A few bank stocks roared back to within inches of their 52-week highs early this week as the market rebounded. But First Tennessee Corp. was already there and escaped with less damage than most in Wednesday's 11th- hour market rout.
The $18 billion-asset banking company, based in Memphis, is one of a handful of top-50 banks that hit new highs over the past wee. Its stock closed Friday at $39.4375. Others in this select group include Chase Manhattan Corp., State Street Corp., and Northern Trust Corp., which set records in Monday's rally.
All but State Street gave back their gains Wednesday on renewed fears of interest rate increases. First Tennessee's shares closed down 75 cents, at $37.875-a 1.94% drop on a day when bank stocks fell an average of 3.13%.
That's a familiar pattern for First Tennessee's shares, which have retained value fairly consistently, observers said. Amid this winter's market turbulence, First Tennessee "has been ahead of the pack throughout," said Sean Ryan, banking analyst at Bear, Stearns & Co. in New York, who has a "buy" rating in place.
Analysts credit solid revenue growth and management's candor with investors for the following that First Tennessee has amassed on Wall Street.
Mr. Ryan, who calls the stock "one of my favorite stories," says First Tennessee's strength is that "rather than building an empire, they're much more concerned about building value for their shareholders."
First Tennessee "is gaining a valuation in line with the more elite, high-performing institutions," said Joseph Stieven, banking analyst with Stifel Nicolaus in St. Louis.
A high stock price is a priority of First Tennessee chairman Ralph Horn, who spends roughly 20% of his time speaking with analysts and investors.
"We want to get our story out," Mr. Horn said. "It's very important to provide information and results that keep our shareholders happy. Our message allows us to stay independent and execute our own strategy."
In meetings with Wall Street, Mr. Horn will typically talk up the company and then send analysts away with 50 or 60 more pages of information. "The level of insight that First Tennessee is willing to give investors lends a great deal of confidence that they know what they're doing," Mr. Ryan said.
First Tennessee's core strategy is to expand fee income businesses like mortgage banking, capital markets, and transaction processing, Mr. Horn said. These businesses account for two-thirds of revenues, compared with the one-third they supply to most other banking companies.
This approach can help insulate First Tennessee from interest rate shifts to which other banks are vulnerable, Mr. Horn said.
Analysts expect First Tennessee's approach to be emulated by others. "They're like the alpha bank," Mr. Ryan said. "Where they lead, the industry ultimately follows."
Investors also applaud First Tennessee's focus on fee income. "They've done quite well at developing businesses that are ancillary to traditional banking," said James Schmidt, an investment manager at John Hancock Advisers.
Mr. Schmidt, who said First Tennessee is a core holding in John Hancock's bank stock portfolio, said he likes that First Tennessee emphasizes internal growth.
Analysts agree with the assessment. "Instead of going out and paying top dollar for someone else's franchise, they are successfully reinvesting in their own operations," Mr. Ryan said.
But First Tennessee must continue to perform to keep its following.
"They've developed a superior business mix. The challenge now is to make every business line best in class," said Michael Mayo, banking analyst at Credit Suisse First Boston.