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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
- or -
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the Transition period from __________ to__________
Commission File Number 0-4491
FIRST TENNESSEE NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
TENNESSEE 62-0803242
(State or other jurisdiction of (I.R.S. Employer Identi-
incorporation or organization) fication Number)
165 Madison Avenue, Memphis, Tennessee 38103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including Area Code: 901-523-5630
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
$2.50 Par Value Common Capital Stock
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X YES NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
-----
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At February 23, 1994, the aggregate market value of the voting stock of the
registrant held by non-affiliates of the registrant was approximately
$1,116,000,000.
At February 23, 1994, the registrant had 30,175,456 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. Annual Report To Shareholders for the year ended 12/31/93 - Parts I,
II, and IV.
2. Proxy Statement furnished to shareholders in connection with Annual
Meeting of Shareholders scheduled for 04/19/94 - Part III (to be
provided by amendment not later than 120 days after the end of the
1993 fiscal year per General Instruction G(3) to Form 10-K).
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PART I
ITEM 1
BUSINESS
General.
First Tennessee National Corporation (the "Corporation") is a
Tennessee corporation incorporated in 1968 and registered as a bank holding
company under the Bank Holding Company Act of 1956, as amended. At December
31, 1993, the Corporation had total assets of $9.6 billion and ranked first in
terms of total assets among Tennessee-headquartered bank holding companies and
ranked in the top 65 nationally.
Through its principal subsidiary, First Tennessee Bank National
Association (the "Bank"), and its other banking and banking-related
subsidiaries, the Corporation provides a broad range of financial services. The
Corporation derives substantially all of its consolidated total pre-tax
operating income and consolidated revenues from the banking business. As a
bank holding company, the Corporation coordinates the financial resources of
the consolidated enterprise and maintains systems of financial, operational and
administrative control that allows coordination of selected policies and
activities. The Corporation assesses the Bank and its subsidiaries for
services they receive on a formula basis it believes to be reasonable.
The Bank is a national banking association with principal offices in
Memphis, Tennessee. It received its charter in 1864 and operates primarily on
a regional basis. During 1993 it generated gross revenue of approximately $841
million and contributed 96.1% of consolidated net income from continuing
operations. At December 31, 1993, the Bank had $9.4 billion in total assets,
$7.0 billion in total deposits, and $5.8 billion in net loans. Within the
State of Tennessee on December 31, 1993, it ranked first among banks in terms
of total assets and deposits. Nationally, it ranked in the top 100 in terms of
total assets and deposits as of December 31, 1993. On December 31, 1993, the
Corporation's subsidiary banks had 214 banking locations in 20 Tennessee
counties, including all of the major metropolitan areas of the state, and 4
banking locations in Mississippi.
An element of the Corporation's business strategy is to seek
acquisitions that would enhance long-term shareholder value. The Corporation
has an acquisitions department charged with this responsibility which is
constantly reviewing and developing opportunities to achieve this element of
the Corporation's strategy.
The Corporation significantly expanded its mortgage banking operations
at the end of 1993. On October 1, 1993, the Bank acquired Maryland National
Mortgage Corporation, Baltimore, Maryland ("MNMC") and its wholly-owned
subsidiary, Atlantic Coast
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Mortgage Company, in a transaction accounted for as a purchase. At the time of
acquisition, MNMC had total assets of approximately $538 million and a mortgage
servicing portfolio of approximately $4.0 billion. On January 4, 1994, the
Corporation acquired SNMC Management Corporation, the parent of Sunbelt
National Mortgage Corporation, Dallas, Texas ("SNMC") in a transaction
accounted for as a pooling-of-interests. SNMC became a subsidiary of the Bank
at the close of the transaction. At the time of the acquisition, SNMC had
total assets of approximately $451 million and a mortgage servicing portfolio
of approximately $6.0 billion.
The Corporation provides the following services through its
subsidiaries:
. general banking services for consumers, small businesses,
corporations, financial institutions, and governments
. bond division-primarily sales and underwriting of
bank-eligible securities and mortgage loans and advisory
services to other financial institutions
. mortgage banking services
. trust, fiduciary, and agency services
. a nationwide check clearing service
. merchant credit card and automated teller machine transaction
processing
. discount brokerage, brokerage, venture capital, equipment
finance and credit life insurance services
. investment and financial advisory services
. mutual fund sales as agent
. check processing software and systems.
All of the Corporation's subsidiaries are listed in Exhibit 21. The
Bank has filed notice with the Comptroller of the Currency as a government
securities broker/dealer. The bond division of the Bank is registered with the
Securities and Exchange Commission ("SEC") as a municipal securities dealer
with offices in Memphis and Knoxville, Tennessee; Mobile, Alabama; and Overland
Park, Kansas. The subsidiary banks are supervised and regulated as described
below. First Tennessee Investment Management, Inc., is registered with the SEC
as an investment adviser. Hickory Venture Capital Corporation is licensed as
a Small Business Investment Company. First Tennessee Brokerage, Inc. is
registered with the SEC as a broker-dealer.
Expenditures for research and development activities were not material
for the years 1991, 1992 or 1993.
Neither the Corporation nor any of its significant subsidiaries is
dependent upon a single customer or very few customers.
At December 31, 1993, the Corporation and its subsidiaries had
approximately 5,653 full-time-equivalent employees, not including
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contract labor for certain services, such as guard and house-keeping.
Supervision and Regulation.
The Corporation is a bank holding company within the meaning of the
Bank Holding Company Act of 1956, as amended (the "BHCA"), and is registered
with the Board of Governors of the Federal Reserve System (the "Board"). The
Corporation is required to file with the Board annual and quarterly reports
and such additional information as the Board may require pursuant to the Act.
The Board may also make examinations of the Corporation and its subsidiaries.
The following summary of the Act and of the other acts described herein is
qualified in its entirety by express reference to each of the particular acts
and the applicable rules and regulations thereunder.
GENERAL
As a bank holding company, the Corporation is subject
to the regulation and supervision of the Board under the BHCA. Under
the BHCA, bank holding companies may not in general directly or
indirectly acquire the ownership or control of more than 5% of the
voting shares or substantially all of the assets of any company,
including a bank, without the prior approval of the Federal Reserve
Board. The BHCA also restricts the types of activities in which a
bank holding company and its subsidiaries may engage. Generally,
activities are limited to banking and activities found by the Federal
Reserve Board to be so closely related to banking as to be a proper
incident thereto.
In addition, the BHCA generally prohibits, subject to certain
limited exceptions, the Federal Reserve Board from approving an
application by a bank holding company to acquire shares of a bank or
bank holding company located outside the acquiror's principal state of
operations unless such an acquisition is specifically authorized by
statute in the state in which the bank or bank holding company whose
shares are to be acquired is located. Tennessee has adopted
legislation that authorizes nationwide interstate bank acquisitions,
subject to certain state law reciprocity requirements, including the
filing of an application with and approval of the Tennessee
Commissioner of Financial Institutions. The Tennessee Bank Structure
Act of 1974 prohibits a bank holding company from acquiring any bank
in Tennessee if the banks that it controls hold 16 1/2% or more of the
total deposits in individual, partnership and corporate demand and
other transaction accounts, savings accounts and time deposits in all
federally insured financial institutions in Tennessee,
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subject to certain limitations and exclusions. As of December
31, 1993, the Corporation estimates that its subsidiary banks (the
"Subsidiary Banks") held approximately 12% of such deposits. Also,
under this act, no bank holding company may acquire any bank in
operation for less than five years or begin a de novo bank in any
county in Tennessee with a population, in 1970, of 200,000 or less,
subject to certain exceptions. Under Tennessee law, branch banking is
permitted in any county in the state.
The Subsidiary Banks are subject to supervision and examination
by applicable federal and state banking agencies. The Bank is a
national banking association subject to regulation and supervision by
the Comptroller of the Currency (the "Comptroller") as its primary
federal regulator, as is First Tennessee Bank National Association
Mississippi, which is headquartered in Southaven, Mississippi. The
remaining Subsidiary Bank, Peoples and Union Bank, is a Tennessee
state-chartered bank that is not a member of the Federal Reserve
System, and therefore is subject to the regulations of and supervision
by the Federal Deposit Insurance Corporation (the "FDIC") as its
primary federal regulator, as well as state banking authorities. In
addition all of the Subsidiary Banks are insured by, and subject to
regulation by, the FDIC. The Subsidiary Banks are subject to various
requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on
the types and amounts of loans that may be granted and the interest
that may be charged thereon and limitations on the types of
investments that may be made, activities that may be engaged in, and
the types of services that may be offered. Various consumer laws and
regulations also affect the operations of the Subsidiary Banks. In
addition to the impact of such regulation, commercial banks are
affected significantly by the actions of the Federal Reserve Board as
it attempts to control the money supply and credit availability in
order to influence the economy.
PAYMENT OF DIVIDENDS
The Corporation is a legal entity separate and distinct from
its banking and other subsidiaries. The principal source of cash flow
of the Corporation, including cash flow to pay dividends on its stock
or principal (premium, if any) and interest on debt securities, is
dividends from the Subsidiary Banks. There are statutory and
regulatory limitations on the payment of dividends by the Subsidiary
Banks to the Corporation, as well as by the Corporation to its
shareholders.
Each Subsidiary Bank that is a national bank is required by
federal law to obtain the prior approval of the Comptroller for the
payment of dividends if the total of all dividends declared by the
board of directors of such Subsidiary Bank in any year will exceed the
total of (i) its net profits (as
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defined and interpreted by regulation) for that year plus (ii) the
retained net profits (as defined and interpreted by regulation) for
the preceding two years, less any required transfers to surplus. A
national bank also can pay dividends only to the extent that retained
net profits (including the portion transferred to surplus) exceed bad
debts (as defined by regulation).
State-chartered banks are subject to varying restrictions on
the payment of dividends under applicable state laws. With respect to
Peoples and Union Bank, Tennessee law imposes dividend restrictions
substantially similar to those imposed under federal law on national
banks, as described above.
If, in the opinion of the applicable federal bank regulatory
authority, a depository institution or a holding company is engaged in
or is about to engage in an unsafe or unsound practice (which,
depending on the financial condition of the depository institution or
holding company, could include the payment of dividends), such
authority may require that such institution or holding company cease
and desist from such practice. The federal banking agencies have
indicated that paying dividends that deplete a depository
institution's or holding company's capital base to an inadequate level
would be such an unsafe and unsound banking practice. Moreover, the
Federal Reserve Board, the Comptroller and the FDIC have issued policy
statements which provide that bank holding companies and insured
depository institutions generally should only pay dividends out of
current operating earnings.
In addition, under the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), a FDIC-insured
depository institution may not make any capital distributions
(including the payment of dividends) or pay any management fees to its
holding company or pay any dividend if it is undercapitalized or if
such payment would cause it to become undercapitalized. See
"--FDICIA."
At December 31, 1993, under dividend restrictions imposed
under applicable federal and state laws, the Subsidiary Banks, without
obtaining regulatory approval, could legally declare aggregate
dividends of approximately $168.2 million.
The payment of dividends by the Corporation and the Subsidiary
Banks may also be affected or limited by other factors, such as the
requirement to maintain adequate capital above regulatory guidelines.
TRANSACTIONS WITH AFFILIATES
There are various legal restrictions on the extent to which
the Corporation and its nonbank subsidiaries can borrow
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or otherwise obtain credit from the Subsidiary Banks. There
are also legal restrictions on the Subsidiary Banks' purchases of or
investments in the securities of and purchases of assets from the
Corporation and its nonbank subsidiaries, a Subsidiary Bank's loans or
extensions of credit to third parties collateralized by the securities
or obligations of the Corporation and its nonbank subsidiaries, the
issuance of guaranties, acceptances and letters of credit on behalf of
the Corporation and its nonbank subsidiaries, and certain bank
transactions with the Corporation and its nonbank subsidiaries, or
with respect to which the Corporation and its nonbank subsidiaries
act as agent, participate or have a financial interest. Subject to
certain limited exceptions, a Subsidiary Bank (including for purposes
of this paragraph all subsidiaries of such Subsidiary Bank) may not
extend credit to the Corporation or to any other affiliate (other than
another Subsidiary Bank and certain exempted affiliates) in an amount
which exceeds 10% of the Subsidiary Bank's capital stock and surplus
and may not extend credit in the aggregate to all such affiliates in
an amount which exceeds 20% of its capital stock and surplus.
Further, there are legal requirements as to the type, amount and
quality of collateral which must secure such extensions of credit by
these banks to the Corporation or to such other affiliates. Also,
extensions of credit and other transactions between a Subsidiary
Bank and the Corporation or such other affiliates must be on terms and
under circumstances, including credit standards, that are
substantially the same or at least as favorable to such Subsidiary
Bank as those prevailing at the time for comparable transactions with
non-affiliated companies. Also, the Corporation and its subsidiaries
are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or
furnishing of services.
CAPITAL ADEQUACY
The Federal Reserve Board has adopted risk-based capital
guidelines for bank holding companies. The minimum guideline for the
ratio of total capital ("Total Capital") to risk-weighted assets
(including certain off-balance-sheet items, such as standby letters of
credit) is 8%. At least half of the Total Capital must be composed
of common stock, minority interests in the equity accounts of
consolidated subsidiaries, noncumulative perpetual preferred stock
and a limited amount of cumulative perpetual preferred stock, less
goodwill and other intangible assets, subject to certain exceptions
("Tier 1 Capital"). The remainder may consist of qualifying
subordinated debt, certain types of mandatory convertible securities
and perpetual debt, other preferred stock and a limited amount of
loan loss reserves. At December 31, 1993, the Corporation's
consolidated Tier 1 Capital and Total Capital ratios were 9.60% and
12.14%, respectively.
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In addition, the Federal Reserve Board has established minimum
leverage ratio guidelines for bank holding companies. These
guidelines provide for a minimum ratio of Tier 1 Capital to average
assets, less goodwill and other intangible assets, subject to certain
exceptions (the "Leverage Ratio"), of 3% for bank holding companies
that meet certain specific criteria, including having the highest
regulatory rating. All other bank holding companies generally are
required to maintain a Leverage Ratio of at least 3%, plus an
additional cushion of at least 100 to 200 basis points. The
Corporation's Leverage Ratio at December 31, 1993 was 6.55%. The
guidelines also provide that bank holding companies experiencing
internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory
levels without significant reliance on intangible assets.
Furthermore, the Federal Reserve Board has indicated that it will
consider a "tangible Tier 1 Capital leverage ratio" (deducting all
intangibles) and other indicia of capital strength in evaluating
proposals for expansion or new activities.
Each of the Subsidiary Banks is subject to risk-based and
leverage capital requirements similar to those described above adopted
by the Comptroller or the FDIC, as the case may be. The Corporation
believes that each of the Subsidiary Banks was in compliance with
applicable minimum capital requirements as of December 31, 1993.
Neither the Corporation nor any of the Subsidiary Banks has been
advised by any federal banking agency of any specific minimum Leverage
Ratio requirement applicable to it.
Failure to meet capital guidelines could subject a bank to a
variety of enforcement remedies, including the termination of deposit
insurance by the FDIC, to certain restrictions on its business and, in
certain situations, the appointment of a conservator or receiver. See
"--FDICIA."
All of the federal banking agencies have proposed regulations
that would add an additional risk-based capital requirement based upon
the amount of an institution's exposure to interest rate risk.
HOLDING COMPANY STRUCTURE AND SUPPORT OF SUBSIDIARY BANKS
Because the Corporation is a holding company, its right to
participate in the assets of any subsidiary upon the latter's
liquidation or reorganization will be subject to the prior claims of
the subsidiary's creditors (including
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depositors in the case of the Subsidiary Banks) except to the extent
that the Corporation may itself be a creditor with recognized claims
against the subsidiary. In addition, depositors of a bank, and the
FDIC as their subrogee, would be entitled to priority over other
creditors in the event of liquidation of a bank subsidiary.
Under Federal Reserve Board policy, the Corporation is
expected to act as a source of financial strength to, and commit
resources to support, each of the Subsidiary Banks. This support may
be required at times when, absent such Federal Reserve Board policy,
the Corporation may not be inclined to provide it. In addition, any
capital loans by a bank holding company to any of its subsidiary banks
are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In the event of a bank holding
company's bankruptcy, any commitment by the bank holding company to a
federal bank regulatory agency to maintain the capital of a subsidiary
bank will be assumed by the bankruptcy trustee and entitled to a
priority of payment.
CROSS-GUARANTEE LIABILITY
Under the Federal Deposit Insurance Act (the "FDIA"), a
depository institution insured by the FDIC can be held liable for any
loss incurred by, or reasonably expected to be incurred by, the FDIC
after August 9, 1989 in connection with (i) the default of a commonly
controlled FDIC-insured depository institution or (ii) any assistance
provided by the FDIC to any commonly controlled FDIC-insured
depository institution "in danger of default." "Default" is defined
generally as the appointment of a conservator or receiver and "in
danger of default" is defined generally as the existence of certain
conditions indicating that a default is likely to occur in the absence
of regulatory assistance. The FDIC's claim for damages is superior to
claims of shareholders of the insured depository institution or its
holding company but is subordinate to claims of depositors, secured
creditors and holders of subordinated debt (other than affiliates) of
the commonly controlled insured depository institution. The
Subsidiary Banks are subject to these cross-guarantee provisions. As
a result, any loss suffered by the FDIC in respect of any of the
Subsidiary Banks would likely result in assertion of the
cross-guarantee provisions, the assessment of such estimated losses
against the Corporation's other Subsidiary Banks and a potential loss
of the Corporation's investment in such other Subsidiary Banks.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), which was enacted on December 19, 1991, substantially
revised the depository institution regulatory and funding provisions
of the FDIA and made revisions to several other federal banking
statutes. Among other things, FDICIA requires the federal banking
regulators to take "prompt corrective action" in respect of
FDIC-insured depository
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institutions that do not meet minimum capital requirements. FDICIA
establishes five capital tiers: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized"
and "critically undercapitalized." Under applicable regulations,
an FDIC-insured depository institution is defined to be well
capitalized if it maintains a Leverage ratio of at least 5%, a
risk adjusted Tier 1 Capital Ratio of at least 6% and a Total Capital
Ratio of at least 10% and is not subject to a directive, order or
written agreement to meet and maintain specific capital levels. An
insured depository institution is defined to be adequately capitalized
if it meets all of its minimum capital requirements as described
above. An insured depository institution will be considered
undercapitalized if it fails to meet any minimum required measure,
significantly undercapitalized if it has a Total Risk-Based Capital
Ratio of less than 6%, a Tier 1 Risk-Based Capital Ratio of less than
3% or a Leverage Ratio of less than 3% and critically
undercapitalized if it fails to maintain a level of tangible equity
equal to at least 2% of total assets. An insured depository
institution may be deemed to be in a capitalization category that is
lower than is indicated by its actual capital position if it receives
an unsatisfactory examination rating.
The capital-based prompt corrective action provisions of
FDICIA and their implementing regulations apply to FDIC-insured
depository institutions and are not directly applicable to holding
companies which control such institutions. However, the Federal
Reserve Board has indicated that, in regulating bank holding
companies, it will take appropriate action at the holding company
level based on an assessment of the supervisory actions imposed
upon subsidiary depository institutions pursuant to such provisions
and regulations.
FDICIA generally prohibits an FDIC-insured depository
institution from making any capital distribution (including payment of
dividends) or paying any management fee to its holding company if the
depository institution would thereafter be undercapitalized.
Undercapitalized depository institutions are subject to restrictions
on borrowing from the Federal Reserve System. In addition,
undercapitalized depository institutions are subject to growth
limitations and are required to submit capital restoration plans. A
depository institution's holding company must guarantee the capital
plan, up to an amount equal to the lesser of 5% of the depository
institution's assets at the time it becomes undercapitalized or the
amount of the capital deficiency when the institution fails to comply
with the plan for the plan to be accepted by the applicable federal
regulatory authority. The federal banking agencies
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may not accept a capital plan without determining, among other things,
that the plan is based on realistic assumptions and is likely to
succeed in restoring the depository institution's capital. If a
depository institution fails to submit an acceptable plan, it is
treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be
subject to a number of requirements and restrictions, including orders
to sell sufficient voting stock to become adequately capitalized,
requirements to reduce total assets and cessation of receipt of
deposits from correspondent banks. Critically undercapitalized
depository institutions are subject to appointment of a receiver or
conservator, generally within 90 days of the date on which they
become critically undercapitalized.
The Corporation believes that at December 31, 1993 all of the
Subsidiary Banks were well capitalized under the criteria discussed
above.
Various other legislation, including proposals to revise the
bank regulatory system and to limit the investments that a depository
institution may make with insured funds, is from time to time
introduced in Congress. See the "Effect of Governmental Policies"
subsection.
BROKERED DEPOSITS AND "PASS-THROUGH" INSURANCE
The FDIC has adopted regulations under FDICIA governing the
receipt of brokered deposits and pass-through insurance. Under the
regulations, a bank cannot accept or rollover or renew brokered
deposits unless (i) it is well capitalized or (ii) it is adequately
capitalized and receives a waiver from the FDIC. A bank that cannot
receive brokered deposits also cannot offer "pass-through" insurance
on certain employee benefit accounts. Whether or not it has obtained
such a waiver, an adequately capitalized bank may not pay an interest
rate on any deposits in excess of 75 basis points over certain
prevailing market rates specified by regulation. There are no such
restrictions on a bank that is well capitalized. Because it believes
that all the Subsidiary Banks were well capitalized as of December
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31, 1993, the Corporation believes the brokered deposits regulation
will have no present effect on the funding or liquidity of any of the
Subsidiary Banks.
FDIC INSURANCE PREMIUMS
The Subsidiary Banks are required to pay semiannual FDIC
deposit insurance assessments. As required by FDICIA, the FDIC
adopted a risk-based premium schedule which has increased the
assessment rates for most FDIC-insured depository institutions. Under
the new schedule, the premiums initially range from $.23 to $.31 for
every $100 of deposits. Each financial institution is assigned to one
of three capital groups -- well capitalized, adequately capitalized or
undercapitalized -- and further assigned to one of three subgroups
within a capital group, on the basis of supervisory evaluations by the
institution's primary federal and, if applicable, state supervisors
and other information relevant to the institution's financial
condition and the risk posed to the applicable FDIC deposit insurance
fund. The actual assessment rate applicable to a particular
institution will, therefore, depend in part upon the risk assessment
classification so assigned to the institution by the FDIC.
The FDIC is authorized by federal law to raise insurance
premiums in certain circumstances. Any increase in premiums would
have an adverse effect on the Subsidiary Banks' and the Corporation's
earnings.
Under the FDIA, insurance of deposits may be terminated by the
FDIC upon a finding that the institution has engaged in unsafe and
unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order
or condition imposed by a federal bank regulatory agency.
DEPOSITOR PREFERENCE
The Omnibus Budget Reconciliation Act of 1993 provides
that deposits and certain claims for administrative expenses
and employee compensation against an insured depository institution
would be afforded a priority over other general unsecured claims
against such an institution, including federal funds and letters of
credit, in the "liquidation or other resolution" of such an
institution by any receiver.
Competition.
The Corporation and its subsidiaries face substantial competition in
all aspects of the businesses in which they engage from national and state
banks located in Tennessee and large out-
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of-state banks as well as from savings and loan associations, credit unions,
other financial institutions, consumer finance companies, trust companies,
investment counseling firms, money market mutual funds, insurance companies,
securities firms, mortgage banking companies and others. For information on
the competitive position of the Corporation and the Bank, refer to page 1.
Also, refer to the subsections entitled "Supervision and Regulation" and
"Effect of Governmental Policies," both of which are relevant to an analysis of
the Corporation's competitors. Due to the intense competition in the financial
industry, the Corporation makes no representation that its competitive position
has remained constant, nor can it predict whether its position will change in
the future.
Sources and Availability of Funds.
Specific reference is made to the Consolidated Financial Review
section, including the subsections entitled "Deposits" and "Liquidity,"
contained in the Corporation's 1993 Annual Report to Shareholders (the "1993
Annual Report"), which is specifically incorporated herein by reference, along
with all of the tables and graphs in the 1993 Annual Report, which are
identified separately in response to Item 7 of Part II of this Form 10-K, which
are incorporated herein by reference. As permitted by SEC rules, attached to
this Form 10-K as Exhibit 13 are only those sections of the 1993 Annual Report
that have been incorporated by reference into this Form 10-K.
Interest Ceiling.
The maximum rates that can be charged by lenders are governed by
specific state and federal laws. Most loans made by the Corporation's banking
subsidiaries are subject to the limits contained in Tennessee's general usury
law (the "Usury Law") or the Industrial Loan and Thrift Companies Act (the
"Industrial Loan Act"), with certain categories of loans subject to other state
and federal laws. The Usury Law provides for a maximum rate of interest which
is the lesser of 4% above the average prime loan rate published by the Board of
Governors of the Federal Reserve System or 24% per annum. The Industrial Loan
Act generally provides for a maximum rate of 24% per annum plus certain
additional loan charges. In addition, state statutory interest rate ceilings
on most first mortgage loans on residential real estate are preempted by
federal law. Also, Tennessee law permits interest on credit card balances not
to exceed 21% per annum plus certain fees established by contract.
Effect of Governmental Policies.
The Bank is affected by the policies of regulatory authorities,
including the Federal Reserve System and the Comptroller. An important
function of the Federal Reserve System is to regulate the national money
supply.
Among the instruments of monetary policy used by the Federal Reserve
are: purchases and sales of U.S. Government securities in the marketplace;
changes in the discount rate, which is the rate any depository institution must
pay to borrow from the Federal
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Reserve; and changes in the reserve requirements of depository institutions.
These instruments are effective in influencing economic and monetary growth,
interest rate levels and inflation.
The monetary policies of the Federal Reserve System and other
governmental policies have had a significant effect on the operating results of
commercial banks in the past and are expected to continue to do so in the
future. Because of changing conditions in the national economy and in the
money market, as well as the result of actions by monetary and fiscal
authorities, it is not possible to predict with certainty future changes in
interest rates, deposit levels, loan demand or the business and earnings of the
Corporation and the Bank or whether the changing economic conditions will have
a positive or negative effect on operations and earnings.
Bills are pending before the United States Congress and the Tennessee
General Assembly which could affect the business of the Corporation and its
subsidiaries, and there are indications that other similar bills may be
introduced in the future. It cannot be predicted whether or in what form any
of these proposals will be adopted or the extent to which the business of the
Corporation and its subsidiaries may be affected thereby.
Statistical Information Required by Guide 3.
The statistical information required to be displayed under Item I
pursuant to Guide 3, "Statistical Disclosure by Bank Holding Companies," of the
Exchange Act Industry Guides is incorporated herein by reference to the
Consolidated Financial Statements and the notes thereto and the Consolidated
Financial Review Section in the 1993 Annual Report along with all of the
tables and graphs identified in response to Item 7 of Part II of this
Form 10-K; certain information not contained in the Annual Report, but
required by Guide 3, is contained in the tables on the immediately following
pages:
13
<PAGE> 16
FIRST TENNESSEE NATIONAL CORPORATION
ADDITIONAL GUIDE 3 STATISTICAL INFORMATION
BALANCES AT DECEMBER 31
(Thousands)
(Unaudited)
<TABLE>
<CAPTION>
II. Investment
Portfolio
(Book Value): 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage-backed securitites &
collateralized mortgage
obligations $ 1,634,873 $ 2,330,943 $ 1,831,526
U.S. Treasury and other
U. S. government agencies 338,447 341,799 368,791
States and political subdivisions 56,430 88,276 115,411
Other 86,951 150,925 210,424
- -------------------------------------------------------------------------------
Total $ 2,116,701 $ 2,911,943 $ 2,526,152
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
III. Loan
Portfolio 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $ 2,518,980 $ 2,199,965 $ 2,231,366 $ 2,106,626 $ 2,031,667
Consumer 1,735,579 1,265,993 1,061,018 1,029,262 1,014,583
Credit card receivables 428,074 412,207 402,822 366,706 304,548
Real estate construction 75,844 48,598 107,466 197,217 258,970
Real estate mortgage 495,855 586,597 633,850 632,877 589,550
Nonaccrual 24,805 28,712 43,479 69,685 48,411
- -----------------------------------------------------------------------------------------------------------
Total $ 5,279,137 $ 4,542,072 $ 4,480,001 $ 4,402,373 $ 4,247,729
===========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
VII. Short-Term
Borrowings 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased and
securities sold under
agreements to repurchase $ 1,009,473 $ 753,409 $ 677,687
Commercial paper 32,283 21,856 21,658
Other short-term borrowings 288,292 235,018 49,608
- -------------------------------------------------------------------------------
Total $ 1,330,048 $ 1,010,283 $ 748,953
===============================================================================
</TABLE>
14
<PAGE> 17
FOREIGN OUTSTANDINGS AT DECEMBER 31
<TABLE>
<CAPTION>
1993 1992 1991
----------------- ---------------- ------------------
% Total % Total % Total
(Dollars in thousands) Amount Assets Amount Assets Amount Assets
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BY COUNTRY:
United Kingdom $ 2,454 .03 % $ 72 -- % $ 280 -- %
Israel 2,142 .02 1,707 .02 1,506 .02
Indonesia 715 .01 356 -- 384 --
Japan 585 .01 404 .01 50 --
Canada 296 -- 86 -- 30,529 .35
Saudi Arabia 241 -- 120 -- -- --
France 20 -- 83 -- 71,582 .82
All other 145 -- 1,797 .02 1,574 .02
- --------------------------------------------------------------------------------------------------------
Total $ 6,598 .07 % $ 4,625 .05 % $ 105,905 1.21 %
========================================================================================================
BY TYPE:
Loans:
Banks and other financial institutions $ 4,073 .04 % $ 2,227 .03 % $ 2,112 .03 %
Governments and other institutions 2,000 .02 1,812 .02 1,825 .02
- --------------------------------------------------------------------------------------------------------
Total loans 6,073 .06 4,039 .05 3,937 .05
Cash 478 .01 315 -- 225 --
Investment in bank time deposits -- -- -- -- 100,000 1.14
Customers' acceptances 47 -- 226 -- 17 --
Accrued interest receivable -- -- 45 -- 1,726 .02
- --------------------------------------------------------------------------------------------------------
Total $ 6,598 .07 % $ 4,625 .05 % $ 105,905 1.21 %
========================================================================================================
</TABLE>
MATURITIES OF SHORT-TERM PURCHASED FUNDS AT DECEMBER 31, 1993
<TABLE>
<CAPTION>
0-3 3-6 6-12 Over 12
(Dollars in thousands) Months Months Months Months Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates of deposit $100,000 and more $ 223,187 $ 60,846 $ 37,071 $ 59,897 $ 381,001
Federal funds purchased and securities
sold under agreements to repurchase 1,009,473 -- -- -- 1,009,473
Commercial paper and other short-term borrowings 312,276 799 2,500 5,000 320,575
- -----------------------------------------------------------------------------------------------------------------------
Total $ 1,544,936 $ 61,645 $ 39,571 $ 64,897 $ 1,711,049
=======================================================================================================================
</TABLE>
15
<PAGE> 18
ITEM 2
PROPERTIES
The Corporation has no properties that it considers materially
important to its financial statements.
ITEM 3
LEGAL PROCEEDINGS
The Corporation is a party to no material pending legal proceedings
the nature of which are required to be disclosed pursuant to the Instructions
contained in the Form of this Report.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of this
fiscal year to a vote of security holders, through the solicitation of proxies
or otherwise.
ITEM 4A
EXECUTIVE OFFICERS OF REGISTRANT
The following is a list of executive officers of the Corporation as of
March 1, 1994. Officers are elected for a term of one year and until their
successors are elected and qualified.
<TABLE>
<CAPTION>
Name and Age Offices and Positions - Year First
------------ ----------------------------------
Elected to Office
-----------------
<S> <C>
Susan Schmidt Bies Executive Vice President (1985) and
Age: 46 Chief Financial Officer (1984) of
the Corporation and the Bank
J. Kenneth Glass President - Tennessee Banking Group
Age: 47 of the Bank (1993)
Ralph Horn President and Chief Operating
Age: 52 Officer of the Corporation (1991) and
the Bank (1993)
Harry A. Johnson, III Executive Vice President (1990) and
Age: 45 General Counsel (1988) of the
Corporation and the Bank
James F. Keen Senior Vice President (1988) of the
Age: 43 Corporation and the Bank, Controller (1988)
of the Corporation and principal accounting
officer
</TABLE>
16
<PAGE> 19
<TABLE>
<S> <C>
John C. Kelley. Jr. President - Memphis Banking Group of
Age: 49 the Bank (1993)
George Perry Lewis Executive Vice President of the
Age: 55 Bank (1976) and Money Management
Group Manager
John P. O'Connor, Jr. Executive Vice President of the
Age: 50 Bank (1987) and Chief Credit
Officer (1988)
Ronald Terry Chairman of the Board and Chief
Age: 63 Executive Officer of the
Corporation (1973) and of the Bank
(1979)
G. Robert Vezina Executive Vice President of the
Age: 59 Corporation and the Bank (1989) and
Personnel Division Manager
</TABLE>
Each of the executive officers has been employed by the Corporation or
its subsidiaries during each of the last five years. Mr. Terry was President
of the Corporation prior to August 1991. Mr. Horn was Vice Chairman of the
Bank from August 1991 through January 1993. Prior to August 1991, Mr. Horn was
Executive Vice President of the Bank and Manager of its Bond Division. Mr.
Glass was Executive Vice President of the Bank and Tennessee Banking Group
Manager prior to January 1993. Mr. Kelley was Executive Vice President of the
Bank and Corporate Services Group Manager prior to January of 1993. Mr. Keen
was Controller of the Bank prior to January 1993. Prior to October 1990, Mr.
Johnson was a Senior Vice President of the Corporation and the Bank. Prior to
October 1989, Mr. Vezina was a Senior Vice President of the Corporation and the
Bank.
PART II
ITEM 5
MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Corporation's common stock, $2.50 par value, trades
over-the-counter on the National Association of Securities Dealers Automated
Quotation System -- National Market System under the symbol FTEN. As of
December 31, 1993, there were 7,893 shareholders of record of the Corporation's
common stock. Generally, quarterly dividend payments are made on the first day
of January, April, July and October. The Corporation has declared the
following respective quarterly dividends per share during each quarter,
commencing with first quarter 1992: $.28, $.28, $.28, $.36, $.36, $.36, $.36,
and $.42. Additional information called for by this Item is incorporated
herein by reference to the Summary of Quarterly Financial Information Table,
the Selected Financial Data Table, Note 16 to the Consolidated Financial
Statements, and the Liquidity subsection of the Consolidated Financial Review
section in the 1993 Annual Report and to The Payment of Dividends subsection
contained in Item 1 of Part I of this Form 10-K, which is incorporated herein
by reference.
17
<PAGE> 20
ITEM 6
SELECTED FINANCIAL DATA
The information called for by this Item is incorporated herein by
reference to Selected Financial Data Table in the 1993 Annual Report.
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The information called for by this Item is incorporated herein by
reference to Consolidated Financial Review Section in the 1993 Annual Report
and the following tables and graphs in the 1993 Annual Report:
GRAPHS:
- -------
Return on Average Equity
Return on Average Assets
Earnings Per Share
Earnings Trend
Net Interest Margin and Spread
Profitability Per Employee
Earning Asset Mix as a Percentage of Average Assets
Average Loan Composition
Deposits and Other Interest-Bearing Liabilities
as a Percentage of Average Assets
Net Charge-Offs
Nonperforming Loans
Nonperforming Assets to Total Loans
Cumulative Changes in Nonaccrual Loans and
Other Real Estate since Year-End 1988 (Quarterly)
Cumulative Changes in Classified Assets Since
Year-End 1988 (Quarterly)
TABLES:
- -------
Analysis of Changes in Net Interest Income
Analysis of Noninterest Income and Noninterest Expense
Summary of Quarterly Financial Information
Rate Sensitivity Analysis at December 31, 1993
Maturities of Investment Securities at December 31, 1993
Maturities of Loans at December 31, 1993
Consumer Loans by Product at December 31
Regulatory Capital at December 31
Net Loans and Foreclosed Real Estate at December 31
FTBNA Loans Secured by Real Estate at December 31
Analysis of Allowance for Loan Losses
Changes in Nonperforming Assets at December 31
Nonperforming Assets at December 31
Selected Financial Data
Credit Ratings at December 31,1993
Net-Charge Offs as a Percentage of Average Loans, Net of Unearned Income
Obligations of States and Municipalities by Quality Rating at December 31, 1993
Consolidated Average Balance Sheet and Related Yields and Rates
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item is incorporated herein by
reference to Consolidated Financial Statements and the notes there to and to
the Summary of Quarterly Financial Information Table.
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The information called for by this Item is inapplicable.
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this Item as it relates to directors and
nominees for director of the Corporation is incorporated herein by reference to
the "Election of Directors" section of the Corporation's Proxy Statement to be
mailed to shareholders in connection with the Corporation's Annual Meeting of
Shareholders scheduled for April 19, 1994, (the "1994 Proxy Statement"), which
will be filed by amendment to this Form 10-K, pursuant to General Instruction
G(3) to such form. The information required by this Item as it relates to
executive officers of the Corporation is incorporated herein by reference to
Item 4A in Part I of this Report. The information required by this Item as it
relates to compliance with Section 16(a) of the Securities Exchange Act of 1934
is incorporated herein by reference to the "Compliance with Section 16(a) of
the Exchange Act" Section of the 1994 Proxy Statement.
ITEM 11
EXECUTIVE COMPENSATION
The information called for by this Item is incorporated herein by
reference to the "Executive Compensation" section of the 1994 Proxy Statement
(excluding the Board Compensation Committee Report and the Total Shareholder
Return
18
<PAGE> 21
Performance Graph).
ITEM 12
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this Item is incorporated herein by
reference to the Stock Ownership Table and the two paragraphs preceding the
table in the 1994 Proxy Statement.
The Corporation is unaware of any arrangements which may result in a
change in control of the Corporation.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this Item is incorporated herein by
reference to the "Certain Relationships and Related Transactions" section of
the 1994 Proxy Statement.
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
Financial Statements:
The consolidated financial statements of the Corporation,
and the notes thereto, for the three years ended December
31, 1993, in the 1993 Annual Report, are incorporated
herein by reference. The Report of Independent Public
Accountants, in the 1993 Annual Report, is incorporated
herein by reference. The report of the other auditors
referenced in the Report of Independent Public Accountants,
attached hereto as Exhibit 99(b), is incorporated herein by
reference.
Financial Statement Schedules: Not applicable.
Exhibits:
(2) Stock Purchase Agreement dated as of August
19, 1993, by and between the Bank and MNC
Financial, Inc.
(3)(i) Restated Charter of the Corporation, as
amended, attached as Exhibit 3(a) to
Corporation's 1991 Annual Report on Form 10-K
and incorporated herein by reference.
(3)(ii) Bylaws of the Corporation, as amended.
(4)(a) Shareholder Protection Rights Agreement,
dated as of 9-7-89 between the Corporation
and First Tennessee Bank National
Association, as Rights Agent, including as
Exhibit A the forms of
19
<PAGE> 22
Rights Certificate and of Election to
Exercise and as Exhibit B the form of Charter
Amendment designating a series of
Participating Preferred Stock of the
Corporation with terms as specified, attached
as an exhibit to the Corporation's
Registration Statement on Form 8-A filed
9-8-89, and incorporated herein by reference.
(4)(b) Indenture, dated as of 6-1-87, between the
Corporation and Security Pacific National
Trust Company (New York), Trustee, attached
as an exhibit to the Corporation's Annual
Report on Form 10-K for the year ended
12-31-91, and incorporated herein by
reference.
(4)(c) The Corporation and certain of its
consolidated subsidiaries have outstanding
certain long-term debt. See Note 13 in the
Corporation's 1993 Annual Report to
Shareholders. None of such debt exceeds
10% of the total assets of the Corporation
and its consolidated subsidiaries. Thus,
copies of constituent instruments defining
the rights of holders of such debt are not
required to be included as exhibits. The
Corporation agrees to furnish copies of such
instruments to the Securities and Exchange
Commission upon request.
*(1O)(a) Management Incentive Plan, as amended.(1)
*(1O)(b) 1983 Restricted Stock Incentive Plan, as
amended.(1)
*(1O)(c) 1989 Restricted Stock Incentive Plan, as
amended.(1)
*(1O)(d) 1992 Restricted Stock Incentive Plan.(1)
*(10)(e) 1984 Stock Option Plan, as amended.(1)
*(1O)(f) 1990 Stock Option Plan, as amended.(1)
*(1O)(g) Survivor Benefits Plan, as amended.(1)
*(1O)(h) Directors and Executives Deferred
Compensation Plan, as amended.(1)
*(1O)(i) Pension Restoration Plan.(2)
*(1O)(j) Director Deferral Agreements with Schedule.(2)
*(10)(k) Severance Agreements dated 12-15-92 with
schedule.(2)
(11) Statement re: computation of per share
earnings.
(13) The portions of the 1993 Annual Report to
Shareholders which have been incorporated by
reference into this Form 10-K.
(21) Subsidiaries of the Corporation.
(24) Power of Attorney
(99)(a) Annual Report on Form ll-K for the
Corporation's Savings Plan and Trust, for
fiscal year ended 12- 31-93, as authorized by
20
<PAGE> 23
SEC Rule 15d-21 (to be filed as an amendment
to Form lO-K).
(99)(b) Report of other auditors.
*Exhibits marked with an "*" represent management contract or
compensatory plan or arrangement required to be filed as an exhibit.
(1) These documents are incorporated herein by reference to
the exhibit with the corresponding number contained in the
Corporation's 1992 Annual Report on Form 10-K.
(2) These documents are incorporated herein by reference to
exhibits 10(j), 10(k), and 10(l), respectively, contained in
the Corporation's 1992 Annual Report on Form 10-K.
(b) A report on Form 8-K was filed on October 18, 1993 (with a
date of report of October 1, 1993), disclosing under
Item 2 ("Acquisition or Disposition of Assets") the closing
of the acquisition of MNMC by the Bank. The report contained
audited MNMC consolidated financial statements of financial
condition as of 12-31-92 and 12-31-91, and statements of
income, statements of changes in stockholders' equity, and
statements of cash flows, each for the years ended 12-31-92
and 12-31-91 and contained FTNC pro forma combined condensed
statement of condition as of 6-30-93, statements of income
for the six months ended 6-30-93 and statements of income for
the year ended 12-31-92.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 7th day
of March, 1994.
