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 resolution 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. FHN recorded goodwill of approximately $1.2 billion, representing the excess of acquisition consideration over the estimated fair value of net assets acquired.

On March 23, 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.

See Note 2- Acquisitions and Divestitures in the Notes to Consolidated Financial Statements on Form 10-K for the year ended December 31, 2018, for additional information about the CBF acquisition and other acquisitions.

Expenses related to FHN's merger and integration activities are recorded in FHN's Corporate segment.

Total merger and integration expense recognized for the three months ended March 31, 2019 and 2018 are presented in the table below:



	Three Months Ended March 31
(Dollars in thousands)	2019		2018
Professional fees (a)	$	1,867	$	5,633
Employee compensation, incentives and benefits (b)	1,517		5,237
Contract employment and outsourcing (c)	—		1,399
Miscellaneous expense (d)	1,187		2,064
All other expense (e)	1,089		17,041
Total	$	5,660	$	31,374

(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.

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 Superior Financial Services, Inc., a subsidiary acquired as part of the CBF acquisition. The sale will result in the removal of approximately $25 million UPB of subprime consumer loans from Loans held-for-sale on FHN's Consolidated Condensed Statements of Condition.