10-Q 1 fhnq1fy2019document.htm 10-Q

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 March 31, 2019
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 every Interactive Data File required to be submitted 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 such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☒ |  | Accelerated filer | ☐ |  | Non-accelerated filer |  | ☐
Smaller reporting company | ☐ |  | Emerging Growth Company | ☐ |  |  |  |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class | Trading Symbol(s) | Name of Exchange on which Registered
$0.625 Par Value Common Capital Stock | FHN | New York Stock Exchange, Inc.
Depositary Shares, each representing a 1/4,000th interest in a share of Non-Cumulative Perpetual Preferred Stock, Series A | FHN PR A | New York Stock Exchange, Inc.

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 March 31, 2019
Common Stock, $.625 par value |  | 315,361,125

Table of Contents
FIRST HORIZON NATIONAL CORPORATION
INDEX

Part I. Financial Information | 1
Item 1. Financial Statements | 1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 73
Item 3. Quantitative and Qualitative Disclosures about Market Risk | 114
Item 4. Controls and Procedures | 114
Part II. Other Information | 115
Item 1. Legal Proceedings | 115
Item 1A. Risk Factors | 115
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 115
Item 3. Defaults Upon Senior Securities | 115
Item 4. Mine Safety Disclosures | 115
Item 5. Other Information | 115
Item 6. Exhibits | 116
Exhibit 10.1 |
Exhibit 10.2 |
Exhibit 10.3 |
Exhibit 10.4 |
Exhibit 31(a) |
Exhibit 31(b) |
Exhibit 32(a) |
Exhibit 32(b) |
Signatures | 117

PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements

The Consolidated Condensed Statements of Condition (unaudited) | 2
The Consolidated Condensed Statements of Income (unaudited) | 3
The Consolidated Condensed Statements of Comprehensive Income (unaudited) | 4
The Consolidated Condensed Statements of Equity (unaudited) | 5
The Consolidated Condensed Statements of Cash Flows (unaudited) | 6
The Notes to the Consolidated Condensed Financial Statements (unaudited) | 8
Note 1 Financial Information | 8
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 Leases | 30
Note 8 Other Income and Other Expense | 33
Note 9 Components of Other Comprehensive Income/(loss) | 34
Note 10 Earnings Per Share | 35
Note 11 Contingencies and Other Disclosures | 36
Note 12 Pension, Savings, and Other Employee Benefits | 39
Note 13 Business Segment Information | 40
Note 14 Variable Interest Entities | 43
Note 15 Derivatives | 48
Note 16 Master Netting and Similar Agreements - Repurchase, Reverse Repurchase, and Securities Borrowing Transactions | 55
Note 17 Fair Value of Assets & Liabilities | 57
Note 18 Restructuring, Repositioning, and Efficiency | 72

This financial information reflects all adjustments that are, in the opinion of management, necessary for a fair presentation of the financial condition and results of operations for the interim periods presented.
1

CONSOLIDATED CONDENSED STATEMENTS OF CONDITION

|  | First Horizon National Corporation
|  | (Unaudited) |  | December 31
|  | March 31 |
(Dollars in thousands, except per share amounts) |  | 2019 |  | 2018
Assets: |  |  |  |
Cash and due from banks |  | $ | 570,589 |  |  | $ | 781,291 |
Federal funds sold |  | 167,602 |  |  | 237,591 |
Securities purchased under agreements to resell (Note 16) |  | 474,679 |  |  | 386,443 |
Total cash and cash equivalents |  | 1,212,870 |  |  | 1,405,325 |
Interest-bearing cash |  | 1,013,254 |  |  | 1,277,611 |
Trading securities |  | 1,681,727 |  |  | 1,448,168 |
Loans held-for-sale (a) |  | 594,662 |  |  | 679,149 |
Securities available-for-sale (Note 3) |  | 4,616,322 |  |  | 4,626,470 |
Securities held-to-maturity (Note 3) |  | 10,000 |  |  | 10,000 |
Loans, net of unearned income (Note 4) (b) |  | 27,990,048 |  |  | 27,535,532 |
Less: Allowance for loan losses (Note 5) |  | 184,911 |  |  | 180,424 |
Total net loans |  | 27,805,137 |  |  | 27,355,108 |
Goodwill (Note 6) |  | 1,432,787 |  |  | 1,432,787 |
Other intangible assets, net (Note 6) |  | 148,818 |  |  | 155,034 |
Fixed income receivables |  | 46,782 |  |  | 38,861 |
Premises and equipment, net (March 31, 2019 and December 31, 2018 include $16.0 million and $19.6 million, respectively, classified as held-for-sale) |  | 484,494 |  |  | 494,041 |
Other real estate owned (“OREO”) (c) |  | 23,396 |  |  | 25,290 |
Derivative assets (Note 15) |  | 118,128 |  |  | 81,475 |
Other assets |  | 1,910,626 |  |  | 1,802,939 |
Total assets |  | $ | 41,099,003 |  |  | $ | 40,832,258 |
Liabilities and equity: |  |  |  |
Deposits: |  |  |  |
Savings |  | $ | 11,651,750 |  |  | $ | 12,064,072 |
Time deposits, net |  | 4,454,622 |  |  | 4,105,777 |
Other interest-bearing deposits |  | 8,393,468 |  |  | 8,371,826 |
Interest-bearing |  | 24,499,840 |  |  | 24,541,675 |
Noninterest-bearing |  | 7,963,048 |  |  | 8,141,317 |
Total deposits |  | 32,462,888 |  |  | 32,682,992 |
Federal funds purchased |  | 339,360 |  |  | 256,567 |
Securities sold under agreements to repurchase (Note 16) |  | 745,788 |  |  | 762,592 |
Trading liabilities |  | 429,669 |  |  | 335,380 |
Other short-term borrowings |  | 140,832 |  |  | 114,764 |
Term borrowings |  | 1,177,926 |  |  | 1,170,963 |
Fixed income payables |  | 100,290 |  |  | 9,572 |
Derivative liabilities (Note 15) |  | 107,123 |  |  | 133,713 |
Other liabilities |  | 748,606 |  |  | 580,335 |
Total liabilities |  | 36,252,482 |  |  | 36,046,878 |
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 March 31, 2019 and December 31, 2018) |  | 95,624 |  |  | 95,624 |
Common stock - $.625 par value (shares authorized - 400,000,000; shares issued - 315,361,125 on March 31, 2019 and 318,573,400 on December 31, 2018) |  | 197,101 |  |  | 199,108 |
Capital surplus |  | 2,983,948 |  |  | 3,029,425 |
Undivided profits |  | 1,595,568 |  |  | 1,542,408 |
Accumulated other comprehensive loss, net (Note 9) |  | (321,151 | ) |  | (376,616 | )
Total First Horizon National Corporation Shareholders’ Equity |  | 4,551,090 |  |  | 4,489,949 |
Noncontrolling interest |  | 295,431 |  |  | 295,431 |
Total equity |  | 4,846,521 |  |  | 4,785,380 |
Total liabilities and equity |  | $ | 41,099,003 |  |  | $ | 40,832,258 |

See accompanying notes to consolidated condensed financial statements.

(a) | March 31, 2019 and December 31, 2018 include $8.0 million and $8.4 million, respectively, of held-for-sale consumer mortgage loans secured by residential real estate in process of foreclosure.

(b) | March 31, 2019 and December 31, 2018 include $24.1 million and $28.6 million, respectively, of held-to-maturity consumer mortgage loans secured by residential real estate in process of foreclosure.

(c) | March 31, 2019 and December 31, 2018 include $10.1 million and $9.7 million, respectively, of foreclosed residential real estate.

2

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

| First Horizon National Corporation
| Three Months Ended March 31
(Dollars and shares in thousands except per share data, unless otherwise noted) (Unaudited) | 2019 |  | 2018
Interest income: |  |  |
Interest and fees on loans | $ | 331,938 |  |  | $ | 299,493 |
Interest on investment securities available-for-sale | 31,843 |  |  | 32,847 |
Interest on investment securities held-to-maturity | 131 |  |  | 131 |
Interest on loans held-for-sale | 9,877 |  |  | 12,144 |
Interest on trading securities | 13,548 |  |  | 14,408 |
Interest on other earning assets | 13,278 |  |  | 4,332 |
Total interest income | 400,615 |  |  | 363,355 |
Interest expense: |  |  |
Interest on deposits: |  |  |
Savings | 39,914 |  |  | 14,900 |
Time deposits | 20,254 |  |  | 9,525 |
Other interest-bearing deposits | 22,042 |  |  | 10,608 |
Interest on trading liabilities | 2,816 |  |  | 5,124 |
Interest on short-term borrowings | 6,744 |  |  | 10,042 |
Interest on term borrowings | 14,337 |  |  | 11,983 |
Total interest expense | 106,107 |  |  | 62,182 |
Net interest income | 294,508 |  |  | 301,173 |
Provision/(provision credit) for loan losses | 9,000 |  |  | (1,000 | )
Net interest income after provision/(provision credit) for loan losses | 285,508 |  |  | 302,173 |
Noninterest income: |  |  |
Fixed income | 53,749 |  |  | 45,506 |
Deposit transactions and cash management | 31,621 |  |  | 35,984 |
Brokerage, management fees and commissions | 12,633 |  |  | 13,483 |
Trust services and investment management | 7,026 |  |  | 7,277 |
Bankcard income | 6,015 |  |  | 6,445 |
Bank-owned life insurance ("BOLI") | 4,402 |  |  | 3,993 |
Debt securities gains/(losses), net (Note 3 and Note 9) | — |  |  | 52 |
Equity securities gains/(losses), net (Note 3) | 31 |  |  | 34 |
All other income and commissions (Note 8) | 25,568 |  |  | 23,243 |
Total noninterest income | 141,045 |  |  | 136,017 |
Adjusted gross income after provision/(provision credit) for loan losses | 426,553 |  |  | 438,190 |
Noninterest expense: |  |  |
Employee compensation, incentives, and benefits | 177,925 |  |  | 171,254 |
Occupancy | 20,693 |  |  | 20,451 |
Computer software | 15,139 |  |  | 15,132 |
Professional fees | 12,299 |  |  | 12,272 |
Operations services | 11,488 |  |  | 15,561 |
Equipment rentals, depreciation, and maintenance | 8,829 |  |  | 10,018 |
Advertising and public relations | 7,242 |  |  | 3,599 |
Communications and courier | 6,453 |  |  | 8,232 |
Amortization of intangible assets | 6,216 |  |  | 6,474 |
FDIC premium expense | 4,273 |  |  | 8,614 |
Contract employment and outsourcing | 3,371 |  |  | 4,053 |
Legal fees | 2,831 |  |  | 2,345 |
Repurchase and foreclosure provision/(provision credit) | (455 | ) |  | (72 | )
All other expense (Note 8) | 19,786 |  |  | 35,332 |
Total noninterest expense | 296,090 |  |  | 313,265 |
Income/(loss) before income taxes | 130,463 |  |  | 124,925 |
Provision/(benefit) for income taxes | 27,058 |  |  | 29,931 |
Net income/(loss) | $ | 103,405 |  |  | $ | 94,994 |
Net income attributable to noncontrolling interest | 2,820 |  |  | 2,820 |
Net income/(loss) attributable to controlling interest | $ | 100,585 |  |  | $ | 92,174 |
Preferred stock dividends | 1,550 |  |  | 1,550 |
Net income/(loss) available to common shareholders | $ | 99,035 |  |  | $ | 90,624 |
Basic earnings/(loss) per share (Note 10) | $ | 0.31 |  |  | $ | 0.28 |
Diluted earnings/(loss) per share (Note 10) | $ | 0.31 |  |  | $ | 0.27 |
Weighted average common shares (Note 10) | 317,435 |  |  | 326,489 |
Diluted average common shares (Note 10) | 319,581 |  |  | 330,344 |
Cash dividends declared per common share | $ | 0.14 |  |  | $ | 0.12 |

Certain previously reported amounts have been reclassified to agree with current presentation.
See accompanying notes to consolidated condensed financial statements.
3

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

| First Horizon National Corporation
| Three Months Ended March 31
(Dollars in thousands) (Unaudited) | 2019 |  | 2018
Net income/(loss) | $ | 103,405 |  |  | $ | 94,994 |
Other comprehensive income/(loss), net of tax: |  |  |
Net unrealized gains/(losses) on securities available-for-sale | 48,615 |  |  | (59,543 | )
Net unrealized gains/(losses) on cash flow hedges | 5,387 |  |  | (8,793 | )
Net unrealized gains/(losses) on pension and other postretirement plans | 1,463 |  |  | 1,287 |
Other comprehensive income/(loss) | 55,465 |  |  | (67,049 | )
Comprehensive income | 158,870 |  |  | 27,945 |
Comprehensive income attributable to noncontrolling interest | 2,820 |  |  | 2,820 |
Comprehensive income attributable to controlling interest | $ | 156,050 |  |  | $ | 25,125 |
Income tax expense/(benefit) of items included in Other comprehensive income: |  |  |
Net unrealized gains/(losses) on securities available-for-sale | $ | 15,958 |  |  | $ | (19,543 | )
Net unrealized gains/(losses) on cash flow hedges | 1,768 |  |  | (2,887 | )
Net unrealized gains/(losses) on pension and other postretirement plans | 480 |  |  | 422 |

See accompanying notes to consolidated condensed financial statements.
4

CONSOLIDATED CONDENSED STATEMENTS OF EQUITY

Three months ended March 31, 2019
(Dollars and shares in thousands, except per share data) (unaudited) |  | Common Shares |  | Total |  | Preferred Stock |  | Common Stock |  | Capital Surplus |  | Undivided Profits |  | Accumulated Other Comprehensive Income/(Loss) (a) |  | Noncontrolling Interest
Balance, December 31, 2018 |  | 318,573 |  |  | 4,785,380 |  |  | 95,624 |  |  | 199,108 |  |  | 3,029,425 |  |  | 1,542,408 |  |  | (376,616 | ) |  | 295,431 |
Adjustment to reflect adoption of ASU 2016-02 |  | — |  |  | (1,011 | ) |  | — |  |  | — |  |  | — |  |  | (1,011 | ) |  | — |  |  | — |
Beginning balance, as adjusted |  | 318,573 |  |  | 4,784,369 |  |  | 95,624 |  |  | 199,108 |  |  | 3,029,425 |  |  | 1,541,397 |  |  | (376,616 | ) |  | 295,431 |
Net income/(loss) |  | — |  |  | 103,405 |  |  | — |  |  | — |  |  | — |  |  | 100,585 |  |  | — |  |  | 2,820 |
Other comprehensive income/(loss) |  | — |  |  | 55,465 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 55,465 |  |  | — |
Comprehensive income/(loss) |  | — |  |  | 158,870 |  |  | — |  |  | — |  |  | — |  |  | 100,585 |  |  | 55,465 |  |  | 2,820 |
Cash dividends declared: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Preferred stock ($1,550 per share) |  | — |  |  | (1,550 | ) |  | — |  |  | — |  |  | — |  |  | (1,550 | ) |  | — |  |  | — |
Common stock ($.14 per share) |  | — |  |  | (44,864 | ) |  | — |  |  | — |  |  | — |  |  | (44,864 | ) |  | — |  |  | — |
Common stock repurchased (b) |  | (3,594 | ) |  | (53,436 | ) |  | — |  |  | (2,246 | ) |  | (51,190 | ) |  | — |  |  | — |  |  | — |
Common stock issued for: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stock options and restricted stock - equity awards |  | 382 |  |  | 520 |  |  | — |  |  | 239 |  |  | 281 |  |  | — |  |  | — |  |  | — |
Stock-based compensation expense |  | — |  |  | 5,432 |  |  | — |  |  | — |  |  | 5,432 |  |  | — |  |  | — |  |  | — |
Dividends declared - noncontrolling interest of subsidiary preferred stock |  | — |  |  | (2,820 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (2,820 | )
Balance, March 31, 2019 |  | 315,361 |  |  | $ | 4,846,521 |  |  | $ | 95,624 |  |  | $ | 197,101 |  |  | $ | 2,983,948 |  |  | $ | 1,595,568 |  |  | $ | (321,151 | ) |  | $ | 295,431 |

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) | Includes $51.5 million repurchased under share repurchase programs.

Three months ended March 31, 2018
(Dollars and shares in thousands, except per share data) (unaudited) |  | Common Shares |  | Total |  | Preferred Stock |  | Common Stock |  | Capital Surplus |  | Undivided Profits |  | Accumulated Other Comprehensive Income/(Loss) (a) |  | Noncontrolling Interest
Balance, December 31, 2017 |  | 326,736 |  |  | 4,580,488 |  |  | 95,624 |  |  | 204,211 |  |  | 3,147,613 |  |  | 1,102,888 |  |  | (265,279 | ) |  | 295,431 |
Adjustment to reflect adoption of ASU 2018-02 |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 57,546 |  |  | (57,546 | ) |  | — |
Balance, December 31, 2017, as adjusted |  | 326,736 |  |  | 4,580,488 |  |  | 95,624 |  |  | 204,211 |  |  | 3,147,613 |  |  | 1,160,434 |  |  | (322,825 | ) |  | 295,431 |
Adjustment to reflect adoption of ASU 2016-01 and 2017-12 |  | — |  |  | 67 |  |  | — |  |  | — |  |  | — |  |  | 278 |  |  | (211 | ) |  | — |
Beginning balance, as adjusted |  | 326,736 |  |  | 4,580,555 |  |  | 95,624 |  |  | 204,211 |  |  | 3,147,613 |  |  | 1,160,712 |  |  | (323,036 | ) |  | 295,431 |
Net income/(loss) |  | — |  |  | 94,994 |  |  | — |  |  | — |  |  | — |  |  | 92,174 |  |  | — |  |  | 2,820 |
Other comprehensive income/(loss) |  | — |  |  | (67,049 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | (67,049 | ) |  | — |
Comprehensive income/(loss) |  | — |  |  | 27,945 |  |  | — |  |  | — |  |  | — |  |  | 92,174 |  |  | (67,049 | ) |  | 2,820 |
Cash dividends declared: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Preferred stock ($1,550 per share) |  | — |  |  | (1,550 | ) |  | — |  |  | — |  |  | — |  |  | (1,550 | ) |  | — |  |  | — |
Common stock ($.12 per share) |  | — |  |  | (39,681 | ) |  | — |  |  | — |  |  | — |  |  | (39,681 | ) |  | — |  |  | — |
Common stock repurchased |  | (110 | ) |  | (2,185 | ) |  | — |  |  | (70 | ) |  | (2,115 | ) |  | — |  |  | — |  |  | — |
Common stock issued for: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stock options and restricted stock - equity awards |  | 569 |  |  | 4,376 |  |  | — |  |  | 356 |  |  | 4,020 |  |  | — |  |  | — |  |  | — |
Acquisition equity adjustment |  | (1 | ) |  | (18 | ) |  | — |  |  | (1 | ) |  | (17 | ) |  | — |  |  | — |  |  | — |
Stock-based compensation expense |  | — |  |  | 5,906 |  |  | — |  |  | — |  |  | 5,906 |  |  | — |  |  | — |  |  | — |
Dividends declared - noncontrolling interest of subsidiary preferred stock |  | — |  |  | (2,820 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (2,820 | )
Balance, March 31, 2018 |  | 327,194 |  |  | $ | 4,572,528 |  |  | $ | 95,624 |  |  | $ | 204,496 |  |  | $ | 3,155,407 |  |  | $ | 1,211,655 |  |  | $ | (390,085 | ) |  | $ | 295,431 |

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.

5

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

|  | First Horizon National Corporation
|  | Three months ended March 31
(Dollars in thousands) (Unaudited) |  | 2019 |  | 2018
Operating Activities |  |  |  |
Net income/(loss) |  | $ | 103,405 |  |  | $ | 94,994 |
Adjustments to reconcile net income/(loss) to net cash provided/(used) by operating activities: |  |  |  |
Provision/(provision credit) for loan losses |  | 9,000 |  |  | (1,000 | )
Provision/(benefit) for deferred income taxes |  | 7,238 |  |  | 20,309 |
Depreciation and amortization of premises and equipment |  | 11,400 |  |  | 11,978 |
Amortization of intangible assets |  | 6,217 |  |  | 6,474 |
Net other amortization and accretion |  | 1,257 |  |  | (1,613 | )
Net (increase)/decrease in derivatives |  | (51,821 | ) |  | (14,549 | )
Fair value adjustment on interest-only strips |  | 1,258 |  |  | (1,592 | )
(Gains)/losses and write-downs on OREO, net |  | (290 | ) |  | 216 |
Litigation and regulatory matters |  | — |  |  | 671 |
Stock-based compensation expense |  | 5,432 |  |  | 5,906 |
Equity securities (gains)/losses, net |  | (31 | ) |  | (34 | )
Debt securities (gains)/losses, net |  | — |  |  | (52 | )
Net (gains)/losses on sale/disposal of fixed assets |  | (42 | ) |  | (3,202 | )
(Gain)/loss on BOLI |  | (1,032 | ) |  | — |
Loans held-for-sale: |  |  |  |
Purchases and originations |  | (513,788 | ) |  | (574,735 | )
Gross proceeds from settlements and sales |  | 135,855 |  |  | 152,209 |
(Gain)/loss due to fair value adjustments and other |  | 19,291 |  |  | 3,651 |
Net (increase)/decrease in: |  |  |  |
Trading securities |  | 192,101 |  |  | (9,843 | )
Fixed income receivables |  | (7,921 | ) |  | (25,343 | )
Interest receivable |  | (5,970 | ) |  | (2,990 | )
Other assets |  | 56,984 |  |  | 44,468 |
Net increase/(decrease) in: |  |  |  |
Trading liabilities |  | 94,289 |  |  | 188,847 |
Fixed income payables |  | 90,718 |  |  | (42,829 | )
Interest payable |  | 16,570 |  |  | 10,030 |
Other liabilities |  | (47,631 | ) |  | (66,349 | )
Total adjustments |  | 19,084 |  |  | (299,372 | )
Net cash provided/(used) by operating activities |  | 122,489 |  |  | (204,378 | )
Investing Activities |  |  |  |
Available-for-sale securities: |  |  |  |
Sales |  | 13,012 |  |  | 13,104 |
Maturities |  | 157,502 |  |  | 152,800 |
Purchases |  | (83,512 | ) |  | (159,951 | )
Premises and equipment: |  |  |  |
Sales |  | 4,080 |  |  | 2,619 |
Purchases |  | (6,995 | ) |  | (18,020 | )
Proceeds from sales of OREO |  | 3,791 |  |  | 10,527 |
Proceeds from BOLI |  | 3,208 |  |  | 494 |
Net (increase)/decrease in: |  |  |  |
Loans |  | (448,321 | ) |  | 418,174 |
Interests retained from securitizations classified as trading securities |  | 148 |  |  | 241 |
Interest-bearing cash |  | 264,357 |  |  | 876,249 |
Cash paid related to divestitures |  | — |  |  | (27,599 | )
Cash paid/(received) for acquisitions, net |  | — |  |  | (18 | )
Net cash provided/(used) by investing activities |  | (92,730 | ) |  | 1,268,620 |
Financing Activities |  |  |  |
Common stock: |  |  |  |
Stock options exercised |  | 520 |  |  | 4,327 |
Cash dividends paid |  | (38,759 | ) |  | (21,353 | )
Repurchase of shares (a) |  | (53,436 | ) |  | (2,184 | )
Cash dividends paid - preferred stock - noncontrolling interest |  | (2,883 | ) |  | (2,883 | )
Cash dividends paid - Series A preferred stock |  | (1,550 | ) |  | (1,550 | )

6

Term borrowings: |  |  |  |
Payments/maturities |  | (1,179 | ) |  | (2,625 | )
Increases in restricted and secured term borrowings |  | 3,120 |  |  | 159 |
Net increase/(decrease) in: |  |  |  |
Deposits |  | (220,104 | ) |  | 228,478 |
Short-term borrowings |  | 92,057 |  |  | (1,285,626 | )
Net cash provided/(used) by financing activities |  | (222,214 | ) |  | (1,083,257 | )
Net increase/(decrease) in cash and cash equivalents |  | (192,455 | ) |  | (19,015 | )
Cash and cash equivalents at beginning of period |  | 1,405,325 |  |  | 1,452,046 |
Cash and cash equivalents at end of period |  | $ | 1,212,870 |  |  | $ | 1,433,031 |
Supplemental Disclosures |  |  |  |
Total interest paid |  | $ | 88,774 |  |  | $ | 51,418 |
Total taxes paid |  | 1,008 |  |  | 4,066 |
Total taxes refunded |  | 27,522 |  |  | 90 |
Transfer from loans to OREO |  | 1,607 |  |  | 3,076 |
Transfer from loans HFS to trading securities |  | 425,808 |  |  | 333,483 |

Certain previously reported amounts have been reclassified to agree with current presentation.
See accompanying notes to consolidated condensed financial statements.
(a) 2019 includes $51.5 million repurchased under share repurchase programs.
7

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 2019 period 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, 2018.
Revenues. Revenue is recognized when the performance obligations under the terms of a contract with a customer are satisfied in an amount that reflects the consideration FHN expects to be entitled. FHN derives a significant portion of its revenues from fee-based services. Noninterest income from transaction-based fees is generally recognized immediately upon completion of the transaction. Noninterest income from service-based fees is generally recognized over the period in which FHN provides the service. Any services performed over time generally require that FHN render services each period and therefore FHN measures progress in completing these services based upon the passage of time and recognizes revenue as invoiced.
See Note 1– Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements on Form 10-K for the year ended December 31, 2018, for a discussion of FHN's key revenues.
Contract Balances. As of March 31, 2019, accounts receivable related to products and services on non-interest income were $7.9 million. For the three months ended March 31, 2019, FHN had no material impairment losses on non-interest accounts receivable and there were no material contract assets, contract liabilities or deferred contract costs recorded on the Consolidated Condensed Statements of Condition as of March 31, 2019.
Transaction Price Allocated to Remaining Performance Obligations. For the three months ended March 31, 2019, revenue recognized from performance obligations related to prior periods was not material.
Revenue expected to be recognized in any future year related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less and contracts where revenue is recognized as invoiced, is not material.
Refer to Note 13– Business Segment Information for a reconciliation of disaggregated revenue by major product line and reportable segment.
Leases. At inception, all arrangements are evaluated to determine if they contain a lease, which is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Control is deemed to exist when a lessor has granted and a lessee has received both the right to obtain substantially all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset throughout the period of use.
Lessee. As a lessee, FHN recognizes lease (right-of-use) assets and lease liabilities for all leasing arrangements with lease terms that are greater than one year. The lease asset and lease liability are recognized at the present value of estimated future lease payments, including estimated renewal periods, with the discount rate reflecting a fully-collateralized rate matching the estimated lease term. Renewal options are included in the estimated lease term if they are considered reasonably certain of exercise. Periods covered by termination options are included in the lease term if it is reasonably certain they will not be exercised. Additionally, prepaid or accrued lease payments, lease incentives and initial direct costs related to lease arrangements are recognized within the right-of-use asset. Each lease is classified as a financing or operating lease 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. Substantially all of FHN’s lessee arrangements are classified as operating leases. For leases with a term of 12 months or less, FHN does not to recognize lease assets and lease liabilities and expense is generally recognized on a straight-line basis over the lease term.
8

Note 1 – Financial Information (Continued)
Lease assumptions and classification are reassessed upon the occurrence of events that result in changes to the estimated lease term or consideration. Modifications to lease contracts are evaluated to determine 1) if a right to use an additional asset has been obtained, 2) if only the lease term and/or consideration have been revised or 3) if a full or partial termination has occurred. If an additional right-of use-asset has been obtained, the modification is treated as a separate contract and its classification is evaluated as a new lease arrangement. If only the lease term or consideration are changed, the lease liability is revalued with an offset to the lease asset and the lease classification is re-assessed. If a modification results in a full or partial termination of the lease, the lease liability is revalued through earnings along with a proportionate reduction in the value of the related lease asset and subsequent expense recognition is similar to a new lease arrangement.
Lease assets are evaluated for impairment when triggering events occur, such as a change in management intent regarding the continued occupation of the leased space. If a lease asset is impaired, it is written down to the present value of estimated future cash flows and the prospective expense recognition for that lease follows the accelerated expense recognition methodology applicable to finance leases, even if it remains classified as an operating lease.
Sublease arrangements are accounted for consistent with the lessor accounting described below. Sublease arrangements are evaluated to determine if changes to estimates for the primary lease are warranted or if the sublease terms reflect impairment of the related lease asset.
Lease assets are recognized in Other assets and lease liabilities are recognized in Other liabilities in the Consolidated Condensed Statements of Condition. Since substantially all of its leasing arrangements relate to real estate, FHN records lease expense, and any related sublease income, within Occupancy expense in the Consolidated Condensed Statements of Income.
Lessor. As a lessor, FHN also evaluates its lease arrangements to determine whether a finance lease or an operating lease exists and utilizes the rate implicit in the lease arrangement as the discount rate to calculate the present value of future cash flows. Depending upon the terms of the individual agreements, finance leases represent either sales-type or direct financing leases, both of which require de-recognition of the asset being leased with offsetting recognition of a lease receivable that is evaluated for impairment similar to loans. Currently, all of FHN’s lessor arrangements are considered operating leases.
Lease income for operating leases is recognized over the life of the lease, generally on a straight line basis. Lease incentives and initial direct costs are capitalized and amortized over the estimated life of the lease. Lease income is not significant for any reporting periods and is classified as a reduction of Occupancy expense in the Consolidated Condensed Statements of Income.
Summary of Accounting Changes. 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 July 2018, the FASB issued ASU 2018-11, “Leases - Targeted Improvements,” which provides an election for a cumulative effect adjustment to retained earnings upon initial adoption of ASU 2016-02. Alternatively, under the initial guidance of ASU 2016-02, lessees and lessors are required to recognize and measure leases at the beginning of the earliest comparative period presented using a modified retrospective approach. Both adoption alternatives include 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 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 and ASU 2018-11 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Upon adoption, FHN utilized the cumulative effect transition alternative provided by ASU 2018-11. FHN utilized the lease classification practical expedients and the short-term lease exemption upon adoption. FHN also has elected to determine the discount rate on leases as of the effective date and elected to use hindsight in determining lease terms as well as impairments of lease assets resulting from lease abandonments upon adoption. The table below summarizes the impact of adopting ASU 2016-02 as of January 1, 2019, for line items in the Consolidated Condensed Statements of Condition. Lease assets of approximately $185 million are included in Other Assets. Lease liabilities of
9

Note 1 – Financial Information (Continued)
approximately $204 million are included in Other Liabilities. The after-tax decrease in Undivided Profits reflects the recognition of deferred gains associated with prior sale-leaseback transactions, revisions to the estimated useful lives of leasehold improvements and adjustments of lease expense to reflect revised lease duration estimates.

(Dollars in thousands) |  | January 1, 2019
Loans, net of unearned income |  | $ | 3,450 |
Premises and equipment, net |  | 2,718 |
Other assets |  | 183,884 |
Other liabilities |  | (191,010 | )
Undivided profits |  | 1,011 |

In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). Capitalized implemented costs are required to be expensed over the term of the hosting arrangement which includes the non-cancellable period of the arrangement plus periods covered by (1) an option to extend the arrangement if the customer is reasonably certain to exercise that option, (2) an option to terminate the arrangement if the customer is reasonably certain not to exercise the termination option, and (3) an option to extend (or not to terminate) the arrangement in which exercise of the option is in the control of the vendor. ASU 2018-15 also requires application of the impairment guidance applicable to long-lived assets to the capitalized implementation costs. Amortization expense related to capitalized implementation costs must be presented in the same line item in the statement of income as the fees associated with the hosting element (service) of the arrangement and payments for capitalized implementation costs will be classified in the statement of cash flows in the same manner as payments made for fees associated with the hosting element. Capitalized implementation costs will be presented in the statement of financial position in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019 with early adoption permitted. Adoption may be either fully retrospective or prospective only. FHN elected early adoption of ASU 2018-15 effective January 1, 2019 using the prospective transition method and the effects of adoption were not significant.
Accounting Changes Issued but Not Currently Effective
In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” which makes several revisions and clarifications to the accounting for these items. The revisions related to ASU 2016-03 (Topic 326) are discussed below. ASU 2019-04 clarifies several aspects of fair hedge accounting, including the application to partial term fair value hedges. ASU 2019-04 provides an election regarding the timing for amortization of basis adjustments to hedged items in fair value hedges, indicating that amortization may, but is not required to, commence prior to the end of the hedge relationship. ASU 2019-04 also provides additional guidance related to the application of the hypothetical derivative method and first-payments-received method in cash flow hedges. Further, ASU 2019-04 indicates that remeasurement of an equity security without a readily determinable fair value when an orderly transaction is identified for an identical or similar investment of the same issuer represents a non-recurring fair value measurement and the related disclosure requirements apply to the remeasurement event. The hedging updates are effective at the beginning of the first annual reporting period after issuance with early adoption permitted. The financial instruments measurement and disclosure changes are effective for fiscal years and interim periods beginning after December 15, 2019 with early adoption permitted. FHN will early adopt these portions of ASU 2019-04 in second quarter 2019 and the effects will not be significant based on its existing accounting practices.
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. Under CECL the full amount of expected credit losses will be recognized at the time of loan origination. 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
10

Note 1 – Financial Information (Continued)
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. For non-PCD assets, expected credit losses will be recognized through earnings upon acquisition and the entire premium of discount will be accreted to interest income over the remaining life of the loan.
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 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. FHN continues to evaluate the impact of ASU 2016-13, and is not currently able to reasonably estimate the impact the adoption will have on its consolidated financial position, results of operations, or cash flows. Adoption of ASU 2016-13 is likely to lead to significant changes in accounting policies and procedures related to FHN’s ALLL, and it is possible that the impact of the adoption could be material to FHN’s consolidated financial position and results of operations. To date, the Company has completed a gap analysis, established a formal governance structure for the project, selected loss estimation methodologies for material portfolio segments, selected a software solution to serve as its CECL platform, and is engaged in model development activities. FHN intends to perform parallel calculations and analysis in the latter half of 2019.
ASU 2019-04 provides an election to either not measure or measure separately an allowance for credit losses for accrued interest receivable (“AIR"). Entities electing to not measure an allowance for AIR must write off uncollectible interest in a timely manner. Additionally, an election is provided for the write off of uncollectible interest to be recorded either as a reversal of interest income or a charge against the allowance for credit losses or a combination of both. Disclosures are required depending upon which elections are made.
ASU 2019-04 also clarifies that when loans and securities are transferred between balance sheet categories (e.g., loans from held-for-investment to held-for-sale or securities from held-to-maturity to available-for-sale) the associated allowance for credit losses should be reversed to income and prospective accounting follows the requirements for the new classification. Further, ASU 2019-04 clarifies that recoveries should be incorporated within the estimation of the allowance for credit losses. Expected recoveries should not exceed the aggregate amount of prior write offs and expected future write offs. Additionally, for collateral dependent financial assets, the allowance for credit losses that is added to the amortized cost basis should not exceed amounts previously written off.
ASU 2019-04 also makes several changes when a discounted cash flow approach is used to measure expected credit losses. ASU 2019-04 removes ASU 2016-03’s prohibition of using projections of future interest rate environments when using a discounted cash flow method to measure expected credit losses on variable-rate financial instruments. If an entity uses projections or expectations of future interest rate environments in estimating expected cash flows, the same assumptions should be used in determining the effective interest rate used to discount those expected cash flows. The effective interest rate should also be adjusted to consider the effects of expected prepayments on the timing of expected future cash flows. ASU 2019-04 provides an election to adjust the effective interest rate used in discounting expected cash flows to isolate credit risk in
11

Note 1 – Financial Information (Continued)
measuring the allowance for credit losses. Further, the discount rate should not be adjusted for subsequent changes in expected prepayments if a financial asset is restructured in a troubled debt restructuring.
Related to collateral-dependent financial assets, ASU 2019-04 requires inclusion of estimated costs to sell in the measurement of expected credit losses in situations where the entity intends to sell rather than operate the collateral. Additionally, the estimated costs to sell should be undiscounted when the entity intends to sell rather than operate the collateral.
Finally, ASU 2019-04 specifies that contractual renewal or extension options, except those treated as derivatives, should be included in the determination of the contractual term for a financial asset when included in the original or modified contract as of the reporting date if they are not unconditionally cancellable by the entity.
The effective date and transition requirements for these components of ASU 2019-04 are consistent with the requirements for ASU 2016-13 and FHN is incorporating these changes and revisions within its implementation efforts. Based on its current practices for the timely write off uncollectible AIR, FHN intends to not measure an allowance for credit losses for AIR and to continue recognition of related write offs as a reversal of interest income.
12

Note 2 – Acquisitions and Divestitures
On November 30, 2017, FHN completed its acquisition of Capital Bank Financial Corporation ("CBF") and its subsidiaries, including Capital Bank Corporation for an aggregate of 92,042,232 shares of FHN common stock and $423.6 million in cash in a transaction valued at $2.2 billion. In second quarter 2018, FHN canceled 2,373,220 common shares which had been issued but set aside for certain shareholders of CBF who have commenced a dissenters' appraisal process resulting in a reduction in equity consideration and an increase in cash consideration of $46.0 million. The final appraisal or resolution amount, as applicable, may differ from current estimates. CBF operated 178 branches in North and South Carolina, Tennessee, Florida and Virginia at the time of closing. In relation to the acquisition, FHN acquired approximately $9.9 billion in assets, including approximately $7.3 billion in loans and $1.2 billion in AFS securities, and assumed approximately $8.1 billion of CBF deposits. FHN recorded goodwill of approximately $1.2 billion, representing the excess of acquisition consideration over the estimated fair value of net assets acquired.
On March 23, 2018, FHN divested two branches, including approximately $30 million of deposits and $2 million of loans. The branches, both in Greeneville, Tennessee, were divested in connection with First Horizon's agreement with the U.S. Department of Justice and commitments to the Board of Governors of the Federal Reserve System, which were entered into in connection with a customary review of FHN's merger with CBF.
In second quarter 2018, FHN sold approximately $120 million UPB of its subprime auto loans. These loans, originally acquired as part of the CBF acquisition, did not fit within FHN's risk profile. Based on the sales price, a measurement period adjustment to the acquisition-date fair value of the subprime auto loans was recorded in second quarter 2018. A measurement period adjustment was made in fourth quarter 2018 for other consumer loans acquired from CBF based on pricing information received from potential buyers.
See Note 2- Acquisitions and Divestitures in the Notes to Consolidated Financial Statements on Form 10-K for the year ended December 31, 2018, for additional information about the CBF acquisition and other acquisitions.
Expenses related to FHN's merger and integration activities are recorded in FHN's Corporate segment.
Total merger and integration expense recognized for the three months ended March 31, 2019 and 2018 are presented in the table below:

|  | Three Months Ended March 31
(Dollars in thousands) |  | 2019 |  | 2018
Professional fees (a) |  | $ | 1,867 |  |  | $ | 5,633 |
Employee compensation, incentives and benefits (b) |  | 1,517 |  |  | 5,237 |
Contract employment and outsourcing (c) |  | — |  |  | 1,399 |
Miscellaneous expense (d) |  | 1,187 |  |  | 2,064 |
All other expense (e) |  | 1,089 |  |  | 17,041 |
Total |  | $ | 5,660 |  |  | $ | 31,374 |

(a) Primarily comprised of fees for legal, accounting, and merger consultants.
(b) Primarily comprised of fees for severance and retention.
(c) Primarily relates to fees for temporary assistance for merger and integration activities.
(d) Consists of fees for communications and courier, operations services, equipment rentals, depreciation, and maintenance,
supplies, travel and entertainment, computer software, advertising and public relations, and occupancy.
(e) Primarily relates to contract termination charges, lease buyouts, costs of shareholder matters and asset impairments related to the integration, as well as other miscellaneous expenses.
In addition to the transactions mentioned above, FHN acquires or divests assets from time to time in transactions that are considered business combinations or divestitures but are not material to FHN individually or in the aggregate. In April 2019, FHN sold Superior Financial Services, Inc., a subsidiary acquired as part of the CBF acquisition. The sale will result in the removal of approximately $25 million UPB of subprime consumer loans from Loans held-for-sale on FHN's Consolidated Condensed Statements of Condition.
13

Note 3 – Investment Securities
The following tables summarize FHN’s investment securities on March 31, 2019 and December 31, 2018:

|  | March 31, 2019
(Dollars in thousands) |  | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value
Securities available-for-sale: |  |  |  |  |  |  |  |
U.S. treasuries |  | $ | 100 |  |  | $ | — |  |  | $ | (1 | ) |  | $ | 99 |
Government agency issued mortgage-backed securities (“MBS”) |  | 2,398,177 |  |  | 8,992 |  |  | (21,360 | ) |  | 2,385,809 |
Government agency issued collateralized mortgage obligations (“CMO”) |  | 1,958,529 |  |  | 2,020 |  |  | (28,765 | ) |  | 1,931,784 |
Other U.S. government agencies |  | 189,067 |  |  | 1,761 |  |  | — |  |  | 190,828 |
Corporates and other debt |  | 55,266 |  |  | 302 |  |  | (384 | ) |  | 55,184 |
States and municipalities |  | 38,028 |  |  | 1,395 |  |  | — |  |  | 39,423 |
|  | $ | 4,639,167 |  |  | $ | 14,470 |  |  | $ | (50,510 | ) |  | 4,603,127 |
AFS debt securities recorded at fair value through earnings: |  |  |  |  |  |  |  |
SBA-interest only strips (a) |  |  |  |  |  |  |  | 13,195 |
Total securities available-for-sale (b) |  |  |  |  |  |  |  | $ | 4,616,322 |
Securities held-to-maturity: |  |  |  |  |  |  |  |
Corporates and other debt |  | $ | 10,000 |  |  | $ | — |  |  | $ | (111 | ) |  | $ | 9,889 |
Total securities held-to-maturity |  | $ | 10,000 |  |  | $ | — |  |  | $ | (111 | ) |  | $ | 9,889 |

(a) | SBA-interest only strips are recorded at elected fair value. See Note 17 - Fair Value for additional information.

(b) | Includes $3.9 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes.

|  | December 31, 2018
(Dollars in thousands) |  | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value
Securities available-for-sale: |  |  |  |  |  |  |  |
U.S. treasuries |  | $ | 100 |  |  | $ | — |  |  | $ | (2 | ) |  | $ | 98 |
Government agency issued MBS |  | 2,473,687 |  |  | 4,819 |  |  | (58,400 | ) |  | 2,420,106 |
Government agency issued CMO |  | 2,006,488 |  |  | 888 |  |  | (48,681 | ) |  | 1,958,695 |
Other U.S. government agencies |  | 149,050 |  |  | 809 |  |  | (73 | ) |  | $ | 149,786 |
Corporates and other debt |  | 55,383 |  |  | 388 |  |  | (461 | ) |  | 55,310 |
State and municipalities |  | 32,473 |  |  | 314 |  |  | (214 | ) |  | 32,573 |
|  | $ | 4,717,181 |  |  | $ | 7,218 |  |  | $ | (107,831 | ) |  | 4,616,568 |
AFS securities recorded at fair value through earnings: |  |  |  |  |  |  |  |
SBA-interest only strips (a) |  |  |  |  |  |  |  | 9,902 |
Total securities available-for-sale (b) |  |  |  |  |  |  |  | $ | 4,626,470 |
Securities held-to-maturity: |  |  |  |  |  |  |  |
Corporates and other debt |  | $ | 10,000 |  |  | $ | — |  |  | $ | (157 | ) |  | $ | 9,843 |
Total securities held-to-maturity |  | $ | 10,000 |  |  | $ | — |  |  | $ | (157 | ) |  | $ | 9,843 |

(a) | SBA-interest only strips are recorded at elected fair value. See Note 17 - Fair Value of Assets and Liabilities for additional information.

(b) | Includes $3.8 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes.