FIRST TENNESSEE NATIONAL CORPORATION
By: James F. Keen
-------------------------------------
James F. Keen,
Senior Vice President and
Controller
21
<PAGE> 24
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Ronald Terry* Chairman of the Board March 7, 1994
- ---------------------- and Chief Executive Officer
Ronald Terry (principal executive officer)
Susan Schmidt Bies* Executive Vice President March 7, 1994
- ---------------------- and Chief Financial Officer
Susan Schmidt Bies (principal executive officer)
James F. Keen* Senior Vice President and March 7, 1994
- ---------------------- Controller
James F. Keen (principal accounting officer)
Jack A. Belz* Director March 7, 1994
- ----------------------
Jack A. Belz
Robert C. Blattberg* Director March 7, 1994
- ----------------------
Robert C. Blattberg
John Hull Dobbs* Director March 7, 1994
- ----------------------
John Hull Dobbs
Ralph Horn* Director March 7, 1994
- ----------------------
Ralph Horn
Director March , 1994
- ---------------------- -
J. R. Hyde, III
Director March , 1994
- ---------------------- -
Joseph Orgill, III
Cameron E. Perry* Director March 7, 1994
- ----------------------
Cameron E. Perry
Richard E. Ray* Director March 7 , 1994
- ----------------------
Richard E. Ray
</TABLE>
22
<PAGE> 25
<TABLE>
<S> <C> <C>
Vicki G. Roman* Director March 7, 1994
- ----------------------
Vicki G. Roman
Michael D. Rose* Director March 7, 1994
- ----------------------
Michael D. Rose
William B. Sansom* Director March 7, 1994
- ----------------------
William B. Sansom
Gordon P. Street, Jr.* Director March 7, 1994
- ----------------------
Gordon P. Street, Jr.
Norfleet R. Turner* Director March 7, 1994
- ----------------------
Norfleet R. Turner
By: Clyde A. Billings, Jr. March 7, 1994
-----------------------------
Clyde A. Billings, Jr.
* Attorney-in-Fact
</TABLE>
23
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
Item No. Description Page
- -------- ----------- ----
<S> <C> <C>
(3)(i) Restated Charter of the Corporation, as amended,
attached as Exhibit 3(a) to Corporation's 1991
Annual Report on Form 10-K and incorporated
herein by reference.
----
(3)(ii) Bylaws of the Corporation, as amended.
----
(4)(a) Shareholder Protection Rights Agreement dated as of
9-7-89 between the Corporation and First Tennessee
Bank National Association, as Rights Agent,
including as Exhibit A the forms of Rights
Certificate and of Election to Exercise and as
Exhibit B the form of Charter Amendment designating
a series of Participating Preferred Stock of the
Corporation with terms as specified, attached as an
exhibit to the Corporation's Current Report on Form
8-A dated 9-7-89, and incorporated herein by
reference.
(4)(b) Indenture, dated as of June 1, 1987, between the
Corporation and Security Pacific National Trust
Company (New York), Trustee, attached as an exhibit
to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1991, and incorporated
herein by reference.
(4)(c) The Corporation and certain of its consolidated
subsidiaries have outstanding certain long-term
debt. See Note 13 in the Corporation's
1993 Annual Report to Shareholders. None of such
debt exceeds 10% of the total assets of the
Corporation and its consolidated subsidiaries.
Thus, copies of constituent instruments defining
the rights of holders of such debt are not required
to be included as exhibits. The Corporation agrees
to furnish copies of such instruments to the
Securities and Exchange Commission upon request.
*(1O)(a) Management Incentive Plan, as amended. (1)
----
*(1O)(b) 1983 Restricted Stock Incentive Plan, as amended. (1)
----
*(1O)(c) 1989 Restricted Stock Incentive Plan, as amended. (1)
----
*(1O)(d) 1992 Restricted Stock Incentive Plan. (1)
*(10)(e) 1984 Stock Option Plan, as amended. (1)
----
</TABLE>
24
<PAGE> 27
<TABLE>
<S> <C>
*(1O)(f) 1990 Stock Option Plan, as amended.(1)
----
*(1O)(g) Survivor Benefits Plan, as amended.(1)
----
*(10)(h) Directors and Executives Deferred Compensation Plan,
as amended.(1)
----
*(10)(i) Pension Restoration Plan.(2)
----
*(1O)(j) Director Deferral Agreements with Schedule.(2)
----
*(1O)(k) Severance Agreements dated 12-15-92 with schedule.(2)
(11) Statement re: computation of per share earnings.
----
(13) The portions of the 1993 Annual Report to
Shareholders which have been incorporated by
reference into this Form 10-K.
----
(21) Subsidiaries of the Corporation.
----
(24) Powers of Attorney
(99)(a) Annual Report on Form ll-K for the Corporation's
Savings Plan and Trust, for fiscal year ended
December 31, 1993, as authorized by SEC Rule 15d-21
(to be filed as an amendment to Form 10-K).
(99) (b) Report of other auditors.
</TABLE>
*Exhibits marked with an "*" represent management contract or
compensatory plan or arrangement required to be filed as an exhibit.
(1) These documents are incorporated herein by reference to the
exhibit with the corresponding number contained in the
Corporation's 1992 Annual Report on Form 10-K.
(2) These documents are incorporated herein by reference to
exhibits 10(j), 10(k), and 10(l), respectively, contained in
the Corporation's 1992 Annual Report on Form 10-K.
25
<PAGE> 1
EXHIBIT 3 (ii)
BY LAWS
OF
FIRST TENNESSEE NATIONAL CORPORATION
(As Amended and Restated March 15, 1977)
ARTICLE I.
OFFICES
1. The principal office shall be in Memphis, Tennessee.
2. The Corporation may also have offices in such other
places as the Board of Directors may from time to time appoint, or
the business of the Corporation may require.
ARTICLE II.
SHAREHOLDERS' MEETINGS
1. Meetings of the shareholders of the Corporation may be
held either in the State of Tennessee or elsewhere: but in the
absence of notice to the contrary, shareholders' meetings shall be
held at the office of the Corporation in Memphis, Tennessee.
2. The annual meeting of shareholders for the election of
directors and for the transaction of such other business as may
properly come before the meeting shall be held each year on the
Third Tuesday in April, or if that day is a legal holiday, on the
next succeeding day not a legal holiday, at a time to be fixed by
resolution of the Board of Directors; at which meeting they shall
elect by ballot, by plurality vote, a Board of Directors and may
transact such other business as may properly come before the
meeting.
3. The holders of a majority of the shares issued and out-
standing and entitled to vote thereat, present in person or repre-
sented by proxy, shall be requisite, and shall constitute a quorum
at all meetings of the shareholders, for the transaction of busi-
ness, except as otherwise provided by law, by the Charter of
Incorporation, and these Bylaws. If, however, such majority shall
not be present or represented at the meeting of the shareholders,
the shareholders entitled to vote thereat, present in person or by
Proxy, shall have power to adjourn the meeting from time to time
<PAGE> 2
without notice other than announcement at the meeting until the
requisite amount of voting shares shall be present. At such ad-
journed meeting at which the requisite amount of voting shares shall
be represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
4. Written notice of the annual meeting stating the place,
day and hour of the meeting shall be mailed to each shareholder
entitled to vote thereat at such address as appears on the stock
records of the Corporation, at least ten (10), but not more than
sixty (60), days prior to the meeting.
5. Special meetings of the shareholders for any purpose or
purposes, unless otherwise prescribe by statute, may be called (i)
by the Chairman of the Board of Directors, and shall be called by
the Chairman of the Board of Directors or the Secretary at the
request in writing of a majority of the Board of Directors, or (ii).
by the holders of not less than one-tenth (1/10) of all the shares
entitled to vote at such meeting. Such call shall state the purpose
or purposes of the proposed meeting.
6. Written notice of a special meeting of shareholders,
stating the place, day and hour and the purpose or purposes for
which the meeting is called and the person or persons calling the
meeting, shall be mailed, postage prepaid, at least ten (10) days
before the date of such meeting, to each shareholder entitled to
vote thereat at such address as appears on the stock transfer
records of the Corporation.
7. Special meetings of the shareholders may be held at any
time on written waiver of notice or by consent of all of the share-
holders.
8. Any shareholder may waive notice of any meeting either
before, at or after the meeting.
9. At each meeting of shareholders, each shareholder shall
have one vote for each share of stock having voting power registered
in his name on the records of the Corporation on the record date for
that meeting, and every shareholder having the right to vote shall
be entitled to vote in person or by proxy appointed by instrument in
writing.
-2-
<PAGE> 3
10. Any director may be removed by the shareholders with or
without cause, at any time by the affirmative vote of the holders of
a majority of the stock entitled to vote, by resolution adopted at
any meeting of shareholders, whether an annual or a special meeting.
ARTICLE III
DIRECTORS
1. The business and affairs of the Corporation shall be
directed by a Board of Directors, which shall consist of 19 members.
Directors need not be shareholders.
2. Each director shall serve for the term of one year and
until his successor shall have been duly elected and qualified:
subject, however, to the right of the removal of any director at any
time by the affirmative vote of the majority of the shares entitled
to vote by resolution adopted at any meeting of shareholders,
whether an annual or a special meeting.
3. The directors may hold their meetings at the office of the
Corporation in Memphis, Tennessee, or at such other place or places,
either in the State of Tennessee or elsewhere, as they may from time
to time determine.
4. A majority of the Board of Directors at a meeting duly
assembled shall be necessary to constitute a quorum for the trans-
action of business, and the vote of a majority of the directors
present at a meeting at which a quorum is present shall be the act
of the Board of Directors, unless the vote of a greater number is
required by law, by the Charter, or these Bylaws.
5. As compensation, the directors, for their services, shall
be paid such amounts at such time as may, from tine to time, be
determined by resolution of the entire Board of Directors; provide
that nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity and
being compensated therefor.
6. The directors, by resolution adopted by a majority of the
entire Board, may designate any executive committee, consisting of
three or more directors, and other committees, consisting of three
or more directors, officers or employees, and may delegate to such
-3-
<PAGE> 4
committee or committees all such authority of the Board that it
deems desirable, including, without limitation, authority to elect
corporate officers, fix their salaries and, to the extent such is
not provided by law, the Charter or these Bylaws, to establish their
authority and responsibility, except that no such committee or
committees, unless specifically so authorized by the Board, shall
have and exercise the authority of the Board to:
(a) Adopt, amend or repeal the Bylaws;
(b) Submit to shareholders any action that needs
shareholders' authorization under Chapters 1
through 14, Title 48, Tennessee Code Annotated,
and any and all amendments and supplements
thereto;
(c) Fill vacancies in the Board or in any committee; and
(d) Declare dividends or make other corporate distributions.
Regular and special meetings of committees may be held with or with-
out notice as prescribed by resolution of the directors.
ARTICLE IV.
POWERS OF DIRECTORS
1. The Board of Directors shall have, in addition to such
powers as are hereinafter expressly conferred on it and all such
powers as may be conferred on it by law, all such powers as may be
exercised by the Corporation, subject to the provisions of the law,
the Charter and these Bylaws.
2. The Corporation shall be managed by the Board of Directors,
which shall exercise all powers conferred under the laws of the
State of Tennessee, including without limitation the powers speci-
fied in the Charter of the Corporation, as amended, and the power:
(a) To purchase or otherwise acquire property, rights
or privileges for the Corporation which the Corpora-
tion has power to take, at such prices and on such
terms as the Board of Directors may deem proper;
(b) To pay for such property, rights or privileges in
whole or in part with money, stocks, bonds, deben-
tures or other securities of the Corporation, or
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<PAGE> 5
by the delivery of other property of the
Corporation;
(c) To create, make and issue mortgages, bonds, deeds
of trust, trust agreements and negotiable or trans-
ferable instruments end securities, secured by
mortgage or otherwise, and to do every act and thing
necessary to effectuate the same;
(d) To elect the corporate officers and fix their salaries;
to appoint employees and trustees; and to dismiss them
at its discretion; to fix their duties and emoluments,
and to change them from time to time; and to require
security as it may deem proper;
(e) To confer on any Officer of the Corporation the power
of selecting, discharging or suspending such employees;
and
(f) To determine by whom and in what manner the Corporation's
bills, notes, receipts, acceptances, guaranties, endorse-
ments, checks, releases, contracts or other documents
shall be signed.
ARTICLE V.
MEETINGS OF DIRECTORS
1. Following each annual election of directors, the newly
elected directors shall meet for the purpose of organization, the
election of officers and the transaction of other business, and,
if a majority of the directors be present at such place, day and
hour, no prior notice of such meeting shall be required to be
given to the directors. The place, day and hour of such meeting
may also be fixed by written consent of the directors.
2. Meetings of the directors shall be held at least once each
calendar quarter at such time and place as the Board of Directors
may by resolution determine. Notice of the time and place of the
meetings shall be given as specified for a special meeting.
3. Special meetings of the directors may be called by the
Chairman or the Board of Directors or the President on two days'
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<PAGE> 6
notice in writing or on one day's notice by telegram to each direc-
tor, and shall be called by the Chairman in like manner on the
written request of two directors. The notice shall state thou
place, day and hour where it is to be held.
4. Special meetings of the directors may be held at any time
on written waiver of notice or by consent of all the directors.
5. A majority of the directors shall constitute a quorum, but
a smaller number may adjourn from time to time, without further
notice, if the time and place to which the meeting is adjourned are
fixed at the meeting at which the adjournment is taken and if the
period of adjournment does not exceed thirty (30) days in any one
(1) adjournment.
6. The directors may take action which they are required or
permitted to take, without a meeting, on written consent setting
forth the action so taken, signed by all of the directors entitled
to vote thereon.
ARTICLE VI.
OFFICERS
1. The officers of the Corporation shall be chosen at the
annual organizational meeting following the annual meeting of share-
holders, for a term of one (1) year and until their successors are
elected and qualified. The officers of the Corporation shall con-
sist of a Chairman of the Board of Directors, a President, such
number of Vice Chairmen as the Board may from time to time determine
and appoint, a Financial Vice President, a Secretary, a Treasurer, a
Controller and an Auditor, and such number of Executive Vice Presidents.
Senior Vice Presidents and Vice Presidents, Assistant Secretaries,
Assistant Controllers, Assistant Auditors, and Corporate Officers as
the Board may from time to time determine and appoint. Any person
may hold two or more offices, except that the President shall not
also be the Secretary or an Assistant Secretary. The officers,
other than the Chairman of the Board of Directors, need not be
directors or shareholders.
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<PAGE> 7
2. The Board may appoint such other officers and agents as it
shall deem necessary, who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board.
3. If the office of any officer or officers appointed by the
Board of Directors becomes vacant for any reason, the vacancy may
be filled by the Board of Directors.
4. The officers of the Corporation shall hold office until
their successors are elected and qualified. Any officer shall be
subject to removal at any time with or without cause by the affirma-
tive vote of a majority of the Board of Directors.
5. The salaries and compensation of all officers of the
Corporation shall be fixed by the Board.
ARTICLE VII.
CHAIRMAN OF THE BOARD OF DIRECTORS
1. The Chairman of the Board of Directors shall be the Chief
Executive Officer of the Corporation; he shall preside at all
meetings of the shareholders; he shall have general management of
the business of the Corporation and shall exercise general super-
vision over all of its affairs and shall see that all orders and
resolutions of the Board are carried into effect.
2. He shall have the general powers and duties of supervision.
and management usually vested in the office of Chairman of the Board
of Directors and Chief Executive Officer of a Corporation.
ARTICLE VIII.
THE PRESIDENT
1. The President, in the absence of the Chairman of the
Board, shall preside at all meetings of shareholders, and he shall
be charged with the active management and administration of the
business of the Corporation with power to make all contracts in the
conduct of the regular and ordinary business of the Corporation; and
he may appoint and discharge agents and employees of the Corporation
and fix their compensation, subject to the general supervisory powers
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<PAGE> 8
of the Chairman of the Board of Directors and of the Board of
Directors, and do and perform such other duties as from time to time
may be assigned to him by the Board of Directors and as may be
authorized by law.
ARTICLE IX.
VICE CHAIRMAN
1. Vice Chairmen shall perform such of the duties and exer-
cise such of the powers as may be prescribed by the Board of Direc-
tors or the Chairman of the Board of Directors.
ARTICLE X.
CHAIRMAN OF THE CREDIT POLICY COMMITTEE
1. The Chairman of the Credit Policy Committee shall perform
such of the duties and exercise such of the powers as may be pre-
scribed by the Board of Directors or the Chairman of the Board of
Directors.
ARTICLE XI.
FINANCIAL VICE PRESIDENT
1. The Financial Vice President shall perform such of the
duties and exercise such of the powers as may be prescribed by the
Board of Directors or the Chairman of the Board of Directors.
ARTICLE XII.
VICE PRESIDENT
1. Vice Presidents shall perform such of the duties and
exercise such of the powers as may be prescribed by the Board of
Directors, the Chairman of the Board of Directors or the President.
ARTICLE XIII.
SECRETARY
1. The Secretary shall attend all sessions of the Board and
of the shareholders and record all votes and the minutes of all
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<PAGE> 9
proceedings in a book to be kept for that purpose. He shall give or
cause to be given notice of all meetings or the shareholders and of
the Board of Directors and shall perform such other duties as are
incident to his office or as may be prescribed by the Board of
Directors or the Chairman of the Board of Directors.
2. In the absence or disability of the Secretary, the Assistant
Secretary shall perform all the duties and exercise all of the
powers of the Secretary and shall perform such other duties as the
Board of Directors or the Chairman of the Board of Directors shall
prescribe.
ARTICLE XIV.
TREASURER
1. The Treasurer shall have custody of the funds and securi-
ties of the Corporation and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and
shall deposit all monies and other valuable effects in the name and
to the credit of the Corporation such depositories as may be
designated by the Board of Directors.
2. He shall disburse the funds of the Corporation as may be
ordered by the Board, or by the Chairman of the Board of Directors,
or by the President, taking proper vouchers for such disbursements,
and shall render to the Board, the Chairman of the Board, or the
President, whenever they may require it, an account of all his
transactions as Treasurer and of the financial condition of the
Corporation, and at a regular meeting of the Board preceding the
annual shareholders' meeting, a like report for the preceding year.
3. He shall keep or cause to be kept an account of stock
registered and transferred in such manner and subject to such
regulations as the Board of Directors may prescribe
4. He shall give the Corporation a bond, if required by the
Board of Directors, in such sum and in form and with security satis-
factory to the Board of Directors for the faithful performance of
the duties of his office end the restoration to the Corporation, in
case of his death, resignation or removal from office, of all books,
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<PAGE> 10
papers, vouchers, money and other property of whatever kind in his
possession, belonging to the corporation. He shall perform such
other duties as the Board of Directors may from time to time pre-
scribe or require.
5. In the absence or disability of the Treasurer, the Assis-
tant Treasurer shall perform all the duties and exercise all of the
powers of the Treasurer and shall perform such other duties as the
Board of Directors or the Chairman of the Board of Directors shall
prescribe.
ARTICLE XV.
AUDITOR
1. The Auditor shall perform such of the duties and exercise
such of the powers as may be prescribed by the Board of Directors.
2. In the absence or disability of the Auditor, the Assistant
Auditor shall perform all the duties and exercise all the powers of
the Auditor and shall perform such other duties as the Board of
Directors shall prescribe.
ARTICLE XVI.
CONTROLLER
1. The Controller shall assist the management of the Corpora-
tion in setting the financial goals and policies of the Corporation;
shall provide financial and statistical information to the share-
holders and to the management of the Corporation and shall perform
such other duties and exercise such other powers as may be pre-
scribed by the Board of Directors, the Chairman of the Board of
Directors or the President.
2. In the absence or disability of the Controller, the Assis-
tant Controller shall perform all duties and exercise all Powers of
the Controller and shall perform such other duties as the Board of
Directors or the Chairman of the Board of Directors shall prescribe.
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<PAGE> 11
ARTICLE XVII
CORPORATE OFFICER
1. Corporate Officers shall have such authority and perform
such of the duties and exercise such of the powers as may be pre-
scribed by the Board of Directors, the President or any Vice Chair-
man.
ARTICLE XVIII.
DUTIES OF OFFICERS MAY BE DELEGATED
1. In case of the absence of any officer of the Corporation,
or for any other reason that the Board may deem sufficient, the
Board may delegate, for the time being, the powers or duties, or any
of them, of such officer to any other officer, or to any director,
provided a majority of the entire Board concur therein.
ARTICLE XIX.
CERTIFICATES OF STOCK
1. The certificates of stock of the Corporation shall be
numbered, shall be entered in the book or records of the Corpora-
tion as they are issued, and shall be signed by the Chairman of the
Board and any one of the following: the President, the Treasurer or
the Secretary. Each certificate shall include the following upon
the face thereof:
(a) That the Corporation is organized under the laws of this
state;
(b) The name of the Corporation;
(c) The name of the person to whom issued;
(d) The number and class of shares, and the designation of
the series, if any, which such certificate represents;
(e) The par value of each share represented by such certifi-
cate: or a statement that the shares are without par
value; and
(f) Such other provisions as the Board may from time to
time require.
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<PAGE> 12
Either or both of the signatures upon a certificate may be facsimiles
if the certificate is countersigned by a transfer agent, or regis-
tered by a registrar other than an officer or employee of the
Corporation.
ARTICLE XX.
TRANSFERS OF STOCK AND RECORD DATE
1. Transfers of shares of stock shall be made upon the books
of the Corporation by the person named in the certificate or by an
attorney, lawfully constituted in writing, and upon surrender of the
certificate therefor.
The Board of Directors may appoint suitable agents in Memphis,
Tennessee, and elsewhere to facilitate transfers by shareholders
under such regulations as the Board may from time to time prescribe.
The transfer books may be closed by the Board for such period, not
to exceed 40 days, as may be deemed advisable for dividend or other
purposes, or in lieu of closing the books, the Board may fix in
advance a date as the record date for determining shareholders
entitled notice of and to vote at a meeting of shareholders, or
entitled to payment of any dividend. The record date shall not be
less than 10 days prior to the date on which the particular action
requiring such determination is to be taken. All certificates
surrendered the the Corporation for transfer shall be canceled, and
no new certificate shall be issued until the former certificate for
like number of shares shall have been surrendered and canceled,
except that in case of a lost or destroyed certificate a new one may
be issued on the terms prescribe by Article XXII of these Bylaws.
ARTICLE XXI
REGISTERED SHAREHOLDERS
1. The Corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact there-
of; and, accordingly shall not be bound to recognize any equitable
or other claim to or interest in such share on the part of any other
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<PAGE> 13
person, whether or not it shall have express or other notice thereof,
save as expressly provided by the laws of Tennessee.
ARTICLE XXII.
LOST CERTIFICATE
1. The agent for transfer of the Corporation's stock may
issue new share certificates in place of certificates represented to
have been lost, destroyed, stolen or mutilated upon receiving an
indemnity satisfactory to the agent and the Secretary or Treasurer
of the Corporation, without further action of the Board of Directors.
ARTICLE XXIII.
FISCAL YEAR.
1. The Board of Directors of the Corporation shall have
authority from time to time to determine whether the Corporation
shall operate upon a calendar year basis or upon a fiscal year
basis, and if the latter, said Board shall have power to determine
when the said fiscal year shall begin and end.
ARTICLE XXIV.
DIVIDENDS
1. Dividends on the capital stock of the Corporation may be
declared by the Board of Directors at any regular or special meeting
pursuant to law.
2. Before payment of any dividend, there may be set aside out
of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discre-
tion, think proper as a reserve fund to meet contingencies, or for
equalizing dividends or for repairing or maintaining any property of
the Corporation, or for such other purposes as the directors shall
think conducive to the interest of the Corporation.
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<PAGE> 14
ARTICLE XXV
SEAL
1. This Corporation shall have a Corporate Seal which shall
consist of an imprint of the name of the Corporation, the state of
its incorporation, the year of incorporation and the words "Corporate
Seal."
ARTICLE XXVI.
NOTICES
1. Whenever under the provisions of these Bylaws notice is
required to be given to any director, officer or shareholder, it
shall not be construed to mean personal notice, but such notice may
be given in writing by depositing the same in the United States
Mail, or by telegram addressed to such shareholder, at such address
as appears on the stock transfer books of the Corporation, and
addressed to such director or officer at such address as appears on
the records of the Corporation, and such notice shall be deemed to
be given at the time when the same shall be thus deposited, or the
telegram sent.
2. Any director, officer or shareholder may waive any notice
of any meeting required to be given under these Bylaws either be-
fore, at or after the meeting.
ARTICLE XXVII.
AMENDMENTS
1. The Board of Directors shall have power to make, amend and
repeal the Bylaws of the Corporation by vote of a majority of all
the directors, at any regular or special meeting of the Board.
2. The shareholders may make, alter, amend and repeal the
Bylaws of this Corporation at any annual meeting or at a special
meeting called for that purpose, and all Bylaws made by the direc-
tors may be altered or repealed by vote of the majority of the
shareholders.
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<PAGE> 15
ARTICLE XXVIII
INDEMNIFICATION
1. If any current or former director or officer of First
Tennessee National Corporation ("First Tennessee") shall be wholly
successful, on the merits or otherwise, in any threatened or actual
criminal or civil suit or proceeding other than by or in the right
of First Tennessee to procure a judgement in its favor, including
any suit or proceeding instituted as a result of such director or
officer serving another corporation or other business entity in any
capacity at the request of First Tennessee, which was commenced by
reason of the fact that he is or was a director or officer of First
Tennessee or served such other corporation or other business entity
in any capacity, he shall be indemnified by First Tennessee against
all reasonable expenses, including attorney fees, actually and
necessarily incurred as a result of such threatened or actual suit
or proceeding, or any appeal therein.
2. If any current or former director or officer of First
Tennessee shall be wholly successful, on the merits or otherwise, in
any actual suit by or in the right of First Tennessee to procure a
judgment in its favor, which was commenced by reason of the fact
that he is or was a director or officer of First Tennessee, he shall
be indemnified by First Tennessee against all reasonable expenses;
including attorney fees, actually and necessarily incurred as a
result of such suit or proceeding, or any appeal therein.
3. If any current or former director or officer of First
Tennessee has not been wholly successful, on the merits or other-
wise, in defense of a threatened or actual suit or proceeding of the
character described in Section 1 of this bylaw or a civil action of
the character described in Section 2, unless ordered by the Court
under Section 48-410 of the Tennessee Code Annotated ("T.C.A."), he
shall be indemnified by First Tennessee (1) in a suit or proceeding
of the character described in Section 1, against judgments and
fines; and (2) in a suit or proceeding of the character described in
Sections 1 or 2, against amounts paid in settlement and reasonable
expenses, including attorney fees, actually and necessarily incurred
as a result of such suit or proceeding, or any appeal therein, only
if authorized in the specific case:
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<PAGE> 16
a. By the Board of First Tennessee acting by a quorum consisting
of Directors who are not parties to such action or proceeding
upon a finding that:
(1) In a suit or proceeding other than by or in the right
of First Tennessee, the director or officer has acted
in good faith for a purpose which he has reasonably
believed to be in the best interest of First Tennessee,
and, in criminal actions or proceedings, in addition,
had no reasonable cause to believe that his conduct
was unlawful; or
(2) In a suit or proceeding by or in the right of First
Tennessee, the director or officer has not breached
his duty to First Tennessee under T.C.A. 48-813; and
(3) In the case of any settlement, in addition to the
appropriate standard of conduct under 3.a. (1) or (2),
the settlement is in the best interest of First Tennes-
ee; and if the settlement has been approved by a court,
that the indemnification would not be inconsistent with
any condition with respect to indemnification imposed
by the court in approving the settlement.
b. If a quorum under 3.a. is not available with due diligence:
(1) By the Board of First Tennessee upon the opinion in
writing of independent legal counsel that indemnification
is proper in the circumstances because the applicable
standard of conduct set forth in 3.a.(1), (2) or (3)
has been met by such director or officer; or
(2) By the shareholders of First Tennessee upon finding that
the director or officer has met the applicable standard
of conduct set forth in 3.a.(1), (2) or (3).
4. A director or officer of First Tennessee shall be deemed
to be serving another corporation or other business entity at the
request of First Tennessee only if such request is reflected in the
records of a committee appointed by the Board of first Tennessee for
the purpose of making such requests.
5. Expenses incurred in defending a civil or criminal action,
suit or proceeding may be paid by first Tennessee in advance of the
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<PAGE> 17
final disposition of such action, suit or proceeding if authorized
by the procedure established under 3.a. or b. of this bylaw.
6. If any expenses or other amounts are paid by way of in-
demnification otherwise than by court order under T.C.A. 48-410 or
action by the shareholders, First Tennessee shall give notice to the
shareholders as provided in T.C.A. 48-411(3).
7. Every employee of First Tennessee shall be indemnified by
First Tennessee to the same extent as directors or officers of First
Tennessee.
8. a. The right of indemnification set forth above shall
not be deemed to restrict any right of indemnifica-
tion provided to any director, officer or employee of
First Tennessee or any of its subsidiaries
pursuant to a contract, agreement or resolution
executed upon the approval or ratification of the
Board of First Tennessee acting by a quorum of dis-
interested directors, provided that any such con-
tract shall not enlarge the rights of indemnification
permitted under the Tennessee Central Corporation Act.
b. This bylaw shall not be construed to affect or re-
strict in any manner any right of indemnification
granted by First Tennessee to persons other than
directors, officers and employees of First Tennessee
or any of its subsidiaries.
9. a. No combination of rights shall permit any current or
former director, officer or employee of First Tennes-
see to receive a double recovery.
b. The right of indemnification provided in this bylaw
shall inure to the benefit of the heirs, executors or
administrators of each such current or former direc-
tor, officer of employee of First Tennessee and shall or
in no event be construed to enlarge the rights of
indemnification permitted under the Tennessee General
Corporation Act.
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<PAGE> 18
ARTICLE XXIX
RETIREMENT
1. Directors. Any director who shall attain the age of
seventy (70) shall be automatically retired from the Board at
time of the next succeeding annual meeting of shareholders. How-
ever, a director may be retired before age seventy (70) as herein-
after provided.
Effective December 31, 1978, directors shall be retired from
the Board as follows:
(1) The retirement age for Directors will be sixty-five (65).
Any Director who becomes sixty-five prior to December 31;
1978 or any December 31 thereafter will be retired as of
the December 31 following his sixty-fifth birthday.
(2) For the purpose of maintaining Boards of active business
and professional men, Directors leaving their present
occupation or the position held at their last election (by
retirement or otherwise), will be expected to tender their
resignation from the Board upon such occasion. The resig-
nation will ordinarily be accepted unless (a) the Director
assumes another management position deemed appropriate by
the Board for continuation, or (b) the Director is so en-
gaged in some specific project for the Board as to make
his resignation detrimental to the Corporation. Under
this circumstance, the Board may elect to set a subsequent
date for his retirement timed to coincide with the comple-
tion of the project.
(3) Directors who are also Officers of the Corporation shall
be retired from the Board on the date they retire from or
otherwise discontinue active service with the Corporation
or its affiliates.
Any director of the Corporation who has retired from the Board
is eligible for election to a position on the Honorary Advisory
Board, the duties of which shall be as specified by such resolutions
as the Board of Directors may from time to time adopt. Membership
on the Honorary Advisory Board shall continue at the discretion of
the Board of Directors.
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<PAGE> 19
2. Officers and Employees. As each officer or employee
attains the age of sixty-five years, his employment by the Corpora-
tion shall automatically be terminated and his salary discontinued
on the first day of the month coincident with or immediately following
his sixty-fifth birthday; however, the Board of Directors, in its
discretion, may continue any such officer or employee in service and
designate the capacity in which he shall serve, and shall fix the
remuneration he shall receive. The Board may also re-employ any
former officer who had theretofore been retired.
ARTICLE XXX.
CONVEYANCES
1. All transfers and conveyances of real estate made by the
Corporation shall be executed by any officer of the Corporation, ex-
cept the Auditor and Assistant Auditor, with seal attested by any
other officer of the Corporation.
2. Any officer of the Corporation, except the Auditor and
Assistant Auditor, is authorized and empowered to sell, assign,
transfer, and deliver any and all bonds, stocks, or other indicia of
ownership of personal property which may now or hereafter be assigned
to it, or owned or held by it, and to execute releases of assignments
and conveyances made to the Corporation or instruments in which the
Corporation is named beneficiary.
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<PAGE> 20
RESOLUTION OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
JANUARY 17, 1978
RESOLVED, that Article III, Section 1, of the Bylaws of
the Company be, and hereby is, amended to provide for a board of
directors to consist of 18, rather than 19, members effective
as of April 18, 1978, by deleting the number 19 from said section
of the Bylaws and substituting therefor the number 18.
RESOLVED, that Article XXIX, Section 1, of the Bylaws of the
Company be, and hereby is, amended and restated so as to read as
follows:
"1. Directors. Any director who shall attain the age of
seventy (70) shall be automatically retired from the Board at the
time of the next succeeding annual meeting of shareholders.
However, a director may be retired before age seventy (70) as
hereinafter provided.
Effective December 31, 1978, directors who are not also
officers of the Corporation or its affiliates shall be retired-
from the Board as follows:
(1) Any director who shall attain the age of sixty-
five (65) shall be automatically retired from
the Board at the time of the next succeeding
annual meeting of shareholders.
(2) For the purpose of maintaining Boards of active
business and professional men, directors leaving
their present occupation or the position held at
their last election (by retirement or otherwise),
will be expected to tender their resignation from
the Board upon such occasion. The resignation will
ordinarily be accepted unless (a) the director
assumes another management position deemed appro-
priate by the Board for continuation, or (b) the
director is so engaged in some specific project
for the Board as to make his resignation detri-
mental to the Corporation. Under this circumstance,
the Board may elect to set a subsequent date for his
retirement timed to coincide with the completion
of the project.
Effective January 17, 1978, directors who are also officers
of the Corporation or its affiliates shall be retired from the
Board on the date they retire from or otherwise discontinue active
service with the Corporation or its affiliates.
Any director of the Corporation who has retired from the
Board is eligible for election to a position on the Honorary
Advisory Board, the duties of which shall be as specified by
such resolutions as the Board of Directors may from time to time
adopt. Membership on the Honorary Advisory Board shall continue
at the discretion of the Board of Directors."
A-1, p.1
<PAGE> 21
RESOLUTION OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
MAY 16, 1978
RESOLVED, that Article XXIX, Section 1 of the Bylaws of
the Company be, and in hereby, amended to delete the word
"Advisory" from the phrase "Honorary Advisory Board" where-
ever that phrase appears in said section.
A-1, p.3
<PAGE> 22
RESOLUTION OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
DECEMBER 19, 1978
RESOLVED, that as a result of the Age Discrimination
in Employment Act Amendments of 1978, Article XXIX, Section 2,
of the Bylaws of the Company be, and hereby is, amended and
restated as of January 1, 1979, so as to read as follows=
"2. Officers and Employees. As each officer or
employee attains the age of 70 years, his or
her employment by the Corporation shall auto-
matically be terminated and his or her salary
discontinued on the first day of the month
coincident with or immediately following the
70th birthday. Provided, however, each officer
or employee who meets the exclusion for execu-
tives and top policy makers under the Age
Discrimination in Employment Act; as amended
from time to time, shall automatically be ter-
minated and his or salary discontinued on the
first day of the month coincident with or
immediately following the 65th birthday.
The Board of Directors, in its discretion,
may continue any such officer or employee in
service and designate the capacity in which he or
she shall serve, and shall fix the remuneration
he or she shall receive. The Board of Directors
may also re-employ any former officer who had
theretofore been retired."
A-1, p.5
<PAGE> 23
RESOLUTION OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
APRIL 15, 1980
RESOLVED, that Article III, Section 6 of the Bylaws be, and hereby is,
amended to provide for committees to consist of two, rather than three,
members by deleting the number three, wherever it appears, from said section
of Bylaws and substituting therefor the number two.
<PAGE> 24
RESOLUTION OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
OCTOBER 21, 1980
RESOLVED, that Article VI, Section 5, of the Bylaws of the Company be,
and hereby is, amended and restated to read as follows:
"5. The Board, or a committee thereof, shall fix the
remuneration of executive officers. The renumeration
of non-executive officers shall be fixed by the Board
or by management under such policies and procedures as
shall be established by the Board or a committee there-
of."
<PAGE> 25
RESOLUTION OF BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
JANUARY 19, 1982
RESOLVED, that Article V, Section 2, of the Bylaws of
the Company be, and hereby is, amended by deleting the
words "at least once each calendar quarter" from said
section of Bylaws.
<PAGE> 26
RESOLUTION OF BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
January 20, 1987
A new section 11 of Article II of the Bylaws of the
Company is adopted as follows:
"11. At an annual or special meeting of shareholders,
only such business shall be conducted, and only such
proposals shall be acted upon, as shall have been properly
brought before an annual or special meeting of
shareholders. To be properly brought before an annual or
special meeting of shareholders, business must be (i) in
the case of a special meeting called by or at the direction
of the Board of Directors, specified in the notice of the
special meeting (or any supplement thereto), or (ii) in the
case of an annual meeting properly brought before the
meeting by or at the direction of the Board of Directors or
otherwise properly brought before the annual meeting by a
shareholder. For business to be properly brought before
such a meeting of shareholders by a shareholder, the
shareholder must have given timely notice thereof in
writing to the Secretary of the Corporation. To be timely,
a shareholder's notice must be delivered to or mailed and
received at the principal executive offices of the
Corporation not less than 30 days nor more than 60 days
prior to the date of the meeting; provided, however, that
if less than 40 days' notice or prior public disclosure of
the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so delivered
or received not later than the close of business on the
10th day following the earlier of (i) the day on which such
notice of the date of the meeting was mailed or (ii) the
day on which such public disclosure was made. A
shareholder's notice to the Secretary shall set forth as to
each matter the shareholder proposes to bring before a
meeting of shareholders (i) a brief description of the
business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (ii)
the name and address, as they appear on the Corporation's
books, of the shareholder proposing such business and any
other shareholders known by such shareholder to be
supporting such proposal, (iii) the class and number of
shares of the Corporation which are beneficially owned by
such shareholder on the date of such shareholder's notice
and by any other shareholders known by such shareholder to
be supporting such proposal on the date of such
shareholder's notice, and (iv) any material interest of the
shareholder in such proposal. Notwithstanding anything in
these Bylaws to the contrary, no business shall be
<PAGE> 27
conducted at a meeting of shareholders except in accordance
with the procedures set forth in this Section 11. The
Chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that the business was
not properly brought before the meeting in accordance with
the procedures prescribed by these Bylaws, and if he should
so determine, he shall so declare to the meeting and any
such business not properly brought before the meeting shall
not be transacted."
2386p
<PAGE> 28
RESOLUTION OF BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
January 20, 1987
A new Section 7 of Article III of the Bylaws of the
Company is adopted as follows:
"7. Only persons nominated in accordance with the
procedures set forth in this Section 7 shall be eligible
for election as directors. Nominations of persons for
election to the Board may be made at a meeting of
shareholders (i) by or at the direction of the Board, or
(ii) by any shareholder of the Corporation entitled to vote
for the election of directors at such meeting who complies
with the notice procedures set forth in this Section 7.
Such nominations, other than those made by or at the
direction of the Board, shall be made pursuant to timely
notice in writing to the Secretary of the Corporation. To
be timely, a shareholder's notice must be delivered to or
mailed and received at the principal executive offices of
the Corporation not less than 30 days nor more than 60 days
prior to the date of a meeting; provided, however, that if
fewer than 40 days' notice or prior public disclosure of
the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so delivered
or received not later than the close of business on the
10th day following the earlier of (i) the day on which such
notice of the date of such meeting was mailed or (ii) the
day on which such public disclosure was made. A
shareholder's notice to the Secretary shall set forth (i)
as to each person whom the shareholder proposes to nominate
for election or reelection as a director (a) the name, age,
business address and residence address of such person. (b)
the principal occupation or employment of such person, (c)
the class and number of shares of the Corporation which are
beneficially owned by such person on the date of such
shareholder's notice and (d) any other information relating
to such person that is required to be disclosed in
solicitations of proxies for election of directors or, is
otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended
(including, without limitation, such person's written
consent to being named in the proxy statement as a nominee
and to serving as a director if elected); and (ii) as to
the shareholder giving the notice (a) the name and address,
as they appear on the Corporation's books; of such
shareholder and any other shareholders known by such
shareholder to be supporting such nominees and (b) the
class and number of shares of the Corporation which are
beneficially owned by such shareholder on the date of such
<PAGE> 29
shareholder's notice and by any other shareholders known by
such shareholder to be supporting such nominees on the date
of such shareholder's notice. No person shall be eligible
for election as a director of the Corporation unless
nominated in accordance with the procedures set forth in
this Section 7. The Chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures
prescribed by these Bylaws, and if he should so determine,
he shall so declare to the meeting and the defective
nomination shall be disregarded."
2386p
<PAGE> 30
RESOLUTION OF BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
January 20, 1987
Article V, Section 3 of the Bylaws of the Company is
amended to read as follows:
"3. Special meetings of the directors may be called
by the Chairman of the Board of Directors or the President
on two days' notice by mail, or on one day's notice by
telegram or cablegram, or on two hours' notice given
personally or by telephone to each director, and shall be
called by the Chairman in like manner on the written
request of a majority of directors then in office. The
notice shall state the place, day and hour where the
meeting is to be held."
2386p
<PAGE> 31
RESOLUTION OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
JANUARY 20, 1987
ADOPTED SUBJECT TO
APPROVAL OF PROPOSAL 3
BY THE SHAREHOLDERS
APRIL 21, 1987
RESOLVED, that Article III, Section 2 of the Bylaws of
First Tennessee National Corporation ("Company") is amended to
read as follows:
"2. Except as otherwise provided by law or by the Charter,
the term of each director hereafter elected shall be
from the time of his election and qualification until
the third annual meeting next following his election
and until his successor shall have been duly elected
and qualified; subject, however, to the right of the
removal of any director as provided by law, by the
Charter or by these Bylaws."
2386p11
<PAGE> 32
RESOLUTION OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
JANUARY 20, 1987
ADOPTED SUBJECT TO
APPROVAL OF PROPOSAL 3
BY THE SHAREHOLDERS
APRIL 21, 1987
RESOLVED, that a new Section 8 of Article III of the Bylaws
of the Company is adopted as follows:
"8. Except as otherwise provided by law or by the Charter,
newly created directorships resulting from any
increase in the authorized number of directors or any
vacancies on the Board of Directors resulting from
death, resignation, retirement, disqualification or
any other cause (except removal from office) shall be
filled only by the Board of Directors, provided that a
quorum is then in office and present, or only by a
majority of the directors then in office, if less than
a quorum is then in office or by the sole remaining
director. Any vacancies on the Board of Directors
resulting from removal from office may be filled by
the affirmative vote of the holders of at least a
majority of the voting power of all outstanding voting
stock or, if the shareholders do not so fill such a
vacancy, by a majority of the directors then in
office. Directors elected to fill a newly created
directorship or other vacancy shall hold office for
the remainder of the full term of the class of
directors in which the new directorship was created or
the vacancy occurred and until such director's
successor has been duly elected and qualified. The
directors of any class of directors of the Corporation
may be removed by the shareholders only for cause by
the affirmative vote of the holders of at least a
majority of the voting power of all outstanding voting
stock."
