Planning for the Future

Memphis-based First Horizon prepares for changing industry

By Andy Meek

A few months ago, CNBC broadcaster Jim “Mad Money” Cramer all but reached up to the TV screen on his set to high-five Bryan Jordan, president, CEO and chairman of First Horizon National Corp., whose image was there via satellite.

Brenda Jorgensen operates a transport machine that scans and encodes checks in the operations center for Memphis-based First Horizon National Corp., parent company of First Tennessee Bank.

(Photos: Lance Murphey)

Cramer has been bullish on First Horizon and its regional banking unit First Tennessee Bank for a while now. During segments when he talks about regional banking, Cramer frequently brings in Jordan to talk about First Horizon as a poster child for the category, and on this particular show, Cramer had just run through a laundry list of everything he thinks the bank is doing right.

“Your stock is just way too cheap. It makes no sense to me, sir,” Cramer told Jordan.

Of course, there are bigger forces at work. Banks, in general, aren’t something the average investor is racing to get their broker on the phone for.

It was a tough business during the recession, and it’s still a tough business now.

Interest rates are low and are staying that way for a few more years. Loan demand is hovering somewhere between middling and weak. And regulatory bodies have not slowed down in carving away at areas of profit for banks, including clamping down on certain fees.

But it’s not just Cramer. There it was, a few weeks ago after First Horizon’s most recent quarterly earnings announcement.

This is how Kevin Reynolds, a bank analyst with Memphis-based Wunderlich Securities Inc., put it in a commentary he released to clients:

“Investors should own (First Horizon) shares after this pretty solid quarter,” Reynolds wrote.

After years of overexpansion during the housing boom and a sharp course-correction that got under way before the worst of the bust took hold, the clouds still haven’t yet parted for First Horizon, parent of the largest bank based in Tennessee. But the First Tennessee/First Horizon story is squarely in a new phase.

The bank is preparing for a future it cannot predict, for realities that bring high stakes but which aren’t largely foreseeable, by taking cautious steps that have high option value.

Robin Holcomb monitors a high-speed mail extractor in the operations center for First Horizon National Corp. The machine can handle 10,000 pieces of mail per hour. 

It’s why, for example, the bank a few weeks ago extended voluntary buyout offers to 400 employees. First Horizon’s chief human resources officer John Daniel told The Daily News that anyone who’s followed the First Horizon story will know it has reduced expenses significantly in recent years, which is true.

Since 2007 and 2008, First Horizon has been “cleaning up the mess left by its out-of-state expansion and refocusing on its home market,” according to Morningstar Inc. analyst Maclovio Pina.

The company sold its national mortgage platform and has been liquidating its lending activities outside of Tennessee, Pina continued.

Behind the scenes, First Horizon has been making $100 million in technology improvements, according to chief financial officer William Losch.

“When we started reinvesting in technology for our core banking business in earnest in 2009, we had not invested in it strongly since 2000,” Losch said.

So, the effort was first to get the bank up to par, and then to make it more efficient. As to the recent buyouts, they were directed to the back office in operational – non-customer facing – areas like finance and human relations.

And it’s a targeted effort. In Losch’s words, the company tries to “measure twice and cut once.”

First Horizon’s leadership has long said, and continues to say, they’ll pull the trigger on acquisitions when they find the right deal. That could be sooner than later.

According to data from Wunderlich, the industry is over-banked. There are almost 2,400 banks headquartered in the South with assets of less than $1 billion. Of those, more than 40 percent have CEOs older than age 60.

Reynolds said that First Horizon could participate in some degree of merger-and-acquisition activity in the next few years because of increased capital requirements coming to the industry, a heavier regulatory burden, a slowing economy and low interest rate environment.

“We’re evolving the company back toward our roots,” Losch said. “We’re right-sizing it. The industry has fundamentally changed. Now, for example, we have the Durbin amendment, through which the fees we gather on debit card transactions were materially reduced, which squeezes our margins. We also remain in a low interest rate environment.

“We can’t control the rate environment or regulators. But we can control how to improve, and which of our businesses to invest in.”

And that includes where to invest. The Nashville area is the only major area in Tennessee where the company doesn’t have a dominant market share.

Losch said the company has over the past three years grown its deposits 55 percent in the Nashville area. It’s hired several bankers and picked up some new ones recently, and it has a goal of banking large health care clients in Nashville.