Note 10 – Contingencies and Other Disclosures (Continued)

Material Matters

FHN, along with multiple co-defendants, is defending lawsuits brought by investors which claim that the offering documents under which certificates relating to First Horizon branded securitizations were sold to them were materially deficient. One of those matters is viewed as material currently: 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 ~~estimate~~estimates for this matter isare subject to significant uncertainties regarding: the dollar amounts claimed; the potential remedies that might be available or awarded; the outcome of any settlement ~~discussions;~~discussions that may occur; the availability of significantly dispositive defenses; and the incomplete status of the discovery process. ~~Additional information concerning FHN’s former mortgage businesses is provided below in “Obligations from Legacy Mortgage Businesses.”~~

Underwriters are co-defendants in the FDIC-New York matter and have demanded, under provisions in the applicable underwriting agreements, that FHN indemnify them for their expenses and any losses they may incur. In addition, FHN has received indemnity demands from underwriters in certain other suits as to which investors claim to have purchased certificates in FH proprietary securitizations but as to which FHN has not been named a defendant.

For most pending indemnity claims involving FH 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; and lack of precedent claims. The alleged purchase prices of the certificates subject to pending indemnification claims, excluding the FDIC-New York matter, total ~~$409.9~~$231.2 million.

~~In late October, 2017,~~ FHN has received a notice of indemnification claims 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, FHN’s subservicer. 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. 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.

In 2018, FHN received an indemnification notice from JPMorgan Chase & Co. related to other whole loans sold. The notice asserts that FHN-originated loans contributed to claimant’s losses in connection with large settlements that claimant paid to various third parties in connection with mortgage loans securitized by claimant. The notice does not include specific claimed deficiencies for specific loans, but does assert that quantitative analysis of loss allocation has been performed. This matter, currently at an early stage, may result in discussions and possibly settlement without litigation, or may evolve into litigation, among many possible outcomes. FHN is unable to estimate an RPL range for this matter due to significant uncertainties regarding: the number of, and the facts underlying, the loan originations which claimant asserts 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 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 loan repurchases or make-whole payments and could be included in the repurchase liability discussed below, and some might eventually result in damages or other litigation-oriented liability, including indemnity payments, but none are included in the material loss contingency liabilities mentioned above or in the RPL range mentioned above. Additional information concerning such exposures is provided below in “Obligations from Legacy Mortgage Businesses.”

~~Matters Related to Capital Bank Financial Transaction Settled~~

As mentioned in Note 10 within Item 1 of FHN’s Quarterly Report on Form 10-Q for the period ended June 30, 2017, (1) on July 14, 2017, a complaint captioned Robert Garfield v. First Horizon National Corporation, et al., No. CH-17-1022, was filed on behalf of a putative class of FHN shareholders against FHN, its directors, and Capital Bank Financial Corp. (“Capital Bank Financial”) in the Court of Chancery of Shelby County, Tennessee (30th Judicial District), in connection with FHN’s agreement to acquire Capital Bank Financial by merger. In addition, Capital Bank Financial and the individual members of the Capital Bank Financial board of directors were named as defendants in three substantially similar putative derivative and class action lawsuits filed by alleged shareholders of Capital Bank Financial; (2) Bushansky v. Capital Bank Financial Corp., et al., No. 3:17-cv-00422 (W.D. North Carolina filed July 17, 2017); (3) Parshall v. Capital Bank Financial Corp., et al., No. 3:17-cv-00428 (W.D. North Carolina filed July 19, 2017); and (4) McNamara v. Capital Bank Financial Corp., et al., No. 3:17-cv-00439 (W.D. North Carolina filed July 25, 2017). The Parshall complaint also named FHN as a defendant. During the third quarter of 2017, those four matters were settled and dismissed. Amounts expended by FHN were not material.

3839

Note 10 – Contingencies and Other Disclosures (Continued)

~~Material Gain Contingency Matter~~

In second quarter 2015 FHN reached an agreement with DOJ and HUD to settle potential claims related to FHN’s underwriting and origination of loans insured by FHA. Under that agreement FHN paid $212.5 million. FHN believes that certain insurance policies, having an aggregate policy limit of $75 million, provide coverage for FHN’s losses and related costs. The insurers have denied and/or reserved rights to deny coverage. FHN sued the insurers to enforce the policies under Tennessee law. The trial court granted summary judgment to the defendants, and FHN has appealed. In connection with this litigation FHN seeks to partly recoup previously recognized expenses associated with the settled matter. Under applicable financial accounting guidance FHN has determined that although material gain from this litigation is not probable, there is a reasonably possible (more than remote) chance of a material gain outcome for FHN. FHN cannot determine a probable outcome that may result from this matter because of the uncertainty of the potential outcomes of the legal proceedings and also due to significant uncertainties regarding: legal interpretation of the relevant contracts; potential remedies that might be available or awarded; and the ultimate effect of counterclaims asserted by the defendants. Additional information concerning FHN’s former mortgage businesses is provided below in “Obligations from Legacy Mortgage Businesses.”

Obligations from Legacy Mortgage Businesses

Loss contingencies mentioned above under “Material Matters” stem from FHN’s former mortgage origination and servicing businesses. FHN retains potential for further exposure, in addition to the matters mentioned, from those former businesses. The following discussion provides context and other information to enhance an understanding of those matters and exposures.

Overview

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 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. FHN also originated mortgage loans eligible for FHA insurance or VA guaranty. In addition, FHN originated and sold HELOCs and second lien mortgages through other whole loans sold to private purchasers and, to a lesser extent, through FH proprietary securitizations. Currently, only one FH securitization of HELOCs remains outstanding.

For non-recourse loan sales, FHN has exposure for repurchase of loans, make-whole damages, or other related damages, arising from claims that FHN breached its representations and warranties made at closing to the purchasers, including GSEs, other whole loan purchasers, and the trustee of FH proprietary securitizations.

During the time these legacy activities were conducted, FHN frequently sold mortgage loans “with servicing retained.” As a result, FHN accumulated substantial amounts of MSR on its consolidated balance sheet, as well as contractual servicing obligations and related deposits and receivables. FHN conducted a significant servicing business under its First Horizon Home Loans brand.

MI was required by GSE rules for certain of the loans sold to GSEs and was also provided for certain of the loans that were securitized. MI generally was provided for first lien loans sold or securitized having an LTV ratio at origination of greater than 80 percent.

In 2007, market conditions deteriorated to the point where mortgage-backed securitizations no longer could be sold economically; FHN’s last securitization occurred that year. FHN continued selling mortgage loans to GSEs until August 31, 2008, when FHN sold its national mortgage origination and servicing platforms along with a portion of its servicing assets and obligations. FHN contracted to have its remaining servicing obligations sub-serviced. Since the platform sale FHN has sold substantially all remaining servicing assets and obligations.

Certain mortgage-related terms used in this “Contingencies” section are defined in “Mortgage-Related Glossary” at the end of this Overview.

Repurchase and Make-Whole Obligations

~~Note 10 – Contingencies and Other Disclosures (Continued)~~

Starting in 2009, FHN received a high number of claims either to repurchase loans from the purchaser or to pay the purchaser to “make them whole” for economic losses incurred. These claims have been driven primarily by loan delinquencies. In repurchase or make-whole claims a loan purchaser typically asserts that specified loans violated representations and warranties FHN made when the loans were sold. A significant majority of claims received overall have come from GSEs, and the remainder are from purchasers of other whole ~~loan sales.~~loans sold. FHN has not received a loan repurchase or make-whole claim from the FH proprietary securitization trustee.

Generally, FHN reviews each claim and MI cancellation notice individually. FHN’s responses include appeal, provide additional information, deny the claim (rescission), repurchase the loan or remit a make-whole payment, or reflect cancellation of MI.

After several years resolving repurchase and make-whole claims with each GSE on a loan-by-loan basis, in 2013 and 2014 FHN entered into DRAs with the GSEs, resolving a ~~large fraction~~substantial majority of potential claims. Starting in 2014, the overall number of such claims diminished substantially, primarily as a result of the DRAs. Each DRA resolved obligations associated with loans originated from 2000 to 2008, but certain obligations and loans were excluded. Under each DRA, FHN remains

Note 10 – Contingencies and Other Disclosures (Continued)

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.

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

Servicing Obligations

FHN’s national servicing business was sold as part of the platform sale in 2008. A significant amount of 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 through a three-year subservicing arrangement (the “2008 subservicing agreement”) with the platform buyer (the “2008 subservicer”). The 2008 subservicing agreement expired in 2011 when FHN entered into a replacement agreement with a new subservicer (the “2011 subservicer”). In fourth quarter 2013, FHN contracted to sell a substantial majority of its remaining servicing obligations and servicing assets (including advances) to the 2011 subservicer. The servicing was transferred to the buyer in stages, and was substantially completed in first quarter 2014. The servicing still retained by FHN 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.

The 2008 subservicer has been subject to a consent decree, and entered into a settlement agreement with regulators related to alleged deficiencies in servicing and foreclosure practices. The 2008 subservicer has made demands of FHN, under the 2008 subservicing agreement, to pay certain resulting costs and damages totaling $43.5 million. FHN disagrees with those demands and has made no payments. This disagreement has the potential to result in litigation and, in any such future litigation, the claim against FHN may be substantial.

A certificate holder has contacted FHN, claiming that it has been damaged from alleged deficiencies in servicing loans held in certain FH proprietary securitization trusts. The holder has sued the FH securitization trustee on related grounds, but has not yet

~~Note 10 – Contingencies and Other Disclosures (Continued)~~

~~sued FHN. FHN cannot predict how this matter will proceed nor can FHN predict whether this matter ultimately will be material to FHN.~~

Origination Data

From 2005 through 2008, FHN originated and sold $69.5 billion of mortgage loans toconnected with the Agencies. This includes $57.6 billion of loans sold to GSEs and $11.9 billion of loans guaranteed by Ginnie Mae. Although FHN conducted these businesses before 2005, GSE loans originated in 2005 through 2008 account for a substantial majority of all repurchase requests/make-whole claims received since the 2008 platform sale.

From 2005 through 2007, $26.7 billion of mortgage loans were included in FH proprietary securitizations. The last FH securitization occurred in 2007.

Note 10 – Contingencies and Other Disclosures (Continued)

Mortgage-Related Glossary




Agencies	the two GSEs and Ginnie Mae	HELOC	home equity line of credit
certificates	securities sold to investors representing interests in mortgage loan securitizations	HUD	Dept. of Housing and Urban Development

DOJ	U.S. Department of Justice	LTV	loan-to-value, a ratio of the loan amount divided by the home value

DRA	definitive resolution agreement with a GSE	MI	private mortgage insurance, insuring against borrower payment default

Fannie Mae, Fannie, FNMA	Federal National Mortgage Association	MSR	mortgage servicing rights

FH proprietary securitization	securitization of mortgages sponsored by FHN under its First Horizon brand	nonconforming loans	loans that did not conform to Agency program requirements

FHA	Federal Housing Administration	other whole loans sold	mortgage loans sold to private, non-Agency purchasers

Freddie Mac, Freddie, FHLMC	Federal Home Loan Mortgage Corporation	2008 platform sale, ~~2008 sale,~~ platform sale	FHN’s sale of its national mortgage origination and servicing platforms in 2008

Ginnie Mae, Ginnie, GNMA	Government National Mortgage Association	pipeline or active pipeline	pipeline of mortgage repurchase, make-whole, & certain related claims against FHN

GSEs	Fannie Mae and Freddie Mac	VA	Veterans Administration

Repurchase and Foreclosure Liability

The repurchase and foreclosure liability is comprised of reserves to cover estimated loss content in the active pipeline, estimated future inflows, as well as estimated loss content related to certain known claims not currently included in the active pipeline. 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.

Based on currently available information and experience to date, FHN has evaluated its loan repurchase, make-whole, and certain related exposures and has accrued for losses of ~~$34.6~~$32.9 million and ~~$66.0~~$34.2 million as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively, including a smaller amount related to equity-lending junior lien loan sales. 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 ~~decline in the repurchase and~~

~~Note 10 – Contingencies and Other Disclosures (Continued)~~

~~foreclosure liability since year-end is the result of the settlement of certain repurchase claims. The~~ estimates are based upon currently available information and fact patterns that exist as of ~~the~~each balance sheet ~~dates~~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 FHN Mortgage Exposures

FHN’s FHA and VA program lending was substantial prior to the 2008 platform sale, and has continued at a much lower level since then. As lender, FHN made certain representations and warranties as to the compliance of the loans with program requirements. Over the past several years, most recently in first quarter 2015, FHN occasionally has recognized significant losses associated with settling claims and potential claims by government agencies, and by private parties asserting claims on behalf of agencies, related to these origination activities. At ~~September~~June 30, 2017, FHN had not accrued a liability for any matter related to these government lending programs, and no pending or known threatened matter related to these programs represented a material loss contingency described above.

