First Horizon in Savings Mode

By Andy Meek

First Tennessee Bank’s parent company is serious about cutting costs. Memphis-based First Horizon National Corp. had originally tagged $110 million in cost savings to try and reach in 2011, which the company’s chief financial officer called “a watershed year for us” in a presentation to analysts a few days ago in Boston.

The company then grew that figure to $125 million. By the end of 2011, it was $139 million.

“In 2012, we’re intently focused on two key themes,” First Horizon CFO William “B.J.” Losch said Thursday, March 1, at the 2012 Keefe, Bruyette & Woods Boston Bank Conference. “One is continued successful execution across all of our businesses. No. 2 (is) in an uncertain environment, really controlling what we can control, all leading to continued progress toward long-term returns and profitability.

“We’re targeting $1 billion of consolidated expenses by the end of 2013, which would equate to a 25 (percent) to 30 percent reduction from 2010 levels. We don’t view efficiency as a program with a finite end. As an uncertain environment dictates, we will respond appropriately to continue to improve our profitability.”

That philosophy is in stark contrast to the motivation that only a few years ago guided the largest banking company based in Tennessee.

First Horizon management is focused on profitability today, rather than the growth of yesterday, according to Wunderlich Securities Inc. banking analyst Kevin Reynolds. He recently met with the company’s management as part of regular sessions in which they give analysts a flavor of the company’s operation.

Since 2007, according to an analyst note from Reynolds following that meeting, First Horizon has shrunk its asset base by $12 billion. It’s reduced headcount by more than 50 percent during that period, sold its mortgage origination business, improved profitability and significantly reduced credit costs.

The company brought back its quarterly cash dividend in January 2011, whereas before it had issued a dividend in the form of stock. In October, the company announced it’s repurchasing $100 million of its common stock by August 2012.

“While market conditions continue to improve, management acknowledged that customers continue to delever as uncertainty lingers, constraining meaningful loan growth in the near term,” Reynolds wrote. “However, FHN remains focused on profitability, with (the fourth quarter) marking the company’s seventh straight quarter of operating profitability.”

Reynolds did note that loan demand in the company’s markets remains relatively weak, a point Losch acknowledged in his recent presentation.

Losch said there’s not much inherent loan demand in the market right now, but that while the company’s overall loan mix is consumer-oriented, its regional banking franchise is a more commercially oriented franchise from a lending perspective.

For now, market share growth is one of the main drivers of growth for the company, as opposed to an uptick in borrowing by customers.

Reynolds said First Horizon continues to maintain the top market share ranking in three of the four largest metro areas in Tennessee, with Nashville as the exception. There, First Horizon has the No. 5 market share spot, which the company sees as a major area of opportunity.

First Horizon has added around 10 to 15 bankers in the Nashville market in the last two years, according to Reynolds.