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Section 1: 8-K/A

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

 

Form 8-K/A

 

 

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event Reported): November 30, 2017

 

First Horizon National Corporation
(Exact Name of Registrant as Specified in its Charter)

 

TENNESSEE 001-15185 62-0803242
(State or Other Jurisdiction of
Incorporation)
(Commission File Number) (I.R.S. Employer Identification
Number)

 

165 MADISON AVENUE, MEMPHIS, TENNESSEE 38103
(Address of Principal Executive Offices) (Zip Code)

 

(901) 523-4444
(Registrant’s telephone number, including area code)


(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

  o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
  o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
  o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
  o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

Explanatory Note

 

Effective November 30, 2017, pursuant to the Agreement and Plan of Merger, dated May 3, 2017, by and among First Horizon National Corporation, a Tennessee corporation (“First Horizon”), Capital Bank Financial Corp., a Delaware corporation (“Capital Bank Financial”), and Firestone Sub, Inc., a Delaware corporation and a direct, wholly-owned subsidiary of First Horizon (“Merger Sub”), Merger Sub merged with and into Capital Bank Financial (the “Merger”), with Capital Bank Financial as the surviving corporation in the Merger. Immediately after the Merger, Capital Bank Financial merged with and into First Horizon (the “Second Step Merger”, and together with the Merger, the “Mergers”), with First Horizon as the surviving corporation in the Second Step Merger.

 

On December 1, 2017, First Horizon filed a Current Report on Form 8-K (the “Original 8-K”) with the Securities and Exchange Commission (the “SEC”) to report the completion of the Mergers. This Amendment on Form 8-K/A is being filed by First Horizon to amend item 9.01 of the Original 8-K solely to present certain financial information in connection with the Mergers.

 

Item 9.01.       Financial Statements and Exhibits

 

(a)     Financial Statements of Business Acquired

 

The financial statements of Capital Bank Financial required by this Item 9.01(a) are filed as Exhibits 99.1- 99.2 to this Form 8-K/A and incorporated herein by reference.

 

(b)     Pro-Forma Financial Information

 

The pro forma financial information required by this Item 9.01(b) are filed as Exhibit 99.3 to this Form 8-K/A and incorporated herein by reference.

 

(d)     Exhibits

 

The following exhibits are filed herewith:

 

Exhibit # Description
   
23.1 Consent of Independent Registered Public Accounting Firm
   
99.1 Audited consolidated financial statements of Capital Bank Financial Corporation as of and for the year ended December 31, 2016 (incorporated by reference to the Annual Report on Form 10-K filed by Capital Bank Financial with the SEC on February 27, 2017. File No.:  001-35655).
   
99.2 Unaudited consolidated financial statements of Capital Bank Financial Corporation as of and for the three and nine months ended September 30, 2017 (incorporated by reference to the Quarterly Report on Form 10-Q filed by Capital Bank Financial with the SEC on November 7, 2017. File No.:  001-35655).
   
99.3 Unaudited pro forma condensed combined balance sheet of First Horizon National Corporation as of September 30, 2017 and unaudited pro forma condensed combined statements of income of First Horizon National Corporation for the year ended December 31, 2016 and for the nine months ended September 30, 2017, and the notes related thereto.
1

SIGNATURES

 

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

 

Date:  February 9, 2018 FIRST HORIZON NATIONAL CORPORATION
     
  By:   /s/ Jeff L. Fleming  
    Name:   Jeff L. Fleming  
    Title:     Executive Vice President and  
Chief Accounting Officer  
 
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Section 2: EX-23.1

 

Exhibit 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We consent to the incorporation by reference in this Current Report of First Horizon National Corporation on Form 8-K/A of our report dated February 24, 2017 relating to the consolidated financial statements appearing on Form 10-K of Capital Bank Financial Corp. for the year ended December 31, 2016.

