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Contingencies And Other Disclosures | 9 Months Ended
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Sep. 30, 2015
Commitments And Contingencies Disclosure Abstract |
Contingencies And Other Disclosures | Note 10 – Contingencies and Other Disclosures Contingencies General Contingent liabilities arise in the ordinary course of business. Often they are related to lawsuits, arbitration, mediation, and other forms of litigation. Various litigation matters are threatened or pending against FHN and its subsidiaries. Also, FHN at times receives requests for information, subpoenas, or other inquiries from fed eral, state, and local regulators, from other government authorities, and from other parties concerning various matters relating to FHN’s current or former lines of business. Certain matters of that sort are pending at this time, and FHN is cooperating in those matters. Pending and threatened litigation matters sometimes are resolved in court or before an arbitrator, and sometimes are settled by the parties. Regardless of the manner of resolution, frequently the most significant changes in status of a matte r occur over a short time period, often following a lengthy period of little substantive activity. In view of the inherent difficulty of predicting the outcome of these matters, particularly where the claimants seek very large or indeterminate damages, or where the cases present novel legal theories or involve a large number of parties, or where claims or other actions may be possible but have not been brought, FHN cannot reasonably determine what the eventual outcome of the pending matters will be, what th e timing of the ultimate resolution of these matters may be, or what the eventual loss or impact related to each matter may be. FHN establishes loss contingency liabilities for litigation matters when loss is both probable and reasonably estimable as presc ribed by applicable financial accounting guidance. If loss for a matter is probable and a range of possible loss outcomes is t he best estimate available, accounting guidance requires a liability to be established at the low end of the range. Based on current knowledge, and after consultation with counsel, management is of the opinion that loss contingencies related to threatened or pending litigation matters should not have a material adverse effect on the consolidated financial condition of FHN, but may be material to FHN’s operating results for any particular reporting period depending, in part, on the results from that period. Litigation – Loss Contingencies As used in this Note, "material loss contingency matters" generally fall into at le ast one of the following categories: (i) FHN has determined material loss to be probable and has established a material loss liability in accordance with applicable financial accounting guidance, other than matters reported as having been substantially set tled or otherwise substantially resolved; (ii) FHN has determined material loss to be probable but is not reasonably able to estimate an amount or range of material loss liability; or (iii) FHN has determined that material loss is not probable but is reaso nably possible, and that the amount or range of that material loss is estimable. As defined in applicable accounting guidance, loss is reasonably possible if there is more than a remote chance of a material loss outcome for FHN. Set forth below are disclos ures for certain pending or threatened litigation matters, including all matters mentioned in (i) or (ii) and certain matters mentioned in (iii). In addition, certain other matters are discussed relating to FHN's former mortgage origination and servicing b usinesses. In all litigation matters discussed, unless settled or otherwise resolved, FHN believes it has meritorious defenses and intends to pursue those defenses vigorously. FHN reassesses the liability for litigation matters each quarter as the matter s progress. At September 30, 2015, the aggregate amount of liabilities established for all material loss contingency matters was $17.1 million. The liabilities discussed in this paragraph are separate from those discussed under the heading "Established Repur chase Liability" below. In each material loss contingency matter, except as otherwise noted, there is a more than slight chance that each of the following outcomes will occur: the plaintiff will substantially prevail; the defense will substantially prevai l; the plaintiff will prevail in part; or the matter will be settled by the parties. At September 30, 2015, FHN estimates that for all material loss contingency matters, estimable reasonably possible losses in future periods in excess of currently establishe d liabilities could aggregate in a range from zero to approximately $70 million. As a result of the general uncertainties discussed above and the specific uncertainties discussed for each matter mentioned below, it is possible that the ultimate future lo ss experienced by FHN for any particular matter may materially exceed the amount, if any, of currently established liability for that matter. That possibility exists both for matters included in the estimated reasonable possible loss (“RPL”) range mentione d above and for matters not included in that range. On October 30, 2015, FHN learned that an