~~At September 30, 2017,~~2018, FHN had not accrued a liability for exposure for repurchase of first-lien loans related to FH proprietary securitizations arising from claims from the trustee that FHN breached its representations and warranties in FH proprietary securitizations at ~~closing.~~closing, and no such claims had been made. FHN’s trustee is a defendant in lawsuits in which the plaintiffs have asserted that the trustee has duties to review loans and otherwise to act against FHN outside of the duties specified in the applicable trust documents; FHN is not a defendant and is not able to assess what, if any, exposure FHN may have as a result of them.

Note 10 – Contingencies and Other Disclosures (Continued)

FHN is defending, directly or as indemnitor, certain pending lawsuits brought by purchasers of certificates in FH proprietary securitizations or their assignees. FHN believes a new lawsuit based on federal securities claims that offering disclosures were deficient cannot be brought at this time due to the running of applicable limitation periods, but other investor claims, based on other legal theories, might still be possible. Due to sales of MSR ~~starting in~~from 2008 to 2014, FHN has limited visibility into current loan information such as principal payoffs, refinance activity, delinquency trends, and loan modification activity.

Many non-GSE purchasers of whole loans from FHN included those loans in their own securitizations. Regarding such other whole loans sold, FHN made representations and warranties concerning the loans and provided indemnity covenants to the purchaser/securitizer. Typically, the purchaser/securitizer assigned key contractual rights against FHN to the securitization trustee. As mentioned above, repurchase, make-whole, indemnity, and other monetary claims related to specific loans are included in the active pipeline and repurchase reserve. In addition, currently the following categories of actions are pending which involve FHN and other whole loans sold: (i) FHN has received indemnification requests from purchasers of loans or their assignees in cases where FHN is not a defendant; (ii) FHN has received subpoenas seeking loan reviews in cases where FHN is not a defendant; and (iii) FHN has received repurchase, indemnity, and other demands from purchasers or their ~~assignees; and (iv) FHN is a defendant in legal actions involving FHN-originated other whole loans sold, including one of the material matters mentioned above.~~assignees. At ~~September~~June 30, ~~2017,~~2018, FHN’s repurchase and foreclosure liability considered certain known exposures from other whole loans sold.

Certain government entities have subpoenaed information from FHN and others. These entities include the FDIC (on behalf of certain failed banks) and the FHLBs of San Francisco, Atlanta, and Seattle, among others. These entities purport to act on behalf of several purchasers of FH proprietary securitizations, and of non-FH securitizations which included other whole loans sold. Collectively, the subpoenas seek information concerning: a number of FH proprietary securitizations and/or underlying loan originations; and originations of certain other whole loans sold which, in many cases, were included by the purchaser in its own securitizations. Some subpoenas fail to identify the specific investments made or loans at issue. Moreover, FHN has limited information regarding at least some of the loans under review. Unless and until a review (if related to specific loans) becomes an identifiable repurchase claim, the associated loans are not considered part of the active pipeline.

OTHER DISCLOSURES

Visa Matters

FHN is a member of the Visa USA network. In October 2007, the Visa organization of affiliated entities completed a series of global restructuring transactions to combine its affiliated operating companies, including Visa USA, under a single holding company, Visa Inc. (“Visa”). Upon completion of the reorganization, the members of the Visa USA network remained contingently liable for certain Visa litigation matters (the “Covered Litigation”). Based on its proportionate membership share of Visa USA, FHN recognized a contingent liability in fourth quarter 2007 related to this contingent obligation. In March 2008, Visa completed its initial public offering (“IPO”) and funded an escrow account from its IPO proceeds to be used to make payments related to the Visa litigation matters. FHN received approximately 2.4 million Class B shares in conjunction with Visa’s IPO.

~~Note 10 – Contingencies and Other Disclosures (Continued)~~

Conversion of these shares into Class A shares of Visa is prohibited until the final resolution of the covered litigation. In conjunction with the prior sales of Visa Class B shares in December 2010 and September 2011, 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. The conversion ratio is adjusted when Visa deposits funds into the escrow account to cover certain litigation. As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the derivative liabilities were ~~$5.5~~$9.4 million and ~~$6.2~~$5.6 million, respectively.

In July 2012, Visa and MasterCard announced a joint settlement (the “Settlement”) related to the Payment Card Interchange matter, one of the Covered Litigation matters. Based on the amount of the Settlement attributable to Visa and an assessment of FHN’s contingent liability accrued for Visa litigation matters, the Settlement did not have a material impact on FHN. The Settlement was vacated upon appeal in June 2016 and the Supreme Court declined to hear the case in March 2017. Accordingly, the outcome of this matter remains uncertain. Additionally, other Covered Litigation matters are also pending judicial resolution. So long as any Covered Litigation matter remains pending, FHN’s ability to transfer its Visa holdings is restricted, with limited exceptions.

FHN holds approximately ~~1.1~~1.0 million Visa Class B shares. FHN’s Visa shares are not considered to ~~be marketable~~have a readily determinable fair value ("RDFV") and ~~therefore~~ are currently included in the Consolidated Condensed Statements of Condition at their historical cost of ~~$0. As of September 30, 2017,~~$0 under the accounting election available to equity investments that lack an RDFV. The conversion ratio is ~~165~~163 percent reflecting a Visa stock split in March 2015, and the contingent liability is $.8 million. Future funding of the escrow would dilute this conversion ratio by an amount that is not determinable at present. ~~Based on the closing price on September 30, 2017, assuming~~Assuming conversion into Class A shares at the current conversion ratio, FHN’s Visa holdings would have had a value of approximately ~~$193 million.~~$226 million, based on the closing price on June 30, 2018. Recognition of ~~this~~market value in the future with that conversion ratio is dependent upon the final resolution of the remainder of Visa’s Covered Litigation matters without further reduction of the conversion ratio.

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

Note 10 – Contingencies and Other Disclosures (Continued)

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.

Note 11 – 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 ~~contributed $165 million to the qualified pension plan in third quarter 2016. The~~made an insignificant contribution ~~had no effect on FHN’s 2016 Consolidated Statements of Income. FHN did not make any contributions~~ to the qualified pension plan in the ~~nine months ended September 30, 2017.~~second quarter of 2018. Management does not currently anticipate that FHN will make a contribution to the qualified pension plan for the remainder of 2018.

FHN assumed two additional qualified plans in conjunction with the CBF acquisition. Both legacy CBF plans are frozen. FHN contributed $5.1 million to these plans in December 2017. As of December 31, 2017, the aggregate benefit obligation for the plans was $18.7 million and aggregate plan assets were $18.6 million. Benefit payments, expense and actuarial gains/losses related to these plans were insignificant for 2018 and 2017. 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 ~~$5.1~~$5.4 million for ~~2016.~~2017. FHN anticipates making benefit payments under the non-qualified plans of ~~$5.0~~$5.7 million in ~~2017.~~2018.

Savings plan. FHN provides all qualifying full-time employees with the opportunity to participate in FHN's tax qualified 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 elections. 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 ~~September~~June 30 are as follows:

Pension Benefits Other Benefits
(Dollars in thousands) 2017 2016 2017 2016
Components of net periodic benefit cost
Service cost $ 9
$ 10
$ 26
$ 28
Interest cost 7,276
7,648
328
335
Expected return on plan assets (9,230 ) (9,797 ) (236 ) (227 )
Amortization of unrecognized:
Prior service cost/(credit) 13
48
23
43
Actuarial (gain)/loss 2,380
1,971
(140 ) (143 )
Net periodic benefit cost/(credit) $ 448
$ (120 ) $ 1
$ 36



	Pension Benefits						Other Benefits
(Dollars in thousands)	2018			2017			2018			2017
Components of net periodic benefit cost
Service cost	$	10		$	10		$	34		$	27
Interest cost	6,987			7,380			327			325
Expected return on plan assets	(8,226		)	(8,890		)	(269		)	(237		)
Amortization of unrecognized:
Prior service cost/(credit)	—			13			—			24
Actuarial (gain)/loss	2,956			2,380			(91		)	(143		)
Net periodic benefit cost/(credit)	$	1,727		$	893		$	1		$	(4	)

Note 11 – Pension, Savings, and Other Employee Benefits (Continued)

The components of net periodic benefit cost for the ~~nine~~six months ended ~~September~~June 30 are as follows:

Pension Benefits Other Benefits
(Dollars in thousands) 2017 2016 2017 2016
Components of net periodic benefit cost
Service cost $ 28
$ 30
$ 80
$ 83
Interest cost 22,035
23,412
979
969
Expected return on plan assets (27,011 ) (29,342 ) (710 ) (685 )
Amortization of unrecognized:
Prior service cost/(credit) 39
147
71
128
Actuarial (gain)/loss 7,140
6,106
(425 ) (608 )
Net periodic benefit cost/(credit) $ 2,231
$ 353
$ (5 ) $ (113 )



	Pension Benefits						Other Benefits
(Dollars in thousands)	2018			2017			2018			2017
Components of net periodic benefit cost
Service cost	$	20		$	19		$	67		$	54
Interest cost	13,973			14,759			654			651
Expected return on plan assets	(16,451		)	(17,781		)	(538		)	(474		)
Amortization of unrecognized:
Prior service cost/(credit)	—			26			—			48
Actuarial (gain)/loss	5,912			4,760			(182		)	(285		)
Net periodic benefit cost/(credit)	$	3,454		$	1,783		$	1		$	(6	)

Note 12 – 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, ~~loss on extinguishment of debt,~~ and acquisition- and integration-related costs. The non-strategic segment consists of ~~the wind-down national~~run-off consumer lending activities, legacy (pre-2009) mortgage banking elements, ~~including servicing fees,~~ 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 and ~~nine~~six months ended ~~September~~June 30:


	Three Months Ended September 30				Nine Months Ended September 30					Three Months Ended June 30					Six Months Ended June 30
(Dollars in thousands)	2017		2016		2017			2016		2018		2017			2018			2017
Consolidated
Net interest income	$	209,817	$	185,195	$	600,226		$	533,533	$	310,932	$	200,701		$	612,105		$	390,409
Provision/(provision credit) for loan losses	—		4,000		(3,000		)	11,000		—		(2,000		)	(1,000		)	(3,000		)
Noninterest income	112,417		148,545		357,029			428,364		127,525		127,673			263,542			244,612
Noninterest expense	236,869		233,558		676,991			687,307		332,768		217,917			646,033			440,122
Income/(loss) before income taxes	85,365		96,182		283,264			263,590		105,689		112,457			230,614			197,899
Provision/(benefit) for income taxes ~~(a)~~	13,596		28,547		57,903			82,802		19,697		17,253			49,628			44,307
Net income/(loss)	$	71,769	$	67,635	$	225,361		$	180,788	$	85,992	$	95,204		$	180,986		$	153,592
Average assets	$	28,874,827	$	27,609,702	$	28,852,679		$	27,021,137	$	40,173,712	$	28,876,350		$	40,261,729		$	28,841,422

Note 12 – Business Segment Information (Continued)