2386p12
<PAGE> 33
RESOLUTION OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
JANUARY 20, 1987
ADOPTED SUBJECT TO
APPROVAL OF PROPOSAL 3
BY THE SHAREHOLDERS
APRIL 21, 1987
RESOLVED, that Article 11, Section 10 of the Bylaws of the
Company is repealed, and Section 11 of Article II of the Bylaws
of the Company is renumbered to become Section 10.
2386p14
<PAGE> 34
RESOLUTION OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
JANUARY 20, 1987
ADOPTED SUBJECT TO
APPROVAL OF PROPOSAL 3
BY THE SHAREHOLDERS
APRIL 21, 1987
RESOLVED, that Article XXVII, Section 2 of the Bylaws of
the Company is amended to read as follows:
"2. The shareholders may make, alter, amend and repeal the
Bylaws of this Corporation at any annual meeting or at
a special meeting called for that purpose only by the
affirmative vote of the holders of at least eighty
percent (80%) of the voting power of all outstanding
voting stock, and all Bylaws made by the directors may
be altered or repealed only by the vote of the holders
of at least eighty percent (80%) of the voting power
of all outstanding voting stock."
2386p13
<PAGE> 35
RESOLUTION OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
October 16, 1990
RESOLVED, that Article XXIX, Section 1, of the Bylaws of
the Company be, and it hereby is, amended to read as follows:
Directors who are not also officers of the Corporation
or its affiliates shall be retired from the Board of
Directors as follows:
(1) Any director who shall attain the age of
sixty-five (65) shall not thereafter be nominated for
a directorship and shall be automatically retired from
the Board at the expiration of the term for which he
or she was elected.
(2) For the purpose of maintaining boards of
active business and professional persons, directors
leaving the occupation or the position held at their
last election (by retirement or otherwise) will be
expected to tender their resignation from the Board
upon such occasion. A resignation will ordinarily be
accepted unless (a) the director assumes another
management position deemed appropriate by the Board
for continuation, or (b) the director is so engaged in
some specific project for the Board as to make his or
her resignation detrimental to the Corporation. Under
this circumstance, the Board may elect to set a
subsequent date for his or her retirement to coincide
with the completion of the project.
Directors who are also officers of the Corporation or
any of its affiliates will be retired from the Board on the
date they retire from or otherwise discontinue active
Service with the Corporation and its affiliates.
All directors of the Corporation who have served until
retirement, as specified herein, will be asked to serve on
the Honorary Board of Directors. Those directors who do
not serve until retirement but who have served for a
minimum of 10 years as an active member of the Board and
who retire in good standing will also be asked to serve.
Members of the Honorary Board shall have no authority to
bind the Corporation. They shall not attend Board meetings
of the Corporation and Shall not have any authority to vote
on any matter being considered by the Board.
3455p
<PAGE> 36
RESOLUTION OF BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
January 22, 1991
RESOLVED, that Article III, Section 1 of the Bylaws of First
Tennessee National Corporation be, and hereby is, amended to provide
for a Board of Directors to consist of 13, rather than 15 members,
effective as of the Annual Meeting of Shareholders, April 16, 1991,
by deleting the number 15 from said section of the Bylaws and
substituting therefor the number 13.
2319p11
<PAGE> 37
Amendment to Bylaws of First Tennessee
National Corporation, adopted 4-16-91
ARTICLE XXVIII
INDEMNIFICATION
1. If any current or former officer of the Corporation
[including for purposes of this Article an individual who, while an
officer, is or was serving another corporation or other enterprise
(including an employee benefit plan) in any capacity at the request
of the Corporation and unless the context requires otherwise the
estate or personal representative of such officer] is wholly
successful, on the merits or otherwise, in the defense of any
threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative and
whether formal or informal ("Proceeding"), to which he was a party
because he is or was an officer of the Corporation, he shall be
indemnified by the Corporation against all reasonable expenses,
including attorney fees, incurred in connection with such
Proceeding, or any appeal therein.
2. If any current or former officer of the Corporation has not
been wholly successful on the merits or otherwise, in the defense of
a Proceeding, to which he was or was threatened to be made a party
because he was or is an officer, he shall be indemnified by the
Corporation against any judgment, settlement, penalty, fine
(including any excise tax assessed with respect to an employee
benefit plan), or other liability and any reasonable expenses,
including attorney fees, incurred as a result of such Proceeding, or
any appeal therein, if authorized in the specific case after a
determination has been made that indemnification is permissible
because the following standard of conduct has been met:
(1) He conducted himself in good faith, and
(2) He reasonably believed:
(A) In the case of conduct in his official capacity
as an officer of the Corporation that his conduct
was in the Corporation's best interest; and
(B) In all other cases that his conduct was at least
not opposed to its best interests; and
(3) In the case of any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful;
provided, however, the Corporation may not indemnify an officer in
connection with a Proceeding by or in the right of the Corporation
in which the officer was adjudged liable to the Corporation or in
connection with any other proceeding charging improper benefit to
him, whether or not involving action in his official capacity, in
which he was adjudged liable on the basis that personal benefit was
improperly received by him.
-31-
<PAGE> 38
3. The determination required by Section 2 herein shall be
made as follows:
(1) By the Board of Directors by a majority vote of a
quorum consisting of directors not at the time parties
to the Proceeding;
(2) If a quorum cannot be obtained, by majority vote of a
committee duly designated by the Board of Directors
(in which designation directors who are parties may
participate) consisting solely of two or more
directors not at the time parties to the Proceeding;
(3) By independent special legal counsel;
(A) Selected by the Board of Directors or its
committee in the manner prescribed in subsection
(1) or (2); or
(B) If a quorum of the Board of Directors cannot be
obtained under Subsection (1) and a committee
cannot be designated under subsection (2),
selected by majority vote of the full Board of
Directors (in which selection directors who are
parties may participate); or, if a determination
pursuant to Subsections 1, 2, or 3 of this
Section 3 cannot be obtained, then
(4) By the shareholders, but Shares owned by or voted
under the control of directors who are at the time
parties to the Proceeding may not be voted on the
determination.
4. An officer of the Corporation shall be deemed to be serving
another corporation or other enterprise or employee benefit plan at
the request of the Corporation only if such request is reflected in
the records of the Board of Directors or a committee appointed by
the Board of Directors for the purpose of making such requests.
5. The Corporation shall pay for or reimburse reasonable
expenses, including attorney fees, incurred by an officer who is a
party to a Proceeding in advance of the final disposition of the
Proceeding if:
(1) The officer furnishes to the Corporation a written
affirmation of his good faith belief that he has met
the standard of conduct described in Section 2 herein;
(2) The officer furnishes to the Corporation a written
undertaking, executed personally or on his behalf, to
repay the advance if it is ultimately determined that
he is not entitle to indemnification; and
-32-
<PAGE> 39
(3) A determination is made that the facts then known to
those making the determination would not preclude
indemnification under this bylaw.
6. The undertaking required by Section 5 herein must be an
unlimited general obligation of the officer but need not be secured
and may be accepted without reference to financial ability to make
repayment.
7. Determinations and authorizations of payments under Section
5 herein shall be made in the same manner as is specified in
Section 3 herein.
8. Every employee and every former director of the Corporation
shall be indemnified by the Corporation to the same extent as
officers of the Corporation.
9. The right of indemnification set forth above shall not be
deemed exclusive of any other rights to which an officer, employee,
or former director seeking indemnification may be entitled. No
combination of rights shall permit any officer, employee or former
director of the Corporation to receive a double or greater recovery.
10. The Corporation shall indemnify each of its directors and
such of the non-director officers of the Corporation or any of its
subsidiaries as the Board of Directors may designate, and shall
advance expenses, including attorney's fees, to each director and
such designated officers, to the maximum extent permitted (or not
prohibited) by law, and in accordance with the foregoing, the Board
of Directors is expressly authorized to enter into individual
indemnity agreements on behalf of the Corporation with each director
and such designated officers which provide for such indemnification
and expense advancement and to adopt resolutions, which provide for
such indemnification and expense advancement.
3777p47
-33-
<PAGE> 40
RESOLUTION OF BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
July 16, 1991
RESOLVED, that Article III, Section 1 of the Bylaws of First
Tennessee National Corporation be, and hereby is, amended to provide
for a Board Of Directors to consist of 14, rather than 13 members,
effective as of August 1, 1991, by deleting the number 13 from said
section of the Bylaws and substituting therefor the number 14.
January 19, 1993
RESOLVED, that Article III, Section 1 of the Bylaws of First Tennessee National
Corporation be, and hereby is, amended to provide for a Board of Directors to
consist of 13, rather than 14 members, effective as of January 31, 1993, by
deleting the number 14 from said section of the Bylaws and substituting
therefor the number 13.
2319p11
<PAGE> 41
RESOLUTION OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
October 20, 1993
RESOLVED, that Article XXIX, Section 1, of the Bylaws of the Company
be, and it hereby is, amended be deleting it in its entirety and amending it to
read as follows:
Directors who are not also officers of the Corporation or its
affiliates shall be retired from the Board of Directors as follows:
(1) Any director who shall attain the age of
sixty-five (65) on or before the last day of the term for
which he or she was elected shall not be nominated for
re-election and shall be retired from the Board at the
expiration of such term.
(2) For the purpose of maintaining boards of active
business and professional persons, directors leaving the
occupation or the position held at their last election (by
retirement or otherwise) will be expected to tender their
resignation from the Board upon such occasion. A resignation
will ordinarily be accepted unless (a) the director assumes
another management position deemed appropriate by the Board
for continuation, or (b) the director is so engaged in some
specific project for the Board as to make his or her
resignation detrimental to the Corporation. Under this
circumstance, the Board may elect to set a subsequent date for
his or her retirement to coincide with the completion of the
project.
Directors who are also officers of the Corporation or any of
its affiliates will be retired from the Board on the date they retire
from or otherwise discontinue active service with the Corporation and
its affiliates.
All directors of the Corporation who have served until
retirement, as specified herein, will be asked to serve on the
Honorary Board of Directors. Those directors who do not serve until
retirement but who have served for a minimum of 10 years as an active
member of the Board and who retire in good standing will also be asked
to serve. Members of the Honorary Board shall have no authority to
bind the Bank. They shall not attend Board meetings of the
Corporation and shall not have any authority to vote on any matter
being considered by the Board.
<PAGE> 42
RESOLUTION OF BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
December 21, 1993
RESOLVED, that Article III, Section 1 of the Bylaws of First Tennessee National
Corporation be, and hereby is, amended to provide for a Board of Directors to
consist of 14, rather than 13 members, effective as of December 21, 1993, by
deleting the number 13 from said section of the Bylaws and substituting
therefor the number 14.
RESOLUTION OF BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
March 2, 1994
RESOLVED, that Article III, Section 1 of the Bylaws of First Tennessee National
Corporation be, and hereby is, amended to provide for a Board of Directors to
consist of 11, rather than 14 members, effective as of April 19, 1994, by
deleting the number 14 from said section of the Bylaws and substituting
therefor the number 11.
<PAGE> 1
EXHIBIT 11
FIRST TENNESSEE NATIONAL CORPORATION
PRIMARY EARNINGS PER SHARE
AND FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
Computation for Statements of Income: 1993 1992 1991
- -------------------------------------- ------------------------------------------------
Per statements of income (Thousands):
<S> <C> <C> <C>
Net income $120,665 $89,165 $73,022
================================================
Per statements of income:
Weighted average shares outstanding 28,325,005 27,971,865 27,761,007
================================================
Primary earnings per share (a):
Net income $4.26 $3.19 $2.63
================================================
Additional Primary computation
- -------------------------------------
Adjustment to weighted average shares
outstanding:
Weighted average shares outstanding
per primary computation above 28,325,005 27,971,865 27,761,007
Additional dilutive effect of outstanding
options (as determined by the
application of the treasury stock
method) 503,103 530,044 312,859
-----------------------------------------------
Weighted average shares outstanding,
as adjusted 28,828,108 28,501,909 28,073,866
================================================
Primary earnings per share, as adjusted (b):
Net income $4.19 $3.13 $2.60
================================================
Additional Fully Diluted Computation
- --------------------------------------
Adjustment to weighted average shares
outstanding:
Weighted average shares outstanding
per primary computation above 28,828,108 28,501,909 28,073,866
Additional dilutive effect of outstanding
options (as determined by the application
of the treasury stock method) 11,970 36,751 41,914
-----------------------------------------------
Weighted average shares outstanding,
as adjusted 28,840,078 28,538,660 28,115,780
===============================================
Fully diluted earnings per share, as adjusted (b):
Net income $4.18 $3.12 $2.60
===============================================
</TABLE>
(a) These figures agree with the related amounts in the statements of income.
(b) This calculation is submitted in accordance with Securities Exchange Act
of 1934 Release No. 9083 although not required by footnote 2 paragraph 14
of APB Opinion No. 15 because it results in dilution of less than 3%.
<PAGE> 1
EXHIBIT 13
CONSOLIDATED First Tennessee
STATEMENTS OF National
CONDITION Corporation
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
December 31
(Dollars in thousands) 1993 1992
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 602,416 $ 496,526
Federal funds sold and securities purchased under agreements to resell 137,663 284,299
-------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 740,079 780,825
-------------------------------------------------------------------------------------------------------
Investment in bank time deposits 7,537 2,062
Trading account securities 178,663 188,607
Mortgage warehouse loans held for sale 719,500 87,590
Securities held for sale 53,035 119,162
Investment securities:
Mortgage-backed securities and collateralized mortgage obligations 1,634,873 2,330,943
U.S. Treasury and other U.S. government agencies 338,447 341,799
States and municipalities 56,430 88,276
Other 86,951 150,925
-------------------------------------------------------------------------------------------------------
Total investment securities (market value of $2,156,243 in 1993
and $2,971,053 in 1992) 2,116,701 2,911,943
-------------------------------------------------------------------------------------------------------
Loans:
Commercial:
Taxable 2,441,217 2,093,352
Tax-exempt 77,763 106,613
-------------------------------------------------------------------------------------------------------
Total commercial loans 2,518,980 2,199,965
Consumer 1,735,579 1,265,993
Credit card receivables 428,074 412,207
Real estate construction 75,844 48,598
Permanent mortgage 495,855 586,597
Nonaccrual 24,805 28,712
-------------------------------------------------------------------------------------------------------
Total gross loans 5,279,137 4,542,072
Less: Unearned income 11,069 19,644
Allowance for loan losses 103,734 96,795
-------------------------------------------------------------------------------------------------------
Total net loans 5,164,334 4,425,633
-------------------------------------------------------------------------------------------------------
Premises and equipment, net 125,729 106,885
Real estate acquired by foreclosure 31,609 23,559
Customers' acceptances 4,871 4,397
Intangible assets 131,230 59,291
Bond division receivables and other assets 335,560 215,820
-------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 9,608,848 $ 8,925,774
=======================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Demand $ 1,888,333 $ 1,467,839
Checking/Interest 520,005 508,150
Savings 494,969 509,083
Money market account 1,656,211 1,594,820
Certificates of deposit under $100,000 and other time 2,206,232 2,385,748
Certificates of deposit $100,000 and more 381,001 451,122
-------------------------------------------------------------------------------------------------------
Total deposits 7,146,751 6,916,762
Federal funds purchased and securities sold under
agreements to repurchase 1,009,473 753,409
Commercial paper and other short-term borrowings 320,575 256,874
Acceptances outstanding 4,871 4,397
Bond division payables and other liabilities 358,231 269,947
Long-term debt 89,962 126,872
-------------------------------------------------------------------------------------------------------
Total liabilities 8,929,863 8,328,261
-------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Preferred stock - no par value (5,000,000 shares
authorized, but unissued) -- --
Common stock - $2.50 par value (shares authorized - 50,000,000;
shares issued - 28,325,565 at December 31, 1993, and
28,122,606 at December 31, 1992) 70,814 70,307
Capital surplus 86,429 84,309
Undivided profits 524,117 444,333
Less deferred compensation on restricted stock incentive plan 2,375 1,436
-------------------------------------------------------------------------------------------------------
Total shareholders' equity 678,985 597,513
-------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,608,848 $ 8,925,774
=======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 2
CONSOLIDATED First Tennessee
STATEMENTS OF National
INCOME Corporation
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Year Ended December 31
(Dollars in thousands except per share data) 1993 1992 1991
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 402,649 $ 395,710 $ 437,156
Interest on investment and held for sale securities:
Taxable 165,484 177,203 141,394
Tax-exempt 5,318 7,191 9,775
Interest on trading account securities 9,304 10,285 9,563
Interest on other earning assets 3,712 8,848 42,708
-----------------------------------------------------------------------------------------------------
Total interest income 586,467 599,237 640,596
-----------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits:
Checking/Interest 9,648 11,609 14,331
Savings 13,567 16,334 19,348
Money market account 41,318 49,805 68,283
Certificates of deposit under $100,000 and other time 111,326 139,096 178,897
Certificates of deposit $100,000 and more 14,171 17,909 29,436
Interest on short-term borrowings 40,657 30,789 39,897
Interest on long-term debt 9,226 10,761 11,611
-----------------------------------------------------------------------------------------------------
Total interest expense 239,913 276,303 361,803
-----------------------------------------------------------------------------------------------------
NET INTEREST INCOME 346,554 322,934 278,793
Provision for loan losses 34,540 43,171 53,943
-----------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 312,014 279,763 224,850
-----------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Bond division 91,525 80,275 68,628
Service charges on deposit accounts 56,199 51,679 44,060
Mortgage banking 28,233 10,502 8,246
Bank card 26,417 24,177 22,322
Trust services 22,264 20,103 17,949
Equity securities gains (losses) (479) 342 (713)
Investment and held for sale securities gains (losses) 1,204 (2,020) (140)
Other 45,126 39,951 30,848
-----------------------------------------------------------------------------------------------------
Total noninterest income 270,489 225,009 191,200
-----------------------------------------------------------------------------------------------------
ADJUSTED GROSS INCOME AFTER PROVISION FOR LOAN LOSSES 582,503 504,772 416,050
-----------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Employee compensation, incentives, and benefits 219,560 187,569 161,923
Operations services 26,289 23,585 21,752
Occupancy 21,998 20,705 19,704
Communications and courier 19,063 16,977 15,872
Equipment rentals, depreciation, and maintenance 17,645 16,157 12,757
Deposit insurance premium 15,465 15,194 12,769
Amortization of intangible assets 10,339 12,148 8,910
Other 68,027 68,141 62,299
-----------------------------------------------------------------------------------------------------
Total noninterest expense 398,386 360,476 315,986
-----------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 184,117 144,296 100,064
Applicable income taxes 63,452 55,131 27,042
-----------------------------------------------------------------------------------------------------
NET INCOME $ 120,665 $ 89,165 $ 73,022
=====================================================================================================
NET INCOME PER COMMON SHARE $ 4.26 $ 3.19 $ 2.63
=====================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 28,325,005 27,971,865 27,761,007
=====================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
CONSOLIDATED First Tennessee
STATEMENTS OF National
SHAREHOLDERS' EQUITY Corporation
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
Deferred
Common Common Capital Undivided Compen-
(Dollars in thousands) Shares Total Stock Surplus Profits sation
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1990 19,890,879 $ 497,042 $ 49,727 $ 99,845 $ 349,534 $ (2,064)
Net income -- 73,022 -- -- 73,022 --
Cash dividends declared -- (32,194) -- -- (32,194) --
Common stock issued:
For exercise of stock options 149,334 2,729 373 2,356 -- --
Restricted: employee benefit plans 30,000 -- 75 891 -- (966)
Common stock repurchased (215,200) (4,227) (538) (3,689) -- --
Change in valuation allowance for
equity securities -- 1,246 -- -- 1,246 --
Amortization of deferred compensation
on restricted stock incentive plan -- 844 -- -- -- 844
---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1991 19,855,013 538,462 49,637 99,403 391,608 (2,186)
Net income -- 89,165 -- -- 89,165 --
Cash dividends declared -- (36,440) -- -- (36,440) --
Common stock issued:
Three-for-two stock split 7,960,571 (27) 19,902 (19,929) -- --
For exercise of stock options 329,436 5,386 824 4,562 -- --
Under employee benefit plans 1,086 50 3 47 -- --
Restricted: incentive to non-employee
directors 10,000 -- 25 490 -- (515)
Tax benefit from exercise
of employee stock options -- 740 -- 740 -- --
Common stock repurchased (33,500) (1,138) (84) (1,054) -- --
Stock options issued to non-employee
advisory board members in lieu of fees -- 50 -- 50 -- --
Amortization of deferred compensation
on restricted stock incentive plan -- 1,265 -- -- -- 1,265
---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1992, AS ORIGINALLY REPORTED 28,122,606 597,513 70,307 84,309 444,333 (1,436)
Adjustments for pooling of interests 148,895 2,605 372 772 1,461 --
---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1992, RESTATED 28,271,501 600,118 70,679 85,081 445,794 (1,436)
Net income -- 120,665 -- -- 120,665 --
Cash dividends declared -- (42,342) -- -- (42,342) --
Common stock issued:
For exercise of stock options 113,473 2,061 283 1,778 -- --
Restricted: employee benefit plans 59,641 -- 149 2,132 -- (2,281)
incentive to non-employee directors 1,500 -- 4 51 -- (55)
Tax benefit from exercise
of employee stock options -- 884 -- 884 -- --
Tax benefit from restricted
stock incentives -- 586 -- 586 -- --
Common stock repurchased (120,550) (4,797) (301) (4,496) -- --
Stock options issued to non-employee
advisory board members in lieu of fees -- 110 -- 110 -- --
Stock options issued to employees
in lieu of annual bonus -- 303 -- 303 -- --
Amortization of deferred compensation
on restricted stock incentive plan -- 1,397 -- -- -- 1,397
----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 28,325,565 $ 678,985 $ 70,814 $ 86,429 $ 524,117 $ (2,375)
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
CONSOLIDATED First Tennessee
STATEMENTS National
OF CASH FLOWS Corporation
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Year Ended December 31
(Dollars in thousands) 1993 1992 1991
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 120,665 $ 89,165 $ 73,022
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 34,540 43,171 53,943
Provision for deferred income tax (1,698) 4,391 (234)
Depreciation and amortization of premises and equipment 15,397 13,311 12,324
Amortization of intangibles 10,336 12,148 8,910
Net amortization of premiums and accretion of discounts 25,740 14,997 4,664
Market value adjustment on foreclosed property 193 3,180 6,846
Market value adjustment on securities held for sale (248) 1,416 --
Equity securities losses (gains) 479 (342) 713
Investment and held for sale securities (gains) losses (956) 604 140
Net gain from sale of branch (672) -- --
Net (gain) loss on disposal of fixed assets (915) 1,600 967
Net (increase) decrease in:
Trading account securities 9,944 (89,013) (11,228)
Mortgage warehouse loans held for sale (174,085) 5,714 (56,533)
Bond division receivables (30,178) 167,398 (201,583)
Interest receivable 6,675 18,033 (8,214)
Other assets (60,202) (2,318) (7,626)
Net increase (decrease) in:
Bond division payables 30,760 (150,989) 200,068
Interest payable (984) (5,730) (16,966)
Other liabilities 10,474 (6,061) 9,901
--------------------------------------------------------------------------------------------------------
Total adjustments (125,400) 31,510 (3,908)
--------------------------------------------------------------------------------------------------------
Net cash (used) provided by operating activities (4,735) 120,675 69,114
--------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from maturities of investment and
held for sale securities 1,568,913 859,355 648,476
Proceeds from sale of:
Investment and held for sale securities 476,339 217,503 337,311
Equity securities 6,248 46,318 330
Premises and equipment 2,861 377 230
Payments for purchase of:
Investment securities (1,226,038) (1,761,586) (1,566,957)
Equity securities (15,807) (6,808) (9,799)
Premises and equipment (31,150) (16,289) (20,324)
Net (increase) decrease in loans (728,884) (104,084) 83,491
(Increase) decrease in investment in bank time deposits (2,504) 239,598 32,088
Branch sale, including cash and cash equivalents sold (18,339) -- --
Acquisitions, net of cash and cash equivalents acquired (102,577) -- 35,852
--------------------------------------------------------------------------------------------------------
Net cash used by investing activities (70,938) (525,616) (459,302)
--------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options 2,014 5,272 2,679
Payments for:
Capital lease obligations (146) (146) (181)
Long-term debt (37,000) (1,046) (190)
Repurchase of common stock (4,797) (1,138) (4,227)
Cash dividends (50,730) (27,927) (38,695)
Net increase (decrease) in:
Deposits 219,005 125,951 294,579
Short-term borrowings (93,419) 261,330 72,581
--------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 34,927 362,296 326,546
--------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (40,746) (42,645) (63,642)
--------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 780,825 823,470 887,112
--------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 740,079 $ 780,825 $ 823,470
========================================================================================================
Total interest paid $ 239,301 $ 281,251 $ 378,856
Total income taxes paid 68,786 56,341 29,228
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of First Tennessee National Corporation
(FTNC) and its subsidiaries conform to generally accepted accounting principles
and, as to its banking subsidiaries, with general practice within the banking
industry. The following is a summary of the most significant of these
policies.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of FTNC and its banking and non-banking subsidiaries more
than 50 percent owned. Subsidiaries not more than 50 percent owned are
recorded using the equity method. Whereas banking is the most significant
aspect of FTNC's business, non-banking subsidiaries engage in business
activities which complement banking, such as credit life and accident
insurance, brokerage, and financial investment and trust advisory services.
All significant intercompany accounts and transactions have been eliminated.
BASIS OF PRESENTATION. Prior period financial statements are restated to
include the accounts of companies that are acquired and accounted for as
poolings of interests, with the exception of New South Bancorp (NSB) which was
recorded by restatement of beginning shareholders' equity without restating
statements of income or condition for the years prior to 1993 based on
materiality. Business combinations accounted for as purchases are included in
the consolidated financial statements from the respective dates of acquisition.
The consolidated financial statements for prior periods also reflect certain
reclassifications to conform to current presentation. None of these
reclassifications had any effect on net income or earnings per share.
STATEMENTS OF CASH FLOWS. Cash and cash equivalents as presented in
the statements include cash and due from banks, federal funds sold, and
securities purchased under agreements to resell. Generally, federal funds are
sold for one-day periods and securities purchased under agreements to resell
are short-term, highly liquid investments. In the fourth quarter, FTNC issued
approximately 149,000 shares of its common stock in exchange for all of the
common stock of NSB (Note 2). In the fourth quarter of 1992, FTNC issued
approximately 4,177,000 shares of its common stock in exchange for all of the
common stock of Home Financial Corporation (HFC) (Note 2). There were no
material noncash transactions in 1991.
TRADING ACCOUNT SECURITIES. Trading account assets include securities
purchased in connection with underwriting or dealer activities and are carried
at market value. Realized and unrealized gains and losses on trading account
assets are reflected in noninterest income as bond division income.
SECURITIES HELD FOR SALE. Securities to be held for indefinite periods of
time, including securities that management intends to use as part of its
asset/liability strategy, or that may be sold in response to changes in
interest rates, changes in prepayment risk, the need to increase regulatory
capital or other similar factors, are classified as held for sale. Gains and
losses on debt and equity securities are computed by the specific
identification method and are included in noninterest income.
MORTGAGE WAREHOUSE LOANS HELD FOR SALE. Mortgage loans that are originated
and held for sale to investors are classified as held for sale. These assets
are recorded at the lower of cost or market value. Gains and losses realized
from the sale of these assets and adjustments to market value are included in
noninterest income.
INVESTMENT SECURITIES. Investment securities include both debt and equity
securities. FTNC has both the intent and ability to carry these securities
into the foreseeable future. Debt securities are carried at cost, adjusted for
amortization of premiums and accretion of discounts, which are recognized as
adjustments to interest income. Unrealized losses resulting from permanent
impairments in value are reported in noninterest income. Equity securities,
principally venture capital investments, are stated at the lower of aggregate
cost or market value. Realized gains and losses and unrealized permanent
impairments in value are reported in noninterest income. Gains and losses on
the sale of equity securities are computed by the specific identification
method.
LOANS. Loans are stated at principal amounts outstanding. Interest on
certain consumer installment loans is recognized by the
sum-of-the-months-digits method which does not differ materially from the
effective interest method. Interest on other loans is recognized at the
applicable interest rate on the principal amount outstanding. Included in the
nonperforming loans category are nonaccrual loans and loans which have been
restructured in accordance with the criteria set forth in SFAS No. 15,
"Accounting by Debtors and Creditors for Troubled Debt Restructuring."
<PAGE> 6
Loans generally are placed on nonaccrual status when the collection of
principal or interest is 90 days or more past due or when, in management's
judgment, such principal or interest will not be collectible in the ordinary
course of business. Consumer installment loans and credit card receivables
are not placed in a nonaccrual status, but are charged off when past due 120
days and 180 days, respectively. When interest accrual is stopped, outstanding
accrued interest receivable is reversed and charged to current operations.
Management may elect to continue the accrual of interest when the estimated net
realizable value of collateral is sufficient to recover the principal balance
and accrued interest. Generally, interest payments received on nonaccrual
loans are applied to principal.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is a valuation
reserve available for losses incurred on loans. All losses of principal are
charged to the account when the loss actually occurs or when a determination is
made that a loss is probable. Additions are made to the reserve through
periodic provisions charged to current operations or recovery of principal on
loans previously charged off.
The determination of the balance of the allowance for loan losses is based
upon a review and analysis of the loan portfolio. Management's objective in
determining the level of the allowance is to maintain a reserve which is
adequate to absorb losses inherent in the portfolio. Their assessment includes
the systematic evaluation of several factors: current and anticipated economic
conditions and their impact on specific borrowers and industry groups; the
level of classified and nonperforming loans; the historical loss experience by
loan type; the results of regulatory examinations of the portfolio; and, in
specific cases, the estimated value of underlying collateral.
PREMISES AND EQUIPMENT. Premises and equipment are carried at cost less
accumulated depreciation and amortization. Depreciation expense is computed
principally on the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized on the straight-line method over
the lease periods or the estimated useful lives, whichever is shorter.
Estimated useful lives are 10 to 45 years for premises and three to eight years
for equipment.
Depreciation and amortization expense is included in noninterest expense.
Maintenance agreements are amortized to expense over the period of time
covered. The cost of major renovations is capitalized. All other maintenance
and repair expenditures are expensed as incurred. Gains and losses on
dispositions are reflected in noninterest income and expense.
REAL ESTATE ACQUIRED BY FORECLOSURE. Real estate acquired by foreclosure
includes assets that have been either acquired in satisfaction of debt or
substantively repossessed ("in-substance foreclosures"). In-substance
foreclosures occur when the debtor has little or no equity in the collateral;
repayment of the loan can come only from the operation or sale of the
collateral; and the debtor has either abandoned control of the collateral or is
unable to rebuild equity in the collateral or otherwise repay the loan in the
foreseeable future.
Property is carried at the lower of the outstanding loan
amount or the estimated fair market value minus estimated cost to sell the real
estate. Any excess of loan amount over the estimated net realizable fair value
at the time of acquisition is charged to the allowance for loan losses.
Required developmental costs associated with foreclosed property under
construction are capitalized and considered in determining the estimated net
realizable fair value of the property. The estimated net realizable fair
value is reviewed periodically and any write-downs are charged against current
earnings as market adjustments.
INTANGIBLE ASSETS. Intangible assets represent the premium on purchased
deposits and assets, the excess of cost over net assets of acquired
subsidiaries (goodwill), and purchased mortgage servicing rights. The "Premium
on purchased deposits and assets" represents identified intangible assets,
which are amortized over their estimated useful lives, with the exception of
those assets related to deposit bases which are primarily amortized over a 10
year period. Goodwill is being amortized using the straight-line method over
periods ranging from 15 to 40 years. Management evaluates whether events or
circumstances have occurred that would result in impairment in the value or life
of goodwill. If such impairment should occur, FTNC would use internally
generated management reports to determine the related business contribution to
the overall profitability of the corporation in revising the value and
remaining life of the related goodwill. The value of purchased mortgage
servicing rights is established using the lesser of: a discounted cash flow
analysis; current market value; or the amount of consideration specifically
paid by FTNC. The purchased mortgage servicing rights are being amortized
using an accelerated method over the estimated life of the servicing income. A
quarterly value impairment analysis is performed using discounted,
disaggregated methodology.
<PAGE> 7
INTEREST RATE MANAGEMENT INSTRUMENTS. FTNC and its banking
subsidiaries enter into a variety of interest rate contracts in their trading
activities, and as part of their asset/liability management activities.
Interest rate futures, options, and forward contracts are utilized in trading
activities and to manage interest rate exposure. Contracts related to trading
activities are marked-to-market with gains and losses being included in bond
division income. Gains and losses on contracts applicable to certain interest
sensitive assets and liabilities are deferred and amortized over the lives of
the hedged assets and liabilities as an adjustment to interest income and
expense. Any contracts that fail to qualify for hedge accounting are included
in current earnings in noninterest income. Interest rate swap contracts are
utilized as a further means of balancing rate sensitivity. The interest
differential applicable to interest rate swaps which hedge specific assets and
liabilities is accrued over the lives of the contracts and reported as an
adjustment to the yield and rate of the underlying assets and liabilities.
Fees on interest rate swaps are deferred and amortized over the lives of the
contracts.
TRUST SERVICES INCOME. Trust services income is reported on a cash basis, which
does not differ materially from the accrual basis.
INCOME TAXES. The provision for income taxes is based on income reported for
consolidated financial statement purposes and includes deferred taxes resulting
from the recognition of certain revenues and expenses in different periods for
tax reporting purposes. FTNC files consolidated federal and state income tax
returns with the exception of two credit life insurance companies that file
separate returns.
INCOME PER SHARE. Per share amounts for all periods presented have been
adjusted for the three-for-two stock split in 1992, and are computed based on
the weighted average number of common shares outstanding for each period.
Options granted under the stock option plans are not included in the
computation since their dilutive effect is not material. Previously reported
per share amounts have been restated for the effect of acquisitions accounted
for as a pooling of interests, with the exception of NSB which was immaterial
on a consolidated basis.
<PAGE> 8
NOTE 2 -- BUSINESS COMBINATIONS
On January 4, 1994, FTNC acquired for approximately 1,799,000 shares of its
common stock all of the outstanding capital stock of SNMC Management
Corporation (SNMC), the parent of Sunbelt National Mortgage Corporation,
headquartered in Dallas, Texas. SNMC became a wholly owned subsidiary of
First Tennessee Bank National Association (FTBNA), the principal subsidiary of
FTNC. At December 31, 1993, SNMC had total assets of $451 million and a
servicing portfolio of approximately $6.1 billion. The acquisition will be
accounted for as a pooling of interests.
On December 31, 1993, FTNC acquired for approximately 149,000 shares of its
common stock all of the outstanding shares of New South Bancorp (NSB), a
Mississippi bank holding company. NSB was merged with and into FTNC. At the
same time NSB's principal subsidiary, New South Bank, was merged with and
into First Tennessee Bank National Association Mississippi, a wholly owned
subsidiary of FTNC. The consolidated financial statements of FTNC for 1993
give effect to the merger which has been accounted for as a pooling of
interests. Due to immateriality, the transaction has been recorded by a
restatement of beginning shareholders' equity without restating income
statements for years prior to 1993.
The following presents on a pro forma basis certain financial data
pertaining to the FTNC transactions with NSB and SNMC.
<TABLE>
<CAPTION>
(Dollars in thousands except FTNC & NSB
per share data) FTNC NSB Combined SNMC Pro Forma
-------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1993
<S> <C> <C> <C> <C> <C>
Total revenue* $ 615,018 $ 2,025 $ 617,043 $ 71,559 $ 688,602
Net income 120,164 501 120,665 (17,918) 102,747
Net income per share:
Primary 4.26 3.90 4.26 (199.09) 3.41
Fully diluted 4.19 3.90 4.18 (199.09) 3.35
-------------------------------------------------------------------------------------------------
* Total revenue is net interest income and noninterest income.
-------------------------------------------------------------------------------------------------
</TABLE>
On October 1, 1993, FTBNA acquired for cash Maryland National Mortgage
Corporation (MNMC) headquartered in Baltimore, Maryland. The acquisition has
been accounted for as a purchase and accordingly, the purchase price has been
allocated to the acquired assets and liabilities at their respective estimated
fair values at the date of acquisition. This allocation has been based on
preliminary estimates which may be revised at a later date. The operating
results of this acquisition are included in FTNC's consolidated results of
operations from the date of acquisition. The cost of the acquisition,
totaling approximately $114.7 million, exceeded the estimated fair value of
tangible assets and liabilities acquired by approximately $73.9 million.
Intangible assets totaling approximately $31.9 million have been identified
and are being amortized over the expected useful lives of the individual
components. The excess of the consideration paid over the estimated fair
value of the tangible and intangible assets acquired, totaling approximately
$42 million, has been recorded as goodwill and is being amortized using the
straight-line method over 25 years.
The following presents on a pro forma basis certain financial data
pertaining to the FTNC and MNMC transaction as if it had been acquired at the
beginning of each of the periods presented. The pro forma summary does not
necessarily reflect the results of operations as they would have been if the
acquisitions had been consummated at the beginning of the periods presented.
<TABLE>
<CAPTION>
(Dollars in thousands except
per share data) FTNC MNMC Adjustments Pro Forma
-----------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1993
<S> <C> <C> <C> <C>
Total revenue* $ 595,058 $ 84,100 $ (3,178) $ 675,980
Net income 119,231 1,522 (4,163) 116,590
Net income per share:
Primary 4.21 15.22 4.12
Fully diluted 4.13 15.22 4.04
----------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1992
Total revenue* $ 547,943 $ 95,848 $ (2,530) $ 641,261
Net income 89,165 16,198 (5,585) 99,778
Net income per share:
Primary 3.19 161.98 3.57
Fully diluted 3.12 161.98 3.50
----------------------------------------------------------------------------------
* Total revenue is net interest income and noninterest income.
----------------------------------------------------------------------------------
</TABLE>
<PAGE> 9
On December 14, 1992, FTNC acquired for approximately 4,177,000 shares of
its common stock all of the outstanding shares of HFC, a Tennessee savings and
loan holding company. At the same time HFC's principal subsidiary, Home
Federal Bank, FSB (HFB), became a wholly owned subsidiary of FTNC. The
consolidated financial statements of FTNC give effect to the merger which has
been accounted for as a pooling of interests. Accordingly, the accounts of
HFC have been combined with those of FTNC to reflect the results of these
companies on a combined basis for all periods presented, except for dividends.
On June 25, 1993, FTNC completed the final phase of the HFC acquisition with
the merging of HFB into its principal subsidiary, FTBNA. Certain
reclassifications of the historical results of these companies have been made
to conform to the current presentation.
On October 25, 1991, FTNC purchased from Resolution Trust Corporation (RTC)
certain assets and assumed certain liabilities of the Mercantile Federal
Savings Bank of Southaven, Mississippi, in a regulatory-assisted transaction.
The purchase price totaled approximately $402,000. The transaction was
accounted for as a purchase, and the results of operations are included in
FTNC's consolidated results of operations from the date of acquisition.
On September 1, 1991, FTBNA acquired for cash all of the outstanding
shares of Valley Fidelity Bank and Trust Company of Knoxville, Tennessee. The
acquisition was not material to FTNC and has been accounted for as a purchase
and accordingly, the purchase price has been allocated to the acquired assets
and liabilities at their respective estimated fair values at the date of
acquisition. The operating results of this acquisition are included in FTNC's
consolidated results of operations from the date of acquisition. The cost of
the acquisition, totaling approximately $72.9 million, exceeded the estimated
fair value of tangible assets and liabilities acquired by approximately $36.1
million. Intangible assets totaling approximately $23.5 million have been
identified and are being amoritized over the expected useful lives of the
individual components. The excess of the consideration paid over the
estimated fair value of the tangible and intangible net assets acquired,
totaling approximately $12.6 million, has been recorded as goodwill and is
being amortized using the straight-line method over 25 years.
On July 8, 1991, HFC through its subsidiary, HFB, acquired from the RTC
certain assets and assumed certain liabilities of George Washington Savings
and Loan Associates formerly headquartered in Johnson City, Tennessee. The
purchase price totaled approximately $2.6 million. The transaction was
accounted for as a purchase, and the results of operations are included in
FTNC's consolidated results of operations from the date of acquisition.
<PAGE> 10
NOTE 3 -- PENDING ACQUISITION
On July 28, 1993, FTNC and Cleveland Bank and Trust (CBT) of Cleveland,
Tennessee, announced the execution of a definitive agreement pursuant
to which a wholly owned subsidiary of FTNC would be merged with and
into CBT for approximately $43.8 million in FTNC common stock. The
acquisition price is based on FTNC's common stock per share price being within
a range of $34.50 to $41.70, inclusive. The Agreement may be terminated if
the per share price falls below $34.50. Based on the purchase price and the
range of the per share price, FTNC will issue between 1,050,000 and 1,270,000
shares of its common stock. At December 31, 1993, CBT had approximately $227
million in assets and $23 million in capital. The acquisition will be
accounted for as a pooling of interests and is subject to regulatory and CBT
shareholder approvals. The transaction is expected to close in the first
quarter of 1994.
<PAGE> 11
NOTE 4 -- CASH AND DUE FROM BANKS
Commercial banking subsidiaries of FTNC are required to maintain
average reserve balances with the Federal Reserve Bank. These
reserve balances vary, depending on the types and amounts of
deposits received. Included in "Cash and due from banks" on
the Consolidated Statements of Condition are amounts so restricted
of $103,013,000 at December 31, 1993, and $77,728,000 at
December 31, 1992.
<PAGE> 12
NOTE 5 -- INVESTMENT AND HELD FOR SALE SECURITIES
Securities included in the Consolidated Statements of Condition of
$1,317,948,000 and $1,097,164,000 at December 31, 1993 and 1992, respectively,
were pledged to secure public deposits, securities sold under agreement to
repurchase, and for other purposes. Equity securities include venture capital
investment securities.
