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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, 1995
- 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
incorporation or organization) Identification 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:
$1.25 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.
-----
At February 23, 1996, the aggregate market value of the voting stock of the
registrant held by non-affiliates of the registrant was approximately $2.05
billion.
At February 23, 1996, the registrant had 67,314,733 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Shareholders for the year ended 12/31/95
- Parts I, II, and IV.
2. Portions of Proxy Statement furnished to shareholders in connection
with Annual Meeting of Shareholders scheduled for 4/16/95 - Part III.
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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, 1995, the Corporation had total assets of $12.1 billion and ranked first in
terms of total assets among Tennessee-headquartered bank holding companies and
ranked 50th 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 is primarily engaged in the commercial banking business.
Significant operations are, however, conducted in mortgage banking and the bond
division, which are described in more detail in the response to Item 7 of Part
II hereof and Note 18 to the Consolidated Financial Statements. During 1995
approximately 44% of revenues were provided by net interest income and
approximately 56% of revenues were provided by fee income-based business lines.
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 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 1995 it generated gross revenue of approximately
$845.5 million and contributed 97.5% of consolidated net income from continuing
operations. At December 31, 1995, the Bank had $11.1 billion in total assets,
$7.8 billion in total deposits, and $7.5 billion in net loans. Within the
State of Tennessee on December 31, 1995, it ranked first among banks in terms
of total assets and deposits. Nationally, it ranked 63rd in terms of total
assets as of September 30, 1995. On December 31, 1995, the Corporation's
subsidiary banks had 232 banking locations in 20 Tennessee counties, including
all of the major metropolitan areas of the state, 11 banking locations in
Mississippi and 4 banking locations in Arkansas. Subsidiaries of the Bank at
December 31, 1995, provided mortgage banking services through approximately 145
offices in 28 states.
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. Acquisitions which closed during the past three
years are described in Note 2 to the Consolidated Financial Statements
contained in the Corporation's 1995 Annual Report to Shareholders (the "1995
Annual Report"), which note is incorporated herein by reference.
The Corporation provides the following services through its
subsidiaries:
- general banking services for consumers, small businesses,
corporations, financial institutions, and governments
- mortgage banking services
- bond division--primarily sales and underwriting of
bank-eligible securities and mortgage loans and advisory
services
- trust, fiduciary, and agency services
- nationwide check clearing services
- credit card products
- merchant credit card and automated teller machine transaction
processing
- discount brokerage, brokerage, venture capital, equipment
finance and credit life insurance
- investment and financial advisory services
- mutual fund sales as agent
- check processing software and systems.
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All of the Corporation's subsidiaries are listed in Exhibit 21. The
Bank has filed notice with the Comptroller of the Currency ("Comptroller") 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; Overland Park, Kansas; and Dallas, Texas. The subsidiary banks are
supervised and regulated as described below. Highland Capital Management Corp.
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 1993, 1994 or 1995.
Neither the Corporation nor any of its significant subsidiaries is
dependent upon a single customer or very few customers.
At December 31, 1995, the Corporation and its subsidiaries had
approximately 7,476 full-time-equivalent employees, not including 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 "Federal Reserve
Board"). The Corporation is required to file with the Board annual 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.
General
As a bank holding company, the Corporation is subject to the
regulation and supervision of the Federal Reserve 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 permits the Federal Reserve Board to
approve an application by a bank holding company to acquire a bank
located outside the acquiror's principal state of operations without
regard to whether the transaction is prohibited under state law. See
" --Interstate Act." Effective September 29, 1995, the Tennessee Bank
Structure Act of 1974 was amended to, among other things, prohibit
(subject to certain exceptions) a bank holding company from acquiring
a bank for which the home state is Tennessee (a "Tennessee bank") if,
upon consummation, the company would directly or indirectly control
30% or more of the total deposits in insured depository institutions
in Tennessee. As of September 30, 1995, the Corporation estimates
that it held approximately 17% of such deposits. Subject to certain
exceptions, the Tennessee Bank Structure Act prohibits a bank holding
company from acquiring a bank in Tennessee which has been in operation
for less than five years. Tennessee law permits a Tennessee Bank to
establish branches in any county in Tennessee. Management cannot
predict the extent to which the business of the Corporation and its
subsidiaries may be affected by recent federal and Tennessee
legislation relating to interstate and intrastate acquisitions and
branching activities.
The Corporation's subsidiary banks (the "Subsidiary Banks")
are subject to supervision and examination by applicable federal and
state banking agencies. The Bank, First National Bank of Springdale,
Springdale, Arkansas, and First Tennessee Bank National Association
Mississippi, Southaven, Mississippi, are national banking associations
subject to regulation and supervision by the Comptroller as their
primary federal regulator. The remaining Subsidiary Banks are
Cleveland Bank and Trust Company, Cleveland, Tennessee, and Peoples and
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Union Bank, Lewisburg, Tennessee, which are Tennessee state-chartered
banks and Peoples Bank, Senatobia, Mississippi, and Planters Bank,
Tunica, Mississippi, which are Mississippi state-chartered banks,
none of which are members of the Federal Reserve System, and therefore
are subject to the regulations of and supervision by the Federal
Deposit Insurance Corporation (the "FDIC") 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 also
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 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 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 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. Tennessee law
imposes dividend restrictions on Tennessee state banks substantially
similar to those imposed under federal law on national banks, as
described above. Mississippi law prohibits Mississippi state banks
from declaring a dividend without the prior written approval of the
Mississippi Banking Commissioner.
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, 1995, under dividend restrictions imposed
under applicable federal and state laws, the Subsidiary Banks, without
obtaining regulatory approval, could legally declare aggregate
dividends of approximately $236 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
and debt
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covenants.
Transactions with Affiliates
There are various legal restrictions on the extent to which
the Corporation and its nonbank subsidiaries can borrow 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
the Subsidiary 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%, and the minimum ratio of Tier 1 Capital (defined below)
to risk-weighted assets is 4%. 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 certain other intangible assets ("Tier 1
Capital"). The remainder may consist of subordinated debt, other
preferred stock and a limited amount of loan loss reserves. At
December 31, 1995, the Corporation's consolidated Tier 1 Capital and
Total Capital ratios were 8.58% and 11.50%, respectively.
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 certain 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 100 to 200 basis points. The Corporation's
Leverage Ratio at December 31, 1995 was 6.43%. 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, 1995.
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.
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Failure to meet capital guidelines could subject a bank to a
variety of enforcement remedies, including the termination of deposit
insurance by the FDIC, and to certain restrictions on its business and
in certain circumstances to 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.
Management of the Corporation is unable to predict whether or when
capital requirements may be changed and, if so, at what levels and on
what schedule.
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 depositors in the case of bank
subsidiaries) 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 the 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 to 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 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 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, a 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
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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.
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 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, 1995 all of the
Subsidiary Banks were well capitalized under the criteria discussed
above.
FDICIA contains numerous other provisions, including new
accounting, audit and reporting requirements, beginning in 1995
termination of the "too big to fail" doctrine except in special cases,
limitations on the FDIC's payment of deposits at foreign branches, new
regulatory standards in such areas as asset quality, earnings and
compensation and revised regulatory standards for, among other things,
powers of state banks, real estate lending and capital adequacy.
FDICIA also requires that a depository institution provide 90 days
prior notice of the closing of any branches.
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.
Interstate Act
Subject to certain limitations, the federal Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 ("Interstate
Act"), which was enacted on September 29, 1994, permits on an
interstate basis (i) bank holding company acquisitions after September
29, 1995, of banks which satisfy a minimum age requirement, if any,
imposed by state law, which cannot exceed five years; (ii) bank
mergers after May 31, 1997, unless the home state of either bank has
enacted legislation to "opt out" of this provision of the federal
Interstate Act; (iii) bank branching de novo if the host state has
enacted legislation to "opt in" to this provision of the federal
Interstate Act; and (iv) certain bank agency activities after
September 29, 1995. The federal Interstate Act imposes a 30%
intrastate deposit cap on interstate acquisitions, except for the
initial acquisition in the state, unless a different intrastate cap
has been adopted by the applicable state, and a 10% national deposit
cap. With respect to the Interstate Act, Tennessee has adopted a five
year minimum age requirement for banks (see "--General"), has not
"opted out" of the bank merger provisions, and has not "opted in" to
the de novo bank branching provision.
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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 a rollover or renew brokered
deposits unless (i) it is well capitalized or (ii) it is adequately
capitalized and receives a waiver from the FDICIA. 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 31,
1995, 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 increased the assessment
rates for most FDIC-insured depository institutions. Under the
schedule, the premiums initially range from $.23 to $.31 for every
$100 of deposits. The FDIC revised the assessment rate schedule for
the Bank Insurance Fund ("BIF") on August 8, 1995 (effective
retroactively to June 1, 1995) to provide for a range of $.04 to
$.31 for every $100 of deposits. The FDIC again revised the BIF
schedule on November 14, 1995 (effective January 1, 1996) to provide
for a range of $.00 to $.27, subject to a minimum assessment of
$1,000 per semiannual period. 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.
A portion of the deposits of the Bank are insured by the
Savings Association Insurance Fund ("SAIF") as a result of the
acquisition of Home Financial Corporation in 1992. The assessment
rate schedule for SAIF remains at $.23 to $.31 for every $100 of
deposits.
The FDIC is authorized by federal law to raise insurance
premiums in certain circumstances. The law specifies a designated
reserve ratio target of 1.25 percent of estimated insured deposits and
requires the FDIC to set assessments at a level to maintain the target
or, if the reserve ratio is less than the target, to set assessments
rates at a level sufficient to increase the reserve ratio to the
target within one year or as otherwise specified by the FDIC under the
law. The target ratio has been achieved with respect to BIF.
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-of-state banks as well as from savings
and loan
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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 certain 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 Management's Discussion and Analysis
and Glossary sections, including the subsection entitled "Deposits, Other
Sources of Funds, and Liquidity Management," contained in the 1995 Annual
Report, which sections are specifically incorporated herein by reference,
along with all of the tables and graph in the 1995 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
1995 Annual Report that have been incorporated by reference into this
Form 10-K.
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 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 and other state legislatures 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 Management's
Discussion and Analysis and Glossary sections in the 1995 Annual Report along
with all of the tables and graph identified in response to Item 7 of Part II
of this Form 10-K; certain information not contained in the 1995 Annual
Report, but required by Guide 3, is contained in the tables immediately
following:
8
<PAGE> 10
FIRST TENNESSEE NATIONAL CORPORATION
ADDITIONAL GUIDE 3 STATISTICAL INFORMATION
BALANCES AT DECEMBER 31
(Thousands)
(Unaudited)
<TABLE>
<CAPTION>
II. Investment
Portfolio
(Book Value): 1995 * 1994 * 1993 **
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage-backed securities &
collateralized mortgage
obligations $1,681,593 $1,678,238 $1,677,277
U.S. Treasury and other
U.S. government agencies 264,837 350,276 443,848
States and political subdivisions 104,082 77,522 93,900
Other 60,887 64,879 96,280
---------------------------------------------------------
Total $2,111,399 $2,170,915 $2,311,305
- - ------------------------------------------------------------------------------------------------
* Balances represent securities held - to - maturity
and securities available - for - sale.
** Balances represent the investment portfolio.
<CAPTION>
III. Loan
Portfolio 1995 1994 1993 1992 1991
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $3,330,929 $2,991,231 $2,694,416 $2,348,739 $2,376,048
Consumer 2,525,889 2,263,007 1,819,950 1,342,650 1,131,176
Credit card receivables 529,104 475,489 428,075 412,207 402,822
Real estate construction 238,863 160,368 75,844 48,598 107,466
Permanent mortgage 689,458 591,094 514,424 603,572 651,856
Nonaccrual 19,040 16,853 27,639 32,782 50,729
---------------------------------------------------------------------------------------
Total $7,333,283 $6,498,042 $5,560,348 $4,788,548 $4,720,097
- - ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
VII. Short-Term
Borrowings 1995 1994 1993
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased and
securities sold under
agreements to repurchase $1,674,225 $1,457,517 $1,025,124
Commercial paper 29,402 67,820 32,283
Other short-term borrowings 57,118 284,702 900,390
-----------------------------------------------------
Total $1,760,745 $1,810,039 $1,957,797
- - -----------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 11
FOREIGN OUTSTANDINGS AT DECEMBER 31
<TABLE>
<CAPTION>
1995 1994 1993
---------------------- --------------------- -----------------------
% TOTAL % Total % Total
(Dollars in thousands) AMOUNT ASSETS Amount Assets Amount Assets
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BY COUNTRY:
Israel $2,085 .02% $2,118 .02% $2,142 .02%
Canada 185 -- 124 -- 296 --
Indonesia 153 -- -- -- 715 .01
Japan 119 -- 645 .01 585 .01
United Kingdom 101 -- 68 -- 2,454 .02
Saudi Arabia 74 -- -- -- 241 --
Thailand -- -- 446 -- -- --
All other 245 -- 177 -- 165 --
- - ----------------------------------------------------------------------------------------------------------------
Total $2,962 .02% $3,578 .03% $6,598 .06%
================================================================================================================
BY TYPE:
Loans:
Banks and other financial institutions $ 364 --% $ 657 .01% $4,073 .04%
Governments and other institutions 2,000 .02 2,000 .02 2,000 .02
- - ----------------------------------------------------------------------------------------------------------------
Total loans 2,364 .02 2,657 .03 6,073 .06
Cash 425 -- 344 -- 478 --
Customers' acceptances 88 -- 523 -- 47 --
Accrued interest receivable 85 -- 54 -- -- --
- - ----------------------------------------------------------------------------------------------------------------
Total $2,962 .02% $3,578 .03% $6,598 .06%
================================================================================================================
</TABLE>
MATURITIES OF SHORT-TERM PURCHASED FUNDS AT DECEMBER 31, 1995
<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 $ 260,519 $86,488 $76,376 $ 96,729 520,112
Federal funds purchased and securities
sold under agreements to repurchase 1,674,225 -- -- -- 1,674,225
Commercial paper and other short-term borrowings 80,735 76 151 5,558 86,520
- - ---------------------------------------------------------------------------------------------------------------------
Total $2,015,479 $86,564 $76,527 $102,287 $2,280,857
=====================================================================================================================
</TABLE>
10
<PAGE> 12
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, 1996. 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)
Age: 48 of the Corporation and the Bank
and Manager of Risk Management (1995)
J. Kenneth Glass President - Tennessee Banking Group
Age: 49 of the Bank (1993) and Executive Vice President
of the Corporation (1995)
Ralph Horn Chairman of the Board (1996) and Chief Executive
Age: 54 Officer (1994) of the Corporation and the Bank
and President of the Corporation (1991) and the
Bank (1993)
Harry A. Johnson, III Executive Vice President (1990) and
Age: 47 General Counsel (1988) of the
Corporation and the Bank
James F. Keen Senior Vice President
Age: 45 and Controller of the Corporation (1988) and
principal accounting officer
John C. Kelley. Jr. President - Memphis Banking Group of
Age: 51 the Bank (1993) and Executive Vice President of the
Corporation (1991)
</TABLE>
11
<PAGE> 13
<TABLE>
<S> <C>
George Perry Lewis Executive Vice President of the
Age: 57 Bank (1976) and Money Management
Group Manager (1984)
John P. O'Connor, Jr. Executive Vice President of the
Age: 52 Corporation (1990) and the Bank (1987)
and Chief Credit Officer (1988)
Elbert L. Thomas, Jr. Executive Vice President (1995) and
Age: 47 Chief Financial Officer (1995)
of the Corporation and the Bank
G. Robert Vezina Executive Vice President of the
Age: 61 Corporation and the Bank (1990) and
Personnel Division Manager (1984)
</TABLE>
Each of the executive officers has been employed by the Corporation or
its subsidiaries during each of the last five years. Prior to February of
1995, Ms. Bies was Chief Financial Officer of the Corporation and Bank. Mr.
Glass was Executive Vice President of the Bank and Tennessee Banking Group
Manager prior to January 1993. 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. Keen was
Senior Vice President of the Bank prior to April 1993 and Controller of the
Bank prior to January 1993. Mr. Kelley was Executive Vice President of the
Bank and Corporate Services Group Manager prior to January of 1993. Mr. Thomas
was a Senior Vice President of the Corporation and the Bank prior to December
1995. From January of 1993 to February of 1995, Mr. Thomas was Manager of
Corporate Development. Prior to January of 1993, he was Manager of Corporate
Tax.
PART II
ITEM 5
MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Corporation's common stock, $1.25 par value, trades
over-the-counter on the Nasdaq Stock Market's National Market System under the
symbol FTEN. As of December 31, 1995, there were 8,796 shareholders of record
of the Corporation's common stock. 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 19 to the
Consolidated Financial Statements, and the Deposits, Other Sources of Funds,
and Liquidity Management subsection of the Management's Discussion and
Analysis section of the 1995 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.