 

 

 

/s/ Crowe Horwath LLP 

 

Crowe Horwath LLP

 

Fort Lauderdale, Florida

February 9, 2018

 

   

 

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Section 3: EX-99.3

Exhibit 99.3

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

The following pro forma condensed combined financial information combines the historical consolidated financial position and results of operations of First Horizon National Corporation (“First Horizon” or “FHN”) and its subsidiaries and Capital Bank Financial Corporation (“Capital Bank Financial” or “CBF”) and its subsidiaries, after giving effect to the acquisition by First Horizon of Capital Bank Financial (also referred to herein as the “merger”) using the acquisition method of accounting and giving effect to the related pro forma adjustments described in the accompanying notes. Under the acquisition method of accounting, the assets and liabilities of Capital Bank Financial are being recorded by First Horizon at their respective fair values as of November 30, 2017, the date the merger was completed. The pro forma condensed combined financial information should be read in conjunction with First Horizon’s Quarterly Report on Form 10-Q for the period ended September 30, 2017, and Annual Report on Form 10-K for the year ended December 31, 2016, and Capital Bank Financial’s Quarterly Report on Form 10-Q for the period ended September 30, 2017, and Annual Report on Form 10-K for the year ended December 31, 2016.

 

The merger was announced on May 4, 2017, and was completed on November 30, 2017. In the merger each outstanding share of Capital Bank Financial common stock (Class A Common Stock and Class B Non-Voting Common Stock), par value $0.01 per share, was canceled and converted into the right to receive either (i) $40.573 in cash (equal to the sum, rounded to the nearest one-tenth of a cent, of (A) $7.90 plus (B) the product of 1.75 multiplied by $18.67, which was the average of the closing sale prices of a share of First Horizon common stock on the New York Stock Exchange for the ten full trading days ending on the day preceding the closing date of the merger (the “First Horizon Share Closing Price”)), or (ii) 2.1732 shares of First Horizon common stock (the quotient of (A) the cash consideration as calculated above divided by (B) the First Horizon Share Closing Price) plus cash in lieu of fractional shares, subject to the procedures applicable to oversubscription for cash consideration.

 

The aggregate amount of cash consideration, excluding cash in lieu of fractional shares and cash paid for restricted shares of Capital Bank Financial, was $410,535,300, with approximately 10,118,435 shares of Capital Bank Financial common stock being converted into the right to receive the cash consideration and the remaining shares being converted into the right to receive the stock consideration. Based on the results of Capital Bank Financial stockholder elections of merger consideration, the cash consideration was oversubscribed. Accordingly, Capital Bank Financial stockholders who validly elected to receive the cash consideration received approximately 46 percent of the merger consideration payable to them in cash and approximately 54 percent in the form of First Horizon common stock. Accordingly, First Horizon issued an aggregate of 92,043,171 of its shares of common stock as merger consideration.

 

The pro forma condensed combined balance sheet gives effect to the merger as if the transaction had occurred on September 30, 2017. The pro forma condensed combined income statements for the nine months ended September 30, 2017 and the year ended December 31, 2016, give effect to the merger as if the transaction had become effective on January 1, 2016.

 

The pro forma condensed combined financial information is presented for illustrative purposes only and does not indicate the financial results of the combined company had the companies actually been combined at the beginning of each period presented, nor the impact of possible business model changes. The pro forma condensed combined financial information also does not consider any potential effects of changes in market conditions on revenues, expense efficiencies, asset dispositions and share repurchases, among other factors.

 

FIRST HORIZON NATIONAL CORPORATION AND CAPITAL BANK FINANCIAL CORPORATION

PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF CONDITION

 

   September 30, 2017
   First Horizon   Capital Bank Financial   Pro forma      Pro Forma 
(Dollars and shares in thousands)(Unaudited)  Historical   Historical   Adjustments   Ref  Combined 
Assets:                       
Cash and due from banks  $347,802   $97,372   $      $445,174 
Federal funds sold and securities purchased under agreements to resell   739,953               739,953 
Total cash and cash equivalents   1,087,755    97,372           1,185,127 
Interest-bearing cash   604,326    86,757    (484,746)  A   206,337 
Trading securities   1,469,402               1,469,402 
Loans held-for-sale   339,780    3,060    131,537   B   474,377 
Investment securities   3,973,138    1,605,296    (2,022)  C   5,576,412 
Loans, net of unearned income   20,166,091    7,609,528    (313,576)  D   27,462,043 
Less: Allowance for loan losses   194,867    45,428    (45,428)  E   194,867 
Total net loans   19,971,224    7,564,100    (268,148)      27,267,176 
Goodwill   236,335    231,292    908,203   F   1,375,830 
Other intangible assets, net   43,157    25,606    118,194   G   186,957 
Fixed income receivables   68,750               68,750 
Premises and equipment, net   293,393    198,360    37,053   H   528,806 
Real estate acquired by foreclosure   12,522    44,416    (9,149)  I   47,789 
Other assets   1,522,854    283,726    47,195  J   1,853,775 
Total assets  $29,622,636   $10,139,985   $478,117      $40,240,738 
                        
