Allowance for Loan Losses

12 Months Ended

Dec. 31, 2019

Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]

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).

The following table provides a rollforward of the allowance for loan losses by portfolio segment for December 31, 2019, 2018 and 2017:



(Dollars in thousands)	C&I (a)			Commercial Real Estate (a)			Consumer Real Estate			Permanent Mortgage			Credit Card and Other			Total
Balance as of January 1, 2019	$	98,947		$	31,311		$	26,439		$	11,000		$	12,727		$	180,424
Charge-offs	(33,778		)	(1,181		)	(7,781		)	(393		)	(15,600		)	(58,733		)
Recoveries	6,744			489			17,000			3,148			4,235			31,616
Provision/(provision credit) for loan losses	50,573			5,493			(16,034		)	(4,936		)	11,904			47,000
Balance as of December 31, 2019	122,486			36,112			19,624			8,819			13,266			200,307
Allowance - individually evaluated for impairment	6,196			—			11,537			7,761			422			25,916
Allowance - collectively evaluated for impairment	115,442			36,112			7,001			1,058			12,813			172,426
Allowance - purchased credit-impaired loans	848			—			1,086			—			31			1,965
Loans, net of unearned as of December 31, 2019:
Individually evaluated for impairment	82,438			1,563			100,653			61,593			653			246,900
Collectively evaluated for impairment	19,942,728			4,330,479			5,881,330			108,797			494,691			30,758,025
Purchased credit-impaired loans	25,925			4,975			24,766			—			520			56,186
Total loans, net of unearned income	$	20,051,091		$	4,337,017		$	6,006,749		$	170,390		$	495,864		$	31,061,111
Balance as of January 1, 2018	$	98,211		$	28,427		$	39,823		$	13,113		$	9,981		$	189,555
Charge-offs	(15,492		)	(783		)	(9,357		)	(477		)	(19,688		)	(45,797		)
Recoveries	4,201			339			19,666			1,421			4,039			29,666
Provision/(provision credit) for loan losses	12,027			3,328			(23,693		)	(3,057		)	18,395			7,000
Balance as of December 31, 2018	98,947			31,311			26,439			11,000			12,727			180,424
Allowance - individually evaluated for impairment	1,074			—			17,984			9,419			337			28,814
Allowance - collectively evaluated for impairment	95,050			31,311			7,368			1,581			12,263			147,573
Allowance - purchased credit-impaired loans	2,823			—			1,087			—			127			4,037
Loans, net of unearned as of December 31, 2018:
Individually evaluated for impairment	48,592			1,966			118,434			70,846			695			240,533
Collectively evaluated for impairment	16,424,006			4,013,741			6,099,272			151,602			515,921			27,204,542
Purchased credit-impaired loans	41,730			15,163			31,810			—			1,754			90,457
Total loans, net of unearned income	$	16,514,328		$	4,030,870		$	6,249,516		$	222,448		$	518,370		$	27,535,532
Balance as of January 1, 2017	$	89,398		$	33,852		$	51,424		$	15,222		$	12,172		$	202,068
Charge-offs	(17,657		)	(195		)	(13,156		)	(2,179		)	(13,207		)	(46,394		)
Recoveries	4,568			966			22,723			2,509			3,115			33,881
Provision/(provision credit) for loan losses	21,902			(6,196		)	(21,168		)	(2,439		)	7,901			—
Balance as of December 31, 2017	98,211			28,427			39,823			13,113			9,981			189,555
Allowance - individually evaluated for impairment	6,044			132			23,175			12,105			311			41,767
Allowance - collectively evaluated for impairment	89,358			28,291			16,293			1,008			9,670			144,620
Allowance - purchased credit-impaired loans	2,809			4			355			—			—			3,168
Loans, net of unearned as of December 31, 2017
Individually evaluated for impairment	43,024			2,407			128,895			84,794			593			259,713
Collectively evaluated for impairment	15,909,110			4,181,908			6,311,817			203,026			613,806			27,219,667
Purchased credit-impaired loans	105,139			30,380			38,530			—			5,500			179,549
Total loans, net of unearned income	$	16,057,273		$	4,214,695		$	6,479,242		$	287,820		$	619,899		$	27,658,929

In third quarter 2019, FHN corrected a previous mis-classification of commercial loans and reclassified approximately $410 million of market investor CRE loans from the C&I portfolio to the CRE portfolio. These loans were identified during an internal review and assessment by management of certain loan populations, a portion of which relate to loans acquired as part of the Capital Bank merger. The reclassification of these loan balances between regional banking portfolios did not have an impact on FHN’s consolidated period-end or average balance sheet and had an immaterial effect on the allowance for loan losses. No adjustments were made to prior periods as the impact of the reclassification, including the effect on the allowance for loan losses was deemed to be immaterial in all periods.