ITEM 6
SELECTED FINANCIAL DATA
The information called for by this Item is incorporated herein by
reference to the Selected Financial Data Table in the 1995 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 the Management's Discussion and Analysis section and Glossary
section in the 1995 Annual Report and the following tables and graph in the
1995 Annual Report:
12
<PAGE> 14
<TABLE>
<CAPTION>
Tables: Graph:
- - ------- ------
<S> <C>
Acquisitions 1995 Net Interest Income and Net
Analysis of Noninterest Income Interest Margin
Net Interest Income and Earning Assets
Analysis of Changes In Net Interest Income
Rate Sensitivity Analysis at December 31, 1995
Analysis of Noninterest Expense
Maturities of Investment Securities at December 31, 1995
Maturities of Loans at December 31, 1995
Credit Ratings at December 31, 1995
Regulatory Capital at December 31, 1995
Analysis of Allowance for Loan Losses
Loans and Foreclosed Real Estate at December 31
Net Charge-Offs as a Percentage of Average Loans
Nonperforming Assets at December 31
Changes in Nonperforming Assets
Summary of Quarterly Financial Information
Consolidated Average Balance Sheet and
Related Yields and Rates
Consolidated Historical Performance
Statements of Income
Selected Financial Data
</TABLE>
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item is incorporated herein by
reference to the Consolidated Financial Statements and the notes thereto and to
the Summary of Quarterly Financial Information Table in the 1995 Annual Report.
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 mailed
to shareholders in connection with the Corporation's Annual Meeting of
Shareholders scheduled for April 16, 1996, (the "1996 Proxy Statement"). 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 1996 Proxy Statement.
13
<PAGE> 15
ITEM 11
EXECUTIVE COMPENSATION
The information called for by this Item is incorporated herein by
reference to the "Executive Compensation" section of the 1996 Proxy Statement
(excluding the Board Compensation Committee Report and the Total Shareholder
Return 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 1996 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 1996 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:
- Consolidated Statements of Condition as of December 31, 1995
and 1994
- Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993
- Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1995, 1994 and 1993
- Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993
- Notes to the Consolidated Financial Statements
- Report of Independent Public Accountants
The consolidated financial statements of the Corporation, the
notes thereto, and the report of independent public
accountants, in the 1995 Annual Report, as listed above, are
incorporated herein by reference.
Financial Statement Schedules: Not applicable.
Exhibits:
(3)(i) Restated Charter of the Corporation, as amended.
(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 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
14
<PAGE> 16
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 12 in the Corporation's 1995 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.
*(10)(a) Management Incentive Plan, as amended.(1)
*(10)(b) 1983 Restricted Stock Incentive Plan, as amended.(1)
*(10)(c) 1989 Restricted Stock Incentive Plan, as amended.(1)
*(10)(d) 1992 Restricted Stock Incentive Plan.(1)
*(10)(e) 1984 Stock Option Plan, as amended.(1)
*(10)(f) 1990 Stock Option Plan, as amended.(1)
*(10)(g) Survivor Benefits Plan, as amended.(1)
*(10)(h) Directors and Executives Deferred Compensation Plan, as
amended.(1)
*(10)(i) Pension Restoration Plan, as amended and restated.
*(10)(j) Director Deferral Agreements (2) with schedule.
*(10)(k) Severance Agreements dated 12-15-92 (2) with schedule.
*(10)(l) 1995 Employee Stock Option Plan.
*(10)(m) Non-Employee Directors' Deferred Compensation Stock Option
Plan.
*(10)(n) Ronald Terry post-retirement arrangement.
(11) Statement re: computation of per share earnings.
(13) The portions of the 1995 Annual Report to Shareholders
which have been incorporated by reference into this
Form 10-K.
(21) Subsidiaries of the Corporation.
(23) Accountants' Consents
(24) Powers of Attorney
(27) Financial Data Schedule (for SEC use only)
(99) Annual Report on Form ll-K for the Corporation's Savings
Plan and Trust, for fiscal year ended 12-31-95, as
authorized by SEC Rule 15d-21 (to be filed as an amendment
to Form lO-K).
* 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(k) and 10(l), respectively,
contained in the Corporation's 1992 Annual Report on
Form 10-K.
(b) A report on Form 8-K (with a Date of Report of November 1, 1995) was
filed on November 2, 1995, in response to Item 5, Other Events,
disclosing the Corporation's earnings release for the third quarter of
1995. The Report contained as exhibits the earnings release which had
attached to it unaudited summary statements of income and average
balance sheets for the three and six month periods ended September 30,
1995, and a September 30, 1995 period end balance sheet; the form of
Indenture for Subordinated Debt Securities to be entered into by the
Corporation and The Bank of New York ("BONY"), as Trustee; and The
Statement of Eligibility, Form T-1, for BONY.
15
<PAGE> 17
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.
FIRST TENNESSEE NATIONAL CORPORATION
Date: March 25, 1996 By: Elbert L. Thomas, Jr.
-----------------------------------
Elbert L. Thomas, Jr.
Executive Vice President and
Chief Financial Officer
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>
Ralph Horn* Chairman of the Board, President and March 25, 1996
- - ---------------------- Chief Executive Officer (principal executive
Ralph Horn officer) and a Director
Elbert L. Thomas, Jr.* Executive Vice President March 25, 1996
- - ---------------------- and Chief Financial Officer
Elbert L. Thomas, Jr. (principal financial officer)
James F. Keen* Senior Vice President March 25, 1996
- - ---------------------- and Controller (principal
James F. Keen accounting officer)
Jack A. Belz* Director March 25, 1996
- - ----------------------
Jack A. Belz
Robert C. Blattberg* Director March 25, 1996
- - ----------------------
Robert C. Blattberg
J. R. Hyde, III* Director March 25, 1996
- - ----------------------
J. R. Hyde, III
R. Brad Martin* Director March 25, 1996
- - ----------------------
R. Brad Martin
Joseph Orgill, III* Director March 25, 1996
- - ----------------------
Joseph Orgill, III
Richard E. Ray* Director March 25, 1996
- - ----------------------
Richard E. Ray
Vicki G. Roman* Director March 25, 1996
- - ----------------------
Vicki G. Roman
</TABLE>
16
<PAGE> 18
<TABLE>
<S> <C> <C>
Michael D. Rose* Director March 25, 1996
- - ----------------------
Michael D. Rose
William B. Sansom* Director March 25, 1996
- - ----------------------
William B. Sansom
Gordon P. Street, Jr.* Director March 25, 1996
- - ----------------------
Gordon P. Street, Jr.
Ronald Terry* Director March 25, 1996
- - ----------------------
Ronald Terry
*By: March 25, 1996
Clyde A. Billings, Jr.
-----------------------------------------
Clyde A. Billings, Jr.
As Attorney-in-Fact
</TABLE>
17
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Item No. Description
- - -------- -----------
<S> <C>
(3)(i) Restated Charter of the Corporation, as amended.
(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 Registration Statement on
Form 8-A filed 9-8-89, 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 12
in the Corporation's 1995 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.
*(10)(a) Management Incentive Plan, as amended. (1)
*(10)(b) 1983 Restricted Stock Incentive Plan, as amended. (1)
*(10)(c) 1989 Restricted Stock Incentive Plan, as amended. (1)
*(10)(d) 1992 Restricted Stock Incentive Plan. (1)
*(10)(e) 1984 Stock Option Plan, as amended. (1)
*(10)(f) 1990 Stock Option Plan, as amended. (1)
*(10)(g) Survivor Benefits Plan, as amended. (1)
*(10)(h) Directors and Executives Deferred Compensation Plan, as amended. (1)
*(10)(i) Pension Restoration Plan, as amended and restated.
*(10)(j) Director Deferral Agreements (2) with Schedule.
*(10)(k) Severance Agreements dated 12-15-92 (2) with schedule.
*(10)(l) 1995 Employee Stock Option Plan.
*(10)(m) Non-Employee Directors Deferred Compensation Stock Option Plan.
*(10)(n) Ronald Terry post-retirement arrangement.
(11) Statement re: computation of per share earnings.
</TABLE>
18
<PAGE> 20
<TABLE>
<S> <C>
(13) The portions of the 1995 Annual Report to Shareholders which have been incorporated by reference into this
Form 10-K.
(21) Subsidiaries of the Corporation.
(23) Accountants' Consents
(24) Powers of Attorney
(27) Financial Data Schedule (for SEC use only)
(99) Annual Report on Form ll-K for the Corporation's Savings Plan and Trust, for fiscal year ended December 31, 1995,
as authorized by SEC Rule 15d-21 (to be filed as an amendment to Form 10-K).
</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(k) and 10(1), respectively,
contained in the Corporation's 1992 Annual Report on
Form 10-K.
19
<PAGE> 1
EXHIBIT 3(i)
RESTATED CHARTER
OF
FIRST NATIONAL HOLDING CORPORATION
Under Section 48-304 of the General Corporation Act
Pursuant to the provisions of Section 48-304 of the Tennessee
General Corporation Act, the undersigned Corporation adopts the follow-
ing Restated Charter:
PART I.
1. NAME.
The name of the Corporation shall be: FIRST TENNESSEE NATIONAL
CORPORATION.
2. DURATION.
The duration of the Corporation is perpetual.
3. ADDRESS.
The address of the principal office of the Corporation in the
State of Tennessee shall be: 165 Madison Avenue, Memphis, Tennessee
38103.
4. PROFIT.
The Corporation is for profit.
5. PURPOSES.
The purpose or purposes for which the Corporation is organized
are, to the extent permitted by law:
(a) To subscribe for, purchase, lease or otherwise
acquire and to receive, own, hold, sell, exchange, lease,
mortgage, pledge, assign or otherwise dispose of, and
otherwise deal in and with "securities" (as such term is
herein defined) issued or created by, or other property
(real or personal) of any person, corporation, associa-
tion, firm, trust, organization or other entity whatso-
ever, including but not limited to this corporation and
any national banking association, state-chartered bank,
savings bank and trust company, wherever located or
organized and whether public, private or municipal, of
this state, or any district territory, subdivision,
municipality or department thereof, or any other state or
any district, territory, subdivision, municipality or
department thereof, or any country, nation or government,
or any district, territory, subdivision, municipality or
<PAGE> 2
department thereof; to possess and exercise any and all
rights, powers and privileges of ownership of such securi-
ties or other property, including without limitation the
right to vote on such securities; and to issue or deliver
in payment or exchange, in whole or in part, for any such
securities or other property, its own stock, bonds, notes
or other obligations, or to make payment for any such
securities or other property by any other lawful means;
and to do any and all acts and things necessary or advisable
for the preservation, protection, improvement or enhance-
ment in value of any such securities or other property.
The term "securities" as used in this Article 5 shall
mean any and all shares, stocks, bonds, debentures, notes,
mortgages, acceptances, evidences of indebtedness or
obligations, certificates of interest or participation
in any property or venture, scrip, interim receipts,
voting trust certificates, instruments or interests
commonly known as securities, and any and all certificates
of interest or participation in, or of deposit of, any
of the foregoing, or receipts for, guaranties of, or
warrants or rights to subscribe for or purchase any of the
foregoing.
(b) To promote, finance and assist, financially or
otherwise, whether by loan, guaranty, subsidy or otherwise,
any person, corporation, partnership, association, firm,
trust, organization or other entity in which the Corpora-
tion shall have any interest; to guarantee the payment of
dividends on any stock or the payment of the obligations
issued or incurred by any such person, corporation,
partnership, association, firm, trust, organization or
other entity, to issue its own stock, bonds or other
obligations in payment or exchange for any securities or
other property acquired (pursuant to a merger, consolida-
tion or otherwise) by any such person, corporation,
partnership, association, firm, trust, organization or
other entity; and to do any and all other acts and things
for the enhancement, protection or preservation of any
securities which are in any manner, directly or indirectly,
owned, held or guaranteed by the Corporation.
(c) To render assistance, service, counsel and advice
to, and to act as representative in any capacity (whether
managing, operating, financial, purchasing, selling,
advertising or otherwise) of any person, corporation,
partnership, association, firm, trust, organization or
other entity, including without limitation those in which
the Corporation shall have any interest.
(d) To acquire by purchase, lease, exchange or
otherwise, to own, hold, use, manage, develop, improve
and to sell, lease, mortgage, exchange and otherwise deal
in, real estate and any interest or right therein and
personal property of every class and description, either
for its own account on for the account of others, to erect,
construct, rebuild, repair, manage and control, lease,
buy and sell, any and all kinds of and interest in real
estate and personal property; and to engage generally in
the business of operating and leasing real estate and
personal property of every character and description.
(e) To buy, sell, produce, manufacture and dispose
of all kinds of goods, documents, instruments, general
intangibles, chattel paper, accounts, contract rights,
-2-
<PAGE> 3
wares, foods, potables, merchandise, manufactures,
commodities, furniture, machinery, tools, supplies and
products of any kind, character or description whatsoever,
and generally to engage in any mercantile, manufacturing
or commercial business of any kind or character whatsoever
throughout the world, and to do all things incidental to
any such business or businesses.
(f) To enter into any lawful arrangements for sharing
profits, union of interest, reciprocal concession or
cooperation, with any corporation, association, partner-
ship, syndicate, entity, person or governmental, municipal
or public authority, domestic or foreign in the carrying
on of any business which the Corporation is authorized to
carry on or any business or transaction deemed necessary,
convenient or incidental to carrying out any of the purposes
of the Corporation.
(g) To issue bonds, debentures, convertible deben-
tures, notes, commercial paper, or other obligations of
this Corporation, from time to time for any of the
objects or purposes of the Corporation and to secure
the same by mortgage, pledge, deed of trust or otherwise.
(h) To guarantee obligations of any other entity
and to secure such guaranties by mortgage, pledge or
otherwise by vote of a majority of the entire Board of
Directors.
(i) To indemnify the officers and directors during
their term of office or thereafter for actions arising
during their term of office, either directly or through
the purchase of insurance, for expenditures as parties
to suits by or in the right of the Corporation or other
than by or in the right of the Corporation to the extent
permitted by the statutes of Tennessee.
(j) Without in any way limiting any of the objects
or purposes or powers, whether primary or secondary of
the Corporation, it is hereby expressly declared and
provided that the Corporation shall have power to do all
acts or things necessary, incidental or convenient to
do, or calculated, directly or indirectly, to promote
the interest of the Corporation, or enhance the value or
render profitable any of its property or rights; and in
carrying on its business or businesses, or for the
purpose of obtaining or furthering any of its objects,
to do any and all things and exercise any and all powers,
rights and privileges which a corporation for profit may
now or hereafter be permitted to do or to exercise under
the laws of the State of Tennessee; and to do any and
all of the acts and things herein set forth to the sane
extent as natural persons could do, and in any part of
the world, as principal, factor, agent, contractor,
trustee or otherwise, either alone or in syndicates, or
otherwise in conjunction with any person, entity, syndi-
cate, partnership, association or corporation, governmen-
tal or public bodies or authorities of any kind, domestic
or foreign; to establish and maintain offices and agencies
and to exercise all or any of its corporate powers and
rights throughout the world.
(k) To engage, in addition to the foregoing, in
any lawful act or activity for which corporations may be
-3-
<PAGE> 4
organized under the Tennessee General Corporation Act.
(1) It is the intention that the objects, purposes
and powers specified in the fifth paragraph hereof shall,
except where otherwise specified in said paragraph, be no-
wise limited or restricted by reference to or inference from
the terms of any other clause or paragraph in this Charter,
but that the objects, purposes and powers specified in the
fifth paragraph and in each of the clauses or paragraphs of
this Charter shall be regarded as independent objects,
purposes and powers.
The foregoing clauses shall be construed both as purposes and
powers, and it is hereby expressly provided that the foregoing enumera-
tion of specific powers shall not be held to limit or restrict in any
manner the powers of this Corporation.
6. SHARES.
The maximum number of shares which the Corporation shall have
authority to issue is as follows:
(a) Five Million (5,000,000) shares of common stock of a par
value of $5.00 each;
(b) Five Hundred Thousand (500,000) shares of preferred stock,
having no par value.
7. COMMENCEMENT OF BUSINESS.
The Corporation will not commence business until consideration
of One Thousand Dollars ($1,000.00) has been received for the issuance
of shares.
8. PREEMPTIVE RIGHTS.
No shareholder of the Corporation shall because of his
ownership of stock have a preemptive or other right to purchase, subscribe for
or take any part of any stock or any part of the notes, debentures, bonds
or other securities convertible into or carrying options or warrants
to purchase stock of the Corporation issued, optioned or sold by it
after its incorporation. Any part of the capital stock and any part
of the notes, debentures, bonds or other securities convertible into
or carrying options or warrants to purchase stock of the Corporation
authorized by this Restated Charter or by any amendment duly filed,
may at any time be issued, optioned for sale and sold or disposed of
by the Corporation pursuant to a resolution of its Board of Directors
-4-
<PAGE> 5
to such persons and upon such terms as may to such Board seem proper
without first offering such stock or securities or any part thereof
to existing shareholders.
9. COMMON STOCK.
The entire voting power of the Corporation shall be vested
in the common stock, provided, however, that the Board of Directors
is authorized by this Charter to issue, from time to time, serial
preferred stock of the Corporation in one or more series each of which
constitutes a separate class, and prior to issuance to fix and determine
the distinguishing characteristics and rights, privileges and immunities
of each such series. Such characteristics and rights, privileges and
immunities may include, but are not limited to, the voting rights of
such serial preferred stock and such voting rights of such serial
preferred stock may, if so determined by the Board of Directors prior
to the issuance of such serial preferred stock, give to the holders
of such serial preferred stock voting rights equal to those of the
holders of the common stock.
10. SERIAL PREFERRED STOCK.
The shares of any preferred class may be divided into and issued
in series. If the shares of any such class are to be issued in series,
then each series shall be so designated to distinguish the series
thereof from all the shares of all other series and classes. All
shares of the same series shall be identical. Any or all of the
series of any class may vary in the relative rights and preferences
as between the different series to the extent permitted by the statutes
of Tennessee. The Board of Directors shall have the authority to
divide any or all such classes into series and, within the limitation
of the statutes of the State of Tennessee and particularly Sections
48-502 and 48-503, fix and determine the relative rights and preferences
of the shares of any series so established.
