2018FIRST HORIZON NATIONAL CORPORATIONANNUAL REPORT92652 Cover and Insert_v2.indd 13/4/19 6:52 PM 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
Total cash and cash equivalents
Interest-bearing cash
Trading securities
Loans held-for-sale (a)
Securities available-for-sale
Securities held-to-maturity
Loans, net of unearned income (b)
Less: Allowance for loan losses
Total net loans
Goodwill
Other intangible assets, net
Fixed income receivables
Premises and equipment, net (December 31, 2018 and 2017 include $19.6 million and $53.2 million,
(cid:192)(cid:105)(cid:195)(cid:171)(cid:105)(cid:86)(cid:204)(cid:136)(cid:219)(cid:105)(cid:143)(cid:222)(cid:93)(cid:3)(cid:86)(cid:143)(cid:62)(cid:195)(cid:195)(cid:136)(cid:119)(cid:105)(cid:96)(cid:3)(cid:62)(cid:195)(cid:3)(cid:133)(cid:105)(cid:143)(cid:96)(cid:135)(cid:118)(cid:156)(cid:192)(cid:135)(cid:195)(cid:62)(cid:143)(cid:105)(cid:174)(cid:3)
Other real estate owned (“OREO”) (c)
Derivative assets
Other assets
Total assets
Liabilities and equity:
Deposits:
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:45)(cid:62)(cid:219)(cid:136)(cid:152)(cid:125)(cid:195)(cid:3)(cid:173)(cid:12)(cid:105)(cid:86)(cid:105)(cid:147)(cid:76)(cid:105)(cid:192)(cid:3)(cid:206)(cid:163)(cid:93)(cid:3)(cid:211)(cid:228)(cid:163)(cid:199)(cid:3)(cid:136)(cid:152)(cid:86)(cid:143)(cid:213)(cid:96)(cid:105)(cid:195)(cid:3)(cid:102)(cid:211)(cid:211)(cid:176)(cid:200)(cid:3)(cid:147)(cid:136)(cid:143)(cid:143)(cid:136)(cid:156)(cid:152)(cid:3)(cid:86)(cid:143)(cid:62)(cid:195)(cid:195)(cid:136)(cid:119)(cid:105)(cid:96)(cid:3)(cid:62)(cid:195)(cid:3)(cid:133)(cid:105)(cid:143)(cid:96)(cid:135)(cid:118)(cid:156)(cid:192)(cid:135)(cid:195)(cid:62)(cid:143)(cid:105)(cid:174)
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:47)(cid:136)(cid:147)(cid:105)(cid:3)(cid:96)(cid:105)(cid:171)(cid:156)(cid:195)(cid:136)(cid:204)(cid:195)(cid:93)(cid:3)(cid:152)(cid:105)(cid:204)(cid:3)(cid:173)(cid:12)(cid:105)(cid:86)(cid:105)(cid:147)(cid:76)(cid:105)(cid:192)(cid:3)(cid:206)(cid:163)(cid:93)(cid:3)(cid:211)(cid:228)(cid:163)(cid:199)(cid:3)(cid:136)(cid:152)(cid:86)(cid:143)(cid:213)(cid:96)(cid:105)(cid:195)(cid:3)(cid:102)(cid:110)(cid:176)(cid:228)(cid:3)(cid:147)(cid:136)(cid:143)(cid:143)(cid:136)(cid:156)(cid:152)(cid:3)(cid:86)(cid:143)(cid:62)(cid:195)(cid:195)(cid:136)(cid:119)(cid:105)(cid:96)(cid:3)(cid:62)(cid:195)(cid:3)(cid:133)(cid:105)(cid:143)(cid:96)(cid:135)(cid:118)(cid:156)(cid:192)(cid:135)(cid:195)(cid:62)(cid:143)(cid:105)(cid:174)(cid:3)
Other interest-bearing deposits
Interest-bearing
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:32)(cid:156)(cid:152)(cid:136)(cid:152)(cid:204)(cid:105)(cid:192)(cid:105)(cid:195)(cid:204)(cid:135)(cid:76)(cid:105)(cid:62)(cid:192)(cid:136)(cid:152)(cid:125)(cid:3)(cid:173)(cid:12)(cid:105)(cid:86)(cid:105)(cid:147)(cid:76)(cid:105)(cid:192)(cid:3)(cid:206)(cid:163)(cid:93)(cid:3)(cid:211)(cid:228)(cid:163)(cid:199)(cid:3)(cid:136)(cid:152)(cid:86)(cid:143)(cid:213)(cid:96)(cid:105)(cid:195)(cid:3)(cid:102)(cid:123)(cid:176)(cid:110)(cid:3)(cid:147)(cid:136)(cid:143)(cid:143)(cid:136)(cid:156)(cid:152)(cid:3)(cid:86)(cid:143)(cid:62)(cid:195)(cid:195)(cid:136)(cid:119)(cid:105)(cid:96)(cid:3)(cid:62)(cid:195)(cid:3)(cid:133)(cid:105)(cid:143)(cid:96)(cid:135)(cid:118)(cid:156)(cid:192)(cid:135)(cid:195)(cid:62)(cid:143)(cid:105)(cid:174)
Total deposits
Federal funds purchased
Securities sold under agreements to repurchase
Trading liabilities
Other short-term borrowings
Term borrowings
Fixed income payables
Derivative liabilities
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, 2018
and 2017)
December 31
2018
2017
$
781,291 $
237,591
386,443
1,405,325
1,277,611
1,448,168
679,149
4,626,470
10,000
27,535,532
180,424
27,355,108
1,432,787
155,034
38,861
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
494,041
532,251
25,290
81,475
1,802,939
$
40,832,258 $
$
12,064,072 $
4,105,777
8,371,826
24,541,675
8,141,317
32,682,992
256,567
762,592
335,380
114,764
1,170,963
9,572
133,713
580,335
36,046,878
43,382
81,634
1,723,189
41,423,388
10,872,665
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
95,624
95,624
Common stock - $.625 par value (shares authorized - 400,000,000; shares issued -
318,573,400 on December 31, 2018 and 326,736,214 on December 31, 2017)
199,108
204,211
Capital surplus
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:49)(cid:152)(cid:96)(cid:136)(cid:219)(cid:136)(cid:96)(cid:105)(cid:96)(cid:3)(cid:171)(cid:192)(cid:156)(cid:119)(cid:204)(cid:195)
Accumulated other comprehensive loss, net
Total First Horizon National Corporation Shareholders’ Equity
Noncontrolling interest
Total equity
Total liabilities and equity
3,029,425
1,542,408
(376,616)
4,489,949
295,431
4,785,380
3,147,613
1,160,434
(322,825)
4,285,057
295,431
4,580,488
$
40,832,258 $
41,423,388
(a) December 31, 2018 and 2017 include $8.4 million and $11.7 million, respectively, of held-for-sale consumer mortgage loans secured by residential real estate in process of foreclosure.
(b) December 31, 2018 and 2017 include $28.6 million and $22.7 million, respectively, of held-to-maturity consumer mortgage loans secured by residential real estate in process of foreclosure.
(c) December 31, 2018 and 2017 include $9.7 million and $12.2 million, respectively, of foreclosed residential real estate.
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FIRST HORIZON NATIONAL CORPORATION
PROVEN, FOCUSED, BETTER
DEAR FELLOW FIRST HORIZON SHAREHOLDERS:
We were proud of the significant progress First Horizon made in 2018 to solidify our position as one
of the leading financial services companies in the Southeast.
Our steadfast commitment last year to operating our company for long-term growth and value
creation helped us realize many important goals. These goals included meeting our Bonefish targets,
completing the Capital Bank integration, and returning profits to shareholders through increased
dividends and share repurchases. We executed on our strategic and financial priorities while also
articulating our long-term vision for First Horizon.
2018 highlights include:
• Strong execution on the Capital Bank merger priorities and successful completion of the largest
merger in our company’s history.
• Increased annual common dividend rate by 33% to 48 cents per share, and an additional 17%
increase in early 2019 to 56 cents per share.
• Net charge-offs were 0.06%, reflecting stable credit quality.
• Increased net interest margin to 3.45% from 3.12%.
• Increased net interest income by 45%, driven by Capital Bank merger
• Grew deposits by 7% driven by momentum in key markets and a strategic focus on deposit growth.
Collectively, our strong progress in 2018 demonstrates our ability to continue delivering value for our
shareholders, employees and communities.
PROVEN SUCCESS
Every day we work hard to earn and keep the trust of our stakeholders by operating First Horizon for
financial stability, profitability, and growth.
Our Bonefish business strategy, introduced a decade ago, centers on key financial metrics to guide
how we manage our company for the long-term, and in 2018 these targets were achieved.
This accomplishment proved our ability to implement a successful operating framework to drive
sustained economic profit across our business. Even though we exceeded our historical Bonefish
target of more than 15% return on tangible common equity, our focus on economic profit,
complemented by our capital deployment strategies and lower-risk balance sheet, will continue to
drive our business as we embrace the opportunities ahead.
Another major goal for our company in 2018 was the completion of the Capital Bank integration
activities. In preparation for our integration, our dedicated employees completed 30,000 hours of
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2018 Annual Report
training and placed more than 200,000 outbound
calls to our customers. In addition to the significant
undertaking to position our organization for organic
growth, we also delivered exceptional cost savings.
Of our projected $85 million cost savings targets, we
achieved about $50 million in 2018. Moreover, we
continue to identify opportunities to build on these cost
savings and further invest in our business, particularly
by expanding our digital capabilities.
Lastly, our strong execution and fiscal discipline while
building for the future enabled us to return capital
directly to shareholders through increased dividends
and share repurchases.
Key capital deployment highlights:
• Increased annual common dividend rate by 33% to
48 cents per share, and an additional 17% increase in
early 2019 to 56 cents per share.
• Repurchased approximately $100 million of shares,
with more than $80 million of shares repurchased in
the fourth quarter of 2018.
• Sold our Class B Visa shares in the third quarter of
2018 for a pre-tax gain of $213 million.
• Further optimized our loan portfolio for long-term
profitability by exiting approximately $500 million of
high-risk and low-yield loans.
The results we achieved in 2018 will allow us to
continue building from a significant position of strength
in 2019 and beyond.
FOCUSED STRATEGY
At First Horizon’s Investor Day this past November,
we announced our long-term strategy to deliver top
quartile returns, maintain our strong credit quality,
and continue to strengthen our balance sheet. We
are confident in our ability to execute on our strategic
priorities to deliver profitable growth, create value, and
maximize shareholder returns.
In Tennessee, we continued to earn and build upon our
#1 market share position. As a result, deposits in our
home state were up 7% last year. Our bankers worked
hard both to retain existing and attract new high-
value customers with our distinct mix of products and
services. We will continue to optimize this strategy with
increased focus on profitability.
First Horizon National Corporation
Strategic Priorities:
• Dominate Tennessee
• Profitably Grow Key Markets and
Specialty Businesses
• Transform the Customer Experience
• Optimize the Expense Base
In the second half of 2018, following the Capital
Bank integration, we deployed the blueprint used
in Nashville to drive growth and capitalize on
opportunities in our new Mid-Atlantic and South
Florida markets. Similar to Nashville, these markets
offer high growth potential with strong household
incomes, growing populations and attractive deposits
– all factors that reinforce our confidence in our ability
to drive future growth. We were very pleased with our
end-of-year customer activity in new markets.
This past year, once again, we earned recognition from
Greenwich Associates and J.D. Power for our customer
service, customer experience, as well as recognition
from the Reputation Institute. As we look to the
future, we recognize that there are fundamental shifts
occurring in our industry, from consolidation to rapidly
evolving customer expectations. In order to remain
competitive against both traditional and new entrants,
we are committed to continuing investments to deliver
superior and personalized customer experiences, and
utilizing data-driven insights and technology to drive
growth and efficiencies.
Our approach will incorporate a blend of technology,
products and services, along with the commitment
of our talented bankers, to anticipate and exceed
customers’ needs and enhance profitability. We will also
continue leveraging and building upon our increased
scale as we grow into our expanded geographic
footprint, with our specialized lines of businesses
providing a competitive advantage. As we move
forward, we will continue to invest in transforming the
customer experience and increasing the reach of our
products, capabilities, and services on both regional
and national levels.
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In addition to realizing Capital Bank merger synergies,
we continued to optimize our expense base last year by
identifying and eliminating costs across our company
and reallocating resources to improve productivity
and customer service. For example, we closed and
consolidated over 50 branches and upgraded our
digital banking platform to better serve our customers.
In 2019, we will continue to reinvest cost savings to
enhance the way our customers bank with us, and
improve our efficiency ratios.
While we are pleased to have benefited from a robust
economy in 2018, we recognize that market conditions
change. That is why our business model is designed
to perform across various economic cycles and does
not rely on the external environment to achieve our
goals. The economy in 2018 was favorable for the
bank but also challenging for our FTN Financial fixed
income business, which provides unique countercyclical
benefits. We remain committed to our fixed income
business because it complements our approach to
managing our company for soundness and profitability
throughout shifts in the economy.
BETTER OPPORTUNITIES
First Horizon entered 2019 with significant
opportunities for continued growth and value creation.
Our expanded footprint includes high-growth markets
and attractive demographics. The North Carolina,
South Carolina, and South Florida markets represent a
combined $730 billion of deposits, and our priority is to
increase our market share in these regions.
Our emphasis over the last year on new customer
acquisition in both consumer and commercial banking
positions us to build upon our strong results. In 2018,
we generated solid growth in First Tennessee Bank
loans and deposits and added $7 billion of loans and
$8 billion of deposits from Capital Bank that resulted
in 39% average loan growth and 34% average deposit
growth from 2017 to 2018. Our marketing and
pricing strategies and investments contributed to our
performance.
Our balance sheet was strengthened by focusing
on specialty lending areas that yield high returns
and generate strong levels of economic profit. With
more than 50% of the bank’s commercial loans in our
specialty lending portfolio, we can further build out
this platform in our new markets. Importantly, our asset
quality trends remain strong, reflecting disciplined
underwriting from our experienced bankers.
Regional Bank Average Commercial Loans
Specialty
Areas
Energy
Correspondent
1% 2%
4%
4%
6%
41%
2018
10%
11%
5%
16%
Franchise Finance
Healthcare
Corporate
Loans to Mortage Co.
Asset-Based Lending
Commercial Real Estate
Busi ness Banking
Commercial
Looking ahead, First Horizon’s operations in our growth
markets of Tennessee, North Carolina, South Carolina,
and South Florida provide us with compelling growth
opportunities as well as the ability to serve as a better
partner to our communities.
COMMITTED TO OUR COMMUNITIES
AND PEOPLE
First Horizon provides financial capital and services,
which people and businesses need to make their lives
better and help our communities to prosper. Corporate
citizenship is an important part of our business
strategy, especially as we work to strengthen the
communities we serve.
Last year, we reinforced our commitment to our
communities through several compelling initiatives.
A five-year, $3.95 billion community benefits plan
was unveiled in April 2018 to increase access to
financial resources within our low- to moderate-income
communities by increasing home ownership, building
small businesses, fostering community development
and working with minority-owned suppliers. First
Horizon also released its inaugural Corporate Social
Responsibility (CSR) report, Here for Good, which
2018 Annual Report
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highlights our company’s impact and outlines our
commitment to our shareholders, communities,
employees and customers. The report detailed First
Horizon’s initiatives regarding our Environmental,
Social and Governance (ESG) efforts and announced
the establishment of an internal CSR Committee that
will be responsible for guiding the organization’s CSR
and ESG investments and initiatives.
In 2018, the First Horizon Foundation celebrated its
25th anniversary. The Foundation provided nearly
$10 million in 2018 to support our communities. Our
contributions emphasize promoting excellence and
enrichment in the arts; educating and developing
the next generation of leaders; promoting a more
sustainable future; and improving the well-being of our
communities by partnering with approximately 1,500
nonprofit organizations.
First Horizon employees make all the difference in
fulfilling our promise of “being the best at serving
our customers, one opportunity at a time,” and we
continued to build upon our commitments to them.
Our company is dedicated to hiring and retaining
the best people and ensuring our employees are
equipped with the support and resources they need to
take the best care of our customers. Our emphasis on
creating and sustaining an engaging and empowering
workplace is reflected every day in the respect we
show for our employees and the opportunities we offer
for professional growth and advancement.
From their career development to their families and
overall healthcare, investments in our people, benefits,
and culture are designed to improve many aspects
of our employees’ lives. Last year we expanded our
mentoring and development programs for women,
doubled our adoption reimbursement benefits, and
enhanced our paid time off/vacation benefits. These
initiatives led to our national recognition as a top
workplace by American Banker, Forbes, and Fortune
magazines; the Bloomberg Gender-Equality Index;
the Dave Thomas Foundation for Adoption; and the
National Association for Female Executives.
The keys to providing differentiated customer service
and value for all of our stakeholders are our culture
and people. We believe these awards reflect the
outstanding culture we have fostered and the efforts of
our exceptional employees.
POSITIONED TO CREATE VALUE
In early 2019, we have seen “merger of equals”
transactions between large regional competitors. While
it will take years to understand fully the impact of these
deals, in the short term, it clearly underscores the value
of efficiency in the face of technological change and
evolving customer expectations.
Though scale achieved through mergers and
acquisitions can create value, we see strong potential
for value creation through increased specialization.
Our specialty lines of business allow us to grow
and deepen our regional and national customer
relationships by bringing valuable products, digital
capabilities, and differentiated customer service. As
we build upon our accomplishments in 2018, we will
continue focusing on economic profit, emphasizing
our specialty lines of business, and growing into our
expanded geographic footprint.
Our achievements in 2018 have provided First Horizon
with a stronger foundation and better opportunities
for growth and shareholder value creation. Thank you
for your continued confidence in our organization and
to our employees for their hard work and dedication.
We look forward to building upon our momentum and
continuing to deliver valuable results.
Sincerely,
D. Bryan Jordan
Chairman of the Board,
President and Chief Executive Officer
First Horizon National Corporation
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FIRST HORIZON NATIONAL CORPORATION
AT A GLANCE
Headquartered in Memphis, Tenn., First Horizon National Corp. provides financial services
through its regional banking and wealth management subsidiaries across the Southeast U.S.,
and its fixed income operations across the nation and internationally. The banking subsidiary was
founded in 1864 and holds the 14th oldest national bank charter in the country.
Today, First Horizon provides financial services through its Capital Bank, First Tennessee Bank,
FTB Advisors, and FTN Financial businesses.
OUR COMMITMENT
First Horizon is committed to our customers, our
people, our communities, and our shareholders.
First Horizon’s
Strategic Priorities:
We demonstrate this long-standing commitment
• Dominate Tennessee
through our financial performance and corporate
responsibility. This approach strengthens our long-
term focus to generate value for our shareholders.
In 2018, we announced our strategic priorities for
the next five years to deliver sustainable returns.
• Profitably Grow Key Markets
and Specialty Businesses
• Transform the Customer
Experience
• Optimize the Expense Base
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2018 Annual Report
$4.2B
MARKET CAP
$41B
ASSETS
$28B
LOANS
$33B
DEPOSITS
250+
FINANCIAL
CENTERS
43,000+
FEE-FREE ATMs*
820,000+
HOUSEHOLDS
SERVED
MORE THAN
46,500
KILOWATT HOURS OF
CLEAN ELECTRICITY
MORE THAN
1.6M
POUNDS OF
PAPER RECYCLED
5,500
EMPLOYEES
NEARLY
20,500
HOURS OF EMPLOYEE
VOLUNTEERISM
TOP
EMPLOYER
NATIONAL AND LOCAL
RECOGNITION FOR
WHERE PEOPLE
WANT TO WORK
*AllPoint Network and internal database
First Horizon National Corporation
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OUR CORE BUSINESSES/FAMILY OF BRANDS
Regional Banking
The regional bank’s business is proven, focused, and better. We have a strong economic profit
and risk focus, we make decisions close to our customers, we have high return specialty banking
businesses, and we have strong growth opportunities in new markets. Over the past five years, the
regional bank doubled economic profit. With the Capital Bank acquisition in 2017, the regional
bank added $7 billion in loans and $8 billion in deposits. Our loan portfolio shifted toward more
economically profitable Specialty Banking businesses, and in addition, our deposit base has
expanded into higher growth markets. The regional bank includes Capital Bank and First Tennessee
Bank brands.
Our company promise is to be the best at serving our customers, one opportunity at a time, taking
great pride in external recognition of the personal service, commitment to our communities,
advanced technology, and helpful employees who set our regional banking services apart.
Our regional banking continues to be recognized by Greenwich Associates as a leader in customer
experience and by the Phoenix-Hecht Quality Index.
Capital Bank offers the same superior banking services as First Tennessee Bank outside of Tennessee
in Florida, North Carolina, South Carolina, and Virginia. Capital Bank joined the First Horizon family
of companies in 2017, completing the largest merger in First Horizon’s history. As members of the
First Horizon family of companies, our customers can receive assistance and conduct business in any
Capital Bank or First Tennessee Bank location.
Through our differentiated customer service, our regional banking serves communities across the
state, and holds the largest deposit share in Tennessee. In addition, First Tennessee Bank includes
specialty lines of business that include Asset-Based Lending, Commercial Real Estate, Corporate
Banking, Correspondent Banking, Energy, Franchise Finance, Healthcare, Music, and Loans to
Mortgage Companies. In 2018, regional banking deposits grew by 7%, driven by our momentum in
key markets and a strategic focus on deposit growth.
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2018 Annual Report
Wealth Management
Fixed Income
The wealth management team, FTB Advisors, brings
FTN Financial is an industry leader in fixed income
together a full range of financial resources to help
sales, trading, and strategies for institutional
our clients build their financial futures. Offering
customers in the U.S. and abroad, in addition to
access to the same products available from national
providing a suite of other products and services,
brokerage firms, our services are delivered by a
including investment advisory services, loan sales, and
team of professionals that provides First Horizon’s
derivative products. FTN Financial’s long-standing
differentiated customer service.
value proposition – providing customers with a
Whether customers need assistance with investments,
trusts, financial planning, or more, we have relevant
expertise that can be invaluable in helping customers
make important decisions about their individual
financial situations. Every product, every service,
and every person in our organization is dedicated to
helping our customers reach their financial goals.
FTB Advisors continued to grow in 2018, with assets
under administration of $30.4 billion administered by
over 200 Investment Advisors, Trust Officers, Private
Bankers, and Financial Planners.
compelling combination of fixed income products and
services to support their investment needs and overall
balance sheet management activities – has enabled
FTN Financial to develop a fixed income distribution
network of 4,700 institutional customers worldwide.
This distribution network and the strength of FTN
Financial’s platform, comprises both depository and
non-depository customers, including approximately
half of all U.S. banks with portfolios over $100 million.
In 2018, FTN Financial continued to invest in
maintaining and developing customer relationships
and strengthening its fixed income platform, through
broadening product offerings and further enhancing
the extensive services and support provided to
customers by FTN Financial strategists, economists
and market analysts.
Through our Regional Banking, Wealth Management, and Fixed Income businesses, our goal is to be easy to
do business with and to be the best at serving customers, one opportunity at a time. We offer a full range of
products, convenient locations, and hours.
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 differentiated customer experience – our
competitive advantage.
More information is available at www.CapitalBank-US.com, www.FirstTennessee.com, www.FTNFinancial.com, or at any of our
convenient offices.
First Horizon National Corporation
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Highlights
SPECIALTY BUSINESSES
FOR SPECIALIZED
BUSINESS NEEDS
In the past five years, First Horizon has diversified its lending
portfolio, shifting toward more profitable specialty and core
commercial lines of business. With nine specialty businesses
in total, First Horizon is able to provide lending solutions for
specialized business needs across a nationwide footprint.
Led by tenured, experienced
leaders and teams, our bankers
understand the industries we
finance as well as provide our
differentiated service to customers.
Our Franchise Finance specialty
line of business primarily provides
capital to restaurant operators
across the United States. Operators
may be franchisors, franchisees,
regional or national chains, or
private equity sponsors that are
looking to buy, build, remodel, or
grow their business. Our teams’
industry-leading market insights
and unique access to brands, as
well as significant experience, help
operators, like Peterson Burge
Enterprises, achieve their goals.
Co-owners and siblings Mark
Peterson and Krystal Burge started
with a single Taco Bell store in
1982. Today, they have more than
200 Taco Bell and Pizza Hut stores
across seven states in their franchise
business. Some time ago, the duo
found themselves with a unique
challenge. They needed a banking
partner to help them, and our
Franchise Finance team delivered.
“They needed a committed
source of capital that is there
consistently because they are
regularly growing, remodeling, and
making acquisitions,” said Todd
Jones, executive vice president
of wholesale banking at First
Tennessee Bank. “And because
of our extensive experience
in the Franchise marketplace,
we understand our customers’
businesses and the challenges
they face. That knowledge allows
us to have candid, productive
conversations and find flexible,
customized solutions.
The customer-focused Franchise
Finance team consists of
relationship managers, portfolio
managers, credit analysts, and
loan closing officers. Their ability
to serve as trusted advisors to
customers through deep industry
domain expertise, combined with
the ability to execute with certainty,
enables this specialty team to
continue to provide First Horizon’s
differentiated customer service to
meet specialized banking needs.
“The innovation that was brought
to the table with First Tennessee
Krystal Burge and Mark
Peterson, co-owners and
siblings, started Peterson Burge
enterprises with a single Taco
Bell in 1982. Today, they operate
more than 200 Taco Bell and
Pizza Hut stores across their
franchise business.
Bank was being able to finance
the operating companies as one
unit, being able to finance the real
estate as a separate entity, and
also develop lines of credit that
would help us continue to grow the
business,” said Peterson. “They are
always there for us, producing value
on both sides,” added Burge.
2018 Annual Report
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FIRST HORIZON NATIONAL CORPORATION
OUR CULTURE, OUR PEOPLE
FIRSTPOWER CULTURE
At First Horizon, our corporate culture is the “secret
sauce” to our success. It is a combination of our
vision and our philosophy of putting employees first,
and it is called Firstpower. Introduced in 1991, our
Firstpower culture has evolved with our company.
In 2018, following the close of our merger
and systems integration with Capital Bank, an
opportunity was presented to learn and adapt best
practices to enhance the company’s culture for the
merged organization. Recognizing the strength
of our combined companies, the definitions of
our Firstpower pillars evolved from “I” to “We”
statements to highlight the power of the team
approach.
OUR PEOPLE
Our company is only as strong as the employees
who make up our organization, so we seek to attract,
develop, and retain the best people and empower
them to serve our customers and communities in
exceptional ways. First Horizon continually reviews
the benefits offered to all employees and provides
a Total Compensation package that touches every
aspect of an employee’s health, finances, family,
and career. As of 2018, the company’s Adoption
Reimbursement Assistance program now provides
employees with up to $15,000 per child (up to two
children)/per year for eligible adoption-related
expenses, doubled from the previous year.
Employees are empowered with tools and resources
to take charge of their careers and personal
development through the company’s enhanced
performance review system, Employee Resource
Groups, and volunteerism.
Our Firstpower Pillars:
• Accountability – We ask questions,
raise issues, and see things to
completion with a sense of urgency.
• Adaptability – We champion changes
because we must evolve to succeed.
• Integrity – We do the right thing, and
we do things the right way.
• Relationships – We work inclusively
with colleagues to serve customers,
strengthen communities, and reward
shareholders.
First Horizon National Corporation
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EMPLOYEE RESOURCE GROUPS
First Horizon has developed Employee Resource
Groups (ERGs) to drive leader and employee
engagement in our diversity and inclusion strategies
and provide a support system that fosters awareness,
respect, and inclusion in the workplace. Our ERGs also
act as sounding boards for First Horizon’s diversity and
inclusion objectives.
The ERGs provide opportunities for networking,
education, community outreach, professional
development, and training forums about relative topics.
In 2018, our ERGs engaged employees through an
array of activities. From sending care packages to
servicemen and women through our Veteran Support
Association ERG, to partnering with local nonprofits
like Dress for Success and DeNeuville Learning Center,
our ERGs provided employees with opportunities to
network and serve within the organization, as well as in
our communities.
DIVERSITY & INCLUSION
First Horizon recognizes the significant role diversity
and inclusion play in our organization’s workforce,
workplace, and marketplace, and as a result, we
manage our efforts with the support of data, insights,
and regular review of strategy and accountabilities.
leveraging each of these, the company is focused
on enhancing a culture that develops and promotes
people of all types, fosters innovation, and maximizes
business results.
Our approach and strategy has yielded results. From
2015 to 2018, we increased the number of women and
minorities in the top three salary levels of the company
from 33% to 41%. In that same time frame, the number
of women and minorities hired and promoted in the top
three levels of the company grew from 71% to 73%.
Our Affinity Strategy ensures we customize our
approach to be more inclusive and reach more
customers of all economic levels in the community.
For example, through our Women and Wealth strategy,
we help engage, empower, and enrich our female
customers to reach their financial goals and grow
wealth assets. This strategy, which began in 2016,
produced more than $100 million in closed business
and, last year launched in four additional markets.
Additionally, through our supplier diversity initiative,
we are promoting business opportunities at our
organization for minority, women, or disabled veteran-
owned business enterprises. Tracking is used to help
guide and continue to build the strategy and we
are meeting the goals outlined in our Community
Benefits Plan.
Our formula for success is Diversity + Affinity =
Inclusion. This 360-degree strategy is focused on
three distinct elements of diversity and inclusion: the
workforce, the workplace, and the marketplace. By
We believe that the best way to be truly inclusive is
to have diverse talent and customers, and to make
sure that we teach our teams to be inclusive and find
commonalities and similarities with diverse individuals.
2018 Annual Report
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Our diversity reflects the communities where we live
and work, as well as the customers and constituencies
we serve.
VOLUNTEERISM
At First Horizon, our employees are volunteer
champions who go above and beyond for the
communities we serve, tackling challenges and
changing lives every day. Our corporate volunteer
program provides opportunities for our employees to
reinvest in and contribute to building healthier and
more sustainable communities. These programs also
foster leadership, communication, and collaboration
skills and serve as a strong source of company pride.
In 2018, our corporate volunteer program was
rebranded to Here for Good, which was also the
theme of our inaugural Corporate Social Responsibility
report. Our employee volunteer champions gave
nearly 20,500 hours of service and donated more than
$198,000 to organizations. The causes that matter
most to our employees range from human and health
services to education and the arts.
CORPORATE SOCIAL RESPONSIBILITY
At First Horizon, we are committed to our communities,
employees, and customers.
Corporate social responsibility is ingrained in our
DNA, and providing better opportunities for our
stakeholders has been our guiding principle since the
company was founded. We never lose sight of why we
are here or what we must do to make a difference as a
good corporate citizen.
By addressing today’s challenges, from providing
access to financial services to striving to adhere to the
highest standards of business ethics and practices, we
create value and drive sustainable growth.
This past year, we released our inaugural Corporate
Social Responsibility (CSR) report, Here for Good.
The report, which highlighted the company’s impact
and outlines our commitment to our communities,
employees, and customers, also details First
Horizon’s initiatives focused on promoting social and
environmental responsibility and building stronger
communities.
In addition, an internal Corporate Social Responsibility
Committee was established. The Committee is
responsible for guiding the organization’s CSR and
Environmental, Social and Governance (ESG) efforts.
The cross-functional committee comprises senior
leaders appointed by the organization’s CEO and is led
by First Horizon’s chief communications officer.
COMMUNITY BENEFITS AGREEMENT
In April 2018, First Horizon announced a five-year,
$3.95 billion community benefit plan to increase
access to financial resources within low- to moderate-
income (LMI) and under-served communities in Florida,
Georgia, Mississippi, North Carolina, South Carolina,
Tennessee, Texas, and Virginia.
The plan is consistent with First Horizon’s goal to
drive community, economic, and small business
development within our footprint and increase access
to financial resources within these communities.
It includes mortgage and small business lending,
First Horizon National Corporation
92652 BW Cover-Insert_R1.indd 12
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community development lending and investments,
philanthropy, and spending with minority-owned
suppliers. It also includes innovative methods to
increase the convenience and physical access
to financial services in low- to moderate-income
communities.
The plan consists of the following priorities and targets:
•
Increasing home ownership: Fund $515 million
in home purchase and rehabilitation mortgage
lending. This will translate into approximately 1,500
homes owned by low- or moderate-income people.
• Building small businesses: Fund $1.9 billion in
small business lending to businesses in low- to
moderate-income areas and businesses with less
than $1 million in annual revenue.
• Fostering community development: Fund
$1.5 billion in community development and multi-
family lending and investments.
• Strengthening communities: Fund $40 million in
grants and philanthropy, including supporting
workforce development, small business, housing
counseling, Community Development Corporations
(CDCs), Community Development Financial
Institutions (CDFI), and funding financial literacy
and education programs for children, young adults,
adults, and small business entrepreneurs.
• Supporting supplier diversity: Devote 3 to 6% of
the bank’s supplier spending to minority-owned
businesses.
In 2018, First Horizon has made equity equivalent
investments totaling $10 million in six Community
Development Financial Institutions to help build
capacity, meet credit needs of small businesses
and provide affordable housing in our under-served
communities. In addition, $74 million in Low Income
Housing Tax Credits were invested to support
the affordable multi-family housing needs of our
communities. Loans totaling $40 million to support
the Low Income Housing Tax Credits project were
also closed.
FIRST HORIZON FOUNDATION
Founded by First Horizon in 1993, First Horizon
Foundation (operating as Capital Bank Foundation
in our Florida, North Carolina, South Carolina,
and Virginia communities and as First Tennessee
Foundation in our Tennessee and Texas communities)
is a private charitable foundation that supports the
nonprofit organizations in the communities we serve.
This past year marked First Horizon Foundation’s 25th
anniversary of partnering with nonprofit organizations
to uplift our communities. Since inception, more
than $90 million has been distributed to nonprofit
organizations across our footprint.
COMMUNITY DEVELOPMENT FUND
In addition to our Community Benefits Plan and First
Horizon Foundation, the Community Development
Fund, chartered on December 18, 2015, is
dedicated to investing in our low- to moderate-
income communities. Contributions are targeted to
improve health, affordable housing, small business
development, and revitalization and stabilization of
inner city areas.
In 2018, the Community Development Fund awarded
$4 million in grants to support various community
needs, which included a $100,000 commitment
to a Raleigh, N.C. nonprofit to seed and increase
the capacity of its homeownership down payment
assistance-lending program. Other grants were
directed toward financial literacy, homebuyer
education and counseling, asset building, affordable
healthcare and other programs or initiatives working
to meet the needs of low- to moderate-income
individuals and families in our communities.
Separate from First Horizon Foundation, this Fund has
distributed more than $10 million since its inception
and continues to fund critical needs in our low- to
moderate-income communities throughout the First
Horizon footprint.
92652 BW Cover-Insert_R1.indd 13
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2018 Annual Report
The 25-story corporate headquarters building’s large
windows feature energy-saving film, and shades to
reduce heat gain on air conditioned spaces. Its HVAC
system uses Building Automation Systems, which are
calibrated to save energy during non-business hours,
and each floor features motion-sensor lighting so
energy is not wasted. Recently renovated floors have
been upgraded from incandescent and fluorescent
bulbs and fixtures to LED bulbs. Additionally, all
bathrooms feature low-volume flush valves and auto-
sensor faucets.
By 2021, we will have upgraded all parking lot lights
at all of our banking centers to energy efficient, long-
lasting LED bulbs. These new bulbs are not only more
sustainable, they also help the bottom line by reducing
maintenance costs. As other First Horizon facilities are
remodeled, all incandescent and fluorescent bulbs and
fixtures are updated with LED bulbs.
Our new banking centers will be built to conform with
most Leadership in Energy and Environmental Design
(LEED) standards. LEED is an internationally recognized
green building certification system aimed at improving
performance across key sustainability metrics.
During remodeling of office spaces, we recycle much
of the metal products and carpet and ensure that
all new products are from vendors that use recycled
materials in the products they provide.
Additionally, we have ongoing efforts to maintain all
of our equipment that has not yet reached end-of-life
service. For example, each year internal or contracted
maintenance staff clean and verify that each of our
rooftop HVAC systems are fully functioning at peak
performance and not using excess energy.