arbitration panel had awarded certain claimants $11.6 million. This matter was brought by two former customers of FHN’s subsidiary FTN Financial Securities Corp. (“FTN”), led by First United Bank & Trust, related to purchases of PreTSL securities from FTN in 2006 and 2007. After considering the terms of the award, FHN has recognized a pre-tax expense of $11.6 million for the third quarter of 2015 related to this m atter. The expense is recognized as other non-interest expense within the Fixed Income segment and is included in the aggregate liability for contingencies at September 30, 2015 reported above. Certain Matters Included in Reasonably Possible Loss Range Debit Transaction Sequencing Litigation Matter. FTBNA is a defendant in a putative class action lawsuit concerning overdraft fees charged in connection with debit card transactions. A key claim is that the method used to order or sequence the transactions posted each day was improper. The case is styled as Hawkins v. First Tennessee Bank National Association, before the Circuit Court for Shelby County, Tennessee, Case No. CT-004085-11. The plaintiff seeks actual damages of at least $5 million, unspecified r estitution of fees charged, and unspecified punitive damages, among other things. FHN's estimate of RPL for this matter is subject to significant uncertainties regarding: whether a class will be certified and, if so, the definition of the class; claims as to which no dollar amount is specified; the potential remedies that might be available or awarded; the ultimate outcome of potentially significant motions such as motions to dismiss, or for summary judgment; and the incomplete status of the discovery proce ss. RPL-Included First Horizon Branded Mortgage Securitization Litigation Matters. Several pending litigation matters are discussed under the heading "First Horizon Branded Mortgage Securitization Litigation Matters" below. For certain of those FHN has been able to estimate RPL. Those estimable matters are the FDIC (NY) and FDIC (AL) cases. The estimates for those matters are included in the RPL range discussed above. The RPL estimates are subject to significant uncertainties regarding: the dollar amount s claimed; the potential remedies that might be available or awarded; the outcome of any settlement discussions; the outcome of potentially significant motions; the availability of significantly dispositive defenses; the incomplete status of the discovery process; and the lack of precedent claims. Certain Matters Not Included in Reasonably Possible Loss Range Several pending litigation matters are discussed under the heading "First Horizon Branded Mortgage Securitization Litigation Matters" below. For cert ain of those FHN has been able to estimate RPL as mentioned in the preceding paragraph, and for others FHN has not. Those matters for which RPL currently is not estimable are the FHLB of San Francisco, Metropolitan Life, Royal Park, Integra REC and Tenness ee Consolidated Retirement System indemnity cases. FHN is unable to estimate an RPL range due to significant uncertainties regarding: claims as to which the claimant specifies no dollar amount; the potential remedies that might be available or awarded; the availability of significantly dispositive defenses such as statutes of limitations or repose; the outcome of potentially dispositive early-stage motions such as motions to dismiss; the identity and value of assets that FHN may be required to repurchase fo r those claims seeking asset repurchase; the incomplete status of the discovery process; the lack of a precise statement of damages; and lack of precedent claims. Litigation – Gain Contingencies In second quarter 2015 FHN reached an agreement with the U.S. Department of Justice (“DOJ”) and the Office of the Inspector General for the Department of Housing and Urban Development ("HU D”) to settle potential claims related to FHN’s underwriting and origination of loans insured by the Federal Housin g Administration (“FHA”). Under that agreement FHN paid $212.5 million. FHN believes that certain insurance policies, having an aggregate policy limit of $75 million, provide coverage for FHN’s losses and related costs. The insurers have denied and/or rese rved rights to deny coverage. FHN has brought suit against the insurers to enforce the policies under Tennessee law. In connection with this litigation the previously recognized expenses associated with the settled matter may be recouped in part. Under app licable financial accounting guidance FHN has determined that although material gain from this litigation is not probable there is more than a slight chance of a material gain outcome for FHN. FHN cannot determine a probable outcome that may result from th is matter because of the uncertainty of the potential outcomes of the legal proceedings and also due to significant uncertainties regarding: legal interpretation of the relevant contracts; potential remedies that might be available or awarded; and lack of discovery. First Horizon Branded Mortgage Securitization Litigation Matters Prior to September 2008 FHN originated and sold home loan products through various channels and conducted its servicing business under the First Horizon Home Loans and First Tennessee Mortgage Servicing brands. Those sales channels included the securitization of loans into pools