10-Q
Table of Contents

 

 

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, 2015

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, 2015

Common Stock, $.625 par value

   234,237,439

 

 

 


Table of Contents

Table of Contents

FIRST HORIZON NATIONAL CORPORATION

INDEX

 

Part I. Financial Information

  

Item 1. Financial Statements

     1   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     72   

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     116   

Item 4. Controls and Procedures

     116   

Part II. Other Information

     117   

Item 1. Legal Proceedings

     117   

Item 1A. Risk Factors

     117   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     117   

Item 3. Defaults Upon Senior Securities

     117   

Item 4. Mine Safety Disclosures

     117   

Item 5. Other Information

     117   

Item 6. Exhibits

     118   

Signatures

     119   

Exhibit Index

  

Exhibit 10.1

  

Exhibit 31(a)

  

Exhibit 31(b)

  

Exhibit 32(a)

  

Exhibit 32(b)

  


Table of Contents

PART I.

FINANCIAL INFORMATION

 

Item 1. Financial Statements

  

The Consolidated Condensed Statements of Condition (unaudited)

     2   

The Consolidated Condensed Statements of Income (unaudited)

     3   

The Consolidated Condensed Statements of Comprehensive Income (unaudited)

     4   

The Consolidated Condensed Statements of Equity (unaudited)

     5   

The Consolidated Condensed Statements of Cash Flows (unaudited)

     6   

The Notes to the Consolidated Condensed Financial Statements (unaudited)

     7   

Note 1 Financial Information

     7   

Note 2 Acquisitions and Divestitures

     10   

Note 3 Investment Securities

     11   

Note 4 Loans

     14   

Note 5 Allowance for Loan Losses

     25   

Note 6 Intangible Assets

     27   

Note 7 Other Income and Other Expense

     28   

Note 8 Changes in Accumulated Other Comprehensive Income Balances

     29   

Note 9 Earnings Per Share

     31   

Note 10 Contingencies and Other Disclosures

     32   

Note 11 Pensions, Savings, and Other Employee Benefits

     39   

Note 12 Business Segment Information

     41   

Note 13 Variable Interest Entities

     43   

Note 14 Derivatives

     48   

Note 15 Master Netting and Similar Agreements - Repurchase, Reverse Repurchase, and Securities Borrowing and Lending Transactions

     54   

Note 16 Fair Value of Assets & Liabilities

     55   

Note 17 Other Events

     71   

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.

 

1


Table of Contents

CONSOLIDATED CONDENSED STATEMENTS OF CONDITION

 

     First Horizon National Corporation  
     September 30     December 31  

(Dollars in thousands, except per share amounts)(Unaudited)

   2015     2014     2014  

Assets:

      

Cash and due from banks

   $ 256,342      $ 292,687      $ 349,171   

Federal funds sold

     64,438        55,242        63,080   

Securities purchased under agreements to resell (Note 15)

     793,098        561,802        659,154   
  

 

 

   

 

 

   

 

 

 

Total cash and cash equivalents

     1,113,878        909,731        1,071,405   
  

 

 

   

 

 

   

 

 

 

Interest-bearing cash

     596,689        275,485        1,621,967   

Trading securities

     1,229,180        1,338,022        1,194,391   

Loans held-for-sale (a)

     124,308        151,915        141,285   

Securities available-for-sale (Note 3)

     3,673,641        3,534,671        3,556,613   

Securities held-to-maturity (Note 3)

     4,313        4,286        4,292   

Loans, net of unearned income (Note 4) (b)

     16,725,492        15,812,017        16,230,166   

Less: Allowance for loan losses (Note 5)

     210,814        238,641        232,448   
  

 

 

   

 

 

   

 

 

 

Total net loans

     16,514,678        15,573,376        15,997,718   
  

 

 

   

 

 

   

 

 

 

Goodwill (Note 6)

     145,932        141,943        145,932   

Other intangible assets, net (Note 6)

     25,624        19,044        29,518   

Fixed income receivables

     83,547        197,507        42,488   

Premises and equipment, net

     269,332        295,833        302,996   

Real estate acquired by foreclosure (c)

     35,332        47,996        39,922   

Derivative assets (Note 14)

     152,548        137,742        134,088   

Other assets

     1,418,317        1,355,046        1,385,572   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 25,387,319      $ 23,982,597      $ 25,668,187   
  

 

 

   

 

 

   

 

 

 

Liabilities and equity:

      

Deposits:

      

Savings

   $ 7,554,338      $ 6,371,156      $ 7,455,354   

Time deposits

     743,158        767,699        831,666   

Other interest-bearing deposits

     4,885,601        3,955,152        4,140,991   

Certificates of deposit $100,000 and more

     290,738        446,938        445,272   
  

 

 

   

 

 

   

 

 

 

Interest-bearing

     13,473,835        11,540,945        12,873,283   

Noninterest-bearing

     5,391,385        4,603,826        5,195,656   
  

 

 

   

 

 

   

 

 

 

Total deposits

     18,865,220        16,144,771        18,068,939   
  

 

 

   

 

 

   

 

 

 

Federal funds purchased

     520,992        928,159        1,037,052   

Securities sold under agreements to repurchase (Note 15)

     332,329        479,384        562,214   

Trading liabilities

     788,563        532,234        594,314   

Other short-term borrowings

     99,887        790,080        157,218   

Term borrowings

     1,341,186        1,491,138        1,880,105   

Fixed income payables

     95,346        329,960        18,157   

Derivative liabilities (Note 14)

     140,965        123,442        119,239   

Other liabilities

     622,586        551,615        649,359   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     22,807,074        21,370,783        23,086,597   
  

 

 

   

 

 

   

 

 

 

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, 2015, September 30, 2014 and December 31, 2014)

     95,624        95,624        95,624   

Common stock - $.625 par value (shares authorized - 400,000,000; shares issued - 234,237,439 on September 30, 2015; 235,248,564 on September 30, 2014; and 234,219,663 on December 31, 2014)

     146,398        147,030        146,387   

Capital surplus

     1,377,731        1,390,081        1,380,809   

Undivided profits

     841,737        816,483        851,585   

Accumulated other comprehensive loss, net (Note 8)

     (176,676     (132,835     (188,246
  

 

 

   

 

 

   

 

 

 

Total First Horizon National Corporation Shareholders’ Equity

     2,284,814        2,316,383        2,286,159   
  

 

 

   

 

 

   

 

 

 

Noncontrolling interest

     295,431        295,431        295,431   
  

 

 

   

 

 

   

 

 

 

Total equity

     2,580,245        2,611,814        2,581,590   
  

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 25,387,319      $ 23,982,597      $ 25,668,187   
  

 

 

   

 

 

   

 

 

 

Certain previously reported amounts have been revised to reflect the retroactive effect of the adoption of ASU 2014-01,“Equity Method and Joint Venture: Accounting for Investments in Qualified Affordable Housing Projects.” See Note 1 - Financial Information for additional information.

See accompanying notes to consolidated condensed financial statements.

 

(a) September 30, 2015 includes $21.7 million of held-for-sale consumer mortgage loans secured by residential real estate in process of foreclosure.
(b) September 30, 2015 includes $30.7 million of held-to-maturity consumer mortgage loans secured by residential real estate in process of foreclosure.
(c) September 30, 2015 includes $15.6 million of foreclosed residential real estate.

 

2


Table of Contents

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)

   2015     2014     2015     2014  

Interest income:

        

Interest and fees on loans

   $ 150,555      $ 144,675      $ 447,735      $ 426,042   

Interest on investment securities available-for-sale

     23,233        23,254        69,355        70,038   

Interest on investment securities held-to-maturity

     66        66        198        198   

Interest on loans held-for-sale

     1,311        3,263        4,152        9,687   

Interest on trading securities

     8,056        7,737        26,108        23,529   

Interest on other earning assets

     466        (137     1,237        307   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     183,687        178,858        548,785        529,801   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense:

        

Interest on deposits:

        

Savings

     2,785        2,600        9,062        8,475   

Time deposits

     1,230        1,786        3,986        7,334   

Other interest-bearing deposits

     1,118        754        3,179        2,318   

Certificates of deposit $100,000 and more

     756        685        2,468        2,577   

Interest on trading liabilities

     4,258        3,782        11,942        11,440   

Interest on short-term borrowings

     664        1,265        2,436        3,565   

Interest on term borrowings

     9,314        8,445        28,644        25,424   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     20,125        19,317        61,717        61,133   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     163,562        159,541        487,068        468,668   

Provision for loan losses

     1,000        6,000        8,000        21,000   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     162,562        153,541        479,068        447,668   
  

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest income:

        

Fixed income

     51,804        47,589        169,664        152,109   

Deposit transactions and cash management

     28,911        28,546        83,892        82,913   

Brokerage, management fees and commissions

     11,620        12,333        35,475        37,452   

Trust services and investment management

     6,590        6,779        20,704        20,832   

Bankcard income

     5,561        5,521        16,631        17,960   

Bank-owned life insurance

     4,135        3,547        10,988        12,891   

Other service charges

     2,968        3,064        8,859        9,052   

Mortgage banking

     761        41,559        2,721        69,449   

Insurance commissions

     608        593        1,858        1,641   

Equity securities gains/(losses), net

     (345     (862     (61     2,872   

All other income and commissions (Note 7)

     12,490        9,146        34,362        23,275   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest income

     125,103        157,815        385,093        430,446   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted gross income after provision for loan losses

     287,665        311,356        864,161        878,114   
  

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest expense:

        