The Board of Directors is authorized to issue the preferred
stock, without par value, in one or more series, from time to time
with such voting powers, full or limited, but not to exceed one vote
-5-
<PAGE> 6
per share or without voting powers, and with such designations,
preferences and relative participating, optional or other special
rights and qualifications, limitations and restrictions thereof, as
may be provided in a resolution or resolutions adopted by the Board of
Directors. The authority of the Board of Directors shall include,
but not be limited to, the determination or fixing of the following
with respect to shares of such class or any series thereof: (1)
the number of shares and designation; (2) the dividend rate and
whether dividends are to be cumulative; (3) whether shares are to be
redeemable and, if so, the terms and amount of any sinking fund for
the purchase or redemption of such shares; (4) whether shares shall
be convertible and, if so, the terms and provisions applying; (5)
what voting rights are to apply, if any, not to exceed one vote per
share; and (6) what restrictions are to apply, if any, on the issue
or re-issue of any additional preferred stock.
11. ADDITIONAL POWERS.
(a) The Corporation shall have the right to purchase, take,
receive or otherwise acquire, hold, own, pledge, transfer or otherwise
dispose of its own shares; but purchases of its own shares, whether
direct or indirect, shall be made only to the extent of unreserved
and unrestricted earned or capital surplus available therefor.
(b) Other provisions: Management. 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 power:
(1) To hold meetings, to have one or more offices,
and to keep the books of the corporation, except as other-
wise expressly provided by law, at such places, whether
within or without the State of Tennessee, as may from
time to time be designated by the Board.
(2) To make, alter and repeal bylaws of the cor-
poration, subject to the reserved power of the share-
holders to make, alter and repeal bylaws.
(3) To approve the issuance or sale of any of its
authorized but unissued shares of any class, bonds or
other securities and rights or options entitling the
holders thereof to purchase from the corporation shares
-6-
<PAGE> 7
of any class or classes to approve the purchase or other
acquisition of or the reissuance, sale or other disposi-
tion of treasury shares; to fix the consideration to be
received for such shares of any class, bonds or other
securities, rights or options and to cause to be issued
any such shares of any class, bonds or other securities,
rights or options.
(4) To use or apply any funds of the corporation
lawfully available therefor for the purchase or acquisi-
tion of shares of the capital stock or bonds or other
securities of the corporation, in the market or otherwise,
at such price as may be fixed by the Board, and to such
extent and in such manner and for such purposes and upon
such terms as the Board may deem expedient and as may be
permitted by law, and to sell, exchange, transfer, re-
issue or cancel such shares of the capital stock of the
corporation upon such terms and for such consideration
as it may deem proper.
(5) To determine whether and to what extent and at
what times and places and under what conditions and regu-
lations the accounts and books of the corporation, or
any of them, shall be open to the inspection of the share-
holders, and no shareholder shall have any right to
inspect any account, record, book or document of the
corporation, except as conferred by the laws of the State
of Tennessee or as authorized by the Board.
(6) To remove any director for cause as defined
by the laws of the State of Tennessee by a vote of a
majority of the entire Board of Directors.
(7) To fill any newly created directorships.
resulting from an increase in the number of directors
and any vacancies occurring in the Board for any reason,
(including removal of directors without cause by the
shareholders or for cause by the Board of Directors or the
shareholders.)
(8) To designate an executive committee consisting
of three or more directors and such other committees
consisting of three or more directors and to delegate to
such executive committee or other committees all such
authority of the Board that it deems desirable within the
limits prescribed by the statutes of the State of Tennessee.
(9) To designate the officer or officers of the
corporation who shall vote the shares of capital stock
held by the corporation in other corporations and to
authorize the execution of any proxy that may be necessary
in connection therewith.
PART II.
1. The date of filing of the original Charter by the Secretary
of State was September 23, 1968.
2. The Restated Charter restates the text of the Charter, as
previously amended and restated, and further amends or changes the
-7-
<PAGE> 8
Charter as specified below. The Restated Charter was duly authorized
at a meeting of the shareholders on October 26, 1971:
PART I:
(a) Paragraph 1 hereby deleted in its entirety and
Article 1 of Part I is substituted therefor;
(b) Paragraph 3 is hereby deleted in its entirety
and Article 3 of Part I is substituted therefor;
(c) Paragraph 5 is hereby deleted in its entirety and
Article 5 of Part I is substituted therefor;
(d) Paragraph 6 is hereby deleted in its entirety
and Article 6 of Part I is substituted therefor;
(e) Paragraph 8 is hereby deleted in its entirety
and there are added to the Charter the following Articles
of Part 1:
Article 8, which restates but does not change
the provisions on preemptive rights;
Article 9;
Article 10;
Article 11.
DATED October 26, 1971.
FIRST NATIONAL HOLDING CORPORATION
By: /s/ Lee Welch
Secretary
<PAGE> 9
ARTICLES OF AMENDMENT TO THE
CHARTER OF
FIRST TENNESSEE NATIONAL CORPORATION
Pursuant to the provisions of Section 48-303 of the
Tennessee General Corporation Act, the undersigned Corporation
adopts the following articles of amendment to its Charter:
1. The name of the corporation is First Tennessee
National Corporation.
2. The amendment adopted is:
Article VI is hereby amended to read as
follows:
6. SHARES.
The maximum number of shares which
the Corporation shall have authority
to issue is as follows:
(a) Fifteen million (15,000,000) shares
of common stock of a par value of
$2.50 each;
(b) Five hundred thousand (500,000)
shares of preferred stock, having
no par value.
3. The amendment was duly adopted at a meeting of
the shareholders on April 17, 1973.
4. The increase in authorized shares provides
sufficient shares for issuance in connection
with a two for one stock split approved by
the shareholders on April 17, 1973.
The authorized common shares with a par value
of $5.00 a share are hereby changed to common
shares with a par value of $2.50 a share. The
aggregate amount of the stated capital of the
Corporation which shall be represented by the
common shares of the par value of $2.50 a share
that shall be issued and outstanding upon the
taking effect of the stock split, shall be the
same as the aggregate amount of the stated
capital of the Corporation which shall be
represented by the common shares of the
par value of $5.00 a share that shall be
issued as outstanding immediately prior
to the taking effect of the stock split.
5. The amendment is to be effective April 27, 1973.
DATE: April 17, 1973 FIRST TENNESSEE NATIONAL CORPORATION
BY: /s/ Lee Welch
Lee Welch, Secretary
<PAGE> 10
ARTICLES OF AMENDMENT TO
THE CHARTER OF
FIRST TENNESSEE NATIONAL CORPORATION
Pursuant to the provisions of Section 48-303 of the Tennessee
General Corporation Act, the undersigned Corporation adopts the follow-
ing Articles of Amendment to its Charter:
1. The name of the Corporation is First Tennessee National
Corporation.
2. The Amendment is that Section 11(b) (8) be amended to read as
follows and Section 11(b) (10) be adopted to read as follows:
"(8) To designate an Executive Committee consisting of two
or more directors and such other committees consisting of
two or more persons, who may or may not be directors, and
to delegate to such Executive Committee and other committees
all such authority of the Board that it deems desirable within
the limits prescribed by the statutes of the State of Tennessee."
"(10) To take any action required or permitted of the Board
without a meeting on written consent, setting forth the action
so taken, signed by all directors entitled to vote thereon."
3. The Amendment was duly adopted at a meeting of the shareholders
on April 15, 1980.
4. The Amendment shall be effective when filed by the Secretary of
State.
Date: April 15, 1980 First Tennessee National Corporation
By: /s/ Harry A. Johnson, III
Harry A. Johnson, III,
Assistant Secretary
<PAGE> 11
ARTICLES OF AMENDMENT
TO CHARTER OF
FIRST TENNESSEE NATIONAL CORPORATION
Pursuant to the provisions of Section 48-1-303 of the Tennessee
General Corporation Act, the undersigned corporation adopts the
following Articles of Amendment to its Charter:
1. The name of the corporation is First Tennessee National
Corporation.
2. The amendment adopted is as follows:
Delete Article 6 of the Charter in its entirety and
substitute therefor the following:
6. SHARES.
The maximum number of shares which the Corporation
shall have authority to issue is as follows:
(a) Twenty-five million (25,000,000)
shares of common stock of a par
value of $2.50 each; and
(b) Five hundred thousand (500,000)
shares of preferred stock having no
par value.
3. The amendment was duly adopted at a meeting of the shareholders
on April 16, 1985.
4. The amendment is to be effective when filed by the Secretary of
State.
FIRST TENNESSEE NATIONAL CORPORATION
/s/ Lenore S. Halle
By: Lenore S. Halle, Secretary
Date: April 16, 1985
<PAGE> 12
ARTICLES OF AMENDMENT
TO CHARTER OF
FIRST TENNESSEE NATIONAL CORPORATION
Pursuant to the provisions of Section 48-1-303 of the
Tennessee General Corporation Act, the undersigned corporation
adopts the following Articles of Amendment to its Charter:
1. The name of the corporation is First Tennessee National
Corporation.
2. The amendments adopted are as follows:
(1) Section (a) of Article 6 of the Company's Charter is
amended to read as follows:
"(a) Fifty million (50,000,000) shares of common
stock of a par value of $2.50 each; and".
(2) Section (b) of Article 6 of the Company's Charter is
amended to read as follows:
"(b) Five million (5,000,000) shares of preferred
stock, having no par value."
(3) Article 9 of the Company's Charter is amended to read
in its entirety as follows:
"9. COMMON STOCK.
The entire voting power of the Corporation shall be
vested in the common stock; provided, however, that
the Board of Directors is authorized by this Charter
to issue, from time to time, serial preferred stock of
the Corporation in one or more series each of which
constitutes a separate class, and prior to issuance to
fix and determine the distinguishing characteristics
and rights, privileges and immunities of each such
series. Such characteristics and rights, privileges
and immunities may include, but are not limited to,
the voting rights of such serial preferred stock, and
such voting rights of such serial preferred stock may,
if so determined by the Board of Directors prior to
the issuance of such serial preferred stock, give to
the holders of such serial preferred stock voting
rights equal to, greater than or less than those of
the holders of common stock."
(4) The second paragraph of Article 10 of the Company's
Charter is amended to read as follows:
"The Board of Directors is authorized to issue the
preferred stock, without par value, in one or more
series, from time to time, with such voting powers,
full or limited, or without voting powers, and with
such designations, preferences and relative partici-
pating, optional or other special rights and quali-
fications, limitations and restrictions thereof, as
may be provided in a resolution or resolutions adopted
by the Board of Directors. The authority of the Board
of Directors shall include, but not be limited to, the
determination or fixing of the following with respect
to shares of such class or any series thereof: (1)
the number of shares and designation; (2) the dividend
rate and whether dividends are to be cumulative; (3)
whether shares are to be redeemable and, if so, the
<PAGE> 13
terms and amount of any sinking fund for the purchase
or redemption of such shares; (4) whether shares shall
be convertible and, if so, the terms and provisions
applying; (5) what voting rights are to apply, if any;
and (6) what restrictions are to apply, if any, on the
issue or re-issue of any additional preferred stock."
(5) A new Article 12 of the Company's Charter is hereby
adopted as follows:
"12. NUMBER, ELECTION AND TERMS OF DIRECTORS.
(a) The number of directors of the Corporation which
shall constitute the entire Board of Directors shall
be fixed from time to time in the Bylaws of the Corpo-
ration. Any such determination shall continue in
effect unless and until changed, but no such changes
shall affect the term of any director then in office.
Upon the adoption of this Article 12, the directors
shall be divided into three classes (I, II and III),
as nearly equal in number as possible. The initial
term of office for members of Class I shall expire at
the annual meeting of stockholders in 1988; the
initial term of office for members of Class II shall
expire at the annual meeting of shareholders in 1989;
and the initial term of office for members of Class
III shall expire at the annual meeting of shareholders
in 1990. At each annual meeting of shareholders
following such initial classification and election,
directors elected to succeed those directors whose
terms expire shall be elected for a term of office to
expire at the third succeeding annual meeting of
shareholders after their election, and shall continue
to hold office until their respective successors are
duly elected and qualified. In the event of any
increase in the number of directors of the Corpora-
tion, the additional directors shall be so classified
that all classes of directors have as nearly equal
numbers of directors as may be possible. In the event
of any decrease in the number of directors of the
Corporation, all classes of directors shall be
decreased equally as nearly as may be possible.
(b) 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.
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<PAGE> 14
(c) The Bylaws or any Bylaw of the Corporation may be adopted,
amended or repealed only by the affirmative vote of not less
than a majority of the directors then in office at any regular or
special meeting of directors or by the affirmative vote of the holders
of at least eighty percent (80%) of the voting power of all
outstanding voting stock at any annual meeting or any special meeting
called for that purpose. Any provision of the Charter which is
inconsistent with any provision of the Bylaws of the Corporation may
be adopted only by the affirmative vote of the holders of at least
eighty percent (80%) of the voting power of all outstanding voting
stock at any annual meeting or any special meeting called for that
purpose.
(d) Notwithstanding any other provisions of this
Charter or the Bylaws of the Corporation (and notwithstanding
the fact that a lesser percentage or separate class vote may be
specified by law, this Charter, the Bylaws of the Corporation or
otherwise), the affirmative vote of the holders of at least eighty
percent (80%) of the voting power of all outstanding voting stock
shall be required to adopt any provisions inconsistent with, or to
amend or repeal, this Article 12.
(e) Notwithstanding the foregoing, whenever the
holders of any one or more classes or series of preferred stock
issued by the Corporation shall have the right, voting separately by
class or by series, to elect directors at an annual or special meeting
of shareholders, the election, term of office, filling of vacancies
and other features of such directorships shall be governed by the
terms of this Charter applicable thereto, and such directors so
elected shall not be divided into classes pursuant to this Article 12
unless expressly provided by such terms."
3. The amendments were duly adopted at a meeting of the shareholders on April
21, 1987.
4. The amendments are to be effective when filed by the Secretary of State.
FIRST TENNESSEE NATIONAL CORPORATION
By: /s/ Lenore S. Halle
Lenore S. Halle, Secretary
Date: April 21, 1987
2480p
<PAGE> 15
ARTICLES OF AMENDMENT TO
CHARTER OF
FIRST TENNESSEE NATIONAL CORPORATION
Pursuant to the provisions of Section 48-20-106 of the
Tennessee Business Corporation Act, the undersigned corporation
adopts the following Articles of Amendment to its Charter:
1. The name of the corporation is First Tennessee National
Corporation.
2. The amendment adopted is as follows:
A new Article 13 of the Company's Charter is hereby
adopted as follows:
"13. DIRECTOR LIABILITY.
No director shall be personally liable to the
Corporation or its shareholders for monetary damages
for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of
loyalty to the Corporation or its shareholders, (ii)
for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation
of law, or (iii) under Section 48-18-304, or any
successor provision thereto, of the Tennessee Business
Corporation Act."
3. The amendment was duly adopted at a meeting of the
shareholders on April 19, 1988.
4. The amendment shall be effective when filed by the
Secretary of State.
First Tennessee National Corporation
By: /s/ Lenore S. Halle, Secretary
Lenore S. Halle, Secretary
DATE: April 19, 1988
2995p2
<PAGE> 16
EXHIBIT 3(i)
ARTICLES OF AMENDMENT TO
CHARTER OF
FIRST TENNESSEE NATIONAL CORPORATION
Pursuant to the provisions of Section 48-20-106 of the Tennessee
Business Corporation Act, the undersigned corporation adopts the following
Articles of Amendment to its Charter:
1. The name of the corporation is First Tennessee National
Corporation.
2. The amendment adopted is as follows:
Section (a) of Article 6 of the Company's Charter is amended
to read as follows:
"(a) One Hundred Million (100,000,000) shares of common
stock of a par value of $2.50 each; and".
3. The amendment was duly adopted at a meeting of the
shareholders on April 19, 1994.
4. The amendment shall be effective when filed by the Secretary
of State.
First Tennessee National Corporation
By: Lenore S. Creson
---------------------------
Lenore S. Creson, Secretary
DATE: April 19, 1994.
<PAGE> 17
ARTICLES OF AMENDMENT TO
CHARTER OF
FIRST TENNESSEE NATIONAL CORPORATION
Pursuant to the provisions of Section 48-20-106 of the Tennessee
Business Corporation Act, the undersigned corporation adopts the following
Articles of Amendments to its Restarted Charter:
1. The name of the corporation is First Tennessee National
Corporation.
2. The amendment adopted is as follows:
Section (a) of Article 6 of the Company's Restated Charter is
amended to read as follows:
"(a) Two hundred million (200,000,000) shares of common
stock of a par value of $1.25 each; and".
3. The amendment was duly adopted by the Board of Directors on
January 16, 1996, without shareholder action, no such
shareholder action being required.
4. The amendment shall become effective on February 16, 1996.
First Tennessee National Corporation
By: Lenore S. Creson
-----------------------------------
Lenore S. Creson, Secretary
DATE: January 16, 1996.
<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
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<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."
<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."
<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."
<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."
<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."
<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.
<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."
<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.
<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.
<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.
-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.
<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> 43
RESOLUTIONS OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
April 19, 1994
RESOLVED, that Article VII of the Bylaws of First Tennessee National
Corporation be, and it hereby is, amended by deleting it in its entirety and
substituting therefor the following:
ARTICLE VII.