Liabilities and shareholders’ equity:                       
Deposits  $22,099,254   $8,129,862   $(1,031)  K  $30,228,085 
Federal funds purchased and securities sold under agreements to repurchase   809,517    34,552           844,069 
Trading liabilities   579,028               579,028 
Other short-term borrowings   1,637,419    440,799           2,078,218 
Term borrowings   1,059,507    118,929    68,240   L   1,246,676 
Fixed income payables   44,304               44,304 
Other liabilities   510,056    61,224    (1,236)  M   570,044 
Total liabilities   26,739,085    8,785,366    65,973       35,590,424 
Shareholders’ equity                       
Preferred stock   95,624               95,624 
Common stock   146,395    650    56,877   N   203,922 
Treasury stock, at cost       (312,384)   312,384   O    
Capital surplus   1,401,359    1,373,227    362,005   P   3,136,591 
Undivided profits   1,177,126    299,432    (325,428)  O,Q   1,151,130 
Accumulated other comprehensive (loss)/ income, net   (232,384)   (6,306)   6,306   O   (232,384)
Shareholders’ equity   2,588,120    1,354,619    412,144       4,354,883 
Noncontrolling interest   295,431               295,431 
Total equity   2,883,551    1,354,619    412,144       4,650,314 
Total liabilities and shareholders’ equity  $29,622,636   $10,139,985   $478,117      $40,240,738 
Common shares outstanding   234,231    52,027    40,016   R   326,274 
Book value per common share  $11.05   $26.04           $13.35 

 

See accompanying notes to unaudited pro forma combined condensed consolidated financial statements.

 

FIRST HORIZON NATIONAL CORPORATION AND CAPITAL BANK FINANCIAL CORPORATION

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME

 

   Nine Months Ended September 30, 2017
(Dollars in thousands except per share data)/(Unaudited)  First Horizon
National
Corporation (FHN)
(As reported) **
   1Q 2017
Coastal
Securities, Inc.
(Coastal)
   1Q 2017
Coastal
Proforma
Adjustments
   Ref  Proforma
FHN including
Coastal
   Capital Bank
Financial Corporation
(Capital Bank Financial)
(As reported)
   Capital Bank
Financial Corporation
Proforma
Adjustments
   Ref  Proforma
FHN including
Coastal and
Capital Bank Financial
 
