Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended September 30, 2016

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.    ☒  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).    ☒  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      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    ☒  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, 2016
Common Stock, $.625 par value    233,234,592

 

 

 


Table of Contents
Table of Contents

FIRST HORIZON NATIONAL CORPORATION

INDEX

 

Part I. Financial Information

    3   
 

Item 1. Financial Statements

    3   
 

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

    74   
 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

    118   
 

Item 4. Controls and Procedures

    118   

Part II. Other Information

    119   
 

Item 1. Legal Proceedings

    119   
 

Item 1A. Risk Factors

    119   
 

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

    119   
 

Item 3. Defaults Upon Senior Securities

    119   
 

Item 4. Mine Safety Disclosures

    119   
 

Item 5. Other Information

    119   
 

Item 6. Exhibits

    120   

Signatures

    121   

Exhibit Index

    122   
 

Exhibit 10.1

 
 

Exhibit 31(a)

 
 

Exhibit 31(b)

 
 

Exhibit 32(a)

 
 

Exhibit 32(b)

 

 

2


Table of Contents

PART I.

FINANCIAL INFORMATION

 

Item 1. Financial Statements

  
 

The Consolidated Condensed Statements of Condition (unaudited)

     4   
 

The Consolidated Condensed Statements of Income (unaudited)

     5   
 

The Consolidated Condensed Statements of Comprehensive Income/(loss) (unaudited)

     6   
 

The Consolidated Condensed Statements of Equity (unaudited)

     7   
 

The Consolidated Condensed Statements of Cash Flows (unaudited)

     8   
 

The Notes to the Consolidated Condensed Financial Statements (unaudited)

     9   
 

Note 1 Financial Information

     9   
 

Note 2 Acquisitions and Divestitures

     13   
 

Note 3 Investment Securities

     14   
 

Note 4 Loans

     17   
 

Note 5 Allowance for Loan Losses

     27   
 

Note 6 Intangible Assets

     29   
 

Note 7 Other Income and Other Expense

     30   
 

Note 8 Components of Other Comprehensive Income/(loss)

     31   
 

Note 9 Earnings Per Share

     33   
 

Note 10 Contingencies and Other Disclosures

     34   
 

Note 11 Pension, Savings, and Other Employee Benefits

     41   
 

Note 12 Business Segment Information

     43   
 

Note 13 Variable Interest Entities

     45   
 

Note 14 Derivatives

     50   
 

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

     56   
 

Note 16 Fair Value of Assets & Liabilities

     58   

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.

 

3


Table of Contents

CONSOLIDATED CONDENSED STATEMENTS OF CONDITION

 

     First Horizon National Corporation  
     (Unaudited)        
     September 30     December 31  

(Dollars in thousands, except per share amounts)

   2016     2015     2015  

Assets:

      

Cash and due from banks

   $ 327,639      $ 256,342      $ 300,811   

Federal funds sold

     27,097        64,438        114,479   

Securities purchased under agreements to resell (Note 15)

     802,815        793,098        615,773   
  

 

 

   

 

 

   

 

 

 

Total cash and cash equivalents

     1,157,551        1,113,878        1,031,063   
  

 

 

   

 

 

   

 

 

 

Interest-bearing cash

     219,834        596,689        602,836   

Trading securities

     1,320,535        1,229,180        881,450   

Loans held-for-sale (a)

     155,215        124,308        126,342   

Securities available-for-sale (Note 3)

     4,027,594        3,673,641        3,929,846   

Securities held-to-maturity (Note 3)

     14,340        4,313        14,320   

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

     19,555,787        16,725,492        17,686,502   

Less: Allowance for loan losses (Note 5)

     201,557        210,814        210,242   
  

 

 

   

 

 

   

 

 

 

Total net loans

     19,354,230        16,514,678        17,476,260   
  

 

 

   

 

 

   

 

 

 

Goodwill (Note 6)

     191,371        145,932        191,307   

Other intangible assets, net (Note 6)

     22,317        25,624        26,215   

Fixed income receivables

     91,997        83,547        63,660   

Premises and equipment, net (September 30, 2016 includes $7.8 million classified as held-for-sale)

     279,178        269,332        275,619   

Real estate acquired by foreclosure (c)

     18,945        35,332        33,063   

Derivative assets (Note 14)

     160,736        152,548        104,365   

Other assets

     1,435,379        1,417,071        1,436,291   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 28,449,222      $ 25,386,073      $ 26,192,637   
  

 

 

   

 

 

   

 

 

 

Liabilities and equity:

      

Deposits:

      

Savings

   $ 8,753,115      $ 7,554,338      $ 7,811,191   

Time deposits

     732,561        743,158        788,487   

Other interest-bearing deposits

     5,605,734        4,885,601        5,388,526   

Certificates of deposit $100,000 and more

     592,518        290,738        443,389   
  

 

 

   

 

 

   

 

 

 

Interest-bearing

     15,683,928        13,473,835        14,431,593   

Noninterest-bearing

     5,890,252        5,391,385        5,535,885   
  

 

 

   

 

 

   

 

 

 

Total deposits

     21,574,180        18,865,220        19,967,478   
  

 

 

   

 

 

   

 

 

 

Federal funds purchased

     538,284        520,992        464,166   

Securities sold under agreements to repurchase (Note 15)

     341,998        332,329        338,133   

Trading liabilities

     702,226        788,563        566,019   

Other short-term borrowings

     792,736        99,887        137,861   

Term borrowings

     1,065,651        1,339,940        1,312,677   

Fixed income payables

     68,897        95,346        23,072   

Derivative liabilities (Note 14)

     144,829        140,965        108,339   

Other liabilities

     475,839        622,586        635,306   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     25,704,640        22,805,828        23,553,051   
  

 

 

   

 

 

   

 

 

 

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, 2016, September 30, 2015, and December 31, 2015)

     95,624        95,624        95,624   

Common stock - $.625 par value (shares authorized - 400,000,000; shares issued - 233,234,592 on September 30, 2016; 234,237,439 on September 30, 2015; and 238,586,637 on December 31, 2015)

     145,772        146,398        149,117   

Capital surplus

     1,376,319        1,377,731        1,439,303   

Undivided profits

     992,264        841,737        874,303   

Accumulated other comprehensive loss, net (Note 8)

     (160,828     (176,676     (214,192
  

 

 

   

 

 

   

 

 

 

Total First Horizon National Corporation Shareholders’ Equity

     2,449,151        2,284,814        2,344,155   
  

 

 

   

 

 

   

 

 

 

Noncontrolling interest

     295,431        295,431        295,431   
  

 

 

   

 

 

   

 

 

 

Total equity

     2,744,582        2,580,245        2,639,586   
  

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 28,449,222      $ 25,386,073      $ 26,192,637   
  

 

 

   

 

 

   

 

 

 

Certain previously reported amounts have been revised to reflect the retroactive effect of the adoption of ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” See Note 1 - Financial Information for additional information.

See accompanying notes to consolidated condensed financial statements.

 

(a) September 30, 2016 and 2015 and December 31, 2015 include $17.2 million, $21.7 million and $22.4 million, respectively, of held-for-sale consumer mortgage loans secured by residential real estate in process of foreclosure.
(b) September 30, 2016 and 2015 and December 31, 2015 include $30.3 million, $30.7 million and $29.7 million, respectively, of held-to-maturity consumer mortgage loans secured by residential real estate properties in process of foreclosure.
(c) September 30, 2016 and 2015 and December 31, 2015 include $9.7 million, $15.6 million and $14.6 million, respectively, of foreclosed residential real estate.

