UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to         

Commission File Number 001-15185

First Horizon National Corporation

(Exact name of registrant as specified in its charter)

TN	62-0803242
(State or other jurisdiction incorporation of organization)	(IRS Employer Identification No.)
165 MADISON AVENUE MEMPHIS, TENNESSEE	38103
(Address of principal executive office)	(Zip Code)

(Registrant’s telephone number, including area code) (901) 523-4444

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding on September 30, 2013
Common Stock, $.625 par value	236,328,090

Table of Contents

FIRST HORIZON NATIONAL CORPORATION

INDEX

Part I. Financial Information
Item 1. Financial Statements	2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	77
Item 3. Quantitative and Qualitative Disclosures about Market Risk	125
Item 4. Controls and Procedures	125
Part II. Other Information
Item 1. Legal Proceedings	126
Item 1A. Risk Factors	126
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	126
Item 3. Defaults Upon Senior Securities	126
Item 4. Mine Safety Disclosures	126
Item 5. Other Information	126
Item 6. Exhibits	127
Signatures	128
Exhibit Index	129
Exhibit 10.1
Exhibit 31(a)
Exhibit 31(b)
Exhibit 32(a)
Exhibit 32(b)

PART I.

FINANCIAL INFORMATION

Item 1. Financial Statements
The Consolidated Condensed Statements of Condition (unaudited)	3
The Consolidated Condensed Statements of Income (unaudited)	4
The Consolidated Condensed Statements of Comprehensive Income (unaudited)	5
The Consolidated Condensed Statements of Equity (unaudited)	6
The Consolidated Condensed Statements of Cash Flows (unaudited)	7
The Notes to Consolidated Condensed Financial Statements (unaudited)	8
Note 1 Financial Information	8
Note 2 Acquisitions and Divestitures	9
Note 3 Investment Securities	11
Note 4 Loans	13
Note 5 Mortgage Servicing Rights	25
Note 6 Intangible Assets	26
Note 7 Other Income and Other Expense	27
Note 8 Changes in Accumulated Other Comprehensive Income Balances	28
Note 9 Earnings Per Share	29
Note 10 Contingencies and Other Disclosures	30
Note 11 Pensions, Savings, and Other Employee Benefits	41
Note 12 Business Segment Information	43
Note 13 Loan Sales and Securitizations	45
Note 14 Variable Interest Entities	47
Note 15 Derivatives	52
Note 16 Master Netting and Similar Agreements—Repurchase, Reverse Repurchase, and Securities Borrowing and Lending Transactions	58
Note 17 Fair Value of Assets & Liabilities	59
Note 18 Restructuring, Repositioning, and Efficiency	75

This financial information reflects all adjustments that are, in the opinion of management, necessary for a fair presentation of the financial condition and results of operations for the interim periods presented.

2

CONSOLIDATED CONDENSED STATEMENTS OF CONDITION

	First Horizon National Corporation
	September 30						December 31
(Dollars in thousands, except restricted and share amounts)(Unaudited)	2013			2012			2012
Assets:
Cash and due from banks (Restricted—$1.5 million on September 30, 2013; $.6 million on September 30, 2012; and $—on December 31, 2012)	$	395,631		$	355,978		$	469,879
Federal funds sold		52,830			12,425			34,492
Securities purchased under agreements to resell (Note 16)		576,355			517,263			601,891
Total cash and cash equivalents (Restricted—$1.5 million on September 30, 2013; $.6 million on September 30, 2012; and $—on December 31, 2012)		1,024,816			885,666			1,106,262
Interest-bearing cash		184,179			440,916			353,373
Trading securities		1,343,134			1,204,366			1,262,720
Loans held-for-sale		371,640			410,550			401,937
Securities available-for-sale (Note 3)		3,186,943			3,123,629			3,061,808
Loans, net of unearned income (Restricted—$.1 billion on September 30, 2013; September 30, 2012; and December 31, 2012) (Note 4)		15,408,556			16,523,783			16,708,582
Less: Allowance for loan losses (Restricted—$3.2 million on September 30, 2013; $4.4 million on September 30, 2012; and $4.3 million on December 31, 2012) (Note 4)		255,710			281,744			276,963
Total net loans (Restricted—$.1 billion on September 30, 2013; September 30, 2012; and December 31, 2012)		15,152,846			16,242,039			16,431,619
Mortgage servicing rights (Note 5)		116,686			120,537			114,311
Goodwill (Note 6)		140,479			134,242			134,242
Other intangible assets, net (Note 6)		22,216			23,679			22,700
Capital markets receivables		417,743			791,190			303,893
Premises and equipment, net		308,779			305,346			303,273
Real estate acquired by foreclosure		71,626			70,779			60,690
Derivative assets (Note 15)		215,116			334,025			292,472
Other assets (Restricted—$1.4 million on September 30, 2013; $1.9 million on September 30, 2012 and December 31, 2012)		1,637,138			1,652,866			1,670,840
Total assets (Restricted—$.1 billion on September 30, 2013; September 30, 2012; and December 31, 2012)	$	24,193,341		$	25,739,830		$	25,520,140
Liabilities and equity:
Deposits:
Savings	$	6,781,522		$	6,608,534		$	6,705,496
Time deposits		997,726			1,063,380			1,019,938
Other interest-bearing deposits		3,494,236			3,468,367			3,798,313
Certificates of deposit $100,000 and more		575,679			518,717			503,490
Interest-bearing		11,849,163			11,658,998			12,027,237
Noninterest-bearing		4,434,746			4,569,113			4,602,472
Total deposits		16,283,909			16,228,111			16,629,709
Federal funds purchased		1,062,901			1,350,806			1,351,023
Securities sold under agreements to repurchase (Note 16)		427,232			443,370			555,438
Trading liabilities		585,969			516,970			564,429
Other short-term borrowings		303,686			856,958			441,201
Term borrowings (Restricted—$.1 billion on September 30, 2013; September 30, 2012; and December 31, 2012)		1,771,288			2,263,238			2,226,482
Capital markets payables		388,373			574,201			296,450
Derivative liabilities (Note 15)		165,918			225,084			202,269
Other liabilities		770,772			749,204			743,933
Total liabilities (Restricted—$.1 billion on September 30, 2013; September 30, 2012; and December 31, 2012)		21,760,048			23,207,942			23,010,934
Equity:
First Horizon National Corporation Shareholders’ Equity:
Preferred stock—Series A, non-cumulative perpetual, no par value, liquidation preference of $100,000 per share—(shares authorized—1,000; shares issued—1,000 on September 30, 2013;—on September 30, 2012 and December 31, 2012)		95,624			—			—
Common stock—$.625 par value (shares authorized—400,000,000; shares issued—236,328,090 on September 30, 2013; 247,133,973 on September 30, 2012; and 243,597,780 on December 31, 2012 )		147,705			154,459			152,249
Capital surplus		1,413,248			1,517,488			1,488,463
Undivided profits		657,676			681,460			719,672
Accumulated other comprehensive loss, net (Note 8)		(176,391	)		(116,684	)		(146,343	)
Total First Horizon National Corporation Shareholders’ Equity		2,137,862			2,236,723			2,214,041
Noncontrolling interest		295,431			295,165			295,165
Total equity		2,433,293			2,531,888			2,509,206
Total liabilities and equity	$	24,193,341		$	25,739,830		$	25,520,140

See accompanying notes to consolidated condensed financial statements.