Separate reconciliations of the amortized cost to the estimated market
values of investment securities at December 31, 1993 and 1992, are
provided below:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
--------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1993:
<S> <C> <C> <C> <C>
U.S. Treasury and other
U.S. government agencies $338,447 $2,353 $ (3) $340,797
Government agency
issued MBS 392,730 10,708 (1,198) 402,240
Government agency
issued CMOs 1,238,010 5,874 (3,773) 1,240,111
States and municipalities 56,430 2,817 (288) 58,959
Private issued CMOs 4,133 25 -- 4,158
Private issued asset-backed 41,021 827 -- 41,848
Other 11,454 205 (278) 11,381
Equity 34,476 23,552 (1,279) 56,749
--------------------------------------------------------------------------------------------------
Total $2,116,701 $46,361 $ (6,819) $2,156,243
==================================================================================================
AT DECEMBER 31, 1992:
U.S. Treasury and other
U.S. government agencies $341,799 $5,601 $ (179) $347,221
Government agency
issued MBS 399,795 15,333 (366) 414,762
Government agency
issued CMOs 1,806,089 19,375 (4,393) 1,821,071
States and municipalities 88,276 4,442 (287) 92,431
Private issued CMOs 125,059 1,405 (2) 126,462
Private issued asset-backed 94,564 2,500 (21) 97,043
Other 31,654 285 (7) 31,932
Equity 24,707 16,870 (1,446) 40,131
--------------------------------------------------------------------------------------------------
Total $2,911,943 $65,811 $ (6,701) $2,971,053
==================================================================================================
</TABLE>
The amortized cost and estimated market value of investment securities
at December 31, 1993 and 1992, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
(Dollars in thousands) Cost Value
--------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1993:
<S> <C> <C>
Within 1 year $176,476 $178,069
After 1 year; within 5 years 250,896 254,221
After 5 years; within 10 years 14,686 15,345
After 10 years 5,294 5,350
--------------------------------------------------------------------------------------------------
Subtotal 447,352 452,985
--------------------------------------------------------------------------------------------------
Mortgage-backed securities and CMOs 1,634,873 1,646,509
Equity 34,476 56,749
--------------------------------------------------------------------------------------------------
Total $2,116,701 $2,156,243
==================================================================================================
AT DECEMBER 31, 1992:
Within 1 year $151,466 $153,487
After 1 year; within 5 years 348,103 357,706
After 5 years; within 10 years 49,858 50,659
After 10 years 6,866 6,775
--------------------------------------------------------------------------------------------------
Subtotal 556,293 568,627
--------------------------------------------------------------------------------------------------
Mortgage-backed securities and CMOs 2,330,943 2,362,295
Equity 24,707 40,131
--------------------------------------------------------------------------------------------------
Total $2,911,943 $2,971,053
==================================================================================================
</TABLE>
<PAGE> 13
Proceeds from sales of investments in debt securities were $476,339,000
during 1993 and were $217,503,000 during 1992. Gross gains of $2,202,000 and
gross losses of ($1,246,000) were realized on the 1993 sales while gross gains
of $1,744,000 and gross losses of ($2,348,000) were realized on the 1992
sales.
Net investment debt securities gains/(losses) after taxes were $592,000,
($381,000), and ($87,000) for the years ended December 31, 1993, 1992, and
1991, respectively. The applicable income tax expense/(benefits) were
$364,000, ($223,000), and ($53,000) for the years ended December 31, 1993,
1992, and 1991, respectively.
For 1991, a loss in value of $1,043,000 is included in the investment debt
securities losses for securities that in the opinion of management had been
permanently impaired.
At December 31, 1993, and 1992, certain securities were classified as held
for sale. In 1993, a net recovery of $248,000 on previous write-downs was
recorded, and in 1992 a loss of $1,416,000 was recorded in marking these
securities to the lower of cost or market based on the specific identification
method. Detail concerning the securities held for sale at December 31, 1993
and 1992, is provided in the table below:
SECURITIES HELD FOR SALE
<TABLE>
<CAPTION>
Estimated Gross
Amortized Market Unrealized
(Dollars in thousands) Cost Value Gains
-------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1993:
<S> <C> <C> <C>
U.S. Treasury and other
U.S. government agencies $11,739 $11,943 $204
Government agency
issued MBS 37,114 39,178 2,064
Government agency
issued CMOs 3,389 3,403 14
States and municipalities 491 1,586 1,095
Private issued asset-backed 302 304 2
--------------------------------------------------------------------------------------------------
Total $53,035 $56,414 $3,379
==================================================================================================
AT DECEMBER 31, 1992:
U.S. Treasury and other
U.S. government agencies $22,095 $22,233 $138
Government agency
issued MBS 72,601 75,406 2,805
Government agency
issued CMOs 10,703 10,714 11
States and municipalities 491 997 506
Private issued CMOs 1,068 1,070 2
Private issued asset-backed 3,908 3,953 45
Other 8,296 8,296 --
--------------------------------------------------------------------------------------------------
Total $119,162 $122,669 $3,507
==================================================================================================
</TABLE>
<PAGE> 14
NOTE 6 -- NONPERFORMING LOANS
The following table presents information concerning nonperforming
loans at December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992
----------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $ 24,805 $ 28,712
Restructured loans 579 1,288
----------------------------------------------------------------
Total $ 25,384 $ 30,000
================================================================
</TABLE>
Total interest recorded on nonaccrual and restructured loans was
$1,622,000 in 1993 and $1,302,000 in 1992. Interest income which
would have been earned under the original terms of these loans
was approximately $2,904,000 in 1993 and $4,995,000 in 1992.
At December 31, 1993, there were no outstanding commitments
to advance additional funds to customers whose loans had been
restructured.
<PAGE> 15
NOTE 7 -- ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992 1991
-------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 96,795 $ 90,048 $ 86,663
Provision for loan losses 34,540 43,171 53,943
Allowance from acquisitions 785 -- 9,327
Charge-offs 40,349 46,499 69,088
Less loan recoveries 11,963 10,075 9,203
-------------------------------------------------------------------
Net charge-offs 28,386 36,424 59,885
-------------------------------------------------------------------
Balance at end of year $ 103,734 $ 96,795 $ 90,048
===================================================================
</TABLE>
<PAGE> 16
NOTE 8 -- PREMISES AND EQUIPMENT
Premises and equipment at December 31 are summarized below:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992
----------------------------------------------------------------------
<S> <C> <C>
Land $ 22,016 $ 21,510
Buildings 91,010 82,504
Leasehold improvements 12,311 9,770
Furniture, fixtures, and equipment 147,699 120,976
----------------------------------------------------------------------
Premises and equipment, at cost 273,036 234,760
Less accumulated
depreciation and amortization 147,307 127,875
----------------------------------------------------------------------
Premises and equipment, net $ 125,729 $ 106,885
======================================================================
</TABLE>
<PAGE> 17
NOTE 9 -- CONTINGENCIES
Various claims and lawsuits are pending against FTNC and its
subsidiaries. Although the amount of any ultimate liability with
respect to such matters cannot be determined, in the opinion
of management, after consulting with counsel, these matters,
when resolved, will not have a material adverse effect on the
consolidated financial statements of FTNC and its subsidiaries.
<PAGE> 18
NOTE 10 -- INTANGIBLE ASSETS
Following is a summary of intangible assets (net of accumulated
amortization) included in the Consolidated Statements of
Condition at December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992
- ----------------------------------------------------------------
<S> <C> <C>
Goodwill $ 61,143 $20,747
Purchased mortgage servicing rights 41,182 5,964
Premium on purchased deposits and assets 28,905 32,580
- ----------------------------------------------------------------
Total intangible assets $131,230 $59,291
================================================================
</TABLE>
During 1993, goodwill and purchased mortgage servicing rights increased
approximately $42.0 million and $31.9 million, respectively, due to the
acqusition of MNMC.
<PAGE> 19
NOTE 11 -- LEASE COMMITMENTS
Leased capital assets included in "Other assets" on the Consolidated
Statements of Condition at December 31 are summarized below:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992
- ---------------------------------------------------------
<S> <C> <C>
Premises $ 1,525 $ 1,525
Less accumulated amortization 1,151 1,087
- ---------------------------------------------------------
Leased capital assets-net $ 374 $ 438
=========================================================
</TABLE>
Future minimum lease payments for capitalized leases together
with the present value of net minimum lease payments at
December 31, 1993, are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Premises
- ---------------------------------------------------------
<S> <C>
1994 $ 146
1995 146
1996 146
1997 146
1998 146
1999 and after 136
- ---------------------------------------------------------
Total 866
Less amount representing interest 186
- ---------------------------------------------------------
Present value of net minimum lease payments $ 680
=========================================================
</TABLE>
Rent expense under all operating lease obligations aggregated
$12,649,000 for 1993, $11,917,000 for 1992, and $12,131,000 for
1991. Rent expense was reduced by amortization of the deferred
building gain, the result of the sale of an office building in 1985.
This amortization totalled $1,062,000 in 1993, $1,399,000 in 1992,
and $1,820,000 in 1991. Rents received on non-cancelable sublease
agreements aggregated $94,000, $52,000, and $52,000 for these
years, respectively.
With respect to many leased locations, FTNC pays taxes,
insurance, and maintenance costs. Most of the leases are for terms
ranging from one to 30 years and include renewal options for
additional periods of one to 25 years. At December 31, 1993,
FTNC's long-term leases required minimum annual rentals as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Premises Equipment Total
- ---------------------------------------------------------
<S> <C> <C> <C>
1994 $ 12,231 $ 153 $ 12,384
1995 10,200 140 10,340
1996 8,996 40 9,036
1997 8,127 15 8,142
1998 7,562 -- 7,562
1999 and after 21,720 -- 21,720
- ---------------------------------------------------------
Total $ 68,836 $ 348 $ 69,184
=========================================================
</TABLE>
Aggregate minimum income under sublease agreements for these
periods is $1,203,000.
<PAGE> 20
NOTE 12 -- SHORT-TERM BORROWINGS
Short-term borrowings include federal funds purchased and securities
sold under agreements to repurchase, commercial paper, and
other borrowed funds, including term federal funds purchased.
Federal funds purchased arise principally from FTNC's
market activity for its regional correspondent banks and generally
mature in one business day. To the extent that the proceeds of
these transactions exceed FTNC's funding requirements,
the excess funds are sold in the money markets. Securities sold
under agreements to repurchase are secured by U.S. government
and agency securities and certain investments in bank time
deposits and had original maturities ranging from 3 to 30 days
at December 31, 1993.
Commercial paper is an obligation of FTNC and had original
maturities ranging from 14 to 187 days at December 31, 1993.
Other short-term borrowings generally represent secured and
unsecured obligations to financial institutions, including the Federal
Reserve Bank, at various rates and terms and generally do not exceed
one year to maturity. Bank overdraft obligations are reclassified into
other short-term borrowings.
The following table reflects the average daily outstandings, year-end
outstandings, maximum month-end outstandings, average rates paid
during the year, and the average rates paid at year-end for the three
categories of short-term borrowings:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased and
securities sold under
agreements to repurchase:
Balance:
Average $ 1,020,678 $ 690,238 $ 597,813
Year-end 1,009,473 753,409 677,687
Maximum month-end outstanding 1,234,541 823,201 691,342
Rate:
Average for the year 2.84 % 3.25 % 5.28 %
Average at year-end 2.73 2.75 3.63
Commercial paper:
Balance:
Average $ 30,269 $ 22,401 $ 27,232
Year-end 32,283 21,856 21,658
Maximum month-end outstanding 54,809 34,991 32,210
Rate:
Average for the year 3.06 % 3.74 % 6.03 %
Average at year-end 3.06 3.23 4.65
Other short-term borrowings:
Balance:
Average $ 247,714 $ 114,337 $ 73,605
Year-end 288,292 235,018 49,608
Maximum month-end outstanding 467,493 235,018 114,057
Rate:
Average for the year 4.33 % 6.56 % 9.09 %
Average at year-end 3.69 7.01 6.39
=============================================================================
</TABLE>
<PAGE> 21
NOTE 13 -- LONG-TERM DEBT
The following table presents information pertaining to long-term
debt for FTNC and its subsidiaries at December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992
- -------------------------------------------------------------------
<S> <C> <C>
FIRST TENNESSEE NATIONAL CORPORATION:
Sinking fund debentures--7 3/8%
Sinking fund payments of $850,000
due annually 1994 to 1996 with
$12,250,000 due 1997 $ 14,800 $ 15,650
Subordinated capital notes--10 3/8%
Mature on June 1, 1999 74,512 74,422
Subordinated promissory note to the FDIC
Matured February 15, 1993 --- 36,000
FIRST TENNESSEE BANK NATIONAL ASSOCIATION:
Industrial development bond payable
to City of Alcoa, Tennessee--
6.10% to 6.50%
Annual payment of $150,000 due
1994 and $500,000 due 1999 650 800
- --------------------------------------------------------------------
Total $ 89,962 $ 126,872
====================================================================
</TABLE>
Annual principal repayment requirements for the years 1994
through 1997 approximate $1,000,000, $850,000, $850,000, and
$12,250,000, respectively. Annual repayment requirements for
1999 are $75,500,000.
The subordinated capital notes were issued on June 10, 1987.
Interest is payable on June 1 and December 1 of each year. At
maturity, the notes will be exchanged for capital securities
having a market value equal to the principal amount of the
notes. FTNC may elect to pay the principal amount
in cash, in whole or in part, from designated proceeds.
Interest on the promissory note to the FDIC was the average
equivalent yield of the 1-year Treasury bill plus 50 basis
points, adjusted quarterly. The average interest rate on this
note was 4.13 percent in 1993 and 4.56 percent in 1992.
A major portion of the long-term debt issued by the parent
company was downstreamed to First Tennessee Bank National
Association to support asset growth and improve bank capital
ratios. The bank previously issued $100,000,000 in notes to
the parent company corresponding to the subordinated capital
notes and subordinated promissory note to the FDIC as
indicated in the table above. In 1993, $25,000,000 of notes
issued by the bank to the parent company matured. Interest
rate and maturity terms are identical to the corporate debt.
The remaining note meets bank regulatory capital guidelines.
<PAGE> 22
NOTE 14 -- SAVINGS, PENSION AND
OTHER POSTRETIREMENT BENEFITS
SAVINGS PLAN. Substantially all employees of FTNC
and its subsidiaries participate in a contributory savings plan
in conjunction with a flexible benefits plan. FTNC
contributes during the year into each eligible employee's
flexible benefits plan account an amount based on length of
service and an amount based on a percentage of the employee's
salary, as determined by a committee of the board of directors.
The employee may then direct that all or a portion of the
contribution be allocated to his savings plan account. Employees
may also make pre-tax and after-tax personal contributions to
the savings plan. Pre-tax contributions invested in FTNC's
common stock are matched at a rate of $.50 for each $1.00
invested up to 6 percent of the employee's salary. Employer
contributions to the flexible benefits plan were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992 1991
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Flexible benefits contributions:
Performance dollars $ 3,937 $ 3,555 $ 2,467
Service dollars 1,716 1,595 1,415
- -----------------------------------------------------------------------
Total 5,653 5,150 3,882
Company matching contribution 1,976 1,556 1,255
- -----------------------------------------------------------------------
Total employer contribution $ 7,629 $ 6,706 $ 5,137
=======================================================================
</TABLE>
PENSION PLAN. Substantially all employees of FTNC and
its subsidiaries participate in a noncontributory, defined benefit
pension plan. Effective January 1, 1992, the annual funding
is based on an actuarially determined amount using the entry age
cost method. Prior to 1992, the funding was determined
actuarially using the unit credit cost method. As of January 1, 1986,
FTNC adopted SFAS No. 87, "Employers' Accounting for
Pensions." At the date of adoption, the projected benefit obligation
of the First Tennessee National Corporation Pension Plan was
$40,093,000 and plan assets at fair value were $51,139,000,
resulting in an unrecognized net asset of $11,046,000. The
unrecognized net asset is being amortized over 17 years, the
remaining average service life of the eligible employees at
implementation date.
The annual pension expense was $882,000 in 1993, $1,418,000
in 1992, and $933,000 in 1991.
The components of net periodic pension cost were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992 1991
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the year $ 4,522 $ 3,771 $ 3,210
Interest cost on projected
benefit obligation 5,683 5,000 4,554
Return on plan assets (8,847) (5,978) (11,353)
Net amortization and deferral (476) (1,375) 4,522
- ------------------------------------------------------------------------
Net periodic pension cost $ 882 $ 1,418 $ 933
========================================================================
</TABLE>
<PAGE> 23
The following table sets forth the plan's funded status at
December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992
- -----------------------------------------------------------------------
<S> <C> <C>
Plan assets at fair value $ 101,330 $ 86,097
Actuarial present value of projected
benefit obligation* 86,355 71,854
- ------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 14,975 14,243
Unrecognized net (gain) loss from past
experience different from that assumed
and effects of changes in assumptions 10,194 3,765
Prior service cost not yet recognized in
net periodic pension cost 1,370 1,492
Unrecognized net transitional asset (4,160) (4,620)
- -------------------------------------------------------------------------
Prepaid pension cost
recognized in the Consolidated
Statements of Condition $ 22,379 $ 14,880
=========================================================================
</TABLE>
*At December 31, 1993 and 1992, respectively, the actuarial present values of
the accumulated benefit obligation were $61,228,000 and $51,153,000, of which
vested benefits were $60,053,000 and $50,173,000. The accumulated benefit
obligation excludes projected future increases in compensation.
The discount rate and weighted-average rate of increase in future
compensation levels used in determining the actuarial present value
of the projected benefit obligation were 7.25 percent and 7 percent,
respectively, in 1993 and 8.25 percent and 7 percent, respectively,
in 1992. The expected long-term rate of return on assets was
9.5 percent and 10 percent for 1993 and 1992, respectively.
OTHER POSTRETIREMENT BENEFITS. FTNC adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," effective
January 1, 1993. This statement requires that the expected cost of
providing postretirement benefits be recognized in the financial statements
during the employee's active service period.
FTNC provides postretirement medical insurance to full-time employees
retiring under the provisions of the FTNC Pension Plan. The postretirement
medical plan is contributory with retiree contributions adjusted annually. In
1992, FTNC made significant changes to the postretirement medical plan for
future retirees. The revised plan is based on criteria that are a combination
of the employee's age and years of service and utilizes a two-step approach.
For any employee retiring on or after January 1, 1995, FTNC will contribute a
fixed amount based on years of service and age at time of retirement.
The following table sets forth the plans' funded status reconciled to
the amount shown in the Consolidated Statement of Condition at December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993
- ------------------------------------------------------------------------
<S> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees $ (14,788)
Actives (7,775)
- -------------------------------------------------------------------------
Total APBO (22,563)
Plan assets at fair value 8,873
- -------------------------------------------------------------------------
APBO in excess of plan assets (13,690)
Unrecognized:
Net transition obligation 18,785
Prepaid benefit cost 2,023
- -------------------------------------------------------------------------
Prepaid postretirement benefit cost $ 7,118
=========================================================================
</TABLE>
Net periodic postretirement benefit cost for the period ending
December 31, 1993, included the following components:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993
- -------------------------------------------------------------------------
<S> <C>
Service cost $ 434
Interest cost on APBO 1,582
Actual return on assets (388)
Amortization of transition obligation over 20 years 989
Total of other components (292)
- -------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 2,325
=========================================================================
</TABLE>
<PAGE> 24
For measurement purposes, a 14 percent annual rate of increase
in the per capita cost of covered health care benefits was assumed;
the rate was assumed to decrease 1 percent per year to 7 percent
and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. The
following table illustrates the effect of increasing the assumed
health care cost trend rate by 1 percent.
<TABLE>
<CAPTION>
Current Increased Percent
(Dollars in thousands) Trend Trend Change
- ----------------------------------------------------------------------
<S> <C> <C> <C>
APBO at December 31, 1993 $22,563 $24,081 6.7+
Service and interest cost 2,016 2,144 6.4+
- ----------------------------------------------------------------------
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.25 percent. The funding policy for the plan is to
fund the maximum amount allowable under the current tax regulations. Plan
assets consist primarily of equity and fixed income securities. The trust
holding the plan assets for employees that had retired prior to January 1,
1993, is subject to federal income taxes at a 35 percent rate. The trust
holding the plan assets for all other FTNC employees, actives and those retired
in 1993, is not subject to federal income taxes. The expected long-term rate
of return on plan assets before income taxes is 9.5 percent.
In 1993 medical plan expense based on claims incurred was $5,317,000
for 3,925 active participants. Medical plan expense in 1992 was $5,796,000 for
3,742 participants including 527 retirees. The 1991 medical plan expense was
$4,595,000 for 3,542 participants including 500 retirees. Medical plan expense
based on claims paid for retirees only was $760,000 in 1992, and $912,000 in
1991. FTNC does not currently provide group life insurance upon retirement;
however, 9 employees, most of whom retired prior to August 1, 1963, are
currently provided coverage totaling $130,500. Group life insurance expense
based on benefits incurred was $1,031,000 for 5,981 participants in 1993,
$801,000 for 4,292 participants in 1992, and $656,000 for 4,014 participants in
1991.
During 1992, FTNC acquired HFB which had a contributory retirement plan
for all eligible employees. The benefits provided under the plan were funded
by HFB's monthly payments equal to the employees' contributions, which were 5%
of salaries, plus an additional annual discretionary contribution, with all
contributions by HFB being limited to 15% of all participants' salaries paid
during the year. Retirement expense under this plan was $568,000, and $515,000
for the years ended December 31, 1992, and 1991, respectively. Effective as of
the merger with FTNC, HFB's retirement plan was terminated. In accordance with
the plan, and with ERISA, all amounts credited to the plan became fully vested
and nonforfeitable.
<PAGE> 25
NOTE 15 -- STOCK OPTION, RESTRICTIVE STOCK INCENTIVE,
AND DIVIDEND REINVESTMENT PLANS
On April 21, 1992, the board of directors authorized a three-for-two stock split
to be effected in the form of a 50 percent stock dividend. The shares were
distributed May 22, 1992, to shareholders of record on May 8, 1992. Per share
amounts in the accompanying text and table have been adjusted for the split.
STOCK OPTION PLANS. FTNC has two stock option plans which provide for
the granting of both non-qualified and incentive stock options to key
executives and employees. The options allow for the purchase of FTNC's common
stock at a price equal to its fair market value at the date of grant. The
plans allow the exercise price to be less than the fair market value if the
grantee has agreed to receive the options in lieu of compensation. The
foregone compensation plus the exercise price must equal the fair market value
on the date of grant. In 1993, options for 14,485 shares were granted in lieu
of compensation under the 1990 Plan. In 1993, no options were granted under
the 1984 Plan. In 1992, options for 110,804 and 314,228 shares were granted
under the 1984 and 1990 Plans, respectively. For the 1992 grants, the exercise
price was equal to the market value on the date of grant.
The plans also provide for the grant of Stock Appreciation Rights (SARs)
exercisable for the economic appreciation of the stock in the form of cash
and/or stock. No SARs have been granted in the last five years. Under the 1984
stock option plan, total stock appreciation rights expense associated with
fluctuations in the market value of FTNC stock was $67,000, $83,000, and
$149,000 for the years 1993, 1992, and 1991, respectively.
In November 1991, the FTNC Board of Directors approved the Bank Advisory
Director Deferral Plan for non-employee advisory directors of First Tennessee
Bank National Association. Options are awarded to those directors electing to
receive them in lieu of attendance fees. The board authorized 120,000 shares
to satisfy this plan. Options for 5,640 and 2,727 shares were granted during
1993 and 1992, respectively.
RESTRICTED STOCK INCENTIVE PLANS. FTNC has authorized a total of 427,500
shares of its common stock for awards under its 1983 and 1989 restricted stock
incentive plans for executive employees who have a significant impact on the
profitability of FTNC. Shares awarded under the plans are subject to risk of
forfeiture during a restriction period determined by a committee of the board
of directors. All shares have been awarded under the 1983 Plan, subject to
restrictions which lapse through 1996. Each award under the 1983 Plan provides
for supplemental cash payments when the restrictions lapse. In 1993, options
for 39,347 shares were granted under the 1989 Plan. At December 31, 1993, the
1989 Plan has 1,622 shares available to be awarded.
On April 21, 1992, FTNC's shareholders approved the 1992 Restricted Stock
Incentive Plan. The Plan authorized the issuance of up to 330,000 shares.
Under the provisions of the Plan, each current director of FTNC shall receive
an award of 1,500 shares of restricted common stock. The restrictions on these
shares lapse at a rate of 150 shares per year beginning April 30, 1993, and
ending January 3, 2003, for seven directors. The shares of the remaining
directors lapse equally over their remaining terms. In 1993, options for
21,794 shares were granted. At December 31, 1993, the 1992 Plan has 293,206
shares available to be awarded.
Compensation expense related to these plans was $1,586,000, $1,563,000,
and $1,123,000 for the years 1993, 1992, and 1991, respectively.
<PAGE> 26
The summary of stock option and restricted stock activity is shown below:
<TABLE>
<CAPTION>
Exercise Average
Available Options Price Exercise
for Grant Outstanding Per Share Price
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JANUARY 1, 1992 1,506,169 1,230,146 $10.40-25.59 $16.48
Options granted (427,759) 427,759 $18.13-34.29 $34.19
Restricted stock incentive awards (16,500)
Shares authorized 330,000
Stock options exercised (371,566) $10.40-22.37 $14.51
SARs exercised (3,228) $10.40-21.25 $14.18
Restricted stock cancelled 1,500
Stock options cancelled 22,978 (22,978) $16.59-34.29 $24.39
---------- ----------
DECEMBER 31, 1992 1,416,388 1,260,133 $10.40-34.29 $22.93
========== ==========
Options exercisable 393,464 $10.40-22.46 $17.48
- --------------------------------------------------------------------------------------------
JANUARY 1, 1993 1,416,388 1,260,133 $10.40-34.29 $22.93
Options granted (20,125) 20,125 $18.31-20.91 $20.50
Restricted stock incentive awards (61,141)
Stock options exercised (114,206) $10.40-34.29 $18.15
SARs exercised (3,292) $16.67-22.17 $21.11
Stock options cancelled 22,850 (22,850) $16.59-34.29 $27.23
---------- -----------
DECEMBER 31, 1993 1,357,972 1,139,910 $10.40-34.29 $23.29
========== ===========
Options exercisable 562,105 $10.40-34.29 $19.80
- --------------------------------------------------------------------------------------------
</TABLE>
DIVIDEND REINVESTMENT PLAN. The Dividend Reinvestment and Stock Purchase
Plan, originally adopted in 1979, was amended in 1986 to authorize the sale of
200,000 shares of FTNC's common stock from authorized but unissued common stock
or from shares acquired on the open market to shareholders who choose to invest
all or a portion of their cash dividends and optional cash payments of $25 to
$5,000 per quarter. In 1988, FTNC began purchasing these shares on the open
market. The price of the shares purchased directly from FTNC is the mean
between the high and low sales price on the investment date. The price of
shares purchased on the open market is the average price paid.
<PAGE> 27
NOTE 16 -- RESTRICTIONS ON DIVIDENDS AND
INTERCOMPANY TRANSACTIONS
Dividends are paid by FTNC from its assets which are mainly provided by
dividends from the subsidiaries. However, certain regulatory restrictions
exist regarding the ability of the banking subsidiaries to transfer funds to
FTNC in the form of cash dividends, loans, or advances. As of December 31,
1993, the banking subsidiaries had undivided profits of $431,944,000 of which
$168,215,000 was available for distribution to FTNC as dividends without prior
regulatory approval.
Pursuant to provisions of the indenture relating to the sinking
fund debenture issued December 1, 1972, undivided profits
available for dividends are restricted using a calculation that takes
into account net income and total dividends paid or declared since
1971. At December 31, 1993, undivided profits of FTNC of $469,901,000
were not restricted by the provisions of the indenture.
Under Federal Banking law, banking subsidiaries may not extend
credit to the parent company in excess of 10 percent of the banks'
capital stock and surplus, or $75,794,000 at December 31, 1993.
There were no extensions of credit to the parent from its
banking subsidiaries at December 31, 1993. Certain loan
agreements and indentures also define other restricted trans-
actions related to additional borrowings and public offerings of
capital stock.
<PAGE> 28
NOTE 17 -- OTHER INCOME AND OTHER EXPENSE
Following is detail concerning "Other income" and "Other expense" as presented
in the Consolidated Statements of Income:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992 1991
-------------------------------------------------------------------------
<S> <C> <C> <C>
OTHER INCOME:
Check clearing fees $14,569 $12,956 $ 8,879
Other service charges 9,296 6,942 5,539
All other 21,261 20,053 16,430
-------------------------------------------------------------------------
Total $45,126 $39,951 $30,848
=========================================================================
OTHER EXPENSE:
Legal and professional fees $ 8,380 $11,158 $ 7,886
Fed service fees 7,778 7,228 5,311
Supplies 6,937 5,928 5,318
Advertising and public relations 6,947 5,826 4,657
Travel and entertainment 6,242 5,255 4,585
Market adjustments to
foreclosed real estate 193 3,180 6,846
All other 31,550 29,566 27,696
-------------------------------------------------------------------------
Total $68,027 $68,141 $62,299
=========================================================================
</TABLE>
<PAGE> 29
NOTE 18--INCOME TAXES
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992 1991
---------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $56,240 $44,499 $24,164
State 8,910 6,241 3,112
Deferred
Federal (1,619) 4,391 (234)
State 326 -
Tax law rate change (405) - -
---------------------------------------------------------------------------
Total $63,452 $55,131 $27,042
===========================================================================
</TABLE>
The effective tax rates for 1993, 1992, and 1991 were 34.46, 38.21, and
27.02 percent, respectively. Income tax expense was different than the amounts
computed by applying the statutory federal income tax rate to income before
income taxes because of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992 1991
---------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 35% 34% 34%
---------------------------------------------------------------------------
Tax computed at statutory rate $64,441 $49,061 $34,022
Increase (decrease) resulting from:
Tax-exempt interest (3,292) (4,752) (6,545)
State income taxes 5,848 4,120 2,053
Minimum tax credit carryforward
utilized - (2,903) (4,038)
Deferred income taxes on HFC's
retained earnings appropriated
to absorb bad debt deductions - 7,436 -
Tax law rate changes (405) - -
Other (3,140) 2,169 1,550
---------------------------------------------------------------------------
Total $63,452 $55,131 $27,042
===========================================================================
</TABLE>
<PAGE> 30
A deferred tax asset or liability is recognized for the tax consequences of
temporary differences by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts
and the tax bases of existing assets and liabilities. The temporary differences
which gave rise to these deferred tax (assets) liabilities at December 31,
1993, were as follows:
<TABLE>
<CAPTION>
Deferred Deferred
(Dollars in thousands) Assets Liabilities Total
---------------------------------------------------------------------------
<S> <C> <C>
Depreciation $ - $ 2,982 $ 2,982
Loss reserves (43,023) - (43,023)
Purchase accounting adjustments - 7,738 7,738
Foreclosed property (2,235) - (2,235)
Lease operations - 7,527 7,527
Retained earnings appropriated to
absorb bad debt deductions - 6,145 6,145
Other (4,840) 1,459 (3,381)
---------------------------------------------------------------------------
Net deferred tax (asset) liability
at end of year $(50,098) $25,851 (24,247)
==============================================================
Less: Net deferred tax (asset) liability
at beginning of year (14,301)
Impact of MNMC acquisition (8,248)
------------
Deferred tax expense (benefit) $ (1,698)
============
</TABLE>
<PAGE> 31
NOTE 19 -- LOANS TO RELATED PARTIES
In the ordinary course of business, FTNC makes loans to its executive officers
and directors as well as to other related persons and expects to continue to do
so in the future. These loans are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and do not involve more than
normal risk of collectibility or other unfavorable features.
Loans made to directors and executive officers of FTNC and their associates
were $81,278,000 and $62,625,000 at December 31, 1993 and 1992, respectively.
The following table summarizes the changes to these amounts:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992
----------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $ 62,625 $ 88,861
Additions 121,803 87,074
Deletions:
Repayments 96,252 106,339
No longer related 6,898 6,971
----------------------------------------------------------------
Total deletions 103,150 113,310
----------------------------------------------------------------
Balance at end of year $ 81,278 $ 62,625
================================================================
</TABLE>
<PAGE> 32
NOTE 20 -- BUSINESS SEGMENT INFORMATION
FTNC is primarily engaged in the banking business.
However, significant operations are conducted in the bond division. The bond
division operations consist of units which buy and sell certain securities and
loans.
Total revenue, expense, and asset levels reflect those which are
specifically identifiable or which are allocated on an internal allocation
method. Because the allocations are based on internally developed assignments
and allocations, they are to an extent subjective. This assignment and
allocation from period-to-period has been consistently applied.
The following table reflects the approximate amounts of consolidated
revenue, expense, and assets for the three years ended December 31, for each
segment:
<TABLE>
<CAPTION>
(Dollars in thousands) Banking Group Bond Division Consolidated
--------------------------------------------------------------------------
<S> <C> <C> <C>
1993
Interest income $ 574,430 $ 12,037 $ 586,467
Interest expense 228,797 11,116 239,913
--------------------------------------------------------------------------
Net interest income 345,633 921 346,554
Other revenues 178,964 91,525 270,489
Other expenses 369,622 63,304 432,926
--------------------------------------------------------------------------
Pre-tax income $ 154,975 $ 29,142 $ 184,117
==========================================================================
Identifiable assets $9,181,411 $427,437 $9,608,848
--------------------------------------------------------------------------
1992
Interest income $ 586,082 $ 13,155 $ 599,237
Interest expense 264,195 12,108 276,303
--------------------------------------------------------------------------
Net interest income 321,887 1,047 322,934
Other revenues 144,734 80,275 225,009
Other expenses 348,041 55,606 403,647
--------------------------------------------------------------------------
Pre-tax income $ 118,580 $ 25,716 $ 144,296
==========================================================================
Identifiable assets $8,507,588 $418,186 $8,925,774
--------------------------------------------------------------------------
1991
Interest income $ 627,449 $ 13,147 $ 640,596
Interest expense 349,235 12,568 361,803
--------------------------------------------------------------------------
Net interest income 278,214 579 278,793
Other revenues 122,572 68,628 191,200
Other expenses 320,545 49,384 369,929
--------------------------------------------------------------------------
Pre-tax income $ 80,241 $ 19,823 $ 100,064
==========================================================================
Identifiable assets $8,338,591 $422,124 $8,760,715
--------------------------------------------------------------------------
</TABLE>
Capital expenditures and depreciation and amortization occurred
primarily in the banking group. Capital expenditures were $31,150,000,
$16,289,000, and $20,324,000 for the three years ended December 31, 1993, 1992,
and 1991, respectively. Depreciation and amortization was $51,473,000,
$40,456,000, and $25,897,000 for 1993, 1992, and 1991, respectively.
<PAGE> 33
NOTE 21 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, FTNC is party to financial instruments with
off-balance sheet risk to meet the financing needs of its customers and to
manage its own exposure to fluctuation in interest rates. These instruments
expose FTNC to elements of credit and interest rate risk in addition to amounts
reflected in the accompanying consolidated financial statements. These
financial instruments include commitments to extend credit; standby,
commercial, and similar letters of credit; commitments to sell securities;
foreign exchange contracts; futures and forwards contracts; interest rate
contracts; and mortgage loans sold with recourse. FTNC follows the same credit
policies and underwriting practices in making commitments and conditional
obligations as it does for on-balance sheet instruments. In addition, controls
for these instruments related to approval, monetary limits, and monitoring
procedures are established and reviewed by management's Asset/Liability
Committee. In the opinion of management, these outstanding commitments and
obligations do not represent unusual risk for FTNC. A summary of FTNC's
off-balance sheet financial instruments at December 31, 1993 and 1992, is
provided below:
<TABLE>
<CAPTION>
(Dollars in millions) 1993 1992
- ----------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL INSTRUMENTS WHOSE CONTRACT
AMOUNTS REPRESENT CREDIT RISK:
Commitments to extend credit:
Credit card lines $1,300 $1,173
Commercial real estate, construction,
and land development 395 82
Home equity 139 121
Other 1,013 828
Standby and commercial letters of credit 169 177
- -----------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS WHOSE NOTIONAL OR
CONTRACTUAL AMOUNTS EXCEED CREDIT RISK:
Forward and futures contracts:
Bond division commitments to purchase $ 656 $ 418
Bond division commitments to sell 603 410
Mortgage banking commitments to sell 634 104
Interest rate swap agreements 1,420 56
Interest rate caps and floors
and options written 503 1
Mortgage loans sold with recourse 710 -
Foreign exchange rate contracts 6 7
- -----------------------------------------------------------------------------------
</TABLE>
Commitments to extend credit are agreements to lend to a customer at a
future date. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. FTNC
evaluates each customer's creditworthiness on a case-by-case basis.
Standby and commercial letters of credit are conditional commitments
issued by FTNC to guarantee the performance of a customer to a third party. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. FTNC evaluates each
customer's creditworthiness on a case-by-case basis.
Mortgage loans sold with recourse are mortgages sold with provisions
for recourse by MNMC, a mortgage banking affiliate acquired by FTBNA in 1993.
These loans were sold with an agreement to repurchase the loan upon default.
Credit risk exists to the extent of recourse, which totaled approximately $416
million at December 31, 1993. A reserve of $14.5 million has been established
for these loans that may default in the future. These loans are reviewed on a
regular basis to ensure that reserves are adequate to provide for foreclosure
losses.
The amount of collateral obtained, if deemed necessary by FTNC upon
the extension of credit under these instruments, is based on management's
credit evaluation of the counterparty. Collateral held varies but may include
marketable securities, accounts receivable, inventory, property, plant and
equipment, and income-producing commercial properties. Access to that
collateral is maintained in various ways, mainly through the holding of notes,
deeds, titles and receipts, through UCC filings, and through dual control over
access to certain pledged marketable securities.
Forward and futures contracts are contracts for delayed delivery of
securities or financial instruments in which the seller agrees to make delivery
at a specified future date of a specified instrument at a specified price or
yield. These obligations are generally short term in nature. Risks arise from
the possible inability of counterparties to meet the terms of the contracts and
from movements in the instruments' value and interest rates. The contractual
amounts significantly exceed the future cash requirements, since FTNC has the
ability to close open positions to purchase prior to settlement and thus would
be subject only
<PAGE> 34
to the change in value of the instruments. Mortgage banking is committed to
deliver mortgage loans under mandatory forward sales agreements. Such
agreements may be filled with mortgage loans held for sale, mortgage loans
purchased, or mortgage loans in process.
An interest rate swap generally involves the exchange of interest
payment obligations on a specified notional principal amount of assets or
liabilities for an agreed-upon period of time without the exchange of the
underlying principal amounts. Notional principal amounts often are used to
express the volume of these transactions, but the amounts potentially subject
to credit risk are much smaller. During 1993, FTNC entered into a $1 billion
interest rate swap agreement in order to minimize the impact from the
expected narrowing of the spread earned between base rate loans and short-term
market rate funding instruments. The agreement will mature in 1996. The 1993
impact on net interest income was a reduction of $200,000. An additional $400
million of swaps in index amortizing fixed rate instruments vs floating rate
instruments were purchased as part of the on-going interest rate sensitivity
management. These swaps have an embedded amortization feature which causes the
maturity of these instruments to accelerate as interest rate levels change.
The maturity can vary between two years and four years depending on the level
of the three month LIBOR beginning in 1995. The 1993 impact on net interest
income was an increase of $1 million. FTNC is party to a similar agreement
that was entered into during 1990. The remaining portion, $20 million, is
scheduled to mature throughout 1994. The 1993 impact on net interest income
was a reduction of $1.6 million.
Interest rate caps and floors obligate one of the parties to make
payments if an interest rate index exceeds a specified upper "capped" level or
if the index falls below a specified lower "floor" level. During 1993, $250
million in federal funds caps were purchased and $250 million in base rate caps
were sold, creating an interest rate collar that matures in 1996. At December
31, 1993, there was $540,000 in deferred collar expense. This expense is being
amortized by the straight-line method over the life of the collar. During
1993, $210,000 of collar expense was recognized as a reduction to net interest
income. Options written are contracts that allow the holder of the option to
purchase or sell a financial instrument at a specified price and within a
specified period of time from or to the "seller" or "writer" of the option. As
a writer of options, FTNC receives a premium at the outset and then bears the
risk of an unfavorable change in the price of the financial instrument
underlying the options. Typically, FTNC purchases an option to offset the
option written to reduce its risk exposure. At December 31, 1993, the exposure
was immaterial to FTNC.
FTNC also enters into commitments to purchase foreign currencies and
U.S. dollar exchange which are agreements for delayed delivery of a foreign
currency or U.S. dollar exchange in which the seller agrees to deliver, at a
specified future date, a specified amount at a specified exchange rate. Risks
arise from the possible inability of counterparties to meet the terms of their
contracts. To reduce the exposure to risk, FTNC purchases a contract to offset
the contract written. The exposure to these instruments at December 31, 1993,
was immaterial.
At December 31, 1993, there was also a $132,000 deferred loss
resulting from an interest rate hedge related to the 1989 subordinated capital
note issue. These notes mature in 1999. The loss is being amortized by the
straight-line method over the life of the notes. The 1993 impact was to reduce
net interest income by $24,000.
For information related to the estimated fair value of the instruments
refer to Note 23.
CONCENTRATION OF CREDIT RISK. FTNC grants commercial, agribusiness,
residential, and consumer loans primarily to customers throughout Tennessee and
its contiguous states through its banking facilities. Through the purchase of
MNMC, mortgage loan originations have advanced into Maryland, Virginia,
Pennsylvania, Delaware, New Jersey, and Colorado. Although FTNC has a
diversified loan portfolio, the ability of its debtors to honor their contracts
is to some extent dependent upon the economic conditions of the geographic
regions in which they operate.
<PAGE> 35
NOTE 22 -- SHAREHOLDER PROTECTION RIGHTS AGREEMENT
In September 1989, FTNC adopted a Shareholder Protection Rights Agreement
and distributed a dividend of one right on each outstanding share of common
stock held on September 18, 1989, or issued thereafter and prior to the time
the rights separate. Until a person or group acquires 10 percent or more of
FTNC's common stock or commences a tender offer that will result in such person
or group owning 10 percent or more of FTNC's common stock, the rights will be
evidenced by the common stock certificates, will automatically trade with the
common stock, and will not be exercisable. Thereafter, separate rights
certificates will be distributed and each right will entitle its holder to
purchase one one-hundredth of a share of participating preferred stock having
economic and voting terms similar to those of one share of common stock for an
exercise price of $76.67.
