon brand
FHA
Federal Housing
Administration
HELOC
home equity line of credit
HUD Dept. of Housing and
Urban Development
LTV
MI
loan-to-value, a ratio of
the loan amount divided
by the home value
private mortgage
insurance, insuring against
borrower payment default
MSR mortgage servicing rights
nonconforming loans
loans that did not conform
to Agency program
requirements
other whole loans sold mortgage loans sold to
private, non-Agency
purchasers
FHN’s sale of its national
mortgage origination and
servicing platforms in
2008
pipeline of mortgage
repurchase, make-whole,
& certain related claims
against FHN
Freddie Mac, Freddie,
FHLMC
Federal Home Loan
Mortgage Corporation
2008 platform sale, 2008
sale, platform sale
Ginnie Mae, Ginnie, GNMA Government National
Mortgage Association
pipeline or active pipeline
GSEs
Fannie Mae and Freddie
Mac
VA
Veterans Administration
Repurchase and Foreclosure Liability
The repurchase and foreclosure liability is comprised of reserves to cover estimated loss content in the active
pipeline, estimated future inflows, as well as estimated loss content related to certain known claims not currently
included in the active pipeline. FHN compares the estimated probable incurred losses determined under the
applicable loss estimation approaches for the respective periods with current reserve levels. Changes in the
estimated required liability levels are recorded as necessary through the repurchase and foreclosure provision.
Based on currently available information and experience to date, FHN has evaluated its loan repurchase, make-
whole, and certain related exposures and has accrued for losses of $34.2 million and $66.0 million as of
December 31, 2017 and 2016, respectively, including a smaller amount related to equity-lending junior lien loan
sales. Accrued liabilities for FHN’s estimate of these obligations are reflected in Other liabilities on the Consolidated
Statements of Condition. Charges/expense reversals to increase/decrease the liability are included within
Repurchase and foreclosure provision/(provision credit) on the Consolidated Statements of Income. The estimates
are based upon currently available information and fact patterns that exist as of each balance sheet date and
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Note 17 (cid:2) Contingencies and Other Disclosures (continued)
could be subject to future changes. Changes to any one of these factors could significantly impact the estimate of
FHN’s liability.
Other FHN Mortgage Exposures
At December 31, 2017, FHN had not accrued a liability for exposure for repurchase of first-lien loans related to
FH proprietary securitizations arising from claims from the trustee that FHN breached its representations and
warranties in FH proprietary securitizations at closing, and no such claims had been made. FHN’s trustee is a
defendant in lawsuits in which the plaintiffs have asserted that the trustee has duties to review loans and otherwise
to act against FHN outside of the duties specified in the applicable trust documents; FHN is not a defendant and
is not able to assess what, if any, exposure FHN may have as a result of them.
FHN is defending, directly or as indemnitor, certain pending lawsuits brought by purchasers of certificates in FH
proprietary securitizations or their assignees. FHN believes a new lawsuit based on federal securities claims that
offering disclosures were deficient cannot be brought at this time due to the running of applicable limitation
periods, but other investor claims, based on other legal theories, might still be possible. Due to sales of MSR
starting in 2008, FHN has limited visibility into current loan information such as principal payoffs, refinance activity,
delinquency trends, and loan modification activity.
Many non-GSE purchasers of whole loans from FHN included those loans in their own securitizations. Regarding
such other whole loans sold, FHN made representations and warranties concerning the loans and provided
indemnity covenants to the purchaser/securitizer. Typically the purchaser/securitizer assigned key contractual rights
against FHN to the securitization trustee. As mentioned above, repurchase, make-whole, indemnity, and other
monetary claims related to specific loans are included in the active pipeline and repurchase reserve. In addition,
currently the following categories of actions are pending which involve FHN and other whole loans sold: (i) FHN
has received indemnification requests from purchasers of loans or their assignees in cases where FHN is not a
defendant; (ii) FHN has received subpoenas seeking loan reviews in cases where FHN is not a defendant; and (iii)
FHN has received repurchase, indemnity, and other demands from purchasers or their assignees. At December
31, 2017, FHN’s repurchase and foreclosure liability considered certain known exposures from other whole loans
sold.
OTHER DISCLOSURES
Visa Matters
FHN is a member of the Visa USA network. In October 2007, the Visa organization of affiliated entities completed
a series of global restructuring transactions to combine its affiliated operating companies, including Visa USA,
under a single holding company, Visa Inc. (“Visa”). Upon completion of the reorganization, the members of the
Visa USA network remained contingently liable for certain Visa litigation matters (the “Covered Litigation”). Based
on its proportionate membership share of Visa USA, FHN recognized a contingent liability in fourth quarter 2007
related to this contingent obligation. In March 2008, Visa completed its initial public offering (“IPO”) and funded
an escrow account from its IPO proceeds to be used to make payments related to the Visa litigation matters. FHN
received approximately 2.4 million Class B shares in conjunction with Visa’s IPO.
Conversion of these shares into Class A shares of Visa is prohibited until the final resolution of the covered
litigation. In conjunction with the prior sales of Visa Class B shares in December 2010 and September 2011, 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. The conversion ratio
is adjusted when Visa deposits funds into the escrow account to cover certain litigation. As of December 31, 2017
and 2016, the derivative liabilities were $5.6 million and $6.2 million, respectively.
FIRST HORIZON NATIONAL CORPORATION
137
Note 17 (cid:2) Contingencies and Other Disclosures (continued)
In July 2012, Visa and MasterCard announced a joint settlement (the “Settlement”) related to the Payment Card
Interchange matter, one of the Covered Litigation matters. Based on the amount of the Settlement attributable to
Visa and an assessment of FHN’s contingent liability accrued for Visa litigation matters, the Settlement did not
have a material impact on FHN. The Settlement was vacated upon appeal in June 2016 and the Supreme Court
declined to hear the case in March 2017. Accordingly, the outcome of this matter remains uncertain. Additionally,
other Covered Litigation matters are also pending judicial resolution. So long as any Covered Litigation matter
remains pending, FHN’s ability to transfer its Visa holdings is restricted, with limited exceptions.
FHN holds approximately 1.0 million Visa Class B shares. FHN’s Visa shares are not considered to be marketable
and therefore are included in the Consolidated Statements of Condition at their historical cost of $0. As of
December 31, 2017, the conversion ratio is 165 percent reflecting a Visa stock split in March 2015, and the
contingent liability is $.8 million. Future funding of the escrow would dilute this conversion ratio by an amount that
is not determinable at present. Based on the closing price on December 31, 2017, assuming conversion into
Class A shares at the current conversion ratio, FHN’s Visa holdings would have had a value of approximately $197
million. Recognition of market value in the future with that conversion ratio is dependent upon the final resolution
of the remainder of Visa’s Covered Litigation matters without further reduction of the conversion ratio.
Indemnification Agreements and Guarantees
In the ordinary course of business, FHN enters into indemnification agreements for legal proceedings against its
directors and officers and standard representations and warranties for underwriting agreements, merger and
acquisition agreements, loan sales, contractual commitments, and various other business transactions or
arrangements. The extent of FHN’s obligations under these agreements depends upon the occurrence of future
events; therefore, it is not possible to estimate a maximum potential amount of payouts that could be required by
such agreements.
Note 18 (cid:2) Pension, Savings, and Other Employee Benefits
Pension plan. FHN sponsors a noncontributory, qualified defined benefit pension plan to employees hired or re-
hired on or before September 1, 2007. Pension benefits are based on years of service, average compensation near
retirement or other termination, and estimated social security benefits at age 65. Benefits under the plan are
“frozen” so that years of service and compensation changes after 2012 do not affect the benefit owed. Minimum
contributions are based upon actuarially determined amounts necessary to fund the total benefit obligation.
Decisions to contribute to the plan are based upon pension funding requirements under the Pension Protection
Act, the maximum amount deductible under the Internal Revenue Code, the actual performance of plan assets,
and trends in the regulatory environment. FHN contributed $165 million to the qualified pension plan in third
quarter 2016. The contribution had no effect on FHN’s 2016 Consolidated Statements of Income. FHN did not
make any contributions to the qualified pension plan in 2017. Management does not currently anticipate that FHN
will make a contribution to the qualified pension plan in 2018.
FHN assumed two additional qualified pension plans in conjunction with the CBF acquisition. FHN conformed the
actuarial assumptions used in measuring the acquired plans to those used for its qualified plan in the purchase
accounting valuation. Both legacy CBF plans are frozen. At the closing of FHN’s merger with CBF, those plans had
an aggregate benefit obligation of $18.5 million and aggregate plan assets of $13.2 million. FHN contributed
$5.1 million to these plans in December 2017. As of December 31, 2017, the aggregate benefit obligation for the
plans was $18.7 million and aggregate plan assets were $18.6 million. Benefit payments, expense and actuarial
gains/losses related to these plans were insignificant for 2017. After the contribution, FHN altered the investment
strategy for the plans to re-allocate plan assets into fixed income investments (primarily Level 1 mutual funds) with
durations similar to those for the projected benefit obligation. Additional funding amounts to these plans are
dependent upon the potential settlement of the plans. Due to the insignificant financial statement impact, these
two plans are not included in the disclosures that follow.
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FIRST HORIZON NATIONAL CORPORATION
Note 18 (cid:2) Pension, Savings, and Other Employee Benefits (continued)
FHN also maintains non-qualified plans including a supplemental retirement plan that covers certain employees
whose benefits under the qualified pension plan have been limited by tax rules. These other non-qualified plans
are unfunded, and contributions to these plans cover all benefits paid under the non-qualified plans. Payments
made under the non-qualified plans were $5.4 million for 2017. FHN anticipates making benefit payments under
the non-qualified plans of $5.7 million in 2018.
Savings plan. FHN provides all qualifying full-time employees with the opportunity to participate in FHN’s tax
qualified 401(k) savings plan. The qualified plan allows employees to defer receipt of earned salary, up to tax law
limits, on a tax-advantaged basis. Accounts, which are held in trust, may be invested in a wide range of mutual
funds and in FHN common stock. Up to tax law limits, FHN provides a 100 percent match for the first 6 percent
of salary deferred, with company matching contributions invested according to a participant’s current investment
election. Through a non-qualified savings restoration plan, FHN provides a restorative benefit to certain highly-
compensated employees who participate in the savings plan and whose contribution elections are capped by tax
limitations.
FHN also provides “flexible dollars” to assist employees with the cost of annual benefits and/or allow the employee
to contribute to his or her qualified savings plan account. These “flexible dollars” are pre-tax contributions and are
based upon the employees’ years of service and qualified compensation. Contributions made by FHN through the
flexible benefits plan and the company matches were $23.0 million for 2017, $21.6 million for 2016, and $20.8
million for 2015.
Other employee benefits. FHN provides postretirement life insurance benefits to certain employees and also
provides postretirement medical insurance benefits to retirement-eligible employees. The postretirement medical
plan is contributory with FHN contributing a fixed amount for certain participants. FHN’s postretirement benefits
include certain prescription drug benefits.
Actuarial assumptions. FHN’s process for developing the long-term expected rate of return of pension plan assets is
based on capital market exposure as the source of investment portfolio returns. Capital market exposure refers to
the plan’s broad allocation of its assets to asset classes, such as large cap equity and fixed income. FHN also
considers expectations for inflation, real interest rates, and various risk premiums based primarily on the historical
risk premium for each asset class. The expected return is based upon a thirty-year time horizon. In conjunction
with the contribution made in 2016, the asset allocation strategy for the qualified pension plan was adjusted
through the sale of all equity investments with investment of the proceeds, in addition to the contribution, into fixed
income instruments that more closely matched the estimated duration of payment obligations. Consequently, FHN
selected a 4.20 percent assumption for 2018 for the qualified defined benefit pension plan and a 2.15 percent
assumption for postretirement medical plan assets dedicated to employees who retired prior to January 1, 1993.
FHN selected a 5.95 percent assumption for 2018 for postretirement medical plan assets dedicated to employees
who retired after January 1, 1993.
The discount rates for the three years ended 2017 for pension and other benefits were determined by using a
hypothetical AA yield curve represented by a series of annualized individual discount rates from one-half to thirty
years. The discount rates are selected based upon data specific to FHN’s plans and employee population. The
bonds used to create the hypothetical yield curve were subjected to several requirements to ensure that the
resulting rates were representative of the bonds that would be selected by management to fulfill the company’s
funding obligations. In addition to the AA rating, only non-callable bonds were included. Each bond issue was
required to have at least $300 million ($250 million in 2016 and 2015) par outstanding so that each issue was
sufficiently marketable. Finally, bonds more than two standard deviations from the average yield were removed.
When selecting the discount rate, FHN matches the duration of high quality bonds with the duration of the
obligations of the plan as of the measurement date. For all years presented, the measurement date of the benefit
obligations and net periodic benefit costs was December 31.
FIRST HORIZON NATIONAL CORPORATION
139
Note 18 (cid:2) Pension, Savings, and Other Employee Benefits (continued)
The actuarial assumptions used in the defined benefit pension plans and other employee benefit plans were as
follows:
Benefit Obligations
Net Periodic Benefit Cost
2017
2016
2015
2017
2016
2015
3.76%
3.59%
3.19%
4.39%
4.07%
3.39%
4.68%
4.33%
3.57%
4.37%
4.07%
3.39%
4.69%
4.34%
3.57%
4.30%
4.00%
3.35%
3.37% - 3.87%
3.67% - 4.57% 3.76% - 4.87% 3.68% - 4.57% 3.84% - 4.87% 3.45% - 4.45%
Discount rate
Qualified pension
Nonqualified pension
Other nonqualified pension
Postretirement benefits
Expected long-term rate of
return
Qualified pension/
postretirement benefits
4.20%
4.50%
6.00%
4.50%
6.00%
5.85%
Postretirement benefit
(retirees post
January 1, 1993)
Postretirement benefit
(retirees prior to
January 1, 1993)
5.95%
6.00%
6.15%
6.00%
6.15%
6.35%
2.15%
2.15%
2.10%
2.15%
2.10%
2.30%
The rate of compensation increase previously had a significant effect on the actuarial assumptions used for the
defined benefit pension plan. However, since the benefits in the pension plan are frozen, the rate of compensation
increase has no effect upon qualified pension benefits.
The health care cost trend rate assumption previously had a significant effect on the amounts reported. However,
given the change to a defined contribution subsidy model for postretirement medical insurance benefits, a one-
percentage-point change in assumed health care cost trend rates would have no impact on the reported service
and interest cost components or the postretirement benefit obligation at the end of the plan year since the annual
rate of increase in health care costs was no longer included in the actuarial assumptions for that plan for the
2017, 2016 and 2015 measurements.
The components of net periodic benefit cost for the plan years 2017, 2016 and 2015 are as follows:
(Dollars in thousands)
Components of net periodic benefit cost
Service cost
Interest cost
Expected return on plan assets
Amortization of unrecognized:
Prior service cost/(credit)
Actuarial (gain)/loss
Net periodic benefit cost
ASC 715 curtailment (income) (a)
ASC 715 settlement expense
Total periodic benefit costs
Total Pension Benefits
Other Benefits
2017
2016
2015
2017
2016
2015
$
37
29,380
(36,015)
$
39
31,216
(39,123)
$
40
36,424
(37,516)
$ 107
1,305
(947)
$ 110
1,292
(913)
$
146
1,413
(956)
52
9,521
2,975
-
43
196
8,141
333
10,103
95
(567)
170
(810)
(830)
(1,014)
469
9,384
(7)
(151)
(1,241)
-
-
-
-
-
-
-
-
(8,283)
-
$ 3,018
$
469
$ 9,384
$
(7) $ (151) $(9,524)
(a) In 2015, an announced revision to the retiree medical plan triggered curtailment accounting. In accordance with its practice, FHN
performed a remeasurement of the plan in conjunction with the curtailment and realized a curtailment gain.
The long-term expected rate of return is applied to the market-related value of plan assets in determining the
expected return on plan assets. FHN determines the market-related value of plan assets using a calculated value
that recognizes changes in the fair value of plan assets over five years, as permitted by GAAP.
140
FIRST HORIZON NATIONAL CORPORATION
Note 18 (cid:2) Pension, Savings, and Other Employee Benefits (continued)
In 2016, FHN changed its methodology for the calculation of interest cost for its applicable employee benefit plans.
Prior to 2016 FHN utilized a weighted average discount rate to determine interest cost, which is the same discount
rate used to calculate the projected benefit obligations. Starting in 2016, FHN adopted a spot rate approach which
applies duration-specific rates from the full yield curve to estimated future benefit payments for the determination
of interest cost. This change in accounting estimate reduced interest cost across all plans by $5.8 million in 2016.