The Chairman of the Board of Directors and
The Chief Executive Officer
1. The Chairman of the Board of Directors shall preside
at all meetings of the shareholders and of the Board of Directors and
shall have such powers and perform such duties as may be provided for
herein and as may be incident to the office and as may be assigned by
the Board of Directors. If and at such times as the Board of
Directors so determines, the Chairman of the Board may also serve as
the Chief Executive Officer of the Corporation.
2. The Chief Executive Officer, in the absence of the
Chairman of the Board of Directors, shall preside at all meetings of
the shareholders and of the Board of Directors. The Chief Executive
Officer shall be responsible for carrying out the orders of and the
resolutions and policies adopted by the Board of Directors and shall
have general management of the business of the Corporation and shall
exercise general supervision over all of its affairs. In addition,
the Chief Executive Officer shall have such powers and perform such
duties as may be provided for herein and as may be incident to the
office and as may be assigned by the Board of Directors.
FURTHER RESOLVED, that Article VIII of the Bylaws be, and it hereby
is, amended by deleting it in its entirety and substituting therefore the
following:
ARTICLE VIII
The President.
1. The President, in the absence of the Chairman of the
Board of Directors and the Chief Executive Officer, shall preside at
all meetings of the shareholders and of the Board of Directors and
shall be charged with the active management and administration of the
business of the Corporation with the 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 of the Chairman of the Board of Directors and of
the Chief Executive Officer and of the Board of Directors. In
addition, he shall have such powers and perform such duties as may be
provided for herein and as may be incident to the office and as may be
assigned by the Board of Directors or the chairman of the Board of
Directors or the Chief Executive Officer.
FURTHER RESOLVED, that Articles IX, X, XI, XII, XIII, XIV, XVI and XIX
be, and they hereby are, amended by substituting the phrase "the Chairman of
the Board of Directors or the Chief Executive Officer" for the phrase "the
Chairman of the Board of Directors" or the phrase "the Chairman of the Board"
wherever either of such phrases appears in such Articles.
<PAGE> 44
RESOLUTION OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
JULY 19, 1994
------------------------------------
RESOLVED, that Article XXIX, Section 2, of the Bylaws of the Company
be, and it hereby is, amended by deleting it in its entirety and amending it to
read as follows:
"2. Officers and Employees. Except as provided in the
following sentence, the Corporation has no compulsory
retirement age for its officers or employees. Each officer or
employee who has attained 65 years of age and who, for the
two-year period immediately before attaining such age, has been
employeed in a "bona fide executive" or a "high policy-making"
position as those terms are used and defined in the Age
Discrimination in Employment Act, Section 12(c), and the
regulations relating to that section prescribed by the Equal
Employment Opportunity Commission, all as amended from time to
time (collectively, the "ADEA"), shall automatically be terminated
by way of compulsory retirement and his or her salary discontinued
on the first day of the month coincident with or immediately
following the 65th birthday, provided such employee is entitled to
an immediate nonforfeitable annual retirement benefit, as
specified in the ADEA, in the aggregate amount of at least
$44,000. Notwithstanding the prior sentence, 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 reemploy any former
officer who had theretofor been retired."
<PAGE> 45
RESOLUTION OF BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
October 18, 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 12, rather than 11 members, effective as of October 18, 1994, by
deleting the number 11 from said section of the Bylaws and substituting
therefor the number 12.
<PAGE> 46
RESOLUTION OF BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
December 19, 1995
RESOLVED, that the second paragraph of Section 1 of Article XXIX of
the Bylaws of the Corporation be, and it hereby is, amended by deleting it in
its entirety and substituting therefor the following:
Directors who are also officers of the Corporation or any of
its affiliates will be retired from the Board on the date of
the annual meeting coincident with or next following the date
of the Director's retirement from or other discontinuation of
active service with the Corporation and its affiliates.
<PAGE> 1
EXHIBIT 10(i)
FIRST TENNESSEE NATIONAL CORPORATION
AMENDED AND RESTATED
PENSION RESTORATION PLAN
ADOPTED OCTOBER 25, 1995
I. PURPOSE
This Plan is established by First Tennessee National Corporation and
its subsidiaries (herein collectively referred to as "the Company")
for the purpose of encouraging and enabling the Company to attract,
motivate and retain key executives and for the purpose of providing
benefits for certain members of the First Tennessee National
Corporation Pension Plan (hereinafter called "the Program") in excess
of the limitations of benefits and contributions imposed in respect to
such Program by Section 415 and any excess that may result from any
limitation on compensation that may be considered by the Program
pursuant to Section 401(a)(17), of the Internal Revenue Code of 1986
("IRC"), as amended.
II. EFFECTIVE DATE
The original effective date of the Pension Restoration Plan
(hereinafter referred to as the "Plan") was January 1, 1984. The
effective date of this Amended and Restated Pension Restoration Plan
shall be October 25, 1995.
III. ADMINISTRATION AND ELIGIBILITY
A. The Plan will be administered by the Administration Committee
(hereinafter referred to as the "Committee") consisting of the
Executive Vice President, Division Manager-Personnel and the
Vice-President, Manager Compensation. The executives of the
Company who will participate will be a select group of
management or highly compensated employees and occupy a
position in salary grades 1 through 6, as determined by the
Human Resources Committee of the Board of Directors, and will
receive benefits in accordance with the provisions of the
Plan.
B. The Committee will have the discretion, authority and
responsibility (1) of interpreting the Plan and any agreement
evidencing benefits granted hereunder, and (2) making all
other determinations in connection with the administration of
the Plan, all of which shall be final and conclusive.
IV. PAYMENT OF BENEFITS
A. In order to qualify to receive the benefits set forth in
Paragraph VI, below, a participant must remain employed until
age 65, unless an early retirement date is approved by the
Human Resources Committee of the Board of Directors.
B. Benefits payable pursuant to the terms of the Plan shall be
paid directly from the general assets of the Company. Should
the Company establish any advance reserve, such reserve or
fund shall not under any circumstances be deemed to be an
asset of the Plan nor a source of payment of any claims under
the Plan but, at all times, shall remain a part of the general
assets of the Company.
V. RETIREMENT DATE
A participant shall be retired under this Plan on the same Retirement
Date applicable for him/her under the Program.
VI. CALCULATION OF BENEFITS
Commencing with the first month immediately following retirement, each
Participant shall receive a monthly
1
<PAGE> 2
payment equal to the difference between (A) and (B) below:
A. The monthly pension that would have been payable from the
Program; determined under its rules on the Participant's
Retirement Date, but as if the limitations imposed by IRC
Section 415 and Section 401(a)(17) did not apply.
B. The actual monthly pension payable to the Participant from the
Program.
Any monthly payment under the Plan shall be payable in the same manner
and under the same terms and conditions as payments due from the
Program.
VII. CLAIMS PROCEDURES
All claims for benefits under the Plan shall be submitted in writing
to the Committee. A Participant whose claim for benefits is denied
shall have the right to a written explanation of the specific reasons
for such denial and may request the Committee to reconsider such
denial. Upon such a request for reconsideration the Committee shall
review its decision with the Participant who may submit in writing
such facts and issues, and may review such documents as may be
pertinent. The Committee shall render its decision in writing within
sixty days. The Committee's decision shall then be final and
conclusive.
VIII. MISCELLANEOUS
A. Nonalienability. No benefit payable at any time hereunder
shall be subject in any manner to alienation, sale, transfer,
assignment, pledge, attachment or other legal process, or
encumbrances of any kind. Any attempt to alienate, sell,
transfer, assign, pledge or otherwise encumber any such
benefit, whether currently or hereafter payable, shall be
void. Except as otherwise specifically provided by law, no
such benefit shall, in any manner, be liable for or subject to
the debts or liabilities of any participant or any other
person entitled to such benefit.
B. No Rights to Employment. The Plan shall not be construed as
providing any participant with the right to be retained in the
Company's employ or to receive any benefit not specifically
provided hereunder.
C. Amendment and Termination. The Company shall have the right,
at any time and from time to time, to amend in whole or in
part, or to terminate any of the provisions of the Plan, and
such amendment or termination shall be binding upon all
participants and parties interest. Notwithstanding the
foregoing, the benefits payable hereunder may not be reduced
or terminated for those participants who have attained age 65,
or for whom an early retirement date has been approved by the
Human Resources Committee of the Board of Directors, acting
pursuant to Section IV(A) hereof.
D. Governing Law. The Plan shall be governed by and construed in
accordance with the Employee Retirement Income Security Act of
1974 (P.L. 93-406) and to the extent not pre-empted thereby,
by the laws of the State of Tennessee.
E. Successors and Assigns. The Plan and all the provisions hereof
shall be binding upon the Company and its subsidiaries and its
successors and assigns.
IX. CHANGE IN CONTROL
A. A "Change in Control" means the occurrence of (and
shall be deemed to have occurred on the date of the
earliest to occur of) any of the following events:
(i) The shareholders of the Company approve a definitive
agreement or plan to merge, reorganize,
2
<PAGE> 3
exchange shares or consolidate (a "Business
Combination") or the issuance of voting securities of
the Company pursuant to a Business Combination, other
than a Business Combination which will result in the
voting securities of the Company outstanding
immediately prior to such Business Combination
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving or acquiring entity) more
than 50 percent of the voting power of the voting
securities of the Company or such surviving or
acquiring entity outstanding immediately after such
Business Combination; or
(ii) The shareholders of the Company approve a definitive
agreement or plan to dissolve and/or liquidate the
Company or to sell, lease, exchange, or otherwise
dispose of, all or substantially all of the Company's
property and assets (a "transaction") to any other
corporation or any other legal person, other than a
transaction which will result in the voting
securities of the Company outstanding immediately
prior to such transaction continuing to represent
more than 50 percent of the voting power of the
voting securities of such other corporation or other
legal person outstanding immediately after such
transaction; or
(iii) A report is filed or required to be filed on Schedule
13D or Schedule 14D-1 (or any successor schedule,
form or report), each as promulgated pursuant to the
Securities Exchange Act of 1934, as amended ("1934
Act"), disclosing that any person (as such terms is
used in Section 13(d) or Section 14(d) of the 1934
Act) ("Person"), other than the Company, an entity in
which the Company directly or indirectly beneficially
owns more than 50 percent of the voting securities (a
"Majority-owned subsidiary"), or any employee stock
ownership or other employee benefit plan sponsored by
the Company or a majority-owned subsidiary, is or has
become the beneficial owner (as such term is defined
in Rule 13d-3 promulgated under the 1934 Act, or any
successor rule or regulation) of securities
representing 20 percent or more of the voting power
of the then outstanding voting securities of the
Company; or
(iv) Individuals who are Continuing Directors (as defined
below) of the Company cease for any reason to
constitute at least a majority of the Board of
Directors of the Company.
Computations required by subsections (i) and (ii)
shall be made on and as of the date of shareholder
approval and shall be based on reasonable assumptions
that will result in the lowest percentage obtainable.
Computations required by subsection (iii) shall be
made on and as of the earlier of the date a report is
filed or is required to be filed and shall be based
on reasonable assumptions that will result in the
highest percentage obtainable. For purposes of
determining voting power pursuant to subsections (i),
(ii), and (iii), all voting securities of a
corporation (whether the Company or another entity)
shall be considered as a single class. For purposes
of subsection (iv), a "Continuing Director" means (a)
any director of the Company who was a director of the
Company on December 15, 1992, and (b) any other
director of the Company whose nomination for election
or election as a director was approved by a vote of
at least a majority of the directors of the Company
who at the time of such vote were Continuing
Directors pursuant to clause (a) or (b) hereof.
Notwithstanding the prior sentence, there shall be
excluded from the definition of "Continuing Director"
any director whose initial nomination for election
or election occurs as a result of an actual or
threatened election contest with respect to the
election or removal of directors of the Company or
any other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other
than the Continuing Directors, and a threatened
election contest or solicitation shall be
conclusively presumed to have existed if the
Continuing Directors have made such a determination
by the time of such director's election.
3
<PAGE> 4
B. Notwithstanding anything herein to the contrary, the benefits payable
under the Plan may not be reduced or terminated after a Change in
Control for those participants who, at the time of the Change in
Control, were eligible for a Deferred Vested Benefit under the
Program.
4
<PAGE> 1
Exhibit 10(J)
SCHEDULE OF DEFERRAL AGREEMENTS
<TABLE>
<CAPTION>
NAME DATE AMOUNT TERMS(1)
---- ---- ------ --------
<S> <C> <C> <C>
Jack Belz 12-29-92 Director Fees 30 Semi-Annual
upon Retirement
Jack Belz 12-20-93 Director Fees 20 Semi-Annual
upon Retirement
Jack Belz 06-30-94 Director Fees 20 Semi-Annual
upon Retirement
Robert Blattberg 04-16-84 Director Fees Five annual 01-91
Robert Blattberg 10-30-91 Director Fees Five annual 01-07
Robert Blattberg 06-06-92 Director Fees Lump Sum 01-01-02
Robert Blattberg 12-31-92 Director Fees Lump Sum 10-19-07
Robert Blattberg 12-31-93 Director Fees Five annual 2003
Robert Blattberg 06-19-94 Director Fees Lump Sum 01-01-03
J.R. Hyde, III 11-07-91 Director Fees Lump Sum upon
Retirement
J.R. Hyde, III 06-08-92 Director Fees 10 Annual at age 65
J.R. Hyde, III 12-31-92 Director Fees 10 Annual at age 65
J.R. Hyde, III 12-31-93 Director Fees 10 Annual at age 65
J.R. Hyde, III 06-94 Director Fees 10 Annual at age 65
Richard E. Ray 10-31-91 Director Fees Lump Sum upon
Retirement
Richard E. Ray 06-09-92 Director Fees 2 Semi-Annual 05-96
Richard E. Ray 12-16-92 Director Fees Lump Sum 05-01-96
Richard E. Ray 12-10-93 Director Fees Lump Sum 05-01-96
Richard E. Ray 06-17-94 Director Fees Lump Sum 05-01-96
Michael D. Rose 04-16-84 Director Fees Company's
Discretion
Michael D. Rose 12-10-92 Director Fees Lump Sum 01-01-98
Michael D. Rose 12-21-93 Director Fees Lump Sum 01-01-98
Michael D. Rose 06-16-94 Director Fees 5 Annual 01-01-00
William Sansom 12-21-93 Director Fees 4 Annual 2002
William Sansom 06-24-94 Director Fees 4 Annual 2002
Ronald Terry 01-01-82 1982 Bonus Company's
Discretion
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C> <C>
Ronald Terry 12-31-82 1983 Bonus Company's
Discretion
Ronald Terry 12-30-83 1984 Bonus Company's
Discretion
Ronald Terry 12-31-94 1995 Bonus 10 Annual 03-96
Jack Belz 12-23-94 1-95 Director Fees 30 Semi-annual upon retirement
J.R. Hyde 12-28-94 1-95 Director Fees 10 Annual at age 65
Richard E. Ray 12-22-94 1-95 Director Fees Lump Sum 5-1-96
Vicki G. Roman 12-30-94 1-95 Director Fees Lump Sum on retirement
Michael D. Rose 12-27-94 1-95 Director Fees Lump Sum 1-1-00
William Sansom 12-27-94 1-95 Director Fees Lump Sum 7-17-01
Gordon Street 12-29-94 1-95 Director Fees Lump Sum on retirement
</TABLE>
(1) Terms column lists (1) the number of payments, (2) whether
semiannually, annually or lump sum, and (3) payment commencement date.
All agreements dated prior to 1991 provide that interest shall accrue at
the Corporation's annual cost of money, as determined by the
Corporation. All other agreements accrue interest at a rate based on
10-year U.S. Treasury securities.
<PAGE> 1
Exhibit 10(k)
Schedule of Severance Agreement Recipients
Ralph Horn
Ronald Terry
J. Kenneth Glass
John C. Kelley, Jr.
George P. Lewis
<PAGE> 1
Exhibit 10(L)
FIRST TENNESSEE NATIONAL CORPORATION
1995 EMPLOYEE STOCK OPTION PLAN
1. Purpose. The 1995 Employee Stock Option Plan (the "Plan") of First
Tennessee National Corporation (the "Company") is designed to enable employees
of the Company and its subsidiaries to obtain a proprietary interest in the
Company, and thus to share in the future success of the Company's business.
Accordingly, the Plan is intended as a further means not only of attracting and
retaining outstanding personnel, but also of promoting a closer identity of
interest between employees and shareholders.
2. DEFINITIONS. As used in the Plan, the following terms shall have the
respective meanings set forth below:
(a) "Change in Control" means the occurrence of (and shall be
deemed to have occurred on the date of the earliest to occur of) any
of the following events:
(i) The shareholders of the Company approve a definitive agreement
or plan to merge, reorganize, exchange shares or consolidate (a
"Business Combination") or the issuance of voting securities of the
Company pursuant to a Business Combination, other than a Business
Combination which will result in the voting securities of the Company
outstanding immediately prior to such Business Combination continuing
to represent (either by remaining outstanding or by being converted
into voting securities of the surviving or acquiring entity) more than
50 percent of the voting power of the voting securities of the Company
or such surviving or acquiring entity outstanding immediately after
such Business Combination; or
(ii) The shareholders of the Company approve a definitive agreement
or plan to dissolve and/or liquidate the Company or to sell, lease,
exchange, or otherwise dispose of, all or substantially of the
Company's property and assets (a "transaction") to any other
corporation or any other legal person, other than a transaction which
will result in the voting securities of the Company outstanding
immediately prior to such transaction continuing to represent more
than 50 percent of the voting power of the voting securities of such
other corporation or other legal person outstanding immediately after
such transaction; or
(iii) A report is filed or required to be filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or report), each as
promulgated pursuant to the Securities Exchange Act of 1934, as
amended ("1934 Act"), disclosing that any person (as such term is
used in Section 13(d) or Section 14(d) of the 1934 Act) ("Person"),
other than the Company, an entity in which the Company directly or
indirectly beneficially own more than 50
<PAGE> 2
percent of the voting securities (a "majority-owned subsidiary"), or
any employee stock ownership or other employee benefit plans sponsored
by the Company or a majority-owned subsidiary, is or has become the
beneficial owner (as such term is defined in Rule 13d-3 promulgated
under the 1934 Act, or any successor rule or regulation) of securities
representing 20 percent or more of the voting power of the then
outstanding voting securities of the Company: or
(iv) Individuals who are Continuing Directors (as defined below) of
the Company cease for any reason to constitute at least a majority of
the Board of Directors of the Company.