Employee compensation, incentives, and benefits (three and nine months ended September 30, 2015, include $6.3 million and $2.9 million, respectively, of benefit and three and nine months ended September 30, 2014, include $.9 million and $2.6 million, respectively, of expense associated with pension and post-retirement plans reclassified from accumulated other comprehensive income)

     116,219        120,742        375,633        359,630   

Occupancy

     13,282        12,405        37,264        41,941   

Computer software

     11,010        10,614        33,292        32,357   

Operations services

     10,130        9,044        29,500        26,830   

Equipment rentals, depreciation, and maintenance

     7,093        7,150        22,296        22,441   

Professional fees

     5,139        6,187        14,063        16,379   

Advertising and public relations

     4,832        4,386        13,914        14,606   

FDIC premium expense

     4,529        3,456        12,929        8,583   

Communications and courier

     4,054        3,628        11,731        11,800   

Legal fees

     3,626        4,276        11,686        15,274   

Contract employment and outsourcing

     3,414        5,199        11,335        14,842   

Amortization of intangible assets

     1,298        982        3,894        2,945   

Foreclosed real estate

     431        788        1,629        2,011   

Repurchase and foreclosure provision

     —          (4,300     —          (4,300

All other expense (Note 7)

     30,379        59,459        230,885        59,883   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest expense

     215,436        244,016        810,051        625,222   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income/(loss)before income taxes

     72,229        67,340        54,110        252,892   
  

 

 

   

 

 

   

 

 

   

 

 

 

Provision/(benefit) for income taxes (three and nine months ended September 30, 2015, include $2.4 million and $1.1 million, respectively, of income tax expense and three and nine months ended September 30, 2014, include $.3 million and $1.0 million, respectively, of income tax benefit reclassified from accumulated other comprehensive income)

     8,897        16,842        8,226        70,486   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income/(loss)

   $ 63,332      $ 50,498      $ 45,884      $ 182,406   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to noncontrolling interest

     2,977        2,875        8,586        8,547   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income/(loss) attributable to controlling interest

   $ 60,355      $ 47,623      $ 37,298      $ 173,859   
  

 

 

   

 

 

   

 

 

   

 

 

 

Preferred stock dividends

     1,550        1,550        4,650        4,650   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income/(loss) available to common shareholders

   $ 58,805      $ 46,073      $ 32,648      $ 169,209   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings/(loss) per share (Note 9)

   $ 0.25      $ 0.20      $ 0.14      $ 0.72   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings/(loss) per share (Note 9)

   $ 0.25      $ 0.19      $ 0.14      $ 0.71   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares (Note 9)

     233,111        235,329        232,910        235,437   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted average common shares (Note 9)

     235,058        236,862        234,838        237,169   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash dividends declared per common share

   $ 0.06      $ 0.05      $ 0.18      $ 0.15   
  

 

 

   

 

 

   

 

 

   

 

 

 

Certain previously reported amounts have been revised to reflect the retroactive effect of the adoption of ASU 2014-01, “Equity Method and Joint Venture: Accounting for Investments in Qualified Affordable Housing Projects.” See Note 1 - Financial Information for additional information.

See accompanying notes to consolidated condensed financial statements.

 

3


Table of Contents

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

 

     First Horizon National Corporation  
     Three Months Ended
September 30
    Nine Months Ended
September 30
 

(Dollars in thousands) (Unaudited)

   2015     2014     2015     2014  

Net income/(loss)

   $ 63,332      $ 50,498     $ 45,884      $ 182,406  

Other comprehensive income/(loss), net of tax:

        

Unrealized fair value adjustments:

        

Securities available-for-sale

     15,427        (11,288     13,331        15,549   

Recognized pension and other employee benefit plans net periodic benefit costs

     (3,855     564        (1,761     1,625   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income/(loss)

     11,572       (10,724 )     11,570       17,174  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income/(loss)

     74,904        39,774       57,454        199,580  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to noncontrolling interest

     2,977       2,875        8,586       8,547   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income/(loss) attributable to controlling interest

   $ 71,927      $ 36,899     $ 48,868      $ 191,033  
  

 

 

   

 

 

   

 

 

   

 

 

 

Certain previously reported amounts have been revised to reflect the retroactive effect of the adoption of ASU 2014-01, “Equity Method and Joint Venture: Accounting for Investments in Qualified Affordable Housing Projects.” See Note 1-Financial Information for additional information.

See accompanying notes to consolidated condensed financial statements.

 

4


Table of Contents

CONSOLIDATED CONDENSED STATEMENTS OF EQUITY

 

    First Horizon National Corporation  
    2015     2014  

(Dollars in thousands except per share data) (Unaudited)

  Controlling Interest     Noncontrolling
Interest
    Total     Controlling Interest     Noncontrolling
Interest
    Total  

Balance, January 1

  $ 2,286,159      $ 295,431      $ 2,581,590      $ 2,192,946      $ 295,431      $ 2,488,377   

Net income/(loss)

    37,298        8,586        45,884        173,859        8,547        182,406   

Other comprehensive income/(loss) (a)

    11,570        —          11,570        17,174        —          17,174   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income/(loss)

    48,868        8,586        57,454        191,033        8,547        199,580   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash dividends declared:

           

Preferred stock ($4,650 per share for the nine months ended September 30, 2015 and 2014)

    (4,650     —          (4,650     (4,650     —          (4,650

Common stock ($.18 and $.15 per share for the nine months ended September 30, 2015 and 2014, respectively)

    (42,496     —          (42,496     (35,560     —          (35,560

Common stock repurchased (b)

    (20,052     —          (20,052     (28,903     —          (28,903

Common stock issued for:

           

Stock options and restricted stock - equity awards

    6,577        —          6,577        935        —          935   

Stock-based compensation expense

    9,952        —          9,952        8,355        —          8,355   

Dividends declared - noncontrolling interest of subsidiary preferred stock

    —          (8,586     (8,586     —          (8,547     (8,547

Tax benefit/(benefit reversal) - stock based compensation expense

    456        —          456        (7,773     —          (7,773
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30

  $ 2,284,814      $ 295,431      $ 2,580,245      $ 2,316,383      $ 295,431      $ 2,611,814   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Certain previously reported amounts have been revised to reflect the retroactive effect of the adoption of ASU 2014-01, “Equity Method and Joint Venture: Accounting for Investments in Qualified Affordable Housing Projects.” See Note 1 - Financial Information for additional information.

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) 2015 and 2014 include $15.8 million and $24.0 million, respectively, repurchased under the share repurchase program launched in January 2014.

 

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Table of Contents

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

 

     First Horizon National Corporation  
     Nine Months Ended September 30  

(Dollars in thousands)(Unaudited)

   2015     2014  

Operating Activities

    

Net income/(loss)

   $ 45,884      $ 182,406   

Adjustments to reconcile net income/(loss) to net cash provided/(used) by operating activities:

    

Provision for loan losses

     8,000        21,000   

Provision/(benefit) for deferred income taxes

     19,002        (1,471

Depreciation and amortization of premises and equipment

     27,187        26,791   

Amortization of intangible assets

     3,894        2,945   

Net other amortization and accretion

     11,774        12,586   

Net (increase)/decrease in derivatives

     (5,809     2,887   

Repurchase and foreclosure provision

     —          (4,300

Fair value adjustment to foreclosed real estate

     2,366        2,098   

Litigation and regulatory matters

     10,943        55,805   

Stock-based compensation expense

     9,952        8,355   

Tax benefit/(benefit reversal) - stock based compensation expense

     (456     7,773   

Equity securities (gains)/losses, net

     61        (2,872

(Gains)/losses on extinguishment of debt

     (5,794     4,350   

Loss on deconsolidation of securitization trusts

     —          1,960   

Net (gains)/losses on sale/disposal of fixed assets

     (2,461     3,256   

Proceeds from sale of mortgage servicing rights

     —          70,071   

Loans held-for-sale:

    

Purchases

     (3,080     (19,027

Gross proceeds from settlements and sales

     20,387        284,567   

Fair value adjustments and other

     (330     (47,303

Net (increase)/decrease in:

    

Trading securities

     (36,200     (535,921

Fixed income receivables

     (41,059     (152,252

Interest receivable

     1,345        (2,551

Other assets

     (87,677     319,312   

Net increase/(decrease) in:

    

Trading liabilities

     194,249        163,886   

Fixed income payables

     77,189        308,787   

Interest payable

     1,363        7,158   

Other liabilities

     (38,099     (129,657
  

 

 

   

 

 

 

Total adjustments

     166,747        408,233   
  

 

 

   

 

 

 

Net cash provided/(used) by operating activities

     212,631        590,639   
  

 

 

   

 

 

 

Investing Activities

    

Available-for-sale securities:

    

Sales

     284        7,829   

Maturities

     506,537        497,144   

Purchases

     (609,511     (620,329

Premises and equipment:

    

Sales

     40,369        1,283   

Purchases

     (24,945     (21,919

Net (increase)/decrease in:

    

Loans

     (517,622     (444,371

Interests retained from securitizations classified as trading securities

     1,411        1,176   

Interest-bearing cash

     1,025,278        454,812   
  

 

 

   

 

 

 

Net cash provided/(used) by investing activities

     421,801        (124,375
  

 

 

   

 

 

 

Financing Activities

    

Common stock:

    

Stock options exercised

     6,860        944   

Cash dividends paid

     (39,978     (35,659

Repurchase of shares (a)

     (20,052     (28,903

Tax benefit/(benefit reversal) - stock based compensation expense

     456        (7,773

Cash dividends paid - preferred stock - noncontrolling interest

     (8,555     (8,531

Cash dividends paid - Series A preferred stock

     (4,650     (4,650

Term borrowings:

    

Payments/maturities

     (519,545     (16,678

Increases in restricted and secured term borrowings

     —          2,089   

Net cash paid to deconsolidate/collapse securitization trusts

     —          (225,151

Net increase/(decrease) in:

    

Deposits

     796,781        (591,185

Short-term borrowings

     (803,276     531,055   
  

 

 

   

 

 

 

Net cash provided/(used) by financing activities

     (591,959     (384,442
  

 

 

   

 

 

 

Net increase/(decrease) in cash and cash equivalents

     42,473        81,822   
  

 

 

   

 

 

 

Cash and cash equivalents at beginning of period

     1,071,405        827,909   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 1,113,878      $ 909,731   
  

 

 

   

 

 

 

Supplemental Disclosures

    

Total interest paid

   $ 59,609      $ 52,785   

Total taxes paid

     14,896        54,540   

Total taxes refunded

     7,012        1,966   

Transfer from loans to other real estate owned

     9,772        17,010   
  

 

 

   

 

 

 

Certain previously reported amounts have been revised to reflect the retroactive effect of the adoption of ASU 2014-01, “Equity Method and Joint Ventures: Accounting for Investments in Qualified Affordable Housing Projects.” See Note 1 – Financial Information for additional information.