The Community Development Fund’s contributions are
focused on:
• Affordable Housing – Helping People Achieve
Dreams of Homeownership
• Community Revitalization and Stabilization –
Revitalizing Neighborhoods
• Community Services Targeted to Low- to Moderate-
Income Communities and Families – Improving the
Quality of Lives of the Communities We Serve
• Economic and Small Business Development –
Building Up Small Businesses
ENVIRONMENTAL INITIATIVES
First Horizon is committed to being a good steward
for our customers, our shareholders, and for the
environment. We are constantly seeking ways we can
more efficiently and sustainably use our resources.
We are mindful of our carbon footprint and use energy
management systems in the majority of our buildings
to monitor, control, conserve and reduce our energy
consumption. Some of our sustainability initiatives
include recycling, harnessing alternative and renewable
energy, and utilizing energy-efficiency efforts.
In 2018, our company’s recycling program helped
recycle more than 1.6 million pounds of paper,
which saved*:
• Nearly 14,000 trees
• More than 3.2 million kilowatts of energy
• More than 308,000 gallons of oil, which is the
equivalence of 6,692,411 miles driven by an
average passenger vehicle
• Nearly 6 million gallons of water
In addition to our recycling program, First Horizon
works to reduce its carbon footprint through clean
energy sources. In 2018, the solar photovoltaic system
at our operations center produced more than 46,500
kilowatt hours of clean electricity. Existing First Horizon
buildings have also been renovated with the goals of
enhancing energy efficiency and sustainability in mind.
Source: * Shred-it, independent recycling vendor
First Horizon National Corporation
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Highlights
OPERATION HOPE
Charles D. Hill was encouraged by his wife to launch a business after he retired from Memphis
Light Gas & Water after 20 years. Initially inspired by his mother, Irene Holt, who was an
entrepreneur and owned a restaurant, a sports bar, and a fish market, Hill remembers the key
lessons he learned from her: how to read and count money. As he began researching small
businesses, he learned of the Operation HOPE Entrepreneur Training Program, a partnership
between Operation HOPE, COGIC Urban Initiatives, and First Tennessee Bank.
Meeting Operation HOPE Financial Counselor Trudy
Morrison on the first day of class, Hill knew he was in
for an exciting and fun challenge. “I learned how to
do an elevator pitch, understand my sales strategy,
and identify my target market,” Hill said. “The training
program helped me to shape my vision, write a
business plan, conduct market research, understand
credit, and access capital. The new skills in advertising,
accounting, and networking will allow my business to
flourish and grow.”
Hill’s goal is for Atina Labs to be a highly visible and
reputable firm known as the leader in the substance
abuse screening industry in the Mid-South area. He
challenges aspiring entrepreneurs to “move past the
fear of failure,” and encourages them to not let their
dreams go without trying.
“We are very excited about the early success and solid
impact of our Entrepreneur Training Program through
our partnership with Operation HOPE,” said Steve
Swain, manager of Operation HOPE programs for First
Tennessee Bank. “We will continue our commitment
to meeting the small business entrepreneur training,
credit, and financial needs by expanding economic
empowerment in underserved communities, enhancing
dignity through financial education.”
After graduating from the 12-week program in May
of 2018, Hill opened the doors to Atina Labs in
February 2019.
As a result of Charles D. Hill’s participation in the
Operation HOPE Entrepreneur Training Program,
his lifelong dream of opening his own small
business came to life. Hill celebrated the grand
opening of his Atina Labs’ physical location in
February 2019 and is joined by representatives
from Operation HOPE and First Tennessee.
2018 Annual Report
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KEY ENVIRONMENTAL, SOCIAL
AND GOVERNANCE HIGHLIGHTS
2018
At First Horizon, we view the consideration of Environmental, Social and
Governance factors as important drivers for how we conduct our business.
GOVERNANCE:
• Board of Directors (as of 3/1/19)
o 12 Independent Directors
o More than 20% female representation
o More than 35% diverse representation
• Executive Management Committee
o More than 30% are female
o More than 20% are diverse
• Launched inaugural Corporate Social Responsibility Report in 2018
• Established internal Corporate Social Responsibility Committee in 2018
that spans 17 functional areas in organization
CUSTOMERS:*
• More than 820,000 households
• More than 250 branches
• More than 43,000 ATMs
• More than 290,000 customers served via Digital Banking
• More than 67,000 Small Businesses served
SUSTAINABILITY:
• More than 1.6 million pounds of paper recycled in 2018
• 46,500 kilowatt hours of clean electricity produced this year
EMPLOYEES:
• Approximately 5,500 employees
o 60% of employees are female
o 28% are ethnically diverse
• We conduct an annual employee engagement survey
• Employees average 33 training hours annually
• Comprehensive succession planning and development programs
• Tuition Assistance programs
COMMUNITY:
• $3.95 billion, five-year, community benefit plan to increase access to
financial resources within low- to moderate-income communities
• $10 million in philanthropic dollars distributed in 2018
• $90 million distributed by First Horizon Foundation since 1993
• Approximately 1,200 organizations reached/supported
• 21 HOPE Inside financial empowerment center locations**
o More than 114 workshops hosted in 2018
o More than 500 Credit and Money Management Workshop participants
• Nearly 20,500 employee volunteer hours
*AllPoint network and internal database
**Commitment to host HOPE Inside locations in 10% of branch network
First Horizon National Corporation
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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 – 2018 compared to 2017
Business Line Review – 2018 compared to 2017
Income Statement Review – 2018 compared to 2017; 2017 compared to 2016
Statement of Condition Review – 2018 compared to 2017
Capital – 2018 compared to 2017
Asset Quality – Trend Analysis of 2018 compared to 2017
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
70866
2
3
3
5
6
7
9
19
24
28
48
58
61
62
67
68
69
75
76
78
79
80
81
82
83
178
180
182
SELECTED FINANCIAL AND OPERATING DATA
(Dollars in millions except per share data)
Net income
Income available to common shareholders
Common Stock Data
Earnings per common share
Diluted earnings 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
54075
$
$
2018
2017
2016
2015
2014
556.5 $
538.8
177.0 $
159.3
238.5 $
220.8
97.3 $
79.7
234.0
216.3
1.66 $
1.65
0.48
13.79
0.66 $
0.65
0.36
12.82
0.95 $
0.94
0.28
9.90
0.34 $
0.34
0.24
9.42
20.61
12.40
13.16
20.76
16.05
19.99
20.61
11.62
20.01
16.20
12.31
14.52
0.92
0.91
0.20
9.35
13.91
11.18
13.58
1.4%
29.8%
21.3x
3.6%
29.1%
8.0x
1.8%
55.4%
30.8x
1.5%
22.0%
14.9x
$ 4,192.4 $ 6,531.5 $ 4,674.8 $ 3,464.3 $ 3,180.7
234,997
232,700
236,735
235,292
234,220
233,624
592,399
574,196
234,189
236,266
238,587
562,553
241,436
244,453
326,736
790,153
324,375
327,445
318,573
898,276
1.7%
70.6%
42.7x
$40,225.5 $29,924.8 $27,427.2 $25,636.0 $23,993.0
15,521.0
18,303.9
3,548.4
4,002.1
21,825.2
25,180.1
16,401.7
20,898.8
1,591.0
1,130.2
2,200.9
2,300.4
2,592.0
2,691.5
16,624.4
3,692.3
23,456.2
18,753.7
1,557.2
2,190.1
2,581.2
20,104.0
4,021.6
27,461.0
23,072.1
1,077.3
2,579.3
2,970.3
27,213.8
4,718.3
35,676.6
30,903.1
1,211.9
4,226.5
4,617.5
$40,832.3 $41,423.4 $28,555.2 $26,192.6 $25,665.4
16,230.2
19,589.5
3,556.6
3,943.5
23,470.9
26,280.2
18,068.9
22,672.4
1,877.3
1,040.7
2,190.5
2,314.0
2,581.6
2,705.1
17,686.5
3,929.8
23,971.5
19,967.5
1,312.7
2,248.5
2,639.6
27,658.9
5,170.3
36,953.5
30,620.4
1,218.1
4,189.4
4,580.5
27,535.5
4,626.5
36,201.0
32,683.0
1,171.0
4,394.3
4,785.4
12.75%
20.28
1.38
3.45
0.66
0.06
11.72
7.15
9.77
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
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 32.
(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
21 percent in 2018 and 35 percent prior to 2018, and, where applicable, state income taxes.
2
FIRST HORIZON NATIONAL CORPORATION
73450
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, 2018, was one of the 30 largest publicly traded banking organizations in the United States in terms
of asset size. FHN’s sole class of common stock, $.625 par value, is listed and trades on the New York Stock
Exchange, Inc. under the symbol FHN. As of December 31, 2018, there were approximately 8,900 common
shareholders of record.
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 approximately 300 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, wealth management, financial planning,
trust services and asset management, 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, underwriting, 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 run-off consumer lending activities, legacy (pre-2009) mortgage banking
elements, 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 merger with Capital Bank Financial Corporation (“CBF”) for an
aggregate of 92,042,232 shares of FHN common stock and $423.6 million in cash in a transaction valued at
$2.2 billion. In second quarter 2018, FHN canceled 2,373,220 FHN common shares which had been issued but
set aside for certain CBF shareholders who have commenced a dissenter appraisal process. That process is
discussed more fully in this MD&A at “Capital – Cancellation of Dissenters’ Shares.”
On March 23, 2018, FHN divested two branches, including approximately $30 million of deposits and $2 million of
loans. The branches, both in Greeneville, Tennessee, were divested in connection with First Horizon’s agreement
with the U.S. Department of Justice and commitments to the Board of Governors of the Federal Reserve System,
which were entered into in connection with a customary review of FHN’s merger with CBF.
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In second quarter 2018, FHN sold approximately $120 million UPB of its subprime auto loans. These loans,
originally acquired as part of the CBF acquisition, did not fit within FHN’s risk profile.
In January 2019, FHN signed an agreement to sell Superior Financial Services, Inc., a subsidiary acquired as part
of the CBF acquisition. The sale will result in the removal of approximately $25 million UPB of subprime consumer
loans from Loans held-for-sale on FHN’s Consolidated Statements of Condition and is expected to close in the first
half of 2019.
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,
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.
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
Effective January 1, 2018, FHN retroactively adopted the provisions of ASU 2017-07, “Improving the Presentation
of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which resulted in the reclassification
of $1.9 million of non-service components of net periodic pension and post-retirement costs and $.8 million of
non-service components of net periodic pension and post-retirement benefits from Employee compensation,
incentives, and benefits to Other expense for the years ended December 31, 2017 and 2016, respectively. All prior
periods and associated narrative have been revised to reflect this change. For additional information, see Note 1 –
Summary of Significant Accounting Policies in this report.
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,
generally defined as common equity less goodwill, other intangibles, and certain other required regulatory
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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 32 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 directly or indirectly affecting FHN or 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, 2018 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
MD&A, in other parts of this Annual Report to Shareholders, or in FHN’s Annual Report on Form 10-K for the
FIRST HORIZON NATIONAL CORPORATION
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period ended December 31, 2018 into which this MD&A has been incorporated, and in exhibits to and documents
incorporated into the Form 10-K.
FINANCIAL SUMMARY – 2018 COMPARED TO 2017
FHN reported net income available to common shareholders of $538.8 million, or $1.65 per diluted share,
compared to net income of $159.3 million, or $.65 per diluted share in 2017. The increase in net income available
to common shareholders in 2018 was due to increases in net interest income and noninterest income, somewhat
offset by higher noninterest expense. Various factors significantly impacted reported earnings in 2018 including
inclusion of Capital Bank and other strategic transactions expected to boost growth, returns and profitability.
Additional factors affecting reported results were the strong economic environment, increased interest rates, and
prudent investments to profitably grow in key markets.
The economic environment remained strong in 2018 with GDP growth throughout the year, low unemployment
rates, and muted inflation. The full-year impact of loans and deposits added through the CBF acquisition in late
2017, organic loan and deposit growth, as well as increases in short-term interest rates bolstered FHN’s net
interest income (“NII”) and net interest margin (“NIM”). These factors favorably impacted revenues in 2018
relative to the prior year. While the economic strength positively impacted FHN’s consolidated NII in 2018, higher
rate expectations and a lack of interest rate volatility led to lower fixed income sales revenue in 2018, negatively
impacting fee income from FTNF.
In third quarter 2018, FHN sold its remaining shares of Visa Class B shares resulting in a $212.9 million pre-tax
gain and strengthening its capital position. Noninterest income was also favorably impacted in 2018 by the
inclusion of Capital Bank, as well as the accelerated execution of revenue synergies from the CBF acquisition.
During 2018, FHN executed on strategic priorities by maintaining and increasing its leading market share in
Tennessee, profitably growing key markets and specialty businesses, transforming the customer experience and
optimizing the expense base. FHN invested in its core businesses by focusing on higher-return specialty lending
areas; making strategic hires in expansion areas; and selectively making needed investments in technology and
infrastructure to enhance its competitive position. In both 2017 and 2018, FHN recognized elevated acquisition-
and integration-related expenses associated with the CBF acquisition, but was able to successfully complete the
integration activities on schedule during 2018, reducing the existing expense base by approximately $50 million.
Tax legislation enacted by Congress in December 2017 reduced the federal statutory tax rate from 35 percent to
21 percent for FHN. This rate reduction favorably impacted FHN’s operating results in 2018. In 2017 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 in the prior year.
Asset quality trends were stable in 2018 reflecting continued strong underwriting standards, strong economic
conditions, and credit risk management. Allowance for loan losses continued to decline, decreasing 5 percent in
2018 as a result of the run-off of non-strategic loan balances, partially offset by organic loan growth. Annual net
charge-offs as a percent of average loans remained at .06 percent in 2018 and 30+ delinquencies declined 19
percent over prior year.
Return on average common equity (“ROCE”) and ROTCE for 2018 were 12.75 percent and 20.28 percent,
respectively, compared to 6.18 percent and 7.23 percent in 2017. Return on average assets (“ROA”) was
1.38 percent in 2018 compared to .59 percent in 2017. The 2018 metrics were favorably impacted by the third
quarter 2018 gain on the sale of FHN’s remaining Visa Class B shares previously mentioned. The tangible common
equity to tangible assets ratio was 7.15 percent in 2018 compared to 6.57 percent in 2017. Common equity tier 1,
Tier 1, Total capital, and Leverage ratios were 9.77 percent, 10.80 percent, 11.94 percent, and 9.09 percent on
December 31, 2018, compared to 8.88 percent, 9.83 percent, 11.10 percent, and 10.31 percent, respectively, on
December 31, 2017. Total period-end assets were $40.8 billion on December 31, 2018 compared to $41.4 billion
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on December 31, 2017. Total period-end equity was $4.8 billion on December 31, 2018, up from $4.6 billion on
December 31, 2017.
BUSINESS LINE REVIEW – 2018 COMPARED TO 2017
Regional Banking
Pre-tax income within the regional banking segment increased 45 percent to $661.6 million in 2018 from
$457.6 million in 2017. The increase in pre-tax income was primarily driven by higher revenue which more than
offset an increase in expenses.
Total revenue increased 37 percent, or $406.4 million, to $1.5 billion in 2018, from $1.1 billion in 2017, driven by
an increase in NII. NII increased to $1.2 billion in 2018 from $846.6 million in 2017 largely due to loans
(including accretion) and deposits added through the CBF acquisition. To a much lesser extent, the favorable
impact of higher interest rates on loans, higher average balances of loans to mortgage companies, and an increase
in cash basis interest income also favorably impacted NII in 2018 relative to the prior year. Noninterest income
was $309.3 million and $258.6 million in 2018 and 2017, respectively. The increase in noninterest income was
largely driven by a $21.7 million increase in deposit transactions and cash management fee income primarily as a
result of higher fee income associated with the inclusion of Capital Bank. Additionally, a $6.2 million increase in
brokerage, management fees, and commission income, $5.5 million in collections from CBF loans that were fully
charged off prior to acquisition, and a $5.1 million increase in mortgage banking activities also contributed to the
increase in noninterest income in 2018. The increase in fees from brokerage, management fees, and commissions
was driven by the continued growth of FHN’s advisory business and favorable market conditions, coupled with an
increase in the sales of structured products. To a lesser extent, bankcard income and other service charges also
increased in 2018 due in large part to the inclusion of Capital Bank activity.
Provision expense was $25.3 million in 2018 compared to $21.3 million in 2017. The net increase in provision in
2018 compared to the prior year was primarily driven by charge-offs associated with two credits within the C&I
portfolio. The provision in 2018 was favorably affected by historically lower net charge-offs which continue to drive
lower loss rates.
Noninterest expense increased 32 percent to $824.7 million in 2018 from $626.3 million in 2017. The increase in
expense was primarily driven by a full-year inclusion of Capital Bank, which led to higher personnel-related
expenses, and increases in amortization expense, occupancy expense, and operations services. FDIC premium
expense, advertising and public relation expense, equipment rentals, depreciation and maintenance expense,
computer software and communication expenses increased in 2018 relative to the prior year also driven by the
full-year inclusion of Capital Bank. Additionally, a $15 hourly wage floor, strategic hires in expansion markets and
specialty areas, and higher incentive expense associated with loan and deposit growth, also contributed to an
increase in personnel expense in 2018. A $4.3 million decrease in loss accruals for legal matters somewhat offset
the overall increase in noninterest expense.
Fixed Income
Pre-tax income in the fixed income segment was $9.0 million in 2018 compared to $26.2 million in 2017. The
decline in results in 2018 was driven by lower noninterest income, somewhat offset by an increase in NII and a
decrease in expenses.
NII increased from $18.1 million in 2017 to $35.7 million in 2018, primarily due to an increase in trading
securities and loans held-for-sale largely associated with government-guaranteed loan products. Fixed income
product revenue decreased 24 percent to $132.3 million in 2018 from $173.9 million in 2017, as average daily
revenue (“ADR”) declined to $531 thousand in 2018 from $696 thousand in 2017. This decline reflects lower
activity due to challenging market conditions (expected interest rate increases, a flattening yield curve, and low
levels of market volatility). Other product revenue was $32.5 million in 2018, down from $43.2 million in the prior
year, primarily driven by lower fees from loan sales, partially offset by increases in fees from derivative sales.
FIRST HORIZON NATIONAL CORPORATION
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Noninterest expense decreased 8 percent, or $17.4 million, to $191.5 million in 2018 from $208.9 million in 2017.
The expense decline during 2018 was primarily driven by lower variable compensation associated with the
decrease in fixed income product revenue and a decrease in legal fees relative to 2017, somewhat offset by the
full-year inclusion of Coastal.
Corporate
The pre-tax loss for the corporate segment was $2.7 million and $194.8 million for 2018 and 2017, respectively.
Net interest expense was $64.1 million in 2018 compared to $59.4 million in 2017. Noninterest income (including
securities gain/losses) increased to $239.3 million in 2018, from $8.9 million in 2017, primarily driven by a
$212.9 million pre-tax gain from the sale of FHN’s remaining Visa Class B shares. To a lesser extent, a
$14.3 million loss from the repurchase of equity securities previously included in a financing transaction recognized
in 2017 also contributed to the year-over-year increase in noninterest income. In 2018, FHN adopted
ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” which resulted in
dividend income being recognized in Other income rather than Interest income where it was recognized prior to
adoption. This change, along with $4.2 million of gains on the sales of buildings recognized in 2018 and an
increase of $3.8 million in BOLI gains also contributed to the increase in noninterest income in 2018. Deferred
compensation income decreased $9.5 million in 2018, offsetting a portion of the overall increase in noninterest
income. 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.
Noninterest expense was $177.8 million in 2018 compared to $144.3 million in 2017. The increase in expense for
2018 was primarily driven by a $35.8 million increase of acquisition- and integration-related expenses primarily
associated with the CBF acquisition. A $4.1 million increase in valuation adjustments associated with derivatives
related to prior sales of Visa Class B shares also contributed to the increase in noninterest expense in 2018. These
expense increases were somewhat offset by lower personnel expense in 2018 and $8.8 million of charitable
contributions made to the First Tennessee Foundation in 2017; a similar contribution was not made in 2018. The
decrease in personnel expense was largely driven by lower deferred compensation expense and $9.9 million of
special bonuses recognized in 2017, which more than offset an increase in salary expense due to the full-year
inclusion of Capital Bank.
Non-Strategic
The non-strategic segment had pre-tax income of $46.2 million in 2018 compared to $19.8 million in 2017. The
improvement in results was primarily driven by lower expenses, an increase in net interest income and an increase
in noninterest income in 2018 relative to the prior year.
Total revenue increased $13.2 million to $55.9 million in 2018 from $42.6 million in 2017. NII increased
25 percent to $46.4 million in 2018, largely driven by higher rates and loans held-for-sale added through the CBF
acquisition. Noninterest income increased to $9.5 million in 2018 from $5.6 million in 2017. The increase in
noninterest income was largely due to $4.1 million of gains on the reversals of previous valuation adjustments due
to the sales and payoff of TRUPS loans.
The provision for loan losses within the non-strategic segment was a provision credit of $18.3 million in 2018
compared to a provision credit of $21.3 million in the prior year. Overall, the non-strategic segment continued to
reflect stable performance combined with lower loan balances resulting in an $11.1 million decline in reserves to
$24.3 on December 31, 2018. Losses remain historically low as the non-strategic segment had net recoveries of
$7.2 million in 2018 compared to net recoveries of $8.9 million a year ago.
Noninterest expense was $27.9 million in 2018, down from $44.2 million in 2017. The decline in noninterest
expense was primarily due to a $35.3 million decrease in loss accruals related to legal matters and lower legal fees
in 2018 compared to the prior year. In 2017, noninterest expense was favorably impacted by a $22.5 million net
expense reversal related to the settlement of certain repurchase claims, compared to a net expense reversal of
$1.0 million in 2018. Additionally, an increase in personnel expense in 2018 negatively impacted expenses,
offsetting a portion of the overall expense decline in the non-strategic segment.
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INCOME STATEMENT REVIEW – 2018 COMPARED TO 2017; 2017 COMPARED TO 2016
Total consolidated revenue increased 46 percent, or $610.6 million to $1.9 billion in 2018, driven by a 45 percent
increase in net interest income due to the full-year inclusion of Capital Bank and rate increases and a 47 percent
increase in noninterest income primarily due to the gain on the sale of Visa Class B shares. Total consolidated
expenses increased 19 percent to $1.2 billion in 2018 from $1.0 billion in 2017. The expense increase was
primarily driven by a full-year inclusion of Capital Bank and an increase in acquisition- and integration-related
expenses associated with the CBF acquisition.
In 2017, total consolidated revenue increased 4 percent, or $51.0 million to $1.3 billion, driven by a 16 percent
increase in net interest income, which more than offset lower fee income from fixed income product revenue
compared to 2016. Total consolidated expense increased 11 percent to $1.0 billion in 2017 from $925.2 million in
2016 primarily driven by an increase in acquisition- and integration-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 2017 compared to 2016.
NET INTEREST INCOME
Net interest income increased 45 percent to $1.2 billion in 2018 from $842.3 million in 2017. On a fully taxable
equivalent (“FTE”) basis, NII increased 44 percent to $1.2 billion in 2018 from $855.9 million in 2017. As detailed
in Table 1 – Analysis of Changes in Net Interest Income, the increase in NII was largely due to loans added
through the CBF acquisition including CBF loan accretion. Additionally, the favorable impact of higher interest rates
on loans, higher average balances of available-for-sale securities and trading securities also contributed to the
increase in NII, but were somewhat offset by the negative impact of higher market interest rates on deposits and
other funding sources. Average earning assets increased 30 percent to $35.7 billion in 2018 from $27.5 billion in
2017. The increase in average earning assets in 2018 was primarily due to the full-year inclusion of Capital Bank,
organic loan growth within FHN’s regional banking activities, a larger securities portfolio, higher average balances of
fixed income trading securities and increases in loans held-for-sale (“HFS”). These increases were somewhat offset
by continued run-off of the non-strategic loan portfolios.
Net interest income was $842.3 million in 2017, a 16 percent increase from $729.1 million in 2016. On an FTE
basis, NII increased to $855.9 million in 2017 from $740.7 million in 2016. 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 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.
FIRST HORIZON NATIONAL CORPORATION
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Table 1 – Analysis of Changes in Net Interest Income
24894
(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 (c)
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
2018 Compared to 2017
Increase / (Decrease) Due to (a)
2017 Compared to 2016
Increase / (Decrease) Due to (a)
Rate (b)
Volume (b)
Total
Rate (b)
Volume (b)
Total
$140,951
6,901
$324,564
20,690
$465,515
27,591
$69,059
408
$70,022
11,603
$139,081
12,011
5,392
(91)
(9)
(3,431)
6,345
8,992
280
7,039
6,685
13,357
21,921
430
2,157
(1,014)
19,010
14,014
206
(45)
(4,314)
(3,506)
27,313
339
2,148
(4,445)
25,355
23,006
486
6,994
2,371
9,851
6,167
63
-
1,063
7,660
4,559
137
4,681
3,902
10,011
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
$551,318
$173,947
$ 53,109
11,479
22,039
$ 12,120
28,505
9,187
$ 65,229
39,984
31,226
$21,039
1,741
12,891
$ 1,872
1,349
1,233
$ 22,911
3,090
14,124
98,135
3,425
4,693
3,958
3,839
12,103
38,304
(481)
1,154
(67)
8,118
4,906
136,439
2,944
5,847
3,891
11,957
17,009
35,827
2,536
3,664
2,245
1,958
8,359
4,298
(884)
161
(1,777)
3,828
(1,424)
40,125
1,652
3,825
468
5,786
6,935
liabilities
$ 58,791
Net interest income – FTE
$115,156
(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
$178,087
$373,231
the absolute and amounts of the changes in each.
(b) Variances are computed on a line-by-line basis and are non-additive.
(c) The decrease is driven by the adoption of ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” which
resulted in the reclassification of interest and dividend income on equity securities to noninterest income on a prospective basis.
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 3.45 percent in 2018 from
3.12 percent in 2017. The net interest spread increased to 3.15 percent in 2018 from 2.91 percent in 2017, and
the impact of free funding was 30 basis points and 21 basis points in 2018 and 2017, respectively. The
improvement in NIM in 2018 relative to 2017 was largely the result of CBF loan accretion, the positive impact of
higher market rates and an increase in average deposits which allowed for reduction in higher cost funding.
The consolidated net interest margin improved to 3.12 percent in 2017 from 2.94 percent in 2016, largely driven
by the positive impact of higher market interest rates and an increase in average deposits, somewhat offset by an
increase in average excess cash held at the Fed during 2018.
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
companies. Table 2 – Net Interest Margin details the computation of the net interest margin for the past
three years.
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FIRST HORIZON NATIONAL CORPORATION
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
Corporates and other debt
Other (a)
Total investment securities
Trading securities
Other earning assets:
Federal funds sold
Securities purchased under agreements to resell
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 (b)
77071
2018
2017
2016
4.84%
4.51
4.76
6.23
2.70
4.03
4.42
31.65
2.77
3.70
2.47
1.63
1.89
1.77
4.36%
0.95%
0.70
1.44
0.95
1.89
1.40
2.83
1.82
4.38
1.21
3.15%
0.30
3.45%
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%
(a) 2018 increase driven by the adoption of ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” which
resulted in the reclassification of interest and dividend income on equity securities to noninterest income on a prospective basis. The
remaining balance is primarily comprised of higher-yielding SBA IO strips.
(b) Calculated using total net interest income adjusted for FTE assuming a statutory federal income tax rate of 21 percent in 2018 and
35 percent prior to 2018, and 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
2019, NIM will also depend on the extent of Fed interest rate increases, loan accretion levels, and the competitive
pricing environment for core deposits.
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 $7.0 million in 2018 compared to $0 million in 2017 and $11.0 million in 2016.
For 2018 and 2017, FHN’s asset quality metrics remained strong. Year-to-date net charge-offs as a percentage of
FIRST HORIZON NATIONAL CORPORATION
11
36216
average loans were .06 percent for the year ended December 31, 2018 and 2017. The ALLL decreased $9.1
million from year-end 2017 to $180.4 million as of December 31, 2018. 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 2018 Compared to 2017 in this MD&A.
NONINTEREST INCOME
Noninterest income (including securities gains/(losses)) was $722.8 million in 2018, up from $490.2 million in
2017 and $552.4 million in 2016. Noninterest income was 37 percent of total revenue in 2018 and 2017, and
43 percent of total revenue in 2016. For 2018, the increase in noninterest income was primarily driven by a gain
on the sale of FHN’s remaining Visa Class B shares in third quarter 2018. To a lesser extent, the full-year
inclusion of Capital Bank in 2018 and a $14.3 million loss from the repurchase of equity securities previously
included in a financing transaction recognized in 2017 also contributed to the year-over-year increase in
noninterest income. These increases were partially offset by a decrease in fixed income sales revenue in 2018.
The decrease in noninterest income in 2017 relative to 2016 was primarily driven by a decrease in fixed income
sales revenue, as well as the $14.3 million loss from the repurchase of equity securities previously included in a
financing transaction previously mentioned. 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
(Dollars in thousands)
2018
2017
2016
18/17
18/16
Compound
Annual Growth
Rates
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 (a)
All other income and commissions:
Other service charges
ATM and interchange fees
Mortgage banking
Dividend Income (b)
Letter of credit fees
Electronic banking fees
Insurance commissions
Gain/(loss) on extinguishment of debt (c)
Deferred compensation (d)
Other
$167,882
133,281
54,803
29,806
26,718
18,955
52
212,896
$216,625
110,592
48,514
28,420
25,467
15,124
483
109
$268,561
108,553
42,911
27,727
24,430
14,687
1,485
(144)
15,122
13,354
10,587
10,555
5,298
5,134
2,096
(15)
(3,224)
19,488
78,395
$722,788
12,532
12,425
4,649
-
4,661
5,082
2,514
(14,329)
6,322
11,029
44,885
$490,219
11,731
11,965
10,215
-
4,103
5,477
2,981
-
3,025
14,734
64,231
$552,441
(23)%
21%
13%
5%
5%
25%
(89)%
NM
21%
7%
NM
NM
14%
1%
(17)%
NM
NM
77%
75%
47%
(21)%
11%
13%
4%
5%
14%
(81)%
NM
14%
6%
2%
NM
14%
(3)%
(16)%
NM
NM
15%
10%
14%
Total all other income and commissions
Total noninterest income
NM - Not meaningful
(a) Equity securities gains/(losses) for 2018 relates to the gain on the sale of FHN’s remaining Visa Class B shares.
(b) Effective January 1, 2018, FHN adopted ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” and
began recording dividend income from FRB and FHLB holdings in Other income. Prior to 2018, these amounts were included in Interest
income on the Consolidated Statements of Income.
(c) Loss on extinguishment of debt for 2017 relates to the repurchase of equity securities previously included in a financing transaction.
(d) Amounts are driven by market conditions and are mirrored by changes in deferred compensation expense which is included in employee
compensation expense.
12
FIRST HORIZON NATIONAL CORPORATION
34309
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 23 percent in 2018 to $167.9 million
from $216.6 million in 2017, reflecting lower activity due to challenging market conditions (expected interest rate
increases, a flattening yield curve, and low levels of market volatility). Revenue from other products decreased
17 percent, or $7.1 million, to $35.6 million from $42.7 million in 2017, largely driven by a decline in fee income
from loan sales, somewhat offset by $4.1 million of gains on the sales and payoff of TRUPS loans in the non-
strategic segment and increases in fees from derivative sales.
Fixed income noninterest income was $216.6 million in 2017, down from $268.6 million in 2016, reflecting lower
activity due to challenging market conditions. Revenue from other products increased $3.8 million to $42.7 million
in 2017, driven by increases in fees from loan sales, which more than offset declines in fees from derivative sales
and portfolio advisory services compared to 2016.
Table 4 – Fixed Income Noninterest Income
Compound
Annual Growth
Rates
(Dollars in thousands)
2018
2017
2016
18/17
18/16
Noninterest income:
Fixed income
Other product revenue
Total fixed income noninterest income
$132,283
35,599
$167,882
$173,910
42,715
$216,625
$229,659
38,902
$268,561
(24)%
(17)%
(23)%
(24)%
(4)%
(21)%
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 $133.3 million in 2018 from
$110.6 million in 2017, largely associated with the inclusion of Capital Bank. Fees from deposit transactions and
cash management activities were negatively impacted in first quarter 2017 due to changes in consumer behavior
and a modification of billing practices, which further contributed to the year-over-year increase in fees from deposit
transactions and cash management activities in 2018. In 2017, deposit transactions and cash management income
increased to $110.6 million from $108.6 million in 2016, primarily related to 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.
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 to $54.8 million in 2018, up from $48.5 million and $42.9 million in 2017 and 2016, respectively. The
increase was due in large part to the continued growth of FHN’s advisory business and favorable market
conditions. An increase in the sales of structured products also contributed to the increase in 2018.
Bank-owned Life Insurance
Income from bank-owned life insurance (“BOLI”) increased to $19.0 million in 2018 from $15.1 million and
$14.7 million in 2017 and 2016, respectively. The increase in 2018 was driven by higher BOLI policy gains
recognized in 2018.
FIRST HORIZON NATIONAL CORPORATION
13
20632
Securities Gains/(Losses)
In 2018, FHN recognized net securities gains of $212.9 million compared to $.6 million and $1.3 million in 2017
and 2016, respectively. The 2018 net gain was primarily related to FHN’s sale of its remaining holdings of Visa
Class B shares. 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.
Other Noninterest Income
All other income and commissions includes revenues from other service charges, ATM and interchange fees,
mortgage banking (primarily within the non-strategic and regional banking segments), dividend income (subsequent
to 2017), letter of credit fees, electronic banking fees, insurance commissions, gains/(losses) on the extinguishment
of debt, revenue related to deferred compensation plans (which are mirrored by changes in noninterest expense),
and various other fees.
Revenue from all other income and commissions increased to $78.4 million in 2018 from $44.9 million in 2017. In
2017, FHN recognized a $14.3 million loss from the repurchase of equity securities previously included in a
financing transaction which contributed to the year-over-year increase in other noninterest income in 2018.
Additionally, effective January 1, 2018, FHN adopted ASU 2016-01, “Recognition and Measurement of Financial
Assets and Financial Liabilities” and began recording dividend income from FRB and FHLB holdings in other
income which also contributed to the increase in other noninterest income in 2018 relative to the prior year, as
previously these amounts were included in Interest income. Increases in mortgage banking income and other
service charges related to the full-year inclusion of Capital Bank, $5.5 million in collections from CBF loans that
were fully charged off prior to acquisition, and $5.0 million of gains on the sales of properties recognized in 2018
also contributed to the increase in other noninterest income. For 2018, all other income and commissions was
unfavorably impacted by a $9.5 million decrease in deferred compensation income. Deferred compensation income
fluctuates with changes in the market value of the underlying investments and are mirrored by changes in deferred
compensation expense which is included in employee compensation expense.
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 the $14.3 million loss from the
repurchase of equity securities previously included in a financing transaction recognized previously mentioned, 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.
NONINTEREST EXPENSE
Total noninterest expense increased 19 percent, or $198.3 million, to $1.2 billion in 2018 from $1.0 billion in
2017. The increase in noninterest expenses in 2018 is primarily due to the full-year inclusion of Capital Bank
expenses compared to one month of expenses included in 2017. Higher acquisition- and integration-related
expenses primarily associated with the CBF acquisition, higher personnel-related expenses, and a smaller
repurchase and foreclosure provision expense reversal related to the settlement of certain repurchase claims in
2018 relative to 2017, also contributed to the expense increase in 2018. A decrease in loss accruals related to
legal matters in 2018 favorably impacted expense relative to 2017, offsetting a portion of the overall expense
increase.
In 2017, 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. FHN’s noninterest expense for the last three years is provided in Table 5 - Noninterest
14
FIRST HORIZON NATIONAL CORPORATION
Expense. The following discussion provides additional information about various line items reported in the following
table.