	Three Months Ended September 30						Nine Months Ended September 30						Three Months Ended June 30						Six Months Ended June 30
(Dollars in thousands)	2017			2016			2017			2016			2018			2017			2018			2017
Regional Banking
Net interest income	$	209,319		$	190,508		$	604,680		$	541,135		$	308,870		$	201,658		$	607,569		$	394,740
Provision/(provision credit) for loan losses	8,552			8,544			11,910			34,195			6,139			260			11,451			3,358
Noninterest income	64,369			65,128			188,082			185,679			78,568			64,740			157,421			123,718
Noninterest expense	150,464			145,050			451,175			454,970			212,445			152,637			417,646			300,687
Income/(loss) before income taxes	114,672			102,042			329,677			237,649			168,854			113,501			335,893			214,413
Provision/(benefit) for income taxes	41,267			37,027			118,986			84,736			39,634			41,015			78,996			77,491
Net income/(loss)	$	73,405		$	65,015		$	210,691		$	152,913		$	129,220		$	72,486		$	256,897		$	136,922
Average assets	$	19,158,458		$	17,582,899		$	18,519,584		$	16,704,462		$	28,746,968		$	18,432,141		$	28,611,686		$	18,195,201
Fixed Income
Net interest income	$	5,979		$	2,411		$	12,109		$	8,224		$	9,174		$	4,985		$	17,637		$	6,141
Noninterest income	55,802			72,073			161,829			217,278			38,363			55,207			83,968			106,030
Noninterest expense	53,105			59,423			155,791			180,850			48,300			54,022			98,844			102,729
Income/(loss) before income taxes	8,676			15,061			18,147			44,652			(763		)	6,170			2,761			9,442
Provision/(benefit) for income taxes	2,979			5,518			5,949			16,195			(414		)	1,941			328			2,959
Net income/(loss)	$	5,697		$	9,543		$	12,198		$	28,457		$	(349	)	$	4,229		$	2,433		$	6,483
Average assets	$	2,586,997		$	2,305,986		$	2,388,984		$	2,348,640		$	3,251,876		$	2,696,144		$	3,365,912		$	2,288,083
Corporate
Net interest income/(expense)	$	(13,990	)	$	(18,193	)	$	(43,060	)	$	(48,401	)	$	(14,002	)	$	(14,637	)	$	(27,192	)	$	(28,408	)
Noninterest income (b)	(9,477		)	5,134			2,217			15,766
Noninterest income													8,848			6,219			18,327			11,695
Noninterest expense	23,935			14,929			65,390			44,320			66,020			24,566			117,136			41,440
Income/(loss) before income taxes	(47,402		)	(27,988		)	(106,233		)	(76,955		)	(71,174		)	(32,984		)	(126,001		)	(58,153		)
Provision/(benefit) for income taxes (a)	(34,255		)	(16,736		)	(83,019		)	(40,695		)
Provision/(benefit) for income taxes													(21,691		)	(35,574		)	(34,135		)	(48,503		)
Net income/(loss)	$	(13,147	)	$	(11,252	)	$	(23,214	)	$	(36,260	)	$	(49,483	)	$	2,590		$	(91,866	)	$	(9,650	)
Average assets	$	5,698,161		$	5,880,268		$	6,421,890		$	6,024,736		$	6,956,898		$	6,226,499		$	7,033,090		$	6,789,515
Non-Strategic
Net interest income	$	8,509		$	10,469		$	26,497		$	32,575		$	6,890		$	8,695		$	14,091		$	17,936
Provision/(provision credit) for loan losses	(8,552		)	(4,544		)	(14,910		)	(23,195		)	(6,139		)	(2,260		)	(12,451		)	(6,358		)
Noninterest income	1,723			6,210			4,901			9,641			1,746			1,507			3,826			3,169
Noninterest expense	9,365			14,156			4,635			7,167			6,003			(13,308		)	12,407			(4,734		)
Income/(loss) before income taxes	9,419			7,067			41,673			58,244			8,772			25,770			17,961			32,197
Provision/(benefit) for income taxes	3,605			2,738			15,987			22,566			2,168			9,871			4,439			12,360
Net income/(loss)	$	5,814		$	4,329		$	25,686		$	35,678		$	6,604		$	15,899		$	13,522		$	19,837
Average assets	$	1,431,211		$	1,840,549		$	1,522,221		$	1,943,299		$	1,217,970		$	1,521,566		$	1,251,041		$	1,568,623

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

~~(a) Provision/(benefit) for~~

Note 12 – Business Segment Information (Continued)

The following table reflects a disaggregation of FHN’s noninterest income ~~taxes for consolidated results~~by major product line and ~~the Corporate~~reportable segment for the three and ~~nine~~six months ended ~~September~~June 30, 2017, relative to the prior year periods, was affected by a decline in the effective tax rate in 2017 primarily related to the reversal of the valuation allowance for the deferred tax asset related to its 2012 federal capital loss carryforward based on capital gain transactions initiated in second quarter 2017. See 2018 and 2017:



	Three Months Ended June 30, 2018
(Dollars in thousands)	Regional Banking		Fixed Income		Corporate			Non-Strategic			Consolidated
Noninterest income:
Fixed income (a)	$	130	$	37,567	$	—		$	—		$	37,697
Deposit transactions and cash management	34,522		3		1,497			61			36,083
Brokerage, management fees and commissions	13,740		—		—			—			13,740
Trust services and investment management	8,146		—		(14		)	—			8,132
Bankcard income	6,658		—		55			(78		)	6,635
Bank-owned life insurance (b)	—		—		5,773			—			5,773
Debt securities gains/(losses), net (b)	—		—		—			—			—
Equity securities gains/(losses), net (b)	—		—		31			—			31
All other income and commissions (c)	15,372		793		1,506			1,763			19,434
Total noninterest income	$	78,568	$	38,363	$	8,848		$	1,746		$	127,525

	Three Months Ended June 30, 2017
	Regional Banking		Fixed Income		Corporate			Non-Strategic			Consolidated
Noninterest income:
Fixed income	$	139	$	54,971	$	—		$	—		$	55,110
Deposit transactions and cash management	26,433		—		1,376			49			27,858
Brokerage, management fees and commissions	12,029		—		—			—			12,029
Trust services and investment management	7,712		—		(14		)	—			7,698
Bankcard income	5,495		—		57			53			5,605
Bank-owned life insurance	—		—		4,351			—			4,351
Debt securities gains/(losses), net	386		—		19			—			405
Equity securities gains/(losses), net	—		—		—			—			—
All other income and commissions	12,546		236		430			1,405			14,617
Total noninterest income	$	64,740	$	55,207	$	6,219		$	1,507		$	127,673


(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.

Note 1512 – Income Taxes in the Notes to Consolidated Financial Statements on FHN’s Form 10-K for the year ended December 31, 2016, for additional information related to FHN's valuation allowance related to its capital loss carryforward.Business Segment Information (Continued)

~~(b) Three and nine months ended September 30, 2017 includes a $14.3 million pre-tax loss from the repurchase of equity securities previously included in a financing transaction.~~



	Six Months Ended June 30, 2018
(Dollars in thousands)	Regional Banking		Fixed Income		Corporate			Non-Strategic		Consolidated
Noninterest income:
Fixed income (a)	$	211	$	82,992	$	—		$	—	$	83,203
Deposit transactions and cash management	69,262		6		2,691			108		72,067
Brokerage, management fees and commissions	27,223		—		—			—		27,223
Trust services and investment management	15,438		—		(29		)	—		15,409
Bankcard income	12,951		—		112			17		13,080
Bank-owned life insurance (b)	—		—		9,766			—		9,766
Debt securities gains/(losses), net (b)	—		—		52			—		52
Equity securities gains/(losses), net (b)	—		—		65			—		65
All other income and commissions (c) (d)	32,336		970		5,670			3,701		42,677
Total noninterest income	$	157,421	$	83,968	$	18,327		$	3,826	$	263,542

	Six Months Ended June 30, 2017
	Regional Banking		Fixed Income		Corporate			Non-Strategic		Consolidated
Noninterest income:
Fixed income	$	213	$	105,575	$	—		$	—	$	105,788
Deposit transactions and cash management	49,667		—		2,665			91		52,423
Brokerage, management fees and commissions	23,935		—		—			—		23,935
Trust services and investment management	14,392		—		(41		)	—		14,351
Bankcard income	10,837		—		113			110		11,060
Bank-owned life insurance	—		—		7,598			—		7,598
Debt securities gains/(losses), net	386		—		63			—		449
Equity securities gains/(losses), net	—		—		—			—		—
All other income and commissions	24,288		455		1,297			2,968		29,008
Total noninterest income	$	123,718	$	106,030	$	11,695		$	3,169	$	244,612


(a)	Includes $15.6 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.

Note 13 – 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.

4851

Note 13 – Variable Interest Entities (Continued)

The following table summarizes VIEs consolidated by FHN as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016:~~2017:


	September 30, 2017				December 31, 2016				June 30, 2018				December 31, 2017
	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		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		Carrying Value		Carrying Value		Carrying Value		Carrying Value
Assets:
Cash and due from banks	$	—	N/A		$	—	N/A		$	—	N/A		$	—	N/A
Loans, net of unearned income	26,210		N/A		35,873		N/A		18,921		N/A		24,175		N/A
Less: Allowance for loan losses	—		N/A		587		N/A		—		N/A		—		N/A
Total net loans	26,210		N/A		35,286		N/A		18,921		N/A		24,175		N/A
Other assets	47		$	77,997	283		$	74,160	38		$	82,802	47		$	80,479
Total assets	$	26,257	$	77,997	$	35,569	$	74,160	$	18,959	$	82,802	$	24,222	$	80,479
Liabilities:
Term borrowings	$	13,354	N/A		$	23,126	N/A		$	6,004	N/A		$	11,226	N/A
Other liabilities	3		$	58,785	3		$	54,746	1		$	61,925	2		$	61,733
Total liabilities	$	13,357	$	58,785	$	23,129	$	54,746	$	6,005	$	61,925	$	11,228	$	61,733

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 ~~not significant~~$.9 million and $.5 million for ~~the~~ three ~~and nine~~ months ended ~~September~~June 30, 2018 and 2017, respectively and ~~2016.~~$1.9 million and $1.1 million for six months ended June 30, 2018 and 2017, respectively. The following table summarizes the impact to the Provision/(benefit) for income taxes on the Consolidated Condensed Statements of Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, and ~~2016~~2017 for LIHTC investments accounted for under the proportional amortization method.


	Three Months Ended September 30						Nine Months Ended September 30						Three Months Ended June 30						Six Months Ended June 30
(Dollars in thousands)	2017			2016			2017			2016			2018			2017			2018			2017
Provision/(benefit) for income taxes:
Amortization of qualifying LIHTC investments	$	3,774		$	5,445		$	8,414		$	10,073		$	2,191		$	2,362		$	4,547		$	4,640
Low income housing tax credits	(3,103		)	(2,615		)	(8,101		)	(7,672		)	(2,560		)	(2,598		)	(5,097		)	(4,998		)
Other tax benefits related to qualifying LIHTC investments	(2,478		)	(6,131		)	(4,307		)	(8,310		)	(894		)	(910		)	(1,584		)	(1,829		)

4952

Note 13 – 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.

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. ~~Prior to fourth quarter 2016 these interests included MSR and interest-only strips.~~ 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. ~~While it held MSR, FHN was assumed to have the power as servicer to most significantly impact the activities of such VIEs.~~ However, ~~in situations where~~ 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.

~~Note 13 – 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

Note 13 – Variable Interest Entities (Continued)

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, it is being accounted for using the deposit method which creates a net asset or liability for all cash flows between FTB and the buyer. 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.

5154

Note 13 – Variable Interest Entities (Continued)

The following table summarizes FHN’s nonconsolidated VIEs as of ~~September~~June 30, ~~2017:~~

2018:


(Dollars in thousands)	Maximum Loss Exposure		Liability Recognized		Classification	Maximum Loss Exposure		Liability Recognized		Classification
Type
Low income housing partnerships	$	96,007	$	34,236	(a)	$	96,289	$	36,968	(a)
Other tax credit investments (b) (c)	20,444		—		Other assets	19,023		—		Other assets
Small issuer trust preferred holdings (d)	332,873		—		Loans, net of unearned income	332,370		—		Loans, net of unearned income
On-balance sheet trust preferred securitization	48,902		65,272		(e)	48,479		65,695		(e)
Proprietary residential mortgage securitizations	2,300		—		Trading securities	1,724		—		Trading securities
Holdings of agency mortgage-backed securities (d)	4,173,080		—		(f)	5,092,123		—		(f)
Commercial loan troubled debt restructurings (g)	21,763		—		Loans, net of unearned income	18,612		—		Loans, net of unearned income
Sale-leaseback transaction	14,827		—		(h)	14,827		—		(h)
Proprietary trust preferred issuances (i)						—		212,378		Term borrowings


(a)	Maximum loss exposure represents ~~$61.8~~$59.3 million of current investments and ~~$34.2~~$37.0 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, $18.0 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 ~~$65.3~~$65.7 million classified as Term borrowings.


(f)	Includes ~~$.4~~$.5 billion classified as Trading securities and ~~$3.8~~$4.6 billion classified as Securities available-for-sale.


(g)	Maximum loss exposure represents ~~$21.1~~$17.8 million of current receivables and ~~$.6~~$.8 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.

The following table summarizes FHN’s nonconsolidated VIEs as of December 31, ~~2016:~~2017:


(Dollars in thousands)	Maximum Loss Exposure		Liability Recognized		Classification	Maximum Loss Exposure		Liability Recognized		Classification
Type
Low income housing partnerships	$	73,582	$	17,398	(a)	$	94,798	$	33,348	(a)
Other tax credit investments (b) (c)	21,898		—		Other assets	20,394		—		Other assets
Small issuer trust preferred holdings (d)	332,985		—		Loans, net of unearned income	332,455		—		Loans, net of unearned income
On-balance sheet trust preferred securitization	49,361		64,812		(e)	48,817		65,357		(e)
Proprietary residential mortgage securitizations	2,568		—		Trading securities	2,151		—		Trading securities
Holdings of agency mortgage-backed securities (d)	4,163,313		—		(f)	5,349,287		—		(f)
Commercial loan troubled debt restructurings (g)	42,696		—		Loans, net of unearned income	19,411		—		Loans, net of unearned income
Sale-leaseback transaction	11,827		—		(h)	14,827		—		(h)
Proprietary trust preferred issuances (i)						—		212,378		Term borrowings


(a)	Maximum loss exposure represents ~~$56.2~~$61.5 million of current investments and ~~$17.4~~$33.3 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 ~~2017.~~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, $18.0 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 ~~$64.8~~$65.4 million classified as Term borrowings.