14

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 debt securities portfolios on March 31, 2019 are provided below:

|  | Held-to-Maturity |  | Available-for-Sale
(Dollars in thousands) |  | Amortized Cost |  | Fair Value |  | Amortized Cost |  | Fair Value
Within 1 year |  | $ | — |  |  | $ | — |  |  | $ | 15,060 |  |  | $ | 14,998 |
After 1 year; within 5 years |  | — |  |  | — |  |  | 229,373 |  |  | 231,160 |
After 5 years; within 10 years |  | 10,000 |  |  | 9,889 |  |  | 755 |  |  | 3,825 |
After 10 years |  | — |  |  | — |  |  | 37,273 |  |  | 48,746 |
Subtotal |  | 10,000 |  |  | 9,889 |  |  | 282,461 |  |  | 298,729 |
Government agency issued MBS and CMO (a) |  | — |  |  | — |  |  | 4,356,706 |  |  | 4,317,593 |
Total |  | $ | 10,000 |  |  | $ | 9,889 |  |  | $ | 4,639,167 |  |  | $ | 4,616,322 |

(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 debt investment securities for the three months ended March 31, 2019 and 2018.

| Three Months Ended March 31
(Dollars in thousands) | 2019 |  | 2018
Gross gains on sales of securities | $ | — |  |  | $ | 52 |
Gross (losses) on sales of securities | — |  |  | — |
Net gain/(loss) on sales of securities (a) | $ | — |  |  | $ | 52 |

(a) | Cash proceeds for the three months ended March 31, 2018 were not material.

The following tables provide information on investments within the available-for-sale portfolio that had unrealized losses as of March 31, 2019 and December 31, 2018:

|  | As of March 31, 2019
|  | Less than 12 months |  | 12 months or longer |  | Total
(Dollars in thousands) |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses
U.S. treasuries |  | $ | — |  |  | $ | — |  |  | $ | 99 |  |  | $ | (1 | ) |  | $ | 99 |  |  | $ | (1 | )
Government agency issued MBS |  | 1,542 |  |  | (13 | ) |  | 1,948,718 |  |  | (21,347 | ) |  | 1,950,260 |  |  | (21,360 | )
Government agency issued CMO |  | 863 |  |  | — |  |  | 1,699,529 |  |  | (28,765 | ) |  | 1,700,392 |  |  | (28,765 | )
Corporates and other debt |  | — |  |  | — |  |  | 40,065 |  |  | (384 | ) |  | 40,065 |  |  | (384 | )
Total temporarily impaired securities |  | $ | 2,405 |  |  | $ | (13 | ) |  | $ | 3,688,411 |  |  | $ | (50,497 | ) |  | $ | 3,690,816 |  |  | $ | (50,510 | )

15

Table of Contents
Note 3 – Investment Securities (Continued)

|  | As of December 31, 2018
|  | Less than 12 months |  | 12 months or longer |  | Total
(Dollars in thousands) |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses
U.S. treasuries |  | $ | — |  |  | $ | — |  |  | $ | 98 |  |  | $ | (2 | ) |  | $ | 98 |  |  | $ | (2 | )
Government agency issued MBS |  | 597,008 |  |  | (12,335 | ) |  | 1,537,106 |  |  | (46,065 | ) |  | 2,134,114 |  |  | (58,400 | )
Government agency issued CMO |  | 290,863 |  |  | (2,860 | ) |  | 1,560,420 |  |  | (45,821 | ) |  | 1,851,283 |  |  | (48,681 | )
Other U.S. government agencies |  | 29,776 |  |  | (73 | ) |  | — |  |  | — |  |  | $ | 29,776 |  |  | $ | (73 | )
Corporates and other debt |  | 25,114 |  |  | (344 | ) |  | 15,008 |  |  | (117 | ) |  | 40,122 |  |  | (461 | )
States and municipalities |  | 17,292 |  |  | (214 | ) |  | — |  |  | — |  |  | 17,292 |  |  | (214 | )
Total temporarily impaired securities |  | $ | 960,053 |  |  | $ | (15,826 | ) |  | $ | 3,112,632 |  |  | $ | (92,005 | ) |  | $ | 4,072,685 |  |  | $ | (107,831 | )

FHN has reviewed debt 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.
The carrying amount of equity investments without a readily determinable fair value was $22.2 million and $21.3 million at March 31, 2019 and December 31, 2018, respectively. The year-to-date 2019 and 2018 gross amounts of upward and downward valuation adjustments were not significant.
Unrealized gains of $3.4 million and $.3 million were recognized in the three months ended March 31, 2019 and 2018, respectively, for equity investments with readily determinable fair values.
16

Note 4 – Loans
The following table provides the balance of loans, net of unearned income, by portfolio segment as of March 31, 2019 and December 31, 2018:

|  | March 31 |  | December 31
(Dollars in thousands) |  | 2019 |  | 2018
Commercial: |  |  |  |
Commercial, financial, and industrial |  | $ | 17,176,112 |  |  | $ | 16,514,328 |
Commercial real estate |  | 3,946,943 |  |  | 4,030,870 |
Consumer: |  |  |  |
Consumer real estate (a) |  | 6,151,503 |  |  | 6,249,516 |
Permanent mortgage |  | 209,260 |  |  | 222,448 |
Credit card & other |  | 506,230 |  |  | 518,370 |
Loans, net of unearned income |  | $ | 27,990,048 |  |  | $ | 27,535,532 |
Allowance for loan losses |  | 184,911 |  |  | 180,424 |
Total net loans |  | $ | 27,805,137 |  |  | $ | 27,355,108 |

(a) | Balances as of March 31, 2019 and December 31, 2018, include $15.0 million and $16.2 million of restricted real estate loans, respectively. See Note 14—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 (23 percent of total loans), the majority of which is in the consumer real estate segment (22 percent of total loans). Loans to finance and insurance companies total $2.6 billion (15 percent of the C&I portfolio, or 9 percent of the total loans). FHN had loans to mortgage companies totaling $2.3 billion (13 percent of the C&I segment, or 8 percent of total loans) as of March 31, 2019. As a result, 28 percent of the C&I segment is sensitive to impacts on the financial services industry.
17

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Note 4 – Loans (Continued)
Purchased Credit-Impaired Loans
The following table presents a rollforward of the accretable yield for the three months ended March 31, 2019 and 2018:

|  | Three Months Ended March 31
(Dollars in thousands) |  | 2019 |  | 2018
Balance, beginning of period |  | $ | 13,375 |  |  | $ | 15,623 |
Accretion |  | (1,673 | ) |  | (2,137 | )
Adjustment for payoffs |  | (462 | ) |  | (612 | )
Adjustment for charge-offs |  | (176 | ) |  | (551 | )
Increase/(decrease) in accretable yield (a) |  | 2,718 |  |  | 3,178 |
Other |  | — |  |  | (178 | )
Balance, end of period |  | $ | 13,782 |  |  | $ | 15,323 |

(a) | Includes changes in the accretable yield due to both transfers from the nonaccretable difference and the impact of changes in the expected timing and amounts of the cash flows.

At March 31, 2019, the ALLL related to PCI loans was $3.4 million compared to $4.0 million at December 31, 2018. A loan loss provision credit related to PCI loans of $.4 million was recognized during the three months ended March 31, 2019, compared to a loan loss provision expense of $.8 million during the three months ended March 31, 2018.
The following table reflects the outstanding principal balance and carrying amounts of the acquired PCI loans as of March 31, 2019 and December 31, 2018:

|  | March 31, 2019 |  | December 31, 2018
(Dollars in thousands) |  | Carrying value |  | Unpaid balance |  | Carrying value |  | Unpaid balance
Commercial, financial and industrial |  | $ | 34,619 |  |  | $ | 38,575 |  |  | $ | 38,873 |  |  | $ | 44,259 |
Commercial real estate |  | 8,402 |  |  | 9,301 |  |  | 15,197 |  |  | 17,232 |
Consumer real estate |  | 28,723 |  |  | 32,464 |  |  | 30,723 |  |  | 34,820 |
Credit card and other |  | 1,127 |  |  | 1,377 |  |  | 1,627 |  |  | 1,879 |
Total |  | $ | 72,871 |  |  | $ | 81,717 |  |  | $ | 86,420 |  |  | $ | 98,190 |

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Note 4 – Loans (Continued)
Impaired Loans
The following tables provide information at March 31, 2019 and December 31, 2018, 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, excluding any valuation allowance but including any direct write-down of the investment. For purposes of this disclosure, PCI loans and the TRUPS valuation allowance have been excluded.

|  | March 31, 2019 |  | December 31, 2018
(Dollars in thousands) |  | Recorded Investment |  | Unpaid Principal Balance |  | Related Allowance |  | Recorded Investment |  | Unpaid Principal Balance |  | Related Allowance
Impaired loans with no related allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |
General C&I |  | $ | 68,629 |  |  | $ | 71,101 |  |  | $ | — |  |  | $ | 42,902 |  |  | $ | 45,387 |  |  | $ | — |
Income CRE |  | 1,522 |  |  | 1,522 |  |  | — |  |  | 1,589 |  |  | 1,589 |  |  | — |
Total |  | $ | 70,151 |  |  | $ | 72,623 |  |  | $ | — |  |  | $ | 44,491 |  |  | $ | 46,976 |  |  | $ | — |
Consumer: |  |  |  |  |  |  |  |  |  |  |  |
HELOC (a) |  | $ | 6,548 |  |  | $ | 13,869 |  |  | $ | — |  |  | $ | 8,645 |  |  | $ | 16,648 |  |  | $ | — |
R/E installment loans (a) |  | 5,910 |  |  | 6,693 |  |  | — |  |  | 4,314 |  |  | 4,796 |  |  | — |
Permanent mortgage (a) |  | 3,449 |  |  | 5,851 |  |  | — |  |  | 3,601 |  |  | 6,003 |  |  | — |
Total |  | $ | 15,907 |  |  | $ | 26,413 |  |  | $ | — |  |  | $ | 16,560 |  |  | $ | 27,447 |  |  | $ | — |
Impaired loans with related allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |  |  |  |  |
General C&I |  | $ | 11,786 |  |  | $ | 11,786 |  |  | $ | 2,512 |  |  | $ | 2,802 |  |  | $ | 2,802 |  |  | $ | 149 |
TRUPS |  | 2,838 |  |  | 3,700 |  |  | 925 |  |  | 2,888 |  |  | 3,700 |  |  | 925 |
Income CRE |  | 357 |  |  | 357 |  |  | — |  |  | 377 |  |  | 377 |  |  | — |
Total |  | $ | 14,981 |  |  | $ | 15,843 |  |  | $ | 3,437 |  |  | $ | 6,067 |  |  | $ | 6,879 |  |  | $ | 1,074 |
Consumer: |  |  |  |  |  |  |  |  |  |  |  |
HELOC |  | $ | 63,546 |  |  | $ | 66,801 |  |  | $ | 8,378 |  |  | $ | 66,482 |  |  | $ | 69,610 |  |  | $ | 11,241 |
R/E installment loans |  | 43,949 |  |  | 44,898 |  |  | 6,464 |  |  | 38,993 |  |  | 39,851 |  |  | 6,743 |
Permanent mortgage |  | 65,930 |  |  | 76,289 |  |  | 9,081 |  |  | 67,245 |  |  | 78,010 |  |  | 9,419 |
Credit card & other |  | 684 |  |  | 684 |  |  | 446 |  |  | 695 |  |  | 695 |  |  | 337 |
Total |  | $ | 174,109 |  |  | $ | 188,672 |  |  | $ | 24,369 |  |  | $ | 173,415 |  |  | $ | 188,166 |  |  | $ | 27,740 |
Total commercial |  | $ | 85,132 |  |  | $ | 88,466 |  |  | $ | 3,437 |  |  | $ | 50,558 |  |  | $ | 53,855 |  |  | $ | 1,074 |
Total consumer |  | $ | 190,016 |  |  | $ | 215,085 |  |  | $ | 24,369 |  |  | $ | 189,975 |  |  | $ | 215,613 |  |  | $ | 27,740 |
Total impaired loans |  | $ | 275,148 |  |  | $ | 303,551 |  |  | $ | 27,806 |  |  | $ | 240,533 |  |  | $ | 269,468 |  |  | $ | 28,814 |

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

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Note 4 – Loans (Continued)

|  | Three Months Ended March 31
|  | 2019 |  | 2018
(Dollars in thousands) |  | Average Recorded Investment |  | Interest Income Recognized |  | Average Recorded Investment |  | Interest Income Recognized
Impaired loans with no related allowance recorded: |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |
General C&I |  | $ | 55,765 |  |  | $ | 180 |  |  | $ | 15,954 |  |  | $ | 175 |
Income CRE |  | 1,556 |  |  | 13 |  |  | 791 |  |  | 12 |
Residential CRE |  | — |  |  | — |  |  | 248 |  |  | — |
Total |  | $ | 57,321 |  |  | $ | 193 |  |  | $ | 16,993 |  |  | $ | 187 |
Consumer: |  |  |  |  |  |  |  |
HELOC (a) |  | $ | 7,597 |  |  | $ | — |  |  | $ | 9,257 |  |  | $ | — |
R/E installment loans (a) |  | 5,112 |  |  | — |  |  | 3,914 |  |  | — |
Permanent mortgage (a) |  | 3,525 |  |  | — |  |  | 5,217 |  |  | — |
Total |  | $ | 16,234 |  |  | $ | — |  |  | $ | 18,388 |  |  | $ | — |
Impaired loans with related allowance recorded: |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |
General C&I |  | $ | 7,294 |  |  | $ | — |  |  | $ | 22,891 |  |  | $ | — |
TRUPS |  | 2,863 |  |  | — |  |  | 3,047 |  |  | — |
Income CRE |  | 367 |  |  | 4 |  |  | 806 |  |  | — |
Residential CRE |  | — |  |  | — |  |  | 398 |  |  | — |
Total |  | $ | 10,524 |  |  | $ | 4 |  |  | $ | 27,142 |  |  | $ | — |
Consumer: |  |  |  |  |  |  |  |
HELOC |  | $ | 65,013 |  |  | $ | 522 |  |  | $ | 71,654 |  |  | $ | 577 |
R/E installment loans |  | 41,471 |  |  | 270 |  |  | 42,110 |  |  | 267 |
Permanent mortgage |  | 66,588 |  |  | 552 |  |  | 77,725 |  |  | 578 |
Credit card & other |  | 690 |  |  | 5 |  |  | 648 |  |  | 3 |
Total |  | $ | 173,762 |  |  | $ | 1,349 |  |  | $ | 192,137 |  |  | $ | 1,425 |
Total commercial |  | $ | 67,845 |  |  | $ | 197 |  |  | $ | 44,135 |  |  | $ | 187 |
Total consumer |  | $ | 189,996 |  |  | $ | 1,349 |  |  | $ | 210,525 |  |  | $ | 1,425 |
Total impaired loans |  | $ | 257,841 |  |  | $ | 1,546 |  |  | $ | 254,660 |  |  | $ | 1,612 |

(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. This credit grading system is intended to identify and measure the credit quality of the loan portfolio by analyzing the migration of loans between grading categories. It is also integral to the estimation methodology utilized in determining the allowance for loan losses since an allowance is established for pools of commercial loans based on the credit grade assigned. 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. Loan grading discipline is regularly reviewed internally by Credit Assurance Services to determine if the process continues to result in accurate loan grading across the portfolio. FHN may utilize availability of guarantors/sponsors to support lending decisions during the credit underwriting process and when determining the assignment of internal loan grades. 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 March 31, 2019 and December 31, 2018:

|  | March 31, 2019
(Dollars in thousands) |  | General C&I |  | Loans to Mortgage Companies |  | TRUPS (a) |  | Income CRE |  | Residential CRE |  | Total |  | Percentage of Total |  | Allowance for Loan Losses
PD Grade: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1 |  | $ | 635,273 |  |  | $ | — |  |  | $ | — |  |  | $ | 11,997 |  |  | $ | — |  |  | $ | 647,270 |  |  | 3 | % |  | $ | 100 |
2 |  | 849,658 |  |  | — |  |  | — |  |  | 2,144 |  |  | 26 |  |  | 851,828 |  |  | 4 |  |  | 267 |
3 |  | 720,323 |  |  | 689,936 |  |  | 3,314 |  |  | 291,517 |  |  | 179 |  |  | 1,705,269 |  |  | 8 |  |  | 338 |
4 |  | 1,201,020 |  |  | 478,359 |  |  | 32,498 |  |  | 513,082 |  |  | 112 |  |  | 2,225,071 |  |  | 11 |  |  | 806 |
5 |  | 1,904,650 |  |  | 347,923 |  |  | 96,052 |  |  | 855,280 |  |  | 20,311 |  |  | 3,224,216 |  |  | 15 |  |  | 10,033 |
6 |  | 1,992,100 |  |  | 400,889 |  |  | 33,815 |  |  | 636,472 |  |  | 44,286 |  |  | 3,107,562 |  |  | 15 |  |  | 9,700 |
7 |  | 2,794,923 |  |  | 94,626 |  |  | 11,446 |  |  | 544,211 |  |  | 30,322 |  |  | 3,475,528 |  |  | 17 |  |  | 18,677 |
8 |  | 1,344,591 |  |  | 172,050 |  |  | — |  |  | 280,323 |  |  | 24,944 |  |  | 1,821,908 |  |  | 9 |  |  | 20,047 |
9 |  | 1,460,633 |  |  | 104,832 |  |  | 45,117 |  |  | 377,027 |  |  | 17,672 |  |  | 2,005,281 |  |  | 9 |  |  | 16,042 |
10 |  | 492,043 |  |  | 12,579 |  |  | 18,536 |  |  | 73,040 |  |  | 3,924 |  |  | 600,122 |  |  | 3 |  |  | 8,739 |
11 |  | 395,393 |  |  | — |  |  | — |  |  | 63,318 |  |  | 2,112 |  |  | 460,823 |  |  | 2 |  |  | 10,353 |
12 |  | 289,203 |  |  | 146 |  |  | — |  |  | 48,454 |  |  | 5,586 |  |  | 343,389 |  |  | 2 |  |  | 6,172 |
13 |  | 223,362 |  |  | — |  |  | 5,786 |  |  | 51,615 |  |  | 238 |  |  | 281,001 |  |  | 1 |  |  | 9,652 |
14,15,16 |  | 204,958 |  |  | — |  |  | — |  |  | 37,703 |  |  | 832 |  |  | 243,493 |  |  | 1 |  |  | 21,591 |
Collectively evaluated for impairment |  | 14,508,130 |  |  | 2,301,340 |  |  | 246,564 |  |  | 3,786,183 |  |  | 150,544 |  |  | 20,992,761 |  |  | 100 |  |  | 132,517 |
Individually evaluated for impairment |  | 80,415 |  |  | — |  |  | 2,838 |  |  | 1,879 |  |  | — |  |  | 85,132 |  |  | — |  |  | 3,437 |
Purchased credit-impaired loans |  | 36,825 |  |  | — |  |  | — |  |  | 6,043 |  |  | 2,294 |  |  | 45,162 |  |  | — |  |  | 2,141 |
Total commercial loans |  | $ | 14,625,370 |  |  | $ | 2,301,340 |  |  | $ | 249,402 |  |  | $ | 3,794,105 |  |  | $ | 152,838 |  |  | $ | 21,123,055 |  |  | 100 | % |  | $ | 138,095 |

21

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Note 4 – Loans (Continued)

|  | December 31, 2018
(Dollars in thousands) |  | General C&I |  | Loans to Mortgage Companies |  | TRUPS (a) |  | Income CRE |  | Residential CRE |  | Total |  | Percentage of Total |  | Allowance for Loan Losses
PD Grade: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1 |  | $ | 610,177 |  |  | $ | — |  |  | $ | — |  |  | $ | 12,586 |  |  | $ | — |  |  | $ | 622,763 |  |  | 3 | % |  | $ | 100 |
2 |  | 835,776 |  |  | — |  |  | — |  |  | 1,688 |  |  | 29 |  |  | 837,493 |  |  | 4 |  |  | 274 |
3 |  | 782,362 |  |  | 716,971 |  |  | — |  |  | 289,594 |  |  | 147 |  |  | 1,789,074 |  |  | 9 |  |  | 315 |
4 |  | 1,223,092 |  |  | 394,862 |  |  | 43,220 |  |  | 563,243 |  |  | — |  |  | 2,224,417 |  |  | 11 |  |  | 686 |
5 |  | 1,920,034 |  |  | 277,814 |  |  | 77,751 |  |  | 798,509 |  |  | 14,150 |  |  | 3,088,258 |  |  | 15 |  |  | 8,919 |
6 |  | 1,722,136 |  |  | 365,341 |  |  | 45,609 |  |  | 657,628 |  |  | 33,759 |  |  | 2,824,473 |  |  | 14 |  |  | 8,141 |
7 |  | 2,690,784 |  |  | 96,603 |  |  | 11,446 |  |  | 538,909 |  |  | 26,135 |  |  | 3,363,877 |  |  | 16 |  |  | 16,906 |
8 |  | 1,337,113 |  |  | 53,224 |  |  | — |  |  | 265,901 |  |  | 20,320 |  |  | 1,676,558 |  |  | 8 |  |  | 18,545 |
9 |  | 1,472,852 |  |  | 96,292 |  |  | 45,117 |  |  | 455,184 |  |  | 29,849 |  |  | 2,099,294 |  |  | 10 |  |  | 15,454 |
10 |  | 490,795 |  |  | 13,260 |  |  | 18,536 |  |  | 60,803 |  |  | 3,911 |  |  | 587,305 |  |  | 3 |  |  | 8,675 |
11 |  | 311,967 |  |  | — |  |  | — |  |  | 66,986 |  |  | 788 |  |  | 379,741 |  |  | 2 |  |  | 7,973 |
12 |  | 244,867 |  |  | 9,379 |  |  | — |  |  | 82,574 |  |  | 5,717 |  |  | 342,537 |  |  | 2 |  |  | 6,972 |
13 |  | 285,987 |  |  | — |  |  | 5,786 |  |  | 55,408 |  |  | 251 |  |  | 347,432 |  |  | 2 |  |  | 10,094 |
14,15,16 |  | 224,853 |  |  | — |  |  | — |  |  | 28,835 |  |  | 837 |  |  | 254,525 |  |  | 1 |  |  | 23,307 |
Collectively evaluated for impairment |  | 14,152,795 |  |  | 2,023,746 |  |  | 247,465 |  |  | 3,877,848 |  |  | 135,893 |  |  | 20,437,747 |  |  | 100 |  |  | 126,361 |
Individually evaluated for impairment |  | 45,704 |  |  | — |  |  | 2,888 |  |  | 1,966 |  |  | — |  |  | 50,558 |  |  | — |  |  | 1,074 |
Purchased credit-impaired loans |  | 41,730 |  |  | — |  |  | — |  |  | 12,730 |  |  | 2,433 |  |  | 56,893 |  |  | — |  |  | 2,823 |
Total commercial loans |  | $ | 14,240,229 |  |  | $ | 2,023,746 |  |  | $ | 250,353 |  |  | $ | 3,892,544 |  |  | $ | 138,326 |  |  | $ | 20,545,198 |  |  | 100 | % |  | $ | 130,258 |

(a) | Balances as of March 31, 2019 and December 31, 2018, presented net of a $20.2 million valuation allowance.

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 March 31, 2019 and December 31, 2018:

|  | March 31, 2019 |  | December 31, 2018
|  | HELOC |  | R/E Installment Loans |  | Permanent Mortgage |  | HELOC |  | R/E Installment Loans |  | Permanent Mortgage
FICO score 740 or greater |  | 61.0 | % |  |  | 72.2 | % |  |  | 52.0 | % |  |  | 61.4 | % |  |  | 71.3 | % |  |  | 51.8 | % |
FICO score 720-739 |  | 8.8 |  |  |  | 8.3 |  |  |  | 8.3 |  |  |  | 8.5 |  |  |  | 8.8 |  |  |  | 7.6 |  |
FICO score 700-719 |  | 7.8 |  |  |  | 6.9 |  |  |  | 9.9 |  |  |  | 7.6 |  |  |  | 7.0 |  |  |  | 10.6 |  |
FICO score 660-699 |  | 10.9 |  |  |  | 7.2 |  |  |  | 14.8 |  |  |  | 10.9 |  |  |  | 7.6 |  |  |  | 14.7 |  |
FICO score 620-659 |  | 5.0 |  |  |  | 2.7 |  |  |  | 7.0 |  |  |  | 5.1 |  |  |  | 2.8 |  |  |  | 6.5 |  |
FICO score less than 620 (a) |  | 6.5 |  |  |  | 2.7 |  |  |  | 8.0 |  |  |  | 6.5 |  |  |  | 2.5 |  |  |  | 8.8 |  |
Total |  | 100.0 | % |  |  | 100.0 | % |  |  | 100.0 | % |  |  | 100.0 | % |  |  | 100.0 | % |  |  | 100.0 | % |

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

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Note 4 – Loans (Continued)
Nonaccrual and Past Due Loans
The following table reflects accruing and non-accruing loans by class on March 31, 2019:

|  | Accruing |  | Non-Accruing |  |
(Dollars in thousands) |  | Current |  | 30-89 Days Past Due |  | 90+ Days Past Due |  | Total Accruing |  | Current |  | 30-89 Days Past Due |  | 90+ Days Past Due |  | Total Non- Accruing |  | Total Loans
Commercial (C&I): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
General C&I |  | $ | 14,508,455 |  |  | $ | 7,741 |  |  | $ | 191 |  |  | $ | 14,516,387 |  |  | $ | 61,711 |  |  | $ | 147 |  |  | $ | 10,300 |  |  | $ | 72,158 |  |  | $ | 14,588,545 |
Loans to mortgage companies |  | 2,301,340 |  |  | — |  |  | — |  |  | 2,301,340 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 2,301,340 |
TRUPS (a) |  | 246,564 |  |  | — |  |  | — |  |  | 246,564 |  |  | — |  |  | — |  |  | 2,838 |  |  | 2,838 |  |  | 249,402 |
Purchased credit-impaired loans |  | 33,056 |  |  | 2,210 |  |  | 1,559 |  |  | 36,825 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 36,825 |
Total commercial (C&I) |  | 17,089,415 |  |  | 9,951 |  |  | 1,750 |  |  | 17,101,116 |  |  | 61,711 |  |  | 147 |  |  | 13,138 |  |  | 74,996 |  |  | 17,176,112 |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Income CRE |  | 3,785,127 |  |  | 292 |  |  | — |  |  | 3,785,419 |  |  | — |  |  | 45 |  |  | 2,598 |  |  | 2,643 |  |  | 3,788,062 |
Residential CRE |  | 150,300 |  |  | 238 |  |  | — |  |  | 150,538 |  |  | — |  |  | 6 |  |  | — |  |  | 6 |  |  | 150,544 |
Purchased credit-impaired loans |  | 7,448 |  |  | 818 |  |  | 71 |  |  | 8,337 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 8,337 |
Total commercial real estate |  | 3,942,875 |  |  | 1,348 |  |  | 71 |  |  | 3,944,294 |  |  | — |  |  | 51 |  |  | 2,598 |  |  | 2,649 |  |  | 3,946,943 |
Consumer real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
HELOC |  | 1,380,487 |  |  | 9,735 |  |  | 7,321 |  |  | 1,397,543 |  |  | 48,772 |  |  | 4,223 |  |  | 8,370 |  |  | 61,365 |  |  | 1,458,908 |
R/E installment loans |  | 4,623,499 |  |  | 10,037 |  |  | 7,982 |  |  | 4,641,518 |  |  | 15,151 |  |  | 2,685 |  |  | 3,395 |  |  | 21,231 |  |  | 4,662,749 |
Purchased credit-impaired loans |  | 24,480 |  |  | 1,628 |  |  | 3,738 |  |  | 29,846 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 29,846 |
Total consumer real estate |  | 6,028,466 |  |  | 21,400 |  |  | 19,041 |  |  | 6,068,907 |  |  | 63,923 |  |  | 6,908 |  |  | 11,765 |  |  | 82,596 |  |  | 6,151,503 |
Permanent mortgage |  | 184,237 |  |  | 1,494 |  |  | 2,579 |  |  | 188,310 |  |  | 11,874 |  |  | 95 |  |  | 8,981 |  |  | 20,950 |  |  | 209,260 |
Credit card & other: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Credit card |  | 193,754 |  |  | 992 |  |  | 969 |  |  | 195,715 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 195,715 |
Other |  | 305,267 |  |  | 3,067 |  |  | 473 |  |  | 308,807 |  |  | 155 |  |  | 67 |  |  | 211 |  |  | 433 |  |  | 309,240 |
Purchased credit-impaired loans |  | 717 |  |  | 325 |  |  | 233 |  |  | 1,275 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,275 |
Total credit card & other |  | 499,738 |  |  | 4,384 |  |  | 1,675 |  |  | 505,797 |  |  | 155 |  |  | 67 |  |  | 211 |  |  | 433 |  |  | 506,230 |
Total loans, net of unearned income |  | $ | 27,744,731 |  |  | $ | 38,577 |  |  | $ | 25,116 |  |  | $ | 27,808,424 |  |  | $ | 137,663 |  |  | $ | 7,268 |  |  | $ | 36,693 |  |  | $ | 181,624 |  |  | $ | 27,990,048 |

(a) TRUPS is presented net of the valuation allowance of $20.2 million.
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Note 4 – Loans (Continued)
The following table reflects accruing and non-accruing loans by class on December 31, 2018:

|  | Accruing |  | Non-Accruing |  |
(Dollars in thousands) |  | Current |  | 30-89 Days Past Due |  | 90+ Days Past Due |  | Total Accruing |  | Current |  | 30-89 Days Past Due |  | 90+ Days Past Due |  | Total Non- Accruing |  | Total Loans
Commercial (C&I): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
General C&I |  | $ | 14,153,275 |  |  | $ | 8,234 |  |  | $ | 102 |  |  | $ | 14,161,611 |  |  | $ | 26,325 |  |  | $ | 5,537 |  |  | $ | 5,026 |  |  | $ | 36,888 |  |  | $ | 14,198,499 |
Loans to mortgage companies |  | 2,023,746 |  |  | — |  |  | — |  |  | 2,023,746 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 2,023,746 |
TRUPS (a) |  | 247,465 |  |  | — |  |  | — |  |  | 247,465 |  |  | — |  |  | — |  |  | 2,888 |  |  | 2,888 |  |  | 250,353 |
Purchased credit-impaired loans |  | 39,433 |  |  | 624 |  |  | 1,673 |  |  | 41,730 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 41,730 |
Total commercial (C&I) |  | 16,463,919 |  |  | 8,858 |  |  | 1,775 |  |  | 16,474,552 |  |  | 26,325 |  |  | 5,537 |  |  | 7,914 |  |  | 39,776 |  |  | 16,514,328 |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Income CRE |  | 3,876,229 |  |  | 626 |  |  | — |  |  | 3,876,855 |  |  | 30 |  |  | — |  |  | 2,929 |  |  | 2,959 |  |  | 3,879,814 |
Residential CRE |  | 135,861 |  |  | — |  |  | — |  |  | 135,861 |  |  | 32 |  |  | — |  |  | — |  |  | 32 |  |  | 135,893 |
Purchased credit-impaired loans |  | 13,308 |  |  | 103 |  |  | 1,752 |  |  | 15,163 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 15,163 |
Total commercial real estate |  | 4,025,398 |  |  | 729 |  |  | 1,752 |  |  | 4,027,879 |  |  | 62 |  |  | — |  |  | 2,929 |  |  | 2,991 |  |  | 4,030,870 |
Consumer real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
HELOC |  | 1,443,651 |  |  | 11,653 |  |  | 10,129 |  |  | 1,465,433 |  |  | 49,009 |  |  | 3,314 |  |  | 8,781 |  |  | 61,104 |  |  | 1,526,537 |
R/E installment loans |  | 4,652,658 |  |  | 10,470 |  |  | 6,497 |  |  | 4,669,625 |  |  | 15,146 |  |  | 1,924 |  |  | 4,474 |  |  | 21,544 |  |  | 4,691,169 |
Purchased credit-impaired loans |  | 24,096 |  |  | 2,094 |  |  | 5,620 |  |  | 31,810 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 31,810 |
Total consumer real estate |  | 6,120,405 |  |  | 24,217 |  |  | 22,246 |  |  | 6,166,868 |  |  | 64,155 |  |  | 5,238 |  |  | 13,255 |  |  | 82,648 |  |  | 6,249,516 |
Permanent mortgage |  | 193,591 |  |  | 2,585 |  |  | 4,562 |  |  | 200,738 |  |  | 11,227 |  |  | 996 |  |  | 9,487 |  |  | 21,710 |  |  | 222,448 |
Credit card & other: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Credit card |  | 188,009 |  |  | 2,133 |  |  | 1,203 |  |  | 191,345 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 191,345 |
Other |  | 320,551 |  |  | 3,570 |  |  | 526 |  |  | 324,647 |  |  | 110 |  |  | 60 |  |  | 454 |  |  | 624 |  |  | 325,271 |
Purchased credit-impaired loans |  | 746 |  |  | 611 |  |  | 397 |  |  | 1,754 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,754 |
Total credit card & other |  | 509,306 |  |  | 6,314 |  |  | 2,126 |  |  | 517,746 |  |  | 110 |  |  | 60 |  |  | 454 |  |  | 624 |  |  | 518,370 |
Total loans, net of unearned income |  | $ | 27,312,619 |  |  | $ | 42,703 |  |  | $ | 32,461 |  |  | $ | 27,387,783 |  |  | $ | 101,879 |  |  | $ | 11,831 |  |  | $ | 34,039 |  |  | $ | 147,749 |  |  | $ | 27,535,532 |

Certain previously reported amounts have been reclassified to agree with current presentation.
(a) TRUPS is presented net of the valuation allowance of $20.2 million.
24

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Note 4 – Loans (Continued)
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 the former 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-to-income 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-to-income 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 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 March 31, 2019 and December 31, 2018, FHN had $241.6 million and $228.2 million of portfolio loans classified as TDRs, respectively. For TDRs in the loan portfolio, FHN had loan loss reserves of $24.4 million, or 10 percent as of March 31, 2019, and $27.7 million, or 12 percent as of December 31, 2018. Additionally, $55.4 million and $57.8 million of loans held-for-sale as of March 31, 2019 and December 31, 2018, respectively, were classified as TDRs.
25

Table of Contents
Note 4 – Loans (Continued)
The following tables reflect portfolio loans that were classified as TDRs during the three months ended March 31, 2019 and 2018:

|  | March 31, 2019 |  | March 31, 2018
(Dollars in thousands) |  | Number |  | Pre-Modification Outstanding Recorded Investment |  | Post-Modification Outstanding Recorded Investment |  | Number |  | Pre-Modification Outstanding Recorded Investment |  | Post-Modification Outstanding Recorded Investment
Commercial (C&I): |  |  |  |  |  |  |  |  |  |  |  |
General C&I |  | 2 |  |  | $ | 13,895 |  |  | $ | 13,820 |  |  | 5 |  |  | $ | 1,504 |  |  | $ | 1,214 |
Total commercial (C&I) |  | 2 |  |  | 13,895 |  |  | 13,820 |  |  | 5 |  |  | 1,504 |  |  | 1,214 |
Consumer real estate: |  |  |  |  |  |  |  |  |  |  |  |
HELOC |  | 19 |  |  | 2,104 |  |  | 2,084 |  |  | 30 |  |  | 2,760 |  |  | 2,733 |
R/E installment loans |  | 44 |  |  | 5,977 |  |  | 5,934 |  |  | 5 |  |  | 611 |  |  | 612 |
Total consumer real estate |  | 63 |  |  | 8,081 |  |  | 8,018 |  |  | 35 |  |  | 3,371 |  |  | 3,345 |
Permanent mortgage |  | 3 |  |  | 1,448 |  |  | 1,479 |  |  | 1 |  |  | 275 |  |  | 273 |
Credit card & other |  | 15 |  |  | 74 |  |  | 71 |  |  | 41 |  |  | 210 |  |  | 197 |
Total troubled debt restructurings |  | 83 |  |  | $ | 23,498 |  |  | $ | 23,388 |  |  | 82 |  |  | $ | 5,360 |  |  | $ | 5,029 |

The following tables present TDRs which re-defaulted during the three months ended March 31, 2019 and 2018, 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.

|  | March 31, 2019 |  | March 31, 2018
(Dollars in thousands) |  | Number |  | Recorded Investment |  | Number |  | Recorded Investment
Consumer real estate: |  |  |  |  |  |  |  |
HELOC |  | 1 |  |  | 33 |  |  | 2 |  |  | 69 |
Total consumer real estate |  | 1 |  |  | 33 |  |  | 2 |  |  | 69 |
Permanent mortgage |  | — |  |  | — |  |  | 1 |  |  | 112 |
Credit card & other |  | 8 |  |  | 18 |  |  | 14 |  |  | 81 |
Total troubled debt restructurings |  | 9 |  |  | $ | 51 |  |  | 17 |  |  | $ | 262 |

26

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 current economic conditions and trends, 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 FHN’s Form 10-K for the year ended December 31, 2018, 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 months ended March 31, 2019 and 2018:

(Dollars in thousands) |  | C&I |  | Commercial Real Estate |  | Consumer Real Estate |  | Permanent Mortgage |  | Credit Card and Other |  | Total
Balance as of January 1, 2019 |  | $ | 98,947 |  |  | $ | 31,311 |  |  | $ | 26,439 |  |  | $ | 11,000 |  |  | $ | 12,727 |  |  | $ | 180,424 |
Charge-offs |  | (3,101 | ) |  | (434 | ) |  | (2,800 | ) |  | (4 | ) |  | (4,188 | ) |  | (10,527 | )
Recoveries |  | 829 |  |  | 57 |  |  | 3,453 |  |  | 588 |  |  | 1,087 |  |  | 6,014 |
Provision/(provision credit) for loan losses |  | 7,038 |  |  | 3,448 |  |  | (3,019 | ) |  | (1,503 | ) |  | 3,036 |  |  | 9,000 |
Balance as of March 31, 2019 |  | 103,713 |  |  | 34,382 |  |  | 24,073 |  |  | 10,081 |  |  | 12,662 |  |  | 184,911 |
Allowance - individually evaluated for impairment |  | 3,437 |  |  | — |  |  | 14,842 |  |  | 9,081 |  |  | 446 |  |  | 27,806 |
Allowance - collectively evaluated for impairment |  | 98,135 |  |  | 34,382 |  |  | 8,108 |  |  | 1,000 |  |  | 12,067 |  |  | 153,692 |
Allowance - purchased credit-impaired loans |  | 2,141 |  |  | — |  |  | 1,123 |  |  | — |  |  | 149 |  |  | 3,413 |
Loans, net of unearned as of March 31, 2019: |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | 83,253 |  |  | 1,879 |  |  | 119,953 |  |  | 69,379 |  |  | 684 |  |  | 275,148 |
Collectively evaluated for impairment |  | 17,056,034 |  |  | 3,936,727 |  |  | 6,001,704 |  |  | 139,881 |  |  | 504,271 |  |  | 27,638,617 |
Purchased credit-impaired loans |  | 36,825 |  |  | 8,337 |  |  | 29,846 |  |  | — |  |  | 1,275 |  |  | 76,283 |
Total loans, net of unearned income |  | $ | 17,176,112 |  |  | $ | 3,946,943 |  |  | $ | 6,151,503 |  |  | $ | 209,260 |  |  | $ | 506,230 |  |  | $ | 27,990,048 |
Balance as of January 1, 2018 |  | $ | 98,211 |  |  | $ | 28,427 |  |  | $ | 39,823 |  |  | $ | 13,113 |  |  | $ | 9,981 |  |  | $ | 189,555 |
Charge-offs |  | (2,075 | ) |  | (44 | ) |  | (1,911 | ) |  | (160 | ) |  | (4,293 | ) |  | (8,483 | )
Recoveries |  | 1,519 |  |  | 6 |  |  | 4,383 |  |  | 65 |  |  | 1,149 |  |  | 7,122 |
Provision/(provision credit) for loan losses |  | 2,583 |  |  | 668 |  |  | (7,094 | ) |  | (34 | ) |  | 2,877 |  |  | (1,000 | )
Balance as of March 31, 2018 |  | 100,238 |  |  | 29,057 |  |  | 35,201 |  |  | 12,984 |  |  | 9,714 |  |  | 187,194 |
Allowance - individually evaluated for impairment |  | 4,555 |  |  | — |  |  | 23,049 |  |  | 11,311 |  |  | 359 |  |  | 39,274 |
Allowance - collectively evaluated for impairment |  | 93,603 |  |  | 28,869 |  |  | 11,877 |  |  | 1,673 |  |  | 9,343 |  |  | 145,365 |
Allowance - purchased credit-impaired loans |  | 2,080 |  |  | 188 |  |  | 275 |  |  | — |  |  | 12 |  |  | 2,555 |
Loans, net of unearned as of March 31, 2018: |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | 40,758 |  |  | 2,077 |  |  | 124,975 |  |  | 81,090 |  |  | 702 |  |  | 249,602 |
Collectively evaluated for impairment |  | 15,705,895 |  |  | 4,201,220 |  |  | 6,194,449 |  |  | 189,631 |  |  | 556,189 |  |  | 26,847,384 |
Purchased credit-impaired loans |  | 81,655 |  |  | 31,138 |  |  | 36,095 |  |  | — |  |  | 3,919 |  |  | 152,807 |
Total loans, net of unearned income |  | $ | 15,828,308 |  |  | $ | 4,234,435 |  |  | $ | 6,355,519 |  |  | $ | 270,721 |  |  | $ | 560,810 |  |  | $ | 27,249,793 |

Certain previously reported amounts have been reclassified to agree with current presentation.
28

Note 6 – Intangible Assets
The following is a summary of other intangible assets included in the Consolidated Condensed Statements of Condition:

|  | March 31, 2019 |  | December 31, 2018
(Dollars in thousands) |  | Gross Carrying Amount |  | Accumulated Amortization |  | Net Carrying Value |  | Gross Carrying Amount |  | Accumulated Amortization |  | Net Carrying Value
Core deposit intangibles |  | $ | 157,150 |  |  | $ | (32,955 | ) |  | $ | 124,195 |  |  | $ | 157,150 |  |  | $ | (28,150 | ) |  | $ | 129,000 |
Customer relationships |  | 77,865 |  |  | (56,744 | ) |  | 21,121 |  |  | 77,865 |  |  | (55,597 | ) |  | 22,268 |
Other (a) |  | 5,622 |  |  | (2,120 | ) |  | 3,502 |  |  | 5,622 |  |  | (1,856 | ) |  | 3,766 |
Total |  | $ | 240,637 |  |  | $ | (91,819 | ) |  | $ | 148,818 |  |  | $ | 240,637 |  |  | $ | (85,603 | ) |  | $ | 155,034 |

(a) | Balance primarily includes noncompete covenants, as well as $.3 million related to state banking licenses not subject to amortization.

Amortization expense was $6.2 million and $6.5 million for the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019 the estimated aggregated amortization expense is expected to be:

(Dollars in thousands) |  |
Year |  | Amortization
Remainder of 2019 |  | $ | 18,625 |
2020 |  | 21,159 |
2021 |  | 19,547 |
2022 |  | 17,412 |
2023 |  | 16,117 |
2024 |  | 14,679 |

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 March 31, 2019 and December 31, 2018. The regional banking 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 March 31, 2019 and December 31, 2018.

(Dollars in thousands) |  | Regional Banking |  | Fixed Income |  | Total
December 31, 2017 |  | $ | 1,243,885 |  |  | $ | 142,968 |  |  | $ | 1,386,853 |
Additions (a) |  | 11,648 |  |  | — |  |  | 11,648 |
March 31, 2018 |  | $ | 1,255,533 |  |  | $ | 142,968 |  |  | $ | 1,398,501 |
December 31, 2018 |  | $ | 1,289,819 |  |  | $ | 142,968 |  |  | $ | 1,432,787 |
Additions |  | — |  |  | — |  |  | — |
March 31, 2019 |  | $ | 1,289,819 |  |  | $ | 142,968 |  |  | $ | 1,432,787 |

(a) See Note 2 - Acquisitions and Divestitures for further details regarding goodwill related to acquisitions.
29

Note 7 – Leases
FHN has operating, financing, and short-term leases for branch locations, corporate offices and certain equipment. Substantially all of these leases are classified as operating leases.
The following table provides a detail of the classification of FHN's right-of-use ("ROU") assets and lease liabilities included in the Consolidated Condensed Statement of Conditions.

(Dollars in thousands) |  | March 31, 2019
Lease Right-of-Use Assets: | Classification |
Operating lease right-of use assets | Other assets | $ | 179,028 |
Finance lease right-of use assets | Other assets | 682 |
Total Lease Right-of Use Assets |  | $ | 179,710 |
Lease Liabilities: |  |
Operating lease liabilities | Other liabilities | $ | 198,091 |
Finance lease liabilities | Other liabilities | 1,344 |
Total Lease Liabilities |  | $ | 199,435 |

The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The following table details the weighted average remaining lease term and discount rate for FHN's operating and finance leases as of March 31, 2019.