If any person or group acquires 10 percent or more of FTNC's common
stock, then each right (other than rights beneficially owned by holders of 10
percent or more of the common stock or transferees thereof, which rights become
void) will entitle its holder to purchase, for the exercise price, a number of
shares of FTNC common stock or participating preferred stock having a market
value of twice the exercise price. Also, if FTNC is involved in a merger or
sells more than 50 percent of its assets or earning power, each right will
entitle its holder to purchase, for the exercise price, a number of shares of
common stock of the acquiring company having a market value of twice the
exercise price. If any person or group acquires between 10 percent and 50
percent of FTNC's common stock, FTNC'S Board of Directors may, at its option,
exchange one share of FTNC common stock or one one-hundredth of a share of
participating preferred stock for each right. The rights will expire on the
earliest of one of the following three times: the time of the exchange
described in the preceding sentence; September 18, 1999; or the date the rights
are redeemed as described in the following sentence. The rights may be
redeemed by the board of directors for $0.01 per right prior to the day when
any person or group acquires 10 percent or more of FTNC's common stock.
<PAGE> 36
NOTE 23 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is disclosed to comply with SFAS No.
107, "Disclosure about Fair Value of Financial Instruments."
The following table presents estimates of fair value for FTNC's financial
instruments at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
Impact
Book Fair Favorable Percent
(Dollars in thousands) Value Value (Unfavorable) Change
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1993:
ASSETS:
Loans (net of
unearned income):
Floating $2,408,824 $2,410,839 $ 2,015 --
Fixed 2,834,439 2,953,342 118,903 4.2 +
Nonaccrual 24,805 24,805 -- --
Allowance for
loan losses (103,734) (103,734) -- --
-----------------------------------------------------------------------------------
Total net loans 5,164,334 5,285,252 120,918 2.3 +
Liquid assets 323,863 323,863 -- --
Mortgage warehouse loans held for sale 719,500 722,056 2,556 0.4 +
Securities held for sale 53,035 56,414 3,379 6.4 +
Investment securities 2,116,701 2,156,243 39,542 1.9 +
Nonearning assets 772,646 772,646 -- --
-----------------------------------------------------------------------------------
LIABILITIES:
Deposits:
Defined maturity $2,587,233 $2,624,550 $(37,317) 1.4 -
Undefined maturity 4,559,518 4,559,518 -- --
-----------------------------------------------------------------------------------
Total deposits 7,146,751 7,184,068 (37,317) 0.5 -
Short-term borrowings 1,330,048 1,330,023 25 --
Long-term debt 89,962 106,548 (16,586) 18.4 -
Other noninterest-
bearing liabilities 188,575 188,751 (176) 0.1 -
-----------------------------------------------------------------------------------
OFF-BALANCE SHEET:
Interest rate swaps
paying floating rates $ -- $ 291 $ 291
Futures and forwards -- 470 470
Standby letters of credit -- 2,117 2,117
Commitments to
extend credit 3,493 3,493 --
---------------------------------------------------------------------------------------------
AT DECEMBER 31, 1992:
ASSETS:
Loans (net of
unearned income):
Floating $2,349,498 $2,349,999 $ 501 --
Fixed 2,144,218 2,205,637 61,419 2.9 +
Nonaccrual 28,712 28,712 -- --
Allowance for
loan losses (96,795) (96,795) -- --
-----------------------------------------------------------------------------------
Total net loans 4,425,633 4,487,553 61,920 1.4 +
Liquid assets 474,968 474,968 -- --
Mortgage warehouse loans held for sale 87,590 87,900 310 0.4 +
Securities held for sale 119,162 122,669 3,507 2.9 +
Investment securities 2,911,943 2,971,053 59,110 2.0 +
Nonearning assets 641,885 641,885 -- --
-----------------------------------------------------------------------------------
LIABILITIES:
Deposits:
Defined maturity $2,836,870 $2,863,953 $(27,083) 1.0 -
Undefined maturity 4,079,892 4,079,892 -- --
-----------------------------------------------------------------------------------
Total deposits 6,916,762 6,943,845 (27,083) 0.4 -
Short-term borrowings 1,010,283 1,010,383 (100) --
Long-term debt 126,872 135,353 (8,481) 6.7 -
Other noninterest-
bearing liabilities 157,261 157,006 255 0.2 +
-----------------------------------------------------------------------------------
OFF-BALANCE SHEET:
Interest rate swaps
paying fixed rates $ -- $ (1,585) $ (1,585)
Futures and forwards -- (663) (663)
Standby letters of credit -- 1,330 1,330
Commitments to --
extend credit 3,107 3,107 --
---------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 37
The following describes the assumptions and methodologies used to
calculate the fair value for financial instruments.
FLOATING RATE LOANS. With the exception of 1-4 family residential floating
rate mortgage loans, the fair value of floating rate loans is approximated by
the book value. Floating rate 1-4 family residential mortgage loans reprice
annually and will lag movements in market rates; whereas, commercial and
consumer loans reprice monthly. The fair value for floating rate mortgage
loans is calculated by discounting future cash flows to their present value.
Future cash flows, consisting of principal payments, interest payments, and
repricings, are discounted with current FTNC prices for similar instruments
applicable to the remaining maturity. Prepayment assumptions based on
historical prepayment speeds have been applied to the 1-4 family residential
floating rate mortgage portfolio.
FIXED RATE LOANS. The fair value for fixed rate loans is calculated by
discounting future cash flows to their present value. Future cash flows,
consisting of both principal and interest payments, are discounted with current
FTNC prices for similar instruments applicable to the remaining maturity.
Prepayment assumptions based on historical prepayment speeds have been applied
to the fixed rate mortgage and installment loan portfolios.
NONACCRUAL LOANS. The fair value of nonaccrual loans is approximated by the
book value.
ALLOWANCE FOR LOAN LOSSES. The fair value of the allowance for loan losses is
approximated by the book value. Additionally, the credit exposure known to
exist in the loan portfolio is embodied in the allowance for loan losses.
LIQUID ASSETS. The fair value of liquid assets is approximated by the book
value. For the purpose of this disclosure, liquid assets consist of federal
funds sold, securities purchased under agreements to resell, trading account
securities, and investment in bank time deposits.
MORTGAGE WAREHOUSE LOANS HELD FOR SALE. Market quotes are used for the fair
value of mortgage warehouse loans held for sale.
INVESTMENT SECURITIES. Market quotes are used for the fair value of investment
securities.
SECURITIES HELD FOR SALE. Market quotes are used for the fair value of
securities held for sale.
NONEARNING ASSETS. The fair value of nonearning assets is approximated by the
book value. For the purpose of this disclosure, nonearning assets include cash
and due from banks, accrued interest receivable, bond division receivables, and
excess mortgage servicing fees.
DEFINED MATURITY DEPOSITS. The fair value for defined maturity deposits is
calculated by discounting future cash flows to their present value. Future
cash flows, consisting of both principal and interest payments, are discounted
with FTNC prices for similar instruments applicable to the remaining maturity.
For the purpose of this disclosure, defined maturity deposits include all
certificates of deposit and other time deposits.
UNDEFINED MATURITY DEPOSITS. The fair value of undefined maturity deposits is
required by the statement to equal the book value. For the purpose of this
disclosure, undefined maturity deposits include demand deposits, checking
interest accounts, savings accounts, and money market accounts.
SHORT-TERM BORROWINGS. The fair value of federal funds purchased, securities
sold under agreements to repurchase, commercial paper, and other short-term
borrowings is approximated by the book value. Market quotes are used for
Federal Home Loan Bank borrowings.
LONG-TERM DEBT. The fair value for long-term debt is calculated by discounting
future cash flows to their present value. Future cash flows, consisting of
both principal and interest payments, are discounted using the current yield to
maturity for FTNC's outstanding long-term debt as quoted by Keefe, Bruyette and
Woods, Inc.
OTHER NONINTEREST-BEARING LIABILITIES. For the purpose of this disclosure,
other noninterest-bearing liabilities include accrued interest payable and bond
division payables. Accrued interest, which is not payable until the maturity
of an instrument, has been discounted to its present value given current market
rates and the maturity structure of the financial instrument. The fair value
of bond division payables is approximated by the book value.
<PAGE> 38
OFF-BALANCE SHEET. Market quotes are used for off-balance sheet hedging
instruments (interest rate swaps, futures, and forwards). Fair values for
standby letters of credit were estimated using fees currently charged to enter
into similar agreements with similar maturities. The book value for
commitments to extend credit, which approximates the fair value, represents
accruals or deferred income arising from related unrecognized financial
instruments.
<PAGE> 39
NOTE 24 -- CONDENSED FINANCIAL INFORMATION
Following are condensed statements of the parent company:
<TABLE>
<CAPTION>
STATEMENTS OF CONDITION December 31
----------------------
(Dollars in thousands) 1993 1992
- -------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash $ 222 $ 6,327
Securities purchased from subsidiary
bank under agreements to resell 50,956 55,712
- -------------------------------------------------------------------
Total cash and cash equivalents 51,178 62,039
Other securities 5,906 5,502
Notes receivable--short-term -- 25,000
Notes receivable--long-term 75,000 75,046
Investments in subsidiaries at equity:
Bank 657,513 491,250
Non-bank 10,476 95,078
Other assets 23,720 20,760
- -------------------------------------------------------------------
Total assets $ 823,793 $ 774,675
===================================================================
Liabilities and shareholders' equity:
Commercial paper and other
short-term borrowings $ 32,283 $ 21,856
Accrued employee benefits
and other liabilities 23,081 29,077
Long-term debt 89,444 126,229
- -------------------------------------------------------------------
Total liabilities 144,808 177,162
Shareholders' equity 678,985 597,513
- -------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 823,793 $ 774,675
===================================================================
</TABLE>
<PAGE> 40
<TABLE>
<CAPTION>
STATEMENTS OF INCOME Year Ended December 31
---------------------------------
(Dollars in thousands) 1993 1992 1991
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Dividend income:
Bank $ 41,837 $ 32,375 $ 29,920
Non-bank -- 6,283 5,191
- ---------------------------------------------------------------------
Total dividend income 41,837 38,658 35,111
Interest income 9,412 10,626 12,248
Management fees 18,611 16,529 13,448
Other income 29 3 8
Equity security gain (loss) -- 71 (558)
- ---------------------------------------------------------------------
Total income 69,889 65,887 60,257
- ---------------------------------------------------------------------
Interest expense:
Short-term debt 927 838 1,641
Long-term debt 9,157 10,678 11,477
- ---------------------------------------------------------------------
Total interest expense 10,084 11,516 13,118
Salaries, employee benefits and
other expense 18,594 16,579 13,822
- ---------------------------------------------------------------------
Total expense 28,678 28,095 26,940
- ---------------------------------------------------------------------
Income before income taxes
and equity in undistributed
net income of subsidiaries 41,211 37,792 33,317
Applicable income taxes (1,284) (2,342) (1,350)
- ---------------------------------------------------------------------
Income before equity in
undistributed net income
of subsidiaries 42,495 40,134 34,667
Equity in undistributed net
income of subsidiaries:
Bank 76,575 58,399 33,107
Non-bank 1,595 (9,368) 5,248
- ---------------------------------------------------------------------
Net income $ 120,665 $ 89,165 $ 73,022
=====================================================================
</TABLE>
<PAGE> 41
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS Year Ended December 31
-------------------------------
(Dollars in thousands) 1993 1992 1991
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 120,665 $ 89,165 $ 73,022
Less undistributed net income
of subsidiaries 78,170 49,031 38,355
- ----------------------------------------------------------------------------
Income before undistributed 42,495 40,134 34,667
net income of subsidiaries
Adjustments to reconcile income
to net cash provided by
operating activities:
Provision for deferred income taxes (1,228) (1,077) (1,654)
Depreciation and amortization 2,405 2,149 1,414
Investment securities losses (gains) -- (71) 558
Net (increase) decrease in:
Interest receivable 291 156 153
Other assets (611) 8,303 (1,331)
Net increase (decrease) in:
Interest payable (329) (236) (272)
Other liabilities 2,942 (2,919) 6,421
- ----------------------------------------------------------------------------
Total adjustments 3,470 6,305 5,289
- ----------------------------------------------------------------------------
Net cash provided by
operating activities 45,965 46,439 39,956
- ----------------------------------------------------------------------------
Investing activities:
Proceeds from maturity of
investment securities 5,000 -- 5,000
Proceeds from sale of
investment securities -- 1,084 --
Payments for purchase of:
Investment securities (5,439) -- (5,047)
Premises and equipment (539) (378) (265)
Net decrease in loans 25,046 -- --
Return of investments 13 13 19
Investment in subsidiaries (971) -- (2,902)
- ----------------------------------------------------------------------------
Net cash provided (used) by
investing activities 23,110 719 (3,195)
- ----------------------------------------------------------------------------
Financing activities:
Proceeds from exercise
of stock options 2,014 5,272 2,679
Payments for:
Long-term debt (36,850) (426) --
Cash dividends (50,730) (27,927) (38,695)
Repurchase of common stock (4,797) (1,138) (4,227)
Increase (decrease) in borrowings 10,427 198 (6,535)
- ----------------------------------------------------------------------------
Net cash used by
financing activities (79,936) (24,021) (46,778)
- ----------------------------------------------------------------------------
Net increase (decrease)
in cash and
cash equivalents (10,861) 23,137 (10,017)
- ----------------------------------------------------------------------------
Cash and cash equivalents
at beginning of year 62,039 38,902 48,919
- ----------------------------------------------------------------------------
Cash and cash equivalents
at end of year $ 51,178 $ 62,039 $ 38,902
============================================================================
Total interest paid $ 10,377 $ 11,680 $ 13,348
Total income taxes paid 55,484 40,000 20,091
============================================================================
</TABLE>
<PAGE> 42
___________________________________________________________________
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
First Tennessee National Corporation:
We have audited the accompanying consolidated statements of condition of
First Tennessee National Corporation (a Tennessee corporation) and subsidiaries
as of December 31, 1993 and 1992, and the related consolidated statements of
income, shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the 1991 financial statements of Home Financial Corporation, a company acquired
during 1992 in a transaction accounted for as a pooling of interests, as
discussed in Note 2. Such statements are included in the consolidated
financial statements of First Tennessee National Corporation. Those statements
were audited by other auditors whose report has been furnished to us and our
opinion, insofar as it relates to amounts included for Home Financial
Corporation for 1991, is based solely upon the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of First Tennessee National Corporation and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
As discussed in Note 14 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for
postretirement benefits other than pensions.
Memphis, Tennessee,
January 18, 1994
Arthur Andersen & Co.
<PAGE> 43
MANAGEMENT DISCUSSION & ANALYSIS
CONSOLIDATED FINANCIAL REVIEW
First Tennessee National Corporation (FTNC) is the largest Tennessee-based
bank holding company. FTNC offers a wide range of financial services to
consumers, businesses, financial institutions, and governments.
On October 1, 1993, First Tennessee Bank National Association (FTBNA), a
subsidiary of FTNC, completed the acquisition of Maryland National Mortgage
Corporation (MNMC) for approximately $114 million in cash. The total purchase
price included value for purchased mortgage servicing rights and
approximately $41 million for tangible net assets. MNMC, which became a
subsidiary of FTBNA at the close of the transaction, was the wholly owned
mortgage banking subsidiary of MNC Financial, Inc., a Baltimore-based bank
holding company. MNMC and its subsidiary, Atlantic Coast Mortgage Company,
originate and service residential mortgage loans through a network of 31
offices primarily in Maryland, Virginia, Pennsylvania, Delaware, New Jersey,
and Colorado. In 1993, MNMC originated $3.1 billion in mortgage loans and at
year-end serviced $4.4 billion in mortgage loans. MNMC will continue to
operate from its current headquarters in Baltimore.
On December 31, 1993, FTNC completed its acquisition of New South Bancorp
(NSB) by merging into FTNC, NSB, the parent of New South Bank which has offices
in Southaven, Como, and Crenshaw, Mississippi. Simultaneously, New South Bank
merged into First Tennessee Bank National Association Mississippi. At December
31, 1993, NSB had $35 million in total assets, $32 million in total deposits,
and $3 million in capital.
On January 4, 1994, FTNC completed the acquisition of SNMC Management
Corporation (SNMC) for approximately $68 million in FTNC common stock. SNMC,
which became a subsidiary of FTBNA at the close of the transaction, is the
parent of Sunbelt National Mortgage Corporation (Sunbelt), both of which are
headquartered in Dallas. Sunbelt originates and services residential mortgage
loans primarily through a network of 40 offices in 14 states, with most of the
originations occurring in the Southwest, Florida, and North Carolina. In 1993,
Sunbelt originated $3.3 billion in mortgage loans and at year-end serviced $6.1
billion in mortgage loans. SNMC will continue to operate from its current
headquarters in Dallas.
On March 1, 1994, Highland Capital Management Corp. (HCMC) merged with First
Tennessee Investment Management, Inc. (FTIM), a wholly owned subsidiary of
FTNC. The combined organization became a subsidiary of FTNC with the name
Highland Capital Management Corp. and manages $2.6 billion in fixed income and
equity securities.
On July 28, 1993, FTNC and Cleveland Bank and Trust Company (CBT) of
Cleveland, Tennessee, announced the execution of a definitive agreement
providing for the acquisition of CBT by FTNC. CBT had $227 million in assets,
$200 million in deposits, and $23 million in capital at December 31, 1993.
This transaction is expected to close in the first quarter of 1994.
In addition to expanding the core banking franchise in Tennessee markets,
FTNC's strategy is to extend its market presence into attractive markets
outside of Tennessee. Further expansion of other key business lines, such as
the bond division, mortgage banking, credit card, merchant credit card
processing, check processing, and trust services is expected to occur as
appropriate opportunities are identified.
This section provides a narrative discussion and analysis intended to cover
the significant factors that affected FTNC's financial condition and results of
operations for the last three years. The consolidated financial statements
and accompanying notes should be read in conjunction with this discussion and
the tables and graphs which are set forth immediately following this
Consolidated Financial Review.
FINANCIAL PERFORMANCE SUMMARY
FTNC reported record earnings for 1993. Net income per share for 1993 was
$4.26 compared to $3.19 per share for 1992 and $2.63 per share for 1991. Net
income totaled $120.7 million in 1993 versus $89.2 million in 1992 and $73.0
million in 1991.
<PAGE> 44
Two key measures of profitability in the banking industry are return on
average equity (ROE) and return on average assets (ROA). ROE was 18.99 percent
in 1993 versus 15.44 percent in 1992 and 14.14 percent in 1991. ROA rose to
1.35 percent in 1993 from 1.07 percent in 1992 and .95 percent in 1991.
The 1992 earnings were impacted by the one-time acquisition expenses of Home
Financial Corporation (HFC) during the fourth quarter. These expenses reduced
earnings per share by 56 cents, and after adjusting for this impact, the return
on equity would have been 18.14 percent and the return on assets would have
been 1.26 percent.
In addition, higher net interest income (NII), a lower provision for loan
losses, and strong growth in noninterest income contributed to the improved
profitability. Increased noninterest expense partially offset the improvement
in earnings. Supporting the growth in NII was a higher level of average
earning assets. The net interest margin (NIM) remained stable at 4.35 percent
in 1993 compared to 4.37 percent in 1992. The decline in the loan loss
provision reflected the continued improvement in asset quality which has
occurred over the last three years. Noninterest income provided a significant
contribution to 1993 earnings, reaching approximately 44 percent of total
revenues. Growth in noninterest income was led by a substantial increase in
mortgage banking revenues, primarily related to the MNMC acquisition followed
by increases in income from the bond division, service charges on deposit
accounts, bank card fees, trust services, and other noninterest income. The
increase in noninterest expense was primarily due to the acquisitions in 1993
which were included in the results of operations from the dates of acquisition
without restating prior years, and from higher personnel costs in the
commission-driven businesses of the bond division and mortgage banking.
The earnings improvement in 1992 was also achieved through higher NII,
growth in noninterest income, and a lower loan loss provision. NII growth was
the result of growth in average earning assets and an increase in the NIM.
The growth in noninterest income was due primarily to an increase in bond
division revenues followed by increases in income from service charges on
deposit accounts, bank card fees, trust services, and mortgage banking. The
reduction in the loan loss provision was the result of improvements in credit
quality during the year. An increase in noninterest expenses between years
reduced the overall improvement in earnings in 1992. The increase in
noninterest expense was primarily due to the one-time merger costs related to
the HFC acquisition and higher personnel costs.
The 1991 earnings reflected improvements in NII, growth in
noninterest income, and a lower loan loss provision. Higher NII resulted from
an increase in average earning assets and a wider NIM. The growth in
noninterest income was due primarily to an increase in bond division revenues,
followed by increased income from service charges on deposit accounts, bank
card fees, trust services, and mortgage banking. The reduction in the loan
loss provision was the result of improvements in credit quality during the
year. An increase in noninterest operating expenses between years reduced the
overall improvement in earnings in 1991. The 1991 results include the
acquisition of Valley Fidelity Bank and Trust Company (Valley) from September
1, 1991, forward.
EARNINGS ANALYSIS
NET INTEREST INCOME
NII is the principal source of earnings for FTNC. For purposes of this
discussion, NII has been adjusted to a fully taxable equivalent basis for
certain tax-exempt loans and investments included in earning assets.
NII for 1993 was $351.9 million, an increase of 6.4 percent from the $330.6
million reported for 1992. NII grew 14.6 percent in 1992 from the $288.6
million reported for 1991. The improvement in NII for 1993 was due to a higher
volume of average earning assets. The NIM changed to 4.35 percent in 1993
from 4.37 percent in 1992, slightly
<PAGE> 45
reducing NII growth through the year. The acquisition of MNMC during
the fourth quarter increased NII due to the substitution of higher yielding
mortgage warehouse loans for investment securities. In 1992 and 1991 a higher
level of earning assets also contributed to the increase in NII; moreover, an
increase in the NIM positively impacted NII. In addition, the acquisition of
Valley during the third quarter of 1991 supported the growth in NII for 1992
and 1991 by providing a significant portion of the increase in earning assets
and core deposits for the two-year period.
Growth in average earning assets of 7.0 percent to $8.1 billion
provided almost all of the increase in NII in 1993. Average earning assets
increased 8.4 percent to $7.6 billion in 1992. In 1991 average earning assets
reached $7.0 billion, a 6.7 percent increase from the preceding year. Improved
loan growth returned in 1993, stabilizing the earning asset mix. Average
loans, net of unearned income, grew 9.6 percent for the year and raised its
percentage of average earning assets to 61.1 percent while holding the
percentage of average investment and held for sale securities to earning assets
flat at 34.9 percent. This was in contrast to the two previous years when the
increase in average earning assets was primarily allocated to the purchase of
securities due to the weak demand for commercial loans. In 1992 average
investment and held for sale securities comprised 34.9 percent of average
earning assets compared to 26.4 percent in 1991. At the same time, average
loans, net of unearned income, grew at a much slower rate, causing its
percentage of average earning assets to decline. In 1992 average loans, net of
unearned income, comprised 59.7 percent of average earning assets compared to
62.0 percent in 1991.
The growth in average earning assets was funded by increases in short-term
purchased money and net free funding during 1993. Average interest-bearing
core deposits, which had primarily funded the previous years' increases,
remained flat in 1993, as low interest rates forced many depositors into
alternative investments. Average interest-bearing core deposits continued to
be FTNC's largest source of funding, providing 60.4 percent of the required
earning asset funding.
NIM averaged 4.35 percent in 1993, compared to 4.37 percent in 1992 and
4.13 percent in 1991. In contrast to the margin, the net interest spread
continued to widen. The net interest spread increased to 3.70 percent in 1993
from 3.62 percent in 1992 and 3.19 percent in 1991. These increases in the
spread reflect the repricing and rate sensitivity characteristics of FTNC's
balance sheet; however, the low interest rate environment has reduced the
impact of net free funds on NIM, offsetting the improvement in the net interest
spread.
NIM should remain stable in 1994 as the mortgage banking acquisitions
impact the full year, the percentage of loans to earning assets rises further,
and the economy continues to grow.
PROVISION FOR LOAN LOSSES
Management's policy is to maintain the allowance for loan losses at a level
sufficient to absorb all estimated losses inherent in the loan portfolio. The
allowance is increased by the provision and decreased by loan charge-offs, net
of recoveries. The evaluation process to determine potential losses includes
consideration of the industry, specific conditions of the individual borrower,
and the general economic environment. As these factors change, the level of
loan loss provision changes.
In 1993 the provision totaled $34.5 million, an $8.7 million decrease from
the $43.2 million reported in 1992 and a $19.4 million decline from the 1991
provision of $53.9 million. These substantial decreases in the provision
reflect the significant improvement that has occurred in asset quality since
1990.
Additional discussion of asset quality can be found under Credit Risk
Management and Asset Quality.
NONINTEREST INCOME
Total noninterest income for the year rose 20.2 percent compared to a 17.7
percent increase in 1992 and a 23.2 percent increase in 1991. The increase in
1993 over 1992 was 19.0 percent after adjusting for the impact of securities
transactions in both years. Details of noninterest
<PAGE> 46
income components are presented in the Analysis of Noninterest Income and
Noninterest Expense table.
Mortgage banking income grew 168.8 percent in 1993. This increase was
primarily related to the MNMC acquisition, which was accounted for as a
purchase. MNMC added approximately $4.4 billion to the mortgage loan servicing
portfolio at December 31 and originated $908 million in mortgage loans during
the fourth quarter. Excluding the impact of MNMC, mortgage banking income
grew 8.5 percent in 1993. The 1992 increase was 27.4 percent compared to a
6.7 percent increase in 1991. In general, FTNC's mortgage banking fee income
growth was due to increased mortgage servicing fees and increased loan
origination volume.
Bond division revenues increased 14.0 percent in 1993 following a 17.0
percent increase in 1992 and a 64.6 percent increase in 1991. The improved
performance has primarily been the result of increased market penetration
across the nation, additional products, and the diversification of the customer
base. Further discussion of bond division revenues is included in the Bond
Division discussion.
Net securities gains amounted to $725,000 in 1993, as securities were sold
in the normal course of business and in anticipation of the adoption of a new
accounting standard on January 1, 1994, while venture capital had net losses.
Securities losses totaled $1.7 million in 1992 compared to an $853,000 loss in
1991. The net losses in 1992 included a markdown of $1.4 million on the
investment securities classified as securities held for sale at December 31,
1992. In 1991 net losses were primarily related to valuation adjustments on
equity and debt securities which in the opinion of management had been
permanently impaired. Excluding bond division revenues, mortgage banking
revenues, and security transaction gains or losses, noninterest income
increased 10.4 percent in 1993 over 1992.
Income from service charges on deposit accounts rose 8.7 percent in 1993
after a 17.3 percent increase in 1992 and 15.4 percent growth in 1991. The
growth in 1993 was primarily related to an increase in services sold to
businesses and a lower earnings credit rate on corporate demand deposit
accounts. The 1992 and 1991 growth rates were also impacted by an increased
level of services sold to businesses; moreover, the combination of a larger
number of accounts and an increase in the fee for FDIC insurance contributed
to the higher growth in income from service charges.
Bank card income, which includes both cardholder and merchant processing
fees, increased 9.3 percent in 1993 compared to an 8.3 percent increase in 1992
and a 16.5 percent increase in 1991. The increases experienced over the last
three years primarily reflect growth in the volume of merchant credit card
transactions processed. In addition, the 1991 increase was positively impacted
by a significant change in pricing during the year.
Trust services income rose 10.7 percent compared to 12.0 percent growth
in 1992 and 16.2 percent in 1991. Growth in trust services income was the
result of increased customer activity in personal trusts and employee benefit
plans. The addition of Valley's trust business during 1991 contributed to the
higher growth rates in trust services fees in 1992 and 1991. Assets under
management by the trust division and FTIM at the end of 1993 approximated $3.5
billion and total trust assets including custodial accounts were approximately
$13.1 billion.
Total other noninterest income grew 13.0 percent in 1993 compared to a 29.5
percent increase in 1992 and a decrease of 11.7 percent in 1991. The largest
source of the growth in 1993 was a 33.9 percent increase in income from other
service charges, primarily related to the additional sales of mutual fund
products, reflecting FTNC's response to changing customer needs. Income from
check clearing fees increased 12.4 percent in 1993 as the volume of checks
processed by First Express, FTNC's national check processing operation,
continued to grow. The remainder of the increase was spread among several
other noninterest categories.
One-third of the 17.7 percent increase in noninterest income in 1992 was
attributable to an increase in bond division revenue, reflecting a continuation
of the national market share growth and an expanded product line. Also
contributing to the increase in noninterest income was a 17.3 percent increase
in income from service charges on deposit accounts, followed by an 8.3 percent
increase in bank card income, and a 12.0 percent increase in trust services
income. The remainder of the
<PAGE> 47
increase was spread among several other income categories including check
clearing fees and other service charges.
Noninterest income increased 23.2 percent in 1991 due to a 64.6 percent
increase in bond division income, a 15.4 percent increase in income from
service charges on deposits accounts, a 16.5 percent increase in bank card
income, and a 16.2 percent increase in trust services income.
NONINTEREST EXPENSE
Noninterest operating expense increased 10.5 percent in 1993. The increase
was 14.1 percent in 1992 and 18.3 percent in 1991. Details of the components
of noninterest operating expense are listed in the Analysis of Noninterest
Income and Noninterest Expense table.
The 10.5 percent, or $37.9 million, increase in 1993 includes the impact of
the MNMC and NSB acquisitions in the fourth quarter of 1993. These
acquisitions added $20.4 million to expenses in the fourth quarter of 1993.
One-time expenses of $10.4 million, primarily related to the HFC merger, were
recorded in 1992. Excluding these expenses from both years, noninterest
expense increased $27.9 million, or 8.0 percent, in 1993.
Salaries and employee benefits, the single largest expense category of
noninterest expense, accounted for approximately 75 percent of the $27.9
million increase between 1993 and 1992. A significant portion of the increase
in personnel costs was an increase of 15.0 percent in personnel expenses from
bond division activities. These expenses generally move in direct relationship
with the revenues generated by the bond division. In addition, the personnel
expense in FTNC's mortgage banking division also rose significantly as customer
activity increased in 1993. These expenses grew 33.1 percent in 1993 as
originations rose from $469 million in 1992 to $685 million in 1993. Like the
bond division, these expenses generally move in direct relationship with
revenue. Excluding these expenses, salaries and employee benefits increased
8.9 percent compared to 1992. The remainder of the increase was primarily due
to the expansion of several other lines of business, regular salary increases,
and higher medical claims.
Operations services expense grew 10.9 percent in 1993 from the previous
year. These costs are related to management of data processing functions by
third parties. The largest part of the expense is represented by an agreement
FTNC has with International Business Machines Corporation to manage FTNC's
computer and telecommunications operations and related maintenance contracts.
Excluding the amortization related to the MNMC acquisition, the
amortization of intangible assets declined by $4.2 million in 1993 as a
portion of the core deposit intangible assets related to acquisitions in East
Tennessee became fully amortized in the first half of 1993. However, the
acquisition of MNMC partially offset this favorable impact when it added $73.9
million to intangible assets during the fourth quarter. This expense item will
increase in 1994 as the amortization of MNMC's intangible assets impacts the
entire year, and the acquisition of SNMC adds additional intangible assets.
Other noninterest expense increased 5.0 percent in 1993 compared to 1992.
The increase in other noninterest expense was spread among several expense
items including advertising, travel and entertainment, fed service fees,
supplies, and employee training. One noninterest expense category declined
significantly during 1993. Market writedowns on foreclosed property decreased
by approximately $3 million in 1993 due to the substantial improvement in asset
quality.
The increase of 14.1 percent, or $44.5 million, in noninterest expense
during 1992 was related to several factors. The largest single factor was the
$10.4 million in one-time expenses, primarily related to the HFC acquisition.
Secondly, the bond division contributed $6.2 million of the growth due to
higher volume. Amortization of intangible assets increased $3.2 million, as
the Valley acquisition in September 1991 increased intangible assets by $34.5
million. Lastly, an increase in the FDIC premium rate added $2.4 million to
expenses. Excluding these amounts, noninterest operating expenses increased
7.1 percent in 1992, primarily related to the acquisition of Valley.
<PAGE> 48
The 18.3 percent increase in noninterest expense during 1991 was primarily
attributable to four items. The largest, accounting for $16.1 million of the
increase, was bond division expense. Expenses associated with the Valley
acquisition, including one-time merger costs of $1.0 million, accounted for
another $7.1 million of the increase. The third item, an increase in the FDIC
premium rate over the prior year, contributed $5.7 million of the increase.
Finally, $5.9 million was the result of writedowns, losses, and other costs of
foreclosed properties during the period. Excluding these amounts, noninterest
operating expenses increased 5.3 percent in 1991 over the previous year.
INCOME TAXES
The Omnibus Budget Reconciliation Act of 1993 was enacted in August and
raised the federal income tax rate from 34 percent to 35 percent retroactively
to January 1, 1993. The law also further limited the deductibility of certain
expenses of FTNC and changed the amortization of certain intangible assets for
tax purposes. The net impact of the increased statutory rate was partially
reduced by lower deferred taxes related to the rate change.
Effective income tax rates, or taxes as a percentage of pre-tax income,
were 34.5 percent in 1993, 38.2 percent in 1992, and 27.0 percent in 1991. The
tax rate for 1992 was higher than the statutory rate primarily due to the
recognition of $7.4 million of deferred taxes on HFC's retained earnings
appropriated to absorb bad debt deductions. The effective tax rate for each
year was lowered as a result of income earned from tax-exempt loans and
securities. Had interest earned on tax-exempt investments been adjusted to a
fully taxable equivalent basis, the effective tax rates would have been 36.3
percent in 1993, 41.3 percent in 1992, and 33.5 percent in 1991.
In February 1992, the Financial Accounting Standards Board (FASB) issued
SFAS No. 109, "Accounting for Income Taxes," which supersedes SFAS No. 96.
SFAS No. 109, which requires an asset and liability approach for financial
accounting and reporting of income taxes, was effective for fiscal years
beginning after December 15, 1992. FTNC adopted SFAS No. 109 as of January 1,
1993. The adoption of SFAS No. 109 did not have a significant impact on FTNC's
financial statements.
Based on the average national federal funds rate, indirect taxes in
the form of foregone interest on balances maintained with the Federal Reserve
amounted to $3.0 million in 1993.
BOND DIVISION
The bond division buys and sells fixed income securities and provides
securitization and advisory services for customers across the country. The
customer base is primarily comprised of commercial banks, thrift institutions,
credit unions and other institutional investors. The fixed income securities
include various types of U.S. Treasury securities, other federal agency
obligations, mortgage-backed securities, municipal bonds, and money market
instruments. The division is active in underwriting federal agency securities
and municipal bonds. In addition to dealer activities, it also provides
management consulting services in areas such as financial analysis,
asset/liability management, tax planning, portfolio accounting, and regulatory
compliance. A subsidiary of FTBNA, First Tennessee Capital Assets Corporation,
operates in conjunction with the bond division to securitize, buy and sell
mortgage loans, and provide consulting for financial institution mergers and
acquisitions.
Bond division revenues are obtained primarily from the sale of securities as
both principal and as agent. Trading activity is limited to the procurement of
inventory for distribution to customers by the sales staff. Inventory is
hedged to protect against movements in interest rates. Commissions paid to the
sales force represent the largest expense category for the division.
Pre-tax income for the division was $29.1 million, an increase of 13.3
percent from the $25.7 million reported for 1992. This compares to pre-tax
income of $19.8 million in 1991. Revenue growth has been the source of these
increases over the last three years as increased market penetration across the
nation resulted in a larger customer base and
<PAGE> 49
increased customer activity. Additional products and diversification of the
customer base also contributed to the revenue growth during this period. The
1993 revenues reached $103.6 million, exceeding the $93.4 million and $81.8
million in 1992 and 1991, respectively.
The division has institutional customers located throughout the country. It
competes with other regional and national firms on the basis of service quality
and price. During the last several years, the division has also become one of
the nation's leading underwriters of large federal agency issues, furthering
its national presence.
MORTGAGE BANKING
During 1993, FTNC executed a mortgage banking acquisition strategy. The
objective of this strategy was to create a mortgage banking operation with a
diverse nationwide origination base, an optimal mix of mortgage loan
originations and servicing, and the size to capture the economies of scale
related to mortgage banking activities. If MNMC and SNMC results are added to
FTNC, FTNC would have reached the top 25 in mortgage loan originations and the
top 30 in mortgage loan servicing nationally.
FTNC originated approximately $1.5 billion in mortgage loans in 1993.
Adding the first nine months of MNMC and the full year of SNMC originations
for 1993, the total mortgage banking operations would have originated $7.2
billion in mortgage loans. Approximately 47 percent of the total originated
volume was related to refinancings. As interest rates begin to rise gradually
in 1994, the refinancing activity is expected to decline.
At December 31, 1993, FTNC had approximately $7.2 billion in servicing. The
total combined servicing portfolio for FTNC, MNMC, and SNMC would have been
$13.2 billion. As mortgage loans are originated and servicing retained, the
servicing portfolio should increase to build a significant future earnings
stream. As interest rates begin to rise and the average coupons on the
servicing portfolios approach current market rates, the prepayments are
expected to slow, reducing the amount of mortgage loan servicing run-off
experienced.
As a continuation of its acquisition strategy, FTNC will continue to
evaluate potential mortgage banking acquisitions with the objective of
completing its geographic diversification.
ASSET/LIABILITY MANAGEMENT
Two factors affecting efficient asset/liability management are interest
rate risks and liquidity needs. The primary objective of interest rate
sensitivity management is to maintain NII growth while reducing exposure to the
risks inherent in interest rate movements. Liquidity is provided by a
well-structured balance sheet. Management's Asset/Liability Committee meets
regularly to review FTNC's interest rate sensitivity position and liquidity.
INTEREST RATE SENSITIVITY
FTNC's Asset/Liability Committee, an executive-level management committee,
subjects earnings projections to a variety of interest rate scenarios as well
as pricing, maturity, growth and mix strategies to make informed decisions to
increase income and limit interest rate risk.
FTNC's goal is to stabilize the NIM by minimizing the size of the rate
sensitivity position. One Asset/Liability Committee guideline is to maintain
an interest sensitivity gap position between the volume of assets and the
volume of liabilities repricing within one year below 5 percent of earning
assets. At December 31, 1993, the balance sheet was rate sensitive by $65
million more liabilities than assets scheduled to reprice within one year. At
.8 percent of earning assets, this position was within guideline limits and
represented a relatively neutral position.
In addition, the Asset/Liability Committee monitors the impact of changes in
the level of interest rates, the steepness of the yield
<PAGE> 50
curve, and market spreads on NII. Results from recent NII simulations
estimated that NII was relatively unchanged given a 200 basis point parallel
shift in the level of interest rates. In addition, management periodically
analyzes the effect on NII of severe stress test scenarios in which the current
steepness of the yield curve is reduced significantly and loan and deposit
spreads narrow sharply.
Off-balance sheet transactions such as interest rate swaps, forwards,
and options are used to manage rate sensitivity and to increase flexibility and
profitability in an increasingly competitive environment. These transactions
are only used to hedge potential fluctuations in income or market values and
are not used to generate speculative earnings.
Forward contracts at the bond division represent pending customer
transactions that are non-regular way settlements. These totaled $1.3 billion
at December 31, 1993. Mortgage banking hedges mortgage commitments that
management expects to fund and securitize. These mortgage banking forwards
totaled $634 million at year-end. This year's increase in futures and forwards
contracts is primarily related to FTNC's mortgage banking expansion. The
forward contracts at the bond division normally settle within 30 days and
mortgage banking hedges usually close within three months.
The notional value of interest rate swaps, caps, floors, and options
written at December 31, 1993, was $1.9 billion compared to $57 million at
December 31, 1992. The volume of these off-balance sheet instruments increased
significantly in 1993 as FTNC recognized several opportunities to hedge
potential NII risks. A $1 billion prime rate versus fed funds rate swap was
added in order to minimize the impact from the eventual narrowing in the spread
between base rate loans and short-term market rates. The notional amount of
this swap which matures in 1996 approximated one-half of FTNC's loans indexed
to this rate. Additionally, $250 million in fed funds caps were purchased and
$250 million in prime rate caps were sold, creating an interest rate collar
which will reduce the potential impact of a lag in the prime rate as the fed
funds rate begins to rise. Another $400 million in index amortizing fixed vs.
floating rate swaps were purchased as part of FTNC's on-going interest rate
sensitivity management.
The Asset/Liability Committee continuously reviews the opportunities
available from off-balance sheet instruments in its effort to hedge the rate
sensitivity position. The current limits and exposure to counterparties is
reviewed in the counterparty credit risk management process which is discussed
further in the Credit Risk Management and Asset Quality section. Currently
FTNC has only primary dealers and AAA rated swap counterparties and includes
mutual margining agreements whenever possible to limit potential exposure.
LIQUIDITY
FTNC's goal is to maintain adequate liquidity to meet potential funding
needs of loan and deposit customers. This is achieved by maintaining a stable
base of core deposits and other interest-bearing funds; accessibility to local,
regional, and national funding sources; readily marketable assets; and
diversity in customers, products, and market areas. The ability to maintain
liquidity also is enhanced by adequate earnings power and adequate capital.
The Asset/Liability Committee establishes management guidelines which monitor
the current liquidity position and ensure an adequate funding capacity.
Long-term liquidity needs are provided by a large core deposit base and a
strong capital position. Core deposits are the most stable source of liquidity
a bank can have due to the long-term relationship with deposit customers and
the insurance on deposits provided by the FDIC. In 1993, 71.0 percent of total
average assets were funded by core deposits, below the 74.3 percent in 1992.
At this percentage, core deposits represent the primary funding source for
FTNC's balance sheet activities.
Shareholders' equity and long-term debt contribute to long-term liquidity by
reducing the need to access short-term funding sources continually, especially
those that must be obtained from the national
<PAGE> 51
money markets. In 1993, the average equity to average assets ratio
improved to 7.08 percent, the strongest capital position in more than a decade.
Furthermore, average long-term debt as a percentage of equity amounted to 15.0
percent in 1993 compared to 22.1 percent in 1992.
Maintaining adequate credit ratings on debt issues is critical to liquidity
because it affects the ability of FTNC to attract funds from various sources on
a cost competitive basis. During 1993, FTNC received upgrades from two rating
agencies, reflecting FTNC's strong earnings performance and capital position.
The Fitch credit rating for FTNC's sinking fund debenture was raised to A from
A- and the Moody's credit rating on FTNC's subordinated debt was improved to
Baa1 from Baa2.
Short-term needs for funds can arise from reductions in deposits or other
funding sources, drawdowns of commitments, requests for new loans, and
incremental investment portfolio needs. Relationships with an extensive local
and regional customer base plus a substantial network of downstream
correspondent banks meet the majority of these needs; however, additional funds
can be raised from national money markets when necessary. Short-term funding
sources, including certificates of deposits over $100,000 and other
interest-bearing liabilities, were purchased primarily from existing customers
and averaged 18.6 percent of average assets in 1993, compared to 15.1 percent
in 1992.
