First Tennessee National Corp.’s strategy to grow its fee-income business is moving ahead with plans to transform its nationwide chain of mortgage offices into financial centers, adding insurance, credit card and brokerage services, to solidify customer loyalty and boost profitability.

"We’ve got one-product customers and we want to make them five-, six, seven-product customers. The more products you can get a customer to use and you do a good job on, then they’ll stay with you. Then they start recommending other customers to you," said Ralph Horn, First Tennessee’s Chairman and CEO.

The $18.7-billion-asset bank concluded several years ago that while being a good, solid commercial bank was key, it would also need to have a healthy fee-income franchise to prosper and to give shareholder value. That it has done, building a nationwide Dallas-based retail mortgage origination empire that ranks in the top ten in the country, a capital markets group that is the top underwriter of agency securities and can claim 30% of all banks in the country as customers, and a booming transaction processing business, ranking 11th nationwide.

Horn proudly cites statistics that rank the Memphis-based bank in the top ten banks in country for earnings-per-share growth, one of the top returnon-equity companies, with a 22.7% ROE for 1998, and one of the top-five fee income producers–64% of revenues–among commercial banks. About half the company’s bottom line comes from fee income businesses, and about half from being the top commercial bank in Tennessee. It has the number one market share in four of the state’s five metro areas.

Now Horn wants to take the company’s non-retail banking customers who are scattered all over the country–the mortgage holders–and strengthen those relationships, leveraging them into credit card, insurance and brokerage services relationships. Part of the plan to do this is the recently-embarked upon re-branding campaign to give one name and image to the company’s nine mortgage banks, credit card and other products. The bank hopes the new name, First Horizon, will smooth over reservations that a satisfied mortgage borrower, at, for example, the company’s Emerald mortgage company in Seattle, might have with a First Tennessee credit card. The new tagline, "All Things Financial," also aims to get customers thinking of the company as the place for all their financial needs.

Horn’s plan is to transform several of the company’s 167 mortgage offices in 32 states into financial centers by the end of the year, with the company’s employees taking over roles as insurance agents and brokers. He said so far the company has begun an "aggressive" strategy of marketing insurance to the current customer base and has registered 200 bank employees as insurance agents. The firm may have to hire more brokers outside of Tennessee to staff the new financial centers, but hopes to fill the posts with more of its current employees. Horn said he can see maybe 20-25 addtional offices opened in the U.S. by the time the plan is completely carried out.

Another way the bank plans to leverage its existing customer base is with its six-month-old Internet bank, which will also move to the First Horizon brand. The idea is to extend the financial center concept and garner current mortgage customers or credit card customers as retail bank customers. "We plan to access our customers and allow them to access us," Horn said.

Although the Internet bank is accessible through the main First Tennessee site, Horn said he doesn’t plan to do any mass marketing campaigns, which would be too expensive. Nor does he expect to garner many customers who are altogether new to the company through Web traffic, although they would certainly be welcome. Although the Internet bank is under First Tennessee now, as it goes nationwide, depending on state laws, it will probably have to set up as a separate subsidiary under the holding company.

Now the bank has 525,000 commercial bank customers in Tennessee, and another 500,000 customers from other businesses. Horn said he hopes the latter will catch up to the former by year-end.

He added that in the company’s commercial banking base, First Tennessee, which operates primarily out of its home state with a branch or two in Mississippi and Arkansas, currently gets two-thirds of its new customers from current customer referrals.

Another big part of the company strategy is pampering the customer. A statistic Horn is keen to point out is the firm’s 97%-98% customer retention rate. The flip side of the pamper-the-customer strategy is the company’s focus on keeping employees happy and turnover low, which has gained the bank the rank of 14th best company to work for in the country from Fortune magazine. Horn said a big part of keeping customers happy is keeping employees happy and worry-free.

Part of helping the employees to focus on their tasks and carry out the strategy of keeping customers is achieved, he said, by letting everyone in the company know that the bank will stay independent and that they needn’t worry about being taken over, or merged with another bank. "We don’t buy banks," Horn said simply, explaining that the revenue growth generated by the retail bank side of the company is all done internally. The company does not, however, have a moratorium on acquisition of fee-based companies, such as mortgage lenders. Horn stressed that the company’s superior average annual return to stockholders of 32% over the last five years, plus a 15.2% revenue growth over the decade, means the company has been doing something right.

"We don’t want to change that by being involved in a lot of merger activity." In addition, the employees are all shareholders themselves, which is another incentive to keep focused on the company’s customer-centered strategy.

"We’re a niche player. we’re not trying to cover the world. We just want to be a great bank."