 

4


Table of Contents

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

 

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

(Dollars and shares in thousands except per share data, unless otherwise

noted) (Unaudited)

   2016     2015     2016     2015  

Interest income:

        

Interest and fees on loans

   $ 174,039      $ 150,555      $ 495,516      $ 447,735   

Interest on investment securities available-for-sale

     23,655        23,233        72,082        69,355   

Interest on investment securities held-to-maturity

     197        66        592        198   

Interest on loans held-for-sale

     1,445        1,311        3,904        4,152   

Interest on trading securities

     6,793        8,056        22,564        26,108   

Interest on other earning assets

     843        466        3,354        1,237   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     206,972        183,687        598,012        548,785   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense:

        

Interest on deposits:

        

Savings

     4,939        2,785        13,275        9,062   

Time deposits

     1,117        1,230        3,377        3,986   

Other interest-bearing deposits

     2,592        1,118        7,422        3,179   

Certificates of deposit $100,000 and more

     1,379        756        3,916        2,468   

Interest on trading liabilities

     3,331        4,258        11,152        11,942   

Interest on short-term borrowings

     1,254        664        3,585        2,436   

Interest on term borrowings

     7,165        9,314        21,752        28,644   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     21,777        20,125        64,479        61,717   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     185,195        163,562        533,533        487,068   

Provision for loan losses

     4,000        1,000        11,000        8,000   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     181,195        162,562        522,533        479,068   
  

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest income:

        

Fixed income

     71,748        51,804        216,638        169,664   

Deposit transactions and cash management

     27,221        28,911        81,049        83,892   

Brokerage, management fees and commissions

     10,828        11,620        31,908        35,475   

Trust services and investment management

     6,885        6,590        20,674        20,704   

Bankcard income

     6,260        5,561        18,077        16,631   

Bank-owned life insurance

     3,997        4,135        11,129        10,988   

Other service charges

     3,004        2,968        8,713        8,859   

Insurance commissions

     1,262        608        2,301        1,858   

Equity securities gains/(losses), net (Note 3)

     (200     (345     (181     (61

Debt securities gains/(losses), net (Note 3)

     —          —          1,654        —     

All other income and commissions (Note 7)

     17,540        13,251        36,402        37,083   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest income

     148,545        125,103        428,364        385,093   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted gross income after provision for loan losses

     329,740        287,665        950,897        864,161   
  

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest expense:

        

Employee compensation, incentives, and benefits

     145,103        116,219        425,624        375,633   

Occupancy

     12,722        13,282        38,062        37,264   

Operations services

     10,518        10,130        30,939        29,500   

Computer software

     10,400        11,010        33,213        33,292   

Equipment rentals, depreciation, and maintenance

     6,085        7,093        19,426        22,296   

Advertising and public relations

     6,065        4,832        15,519        13,914   

FDIC premium expense

     5,721        4,529        15,490        12,929   

Professional fees

     4,859        5,139        14,342        14,063   

Legal fees

     4,750        3,626        15,520        11,686   

Communications and courier

     3,883        4,054        10,672        11,731   

Other insurance and taxes

     2,625        3,283        8,952        10,067   

Contract employment and outsourcing

     2,443        3,414        7,365        11,335   

Amortization of intangible assets

     1,299        1,298        3,898        3,894   

Foreclosed real estate

     815        431        125        1,629   

Repurchase and foreclosure provision

     (218     —          (31,618     —     

All other expense (Note 7)

     16,488        27,096        79,778        220,818   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest expense

     233,558        215,436        687,307        810,051   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income/(loss) before income taxes

     96,182        72,229        263,590        54,110   
  

 

 

   

 

 

   

 

 

   

 

 

 

Provision/(benefit) for income taxes

     28,547        8,897        82,802        8,226   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income/(loss)

   $ 67,635      $ 63,332      $ 180,788      $ 45,884   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to noncontrolling interest

     2,883        2,977        8,586        8,586   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income/(loss) attributable to controlling interest

   $ 64,752      $ 60,355      $ 172,202      $ 37,298   
  

 

 

   

 

 

   

 

 

   

 

 

 

Preferred stock dividends

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

 

 

   

 

 

   

 

 

   

 

 

 

Net income/(loss) available to common shareholders

   $ 63,202      $ 58,805      $ 167,552      $ 32,648   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 0.27      $ 0.25      $ 0.72      $ 0.14   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 0.27      $ 0.25      $ 0.71      $ 0.14   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares (Note 9)

     231,856        233,111        232,690        232,910   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted average common shares (Note 9)

     234,092        235,058        234,775        234,838   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash dividends declared per common share

   $ 0.07      $ 0.06      $ 0.21      $ 0.18   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

See accompanying notes to consolidated condensed financial statements.

 

5


Table of Contents

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

 

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

(Dollars in thousands) (Unaudited)

   2016     2015     2016      2015  

Net income/(loss)

   $ 67,635      $ 63,332      $ 180,788       $ 45,884   

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

         

Net unrealized gains/(losses) on securities available-for-sale

     (7,887     15,427        47,310         13,331   

Net unrealized gains/(losses) on cash flow hedges

     (1,570     —          3,121         —     

Net unrealized gains/(losses) on pension and other postretirement plans

     963        (3,855     2,933         (1,761
  

 

 

   

 

 

   

 

 

    

 

 

 

Other comprehensive income/(loss)

     (8,494     11,572        53,364         11,570   
  

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive income/(loss)

     59,141        74,904        234,152         57,454   
  

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive income attributable to noncontrolling interest

     2,883        2,977        8,586         8,586   
  

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive income/(loss) attributable to controlling interest

   $ 56,258      $ 71,927      $ 225,566       $ 48,868   
  

 

 

   

 

 

   

 

 

    

 

 

 

Income tax expense/(benefit) of items included in Other comprehensive income/(loss):

         

Net unrealized gains/(losses) on securities available-for-sale

   $ (4,902   $ 9,548      $ 29,402       $ 8,228   

Net unrealized gains/(losses) on cash flow hedges

     (975     —          1,940         —     

Net unrealized gains/(losses) on pension and other postretirement plans

     598        (2,411     1,823         (1,093

See accompanying notes to consolidated condensed financial statements.

 

6


Table of Contents

CONSOLIDATED CONDENSED STATEMENTS OF EQUITY

 

     First Horizon National Corporation  
     2016     2015  

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

   Controlling
Interest
    Noncontrolling
Interest
    Total     Controlling
Interest
    Noncontrolling
Interest
    Total  

Balance, January 1

   $ 2,344,155      $ 295,431      $ 2,639,586      $ 2,286,159      $ 295,431      $ 2,581,590   

Net income/(loss)

     172,202        8,586        180,788        37,298        8,586        45,884   

Other comprehensive income/(loss) (a)

     53,364        —          53,364        11,570        —          11,570   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income/(loss)

     225,566        8,586        234,152        48,868        8,586        57,454   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash dividends declared:

            

Preferred stock ($4,650 per share for the nine months ended September 30, 2016 and 2015, respectively)

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

Common stock ($.21 and $.18 per share for the nine months ended September 30, 2016 and 2015, respectively)

     (49,578     —          (49,578     (42,496     —          (42,496

Common stock repurchased (b)

     (96,801     —          (96,801     (20,052     —          (20,052

Common stock issued for:

            

Stock options and restricted stock - equity awards

     18,710        —          18,710        6,577        —          6,577   

Stock-based compensation expense

     12,378        —          12,378        9,952        —          9,952   

Dividends declared - noncontrolling interest of subsidiary preferred stock

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

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

     (629     —          (629     456        —          456   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30

   $ 2,449,151      $ 295,431      $ 2,744,582      $ 2,284,814      $ 295,431      $ 2,580,245   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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) 2016 and 2015 include $93.5 million and $15.8 million, respectively, repurchased under share repurchase programs.