3

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

	First Horizon National Corporation
	Three Months Ended September 30					Nine Months Ended September 30
(Dollars and shares in thousands except per share data, unless otherwise noted)(Unaudited)	2013			2012		2013			2012
Interest income:
Interest and fees on loans	$	149,698		$	163,813	$	454,297		$	486,507
Interest on investment securities		20,916			24,136		62,442			76,413
Interest on loans held-for-sale		3,058			3,808		9,729			11,174
Interest on trading securities		8,747			8,392		25,798			27,450
Interest on other earning assets		191			367		734			1,210
Total interest income		182,610			200,516		553,000			602,754
Interest expense:
Interest on deposits:
Savings		3,471			4,764		11,557			15,127
Time deposits		4,013			5,169		12,294			16,626
Other interest-bearing deposits		817			1,455		2,975			4,628
Certificates of deposit $100,000 and more		1,658			1,975		4,769			6,586
Interest on trading liabilities		3,632			2,556		10,182			7,914
Interest on short-term borrowings		1,103			1,443		3,565			3,958
Interest on term borrowings		9,078			9,689		27,419			29,846
Total interest expense		23,772			27,051		72,761			84,685
Net interest income		158,838			173,465		480,239			518,069
Provision for loan losses		10,000			40,000		40,000			63,000
Net interest income after provision for loan losses		148,838			133,465		440,239			455,069
Noninterest income:
Capital markets		64,283			80,773		212,711			262,429
Deposit transactions and cash management		29,279			30,352		85,189			89,216
Mortgage banking		14,460			10,373		29,422			43,603
Brokerage, management fees and commissions		10,868			8,699		30,756			25,954
Trust services and investment management		6,649			6,055		19,927			18,340
Insurance commissions		733			946		2,063			2,344
Gain on divestiture		115			—		115			200
Equity securities gains/(losses), net		—			—		28			5,065
Debt securities gains/(losses), net		(96	)		—		(451	)		328
All other income and commissions (Note 7)		24,184			26,340		69,774			77,407
Total noninterest income		150,475			163,538		449,534			524,886
Adjusted gross income after provision for loan losses		299,313			297,003		889,773			979,955
Noninterest expense:
Repurchase and foreclosure provision		200,000			—		200,000			299,256
Employee compensation, incentives, and benefits (three and nine months ended September 30, 2013, include $17.2 million and $22.6 million, respectively, of expense associated with pension and post-retirement plans reclassified from accumulated other comprehensive income)		132,213			153,970		401,897			479,044
Occupancy		13,147			13,059		37,754			36,664
Legal and professional fees		12,704			12,295		37,940			26,779
Computer software		10,446			10,260		30,130			29,685
Contract employment and outsourcing		9,241			10,187		26,861			32,146
Operations services		9,199			8,702		26,111			27,306
Equipment rentals, depreciation, and maintenance		7,890			7,931		23,307			23,336
FDIC premium expense		4,631			7,532		15,679			20,669
Communications and courier		4,517			4,722		13,485			13,705
Miscellaneous loan costs		1,349			577		3,508			3,202
Amortization of intangible assets		928			979		2,784			2,931
Foreclosed real estate		523			2,968		3,249			9,046
All other expense (Note 7)		26,768			29,987		78,799			108,571
Total noninterest expense		433,556			263,169		901,504			1,112,340
Income/(loss) before income taxes		(134,243	)		33,834		(11,731	)		(132,385	)
Provision/(benefit) for income taxes (three and nine months ended September 30, 2013, include $6.6 million and $8.7 million, respectively, of income tax benefit reclassified from accumulated other comprehensive income)		(31,094	)		5,260		1,644			(72,348	)
Income/(loss) from continuing operations		(103,149	)		28,574		(13,375	)		(60,037	)
Income/(loss) from discontinued operations, net of tax (a)		123			108		554			160
Net income/(loss)	$	(103,026	)	$	28,682	$	(12,821	)	$	(59,877	)
Net income attributable to noncontrolling interest		2,875			2,875		8,531			8,563
Net income/(loss) attributable to controlling interest	$	(105,901	)	$	25,807	$	(21,352	)	$	(68,440	)
Preferred stock dividends		1,550			—		4,288			—
Net income/(loss) available to common shareholders	$	(107,451	)	$	25,807	$	(25,640	)	$	(68,440	)
Basic earnings/(loss) per share from continuing operations (Note 9)	$	(0.45	)	$	0.10	$	(0.11	)	$	(0.27	)
Diluted earnings/(loss) per share from continuing operations (Note 9)	$	(0.45	)	$	0.10	$	(0.11	)	$	(0.27	)
Basic earnings/(loss) per share (Note 9)	$	(0.45	)	$	0.10	$	(0.11	)	$	(0.27	)
Diluted earnings/(loss) per share (Note 9)	$	(0.45	)	$	0.10	$	(0.11	)	$	(0.27	)
Weighted average common shares (Note 9)		236,895			246,628		238,990			249,742
Diluted average common shares (Note 9)		236,895			248,306		238,990			249,742

See accompanying notes to consolidated condensed financial statements.

(a) Due to the nature of the preferred stock issued by FHN and its subsidiaries, all components of Income/(loss) from discontinued operations, net of tax have been attributed solely to FHN as the controlling interest holder.

4

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

	First Horizon National Corporation
	Three Months Ended September 30					Nine Months Ended September 30
(Dollars in thousands) (unaudited)	2013			2012		2013			2012
Net income/(loss)	$	(103,026	)	$	28,682	$	(12,821	)	$	(59,877	)
Other comprehensive income/(loss), net of tax:
Unrealized fair value adjustments:
Securities available-for-sale		1,714			243		(44,097	)		(3,147	)
Recognized pension and other employee benefit plans net periodic benefit costs		10,560			5,655		14,049			16,619
Other comprehensive income/(loss)		12,274			5,898		(30,048	)		13,472
Comprehensive income/(loss)		(90,752	)		34,580		(42,869	)		(46,405	)
Comprehensive income attributable to noncontrolling interest		2,875			2,875		8,531			8,563
Comprehensive income/(loss) attributable to controlling interest	$	(93,627	)	$	31,705	$	(51,400	)	$	(54,968	)

See accompanying notes to consolidated condensed financial statements.

