XML 42 R14.htm IDEA: XBRL DOCUMENT v3.20.4
Allowance for Credit Losses
 12 Months Ended
Dec. 31, 2020
Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]  
Allowance for Credit Losses Allowance for Credit Losses
Management's estimate of expected credit losses in the loan and lease portfolios is recorded in the ALLL and the reserve for unfunded lending commitments, collectively the ACL. Upon adoption of CECL effective January 1, 2020, FHN's ACL methodology changed to estimate expected credit losses over the contractual life of loans and leases. See Note 1 - Significant Accounting Policies for a further discussion of FHN's ACL methodology for periods prior to 2020.
As previously discussed, on July 1, 2020 FHN completed the IBKC merger. This resulted in an increase in the ACL during the third quarter of 2020 to reflect the estimate of expected credit losses on the acquired IBKC loan portfolio. Of the increase, $284 million reflects the initial allowance on legacy IBKC loans acquired with purchased credit deterioration. See Note 2 – Acquisition and Divestitures for discussion of the alignment of the ACL policies.
The ACL is maintained at a level management believes to be appropriate to absorb expected lifetime credit losses over the contractual life of the loan and lease portfolio and unfunded lending commitments. The determination of the ACL is based on periodic evaluation of the loan and lease portfolios and unfunded lending commitments considering a number of relevant underling factors, including key assumptions and evaluation of quantitative and qualitative information.
The expected loan losses are the product of multiplying FHN’s estimates of probability of default (PD), loss given default (LGD), and individual loan level exposure as default (EAD) on an undiscounted basis. FHN uses models to develop the PD and LGD, which incorporates a single macroeconomic forecast over a four year reasonable and supportable forecast period. After the reasonable and supportable forecast period, the Company immediately reverts to its historical loss averages, evaluated over the historical observation period, for the remaining estimated life of the loans. FHN uses prepayment models which project prepayments over the life of the loans. In order to capture the unique risks of the loan portfolio within the PD, LGD, and prepayment models, FHN segments the portfolio into pools, incorporating loan grades for commercial loans. FHN uses qualitative adjustments to adjust historical loss
information in situations where current loan characteristics differ from those in the historical loss information and for differences in economic conditions, macroeconomic forecasts and other factors.
The evaluation of quantitative and qualitative information is performed through assessments of groups of assets that share similar risk characteristics and certain individual loans and leases that do not share similar risk characteristics with the collective group. As described in Note 4 - Loans and Leases, loans are grouped generally by product type and significant loan portfolios are assessed for credit losses using analytical models. The quantitative evaluation of the adequacy of the ACL utilizes a single economic forecast as its foundation, and is primarily based on analytical models that use known or estimated data as of the balance sheet date and forecasted data over the reasonable and supportable period. The ACL may also be affected by a variety of qualitative factors that FHN considers to reflect current judgment of various events and risks that are not measured in the statistical procedures.
In accordance with its accounting policy elections, FHN does not recognize a separate allowance for expected credit losses for AIR and records reversals of AIR as reductions of interest income. FHN reverses previously accrued but uncollected interest when an asset is placed on nonaccrual status. As of December 31, 2020, FHN recognized approximately $1 million in allowance for expected credit losses on COVID-19 deferrals that do not qualify for the election which is not reflected in the table below. AIR and the related allowance for expected credit losses is included as a component of other assets. The total amount of interest reversals from loans placed on nonaccrual status and the amount of income recognized on nonaccrual loans during the year ended December 31, 2020 were not material.