(f)	Includes ~~$.4~~$.5 billion classified as Trading securities and ~~$3.8~~$4.8 billion classified as Securities available-for-sale.


(g)	Maximum loss exposure represents ~~$37.5~~$19.1 million of current receivables and ~~$5.2~~$.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.

Note 14 – 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. ~~Commencing in first quarter 2017, a~~One central clearinghouse ~~revised the treatment of~~considers daily margin posted or received ~~from collateral to~~as legal settlements of the related derivative contracts. This ~~change resulted~~results in ~~a reduction in derivative assets and liabilities and corresponding reductions in collateral posted and received as~~ these amounts ~~are~~being now presented net by contract in the Consolidated Condensed Statements of Condition. This change has no effect on hedge accounting or gains/losses for the applicable derivative contracts. On ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively, FHN had ~~$34.5~~$80.5 million and ~~$47.8~~$60.3 million of cash receivables and ~~$28.2~~$98.8 million and ~~$32.8~~$49.7 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

~~Note 14 – Derivatives (Continued)~~

through credit approvals, risk control limits, and ongoing monitoring procedures. Total trading revenues were ~~$45.0~~$29.9 million and ~~$59.0~~

Note 14 – Derivatives (Continued)

$45.6 million for the three months ended ~~September~~June 30, 2018 and 2017, and ~~2016, respectively, and $133.3~~$68.0 million and ~~$185.9~~$88.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. Trading revenues are inclusive of both derivative and non-derivative financial instruments, and are included in fixed income noninterest income.

The following tables summarize FHN’s derivatives associated with fixed income trading activities as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016:~~2017:

September 30, 2017
(Dollars in thousands) Notional Assets Liabilities
Customer Interest Rate Contracts $ 1,954,439
$ 30,564
$ 12,256
Offsetting Upstream Interest Rate Contracts 1,954,439
12,119
28,012
Option Contracts Purchased 40,000
69
—
Forwards and Futures Purchased 4,506,883
3,648
5,296
Forwards and Futures Sold 4,499,160
6,355
2,331



	June 30, 2018
(Dollars in thousands)	Notional		Assets		Liabilities
Customer interest rate contracts	$	2,204,706	$	9,837	$	48,272
Offsetting upstream interest rate contracts	2,204,706		46,619		9,676
Option contracts purchased	70,000		58		—
Forwards and futures purchased	5,466,761		16,942		1,902
Forwards and futures sold	5,556,237		2,185		16,836

December 31, 2016
(Dollars in thousands) Notional Assets Liabilities
Customer Interest Rate Contracts $ 1,697,992
$ 39,495
$ 14,996
Offsetting Upstream Interest Rate Contracts 1,697,992
14,996
39,495
Option Contracts Purchased 17,500
63
—
Option Contracts Written 5,000
—
8
Forwards and Futures Purchased 2,916,750
6,257
26,659
Forwards and Futures Sold 3,085,396
27,330
6,615



	December 31, 2017
(Dollars in thousands)	Notional		Assets		Liabilities
Customer interest rate contracts	$	2,026,753	$	22,097	$	18,323
Offsetting upstream interest rate contracts	2,026,753		17,931		20,720
Option contracts purchased	20,000		15		—
Forwards and futures purchased	6,257,140		4,354		5,526
Forwards and futures sold	6,292,012		5,806		4,010

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 $400.0 million of senior debt issued by FTBNA which matures in December 2019. This qualifies for hedge accounting under ASC 815-20 using the long-haul method. FHN entered into a pay floating, receive fixed interest rate swap to hedge the interest rate risk of the senior debt. The balance sheet impact of this swap was ~~$.2 million in Derivative liabilities~~not significant as of ~~September~~June 30, ~~2017~~2018 and ~~$1.6~~was $.1 million in Derivative assets as of December 31, ~~2016. There was an insignificant level of ineffectiveness related to this hedge.~~2017.

FHN has designated a derivative transaction in a hedging strategy to manage interest rate risk on $500.0 million of senior debt which matures in December 2020. This qualifies for hedge accounting under ASC 815-20 using the long-haul method. FHN entered into a pay floating, receive fixed interest rate swap to hedge the interest rate risk of the senior debt. The balance sheet impact of this swap was ~~$.6 million~~not significant as of June 30, 2018 and ~~$7.3~~was $.2 million in Derivative ~~liabilities~~assets as of ~~September 30, 2017 and~~ December 31, ~~2016, respectively. There was an insignificant level of ineffectiveness related to this hedge.~~2017.

Note 14 – Derivatives (Continued)

The following tables summarize FHN’s derivatives associated with interest rate risk management activities as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016:~~2017:


	September 30, 2017							June 30, 2018
(Dollars in thousands)	Notional		Assets		Liabilities			Notional		Assets		Liabilities
Customer Interest Rate Contracts Hedging
Hedging Instruments and Hedged Items:
Customer Interest Rate Contracts	$	1,540,036	$	16,607	$	12,675
Offsetting Upstream Interest Rate Contracts	1,540,036		11,612		15,350
Customer interest rate contracts								$	1,843,573	$	6,180	$	42,760
Offsetting upstream interest rate contracts								1,843,573		40,026		6,383
Debt Hedging
Hedging Instruments:
Interest Rate Swaps	$	900,000	N/A		$	779
Interest rate swaps								$	900,000	$	22	$	4
Hedged Items:
Term Borrowings	N/A		N/A		$	900,000	(a)
Term borrowings:
Par								N/A		N/A		$	900,000
Cumulative fair value hedging adjustments								N/A		N/A		(21,542		)
Unamortized premium/(discount) and issuance costs								N/A		N/A		(3,103		)
Total carrying value								N/A		N/A		875,355


	December 31, 2016							December 31, 2017
(Dollars in thousands)	Notional		Assets		Liabilities			Notional		Assets		Liabilities
Customer Interest Rate Contracts Hedging
Hedging Instruments and Hedged Items:
Customer Interest Rate Contracts	$	1,357,920	$	17,566	$	14,277
Offsetting Upstream Interest Rate Contracts	1,357,920		14,277		18,066
Customer interest rate contracts								$	1,608,912	$	11,644	$	19,780
Offsetting upstream interest rate contracts								1,608,912		18,473		11,019
Debt Hedging
Hedging Instruments:
Interest Rate Swaps	$	900,000	$	1,628	$	7,276
Interest rate swaps								$	900,000	$	371	N/A
Hedged Items:
Term Borrowings	N/A		N/A		$	900,000	(a)
Term borrowings:
Par								N/A		N/A		$	900,000
Cumulative fair value hedging adjustments								N/A		N/A		(13,472		)
Unamortized premium/(discount) and issuance costs								N/A		N/A		(3,910		)
Total carrying value								N/A		N/A		$	882,618


~~(a)~~	~~Represents par value of term borrowings being hedged.~~

Note 14 – Derivatives (Continued)

The following table summarizes gains/(losses) on FHN’s derivatives associated with interest rate risk management activities for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016:~~

2017:


		Three Months Ended September 30						Nine Months Ended September 30							Three Months Ended June 30						Six Months Ended June 30
		2017			2016			2017			2016				2018			2017			2018			2017
(Dollars in thousands)		Gains/(Losses)			Gains/(Losses)			Gains/(Losses)			Gains/(Losses)				Gains/(Losses)			Gains/(Losses)			Gains/(Losses)			Gains/(Losses)
Customer Interest Rate Contracts Hedging	Customer Interest Rate Contracts Hedging													Customer Interest Rate Contracts Hedging
Hedging Instruments and Hedged Items:
Customer Interest Rate Contracts (a)		$	(180	)	$	(1,964	)	643			18,749
Offsetting Upstream Interest Rate Contracts (a)		180			1,964			(643		)	(18,749		)
Customer interest rate contracts (a)															$	(4,459	)	$	4,099		$	(29,183	)	$	823
Offsetting upstream interest rate contracts (a)															4,459			(4,099		)	29,183			(823		)
Debt Hedging
Hedging Instruments:
Interest Rate Swaps (a)		$	(966	)	$	(7,254	)	$	(1,958	)	$	19,352
Interest rate swaps (b)															$	(1,545	)	$	1,808		$	(8,140	)	$	(992	)
Hedged Items:
Term Borrowings (a) (b)		941			7,152			1,870			(19,059		)
Term borrowings (b) (c)															1,520			(1,804		)	8,070			929


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


(b)	Gains/losses included in the Interest expense for 2018 and All other expense for 2017 within the Consolidated Condensed Statements of Income.


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

~~Note 14 – Derivatives (Continued)~~

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 ~~have~~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. ~~Changes~~Subsequent to 2017, all changes in the fair value of these derivatives are recorded as a component of ~~AOCI, to the extent that the hedging relationships are effective.~~AOCI. Amounts are reclassified from AOCI to earnings as the hedged cash flows affect earnings. Prior to 2018, FTB ~~measures the~~measured ineffectiveness using the Hypothetical Derivative ~~Method.~~Method and AOCI iswas adjusted to an amount that ~~reflects~~reflected the lesser of either the cumulative change in fair value of the swaps or the cumulative change in the fair value of the hypothetical derivative instruments. To the extent that any ineffectiveness ~~exists~~existed in the hedge relationships, the amounts ~~are~~were recorded in current period 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 ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016:~~2017:


	September 30, 2017						June 30, 2018
(Dollars in thousands)	Notional		Assets		Liabilities		Notional		Assets		Liabilities
Cash Flow Hedges
Hedging Instruments:
Interest Rate Swaps	$	900,000	N/A		$	916
Interest rate swaps							$	900,000	$	24	$	85
Hedged Items:
Variability in Cash Flows Related to Debt Instruments (Primarily Loans)	N/A		$	900,000	N/A
Variability in cash flows related to debt instruments (primarily loans)							N/A		$	900,000	N/A

Note 14 – Derivatives (Continued)

December 31, 2016

December 31, 2017

(Dollars in thousands)

Notional

Assets

Liabilities

Notional

Assets

Liabilities

Cash Flow Hedges

Hedging Instruments:

Interest Rate Swaps

250,000

N/A

2,045

Interest rate swaps

900,000

942

N/A

Hedged Items:

Variability in Cash Flows Related to Debt Instruments (Primarily Loans)

N/A

250,000

N/A

Variability in cash flows related to debt instruments (primarily loans)

N/A

900,000

N/A

The following table summarizes gains/(losses) on FHN’s derivatives associated with cash flow hedges for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016:~~

2017:


		Three Months Ended September 30						Nine Months Ended September 30						Three Months Ended June 30						Six Months Ended June 30
		2017			2016			2017			2016			2018			2017			2018			2017
(Dollars in thousands)		Gains/(Losses)			Gains/(Losses)			Gains/(Losses)			Gains/(Losses)			Gains/(Losses)			Gains/(Losses)			Gains/(Losses)			Gains/(Losses)
Cash Flow Hedges	Cash Flow Hedges												Cash Flow Hedges
Hedging Instruments:
Interest Rate Swaps (a) (b)		$	(1,190	)	$	(2,545	)	$	(800	)	$	5,061
Hedged Items:
Variability in Cash Flows Related to Debt Instruments (Primarily Loans)		N/A			N/A			N/A			N/A
Interest rate swaps (a)														$	(3,914	)	$	3,491		$	(15,531	)	$	390
Gain/(loss) recognized in Other comprehensive income/(loss)														(3,457		)	3,059			(12,095		)	1,997
Gain/(loss) reclassified from AOCI into Interest income														463			(904		)	308			(1,756		)


(a)	~~Amount represents the pre-tax gains/(losses) included within AOCI.~~


~~(b)~~	~~Includes approximately $1.2~~Approximately $9.0 million of pre-tax losses are expected to be reclassified into earnings in the next twelve months.

~~Note 14 – Derivatives (Continued)~~

Prior to third quarter 2017, FHN hedged held-to-maturity trust preferred loans which had an initial fixed rate term before conversion to a floating rate. FHN had entered into pay fixed, receive floating interest rate swaps to hedge the interest rate risk associated with the initial term. Interest paid or received for these swaps was recognized as an adjustment of the interest income of the assets whose risk was being hedged. Basis adjustments remaining at the end of the hedge term were amortized as an adjustment to interest income over the remaining life of the loans.Gains or losses were included in Other income and commissions on the Consolidated Condensed Statements of Income. These hedges expired in third quarter 2017.