Weighted Average Remaining Lease Terms |
Operating leases | 12.38 years |
Finance leases | 7.17 years |
Weighted Average Discount Rate |
Operating leases | 3.48 | %
Finance leases | 9.96 | %

30

Note 7 – Leases (Continued)
The following table provides a detail of the components of lease expense and other lease information for the three months ended March 31, 2019:

(Dollars in thousands) | Three Months Ended March 31, 2019
Lease cost |
Operating lease cost | $ | 6,183 |
Finance lease cost: |
Amortization of right-of-use assets | 24 |
Interest on lease liabilities | 33 |
Short-term lease cost | 45 |
Sublease income | (95 | )
Total lease cost | $ | 6,190 |
Other information |
(Gain)/loss on right-of-use asset impairment-Operating leases | $ | 817 |
Cash paid for amounts included in the measurement of lease liabilities: |
Operating cash flows from operating leases | 5,302 |
Operating cash flows from finance leases | 33 |
Financing cash flows from finance leases | 31 |
Right-of-use assets obtained in exchange for new lease obligations: |
Operating leases | 2,442 |
Finance leases | — |

The following table provides a detail of the maturities of FHN's operating and finance lease liabilities as of March 31, 2019:

(Dollars in thousands) |  |  | March 31, 2019
Remainder of 2019 |  | $ | 18,489 |
2020 |  | 23,911 |
2021 |  | 21,630 |
2022 |  | 20,535 |
2023 |  | 19,627 |
2024 and after |  | 143,048 |
Total future minimum lease payments |  | 247,240 |
Less lease liability interest |  | (47,805 | )
Present value of net future minimum lease payments |  | $ | 199,435 |

FHN had aggregate undiscounted contractual obligations totaling $22.1 million for lease arrangements that have not commenced. Payments under these arrangements are expected to occur from 2019 through 2032.
31

Note 7 – Leases (Continued)
Minimum future lease payments for noncancelable operating leases, primarily on premises, on December 31, 2018 are shown below.

(Dollars in thousands) | December 31, 2018
2019 | $ | 27,524 |
2020 | 24,722 |
2021 | 20,954 |
2022 | 16,518 |
2023 | 13,174 |
2024 and after | 42,370 |
Total minimum lease payments | $ | 145,262 |

32

Note 8 – Other Income and Other Expense
Following is detail of All other income and commissions and All other expense as presented in the Consolidated Condensed Statements of Income:

|  |  | Three Months Ended March 31
(Dollars in thousands) |  |  | 2019 |  | 2018
All other income and commissions: |  |  |  |  |
Deferred compensation (a) |  |  | $ | 5,474 |  |  | $ | 451 |
Other service charges |  |  | 3,869 |  |  | 4,123 |
ATM and interchange fees |  |  | 3,241 |  |  | 3,267 |
Dividend income |  |  | 2,313 |  |  | 2,249 |
Mortgage banking |  |  | 1,886 |  |  | 2,546 |
Letter of credit fees |  |  | 1,368 |  |  | 1,249 |
Electronic banking fees |  |  | 1,271 |  |  | 1,204 |
Insurance commissions |  |  | 624 |  |  | 757 |
Gain/(loss) on extinguishment of debt |  |  | (1 | ) |  | — |
Other |  |  | 5,523 |  |  | 7,397 |
Total |  |  | $ | 25,568 |  |  | $ | 23,243 |
All other expense: |  |  |  |  |
Travel and entertainment |  |  | $ | 2,712 |  |  | $ | 2,983 |
Other insurance and taxes |  |  | 2,694 |  |  | 2,665 |
Supplies |  |  | 1,804 |  |  | 1,836 |
Customer relations |  |  | 1,599 |  |  | 1,063 |
Employee training and dues |  |  | 1,457 |  |  | 1,779 |
Miscellaneous loan costs |  |  | 1,027 |  |  | 1,142 |
Tax credit investments |  |  | 675 |  |  | 1,137 |
Non-service components of net periodic pension and post-retirement cost |  |  | 432 |  |  | 504 |
Litigation and regulatory matters |  |  | 13 |  |  | 2,134 |
OREO |  |  | (366 | ) |  | 108 |
Other |  |  | 7,739 |  |  | 19,981 |
Total |  |  | $ | 19,786 |  |  | $ | 35,332 |

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

(a) | Amounts are driven by market conditions and are mirrored by changes in deferred compensation expense which is included in employee compensation expense.

33

Note 9 – Components of Other Comprehensive Income/(loss)
The following table provides the changes in accumulated other comprehensive income/(loss) by component, net of tax, for the three months ended March 31, 2019 and 2018:

(Dollars in thousands) |  | Securities AFS |  | Cash Flow Hedges |  | Pension and Post-retirement Plans |  | Total
Balance as of January 1, 2019 |  | $ | (75,736 | ) |  | $ | (12,112 | ) |  | $ | (288,768 | ) |  | $ | (376,616 | )
Net unrealized gains/(losses) |  | 48,615 |  |  | 3,936 |  |  | — |  |  | 52,551 |
Amounts reclassified from AOCI |  | — |  |  | 1,451 |  |  | 1,463 |  |  | 2,914 |
Other comprehensive income/(loss) |  | 48,615 |  |  | 5,387 |  |  | 1,463 |  |  | 55,465 |
Balance as of March 31, 2019 |  | $ | (27,121 | ) |  | $ | (6,725 | ) |  | $ | (287,305 | ) |  | $ | (321,151 | )
Balance as of January 1, 2018 |  | $ | (26,834 | ) |  | $ | (7,764 | ) |  | $ | (288,227 | ) |  | $ | (322,825 | )
Adjustment to reflect adoption of ASU 2016-01 and ASU 2017-12 |  | (5 | ) |  | (206 | ) |  | — |  |  | (211 | )
Beginning balance, as adjusted |  | $ | (26,839 | ) |  | $ | (7,970 | ) |  | $ | (288,227 | ) |  | $ | (323,036 | )
Net unrealized gains/(losses) |  | (59,504 | ) |  | (8,638 | ) |  | — |  |  | (68,142 | )
Amounts reclassified from AOCI |  | (39 | ) |  | (155 | ) |  | 1,287 |  |  | 1,093 |
Other comprehensive income/(loss) |  | (59,543 | ) |  | (8,793 | ) |  | 1,287 |  |  | (67,049 | )
Balance as of March 31, 2018 |  | $ | (86,382 | ) |  | $ | (16,763 | ) |  | $ | (286,940 | ) |  | $ | (390,085 | )

Reclassifications from AOCI, and related tax effects, were as follows:

(Dollars in thousands) |  | Three Months Ended March 31 |  |
Details about AOCI |  | 2019 |  | 2018 |  | Affected line item in the statement where net income is presented
Securities AFS: |  |  |  |  |  |
Realized (gains)/losses on securities AFS |  | $ | — |  |  | $ | (52 | ) |  | Debt securities gains/(losses), net
Tax expense/(benefit) |  | — |  |  | 13 |  |  | Provision/(benefit) for income taxes
|  | — |  |  | (39 | ) |  |
Cash flow hedges: |  |  |  |  |  |
Realized (gains)/losses on cash flow hedges |  | 1,927 |  |  | (206 | ) |  | Interest and fees on loans
Tax expense/(benefit) |  | (476 | ) |  | 51 |  |  | Provision/(benefit) for income taxes
|  | 1,451 |  |  | (155 | ) |  |
Pension and Postretirement Plans: |  |  |  |  |  |
Amortization of prior service cost and net actuarial gain/(loss) |  | 1,943 |  |  | 1,709 |  |  | All other expense
Tax expense/(benefit) |  | (480 | ) |  | (422 | ) |  | Provision/(benefit) for income taxes
|  | 1,463 |  |  | 1,287 |  |  |
Total reclassification from AOCI |  | $ | 2,914 |  |  | $ | 1,093 |  |  |

34

Note 10 – Earnings Per Share
The following table provides reconciliations of net income to net income available to common shareholders and the difference between average basic common shares outstanding and average diluted common shares outstanding:

|  | Three Months Ended March 31
(Dollars and shares in thousands, except per share data) |  | 2019 |  | 2018
Net income/(loss) |  | $ | 103,405 |  |  | $ | 94,994 |
Net income attributable to noncontrolling interest |  | 2,820 |  |  | 2,820 |
Net income/(loss) attributable to controlling interest |  | 100,585 |  |  | 92,174 |
Preferred stock dividends |  | 1,550 |  |  | 1,550 |
Net income/(loss) available to common shareholders |  | $ | 99,035 |  |  | $ | 90,624 |
Weighted average common shares outstanding—basic |  | 317,435 |  |  | 326,489 |
Effect of dilutive securities |  | 2,146 |  |  | 3,855 |
Weighted average common shares outstanding—diluted |  | 319,581 |  |  | 330,344 |
Net income/(loss) per share available to common shareholders |  | $ | 0.31 |  |  | $ | 0.28 |
Diluted income/(loss) per share available to common shareholders |  | $ | 0.31 |  |  | $ | 0.27 |

The following table presents outstanding options and other equity awards that were excluded from the calculation of diluted earnings per share because they were either anti-dilutive (the exercise price was higher than the weighted-average market price for the period) or the performance conditions have not been met:

|  | Three Months Ended March 31
(Shares in thousands) |  | 2019 |  | 2018
Stock options excluded from the calculation of diluted EPS |  | 2,613 |  |  | 2,410 |
Weighted average exercise price of stock options excluded from the calculation of diluted EPS |  | $ | 21.77 |  |  | $ | 24.83 |
Other equity awards excluded from the calculation of diluted EPS |  | 1,922 |  |  | 307 |

35

Note 11 – Contingencies and Other Disclosures
CONTINGENCIES
Contingent Liabilities Overview
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 federal, state, and local regulators, from other government authorities, and from other parties concerning various matters relating to FHN’s current or former businesses. Certain matters of that sort are pending at this time, and FHN is cooperating in those matters. Pending and threatened litigation matters sometimes are settled by the parties, and sometimes pending matters are resolved in court or before an arbitrator. Regardless of the manner of resolution, frequently the most significant changes in status of a matter 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 matters will be, what the 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 a loss contingency liability for a litigation matter when loss is both probable and reasonably estimable as prescribed by applicable financial accounting guidance. If loss for a matter is probable and a range of possible loss outcomes is the 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.
Material Loss Contingency Matters
Summary
As used in this Note, except for matters that are reported as having been substantially settled or otherwise substantially resolved, FHN's “material loss contingency matters” generally fall into at least 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; (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 reasonably possible, and that the amount or range of that reasonably possible 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 disclosures 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, or groups of matters, are discussed relating to FHN’s former mortgage origination and servicing businesses. 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 matters progress. At March 31, 2019, the aggregate amount of liabilities established for all such loss contingency matters was $32.9 million. These liabilities are separate from those discussed under the heading “Loan Repurchase and Foreclosure Liability” below.
In each material loss contingency matter, except as otherwise noted, there is more than a remote chance that any of the following outcomes will occur: the plaintiff will substantially prevail; the defense will substantially prevail; the plaintiff will prevail in part; or the matter will be settled by the parties. At March 31, 2019, FHN estimates that for all material loss contingency matters, estimable reasonably possible losses in future periods in excess of currently established liabilities could aggregate in a range from zero to approximately $20 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 loss 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 reasonably possible loss (“RPL”) range mentioned above and for matters not included in that range.
36

Table of Headers
Note 11 – Contingencies and Other Disclosures (Continued)
Material Matters
FHN is defending a suit claiming material deficiencies in the offering documents under which certificates relating to First Horizon branded proprietary securitizations were sold under FHN's former (pre-2009) mortgage business: Federal Deposit Insurance Corporation (“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 plaintiff in that suit claims to have purchased (and later sold) certificates totaling $83.4 million, relating to a number of separate securitizations. Plaintiff demands damages and prejudgment interest, among several remedies sought. The current liability and RPL estimates for this matter are subject to significant uncertainties regarding: the dollar amounts claimed; the potential remedies that might be available or awarded; the outcome of settlement discussions; the availability of significantly dispositive defenses; and the incomplete status of the discovery process.
Other Former Mortgage Business Exposures
FHN has received indemnity claims from underwriters and others related to lawsuits as to which investors or others claimed to have purchased certificates in FHN proprietary securitizations but as to which FHN was not named a defendant. For most pending indemnity claims involving proprietary securitizations, 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 incomplete status of the discovery process; the lack of a precise statement of damages; inability to identify specific loans and/or breaches that are the source of the claim; lack of specific grounds to trigger FHN's indemnity obligation; and lack of precedent claims. The alleged purchase prices of the certificates subject to pending indemnification claims, excluding the FDIC-Colonial Bank matter mentioned above, total $231.2 million.
FHN is contending with indemnification claims related to "other whole loans sold," which were mortgage loans originated by FHN before 2009 and sold outside of an FHN securitization. These claims generally assert that FHN-originated loans contributed to claimant’s losses in connection with settlements that claimant paid to various third parties in connection with mortgage loans securitized by claimant. The claims generally do not include specific deficiencies for specific loans sold by FHN. Instead, the claims generally assert that FHN is liable for a share of the claimant's loss estimated by assessing the totality of the other whole loans sold by FHN to claimant in relation to the totality of the larger number of loans securitized by claimant. FHN is unable to estimate an RPL range for these matters due to significant uncertainties regarding: the number of, and the facts underlying, the loan originations which claimants assert are indemnifiable; the applicability of FHN’s contractual indemnity covenants to those facts and originations; and, in those cases where an indemnity claim may be supported, whether any legal defenses, counterclaims, other counter-positions, or third-party claims might eliminate or reduce claims against FHN or their impact on FHN.
FHN also has indemnification claims related to servicing obligations. The most significant is from Nationstar Mortgage LLC, currently doing business as “Mr. Cooper.” Nationstar was the purchaser of FHN’s mortgage servicing obligations and assets in 2013 and 2014 and, starting in 2011, was FHN’s subservicer. Nationstar asserts several categories of indemnity obligations in connection with mortgage loans under the subservicing arrangement and under the purchase transaction. This matter currently is not in litigation, but litigation in the future is possible. FHN is unable to estimate an RPL range for this matter due to significant uncertainties regarding: the exact nature of each of Nationstar’s claims and its position in respect of each; the number of, and the facts underlying, the claimed instances of indemnifiable events; the applicability of FHN’s contractual indemnity covenants to those facts and events; and, in those cases where the facts and events might support an indemnity claim, whether any legal defenses, counterclaims, other counter-positions, or third-party claims might eliminate or reduce claims against FHN or their impact on FHN.
FHN has additional potential exposures related to its former mortgage businesses. A few of those matters have become litigation which FHN currently estimates are immaterial, some are non-litigation claims or threats, some are mere subpoenas or other requests for information, and in some areas FHN has no indication of any active or threatened dispute. Some of those matters might eventually result in settlements, and some might eventually result in adverse litigation outcomes, but none are included in the material loss contingency liabilities mentioned above or in the RPL range mentioned above.
Mortgage Loan Repurchase and Foreclosure Liability
The repurchase and foreclosure liability is comprised of accruals to cover estimated loss content in the active pipeline (consisting of mortgage loan repurchase, make-whole, foreclosure/servicing demands and certain related exposures), estimated future inflows, and estimated loss content related to certain known claims not currently included in the active pipeline. FHN
37

Table of Headers
Note 11 – Contingencies and Other Disclosures (Continued)
compares the estimated probable incurred losses determined under the applicable loss estimation approaches for the respective periods with current reserve levels. Changes in the estimated required liability levels are recorded as necessary through the repurchase and foreclosure provision.
Based on currently available information and experience to date, FHN has evaluated its loan repurchase, make-whole, foreclosure, and certain related exposures and has accrued for losses of $31.9 million and $32.3 million as of March 31, 2019 and December 31, 2018, respectively, including a smaller amount related to equity-lending junior lien loan sales. A $12.6 million settlement payment was made in second quarter 2019 that will reduce the accrual. Accrued liabilities for FHN’s estimate of these obligations are reflected in Other liabilities on the Consolidated Condensed Statements of Condition. Charges/expense reversals to increase/decrease the liability are included within Repurchase and foreclosure provision/(provision credit) on the Consolidated Condensed Statements of Income. The estimates are based upon currently available information and fact patterns that exist as of each balance sheet date and could be subject to future changes. Changes to any one of these factors could significantly impact the estimate of FHN’s liability.
OTHER DISCLOSURES
Indemnification Agreements and Guarantees
In the ordinary course of business, FHN enters into indemnification 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 transactions 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 by such agreements.
38

Note 12 – Pension, Savings, and Other Employee Benefits
Pension plan. FHN sponsors a noncontributory, qualified defined benefit pension plan to employees hired or re-hired on or before September 1, 2007. Pension benefits are based on years of service, average compensation near retirement or other termination, and estimated social security benefits at age 65. Benefits under the plan are “frozen” so that years of service and compensation changes after 2012 do not affect the benefit owed. Minimum contributions are based upon actuarially determined amounts necessary to fund the total benefit obligation. Decisions to contribute to the plan are based upon pension funding requirements under the Pension Protection Act, the maximum amount deductible under the Internal Revenue Code, the actual performance of plan assets, and trends in the regulatory environment. FHN made an insignificant contribution to the qualified pension plan in 2018. Management does not currently anticipate that FHN will make a contribution to the qualified pension plan in 2019.
FHN assumed two additional qualified plans in conjunction with the CBF acquisition. Both legacy CBF plans are frozen. As of December 31, 2018, the aggregate benefit obligation for the plans was $17.1 million and aggregate plan assets were $16.5 million. Benefit payments, expense and actuarial gains/losses related to these plans were insignificant for first quarter 2019 and 2018. Additional funding amounts to these plans are dependent upon the potential settlement of the plans. Due to the insignificant financial statement impact, these two plans are not included in the disclosures that follow.
FHN also maintains non-qualified plans including a supplemental retirement plan that covers certain employees whose benefits under the qualified pension plan have been limited by tax rules. These other non-qualified plans are unfunded, and contributions to these plans cover all benefits paid under the non-qualified plans. Payments made under the non-qualified plans were $5.8 million for 2018. FHN anticipates making benefit payments under the non-qualified plans of $5.2 million in 2019.
Savings plan. FHN provides all qualifying full-time employees with the opportunity to participate in FHN's tax qualifi ed 401(k) savings plan. The qualified plan allows employees to defer receipt of earned salary, up to tax law limits, on a tax-advantaged basis. Accounts, which are held in trust, may be invested in a wide range of mutual funds and in FHN common stock. Up to tax law limits, FHN provides a 100 percent match for the first 6 percent of salary deferred, with company matching contributions invested according to a participant’s current investment election. Through a non-qualified savings restoration plan, FHN provides a restorative benefit to certain highly-compensated employees who participate in the savings plan and whose contribution elections are capped by tax limitations.
Other employee benefits. FHN provides postretirement life insurance benefits to certain employees and also provides postretirement medical insurance benefits to retirement-eligible employees. The postretirement medical plan is contributory with FHN contributing a fixed amount for certain participants. FHN’s postretirement benefits include certain prescription drug benefits.
Service cost is included in Employee compensation, incentives, and benefits in the Consolidated Condensed Statements of Income. All other components of net periodic benefit cost are included in All other expense. The components of net periodic benefit cost for the three months ended March 31 are as follows:

|  | Pension Benefits |  | Other Benefits
(Dollars in thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Components of net periodic benefit cost |  |  |  |  |  |  |  |
Service cost |  | $ | 8 |  |  | $ | 10 |  |  | $ | 24 |  |  | $ | 33 |
Interest cost |  | 7,575 |  |  | 6,986 |  |  | 351 |  |  | 327 |
Expected return on plan assets |  | (9,173 | ) |  | (8,225 | ) |  | (269 | ) |  | (269 | )
Amortization of unrecognized: |  |  |  |  |  |  |  |
Actuarial (gain)/loss |  | 2,435 |  |  | 2,956 |  |  | (117 | ) |  | (91 | )
Net periodic benefit cost/(credit) |  | $ | 845 |  |  | $ | 1,727 |  |  | $ | (11 | ) |  | $ | — |

39

Note 13 – Business Segment Information
FHN has four business segments: regional banking, fixed income, corporate, and non-strategic. The regional banking segment offers financial products and services, including traditional lending and deposit taking, to consumer and commercial customers in Tennessee, North Carolina, South Carolina, Florida and other selected markets. Regional banking also provides investments, wealth management, financial planning, trust services and asset management, mortgage banking, credit card, and cash management. Additionally, the regional banking segment includes correspondent banking which provides credit, depository, and other banking related services to other financial institutions nationally. The fixed income segment consists of fixed income securities sales, trading, underwriting, and strategies for institutional clients in the U.S. and abroad, as well as loan sales, portfolio advisory services, and derivative sales. The corporate segment consists of unallocated corporate expenses, expense on subordinated debt issuances, bank-owned life insurance, unallocated interest income associated with excess equity, net impact of raising incremental capital, revenue and expense associated with deferred compensation plans, funds management, tax credit investment activities, derivative valuation adjustments related to prior sales of Visa Class B shares, gain/(loss) on extinguishment of debt, acquisition-and integration-related costs and various charges related to restructuring, repositioning, and efficiency efforts. The non-strategic segment consists of run-off consumer lending activities, legacy (pre-2009) mortgage banking elements, and the associated ancillary revenues and expenses related to these businesses. Non-strategic also includes the wind-down trust preferred loan portfolio and exited businesses.
Periodically, FHN adapts its segments to reflect managerial or strategic changes. FHN may also modify its methodology of allocating expenses and equity among segments which could change historical segment results. Business segment revenue, expense, asset, and equity levels reflect those which are specifically identifiable or which are allocated based on an internal allocation method. Because the allocations are based on internally developed assignments and allocations, to an extent they are subjective. Generally, all assignments and allocations have been consistently applied for all periods presented. The following table reflects the amounts of consolidated revenue, expense, tax, and average assets for each segment for the three months ended March 31:

|  | Three Months Ended March 31
(Dollars in thousands) |  | 2019 |  | 2018
Consolidated |  |  |  |
Net interest income |  | $ | 294,508 |  |  | $ | 301,173 |
Provision/(provision credit) for loan losses |  | 9,000 |  |  | (1,000 | )
Noninterest income |  | 141,045 |  |  | 136,017 |
Noninterest expense |  | 296,090 |  |  | 313,265 |
Income/(loss) before income taxes |  | 130,463 |  |  | 124,925 |
Provision/(benefit) for income taxes |  | 27,058 |  |  | 29,931 |
Net income/(loss) |  | $ | 103,405 |  |  | $ | 94,994 |
Average assets |  | $ | 40,883,192 |  |  | $ | 40,350,724 |

40

Table of Contents
Note 13 – Business Segment Information (Continued)

|  | Three Months Ended March 31
(Dollars in thousands) |  | 2019 |  | 2018
Regional Banking |  |  |  |
Net interest income |  | $ | 287,157 |  |  | $ | 293,194 |
Provision/(provision credit) for loan losses |  | 13,958 |  |  | 4,458 |
Noninterest income |  | 72,117 |  |  | 79,963 |
Noninterest expense |  | 199,959 |  |  | 201,749 |
Income/(loss) before income taxes |  | 145,357 |  |  | 166,950 |
Provision/(benefit) for income taxes |  | 33,693 |  |  | 39,340 |
Net income/(loss) |  | $ | 111,664 |  |  | $ | 127,610 |
Average assets |  | $ | 28,889,492 |  |  | $ | 28,171,416 |
Fixed Income |  |  |  |
Net interest income |  | $ | 7,322 |  |  | $ | 8,475 |
Noninterest income |  | 53,807 |  |  | 45,605 |
Noninterest expense |  | 51,227 |  |  | 49,931 |
Income/(loss) before income taxes |  | 9,902 |  |  | 4,149 |
Provision/(benefit) for income taxes |  | 2,283 |  |  | 896 |
Net income/(loss) |  | $ | 7,619 |  |  | $ | 3,253 |
Average assets |  | $ | 2,849,939 |  |  | $ | 3,479,425 |
Corporate |  |  |  |
Net interest income/(expense) |  | $ | (7,853 | ) |  | $ | (16,184 | )
Noninterest income |  | 13,352 |  |  | 9,316 |
Noninterest expense |  | 40,351 |  |  | 53,329 |
Income/(loss) before income taxes |  | (34,852 | ) |  | (60,197 | )
Provision/(benefit) for income taxes |  | (11,403 | ) |  | (13,771 | )
Net income/(loss) |  | $ | (23,449 | ) |  | $ | (46,426 | )
Average assets |  | $ | 8,050,162 |  |  | $ | 7,115,661 |
Non-Strategic |  |  |  |
Net interest income |  | $ | 7,882 |  |  | $ | 15,688 |
Provision/(provision credit) for loan losses |  | (4,958 | ) |  | (5,458 | )
Noninterest income |  | 1,769 |  |  | 1,133 |
Noninterest expense |  | 4,553 |  |  | 8,256 |
Income/(loss) before income taxes |  | 10,056 |  |  | 14,023 |
Provision/(benefit) for income taxes |  | 2,485 |  |  | 3,466 |
Net income/(loss) |  | $ | 7,571 |  |  | $ | 10,557 |
Average assets |  | $ | 1,093,599 |  |  | $ | 1,584,222 |

Certain previously reported amounts have been reclassified to agree with current presentation.
41

Table of Contents
Note 13 – Business Segment Information (Continued)
The following tables reflect a disaggregation of FHN’s noninterest income by major product line and reportable segment for the three months ended March 31, 2019 and 2018:

| Three months ended March 31, 2019
(Dollars in thousands) | Regional Banking |  | Fixed Income |  | Corporate |  | Non-Strategic |  | Consolidated
Noninterest income: |  |  |  |  |  |  |  |  |
Fixed income (a) | $ | 17 |  |  | $ | 53,732 |  |  | $ | — |  |  | $ | — |  |  | $ | 53,749 |
Deposit transactions and cash management | 30,005 |  |  | 3 |  |  | 1,563 |  |  | 50 |  |  | 31,621 |
Brokerage, management fees and commissions | 12,629 |  |  | — |  |  | — |  |  | 4 |  |  | 12,633 |
Trust services and investment management | 7,056 |  |  | — |  |  | (30 | ) |  | — |  |  | 7,026 |
Bankcard income | 6,102 |  |  | — |  |  | 62 |  |  | (149 | ) |  | 6,015 |
BOLI (b) | — |  |  | — |  |  | 4,402 |  |  | — |  |  | 4,402 |
Debt securities gains/(losses), net (b) | — |  |  | — |  |  | — |  |  | — |  |  | — |
Equity securities gains/(losses), net (b) | — |  |  | — |  |  | 31 |  |  | — |  |  | 31 |
All other income and commissions (c) | 16,308 |  |  | 72 |  |  | 7,324 |  |  | 1,864 |  |  | 25,568 |
Total noninterest income | $ | 72,117 |  |  | $ | 53,807 |  |  | $ | 13,352 |  |  | $ | 1,769 |  |  | $ | 141,045 |

(a) | Includes $7.3 million of underwriting, portfolio advisory, and other noninterest income in scope of Accounting Standards Codification ("ASC") 606, "Revenue From Contracts With Customers."

(b) | Represents noninterest income excluded from the scope of ASC 606. Amount is presented for informational purposes to reconcile total non-interest income.

(c) | Includes other service charges, ATM and interchange fees, electronic banking fees, and insurance commission in scope of ASC 606.

| Three months ended March 31, 2018
(Dollars in thousands) | Regional Banking |  | Fixed Income |  | Corporate |  | Non- Strategic |  | Consolidated
Noninterest income: |  |  |  |  |  |  |  |  |
Fixed income (a) | $ | 81 |  |  | $ | 45,425 |  |  | $ | — |  |  | $ | — |  |  | $ | 45,506 |
Deposit transactions and cash management | 34,722 |  |  | 3 |  |  | 1,209 |  |  | 50 |  |  | 35,984 |
Brokerage, management fees and commissions | 13,483 |  |  | — |  |  | — |  |  | — |  |  | 13,483 |
Trust services and investment management | 7,292 |  |  | — |  |  | (15 | ) |  | — |  |  | 7,277 |
Bankcard income | 6,279 |  |  | — |  |  | 56 |  |  | 110 |  |  | 6,445 |
BOLI (b) | — |  |  | — |  |  | 3,993 |  |  | — |  |  | 3,993 |
Debt securities gains/(losses), net (b) | — |  |  | — |  |  | 52 |  |  | — |  |  | 52 |
Equity securities gains/(losses), net (b) | — |  |  | — |  |  | 34 |  |  | — |  |  | 34 |
All other income and commissions (c) (d) | 18,106 |  |  | 177 |  |  | 3,987 |  |  | 973 |  |  | 23,243 |
Total noninterest income | $ | 79,963 |  |  | $ | 45,605 |  |  | $ | 9,316 |  |  | $ | 1,133 |  |  | $ | 136,017 |

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

(a) | Includes $8.2 million of underwriting, portfolio advisory, and other noninterest income in scope of Accounting Standards Codification ("ASC") 606, "Revenue From Contracts With Customers."

(b) | Represents noninterest income excluded from the scope of ASC 606. Amount is presented for informational purposes to reconcile total non-interest income.

(c) | Includes other service charges, ATM and interchange fees, electronic banking fees, and insurance commission in scope of ASC 606.

(d) | Corporate includes a $3.3 million gain on the sale of a building.

42

Note 14 – Variable Interest Entities
ASC 810 defines a VIE as a legal entity where (a) the equity investors, as a group, lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support, (b) the equity investors, as a group, lack either, (1) the power through voting rights, or similar rights, to direct the activities of an entity that most significantly impact the entity’s economic performance, (2) the obligation to absorb the expected losses of the entity, or (3) the right to receive the expected residual returns of the entity, or (c) the entity is structured with non-substantive voting rights. A variable interest is a contractual ownership or other interest that fluctuates with changes in the fair value of the VIE’s net assets exclusive of variable interests. Under ASC 810, as amended, a primary beneficiary is required to consolidate a VIE when it has a variable interest in a VIE that provides it with a controlling financial interest. For such purposes, the determination of whether a controlling financial interest exists is based on whether a single party has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant.
Consolidated Variable Interest Entities
FHN holds variable interests in a proprietary HELOC securitization trust it established as a source of liquidity for consumer lending operations. Based on its restrictive nature, the trust is considered a VIE as the holders of equity at risk do not have the power through voting rights or similar rights to direct the activities that most significantly impact the trust’s economic performance. The retention of mortgage service rights ("MSR") and a residual interest results in FHN potentially absorbing losses or receiving benefits that are significant to the trust. FHN is considered the primary beneficiary, as it is assumed to have the power, as Master Servicer, to most significantly impact the activities of the VIE. Consolidation of the trust results in the recognition of the trust proceeds as restricted borrowings since the cash flows on the securitized loans can only be used to settle the obligations due to the holders of trust securities. Through first quarter 2016 the trust experienced a rapid amortization period and FHN was obligated to provide subordinated funding. During the period, cash payments from borrowers were accumulated to repay outstanding debt securities while FHN continued to make advances to borrowers when they drew on their lines of credit. FHN then transferred the newly generated receivables into the securitization trust. FHN is reimbursed for these advances only after other parties in the securitization have received all of the cash flows to which they are entitled. If loan losses requiring draws on the related monoline insurers’ policies (which protect bondholders in the securitization) exceed a certain level, FHN may not receive reimbursement for all of the funds advanced to borrowers, as the senior bondholders and the monoline insurers typically have priority for repayment. Amounts funded from monoline insurance policies are considered restricted term borrowings in FHN’s Consolidated Condensed Statements of Condition. Except for recourse due to breaches of representations and warranties made by FHN in connection with the sale of the loans to the trust, the creditors of the trust hold no recourse to the assets of FHN.
FHN has established certain rabbi trusts related to deferred compensation plans offered to its employees. FHN contributes employee cash compensation deferrals to the trusts and directs the underlying investments made by the trusts. The assets of these trusts are available to FHN’s creditors only in the event that FHN becomes insolvent. These trusts are considered VIEs as there is no equity at risk in the trusts since FHN provided the equity interest to its employees in exchange for services rendered. FHN is considered the primary beneficiary of the rabbi trusts as it has the power to direct the activities that most significantly impact the economic performance of the rabbi trusts through its ability to direct the underlying investments made by the trusts. Additionally, FHN could potentially receive benefits or absorb losses that are significant to the trusts due to its right to receive any asset values in excess of liability payoffs and its obligation to fund any liabilities to employees that are in excess of a rabbi trust’s assets.
43

Note 14 – Variable Interest Entities (Continued)
The following table summarizes VIEs consolidated by FHN as of March 31, 2019 and December 31, 2018:

|  | March 31, 2019 |  | December 31, 2018
|  | On-Balance Sheet Consumer Loan Securitization |  | Rabbi Trusts Used for Deferred Compensation Plans |  | On-Balance Sheet Consumer Loan Securitization |  | Rabbi Trusts Used for Deferred Compensation Plans
(Dollars in thousands) |  | Carrying Value |  | Carrying Value |  | Carrying Value |  | Carrying Value
Assets: |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | — |  |  | N/A |  |  | $ | — |  |  | N/A |
Loans, net of unearned income |  | 14,990 |  |  | N/A |  |  | 16,213 |  |  | N/A |
Less: Allowance for loan losses |  | — |  |  | N/A |  |  | — |  |  | N/A |
Total net loans |  | 14,990 |  |  | N/A |  |  | 16,213 |  |  | N/A |
Other assets |  | 34 |  |  | $ | 83,941 |  |  | 35 |  |  | $ | 78,446 |
Total assets |  | $ | 15,024 |  |  | $ | 83,941 |  |  | $ | 16,248 |  |  | $ | 78,446 |
Liabilities: |  |  |  |  |  |  |  |
Term borrowings |  | $ | 1,802 |  |  | N/A |  |  | $ | 2,981 |  |  | N/A |
Other liabilities |  | — |  |  | $ | 64,069 |  |  | — |  |  | $ | 56,700 |
Total liabilities |  | $ | 1,802 |  |  | $ | 64,069 |  |  | $ | 2,981 |  |  | $ | 56,700 |

Nonconsolidated Variable Interest Entities
Low Income Housing Partnerships. First Tennessee Housing Corporation (“FTHC”), a wholly-owned subsidiary of FTBNA, makes equity investments as a limited partner in various partnerships that sponsor affordable housing projects utilizing the Low Income Housing Tax Credit (“LIHTC”) pursuant to Section 42 of the Internal Revenue Code. The purpose of these investments is to achieve a satisfactory return on capital and to support FHN’s community reinvestment initiatives. The activities of the limited partnerships include the identification, development, and operation of multi-family housing units that are leased to qualifying residential tenants generally within FHN’s primary geographic region. LIHTC partnerships are considered VIEs as FTHC, the holder of the equity investment at risk, does not have the ability to direct the activities that most significantly affect the performance of the entity through voting rights or similar rights. FTHC could absorb losses that are significant to the LIHTC partnerships as it has a risk of loss for its capital contributions and funding commitments to each partnership. The general partners are considered the primary beneficiaries as managerial functions give them the power to direct the activities that most significantly impact the entities’ economic performance and the managing members are exposed to all losses beyond FTHC’s initial capital contributions and funding commitments.
FHN accounts for all qualifying LIHTC investments under the proportional amortization method. Under this method an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense/(benefit). LIHTC investments that do not qualify for the proportional amortization method are accounted for using the equity method. Expenses associated with these investments were $.5 million and $1.0 million for the three months ended March 31, 2019 and 2018, respectively. The following table summarizes the impact to the Provision/(benefit) for income taxes on the Consolidated Condensed Statements of Income for the three months ended March 31, 2019, and 2018 for LIHTC investments accounted for under the proportional amortization method.

|  | Three Months Ended March 31
(Dollars in thousands) |  | 2019 |  | 2018
Provision/(benefit) for income taxes: |  |  |  |
Amortization of qualifying LIHTC investments |  | $ | 3,998 |  |  | $ | 2,356 |
Low income housing tax credits |  | (3,629 | ) |  | (2,537 | )
Other tax benefits related to qualifying LIHTC investments |  | (1,610 | ) |  | (690 | )

44

Note 14 – Variable Interest Entities (Continued)
Other Tax Credit Investments. First Tennessee New Markets Corporation (“FTNMC”), a wholly-owned subsidiary of FTBNA, makes equity investments through wholly-owned subsidiaries as a non-managing member in various limited liability companies (“LLCs”) that sponsor community development projects utilizing the New Market Tax Credit (“NMTC”) pursuant to Section 45 of the Internal Revenue Code. The purpose of these investments is to achieve a satisfactory return on capital and to support FHN’s community reinvestment initiatives. The activities of the LLCs include providing investment capital for low-income communities within FHN’s primary geographic region. A portion of the funding of FTNMC’s investment in a NMTC LLC is obtained via a loan from an unrelated third-party that is typically a community development enterprise. The NMTC LLCs are considered VIEs as FTNMC, the holder of the equity investment at risk, does not have the ability to direct the activities that most significantly affect the performance of the entity through voting rights or similar rights. While FTNMC could absorb losses that are significant to the NMTC LLCs as it has a risk of loss for its initial capital contributions, the managing members are considered the primary beneficiaries as managerial functions give them the power to direct the activities that most significantly impact the NMTC LLCs’ economic performance and the managing members are exposed to all losses beyond FTNMC’s initial capital contributions. A NMTC relationship was resolved in fourth quarter 2018 resulting in a $15.3 million decline in the investment balance and the related debt.
FTHC also makes equity investments as a limited partner or non-managing member in entities that receive Historic Tax Credits pursuant to Section 47 of the Internal Revenue Code. The purpose of these entities is the rehabilitation of historic buildings with the tax credits provided to incent private investment in the historic cores of cities and towns. These entities are considered VIEs as FTHC, the holder of the equity investment at risk, does not have the ability to direct the activities that most significantly affect the performance of the entity through voting rights or similar rights. FTHC could absorb losses that are significant to the entities as it has a risk of loss for its capital contributions and funding commitments to each partnership. The managing members are considered the primary beneficiaries as managerial functions give them the power to direct the activities that most significantly impact the entities’ economic performance and the managing members are exposed to all losses beyond FTHC’s initial capital contributions and funding commitments.
Small Issuer Trust Preferred Holdings. FTBNA holds variable interests in trusts which have issued mandatorily redeemable preferred capital securities (“trust preferreds”) for smaller banking and insurance enterprises. FTBNA has no voting rights for the trusts’ activities. The trusts’ only assets are junior subordinated debentures of the issuing enterprises. The creditors of the trusts hold no recourse to the assets of FTBNA. These trusts meet the definition of a VIE as the holders of the equity investment at risk do not have the power through voting rights, or similar rights, to direct the activities that most significantly impact the trusts’ economic performance. Based on the nature of the trusts’ activities and the size of FTBNA’s holdings, FTBNA could potentially receive benefits or absorb losses that are significant to the trusts regardless of whether a majority of a trust’s securities are held by FTBNA. However, since FTBNA is solely a holder of the trusts’ securities, it has no rights which would give it the power to direct the activities that most significantly impact the trusts’ economic performance and thus it is not considered the primary beneficiary of the trusts. FTBNA has no contractual requirements to provide financial support to the trusts.
On-Balance Sheet Trust Preferred Securitization. In 2007, FTBNA executed a securitization of certain small issuer trust preferreds for which the underlying trust meets the definition of a VIE as the holders of the equity investment at risk do not have the power through voting rights, or similar rights, to direct the activities that most significantly impact the entity’s economic performance. FTBNA could potentially receive benefits or absorb losses that are significant to the trust based on the size and priority of the interests it retained in the securities issued by the trust. However, since FTBNA did not retain servicing or other decision making rights, FTBNA is not the primary beneficiary as it does not have the power to direct the activities that most significantly impact the trust’s economic performance. Accordingly, FTBNA has accounted for the funds received through the securitization as a term borrowing in its Consolidated Condensed Statements of Condition. FTBNA has no contractual requirements to provide financial support to the trust.
Proprietary Residential Mortgage Securitizations. FHN holds variable interests (primarily principal-only strips) in proprietary residential mortgage securitization trusts it established prior to 2008 as a source of liquidity for its mortgage banking operations. Except for recourse due to breaches of representations and warranties made by FHN in connection with the sale of the loans to the trusts, the creditors of the trusts hold no recourse to the assets of FHN. Additionally, FHN has no contractual requirements to provide financial support to the trusts. Based on their restrictive nature, the trusts are considered VIEs as the holders of equity at risk do not have the power through voting rights, or similar rights, to direct the activities that most significantly impact the trusts’ economic performance. However, FHN did not have the ability to participate in significant portions of a securitization trust’s cash flows and FHN was not considered the primary beneficiary of the trust. Therefore, these trusts were not consolidated by FHN.
45

Note 14 – Variable Interest Entities (Continued)
Holdings in Agency Mortgage-Backed Securities. FHN holds securities issued by various Agency securitization trusts. Based on their restrictive nature, the trusts meet the definition of a VIE since the holders of the equity investments at risk do not have the power through voting rights, or similar rights, to direct the activities that most significantly impact the entities’ economic performance. FHN could potentially receive benefits or absorb losses that are significant to the trusts based on the nature of the trusts’ activities and the size of FHN’s holdings. However, FHN is solely a holder of the trusts’ securities and does not have the power to direct the activities that most significantly impact the trusts’ economic performance, and is not considered the primary beneficiary of the trusts. FHN has no contractual requirements to provide financial support to the trusts.
Commercial Loan Troubled Debt Restructurings. For certain troubled commercial loans, FTBNA restructures the terms of the borrower’s debt in an effort to increase the probability of receipt of amounts contractually due. Following a troubled debt restructuring, the borrower entity typically meets the definition of a VIE as the initial determination of whether an entity is a VIE must be reconsidered as events have proven that the entity’s equity is not sufficient to permit it to finance its activities without additional subordinated financial support or a restructuring of the terms of its financing. As FTBNA does not have the power to direct the activities that most significantly impact such troubled commercial borrowers’ operations, it is not considered the primary beneficiary even in situations where, based on the size of the financing provided, FTBNA is exposed to potentially significant benefits and losses of the borrowing entity. FTBNA has no contractual requirements to provide financial support to the borrowing entities beyond certain funding commitments established upon restructuring of the terms of the debt that allows for preparation of the underlying collateral for sale.
Sale Leaseback Transaction. FTB has entered into an agreement with a single asset leasing entity for the sale and leaseback of an office building. In conjunction with this transaction, FTB loaned funds to a related party of the buyer that were used for the purchase price of the building. FTB also entered into a construction loan agreement with the single asset entity for renovation of the building. Since this transaction did not qualify as a sale prior to 2019, it was accounted for using the deposit method which created a net asset or liability for all cash flows between FTB and the buyer. Upon adoption of ASU 2016-02 the transaction qualified as a seller-financed sale-leaseback. The buyer-lessor in this transaction meets the definition of a VIE as it does not have sufficient equity at risk since FTB is providing the funding for the purchase and renovation. A related party of the buyer-lessor has the power to direct the activities that most significantly impact the operations and could potentially receive benefits or absorb losses that are significant to the transactions, making it the primary beneficiary. Therefore, FTB does not consolidate the leasing entity.
Proprietary Trust Preferred Issuances. In conjunction with the acquisition of CBF, FHN acquired junior subordinated debt totaling $212.4 million underlying multiple issuances of trust preferred debt by institutions previously acquired by CBF. All of these trusts are considered VIEs because the ownership interests from the capital contributions to these trusts are not considered “at risk” in evaluating whether the holders of the equity investments at risk in the trusts have the power through voting rights, or similar rights, to direct the activities that most significantly impact the entities’ economic performance. Thus, FHN cannot be the trusts’ primary beneficiary because its ownership interests in the trusts are not considered variable interests as they are not considered “at risk”. Consequently, none of the trusts are consolidated by FHN. FHN retired $45.4 million of this debt and the related trust preferred securities in third and fourth quarter 2018.
46

Note 14 – Variable Interest Entities (Continued)
The following table summarizes FHN’s nonconsolidated VIEs as of March 31, 2019:

(Dollars in thousands) |  | Maximum Loss Exposure |  | Liability Recognized |  | Classification
Type |  |  |  |  |  |
Low income housing partnerships |  | $ | 152,048 |  |  | $ | 79,691 |  |  | (a)
Other tax credit investments (b) (c) |  | 8,961 |  |  | — |  |  | Other assets
Small issuer trust preferred holdings (d) |  | 269,635 |  |  | — |  |  | Loans, net of unearned income
On-balance sheet trust preferred securitization |  | 37,121 |  |  | 77,053 |  |  | (e)
Proprietary residential mortgage securitizations |  | 1,397 |  |  | — |  |  | Trading securities
Holdings of agency mortgage-backed securities (d) |  | 4,905,088 |  |  | — |  |  | (f)
Commercial loan troubled debt restructurings (g) |  | 51,893 |  |  | — |  |  | Loans, net of unearned income
Sale-leaseback transaction |  | 19,777 |  |  | — |  |  | (h)
Proprietary trust preferred issuances (i) |  | — |  |  | 167,014 |  |  | Term borrowings

(a) | Maximum loss exposure represents $72.4 million of current investments and $79.7 million of accrued contractual funding commitments. Accrued funding commitments represent unconditional contractual obligations for future funding events, and are also recognized in Other liabilities. FHN currently expects to be required to fund these accrued commitments by the end of 2021.