Table 5 – Noninterest Expense
09688
Compound
Annual Growth
Rates
18/17
18/16
12%
8%
56% 29%
26% 16%
28% 16%
(4)% 55%
32% 20%
18% 21%
70% 45%
NM
29%
7%
24% 36%
(8)% (28)%
95% 82%
NM
*
43% 26%
(6)%
30% 13%
68% 25%
(3)% (6)%
NM
NM
36% 19%
36% 20%
NM
84%
(98)% (85)%
50% 33%
9%
19% 15%
1%
(Dollars in thousands)
2018
2017
2016
Noninterest expense:
Employee compensation, incentives and benefits
Occupancy
Computer software
Operations services
Professional fees
Equipment rentals, depreciation and maintenance
FDIC premium expense
Communications and courier
Amortization of intangible assets
Advertising and public relations
Contract employment and outsourcing
Legal fees
Repurchase and foreclosure provision/(provision credit)
All other expense:
Travel and entertainment
Other insurance and taxes
Employee training and dues
Supplies
Customer relations
Non-service components of net periodic pension
and post-retirement cost
Tax credit investments
Miscellaneous loan costs
OREO
Litigation and regulatory matters
Other (a)
$ 658,223 $ 587,465 $563,791
50,880
45,122
41,852
19,169
27,385
21,585
14,265
5,198
21,612
10,061
21,558
(32,722)
54,646
48,234
43,823
47,929
29,543
26,818
17,624
8,728
19,214
14,954
12,076
(22,527)
85,009
60,604
56,280
45,799
39,132
31,642
30,032
25,855
24,752
18,522
11,149
(1,039)
16,442
9,684
7,218
6,917
5,583
11,462
9,686
5,551
4,106
5,750
10,275
10,891
5,691
4,434
6,255
5,251
4,712
3,732
2,630
644
73,223
136,036
(666)
3,349
2,586
773
30,469
41,391
115,448
$1,221,996 $1,023,661 $925,204
2,144
3,468
2,751
1,006
40,517
48,693
135,134
Total all other expense
Total noninterest expense
Certain previously reported amounts have been revised to reflect the retroactive effect of the adoption of ASU 2017-07 “Improving the
Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” See Note 1 – Summary of Significant Accounting
Policies for additional information.
NM - Not Meaningful
* Amount is less than one percent.
(a) Expense increase for 2018 largely attributable to an increase in acquisition- and integration-related expense primarily associated with the
CBF acquisition. See Note 2 – Acquisitions and Divestitures for additional information.
Employee Compensation, Incentives, and Benefits
Employee compensation, incentives, and benefits (personnel expense), the largest component of noninterest
expense, increased 12 percent, or $70.8 million, to $658.2 million in 2018 from $587.5 million in 2017. The
increase in personnel expense was primarily the result of a 30 percent increase in headcount in connection with
the CBF acquisition. Within the regional banking segment, personnel expense increased due to a $15 hourly wage
floor, strategic hires in expansion markets and specialty areas, and higher incentive expense associated with loan
and deposit growth. Personnel expense within the fixed income segment decreased in 2018, largely driven by
lower variable compensation associated with lower fixed income sales revenue relative to 2017, offsetting a portion
of the overall increase in personnel expense. Additionally, a $10.3 million decrease in deferred compensation
expense in 2018, $9.9 million of special bonuses recognized in 2017 and a $6.4 million decrease in acquisition-
and integration-related personnel expenses also offset a portion of the increase in personnel expense.
FIRST HORIZON NATIONAL CORPORATION
15
15199
Personnel expense increased 4 percent, or $23.7 million, to $587.5 million in 2017 from $563.8 million in 2016.
Within the regional banking segment, personnel expense increased due to strategic hires in expansion markets and
specialty areas, higher incentive expense associated with loan and 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 decline in variable compensation associated with lower fixed income sales revenue
relative to the prior year, 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.
Occupancy
Occupancy expense increased to $85.0 million in 2018 from $54.6 million in 2017, primarily driven by higher
rental expense due to the full-year inclusion of Capital Bank. Additionally, FHN recognized $5.3 million of
acquisition- and integration-related expenses primarily associated with lease abandonment expenses in 2018.
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 as well as an increase in depreciation expense due to the
completion of space-consolidating renovations made to FHN’s headquarters and other locations completed during
2017.
Computer Software
Computer software expense was $60.6 million, $48.2 million, and $45.1 million in 2018, 2017, and 2016,
respectively. The increase in computer software expense in both periods was the result of the inclusion of Capital
Bank (twelve months in 2018; one month in 2017), as well as FHN’s focus on technology-related projects. To a
lesser extent, acquisition- and integration-related expenses primarily associated with the CBF acquisition also
contributed to the increase in computer software expense for 2018.
Operations Services
Operations services expense increased 28 percent, or $12.5 million to $56.3 million in 2018. The increase in
operations services expense was primarily related to an increase in third party fees associated with the inclusion of
Capital Bank operating expenses, as well as higher acquisition- and integration-related expenses primarily related to
the CBF acquisition. In 2017, expenses from operations services were $43.8 million compared to $41.9 million in
2016, primarily related to an increase in third party fees associated with the CBF and Coastal acquisitions.
Professional Fees
Professional fees decreased to $45.8 million in 2018 from $47.9 million in 2017. In 2018, the decrease in
professional fees was due to lower acquisition- and integration-related expenses primarily associated with the CBF
acquisition relative to 2017, somewhat offset by strategic investments to analyze growth potential and product mix
for new markets. Professional fees was $47.9 million in 2017 compared to $19.2 million in 2016. In 2017, the
increase in professional fees was primarily driven by higher acquisition- and integration-related expenses primarily
associated with the CBF and Coastal acquisitions.
Equipment Rentals, Depreciation, and Maintenance
Equipment rentals, depreciation, and maintenance expense increased 32 percent, or $9.6 million, to $39.1 million
in 2018. The increase in equipment rentals, depreciation, and maintenance expense in was due in large part to
the full-year inclusion of Capital Bank in 2018 and higher acquisition- and integration-related expenses primarily
related to the CBF acquisition. Equipment rentals, depreciation, and maintenance expense was $29.5 million and
$27.4 million in 2017 and 2016, respectively.
16
FIRST HORIZON NATIONAL CORPORATION
50274
FDIC Premium Expense
FDIC premium expense increased to $31.6 million in 2018 from $26.8 million in 2017 primarily due to the CBF
acquisition, as well as organic growth. In fourth quarter 2018, the FDIC assessment surcharge initiated in third
quarter 2016 expired offsetting a portion of the overall increase in FDIC premium expense for 2018. FDIC premium
expense was $26.8 million in 2017 and $21.6 million in 2016. 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.
Communication and Courier
Expenses associated with communications and courier increased to $30.0 million in 2018 from $17.6 million in
2017, primarily driven by the full-year inclusion of Capital Bank in 2018. To a lesser extent, an increase in
acquisition- and integration-related expenses also contributed to the expense increase in 2018. Expenses
associated with communication and courier were $17.6 million and $14.3 million in 2017 and 2016, respectively.
The increase in communication and courier expense was primarily related to acquisition- and integration- related
projects primarily associated with the CBF acquisition in 2017.
Amortization of Intangibles
Amortization expense increased to $25.9 million in 2018 from $8.7 million in 2017, primarily due to the full-year
inclusion of intangibles related to the Capital Bank acquisition in 2018 compared to one-month inclusion in 2017.
Amortization expense was $8.7 million in 2017 and $5.2 million in 2016, primarily the result of the CBF and
Coastal acquisitions.
Advertising and Public Relations
Expenses associated with advertising and public relations increased to $24.8 million in 2018 from $19.2 million in
2017. In 2018, FHN recognized higher advertising expense due in large part to promotional branding campaigns
and targeted marketing in new markets. Expenses associated with advertising and public relations decreased to
$19.2 million in 2017 from $21.6 million in 2016. 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
compared to 2017.
Contract Employment and Outsourcing
Expenses associated with contract employment and outsourcing increased 24 percent, or $3.6 million, to
$18.5 million in 2018, primarily driven by acquisition- and integration-related projects primarily associated with the
CBF acquisition. Expenses associated with contract employment and outsourcing increased 49 percent to $15.0
million in 2017 compared to $10.1 million in 2016, also due in large part to acquisition- and integration-related
projects primarily associated with the CBF acquisition.
Legal Fees
Legal fees decreased to $11.1 million in 2018 from $12.1 million in 2017 and $21.6 million in 2016. Legal fees
fluctuate primarily based on the status, timing, type, and composition of cases or other projects.
Repurchase and Foreclosure Provision
During 2018, 2017, and 2016, FHN recognized a $1.0 million, $22.5 million and $32.7 million pre-tax expense
reversal of mortgage repurchase and foreclosure provision, respectively, primarily as a result of the
settlement/recoveries of certain repurchase claims. These expense reversals favorably impacted expenses in all
periods.
Other Noninterest Expense
Other expense includes travel and entertainment expense, other insurance and tax expense, employee training and
dues, supplies, customer relations expense, expenses associated with the non-service components of net periodic
FIRST HORIZON NATIONAL CORPORATION
17
12387
pension and post-retirement cost, tax credit investments, miscellaneous loan costs, expenses associated with
OREO, losses from litigation and regulatory matters, and various other expenses.
All other expense was $136.0 million in 2018 compared to $135.1 million in 2017. The increase was primarily due
to a $35.8 million increase of acquisition- and integration-related costs primarily associated with the CBF
acquisition, including contract termination charges, costs of shareholder matters and asset impairments related to
the integration, as well as other miscellaneous expenses. Additionally, a $4.1 million increase in Visa derivative
valuation adjustments recognized in 2018, higher expenses associated with travel and entertainment, supplies, and
employee training and dues largely due to the inclusion of Capital Bank, higher pension expense and an increase
in the reserve for unfunded commitments also contributed to the increase in other noninterest expense relative to
the prior year. These expense increases were largely offset by a $39.9 million net decrease in loss accruals related
to legal matters and $8.8 million of charitable contributions made to the First Tennessee Foundation in 2017.
All other expense increased 17 percent, or $19.7 million, to $135.1 million in 2017 from $115.4 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.
INCOME TAXES
FHN recorded an income tax provision of $157.6 million in 2018, compared to $131.9 million in 2017 and
$106.8 million in 2016. The effective tax rates for 2018, 2017, and 2016 were approximately 22.1 percent,
42.7 percent, and 30.9 percent, respectively.
The decrease in the effective tax rates in 2018 compared to 2017 and 2016 was primarily driven by the reduction
in the federal corporate income tax rate under the Tax Cuts and Jobs Act “Tax Act,” which lowered the rate to
21 percent from 35 percent effective January 1, 2018. Additionally, $7.5 million in net discrete tax benefits were
realized during 2018. The tax rate in 2017 was adversely affected by approximately $82 million of tax expense
primarily related to the revaluation of the net deferred tax asset based on a 21 percent tax rate as a result of the
passage of the Tax Act in 2017. This was partially offset by the reversal of a capital loss valuation allowance which
decreased federal and state taxes by $40.4 million.
The company’s effective tax rate is favorably affected by recurring items such as bank-owned life insurance, tax-
exempt income, and tax 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 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, 2018, FHN’s net DTA was $127.9 million compared with
$221.8 million at December 31, 2017 and $199.6 million at December 31, 2016.
As of December 31, 2018, FHN had deferred tax asset balances related to federal and state income tax
carryforwards of $49.8 million and $7.2 million, which will expire at various dates. Refer to Note 15 – Income
Taxes for additional information.
FHN’s gross DTA after valuation allowance was $254.6 million and $353.2 million as of December 31, 2018 and
2017, 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
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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 audit for 2013 - 2015 and is
under examination in several states.
See also Note 15 – Income Taxes for additional information.
STATEMENT OF CONDITION REVIEW – 2018 COMPARED TO 2017
Total period-end assets were $40.8 billion and $41.4 billion on December 31, 2018 and 2017, respectively.
Average assets increased 34 percent to $40.2 billion in 2018 from $29.9 billion in 2017. The increase in average
assets was primarily driven by the timing of the CBF acquisition on November 30, 2017; 2018 includes the
full-year average impact of balances compared with one month in 2017. The increase was largely due to net
increases in the loan portfolios, increases in goodwill and other intangible assets, and a larger investment securities
portfolio. On a period-end basis, the decrease was primarily due to net decreases in the available-for-sale (“AFS”)
securities portfolio and securities purchased under agreements to resell, offset partially by increases in federal
funds sold and interest bearing cash.
Total period-end liabilities were $36.0 billion and $36.8 billion on December 31, 2018 and 2017, respectively.
Average liabilities increased 32 percent to $35.6 billion in 2018, from $27.0 billion in 2017. The net increase in
average liabilities relative to 2017 was also the result of the timing of the CBF acquisition in late fourth quarter
2017 and was primarily attributable to deposits. The decrease in period-end liabilities was largely due to a
decrease in other short-term borrowings and trading liabilities, somewhat offset by an increase in deposits.
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 $35.7 billion in 2018 from $27.5 billion in
2017. A more detailed discussion of the major line items follows.
Loans
Period-end loans were $27.5 billion on December 31, 2018 compared to $27.7 billion on December 31, 2017.
Average loans for 2018 were $27.2 billion compared to $20.1 billion for 2017. The increase in average loan
balances was primarily due to the timing of the CBF acquisition, as 2018 includes an average impact of
twelve months compared to one month in 2017. The decrease in period-end loans was driven by run-off of lower
spread loans within the Regional Banking portfolios, coupled with sales and run-off within the Non-Strategic
portfolios, somewhat mitigated by net loan growth within several of the Regional Banking loan portfolios. The
following table provides detail regarding FHN’s average loans.
FIRST HORIZON NATIONAL CORPORATION
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Table 6 – Average Loans
(Dollars in thousands)
2018
Percent
of total
2018
Growth
Rate
Percent
of total
2017
Growth
Rate
2017
Percent
of total
2016
Growth
Rate
2016
Commercial:
Commercial, financial,
and industrial
Commercial real estate
Total commercial
Consumer:
Consumer real estate (a)
Permanent mortgage
Credit card and other
Total consumer
Total loans, net of
unearned income
$15,872,929
4,206,206
20,079,135
6,328,936
253,122
552,635
7,134,693
58%
16
28% $12,367,420
2,365,763
78
61%
12
13% $10,932,679
1,938,939
22
60%
11
74
23
1
2
26
36
14,733,183
35
(20)
48
33
4,678,569
317,816
374,474
5,370,859
73
23
2
2
27
14
12,871,618
-
(20)
4
(1)
4,673,517
399,220
359,515
5,432,252
71
25
2
2
29
15%
36
18
(4)
(18)
2
(5)
$27,213,828
100%
35% $20,104,042
100%
10% $18,303,870
100%
10%
Certain previously reported amounts have been reclassified to agree with current presentation.
(a) 2018, 2017, and 2016 include $19.3 million, $29.3 million, and $43.4 million of restricted and secured real estate loans, respectively.
Table 7 – Contractual Maturities of Commercial Loans on December 31, 2018
(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
$3,429,206
929,617
$ 8,568,479
2,545,330
$4,516,643
555,923
$16,514,328
4,030,870
$4,358,823
$11,113,809
$5,072,566
$20,545,198
$ 7,803,488
3,310,321
$3,711,130
1,361,436
$11,514,618
4,671,757
$11,113,809
$5,072,566
$16,186,375
20
FIRST HORIZON NATIONAL CORPORATION
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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. As a result, 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, 2018 (Amortized Cost)
shows information pertaining to the composition, yields, and contractual maturities of the investment portfolio.
Investment securities decreased to $4.6 billion on December 31, 2018 from $5.2 billion on December 31, 2017.
The decrease in period-end investment securities was due in part to the adoption of ASU 2016-01, “Recognition
and Measurement of Financial Assets and Financial Liabilities,” on January 1, 2018, which resulted in the
reclassification of equity securities from Investment securities to Other assets. FHN moderated its reinvestment
strategy in 2018 which also contributed to the decrease in the investment securities balance on December 31,
2018. Additionally, an increase in unrealized losses as a result of higher rates also contributed to the decrease in
AFS securities on December 31, 2018. Average investment securities were $4.7 billion and $4.0 billion in 2018
and 2017, representing 13 percent and 15 percent of average earning assets in 2018 and 2017, 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 $4.6 billion and $3.8 billion in 2018 and
2017, respectively. U.S. treasury securities and corporate and municipal bonds averaged $66.5 million in 2018
compared to $16.2 million in 2017. Investments in equity securities averaged $190.3 million in 2017, and were
largely comprised of restricted investments in the Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank
(“FRB”). On December 31, 2018, AFS investment securities had $100.6 million of net unrealized losses compared
to $35.7 million of net unrealized losses on December 31, 2017. See Note 3 - Investment Securities for additional
detail.
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Table 8 – Contractual Maturities of Investment Securities on December 31, 2018 (Amortized Cost)
(Period-end)
(Dollars in thousands)
Securities available-for-sale:
Government agency issued MBS
and CMO (a)
U.S. treasuries
Other U.S. government agencies
States and municipalities
Corporates and other debt
Total securities available-for-sale
Securities held-to-maturity:
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
$13,642
-
-
-
15,125
$28,767
$
$
-
-
2.18% $126,450
-
100
-
149,050
-
-
40,258
3.15
2.69% $315,858
2.35% $305,029
-
1.51
-
2.77
755
-
-
4.61
2.84% $305,784
-
-
3.82
-
3.18% $4,035,054
-
-
31,718
-
3.18% $4,066,772
2.63%
-
-
3.97
-
2.64%
-% $
-% $
-
-
-% $ 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 5.3 years.
Loans Held-for-Sale
Loans HFS consists of small business, other consumer loans, the mortgage warehouse, USDA, student, and home
equity loans. The average balance of loans HFS increased to $724.0 million in 2018 from $370.6 million in 2017.
The increase in average loans HFS was primarily due to an increase in small business loans and to a lesser extent
other consumer loans acquired from the CBF acquisition. On December 31, 2018, loans HFS were $679.1 million
compared to $699.4 million on December 31, 2017. The decrease in period-end balances is primarily related to
the sale of approximately $120 million UPB of subprime auto loans originally acquired as part of the CBF
acquisition, offset partially by an increase in small business loans.
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 2018 and 2017, as increases in fixed income trading securities were largely offset
by a decrease in interest-bearing cash. Fixed income’s trading inventory fluctuates daily based on customer
demand. Other earning assets were $3.3 billion and $3.4 billion on December 31, 2018 and 2017, respectively.
The decline in other earning assets on a period-end basis was primarily driven by a decrease in asset repos,
somewhat offset by increases in federal funds sold and interest-bearing cash. 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.
Non-earning assets
Period-end non-earning assets increased to $4.6 billion on December 31, 2018 from $4.5 billion on December 31,
2017. The increase in non-earning assets was primarily due to the adoption of ASU 2016-01, “Recognition and
Measurement of Financial Assets and Financial Liabilities,” which resulted in the reclassification of equity securities
from investment securities to other assets. Additionally, higher cash balances and an increase in goodwill also
contributed to the increase in non-earning assets as of December 31, 2018, but were somewhat offset by a
decrease in deferred tax assets.
Deposits
Average deposits were $30.9 billion during 2018, up 34 percent from $23.1 billion during 2017. The increase in
average deposits was largely due to the timing of the CBF acquisition late in fourth quarter 2017, as well as FHN’s
strategic focus on growing deposits. FHN’s composition of deposits shifted slightly in 2018, resulting in an increase
in interest-bearing deposits, comprising 74 percent of total deposits. Market-indexed deposits as a percentage of
total deposits decreased from 17 percent in 2017 to 15 percent in 2018, while commercial interest deposits
increased as a percentage of total deposits.
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Period-end deposits were $32.7 billion on December 31, 2018, up 7 percent from $30.6 billion on December 31,
2017. The increase in period-end deposits was largely the result of increase in savings and time deposits as a
result of FHN’s strategic focus on growing deposits. The following table summarizes FHN’s average deposits for
2018, 2017 and 2016.
Table 9 – Average Deposits
(Dollars in thousands)
2018
Percent
of Total
2018
Growth
Rate
2017
Percent
of Total
2017
Growth
Rate
Percent
of Total
2016
Growth
Rate
2016
Interest-bearing deposits:
Consumer interest
Commercial interest
Market-indexed (a)
Total interest-bearing
deposits
Noninterest-bearing
deposits
$12,700,135
5,660,480
4,541,835
41% 34% $ 9,467,518
3,187,034
18
3,986,095
15
78
14
41% 11% $ 8,537,255
2,812,222
14
3,788,420
17
13
5
41%
13
18
5%
3
48
22,902,450
8,000,642
74
26
38
24
16,640,647
6,431,489
72
28
10
12
15,137,897
5,760,873
72
28
13
8
Total deposits
$30,903,092
100% 34% $23,072,136
100% 10% $20,898,770
100% 11%
(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 Borrowings
Short-term borrowings (federal funds purchased (“FFP”), securities sold under agreements to repurchase, trading
liabilities, and other short-term borrowings) averaged $2.8 billion in 2018 and $2.3 billion in 2017. As noted in the
table below, the increase in short-term borrowings was largely due to an increase in other short-term borrowings
and securities sold under agreements to repurchase. 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 in 2018, as an additional source of wholesale funding
for FHN’s balance sheet activities. Period-end short-term borrowings were $1.5 billion on December 31, 2018 and
$4.3 billion on December 31, 2017. The decrease in period-end short-term borrowings was primarily due to a
decrease in FHLB borrowings. Additionally, decreases in trading liabilities and FFP also contributed to the decrease
in short-term borrowings on December 31, 2018. FFP fluctuates depending on the amount of excess funding of
FHN’s correspondent bank customers and trading liabilities fluctuate based on levels of trading securities and
hedging strategies. See Note 9 – Short-Term Borrowings for additional information. The following table summarizes
FHN’s average short-term borrowings for 2018, 2017, and 2016.
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
2018
Growth
Rate
2017
Percent
of Total
2017
Growth
Rate
2016
Percent
of Total
2016
Growth
Rate
2018
$ 405,110
14% (9)% $ 447,137
20% (24)% $ 589,223
30% (16)%
713,841
682,943
1,046,585
25
24
37
23
*
89
578,666
685,891
554,502
26
30
24
36
(11)
NM
425,452
771,039
198,440
21
39
10
15
5
20
Total short-term borrowings
$2,848,479
100% 26% $2,266,196
100%
14% $1,984,154
100%
1%
NM – Not meaningful
* Amount is less than one percent
FIRST HORIZON NATIONAL CORPORATION
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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, 2018 and 2017. Average term borrowings increased to $1.2 billion
in 2018 from $1.1 billion in 2017 primarily driven by a full-year of average impact of the addition of $212.4 million
junior subordinated debentures underlying trust preferred debt acquired in association with the CBF acquisition. In
2017, this balance was only included for one month due to the timing of the CBF acquisition. In 2018, FHN
retired $45.4 million of this junior subordinated debt and the related trust preferred securities. See Note 10 – Term
Borrowings for additional information.
Other Liabilities
Period-end other liabilities were $.7 billion on December 31, 2018 and 2017.
CAPITAL – 2018 COMPARED TO 2017
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 $4.8 billion on December 31, 2018 from $4.6 billion on December 31, 2017. The increase in
equity was due to net income recognized in 2018, offset by common and preferred dividends, share repurchases
(discussed below), a decrease in accumulated other comprehensive income (“AOCI”), and the cancellation of
2,373,220 common shares in connection with CBF dissenting shareholders (discussed below). The decrease in
AOCI was largely driven by an increase in unrealized losses on AFS debt securities as a result of higher rates.
Average equity increased to $4.6 billion in 2018 from $3.0 billion in 2017. The increase in average equity was due
to the full-year average impact of $1.8 billion issued in connection with the CBF acquisition on November 30,
2017, net income recognized since 2017, partially offset by common and preferred dividends paid and shares
repurchased. Average equity was negatively impacted by a decline in AOCI in 2018, offsetting a portion of the
increase in average equity. The decline in average AOCI 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, in February 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.
24
FIRST HORIZON NATIONAL CORPORATION
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:
69765
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 (a)
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
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 (b)
Adjusted tangible common equity to risk weighted assets (b)
December 31, 2018 December 31, 2017
$ 4,489,949
(95,624)
$ 4,285,057
(95,624)
$ 4,394,325
$ 4,189,433
(1,529,532)
75,736
288,768
12,112
(17,637)
(70)
$ 3,223,702
95,624
246,047
-
$ 3,565,373
374,744
$ 3,940,117
(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
$33,002,595
32,592,577
$33,373,877
32,786,547
39,221,755
38,381,985
31,824,751
31,016,187
December 31, 2018
December 31, 2017
Ratio
Amount
Ratio
Amount
9.77% $3,223,702
3,197,725
9.81
8.88% $2,962,155
3,041,420
9.28
10.80
10.72
11.94
11.32
9.09
9.10
11.72
7.15
8.73
3,565,373
3,492,541
9.83
10.12
3,281,478
3,317,684
3,940,117
3,689,180
11.10
10.74
3,703,754
3,520,670
3,565,373
3,492,541
10.31
10.70
3,281,478
3,317,684
11.06
6.57
7.91
(a) 2018 reflects a reduction of $45.4 million in Tier 2 qualifying trust preferred securities which were retired during 2018.
(b) 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 32.
FIRST HORIZON NATIONAL CORPORATION
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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, 2018, each of FHN and FTBNA had
sufficient capital to qualify as a well-capitalized institution. For both FHN and FTBNA, regulatory capital ratios
increased in 2018 relative to 2017 primarily due to the impact of net income, including the gain from the sale of
FHN’s remaining holdings of Visa Class B shares in third quarter 2018, less dividends declared. The increase in
the ratios for FHN was partially offset by share repurchases and CBF dissenters’ share cancellations during 2018.
The Tier 1 leverage ratio declined for both FHNC and FTBNA as average assets for leverage in the fourth quarter
of 2018 reflects the full impact of the CBF acquisition compared to only one month in fourth quarter 2017. During
2019, capital ratios are expected to remain above well-capitalized standards.
Stress Testing
The Economic Growth, Regulatory Relief, and Consumer Protection Act, along with an interagency regulatory
statement effectively exempted both FHN and FTBNA from Dodd-Frank Act (“DFA”) stress testing requirements
starting with 2018.
For 2018, even though no longer required, FHN and FTBNA completed a stress test using DFA scenarios and
requirements previously in effect. Results of these tests indicate that both FHN and FTBNA would be able to
maintain capital well in excess of Basel III Adequately Capitalized standards under the hypothetical severe global
recession of the 2018 DFA Severely Adverse scenario. A summary of those results was posted in the “News &
Events-Stress Testing Results” section on FHN’s investor relations website on August 6, 2018. Neither FHN’s stress
test posting, nor any other material found on FHN’s website generally, is part of this report or incorporated herein.
First Horizon will continue performing an annual enterprise wide stress test as part of its capital and risk
management process. Results of this test will be presented to executive management and the board.
The disclosures in this “Stress Testing” section include forward-looking statements. Please refer to “Forward-
Looking Statements” for additional information concerning the characteristics and limitations of statements of that
type.
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.
Table 12a – Issuer Purchases of Common Stock - General Authority
On January 23, 2018, FHN announced a $250 million share purchase authority with an expiration date of
January 31, 2020. The program replaced an older program that was terminated at the same time with
$189.7 million of remaining authority unused which was scheduled to expire on January 31, 2018. 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. As of
December 31, 2018, $99.4 million in purchases had been made under this authority at an average price per share
of $15.47, $15.45 excluding commissions. In January 2019, FHN’s board of directors amended the 2018 share
purchase authority increasing it by $250 million to a total of $500 million and extending the expiration date to
January 31, 2021.
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FIRST HORIZON NATIONAL CORPORATION
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(Dollar values and volume in
thousands, except per share data)
2018
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 (a)
Total number of
shares purchased
as part of publicly
announced programs
Maximum approximate
dollar value that may
yet be purchased
under the programs
1,799
846
2,717
5,362
$16.00
$16.29
$13.95
$15.00
1,799
846
2,717
5,362
$202,236
$188,466
$150,569
(a) Represents total costs including commissions paid
Table 12b – Issuer Purchase of Common Stock - Compensation Authority
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. 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. As of December 31, 2018, the maximum number of shares that may be
purchased under the program was 25.2 million shares. Management currently does not anticipate purchasing a
material number of shares under this authority during 2019.
(Volume in thousands, except per share data)
2018
October 1 to October 31
November 1 to November 30
December 1 to December 31
Total
N/A – Not applicable
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
1
19
-
20
$16.92
$16.11
N/A
$16.15
1
19
-
20
25,181
25,163
25,163
Cancellation of Dissenters’ Shares
On November 30, 2017, FHN completed its merger with CBF, which was a Delaware corporation. Under Delaware
corporate law, each CBF shareholder had the right to dissent from the terms of the merger and obtain a judicial
appraisal of the pre-merger value of his, her, or its CBF shares. If the dissent and appraisal process is followed to
its conclusion, FHN is required by law to pay each dissenter the appraised value, entirely in cash. In 2017 certain
CBF shareholders commenced the dissent and appraisal process. When the merger closed in 2017, FHN issued a
total of 2,373,220 FHN common shares for those CBF shareholders in accordance with the terms of the merger
agreement, but FHN set them aside for later delivery or cancellation. In April, 2018, the process reached a point
where FHN canceled those set-aside shares. Cancellation resulted in a reduction in the equity consideration
recorded by FHN and an increase in cash consideration of $46.0 million. The final appraisal or settlement
amounts, as applicable, may differ from current estimates.
FIRST HORIZON NATIONAL CORPORATION
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ASSET QUALITY – TREND ANALYSIS OF 2018 COMPARED TO 2017
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.
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
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, FHN expanded its borrower
limits in association with the expansion of its overall portfolio through the acquisition of CBF. Additionally, FHN also
revised its Portfolio Concentration, Country Exposure, and Automated Clearing House limits to more appropriately
align with its overall risk appetite and to provide more granularity into some of its 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 an RM and a PM for most commercial credits. The RM is
primarily responsible for communications with the customer and maintaining the relationship, while the PM is
responsible for assessing the credit quality of the borrower, beginning with the initial underwriting and continuing
through the servicing period. 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, more frequent servicing on lower rated borrowers,
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.
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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 $16.5 billion on December 31, 2018, 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, 2018, are in Tennessee (36 percent), North Carolina (11 percent),
Texas (6 percent), Florida (6 percent), California (6 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
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.
FIRST HORIZON NATIONAL CORPORATION
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The following table provides the composition of the C&I portfolio by industry as of December 31, 2018 and 2017.
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, 2018
December 31, 2017
Industry:
Finance & insurance
Loans to mortgage companies
Real estate rental & leasing (a)
Health care & social assistance
Manufacturing
Accommodation & food service
Wholesale trade
Public administration
Retail trade
Other (transportation, education, arts,
entertainment, etc) (b)
Total C&I loan portfolio
$ 2,766,041
2,023,746
1,548,903
1,309,983
1,245,230
1,171,333
1,166,590
778,497
765,254
3,738,751
$16,514,328
17%
12
9
8
8
7
7
5
5
22
100%
$ 2,859,769
2,099,961
1,408,299
1,201,285
1,184,861
1,145,944
1,060,642
705,704
831,790
3,559,018
$16,057,273
18%
13
9
7
7
7
7
4
5
23
100%
(a) Leasing, rental of real estate, equipment, and goods.
(b) Industries in this category each comprise less than 5 percent for 2018.
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.
29 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, 2018, 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 17 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, 2018, asset-based lending to consumer
finance companies represents approximately $1.2 billion of the finance and insurance component.
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. During second
quarter 2018, FHN revised the grading approach associated with the TRUPS portfolio to align with its scorecard
grading methodologies which resulted in upgrades to a majority of this portfolio. 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, 2018 and 2017, one TRUP relationship was on interest deferral.
During third quarter 2018, FHN sold three TRUP relationships with an unpaid principal balance (“UPB”) of
$55.5 million and valuation allowance of $5.0 million. Upon sale, FHN recognized a $3.8 million gain which is
presented in the Non-Strategic segment within Fixed Income in the Consolidated Condensed Statement of Income.
An additional TRUPS loan with a principal balance of $3.0 million and a valuation allowance of $.3 million was
30
FIRST HORIZON NATIONAL CORPORATION
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paid off in fourth quarter 2018. As of December 31, 2018, the UPB of trust preferred loans totaled $270.6 million
($189.8 million of bank TRUPS and $80.8 million of insurance TRUPS) with the UPB of other bank-related loans
totaling $245.3 million. Inclusive of a valuation allowance on TRUPS of $20.2 million, total reserves (ALLL plus the
valuation allowance) for TRUPS and other bank-related loans were $21.3 million or 4 percent of outstanding UPB.
Loans to Mortgage Companies
The balance of loans to mortgage companies was 12 percent of the C&I portfolio as of December 31, 2018, and
13 percent of the C&I portfolio as of December 31, 2017, 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. In
2018, 75 percent of the loans funded were home purchases and 25 percent were refinance transactions.
C&I Asset Quality Trends
Overall, the C&I portfolio trends remain strong in 2018, continuing in line with recent historical performance. The
C&I ALLL increased $0.7 million from December 31, 2017, to $98.9 million as of December 31, 2018. The
allowance as a percentage of period-end loans decreased to .60 percent as of December 31, 2018, from
.61 percent as of December 31, 2017. Nonperforming C&I loans increased $8.6 million from December 31, 2017,
to $39.8 million on December 31, 2018, primarily driven by one credit which was partially offset by payments,
returns to accrual status, or other resolutions. The nonperforming loan (“NPL”) ratio increased 5 basis points from
December 31, 2017, to .24 percent of C&I loans as of December 31, 2018. The 30+ delinquency ratio decreased
to .06 percent as of December 31, 2018, from .19 percent as of December 31, 2017, driven by one large
relationship becoming current. Net charge-offs were $11.3 million in 2018 compared to $13.1 million in 2017. The
following table shows C&I asset quality trends by segment.
FIRST HORIZON NATIONAL CORPORATION
31
18065
2018
2017
2016
2015
2014
December 31
$
$16,151,298
36,888
96,850
(15,492)
4,151
12,108
97,617
13,001
23,738
36,739
$
$
$
$
$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
$
$
$
0.06%
0.23
0.07
0.60%
8.61x
0.19%
0.18
0.11
0.62%
7.37x
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
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
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
$
$
$
363,030
2,888
1,361
-
50
(81)
1,330
$
$
$
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
$
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
0.47%
0.80
NM
0.37%
NM
-%
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
$
$16,514,328
39,776
98,211
(15,492)
4,201
12,027
98,947
13,001
23,738
36,739
$
$
$
$
$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
$
$
$
30+ Delinq. % (a)
NPL %
Net charge-offs %
Allowance / loans %
Allowance / net charge-offs
0.19%
0.19
0.11
0.61%
7.50x
Certain previously reported amounts have been reclassified to agree with current presentation.
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.
0.06%
0.24
0.07
0.60%
8.76x
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
Commercial Real Estate
The CRE portfolio was $4.0 billion on December 31, 2018. The CRE portfolio includes both financings for
commercial construction and nonconstruction loans. The largest geographical concentrations of balances as of
December 31, 2018, are in North Carolina (31 percent), Tennessee (18 percent), Florida (14 percent),
South Carolina (8 percent), Texas (6 percent), Georgia (6 percent), and Ohio (4 percent), with no other state
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FIRST HORIZON NATIONAL CORPORATION
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representing more than 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 (27 percent), retail (20 percent), office (18 percent), industrial
(14 percent), hospitality (11 percent), land/land development (1 percent) and other (9 percent).
The residential CRE class includes loans to residential builders and developers for the purpose of constructing
single-family homes, condominiums, and town homes, and on a limited basis, for developing residential
subdivisions. Subsequent to the Capital Bank merger completed in 2017, active residential CRE lending is now
primarily focused in certain core markets. Nearly all new originations are to “strategic” clients. FHN considers a
“strategic” residential CRE borrower as a homebuilder who demonstrates the ability to withstand cyclical
downturns, maintains active development and investment activities providing for regular financing opportunities, and
is fundamentally sound as evidenced by a prudent loan structure, appropriate covenants and recourse, and
capable and willing sponsors in markets with positive homebuilding and economic dynamics.