The following tables set forth the plans’ benefit obligations and plan assets for 2017 and 2016:
(Dollars in thousands)
Change in benefit obligation
Benefit obligation, beginning of year
Service cost
Interest cost
Actuarial (gain)/loss
Actual benefits paid (a)
Benefit obligation, end of year
Change in plan assets
Fair value of plan assets, beginning of year
Actual return on plan assets
Employer contributions
Actual benefits paid – settlement payments
Actual benefits paid – other payments
Total Pension Benefits
Other Benefits
2017
2016
2017
2016
$804,542
37
29,380
63,876
(56,951)
$816,529
39
31,216
12,733
(55,975)
$ 35,403
107
1,305
3,733
(986)
$ 33,166
110
1,292
2,110
(1,275)
$840,884
$804,542
$ 39,562
$ 35,403
$778,872
84,534
4,789
-
(56,951)
$638,169
27,448
169,230
-
(55,975)
$ 16,717
2,458
564
(986)
-
$ 16,128
991
873
(1,275)
-
Fair value of plan assets, end of year
$811,244
$778,872
$ 18,753
$ 16,717
Funded status of the plans
$ (29,640)
$ (25,670)
$(20,809)
$(18,686)
Amounts recognized in the Statements of Condition
Other assets
Other liabilities
$ 11,238
(40,878)
$ 18,104
(43,774)
$ 15,254
(36,063)
$ 13,050
(31,736)
Net asset/(liability) at end of year
$ (29,640)
$ (25,670)
$(20,809)
$(18,686)
(a) 2017 and 2016 amounts are higher than historical trends due to the settlements of certain terminated, vested participants in the qualified
pension plan that occurred during these years.
The qualified pension plan was overfunded as of December 31, 2017 by $11.2 million. The nonqualified pension
plans were underfunded as of December 31, 2017 by $40.9 million. Because of the pension freeze as of the end
of 2012, the pension benefit obligation and the accumulated benefit obligation are the same as of December 31,
2017 and 2016. The qualified pension plan was overfunded as of December 31, 2016 by $18.1 million.
Unrecognized actuarial gains and losses and unrecognized prior service costs and credits are recognized as a
component of accumulated other comprehensive income. Balances reflected in accumulated other comprehensive
income on a pre-tax basis for the years ended December 31, 2017 and 2016 consist of:
(Dollars in thousands)
Amounts recognized in accumulated other comprehensive income
Prior service cost/(credit)
Net actuarial (gain)/loss
Total
Total Pension Benefits
Other Benefits
2017
2016
2017
2016
$
-
385,517
$
52
379,724
$
-
(5,093)
$
95
(8,076)
$385,517
$379,776
$(5,093)
$(7,981)
FIRST HORIZON NATIONAL CORPORATION
141
Note 18 (cid:2) Pension, Savings, and Other Employee Benefits (continued)
The pre-tax amounts recognized in other comprehensive income during 2017 and 2016 were as follows:
(Dollars in thousands)
Changes in plan assets and benefit obligation recognized in other
comprehensive income
Net actuarial (gain)/loss arising during measurement period
Items amortized during the measurement period:
Prior service credit/(cost)
Net actuarial gain/(loss)
Total Pension Benefits
Other Benefits
2017
2016
2017
2016
$15,357
$24,408
$2,222
$2,032
(52)
(9,521)
(196)
(8,141)
(95)
567
(170)
810
Total recognized in other comprehensive income
$ 5,784
$16,071
$2,694
$2,672
FHN utilizes the minimum amortization method in determining the amount of actuarial gains or losses to include in
plan expense. Under this approach, the net deferred actuarial gain or loss that exceeds a threshold is amortized
over the average remaining service period of active plan participants. The threshold is measured as the greater of:
10 percent of a plan’s projected benefit obligation as of the beginning of the year or 10 percent of the market
related value of plan assets as of the beginning of the year. FHN amortizes actuarial gains and losses using the
estimated average remaining life expectancy of the remaining participants since all participants are considered
inactive due to the freeze.
For pension plans, the estimated actuarial loss that would be amortized from AOCI into net periodic benefit cost in
2018 is $11.8 million. For other postretirement plans, the estimated actuarial loss to be amortized from AOCI into
net periodic benefit in 2018 is $21.6 million.
FHN does not expect any defined benefit pension plan’s and other employee benefit plan’s assets to be returned
to FHN in 2018.
The following table provides detail on expected benefit payments, which reflect expected future service, as
appropriate:
(Dollars in thousands)
2018
2019
2020
2021
2022
2023-2027
Pension
Benefits
$ 36,117
38,554
40,784
42,536
43,381
234,305
Other
Benefits
$2,543
1,590
1,647
1,710
1,775
9,963
Plan assets. FHN’s overall investment goal is to create, over the life of the pension plan and retiree medical plan,
an adequate pool of sufficiently liquid assets to support the qualified pension benefit obligations to participants,
retirees, and beneficiaries, as well as to partially support the medical obligations to retirees and beneficiaries. Thus,
the qualified pension plan and retiree medical plan seek to achieve a high level of investment return consistent
with a prudent level of portfolio risk.
Prior to the contribution in third quarter 2016, FHN had adopted an investment strategy that reduced equities and
increased long duration fixed income allocations over time with the intention of reducing volatility of funded status
and pension costs. Plan assets were shifted from equities to fixed income securities when certain funded status
thresholds were met. Subsequent to the 2016 contribution, qualified pension plan assets primarily consist of fixed
income securities which include U.S. treasuries, corporate bonds of companies from diversified industries,
municipal bonds, and foreign bonds. Fixed income investments generally have long durations consistent with the
estimated pension liabilities of FHN. This duration-matching strategy is intended to hedge substantially all of the
plan’s risk associated with future benefit payments. Retiree medical funds are kept in short-term investments,
142
FIRST HORIZON NATIONAL CORPORATION
Note 18 (cid:2) Pension, Savings, and Other Employee Benefits (continued)
primarily money market funds and mutual funds. On December 31, 2017 and 2016, FHN did not have any
significant concentrations of risk within the plan assets related to the pension plan or the retiree medical plan.
The fair value of FHN’s pension plan assets at December 31, 2017 and 2016, by asset category classified using
the Fair Value measurement hierarchy is shown in the table below. See Note 24–Fair Value of Assets and Liabilities
for more details about Fair Value measurements.
(Dollars in thousands)
Cash equivalents and money market funds
Fixed income securities:
U.S. treasuries
Corporate, municipal and foreign bonds
Total
(Dollars in thousands)
Cash equivalents and money market funds
Fixed income securities:
U.S. treasuries
Corporate, municipal and foreign bonds
Common and collective funds:
Fixed income
December 31, 2017
Level 1
$21,152
-
-
Level 2
$
-
27,173
762,919
$21,152
$790,092
Level 3
Total
$
$
-
-
-
-
$ 21,152
27,173
762,919
$811,244
Level 1
$23,815
December 31, 2016
Level 2
Level 3
Total
$
-
$
-
-
-
30,576
505,374
219,107
-
-
-
-
-
$ 23,815
30,576
505,374
219,107
$778,872
Total
$23,815
$755,057
$
Any shortfall of investment performance compared to investment objectives should be explainable in terms of
general economic and capital market conditions. The Pension and Savings Investment Committees, comprised of
senior managers within the organization, meet regularly to review asset performance and potential portfolio
revisions. With the change in asset allocation in 2016, adjustments to the qualified pension plan asset allocation
have primarily reflected changes in anticipated liquidity needs for plan benefits.
The fair value of FHN’s retiree medical plan assets at December 31, 2017 and 2016 by asset category are as
follows:
(Dollars in thousands)
Cash equivalents and money market funds
Mutual funds:
Equity mutual funds
Fixed income mutual funds
Total
(Dollars in thousands)
Cash equivalents and money market funds
Mutual funds:
Equity mutual funds
Fixed income mutual funds
Total
FIRST HORIZON NATIONAL CORPORATION
Level 1
$
364
11,402
6,987
$18,753
Level 1
$
626
10,443
5,648
$16,717
December 31, 2017
Level 2
Level 3
$
$
-
-
-
-
$
$
-
-
-
-
December 31, 2016
Level 2
Level 3
$
$
-
-
-
-
$
$
-
-
-
-
Total
$
364
11,402
6,987
$18,753
Total
$
626
10,443
5,648
$16,717
143
Note 19 (cid:2) Stock Options, Restricted Stock, and Dividend Reinvestment Plans
Equity compensation plans
FHN currently has one plan, its shareholder-approved Equity Compensation Plan (“ECP”), which authorizes the
grant of new stock-based awards to employees and directors. Most awards outstanding at year end were granted
under the ECP, though older stock options and certain deferred stock units remain outstanding under several plans
which no longer are active. The ECP authorizes a broad range of award types, including restricted shares, stock
units, and stock options. Stock units may be paid in shares or cash, depending upon the terms of the award. The
ECP also authorizes the grant of stock appreciation rights, though no such grants have been made. Unvested
awards have service and/or performance conditions which must be met in order for the shares to vest. Awards
generally have service-vesting conditions, meaning that the employee must remain employed by FHN for certain
periods in order for the award to vest. Some outstanding awards also have performance conditions, and two
outstanding awards have performance conditions associated with FHN’s stock price. FHN operates the ECP by
establishing award programs, each of which is intended to cover a specific need. Programs are created, changed,
or terminated as needs change. On December 31, 2017, there were 10,233,661 shares available for new awards
under the ECP. The ECP imposes a separate limit on full-value (non-option) awards which is included within the
overall limit; at December 31, 2017 there were 7,927,593 shares available to be granted as full-value awards.
Service condition full-value awards. Awards may be granted with service conditions only. In recent years, programs
using these awards have included annual programs for executives and selected management employees, a
mandatory deferral program for executives tied to annual bonuses earned, other mandatory or elective deferral
programs, various retention programs, and special hiring-incentive situations. Details of the awards vary by
program, but most are settled in shares at vesting rather than cash, and vesting rarely begins earlier than the first
anniversary of grant and rarely extends beyond the fourth anniversary of grant. Annual programs tend to use
multiple annual vesting dates while retention programs tend to use a single vesting date, but there are exceptions.
Performance condition awards. Under FHN’s long-term incentive and corporate performance programs, performance
stock units (“PSUs”) (executives) and cash units (selected management employees) are granted annually and vest
only if predetermined performance measures are met. The measures are changed each year based on goals and
circumstances prevailing at the time of grant. In recent years the performance periods have been three years, with
service-vesting near the third anniversary of the grant. PSUs granted after 2014 also have a two-year post-vest
holding period. Recent annual performance awards require pro-rated forfeiture for performance falling between a
threshold level and a maximum, but all-or-nothing awards have also been granted. Performance awards sometimes
are used to provide a narrow, targeted incentive to a single person or small group; two such awards which include
a market performance condition to FHN’s Chief Executive Officer (“CEO”) are discussed in the next paragraph. Of
the annual program awards paid during 2017 or outstanding on December 31, 2017: performance conditions
related to the 2014 units were met at the 112.5 percent payout level and were paid in 2017; the three-year
performance period of the 2015 units has ended but performance is measured relative to peers and has not yet
been determined; and, the three-year performance periods for the 2016 and 2017 units have not ended.
Market condition awards. In 2016 and 2012, FHN made special grants of performance stock units to FHN’s CEO
which will vest at the end of a performance period of seven years and five years, respectively. The awards have no
provision for pro-rated payment based on partial performance. The 2016 award’s performance goal is based on
achievement of a specific level of total shareholder return during the performance period. The 2012 award’s two
alternative performance goals are: FHN’s common stock price achieves and maintains a certain level for a certain
period of time; or FHN’s total shareholder return during the entire period achieves a certain level.
Director awards. Non-employee directors receive cash and annual grants of service-conditioned stock units under a
program approved by the board of directors. Director stock units are settled in shares at vesting in the year
following the year of grant. In 2017 and 2016 each director received $65,000 or prorated equivalent of stock units,
representing a portion of their annual retainer. Prior to 2005 directors could elect to defer cash compensation in
the form of discount-priced stock options, some of which remain outstanding.
144
FIRST HORIZON NATIONAL CORPORATION
Note 19 (cid:2) Stock Options, Restricted Stock, and Dividend Reinvestment Plans (continued)
Stock and stock unit awards. A summary of restricted and performance stock and unit activity during the year
ended December 31, 2017, is presented below:
Nonvested on January 1, 2017
Shares/units granted
Shares/units vested
Shares/units cancelled
Nonvested on December 31, 2017
Weighted
average
grant date
fair value
(per share) (b)
11.28
18.83
11.64
10.51
12.92
Shares/
Units (a)
4,004,402
1,238,754
(847,107)
(424,833)
3,971,216
(a) Includes only units that settle in shares and nonvested performance units are included at 100% payout level.
(b) The weighted average grant date fair value for shares/units granted in 2016 and 2015 was $12.90 and $13.90, respectively.
On December 31, 2017, there was $27.6 million of unrecognized compensation cost related to nonvested
restricted stock awards. That cost is expected to be recognized over a weighted-average period of 2.5 years. The
total grant date fair value of shares vested during 2017, 2016 and 2015, was $9.9 million, $9.7 million and
$9.9 million, respectively.
Stock option awards. Currently FHN operates only a single option program, calling for annual grants of service-
vested options to executives. In the past, however, option programs varied widely in their uses and terms, and
many old-program options, granted under the ECP or its predecessor plans, remain outstanding today. Except for
substitute options (discussed below), all options granted since 2005 provide for the issuance of FHN common
stock at a price fixed at its fair market value on the grant date. Except for substitute options, converted options
and a special retention stock option award to the CEO in 2016, all options granted since 2008 vest fully no later
than the fourth anniversary of grant, and all such options expire seven years from the grant date. Substitute
options can be issued under the ECP in exchange for options of an acquired company that are canceled in a
merger. The price, vesting, expiration, and other terms of the substitute options economically mirror those of the
canceled options. FHN issued substitute options in the TAF transaction which closed in October, 2015. Converted
options from CBF are all fully vested and expire ten years from grant date. The 2016 retention award vests
beginning on the fourth anniversary of grant and extends through the sixth anniversary of grant. A deferral
program, which was discontinued in 2005, allowed for foregone compensation plus the exercise price to equal the
fair market value of the stock on the date of grant if the grantee agreed to receive the options in lieu of
compensation. Deferral options still outstanding expire 20 years from the grant date.
The summary of stock option activity for the year ended December 31, 2017, is shown below:
January 1, 2017
Options converted from CBF
Options granted
Options exercised
Options expired/cancelled
December 31, 2017
Options exercisable
Options expected to vest
Weighted
Average
Exercise Price
(per share)
Weighted
Average
Remaining
Contractual Term
(years)
Aggregate
Intrinsic Value
(thousands)
17.86
11.54
19.73
13.66
27.21
16.80
17.65
14.11
3.18
2.56
5.13
34,003
24,646
9,358
Options
Outstanding
5,937,156
1,059,685
423,638
(475,995)
(335,913)
6,608,571
5,016,496
1,592,075
The total intrinsic value of options exercised during 2017, 2016 and 2015 was $2.5 million, $10.6 million and
$2.8 million, respectively. On December 31, 2017, there was $2.2 million of unrecognized compensation cost
FIRST HORIZON NATIONAL CORPORATION
145
Note 19 (cid:2) Stock Options, Restricted Stock, and Dividend Reinvestment Plans (continued)
related to nonvested stock options. That cost is expected to be recognized over a weighted-average period of
3.2 years.
FHN granted or converted 1,483,323, 971,328 and 595,229 stock options with a weighted average fair value of
$4.69, $2.95 and $4.01 per option at grant date in 2017, 2016 and 2015, respectively.
FHN used the Black-Scholes Option Pricing Model to estimate the fair value of stock options granted or converted
in 2017, 2016, and 2015 with the following assumptions:
2017
2016
2015
Expected dividend yield
Expected weighted-average lives of options granted
Expected weighted-average volatility
Expected volatility range
Risk-free interest rate
1.82%
6.09 years
26.90%
2.41%
6.19 years
32.84%
24.36 – 29.44% 30.73 – 34.95% 23.67 – 40.85%
1.28%
1.68%
6.18 years
32.26%
1.68%
2.07%
Expected lives of options granted are determined based on the vesting period, historical exercise patterns and
contractual term of the options. FHN uses a blend of historical and implied volatility in determining expected
volatility. A portion of the weighted average volatility rate is derived by compiling daily closing stock prices over a
historical period approximating the expected lives of the options. Additionally, because of market volatility due to
economic conditions and the impact on stock prices of financial institutions, FHN also incorporates a measure of
implied volatility so as to incorporate more recent market conditions in the estimation of future volatility.
Compensation Cost. The compensation cost that has been included in the Consolidated Statements of Income
pertaining to stock-based awards was $20.6 million, $17.5 million, and $13.8 million for 2017, 2016, and 2015,
respectively. The corresponding total income tax benefits recognized were $7.9 million in 2017, $6.7 million in
2016, and $5.3 million in 2015.
Authorization. Consistent with Tennessee state law, only authorized, but unissued, stock may be utilized in
connection with any issuance of FHN common stock which may be required as a result of stock based
compensation awards. FHN has obtained authorization from the Board of Directors to repurchase up to certain
number of shares, related to issuance under the ECP and older stock award plans. These authorizations are
automatically adjusted for stock splits and stock dividends. Repurchases are authorized to be made in the open
market or through privately negotiated transactions and will be subject to market conditions, accumulation of
excess equity, legal and regulatory restrictions, and prudent capital management. FHN does not currently expect to
repurchase a material number of shares under the compensation plan-related repurchase program during 2018.