held by trustees and the sale of the resulting securities, sometimes called “certificates,” to investors. These activities are discussed in more detai l below under the heading “Legacy Home Loan Sales and Servicing.” At the time this report is filed, FHN, along with multiple co-defendants, is defending lawsuits brought by investors which claim that the offering documents under which certificates relating to First Horizon branded securitizations ("FH proprietary securitizations") were sold to them were materially deficient. The plaintiffs and venues of these suits are: (1) Federal Deposit Insurance Corporation ("FDIC") as receiver for Colonial Bank, in the U.S. District Court for the Middle District of Alabama (Case No. CV-12-791-WKW-WC); and (2) FDIC as receiver for Colonial Bank, in the U.S. District Court for the Southern District of New York (Case No. 12 Civ. 6166 (LLS)(MHD)). The plaintiffs in the pend ing suits claim to have purchased certificates in a number of separate FH proprietary securitizations and demand that FHN repurchase their investments, or answer in damages or rescission, among other remedies sought. A third suit of this sort, brought by C harles Schwab Corp. in the Superior Court of San Francisco, California, was settled by the parties in October 2015. Because the settlement occurred after quarter-end, liability for this suit is included in the liabilities established for material loss cont ingency matters mentioned above. In some of the pending suits underwriters are co-defendants and have demanded, under provisions in the applicable underwriting agreements, that FHN indemnify them for their expenses and any losses they may incur. In addi tion, FHN has received indemnity demands from underwriter s in certain other suit s as to which investor s claim to have purchased certificate s in FH proprietary securitizations. FHN has not been named a defendant in these suits, which FHN is defending indire ctly as indemnitor. The plaintiff s and venue s of these other indemnity-only suit s are: (3) FHLB of San Francisco, in the Superior Court of San Francisco County, California (Case No. CGC-10-497840); (4) Metropolitan Life Insurance Co., in the Supreme Court of New York County, New York (No. 651360-2012); (5) Royal Park Invs. SA/NV, in the Supreme Court of New York County, New York (No. 652607-2012); (6) Commonwealth of Virginia ex rel. Integra REC LLC, in the Circuit Court for the City of Richmond (No. CL14-399); and (7) Tennessee Consolidated Retirement System, in the Chancery Court for Davidson County, Tennessee (No. 13-1729-II). Details concerning the original purchase amounts and ending balances of the investments at issue in most of these pending su its, as to which FHN is a named defendant or as to which FHN has an agreement to indemnify an underwriter defendant, are set forth below. Information about the performance of the FH proprietary securitizations related to these suits is available in monthly reports published by the trustee for the securitization trusts. FHN believes that certain plaintiffs did not purchase the entire certificate in the securitizations in which they invested. Reporting by the trustee is at a certificate level and, as a result, ending certificate balances in th e following table were adjusted to reflect FHN's estimate of the ending balance of each partial certificate purchased by these plaintiffs. Plaintiffs in the pending lawsuits claim to have purchased a total of $145.7 milli on of certificates and the purchase prices of the certificates subject to the indemnification requests total $613.9 millio n. Although the Charles Schwab suit was pending at September 30, 2015, it was settled shortly afterward and is excluded from this tabl e.
(Dollars in thousands) | Alt-A |  | Jumbo |
Vintage |  |  |  |  |  |
Original Purchase Price: |  |  |  |  |  |
| 2005 | $ | 202,417 |  | $ | - |
| 2006 |  | 325,613 |  |  | 32,540 |
| 2007 |  | 199,012 |  |  | - |
| Total | $ | 727,042 |  | $ | 32,540 |
Ending Balance per the September 25, 2015 trust statements: |  |  |  |  |  |
| 2005 | $ | 44,100 |  | $ | - |
| 2006 |  | 78,934 |  |  | 7,273 |
| 2007 |  | 74,397 |  |  | - |
| Total | $ | 197,431 |  | $ | 7,273 |
If FHN were to repurchase certificates, it would recognize as a loss the difference between the amount paid (adjusted for any related litigation liability previously established) and the fair value of the certificates at that time. The total ending certificate balance of the investments which are the subject of the current pending lawsuits was $204.7 million as reported on the September 25, 2015, trust statements, with approximately 8 5 percent of the remaining balances performing. Cumulative los ses on the investments which are the subject of the remaining lawsuits, as reported on the trust statements, represent approximately 7 percent of the original principal amount underlying the certificates pu rchased. Ending certificate balances reflect the r emaining principal balance on the certificates, after the monthly principal and interest distributions and after reduction for applicable cumulative and current realized losses. Recognized cumulative losses may not take into account all outstanding princip al and interest amounts advanced by the servicer due to nonpayment by the borrowers; reimbursement of those advances to the servicer may