Note 17 — 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. In order to redeploy capital to higher-return businesses, FHN sold 34 full-service First Horizon Bank branches in its national banking markets, discontinued national homebuilder and commercial real estate lending through its First Horizon Construction Lending offices, and executed various MSR sales. In 2008, FHN sold its national mortgage origination and servicing platform including substantially all of its mortgage pipeline, related hedges, servicing assets, certain fixed assets, and other associated assets.

During first quarter 2011, FHN agreed to sell FHI and Highland. FHN has incurred goodwill impairment, severance costs, and asset write-offs related to the sale of FHI. Both sales closed in second quarter 2011.

In 2010, FHN exited its institutional research business and incurred a goodwill impairment, severance and contract terminations costs, and asset write-offs when exiting the business. Additionally, in late 2009, FHN sold and closed its Louisville remittance processing operations and the Atlanta insurance business and also cancelled a large services/consulting contract. Net costs recognized by FHN in the six months ended June 30, 2011, related to restructuring, repositioning, and efficiency activities were $29.7 million. Of this amount, $11.2 million represented exit costs that were accounted for in accordance with the Exit or Disposal Cost Obligations Topic of the FASB Accounting Standards Codification ("ASC 420"). Significant expenses recognized year to date 2011 resulted from the following actions:

	•		Severance and other employee costs of $10.2 million primarily related to efficiency initiatives within corporate and bank services functions which is 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.

	•		Loss of $9.0 million related to cancellation of a technology services contract which is reflected in All other expense.

Net costs recognized by FHN in the six months ended June 30, 2010, related to restructuring, repositioning, and efficiency activities were $10.7 million. Of this amount, $6.3 million represented exit costs that were accounted for in accordance with ASC 420. Significant expenses recognized through June 30, 2010, resulted from the following actions:

	•		Severance and other employee costs of $2.5 million related to the exit of the institutional equity research business and the 2009 sale of Louisville remittance processing operations which is primarily included in Income/(loss) from discontinued operations, net of tax.

	•		Goodwill impairment of $3.3 million and lease abandonment expense of $2.3 million primarily related to the closure of the institutional equity research business which is classified within 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 six months ended June 30, 2011 and 2010, is presented in the following table, along with other restructuring and repositioning expenses recognized. 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.


	Three Months Ended											Six Months Ended
	June 30											June 30
	2011					2010						2011					2010
(Dollars in thousands)	Expense			Liability		Expense			Liability			Expense			Liability		Expense			Liability

Beginning balance	$	—		$	8,643	$	—		$	15,653		$	—		$	9,108	$	—		$	15,903
Severance and other employee related costs		7,740			7,740		(508	)		(508	)		10,236			10,236		2,540			2,540
Facility consolidation costs		44			44		21			21			839			839		2,311			2,311
Other exit costs, professional fees, and other		84			84		(28	)		(28	)		84			84		1,461			1,461

Total accrued		7,868			16,511		(515	)		15,138			11,159			20,267		6,312			22,215
Payments related to:
Severance and other employee related costs					476					213						3,430					5,703
Facility consolidation costs					586					830						1,276					1,396
Other exit costs, professional fees, and other					87					419						87					1,377
Accrual reversals					—					1,839						112					1,902

Restructuring and repositioning reserve balance				$	15,362				$	11,837					$	15,362				$	11,837

Other restructuring and repositioning expense:
Mortgage banking expense on servicing sales		—					1,532						—					1,532
(Gains)/losses on divestitures		(753	)				—						(753	)				—
Impairment of premises and equipment		—					—						184					706
Impairment of intangible assets		—					—						10,100					3,348
Impairment of other assets		—					36						—					267
Other		9,040					(1,485	)					9,040					(1,466	)

Total other restructuring and repositioning expense		8,287					83						18,571					4,387

Total restructuring and repositioning charges	$	16,155				$	(432	)				$	29,730				$	10,699

Certain previously reported amounts have been reclassified to agree with current presentation.

FHN began initiatives related to restructuring in second quarter 2007. Consequently, the following table presents cumulative amounts incurred to date through June 30, 2011, for costs associated with FHN's restructuring, repositioning, and efficiency initiatives:


	Total
(Dollars in thousands)	Expense

Severance and other employee related costs	$	71,418
Facility consolidation costs		39,580
Other exit costs, professional fees, and other		19,030
Other restructuring and repositioning expense/(income):
Loan portfolio divestiture		7,672
Mortgage banking expense on servicing sales		21,175
Net loss on divestitures		11,755
Impairment of premises and equipment		22,081
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 June 30, 2011	$	289,008

Certain previously reported amounts have been reclassified to agree with current presentation.