Dividend reinvestment plan. The Dividend Reinvestment and Stock Purchase Plan authorizes the sale of FHN’s
common stock from stock acquired on the open market to shareholders who choose to invest all or a portion of
their cash dividends or make optional cash payments of $25 to $10,000 per quarter without paying commissions.
The price of stock purchased on the open market is the average price paid.
146
FIRST HORIZON NATIONAL CORPORATION
Note 20 (cid:2) Business Segment Information
FHN has four business segments: regional banking, fixed income, corporate, and non-strategic. The regional
banking segment offers financial products and services, including traditional lending and deposit taking, to
consumer and commercial customers in Tennessee, North Carolina, South Carolina, Florida and other selected
markets. Regional banking also provides investments, financial planning, trust services and asset management,
mortgage banking, credit card, and cash management. Additionally, the regional banking segment includes
correspondent banking which provides credit, depository, and other banking related services to other financial
institutions nationally. The fixed income segment consists of fixed income securities sales, trading, and strategies
for institutional clients in the U.S. and abroad, as well as loan sales, portfolio advisory services, and derivative
sales. The corporate segment consists of unallocated corporate expenses, expense on subordinated debt issuances,
bank-owned life insurance, unallocated interest income associated with excess equity, net impact of raising
incremental capital, revenue and expense associated with deferred compensation plans, funds management, tax
credit investment activities, derivative valuation adjustments related to prior sales of Visa Class B shares, gain/(loss)
on extinguishment of debt, and acquisition- and integration-related costs. The non-strategic segment consists of the
wind-down national consumer lending activities, legacy mortgage banking elements including servicing fees, and
the associated ancillary revenues and expenses related to these businesses. Non-strategic also includes the wind-
down trust preferred loan portfolio and exited businesses.
Periodically, FHN adapts its segments to reflect managerial or strategic changes. FHN may also modify its
methodology of allocating expenses and equity among segments which could change historical segment results.
Business segment revenue, expense, asset, and equity levels reflect those which are specifically identifiable or
which are allocated based on an internal allocation method. Because the allocations are based on internally
developed assignments and allocations, to an extent they are subjective. Generally, all assignments and allocations
have been consistently applied for all periods presented. The following table reflects the amounts of consolidated
revenue, expense, tax, and average assets, as well as, depreciation and amortization expense and expenditures for
long lived assets for each segment for the years ended December 31:
(Dollars in thousands)
2017
2016
2015
Consolidated
Net interest income
Provision/(provision credit) for loan losses
Noninterest income
Noninterest expense
Income/(loss) before income taxes
Provision/(benefit) for income taxes
Net income/(loss)
Average assets
Depreciation and amortization
Expenditures for long-lived assets
$
842,314
-
490,219
1,023,661
308,872
131,892
$
176,980
$29,924,813
$
70,924
287,642
$
729,084
11,000
552,441
925,204
345,321
106,810
$
238,511
$27,427,227
$
64,673
62,554
$
653,720
9,000
517,325
1,053,791
108,254
10,941
$
97,313
$25,635,975
$
60,743
43,514
FIRST HORIZON NATIONAL CORPORATION
147
Note 20 (cid:2) Business Segment Information (continued)
(Dollars in thousands)
2017
2016
2015
Regional Banking
Net interest income
Provision/(provision credit) for loan losses
Noninterest income
Noninterest expense
Income/(loss) before income taxes
Provision/(benefit) for income taxes
Net income/(loss)
Average assets
Depreciation and amortization
Expenditures for long-lived assets
Fixed Income
Net interest income
Noninterest income
Noninterest expense
Income/(loss) before income taxes
Provision/(benefit) for income taxes
Net income/(loss)
Average assets
Depreciation and amortization
Expenditures for long-lived assets
Corporate
Net interest income/(expense)
Noninterest income (a)
Noninterest expense
Income/(loss) before income taxes
Provision/(benefit) for income taxes
Net income/(loss)
Average assets
Depreciation and amortization
Expenditures for long-lived assets
Non-Strategic
Net interest income
Provision/(provision credit) for loan losses
Noninterest income
Noninterest expense
Income/(loss) before income taxes
Provision/(benefit) for income taxes
Net income/(loss)
Average assets
Depreciation and amortization
Expenditures for long-lived assets
$
848,952
21,647
258,609
629,773
456,141
162,985
$
293,156
$19,621,764
$
$
43,255
276,012
18,010
217,077
210,937
24,150
7,919
$
16,231
$ 2,544,842
$
$
9,026
2,106
(58,915)
8,926
139,390
(189,379)
(45,922)
$
741,852
38,887
249,003
615,821
336,147
120,100
$
216,047
$17,143,464
$
$
39,177
51,354
10,765
269,339
229,576
50,528
18,070
$
32,458
$ 2,365,661
$
$
5,981
2,099
(65,902)
20,436
58,913
(104,379)
(55,777)
$
655,152
34,545
251,586
562,799
309,394
110,349
$
199,045
$14,932,207
$
$
37,997
37,367
15,517
231,314
220,149
26,682
8,999
$
17,683
$ 2,370,355
$
$
6,108
1,706
(71,680)
23,331
57,830
(106,179)
(80,085)
$ (143,457)
$
(48,602)
$
(26,094)
$ 6,278,281
$ 6,030,313
$ 6,001,168
$
$
18,249
9,383
34,267
(21,647)
5,607
43,561
17,960
6,910
$
11,050
$ 1,479,926
$
394
141
$
$
19,078
8,946
42,369
(27,887)
13,663
20,894
63,025
24,417
$
38,608
$ 1,887,789
$
437
155
$
$
16,054
3,971
54,731
(25,545)
11,094
213,013
(121,643)
(28,322)
$
(93,321)
$ 2,332,245
$
584
470
Certain previously reported amounts have been reclassified to agree with current presentation.
(a) 2017 includes a $14.3 million pre-tax loss from the repurchase of equity securities previously included in a financing transaction.
148
FIRST HORIZON NATIONAL CORPORATION
Note 21 (cid:2) Variable Interest Entities
ASC 810 defines a VIE as a legal entity where (a) the equity investors, as a group, lack sufficient equity at risk for
the entity to finance its activities without additional subordinated financial support, (b) the equity investors, as a
group, lack either, (1) the power through voting rights, or similar rights, to direct the activities of an entity that
most significantly impact the entity’s economic performance, (2) the obligation to absorb the expected losses of the
entity, or (3) the right to receive the expected residual returns of the entity, or (c) the entity is structured with non-
substantive voting rights. A variable interest is a contractual ownership or other interest that fluctuates with
changes in the fair value of the VIE’s net assets exclusive of variable interests. Under ASC 810, as amended, a
primary beneficiary is required to consolidate a VIE when it has a variable interest in a VIE that provides it with a
controlling financial interest. For such purposes, the determination of whether a controlling financial interest exists
is based on whether a single party has both the power to direct the activities of the VIE that most significantly
impact the VIE’s economic performance and the obligation to absorb losses of the VIE or the right to receive
benefits from the VIE that could potentially be significant.
Consolidated Variable Interest Entities
FHN holds variable interests in a proprietary HELOC securitization trust it established as a source of liquidity for
consumer lending operations. Based on its restrictive nature, the trust is considered a VIE as the holders of equity
at risk do not have the power through voting rights or similar rights to direct the activities that most significantly
impact the trust’s economic performance. The retention of mortgage service rights ("MSR") and a residual interest
results in FHN potentially absorbing losses or receiving benefits that are significant to the trust. FHN is considered
the primary beneficiary, as it is assumed to have the power, as Master Servicer, to most significantly impact the
activities of the VIE. Consolidation of the trust results in the recognition of the trust proceeds as restricted
borrowings since the cash flows on the securitized loans can only be used to settle the obligations due to the
holders of trust securities. Through first quarter 2016 the trust experienced a rapid amortization period and FHN
was obligated to provide subordinated funding. During the period, cash payments from borrowers were
accumulated to repay outstanding debt securities while FHN continued to make advances to borrowers when they
drew on their lines of credit. FHN then transferred the newly generated receivables into the securitization trust.
FHN is reimbursed for these advances only after other parties in the securitization have received all of the cash
flows to which they are entitled. If loan losses requiring draws on the related monoline insurers’ policies (which
protect bondholders in the securitization) exceed a certain level, FHN may not receive reimbursement for all of the
funds advanced to borrowers, as the senior bondholders and the monoline insurers typically have priority for
repayment. Amounts funded from monoline insurance policies are considered restricted term borrowings in FHN’s
Consolidated Statements of Condition. Except for recourse due to breaches of representations and warranties made
by FHN in connection with the sale of the loans to the trust, the creditors of the trust hold no recourse to the
assets of FHN.
FHN has established certain rabbi trusts related to deferred compensation plans offered to its employees. FHN
contributes employee cash compensation deferrals to the trusts and directs the underlying investments made by
the trusts. The assets of these trusts are available to FHN’s creditors only in the event that FHN becomes
insolvent. These trusts are considered VIEs as there is no equity at risk in the trusts since FHN provided the equity
interest to its employees in exchange for services rendered. FHN is considered the primary beneficiary of the rabbi
trusts as it has the power to direct the activities that most significantly impact the economic performance of the
rabbi trusts through its ability to direct the underlying investments made by the trusts. Additionally, FHN could
potentially receive benefits or absorb losses that are significant to the trusts due to its right to receive any asset
values in excess of liability payoffs and its obligation to fund any liabilities to employees that are in excess of a
rabbi trust’s assets.
FIRST HORIZON NATIONAL CORPORATION
149
Note 21 (cid:2) Variable Interest Entities (continued)
The following table summarizes VIEs consolidated by FHN as of December 31, 2017 and December 31, 2016:
December 31, 2017
December 31, 2016
On-Balance Sheet
Consumer Loan
Securitization
Rabbi Trusts
Used for Deferred
Compensation Plans
On-Balance Sheet
Consumer Loan
Securitization
Rabbi Trusts
Used for Deferred
Compensation Plans
(Dollars in thousands)
Carrying Value
Carrying Value
Carrying Value
Carrying Value
Assets:
Cash and due from banks
Loans, net of unearned income
Less: Allowance for loan losses
Total net loans
Other assets
Total assets
Liabilities:
Term borrowings
Other liabilities
Total liabilities
$
-
24,175
-
24,175
47
$24,222
$11,226
2
$11,228
N/A
N/A
N/A
N/A
$80,479
$80,479
N/A
$61,733
$61,733
$
-
35,873
587
35,286
283
$35,569
$23,126
3
$23,129
N/A
N/A
N/A
N/A
$74,160
$74,160
N/A
$54,746
$54,746
Nonconsolidated Variable Interest Entities
Low Income Housing Partnerships. First Tennessee Housing Corporation (“FTHC”), a wholly-owned subsidiary of
FTBNA, makes equity investments as a limited partner in various partnerships that sponsor affordable housing
projects utilizing the Low Income Housing Tax Credit (“LIHTC”) pursuant to Section 42 of the Internal Revenue
Code. The purpose of these investments is to achieve a satisfactory return on capital and to support FHN’s
community reinvestment initiatives. The activities of the limited partnerships include the identification, development,
and operation of multi-family housing units that are leased to qualifying residential tenants generally within FHN’s
primary geographic region. LIHTC partnerships are considered VIEs as FTHC, the holder of the equity investment
at risk, does not have the ability to direct the activities that most significantly affect the performance of the entity
through voting rights or similar rights. FTHC could absorb losses that are significant to the LIHTC partnerships as it
has a risk of loss for its capital contributions and funding commitments to each partnership. The general partners
are considered the primary beneficiaries as managerial functions give them the power to direct the activities that
most significantly impact the entities’ economic performance and the managing members are exposed to all losses
beyond FTHC’s initial capital contributions and funding commitments.
FHN accounts for all qualifying LIHTC investments under the proportional amortization method. Under this method
an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received
and recognizes the net investment performance in the income statement as a component of income tax
expense/(benefit). LIHTC investments that do not qualify for the proportional amortization method are accounted for
using the equity method. Expenses associated with these investments were $1.8 million, $1.8 million, and
$3.4 million during 2017, 2016, and 2015, respectively. The following table summarizes the impact to the
Provision/(benefit) for income taxes on the Consolidated Statements of Income for the years ended December 31,
2017, 2016 and 2015 for LIHTC investments accounted for under the proportional amortization method.
(Dollars in thousands)
Provision/(benefit) for income taxes:
Amortization of qualifying LIHTC investments (a)
Low income housing tax credits
Other tax benefits related to qualifying LIHTC investments
(a) 2017 reflects increased amortization due the effects of the Tax Act.
2017
2016
2015
$ 14,037
(11,037)
(5,045)
$ 14,223
(10,100)
(9,779)
$ 13,496
(9,450)
(10,787)
150
FIRST HORIZON NATIONAL CORPORATION
Note 21 (cid:2) Variable Interest Entities (continued)
Other Tax Credit Investments. First Tennessee New Markets Corporation (“FTNMC”), a wholly-owned subsidiary of
FTBNA, makes equity investments through wholly-owned subsidiaries as a non-managing member in various
limited liability companies (“LLCs”) that sponsor community development projects utilizing the New Market Tax
Credit (“NMTC”) pursuant to Section 45 of the Internal Revenue Code. The purpose of these investments is to
achieve a satisfactory return on capital and to support FHN’s community reinvestment initiatives. The activities of
the LLCs include providing investment capital for low-income communities within FHN’s primary geographic region.
A portion of the funding of FTNMC’s investment in a NMTC LLC is obtained via a loan from an unrelated third-
party that is typically a community development enterprise. The NMTC LLCs are considered VIEs as FTNMC, the
holder of the equity investment at risk, does not have the ability to direct the activities that most significantly affect
the performance of the entity through voting rights or similar rights. While FTNMC could absorb losses that are
significant to the NMTC LLCs as it has a risk of loss for its initial capital contributions, the managing members are
considered the primary beneficiaries as managerial functions give them the power to direct the activities that most
significantly impact the NMTC LLCs’ economic performance and the managing members are exposed to all losses
beyond FTNMC’s initial capital contributions.
FTHC also makes equity investments as a limited partner or non-managing member in entities that receive Historic
Tax Credits pursuant to Section 47 of the Internal Revenue Code. The purpose of these entities is the rehabilitation
of historic buildings with the tax credits provided to incent private investment in the historic cores of cities and
towns. These entities are considered VIEs as FTHC, the holder of the equity investment at risk, does not have the
ability to direct the activities that most significantly affect the performance of the entity through voting rights or
similar rights. FTHC could absorb losses that are significant to the entities as it has a risk of loss for its capital
contributions and funding commitments to each partnership. The managing members are considered the primary
beneficiaries as managerial functions give them the power to direct the activities that most significantly impact the
entities’ economic performance and the managing members are exposed to all losses beyond FTHC’s initial capital
contributions and funding commitments.
Small Issuer Trust Preferred Holdings. FTBNA holds variable interests in trusts which have issued mandatorily
redeemable preferred capital securities (“trust preferreds”) for smaller banking and insurance enterprises. FTBNA
has no voting rights for the trusts’ activities. The trusts’ only assets are junior subordinated debentures of the
issuing enterprises. The creditors of the trusts hold no recourse to the assets of FTBNA. These trusts meet the
definition of a VIE as the holders of the equity investment at risk do not have the power through voting rights, or
similar rights, to direct the activities that most significantly impact the trusts’ economic performance. Based on the
nature of the trusts’ activities and the size of FTBNA’s holdings, FTBNA could potentially receive benefits or absorb
losses that are significant to the trusts regardless of whether a majority of a trust’s securities are held by FTBNA.
However, since FTBNA is solely a holder of the trusts’ securities, it has no rights which would give it the power to
direct the activities that most significantly impact the trusts’ economic performance and thus it is not considered
the primary beneficiary of the trusts. FTBNA has no contractual requirements to provide financial support to the
trusts.
On-Balance Sheet Trust Preferred Securitization. In 2007, FTBNA executed a securitization of certain small issuer
trust preferreds for which the underlying trust meets the definition of a VIE as the holders of the equity
investment at risk do not have the power through voting rights, or similar rights, to direct the activities that
most significantly impact the entity’s economic performance. FTBNA could potentially receive benefits or absorb
losses that are significant to the trust based on the size and priority of the interests it retained in the securities
issued by the trust. However, since FTBNA did not retain servicing or other decision making rights, FTBNA is
not the primary beneficiary as it does not have the power to direct the activities that most significantly impact
the trust’s economic performance. Accordingly, FTBNA has accounted for the funds received through the
securitization as a term borrowing in its Consolidated Statements of Condition. FTBNA has no contractual
requirements to provide financial support to the trust.
Proprietary Residential Mortgage Securitizations. FHN holds variable interests (primarily principal-only strips) in
proprietary residential mortgage securitization trusts it established prior to 2008 as a source of liquidity for its
mortgage banking operations. Prior to fourth quarter 2016 these interests included MSR and interest-only strips.