(b) | A liability is not recognized as investments are written down over the life of the related tax credit.

(c) | Maximum loss exposure represents current investment balance. Of the initial investment, $2.7 million was funded through loans from community development enterprises.

(d) | Maximum loss exposure represents the value of current investments. A liability is not recognized as FHN is solely a holder of the trusts’ securities.

(e) | Includes $112.5 million classified as Loans, net of unearned income, and $1.7 million classified as Trading securities which are offset by $77.1 million classified as Term borrowings.

(f) | Includes $.6 billion classified as Trading securities and $4.3 billion classified as Securities available-for-sale.

(g) | Maximum loss exposure represents $51.6 million of current receivables and $.3 million of contractual funding commitments on loans related to commercial borrowers involved in a troubled debt restructuring.

(h) | Maximum loss exposure represents the current loan balance plus additional funding commitments.

(i) | No exposure to loss due to nature of FHN's involvement.

The following table summarizes FHN’s nonconsolidated VIEs as of December 31, 2018:

(Dollars in thousands) |  | Maximum Loss Exposure |  | Liability Recognized |  | Classification
Type |  |  |  |  |  |
Low income housing partnerships |  | $ | 156,056 |  |  | $ | 80,427 |  |  | (a)
Other tax credit investments (b) (c) |  | 3,619 |  |  | — |  |  | Other assets
Small issuer trust preferred holdings (d) |  | 270,585 |  |  | — |  |  | Loans, net of unearned income
On-balance sheet trust preferred securitization |  | 37,532 |  |  | 76,642 |  |  | (e)
Proprietary residential mortgage securitizations |  | 1,524 |  |  | — |  |  | Trading securities
Holdings of agency mortgage-backed securities (d) |  | 4,842,630 |  |  | — |  |  | (f)
Commercial loan troubled debt restructurings (g) |  | 40,590 |  |  | — |  |  | Loans, net of unearned income
Sale-leaseback transaction |  | 16,327 |  |  | — |  |  | (h)
Proprietary trust preferred issuances (i) |  | — |  |  | 167,014 |  |  | Term borrowings

(a) | Maximum loss exposure represents $75.6 million of current investments and $80.4 million of accrued contractual funding commitments. Accrued funding commitments represent unconditional contractual obligations for future funding events, and are also recognized in Other liabilities. FHN currently expects to be required to fund these accrued commitments by the end of 2020.

(b) | A liability is not recognized as investments are written down over the life of the related tax credit.

(c) | Maximum loss exposure represents current investment balance. Of the initial investment, $2.7 million was funded through loans from community development enterprises.

(d) | Maximum loss exposure represents the value of current investments. A liability is not recognized as FHN is solely a holder of the trusts’ securities.

(e) | Includes $112.5 million classified as Loans, net of unearned income, and $1.7 million classified as Trading securities which are offset by $76.6 million classified as Term borrowings.

(f) | Includes $.5 billion classified as Trading securities and $4.4 billion classified as Securities available-for-sale.

(g) | Maximum loss exposure represents $38.2 million of current receivables and $2.3 million of contractual funding commitments on loans related to commercial borrowers involved in a troubled debt restructuring.

(h) | Maximum loss exposure represents the current loan balance plus additional funding commitments less amounts received from the buyer-lessor.

(i) | No exposure to loss due to nature of FHN's involvement.

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Note 15 – Derivatives
In the normal course of business, FHN utilizes various financial instruments (including derivative contracts and credit-related agreements) through its fixed income and risk management operations, as part of its risk management strategy and as a means to meet customers’ needs. Derivative instruments are subject to credit and market risks in excess of the amount recorded on the balance sheet as required by GAAP. The contractual or notional amounts of these financial instruments do not necessarily represent the amount of credit or market risk. However, they can be used to measure the extent of involvement in various types of financial instruments. Controls and monitoring procedures for these instruments have been established and are routinely reevaluated. The Asset/Liability Committee (“ALCO”) controls, coordinates, and monitors the usage and effectiveness of these financial instruments.
Credit risk represents the potential loss that may occur if a party to a transaction fails to perform according to the terms of the contract. The measure of credit exposure is the replacement cost of contracts with a positive fair value. FHN manages credit risk by entering into financial instrument transactions through national exchanges, primary dealers or approved counterparties, and by using mutual margining and master netting agreements whenever possible to limit potential exposure. FHN also maintains collateral posting requirements with certain counterparties to limit credit risk. In 2017 and 2018, the central clearinghouses revised the treatment of daily margin posted or received from collateral to legal settlements of the related derivative contracts which resulted in a reduction in derivative assets and liabilities and corresponding reductions in collateral posted and received as these amounts are now presented net by contract in the Consolidated Condensed Statements of Condition. These changes had no effect on hedge accounting or gains/losses for the applicable derivative contracts. On March 31, 2019 and December 31, 2018, respectively, FHN had $79.6 million and $76.0 million of cash receivables and $33.2 million and $34.0 million of cash payables related to collateral posting under master netting arrangements, inclusive of collateral posted related to contracts with adjustable collateral posting thresholds and over-collateralized positions, with derivative counterparties. With exchange-traded contracts, the credit risk is limited to the clearinghouse used. For non-exchange traded instruments, credit risk may occur when there is a gain in the fair value of the financial instrument and the counterparty fails to perform according to the terms of the contract and/or when the collateral proves to be of insufficient value. See additional discussion regarding master netting agreements and collateral posting requirements later in this note under the heading “Master Netting and Similar Agreements.” Market risk represents the potential loss due to the decrease in the value of a financial instrument caused primarily by changes in interest rates or the prices of debt instruments. FHN manages market risk by establishing and monitoring limits on the types and degree of risk that may be undertaken. FHN continually measures this risk through the use of models that measure value-at-risk and earnings-at-risk.
Derivative Instruments. FHN enters into various derivative contracts both in a dealer capacity to facilitate customer transactions and as a risk management tool. Where contracts have been created for customers, FHN enters into upstream transactions with dealers to offset its risk exposure. Contracts with dealers that require central clearing are novated to a clearing agent who becomes FHN’s counterparty. Derivatives are also used as a risk management tool to hedge FHN’s exposure to changes in interest rates or other defined market risks.
Forward contracts are over-the-counter contracts where two parties agree to purchase and sell a specific quantity of a financial instrument at a specified price, with delivery or settlement at a specified date. Futures contracts are exchange-traded contracts where two parties agree to purchase and sell a specific quantity of a financial instrument at a specified price, with delivery or settlement at a specified date. Interest rate option contracts give the purchaser the right, but not the obligation, to buy or sell a specified quantity of a financial instrument, at a specified price, during a specified period of time. Caps and floors are options that are linked to a notional principal amount and an underlying indexed interest rate. Interest rate swaps involve the exchange of interest payments at specified intervals between two parties without the exchange of any underlying principal. Swaptions are options on interest rate swaps that give the purchaser the right, but not the obligation, to enter into an interest rate swap agreement during a specified period of time.
Trading Activities
FHN’s fixed income segment trades U.S. Treasury, U.S. Agency, government-guaranteed loan, mortgage-backed, corporate and municipal fixed income securities, and other securities for distribution to customers. When these securities settle on a delayed basis, they are considered forward contracts. Fixed income also enters into interest rate contracts, including caps, swaps, and floors, for its customers. In addition, fixed income enters into futures and option contracts to economically hedge interest rate risk associated with a portion of its securities inventory. These transactions are measured at fair value, with changes in fair value recognized currently in fixed income noninterest income. Related assets and liabilities are recorded on the Consolidated Condensed Statements of Condition as Derivative assets and Derivative liabilities. The FTN Financial Risk Committee and the Credit Risk Management Committee collaborate to mitigate credit risk related to these transactions. Credit risk is controlled
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Note 15 – Derivatives (Continued)
through credit approvals, risk control limits, and ongoing monitoring procedures. Total trading revenues were $44.5 million and $38.0 million for the three months ended March 31, 2019 and 2018, respectively. Trading revenues are inclusive of both derivative and non-derivative financial instruments, and are included in Fixed income noninterest income on the Consolidated Condensed Statements of Income.
The following tables summarize FHN’s derivatives associated with fixed income trading activities as of March 31, 2019 and December 31, 2018:

|  | March 31, 2019
(Dollars in thousands) |  | Notional |  | Assets |  | Liabilities
Customer interest rate contracts |  | $ | 2,279,361 |  |  | $ | 30,632 |  |  | $ | 14,245 |
Offsetting upstream interest rate contracts |  | 2,279,361 |  |  | 5,056 |  |  | 4,834 |
Option contracts purchased |  | 72,500 |  |  | 103 |  |  | — |
Forwards and futures purchased |  | 7,983,000 |  |  | 31,733 |  |  | 4,404 |
Forwards and futures sold |  | 8,373,739 |  |  | 5,243 |  |  | 32,284 |

|  | December 31, 2018
(Dollars in thousands) |  | Notional |  | Assets |  | Liabilities
Customer interest rate contracts |  | $ | 2,271,448 |  |  | $ | 18,744 |  |  | $ | 27,768 |
Offsetting upstream interest rate contracts |  | 2,271,448 |  |  | 4,014 |  |  | 9,041 |
Option contracts purchased |  | 20,000 |  |  | 25 |  |  | — |
Forwards and futures purchased |  | 4,684,177 |  |  | 28,304 |  |  | 181 |
Forwards and futures sold |  | 4,967,454 |  |  | 522 |  |  | 30,055 |

Interest Rate Risk Management
FHN’s ALCO focuses on managing market risk by controlling and limiting earnings volatility attributable to changes in interest rates. Interest rate risk exists to the extent that interest-earning assets and interest-bearing liabilities have different maturity or repricing characteristics. FHN uses derivatives, primarily swaps, that are designed to moderate the impact on earnings as interest rates change. Interest paid or received for swaps utilized by FHN to hedge the fair value of long term debt is recognized as an adjustment of the interest expense of the liabilities whose risk is being managed. FHN’s interest rate risk management policy is to use derivatives to hedge interest rate risk or market value of assets or liabilities, not to speculate. In addition, FHN has entered into certain interest rate swaps and caps as a part of a product offering to commercial customers that includes customer derivatives paired with upstream offsetting market instruments that, when completed, are designed to mitigate interest rate risk. These contracts do not qualify for hedge accounting and are measured at fair value with gains or losses included in current earnings in Noninterest expense on the Consolidated Condensed Statements of Income.
FHN has designated a derivative transaction in a hedging strategy to manage interest rate risk on $400.0 million of senior debt issued by FTBNA which matures in December 2019. This qualifies for hedge accounting under ASC 815-20 using the long-haul method. FHN entered into a pay floating, receive fixed interest rate swap to hedge the interest rate risk of the senior debt.
FHN has designated a derivative transaction in a hedging strategy to manage interest rate risk on $500.0 million of senior debt which matures in December 2020. This qualifies for hedge accounting under ASC 815-20 using the long-haul method. FHN entered into a pay floating, receive fixed interest rate swap to hedge the interest rate risk of the senior debt.
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Note 15 – Derivatives (Continued)
The following tables summarize FHN’s derivatives associated with interest rate risk management activities as of March 31, 2019 and December 31, 2018:

|  | March 31, 2019
(Dollars in thousands) |  | Notional |  | Assets |  | Liabilities
Customer Interest Rate Contracts Hedging |  |  |  |  |  |
Hedging Instruments and Hedged Items: |  |  |  |  |  |
Customer interest rate contracts |  | $ | 2,122,743 |  |  | $ | 37,754 |  |  | $ | 14,260 |
Offsetting upstream interest rate contracts |  | 2,122,743 |  |  | 7,232 |  |  | 6,731 |
Debt Hedging |  |  |  |  |  |
Hedging Instruments: |  |  |  |  |  |
Interest rate swaps |  | $ | 900,000 |  |  | N/A |  |  | $ | 448 |
Hedged Items: |  |  |  |  |  |
Term borrowings: |  |  |  |  |  |
Par |  | N/A |  |  | N/A |  |  | $ | 900,000 |
Cumulative fair value hedging adjustments |  | N/A |  |  | N/A |  |  | (10,828 | )
Unamortized premium/(discount) and issuance costs |  | N/A |  |  | N/A |  |  | (1,891 | )
Total carrying value |  | N/A |  |  | N/A |  |  | $ | 887,281 |

|  | December 31, 2018
(Dollars in thousands) |  | Notional |  | Assets |  | Liabilities
Customer Interest Rate Contracts Hedging |  |  |  |  |  |
Hedging Instruments and Hedged Items: |  |  |  |  |  |
Customer interest rate contracts |  | $ | 2,029,162 |  |  | $ | 20,262 |  |  | $ | 25,880 |
Offsetting upstream interest rate contracts |  | 2,029,162 |  |  | 8,154 |  |  | 9,153 |
Debt Hedging |  |  |  |  |  |
Hedging Instruments: |  |  |  |  |  |
Interest rate swaps |  | $ | 900,000 |  |  | $ | 127 |  |  | $ | 6 |
Hedged Items: |  |  |  |  |  |
Term borrowings: |  |  |  |  |  |
Par |  | N/A |  |  | N/A |  |  | $ | 900,000 |
Cumulative fair value hedging adjustments |  | N/A |  |  | N/A |  |  | (15,094 | )
Unamortized premium/(discount) and issuance costs |  | N/A |  |  | N/A |  |  | (2,295 | )
Total carrying value |  | N/A |  |  | N/A |  |  | $ | 882,611 |

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Note 15 – Derivatives (Continued)
The following table summarizes gains/(losses) on FHN’s derivatives associated with interest rate risk management activities for the three months ended March 31, 2019 and 2018:

|  | Three Months Ended March 31
|  | 2019 |  | 2018
(Dollars in thousands) |  | Gains/(Losses) |  | Gains/(Losses)
Customer Interest Rate Contracts Hedging |  |
Hedging Instruments and Hedged Items: |  |  |  |
Customer interest rate contracts (a) |  | $ | 29,112 |  |  | $ | (24,724 | )
Offsetting upstream interest rate contracts (a) |  | (29,112 | ) |  | 24,724 |
Debt Hedging |  |  |  |
Hedging Instruments: |  |  |  |
Interest rate swaps (b) |  | $ | 4,279 |  |  | $ | (6,595 | )
Hedged Items: |  |  |  |
Term borrowings (a) (c) |  | (4,266 | ) |  | 6,550 |

(a) | Gains/losses included in All other expense within the Consolidated Condensed Statements of Income.

(b) | Gains/losses included in the Interest expense.

(c) | Represents gains and losses attributable to changes in fair value due to interest rate risk as designated in ASC 815-20 hedging relationships.

In first quarter 2016, FHN entered into a pay floating, receive fixed interest rate swap in a hedging strategy to manage its exposure to the variability in cash flows related to the interest payments for the following five years on $250 million principal of debt instruments, which primarily consist of held-to-maturity trust preferred loans that have variable interest payments based on 3-month LIBOR. In first quarter 2017, FHN initiated cash flow hedges of $650 million notional amount that had initial durations between three and seven years. The debt instruments primarily consist of held-to-maturity commercial loans that have variable interest payments based on 1-month LIBOR. These qualify for hedge accounting as cash flow hedges under ASC 815-20. All changes in the fair value of these derivatives are recorded as a component of AOCI. Amounts are reclassified from AOCI to earnings as the hedged cash flows affect earnings. Interest paid or received for these swaps is recognized as an adjustment to interest income of the assets whose cash flows are being hedged.
The following tables summarize FHN’s derivative activities associated with cash flow hedges as of March 31, 2019 and December 31, 2018:

|  | March 31, 2019
(Dollars in thousands) |  | Notional |  | Assets |  | Liabilities
Cash Flow Hedges |  |  |  |  |  |
Hedging Instruments: |  |  |  |  |  |
Interest rate swaps |  | $ | 900,000 |  |  | N/A |  |  | $ | 891 |
Hedged Items: |  |  |  |  |  |
Variability in cash flows related to debt instruments (primarily loans) |  | N/A |  |  | $ | 900,000 |  |  | N/A |

|  | December 31, 2018
(Dollars in thousands) |  | Notional |  | Assets |  | Liabilities
Cash Flow Hedges |  |  |  |  |  |
Hedging Instruments: |  |  |  |  |  |
Interest rate swaps |  | $ | 900,000 |  |  | $ | 888 |  |  | $ | 5 |
Hedged Items: |  |  |  |  |  |
Variability in cash flows related to debt instruments (primarily loans) |  | N/A |  |  | $ | 900,000 |  |  | N/A |

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Note 15 – Derivatives (Continued)
The following table summarizes gains/(losses) on FHN’s derivatives associated with cash flow hedges for the three months ended March 31, 2019 and 2018:

|  | Three Months Ended March 31
|  | 2019 |  | 2018
(Dollars in thousands) |  | Gains/(Losses) |  | Gains/(Losses)
Cash Flow Hedges |  |
Hedging Instruments: |  |  |  |
Interest rate swaps (a) |  | $ | 7,218 |  |  | $ | (11,618 | )
Gain/(loss) recognized in Other comprehensive income/(loss) |  | 3,936 |  |  | (8,844 | )
Gain/(loss) reclassified from AOCI into Interest income |  | 1,451 |  |  | (155 | )

(a) | Approximately $5.0 million of pre-tax losses are expected to be reclassified into earnings in the next twelve months.

Other Derivatives
In conjunction with the sales of a portion of its Visa Class B shares in 2010 and 2011, FHN and the purchaser entered into derivative transactions whereby FHN will make or receive cash payments whenever the conversion ratio of the Visa Class B shares into Visa Class A shares is adjusted. FHN is also required to make periodic financing payments to the purchasers until all of Visa's covered litigation matters are resolved. In third quarter 2018, FHN sold the remainder of its Visa Class B shares, entering into a similar derivative arrangement with the counterparty. All of these derivatives extend until the end of Visa’s Covered Litigation matters. In September 2018, Visa reached a preliminary settlement for one class of plaintiffs in its Payment Card Interchange matter which has received court approval. This settlement contains opt out provisions for individual plaintiffs as well as a termination option if opt outs exceed a specified threshold. Settlement has not been reached with the second class of plaintiffs in this matter and other covered litigation matters are also pending judicial resolution. Accordingly, the value and timing for completion of Visa’s Covered Litigation matters are uncertain.
The derivative transaction executed in third quarter 2018 includes a contingent accelerated termination clause based on the credit ratings of FHN and FTBNA. FHN has not received or paid collateral related to this contract. As of March 31, 2019 and December 31, 2018, the derivative liabilities associated with the sales of Visa Class B shares were $29.0 million and $31.5 million, respectively. See Note 17 - Fair Value of Assets & Liabilities for discussion of the valuation inputs and processes for these Visa-related derivatives.
FHN utilizes cross currency swaps and cross currency interest rate swaps to economically hedge its exposure to foreign currency risk and interest rate risk associated with non-U.S. dollar denominated loans. As of March 31, 2019 and December 31, 2018, these loans were valued at $15.2 million and $11.0 million, respectively. The balance sheet amount and the gains/losses associated with these derivatives were not significant.
Master Netting and Similar Agreements
As previously discussed, FHN uses master netting agreements, mutual margining agreements and collateral posting requirements to minimize credit risk on derivative contracts. Master netting and similar agreements are used when counterparties have multiple derivatives contracts that allow for a “right of setoff,” meaning that a counterparty may net offsetting positions and collateral with the same counterparty under the contract to determine a net receivable or payable. The following discussion provides an overview of these arrangements which may vary due to the derivative type and market in which a derivative transaction is executed.
Interest rate derivatives are subject to agreements consistent with standard agreement forms of the International Swap and Derivatives Association (“ISDA”). Currently, all interest rate derivative contracts are entered into as over-the-counter transactions and collateral posting requirements are based on the net asset or liability position with each respective counterparty. For contracts that require central clearing, novation to a counterparty with access to a clearinghouse occurs and margin is posted. Cash margin received (posted) that is considered settlements for the derivative contracts is included in the respective derivative asset (liability) value. Cash margin that is considered collateral received (posted) for interest rate derivatives is recognized as a liability (asset) on FHN’s Consolidated Condensed Statements of Condition.
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Note 15 – Derivatives (Continued)
Interest rate derivatives with customers that are smaller financial institutions typically require posting of collateral by the counterparty to FHN. This collateral is subject to a threshold with daily adjustments based upon changes in the level or fair value of the derivative position. Positions and related collateral can be netted in the event of default. Collateral pledged by a counterparty is typically cash or securities. The securities pledged as collateral are not recognized within FHN’s Consolidated Condensed Statements of Condition. Interest rate derivatives associated with lending arrangements share the collateral with the related loan(s). The derivative and loan positions may be netted in the event of default. For disclosure purposes, the entire collateral amount is allocated to the loan.
Interest rate derivatives with larger financial institutions entered into prior to required central clearing typically contain provisions whereby the collateral posting thresholds under the agreements adjust based on the credit ratings of both counterparties. If the credit rating of FHN and/or FTBNA is lowered, FHN could be required to post additional collateral with the counterparties. Conversely, if the credit rating of FHN and/or FTBNA is increased, FHN could have collateral released and be required to post less collateral in the future. Also, if a counterparty’s credit ratings were to decrease, FHN and/or FTBNA could require the posting of additional collateral; whereas if a counterparty’s credit ratings were to increase, the counterparty could require the release of excess collateral. Collateral for these arrangements is adjusted daily based on changes in the net fair value position with each counterparty.
The net fair value, determined by individual counterparty, of all derivative instruments with adjustable collateral posting thresholds was $27.2 million of assets and $16.4 million of liabilities on March 31, 2019, and $20.7 million of assets and $37.8 million of liabilities on December 31, 2018. As of March 31, 2019 and December 31, 2018, FHN had received collateral of $86.3 million and $86.6 million and posted collateral of $18.6 million and $16.2 million, respectively, in the normal course of business related to these agreements.
Certain agreements entered into prior to required central clearing also contain accelerated termination provisions, inclusive of the right of offset, if a counterparty’s credit rating falls below a specified level. If a counterparty’s debt rating (including FHN’s and FTBNA’s) were to fall below these minimums, these provisions would be triggered, and the counterparties could terminate the agreements and require immediate settlement of all derivative contracts under the agreements. The net fair value, determined by individual counterparty, of all derivative instruments with credit-risk-related contingent accelerated termination provisions was $27.2 million of assets and $10.9 million of liabilities on March 31, 2019, and $19.0 million of assets and $33.2 million of liabilities on December 31, 2018. As of March 31, 2019 and December 31, 2018, FHN had received collateral of $86.3 million and $84.5 million and posted collateral of $13.5 million and $15.2 million, respectively, in the normal course of business related to these contracts.
FHN’s fixed income segment buys and sells various types of securities for its customers. When these securities settle on a delayed basis, they are considered forward contracts, and are generally not subject to master netting agreements. For futures and options, FHN transacts through a third party, and the transactions are subject to margin and collateral maintenance requirements. In the event of default, open positions can be offset along with the associated collateral.
For this disclosure, FHN considers the impact of master netting and other similar agreements which allow FHN to settle all contracts with a single counterparty on a net basis and to offset the net derivative asset or liability position with the related securities and cash collateral. The application of the collateral cannot reduce the net derivative asset or liability position below zero, and therefore any excess collateral is not reflected in the following tables.
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Note 15 – Derivatives (Continued)
The following table provides details of derivative assets and collateral received as presented on the Consolidated Condensed Statements of Condition as of March 31, 2019 and December 31, 2018:

|  |  |  |  |  |  |  | Gross amounts not offset in the Statements of Condition |  |
(Dollars in thousands) |  | Gross amounts of recognized assets |  | Gross amounts offset in the Statements of Condition |  | Net amounts of assets presented in the Statements of Condition (a) |  | Derivative liabilities available for offset |  | Collateral received |  | Net amount
Derivative assets: |  |  |  |  |  |  |  |  |  |  |  |
March 31, 2019 (b) |  | $ | 81,003 |  |  | $ | — |  |  | $ | 81,003 |  |  | $ | (12,081 | ) |  | $ | (68,887 | ) |  | $ | 35 |
December 31, 2018 (b) |  | 52,562 |  |  | — |  |  | 52,562 |  |  | (12,745 | ) |  | (39,637 | ) |  | 180 |

(a) | Included in Derivative assets on the Consolidated Condensed Statements of Condition. As of March 31, 2019 and December 31, 2018, $37.1 million and $28.9 million, respectively, of derivative assets (primarily fixed income forward contracts) have been excluded from these tables because they are generally not subject to master netting or similar agreements.

(b) | Amounts are comprised entirely of interest rate derivative contracts.

The following table provides details of derivative liabilities and collateral pledged as presented on the Consolidated Condensed Statements of Condition as of March 31, 2019 and December 31, 2018:

|  |  |  |  |  |  |  | Gross amounts not offset in the Statements of Condition |  |
(Dollars in thousands) |  | Gross amounts of recognized liabilities |  | Gross amounts offset in the Statements of Condition |  | Net amounts of liabilities presented in the Statements of Condition (a) |  | Derivative assets available for offset |  | Collateral pledged |  | Net amount
Derivative liabilities: |  |  |  |  |  |  |  |  |  |  |  |
March 31, 2019 (b) |  | $ | 41,409 |  |  | $ | — |  |  | $ | 41,409 |  |  | $ | (12,081 | ) |  | $ | (28,679 | ) |  | $ | 649 |
December 31, 2018 (b) |  | 71,853 |  |  | — |  |  | 71,853 |  |  | (12,745 | ) |  | (54,773 | ) |  | 4,335 |

(a) | Included in Derivative liabilities on the Consolidated Condensed Statements of Condition. As of March 31, 2019 and December 31, 2018, $65.7 million and $61.9 million, respectively, of derivative liabilities (primarily Visa-related derivatives and fixed income forward contracts) have been excluded from these tables because they are generally not subject to master netting or similar agreements.

(b) | Amounts are comprised entirely of interest rate derivative contracts.

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Note 16 – Master Netting and Similar Agreements—Repurchase, Reverse Repurchase, and Securities Borrowing Transactions
For repurchase, reverse repurchase and securities borrowing transactions, FHN and each counterparty have the ability to offset all open positions and related collateral in the event of default. Due to the nature of these transactions, the value of the collateral for each transaction approximates the value of the corresponding receivable or payable. For repurchase agreements through FHN’s fixed income business (Securities purchased under agreements to resell and Securities sold under agreements to repurchase), transactions are collateralized by securities and/or government guaranteed loans which are delivered on the settlement date and are maintained throughout the term of the transaction. For FHN’s repurchase agreements through banking activities (Securities sold under agreements to repurchase), securities are typically pledged at settlement and not released until maturity. For asset positions, the collateral is not included on FHN’s Consolidated Condensed Statements of Condition. For liability positions, securities collateral pledged by FHN is generally represented within FHN’s trading or available-for-sale securities portfolios.
For this disclosure, FHN considers the impact of master netting and other similar agreements that allow FHN to settle all contracts with a single counterparty on a net basis and to offset the net asset or liability position with the related securities collateral. The application of the collateral cannot reduce the net asset or liability position below zero, and therefore any excess collateral is not reflected in the tables below.
The following table provides details of Securities purchased under agreements to resell as presented on the Consolidated Condensed Statements of Condition and collateral pledged by counterparties as of March 31, 2019 and December 31, 2018:

|  |  |  |  |  |  |  | Gross amounts not offset in the Statements of Condition |  |
(Dollars in thousands) |  | Gross amounts of recognized assets |  | Gross amounts offset in the Statements of Condition |  | Net amounts of assets presented in the Statements of Condition |  | Offsetting securities sold under agreements to repurchase |  | Securities collateral (not recognized on FHN’s Statements of Condition) |  | Net amount
Securities purchased under agreements to resell: |  |  |  |  |  |  |  |  |  |  |  |
March 31, 2019 |  | $ | 474,679 |  |  | $ | — |  |  | $ | 474,679 |  |  | $ | (1,276 | ) |  | $ | (469,450 | ) |  | $ | 3,953 |
December 31, 2018 |  | 386,443 |  |  | — |  |  | 386,443 |  |  | (261 | ) |  | (382,756 | ) |  | 3,426 |

The following table provides details of Securities sold under agreements to repurchase as presented on the Consolidated Condensed Statements of Condition and collateral pledged by FHN as of March 31, 2019 and December 31, 2018:

|  |  |  |  |  |  |  | Gross amounts not offset in the Statements of Condition |  |
(Dollars in thousands) |  | Gross amounts of recognized liabilities |  | Gross amounts offset in the Statements of Condition |  | Net amounts of liabilities presented in the Statements of Condition |  | Offsetting securities purchased under agreements to resell |  | Securities/ government guaranteed loans collateral |  | Net amount
Securities sold under agreements to repurchase: |  |  |  |  |  |  |  |  |  |  |  |
March 31, 2019 |  | $ | 745,788 |  |  | $ | — |  |  | $ | 745,788 |  |  | $ | (1,276 | ) |  | $ | (744,427 | ) |  | $ | 85 |
December 31, 2018 |  | 762,592 |  |  | — |  |  | 762,592 |  |  | (261 | ) |  | (762,322 | ) |  | 9 |

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Note 16 – Master Netting and Similar Agreements—Repurchase, Reverse Repurchase, and Securities Borrowing Transactions (Continued)
Due to the short duration of Securities sold under agreements to repurchase and the nature of collateral involved, the risks associated with these transactions are considered minimal. The following tables provide details, by collateral type, of the remaining contractual maturity of Securities sold under agreements to repurchase as of March 31, 2019 and December 31, 2018:

|  | March 31, 2019
(Dollars in thousands) |  | Overnight and Continuous |  | Up to 30 Days |  | Total
Securities sold under agreements to repurchase: |  |  |  |  |  |
U.S. treasuries |  | $ | 24,108 |  |  | $ | — |  |  | $ | 24,108 |
Government agency issued MBS |  | 366,837 |  |  | 9,140 |  |  | 375,977 |
Government agency issued CMO |  | 36,137 |  |  | — |  |  | 36,137 |
Government guaranteed loans (SBA and USDA) |  | 309,566 |  |  | — |  |  | 309,566 |
Total Securities sold under agreements to repurchase |  | $ | 736,648 |  |  | $ | 9,140 |  |  | $ | 745,788 |
|  | December 31, 2018
(Dollars in thousands) |  | Overnight and Continuous |  | Up to 30 Days |  | Total
Securities sold under agreements to repurchase: |  |  |  |  |  |
U.S. treasuries |  | $ | 16,321 |  |  | $ | — |  |  | $ | 16,321 |
Government agency issued MBS |  | 414,488 |  |  | 5,220 |  |  | 419,708 |
Government agency issued CMO |  | 36,688 |  |  | — |  |  | 36,688 |
Government guaranteed loans (SBA and USDA) |  | 289,875 |  |  | — |  |  | 289,875 |
Total Securities sold under agreements to repurchase |  | $ | 757,372 |  |  | $ | 5,220 |  |  | $ | 762,592 |

56

Note 17 – Fair Value of Assets & Liabilities
FHN groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. This hierarchy requires FHN to maximize the use of observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Each fair value measurement is placed into the proper level based on the lowest level of significant input. These levels are:

• | Level 1—Valuation is based upon quoted prices for identical instruments traded in active markets.

• | Level 2—Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

• | Level 3—Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models, and similar techniques.

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Note 17 – Fair Value of Assets & Liabilities (Continued)
Recurring Fair Value Measurements
The following table presents the balance of assets and liabilities measured at fair value on a recurring basis as of March 31, 2019:

|  | March 31, 2019
(Dollars in thousands) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Trading securities—fixed income: |  |  |  |  |  |  |  |
U.S. treasuries |  | $ | — |  |  | $ | 232,019 |  |  | $ | — |  |  | $ | 232,019 |
Government agency issued MBS |  | — |  |  | 292,020 |  |  | — |  |  | 292,020 |
Government agency issued CMO |  | — |  |  | 295,476 |  |  | — |  |  | 295,476 |
Other U.S. government agencies |  | — |  |  | 78,958 |  |  | — |  |  | 78,958 |
States and municipalities |  | — |  |  | 81,513 |  |  | — |  |  | 81,513 |
Corporate and other debt |  | — |  |  | 696,680 |  |  | — |  |  | 696,680 |
Equity, mutual funds, and other |  | — |  |  | 3,664 |  |  | — |  |  | 3,664 |
Total trading securities—fixed income |  | — |  |  | 1,680,330 |  |  | — |  |  | $ | 1,680,330 |
Trading securities—mortgage banking |  | — |  |  | — |  |  | 1,397 |  |  | 1,397 |
Loans held-for-sale (elected fair value) |  | — |  |  | — |  |  | 15,751 |  |  | 15,751 |
Securities available-for-sale: |  |  |  |  |  |  |  |
U.S. treasuries |  | — |  |  | 99 |  |  | — |  |  | 99 |
Government agency issued MBS |  | — |  |  | 2,385,809 |  |  | — |  |  | 2,385,809 |
Government agency issued CMO |  | — |  |  | 1,931,784 |  |  | — |  |  | 1,931,784 |
Other U.S. government agencies |  | — |  |  | 190,828 |  |  | — |  |  | 190,828 |
States and municipalities |  | — |  |  | 39,423 |  |  | — |  |  | 39,423 |
Corporate and other debt |  | — |  |  | 55,184 |  |  | — |  |  | 55,184 |
Interest-Only Strip (elected fair value) |  | — |  |  | — |  |  | 13,195 |  |  | 13,195 |
Total securities available-for-sale |  | — |  |  | 4,603,127 |  |  | 13,195 |  |  | 4,616,322 |
Other assets: |  |  |  |  |  |  |  |
Deferred compensation mutual funds |  | 41,097 |  |  | — |  |  | — |  |  | 41,097 |
Equity, mutual funds, and other |  | 22,326 |  |  | — |  |  | — |  |  | 22,326 |
Derivatives, forwards and futures |  | 36,976 |  |  | — |  |  | — |  |  | 36,976 |
Derivatives, interest rate contracts |  | — |  |  | 80,777 |  |  | — |  |  | 80,777 |
Derivatives, other |  | — |  |  | 375 |  |  | — |  |  | 375 |
Total other assets |  | 100,399 |  |  | 81,152 |  |  | — |  |  | 181,551 |
Total assets |  | $ | 100,399 |  |  | $ | 6,364,609 |  |  | $ | 30,343 |  |  | $ | 6,495,351 |
Trading liabilities—fixed income: |  |  |  |  |  |  |  |
U.S. treasuries |  | $ | — |  |  | $ | 284,394 |  |  | $ | — |  |  | $ | 284,394 |
Other U.S.government agencies |  | — |  |  | 16,817 |  |  | — |  |  | 16,817 |
Corporate and other debt |  | — |  |  | 128,458 |  |  | — |  |  | 128,458 |
Total trading liabilities—fixed income |  | — |  |  | 429,669 |  |  | — |  |  | 429,669 |
Other liabilities: |  |  |  |  |  |  |  |
Derivatives, forwards and futures |  | 36,688 |  |  | — |  |  | — |  |  | 36,688 |
Derivatives, interest rate contracts |  | — |  |  | 41,409 |  |  | — |  |  | 41,409 |
Derivatives, other |  | — |  |  | 56 |  |  | 28,970 |  |  | 29,026 |
Total other liabilities |  | 36,688 |  |  | 41,465 |  |  | 28,970 |  |  | 107,123 |
Total liabilities |  | $ | 36,688 |  |  | $ | 471,134 |  |  | $ | 28,970 |  |  | $ | 536,792 |

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Note 17 – Fair Value of Assets & Liabilities (Continued)
The following table presents the balance of assets and liabilities measured at fair value on a recurring basis as of December 31, 2018:

|  | December 31, 2018
(Dollars in thousands) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Trading securities—fixed income: |  |  |  |  |  |  |  |
U.S. treasuries |  | $ | — |  |  | $ | 169,799 |  |  | $ | — |  |  | $ | 169,799 |
Government agency issued MBS |  | — |  |  | 133,373 |  |  | — |  |  | 133,373 |
Government agency issued CMO |  | — |  |  | 330,456 |  |  | — |  |  | 330,456 |
Other U.S. government agencies |  | — |  |  | 76,733 |  |  | — |  |  | 76,733 |
States and municipalities |  | — |  |  | 54,234 |  |  | — |  |  | 54,234 |
Corporate and other debt |  | — |  |  | 682,068 |  |  | — |  |  | 682,068 |
Equity, mutual funds, and other |  | — |  |  | (19 | ) |  | — |  |  | (19 | )
Total trading securities—fixed income |  | — |  |  | 1,446,644 |  |  | — |  |  | 1,446,644 |
Trading securities—mortgage banking |  | — |  |  | — |  |  | 1,524 |  |  | 1,524 |
Loans held-for-sale (elected fair value) |  | — |  |  | — |  |  | 16,273 |  |  | 16,273 |
Securities available-for-sale: |  |  |  |  |  |  |  |
U.S. treasuries |  | — |  |  | 98 |  |  | — |  |  | 98 |
Government agency issued MBS |  | — |  |  | 2,420,106 |  |  | — |  |  | 2,420,106 |
Government agency issued CMO |  | — |  |  | 1,958,695 |  |  | — |  |  | 1,958,695 |
Other U.S. government agencies |  | — |  |  | 149,786 |  |  | — |  |  | 149,786 |
States and municipalities |  | — |  |  | 32,573 |  |  | — |  |  | 32,573 |
Corporate and other debt |  | — |  |  | 55,310 |  |  | — |  |  | 55,310 |
Interest-Only Strip (elected fair value) |  | — |  |  | — |  |  | 9,902 |  |  | 9,902 |
Total securities available-for-sale |  | — |  |  | 4,616,568 |  |  | 9,902 |  |  | 4,626,470 |
Other assets: |  |  |  |  |  |  |  |
Deferred compensation mutual funds |  | 37,771 |  |  | — |  |  | — |  |  | 37,771 |
Equity, mutual funds, and other |  | 22,248 |  |  | — |  |  | — |  |  | 22,248 |
Derivatives, forwards and futures |  | 28,826 |  |  | — |  |  | — |  |  | 28,826 |
Derivatives, interest rate contracts |  | — |  |  | 52,214 |  |  | — |  |  | 52,214 |
Derivatives, other |  | — |  |  | 435 |  |  | — |  |  | 435 |
Total other assets |  | 88,845 |  |  | 52,649 |  |  | — |  |  | 141,494 |
Total assets |  | $ | 88,845 |  |  | $ | 6,115,861 |  |  | $ | 27,699 |  |  | $ | 6,232,405 |
Trading liabilities—fixed income: |  |  |  |  |  |  |  |
U.S. treasuries |  | $ | — |  |  | $ | 207,739 |  |  | $ | — |  |  | $ | 207,739 |
Other U.S.government agencies |  | — |  |  | 98 |  |  | — |  |  | 98 |
Corporate and other debt |  | — |  |  | 127,543 |  |  | — |  |  | 127,543 |
Total trading liabilities—fixed income |  | — |  |  | 335,380 |  |  | — |  |  | 335,380 |
Other liabilities: |  |  |  |  |  |  |  |
Derivatives, forwards and futures |  | 30,236 |  |  | — |  |  | — |  |  | 30,236 |
Derivatives, interest rate contracts |  | — |  |  | 71,853 |  |  | — |  |  | 71,853 |
Derivatives, other |  | — |  |  | 84 |  |  | 31,540 |  |  | 31,624 |
Total other liabilities |  | 30,236 |  |  | 71,937 |  |  | 31,540 |  |  | 133,713 |
Total liabilities |  | $ | 30,236 |  |  | $ | 407,317 |  |  | $ | 31,540 |  |  | $ | 469,093 |

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Note 17 – Fair Value of Assets & Liabilities (Continued)
Changes in Recurring Level 3 Fair Value Measurements
The changes in Level 3 assets and liabilities measured at fair value for the three months ended March 31, 2019 and 2018, on a recurring basis are summarized as follows:

|  | Three Months Ended March 31, 2019 |  |
(Dollars in thousands) |  | Trading securities |  |  |  | Interest- only strips- AFS |  |  |  | Loans held- for-sale |  |  |  | Net derivative liabilities |  |
Balance on January 1, 2019 |  | $ | 1,524 |  |  |  |  | $ | 9,902 |  |  |  |  | $ | 16,273 |  |  |  |  | $ | (31,540 | ) |  |
Total net gains/(losses) included in: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | 21 |  |  |  |  | (1,258 | ) |  |  |  | 495 |  |  |  |  | 135 |  |  |
Purchases |  | — |  |  |  |  | 86 |  |  |  |  | — |  |  |  |  | — |  |  |
Sales |  | — |  |  |  |  | (13,012 | ) |  |  |  | — |  |  |  |  | — |  |  |
Settlements |  | (148 | ) |  |  |  | — |  |  |  |  | (1,017 | ) |  |  |  | 2,435 |  |  |
Net transfers into/(out of) Level 3 |  | — |  |  |  |  | 17,477 |  |  | (b) |  | — |  |  |  |  | — |  |  |
Balance on March 31, 2019 |  | $ | 1,397 |  |  |  |  | $ | 13,195 |  |  |  |  | $ | 15,751 |  |  |  |  | $ | (28,970 | ) |  |
Net unrealized gains/(losses) included in net income |  | $ | (30 | ) |  | (a) |  | $ | (894 | ) |  | (c) |  | $ | 495 |  |  | (a) |  | $ | 135 |  |  | (d)

|  | Three Months Ended March 31, 2018 |  |
(Dollars in thousands) |  | Trading securities |  |  |  | Interest-only-strips-AFS |  |  |  | Loans held-for-sale |  |  |  | Net derivative liabilities |  |
January 1, 2018 |  | $ | 2,151 |  |  |  |  | $ | 1,270 |  |  |  |  | $ | 18,926 |  |  |  |  | $ | (5,645 | ) |  |
Total net gains/(losses) included in: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | 16 |  |  |  |  | 1,592 |  |  |  |  | 169 |  |  |  |  | (296 | ) |  |
Purchases |  | — |  |  |  |  | — |  |  |  |  | 28 |  |  |  |  | — |  |  |
Sales |  | — |  |  |  |  | (9,193 | ) |  |  |  | — |  |  |  |  | — |  |  |
Settlements |  | (241 | ) |  |  |  | — |  |  |  |  | (789 | ) |  |  |  | 296 |  |  |
Net transfers into/(out of) Level 3 |  | — |  |  |  |  | 9,064 |  |  | (b) |  | — |  |  |  |  | — |  |  |
Balance on March 31, 2018 |  | $ | 1,926 |  |  |  |  | $ | 2,733 |  |  |  |  | $ | 18,334 |  |  |  |  | $ | (5,645 | ) |  |
Net unrealized gains/(losses) included in net income |  | $ | (25 | ) |  | (a) |  | $ | 19 |  |  | (c) |  | $ | 169 |  |  | (a) |  | $ | (296 | ) |  | (d)

(a) | Primarily included in mortgage banking income on the Consolidated Condensed Statements of Income.

(b) | Transfers into interest-only strips - AFS Level 3 measured on a recurring basis reflect movements from loans held-for-sale (Level 2 nonrecurring).

(c) | Primarily included in fixed income on the Consolidated Condensed Statements of Income.

(d) | Included in Other expense.

