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. 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				(8,659		)	125,344
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		)		1,064			7,276,741
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				(846		)	232,506
OREO	43,077			(9,149		)		(362		)	33,566
Other assets	617,232			41,320			(c)	433			658,985
Total assets acquired	$	10,068,908		$	(190,204	)		$	(10,963	)	$	9,867,741

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				1,345			65,631
Total liabilities assumed	8,738,129			71,125				703			8,809,957
Net assets acquired	$	1,330,779		$	(261,329	)		$	(11,666	)	1,057,784
Consideration paid:
Equity											(1,792,741		)
Cash											(423,592		)
Total consideration paid											(2,216,333		)
Goodwill											$	1,158,549

(a) Amounts reflect adjustments made to provisional fair value estimates based on information received during the three

months ended March 31, 2018. These updated estimates were recorded in FHN's Consolidated Condensed Statement of

Condition as of March 31, 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 not yet 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, OREO, other assets, tax receivables and payables, core deposit intangibles, other potential intangibles, time deposits, 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 permanent and temporary (timing) 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 are expected to be substantially complete within 2018.

Total CBF merger and integration expense recognized for the three months ended March 31, 2018 are presented in the table below:



(Dollars in thousands)
Professional fees (a)	$	5,632
Employee compensation, incentives and benefits (b)	3,946
Contract employment and outsourcing (c)	1,399
Miscellaneous expense (d)	2,042
All other expense (e)	17,041
Total	$	30,060

(a) Primarily comprised of fees for legal, accounting, and merger consultants.

(b) Primarily comprised of fees for severance and retention.

(d) Consists of fees for communications and courier, operations services, equipment rentals, depreciation, and maintenance,

supplies, travel and entertainment, computer software, advertising and public relations, and occupancy.

(e) Primarily relates to contract termination charges, lease buyouts, costs of shareholder matters and asset impairments related to the integration, as well as other miscellaneous expenses.

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.

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, securitization, and analysis of Small Business Administration (“SBA”) loans, for approximately $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 aquisition 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.