Except for recourse due to breaches of representations and warranties made by FHN in connection with the sale
of the loans to the trusts, the creditors of the trusts hold no recourse to the assets of FHN. Additionally, FHN has
FIRST HORIZON NATIONAL CORPORATION
151
Note 21 (cid:2) Variable Interest Entities (continued)
no contractual requirements to provide financial support to the trusts. Based on their restrictive nature, the trusts
are considered VIEs as the holders of equity at risk do not have the power through voting rights, or similar rights,
to direct the activities that most significantly impact the trusts’ economic performance. While it held MSR, FHN
was assumed to have the power as servicer to most significantly impact the activities of such VIEs. However, in
situations where FHN did not have the ability to participate in significant portions of a securitization trust’s cash
flows, FHN was not considered the primary beneficiary of the trust. Therefore, these trusts were not consolidated
by FHN.
Holdings in Agency Mortgage-Backed Securities. FHN holds securities issued by various Agency securitization
trusts. Based on their restrictive nature, the trusts meet the definition of a VIE since the holders of the equity
investments at risk do not have the power through voting rights, or similar rights, to direct the activities that most
significantly impact the entities’ economic performance. FHN could potentially receive benefits or absorb losses
that are significant to the trusts based on the nature of the trusts’ activities and the size of FHN’s holdings.
However, FHN is solely a holder of the trusts’ securities and does not have the power to direct the activities that
most significantly impact the trusts’ economic performance, and is not considered the primary beneficiary of the
trusts. FHN has no contractual requirements to provide financial support to the trusts.
Commercial Loan Troubled Debt Restructurings. For certain troubled commercial loans, FTBNA restructures the
terms of the borrower’s debt in an effort to increase the probability of receipt of amounts contractually due.
Following a troubled debt restructuring, the borrower entity typically meets the definition of a VIE as the initial
determination of whether an entity is a VIE must be reconsidered as events have proven that the entity’s equity is
not sufficient to permit it to finance its activities without additional subordinated financial support or a restructuring
of the terms of its financing. As FTBNA does not have the power to direct the activities that most significantly
impact such troubled commercial borrowers’ operations, it is not considered the primary beneficiary even in
situations where, based on the size of the financing provided, FTBNA is exposed to potentially significant benefits
and losses of the borrowing entity. FTBNA has no contractual requirements to provide financial support to the
borrowing entities beyond certain funding commitments established upon restructuring of the terms of the debt
that allows for preparation of the underlying collateral for sale.
Sale Leaseback Transaction. FTB has entered into an agreement with a single asset leasing entity for the sale and
leaseback of an office building. In conjunction with this transaction, FTB loaned funds to a related party of the
buyer that were used for the purchase price of the building. FTB also entered into a construction loan agreement
with the single asset entity for renovation of the building. Since this transaction did not qualify as a sale, it is being
accounted for using the deposit method which creates a net asset or liability for all cash flows between FTB and
the buyer. The buyer-lessor in this transaction meets the definition of a VIE as it does not have sufficient equity at
risk since FTB is providing the funding for the purchase and renovation. A related party of the buyer-lessor has the
power to direct the activities that most significantly impact the operations and could potentially receive benefits or
absorb losses that are significant to the transactions, making it the primary beneficiary. Therefore, FTB does not
consolidate the leasing entity.
Proprietary Trust Preferred Issuances. In conjunction with the acquisition of CBF, FHN acquired junior subordinated
debt totaling $212.4 million underlying multiple issuances of trust preferred debt by institutions previously acquired
by CBF. All of these trusts are considered VIEs because the ownership interests from the capital contributions to
these trusts are not considered “at risk” in evaluating whether the holders of the equity investments at risk in the
trusts have the power through voting rights, or similar rights, to direct the activities that most significantly impact
the entities’ economic performance. Thus, FHN cannot be the trusts’ primary beneficiary because its ownership
interests in the trusts are not considered variable interests as they are not considered “at risk”. Consequently, none
of the trusts are consolidated by FHN.
152
FIRST HORIZON NATIONAL CORPORATION
Note 21 (cid:2) Variable Interest Entities (continued)
The following table summarizes FHN’s nonconsolidated VIEs as of December 31, 2017:
(Dollars in thousands)
Type
Low income housing partnerships
Other tax credit investments (b) (c)
Small issuer trust preferred holdings (d)
On-balance sheet trust preferred securitization
Proprietary residential mortgage securitizations
Holdings of agency mortgage-backed securities (d)
Commercial loan troubled debt restructurings (g)
Sale-leaseback transaction
Proprietary trust preferred issuances (i)
Maximum
Loss Exposure
Liability
Recognized
Classification
$
94,798
20,394
332,455
48,817
2,151
5,349,287
19,411
14,827
-
$ 33,348
-
-
65,357
-
-
-
-
212,378
(a)
Other assets
Loans, net of unearned income
(e)
Trading securities
(f)
Loans, net of unearned income
(h)
Term borrowings
(a) Maximum loss exposure represents $61.5 million of current investments and $33.3 million of accrued contractual funding commitments.
Accrued funding commitments represent unconditional contractual obligations for future funding events, and are also recognized in Other
liabilities. FHN currently expects to be required to fund these accrued commitments by the end of 2020.
(b) A liability is not recognized as investments are written down over the life of the related tax credit.
(c) Maximum loss exposure represents current investment balance. Of the initial investment, $18.0 million was funded through loans from
community development enterprises.
(d) Maximum loss exposure represents the value of current investments. A liability is not recognized as FHN is solely a holder of the trusts’ securities.
(e) Includes $112.5 million classified as Loans, net of unearned income, and $1.7 million classified as Trading securities which are offset by
$65.4 million classified as Term borrowings.
(f) Includes $.5 billion classified as Trading securities and $4.8 billion classified as Securities available-for-sale.
(g) Maximum loss exposure represents $19.1 million of current receivables and $.3 million of contractual funding commitments on loans
related to commercial borrowers involved in a troubled debt restructuring.
(h) Maximum loss exposure represents the current loan balance plus additional funding commitments less amounts received from the buyer-lessor.
(i) No exposure to loss due nature of FHN’s involvement.
The following table summarizes FHN’s nonconsolidated VIEs as of December 31, 2016:
(Dollars in thousands)
Type
Low income housing partnerships
Other tax credit investments (b) (c)
Small issuer trust preferred holdings (d)
On-balance sheet trust preferred securitization
Proprietary residential mortgage securitizations
Holdings of agency mortgage-backed securities (d)
Commercial loan troubled debt restructurings (g)
Sale-leaseback transaction
Maximum
Loss Exposure
Liability
Recognized
Classification
$
73,582
21,898
332,985
49,361
2,568
4,163,313
42,696
11,827
$17,398
-
-
64,812
-
-
-
-
(a)
Other assets
Loans, net of unearned income
(e)
Trading securities
(f)
Loans, net of unearned income
(h)
(a) Maximum loss exposure represents $56.2 million of current investments and $17.4 million of accrued contractual funding commitments.
Accrued funding commitments represent unconditional contractual obligations for future funding events, and are also recognized in Other
liabilities. FHN currently expects to be required to fund these accrued commitments by the end of 2017.
(b) A liability is not recognized as investments are written down over the life of the related tax credit.
(c) Maximum loss exposure represents current investment balance. Of the initial investment, $18.0 million was funded through loans from
community development enterprises.
(d) Maximum loss exposure represents the value of current investments. A liability is not recognized as FHN is solely a holder of the trusts’
securities.
(e) Includes $112.5 million classified as Loans, net of unearned income, and $1.7 million classified as Trading securities which are offset by
$64.8 million classified as Term borrowings.
(f) Includes $.4 billion classified as Trading securities and $3.8 billion classified as Securities available-for-sale.
(g) Maximum loss exposure represents $37.5 million of current receivables and $5.2 million of contractual funding commitments on loans
related to commercial borrowers involved in a troubled debt restructuring.
(h) Maximum loss exposure represents the current loan balance plus additional funding commitments less amounts received from the buyer-
lessor.
FIRST HORIZON NATIONAL CORPORATION
153
Note 22 (cid:2) Derivatives
In the normal course of business, FHN utilizes various financial instruments (including derivative contracts and credit-
related agreements) through its fixed income and risk management operations, as part of its risk management
strategy and as a means to meet customers’ needs. Derivative instruments are subject to credit and market risks in
excess of the amount recorded on the balance sheet as required by GAAP. The contractual or notional amounts of
these financial instruments do not necessarily represent the amount of credit or market risk. However, they can be
used to measure the extent of involvement in various types of financial instruments. Controls and monitoring
procedures for these instruments have been established and are routinely reevaluated. The Asset/Liability Committee
(“ALCO”) controls, coordinates, and monitors the usage and effectiveness of these financial instruments.
Credit risk represents the potential loss that may occur if a party to a transaction fails to perform according to the
terms of the contract. The measure of credit exposure is the replacement cost of contracts with a positive fair
value. FHN manages credit risk by entering into financial instrument transactions through national exchanges,
primary dealers or approved counterparties, and by using mutual margining and master netting agreements
whenever possible to limit potential exposure. FHN also maintains collateral posting requirements with certain
counterparties to limit credit risk. Commencing in first quarter 2017, a central clearinghouse revised the treatment
of daily margin posted or received from collateral to legal settlements of the related derivative contracts. This
change resulted in a reduction in derivative assets and liabilities and corresponding reductions in collateral posted
and received as these amounts are now presented net by contract in the Consolidated Statements of Condition.
This change has no effect on hedge accounting or gains/losses for the applicable derivative contracts. On
December 31, 2017 and 2016, respectively, FHN had $27.8 million and $47.8 million of cash receivables and
$28.3 million and $32.8 million of cash payables related to collateral posting under master netting arrangements,
inclusive of collateral posted related to contracts with adjustable collateral posting thresholds and over-collateralized
positions, with derivative counterparties. With exchange-traded contracts, the credit risk is limited to the
clearinghouse used. For non-exchange traded instruments, credit risk may occur when there is a gain in the fair
value of the financial instrument and the counterparty fails to perform according to the terms of the contract
and/or when the collateral proves to be of insufficient value. See additional discussion regarding master netting
agreements and collateral posting requirements later in this note under the heading “Master Netting and Similar
Agreements.” Market risk represents the potential loss due to the decrease in the value of a financial instrument
caused primarily by changes in interest rates or the prices of debt instruments. FHN manages market risk by
establishing and monitoring limits on the types and degree of risk that may be undertaken. FHN continually
measures this risk through the use of models that measure value-at-risk and earnings-at-risk.
Derivative Instruments. FHN enters into various derivative contracts both in a dealer capacity to facilitate customer
transactions and as a risk management tool. Where contracts have been created for customers, FHN enters into
upstream transactions with dealers to offset its risk exposure. Contracts with dealers that require central clearing
are novated to a clearing agent who becomes FHN’s counterparty. Derivatives are also used as a risk management
tool to hedge FHN’s exposure to changes in interest rates or other defined market risks.
Forward contracts are over-the-counter contracts where two parties agree to purchase and sell a specific quantity
of a financial instrument at a specified price, with delivery or settlement at a specified date. Futures contracts are
exchange-traded contracts where two parties agree to purchase and sell a specific quantity of a financial
instrument at a specified price, with delivery or settlement at a specified date. Interest rate option contracts give
the purchaser the right, but not the obligation, to buy or sell a specified quantity of a financial instrument, at a
specified price, during a specified period of time. Caps and floors are options that are linked to a notional principal
amount and an underlying indexed interest rate. Interest rate swaps involve the exchange of interest payments at
specified intervals between two parties without the exchange of any underlying principal. Swaptions are options on
interest rate swaps that give the purchaser the right, but not the obligation, to enter into an interest rate swap
agreement during a specified period of time.
Trading Activities
FHN’s fixed income segment trades U.S. Treasury, U.S. Agency, government-guaranteed loan, mortgage-backed,
corporate and municipal fixed income securities, and other securities for distribution to customers. When these
154
FIRST HORIZON NATIONAL CORPORATION
Note 22 (cid:2) Derivatives (continued)
securities settle on a delayed basis, they are considered forward contracts. Fixed income also enters into interest
rate contracts, including caps, swaps, and floors, for its customers. In addition, fixed income enters into futures
and option contracts to economically hedge interest rate risk associated with a portion of its securities inventory.
These transactions are measured at fair value, with changes in fair value recognized currently in fixed income
noninterest income. Related assets and liabilities are recorded on the Consolidated Statements of Condition as
Derivative assets and Derivative liabilities. The FTN Financial Risk Committee and the Credit Risk Management
Committee collaborate to mitigate credit risk related to these transactions. Credit risk is controlled through credit
approvals, risk control limits, and ongoing monitoring procedures. Total trading revenues were $173.9 million and
$229.7 million for the years ended December 31, 2017 and 2016, respectively. Trading revenues are inclusive of
both derivative and non-derivative financial instruments, and are included in fixed income noninterest income.
The following tables summarize FHN’s derivatives associated with fixed income trading activities as of December 31,
2017 and 2016:
(Dollars in thousands)
Customer Interest Rate Contracts
Offsetting Upstream Interest Rate Contracts
Option Contracts Purchased
Forwards and Futures Purchased
Forwards and Futures Sold
(Dollars in thousands)
Customer Interest Rate Contracts
Offsetting Upstream Interest Rate Contracts
Option Contracts Purchased
Option Contracts Written
Forwards and Futures Purchased
Forwards and Futures Sold
Interest Rate Risk Management
December 31, 2017
Notional
Assets
Liabilities
$2,026,753
2,026,753
20,000
6,257,140
6,292,012
$22,097
17,931
15
4,354
5,806
$18,323
20,720
-
5,526
4,010
December 31, 2016
Notional
Assets
Liabilities
$1,697,992
1,697,992
17,500
5,000
2,916,750
3,085,396
$39,495
14,996
63
-
6,257
27,330
$14,996
39,495
-
8
26,659
6,615
FHN’s ALCO focuses on managing market risk by controlling and limiting earnings volatility attributable to changes
in interest rates. Interest rate risk exists to the extent that interest-earning assets and interest-bearing liabilities
have different maturity or repricing characteristics. FHN uses derivatives, primarily swaps, that are designed to
moderate the impact on earnings as interest rates change. Interest paid or received for swaps utilized by FHN to
hedge the fair value of long term debt is recognized as an adjustment of the interest expense of the liabilities
whose risk is being managed. FHN’s interest rate risk management policy is to use derivatives to hedge interest
rate risk or market value of assets or liabilities, not to speculate. In addition, FHN has entered into certain interest
rate swaps and caps as a part of a product offering to commercial customers that includes customer derivatives
paired with upstream offsetting market instruments that, when completed, are designed to mitigate interest rate
risk. These contracts do not qualify for hedge accounting and are measured at fair value with gains or losses
included in current earnings in Noninterest expense on the Consolidated Statements of Income.
FHN has designated a derivative transaction in a hedging strategy to manage interest rate risk on $400.0 million of
senior debt issued by FTBNA which matures in December 2019. This qualifies for hedge accounting under
ASC 815-20 using the long-haul method. FHN entered into a pay floating, receive fixed interest rate swap to hedge
the interest rate risk of the senior debt. The balance sheet impact of this swap was $.1 million and $1.6 million in
Derivative assets as of December 31, 2017 and 2016. There was an insignificant level of ineffectiveness related to
this hedge.
FIRST HORIZON NATIONAL CORPORATION
155
Note 22 (cid:2) Derivatives (continued)
FHN has designated a derivative transaction in a hedging strategy to manage interest rate risk on $500.0 million of
senior debt which matures in December 2020. This qualifies for hedge accounting under ASC 815-20 using the
long-haul method. FHN entered into a pay floating, receive fixed interest rate swap to hedge the interest rate risk
of the senior debt. The balance sheet impact of this swap was $.2 million in Derivative assets as of December 31,
2017 and $7.3 million in Derivative liabilities as of December 31, 2016. There was an insignificant level of
ineffectiveness related to this hedge.
The following tables summarize FHN’s derivatives associated with interest rate risk management activities as of
December 31, 2017 and 2016:
(Dollars in thousands)
Customer Interest Rate Contracts Hedging
Hedging Instruments and Hedged Items:
Customer Interest Rate Contracts
Offsetting Upstream Interest Rate Contracts
Debt Hedging
Hedging Instruments:
Interest Rate Swaps
Hedged Items:
Term Borrowings
(Dollars in thousands)
Customer Interest Rate Contracts Hedging
Hedging Instruments and Hedged Items:
Customer Interest Rate Contracts
Offsetting Upstream Interest Rate Contracts
Debt Hedging
Hedging Instruments:
Interest Rate Swaps
Hedged Items:
Term Borrowings
(a) Represents par value of term borrowings being hedged.