Interest income:                                         
Interest and fees on loans  $578,264   $   $      $578,264   $258,663   $1,622   W  $838,549 
Interest on investment securities   77,327               77,327    29,739    4,149   X   111,215 
Interest on loans held-for-sale   10,916    7,440           18,356               18,356 
Interest on trading securities   24,033               24,033               24,033 
Interest on other earning assets   11,757               11,757    1,532           13,289 
Total interest income   702,297    7,440           709,737    289,934    5,771       1,005,442 
Interest expense:                                         
Interest on deposits   55,642               55,642    25,743    1,254   Y   82,639 
Interest on trading liabilities   11,282               11,282               11,282 
Interest on short-term borrowings   9,293    2,929           12,222    3,777           15,999 
Interest on long-term debt   25,854               25,854    7,140    (1,469)  Z   31,525 
Total interest expense   102,071    2,929           105,000    36,660    (215)      141,445 
Net interest income   600,226    4,511           604,737    253,274    5,986       863,997 
Provision/(provision credit) for loan losses   (3,000)              (3,000)   8,737           5,737 
Net interest income after provision/(provision credit) for loan losses   603,226    4,511           607,737    244,537    5,986       858,260 
Noninterest income:                                         
Fixed income   161,546    12,259           173,805               173,805 
Deposit transactions and cash management   80,434               80,434    15,923           96,357 
Brokerage, management fees and commissions   35,872               35,872               35,872 
Trust services and investment management   21,304               21,304    1,774           23,078 
All other income and commissions   57,873               57,873    28,928           86,801 
Total noninterest income   357,029    12,259           369,288    46,625           415,913 
Adjusted gross income after provision for loan losses   960,255    16,770           977,025    291,162    5,986       1,274,173 
Noninterest expense:                                         
Employee compensation, incentives and benefits   411,818    7,617    375   S   419,810    86,841           506,651 
Occupancy   38,759    249           39,008    16,228    (166)  AA   55,070 
Computer software   35,077               35,077    7,759           42,836 
Operations services   33,204    694           33,898    11,947           45,845 
Equipment rentals, depreciation, and maintenance   20,013    98           20,111    10,484    1,524   BB   32,119 
Amortization of intangible assets   5,160        439   T   5,599    4,992    8,367   CC   18,958 
Repurchase and foreclosure provision/(provision credit)   (22,580)              (22,580)              (22,580)
All other expense   155,540    1,400    (15)  U   156,925    42,421    (6,167)  DD   193,179 
Total noninterest expense   676,991    10,058    799       687,848    180,672    3,558      872,078 
Income before income taxes   283,264    6,712    (799)      289,177    110,490    2,428       402,095 
Provision/(benefit) for income taxes   57,903        2,263   V   60,166    40,043    929   EE   101,138 
Net income/(loss)   225,361    6,712    (3,062)      229,011    70,447    1,499       300,957 
Net income attributable to noncontrolling interest   8,555               8,555               8,555 
Net income attributable to controlling interest   216,806    6,712    (3,062)      220,456    70,447    1,499       292,402 
Preferred stock dividends   4,650               4,650               4,650 
Net income/(loss) available to common shareholders  $212,156   $6,712   $(3,062)     $215,806   $70,447   $1,499      $287,752 
Earnings per common share  $0.91    N/A    N/A      $0.92   $1.36   $0.04      $0.88 
Diluted earnings per common share  $0.90    N/A    N/A      $0.91   $1.32   $0.04      $0.88 
Weighted average common shares   233,438               233,438    51,674    40,369   FF   325,481 
Diluted average common shares   236,372               236,372    53,204    39,218   FF   328,794 

 

See accompanying notes to unaudited pro forma combined condensed consolidated financial statements.

** Includes results for Coastal Securities, Inc. subsequent to the acquisition on April 3, 2017.

 

FIRST HORIZON NATIONAL CORPORATION AND CAPITAL BANK FINANCIAL CORPORATION

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME

 

   Year Ended December 31, 2016 
(Dollars in thousands except per share data)/(Unaudited)  First Horizon
National
Corporation (FHN)
(As reported)
   Coastal
Securities, Inc.
(Coastal)
   Coastal
Proforma
Adjustments
   Ref  Proforma
FHN including
Coastal
   Capital Bank
Financial Corporation
(Capital Bank Financial)
(As reported)
   Capital Bank
Financial
Proforma
Adjustments
   Ref  Proforma
FHN including
Coastal and
Capital Bank Financial
 