Computations required by subsections (i) and (ii) shall be made on and
as of the date of shareholder approval and shall be based on
reasonable assumptions that will result in the lowest percentage
obtainable. Computations required by subsection (iii) shall be made
on and as of the earlier of the date a report is filed or is required
to be filed and shall be based on reasonable assumptions that will
result in the highest percentage obtainable. For purposes of
determining voting power pursuant to subsections (i), (ii), and (iii),
all voting securities of a corporation (whether the Company or another
entity) shall be considered as a single class. For purposes of
subsection (iv), a "Continuing Director" means (a) any director of the
Company who was a director of the Company on December 15, 1992 and (b)
any other director of the Company whose nomination for election or
election as a director was approved by a vote of at least a majority
of the directors of the Company who at the time of such vote were
Continuing Directors pursuant to clause (a) or (b) hereof.
Notwithstanding the prior sentence, there shall be excluded from the
definition of "Continuing Director" any director whose initial
nomination for election or election occurs as a result of an actual or
threatened election contest with respect to the election or removal of
directors of the Company or an other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the
Continuing Directors, and a threatened election contest or
solicitation shall be conclusively presumed to have existed if the
Continuing Directors have made such a determination by the time of
such director's election.
(b) "Committee" means the Stock Option Committee or any successor
committee designate by the Board of Directors to administer
the Stock Option Plan, as provided in Section 5(a) hereof.
(c) "Early Retirement" means termination of employment after an
employee has fulfilled all service requirements for an early
pension, and before his or her Normal Retirement Date, under
the terms of the First Tennessee National Corporation Pension
Plan, as amended from time to time.
(d) "Quota" means the portion of the total number of shares
subject to an option which the grantee of the option may
purchase during
B-2
<PAGE> 3
several periods of the term of the option (if the option is
subject to quotas), as provided in Section 8(b) hereof. SAR's
are granted, if at all, at the time of granting a stock
option. If a stock option is subject to quotas, the related
SAR is subject to the same quotas.
(e) "Retirement" means termination of employment after an employee
has fulfilled all service requirements for a pension under the
terms of the First Tennessee National Corporation Pension
Plan, as amended from time to time.
(f) "Subsidiary" means a subsidiary corporation as defined in
Section 425 of the Internal Revenue Code.
(g) "Successor" means the legal representative of the estate of a
deceased grantee or the person or persons who shall acquire
the right to exercise an option or related SAR by bequest or
inheritance or by reason of the death of the grantee, as
provided in Section 10 hereof.
(h) "Term of the Option" means the period during which a
particular option or related SAR may be exercised in Section
8(a) hereof.
(i) "Three months after cessation of employment" means a period of
time beginning at 12:01 A.M. on the day following the date
notice of termination of employment was given and ending at
11:59 P.M. on the date in the third following month
corresponding numerically with the date notice of termination
of employment was given (or in the event that the third
following month does not have a date so corresponding, then
the last day of the third following month).
(j) "Five years after (an event occurring on day x)" and "five
years from (an event occurring on day x)" means a period of
time beginning at 12:01 A.M. on the day following day x and
ending at 11:59 P.M. on the date in the fifth following year
corresponding numerically with day x (or in the event that the
fifth following year does not have a date so corresponding,
then the last day of the sixtieth following month).
(k) "Voluntary Resignation" means any termination of employment
that is not involuntary and that is not the result of the
employee's death, disability, early retirement or retirement.
3. EFFECTIVE DATE OF PLAN. The Plan shall become effective when approved
at a shareholder's meeting by the holders of a majority of the shares of
Company common stock present or represented at the meeting and entitled to vote
on the Plan. No options or related SAR's may be granted under the Plan after
the month and day in the year 2005 corresponding to the day before the month
and day on which the Plan becomes effective. The term of option granted on or
before such date may, however, extend beyond that date, but no incentive stock
options may be granted which are exercisable after the expiration of ten (10)
years after the date of the grant.
B-3
<PAGE> 4
4. SHARES SUBJECT TO THE PLAN.
(a) The Company may grant options and related SAR's under the Plan
authorizing the issuance of no more than 1,500,000 shares of
its $2.50 par value common stock, which will be provided from
shares purchased in the open market or privately (that became
authorized but unissued shares under state corporation law) or
by the issuance of previously authorized but unissued shares.
(b) When an option is granted under the Plan, the Committee in its
sole discretion may include the grant of a SAR permitting the
grantee to elect to receive stock or cash or a combination
thereof in exchange for the surrender the unexercised related
option or portion thereof. Solely with respect to grantees
subject to the reporting and short- swing profits provisions
of Section 16 of the Securities Exchange Act of 1934 ("Section
16 grantees"), the Committee shall have the sole discretion to
consent to or disapprove the election of the grantee to
receive cash in full or partial settlement of the SAR. With
respect to all other grantees, the election is final without
any action by the Committee.
(c) Shares as to which options and related SAR's previously
granted under this Plan shall for any reason lapse shall be
restored to the total number available for grant of options.
Shares subject to options surrendered in exchange for the
exercise of a SAR shall not be restored to the total number
available for the grant of options or related SAR's.
5. PLAN ADMINISTRATION.
(a) The Plan shall be administered by a Stock Option Committee
(the "Committee") whose members shall be appointed from time
to time by, and shall serve at the pleasure of, the Board of
Directors of the Company. In addition, all members shall be
directors and shall meet the definitional requirements for
"disinterested person" (with any exceptions therein permitted)
contained in the then current SEC Rule 16b-3 or any successor
provision.
(b) The Committee shall adopt such rules of procedure as it may
deem proper.
(c) The powers of the Committee shall include plenary authority to
interpret the Plan, and subject to the provisions hereof, to
determine the persons to whom options and related SAR's shall
be granted, the number of shares subject to each option and
related SAR, the term of option and related SAR, and the date
on which options and related SAR's shall be granted.
6. ELIGIBILITY.
(a) Options and related SAR's may be granted under the Plan to
employees of the Company or any subsidiary selected by the
Committee. Determination by the Committee of the employees to
B-4
<PAGE> 5
whom options and related SAR's shall be granted shall be
conclusive.
(b) An individual may receive more than one option and related
SAR, subject, however, to the following limitations: (i) in
the case of an incentive stock option (as described in Section
422A of the Internal Revenue Code of 1986), the aggregate fair
market value (determined at the time the options are granted)
of the Company's common stock with respect to which incentive
stock options are exercisable for the first time during any
calendar year by any individual employee (under this Plan and
all other similar plans of the Company and its subsidiaries)
shall not exceed $100,000 and (ii) the maximum number of
shares with respect to which options or SAR's are granted to
an individual during the term of the Plan, as defined in
Section 3 hereof, shall not exceed 100,000 shares. Incentive
stock options granted hereunder shall be clearly identified as
such at the time of grant.
7. OPTION PRICE. The option price per share to be paid by the grantee to
the Company upon exercise of the option shall be determined by the Committee,
but shall not be less than 100% of the fair market value of the share at the
time the option is granted, nor shall the price per share be less than the par
value of the share. Notwithstanding the prior sentence, the option price per
share may be less than 100% of the fair market value of the share at the time
the option is granted if:
(a) The grantee of the option has entered into an agreement with
the Company pursuant to which the grant of the option is in
lieu of the payment of compensation; and
(b) The amount of such compensation when added to the cash
exercise price of the option equals at least 100% of the fair
market value (at the time the option is granted) of the shares
subject to option.
"Fair market value" for purposes of the Plan shall be the mean between the high
and low sales prices at which shares of the Company were sold on the valuation
day as quoted by the Nasdaq Stock Market or, if there were no sales on that
day, then on the last day prior to the valuation day during which there were
sales. In the event that this method of valuation is not practicable, then the
Committee, in its discretion, shall establish the method by which fair market
value shall be determined.
8. TERMS OR QUOTAS OF OPTIONS AND RELATED SAR'S:
(a) TERM. Each option and related SAR granted under the Plan
shall be exercisable only during a term (the "Term of the
Option") commencing one year, or such other period of time
(which may be less than or more than one year) as is
determined to be appropriate by the Committee, after the date
when the option or related SAR was granted and ending (unless
the option and related SAR shall have terminated earlier under
other provisions of the Plan) on a date to be fixed by the
Committee. Notwithstanding the foregoing, each option and
related SAR granted under the Plan shall become exercisable in
full immediately upon a Change in Control.
B-5
<PAGE> 6
(b) QUOTAS. The Committee shall have authority to grant options
and related SAR's exercisable in full at any time during their
term, or exercisable in quotas. Quotas or portions thereof
not purchased in earlier periods shall be cumulated and be
available for purchase in later periods. In exercising his or
her option or related SAR, the grantee may purchase less than
the full quota available to him or her.
(c) EXERCISE OF STOCK OPTIONS. Stock options shall be exercised
by delivering, mailing, or transmitting to the Committee or
its designee the following items:
(i) A notice, in the form, by the method, and at times
prescribed by the Committee, specifying the number of shares
to be purchased; and
(ii) A check or money order payable to the Company for the
full option price.
In addition, the Committee in its sole discretion may
determine that it is an appropriate method of payment for
grantees to pay, or make partial payment of, the option price
with shares of Company common stock, $2.50 par value, in lieu
of cash. In addition, in its sole discretion the Committee
may determine that it is an appropriate method of payment for
grantees to pay for any shares subject to an option by
delivering a properly executed exercise notice together with a
copy of irrevocable instructions to a broker to deliver
promptly to the Company the amount of sale or loan proceeds to
pay the purchase price. To facilitate the foregoing, the
Company may enter into agreements for coordinated procedures
with one or more brokerage firms. The value of Company common
stock surrendered in payment of the exercise price shall be
its fair market value, determined pursuant to Section 7, on
the date of exercise. Upon receipt of such notice of exercise
of a stock option and upon payment of the option price, the
Company shall promptly deliver to the grantee a certificate or
certificates for the shares purchased, without charge to him
or her for issue or transfer tax.
(d) EXERCISE OF SAR'S. Except as required by subsection 8(e), a
SAR shall be exercised by delivering, mailing, or transmitting
to the Committee or its designee a notice in the form, by the
method, and at times prescribed by the Committee, specifying
the grantee's election, in accordance with Subsection 4(b), to
receive cash, stock, or a combination thereof in full or
partial settlement of the SAR, or a portion thereof.
(e) CASH SETTLEMENTS OF SAR'S BY SECTION 16 GRANTEES.
Notwithstanding subsection 8(d), solely with respect to
Section 16 grantees, an election to receive cash in full or
partial settlement of a SAR or a portion thereof and the
actual exercise of such SAR shall be made by delivering,
mailing, or transmitting, to the Committee or its designee
during the period beginning on the third business day
following the release for
B-6
<PAGE> 7
publication of the Company's quarterly or annual sales and
earnings and ending on the twelfth business day following such
date a notice, in the form and by the method prescribed by the
Committee, specifying the grantee's election to receive cash in
full or partial settlement of the SAR, or a portion thereof.
Such notice shall constitute both the grantee's election to
receive cash and the actual exercise of the SAR for a cash
settlement.
(f) SAR PAYMENTS. Upon the exercise of a SAR in accordance with
subsection 8(d), the Company shall promptly deliver to the
grantee stock or cash or a combination thereof, in such
proportion as has been elected by the grantee pursuant to
subsection 8(d), equal to:
(i) The fair market value, as determined in Section 7, of one
share of Company common stock on the date of exercise of the
SAR: minus
(ii) The option price of the related option; multiplied by
(iii) The number of shares subject to option which are being
surrendered in exercise of the SAR, or portion thereof.
Provided, however, solely for the purpose of exercising an
SAR, the per share gain to the grantee as measured by the
difference between the fair market value, as described in (i),
and the option price, as described in (ii), shall not exceed
200% of the option price. For example, if the option price is
$12 per share, the gain may not exceed $24 per share or, in
this example, be based on a fair market value at the time of
exercise in excess of $36.
(g) SAR PAYMENTS TO SECTION 16 GRANTEES. Upon the exercise of a
SAR in accordance with subsection 9(e), the Company shall
promptly deliver to the grantee cash or the combination of
stock and cash, in such proportion as has been elected by the
grantee and consented to by the Committee pursuant to
subsections 4(b) and 8(e), equal to:
(i) The highest fair market value, as determined in Section
7, of one share of Company common stock occurring during ten
business day period specified in subsection 8(e) during which
the grantee makes his election and exercises the SAR; minus
(ii) The option price of the related option; multiplied by
(iii) The number of shares subject to option which are being
surrendered in exercise of the SAR, or portion thereof.
Provided, however, solely for the purpose of exercising an
SAR, the per share gain to the grantee as measured by the
difference between the fair market value, as described in (i),
and the option price, as described in (ii), shall not exceed
200% of the option price. For example, if the option price is
$12 per share, the gain may not exceed $24 per share or, in
this example, be
B-7
<PAGE> 8
based on a fair market value at the time of exercise in excess
of $36.
(h) POSTPONEMENTS. The Committee may postpone any exercise of an
option or related SAR for such period of time as the Committee
in its discretion reasonably believes necessary to prevent any
acts or omissions that the Committee reasonably believes will
be or will result in the violation of any state or federal
law; and the Company shall not be obligated by virtue of any
provision of the Plan or the terms of any prior grant of an
option or related SAR to recognize the exercise of an option
or related SAR or to sell or issue shares during the period of
such postponement. Any such postponement shall automatically
extend the time within which the option or related SAR may be
exercised, as follows: The exercise period shall be extended
for a period of time equal to the number of days of the
postponement, but in no event shall the exercise period be
extended beyond the last day of the postponement for more days
than there were remaining in the option or related SAR's
exercise period on the first day of the postponement. Neither
the Company, nor its directors of officers, shall have any
obligation or liability to the grantee of an option or related
SAR or to a successor with respect to any shares as to which
the option or related SAR shall lapse because of such
postponement.
(i) NON-TRANSFERABILITY. All options and related SAR's granted
under the Plan shall be non-transferable other than by will or
by the laws of descent and distribution, subject to Section 10
hereof, and an option or related SAR may be exercised during
the lifetime of the grantee only by him or her or by his/her
guardian or legal representative. Also, if required by the
then current Rule 16b-3, or any successor provision, and
solely with respect to Section 16 grantees, common stock
acquired upon the exercise of an option or related SAR may not
be sold for at least six months after acquisition, except in
the case of such grantee's death or disability. Also, if
required by the then current Rule 16b-3, or any successor
provision, and solely with respect to Section 16 grantees,
then notwithstanding anything hereunto the contrary, options
and SAR's are not exercisable for at least six months after
grant except in the case of death or disability.
(j) CERTIFICATES. The stock certificate or certificates to be
delivered under this Plan may, at the request of the grantee,
be issued in his or her name or, with the consent of the
Company, the name of another person as specified by the
grantee.
(k) RESTRICTIONS. This subsection (k) shall be void and of no
legal effect in the event of a Change of Control.
Notwithstanding anything in any other section or subsection
herein to the contrary, the following provisions shall apply
to all options and related SAR's, exercises and grantees. An
amount equal to the spread realized in connection with the
exercise of an option or SAR within six months prior to a
grantee's voluntary resignation shall be paid to the Company
by the grantee in the event that the
B-8
<PAGE> 9
grantee, within six months following voluntary resignation,
engages, directly or indirectly, in any activity determined by
the Committee to be competitive with any activity of the
Company or any of its subsidiaries.
(l) TAXES. The Company shall be entitled to withhold the amount
of any tax attributable to amounts payable or shares
deliverable under the Plan, and the Company may defer making
payment or delivery of any benefits under the Plan if any tax
is payable until indemnified to its satisfaction. The
Committee may, in its discretion and subject to such rules
which it may adopt, permit a grantee to satisfy, in whole or
in part, any federal, state and local withholding tax
obligation which may arise in connection with the exercise of
a stock option or SAR, by electing either:
(i) To have the Company withhold shares of Company common
stock from the shares to be issued upon the exercise of the
option or SAR;
(ii) To permit a grantee to tender back shares of Company
common stock issued upon the exercise of an option or SAR; or
(iii) To deliver to the Company previously owned shares of
Company common stock having a fair market value equal to the
amount of the federal, state, and local withholding tax
associated with the exercise of the option or SAR.
(m) ADDITIONAL PROVISIONS APPLICABLE TO OPTION AGREEMENTS IN LIEU
OF COMPENSATION. If the Committee, in its discretion permits
participants to enter into agreements as contemplated by
Section 7 herein, then such agreements must be irrevocable and
cannot be changed by the participant once made, and such
agreements must be made at least prior to the performance of
any services with respect to which an option may be granted.