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, 2018. The allowance increased
$2.9 million from December 31, 2017, to $31.3 million as of December 31, 2018, driven by organic loan growth.
Allowance as a percentage of loans increased 11 basis points from December 31, 2017, to .78 percent as of
December 31, 2018. Nonperforming loans increased $1.6 million from December 31, 2017, to $3.0 million as of
December 31, 2018. Nonperforming loans as a percentage of total CRE loans increased 4 basis points from 2017
to .07 percent as of December 31, 2018. Accruing delinquencies as a percentage of period-end loans decreased
to .06 percent as of December 31, 2018, from .15 percent as of December 31, 2017. FHN recognized net
charge-offs of $.4 million in 2018 compared to net recoveries of $.8 million in 2017. The following table shows
commercial real estate asset quality trends by segment.
FIRST HORIZON NATIONAL CORPORATION
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82673
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
2018
2017
2016
2015
2014
December 31
$4,030,870
2,991
$4,214,695
1,393
$2,135,523
2,776
$1,674,871
8,684
$1,273,220
14,571
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
28,427
(783)
312
3,355
31,311
1,076
429
1,505
0.06%
0.07
0.01
0.78%
66.50x
-
-
-
-
27
(27)
-
-
-
-
-%
-
NM
-%
NM
$
$
$
$
$
$
$
$
$
33,852
(195)
915
(6,145)
28,427
1,125
1,282
2,407
0.15%
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
$4,030,870
2,991
$4,214,695
1,393
$2,135,523
2,776
$1,674,935
8,684
$1,277,717
15,356
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
$
$
$
$
28,427
(783)
339
3,328
31,311
1,076
429
1,505
$
$
$
$
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
$
$
$
$
30+ Delinq. % (a)
NPL %
Net charge-offs %
Allowance / loans %
Allowance / net charge-offs
0.15%
0.03
NM
0.67%
NM
Certain previously reported amounts have been reclassified to agree with current presentation.
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.
0.06%
0.07
0.01
0.78%
70.47x
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
10,603
(3,741)
4,150
7,562
18,574
7,683
7,515
15,198
0.14%
1.20
NM
1.45%
NM
34
FIRST HORIZON NATIONAL CORPORATION
66398
CONSUMER LOAN PORTFOLIOS
Consumer Real Estate
The consumer real estate portfolio was $6.2 billion on December 31, 2018, 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, 2018, are in Tennessee (54 percent), North Carolina
(15 percent), Florida (13 percent), and California (3 percent), with no other state representing more than 3 percent
of the portfolio. As of December 31, 2018, approximately 80 percent of the consumer real estate portfolio was in a
first lien position. At origination, weighted average FICO score of this portfolio was 753 and refreshed FICO scores
averaged 752 as of December 31, 2018, compared to 752 and 756, respectively, as of December 31, 2017. As of
December 31, 2018, approximately $1.1 billion, or 17 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 $1.5 billion of the consumer real estate portfolio as of
December 31, 2018. 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.
Approximately 72 percent of FHN’s HELOCs were in the draw period as of December 31, 2018 and 2017. Based
on when draw periods are scheduled to end per the line agreement, it is expected that $388.0 million, or
35 percent of HELOCs currently in the draw period, will enter the repayment period during the next 60 months.
Delinquencies 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 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, 2018
December 31, 2017
Repayment
Amount
Percent
Repayment
Amount
Percent
$
67,523
69,154
75,074
86,308
90,018
715,390
6% $ 138,333
88,188
6
99,109
7
96,997
8
105,753
8
792,723
65
10%
7
8
7
8
60
$1,103,467
100% $1,321,103
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
FIRST HORIZON NATIONAL CORPORATION
35
69055
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 2018 despite deterioration of some
metrics compared to prior year. The non-strategic segment is a run-off portfolio and while the absolute dollars of
delinquencies and nonaccruals declined compared to December 31, 2017, 30+ accruing delinquencies and
nonperforming loans ratios deteriorated. That trend of increasing deterioration of ratios 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 $13.4 million from December 31, 2017, to
$26.4 million as of December 31, 2018, with the majority of the decline attributable to the non-strategic segment.
The balance of nonperforming loans increased $11.2 million to $82.6 million on December 31, 2018. Loans
delinquent 30 or more days and still accruing increased from $41.5 million as of December 31, 2017, to
$46.5 million as of December 31, 2018. The portfolio realized net recoveries of $10.3 million in 2018 compared to
net recoveries of $9.6 million in 2017. The following table shows consumer real estate asset quality trends by
segment.
36
FIRST HORIZON NATIONAL CORPORATION
Table 17 – Consumer Real Estate Asset Quality Trends by Segment
13573
(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
2018
2017
2016
2015
2014
December 31
$
$5,844,778
39,080
18,859
(4,609)
4,026
(3,797)
14,479
30,146
17,334
47,480
$
$
$
$
$5,885,953
22,678
20,077
(3,491)
4,342
(2,069)
18,859
31,970
12,405
44,375
$
$
$
$
$3,713,321
18,865
29,156
(5,346)
4,863
(8,596)
20,077
36,784
10,694
47,478
$
$
$
$
$3,528,126
23,935
32,180
(8,414)
4,660
730
29,156
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
$
$
$
0.58%
0.67
0.01
0.25%
24.77x
0.40%
0.39
NM
0.32%
NM
0.48%
0.51
0.01
0.54%
41.63x
0.52%
0.68
0.11
0.83%
7.77x
0.57%
0.86
0.22
0.95%
4.45x
$
$ 404,738
43,568
20,964
(4,748)
15,640
(19,896)
11,960
$
$
$ 593,289
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
$
$
$
41,125
29,829
70,954
$
$
54,702
29,818
$
68,217
37,765
$
67,942
47,107
$
71,389
46,766
84,520
$ 105,982
$ 115,049
$ 118,155
3.07%
10.76
NM
2.95%
NM
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
$
$6,249,516
82,648
39,823
(9,357)
19,666
(23,693)
26,439
71,271
47,163
$ 118,434
$
$
$
$6,479,242
71,487
51,424
(13,156)
22,723
(21,168)
39,823
86,672
42,223
$ 128,895
$
$
$
$4,594,179
82,812
80,662
(21,993)
23,719
(30,964)
$
51,424
$ 105,001
48,459
$ 153,460
$4,779,185
111,092
$ 113,011
(30,068)
23,895
(26,176)
$
80,662
$ 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
30+ Delinq. % (a)
NPL %
Net charge-offs %
Allowance / loans %
Allowance / net charge-offs
0.64%
1.10
NM
0.61%
NM
Certain previously reported amounts have been reclassified to agree with current presentation.
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.
0.74%
1.32
NM
0.42%
NM
0.92%
1.80
NM
1.12%
NM
1.00%
2.32
0.13
1.69%
13.07x
1.10%
2.39
0.43
2.24%
5.01x
FIRST HORIZON NATIONAL CORPORATION
37
18169
Permanent Mortgage
The permanent mortgage portfolio was $.2 billion on December 31, 2018. 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 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 27 percent of loan balances as of December 31, 2018, are in California, but the
remainder of the portfolio is somewhat geographically diverse. Non-strategic and corporate segment run-off
primarily contributed to the $65.4 million decrease in permanent mortgage period-end balances from
December 31, 2017, to December 31, 2018.
Permanent Mortgage Asset Quality Trends
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 $2.1 million as of December 31, 2018, from $13.1 million as
of December 31, 2017. TDR reserves (which are estimates of losses for the expected life of the loan) comprise
86 percent of the ALLL for the permanent mortgage portfolio as of December 31, 2018. Consolidated accruing
delinquencies decreased $.2 million from December 31, 2017 to $7.1 million as of December 31, 2018.
Nonperforming loans decreased $4.7 million from December 31, 2017, to $21.7 million as of December 31, 2018.
The portfolio experienced net recoveries of $.9 million in 2018 compared to net recoveries of $.3 million in 2017.
The following table shows permanent mortgage asset quality trends by segment.
38
FIRST HORIZON NATIONAL CORPORATION
Table 18 – Permanent Mortgage Asset Quality Trends by Segment
23463
(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
Corporate
Period-end loans
Nonperforming loans
Allowance for loan losses as of December 31 (b)
Accruing restructured loans
Nonaccruing restructured loans
Total troubled debt restructurings
30+ Delinq. % (a)
NPL %
Allowance / loans % (b)
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
2018
2017
December 31
2016
2015
2014
$
$
$
$
$
$
$
$
$
$
3,988
346
80
-
-
(4)
76
684
249
933
7.32%
8.69
-
1.90%
NM
5,427
427
148
-
-
(68)
80
615
326
941
7.62%
7.86
-
1.48%
NM
$
$
$
$
$
6,546
393
92
-
-
56
148
563
315
878
$
$
$
$
$
8.43%
6.00
-
2.25%
NM
8,495
443
$ 10,852
503
$
$
$
$
167
(14)
-
(61)
92
720
364
1,084
5.17%
5.21
0.15
1.08%
6.54x
245
(19)
-
(59)
167
1,254
-
1,254
5.75%
4.64
0.16
1.54%
8.88x
$ 39,221
1,707
$ 53,556
2,157
$ 71,380
1,186
$ 97,450
1,677
$135,538
3,045
N/A
2,557
-
2,557
$
$
N/A
3,637
-
3,637
$
$
N/A
3,792
-
3,792
$
$
N/A
3,992
-
3,992
$
$
N/A
5,494
-
5,494
$
$
4.37%
4.35
N/A
3.98%
4.03
N/A
4.37%
1.66
N/A
2.92%
1.72
N/A
2.32%
2.25
N/A
$179,239
19,657
$ 13,033
(477)
1,421
(3,053)
$ 10,924
$ 53,240
14,116
$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
$ 67,356
$ 80,216
$ 89,256
$ 97,385
$106,711
2.87%
10.97
NM
6.10%
NM
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
$222,448
21,710
$ 13,113
(477)
1,421
(3,057)
$ 11,000
$ 56,481
14,365
$287,820
26,390
$ 15,222
(2,179)
2,509
(2,439)
$ 13,113
$ 68,354
16,440
$352,698
27,181
$ 18,899
(1,591)
2,403
(4,489)
$ 15,222
$ 76,251
17,675
$441,456
31,652
$ 19,122
(3,141)
1,687
1,231
$ 18,899
$ 83,431
19,030
$538,961
34,078
$ 22,491
(5,891)
2,314
208
$ 19,122
$ 91,449
22,010
$ 70,846
$ 84,794
$ 93,926
$102,461
$113,459
3.21%
9.76
NM
4.95%
NM
2.57%
9.17
NM
4.56%
NM
2.83%
7.71
NM
4.32%
NM
2.17%
7.17
0.30
4.28%
13.00x
1.72%
6.32
0.60
3.55%
5.34x
Certain previously reported amounts have been reclassified to agree with current presentation.
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.
(b) An allowance has not been established for these loans as the valuation adjustment taken upon exercise of clean-up calls included expected losses.
FIRST HORIZON NATIONAL CORPORATION
39
73902
Credit Card and Other
The credit card and other portfolio, which is primarily within the regional banking segment, was $.5 billion as of
December 31, 2018, and primarily includes automobile loans, credit card receivables, and other consumer-related
credits. The automobile loans, presented in the non-strategic segment, are a run-off portfolio of indirect auto loans
acquired through the CBF acquisition. As a result, asset quality metrics within this portfolio may become skewed
as the auto loan portfolio continues to shrink. The allowance increased to $12.7 million as of December 31, 2018,
from $10.0 million as of December 31, 2017. Loans 30 days or more delinquent and accruing increased
$.7 million from December 31, 2017, to $8.4 million as of December 31, 2018. In 2018, FHN recognized
$15.6 million of net charge-offs in the credit card and other portfolio, compared to net charge-offs of $10.1 million
in 2017. 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
2018
2017 (b)
December 31
2016
2015
2014
$
$432,531
34
9,894
(14,143)
3,227
13,617
$ 12,595
658
$
-
658
$
$439,745
75
$ 11,995
(12,736)
2,905
7,730
9,894
564
-
564
$
$
$
$351,198
-
$ 10,966
(13,983)
3,297
11,715
$ 11,995
274
$
-
274
$
$344,405
620
$ 14,310
(15,542)
3,555
8,643
$ 10,966
314
$
-
314
$
$
$345,859
-
7,125
(13,781)
3,026
17,940
$ 14,310
406
$
-
406
$
0.89%
0.01
2.55
2.91%
1.15x
0.76%
0.02
2.67
2.25%
1.01x
$
$ 85,839
590
87
(5,545)
812
4,778
132
37
-
37
$
$
$
$
$180,154
121
177
(471)
210
171
87
29
-
29
$
$
$
5.35%
0.69
3.78
0.15%
0.03x
2.41%
0.07
3.82
0.05%
0.33x
1.16%
-
3.05
3.42%
1.12x
7,835
142
919
(241)
324
(825)
177
32
-
32
1.73%
1.82
NM
2.26%
NM
$
$
$
$
$
1.07%
0.18
3.51
3.18%
0.91x
1.38%
-
3.22
4.14%
1.33x
$
$ 10,131
737
420
(1,149)
298
1,350
919
63
-
63
$
$
$
$
$ 12,272
763
359
(1,150)
105
1,106
420
127
-
127
$
$
$
1.47%
7.28
7.75
9.07%
1.08x
2.48%
6.22
7.37
3.43%
0.40x
$
$518,370
624
9,981
(19,688)
4,039
18,395
$ 12,727
695
$
-
695
1.63%
0.12
2.83
2.46%
0.81x
$
$
$
$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
$
$
$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
$
40
FIRST HORIZON NATIONAL CORPORATION
90166
Certain previously reported amounts have been reclassified to agree with current presentation.
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.
(b) In 3Q18, the acquired CBF indirect auto portfolio was retrospectively re-classed through 4Q17 from the Regional Banking segment to the
Non-Strategic segment.
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 $180.4 million on December 31, 2018, from
$189.6 million on December 31, 2017. The ALLL as of December 31, 2018, 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
.66 percent on December 31, 2018, from .69 percent on December 31, 2017.
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. Provision expense was
$7.0 million in 2018, which was primarily driven by charge-offs associated with two credits within the C&I portfolio,
partially offset by a release in reserves, compared to zero in 2017. The provision in 2018 was favorably affected by
historically lower net charge-offs which continue to drive lower loss rates.
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 positive economic
outlook 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 $16.1 million in 2018 compared to
$12.5 million in 2017.
The commercial portfolio experienced $11.7 million of net charge-offs in 2018 compared to $12.3 million in 2017.
In addition, the consumer portfolio experienced $4.4 million of net charge-offs in 2018 compared to $.2 million in
2017. The net increase in consumer portfolio net charge-offs was driven by the credit card and other portfolio.
FIRST HORIZON NATIONAL CORPORATION
41
The following table provides consolidated asset quality information for the years 2014 through 2018:
Table 20 – Analysis of Allowance for Loan Losses and Charge-offs
94580
(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
2018
2017
2016
2015
2014
$
189,555
7,000
$
202,068
-
$
210,242
11,000
$
232,448
9,000
$
253,809
27,000
15,492
783
9,357
477
19,688
45,797
4,201
339
19,666
1,421
4,039
29,666
16,131
180,424
7,618
$
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
$
188,042
$
194,634
$
207,380
$
216,168
$
237,218
$27,535,532
$27,658,929
$19,589,520
$17,686,502
$16,230,166
$10,884,975
$27,213,828
$10,678,485
$20,104,042
$ 8,744,649
$18,303,870
$ 7,903,294
$16,624,439
$ 7,231,879
$15,520,972
0.63%
74
0.62%
73
0.86%
73
0.82%
68
0.83%
63
0.42
23
4.95
1
2.46
2
0.66
0.06
11.18x
0.61
23
4.56
1
1.61
2
0.69
0.06
15.15x
1.12
23
4.32
2
3.39
2
1.03
0.10
10.54x
1.69
27
4.28
2
3.35
2
1.19
0.19
6.74x
2.24
31
3.55
3
4.11
2
1.43
0.31
4.81x
Certain previously reported amounts have been reclassified to agree with current presentation.
(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
42
FIRST HORIZON NATIONAL CORPORATION
95990
due, are bankruptcies, or are TDRs. These, along with OREO, excluding OREO from government insured
mortgages, represent nonperforming assets (“NPAs”).
Total nonperforming assets (including NPLs HFS) decreased to $175.5 million on December 31, 2018, from
$177.2 million on December 31, 2017. The nonperforming assets ratio (nonperforming assets excluding NPLs HFS
to total period-end loans plus OREO and other assets) was .62 percent as of December 31, 2018, compared to
.61 percent as of December 31, 2017.
The ratio of the ALLL to NPLs in the loan portfolio was 1.22 times as of December 31, 2018, compared to
1.45 times as of December 31, 2017. 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
Total consumer
Total nonperforming loans (b) (c)
Nonperforming loans held-for-sale (c)
Foreclosed real estate and other assets
Foreclosed real estate from GNMA loans
Total foreclosed real estate and other assets
Total nonperforming assets (c) (d)
Troubled debt restructurings (e):
Accruing restructured loans
Nonaccruing restructured loans (c) (f)
Total troubled debt restructurings (e)
Ratios:
2018
2017
December 31
2016
2015
2014
$ 39,776
2,991
42,767
$ 31,153
1,393
32,546
$ 32,736
2,776
35,512
$ 26,313
8,684
34,997
$ 32,610
15,356
47,966
82,648
21,710
624
104,982
147,749
5,328
22,387
2,903
25,290
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
$175,464
$177,156
$164,623
$211,921
$241,512
$142,524
85,695
$228,219
$170,930
63,429
$234,359
$203,445
81,705
$285,150
$198,059
98,113
$296,172
$231,109
100,152
$331,261
Allowance to nonperforming loans in the loan portfolio (c)
1.22x
1.45x
1.39x
1.17x
1.14x
(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) Under the original terms of the loans, estimated interest income would have been approximately $9 million, $10 million, and $8 million
during 2018, 2017 and 2016, respectively.
(c) Excludes loans that are 90 or more days past due and still accruing interest.
(d) Balances do not include PCI loans or government-insured foreclosed real estate.
(e) Excludes TDRs that are classified as held-for-sale nearly all of which are accounted for under the fair value option.
(f) Amounts also included in nonperforming loans above.
FIRST HORIZON NATIONAL CORPORATION
43
The following table provides nonperforming assets by business segment:
Table 22 – Nonperforming Assets by Segment
67491
(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
2018
2017
December 31
2016
2015
2014
$ 81,046
66,703
$ 54,816
75,803
$ 51,839
93,808
$ 58,152
120,946
$ 67,699
135,740
$147,749
$130,619
$145,647
$179,098
$203,439
$ 18,535
3,852
$ 34,679
4,887
$
5,081
6,154
$ 16,298
8,679
$ 20,451
9,979
$ 22,387
$ 39,566
$ 11,235
$ 24,977
$ 30,430
$ 99,581
70,555
$ 89,495
80,690
$ 56,920
99,962
$ 74,450
129,625
$ 88,150
145,719
$170,136
$170,185
$156,882
$204,075
$233,869
0.31%
6.46%
0.54%
0.38%
6.81%
0.62%
0.21%
5.34%
0.47%
0.34%
5.66%
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%
(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 $3.1 million, $5.2 million, $6.6 million,
$9.0 million, and $9.5 million during 2018, 2017, 2016, 2015, and 2014, respectively.
(d) Ratio is non-performing assets related to the loan portfolio to total loans plus foreclosed real estate and other assets.
The following table provides an activity rollforward of OREO balances for December 31, 2018 and 2017. The
balance of OREO, exclusive of inventory from government insured mortgages, decreased to $22.4 million as of
December 31, 2018, from $39.6 million as of December 31, 2017, driven by the sale of OREO, primarily those
acquired from CBF. 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)
2018
2017
$ 39,566
(2,599)
12,148
-
(26,728)
$ 11,235
(996)
6,340
33,928
(10,941)
$ 22,387
$ 39,566
(a) Excludes OREO and receivables related to government insured mortgages of $3.1 million and $5.2 million as of December 31, 2018 and
2017, 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
$32.5 million on December 31, 2018, compared to $41.6 million on December 31, 2017. The decrease was due
44
FIRST HORIZON NATIONAL CORPORATION
60615
in large part to one relationship, which is a purchased credit-impaired loan. Loans 30 to 89 days past due
decreased to $42.7 million on December 31, 2018, from $50.9 million on December 31, 2017.
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 $317.0 million on December 31, 2018, compared to $327.2 million on December 31,
2017. The decrease year-over-year in potential problem assets was due to a net decrease in classified commercial
loans within the C&I portfolio. 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
2018
2017
December 31
2016
2015
2014
$
1,775
1,752
3,527
22,246
4,562
2,126
28,934
$ 19,654
2,051
$
21,705
14,433
3,460
1,970
19,863
$
257
-
257
$
1,083
161
1,244
770
115
885
16,110
5,428
1,590
23,128
16,668
3,991
1,398
22,057
16,695
5,640
2,025
24,360
Total loans past due 90 days or more and still accruing (a) (b)
$ 32,461
$ 41,568
$ 23,385
$ 23,301
$ 25,245
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.
$ 42,703
82
5,790
$ 50,884
85
13,419
$ 42,570
89
6,462
$ 50,896
-
7,133
$ 50,531
175
6,895
4,848
7,368
7,237
$316,952
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
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
FIRST HORIZON NATIONAL CORPORATION
45
80256
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, 2018 and December 31, 2017, FHN had $228.2 million and $234.4 million portfolio loans
classified as TDRs, respectively. For TDRs in the loan portfolio, FHN had loan loss reserves of $27.7 million and
$37.3 million, or 12 and 16 percent of TDR balances, as of December 31, 2018 and December 31, 2017,
respectively. Additionally, FHN had $57.8 million and $63.2 million of HFS loans classified as TDRs as of
December 31, 2018 and December 31, 2017, respectively. Total held-to-maturity TDRs decreased by $6.1 million
with the decline attributable to permanent mortgage and consumer real estate partially offset by an increase in
commercial.
46
FIRST HORIZON NATIONAL CORPORATION
The following table provides a summary of TDRs for the periods ended December 31, 2018 and 2017:
Table 25 – Troubled Debt Restructurings
44060
(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, 2018
As of
December 31, 2017
$ 54,114
2,367
14,365
70,846
68,960
2,311
47,163
118,434
665
30
-
695
13,246
831
24,167
38,244
$228,219
$ 42,574
10,041
5,209
57,824
$286,043
$ 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
(a) Balances as of December 31, 2018 and 2017, include $3.6 million and $5.1 million, respectively, of discharged bankruptcies.
(b) Balances as of December 31, 2018 and 2017, include $13.0 million and $13.4 million, respectively, of discharged bankruptcies.
FIRST HORIZON NATIONAL CORPORATION
47
43135
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.
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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. 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 170 of this report,
which section is incorporated into this MD&A by this reference.
FHN’s market risk appetite is approved by the Executive & 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 used 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
Year Ended
December 31, 2018
Mean
High
Low
As of
December 31, 2018
$ 1,728
9,191
$ 2,660
11,918
$ 1,148
6,576
3,735
24,762
5,124
32,343
2,601
16,257
$ 1,878
8,881
3,258
21,621
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(Dollars in thousands)
1-day
VaR
SVaR
10-day
VaR
SVaR
83905
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
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, 2018
As of
December 31, 2017
1-day
$618
394
10-day
$1,514
596
1-day
$930
305
10-day
$2,084
471
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.
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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
customers, the early withdrawal options held by 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, 2018, NII exposures over the next 12 months assuming rate
shocks of plus 25 basis points, 50 basis points, 100 basis points, and 200 basis points are estimated to have
favorable variances of .6 percent, 1.1 percent, 2.5 percent, and 4.5 percent, respectively compared to base NII. A
steepening yield curve scenario where long-term rates increase by 50 basis points and short-term rates are static,
results in a favorable NII variance of 1.2 percent. A flattening yield curve scenario where long-term rates decrease
by 50 basis points and short-term rates are static, results in an unfavorable NII variance of .5 percent. Rate
shocks of minus 25 basis points and 50 basis points result in unfavorable NII variances of .5 percent and
1.6 percent. 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.
During the past few years, the movement of short-term interest rates higher after a prolonged period of very low
interest rates has had an overall positive effect on FHN’s NII and NIM. More recently however, competitive
pressures have caused FHN’s deposit costs to rise faster than the long-term “through the cycle” assumptions
made in its simulation model. Of the many assumptions made in its simulation model, deposit pricing and deposit
mix are two that can have a meaningful impact on measured results. For example, in the analysis presented
above, interest bearing deposit rates are assumed to increase by 65 basis points in the +100 basis point scenario.
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If interest bearing deposit costs were to increase 5 percent more than currently assumed in the +100 basis point
scenario, the 2.5 percent favorable variance in NII disclosed above for that scenario would decline to a 1.5 percent
favorable variance. Similarly, in each interest rate scenario, management makes assumptions about the balance
sheet’s deposit mix. In the +100 basis point scenario it is assumed that an additional $750 million moves from
non-interest bearing accounts to market rate accounts as compared to the migration assumed in the base case
scenario. If that amount were to increase to $1 billion, the 2.5 percent favorable variance in NII disclosed above
for that scenario would decline to 2.0 percent.
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 RISK 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
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• Program Governance
• Fiduciary
• Financial Crimes (including Bank Secrecy Act, know your customer, security, and fraud)
• 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 which 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.
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Management emphasizes general portfolio servicing such that emerging risks are able to be 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
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.
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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 ($3.1 billion was available at December 31, 2018), 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
100 percent on December 31, 2018 compared to 101 percent on December 31, 2017.
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 correspondent bank 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, 2018,
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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preceding it. Applying the dividend restrictions imposed under applicable federal rules as outlined above, the
Bank’s total amount available for dividends was $156.2 million as of January 1, 2019. Consequently, on that date
the Bank could pay common dividends up to that amount to its sole common stockholder, FHN, or to its preferred
shareholders without prior regulatory approval. FTBNA declared and paid common dividends to the parent
company in the amount of $420.0 million in 2018 and $250.0 million in 2017, with OCC approval as necessary. In
January 2019, FTBNA declared and paid a common dividend to the parent company in the amount of
$110 million. During 2018 and 2017, FTBNA declared and paid dividends on its preferred stock quarterly, with
OCC approval as necessary. Additionally, FTBNA declared preferred dividends in first quarter 2019 payable in
April 2019.
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 $.12 per common share on
January 2, 2019, and in January 2019 the Board approved a $.14 per common share cash dividend payable on
April 1, 2019, to shareholders of record on March 15, 2019. FHN paid a cash dividend of $1,550.00 per preferred
share on January 10, 2019, and in January 2019 the Board approved a $1,550.00 per preferred share cash
dividend payable on April 10, 2019, to shareholders of record on March 26, 2019.
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 (c)
Junior subordinated debt (c)
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 (c)
Preferred stock
FT Real Estate Securities Company, Inc.
Preferred stock
Moody’s (a)
Fitch (b)
Baa3/Stable
Baa3
Baa3
Ba1
Ba2
Baa3/P-2/Stable
A3/P-2
Baa3/P-2
Baa3
Ba2
Ba1
BBB/F3/Stable
BBB
BBB-
BB-
B+
BBB/F3/Stable
BBB+/F3
BBB/F3
BBB-
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 February 7, 2019.
(b) Last change in ratings/outlook was on January 23, 2019.
(c) Ratings are preliminary/implied.
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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, 2018, 2017, and 2016. The level of cash and cash
equivalents decreased $46.7 million during 2018 compared to increases of $414.3 million in 2017 and
$6.7 million in 2016. During 2018, cash used in financing activities was greater than cash provided by investing
and operating activities, whereas in 2017 cash provided by financing activities was greater than cash used in
investing and operating activities, and in 2016 the cash provided by financing and operating activities was more
than cash used in investing activities.
Net cash used in financing activities was $761.4 million in 2018, driven by a decrease in short-term borrowings
and to a lesser extent cash dividends paid and share repurchases, somewhat offset by an increase in deposits.
The decrease in short-term borrowings was primarily the result of a decline in FHLB borrowings, which fluctuate
largely based on loan demand, deposit levels, and balance sheet funding strategies. The increase in deposits was
due in large part to increases in savings and time deposits as a result of FHN’s strategic focus on growing
deposits. Net cash provided by investing activities was $480.4 million in 2018, driven by proceeds from the sales
of FHN’s remaining Visa Class B shares and net decreases in the AFS and loan portfolios. Proceeds from the sales
and payoffs of TRUPS loans and OREO during 2018 also favorably impacted cash flows in 2018. A decrease in
interest-bearing cash, cash paid associated with the cancellation of common shares in connection with CBF
dissenting shareholders, and cash paid related to the divestiture of two branches negatively impacted investing
cash flows during 2018. Net cash provided by operating cash flows was $234.3 million in 2018. A $1.0 billion net
decrease in fixed income trading activities and favorably driven cash-related net income items positively impacted
operating cash flows in 2018, but were somewhat offset by cash outflows of $1.4 billion related to a net increase
in loans HFS, as purchases of government guaranteed loans outpaced sales, including the sale of approximately
$120 million of subprime auto loans.
Net cash provided by financing activities was $1.8 billion in 2017, largely driven by 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 cash dividends. Net cash used by investing
activities was $1.3 billion in 2017 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 $28.8 million in 2017 as operating cash
flows 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 $223.8 million net decrease in operating assets and liabilities.
Net cash provided by financing activities was $2.3 billion 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 $180.0 million in 2016, 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 $44.5 million. Net cash used by
investing activities was $2.5 billion in 2016. 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.
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REPURCHASE OBLIGATIONS, OFF-BALANCE SHEET ARRANGEMENTS, AND OTHER CONTRACTUAL OBLIGATIONS
Obligations from Legacy Mortgage Businesses
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 government-sponsored entities, or “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. In addition to FH proprietary securitization and other whole loan sales activities, FHN also originated
and sometimes sold or securitized second-lien, line of credit, and government-insured mortgage loans.
For non-recourse loan sales, FHN has exposure: to indemnify underwriters of FH securitizations who are defending
claims that they assert are based, at least in part, on FHN’s breach of its representations and warranties made at
closing to underwriters, the purchasers, and the trustee of FH proprietary securitizations; and to indemnify
purchasers of other whole loans sold, or their assignees, asserting that FHN breached representations and
warranties made in connection with the sales of those loans.
Repurchase and Make-Whole Obligations
To date, FHN has resolved a substantial number of GSE claims through definitive resolution agreements (“DRAs”)
with the GSEs, while the remainder have been resolved on a loan-by-loan basis. 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. 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 in relation to FH proprietary securitizations.
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Servicing Obligations
FHN’s national servicing business was sold as part of the platform sale in 2008. A significant amount of mortgage
servicing rights (“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 including a
subservicing arrangement initiated in 2011 (the “2011 subservicer”). In fourth quarter 2013 and first quarter 2014,
FHN sold and transferred a substantial majority of its remaining servicing obligations and servicing assets
(including advances) to the 2011 subservicer. 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.
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.
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. Additionally, FHN is responsible for covering losses for
purchasers to the extent there is a shortfall in MI insurance coverage (MI curtailment). MI curtailment requests are
the largest portion of the active pipeline and are intended only to cover the shortfall in MI insurance proceeds; as
a result, FHN’s currently accrued loss from MI curtailments as a percentage of UPB is significantly lower than that
of a repurchase or make-whole claim. On December 31, 2018, the active pipeline was $9.4 million, compared to
$44.1 million on December 31, 2017.
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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
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 canceled, 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 accruals to cover estimated loss content in the active
pipeline (consisting of mortgage loan repurchase, make-whole, foreclosure/servicing demands and certain related
exposures), estimated future inflows, and estimated loss content related to certain known claims not currently
included in the active pipeline. The liability contemplates repurchase/make-whole and damages obligations and
estimates for probable incurred losses associated with loan populations excluded from the DRAs, as well as other
whole loans sold, MI rescissions, and loans included in bulk servicing sales effected prior to the DRAs. 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.
The following table provides a rollforward of the legacy mortgage repurchase liability during 2018 and 2017:
Table 29 – 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
Balance on December 31
(a) Year ended December 31, 2017 includes $20.0 million related to the settlement of certain repurchase claims.
2018
2017
$33,556
(1,039)
(894)
$ 65,309
(22,527)
(9,226)
$31,623
$ 33,556
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, 2018, the annual measurement date, pension
obligations (representing the present value of estimated future benefit payments), including obligations of the
unfunded plans, were $765.3 million with $731.0 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 2018 of 4.43 percent for the qualified
pension plan and 4.26 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
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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, 2018, 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.
FHN did not make any contributions to the qualified pension plan in 2017 and made an insignificant contribution
to the qualified pension plan in 2018. Management does not currently anticipate that FHN will make a contribution
to the qualified pension plan in 2019.
In December 2017 FHN contributed $5.1 million to pension plans acquired from CBF, resulting in those plans
being almost fully funded. Both legacy CBF plans are frozen. FHN did not make any contributions to these plans
in 2018. Additional funding amounts to these plans are dependent upon the potential settlement of the plans.
The nonqualified pension plans and other postretirement benefit plans, excluding the retiree medical plan, are
unfunded. Benefit payments under the non-qualified plans were $5.8 million in 2018. FHN anticipates 2019
benefit payments to be $5.2 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, 2018. 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.
Table 30 – 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
$2,794,861
400,000
$ 820,573
500,000
$471,610
369
$ 18,733
312,574
$4,105,777
1,212,943
27,524
99,484
45,676
70,975
29,692
30,425
42,370
6,647
145,262
207,531
$3,321,869
$1,437,224
$532,096
$380,324
$5,671,513
(a) Excludes a $20.2 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 including changes to the government’s approach to tariffs and the
potential impact to our customers. In addition, legacy matters in the non-strategic segment could continue to
impact FHN’s quarterly 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 including realization of
expense efficiencies from the merger with CBF and investing in revenue-producing activities and critical
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infrastructure. 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 for many years was muted, compared to earlier recoveries, and somewhat inconsistent from one quarter to
the next. The economic expansion is over 8 years old and many aspects of the economy have strengthened.
The Federal Reserve raised short-term interest rates by .25 percent four times in 2018 following similar, but less
frequent, raises starting in 2015. These actions have flattened the yield curve as short-term rates rose somewhat
faster than long-term rates. Early in 2019, the Federal Reserve signaled the possibility that 2019 could represent a
pause in rate changes while economic trends are evaluated. If rates in fact remain stable, the yield curve
eventually may steepen, which should benefit FHN; however, in the meantime, various effects on FHN have been
and may remain uneven for some time. Moreover, if future economic data shows a risk of lower growth or
recession, interest rates may 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.
In 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulates the London
InterBank Offered Rate (“LIBOR”), announced that it intends to halt persuading or compelling banks to submit
rates for the calculation of LIBOR after 2021. As a result, LIBOR as currently operated may not continue after
2021. FHN is not currently able to predict the impact that the transition from LIBOR will have on the Company;
however, because FHN has instruments with floating rate terms based on LIBOR, FHN may experience increases
in interest, dividends, and other costs relative to these instruments subsequent to 2021. Additionally, the transition
from LIBOR could impact or change FHN’s hedge accounting practices.
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 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.
Foreclosure Practices
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 – 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
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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
information 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 $32.3 million and $34.2 million as of December 31, 2018
and 2017, 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/(provision credit) 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
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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.
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. FHN elected to
perform the quantitative analysis in 2018.
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 2018 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
utilized in determining the fair value of the fixed income reporting unit. The most recent valuations as of October 1,
2018, 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, 2018, the corporate and non-strategic reporting units had no associated
goodwill.
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
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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 2018, 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
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
FIRST HORIZON NATIONAL CORPORATION
65
14775
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.