See accompanying notes to consolidated condensed financial statements.

 

(a) 2015 and 2014 include $15.8 million and $24.0 million, respectively, repurchased under the share repurchase program launched in January 2014.

 

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Notes to the Consolidated Condensed Financial Statements (Unaudited)

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 2015 periods are not necessarily indicative of the results that may be expected going forward. For further information, refer to the audited consolidated financial statements which were included in the 2014 Annual Report to shareholders, and which were filed as part of Exhibit 99.1 to FHN’s Current Report on Form 8-K dated October 19, 2015.

Summary of Accounting Changes. In January 2014, the FASB issued ASU 2014-01, “Equity Method and Joint Ventures: Accounting for Investments in Qualified Affordable Housing Projects.” ASU 2014-01 permits reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using a proportional amortization method if certain conditions are met. Under the proportional amortization 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). A reporting entity should evaluate whether the conditions have been met to apply the proportional amortization method to an investment in a qualified affordable housing project through a limited liability entity at the time of initial investment on the basis of facts and circumstances that exist at that time. A reporting entity should reevaluate the conditions upon the occurrence of certain specified events. An investment in a qualified affordable housing project through a limited liability entity should be tested for impairment when there are events or changes in circumstances indicating that it is more likely than not that the carrying amount of the investment will not be realized. For those investments in qualified affordable housing projects not accounted for using the proportional amortization method, the investment should be accounted for as an equity method investment or a cost method investment. The decision to apply the proportional amortization method of accounting is an accounting policy decision that should be applied consistently to all qualifying affordable housing project investments rather than a decision to be applied to individual investments. The provisions of ASU 2014-01 are effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2014.

Effective January 1, 2015, FHN retroactively adopted the requirements of ASU 2014-01 with an election to use the proportional amortization method for all qualifying investments. FHN believes the proportional amortization method better represents the economics of its qualified affordable housing investments and provides users with a better understanding of the returns from such investments when compared to the equity method. FHN will continue to use the equity method for non-qualifying affordable housing investments and its other tax credit investments. The cumulative effects of the retrospective application of the change in amortization method are summarized in the tables below.

 

    As of September     As of
December 31
 

(Dollars in thousands, except per share amounts)

  2014     2014     2013  

Increase/(decrease) to previously reported Consolidated Statements of Condition amounts

     

Other assets

  $ (4,190   $ (4,700     (5,340

Other liabilities

    5,937        4,678        7,034   

Undivided profits

    (10,127     (9,378     (12,374

 

     Three Months
Ended
September 30
    Nine Months
Ended
September 30
    For the Year Ended
December 31
 
     2014     2014     2014     2013     2012  

Increase/(decrease) to previously reported Consolidated Statements of Income amounts

          

Other expense

   $ (2,170   $ (6,510   $ (8,680   $ (10,082   $ (14,177

Provision/(benefit) for income taxes

     1,421        4,263        5,684        12,780        13,234   

Income/(loss) available to common shareholders

     749        2,247        2,996        (2,698     943   

Diluted earnings/(loss) per share

     —          0.01        0.01        (0.01     —     

 

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Table of Contents

Note 1 – Financial Information (Continued)

 

Investment balances, including all legally binding commitments to fund future investments, are included in Other assets on the Consolidated Condensed Statements of Condition. A liability is recognized in Other liabilities on the Consolidated Condensed Statements of Condition for all legally binding unfunded commitments to fund qualifying LIHTC investments. Amortization and other write-downs of qualifying LIHTC investments are presented on a net basis as a component of the Provision/(benefit) for income taxes on the Consolidated Condensed Statements of Income, while amortization and write-downs of non-qualifying LIHTC and other tax credit investments are recorded in Other expense. The income tax credits and deductions are recorded as a reduction of income tax expense and a reduction of federal income taxes payable.

In January 2014, the FASB issued ASU 2014-04, “Receivables—Troubled Debt Restructurings by Creditors: Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.” ASU 2014-04 clarifies that an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU 2014-04 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. An entity is required to adopt ASU 2014-04 using either a modified retrospective transition method or a prospective transition method. Under the modified retrospective transition method, an entity should apply ASU 2014-04 by means of a cumulative-effect adjustment to residential consumer mortgage loans and foreclosed residential real estate properties existing as of the beginning of the annual period for which the amendments are effective. FHN adopted the requirements of ASU 2014-04 prospectively and this did not have a material effect on FHN’s statements of condition, results of operation or cash flows.

In August 2014, the FASB issued ASU 2014-14, “Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure.” ASU 2014-14 requires that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if 1) the loan has a government guarantee that is not separable from the loan before foreclosure, 2) at the time of foreclosure the creditor has the intent to convey the real estate to the guarantor and make a recoverable claim on the guarantee and 3) at the time of foreclosure any amount of the claim that is based on the fair value of the real estate is fixed. For qualifying foreclosures, the amount of the receivable recognized should be measured based on the amount of the loan balance expected to be recovered from the guarantor. ASU 2014-14 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014 and may be adopted through either a prospective only approach or through a reclassification from other real estate owned to other receivable on the effective date. FHN adopted the requirements for ASU 2014-14 prospectively for transactions occurring after its effective date and this did not have a material effect on FHN’s statements of condition, results of operation or cash flows.

In June 2014, the FASB issued ASU 2014-11, “Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.” ASU 2014-11 makes two changes to accounting for repurchase agreements. First, it requires secured borrowing accounting for repurchase-to-maturity transactions. Second, it requires separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. ASU 2014-11 also requires additional disclosures for repurchase transactions that are recognized as secured borrowings, including disaggregation by class of collateral, the remaining contractual tenor of the arrangements and the risks inherent in the agreements. Adoption of ASU 2014-11 will only affect FHN’s disclosures as it does not execute repurchase-to maturity or repurchase financing transactions. These disclosure revisions are effective for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. FHN revised its disclosures upon adoption of ASU 2014-11.

In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments.” ASU 2015-16 requires that measurement-period adjustments to provisional amounts recognized in a business combination be recorded in the period in which they are identified. The cumulative effect on the income statement should be recognized in the same period as if the accounting had been completed as of the acquisition date. Previously, measurement-period adjustments required revision of the initial balance sheet for an acquisition with corresponding revision of all affected prior period financial statements. ASU 2015-16 requires disclosure of the income statement effects by line item when measurement-period adjustments are recognized. ASU 2015-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early application is permitted for reporting periods for which financial statements have not yet been issued. FHN has elected to early adopt the provisions of ASU 2015-16 because it considers the revised guidance to be more effective in communicating the financial statement effects of measurement-period adjustments.

 

8


Table of Contents

Note 1 – Financial Information (Continued)

 

Accounting Changes Issued but Not Currently Effective

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09 does not change revenue recognition for financial instruments. 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. The effective date of ASU 2014-09 has been deferred to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted for annual reporting periods beginning after December 15, 2016, and associated interim periods. Transition to the new requirements may be made by retroactively revising prior financial statements (with certain practical expedients permitted) or by a cumulative effect through retained earnings. If the latter option is selected, additional disclosures are required for comparability. FHN is evaluating the effects of ASU 2014-09 on its revenue recognition practices.

In June 2014, the FASB issued ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” ASU 2014-12 requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition in determining expense recognition for the award. Thus, compensation cost is recognized over the requisite service period based on the probability of achievement of the performance condition. Expense is adjusted after the requisite service period for changes in the probability of achievement. ASU 2014-12 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. The adoption of ASU 2014-12 will have no effect on FHN.

In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” ASU 2014-15 requires an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. If such events or conditions exist, additional disclosures are required and management should evaluate whether its plans sufficiently alleviate the substantial doubt. ASU 2014-15 is effective for the annual period ending after December 15, 2016 and all interim and annual periods thereafter. The provisions of ASU 2014-15 are not anticipated to affect FHN.

In February 2015, the FASB issued ASU 2015-02, “Amendments to the Consolidation Analysis.” ASU 2015-02 revises current consolidation guidance to modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities. ASU 2015-02 also eliminates the presumption that a general partner should consolidate a limited partnership, revises the consolidation analysis for reporting entities that have fee arrangements and related party relationships with variable interest entities, and provides a scope exception for entities with interests in registered money market funds. ASU 2015-02 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. FHN has evaluated the provisions of ASU 2015-02 on its consolidation assessments and there will not be a significant effect upon adoption.