increa se cumulative losses. Losses often are reported by the trustee based on each certificate within a pool or group, which limits FHN’s ability to ascertain losses at the individual investor level. As discussed below under “Legacy Home Loan Sales and Servicing,” other investors may attempt to pursue similar claims, and securitization trustees or other parties may attempt to pursue loan repurchase, make-whole, or indemnity claims. At September 30, 2015, except for the Charles Schwab case, FHN had not recognized a liability for exp osure for investment rescission, loan repurchase, damages, or other actual or potential claims a rising from FHN’s previous securitization and related activities. Legacy Home Loan Sales and Servicing Overview Prior to September 2008, as a means to provide liquidity for its legacy mortgage banking business, FHN originated loans through its legacy mortgage business, primarily first lien home loans, with the intention of selling them. Sales typically were effected either as non-recourse whole-loan sales or through non-recourse proprietary securitizations. Conventional conforming single-family residen tial mor tgage loans were sold predominant ly to two government-sponsored entities (“GSEs”): the Federal National Mortgage Association ("Fannie Mae," "Fannie," or "FNMA"), and the Federal Home Loan Mortgage Corporation ("Freddie Mac," "Freddie," or "FHLMC"). Federally insured or guaranteed whole-loans were pooled, and payments to investors were guaranteed through the Government National Mortgage Association ("Ginnie Mae," "Ginnie," or "GNMA"). Collectively, Fannie Mae, Freddie Mac, and Ginnie Mae are referred to as the "Agencies." Many mortgage loan originations, especially those "nonconforming" mortgage loans that did not meet criteria for whole-loan sales to the GS Es or insurance through Ginnie Mae, were sold to investors, or certificate-holders, predominant ly through First Horizon ("FH") branded proprietary securitizations but also, to a lesser extent, through whole-loan sales to private non-Agency purchasers. In addition, FHN originated with the intent to sell and sold HELOCs and second lien mortgages throu gh whole-loan sales to private purchasers and, to a lesser extent, through FH proprietary securitizations. On August 31, 2008 FHN sold its national mortgage origination and servicing platforms along with a portion of its servicing assets and obligations. This is sometimes referred to as the “2008 sale,” the “2008 divestiture,” the “platform sale,” or other similar terms. FHN contracted to have its remaining ser vicing obligations sub-serviced. Since the 2008 platform sale FHN has sold substantially all rema ining servicing assets and obligations. FHN also sold certain Agency mortgage loans with full recourse under agreements to rep urchase the loans upon default, and originated or underwrote mortgage loans under the FHA insurance program mentioned above or th e Veteran’s Administration (“VA”) guaranty program. After the 2008 sale these lending activities continued but were substantially curtailed. Agency Whole-Loan Sales Even though Agency loans were sold without recourse for credit loss, FHN may be obligated to either repurchase a loan for the unpaid principal balance ("UPB") or make the purchaser whole for the economic loss incurred if FHN breached representations or warranties made by FHN to the purchaser at the time of the sale. Such representations and wa rranties typically covered both substantive and process matters, such as the existence and sufficiency of file documentation and the absence of fraud by borrowers or other t hird parties such as appraisers. Since the mortgage platform sale in 2008, A gencies, primarily the two GSEs, have accounted for the vast majority of repurchase/make-whole claims received. In the fourth quarter of 2013 FHN entered into a definitive resolution agreement ("DRA") with Fannie Mae, and in the first quarter of 2014 FHN entered into a DRA with Freddie Mac, in each case resolving certain legacy selling representation and warranty repurchase obligations associated with loans originated from 2000 to 2008 excluding certain loans FHN no longer serviced at the time of the DRA. Under each DRA, FHN remains responsible for repurchase obligations related to certain excluded defects (such as title defects and violations of the GSE's Charter Act) and FHN continues to have obligations related to mortgage insurance rescissions, cancell ations, and denials. With respect to loans where there has been a prior bulk sale of servicing, FHN is not responsible for mortgage insurance cancellations and denials to the extent attributable to the acts of the current servicer. As a result of the DRAs, the repurchase pipeline overall is smaller, and the proportion of GSE-related repurchase requests in the pipeline also is smaller, than in periods pre-dating the DRAs. FHN’s repurchase liability as of September 30, 2015 contemplates, among other things, est imates of FHN’s repurchase exposure related to loans excluded from the DRA s and estimates of FHN’s repurchase exposure related to certain other whole-loan sales. See "Other Whole-Loan Sales" and “Established Repurchase Liability” below for additional infor mation. Other Whole-Loan Sales Prior to the 2008 divestiture FHN also sold first lien mortgage loans through whole-loan sales to