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Acquisitions and Divestitures | 12 Months Ended
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Dec. 31, 2019
Business Combinations [Abstract] |
Acquisitions and Divestitures | Acquisitions and Divestitures On November 4, 2019, FHN and IBERIABANK Corporation (“IBKC”) announced that they had entered into an agreement and plan of merger under which IBKC will merge with FHN in a merger-of-equals transaction. IBKC, headquartered in Lafayette, Louisiana, has 319 offices in 12 states, mostly in the southern and southeastern U.S., and has reported $31.7 billion of total assets, $24.0 billion in loans, and $25.2 billion in deposits, at December 31, 2019. IBKC's common stock is listed on The NASDAQ Stock Market, LLC under the symbol IBKC. Under the merger agreement, each share of IBKC common stock will be converted into 4.584 shares of FHN common stock. After closing, FHN expects IBKC common shares will be converted into approximately 44 percent of the then-outstanding shares of FHN common stock. The merger agreement requires FHN to expand its board of directors to seventeen persons; after closing, eight board positions will be held by current IBKC directors, and nine will be held by current FHN directors. FHN expects the transaction to close mid-2020, subject to regulatory approvals, approval by the shareholders of FHN and of IBKC, and other customary conditions. Merger and integration expenses related to the pending merger of equals with IBKC are recorded in FHN’s Corporate segment. Total merger expenses for the IBKC merger recognized during 2019 were as follows:
|  | Year Ended December 31,
(Dollars in thousands) |  | 2019
Professional fees (a) |  | $ | 8,228 |
Employee compensation, incentives and benefits (b) |  | 3,079 |
Miscellaneous expense (c) |  | 64 |
Total IBKC merger expense |  | $ | 11,371 |
(a) Primarily comprised of fees for legal, accounting, investment bankers, and merger consultants. (b) Primarily comprised of fees for severance and retention. (c) Primarily comprised of fees for travel and entertainment. On November 8, 2019, FHN announced an agreement for First Horizon Bank to purchase 30 branches from SunTrust Bank in conjunction with SunTrust Banks, Inc.'s merger with BB&T Corporation, which created Truist Financial Corp. As part of the agreement, FHN will assume approximately $2.4 billion of branch deposits for a 3.40 percent deposit premium and purchase approximately $410 million of branch loans. The branches are in communities in North Carolina (20 branches), Virginia (8 branches), and Georgia (2 branches). FHN expects the purchase to close in second quarter 2020, subject to customary closing conditions. 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. In October 2019 this matter was resolved and the financial statement effects were not significant. 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 $9.8 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 |  |  | (11,034 | ) |  | 122,969 |
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 |  |  | (9,470 | ) |  | 223,882 |
OREO |  | 43,077 |  |  | (9,149 | ) |  | (315 | ) |  | 33,613 |
Other assets |  | 617,232 |  |  | 41,320 |  | (c) | (22,422 | ) | (c) | 636,130 |
Total assets acquired |  | $ | 10,068,908 |  |  | $ | (190,204 | ) |  | $ | (44,967 | ) |  | $ | 9,833,737 |
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 |  |  | 1,631 |  |  | 65,917 |
Total liabilities assumed |  | 8,738,129 |  |  | 71,125 |  |  | 989 |  |  | 8,810,243 |
Net assets acquired |  | $ | 1,330,779 |  |  | $ | (261,329 | ) |  | $ | (45,956 | ) |  | 1,023,494 |
Consideration paid: |  |  |  |  |  |  |  |
Equity |  |  |  |  |  |  |  | (1,746,718 | )
Cash |  |  |  |  |  |  |  | (469,615 | )
Total consideration paid |  |  |  |  |  |  |  | (2,216,333 | )
Goodwill |  |  |  |  |  |  |  | $ | 1,192,839 |
(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 Statement of Condition in 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 and adjustments for acquired tax contingencies.