There were no net unrealized gains/(losses) for Level 3 assets and liabilities included in other comprehensive income as of March 31, 2019 and 2018.
Nonrecurring Fair Value Measurements
From time to time, FHN may be required to measure certain other financial assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or market (“LOCOM”) accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis which were still held on the Consolidated Condensed Statements of Condition at March 31, 2019, and December 31, 2018, respectively, the following tables provide the level of valuation assumptions used to determine each adjustment and the related carrying value.
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Note 17 – Fair Value of Assets & Liabilities (Continued)

|  | Carrying value at March 31, 2019
(Dollars in thousands) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Loans held-for-sale—other consumer |  | $ | — |  |  | $ | 18,137 |  |  | $ | — |  |  | $ | 18,137 |
Loans held-for-sale—SBAs and USDA |  | — |  |  | 494,445 |  |  | 1,006 |  |  | 495,451 |
Loans held-for-sale—first mortgages |  | — |  |  | — |  |  | 519 |  |  | 519 |
Loans, net of unearned income (a) |  | — |  |  | — |  |  | 59,657 |  |  | 59,657 |
OREO (b) |  | — |  |  | — |  |  | 20,676 |  |  | 20,676 |
Other assets (c) |  | — |  |  | — |  |  | 13,962 |  |  | 13,962 |

|  | Carrying value at December 31, 2018
(Dollars in thousands) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Loans held-for-sale—other consumer |  | $ | — |  |  | $ | 18,712 |  |  | $ | — |  |  | $ | 18,712 |
Loans held-for-sale—SBAs and USDA |  | — |  |  | 577,280 |  |  | 1,011 |  |  | 578,291 |
Loans held-for-sale—first mortgages |  | — |  |  | — |  |  | 541 |  |  | 541 |
Loans, net of unearned income (a) |  | — |  |  | — |  |  | 48,259 |  |  | 48,259 |
OREO (b) |  | — |  |  | — |  |  | 22,387 |  |  | 22,387 |
Other assets (c) |  | — |  |  | — |  |  | 8,845 |  |  | 8,845 |

(a) | Represents carrying value of loans for which adjustments are required to be based on the appraised value of the collateral less estimated costs to sell.

(b) | Represents the fair value of foreclosed properties that were measured subsequent to their initial classification as OREO. Balance excludes OREO related to government insured mortgages.

(c) | Represents tax credit investments accounted for under the equity method.

For assets measured on a nonrecurring basis which were still held on the Consolidated Condensed Statements of Condition at period end, the following table provides information about the fair value adjustments recorded during the three months ended March 31, 2019 and 2018:

|  | Net gains/(losses) Three Months Ended March 31
(Dollars in thousands) |  | 2019 |  | 2018
Loans held-for-sale—other consumer |  | $ | (200 | ) |  | $ | — |
Loans held-for-sale—SBAs and USDA |  | (683 | ) |  | (206 | )
Loans held-for-sale—first mortgages |  | 15 |  |  | 5 |
Loans, net of unearned income (a) |  | 200 |  |  | 502 |
OREO (b) |  | 35 |  |  | (1,160 | )
Other assets (c) |  | (675 | ) |  | (1,137 | )
|  | $ | (1,308 | ) |  | $ | (1,996 | )

(a) | Write-downs on these loans are recognized as part of provision for loan losses.

(b) | Represents losses of foreclosed properties that were measured subsequent to their initial classification as OREO. Balance excludes OREO related to government insured mortgages.

(c) | Represents tax credit investments accounted for under the equity method.

In first quarter of 2019, FHN recognized $.8 million of impairments for lease assets and $.5 million of impairments for long-lived tangible assets related to restructuring, repositioning, and efficiency efforts within the Corporate segment. In fourth, third, and second quarters of 2018, FHN recognized $1.9 million, $.7 million, and $1.3 million, respectively, of impairments of long-lived assets in its Corporate segment primarily related to optimization efforts for its facilities. In fourth and third quarter 2018 $.5 million and $1.0 million, respectively, of impairment charges previously recognized in 2017 in the Corporate segment were reversed based on the disposition price for the applicable location.
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Note 17 – Fair Value of Assets & Liabilities (Continued)
Level 3 Measurements
The following tables provide information regarding the unobservable inputs utilized in determining the fair value of Level 3 recurring and non-recurring measurements as of March 31, 2019 and December 31, 2018:

(Dollars in thousands) |  |
|  |  |  |  |  |  |  | Values Utilized
Level 3 Class |  | Fair Value at March 31, 2019 |  | Valuation Techniques |  | Unobservable Input |  | Range |  | Weighted Average (d)
Available-for-sale- securities SBA-interest only strips |  | $ | 13,195 |  |  | Discounted cash flow |  | Constant prepayment rate |  | 12% |  | 12%
|  |  |  |  |  | Bond equivalent yield |  | 15%- 16% |  | 15%
Loans held-for-sale - residential real estate |  | 16,270 |  |  | Discounted cash flow |  | Prepayment speeds - First mortgage |  | 2% - 10% |  | 3%
|  |  |  |  |  | Prepayment speeds - HELOC |  | 5% - 12% |  | 7.5%
|  |  |  |  |  | Foreclosure losses |  | 50% - 66% |  | 64%
|  |  |  |  |  | Loss severity trends - First mortgage |  | 3% - 25% of UPB |  | 17%
|  |  |  |  |  | Loss severity trends - HELOC |  | 50% - 100% of UPB |  | 50%
Loans held-for-sale- unguaranteed interest in SBA loans |  | 1,006 |  |  | Discounted cash flow |  | Constant prepayment rate |  | 8% - 12% |  | 10%
|  |  |  |  |  | Bond equivalent yield |  | 9% |  | 9%
Derivative liabilities, other |  | 28,970 |  |  | Discounted cash flow |  | Visa covered litigation resolution amount |  | $5.0 billion - $5.8 billion |  | $5.6 billion
|  |  |  |  |  | Probability of resolution scenarios |  | 15% - 25% |  | 22%
|  |  |  |  |  | Time until resolution |  | 18 - 48 months |  | 33 months
Loans, net of unearned income (a) |  | 59,657 |  |  | Appraisals from comparable properties |  | Marketability adjustments for specific properties |  | 0% - 10% of appraisal |  | NM
|  |  |  | Other collateral valuations |  | Borrowing base certificates adjustment |  | 20% - 50% of gross value |  | NM
|  |  |  |  |  | Financial Statements/Auction values adjustment |  | 0% - 25% of reported value |  | NM
OREO (b) |  | 20,676 |  |  | Appraisals from comparable properties |  | Adjustment for value changes since appraisal |  | 0% - 10% of appraisal |  | NM
Other assets (c) |  | 13,962 |  |  | Discounted cash flow |  | Adjustments to current sales yields for specific properties |  | 0% - 15% adjustment to yield |  | NM
|  |  |  | Appraisals from comparable properties |  | Marketability adjustments for specific properties |  | 0% - 25% of appraisal |  | NM

NM - Not meaningful.

(a) | Represents carrying value of loans for which adjustments are required to be based on the appraised value of the collateral less estimated costs to sell. Write-downs on these loans are recognized as part of provision for loan losses.

(b) | Represents the fair value of foreclosed properties that were measured subsequent to their initial classification as OREO. Balance excludes OREO related to government insured mortgages.

(c) | Represents tax credit investments accounted for under the equity method.

(d) | Weighted averages are determined by the relative fair value of the instruments or the relative contribution to an instrument's fair value.

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Note 17 – Fair Value of Assets & Liabilities (Continued)

(Dollars in thousands) |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Values Utilized
Level 3 Class |  | Fair Value at December 31, 2018 |  | Valuation Techniques |  | Unobservable Input |  | Range |  | Weighted Average (d)
Available-for-sale- securities SBA-interest only strips |  | $ | 9,902 |  |  | Discounted cash flow |  | Constant prepayment rate |  | 11% - 12% |  | 11%
|  |  |  |  |  | Bond equivalent yield |  | 14% - 15% |  | 14%
Loans held-for-sale - residential real estate |  | 16,815 |  |  | Discounted cash flow |  | Prepayment speeds - First mortgage |  | 2% - 10% |  | 3%
|  |  |  |  |  | Prepayment speeds - HELOC |  | 5% - 12% |  | 7.5%
|  |  |  |  |  | Foreclosure losses |  | 50% - 66% |  | 63%
|  |  |  |  |  | Loss severity trends - First mortgage |  | 2% - 25% of UPB |  | 17%
|  |  |  |  |  | Loss severity trends - HELOC |  | 50% - 100% of UPB |  | 50%
Loans held-for-sale- unguaranteed interest in SBA loans |  | 1,011 |  |  | Discounted cash flow |  | Constant prepayment rate |  | 8% - 12% |  | 10%
|  |  |  |  |  |  | Bond equivalent yield |  | 9% |  | 9%
Derivative liabilities, other |  | 31,540 |  |  | Discounted cash flow |  | Visa covered litigation resolution amount |  | $5.0 billion - $5.8 billion |  | $5.6 billion
|  |  |  |  |  | Probability of resolution scenarios |  | 10% - 25% |  | 23%
|  |  |  |  |  | Time until resolution |  | 18 - 48 months |  | 36 months
Loans, net of unearned income (a) |  | 48,259 |  |  | Appraisals from comparable properties |  | Marketability adjustments for specific properties |  | 0% - 10% of appraisal |  | NM
|  |  |  | Other collateral valuations |  | Borrowing base certificates adjustment |  | 20% - 50% of gross value |  | NM
|  |  |  |  |  | Financial Statements/Auction values adjustment |  | 0% - 25% of reported value |  | NM
OREO (b) |  | 22,387 |  |  | Appraisals from comparable properties |  | Adjustment for value changes since appraisal |  | 0% - 10% of appraisal |  | NM
Other assets (c) |  | 8,845 |  |  | Discounted cash flow |  | Adjustments to current sales yields for specific properties |  | 0% - 15% adjustment to yield |  | NM
|  |  |  | Appraisals from comparable properties |  | Marketability adjustments for specific properties |  | 0% - 25% of appraisal |  | NM

NM - Not meaningful.

(a) | Represents carrying value of loans for which adjustments are required to be based on the appraised value of the collateral less estimated costs to sell. Write-downs on these loans are recognized as part of provision for loan losses.

(b) | Represents the fair value of foreclosed properties that were measured subsequent to their initial classification as OREO. Balance excludes OREO related to government insured mortgages.

(c) | Represents tax credit investments accounted for under the equity method.

(d) | Weighted averages are determined by the relative fair value of the instruments or the relative contribution to an instrument's fair value.

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Note 17 – Fair Value of Assets & Liabilities (Continued)
Securities AFS. Increases (decreases) in estimated prepayment rates and bond equivalent yields negatively (positively) affect the value of SBA interest only strips. Management additionally considers whether the loans underlying related SBA-interest only strips are delinquent, in default or prepaying, and adjusts the fair value down 20 - 100% depending on the length of time in default.
Loans held-for-sale. Foreclosure losses and prepayment rates are significant unobservable inputs used in the fair value measurement of FHN’s residential real estate loans held-for-sale. Loss severity trends are also assessed to evaluate the reasonableness of fair value estimates resulting from discounted cash flows methodologies as well as to estimate fair value for newly repurchased loans and loans that are near foreclosure. Significant increases (decreases) in any of these inputs in isolation would result in significantly lower (higher) fair value measurements. All observable and unobservable inputs are re-assessed quarterly.
Increases (decreases) in estimated prepayment rates and bond equivalent yields negatively (positively) affect the value of unguaranteed interests in SBA loans. Unguaranteed interest in SBA loans held-for-sale are carried at less than the outstanding balance due to credit risk estimates. Credit risk adjustments may be reduced if prepayment is likely or as consistent payment history is realized. Management also considers other factors such as delinquency or default and adjusts the fair value accordingly.
Derivative liabilities. In conjunction with the sales of portions of its Visa Class B shares, FHN and the purchasers entered into derivative transactions whereby FHN will make, or receive, cash payments whenever the conversion ratio of the Visa Class B shares into Visa Class A shares is adjusted. FHN uses a discounted cash flow methodology in order to estimate the fair value of FHN’s derivative liabilities associated with its prior sales of Visa Class B shares. The methodology includes estimation of both the resolution amount for Visa’s Covered Litigation matters as well as the length of time until the resolution occurs. Significant increases (decreases) in either of these inputs in isolation would result in significantly higher (lower) fair value measurements for the derivative liabilities. Additionally, FHN performs a probability weighted multiple resolution scenario to calculate the estimated fair value of these derivative liabilities. Assignment of higher (lower) probabilities to the larger potential resolution scenarios would result in an increase (decrease) in the estimated fair value of the derivative liabilities. Since this estimation process requires application of judgment in developing significant unobservable inputs used to determine the possible outcomes and the probability weighting assigned to each scenario, these derivatives have been classified within Level 3 in fair value measurements disclosures.
Loans, net of unearned income and Other Real Estate Owned. Collateral-dependent loans and OREO are primarily valued using appraisals based on sales of comparable properties in the same or similar markets. Other collateral (receivables, inventory, equipment, etc.) is valued through borrowing base certificates, financial statements and/or auction valuations. These valuations are discounted based on the quality of reporting, knowledge of the marketability/collectability of the collateral and historical disposition rates.
Other assets – tax credit investments. The estimated fair value of tax credit investments accounted for under the equity method is generally determined in relation to the yield (i.e., future tax credits to be received) an acquirer of these investments would expect in relation to the yields experienced on current new issue and/or secondary market transactions. Thus, as tax credits are recognized, the future yield to a market participant is reduced, resulting in consistent impairment of the individual investments. Individual investments are reviewed for impairment quarterly, which may include the consideration of additional marketability discounts related to specific investments which typically includes consideration of the underlying property’s appraised value.
Fair Value Option
FHN has elected the fair value option on a prospective basis for almost all types of mortgage loans originated for sale purposes under the Financial Instruments Topic (“ASC 825”) except for mortgage origination operations which utilize the platform acquired from CBF. FHN determined that the election reduces certain timing differences and better matches changes in the value of such loans with changes in the value of derivatives and forward delivery commitments used as economic hedges for these assets at the time of election.
Repurchased loans are recognized within loans held-for-sale at fair value at the time of repurchase, which includes consideration of the credit status of the loans and the estimated liquidation value. FHN has elected to continue recognition of these loans at fair value in periods subsequent to reacquisition. Due to the credit-distressed nature of the vast majority of repurchased loans and the related loss severities experienced upon repurchase, FHN believes that the fair value election provides a more timely recognition of changes in value for these loans that occur subsequent to repurchase. Absent the fair value election, these loans would be subject to valuation at the LOCOM value, which would prevent subsequent values from exceeding the initial fair value, determined at the time of repurchase, but would require recognition of subsequent declines in
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value. Thus, the fair value election provides for a more timely recognition of any potential future recoveries in asset values while not affecting the requirement to recognize subsequent declines in value.
The following tables reflect the differences between the fair value carrying amount of residential real estate loans held-for-sale measured at fair value in accordance with management’s election and the aggregate unpaid principal amount FHN is contractually entitled to receive at maturity.

|  | March 31, 2019
(Dollars in thousands) |  | Fair value carrying amount |  | Aggregate unpaid principal |  | Fair value carrying amount less aggregate unpaid principal
Residential real estate loans held-for-sale reported at fair value: |  |  |  |  |  |
Total loans |  | $ | 15,751 |  |  | $ | 22,568 |  |  | $ | (6,817 | )
Nonaccrual loans |  | 4,382 |  |  | 7,761 |  |  | (3,379 | )
Loans 90 days or more past due and still accruing |  | — |  |  | — |  |  | — |
|  | December 31, 2018
(Dollars in thousands) |  | Fair value carrying amount |  | Aggregate unpaid principal |  | Fair value carrying amount less aggregate unpaid principal
Residential real estate loans held-for-sale reported at fair value: |  |  |  |  |  |
Total loans |  | $ | 16,273 |  |  | $ | 23,567 |  |  | $ | (7,294 | )
Nonaccrual loans |  | 4,536 |  |  | 8,128 |  |  | (3,592 | )
Loans 90 days or more past due and still accruing |  | 171 |  |  | 281 |  |  | (110 | )

Assets and liabilities accounted for under the fair value election are initially measured at fair value with subsequent changes in fair value recognized in earnings. Such changes in the fair value of assets and liabilities for which FHN elected the fair value option are included in current period earnings with classification in the income statement line item reflected in the following table:

| Three Months Ended March 31
(Dollars in thousands) | 2019 |  | 2018
Changes in fair value included in net income: |  |  |
Mortgage banking noninterest income |  |  |
Loans held-for-sale | $ | 495 |  |  | $ | 169 |

For the three months ended March 31, 2019, and 2018, the amounts for residential real estate loans held-for-sale included gains of $.3 million in pretax earnings that are attributable to changes in instrument-specific credit risk. The portion of the fair value adjustments related to credit risk was determined based on estimated default rates and estimated loss severities. Interest income on residential real estate loans held-for-sale measured at fair value is calculated based on the note rate of the loan and is recorded in the interest income section of the Consolidated Condensed Statements of Income as interest on loans held-for-sale.
FHN has elected to account for retained interest-only strips from guaranteed SBA loans recorded in available-for-sale securities at fair value through earnings. Since these securities are subject to the risk that prepayments may result in FHN not recovering all or a portion of its recorded investment, the fair value election results in a more timely recognition of the effects of estimated prepayments through earnings rather than being recognized through other comprehensive income with periodic review for other-than-temporary impairment. Gains or losses are recognized through fixed income revenues and are presented in the recurring measurements table.
Determination of Fair Value
In accordance with ASC 820-10-35, fair values are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following describes the assumptions and methodologies used to estimate the fair value of financial instruments recorded at fair value in the
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Consolidated Condensed Statements of Condition and for estimating the fair value of financial instruments for which fair value is disclosed under ASC 825-10-50.
Short-term financial assets. Federal funds sold, securities purchased under agreements to resell, and interest bearing deposits with other financial institutions and the Federal Reserve are carried at historical cost. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.
Trading securities and trading liabilities. Trading securities and trading liabilities are recognized at fair value through current earnings. Trading inventory held for broker-dealer operations is included in trading securities and trading liabilities. Broker-dealer long positions are valued at bid price in the bid-ask spread. Short positions are valued at the ask price. Inventory positions are valued using observable inputs including current market transactions, LIBOR and U.S. treasury curves, credit spreads, and consensus prepayment speeds. Trading loans are valued using observable inputs including current market transactions, swap rates, mortgage rates, and consensus prepayment speeds.
Trading securities also include retained interests in prior mortgage securitizations that qualify as financial assets, which include primarily principal-only strips. FHN uses inputs including yield curves, credit spreads, and prepayment speeds to determine the fair value of principal-only strips.
Securities available-for-sale. Securities available-for-sale includes the investment portfolio accounted for as available-for-sale under ASC 320-10-25. Valuations of available-for-sale securities are performed using observable inputs obtained from market transactions in similar securities. Typical inputs include LIBOR and U.S. treasury curves, consensus prepayment estimates, and credit spreads. When available, broker quotes are used to support these valuations.
Interest only strips are valued at elected fair value based on an income approach using an internal valuation model. The internal valuation model includes assumptions regarding projections of future cash flows, prepayment rates, default rates and interest only strip terms. These securities bear the risk of loan prepayment or default that may result in the Company not recovering all or a portion of its recorded investment. When appropriate, valuations are adjusted for various factors including default or prepayment status of the underlying SBA loans. Because of the inherent uncertainty of valuation, those estimated values may be higher or lower than the values that would have been used had a ready market for the securities existed, and may change in the near term.
Loans held-for-sale. Residential real estate loans held-for-sale are valued using current transaction prices and/or values on similar assets when available, including committed bids for specific loans or loan portfolios. Uncommitted bids may be adjusted based on other available market information. For all other loans FHN determines the fair value of residential real estate loans held-for-sale using a discounted cash flow model which incorporates both observable and unobservable inputs. Inputs include current mortgage rates for similar products, estimated prepayment rates, foreclosure losses, and various loan performance measures (delinquency, LTV, credit score). Adjustments for delinquency and other differences in loan characteristics are typically reflected in the model’s discount rates. Loss severity trends and the value of underlying collateral are also considered in assessing the appropriate fair value for severely delinquent loans and loans in foreclosure. The valuation of HELOCs also incorporates estimated cancellation rates for loans expected to become delinquent.
Non-mortgage consumer loans held-for-sale are valued using committed bids for specific loans or loan portfolios or current market pricing for similar assets with adjustments for differences in credit standing (delinquency, historical default rates for similar loans), yield, collateral values and prepayment rates. If pricing for similar assets is not available, a discounted cash flow methodology is utilized, which incorporates all of these factors into an estimate of investor required yield for the discount rate.
The Company utilizes quoted market prices of similar instruments or broker and dealer quotations to value the SBA and USDA guaranteed loans. The Company values SBA-unguaranteed interests in loans held-for-sale based on individual loan characteristics, such as industry type and pay history which generally follows an income approach. Furthermore, these valuations are adjusted for changes in prepayment estimates and are reduced due to restrictions on trading. The fair value of other non-residential real estate loans held-for-sale is approximated by their carrying values based on current transaction values.
Collateral-Dependent loans. For loans measured using the estimated fair value of collateral less costs to sell, fair value is estimated using appraisals of the collateral. Collateral values are monitored and additional write-downs are recognized if it is determined that the estimated collateral values have declined further. Estimated costs to sell are based on current amounts of disposal costs for similar assets. Carrying value is considered to reflect fair value for these loans.
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Derivative assets and liabilities. The fair value for forwards and futures contracts is based on current transactions involving identical securities. Futures contracts are exchange-traded and thus have no credit risk factor assigned as the risk of non-performance is limited to the clearinghouse used.
Valuations of other derivatives (primarily interest rate related swaps) are based on inputs observed in active markets for similar instruments. Typical inputs include the LIBOR curve, Overnight Indexed Swap (“OIS”) curve, option volatility, and option skew. In measuring the fair value of these derivative assets and liabilities, FHN has elected to consider credit risk based on the net exposure to individual counterparties. Credit risk is mitigated for these instruments through the use of mutual margining and master netting agreements as well as collateral posting requirements. For derivative contracts with daily cash margin requirements that are considered settlements, the daily margin amount is netted within derivative assets or liabilities. Any remaining credit risk related to interest rate derivatives is considered in determining fair value through evaluation of additional factors such as customer loan grades and debt ratings. Foreign currency related derivatives also utilize observable exchange rates in the determination of fair value. The determination of fair value for FHN’s derivative liabilities associated with its prior sales of Visa Class B shares are classified within Level 3 in the fair value measurements disclosure as previously discussed in the unobservable inputs discussion.
OREO. OREO primarily consists of properties that have been acquired in satisfaction of debt. These properties are carried at the lower of the outstanding loan amount or estimated fair value less estimated costs to sell the real estate. Estimated fair value is determined using appraised values with subsequent adjustments for deterioration in values that are not reflected in the most recent appraisal.
Other assets. For disclosure purposes, other assets consist of tax credit investments, FRB and FHLB Stock, deferred compensation mutual funds and equity investments (including other mutual funds) with readily determinable fair values. Tax credit investments accounted for under the equity method are written down to estimated fair value quarterly based on the estimated value of the associated tax credits which incorporates estimates of required yield for hypothetical investors. The fair value of all other tax credit investments is estimated using recent transaction information with adjustments for differences in individual investments. Deferred compensation mutual funds are recognized at fair value, which is based on quoted prices in active markets.
Investments in the stock of the Federal Reserve Bank and Federal Home Loan Banks are recognized at historical cost in the Consolidated Condensed Statements of Condition which is considered to approximate fair value. Investments in mutual funds are measured at the funds’ reported closing net asset values. Investments in equity securities are valued using quoted market prices when available.
Defined maturity deposits. The fair value of these deposits is estimated by discounting future cash flows to their present value. Future cash flows are discounted by using the current market rates of similar instruments applicable to the remaining maturity. For disclosure purposes, defined maturity deposits include all time deposits.
Short-term financial liabilities. The fair value of federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings are approximated by the book value. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.
Loan commitments. Fair values of these commitments are based on fees charged to enter into similar agreements taking into account the remaining terms of the agreements and the counterparties’ credit standing.
Other commitments. Fair values of these commitments are based on fees charged to enter into similar agreements.
The following fair value estimates are determined as of a specific point in time utilizing various assumptions and estimates. The use of assumptions and various valuation techniques, as well as the absence of secondary markets for certain financial instruments, reduces the comparability of fair value disclosures between financial institutions. Due to market illiquidity, the fair values for loans, net of unearned income, loans held-for-sale, and term borrowings as of March 31, 2019 and December 31, 2018, involve the use of significant internally-developed pricing assumptions for certain components of these line items. The assumptions and valuations utilized for this disclosure are considered to reflect inputs that market participants would use in transactions involving these instruments as of the measurement date. The valuations of legacy assets, particularly consumer loans within the Non-Strategic segment and TRUPS loans, are influenced by changes in economic conditions since origination and risk perceptions of the financial sector. These considerations affect the estimate of a potential acquirer’s cost of capital and cash flow volatility assumptions from these assets and the resulting fair value measurements may depart significantly from FHN’s internal estimates of the intrinsic value of these assets.
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Assets and liabilities that are not financial instruments have not been included in the following table such as the value of long-term relationships with deposit and trust customers, premises and equipment, goodwill and other intangibles, deferred taxes, and certain other assets and other liabilities. Additionally, these measurements are solely for financial instruments as of the measurement date and do not consider the earnings potential of our various business lines. Accordingly, the total of the fair value amounts does not represent, and should not be construed to represent, the underlying value of FHN.
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The following table summarizes the book value and estimated fair value of financial instruments recorded in the Consolidated Condensed Statements of Condition as of March 31, 2019:

|  | March 31, 2019
|  | Book Value |  | Fair Value
(Dollars in thousands) |  |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |  |  |
Loans, net of unearned income and allowance for loan losses |  |  |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |  |  |
Commercial, financial and industrial |  | $ | 17,072,399 |  |  | $ | — |  |  | $ | — |  |  | $ | 17,166,407 |  |  | $ | 17,166,407 |
Commercial real estate |  | 3,912,561 |  |  | — |  |  | — |  |  | 3,916,819 |  |  | 3,916,819 |
Consumer: |  |  |  |  |  |  |  |  |  |
Consumer real estate |  | 6,127,430 |  |  | — |  |  | — |  |  | 6,112,800 |  |  | 6,112,800 |
Permanent mortgage |  | 199,179 |  |  | — |  |  | — |  |  | 210,387 |  |  | 210,387 |
Credit card & other |  | 493,568 |  |  | — |  |  | — |  |  | 495,130 |  |  | 495,130 |
Total loans, net of unearned income and allowance for loan losses |  | 27,805,137 |  |  | — |  |  | — |  |  | 27,901,543 |  |  | 27,901,543 |
Short-term financial assets: |  |  |  |  |  |  |  |  |  |
Interest-bearing cash |  | 1,013,254 |  |  | 1,013,254 |  |  | — |  |  | — |  |  | 1,013,254 |
Federal funds sold |  | 167,602 |  |  | — |  |  | 167,602 |  |  | — |  |  | 167,602 |
Securities purchased under agreements to resell |  | 474,679 |  |  | — |  |  | 474,679 |  |  | — |  |  | 474,679 |
Total short-term financial assets |  | 1,655,535 |  |  | 1,013,254 |  |  | 642,281 |  |  | — |  |  | 1,655,535 |
Trading securities (a) |  | 1,681,727 |  |  | — |  |  | 1,680,330 |  |  | 1,397 |  |  | 1,681,727 |
Loans held-for-sale |  |  |  |  |  |  |  |  |  |
Mortgage loans (elected fair value) (a) |  | 15,751 |  |  | — |  |  | — |  |  | 15,751 |  |  | 15,751 |
USDA & SBA loans- LOCOM |  | 495,451 |  |  | — |  |  | 499,307 |  |  | 1,015 |  |  | 500,322 |
Other consumer loans- LOCOM |  | 24,238 |  |  | — |  |  | 6,101 |  |  | 18,137 |  |  | 24,238 |
Mortgage loans- LOCOM |  | 59,222 |  |  | — |  |  | — |  |  | 59,222 |  |  | 59,222 |
Total loans held-for-sale |  | 594,662 |  |  | — |  |  | 505,408 |  |  | 94,125 |  |  | 599,533 |
Securities available-for-sale (a) |  | 4,616,322 |  |  | — |  |  | 4,603,127 |  |  | 13,195 |  |  | 4,616,322 |
Securities held-to-maturity |  | 10,000 |  |  | — |  |  | — |  |  | 9,889 |  |  | 9,889 |
Derivative assets (a) |  | 118,128 |  |  | 36,976 |  |  | 81,152 |  |  | — |  |  | 118,128 |
Other assets: |  |  |  |  |  |  |  |  |  |
Tax credit investments |  | 164,509 |  |  | — |  |  | — |  |  | 161,355 |  |  | 161,355 |
Deferred compensation mutual funds |  | 41,097 |  |  | 41,097 |  |  | — |  |  | — |  |  | 41,097 |
Equity, mutual funds, and other (b) |  | 216,684 |  |  | 22,326 |  |  | — |  |  | 194,358 |  |  | 216,684 |
Total other assets |  | 422,290 |  |  | 63,423 |  |  | — |  |  | 355,713 |  |  | 419,136 |
Total assets |  | $ | 36,903,801 |  |  | $ | 1,113,653 |  |  | $ | 7,512,298 |  |  | $ | 28,375,862 |  |  | $ | 37,001,813 |
Liabilities: |  |  |  |  |  |  |  |  |  |
Defined maturity deposits |  | $ | 4,454,622 |  |  | $ | — |  |  | $ | 4,454,687 |  |  | $ | — |  |  | $ | 4,454,687 |
Trading liabilities (a) |  | 429,669 |  |  | — |  |  | 429,669 |  |  | — |  |  | 429,669 |
Short-term financial liabilities: |  |  |  |  |  |  |  |  |  |
Federal funds purchased |  | 339,360 |  |  | — |  |  | 339,360 |  |  | — |  |  | 339,360 |
Securities sold under agreements to repurchase |  | 745,788 |  |  | — |  |  | 745,788 |  |  | — |  |  | 745,788 |
Other short-term borrowings |  | 140,832 |  |  | — |  |  | 140,832 |  |  | — |  |  | 140,832 |
Total short-term financial liabilities |  | 1,225,980 |  |  | — |  |  | 1,225,980 |  |  | — |  |  | 1,225,980 |
Term borrowings: |  |  |  |  |  |  |  |  |  |
Real estate investment trust-preferred |  | 46,185 |  |  | — |  |  | — |  |  | 47,000 |  |  | 47,000 |
Term borrowings—new market tax credit investment |  | 2,699 |  |  | — |  |  | — |  |  | 2,678 |  |  | 2,678 |
Secured borrowings |  | 21,119 |  |  | — |  |  | — |  |  | 21,119 |  |  | 21,119 |
Junior subordinated debentures |  | 143,589 |  |  | — |  |  | — |  |  | 138,947 |  |  | 138,947 |
Other long term borrowings |  | 964,334 |  |  | — |  |  | 967,047 |  |  | — |  |  | 967,047 |
Total term borrowings |  | 1,177,926 |  |  | — |  |  | 967,047 |  |  | 209,744 |  |  | 1,176,791 |
Derivative liabilities (a) |  | 107,123 |  |  | 36,688 |  |  | 41,465 |  |  | 28,970 |  |  | 107,123 |
Total liabilities |  | $ | 7,395,320 |  |  | $ | 36,688 |  |  | $ | 7,118,848 |  |  | $ | 238,714 |  |  | $ | 7,394,250 |

(a) | Classes are detailed in the recurring and nonrecurring measurement tables.

(b) | Level 1 primarily consists of mutual funds with readily determinable fair values. Level 3 includes restricted investments in FHLB-Cincinnati stock of $63.7 million and FRB stock of $130.7 million.

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The following table summarizes the book value and estimated fair value of financial instruments recorded in the Consolidated Statements of Condition as of December 31, 2018:

|  | December 31, 2018
|  | Book Value |  | Fair Value
(Dollars in thousands) |  |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |  |  |
Loans, net of unearned income and allowance for loan losses |  |  |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |  |  |
Commercial, financial and industrial |  | $ | 16,415,381 |  |  | $ | — |  |  | $ | — |  |  | $ | 16,438,272 |  |  | $ | 16,438,272 |
Commercial real estate |  | 3,999,559 |  |  | — |  |  | — |  |  | 3,997,736 |  |  | 3,997,736 |
Consumer: |  |  |  |  |  |  |  |  |  |
Consumer real estate |  | 6,223,077 |  |  | — |  |  | — |  |  | 6,194,066 |  |  | 6,194,066 |
Permanent mortgage |  | 211,448 |  |  | — |  |  | — |  |  | 227,254 |  |  | 227,254 |
Credit card & other |  | 505,643 |  |  | — |  |  | — |  |  | 507,001 |  |  | 507,001 |
Total loans, net of unearned income and allowance for loan losses |  | 27,355,108 |  |  | — |  |  | — |  |  | 27,364,329 |  |  | 27,364,329 |
Short-term financial assets: |  |  |  |  |  |  |  |  |  |
Interest-bearing cash |  | 1,277,611 |  |  | 1,277,611 |  |  | — |  |  | — |  |  | 1,277,611 |
Federal funds sold |  | 237,591 |  |  | — |  |  | 237,591 |  |  | — |  |  | 237,591 |
Securities purchased under agreements to resell |  | 386,443 |  |  | — |  |  | 386,443 |  |  | — |  |  | 386,443 |
Total short-term financial assets |  | 1,901,645 |  |  | 1,277,611 |  |  | 624,034 |  |  | — |  |  | 1,901,645 |
Trading securities (a) |  | 1,448,168 |  |  | — |  |  | 1,446,644 |  |  | 1,524 |  |  | 1,448,168 |
Loans held-for-sale |  |  |  |  |  |  |  |  |  |
Mortgage loans (elected fair value) (a) |  | 16,273 |  |  | — |  |  | — |  |  | 16,273 |  |  | 16,273 |
USDA & SBA loans- LOCOM |  | 578,291 |  |  | — |  |  | 582,476 |  |  | 1,015 |  |  | 583,491 |
Other consumer loans- LOCOM |  | 25,134 |  |  | — |  |  | 6,422 |  |  | 18,712 |  |  | 25,134 |
Mortgage loans- LOCOM |  | 59,451 |  |  | — |  |  | — |  |  | 59,451 |  |  | 59,451 |
Total loans held-for-sale |  | 679,149 |  |  | — |  |  | 588,898 |  |  | 95,451 |  |  | 684,349 |
Securities available-for-sale (a) |  | 4,626,470 |  |  | — |  |  | 4,616,568 |  |  | 9,902 |  |  | 4,626,470 |
Securities held-to-maturity |  | 10,000 |  |  | — |  |  | — |  |  | 9,843 |  |  | 9,843 |
Derivative assets (a) |  | 81,475 |  |  | 28,826 |  |  | 52,649 |  |  | — |  |  | 81,475 |
Other assets: |  |  |  |  |  |  |  |  |  |
Tax credit investments |  | 163,300 |  |  | — |  |  | — |  |  | 159,452 |  |  | 159,452 |
Deferred compensation assets |  | 37,771 |  |  | 37,771 |  |  | — |  |  | — |  |  | 37,771 |
Equity, mutual funds, and other (b) |  | 240,780 |  |  | 22,248 |  |  | — |  |  | 218,532 |  |  | 240,780 |
Total other assets |  | 441,851 |  |  | 60,019 |  |  | — |  |  | 377,984 |  |  | 438,003 |
Total assets |  | $ | 36,543,866 |  |  | $ | 1,366,456 |  |  | $ | 7,328,793 |  |  | $ | 27,859,033 |  |  | $ | 36,554,282 |
Liabilities: |  |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |
Defined maturity |  | $ | 4,105,777 |  |  | $ | — |  |  | $ | 4,082,822 |  |  | $ | — |  |  | $ | 4,082,822 |
Trading liabilities (a) |  | 335,380 |  |  | — |  |  | 335,380 |  |  | — |  |  | 335,380 |
Short-term financial liabilities: |  |  |  |  |  |  |  |  |  |
Federal funds purchased |  | 256,567 |  |  | — |  |  | 256,567 |  |  | — |  |  | 256,567 |
Securities sold under agreements to repurchase |  | 762,592 |  |  | — |  |  | 762,592 |  |  | — |  |  | 762,592 |
Other short-term borrowings |  | 114,764 |  |  | — |  |  | 114,764 |  |  | — |  |  | 114,764 |
Total short-term financial liabilities |  | 1,133,923 |  |  | — |  |  | 1,133,923 |  |  | — |  |  | 1,133,923 |
Term borrowings: |  |  |  |  |  |  |  |  |  |
Real estate investment trust-preferred |  | 46,168 |  |  | — |  |  | — |  |  | 47,000 |  |  | 47,000 |
Term borrowings—new market tax credit investment |  | 2,699 |  |  | — |  |  | — |  |  | 2,664 |  |  | 2,664 |
Secured Borrowings |  | 19,588 |  |  | — |  |  | — |  |  | 19,588 |  |  | 19,588 |
Junior subordinated debentures |  | 143,255 |  |  | — |  |  | — |  |  | 134,266 |  |  | 134,266 |
Other long term borrowings |  | 959,253 |  |  | — |  |  | 960,483 |  |  | — |  |  | 960,483 |
Total term borrowings |  | 1,170,963 |  |  | — |  |  | 960,483 |  |  | 203,518 |  |  | 1,164,001 |
Derivative liabilities (a) |  | 133,713 |  |  | 30,236 |  |  | 71,937 |  |  | 31,540 |  |  | 133,713 |
Total liabilities |  | $ | 6,879,756 |  |  | $ | 30,236 |  |  | $ | 6,584,545 |  |  | $ | 235,058 |  |  | $ | 6,849,839 |

(a) | Classes are detailed in the recurring and nonrecurring measurement tables.

(b) | Level 1 primarily consists of mutual funds with readily determinable fair values. Level 3 includes restricted investments in FHLB-Cincinnati stock of $87.9 million and FRB stock of $130.7 million.

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Table of Contents
Note 17 – Fair Value of Assets & Liabilities (Continued)
The following table presents the contractual amount and fair value of unfunded loan commitments and standby and other commitments as of March 31, 2019 and December 31, 2018:

|  | Contractual Amount |  | Fair Value
(Dollars in thousands) |  | March 31, 2019 |  | December 31, 2018 |  | March 31, 2019 |  | December 31, 2018
Unfunded Commitments: |  |  |  |  |  |  |  |
Loan commitments |  | $ | 11,000,220 |  |  | $ | 10,884,975 |  |  | $ | 2,735 |  |  | $ | 2,551 |
Standby and other commitments |  | 404,249 |  |  | 446,958 |  |  | 5,052 |  |  | 5,043 |

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Note 18 – Restructuring, Repositioning, and Efficiency
In first quarter 2019, FHN initiated a company-wide review of business practices with the goal of optimizing its expense base to improve profitability and create capacity to reinvest savings into technology and revenue production activities. Restructuring, repositioning, and efficiency charges related to these corporate-driven actions were $12.2 million in first quarter 2019 and are included in the corporate segment. Significant expenses recognized in the quarter resulted from the following actions:

• | Severance and other employee costs of $6.5 million primarily related to efficiency initiatives within corporate and bank services functions which are classified as Employee compensation, incentives and benefits within noninterest expense.

• | Expense of $4.3 million largely related to the identification of efficiency opportunities within the organization which is reflected in Professional fees.

Settlement of the obligations arising from current initiatives will be funded from operating cash flows.
Total expense recognized for the three months ended March 31, 2019 is presented in the table below:

Dollars in thousands | Total Expense
Employee compensation, incentives and benefits | $ | 6,505 |
Professional fees | 4,295 |
Occupancy | 817 |
Other (a) | 535 |
Total restructuring and repositioning charges | $ | 12,152 |

(a) | Primarily relates to costs associated with asset impairments.

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

General Information | 74
Forward-Looking Statements | 75
Financial Summary | 76
Statement of Condition Review | 83
Capital | 86
Asset Quality | 89
Risk Management | 105
Repurchase Obligations, Off-Balance Sheet Arrangements, and Other Contractual Obligations | 110
Market Uncertainties and Prospective Trends | 112
Critical Accounting Policies | 113
Non-GAAP Information | 113

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FIRST HORIZON NATIONAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL INFORMATION
First Horizon National Corporation (“FHN”) began as a community bank chartered in 1864. FHN's sole class of common stock, $.625 par value, is listed and trades on the New York Stock Exchange, Inc. under the symbol FHN.
FHN is the parent company of First Tennessee Bank National Association ("FTBNA"). FTBNA's principal divisions and subsidiaries operate under the brands of First Tennessee Bank, Capital Bank, FTB Advisors, and FTN Financial. FHN offers regional banking, wealth management and capital market services through the First Horizon family of companies. First Tennessee Bank, Capital Bank, and FTB Advisors provide consumer and commercial banking and wealth management services. FTN Financial ("FTNF"), which operates partly through a division of FTBNA and partly through subsidiaries, is an industry leader in fixed income sales, trading, and strategies for institutional clients in the U.S. and abroad. FTBNA has approximately 300 banking offices in eight southeastern U.S. states, and FTNF has 29 offices in 18 states across the U.S.
FHN is composed of the following operating segments:

• | Regional banking segment offers financial products and services, including traditional lending and deposit taking, to consumer and commercial customers in Tennessee, North Carolina, South Carolina, Florida and other selected markets. Regional banking also provides investments, wealth management, financial planning, trust services and asset management, mortgage banking, credit card, and cash management. Additionally, the regional banking segment includes correspondent banking which provides credit, depository, and other banking related services to other financial institutions nationally.

• | Fixed income segment consists of fixed income securities sales, trading, underwriting, and strategies for institutional clients in the U.S. and abroad, as well as loan sales, portfolio advisory services, and derivative sales.

• | Corporate segment consists of unallocated corporate expenses, expense on subordinated debt issuances, bank-owned life insurance, unallocated interest income associated with excess equity, net impact of raising incremental capital, revenue and expense associated with deferred compensation plans, funds management, tax credit investment activities, derivative valuation adjustments related to prior sales of Visa Class B shares, gain/(loss) on extinguishment of debt, acquisition- and integration-related costs and various charges related to restructuring, repositioning, and efficiency efforts.

• | Non-strategic segment consists of run-off consumer lending activities, legacy (pre-2009) mortgage banking elements, and the associated ancillary revenues and expenses related to these businesses. Non-strategic also includes the wind-down trust preferred loan portfolio and exited businesses.