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented as a direct reduction from the carrying value of that debt liability, consistent with debt discounts. ASU 2015-03 requires application on a retrospective basis, with prior periods revised to reflect the effects of adoption. ASU 2015-03 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. Consistent with current requirements, FHN currently classifies debt issuance costs within Other assets in the Consolidated Condensed Statements of Condition. ASU 2015-03 will have no effect on FHN’s recognition of interest expense.

 

9


Table of Contents

Note 2 – Acquisitions and Divestitures

On October 17, 2014, First Tennessee Bank National Association (“FTBNA”) purchased thirteen bank branches in Middle and East Tennessee. The fair value of the acquired assets totaled $437.6 million, including $413.4 million in cash, $7.5 million in fixed assets, and $15.7 million of goodwill and intangible assets. FTBNA also assumed $437.2 million of deposits associated with these branches. FTBNA paid a deposit premium of 3.32 percent and acquired an immaterial amount of loans as part of the transaction. In relation to the branch acquisition FHN recorded $4.0 million in goodwill, representing the excess of the estimated fair value of liabilities assumed over the estimated fair value of the assets acquired (refer to Note 6 – Intangible Assets for additional information), all of which is expected to be deductible for tax purposes. FHN’s operating results for 2015 and 2014 include the impact of branch activity subsequent to the October 17, 2014 closing date.

In fourth quarter 2014, FHN entered into a merger agreement with TrustAtlantic Financial Corporation (“TrustAtlantic Financial”). TrustAtlantic Financial owned all the capital stock of TrustAtlantic Bank. TrustAtlantic Financial and TrustAtlantic Bank were headquartered in Raleigh, North Carolina. TrustAtlantic Bank had five branches located in North Carolina in the communities of Raleigh, Cary and Greenville. The holding company transaction closed on October 2, 2015, and as a result FHN took control of TrustAtlantic Bank. TrustAtlantic Bank merged into FTBNA on October 16, 2015 and the TrustAtlantic Bank branches became First Tennessee branches upon closing that merger. The aggregate transaction value of the merger was approximately $95 million.

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.

 

10


Table of Contents

Note 3 – Investment Securities

The following tables summarize FHN’s investment securities on September 30, 2015 and 2014:

 

     September 30, 2015  

(Dollars in thousands)

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair
Value
 

Securities available-for-sale (“AFS”):

     

U.S. treasuries

   $ 100      $ —        $ —         $ 100  

Government agency issued mortgage-backed securities (“MBS”)

     914,878        31,773        (700      945,951  

Government agency issued collateralized mortgage obligations (“CMO”)

     2,514,362        30,281        (9,207      2,535,436  

Other U.S. government agencies

     1,443        3        —           1,446  

States and municipalities

     9,155        —          —           9,155  

Equity and other (a)

     182,014        —          (461      181,553  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available-for-sale (b)

   $ 3,621,952      $ 62,057      $ (10,368    $ 3,673,641  
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities held-to-maturity (“HTM”):

     

States and municipalities

   $ 4,313       $ 1,091       $ —         $ 5,404   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities held-to-maturity

   $ 4,313       $ 1,091       $ —         $ 5,404   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) Includes restricted investments in FHLB-Cincinnati stock of $87.9 million and FRB stock of $65.8 million. The remainder is money market, mutual funds, 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, 2014  

(Dollars in thousands)

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair
Value
 

Securities available-for-sale:

           

U.S. treasuries

   $ 100      $ —        $ —         $ 100  

Government agency issued MBS

     685,426        33,820        (2,381      716,865  

Government agency issued CMO

     2,648,047        15,637        (39,999      2,623,685  

Other U.S. government agencies

     1,859        70        —           1,929  

States and municipalities

     10,205        —          —           10,205  

Equity and other (a)

     182,119        —          (232      181,887  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available-for-sale (b)

   $ 3,527,756      $ 49,527      $ (42,612    $ 3,534,671  
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities held-to-maturity:

           

States and municipalities

   $ 4,286       $ 1,094       $ —         $ 5,380   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities held-to-maturity

   $ 4,286       $ 1,094       $ —         $ 5,380   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) Includes restricted investments in FHLB-Cincinnati stock of $87.9 million and FRB stock of $66.0 million. The remainder is money market, mutual funds, and cost method investments.
(b) Includes $3.2 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes.

 

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Table of Contents

Note 3 – Investment Securities (Continued)

 

The amortized cost and fair value by contractual maturity for the available-for-sale and held-to-maturity securities portfolios on September 30, 2015, are provided below:

 

     Held-to-Maturity      Available-for-Sale  

(Dollars in thousands)

   Amortized
Cost
     Fair
Value
     Amortized
Cost
     Fair
Value
 

Within 1 year

   $ —         $ —         $ 2,943      $ 2,946  

After 1 year; within 5 years

     —           —           100        100  

After 5 years; within 10 years

     —           —           —          —    

After 10 years

     4,313         5,404         7,655        7,655  
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     4,313         5,404         10,698        10,701  
  

 

 

    

 

 

    

 

 

    

 

 

 

Government agency issued MBS and CMO (a)

     —           —           3,429,240        3,481,387  

Equity and other

     —           —           182,014        181,553  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 4,313       $ 5,404       $ 3,621,952      $ 3,673,641  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

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

 

     Three Months Ended
September 30
     Nine Months Ended
September 30
 

(Dollars in thousands) 

   2015      2014      2015      2014  

Gross gains on sales of securities

   $ —        $ 133       $ 284      $ 5,867   

Gross losses on sales of securities

     —          —           —          —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net gain/(loss) on sales of securities (a)

     —          133         284         5,867   
  

 

 

    

 

 

    

 

 

    

 

 

 

Venture capital investments (b)

     —           (995      —           (2,995

Net other than temporary impairment (“OTTI”) recorded (c)

     (345      —           (345      —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities gain/(loss), net

   $ (345 )    $ (862    $ (61 )    $ 2,872   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) There were no sales proceeds for the three months ended September 30, 2015; proceeds for the nine months ended September 30, 2015 were not material. Proceeds from sales for the three months ended September 30, 2014 were $3.3 million and for the nine months ended September 30, 2014 were $9.2 million, inclusive of $1.4 million of equity securities.
(b) Includes write-offs and/or unrealized fair value adjustments related to venture capital investments.
(c) OTTI recorded in third quarter 2015 is related to equity securities.

 

12


Table of Contents

Note 3 – Investment Securities (Continued)

 

The following tables provide information on investments within the available-for-sale portfolio that had unrealized losses as of September 30, 2015 and 2014:

 

     As of September 30, 2015  
     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

   $ 370,165      $ (1,487   $ 435,331       $ (7,720   $ 805,496       $ (9,207

Government agency issued MBS

     69,997         (242     32,538         (458     102,535         (700
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total debt securities

     440,162         (1,729     467,869         (8,178     908,031         (9,907
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Equity

     —           —          630         (461     630         (461
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired securities

   $ 440,162       $ (1,729   $ 468,499       $ (8,639   $ 908,661       $ (10,368
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
     As of September 30, 2014  
     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

   $ 724,834      $ (5,113   $ 949,556      $ (34,886 )   $ 1,674,390      $ (39,999

Government agency issued MBS

     32,621        (244     103,858        (2,137 )     136,479        (2,381
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total debt securities

     757,455         (5,357     1,053,414         (37,023     1,810,869         (42,380
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Equity

     849         (198     10         (34     859         (232
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired securities

   $ 758,304      $ (5,555   $ 1,053,424      $ (37,057 )   $ 1,811,728      $ (42,612
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

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

 

13


Table of Contents

Note 4 – Loans

The following table provides the balance of loans by portfolio segment as of September 30, 2015 and 2014, and December, 31 2014:

 

     September 30      December 31  

(Dollars in thousands)

   2015      2014      2014  

Commercial:

        

Commercial, financial, and industrial

   $ 9,610,295      $ 8,477,329      $ 9,007,286  

Commercial real estate

     1,488,044        1,278,394        1,277,717  

Retail:

        

Consumer real estate (a)

     4,813,936        5,130,988        5,048,071  

Permanent mortgage

     463,893        572,789        538,961  

Credit card & other

     349,324        352,517        358,131  
  

 

 

    

 

 

    

 

 

 

Loans, net of unearned income

   $ 16,725,492      $ 15,812,017      $ 16,230,166  

Allowance for loan losses

     210,814        238,641        232,448  
  

 

 

    

 

 

    

 

 

 

Total net loans

   $ 16,514,678      $ 15,573,376      $ 15,997,718  
  

 

 

    

 

 

    

 

 

 

 

(a) Balances as of September 30, 2015 and 2014, and December 31, 2014 include $59.3 million, $81.1 million, and $76.8 million of restricted real estate loans, respectively. See Note 13 - 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 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. Commercial classes within CRE 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.

Concentrations

FHN has a concentration of residential real estate loans (32 percent of total loans), the majority of which is in the consumer real estate segment (29 percent of total loans). Loans to finance and insurance companies total $2.1 billion (22 percent of the C&I portfolio, or 13 percent of the total loans). FHN had loans to mortgage companies totaling $1.4 billion (14 percent of the C&I segment, or 8 percent of total loans) as of September 30, 2015. As a result, 36 percent of the C&I segment was sensitive to impacts on the financial services industry.

Purchased Credit-Impaired Loans

The following table presents a rollforward of the accretable yield for the three and nine months ended September 30, 2015 and 2014:

 

     Three Months Ended
September 30
     Nine Months Ended
September 30
 

(Dollars in thousands)

   2015      2014      2015      2014  

Balance, beginning of period

   $ 8,348       $ 16,509       $ 14,714       $ 13,490   

Additions

     —           —           —           335   

Accretion

     (1,037      (1,829      (5,985      (5,413

Adjustment for payoffs

     (835      (828      (2,931      (1,550

Adjustment for charge-offs

     —           (10      —           (79

Increase in accretable yield (a)

     500         2,231         1,178         9,290   
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 6,976       $ 16,073       $ 6,976       $ 16,073   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) 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.

