UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 13, 2020
First Horizon National Corporation
(Exact name of registrant as specified in its charter)
| TN (State of incorporation) |
001-15185 (Commission File Number) |
62-0803242 (I.R.S. Employer Identification No.) |
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:
| x | 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)) |
| Title of each class | Trading Symbol(s) |
Name
of each exchange on which registered | ||
| $0.625 Par Value Common Capital Stock | FHN | New York Stock Exchange LLC | ||
| Depositary Shares, each representing a 1/4,000th interest in a share of Non-Cumulative Perpetual Preferred Stock, Series A | FHN PR A | New York Stock Exchange LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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
In light of the impact of the ongoing pandemic of the novel strain of coronavirus (COVID-19) on global financial markets and economic conditions and the businesses and results of operations of each of First Horizon National Corporation (“First Horizon”) and IBERIABANK Corporation (“IBKC”), this Current Report on Form 8-K (this “Form 8-K”) is being filed to update and supplement certain of the risk factors and the unaudited pro forma condensed combined financial information of First Horizon and IBKC for the year ended December 31, 2019 and related disclosures included in the joint proxy statement/prospectus (the “joint proxy statement/prospectus”), (1) included in the Registration Statement on Form S-4 (File No. 333- 235757), dated December 31, 2019, as amended by Amendment No. 1, dated February 10, 2020, Amendment No. 2, dated March 9, 2020 and Amendment No. 3, dated March 17, 2020, filed by First Horizon with the Securities and Exchange Commission (the “SEC”), and declared effective by the SEC on March 19, 2020, (2) filed by First Horizon with the SEC as a prospectus on March 19, 2020, (3) filed by IBKC with the SEC as a definitive proxy statement on Schedule 14A (File No. 001-37532), on March 19, 2020 and (4) mailed by First Horizon and IBKC to their respective stockholders on or about March 25, 2020.
| Item 8.01. | Other Events |
SUPPLEMENT TO THE JOINT PROXY STATEMENT/PROSPECTUS
This Form 8-K updates and supplements the joint proxy statement/prospectus. The information contained in this Form 8-K is incorporated by reference into the joint proxy statement/prospectus. Terms used in this Form 8-K, but not otherwise defined, shall have the meanings ascribed to such terms in the joint proxy statement/prospectus.
The supplemental information contained in this Form 8-K should be read in conjunction with the joint proxy statement/prospectus, which should be read in its entirety. To the extent that information in this Form 8-K differs from or updates information contained in the joint proxy statement/prospectus, the information in this Form 8-K shall supersede or supplement the information in the joint proxy statement/prospectus.
If you have not already submitted a proxy for use at the First Horizon special meeting or the IBKC special meeting, as applicable, you are urged to do so promptly. This Form 8-K does not affect the validity of any proxy card or voting instructions that First Horizon or IBKC stockholders may have previously received or delivered following the distribution of the applicable prospectus/proxy statement. No action is required by any First Horizon stockholder or IBKC stockholder who has previously delivered a proxy or voting instructions and who does not wish to revoke or change that proxy or voting instructions.
Risk Factors
The following risk factors supplement and update the risk factors described under the “Risk Factors” section of the joint proxy statement/prospectus. These risk factors should be read in conjunction with the risk factors described in the joint proxy statement/prospectus.
1. The recent global COVID-19 pandemic has coincided with periods of significant volatility in financial, commodities (including oil and gas) and other markets, has adversely affected each of FHN’s and IBKC’s ability to conduct normal business, has adversely affected FHN and IBKC customers, and is likely to harm the businesses and future results of operations of each of FHN and IBKC, as well as the combined company following the completion of the merger.
In December 2019, a coronavirus (COVID-19) was reported in China, and has since spread to most countries in the world, including the United States. Starting in late February 2020, financial market volatility increased dramatically based on concerns that COVID-19, and the steps being undertaken in many countries to mitigate its spread, would significantly disrupt economic activity.
In March 2020, financial market volatility increased further, with several one-day stock market swings that caused significant market declines. Additionally, in March: market pricing deteriorated in virtually all sectors and asset classes except U.S. Treasury securities; the World Health Organization declared COVID-19 to be a pandemic; the
U.S. President declared the COVID-19 pandemic to be a national emergency, allowing several federal disaster programs to be accessed by states and cities; many states and cities in the U.S. declared health emergencies, lockdowns, travel restrictions, and quarantines, prohibiting gatherings of more than a small number of people and ordering or urging most businesses and workplaces to close or operate on a very restricted basis; the Federal Reserve lowered short-term interest rates twice and started a “quantitative easing” program intended to lower longer-term interest rates and foster access to credit; the effective yields of 10-year and 30-year U.S. Treasury securities achieved record low rates; and the U.S. Congress enacted relief legislation which, among other things, is intended to provide emergency credit to businesses at financial risk and to mitigate an economic recession which has not been officially measured or declared but is widely believed to have begun in March.
The economic effects of these and related actions and events in the U.S. have included: large numbers of partial or full business closures; large numbers of people being furloughed or laid off; large increases in unemployment; large numbers of workers being partially or wholly ordered to work from home; large numbers of businesses at risk of insolvency as revenues drop off precipitously, especially in businesses related to travel, hospitality, leisure, and physical personal services; large numbers of investors realizing substantial losses in their portfolios and retirement funds; and large numbers of consumers being unwilling to undertake significant discretionary spending. In addition, worldwide demand for oil has fallen sharply in conjunction with the pandemic, which has been coupled with an effort by certain oil-producing countries to increase supply, resulting in a sharp drop in oil prices and a sharp drop in the values of oil-related assets. Further, certain banking organizations globally have limited share buybacks and other capital actions.
Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the impact of the COVID-19 pandemic on the businesses of FHN, IBKC and the combined company for the remainder of 2020 or afterward. The efforts of FHN, IBKC and the combined company to mitigate the adverse impacts of COVID-19 may not be effective, and in any case are likely to only be a partial mitigant. The full extent of impacts resulting from the COVID-19 pandemic and other events beyond the control of FHN, IBKC and the combined company will depend on future developments, which are highly uncertain and unpredictable, including new information which may emerge concerning the severity of the pandemic and further action, including governmental, regulatory, banking supervisory and other federal, state and local actions, taken to prevent, treat, or mitigate the spread of COVID-19, among others. Moreover, global markets for oil and gas have been, and may continue to be, severely impacted by events beyond the control of FHN, IBKC or the combined company. The current low commodity prices, especially if sustained, could have a negative impact on the economies of several states in which IBKC and FHN conduct business, as well as FHN’s and IBKC’s customers, businesses and assets in those states.
In addition, the COVID-19 pandemic could result in business disruption to FHN, IBKC and the combined company, and if unable to recover from such a business disruption on a timely basis, the businesses, financial condition, and results of operations of FHN, IBKC and the combined company would be adversely affected. The efforts to integrate the businesses of IBKC and those of FHN may also be delayed and adversely affected by the COVID-19 pandemic, and become more costly. FHN, IBKC and the combined company may also incur additional costs to remedy damages caused by such disruptions, which could adversely affect their respective financial condition and results of operations.
2. Changes in interest rates due to Federal Reserve actions and market forces, mentioned above, are likely to negatively impact the net interest margin (a measure of the average profit margin applicable to lending) of FHN, IBKC and the combined company. In addition, “spreads” (the difference between U.S. Treasury borrowing rates and private sector borrowing rates) have widened. For new loans, wider spreads should help mitigate net interest margin compression. However, each of FHN, IBKC and the combined company will not be able to capture the widened spreads quickly for outstanding floating-rate loans: for loans pre-dating the COVID-19 crisis, spreads are fixed by the loan contracts based on pre-COVID pricing.
3. The customers of FHN and IBKC have been, and will likely continue to be, adversely impacted by governmental and societal responses to COVID-19; those impacts are likely to create downward loan migration (a reduction in loan-grading) and a corresponding increase in loan loss expense and reserves for each of FHN, IBKC and the
combined company, as well as adversely affect noninterest income. In addition, loan charge-offs likely will increase over time, especially if economic disruption related to COVID-19 continues for more than a few months.