Interest income:                                         
Interest and fees on loans  $679,917   $   $      $679,917   $268,159   $16,068   W  $964,144 
Interest on investment securities   97,460               97,460    27,763    4,863   X   130,086 
Interest on loans held-for-sale   5,506    30,322           35,828               35,828 
Interest on trading securities   30,779               30,779               30,779 
Interest on other earning assets   4,247               4,247    1,804           6,051 
 Total interest income   817,909    30,322           848,231    297,726    20,931       1,166,888 
Interest expense:                                         
Interest on deposits   39,986               39,986    25,325    777   Y   66,088 
Interest on trading liabilities   15,000               15,000               15,000 
Interest on short-term borrowings   4,736    10,751           15,487    2,342           17,829 
Interest on long-term debt   29,103               29,103    6,731    (1,081)  Z   34,753 
 Total interest expense   88,825    10,751           99,576    34,398    (304)      133,670 
Net interest income   729,084    19,571           748,655    263,328    21,235       1,033,218 
Provision for loan losses   11,000               11,000    5,113           16,113 
Net interest income after provision for loan losses    718,084    19,571           737,655    258,215    21,235       1,017,105 
Noninterest income:                                         
Fixed income   268,561    42,178           310,739               310,739 
Deposit transactions and cash management   108,553               108,553    20,023           128,576 
Brokerage, management fees and commissions   42,911               42,911               42,911 
Trust services and investment management   27,727               27,727    1,833           29,560 
All other income and commissions   104,689               104,689    22,018           126,707 
 Total noninterest income    552,441    42,178           594,619    43,874           638,493 
Adjusted gross income after provision for loan losses    1,270,525    61,749           1,332,274    302,089    21,235       1,655,598 
Noninterest expense:                                         
Employee compensation, incentives and benefits   562,948    32,682    1,500   S   597,130    91,475           688,605 
Occupancy   50,880    994           51,874    17,817    (338)  AA   69,353 
Computer software   45,122               45,122    8,375           53,497 
Operations services   41,852    3,226           45,078    14,366           59,444 
Equipment rentals, depreciation, and maintenance   27,385    446           27,831    12,955    2,032   BB   42,818 
Amortization of intangible assets   5,198        1,701   T   6,899    4,262    14,263   CC   25,424 
Repurchase and foreclosure provision/(provision credit)   (32,722)              (32,722)              (32,722)
All other expense   224,541    2,452    (229)  U   226,764    63,748           290,512 
 Total noninterest expense   925,204    39,800    2,972       967,976    212,998    15,957       1,196,931 
Income before income taxes    345,321    21,949    (2,972)      364,298    89,091    5,278       458,667 
Provision/(benefit) for income taxes   106,810        7,264   V   114,074    30,927    2,020   EE   147,021 
Net income/(loss)   238,511    21,949    (10,236)      250,224    58,164    3,258       311,646 
Net income attributable to noncontrolling interest   11,465               11,465               11,465 
Net income attributable to controlling interest   227,046    21,949    (10,236)      238,759    58,164    3,258       300,181 
Preferred stock dividends   6,200               6,200               6,200 
Net income/(loss) available to common shareholders   $220,846   $21,949   $(10,236)     $232,559   $58,164   $3,258      $293,981 
Earnings per common share   $0.95    N/A    N/A      $1.00   $1.30   $0.07      $0.91 
Diluted earnings per common share   $0.94    N/A    N/A      $0.99   $1.28   $0.07      $0.89 
Weighted average common shares    232,700               232,700    44,620    47,423   FF   324,743 
Diluted average common shares    235,292               235,292    45,513    49,466   FF   330,271 

 

See accompanying notes to unaudited pro forma combined condensed consolidated financial statements.

 

Note 1-Basis of Presentation

 

The unaudited pro forma condensed combined financial information and explanatory notes have been prepared to illustrate the effects of the merger involving First Horizon and Capital Bank Financial under the acquisition method of accounting with First Horizon treated as the acquirer. The unaudited pro forma condensed combined 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. Under the acquisition method of accounting, the assets and liabilities of Capital Bank Financial, as of the effective date of the merger, will generally be recorded by First Horizon at their respective fair values with the excess of purchase price over the acquired net assets allocated to goodwill.

 

On April 3, 2017, First Horizon’s Fixed Income business, FTN Financial, completed the acquisition of substantially all of the assets and the assumption of substantially all of the liabilities of Coastal Securities, Inc. (“Coastal”) for approximately $136 million in cash, inclusive of $5.0 million attributable to a prepaid employment agreement. The operating results of Coastal are included in First Horizon’s consolidated numbers subsequent to the acquisition. Pro forma adjustments have been made to the income statements, as necessary, for periods prior to the acquisition.