In relation to the acquisition, FHN recorded goodwill of approximately $1.2 billion, representing the excess of acquisition consideration over the estimated fair value of net assets acquired. All goodwill has been attributed to FHN’s Regional Banking segment (refer to Note 7 - Intangible Assets for additional information). This goodwill is the result of 1) the addition of an experienced workforce, 2) expected synergies to be realized within overlapping banking markets, 3) operational efficiencies obtained through integration of back office functions and 4) proportionately lower net operating costs from a larger company scale. $17.0 million of goodwill was determined to be deductible for tax purposes as a result of tax bases carryover resulting from prior CBF acquisitions. FHN’s operating results for 2018 and 2017 include the operating results of the assets and liabilities acquired from CBF subsequent to the acquisition on November 30, 2017. Following is a description of the methods used to determine the fair values of significant assets and liabilities presented above. Cash and cash equivalents: The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets. Securities available-for-sale: Fair values for securities are based on quoted prices where available. If quoted market prices are not available, fair value estimates are based on observable inputs obtained from market transactions in similar securities. Securities held-to-maturity were reclassified to securities available-for-sale based on FHN’s intent at closing. Loans and loans held-for-sale: Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan, amortization status and current discount rates. Loans were aggregated according to similar characteristics when applying various valuation techniques. The discount rate does not include a factor for credit losses as that has been included as a reduction to the estimated cash flows. Loans held-for-sale were classified according to FHN’s intent at closing. The valuation of loans held-for-sale reflects contractual or bid prices. Intangible assets: Core deposit intangible ("CDI") represents the value of the relationships with deposit customers. The fair value was based on a discounted cash flow methodology that considered expected customer attrition rates, net maintenance cost of the deposit base, alternate costs of funds, and the interest costs associated with customer deposits. The CDI is being amortized over 10 years using an accelerated methodology based upon the period over which estimated economic benefits are estimated to be received. Lease intangibles are valued using a discounted cash flow methodology which compares the current contractual rental payments to estimated current market rents for the property. Premises and Equipment: Land and buildings held-for-use are valued at appraised values, which reflect considerations of recent disposition values for similar property types with adjustments for characteristics of individual properties. Locations held-for-sale are valued at appraised values which also reference recent disposition values for similar property types but also considers marketability discounts for vacant properties. The valuations of locations held-for-sale are reduced by estimated costs to sell. Other fixed assets are valued using a discounted cash flow methodology which reflects estimates of the future value of the assets to a hypothetical buyer. OREO: OREO properties are valued at estimated fair value less estimated costs to sell the real estate. Estimated fair value is determined using appraised values which includes consideration of recent disposition values for similar property types with adjustments for characteristics of individual properties. Deposits: The fair values used for the demand and savings deposits by definition equal the amount payable on demand at the acquisition date. The fair values for time deposits are estimated using a discounted cash flow calculation using the remaining duration of the accounts and reflects the difference in interest rates currently being offered to the contractual interest rates on such time deposits. Securities sold under agreements to repurchase and Other short-term borrowings: The carrying amount of these liabilities is a reasonable estimate of fair value based on the short-term nature of these liabilities. Term borrowings: The fair values of long-term debt instruments are estimated based on quoted market prices for the instrument if available, or for similar instruments if not available, or by using discounted cash flow analysis, based on estimated current borrowing rates for similar types of instruments and considers whether the debt is currently callable. Estimated discount rates are determined from the perspective of the post-merger combined entity rather than the acquiree and/or original issuers. The following table presents financial information regarding the former CBF operations included in FHN's Consolidated Statements of Income from the date of acquisition (November 30, 2017) through December 31, 2017. Additionally, the table presents unaudited proforma information as if the acquisition of CBF had occurred on January 1, 2016:
| Actual from acquisition date through |  | Unaudited Pro Forma for
|  | Year Ended December 31
(Dollars in thousands) | December 31, 2017 |  | 2017 |  | 2016
Net interest income | $ | 31,253 |  |  | $ | 1,165,006 |  |  | $ | 1,033,218 |
Noninterest income | 6,192 |  |  | 563,581 |  |  | 638,493 |
Pre-tax income | 16,534 |  |  | 476,911 |  |  | 458,667 |
Net income available to common shareholders (a) | NM |  |  | 274,416 |  |  | 293,981 |