4. In the U.S., initial government responses to the COVID-19 pandemic were intended mainly to slow the spread of illness, regardless of the impact on economic activity. As governments relax restrictions in an effort re-invigorate the economy, it is not clear how well or how quickly the economy will recover. Substantial uncertainty regarding COVID-19, and the resulting economic damage, likely will continue until a substantial percentage of the population no longer fears contracting it.
Updated Unaudited Pro Forma Condensed Combined Financial Statements and Related Disclosures
As a supplement to the joint proxy statement/prospectus, FHN is providing updates to the “SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA”, “COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA” and “UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS” disclosures included in the joint proxy statement/prospectus to reflect updated estimates to the December 31, 2019 unaudited pro forma condensed combined financial statements (“Updated Pro Forma Financials and Related Disclosures”). The estimates included in Updated Pro Forma Financials and Related Disclosures are different than those included in the joint proxy statement/prospectus, and reflect both a change in the assumption related to closing share price (from $13.33 as of February 28, 2020 to $8.06 as of March 31, 2020) and a change in the valuation assumptions applied to the fair value assigned to the acquired assets and liabilities (using market inputs through March 31, 2020 applied to the December 31, 2019 values). This information is presented for illustrative purposes only and is dependent upon various inputs and assumptions that are subject to change. The Updated Pro Forma Financials and Related Disclosures are set forth in the attached Exhibit 99.1.
| Item 9.01. | Financial Statements and Exhibits. |
(b) Unaudited pro forma financial information.
The unaudited pro forma condensed combined financial statements and explanatory notes for First Horizon as of December 31, 2019, for the year ended December 31, 2019 and related disclosures are being filed as Exhibit 99.1 (Updated Pro Forma Financials and Related Disclosures) and such exhibit is incorporated by reference herein.
| (d) | Exhibits |
| Exhibit No. | Description of Exhibit | |
| 99.1 | Updated Pro Forma Financials and Related Disclosures | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
Forward-Looking Statements
This Form 8-K, the proxy statement and the documents that we incorporate by reference therein contain certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to First Horizon and IBKC beliefs, plans, goals, expectations, and estimates. Forward-looking statements are not a representation of historical information, but instead pertain to future operations, strategies, financial results or other developments. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “should,” “is likely,” “will,” “going forward” and other expressions that indicate future events and trends identify forward-looking statements.
Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, operational, economic and competitive uncertainties and contingencies, many of which are beyond the control of First Horizon and IBKC, and many of which, with respect to future business decisions and actions, are subject to change and which could cause actual results to differ materially from those contemplated or implied by forward-looking statements or historical performance. Examples of uncertainties and contingencies include factors previously disclosed in First Horizon’s and IBKC’s respective reports filed with the SEC, as well as the following factors, among others: the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the definitive merger agreement between First Horizon and IBKC; the outcome of any legal proceedings that may be instituted against First Horizon or IBKC; the possibility that the proposed transaction will not close when expected or at all because required regulatory, shareholder or other approvals are not received or other conditions to the closing are not satisfied on a timely basis or at all, or are obtained subject to conditions that are not anticipated; the risk that any announcements relating to the proposed combination could have adverse effects on the market price of the common stock of either or both parties to the combination; the possibility that the anticipated benefits of the transaction will not be realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where First Horizon and IBKC do business; certain restrictions during the pendency of the merger that may impact the parties’ ability to pursue certain business opportunities or strategic transactions; the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events; diversion of management’s attention from ongoing business operations and opportunities; potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the transaction; First Horizon and IBKC success in executing their respective business plans and strategies and managing the risks involved in the foregoing; the dilution caused by First Horizon’s issuance of additional shares of its capital stock in connection with the proposed transaction; and other factors that may affect future results of First Horizon and IBKC.
We caution that the foregoing list of important factors that may affect future results is not exhaustive. Additional factors that could cause results to differ materially from those contemplated by forward-looking statements can be found in First Horizon’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC and available in the “Investor Relations” section of First Horizon’s website, http://www.FirstHorizon.com, under the heading “SEC Filings” and in other documents First Horizon files with the SEC, including its Registration.
Statement on Form S-4 (File No. 333-235757), dated December 31, 2019, as amended by Amendment No. 1 to Form S-4, dated February 10, 2020, Amendment No. 2 to Form S-4, dated March 9, 2020, Amendment No. 3 to Form S-4, dated March 17, 2020 and filings related to that Registration Statement, First Horizon’s definitive proxy statement, dated March 16, 2020, and in IBKC’s Annual Report on Form 10-K for the year ended December 31, 2019, as amended by Amendment No. 1 to Form 10-K, dated March 17, 2020, filed with the SEC and available in the “Investor Relations” section of IBKC’s website, www.IBERIABANK.com, under the heading “Financials & Filings” and in other documents IBKC files with the SEC.
Important Other Information
In connection with the proposed transaction, First Horizon filed with the SEC a Registration Statement on Form S-4 (File No. 333- 235757) to register the shares of First Horizon’s capital stock to be issued in connection with the proposed transaction. The registration statement includes a preliminary joint proxy statement/prospectus of First Horizon and IBKC. The Registration Statement was declared effective by the SEC on March 19, 2020 and the definitive joint proxy statement/prospectus was mailed to First Horizon’s shareholders of record as of the close of business on February 24, 2020. This communication does not constitute an offer to sell or a solicitation of an offer to buy any securities or a solicitation of any vote or approval. INVESTORS AND SHAREHOLDERS OF FIRST HORIZON AND IBERIABANK ARE URGED TO READ THE REGISTRATION STATEMENT ON FORM S-4,THE JOINT PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED TRANSACTION, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT FIRST HORIZON, IBERIABANK AND THE PROPOSED TRANSACTION.
Investors and shareholders will be able to obtain a free copy of the registration statement, the joint proxy statement/prospectus, as well as other relevant documents filed with the SEC containing information about First Horizon and IBKC, without charge, at the SEC’s website (http://www.sec.gov). Copies of the registration statement, the joint proxy statement/prospectus, and the filings with the SEC that have been incorporated by reference in the joint proxy statement/prospectus can also be obtained, without charge, by directing a request to Clyde A. Billings Jr., First Horizon, 165 Madison Avenue, Memphis, TN 38103, telephone (901) 523-5679, or Jefferson G. Parker, IBERIABANK, 200 West Congress Street, Lafayette, LA 70501, telephone (504) 310-7314.
Participants in this Transaction
First Horizon, IBKC and certain of their respective directors, executive officers and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction under the rules of the SEC. Information regarding First Horizon’s directors and executive officers is available in its definitive proxy statement, which was filed with the SEC on March 16, 2020, its Annual Report on Form 10-K for the fiscal year 2019 which was filed with the SEC on February 28, 2020, and certain of its Current Reports on Form 8-K. Information regarding IBKC’s directors and executive officers is available in its Annual Report on Form 10-K for the fiscal year 2019 which was filed with the SEC on March 2, 2020 and amended by Amendment No. 1 to Form 10-K which was filed with the SEC on March 17, 2020, and certain of its Current Reports on Form 8-K. Other information regarding the participants in the solicitation of proxies in respect of the proposed transaction and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the joint proxy statement/prospectus and other relevant materials to be filed with the SEC. Free copies of these documents, when available, may be obtained as described in the preceding paragraph.
This communication shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities.
