First Horizon's hustle won it new customers. Now it needs to keep them.
First Horizon embarked on an aggressive customer acquisition campaign this spring to help navigate the aftermath of its failed sale to TD Bank and broader issues within the industry.
The canceled TD Bank deal came at about the same time as the high-profile failure of Silicon Valley Bank, Federal Reserve rate hikes, concerns about a recession and increased competition for bank deposits.
"It was a period where there was an awful lot in play," Bryan Jordan, First Horizon's president and CEO, said during the company's earnings call with analysts on Wednesday. He added that about 50,000 First Horizon staffers were involved in the campaign.
"It was a great chance to get bankers on the phone talking to people about First Horizon," he added.
That effort seems to have paid off. The Memphis-based bank reported on Wednesday that interest-bearing deposits grew from $40.3 billion to $46.6 billion during the second quarter. It also added 32,000 new clients, which represents about 4% growth.
Of the 32,000 new clients, about 24,000 were consumer customers and 6,000 were commercial. A fifth of the client growth was in the $85.1 billion-asset First Horizon's home market of Tennessee, with the rest coming from other parts of the South.
Of the 19,000 existing First Horizon clients that took advantage of the special interest rate offer for savings accounts, 51% were consumer clients and 49% were corporate accounts. Migrating the new customers closer to this ratio would involve adding additional financial products in most cases, the company said.
"Over the next several quarters we will grow our presence in high-growth areas across the South," Jordan said, adding First Horizon also plans to sell into the legacy markets it inherited when it bought Iberiabank in 2020.
But the successful deposit campaign, along with higher overall interest rates, drove an increase in interest-bearing deposit costs from 1.73% to 2.55%.
The next phase of the bank's strategy is to cross-sell products to these customers while easing the special rates used during the campaign, which expired on June 30. For example, the interest rate for the bank's money market account has been lowered from 5.25% to 4.25%. Similar adjustments have been made to other savings accounts, according to the bank.
"Now that we have a deposit relationship, we're not seeing them as transitional," Hope Dmuchowski, First Horizon's chief financial officer, said during the earnings call.
"We have 4% more clients this quarter than before and there is an opportunity to grow relationships," Dmuchowski added.
TD Bank's acquisition of First Horizon was initially announced in February 2022 but it faced a year of delays before being called off in May. First Horizon executives previously said the bank has turned to playing "offense" as it remains independent after the deal was scuttled.
For the quarter ending June 30, First Horizon reported net income of $317 million, or $0.56 per share. That's up about 90% from the bank's net income for the same period a year earlier and beat Zacks Investment Research average analyst estimate of $0.39 per share. The bank reported second-quarter revenue of $1.42 billion, which also beat Zacks' estimate of $890 million.
Net interest income grew by 8%, higher than the bank's projected 7%. "Part of the spin may be that the promotional marketing campaign to restart deposit growth was better than expected," Brian Horan, co-founder of Autonomous Research, wrote in a note to clients of the boost in net interest income.
First Horizon's 2023 earnings outlook remained the same, with net interest income growing between 6% and 9% for the year. The bank said there would be no share buybacks this year despite an 11.1% common equity tier 1 ratio. That metric was on pace to reach 11.75% by the end of the year and was significantly higher than the industry average of about 9.9%. First Horizon bank plans to use that to help manage the risks of an economic downturn.
"The excess capital story [for First Horizon] in 2024 will be meaningful," Horan said in his research note.