Also, solely with respect to Section 16 grantees, the date of
the grant of any option pursuant to an agreement contemplated
by Section 7 herein must be at least six months after the date
on which a participant enters into such agreement, and the
exercise price must be determined by reference to the fair
market value of the Company's shares on the date of grant. If
any participant who enters into such an agreement terminates
employment prior to the grant of the option, then the option
will not be granted and all compensation which would have been
covered by the option will be paid to the participant in cash.
9. EXERCISE OF OPTION BY GRANTEE ON CESSATION OF EMPLOYMENT. If a person
to whom an option has been granted shall cease, for a reason other than his or
her death, disability, early retirement, retirement, or voluntary resignation,
to be employed by the Company or a subsidiary, the option and related SAR shall
terminate three months after the cessation of employment, unless it terminates
earlier under other provisions of the Plan. Until the option or related SAR
terminates, it may be exercised by the grantee for all or a portion of the
shares as to which the right to purchase had accrued under the Plan at the time
of cessation of employment, subject to
B-9
<PAGE> 10
all applicable conditions and restrictions provided in Section 8 hereof. If a
person to whom an option or related SAR has been granted shall retire or become
disabled, the option and related SAR shall terminate five years after the date
of early retirement, retirement or disability, unless it terminates earlier
under the Plan. Although such exercise by a retiree or disabled grantee is not
limited to the exercise rights which had accrued at the date of early
retirement, retirement or disability, such exercise shall be subject to all
applicable conditions and restrictions prescribed in Section 8 hereof. If a
person shall voluntarily resign, his option and related SAR to the extent not
previously exercised shall terminate at once.
10. EXERCISE OF OPTION OR RELATED SAR AFTER DEATH OF GRANTEE. If the
grantee of an option and related SAR shall die while in the employ of the
Company or within three months after ceasing to be an employee, and if the
option and related SAR was in effect at the time of his or her death (whether
or not its term had then commenced), the option and related SAR may, until the
expiration of five years from the date of death of the grantee or until the
earlier expiration of the term of the option and related SAR, be exercised by
the successor of the deceased grantee. Although such exercise is not limited
to the exercise rights which had accrued at the date of death of the grantee,
such exercise shall be subject to all applicable conditions and restrictions
prescribed in Section 8 hereof.
11. PYRAMIDING OF OPTIONS. The Committee in its sole discretion may from
time to time permit the method of exercising options known as pyramiding (the
automatic application of shares received upon the exercise of a portion of a
stock option to satisfy the exercise price for additional portions of the
option).
12. SHAREHOLDER RIGHTS. No person shall have any rights of a shareholder
by virtue of a stock option and related SAR except with respect to shares
actually issued to him or her, and issuance of shares shall confer no
retroactive right to dividends.
13. ADJUSTMENT FOR CHANGES IN CAPITALIZATION. Any increase in the number
of outstanding shares of common stock of the Company occurring through stock
splits or stock dividends after the adoption of the Plan shall be reflected
proportionately:
(a) In an increase in the aggregate number of shares then
available for the grant of options and related SAR's under the
Plan, or becoming available through the termination of options
and related SAR's previously granted but unexercised;
(b) In the number available to grant to any one person;
(c) In the number subject to options and related SAR's then
outstanding; and
(d) In the quotas remaining available for exercise under
outstanding options and related SAR's,
and a proportionate reduction shall be made in the per-share option price
B-10
<PAGE> 11
as to any outstanding options and related SAR's or portions thereof not yet
exercised. Any fractional shares resulting from such adjustments shall be
eliminated. If changes in capitalization other than those considered above
shall occur, the Board of Directors shall make such adjustments in the number
and class of shares for which options and related SAR's may thereafter be
granted, and in the number and class of shares remaining subject to options and
related SAR's previously granted and in the per-share option price as the Board
in its discretion may consider appropriate, and all such adjustments shall be
conclusive; provided, however, that the Board shall not make any adjustments
with respect to the number of shares subject to previously granted incentive
stock options or available for grant as options if such adjustment would
constitute the adoption of a new plan requiring shareholder approval before
further incentive stock options could be granted.
14. TERMINATION, SUSPENSION, OR MODIFICATION OF PLAN. The Board of
Directors may at any time terminate, suspend, or modify the Plan, except that
the Board of Directors shall not amend the Plan in violation of law and shall
not, without shareholder approval, make any amendment to the Plan (other than
amendments pursuant to Section 13 herein) that would:
(a) Increase the number of shares specified in Section 4(a);
(b) Extend the duration of the Plan specified in Section 3; or
(c) Modify the class of employees eligible to receive options and
related SAR's under the Plan.
No termination, suspension, or modification of the Plan shall adversely affect
any right acquired by any grantee, or by any successor of a grantee (as
provided in Section 10 hereof), under the terms of an option and related SAR's
granted before the date of such termination, suspension, or modification,
unless such grantee or successor shall consent, but it shall be conclusively
presumed that any adjustment for changes in capitalization as provided in
Section 13 does not adversely affect any such right.
15. APPLICATION OF PROCEEDS. The proceeds received by the Company from
the sale of its shares under the Plan will be used for general corporate
purposes.
16. NO RIGHT TO EMPLOYMENT. Neither the adoption of the Plan nor the
granting of any stock option or SAR shall confer upon the grantee any right to
continue in the employ of the Company or any of its subsidiaries or interfere
in any way with the right of the Company or the subsidiary to terminate such
employment at any time.
B-11
<PAGE> 1
EXHIBIT 10(m)
FIRST TENNESSEE NATIONAL CORPORATION
NON-EMPLOYEE DIRECTORS' DEFERRED
COMPENSATION STOCK OPTION PLAN
1. PURPOSE. The Non-Employee Directors' Deferred Compensation Stock
Option Plan of the First Tennessee National Corporation has been
adopted to advance the interests of shareholders by encouraging
non-employee members of the Board of Directors to acquire proprietary
interests in the Company in the form of Stock Options granted in lieu
of Retainer/Fees that otherwise would have been paid in cash for
serving on the Board of Directors or any committee thereof.
2. DEFINITIONS. As used in the Plan, the following terms shall have the
respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Common Stock" means the common stock, par value $2.50 per
share, of the Company.
(c) "Company" means the First Tennessee National Corporation, a
corporation established under the laws of the State of
Tennessee.
(d) "Deferred Compensation Stock Option" or "Stock Option" means a
right granted at the election of a Non-Employee Director
pursuant to Section 6.
(e) "Disability" means total and permanent disability, which if
the Participant were an employee of the Company, would be
treated as a total and permanent disability under the terms of
the Company's long-term disability plan for employees, as may
be in effect from time to time.
(f) "Early Retirement" means retirement from Board service after
the age of 55 with 120 or more full months of aggregate Board
service.
(g) "Fair Market Value" means the average of the high and low
sales prices at which shares of Common Stock are traded, as
publicly reported by the Wall Street Journal, on the
applicable date or, if there were no sales of Common Stock
reported for such date, the last prior date for which a sale
is reported.
(h) "Grant Date" means the applicable date, as specified in
Section 7, on which a Stock Option is granted to a Non-
Employee Director by reason of an election made pursuant to
Section 6.
<PAGE> 2
(i) "Non-Employee Director" means a member of the Board who is not
an employee of the Company or any subsidiary or affiliate of
the Company at the time such person elects to receive
Retainer/Fees in the form of Stock Options.
(j) "Normal Retirement" means the date at which any Non-Employee
Director is no longer qualified to serve on the Board based on
the then-current retirement age policy contained in the
Company's by-laws or, if not in the by-laws, as adopted by the
Board.
(k) "Participant" means a person who has received one or more
Stock Options or the legal representative, heir or estate of
such person.
(l) "Plan" means the Non-Employee Directors' Deferred Compensation
Stock Option Plan.
(m) "Retainer/Fees" means the retainer and meeting attendance fees
payable to a Non-Employee Director for service as member of
the Board and/or member of any committee of the Board.
(n) "1934 Act" means the Securities Exchange Act of 1934, as
amended from time to time.
3. EFFECTIVE DATE. The Plan shall be effective on the date it is
approved by the shareholders of the Company and shall remain in effect
through the last Grant Date occurring in calendar year 1999, unless
the Plan is terminated by the Board earlier than such date subject to
the provisions of Section 11. If shareholder approval is not obtained
by June 30, 1995, the Plan shall be nullified and all elections to
receive Stock Options shall be rescinded and all Non-Employee
Directors shall receive cash equal to all Retainer/Fees that had been
the subject of an election hereunder. Upon termination of the Plan,
the applicable terms of the Plan shall continue to apply to all Stock
Options which are outstanding on the date the Plan is terminated and
to any Stock Options which are granted subsequent to such date
pursuant to Section 11.
4. PLAN OPERATION. The Plan is intended to meet the requirements of a
"formula" plan" for purposes of Rule 16b-3 under the 1934 Act as
currently applicable to the Plan and accordingly is intended to be
self-governing. To this end the Plan is expected to require no
discretionary action by any administrative body except as contemplated
by Section 5(b). However, should any questions of interpretation
arise, they shall be resolved by the Human Resources Committee of the
Board or such other Committee as the Board may from time to time
designate. The Plan shall be interpreted to comply with Rule 16b-3
under the 1934 Act, as then applicable to the Company's employee
benefit plans, and any action under this Plan that would be
inconsistent with the requirements of Rule 16b-3 as then applicable
shall be null and void.
2
<PAGE> 3
5. COMMON STOCK AVAILABLE FOR STOCK OPTIONS.
(a) A maximum of 225,000 shares of Common Stock may be issued upon
the exercise of Stock Options granted under the Plan. Shares
of Common Stock shall not be deemed issued until the
applicable Stock Option has been exercised and, accordingly,
any shares of Common Stock represented by Stock Options which
expire unexercised or which are cancelled shall remain
available for issuance under the Plan.
(b) The Board, as it deems appropriate to preserve Particpant's
benefits and to meet the intent of the Plan, may make
equitable adjustments to the number of shares available under
the Plan and covered by outstanding Stock Options and to the
exercise prices of outstanding Stock Options in the event of
any change in capitalization or similar action affecting
Common Stock. Such actions may include, but are not limited
to, any stock dividend, stock split, combination or exchange
of shares, merger, consolidation, recapitalization, spin-off
or other distribution (other than normal cash dividends) of
Company assets to shareholders, or any other change affecting
the Common Stock.
6. ELECTIONS TO RECEIVE STOCK OPTIONS. Each Non-Employee may make a
one-time irrevocable election to receive Stock Options under the Plan,
provided that such election conforms to the following:
(a) Each Non-Employee Director serving as of January 1, 1995, must
make his or her election under the Plan no later than January
31, 1995. Such election, if any, shall be applicable to
Retainer/Fees otherwise payable to such Non-Employee Director
for service from February 1, 1995 through December 31, 1999,
subject to the requirements of Section 9.
(b) Each Non-Employee Director who is newly appointed or elected
to the Board after January 1, 1995, must make his or her
election, if any, under the Plan no later than 30 days
following the commencement of such person's Board service.
Such election, if any, shall be applicable to Retainer/Fees
earned by such Non-Employee Director from the date of such
election through December 31, 1999, subject to the
requirements of Section 9. The above notwithstanding, no
election under the Plan shall be permitted after June 30,
1999.
(c) In making an irrevocable election to receive Retainer/Fees in
the form of Stock Options, the Non-Employee Director must
designate that the election is for all or a specified portion
of the Retainer/Fees payable to him or her through December
31, 1999.
3
<PAGE> 4
7. EFFECTIVE GRANT DATES.
(a) The Grant Dates for Stock Options granted pursuant to an
election covered by Section 6(a) made by a Non-Employee
Director serving on the Board as of January 1, 1995 shall be
June 30 and December 31 for each of the calendar years such
election is in effect.
(b) The Grant Dates for Stock Options granted pursuant to an
election covered by Section 6(b) made by a Non-Employee
Director elected or appointed to the Board after January 1,
1995, shall be:
(i) For the initial Stock Option granted, the earliest
calendar date specified by Section 7(a) to occur
after such election, or, if then required by Rule
16b-3 under the 1934 Act as then applicable to the
Plan, the last day of the second full calendar
quarter of Board service after an election pursuant
to Section 6 has been made.
(ii) For all Stock Options granted subsequent to the
initial Stock Option, each subsequent June 30 and
December 31 for each of the calendar years such
election is in effect.
8. STOCK OPTION GRANTS. Stock Options granted under the Plan shall have
the following terms and conditions:
(a) Each Stock Option shall have a per share exercise price equal
to 85% of the Fair Market Value on the Grant Date.
(b) Each Stock Option shall cover the number of shares determined
by the following formula:
Amount of Retainer/Fees Earned
------------------------------ = Number of Common Shares
Fair Market Value - 85% x Fair Market Value
If the number of Common Shares resulting from this calculation
is not a whole number, the amount will be rounded up to the
next whole number. The "Amount of Retainer/Fees Earned" for
purposes of this calculation shall be such amount as was
payable to the Participant since the prior applicable Grant
Date or since February 1, 1995, in the case of an election
pursuant to Section 6(a), or the date of the election in the
case of an election pursuant to Section 6(b).
(c) Each Stock Option shall expire on the twentieth anniversary of
its Grant Date, subject to earlier or later expiration in
accordance with Section 9.
4
<PAGE> 5
(d) Each Stock Option shall be immediately exercisable upon grant,
except, however, that the Board may postpone the exercise of a
Stock Option during such period of time that is deemed
reasonably necessary to prevent any acts or omissions that the
Board reasonably believes could result in the violation of any
state or federal law.
9. TERMINATION OF BOARD SERVICE.
(a) If a Non-Employee Director terminates Board service for any
reason (or becomes an employee of the Company) prior to a
Grant Date upon which he or she would otherwise receive a
Stock Option under the Plan, no future Stock Options shall be
granted to him or her and any Retainer/Fees that have been
earned, but which were to be paid in the form of a Stock
Option will be paid in cash instead.
(b) If a Participant terminates Board service with less than 120
full months of aggregate Board service or prior to Normal or
Early Retirement for any reason other than death or
Disability, all outstanding Stock Options held by such
Participant shall expire on the first anniversary of such
person's termination of Board service.
(c) If a Participant terminates Board service due to death,
Disability or because of Normal or Early Retirement, each
outstanding Stock Option held by such Participant shall
terminate at the earlier of the fifth anniversary of such
Participant's termination of Board service or the end of the
term of the Stock Option.
(d) The above notwithstanding, any Stock Option held by a
Participant at the time of the Participant's death shall
expire on the later of the date provided for by Section 9(b)
or 9(c), or the first anniversary of the Participant's death.
10. EXERCISE PAYMENT. A Stock Option, or portion thereof, may be
exercised by written notice of the exercise delivered to the Human
Resources Committee of the Board, or its designee, accompanied by
payment of the exercise price. Such payment may be made by cash,
personal check or Common Stock already owned by the Participant,
valued at the Fair Market Value on the date of exercise, or a
combination of such payment methods. As soon as practicable after
notice of exercise and receipt of full payment for shares of Common
Stock being acquired, the Company shall deliver a certificate to the
Participant representing the Common Stock purchased through the Stock
Option.
11. TERMINATION, SUSPENSION AND AMENDMENT OF THE PLAN. The Board may at
any time terminate, suspend or amend the Plan, except that the Plan
may not be amended in any manner which knowingly would: (a) cause the
Plan not to comply with Rule 16b-3 under the 1934 Act as then
applicable to the Company's employee benefit
5
<PAGE> 6
plans; (b) cause Participants not to be deemed "disinterested persons"
for purposes of Rule 16b-3 under the 1934 Act as then applicable to
the Company's employee benefits plans; or (c) adversely affect a
Participant's rights under the Plan, without the consent of the
Participant. If the Plan is terminated or suspended prior to December
31, 1999, any Retainer/Fees which have been earned but not paid as of
the effective date of termination of the Plan and which are the
subject of an election pursuant to Section 6, will be delivered in the
form of Stock Options on the appropriate Grant Date, notwithstanding
that such date is subsequent to the date the Plan has otherwise been
terminated or suspended.
12. GENERAL PROVISIONS.
(a) Stock Options shall not be transferable or assignable other
than by (a) will or the laws of descent and distribution, or
(b) to the extent permitted by Rule 16b-3 under the 1934 Act
as then applicable to the Company's employee benefits plans,
by gift or other transfer to either (i) any trust or estate in
which the original award recipient or such person's spouse or
other immediate relative has a substantial beneficial interest
or (ii) a spouse or other immediate relative, provided that
such a transfer will continue to require such Stock Options to
be disclosed pursuant to Item 403 of Regulation S-K under the
Securities Act of 1933, as amended from time to time.
(b) Stock Options shall be evidenced by written agreements or such
other appropriate documentation prescribed by the Human
Resources Committee of the Board or its designee.
(c) Neither the Plan nor the granting of Stock Options nor any
other action taken pursuant to the Plan, shall constitute or
be evidence of any agreement or understanding, express or
implied, that the Company shall retain the services of a
Participant for any period of time or at any particular rate
of compensation as a member of the Board. Nothing in the Plan
shall in any way limit or affect the right of the Board or the
shareholders of the Company to remove any Participant from the
Board or otherwise terminate his or her service as a member of
the Board.
(d) The validity, construction and effect of the plan and any such
actions taken under or relating to the Plan shall be
determined in accordance with the laws of the State of
Tennessee and applicable federal law.