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.
| First Horizon National Corporation | |||
| (Registrant) | |||
| Date: April 13, 2020 | |||
| By: | /s/ Clyde A. Billings, Jr. | ||
| (Signature) | |||
| Name: | Clyde A. Billings, Jr. | ||
| Title: | Senior Vice President, Assistant General Counsel, and Corporate Secretary |
Exhibit 99.1
Updated Pro Forma Financials and Related Disclosures: Supplemental Joint Proxy Statement/Prospectus Information
This Updated Pro Forma Financials and Related Disclosures sets forth updates to the “SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA”, “COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA” and “UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS” disclosures included in the joint proxy statement/prospectus to reflect updated estimates to the December 31, 2019 unaudited pro forma condensed combined financial statements. The estimates included in this Updated Pro Forma Financials and Related Disclosures are different than those included in the joint proxy statement/prospectus, and reflect both a change in the assumption related to closing share price (from $13.33 as of February 28, 2020 to $8.06 as of March 31, 2020) and a change in the valuation assumptions applied to the fair value assigned to the acquired assets and liabilities (using market inputs through March 31, 2020 applied to the December 31, 2019 values). This information is presented for illustrative purposes only and is dependent upon various inputs and assumptions that are subject to change.
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following tables show unaudited pro forma financial information about the financial condition and results of operations, including per share data, after giving effect to the merger between First Horizon and IBKC as well as the purchase of certain branches of SunTrust Bank by First Horizon (the “SunTrust Purchase”) and other pro forma adjustments. The unaudited pro forma financial information assumes that the IBKC merger and the SunTrust Purchase are accounted for under the acquisition method of accounting, and the assets and liabilities of IBKC and the purchased branches of SunTrust Bank will generally be recorded by First Horizon at their respective fair values as of the date the transactions were or are (as applicable) completed. The unaudited pro forma combined balance sheet gives effect to the transactions as if the transactions had occurred on December 31, 2019. The unaudited pro forma combined income statement for the year ended December 31, 2019, gives effect to the transactions as if the transactions had become effective at January 1, 2019. The unaudited selected pro forma combined financial information has been derived from and should be read in conjunction with the consolidated financial statements and related notes of First Horizon, which are incorporated in the joint proxy statement/prospectus by reference, the consolidated financial statements and related notes of IBKC, which are incorporated in the joint proxy statement/prospectus by reference, and the more detailed unaudited pro forma condensed combined financial information, including the notes thereto (as supplemented by this Updated Pro Forma Financials and Related Disclosures), appearing elsewhere in the joint proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 222 of the joint proxy statement/prospectus and “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 166 of the joint proxy statement/prospectus and page 6 of this Updated Pro Forma Financials and Related Disclosures.
The unaudited 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 the period presented, nor the impact of possible business model changes. The unaudited 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, including those discussed in the section entitled “Risk Factors” beginning on page 44 of the joint proxy statement/prospectus. In addition, as explained in more detail in the accompanying notes to the “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 166 of the joint proxy statement/prospectus and on page 6 of this Updated Pro Forma Financials and Related Disclosures, the preliminary allocations of the pro forma purchase prices reflected in the unaudited pro forma condensed combined financial information are subject to
1
adjustment and may vary materially from the actual purchase price allocations that will be recorded upon completion of the merger and the SunTrust Purchase.
The risk of such variance is particularly significant with respect to the allocation of the purchase price for the merger, because such allocation is based, in large part, on First Horizon’s price per common share as of the closing date. Specifically, the preliminary allocation of the pro forma purchase price for the merger reflected in the unaudited pro forma condensed combined financial information assumes a price per common share of $8.06, the trading price of First Horizon’s common stock as of market close on March 31, 2020. Since March 31, 2020, the financial, commodities (including oil and gas) and other markets generally have continued to experience extreme volatility due to, in large part, the coronavirus pandemic and the related governmental responses to the pandemic. Such volatility has resulted in an increase in the trading price of First Horizon common stock, which, as of market close on April 9, 2020, was $9.50, a 17.87% increase from the March 31, 2020 market close trading price. The continuation of this volatility of financial, commodities (including oil and gas) and other markets generally and its continued effect on the trading price of First Horizon common stock will largely depend on future developments, which we cannot accurately predict, including new information which may emerge concerning the severity and length of the coronavirus pandemic, the success of governmental and private actions taken to contain or treat the coronavirus pandemic, and reactions by consumers, companies, governmental entities, and financial, commodities (including oil and gas) and other markets to such actions. Given this volatility and uncertainty as to whether such markets, and the trading price of First Horizon common stock, will stabilize or return to pre-coronavirus pandemic levels, the unaudited pro forma financials of the combined company included in the joint proxy statement/prospectus (as supplemented by this Updated Pro Forma Financials and Related Disclosures) may not be indicative of the combined company’s actual financial condition as of the closing date.
| (Dollars in thousands) | Year Ended December 31, 2019 | |||
| Statements of Income | ||||
| Net interest income | $ | 2,370,051 | ||
| Provision for loan losses | 88,657 | |||
| Net interest income after provision for loan losses | 2,281,394 | |||
| Noninterest income | 909,306 | |||
| Noninterest expense | 1,936,965 | |||
| Income before income taxes | 1,253,735 | |||
| Income taxes | 290,158 | |||
| Net income | $ | 963,577 | ||
| Balance Sheet | As of December 31, 2019 | |||
| Investment securities | $ | 8,580,160 | ||
| Total net loans | 54,867,634 | |||
| Goodwill | 1,485,053 | |||
| Total assets | 75,671,147 | |||
| Deposits | 59,979,294 | |||
| Term borrowings | 2,153,452 | |||
| Shareholders’ equity | 7,491,385 | |||
For the sole purpose of illustrating the effect of various trading
prices of First Horizon common stock on certain items of the unaudited pro forma financials of the combined company, the below
“Hypothetical Illustration of First Horizon Common Stock Trading Price Impact on Selected December 31, 2019 Pro Forma Financial
Information” table sets out the hypothetical value of the total merger consideration per share of IBKC common stock, goodwill,
and shareholders’ equity, based on various hypothetical trading prices of First Horizon common stock. This illustration is
intended to show the effect on those measures if the trading price of First Horizon’s common stock as of March 31, 2020 had
differed from $8.06 (the actual trading price of
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First Horizon common stock as of March 31, 2020 and the trading price used to calculate the pro forma purchase price of the merger), with all other information used to create the unaudited pro forma condensed combined financial information in this Updated Pro Forma Financials and Related Disclosures held constant. This illustration does not show how the pro forma presentation would have changed if loan, deposit, investment, and other values had been re-assessed as of any other date. Variation in loan, deposit, investment, and other values over time can significantly affect the pro forma presentation, and, as such, the calculations of goodwill and shareholders’ equity at the applicable trading prices set forth below are not necessarily indicative of, and may materially vary from, the combined company’s actual goodwill and shareholders’ equity as of the closing date.
Hypothetical Illustration of First Horizon Common Stock Trading Price Impact on Selected December 31, 2019 Pro Forma Financial Information
| FHN Common Stock Trading Price (a) | Total Merger Consideration Per Share of IBKC Common Stock | Goodwill | Shareholders’ Equity | |||||||||
| $18.00 | $ | 82.51 | $ | 3,294,313 | $ | 9,295,024 | ||||||
| $16.00 | $ | 73.34 | $ | 2,808,314 | $ | 8,810,156 | ||||||
| $14.00 | $ | 64.18 | $ | 2,322,315 | $ | 8,325,288 | ||||||
| $12.00 | $ | 55.01 | $ | 1,836,316 | $ | 7,840,420 | ||||||
| $10.00 | $ | 45.84 | $ | 1,485,053 | (b) | $ | 7,490,289 | (b) | ||||
| $8.00 | $ | 36.67 | $ | 1,485,053 | (b) | $ | 7,491,419 | (b) | ||||
| $6.00 | $ | 27.50 | $ | 1,485,053 | (b) | $ | 7,492,550 | (b) | ||||
(a) Range of First Horizon common stock trading prices is for illustrative purposes only and the First Horizon common stock trading price as of the closing of the merger may fall outside the range set forth in this table.
(b) At such stock price, hypothetical goodwill of the merger is less than zero resulting in a purchase accounting gain which is reflected as an increase in shareholders’ equity.
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COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA
The historical per share data for First Horizon common stock and IBKC common stock below has been derived from the audited consolidated financial statements of each of First Horizon and IBKC as of and for the year ended December 31, 2019, which is incorporated by reference in the joint proxy statement.