5

CONSOLIDATED CONDENSED STATEMENTS OF EQUITY

	First Horizon National Corporation
	2013									2012
(Dollars in thousands except per share data)(Unaudited)	Controlling Interest			Noncontrolling Interest			Total			Controlling Interest			Noncontrolling Interest			Total
Balance, January 1	$	2,214,041		$	295,165		$	2,509,206		$	2,389,472		$	295,165		$	2,684,637
Net income/(loss)		(21,352	)		8,531			(12,821	)		(68,440	)		8,563			(59,877	)
Other comprehensive income/(loss) (a)		(30,048	)		—			(30,048	)		13,472			—			13,472
Comprehensive income/(loss)		(51,400	)		8,531			(42,869	)		(54,968	)		8,563			(46,405	)
Preferred stock issuance (1,000 shares issued at $100,000 per share net of offering costs)		95,624			—			95,624			—			—			—
Cash dividends declared:
Preferred stock ($4,288.33 per share)		(4,288	)		—			(4,288	)		—			—			—
Common stock ($.15 per share and $.03 per share for the nine months ended September 30, 2013 and 2012, respectively)		(36,345	)		—			(36,345	)		(7,464	)		—			(7,464	)
Common stock repurchased (b)		(91,395	)		—			(91,395	)		(98,902	)		—			(98,902	)
Common stock issued for:
Stock options and restricted stock—equity awards		608			—			608			133			—			133
Stock-based compensation expense		12,452			—			12,452			12,398			—			12,398
Dividends declared—noncontrolling interest of subsidiary preferred stock		—			(8,531	)		(8,531	)		—			(8,563	)		(8,563	)
Tax benefit reversals—stock-based compensation plans		(1,509	)		—			(1,509	)		(3,946	)		—			(3,946	)
Real estate investment trust (“REIT”) preferred stock issuance		—			92			92			—			—			—
Acquired noncontrolling interest-REIT		—			174			174			—			—			—
Other changes in equity		74			—			74			—			—			—
Balance, September 30	$	2,137,862		$	295,431		$	2,433,293		$	2,236,723		$	295,165		$	2,531,888

See accompanying notes to consolidated condensed 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) 2013 and 2012 include $87.6 million and $96.4 million, respectively, repurchased under the share repurchase program launched in fourth quarter 2011.

6

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

	Nine Months Ended September 30
(Dollars in thousands)	2013			2012
Operating Activities
Net income/(loss)	$	(12,821	)	$	(59,877	)
Adjustments to reconcile net income/(loss) to net cash provided/(used) by operating activities:
Provision for loan losses		40,000			63,000
Provision/(benefit) for deferred income taxes		(44,806	)		(83,807	)
Depreciation and amortization of premises and equipment		26,507			26,320
Amortization of intangible assets		2,784			2,931
Net other amortization and accretion		26,387			59,161
Net (increase)/decrease in derivatives		(7,858	)		(11,635	)
Market value adjustment on mortgage servicing rights		(20,267	)		4,541
Repurchase and foreclosure provision		200,000			299,256
Fair value adjustment to foreclosed real estate		3,279			7,873
Litigation and regulatory matters		6,299			29,013
(Gains)/losses on divestitures		(638	)		(485	)
Stock-based compensation expense		12,452			12,398
Tax benefit reversals stock-based compensation plans		1,509			3,946
Equity securities (gains)/losses, net		(28	)		(5,065	)
Debt securities (gains)/losses, net		451			(328	)
Net (gain)/losses on sale/disposal of fixed assets		1,050			(2,432	)
Net (increase)/decrease in:
Trading securities		(84,502	)		(223,064	)
Loans held-for-sale		30,297			3,347
Capital markets receivables		(113,850	)		(626,203	)
Interest receivable		890			(6,256	)
Other assets		105,048			211,339
Net increase/(decrease) in:
Capital markets payables		91,923			409,493
Interest payable		5,810			12,684
Other liabilities		(177,245	)		(183,396	)
Trading liabilities		21,540			169,685
Total adjustments		127,032			172,316
Net cash provided/(used) by operating activities		114,211			112,439
Investing Activities
Available-for-sale securities:
Sales		63,787			47,493
Maturities		783,033			758,573
Purchases		(977,723	)		(870,973	)
Premises and equipment:
Sales		—			6,845
Purchases		(18,949	)		(14,826	)
Net (increase)/decrease in:
Loans		1,461,678			(291,042	)
Interests retained from securitizations classified as trading securities		4,088			6,915
Interest-bearing cash		196,178			11,940
Cash receipts related to divestitures		1,638			5,278
Cash received for acquisition		50,934			—
Net cash provided/(used) by investing activities		1,564,664			(339,797	)
Financing Activities
Common stock:
Stock options exercised		608			133
Cash dividends paid		(26,467	)		(7,604	)
Repurchase of shares (a)		(91,395	)		(98,902	)
Tax benefit reversals stock-based compensation plans		(1,509	)		(3,946	)
Preferred stock issuance		95,624			—
Cash dividends paid—preferred stock—noncontrolling interest		(8,531	)		(8,531	)
Cash dividends paid—Series A preferred stock		(2,738	)		—
Term borrowings:
Payments/maturities		(411,027	)		(208,637	)
Increases in restricted and secured term borrowings		4,411			5,622
Net increase/(decrease) in:
Deposits		(707,898	)		15,102
Short-term borrowings		(611,399	)		591,532
Net cash provided/(used) by financing activities		(1,760,321	)		284,769
Net increase/(decrease) in cash and cash equivalents		(81,446	)		57,411
Cash and cash equivalents at beginning of period		1,106,262			828,255
Cash and cash equivalents at end of period	$	1,024,816		$	885,666
Supplemental Disclosures
Total interest paid	$	65,750		$	71,535
Total taxes paid		5,044			34,560
Total taxes refunded		26,035			168,391
Transfer from loans to other real estate owned		9,760			25,986

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

See accompanying notes to consolidated condensed financial statements.

(a) 2013 and 2012 include $87.6 million and $96.4 million, respectively, repurchased under the share repurchase program launched in fourth quarter 2011.

7

Notes to the Consolidated Condensed Financial Statements

Note 1 – Financial Information

Basis of Accounting. The unaudited interim consolidated condensed 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. In the opinion of management, all necessary adjustments have been made for a fair presentation of financial position and results of operations for the periods presented. These adjustments are of a normal recurring nature unless otherwise disclosed in this Quarterly Report on Form 10-Q. The operating results for the interim 2013 periods are not necessarily indicative of the results that may be expected going forward. For further information, refer to the audited consolidated financial statements in the 2012 Annual Report to shareholders.

Summary of Accounting Changes. Effective January 1, 2013, FHN adopted the provisions of FASB Accounting Standards Update (“ASU”) 2011-11, “Balance Sheet: Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 creates new disclosure requirements about the nature of an entity’s rights of setoff and related arrangements associated with its financial instruments and derivative instruments. ASU 2011-11 requires entities to disclose both gross and net information about both instruments and transactions eligible for offset in the balance sheet as well as instruments and transactions subject to an agreement similar to a master netting arrangement. The scope of ASU 2011-11 includes derivatives, sale and repurchase agreements/reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The provisions of ASU 2011-11 are effective for periods beginning on or after January 1, 2013, with retrospective application to all periods presented in the financial statements required. Additionally in January 2013, FASB issued ASU 2013-01, “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”, that narrowed the scope of ASU 2011-11. Based on this amendment, ASU 2011-11 applies to derivatives, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset or subject to an enforceable master netting arrangement or similar agreement. Upon adoption of ASU 2011-11, FHN revised its disclosures accordingly. The adoption of the provisions of ASU 2011-11 had no effect on FHN’s statement of condition, results of operations, or cash flows.

Effective January 1, 2013, FHN adopted the provisions of FASB ASU 2013-02, “Comprehensive Income: Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income.” ASU 2013-02 requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in financial statements but modified interim disclosure requirements such that changes in accumulated other comprehensive income must be disclosed in interim filings. The provisions of ASU 2013-02 are effective for periods beginning after December 15, 2012, with prospective application to transactions or modifications of existing transactions that occur on or after the effective date. Upon adoption of the provisions of ASU 2013-02 on January 1, 2013, FHN revised its financial statements and disclosures accordingly.