non-Agency purchasers. FHN made contractual representations and warranties to the purchasers generally similar to those made to Agency purchasers. As of September 30, 2015, 47 percent of repurchase/make-whole claims in the repurchase pipeline relate to other whole-loan sales. These claims are included in FHN’s liability methodology and the assessment of the adequacy of the repurchas e and foreclosure liability. Many of these loans were included by the purchasers in their own securitizations, not using the First Horizon brand. FHN’s contractual representations and warranties to these loan purchasers generally included repurchase and i ndemnity covenants for losses and expenses applicable to the securitization caused by FHN’s breach. Currently the following categories of legal actions are pending which involve FHN and non-Agency whole-loan sales: (i) FHN has received indemnification requ ests from purchasers of loans or their assignees in cases where FHN is not a defendant; (ii) FHN has received subpoenas seeking loan reviews in cases where FHN is not a defendant; (iii) FHN has received repurchase or make-whole demands from purchasers or t heir assignees; and (iv) FHN is a defendant in certain legal actions involving FHN-originated loans. In some cases the loans to be reviewed, or which otherwise are at issue, have not been identified specifically. Assignees can include securitizers or secur itization trustees, among others. A loan is included in the repurchase pipeline only when an identifiable demand for repurchase has been made outside of active litigation. First Horizon Branded Proprietary Mortgage Securitizations From 2005 through 2007 F HN originated and sold certain non-agency, nonconforming mortgage loans, consisting of Jumbo and Alternative-A (“Alt A”) first lien mortgage loans, to private inv estors through 80 proprietary securitization trusts under the FH brand. Securitized loans gene rally were sold indirectly to investors as interests, commonly known as certificates, in the trusts. The certificates were sold to a variety of investors, including GSEs in some cases, through securities offerings under a prospectus or other offering docum ents. In most cases, the certificates were tiered into different risk classes, with junior classes exposed to trust losses first and senior classes exposed after junior classes were exhausted. Through third quarter 2013, FHN continue d to service substantia lly all of the remaining loans sold through FH proprietary securitizations. In 2013 FHN contracted to sell substantially all such servicing rights and obligations, with transfers occurring largely in fourth quarter 2013 and first quarter 2014. As of September 30, 2015, the aggregate remaining UPB in active FH proprietary securitizations from 2005 through 2007 was $5.2 billion consisting of $3.7 billion Alt-A mortgage loans and $1.5 billion Jumbo mortgage loans. No FH proprietary securitizations were created a fter 2007. Representations and warranties were made to the securitization trustee, as the nominal purchaser of the loans, for the ben efit of investors. As of September 30, 2015, the repurchase request pipeline contained no loan repurchase request related to FH proprietary first lien securitizations based on breaches of representations and warranties to the trustee. FHN’s trustee is a defendant in a lawsuit in which the plaintiffs have asserted that the trustee has duties under federal law to review loans an d otherwise act against FHN outside of the duties specified in the applicable trust documents. At September 30, 2015, FHN's trustee had made no claims against FHN and no litigation by the trustee was pending against FHN. I nterests in securitized loans were sold as securities under prospectuses or other offering documents subject to the disclosure requirements of applicable federal and state securities laws. An investor could pursue (and in certain cases mentioned above, has pursued and is pursuing) a claim a lleging that the prospectus or other disclosure documents were deficient by containing materially false or misleading information or by omitting material information. FHN believes a new federal securities law claim cannot be brought at this time due to the running of applicable limitation periods, but other claims might still be possible. Claims of this sort are resolved in a litigation context, unlike FHN's GSE repurchase experience. FHN's analysis of loss content and establishment of appropriate liabiliti es in th ese cases follow principles and practices associated with litigation matters as discussed above; that process does not involve the repurchase pipeline and repurchase liability. Other Government Entity Loan Reviews Certain government entities acting on behalf of several purchasers of FH proprietary and other securitizations have subpoenaed information from FHN and others. These include the FDIC (on behalf of certain failed banks) and the FHLBs of San Francisco, Atlanta, and Seattle, among other s. Collectively, the subpoenas seek information concerning: a number of FH proprietary securitizations and/or underlying loan originations; and originations of certain other whole loans sold which, in many cases, were included by the purchaser in its own s ecuritizations. See “Other Whole-Loan Sales” above for additional information concerning loans originated