The unaudited pro forma combined per share data set forth below gives effect to the merger as if it had occurred on January 1, 2019, the beginning of the earliest period presented, in the case of continuing net income per share data, and as of December 31, 2019 in the case of book value per share data, assuming that each outstanding share of IBKC common stock had been converted into shares of First Horizon common stock based on the exchange ratio of 4.584 shares of First Horizon common stock for each share of IBKC common stock. The unaudited pro forma combined per share data has been derived from the audited consolidated financial statements for each of First Horizon and IBKC as of and for the year ended December 31, 2019.
The unaudited pro forma combined per share data has been derived using the acquisition method of accounting. See “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 166 for more information. Accordingly, the pro forma adjustments reflect the assets and liabilities of IBKC and the purchased branches of SunTrust Bank at their preliminary estimated fair values. Differences between these preliminary estimates and the final values in acquisition accounting will occur and these differences could have a material impact on the unaudited pro forma combined per share information set forth below.
The unaudited pro forma combined per share data does not purport to represent the actual results of operations that the combined company would have achieved had the merger been completed during these periods or to project the future results of operations that the combined company may achieve after the merger and asset purchase.
The unaudited pro forma combined per share equivalent data set forth below shows the effect of the merger from the perspective of a holder of IBKC common stock. The information was calculated by multiplying the unaudited pro forma combined per share data by the exchange ratio of 4.584.
You should read the information below in conjunction with the selected consolidated historical financial data included elsewhere in the joint proxy statement/prospectus (as supplemented by this Updated Pro Forma Financials and Related Disclosures) and the historical consolidated financial statements of First Horizon and IBKC and related notes that have been filed with the SEC, certain of which are incorporated by reference therein. See “Selected Consolidated Historical Financial Data of First Horizon”, “Selected Consolidated Historical Financial Data of IBKC” and “Where You Can Find More Information” beginning on pages 32, 34, and 222 of the joint proxy statement/prospectus, respectively. The unaudited pro forma combined per share data and the unaudited pro forma combined per share equivalent data has been derived from, and should be read in conjunction with, the unaudited pro forma combined financial information and related notes included in the joint proxy statement/prospectus (as supplemented by this Updated Pro Forma Financials and Related Disclosures). See “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 166 of the joint proxy statement/prospectus and the beginning on page 6 of this Updated Pro Forma Financials and Related Disclosures, which are based on and should be read in conjunction with (i) the historical audited consolidated financial statements of First Horizon and the related notes included in First Horizon’s Annual Report on Form 10-K for the year ended December 31, 2019 which is incorporated by reference in the joint proxy statement/prospectus, and (ii) the historical audited consolidated financial statements of IBKC and the related notes included in IBKC’s Annual Report on Form 10-K for the year ended December 31, 2019 and 2018 which is incorporated by reference in the joint proxy statement/prospectus.
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| First Horizon (As reported) | Pro Forma First Horizon including SunTrust Purchase (a) | IBKC (As reported) | Pro Forma First Horizon including SunTrust Purchase and IBKC (a) | Pro Forma Equivalent Per Share of IBKC Common Stock(b) | ||||||||||||||||
| For the year ended December 31, 2019: | ||||||||||||||||||||
| Basic earnings per share | $ | 1.39 | $ | 1.40 | $ | 6.97 | $ | 1.68 | $ | 7.70 | ||||||||||
| Diluted earnings per share | 1.38 | 1.39 | 6.92 | 1.67 | 7.66 | |||||||||||||||
| Cash dividends (c) | 0.56 | 0.56 | 1.76 | 0.56 | 2.57 | |||||||||||||||
| Book value at December 31, 2019 (d) | 15.04 | 15.04 | 78.37 | 13.01 | 59.64 | |||||||||||||||
| (a) | Pro forma earnings per share are based on pro forma combined net income and pro forma combined weighted average common shares outstanding at the end of the period. | |
| (b) | Pro forma equivalent per share information is calculated based on pro forma combined data multiplied by the applicable exchange ratio of 4.584. | |
| (c) | Pro forma dividends per share represents First Horizon’s historical dividends per share. | |
| (d) | Book value per common share is calculated based on pro forma combined equity and pro forma combined common shares outstanding at the end of the period. |
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following financial statements show unaudited pro forma condensed combined consolidated financial information about the financial condition and results of operations, including per share data, after giving effect to the SunTrust Purchase and the merger with IBKC and other pro forma adjustments. The unaudited pro forma financial information assumes that the transactions are accounted for under the acquisition method of accounting, and the assets and liabilities of the purchased branches of SunTrust Bank and IBKC will generally be recorded by First Horizon at their respective fair values as of the date the transactions were or are (as applicable) completed. The unaudited pro forma condensed balance sheet gives effect to the transactions as if the transactions had occurred on December 31, 2019. The unaudited pro forma combined income statement for the year ended December 31, 2019 gives effect to the transactions as if the transactions had become effective at January 1, 2019. The unaudited selected pro forma combined financial information has been derived from and should be read in conjunction with the consolidated financial statements and related notes of First Horizon, which are incorporated in the joint proxy statement/prospectus by reference, the consolidated financial statements and related notes of IBKC, which are incorporated in the joint proxy statement/prospectus by reference, and the more detailed unaudited pro forma condensed combined financial information, including the notes thereto (as supplemented by this Updated Pro Forma Financials and Related Disclosures), appearing elsewhere in the joint proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 222 of the joint proxy statement/prospectus.
The unaudited 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 unaudited 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, including those discussed in the section entitled “Risk Factors” beginning on page 43 of the joint proxy statement/prospectus. In addition, as explained in more detail in the below accompanying notes, the preliminary allocation of the pro forma purchase prices for both transactions reflected in the unaudited pro forma condensed combined financial information is subject to adjustment and may vary materially from the actual purchase price allocation that will be recorded upon completion of the transactions.
The risk of such variance is particularly significant with respect to the allocation of the purchase price for the merger, because such allocation is based, in large part, on First Horizon’s price per common share as of the closing date. Specifically, the preliminary allocation of the pro forma purchase price for the merger reflected in the unaudited pro forma condensed combined financial information assumes a price per common share of $8.06, the trading price of First Horizon’s common stock as of market close on March 31, 2020. Since March 31, 2020 the financial, commodities (including oil and gas) and other markets generally have continued to experience extreme volatility due to, in large part, the coronavirus pandemic and the related governmental responses to the pandemic. Such volatility has resulted in an increase in the trading price of First Horizon common stock, which, as of market close on April 9, 2020, was $9.50, a 17.87% increase from the March 31, 2020 market close trading price. The continuation of this volatility of financial, commodities (including oil and gas) and other markets generally and its continued effect on the trading price of First Horizon common stock will largely depend on future developments, which we cannot accurately predict, including new information which may emerge concerning the severity of the coronavirus pandemic, the success of governmental and private actions taken to contain or treat the coronavirus pandemic, and reactions by consumers, companies, governmental entities, and financial, commodities (including oil and gas) and other markets to such actions. Given this volatility and uncertainty as to whether such markets, and the trading price of First Horizon common stock, will stabilize or return to pre-coronavirus pandemic levels, the unaudited pro forma financials of the combined company included below may not be indicative of the combined company’s actual financial condition as of the closing date.
For the sole purpose of illustrating the effect of various trading prices of First Horizon common stock on certain items of the unaudited pro forma financials of the combined company, the below “Hypothetical Illustration of First Horizon Common Stock Trading Price Impact on Selected December 31, 2019 Pro Forma Financial Information” table sets out the hypothetical value of the total merger consideration per share of IBKC common stock, goodwill, and shareholders’ equity, based on various hypothetical trading prices of First Horizon common stock. This illustration is intended to show the effect on those measures if
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the trading price of First Horizon’s common stock as of March 31, 2020 had differed from $8.06 (the actual trading price of First Horizon common stock as of March 31, 2020 and the trading price used to calculate the pro forma purchase price of the merger), with all other information used to create the unaudited pro forma condensed combined financial information in this Updated Pro Forma Financials and Related Disclosures held constant. This illustration does not show how the pro forma presentation would have changed if loan, deposit, investment, and other values had been re-assessed as of any other date. Variation in loan, deposit, investment, and other values over time can significantly affect the pro forma presentation, and, as such, the calculations of goodwill and shareholders’ equity at the applicable trading prices set forth below are not necessarily indicative of, and may materially vary from, the combined company’s actual goodwill and shareholders’ equity as of the closing date.