December 31, 2017
Notional
Assets
Liabilities
$1,608,912
1,608,912
$11,644
18,473
$ 19,780
11,019
$ 900,000
$
371
N/A
N/A
N/A $900,000(a)
December 31, 2016
Notional
Assets
Liabilities
$1,357,920
1,357,920
$17,566
14,277
$ 14,277
18,066
$ 900,000
$ 1,628
$ 7,276
N/A
N/A $900,000(a)
The following table summarizes gains/(losses) on FHN’s derivatives associated with interest rate risk management
activities for the years ended December 31, 2017, 2016, and 2015:
(Dollars in thousands)
Customer Interest Rate Contracts Hedging
Hedging Instruments and Hedged Items:
Customer Interest Rate Contracts (a)
Offsetting Upstream Interest Rate Contracts (a)
Debt Hedging
Hedging Instruments:
Interest Rate Swaps (a)
Hedged Items:
Year Ended December 31
2017
2016
2015
Gains/(Losses)
Gains/(Losses)
Gains/(Losses)
$(10,703)
10,699
$(22,969)
22,969
604
(604)
$ (7,766)
$ (3,552)
$(23,194)
Term Borrowings (a) (b)
7,582
(a) Gains/losses included in the All other expense section of the Consolidated Statements of Income.
(b) Represents gains and losses attributable to changes in fair value due to interest rate risk as designated in ASC 815-20 hedging relationships.
3,429
23,414
156
FIRST HORIZON NATIONAL CORPORATION
Note 22 (cid:2) Derivatives (continued)
In first quarter 2016, FHN entered into a pay floating, receive fixed interest rate swap in a hedging strategy to
manage its exposure to the variability in cash flows related to the interest payments for the following five years on
$250 million principal of debt instruments, which primarily consist of held-to-maturity trust preferred loans that
have variable interest payments based on 3-month LIBOR. In first quarter 2017, FHN initiated cash flow hedges of
$650 million notional amount that have durations between three and seven years. The debt instruments primarily
consist of held-to-maturity commercial loans that have variable interest payments based on 1-month LIBOR. These
qualify for hedge accounting as cash flow hedges under ASC 815-20. Changes in the fair value of these derivatives
are recorded as a component of AOCI, to the extent that the hedging relationships are effective. Amounts are
reclassified from AOCI to earnings as the hedged cash flows affect earnings. FTB measures the ineffectiveness
using the Hypothetical Derivative Method. AOCI is adjusted to an amount that reflects the lesser of either the
cumulative change in fair value of the swaps or the cumulative change in the fair value of the hypothetical
derivative instruments. To the extent that any ineffectiveness exists in the hedge relationships, the amounts are
recorded in current period earnings. Interest paid or received for these swaps is recognized as an adjustment to
interest income of the assets whose cash flows are being hedged.
The following tables summarize FHN’s derivative activities associated with cash flow hedges as of December 31,
2017 and 2016:
(Dollars in thousands)
Cash Flow Hedges
Hedging Instruments:
Interest Rate Swaps
Hedged Items:
December 31, 2017
Notional
Assets
Liabilities
$900,000
$
942
N/A
Variability in Cash Flows Related to Debt Instruments (Primarily
Loans)
N/A
$900,000
N/A
(Dollars in thousands)
Cash Flow Hedges
Hedging Instruments:
Interest Rate Swaps
Hedged Items:
December 31, 2016
Notional
Assets
Liabilities
$250,000
N/A
$2,045
Variability in Cash Flows Related to Debt Instruments (Primarily
Loans)
N/A
$250,000
N/A
The following table summarizes gains/(losses) on FHN’s derivatives associated with cash flow hedges for the years
ended December 31, 2017 and 2016:
(Dollars in thousands)
Cash Flow Hedges
Hedging Instruments:
Interest Rate Swaps (a) (b)
Hedged Items:
Year Ended December 31
2017
2016
Gains/(Losses)
Gains/(Losses)
$(8,264)
$(2,045)
Variability in Cash Flows Related to Debt Instruments (Primarily Loans)
N/A
N/A
(a) Amount represents the pre-tax gains/(losses) included within AOCI.
(b) Approximately $3.0 million of losses are expected to be reclassified into earnings in the next twelve months.
Prior to third quarter 2017, FHN hedged held-to-maturity trust preferred loans which had an initial fixed rate term
before conversion to a floating rate. FHN had entered into pay fixed, receive floating interest rate swaps to hedge
the interest rate risk associated with the initial term. Interest paid or received for these swaps was recognized as
FIRST HORIZON NATIONAL CORPORATION
157
Note 22 (cid:2) Derivatives (continued)
an adjustment of the interest income of the assets whose risk was being hedged. Basis adjustments remaining at
the end of the hedge term were amortized as an adjustment to interest income over the remaining life of the
loans. Gains or losses were included in Other income and commissions on the Consolidated Statements of Income.
These hedges expired in third quarter 2017.
The following table summarizes FHN’s derivative activities associated with held-to-maturity trust preferred loans as
of December 31, 2016:
(Dollars in thousands)
Loan Portfolio Hedging
Hedging Instruments:
Interest Rate Swaps
Hedged Items:
Trust Preferred Loans (a)
December 31, 2016
Notional
Assets
Liabilities
$6,500
N/A
$208
N/A
$6,500(b)
N/A
(a) Assets included in the Loans, net of unearned income section of the Consolidated Statements of Condition.
(b) Represents principal balance being hedged.
The following table summarizes gains/(losses) on FHN’s derivatives associated with held-to-maturity trust preferred
loans for the year ended December 31, 2016 and 2015:
(Dollars in thousands)
Loan Portfolio Hedging
Hedging Instruments:
Interest Rate Swaps
Hedged Items:
Trust Preferred Loans (a)
Year Ended December 31
2016
2015
Gains/(Losses)
Gains/(Losses)
$ 280
$(276)
$ 256
$(253)
(a) Represents gains and losses attributable to changes in fair value due to interest rate risk as designated in ASC 815-20 hedging
relationships.
Other Derivatives
In conjunction with the sales of a portion of its Visa Class B shares, FHN and the purchaser 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. As of December 31, 2017 and 2016, the derivative liabilities
associated with the sales of Visa Class B shares were $5.6 million and $6.2 million, respectively. See the Visa
Matters section of Note 17 – Contingencies and Other Disclosures for more information regarding FHN’s Visa
shares.
FHN utilizes cross currency swaps and cross currency interest rate swaps to economically hedge its exposure to
foreign currency risk and interest rate risk associated with non-U.S. dollar denominated loans. As of December 31,
2017 and 2016, these loans were valued at $1.5 million and $3.8 million, respectively. The balance sheet amount
and the gains/losses associated with these derivatives were not significant.
Master Netting and Similar Agreements
As previously discussed, FHN uses master netting agreements, mutual margining agreements and collateral posting
requirements to minimize credit risk on derivative contracts. Master netting and similar agreements are used when
counterparties have multiple derivatives contracts that allow for a “right of setoff,” meaning that a counterparty may
158
FIRST HORIZON NATIONAL CORPORATION
Note 22 (cid:2) Derivatives (continued)
net offsetting positions and collateral with the same counterparty under the contract to determine a net receivable
or payable. The following discussion provides an overview of these arrangements which may vary due to the
derivative type and market in which a derivative transaction is executed.
Interest rate derivatives are subject to agreements consistent with standard agreement forms of the International
Swap and Derivatives Association (“ISDA”). Currently, all interest rate derivative contracts are entered into as over-
the-counter transactions and collateral posting requirements are based on the net asset or liability position with
each respective counterparty. For contracts that require central clearing, novation to a counterparty with access to
a clearinghouse occurs and margin is posted. Cash margin received (posted) that is considered settlements for the
derivative contracts is included in the respective derivative asset (liability) value. Cash margin that is considered
collateral received (posted) for interest rate derivatives is recognized as a liability (asset) on FHN’s Consolidated
Statements of Condition.
Interest rate derivatives with customers that are smaller financial institutions typically require posting of collateral by
the counterparty to FHN. This collateral is subject to a threshold with daily adjustments based upon changes in the
level or fair value of the derivative position. Positions and related collateral can be netted in the event of default.
Collateral pledged by a counterparty is typically cash or securities. The securities pledged as collateral are not
recognized within FHN’s Consolidated Statements of Condition. Interest rate derivatives associated with lending
arrangements share the collateral with the related loan(s). The derivative and loan positions may be netted in the
event of default. For disclosure purposes, the entire collateral amount is allocated to the loan.
Interest rate derivatives with larger financial institutions entered into prior to required central clearing typically
contain provisions whereby the collateral posting thresholds under the agreements adjust based on the credit
ratings of both counterparties. If the credit rating of FHN and/or FTBNA is lowered, FHN could be required to post
additional collateral with the counterparties. Conversely, if the credit rating of FHN and/or FTBNA is increased,
FHN could have collateral released and be required to post less collateral in the future. Also, if a counterparty’s
credit ratings were to decrease, FHN and/or FTBNA could require the posting of additional collateral; whereas if a
counterparty’s credit ratings were to increase, the counterparty could require the release of excess collateral.
Collateral for these arrangements is adjusted daily based on changes in the net fair value position with each
counterparty.
The net fair value, determined by individual counterparty, of all derivative instruments with adjustable collateral
posting thresholds was $23.3 million of assets and $34.5 million of liabilities on December 31, 2017, and
$35.9 million of assets and $49.0 million of liabilities on December 31, 2016. As of December 31, 2017 and
2016, FHN had received collateral of $119.3 million and $137.6 million and posted collateral of $18.9 million and
$39.3 million, respectively, in the normal course of business related to these agreements.
Certain agreements entered into prior to required central clearing also contain accelerated termination provisions,
inclusive of the right of offset, if a counterparty’s credit rating falls below a specified level. If a counterparty’s debt
rating (including FHN’s and FTBNA’s) were to fall below these minimums, these provisions would be triggered, and
the counterparties could terminate the agreements and require immediate settlement of all derivative contracts
under the agreements. The net fair value, determined by individual counterparty, of all derivative instruments with
credit-risk-related contingent accelerated termination provisions was $22.8 million of assets and $19.4 million of
liabilities on December 31, 2017, and $35.9 million of assets and $19.6 million of liabilities on December 31,
2016. As of December 31, 2017 and 2016, FHN had received collateral of $118.6 million and $137.5 million and
posted collateral of $6.7 million and $12.9 million, respectively, in the normal course of business related to these
contracts.
FHN’s fixed income segment buys and sells various types of securities for its customers. When these securities
settle on a delayed basis, they are considered forward contracts, and are generally not subject to master netting
agreements. For futures and options, FHN transacts through a third party, and the transactions are subject to
margin and collateral maintenance requirements. In the event of default, open positions can be offset along with
the associated collateral.
FIRST HORIZON NATIONAL CORPORATION
159
Note 22 (cid:2) Derivatives (continued)
For this disclosure, FHN considers the impact of master netting and other similar agreements which allow FHN to
settle all contracts with a single counterparty on a net basis and to offset the net derivative asset or liability position
with the related securities and cash collateral. The application of the collateral cannot reduce the net derivative
asset or liability position below zero, and therefore any excess collateral is not reflected in the following tables.
The following table provides details of derivative assets and collateral received as presented on the Consolidated
Statements of Condition as of December 31, 2017 and 2016:
(Dollars in thousands)
Gross amounts
of recognized
assets
Gross amounts
offset in the
Statements of
Condition
Net amounts of
assets presented
in the Statements
of Condition (a)
Derivative
liabilities
available for
offset
Collateral
Received Net amount
Gross amounts not offset in the
Statements of Condition
Derivative assets:
December 31, 2017 (b)
December 31, 2016 (b)
(a) Included in Derivative assets on the Consolidated Statements of Condition. As of December 31, 2017 and 2016, $10.2 million and $33.7
$(33,370) $20,810
9,121
$(17,278)
(25,953)
$71,458
87,962
$71,458
87,962
(52,888)
-
-
$
million, respectively, of derivative assets (primarily fixed income forward contracts) have been excluded from these tables because they are
generally not subject to master netting or similar agreements.
(b) Amounts are comprised entirely of interest rate derivative contracts.
The following table provides details of derivative liabilities and collateral pledged as presented on the Consolidated
Statements of Condition as of December 31, 2017 and 2016:
(Dollars in thousands)
Gross amounts
of recognized
liabilities
Gross amounts
offset in the
Statements of
Condition
Net amounts of
liabilities presented
in the Statements
of Condition (a)
Derivative
assets
available for
offset
Collateral
pledged Net amount
Gross amounts not offset in the
Statements of Condition
Derivative liabilities:
December 31, 2017 (b)
December 31, 2016 (b)
(a) Included in Derivative liabilities on the Consolidated Statements of Condition. As of December 31, 2017 and December 31, 2016, $15.2
$(51,801) $ 763
9,664
$(17,278)
(25,953)
$69,842
96,363
$69,842
96,363
(60,746)
-
-
$
million and $39.5 million, respectively, of derivative liabilities (primarily fixed income forward contracts) have been excluded from these
tables because they are generally not subject to master netting or similar agreements.
(b) Amounts are comprised entirely of interest rate derivative contracts.
160
FIRST HORIZON NATIONAL CORPORATION
Note 23 (cid:2) Master Netting and Similar Agreements - Repurchase, Reverse Repurchase, and Securities Borrowing
Transactions
For repurchase, reverse repurchase and securities borrowing transactions, FHN and each counterparty have the
ability to offset all open positions and related collateral in the event of default. Due to the nature of these
transactions, the value of the collateral for each transaction approximates the value of the corresponding receivable
or payable. For repurchase agreements through FHN’s fixed income business (Securities purchased under
agreements to resell and Securities sold under agreements to repurchase), transactions are collateralized by
securities and/or government guaranteed loans which are delivered on the settlement date and are maintained
throughout the term of the transaction. For FHN’s repurchase agreements through banking activities (Securities
sold under agreements to repurchase), securities are typically pledged at settlement and not released until
maturity. For asset positions, the collateral is not included on FHN’s Consolidated Statements of Condition. For
liability positions, securities collateral pledged by FHN is generally represented within FHN’s trading or available-for-
sale securities portfolios.
For this disclosure, FHN considers the impact of master netting and other similar agreements that allow FHN to
settle all contracts with a single counterparty on a net basis and to offset the net asset or liability position with the
related securities collateral. The application of the collateral cannot reduce the net asset or liability position below
zero, and therefore any excess collateral is not reflected in the tables below.
The following table provides details of Securities purchased under agreements to resell as presented on the
Consolidated Statements of Condition and collateral pledged by counterparties as of December 31:
Gross amounts
of recognized
assets
Gross amounts
offset in the
Statements of
Condition
Net amounts of
assets presented
in the Statements
of Condition
Offsetting
securities sold
under agreements
to repurchase
Securities collateral
(not recognized on
FHN’s Statements
of Condition)
Net amount
Gross amounts not offset in the
Statements of Condition
$725,609
613,682
$
-
-
$725,609
613,682
$ (259)
(1,628)
$(720,036)
(603,813)
$5,314
8,241
(Dollars in thousands)
Securities purchased
under agreements
to resell:
2017
2016
The following table provides details of Securities sold under agreements to repurchase as presented on the
Consolidated Statements of Condition and collateral pledged by FHN as of December 31:
Gross amounts
of recognized
liabilities
Gross amounts
offset in the
Statements of
Condition
Net amounts of
liabilities presented
in the Statements
of Condition
Offsetting
securities
purchased under
agreements to resell
Securities/
government
guaranteed loans
collateral
Net amount
Gross amounts not offset in the
Statements of Condition
$656,602
453,053
$
-
-
$656,602
453,053
$ (259)
(1,628)
$(656,216)
(451,414)
$127
11
(Dollars in
thousands)
Securities sold under
agreements to
repurchase:
2017
2016
Due to the short duration of Securities sold under agreements to repurchase and the nature of collateral involved,
the risks associated with these transactions are considered minimal. The following tables provide details, by
FIRST HORIZON NATIONAL CORPORATION
161
Note 23 (cid:2) Master Netting and Similar Agreements - Repurchase, Reverse Repurchase, and Securities Borrowing
Transactions (continued)
collateral type, of the remaining contractual maturity of Securities sold under agreements to repurchase as of
December 31:
(Dollars in thousands)
Securities sold under agreements to repurchase:
U.S. treasuries
Government agency issued MBS
Government agency issued CMO
Government guaranteed loans (SBA and USDA)
Total Securities sold under agreements to repurchase
(Dollars in thousands)
Securities sold under agreements to repurchase:
U.S. treasuries
Government agency issued MBS
Government agency issued CMO
Total Securities sold under agreements to repurchase
December 31, 2017
Overnight and
Continuous
Up to 30 Days
Total
$ 13,830
424,821
54,037
154,883
$647,571
$
-
5,365
3,666
-
$9,031
$ 13,830
430,186
57,703
154,883
$656,602
December 31, 2016
Overnight and
Continuous
Up to 30 Days
Total
$ 14,864
421,771
-
$436,635
$
-
-
16,418
$ 14,864
421,771
16,418
$16,418
$453,053
162
FIRST HORIZON NATIONAL CORPORATION
Note 24 (cid:2) 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.
Transfers between fair value levels are recognized at the end of the fiscal quarter in which the associated change
in inputs occurs.