On March 23, 2018, FHN divested two branches, including approximately $30 million of deposits and $2 million of loans. The branches, both in Greeneville, Tennessee, were divested in connection with First Horizon's agreement with the U.S. Department of Justice and commitments to the Board of Governors of the Federal Reserve System, which were entered into in connection with a customary review of FHN's merger with Capital Bank Financial Corporation ("CBF").
In second quarter 2018, FHN sold approximately $120 million UPB of its subprime auto loans. These loans, originally acquired as part of the CBF acquisition, did not fit within FHN's risk profile.
In April 2019, FHN sold Superior Financial Services, Inc., a subsidiary acquired as part of the CBF acquisition. The sale will result in the removal of approximately $25 million UPB of subprime consumer loans from Loans held-for-sale on FHN's Consolidated Condensed Statements of Condition.
In relation to all acquisitions, FHN's operating results include the operating results of the acquired assets and assumed liabilities subsequent to the acquisition date. Refer to Note 2 – Acquisitions and Divestitures in this report and in Exhibit 13 to FHN’s Annual Report on Form 10-K for the year ended December 31, 2018 for additional information.
For the purpose of this management’s discussion and analysis (“MD&A”), earning assets have been expressed as averages, unless otherwise noted, and loans have been disclosed net of unearned income. The following financial discussion should be read with the accompanying unaudited Consolidated Condensed Financial Statements and Notes in this report. Additional
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information including the 2018 financial statements, notes, and MD&A is provided in Exhibit 13 to FHN’s Annual Report on Form 10-K for the year ended December 31, 2018.
ADOPTION OF ACCOUNTING UPDATES
Effective January 1, 2019, FHN adopted the provisions of ASU 2016-02 "Leases" and related ASUs on a prospective basis which resulted in the recognition of approximately $185 million of lease assets and approximately $204 million of lease liabilities. See Note 1– Financial Information for additional information.
Non-GAAP Measures
Certain measures are included in the narrative and tables in this MD&A that are “non-GAAP”, meaning (under U.S. financial reporting rules) they are not presented in accordance with generally accepted accounting principles (“GAAP”) in the U.S. and also are not codified in U.S. banking regulations currently applicable to FHN. Although other entities may use calculation methods that differ from those used by FHN for non-GAAP measures, FHN’s management believes such measures are relevant to understanding the capital position or financial results of FHN. Non-GAAP measures are reported to FHN’s management and Board of Directors through various internal reports.
Presentation of regulatory measures, even those which are not GAAP, provide a meaningful base for comparability to other financial institutions subject to the same regulations as FHN, as demonstrated by their use by banking regulators in reviewing capital adequacy of financial institutions. Although not GAAP terms, these regulatory measures are not considered “non-GAAP” under U.S. financial reporting rules as long as their presentation conforms to regulatory standards. Regulatory measures used in this MD&A include: common equity tier 1 capital, generally defined as common equity less goodwill, other intangibles, and certain other required regulatory deductions; tier 1 capital, generally defined as the sum of core capital (including common equity and instruments that cannot be redeemed at the option of the holder) adjusted for certain items under risk based capital regulations; and risk-weighted assets (“RWA”), which is a measure of total on- and off-balance sheet assets adjusted for credit and market risk, used to determine regulatory capital ratios.
The non-GAAP measure presented in this filing is return on average tangible common equity (“ROTCE”). Refer to table 24 for a reconciliation of the non-GAAP to GAAP measure and presentation of the most comparable GAAP item.
FORWARD-LOOKING STATEMENTS
This MD&A contains forward-looking statements with respect to FHN’s beliefs, plans, goals, expectations, and estimates. Forward-looking statements are not a representation of historical information but instead pertain to future operations, strategies, financial results, or other developments. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “should,” “is likely,” “will,” “going forward,” and other expressions that indicate future events and trends identify forward-looking statements.
Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, operational, economic and competitive uncertainties and contingencies, many of which are beyond FHN’s control, and many of which, with respect to future business decisions and actions (including acquisitions and divestitures), are subject to change. Examples of uncertainties and contingencies include, among other important factors: global, general and local economic and business conditions, including economic recession or depression; the stability or volatility of values and activity in the residential housing and commercial real estate markets; potential requirements for FHN to repurchase, or compensate for losses from, previously sold or securitized mortgages or securities based on such mortgages; potential claims alleging mortgage servicing failures, individually, on a class basis, or as master servicer of securitized loans; potential claims relating to participation in government programs, especially lending or other financial services programs; expectations of and actual timing and amount of interest rate movements, including the slope and shape of the yield curve, which can have a significant impact on a financial services institution; market and monetary fluctuations, including fluctuations in mortgage markets; inflation or deflation; customer, investor, competitor, regulatory, and legislative responses to any or all of these conditions; the financial condition of borrowers and other counterparties; competition within and outside the financial services industry; geopolitical developments including possible terrorist activity; natural disasters; effectiveness and cost-efficiency of FHN’s hedging practices; technological changes; fraud, theft, or other incursions through conventional, electronic, or other means directly or indirectly affecting FHN or its customers, business counterparties or competitors; demand for FHN’s product offerings; new products and services in the industries in which FHN operates; the increasing use of new technologies to interact with customers and others; and critical accounting estimates. Other factors are those inherent in originating, selling, servicing, and holding loans and loan-based assets, including prepayment risks, pricing concessions, fluctuation in U.S. housing and other
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real estate prices, fluctuation of collateral values, and changes in customer profiles. Additionally, the actions of the Securities and Exchange Commission (“SEC”), the Financial Accounting Standards Board (“FASB”), the Office of the Comptroller of the Currency (“OCC”), the Board of Governors of the Federal Reserve System (“Federal Reserve” or “Fed”), the Federal Deposit Insurance Corporation (“FDIC”), the Financial Industry Regulatory Authority (“FINRA”), the U.S. Department of the Treasury (“U.S. Treasury”), the Municipal Securities Rulemaking Board (“MSRB”), the Consumer Financial Protection Bureau (“CFPB”), the Financial Stability Oversight Council (“Council”), the Public Company Accounting Oversight Board (“PCAOB”), and other regulators and agencies; pending, threatened, or possible future regulatory, administrative, and judicial outcomes, actions, and proceedings; current or future Executive orders; changes in laws and regulations applicable to FHN; and FHN’s success in executing its business plans and strategies and managing the risks involved in the foregoing, could cause actual results to differ, perhaps materially, from those contemplated by the forward-looking statements.
FHN assumes no obligation to update or revise any forward-looking statements that are made in this Quarterly Report of which this MD&A is a part or otherwise from time to time. Actual results could differ and expectations could change, possibly materially, because of one or more factors, including those presented in this Forward-Looking Statements section, in other sections of this MD&A, in other parts of and exhibits to this Quarterly Report on Form 10-Q for the period ended March 31, 2019, and in documents incorporated into this Quarterly Report.
FINANCIAL SUMMARY
In first quarter 2019, FHN reported net income available to common shareholders of $99.0 million, or $.31 per diluted share, compared to net income available to common of $90.6 million, or $.27 per diluted share in first quarter 2018. Results improved in first quarter 2019 relative to the prior year driven by a decrease in noninterest expense and higher fee income, somewhat offset by an increase in loan loss provision expense and lower net interest income ("NII").
Total revenue was $435.6 million in first quarter 2019 compared to $437.2 million in first quarter 2018. NII decreased to $294.5 million in first quarter 2019 from $301.2 million in first quarter 2018. The decline in NII was primarily attributable to lower loan accretion and higher deposits rates, somewhat mitigated by balance sheet growth. Noninterest income increased 4 percent, or $5.0 million in first quarter 2019 due in large part to an increase in fixed income sales revenue and higher deferred compensation income as a result of equity market valuations. Fee income was negatively impacted by lower deposit transactions and cash management income in first quarter 2019 relative to the prior year.
Noninterest expense decreased 5 percent to $296.1 million in first quarter 2019 from $313.3 million in first quarter 2018. Expenses decreased in first quarter 2019 largely driven by lower acquisition- and integration- related expenses relative to the prior year. Additionally, a strategic focus on expense optimization contributed to broad-based cost savings across multiple expense categories. These decreases were partially offset by increases in severance and other employee costs and professional fees related to restructuring, repositioning, and efficiency initiatives, and higher advertising expense recognized in first quarter 2019 relative to first quarter 2018.
Asset quality trends were stable in first quarter 2019 reflecting continued strong underwriting standards, strong economic conditions, and credit risk management. Allowance for loan losses increased $4.5 million primarily driven by organic loan growth, partially offset by continued run-off of non-strategic loan balances. Net charge-offs as a percentage of loans was .07 percent for first quarter 2019 and 30+ delinquencies declined 15 percent compared to year-end.
Return on average common equity (“ROCE”) and ROTCE were 9.09 percent and 14.17 percent, respectively, in first quarter 2019 compared to 8.79 percent and 14.06 percent, respectively, in first quarter 2018. Return on average assets (“ROA”) improved to 1.03 percent in first quarter 2019 from .95 percent in first quarter 2018. Common Equity Tier 1, Tier 1, Total Capital, and Leverage ratios were 9.62 percent, 10.65 percent, 11.78 percent, and 9.02 percent, re spectively, in first quarter 2019 compared to 8.98 percent, 9.98 percent, 11.25 percent and 8.50 percent, respectively, in first quarter 2018. Average assets increased to $40.9 billion in first quarter 2019 from $40.4 billion in first quarter 2018. Average loans and average deposits also increased 1 percent and 8 percent, respectively, to $27.3 billion and $32.5 billion in first quarter 2019 from first quarter 2018. Period-end and average Shareholders’ equity increased to $4.8 b illion in first quarter 2019 from $4.6 billion in first quarter 2018.
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BUSINESS LINE REVIEW
Regional Banking
Pre-tax income within the regional banking segment was $145.4 million in first quarter 2019, down from $167.0 million in first quarter 2018. The decrease in pre-tax income was primarily driven by a decrease in revenues and an increase in loan loss provision expense.
Total revenue decreased 4 percent to $359.3 million in first quarter 2019 from $373.2 million in first quarter 2018, driven by decreases in noninterest income and NII. The decline in NII was primarily attributable to lower loan accretion and higher deposits rates, somewhat mitigated by balance sheet growth. The decrease in noninterest income was largely driven by a $4.7 million decrease in deposit transactions and cash management fee income driven by excess fees received from Capital Bank debit card transactions in first quarter 2018, as well as lower NSF fee income and cash management fees driven by changes in consumer behavior.
Provision expense was $14.0 million and $4.5 million in first quarter 2019 and 2018, respectively, primarily driven by commercial loan growth.
Noninterest expense was $200.0 million in first quarter 2019, down from $201.7 million in first quarter 2018. The decrease in expense was primarily driven by broad-based cost savings across multiple expense categories driven by strategic focus on expense optimization in first quarter 2019.
Fixed Income
Pre-tax income in the fixed income segment more than doubled to $9.9 million in first quarter 2019 from $4.1 million in first quarter 2018. The increase in pre-tax income in first quarter 2019 was driven by higher noninterest income, somewhat offset by lower NII and an increase in expenses.
Noninterest income increased 18 percent, or $8.2 million to $53.8 million in first quarter 2019 from $45.6 million in first quarter 2018. Fixed income product revenue increased 17 percent to $44.5 million in first quarter 2019 from $38.0 million in first quarter 2018, as average daily revenue (“ADR”) increased to $729 thousand in first quarter 2019 from $624 thousand in first quarter 2018. Federal Reserve interest rate commentary and the revised outlook for rates to be flat/down favorably impacted fixed income product revenue in first quarter 2019, with all trading desks showing growth. Other product revenue increased to $9.3 million in first quarter 2019, from $7.6 million in the prior year, driven by higher fees from loan sales. NII was $7.3 million in first quarter 2019, down from $8.5 million in first quarter 2018. The decline in NII was due to lower spreads on inventory positions somewhat offset by higher inventory balances compared to prior year.
Noninterest expense increased 3 percent, or $1.3 million, to $51.2 million in first quarter 2019, primarily due to higher variable compensation associated with the increase in fixed income product revenue partially offset by efficiency initiatives.
Corporate
The pre-tax loss for the corporate segment was $34.9 million in first quarter 2019 compared to $60.2 million in first quarter 2018.
Net interest expense was $7.9 million and $16.2 million in first quarter 2019 and 2018, respectively. Net interest expense was favorably impacted by reduction of market-indexed deposits in first quarter 2019 due to strong deposit growth in Regional Banking. Noninterest income (including securities gain/losses) increased to $13.4 million in first quarter 2019, from $9.3 million in first quarter 2018, primarily driven by higher deferred compensation income driven by equity market valuations in first quarter 2019.
Noninterest expense decreased 24 percent or $13.0 million from $53.3 million in first quarter 2018 to $40.4 million in first quarter 2019. The decrease in expense for first quarter 2019 was primarily driven by a $25.7 million decrease in acquisition and integration-related costs relative to the prior year, partially offset by $12.2 million of restructuring costs associated with efficiency initiatives recognized in first quarter 2019.
Non-Strategic
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The non-strategic segment had pre-tax income of $10.1 million in first quarter 2019 compared to $14.0 million in first quarter 2018. The decrease in results for first quarter 2019 was driven by a decline in NII relative to first quarter 2018 somewhat offset by a decrease in expenses.
Total revenue was $9.7 million in first quarter 2019 down from $16.8 million in first quarter 2018. NII decreased to $7.9 million in first quarter 2019 from $15.7 million in first quarter 2018, primarily due to continued run-off of the loan portfolios. Noninterest income was $1.8 million and $1.1 million in first quarter 2019 and 2018, respectively.
The provision for loan losses within the non-strategic segment was a provision credit of $5.0 million in first quarter 2019 compared to a provision credit of $5.5 million in the prior year. Overall, the non-strategic segment continued to reflect stable performance combined with lower loan balances as reserves declined by $3.9 million from December 31, 2018, to $20.4 million as of March 31, 2019. Losses remain low as the non-strategic segment had net recoveries of $1.0 million in first quarter 2019 compared to net recoveries of $1.3 million a year ago.
Noninterest expense decreased 45 percent to $4.6 million in first quarter 2019 from $8.3 million in first quarter 2018. The decrease in expense was primarily driven by lower legal fees and loss accruals related to legal matters compared to first quarter 2018.
INCOME STATEMENT REVIEW
Total consolidated revenue was $435.6 million in first quarter 2019, down from $437.2 million in first quarter 2018 driven by a decrease in NII, somewhat offset by an increase in noninterest income. Total expenses decreased 5 percent to $296.1 million in first quarter 2019 from $313.3 million in first quarter 2018.
NET INTEREST INCOME
Net interest income was $294.5 million in first quarter 2019, down from $301.2 million in first quarter 2018. The decline in NII was primarily attributable to lower loan accretion and higher deposits rates, somewhat mitigated by balance sheet growth. Average earning assets increased to $36.3 billion in first quarter 2019 from $35.7 billion in first quarter 2018. The increase in average earning assets was primarily driven by an increase in interest bearing cash and loan growth, somewhat offset by decreases in securities purchased under agreement to resell ("asset repos"), fixed income inventory, and available-for-sale ("AFS") securities.
For purposes of computing yields and the net interest margin, FHN adjusts net interest income to reflect tax-exempt income on an equivalent pre-tax basis which provides comparability of net interest income arising from both taxable and tax-exempt sources. The consolidated net interest margin was 3.31 percent in first quarter 2019 down 12 basis points from 3.43 percent in first quarter 2018. The net interest spread was 2.92 percent in first quarter 2019, down 29 basis points from 3.21 percent in first quarter 2018. The decrease in NIM in first quarter 2019 was primarily the result of the negative impact of higher market interest rates on deposits and an increase in average excess cash held at the Fed. Additionally, lower loan accretion negatively impacted NIM in first quarter 2019, but was somewhat mitigated by loan and deposit growth.
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Table 1—Net Interest Margin

| Three Months Ended March 31
| 2019 |  | 2018
Assets: |  |  |
Earning assets: |  |  |
Loans, net of unearned income: |  |  |
Commercial loans | 5.08 | % |  | 4.53 | %
Consumer loans | 4.59 |  |  | 4.48 |
Total loans, net of unearned income | 4.96 |  |  | 4.51 |
Loans held-for-sale | 5.89 |  |  | 6.68 |
Investment securities: |  |  |
U.S. government agencies | 2.68 |  |  | 2.66 |
States and municipalities | 4.33 |  |  | 3.37 |
Corporates and other debt | 3.76 |  |  | 4.54 |
Other | 34.56 |  |  | 27.65 |
Total investment securities | 2.79 |  |  | 2.71 |
Trading securities | 3.80 |  |  | 3.40 |
Other earning assets: |  |  |
Federal funds sold | 2.63 |  |  | 2.11 |
Securities purchased under agreements to resell | 2.21 |  |  | 1.15 |
Interest-bearing cash | 2.41 |  |  | 1.42 |
Total other earning assets | 2.38 |  |  | 1.26 |
Interest income / total earning assets | 4.49 | % |  | 4.13 | %
Liabilities: |  |  |
Interest-bearing liabilities: |  |  |
Interest-bearing deposits: |  |  |
Savings | 1.36 | % |  | 0.55 | %
Other interest-bearing deposits | 1.05 |  |  | 0.53 |
Time deposits | 1.91 |  |  | 1.16 |
Total interest-bearing deposits | 1.35 |  |  | 0.64 |
Federal funds purchased | 2.50 |  |  | 1.52 |
Securities sold under agreements to repurchase | 2.06 |  |  | 1.02 |
Fixed income trading liabilities | 3.04 |  |  | 2.53 |
Other short-term borrowings | 3.40 |  |  | 1.53 |
Term borrowings | 4.89 |  |  | 3.93 |
Interest expense / total interest-bearing liabilities | 1.57 |  |  | 0.92 |
Net interest spread | 2.92 | % |  | 3.21 | %
Effect of interest-free sources used to fund earning assets | 0.39 |  |  | 0.22 |
Net interest margin (a) | 3.31 | % |  | 3.43 | %

(a) Calculated using total net interest income adjusted for FTE assuming a statutory federal income tax rate of 21 percent and, where applicable, state income taxes.
FHN’s net interest margin is primarily impacted by its balance sheet mix including the levels of fixed and floating rate loans, rate sensitive and non-rate sensitive liabilities, cash levels, trading inventory levels as well as loan fees and cash basis income. For 2019, NIM will also depend on changes to the yield curve, changes to the Fed Funds rate, loan accretion levels, and the competitive pricing environment for core deposits.
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PROVISION FOR LOAN LOSSES
The provision for loan losses is the charge to earnings that management determines to be necessary to maintain the ALLL at a sufficient level reflecting management’s estimate of probable incurred losses in the loan portfolio. Provision expense was $9.0 million in first quarter 2019 compared to a provision credit of $1.0 million in first quarter 2018. For the three months ended March 31 2019, FHN’s asset quality metrics remained strong. In first quarter 2019, net charge-offs as a percentage of loans was .07 percent. The ALLL increased $4.5 million from year-end 2018 to $184.9 million as of March 31, 2019, primarily driven by loan growth. For additional information about the provision for loan losses refer to the Regional Banking and Non-Strategic sections of the Business Line Review section in this MD&A. For additional information about general asset quality trends refer to the Asset Quality section in this MD&A.
NONINTEREST INCOME
Noninterest income (including securities gains/(losses)) was $141.0 million in first quarter 2019 and represented 32 percent of total revenue compared to $136.0 million in first quarter 2018 and 31 percent. The increase in noninterest income in first quarter 2019 was primarily driven by higher fixed income revenue and an increase in deferred compensation income, somewhat offset by lower deposit transactions and cash management revenue relative to first quarter 2018.
Fixed Income Noninterest Income
Fixed income noninterest income was $53.7 million in first quarter 2019, up 18 percent from $45.5 million in first quarter 2018. The increase in first quarter 2019 was favorably impacted by Federal Reserve interest rate commentary and the revised outlook for rates to be flat/down in 2019, which resulted in growth across all trading desks. Revenue from other products increased 24 percent to $9.3 million in first quarter 2019 from $7.5 million in first quarter 2018, primarily driven by higher fees from loan sales. T he following table summarizes FHN’s fixed income noninterest income for the three months ended March 31, 2019 and 2018.
Table 2—Fixed Income Noninterest Income

|  | Three Months Ended March 31 |  | Percent Change
(Dollars in thousands) |  | 2019 |  | 2018 |
Noninterest income: |  |  |  |  |  |
Fixed income |  | $ | 44,472 |  |  | $ | 38,047 |  |  | 17 | %
Other product revenue |  | 9,277 |  |  | 7,459 |  |  | 24 | %
Total fixed income noninterest income |  | $ | 53,749 |  |  | $ | 45,506 |  |  | 18 | %

Deposit Transactions and Cash Management
Fees from deposit transactions and cash management activities was $31.6 million in first quarter 2019, down 12 percent from $36.0 million in first quarter 2018. The decrease in first quarter 2019 is largely due to excess fees received from Capital Bank debit card transactions in first quarter 2018, as well as lower NSF fee income and cash management fees driven by changes in consumer behavior.
Brokerage, Management Fees and Commissions
Noninterest income from brokerage, management fees and commissions was $12.6 million in first quarter 2019 compared to $13.5 million in first quarter 2018. The decline in first quarter 2019 was due to a reduction in transaction activity due to more favorable market conditions in first quarter 2018. Additionally, the fourth quarter 2018 decline in equity markets negatively impacted fee based income in first quarter 2019 relative to the prior year.
Other Noninterest Income
Other income includes revenues related to deferred compensation plans (which are mirrored by changes in noninterest expense), other service charges, ATM and interchange fees, dividend income, mortgage banking (primarily within the non-strategic and regional banking segments), letter of credit fees, electronic banking fees, insurance commissions, and various other fees.
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Revenue from all other income and commissions increased to $25.6 million in first quarter 2019 from $23.2 million in first quarter 2018. The increase in all other income and commissions in first quarter 2019 was largely due to a $5.0 million increase in deferred compensation income driven by equity market valuations in first quarter 2019. Deferred compensation income fluctuates with changes in the market value of the underlying investments and is mirrored by changes in deferred compensation expense which is included in personnel expense. In first quarter 2018, all other income and commissions was positively impacted by a $3.3 million gain on the sale of a building. The following t able provides detail regarding FHN’s other income.
Table 3—Other Income

|  | Three Months Ended March 31 |  | Percent Change
(Dollars in thousands) |  | 2019 |  | 2018 |
Other income: |  |  |  |  |  |
Deferred compensation (a) |  | $ | 5,474 |  |  | $ | 451 |  |  | NM |
Other service charges |  | 3,869 |  |  | 4,123 |  |  | (6 | )%
ATM and interchange fees |  | 3,241 |  |  | 3,267 |  |  | (1 | )%
Dividend income |  | 2,313 |  |  | 2,249 |  |  | 3 | %
Mortgage banking |  | 1,886 |  |  | 2,546 |  |  | (26 | )%
Letter of credit fees |  | 1,368 |  |  | 1,249 |  |  | 10 | %
Electronic banking fees |  | 1,271 |  |  | 1,204 |  |  | 6 | %
Insurance commissions |  | 624 |  |  | 757 |  |  | (18 | )%
Gain/(loss) on extinguishment of debt |  | (1 | ) |  | — |  |  | NM |
Other |  | 5,523 |  |  | 7,397 |  |  | (25 | )%
Total |  | $ | 25,568 |  |  | $ | 23,243 |  |  | 10 | %

NM – Not meaningful
(a) Amounts driven by market conditions and are mirrored by changes in deferred compensation expense which is included in employee compensation expense.
NONINTEREST EXPENSE
Total noninterest expense decreased to $296.1 million in first quarter 2019 from $313.3 million in first quarter 2018. The decrease in noninterest expense in first quarter 2019 was largely driven by lower acquisition-and integration-related expenses compared to prior year. Additionally, a company wide focus on efficiency initiatives and expense savings also contributed to the decrease in noninterest expense in first quarter 2019.
Employee Compensation, Incentives, and Benefits
Employee compensation, incentives, and benefits (personnel expense), the largest component of noninterest expense, increased 4 percent in first quarter 2019 to $177.9 million from $171.3 million in first quarter 2018. The increase in personnel expense in first quarter 2019 was primarily the result of severance-related costs associated with restructuring, repositioning, and efficiency initiatives recognized in first quarter 2019 and an increase in deferred compensation expense driven by equity market valuations. Additionally, an increase in variable compensation associated with higher fixed income sales revenue also contributed to the increase in first quarter 2019. These expense increases were somewhat offset by a $3.7 million decrease in acquisition- and integration-related expenses as compared to first quarter 2018 and a reduction in headcount relative to the prior year.
Operations Services
Operations services expense decreased $4.1 million to $11.5 million in first quarter 2019 from $15.6 million in first quarter 2018 primarily driven by the reduction of third-party vendors following completion of integration of the CBF merger.
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Professional Fees
Professional fees were $12.3 million in first quarter 2019 and 2018. Professional fees in first quarter 2019 included $4.3 million in restructuring costs associated with the identification of efficiency opportunities within the organization. Professional fees in first quarter 2018 included $5.6 million of acquisition- and integration-related expense.
Advertising and Public Relations
Expenses associated with advertising and public relations increased to $7.2 million in first quarter 2019 from $3.6 million in first quarter 2018. In first quarter 2019, FHN recognized higher advertising expense due in large part to promotional branding campaigns and targeted marketing in new markets.
FDIC Premium Expense
FDIC premium expense decreased 50 percent from $8.6 million in first quarter 2018 to $4.3 million in first quarter 2019, primarily due to the end of the FDIC assessment surcharge starting with fourth quarter 2018.
Other Noninterest Expense
Other expense includes travel and entertainment expenses, other insurance and tax expense, supplies, customer relations expenses, costs associated with employee training and dues, miscellaneous loan costs, tax credit investments expense, expenses associated with the non-service components of net periodic pension and post-retirement cost, losses from litigation and regulatory matters, expenses associated with OREO, and various other expenses.
All other expenses decreased 44 percent to $19.8 million in first quarter 2019 from $35.3 million in first quarter 2018. The decrease was primarily due to $15.7 million decrease in acquisition- and integration-related expenses compared to first quarter 2018. Additionally, broad-based cost savings driven by strategic-focus on expense optimization also contributed to the decrease in other noninterest expense in first quarter 2019. The following table provides detail regarding FHN’s other expense.
Table 4—Other Expense

|  | Three Months Ended March 31 |  | Percent Change
(Dollars in thousands) |  | 2019 |  | 2018 |
Other expense: |  |  |  |  |  |  |
Travel and entertainment |  | $ | 2,712 |  |  | $ | 2,983 |  |  | (9 | )%
Other insurance and taxes |  | 2,694 |  |  | 2,665 |  |  | 1 | %
Supplies |  | 1,804 |  |  | 1,836 |  |  | (2 | )%
Customer relations |  | 1,599 |  |  | 1,063 |  |  | 50 | %
Employee training and dues |  | 1,457 |  |  | 1,779 |  |  | (18 | )%
Miscellaneous loan costs |  | 1,027 |  |  | 1,142 |  |  | (10 | )%
Tax credit investments |  | 675 |  |  | 1,137 |  |  | (41 | )%
Non-service components of net periodic pension and post-retirement cost |  | 432 |  |  | 504 |  |  | (14 | )%
Litigation and regulatory matters |  | 13 |  |  | 2,134 |  |  | (99 | )%
OREO |  | (366 | ) |  | 108 |  |  | NM |
Other |  | 7,739 |  |  | 19,981 |  |  | (61 | )%
Total |  | $ | 19,786 |  |  | $ | 35,332 |  |  | (44 | )%

NM – Not meaningful
INCOME TAXES
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F HN recorded an income tax provision of $27.1 million in first quarter 2019, compared to $29.9 million in first quarter 2018. The effective tax rate for the three months ended March 31, 2019 was approximately 21 percent compared to 24 percent for the three months ended March 31, 2018.
The Company’s effective tax rate is favorably affected by recurring items such as bank-owned life insurance, tax-exempt income, and credits and other tax benefits from affordable housing investments. The effective rate is unfavorably affected by the non-deductibility of a portion of the Company's FDIC premium and executive compensation expense. The company’s effective tax rate also may be affected by items that may occur in any given period but are not consistent from period to period, such as changes in the deferred tax asset valuation allowance and changes in unrecognized tax benefits.
A deferred tax asset (“DTA”) or deferred tax liability (“DTL”) is recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax consequence is calculated by applying enacted statutory tax rates, applicable to future years, to these temporary differences. As of March 31, 2019, FHN’s gross DTA (net of a valuation allowance) and gross DTL were $272.4 million and $169.6 million, respectively, resulting in a net DTA of $102.8 million at March 31, 2019, compared with a net DTA of $127.9 million at December 31, 2018.
As of March 31, 2019, FHN had deferred tax asset balances related to federal and state income tax carryforwards of $43.8 million and $5.2 million, respectively, which will expire at various dates.
FHN’s gross DTA after valuation allowance was $272.4 million and $254.6 million as of March 31, 2019 and December 31, 2018, respectively. Other than a small valuation allowance against state NOLs, FHN believes that it will be able to realize the value of its DTA and that no valuation allowance is needed. FHN monitors its DTA and the need for a valuation allowance on a quarterly basis.
RESTRUCTURING, REPOSITIONING, AND EFFICIENCY INITIATIVES
In first quarter 2019, FHN initiated a company-wide review of business practices with the goal of optimizing its expense base to improve profitability and create capacity to reinvest savings into technology and revenue production activities. The net charge from restructuring, repositioning, and efficiency initiatives was $12.2 million in first quarter 2019, primarily associated with severance and other employee costs and professional fees. Due to the broad nature of the actions being taken, many components of expense are expected to benefit from the current efficiency initiatives. See Note 18 – Restructuring, Repositioning, and Efficiency for additional information.
STATEMENT OF CONDITION REVIEW
Total period-end assets were $41.1 billion on March 31, 2019, up from $40.8 billion on December 31, 2018. Effective January 1, 2019, FHN adopted ASU 2016-02, "Leases" and all related ASUs and began recording right-of-use ("ROU") lease assets and lease liabilities in Other assets and Other liabilities which contributed to the increase in period-end and average total assets and liabilities in first quarter 2019 relative to prior year. Average assets increased 1 percent from $40.3 billion in fourth quarter 2018 to $40.9 billion in first quarter 2019, largely due to increases in interest bearing cash levels, ROU lease assets, and net increases in loan portfolios from December 31, 2018, somewhat offset by decreases in fixed income trading inventory and securities purchased under agreements to resell. On a period-end basis, the increase was due to a net increase in the loan portfolios, increases in ROU lease assets and fixed income trading inventory, somewhat offset by decreases in interest-bearing cash and cash.
Total period-end liabilities were $36.3 billion on March 31, 2019, a 1 percent increase from $36.0 billion on December 31, 2018. Average liabilities increased to $36.1 billion in first quarter 2019, from $35.6 billion in fourth quarter 2018, primarily due to increases in deposits and lease liabilities. These increases were partially offset by a decrease in trading liabilities and other short-term funds. The net increase in period-end liabilities relative to fourth quarter 2018 was primarily due to increases in lease liabilities, trading liabilities, federal funds purchased and fixed income payables, somewhat offset by decreases in deposits.
EARNING ASSETS
Earning assets consist of loans, investment securities, other earning assets such as trading securities, interest-bearing cash, and loans HFS. Average earning assets increased 1 percent and 2 percent to $36.3 billion in first quarter 2019 from $35.8 billion and $35.7 billion in fourth quarter 2018 and first quarter 2018, respectively. A more detailed discussion of the major line items follows.
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Loans
Period-end loans increased 2 percent to $28.0 billion as of March 31, 2019 from $27.5 billion on December 31, 2018 and increased 3 percent from $27.2 billion as of March 31, 2018. Average loans for first quarter 2019 increased to $27.3 billion from $27.2 billion in fourth quarter 2018 and $27.1 billion in first quarter 2018. The increase in period-end and average loan balances compared to both prior periods was primarily due to net loan growth within the Regional Bank, somewhat offset by run-off within the non-strategic portfolios.
Table 5—Average Loans

|  | Quarter Ended March 31, 2019 |  | Quarter Ended December 31, 2018 |  |
(Dollars in thousands) |  | Amount |  | Percent of total |  | Amount |  | Percent of total |  | Growth Rate
Commercial: |  |  |  |  |  |  |  |  |  |
Commercial, financial, and industrial |  | $ | 16,428,088 |  |  | 60 | % |  | $ | 15,952,608 |  |  | 59 | % |  | 3 | %
Commercial real estate |  | 3,959,592 |  |  | 14 |  |  | 4,170,186 |  |  | 15 |  |  | (5 | )
Total commercial |  | 20,387,680 |  |  | 74 |  |  | 20,122,794 |  |  | 74 |  |  | 1 |
Consumer: |  |  |  |  |  |  |  |  |  |
Consumer real estate (a) |  | 6,194,147 |  |  | 23 |  |  | 6,274,799 |  |  | 23 |  |  | (1 | )
Permanent mortgage |  | 216,037 |  |  | 1 |  |  | 228,184 |  |  | 1 |  |  | (5 | )
Credit card, OTC and other |  | 515,436 |  |  | 2 |  |  | 528,866 |  |  | 2 |  |  | (3 | )
Total consumer |  | 6,925,620 |  |  | 26 |  |  | 7,031,849 |  |  | 26 |  |  | (2 | )
Total loans, net of unearned income |  | $ | 27,313,300 |  |  | 100 | % |  | $ | 27,154,643 |  |  | 100 | % |  | 1 | %

(a) Balance as of March 31, 2019 and December 31, 2018, includes $15.5 million and $16.7 million of restricted and secured real estate loans, respectively.
C&I loans are the largest component of the loan portfolio comprising 60 percent of total loans in first quarter 2019 and 59 percent in fourth quarter 2018. C&I loans increased 3 percent, or $.5 billion, from fourth quarter 2018 due to net loan growth within several of the regional bank’s portfolios including commercial, healthcare, and loans to mortgage companies. Commercial real estate loans experienced a net decrease of 5 percent to $4.0 billion in first quarter 2019 as loan runoff outpaced loan growth.
Average consumer loans declined 2 percent, or $.1 billion, from fourth quarter 2018 to $6.9 billion in first quarter 2019, driven by the continued wind-down of portfolios within the non-strategic segment.
Investment Securities
FHN’s investment portfolio consists principally of debt securities including government agency issued mortgage-backed securities (“MBS”) and government agency issued collateralized mortgage obligations (“CMO”), substantially all of which are classified as available-for-sale (“AFS”). FHN utilizes the securities portfolio as a source of income, liquidity and collateral for repurchase agreements, for public funds, and as a tool for managing risk of interest rate movements. Period-end and average investment securities were $4.6 billion on March 31, 2019 and December 31, 2018 and in first quarter 2019 and fourth quarter 2018, representing 13 percent of average earning assets in both periods. FHN manages the size and mix of the investment portfolio to assist in asset liability management, provide liquidity, and optimize risk adjusted returns.
Loans Held-for-Sale
Loans HFS consists of small business, other consumer loans, the mortgage warehouse, USDA, student, and home equity loans. On March 31, 2019 loans HFS were $594.7 million compared to $679.1 million on December 31, 2018. The average balance of loans HFS decreased to $670.4 million in first quarter 2019 from $714.4 million in fourth quarter 2018. The decrease in period-end and average loans HFS was primarily driven by a decrease in small business loans, partially offset by an increase in USDA loans.
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Other Earning Assets
Other earning assets include trading securities, securities purchased under agreements to resell ("asset repos"), federal funds sold (“FFS”), and interest-bearing deposits with the Fed and other financial institutions. Other earning assets averaged $3.7 billion in first quarter 2019, up from $3.4 billion in fourth quarter 2018. The increase in other earning assets was primarily driven by increases in interest bearing cash, somewhat offset by lower levels of fixed income inventory and asset repos relative to fourth quarter 2018. Fixed income's trading inventory fluctuates daily based on customer demand. Asset repos are used in fixed income trading activity and generally fluctuate with the level of fixed income trading liabilities (short-positions) as securities collateral from asset repo transactions are used to fulfill trades. Other earning assets were $3.3 billion on March 31, 2019 and December 31, 2018, as lower levels of interest bearing cash were offset by an increase in fixed income trading securities and asset repos.
Non-earning assets
Period-end non-earning assets were $4.6 billion on March 31, 2019 and December 31, 2018, as an increase due to the recognition of ROU assets associated with the adoption of ASU 2016-02, "Leases," was partially offset by a decrease in cash.
Deposits
Average deposits were $32.5 billion during first quarter 2019, up 2 percent and 8 percent, respectively from $31.8 billion in fourth quarter 2018 and $30.2 billion in first quarter 2018. The increase in average deposits from fourth quarter 2018 and first quarter 2018 was driven by increases in commercial and consumer interest deposits primarily as a result of FHN's strategic focus on growing these types of deposits. On an average basis, market-indexed deposits increased relative to first quarter 2018, largely driven by loan demand throughout the year, but decreased relative to fourth quarter 2018 as FHN was able to utilize the influx of commercial and consumer interest deposits (as a more efficient use of funding) to meet loan demands. The decrease in non-interest bearing deposits from fourth quarter 2018 was due to seasonal outflows of commercial deposits which more than offset seasonal inflows of consumer deposits.
Period-end deposits were $32.5 billion on March 31, 2019, down 1 percent from $32.7 billion on December 31, 2018, and up 5 percent from $30.8 billion on March 31, 2018. On a period-end basis, deposits increased from March 31, 2018 driven by increases in commercial and consumer interest deposits, somewhat offset by a decline in market-indexed deposits and non-interest bearing deposits. The decrease in deposits from December 31, 2018 was primarily due to a decrease in market-indexed deposits and non-interest bearing deposits which more than offset the influx of commercial and consumer interest deposits. Th e following table summarizes FHN's average deposits for quarters-ended March 31, 2019 and December 31, 2018.
Table 6—Average Deposits

|  | Quarter Ended March 31, 2019 |  | Quarter Ended December 31, 2018 |  |
(Dollars in thousands) |  | Amount |  | Percent of total |  | Amount |  | Percent of total |  | Growth Rate
Interest-bearing deposits: |  |  |  |  |  |  |  |  |  |
Consumer interest |  | $ | 13,390,692 |  |  | 41 | % |  | $ | 12,965,734 |  |  | 41 | % |  | 3 | %
Commercial interest |  | 6,577,476 |  |  | 20 |  |  | 5,900,136 |  |  | 19 |  |  | 11 |
Market-indexed (a) |  | 4,734,295 |  |  | 15 |  |  | 4,947,192 |  |  | 16 |  |  | (4 | )
Total interest-bearing deposits |  | 24,702,463 |  |  | 76 |  |  | 23,813,062 |  |  | 75 |  |  | 4 |
Noninterest-bearing deposits |  | 7,795,015 |  |  | 24 |  |  | 8,034,692 |  |  | 25 |  |  | (3 | )
Total deposits |  | $ | 32,497,478 |  |  | 100 | % |  | $ | 31,847,754 |  |  | 100 | % |  | 2 | %

(a) Market-indexed deposits are tied to an index not administered by FHN and are comprised of insured network deposits, correspondent banking deposits, and trust/sweep deposits.
Short-Term Borrowings
Short-term borrowings (federal funds purchased (“FFP”), securities sold under agreements to repurchase, trading liabilities, and other short-term borrowings) averaged $1.5 billion in first quarter 2019, down 15 percent from $1.8 billion in fourth quarter 2018. As noted in the table below, the decrease in short-term borrowings between first quarter 2019 and fourth quarter 2018 was primarily due to decreases in trading liabilities and other short-term borrowings. To a lesser extent a decrease in securities
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sold under agreements to repurchase also contributed to the decline but was somewhat offset by increases in FFP. Average trading liabilities fluctuates based on expectations of customer demand. Other short-term borrowings balances fluctuate largely based on the level of FHLB borrowing as a result of loan demand, deposit levels and balance sheet funding strategies. Period-end short-term borrowings increased to $1.7 billion on March 31, 2019 from $1.5 billion on December 31, 2018. The increase in short-term borrowings on a period-end basis was primarily driven by increases in trading liabilities and FFP.
Table 7—Average Short-Term Borrowings

|  | Quarter Ended March 31, 2019 |  | Quarter Ended December 31, 2018 |  |
(Dollars in thousands) |  | Amount |  | Percent of total |  | Amount |  | Percent of total |  | Growth Rate
Short-term borrowings: |  |  |  |  |  |  |  |  |  |
Federal funds purchased |  | $ | 370,868 |  |  | 25 | % |  | $ | 334,036 |  |  | 18 | % |  | 11 | %
Securities sold under agreements to repurchase |  | 688,765 |  |  | 44 |  |  | 710,898 |  |  | 39 |  |  | (3 | )
Trading liabilities |  | 375,169 |  |  | 24 |  |  | 543,696 |  |  | 30 |  |  | (31 | )
Other short-term borrowings |  | 114,474 |  |  | 7 |  |  | 244,413 |  |  | 13 |  |  | (53 | )
Total short-term borrowings |  | $ | 1,549,276 |  |  | 100 | % |  | $ | 1,833,043 |  |  | 100 | % |  | (15 | )%

Term Borrowings
Term borrowings include senior and subordinated borrowings with original maturities greater than one year. Average and period-end term borrowings were $1.2 billion on March 31, 2019 and December 31, 2018, respectively.
Other Liabilities
Period-end other liabilities were $1.0 billion on March 31, 2019, up from $.7 billion on December 31, 2018, primarily due to the recognition of lease liabilities associated with the adoption of ASU 2016-02, "Leases" and an increase in fixed income payables.
CAPITAL
Management’s objectives are to provide capital sufficient to cover the r isks inherent in FHN’s businesses, to maintain excess capital to well-capitalized standards, and to assure ready access to the capital markets. Period-end equity increased $.1 billion to $4.8 billion on March 31, 2019 from December 31, 2018. Average equity increased to $4.8 billion in first quarter 2019 from $4.7 billion in fourth quarter 2018. The increase in period-end and average equity was primarily due to net income recognized since fourth quarter 2018, somewhat offset by common and preferred dividends paid, share repurchases (mentioned below), as well as a decrease in accumulated other comprehensive income ("AOCI"). The decline in AOCI was largely the result of a decrease in unrealized losses associated with AFS debt securities.
The following tables provide a reconciliation of Shareholders’ equity from the Consolidated Condensed Statements of Condition to Common Equity Tier 1, Tier 1 and Total Regulatory Capital as well as certain selected capital ratios:
Table 8—Regulatory Capital and Ratios
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(Dollars in thousands) |  | March 31, 2019 |  | December 31, 2018
Shareholders’ equity |  | $ | 4,551,090 |  |  | $ | 4,489,949 |
FHN non-cumulative perpetual preferred |  | (95,624 | ) |  | (95,624 | )
Common equity |  | $ | 4,455,466 |  |  | $ | 4,394,325 |
Regulatory adjustments: |  |  |  |
Disallowed goodwill and other intangibles |  | (1,523,565 | ) |  | (1,529,532 | )
Net unrealized (gains)/losses on securities available-for-sale |  | 27,121 |  |  | 75,736 |
Net unrealized (gains)/losses on pension and other postretirement plans |  | 287,305 |  |  | 288,768 |
Net unrealized (gains)/losses on cash flow hedges |  | 6,725 |  |  | 12,112 |
Disallowed deferred tax assets |  | (13,749 | ) |  | (17,637 | )
Other deductions from common equity tier 1 |  | (54 | ) |  | (70 | )
Common equity tier 1 |  | $ | 3,239,249 |  |  | $ | 3,223,702 |
FHN non-cumulative perpetual preferred |  | 95,624 |  |  | 95,624 |
Qualifying noncontrolling interest—FTBNA preferred stock |  | 248,704 |  |  | 246,047 |
Tier 1 capital |  | $ | 3,583,577 |  |  | $ | 3,565,373 |
Tier 2 capital |  | 380,324 |  |  | 374,744 |
Total regulatory capital |  | $ | 3,963,901 |  |  | $ | 3,940,117 |
Risk-Weighted Assets |  |  |  |
First Horizon National Corporation |  | $ | 33,656,950 |  |  | $ | 33,002,595 |
First Tennessee Bank National Association |  | 33,168,717 |  |  | 32,592,577 |
Average Assets for Leverage |  |  |  |
First Horizon National Corporation |  | 39,717,387 |  |  | 39,221,755 |
First Tennessee Bank National Association |  | 38,923,818 |  |  | 38,381,985 |

|  | March 31, 2019 |  | December 31, 2018
|  | Ratio |  | Amount |  | Ratio |  | Amount
Common Equity Tier 1 |  |  |  |  |  |  |  |
First Horizon National Corporation |  | 9.62 | % |  | $ | 3,239,249 |  |  | 9.77 | % |  | $ | 3,223,702 |
First Tennessee Bank National Association |  | 9.68 |  |  | 3,209,689 |  |  | 9.81 |  |  | 3,197,725 |
Tier 1 |  |  |  |  |  |  |  |
First Horizon National Corporation |  | 10.65 |  |  | 3,583,577 |  |  | 10.80 |  |  | 3,565,373 |
First Tennessee Bank National Association |  | 10.57 |  |  | 3,504,505 |  |  | 10.72 |  |  | 3,492,541 |
Total |  |  |  |  |  |  |  |
First Horizon National Corporation |  | 11.78 |  |  | 3,963,901 |  |  | 11.94 |  |  | 3,940,117 |
First Tennessee Bank National Association |  | 11.17 |  |  | 3,706,028 |  |  | 11.32 |  |  | 3,689,180 |
Tier 1 Leverage |  |  |  |  |  |  |  |
First Horizon National Corporation |  | 9.02 |  |  | 3,583,577 |  |  | 9.09 |  |  | 3,565,373 |
First Tennessee Bank National Association |  | 9.00 |  |  | 3,504,505 |  |  | 9.10 |  |  | 3,492,541 |

Banking regulators define minimum capital ratios for bank holding companies and their bank subsidiaries. Based on the capital rules and definitions prescribed by the banking regulators, should any depository institution’s capital ratios decline below predetermined levels, it would become subject to a series of increasingly restrictive regulatory actions. The system categorizes a depository institution’s capital position into one of five categories ranging from well-capitalized to critically under-capitalized. For an institution the size of FHN to qualify as well-capitalized, Common Equity Tier 1, Tier 1 Capital, Total Capital, and Leverage capital ratios must be at least 6.5 percent, 8 percent, 10 percent, and 5 percent, respectively. Furthermore, beginning January 1, 2019, a capital conservation buffer of 50 basis points above these levels must be maintained on the Common Equity Tier 1, Tier 1 Capital and Total Capital ratios to avoid restrictions on dividends, share repurchases and discretionary bonuses. As of March 31, 2019, both FHN and FTBNA had sufficient capital to qualify as well-capitalized institutions and to meet the capital conservation buffer requirement. For both FHN and FTBNA, the risk-based regulatory capital ratios decreased in first quarter 2019 relative to fourth quarter 2018 primarily due to the impact of net income less
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dividends and share repurchases during the quarter as well as increased risk-weighted assets primarily from loan growth. Also, the Tier 1 leverage ratio declined for both FHNC and FTBNA as average assets for leverage in the first quarter 2019 increased relative to fourth quarter 2018. During 2019, capital ratios are expected to remain above well capitalized standards plus the required capital conservation buffer.
Common Stock Purchase Programs
Pursuant to board authority, FHN may repurchase shares of its common stock from time to time and will evaluate the level of capital and take action designed to generate or use capital, as appropriate, for the interests of the shareholders, subject to legal and regulatory restrictions. Two common stock purchase programs currently authorized are discussed below. FHN’s board has not authorized a preferred stock purchase program.
Table 9a—Issuer Purchases of Common Stock - General Authority
On January 23, 2018, FHN announced a $250 million share purchase authority with an expiration date of January 31, 2020. On January 29, 2019, FHN announced a $250 million increase in that authority along with an extension of the expiration date to January 31, 2021. Purchases may be made in the open market or through privately negotiated transactions and are subject to market conditions, accumulation of excess equity, prudent capital management, and legal and regulatory restrictions. As of March 31, 2019, $151.0 million in purchases had been made under this authority at an average price per share of $15.25, $15.23 excluding commissions.