Hypothetical Illustration of First Horizon Common Stock Trading Price Impact on Selected December 31, 2019 Pro Forma Financial Information
| FHN Common Stock Trading Price (a) | Total Merger Consideration Per Share of IBKC Common Stock | Goodwill | Shareholders’ Equity | |||||||||
| $18.00 | $ | 82.51 | $ | 3,294,313 | $ | 9,295,024 | ||||||
| $16.00 | $ | 73.34 | $ | 2,808,314 | $ | 8,810,156 | ||||||
| $14.00 | $ | 64.18 | $ | 2,322,315 | $ | 8,325,288 | ||||||
| $12.00 | $ | 55.01 | $ | 1,836,316 | $ | 7,840,420 | ||||||
| $10.00 | $ | 45.84 | $ | 1,485,053 | (b) | $ | 7,490,289 | (b) | ||||
| $8.00 | $ | 36.67 | $ | 1,485,053 | (b) | $ | 7,491,419 | (b) | ||||
| $6.00 | $ | 27.50 | $ | 1,485,053 | (b) | $ | 7,492,550 | (b) | ||||
(a) Range of First Horizon common stock trading prices is for illustrative purposes only and the First Horizon common stock trading price as of the closing of the merger may fall outside the range set forth in this table.
(b) At such stock price, hypothetical goodwill of the merger is less than zero resulting in a purchase accounting gain which is reflected as an increase in shareholders’ equity.
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FIRST HORIZON NATIONAL CORPORATION
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF CONDITION
| December 31, 2019 | ||||||||||||||||||||||||||||||||
| (Dollars and shares in thousands, except per share data)(Unaudited) | First Horizon (As reported) | SunTrust Purchase | SunTrust Purchase Pro Forma Adjustments | Ref | Pro Forma including SunTrust Purchase | IBKC (As reported) (a) | IBKC Pro Forma Adjustments | Ref | Pro Forma First Horizon including SunTrust Purchase and IBKC | |||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||
| Cash and due from banks | $ | 633,728 | $ | 2,303,059 | $ | (586,465 | ) | A | $ | 2,350,322 | $ | 292,283 | $ | (245,865 | ) | E | $ | 2,396,740 | ||||||||||||||
| Federal funds sold and securities purchases under agreement to resell | 633,165 | — | — | 633,165 | — | — | 633,165 | |||||||||||||||||||||||||
| Total cash and cash equivalents | 1,266,893 | 2,303,059 | (586,465 | ) | 2,983,487 | 292,283 | (245,865 | ) | 3,029,905 | |||||||||||||||||||||||
| Interest-bearing cash | 482,405 | — | — | 482,405 | 604,929 | — | 1,087,334 | |||||||||||||||||||||||||
| Trading securities | 1,346,207 | — | — | 1,346,207 | — | — | 1,346,207 | |||||||||||||||||||||||||
| Loans held-for-sale | 593,790 | — | — | 593,790 | 213,357 | — | 807,147 | |||||||||||||||||||||||||
| Investment securities | 4,455,403 | — | — | 4,455,403 | 4,116,321 | 8,436 | F | 8,580,160 | ||||||||||||||||||||||||
| Loans, net of unearned income | 31,061,111 | 496,900 | (7,454 | ) | B | 31,550,557 | 24,021,499 | (504,115 | ) | B | 55,067,941 | |||||||||||||||||||||
| Less: Allowance for loan losses | 200,307 | — | — | 200,307 | 146,588 | (146,588 | ) | G | 200,307 | |||||||||||||||||||||||
| Total net loans | 30,860,804 | 496,900 | (7,454 | ) | 31,350,250 | 23,874,911 | (357,527 | ) | 54,867,634 | |||||||||||||||||||||||
| Goodwill | 1,432,787 | — | 52,266 | C | 1,485,053 | 1,235,533 | (1,235,533 | ) | H | 1,485,053 | ||||||||||||||||||||||
| Other intangible assets, net | 130,200 | — | 33,491 | D | 163,691 | 61,563 | 144,476 | I | 369,730 | |||||||||||||||||||||||
| Fixed income receivables | 40,114 | — | — | 40,114 | — | — | 40,114 | |||||||||||||||||||||||||
| Premises and equipment, net | 455,006 | 11,262 | — | 466,268 | 296,688 | — | 762,956 | |||||||||||||||||||||||||
| Real estate acquired by foreclosure | 17,838 | — | — | 17,838 | 27,985 | (2,402 | ) | J | 43,421 | |||||||||||||||||||||||
| Other assets | 2,229,453 | 23,039 | — | 2,252,492 | 989,880 | 9,114 | K | 3,251,486 | ||||||||||||||||||||||||
| Total assets | $ | 43,310,900 | $ | 2,834,260 | $ | (508,162 | ) | $ | 45,636,998 | $ | 31,713,450 | $ | (1,679,301 | ) | $ | 75,671,147 | ||||||||||||||||
| Liabilities and shareholders’ equity: | ||||||||||||||||||||||||||||||||
| Deposits | $ | 32,429,535 | $ | 2,303,059 | $ | — | $ | 34,732,594 | $ | 25,219,349 | $ | 27,351 | L | $ | 59,979,294 | |||||||||||||||||
| Federal funds purchased and securities sold under agreement to repurchase | 1,265,269 | — | — | 1,265,269 | 204,208 | — | 1,469,477 | |||||||||||||||||||||||||
| Trading liabilities | 505,581 | — | — | 505,581 | — | — | 505,581 | |||||||||||||||||||||||||
| Other short-term borrowings | 2,253,045 | — | — | 2,253,045 | — | — | 2,253,045 | |||||||||||||||||||||||||
| Term borrowings | 791,368 | — | — | 791,368 | 1,343,687 | 18,397 | M | 2,153,452 | ||||||||||||||||||||||||
| Fixed income payables | 49,535 | — | — | 49,535 | — | — | 49,535 | |||||||||||||||||||||||||
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| Other liabilities | 940,559 | 23,039 | — | 963,598 | 609,472 | (99,123 | ) | N | 1,473,947 | |||||||||||||||||||||||
| Total liabilities | 38,234,892 | 2,326,098 | — | 40,560,990 | 27,376,716 | (53,375 | ) | 67,884,331 | ||||||||||||||||||||||||
| Shareholders’ equity | ||||||||||||||||||||||||||||||||
| Preferred stock | 95,624 | — | — | 95,624 | 228,485 | (31,999 | ) | O | 292,110 | |||||||||||||||||||||||
| Common stock | 194,668 | — | — | 194,668 | 52,420 | 97,762 | P | 344,850 | ||||||||||||||||||||||||
| Capital surplus | 2,931,451 | — | — | 2,931,451 | 2,688,263 | (883,362 | ) | Q | 4,736,352 | |||||||||||||||||||||||
| Undivided profits | 1,798,442 | — | — | 1,798,442 | 1,322,805 | (763,566 | ) | R | 2,357,681 | |||||||||||||||||||||||
| Accumulated other comprehensive (loss)/ income, net | (239,608 | ) | — | — | (239,608 | ) | 44,761 | (44,761 | ) | S | (239,608 | ) | ||||||||||||||||||||
| Shareholders’ equity | 4,780,577 | — | — | 4,780,577 | 4,336,734 | (1,625,926 | ) | 7,491,385 | ||||||||||||||||||||||||
| Noncontrolling interest | 295,431 | — | — | 295,431 | — | — | 295,431 | |||||||||||||||||||||||||
| Total equity | 5,076,008 | — | — | 5,076,008 | 4,336,734 | (1,625,926 | ) | 7,786,816 | ||||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 43,310,900 | $ | 2,326,098 | $ | — | $ | 45,636,998 | $ | 31,713,450 | $ | (1,679,301 | ) | $ | 75,671,147 | |||||||||||||||||
| Common shares outstanding | 311,469 | N/A | N/A | 311,469 | 52,420 | 189,515 | T | 553,404 | ||||||||||||||||||||||||
| Book value per common share | $ | 15.04 | $ | 15.04 | $ | 78.37 | $ | 13.01 |
| (a) | Certain amounts have been reclassified to conform to First Horizon’s presentation. |
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FIRST HORIZON NATIONAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
| Year Ended December 31, 2019 | ||||||||||||||||||||||||||||||||
| (Dollars in thousands except per share data)/(Unaudited) | First Horizon (As reported) | SunTrust Purchase | SunTrust Purchase Pro Forma Adjustments | Ref | Pro Forma including SunTrust Purchase | IBKC (As reported) (a) | IBKC Pro Forma Adjustments | Ref | Pro Forma First Horizon including SunTrust Purchase and IBKC | |||||||||||||||||||||||
