First Horizon National Corp. said Thursday that it will sell its bank branches outside Tennessee and nearby markets, reversing the national expansion strategy it has followed the last four years.
Other major changes may be in store for the Memphis banking company, which has a nationwide mortgage operation and a capital markets business with a fixed-income focus. Related Links
"There are no sacred cows," Gerald L. Baker, First Horizon's chief executive, said on a conference call Thursday. "A lot of things have been teed up" for the coming months.
First Horizon also said it had expanded its effort to reduce costs, projecting an annual savings rate of $125 million from cuts this year, $35 million more than its previous target.
In 2004, First Tennessee National Corp. adopted the First Horizon handle, which its mortgage unit had been using since 2000. (The company continued to use the First Tennessee brand in its home market.) The parent's name change reflected its national ambitions; it built full-service bank branches in markets where its mortgage operation had already established itself.
First Horizon now has 34 banking outposts in the Atlanta, Baltimore, Dallas, and northern Virginia areas. These branches lost about $10 million in the second quarter, and First Horizon
The company's profits declined from 2003 to 2005 but recovered somewhat last year. In January, J. Kenneth Glass
Three months later First Horizon
On Thursday, Robert Patten, an analyst at Regions' Morgan Keegan & Co. Inc., applauded First Horizon's retreat.
"We've been saying" that First Horizon should make such a move "for a year," he said.
"The national expansion strategy has been flawed. It is unprofitable. You can't grow the credit side of the balance sheet without deposits to fund it. … They've been growing on a national scale … and funding it off the Tennessee" and mortgage servicing rights "deposit base."
In an
On the call Thursday, Mr. Jordan said that First Horizon's strategic review "really picked up through the month of June," and that "the majority" of decisions in other areas "ought to be fairly evident by the end of the third quarter."
Some of the projected savings will come from "further right-sizing the mortgage and capital markets" businesses, he said.
Meanwhile, First Horizon is investing more in the Tennessee retail banking operation by increasing deposit rates and hiring "top talent from competitors," Mr. Jordan said.
Mr. Baker said, "I don't believe we've invested as we need to in our Tennessee market, both in marketing and in our pricing strategy."
Cost-cutting efforts generated $39.3 million of second-quarter pretax restructuring charges. All told, earnings fell 78.8% that quarter from a year earlier, to $22.2 million, or 17 cents a share.
The $38.4 billion-asset company
First Horizon expects to incur an additional $50 million to $60 million of restructuring charges this year, and to realize all of its targeted cost savings in the first quarter of next year.
Excluding one-time costs, operating expenses rose modestly in the second quarter. First Horizon projected that as a result of its efficiency program, it will report a drop in expenses for the second quarter of next year.
However, the savings and restructuring charge projections do not account for the effects of the banking retreat.