~~The following table summarizes FHN’s derivative activities associated with held-to-maturity trust preferred loans as of December 31, 2016:~~

December 31, 2016
(Dollars in thousands) Notional Assets Liabilities
Loan Portfolio Hedging
Hedging Instruments:

Interest Rate Swaps $ 6,500
N/A
$ 208
Hedged Items:

Trust Preferred Loans (a) N/A
$ 6,500
(b) N/A


~~(a)~~	~~Assets included in the Loans, net of unearned income section of the Consolidated Condensed Statements of Condition.~~


~~(b)~~	~~Represents principal balance being hedged.~~

~~The following table summarizes gains/(losses) on FHN’s derivatives associated with held-to-maturity trust preferred loans for the three and nine months ended September 30, 2016:~~

September 30, 2016
Three Months Ended Nine Months Ended
(Dollars in thousands) Gains/(Losses) Gains/(Losses)
Loan Portfolio Hedging
Hedging Instruments:
Interest Rate Swaps $ 93
$ 201
Hedged Items:
Trust Preferred Loans (a) $ (92 ) $ (199 )


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

Other Derivatives

In conjunction with the sales of a portion of its Visa Class B shares, 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. As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the derivative liabilities associated with the sales of Visa Class B shares were ~~$5.5~~$9.4 million and ~~$6.2~~$5.6 million, respectively. See the Visa Matters section of Note 10 – Contingencies and Other Disclosures for more information regarding FHN’s Visa shares.

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 ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, these loans were valued at ~~$1.3~~$6.4 million and ~~$3.8~~$1.5 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

~~Note 14 – Derivatives (Continued)~~

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.

Note 14 – 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 ~~$27.4~~$21.7 million of assets and ~~$34.6~~$52.4 million of liabilities on ~~September~~June 30, ~~2017,~~2018, and ~~$35.9~~$23.3 million of assets and ~~$49.0~~$34.5 million of liabilities on December 31, ~~2016.~~2017. As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, FHN had received collateral of ~~$113.6~~$108.7 million and ~~$137.6~~$119.3 million and posted collateral of ~~$26.2~~$16.5 million and ~~$39.3~~$18.9 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 ~~$27.4~~$18.5 million of assets and ~~$14.9~~$47.0 million of liabilities on ~~September~~June 30, ~~2017,~~2018, and ~~$35.9~~$22.8 million of assets and ~~$19.6~~$19.4 million of liabilities on December 31, ~~2016.~~2017. As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, FHN had received collateral of ~~$113.6~~$105.5 million and ~~$137.5~~$118.6 million and posted collateral of ~~$9.0~~$15.0 million and ~~$12.9~~$6.7 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.

Note 14 – Derivatives (Continued)

The following table provides details of derivative assets and collateral received as presented on the Consolidated Condensed Statements of Condition as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016:~~2017:

~~Note 14 – Derivatives (Continued)~~


							Gross amounts not offset in the Statements of Condition														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		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:
September 30, 2017 (b)	$	70,902	$	—	$	70,902	$	(23,283	)	$	(43,379	)	$	4,240
December 31, 2016 (b)	87,962		—		87,962		(25,953		)	(52,888		)	9,121
June 30, 2018 (b)															$	102,852	$	—	$	102,852	$	(13,490	)	$	(89,317	)	$	45
December 31, 2017 (b)															71,458		—		71,458		(17,278		)	(51,271		)	2,909

(a)

Included in Derivative assets on the Consolidated Condensed Statements of Condition. As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016, $10.1~~2017, $19.2 million and ~~$33.7~~$10.2 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 ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016:~~2017:


							Gross amounts not offset in the Statements of Condition														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		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:
September 30, 2017 (b)	$	69,988	$	—	$	69,988	$	(23,283	)	$	(42,686	)	$	4,019
December 31, 2016 (b)	96,363		—		96,363		(25,953		)	(60,746		)	9,664
June 30, 2018 (b)															$	107,178	$	—	$	107,178	$	(13,490	)	$	(65,689	)	$	27,999
December 31, 2017 (b)															69,842		—		69,842		(17,278		)	(51,801		)	763

(a)

Included in Derivative liabilities on the Consolidated Condensed Statements of Condition. As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016, $13.2~~2017, $28.2 million and ~~$39.5~~$15.2 million, respectively, of derivative liabilities (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.

Note 15 – 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 ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016:~~2017:


							Gross amounts not offset in the Statements of Condition														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		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:
September 30, 2017	$	663,637	$	—	$	663,637	$	(1,044	)	$	(655,136	)	$	7,457
December 31, 2016	613,682		—		613,682		(1,628		)	(603,813		)	8,241
June 30, 2018															$	782,765	$	—	$	782,765	$	(2,090	)	$	(772,347	)	$	8,328
December 31, 2017															725,609		—		725,609		(259		)	(720,036		)	5,314

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 ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016:~~2017:


							Gross amounts not offset in the Statements of Condition														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		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:
September 30, 2017	$	516,867	$	—	$	516,867	$	(1,044	)	$	(515,673	)	$	150
December 31, 2016	453,053		—		453,053		(1,628		)	(451,414		)	11
June 30, 2018															$	713,152	$	—	$	713,152	$	(2,090	)	$	(710,862	)	$	200
December 31, 2017															656,602		—		656,602		(259		)	(656,216		)	127

Note 15 – 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 ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016:~~2017:


	September 30, 2017						June 30, 2018
(Dollars in thousands)	Overnight and Continuous		Up to 30 Days		Total		Overnight and Continuous		Up to 30 Days		Total
Securities sold under agreements to repurchase:
U.S. treasuries	$	18,970	$	—	$	18,970	$	24,153	$	—	$	24,153
Government agency issued MBS	276,903		5,521		282,424		383,835		6,929		390,764
Government agency issued CMO	50,554		5,749		56,303		54,530		3,023		57,553
Government guaranteed loans (SBA and USDA)	159,170		—		159,170		240,682		—		240,682
Total Securities sold under agreements to repurchase	$	505,597	$	11,270	$	516,867	$	703,200	$	9,952	$	713,152

	December 31, 2016						December 31, 2017
(Dollars in thousands)	Overnight and Continuous		Up to 30 Days		Total		Overnight and Continuous		Up to 30 Days		Total
Securities sold under agreements to repurchase:
U.S. treasuries	$	14,864	$	—	$	14,864	$	13,830	$	—	$	13,830
Government agency issued MBS	421,771		—		421,771		424,821		5,365		430,186
Government agency issued CMO	—		16,418		16,418		54,037		3,666		57,703
Government guaranteed loans (SBA and USDA)							154,883		—		154,883
Total Securities sold under agreements to repurchase	$	436,635	$	16,418	$	453,053	$	647,571	$	9,031	$	656,602

Note 16 – 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.

Transfers between fair value levels are recognized at the end of the fiscal quarter in which the associated change in inputs occurs.

6265

Note 16 – 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 ~~September~~June 30, ~~2017:~~2018:


	September 30, 2017								June 30, 2018
(Dollars in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Trading securities—fixed income:
U.S. treasuries	$	—	$	157,483	$	—	$	157,483	$	—	$	53,315	$	—	$	53,315
Government agency issued MBS	—		155,260		—		155,260		—		185,118		—		185,118
Government agency issued CMO	—		244,321		—		244,321		—		305,125		—		305,125
Other U.S. government agencies	—		186,573		—		186,573		—		111,516		—		111,516
States and municipalities	—		61,290		—		61,290		—		89,629		—		89,629
Corporate and other debt	—		655,976		5		655,981
Corporates and other debt									—		902,580		—		902,580
Equity, mutual funds, and other	—		6,194		—		6,194		—		463		—		463
Total trading securities—fixed income	—		1,467,097		5		1,467,102		—		1,647,746		—		1,647,746
Trading securities—mortgage banking	—		—		2,300		2,300		—		—		1,724		1,724
Loans held-for-sale	—		1,727		20,081		21,808
Loans held-for-sale (elected fair value)									—		2,222		16,718		18,940
Securities available-for-sale:
U.S. treasuries	—		100		—		100		—		98		—		98
Government agency issued MBS	—		2,087,505		—		2,087,505		—		2,494,300		—		2,494,300
Government agency issued CMO	—		1,685,995		—		1,685,995		—		2,107,580		—		2,107,580
Interest-only strips	—		—		3,123		3,123
Equity, mutual funds, and other	24,756		—		—		24,756
Other U.S. government agencies									—		54,402		—		54,402
States and municipalities									—		6,406		—		6,406
Corporates and other debt									—		55,838		—		55,838
Interest-only strips (elected fair value)									—		—		5,787		5,787
Total securities available-for-sale	24,756		3,773,600		3,123		3,801,479		—		4,718,624		5,787		4,724,411
Other assets:
Deferred compensation assets	34,951		—		—		34,951
Deferred compensation mutual funds									40,068		—		—		40,068
Equity, mutual funds, and other									27,135		—		—		27,135
Derivatives, forwards and futures	10,003		—		—		10,003		19,127		—		—		19,127
Derivatives, interest rate contracts	—		70,971		—		70,971		—		102,766		—		102,766
Derivatives, other	—		2		—		2		—		163		—		163
Total other assets	44,954		70,973		—		115,927		86,330		102,929		—		189,259
Total assets	$	69,710	$	5,313,397	$	25,509	$	5,408,616	$	86,330	$	6,471,521	$	24,229	$	6,582,080
Trading liabilities—fixed income:
U.S. treasuries	$	—	$	424,461	$	—	$	424,461	$	—	$	520,463	$	—	$	520,463
Government agency issued CMO	—		1,372		—		1,372
Other U.S. government agencies	—		998		—		998		—		329		—		329
Corporate and other debt	—		152,197		—		152,197
States and municipalities									—		2,572		—		2,572
Corporates and other debt									—		220,357		—		220,357
Total trading liabilities—fixed income	—		579,028		—		579,028		—		743,721		—		743,721
Other liabilities:
Derivatives, forwards and futures	7,627		—		—		7,627		18,738		—		—		18,738
Derivatives, interest rate contracts	—		69,988		—		69,988		—		107,179		—		107,179
Derivatives, other	—		1		5,530		5,531		—		7		9,425		9,432
Total other liabilities	7,627		69,989		5,530		83,146		18,738		107,186		9,425		135,349
Total liabilities	$	7,627	$	649,017	$	5,530	$	662,174	$	18,738	$	850,907	$	9,425	$	879,070

6366

Note 16 – 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, ~~2016:~~2017:


	December 31, 2016								December 31, 2017
(Dollars in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2			Level 3		Total
Trading securities—fixed income:
U.S. treasuries	$	—	$	146,988	$	—	$	146,988	$	—	$	128,995		$	—	$	128,995
Government agency issued MBS	—		256,611		—		256,611		—		227,038			—		227,038
Government agency issued CMO	—		150,058		—		150,058		—		275,014			—		275,014
Other U.S. government agencies	—		52,314		—		52,314		—		54,699			—		54,699
States and municipalities	—		60,351		—		60,351		—		34,573			—		34,573
Corporate and other debt	—		227,934		5		227,939
Corporates and other debt									—		693,877			—		693,877
Equity, mutual funds, and other	—		242		—		242		—		(2		)	—		(2		)
Total trading securities—fixed income	—		894,498		5		894,503		—		1,414,194			—		1,414,194
Trading securities—mortgage banking	—		—		2,568		2,568		—		—			2,151		2,151
Loans held-for-sale	—		2,345		21,924		24,269		—		1,955			18,926		20,881
Securities available-for-sale:
U.S. treasuries	—		100		—		100		—		99			—		99
Government agency issued MBS	—		2,208,687		—		2,208,687		—		2,577,376			—		2,577,376
Government agency issued CMO	—		1,547,958		—		1,547,958		—		2,269,858			—		2,269,858
Corporates and other debt									—		55,782			—		55,782
Interest-only strips									—		—			1,270		1,270
Equity, mutual funds, and other	25,249		—		—		25,249		27,017		—			—		27,017
Total securities available-for-sale	25,249		3,756,745		—		3,781,994		27,017		4,903,115			1,270		4,931,402
Other assets:
Mortgage servicing rights	—		—		985		985
Deferred compensation assets	32,840		—		—		32,840		39,822		—			—		39,822
Derivatives, forwards and futures	33,587		—		—		33,587		10,161		—			—		10,161
Derivatives, interest rate contracts	—		88,025		—		88,025		—		71,473			—		71,473
Derivatives, other	—		42		—		42
Total other assets	66,427		88,067		985		155,479		49,983		71,473			—		121,456
Total assets	$	91,676	$	4,741,655	$	25,482	$	4,858,813	$	77,000	$	6,390,737		$	22,347	$	6,490,084
Trading liabilities—fixed income:
U.S. treasuries	$	—	$	381,229	$	—	$	381,229	$	—	$	506,679		$	—	$	506,679
Other U.S. government agencies	—		844		—		844
Corporate and other debt	—		179,775		—		179,775
Corporates and other debt									—		131,836			—		131,836
Total trading liabilities—fixed income	—		561,848		—		561,848		—		638,515			—		638,515
Other liabilities:
Derivatives, forwards and futures	33,274		—		—		33,274		9,535		—			—		9,535
Derivatives, interest rate contracts	—		96,371		—		96,371		—		69,842			—		69,842
Derivatives, other	—		7		6,245		6,252		—		39			5,645		5,684
Total other liabilities	33,274		96,378		6,245		135,897		9,535		69,881			5,645		85,061
Total liabilities	$	33,274	$	658,226	$	6,245	$	697,745	$	9,535	$	708,396		$	5,645	$	723,576