Securities held for sale and other earning assets, including federal funds
sold, securities purchased under agreements to resell, investments in bank time
deposits, and trading account securities, are highly liquid. These funds were
8.3 percent of average total assets in 1993 compared to 6.9 percent in 1992.
Liquidity is also important at the parent company level. Parent company
cash requirements are met, in part, by dividends from its subsidiaries, which
represent the primary source of funds for dividends paid to shareholders. The
amount of dividends from bank subsidiaries is subject to certain regulatory
restrictions as detailed in Note 16. At December 31, 1993, $168.2 million in
dividends could be paid to the parent by its subsidiary banks.
The parent company also enhances its liquidity position and provides funds
to invest in its subsidiaries by raising equity and incurring debt. A double
leverage ratio close to or lower than 100 percent represents greater reliance
on equity, which is more cost effective and reduces parent company cash flow
requirements. FTNC's double leverage ratio was approximately 98 percent at
December 31, 1993. Of the $89.4 million in outstanding debt obligations of the
parent company at December 31, 1993, $75 million has been downstreamed to FTBNA
on similar terms to improve bank capital and to support parent company cash
flow needs. Parent company statements are presented in Note 24.
BALANCE SHEET COMPOSITION
At December 31, 1993, FTNC reported $9.6 billion in total assets compared to
$8.9 billion at the end of 1992. Average total assets were $9.0 billion in
1993 compared to $8.3 billion in 1992.
INVESTMENT SECURITIES
Investment securities and securities held for sale are comprised of U.S.
Treasury and other U.S. government agency obligations, government agency issued
mortgage-backed securities, government agency issued collateralized mortgage
obligations (CMOs), state and municipal securities, private issued CMOs,
private issued asset-backed securities (ABSs), and equity securities. These
investments provide a stable, yet diversified, income stream and are a source
of collateral for repurchase agreements and government accounts. The
Maturities of Investment Securities table presents maturities and yields for
the investment securities at December 31, 1993. On that date, the portfolio
showed a duration of 2.0 years and an average life of 2.4 years based upon
historical prepayment patterns for the mortgage-backed and derivative
securities. The market value of investment securities was 101.9 percent
<PAGE> 52
of book value at December 31, 1993, compared to 102.0 percent at year-end 1992.
Items classified as investment securities are purchased with the intent to
hold the securities to maturity. Securities which are expected to be sold
prior to their stated maturity are carried as held for sale and are accounted
for at the lower of cost or market, as opposed to historical amortized cost.
On December 31, 1993, FTNC had classified $53.0 million of securities as
securities held for sale. As a result of the intent to hold securities to
their maturity, management pays close attention to forecasted cash flows on its
portfolio of mortgage derivative securities, principally Planned Amortization
Class CMOs. These cash flows are relatively predictable and satisfy FTNC's
need for liquidity resulting from changing economic conditions or increases in
customer demand for loans.
Current credit guidelines call for all purchases of securities for the
investment portfolio to be rated investment grade by Moody's or Standard &
Poor's. Securities backed by the U.S. government and its agencies, both on a
direct and indirect basis, represented approximately 93 percent of the
investment portfolio at December 31, 1993. All CMOs and other ABSs are AAA
rated.
LOANS
Average loans, net of unearned income, grew 9.6 percent to $4.9 billion in
1993. This compares to a 4.2 percent increase to $4.5 billion in 1992.
The loan portfolio consists of commercial loans, consumer loans, credit
card receivables, real estate construction loans, and real estate mortgage
loans. Growth has occurred in each of the loan categories for the last two
years except for permanent mortgages.
Average commercial loans, the single largest loan category, increased 4.4
percent to $2.3 billion and represented 45.7 percent of average total loans,
net of unearned income, in 1993. This compares to a 3.8 percent increase to
$2.2 billion in commercial loans in 1992, which represented 48.0 percent of
average total loans, net of unearned income. The increasing growth rate in
commercial loans is the result of Tennessee's recent economic growth.
The consumer loan portfolio consists of real estate, automobile,
student, and other consumer installment loans that require periodic payments of
principal and interest. The payment schedules for these loans are typically
based on equal monthly installments. The average consumer loan portfolio
increased 25.2 percent to reach $1.4 billion in 1993 compared to a 13.3 percent
increase to $1.2 billion in 1992. The significant increase during 1993 was
consistent with management's goal of increasing the consumer loan portfolio as
a percentage of average total loans. In 1993, total consumer loans represented
29.1 percent of average total loans, net of unearned income, compared to 25.5
percent in 1992. Real estate loans, principally secured by first and second
liens on residential property, contributed significantly to the increase in the
consumer loan portfolio in 1993. There were three factors responsible for this
significant increase: aggressive promotional campaigns to attract refinancing
of consumer real estate in the low interest rate environment; the additional
regional markets penetrated during the year through Gulf Pacific Mortgage, a
part of FTBNA's consumer lending division with offices in Alabama, Georgia,
Mississippi, North Carolina, and Tennessee; and an increased focus on
cross-selling current deposit customers into consumer lending products within
FTNC's branch network. This strategy is in line with FTNC's goal of increasing
the consumer loan portfolio through well-secured lending.
Average credit card balances grew modestly at 2.2 percent to reach $396.5
million in 1993. The slow growth was related to a general consumer trend to
consolidate debt and take advantage of the current low fixed interest rates as
well as a continued increase in competition. Average credit card receivables
rose 4.8 percent to $388.1 million in 1992. The 1992 improvement primarily
resulted from the acquisition of the Valley credit card loans.
The real estate permanent mortgage loan portfolio decreased 18.4 percent
to $509.1 million in 1993. This compares to a 1.7 percent increase in 1992 and
a 7.9 percent increase in 1991. The majority of
<PAGE> 53
this portfolio was originated by Home Federal Bank (HFB). The large decline in
1993 was related to the high prepayments as interest rates reached record low
levels. Furthermore, FTNC's policy over the last several years has been to
securitize and sell the major portion of its mortgage loan originations and to
maintain the servicing as a source of fee income; therefore, the permanent loan
volume was not replaced with new originations.
Average mortgage warehouse loans increased to $229.6 million in 1993 from
$86.4 million in 1992 and $58.6 million in 1991 primarily due to the
acquisition of MNMC, which averaged $437 million during the fourth quarter of
1993. These loans, which are mortgage loans awaiting securitization, will
continue to grow as the current mortgage banking expansion continues.
OTHER EARNING ASSETS
Other earning assets include investments in bank time deposits, federal
funds sold, securities purchased under agreements to resell, and trading
account securities. Collectively, these categories comprised approximately 4.0
percent of average earning assets in 1993 compared to 5.4 percent in 1992 and
11.6 percent in 1991. The decline in investment in other earning assets was
primarily the result of replacing Eurodollar time deposits with higher yielding
investment securities with short average life and significant cash flows over
their life.
DEPOSITS
FTNC is the leading banking organization in Tennessee in total deposits and
is the first in market share in total deposits in three of the five major
metropolitan statistical areas across the state. Market leadership has been
maintained by providing continually improved service quality to customers,
increasing product sales, paying competitive rates, and providing convenient
bank offices.
Average interest-bearing core deposits, FTNC's largest source of funding,
remained flat at $4.9 billion in 1993, following a 6.3 percent increase in
1992. The lower interest rates slowed the rate of growth of bank deposits over
the last two years as customers looked for higher yielding investment
alternatives. Nonmarket rate core deposits, primarily checking interest and
savings accounts, grew 7.9 percent in 1993 and 19.8 percent in 1992. The
growth in 1992 was primarily the result of the Valley acquisition. Market rate
core deposits, primarily CDs less than $100,000 and money market accounts,
decreased 2.1 percent in 1993 compared to a 3.5 percent increase in 1992. This
represents a shift in the concentration of deposit growth to the nonmarket rate
accounts. This change has occurred primarily because the rates paid on the
market accounts moved closer to the nonmarket accounts as interest rates
dropped. By maintaining funds in the nonmarket accounts, depositors are able
to remain more liquid, enabling them to take advantage of positive interest
rate fluctuations.
Noninterest-bearing demand deposits are comprised of individual and business
accounts including correspondent banks and other check clearing customers.
Average demand deposits represented 23.2 percent of average core deposits in
1993 compared to 20.5 percent in 1992. The increase in the level of demand
deposits reflected an increase in the number of demand deposit accounts as well
as the maintenance of larger balances in existing accounts. The larger
balances were required to offset the impact of lower earning credit rates on
corporate demand deposit accounts. Management expects continued slow growth in
core deposits in 1994 provided interest rates remain relatively low.
CAPITAL
Average shareholders' equity was $635.3 million in 1993, a 10.0 percent
increase from the $577.4 million reported in 1992. The primary source of
growth in shareholders' equity during 1993 was the retention of net income.
The Consolidated Statements of Shareholders' Equity highlight the detailed
changes in shareholders' equity during 1993.
<PAGE> 54
Capital adequacy refers to the level of capital required to sustain
asset growth over time and to absorb losses. Management's objective is to
maintain a level of capitalization that is sufficient to take advantage of
profitable growth opportunities while meeting regulatory requirements. This is
achieved by improving profitability through effectively allocating resources to
more profitable businesses, improving asset quality, strengthening service
quality, and streamlining costs. The primary measures used by management to
monitor the results of these efforts are the ratios of average equity to
average assets, average tangible equity to average tangible assets, and average
equity to net loans. For each of these ratios, a long-term goal is
established. At least once a year the goals are re-evaluated to ensure that
they continue to meet management's objective and reflect changes in market
conditions and the regulatory environment.
Management's long-term goal is to maintain an average equity to average
assets ratio between 6.75 percent and 7.50 percent. Average equity to average
assets was 7.08 percent in 1993 compared to 6.96 percent in 1992 and 6.75
percent in 1991. The improvement in 1993 and 1992 compared to the previous
years was the result of higher earnings and slower balance sheet growth.
Management's other long-term capital goals are to maintain a minimum ratio
of 10.50 percent average equity to average net loans and an average tangible
equity to average tangible assets ratio equal to or above 5.00 percent. Both
of these goals are currently being met. During 1993, average equity to average
net loans was 13.11 percent compared to 13.07 percent in 1992 and 12.18
percent in 1991. Average tangible equity to average tangible assets was 6.29
percent compared with 6.23 percent in 1992 and 6.14 percent in 1991.
In addition to managing these three ratios, FTNC ensures that it satisfies
all external capital requirements. The Federal Reserve Board and the Office of
the Comptroller of the Currency have several capital guidelines governing the
activities of bank holding companies and national banks. These guidelines
require the maintenance of an amount of capital based on risk-adjusted assets
so that categories of assets with potentially higher credit risk will have more
capital backing than assets with lower risk. In addition, banks and bank
holding companies are required to maintain capital to support, on a
risk-adjusted basis, certain off-balance sheet activities such as loan
commitments.
The capital guidelines classify capital into two tiers, referred to as
Tier I and Tier II. Total capital consists of Tier I capital which for FTNC is
common stock less goodwill and certain other intangible assets; and Tier II
capital which for FTNC is qualifying subordinated debt and a limited amount of
loan loss reserves. In determining risk-based capital requirements, assets are
assigned risk-weights of 0 percent to 100 percent, depending on the regulatory
assigned levels of risk associated with such assets. Off-balance sheet items
are considered in the calculation of risk-adjusted assets through conversion
factors established by the regulators. Furthermore, regulators monitor a
leverage ratio which compares Tier I capital to total average assets less
goodwill and certain other intangible assets. On December 31, 1993, FTNC and
its bank subsidiaries qualified as well-capitalized institutions.
The FDIC also monitors risk-based capital guidelines and requires weaker
banks to pay higher premium rates while allowing healthy, well-capitalized
banks to pay less. Assessments for banks range from 23 cents for
well-capitalized institutions to 31 cents for the weakest, undercapitalized
institutions.
CREDIT RISK MANAGEMENT AND ASSET QUALITY
FTNC manages and controls risk in the loan portfolio through its
credit policy, diversity in the mix of loans in the portfolio, intensive
analysis of credit requests, continuous monitoring of existing loans, and the
credit judgment of experienced credit officers. FTNC's goal is not to avoid
risk, but rather to manage it.
<PAGE> 55
CREDIT POLICY
Management believes the objective of a sound credit policy is to extend
quality loans to customers while controlling risk affecting shareholders and
depositors. Credit policies are determined by carefully evaluating current
economic, financial, and market conditions as well as direction and strategy of
FTNC. The Executive Committee, made up of members of the board of directors,
approves all credit policies and reviews underwriting guidelines. The Executive
Committee maintains a review process to monitor asset quality and compliance
with credit policy and underwriting guidelines. Credit policics set
underwriting standards, limits on exposure by borrower and by industry, and
such other limits as currently deemed prudent.
COMMERCIAL LENDING
FTNC manages credit risk in the commercial loan portfolio through the
approval process, monitoring the quality of loans after they have been made,
and a management of concentrations in the portfolio. The objective of FTNC's
credit process is to make approval of routine credits relatively simple and to
increase the degree of involvement by experienced and independent credit
officers as the credit risk becomes more complex. FTNC places primary reliance
for risk analysis on its lending officers who are supported by a group of
credit officers in evaluating creditworthiness of the borrower and structuring
the transaction. To ensure fair and independent evaluations, these credit
officers have no business development or profit responsibility. FTNC's credit
officers have an average of 18 years of experience.
Because of the nature of commercial lending, the focus is on the quality of
individual loans as well as on trends in the portfolio. The average commercial
loan portfolio represented 45.7 percent of average total loans, net of unearned
income in 1993. To assess the quality of individual commercial loans, all
commercial loans are internally assigned a credit rating, ranging from A to F,
to assist in the credit risk management of these loans. The credit rating
assigned to a particular loan is based on the financial condition of the
borrower and collateral on the loan. FTNC uses a lender initiated system of
grading loans to provide timely asset quality information to management.
Lenders assign loan grades at the inception of the loan, and are responsible
for continually revising the loan grade to accurately reflect the quality of
the loan. The majority of commercial loans at FTNC are graded C at inception.
This reflects a commercial customer base of smaller businesses, defined as
companies with annual sales of $50 million or less.
Due to increased business activity and generally improving economic
conditions throughout 1993, loans graded C and above, expressed as a percentage
of total graded loans, improved to 93.2 percent at December 31, 1993, from 88.8
percent at the end of 1992.
The Net Loans and Foreclosed Real Estate table gives a breakdown of the
commercial loan portfolio by grades and major loan types at December 31, 1993.
The totals in each grade are compared to the totals at December 31, 1992.
Definitions of each credit rating are provided as a note to the table.
A loan review staff, independent of the lending functions, is engaged in the
continuous process of examining the loan portfolio to ensure that the loans are
properly graded. The loan review staff also reviews collateral values and
compliance with bank policy and underwriting guidelines.
FTNC maintains an internal list of loans for management purposes known as
the Watch List. The Watch List includes performing loans and lending
commitments that have been identified by management as requiring a closer level
of monitoring and active management, but that have not yet been classified as
potential problem loans. The Watch List decreased to approximately $125
million at December 31, 1993, compared
<PAGE> 56
to $170 million at year-end 1992. Contributing to this reduction in the Watch
List are the improving economy and the management process.
Two executive level committees oversee FTNC's asset quality. First, the
Credit Policy Committee monitors on a monthly basis the progress of Watch List
credits requiring an action plan for rehabilitation or refinancing. In addition
to the Credit Policy Committee, the Asset Quality Committee, comprised of
executive management, senior lending officers, and senior credit officers,
performs a regular review of loan quality.
Industry concentrations are a measure of the diversification of the
commercial loan portfolio. Diversification is an important means of reducing
the investment risk associated with fluctuations in economic conditions. At
December 31, 1993, FTNC had no concentrations of 10 percent or more of total
loans in any single industry.
At December 31, 1993, highly leveraged loans totaled $6.8 million compared
to $6.3 million in 1992. There were no highly leveraged commercial loan
transactions on nonperforming status at December 31, 1993.
COMMERCIAL REAL ESTATE
FTNC has two principal types of commercial real estate lending. One,
construction and development lending, involves the extension of credit to build
or otherwise develop real estate properties which are later sold, operated for
income-producing purposes, or occupied by the owner for other business reasons.
The real property and improvements serve as collateral for the loan. The other
category consists of commercial real estate loans and loans to businesses
secured by real estate collateral. Commercial real estate loans generally have
intermediate or long-term maturities with payment schedules designed to
amortize the loans over their terms. Business loans in this category are made
to finance real estate used in business operations or for general business
purposes. Construction and development loans are moved to the commercial real
estate loan category when the construction is completed.
As a part of the commercial loan portfolio, all commercial real estate loans
are assigned a risk grade. In addition to the grading process, one of the
tools management employs in monitoring the risk of loss in commercial real
estate lending activities is to assign all commercial real estate loans to
either of two risk categories. The higher risk loan category contains loans
where the primary source of repayment comes from either the sale of the real
estate property or the cash flow from the project, and a substantial secondary
source of repayment is not available. Consequently, the risk potential for
loss on these loans is subject to the fluctuations in the market value of the
real estate collateral. For this reason, more stringent underwriting
standards, including equity requirements and loan to value ratios, debt service
coverage ratios, capitalization rates, discount rates, and hold periods are
applied to these loans. The other risk category contains loans which have a
substantial secondary source in addition to having real estate as the primary
source of repayment. These loans are generally considered to have less risk of
loss due to the additional source of repayment.
Commercial real estate loans at December 31, 1993, were $546.4 million
compared to $450.9 million at the end of 1992. Construction and development
loans increased to $75.8 million at the end of 1993 from $48.6 million on
December 31, 1992, as additional funding for existing construction projects
increased.
Maintaining a diverse commercial real estate portfolio by project type
is another important way commercial real estate lending risk is managed. The
Loans Secured by Real Estate table reflects the diversity in real estate by
project type.
CONSUMER LENDING
FTNC manages credit risk in consumer loans through standardized products,
uniform underwriting guidelines, and centralized process controls. Credit
underwriting guidelines are established for loan
<PAGE> 57
maturities, collateral, and credit qualifications including credit scores,
bankruptcy scores, and debt to income levels.
These underwriting guidelines are developed and monitored centrally to
ensure consistent application across FTNC. The application and approval
processes are controlled through an enhanced computer system. The borrower's
application is programmatically compared to the credit underwriting guidelines.
The system informs the lender if the loan does or does not meet the credit
standard established for that type of loan. For loans that meet the credit
standards the system automatically produces the loan documents and records the
loan. Loans which do not meet the standards are rejected and moved to a higher
level of lending authority which has the ability to make exceptions.
Exceptions are monitored by the senior management of consumer lending. The
application and the data used in making the loan decision is stored in an
electronic format for further analysis.
Collections and loan operations are two important centralized process
controls for risk in the consumer portfolio. Collections is centralized to
capitalize on the collection specialization and economies of scale as well as
consistent application of collection procedures. The collection process is
automated to ensure timely collection of accounts and consistent management of
risk associated with delinquent accounts. Loan operations is centralized and
provides a final independent document review and notifies the loan officer of
any document exception.
COUNTERPARTY CREDIT RISK MANAGEMENT
Counterparty credit risk includes FTNC's exposure to other financial
institutions. These risks arise from the extension of direct credit or from
agreements that require some exchange of future payments or securities. As a
financial intermediary, FTNC continuously has exposure to these types of
transactions. In order to limit its concentration to any individual financial
institution, FTNC's Asset/Liability Committee (ALCO), in conjunction with the
chief credit officer and senior credit officers, has a corporate-wide process
to monitor, manage, and limit the risk to financial counterparties. Also,
formal policies have been approved by the FTNC Board of Directors which
quantify potential exposure and create corporate-wide risk limits based on the
creditworthiness of the financial institution.
Recently regulatory agencies have initiated several new proposals to address
this issue. Being one of the first banks of its size to analyze and create
controls for this type of risk, FTNC is continuing its overall effort to manage
risk proactively, including credit assessment of the credit risk of swap
counterparties.
ALLOWANCE FOR LOAN LOSSES AND NET CHARGE-OFFS
Management's policy is to maintain the allowance for loan losses at a level
sufficient to absorb all estimated losses inherent in the loan portfolio. The
allowance amount consists of two principal components: amounts specifically
provided for loans reviewed on an individual or pool basis and a general
portion designed to supplement the specific allocations. The Net Loans and
Foreclosed Real Estate table shows the allowance account allocations by
internal grades for the commercial loan portfolio and by loan type for those
loans not graded. The data is presented for periods ended December 31, 1993
and 1992. For each of the periods, the general portion of the allowance
account is between $10 million and $12 million. At the same time, the specific
allocations have changed among the loan types or grades in each period,
reflecting the changing circumstances of individual credits or groups of loans.
The allowance for loan losses is increased by the provision for loan losses
and recoveries and is decreased by charged-off loans. On December 31, 1993,
the total allowance for loan losses was $103.7 million compared to $96.8
million for the same period last year. The allowance for loan losses to loans,
net of unearned income, was 1.73 percent in 1993 versus 2.10 percent in 1992.
Excluding the mortgage warehouse loans, these ratios would have been 1.97
percent in 1993 and 2.14 percent in 1992.
<PAGE> 58
Net charge-offs decreased 22.1 percent to $28.4 million in 1993 from the
$36.4 million reported in 1992. Net charge-offs to average loans, net of
unearned income, decreased to .57 percent for 1993 compared to .81 percent
during 1992 due to the extensive improvement in asset quality.
In management's opinion, 1994 net charge-offs are expected to remain
stable, provided the economy continues to grow. FTNC's asset quality has
improved significantly over the last several years as the economy has improved
and management policies, procedures, and information have been developed to
appropriately manage the credit risk inherent in the loan portfolio. As a
result, FTNC has achieved its strategic objective in regards to asset quality
ratios. As the loan portfolio grows, it is expected that there will be a core
amount of net charge-offs that are a part of the normal course of business.
Therefore, the level of net charge-offs should eventually begin to rise as the
size of the loan portfolio increases; however, the asset quality ratios are
expected to continue to be consistent with high performing standards for each
of the loan products, reflecting the sound management of asset quality.
NONPERFORMING ASSETS
Nonperforming assets, consisting of nonaccrual and restructured loans,
foreclosed real estate and other assets, increased 6.3 percent to $58.1 million
at December 31, 1993. This compares to $54.7 million reported in 1992. This
increase was due to the $22.8 million in nonperforming assets related to the
MNMC acquisition.
Nonperforming loans are those loans where, in the opinion of management, the
full collection of principal or interest is unlikely. Nonperforming loans
decreased 15.4 percent to $25.4 million in 1993 from the $30.0 million reported
at year-end 1992. This decrease would have been 44.4 percent if the $8.7
million in nonperforming loans related to the MNMC acquisition was not
included.
Foreclosed real estate, the largest nonperforming asset category includes
foreclosed property and in-substance foreclosures. Foreclosed properties are
obtained when FTNC actually forecloses on real property or when a title is
obtained to the collateral supporting certain loans in full or partial
satisfaction of a debt. Such real property, including land, buildings or
partially completed construction projects, is generally placed for sale
immediately. When partially completed construction projects are obtained,
FTNC may attempt to sell the project "as is" or complete construction prior to
placing it for sale. Expenses incurred while the bank holds foreclosed
properties include all customary costs that are incidental to holding and
managing real property. At December 31, 1993, foreclosed properties amounted
to $31.6 million, an increase of 62.1 percent from the $19.5 million of
foreclosed properties reported in 1992. This increase was due primarily to the
$14.1 million in foreclosed properties related to the MNMC acquisition.
FTNC recognizes in-substance foreclosures when actual transfer of title does
not take place but the borrower has little or no equity in the collateral
relative to its fair market value; when repayment of the loan can only be
expected to come from the operation or sale of the collateral; or when the
debtor has formally or effectively abandoned control of the collateral. At
December 31, 1993, FTNC had no in-substance foreclosures compared to $4.1
million at year-end 1992.
When the supporting collateral of a loan is placed in the foreclosed real
estate category, either through actual foreclosure or in-substance foreclosure,
it is transferred at the lower of either the recorded investment in the loan or
net realizable value based upon recent appraisals. The difference between the
book value of the loan and the net realizable value of the collateral is
charged against the allowance for loan losses.
The amount of foreclosed real estate at December 31, 1993, valued at 54
percent of original loan amounts, excluding residential mortgage loans in
foreclosure from MNMC, is not expected to decline significantly during 1994.
The improvement in nonperforming assets during the last three years was
due to significantly reduced levels of new nonperformers, an improving economic
environment, and management efforts to identify deteriorating assets early
enough in the
<PAGE> 59
cycle to ensure their prompt resolution.
The Nonperforming Assets Activity table details the activity in
nonperforming assets for the past three years.
In management's opinion, the level of nonperforming assets is expected
to remain flat in 1994, provided the economy continues to grow. Similar to the
level of net charge-offs experienced over a period of time, there is a core
amount of nonperforming assets which are related to normal lending acitivities.
FTNC has reached this point as it has achieved its objective for a reasonable
level of nonperforming assets in relation to the current portfolio mix. As a
result, changes in the level of total loans and the mix of the loan portfolio
will primarily determine the level of nonperforming assets.
PAST DUE LOANS
Past due loans are loans that are 90 days or more past due as to principal
or interest but have not been placed on nonaccrual status. FTNC continues
accruing interest on these loans if they are currently in the process of
collection and are well-secured. Past due loans amounted to $23.2 million at
December 31, 1993, a $1.1 million increase from the $22.1 million reported at
year-end 1992.
POTENTIAL PROBLEM ASSETS
Potential problem assets are not included in nonperforming assets, and
represent those assets where information about possible credit problems of
borrowers has caused management to have serious doubts about the borrower's
ability to comply with present repayment terms. This definition is believed to
be substantially consistent with the standards established by the Office of the
Comptroller of the Currency (OCC) for assets classified substandard and
doubtful. At December 31, 1993, potential problem assets declined 29.8 percent
to $65.9 million compared to $93.9 million at year-end 1992. The primary
reason for the decrease in 1993 is the substantial improvement in asset
quality.
SUBSEQUENT EVENTS
SIGNIFICANT FIRST QUARTER EVENTS
In January 1994, Hickory Venture Capital Corporation (HVCC), a subsidiary of
FTBNA, realized a net after-tax gain of approximately $8 million from one of
its investments. The acquisition of SNMC, parent of Sunbelt, was closed in
January, and FTNC incurred one-time after-tax expenses of approximately
$3 million.
SFAS NO. 112 - "EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT BENEFITS"
In November 1992, FASB issued SFAS No. 112. It requires the recognition of
the obligation for benefits to former and inactive employees after employment
but before retirement. Those benefits include, but are not limited to, salary
continuation, supplemental unemployment benefits, severance benefits,
disability-related benefits, workers' compensation, job training and counseling,
and continuation of benefits such as health care and life insurance coverage.
SFAS No. 112 is effective for fiscal years beginning after December 15, 1993,
with early adoption permitted. On January 1, 1994, FTNC adopted SFAS No. 112
with the recognition of $2.3 million of postemployment benefits related to
prior service rendered and rights vested.
<PAGE> 60
SFAS NO. 114 - "ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN"
In May 1993, the FASB issued SFAS No. 114. It requires that impaired loans
that are within the scope of this statement be measured based on the present
value of expected future cash flows, discounted at the loan's effective
interest rate; at the loan's observable market price; or the fair value of the
collateral, if the loan is collateral dependent. SFAS No. 114 is effective for
fiscal years beginning after December 15, 1994, with earlier adoption
permitted. FTNC expects to adopt SFAS No. 114 on January 1, 1995. Management
expects the impact of SFAS No. 114 to be immaterial.
SFAS NO. 115 - "ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES"
In May 1993, the FASB issued SFAS No. 115. This statement requires that
investment securities be classified as either held to maturity securities,
which are reported at amortized cost; trading securities, which are reported at
fair value, with unrealized gains and losses included in earnings; and
available for sale securities, which are reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a separate
component of shareholders' equity. SFAS No. 115 is effective for fiscal years
beginning after December 15, 1993.
On January 1, 1994, FTNC adopted SFAS No. 115 with the recognition of
approximately $1.4 billion of securities being classified as available for
sale. These securities had approximately $23.6 million of aggregate holding
gains that resulted in an increase in equity for unrealized holding gains of
approximately $14.4 million net of $9.2 million of deferred income taxes.
<PAGE> 61
GLOSSARY
ALLOWANCE FOR LOAN LOSSES - This reserve represents the amount considered by
management to be adequate to cover estimated losses inherent to the loan
portfolio. A valuation reserve for possible loan losses.
BASIS POINT - The equivalent of one-hundredth of one percent (0.01). One
hundred basis points equals one percent. This unit is generally used to
measure movements in interest rates.
CHARGE-OFFS - The amount charged against the allowance for loan losses to
reduce a specific loan to its collectible amount.
CLASSIFIED ASSET - A bank asset that has caused management to have serious
doubts about the borrower's ability to comply with present repayment terms.
Included in this category are grade F performing and nonperforming loans,
foreclosed property, repossessed assets and other assets. In compliance with
the standards established by the Office of the Comptroller of the Currency
(OCC) these assets are classified as substandard, doubtful, and loss depending
on the severity of the asset's deterioration.
CORE DEPOSITS - Core deposits consist of all interest-bearing and
noninterest-bearing deposits, except certificates of deposit over $100,000, and
are obtained through a broad range of customers. They include checking
interest deposits, money market certificates, time and other savings, plus
demand deposits and are the most important source of funds for FTNC.
DOUBLE LEVERAGE RATIO - A ratio that measures the degree to which parent
company debt supports investments in subsidiaries. It is calculated by
dividing the parent company's investment in subsidiaries by total consolidated
equity.
EARNING ASSETS - Assets that generate interest and dividend income and
yield-related fee income, such as loans, short-term investments, and investment
securities.
FEDERAL FUNDS SOLD/PURCHASED - Excess balances of depository institutions which
are loaned to each other, generally on an overnight basis.
FULLY TAXABLE-EQUIVALENT INCOME (FTE) - Income from partially tax-exempt
securities that has been grossed up by the amount of taxes which would have
been paid if the instrument had been taxable for comparative purposes.
FORWARD CONTRACT - A legal contract between two parties to purchase and sell a
specific quantity of a financial instrument or commodity at a price specified
now, with delivery and settlement at a specified future date.
FUTURES CONTRACTS - A legal agreement to buy or sell a standardized quantity of
a standardized financial instrument at a specified future date and price.
Futures contracts are traded in organized exchanges.
INTEREST RATE CAPS AND FLOORS - These financial instruments obligate one of the
parties to make payments if an interest rate index exceeds a specified upper
"capped" level or if the index falls below a specified lower "floor" level.
INTEREST RATE SENSITIVITY - The change in net interest income due to
differences in the timing and amount of changes in rates paid on assets and
liabilities.
<PAGE> 62
INTEREST-RATE SWAP - Agreements entered into with other financial
intermediaries in which one party agrees to pay/receive a fixed payment over
the term of the agreement and the other party agrees to receive/pay a payment
which varies with changes in market interest rate indices, such as LIBOR, the
Federal Funds overnight rate, or Prime. Interest rate swaps are used to reduce
the impact of changes in market interest rates on interest income and interest
expense.
INTEREST SENSITIVITY GAP - The amount by which interest-rate sensitive assets
exceed interest-rate sensitive liabilities for a designated time period is
referred to as a net asset position. An excess of liabilities would represent
a net liability position.
LEVERAGE RATIO - Tier I capital divided by total assets less goodwill and
certain other intangible assets.
LIQUIDITY - The ability of a corporation to generate adequate funds to meet its
cash flow requirements.
MORTGAGE SERVICING RIGHTS - The right to service mortgage loans, generally owned
by someone else, for a fee. Loan servicing includes collecting payments;
remitting funds to investors, insurance companies, and taxing authorities;
collecting delinquent payments; and foreclosing on properties when necessary.
Purchased mortgage servicing rights (PMSRs) are intangibles created when
mortgage servicing rights are acquired from another party.
NET FREE FUNDING - Noninterest bearing liabilities (such as demand deposits,
other liabilities, and shareholders' equity) less nonearning assets (such as
cash, fixed assets, and other assets) is a low-cost source of funds.
NET INTEREST INCOME (NII) - The amount of income generated by earning assets
reduced by the interest cost of funding those assets.
NET INTEREST MARGIN (NIM)- A measurement of how effectively the bank
utilizes its earning assets in relationship to the interest cost of funding
them. It is computed by dividing fully tax-equivalent net interest income by
average earning assets.
NET INTEREST SPREAD - The difference between the average yield earned on
earning assets on a FTE basis and the average rate paid for interest-bearing
liabilities.
NONACCRUAL LOANS - Loans on which interest accruals have been discontinued due
to the borrower's financial difficulties. Interest income on these loans is
reported on the cash basis as it is collected after recovery of principal.
NONPERFORMING ASSETS - Loans on which interest income is not being accrued,
restructured loans on which interest rates or terms of repayment have been
materially revised, real estate properties acquired through foreclosure,
repossessed assets, and other assets.
OPTIONS - These contracts allow the holder of the option to purchase or sell a
financial instrument at a specified price and within a specified period of time
from or to the "seller" or "writer" of the option.
PROVISION FOR LOAN LOSSES - The provision for loan losses is the periodic
charge to earnings for potential losses in the loan portfolio. The evaluation
process to determine potential losses includes consideration of the industry,
specific conditions of individual borrowers, and the general economic
environment.
RECOVERIES - The amount added to the reserve for loan losses when a recovery is
made on a loan which was previously charged off.
RESTRUCTURED LOANS - A loan is considered restructured when an institution for
economic or legal reasons related to the debtor's financial difficulties grants
a concession to the debtor that it would not otherwise consider.
<PAGE> 63
RETURN ON AVERAGE ASSETS (ROA) - A measure of profitability that indicates how
effectively an institution utilized its assets. It is calculated by dividing
net income by total average assets.
RETURN ON AVERAGE EQUITY (ROE) - A measure of profitability that indicates what
an institution earned on its shareholders' investment. ROE is calculated by
dividing net income by total average shareholders' equity.
RISK-ADJUSTED ASSETS - A regulatory risk-based capital measure for assessing
capital adequacy that takes into account the broad differences in risks among a
banking organization's assets and off-balance sheet items.
RISK-BASED CAPITAL RATIOS - Regulatory ratios of capital to assets, including
assets not reflected on the balance sheet, which have been adjusted to reflect
the risk profile of such assets. Tier I capital consists of shareholders'
equity reduced by goodwill and certain other intangible assets, while total
capital is Tier I capital plus a limited amount of the allowance for loan
losses and qualifying subordinated debt.
TOTAL REVENUES - The sum of net interest income and noninterest income.
WATCH LIST - Identified loans and commitments graded D and E requiring a
closer level of monitoring due to some of the following circumstances: impact
of negative economic conditions; changes in company ownership; underwriting
exceptions; and reduction in the value of collateral.
<PAGE> 64
ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
1993 Compared to 1992 1992 Compared to 1991
Increase (Decrease) Due to* Increase (Decrease) Due to*
(Fully taxable equivalent) ------------------------------------------------------------------------
(Dollars in thousands) Rate** Volume** Total Rate** Volume** Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME - FTE:
Loans:
Commercial:
Taxable $ (8,018) $ 9,443 $ 1,425 $ (35,789) $ 9,525 $ (26,264)
Tax-exempt (1,803) (3,135) (4,938) (1,914) (2,593) (4,507)
- --------------------------------------------------- ------ ------
Total commercial loans (10,556) 7,043 (3,513) (38,226) 7,455 (30,771)
Consumer (10,719) 24,679 13,960 (14,802) 13,577 (1,225)
Credit card receivables (3,193) 1,097 (2,096) (2,314) 2,551 237
Real estate construction (818) 2,118 1,300 (483) (6,607) (7,090)
Permanent mortgage (2,843) (10,215) (13,058) (5,862) 1,055 (4,807)
Mortgage warehouse loans held for sale (1,409) 9,981 8,572 (688) 2,373 1,685
Nonaccrual 739 (466) 273 (20) (737) (757)
- --------------------------------------------------- ------ ------
Total loans (30,658) 36,096 5,438 (61,225) 18,497 (42,728)
- --------------------------------------------------- ------ ------
Investment and held for sale securities:
U.S. Treasury and other U.S.
government agencies (21,605) 27,763 6,158 (23,864) 55,048 31,184
States and municipalities (17) (2,663) (2,680) (158) (3,215) (3,373)
Other (2,302) (15,576) (17,878) (1,320) 5,846 4,526
- --------------------------------------------------- ------ ------
Total investment and held for sale securities (26,855) 12,455 (14,400) (27,565) 59,902 32,337
- --------------------------------------------------- ------ ------
Other earning assets:
Investment in bank time deposits (714) (1,580) (2,294) (2,973) (17,797) (20,770)
Federal funds sold and securities
purchased under agreements to resell (763) (2,085) (2,848) (6,989) (6,094) (13,083)
Trading account securities (2,316) 1,339 (977) (1,726) 2,421 695
- --------------------------------------------------- ------ ------
Total other earning assets (2,137) (3,982) (6,119) (11,924) (21,234) (33,158)
- --------------------------------------------------- ------ ------
Total earning assets (55,090) 40,009 (15,081) (95,933) 52,384 (43,549)
- --------------------------------------------------------------------------------------------------------------------------------
Total interest income - FTE $ (15,081) $ (43,549)
================================================================================================================================
INTEREST EXPENSE:
Interest-bearing deposits:
Checking/Interest $ (3,098) $ 1,137 $ (1,961) $ (5,064) $ 2,342 $ (2,722)
Savings (3,597) 830 (2,767) (6,639) 3,624 (3,015)
Money market account (10,956) 2,469 (8,487) (28,155) 9,677 (18,478)
Certificates of deposit under $100,000 and other time (18,854) (8,915) (27,769) (34,975) (4,827) (39,802)
Certificates of deposit $100,000 and more (1,495) (2,244) (3,739) (9,474) (2,052) (11,526)
- --------------------------------------------------- ------ ------
Total interest-bearing deposits (41,810) (2,913) (44,723) (90,643) 15,100 (75,543)
Federal funds purchased and securities
sold under agreements to repurchase (3,065) 9,615 6,550 (13,488) 4,378 (9,110)
Commercial paper and other short-term borrowings (3,202) 6,520 3,318 (2,534) 2,537 3
Long-term debt 1,467 (3,002) (1,535) (839) (11) (850)
- --------------------------------------------------- ------ ------
Total interest-bearing liabilities (51,847) 15,457 (36,390) (108,003) 22,503 (85,500)
- --------------------------------------------------------------------------------------------------------------------------------
Total interest expense $ (36,390) $ (85,500)
================================================================================================================================
Net interest income - FTE $ 21,309 $ 41,951
================================================================================================================================
</TABLE>
* The changes in interest due to both rate and volume have been allocated to
change due to rate and change due to volume in proportion to the absolute
amounts of the changes in each.
** Variances are computed on a line-by-line basis and are non-additive.
<PAGE> 65
ANALYSIS OF NONINTEREST INCOME AND NONINTEREST EXPENSE
<TABLE>
<CAPTION>
Growth rates (%)
---------------
(Dollars in thousands) 1993 1992 1991 1990 1989 1988 93/92 93/88
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NONINTEREST INCOME:
Bond division $ 91,525 $ 80,275 $ 68,628 $ 41,704 $ 31,769 $ 23,418 14.0 + 31.3 +
Service charges on deposit accounts 56,199 51,679 44,060 38,185 35,657 34,849 8.7 + 10.0 +
Mortgage banking 28,233 10,502 8,246 7,725 6,059 5,838 168.8 + 37.1 +
Bank card 26,417 24,177 22,322 19,163 18,347 18,944 9.3 + 6.9 +
Trust services 22,264 20,103 17,949 15,451 14,155 13,203 10.7 + 11.0 +
Equity securities gains (losses) (479) 342 (713) (1,039) 2,326 239 240.1 - 32.0 -
Investment and held for sale securities gains (losses) 1,204 (2,020) (140) (949) (219) 188 159.6 + 45.0 +
Other:
Check clearing fees 14,569 12,956 8,879 8,610 9,251 10,093 12.4 + 7.6 +
Other service charges 9,296 6,942 5,539 4,936 5,331 5,232 33.9 + 12.2 +
All other 21,261 20,053 16,430 21,391 19,978 14,076 6.0 + 8.6 +
- ------------------------------------------------------------------------------------------------------------------
Total other income 45,126 39,951 30,848 34,937 34,560 29,401 13.0 + 8.9 +
- ------------------------------------------------------------------------------------------------------------------
Total noninterest income $270,489 $225,009 $191,200 $155,177 $142,654 $126,080 20.2 + 16.5 +
==================================================================================================================
NONINTEREST EXPENSE:
Employee compensation, incentives, and benefits $219,560 $187,569 $161,923 $138,368 $138,587 $127,113 17.1 + 11.6 +
Operations services 26,289 23,585 21,752 18,380 3,769 3,220 11.5 + 52.2 +
Occupancy 21,998 20,705 19,704 17,880 17,647 15,779 6.2 + 6.9 +
Communications and courier 19,063 16,977 15,872 13,823 15,124 15,606 12.3 + 4.1 +
Equipment rentals, depreciation, and maintenance 17,645 16,157 12,757 11,651 21,583 20,429 9.2 + 2.9 -
Deposit insurance premium 15,465 15,194 12,769 7,090 5,035 4,600 1.8 + 27.4 +
Amortization of intangible assets 10,339 12,148 8,910 7,931 7,026 6,544 14.9 - 9.6 +
Other:
Legal and professional fees 8,380 11,158 7,886 6,113 6,346 5,626 24.9 - 8.3 +
Fed service fees 7,778 7,228 5,311 4,960 5,178 5,817 7.6 + 6.0 +
Supplies 6,937 5,928 5,318 5,286 6,419 6,216 17.0 + 2.2 +
Advertising and public relations 6,947 5,826 4,657 4,227 5,132 3,678 19.2 + 13.6 +
Travel and entertainment 6,242 5,255 4,585 4,658 4,774 4,356 18.8 + 7.5 +
Market adjustments to foreclosed real estate 193 3,180 6,846 1,846 1,816 34 93.9 - 41.5 +
All other 31,550 29,566 27,696 24,797 24,594 23,244 6.7 + 6.3 +
- ------------------------------------------------------------------------------------------------------------------
Total other expense 68,027 68,141 62,299 51,887 54,259 48,971 0.2 - 6.8 +
- ------------------------------------------------------------------------------------------------------------------
Total noninterest expense $398,386 $360,476 $315,986 $267,010 $263,030 $242,262 10.5 + 10.5 +
==================================================================================================================
</TABLE>
Certain previously reported amounts have been reclassified to agree with
current presentation.