6
<PAGE> 1
Exhibit 10(n)
Ronald Terry Post-Retirement Arrangement
The following is a written description of action taken by the Human
Resources Committee of the Corporation's Board of Directors concerning an
arrangement which is not set forth in a written document:
The Human Resources Committee approved the provision of the following
for Ronald Terry, the former Chairman of the Corporation: a company
automobile for three years, future financial counseling and tax
services and a waiver of Bank service fees.
<PAGE> 1
EXHIBIT 11
FIRST TENNESSEE NATIONAL CORPORATION
PRIMARY EARNINGS PER SHARE
AND FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
Twelve Months Ended
December 31
--------------------------------------------
Computation for Statements of Income: 1995 1994 1993
- - ------------------------------------- ------------- ------------- ----------
<S> <C> <C> <C>
Per statements of income (Thousands):
Net income $ 164,888 $ 147,068 $ 109,716
============ ============ ============
Per statements of income:
Weighted average shares outstanding 68,024,794 68,441,382 68,145,768
============ ============ ============
Primary earnings per share (a):
Net income $ 2.42 $ 2.15 $ 1.61
============ ============ ============
Additional Primary computation
- - ------------------------------
Adjustment to weighted average shares
outstanding:
Weighted average shares outstanding
per primary computation above 68,024,794 68,441,382 68,145,768
Add dilutive effect of outstanding
options (as determined by the
application of the treasury stock
method) 1,225,616 1,101,176 1,110,824
------------ ----------- -----------
Weighted average shares outstanding,
as adjusted 69,250,410 69,542,558 69,256,592
============ =========== ===========
Primary earnings per share, as adjusted (b):
Net income $ 2.38 $ 2.11 $ 1.58
============ =========== ===========
Additional Fully Diluted Computation
- - ------------------------------------
Adjustment to net income:
Net income per primary computation above $ 164,888 $ 147,068 $ 109,716
Effect of conversion of subordinated
debt - - 132
------------ ----------- -----------
Fully diluted net income, as adjusted: $ 164,888 $ 147,068 $ 109,848
============ =========== ===========
Adjustment to weighted average share
outstanding:
Weighted average shares outstanding
per primary computation above 69,250,410 69,542,558 69,256,592
Additional dilutive effect of outstanding
options (as determined by the application
of the treasury stock method) 131,096 25,964 24,872
Additional dilutive effect of conversion of
subordinated debt - - 406,200
------------ ----------- -----------
Weighted average shares outstanding,
as adjusted 69,381,506 69,568,522 69,687,664
============ =========== ===========
Fully diluted earnings per share, as adjusted (b):
Net income $ 2.38 $ 2.11 $ 1.58
============ =========== ===========
</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%.
Per share data reflects the 1996 two-for-one stock split.
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
====================================
OVERVIEW OF OPERATIONS
Earnings for 1995 reflect the fifth consecutive year of record earnings.
Income for the year increased 12 percent to $164.9 million from $147.1 million
earned in 1994. 1994 net income increased 34 percent from the $109.7 million
earned in 1993 while 1993 net income increased 18 percent. Net income per
share (adjusted for the 1996 two-for-one stock split) was $2.42 in 1995, up 13
percent over the $2.15 earned in 1994. In 1994, net income per share rose 33
percent from $1.61 earned in 1993. Return on average assets improved for the
year ended December 31, 1995, to 1.45 percent from 1.39 percent in 1994 and
1.10 percent for 1993. Return on average equity rose to 20.04 percent in 1995
from 19.36 percent in 1994 and 16.04 percent in 1993.
The growth in net income since 1993 was primarily the result of
increases in noninterest income. Excluding securities gains in all periods,
noninterest income, driven by the specialty lines of business, grew 13 percent
for both 1995 and 1994, and 52 percent for 1993. Net interest income, on a
fully taxable equivalent basis, declined 1 percent in 1995 from compression in
the net interest margin, following a 4 percent increase in 1994 and an 8
percent increase in 1993 due to growth in earning assets in both periods.
Noninterest expense decreased 2 percent during the year, after growth of 13
percent in 1994 and 37 percent in 1993. At December 31, 1995, First Tennessee
had assets of $12.1 billion and shareholders' equity of $873.2 million,
representing 10 percent and 13 percent growth, respectively, from year-end
1994.
ACQUISITIONS
First Tennessee completed the following acquisitions during the three years
ended December 31, 1995:
<PAGE> 2
<TABLE>
<CAPTION>
===================================================================================================================
ACQUISITIONS (TABLE 1)
Servicing
Portfolio Shares issued* Accounting
Acquisition/location Date (billions) (thousands) Methodology
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MORTGAGE COMPANIES:
Carl I. Brown and Company, January 1995 $2.2 1,731 pooling of interests
Kansas City, Missouri
ORIGINATION VOLUME IN
1995: $1.8 BILLION
HomeBanc Mortgage July 1995 none $7 million cash purchase
Corporation, Atlanta,
Georgia
ORIGINATION VOLUME IN
1995: $.4 BILLION
SNMC Management January 1994 6.1 3,502 pooling of interests
Corporation, parent company
of Sunbelt National Mortgage
Corporation, Dallas, Texas
(SNMC)
ORIGINATION VOLUME IN
1995: $2.5 BILLION
Emerald Mortgage Company, October 1994 .4 304 purchase
Lynnwood, Washington
ORIGINATION VOLUME IN
1995: $.2 BILLION
Maryland National Mortgage October 1993 4.4 $115 million cash purchase
Corporation, Baltimore,
Maryland (MNC)
ORIGINATION VOLUME IN
1995: $1.7 BILLION
- - -------------------------------------------------------------------------------------------------------------------
Assets
(millions)
----------
BANKS/BANK HOLDING COMPANIES:
Community Bancshares Inc., February 1995 $256 2,842 pooling of interests
parent company of Community
First Bank, Germantown,
Tennessee
Peoples Commercial Services April 1995 98 842 purchase
Corporation, parent company
of Peoples Bank, Senatobia,
Mississippi (Peoples)
Financial Investment October 1995 349 2,565 purchase
Corporation, parent company
of First National Bank of
Springdale, Springdale,
Arkansas (FIC)
Cleveland Bank and Trust March 1994 227 2,306 pooling of interests
Company, Cleveland,
Tennessee
Planters Bank, Tunica, August 1994 61 668 pooling of interests
Mississippi
New South Bancorp, parent December 1993 35 298 pooling of interests
company of New South Bank,
Como, Mississippi
- - -------------------------------------------------------------------------------------------------------------------
Assets Under
Management
(billions)
------------
ASSET MANAGEMENT COMPANY:
Highland Capital Management March 1994 $2.6 936 pooling of interests
Corp., Memphis, Tennessee
- - -------------------------------------------------------------------------------------------------------------------
*Approximate number; restated for 1996 two-for-one stock split
</TABLE>
<PAGE> 3
For all purchase transactions, noted in Table 1 - Acquisitions, the
results of their operations are not included in the financial results prior to
their closing date. For transactions accounted for as poolings of interests,
the financial position and results of operations of all companies are reflected
on a combined basis from the earliest period presented. For additional
information related to acquisitions see Note 2 - Business Combinations.
At its January meeting, First Tennessee's board of directors approved
a two-for-one split of First Tennessee's common stock. On February 16, 1996,
each shareholder of record on February 2, 1996, received one additional share
for each share owned. As a result of the two-for-one stock split, First
Tennessee's outstanding number of shares doubled from 33.6 million to 67.2
million at year-end 1995. All share and per share data have been restated to
reflect this split.
The following financial review should be read with the accompanying
consolidated financial statements and accompanying notes.
INCOME STATEMENT ANALYSIS
NONINTEREST INCOME
Noninterest income, also called fee income, is a significant source of First
Tennessee's revenue, contributing approximately 56 percent, 53 percent, and 50
percent in 1995, 1994, and 1993, respectively. Total noninterest income
(excluding securities gains in all periods) increased 13 percent in both 1995
and 1994, compared with a 52 percent increase in 1993. Table 2 - Analysis of
Noninterest Income gives detail by category for the past six years with growth
rates for the one-year and the five-year periods.
MORTGAGE BANKING
Mortgage banking noninterest income consists of loan origination fees,
servicing fee income, net gains from the sale of mortgage loans, and gains from
the sale of mortgage servicing rights. During 1995, mortgage banking fee
income increased 13 percent, and during 1994 and 1993 increased 35 percent and
314 percent, respectively. The increase in 1995 was a result of $200 million
more originations, increased income from servicing fees as a result of a larger
servicing portfolio, and the benefit of a new accounting rule (SFAS No. 122,
"Accounting for Mortgage Servicing Rights an amendment of FASB Statement No.
65" [SFAS No. 122]) related to originated servicing rights. The adoption of
this rule in the second quarter, effective to the beginning of the year,
enabled First Tennessee to retroactively increase first quarter revenues $5.0
million. This rule benefits First Tennessee by treating originated and
purchased mortgage servicing rights equally, thus allowing First Tennessee the
opportunity to retain more servicing.
The acquisition of the mortgage companies had a significant impact on
the comparability of mortgage banking income for the periods presented. MNC,
as a purchase transaction, is only included in the statements of operations for
the fourth quarter of 1993 and forward. SNMC, as a pooling of interests
acquisition, is reflected in all periods presented. However, SNMC began
operations in November 1992; therefore, only the results of two months of
operations are included in that year. Excluding the effects of the items just
mentioned, the growth during 1994 would have been 17 percent, and during 1993
would have been 133 percent. This growth in 1993 was primarily due to First
Tennessee's participation in the refinancing activity experienced in the
overall mortgage industry as interest rates declined during the year.
Originations in 1995 were $7.2 billion compared with $7.0 billion in
1994. The mortgage servicing portfolio, which includes servicing for ourselves
and others, totaled $16.7 billion at December 31, 1995, as compared with $14.2
billion at December 31, 1994. The change in the portfolio during 1995 was
created primarily from additions due to originations of $7.2 billion,
reductions from sales of servicing of $2.7 billion and principal reductions of
$2.0 billion as a result of payments being received in the normal course of
business. The change in the portfolio during 1994 was primarily from
additions due to originations of $7.0 billion and acquired servicing of $.4
billion, and reductions from sales of servicing of $6.7 billion and principal
reductions of $2.5 billion as a result of payments being received in the normal
course of business. Gains recognized from the sale of servicing during 1995
totaled $35.4 million as compared with $83.5 million during 1994, and $23.5
million during 1993. Less servicing was sold in 1995 due to the adoption of
SFAS No. 122.
BOND DIVISION
Bond division revenues increased 7 percent in 1995, following a 15 percent
decrease in 1994 and a 14 percent increase in 1993. Additional volume, through
expansion in the nonbank customer base, contributed to the growth in revenues
during 1995. The decrease in 1994 primarily resulted from strong loan growth
<PAGE> 4
in community banks, one of the principal customer segments of the bond
division, and a change in customer activities and product preferences because of
the regulatory environment and market conditions. The increase in 1993, a
record year, was a result of increased market penetration, additional products,
and a favorable interest rate environment which created a higher demand for
securities. Bond division revenues are obtained primarily from the sale of
securities as both principal and agent. Inventory positions are limited to the
procurement of securities solely for distribution to customers by the sales
staff. Inventory is hedged to protect against movements in interest rates.
DEPOSIT TRANSACTIONS AND CASH MANAGEMENT
Noninterest income for deposit transactions and cash management results from
fees charged for retail deposit products and cash management services. For
1995, fee income in this category increased 11 percent, with 3 percent growth
resulting from an accounting methodology change for business accounts from cash
basis to accrual basis. The remaining fee income increase was due to new
product sales, an expanded customer base, and improvement in the collection
process. The growth in fees collected from retail and business customers in
1995 was partially offset by the reduction in the Federal Deposit Insurance
Corporation (FDIC) premium. In 1991, when the FDIC increased deposit insurance
to $.23 per $100 of deposits, First Tennessee assessed only a portion of this
cost to its customers. In August 1995, the FDIC voted to lower deposit
insurance premiums paid by well-capitalized banks to $.04 per $100 of deposits.
These fees received from customers, that have partially offset the overall cost
of the deposit insurance premium, will no longer be assessed, thus reducing
revenues approximately $1.0 million per quarter going forward. Deposit
transactions and cash management fee income increased 10 percent and 8 percent
in 1994 and 1993, respectively. The growth in 1994 reflected increased sales
and the introduction of new retail deposit products and pricing changes. The
1993 increase was related to services sold to businesses and a lower earnings
credit rate on corporate demand deposit accounts.
CARDHOLDER AND MERCHANT PROCESSING
Noninterest income for cardholder and merchant processing, two separate
divisions related to the credit card business, increased 18 percent in 1995, 10
percent in 1994, and 7 percent in 1993. The increases experienced over the
last three years primarily reflect growth in the volume of merchant
transactions processed as well as the expansion of merchant services in
restaurant and hotel businesses.
TRUST SERVICES
During 1995, noninterest income from this specialty line of business grew 23
percent, from $28.9 million in 1994 to $35.6 million in 1995. Growth of $4.2
million or 15 percent was a result of an accounting change from cash basis to
accrual basis. The managed asset segment of the business grew appreciably in
1995. Fees from these products, including Personal Trust, Employee Benefits,
and Investment Management accounts, grew 13 percent over comparable 1994
levels. Fees from Corporate Trust Services, an indenture trustee business that
acts as trustee on public bond issues, declined due to significant reductions
in debt issuance by municipalities. Fee growth in the managed asset segment
during 1994 was 5 percent. Total trust assets, including custodial accounts,
were approximately $14.9 billion at the end of 1995, compared with $12.5
billion at the end of 1994. Managed assets grew 18 percent during 1995 and
reached $5.2 billion on December 31, 1995, compared with $4.4 billion at
December 31, 1994.
NET SECURITIES GAINS/LOSSES
The net securities gains of $2.4 million in 1995 included $.9 million in
recoveries from investments previously written down; $4.6 million realized as
venture capital gains; and the write-down of $3.6 million of securities that,
in the opinion of management, have been permanently impaired. In 1994, net
securities gains included $7.5 million of equity securities gains related to
the formation of a charitable foundation; $5.0 million of losses resulting from
securities being sold in the normal course of business; $.8 million in
recoveries from investments previously written down; and $16.7 million realized
as venture capital gains. The net securities gains in 1993 included $1.1
million of gains resulting from securities being sold in the normal course of
business, $.3 million in recoveries of held for sale securities marked to
market value, and $.5 million loss realized on venture capital.
ALL OTHER NONINTEREST INCOME
All other noninterest income grew 12 percent, 10 percent, and 18 percent for
the years 1995, 1994, and 1993, respectively. The largest sources of all other
noninterest income were check clearing fees and other service charges. Income
<PAGE> 5
from check clearing fees increased 9 percent, 11 percent, and 12 percent for
1995 through 1993, respectively. This growth was primarily due to the
increase in the volume of checks processed by First Express, First
Tennessee's national check clearing operation.
Other service charges are fees generated from banking services
performed, but are not directly related to deposit transactions, such as fees
for money orders, travelers checks, savings bonds, safety deposit rental,
mutual funds, and safekeeping. During 1995, these fees grew 5 percent
following a decrease of 21 percent in 1994 and growth of 34 percent in 1993.
The increase in 1993 revenues primarily related to additional sales of mutual
fund products by First Tennessee employees in response to a change in
customer's investment preferences. In 1994, this sales effort continued, but
with a third party vendor which received a portion of the fees related to these
products, thus reducing the amount of fees collected.
As previously discussed, the method of accounting for acquisitions impacts the
comparability of financial statements. The growth in total noninterest income
during 1995 would have been 11 percent, excluding securities gains, the
purchases of Peoples and FIC, and the changes in accounting methodology from
cash basis to accrual basis previously explained. The growth in 1994 would
have been 6 percent, excluding MNC from 1994 and 1993 results. The growth in
1993 would have been 25 percent, excluding MNC and SNMC from the 1993 and 1992
results.
NET INTEREST INCOME
For purposes of this discussion, net interest income has been adjusted to a
fully taxable equivalent basis for certain tax-exempt loans and investments
included in earning assets. Earning assets, including loans, have been
expressed as averages, net of unearned income.
Earning assets increased 7 percent in 1995, 5 percent in 1994, and 10
percent in 1993 as a result of commercial and consumer loan growth during the
three-year period. Total interest-bearing liabilities grew 9 percent in 1995,
4 percent in 1994, and 11 percent in 1993. Table 4 - Analysis of Changes in
Net Interest Income gives volume and rate detail by category comparing 1995 to
1994 and 1994 to 1993.
<TABLE>
<CAPTION>
=====================================================================================================
NET INTEREST INCOME AND EARNING ASSETS (TABLE 3)
Years Ended December 31
-----------------------
(Dollars in thousands) 1995 1994 1993
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment securities $ 2,161.0 $2,248.7 $3,015.3
Loans 7,593.3 6,752.3 5,611.7
Other earning assets 340.4 405.2 326.6
- - ----------------------------------------------------------------------------------------------------
Total earning assets $10,094.7 $9,406.2 $8,953.6
- - ----------------------------------------------------------------------------------------------------
Net interest income - FTE $ 395.7 $ 399.3 $ 382.4
Yields on earning assets excluding swaps 8.26% 7.51% 7.34%
Impact from interest rate swaps (.06) (.01) .01
- - ----------------------------------------------------------------------------------------------------
Yields adjusted for swaps 8.20 7.50 7.35
- - ----------------------------------------------------------------------------------------------------
Rates paid on interest-bearing
liabilities excluding swaps 4.87 3.84 3.66
Impact from interest rate swaps .22 .09 .02
- - ----------------------------------------------------------------------------------------------------
Rates paid adjusted for swaps 5.09 3.93 3.68
- - ----------------------------------------------------------------------------------------------------
Net interest spread 3.11 3.57 3.67
Effect of interest-free sources .81 .68 .60
- - ----------------------------------------------------------------------------------------------------
Net interest margin 3.92 4.25 4.27
- - ----------------------------------------------------------------------------------------------------
Net interest margin excluding swaps 4.16% 4.32% 4.28%
- - ----------------------------------------------------------------------------------------------------
</TABLE>
The extreme interest rate movements in 1994 and the flattening of the
yield curve in 1995 contributed to the decline in the net interest margin in
1995 as First Tennessee's balance sheet and off-balance sheet positions were
impacted from repricing mismatches. A $1 billion basis swap, executed in May
1993 and terminated at the beginning of 1995, negatively impacted the net
interest margin approximately 18 basis points in 1995 and 7 basis points in
1994, and will continue to affect the margin through May 1996 when the
amortization period for the swap ends.