 

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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)

   2016     2015  

Operating Activities

    

Net income/(loss)

   $ 180,788      $ 45,884   

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

    

Provision for loan losses

     11,000        8,000   

Provision/(benefit) for deferred income taxes

     68,100        19,002   

Depreciation and amortization of premises and equipment

     24,032        27,187   

Amortization of intangible assets

     3,898        3,894   

Net other amortization and accretion

     19,536        11,774   

Net (increase)/decrease in derivatives

     1,330        (5,854

Repurchase and foreclosure provision

     (31,618     —     

Fair value adjustment to foreclosed real estate

     1,561        2,366   

Litigation and regulatory matters

     25,285        10,943   

Stock-based compensation expense

     12,378        9,952   

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

     629        (456

Equity securities (gains)/losses, net

     181        61   

Debt securities (gains)/losses, net

     (1,654     —     

Gain on extinguishment of debt

     —          (5,794

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

     2,519        (2,461

Loans held-for-sale:

    

Purchases

     (73,404     (3,080

Gross proceeds from settlements and sales

     43,653        20,387   

(Gain)/loss due to fair value adjustments and other

     878        (330

Qualified pension plan contribution

     (165,000     —     

Net (increase)/decrease in:

    

Trading securities

     (441,205     (36,200

Fixed income receivables

     (28,337     (41,059

Interest receivable

     (2,014     1,345   

Other assets

     (69,855     (88,908

Net increase/(decrease) in:

    

Trading liabilities

     136,207        194,249   

Fixed income payables

     45,825        77,189   

Interest payable

     505        1,363   

Other liabilities

     (24,795     (36,823
  

 

 

   

 

 

 

Total adjustments

     (440,365     166,747   
  

 

 

   

 

 

 

Net cash provided/(used) by operating activities

     (259,577     212,631   
  

 

 

   

 

 

 

Investing Activities

    

Available-for-sale securities:

    

Sales

     1,543        284   

Maturities

     526,112        506,537   

Purchases

     (557,216     (609,511

Premises and equipment:

    

Sales

     9,636        40,369   

Purchases

     (41,304     (24,945

Net (increase)/decrease in:

    

Loans (a)

     (1,874,562     (517,622

Interests retained from securitizations classified as trading securities

     2,120        1,411   

Interest-bearing cash

     383,002        1,025,278   
  

 

 

   

 

 

 

Net cash provided/(used) by investing activities

     (1,550,669     421,801   
  

 

 

   

 

 

 

Financing Activities

    

Common stock:

    

Stock options exercised

     18,710        6,860   

Cash dividends paid

     (47,144     (39,978

Repurchase of shares (b)

     (96,801     (20,052

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

     (629     456   

Cash dividends paid - preferred stock - noncontrolling interest

     (8,523     (8,555

Cash dividends paid - Series A preferred stock

     (4,650     (4,650

Term borrowings:

    

Issuance

     100        —     

Payments/maturities

     (264,599     (519,545

Net increase/(decrease) in:

    

Deposits

     1,607,412        796,781   

Short-term borrowings

     732,858        (803,276
  

 

 

   

 

 

 

Net cash provided/(used) by financing activities

     1,936,734        (591,959
  

 

 

   

 

 

 

Net increase/(decrease) in cash and cash equivalents

     126,488        42,473   
  

 

 

   

 

 

 

Cash and cash equivalents at beginning of period

     1,031,063        1,071,405   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 1,157,551      $ 1,113,878   
  

 

 

   

 

 

 

Supplemental Disclosures

    

Total interest paid

   $ 63,337      $ 59,609   

Total taxes paid

     11,580        14,896   

Total taxes refunded

     3,854        7,012   

Transfer from loans to other real estate owned

     7,291        9,772   

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

See accompanying notes to consolidated condensed financial statements.

 

(a) 2016 includes $537.4 million UPB of loans acquired from GE Capital.
(b) 2016 and 2015 include $93.5 million and $15.8 million, respectively, repurchased under share repurchase programs.

 

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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 2016 periods are not necessarily indicative of the results that may be expected going forward. For further information, refer to the audited consolidated financial statements in Exhibit 13 to FHN’s Annual Report on Form 10-K for the year ended December 31, 2015.

Summary of Accounting Changes. Effective January 1, 2016, FHN early adopted the provisions of ASU 2016-05, “Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships”, on a prospective basis. ASU 2016-05 clarifies that a change in the counterparty of a derivative instrument that has been designated as the hedging instrument in an accounting hedge relationship does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. FHN considers the revised guidance to better reflect the nature of hedge accounting relationships by clarifying that, when considered solely, the counterparty is not a critical term in a hedge relationship. Because FHN has applied specific SEC staff guidance for novation (to facilitate central clearing requirements) of derivatives to prior and existing accounting hedge relationships, adoption of ASU 2016-05 had no effect on FHN.

Effective January 1, 2016, FHN early adopted the provisions of ASU 2016-06, “Contingent Put and Call Options in Debt Instruments”, which resolves diversity in practice for the bifurcation assessment when a contingent put or call option is embedded within a hybrid debt instrument. ASU 2016-06 clarifies that an entity is not required to assess whether the triggering event is related to interest rate or credit risks when performing the bifurcation analysis. FHN’s existing bifurcation assessment process conforms to the methodology outlined in ASU 2016-06.

Effective January 1, 2016, FHN adopted the provisions of 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. The adoption of ASU 2014-12 had no effect on FHN.

Effective January 1, 2016, FHN adopted the provisions of 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. FHN has evaluated the provisions of ASU 2015-02 on its consolidation assessments and there was not a significant effect upon adoption.

Effective January 1, 2016, FHN adopted the provisions of 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. Consistent with prior requirements, FHN previously classified debt issuance costs within Other assets in the Consolidated Condensed Statements of Condition. The adoption of ASU 2015-03 had no effect on FHN’s recognition of interest expense. The effects of the retrospective application of the change in presentation of debt issuance costs are summarized in the table below.

 

     As of September 30      As of December 31  

(Dollars in thousands)

   2015      2015      2014  

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

        

Other assets

   $ (1,246    $ (2,499    $ (2,764

Term Borrowings

     (1,246      (2,499      (2,764

 

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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. In February 2016, the FASB issued ASU 2016-08, “Principal versus Agent Considerations,” which provides additional guidance on whether an entity should recognize revenue on a gross or net basis, based on which party controls the specified good or service before that good or service is transferred to a customer. In April 2016, the FASB issued ASU 2016-10, “Identifying Performance Obligations and Licensing,” which clarifies the original guidance included in ASU 2014-09 for identification of the goods or services provided to customers and enhances the implementation guidance for licensing arrangements. ASU 2016-12, “Narrow-Scope Improvements and Practical Expedients,” was issued in May 2016 to provide additional guidance for the implementation and application of ASU 2014-09. The effective date of these ASUs 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 these ASUs on its revenue recognition practices.

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 January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 makes several revisions to the accounting, presentation and disclosure for financial instruments. Equity investments (except those accounted for under the equity method or those that result in consolidation of the investee) are required to be measured at fair value with changes in fair value recognized in net income. An entity may elect to measure equity investments that do not have readily determinable market values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar instruments from the same issuer. ASU 2016-01 also requires a qualitative impairment review for equity investments without readily determinable fair values, with measurement at fair value required if impairment is determined to exist. For liabilities for which fair value has been elected, ASU 2016-01 revises current accounting to record the portion of fair value changes resulting from instrument-specific credit risk within other comprehensive income rather than earnings. Additionally, ASU 2016-01 clarifies that the need for a valuation allowance on a deferred tax asset related to available-for-sale securities should be assessed in combination with all other deferred tax assets rather than being assessed in isolation. ASU 2016-01 also makes several changes to existing fair value presentation and disclosure requirements, including a provision that all disclosures must use an exit price concept in the determination of fair value. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. FHN is evaluating the impact of ASU 2016-01 on its current accounting and disclosure practices.