Accounting Changes Issued but Not Currently Effective. In July 2013, the FASB issued ASU 2013-11, “Income Taxes: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” ASU 2013-11 provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. Generally, ASU 2013-11 requires that an unrecognized tax benefit should reduce a deferred tax asset (“DTA”) that has been established for a net operating loss (“NOL”), a tax credit carryforward, or other similar tax losses. However, if a filer does not have such carryforwards or similar tax losses at the reporting date, the uncertain tax position should be recorded as a liability. If a filer does have a DTA, but is not required by tax law of the applicable jurisdiction to use the DTA to settle additional taxes from the disallowance of a tax position and that is the filers’ intent, the uncertain tax position should be recognized as a liability in that situation as well and not netted with the DTA. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The provisions of ASU 2013-11 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, with early adoption permitted. The provisions of ASU 2013-11 should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. FHN does not expect the adoption of the provisions of ASU 2013-11 to have a material effect on FHN’s statement of condition, results of operations, or cash flows.

In July 2013, the FASB issued ASU 2013-10, “Derivatives and Hedging: Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes.” ASU 2013-10 provides guidance on the risks that are permitted to be hedged in a fair value or cash flow hedge. The provisions of ASU 2013-10 permit the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) to be used as a U.S. benchmark interest rate for hedge accounting purposes under ASC 815, in addition to U.S. Treasury rates and London Interbank Offered Rate (“LIBOR”). The amendments also remove the restriction on using different benchmark rates for similar hedges. The provisions of ASU 2013-10 are effective prospectively for qualifying new or re-designated hedging relationships entered into on or after July 17, 2013. FHN may apply the provisions of ASU 2013-10 to future hedging relationships.

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Note 2 – Acquisitions and Divestitures

On June 7, 2013, First Tennessee Bank National Association (“FTBNA”) acquired substantially all of the assets and liabilities of Mountain National Bank (“MNB”) a community bank headquartered in Sevierville, Tennessee from the Federal Deposit Insurance Corporation (“FDIC”), as receiver, pursuant to a purchase and assumption agreement. Prior to the acquisition, MNB operated 12 branches in Sevier and Blount counties in eastern Tennessee.

Excluding purchase accounting adjustments, FHN acquired approximately $452 million in assets, including approximately $249 million in loans, and assumed approximately $362 million of MNB deposits. There was no premium associated with the acquired deposits and assets were acquired at a discount of $33 million from book value. FHN did not enter into a loss-sharing agreement with the FDIC associated with the MNB purchase.

FHN has accounted for the acquisition as a business combination in accordance with ASC 805, “Business Combinations,” which requires acquired assets and liabilities (other than tax balances) to be recorded at fair value. Generally, the fair value for the acquired loans was 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 (refer to Note 4—Loans for additional information).

FHN continues to analyze the estimates of the fair value of the assets acquired and liabilities assumed, and as such the amounts recorded are provisional. FHN believes that information provides a reasonable basis for estimating fair values. FHN expects to substantially complete the purchase price allocation by the end of 2013; however, the fair value estimates are subject to refinement for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. In addition, the tax treatment is complex and subject to interpretations that may result in future adjustments of deferred taxes as of the acquisition date.

In accordance with applicable accounting guidance, all measurement period adjustments related to acquisitions are presented in the acquired balance at closing, with revision of previously reported amounts.

The following schedule details significant assets acquired and liabilities assumed from the FDIC for MNB and provisional estimated purchase accounting/fair value adjustments at June 7:

	Mountain National Bank
(Dollars in thousands)	Acquired from FDIC			Purchase Accounting/ Fair  Value Adjustments			As recorded by FHN
Assets:
Cash and cash equivalents	$	54,872		$	—		$	54,872
Interest-bearing cash		26,984			—			26,984
Securities available-for-sale		73,948			(240	)		73,708
Loans, net of unearned income		249,001			(33,094	)		215,907
Core deposit intangible		—			2,300			2,300
Premises and equipment		10,359			3,755			14,114
Real estate acquired by foreclosure		33,294			(10,930	)		22,364
Deferred tax asset		(286	)		2,677			2,391
Other assets		3,405			—			3,405
Total assets acquired	$	451,577		$	(35,532	)	$	416,045
Liabilities:
Deposits	$	362,098		$	—		$	362,098
Securities sold under agreements to repurchase		1,930			—			1,930
Federal Home Loan Bank advances		50,040			5,586			55,626
Other liabilities		2,454			—			2,454
Total liabilities assumed		416,522			5,586			422,108
Acquired noncontrolling interest		117			57			174
Total liabilities assumed and acquired noncontrolling interest	$	416,639		$	5,643		$	422,282
Excess of assets acquired over liabilities assumed	$	34,938
Aggregate purchase accounting/fair value adjustments				$	(41,175	)
Goodwill							$	6,237

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Note 2 – Acquisitions and Divestitures (Continued)

In relation to the acquisition FHN recorded $6.2 million in goodwill, representing the excess of the estimated fair values of liabilities assumed over the estimated fair value of the assets acquired (refer to Note—6—Intangible Assets for additional information). Of this amount, $3.5 million is expected to be deductible for tax purposes.

FHN’s operating results for the quarter ended September 30, 2013, include the operating results of the acquired assets and assumed liabilities of MNB subsequent to the acquisition on June 7, 2013.

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.

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Note 3 – Investment Securities

The following tables summarize FHN’s available-for-sale (“AFS”) securities on September 30, 2013 and 2012:

	September 30, 2013
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale:
U.S. treasuries	$	39,993	$	3	$	—		$	39,996
Government agency issued mortgage-backed securities (“MBS”)		838,077		40,944		(3,570	)		875,451
Government agency issued collateralized mortgage obligations (“CMO”)		2,043,803		17,420		(36,102	)		2,025,121
Other U.S. government agencies		2,381		147		—			2,528
States and municipalities		15,155		—		—			15,155
Equity and other (a)		228,709		—		(17	)		228,692
Total securities available for sale (b)	$	3,168,118	$	58,514	$	(39,689	)	$	3,186,943

(a) Includes restricted investments in FHLB-Cincinnati stock of $128.0 million and FRB stock of $66.0 million. The remainder is money market, venture capital, and cost method investments.

(b) Includes $2.9 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes.

	September 30, 2012
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale:
U.S. treasuries	$	54,995	$	1	$	—		$	54,996
Government agency issued MBS		1,191,811		79,639		—			1,271,450
Government agency issued CMO		1,530,075		25,562		(896	)		1,554,741
Other U.S. government agencies		3,911		291		—			4,202
States and municipalities		17,970		—		—			17,970
Equity and other (a)		220,247		23		—			220,270
Total securities available for sale (b)	$	3,019,009	$	105,516	$	(896	)	$	3,123,629

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

(a) Includes restricted investments in FHLB-Cincinnati stock of $125.5 million and FRB stock of $66.0 million. The remainder is money market, venture capital, and cost method investments.

(b) Includes $2.8 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes.