(Dollar values and volume in thousands, except per share data) |  | Total number of shares purchased |  | Average price paid per share (a) |  | Total number of shares purchased as part of publicly announced programs |  | Maximum approximate dollar value that may yet be purchased under the programs
2019 |  |  |  |  |  |  |  |
January 1 to January 31 |  | 404 |  |  | $ | 14.67 |  |  | 404 |  |  | $ | 394,634 |
February 1 to February 28 |  | 1,159 |  |  | $ | 15.21 |  |  | 1,159 |  |  | $ | 377,009 |
March 1 to March 31 |  | 1,907 |  |  | $ | 14.66 |  |  | 1,907 |  |  | $ | 349,048 |
Total |  | 3,470 |  |  | $ | 14.85 |  |  | 3,470 |  |  |

(a) Represents total costs including commissions paid.
Table 9b—Issuer Purchase of Common Stock - Compensation Authority
A consolidated compensation plan share purchase program was announced on August 6, 2004. This program consolidated into a single share purchase program all of the previously authorized compensation plan share programs as well as the renewal of the authorization to purchase shares for use in connection with two compensation plans for which the share purchase authority had expired. The total amount authorized under this consolidated compensation plan share purchase program, inclusive of a program amendment on April 24, 2006, is 29.6 million shares calculated before adjusting for stock dividends distributed through January 1, 2011. The authorization has been reduced for that portion which relates to compensation plans for which no options remain outstanding. The shares may be purchased over the option exercise period of the various compensation plans on or before December 31, 2023. Purchases may be made in the open market or through privately negotiated transactions and are subject to market conditions, accumulation of excess equity, prudent capital management, and legal and regulatory restrictions. As of March 31, 2019, the maximum number of shares that may be purchased under the program was 25.0 million shares. Management currently does not anticipate purchasing a material number of shares under this authority during 2019.

(Volume in thousands, except per share data) |  | Total number of shares purchased |  | Average price paid per share |  | Total number of shares purchased as part of publicly announced programs |  | Maximum number of shares that may yet be purchased under the programs
2019 |  |  |  |  |  |  |  |
January 1 to January 31 |  | 12 |  |  | $ | 14.71 |  |  | 12 |  |  | 25,151 |
February 1 to February 28 |  | 3 |  |  | $ | 15.06 |  |  | 3 |  |  | 25,148 |
March 1 to March 31 |  | 109 |  |  | $ | 15.55 |  |  | 109 |  |  | 25,039 |
Total |  | 124 |  |  | $ | 15.46 |  |  | 124 |  |  |

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ASSET QUALITY
Loan Portfolio Composition
FHN groups its loans into portfolio segments based on internal classifications reflecting the manner in which the ALLL is established and how credit risk is measured, monitored, and reported. From time to time, and if conditions are such that certain subsegments are uniquely affected by economic or market conditions or are experiencing greater deterioration than other components of the loan portfolio, management may determine the ALLL at a more granular level. Commercial loans are composed of commercial, financial, and industrial (“C&I”) and commercial real estate (“CRE”). Consumer loans are composed of consumer real estate; permanent mortgage; and credit card and other. FHN has a concentration of residential real estate loans (23 percent of total loans), the majority of which is in the consumer real estate portfolio (22 percent of t otal loans). Industry concentrations are discussed under the heading C&I below.
Consolidated key asset quality metrics for each of these portfolios can be fou nd in Table 17 – Asset Q uality by Portfolio. Credit underwriting guidelines are outlined in Exhibit 13 to FHN’s Annual Report on Form 10-K for the year ended December 31, 2018, in the Loan Portfolio Composition discussion in the Asset Quality Section beginning on page 28 and continuing to page 47. FHN’s credit underwriting guidelines and loan product offerings as of March 31, 2019, are generally consistent with those reported and disclosed in the Company’s Form 10-K for the year ended December 31, 2018.
COMMERCIAL LOAN PORTFOLIOS
C&I
The C&I portfolio was $17.2 billion on March 31, 2019, and is comprised of loans used for general business purposes. Typical products include working capital lines of credit, term loan financing of owner-occupied real estate and fixed assets, and trade credit enhancement through letters of cr edit. The largest geographical concentrations of balances as of March 31, 2019, are in Tennessee (34 percent), North Carolina (11 percent), Texas (7 percent), Florida (6 percent), California (6 percent), Georgia (4 percent), and South Carolina (4 percent), with no other state representing more than 3 percent of the portfolio.
The following table provides the composition of the C&I portfolio by industry as of March 31, 2019, and December 31, 2018. For purposes of this disclosure, industries are determined based on the North American Industry Classification System (“NAICS”) industry codes used by Federal statistical agencies in classifying business establishments for the collection, analysis, and publication of statistical data related to the U.S. business economy.
Table 10—C&I Loan Portfolio by Industry

|  | March 31, 2019 |  | December 31, 2018
(Dollars in thousands) |  | Amount |  | Percent |  | Amount |  | Percent
Industry: |  |  |  |  |  |  |  |
Finance & insurance |  | $ | 2,632,236 |  |  | 15 | % |  | $ | 2,766,041 |  |  | 17 | %
Loans to mortgage companies |  | 2,301,340 |  |  | 13 |  |  | 2,023,746 |  |  | 12 |
Real estate rental & leasing (a) |  | 1,595,875 |  |  | 9 |  |  | 1,548,903 |  |  | 9 |
Manufacturing |  | 1,365,809 |  |  | 8 |  |  | 1,245,230 |  |  | 8 |
Health care & social assistance |  | 1,355,806 |  |  | 8 |  |  | 1,309,983 |  |  | 8 |
Accommodation & food service |  | 1,203,112 |  |  | 7 |  |  | 1,171,333 |  |  | 7 |
Wholesale trade |  | 1,171,982 |  |  | 7 |  |  | 1,166,590 |  |  | 7 |
Retail trade |  | 811,591 |  |  | 5 |  |  | 765,254 |  |  | 5 |
Public administration |  | 785,933 |  |  | 5 |  |  | 778,497 |  |  | 5 |
Other (education, arts, entertainment, etc) (b) |  | 3,952,428 |  |  | 23 |  |  | 3,738,751 |  |  | 22 |
Total C&I loan portfolio |  | $ | 17,176,112 |  |  | 100 | % |  | $ | 16,514,328 |  |  | 100 | %

(a) | Leasing, rental of real estate, equipment, and goods.

(b) | Industries in this category each comprise less than 5 percent for 2019.

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Industry Concentrations
Loan concentrations are considered to exist for a financial institution when there are loans to numerous borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditi ons. 28 percent of FHN’s C&I portfolio (Finance and insurance plus Loans to mortgage companies) could be affected by items that uniquely impact the financial services in dustry. Except “Finance and Insurance” and “Loans to Mortgage Companies”, as discussed below, on March 31, 2019, FHN did not have any other concentrations of C&I loans in any single industry of 10 percent or more of total loans.
Finance and Insurance
The finance and insurance component represent s 15 p ercent of the C&I portfolio and includes TRUPS (i.e., long-term unsecured loans to bank and insurance-related businesses), loans to bank holding companies, and asset-based lending to consumer finance companies. As of March 31, 2019, asset-based lending to consumer finance companies represents ap proximately $1.1 billion o f the finance and insurance component.
TRUPS lending was originally extended as a form of “bridge” financing to participants in the pooled trust preferred securitization program offered primarily to smaller banking (generally less than $15 billion in total assets) and insurance institutions through FHN’s fixed income business. Origination of TRUPS lending ceased in early 2008. Individual TRUPS are re-graded at least quarterly as part of FHN’s commercial loan review process. The terms of these loans generally include a scheduled 30 year balloon payoff and include an option to defer interest for up to 20 consecutive quarters. As of March 31, 2019, and December 31, 2018, one TRUP relationship was on interest deferral.
As of March 31, 2019, the unpaid principal balance (“UPB”) of trust preferred loans totaled $269.6 million ($188.9 million of bank TRUPS and $80.8 million of insurance TRUPS) with the UPB of other bank-related loans totaling $243.3 million. Inclusive of a valuation allowance on TRUPS of $20.2 million, total reserves (ALLL plus the valuation allowance) for TRUPS and other bank-related loans were $21.3 million or 4 percent of outstanding UPB.
Loans to Mortgage Companies
The balance of loans to mortgage companie s was 13 perc ent of the C&I portfolio as of March 31, 2019, 12 percent as of December 31, 2018 and 11 percent as of March 31, 2018, and includes balances related to both home purchase and refinance activity. This portfolio class, which generally fluctuates with mortgage rates and seasonal factors, includes commercial lines of credit to qualified mortgage companies primarily for the temporary warehousing of eligible mortgage loans prior to the borrower’s sale of those mortgage loans to third party investors. Generally, lending to mortgage lenders increases when there is a decline in mortgage rates and decreases when rates rise. In first quarter 2019, 70 percent of the loans funded were home purchases and 30 percent were refinance transactions.
C&I Asset Quality Trends
Overall, the C&I portfolio trends remain stable in 2019, continuing in line with recent historical performance. The C&I ALLL increased $4.8 million from December 31, 2018, to $103.7 million as of March 31, 2019, primarily due to loan growth. The allowance as a percentage of period-end loans remained the same at .60 percent as of March 31, 2019, compared to year-end 2018. Nonperforming C&I loans increased $35.2 million from December 31, 2018, to $75.0 million on March 31, 2019. The nonperforming loan (“NPL”) ratio increased 20 basis points from December 31, 2018, to .44 percent of C&I loans as of March 31, 2019. The increase in NPLs was primarily driven by three credits. The 30+ delinquency ratio increased one basis point to .07 percent as of March 31, 2019. F irst quarter 2019 experienced net charge-offs of $2.3 million compared to $8.1 million and $.6 million of net charge-offs in fourth quarter 2018 and first quarter 2018, respectively. The following table shows C&I asset quality trends by segment.
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Table 11—C&I Asset Quality Trends by Segment

|  | 2019
|  | Three months ended
(Dollars in thousands) |  | Regional Bank |  | Non-Strategic |  | Consolidated
Allowance for loan losses as of January 1 |  | $ | 97,617 |  |  | $ | 1,330 |  |  | $ | 98,947 |
Charge-offs |  | (3,101 | ) |  | — |  |  | (3,101 | )
Recoveries |  | 801 |  |  | 28 |  |  | 829 |
Provision/(provision credit) for loan losses |  | 7,076 |  |  | (38 | ) |  | 7,038 |
Allowance for loan losses as of March 31 |  | $ | 102,393 |  |  | $ | 1,320 |  |  | $ | 103,713 |
Net charge-offs % (qtr. annualized) |  | 0.06 | % |  | NM |  |  | 0.06 | %
Allowance / net charge-offs |  | 10.98 | x |  | NM |  |  | 11.26 | x
|  | As of March 31
Period-end loans |  | $ | 16,814,044 |  |  | $ | 362,068 |  |  | $ | 17,176,112 |
Nonperforming loans |  | 72,158 |  |  | 2,838 |  |  | 74,996 |
Troubled debt restructurings |  | 48,725 |  |  | — |  |  | 48,725 |
30+ Delinq. % (a) |  | 0.06 | % |  | 0.46 | % |  | 0.07 | %
NPL % (b) |  | 0.43 |  |  | 0.78 |  |  | 0.44 |
Allowance / loans % |  | 0.61 |  |  | 0.36 |  |  | 0.60 |
|  | 2018
|  | Three months ended
(Dollars in thousands) |  | Regional Bank |  | Non-Strategic |  | Consolidated
Allowance for loan losses as of January 1 |  | $ | 96,850 |  |  | $ | 1,361 |  |  | $ | 98,211 |
Charge-offs |  | (2,075 | ) |  | — |  |  | (2,075 | )
Recoveries |  | 1,515 |  |  | 4 |  |  | 1,519 |
Provision/(provision credit) for loan losses |  | 2,692 |  |  | (109 | ) |  | 2,583 |
Allowance for loan losses as of March 31 |  | $ | 98,982 |  |  | $ | 1,256 |  |  | $ | 100,238 |
Net charge-offs % (qtr. annualized) |  | 0.02 | % |  | NM |  |  | 0.01 | %
Allowance / net charge-offs |  | 43.61 | x |  | NM |  |  | 44.48 | x
|  | As of December 31
Period-end loans |  | $ | 16,151,298 |  |  | $ | 363,030 |  |  | $ | 16,514,328 |
Nonperforming loans |  | 36,888 |  |  | 2,888 |  |  | 39,776 |
Troubled debt restructurings |  | 36,739 |  |  | — |  |  | 36,739 |
30+ Delinq. % (a) |  | 0.06 | % |  | 0.47 | % |  | 0.06 | %
NPL % |  | 0.23 |  |  | 0.80 |  |  | 0.24 |
Allowance / loans % |  | 0.60 |  |  | 0.37 |  |  | 0.60 |

NM—Not meaningful
Loans are expressed net of unearned income.

(a) | 30+ Delinquency % includes all accounts delinquent more than one month and still accruing interest.

(b) | 1Q19 increase in NPLs as a percentages of total loans was primarily driven by three credits.

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Commercial Real Estate
The CRE portfolio was $3.9 billion on March 31, 2019. The CRE portfolio includes both financings for commercial construction and nonconstruction loans. The largest geographical concentrations of balances as of March 31, 2019, are in North Carolina (31 percent), Tennessee (19 percent), Florida (13 percent), South Carolina (8 percent), Texas (7 percent), Georgia (7 percent), and Ohio (4 percent), with no other state representing more than 3 percent of the portfolio. This portfolio is segregated between the income-producing CRE class which contains loans, draws on lines and letters of credit to commercial real estate developers for the construction and mini-permanent financing of income-producing real estate, and the residential CRE class. Subcategories of income CRE consist of multi-family (25 percent), retail (20 percent), office (19 percent), industrial (15 percent), hospitality (12 percent), land/land development (2 percent), and other (7 percent).
The residential CRE class includes loans to residential builders and developers for the purpose of constructing single-family homes, condominiums, and town homes, and on a limited basis, for develo ping residential subdivisions. After the fulfillment of existing commitments, which will result in a moderate increase to loan balances, the residential CRE class will be in a wind-down state with the expectation of full runoff in the foreseeable future.
CRE Asset Quality Trends
The CRE portfolio had continued strong performance as of March 31, 2019, with nonperforming loans down $0.3 million from December 31, 2018, and a $1.0 million decrease in delinquencies since December 31, 2018. The allowance increased to $34.4 million as of March 31, 2019, from $31.3 million as of December 31, 2018, driven by organic loan growth. Allowance as a percentage of loans increased 9 basis points from December 31, 2018, to .87 percent as of March 31, 2019. Nonperforming loans as a percentage of total CRE loans remained the same at .07 percent as of March 31, 2019 compared to year-end 2018. Accruing delinquencies as a percentage of period-end loans decreased to .04 percent as of March 31, 2019, from .06 percent as of December 31, 2018. Net charge-offs were $377 thousand in first quarter 2019 compared to $38 thousand in first quarter 2018. The following table shows commercial real estate asset quality trends by segment.
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Table 12—Commercial Real Estate Asset Quality Trends by Segment

|  | 2019
|  | Three months ended
(Dollars in thousands) |  | Regional Bank |  | Non-Strategic |  | Consolidated
Allowance for loan losses as of January 1 |  | $ | 31,311 |  |  | $ | — |  |  | $ | 31,311 |
Charge-offs |  | (434 | ) |  | — |  |  | (434 | )
Recoveries |  | 57 |  |  | — |  |  | 57 |
Provision/(provision credit) for loan losses |  | 3,448 |  |  | — |  |  | 3,448 |
Allowance for loan losses as of March 31 |  | $ | 34,382 |  |  | $ | — |  |  | $ | 34,382 |
Net charge-offs % (qtr. annualized) |  | 0.04 | % |  | NM |  |  | 0.04 | %
Allowance / net charge-offs |  | 22.50 | x |  | NM |  |  | 22.50 | x
|  | As of March 31
Period-end loans |  | $ | 3,946,943 |  |  | $ | — |  |  | $ | 3,946,943 |
Nonperforming loans |  | 2,649 |  |  | — |  |  | 2,649 |
Troubled debt restructurings |  | 2,878 |  |  | — |  |  | 2,878 |
30+ Delinq. % (a) |  | 0.04 | % |  | — | % |  | 0.04 | %
NPL % |  | 0.07 |  |  | — |  |  | 0.07 |
Allowance / loans % |  | 0.87 |  |  | — |  |  | 0.87 |
|  | 2018
|  | Three months ended
(Dollars in thousands) |  | Regional Bank |  | Non-Strategic |  | Consolidated
Allowance for loan losses as of January 1 |  | $ | 28,427 |  |  | $ | — |  |  | $ | 28,427 |
Charge-offs |  | (44 | ) |  | — |  |  | (44 | )
Recoveries |  | 6 |  |  | — |  |  | 6 |
Provision/(provision credit) for loan losses |  | 668 |  |  | — |  |  | 668 |
Allowance for loan losses as of March 31 |  | $ | 29,057 |  |  | $ | — |  |  | $ | 29,057 |
Net charge-offs % (qtr. annualized) |  | — |  |  | — |  |  | — |
Allowance / net charge-offs |  | NM |  |  | NM |  |  | NM |
|  | As of December 31
Period-end loans |  | $ | 4,030,870 |  |  | $ | — |  |  | $ | 4,030,870 |
Nonperforming loans |  | 2,991 |  |  | — |  |  | 2,991 |
Troubled debt restructurings |  | 1,505 |  |  | — |  |  | 1,505 |
30+ Delinq. % (a) |  | 0.06 | % |  | NM |  |  | 0.06 | %
NPL % |  | 0.07 |  |  | NM |  |  | 0.07 |
Allowance / loans % |  | 0.78 |  |  | NM |  |  | 0.78 |

Certain previously reported amounts have been reclassified to agree with current presentation.
NM—Not meaningful
Loans are expressed net of unearned income.

(a) | 30+ Delinquency % includes all accounts delinquent more than one month and still accruing interest.

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CONSUMER LOAN PORTFOLIOS
Consumer Real Estate
The consumer real estate portfolio was $6.2 billion on March 31, 2019, and is primarily composed of home equity lines and installment loans including restricted balances (loans consolidated under ASC 810). The largest geographical concentrations of balances as of March 31, 2019, are i n Tennessee (54 percent), North Carolina (15 percent), Florida (13 percent), and California (3 percent), with no other state represe nting more than 3 percent of the portfoli o. As of March 31, 2019, approximately 81 percent of the consumer real estate portfolio was in a first lien position. At origination, weighted average FICO score of this portfolio was 753 and refreshed FICO scores averaged 752 on both March 31, 2019 and December 31, 2018. G enerally, performance of this portfolio is affected by life events that affect borrowers’ finances, the level of unemployment, and home prices.
Home equity lines of credit (“HELOCs”) comprise $1.5 billion of the consumer real estate portfolio as of March 31, 2019. FHN’s HELOCs typically have a 5 or 10 year draw period followed by a 10 or 20 year repayment period, respectively. During the draw period, a borrower is able to draw on the line and is only required to make interest payments. The line is automatically frozen if a borrower becomes 45 days or more past due on payments. Once the draw period has concluded, the line is closed and the borrower is required to make both principal and interest payments monthly until the loan matures. The principal payment generally is fully amortizing, but payment amounts will adjust when variable rates reset to reflect changes in the prime rate.
As of March 31, 2019, approximately 73 percent of FHN's HELOCs are in the draw period compared to approximately 72 percent as of December 31, 2018. Based on when draw periods are scheduled to end per the line agreement, it is expected that $370.1 million, or 35 percent o f HELOCs currently in the draw period, will enter the repayment period during the next 60 months. Delinquencies and charge-off rates for HELOCs that have entered the repayment period are initially higher than HELOCs still in the draw period because of the increased minimum payment requirement; however, after some seasoning, performance of these loans usually begins to stabilize. The home equity lines of the consumer real estate portfolio are being monitored closely for those nearing the end of the draw period and borrowers are initially being contacted at least 24 months before the repayment period begins to remind the customer of the terms of their agreement and to inform them of options. The following table shows the HELOCs currently in the draw period and expected timing of conversion to the repayment period.
Table 13—HELOC Draw To Repayment Schedule

|  | March 31, 2019 |  | December 31, 2018
(Dollars in thousands) |  | Repayment Amount |  | Percent |  | Repayment Amount |  | Percent
Months remaining in draw period: |  |  |  |  |  |  |  |
0-12 |  | $ | 60,903 |  |  | 6 | % |  | $ | 67,523 |  |  | 6 | %
13-24 |  | 68,187 |  |  | 6 |  |  | 69,154 |  |  | 6 |
25-36 |  | 78,369 |  |  | 7 |  |  | 75,074 |  |  | 7 |
37-48 |  | 81,850 |  |  | 8 |  |  | 86,308 |  |  | 8 |
49-60 |  | 80,814 |  |  | 8 |  |  | 90,018 |  |  | 8 |
>60 |  | 695,061 |  |  | 65 |  |  | 715,390 |  |  | 65 |
Total |  | $ | 1,065,184 |  |  | 100 | % |  | $ | 1,103,467 |  |  | 100 | %

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C onsumer Real Estate Asset Quality Trends
Overall, performance of the consumer real estate portfolio remained strong in first quarter 2019. The non-strategic segment is a run-off portfolio and while the absolute dollars of delinquencies and nonaccruals as well as the 30+ accruing delinquencies ratio improved from year-end, nonperforming loans ratios deteriorated. That trend of increasing deterioration of ratios in the non-strategic segment is likely to continue and may become more skewed as the portfolio shrinks and some of the stronger borrowers payoff or refinance elsewhere. NPLs as a percentage of loans increased 2 basis points from year-end to 1.34 percent as of March 31, 2019. The ALLL decreased $2.4 million from December 31, 2018, to $24.1 million as of March 31, 2019, with the majority of the decline attributable to the non-strategic segment. The allowance as a percentage of loans declined 3 basis points to .39 percent as of March 31, 2019, compared to year-end. The balance of nonperforming loans decreased to $82.6 million on March 31, 2019. Loans delinquent 30 or more days and still accruing declined from $46.5 million as of December 31, 2018, to $40.4 million as of March 31, 2019. The portfolio realized net recoveries of $.7 million in first quarter 2019 compared to net recoveries of $1.4 million in fourth quarter 2018 and net recoveries of $2.5 million in first quarter 2018. The following table shows consumer real estate asset quality trends by segment.
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Table 14—Consumer Real Estate Asset Quality Trends by Segment

|  | 2019
|  | Three months ended
(Dollars in thousands) |  | Regional Bank |  | Non-Strategic |  | Consolidated
Allowance for loan losses as of January 1 |  | $ | 14,479 |  |  | $ | 11,960 |  |  | $ | 26,439 |
Charge-offs |  | (1,641 | ) |  | (1,159 | ) |  | (2,800 | )
Recoveries |  | 1,036 |  |  | 2,417 |  |  | 3,453 |
Provision/(provision credit) for loan losses |  | 1,255 |  |  | (4,274 | ) |  | (3,019 | )
Allowance for loan losses as of March 31 |  | $ | 15,129 |  |  | $ | 8,944 |  |  | $ | 24,073 |
Net charge-offs % (qtr. annualized) |  | 0.04 | % |  | NM |  |  | NM |
Allowance / net charge-offs |  | 6.17 | x |  | NM |  |  | NM |
|  | As of March 31
Period-end loans |  | $ | 5,780,080 |  |  | $ | 371,423 |  |  | $ | 6,151,503 |
Nonperforming loans |  | 40,826 |  |  | 41,770 |  |  | 82,596 |
Troubled debt restructurings |  | 52,323 |  |  | 67,630 |  |  | 119,953 |
30+ Delinq. % (a) |  | 0.52 | % |  | 2.77 | % |  | 0.66 | %
NPL % |  | 0.71 |  |  | 11.25 |  |  | 1.34 |
Allowance / loans % |  | 0.26 |  |  | 2.41 |  |  | 0.39 |
|  | 2018
|  | Three months ended
(Dollars in thousands) |  | Regional Bank |  | Non-Strategic |  | Consolidated
Allowance for loan losses as of January 1 |  | $ | 18,859 |  |  | $ | 20,964 |  |  | $ | 39,823 |
Charge-offs |  | (470 | ) |  | (1,441 | ) |  | (1,911 | )
Recoveries |  | 862 |  |  | 3,521 |  |  | 4,383 |
Provision/(provision credit) for loan losses |  | (1,154 | ) |  | (5,940 | ) |  | (7,094 | )
Allowance for loan losses as of March 31 |  | $ | 18,097 |  |  | $ | 17,104 |  |  | $ | 35,201 |
Net charge-offs % (qtr. annualized) |  | NM |  |  | NM |  |  | NM |
Allowance / net charge-offs |  | NM |  |  | NM |  |  | NM |
|  | As of December 31
Period-end loans |  | $ | 5,844,778 |  |  | $ | 404,738 |  |  | $ | 6,249,516 |
Nonperforming loans |  | 39,080 |  |  | 43,568 |  |  | 82,648 |
Troubled debt restructurings |  | 47,480 |  |  | 70,954 |  |  | 118,434 |
30+ Delinq. % (a) |  | 0.58 | % |  | 3.07 | % |  | 0.74 | %
NPL % |  | 0.67 |  |  | 10.76 |  |  | 1.32 |
Allowance / loans % |  | 0.25 |  |  | 2.95 |  |  | 0.42 |

Certain previously reported amounts have been reclassified to agree with current presentation.
NM—Not meaningful
Loans are expressed net of unearned income.

(a) | 30+ Delinquency % includes all accounts delinquent more than one month and still accruing interest.

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Permanent Mortgage
The permanent mortgage portfolio was $.2 billion on March 31, 2019. This portfolio is primarily composed of jumbo mortgages and one-time-close (“OTC”) completed construction loans in the non-st rategic segment that were originated through legacy businesses. The corporate segment includes loans that were previously included in off-balance sheet proprietary securitization trusts. These loans were brought back into the loan portfolios at fair value through the execution of cleanup calls due to the relatively small balances left in the securitization and should continue to run-off. A ppr oximately 27 perc ent of loan balances as of March 31, 2019, are in California, but the remainder of the portfolio is somewhat geographically diverse. Non-strategic and corporate segment run-off contributed to a majority of the $13.2 million net decrease in permanent mortgage period-end balances from December 31, 2018, to March 31, 2019.
The permanent mortgage portfolios within the non-strategic and corporate segments are run-off portfolios. As a result, asset quality metrics are becoming skewed as the portfolio shrinks and some of the stronger borrowers payoff or refinance elsewhere. The ALLL decreased to $10.1 million as of March 31, 2019, from $11.0 million as of December 31, 2018. TDR reserves (which are estimates of losses for the expected life of the loan) comprise 90 percent of the ALLL for the permanent mortgage portfolio as of March 31, 2019. Consolidated accruing delinquencies decreased $3.1 million from year-end to $4.1 million as of March 31, 2019. Nonperforming loans decreased $.8 million from December 31, 2018, to $21.0 million as of March 31, 2019. The portfolio e xperienced net recoveries of $.6 million in first quarter 2019, compared to net charge offs of $.1 million in first quarter 2018. The following table shows permanent mortgage asset quality trends by segment.
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Table 15—Permanent Mortgage Asset Quality Trends by Segment

|  | 2019
|  | Three months ended
(Dollars in thousands) |  | Regional Bank |  | Corporate (a) |  | Non-Strategic |  | Consolidated
Allowance for loan losses as of January 1 |  | $ | 76 |  |  | N/A |  |  | $ | 10,924 |  |  | $ | 11,000 |
Charge-offs |  | — |  |  | N/A |  |  | (4 | ) |  | (4 | )
Recoveries |  | — |  |  | N/A |  |  | 588 |  |  | 588 |
Provision/(provision credit) for loan losses |  | (2 | ) |  | N/A |  |  | (1,501 | ) |  | (1,503 | )
Allowance for loan losses as of March 31 |  | $ | 74 |  |  | N/A |  |  | $ | 10,007 |  |  | $ | 10,081 |
Net charge-offs % (qtr. annualized) |  | — | % |  | N/A |  |  | NM |  |  | NM |
Allowance / net charge-offs |  | NM |  |  | N/A |  |  | NM |  |  | NM |
|  | As of March 31
Period-end loans |  | $ | 3,910 |  |  | $ | 37,521 |  |  | $ | 167,829 |  |  | $ | 209,260 |
Nonperforming loans |  | 309 |  |  | 1,687 |  |  | 18,954 |  |  | 20,950 |
Troubled debt restructurings |  | 802 |  |  | 2,531 |  |  | 66,046 |  |  | 69,379 |
30+ Delinq. % (b) |  | 11.83 | % |  | 4.54 | % |  | 1.14 | % |  | 1.95 | %
NPL % |  | 7.92 |  |  | 4.49 |  |  | 11.29 |  |  | 10.01 |
Allowance / loans % |  | 1.90 |  |  | N/A |  |  | 5.96 |  |  | 4.82 |
|  | 2018
|  | Three months ended
(Dollars in thousands) |  | Regional Bank |  | Corporate (a) |  | Non-Strategic |  | Consolidated
Allowance for loan losses as of January 1 |  | $ | 80 |  |  | N/A |  |  | $ | 13,033 |  |  | $ | 13,113 |
Charge-offs |  | — |  |  | N/A |  |  | (160 | ) |  | (160 | )
Recoveries |  | — |  |  | N/A |  |  | 65 |  |  | 65 |
Provision/(provision credit) for loan losses |  | 15 |  |  | N/A |  |  | (49 | ) |  | (34 | )
Allowance for loan losses as of March 31 |  | $ | 95 |  |  | N/A |  |  | $ | 12,889 |  |  | $ | 12,984 |
Net charge-offs % (qtr. annualized) |  | — | % |  | N/A |  |  | 0.17% |  | 0.14%
Allowance / net charge-offs |  | NM |  |  | N/A |  |  | 33.55x |  | 33.8x
|  | As of December 31
Period-end loans |  | $ | 3,988 |  |  | $ | 39,221 |  |  | $ | 179,239 |  |  | $ | 222,448 |
Nonperforming loans |  | 346 |  |  | 1,707 |  |  | 19,657 |  |  | 21,710 |
Troubled debt restructurings |  | 933 |  |  | 2,557 |  |  | 67,356 |  |  | 70,846 |
30+ Delinq. % (b) |  | 7.32 | % |  | 4.37 | % |  | 2.87 | % |  | 3.21 | %
NPL % |  | 8.69 |  |  | 4.35 |  |  | 10.97 |  |  | 9.76 |
Allowance / loans % |  | 1.90 |  |  | N/A |  |  | 6.10 |  |  | 4.95 |

Certain previously reported amounts have been reclassified to agree with current presentation.
NM—Not meaningful
Loans are expressed net of unearned income.

(a) | An allowance has not been established for these loans as the valuation adjustment taken upon exercise of clean-up calls included expected losses.

(b) | 30+ Delinquency % includes all accounts delinquent more than one month and still accruing interest.

98

Credit Card and Other
The credit card and other portfolio, which is primarily within the regional banking segment, was $.5 billion as of March 31, 2019, and primarily includes credit card receivables, other consumer-related credits, and automobile loans. The allowance was $12.7 million as of December 31, 2018 and March 31, 2019. Loans 30 days or more delinquent and accruing as a percentage of loans decreased 43 basis points from December 31, 2018, to 1.20 percent as of March 31, 2019. In both first quarter 2019 and first quarter 2018, FHN recognized $3.1 million of net charge-offs in the credit card and other portfolio.
Table 16—Credit Card and Other Asset Quality Trends by Segment

|  | 2019 |
|  | Three months ended |
(Dollars in thousands) |  | Regional Bank |  | Non-Strategic |  | Consolidated |
Allowance for loan losses as of January 1 |  | $ | 12,595 |  |  | $ | 132 |  |  | $ | 12,727 |  |
Charge-offs |  | (3,002 | ) |  | (1,186 | ) |  | (4,188 | ) |
Recoveries |  | 745 |  |  | 342 |  |  | 1,087 |  |
Provision/(provision credit) for loan losses |  | 2,179 |  |  | 857 |  |  | 3,036 |  |
Allowance for loan losses as of March 31 |  | $ | 12,517 |  |  | $ | 145 |  |  | $ | 12,662 |  |
Net charge-offs % (qtr. annualized) |  | 2.10 | % |  | 4.35 | % |  | 2.44 | % |
Allowance / net charge-offs |  | 1.37 | x |  | 0.04 | x |  | 1.01 | x |
|  | As of March 31 |
Period-end loans |  | $ | 435,375 |  |  | $ | 70,855 |  |  | $ | 506,230 |  |
Nonperforming loans |  | 35 |  |  | 398 |  |  | 433 |  |
Troubled debt restructurings |  | 652 |  |  | 32 |  |  | 684 |  |
30+ Delinq. % (a) |  | 0.64 | % |  | 4.61 | % |  | 1.20 | % |
NPL % |  | 0.01 |  |  | 0.56 |  |  | 0.09 |  |
Allowance / loans % |  | 2.87 |  |  | 0.20 |  |  | 2.50 |  |
|  | 2018 |
|  | Three months ended |
(Dollars in thousands) |  | Regional Bank |  | Non-Strategic |  | Consolidated |
Allowance for loan losses as of January 1 |  | $ | 9,894 |  |  | $ | 87 |  |  | $ | 9,981 |  |
Charge-offs |  | (3,343 | ) |  | (950 | ) |  | (4,293 | ) |
Recoveries |  | 853 |  |  | 296 |  |  | 1,149 |  |
Provision/(provision credit) for loan losses |  | 2,237 |  |  | 640 |  |  | 2,877 |  |
Allowance for loan losses as of March 31 |  | $ | 9,641 |  |  | $ | 73 |  |  | $ | 9,714 |  |
Net charge-offs % (qtr. annualized) |  | 2.35 | % |  | 1.61 | % |  | 2.15 | % |
Allowance / net charge-offs |  | 0.95 | x |  | 0.03 | x |  | 0.76 | x |
|  | As of December 31 |
Period-end loans |  | $ | 432,531 |  |  | $ | 85,839 |  |  | $ | 518,370 |  |
Nonperforming loans |  | 34 |  |  | 590 |  |  | 624 |  |
Troubled debt restructurings |  | 658 |  |  | 37 |  |  | 695 |  |
30+ Delinq. % (a) |  | 0.89 | % |  | 5.35 | % |  | 1.63 | % |
NPL % |  | 0.01 |  |  | 0.69 |  |  | 0.12 |  |
Allowance / loans % |  | 2.91 |  |  | 0.15 |  |  | 2.46 |  |

Certain amounts previously reported have been reclassified to agree with current presentation.
NM—Not meaningful
Loans are expressed net of unearned income.

(a) | 30+ Delinquency % includes all accounts delinquent more than one month and still accruing interest.

99

The following table provides additional asset quality data by loan portfolio:
Table 17—Asset Quality by Portfolio

|  | March 31 |  | December 31
|  | 2019 |  | 2018
Key Portfolio Details |  |  |  |
C&I |  |  |  |
Period-end loans ($ millions) |  | $ | 17,176 |  |  | $ | 16,515 |
30+ Delinq. % (a) |  | 0.07 | % |  | 0.06 | %
NPL % (b) |  | 0.44 |  |  | 0.24 |
Charge-offs % (qtr. annualized) |  | 0.06 |  |  | 0.20 |
Allowance / loans % |  | 0.60 | % |  | 0.60 | %
Allowance / net charge-offs |  | 11.26 | x |  | 3.06 | x
Commercial Real Estate |  |  |  |
Period-end loans ($ millions) |  | $ | 3,947 |  |  | $ | 4,031 |
30+ Delinq. % (a) |  | 0.04 | % |  | 0.06 | %
NPL % |  | 0.07 |  |  | 0.07 |
Charge-offs % (qtr. annualized) |  | 0.04 |  |  | 0.05
Allowance / loans % |  | 0.87 | % |  | 0.78 | %
Allowance / net charge-offs |  | 22.50 | x |  | 15.45 | x
Consumer Real Estate |  |  |  |
Period-end loans ($ millions) |  | $ | 6,152 |  |  | $ | 6,250 |
30+ Delinq. % (a) |  | 0.66 | % |  | 0.74 | %
NPL % |  | 1.34 |  |  | 1.32 |
Charge-offs % (qtr. annualized) |  | NM |  |  | NM |
Allowance / loans % |  | 0.39 | % |  | 0.42 | %
Allowance / net charge-offs |  | NM |  |  | NM |
Permanent Mortgage |  |  |  |
Period-end loans ($ millions) |  | $ | 209 |  |  | $ | 222 |
30+ Delinq. % (a) |  | 1.95 | % |  | 3.21 | %
NPL % |  | 10.01 |  |  | 9.76 |
Charge-offs % (qtr. annualized) |  | NM |  |  | NM |
Allowance / loans % |  | 4.82 | % |  | 4.95 | %
Allowance / net charge-offs |  | NM |  |  | NM |
Credit Card and Other |  |  |  |
Period-end loans ($ millions) |  | $ | 506 |  |  | $ | 518 |
30+ Delinq. % (a) |  | 1.20 | % |  | 1.63 | %
NPL % |  | 0.09 |  |  | 0.12 |
Charge-offs % (qtr. annualized) |  | 2.44 |  |  | 3.32 |
Allowance / loans % |  | 2.50 | % |  | 2.46 | %
Allowance / net charge-offs |  | 1.01 | x |  | 0.73 | x

NM – Not meaningful
Loans are expressed net of unearned income.

(a) | 30+ Delinquency % includes all accounts delinquent more than one month and still accruing interest.

(b) | 1Q19 increase in NPLs as a percentage of total loans was primarily driven by three credits.

100

Allowance for Loan Losses
Management’s policy is to maintain the ALLL at a level sufficient to absorb estimated probable incurred losses in the loan portfolio. The total allowance for loan losses increased to $184.9 million on March 31, 2019, from $180.4 million on December 31, 2018. The ALLL as of March 31, 2019, reflects strong asset quality, declining net charge-offs from year end, increasing Regional Banking loan balances, and declining Non-Strategic balances. The ratio of allowance for loan losses to total loans, net of unearned income, remained at .66 percent on March 31, 2019, compared to December 31, 2018.
The provision for loan losses is the charge to or release of earnings necessary to maintain the ALLL at a sufficient level reflecting management’s estimate of probable incurred losses in the loan portfolio. Provision expense was $9.0 million in first quarter 2019 compared to a provision credit of $1.0 million in first quarter 2018.
FHN expects asset quality trends to remain relatively stable for the near term if the economy remains stable. The C&I portfolio is expected to continue to show stable trends but short-term variability (both positive and negative) is possible primarily due to the size of the credits within this portfolio. The CRE portfolio metrics should be relatively consistent as FHN expects stable property values over the near term; however, oversupply of any CRE product type, changes in the lending environment, or economic uncertainty could result in decreased property values (which could happen abruptly). The remaining non-strategic consumer real estate and permanent mortgage portfolios should continue to steadily wind down. Asset quality metrics within non-strategic are becoming skewed as the portfolio continues to shrink. Continued stabilization in performance of the consumer real estate portfolio assumes an ongoing economic recovery as consumer delinquency and loss rates are correlated with life events that affect borrowers' finances, unemployment trends, and strength of the housing market.
Consolidated Net Charge-offs
First quarter 2019 experienced net charge-offs of $4.5 million compared to $1.4 million of net charge-offs in first quarter 2018.
The commercial portfolio experienced $2.6 million of net charge-offs in first quarter 2019 compared to $.6 million in net charge-offs in first quarter 2018. In addition, the consumer real estate portfolio experienced net recoveries of $.7 million in first quarter 2019 compared to $2.5 million of net recoveries during first quarter 2018. Permanent mortgage and credit card and other experienced net charge-offs of $2.5 million in first quarter 2019 compared to $3.2 million a year ago.
Nonperforming Assets
Nonperforming loans are loans placed on nonaccrual if it becomes evident that full collection of principal and interest is at risk, impairment has been recognized as a partial charge-off of principal balance due to insufficient collateral value and past due status, or on a case-by-case basis if FHN continues to receive payments but there are other borrower-specific issues. Included in nonaccruals are loans in which FHN continues to receive payments including residential real estate loans where the borrower has been discharged of personal obligation through bankruptcy, and second liens, regardless of delinquency status, behind first liens that are 90 or more days past due, are bankruptcies, or are TDRs. These, along with OREO, excluding OREO from government insured mortgages, represent nonperforming assets (“NPAs”).
Total nonperforming assets (including NPLs HFS) increased to $207.5 million on March 31, 2019, from $175.5 million on December 31, 2018. The nonperforming assets ratio (nonperforming assets excluding NPLs HFS to total period-end loans plus OREO and other assets) increased to .72 percent as of March 31, 2019, compared to .62 percent as of December 31, 2018. Portfolio nonperforming loans increased $33.9 million from December 31, 2018, to $181.6 million on March 31, 2019. The increase in nonperforming loans was primarily driven by three credits within the C&I portfolio.
The ratio of the ALLL to NPLs in the loan portfolio was 1.02 times as of March 31, 2019, compared to 1.22 times as of December 31, 2018. Certain nonperforming loans in both the commercial and consumer portfolios are deemed collateral-dependent and are charged down to an estimate of collateral value less costs to sell. Because loss content has been recognized through a partial charge-off, typically reserves are not recorded.
Table 18 provides an activity rollforward of OREO balances for March 31, 2019 and 2018. The balance of OREO, exclusive of inventory from government insured mortgages, decreased to $20.7 million as of March 31, 2019, f rom $32.4 millio n as of March 31, 2018, driven by the sale of OREO, primarily those acquired from CBF. Moreover, property values have stabilized which also affects the balance of OREO.
Table 18—Rollforward of OREO
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|  | Three Months Ended March 31
(Dollars in thousands) |  | 2019 |  | 2018
Beginning balance |  | $ | 22,387 |  |  | $ | 39,566 |
Valuation adjustments |  | 35 |  |  | (1,160 | )
New foreclosed property |  | 1,607 |  |  | 3,076 |
Disposal |  | (3,353 | ) |  | (9,107 | )
Ending balance, March 31 (a) |  | $ | 20,676 |  |  | $ | 32,375 |

(a) | Excludes OREO and receivables related to government insured mortgages of $3.4 million and $4.5 million as of March 31, 2019 and 2018, respectively.

102

The following table provides consolidated asset quality information for the three months ended March 31, 2019 and 2018, and as of March 31, 2019, and December 31, 2018:
Table 19—Asset Quality Information

|  | Three Months Ended March 31 |
(Dollars in thousands) |  | 2019 |  | 2018 |
Allowance for loan losses: |  |  |  |  |
Beginning balance on January 1 |  | $ | 180,424 |  |  | $ | 189,555 |  |
Provision/(provision credit) for loan losses |  | 9,000 |  |  | (1,000 | ) |
Charge-offs |  | (10,527 | ) |  | (8,483 | ) |
Recoveries |  | 6,014 |  |  | 7,122 |  |
Ending balance on March 31 |  | $ | 184,911 |  |  | $ | 187,194 |  |
Reserve for remaining unfunded commitments |  | 8,014 |  |  | 4,613 |  |
Total allowance for loan losses and reserve for unfunded commitments |  | $ | 192,925 |  |  | $ | 191,807 |  |
Key ratios |  |  |  |  |
Allowance / net charge-offs (a) |  | 10.10 | x |  | 33.90 | x |
Net charge-offs % (b) |  | 0.07 | % |  | 0.02 | % |
|  | As of March 31 |  | As of December 31 |
Nonperforming Assets by Segment |  | 2019 |  | 2018 |
Regional Banking: |  |  |  |  |
Nonperforming loans (c) |  | $ | 115,977 |  |  | $ | 79,339 |  |
OREO (d) |  | 16,698 |  |  | 18,535 |  |
Total Regional Banking |  | 132,675 |  |  | 97,874 |  |
Non-Strategic: |  |  |  |  |
Nonperforming loans (c) |  | 63,960 |  |  | 66,703 |  |
Nonperforming loans held-for-sale net of fair value adjustment (c) |  | 5,219 |  |  | 5,328 |  |
OREO (d) |  | 3,978 |  |  | 3,852 |  |
Total Non-Strategic |  | 73,157 |  |  | 75,883 |  |
Corporate: |  |  |  |  |
Nonperforming loans (c) |  | 1,687 |  |  | 1,707 |  |
Total Corporate |  | 1,687 |  |  | 1,707 |  |
Total nonperforming assets (c) (d) |  | $ | 207,519 |  |  | $ | 175,464 |  |

NM - Not meaningful.