Expected credit losses for unfunded commitments are estimated for periods where the commitment is not unconditionally cancellable. The measurement of expected credit losses for unfunded commitments mirrors that of loans and leases with the additional estimate of future draw rates (timing and amount).
The following table provides a rollforward of the allowance for loan and lease losses and the reserve for unfunded lending commitments by portfolio type for December 31, 2020, 2019 and 2018:
(Dollars in millions)Commercial, Financial, and Industrial (a)Commercial
Real Estate		Consumer
Real Estate		Credit Card
and Other		Total
Allowance for loan and lease losses:
Balance as of January 1, 2020$123 $36 $28 $13 $200 
Adoption of ASU 2016-1319 (7)93 2 107 
Balance as of January 1, 2020, as adjusted142 29 121 15 307 
Charge-offs (b)(129)(5)(8)(14)(156)
Recoveries9 4 18 5 36 
Initial allowance on loans purchased with credit deterioration (b)138 100 44 5 287 
Provision for loan and lease losses (c)293 114 67 15 489 
Balance as of December 31, 2020453 242 242 26 963 
Reserve for unfunded lending commitments:
Balance as of January 1, 20204 2 — — 6 
Adoption of ASU 2016-1317 1 6 — 24 
Balance as of January 1, 2020, as adjusted21 3 6 — 30 
Initial reserve on loans acquired12 26 3 — 41 
Provision for unfunded lending commitments32 (19)1 — 14 
Balance as of December 31, 2020$65 $10 $10 $— $85 
Allowance for loan losses:
Balance as of January 1, 2019$99 $31 $37 $13 $180 
Charge-offs(34)(1)(8)(16)(59)
Recoveries 7 1 20 4 32 
Provision (provision credit) for loan losses 51 5 (21)12 47 
Balance as of December 31, 2019123 36 28 13 200 
Reserve for unfunded lending commitments:
Balance as of January 1, 20194 3 — — 7 
Provision (provision credit) for unfunded lending commitments— (1)— — (1)
Balance as of December 31, 2019$4 $2 $— $— $6 
Allowance for loan losses:
Balance as of January 1, 2018$98 $28 $53 $10 $189 
Charge-offs(15)(1)(10)(20)(46)
Recoveries 4 1 21 4 30 
Provision (provision credit) for loan losses 12 3 (27)19 7 
Balance as of December 31, 201899 31 37 13 180 
Reserve for unfunded lending commitments:
Balance as of January 1, 20183 2 — — 5 
Provision (provision credit) for unfunded lending commitments1 1 — — 2 
Balance as of December 31, 2018$4 $3 $— $— $7 
(a) C&I loans as of December 31, 2020 include $4.1 billion in PPP loans which due to the government guarantee and forgiveness provisions are considered to have no credit risk and therefore have no ALLL.
(b) The year ended December 31, 2020 excludes day 1 charge-offs and the related initial allowance on PCD loans is net of these amounts. Under the new CECL standard, the initial ALLL recognized on PCD assets included an additional $237 million for charged-off loans that had been written off prior to acquisition (whether full or partial) or which met FHN's charge-off policy at the time of acquisition. After charging these amounts off immediately upon acquisition, the net impact was $287 million of additional ALLL for PCD loans.
(c) Provision for loan and lease losses for the year ended December 31, 2020 includes $147 million recognized on non-PCD loans from the IBKC merger and Truist branch acquisition.

The difference in the ACL as of December 31, 2020 as compared to December 31, 2019 continues to be driven by the Company's adoption of CECL on January 1, 2020, as well as the COVID-19 pandemic and the resulting economic impacts, including to economic forecasts. Additionally, the ACL increased during the third quarter of 2020 to reflect the estimate of expected credit losses on the acquired IBKC loan portfolio.
In developing credit loss estimates for its loan and lease portfolios, FHN selected Moody’s baseline forecast as the primary source for its macroeconomic inputs, which included assumptions that were generally in line with Blue Chip Economic Indicators, including:
•An unemployment rate of 7.4% and 6.2% for 2021 and 2022, respectively
•GDP growth rates of 4.1% and 4.7% for 2021 and 2022, respectively
•No further serious business disruption related to COVID-19, and
•An unchanged target Fed funds range until late 2023.

As there can be no certainty that actual economic performance will precisely follow any specific macroeconomic forecast, FHN also evaluated other macroeconomic forecasts provided by Moody’s and adjusted the modeled outputs through a qualitative adjustment to account for uncertainties inherent in the macroeconomic forecast process. Additionally, where macroeconomic forecast variables used in the models did not take into effect the impact of federal stimulus and bank-supported payment deferral and forbearance programs on the timing of grade migration and recognition of loss content, management adjusted model outputs qualitatively to account for this assistance.
During the year ended December 31, 2020, FHN also utilized targeted reviews of higher stressed loan portfolios or industries that are most exposed to the effects of the COVID-19 pandemic, including Franchise Finance, Energy, Non-Profit, Arts and Entertainment, Restaurants outside of Franchise Finance, Nursing/Assisted Living and Hospitality within the C&I segment and CRE-Hospitality and CRE-Retail within the Commercial Real Estate segment. This analysis reviewed the level of impact from COVID-19 and the likelihood of additional financial assistance needed beyond 180 days. This analysis was utilized in developing qualitative adjustments to increase the recorded ALLL attributable to these components beyond the modeled results. FHN reviewed consumer deferrals and forbearance payment rates to analyze the likelihood clients will have difficulty making payments after the
deferral or forbearance period ends. The analysis was utilized to develop an additional qualitative adjustment to increase the recorded ALLL for consumer real estate loans. Management also made qualitative adjustments to reflect estimated recoveries based on a review of prior charge off and recovery levels, for default risk associated with large balances with individual borrowers, for estimated loss amounts not reflected in historical factors due to specific portfolio risk and for instances where limited data for acquired loans is considered to affect modeled results.