FIRST HORIZON NATIONAL CORPORATION
163
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
Recurring Fair Value Measurements
The following table presents the balance of assets and liabilities measured at fair value on a recurring basis as of
December 31, 2017:
(Dollars in thousands)
Trading securities – fixed income:
U.S. treasuries
Government agency issued MBS
Government agency issued CMO
Other U.S. government agencies
States and municipalities
Corporates and other debt
Equity, mutual funds, and other
Total trading securities – fixed income
Trading securities – mortgage banking
Loans held-for-sale
Securities available-for-sale:
U.S. treasuries
Government agency issued MBS
Government agency issued CMO
Corporates and other debt
Interest-only strips
Equity, mutual funds, and other
Total securities available-for-sale
Other assets:
Deferred compensation assets
Derivatives, forwards and futures
Derivatives, interest rate contracts
Total other assets
Total assets
Trading liabilities – fixed income:
U.S. treasuries
Corporates and other debt
Total trading liabilities – fixed income
Other liabilities:
Derivatives, forwards and futures
Derivatives, interest rate contracts
Derivatives, other
Total other liabilities
Total liabilities
December 31, 2017
Level 1
Level 2
Level 3
Total
$
-
-
-
-
-
-
-
-
-
-
$
$ 128,995
227,038
275,014
54,699
34,573
693,877
(2)
1,414,194
-
-
-
-
-
-
-
-
$ 128,995
227,038
275,014
54,699
34,573
693,877
(2)
1,414,194
-
1,955
2,151
18,926
2,151
20,881
-
-
-
-
-
27,017
27,017
39,822
10,161
-
49,983
99
2,577,376
2,269,858
55,782
-
-
4,903,115
-
-
71,473
71,473
-
-
-
-
1,270
-
1,270
-
-
-
-
99
2,577,376
2,269,858
55,782
1,270
27,017
4,931,402
39,822
10,161
71,473
121,456
$77,000
$6,390,737
$22,347
$6,490,084
$
-
-
-
$ 506,679
131,836
$
638,515
-
-
-
$ 506,679
131,836
638,515
9,535
-
-
9,535
-
69,842
39
69,881
-
-
5,645
5,645
9,535
69,842
5,684
85,061
$ 9,535
$ 708,396
$ 5,645
$ 723,576
164
FIRST HORIZON NATIONAL CORPORATION
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
The following table presents the balance of assets and liabilities measured at fair value on a recurring basis as of
December 31, 2016:
(Dollars in thousands)
Trading securities – fixed income:
U.S. treasuries
Government agency issued MBS
Government agency issued CMO
Other U.S. government agencies
States and municipalities
Corporates and other debt
Equity, mutual funds, and other
Total trading securities – fixed income
Trading securities – mortgage banking
Loans held-for-sale
Securities available-for-sale:
U.S. treasuries
Government agency issued MBS
Government agency issued CMO
Equity, mutual funds, and other
Total securities available-for-sale
Other assets:
Mortgage servicing rights
Deferred compensation assets
Derivatives, forwards and futures
Derivatives, interest rate contracts
Derivatives, other
Total other assets
Total assets
Trading liabilities – fixed income:
U.S. treasuries
Other U.S. government agencies
Corporates and other debt
Total trading liabilities – fixed income
Other liabilities:
Derivatives, forwards and futures
Derivatives, interest rate contracts
Derivatives, other
Total other liabilities
Total liabilities
December 31, 2016
Level 1
Level 2
Level 3
Total
$
-
-
-
-
-
-
-
-
-
-
$
$ 146,988
256,611
150,058
52,314
60,351
227,934
242
894,498
-
-
-
-
-
5
-
5
-
2,345
2,568
21,924
-
-
-
25,249
25,249
-
32,840
33,587
-
-
66,427
100
2,208,687
1,547,958
-
3,756,745
-
-
-
88,025
42
88,067
-
-
-
-
-
985
-
-
-
-
985
$ 146,988
256,611
150,058
52,314
60,351
227,939
242
894,503
2,568
24,269
100
2,208,687
1,547,958
25,249
3,781,994
985
32,840
33,587
88,025
42
155,479
$91,676
$4,741,655
$25,482
$4,858,813
$
$
-
-
-
-
$ 381,229
844
179,775
561,848
-
-
-
-
$ 381,229
844
179,775
561,848
33,274
-
-
33,274
-
96,371
7
96,378
-
-
6,245
6,245
33,274
96,371
6,252
135,897
$33,274
$ 658,226
$ 6,245
$ 697,745
FIRST HORIZON NATIONAL CORPORATION
165
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
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, 2017, 2016
and 2015 on a recurring basis are summarized as follows:
(Dollars in thousands)
Balance on January 1, 2017
Total net gains/(losses) included in:
Net income
Purchases
Sales
Settlements
Net transfers into/(out of) Level 3
Balance on December 31, 2017
Year Ended December 31, 2017
Trading
securities
Interest-
only strips-
AFS
Loans held-
for-sale
Net derivative
liabilities
$2,573
$
-
$21,924
$(6,245)
448
-
(5)
(865)
-
1,021
1,413
(11,431)
-
1,547
168
-
(4,346)
10,267(b)
(367)(d)
(596)
-
-
1,196
-
$2,151
$ 1,270
$18,926
$(5,645)
Net unrealized gains/(losses) included in net income
$ 303(a) $
(171)(c)
$ 1,547(a)
$ (596)(e)
(Dollars in thousands)
Balance on January 1, 2016
Total net gains/(losses) included in:
Net income
Purchases
Sales
Settlements
Net transfers into/(out of) Level 3
Year Ended December 31, 2016
Trading
securities
Loans held-
for-sale
Securities
available-
for-sale
Mortgage
servicing
rights, net
Net derivative
liabilities
$ 4,377
$27,418
$ 1,500
$1,841
$(4,810)
604
-
-
(2,408)
-
3,380
706
-
(6,264)
(3,316)(d)
-
-
-
(1,500)
-
$
$
-
-
31
-
(205)
(682)
-
(2,634)
-
-
1,199
-
$ 985
$(6,245)
$
-
$(2,634)(e)
Balance on December 31, 2016
$ 2,573
$21,924
Net unrealized gains/(losses) included in net income
$
159(a) $ 3,380(a)
(Dollars in thousands)
Balance on January 1, 2015
Total net gains/(losses) included in:
Net income
Purchases
Sales
Settlements
Net transfers into/(out of) Level 3
Year Ended December 31, 2015
Trading
securities
Loans held-
for-sale
Securities
available-
for-sale
Mortgage
servicing
rights, net
Net derivative
liabilities
$ 5,642
$27,910
$ 3,307
$2,517
$(5,240)
369
-
-
(1,634)
-
2,765
3,116
-
(4,462)
(1,911)(d)
(47)
-
(1,760)
-
-
-
-
-
(676)
-
(775)
-
-
1,205
-
Balance on December 31, 2015
$ 4,377
$27,418
$ 1,500
$1,841
$(4,810)
Net unrealized gains/(losses) included in net income
$
369(a) $ 2,765(a)
$
-
$
-
$ (775)(e)
(a) Primarily included in mortgage banking income on the Consolidated Statements of Income.
(b) Transfers into interest-only strips - AFS 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) Transfers out of loans held-for-sale level 3 measured on a recurring basis generally reflect movements into OREO (level 3 nonrecurring).
(e) Included in Other expense.
166
FIRST HORIZON NATIONAL CORPORATION
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
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 balance sheet at December 31, 2017, 2016 and 2015,
respectively, the following tables provide the level of valuation assumptions used to determine each adjustment the
related carrying value, and the fair value adjustments recorded during the respective periods.
(Dollars in thousands)
Level 1
Level 2
Level 3
Total
Net gains/(losses)
Carrying value at December 31, 2017
Year Ended
December 31, 2017
Loans held-for-sale – SBAs and USDA
Loans held-for-sale – first mortgages
Loans, net of unearned income (a)
OREO (b)
Other assets (c)
$-
-
-
-
-
$465,504
-
-
-
-
$ 1,473
618
26,666
39,566
26,521
$466,977
618
26,666
39,566
26,521
$(1,629)
36
(1,687)
(996)
(3,468)
$(7,744)
(Dollars in thousands)
Level 1
Level 2
Level 3
Total
Net gains/(losses)
Carrying value at December 31, 2016
Year Ended
December 31, 2016
Loans held-for-sale – SBAs
Loans held-for-sale – first mortgages
Loans, net of unearned income (a)
OREO (b)
Other assets (c)
$-
-
-
-
-
$4,286
-
-
-
-
$
-
638
31,070
11,235
29,609
$ 4,286
638
31,070
11,235
29,609
$
(1)
75
(2,055)
(2,041)
(3,349)
$(7,371)
(Dollars in thousands)
Level 1
Level 2
Level 3
Total
Net gains/(losses)
Carrying value at December 31, 2015
Year Ended
December 31, 2015
Loans held-for-sale – first mortgages
Loans, net of unearned income (a)
OREO (b)
Other assets (c)
$-
-
-
-
$-
-
-
-
$
729
27,026
24,977
24,577
$
729
27,026
24,977
24,577
$
57
4,087
(2,868)
(4,582)
$(3,306)
(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 loan losses. Gains in 2015 are due to recoveries of
previously charged-off amounts.
(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 fourth quarter 2017, FHN recognized $3.0 million and $.8 million of impairments on long-lived assets in its
Corporate and Regional Banking segments, respectively, associated with efforts to more efficiently utilize its branch
locations, including integration with branches acquired from CBF. In first quarter 2016, FHN’s Regional Banking
segment recognized $3.7 million of impairments on long-lived assets for similar efficiency efforts. The affected
branch locations represented a mixture of owned and leased sites. The fair values of owned sites were determined
using estimated sales prices from appraisals less estimated costs to sell. The fair values of leased sites 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.
In third quarter 2017, FHN’s Corporate segment recognized $2.0 million of impairments on long-lived technology
assets associated with the transition to expanded processing capacity that will be required upon completion of the
FIRST HORIZON NATIONAL CORPORATION
167
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
merger with CBF. The fair values of the assets impaired were determined using a discounted cash flow approach
which reflected short estimated remaining lives and considered estimated salvage values. The measurement
methodologies are considered Level 3 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, 2017 and 2016:
(Dollars in thousands)
Level 3 Class
Available-for-sale – securities
SBA-interest only strips
Loans held-for-sale –
residential real estate
Fair Value at
December 31, 2017
Valuation Techniques
Unobservable Input
Values Utilized
$ 1,270
Discounted cash flow
Constant prepayment rate
10% - 11%
19,544
Discounted cash flow
Loans held-for-sale –
unguaranteed interest in
SBA loans
1,473
Discounted cash flow
Derivative liabilities, other
5,645
Discounted cash flow
Loans, net of unearned
26,666
income (a)
Appraisals from
comparable properties
Other collateral valuations
Bond equivalent yield
Prepayment speeds –
First mortgage
Prepayment speeds –
HELOC
17%
2% - 12%
5% - 12%
Foreclosure losses
50% - 70%
Loss severity trends –
First mortgage
Loss severity trends –
HELOC
Constant prepayment
rate
5% - 30% of UPB
15% - 100% of UPB
8% - 12%
Bond equivalent yield
9% - 10%
Visa covered litigation
resolution amount
Probability of
resolution scenarios
$4.4 billion - $5.2 billion
10% - 30%
Time until resolution
18 - 48 months
Marketability
adjustments for
specific properties
Borrowing base
certificates adjustment
Financial
Statements/Auction
values adjustment
0% - 10% of appraisal
20% - 50% of gross value
0% - 25% of
reported value
OREO (b)
39,566
Appraisals from
comparable properties
Adjustment for value
changes since appraisal
0% - 10% of appraisal
Other assets (c)
26,521
Discounted cash flow
Appraisals from
comparable properties
Adjustments to current
sales yields for specific
properties
Marketability
adjustments for
specific properties
0% - 15% adjustment
to yield
0% - 25% of appraisal
(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 loan 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.
168
FIRST HORIZON NATIONAL CORPORATION
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
(Dollars in thousands)
Level 3 Class
Fair Value at
December 31, 2016
Valuation Techniques
Unobservable Input
Values Utilized
Loans held-for-sale –
$22,562
Discounted cash flow
Prepayment speeds – First mortgage
2% - 13%
residential real estate
Prepayment speeds –
HELOC
3% - 15%
Foreclosure losses
50% - 70%
Loss severity trends –
First mortgage
Loss severity trends –
HELOC
Visa covered litigation
resolution amount
Probability of
resolution scenarios
5% - 50% of UPB
15% - 100% of UPB
$4.4 billion - $5.2 billion
10% - 30%
Time until resolution
24 - 54 months
Marketability
adjustments for
specific properties
Borrowing base
certificates adjustment
Financial
Statements/Auction
values adjustment
0% - 10% of appraisal
20% - 50% of gross value
0% - 25% of reported value
0% - 10% of appraisal
0% - 15% adjustment
to yield
0% - 25% of appraisal
Derivative liabilities,
6,245
Discounted cash flow
other
Loans, net of unearned
31,070
income (a)
Appraisals from
comparable properties
Other collateral valuations
OREO (b)
11,235
Appraisals from
comparable properties
Adjustment for value
changes since appraisal
Other assets (c)
29,609
Discounted cash flow
Appraisals from
comparable properties
Adjustments to current
sales yields for specific
properties
Marketability
adjustments for
specific properties
(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 loan 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.
FIRST HORIZON NATIONAL CORPORATION
169
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
Securities AFS. 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.
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. Fair value measurements are reviewed at least
quarterly by FHN’s Corporate Accounting Department.
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.
Derivative liabilities. In conjunction with the sales of portions of its Visa Class B shares, FHN and the purchaser
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. The valuation inputs and process are discussed with senior
and executive management when significant events affecting the estimate of fair value occur. Inputs are compared
to information obtained from the public issuances and filings of Visa, Inc. as well as public information released by
other participants in the applicable litigation matters.
Loans, net of unearned income 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. Multiple appraisal
firms are utilized to ensure that estimated values are consistent between firms. This process occurs within FHN’s
Credit Risk Management (commercial) and Default Servicing functions (primarily consumer). The Credit Risk
Management Committee reviews dispositions and additions of OREO annually. Back testing is performed during the
year through comparison to ultimate disposition values. 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. Unusual valuation adjustments and
the associated triggering events are discussed with senior and executive management when appropriate. A portfolio
170
FIRST HORIZON NATIONAL CORPORATION
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
review is conducted annually, with the assistance of a third party, to assess the reasonableness of current
valuations.
Fair Value Option
FHN has elected the fair value option on a prospective basis for almost all types of mortgage loans originated for
sale purposes under the Financial Instruments Topic (“ASC 825”) except for mortgage origination operations
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 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.
The following tables reflect the differences between the fair value carrying amount of residential real estate loans
held-for-sale measured at fair value in accordance with management’s election and the aggregate unpaid principal
amount FHN is contractually entitled to receive at maturity.
(Dollars in thousands)
Residential real estate loans held-for-sale reported at fair value:
Total loans
Nonaccrual loans
Loans 90 days or more past due and still accruing
(Dollars in thousands)
Residential real estate loans held-for-sale reported at fair value:
Total loans
Nonaccrual loans
Loans 90 days or more past due and still accruing
December 31, 2017
Fair value
carrying
amount
Aggregate
unpaid
principal
Fair value
carrying amount
less aggregate
unpaid principal
$20,881
5,783
-
$29,755
10,881
-
$(8,874)
(5,098)
-
December 31, 2016
Fair value
carrying
amount
Aggregate
unpaid
principal
Fair value
carrying amount
less aggregate
unpaid principal
$24,269
6,775
211
$35,262
12,910
331
$(10,993)
(6,135)
(120)
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
FIRST HORIZON NATIONAL CORPORATION
171
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
elected the fair value option are included in current period earnings with classification in the income statement line
item reflected in the following table:
(Dollars in thousands)
Changes in fair value included in net income:
Mortgage banking noninterest income
Loans held-for-sale
Year Ended
December 31
2017
2016
2015
$1,547
$3,380
$2,765
For the years ended December 31, 2017, 2016 and 2015, the amounts for residential real estate loans held-for-
sale included gains of $.5 million, $1.5 million and $.4 million, respectively, 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 available-for-
sale 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
In accordance with ASC 820-10-35, 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 Statements of Condition and for estimating the fair value of financial
instruments for which fair value is disclosed under ASC 825-10-50.
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, LIBOR and U.S. treasury curves, 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 also include retained interests in prior mortgage securitizations that qualify as financial assets,
which include primarily principal-only strips. FHN uses inputs including yield curves, credit spreads, and
prepayment speeds to determine the fair value of principal-only strips.
Securities available-for-sale. Securities available-for-sale includes the investment portfolio accounted for as
available-for-sale under ASC 320-10-25, federal bank stock holdings, and investments in mutual funds. Valuations
of available-for-sale securities are performed using observable inputs obtained from market transactions in similar
172
FIRST HORIZON NATIONAL CORPORATION
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
securities. Typical inputs include LIBOR and U.S. treasury curves, consensus prepayment estimates, and credit
spreads. When available, broker quotes are used to support these valuations.