In February 2016, the FASB issued ASU 2016-02, “Leases,” which requires a lessee to recognize in its statement of condition a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. ASU 2016-02 leaves lessor accounting largely unchanged from prior standards. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. All other leases must be classified as financing or operating leases which depends on the relationship of the lessee’s rights to the economic value of the leased asset. For finance leases, interest on the lease liability is recognized separately from amortization of the right-of-use asset in earnings, resulting in higher expense in the earlier portion of the lease term. For operating leases, a single lease cost is calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis.

In transition to ASU 2016-02, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply, which would result in continuing to account for leases that commence before the effective date in accordance with previous requirements (unless the lease is modified) except that lessees are required to recognize a right-of-use

 

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Table of Contents

Note 1 – Financial Information (Continued)

 

asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous requirements. ASU 2016-02 also requires expanded qualitative and quantitative disclosures to assess the amount, timing, and uncertainty of cash flows arising from lease arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. FHN is evaluating the impact of ASU 2016-02 on its current accounting and disclosure practices.

In March 2016, the FASB issued ASU 2016-04, “Recognition of Breakage of Certain Prepaid Stored-Value Products,” which indicates that liabilities related to the sale of prepaid-stored value products are considered financial liabilities and should have a breakage estimate applied for estimated unused funds. ASU 2016-04 does not apply to stored-value products that can only be redeemed for cash, are subject to escheatment or are linked to a segregated bank account. ASU 2016-04 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. FHN is evaluating the impact of ASU 2016-04 on its current accounting and disclosure practices.

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which makes several revisions to equity compensation accounting. Under the new guidance all excess tax benefits and deficiencies that occur when an award vests, is exercised, or expires will be recognized in income tax expense as discrete period items. Previously, these transactions were typically recorded directly within equity. Consistent with this change, excess tax benefits and deficiencies will no longer be included within estimated proceeds when performing the treasury stock method for calculation of diluted earnings per share. Excess tax benefits will also be recognized at the time an award is exercised or vests compared to the current requirement to delay recognition until the deduction reduces taxes payable. The presentation of excess tax benefits in the statement of cash flows will shift to an operating activity from the current classification as a financing activity.

ASU 2016-09 also provides an accounting policy election to recognize forfeitures of awards as they occur rather than the current requirement to estimate forfeitures from inception. Further, ASU 2016-09 permits employers to use a net-settlement feature to withhold taxes on equity compensation awards up to the maximum statutory tax rate without affecting the equity classification of the award. Under current guidance, withholding of equity awards in excess of the minimum statutory requirement results in liability classification for the entire award. The related cash remittance by the employer for employee taxes will be treated as a financing activity in the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Transition to the new guidance will be accomplished through a combination of retrospective, cumulative-effect adjustment to equity and prospective methodologies. FHN currently estimates that adoption of ASU 2016-09 will result in an increase in tax provision in 2017 between $1.0 million and $2.0 million. The effects on earnings per share calculations and elections to account for forfeitures as incurred are not anticipated to be significant.

In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” which revises the measurement and recognition of credit losses for assets measured at amortized cost (e.g., held-to-maturity (“HTM”) loans and debt securities) and available-for-sale (“AFS”) debt securities. Under ASU 2016-13, for assets measured at amortized cost, the current expected credit loss (“CECL”) is measured as the difference between amortized cost and the net amount expected to be collected. This represents a departure from existing GAAP as the “incurred loss” methodology for recognizing credit losses delays recognition until it is probable a loss has been incurred. The measurement of current expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Additionally, current disclosures of credit quality indicators in relation to the amortized cost of financing receivables will be further disaggregated by year of origination. ASU 2016-13 leaves the methodology for measuring credit losses on AFS debt securities largely unchanged, with the maximum credit loss representing the difference between amortized cost and fair value. However, such credit losses will be recognized through an allowance for credit losses, which permits recovery of previously recognized credit losses if circumstances change.

ASU 2016-13 also revises the recognition of credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”). For PCD assets, the initial allowance for credit losses is added to the purchase price. Only subsequent changes in the allowance for credit losses are recorded as a credit loss expense for PCD assets. Interest income for PCD assets will be recognized based on the effective interest rate, excluding the discount embedded in the purchase price that is attributable to the acquirer’s assessment of credit losses at acquisition. Currently, credit losses for purchased credit-impaired assets are included in the initial basis of the assets with subsequent declines in credit resulting in expense while subsequent improvements in credit are reflected as an increase in the future yield from the assets.

The provisions of ASU 2016-13 will be generally adopted through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in the year of adoption. Prospective implementation is required for debt securities for which an other-than-temporary-impairment (“OTTI”) had been previously recognized. Amounts previously recognized in accumulated other comprehensive income (“AOCI”) as of the date of adoption that relate to improvements in cash flows expected to be collected will continue to be accreted into income over the remaining life of the asset. Recoveries of amounts previously written off relating to

 

11


Table of Contents

Note 1 – Financial Information (Continued)

 

improvements in cash flows after the date of adoption will be recorded in earnings when received. A prospective transition approach will be used for existing PCD assets where, upon adoption, the amortized cost basis will be adjusted to reflect the addition of the allowance for credit losses. Thus, an entity will not be required to reassess its purchased financial assets that exist as of the date of adoption to determine whether they would have met at acquisition the new criteria of more-than insignificant credit deterioration since origination. An entity will accrete the remaining noncredit discount (based on the revised amortized cost basis) into interest income at the effective interest rate at the adoption date.

ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted in fiscal years beginning after December 15, 2018. FHN is evaluating the impact of ASU 2016-13 on its current accounting and disclosure practices. Since the CECL methodology encompasses a “life of loan” requirement for the recognition of credit losses, the estimated amount of such losses will be larger than the estimate of probable incurred losses under current standards. The extent of this difference will be dependent upon economic considerations and loan portfolio characteristics at the time of adoption.

In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments,” which clarifies multiple cash flow presentation issues including providing guidance as to classification on the cash flow statement for certain cash receipts and cash payments where diversity in practice exists. ASU 2016-15 also provides an accounting policy election to classify cash flows from an equity method investee under the cumulative earnings approach or the nature of distribution approach. Finally, ASU 2016-15 provides guidance on the presentation of individual cash flows with characteristics of multiple classifications. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The provisions of ASU 2016-15 should be applied using a retrospective transition method to each period presented. FHN is evaluating the impact of ASU 2016-15 on its current cash flow presentation practices.

 

12


Table of Contents

Note 2 – Acquisitions and Divestitures

On October 27, 2016, FTN Financial announced its plan to acquire Coastal Securities (“Coastal”), a national leader in the trading, securitization, and analysis of Small Business Administration (“SBA”) loans, for approximately $160 million in cash. Based in Houston, TX, Coastal also trades United States Department of Agriculture (“USDA”) loans and fixed income products and provides municipal underwriting and advisory services to its clients. Coastal’s government-guaranteed loan products, combined with FTN Financial’s existing SBA trading activities, will establish an additional major product sector for FTN Financial. The transaction, which is subject to regulatory approvals, the affirmative vote of Coastal Financial Holdings, Inc. (“CFH”) shareholders and other customary closing conditions, is expected to close in early 2017.

On September 16, 2016, FTBNA acquired $537.4 million in unpaid principal balance (“UPB”) of restaurant franchise loans from GE Capital’s Southeast and Southwest regional portfolios. Subsequent to the acquisition the acquired loans were combined with existing FTBNA relationships to establish a franchise finance specialty lending business.