| Interest income: | ||||||||||||||||||||||||||||||||
| Interest and fees on loans | $ | 1,394,442 | $ | 21,044 | $ | 2,485 | U | $ | 1,417,971 | $ | 1,160,919 | $ | 147,457 | Y | $ | 2,726,347 | ||||||||||||||||
| Interest on investment securities | 121,083 | — | — | 121,083 | 125,786 | 1,205 | Z | 248,074 | ||||||||||||||||||||||||
| Interest on loans held-for-sale | 31,127 | — | — | 31,127 | 6,710 | — | 37,837 | |||||||||||||||||||||||||
| Interest on trading securities | 46,576 | — | — | 46,576 | — | — | 46,576 | |||||||||||||||||||||||||
| Interest on other earning assets | 31,112 | — | — | 31,112 | 11,611 | — | 42,723 | |||||||||||||||||||||||||
| Total interest income | 1,624,340 | 21,044 | 2,485 | 1,647,869 | 1,305,026 | 148,662 | 3,101,557 | |||||||||||||||||||||||||
| Interest expense: | ||||||||||||||||||||||||||||||||
| Interest on deposits | 307,216 | 9,453 | — | 316,669 | 267,227 | (15,928 | ) | AA | 567,968 | |||||||||||||||||||||||
| Interest on trading liabilities | 12,502 | — | — | 12,502 | — | — | 12,502 | |||||||||||||||||||||||||
| Interest on short-term borrowings | 41,172 | — | — | 41,172 | 15,739 | — | 56,911 | |||||||||||||||||||||||||
| Interest on long-term debt | 53,263 | — | — | 53,263 | 37,396 | 3,466 | BB | 94,125 | ||||||||||||||||||||||||
| Total interest expense | 414,153 | 9,453 | — | 423,606 | 320,362 | (12,462 | ) | 731,506 | ||||||||||||||||||||||||
| Net interest income | 1,210,187 | 11,591 | 2,485 | 1,224,263 | 984,664 | 161,124 | 2,370,051 | |||||||||||||||||||||||||
| Provision for loan losses | 47,000 | — | — | 47,000 | 41,657 | — | 88,657 | |||||||||||||||||||||||||
| Net interest income after provision for loan losses | 1,163,187 | 11,591 | 2,485 | 1,177,263 | 943,007 | 161,124 | 2,281,394 | |||||||||||||||||||||||||
| Noninterest income: | ||||||||||||||||||||||||||||||||
| Fixed income | 278,789 | — | — | 278,789 | — | — | 278,789 | |||||||||||||||||||||||||
| Deposit transactions and cash management | 131,663 | 15,884 | — | 147,547 | 63,707 | — | 211,254 | |||||||||||||||||||||||||
| Mortgage income | 10,055 | — | — | 10,055 | 63,030 | — | 73,085 | |||||||||||||||||||||||||
| Brokerage, management fees and commissions | 55,467 | — | — | 55,467 | 8,280 | — | 63,747 | |||||||||||||||||||||||||
| Trust services and investment management | 29,511 | — | — | 29,511 | 17,058 | — | 46,569 | |||||||||||||||||||||||||
| Debt securities | (267 | ) | — | — | (267 | ) | — | — | (267 | ) | ||||||||||||||||||||||
| Equity securities | 441 | — | — | 441 | — | — | 441 | |||||||||||||||||||||||||
| All other income and commissions | 148,421 | — | — | 148,421 | 87,267 | — | 235,688 | |||||||||||||||||||||||||
| Total noninterest income | 654,080 | 15,884 | — | 669,964 | 239,342 | — | 909,306 | |||||||||||||||||||||||||
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| Adjusted gross income after provision for loan losses | 1,817,267 | 27,475 | 2,485 | 1,847,227 | 1,182,349 | 161,124 | 3,190,700 | |||||||||||||||||||||||||
| Noninterest expense: | ||||||||||||||||||||||||||||||||
| Employee compensation, incentives and benefits | 695,351 | 10,717 | — | 706,068 | 411,869 | (1,918 | ) | V, CC | 1,116,019 | |||||||||||||||||||||||
| Occupancy | 80,271 | 4,881 | — | 85,152 | 57,020 | — | 142,172 | |||||||||||||||||||||||||
| Computer software | 60,721 | — | — | 60,721 | 31,195 | — | 91,916 | |||||||||||||||||||||||||
| Professional fees | 55,218 | — | (102 | ) | V | 55,116 | 25,886 | (17,018 | ) | V | 63,984 | |||||||||||||||||||||
| Operations services | 46,006 | — | — | 46,006 | 6,913 | — | 52,919 | |||||||||||||||||||||||||
| Equipment rentals, depreciation, and maintenance | 33,998 | 1,372 | — | 35,370 | 21,850 | — | 57,220 | |||||||||||||||||||||||||
| Amortization of intangible assets | 24,834 | — | 6,089 | W | 30,923 | 18,464 | 18,998 | DD | 68,385 | |||||||||||||||||||||||
| All other expense | 235,204 | 273 | (340 | ) | V | 235,137 | 109,559 | (346 | ) | V | 344,350 | |||||||||||||||||||||
| Total noninterest expense | 1,231,603 | 17,243 | 5,647 | 1,254,493 | 682,756 | (284 | ) | 1,936,965 | ||||||||||||||||||||||||
| Income before income taxes | 585,664 | 10,232 | (3,162 | ) | 592,734 | 499,593 | 161,408 | 1,253,735 | ||||||||||||||||||||||||
| Provision/(benefit) for income taxes | 133,291 | — | 1,739 | X | 135,030 | 115,438 | 39,690 | EE | 290,158 | |||||||||||||||||||||||
| Net income/(loss) | 452,373 | 10,232 | (4,901 | ) | 457,704 | 384,155 | 121,718 | 963,577 | ||||||||||||||||||||||||
| Net income attributable to noncontrolling interest | 11,465 | — | — | 11,465 | — | — | 11,465 | |||||||||||||||||||||||||
| Net income attributable to controlling interest | 440,908 | 10,232 | (4,901 | ) | 446,239 | 384,155 | 121,718 | 952,112 | ||||||||||||||||||||||||
| Preferred stock dividends | 6,200 | — | — | 6,200 | 12,602 | — | 18,802 | |||||||||||||||||||||||||
| Net income/(loss) available to common shareholders | 434,708 | 10,232 | (4,901 | ) | 440,039 | 371,553 | 121,718 | 933,310 | ||||||||||||||||||||||||
| Less: Earnings allocated to unvested restricted stock | — | — | — | — | 3,559 | (3,559 | ) | FF | — | |||||||||||||||||||||||
| Earnings allocated to common shareholders | $ | 434,708 | $ | 10,232 | $ | (4,901 | ) | $ | 440,039 | $ | 367,994 | $ | 125,277 | $ | 933,310 | |||||||||||||||||
| Earnings per common share | $ | 1.39 | N/A | N/A | $ | 1.40 | $ | 6.97 | $ | 0.66 | $ | 1.68 | ||||||||||||||||||||
| Diluted earnings per common share | $ | 1.38 | N/A | N/A | $ | 1.39 | $ | 6.92 | $ | 0.66 | $ | 1.67 | ||||||||||||||||||||
| Weighted average common shares | 313,637 | — | — | 313,637 | 52,826 | 189,109 | GG | 555,572 | ||||||||||||||||||||||||
| Diluted average common shares | 315,657 | — | — | 315,657 | 53,153 | 189,192 | GG | 558,002 |
| (a) | Certain amounts have been reclassified to conform to First Horizon’s presentation. |
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Note 1 - Basis of Presentation
The unaudited pro forma combined consolidated financial information and explanatory notes have been prepared to illustrate the effects of the SunTrust Purchase and the merger under the acquisition method of accounting with First Horizon treated as the acquirer. The unaudited pro forma combined consolidated 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 from the SunTrust Purchase and the merger as of their respective effective date (as set forth in the applicable agreement) will generally be recorded by First Horizon at their respective fair values with the excess/shortfall of purchase price over/under the acquired net assets allocated to goodwill/recorded as a purchase accounting gain.