Investments in the stock of the Federal Reserve Bank and Federal Home Loan Banks are recognized at historical
cost in the Consolidated Statements of Condition 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. Cost method investments are valued at historical cost less any
recorded impairment due to the illiquid nature of these investments.
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 the Company 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.
Securities held-to-maturity. Securities held-to-maturity reflects debt securities for which management has the
positive intent and ability to hold to maturity. To the extent possible, valuations of held-to-maturity securities are
performed using observable inputs obtained from market transactions in similar securities. Typical inputs include
LIBOR and U.S. treasury curves and credit spreads. Debt securities with limited trading activity are valued using a
discounted cash flow model that incorporates a combination of observable and unobservable inputs. Primary
observable inputs include contractual cash flows, the treasury curve and credit spreads from similar instruments.
Significant unobservable inputs include estimated credit spreads for individual issuers and instruments as well as
prepayment speeds, as applicable.
Loans held-for-sale. Residential real estate loans held-for-sale are valued 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. For all other loans FHN determines the fair
value of residential real estate loans held-for-sale using a discounted cash flow model which incorporates both
observable and unobservable inputs. Inputs 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 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.
The Company utilizes quoted market prices of similar instruments or broker and dealer quotations to value the
SBA and USDA guaranteed loans. The Company 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.
Loans, net of unearned income. Loans, net of unearned income are recognized at the amount of funds advanced,
less charge-offs and an estimation of credit risk represented by the allowance for loan losses. The fair value
estimates for disclosure purposes differentiate loans based on their financial characteristics, such as product
classification, vintage, loan category, pricing features, and remaining maturity.
FIRST HORIZON NATIONAL CORPORATION
173
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
The fair value of floating rate loans is estimated through comparison to recent market activity in loans of similar
product types, with adjustments made for differences in loan characteristics. In situations where market pricing
inputs are not available, fair value is considered to approximate book value due to the monthly repricing for
commercial and consumer loans, with the exception of floating rate 1-4 family residential mortgage loans which
reprice annually and will lag movements in market rates. The fair value for floating rate 1-4 family mortgage loans
is calculated by discounting future cash flows to their present value. Future cash flows are discounted to their
present value by using the current rates at which similar loans would be made to borrowers with similar credit
ratings and for the same time period. Prepayment assumptions based on historical prepayment speeds and
industry speeds for similar loans have been applied to the floating rate 1-4 family residential mortgage portfolio.
The fair value of fixed rate loans is estimated through comparison to recent market activity in loans of similar
product types, with adjustments made for differences in loan characteristics. In situations where market pricing
inputs are not available, fair value is estimated by discounting future cash flows to their present value. Future cash
flows are discounted to their present value by using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same time period. Prepayment assumptions based on historical
prepayment speeds and industry speeds for similar loans have been applied to the fixed rate mortgage and
installment loan portfolios.
For all loan portfolio classes, adjustments are made to reflect liquidity or illiquidity of the market. Such adjustments
reflect discounts that FHN believes are consistent with what a market participant would consider in determining fair
value given current market conditions.
Individually impaired loans are measured using either a discounted cash flow methodology or the estimated fair
value of the underlying collateral less costs to sell, if the loan is considered collateral-dependent. In accordance
with accounting standards, the discounted cash flow analysis utilizes the loan’s effective interest rate for
discounting expected cash flow amounts. Thus, this analysis is not considered a fair value measurement in
accordance with ASC 820. However, the results of this methodology are considered to approximate fair value for
the applicable loans. Expected cash flows are derived from internally-developed inputs primarily reflecting expected
default rates on contractual cash flows. 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 related swaps) are based on inputs observed in active
markets for similar instruments. Typical inputs include the LIBOR curve, Overnight Indexed Swap (“OIS”) curve,
option volatility, and option skew. 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 customer 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.
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.
174
FIRST HORIZON NATIONAL CORPORATION
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
Nonearning assets. For disclosure purposes, nonearning financial assets include cash and due from banks, accrued
interest receivable, and fixed income receivables. Due to the short-term nature of cash and due from banks,
accrued interest receivable, and fixed income receivables, the fair value is approximated by the book value.
Other assets. For disclosure purposes, other assets consist of tax credit investments and deferred compensation
assets that are considered financial assets. 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 assets are recognized at fair value, which is based on quoted prices in active markets.
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.
Undefined maturity deposits. In accordance with ASC 825, the fair value of these deposits is approximated by the
book value. For the purpose of this disclosure, undefined maturity deposits include demand deposits, checking
interest accounts, savings accounts, and money market accounts.
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.
Term borrowings. The fair value of term borrowings is based on quoted market prices or dealer quotes for the
identical liability when traded as an asset. When pricing information for the identical liability is not available,
relevant prices for similar debt instruments are used with adjustments being made to the prices obtained for
differences in characteristics of the debt instruments. If no relevant pricing information is available, the fair value is
approximated by the present value of the contractual cash flows discounted by the investor’s yield which considers
FHN’s and FTBNA’s debt ratings and whether the debt is currently callable. Secured borrowings also consider the
values of the associated assets and whether overcollateralization exists.
Other noninterest-bearing liabilities. For disclosure purposes, other noninterest-bearing financial liabilities include
accrued interest payable and fixed income payables. Due to the short-term nature of these liabilities, the book
value is considered to approximate fair value.
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, net of unearned income, loans held-for-sale, and term
borrowings as of December 31, 2017 and 2016, 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 within the non-strategic
segment and TRUP loans, 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.
FIRST HORIZON NATIONAL CORPORATION
175
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
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 customers, 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 table summarizes the book value and estimated fair value of financial instruments recorded in the
Consolidated Statements of Condition as of December 31, 2017:
176
FIRST HORIZON NATIONAL CORPORATION
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
(Dollars in thousands)
Assets:
Loans, net of unearned income and allowance for
loan losses
Commercial:
Book
Value
December 31, 2017
Fair Value
Level 1
Level 2
Level 3
Total
Commercial, financial and industrial
Commercial real estate
$15,959,062
4,186,268
$
Consumer:
Consumer real estate
Permanent mortgage
Credit card & other
Total loans, net of unearned income and
allowance for loan losses
Short-term financial assets:
Interest-bearing cash
Federal funds sold
Securities purchased under agreements to resell
Total short-term financial assets
Trading securities (a)
Loans held-for-sale:
Mortgage loans
USDA & SBA loans
Other consumer loans
Securities available-for-sale (a) (b)
Securities held-to-maturity
Derivative assets (a)
Other assets:
Tax credit investments
Deferred compensation assets
Total other assets
Nonearning assets:
Cash & due from banks
Fixed income receivables
Accrued interest receivable
Total nonearning assets
Total assets
Liabilities:
Deposits:
Defined maturity
Undefined maturity
Total deposits
Trading liabilities (a)
Short-term financial liabilities:
Federal funds purchased
Securities sold under agreements to repurchase
Other short-term borrowings
Total short-term financial liabilities
Term borrowings:
Real estate investment trust-preferred
Term borrowings – new market tax credit
investment
Secured borrowings
Junior subordinated debentures
Other long term borrowings
Total term borrowings
Derivative liabilities (a)
Other noninterest-bearing liabilities:
Fixed income payables
Accrued interest payable
Total other noninterest-bearing liabilities
Total liabilities
$
-
-
-
-
-
-
-
-
-
-
-
-
$15,990,991
4,215,367
$15,990,991
4,215,367
6,320,308
388,396
607,955
6,320,308
388,396
607,955
27,523,017
27,523,017
1,185,600
-
-
1,185,600
-
-
-
-
27,017
-
10,161
-
39,822
39,822
-
87,364
725,609
812,973
1,414,194
6,902
467,227
9,965
4,903,115
-
71,473
-
-
-
-
-
-
-
2,151
81,271
1,510
134,262
240,123
9,901
-
112,292
-
112,292
1,185,600
87,364
725,609
1,998,573
1,416,345
88,173
468,737
144,227
5,170,255
9,901
81,634
112,292
39,822
152,114
6,330,384
383,742
609,918
27,469,374
1,185,600
87,364
725,609
1,998,573
1,416,345
88,173
466,977
144,227
5,170,255
10,000
81,634
119,317
39,822
159,139
639,073
68,693
97,239
805,005
$37,809,702
639,073
-
-
639,073
$1,901,673
-
68,693
97,239
165,932
$ 7,851,781
-
-
-
-
$28,104,527
639,073
68,693
97,239
805,005
$37,857,981
$
$ 3,322,921
27,297,441
30,620,362
638,515
399,820
656,602
2,626,213
3,682,635
46,100
18,000
18,642
187,281
948,074
1,218,097
85,061
48,996
16,270
65,266
$36,309,936
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9,535
-
-
-
9,535
$
$ 3,293,650
27,297,431
30,591,081
638,515
399,820
656,602
2,626,213
3,682,635
-
-
-
-
-
-
-
-
$ 3,293,650
27,297,431
30,591,081
638,515
399,820
656,602
2,626,213
3,682,635
-
48,880
48,880
-
-
-
966,292
966,292
69,881
48,996
16,270
65,266
$36,013,670
$
17,930
18,305
187,281
-
272,396
5,645
-
-
-
278,041
17,930
18,305
187,281
966,292
1,238,688
85,061
48,996
16,270
65,266
$36,301,246
(a) Classes are detailed in the recurring and nonrecurring measurement tables.
(b) Level 3 includes restricted investments in FHLB-Cincinnati stock of $87.9 million and FRB stock of $134.6 million.
FIRST HORIZON NATIONAL CORPORATION
177
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
The following table summarizes the book value and estimated fair value of financial instruments recorded in the
Consolidated Statements of Condition as of December 31, 2016:
(Dollars in thousands)
Book
Value
December 31, 2016
Fair Value
Level 1
Level 2
Level 3
Total
Assets:
Loans, net of unearned income and allowance
for loan losses
Commercial:
Commercial, financial and industrial
Commercial real estate
Consumer:
Consumer real estate
Permanent mortgage
Credit card & other
Total loans, net of unearned income and
allowance for loan losses
Short-term financial assets:
Interest-bearing cash
Federal funds sold
Securities purchased under agreements to
resell
Total short-term financial assets
Trading securities (a)
Loans held-for-sale (a)
Securities available-for-sale (a) (b)
Securities held-to-maturity
Derivative assets (a)
Other assets:
Tax credit investments
Deferred compensation assets
Total other assets
Nonearning assets:
Cash & due from banks
Fixed income receivables
Accrued interest receivable
Total nonearning assets
Total assets
Liabilities:
Deposits:
Defined maturity
Undefined maturity
Total deposits
Trading liabilities (a)
Short-term financial liabilities:
Federal funds purchased
Securities sold under agreements to
repurchase
Other short-term borrowings
Total short-term financial liabilities
Term borrowings:
Real estate investment trust-preferred
Term borrowings – new market tax credit
Borrowings secured by residential real
investment
estate
Other long term borrowings
Total term borrowings
Derivative liabilities (a)
Other noninterest-bearing liabilities:
Fixed income payables
Accrued interest payable
Total other noninterest-bearing liabilities
Total liabilities
$12,058,689
2,101,671
$
4,473,395
406,836
346,861
19,387,452
1,060,034
50,838
613,682
1,724,554
897,071
111,248
3,943,499
14,347
121,654
100,105
32,840
132,945
$
-
-
-
-
-
-
-
-
-
-
-
-
$11,918,374
2,078,306
$11,918,374
2,078,306
4,385,669
404,930
347,577
4,385,669
404,930
347,577
19,134,856
19,134,856
1,060,034
-
-
1,060,034
-
-
25,249
-
33,587
-
32,840
32,840
-
50,838
613,682
664,520
894,498
6,631
3,756,745
-
88,067
-
-
-
-
-
-
-
2,573
104,617
161,505
14,773
-
98,400
-
98,400
1,060,034
50,838
613,682
1,724,554
897,071
111,248
3,943,499
14,773
121,654
98,400
32,840
131,240
373,274
57,411
62,887
493,572
$26,826,342
373,274
-
-
373,274
$1,524,984
-
57,411
62,887
120,298
$ 5,530,759
-
-
-
-
$19,516,724
373,274
57,411
62,887
493,572
$26,572,467
$
$ 1,355,133
21,317,230
22,672,363
561,848
414,207
453,053
83,177
950,437
46,032
18,000
-
-
-
-
-
-
-
-
-
-
23,126
953,498
1,040,656
135,897
21,002
10,336
31,338
$25,392,539
-
-
-
33,274
-
-
-
33,274
$
$
$ 1,361,104
21,317,230
22,678,334
561,848
414,207
453,053
83,177
950,437
-
-
-
965,066
965,066
96,378
21,002
10,336
31,338
$25,283,401
$
-
-
-
-
-
-
-
-
49,350
17,918
21,969
-
89,237
6,245
-
-
-
95,482
$ 1,361,104
21,317,230
22,678,334
561,848
414,207
453,053
83,177
950,437
49,350
17,918
21,969
965,066
1,054,303
135,897
21,002
10,336
31,338
$25,412,157
(a) Classes are detailed in the recurring and nonrecurring measurement tables.
(b) Level 3 includes restricted investments in FHLB-Cincinnati stock of $87.9 million and FRB stock of $68.6 million.
178
FIRST HORIZON NATIONAL CORPORATION
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
Contractual Amount
Fair Value
(Dollars in thousands)
December 31, 2017
December 31, 2016
December 31, 2017
December 31, 2016
Unfunded Commitments:
Loan commitments
Standby and other commitments
$10,678,485
420,728
$8,744,649
277,549
$2,617
5,274
$2,924
4,037
FIRST HORIZON NATIONAL CORPORATION
179
Note 25 (cid:2) Parent Company Financial Information
Following are statements of the parent company:
Statements of Condition
(Dollars in thousands)
Assets:
Cash
Securities available-for-sale
Notes receivable
Allowance for loan losses
Investments in subsidiaries:
Bank
Non-bank
Other assets
Total assets
Liabilities and equity:
Accrued employee benefits and other liabilities
Term borrowings
Total liabilities
Total equity
Total liabilities and equity
Statements of Income
(Dollars in thousands)
Dividend income:
Bank
Non-bank
Total dividend income
Interest income
Other income/(loss)
Total income
Interest expense:
Short-term debt
Term borrowings
Total interest expense
Compensation, employee benefits and other expense
Total expense
Income/(loss) before income taxes
Income tax benefit
Income/(loss) before equity in undistributed net income of subsidiaries
Equity in undistributed net income/(loss) of subsidiaries:
Bank
Non-bank
Net income/(loss) attributable to the controlling interest
December 31
2017
2016
$ 254,938
1,836
3,067
(925)
$ 226,326
2,035
3,209
(925)
4,618,249
22,932
207,878
2,596,582
23,996
189,360
$5,107,975
$3,040,583
$ 149,124
673,794
822,918
4,285,057
$ 141,729
489,201
630,930
2,409,653
$5,107,975
$3,040,583
Year Ended December 31
2017
2016
2015
$250,000
1,097
$250,000
1,361
$ 325,000
1,150
251,097
190
251,287
-
17,936
17,936
43,783
61,719
189,568
512
189,056
251,361
(207)
251,154
326,150
5,884
332,034
-
14,238
14,238
38,926
53,164
6
23,579
23,585
36,388
59,973
197,990
(22,981)
272,061
(21,757)
220,971
293,818
(24,255)
714
9,508
(3,433)
(207,831)
(108)
$165,515
$227,046
$ 85,879
180
FIRST HORIZON NATIONAL CORPORATION
Note 25 (cid:2) Parent Company Financial Information (continued)
Statements of Cash Flows
(Dollars in thousands)
Operating activities:
Net income/(loss)
Less undistributed net income/(loss) of subsidiaries
Income/(loss) before undistributed net income of subsidiaries
Adjustments to reconcile income to net cash provided by operating activities:
Depreciation, amortization, and other
(Gain)/loss on securities
Provision for deferred income taxes
Stock-based compensation expense
(Gain)/loss on extinguishment of debt
Net (increase)/decrease in interest receivable and other assets
Net (decrease)/increase in interest payable and other liabilities
Total adjustments
Year Ended December 31
2017
2016
2015
$ 165,515
(23,541)
189,056
$ 227,046
6,075
220,971
$ 85,879
(207,939)
293,818
15
(109)
7,727
19,625
-
8,605
13,172
49,035
53
148
-
16,719
-
(2,228)
(2,842)
11,850
(276)
259
-
12,810
(5,793)
(4,544)
(5,791)
(3,335)
Net cash provided/(used) by operating activities
238,091
232,821
290,483
Investing activities:
Securities:
Sales and prepayments
Purchases
Premises and equipment:
Sales/(purchases)
Decrease/(increase) in interest-bearing cash
Return on investment in subsidiary
Investment in subsidiary
Cash paid for business combination, net
Net cash provided/(used) by investing activities
Financing activities:
Preferred stock:
Cash dividends
Common stock:
Exercise of stock options
Cash dividends
Repurchase of shares
Term borrowings:
Proceeds from issuance of term borrowings
Repayment of term borrowings
Increase/(decrease) in short-term borrowings
Net cash (used)/provided by financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Total interest paid
Income taxes received from subsidiaries
Certain previously reported amounts have been reclassified to agree with current presentation.