On October 2, 2015, FHN completed its acquisition of TrustAtlantic Financial Corporation (“TrustAtlantic Financial” or “TAF”), and its wholly-owned bank subsidiary TrustAtlantic Bank (“TAB”), for an aggregate of 5,093,657 shares of FHN common stock and $23.9 million in cash in a transaction valued at $96.7 million. Prior to the acquisition TAB had five branches located in Raleigh, Cary and Greenville, North Carolina. In relation to the acquisition, FHN acquired approximately $400 million in assets, including approximately $282 million in loans, and assumed approximately $344 million of TAB deposits. FHN recorded $45.4 million in goodwill associated with the acquisition, representing the excess of acquisition consideration over the estimated fair value of net assets acquired.

See Note 2 – Acquisitions and Divestitures in the Notes to Consolidated Financial Statements on Form 10-K for the year ended December 31, 2015, for additional information about the TAF acquisition.

In addition to the transactions mentioned above, FHN acquires or divests assets from time to time in transactions that are considered business combination or divestitures but are not material to FHN individually or in the aggregate.

 

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Table of Contents

Note 3 – Investment Securities

The following tables summarize FHN’s investment securities on September 30, 2016 and 2015:

 

     September 30, 2016  
            Gross      Gross         
     Amortized      Unrealized      Unrealized      Fair  

(Dollars in thousands)

   Cost      Gains      Losses      Value  

Securities available-for-sale:

        

U.S. treasuries

   $ 100       $ —         $ —         $ 100  

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

     1,877,496         62,910         (49      1,940,357  

Government agency issued collateralized mortgage obligations (“CMO”)

     1,881,795         21,457         (2,108      1,901,144  

Equity and other (a)

     185,992         1         —           185,993  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available-for-sale (b)

   $ 3,945,383       $ 84,368       $ (2,157    $ 4,027,594  
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities held-to-maturity:

        

States and municipalities

   $ 4,340       $ 400       $ —         $ 4,740   

Corporate bonds

     10,000         302         —           10,302   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities held-to-maturity

   $ 14,340       $ 702       $ —         $ 15,042   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) Includes restricted investments in FHLB-Cincinnati stock of $87.9 million and FRB stock of $68.6 million. The remainder is money market and cost method investments.
(b) Includes $3.3 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes.

 

     September 30, 2015  
            Gross      Gross         
     Amortized      Unrealized      Unrealized      Fair  

(Dollars in thousands)

   Cost      Gains      Losses      Value  

Securities available-for-sale: 

           

U.S. treasuries

   $ 100      $ —         $ —         $ 100   

Government agency issued MBS

     914,878        31,773         (700      945,951   

Government agency issued 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:

           

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.

 

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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, 2016 are provided below:

 

     Held-to-Maturity      Available-for-Sale  
     Amortized      Fair      Amortized      Fair  

(Dollars in thousands)

   Cost      Value      Cost      Value  

Within 1 year

   $ —         $ —         $ 100       $ 100   

After 1 year; within 5 years

     —           —           —           —     

After 5 years; within 10 years

     10,000         10,302         —           —     

After 10 years

     4,340         4,740         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     14,340         15,042         100         100   
  

 

 

    

 

 

    

 

 

    

 

 

 

Government agency issued MBS and CMO (a)

     —           —           3,759,291         3,841,501   

Equity and other

     —           —           185,992         185,993   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 14,340       $ 15,042       $ 3,945,383       $ 4,027,594   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 available-for-sale investment securities for the three and nine months ended September 30:

 

     Three Months Ended      Nine Months Ended  
     September 30      September 30  

(Dollars in thousands)

   2016      2015      2016      2015  

Gross gains on sales of securities

   $ —         $ —         $ 3,999       $ 284   

Gross (losses) on sales of securities

     —           —           (2,326      —     
  

 

 

    

 

 

    

 

 

    

 

 

 

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

     —           —           1,673         284   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net OTTI recorded (b)

     (200      (345      (200      (345
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities gain/(loss), net

   $ (200    $ (345    $ 1,473       $ (61
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) There were no sales proceeds for the three months ended September 30, 2016 and 2015; cash proceeds for the nine months ended September 30, 2016 and 2015 were $1.5 million and $.3 million, respectively. Nine months ended September 30, 2016 includes a $1.7 million gain from an exchange of approximately $294 million of AFS debt securities.
(b) OTTI recorded is related to equity securities.

 

15


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, 2016 and 2015:

 

     As of September 30, 2016  
     Less than 12 months     12 months or longer     Total  
     Fair      Unrealized     Fair      Unrealized     Fair      Unrealized  

(Dollars in thousands)

   Value      Losses     Value      Losses     Value      Losses  

Government agency issued CMO

   $ 320,282       $ (631   $ 142,060       $ (1,477   $ 462,342       $ (2,108

Government agency issued MBS

     38,477         (49     —           —          38,477         (49
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired securities

   $ 358,759       $ (680   $ 142,060       $ (1,477   $ 500,819       $ (2,157
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
     As of September 30, 2015  
     Less than 12 months     12 months or longer     Total  
     Fair      Unrealized     Fair      Unrealized     Fair      Unrealized  

(Dollars in thousands)

   Value      Losses     Value      Losses     Value      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
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

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.

 

16


Table of Contents

Note 4 – Loans

The following table provides the balance of loans by portfolio segment as of September 30, 2016 and 2015, and December 31, 2015:

 

     September 30      December 31  

(Dollars in thousands)

   2016      2015      2015  

Commercial:

        

Commercial, financial, and industrial

   $ 12,118,298       $ 9,610,295       $ 10,436,390   

Commercial real estate

     2,065,595         1,488,044         1,674,935   

Consumer:

        

Consumer real estate (a)

     4,578,371         4,813,936         4,766,518   

Permanent mortgage

     436,100         463,893         454,123   

Credit card & other

     357,423         349,324         354,536   
  

 

 

    

 

 

    

 

 

 

Loans, net of unearned income

   $ 19,555,787       $ 16,725,492       $ 17,686,502   

Allowance for loan losses

     201,557         210,814         210,242   
  

 

 

    

 

 

    

 

 

 

Total net loans

   $ 19,354,230       $ 16,514,678       $ 17,476,260   
  

 

 

    

 

 

    

 

 

 

 

(a) Balances as of September 30, 2016 and 2015, and December 31, 2015, include $38.5 million, $59.3 million, and $52.8 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 include commercial lines of credit to qualified mortgage companies primarily for the temporary warehousing of eligible mortgage loans prior to the borrower’s sale of those mortgage loans to third party investors. Commercial classes within CRE include income CRE, residential CRE and PCI loans. Consumer loan portfolio segments include consumer real estate, permanent mortgage, and the credit card and other portfolio. Consumer classes include home equity lines of credit (“HELOCs”), real estate (“R/E”) installment and PCI loans within the consumer real estate segment, permanent mortgage (which is both a segment and a class), and credit card and other.

Concentrations

FHN has a concentration of residential real estate loans (26 percent of total loans), the majority of which is in the consumer real estate segment (23 percent of total loans). Loans to finance and insurance companies total $2.3 billion (19 percent of the C&I portfolio, or 12 percent of the total loans). FHN had loans to mortgage companies totaling $2.5 billion (20 percent of the C&I segment, or 13 percent of total loans) as of September 30, 2016. As a result, 39 percent of the C&I segment was sensitive to impacts on the financial services industry.

Acquisition

On September 16, 2016, FHN completed its acquisition of restaurant franchise loans from GE Capital. The acquisition included $537.4 million in unpaid principal balance of loans.

On October 2, 2015, FHN completed its acquisition of TAF, and its wholly-owned bank subsidiary TAB. The acquisition included $298.1 million in unpaid principal balance of loans with a fair value of $281.9 million.