66
FIRST HORIZON NATIONAL CORPORATION
Table 31 – Summary of Quarterly Financial Information
06527
(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
2018
2017
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
$401.2 $393.7 $387.8 $363.4
62.2
(1.0)
136.0
313.3
95.0
$ 96.3 $270.3 $ 81.6 $ 90.6
76.9
-
127.5
332.8
86.0
88.0
2.0
349.0
294.0
274.7
98.7
6.0
110.3
281.9
100.8
$287.6 $248.1 $235.3 $218.8
29.1
(1.0)
116.9
222.2
58.4
$ (52.8) $ 67.3 $ 90.8 $ 54.0
34.6
(2.0)
127.7
217.9
95.2
45.5
3.0
133.2
346.7
(48.4)
38.3
-
112.4
236.9
71.8
$ 0.30 $ 0.83 $ 0.25 $ 0.28
0.27
0.83
0.30
0.25
$ (0.20) $ 0.29 $ 0.39 $ 0.23
0.23
(0.20)
0.28
0.38
$17.51 $18.85 $19.56 $20.61
18.35
18.83
0.12
17.84
17.84
0.12
17.03
17.26
0.12
12.40
13.16
0.12
$20.55 $19.15 $19.06 $20.76
17.90
18.50
0.09
16.91
17.42
0.09
18.02
19.99
0.09
16.05
19.15
0.09
FIRST HORIZON NATIONAL CORPORATION
67
00741
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 32 – Non-GAAP to GAAP Reconciliation
(Dollars in thousands)
2018
2017
2016
2015
2014
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)
$ 4,785,380
295,431
95,624
$ 4,580,488
295,431
95,624
$ 2,705,084
295,431
95,624
$ 2,639,586
295,431
95,624
$ 2,581,590
295,431
95,624
4,394,325
1,587,821
4,189,433
1,571,242
2,314,029
212,388
2,248,531
217,522
2,190,535
175,450
2,806,504
2,618,191
2,101,641
2,031,009
2,015,085
(75,736)
(21,997)
(17,232)
3,394
18,581
$ 2,882,240
$ 2,640,188
$ 2,118,873
$ 2,027,615
$ 1,996,504
$40,832,258
1,587,821
$41,423,388
1,571,242
$28,555,231
212,388
$26,192,637
217,522
$25,665,423
175,450
(E) Tangible assets (Non-GAAP)
$39,244,437
$39,852,146
$28,342,843
$25,975,115
$25,489,973
Average Tangible Common Equity (Non-GAAP)
Average total equity (GAAP)
Less: Average noncontrolling interest (a)
Less: Average preferred stock (a)
$ 4,617,529
295,431
95,624
$ 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
(F) Total average common equity
Less: Average intangible assets (GAAP) (b)
$ 4,226,474
1,569,987
$ 2,579,253
376,306
$ 2,300,423
214,915
$ 2,190,132
183,127
$ 2,200,912
163,282
(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
$ 2,656,487
$ 2,202,947
$ 2,085,508
$ 2,007,005
$ 2,037,630
$
538,842
$
159,315
$
220,846
$
79,679
$
216,319
$33,002,595
$33,373,877
$23,914,158
$21,812,015
$19,452,656
assets (GAAP)
11.72%
11.06%
9.47%
10.08%
10.06%
(B)/(E) Tangible common equity to tangible
assets (“TCE/TA”) (Non-GAAP) (d)
(C)/(I) Adjusted tangible common equity to risk
weighted assets (“TCE/RWA”) (Non-
GAAP) (d)
(H)/(F) Return on average common equity
(“ROCE”) (GAAP) (d)
(H)/(G) Return on average tangible common
equity (“ROTCE”) (Non-GAAP) (d)
7.15
6.57
7.42
7.82
7.91
8.73
12.75
20.28
7.91
6.18
7.23
8.86
9.60
10.59
9.30
3.64
3.97
10.26
9.83
10.62
(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.
68
FIRST HORIZON NATIONAL CORPORATION
28483
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.
FIRST HORIZON NATIONAL CORPORATION
69
09811
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.
70
FIRST HORIZON NATIONAL CORPORATION
64243
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 32 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 (“ROCE”) – A measure of profitability that indicates what an
institution earned on its shareholders’ investment. ROCE 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.
FIRST HORIZON NATIONAL CORPORATION
71
25604
ACRONYMS
ADR
AFS
ALCO
ALLL
AOCI
ASC
ASU
BOLI
C&I
CAS
CBF
CD
CECL
CEO
CFPB
CMO
CRA
CRE
CRMC
DFA
DRA
DSCR
DTA
DTI
DTL
ECP
EPS
ESOP
FASB
FDIC
FFP
FFS
FH
FHA
FHLB
FHLMC
FHN
FICO
FINRA
FNMA
FRB
FTBNA
FTE
FTHC
FTNF
FTNMC
72
Average daily revenue
Available-for-sale
Asset/Liability Committee
Allowance for loan losses
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
Consumer Financial Protection Bureau
Collateralized mortgage obligations
Community Reinvestment Act
Commercial Real Estate
Credit Risk Management Committee
Dodd-Frank Act
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 Tennessee Housing Corporation
FTN Financial
First Tennessee New Markets Corporation
FIRST HORIZON NATIONAL CORPORATION
38297
ACRONYMS (continued)
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
OREO
OTC
OTTI
PCAOB
PCI
PD
PM
PSU
R/E
REIT
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
Performance Stock Unit
Real estate
Real estate investment trust
FIRST HORIZON NATIONAL CORPORATION
73
41346
ACRONYMS (continued)
RM
ROA
ROCE
ROTCE
RPL
RSU
RWA
SBA
SEC
SVaR
TA
TCE
TDR
TRUP
UPB
USDA
UTB
VaR
VIE
Relationship managers
Return on assets
Return on average common shareholders’ 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
Tangible common equity
Troubled Debt Restructuring
Trust preferred loan
Unpaid principal balance
United States Department of Agriculture
Unrecognized tax benefit
Value-at-Risk
Variable Interest Entities
74
FIRST HORIZON NATIONAL CORPORATION
50908
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, 2018. 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, 2018.
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.
FIRST HORIZON NATIONAL CORPORATION
75
64528
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, 2018, 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, 2018, 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, 2018
and 2017, 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, 2018, and the related notes (collectively, the
consolidated financial statements), and our report dated February 27, 2019 expressed an unqualified opinion
on those consolidated financial statements.
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 27, 2019
76
FIRST HORIZON NATIONAL CORPORATION
30050
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, 2018 and 2017, 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,
2018, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2018, 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, 2018, 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 27, 2019 expressed an unqualified
opinion on the effectiveness of the Company’s internal control over financial reporting.
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 27, 2019
FIRST HORIZON NATIONAL CORPORATION
77
09012
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, 2018 and 2017 include $19.6 million and
$53.2 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, 2018 and 2017) (Note 11)
Common stock – $.625 par value (shares authorized – 400,000,000; shares issued –
318,573,400 on December 31, 2018 and 326,736,214 on December 31, 2017)
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
2018
2017
$
781,291
237,591
386,443
1,405,325
1,277,611
1,448,168
679,149
4,626,470
10,000
27,535,532
180,424
27,355,108
1,432,787
155,034
38,861
494,041
25,290
81,475
1,802,939
$40,832,258
$
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
$12,064,072
$10,872,665
4,105,777
8,371,826
24,541,675
8,141,317
32,682,992
256,567
762,592
335,380
114,764
1,170,963
9,572
133,713
580,335
36,046,878
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
95,624
95,624
199,108
3,029,425
1,542,408
(376,616)
4,489,949
295,431
4,785,380
$40,832,258
204,211
3,147,613
1,160,434
(322,825)
4,285,057
295,431
4,580,488
$41,423,388
See accompanying notes to consolidated financial statements.
(a) December 31, 2018 and 2017 include $8.4 million and $11.7 million, respectively, of held-for-sale consumer mortgage loans secured by
residential real estate in process of foreclosure.
(b) December 31, 2018 and 2017 include $28.6 million and $22.7 million, respectively, of held-to-maturity consumer mortgage loans secured
by residential real estate in process of foreclosure.
(c) December 31, 2018 and 2017 include $9.7 million and $12.2 million, respectively, of foreclosed residential real estate.
78
FIRST HORIZON NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
99528
(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 (“BOLI”)
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
Adjusted gross income after provision/(provision credit) for loan losses
Noninterest expense:
Employee compensation, incentives, and benefits
Occupancy
Computer software
Operations services
Professional fees
Equipment rentals, depreciation, and maintenance
FDIC premium expense
Communications and courier
Amortization of intangible assets
Advertising and public relations
Contract employment and outsourcing
Legal fees
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)
Year Ended December 31
2017
2016
2018
$1,286,470
130,376
525
45,108
58,684
24,858
$ 816,806
105,019
591
17,517
34,991
15,006
$ 679,917
96,671
789
5,506
30,779
4,247
1,546,021
989,930
817,909
107,748
53,096
55,707
19,359
36,747
53,047
325,704
1,220,317
7,000
1,213,317
167,882
133,281
54,803
29,806
26,718
18,955
52
212,896
78,395
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
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
722,788
1,936,105
490,219
1,332,533
552,441
1,270,525
658,223
85,009
60,604
56,280
45,799
39,132
31,642
30,032
25,855
24,752
18,522
11,149
(1,039)
136,036
587,465
54,646
48,234
43,823
47,929
29,543
26,818
17,624
8,728
19,214
14,954
12,076
(22,527)
135,134
1,221,996
1,023,661
563,791
50,880
45,122
41,852
19,169
27,385
21,585
14,265
5,198
21,612
10,061
21,558
(32,722)
115,448
925,204
714,109
157,602
$ 556,507
308,872
131,892
$ 176,980
345,321
106,810
$ 238,511
11,465
11,465
11,465
$ 545,042
$ 165,515
$ 227,046
6,200
6,200
6,200
$ 538,842
$ 159,315
$ 220,846
$
$
1.66
1.65
$
$
0.66
0.65
$
$
324,375
327,445
241,436
244,453
0.95
0.94
232,700
235,292
$
Cash dividends declared per common share
Certain previously reported amounts have been revised to reflect the retroactive effect of the adoption of ASU 2017-07 “Improving the
Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” See Note 1 – Summary of Significant Accounting
Policies for additional information.
See accompanying notes to consolidated financial statements.
0.48
0.36
$
$
FIRST HORIZON NATIONAL CORPORATION
0.28
79
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
01682
(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
2018
2017
2016
$556,507
$176,980
$238,511
(48,897)
(4,142)
(541)
(4,765)
(5,101)
(7,759)
(20,626)
(1,265)
(11,571)
(53,580)
(17,625)
(33,462)
502,927
159,355
205,049
11,465
11,465
11,465
$491,462
$147,890
$193,584
$ (16,054) $ (2,955) $ (12,810)
(780)
(7,172)
(3,163)
(832)
(1,360)
(177)
80
FIRST HORIZON NATIONAL CORPORATION
12356
Accumulated
Other
Comprehensive
Income/(Loss) (a)
Noncontrolling
Interest
$(214,192)
-
(33,462)
$295,431
11,465
-
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars and shares in thousands, except per share data)
Common
Shares
Total
Preferred
Stock
Common
Stock
Capital
Surplus
Undivided
Profits
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:
238,587 $2,639,586 $95,624 $149,117 $1,439,303 $ 874,303
227,046
-
238,511
(33,462)
-
-
-
-
-
-
-
-
-
-
227,046
(33,462)
11,465
-
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)
-
-
-
-
-
-
-
-
-
-
-
-
(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)
-
-
-
-
-
-
-
-
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)
Balance, December 31, 2017, as adjusted
Adjustment to reflect adoption of ASU 2016-01 and
2017-12
Beginning balance, as adjusted
Net income/(loss)
Other comprehensive income/(loss)
Comprehensive income/(loss)
Cash dividends declared:
Preferred stock ($6,200 per share)
Common stock ($.48 per share)
Common stock repurchased (b)
Common stock issued for:
Stock options and restricted stock – equity awards
Acquisition equity adjustment (c)
Stock-based compensation expense
Dividends declared – noncontrolling interest of subsidiary
preferred stock
Other
326,736
4,580,488
95,624
204,211
3,147,613
1,160,434
(322,825)
-
67
-
-
-
278
(211)
326,736
-
-
4,580,555
556,507
(53,580)
95,624
-
-
204,211
-
-
3,147,613
-
-
1,160,712
545,042
-
(323,036)
-
(53,580)
-
502,927
-
-
(6,708)
926
(2,374)
-
(6,200)
(157,146)
(104,768)
4,480
(46,041)
23,171
-
(7)
(11,465)
(133)
-
-
-
-
-
-
-
-
-
-
-
545,042
(53,580)
-
-
(4,192)
-
-
(100,576)
(6,200)
(157,146)
-
578
(1,484)
-
3,902
(44,557)
23,171
-
(5)
-
(128)
-
-
-
-
-
-
-
-
-
-
-
-
-
Balance, December 31, 2018
318,573 $4,785,380 $95,624 $199,108 $3,029,425 $1,542,408
$(376,616)
$295,431
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) 2018 and 2016 include $99.4 million and $93.5 million, respectively, repurchased under share repurchase programs.
(c) See Note 2- Acquisitions and Divestitures for additional information.
FIRST HORIZON NATIONAL CORPORATION
81
-
-
-
-
-
-
(11,465)
-
295,431
-
295,431
11,465
-
11,465
-
-
-
-
-
-
(11,465)
-
295,431
-
295,431
-
295,431
11,465
-
11,465
-
-
-
-
-
-
(11,465)
-
CONSOLIDATED STATEMENTS OF CASH FLOWS
60531
(Dollars in thousands)
Net income/(loss)
Adjustments to reconcile net income/(loss) to net cash provided/(used) by operating activities:
Operating
Activities
Investing
Activities
Financing
Activities
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
Gain on sale of held-to-maturity loans
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
(Gain)/loss on BOLI
Loans held-for-sale:
Purchases and originations
Gross proceeds from settlements and sales
(Gain)/loss due to fair value adjustments and other (a)
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
Total adjustments
Net cash provided/(used) by operating activities
Available-for-sale securities:
Sales
Maturities
Purchases
Sales
Purchases
Held-to-maturity securities:
Prepayments and maturities
Premises and equipment:
Proceeds from sale of Visa Class B shares
Proceeds from sales of OREO
Proceeds from sales of loans classified as held-to-maturity
Proceeds from BOLI
Net (increase)/decrease in:
Loans (b)
Interests retained from securitizations classified as trading securities
Interest-bearing cash
Cash paid related to divestitures
Cash (paid)/received for acquisitions, net (c)
Net cash provided/(used) by investing activities
Common stock:
Stock options exercised
Cash dividends paid
Repurchase of shares (d)
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
Supplemental
Disclosures
Cash and cash equivalents at end of period
Total interest paid
Total taxes paid
Total taxes refunded
Transfer from loans to OREO
Transfer from loans HFS to trading securities
Year Ended December 31
2017
2016
2018
$
556,507
$
176,980
$
238,511
7,000
103,557
47,232
25,855
(13,962)
41,687
398
-
(626)
(836)
23,171
(3,777)
(212,896)
(52)
15
(1,320)
(353)
(4,217)
-
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)
(9,012)
(2,345,030)
919,187
19,932
(2,001,708)
1,780,047
(6,624)
1,356,797
29,832
(15,372)
32,950
(303,135)
(39,424)
15,165
(3,980)
(322,202)
234,305
(381,057)
(11,282)
(34,352)
240,629
76,667
(68,495)
5,934
(16,877)
(205,778)
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)
(2,010)
(165,887)
181,136
(155)
(18,050)
6,249
1,627
(7,921)
(4,171)
(2,070)
(4,535)
(36,546)
(58,520)
(28,798)
179,991
20,751
675,526
(473,205)
936,958
583,014
(1,558,990)
444,222
736,956
(1,239,912)
-
4,740
-
30,464
(47,986)
240,206
30,824
50,498
12,860
105,267
800
(92,011)
(27,599)
(46,023)
3,416
(53,046)
-
13,468
-
11,440
11,396
(62,554)
-
27,135
-
2,740
(808,399)
865
(121,434)
-
(336,634)
(1,931,026)
2,429
(457,198)
-
-
480,372
(1,324,602)
(2,465,812)
4,482
(138,706)
(104,768)
(11,465)
(6,200)
-
(69,025)
20,477
2,092,519
(2,548,712)
(761,398)
(46,721)
1,452,046
6,132
(79,904)
(5,554)
(11,434)
(6,200)
121,184
(147,413)
7,960
(197,158)
2,080,039
1,767,652
414,252
1,037,794
22,479
(63,504)
(97,396)
(11,434)
(6,200)
100
(267,527)
-
2,705,757
10,277
2,292,552
6,731
1,031,063
$ 1,405,325
307,578
$
42,817
48,455
12,106
1,389,420
$ 1,452,046
140,373
$
54,417
8,285
6,624
1,004,416
$ 1,037,794
92,456
$
11,609
3,950
10,317
-
Certain previously reported amounts have been reclassified to agree with current presentation.
See accompanying notes to consolidated financial statements.
(a) 2018 includes $107.4 million related to the sale of approximately $120 million UPB of subprime auto loans. See Note 2 – Acquisitions and Divestitures for
additional information.
(b) 2016 includes $537.4 million UPB of loans acquired from GE Capital.
(c) See Note 2 - Acquisitions and Divestitures for additional information.
(d) 2018 and 2016 include $99.4 million and $93.5 million, respectively, repurchased under share repurchase programs.
82
FIRST HORIZON NATIONAL CORPORATION
60474
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.
Revenues. Revenue is recognized when the performance obligations under the terms of a contract with a
customer are satisfied in an amount that reflects the consideration FHN expects to be entitled. FHN derives a
significant portion of its revenues from fee-based services. Noninterest income from transaction-based fees is
generally recognized immediately upon completion of the transaction. Noninterest income from service-based
fees is generally recognized over the period in which FHN provides the service. Any services performed over
time generally require that FHN render services each period and therefore FHN measures progress in completing
these services based upon the passage of time and recognizes revenue as invoiced.
Following is a discussion of FHN’s key revenues within the scope of Accounting Standards Update (“ASU”)
2014-09, “Revenue from Contracts with Customers”, and all related amendments, except as noted.
Fixed Income. Fixed income includes fixed income securities sales, trading, and strategies, loan sales and
derivative sales which are not within the scope of revenue from contracts with customers. Fixed income also
includes investment banking fees earned for services related to underwriting debt securities and performing
portfolio advisory services. FHN’s performance obligation for underwriting services is satisfied on the trade date
while advisory services is satisfied over time.
Deposit Transactions and Cash Management. Deposit transactions and cash management activities 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. FHN’s obligation for transaction-based services is satisfied at
the time of the transaction when the service is delivered while FHN’s obligation for service based fees is
satisfied over the course of each month.
Brokerage, Management Fees and Commissions. Brokerage, management fees and commissions include fees for
portfolio management, trade commissions, and annuity and mutual fund sales. Asset-based management fees
are charged based on the market value of the client’s assets. The services associated with these revenues,
which include investment advice and active management of client assets are generally performed and
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recognized over a month or quarter. Transactional revenues are based on the size and number of transactions
executed at the client’s direction and are generally recognized on the trade date.
Trust Services and Investment Management. Trust services and investment management fees include investment
management, personal trust, employee benefits, and custodial trust services. Obligations for trust services are
generally satisfied over time but may be satisfied at points in time for certain activities that are transactional in
nature.
Bankcard Income. Bankcard income includes credit interchange and network revenues and various card-related
fees. Interchange income is recognized concurrently with the delivery of services on a daily basis. Card-related
fees such as late fees, currency conversion, and cash advance fees are loan-related and excluded from the
scope of ASU 2014-09.
Contract Balances. As of December 31, 2018, accounts receivable related to products and services on non-
interest income were $8.1 million. For the year ended December 31, 2018, FHN had no material impairment
losses on non-interest accounts receivable and there were no material contract assets, contract liabilities or
deferred contract costs recorded on the Consolidated Statement of Condition as of December 31, 2018.
Transaction Price Allocated to Remaining Performance Obligations. For the year ended December 31, 2018,
revenue recognized from performance obligations related to prior periods was not material. Revenue expected to
be recognized in any future year related to remaining performance obligations, excluding revenue pertaining to
contracts that have an original expected duration of one year or less and contracts where revenue is recognized
as invoiced, is not material.
Refer to Note 20 – Business Segment Information for a reconciliation of disaggregated revenue by major
product line and reportable segment.
Debt Investment Securities. Available-for-sale (“AFS”) and held-to-maturity (“HTM”) 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 are classified as
AFS and are carried at fair value. The unrealized gains and losses on debt securities AFS, including 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 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.
Equity Investment Securities. Equity securities were classified as AFS through December 31, 2017.
Subsequently, all equity securities are classified in Other assets.
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,
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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. FRB and FHLB
stock are recorded at cost and are subject to impairment reviews.
Other equity investments primarily consist of mutual funds which are marked to fair value through earnings.
Smaller balances of equity investments without a readily determinable fair value are recorded at cost minus
impairment with adjustments through earnings for observable price changes in orderly transactions for the
identical or a similar investment of the same issuer.
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
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 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 was elected, loan origination fees were 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, premiums and discounts are recognized in
interest income upon early repayment of the loans. Cash collections from loans that were fully charged off prior
to acquisition are recognized in noninterest income. Loan commitment fees are generally deferred and amortized
on a straight-line basis over the commitment period.
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
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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
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.
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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.
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
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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. Impairments, and any subsequent recoveries, are recorded in
noninterest expense. Gains and losses on dispositions are reflected in noninterest income and expense,
respectively.
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. Properties acquired by foreclosure in compliance with HUD servicing guidelines prior to January 1,
2015, are included in “OREO” and are carried at the estimated amount of the underlying government insurance
or guarantee. On December 31, 2018, FHN had $2.9 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
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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 are recorded in accumulated other comprehensive income and
subsequently reclassified to earnings as the hedged transaction impacts net income. Prior to 2018,
ineffectiveness in debt and cash flow hedges was recorded in noninterest expense. Starting in 2018, 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 financial statement line item (e.g., interest expense) 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 (e.g., interest income). 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.
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.
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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 and units, restricted shares and 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
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
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“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, 2018, FHN adopted the provisions of ASU 2014-09,
“Revenue from Contracts with Customers,” and all related amendments to all contracts using a modified
retrospective transaction method. 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. FHN elected to adopt the provisions of the revenue recognition standards through the cumulative effect
alternative and determined that there were no significant effects on the timing of recognition, which resulted in
no cumulative effect adjustment being required. Beginning in first quarter 2018, in situations where FHN’s
broker-dealer operations serve as the lead underwriter, the associated revenues and expenses are presented
gross. The effect on 2018 revenues and expenses was not significant.
Effective January 1, 2018, FHN adopted the provisions of ASU 2017-05, “Clarifying the Scope of Asset
Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets” through the cumulative effect
approach. ASU 2017-05 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
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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. FHN determined that there
were no significant effects on the timing of revenue recognition, which resulted in no cumulative effect
adjustment being required.
Effective January 1, 2018, FHN adopted the provisions of 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. 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, had any initial fair value marks recorded
through earnings prospectively after adoption.
Upon adoption, FHN reclassified $265.9 million of equity investments out of AFS securities to Other assets,
leaving only debt securities within the AFS classification. FHN evaluated the nature of its current equity
investments (excluding FRB and FHLB stock holdings which are specifically exempted from the provisions of
ASU 2016-01) and determined that substantially all qualified for the election available to assets without readily
determinable fair values. 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
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.
Effective January 1, 2018, FHN adopted the provisions of 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. The adoption of ASU 2016-04 did not have a
significant effect on FHN’s current accounting and disclosure practices.
Effective January 1, 2018, FHN adopted the provisions of 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. The adoption of ASU 2016-15 was applied retroactively resulting in proceeds from
bank-owned life insurance (“BOLI”) being classified as an investing activity rather than their prior classification
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as an operating activity. All of these amounts are included in Other assets in the Consolidated Statement of
Condition. The amounts reclassified are presented in the table below.
(Dollars in thousands)
Proceeds from BOLI
Fiscal Years Ended
December 31
2017
2016
$11,440
$2,740
Effective January 1, 2018, FHN retroactively adopted the provisions of 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. 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. All of these amounts were previously included in Employee
compensation, incentives, and benefits expense in the Consolidated Statements of Income. Upon adoption of
ASU 2017-07 FHN reclassified the expense components other than service cost into All other expense and revised
its disclosures accordingly. The amounts reclassified are presented in the table below.
(Dollars in thousands)
Net periodic benefit cost/(credit) reclassified
Fiscal Years Ended
December 31
2017
2016
$1,946
$(843)
Effective January 1, 2018, FHN early adopted the provisions of 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 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. The adoption of ASU 2017-08 did not have an effect on FHN’s
investments.
Effective January 1, 2018, FHN early adopted the provisions of 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
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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.
FHN early adopted the provisions of ASU 2017-12 in the first quarter of 2018. Prospectively, FHN is recording
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 were insignificant for FHN’s hedge
relationships.
In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework-Changes to the Disclosure Requirements
for Fair Value Measurement,” which makes multiple revisions to current disclosures requirements for fair value
measurements. ASU 2018-13 removes the disclosure requirements for transfers between Level 1 and Level 2 of
the fair value hierarchy, the policy for the timing of recognition for transfers between fair value levels and the
discussion of valuation processes for Level 3 measurements. Additional disclosure is required for unrealized
gains and losses recognized with accumulated other comprehensive income and the weighted average and range
of unobservable inputs used in Level 3 measurements. ASU 2018-13 is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in
unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop
Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied
prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption.
All other amendments should be applied retrospectively to all periods presented upon their effective date. Early
adoption is permitted at an individual level for each removed or modified disclosure while adoption of other
changes may be delayed until their effective date. FHN has elected early adoption for most of the disclosure
revisions which are reflected in Note 24 – Fair Value of Assets and Liabilities.
In August 2018, the FASB issued ASU 2018-14, “Disclosure Framework-Changes to the Disclosure
Requirements for Defined Benefit Plans,” which makes multiple revisions to the disclosure requirements for
defined benefit pension and postretirement plans. ASU 2018-14 removes the disclosure requirements for 1) the
amounts in accumulated other comprehensive income expected to be recognized as components of net periodic
benefit cost over the next fiscal year, 2) the amount and timing of plan assets expected to be returned to the
employer, and 3) the effects of a one-percentage-point change in assumed health care cost trend rates on the
(a) aggregate of the service and interest cost components of net periodic benefit costs and (b) benefit obligation
for postretirement health care benefits. ASU 2018-14 adds disclosures for 1) the weighted-average interest
crediting rates for plans with promised interest crediting rates, 2) an explanation of the reasons for significant
gains and losses related to changes in the benefit obligation for the period, 3) the projected benefit obligation
(“PBO”) and fair value of plan assets for plans with PBOs in excess of plan assets and 4) the accumulated
benefit obligation (“ABO”) and fair value of plan assets for plans with ABOs in excess of plan assets.
ASU 2018-14 is effective for fiscal years ending after December 15, 2020 with full retrospective presentation
required. Early adoption is permitted. FHN has elected early adoption and the disclosure revisions are presented
in Note 18 – Pensions, Savings and Other Employee Benefits.
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Accounting Changes Issued but Not Currently Effective
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 July 2018, the FASB issued ASU 2018-11, “Leases – Targeted Improvements,” which provides an election for a
cumulative effect adjustment to retained earnings upon initial adoption of ASU 2016-02. Alternatively, under the
initial guidance of ASU 2016-02, lessees and lessors are required to recognize and measure leases at the
beginning of the earliest comparative period presented using a modified retrospective approach. Both adoption
alternatives include 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 and ASU 2018-11 are effective for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years. Upon adoption, FHN utilized the
cumulative effect transition alternative provided by ASU 2018-11. FHN utilized the lease classification practical
expedients and the short-term lease exemption upon adoption. FHN also has elected to determine the discount
rate on leases as of the effective date and elected to use hindsight in determining remaining lease terms as well as
impairments of lease assets resulting from lease abandonments upon adoption. The adoption of ASU 2016-02
resulted in recognition of lease assets of approximately $196 million and lease liabilities of approximately $204
million along with smaller impacts to other balance sheet classifications as well as an after-tax increase in retained
earnings of approximately $3 million, primarily reflecting the recognition of deferred gains associated with prior
sale-leaseback transactions.
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
effective interest rate, excluding the discount embedded in the purchase price that is attributable to the acquirer’s
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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, and is not currently able to reasonably estimate the impact the adoption will
have on its consolidated financial position, results of operations, or cash flows. Adoption of ASU 2016-13 is likely
to lead to significant changes in accounting policies and procedures related to FHN’s ALLL, and it is possible that
the impact of the adoption could be material to FHN’s consolidated financial position and results of operations. To
date, the Company has completed a gap analysis, established a formal governance structure for the project,
selected loss estimation methodologies for material portfolio segments, selected a software solution to serve as its
CECL platform, and are in the latter stages of model development activities. FHN intends to perform parallel runs
in the latter half of 2019.
In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a
Cloud Computing Arrangement That Is a Service Contract,” which aligns the requirements for capitalizing
implementation costs incurred in a hosting arrangement that is a service contract with the requirements for
capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements
that include an internal use software license). Capitalized implemented costs are required to be expensed over the
term of the hosting arrangement which includes the non-cancellable period of the arrangement plus periods
covered by (1) an option to extend the arrangement if the customer is reasonably certain to exercise that option,
(2) an option to terminate the arrangement if the customer is reasonably certain not to exercise the termination
option, and (3) an option to extend (or not to terminate) the arrangement in which exercise of the option is in the
control of the vendor. ASU 2018-15 also requires application of the impairment guidance applicable to long-lived
assets to the capitalized implementation costs. Amortization expense related to capitalized implementation costs
must be presented in the same line item in the statement of income as the fees associated with the hosting
element (service) of the arrangement and payments for capitalized implementation costs will be classified in the
statement of cash flows in the same manner as payments made for fees associated with the hosting element.
Capitalized implementation costs will be presented in the statement of financial position in the same line item that
a prepayment for the fees of the associated hosting arrangement would be presented. ASU 2018-15 is effective for
fiscal years beginning after December 15, 2019 with early adoption permitted. Adoption may be either fully
retrospective or prospective only. FHN has elected early adoption of ASU 2018-15 effective January 1, 2019 using
the prospective transition method and the effects of adoption are not significant.
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 92,042,232 shares of FHN common stock and
$423.6 million in cash in a transaction valued at $2.2 billion. In second quarter 2018, FHN canceled 2,373,220
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common shares which had been issued but set aside for certain shareholders of CBF who have commenced a
dissenters’ appraisal process resulting in a reduction in equity consideration and an increase in cash consideration
of $46.0 million. The final appraisal or settlement amount, as applicable, may differ from current estimates. CBF
operated 178 branches in North and South Carolina, Tennessee, Florida and Virginia at the time of closing. In
relation to the acquisition, FHN acquired approximately $9.9 billion in assets, including approximately $7.3 billion
in loans and $1.2 billion in AFS securities, and assumed approximately $8.1 billion of CBF deposits.
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. These fair value
measurements are based on third party and internal valuations.
(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)
2017
2018 (a)
$
-
(4,758)(b)
134,003
175,526
(177,549)
(320,372)
45,711
(231,292)
119,302
37,054
(9,149)
41,320(c)
$
-
-
(11,034)
-
-
867
-
-
(2,593)
(9,470)
(315)
(22,422)(c)
As
Acquired
(unaudited)
$
205,999
4,758
-
1,017,867
177,549
7,596,049
(45,711)
231,292
24,498
196,298
43,077
617,232
As recorded
by FHN
$
205,999
-
122,969
1,193,393
-
7,276,544
-
-
141,207
223,882
33,613
636,130
$10,068,908
$(190,204)
$(44,967)
$ 9,833,737
$ 8,141,593
26,664
390,391
119,486
59,995
8,738,129
$
(849)
-
-
67,683
4,291
71,125
$
(642)
-
-
-
1,631
989
$ 1,330,779
$(261,329)
$(45,956)
$ 8,140,102
26,664
390,391
187,169
65,917
8,810,243
1,023,494
(1,746,718)
(469,615)
(2,216,333)
$ 1,192,839
(a) Amounts reflect adjustments made to provisional fair value estimates during the measurement period ending November 30, 2018. These
adjustments were recorded in FHN’s Consolidated Statement of Condition in 2018 with a corresponding adjustment to goodwill.
(b) Amount represents a conformity adjustment to align with FHN presentation.
(c) Amount primarily relates to a net deferred tax asset recorded for the effects of the purchase accounting adjustments and adjustments for
acquired tax contingencies.
In relation to the acquisition, FHN recorded goodwill of approximately $1.2 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
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Note 2 (cid:2) Acquisitions and Divestitures (continued)
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 2018 and 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. The valuation of loans held-for-sale reflects contractual or bid
prices.
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.
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,
98
FIRST HORIZON NATIONAL CORPORATION
07507
Note 2 (cid:2) Acquisitions and Divestitures (continued)
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 adjustment 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 on 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.
All expenses related to the merger and integration with CBF are recorded in FHN’s Corporate segment.
Integration activities were substantially completed in second quarter 2018.
FIRST HORIZON NATIONAL CORPORATION
99
81581
Note 2 (cid:2) Acquisitions and Divestitures (continued)
Total CBF merger and integration expense recognized for the years ended December 31, 2018 and 2017 are
presented in the table below:
(Dollars in thousands)
Professional fees (a)
Employee compensation, incentives and benefits (b)
Contract employment and outsourcing (c)
Occupancy (d)
Miscellaneous expense (e)
All other expense (f)
Total
Twelve Months Ended
December 31,
2018
2017
$22,337
9,613
3,681
5,236
7,652
43,874
$28,151
17,077
1,270
15
1,291
8,944
$92,393
$56,748
(a) Primarily comprised of fees for legal, accounting, investment bankers, and merger consultants.
(b) Primarily comprised of fees for severance and retention.
(c) Primarily relates to fees for temporary assistance for merger and integration activities.
(d) Primarily relates to fees associated with lease exit accruals.
(e) Consists of fees for Operations services, communications and courier, equipment rentals, depreciation, and maintenance, supplies, travel
and entertainment, computer software, and advertising and public relations.
(f) Primarily relates to contract termination charges, costs of shareholder matters and asset impairments related to the integration, as well as
other miscellaneous expenses.
On March 23, 2018, FHN divested two branches, including approximately $30 million of deposits and $2 million of
loans. The branches, both in Greeneville, Tennessee, were divested in connection with First Horizon’s agreement
with the U.S. Department of Justice and commitments to the Board of Governors of the Federal Reserve System,
which were entered into in connection with a customary review of FHN’s merger with CBF.
In second quarter 2018, FHN sold approximately $120 million UPB of its subprime auto loans. These loans,
originally acquired as part of the CBF acquisition, did not fit within FHN’s risk profile. Based on the sales price, a
measurement period adjustment to the acquisition-date fair value of the subprime auto loans was recorded in
second quarter 2018. A measurement period adjustment was made in fourth quarter 2018 for other consumer
loans acquired from CBF based on pricing information received from potential buyers.
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.
100
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 April 3, 2017:
42039
(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
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.
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. In January 2019, FHN signed an agreement to sell Superior Financial Services, Inc., a subsidiary
acquired as part of the CBF acquisition. The sale will result in the removal of approximately $25 million UPB of
subprime consumer loans from Loans held-for-sale on FHN’s Consolidated Statements of Condition and is expected
to close in the first half of 2019.
FIRST HORIZON NATIONAL CORPORATION
101
Note 3 (cid:2) Investment Securities
The following tables summarize FHN’s investment securities on December 31, 2018 and 2017:
57077
(Dollars in thousands)
Securities available-for-sale:
U.S. treasuries
Government agency issued mortgage-backed securities (“MBS”)
Government agency issued collateralized mortgage obligations (“CMO”)
Other U.S. government agencies
Corporates and other debt
State and municipalities
Amortized
Cost
$
100
2,473,687
2,006,488
149,050
55,383
32,473
December 31, 2018
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
(2) $
$
$
-
4,819
888
809
388
314
(58,400)
(48,681)
(73)
(461)
(214)
98
2,420,106
1,958,695
149,786
55,310
32,573
AFS securities recorded at fair value through earnings:
SBA-interest only strips (a)
Total securities available-for-sale (b)
Securities held-to-maturity:
Corporates and other debt
Total securities held-to-maturity
$4,717,181
$7,218
$(107,831)
4,616,568
9,902
$4,626,470
$
$
10,000
10,000
$
$
-
-
$
$
(157) $
9,843
(157) $
9,843
(a) SBA-interest only strips are recorded at elected fair value. See Note 24 – Fair Value of Assets and Liabilities for additional information.