318
-
7
-
1,871
-
(126,149)
(123,953)
275
(400)
(17)
-
129
-
-
(13)
1,371
(740)
14
-
93
(9,372)
(18,251)
(26,885)
(6,200)
(6,200)
(6,200)
6,132
(79,904)
(5,554)
22,479
(63,504)
(97,396)
7,219
(53,947)
(32,648)
-
-
-
-
-
-
495,555
(700,000)
(3,000)
(85,526)
(144,621)
(293,021)
28,612
88,187
(29,423)
226,326
138,139
167,562
$ 254,938
$ 226,326
$ 138,139
$ 17,321
23,020
$ 13,261
27,126
$ 24,345
32,202
FIRST HORIZON NATIONAL CORPORATION
181
CONSOLIDATED HISTORICAL STATEMENTS OF INCOME (Unaudited)
(Dollars in millions except per share data)
Interest income:
Interest and fees on loans
Interest on investment securities available-for-sale
Interest on investment securities held-to-maturity
Interest on loans held-for-sale
Interest on trading securities
Interest on other earning assets
Total interest income
Interest expense:
Interest on deposits:
Savings
Time deposits
Other interest-bearing deposits
Interest on trading liabilities
Interest on short-term borrowings
Interest on term borrowings
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income:
Fixed income
Deposit transactions and cash management
Brokerage, management fees and commissions
Trust services and investment management
Bankcard income
Bank-owned life insurance
Debt securities gains/(losses), net
Equity securities gains/(losses), net
Gains on divestiture
All other income and commissions
Total noninterest income
Adjusted gross income after provision for loan losses
Noninterest expense:
Employee compensation, incentives, and benefits
Occupancy
Computer software
Professional fees
Operations services
Equipment rentals, depreciation, and maintenance
FDIC premium expense
Advertising and public relations
Communications and courier
Contract employment and outsourcing
Legal fees
Amortization of intangible assets
Repurchase and foreclosure provision/(provision credit)
All other expense
Total noninterest expense
Income/(loss) before income taxes
Provision/(benefit) for income taxes
Income/(loss) from continuing operations
Income/(loss) from discontinued operations, net of tax
Net income/(loss)
Net income attributable to noncontrolling interest
Net income/(loss) attributable to controlling interest
Preferred Stock Dividends
Net income/(loss) available to common shareholders
Fully taxable equivalent adjustment
Basic earnings/(loss) per common share from continuing operations
2017
2016
2015
2014
2013
Growth Rates
17/16 17/13**
$ 816.8 $ 679.9 $ 600.3 $ 571.8 $ 599.7
83.8
-
105.0
0.6
17.5
35.0
15.0
989.9
96.7
0.8
5.5
30.8
4.2
817.9
93.6
0.3
5.5
35.1
1.7
736.4
93.2
0.3
11.2
32.0
0.7
709.2
20%
9%
8%
6%
(25)% NM
13.0 NM
34.6
14%
1.0 NM
732.1
21%
8%
*
97%
8%
42.5
13.1
24.5
15.5
16.0
36.0
147.6
842.3
-
842.3
19.6
10.0
10.4
15.0
4.7
29.1
88.8
729.1
11.0
718.1
12.0
8.7
4.5
16.0
3.2
38.4
82.7
653.7
9.0
644.7
11.5
12.2
3.1
15.4
4.7
34.6
81.5
627.7
27.0
600.7
216.6
110.6
48.5
28.4
25.5
15.1
0.5
0.1
-
44.9
490.2
268.6
108.6
42.9
27.7
24.4
14.7
1.5
(0.1)
-
64.2
552.4
1,332.5 1,270.5
231.3
112.8
46.5
27.6
22.2
14.7
1.8
(0.5)
-
60.7
517.3
1,162.0
200.6
111.9
49.1
27.8
23.7
16.4
-
2.9
-
117.7
550.1
1,150.8
589.4
54.6
48.2
47.9
43.8
29.5
26.8
19.2
17.6
15.0
12.1
8.7
(22.5)
133.2
1,023.7
308.9
131.9
177.0
-
177.0
11.5
165.5
6.2
562.9
50.9
45.1
19.2
41.9
27.4
21.6
21.6
14.3
10.1
21.6
5.2
(32.7)
116.3
925.2
345.3
106.8
238.5
-
238.5
11.5
227.0
6.2
511.6
51.1
44.7
18.9
39.3
30.9
18.0
19.2
15.8
14.5
16.3
5.3
-
268.2
1,053.8
108.3
10.9
97.3
-
97.3
11.4
85.9
6.2
478.2
54.0
42.9
23.3
35.2
30.0
11.4
18.7
16.1
19.4
20.9
4.2
(4.3)
82.5
832.5
318.2
84.2
234.0
-
234.0
11.5
222.5
6.2
$ 159.3 $ 220.8 $
79.7 $ 216.3 $
$
$
13.6 $
0.66 $
11.6 $
0.95 $
10.7 $
0.34 $
9.6 $
0.92 $
14.8 NM
21.8
31%
3.8 NM
13.6
3%
4.7 NM
36.3
94.7
637.4
24%
66%
16%
55.0 NM
582.4
17%
(19)%
2%
13%
3%
5%
3%
272.4
114.4
42.3
26.5
20.5
16.6
(0.4)
2.2 NM
0.1 NM
30%
(12)%
59%
3%
36%
*
12%
7%
NM
10%
(6)%
(1)%
3%
2%
6%
(2)%
(54)%
NM
(67)% NM
90.0
584.6
1,167.0
(30)% (16)%
(4)%
(11)%
3%
5%
5%
7%
7%
529.0
50.6
40.3
23.5 NM
35.2
31.7
20.2
18.2
18.0
35.9
29.9
3.9
170.0
142.1
1,148.5
18.4
(19.4)
37.8
3%
2%
5%
19%
6%
5%
(2)%
8%
7%
24%
1%
(11)%
(1)%
23%
49%
(20)%
(44)% (20)%
67%
22%
31% NM
15%
11%
(11)% NM
24% NM
(26)%
(2)%
(3)%
0.5 NM
38.4
11.5
26.9
5.8
21.1
7.6
0.09
0.09
(26)%
*
(27)%
*
(28)%
17%
(31)%
(31)%
47%
NM
47%
*
57%
2%
66%
16%
65%
64%
Diluted earnings/(loss) per common share from continuing operations
Certain previously reported amounts have been reclassified to agree with current presentation.
Numbers may not add to total due to rounding.
NM – not meaningful
$
* Amount is less than one percent.
** Compound annual growth rate.
0.65 $
0.94 $
0.34 $
0.91 $
182
FIRST HORIZON NATIONAL CORPORATION
[THIS PAGE INTENTIONALLY LEFT BLANK]
FIRST HORIZON NATIONAL CORPORATION
183
CONSOLIDATED AVERAGE BALANCE SHEET AND RELATED YIELDS AND RATES (Unaudited)
(Fully taxable equivalent)
(Dollars in millions)
Assets:
Earning assets:
Loans, net of unearned income (a)
Loans held-for-sale
Investment securities:
U.S. government agencies
States and municipalities
Corporates and other debt
Other
Total investment securities
Trading securities
Other earning assets:
Federal funds sold
Securities purchased under agreements to resell (b)
Interest-bearing cash
Total other earning assets
Total earning assets
Allowance for loan losses
Cash and due from banks
Fixed income receivables
Premises and equipment, net
Other assets
Total assets/Interest income
Liabilities and shareholders’ equity:
Interest-bearing liabilities:
Interest-bearing deposits:
Consumer interest
Commercial interest
Market-indexed
Total interest-bearing deposits
Federal funds purchased
Securities sold under agreements to repurchase
Fixed income trading liabilities
Other short-term borrowings
Term borrowings
Total interest-bearing liabilities
Noninterest-bearing deposits
Fixed income payables
Other liabilities
Total liabilities
Shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity/Interest expense
Net interest income-tax equivalent basis/Yield
Fully taxable equivalent adjustment
Net interest income
Net interest spread
Effect of interest-free sources used to fund earning assets
Net interest margin
2017
Average
Balance
Interest Income/
Expense
$829.0
17.5
98.1
0.1
0.8
6.7
105.7
36.3
0.4
5.2
9.4
15.0
1,003.5
$20,104.0
370.6
3,824.8
1.1
15.0
191.8
4,032.7
1,195.4
27.2
752.1
979.0
1,758.3
27,461.0
(198.6)
377.9
60.1
310.5
1,913.9
$29,924.8
$1,003.5
$ 9,467.5
3,187.0
3,986.1
16,640.6
447.1
578.6
685.9
554.5
1,077.3
19,984.0
6,431.5
35.3
503.7
26,954.5
2,674.9
295.4
2,970.3
$29,924.8
$19.3
20.9
39.9
80.1
4.7
4.2
15.5
7.1
36.0
147.6
$147.6
855.9
(13.6)
842.3
$
$
Average
Yields/
Rates
4.12%
4.73
2.56
9.36
4.98
3.49
2.62
3.04
1.63
0.69
0.96
0.85
3.65
0.20%
0.66
1.00
0.48
1.06
0.72
2.26
1.28
3.35
0.74
3.12%
2.91%
0.21
3.12%
Certain previously reported amounts have been reclassified to agree with current presentation.
Yields and corresponding income amounts are adjusted to a FTE basis assuming a statutory federal income tax rate of 35 percent and, where applicable, state
income taxes.
Earning asset yields are expressed net of unearned income. Rates are expressed net of unamortized debenture cost for long-term debt. Net interest margin is
computed using total net interest income.
184
FIRST HORIZON NATIONAL CORPORATION
2016
Interest
Income/
Expense
Average
Balance
Average
Yields/
Rates
Average
Balance
2015
Interest
Income/
Expense
Average
Yields/
Rates
Average
Balance
Growth
17/16
Average
Balance
Growth
17/15 (c)
10%
NM
*
(78)%
50%
3%
*
(1)%
16%
(9)%
46%
15%
9%
(2)%
18%
(21)%
12%
8%
9%
11%
13%
5%
10%
(24)%
36%
(11)%
NM
(5)%
9%
12%
(27)%
(25)%
9%
12%
*
10%
9%
10%
70%
5%
(71)%
NM
2%
4%
(4)%
(1)%
(2)%
4%
1%
8%
(5)%
8%
(2)%
5%
5%
8%
8%
8%
25%
11%
(20)%
25%
(3)%
83%
(17)%
9%
10%
*
(17)%
8%
8%
*
7%
8%
$18,303.9
124.3
$689.9
5.5
3.77%
4.43
$16,624.4
128.9
$609.4
5.5
3.67%
4.23
91.7
0.4
0.5
5.0
97.6
32.3
0.3
0.5
3.4
4.2
829.5
2.40
7.95
5.25
2.67
2.43
2.66
1.11
0.06
0.51
0.28
3.29
3,814.8
5.1
10.0
186.5
4,016.4
1,212.9
23.4
827.6
671.6
1,522.6
25,180.1
(203.1)
320.5
76.5
278.0
1,775.2
3,500.2
12.7
0.4
183.7
3,697.0
1,294.3
27.6
776.3
907.7
1,711.6
23,456.2
(221.4)
321.6
63.1
284.0
1,732.5
86.1
0.5
-
7.5
94.1
36.4
0.3
(0.9)
2.3
1.7
747.1
2.46
3.52
4.94
4.08
2.54
2.81
1.01
(0.12)
0.25
0.10
3.19
$27,427.2
$829.5
$25,636.0
$747.1
$ 8,537.3
2,812.2
3,788.4
$ 11.8
10.9
17.3
0.14%
0.39
0.46
$ 8,140.3
2,717.4
2,567.2
$ 12.5
7.3
5.4
15,137.9
589.2
425.5
771.0
198.4
1,130.2
18,252.2
5,760.9
48.1
674.6
24,735.8
2,396.0
295.4
2,691.4
$27,427.2
13,424.9
705.1
370.1
733.2
165.0
1,557.2
16,955.5
5,328.8
35.2
735.3
23,054.8
2,285.8
295.4
2,581.2
$25,636.0
25.2
1.8
0.2
16.0
1.1
38.4
82.7
$ 82.7
$664.4
(10.7)
$653.7
40.0
3.1
0.3
15.0
1.3
29.1
88.8
0.26
0.52
0.08
1.95
0.7
2.58
0.49
$ 88.8
$740.7
(11.6)
$729.1
2.94%
2.80%
0.14
2.94%
0.15%
0.27
0.21
0.19
0.26
0.06
2.18
0.67
2.47
0.49
2.83%
2.70%
0.13
2.83%
NM – Not meaningful
* Amount is less than one percent.
(a) Includes loans on nonaccrual status.
(b) Yield in 2015 driven by negative market rates on reverse repurchase agreements.
(c) Compound annual growth rate.
FIRST HORIZON NATIONAL CORPORATION
185
Total Shareholder Return Performance Graph
Notwithstanding anything to the contrary set forth in any of our previous filings under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate future filings
by reference, including this annual report in whole or in part, the following Total Shareholder Return
Performance Graph shall not be incorporated by reference into any such filings.
The following graph compares the yearly percentage change in our cumulative total shareholder return with returns
based on the Standards and Poor’s 500 and Keefe, Bruyette & Woods Regional Bank Indices.
Total Shareholder Return
2012-2017
$300
$250
$200
$150
$100
2012
2013
2014
2015
2016
2017
First Horizon National Corp
S&P 500 Index
KBW Regional Bank Index
Investment Returns
First Horizon National Corp
S&P 500 Index
KBW Regional Bank Index
Source: Bloomberg
2012
2013
2014
2015
2016
2017
$100.00
$100.00
$100.00
$119.69
$132.31
$146.72
$141.76
$150.35
$150.21
$154.08
$152.47
$159.19
$216.29
$170.59
$225.15
$220.26
$207.74
$221.23
The preceding graph assumes $100 is invested on December 31, 2012 and dividends are reinvested. Returns are
market-capitalization weighted.
186
FIRST HORIZON NATIONAL CORPORATION
CORPORATE OFFICERS
As of March 1, 2018
David T. Popwell
President – Banking
Dane P. Smith
Senior Vice President
Corporate Treasurer
Susan L. Springfield
Executive Vice President
Chief Credit Officer
Charles T. Tuggle Jr.
Executive Vice President
General Counsel
Yousef A. Valine
Executive Vice President
Chief Risk Officer
Clyde A. Billings Jr.
Senior Vice President
Assistant General Counsel and
Corporate Secretary
John M. Daniel
Executive Vice President
Chief Human Resources Officer
Jeff L. Fleming
Executive Vice President
Chief Accounting Officer and
Corporate Controller
D. Bryan Jordan
Chairman of the Board, President and
Chief Executive Officer
Michael E. Kisber
President – FTN Financial
William C. Losch III
Executive Vice President
Chief Financial Officer
BOARD OF DIRECTORS
As of March 1, 2018
John C. Compton
Partner
Clayton, Dubilier & Rice, LLC
Vicki R. Palmer
President
The Palmer Group, LLC
Mark A. Emkes
Retired Commissioner
Department of Finance and Administration
State of Tennessee
Colin V. Reed
Chairman of the Board and
Chief Executive Officer
Ryman Hospitality Properties, Inc.
Peter N. Foss
General Manager
GE/NFL Head Health Program
Corydon J. Gilchrist
Private Investor and
Chartered Financial Analyst
D. Bryan Jordan
Chairman of the Board, President and
Chief Executive Officer
First Horizon National Corp.
Scott M. Niswonger
Chairman and Founder
Landair Transport, Inc.
Cecelia D. Stewart
Retired President
U.S. Consumer and Commercial Banking
Citigroup, Inc.
Rajesh Subramaniam
Executive Vice President
Marketing and Communications
FedEx Services, Inc. and FedEx Corp.
R. Eugene Taylor
Vice Chairman of the Board
First Horizon National Corp.
Luke Yancy III
Retired President and Chief Executive Officer
MMBC Continuum
HOW TO REACH US
Headquarters
165 Madison Avenue
Memphis, TN 38103
(800) 489-4040
www.FirstHorizon.com
Career opportunities
www.FHNCareers.com
Community relations
(866) 365-4313
Email: AYHu@FirstHorizon.com
First Tennessee Bank
(800) 382-5465
www.FirstTennessee.com
Capital Bank
(800) 639-5111
www.CapitalBank-US.com
FTN Financial
(800) 456-5460
www.FTNFinancial.com
Investor relations
Email: InvestorRelations@FirstHorizon.com
Media relations
(866) 365-4313
Email: JEDowd@FirstHorizon.com
Transfer agent
EQ Shareowner Services
(877) 536-3558
www.ShareownerOnline.com
Ticker symbol
NYSE: FHN
©2018 First Horizon National Corporation