 

14


Table of Contents

Note 4 – Loans (Continued)

 

At September 30, 2015, the ALLL related to PCI loans was $2.9 million compared to $2.8 million at September 30, 2014. A loan loss provision expense of $.1 million was recognized during the three months ended September 30, 2015 as compared to a loan loss provision expense of $.4 million recognized during the three months ended September 30, 2014. A loan loss provision credit of $.4 million was recognized during the nine months ended September 30, 2015 as compared to a loan loss provision expense of $2.1 million recognized during the nine months ended September 30, 2014. The following table reflects the outstanding principal balance and carrying amounts of the acquired PCI loans as of September 30, 2015 and 2014, and December 31, 2014:

 

     September 30, 2015      September 30, 2014      December 31, 2014  

(Dollars in thousands)

   Carrying value      Unpaid balance      Carrying value      Unpaid balance      Carrying value      Unpaid balance  

Commercial, financial and industrial

   $ 4,767       $ 5,353       $ 5,028       $ 6,155       $ 5,044       $ 5,813   

Commercial real estate

     17,998         21,138         31,660         42,890         32,553         43,246   

Consumer real estate

     1,968         2,636         585         875         598         868   

Credit card and other

     6         10         11         16         10         14   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 24,739       $ 29,137       $ 37,284       $ 49,936       $ 38,205       $ 49,941   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

15


Table of Contents

Note 4 – Loans (Continued)

 

Impaired Loans

The following tables provide information at September 30, 2015 and 2014, by class related to individually impaired loans and consumer TDRs. 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 net LOCOM have been excluded.

 

     September 30, 2015      Three Months Ended
September 30, 2015
     Nine Months Ended
September 30, 2015
 

(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

   $ 5,586      $ 7,266      $ —         $ 8,994      $ —         $ 11,202      $ —     

Income CRE

     2,468        9,389        —           3,328        —           4,631        —     

Residential CRE

     —          —          —           —          —           191        —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 8,054      $ 16,655      $ —         $ 12,322      $ —         $ 16,024      $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Retail:

                    

HELOC (a)

   $ 11,000      $ 28,486      $ —         $ 11,788      $ —         $ 12,455      $ —     

R/E installment loans (a)

     4,404        5,756        —           4,682        —           4,696        —     

Permanent mortgage (a)

     5,983        8,255        —           6,193        —           6,743        —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 21,387      $ 42,497      $ —         $ 22,663      $ —         $ 23,894      $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans with related allowance recorded:

                    

Commercial:

                    

General C&I

   $ 21,319      $ 25,515      $ 846       $ 25,934      $ 238       $ 24,702      $ 727   

TRUPS

     13,369        13,700        5,310         13,384        —           13,414        —     

Income CRE

     6,424        7,709        496         6,606        32         6,962        95   

Residential CRE

     1,417        1,886        91         1,468        6         1,512        19   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 42,529      $ 48,810      $ 6,743       $ 47,392      $ 276       $ 46,590      $ 841   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Retail:

                    

HELOC

   $ 89,199      $ 91,382      $ 17,200       $ 88,245      $ 474       $ 86,359      $ 1,383   

R/E installment loans

     65,465        66,431        16,718         66,367        352         68,274        1,010   

Permanent mortgage

     99,071        111,683        15,696         99,913        613         102,341        1,841   

Credit card & other

     380        380        168         399        3         453        11   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 254,115      $ 269,876      $ 49,782       $ 254,924      $ 1,442       $ 257,427      $ 4,245   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

   $ 50,583      $ 65,465      $ 6,743       $ 59,714      $ 276       $ 62,614      $ 841   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total retail

   $ 275,502      $ 312,373      $ 49,782       $ 277,587      $ 1,442       $ 281,321      $ 4,245   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 326,085      $ 377,838      $ 56,525       $ 337,301      $ 1,718       $ 343,935      $ 5,086   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

16


Table of Contents

Note 4 – Loans (Continued)

 

     September 30, 2014      Three Months Ended
September 30, 2014
     Nine Months Ended
September 30, 2014
 

(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

   $ 15,594      $ 17,185      $ —         $ 15,542      $ —         $ 16,910      $ —     

TRUPS

     —           —           —           —           —           1,083         —     

Income CRE

     6,819        14,379        —           6,829        —           7,670        —     

Residential CRE

     1,148        1,827        —           1,148        —           574        —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 23,561      $ 33,391      $ —         $ 23,519      $ —         $ 26,237      $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Retail:

                    

HELOC (a)

   $ 14,036      $ 34,693      $ —         $ 15,713      $ —         $ 16,324      $ —     

R/E installment loans (a)

     5,640        7,221        —           6,552        —           8,729        —     

Permanent mortgage (a)

     7,616        10,023        —           7,739        —           7,918        —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 27,292      $ 51,937      $ —         $ 30,004      $ —         $ 32,971      $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans with related allowance recorded:

                    

Commercial:

                    

General C&I

   $ 18,393      $ 22,579      $ 2,229       $ 25,394      $ 79       $ 25,895      $ 236   

TRUPS

     13,490        13,700        3,810         8,505        —           13,540        —     

Income CRE

     8,735        10,107        481         8,789        62         10,406        226   

Residential CRE

     5,663        11,111        623         5,846        59         6,233        183   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 46,281      $ 57,497      $ 7,143       $ 48,534      $ 200       $ 56,074      $ 645   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Retail:

                    

HELOC

   $ 81,422      $ 82,813      $ 17,061       $ 79,352      $ 448       $ 75,476      $ 1,339   

R/E installment loans

     73,434        74,690        24,431         74,091        306         73,783        872   

Permanent mortgage

     110,921        124,429        17,329         111,263        709         112,518        2,138   

Credit card & other

     548        548        255         536        5         614        21   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 266,325      $ 282,480      $ 59,076       $ 265,242      $ 1,468       $ 262,391      $ 4,370   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

   $ 69,842      $ 90,888      $ 7,143       $ 72,053      $ 200       $ 82,311      $ 645   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total retail

   $ 293,617      $ 334,417      $ 59,076       $ 295,246      $ 1,468       $ 295,362      $ 4,370   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 363,459      $ 425,305      $ 66,219       $ 367,299      $ 1,668       $ 377,673      $ 5,015   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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

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. 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. See Note 5 - Allowance for Loan Losses for further discussion on the credit grading system.

 

17


Table of Contents

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, 2015 and 2014:

 

     September 30, 2015  

(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

   $ 529,836       $ —         $ —         $ 707      $ —        $ 530,543         5   $ 127  

2

     590,614         —           —           10,835        126        601,575         5        322  

3

     453,831         327,776         —           90,588        —          872,195         8        311  

4

     822,515         315,061         —           110,165        302        1,248,043         11        949  

5

     1,190,085         239,391         —           234,729        7,015        1,671,220         15        6,901  

6

     1,201,553         350,401         —           347,740        2,793        1,902,487         17        10,630  

7

     1,278,443         98,262         —           354,457        4,670        1,735,832         16        13,891  

8

     747,760         18,189         —           150,375        561        916,885         8        13,953  

9

     377,998         26,240         —           42,995        2,212        449,445         4        8,310  

10

     188,711         —           —           30,515        89        219,315         2        4,635  

11

     186,974         —           —           28,004        747        215,725         2        5,861  

12

     80,836         —           —           9,095        516        90,447         1        2,975  

13

     112,423         —           305,382         3,600        260        421,665         4        4,256  

14,15,16

     123,345         —           —           23,195        1,277        147,817         1        14,533  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

 

 

 

Collectively evaluated for impairment

     7,884,924         1,375,320         305,382         1,437,000        20,568        11,023,194         99        87,654  

Individually evaluated for impairment

     26,904         —           12,755         8,892        1,417        49,968         1        6,743  

Purchased credit-impaired loans

     5,010         —           —           18,533         1,634         25,177         —          2,414   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total commercial loans

   $ 7,916,838       $ 1,375,320       $ 318,137       $ 1,464,425      $ 23,619      $ 11,098,339         100   $ 96,811   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

18


Table of Contents

Note 4 – Loans (Continued)

 

    September 30, 2014  

(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

  $ 441,590      $ —        $ —        $ 221     $ 63     $ 441,874        5   $ —     

2

    355,805        —          —          2,854       244       358,903        4        338   

3

    412,110        46,838        —          28,750       93       487,791        5        264   

4

    446,092        148,852        —          28,815       296       624,055        6        671   

5

    947,041        177,435        —          239,166       4,717       1,368,359        14        2,741   

6

    1,090,900        275,710        —          184,961       5,579       1,557,150        16        1,790   

7

    1,178,283        193,667        —          262,318       6,405       1,640,673        17        2,777   

8

    747,305        88,114        —          183,145       4,195       1,022,759        10        2,339   

9

    540,472        18,251        —          107,636       2,619       668,978        7        4,559   

10

    291,984        8,774        —          39,306       1,216       341,280        3        4,001   

11

    314,927        —          —          33,214       2,825       350,966        4        7,538   

12

    106,550        —          —          29,250       928       136,728        1        1,383   

13

    115,198        —          325,882        8,085       1,938       451,103        5        6,716   

14,15,16

    153,611        —          —          37,882       4,915       196,408        2        40,279   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Collectively evaluated for impairment

    7,141,868       957,641       325,882       1,185,603       36,033       9,647,027       99       75,396  

Individually evaluated for impairment

    33,987        —          12,875        15,554       6,811       69,227       1       7,143  

Purchased credit-impaired loans

    5,076        —          —          32,588        1,805        39,469        —          2,781   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial loans

  $ 7,180,931     $ 957,641     $ 338,757     $ 1,233,745     $ 44,649     $ 9,755,723       100 %   $ 85,320   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Balances as of September 30, 2015 and 2014, each presented net of $26.2 million in lower of cost or market (“LOCOM”) valuation allowance. Based on the underlying structure of the notes, the highest possible internal grade is “13”.