6467

Note 16 – 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 ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, on a recurring basis are summarized as follows:


	Three Months Ended September 30, 2017																Three Months Ended June 30, 2018
(Dollars in thousands)	Trading securities				Interest- only strips- AFS				Loans held- for-sale				Net derivative liabilities				Trading securities				Interest- only strips- AFS				Loans held- for-sale				Net derivative liabilities
Balance on July 1, 2017	$	2,464			$	1,163			$	20,587			$	(5,700	)
Balance on April 1, 2018																	$	1,926			$	2,733			$	18,334			$	(5,645	)
Total net gains/(losses) included in:
Net income	92				(160		)		390				(129		)		124				(296		)		540				(4,079		)
Purchases	—				—				43				—				—				—				34				—
Sales																	—				—				—				—
Settlements	(251		)		—				(939		)		299				(326		)		—				(2,134		)		299
Net transfers into/(out of) Level 3	—				2,120			(b)	—			(d)	—				—				3,350			(b)	(56		)	(d)	—
Balance on September 30, 2017	$	2,305			$	3,123			$	20,081			$	(5,530	)
Balance on June 30, 2018																	$	1,724			$	5,787			$	16,718			$	(9,425	)
Net unrealized gains/(losses) included in net income	$	62		(a)	$	(72	)	(c)	$	390		(a)	$	(129	)	(e)	$	87		(a)	$	(128	)	(c)	$	542		(a)	$	(4,079	)	(e)


	Three Months Ended September 30, 2016																		Three Months Ended June 30, 2017
(Dollars in thousands)	Trading securities				Loans held-for-sale				Securities available- for-sale			Mortgage servicing rights, net			Net derivative liabilities				Trading securities				Interest-only strips-AFS				Loans held-for-sale				Net derivative liabilities
Balance on July 1, 2016	$	2,826			$	25,738			$	1,500		$	1,406		$	(6,835	)
Balance on April 1, 2017																			$	2,335			$	—			$	21,221			$	(5,950	)
Total net gains/(losses) included in:
Net income	304				1,604				—			—			(4		)		271				267				410				(49		)
Purchases	—				198				—			—			—				—				1,413				43				—
Settlements	(346		)		(2,146		)		(1,500		)	(160		)	299				(142		)		(3,291		)		(827		)		299
Net transfers into/(out of) Level 3	—				(2,858		)	(d)	—			—			—				—				2,774			(b)	(260		)	(d)	—
Balance on September 30, 2016	$	2,784			$	22,536			$	—		$	1,246		$	(6,540	)
Balance on June 30, 2017																			$	2,464			$	1,163			$	20,587			$	(5,700	)
Net unrealized gains/(losses) included in net income	$	244		(a)	$	1,604		(a)	$	—		$	—		$	(4	)	(e)	$	229		(a)	$	(53	)	(c)	$	410		(a)	$	(49	)	(e)

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


(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)	Transfers out of loans held-for-sale level 3 measured on a recurring basis generally reflect movements into OREO (level 3 nonrecurring).


(e)	Included in Other expense.

6568

Note 16 – 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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, on a recurring basis are summarized as follows:


	Nine Months Ended September 30, 2017																Six Months Ended June 30, 2018
(Dollars in thousands)	Trading securities				Interest-only strips- AFS				Loans held- for-sale				Net derivative liabilities				Trading securities				Interest- only strips- AFS				Loans held- for-sale				Net derivative liabilities
Balance on January 1, 2017	$	2,573			$	—			$	21,924			$	(6,245	)
Balance on January 1, 2018																	$	2,151			$	1,270			$	18,926			$	(5,645	)
Total net gains/(losses) included in:
Net income	380				107				1,722				(179		)		140				1,296				709				(4,375		)
Purchases	—				1,413				118				—				—				—				62				—
Sales	—				(3,291		)		—				—				—				—				—				—
Settlements	(648		)		—				(3,340		)		894				(567		)		(9,193		)		(2,923		)		595
Net transfers into/(out of) Level 3	—				4,894			(b)	(343		)	(d)	—				—				12,414			(b)	(56		)	(d)	—
Balance on September 30, 2017	$	2,305			$	3,123			$	20,081			$	(5,530	)
Balance on June 30, 2018																	$	1,724			$	5,787			$	16,718			$	(9,425	)
Net unrealized gains/(losses) included in net income	$	264		(a)	$	(122	)	(c)	$	1,722		(a)	$	(179	)	(e)	$	63		(a)	$	(109	)	(c)	$	709		(a)	$	(4,375	)	(e)


	Nine Months Ended September 30, 2016																		Six Months Ended June 30, 2017
(Dollars in thousands)	Trading securities				Loans held-for-sale				Securities available- for-sale			Mortgage servicing rights, net			Net derivative liabilities				Trading securities				Interest-only-strips- AFS				Loans held- for-sale				Net derivative liabilities
Balance on January 1, 2016	$	4,377			$	27,418			$	1,500		$	1,841		$	(4,810	)
Balance on January 1, 2017																			$	2,573			$	—			$	21,924			$	(6,245	)
Total net gains/(losses) included in:
Net income	506				2,375				—			31			(2,627		)		288				267				1,332				(50		)
Purchases	—				673				—			—			—				—				1,413				75				—
Sales	—				—				—			(205		)	—
Settlements	(2,099		)		(4,643		)		(1,500		)	(421		)	897				(397		)		(3,291		)		(2,401		)		595
Net transfers into/(out of) Level 3	—				(3,287		)	(d)	—			—			—				—				2,774			(b)	(343		)	(d)	—
Balance on September 30, 2016	$	2,784			$	22,536			$	—		$	1,246		$	(6,540	)
Balance on June 30, 2017																			$	2,464			$	1,163			$	20,587			$	(5,700	)
Net unrealized gains/(losses) included in net income	$	324		(a)	$	2,375		(a)	$	—		$	—		$	(2,627	)	(e)	$	202		(a)	$	(53	)	(c)	$	1,332		(a)	$	(50	)	(e)

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


(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)	Transfers out of loans held-for-sale level 3 measured on a recurring basis generally reflect movements into OREO (level 3 nonrecurring).


(e)	Included in Other expense.

~~Note 16 – Fair Value of Assets & Liabilities (Continued)~~

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 balance sheet at ~~September~~June 30, ~~2017,~~2018, and December 31, ~~2016,~~2017, respectively, the following tables provide the level of valuation assumptions used to determine each adjustment and the related carrying value.

Note 16 – Fair Value of Assets & Liabilities (Continued)


	Carrying value at September 30, 2017								Carrying value at June 30, 2018
(Dollars in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Loans held-for-sale—SBAs and USDA	$	—	$	244,089	$	1,484	$	245,573	$	—	$	578,498	$	1,025	$	579,523
Loans held-for-sale—first mortgages	—		—		611		611		—		—		607		607
Loans, net of unearned income (a)	—		—		23,210		23,210		—		—		29,061		29,061
OREO (b)	—		—		7,877		7,877		—		—		26,457		26,457
Other assets (c)	—		—		27,394		27,394		—		—		24,699		24,699


	Carrying value at December 31, 2016								Carrying value at December 31, 2017
(Dollars in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Loans held-for-sale—SBAs	$	—	$	4,286	$	—	$	4,286
Loans held-for-sale—SBAs and USDA									$	—	$	465,504	$	1,473	$	466,977
Loans held-for-sale—first mortgages	—		—		638		638		—		—		618		618
Loans, net of unearned income (a)	—		—		31,070		31,070		—		—		26,666		26,666
OREO (b)	—		—		11,235		11,235		—		—		39,566		39,566
Other assets (c)	—		—		29,609		29,609		—		—		26,521		26,521


(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 balance sheet at period end, the following table provides information about the fair value adjustments recorded during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016:~~2017:


	Net gains/(losses) Three Months Ended September 30						Net gains/(losses) Nine months ended September 30						Net gains/(losses) Three Months Ended June 30						Net gains/(losses) Six Months Ended June 30
(Dollars in thousands)	2017			2016			2017			2016			2018			2017			2018			2017
Loans held-for-sale—SBAs and USDA	$	(86	)	$	—		$	(1,259	)	$	—		$	(1,425	)	$	(1,140	)	$	(1,987	)	$	(1,173	)
Loans held-for-sale—first mortgages	6			10			22			17			(1		)	13			4			16
Loans, net of unearned income (a)	(2,388		)	461			(1,456		)	(3,249		)	665			(452		)	1,167			32
OREO (b)	(41		)	(711		)	(662		)	(1,561		)	(262		)	(176		)	(1,422		)	(621		)
Other assets (c)	(762		)	(788		)	(2,646		)	(2,325		)	(1,079		)	(942		)	(2,216		)	(1,884		)
	$	(3,271	)	$	(1,028	)	$	(6,001	)	$	(7,118	)	$	(2,102	)	$	(2,697	)	$	(4,454	)	$	(3,630	)


(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.

~~Table~~In second quarter 2018, FHN recognized $1.3 million of ~~Contents~~

~~Note 16 – Fair Value~~impairments of ~~Assets & Liabilities (Continued)~~

long-lived assets in its corporate segment related to optimization efforts for its facilities. In ~~third~~fourth quarter 2017, ~~FHN’s Corporate segment~~FHN recognized ~~$2.0~~$3.0 million and $.8 million of impairments on long-lived ~~technology~~ assets associated with an expansion of processing capacity that will be required upon completion of the merger with CBF. The fair values of the assets impaired were determined using a discounted cash flow approach which reflected short estimated remaining livesin its Corporate and ~~considered estimated salvage values. The measurement methodologies are considered Level 3 valuations. In first quarter 2016, FHN’s~~ Regional Banking ~~segment recognized $3.7 million of impairments on long-lived assets~~segments, respectively, associated with efforts to more efficiently utilize its ~~bank~~ branch ~~locations.~~locations, including integration with branches acquired from CBF. The affected branch locations represented a mixture of owned and leased sites. The fair values of owned sites were determined using estimated sales prices from sales contract or appraisals less estimated costs to sell. The fair values of leased sites were determined using a discounted cash flow approach, based on the revised estimated useful lives of the related assets. Both measurement methodologies are considered Level 3 valuations.

In third quarter 2017, FHN’s Corporate segment recognized $2.0 million of impairments on long-lived technology assets associated with the transition to expanded processing capacity that will be required upon completion of the merger with CBF.

Note 16 – Fair Value of Assets & Liabilities (Continued)

The fair values of the assets impaired were determined using a discounted cash flow approach which reflected short estimated remaining lives and considered estimated salvage values. The measurement methodologies are considered Level 3 valuations.

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 ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016:~~2017:

(Dollars in thousands)

Level 3 Class

Fair Value at
September 30, 2017

Valuation Techniques

Unobservable Input

Values Utilized

Fair Value at
June 30, 2018

Valuation Techniques

Unobservable Input

Values Utilized

Available-for-sale- securities SBA-interest only strips

3,123

Discounted cash flow

Constant prepayment rate

9% - 10%

5,787

Discounted cash flow

Constant prepayment rate

11%

Bond equivalent yield

14%- 19%

Bond equivalent yield

12%- 14%

Loans held-for-sale - residential real estate

20,692

Discounted cash flow

Prepayment speeds - First mortgage

2% - 12%

17,325

Discounted cash flow

Prepayment speeds - First mortgage

2% - 11%

Prepayment speeds - HELOC

3% - 12%

Prepayment speeds - HELOC

5% - 12%

Foreclosure losses

50% - 70%

Foreclosure losses

50% - 70%

Loss severity trends - First mortgage

5% - 50% of UPB

Loss severity trends - First mortgage

5% - 25% of UPB

Loss severity trends - HELOC

15% - 100% of UPB

Loss severity trends - HELOC

50% - 100% of UPB

Loans held-for-sale- unguaranteed interest in SBA loans

1,484

Discounted cash flow

Constant prepayment rate

8% - 12%

1,025

Discounted cash flow

Constant prepayment rate

8% - 12%

Bond equivalent yield

9% - 10%

Bond equivalent yield

13% - 14%

Derivative liabilities, other

5,530

Discounted cash flow

Visa covered litigation resolution amount

$4.4 billion - $5.2 billion

9,425

Discounted cash flow

Visa covered litigation resolution amount

$5.0 billion - $5.6 billion

Probability of resolution scenarios

10% - 30%

Probability of resolution scenarios

20% - 30%

Time until resolution

18 - 48 months

Time until resolution

24- 48 months

Loans, net of unearned

income (a)

23,210

Appraisals from comparable properties

Marketability adjustments for specific properties

0% - 10% of appraisal

29,061

Appraisals from comparable properties

Marketability adjustments for specific properties

0% - 10% of appraisal

Other collateral valuations

Borrowing base certificates adjustment

20% - 50% of gross value

Other collateral valuations

Borrowing base certificates adjustment

20% - 50% of gross value

Financial Statements/Auction values adjustment

0% - 25% of reported value

Financial Statements/Auction values adjustment

0% - 25% of reported value

OREO (b)

7,877

Appraisals from comparable properties

Adjustment for value changes since appraisal

0% - 10% of appraisal

26,457

Appraisals from comparable properties

Adjustment for value changes since appraisal

0% - 10% of appraisal

Other assets (c)

27,394

Discounted cash flow

Adjustments to current sales yields for specific properties

0% - 15% adjustment to yield

24,699

Discounted cash flow

Adjustments to current sales yields for specific properties

0% - 15% adjustment to yield

Appraisals from comparable properties

Marketability adjustments for specific properties

0% - 25% of appraisal

Appraisals from comparable properties

Marketability adjustments for specific properties

0% - 25% of appraisal


(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.