(b) Includes $3.8 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other
purposes.
(Dollars in thousands)
Securities available-for-sale:
U.S. treasuries
Government agency issued MBS
Government agency issued CMO
Corporates and other debt
Equity and other (a)
AFS 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. Equity investments were reclassified to Other assets upon adoption of ASU 2016-01 on
January 1, 2018.
(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
51897
Note 3 (cid:2) Investment Securities (continued)
The amortized cost and fair value by contractual maturity for the available-for-sale and held-to-maturity debt
securities portfolios on December 31, 2018 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)
Total
Held-to-Maturity
Available-for-Sale
Amortized
Cost
Fair
Value
Amortized
Cost
$
-
-
10,000
-
10,000
$
-
-
9,843
-
9,843
$
15,125
189,408
755
31,718
237,006
$
Fair
Value
15,008
190,217
3,445
38,999
247,669
-
-
4,480,175
4,378,801
$10,000
$9,843
$4,717,181
$4,626,470
(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 debt investment securities for the years
ended December 31: Equity securities are included for periods prior to 2018.
(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
2018
2017
2016
$52
-
52
-
$ 2,514
(1,922)
$ 5,754
(4,213)
592
1,541
-
(200)
$52
$
592
$ 1,341
(a) Cash proceeds from the sale of available-for-sale securities during 2018 were not material. Cash proceeds from sales during 2017 and
2016 were $937.0 million and $444.2 million, respectively. 2016 includes a $1.5 million net gain from exchanges of approximately $736
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.
The following tables provide information on investments within the available-for-sale portfolio that had unrealized
losses as of December 31, 2018 and 2017:
(Dollars in thousands)
U.S. treasuries
Government agency issued MBS
Government agency issued CMO
Other U.S. government agencies
Corporates and other debt
States and municipalities
As of December 31, 2018
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$
-
597,008
290,863
29,776
25,114
17,292
$
-
(12,335)
(2,860)
(73)
(344)
(214)
$
98
1,537,106
1,560,420
-
15,008
-
$
(2)
(46,065)
(45,821)
-
(117)
-
$
98
2,134,114
1,851,283
29,776
40,122
17,292
$
(2)
(58,400)
(48,681)
(73)
(461)
(214)
Total temporarily impaired securities
$960,053
$(15,826)
$3,112,632
$(92,005)
$4,072,685
$(107,831)
FIRST HORIZON NATIONAL CORPORATION
103
14892
Note 3 (cid:2) Investment Securities (continued)
(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)
FHN has reviewed debt 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.
The carrying amount of equity investments without a readily determinable fair value was $21.3 million and
$16.3 million at December 31, 2018 and January 1, 2018, respectively. The year-to-date 2018 gross amounts of
upward and downward valuation adjustments were not significant.
Unrealized losses of $1.5 million were recognized during 2018 for equity investments with readily determinable fair
values.
In third quarter 2018 FHN sold its remaining holdings of Visa Class B Shares resulting in a pre-tax gain of
$212.9 million recognized within the Corporate segment. See the Visa Matters section of Note 17 – Contingencies
and Other Disclosures and Other Derivatives section of Note 22 – Derivatives for more information regarding FHN’s
Visa shares.
104
FIRST HORIZON NATIONAL CORPORATION
71078
Note 4 (cid:2) Loans
The following table provides the balance of loans, net of unearned income, by portfolio segment as of
December 31, 2018 and 2017:
(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
December 31
2018
2017
$16,514,328
4,030,870
$16,057,273
4,214,695
6,249,516
222,448
518,370
6,479,242
287,820
619,899
$27,535,532
180,424
$27,658,929
189,555
Total net loans
Certain previously reported amounts have been reclassified to agree with current presentation.
(a) Balances as of December 31, 2018 and 2017, include $16.2 million and $24.2 million of restricted real estate loans, respectively. See
$27,355,108
$27,469,374
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
$2.8 billion (17 percent of the C&I portfolio, or 10 percent of the total loans). FHN had loans to mortgage
companies totaling $2.0 billion (12 percent of the C&I segment, or 7 percent of total loans) as of December 31,
2018. As a result, 29 percent of the C&I segment is sensitive to impacts on the financial services industry.
Restrictions
On December 31, 2018, $6.1 billion of commercial loans were pledged to secure potential discount window
borrowings from the Federal Reserve Bank. As of December 31, 2018 and 2017, FHN pledged all of its first and
second lien mortgages and HELOCs, excluding restricted real estate loans, to secure potential borrowings from the
FIRST HORIZON NATIONAL CORPORATION
105
92496
Note 4 (cid:2) Loans (continued)
FHLB-Cincinnati. Additionally, beginning in November 2017, FHN pledged all of its commercial 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.
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 $121.8 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, $4.7 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.
(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 $117.1 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 $4.7 million of loans held-for-sale.
Non-PCI Loans
November 30, 2017
$9,182,610
(801,546)
8,381,064
$7,220,094
PCI Loans
November 30, 2017
$258,950
(77,022)
181,928
(14,271)
$167,657
106
FIRST HORIZON NATIONAL CORPORATION
Note 4 (cid:2) Loans (continued)
Purchased Credit-Impaired Loans
The following table presents a rollforward of the accretable yield for the year ended December 31, 2018 and 2017:
40150
(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)
Disposals
Other
Balance, end of period
Year Ended
December 31
2018
2017
$15,623
-
(9,467)
(3,896)
(1,115)
(123)
12,791
(240)
(198)
$13,375
$ 6,871
13,957
(3,564)
(1,917)
(45)
(222)
467
-
76
$15,623
(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, 2018, the ALLL related to PCI loans was $4.0 million compared to $3.2 million at December 31,
2017. The loan loss provision expense related to PCI loans during 2018 was $4.8 million, compared to $2.5
million during 2017.
The following table reflects the outstanding principal balance and carrying amounts of the acquired PCI loans as of
December 31, 2018 and 2017:
(Dollars in thousands)
Commercial, financial and industrial
Commercial real estate
Consumer real estate
Credit card and other
Total
December 31,
2018
December 31,
2017
Carrying
value
$38,873
15,197
30,723
1,627
Unpaid
balance
$44,259
17,232
34,820
1,879
Carrying
value
$ 96,598
36,107
38,176
5,500
Unpaid
balance
$109,280
41,488
42,568
6,351
$86,420
$98,190
$176,381
$199,687
FIRST HORIZON NATIONAL CORPORATION
107
35189
Note 4 (cid:2) Loans (continued)
Impaired Loans
The following tables provide information at December 31, 2018 and 2017, 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 (a)
Income CRE
Residential CRE
Total
Consumer:
HELOC (b)
R/E installment loans (b)
Permanent mortgage (b)
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, 2018
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
$ 42,902
1,589
-
$
$ 45,387
1,589
-
$
$ 44,491
$ 46,976
$
8,645
4,314
3,601
$ 16,648
4,796
6,003
$
$
$
$
$ 16,560
$ 27,447
$
-
-
-
-
-
-
-
-
$ 24,186
1,434
374
$
$ 25,994
$
8,723
4,300
4,392
$ 17,415
$
2,802
2,888
377
-
$
2,802
3,700
377
-
$
149
925
-
-
$ 16,011
2,981
348
99
$
6,067
$
6,879
$ 1,074
$ 19,439
$ 66,482
38,993
67,245
695
$ 69,610
39,851
78,010
695
$11,241
6,743
9,419
337
$ 69,535
40,118
73,259
626
$173,415
$188,166
$27,740
$183,538
$ 50,558
$ 53,855
$ 1,074
$ 45,433
$189,975
$215,613
$27,740
$200,953
$ 757
51
-
$
$ 808
$
$
$
$
-
-
-
-
-
-
10
-
10
$2,273
1,024
2,290
14
$5,601
$ 818
$5,601
$6,419
Total impaired loans
(a) In Q1 2018, the allowance for TDRs within the commercial portfolio was removed.
(b) All discharged bankruptcy loans are charged down to an estimate of net realizable value and do not carry any allowance.
$240,533
$269,468
$28,814
$246,386
108
FIRST HORIZON NATIONAL CORPORATION
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
57190
December 31, 2017
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
$
8,183
-
$ 17,372
-
$
8,183
$ 17,372
$
9,258
4,093
5,132
$ 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
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
FIRST HORIZON NATIONAL CORPORATION
109
25145
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, 2018 and 2017:
(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, 2018
PD Grade:
1
2
3
4
5
6
7
8
9
10
11
12
13
14,15,16
$
610,177 $
835,776
782,362
1,223,092
1,920,034
1,722,136
2,690,784
1,337,113
1,472,852
490,795
311,967
244,867
285,987
224,853
- $
-
716,971
394,862
277,814
365,341
96,603
53,224
96,292
13,260
-
9,379
-
-
- $
-
-
43,220
77,751
45,609
11,446
-
45,117
18,536
-
-
5,786
-
12,586
1,688
289,594
563,243
798,509
657,628
538,909
265,901
455,184
60,803
66,986
82,574
55,408
28,835
$
-
29
147
-
14,150
33,759
26,135
20,320
29,849
3,911
788
5,717
251
837
$
622,763
837,493
1,789,074
2,224,417
3,088,258
2,824,473
3,363,877
1,676,558
2,099,294
587,305
379,741
342,537
347,432
254,525
3% $
4
9
11
15
14
16
8
10
3
2
2
2
1
100
274
315
686
8,919
8,141
16,906
18,545
15,454
8,675
7,973
6,972
10,094
23,307
Collectively evaluated
for impairment
Individually evaluated
for impairment
Purchased credit-
impaired loans
Total commercial
loans
14,152,795
2,023,746
247,465
3,877,848
135,893
20,437,747
100
126,361
45,704
41,730
-
-
2,888
1,966
-
50,558
-
12,730
2,433
56,893
-
-
1,074
2,823
$14,240,229 $2,023,746 $250,353 $3,892,544
$138,326
$20,545,198
100% $130,258
(a) Balances presented net of a $20.2 million valuation allowance. Based on the underlying structure of the notes, the highest possible internal
grade was “13” prior to second quarter 2018. In second quarter 2018, this portfolio was re-graded to align with its scorecard grading
methodologies which resulted in upgrades to a majority of this portfolio. In 3Q18, FHN sold $55.5 million of TRUPS loans with a
$5.0 million valuation allowance. Upon sale, a gain of $3.8 million was recognized in the Non-Strategic segment within Fixed Income in the
Consolidated Statement of Income. An additional TRUPS loan with a principal balance of $3.0 million and a valuation of $.3 million was
paid off in fourth quarter 2018.
110
FIRST HORIZON NATIONAL CORPORATION
61641
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, 2017
PD Grade:
1
2
3
4
5
6
7
8
9
10
11
12
13
14,15,16
$
536,244 $
877,635
582,224
959,581
1,461,632
1,668,247
2,257,400
1,092,994
2,633,854
373,537
226,382
409,838
202,613
228,852
- $
-
652,982
629,432
328,477
335,169
47,720
35,266
70,915
-
-
-
-
-
- $
-
-
-
-
-
-
-
-
-
-
-
303,848
-
2,500
1,798
210,073
309,699
415,764
456,706
554,590
241,938
1,630,176
43,297
31,785
156,717
15,707
6,587
$
-
69
40
-
2,474
3,179
9,720
6,454
61,475
4,590
2,936
6,811
268
823
$
538,744
879,502
1,445,319
1,898,712
2,208,347
2,463,301
2,869,430
1,376,652
4,396,420
421,424
261,103
573,366
522,436
236,262
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
Collectively evaluated
for impairment
Individually evaluated
for impairment
Purchased credit-
impaired loans
Total commercial
loans
13,511,033
2,099,961
303,848
4,077,337
98,839
20,091,018
99
117,649
39,957
99,407
-
-
3,067
1,612
795
45,431
-
31,615
4,497
135,519
-
1
6,176
2,813
$13,650,397 $2,099,961 $306,915 $4,110,564
$104,131
$20,271,968
100% $126,638
(a) Balances presented net of a $25.5 million valuation allowance. Based on the underlying structure of the notes, the highest possible internal
grade was “13” prior to second quarter 2018. In second quarter 2018, this portfolio was re-graded to align with its scorecard grading
methodologies which resulted in upgrades to a majority of this portfolio.
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, 2018 and 2017:
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, 2018
R/E Installment
Loans
Permanent
Mortgage
71.3%
8.8
7.0
7.6
2.8
2.5
51.8%
7.6
10.6
14.7
6.5
8.8
HELOC
61.4%
8.5
7.6
10.9
5.1
6.5
HELOC
60.0%
8.7
8.3
11.1
4.9
7.0
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
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.
FIRST HORIZON NATIONAL CORPORATION
111
71785
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, 2018:
(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
$14,153,275
$ 8,234
$
Loans to mortgage companies
2,023,746
TRUPS (a)
247,465
-
-
102 $14,161,611 $ 26,325
-
2,023,746
-
-
247,465
Purchased credit-impaired
loans
39,433
624
1,673
41,730
$ 5,537
-
-
-
$ 5,026 $ 36,888 $14,198,499
2,023,746
-
-
2,888
2,888
250,353
-
-
41,730
-
-
Total commercial (C&I)
16,463,919
8,858
1,775
16,474,552
26,325
5,537
7,914
39,776
16,514,328
Commercial real estate:
Income CRE
Residential CRE
Purchased credit-impaired
loans
3,876,229
135,861
13,308
Total commercial real estate
4,025,398
626
-
103
729
-
-
3,876,855
135,861
1,752
15,163
1,752
4,027,879
30
32
-
62
-
-
-
-
2,929
2,959
3,879,814
-
-
32
-
135,893
15,163
2,929
2,991
4,030,870
Consumer real estate:
HELOC
R/E installment loans
Purchased credit-impaired
loans
1,443,651
4,652,658
11,653
10,470
10,129
6,497
1,465,433
4,669,625
49,009
15,146
3,314
1,924
8,781
4,474
61,104
21,544
1,526,537
4,691,169
24,096
2,094
5,620
31,810
-
-
-
-
31,810
Total consumer real estate
6,120,405
24,217
22,246
6,166,868
64,155
5,238
13,255
82,648
6,249,516
Permanent mortgage
193,591
2,585
4,562
200,738
11,227
996
9,487
21,710
222,448
Credit card & other:
Credit card
Other
Purchased credit-impaired
loans
188,009
320,551
2,133
3,570
1,203
526
191,345
324,647
746
611
397
1,754
Total credit card & other
509,306
6,314
2,126
517,746
Total loans, net of unearned
-
110
-
110
-
60
-
60
-
454
-
454
-
624
191,345
325,271
-
1,754
624
518,370
income
$27,312,619
$42,703
$32,461 $27,387,783 $101,876
$11,831
$34,042 $147,749 $27,535,532
(a) TRUPS is presented net of the valuation allowance of $20.2 million.
112
FIRST HORIZON NATIONAL CORPORATION
47853
Note 4 (cid:2) Loans (continued)
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
Loans to mortgage
companies
TRUPS (a)
Purchased credit-impaired
loans
$13,514,752
$ 8,057
$
95 $13,522,904 $ 1,761
$ 7,019
$19,306
$ 28,086 $13,550,990
2,099,961
303,848
-
-
-
-
2,099,961
303,848
77,843
2,207
19,357
99,407
-
-
-
-
-
-
-
-
2,099,961
3,067
3,067
306,915
-
-
99,407
Total commercial (C&I)
15,996,404
10,264
19,452
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
4,077,106
1,240
98,844
-
-
-
4,078,346
56
98,844
-
-
Total commercial real estate
4,207,123
2,253
4,213,302
56
31,173
2,253
36,112
2,686
3,926
Consumer real estate:
HELOC
R/E installment loans
Purchased credit-impaired
loans
1,743,776
4,587,156
17,744
7,274
9,702
3,573
1,771,222
40,508
4,598,003
14,439
35,356
2,016
1,158
38,530
-
Total consumer real estate
6,366,288
27,034
14,433
6,407,755
54,947
Permanent mortgage
254,040
3,930
3,460
261,430
13,245
Credit card & other:
Credit card
Other
Purchased credit-impaired
loans
193,940
415,070
2,993
Total credit card & other
612,003
Total loans, net of unearned
1,371
2,666
1,693
5,730
1,053
103
196,364
417,839
814
5,500
1,970
619,703
-
31
-
31
-
-
-
-
3,626
1,957
-
5,583
1,052
-
-
-
-
546
791
-
602
791
4,078,948
99,635
-
36,112
1,337
1,393
4,214,695
8,354
2,603
52,488
18,999
1,823,710
4,617,002
-
-
38,530
10,957
71,487
6,479,242
12,093
26,390
287,820
-
165
-
165
-
196
-
196
196,364
418,035
5,500
619,899
income
$27,435,858
$50,884
$41,568 $27,528,310 $70,040
$13,654
$46,925
$130,619 $27,658,929
Certain previously reported amounts have been reclassified to agree with current presentation.
(a) TRUPS is presented net of the valuation allowance of $25.5 million.
FIRST HORIZON NATIONAL CORPORATION
113
82374
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, 2018 and 2017, FHN had $228.2 million and $234.4 million of portfolio loans classified as
TDRs, respectively. For TDRs in the loan portfolio, FHN had loan loss reserves of $27.7 million, or 12 percent as
of December 31, 2018, and $37.3 million, or 16 percent as of December 31, 2017. Additionally, $57.8 million and
$63.2 million of loans held-for-sale as of December 31, 2018 and 2017, respectively, were classified as TDRs.
114
FIRST HORIZON NATIONAL CORPORATION
27317
Note 4 (cid:2) Loans (continued)
The following tables reflect portfolio loans that were classified as TDRs during the year ended December 31, 2018
and 2017:
(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
9
9
4
4
103
92
195
8
132
348
2018
Pre-Modification
Outstanding
Recorded Investment
Post-Modification
Outstanding
Recorded Investment Number
Pre-Modification
Outstanding
Recorded Investment
Post-Modification
Outstanding
Recorded Investment
2017
$27,639
$27,190
27,639
27,190
643
643
9,406
8,077
17,483
1,001
604
637
637
9,283
7,848
17,131
1,184
570
$47,370
$46,712
5
5
1
1
143
53
196
34
91
327
$ 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
The following tables present TDRs which re-defaulted during 2018 and 2017, 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
2018
2017
Number
Recorded
Investment Number
Recorded
Investment
2
2
-
-
6
2
8
6
49
65
$ 579
579
-
-
239
146
385
749
239
$1,952
5
5
1
1
5
-
5
3
10
24
$11,498
11,498
88
88
776
-
776
715
77
$13,154
FIRST HORIZON NATIONAL CORPORATION
115
31106
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).
116
FIRST HORIZON NATIONAL CORPORATION
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,
2018, 2017 and 2016:
(Dollars in thousands)
Balance as of January 1, 2018
Charge-offs
Recoveries
Provision/(provision credit) for loan losses
Balance as of December 31, 2018
Allowance – individually evaluated for
impairment
Allowance – collectively evaluated for
impairment
Allowance – purchased credit-impaired loans
Loans, net of unearned as of December 31,
2018:
Individually evaluated for impairment
Collectively evaluated for impairment
Purchased credit-impaired loans
Total loans, net of unearned income
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,
C&I
Commercial
Real Estate
Consumer
Real Estate
Permanent
Mortgage
Credit Card
and Other
$
98,211 $
(15,492)
4,201
12,027
98,947
28,427 $
(783)
339
3,328
31,311
39,823
(9,357)
19,666
(23,693)
26,439
$ 13,113
(477)
1,421
(3,057)
11,000
$
9,981
(19,688)
4,039
18,395
12,727
$
Total
189,555
(45,797)
29,666
7,000
180,424
1,074
95,050
2,823
-
17,984
9,419
337
28,814
31,311
-
7,368
1,087
1,581
-
12,263
127
147,573
4,037
48,592
16,424,006
41,730
118,434
6,099,272
31,810
$16,514,328 $4,030,870 $6,249,516
1,966
4,013,741
15,163
$
89,398 $
(17,657)
4,568
21,902
98,211
33,852 $
(195)
966
(6,196)
28,427
51,424
(13,156)
22,723
(21,168)
39,823
70,846
151,602
-
$222,448
$ 15,222
(2,179)
2,509
(2,439)
13,113
695
515,921
1,754
$518,370
$ 12,172
(13,207)
3,115
7,901
9,981
240,533
27,204,542
90,457
$27,535,532
$
202,068
(46,394)
33,881
—
189,555
6,044
132
23,175
12,105
311
41,767
89,358
28,291
16,293
1,008
9,670
144,620
2,809
4
355
-
-
3,168
43,024
15,909,110
105,139
128,895
6,311,817
38,530
$16,057,273 $4,214,695 $6,479,242
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
80,662
(21,993)
23,719
(30,964)
51,424
84,794
203,026
-
$287,820
$ 18,899
(1,591)
2,403
(4,489)
15,222
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
22,218
2,752
12,039
155,527
164
155
404
-
-
723
2016:
Individually evaluated for impairment
Collectively evaluated for impairment
Purchased credit-impaired loans
Total loans, net of unearned income
Certain previously reported amounts have been reclassified to agree with current presentation.
153,460
4,439,143
1,576
$12,148,087 $2,135,523 $4,594,179
47,962
12,059,593
40,532
3,124
2,127,481
4,918
93,926
258,772
-
$352,698
306
358,675
52
$359,033
298,778
19,243,664
47,078
$19,589,520
FIRST HORIZON NATIONAL CORPORATION
117
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
(a) Primarily comprised of land and buildings.
48870
2018
2017
$107,864
461,665
30,230
196,469
19,617
815,845
321,804
$104,454
472,619
26,640
194,057
53,195
850,965
318,714
$494,041
$532,251
FHN is obligated under a number of noncancelable operating leases for premises with terms up to 41 years, which
may include the payment of taxes, insurance and maintenance costs. Operating leases for equipment are not
material.
In 2018 and 2017, FHN recognized $3.9 million and $6.0 million, respectively, of fixed asset impairments and
lease abandonment charges related to branch closures which are included in All other expenses on the
Consolidated Statements of Income. In 2018, $1.5 million of impairment recoveries were recorded upon disposition
of the associated properties. In 2018 and 2017, FHN had net gains of $4.3 million and $.4 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, 2018
are shown below. Aggregate minimum income under sublease agreements for these periods is not material.
(Dollars in thousands)
2019
2020
2021
2022
2023
2024 and after
Total minimum lease payments
Payments required under capital leases are not material.
$ 27,524
24,722
20,954
16,518
13,174
42,370
$145,262
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
2018
2017
2016
$34,729
(647)
$23,116
(631)
$20,812
(477)
$34,082
$22,485
$20,335
118
FIRST HORIZON NATIONAL CORPORATION
65547
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
Other (b)
Total
December 31, 2018
December 31, 2017
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Value
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Value
$157,150
77,865
5,622
$240,637
$(28,150)
(55,597)
(1,856)
$129,000
22,268
3,766
$(85,603)
$155,034
$160,650
77,865
5,622
$244,137
$ (8,176)
(50,777)
(795)
$152,474
27,088
4,827
$(59,748)
$184,389
(a) 2018 decrease in gross carrying amounts associated with the sale of two CBF branches and purchase accounting measurement period
adjustments related to the CBF acquisition. See Note 2 – Acquisitions and Divestitures for additional information.
(b) Balance primarily includes noncompete covenants, as well as $.3 million related to state banking licenses not subject to amortization.
Amortization expense was $25.9 million, $8.7 million, and $5.2 million for the years ended December 31, 2018,
2017 and 2016, respectively. As of December 31, 2018 the estimated aggregated amortization expense is
expected to be:
(Dollars in thousands)
Year
2019
2020
2021
2022
2023
Amortization
$24,835
21,159
19,547
17,412
16,117
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, 2018, 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, 2018, 2017 and 2016.
(Dollars in thousands)
December 31, 2015
Additions (a)
December 31, 2016
Additions (a)
December 31, 2017
Additions (a)
December 31, 2018
Regional
Banking
Fixed
Income
Total
$
93,303
64
$ 98,004
-
$ 191,307
64
$
93,367
1,150,518
$ 98,004
44,964
$ 191,371
1,195,482
$1,243,885
45,934
$142,968
-
$1,386,853
45,934
$1,289,819
$142,968
$1,432,787
(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, 2018, 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 $2.6 billion on December 31, 2018, of this amount $1.1 billion represents
FIRST HORIZON NATIONAL CORPORATION
119
Note 8 (cid:2) Time Deposit Maturities (continued)
Certificates of deposit of $250,000 and more. Time deposits are included in Interest-bearing deposits on the
Consolidated Statements of Condition.
22703
(Dollars in thousands)
2019
2020
2021
2022
2023
2024 and after
Total
Note 9 (cid:2) Short-Term Borrowings
$2,794,861
690,119
130,454
396,340
75,270
18,733
$4,105,777
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, 2018, fixed income
trading securities with a fair value of $71.2 million were pledged to secure other short-term borrowings.
The detail of short-term borrowings for the years 2018, 2017 and 2016 is presented in the following table:
(Dollars in thousands)
2018
Average balance
Year-end balance
Maximum month-end outstanding
Average rate for the year
Average rate at year-end
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
Federal Funds
Purchased
Securities Sold
Under Agreements
to Repurchase
Trading
Liabilities
Other
Short-term
Borrowings
$405,110
256,567
503,138
1.89%
2.50
$447,137
399,820
568,490
1.06%
1.48
$589,223
414,207
695,083
0.52%
0.73
$713,841
762,592
891,425
1.40%
1.66
$578,666
656,602
743,684
0.72%
0.64
$425,452
453,053
528,024
0.08%
0.08
$682,943
335,380
890,717
$1,046,585
114,764
2,229,155
2.83%
3.21
1.82%
2.48
$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
120
FIRST HORIZON NATIONAL CORPORATION
91099
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
3.09% on December 31, 2018 and 1.89% on December 31, 2017 (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% on December 31, 2017 (e)
Maturity date – July 31, 2031 – 4.96% on December 31, 2017 (e)
Maturity date – December 30, 2032 – 5.04% on December 31, 2017 (e)
Maturity date – June 26, 2033 – 4.77% on December 31, 2017 (e)
Maturity date – October 8, 2033 – 4.21% on December 31, 2017 (e)
Maturity date – February 8, 2034 – 4.23% on December 31, 2017 (e)
Maturity date – June 28, 2035 – 4.47% on December 31, 2018 and 3.27% on December 31,
2017
Maturity date – December 15, 2035 – 4.16% on December 31, 2018 and 2.96% on
December 31, 2017
Maturity date – March 15, 2036 – 4.19% on December 31, 2018 and 2.99% on
December 31, 2017
Maturity date – March 15, 2036 – 4.33% on December 31, 2018 and 3.13% on
December 31, 2017
Maturity date – June 30, 2036 – 4.12% on December 31, 2018 and 3.01% on December 31,
2017
Maturity date – July 7, 2036 – 3.99% on December 31, 2018 and 2.91% on December 31,
2017
Maturity date – June 15, 2037 – 4.44% on December 31, 2018 and 3.24% on December 31,
2017
Maturity date – September 6, 2037 – 4.17% on December 31, 2018 and 2.94% on
December 31, 2017
FT Real Estate Securities Company, Inc.:
Cumulative preferred stock (f)
Maturity date – March 31, 2031 – 9.50%
First Horizon ABS Trusts:
Other collateralized borrowings (g)
Maturity date – October 25, 2034
2018
2017
$ 395,872
$ 396,105
76,642
16,607
65,356
7,416
-
100
486,739
486,513
-
-
-
-
-
-
4,124
5,155
5,155
10,310
10,310
10,310
2,730
2,708
17,456
17,270
8,757
8,667
11,587
11,482
25,931
25,646
17,803
17,642
50,278
49,875
8,713
8,627
46,168
46,100
2.66% on December 31, 2018 and 1.72% on December 31, 2017
2,981
11,226
First Tennessee New Markets Corporation Investments:
Maturity date – October 25, 2018 – 4.97% (e)
Maturity date – February 1, 2033 – 4.97% (e)
Maturity date – August 08, 2036 – 2.38%
Total
-
-
2,699
7,301
8,000
2,699
$1,170,963
$1,218,097
(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.
FIRST HORIZON NATIONAL CORPORATION
121
47937
Note 10 (cid:2) Term Borrowings (continued)
(c) Collateralized borrowings associated with SBA loan sales that did not meet sales criteria. The loans have remaining terms of 4 to 26 years.
These borrowings had a weighted average interest rate of 3.95 percent and 3.26 percent on December 31, 2018 and 2017, respectively.
(d) Acquired in conjunction with the acquisition of CBF. A portion qualifies for Tier 2 capital under the risk-based capital guidelines.
(e) Debt retired during 2018. See Note 21 – Variable Interest Entities for additional information.
(f) A portion qualifies for Tier 2 capital under the risk-based capital guidelines.
(g) On December 31, 2018 and 2017, borrowings secured by $16.2 million and $24.2 million, respectively, of residential real estate loans.
Annual principal repayment requirements as of December 31, 2018 are as follows:
(Dollars in thousands)
2019
2020
2021
2022
2023
2024 and after
$400,000
500,000
-
369
-
312,574
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 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. FHN retired $45.4 million of this debt and the related trust preferred securities in
2018.
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. For all periods presented, these securities
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, 2018 the Class B Preferred Shares partially qualified as Tier
2 regulatory capital. They are not subject to any sinking fund and are not convertible into any other securities of
FTRESC, FHN, or any of its subsidiaries. In the event FTBNA becomes undercapitalized, insolvent, or in danger of
122
FIRST HORIZON NATIONAL CORPORATION
50060
Note 11 (cid:2) Preferred Stock (continued)
becoming undercapitalized, 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.
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 Condition
and which partially qualifies as Tier 2 capital. 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, 2018 and
2017, $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, 2018, FHN and
FTBNA met all capital adequacy requirements to which they were subject.
FIRST HORIZON NATIONAL CORPORATION
123
87902
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, 2018
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, 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
First Horizon
National Corporation
First Tennessee Bank
National Association
Amount
Ratio
Amount
Ratio
$3,940,117
3,565,373
3,223,702
3,565,373
11.94%
10.80
9.77
9.09
$3,689,180
3,492,541
3,197,725
3,492,541
11.32%
10.72
9.81
9.10
2,640,208
1,980,156
1,485,117
1,568,870
8.00
6.00
4.50
4.00
2,607,406
1,955,555
1,466,666
1,535,279
8.00
6.00
4.50
4.00
3,259,258
2,607,406
2,118,518
1,919,099
10.00
8.00
6.50
5.00
$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
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, 2018 and 2017, FTBNA’s net required reserves
were $371.7 million and $278.4 million, respectively, after the consideration of $273.7 million and $255.2 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, 2018, FTBNA had undivided profits of
$1.0 billion, of which a limited amount was available for distribution to FHN as dividends without prior regulatory
approval. Certain regulatory restrictions exist regarding the ability of FTBNA to transfer funds to FHN in the form of
cash, dividends, loans, and 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 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
124
FIRST HORIZON NATIONAL CORPORATION
08676
Note 12 (cid:2) Regulatory Capital and Restrictions (continued)
offset with available retained net income in the two years immediately preceding it. Applying the dividend
restrictions imposed under applicable federal rules, FTBNA’s total amount available for dividends was positive
$222.0 million at December 31, 2018 and positive $156.2 million at January 1, 2019. FTBNA declared and paid
common dividends to the parent company in the amount of $420.0 million in 2018 and $250.0 million in 2017,
with OCC approval as necessary. In January 2019, FTBNA declared and paid a common dividend to the parent
company in the amount of $110.0 million. During 2018 and 2017, FTBNA declared and paid dividends on its
preferred stock quarterly, with OCC approval as necessary. Additionally, FTBNA declared preferred dividends in
first quarter 2019 payable in April 2019.
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. Beginning January 1, 2016, the ability to pay
dividends has been restricted if capital ratios fall below regulatory minimums plus a prescribed capital conservation
buffer. The capital conservation requirement has been subject to a four-year phase-in period, reaching 2.5% above
the minimum CET1, Tier 1, and Total capital ratios at January 1, 2019. Capital ratios required to be considered
well-capitalized exceed the capital conservation buffer requirement at December 31, 2018. Furthermore, the
Federal Reserve and the OCC generally 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 $405.0 million, on December 31, 2018. 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 $.8 million from FTBNA and
the bank’s financial subsidiary, FTN Financial Securities Corp., had a total equity investment from FTBNA of
$360.9 million on December 31, 2018. 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 $810.0 million, on
December 31, 2018. FTBNA’s total covered transactions with all affiliates including the parent company on
December 31, 2018 were $361.7 million.
FIRST HORIZON NATIONAL CORPORATION
125
38288
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 and interchange fees
Mortgage banking
Dividend income (a)
Letter of credit fees
Electronic banking fees
Insurance commissions
Gain/(loss) on extinguishment of debt (b)
Deferred compensation (c)
Other
Total
All other expense:
Travel and entertainment
Other insurance and taxes
Employee training and dues
Supplies
Customer relations
Non-service components of net periodic pension and post-retirement cost
Tax credit investments
Miscellaneous loan costs
OREO
Litigation and regulatory matters
Other (d)
2018
2017
2016
$ 15,122
13,354
10,587
10,555
5,298
5,134
2,096
(15)
(3,224)
19,488
$ 12,532
12,425
4,649
-
4,661
5,082
2,514
(14,329)
6,322
11,029
$ 11,731
11,965
10,215
-
4,103
5,477
2,981
-
3,025
14,734
$ 78,395
$ 44,885
$ 64,231
$ 16,442
9,684
7,218
6,917
5,583
5,251
4,712
3,732
2,630
644
73,223
$ 11,462
9,686
5,551
4,106
5,750
2,144
3,468
2,751
1,006
40,517
48,693
$ 10,275
10,891
5,691
4,434
6,255
(666)
3,349
2,586
773
30,469
41,391
Total
Certain previously reported amounts have been revised to reflect the retroactive effect of the adoption of ASU 2017-07 “Improving the
Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” See Note 1 – Summary of Significant Accounting
Policies for additional information.
(a) Effective January 1, 2018, FHN adopted ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” and
began recording dividend income from FRB and FHLB holdings in Other income. Prior to 2018, these amounts were included in Interest
income on the Consolidated Statements of Income.
$135,134
$136,036
$115,448
(b) Loss on extinguishment of debt for 2017 relates to the repurchase of equity securities previously included in a financing transaction.
(c) Amounts are driven by market conditions and are mirrored by changes in deferred compensation expense which is included in employee
compensation expense.
(d) Expense increase for 2018 largely attributable to an increase in acquisition- and integration-related expense primarily associated with the
CBF acquisition. See Note 2 – Acquisitions and Divestitures for additional information.