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 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 retail portfolio.

 

19


Table of Contents

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, 2015 and 2014:

HELOC

 

     September 30, 2015      September 30, 2014  

(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

   $ 42,651        707        702      $ 61,659        708        703  

2003

     79,768        720        710        111,031        722        709  

2004

     215,749        722        709        312,590        724        711  

2005

     341,878        730        715        476,226        732        722  

2006

     288,858        738        728        351,818        740        727  

2007

     310,250        744        729        369,635        744        729  

2008

     176,625        753        749        200,908        753        748  

2009

     88,937        751        745        105,576        752        743  

2010

     84,594        754        748        100,727        754        749  

2011

     81,754        759        753        100,842        759        753  

2012

     103,906        760        756        121,149        759        757  

2013

     129,742         757         755         158,256         759         760   

2014

     115,449         761         764         87,878         761         761   

2015

     103,431         762         762         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,163,592        742        733      $ 2,558,295        741        732  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

R/E Installment Loans

 

     September 30, 2015      September 30, 2014  

(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

   $ 8,701        677        689      $ 16,278        680        684  

2003

     35,532        712        721        55,361        715        724  

2004

     31,486        697        699        44,484        700        697  

2005

     96,162        714        710        132,276        715        713  

2006

     108,731        712        703        143,601        714        701  

2007

     163,909        721        708        211,780        723        709  

2008

     53,608        720        715        67,730        721        715  

2009

     23,384        735        730        31,524        739        728  

2010

     78,175        750        759        107,417        748        755  

2011

     242,096        760        760        296,440        760        759  

2012

     534,038        764        766        628,622        764        765  

2013

     424,674         756         757         486,553         756         757   

2014

     426,629         756         758         350,627         755         754   

2015

     423,219         758         754         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,650,344        750        749      $ 2,572,693        748        746  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Permanent Mortgage

 

     September 30, 2015      September 30, 2014  

(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

   $ 120,411        722        718      $ 161,037        724        723  

2004

     14,003        711        709        18,190        713        713  

2005

     30,637        736        733        35,503        737        733  

2006

     49,011        732        722        65,722        731        734  

2007

     168,663        734        713        201,640        734        735  

2008

     81,168        741        712        90,697        742        736  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 463,893        730        716      $ 572,789        730        731  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

20


Table of Contents

Note 4 – Loans (Continued)

 

Nonaccrual and Past Due Loans

The following table reflects accruing and non-accruing loans by class on September 30, 2015:

 

    Accruing     Non-Accruing        

(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
 

Commercial (C&I):

                 

General C&I

  $ 7,888,633     $ 6,095     $ 349     $ 7,895,077     $ 5,359     $ 1,553     $ 9,839     $ 16,751     $ 7,911,828  

Loans to mortgage companies

    1,373,103       2,102       —         1,375,205       —         —         115       115       1,375,320  

TRUPS (a)

    305,382       —         —         305,382       —         —         12,755       12,755       318,137  

Purchased credit-impaired loans

    4,705       —         305       5,010       —         —         —         —         5,010   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial (C&I)

    9,571,823        8,197        654        9,580,674        5,359       1,553       22,709       29,621        9,610,295   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial real estate:

                 

Income CRE

    1,435,395       2,394       —         1,437,789       914       —         7,189       8,103       1,445,892  

Residential CRE

    21,905       80       —         21,985       —         —         —         —         21,985  

Purchased credit-impaired loans

    16,172       3,845       150       20,167       —         —         —         —         20,167   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial real estate

    1,473,472        6,319       150        1,479,941        914       —         7,189        8,103        1,488,044   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consumer real estate:

                 

HELOC

    2,056,044       19,459       10,146       2,085,649       63,667       5,150       9,126       77,943       2,163,592  

R/E installment loans

    2,599,513       11,423       3,211       2,614,147       26,293       2,174       5,258       33,725       2,647,872  

Purchased credit-impaired loans

    2,383       —         89       2,472       —         —         —         —         2,472   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer real estate

    4,657,940       30,882       13,446       4,702,268       89,960       7,324       14,384       111,668       4,813,936  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Permanent mortgage

    420,727       4,051       5,270       430,048       14,044       3,228       16,573       33,845       463,893  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Credit card & other

                 

Credit card

    187,770       2,049       1,171       190,990       —         —         —         —         190,990  

Other

    156,664       718       202       157,584       —         —         743       743       158,327  

Purchased credit-impaired loans

    7        —          —          7        —          —          —          —          7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total credit card & other

    344,441       2,767       1,373       348,581       —         —         743       743       349,324  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans, net of unearned

  $ 16,468,403     $ 52,216     $ 20,893     $ 16,541,512     $ 110,277     $ 12,105     $ 61,598     $ 183,980     $ 16,725,492  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Total TRUPS includes LOCOM valuation allowance of $26.2 million.

 

21


Table of Contents

Note 4 – Loans (Continued)

 

The following table reflects accruing and non-accruing loans by class on September 30, 2014:

 

    Accruing     Non-Accruing        

(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
 

Commercial (C&I):

         

General C&I

  $ 7,140,246     $ 5,515     $ 1,717     $ 7,147,478     $ 5,603     $ 1,469     $ 21,305     $ 28,377     $ 7,175,855  

Loans to mortgage companies

    956,861       650       —         957,511       —         —         130       130       957,641  

TRUPS (a)

    325,882       —         —         325,882       9,385       —         3,490       12,875       338,757  

Purchased credit-impaired loans

    4,710       366       —         5,076       —         —         —         —         5,076   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial (C&I)

    8,427,699        6,531        1,717        8,435,947        14,988       1,469       24,925       41,382        8,477,329   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial real estate:

         

Income CRE

    1,186,595       2,781       —         1,189,376       217       1,068       10,496       11,781       1,201,157  

Residential CRE

    40,249       189       —         40,438       1,254       —         1,152       2,406       42,844  

Purchased credit-impaired loans

    33,185       669       539       34,393       —         —         —         —         34,393   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial real estate

    1,260,029        3,639       539        1,264,207        1,471       1,068       11,648        14,187        1,278,394   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consumer real estate:

         

HELOC

    2,437,982       23,816       11,645       2,473,443       68,785       5,784       10,283       84,852       2,558,295  

R/E installment loans

    2,515,705       12,721       4,965       2,533,391       29,306       2,585       6,768       38,659       2,572,050  

Purchased credit-impaired loans

    643       —         —         643       —         —         —         —         643   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer real estate

    4,954,330       36,537       16,610       5,007,477       98,091       8,369       17,051       123,511       5,130,988  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Permanent mortgage

    523,150       7,635       8,030       538,815       15,215       4,063       14,696       33,974       572,789  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Credit card & other

         

Credit card

    184,650       1,900       1,822       188,372       —         —         —         —         188,372  

Other

    162,088       1,190       164       163,442       —         —         692       692       164,134  

Purchased credit-impaired loans

    11        —          —          11        —          —          —          —          11   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total credit card & other

    346,749       3,090       1,986       351,825       —         —         692       692       352,517  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans, net of unearned

  $ 15,511,957     $ 57,432     $ 28,882     $ 15,598,271     $ 129,765     $ 14,969     $ 69,012     $ 213,746     $ 15,812,017  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Total TRUPS includes LOCOM valuation allowance of $26.2 million.

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. FHN considers regulatory guidelines when restructuring loans to ensure that prudent lending practices are followed. As such, qualification criteria and payment terms consider the borrower’s current and prospective ability to comply with the modified terms of the loan.

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, particularly as it relates to commercial borrowers due to the complex nature of loan structures, business/industry risk, and borrower/guarantor structures. 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. When evaluating whether a concession has been granted, FHN also considers whether the borrower has provided additional collateral or guarantors, among other things, and whether such additions adequately compensate FHN for the restructured terms. The assessments of whether a borrower is experiencing (or is likely to experience) financial difficulty and whether a concession has been granted is 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 Home Affordable Modification Program (“HAMP”). Within the HELOC and R/E

 

22


Table of Contents

Note 4 – Loans (Continued)

 

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 ratio. 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 ratio. After 5 years the interest rate steps up 1 percent every year thereafter 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 September 30, 2015 and 2014, FHN had $304.7 million and $346.0 million portfolio loans classified as TDRs, respectively. For TDRs in the loan portfolio, FHN had loan loss reserves of $51.2 million and $60.9 million, or 17 percent as of September 30, 2015, and 18 percent as of September 30, 2014. Additionally, $72.6 million and $83.1 million of loans held-for-sale as of September 30, 2015 and 2014, respectively were classified as TDRs.