 

The merger of First Horizon and Capital Bank Financial, which closed on November 30, 2017, provides for Capital Bank Financial common shareholders to receive either (i) $40.573 in cash (equal to the sum, rounded to the nearest one-tenth of a cent, of (A) $7.90 plus (B) the product of 1.75 multiplied by $18.67, which was the average of the closing sale prices of a share of First Horizon common stock on the New York Stock Exchange for the ten full trading days ending on the day preceding the closing date of the merger (the “First Horizon Share Closing Price”)), or (ii) 2.1732 shares of First Horizon common stock (the quotient of (A) the cash consideration as calculated above divided by (B) the First Horizon Share Closing Price) plus cash in lieu of fractional shares, subject to the procedures applicable to oversubscription for cash consideration.

 

The aggregate amount of cash consideration, excluding cash in lieu of fractional shares and cash paid for restricted shares of Capital Bank Financial, was $410,535,300, with approximately 10,118,435 shares of Capital Bank Financial common stock being converted into the right to receive the cash consideration and the remaining shares being converted into the right to receive the stock consideration. Based on the results of Capital Bank Financial stockholder elections of merger consideration, the cash consideration was oversubscribed. Accordingly, Capital Bank Financial stockholders who validly elected to receive the cash consideration received approximately 46 percent of the merger consideration payable to them in cash and approximately 54 percent in the form of First Horizon common stock. Accordingly, First Horizon issued an aggregate of 92,043,171 of its shares of common stock as merger consideration.

 

The accounting policies of both First Horizon and Capital Bank Financial are in the process of being reviewed in detail. Upon completion of such review, conforming adjustments or financial statement reclassification may be determined. 

 

Note 2-Preliminary Purchase Price Allocation for Capital Bank Financial

 

The pro forma adjustments for Capital Bank Financial include the estimated acquisition accounting entries to record the merger transaction. The excess of the purchase price over the acquisition accounting value of net assets acquired, net of deferred taxes, is allocated to goodwill. Estimated fair value adjustments included in the pro forma condensed combined financial statements are based upon available information and certain assumptions considered reasonable, and may be subject to change as additional information becomes available.

 

Provisional core deposits intangible assets (“CDI”) of $143.8 million resulting from the Capital Bank Financial merger have been recorded separately from goodwill and have been amortized using a moderate accelerated methodology supported by high estimated retention rates for non-interest bearing, interest bearing, money market and savings accounts on which CDI is based. Provisional goodwill totaling $1.1 billion resulting from the Capital Bank Financial merger is included in the pro forma adjustments and is not subject to amortization.

 

The preliminary purchase price allocation is as follows:

 

(Dollars in thousands, except per share amounts)

Pro forma Purchase Price      
Cash consideration:         
Fixed component (per the Merger agreement)  $410,535      
Restricted shares paid at closing, cash in lieu payments, and equity issuance costs   13,057      
Cash portion of purchase price       $423,592 
           
Capital Bank Financial shares outstanding (November 30, 2017)   52,473      
Exchange ratio   1.75      
Total First Horizon common shares issued   92,043      
First Horizon’s share price (as of November 30, 2017)  $19.39      
Calculated equity portion of purchase price   1,784,717      
Converted options   9,025      
Equity issuance costs   (983)     
Equity portion of purchase price        1,792,759 
Total estimated consideration       $2,216,351 
           
Capital Bank Net Assets at Fair Value applying November 30, 2017 purchase price adjustments to September 30, 2017 balances          
Assets acquired:          
Cash and cash equivalents       $97,372 
Interest-bearing cash        62,367 
Loans held-for-sale        134,597 
Investment securities        1,603,274 
Loans, net of unearned income        7,295,952 
Other intangible assets        143,800 
Premises and equipment        235,413 
Real estate acquired by foreclosure        35,267 
Other assets        320,153 
Total assets acquired       $9,928,195 
Liabilities assumed:          
Deposits       $8,128,831 
Securities sold under agreements to repurchase        34,552 
Other short-term borrowings        440,799 
Term borrowings        187,169 
Other liabilities        59,988 
Total liabilities assumed       $8,815,339 
Net assets acquired        1,076,856 
           
Preliminary pro forma goodwill       $1,139,495 

 

Note 3-Pro Forma Adjustments

 

The following pro forma adjustments have been reflected in the unaudited pro forma combined condensed financial information. All taxable adjustments were calculated using a 38.28 percent tax rate to arrive at deferred tax asset or liability adjustments. All adjustments are based on current assumptions and valuations, which are subject to change.