Generally, the fair value for the acquired loans is estimated using a discounted cash flow analysis with significant unobservable inputs (Level 3) including adjustments for expected credit losses, prepayment speeds, current market rates for similar loans, and an adjustment for investor-required yield given product-type and various risk characteristics.

At each acquisition, FHN designated certain loans as PCI with the remaining loans accounted for under ASC 310-20, “Nonrefundable Fees and Other Costs.” For loans accounted for under ASC 310-20, the difference between each loan’s book value and the estimated fair value at the time of the acquisition will be accreted into interest income over its remaining contractual life and the subsequent accounting and reporting will be similar to a loan in FHN’s originated portfolio.

 

17


Table of Contents

Note 4 – Loans (Continued)

 

Purchased Credit-Impaired Loans

The following table reflects FHN’s contractually required payment receivable, cash flows expected to be collected and the fair value of PCI loans at the acquisition date of September 16, 2016.

 

(Dollars in thousands)

   September 16, 2016  

Contractually required payments including interest

   $ 40,143   

Less: nonaccretable difference

     (1,030
  

 

 

 

Cash flows expected to be collected

     39,113   

Less: accretable yield

     (2,883
  

 

 

 

Fair value of loans acquired

   $ 36,230   
  

 

 

 

The following table presents a rollforward of the accretable yield for the three and nine months ended September 30, 2016 and 2015:

 

     Three Months Ended      Nine Months Ended  
     September 30      September 30  

(Dollars in thousands)

   2016      2015      2016      2015  

Balance, beginning of period

   $ 6,171       $ 8,348       $ 8,542       $ 14,714   

Additions

     2,883         —           2,883         —     

Accretion

     (837      (1,037      (2,984      (5,985

Adjustment for payoffs

     (179      (835      (4,408      (2,931

Adjustment for charge-offs

     —           —           (674      —     

Increase in accretable yield (a)

     686         500         5,398         1,178   

Other

     —           —           (33      —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, end of period

   $ 8,724       $ 6,976       $ 8,724       $ 6,976   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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.

At September 30, 2016, the ALLL related to PCI loans was $1.2 million compared to $2.9 million at September 30, 2015. A loan loss provision expense of $.3 million was recognized during the three months ended September 30, 2016, as compared to $.1 million recognized during the three months ended September 30, 2015. The PCI provision was not material for the nine months ended September 30, 2016, and was a provision credit of $.4 million for the nine months ended September 30, 2015.

The following table reflects the outstanding principal balance and carrying amounts of the acquired PCI loans as of September 30, 2016 and 2015, and December 31, 2015:

 

     September 30, 2016      September 30, 2015      December 31, 2015  

(Dollars in thousands)

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

Commercial, financial and industrial

   $ 46,189       $ 47,882       $ 4,767       $ 5,353       $ 16,063       $ 18,573   

Commercial real estate

     8,661         11,340         17,998         21,138         19,929         25,504   

Consumer real estate

     1,233         1,733         1,968         2,636         3,672         4,533   

Credit card and other

     51         65         6         10         52         76   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 56,134       $ 61,020       $ 24,739       $ 29,137       $ 39,716       $ 48,686   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

18


Table of Contents

Note 4 – Loans (Continued)

 

Impaired Loans

The following tables provide information at September 30, 2016 and 2015, by class related to individually impaired loans and consumer TDRs, regardless of accrual status. Recorded investment is defined as the amount of the investment in a loan, 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, 2016      Three Months Ended
September 30, 2016
     Nine Months Ended
September 30, 2016
 
            Unpaid             Average      Interest      Average      Interest  
     Recorded      Principal      Related      Recorded      Income      Recorded      Income  

(Dollars in thousands)

   Investment      Balance      Allowance      Investment      Recognized      Investment      Recognized  

Impaired loans with no related allowance recorded:

                    

Commercial:

                    

General C&I

   $ 13,127       $ 20,666       $ —         $ 13,708       $ —         $ 12,088       $ —     

Income CRE

     —           —           —           1,234         —           2,057         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 13,127       $ 20,666       $ —         $ 14,942       $ —         $ 14,145       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer:

                    

HELOC (a)

   $ 11,359       $ 24,541       $ —         $ 11,273       $ —         $ 11,100       $ —     

R/E installment loans (a)

     4,084         5,094         —           4,158         —           4,333         —     

Permanent mortgage (a)

     4,279         6,654         —           4,280         —           4,292         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 19,722       $ 36,289       $ —         $ 19,711       $ —         $ 19,725       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans with related allowance recorded:

                    

Commercial:

                    

General C&I

   $ 32,982       $ 34,915       $ 4,262       $ 33,433       $ 289       $ 29,896       $ 668   

TRUPS

     3,242         3,700         925         3,258         —           3,291         —     

Income CRE

     1,968         2,246         113         3,211         15         4,376         55   

Residential CRE

     1,334         1,803         103         1,355         5         1,376         17   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 39,526       $ 42,664       $ 5,403       $ 41,257       $ 309       $ 38,939       $ 740   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer:

                    

HELOC

   $ 86,967       $ 89,500       $ 15,769       $ 87,919       $ 546       $ 88,266       $ 1,527   

R/E installment loans

     56,499         57,686         13,692         57,775         357         58,890         1,019   

Permanent mortgage

     89,792         102,355         14,611         90,697         544         92,716         1,602   

Credit card & other

     340         340         139         348         4         353         10   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 233,598       $ 249,881       $ 44,211       $ 236,739       $ 1,451       $ 240,225       $ 4,158   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

   $ 52,653       $ 63,330       $ 5,403       $ 56,199       $ 309       $ 53,084       $ 740   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer

   $ 253,320       $ 286,170       $ 44,211       $ 256,450       $ 1,451       $ 259,950       $ 4,158   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 305,973       $ 349,500       $ 49,614       $ 312,649       $ 1,760       $ 313,034       $ 4,898   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

19


Table of Contents

Note 4 – Loans (Continued)

 

     September 30, 2015      Three Months Ended
September 30, 2015
     Nine Months Ended
September 30, 2015
 
            Unpaid             Average      Interest      Average      Interest  
     Recorded      Principal      Related      Recorded      Income      Recorded      Income  

(Dollars in thousands)

   Investment      Balance      Allowance      Investment      Recognized      Investment      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       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer:

                    

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   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer:

                    

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 consumer

   $ 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.

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.

 

20


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, 2016 and 2015:

 

     September 30, 2016  
            Loans to                                        Allowance  
     General      Mortgage             Income      Residential             Percentage     for Loan  

(Dollars in thousands)

   C&I      Companies      TRUPS (a)      CRE      CRE      Total      of Total     Losses  

PD Grade:

                      

1

   $ 475,708       $ —         $ —         $ 1,109       $ —         $ 476,817         3   $ 85   

2

     689,620         —           —           11,586         91         701,297         5        332   

3

     445,832         645,764         —           133,661         —           1,225,257         9        298   

4

     924,003         409,470         —           230,460         —           1,563,933         11        1,001   

5

     1,148,228         286,413         —           299,750         561         1,734,952         12        6,330   

6

     1,417,978         762,294         —           297,287         13,145         2,490,704         18        10,367   

7

     1,431,070         209,511         —           479,531         3,286         2,123,398         15        13,302   

8

     995,678         93,661         —           321,942         4,174         1,415,455         10        23,930   

9

     634,142         32,537         —           105,274         4,079         776,032         5        14,419   

10

     367,947         40,099         —           57,528         12,708         478,282         3        8,401   

11

     218,754         —           —           24,245         4,532         247,531         2        6,229   