~~Note 16 – Fair Value of Assets & Liabilities (Continued)~~


(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.

Note 16 – Fair Value of Assets & Liabilities (Continued)

(Dollars in thousands)

Level 3 Class

Fair Value at
December 31, 2016

Valuation Techniques

Unobservable Input

Values Utilized

Fair Value at
December 31, 2017

Valuation Techniques

Unobservable Input

Values Utilized

Available-for-sale- securities SBA-interest only strips

1,270

Discounted cash flow

Constant prepayment rate

10% - 11%

Bond equivalent yield

17%

Loans held-for-sale - residential real estate

22,562

Discounted cash flow

Prepayment speeds - First mortgage

2% - 13%

19,544

Discounted cash flow

Prepayment speeds - First mortgage

2% - 12%

Prepayment speeds - HELOC

3% - 15%

Prepayment speeds - HELOC

5% - 12%

Foreclosure Losses

50% - 70%

Foreclosure losses

50% - 70%

Loss severity trends - First mortgage

5% - 50% of UPB

Loss severity trends - First mortgage

5% - 30% of UPB

Loss severity trends - HELOC

15% - 100% of UPB

Loans held-for-sale- unguaranteed interest in SBA loans

1,473

Discounted cash flow

Constant prepayment rate

8% - 12%

Loss severity trends - HELOC

15% - 100% of UPB

Bond equivalent yield

9% - 10%

Derivative liabilities, other

6,245

Discounted cash flow

Visa covered litigation resolution amount

$4.4 billion - $5.2 billion

5,645

Discounted cash flow

Visa covered litigation resolution amount

$4.4 billion - $5.2 billion

Probability of resolution scenarios

10% - 30%

Probability of resolution scenarios

10% - 30%

Time until resolution

24 - 54 months

Time until resolution

18 - 48 months

Loans, net of unearned income (a)

31,070

Appraisals from comparable properties

Marketability adjustments for specific properties

0% - 10% of appraisal

26,666

Appraisals from comparable properties

Marketability adjustments for specific properties

0% - 10% of appraisal

Other collateral valuations

Borrowing base certificates adjustment

20% - 50% of gross value

Other collateral valuations

Borrowing base certificates adjustment

20% - 50% of gross value

Financial Statements/Auction values adjustment

0% - 25% of reported value

Financial Statements/Auction values adjustment

0% - 25% of reported value

OREO (b)

11,235

Appraisals from comparable properties

Adjustment for value changes since appraisal

0% - 10% of appraisal

39,566

Appraisals from comparable properties

Adjustment for value changes since appraisal

0% - 10% of appraisal

Other assets (c)

29,609

Discounted cash flow

Adjustments to current sales yields for specific properties

0% - 15% adjustment to yield

26,521

Discounted cash flow

Adjustments to current sales yields for specific properties

0% - 15% adjustment to yield

Appraisals from comparable properties

Marketability adjustments for specific properties

0% - 25% of appraisal

Appraisals from comparable properties

Marketability adjustments for specific properties

0% - 25% of appraisal


(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.

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. Fair value measurements are reviewed at least quarterly by FHN’s Corporate Accounting Department.

Note 16 – Fair Value of Assets & Liabilities (Continued)

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

~~Note 16 – Fair Value of Assets & Liabilities (Continued)~~

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 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 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. The valuation inputs and process are discussed with senior and executive management when significant events affecting the estimate of fair value occur. Inputs are compared to information obtained from the public issuances and filings of Visa, Inc. as well as public information released by other participants in the applicable litigation matters.

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. Multiple appraisal firms are utilized to ensure that estimated values are consistent between firms. This process occurs within FHN’s Credit Risk Management (commercial) and Default Servicing functions (primarily consumer). The Credit Risk Management Committee reviews dispositions and additions of OREO annually. Back testing is performed during the year through comparison to ultimate disposition values. 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. Unusual valuation adjustments and the associated triggering events are discussed with senior and executive management when appropriate. A portfolio review is conducted annually, with the assistance of a third party, to assess the reasonableness of current valuations.

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 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.

7073

Note 16 – Fair Value of Assets & Liabilities (Continued)

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.


	September 30, 2017							June 30, 2018
(Dollars in thousands)	Fair value carrying amount		Aggregate unpaid principal		Fair value carrying amount less aggregate unpaid principal			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	$	21,808	$	30,686	$	(8,878	)	$	18,940	$	26,644	$	(7,704	)
Nonaccrual loans	6,428		11,551		(5,123		)	4,674		8,830		(4,156		)
Loans 90 days or more past due and still accruing	44		175		(131		)	34		51		(17		)
	December 31, 2016							December 31, 2017
(Dollars in thousands)	Fair value carrying amount		Aggregate unpaid principal		Fair value carrying amount less aggregate unpaid principal			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	$	24,269	$	35,262	$	(10,993	)	$	20,881	$	29,755	$	(8,874	)
Nonaccrual loans	6,775		12,910		(6,135		)	5,783		10,881		(5,098		)
Loans 90 days or more past due and still accruing	211		331		(120		)	—		—		—

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 September 30				Nine Months Ended September 30				Three Months Ended June 30				Six Months Ended June 30
(Dollars in thousands)	2017		2016		2017		2016		2018		2017		2018		2017
Changes in fair value included in net income:
Mortgage banking noninterest income
Loans held-for-sale	$	390	$	1,604	$	1,722	$	2,375	$	540	$	410	$	709	$	1,332

For the three months ended ~~September~~June 30, 2018, residential real estate loans held-for-sale included an insignificant amount of gains in pretax earnings that are attributable to change in instruments-specific credit risk. For the three months ended June 30, 2017, ~~and 2016,~~ the ~~amounts~~amount for residential real estate loans held-for-sale ~~include~~included gains of ~~$.1~~$.2 million, ~~and $.5 million, respectively,~~ in pretax earnings that are attributable to changes in instruments-specific credit risk. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, and ~~2016,~~2017, the amounts for ~~residential~~the real estate loans held-for-sale included gains of ~~$.5~~$.3 million ~~and $.7 million, respectively,~~ in pretax earnings that are attributable to changes in ~~instrument-specific~~instruments-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

7174

Note 16 – Fair Value of Assets & Liabilities (Continued)

~~assumptions and methodologies used to estimate the fair value of financial instruments recorded at fair value in the~~ 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.~~disclosed.

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, federal bank stock holdings, and short-term investments in mutual funds.~~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.

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. Short-term 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. Cost method investments are valued at historical cost less any recorded impairment due to the illiquid nature of these investments.

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.

~~Securities held-to-maturity.~~ Securities held-to-maturity reflects debt securities for which management has the positive intent and ability to hold to maturity. To the extent possible, valuations of held-to-maturity securities are performed using observable inputs obtained from market transactions in similar securities. Typical inputs include LIBOR and U.S. treasury curves and credit spreads. Debt securities with limited trading activity are valued using a discounted cash flow model that incorporates a combination of observable and unobservable inputs. Primary observable inputs include contractual cash flows, the treasury curve and credit spreads from similar instruments. Significant unobservable inputs include estimated credit spreads for individual issuers and instruments as well as prepayment speeds, as applicable.

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 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

~~Note 16 – Fair Value of Assets & Liabilities (Continued)~~

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.

~~Loans, net of unearned income.~~Collateral-Dependent loans. Loans, net of unearned income are recognized at the amount of funds advanced, less charge-offs and an estimation of credit risk represented by the allowance for loan losses. The fair value estimates for disclosure purposes differentiate loans based on their financial characteristics, such as product classification, vintage, loan category, pricing features, and remaining maturity.

The fair value of floating rate loans is estimated through comparison to recent market activity in loans of similar product types, with adjustments made for differences in loan characteristics. In situations where market pricing inputs are not available, fair value is considered to approximate book value due to the monthly repricing for commercial and consumer loans, with the exception of floating rate 1-4 family residential mortgage loans which reprice annually and will lag movements in market rates. The fair value for floating rate 1-4 family mortgage loans is calculated by discounting future cash flows to their present value. Future cash flows are discounted to their present value by using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same time period. Prepayment assumptions based on historical prepayment speeds and industry speeds for similar loans have been applied to the floating rate 1-4 family residential mortgage portfolio.

The fair value of fixed rate loans is estimated through comparison to recent market activity in loans of similar product types, with adjustments made for differences in loan characteristics. In situations where market pricing inputs are not available, fair value is estimated by discounting future cash flows to their present value. Future cash flows are discounted to their present value by using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same time period. Prepayment assumptions based on historical prepayment speeds and industry speeds for similar loans have been applied to the fixed rate mortgage and installment loan portfolios.

For all loan portfolio classes, adjustments are made to reflect liquidity or illiquidity of the market. Such adjustments reflect discounts that FHN believes are consistent with what a market participant would consider in determining fair value given current market conditions.

Individually impaired loans are measured using either a discounted cash flow methodology or the estimated fair value of the underlying collateral less costs to sell, if the loan is considered collateral-dependent. In accordance with accounting standards, the discounted cash flow analysis utilizes the loan’s effective interest rate for discounting expected cash flow amounts. Thus, this analysis is not considered a fair value measurement in accordance with ASC 820. However, the results of this methodology are considered to approximate fair value for the applicable loans. Expected cash flows are derived from internally-developed inputs primarily reflecting expected default rates on contractual cash flows. 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.

Note 16 – Fair Value of Assets & Liabilities (Continued)

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

~~Note 16 – Fair Value of Assets & Liabilities (Continued)~~

is determined using appraised values with subsequent adjustments for deterioration in values that are not reflected in the most recent appraisal.

Nonearning assets. For disclosure purposes, for periods prior to 2018, nonearning financial assets include cash and due from banks, accrued interest receivable, and fixed income receivables. Due to the short-term nature of cash and due from banks, accrued interest receivable, and fixed income receivables, the fair value is approximated by the book value.

Other assets. For disclosure purposes, other assets consist of tax credit investments, FRB and FHLB Stock, deferred compensation ~~assets that are considered financial assets.~~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 ~~assets~~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.

Undefined maturity deposits. InFor periods prior to 2018, in accordance with ASC 825, the fair value of these deposits is approximated by the book value. For the purpose of this disclosure, undefined maturity deposits include demand deposits, checking interest accounts, savings accounts, and money market accounts.

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.

~~Term borrowings.~~ The fair value of term borrowings is based on quoted market prices or dealer quotes for the identical liability when traded as an asset. When pricing information for the identical liability is not available, relevant prices for similar debt instruments are used with adjustments being made to the prices obtained for differences in characteristics of the debt instruments. If no relevant pricing information is available, the fair value is approximated by the present value of the contractual cash flows discounted by the investor’s yield which considers FHN’s and FTBNA’s debt ratings. Secured borrowings also consider the values of the associated assets and whether overcollateralization exists.

Other noninterest-bearing liabilities. For disclosure purposes, for periods prior to 2018, other noninterest-bearing financial liabilities include accrued interest payable and fixed income payables. Due to the short-term nature of these liabilities, the book value is considered to approximate fair value.

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.

Note 16 – Fair Value of Assets & Liabilities (Continued)

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 ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, 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 TRUP 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.

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.