(a) | Ratio is total allowance divided by annualized net charge-offs.

(b) | Ratio is annualized net charge-offs divided by quarterly average loans, net of unearned income.

(c) | Excludes loans that are 90 or more days past due and still accruing interest.

(d) | Excludes OREO from government-insured mortgages.

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|  | As of March 31 |  | As of December 31 |
|  | 2019 |  | 2018 |
Loans and commitments: |  |  |  |  |
Total period-end loans, net of unearned income |  | $ | 27,990,048 |  |  | $ | 27,535,532 |  |
Potential problem assets (a) |  | 270,358 |  |  | 316,952 |  |
Loans 30 to 89 days past due |  | 38,577 |  |  | 42,703 |  |
Loans 90 days past due (b) (c) |  | 25,116 |  |  | 32,461 |  |
Loans held-for-sale 30 to 89 days past due (c) |  | 4,750 |  |  | 5,790 |  |
Loans held-for-sale 30 to 89 days past due—guaranteed portion (c) (d) |  | 4,492 |  |  | 4,848 |  |
Loans held-for-sale 90 days past due (c) |  | 5,779 |  |  | 7,368 |  |
Loans held-for-sale 90 days past due—guaranteed portion (c) (d) |  | 5,725 |  |  | 7,237 |  |
Remaining unfunded commitments |  | $ | 11,000,219 |  |  | $ | 10,884,975 |  |
Key ratios |  |  |  |  |
Allowance / loans % |  | 0.66 | % |  | 0.66 | % |
Allowance / NPL |  | 1.02 | x |  | 1.22 | x |
NPA % (e) |  | 0.72 | % |  | 0.62 | % |
NPL % |  | 0.65 | % |  | 0.54 | % |

(a) | Includes past due loans.

(b) | Excludes loans classified as held-for-sale.

(c) | Amounts are not included in nonperforming/nonaccrual loans.

(d) | Guaranteed loans include FHA, VA, SBA, USDA, and GNMA loans repurchased through the GNMA buyout program.

(e) | Ratio is non-performing assets related to the loan portfolio to total loans plus OREO and other assets.

Past Due Loans and Potential Problem Assets
Past due loans are loans co ntractually past due as to interest or principal payments, but which have not yet been put on nonaccrual status. Loans in the portfolio that are 90 days or more past due and still accruing were $25.1 million on March 31, 2019, compared to $32.5 million on December 31, 2018. Loans 30 to 89 days past due decreased to $38.6 million on March 31, 2019, from $42.7 million on December 31, 2018. The decrease was primarily driven by the home equity portfolio.
Potential problem assets represent those assets where information about possible credit problems of borrowers has caused management to have serious doubts about the borrower’s ability to comply with present repayment terms and includes loans past due 90 days or more and still accruing. This definition is believed to be substantially consistent with the standards established by the OCC for loans classified as substandard. Potential problem assets in the loan po rtfolio were $270.4 million on March 31, 2019, $317.0 million on December 31, 2018, and $342.4 million on March 31, 2018. The linked-quarter and year-over-year decrease in potential problem assets was due to a couple of credits moving to nonaccrual combined with a net decrease in classified commercial loans. The current expectation of losses from potential problem assets has been included in management’s analysis for assessing the adequ acy of the allowance for loan losses.
Troubled Debt Restructuring and Loan Modifications
As part of FHN’s ongoing risk management practices, FHN attempts to work with borrowers when appropriate 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. In a situation where an economic concession has been granted to a borrower that is experiencing financial difficulty, FHN identifies and reports that loan as a Troubled Debt Restructuring (“TDR”). See Note 4 – Loans for further discussion regarding TDRs and loan modifications.
On March 31, 2019 and December 31, 2018, FHN had $241.6 million and $228.2 million portfolio loans classified as TDRs, respectively. For TDRs in the loan portfolio, FHN had loan loss reserves of $24.4 million and $27.7 million, or 10 percent and 12 percent of TDR balances, as of March 31, 2019 and December 31, 2018, respectively. Additionally, FHN had $55.4 million and $57.8 million of HFS loans classified as TDRs as of March 31, 2019 and December 31, 2018, respectively. Total held-to-maturity TDRs increased by $13.4 million with the majority of the increase attributable to commercial loans.
The following table provides a summary of TDRs for the periods ended March 31, 2019 and December 31, 2018:
104

Table 20—Troubled Debt Restructurings

(Dollars in thousands) |  | As of March 31, 2019 |  | As of December 31, 2018
Held-to-maturity: |  |  |  |
Permanent mortgage: |  |  |  |
Current |  | $ | 54,736 |  |  | $ | 54,114 |
Delinquent |  | 665 |  |  | 2,367 |
Non-accrual (a) |  | 13,978 |  |  | 14,365 |
Total permanent mortgage |  | 69,379 |  |  | 70,846 |
Consumer real estate: |  |  |  |
Current |  | 68,767 |  |  | 68,960 |
Delinquent |  | 2,916 |  |  | 2,311 |
Non-accrual (b) |  | 48,270 |  |  | 47,163 |
Total consumer real estate |  | 119,953 |  |  | 118,434 |
Credit card and other: |  |  |  |
Current |  | 657 |  |  | 665 |
Delinquent |  | 27 |  |  | 30 |
Non-accrual |  | — |  |  | — |
Total credit card and other |  | 684 |  |  | 695 |
Commercial loans: |  |  |  |
Current |  | 12,939 |  |  | 13,246 |
Delinquent |  | — |  |  | 831 |
Non-accrual |  | 38,664 |  |  | 24,167 |
Total commercial loans |  | 51,603 |  |  | 38,244 |
Total held-to-maturity |  | $ | 241,619 |  |  | $ | 228,219 |
Held-for-sale: |  |  |  |
Current |  | $ | 42,993 |  |  | $ | 42,574 |
Delinquent |  | 7,495 |  |  | 10,041 |
Non-accrual |  | 4,923 |  |  | 5,209 |
Total held-for-sale |  | 55,411 |  |  | 57,824 |
Total troubled debt restructurings |  | $ | 297,030 |  |  | $ | 286,043 |

(a) | Balances as of March 31, 2019 and December 31, 2018, include $3.4 million and $3.6 million, respectively, of discharged bankruptcies.

(b) | Balances as of March 31, 2019 and December 31, 2018, include $12.5 million and $13.0 million, respectively, of discharged bankruptcies.

RISK MANAGEMENT
There have been no significant changes to FHN’s risk management practices as described under “Risk Management” beginning on page 48 of Exhibit 13 to FHN’s Annual Report on Form 10-K for the year ended December 31, 2018.
MARKET RISK MANAGEMENT
There have been no significant changes to FHN’s market risk management practices as described under “Market Risk Management” beginning o n page 49 of Exhibit 13 to FHN’s Annual Report on Form 10-K for the year ended December 31, 2018.
105

Value-at-Risk (“VaR”) and Stress Testing
VaR is a statistical risk measure used to estimate the potential loss in value from adverse market movements over an assumed fixed holding period within a stated confidence level. FHN employs a model to compute daily VaR measures for its trading securities inventory. FHN computes VaR using historical simulation with a 1-year lookback period at a 99 percent confidence level and 1-day and 10-day time horizons. Additionally, FHN computes a Stressed VaR (“SVaR”) measure. The SVaR computation uses the same model but with model inputs reflecting historical data from a continuous 12-month period that reflects a period of significant financial stress appropriate for our trading securities portfolio.
A summary of FHN’s VaR and SVaR measures for 1-day and 10-day time horizons is as follows:
Table 21—VaR and SVaR Measures

|  | Three Months Ended March 31, 2019 |  | As of March 31, 2019
(Dollars in thousands) |  | Mean |  | High |  | Low |  |
1-day |  |  |  |  |  |  |  |
VaR |  | $ | 1,433 |  |  | $ | 1,907 |  |  | $ | 1,018 |  |  | $ | 1,307 |
SVaR |  | 8,243 |  |  | 9,629 |  |  | 6,242 |  |  | 8,144 |
10-day |  |  |  |  |  |  |  |
VaR |  | 3,390 |  |  | 4,280 |  |  | 2,592 |  |  | 3,046 |
SVaR |  | 21,757 |  |  | 28,086 |  |  | 16,032 |  |  | 21,812 |
|  | Three Months Ended March 31, 2018 |  | As of March 31, 2018
(Dollars in thousands) |  | Mean |  | High |  | Low |  |
1-day |  |  |  |  |  |  |  |
VaR |  | $ | 1,747 |  |  | $ | 2,294 |  |  | $ | 1,148 |  |  | $ | 2,036 |
SVaR |  | 9,764 |  |  | 11,918 |  |  | 6,576 |  |  | 10,006 |
10-day |  |  |  |  |  |  |  |
VaR |  | 3,947 |  |  | 4,589 |  |  | 2,601 |  |  | 3,844 |
SVaR |  | 27,469 |  |  | 32,304 |  |  | 20,382 |  |  | 29,485 |
|  | Year Ended December 31, 2018 |  | As of December 31, 2018
(Dollars in thousands) |  | Mean |  | High |  | Low |  |
1-day |  |  |  |  |  |  |  |
VaR |  | $ | 1,728 |  |  | $ | 2,660 |  |  | $ | 1,148 |  |  | $ | 1,878 |
SVaR |  | 9,191 |  |  | 11,918 |  |  | 6,576 |  |  | 8,881 |
10-day |  |  |  |  |  |  |  |
VaR |  | 3,735 |  |  | 5,124 |  |  | 2,601 |  |  | 3,258 |
SVaR |  | 24,762 |  |  | 32,343 |  |  | 16,257 |  |  | 21,621 |

FHN’s overall VaR measure includes both interest rate risk and credit spread risk. Separate measures of these component risks are as follows:
Table 22—Schedule of Risks Included in VaR

|  | As of March 31, 2019 |  | As of March 31, 2018 |  | As of December 31, 2018
(Dollars in thousands) |  | 1-day |  | 10-day |  | 1-day |  | 10-day |  | 1-day |  | 10-day
Interest rate risk |  | $ | 560 |  |  | $ | 1,412 |  |  | $ | 1,573 |  |  | $ | 2,230 |  |  | $ | 618 |  |  | $ | 1,514 |
Credit spread risk |  | 398 |  |  | 726 |  |  | 897 |  |  | 1,638 |  |  | 394 |  |  | 596 |

106

The potential risk of loss reflected by FHN’s VaR measures assumes the trading securities inventory is static. Because FHN’s Fixed Income division procures fixed income securities for purposes of distribution to customers, its trading securities inventory turns over regularly. Additionally, Fixed Income traders actively manage the trading securities inventory continuously throughout each trading day. Accordingly, FHN’s trading securities inventory is highly dynamic, rather than static. As a result, it would be rare for Fixed Income to incur a negative revenue day in its fixed income activities of the level indicated by its VaR measurements.
In addition to being used in FHN’s daily market risk management process, the VaR and SVaR measures are also used by FHN in computing its regulatory market risk capital requirements in accordance with the Market Risk Capital rules. For additional information regarding FHN's capital adequacy refer to the "Capital" section of this MD&A.
FHN also performs stress tests on its trading securities portfolio to calculate the potential loss under various assumed market scenarios. Key assumed stresses used in those tests are:
Down 25 bps - assumes an instantaneous downward move in interest rates of 25 basis points at all points on the interest rate yield curve.
Up 25 bps - assumes an instantaneous upward move in interest rates of 25 basis points at all points on the interest rate yield curve.
Curve flattening - assumes an instantaneous flattening of the interest rate yield curve through an increase in short-term rates and a decrease in long-term rates. The 2-year point on the Treasury yield curve is assumed to increase 15 basis points and the 10-year point on the Treasury yield curve is assumed to decrease 15 basis points. Shifts in other points on the yield curve are predicted based on their correlation to the 2-year and 10-year points.
Curve steepening - assumes an instantaneous steepening of the interest rate yield curve through a decrease in short-term rates and an increase in long-term rates. The 2-year point on the Treasury yield curve is assumed to decrease 15 basis points and the 10-year point on the Treasury yield curve is assumed to increase 15 basis points. Shifts in other points on the yield curve are predicted based on their correlation to the 2-year and 10-year points.
Credit spread widening - assumes an instantaneous increase in credit spreads (the difference between yields on Treasury securities and non-Treasury securities) of 25 basis points.
Model Validation
Trading risk management personnel within Fixed Income have primary responsibility for model risk management with respect to the model used by FHN to compute its VaR measures and perform stress testing on the trading inventory. Among other procedures, these personnel monitor model results and perform periodic backtesting as part of an ongoing process of validating the accuracy of the model. These model risk management activities are subject to annual review by FHN’s Model Validation Group, an independent assurance group charged with oversight responsibility for FHN’s model risk management.
INTEREST RATE RISK MANAGEMENT
Except as disclosed below, there have been no significant changes to FHN's interest rate risk management practices as described under "Interest Rate Risk Management" beginning o n page 51 o f Exhibit 13 to FHN's Annual Report on Form 10-K for the year ended December 31, 2018.
Net Interest Income Simulation Analysis
The information provided in this section, including the discussion regarding the outcomes of simulation analysis and rate shock analysis, is forward-looking. Actual results, if the assumed scenarios were to occur, could differ because of interest rate movements, the ability of management to execute its business plans, and other factors, including those presented in the Forward-Looking Statements section of this MD&A.
Management uses a simulation model to measure interest rate risk and to formulate strategies to improve balance sheet positioning, earnings, or both, within FHN’s interest rate risk, liquidity, and capital guidelines. Interest rate exposure is measured by forecasting 12 months of NII under various interest rate scenarios and comparing the percentage change in NII for each scenario to a base case scenario where interest rates remain unchanged. Assumptions are made regarding future balance sheet composition, interest rate movements, and loan and deposit pricing. In addition, assumptions are made about the
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magnitude of asset prepayments and earlier than anticipated deposit withdrawals. The results of these scenarios help FHN develop strategies for managing exposure to interest rate risk. While management believes the assumptions used and scenarios selected in its simulations are reasonable, simulation modeling provides only an estimate, not a precise calculation, of exposure to any given change in interest rates.
Based on a static balance sheet as of March 31, 2019, NII exposures over the next 12 months assuming rate shocks of plus 25 basis points, 50 basis points, 100 basis points, and 200 basis points are estimated to have favorable variances of .8 percent, 1.5 percent, 3.2 percent, and 5.2 percent, respectively compared to base NII. A steepening yield curve scenario where long-term rates increase by 50 basis points and short-term rates are static, results in a favorable NII variance of 1.2 percent. A flattening yield curve scenario where long-term rates decrease by 50 basis points and short-term rates are static, results in an unfavorable NII variance of .6 percent. Rate shocks of minus 25 basis points and 50 basis points result in unfavorable NII variances of 1.0 percent and 2.7 percent. These hypothetical scenarios are used to create a risk measurement framework, and do not necessarily represent management’s current view of future interest rates or market developments.
During the past few years, the movement of short-term interest rates higher after a prolonged period of very low interest rates has had an overall positive effect on FHN's NII and NIM. More recently however, competitive pressures have caused FHN’s deposit costs to rise faster than the long-term “through the cycle” assumptions made in its simulation model. Of the many assumptions made in its simulation model, deposit pricing and deposit mix are two that can have a meaningful impact on measured results. For example, in the analysis presented above, interest bearing deposit rates are assumed to increase by 52 basis points in the +100 basis point scenario. If interest bearing deposit costs were to increase 5 percent more than currently assumed in the +100 basis point scenario, the 3.2 percent favorable variance in NII disclosed above for that scenario would decline to a 2.6 percent favorable variance. Similarly, in each interest rate scenario, management makes assumptions about the balance sheet’s deposit mix. In the +100 basis point scenario it is assumed that an additional $750 million moves from non-interest bearing accounts to market rate accounts as compared to the migration assumed in the base case scenario. If that amount were to increase to $1 billion, the 3.2 percent favorable variance in NII disclosed above for that scenario would decline to 2.4 percent.
CAPITAL RISK MANAGEMENT AND ADEQUACY
There have been no significant changes to FHN's capital management practices as described under "Capital Risk Management and Adequacy" on pa ge 52 of Ex hibit 13 to FHN's Annual Report on Form 10-K for the year ended December 31, 2018.
OPERATIONAL RISK MANAGEMENT
There have been no significant changes to FHN's operational risk management practices as described under "Operational Risk Management" beginning on p age 52 of Exhibit 13 to FHN's Annual Report on Form 10-K for the year ended December 31, 2018.
COMPLIANCE RISK MANAGEMENT
There have been no significant changes to FHN's compliance risk management practices as described under "Compliance Risk Management" on page 53 of Exhibit 13 to FHN's Annual Report on Form 10-K for the year ended December 31, 2018.
CREDIT RISK MANAGEMENT
There have been no significant changes to FHN's credit risk management practices as described under "Credit Risk Management" beginning on page 53 of E xhibit 13 to FHN's Annual Report on Form 10-K for the year ended December 31, 2018.
LIQUIDITY RISK MANAGEMENT
ALCO also focuses on liquidity management: the funding of assets with liabilities of appropriate duration, while mitigating the risk of unexpected cash needs. ALCO and the Board of Directors have adopted a Liquidity Policy. The objective of the Liquidity Policy is to ensure that FHN meets its cash and collateral obligations promptly, in a cost-effective manner and with the highest degree of reliability. The maintenance of adequate levels of asset and liability liquidity should provide FHN with the ability to meet both expected and unexpected cash and collateral needs. Key liquidity ratios, asset liquidity levels and the amount available from funding sources are reported to ALCO on a regular basis. FHN’s Liquidity Policy establishes liquidity limits that are deemed appropriate for FHN’s risk profile.
In accordance with the Liquidity Policy, ALCO manages FHN’s exposure to liquidity risk through a dynamic, real time forecasting methodology. Base liquidity forecasts are reviewed by ALCO and are updated as financial conditions dictate. In addition to the baseline liquidity reports, robust stress testing of assumptions and funds availability are periodically reviewed.
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FHN maintains a contingency funding plan that may be executed, should unexpected difficulties arise in accessing funding that affects FHN, the industry as a whole, or both. Subject to market conditions and compliance with applicable regulatory requirements from time to time, funds are available from a number of sources including the available-for-sale securities portfolio, dealer and commercial customer repurchase agreements, access to the overnight and term Federal Funds markets, incremental borrowing cap acity at the FH LB ($5.5 billi on was available at March 31, 2019), brokered deposits, loan sales, syndications, and access to the Federal Reserve Banks.
Core deposits are a significant source of funding and have historically been a stable source of liquidity for banks. Generally, core deposits represent funding from a financial institution's customer base which provide inexpensive, predictable pricing. The Federal Deposit Insurance Corporation insures these deposits to the extent authorized by law. Generally, these limits are $250 thousand per account owner for interest bearing and non-interest bearing accounts. The ratio of total loans, excluding loans HFS and restricted real estate loans, to core depo sits was 92 percent on March 31, 2019 compared to 100 percent on December 31, 2018.
FHN also may use unsecured short-term borrowings as a source of liquidity. One source of unsecured borrowings is federal funds purchased from correspondent bank customers. These funds are considered to be substantially more stable than funds purchased in the national broker markets for federal funds due to the long, historical, and reciprocal nature of banking services provided by FHN to these correspondent banks. The remainder of FHN’s wholesale short-term borrowings is securities sold under agreements to repurchase transactions accounted for as secured borrowings with Regional Banking’s business customers or Fixed Income’s broker dealer counterparties.
Both FHN and FTBNA may access the debt markets in order to provide funding through the issuance of senior or subordinated unsecured debt subject to market conditions and compliance with applicable regulatory requirements. In 2014, FTBNA issued $400 million of fixed rate senior notes due in December 2019. In October 2015, FHN issued $500 million of fixed rate senior notes due in December 2020.
Both FHN and FTBNA have the ability to generate liquidity by issuing preferred equity, and (for FHN) by issuing common equity, subject to market conditions and compliance with applicable regulatory requirements. In January 2013, FHN issued $100 million of Non-Cumulative Perpetual Preferred Stock, Series A. As of March 31, 2019, FTBNA and subsidiaries had outstanding preferred shares of $295.4 million, which are reflected as noncontrolling interest on the Consolidated Condensed Statements of Condition.
Parent company liquidity is primarily provided by cash flows stemming from dividends and interest payments collected from subsidiaries. These sources of cash represent the primary sources of funds to pay cash dividends to shareholders and principal and interest to debt holders of FHN. The amount paid to the parent company through FTBNA common dividends is managed as part of FHN’s overall cash management process, subject to applicable regulatory restrictions. Certain regulatory restrictions exist regarding the ability of FTBNA to transfer funds to FHN in the form of cash, common dividends, loans, or advances. At any given time, the pertinent portions of those regulatory restrictions allow FTBNA to declare preferred or common dividends without prior regulatory approval in an aggregate amount equal to FTBNA’s retained net income for the two most recent completed years plus the current year to date. For any period, FTBNA’s ‘retained net income’ generally is equal to FTBNA’s regulatory net income reduced by the preferred and common dividends declared by FTBNA. Excess dividends in either of the two most recent completed years may be offset with available retained net income in the two years immediately preceding it. Applying the dividend restrictions imposed under applicable federal rules as outlined above, the Bank’s total amount available for dividends was $161.8 million as of April 1, 2019. Consequently, on that date the Bank could pay common dividends up to that amount to its sole common stockholder, FHN, or to its preferred shareholders without prior regulatory approval. FTBNA declared and paid common dividends to the parent company in the amount of $110.0 million in each quarter to date of 2019 and $420.0 million in 2018. FTBNA declared and paid preferred dividends in first quarter 2019 and each quarter of 2018. Additionally, FTBNA declared preferred dividends in second quarter 2019, payable in July 2019.
Payment of a dividend to shareholders of FHN is dependent on several factors which are considered by the Board. These factors include FHN’s current and prospective capital, liquidity, and other needs, applicable regulatory restrictions, and also availability of funds to FHN through a dividend from FTBNA. Beginning January 1, 2019, the ability to pay dividends for both FHN and FTBNA is restricted if capital ratios fall below regulatory minimums for Common Equity Tier 1, Tier 1, Total Capital ratios plus a 2.5 percent capital conservation buffer or 50 basis points above the capital ratios required to be considered well-capitalized. Additionally, the Federal Reserve and the OCC generally require insured banks and bank holding companies to pay cash dividends only out of current operating earnings. Consequently, the decision of whether FHN will pay future dividends and the amount of dividends will be affected by current operating results. FHN paid a cash dividend of $.14 per common share on April 1, 2019, and in April 2019 the Board approved a $.14 per common share cash dividend payable on July 1, 2019, to shareholders of record on June 14, 2019. FHN paid a cash dividend of $1,550.00 per preferred share on April 10, 2019, and in
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April 2019 the Board approved a $1,550.00 per preferred share cash dividend payable on July 10, 2019, to shareholders of record on June 25, 2019.
CASH FLOWS
The Consolidated Condensed Statements of Cash Flows provide information on cash flows from operating, investing, and financing activities for the three months ended March 31, 2019 and 2018. The level of cash and cash equivalents decreased $192.5 million during first quarter 2019 compared to a decrease of $19.0 million in first quarter 2018. In 2019, cash used by financing and investing activities was more than cash provided by operating activities. I n 2018, cash used by financing and operating activities was more than cash provided by investing activities.
Net cash used in financing activities was $222.2 million in first quarter 2019, largely driven by a decrease in deposits, share repurchases and cash dividends paid during first quarter 2019, somewhat offset by an increase in other short-term borrowings, primarily FFP. Net cash used by investing activities was $92.7 million in first quarter 2019, largely driven by increases in loan balances somewhat offset by a decrease in interest-bearing cash and a net decrease in AFS debt securities, as maturities and sales outpaced purchases. Net cash provided by operating activities was $122.5 million in first quarter 2019 primarily due to net cash inflows of $369.2 million related to fixed income trading activities and favorably driven cash-related net income items, somewhat offset by outflows of $358.6 million related to loans held-for-sale.
Net cash used in financing activities was $1.1 billion in first quarter 2018, largely driven by a decrease in short-term borrowings, somewhat offset by an increase in deposits. The decrease in short-term borrowings was primarily the result of a decline in FHLB borrowings, which fluctuate largely based on loan demand, deposit levels and balance sheet funding strategies. Net cash used by operating activities was $204.4 million in first quarter 2018 primarily due to net cash outflows of $418.9 million related to an increase in loans held-for-sale, somewhat offset by inflows of $110.8 million related to fixed income trading activities and favorably driven cash-related net income items. Net cash provided by investing activities was $1.3 billion in first quarter 2018, largely driven by deceases in interest-bearing cash and loan balances. The decrease in loan balances was due in large part to a seasonal decline in loans to mortgage companies.
REPURCHASE OBLIGATIONS, OFF-BALANCE SHEET ARRANGEMENTS, AND OTHER CONTRACTUAL OBLIGATIONS
Obligations from Legacy Mortgage Businesses
Prior to September 2008 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 residential mortgage loans were sold predominately to two government-sponsored entities, or "GSEs": Fannie Mae and Freddie Mac. Also, federally insured or guaranteed whole loans were pooled, and payments to investors were guaranteed through Ginnie Mae. Many mortgage loan originations, especially nonconforming mortgage loans, were sold to investors, or certificate-holders, predominantly through FH proprietary securitizations but also, to a lesser extent, through other whole loans sold to private non-Agency purchasers. FHN used only one trustee for all of its FH proprietary securitizations. In addition to FH proprietary securitization and other whole loan sales activities, FHN also originated and sometimes sold or securitized second-lien, line of credit, and government-insured mortgage loans.
For non-recourse loan sales, FHN has exposure: to indemnify underwriters of FH securitizations who are defending claims that they assert are based, at least in part, on FHN's breach of its representations and warranties made at closing to underwriters, the purchasers, and the trustee of FH proprietary securitizations; and to indemnify purchasers of other whole loans sold, or their assignees, asserting that FHN breached representations and warranties made in connection with the sales of those loans.
Repurchase and Make-Whole Obligations
To date, FHN has resolved a substantial number of GSE claims through definitive resolution agreements ("DRAs") with the GSEs, while the remainder have been resolved on a loan-by-loan basis. 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 loan repurchase or monetary compensation obligations under the DRAs related to private mortgage insurance rescissions, cancellations, and denials (with certain exceptions). FHN also has exposure related to loans where there has been a prior bulk sale of servicing, as well as certain other whole-loan sales. With respect to loans where there has been a prior bulk sale of servicing, FHN is not responsible for MI cancellations and denials to the extent attributable to the acts of the current servicer.
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While large portions of repurchase claims from the GSEs were settled with the DRAs, comprehensive settlement of repurchase, make-whole, and indemnity claims with non-Agency claimants is not practical. Such claims that are not resolved by the parties can, and sometimes have, become litigation.
FH Proprietary Securitization Actions
FHN has potential financial exposure from FH proprietary securitizations outside of the repurchase/make-whole process. Several investors in certificates sued FHN and others starting in 2009, and several underwriters or other counterparties have demanded that FHN indemnify and defend them in securitization lawsuits. The pending suits generally assert that disclosures made to investors in the offering and sale of certificates were legally deficient. A number of those matters have settled or otherwise been resolved. See Note 11 - Contingencies and Other Disclosures for a discussion of certain actions pending in relation to FH proprietary securitizations.
Servicing Obligations
FHN's national servicing business was sold as part of the platform sale in 2008. A significant amount of mortgage servicing rights ("MSR") was sold at that time, and a significant amount was retained. The related servicing activities, including foreclosure and loss mitigation practices, not sold in 2008 were outsourced including a subservicing arrangement initiated in 2011 (the "2011 subservicer"). In fourth quarter 2013 and first quarter 2014, FHN sold and transferred a substantial majority of its remaining servicing obligations and servicing assets (including advances) to the 2011 subservicer. The servicing still retained by FHN is not significant and continues to be subserviced.
As servicer, FHN had contractual obligations to the owners of the loans (primarily GSEs) and securitization trustees to handle billing, custodial, and other tasks related to each loan. Each subservicer undertook to perform those obligations on FHN's behalf during the applicable subservicing period, although FHN legally remained the servicer of record for those loans that were subserviced.
As mentioned in Note 11 - Contingencies and Other Disclosures - FHN has received a notice of indemnification claims from its 2011 subservicer, Nationstar Mortgage LLC, currently doing business as "Mr. Cooper." The notice asserts several categories of indemnity obligations by FHN to Nationstar in connection with mortgage loans under the subservicing arrangement and under the purchase transaction. This matter currently is not in formal litigation, but litigation in the future is possible.
Repurchase Accrual Methodology
Over the past several years FHN’s approach for determining the adequacy of the repurchase and foreclosure reserve has evolved, sometimes substantially, based on changes in information available. Repurchase/make-whole rates vary based on purchaser, vintage, and claim type. For those loans repurchased or covered by a make-whole payment, cumulative average loss severities range between 50 and 60 percent of the UPB.
Repurchase Accrual Approach
In determining the loss content of GSE loans subject to repurchase requests excluded from the DRAs (primarily loans included in bulk sales), FHN applies a vintage level estimate of loss to all loans sold to the GSEs that were not included in the settlements and which have not had a prior repurchase resolution. First, pre-payment, default, and claim rate estimates are applied by vintage to estimate the aggregate claims expected but not yet resolved. Historical loss factors for each sale vintage and repurchase rates are then applied to estimate total loss content. Loss content related to other whole loan sales is estimated by applying the historical average repurchase and loss severity rates to the current UPB in the active pipeline to calculate estimated losses attributable to the current pipeline. FHN then uses an internal model to calculate loss content by applying historical average repurchase and loss severity rates to historical average inflows. For purposes of estimating loss content, FHN also considers MI cancellations. When assessing loss content related to loans where MI has been canceled, FHN applies historical loss factors (including repurchase rates and loss severity ratios) to the total unresolved MI cancellations in the active pipeline, as well as applying these factors to historical average inflows to estimate loss content. Additionally, FHN identifies estimated losses related to MI curtailment requests. Management also evaluates the nature of claims from purchasers and/or servicers of loans sold to determine if qualitative adjustments are appropriate.
Repurchase and Foreclosure Liability
The repurchase and foreclosure liability is comprised of accruals to cover estimated loss content in the active pipeline (consisting of mortgage loan repurchase, make-whole, foreclosure/servicing demands and certain related exposures), estimated future inflows, and estimated loss content related to certain known claims not currently included in the active pipeline. The liability contemplates repurchase/make-whole and damages obligations and estimates for probable incurred losses associated with loan populations excluded from the DRAs, as well as other whole loans sold, MI rescissions, and loans included in bulk servicing sales effected prior to the DRAs. FHN compares the estimated probable incurred losses determined under the applicable loss estimation approaches for the respective periods with current reserve levels. Changes in the estimated required liability levels are recorded as necessary through the repurchase and foreclosure provision.
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The following table provides a rollforward of the legacy mortgage repurchase liability for the three months ended March 31, 2019 and 2018:
Table 23—Reserves for Repurchase and Foreclosure Losses

|  | Three Months Ended March 31
(Dollars in thousands) |  | 2019 |  | 2018
Legacy Mortgage |  |  |  |
Beginning balance |  | $ | 31,623 |  |  | $ | 33,556 |
Provision/(provision credit) for repurchase and foreclosure losses |  | (455 | ) |  | (72 | )
Net realized losses |  | 8 |  |  | 6 |
Balance on March 31 |  | $ | 31,176 |  |  | $ | 33,490 |

In April, FHN made a $12.6 million indemnification settlement payment that will reduce the repurchase and foreclosure reserve.
MARKET UNCERTAINTIES AND PROSPECTIVE TRENDS
FHN’s future results could be affected both positively and negatively by several known trends. Key among those are FHN’s strategic initiatives, changes in the U.S. economy and outlook, government actions affecting interest rates, and potential changes in federal policies including changes to the government's approach to tariffs and the potential impact to our customers. In addition, legacy matters in the non-strategic segment could continue to impact FHN’s quarterly results in ways which are both difficult to predict and unrelated to current operations.
FHN has prioritized expense discipline to include reducing or controlling certain expenses including realization of expense efficiencies from the merger with CBF and investing in revenue-producing activities and critical infrastructure. FHN remains committed to organic growth through customer retention, key hires, targeted incentives, and other traditional means.
Performance by FHN, and the entire U.S. financial services industry, is affected considerably by the overall health of the U.S. economy. The most recent recession ended in 2009. Growth during the economic expansion since 2009 for many years was muted, compared to earlier recoveries, and somewhat inconsistent from one quarter to the next. The economic expansion is over 8 years old and many aspects of the economy have strengthened.
The Federal Reserve raised short-term interest rates by .25 percent four times in 2018 following similar, but less frequent, raises starting in 2015. These actions, along with the recent decline in long-term interest rates have flattened the yield curve. Early in 2019, the Federal Reserve signaled the possibility of pausing further increases in short-term interest rates while economic trends are evaluated. If rates in fact remain stable, the yield curve eventually may steepen, which should benefit FHN; however, in the meantime, various effects on FHN have been and may remain uneven for some time. Moreover, if future economic data shows a risk of lower growth or recession, interest rates may fall, which likely would adversely impact FHN’s net interest margin. Falling and/or moderately volatile interest rates, however, should enhance activity within FHN’s Fixed Income business.
In 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulates the London InterBank Offered Rate (“LIBOR”), announced that it intends to halt persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, LIBOR as currently operated may not continue after 2021. FHN is not currently able to predict the impact that the transition from LIBOR will have on the Company; however, because FHN has instruments with floating rate terms based on LIBOR, FHN may experience increases in interest, dividends, and other costs relative to these instruments subsequent to 2021. Additionally, the transition from LIBOR could impact or change FHN’s hedge accounting practices. FHN has initiated efforts to 1) develop an inventory of affected loans, securities, and derivatives, 2) evaluate and draft modifications as needed to address loans outstanding at the time of LIBOR retirement, 3) obtain an understanding of the potential effects for applicable securities and derivatives and 4) assess revisions to product pricing structures based on alternative reference rates.
Lastly, while FHN has made significant progress in resolving matters from the legacy mortgage business, some matters remain unresolved. The timing or financial impact of resolution of these matters cannot be predicted with accuracy. Accordingly, the non-strategic segment is expected to occasionally and unexpectedly impact FHN’s overall quarterly results negatively or
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positively with reserve accruals or releases. Also, although new legacy matters of significance arise at a much slower pace than in years past and some formerly common legal claims no longer can be made due to the passage of time, potential for new legacy matters remains.
Foreclosure Practices
FHN retains exposure for potential deficiencies in servicing related to its legacy servicing business and subservicing arrangements. Further details regarding these legacy matters are provided in "Obligations from Legacy Mortgage Businesses - Servicing Obligations" under "Repurchase Obligations, Off-Balance Sheet Arrangements, and Other Contractual Obligations."
CRITICAL ACCOUNTING POLICIES
There have been no significant changes to FHN’s critical accounting policies as described in “Critical Accounting Policies” beginning on page 62 of Exhibit 13 to FHN’s Annual Report on Form 10-K for the year ended December 31, 2018.
ACCOUNTING CHANGES ISSUED BUT NOT CURRENTLY EFFECTIVE
Refer to Note 1 – Financial Information for a detail of accounting standards that have been issued but are not currently effective, which section is incorporated into MD&A by this reference.
NON-GAAP INFORMATION
The following table provides a reconciliation of non-GAAP items presented in this MD&A to the most comparable GAAP presentation:
Table 24—Non-GAAP to GAAP Reconciliation

| Three Months Ended March 31
(Dollars in thousands) | 2019 |  | 2018
Average Tangible Common Equity (Non-GAAP) |  |  |
Average total equity (GAAP) | $ | 4,809,235 |  |  | $ | 4,573,916 |
Less: Average noncontrolling interest (a) | 295,431 |  |  | 295,431 |
Less: Average preferred stock (a) | 95,624 |  |  | 95,624 |
(A) Total average common equity | $ | 4,418,180 |  |  | $ | 4,182,861 |
Less: Average intangible assets (GAAP) (b) | 1,584,694 |  |  | 1,568,029 |
(B) Average Tangible Common Equity (Non-GAAP) | $ | 2,833,486 |  |  | $ | 2,614,832 |
Net Income Available to Common Shareholders |  |  |
(C) Net income available to common shareholders (annualized) (GAAP) | $ | 401,642 |  |  | $ | 367,531 |
Ratios |  |  |
(C)/(A) Return on average common equity (“ROCE”) (GAAP) (c) | 9.09 | % |  | 8.79 | %
(C)/(B) Return on average tangible common equity (“ROTCE”) (Non-GAAP) (d) | 14.17 |  |  | 14.06 |

(a)Included in Total equity on the Consolidated Condensed Statements of Condition.
(b)Includes Goodwill and other intangible assets, net of amortization.
(c)Ratio is annualized net income available to common shareholders to average common equity.
(d)Ratio is annualized net income available to common shareholders to average tangible common equity.
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Item 3. | Quantitative and Qualitative Disclosures about Market Risk

The information called for by this item is contained in

(a) | Management’s Discussion and Analysis of Financial Condition and Results of Operations included as Item 2 of Part I of this report, including in particular the section entitled “Risk Management” beginning on page 105 of this report and the subsections entitled “Market Risk Management” beginning on page 105 and “Interest Rate Risk Management” beginning on page 107 of this report, and

(b) | Note 15 to the Consolidated Condensed Financial Statements appearing on pages 48-54 of this report,

all of which materials are incorporated herein by reference. For additional information concerning market risk and our management of it, refer to: Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in Exhibit 13 to FHN’s Annual Report on Form 10-K for the year ended December 31, 2018, including in particular the section entitled “Risk Management” beginning on page 48 of that Report and the subsections entitled “Market Risk Management” beginning on page 49 and “Interest Rate Risk Management” beginning on page 51 of that Report; and Note 22 to the Consolidated Financial Statements appearing on pages 150-156 of Exhibit 13 to FHN’s Annual Report on Form 10-K for the year ended December 31, 2018.

Item 4. | Controls and Procedures

(a) | Evaluation of Disclosure Controls and Procedures. FHN’s management, with the participation of FHN’s chief executive officer and chief financial officer, has evaluated the effectiveness of FHN’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this quarterly report. Based on that evaluation, the chief executive officer and the chief financial officer have concluded that FHN’s disclosure controls and procedures were effective as of the end of the period covered by this report.

(b) | Changes in Internal Control over Financial Reporting. There have not been any changes in FHN’s internal control over financial reporting during FHN’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, FHN’s internal control over financial reporting.

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Part II.
OTHER INFORMATION

Item 1 | Legal Proceedings

The “Contingencies” section of Note 11 to the Consolidated Condensed Financial Statements beginning on page 36 of this Report is incorporated into this Item by reference.

Item 1A | Risk Factors

Not applicable

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

| (a) & (b) | Not Applicable |  |
| (c) | The "Common Stock Purchase Programs” section including tables 9(a) and 9(b) and explanatory discussions included in Item 2 of Part I of this report under the heading “First Horizon National Corporation Management’s Discussion and Analysis of Financial Condition and Results of Operations,” beginning on page 88 of this report, is incorporated herein by reference.

Items 3 and 4
Not applicable

Item 5 | Other Information

In the first quarter of 2019 there were no material amendments to the procedures, described in FHN's 2019 Proxy Statement under the caption "Shareholder Recommendations of Director Nominees; Shareholder Nominations," by which security holders may recommend nominees to FHN's Board of Directors.
In January 2019, FHN's Board of Directors amended FHN's bylaws to create a new process, if certain conditions are met, for a shareholder to nominate a person for election to the Board in advance of an annual meeting and to require FHN to include that nomination in FHN's annual meeting proxy statement. Additional information regarding this process is available in FHN's 2019 Proxy Statement under the captions: "Shareholder Recommendations of Director Nominees; Shareholder Nominations" and "Shareholder Proposal and Nomination Deadlines," which information is incorporated herein by reference.
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Item 6. | Exhibits

(a) Exhibits
In the Exhibit Table below: the “Filed Here” column denotes each exhibit which is filed or furnished (as applicable) with this report; the “Mngt Exh” column denotes each exhibit that represents a management contract or compensatory plan or arrangement required to be identified as such; and the “Furnished” column denotes each exhibit that is “furnished” pursuant to 18 U.S.C. Section 1350 or otherwise, and is not “filed” as part of this Report or as a separate disclosure document.
In many agreements filed as exhibits, each party makes representations and warranties to other parties. Those representations and warranties are made only to and for the benefit of those other parties in the context of a business contract. Exceptions to such representations and warranties may be partially or fully waived by such parties, or not enforced by such parties, in their discretion. No such representation or warranty may be relied upon by any other person for any purpose.

Exh No | Description of Exhibit to this Report | Filed Here | Mngt Exh | Furn-ished | Incorporated by Referenced to
Form | Exh No | Filing Date
3.1 | Bylaws of First Horizon National Corporation, as amended and restated effective January 29, 2019, incorporated by reference to Exhibit 3.1 to FHN’s Current Report on Form 8-K dated January 29, 2019. |  |  |  | 8-K | 3.1 | 1/29/2019
4 | FHN agrees to furnish to the Securities and Exchange Commission upon request a copy of each instrument defining the rights of the holders of the senior and subordinated long-term debt of FHN and its consolidated subsidiaries. |  |  |  |  |  |
10.1 | Form of Grant Notice for Executive Performance Stock Units [2019] | X | X |  |  |  |
10.2 | Form of Grant Notice for Executive Stock Options [2019] | X | X |  |  |  |
10.3 | Form of Grant Notice for Executive Restricted Stock Units [2019] | X | X |  |  |  |
10.4 | Sections of Director Policy pertaining to compensation [revised April 2019] | X | X |  |  |  |
31(a) | Rule 13a-14(a) Certifications of CEO (pursuant to Section 302 of Sarbanes-Oxley Act of 2002) | X |  |  |  |  |
31(b) | Rule 13a-14(a) Certifications of CFO (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002) | X |  |  |  |  |
32(a) | 18 USC 1350 Certifications of CEO (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) | X |  | X |  |  |
32(b) | 18 USC 1350 Certifications of CFO (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) | X |  | X |  |  |
| XBRL Exhibits |  |  |  |  |  |
101 | The following financial information from First Horizon National Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, formatted in XBRL: (i) Consolidated Condensed Statements of Condition at March 31, 2019 and December 31, 2018; (ii) Consolidated Condensed Statements of Income for the Three Months Ended March 31, 2019 and 2018; (iii) Consolidated Condensed Statements of Comprehensive Income for the Three Months Ended March 31, 2019 and 2018; (iv) Consolidated Condensed Statements of Equity for the Three Months Ended March 31, 2019 and 2018; (v) Consolidated Condensed Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018; (vi) Notes to Consolidated Condensed Financial Statements. | X |  |  |  |  |
101. INS | XBRL Instance Document | X |  |  |  |  |
101. SCH | XBRL Taxonomy Extension Schema | X |  |  |  |  |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | X |  |  |  |  |
101.LAB | XBRL Taxonomy Extension Label Linkbase | X |  |  |  |  |
101. PRE | XBRL Taxonomy Extension Presentation Linkbase | X |  |  |  |  |
101.DEF | XBRL Taxonomy Extension Definition Linkbase | X |  |  |  |  |

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|  | FIRST HORIZON NATIONAL CORPORATION (Registrant)
Date: May 8, 2019 |  | By: |  | /s/ William C. Losch III
|  | Name: |  | William C. Losch III
|  | Title: |  | Executive Vice President and Chief Financial Officer
|  |  |  | (Duly Authorized Officer and Principal Financial Officer)

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