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Acquisitions and Divestitures | 9 Months Ended
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Sep. 30, 2018
Business Combinations [Abstract] |
Acquisitions and Divestitures | Acquisitions and Divestitures On November 30, 2017, FHN completed its acquisition of Capital Bank Financial Corporation ("CBF") and its subsidiaries, including Capital Bank Corporation, for an aggregate of 92,042,232 shares of FHN common stock and $423.6 million in cash in a transaction valued at $2.2 billion. In second quarter 2018, FHN canceled 2,373,220 common shares which had been issued but set aside for certain shareholders of CBF who have commenced a dissenters' appraisal process resulting in a reduction in equity consideration and an increase in cash consideration of $46.0 million. The final appraisal or settlement amount, as applicable, may differ from current estimates. CBF operated 178 branches in North and South Carolina, Tennessee, Florida and Virginia at the time of closing. In relation to the acquisition, FHN acquired approximately $9.9 billion in assets, including approximately $7.3 billion in loans and $1.2 billion in AFS securities, and assumed approximately $8.1 billion of CBF deposits. The following schedule details acquired assets and liabilities and consideration paid, as well as adjustments to record the assets and liabilities at their estimated fair values as of November 30, 2017. These fair value measurements are based on third party and internal valuations.
|  | Capital Bank Financial Corporation
|  | As |  | Purchase Accounting/Fair |  |
|  | Acquired |  | Value Adjustments (unaudited) |  | As recorded
(Dollars in thousands) |  | (unaudited) |  | 2017 |  | 2018 (a) |  | by FHN
Assets: |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 205,999 |  |  | $ | — |  |  | $ | — |  |  | $ | 205,999 |
Trading securities |  | 4,758 |  |  | (4,758 | ) | (b) | — |  |  | — |
Loans held-for-sale |  | — |  |  | 134,003 |  |  | (9,085 | ) |  | 124,918 |
Securities available-for-sale |  | 1,017,867 |  |  | 175,526 |  |  | — |  |  | 1,193,393 |
Securities held-to-maturity |  | 177,549 |  |  | (177,549 | ) |  | — |  |  | — |
Loans |  | 7,596,049 |  |  | (320,372 | ) |  | 867 |  |  | 7,276,544 |
Allowance for loan losses |  | (45,711 | ) |  | 45,711 |  |  | — |  |  | — |
CBF Goodwill |  | 231,292 |  |  | (231,292 | ) |  | — |  |  | — |
Other intangible assets |  | 24,498 |  |  | 119,302 |  |  | (2,593 | ) |  | 141,207 |
Premises and equipment |  | 196,298 |  |  | 37,054 |  |  | (2,351 | ) |  | 231,001 |
OREO |  | 43,077 |  |  | (9,149 | ) |  | (315 | ) |  | 33,613 |
Other assets |  | 617,232 |  |  | 41,320 |  | (c) | (7,248 | ) | (c) | 651,304 |
Total assets acquired |  | $ | 10,068,908 |  |  | $ | (190,204 | ) |  | $ | (20,725 | ) |  | $ | 9,857,979 |
Liabilities: |  |  |  |  |  |  |  |
Deposits |  | $ | 8,141,593 |  |  | $ | (849 | ) |  | $ | (642 | ) |  | $ | 8,140,102 |
Securities sold under agreements to repurchase |  | 26,664 |  |  | — |  |  | — |  |  | 26,664 |
Other short-term borrowings |  | 390,391 |  |  | — |  |  | — |  |  | 390,391 |
Term borrowings |  | 119,486 |  |  | 67,683 |  |  | — |  |  | 187,169 |
Other liabilities |  | 59,995 |  |  | 4,291 |  |  | 2,908 |  |  | 67,194 |
Total liabilities assumed |  | 8,738,129 |  |  | 71,125 |  |  | 2,266 |  |  | 8,811,520 |
Net assets acquired |  | $ | 1,330,779 |  |  | $ | (261,329 | ) |  | $ | (22,991 | ) |  | 1,046,459 |
Consideration paid: |  |  |  |  |  |  |  |
Equity |  |  |  |  |  |  |  | (1,746,724 | )
Cash |  |  |  |  |  |  |  | (469,609 | )
Total consideration paid |  |  |  |  |  |  |  | (2,216,333 | )
Goodwill |  |  |  |  |  |  |  | $ | 1,169,874 |
(a) | Amounts reflect adjustments made to provisional fair value estimates during the measurement period ending November 30, 2018. These adjustments were recorded in FHN's Consolidated Condensed Statement of Condition as of September 30, 2018 with a corresponding adjustment to goodwill.
(b) | Amount represents a conformity adjustment to align with FHN presentation.
(c) | Amount primarily relates to a net deferred tax asset recorded for the effects of the purchase accounting adjustments.