~~Note 16 – Fair Value of Assets & Liabilities (Continued)~~

~~The following table summarizes the book value and estimated fair value of financial instruments recorded in the Consolidated Condensed Statements of Condition as of September 30, 2017:~~

September 30, 2017

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 $ 12,693,639
$ —
$ —
$ 12,658,237
$ 12,658,237
Commercial real estate 2,221,332
—
—
2,208,208
2,208,208
Consumer:
Consumer real estate 4,328,778
—
—
4,252,704
4,252,704
Permanent mortgage 387,363
—
—
392,407
392,407
Credit card & other 340,112
—
—
340,168
340,168
Total loans, net of unearned income and allowance for loan losses 19,971,224
—
—
19,851,724
19,851,724
Short-term financial assets:
Interest-bearing cash 604,326
604,326
—
—
604,326
Federal funds sold 76,316
—
76,316
—
76,316
Securities purchased under agreements to resell 663,637
—
663,637
—
663,637
Total short-term financial assets 1,344,279
604,326
739,953
—
1,344,279
Trading securities (a) 1,469,402
—
1,467,097
2,305
1,469,402
Loans held-for-sale (a) 339,780
—
246,441
94,000
340,441
Securities available-for-sale (a) (b) 3,963,138
24,756
3,773,600
164,782
3,963,138
Securities held-to-maturity 10,000
—
—
9,985
9,985
Derivative assets (a) 80,976
10,003
70,973
—
80,976
Other assets:
Tax credit investments 120,701
—
—
121,435
121,435
Deferred compensation assets 34,951
34,951
—
—
34,951
Total other assets 155,652
34,951
—
121,435
156,386
Nonearning assets:
Cash & due from banks 347,802
347,802
—
—
347,802
Fixed income receivables 68,750
—
68,750
—
68,750
Accrued interest receivable 70,058
—
70,058
—
70,058
Total nonearning assets 486,610
347,802
138,808
—
486,610
Total assets $ 27,821,061
$ 1,021,838
$ 6,436,872
$ 20,244,231
$ 27,702,941
Liabilities:
Deposits:
Defined maturity $ 1,112,098
$ —
$ 1,108,919
$ —
$ 1,108,919
Undefined maturity 20,987,156
—
20,987,156
—
20,987,156
Total deposits 22,099,254
—
22,096,075
—
22,096,075
Trading liabilities (a) 579,028
—
579,028
—
579,028
Short-term financial liabilities:
Federal funds purchased 292,650
—
292,650
—
292,650
Securities sold under agreements to repurchase 516,867
—
516,867
—
516,867
Other short-term borrowings 1,637,419
—
1,637,419
—
1,637,419
Total short-term financial liabilities 2,446,936
—
2,446,936
—
2,446,936
Term borrowings:
Real estate investment trust-preferred 46,083
—
—
49,350
49,350
Term borrowings—new market tax credit investment 18,000
—
—
17,959
17,959
Secured borrowings 42,585
—
—
42,184
42,184
Other long term borrowings 952,839
—
968,297
—
968,297
Total term borrowings 1,059,507
—
968,297
109,493
1,077,790
Derivative liabilities (a) 83,146
7,627
69,989
5,530
83,146
Other noninterest-bearing liabilities:
Fixed income payables 44,304
—
44,304
—
44,304
Accrued interest payable 19,205
—
19,205
—
19,205
Total other noninterest-bearing liabilities 63,509
—
63,509
—
63,509
Total liabilities $ 26,331,380
$ 7,627
$ 26,223,834
$ 115,023
$ 26,346,484


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


~~(b)~~	~~Level 3 includes restricted investments in FHLB-Cincinnati stock of $87.9 million and FRB stock of $68.6 million.~~

7577

Note 16 – Fair Value of Assets & Liabilities (Continued)

The following table summarizes the book value and estimated fair value of financial instruments recorded in the Consolidated Condensed Statements of Condition as of June 30, 2018:



	June 30, 2018
	Book Value		Fair Value
(Dollars in thousands)	Book Value		Level 1		Level 2		Level 3		Total
Assets:
Loans, net of unearned income and allowance for loan losses
Commercial:
Commercial, financial and industrial	$	16,341,911	$	—	$	—	$	16,289,383	$	16,289,383
Commercial real estate	4,102,524		—		—		4,106,951		4,106,951
Consumer:
Consumer real estate	6,190,842		—		—		6,139,842		6,139,842
Permanent mortgage	340,838		—		—		347,349		347,349
Credit card & other	540,163		—		—		539,609		539,609
Total loans, net of unearned income and allowance for loan losses	27,516,278		—		—		27,423,134		27,423,134
Short-term financial assets:
Interest-bearing cash	750,634		750,634		—		—		750,634
Federal funds sold	91,303		—		91,303		—		91,303
Securities purchased under agreements to resell	782,765		—		782,765		—		782,765
Total short-term financial assets	1,624,702		750,634		874,068		—		1,624,702
Trading securities (a)	1,649,470		—		1,647,746		1,724		1,649,470
Loans held-for-sale
Mortgage loans (elected fair value) (a)	18,940		—		2,222		16,718		18,940
USDA & SBA loans- LOCOM	579,523		—		581,051		1,038		582,089
Other consumer loans- LOCOM	30,175		—		6,959		23,216		30,175
Mortgage loans- LOCOM	64,021		—		—		64,021		64,021
Total loans held-for-sale	692,659		—		590,232		104,993		695,225
Securities available-for-sale (a)	4,724,411		—		4,718,624		5,787		4,724,411
Securities held-to-maturity	10,000		—		—		9,786		9,786
Derivative assets (a)	122,056		19,127		102,929		—		122,056
Other assets:
Tax credit investments	119,186		—		—		114,392		114,392
Deferred compensation mutual funds	40,068		40,068		—		—		40,068
Equity, mutual funds, and other (b)	245,617		27,135		—		218,482		245,617
Total other assets	404,871		67,203		—		332,874		400,077
Total assets	$	36,744,447	$	836,964	$	7,933,599	$	27,878,298	$	36,648,861
Liabilities:
Defined maturity deposits	$	3,543,987	$	—	$	3,518,069	$	—	$	3,518,069
Trading liabilities (a)	743,721		—		743,721		—		743,721
Short-term financial liabilities:
Federal funds purchased	351,655		—		351,655		—		351,655
Securities sold under agreements to repurchase	713,152		—		713,152		—		713,152
Other short-term borrowings	1,836,852		—		1,836,852		—		1,836,852
Total short-term financial liabilities	2,901,659		—		2,901,659		—		2,901,659
Term borrowings:
Real estate investment trust-preferred	46,134		—		—		47,940		47,940
Term borrowings—new market tax credit investment	18,000		—		—		17,898		17,898
Secured borrowings	34,046		—		—		33,866		33,866
Junior subordinated debentures	187,950		—		—		187,950		187,950
Other long term borrowings	941,151		—		953,035		—		953,035
Total term borrowings	1,227,281		—		953,035		287,654		1,240,689
Derivative liabilities (a)	135,349		18,738		107,186		9,425		135,349
Total liabilities	$	8,551,997	$	18,738	$	8,223,670	$	297,079	$	8,539,487


(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 $130.6 million.

Note 16 – Fair Value of Assets & Liabilities (Continued)

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, ~~2016:~~2017:


	December 31, 2016														December 31, 2017
	Book Value			Fair Value											Book Value			Fair Value
(Dollars in thousands)			Level 1			Level 2			Level 3			Total					Level 1			Level 2			Level 3			Total
Assets:
Loans, net of unearned income and allowance for loan losses
Commercial:
Commercial, financial and industrial	$	12,058,689		$	—		$	—		$	11,918,374		$	11,918,374	$	15,959,062		$	—		$	—		$	15,990,991		$	15,990,991
Commercial real estate	2,101,671			—			—			2,078,306			2,078,306		4,186,268			—			—			4,215,367			4,215,367
Consumer:
Consumer real estate	4,473,395			—			—			4,385,669			4,385,669		6,330,384			—			—			6,320,308			6,320,308
Permanent mortgage	406,836			—			—			404,930			404,930		383,742			—			—			388,396			388,396
Credit card & other	346,861			—			—			347,577			347,577		609,918			—			��			607,955			607,955
Total loans, net of unearned income and allowance for loan losses	19,387,452			—			—			19,134,856			19,134,856		27,469,374			—			—			27,523,017			27,523,017
Short-term financial assets:
Interest-bearing cash	1,060,034			1,060,034			—			—			1,060,034		1,185,600			1,185,600			—			—			1,185,600
Federal funds sold	50,838			—			50,838			—			50,838		87,364			—			87,364			—			87,364
Securities purchased under agreements to resell	613,682			—			613,682			—			613,682		725,609			—			725,609			—			725,609
Total short-term financial assets	1,724,554			1,060,034			664,520			—			1,724,554		1,998,573			1,185,600			812,973			—			1,998,573
Trading securities (a)	897,071			—			894,498			2,573			897,071		1,416,345			—			1,414,194			2,151			1,416,345
Loans held-for-sale ~~(a)~~	111,248			—			6,631			104,617			111,248
Mortgage loans															88,173			—			6,902			81,271			88,173
USDA & SBA loans															466,977			—			467,227			1,510			468,737
Other consumer loans															144,227			—			9,965			134,262			144,227
Securities available-for-sale (a) (b)	3,943,499			25,249			3,756,745			161,505			3,943,499		5,170,255			27,017			4,903,115			240,123			5,170,255
Securities held-to-maturity	14,347			—			—			14,773			14,773		10,000			—			—			9,901			9,901
Derivative assets (a)	121,654			33,587			88,067			—			121,654		81,634			10,161			71,473			—			81,634
Other assets:
Tax credit investments	100,105			—			—			98,400			98,400		119,317			—			—			112,292			112,292
Deferred compensation assets	32,840			32,840			—			—			32,840		39,822			39,822			—			—			39,822
Total other assets	132,945			32,840			—			98,400			131,240		159,139			39,822			—			112,292			152,114
Nonearning assets:
Cash & due from banks	373,274			373,274			—			—			373,274		639,073			639,073			—			—			639,073
Fixed income receivables	57,411			—			57,411			—			57,411		68,693			—			68,693			—			68,693
Accrued interest receivable	62,887			—			62,887			—			62,887		97,239			—			97,239			—			97,239
Total nonearning assets	493,572			373,274			120,298			—			493,572		805,005			639,073			165,932			—			805,005
Total assets	$	26,826,342		$	1,524,984		$	5,530,759		$	19,516,724		$	26,572,467	$	37,809,702		$	1,901,673		$	7,851,781		$	28,104,527		$	37,857,981
Liabilities:
Deposits:
Defined maturity	$	1,355,133		$	—		$	1,361,104		$	—		$	1,361,104	$	3,322,921		$	—		$	3,293,650		$	—		$	3,293,650
Undefined maturity	21,317,230			—			21,317,230			—			21,317,230		27,297,441			—			27,297,431			—			27,297,431
Total deposits	22,672,363			—			22,678,334			—			22,678,334		30,620,362			—			30,591,081			—			30,591,081
Trading liabilities (a)	561,848			—			561,848			—			561,848		638,515			—			638,515			—			638,515
Short-term financial liabilities:
Federal funds purchased	414,207			—			414,207			—			414,207		399,820			—			399,820			—			399,820
Securities sold under agreements to repurchase	453,053			—			453,053			—			453,053		656,602			—			656,602			—			656,602
Other short-term borrowings	83,177			—			83,177			—			83,177		2,626,213			—			2,626,213			—			2,626,213
Total short-term financial liabilities	950,437			—			950,437			—			950,437		3,682,635			—			3,682,635			—			3,682,635
Term borrowings:
Real estate investment trust-preferred	46,032			—			—			49,350			49,350		46,100			—			—			48,880			48,880
Term borrowings—new market tax credit investment	18,000			—			—			17,918			17,918		18,000			—			—			17,930			17,930
Borrowings secured by residential real estate	23,126			—			—			21,969			21,969
Secured borrowings															18,642			—			—			18,305			18,305
Junior subordinated debentures															187,281			—			—			187,281			187,281
Other long term borrowings	953,498			—			965,066			—			965,066		948,074			—			966,292			—			966,292
Total term borrowings	1,040,656			—			965,066			89,237			1,054,303		1,218,097			—			966,292			272,396			1,238,688
Derivative liabilities (a)	135,897			33,274			96,378			6,245			135,897		85,061			9,535			69,881			5,645			85,061
Other noninterest-bearing liabilities:
Fixed income payables	21,002			—			21,002			—			21,002		48,996			—			48,996			—			48,996
Accrued interest payable	10,336			—			10,336			—			10,336		16,270			—			16,270			—			16,270
Total other noninterest-bearing liabilities	31,338			—			31,338			—			31,338		65,266			—			65,266			—			65,266
Total liabilities	$	25,392,539		$	33,274		$	25,283,401		$	95,482		$	25,412,157	$	36,309,936		$	9,535		$	36,013,670		$	278,041		$	36,301,246


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


(b)	Level 3 includes restricted investments in FHLB-Cincinnati stock of $87.9 million and FRB stock of ~~$68.6~~$134.6 million.

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