The following tables reflect portfolio loans that were classified as TDRs during the three and nine months ended September 30, 2015 and 2014:

 

    Three Months Ended September 30, 2015     Nine Months Ended September 30, 2015  

(Dollars in thousands)

  Number     Pre-Modification
Outstanding
Recorded Investment
    Post-Modification
Outstanding
Recorded Investment
    Number     Pre-Modification
Outstanding
Recorded Investment
    Post-Modification
Outstanding
Recorded Investment
 

Commercial (C&I):

           

General C&I

    —       $ —       $ —          2     $ 1,388     $ 1,325   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial (C&I)

    —         —         —          2       1,388       1,325   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consumer real estate:

           

HELOC

    56       6,918       6,820        158       17,882       17,674   

R/E installment loans

    20       988       974        58       4,254       4,267   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer real estate

    76       7,906       7,794        216       22,136       21,941   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Permanent mortgage

    —         —         —          6       2,039       2,054   

Credit card & other

    3       11       10        15        59       56   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total troubled debt restructurings

    79     $ 7,917     $ 7,804        239     $ 25,622     $ 25,376   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Three Months Ended September 30, 2014     Nine Months Ended September 30, 2014  

(Dollars in thousands)

  Number     Pre-Modification
Outstanding
Recorded Investment
    Post-Modification
Outstanding
Recorded Investment
    Number     Pre-Modification
Outstanding
Recorded Investment
    Post-Modification
Outstanding
Recorded Investment
 

Commercial (C&I):

           

General C&I

    2     $ 1,031     $ 970        4     $ 1,767     $ 1,492   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial (C&I)

    2       1,031       970        4       1,767       1,492   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial real estate:

           

Income CRE

    —         —         —          2       421       421   

Residential CRE

    —         —         —          1       976       960   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial real estate

    —         —         —          3       1,397       1,381   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consumer real estate:

           

HELOC

    89       6,930       6,883        253       20,999       21,208   

R/E installment loans

    21       1,269       1,255        138       9,544       9,450   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer real estate

    110       8,199       8,138        391       30,543       30,658   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Permanent mortgage

    6       1,639       1,672        30       8,314       7,839   

Credit card & other

    16       107       103        50       254       245   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total troubled debt restructurings

    134     $ 10,976     $ 10,883        478     $ 42,275     $ 41,615   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

23


Table of Contents

Note 4 – Loans (Continued)

 

The following tables present TDRs which re-defaulted during the three and nine months ended September 30, 2015 and 2014, and as to which the modification occurred 12 months or less prior to the re-default. Financing receivables that became classified as TDRs within the previous 12 months and for which there was a payment default during the period are calculated by first identifying TDRs that defaulted during the period and then determining whether they were modified within the 12 months prior to the default. For purposes of this disclosure, FHN generally defines payment default as 30 or more days past due.

 

     Three Months Ended
September 30, 2015
     Nine Months Ended
September 30, 2015
 

(Dollars in thousands)

   Number      Recorded
Investment
     Number      Recorded
Investment
 

Commercial (C&I):

           

General C&I

     —        $ —          —        $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial (C&I)

     —          —          —          —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate:

           

Income CRE

     —          —          —          —     

Residential CRE

     —          —          1        896   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —          —          1        896   
  

 

 

    

 

 

    

 

 

    

 

 

 

Consumer real estate:

           

HELOC

     —          —          7        308   

R/E installment loans

     2        50        4        162   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer real estate

     2        50        11        470   
  

 

 

    

 

 

    

 

 

    

 

 

 

Permanent mortgage

     —          —          —          —     

Credit card & other

     1        2        4        10   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total troubled debt restructurings

     3      $ 52        16      $ 1,376   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Three Months Ended
September 30, 2014
     Nine Months Ended
September 30, 2014
 

(Dollars in thousands)

   Number      Recorded
Investment
     Number      Recorded
Investment
 

Commercial (C&I):

           

General C&I

     2      $ 59        4      $ 512   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial (C&I)

     2        59        4        512   
  

 

 

    

 

 

    

 

 

    

 

 

 

Commercial real estate:

           

Income CRE

     1        2,570        3        2,959   

Residential CRE

     —          —          —          —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     1        2,570        3        2,959   
  

 

 

    

 

 

    

 

 

    

 

 

 

Consumer real estate:

           

HELOC

     2        212        6        374   

R/E installment loans

     1        132        8        500   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer real estate

     3        344        14        874   
  

 

 

    

 

 

    

 

 

    

 

 

 

Permanent mortgage

     1        347        3        1,128   

Credit card & other

     —          —           2        4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total troubled debt restructurings

     7      $ 3,320        26      $ 5,477   
  

 

 

    

 

 

    

 

 

    

 

 

 

The determination of whether a TDR is placed on nonaccrual status generally follows the same internal policies and procedures as other portfolio loans. However, FHN will typically place a consumer real estate loan on nonaccrual status if it is 30 or more days delinquent upon modification into a TDR. For commercial loans, a nonaccrual TDR that is reasonably assured of repayment according to its modified terms may be returned to accrual status by FHN upon a detailed credit evaluation of the borrower’s financial condition and prospects for repayment under the revised terms. For consumer loans, FHN’s evaluation supporting the decision to return a modified loan to accrual status includes consideration of the borrower’s sustained historical repayment performance for a reasonable period prior to the date on which the loan is returned to accrual status, which is generally a minimum of six months. 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 that the borrower is capable of servicing the level of debt under the modified terms. Otherwise, FHN will continue to classify a restructured loan as nonaccrual. Consistent with regulatory guidance, upon sustained performance and classification as a TDR over FHN’s year-end, the loan will be removed from TDR status as long as the modified terms were market-based at the time of modification.

 

24


Table of Contents

Note 5 - 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 pace of the economic recovery, performance of the housing market, unemployment levels, labor participation rate, 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. 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 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. The ALLL also includes 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. See Note 1 – Summary of Significant Accounting Policies and Note – 5 Allowance for Loan Losses in the Notes to Consolidated Financial Statements which were filed as part of Exhibit 99.1 to FHN’s Current Report on Form 8-K dated October 19, 2015, for additional information about the policies and methodologies used in the aforementioned components of the ALLL.

 

25


Table of Contents

Note 5 - Allowance for Loan Losses (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, 2015 and 2014:

 

(Dollars in thousands)

   C&I     Commercial
Real Estate
    Consumer
Real Estate
    Permanent
Mortgage
    Credit Card
and Other
    Total  

Balance as of July 1, 2014

   $ 68,591      $ 15,821      $ 118,037      $ 23,727      $ 17,452      $ 243,628   

Charge-offs

     (3,741     (1,789     (13,465     (1,047     (3,642     (23,684

Recoveries

     5,219        312        5,669        686        811        12,697   

Provision/(provision credit) for loan losses

     (199     1,106        8,154        (3,145     84        6,000   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2014

     69,870        15,450        118,395        20,221        14,705        238,641   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of January 1, 2014

   $ 86,446      $ 10,603      $ 126,785      $ 22,491      $ 7,484      $ 253,809   

Charge-offs

     (14,997     (3,163     (33,803     (4,144     (11,033     (67,140

Recoveries

     8,338        2,323        16,113        1,958        2,240        30,972   

Provision/(provision credit) for loan losses

     (9,917     5,687        9,300        (84     16,014        21,000   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2014

     69,870        15,450        118,395        20,221        14,705        238,641   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Allowance - individually evaluated for impairment

     6,039        1,104        41,492        17,329        255        66,219   

Allowance - collectively evaluated for impairment

     63,783        11,613        76,845        2,892        14,450        169,583   

Allowance - purchase credit impaired loans

     48        2,733        58        —          —          2,839   

Loans, net of unearned as of September 30, 2014:

            

Individually evaluated for impairment

     46,862        22,365        174,532        118,537        548        362,844   

Collectively evaluated for impairment

     8,425,391        1,221,636        4,955,813        454,252        351,958        15,409,050   

Purchased credit-impaired loans

     5,076        34,393        643        —          11        40,123   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans, net of unearned

   $ 8,477,329      $ 1,278,394      $ 5,130,988      $ 572,789      $ 352,517      $ 15,812,017   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of July 1, 2015

   $ 78,750      $ 21,492      $ 85,457      $ 22,377      $ 13,275      $ 221,351   

Charge-offs

     (8,632     (533     (7,994     (1,038     (3,612     (21,809

Recoveries

     2,264        868        5,785        229        1,126        10,272   

Provision/(provision credit) for loan losses

     (919     3,521        (776     (1,492     666        1,000   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2015

     71,463        25,348        82,472        20,076        11,455        210,814   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of January 1, 2015

   $ 67,011      $ 18,574      $ 113,011      $ 19,122      $ 14,730      $ 232,448   

Charge-offs

     (17,163     (2,208     (23,434     (3,031     (13,406     (59,242

Recoveries

     5,143        1,712        18,360        1,518        2,875        29,608   

Provision/(provision credit) for loan losses

     16,472        7,270        (25,465     2,467        7,256        8,000   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2015

     71,463        25,348        82,472        20,076        11,455        210,814   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Allowance - individually evaluated for impairment

     6,156        587        33,918        15,696        168        56,525   

Allowance - collectively evaluated for impairment

     65,063        22,591        48,050        4,380        11,286        151,370   

Allowance - purchased credit-impaired loans

     244        2,170        504        —          1        2,919   

Loans, net of unearned as of September 30, 2015:

            

Individually evaluated for impairment

     39,659        10,309        170,068        105,054        380        325,470   

Collectively evaluated for impairment

     9,565,626        1,457,568        4,641,396        358,839        348,937        16,372,366   

Purchased credit-impaired loans

     5,010        20,167        2,472        —          7        27,656   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans, net of unearned

   $ 9,610,295      $ 1,488,044      $ 4,813,936      $ 463,893      $ 349,324      $ 16,725,492   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

26


Table of Contents

Note 6 – Intangible Assets

The following is a summary of intangible assets, net of accumulated amortization, included in the Consolidated Condensed Statements of Condition:

 

(Dollars in thousands)

   Goodwill      Other
Intangible
Assets (a)
 

December 31, 2013

   $ 141,943       $ 21,988   

Amortization expense

     —           (2,944
  

 

 

    

 

 

 

September 30, 2014

   $ 141,943       $ 19,044   
  

 

 

    

 

 

 

December 31, 2014

   $ 145,932       $ 29,518  

Amortization expense

     —           (3,894
  

 

 

    

 

 

 

September 30, 2015 

   $ 145,932       $ 25,624  
  

 

 

    

 

 

 

 

(a) Represents customer lists, acquired contracts, core deposit intangibles, and covenants not to compete.