126
FIRST HORIZON NATIONAL CORPORATION
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, 2018, 2017, and 2016:
99569
(Dollars in thousands)
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
Balance as of December 31, 2017, as adjusted
Securities AFS
Cash Flow
Hedges
Pension and
Post-retirement
Plans
$ 3,394
(19,709)
(917)
(20,626)
(17,232)
(4,467)
(298)
(4,765)
(21,997)
(4,837)
(26,834)
$
-
130
(1,395)
(1,265)
(1,265)
(2,156)
(2,945)
(5,101)
(6,366)
(1,398)
(7,764)
(206)
$(217,586)
(16,322)
4,751
Total
$(214,192)
(35,901)
2,439
(11,571)
(33,462)
(229,157)
(247,654)
(13,377)
5,618
(7,759)
(236,916)
(51,311)
(288,227)
(20,000)
2,375
(17,625)
(265,279)
(57,546)
(322,825)
-
(211)
Adjustment to reflect adoption of ASU 2016-01 and ASU 2017-12
(5)
Beginning balance, as adjusted
(26,839)
(7,970)
(288,227)
(323,036)
Net unrealized gains/(losses)
Amounts reclassified from AOCI
Other comprehensive income/(loss)
(48,858)
(39)
(48,897)
(6,284)
2,142
(4,142)
(9,435)
8,894
(541)
(64,577)
10,997
(53,580)
Balance as of December 31, 2018
$(75,736)
$(12,112)
$(288,768)
$(376,616)
Reclassifications from AOCI, and related tax effects, were as follows:
(Dollars in thousands)
Details about AOCI
Securities AFS:
Realized (gains)/losses on securities AFS
Tax expense/(benefit)
$
2018
2017
2016
Affected line item in the statement where net
income is presented
(52) $ (483) $(1,485) Debt securities gains/(losses), net
13
Provision/(benefit) for income taxes
568
185
(39)
(298)
(917)
Cash flow hedges:
Realized (gains)/losses on cash flow hedges
Tax expense/(benefit)
2,845
(703)
(4,771)
1,826
(2,260)
865
Interest and fees on loans
Provision/(benefit) for income taxes
2,142
(2,945)
(1,395)
Pension and Postretirement Plans:
Amortization of prior service cost and net
actuarial gain/(loss)
Tax expense/(benefit)
11,814
(2,920)
9,101
(3,483)
All other expense
7,697
(2,946) Provision/(benefit) for income taxes
8,894
5,618
4,751
Total reclassification from AOCI
$10,997
$ 2,375
$ 2,439
FIRST HORIZON NATIONAL CORPORATION
127
19091
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
2018
2017
2016
$157,602
$131,892
$106,810
(177)
(16,054)
(1,360)
-
(832)
(2,955)
(3,163)
-
(7,172)
(12,810)
(780)
(1,613)
$140,011
$124,942
$ 84,435
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
Total
2018
2017
2016
$ 44,088
9,957
-
$ 10,012
879
-
$ 25,234
1,803
169
81,852
21,705
114,059
6,942
67,109
12,495
$157,602
$131,892
$106,810
The Tax Cuts and Jobs Act “Tax Act” was signed into law at the end of 2017. The Tax Act reduced the federal
statutory tax rate from 35 percent to 21 percent effective January 1, 2018. FHN recorded approximately
$82 million of increase in tax expense related to the effects of the Tax Act during 2017 which was primarily related
to an adjustment of DTA balances to the lower federal tax rate. In 2018, FHN recorded a tax benefit of
$6.7 million related to the finalization of tax items for the 2017 tax return.
A reconciliation of expected income tax expense/(benefit) at the federal statutory rate of 21 percent for 2018 and
35 percent for 2017 and 2016, respectively, 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, net of federal income tax benefit
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
128
2018
21%
2017
35%
2016
35%
$149,963
$108,105
$120,862
24,553
(3,626)
(653)
(6,538)
8,301
(7,178)
(2,825)
(73)
6,143
(6,746)
(3,719)
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)
$157,602
$131,892
$106,810
FIRST HORIZON NATIONAL CORPORATION
87766
Note 15 (cid:2) Income Taxes (continued)
As of December 31, 2018, FHN had net deferred tax asset balances related to federal and state income tax
carryforwards of $49.8 million and $7.2 million, respectively, which will expire at various dates as follows:
(Dollars in thousands)
Losses-federal
Net operating losses-states
Net operating losses-states
Expiration Dates
2028-2033
2019-2023
2024-2035
Net Deferred Tax
Asset Balance
$49,821
166
7,059
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, 2018, FHN’s net DTA was $127.9 million compared with the $221.8 million at December 31,
2017. FHN’s gross DTA (net of a valuation allowance) and gross DTL were $254.6 million and $126.8 million,
respectively. 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.
Temporary differences which gave rise to deferred tax assets and deferred tax liabilities on December 31, 2018
and 2017 were as follows:
(Dollars in thousands)
Deferred tax assets:
Loss reserves
Employee benefits
Equity investments
Accrued expenses
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
2018
2017
$ 65,015
64,843
-
15,763
-
49,821
7,225
24,863
27,168
$ 91,390
50,404
28,547
16,052
64,835
62,010
19,801
8,811
11,512
254,698
(74)
353,362
(147)
$254,624
$353,215
51,519
7,705
57,632
9,218
-
683
$ 43,040
-
55,923
9,255
22,576
602
126,757
131,396
$127,867
$221,819
(a) Tax effects of unrealized gains and losses are tracked on a security-by-security basis.
FIRST HORIZON NATIONAL CORPORATION
129
54243
Note 15 (cid:2) Income Taxes (continued)
The total unrecognized tax benefits (“UTB”) at December 31, 2018 and 2017, was $20.2 million and $4.3 million,
respectively. To the extent such unrecognized tax benefits as of December 31, 2018 are subsequently recognized,
$17.0 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 federal and state
exposures could decrease by $6.7 million and $.9 million, respectively during 2019 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
$1.6 million and $.4 million accrued for the payment of interest as of December 31, 2018 and 2017, respectively.
The total amount of interest and penalties recognized in the Consolidated Statements of Income during 2018 and
2017 was an expense of $1.3 million and $.1 million, respectively.
The rollforward of unrecognized tax benefits is shown below:
(Dollars in thousands)
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
Increases related to prior year tax positions
Increases related to current year tax positions
Settlements
Lapse of statutes
Balance at December 31, 2018
Note 16 (cid:2) Earnings Per Share
$ 4,244
33
174
(180)
$ 4,271
16,695
1,576
(2,080)
(278)
$20,184
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
2018
2017
2016
$556,507
11,465
$176,980
11,465
$238,511
11,465
545,042
6,200
165,515
6,200
227,046
6,200
$538,842
$159,315
$220,846
324,375
3,070
241,436
3,017
232,700
2,592
327,445
244,453
235,292
$
$
1.66
1.65
$
$
0.66
0.65
$
$
0.95
0.94
130
FIRST HORIZON NATIONAL CORPORATION
80360
Note 16 (cid:2) Earnings Per Share (continued)
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
2018
2017
2016
2,256
$24.33
608
2,468
$25.62
176
2,610
$26.29
37
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
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 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
FIRST HORIZON NATIONAL CORPORATION
131
69488
Note 17 (cid:2) Contingencies and Other Disclosures (continued)
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, 2018, the
aggregate amount of liabilities established for all such loss contingency matters was $32.9 million. These liabilities
are separate from those discussed under the heading “Loan 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, 2018, 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 $20 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
FHN is defending a suit claiming material deficiencies in the offering documents under which certificates relating
to First Horizon branded proprietary securitizations were sold under FHN’s former (pre-2009) mortgage business:
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 settlement discussions; the availability of
significantly dispositive defenses; and the incomplete status of the discovery process.
Other Former Mortgage Business Exposures
FHN has received indemnity claims from underwriters and others related to lawsuits as to which investors or others
claimed to have purchased certificates in FHN proprietary securitizations but as to which FHN was not named a
defendant. For most pending indemnity claims involving 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; inability to
identify specific loans and/or breaches that are the source of the claim; lack of specific grounds to trigger FHN’s
indemnity obligation; and lack of precedent claims. The alleged purchase prices of the certificates subject to
pending indemnification claims, excluding the FDIC-Colonial Bank matter mentioned above, total $231.2 million.
FHN is contending with indemnification claims related to “other whole loans sold,” which were mortgage loans
originated by FHN before 2009 and sold outside of an FHN securitization. These claims generally assert that FHN-
originated loans contributed to claimant’s losses in connection with settlements that claimant paid to various third
parties in connection with mortgage loans securitized by claimant. The claims generally do not include specific
deficiencies for specific loans sold by FHN. Instead, the claims generally assert that FHN is liable for a share of
the claimant’s loss estimated by assessing the totality of the other whole loans sold by FHN to claimant in relation
to the totality of the larger number of loans securitized by claimant. FHN is unable to estimate an RPL range for
these matters due to significant uncertainties regarding: the number of, and the facts underlying, the loan
originations which claimants assert are indemnifiable; the applicability of FHN’s contractual indemnity covenants to
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Note 17 (cid:2) Contingencies and Other Disclosures (continued)
those facts and originations; and, in those cases where an indemnity claim may be supported, 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 also has indemnification claims related to servicing obligations. The most significant is 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, was FHN’s subservicer. Nationstar asserts
several categories of indemnity obligations in connection with mortgage loans under the subservicing arrangement
and under the purchase transaction. This matter currently is not in 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 thirdparty 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 settlements, and some might eventually result
in adverse litigation outcomes, but none are included in the material loss contingency liabilities mentioned above or
in the RPL range mentioned above.
Mortgage Loan Repurchase and Foreclosure Liability
The repurchase and foreclosure liability is comprised of accruals to cover estimated loss content in the active
pipeline (consisting of mortgage loan repurchase, make-whole, foreclosure/servicing demands and certain related
exposures), estimated future inflows, and 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, foreclosure, and certain related exposures and has accrued for losses of $32.3 million and $34.2 million as
of December 31, 2018 and 2017, 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
could be subject to future changes. Changes to any one of these factors could significantly impact the estimate of
FHN’s liability.
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
FIRST HORIZON NATIONAL CORPORATION
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Note 17 (cid:2) Contingencies and Other Disclosures (continued)
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.
FHN executed sales of its Visa Class B shares in December 2010, September 2011 and September 2018,
resulting in the complete disposition of its holdings of these shares and relief from the contingent liability. In each
sale 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. See
Note 22 – Derivatives for further discussion of these transactions.
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 and made an insignificant contribution to the
qualified pension plan in 2018. Management does not currently anticipate that FHN will make a contribution to the
qualified pension plan in 2019.
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, 2018 and 2017, the aggregate benefit obligation for
the plans was $17.1 million and $18.7 million, respectively, and aggregate plan assets were $16.5 million and
$18.6 million, respectively. Benefit payments, expense and actuarial gains/losses related to these plans were
insignificant for 2018 and 2017. After the contribution, FHN re-allocated 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.
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 $5.8 million for 2018. FHN anticipates making benefit payments under
the non-qualified plans of $5.2 million in 2019.
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
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Note 18 (cid:2) Pension, Savings, and Other Employee Benefits (continued)
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 $29.3 million for 2018, $23.0 million for 2017, and $21.6
million for 2016.
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 allocation of its assets to asset classes, which primarily represent fixed income investments. 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. Since the
contribution made in 2016, the asset allocation strategy for the qualified pension plan utilizes fixed income
instruments that more closely match 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 2018 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 ($300 million in 2017 and $250 million in 2016) 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
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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:
Discount rate
Qualified pension
Nonqualified pension
Other nonqualified pension
Postretirement benefits
Expected long-term rate of
return
Qualified pension/
postretirement benefits
Postretirement benefit
(retirees post
January 1, 1993)
Postretirement benefit
(retirees prior to
January 1, 1993)
Benefit Obligations
Net Periodic Benefit Cost
2018
2017
2016
2018
2017
2016
4.43%
4.26%
3.83%
3.76%
3.59%
3.19%
4.39%
4.07%
3.39%
3.75%
3.59%
3.19%
4.37%
4.07%
3.39%
4.69%
4.34%
3.57%
4.03% - 4.56%
3.37% - 3.87% 3.67% - 4.57% 3.35% - 3.87% 3.68% - 4.57% 3.84% - 4.87%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
4.20%
4.50%
6.00%
5.95%
6.00%
6.15%
2.15%
2.15%
2.10%
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.
FHN has one pension plan where participants’ benefits are affected by interest crediting rates. The plan’s projected
benefit obligation as of December 31, 2018, 2017 and 2016 and interest crediting rates for the respective years
are:
(Dollars in thousands)
Projected benefit obligation
Interest crediting rate
2018
2017
2016
$16,947
$19,115
$22,196
10.12%
9.28% 10.16%
The components of net periodic benefit cost for the plan years 2018, 2017 and 2016 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 settlement expense
Total periodic benefit costs
Total Pension Benefits
Other Benefits
2018
2017
2016
2018
2017
2016
$
41
27,877
(32,897)
$
37
29,380
(36,015)
$
39
31,216
(39,123)
$
133
1,309
(1,074)
$ 107
1,305
(947)
$ 110
1,292
(913)
-
12,102
7,123
-
52
9,521
2,975
43
196
8,141
469
-
$ 7,123
$ 3,018
$
469
$
-
(387)
(19)
99
80
95
(567)
(7)
-
170
(810)
(151)
-
$
(7) $ (151)
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.
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Note 18 (cid:2) Pension, Savings, and Other Employee Benefits (continued)
FHN utilizes 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.
The following tables set forth the plans’ benefit obligations and plan assets for 2018 and 2017:
(Dollars in thousands)
Change in benefit obligation
Benefit obligation, beginning of year
Service cost
Interest cost
Actuarial (gain)/loss (a)
Actual benefits paid (b)
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
Fair value of plan assets, end of year
Funded (unfunded) status of the plans
Amounts recognized in the Statements of Condition
Other assets
Other liabilities
Total Pension Benefits
Other Benefits
2018
2017
2018
2017
$840,884
41
27,877
(68,724)
(34,769)
$804,542
37
29,380
63,876
(56,951)
$ 39,562
133
1,309
(3,648)
(2,182)
$ 35,403
107
1,305
3,733
(986)
$765,309
$840,884
$ 35,174
$ 39,562
$811,244
(49,470)
3,948
-
(34,769)
$778,872
84,534
4,789
-
(56,951)
$ 18,753
(928)
1,789
(2,182)
-
$ 16,717
2,458
564
(986)
-
$730,953
$811,244
$ 17,432
$ 18,753
$ (34,356)
$ (29,640)
$(17,742)
$(20,809)
$
1,911
(36,267)
$ 11,238
(40,878)
$ 14,356
(32,098)
$ 15,254
(36,063)
Net asset/(liability) at end of year
$ (34,356)
$ (29,640)
$(17,742)
$(20,809)
(a) Variances in the actuarial (gain)/loss are due to normal activity such as changes in discount rates, updates to participant demographic
information and revisions to life expectancy assumptions.
(b) 2017 amounts are higher due to the settlements of certain terminated, vested participants in the qualified pension plan that occurred
during the year.
The projected benefit obligation for unfunded plans are as follows:
(Dollars in thousands)
Projected benefit obligation
Total Pension Benefits
Other Benefits
2018
2017
2018
2017
$36,267
$40,878
$32,098
$36,063
The qualified pension plan was overfunded as of December 31, 2018 by $1.9 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, 2018 and 2017. The qualified pension plan was overfunded as of December 31, 2017 by
$11.2 million. FHN’s funded post retirement plan was also in an overfunded status as of December 31, 2018 and
2017.
FIRST HORIZON NATIONAL CORPORATION
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Note 18 (cid:2) Pension, Savings, and Other Employee Benefits (continued)
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, 2018 and 2017 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
2018
2017
2018
2017
$
-
387,058
$
-
385,517
$
-
(6,451)
$
-
(5,093)
$387,058
$385,517
$(6,451)
$(5,093)
The pre-tax amounts recognized in other comprehensive income during 2018 and 2017 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
2018
2017
2018
2017
$ 13,643
$15,357
$(1,646)
$2,222
-
(12,102)
(52)
(9,521)
-
288
(95)
567
Total recognized in other comprehensive income
$ 1,541
$ 5,784
$(1,358)
$2,694
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.
The following table provides detail on expected benefit payments, which reflect expected future service, as
appropriate:
(Dollars in thousands)
2019
2020
2021
2022
2023
2024-2028
Pension
Benefits
$ 38,642
40,904
42,708
43,480
44,781
238,274
Other
Benefits
$ 1,663
1,717
1,775
1,836
1,900
10,344
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 level of investment return consistent with
changes in projected benefit obligations.
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
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Note 18 (cid:2) Pension, Savings, and Other Employee Benefits (continued)
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, primarily money market funds and mutual funds. On December
31, 2018 and 2017, 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, 2018 and 2017, 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
Total
December 31, 2018
Level 1
$13,855
-
-
Level 2
$
-
28,626
688,472
$13,855
$717,098
Level 3
Total
$
$
-
-
-
-
$ 13,855
28,626
688,472
$730,953
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
The Pension and Savings Investment Committees, comprised of senior managers within the organization, meet
regularly to review asset performance and potential portfolio revisions. Adjustments to the qualified pension plan
asset allocation primarily reflect changes in anticipated liquidity needs for plan benefits.
The fair value of FHN’s retiree medical plan assets at December 31, 2018 and 2017 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
$
207
10,387
6,838
$17,432
Level 1
$
364
11,402
6,987
$18,753
December 31, 2018
Level 2
Level 3
$
$
-
-
-
-
$
$
-
-
-
-
December 31, 2017
Level 2
Level 3
$
$
-
-
-
-
$
$
-
-
-
-
Total
$
207
10,387
6,838
$17,432
Total
$
364
11,402
6,987
$18,753
139
67735
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 one
outstanding award has 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, 2018, there were 8,729,408 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, 2018 there were 6,810,413 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 fifth 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. Performance awards sometimes are used to provide a narrow, targeted incentive
to a single person or small group; one such award which includes a market performance condition to FHN’s
Chief Executive Officer (“CEO”) is discussed in the next paragraph. Of the annual program awards paid during
2018 or outstanding on December 31, 2018: performance conditions related to the 2015 units were met at the
108.3 percent payout level and vested in 2018; the three-year performance period of the 2016 units has ended
but performance is measured relative to peers and has not yet been determined; and, the three-year performance
periods for the 2017 and 2018 units have not ended.
Market condition award. In 2016, FHN made a special grant of performance stock units to FHN’s CEO which will
vest at the end of a performance period of seven years. The award has no provision for pro-rated payment based
on partial performance. The award’s performance goal is based on achievement of a specific level of total
shareholder return during the performance period.
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 vest in the year following the year of grant,
require a two-year payment deferral, and settle in shares after the deferral period. In 2018 and 2017 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.
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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, 2018, is presented below:
28977
January 1, 2018
Shares/units granted
Shares/units vested
Shares/units cancelled
December 31, 2018
Weighted
average
grant date
fair value
(per share) (b)
12.92
18.70
13.29
16.57
14.57
Shares/
Units (a)
3,971,216
1,260,143
(949,719)
(191,816)
4,089,824
(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 2017 and 2016 was $18.83 and $12.90, respectively.
On December 31, 2018, there was $27.8 million of unrecognized compensation cost related to nonvested
restricted stock awards. That cost is expected to be recognized over a weighted-average period of 2.3 years. The
total grant date fair value of shares vested during 2018, 2017 and 2016, was $12.6 million, $9.9 million, and
$9.7 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. 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, 2018, is shown below:
January 1, 2018
Options granted
Options exercised
Options expired/cancelled
December 31, 2018
Options exercisable
Options expected to vest
Weighted
Average
Exercise Price
(per share)
Weighted
Average
Remaining
Contractual Term
(years)
Aggregate
Intrinsic Value
(thousands)
16.80
18.69
11.91
25.80
16.16
16.44
15.35
3.06
2.45
4.84
6,684
5,619
1,065
Options
Outstanding
6,608,571
394,296
(376,273)
(721,907)
5,904,687
4,412,367
1,492,320
The total intrinsic value of options exercised during 2018, 2017 and 2016 was $3.0 million, $2.5 million, and
$10.6 million, respectively. On December 31, 2018, there was $1.8 million of unrecognized compensation cost
related to nonvested stock options. That cost is expected to be recognized over a weighted-average period of
2.8 years.
FIRST HORIZON NATIONAL CORPORATION
141
40332
Note 19 (cid:2) Stock Options, Restricted Stock, and Dividend Reinvestment Plans (continued)
FHN granted or converted 394,296, 1,483,323 and 971,328 stock options with a weighted average fair value of
$3.89, $4.69, and $2.95 per option at grant date in 2018, 2017 and 2016, respectively.
FHN used the Black-Scholes Option Pricing Model to estimate the fair value of stock options granted or converted
in 2018, 2017, and 2016 with the following assumptions:
2018
2017
2016
Expected dividend yield
Expected weighted-average lives of options granted
Expected weighted-average volatility
Expected volatility range
Risk-free interest rate
2.57%
6.21 years
24.61%
1.82%
6.09 years
26.90%
23.95 – 25.26% 24.36 – 29.44% 30.73 – 34.95%
2.07%
2.41%
6.19 years
32.84%
1.28%
2.69%
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 $23.2 million, $20.6 million, and $17.5 million for 2018, 2017, and 2016,
respectively. The corresponding total income tax benefits recognized were $5.7 million in 2018, $7.9 million in
2017, and $6.7 million in 2016.
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
numbers of shares related to issuance under the ECP and several 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 2019.
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.
142
FIRST HORIZON NATIONAL CORPORATION
53909
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, wealth management, 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,
underwriting, 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 run-off consumer lending activities, legacy (pre-2009) mortgage banking elements, 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)
2018
2017
2016
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
$ 1,220,317
7,000
722,788
1,221,996
714,109
157,602
$
556,507
$40,225,459
$
59,125
38,166
$
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
FIRST HORIZON NATIONAL CORPORATION
143
Note 20 (cid:2) Business Segment Information (continued)
(Dollars in thousands)
2018
2017
2016
49472
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
$ 1,202,317
25,277
309,308
824,740
661,608
155,471
$
506,137
$28,470,388
$
$
$
29,681
34,212
35,715
164,767
191,504
8,978
1,560
7,418
$ 3,299,117
$
$
9,724
755
(64,140)
239,252
177,829
(2,717)
(10,856)
$
846,620
21,341
258,627
626,304
457,602
163,547
$
294,055
$19,507,765
$
$
43,061
274,059
18,065
217,082
208,921
26,226
8,717
$
17,509
$ 2,543,151
$
$
8,737
2,499
(59,383)
8,878
144,258
(194,763)
(47,989)
$
742,131
38,886
248,996
612,983
339,258
121,304
$
217,954
$17,137,709
$
$
38,896
51,442
10,802
269,344
227,936
52,210
18,722
$
33,488
$ 2,364,130
$
$
5,770
2,019
(66,215)
20,453
63,577
(109,339)
(57,698)
$
8,139
$ 7,092,078
$ (146,774)
$
(51,641)
$ 6,367,268
$ 6,037,624
$
$
25,564
2,302
46,425
(18,277)
9,461
27,923
46,240
11,427
$
34,813
$ 1,363,876
$
(5,844)
897
$
$
18,726
9,161
37,012
(21,341)
5,632
44,178
19,807
7,617
$
12,190
$ 1,506,629
$
400
1,923
$
$
19,610
8,947
42,366
(27,886)
13,648
20,708
63,192
24,482
$
38,710
$ 1,887,764
$
397
146
Certain previously reported amounts have been reclassified to agree with current presentation.
(a) 2018 includes a $212.9 million pre-tax gain from the sale of Visa Class B shares; 2017 includes a $14.3 million pre-tax loss from the
repurchase of equity securities previously included in a financing transaction.
144
FIRST HORIZON NATIONAL CORPORATION
93150
Note 20 (cid:2) Business Segment Information (continued)
The following tables reflect a disaggregation of FHN’s noninterest income by major product line and reportable
segment for the years ended December 31, 2018, 2017, and 2016:
(Dollars in thousands)
Noninterest income:
Fixed income (a)
Deposit transactions and cash management
Brokerage, management fees and commissions
Trust services and investment management
Bankcard income
BOLI (b)
Debt securities gains/(losses), net (b)
Equity securities gains/(losses), net (b) (c)
All other income and commissions (d)
December 31, 2018
Regional
Banking
Fixed
Income
Corporate
Non-
Strategic
Consolidated
$
417
126,909
54,800
29,852
26,848
-
-
-
70,482
$163,382
12
-
-
-
-
-
-
1,373
$
-
6,144
-
(46)
226
18,955
52
212,896
1,025
$4,083
216
3
-
(356)
-
-
-
5,515
$167,882
133,281
54,803
29,806
26,718
18,955
52
212,896
78,395
Total noninterest income
$309,308
$164,767
$239,252
$9,461
$722,788
(Dollars in thousands)
Noninterest income:
Fixed income
Deposit transactions and cash management
Brokerage, management fees and commissions
Trust services and investment management
Bankcard income
BOLI
Debt securities gains/(losses), net
Equity securities gains/(losses), net
All other income and commissions (e)
December 31, 2017
Regional
Banking
Fixed
Income
Corporate
Non-
Strategic
Consolidated
$
430
105,163
48,513
28,491
25,014
-
386
-
50,630
$216,195
3
-
-
-
-
-
-
884
$
-
5,236
1
(71)
225
15,124
97
109
(11,843)
$
-
190
-
-
228
-
-
-
5,214
$216,625
110,592
48,514
28,420
25,467
15,124
483
109
44,885
Total noninterest income
$258,627
$217,082
$ 8,878
$5,632
$490,219
(Dollars in thousands)
Noninterest income:
Fixed income
Deposit transactions and cash management
Brokerage, management fees and commissions
Trust services and investment management
BOLI
Bank-owned life insurance
Debt securities gains/(losses), net
Equity securities gains/(losses), net
All other income and commissions
December 31, 2016
Regional
Banking
Fixed
Income
Corporate
Non-
Strategic
Consolidated
$
79
103,122
42,911
27,764
23,945
-
-
-
51,175
$268,482
3
-
-
-
-
-
-
859
$
-
5,250
-
(37)
215
14,687
1,485
(144)
(1,003)
$
-
178
-
-
270
-
-
-
13,200
$268,561
108,553
42,911
27,727
24,430
14,687
1,485
(144)
64,231
Total noninterest income
$248,996
$269,344
$20,453
$13,648
$552,441
(a) Includes $28.9 million of underwriting, portfolio advisory, and other noninterest income in scope of Accounting Standards Codification
(“ASC”) 606, “Revenue From Contracts With Customers.” Non-Strategic includes a $4.1 million gain from the reversal of a previous
valuation adjustment due to sales of TRUPS loans excluded from the scope of ASC 606.
(b) Represents noninterest income excluded from the scope of ASC 606. Amount is presented for informational purposes to reconcile total non-
interest income.
(c) Includes a pre-tax gain of $212.9 million from the sale of FHN’s remaining holdings of Visa Class B shares.
(d) Includes other service charges, ATM and interchange fees, electronic banking fees, and insurance commission in scope of ASC 606.
(e) Corporate includes a $14.3 million pre-tax loss from the repurchase of equity securities previously included in a financing transaction.
FIRST HORIZON NATIONAL CORPORATION
145
79851
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.
146
FIRST HORIZON NATIONAL CORPORATION
77232
Note 21 (cid:2) Variable Interest Entities (continued)
The following table summarizes VIEs consolidated by FHN as of December 31, 2018 and December 31, 2017:
December 31, 2018
December 31, 2017
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
$
-
16,213
-
16,213
35
$16,248
$ 2,981
-
$ 2,981
N/A
N/A
N/A
N/A
$78,446
$78,446
N/A
$56,700
$56,700
$
-
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
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 $4.1 million, $1.8 million, and $1.8
million during 2018, 2017, and 2016, 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,
2018, 2017 and 2016 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.
2018
2017
2016
$ 10,793
(10,232)
(7,370)
$ 14,037
(11,037)
(5,045)
$ 14,223
(10,100)
(9,779)
FIRST HORIZON NATIONAL CORPORATION
147
66763
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. A NMTC relationship was resolved in 2018 resulting in a $15.3
million decline in the investment balance and the related debt.
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. 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
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Note 21 (cid:2) Variable Interest Entities (continued)
FHN. Additionally, FHN has 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. However, FHN did not have the ability to participate in significant portions of a securitization trust’s
cash flows, and 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. FHN retired $45.4 million of this debt and the related trust preferred
securities in 2018.
FIRST HORIZON NATIONAL CORPORATION
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Note 21 (cid:2) Variable Interest Entities (continued)
The following table summarizes FHN’s nonconsolidated VIEs as of December 31, 2018:
(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
$ 156,056
3,619
270,585
37,532
1,524
4,842,630
40,590
16,327
-
$ 80,427
-
-
76,642
-
-
-
-
167,014
(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 $75.6 million of current investments and $80.4 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 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, $2.7 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
$76.6 million classified as Term borrowings.
(f) Includes $.5 billion classified as Trading securities and $4.4 billion classified as Securities available-for-sale.
(g) Maximum loss exposure represents $38.2 million of current receivables and $2.3 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 to nature of FHN’s involvement.
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 to nature of FHN’s involvement.
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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. In 2017, a central clearinghouse revised the treatment of daily margin posted or
received from collateral to legal settlements of the related derivative contracts. In 2018, the other central
clearinghouse used by FHN also revised the treatment of daily margin posted or received from collateral to legal
settlements of the related derivative contracts. These changes 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. These changes had no effect on hedge accounting or
gains/losses for the applicable derivative contracts. On December 31, 2018 and 2017, respectively, FHN had
$79.9 million and $60.3 million of cash receivables and $40.4 million and $49.7 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.
FIRST HORIZON NATIONAL CORPORATION
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Note 22 (cid:2) Derivatives (continued)
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
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 $132.3 million,
$173.9 million and $229.7 million for the years ended December 31, 2018, 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, 2018 and 2017:
(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
Forwards and Futures Purchased
Forwards and Futures Sold
Interest Rate Risk Management
December 31, 2018
Notional
Assets
Liabilities
$2,271,448
2,271,448
20,000
4,684,177
4,967,454
$18,744
4,014
25
28,304
522
$27,768
9,041
-
181
30,055
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
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
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Note 22 (cid:2) Derivatives (continued)
the interest rate risk of the senior debt. The balance sheet impact of this swap was not significant as of December
31, 2018 and 2017.
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 not significant as of December 31, 2018 and 2017.
The following tables summarize FHN’s derivatives associated with interest rate risk management activities as of
December 31, 2018 and 2017:
(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:
Par
Cumulative fair value hedging adjustments
Unamortized premium/(discount) and issuance costs
Total carrying value
(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:
Par
Cumulative fair value hedging adjustments
Unamortized premium/(discount) and issuance costs
Total carrying value
December 31, 2018
Notional
Assets
Liabilities
$2,029,162
2,029,162
$20,262
8,154
$ 25,880
9,153
$ 900,000
$
127
$
6
N/A
N/A
N/A
N/A
N/A $900,000
(15,094)
N/A
N/A
(2,295)
N/A $882,611
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
N/A
N/A
N/A $900,000
(13,472)
N/A
(3,910)
N/A
N/A $882,618
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Note 22 (cid:2) Derivatives (continued)
The following table summarizes gains/(losses) on FHN’s derivatives associated with interest rate risk management
activities for the years ended December 31, 2018, 2017, and 2016:
(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 (b)
Hedged Items:
Term Borrowings (a) (c)
Year Ended December 31
2018
2017
2016
Gains/(Losses)
Gains/(Losses)
Gains/(Losses)
$ 1,779
(1,779)
$(10,703)
10,699
$(22,969)
22,969
$(1,648)
$ (7,766)
$ (3,552)
1,622
7,582
3,429
(a) Gains/losses included in All other expense within the Consolidated Statements of Income.
(b) Gains/losses included in the Interest expense for 2018, and All other expense for 2017 and 2016 within the Consolidated Statement of
Income.
(c) Represents gains and losses attributable to changes in fair value due to interest rate risk as designated in ASC 815-20 hedging
relationships.
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 had initial 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. Subsequent to 2017, all
changes in the fair value of these derivatives are recorded as a component of AOCI. Amounts are reclassified from
AOCI to earnings as the hedged cash flows affect earnings. Prior to 2018, FHN measured ineffectiveness using the
Hypothetical Derivative Method and AOCI was adjusted to an amount that reflected 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 existed in the hedge relationships, the amounts were
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,
2018 and 2017:
(Dollars in thousands)
Cash Flow Hedges
Hedging Instruments:
Interest Rate Swaps
Hedged Items:
December 31, 2018
Notional
Assets
Liabilities
$900,000
$
888
$ 5
Variability in Cash Flows Related to Debt Instruments (Primarily Loans)
N/A
$900,000
N/A
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December 31, 2017
Notional
Assets
Liabilities
Note 22 (cid:2) Derivatives (continued)
(Dollars in thousands)
Cash Flow Hedges
Hedging Instruments:
Interest Rate Swaps
Hedged Items:
Variability in Cash Flows Related to Debt Instruments (Primarily Loans)
N/A
$900,000
$900,000
$
942
N/A
N/A
The following table summarizes gains/(losses) on FHN’s derivatives associated with cash flow hedges for the years
ended December 31, 2018 and 2017:
(Dollars in thousands)
Cash Flow Hedges
Hedging Instruments:
Year Ended December 31
2018
2017
2016
Gains/(Losses)
Gains/(Losses)
Gains/(Losses)
Interest Rate Swaps (a)
Gain/(loss) recognized in Other comprehensive income/(loss)
Gain/(loss) reclassified from AOCI into Interest income
$(8,264)
(2,156)
(2,945)
(a) Approximately $7.4 million of cumulative losses are expected to be reclassified into earnings in the next twelve months.
$(5,502)
(6,284)
2,142
$(2,045)
130
(1,395)
Other Derivatives
In conjunction with the sales of a portion of its Visa Class B shares in 2010 and 2011, 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 is also required to make periodic
financing payments to the purchasers until all of Visa’s covered litigation matters are resolved. In third quarter
2018, FHN sold the remainder of its Visa Class B shares, entering into a similar derivative arrangement with the
counterparty. All of these derivatives extend until the end of Visa’s Covered Litigation matters. In September 2018,
Visa reached a preliminary settlement for one class of plaintiffs in its Payment Card Interchange matter. This
settlement is subject to court approval and contains opt out provisions for individual plaintiffs as well as a
termination option if opt outs exceed a specified threshold. Settlement has not been reached with the second class
of plaintiffs in this matter and other covered litigation matters are also pending judicial resolution. Accordingly, the
value and timing for completion of Visa’s Covered Litigation matters are uncertain.
The derivative transaction executed in third quarter 2018 includes a contingent accelerated termination clause
based on the credit ratings of FHN and FTBNA. FHN has not received or paid collateral related to this contract.
As of December 31, 2018 and December 31, 2017, the derivative liabilities associated with the sales of Visa Class
B shares were $31.5 million and $5.6 million, respectively. $26.0 million of the value at December 31, 2018
relates to the transaction executed in third quarter 2018. See the Visa Matters section of Note 17 – Contingencies
and Other Disclosures for more information regarding FHN’s Visa shares. See Note 24 – Fair Value of Assets &
Liabilities for discussion of the valuation inputs and processes for these Visa-related derivatives.
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,
2018 and December 31, 2017, these loans were valued at $11.0 million and $1.5 million, respectively. The
balance sheet amounts and the gains/losses associated with these derivatives were not significant.
FIRST HORIZON NATIONAL CORPORATION
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Note 22 (cid:2) Derivatives (continued)
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
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 $20.7 million of assets and $37.8 million of liabilities on December 31, 2018, and
$23.3 million of assets and $34.5 million of liabilities on December 31, 2017. As of December 31, 2018 and
2017, FHN had received collateral of $86.6 million and $119.3 million and posted collateral of $16.2 million and
$18.9 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 $19.0 million of assets and $33.2 million of
liabilities on December 31, 2018, and $22.8 million of assets and $19.4 million of liabilities on December 31,
2017. As of December 31, 2018 and 2017, FHN had received collateral of $84.5 million and $118.6 million and
posted collateral of $15.2 million and $6.7 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
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76489
Note 22 (cid:2) Derivatives (continued)
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.
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, 2018 and 2017:
(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:
$ 180
December 31, 2018 (b)
2,909
December 31, 2017 (b)
(a) Included in Derivative assets on the Consolidated Statements of Condition. As of December 31, 2018 and 2017, $28.9 million and $10.2
$(12,745)
(17,278)
$(39,637)
(51,271)
$52,562
71,458
$52,562
71,458
-
-
$
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, 2018 and 2017:
(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, 2018 (b)
December 31, 2017 (b)
(a) Included in Derivative liabilities on the Consolidated Statements of Condition. As of December 31, 2018 and 2017, $61.9 million and
$(54,773) $4,335
763
$(12,745)
(17,278)
$71,853
69,842
$71,853
69,842
(51,801)
-
-
$
$15.2 million, respectively, of derivative liabilities (primarily Visa-related derivatives and 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.