 

  A. Adjustments to interest-bearing cash to reflect estimated cash of $423.6 million used to purchase Capital Bank Financial and $61.2 million of contractually obligated merger costs.
     
  B. Adjustments to classify loans held-for-sale.
     
  C. Adjustments to investment securities to reflect estimated fair value of acquired securities.
     
  D. Adjustments to Loans, net of unearned income to reflect estimated fair value adjustments, which include credit deterioration, current interest rates and liquidity, to acquired loans. Also includes a reduction of $131.5 million of loans reclassified as held-for-sale.
     
  E. Elimination of Capital Bank Financial’s existing Allowance for loan losses. Purchased loans in a business combination are recorded at estimated fair value on the purchase date and the carryover of the related allowance for loan losses is prohibited.
     
  F. Adjustments to Goodwill to eliminate $231.3 million of Capital Bank Financial goodwill at merger date and to record estimated goodwill associated with the merger of $1.1 billion.
     
  G. Adjustments to Other intangible assets to eliminate $25.6 million of Capital Bank Financial other intangible assets and to record estimated core deposit intangible assets associated with the merger of $143.8 million.
     
  H. Adjustments to Premises and equipment to reflect estimated fair value of acquired tangible assets.
     
  I. Adjustments to Real estate acquired by foreclosure to reflect estimated fair value of acquired foreclosed assets.
     
  J. Adjustments to other assets to record a net deferred tax asset for the effects of the acquisition accounting adjustments of approximately $27 million, a $15.3 million tax receivable associated with contractually obligated merger costs, and other reclassifications.
     
  K. Adjustments to deposits to reflect estimated fair value of acquired interest-bearing deposits.
     
  L. Adjustments to Term borrowings of $87.1 million to eliminate Capital Bank Financial’s remaining discount on acquired trust preferred debt, $25.2 million to reflect estimated fair value of acquired debt and other reclassifications.
     
  M. Adjustments to Other liabilities to eliminate $5.2 million of Capital Bank Financial other liabilities primarily related to deferred rent and acquired lease intangibles and to record estimated other liabilities associated with the merger of $8.6 million. Also includes a reduction of taxes payable for $4.6 million related to the tax effect of restricted shares paid in cash at closing.
     
  N. Adjustments to FHN Common shares to eliminate Capital Bank Financial common stock of $.7 million par value and record the issuance of FHN common shares to Capital Bank Financial shareholders of $57.5 million par value.
     
  O. Adjustments to eliminate remaining Capital Bank Financial equity balances of $19.3 million.
     
  P. Adjustments to Capital surplus to eliminate Capital Bank Financial capital surplus of $1.4 billion and record the issuance of FHN common shares in excess of par value to Capital Bank Financial shareholders of $1.7 billion. Additionally, includes increase in capital surplus of $9.0 million related to conversion and re-measurement of Capital Bank Financial stock options to FHN stock options and $1.0 million of transaction costs directly associated with the share issuance which is reflected as reduction of proceeds.
     
  Q. Adjustment to Undivided profits to reflect contractually obligated after-tax merger costs of $26.0 million.
     
  R. Adjustments to FHN’s common shares outstanding to eliminate Capital Bank Financial’s common stock outstanding of 52.0 million and record FHN common shares of 92.0 million.
     
  S. Net increase in Employee compensation, incentives, and benefits of $.4 million for the nine months ended September 30, 2017 and $1.5 million for the year ended December 31, 2016 to recognize compensation expense for employment agreements specific to the acquisition with durations greater than twelve months.
 
  T. Increase in Amortization of intangible assets of $.4 million for the nine months ended September 30, 2017 and $1.7 million for the year ended December 31, 2016 to record estimated amortization expense of acquired other intangible assets of Coastal.
     
  U. Decrease in All other expense to remove Coastal transaction related costs of $.2 million for the year ended December 31, 2016. An immaterial amount of transaction-related costs for the nine months ended September 30, 2017 were also removed.
     
