VOL. 128 | NO. 178 | Thursday, September 12, 2013
First Horizon Copes With Customers’ Evolving Needs
By Andy Meek
First Tennessee Bank will celebrate its 150th birthday in March. Leading up to that milestone, the way the venerable institution’s customers are engaging with its products and services is in the midst of a radical transformation – something that’s been the case for the last few years but the pace of which now is accelerating, the chief executive of the bank’s parent company told analysts this week.
Bryan Jordan, president and CEO of Memphis-based First Horizon National Corp., said during the Barclays Global Financial Services Conference that his company is seeing an inexorable decline in the number of visits customers are making to branches. It’s not a new theme for the bank, which has addressed the problem in other public forums before now, as have many peer institutions.
Jordan went into considerable detail at the Barclays conference, though, and explained how the bank has been moving behind the scenes to try and mitigate that problem.
First, it’s a significant shift the company is seeing, Jordan said. Five years ago, the average household would visit a branch at least once a month 80 percent of the time to conduct a transaction. Today, that number is in the low 50 percent range. The bank also is getting a double whammy in the form of not only fewer visits but less activity.
At the same time visits are down, transactions – measured by paper, which includes things like the number of checks and the number of deposits – also are falling rapidly, Jordan said. Not that the reason was or should be a surprise to anyone.
“Customers are coming in less, and when they’re here they’re doing less activity,” Jordan said. “The nature of that change is being driven by mobile banking, by (things like) the ability to make deposits on cell phones.”
Until recently, First Horizon had upward of 200 branches in its bank branch network, a number that’s now down to a little more than 170 branches. And that pattern isn’t changing.
The largest banking institution headquartered in Tennessee will continue to “rethink,” in Jordan’s words, the size and configuration of its branch network. One way that’s being done is through a kind of prototype bank branch model, something The Daily News previously has reported First Tennessee is pursuing.
First Tennessee has been upgrading existing branches through a combination of investments in technology and staff. At the same time, it has introduced a new branch prototype that brings a fresh approach to the in-person banking experience.
The bank has launched a concierge-type service in uniquely configured branches at three locations around Tennessee, one of which is in Memphis. As part of the test, customers are greeted immediately upon walking in to the branch. The person who greets them escorts them to a workstation to help with their needs.
A goal is that the center of the action inside these First Tennessee branches moves away from “teller row” and out into the branch itself.
“This is a learning process for us,” Jordan said. “It won’t work in all of our financial centers. It depends on the number and level of transactions.”
He said it’s an attempt to answer the question of how First Tennessee can make branch banking a better experience for customers and do it in a way that recognizes the reality of customer behavior and preferences.
“We’re not sure today where branch banking ends up five or 10 years down the road, but this is an inflection point,” Jordan said.
Some of the macro factors confronting the bank, like interest rates and loan demand, are out of management’s control. A differentiated customer experience is one factor it has the power to adjust, which explains the creation of the prototype branches.
Regarding the macro factors, Wunderlich Securities this week dropped First Horizon from a buy rating to a hold rating, following a meeting with First Horizon management. Wunderlich bank analyst Kevin Reynolds wrote in a note to clients the “outlook on FHN shares is incrementally more cautious given a persistently difficult environment with near-term headwinds impacting both FHN’s spread-based banking business as well as its fixed income sales operation.”
In his Barclays remarks this week, Jordan acknowledged the macro forces at work and that the bank is “focused in this environment on controlling those things we can.”
First Horizon has slimmed itself down, for example, to being essentially comprised of two businesses today – it has a regional banking unit (First Tennessee) as well as a capital markets business. The company, as a whole, is focused on cost reduction, process improvement, reducing the company’s risk profile and building a strong relationship-oriented balance sheet.
“I like the prospects we have to continue to invest in the business in the long term,” Jordan said.