National banks chartered by the federal government are, by law, members of the Federal Reserve System. Each member bank is required to own stock in its regional Federal Reserve Bank (“FRB”). Given this requirement, FRB stock may not be sold, traded, or pledged as collateral for loans. Membership in the Federal Home Loan Bank (“FHLB”) network requires ownership of capital stock. Member banks are entitled to borrow funds from the FHLB and are required to pledge mortgage loans as collateral. Investments in the FHLB are non-transferable and, generally, membership is maintained primarily to provide a source of liquidity as needed.

The amortized cost and fair value by contractual maturity for the available-for-sale securities portfolio on September 30, 2013, are provided below:

	Available-for-Sale
(Dollars in thousands)	Amortized Cost		Fair Value
Within 1 year	$	39,993	$	39,996
After 1 year; within 5 years		3,881		4,028
After 5 years; within 10 years		—		—
After 10 years		13,655		13,655
Subtotal		57,529		57,679
Government agency issued MBS and CMO		2,881,880		2,900,572
Equity and other		228,709		228,692
Total	$	3,168,118	$	3,186,943

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.

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Note 3 – Investment Securities (Continued)

The table below provides information on gross gains and gross losses from investment securities for the three and nine months ended September 30:

	Three Months Ended					Nine Months Ended
(Dollars in thousands)	2013			2012		2013			2012
Gross gains on sales of securities	$	728		$	—	$	770		$	5,433
Gross losses on sales of securities		(824	)		—		(1,193	)		—
Net gain/(loss) on sales of securities (a)		(96	)		—		(423	)		5,433
Net other than temporary impairment (“OTTI”) recorded		—			—		—			(40	)
Total securities gain/(loss), net	$	(96	)	$	—	$	(423	)	$	5,393

(a) Proceeds for the three and nine months ended September 30, 2013, were $44.9 million and $63.8 million, respectively. There were no proceeds from sales for the three months ended September 30, 2012; proceeds from sales for the nine months ended September 30, 2012 were $47.5 million.

The following tables provide information on investments within the available-for-sale portfolio that had unrealized losses on September 30, 2013 and 2012:

	On September 30, 2013
	Less than 12 months					12 months or longer					Total
(Dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Government agency issued CMO	$	1,241,836	$	(36,025	)	$	12,018	$	(77	)	$	1,253,854	$	(36,102	)
Government agency issued MBS		154,299		(3,570	)		—		—			154,299		(3,570	)
Total debt securities		1,396,135		(39,595	)		12,018		(77	)		1,408,153		(39,672	)
Equity		43		(17	)		—		—			43		(17	)
Total temporarily impaired securities	$	1,396,178	$	(39,612	)	$	12,018	$	(77	)	$	1,408,196	$	(39,689	)

	On September 30, 2012
	Less than 12 months					12 months or longer				Total
(Dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Government agency issued CMO	$	205,205	$	(896	)	$	—	$	—	$	205,205	$	(896	)
Total temporarily impaired securities	$	205,205	$	(896	)	$	—	$	—	$	205,205	$	(896	)

FHN has reviewed investment securities that were in unrealized loss positions in accordance with its accounting policy for OTTI and does not consider them other-than-temporarily impaired. For debt securities with unrealized losses, FHN does not intend to sell them and it is more-likely-than-not that FHN will not be required to sell them prior to recovery. The decline in value is primarily attributable to interest rates and not credit losses. For equity securities, FHN has both the ability and intent to hold these securities for the time necessary to recover the amortized cost.

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Note 4 – Loans

The following table provides the balance of loans by portfolio segment as of September 30, 2013 and 2012, and December 31, 2012:

	September 30				December 31
(Dollars in thousands)	2013		2012		2012
Commercial:
Commercial, financial, and industrial	$	7,746,942	$	8,466,450	$	8,796,956
Commercial real estate		1,173,711		1,229,855		1,168,235
Retail:
Consumer real estate (a)		5,458,047		5,735,904		5,688,703
Permanent mortgage (b)		697,694		805,511		765,583
Credit card & other		332,162		286,063		289,105
Loans, net of unearned income	$	15,408,556	$	16,523,783	$	16,708,582
Allowance for loan losses		255,710		281,744		276,963
Total net loans	$	15,152,846	$	16,242,039	$	16,431,619

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

(a) Balances as of September 30, 2013 and 2012, and December 31, 2012 include $349.3 million, $417.0 million and $402.4 million of restricted and secured real estate loans, respectively. See Note 14—Variable Interest Entities for additional information.

(b) Balances as of September 30, 2013 and 2012, and December 31, 2012 include $11.7 million, $14.2 million and $13.2 million of restricted and secured real estate loans, respectively. See Note 14—Variable Interest Entities for additional information.

Components of the Loan Portfolio

The loan portfolio was disaggregated into segments and then further disaggregated into classes for certain disclosures. A portfolio segment is defined as the level at which FHN 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., loans to bank and insurance-related businesses) portfolio and purchase credit impaired (“PCI”) loans. Loans to mortgage companies includes commercial lines of credit to qualified mortgage companies exclusively 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 commercial real estate include income CRE, residential CRE and PCI loans. Retail loan portfolio segments include consumer real estate, permanent mortgage, and the credit card and other portfolio. Retail classes include HELOC, 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.

Acquisition

On June 7, 2013, FHN acquired substantially all of the assets and liabilities of MNB from the FDIC. The acquisition included approximately $249 million of loans. These loans are recorded at fair value which incorporates expected credit losses in accordance with ASC 805 resulting in no carryover of allowance for loan loss from the acquiree. See Note 2—Acquisitions and Divestitures for additional information regarding the acquisition. At acquisition, FHN designated certain loans as purchase credit impaired (see discussion below) with the remaining loans accounted for under ASC 310-20, “Nonrefundable Fees and Other Costs”. For loans accounted for under ASC 310-20, the difference between the loans’ book value to MNB and the estimated fair value at the time of the acquisition will be accreted back into interest income over the remaining contractual life and the subsequent accounting and reporting will be similar to FHN’s originated loan portfolio.

Purchase Credit Impaired Loans

ASC 310-30 “Accounting for Certain Loans or Debt Securities Acquired in a Transfer”, provides guidance for acquired loans that have experienced 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 (“PCI loans”). PCI loans are initially recorded at fair value which was estimated by discounting expected cash flows at acquisition date. The expected cash flows includes all contractually expected amounts (including interest) and incorporates 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 with composite interest rate and expectation of cash flows expected to be collected for the pool. Aggregation into loan pools is based on common risk characteristics that include similar credit risk or risk ratings, and one or more predominant risk characteristics. PCI pools are accounted for as a single unit.

Accretable yield 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 the difference between the contractually required payments at acquisition and the cash flows expected to be collected at acquisition. In quarters subsequent to the acquisition

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Note 4 – Loans (Continued)

date, FHN re-estimates expected cash flows for PCI loans. Increases in expected cash flows from the last measurement will result in reversal of any nonaccretable difference (or allowance for loan losses to the extent any has been recorded) with a prospective positive impact on interest income. Decreases to the expected cash flows will result in an increase in the allowance for loan losses through increased provision expense. Generally, PCI loans will not be reported as nonperforming loans, troubled debt restructurings (if pooled), or impaired loans unless there has been an other-than-temporary decline in the fair value of a loan below amortized cost or if it is probable that a loan has become impaired in periods subsequent to the acquisition.