The SunTrust Purchase results in the acquisition of branch loans and related fixed assets and the assumption of branch deposits of SunTrust Bank by First Horizon for approximately $586 million in cash.
The merger, which is currently expected to be completed in the second quarter of 2020, provides for IBKC common shareholders to receive 4.584 shares of First Horizon common stock for each share of IBKC common stock they hold immediately prior to the merger closing. Based on the closing trading price of First Horizon common stock on the NYSE on March 31, 2020, the value of the merger consideration per share of IBKC common stock was $36.95. Based on the closing trading price of First Horizon common stock on the NYSE on April 9, 2020, the value of the merger consideration per share of IBKC common stock was $43.55.
The pro forma allocation of purchase price reflected in the unaudited pro forma financial information is subject to adjustment and may vary from the actual purchase price allocation that will be recorded at the closing date. Adjustments may include, but not be limited to, changes in (i) IBKC’s balance sheet through the effective date of the merger; (ii) the aggregate value of merger consideration paid if the price of First Horizon’s shares vary from the assumed $8.06 per share, which represents the closing share price of First Horizon common stock on March 31, 2020, which variance could be significant given that financial markets generally, and the market price of First Horizon’s shares, are experiencing higher than normal volatility; (iii) total merger related expenses if consummation and/or implementation costs vary from currently estimated amounts; and (iv) the underlying values of assets and liabilities if market conditions differ from current assumptions.
The accounting policies of both First Horizon and IBKC are in the process of being reviewed in detail. Upon completion of such review, conforming adjustments or financial statement reclassification may be determined.
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2016-13, “Measurement of Credit Losses on Financial Instruments,” which revises the measurement and recognition of credit losses for assets measured at amortized cost (e.g., held-to-maturity (“HTM”) loans and debt securities) and available-for-sale (“AFS”) debt securities. The provisions of ASU 2016-13 and multiple related accounting standards that were subsequently issued (collectively the “Credit Impairment Standards”) are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years and will be generally adopted through cumulative-effect adjustments to retained earnings and affected asset classifications as of the beginning of the first reporting period in the year of adoption. Accordingly, the unaudited pro forma condensed combined financial information does not reflect any adjustments for the effects of adopting the Credit Impairment Standards. For the most recent information related to the pending adoption of the Credit Impairment Standards, reference should be made to the notes to the historical consolidated financial statements included in First Horizon’s Annual Report on Form 10-K for the year ended December 31, 2019 and the notes to the historical consolidated financial statements included in IBKC’s Annual Report on Form 10-K for the period ended December 31, 2019, each of which is incorporated by reference in the joint proxy statement/prospectus.
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Note 2 - Preliminary Purchase Price Allocation for the SunTrust Purchase
The pro forma adjustments for the SunTrust Purchase include the estimated acquisition accounting entries to record the purchase of branch loans and related fixed assets and the assumption of branch deposits, as well as conformity adjustments to align with First Horizon’s presentation. The excess of the purchase price over the fair value of net assets acquired, net of deferred taxes, is allocated to goodwill. Estimated fair value adjustments included in the pro forma combined consolidated financial statements are based upon available information and certain assumptions considered reasonable, and are subject to change as additional information becomes available.
Other intangible assets of $33.5 million are included in the SunTrust Purchase pro forma adjustments separate from goodwill and are amortized using the sum-of-the-years-digits method or an accelerated methodology that mirrors the discounted cash flows used in the determination of fair value. Goodwill totaling $52.3 million is included in the SunTrust Purchase pro forma adjustments and is not subject to amortization.
The following schedule details significant assets purchased and liabilities assumed from the SunTrust Purchase estimated as of December 31, 2019:
| (Dollars in thousands) | ||||
| Purchase Price | ||||
| Cash consideration | $ | 586,465 | ||
| SunTrust Purchase Net Assets at Fair Value | ||||
| Assets acquired: | ||||
| Cash and due from banks | $ | 2,303,059 | ||
| Loans | 489,446 | |||
| Other intangible assets | 33,491 | |||
| Premises and equipment | 11,262 | |||
| Other assets | 23,039 | |||
| Total assets acquired | $ | 2,860,297 | ||
| Liabilities assumed: | ||||
| Deposits | 2,303,059 | |||
| Other liabilities | 23,039 | |||
| Total liabilities assumed | $ | 2,326,098 | ||
| Net assets acquired | $ | 534,199 | ||
| Preliminary pro forma goodwill | $ | 52,266 | ||
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Note 3 - Preliminary Purchase Price Allocation for IBKC
The pro forma adjustments for IBKC include the estimated acquisition accounting entries to record the merger. The excess/shortfall of the purchase price over/under the acquisition accounting value of net assets acquired, net of deferred taxes, is allocated to goodwill/recorded as a purchase accounting gain. Estimated fair value adjustments included in the pro forma combined consolidated financial statements are based upon available information and certain assumptions considered reasonable, and may be subject to change as additional information becomes available.
Core deposits and other intangible assets of $206.0 million resulting from the merger have been recorded separately from goodwill and have been amortized over an estimated ten year average life using the sum-of-the-years-digits method or an accelerated methodology that mirrors the timing of related expected cash flows used in the determination of fair value. Based on the closing trading price of First Horizon common stock on the NYSE on March 31, 2020, the preliminary purchase price allocation resulted in a purchase accounting gain of $606.2 million. The purchase price is based on First Horizon’s price per common share at the closing date, which has not yet occurred. Accordingly, a 10 percent increase or decrease in First Horizon’s closing sale price per share of common stock on March 31, 2020 (which was $8.06) would result in a corresponding adjustment to purchase accounting gain of approximately $196.4 million.