(a) Net income available to common shareholders is not meaningful for actual CBF results from the acquisition date through December 31, 2017 because of the effect of tax reform. The pro forma financial information and explanatory notes have been prepared to illustrate the effects of the merger between FHN and CBF under the acquisition method of accounting. The pro forma financial information is presented for illustrative purposes only and does not necessarily indicate the financial results of the combined companies had the companies actually been combined at the beginning of each period presented, nor does it necessarily indicate the results of operations in future periods or the future financial position of the combined entities. Cost savings and other business synergies related to the acquisition are not reflected in the pro forma amounts. This unaudited pro forma information combines the historical consolidated results of operations of FHN and CBF for the periods presented and gives effect to the following nonrecurring adjustments: Fair value adjustments: Pro forma adjustment to net interest income of $34.5 million and $46.5 million for the years ended December 31, 2017 and 2016, respectively, to record estimated amortization of premiums and accretion of discounts on acquired loans, securities, deposits, and term borrowings. CBF accretion/amortization: Pro forma adjustment to net interest income of $24.4 million and $25.9 million for the years ended December 31, 2017 and 2016, respectively, to eliminate CBF amortization of premiums and accretion of discounts on previously acquired loans, securities, and deposits. Amortization of acquired intangibles: Pro forma adjustment to noninterest expense of $15.8 million and $18.0 million for the years ended December 31, 2017 and 2016, respectively, to record estimated amortization on acquired CDI and other lease intangibles. Other adjustments: Pro forma results also include adjustments related to the removal of CBF's intangible amortization expense, amortization of previously acquired lease intangibles, and FHN's merger-related costs. Also includes adjustments to depreciation expense to record estimated fair value marks for CBF tangible assets, as well as income-tax effects of pro forma adjustments. 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 years ended December 31, 2019, 2018, and 2017 are presented in the table below:
|  | Years Ended December 31,
(Dollars in thousands) |  | 2019 |  | 2018 |  | 2017
Professional fees (a) |  | $ | 11,221 |  |  | $ | 22,337 |  |  | $ | 28,151 |
Employee compensation, incentives and benefits (b) |  | 1,189 |  |  | 9,613 |  |  | 17,077 |
Contract employment and outsourcing (c) |  | 240 |  |  | 3,681 |  |  | 1,270 |
Occupancy (d) |  | 1,453 |  |  | 5,236 |  |  | 15 |
Miscellaneous expense (e) |  | 2,072 |  |  | 7,652 |  |  | 1,291 |
All other expense (f) |  | 6,695 |  |  | 43,874 |  |  | 8,944 |
Total |  | $ | 22,870 |  |  | $ | 92,393 |  |  | $ | 56,748 |
(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. In first quarter 2018, FHN divested two branches, including approximately $30 million of deposits and $2 million of loans. The branches, both in Greeneville, Tennessee, were divested in connection with First Horizon's agreement with the U.S. Department of Justice and commitments to the Board of Governors of the Federal Reserve System, which were entered into in connection with a customary review of FHN's merger with CBF. In second quarter 2018, FHN sold approximately $120 million UPB of its subprime auto loans. These loans, originally acquired as part of the CBF acquisition, did not fit within FHN's risk profile. Based on the sales price, a measurement period adjustment to the acquisition-date fair value of the subprime auto loans was recorded in second quarter 2018. A measurement period adjustment was made in fourth quarter 2018 for other consumer loans acquired from CBF based on pricing information received from potential buyers. On April 3, 2017, FHN Financial (formerly FTN Financial or "FTNF") 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 FHN Financial’s existing SBA trading activities, have established an additional major product sector for FHN Financial. 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 April 3, 2017:
|  | Coastal Securities, Inc
|  | Purchase Accounting/
|  | As |  | Fair Value |  |
|  | Acquired |  | Adjustments |  | As recorded
(Dollars in thousands) |  | (unaudited) |  | (unaudited) |  | by FHN
Assets: |  |  |  |  |  |
Cash and cash equivalents |  | $ | 7,502 |  |  | $ | — |  |  | $ | 7,502 |
Interest-bearing cash |  | 4,132 |  |  | — |  |  | 4,132 |
Trading securities |  | 423,662 |  |  | (284,580 | ) |  | 139,082 |
Loans held-for-sale |  | — |  |  | 236,088 |  |  | 236,088 |
Investment securities |  | — |  |  | 1,413 |  |  | 1,413 |
Other intangible assets, net |  | — |  |  | 27,300 |  |  | 27,300 |
Premises and equipment, net |  | 1,229 |  |  | — |  |  | 1,229 |
Other assets |  | 1,658 |  |  | 14 |  |  | 1,672 |
Total assets acquired |  | $ | 438,183 |  |  | $ | (19,765 | ) |  | $ | 418,418 |
Liabilities: |  |  |  |  |  |
Securities sold under agreements to repurchase |  | $ | 201,595 |  |  | $ | — |  |  | $ | 201,595 |
Other short-term borrowings |  | 33,509 |  |  | — |  |  | 33,509 |
Fixed income payables |  | 143,647 |  |  | (47,158 | ) |  | 96,489 |
Other liabilities |  | 958 |  |  | (642 | ) |  | 316 |
Total liabilities assumed |  | 379,709 |  |  | (47,800 | ) |  | 331,909 |
Net assets acquired |  | $ | 58,474 |  |  | $ | 28,035 |  |  | 86,509 |
Consideration paid: |  |  |  |  |  |
Cash |  |  |  |  |  | (131,473 | )
Goodwill |  |  |  |  |  | $ | 44,964 |
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 (refer to Note 7 - Intangible Assets for additional information), and all of which is expected to be deductible for tax purposes. The goodwill is the result of adding an experienced workforce, establishing an additional major product sector for FHN Financial, expected synergies, and other factors. FHN's operating results for 2017 include the operating results of the acquired assets and assumed liabilities of Coastal subsequent to the acquisition on April 3, 2017. In addition to the transactions mentioned above, FHN acquires or divests assets from time to time in transactions that are considered business combinations or divestitures but are not material to FHN individually or in the aggregate. In April 2019, FHN sold a subsidiary acquired as part of the CBF acquisition that did not fit within FHN's risk profile. The sale resulted in the removal of approximately $25 million UPB of subprime consumer loans from Loans held-for-sale on FHN's Consolidated Statements of Condition.

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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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