  V. Increase in Provision for income taxes of $2.3 million for the nine months ended September 30, 2017 and $7.3 million for the year ended December 31, 2016 to conform tax provision to the estimated effective rate for the combined entity (Coastal was a historical pass-through entity) and to record the income tax effect of pro forma adjustments at the incremental tax rate of 38.28 percent.
     
  W. Net increase in Interest and fees on loans of $1.6 million for the nine months ended September 30, 2017 and $16.1 million for the year ended December 31, 2016 to eliminate Capital Bank Financial’s amortization of premiums and accretion of discounts on previously acquired loans and to record estimated amortization of premiums and accretion of discounts on acquired loans of Capital Bank Financial.
     
  X. Net increase in Interest on investment securities of $4.1 million for the nine months ended September 30, 2017 and $4.9 million for the year ended December 31, 2016 to remove amortization of premium from Capital Bank Financial’s investment securities and to record estimated amortization of discount on acquired securities of Capital Bank Financial.
     
  Y. Net increase in Interest on deposits of $1.3 million for the nine months ended September 30, 2017 and $.8 million for the year ended December 31, 2016 to eliminate Capital Bank Financial’s amortization of premiums and accretion of discounts on previously acquired deposits and record estimated amortization of premiums and accretion of discounts on acquired deposits of Capital Bank Financial.
     
  Z. Net decrease in Interest on long-term debt of $1.5 million for the nine months ended September 30, 2017 and $1.1 million for the year ended December 31, 2016 to eliminate Capital Bank Financial’s accretion of discounts on previously acquired junior subordinated debt and record estimated accretion of discounts on acquired junior subordinated debt of Capital Bank Financial.
     
  AA. Decrease in Occupancy expense of $.2 million for the nine months ended September 30, 2017 and $.3 million for the year ended December 31, 2016 to eliminate Capital Bank Financial’s amortization on previously acquired lease intangibles and record estimated amortization on acquired lease intangibles of Capital Bank Financial.
     
  BB. Net increase in Equipment rentals, depreciation, and maintenance of $1.5 million for the nine months ended September 30, 2017 and $2.0 million for the year ended December 31, 2016 to record depreciation related to estimated fair value marks for Capital Bank Financial’s tangible assets.
     
  CC. Net increase in Amortization expense of $8.4 million for the nine months ended September 30, 2017 and $14.3 million for the year ended December 31, 2016 to eliminate Capital Bank Financial’s amortization expense on other intangible assets and record estimated amortization expense of acquired other intangible assets. See Note 2 for additional information regarding FHN’s amortization of acquired other intangible assets related to the Capital Bank Financial acquisition.
     
  DD. Decrease in All other expense to remove Capital Bank Financial transaction related costs of $6.2 million for the nine months ended September 30, 2017.
     
  EE. Increase in Provision for income taxes of $.9 million for the nine months ended September 30, 2017 and $2.0 million for the year ended December 31, 2016 to record the income tax effect of Capital Bank Financial pro forma adjustments at the incremental tax rate of 38.28 percent.
     
  FF. Adjustments to weighted-average FHN common shares outstanding to eliminate Capital Bank Financial weighted average common shares outstanding and record FHN common shares outstanding.
 

Note 4-Estimated Cost Savings and Merger Integration Costs

 

First Horizon expects to realize approximately $85 million in annual pre-tax cost savings following the merger. The estimated cost savings are expected to be 50 percent realized in the run-rate within fiscal year 2018 and fully realized during fiscal year 2019 and are excluded from this pro forma analysis.

 

Merger- and integration-related costs are not included in the pro forma combined statements of income since they will be recorded in the combined results of income as they are incurred prior to, or after completion of, the merger and are not indicative of what the historical results of the condensed combined company would have been had the companies been actually combined during the periods presented. Merger- and integration-related costs are estimated to be $115 million pre-tax.

 

Note 5-Divestiture of Capital Bank Financial and/or First Tennessee Bank Branches

 

On November 17, 2017, First Horizon and Capital Bank Financial announced that they had reached an agreement with Apex Bank, a Tennessee banking corporation, to sell two branches in Greene County, Tennessee. Apex Bank’s purchase includes both branches slated for divestiture under First Horizon’s agreement with the United States 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 First Horizon’s merger with Capital Bank Financial.

 
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