The following table reflects FHN’s contractually required payments receivable, cash flows expected to be collected, and the fair value of purchase credit impaired (“PCI”) loans at the acquisition date of June 7, 2013. The table has been revised from second quarter 2013 as the PCI population was finalized in third quarter 2013.

(Dollars in thousands)	June 7, 2013
Contractually required payments including interest	$	79,676
Less: nonaccretable difference		(23,750	)
Cash flows expected to be collected		55,926
Less: accretable yield		(6,650	)
Fair value of loans acquired	$	49,276

The following table presents a rollforward of the accretable yield for the three and nine months ended September 30, 2013:

(Dollars in thousands)	Three Months Ended September 30, 2013			Nine Months Ended September 30, 2013
Balance, beginning of period	$	6,432		$	—
Impact of acquisition/purchase on June 7, 2013		—			6,650
Accretion		(821	)		(1,039	)
Adjustment for payoffs		(15	)		(15	)
Balance, end of period	$	5,596		$	5,596

At September 30, 2013, there were no additions to the allowance for loan losses or adjustments to the nonaccretable difference. The following table reflects the outstanding principal balance and carrying amounts of the acquired PCI loans as of September 30, 2013:

	September 30, 2013
(Dollars in thousands)	Ending balance		Unpaid balance
Commercial, financial and industrial	$	2,410	$	2,758
Commercial real estate		45,443		63,061
Consumer real estate		894		1,309
Credit card and other		17		24
Total	$	48,764	$	67,152

Concentrations

FHN has a concentration of loans secured by residential real estate (40 percent of total loans), the majority of which is in the consumer real estate portfolio (35 percent of total loans). Loans to finance and insurance companies total $1.6 billion (21 percent of the C&I portfolio, or 10 percent of the total loans). FHN had loans to mortgage companies totaling $0.7 billion (9 percent of the C&I portfolio, or 5 percent of total loans) as of September 30, 2013. As a result, 30 percent of the C&I category was sensitive to impacts on the financial services industry.

Regulatory Focus on Consumer Loan Accounting and Reporting

In first quarter 2012, the Office of the Comptroller of Currency (“OCC”) issued interagency guidance related to ALLL estimation and nonaccrual practices, and risk management policies for junior lien loans. As a result, FHN modified its nonaccrual policies in first quarter 2012, to place current second liens on nonaccrual if the first lien is owned or serviced by FHN and is 90 or more days past due. For non FHN-serviced first liens, in second quarter 2013, FHN received information from a third party vendor regarding the performance status of those first liens and placed stand-alone second liens on nonaccrual if the first lien was 90 days or more past due or had been modified. Because probable incurred losses had been contemplated in the allowance for loan loss estimate in prior quarters, this new information did not result in a significant increase in the ALLL.

In third quarter 2012, the OCC clarified that residential real estate loans in which personal liability has been discharged through Chapter 7 bankruptcy and not reaffirmed by the borrower are collateral dependent and should be reported as nonaccruing troubled debt restructuring (“TDR”). As a result, FHN charged-down such loans to the net realizable value of the collateral and the remaining balances were reported as nonaccruing TDRs regardless of the loan’s delinquency status. With the implementation of this guidance, provision expense increased by approximately $30 million and net charge-offs increased by $40.0 million in third quarter 2012.

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Note 4 – Loans (Continued)

Because of the composition of FHN’s residential real estate portfolios, these changes most significantly impacted the consumer real estate portfolio segment. The level of nonperforming loans and TDRs in the consumer real estate and permanent mortgage portfolios was affected by the regulatory actions discussed above.

Allowance for Loan Losses

The ALLL includes the following components: reserves for commercial loans evaluated based on pools of credit graded loans and reserves for pools of smaller-balance homogeneous retail loans, both determined in accordance with ASC 450-20-50. The reserve factors applied to these pools are an estimate of probable incurred losses based on management’s evaluation of historical net losses from loans with similar characteristics and are subject to qualitative adjustments by management to reflect current events, trends, and conditions (including economic considerations and trends). The slow economic recovery, performance of the housing market, unemployment levels, the regulatory environment, regulatory guidance, and both positive and negative portfolio segment-specific trends, are examples of additional factors considered by management in determining the ALLL. The ALLL also includes reserves determined in accordance with ASC 310-10-35 for loans determined by management to be individually impaired.

Commercial

For commercial loans, reserves are established using historical net loss factors by grade level, loan product, and business segment. An assessment of the quality of individual commercial loans is made utilizing credit grades assigned internally based on a dual grading system which estimates both the probability of default (“PD”) and loss severity in the event of default. PD grades range from 1-16 while estimated loss severities, or loss given default (“LGD”) grades, range from 1-12. This credit grading system is intended to identify and measure the credit quality of the loan portfolio by analyzing the migration of loans between grading categories. It is also integral to the estimation methodology utilized in determining the allowance for loan losses since an allowance is established for pools of commercial loans based on the credit grade assigned. The appropriate relationship team performs the process of categorizing commercial loans into the appropriate credit grades, initially as a component of the approval of the loan, and subsequently throughout the life of the loan as part of the servicing regimen. The proper loan grade for larger exposures is confirmed by a senior credit officer in the approval process. To determine the most appropriate credit grade for each loan, the credit risk grading system employs scorecards for particular categories of loans that consist of a number of objective and subjective measures that are weighted in a manner that produces a rank ordering of risk within pass-graded credits. Loan grading discipline is regularly reviewed by Credit Risk Assurance to determine if the process continues to result in accurate loan grading across the portfolio. FHN may utilize availability of guarantors/sponsors to support lending decisions during the credit underwriting process and when determining the assignment of internal loan grades.

Retail

The ALLL for smaller-balance homogenous retail loans is determined based on pools of similar loan types that have similar credit risk characteristics. FHN manages retail loan credit risk on a class basis. Reserves by portfolio are determined using segmented roll-rate models that incorporate various factors including historical delinquency trends, experienced loss frequencies, and experienced loss severities. Generally, reserves for retail loans reflect inherent losses in the portfolio that are expected to be recognized over the following twelve months.

Individually Impaired

Generally, classified nonaccrual commercial loans over $1 million and all commercial and consumer loans classified as TDRs are deemed to be impaired and are individually assessed for impairment measurement in accordance with ASC 310-10-35. PCI loans are not considered impaired loans unless there are declines in fair value in reporting periods subsequent to the acquisition date. 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. For loans measured using the DCF method or by observable market prices, if the recorded investment in the impaired loan exceeds this amount, a specific allowance is established as a component of the ALLL until such time as a loss is expected and recognized; for impaired collateral-dependent loans, FHN will charge off the full difference between the book value and the best estimate of net realizable value.

Generally, the allowance for TDRs in all consumer portfolio segments is determined by estimating the expected future cash flows using the modified interest rate (if an interest rate concession), incorporating payoff and net charge-off rates specific to the TDRs within the portfolio segment being assessed, and discounted using the pre-modification interest rate. The discount rates of variable rate TDRs are adjusted to reflect changes in the interest rate index in 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.