The preliminary purchase price allocation as of December 31, 2019 is as follows:
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| (Dollars in thousands, except per share data) | ||||||||
| Pro Forma Purchase Price | ||||||||
| Share Consideration: | ||||||||
| Shares of IBKC common stock | 52,420 | |||||||
| Exchange ratio | 4.584 | |||||||
| First Horizon common stock to be issued | 240,293 | |||||||
| First Horizon share price (as of March 31, 2020) | $ | 8.06 | ||||||
| Preliminary consideration for outstanding common stock | $ | 1,936,746 | ||||||
| Consideration for equity awards | $ | 18,587 | ||||||
| Consideration for preferred stock | $ | 196,486 | ||||||
| Total estimated consideration to be paid | $ | 2,151,819 | ||||||
| IBKC Net Assets at Fair Value | ||||||||
| Assets acquired: | ||||||||
| Cash and cash equivalents | $ | 101,733 | ||||||
| Interest-bearing cash | 604,929 | |||||||
| Loans held-for-sale | 213,357 | |||||||
| Investment securities | 4,124,757 | |||||||
| Loans, net of unearned income | 23,517,384 | |||||||
| Other intangible assets | 206,039 | |||||||
| Premises and equipment | 296,688 | |||||||
| Real estate acquired by foreclosure | 25,583 | |||||||
| Other assets | 990,845 | |||||||
| Total assets acquired | $ | 30,081,315 | ||||||
| Liabilities assumed: | ||||||||
| Deposits | $ | 25,246,700 | ||||||
| Federal funds purchased and securities sold under agreement to repurchase | 204,208 | |||||||
| Term borrowings | 1,362,084 | |||||||
| Other liabilities | 510,349 | |||||||
| Total liabilities assumed | $ | 27,323,341 | ||||||
| Net assets acquired | $ | 2,757,974 | ||||||
| Preliminary purchase accounting gain | $ | (606,155 | ) |
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Note 4 - Pro Forma Adjustments
The following pro forma adjustments have been reflected in the unaudited pro forma combined consolidated financial information. All taxable adjustments were calculated using a 24.59 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 cash and due from banks to reflect cash of $586.5 million used to purchase branch loans and related fixed assets and assume branch deposits acquired from SunTrust Bank. |
| B. | 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. |
| C. | Adjustments to record goodwill associated with the purchase of branch loans and related fixed assets and the assumption of branch deposits from SunTrust Bank. |
| D. | Adjustments to Other intangible assets to record estimated other intangible assets associated with the purchase of branch loans and related fixed assets and the assumption of branch deposits from SunTrust Bank. |
| E. | Adjustments to cash and due from banks to reflect $245.9 million of contractually obligated merger costs to be paid by First Horizon and IBKC as a result of the merger including personnel-related expenses and fees for investment banker, legal, and accounting services directly attributable and incremental to the transaction. |
| F. | Adjustments to investment securities to reflect estimated fair value of acquired held-to-maturity securities. |
| G. | Elimination of IBKC’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. |
| H. | Adjustments to Goodwill to eliminate $1.2 billion of IBKC’s goodwill at the closing date. |
| I. | Adjustments to Other intangible assets to eliminate $61.6 million of IBKC’s other intangible assets and to record estimated other intangible assets associated with the merger of $206.0 million related to estimated core deposit intangible assets. |
| J. | Adjustments to Real estate acquired by foreclosure to record estimated fair value of acquired foreclosed assets. |
| K. | Adjustments to increase other assets by $4.3 million as a result of purchase accounting adjustments, to net $90.3 million of IBKC’s deferred tax liabilities to reflect a combined net deferred tax asset, to record a net deferred tax asset of approximately $72.2 million for the effects of the acquisition accounting adjustments, and to record a $22.9 million tax receivable associated with contractually obligated merger costs. |
| L. | Adjustments to Deposits to record estimated fair value of acquired interest-bearing deposits. |
| M. | Adjustments to Term borrowings to reflect estimated fair value adjustments of $18.4 million. |
| N. | Adjustments to decrease other liabilities by $.9 million as a result of purchase accounting adjustments, $11.8 million to reverse IBKC’s deferred tax liability associated with acquired intangibles, to net $90.3 million of IBKC’s deferred tax liability to reflect a combined net deferred tax asset, and to record $3.9 million related to phantom shares and payroll tax associated with restricted shares in accordance with the merger agreement. |
| O. | Adjustments to eliminate IBKC preferred stock of $228.5 million par value and record the issuance of rollover First Horizon preferred stock to IBKC shareholders of $196.5 million. |
| P. | Adjustments to eliminate IBKC common stock of $52.4 million par value and record the issuance of First Horizon common stock to IBKC shareholders of $150.2 million par value. |
| Q. | Adjustments to Capital surplus to eliminate IBKC capital surplus of $2.7 billion and record the issuance of First Horizon common stock in excess of par value to IBKC shareholders of $1.8 billion. Additionally, includes increase in capital surplus of $17.3 million and $1.3 million, respectively, related to conversion and re-measurement of IBKC restricted stock and stock options to First Horizon restricted stock and stock options, including grants made through March 31, 2020. |
| R. | Adjustment to Undivided profits to eliminate IBKC undivided profits of $1.3 billion and to recognize the impact on equity of approximately $46.9 million (after-tax) of contractually obligated merger costs to be paid by First Horizon, as well as $606.2 million representing the preliminary purchase accounting gain calculated as if the net assets were acquired on December 31, 2019. This purchase accounting gain is not reflected in the unaudited pro forma combined statement of income because it is a nonrecurring item that is directly related to the transaction. |
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| S. | Adjustments to eliminate remaining IBKC equity balances of $44.8 million. |
| T. | Adjustments to shares of First Horizon’s common stock outstanding to eliminate shares of IBKC common stock outstanding of 52,419,519 and record shares of First Horizon common stock of 241,935,064, calculated using the exchange ratio of 4.584 per share. |
| U. | Increase in Interest and fees on loans of $2.5 million to record estimated amortization of premiums and accretion of discounts on acquired branch loans from SunTrust Bank. |
| V. | Adjustments to remove transaction costs incurred by First Horizon related to the SunTrust Purchase and to remove transaction costs incurred by First Horizon and IBKC related to the IBKC acquisition. |
| W. | Increase in Amortization expense of $6.1 million to record estimated amortization expense of acquired other intangible assets. See Note 2 for additional information regarding First Horizon’s amortization of acquired other intangible assets related to the SunTrust Purchase. |
| X. | Net increase in Provision for income taxes of $1.7 million to conform tax provision to the estimated effective rate for the combined entity and to record the income tax effect of pro forma adjustments at the incremental tax rate of 24.59 percent. |
| Y. | Net increase in Interest and fees on loans of $147.5 million to eliminate IBKC’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 IBKC. |
| Z. | Net decrease in Interest on investment securities of $1.2 million to remove amortization of premium from IBKC’s investment securities and to record estimated amortization of discount on acquired HTM securities. |
| AA. | Net decrease in Interest on deposits of $15.9 million to eliminate IBKC’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 IBKC. |
| BB. | Net increase in Interest on long-term debt of $3.5 million to eliminate IBKC’s amortization of premiums and accretion of discounts on previously acquired trust preferred debt and record estimated amortization of premiums and accretion of discounts on acquired long-term debt and trust preferred debt of IBKC. |
| CC. | Adjustments to recognize expense of $3.4 million for IBKC equity awards granted subsequent to the merger announcement through March 31, 2020 that will be converted to First Horizon equity awards. |
| DD. | Net increase in Amortization expense of $19.0 million to eliminate IBKC’s amortization expense on other intangible assets and record estimated amortization expense of acquired other intangible assets. See Note 3 for additional information regarding First Horizon’s amortization of acquired other intangible assets related to the IBKC acquisition. |
| EE. | Increase in Provision for income taxes of $39.7 million to record the income tax effect of pro forma adjustments at the incremental tax rate of 24.59 percent. |
| FF. | Adjustment to remove income previously allocated to participating securities under the two class method. |
| GG. | Adjustments to weighted-average shares of First Horizon common stock outstanding to eliminate IBKC weighted average shares of IBKC common stock outstanding and record shares of First Horizon common stock outstanding, calculated using the exchange ratio of 4.584. |
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Note 5 - Estimated Cost Savings and Merger Integration Costs
First Horizon expects to realize approximately $170 million, or 25 percent of IBKC’s current noninterest expense, in annual pre-tax cost savings following the merger. The estimated cost savings is expected to be 75 percent realized in the run-rate by the end of fiscal year 2021 and fully realized during fiscal year 2022 and is excluded from this pro forma analysis.
Anticipated future 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. Anticipated future merger and integration-related pre-tax costs are estimated to be $440 million.
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Note 6 - Divestiture of IBKC and/or First Horizon Bank Branches
After regulatory assessment of competitive considerations of the merger in accordance with regulatory guidelines, IBKC may be required to divest branches in certain banking areas in order to obtain regulatory approvals to complete the transactions contemplated by the merger agreement. If required by regulatory authorities, branches will be divested in certain areas in a manner sufficient to eliminate such regulatory authorities’ competitive concerns. Presently, however, no potential branch divestitures have been identified by regulators, none are expected by the parties, and therefore none are included in the pro forma analysis. See “The Merger--Regulatory Approvals” beginning on page 135 of the joint proxy statement/prospectus.
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