Due to the timing of merger completion in relation to the previous year end, the fact that back office functions (including loan and deposit processing) have only recently been integrated, the evaluation of post-merger activity, and the extended information gathering and management review processes required to properly record acquired assets and liabilities, FHN considers its valuations of CBF's loans, loans held-for-sale, premises and equipment, other assets, tax receivables and payables, lease intangibles, other liabilities and acquired contingencies to be provisional as management continues to identify and assess information regarding the nature of these assets and liabilities and reviews the associated valuation assumptions and methodologies. Accordingly, the amounts recorded for current and deferred tax assets and liabilities are also considered provisional as FHN continues to evaluate the nature and extent of temporary (timing) and permanent differences between the book and tax bases of the acquired assets and liabilities assumed. Additionally, the accounting policies of both FHN and CBF are in the process of being reviewed in detail. Upon completion of such review, conforming adjustments or financial statement reclassification may be determined. In relation to the acquisition, FHN has recorded preliminary goodwill of approximately $1.2 billion, representing the excess of acquisition consideration over the estimated fair value of net assets acquired. All expenses related to the merger and integration with CBF are recorded in FHN's Corporate segment. Integration activities were substantially completed in second quarter 2018. Total CBF merger and integration expense recognized for the three and nine months ended September 30, 2018 and 2017 are presented in the table below:
| Three Months Ended September 30 |  | Nine Months Ended September 30
(Dollars in thousands) | 2018 |  | 2017 |  | 2018 |  | 2017
Professional fees (a) | $ | 4,594 |  |  | $ | 3,492 |  |  | $ | 19,215 |  |  | $ | 8,004 |
Employee compensation, incentives and benefits (b) | 1,965 |  |  | 232 |  |  | 8,459 |  |  | 232 |
Contract employment and outsourcing (c) | 599 |  |  | 351 |  |  | 3,702 |  |  | 351 |
Occupancy (d) | 100 |  |  | 15 |  |  | 2,321 |  |  | 15 |
Miscellaneous expense (e) | 1,384 |  |  | 130 |  |  | 6,522 |  |  | 234 |
All other expense (f) | 1,548 |  |  | 2,771 |  |  | 41,833 |  |  | 2,786 |
Total | $ | 10,190 |  |  | $ | 6,991 |  |  | $ | 82,052 |  |  | $ | 11,622 |
(a) Primarily comprised of fees for legal, accounting, investment bankers, and merger consultants. (b) Primarily comprised of fees for severance and retention. (c) Primarily relates to fees for temporary assistance for merger and integration activities. (d) Primarily relates to fees associated with lease exit accruals. (e) Consists of fees for Operations services, communications and courier, equipment rentals, depreciation, and maintenance, supplies, travel and entertainment, computer software, and advertising and public relations. (f) Primarily relates to contract termination charges, costs of shareholder matters and asset impairments related to the integration, as well as other miscellaneous expenses. On March 23, 2018, FHN divested two branches, including approximately $30 million of deposits and $2 million of loans, to Apex Bank, a Tennessee banking corporation. The branches, both in Greeneville, Tennessee, were divested in connection with First Horizon's agreement with the U.S. Department of Justice and commitments to the Board of Governors of the Federal Reserve System, which were entered into in connection with a customary review of FHN's merger with CBF. In second quarter 2018, FHN sold approximately $120 million UPB of its subprime auto loans. These loans, originally acquired as part of the CBF acquisition, did not fit within FHN's risk profile. Based on the sales price, a measurement period adjustment to the acquisition-date fair value of the subprime auto loans was recorded in second quarter 2018. On April 3, 2017, FTN Financial acquired substantially all of the assets and assumed substantially all of the liabilities of Coastal Securities, Inc. (“Coastal”), a national leader in the trading, securiti zation, and analysis of Small Business Administration (“SBA”) loans, for appro ximately $131 million in cash. Coastal, which was based in Houston, TX, also traded United States Department of Agriculture (“USDA”) loans and fixed income products and provided municipal underwriting and advisory services to its clients. Coastal’s government-guaranteed loan products, combined with FTN Financial’s existing SBA trading activities, have established an additional major product sector for FTN Financial. In relation to the acquisition, FTN Financial acquired approximately $418 million in assets, inclusive of approximately $236 million of HFS loans and $139 million of trading securities, and assumed approximately $202 million of securities sold under agreements to repurchase and $96 million of fixed income payables. In relation to the acquisition, FHN has recorded $45.0 million in goodwill representing the excess of acquisition consideration over the estimated fair value of net assets acquired. See Note 2- Acquisitions and Divestitures in the Notes to Consolidated Financial Statements on Form 10-K for the year ended December 31, 2017, for additional information about the CBF and Coastal acquisitions. In addition to the transactions mentioned above, FHN acquires or divests assets from time to time in transactions that are considered business combinations or divestitures but are not material to FHN individually or in the aggregate.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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