and sold by FHN that were included in other securitizations. Some subpoenas fail to identify the specific investments made or loans at issue. Moreover, FHN has limited information regarding at least some of the loans under review. The FDIC subpoenas partially overlap with the ongoing litigation matters mentioned above under “Litigation- Loss Contingencies.” Unless and until a review becomes an identifia ble repurchase claim, the associated loans are not considered part of the repurchase pipeline. Private Mortgage Insurance Private mortgage insurance (“MI”) was required by GSE rules for certain of the loans sold to GSEs and was also provided for certai n of the loans that were securitized. MI generally was provided for the first lien loans sold or securitized having a loan-to-value ratio at origination of greater than 80 percent. Although unresolved MI cancellation notices related to GSE-owned loans are not formal repurchase requests, FHN includes these in the active repurchase request pipeline to the extent they relate to securitized loans or are excluded from the DRA settlements with the GSEs mentioned above. FHN tracks and monitors MI cancellation noti ces received when assessing the overall adequacy of FHN's repurchase liability. Established Repurchase Liability Based on currently available information and experience to date, FHN has evaluated its loan repurchase exposure and has accrued for losses of $115.5 million and $126.2 million as of September 30, 2015 and 2014, respectively, including a smaller amount related to equity-lending junior lien loan sales. FHN used all available information to estimate losses related to potential repurchase obligation s not included in the DRAs including future MI rescissions, prior bulk servicing sales where FHN is no longer the directly responsible party but still has repurchase obligations, and obligations related to certain other loan sales, including repurchase obl igations related to non-GSE loan sales. Additionally, FHN continues to monitor claims included in the active pipeline, historical repurchase rates, and loss severities. Accrued liabilities for FHN’s estimate of these obligations are reflected in Other liab ilities on the Consolidated Condensed Statements of Condition. Charges to increase the liability are included within Repurchase and foreclosure provision on the Consolidated Condensed Statements of Income. The estimate s are based upon currently available i nformation and fact patterns that exist as of the balance sheet date s and could be subject to future changes. Changes to any one of these factors could significantly impact the estimate of FHN's liability. Servicing and Foreclosure Practices After the 2008 platform sale a substantial portion of FHN's first lien portfolio was serviced through subservicing arrangements. FHN’s servicing activities, including foreclosure and loss mitigation practices, initially were outsourced through a subservicing arrangement (the “2008 subservicing agreement”) with the platform buyer (the “2008 subservicer”). FHN entered into a replacement agreement in 2011 with a new subservicer (the “2011 subservicer”). Through third quarter 2013, FHN serviced a mortgage loan portfolio with an unpaid principal balance of approximately $15 billion as of September 30, 2013. In fourth quarter 2013 and first quarter 2014, FHN sold substantially all remaining servicing to the 2011 subservicer. As a result, the loan portfolio serviced by FHN at September 30, 2015 had an unpaid principal balance of $214.8 million. Servicing still retained by FHN continues to be subserviced by the 2011 subservicer. FHN is subject to losses in its current and former loan servicing portfolio due to loan foreclosures. Fo reclosure exposure arises from certain government agency agreements, as well as agreements with MI insurers, which limit the agency’s repayment guarantees on foreclosed loans and allow compensatory fees and penalties and curtailments of claims for violatio ns of agreements or insurance policies, resulting in losses to the servicer. Foreclosure exposure also includes real estate costs, marketing costs, and costs to maintain properties. In 2011 regulators entered into consent decrees with several institutions, including FHN’s 2008 subservicer, requiring comprehensive revision of loan modification and foreclosure processes, including the remediation of borrowers that have experienced financial harm. In 2012 the 2008 subservicer, along with certain others, enter ed into a settlement agreement with the OCC which replaced the consent decree. Under FHN’s 2008 subservicing agreement, the 2008 subservicer had the contractual right to follow FHN’s prior servicing practices as they existed 180 days prior to August 2008 u ntil the 2008 subservicer became aware that such practices did not comply with applicable servicing requirements, subject to the subservicer’s obligation to follow accepted servicing practices, applicable law, and new requirements, including evolving inter pretations of such practices, law and requirements. In the event of a dispute such as that described below between FHN and the 2008 subservicer over any liabilities for the subservicer’s servicing and management of foreclosure or loss mitigation processes, FHN cannot predict the loss that may be incurred. FHN’s 2008 subservicer has presented