12

     118,425         —           —           12,678         6,701         137,804         1        4,290   

13

     216,314         —           304,527         8,990         135         529,966         4        7,262   

14,15,16

     154,412         70         —           18,207         1,441         174,130         1        16,804   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Collectively evaluated for impairment

     9,238,111         2,479,819         304,527         2,002,248         50,853         14,075,558         99        113,050   

Individually evaluated for impairment

     46,109         —           3,242         1,968         1,334         52,653         —          5,403   

Purchased credit-impaired loans

     46,490         —           —           8,758         434         55,682         1        833   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total commercial loans

   $ 9,330,710       $ 2,479,819       $ 307,769       $ 2,012,974       $ 52,621       $ 14,183,893         100   $ 119,286   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
     September 30, 2015  
            Loans to                                        Allowance  
     General      Mortgage             Income      Residential             Percentage     for Loan  

(Dollars in thousands)

   C&I      Companies      TRUPS (a)      CRE      CRE      Total      of Total     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   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

(a) Balances as of September 30, 2016 and 2015, presented net of $25.5 million and $26.2 million, respectively, in lower of cost or market (“LOCOM”) valuation adjustment. Based on the underlying structure of the notes, the highest possible internal grade is “13”.

 

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Note 4 – Loans (Continued)

 

The consumer portfolio is comprised primarily of smaller-balance loans which are very similar in nature in that most are standard products and are backed by residential real estate. Because of the similarities of consumer loan-types, FHN is able to utilize the Fair Isaac Corporation (“FICO”) score, among other attributes, to assess the credit quality of consumer borrowers. FICO scores are refreshed on a quarterly basis in an attempt to reflect the recent risk profile of the borrowers. Accruing delinquency amounts are indicators of asset quality within the credit card and other consumer portfolio.

The following table reflects the percentage of balances outstanding by average, refreshed FICO scores for the HELOC, real estate installment, and permanent mortgage classes of loans as of September 30, 2016 and 2015:

 

     September 30, 2016     September 30, 2015  
     HELOC     R/E Installment
Loans
    Permanent
Mortgage
    HELOC     R/E Installment
Loans
    Permanent
Mortgage
 

FICO score greater than or equal to 740

     56.3     68.7     43.6     55.4     67.6     43.1

FICO score 720-739

     8.9        9.1        9.5        8.8        8.1        9.2   

FICO score 700-719

     8.8        7.1        11.9        9.2        7.9        10.0   

FICO score 660-699

     13.2        8.8        16.5        12.9        8.8        16.8   

FICO score 620-659

     5.9        3.4        8.7        6.5        4.1        8.4   

FICO score less than 620 (a)

     6.9        2.9        9.8        7.2        3.5        12.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     100.0     100.0     100.0     100.0     100.0     100.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) For this group, a majority of the FICO scores at the time of the origination exceeded 620 but have since deteriorated as the loans have seasoned.

Nonaccrual and Past Due Loans

The following table reflects accruing and non-accruing loans by class on September 30, 2016:

 

    Accruing     Non-Accruing        
          30-89     90+                 30-89     90+     Total        
          Days     Days     Total           Days     Days     Non-     Total  

(Dollars in thousands)

  Current     Past Due     Past Due     Accruing     Current     Past Due     Past Due     Accruing     Loans  

Commercial (C&I):

                 

General C&I

  $ 9,253,922      $ 3,570      $ 96      $ 9,257,588      $ 9,897      $ 2,440      $ 14,295      $ 26,632      $ 9,284,220   

Loans to mortgage companies

    2,478,708        1,041        —          2,479,749        —          —          70        70        2,479,819   

TRUPS (a)

    304,527        —          —          304,527        —          —          3,242        3,242        307,769   

Purchased credit-impaired loans

    45,311        711        468        46,490        —          —          —          —          46,490   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial (C&I)

    12,082,468        5,322        564        12,088,354        9,897        2,440        17,607        29,944        12,118,298   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial real estate:

                 

Income CRE

    2,000,553        1,071        —          2,001,624        113        468        2,011        2,592        2,004,216   

Residential CRE

    50,221        1,141        —          51,362        —          —          825        825        52,187   

Purchased credit-impaired loans

    7,697        390        1,105        9,192        —          —          —          —          9,192   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial real estate

    2,058,471        2,602        1,105        2,062,178        113        468        2,836        3,417        2,065,595   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consumer real estate:

                 

HELOC

    1,693,312        16,054        10,031        1,719,397        50,377        4,101        10,126        64,604        1,784,001   

R/E installment loans

    2,754,910        9,932        3,129        2,767,971        19,251        2,319        3,263        24,833        2,792,804   

Purchased credit-impaired loans

    1,315        —          251        1,566        —          —          —          —          1,566   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer real estate

    4,449,537        25,986        13,411        4,488,934        69,628        6,420        13,389        89,437        4,578,371   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Permanent mortgage

    396,285        4,331        6,380        406,996        11,113        3,867        14,124        29,104        436,100   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Credit card & other:

                 

Credit card

    186,482        1,464        1,230        189,176        —          —          —          —          189,176   

Other

    167,015        843        190        168,048        —          —          148        148        168,196   

Purchased credit-impaired loans

    51        —          —          51        —          —          —          —          51   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total credit card & other

    353,548        2,307        1,420        357,275        —          —          148        148        357,423   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans, net of unearned income

  $ 19,340,309      $ 40,548      $ 22,880      $ 19,403,737      $ 90,751      $ 13,195      $ 48,104      $ 152,050      $ 19,555,787   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Total TRUPS includes LOCOM valuation adjustment of $25.5 million.

 

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Note 4 – Loans (Continued)

 

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

 

    Accruing     Non-Accruing        
          30-89     90+                 30-89     90+     Total        
          Days     Days     Total           Days     Days     Non-     Total  

(Dollars in thousands)

  Current     Past Due     Past Due     Accruing     Current     Past Due     Past Due     Accruing     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 income

  $ 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 adjustment 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.

A modification is classified as a TDR if the borrower is experiencing financial difficulty and it is determined that FHN has granted a concession to the borrower. FHN may determine that a borrower is experiencing financial difficulty if the borrower is currently in default on any of its debt, or if it is probable that a borrower may default in the foreseeable future. Many aspects of a borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty. Concessions could include extension of the maturity date, reductions of the interest rate (which may make the rate lower than current market for a new loan with similar risk), reduction or forgiveness of accrued interest, or principal forgiveness. The assessments of whether a borrower is experiencing (or is likely to experience) financial difficulty, and whether a concession has been granted, are subjective in nature and management’s judgment is required when determining whether a modification is classified as a TDR.

For all classes within the commercial portfolio segment, TDRs are typically modified through forbearance agreements (generally 6 to 12 months). Forbearance agreements could include reduced interest rates, reduced payments, release of guarantor, or entering into short sale agreements. FHN’s proprietary modification programs for consumer loans are generally structured using parameters of U.S. government-sponsored programs such as Home Affordable Modification Program (“HAMP”). Within the HELOC and R/E installment loans classes of the consumer portfolio segment, TDRs are typically modified by reducing the interest rate (in increments of 25 basis points to a minimum of 1 percent for up to 5 years) and a possible maturity date extension to reach an affordable housing debt ratio. After 5 years, the interest rate generally returns to the original interest rate prior to modification; for certain modifications, the modified interest rate increases 2 percent per year until the original interest rate prior to modification is achieved. Permanent mortgage TDRs are typically modified by reducing the interest rate (in increments of 25 basis points to a minimum of 2 percent for up to 5 years) and a possible maturity date extension to reach an affordable housing debt ratio. After 5 years, the interest rate steps up 1 percent every year until it reaches the Federal Home Loan Mortgage Corporation Weekly Survey Rate cap. Contractual maturities

 

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Table of Contents

Note 4 – Loans (Continued)

 

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, 2016 and 2015, FHN had $289.6 million and $304.7 million portfolio loans classified as TDRs, respectively. For TDRs in the loan portfolio, FHN had loan loss reserves of $48.7 million and $51.2 million, or 17 percent as of September 30, 2016 and 2015. Additionally, $71.2 million and $72.6 million of loans held-for-sale as of September 30, 2016 and 2015, respectively, were classified as TDRs.

