Note 16—Restructuring, Repositioning, and Efficiency

Beginning in 2007, FHN conducted a company-wide review of business practices with the goal of improving its overall profitability and productivity. Such reviews continue throughout the organization. Since 2007, in order to redeploy capital to higher-return businesses, FHN exited or sold non-strategic businesses, eliminated layers of management, and consolidated functional areas.

Generally, restructuring, repositioning, and efficiency charges related to exited businesses are included in the non-strategic segment while charges related to corporate-driven actions are included in the corporate segment. During the three months ended March 31, 2012, FHN recognized a net credit of $.2 million related to restructuring, repositioning, and efficiency activities. Exit costs that were accounted for in accordance with the Exit of Disposal Cost Obligations Topic of the FASB Accounting Standards Codification ("ASC 420") were not material. There were no significant expenses recognized during the three months ended March 31, 2012.

Net costs recognized by FHN during the three months ended March 31, 2011 related to restructuring, repositioning, and efficiency activities were $13.6 million. Of this amount, $3.3 million represented exit costs that were accounted for in accordance with ASC 420. Significant expenses recognized during the three months ended March 31, 2011 resulted from the following actions:

•

Severance and other employee costs of $2.5 million primarily related to efficiency initiatives within corporate and bank services functions which are classified as Employee compensation, incentives, and benefits within noninterest expense.

•

Goodwill impairment of $10.1 million related to the contracted sale of FHI which is reflected in Income/(loss) from discontinued operations, net of tax.

•

Lease abandonment expense of $.8 million related to FTN Financial which is reflected in Occupancy within noninterest expense.

•

Loss of $.2 million primarily related to other asset impairments due to the contracted sale of FHI which is reflected in Income/(loss) from discontinued operations, net of tax.

Settlement of the obligations arising from current initiatives will be funded from operating cash flows. The effect of suspending depreciation on assets held-for-sale was immaterial to FHN's results of operations for all periods. Due to the broad nature of the actions being taken, substantially all components of expense have benefitted from past efficiency initiatives and are expected to benefit from the current efficiency initiatives.

Activity in the restructuring and repositioning liability for the three months ended March 31, 2012 and 2011 is presented in the following table, along with other restructuring and repositioning expenses recognized.


	Three Months Ended March 31
	2012						2011
(Dollars in thousands)	Expense			Liability			Expense		Liability
Beginning balance	$	—		$	12,026		$	—	$	9,108
Severance and other employee related costs		(152	)		(152	)		2,496		2,496
Facility consolidation costs		44			44			795		795
Other exit costs, professional fees, and other		111			111			—		—

Total accrued		3			12,029			3,291		12,399
Payments related to:
Severance and other employee related costs					2,037					2,954
Facility consolidation costs					592					690
Other exit costs, professional fees, and other					15					—
Accrual reversals					997					112

Restructuring and repositioning reserve balance				$	8,388				$	8,643

Other restructuring and repositioning expense:
Mortgage banking expense on servicing sales		—						—
(Gains)/losses on divestitures		(200	)					—
Impairment of premises and equipment		5						184
Impairment of intangible assets		—						10,100
Impairment of other assets		—						—
Other		—						—

Total other restructuring and repositioning expense		(195	)					10,284

Total restructuring and repositioning charges	$	(192	)				$	13,575

FHN began initiatives related to restructuring in second quarter 2007. Consequently, the following table presents cumulative amounts incurred to date through March 31, 2012 for costs associated with FHN's restructuring, repositioning, and efficiency initiatives:



(Dollars in thousands)	Expense
Severance and other employee related costs	$	77,644
Facility consolidation costs		40,694
Other exit costs, professional fees, and other		19,165
Other restructuring and repositioning expense:
Loan portfolio divestiture		7,672
Mortgage banking expense on servicing sales		21,175
Net loss on divestitures		947
Impairment of premises and equipment		22,380
Impairment of intangible assets		48,231
Impairment of other assets		40,492
Other		7,574

Total restructuring and repositioning charges incurred to date as of March 31, 2012	$	285,974