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Note 4 – Loans (Continued)

The following table provides a rollforward of the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2013 and 2012:

(Dollars in thousands)	C&I			Commercial Real Estate			Consumer Real Estate			Permanent Mortgage			Credit Card and Other			Total
Balance as of July 1, 2012	$	110,645		$	41,546		$	133,421		$	29,112		$	6,327		$	321,051
Charge-offs		(7,077	)		(4,446	)		(69,351	)		(2,889	)		(3,259	)		(87,022	)
Recoveries		1,892			1,240			2,941			734			908			7,715
Provision		1,081			(10,991	)		48,938			(1,400	)		2,372			40,000
Balance as of September 30, 2012		106,541			27,349			115,949			25,557			6,348			281,744
Balance as of January 1, 2012		130,413			55,586			165,077			26,194			7,081			384,351
Charge-offs		(23,310	)		(18,070	)		(132,618	)		(10,597	)		(9,238	)		(193,833	)
Recoveries		8,568			2,779			12,255			1,905			2,719			28,226
Provision		(9,130	)		(12,946	)		71,235			8,055			5,786			63,000
Balance as of September 30, 2012		106,541			27,349			115,949			25,557			6,348			281,744
Allowance—individually evaluated for impairment		28,672			183			31,629			20,988			237			81,709
Allowance—collectively evaluated for impairment		77,869			27,166			84,320			4,569			6,111			200,035
Loans, net of unearned as of September 30, 2012:
Individually evaluated for impairment		153,480			66,357			145,481			129,101			913			495,332
Collectively evaluated for impairment		8,312,970			1,163,498			5,590,423			676,410			285,150			16,028,451
Total loans, net of unearned		8,466,450			1,229,855			5,735,904			805,511			286,063			16,523,783
Balance as of July 1, 2013		93,502			13,931			120,848			27,103			6,550			261,934
Charge-offs		(4,869	)		(515	)		(16,412	)		(1,366	)		(2,884	)		(26,046	)
Recoveries		3,242			587			4,398			841			754			9,822
Provision		(495	)		(3,010	)		11,992			(1,022	)		2,535			10,000
Balance as of September 30, 2013		91,380			10,993			120,826			25,556			6,955			255,710
Balance as of January 1, 2013		96,191			19,997			128,949			24,928			6,898			276,963
Charge-offs		(16,201	)		(2,612	)		(58,792	)		(6,577	)		(8,236	)		(92,418	)
Recoveries		9,839			2,703			14,932			1,609			2,082			31,165
Provision		1,551			(9,095	)		35,737			5,596			6,211			40,000
Balance as of September 30, 2013		91,380			10,993			120,826			25,556			6,955			255,710
Allowance—individually evaluated for impairment		15,702			1,581			38,426			18,646			212			74,567
Allowance—collectively evaluated for impairment		75,678			9,412			82,400			6,910			6,743			181,143
Loans, net of unearned as of September 30, 2013:
Individually evaluated for impairment		102,729			30,266			170,401			144,036			648			448,080
Collectively evaluated for impairment		7,641,803			1,098,002			5,286,752			553,658			331,497			14,911,712
Purchased credit impaired loans		2,410			45,443			894			—			17			48,764
Total loans, net of unearned	$	7,746,942		$	1,173,711		$	5,458,047		$	697,694		$	332,162		$	15,408,556

16

Note 4 – Loans (Continued)

Impaired Loans

The following tables provide information at September 30, 2013 and 2012, by class related to individually impaired loans and consumer TDR’s. Recorded investment is defined as the amount of the investment in a loan, before valuation allowance but which does reflect any direct write-down of the investment. For purposes of this disclosure, PCI loans and LOCOM have been excluded.

	At September 30, 2013						Three Months Ended September 30, 2013				Nine Months Ended September 30, 2013
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance recorded:
Commercial:
General C&I	$	34,193	$	43,677	$	—	$	40,812	$	—	$	51,845	$	108
TRUPs		6,500		6,500		—		6,500		—		10,583		—
Income CRE		12,939		24,219		—		17,959		—		24,828		168
Residential CRE		—		182		—		5,483		—		10,860		122
Total	$	53,632	$	74,578	$	—	$	70,754	$	—	$	98,116	$	398
Retail:
HELOC (a)	$	18,323	$	40,867	$	—	$	19,016	$	—	$	20,032	$	—
R/E installment loans (a)		11,632		15,102		—		11,913		—		12,166		—
Permanent mortgage (a)		14,531		14,531		—		14,663		—		14,168		—
Total	$	44,486	$	70,500	$	—	$	45,592	$	—	$	46,366	$	—
Impaired loans with related allowance recorded:
Commercial:
General C&I	$	31,672	$	38,075	$	2,447	$	27,944	$	71	$	16,319	$	108
TRUPs		33,610		33,610		13,255		38,655		—		39,185		—
Income CRE		10,274		11,330		765		7,552		70		3,859		96
Residential CRE		7,053		12,383		816		4,567		68		1,869		84
Total	$	82,609	$	95,398	$	17,283	$	78,718	$	209	$	61,232	$	288
Retail:
HELOC	$	68,903	$	71,708	$	15,702	$	68,287	$	483	$	65,005	$	1,373
R/E installment loans		71,543		72,686		22,724		75,084		336		72,571		1,025
Permanent mortgage		129,505		129,702		18,646		127,187		776		124,421		2,164
Credit card & other		648		648		212		682		7		732		23
Total	$	270,599	$	274,744	$	57,284	$	271,240	$	1,602	$	262,729	$	4,585
Total commercial	$	136,241	$	169,976	$	17,283	$	149,472	$	209	$	159,348	$	686
Total retail	$	315,085	$	345,244	$	57,284	$	316,832	$	1,602	$	309,095	$	4,585
Total impaired loans	$	451,326	$	515,220	$	74,567	$	466,304	$	1,811	$	468,443	$	5,271

(a) All discharged bankruptcy loans are charged down to an estimate of net realizable value and do not carry any allowance.

17

Note 4 – Loans (Continued)

	September 30, 2012						Three Months Ended September 30, 2012				Nine Months Ended September 30, 2012
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance recorded:
Commercial:
General C&I	$	59,215	$	75,587	$	—	$	60,669	$	142	$	67,098	$	549
TRUPs		45,892		45,892		—		46,446		—		46,446		—
Income CRE		44,956		69,684		—		48,166		96		56,305		249
Residential CRE		19,993		36,108		—		21,167		70		22,142		204
Total	$	170,056	$	227,271	$	—	$	176,448	$	308	$	191,991	$	1,002
Retail:
HELOC (a)	$	13,086	$	40,222	$	—	$	142	$	—	$	48	$	—
R/E installment loans (a)		8,696		24,263		—		95		—		32		—
Permanent mortgage (a)		13,282		17,040		—		144		—		48		—
Total	$	35,064	$	81,525	$	—	$	381	$	—	$	128	$	—
Impaired loans with related allowance recorded:
Commercial:
General C&I	$	20,580	$	22,374	$	7,351	$	19,764	$	33	$	17,512	$	100
TRUPs		33,700		33,700		21,321		33,700		—		33,700		—
Income CRE		1,408		1,408		183		1,469		14		1,815		43
Residential CRE		—		—		—		8,700		—		10,577		—
Total	$	55,688	$	57,482	$	28,855	$	63,633	$	47	$	63,604	$	143
Retail:
HELOC	$	57,020	$	57,422	$	12,980	$	57,097	$	389	$	53,469	$	1,173
R/E installment loans		66,679		67,053		18,649		67,272		294		68,444		835
Permanent mortgage		115,819		115,880		20,988		117,679		714		94,442		2,104
Credit card & other		913		913		237		923		2		1,015		23
Total	$	240,431	$	241,268	$	52,854	$	242,971	$	1,399	$	217,370	$	4,135
Total commercial	$	225,744	$	284,753	$	28,855	$	240,081	$	355	$	255,595	$	1,145
Total retail	$	275,495	$	322,793	$	52,854	$	243,352	$	1,399	$	217,498	$	4,135
Total impaired loans	$	501,239	$	607,546	$	81,709	$	483,433	$	1,754	$	473,093	$	5,280

(a) All discharged bankruptcy loans are charged down to an estimate of net realizable value and do not carry any allowance.