 

24


Table of Contents

Note 4 – Loans (Continued)

 

The following tables reflect portfolio loans that were classified as TDRs during the three and nine months ended September 30, 2016 and 2015:

 

    Three Months Ended September 30, 2016     Nine Months Ended September 30, 2016  
          Pre-Modification     Post-Modification           Pre-Modification     Post-Modification  
          Outstanding     Outstanding           Outstanding     Outstanding  

(Dollars in thousands)

  Number     Recorded Investment     Recorded Investment     Number     Recorded Investment     Recorded Investment  

Commercial (C&I):

           

General C&I

    2      $ 419      $ 419        7      $ 20,302      $ 19,194   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial (C&I)

    2        419        419        7        20,302        19,194   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial real estate:

           

Income CRE

    1        100        99        1        100        99   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial real estate

    1        100        99        1        100        99   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consumer real estate:

           

HELOC

    48        5,720        5,573        200        18,418        18,189   

R/E installment loans

    10        345        337        44        4,569        4,846   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer real estate

    58        6,065        5,910        244        22,987        23,035   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Permanent mortgage

    2        710        704        6        1,551        1,544   

Credit card & other

    10        45        44        15        66        64   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total troubled debt restructurings

    73      $ 7,339      $ 7,176        273      $ 45,006      $ 43,936   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Three Months Ended September 30, 2015     Nine Months Ended September 30, 2015  
          Pre-Modification     Post-Modification           Pre-Modification     Post-Modification  
          Outstanding     Outstanding           Outstanding     Outstanding  

(Dollars in thousands)

  Number     Recorded Investment     Recorded Investment     Number     Recorded Investment     Recorded Investment  

Commercial (C&I):

           

General C&I

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial (C&I)

    —          —          —          2        1,388        1,325   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial real estate:

           

Income CRE

    —          —          —          —          —          —     

Total commercial real estate

    —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

Note 4 – Loans (Continued)

 

The following tables present TDRs which re-defaulted during the three and nine months ended September 30, 2016 and 2015, and as to which the modification occurred 12 months or less prior to the re-default. For purposes of this disclosure, FHN generally defines payment default as 30 or more days past due.

 

     Three Months Ended      Nine Months Ended  
     September 30, 2016      September 30, 2016  
            Recorded             Recorded  

(Dollars in thousands)

   Number      Investment      Number      Investment  

Commercial real estate:

           

Residential CRE

     —         $ —           —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial real estate

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Consumer real estate:

           

HELOC

     —           —           2         138   

R/E installment loans

     —           —           1         180   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer real estate

     —           —           3         318   
  

 

 

    

 

 

    

 

 

    

 

 

 

Credit card & other

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total troubled debt restructurings

     —         $ —           3       $ 318   
  

 

 

    

 

 

    

 

 

    

 

 

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

(Dollars in thousands)

   Number      Investment      Number      Investment  

Commercial real estate:

           

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   
  

 

 

    

 

 

    

 

 

    

 

 

 

Credit card & other

     1         2         4         10   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total troubled debt restructurings

     3       $ 52         16       $ 1,376   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

26


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 consumer 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 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 on Form 10-K for the year ended December 31, 2015, for additional information about the policies and methodologies used in the aforementioned components of the ALLL.

 

27


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, 2016 and 2015:

 

           Commercial     Consumer     Permanent     Credit Card        

(Dollars in thousands)

   C&I     Real Estate     Real Estate     Mortgage     and Other     Total  

Balance as of July 1, 2016

   $ 80,972      $ 30,264      $ 59,081      $ 17,600      $ 11,890      $ 199,807   

Charge-offs

     (1,992     (49     (4,359     (373     (3,589     (10,362

Recoveries

     725        651        5,591        239        906        8,112   

Provision/(provision credit) for loan losses

     7,161        1,554        (7,078     (877     3,240        4,000   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2016

     86,866        32,420        53,235        16,589        12,447        201,557   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of January 1, 2016

   $ 73,637      $ 25,159      $ 80,614      $ 18,947      $ 11,885      $ 210,242   

Charge-offs

     (16,386     (742     (17,867     (834     (10,441     (46,270

Recoveries

     3,107        1,782        17,408        1,502        2,786        26,585   

Provision/(provision credit) for loan losses

     26,508        6,221        (26,920     (3,026     8,217        11,000   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2016

     86,866        32,420        53,235        16,589        12,447        201,557   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Allowance - individually evaluated for impairment

     5,187        216        29,461        14,611        139        49,614   

Allowance - collectively evaluated for impairment

     81,376        31,674        23,441        1,978        12,308        150,777   

Allowance - purchased credit-impaired loans

     303        530        333        —          —          1,166   

Loans, net of unearned as of September 30, 2016:

            

Individually evaluated for impairment

     49,351        3,302        158,909        94,071        340        305,973   

Collectively evaluated for impairment

     12,022,457        2,053,101        4,417,896        342,029        357,032        19,192,515   

Purchased credit-impaired loans

     46,490        9,192        1,566        —          51        57,299   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans, net of unearned income

   $ 12,118,298      $ 2,065,595      $ 4,578,371      $ 436,100      $ 357,423      $ 19,555,787   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 income

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Table of Contents

Note 6 – Intangible Assets

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

 

            Other  
            Intangible  

(Dollars in thousands)

   Goodwill      Assets (a)  

December 31, 2014

   $ 145,932       $ 29,518   

Amortization expense

     —           (3,894
  

 

 

    

 

 

 

September 30, 2015

   $ 145,932       $ 25,624   
  

 

 

    

 

 

 
     

December 31, 2015 (b)

   $ 191,307       $ 26,215   

Amortization expense

     —           (3,898

Additions

     64         —     
  

 

 

    

 

 

 

September 30, 2016 

   $ 191,371       $ 22,317   
  

 

 

    

 

 

 

 

(a) Represents customer lists, acquired contracts, core deposit intangibles, and covenants not to compete.
(b) The increase in goodwill was related to the TAF acquisition in fourth quarter 2015.

The gross carrying amount and accumulated amortization of other intangible assets subject to amortization is $72.3 million and $50.0 million, respectively on September 30, 2016. Estimated aggregate amortization expense is expected to be $1.3 million for the remainder of 2016, and $4.9 million, $4.7 million, $4.5 million, $1.7 million, and $1.6 million for the twelve-month periods of 2017, 2018, 2019, 2020, and 2021, respectively.

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, 2015 and 2016. 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, 2015 and 2016.

 

     Regional      Fixed         

(Dollars in thousands)

   Banking      Income      Total  

December 31, 2014

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

 

 

    

 

 

    

 

 

 

Additions

     —           —           —     

Impairments

     —           —           —     

Divestitures

     —           —           —     
  

 

 

    

 

 

    

 

 

 

September 30, 2015

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

 

 

    

 

 

    

 

 

 
        

December 31, 2015 (a)

   $ 93,303       $ 98,004       $ 191,307   
  

 

 

    

 

 

    

 

 

 

Additions

     64         —           64   

Impairments

     —           —           —     

Divestitures

     —           —           —     
  

 

 

    

 

 

    

 

 

 

September 30, 2016

   $ 93,367       $ 98,004       $ 191,371