The gross carrying amount and accumulated amortization of other intangible assets subject to amortization is $70.3 million and $44.7 million, respectively on September 30, 2015. Estimated aggregate amortization expense is expected to be $1.3 million for the remainder of 2015, and $5.0 million, $4.7 million, $4.5 million, $4.2 million, and $1.5 million for the twelve-month periods of 2016, 2017, 2018, 2019, and 2020, respectively. No goodwill is carried in the Corporate and Non-strategic segments.

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 September 30, 2014 and 2015. The regional bank 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 Condensed Statements of Condition as of and for the nine months ended September 30, 2014 and 2015.

 

(Dollars in thousands)

   Regional
Banking
     Fixed
Income
     Total  
        

December 31, 2013

   $ 43,939       $ 98,004      $ 141,943   
  

 

 

    

 

 

    

 

 

 

Additions

     —           —          —     

Impairments

     —           —          —     

Divestitures

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Net change in goodwill during 2014

     —           —           —     
  

 

 

    

 

 

    

 

 

 

September 30, 2014

   $ 43,939       $ 98,004      $ 141,943   
  

 

 

    

 

 

    

 

 

 

December 31, 2014

   $ 47,928       $ 98,004      $ 145,932   
  

 

 

    

 

 

    

 

 

 

Additions

     —           —          —     

Impairments

     —           —           —     

Divestitures

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Net change in goodwill during 2015

     —           —           —     
  

 

 

    

 

 

    

 

 

 

September 30, 2015

   $ 47,928       $ 98,004      $ 145,932   
  

 

 

    

 

 

    

 

 

 

 

27


Table of Contents

Note 7 – Other Income and Other Expense

Following is detail of All other income and commissions and All other expense as presented in the Consolidated Condensed Statements of Income:

 

     Three Months Ended
September 30
     Nine Months Ended
September 30
 

(Dollars in thousands)

   2015      2014      2015      2014  

All other income and commissions:

           

Gain/(loss) on extinguishment of debt

   $ 5,794       $ —         $ 5,794       $ (4,350 )

ATM interchange fees

     2,998        2,739        8,784        7,982  

Electronic banking fees

     1,479        1,560        4,366        4,629  

Letter of credit fees

     978        917        3,633        3,753  

Deferred compensation (a)

     (2,309 )      (41 )      (1,311 )      1,800   

Other

     3,550        3,971        13,096        9,461  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 12,490      $ 9,146      $ 34,362      $ 23,275  
  

 

 

    

 

 

    

 

 

    

 

 

 

All other expense:

           

Litigation and regulatory matters

   $ 10,922       $ 35,390       $ 173,422       $ (2,720

Other insurance and taxes

     3,283        3,909        10,067        10,178  

Travel and entertainment

     2,451        2,164        6,697        6,633  

Customer relations

     1,477        1,406        4,296        4,329  

Employee training and dues

     1,272        1,194        3,853        3,260  

Supplies

     974        779        2,781        2,699  

Miscellaneous loan costs

     726        597        1,821        2,150  

Tax credit investments

     439        311        1,383        1,498  

Other

     8,835        13,709        26,565        31,856  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 30,379      $ 59,459      $ 230,885      $ 59,883  
  

 

 

    

 

 

    

 

 

    

 

 

 

Certain previously reported amounts have been revised to reflect the retroactive effect of the adoption of ASU 2014-01, “Equity Method and Joint Venture: Accounting for Investments in Qualified Affordable Housing Projects.” See Note 1-Financial Information for addition information.

 

(a) Deferred compensation market value adjustments are mirrored by adjustments to employee compensation, incentives, and benefits expense.

 

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Note 8 – Changes in Accumulated Other Comprehensive Income Balances

The following table provides the changes in accumulated other comprehensive income by component, net of tax, for the three and nine months ended September 30, 2015:

 

(Dollars in thousands, unless otherwise noted)

   Unrealized
Gain/(Loss) On
Securities Available-
For-Sale
     Pension and Post
Retirement Plans
    Total  

Balance as of July 1, 2015

   $ 16,485       $ (204,733   $ (188,248

Other comprehensive income before reclassifications, Net of tax expense of $9.5 million for unrealized gain/(loss) on securities available-for-sale

     15,427         —          15,427   

Amounts reclassified from accumulated other comprehensive income, Net of tax benefit of $2.4 million for pension and post retirement plans

     —           (3,855     (3,855
  

 

 

    

 

 

   

 

 

 

Net current period other comprehensive income, Net of tax expense of $9.5 million and tax benefit of $2.4 million for unrealized gain/(loss) on securities available-for-sale and pension and post retirement plans, respectively

     15,427         (3,855     11,572   
  

 

 

    

 

 

   

 

 

 

Balance as of September 30, 2015

   $ 31,912       $ (208,588   $ (176,676
  

 

 

    

 

 

   

 

 

 

Balance as of January 1, 2015

   $ 18,581       $ (206,827   $ (188,246

Other comprehensive income before reclassifications, Net of tax expense of $8.2 million for unrealized gain/(loss) on securities available-for-sale

     13,331         —          13,331   

Amounts reclassified from accumulated other comprehensive income, Net of tax benefit of $1.1 million for pension and post retirement plans

     —           (1,761     (1,761
  

 

 

    

 

 

   

 

 

 

Net current period other comprehensive income, Net of tax expense of $8.2 million and tax benefit of $1.1 million for unrealized gain/(loss) on securities available-for-sale and pension and post retirement plans, respectively

     13,331         (1,761     11,570   
  

 

 

    

 

 

   

 

 

 

Balance as of September 30, 2015

   $ 31,912       $ (208,588   $ (176,676
  

 

 

    

 

 

   

 

 

 

 

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Note 8 – Changes in Accumulated Other Comprehensive Income Balances (Continued)

 

The following table provides the changes in accumulated other comprehensive income by component, net of tax, for the three and nine months ended September 30, 2014:

 

(Dollars in thousands, unless otherwise noted)

   Unrealized
Gain/(Loss) On
Securities Available-
For-Sale
    Pension and Post
Retirement Plans
    Total  

Balance as of July 1, 2014

   $ 15,596      $ (137,707   $ (122,111

Other comprehensive income before reclassifications, Net of tax benefit of $7.0 million for unrealized gain/(loss) on securities available-for-sale

     (11,288     —          (11,288

Amounts reclassified from accumulated other comprehensive income, Net of tax expense of $.3 million for pension and post retirement plans

     —          564        564   
  

 

 

   

 

 

   

 

 

 

Net current period other comprehensive income, Net of tax benefit of $7.0 million and tax expense of $.3 million for unrealized gain/(loss) on securities available-for-sale and pension and post retirement plans, respectively

     (11,288     564        (10,724
  

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2014

   $ 4,308      $ (137,143   $ (132,835
  

 

 

   

 

 

   

 

 

 

Balance as of January 1, 2014

   $ (11,241   $ (138,768   $ (150,009

Other comprehensive income before reclassifications, Net of tax expense of $9.8 million for unrealized gain/(loss) on securities available-for-sale

     15,549        —          15,549   

Amounts reclassified from accumulated other comprehensive income, Net of tax expense of $1.0 million for pension and post retirement plans

     —          1,625        1,625   
  

 

 

   

 

 

   

 

 

 

Net current period other comprehensive income, Net of tax expense of $9.8 million and $1.0 million for unrealized gain/(loss) on securities available-for-sale and pension and post retirement plans, respectively

     15,549        1,625        17,174   
  

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2014

   $ 4,308      $ (137,143   $ (132,835
  

 

 

   

 

 

   

 

 

 

 

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Note 9 – Earnings Per Share

The following table provides reconciliations of net income to net income available to common shareholders and the difference between average basic common shares outstanding and average diluted common shares outstanding:

 

     Three Months Ended
September 30
     Nine Months Ended
September 30
 

(Dollars and shares in thousands, except per share data)

   2015      2014      2015      2014  

Net income/(loss)

   $ 63,332       $ 50,498       $ 45,884       $ 182,406   

Net income attributable to noncontrolling interest

     2,977         2,875         8,586         8,547   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income/(loss) attributable to controlling interest

     60,355         47,623         37,298         173,859   

Preferred stock dividends

     1,550         1,550         4,650         4,650   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income/(loss) available to common shareholders

   $ 58,805       $ 46,073       $ 32,648       $ 169,209   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding - basic

     233,111         235,329         232,910         235,437   

Effect of dilutive securities

     1,947         1,533         1,928         1,732   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding - diluted

     235,058         236,862         234,838         237,169   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income/(loss) per share available to common shareholders

   $ 0.25       $ 0.20       $ 0.14       $ 0.72   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted income/(loss) per share available to common shareholders

   $ 0.25       $ 0.19       $ 0.14       $ 0.71   
  

 

 

    

 

 

    

 

 

    

 

 

 

Certain previously reported amounts have been revised to reflect the retroactive effect of the adoption of ASU 2014-01, “Equity Method and Joint Venture: Accounting for Investm