Asset Quality Indicators

As previously discussed, FHN employs a dual grade commercial risk grading methodology to assign an estimate for PD and the 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. 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. 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.

18

Note 4 – Loans (Continued)

The following tables provide the balances of commercial loan portfolio classes with associated allowance, disaggregated by PD grade as of September 30, 2013 and 2012:

	September 30, 2013
(Dollars in thousands)	General C&I		Loans to Mortgage Companies		TRUPS (a)		Income CRE		Residential CRE		Total			Percentage of Total			Allowance for Loan Losses
PD Grade:
1	$	228,555	$	—	$	—	$	—	$	—	$	228,555			3	%	$	81
2		179,955		—		—		—		—		179,955			2			79
3		194,880		—		—		2,687		—		197,567			2			224
4		311,097		—		—		—		—		311,097			4			517
5		790,748		—		—		11,823		216		802,787			9			1,363
6		938,609		40,200		—		44,311		286		1,023,406			12			1,973
7		1,125,031		202,128		—		228,814		9,978		1,565,951			17			3,377
8		881,668		308,282		—		202,417		5,058		1,397,425			16			4,895
9		615,180		152,275		—		203,308		1,499		972,262			11			7,981
10		451,318		29,008		—		139,026		1,066		620,418			7			8,640
11		399,082		473		—		69,945		277		469,777			5			10,338
12		124,916		—		—		57,534		1,224		183,674			2			2,425
13		159,675		—		332,707		33,439		1,324		527,145			6			8,596
14,15,16		172,346		335		3,335		73,737		10,033		259,786			3			34,601
Collectively evaluated for impairment		6,573,060		732,701		336,042		1,067,041		30,961		8,739,805			99			85,090
Individually evaluated for impairment		65,865		—		36,864		23,213		7,053		132,995			1			17,283
Total commercial loans	$	6,638,925	$	732,701	$	372,906	$	1,090,254	$	38,014	$	8,872,800	(b)		100	%	$	102,373

	September 30, 2012
(Dollars in thousands)	General C&I		Loans to Mortgage Companies		TRUPS (a)		Income CRE		Residential CRE		Total		Percent of Total			Allowance for Loan Losses
PD Grade:
1	$	213,872	$	—	$	—	$	—	$	—	$	213,872		2	%	$	54
2		183,044		—		—		2,557		—		185,601		2			93
3		129,183		—		—		8,210		—		137,393		1			79
4		255,875		—		—		5,660		26		261,561		3			226
5		500,389		—		—		28,115		117		528,621		6			1,027
6		899,007		129,816		—		166,183		5,024		1,200,030		12			3,002
7		997,337		327,812		—		156,309		4,056		1,485,514		15			7,868
8		936,437		959,623		—		172,200		515		2,068,775		21			12,028
9		651,137		186,130		—		172,544		1,375		1,011,186		10			10,084
10		508,520		33,302		—		96,892		1,336		640,050		7			8,103
11		462,654		—		—		84,635		2,024		549,313		6			9,112
12		175,688		—		—		11,848		1,278		188,814		2			2,709
13		154,787		—		338,177		75,408		3,705		572,077		6			9,211
14,15,16		270,180		—		—		133,941		29,540		433,661		5			41,439
Collectively evaluated for impairment		6,338,110		1,636,683		338,177		1,114,502		48,996		9,476,468		98			105,035
Individually evaluated for impairment		79,795		—		73,685		46,364		19,993		219,837		2			28,855
Total commercial loans	$	6,417,905	$	1,636,683	$	411,862	$	1,160,866	$	68,989	$	9,696,305		100	%	$	133,890

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

(a) Balances as of September 30, 2013 and 2012, presented net of $29.4 million and $34.2 million, respectively, in lower of cost or market (“LOCOM”) valuation allowance. Based on the underlying structure of the notes, the highest possible internal grade is “13”.

(b) Balance as of September 30, 2013, excludes PCI loans amounting to $47.9 million.

The retail 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 retail loan-types, FHN is able to utilize the Fair Isaac Corporation (“FICO”) score, among other attributes, to assess the 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 retail portfolio.

19

Note 4 – Loans (Continued)

The following tables reflect period-end balances and average FICO scores by origination vintage for the HELOC, real estate installment, and permanent mortgage classes of loans as of September 30, 2013 and 2012:

HELOC	September 30, 2013						September 30, 2012
(Dollars in thousands) Origination Vintage	Period End Balance		Average Origination FICO		Average Refreshed FICO		Period End Balance		Average Origination FICO		Average Refreshed FICO
pre-2003	$	88,416		711		702	$	135,605		718		710
2003		163,576		728		714		235,546		733		724
2004		421,542		727		717		514,791		728		718
2005		548,756		733		720		642,027		734		719
2006		400,023		741		725		474,706		741		726
2007		421,964		744		728		498,011		745		729
2008		233,642		754		747		267,346		755		748
2009		121,555		750		744		152,687		753		748
2010		120,022		753		750		150,243		754		752
2011		119,553		758		754		146,768		759		758
2012		145,507		759		759		117,905		761		759
2013		111,976		762		761		—		—		—
Total	$	2,896,532		741		730	$	3,335,635		740		731

R/E Installment Loans	September 30, 2013						September 30, 2012
(Dollars in thousands) Origination Vintage	Period End Balance		Average Origination FICO		Average Refreshed FICO		Period End Balance		Average Origination FICO		Average Refreshed FICO
pre-2003	$	26,603		682		684	$	41,783		686		686
2003		81,915		716		725		122,330		721		730
2004		58,244		701		699		78,439		707		706
2005		170,742		717		711		224,780		718		713
2006		183,847		716		701		244,101		719		703
2007		264,851		725		709		338,306		728		711
2008		91,883		723		720		122,014		728		720
2009		39,549		742		736		67,590		748		744
2010		131,004		747		754		163,618		745		751
2011		347,315		761		761		428,167		760		759
2012		707,972		764		764		569,141		765		761
2013		457,590		758		754		—		—		—
Total	$	2,561,515		746		742	$	2,400,269		741		733

Permanent Mortgage	September 30, 2013						September 30, 2012
(Dollars in thousands) Origination Vintage	Period End Balance		Average Origination FICO		Average Refreshed FICO		Period End Balance		Average Origination FICO		Average Refreshed FICO
pre-2004	$	205,111		725		725	$	220,499		726		729
2004		24,595		712		693		31,422		715		692
2005		41,643		738		712		52,058		739		716
2006		81,932		731		711		94,898		734		706
2007		236,819		733