<PAGE> 66
SUMMARY OF QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION> 1993 1992
----------------------------------- ----------------------------------
Fourth Third Second First Fourth Third Second First
(Dollars in millions except per share data) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY INCOME INFORMATION:
Interest income $151.7 $145.8 $143.7 $145.3 $145.8 $146.8 $152.0 $154.6
Interest expense 60.6 60.2 58.8 60.3 62.2 65.1 71.8 77.2
Provision for loan losses 7.5 9.0 9.0 9.0 10.5 10.7 10.6 11.4
Noninterest income before securities transactions 83.9 65.0 60.1 60.7 56.2 59.2 57.9 53.4
Securities gains (losses) (0.8) (0.1) 0.7 0.9 (0.8) (0.6) 0.2 (0.5)
Noninterest expense 119.4 95.5 91.3 92.2 99.4 90.0 88.8 82.2
Net income 30.7 29.5 30.3 30.2 11.8 26.5 26.1 24.8
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE $1.06 $1.05 $1.08 $1.07 $0.42 $0.95 $0.93 $0.89
- -------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK INFORMATION:
Closing price per share:
High $40 1/2 $43 1/2 $47 $43 1/4 $37 1/4 $38 $36 3/4 $34 7/8
Low 36 1/4 38 7/8 37 3/4 36 1/8 35 33 1/8 32 7/8 26 3/8
Period-end 38 1/2 40 40 1/2 43 1/4 36 3/4 36 36 1/2 34 7/8
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Per share data have been retroactively adjusted to reflect the 1992 stock
split.
<PAGE> 67
RATE SENSITIVITY ANALYSIS AT DECEMBER 31, 1993
<TABLE>
<CAPTION>
Interest Sensitivity Period
--------------------------------------------------------------------
Within 3 After 3 months After 6 months
(Dollars in millions) Months Within 6 months Within 12 months Other Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans $ 3,162 $ 262 $ 573 $ 1,990 $ 5,987
Investment and held for sale securities 343 159 333 1,335 2,170
Other earning assets 324 -- -- -- 324
- --------------------------------------------------------------------------------------------------------------------------------
Total earning assets $ 3,829 $ 421 $ 906 $ 3,325 $ 8,481
================================================================================================================================
EARNING ASSET FUNDING:
Interest-bearing deposits $ 1,904 $ 543 $ 385 $ 2,426 $ 5,258
Short-term purchased funds 1,329 1 -- -- 1,330
Long-term debt -- -- 1 89 90
Noninterest-bearing funds 658 -- -- 1,145 1,803
- --------------------------------------------------------------------------------------------------------------------------------
Earning asset funding $ 3,891 $ 544 $ 386 $ 3,660 $ 8,481
================================================================================================================================
RATE SENSITIVITY GAP:
Period $ (62) $ (123) $ 520 $ (335)
Cumulative (62) (185) 335 --
- ---------------------------------------------------------------------------------------------------------------------
RATE SENSITIVITY GAP ADJUSTED FOR INTEREST
RATE FUTURES AND INTEREST RATE SWAPS:
Period $ (446) $ (128) $ 509 $ (65)
Cumulative (446) (574) (65) --
- ---------------------------------------------------------------------------------------------------------------------
ADJUSTED GAP AS A PERCENT OF EARNING ASSETS:
Period (5.3)% (1.5)% 6.0 % 0.8 %
Cumulative (5.3) (6.8) (0.8) --
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Interest-sensitive categories represent ranges in which assets and liabilities
can be repriced, not necessarily their actual maturities. Other amounts include
assets and liabilities with interest sensitivity of more than 12 months or with
indefinite repricing schedules.
<PAGE> 68
MATURITIES OF INVESTMENTS SECURITIES AT DECEMBER 31,1993 (At book value)
<TABLE>
<CAPTION>
After 1 Year After 5 Year
Within 1 Year Within 5 Years Within 10 Years After 10 Years
--------------- -------------- --------------- ------------------
(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities and collateralized
mortgage obligations* $ 5,471 6.92% $ 61,095 6.13% $407,669 5.70% $1,160,638 5.62%
U.S. Treasury and other U.S. government agencies 136,318 5.55 188,958 4.75 12,648 7.59 523 7.31
States and municipalities** 15,804 9.58 34,636 9.32 1,219 7.51 4,771 8.08
Other 24,354 7.47 27,302 7.35 819 19.27 34,476*** 6.04
- ------------------------------------------------------------------------------------------------------------------------------------
Total $181,947 6.20% $311,991 5.75% $422,355 5.78% $1,200,408 5.65%
====================================================================================================================================
</TABLE>
* Includes $1,630.8 million of government agency issued mortgage-backed
securities and collateralized mortgage obligations which, when adjusted
for early paydowns, have an estimated average life of 2.35 years. Also
includes $4.1 million of private issued collateralized mortgage
obligations which, when adjusted for early paydowns, have an estimated
average life of .18 years.
** Weighted average yields on tax-exempt obligations have been computed by
adjusting allowable tax-exempt income to a fully taxable equivalent basis
using a tax rate of 35%.
*** Represents equity securities with no stated maturity.
<PAGE> 69
MATURITIES OF LOANS AT DECEMBER 31, 1993
<TABLE>
<CAPTION>
After 1 Year
(Dollars in thousands) Within 1 Year Within 5 Years After 5 Years Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $1,278,397 $1,045,719 $ 194,864 $2,518,980
Consumer 65,962 816,928 852,689 1,735,579
Credit card receivables 428,074 -- -- 428,074
Real estate construction 48,972 22,869 4,003 75,844
Permanent mortgage 53,440 61,359 381,056 495,855
Nonaccrual 7,689 5,057 12,059 24,805
- -----------------------------------------------------------------------------------------------------------
Total $1,882,534 $1,951,932 $1,444,671 $5,279,137
===========================================================================================================
For maturities over one year:
Interest rates - floating $ 690,383 $ 314,694 $1,005,077
Interest rates - fixed 1,261,549 1,129,977 2,391,526
- -----------------------------------------------------------------------------------------------------------
Total $1,951,932 $1,444,671 $3,396,603
===========================================================================================================
</TABLE>
<PAGE> 70
<TABLE>
<CAPTION>
=======================================================
CONSUMER LOANS BY PRODUCT AT DECEMBER 31
(Dollars in thousands) 1993 1992
- -------------------------------------------------------
<S> <C> <C>
Real estate $1,097,976 $714,999
Auto 348,799 278,728
Student 190,266 163,159
Other 98,538 109,107
- -------------------------------------------------------
Total $1,735,579 $1,265,993
=======================================================
</TABLE>
At December 31, 1993, real estate consumer loans
included $1,072,677,000 of first and second liens and
home equity loans
<PAGE> 71
REGULATORY CAPITAL AT DECEMBER 31
<TABLE>
<CAPTION>
FTNC* FTBNA** Well-Capitalized
---------------- ----------------- Regulatory
(Dollars in thousands) 1993 1992 1993 1992 Minimums
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CAPITAL:
Tier I capital:
Shareholders' common equity $ 678,985 $ 597,513 $ 627,371 $ 552,305
Less disallowed intangibles 62,152 20,747 66,413 36,297
- ---------------------------------------------------------------------------------------------------
Total Tier I capital 616,833 576,766 560,958 516,008
- ---------------------------------------------------------------------------------------------------
Tier II capital:
Qualifying debt 82,505 85,399 75,000 75,000
Qualifying allowance for loan losses 80,569 68,705 79,332 67,659
- ---------------------------------------------------------------------------------------------------
Total Tier II capital 163,074 154,104 154,332 142,659
- ---------------------------------------------------------------------------------------------------
Total capital $ 779,907 $ 730,870 $ 715,290 $ 658,667
===================================================================================================
Risk-adjusted assets $ 6,422,329 $ 5,468,328 $ 6,323,351 $ 5,384,338
Quarterly average assets 9,478,513 8,498,442 9,338,303 8,381,031
- ---------------------------------------------------------------------------------------------------
RATIOS:
Tier I capital to risk-adjusted assets 9.60 % 10.55 % 8.87 % 9.58 % 6.00 %
Tier II capital to risk-adjusted assets 2.54 2.82 2.44 2.65 --
- --------------------------------------------------------------------------------------------------------------------
Total capital to risk-adjusted assets 12.14 % 13.37 % 11.31 % 12.23 % 10.00 %
====================================================================================================================
Leverage - Tier I capital to quarterly
average assets less disallowed
intangibles 6.55 % 6.80 % 6.05 % 6.18 % 5.00 %
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* First Tennessee National Corporation **First Tennessee Bank National
Association
Based on regulatory guidelines.
<PAGE> 72
NET LOANS AND FORECLOSED REAL ESTATE AT DECEMBER 31
<TABLE>
<CAPTION>
1993 1992
-------------------------------------------------------------- -----------------
Construction Allowance Allowance
and Commercial For Loan For Loan
(Dollars in millions) Commercial Development Real Estate Total Losses Total Losses
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Internal grades:
A $ 111 $ - $ - $ 111 $ - $ 82 $ -
B 360 - 10 370 1 330 1
C 1,387 59 470 1,916 23 1,573 20
D 43 1 21 65 5 91 2
E 32 - 26 58 5 63 3
F 24 - 12 36 11 68 14
- ------------------------------------------------------------------------------------------------------------------------------------
1,957 60 539 2,556 45 2,207 40
Nonaccrual loans:
Contractually past due with:
Substantial performance - - - - - 1 -
Limited performance 5 - 2 7 4 5 1
No performance 1 - 1 2 1 12 5
Contractually current 3 - 4 7 2 11 3
- ------------------------------------------------------------------------------------------------------------------------------------
Total commercial and commercial
real estate loans $1,966 $60 $546 $2,572 $ 52 $2,236 $ 49
Retail:
Consumer 1,733 15 1,262 12
Credit card 428 17 412 18
Permanent mortgage 495 4 586 5
Mortgage warehouse loans held for sale 720 - 88 -
Mortgage banking nonaccrual 9 1 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total retail loans 3,385 37 2,348 35
Other/unfunded commitments 31 3 26 3
General reserve - 12 - 10
- ------------------------------------------------------------------------------------------------------------------------------------
Total net loans $5,988 $104 $4,610 $ 97
====================================================================================================================================
Foreclosed real estate:
Foreclosed property $ 2 $12 $ 4 $ 18 $ 20
Foreclosed property - mortgage banking - - - 14 -
Insubstance foreclosure - - - - 4
- ------------------------------------------------------------------------------------------------------------------------------------
Total foreclosed real estate $ 32 $ 24
====================================================================================================================================
</TABLE>
All amounts in the Allowance for Loan Losses columns have been rounded to the
nearest million dollars. Grade A loans have reserve amounts of less than
$500,000.
Definitions of each credit grade are provided below:
*GRADE A -- Established, stable companies with excellent earnings, liquidity,
and capital. Possess many of the same characteristics as Standard & Poor's
(S&P) AA rated companies.
*GRADE B -- Established, stable companies with good earnings, liquidity, and
capital. Possess many of the same characteristics as S&P A rated companies.
*GRADE C -- Established, stable companies with satisfactory earnings,
liquidity, and capital and with consistent, positive trends relative to
industry norms.
*GRADE D -- Financial condition adversely affected by temporary lack of
earnings or liquidity or changes in the operating environment. An action
plan is required to rehabilitate the credit or have it refinanced elsewhere.
*GRADE E -- Significant developing weaknesses or adverse trends in earnings,
liquidity, capital, or operating environment. No discernable market for
refinancing is available.
*GRADE F -- Significantly higher than normal probability that: (1) legal
action or liquidation of collateral is required; (2) there will be a loss; or
(3) both will occur. This grade is believed to be substantially equivalent
to the regulators' classifications of substandard and doubtful.
*NONACCRUAL -- A loan that is placed on nonaccrual status is not included in
any of these six grades, but is placed in a separate nonaccrual category.
Commercial and real estate loans are placed on nonaccrual status
automatically once they become 90 days or more past due. For internal
management purposes, nonaccrual loans are divided into four sub-categories:
(1) contractually current, or payments are less than 90 days past due;
(2) contractually past due 90 days or more with substantial performance
(more than 85 percent of contractual payments being received);
(3) contractually past due with limited performance (between 1 percent
and 85 percent of contractual payments being received); and
(4) contractually past due with no performance.
Based on internal loan classifications.
<PAGE> 73
FTBNA LOANS SECURED BY REAL ESTATE AT DECEMBER 31
<TABLE>
<CAPTION>
1993 1992
----------------------------------- ------------------------------------
Construction Commercial Construction Commercial
(Dollars in millions) & Development Real Estate Total & Development Real Estate Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RISK CATEGORIES:
Real estate collateral serves as
only source of repayment $ 46 $ 180 $ 226 $ 37 $ 156 $ 193
Real estate collateral is primary
source of repayment with a
substantial secondary source 14 366 380 17 295 312
- -----------------------------------------------------------------------------------------------------------------------------
Total $ 60 $ 546 $ 606 $ 54 $ 451 $ 505
=============================================================================================================================
PROJECT TYPE:
Apartments $ - $ 78 $ 78 $ 2 $ 51 $ 53
Hotels/Motels - 62 62 - 48 48
Office buildings - multi-tenant 1 60 61 4 55 59
Shopping centers 1 106 107 12 90 102
Commercial/Special purpose units 1 74 75 2 64 66
All Other 57 166 223 34 143 177
- -----------------------------------------------------------------------------------------------------------------------------
Total $ 60 $ 546 $ 606 $ 54 $ 451 $ 505
=============================================================================================================================
</TABLE>
Based on internal loan classifications.
<PAGE> 74
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992 1991 1990 1989 1988
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES:
Beginning balance $ 96,795 $ 90,048 $ 86,663 $ 65,725 $ 51,540 $ 65,484
Provision for loan losses 34,540 43,171 53,943 64,231 64,116 25,827
Allowance of acquired bank 785 -- 9,327 -- -- 3,442
Charge-offs:
Commercial 15,509 17,899 30,539 24,110 33,968 28,719
Consumer 8,487 9,807 13,838 12,422 12,348 10,352
Credit card receivables 13,357 17,013 16,913 11,510 8,773 7,770
Real estate construction 2,320 173 6,888 6,214 2,410 2,338
Permanent mortgage 676 1,607 910 1,020 216 494
------------------------------------------------------------------------------------------------------------------------------
Total charge-offs 40,349 46,499 69,088 55,276 57,715 49,673
------------------------------------------------------------------------------------------------------------------------------
Recoveries:
Commercial 5,837 5,228 5,061 8,106 5,009 3,213
Consumer 3,322 2,545 2,684 2,432 1,746 2,232
Credit card receivables 2,262 1,985 1,278 1,141 934 843
Real estate construction 159 215 150 286 79 36
Permanent mortgage 383 102 30 18 16 136
--------------------------------------------------------------------------------------------------------------------------------
Total recoveries 11,963 10,075 9,203 11,983 7,784 6,460
--------------------------------------------------------------------------------------------------------------------------------
Net charge-offs 28,386 36,424 59,885 43,293 49,931 43,213
--------------------------------------------------------------------------------------------------------------------------------
Ending balance $ 103,734 $ 96,795 $ 90,048 $ 86,663 $ 65,725 $ 51,540
=================================================================================================================================
LOANS (NET OF UNEARNED INCOME)
OUTSTANDING AT DECEMBER 31* $ 5,987,568 $ 4,610,018 $ 4,537,392 $ 4,338,916 $ 4,169,534 $ 4,076,679
=================================================================================================================================
AVERAGE LOANS (NET OF UNEARNED INCOME)
OUTSTANDING DURING THE YEAR $ 4,948,050 $ 4,514,229 $ 4,330,545 $ 4,194,371 $ 4,142,559 $ 4,029,453
=================================================================================================================================
RATIOS:
Allowance to loans (net of unearned income)* 1.73 % 2.10 % 1.98 % 2.00 % 1.58 % 1.26 %
Net charge-offs to average loans
(net of unearned income) 0.57 0.81 1.38 1.03 1.21 1.07
Net charge-offs to allowance 27.4 37.6 66.5 50.0 76.0 83.8
=================================================================================================================================
*Includes mortgage warehouse loans held for sale reported on the Consolidated Statements of Condition.
Excluding the LDC reserve for 1988, the allowance to loans ratio would have been 1.18 percent, net charge-offs would have
been $28,731,000, the net charge-off to average loan ratio would have been .71 percent, and the net charge-off to allowance ratio
would have been 59.6 percent.
</TABLE>
<PAGE> 75
CHANGES IN NONPERFORMING ASSETS AT DECEMBER 31
<TABLE>
<CAPTION>
(Dollars in millions) 1993 1992 1991
------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $ 54.7 $ 83.6 $ 102.7
New nonperformers 22.4 31.2 67.1
Valley acquisition -- -- 2.0
MNMC acquisition 22.8 -- --
Return to accrual (3.4) (0.5) (11.7)
Payments (25.1) (39.5) (32.8)
Charge-offs (13.2) (17.8) (36.0)
Market writedowns (0.1) (2.3) (7.7)
------------------------------------------------------------
Ending balance $ 58.1 $ 54.7 $ 83.6
=============================================================
</TABLE>
<PAGE> 76
NONPERFORMING ASSETS AT DECEMBER 31
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992 1991 1990 1989 1988
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AMOUNTS:
Nonaccrual loans $ 24,805 $ 28,712 $ 43,479 $ 69,685 $ 48,411 $ 36,383
Restructured loans 579 1,288 2,346 965 47 50
------------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 25,384 30,000 45,825 70,650 48,458 36,433
Foreclosed real estate 31,609 23,559 37,197 31,933 25,346 10,829
Other assets 1,120 1,127 558 109 394 48
------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 58,113 $ 54,686 $ 83,580 $ 102,692 $ 74,198 $ 47,310
==============================================================================================================================
Non-government guaranteed past due loans*** $ 12,215 $ 13,177 $ N/A $ N/A $ N/A $ N/A
Government guaranteed past due loans*** 11,024 8,906 N/A N/A N/A N/A
Past due loans* 20,514 15,796 12,004 17,421
-------------------------------------------------------------------------------------------------------------------------------
RATIOS:
Nonperforming loans to total loans (net of
unearned income)** 0.42 % 0.65 % 1.01 % 1.63 % 1.16 % 0.89 %
Nonperforming assets to total loans
(net of unearned income) plus foreclosed
real estate and other assets** 0.97 1.18 1.83 2.35 1.77 1.16
Nonperforming assets and past due loans to
total loans (net of unearned income) plus
foreclosed real estate and other assets** 1.35 1.53 2.28 2.71 2.05 1.58
==============================================================================================================================
</TABLE>
* Past due loans are loans that are 90 days or more past due as to principal
and/or interest and not yet on nonaccrual status.
** Total loans includes mortgage warehouse loans held for sale reported on
the Consolidated Statements of Condition.
*** Not available for years prior to 1992.
<PAGE> 77
SELECTED First Tennessee
FINANCIAL National
DATA Corporation
<TABLE>
<CAPTION>
(Dollars in millions except per share data) 1993 1992 1991 1990 1989 1988
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY Interest income $ 586.5 $ 599.3 $ 640.6 $ 659.3 $ 639.6 $ 550.5
INCOME Less interest expense 239.9 276.3 361.8 405.9 405.6 327.0
STATEMENTS --------------------------------------------------------------------------------------------------------------
Net interest income 346.6 323.0 278.8 253.4 234.0 223.5
Provision for loan losses 34.5 43.2 53.9 64.2 64.1 25.8
-------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 312.1 279.8 224.9 189.2 169.9 197.7
Noninterest income 270.4 225.0 191.2 155.1 142.7 126.1
-------------------------------------------------------------------------------------------------------------
Adjusted gross income after provision
for loan losses 582.5 504.8 416.1 344.3 312.6 323.8
Noninterest expense 398.4 360.5 316.0 267.0 263.0 242.3
-------------------------------------------------------------------------------------------------------------
Income before income taxes 184.1 144.3 100.1 77.3 49.6 81.5
Applicable income taxes 63.4 55.1 27.1 20.7 12.2 20.1
-------------------------------------------------------------------------------------------------------------
Net income $ 120.7 $ 89.2 $ 73.0 $ 56.6 $ 37.4 $ 61.4
===========================================================================================================================
COMMON Net income per common share $ 4.26 $ 3.19 $ 2.63 $ 2.01 $ 1.33 $ 2.20
STOCK Cash dividends declared per common share 1.50 1.26 * 1.14 1.09 0.96 0.86
DATA Year-end book value per common share 23.97 21.25 19.39 17.91 16.92 16.54
Closing price of common stock per share:
High 47 38 27 5/8 18 19 7/8 19 3/8
Low 36 1/8 26 3/8 14 3/8 12 15 7/8 14 3/8
Year-end 38 1/2 36 3/4 27 5/8 15 1/8 16 5/8 16 3/8
Dividends/price 3.2-4.2 % 3.3-4.8 % 4.1-7.9 % 6.1-9.1 % 4.8-6.0 % 4.4-6.0 %
Dividends/earnings 35.2 39.5 43.3 54.2 72.2 39.1
Closing price/earnings 9.0 x 11.5 x 10.5 x 7.5 x 12.5 x 7.4 x
Market capitalization $ 1,090.6 $ 1,033.5 $ 767.2 $ 419.7 $ 470.1 $ 459.9
Average shares outstanding (thousands) 28,325 27,972 27,761 28,159 28,148 27,876
Period-end shares outstanding (thousands) 28,326 28,123 27,772 27,746 28,279 28,084
Volume of shares traded (thousands) 25,486 21,394 15,714 8,620 9,928 6,410
- --------------------------------------------------------------------------------------------------------------------------
SELECTED Total assets $ 8,968.1 $ 8,297.8 $ 7,650.9 $ 7,201.8 $ 6,873.6 $ 6,485.1
AVERAGE Total loans, net of unearned income* 4,948.1 4,514.2 4,330.5 4,194.4 4,142.6 4,029.5
BALANCES Investment and held for sale securities 2,826.3 2,639.6 1,842.3 1,548.1 1,348.6 1,244.8
Earning assets 8,095.3 7,565.4 6,981.1 6,543.7 6,129.8 5,666.0
Deposits 6,736.4 6,592.3 6,143.2 5,713.0 5,447.4 5,076.0
Long-term debt 95.3 127.7 127.8 128.3 129.8 132.7
Shareholders' equity 635.3 577.4 516.3 486.6 469.6 442.1
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 78
SELECTED First Tennessee
FINANCIAL National
DATA (Continued) Corporation
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED Total assets $ 9,608.8 $ 8,925.8 $ 8,760.7 $ 7,485.2 $ 7,149.4 $ 6,697.9
PERIOD-END Total loans, net of unearned income* 5,987.6 4,610.0 4,537.4 4,338.9 4,169.5 4,076.7
BALANCES Investment and held for sale securities 2,169.7 3,031.1 2,526.6 1,630.1 1,508.3 1,272.1
Earning assets 8,481.2 8,116.1 7,674.7 6,700.6 6,246.0 5,782.9
Deposits 7,146.8 6,916.8 6,791.3 6,016.3 5,595.4 5,283.2
Long-term debt 90.0 126.9 127.8 127.9 128.7 131.9
Shareholders' equity 679.0 597.5 538.5 497.0 478.5 464.5
- ---------------------------------------------------------------------------------------------------------------------------
SELECTED Return on average equity 18.99 % 15.44 % 14.14 % 11.63 % 7.95 % 13.89 %
RATIOS Return on average assets 1.35 1.07 0.95 0.79 0.54 0.95
Net interest margin 4.35 4.37 4.13 4.07 4.10 4.30
Allowance for loan losses
to loans (net of unearned income)* 1.73 2.10 1.98 2.00 1.58 1.26
Net charge-offs to average
loans (net of unearned income) 0.57 0.81 1.38 1.03 1.21 1.07
Average equity to average assets 7.08 6.96 6.75 6.76 6.83 6.82
Average tangible equity to average
tangible assets 6.29 6.23 6.14 6.27 6.28 6.19
Average equity to average net loans 13.11 13.07 12.18 11.83 11.52 11.14
- --------------------------------------------------------------------------------------------------------------------------
RETURN TO Stock appreciation 4.8 % 33.0 % 82.6 % (9.0)% 1.5 % 10.1 %
SHAREHOLDERS Dividend yield 4.1 4.6 7.5 6.6 5.9 5.8
Annual return 8.9 37.6 90.1 (2.4) 7.4 15.9
- --------------------------------------------------------------------------------------------------------------------------
* Includes mortgage warehouse loans held for sale reported on the Consolidated Statements of Condition.
The notes to consolidated financial statements should be read in conjunction with this table.
</TABLE>
<PAGE> 79
CREDIT RATINGS AT DECEMBER 31, 1993
<TABLE>
<CAPTION>
Standard Thomson
Rating Agency Moody's & Poor's Fitch BankWatch
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Senior sinking fund debentures A
Subordinated debt Baa1 BBB+
Long-term certificates of deposit* A1 A-
Short-term certificates of deposit* Prime-1 A-2
Overall credit rating B
Commercial paper TBW-1
--------------------------------------------------------------------------------------------
</TABLE>
*FTBNA
<PAGE> 80
NET-CHARGE OFFS AS A PERCENTAGE OF AVERAGE LOANS, NET OF
UNEARNED INCOME
<TABLE>
<Capton>
1993 1992
-----------------------------------------------------------------
<S> <C> <C>
Commercial and commercial real estate .50% .57%
Consumer .36 .63
Credit card receivables 2.80 3.87
Permanent mortgage .06 .24
-----------------------------------------------------------------
</TABLE>
<PAGE> 81
OBLIGATIONS OF STATES AND MUNICIPALITIES BY QUALITY RATING
AT DECEMBER 31, 1993
<TABLE>
<CAPTION>
Book Percent
(Dollars in thousands) Value of Total
-----------------------------------------------------------------
<S> <C> <C>
Moody's Rating:
Investment securities
A or better $ 46,401 81%
BAA1/Baa 6,154 11
Ba/B 45 -
Not rated 3,830 7
Securities held for sale:
D 491 1
----------------------------------------------------------------
Total $ 56,921 100%
=================================================================
</TABLE>
<PAGE> 82
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE
BALANCE SHEET AND First Tennessee
RELATED YIELDS AND RATES (Unaudited) National
Corporation
1993 1992
------------------------ ---------------------------
Interest Average Interest Average
(Fully taxable equivalent) Average Income/ Yields/ Average Income/ Yields/
(Dollars in millions) Balance Expense Rates Balance Expense Rates
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning assets:
Loans net of unearned income:
Commercial:
Taxable $2,175.2 $157.7 7.25 % $2,044.6 $156.3 7.64 %
Tax-exempt 87.2 7.3 8.33 122.1 12.2 9.99
- ------------------------------------------------------------------------------------------------------------------------------
Total commercial loans 2,262.4 165.0 7.29 2,166.7 168.5 7.78
Consumer 1,441.3 120.3 8.35 1,151.3 106.4 9.24
Credit card receivables 396.5 51.1 12.90 388.1 53.2 13.72
Real estate construction 82.0 7.3 8.92 58.9 6.0 10.21
Permanent mortgage 509.1 44.1 8.65 624.2 57.1 9.15
Mortgage warehouse loans held for sale 229.6 15.7 6.85 86.4 7.2 8.28
Nonaccrual loans 27.2 1.6 5.79 38.6 1.3 3.37
- ------------------------------------------------------------------------------------------------------------------------------
Total loans (net of unearned income) 4,948.1 405.1 8.19 4,514.2 399.7 8.85
- ------------------------------------------------------------------------------------------------------------------------------
Investment and held for sale securities:
U.S. Treasury and other U.S. government agencies 2,535.3 151.1 5.96 2,093.1 145.0 6.93
States and municipalities 76.2 7.9 10.34 101.7 10.5 10.39
Other 214.8 14.3 6.67 444.8 32.2 7.24
- ------------------------------------------------------------------------------------------------------------------------------
Total investment and held for sale securities 2,826.3 173.3 6.13 2,639.6 187.7 7.11
- ------------------------------------------------------------------------------------------------------------------------------
Other earning assets:
Investment in bank time deposits 4.0 0.2 3.55 40.6 2.5 6.01
Federal funds sold and securities purchased
under agreements to resell 136.5 3.6 2.62 212.6 6.4 3.02
Trading account securities 180.4 9.6 5.34 158.4 10.6 6.70
- ------------------------------------------------------------------------------------------------------------------------------
Total other earning assets 320.9 13.4 4.16 411.6 19.5 4.73
- ------------------------------------------------------------------------------------------------------------------------------
Total earning assets 8,095.3 591.8 7.31 7,565.4 606.9 8.02
Allowance for loan losses (102.9) (96.3)
Cash and due from banks 534.6 458.4
Premises and equipment, net 112.1 106.3
Bond division receivables and other assets 329.0 264.0
- ------------------------------------------------------------------------------------------------------------------------------
Total assets / Interest income $8,968.1 $591.8 $8,297.8 $606.9
</TABLE>
<TABLE>
<CAPTION>
1991 1990
------------------------ ---------------------------
Interest Average Interest Average
(Fully taxable equivalent) Average Income/ Yields/ Average Income/ Yields/
(Dollars in millions) Balance Expense Rates Balance Expense Rates
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning assets:
Loans net of unearned income:
Commercial:
Taxable $1,940.4 $182.5 9.41 % $1,830.4 $193.3 10.60 %
Tax-exempt 146.8 16.7 11.38 184.2 22.7 12.34
- ------------------------------------------------------------------------------------------------------------------------------
Total commercial loans 2,087.2 199.2 9.55 2,014.6 216.0 10.72
Consumer 1,016.0 107.6 10.59 982.1 111.3 11.34
Credit card receivables 370.4 53.0 14.31 313.7 46.2 14.73
Real estate construction 123.8 13.1 10.59 224.6 25.7 11.42
Permanent mortgage 613.9 61.9 10.09 568.8 58.0 10.20
Mortgage warehouse loans held for sale 58.6 5.5 9.34 33.8 3.3 9.71
Nonaccrual loans 60.6 2.1 3.39 56.8 4.2 7.44
- ------------------------------------------------------------------------------------------------------------------------------
Total loans (net of unearned income) 4,330.5 442.4 10.22 4,194.4 464.7 11.08
- ------------------------------------------------------------------------------------------------------------------------------
Investment and held for sale securities:
U.S. Treasury and other U.S. government agencies 1,343.7 113.8 8.47 1,147.2 104.4 9.09
States and municipalities 133.0 13.9 10.48 171.1 18.0 10.53
Other 365.6 27.7 7.57 229.8 18.6 8.10
- ------------------------------------------------------------------------------------------------------------------------------
Total investment and held for sale securities 1,842.3 155.4 8.44 1,548.1 141.0 9.11
- ------------------------------------------------------------------------------------------------------------------------------
Other earning assets:
Investment in bank time deposits 330.6 23.2 7.02 357.0 30.3 8.49
Federal funds sold and securities purchased
under agreements to resell 352.8 19.5 5.53 308.8 24.3 7.87
Trading account securities 124.8 9.9 7.94 135.4 12.3 9.07
- ------------------------------------------------------------------------------------------------------------------------------
Total other earning assets 808.2 52.6 6.51 801.2 66.9 8.35
- ------------------------------------------------------------------------------------------------------------------------------
Total earning assets 6,981.0 650.4 9.32 6,543.7 672.6 10.28
Allowance for loan losses (92.9) (80.0)
Cash and due from banks 422.3 432.0
Premises and equipment, net 96.7 87.0
Bond division receivables and other assets 243.8 219.1
- ------------------------------------------------------------------------------------------------------------------------------
Total assets / Interest income $7,650.9 $650.4 $7,201.8 $672.6
</TABLE>
<TABLE>
<CAPTION>
1989 1988
------------------------ ---------------------------
Interest Average Interest Average
(Fully taxable equivalent) Average Income/ Yields/ Average Income/ Yields/
(Dollars in millions) Balance Expense Rates Balance Expense Rates
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning assets:
Loans net of unearned income:
Commercial:
Taxable $1,823.8 $206.0 11.29 % $1,794.8 $181.0 10.08 %
Tax-exempt 224.9 28.8 12.82 276.7 32.4 11.70
- ------------------------------------------------------------------------------------------------------------------------------
Total commercial loans 2,048.7 234.8 11.46 2,071.5 213.4 10.30
Consumer 916.7 107.0 11.67 819.6 90.7 11.07
Credit card receivables 264.1 38.4 14.56 226.3 32.0 14.12
Real estate construction 263.4 32.4 12.30 316.9 35.6 11.25
Permanent mortgage 564.9 56.5 10.00 530.8 53.3 10.04
Mortgage warehouse loans held for sale 27.5 2.7 9.83 23.2 2.4 10.40
Nonaccrual loans 57.2 2.7 4.63 41.2 2.0 4.82
- ------------------------------------------------------------------------------------------------------------------------------
Total loans (net of unearned income) 4,142.5 474.5 11.46 4,029.5 429.4 10.66
- ------------------------------------------------------------------------------------------------------------------------------
Investment and held for sale securities:
U.S. Treasury and other U.S. government agencies 938.8 83.4 8.88 780.6 67.2 8.62
States and municipalities 223.3 23.9 10.70 274.3 28.7 10.46
Other 186.4 15.5 8.34 189.9 14.5 7.61
- ------------------------------------------------------------------------------------------------------------------------------
Total investment and held for sale securities 1,348.5 122.8 9.11 1,244.8 110.4 8.87
- ------------------------------------------------------------------------------------------------------------------------------
Other earning assets:
Investment in bank time deposits 309.6 29.7 9.60 215.8 16.8 7.77
Federal funds sold and securities purchased
under agreements to resell 245.8 22.1 8.98 141.9 10.7 7.56
Trading account securities 83.4 7.9 9.48 34.1 3.2 9.44
- ------------------------------------------------------------------------------------------------------------------------------
Total other earning assets 638.8 59.7 9.34 391.8 30.7 7.84
- ------------------------------------------------------------------------------------------------------------------------------
Total earning assets 6,129.8 657.0 10.72 5,666.1 570.5 10.07
Allowance for loan losses (66.4) (61.9)
Cash and due from banks 511.3 616.8
Premises and equipment, net 85.1 78.2
Bond division receivables and other assets 213.8 185.9
- ------------------------------------------------------------------------------------------------------------------------------
Total assets / Interest income $6,873.6 $657.0 $6,485.1 $570.5
</TABLE>
<TABLE>
<CAPTION>
Average Balance
(Fully taxable equivalent) Growth Rates (S)
(Dollars in millions) 93/92 93/88
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Earning assets:
Loans net of unearned income:
Commercial:
Taxable 6.4 + 3.9 +
Tax-exempt 28.6 - 20.6 -
- ------------------------------------------------------------------------------------------------------------------------------
Total commercial loans 4.4 + 1.8 +
Consumer 25.2 + 12.0 +
Credit card receivables 2.2 + 11.9 +
Real estate construction 39.2 + 23.7 -
Permanent mortgage 18.4 - .8 -
Mortgage warehouse loans held for sale 165.7 + 58.2 +
Nonaccrual loans 29.5 - 8.0 -
- ------------------------------------------------------------------------------------------------------------------------------
Total loans (net of unearned income) 9.6 + 4.2 +
- ------------------------------------------------------------------------------------------------------------------------------
Investment and held for sale securities:
U.S. Treasury and other U.S. government agencies 21.1 + 26.6 +
States and municipalities 25.1 - 22.6 -
Other 51.7 - 2.5 +
- ------------------------------------------------------------------------------------------------------------------------------
Total investment and held for sale securities 7.1 + 17.8 +
- ------------------------------------------------------------------------------------------------------------------------------
Other earning assets:
Investment in bank time deposits 90.1 - 55.0 -
Federal funds sold and securities purchased
under agreements to resell 35.8 - .8 -
Trading account securities 13.9 + 39.5 +
- ------------------------------------------------------------------------------------------------------------------------------
Total other earning assets 22.0 - 3.9 -
- ------------------------------------------------------------------------------------------------------------------------------
Total earning assets 7.0 + 7.4 +
Allowance for loan losses 6.9 + 10.7 +
Cash and due from banks 16.6 + 2.8 -
Premises and equipment, net 5.5 + 7.5 +
Bond division receivables and other assets 24.6 + 12.1 +
- ------------------------------------------------------------------------------------------------------------------------------
Total assets / Interest income 8.1 + 6.7 +
</TABLE>
<PAGE> 83
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE
BALANCE SHEET AND First Tennessee
RELATED YIELDS AND RATES (Unadited) National
(continued) Corporation
1993 1992
----------------------------- ---------------------------
Interest Average Interest Average
(Fully taxable equivalent) Average Income/ Yields/ Average Income/ Yields/
(Dollars in millions) Balance Expense Rates Balance Expense Rates
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing liabilities:
Interest-bearing deposits:
Checking/Interest $ 492.0 $ 9.6 1.96 % $ 444.4 $ 11.6 2.61 %
Savings 508.3 13.6 2.67 482.4 16.3 3.39
Money market account 1,592.9 41.3 2.59 1,513.5 49.8 3.29
Certificates of deposit under $100,000 and other time 2,296.4 111.3 4.85 2,459.7 139.1 5.65
Certificates of deposit $100,000 and more 370.3 14.2 3.83 426.0 17.9 4.20
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 5,259.9 190.0 3.61 5,326.0 234.7 4.41
Federal funds purchased and securities sold
under agreements to repurchase 1,020.7 29.0 2.84 690.3 22.5 3.25
Commercial paper and other short-term borrowings 278.0 11.7 4.19 136.7 8.3 6.10
Long-term debt 95.3 9.2 9.70 127.7 10.8 8.44
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 6,653.9 239.9 3.61 6,280.7 276.3 4.40
Demand deposits 1,476.5 1,266.2
Bond division payables and other liabilities 202.4 173.5
Shareholders' equity 635.3 577.4
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity / Interest expense $8,968.1 $239.9 $8,297.8 $276.3
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income-tax equivalent basis / Yield $351.9 4.35 % $330.6 4.37 %
Fully taxable equivalent adjustment (5.3) (7.6)
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income $346.6 $323.0
- -------------------------------------------------------------------------------------------------------------------------------
Net interest spread 3.70 % 3.62 %
Effect of interest-free sources used to fund earning assets .65 .75
- -------------------------------------------------------------------------------------------------------------------------------
Net interest margin 4.35 % 4.37 %
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1991 1990
----------------------------- ---------------------------
Interest Average Interest Average
(Fully taxable equivalent) Average Income/ Yields/ Average Income/ Yields/
(Dollars in millions) Balance Expense Rates Balance Expense Rates
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing liabilities:
Interest-bearing deposits:
Checking/Interest $ 375.6 $ 14.3 3.82 % $ 357.1 $ 14.9 4.17 %
Savings 397.9 19.4 4.86 380.8 19.8 5.19
Money market account 1,307.0 68.3 5.22 1,115.4 72.3 6.48
Certificates of deposit under $100,000 and other time 2,530.3 178.9 7.07 2,388.9 194.3 8.13
Certificates of deposit $100,000 and more 460.4 29.4 6.39 462.4 36.5 7.89
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 5,071.2 310.3 6.12 4,704.6 337.8 7.18
Federal funds purchased and securities sold
under agreements to repurchase 597.8 31.6 5.28 631.0 47.2 7.47
Commercial paper and other short-term borrowings 100.8 8.3 8.26 91.1 8.7 9.60
Long-term debt 127.8 11.6 9.10 128.3 12.2 9.55
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 5,897.6 361.8 6.13 5,555.0 405.9 7.31
Demand deposits 1,072.1 1,008.4
Bond division payables and other liabilities 164.8 151.8
Shareholders' equity 516.4 486.6
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity / Interest expense $7,650.9 $361.8 $7,201.8 $405.9
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income-tax equivalent basis / Yield $288.6 4.13 % $266.7 4.07 %
Fully taxable equivalent adjustment (9.8) (13.3)
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income $278.8 $253.4
- -------------------------------------------------------------------------------------------------------------------------------
Net interest spread 3.19 % 2.97 %
Effect of interest-free sources used to fund earning assets .94 1.10
- -------------------------------------------------------------------------------------------------------------------------------
Net interest margin 4.13 % 4.07 %
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION> 1989 1988
----------------------------- ---------------------------
Interest Average Interest Average
(Fully taxable equivalent) Average Income/ Yields/ Average Income/ Yields/
(Dollars in millions) Balance Expense Rates Balance Expense Rates
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing liabilities:
Interest-bearing deposits:
Checking/Interest $ 420.0 $ 22.9 5.44 % $ 510.2 $ 23.0 4.51 %
Savings 416.3 21.7 5.20 492.6 25.6 5.19
Money market account 803.1 49.3 6.14 571.3 31.1 5.45
Certificates of deposit under $100,000 and other time 2,207.7 191.8 8.69 1,794.3 142.5 7.94
Certificates of deposit $100,000 and more 547.1 46.4 8.49 536.6 38.9 7.25
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 4,394.2 332.1 7.56 3,905.0 261.1 6.69
Federal funds purchased and securities sold
under agreements to repurchase 601.2 51.6 8.58 603.4 43.3 7.18
Commercial paper and other short-term borrowings 70.5 9.3 13.14 95.5 10.3 10.75
Long-term debt 129.8 12.6 9.76 132.7 12.3 9.30
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 5,195.7 405.6 7.81 4,736.6 327.0 6.90
Demand deposits 1,053.1 1,171.0
Bond division payables and other liabilities 155.2 135.4
Shareholders' equity 469.6 442.1
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity / Interest expense $6,873.6 $405.6 $6,485.1 $327.0
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income-tax equivalent basis / Yield $251.4 4.10 % $243.5 4.30 %
Fully taxable equivalent adjustment (17.4) (20.0)
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income $234.0 $223.5
- -------------------------------------------------------------------------------------------------------------------------------
Net interest spread 2.91 % 3.17 %
Effect of interest-free sources used to fund earning assets 1.19 1.13
- -------------------------------------------------------------------------------------------------------------------------------
Net interest margin 4.10 % 4.30 %
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Average Balance
(Fully taxable equivalent) Growth Rates (%)
(Dollars in millions) 93/92 93/88
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
<S> <C> <C>
Interest-bearing liabilities:
Interest-bearing deposits:
Checking/Interest 10.7 + 0.7 -
Savings 5.4 + 0.6 +
Money market account 5.2 + 22.8 +
Certificates of deposit under $100,000 and other time 6.6 - 5.1 +
Certificates of deposit $100,000 and more 13.1 - 7.2 -
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 1.2 - 6.1 +
Federal funds purchased and securities sold
under agreements to repurchase 47.9 + 11.1 +
Commercial paper and other short-term borrowings 103.4 + 23.8 +
Long-term debt 25.4 - 6.4 -
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 5.9 + 7.0 +
Demand deposits 16.6 + 4.7 +
Bond division payables and other liabilities 16.7 + 8.4 +
Shareholders' equity 10.0 + 7.5 +
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity / Interest expense 8.1 + 6.7 +
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income-tax equivalent basis / Yield
Fully taxable equivalent adjustment
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income
- -------------------------------------------------------------------------------------------------------------------------------
Net interest spread
Effect of interest-free sources used to fund earning assets
- -------------------------------------------------------------------------------------------------------------------------------
Net interest margin
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Certain previously reported amounts have been reclassified to agree with
current presentation. Yields and corresponding income amounts are adjusted to a
fully taxable equivalent. Earning assets yields are expressed net of unearned
income. Rates are expressed net of unamortized debenture cost for long-term
debt. Net interest margin is computed using total net interest income.