invoices and made demands under the 2008 subservicing agreement that FHN pay certain costs related to tax service contracts, miscellaneous transfer costs, servicing tim eline penalties, compensatory damages, and curtailments charged by GSEs and a government agency prior to FHN’s transfer of subservicing to its 2011 subservicer in the amount of $8.6 million. The 2008 subservicer also is seeking reimbursement from FHN for e xpenditures the 2008 subservicer has incurred or anticipates it will incur under the consent decree and supervisory guidance relating to foreclosure review (collectively, “foreclosure review expenditures”). The foreclosure review expenditures for which the 2008 subservicer has sought reimbursement total $34.9 million. Although the most recent request was made in 2012, additional reimbursement requests might be made. FHN disagrees with the 2008 subservicer's position and has made no reimbursements. In the ev ent that the 2008 subservicer pursues its position through litigation, FHN believes it has meritorious defenses and intends to defend itself vigorously. FHN also believes that certain amounts billed to FHN by agencies for penalties and curtailments on clai ms by MI insurers for actions by the 2008 subservicer prior to the 2011 subservicing transfer but billed after that date are owed by the 2008 subservicer. This disagreement has the potential to result in litigation and, in any such future litigation, the c laim against FHN may be substantial. Other Disclosures - Visa Matters FHN is a member of the Visa USA network. In October 2007, the Visa organization of affiliated entities completed a series of global restructuring transactions to combine its affiliated operating companies, including Visa USA, under a single holding company, Visa Inc. (“Visa”). Upon completion of the reorganization, the members of the Visa USA network remained contingently liable for certain Visa litigation matters (the "Covered Litigatio n"). Based on its proportionate membership share of Visa USA, FHN recognized a contingent liability in fourth quarter 2007 related to this contingent obligation. In March 2008, Visa completed its initial public offering (“IPO”) and funded an escrow account from its IPO proceeds to be used to make payments related to the Visa litigation matters. FHN received approximately 2.4 million Class B shares in conjunction with Visa’s IPO. Conversion of these shares into C lass A shares of Visa and, with limited except ions, transfer of these shares is restricted until the final resolution of the covered litigation. In conjunction with the prior sales of Visa C lass B shares in December 2010 and September 2011, FHN and the purchasers entered into derivative transactions w hereby FHN will make, or receive, cash payments whenever the conversion ratio of the Visa C lass B shares into Visa C lass A shares is adjusted. The conversion ratio is adjusted when Visa deposits funds into the escrow account to cover certain litigation. I n July 2012, Visa and MasterCard announced a joint settlement (the "Settlement") related to the Payment Card Interchange matter, one of the Covered Litigation matters. Based on the amount of the S ettlement attributable to Visa and an assessment of FHN's contingent liability accrued for Visa litigation matters, the Settlement did not have a material impact on FHN. In September 2014, Visa funded $450 million into the escrow account, and as a result FHN made a payment to the derivative counterparty of $2.4 million in October 2014. As of September 30, 2015, the conversion ratio is 165 percent reflecting the Visa stock split in March 2015, and the contingent liability is $.8 million. Future funding of the escrow would dilute this exchange rate by an amou nt that is not determin able at present. As of September 30, 2015 and 2014, the derivative liabilities were $4.8 million and $7.6 million, respectively. FHN now holds approximately 1.1 million Visa Class B shares. FHN’s Visa shares are not considered to be marketable and therefore are included in the Consolidated Condensed Statements of Condition at their historical cost of $0. The Settlement has been approved by the court but that approval has been appealed by certain of the plaintiffs and a hearing was conducted in September 2015 but the court has not issued its decision. Accordingly, t he outcome of this matter remains uncertain. Additionally, other Covered Litigation matters are also pending judicial resolution, including new matters filed by class members who opted-out of the Settlement. So long as any Covered Litigation matter remains pending, FHN's ability to transfer its Visa holdings continues to be restricted. Other Disclosures – Indemnification Agreements and Guarantees In the ordinary course of business, FHN enters into indemn ification agreements for legal proceedings against its directors and officers and standard representations and warranties for underwriting agreements, merger and acquisition agreements, loan sales, contractual commitments, and various other business transa ctions or arrangements. The extent of FHN’s obligations under these agreements depends upon the occurrence of future events; therefore, it is not possible to estimate a maximum potential amount of payouts that could be required with such agreements.

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