FIRST HORIZON NATIONAL CORPORATION
157
98629
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
$386,443
725,609
$
-
-
$386,443
725,609
$(261)
(259)
$(382,756)
(720,036)
$3,426
5,314
(Dollars in thousands)
Securities purchased
under agreements
to resell:
2018
2017
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
$762,592
656,602
$
-
-
$762,592
656,602
$(261)
(259)
$(762,322)
(656,216)
$
9
127
(Dollars in
thousands)
Securities sold under
agreements to
repurchase:
2018
2017
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
158
FIRST HORIZON NATIONAL CORPORATION
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:
51382
(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
Government guaranteed loans (SBA and USDA)
Total Securities sold under agreements to repurchase
December 31, 2018
Overnight and
Continuous
Up to 30 Days
Total
$ 16,321
414,488
36,688
289,875
$757,372
$
-
5,220
-
-
$5,220
$ 16,321
419,708
36,688
289,875
$762,592
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
FIRST HORIZON NATIONAL CORPORATION
159
51749
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.
160
FIRST HORIZON NATIONAL CORPORATION
27945
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, 2018:
(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
Corporate and other debt
Equity, mutual funds, and other
Total trading securities – fixed income
Trading securities – mortgage banking
Loans held-for-sale (elected fair value)
Securities available-for-sale:
U.S. treasuries
Government agency issued MBS
Government agency issued CMO
Other U.S. government agencies
States and municipalities
Corporate and other debt
Interest-Only Strip (elected fair value)
Total securities available-for-sale
Other assets:
Deferred compensation mutual funds
Equity, mutual funds, and other
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, 2018
Level 1
Level 2
Level 3
Total
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
37,771
22,248
28,826
-
-
88,845
$
$ 169,799
133,373
330,456
76,733
54,234
682,068
(19)
1,446,644
-
-
-
-
-
-
-
-
$ 169,799
133,373
330,456
76,733
54,234
682,068
(19)
1,446,644
-
-
1,524
16,273
1,524
16,273
98
2,420,106
1,958,695
149,786
32,573
55,310
-
4,616,568
-
-
-
52,214
435
52,649
-
-
-
-
-
-
9,902
9,902
-
-
-
-
-
-
98
2,420,106
1,958,695
149,786
32,573
55,310
9,902
4,626,470
37,771
22,248
28,826
52,214
435
141,494
$88,845
$6,115,861
$27,699
$6,232,405
$
$
-
-
-
-
$ 207,739
98
127,543
335,380
-
-
-
-
$ 207,739
98
127,543
335,380
30,236
-
-
30,236
-
71,853
84
71,937
-
-
31,540
31,540
30,236
71,853
31,624
133,713
$30,236
$ 407,317
$31,540
$ 469,093
FIRST HORIZON NATIONAL CORPORATION
161
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, 2017:
12510
(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
Corporate 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
162
FIRST HORIZON NATIONAL CORPORATION
78269
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, 2018, 2017
and 2016 on a recurring basis are summarized as follows:
(Dollars in thousands)
Balance on January 1, 2018
Total net gains/(losses) included in:
Net income
Purchases
Sales
Settlements
Net transfers into/(out of) Level 3
Balance on December 31, 2018
Year Ended December 31, 2018
Trading
securities
Interest-
only strips-
AFS
Loans held-
for-sale
Net derivative
liabilities
$2,151
$ 1,270
$18,926
$ (5,645)
173
-
-
(800)
-
(398)
-
(16,840)
-
1,239
62
-
(3,598)
25,870(b)
(356)(d)
(4,677)
(28,100)(e)
-
6,882
-
$1,524
$ 9,902
$16,273
$(31,540)
Net unrealized gains/(losses) included in net income
$
6(a) $ (1,025)(c)
$ 1,239(a)
$ (4,677)(f)
(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)(f)
(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)(f)
Balance on December 31, 2016
$ 2,573
$21,924
Net unrealized gains/(losses) included in net income
$
159(a) $ 3,380(a)
(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) Increase related to newly executed Visa-related derivatives, see Note 22-Derivatives.
(f) Included in Other expense.
FIRST HORIZON NATIONAL CORPORATION
163
52929
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
There were no net unrealized gains/(losses) for Level 3 assets and liabilities included in other comprehensive
income as of December 31, 2018, 2017 and 2016.
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, 2018, 2017 and 2016,
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, 2018
Year Ended
December 31, 2018
Loans held-for-sale – other consumer
Loans held-for-sale – SBAs and USDA
Loans held-for-sale – first mortgages
Loans, net of unearned income (a)
OREO (b)
Other assets (c)
$-
-
-
-
-
-
$ 18,712
577,280
-
-
-
-
$
-
1,011
541
48,259
22,387
8,845
$ 18,712
578,291
541
48,259
22,387
8,845
$ (1,809)
(2,541)
13
(841)
(2,599)
(4,712)
$(12,489)
(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)
(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 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, third, and second quarters of 2018, FHN recognized $1.9 million, $.7 million, and $1.3 million,
respectively, of impairments of long-lived assets in its corporate segment primarily related to optimization efforts for
its facilities. 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
164
FIRST HORIZON NATIONAL CORPORATION
45395
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
Regional Banking segment recognized $3.7 million of impairments on long-lived assets for similar efficiency efforts.
$1.0 million of the fourth quarter 2017 impairments in the corporate segment were reversed in third quarter 2018
based on the disposition price for the applicable location and an additional $.5 million was reversed in fourth
quarter 2018. 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 was required upon completion of the
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.
FIRST HORIZON NATIONAL CORPORATION
165
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
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, 2018 and 2017:
36587
Values Utilized
Weighted
Average (d)
(Dollars in thousands)
Fair Value at
Level 3 Class
December 31, 2018 Valuation Techniques
Unobservable Input
Range
Available-for-sale –
$ 9,902
Discounted cash flow Constant prepayment rate
11% - 12%
11%
securities SBA-interest
only strips
Loans held-for-sale –
residential real estate
16,815
Discounted cash flow
Bond equivalent yield
Prepayment speeds –
First mortgage
Prepayment speeds –
HELOC
14% - 15%
2% - 10%
14%
3%
5% - 12%
7.5%
Loans held-for-sale –
1,011
Discounted cash flow
unguaranteed interest
in SBA loans
Derivative liabilities,
31,540
Discounted cash flow
other
Foreclosure losses
50% - 66%
2% - 25% of UPB
63%
17%
Loss severity trends –
First mortgage
Loss severity trends –
HELOC
Constant prepayment
rate
50% - 100% of UPB
50%
8% - 12%
10%
Bond equivalent yield
9%
9%
Visa covered litigation
resolution amount
Probability of
resolution scenarios
$5.0 billion - $5.8 billion $5.6 billion
10% - 25%
23%
Time until resolution
18 - 48 months
36 months
Loans, net of unearned
48,259
income (a)
Appraisals from
comparable properties
Marketability
adjustments for
specific properties
Other collateral
valuations
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)
22,387
Appraisals from
comparable properties
Adjustment for value
changes since appraisal
0% - 10% of
appraisal
Other assets (c)
8,845
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
NM
NM
NM
NM
NM
NM
NM - Not meaningful.
(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.
(d) Weighted averages are determined by the relative fair value of the instruments or the relative contribution to an instrument’s fair value
166
FIRST HORIZON NATIONAL CORPORATION
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
(Dollars in thousands)
Fair Value at
Values Utilized
Level 3 Class
December 31, 2017 Valuation Techniques Unobservable Input
Range
72133
Weighted
Average (d)
$ 1,270
Discounted cash flow Constant prepayment
10% - 11%
11%
rate
Available-for-sale –
securities SBA-
interest only strips
Loans held-for-sale –
residential real estate
19,544
Discounted cash flow Prepayment speeds –
2% - 12%
Bond equivalent yield
17%
First mortgage
Prepayment speeds –
HELOC
5% - 12%
Foreclosure losses
50% - 70%
17%
3%
8%
65%
20%
Loss severity trends –
First mortgage
Loss severity trends –
HELOC
5% - 30% of UPB
15% - 100% of UPB
55%
Loans held-for-sale –
unguaranteed
interest in SBA loans
1,473
Discounted cash flow Constant prepayment
8% - 12%
10%
rate
Bond equivalent yield
9% - 10%
10%
Derivative liabilities,
5,645
Discounted cash flow Visa covered litigation
$4.4 billion - $5.2 billion
$4.9 billion
other
resolution amount
Probability of
resolution scenarios
10% - 30%
23%
Time until resolution
18 - 48 months
35 months
Loans, net of unearned
26,666
income (a)
Appraisals from
comparable properties
Marketability
adjustments for
specific properties
Other collateral
valuations
Borrowing base
certificates adjustment
OREO (b)
39,566
Appraisals from
comparable properties
Financial
Statements/Auction
values adjustment
Adjustment for value
changes since
appraisal
Other assets (c)
26,521
Discounted cash flow Adjustments to current
Appraisals from
comparable properties
sales yields for
specific properties
Marketability
adjustments for
specific properties
0% - 10% of appraisal
NM
20% - 50% of gross value
NM
0% - 25% of
reported value
NM
0% - 10% of appraisal
NM
0% - 15% adjustment
to yield
NM
0% - 25% of appraisal
NM
NM - Not meaningful.
(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.
(d) Weighted averages are determined by the relative fair value of the instruments or the relative contribution to an instrument’s fair value
FIRST HORIZON NATIONAL CORPORATION
167
65009
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.
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 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. 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.
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. 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.
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 which
utilize the platform 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.
168
FIRST HORIZON NATIONAL CORPORATION
80792
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
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, 2018
Fair value
carrying
amount
Aggregate
unpaid
principal
Fair value
carrying amount
less aggregate
unpaid principal
$16,273
4,536
171
$23,567
8,128
281
$(7,294)
(3,592)
(110)
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)
-
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
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
2018
2017
2016
$1,239
$1,547
$3,380
For the years ended December 31, 2018, 2017 and 2016, the amounts for residential real estate loans held-for-
sale included gains of $.2 million, $.5 million, and $1.5 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.
FIRST HORIZON NATIONAL CORPORATION
169
48238
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
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. Valuations of available-for-sale securities are performed using observable
inputs obtained from market transactions in similar 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.
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.
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
170
FIRST HORIZON NATIONAL CORPORATION
81595
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
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 committed bids for specific loans or loan portfolios or
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.
Collateral-Dependent loans. 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.
Nonearning assets. For disclosure purposes, for periods prior to 2018, 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, FRB and FHLB Stock,
deferred compensation mutual funds and equity investments (including other mutual funds) with readily
determinable fair values. 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
FIRST HORIZON NATIONAL CORPORATION
171
93939
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
using recent transaction information with adjustments for differences in individual investments. Deferred
compensation mutual funds are recognized at fair value, which is based on quoted prices in active markets.
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.
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. For periods prior to 2018, 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.
Other noninterest-bearing liabilities. For disclosure purposes for periods prior to 2018, 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, 2018 and 2017, 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 TRUPS 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.
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.
172
FIRST HORIZON NATIONAL CORPORATION
38501
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
The following tables summarize the book value and estimated fair value of financial instruments recorded in the
Consolidated Statements of Condition as of December 31, 2018 and December 31, 2017:
(Dollars in thousands)
Assets:
Loans, net of unearned income and allowance for
loan losses
Commercial:
Book
Value
December 31, 2018
Fair Value
Level 1
Level 2
Level 3
Total
Commercial, financial and industrial
Commercial real estate
$16,415,381
3,999,559
$
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 (elected fair value) (a)
USDA & SBA loans- LOCOM
Other consumer loans- LOCOM
Mortgage loans- LOCOM
Total loans held-for-sale
Securities available-for-sale (a)
Securities held-to-maturity
Derivative assets (a)
Other assets:
Tax credit investments
Deferred compensation mutual funds
Equity, mutual funds, and other (b)
Total other assets
Total assets
Liabilities:
Defined maturity 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)
Total liabilities
$
-
-
-
-
-
-
-
-
-
-
-
-
$16,438,272
3,997,736
$16,438,272
3,997,736
6,194,066
227,254
507,001
6,194,066
227,254
507,001
27,364,329
27,364,329
1,277,611
-
-
1,277,611
-
-
-
-
-
-
-
-
-
28,826
-
37,771
22,248
60,019
-
237,591
386,443
624,034
1,446,644
-
582,476
6,422
-
588,898
4,616,568
-
52,649
-
-
-
-
-
-
-
-
1,524
16,273
1,015
18,712
59,451
95,451
9,902
9,843
-
159,452
-
218,532
377,984
1,277,611
237,591
386,443
1,901,645
1,448,168
16,273
583,491
25,134
59,451
684,349
4,626,470
9,843
81,475
159,452
37,771
240,780
438,003
6,223,077
211,448
505,643
27,355,108
1,277,611
237,591
386,443
1,901,645
1,448,168
16,273
578,291
25,134
59,451
679,149
4,626,470
10,000
81,475
163,300
37,771
240,780
441,851
$36,543,866
$1,366,456
$7,328,793
$27,859,033
$36,554,282
$ 4,105,777
335,380
$
256,567
762,592
114,764
1,133,923
46,168
2,699
19,588
143,255
959,253
1,170,963
133,713
-
-
-
-
-
-
-
-
-
-
-
-
30,236
$4,082,822
335,380
$
256,567
762,592
114,764
1,133,923
-
-
-
-
-
-
$ 4,082,822
335,380
256,567
762,592
114,764
1,133,923
-
47,000
47,000
-
-
-
960,483
960,483
71,937
2,664
19,588
134,266
-
203,518
31,540
2,664
19,588
134,266
960,483
1,164,001
133,713
$ 6,879,756
$
30,236
$6,584,545
$
235,058
$ 6,849,839
(a) Classes are detailed in the recurring and nonrecurring measurement tables.
(b) Level 1 primarily consists of mutual funds with readily determinable fair value. Level 3 includes restricted investments in FHLB-Cincinnati
stock of $87.9 million and FRB stock of $130.7 million.
FIRST HORIZON NATIONAL CORPORATION
173
62265
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:
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:
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
Book
Value
December 31, 2017
Fair Value
Level 1
Level 2
Level 3
Total
$15,959,062
4,186,268
$
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
$
-
-
-
-
-
-
-
-
-
-
-
-
$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
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
-
-
-
-
966,292
966,292
69,881
48,996
16,270
65,266
$36,013,670
$
-
-
-
-
-
-
-
-
48,880
17,930
18,305
187,281
-
272,396
5,645
-
-
-
278,041
$ 3,293,650
27,297,431
30,591,081
638,515
399,820
656,602
2,626,213
3,682,635
48,880
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.
174
FIRST HORIZON NATIONAL CORPORATION
41103
Note 24 (cid:2) Fair Value of Assets and Liabilities (continued)
Contractual Amount
Fair Value
(Dollars in thousands)
December 31, 2018
December 31, 2017
December 31, 2018
December 31, 2017
Unfunded Commitments:
Loan commitments
Standby and other commitments
$10,884,975
446,958
$10,678,485
420,728
$2,551
5,043
$2,617
4,037
FIRST HORIZON NATIONAL CORPORATION
175
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 (a)
Notes receivable
Allowance for loan losses
Investments in subsidiaries:
Bank
Non-bank
Other assets (a)
Total assets
Liabilities and equity:
Accrued employee benefits and other liabilities
Term borrowings
Total liabilities
Total equity
Total liabilities and equity
02054
December 31
2018
2017
$ 334,485
-
2,888
(925)
$ 254,938
1,836
3,067
(925)
4,741,105
20,281
180,757
4,618,249
22,932
207,878
$5,278,591
$5,107,975
$ 158,648
629,994
788,642
4,489,949
$ 149,124
673,794
822,918
4,285,057
$5,278,591
$5,107,975
(a) Equity investments were reclassified to Other assets upon adoption of ASU 2016-01 on January 1, 2018.
Statements of Income
(Dollars in thousands)
Dividend income:
Bank
Non-bank
Total dividend income
Other income/(loss)
Total income
Interest expense:
Term borrowings
Total interest expense
Compensation, employee benefits and other expense
Total expense
Income/(loss) before income taxes
Income tax(benefit)/expense
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
Year Ended December 31
2018
2017
2016
$420,000
1,386
$250,000
1,097
$250,000
1,361
421,386
112
421,498
31,315
31,315
53,401
84,716
336,782
(38,509)
375,291
251,097
190
251,287
17,936
17,936
43,783
61,719
189,568
512
189,056
251,361
(207)
251,154
14,238
14,238
38,926
53,164
197,990
(22,981)
220,971
170,939
(1,188)
(24,255)
714
9,508
(3,433)
$545,042
$165,515
$227,046
176
FIRST HORIZON NATIONAL CORPORATION
15034
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
Net (increase)/decrease in interest receivable and other assets
Net (decrease)/increase in interest payable and other liabilities
Total adjustments
Year Ended December 31
2018
2017
2016
$ 545,042
169,751
375,291
$ 165,515
(23,541)
189,056
$ 227,046
6,075
220,971
15
(28)
3,212
22,398
18,214
(10,702)
33,109
15
(109)
7,727
19,625
8,605
13,172
49,035
53
148
-
16,719
(2,228)
(2,842)
11,850
Net cash provided/(used) by operating activities
408,400
238,091
232,821
Investing activities:
Securities:
Sales and prepayments
Purchases
Premises and equipment:
Sales/(purchases)
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:
Repayment of 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
65
-
318
-
(43)
1,597
-
(39,916)
7
1,871
-
(126,149)
(38,297)
(123,953)
275
(400)
(17)
129
-
-
(13)
(6,200)
(6,200)
(6,200)
4,482
(138,706)
(104,768)
6,132
(79,904)
(5,554)
22,479
(63,504)
(97,396)
(45,364)
-
-
(290,556)
(85,526)
(144,621)
79,547
28,612
88,187
254,938
226,326
138,139
$ 334,485
$ 254,938
$ 226,326
$ 29,186
49,056
$ 17.321
23,020
$ 13,261
27,126
FIRST HORIZON NATIONAL CORPORATION
177
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
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
Operations services
Professional fees
Equipment rentals, depreciation, and maintenance
FDIC premium expense
Communications and courier
Amortization of intangible assets
Advertising and public relations
Contract employment and outsourcing
Legal fees
Repurchase and foreclosure provision/(provision credit)
All other expense
Total noninterest expense
Income/(loss) before income taxes
Provision/(benefit) for income taxes
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
42610
2018
2017
2016
2015
2014
Growth Rates
18/17 18/14**
$1,286.5 $ 816.8 $ 679.9 $ 600.3 $ 571.8
93.2
0.3
58%
24%
(17)%
130.4
0.5
45.1
58.7
24.9
1,546.0
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
11.2 NM
32.0
0.7
709.2
68%
66% NM
56%
22%
22%
9%
14%
42%
16%
107.7
53.1
55.7
19.4
36.7
53.0
325.7
1,220.3
7.0
1,213.3
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
167.9
133.3
54.8
29.8
26.7
19.0
0.1
212.9
78.4
722.8
216.6
110.6
48.5
28.4
25.5
15.1
0.5
0.1
44.9
490.2
1,936.1 1,332.5
268.6
108.6
42.9
27.7
24.4
14.7
1.5
(0.1)
64.2
552.4
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
658.2
85.0
60.6
56.3
45.8
39.1
31.6
30.0
25.9
24.8
18.5
11.1
(1.0)
136.0
587.5
54.6
48.2
43.8
47.9
29.5
26.8
17.6
8.7
19.2
15.0
12.1
(22.5)
135.1
1,222.0 1,023.7
308.9
131.9
177.0
11.5
165.5
6.2
$ 538.8 $ 159.3 $ 220.8 $
563.8
50.9
45.1
41.9
19.2
27.4
21.6
14.3
5.2
21.6
10.1
21.6
(32.7)
115.4
925.2
345.3
106.8
238.5
11.5
227.0
6.2
714.1
157.6
556.5
11.5
545.0
6.2
512.8
51.1
44.7
39.3
18.9
30.9
18.0
15.8
5.3
19.2
14.5
16.3
-
267.0
1,053.8
108.3
10.9
97.3
11.4
85.9
6.2
4.2 NM
18.7
19.4
20.9
(4.3)
82.9
832.5
318.2 NM
84.2
11.5
234.0 NM
*
222.5 NM
*
79.7 $ 216.3 NM
6.2
$
$
8.8 $
1.66 $
13.6 $
0.66 $
11.6 $
0.95 $
10.7 $
0.34 $
9.6
(35)%
0.92 NM
11.5 NM
12.2 NM
3.1 NM
15.4
25%
4.7 NM
47%
34.6
81.5 NM
627.7
45%
27.0 NM
600.7
44%
75%
44%
NM
6%
67%
11%
41%
18%
(29)%
19%
2.9 NM
200.6
111.9
49.1
27.8
23.7
16.4
-
117.7
550.1
1,150.8
477.8
54.0
42.9
35.2
23.3
30.0
11.4
16.1
(4)%
4%
3%
2%
3%
4%
(22)%
21%
13%
5%
5%
26%
(89)% NM
NM
(10)%
7%
14%
75%
47%
45%
12%
56%
26%
29%
(4)%
33%
18%
70%
8%
12%
9%
12%
18%
7%
29%
17%
58%
7%
29%
23%
(1)%
(8)% (15)%
31%
96%
13%
1%
10%
19%
22%
17%
24%
*
25%
*
26%
19%
(2)%
16%
16%
Diluted earnings/(loss) per common share
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.
1.65 $
0.65 $
0.94 $
0.34 $
0.91 NM
178
FIRST HORIZON NATIONAL CORPORATION
58114
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FIRST HORIZON NATIONAL CORPORATION
179
CONSOLIDATED AVERAGE BALANCE SHEET AND RELATED YIELDS AND RATES (Unaudited)
31336
(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:
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
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
2018
Average
Balance
Interest Income/
Expense
Average
Yields/
Rates
$27,213.8
724.0
$1,294.5
45.1
4.76%
6.23
125.4
0.4
2.9
2.3
131.0
59.3
0.9
12.2
11.8
24.9
1,554.8
4,644.8
11.0
65.5
7.0
4,728.3
1,603.8
37.6
745.5
623.6
1,406.7
35,676.6
(187.7)
585.4
55.9
521.8
3,573.5
$40,225.5
$1,554.8
$11,289.3
7,931.6
3,681.7
22,902.6
405.1
713.8
682.9
1,046.6
1,211.9
26,962.9
8,000.6
20.2
624.3
35,608.0
4,322.1
295.4
4,617.5
$40,225.5
$ 107.7
55.7
53.1
216.5
7.7
10.0
19.4
19.1
53.0
325.7
$ 325.7
$1,229.1
(8.8)
$1,220.3
2.70
4.03
4.42
31.65
2.77
3.70
2.47
1.63
1.89
1.77
4.36
0.95%
0.70
1.44
0.95
1.89
1.40
2.83
1.82
4.38
1.21
3.45%
3.15%
0.30
3.45%
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 21 percent in 2018 and 35 percent prior to
2018, 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.
180
FIRST HORIZON NATIONAL CORPORATION
12677
2017
Interest
Income/
Expense
Average
Balance
Average
Yields/
Rates
Average
Balance
2016
Interest
Income/
Expense
Average
Yields/
Rates
Average
Balance
Growth
18/17
Average
Balance
Growth
18/16 (b)
$20,104.0
370.6
$ 829.0
17.5
4.12%
4.73
$18,303.9
124.3
$689.9
5.5
3.77%
4.43
98.1
0.1
0.8
6.7
105.7
36.3
0.4
5.2
9.4
15.0
1,003.5
2.56
9.36
4.98
3.49
2.62
3.04
1.63
0.69
0.96
0.85
3.65
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
91.7
0.4
0.5
5.0
97.6
32.3
0.3
0.5
3.4
4.2
829.5
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
$29,924.8
$1,003.5
$27,427.2
$829.5
42.5
24.5
13.1
80.1
4.7
4.2
15.5
7.1
36.0
147.6
$ 9,113.9
6,062.9
1,463.8
$
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
$ 147.6
$ 855.9
(13.6)
$ 842.3
0.47%
0.40
0.90
$ 8,371.2
5,468.0
1,298.7
$ 19.6
10.4
10.0
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
40.0
3.1
0.3
15.0
1.3
29.1
88.8
$ 88.8
$740.7
(11.6)
$729.1
0.48
1.06
0.72
2.26
1.28
3.35
0.74
3.12%
2.91%
0.21
3.12%
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
2.94%
2.80%
0.14
2.94%
35%
95%
21%
NM
NM
(96)%
17%
34%
38%
(1)%
(36)%
(20)%
30%
NM
55%
(7)%
68%
87%
34%
24%
31%
NM
38%
(9)%
23%
*
89%
12%
35%
24%
(43)%
24%
32%
62%
*
55%
34%
22%
NM
10%
47%
NM
(81)%
9%
15%
27%
(5)%
(4)%
(4)%
19%
NM
35%
(15)%
37%
42%
21%
16%
20%
68%
23%
(17)%
30%
(6)%
NM
4%
22%
18%
(35)%
(4)%
20%
34%
*
31%
21%
NM – Not meaningful
* Amount is less than one percent.
(a) Includes loans on nonaccrual status.
(b) Compound annual growth rate.
FIRST HORIZON NATIONAL CORPORATION
181
70917
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
2013-2018
$200
$150
$100
2013
2014
2015
2016
2017
2018
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
2013
2014
2015
2016
2017
2018
$100.00
$100.00
$100.00
$118.46
$113.68
$102.43
$128.75
$115.24
$108.56
$180.73
$129.02
$151.04
$184.24
$157.17
$153.77
$124.66
$150.27
$126.88
The preceding graph assumes $100 is invested on December 31, 2013 and dividends are reinvested. Returns are
market-capitalization weighted.
182
FIRST HORIZON NATIONAL CORPORATION
15421
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15989
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CORPORATE
OFFICERS
As of March 1, 2019
CLYDE A. BILLINGS, JR.
Senior Vice President
Assistant General Counsel
and Corporate Secretary
JOHN M. DANIEL
Executive Vice President
(cid:10)(cid:133)(cid:136)(cid:105)(cid:118)(cid:3)(cid:21)(cid:213)(cid:147)(cid:62)(cid:152)(cid:3)(cid:44)(cid:105)(cid:195)(cid:156)(cid:213)(cid:192)(cid:86)(cid:105)(cid:195)(cid:3)(cid:34)(cid:118)(cid:119)(cid:86)(cid:105)(cid:192)
JEFF L. FLEMING
Executive Vice President
(cid:10)(cid:133)(cid:136)(cid:105)(cid:118)(cid:3)(cid:230)(cid:86)(cid:86)(cid:156)(cid:213)(cid:152)(cid:204)(cid:136)(cid:152)(cid:125)(cid:3)(cid:34)(cid:118)(cid:119)(cid:86)(cid:105)(cid:192)(cid:3)(cid:62)(cid:152)(cid:96)(cid:3)
Corporate Controller
D. BRYAN JORDAN
Chairman of the Board, President
(cid:62)(cid:152)(cid:96)(cid:3)(cid:10)(cid:133)(cid:136)(cid:105)(cid:118)(cid:3)(cid:13)(cid:221)(cid:105)(cid:86)(cid:213)(cid:204)(cid:136)(cid:219)(cid:105)(cid:3)(cid:34)(cid:118)(cid:119)(cid:86)(cid:105)(cid:192)
DANE P. SMITH
Senior Vice President
Corporate Treasurer
MICHAEL E. KISBER
President – FTN Financial
WILLIAM C. LOSCH III
Executive Vice President
(cid:10)(cid:133)(cid:136)(cid:105)(cid:118)(cid:3)(cid:19)(cid:136)(cid:152)(cid:62)(cid:152)(cid:86)(cid:136)(cid:62)(cid:143)(cid:3)(cid:34)(cid:118)(cid:119)(cid:86)(cid:105)(cid:192)
DAVID T. POPWELL
President – Banking
SUSAN L. SPRINGFIELD
Executive Vice President
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CHARLES T. TUGGLE, JR.
Executive Vice President
General Counsel
YOUSEF A. VALINE
Executive Vice President
(cid:10)(cid:133)(cid:136)(cid:105)(cid:118)(cid:3)(cid:34)(cid:171)(cid:105)(cid:192)(cid:62)(cid:204)(cid:136)(cid:152)(cid:125)(cid:3)(cid:62)(cid:152)(cid:96)(cid:3)(cid:44)(cid:136)(cid:195)(cid:142)(cid:3)(cid:34)(cid:118)(cid:119)(cid:86)(cid:105)(cid:192)
BOARD OF
DIRECTORS
As of March 1, 2019
KENNETH A. BURDICK
(cid:10)(cid:133)(cid:136)(cid:105)(cid:118)(cid:3)(cid:13)(cid:221)(cid:105)(cid:86)(cid:213)(cid:204)(cid:136)(cid:219)(cid:105)(cid:3)(cid:34)(cid:118)(cid:119)(cid:86)(cid:105)(cid:192)
WellCare Health Plans, Inc.
CORYDON J. GILCHRIST
Private Investor and Chartered
Financial Analyst
JOHN C. COMPTON
Partner
Clayton, Dubilier & Rice, LLC
WENDY P. DAVIDSON
President, U.S. Specialty Channels
Kellogg Company
MARK A. EMKES
Retired Commissioner
Department of Finance and
Administration
State of Tennessee
PETER N. FOSS
General Manager
GE/NFL Head Health Program
D. BRYAN JORDAN
Chairman of the Board, President
(cid:62)(cid:152)(cid:96)(cid:3)(cid:10)(cid:133)(cid:136)(cid:105)(cid:118)(cid:3)(cid:13)(cid:221)(cid:105)(cid:86)(cid:213)(cid:204)(cid:136)(cid:219)(cid:105)(cid:3)(cid:34)(cid:118)(cid:119)(cid:86)(cid:105)(cid:192)
First Horizon National Corp.
SCOTT M. NISWONGER
Retired Chairman
Landair Transport, Inc.
VICKI R. PALMER
President
The Palmer Group, LLC
COLIN V. REED
Chairman of the Board and
(cid:10)(cid:133)(cid:136)(cid:105)(cid:118)(cid:3)(cid:13)(cid:221)(cid:105)(cid:86)(cid:213)(cid:204)(cid:136)(cid:219)(cid:105)(cid:3)(cid:34)(cid:118)(cid:119)(cid:86)(cid:105)(cid:192)
Ryman Hospitality Properties, Inc.
CECELIA D. STEWART
Retired President
U.S. Consumer and
Commercial Banking
Citigroup, Inc.
RAJESH SUBRAMANIAM
(cid:42)(cid:192)(cid:105)(cid:195)(cid:136)(cid:96)(cid:105)(cid:152)(cid:204)(cid:3)(cid:62)(cid:152)(cid:96)(cid:3)(cid:10)(cid:133)(cid:136)(cid:105)(cid:118)(cid:3)(cid:34)(cid:171)(cid:105)(cid:192)(cid:62)(cid:204)(cid:136)(cid:152)(cid:125)(cid:3)(cid:34)(cid:118)(cid:119)(cid:86)(cid:105)(cid:192)
FedEx Corp.
R. EUGENE TAYLOR
Vice Chairman of the Board
First Horizon National Corp.
LUKE YANCY III
(cid:42)(cid:192)(cid:105)(cid:195)(cid:136)(cid:96)(cid:105)(cid:152)(cid:204)(cid:3)(cid:62)(cid:152)(cid:96)(cid:3)(cid:10)(cid:133)(cid:136)(cid:105)(cid:118)(cid:3)(cid:13)(cid:221)(cid:105)(cid:86)(cid:213)(cid:204)(cid:136)(cid:219)(cid:105)(cid:3)(cid:34)(cid:118)(cid:119)(cid:86)(cid:105)(cid:192)
Yancy Financial Group, Inc.
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HOW TO
REACH US
HEADQUARTERS
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(cid:173)(cid:110)(cid:228)(cid:228)(cid:174)(cid:3)(cid:123)(cid:110)(cid:153)(cid:135)(cid:123)(cid:228)(cid:123)(cid:228)
(cid:220)(cid:220)(cid:220)(cid:176)(cid:19)(cid:136)(cid:192)(cid:195)(cid:204)(cid:21)(cid:156)(cid:192)(cid:136)(cid:226)(cid:156)(cid:152)(cid:176)(cid:86)(cid:156)(cid:147)
CAREER OPPORTUNITIES
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COMMUNITY RELATIONS
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Email:(cid:3)(cid:19)(cid:156)(cid:213)(cid:152)(cid:96)(cid:62)(cid:204)(cid:136)(cid:156)(cid:152)@(cid:19)(cid:136)(cid:192)(cid:195)(cid:204)(cid:21)(cid:156)(cid:192)(cid:136)(cid:226)(cid:156)(cid:152)(cid:176)(cid:86)(cid:156)(cid:147)
FIRST TENNESSEE BANK
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(cid:220)(cid:220)(cid:220)(cid:176)(cid:19)(cid:136)(cid:192)(cid:195)(cid:204)(cid:47)(cid:105)(cid:152)(cid:152)(cid:105)(cid:195)(cid:195)(cid:105)(cid:105)(cid:176)(cid:86)(cid:156)(cid:147)
CAPITAL BANK
(cid:173)(cid:110)(cid:228)(cid:228)(cid:174)(cid:3)(cid:200)(cid:206)(cid:153)(cid:135)(cid:120)(cid:163)(cid:163)(cid:163)
(cid:220)(cid:220)(cid:220)(cid:176)(cid:10)(cid:62)(cid:171)(cid:136)(cid:204)(cid:62)(cid:143)(cid:9)(cid:62)(cid:152)(cid:142)(cid:135)(cid:49)(cid:45)(cid:176)(cid:86)(cid:156)(cid:147)
FTN FINANCIAL
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(cid:220)(cid:220)(cid:220)(cid:176)(cid:19)(cid:47)(cid:32)(cid:19)(cid:136)(cid:152)(cid:62)(cid:152)(cid:86)(cid:136)(cid:62)(cid:143)(cid:176)(cid:86)(cid:156)(cid:147)
INVESTOR RELATIONS
Email:(cid:3)(cid:22)(cid:152)(cid:219)(cid:105)(cid:195)(cid:204)(cid:156)(cid:192)(cid:44)(cid:105)(cid:143)(cid:62)(cid:204)(cid:136)(cid:156)(cid:152)(cid:195)@(cid:19)(cid:136)(cid:192)(cid:195)(cid:204)(cid:21)(cid:156)(cid:192)(cid:136)(cid:226)(cid:156)(cid:152)(cid:176)(cid:86)(cid:156)(cid:147)
MEDIA RELATIONS
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Email:(cid:3)(cid:10)(cid:156)(cid:192)(cid:171)(cid:156)(cid:192)(cid:62)(cid:204)(cid:105)(cid:10)(cid:156)(cid:147)(cid:147)(cid:213)(cid:152)(cid:136)(cid:86)(cid:62)(cid:204)(cid:136)(cid:156)(cid:152)(cid:195)@(cid:19)(cid:136)(cid:192)(cid:195)(cid:204)(cid:21)(cid:156)(cid:192)(cid:136)(cid:226)(cid:156)(cid:152)(cid:176)(cid:86)(cid:156)(cid:147)
TRANSFER AGENT
(cid:13)(cid:43)(cid:3)(cid:45)(cid:133)(cid:62)(cid:192)(cid:105)(cid:156)(cid:220)(cid:152)(cid:105)(cid:192)(cid:3)(cid:45)(cid:105)(cid:192)(cid:219)(cid:136)(cid:86)(cid:105)(cid:195)
(cid:173)(cid:110)(cid:199)(cid:199)(cid:174)(cid:3)(cid:120)(cid:206)(cid:200)(cid:135)(cid:206)(cid:120)(cid:120)(cid:110)
(cid:220)(cid:220)(cid:220)(cid:176)(cid:45)(cid:133)(cid:62)(cid:192)(cid:105)(cid:156)(cid:220)(cid:152)(cid:105)(cid:192)(cid:34)(cid:152)(cid:143)(cid:136)(cid:152)(cid:105)(cid:176)(cid:86)(cid:156)(cid:147)
TICKER SYMBOL
(cid:32)(cid:57)(cid:45)(cid:13)(cid:92)(cid:3)(cid:19)(cid:21)(cid:32)
©2019 First Horizon National Corporation
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