<PAGE> 84
ANNUAL REPORT GRAPHS
GRAPH TITLE: Return on Average Equity
NARRATIVE DESCRIPTION: This is a bar graph with the x-axis
representing annual periods from
1988 to 1993 and the y-axis ranging
from 0.00 percent to 20.00 percent.
The bars begin in 1988 at 13.89
percent, fall to 7.95 percent in
1989, and then generally increase
until reaching 18.99 percent in
1993.
DATA POINTS:
(Percent) Return on Equity
1988 13.89
1989 7.95
1990 11.63
1991 14.14
1992 15.44
1993 18.99
NOTE: In 1993 ROE reached 18.99 percent,
the fourth consecutive year with
improving profitability. Excluding
the one-time expenses related to the
HFC acquisition, 1992 ROE would have
been 18.14 percent.
REFERENCE: Financial Performance Summary
Section
<PAGE> 85
ANNUAL REPORT GRAPHS
GRAPH TITLE: Return on Average Assets
NARRATIVE DESCRIPTION: This is a bar graph with the x-axis
representing annual periods from 1988
to 1993 and the y-axis ranging from 0.00
percent to 1.40 percent. The bars begin in
1988 at .95 percent, fall to .54
percent in 1989, and then generally
increase until reaching 1.35 percent
in 1993.
DATA POINTS:
(Percent) Return on Assets
1988 0.95
1989 0.54
1990 0.79
1991 0.95
1992 1.07
1993 1.35
NOTE: Profitability, as measured by ROA,
improved to 1.35 percent in 1993,
reflecting strong growth in noninterest
revenue, a lower loan loss provision, and
a stable net interest margin. Excluding
the one-time expenses related to the HFC
acquisition, 1992 ROA would have been
1.26 percent.
REFERENCE: Financial Performance Summary
Section
<PAGE> 86
ANNUAL REPORT GRAPHS
GRAPH TITLE: Earnings Per Share
NARRATIVE DESCRIPTION: This is a bar graph with the x-axis
representing annual periods from
1988 to 1993 and the y-axis ranging
from $0.00 to $4.00. The bars
begin in 1988 at $2.20, fall to
$1.33 in 1989, and then generally
increase until reaching $4.26 in 1993.
DATA POINTS:
(Dollars) Earnings Per Share
1988 2.20
1989 1.33
1990 2.01
1991 2.63
1992 3.19
1993 4.26
NOTE: Earnings per share increased 33.5
percent in 1993 and has had a 14.1
percent compounded annual growth
rate since 1988, adjusted for the
1992 three-for-two stock dividend.
REFERENCE: Financial Performance Summary
Section
<PAGE> 87
ANNUAL REPORT GRAPHS
GRAPH TITLE: Earnings Trend
NARRATIVE DESCRIPTION: This is a line graph with the x-axis
representing annual periods from 1988 to
1993 and the y-axis ranging from
$0 to $200 million. There are two lines:
net income and pre-tax, fully-taxable
equivalent income before provision for
loan losses. The net income line
begins at approximately $60 million
in 1988, falls to approximately $35
million in 1989, and then increases
steadily to approximately $120
million in 1993. The pre-tax,
fully-taxable equivalent income
before provision for loan losses
line begins at approximately $125
million and generally increases
until it reaches approximately $225
million in 1993. Two numbers have
been added to the graph which report
that over the five year period net
income experienced a 14.5 percent
annual compounded growth rate while
pre-tax, fully-taxable equivalent
income before provision for loan
losses experienced a 12.0 percent
annual compounded growth rate.
DATA POINTS:
<TABLE>
<CAPTION>
Pre-Tax, Fully-Taxable
(Millions of Equivalent Income Before
Dollars) Net Income Provision for Loan Losses
<S> <C> <C>
1988 61.4 127.3
1989 37.4 131.1
1990 56.6 154.8
1991 73.0 163.8
1992 89.2 195.0
1993 120.7 223.9
</TABLE>
NOTE: FTNC's pre-tax earnings before loan
loss provisions have steadily
improved over the last five years,
experiencing approximately a 12
percent annual compounded growth
rate over the last five years.
REFERENCE: Financial Performance Summary Section
<PAGE> 88
ANNUAL REPORT GRAPHS
GRAPH TITLE: Net Interest Margin and Spread
NARRATIVE DESCRIPTION: This is a line graph with the x-axis
representing annual periods from
1988 to 1993 and the y-axis not
shown. There are two lines:
net interest spread and net interest
margin. The net interest spread line
begins at 3.17 percent in 1988, falls to
2.91 percent in 1989, and then
increases steadily to 3.70 percent
in 1993. The net interest margin
line begins at 4.30 percent in 1988,
decreases until 1990 when it reaches
4.07 percent, increases to 4.37
percent in 1992, and falls to 4.35
percent in 1993.
DATA POINTS:
<TABLE>
<CAPTION>
Net Net
Interest Interest
(Percent) Spread Margin
<S> <C> <C>
1988 3.17 4.30
1989 2.91 4.10
1990 2.97 4.07
1991 3.19 4.13
1992 3.62 4.37
1993 3.70 4.35
</TABLE>
NOTE: Despite an increase in the net interest
spread, the net interest margin
dropped 2 basis points as the
historically low interest rate
environment reduced the value of the
net free funding.
REFERENCE: Net Interest Income Section
<PAGE> 89
ANNUAL REPORT GRAPHS
GRAPH TITLE: Profitability Per Employee
NARRATIVE DESCRIPTION: This is a bar graph with the x-axis
representing annual periods from
1988 to 1993 and the y-axis ranging
from $0 to $50 thousand. The bars
begin in 1988 at $30 thousand,
generally increase until reaching
$47 thousand in 1992, and then falls
to $46 thousand in 1993.
DATA POINTS:
<TABLE>
<CAPTION>
(Thousand of $) Profitability Per Employee
<S> <C>
1988 30
1989 32
1990 38
1991 39
1992 47
1993 46
</TABLE>
NOTE: FTNC maintained its high level of
profitability in 1993, even though
several expansions impacted the
level of profitability.
Profitability per employee is
calculated by dividing by average
full-time equivalent employees the
fully taxable equivalent, pre-tax,
pre-provision income adjusted for
significant non-recurring items and
securities gains and losses.
REFERENCE: No Specific Reference Section
<PAGE> 90
ANNUAL REPORT GRAPHS
GRAPH TITLE: Earning Asset Mix as a Percentage of
Average Assets
NARRATIVE DESCRIPTION: This is a stacked bar graph with the
x-axis representing annual periods from 1988
to 1993 and the y-axis ranging from 0 percent
to 80 percent. The total of the stacked bars,
which represents the percent of average assets
that are earning assets, begins at 87 percent
in 1988, increases to 91 percent in 1991 and
1992, and then falls to 90 percent in 1993.
The stacked bar is comprised of three
different shaded areas: loans, net of unearned
income, investment securities, and other
earning assets. The area highlighting the
percentage of loans, net of unearned income to
earning assets, began at 62 percent in 1988
and generally declined to 54 percent in 1992
before rising to 55 percent in 1993. The area
highlighting the percentage of investments to
earnings assets began at 19 percent in 1988
and generally rose until it reached 32 percent
for 1992 and 1993. The top area of the
stacked bar represented the percentage of
other earning assets to total assets and began
at 6 percent in 1988, rose to 11 percent in
1990 and 1991, and generally fell in 1992 and
1993 before reaching 4 percent in 1993.
DATA POINTS:
<TABLE>
<CAPTION>
Loans, Net of Investment Other
(Percent) Unearned Income Securities Earning Assets
<S> <C> <C> <C>
1988 62.1 19.2 6.1
1989 60.3 19.6 9.3
1990 58.2 21.5 11.2
1991 56.6 24.0 10.6
1992 54.4 31.8 5.0
1993 55.2 31.5 3.6
</TABLE>
NOTE: The percentage of loans, net of unearned
income, to earning assets increased for the
first time in six years.
REFERENCE: Balance Sheet Composition Section
<PAGE> 91
ANNUAL REPORT GRAPHS
GRAPH TITLE: Average Loan Composition
NARRATIVE DESCRIPTION: This is a stacked bar graph with the
x-axis representing annual periods
from 1988 to 1993 and the y-axis
ranging from 0 percent to 100
percent. The total of the
stacked bars is equal to 100 percent
since the bars are highlighting the
composition of the loan portfolio.
The stacked bar is comprised of two
different shaded areas: consumer,
credit card receivables, and
mortgage loans; and commercial and
commercial real estate. The area
highlighting the percentage of loans
from consumer, credit card
receivables, and mortgage loans
began at 39 percent in 1988 and
increased every year until it
reached 52 percent in 1993. The
area highlighting the percentage of
loans which are commercial and
commercial real estate began at 61
percent in 1988 and declined every
year until it reached 48 percent in
1993.
DATA POINTS:
<TABLE>
<CAPTION>
Consumer, Credit Card Commercial
Receivables and and Commercial
(Percent) Mortgages Real Estate
<S> <C> <C>
1988 39.7 60.3
1989 42.8 57.2
1990 45.3 54.7
1991 47.5 52.5
1992 49.8 50.2
1993 52.1 47.9
</TABLE>
NOTE: Consumer loans continue to represent
a higher percentage of the total
loan portfolio.
REFERENCE: Balance Sheet Composition Section
<PAGE> 92
ANNUAL REPORT GRAPHS
GRAPH TITLE: Deposits and Other Interest-Bearing
Liabilities as a Percentage of
Average Assets
NARRATIVE DESCRIPTION: This is a stacked bar graph with the
x-axis representing annual periods
from 1988 to 1993 and the y-axis
ranging from 0 percent to 80
percent. The total of the stacked
bars, which represents the percent
of average assets that are funded
with market rate core deposits,
non-market rate core deposits, and
other purchased funds, begins at 73
percent in 1988, increases to 77
percent in 1991 and 1992, and then
falls to 74 percent in 1993. The
stacked bar is comprised of three
different shaded areas: market rate
core deposits, non-market rate core
deposits, and other purchased funds.
The area highlighting the percentage
of funding from market rate core
deposits began at 37 percent in 1988
and generally increased to 50
percent in 1991 before falling to 43
percent in 1993. The area
highlighting the percentage of
funding from non-market rate core
deposits began at 16 percent in 1988
and generally fell until it reached
11 percent for 1992 and 1993. The
top area of the stacked bar
represented the percentage of
funding from other purchased funds
and began at 21 percent in 1988,
fell to 17 percent in 1991 and 1992,
and increased to 20 percent in 1993.
DATA POINTS:
<TABLE>
<CAPTION>
Market Rate Non-Market Rate Other
(Percent) Core Deposits Core Deposits Purchased Funds
<S> <C> <C> <C>
1988 36.5 15.4 21.1
1989 43.8 12.2 19.6
1990 48.7 10.2 18.2
1991 50.2 10.1 16.8
1992 47.9 11.2 16.6
1993 43.4 11.1 19.7
</TABLE>
NOTE: As interest rates remained low
and the difference between the
rates on non-market rate accounts
and market rate accounts continued to
be small, customers invested their additional
funds in non-market rate core deposits.
REFERENCE: Balance Sheet Composition Section
<PAGE> 93
ANNUAL REPORT GRAPHS
GRAPH TITLE: Net Charge-Offs
NARRATIVE DESCRIPTION: This is a bar graph with the x-axis
representing annual periods from
1988 to 1993 and the y-axis ranging
from $0 to $80 million. The bars
begin in 1988 at $43 million,
generally increase until reaching
$60 million in 1991, and then fall
to $28 million in 1993.
DATA POINTS:
<TABLE>
<CAPTION>
(Millions of $) Net Charge-Offs
<S> <C>
1988 43.2
1989 49.9
1990 43.3
1991 59.9
1992 36.4
1993 28.4
</TABLE>
NOTE: The low level of net charge-offs is
a result of a recent renewal in
economic growth and improvements
in the asset quality management process.
REFERENCE: Allowance for Loan Losses and Net
Charge-Offs Section
<PAGE> 94
ANNUAL REPORT GRAPHS
GRAPH TITLE: Nonperforming Loans
NARRATIVE DESCRIPTION: This is a bar graph with the x-axis
representing annual periods from
1988 to 1993 and the y-axis ranging
from $0 to $100 million. The bars
begin in 1988 at $36 million,
generally increase until reaching
$71 million in 1990, and then fall
to $25 million in 1993.
DATA POINTS:
<TABLE>
<CAPTION>
(Millions of $) Nonperforming Loans
<S> <C>
1988 36.4
1989 48.5
1990 70.7
1991 45.8
1992 30.0
1993 25.4
</TABLE>
NOTE: The improvement in nonperforming
loans reflects FTNC's positive asset
quality trends over the last three
years.
REFERENCE: Nonperforming Assets Section
<PAGE> 95
ANNUAL REPORT GRAPHS
GRAPH TITLE: Nonperforming Assets to Total Loans*
*Note: Net of unearned income plus
foreclosed real estate and
other assets
NARRATIVE DESCRIPTION: This is a bar graph with the x-axis
representing annual periods from
1988 to 1993 and the y-axis ranging
from 0 percent to 2.50 percent. The
bars begin in 1988 at 1.16 percent,
generally increase until reaching
2.35 percent in 1990, and then fall
to .97 percent in 1993.
DATA POINTS:
<TABLE>
<CAPTION>
Nonperforming Assets
(Percent) to Total Loans
<S> <C>
1988 1.16
1989 1.77
1990 2.35
1991 1.83
1992 1.18
1993 .97
</TABLE>
NOTE: The improvement in the nonperforming
assets to total loans ratio
reflects the substantial decrease in
nonperforming loans and foreclosed
real estate over the last three
years.
REFERENCE: Nonperforming Assets Section
<PAGE> 96
ANNUAL REPORT GRAPHS
GRAPH TITLE: Cumulative Changes in Nonaccrual
Loans and Other Real Estate Since
Year-End 1988 (Quarterly)
NARRATIVE DESCRIPTION: This is a line graph with the x-axis
representing quarterly periods from
1988 to 1993 and the y-axis ranges
from $0 to $210 million. There are
two lines: nonaccrual loans and OREO
net of charge-offs and adjustments
and nonaccrual loans and OREO. The
nonaccrual loans and OREO net of
charge-offs and adjustments line
begins at $0 at December 31, 1988,
generally increases until it reaches
$59 million in the first quarter of
1991, then decreases steadily to
$(6) million in the third quarter of
1993, and then rises to $11 million
in the fourth quarter of 1993. The
nonaccrual loans and OREO line
begins at $0 at December 31, 1988,
generally increases until it reaches
$144 million in the fourth quarter
of 1991, then decreases steadily to
$127 million in the third quarter of
1993, and then rises to $149 million
in the fourth quarter of 1993. The
area between the two lines is shaded
and represents the impact to
nonaccrual loans and OREO from net
charge-offs and adjustments.
DATA POINTS:
<TABLE>
<CAPTION>
Nonaccrual Loans and
OREO
Net of Charge-Offs and Nonaccrual Loans
(Millions of $) Adjustments and OREO
<S> <C> <C>
12/31/88 0 0
1Q89 13 15
2Q89 45 49
3Q89 35 57
12/31/89 27 63
1Q90 37 77
2Q90 35 82
3Q90 35 91
12/31/90 56 123
1Q91 59 134
2Q91 50 137
3Q91 43 142
12/31/91 35 144
1Q92 32 144
2Q92 24 142
3Q92 20 142
12/31/92 7 134
</TABLE>
<PAGE> 97
ANNUAL REPORT GRAPHS
<TABLE>
<S> <C> <C>
1Q93 3 133
2Q93 0 133
3Q93 -6 127
12/31/93 11 149
</TABLE>
NOTE: Over the last three years extensive
charge-offs and improving asset
quality trends reduced nonperforming
loans and OREO below their 1988
levels. The MNMC acquisition added
$22.8 million in assets in the
fourth quarter of 1993.
REFERENCE: Allowance for Loan Losses and Net
Charge-Offs and Nonperforming Assets
Sections
<PAGE> 98
ANNUAL REPORT GRAPHS
GRAPH TITLE: Cumulative Changes in Classified
Assets Since Year-End 1988
(Quarterly)
NARRATIVE DESCRIPTION: This is a line graph with the x-axis
representing quarterly periods from
1988 to 1993 and the y-axis ranges
from $0 to $210 million. There are
two lines: classified assets net of
charge-offs and adjustments and
classified assets. The classified
assets net of charge-offs and
adjustments line begins at $0 at
December 31, 1988, generally
increases until it reaches $99
million in the third quarter of
1991, then decreases steadily to
$(6) million in the third quarter of
1993, and then rises to $(5) million
in the fourth quarter of 1993. The
classified assets line begins at $0
at December 31, 1988, generally
increases until it reaches $202
million in the third quarter of
1991, then decreases steadily to
$128 million in the third quarter of
1993, and then rises to $134 million
in the fourth quarter of 1993. The
area between the two lines is shaded
and represents the impact to
nonaccrual loans and OREO from net
charge-offs and adjustments.
DATA POINTS:
<TABLE>
<CAPTION>
Classified Assets
Net of Charge-Offs and
(Millions of $) Adjustments Classified Assets
<S> <C> <C>
12/31/88 0 0
1Q89 17 19
2Q89 59 67
3Q89 46 68
12/31/89 30 68
1Q90 74 115
2Q90 83 131
3Q90 83 141
12/31/90 80 154
1Q91 95 173
2Q91 95 186
3Q91 99 202
12/31/91 78 190
1Q92 73 189
2Q92 59 179
3Q92 51 175
12/31/92 24 151
1Q93 17 147
2Q93 -4 130
</TABLE>
<PAGE> 99
ANNUAL REPORT GRAPHS
<TABLE>
<S> <C> <C>
3Q93 -6 128
12/31/93 -5 134
</TABLE>
NOTE: Classified assets include all
potential problem and nonperforming
assets. Improvements in asset
quality since mid-1990 are reflected
by the reduction in classified
assets, net of charge-offs and
adjustments. The MNMC acquisition
added $22.8 million in assets in the
fourth quarter of 1993.
REFERENCE: Allowance for Loan Losses and Net
Charge-Offs and Nonperforming Assets
Sections
<PAGE> 1
EXHIBIT 21
PARENTS AND SUBSIDIARIES
The following is a list of all subsidiaries of First Tennessee
National Corporation at December 31, 1993. Each subsidiary is 100% owned by its
immediate parent, and all are included in the Consolidated Financial
Statements:
<TABLE>
<CAPTION>
Type of Ownership Jurisdiction of
Subsidiary By the Corporation Incorporation
---------- ------------------ ---------------
<S> <C> <C>
Crown Finance Corporation* Direct Missouri
Corona National Life Insurance Company* Indirect Arizona
Crown Agency Corporation Indirect Missouri
Crown Lending Corporation* Indirect Missouri
First Tennessee Advisory Corporation* Direct Tennessee
First Tennessee Bank National Association Direct United States
Check Consultants, Incorporated Indirect Tennessee
Check Consultants Company of Tennessee, Inc. Indirect Tennessee
Countrywood Development Corporation* Indirect Tennessee
East Tennessee Service Corporation Indirect Tennessee
Tri-City Title Company* Indirect Tennessee
Upper East Tennessee Insurance Agency Indirect Tennessee
First Funds, Inc.* Indirect Tennessee
First Tennessee Capital Assets Corporation Indirect Tennessee
First Tennessee Data Services Corporation* Indirect Tennessee
First Tennessee Brokerage, Inc. Indirect Tennessee
First Tennessee Equipment Finance Corporation Indirect Tennessee
Hickory Venture Capital Corporation Indirect Alabama
JPO, Inc. Indirect Tennessee
Maryland National Mortgage Corporation Indirect Maryland
Atlantic Coast Mortgage Company Indirect Virginia
Norlen, Inc.* Indirect Tennessee
Northeast Arkansas Computer Service Center, Inc.* Indirect Arkansas
Northeast Mississippi Computer Service Center, Inc.* Indirect Mississippi
Southeast Missouri Computer Service Center, Inc.* Indirect Missouri
West Tennessee Computer Service Center, Inc.* Indirect Tennessee
TSMM Corporation Indirect Tennessee
First Tennessee Bank National Association Mississippi Direct United States
First Tennessee Investment Management, Inc. Direct Tennessee
FTB Futures Corporation* Direct Tennessee
Hickory Capital Corporation Direct Tennessee
Mountain Financial Company* Direct Tennessee
Norlen Life Insurance Company . Direct Arizona
Pence Mortgage Company* Direct Kentucky
Peoples and Union Bank Direct Tennessee
*Inactive.
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE
BALANCE SHEET AND First Tennessee
RELATED YIELDS AND RATES (Unaudited) National
Corporation
1993 1992
------------------------ ---------------------------
Interest Average Interest Average
(Fully taxable equivalent) Average Income/ Yields/ Average Income/ Yields/
(Dollars in millions) Balance Expense Rates Balance Expense Rates
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning assets:
Loans net of unearned income:
Commercial:
Taxable $2,175.2 $157.7 7.25 % $2,044.6 $156.3 7.64 %
Tax-exempt 87.2 7.3 8.33 122.1 12.2 9.99
- ------------------------------------------------------------------------------------------------------------------------------
Total commercial loans 2,262.4 165.0 7.29 2,166.7 168.5 7.78
Consumer 1,441.3 120.3 8.35 1,151.3 106.4 9.24
Credit card receivables 396.5 51.1 12.90 388.1 53.2 13.72
Real estate construction 82.0 7.3 8.92 58.9 6.0 10.21
Permanent mortgage 509.1 44.1 8.65 624.2 57.1 9.15
Mortgage warehouse loans held for sale 229.6 15.7 6.85 86.4 7.2 8.28
Nonaccrual loans 27.2 1.6 5.79 38.6 1.3 3.37
- ------------------------------------------------------------------------------------------------------------------------------
Total loans (net of unearned income) 4,948.1 405.1 8.19 4,514.2 399.7 8.85
- ------------------------------------------------------------------------------------------------------------------------------
Investment and held for sale securities:
U.S. Treasury and other U.S. government agencies 2,535.3 151.1 5.96 2,093.1 145.0 6.93
States and municipalities 76.2 7.9 10.34 101.7 10.5 10.39
Other 214.8 14.3 6.67 444.8 32.2 7.24
- ------------------------------------------------------------------------------------------------------------------------------
Total investment and held for sale securities 2,826.3 173.3 6.13 2,639.6 187.7 7.11
- ------------------------------------------------------------------------------------------------------------------------------
Other earning assets:
Investment in bank time deposits 4.0 0.2 3.55 40.6 2.5 6.01
Federal funds sold and securities purchased
under agreements to resell 136.5 3.6 2.62 212.6 6.4 3.02
Trading account securities 180.4 9.6 5.34 158.4 10.6 6.70
- ------------------------------------------------------------------------------------------------------------------------------
Total other earning assets 320.9 13.4 4.16 411.6 19.5 4.73
- ------------------------------------------------------------------------------------------------------------------------------
Total earning assets 8,095.3 591.8 7.31 7,565.4 606.9 8.02
Allowance for loan losses (102.9) (96.3)
Cash and due from banks 534.6 458.4
Premises and equipment, net 112.1 106.3
Bond division receivables and other assets 329.0 264.0
- ------------------------------------------------------------------------------------------------------------------------------
Total assets / Interest income $8,968.1 $591.8 $8,297.8 $606.9
</TABLE>
<TABLE>
<CAPTION>
1991 1990
------------------------ ---------------------------
Interest Average Interest Average
(Fully taxable equivalent) Average Income/ Yields/ Average Income/ Yields/
(Dollars in millions) Balance Expense Rates Balance Expense Rates
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning assets:
Loans net of unearned income:
Commercial:
Taxable $1,940.4 $182.5 9.41 % $1,830.4 $193.3 10.60 %
Tax-exempt 146.8 16.7 11.38 184.2 22.7 12.34
- ------------------------------------------------------------------------------------------------------------------------------
Total commercial loans 2,087.2 199.2 9.55 2,014.6 216.0 10.72
Consumer 1,016.0 107.6 10.59 982.1 111.3 11.34
Credit card receivables 370.4 53.0 14.31 313.7 46.2 14.73
Real estate construction 123.8 13.1 10.59 224.6 25.7 11.42
Permanent mortgage 613.9 61.9 10.09 568.8 58.0 10.20
Mortgage warehouse loans held for sale 58.6 5.5 9.34 33.8 3.3 9.71
Nonaccrual loans 60.6 2.1 3.39 56.8 4.2 7.44
- ------------------------------------------------------------------------------------------------------------------------------
Total loans (net of unearned income) 4,330.5 442.4 10.22 4,194.4 464.7 11.08
- ------------------------------------------------------------------------------------------------------------------------------
Investment and held for sale securities:
U.S. Treasury and other U.S. government agencies 1,343.7 113.8 8.47 1,147.2 104.4 9.09
States and municipalities 133.0 13.9 10.48 171.1 18.0 10.53
Other 365.6 27.7 7.57 229.8 18.6 8.10
- ------------------------------------------------------------------------------------------------------------------------------
Total investment and held for sale securities 1,842.3 155.4 8.44 1,548.1 141.0 9.11
- ------------------------------------------------------------------------------------------------------------------------------
Other earning assets:
Investment in bank time deposits 330.6 23.2 7.02 357.0 30.3 8.49
Federal funds sold and securities purchased
under agreements to resell 352.8 19.5 5.53 308.8 24.3 7.87
Trading account securities 124.8 9.9 7.94 135.4 12.3 9.07
- ------------------------------------------------------------------------------------------------------------------------------
Total other earning assets 808.2 52.6 6.51 801.2 66.9 8.35
- ------------------------------------------------------------------------------------------------------------------------------
Total earning assets 6,981.0 650.4 9.32 6,543.7 672.6 10.28
Allowance for loan losses (92.9) (80.0)
Cash and due from banks 422.3 432.0
Premises and equipment, net 96.7 87.0
Bond division receivables and other assets 243.8 219.1
- ------------------------------------------------------------------------------------------------------------------------------
Total assets / Interest income $7,650.9 $650.4 $7,201.8 $672.6
</TABLE>
<TABLE>
<CAPTION>
1989 1988
------------------------ ---------------------------
Interest Average Interest Average
(Fully taxable equivalent) Average Income/ Yields/ Average Income/ Yields/
(Dollars in millions) Balance Expense Rates Balance Expense Rates
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning assets:
Loans net of unearned income:
Commercial:
Taxable $1,823.8 $206.0 11.29 % $1,794.8 $181.0 10.08 %
Tax-exempt 224.9 28.8 12.82 276.7 32.4 11.70
- ------------------------------------------------------------------------------------------------------------------------------
Total commercial loans 2,048.7 234.8 11.46 2,071.5 213.4 10.30
Consumer 916.7 107.0 11.67 819.6 90.7 11.07
Credit card receivables 264.1 38.4 14.56 226.3 32.0 14.12
Real estate construction 263.4 32.4 12.30 316.9 35.6 11.25
Permanent mortgage 564.9 56.5 10.00 530.8 53.3 10.04
Mortgage warehouse loans held for sale 27.5 2.7 9.83 23.2 2.4 10.40
Nonaccrual loans 57.2 2.7 4.63 41.2 2.0 4.82
- ------------------------------------------------------------------------------------------------------------------------------
Total loans (net of unearned income) 4,142.5 474.5 11.46 4,029.5 429.4 10.66
- ------------------------------------------------------------------------------------------------------------------------------
Investment and held for sale securities:
U.S. Treasury and other U.S. government agencies 938.8 83.4 8.88 780.6 67.2 8.62
States and municipalities 223.3 23.9 10.70 274.3 28.7 10.46
Other 186.4 15.5 8.34 189.9 14.5 7.61
- ------------------------------------------------------------------------------------------------------------------------------
Total investment and held for sale securities 1,348.5 122.8 9.11 1,244.8 110.4 8.87
- ------------------------------------------------------------------------------------------------------------------------------
Other earning assets:
Investment in bank time deposits 309.6 29.7 9.60 215.8 16.8 7.77
Federal funds sold and securities purchased
under agreements to resell 245.8 22.1 8.98 141.9 10.7 7.56
Trading account securities 83.4 7.9 9.48 34.1 3.2 9.44
- ------------------------------------------------------------------------------------------------------------------------------
Total other earning assets 638.8 59.7 9.34 391.8 30.7 7.84
- ------------------------------------------------------------------------------------------------------------------------------
Total earning assets 6,129.8 657.0 10.72 5,666.1 570.5 10.07
Allowance for loan losses (66.4) (61.9)
Cash and due from banks 511.3 616.8
Premises and equipment, net 85.1 78.2
Bond division receivables and other assets 213.8 185.9
- ------------------------------------------------------------------------------------------------------------------------------
Total assets / Interest income $6,873.6 $657.0 $6,485.1 $570.5
</TABLE>
<TABLE>
<CAPTION>
Average Balance
(Fully taxable equivalent) Growth Rates (S)
(Dollars in millions) 93/92 93/88
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Earning assets:
Loans net of unearned income:
Commercial:
Taxable 6.4 + 3.9 +
Tax-exempt 28.6 - 20.6 -
- ------------------------------------------------------------------------------------------------------------------------------
Total commercial loans 4.4 + 1.8 +
Consumer 25.2 + 12.0 +
Credit card receivables 2.2 + 11.9 +
Real estate construction 39.2 + 23.7 -
Permanent mortgage 18.4 - .8 -
Mortgage warehouse loans held for sale 165.7 + 58.2 +
Nonaccrual loans 29.5 - 8.0 -
- ------------------------------------------------------------------------------------------------------------------------------
Total loans (net of unearned income) 9.6 + 4.2 +
- ------------------------------------------------------------------------------------------------------------------------------
Investment and held for sale securities:
U.S. Treasury and other U.S. government agencies 21.1 + 26.6 +
States and municipalities 25.1 - 22.6 -
Other 51.7 - 2.5 +
- ------------------------------------------------------------------------------------------------------------------------------
Total investment and held for sale securities 7.1 + 17.8 +
- ------------------------------------------------------------------------------------------------------------------------------
Other earning assets:
Investment in bank time deposits 90.1 - 55.0 -
Federal funds sold and securities purchased
under agreements to resell 35.8 - .8 -
Trading account securities 13.9 + 39.5 +
- ------------------------------------------------------------------------------------------------------------------------------
Total other earning assets 22.0 - 3.9 -
- ------------------------------------------------------------------------------------------------------------------------------
Total earning assets 7.0 + 7.4 +
Allowance for loan losses 6.9 + 10.7 +
Cash and due from banks 16.6 + 2.8 -
Premises and equipment, net 5.5 + 7.5 +
Bond division receivables and other assets 24.6 + 12.1 +
- ------------------------------------------------------------------------------------------------------------------------------
Total assets / Interest income 8.1 + 6.7 +
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE
BALANCE SHEET AND First Tennessee
RELATED YIELDS AND RATES (Unadited) National
(continued) Corporation
1993 1992
----------------------------- ---------------------------
Interest Average Interest Average
(Fully taxable equivalent) Average Income/ Yields/ Average Income/ Yields/
(Dollars in millions) Balance Expense Rates Balance Expense Rates
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing liabilities:
Interest-bearing deposits:
Checking/Interest $ 492.0 $ 9.6 1.96 % $ 444.4 $ 11.6 2.61 %
Savings 508.3 13.6 2.67 482.4 16.3 3.39
Money market account 1,592.9 41.3 2.59 1,513.5 49.8 3.29
Certificates of deposit under $100,000 and other time 2,296.4 111.3 4.85 2,459.7 139.1 5.65
Certificates of deposit $100,000 and more 370.3 14.2 3.83 426.0 17.9 4.20
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 5,259.9 190.0 3.61 5,326.0 234.7 4.41
Federal funds purchased and securities sold
under agreements to repurchase 1,020.7 29.0 2.84 690.3 22.5 3.25
Commercial paper and other short-term borrowings 278.0 11.7 4.19 136.7 8.3 6.10
Long-term debt 95.3 9.2 9.70 127.7 10.8 8.44
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 6,653.9 239.9 3.61 6,280.7 276.3 4.40
Demand deposits 1,476.5 1,266.2
Bond division payables and other liabilities 202.4 173.5
Shareholders' equity 635.3 577.4
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity / Interest expense $8,968.1 $239.9 $8,297.8 $276.3
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income-tax equivalent basis / Yield $351.9 4.35 % $330.6 4.37 %
Fully taxable equivalent adjustment (5.3) (7.6)
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income $346.6 $323.0
- -------------------------------------------------------------------------------------------------------------------------------
Net interest spread 3.70 % 3.62 %
Effect of interest-free sources used to fund earning assets .65 .75
- -------------------------------------------------------------------------------------------------------------------------------
Net interest margin 4.35 % 4.37 %
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1991 1990
----------------------------- ---------------------------
Interest Average Interest Average
(Fully taxable equivalent) Average Income/ Yields/ Average Income/ Yields/
(Dollars in millions) Balance Expense Rates Balance Expense Rates
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing liabilities:
Interest-bearing deposits:
Checking/Interest $ 375.6 $ 14.3 3.82 % $ 357.1 $ 14.9 4.17 %
Savings 397.9 19.4 4.86 380.8 19.8 5.19
Money market account 1,307.0 68.3 5.22 1,115.4 72.3 6.48
Certificates of deposit under $100,000 and other time 2,530.3 178.9 7.07 2,388.9 194.3 8.13
Certificates of deposit $100,000 and more 460.4 29.4 6.39 462.4 36.5 7.89
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 5,071.2 310.3 6.12 4,704.6 337.8 7.18
Federal funds purchased and securities sold
under agreements to repurchase 597.8 31.6 5.28 631.0 47.2 7.47
Commercial paper and other short-term borrowings 100.8 8.3 8.26 91.1 8.7 9.60
Long-term debt 127.8 11.6 9.10 128.3 12.2 9.55
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 5,897.6 361.8 6.13 5,555.0 405.9 7.31
Demand deposits 1,072.1 1,008.4
Bond division payables and other liabilities 164.8 151.8
Shareholders' equity 516.4 486.6
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity / Interest expense $7,650.9 $361.8 $7,201.8 $405.9
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income-tax equivalent basis / Yield $288.6 4.13 % $266.7 4.07 %
Fully taxable equivalent adjustment (9.8) (13.3)
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income $278.8 $253.4
- -------------------------------------------------------------------------------------------------------------------------------
Net interest spread 3.19 % 2.97 %
Effect of interest-free sources used to fund earning assets .94 1.10
- -------------------------------------------------------------------------------------------------------------------------------
Net interest margin 4.13 % 4.07 %
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION> 1989 1988
----------------------------- ---------------------------
Interest Average Interest Average
(Fully taxable equivalent) Average Income/ Yields/ Average Income/ Yields/
(Dollars in millions) Balance Expense Rates Balance Expense Rates
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing liabilities:
Interest-bearing deposits:
Checking/Interest $ 420.0 $ 22.9 5.44 % $ 510.2 $ 23.0 4.51 %
Savings 416.3 21.7 5.20 492.6 25.6 5.19
Money market account 803.1 49.3 6.14 571.3 31.1 5.45
Certificates of deposit under $100,000 and other time 2,207.7 191.8 8.69 1,794.3 142.5 7.94
Certificates of deposit $100,000 and more 547.1 46.4 8.49 536.6 38.9 7.25
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 4,394.2 332.1 7.56 3,905.0 261.1 6.69
Federal funds purchased and securities sold
under agreements to repurchase 601.2 51.6 8.58 603.4 43.3 7.18
Commercial paper and other short-term borrowings 70.5 9.3 13.14 95.5 10.3 10.75
Long-term debt 129.8 12.6 9.76 132.7 12.3 9.30
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 5,195.7 405.6 7.81 4,736.6 327.0 6.90
Demand deposits 1,053.1 1,171.0
Bond division payables and other liabilities 155.2 135.4
Shareholders' equity 469.6 442.1
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity / Interest expense $6,873.6 $405.6 $6,485.1 $327.0
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income-tax equivalent basis / Yield $251.4 4.10 % $243.5 4.30 %
Fully taxable equivalent adjustment (17.4) (20.0)
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income $234.0 $223.5
- -------------------------------------------------------------------------------------------------------------------------------
Net interest spread 2.91 % 3.17 %
Effect of interest-free sources used to fund earning assets 1.19 1.13
- -------------------------------------------------------------------------------------------------------------------------------
Net interest margin 4.10 % 4.30 %
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Average Balance
(Fully taxable equivalent) Growth Rates (%)
(Dollars in millions) 93/92 93/88
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
<S> <C> <C>
Interest-bearing liabilities:
Interest-bearing deposits:
Checking/Interest 10.7 + 0.7 -
Savings 5.4 + 0.6 +
Money market account 5.2 + 22.8 +
Certificates of deposit under $100,000 and other time 6.6 - 5.1 +
Certificates of deposit $100,000 and more 13.1 - 7.2 -
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 1.2 - 6.1 +
Federal funds purchased and securities sold
under agreements to repurchase 47.9 + 11.1 +
Commercial paper and other short-term borrowings 103.4 + 23.8 +
Long-term debt 25.4 - 6.4 -
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 5.9 + 7.0 +
Demand deposits 16.6 + 4.7 +
Bond division payables and other liabilities 16.7 + 8.4 +
Shareholders' equity 10.0 + 7.5 +
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity / Interest expense 8.1 + 6.7 +
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income-tax equivalent basis / Yield
Fully taxable equivalent adjustment
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income
- -------------------------------------------------------------------------------------------------------------------------------
Net interest spread
Effect of interest-free sources used to fund earning assets
- -------------------------------------------------------------------------------------------------------------------------------
Net interest margin
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Certain previously reported amounts have been reclassified to agree with
current presentation. Yields and corresponding income amounts are adjusted to a
fully taxable equivalent. Earning assets yields are expressed net of unearned
income. Rates are expressed net of unamortized debenture cost for long-term
debt. Net interest margin is computed using total net interest income.
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below does hereby constitute and appoint SUSAN SCHMIDT BIES, JAMES F.
KEEN, and CLYDE A. BILLINGS, JR., jointly and each of them severally, his or
her true and lawful attorney-in- fact and agent, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to execute and sign the Annual Report on
Form 10-K for the fiscal year ended December 31, 1993 to be filed with the
Securities and Exchange Commission, pursuant to the provisions of the
Securities Exchange Act of 1934, by First Tennessee National Corporation
("Corporation") and, further, to execute and sign any and all amendments
thereto and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission , granting
unto said attorneys-in-fact and agents, and each of them, or their or his or
her substitute or substitutes, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and confirming all the acts that said
attorneys-in-fact and agents, or any of them, or their or his or her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Ronald Terry Chairman of Board and Chief March 4, 1994
- -------------------------------- Executive Officer & Director
Ronald Terry (principal executive officer)
Susan Schmidt Bies Executive Vice President March 4, 1994
- -------------------------------- and Chief Financial Officer
Susan Schmidt Bies (principal financial officer)
James F. Keen Senior Vice President and March 4, 1994
- -------------------------------- Controller (principal
James F. Keen accounting officer)
Jack A. Belz Director March 4, 1994
- --------------------------------
Jack A. Belz
Robert C. Blattberg Director March 4, 1994
- --------------------------------
Robert C. Blattberg
John Hull Dobbs Director March 4, 1994
- --------------------------------
John Hull Dobbs
Ralph Horn Director March 4, 1994
- --------------------------------
Ralph Horn
</TABLE>
Page 1 of 2
<PAGE> 2
<TABLE>
<S> <C> <C>
Director March , 1994
- -------------------------------- ---
J. R. Hyde, III
Director March , 1994
- -------------------------------- ---
Joseph Orgill, III
Cameron E. Perry Director March 4, 1994
- --------------------------------
Cameron E. Perry
Richard E. Ray Director March 4, 1994
- --------------------------------
Richard E. Ray
Vicki G. Roman Director March 4, 1994
- --------------------------------
Vicki G. Roman
Michael D. Rose Director March 4, 1994
- --------------------------------
Michael D. Rose
William B. Sansom Director March 4, 1994
- --------------------------------
William B. Sansom
Gordon P. Street, Jr. Director March 4, 1994
- --------------------------------
Gordon P. Street, Jr.
Norfleet R. Turner Director March 4, 1994
- --------------------------------
Norfleet R. Turner
</TABLE>
Page 2 of 2
<PAGE> 1
EXHIBIT 99(b)
BAYLOR AND BACKUS
CERTIFIED PUBLIC ACCOUNTANTS
2112 NORTH ROAN STREET
HOME FEDERAL BUILDING, SUITE 801
P.O. BOX 1736
JOHNSON CITY, TENNESSEE 37605
TELEPHONE 615-282-9000
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and
the Board of Directors of
Home Financial Corporation
We have audited the accompanying consolidated statements of financial condition
of Home Financial Corporation (the "Company") and subsidiaries as of December
31, 1991 and 1990, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1991. These financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in Note 27 to the financial statements, certain errors resulting
in understatement of previously recorded tax expense and related liabilities in
each of the three years ended December 31, 1991 and overstatement of the
recorded value of foreclosed real estate as of December 31, 1991, were
discovered during the current year. Accordingly, the 1991, 1990 and 1989
financial statements have been restated to correct those errors.
In our opinion, the consolidated financial statements referred to above, as
restated, present fairly, in all material respects, the finanical position of
Home Financial Corporation and subsidiaries as of December 31, 1991 and 1990,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1991, in conformity with generally
accepted accounting principles.
BAYLOR AND BACKUS
- ---------------------
BAYLOR AND BACKUS
Johnson City, Tennessee
February 21, 1992, Except with Respect to the Information Discussed in Note 27,
as to Which the Date is October 21, 1992.