<PAGE> 6
The net interest margin is affected by the activity levels and related
funding for First Tennessee's specialty lines of business, as these nonbank
business lines typically produce different margins than traditional
retail/commercial banking activities. Consequently, First Tennessee's
consolidated margin cannot be readily compared to that of other bank holding
companies. During 1995, mortgage banking negatively impacted the margin
approximately 9 basis points because the spread between the rates on mortgage
loans temporarily in the warehouse and the related short-term funding rates
were significantly less than the comparable spread earned in the
retail/commercial bank. The bond division also negatively impacted the margin
approximately 11 basis points in 1995. First Tennessee's strategy is to hedge
inventory in the cash markets, effectively eliminating net interest income on
these positions. In 1994 and 1993, the margin was negatively impacted 8 basis
points and 10 basis points, respectively, by mortgage banking, and 14 basis
points and 13 basis points, respectively, by the bond division.
The balance sheet was rate sensitive $518 million more assets than
liabilities scheduled to reprice within one year, as shown in Table 5 - Rate
Sensitivity Analysis, which is 5.0 percent of earning assets and within First
Tennessee guideline limits. This point-in-time measurement indicates that
over the course of a year a downward movement in rates may negatively impact
the net interest margin since assets will reprice faster than liabilities.
Net interest income increased during the year due to a higher volume
of average earning assets, as shown in the graph below. The results of
maturities and actions taken in 1995 have led to the improvement in the net
interest margin over the past quarter as also shown in the graph.
[Graph]
With First Tennessee's existing balance sheet mix and the current
interest rate environment, the retail/commercial bank's margin is expected to
continue to improve throughout 1996, especially once the costs associated with
the basis swap end. Going forward, the consolidated margin will continue to be
influenced by the activity levels in the specialty lines of business.
PROVISION FOR LOAN LOSSES
The provision for loan losses is the charge to operating earnings that
management determines to be necessary to maintain the allowance for loan losses
at an adequate level, and reflects management's estimate of the risk of loss
inherent in the loan portfolio. The provision for loan losses was $20.6
million, $17.2 million, and $36.5 million for the years 1995, 1994, and 1993,
respectively. The provision for 1994, the lowest level since 1990, shows the
significant improvement in asset quality from 1993. While asset quality trends
remained favorable, the provision increased in 1995 to cover the growth in the
loan portfolio.
NONINTEREST EXPENSE
Noninterest expense, also called operating expense, decreased 2 percent in 1995
following increases of 13 percent in 1994 and 37 percent in 1993. Table 6 -
Analysis of Noninterest Expense provides details by category for the past six
years.
A number of transactions during the periods reviewed affected the
comparability of noninterest expense. One-time acquisition expenses of $5.8
million, $4.8 million, and $9.4 million were recognized in 1995, 1994, and
1992, respectively. There were no one-time acquisition expenses in 1993.
During 1995, $1.4 million in expenses was recognized related to the change in
accounting methodology from cash basis to accrual basis for trust services fees
and deposit transactions and cash management fees. Peoples and FIC were
included in the results of operations only from the dates of their acquisitions
which added $4.8 million to 1995 expenses. During 1994, nonrecurring expenses
included the adoption of a new accounting standard (SFAS No. 112, "Employers'
Accounting for Postemployment Benefits") which increased benefits expense $2.3
million related to prior services rendered and rights vested for postemployment
benefits. Also in 1994, a charitable foundation was established which
increased contribution expenses $9.4 million. Total expenses increased $20.4
million in 1993 from the impact of the acquisitions of MNC and New South
Bancorp. Included in the 1992 results were one-time costs of $1.6 million
related to the restructuring of remote data processing centers and benefit
awards. Finally, the acquisition of SNMC in 1994 added only two months of
expenses in 1992 due to a November start-up date. For comparative purposes,
excluding the one-time expenses and other items just discussed, the 1995
noninterest expenses still decreased 2 percent, following increases of 4
percent and 17 percent for 1994 and 1993, respectively.
Employee compensation, incentives, and benefits (staff expense), the
largest component of noninterest expense, decreased 3 percent in 1995,
following increases of 13 percent and 44 percent for 1994 and 1993,
respectively. Staff expense includes commissions paid in several lines of
<PAGE> 7
business, such as the bond division, mortgage banking, and the venture
capital companies. As the revenues increase or decrease in these business
lines, the commissions change accordingly. For comparative purposes, excluding
the previously mentioned one-time items, the 1995 decrease in staff expense
would still have been 3 percent compared with increases of 6 percent and 24
percent in 1994 and 1993, respectively. The 1995 decrease is primarily due to
the benefit of operating efficiences especially in mortgage banking from
consolidation synergies. The increase in 1994 was partially offset by a
reduction in the mutual fund sales force in 1994. The increases in 1994 and
1993 reflect the specialty lines of business which use commission-based
compensation.
Deposit insurance premium expense decreased $7.0 million or 41 percent
in 1995 following several years of stable premium expense. The premium, which
had been set at $.23 per $100 of deposits since 1991 was lowered to $.04 per
$100 of deposits in August 1995; and, as a result of the Bank Insurance Fund
(BIF) becoming fully capitalized, the FDIC voted in November of 1995 to reduce
insurance on BIF deposits to zero as of January 1, 1996, with only
adminstrative costs being assessed to the banks. Congress is currently
discussing various proposals to fully capitalize the Savings Association
Insurance Fund (SAIF). An assessment could potentially be charged to all
institutions that have SAIF-insured deposits. The timing of the assessment
could be as early as the first quarter of 1996. In management's opinion, under
current proposals, the maximum pre-tax, one-time cost to First Tennessee is
estimated to be approximately $6.1 million.
All Other expense consists of many smaller expense categories such as
supplies, Fed service fees, travel and entertainment, foreclosed real estate
expenses, contributions, and others. During 1995, the decrease in All Other
expense was 15 percent, following increases of 17 percent and 27 percent for
1994 and 1993, respectively. For comparative purposes, excluding the
nonrecurring expenses previously discussed, these expenses decreased 4 percent
and 2 percent for 1995 and 1994, respectively, after increasing 11 percent in
1993.
INCOME TAXES
The effective tax rate in 1995 was 34.8 percent compared with 29.2 percent in
1994 and 37.4 percent in 1993. The lower tax rate in 1994 resulted from the
elimination of $7.7 million of deferred tax valuation allowance related to the
acquisition of SNMC, and $2.9 million related to the establishment of a
charitable foundation. Without these items, the 1994 effective tax rate would
have been 34.3 percent. For further information see Note 16 - Income Taxes.
BALANCE SHEET REVIEW
At December 31, 1995, First Tennessee reported total assets of $12.1 billion
compared with $10.9 billion and $10.8 billion at the end of 1994 and 1993,
respectively. Average assets were $11.4 billion in 1995 compared with $10.6
billion in 1994 and $10.0 billion in 1993.
EARNING ASSETS
Investment securities and loans are the primary types of earning assets. For
1995, earning assets averaged $10.1 billion compared with $9.4 billion for 1994
and $9.0 billion for 1993. Average earning assets were 89 percent of total
average assets in 1995 and 1994, and 90 percent of total average assets in
1993.
INVESTMENT SECURITIES
The investment portfolio consists principally of debt securities that First
Tennessee uses as a source of income and liquidity, to balance interest rate
risk with other categories of the balance sheet, and to supply securities to
pledge as required collateral for certain deposits. Table 7 - Maturities of
Investment Securities shows information pertaining to the composition, yields,
and maturities of the securities portfolio. Average investment securities
peaked in 1993 at more than $3 billion, and decreased 25 percent in 1994 and 4
percent in 1995, as mortgage warehouse loans increased in 1994. Excluding the
impact of purchase acquisitions in 1995, the decrease would have been 7 percent
in 1995. Investment securities represented 21 percent and 24 percent of
earning assets for 1995 and 1994, respectively.
The investment portfolio is classified into two categories:
securities held to maturity and securities available for sale. Securities that
management has the positive intent and ability to hold to maturity are included
in the securities held to maturity (HTM) category and are carried at amortized
cost. The designation of securities as available for sale (AFS) applies to all
other securities that may be held for indefinite periods, including securities
that may be sold in response to changes in interest rates, changes in
prepayment risk, increases in loan demand, general liquidity needs, and other
similar factors. These securities are carried at their fair values with
unrealized gains and losses excluded from operating results and reported, net of
<PAGE> 8
deferred taxes, as a component of shareholders' equity.
During the fourth quarter of 1995, the Financial Accounting Standards
Board (FASB) released a report, "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities." As a result
of this report, banks were allowed to reclassify their AFS and HTM securities
before January 1, 1996, without any adverse ramifications. First Tennessee did
reclassify a portion of the investment portfolio on December 1, 1995. Prior to
the reclassification, the AFS portfolio was approximately 52 percent of the
total investment securities portfolio; after reclassification, the AFS
portfolio was approximately 96 percent of the total.
At December 31, 1995, the securities portfolio totaled $2.1 billion of
which $2.0 billion of securities were classified as AFS with an average life of
2.1 years. These securities consisted primarily of mortgage-backed securities,
collateralized mortgage obligations (CMOs), U.S. Treasuries, and U.S.
government agencies. At December 31, 1995, these securities had approximately
$18.2 million of net unrealized gains that resulted in an increase in book
equity of approximately $10.6 million, net of $7.6 million of deferred income
taxes. At December 31, 1994, the $1.2 billion of AFS securities had
approximately $39.6 million of net unrealized losses that resulted in a
decrease in equity of approximately $24.3 million, net of $15.3 million of
deferred income taxes. The increase in the market value of this portfolio
during 1995 came primarily from an improved interest rate environment.
HTM securities totaled $74.7 million and were primarily municipal
bonds at December 31, 1995, with an average life of 6.9 years. The HTM
securities portfolio had a net unrealized gain at December 31, 1995 of $1.0
million. At December 31, 1994, the securities classified as HTM totaled $1.0
billion and had a net unrealized loss of $52.7 million.
Corporate guidelines call for all securities purchased 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 92 percent of the
investment portfolio at December 31, 1995.
LOANS
Loans grew 12 percent during 1995 and 20 percent during 1994. For purposes of
this discussion, loans are expressed as averages, net of unearned income,
unless otherwise noted. Loans represented 75 percent of earning assets in 1995
and 72 percent in 1994. Additional loan information is provided in Table 8 -
Maturities of Loans and Note 4 - Loans. The purchase acquisitions of Peoples
and FIC were responsible for approximately 1 percent of the total loan growth
in 1995. The impact by individual loan category was similar.
Commercial loans continued as the single largest loan category,
representing 41 percent of total loans in both 1995 and 1994. During 1995,
commercial loans grew 13 percent compared with 14 percent in 1994. The
increase in commercial loans generally reflects the economic growth experienced
in Tennessee during this period, as well as new customers and the result of
cross-selling efforts to existing deposit and cash management customers.
The consumer loan portfolio consists of real estate, automobile,
student and other consumer installment loans that require periodic payments of
principal and interest. The consumer loan portfolio represented 31 percent of
total loans in both 1995 and 1994. During 1995, consumer loans grew 14 percent
compared with 37 percent in 1994. Growth in consumer loans has primarily been
due to successes with direct marketing efforts and increases in automobile
loans and second mortgages. First Tennessee is active in selling second
mortgages not only in Tennessee through First Tennessee Bank National
Association (FTBNA) but also outside of this market through Gulf Pacific
Mortgage, a division of FTBNA. Growth in real estate loans, principally
secured by first and second liens on residential property, contributed
significantly to the increase in the consumer loan portfolio in 1994.
Mortgage warehouse loans held for sale are loans awaiting
securitization. These loans represented approximately 9 percent of total loans
in 1995 and 11 percent of total loans in 1994. The mortgage warehouse declined
8 percent during 1995 with a 53 percent increase in period-end balances between
December 31, 1994, and 1995, as the majority of loan originations did not occur
until the latter half of 1995. The mortgage warehouse grew 25 percent in 1994,
primarily due to the purchase acquisition of MNC.
The permanent mortgage portfolio includes certain mortgage loans,
principally adjustable rate mortgages, that First Tennessee periodically
decides to retain. During 1995, the permanent mortgage portfolio represented
9 percent of total loans compared with 8 percent in 1994. This portfolio of
loans grew 18 percent in 1995 and 6 percent in 1994.
Credit card receivables represent outstanding balances on credit card
accounts. During both 1995 and 1994, credit card receivables represented
<PAGE> 9
6 percent of total loans. During 1995, credit card receivables increased 11
percent compared with an increase of 9 percent in 1994. The growth was a
result of increased use by consumers of debt, cross-selling opportunities, and
targeted promotional campaigns.
The real estate construction loan portfolio represented 3 percent of
total loans in 1995 and 2 percent in 1994. During 1995, this loan portfolio
increased $99 million or 84 percent compared with a $35 million increase or 43
percent in 1994. Growth during this period was a result of economic growth and
favorable market conditions.
DEPOSITS, OTHER SOURCES OF FUNDS, AND LIQUIDITY MANAGEMENT
Core deposits are First Tennessee's primary source of funding and one of the
most stable sources of liquidity for a bank. During 1995, these deposits
averaged $7.6 billion and represented 75 percent of First Tennessee's earning
asset funding compared with $7.3 billion and 77 percent, respectively, in 1994
and $6.8 billion and 76 percent, respectively, in 1993. Approximately
two-thirds of the growth in 1995 came from growth in the depositor base as the
number of households increased approximately 6 percent. The other third of the
growth came from the purchases of Peoples and FIC. Interest-bearing core
deposits grew 6 percent during 1995 compared with 5 percent in 1994, while
noninterest-bearing demand deposits were relatively flat during 1995 and grew
13 percent in 1994. Excluding the purchase acquisitions, interest-bearing core
deposits grew 5 percent and noninterest-bearing demand deposits decreased 1
percent in 1995.
Purchased funds averaged $2.4 billion for 1995, up 11 percent, or $238
million from the previous year. Purchased funds represented 24 percent of the
corporation's funding in 1995 and 23 percent in 1994. The purchase
acquisitions represented $27 million or 1 percent of the growth in purchased
funds in 1995.
Term borrowings include senior and subordinated long-term debt and
borrowings from the Federal Home Loan Bank with maturities greater than one
year. Term borrowings increased $107 million during 1995. In November 1995,
First Tennessee (the parent company) completed a $75 million subordinated debt
issuance in the form of 10-year noncallable notes. The notes have a coupon of
6.75 percent.
The objective of liquidity management is to ensure the continuous
availability of funds to meet the demands of depositors, investors, and
borrowers. ALCO (Asset/Liability Committee) is responsible for managing these
needs which take into account the marketability of assets, the sources and
stability of funding, and the level of unfunded commitments. Parent company
liquidity is maintained by cash flows stemming from dividends and interest
payments collected from subsidiaries, which represent the primary source of
funds to pay dividends to shareholders and interest payments to bondholders.
The amount of dividends from bank subsidiaries is subject to certain regulatory
restrictions, which is presented in Note 19 - Restrictions on Dividends and
Intercompany Transactions. The parent company statements are presented in Note
22 - Condensed Financial Information. The parent company also has the ability
to enhance its liquidity position by raising equity or incurring debt. Under
an effective shelf registration statement on file with the Securities and
Exchange Commission, First Tennessee, as of December 31, 1995, may offer from
time to time, at its discretion, debt securities and common and preferred stock
up to $225 million. Maintaining adequate credit ratings on debt issues is
critical to liquidity because it affects the ability of First Tennessee to
attract funds from various sources on a cost competitive basis. The various
credit ratings are detailed in Table 9 - Credit Ratings.
<TABLE>
<CAPTION>
=================================================================================================
CREDIT RATINGS AT DECEMBER 31, 1995 (TABLE 9)
Standard Thomson
& Poor's Moody's BankWatch IBCA Fitch
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIRST TENNESSEE
Overall credit rating B
Subordinated capital
notes due 1999 BBB+ Baa1 A-
Subordinated capital
notes due 2005 BBB+ Baa1 A- A
Commercial paper TBW-1
- - --------------------------------------------------------------------------------------------------
FIRST TENNESSEE BANK NATIONAL ASSOCIATION
Short-term/Long-term
deposits A-1/A P-1/A1 TBW-1 A1/A
Counterparty credit rating A A1
- - --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 10
CAPITAL
Total shareholders' equity at December 31, 1995, was $873.2 million, up $98.3
million, or 13 percent from the balance at the end of 1994. This followed an
increase of $53.8 million, or 7 percent from year-end 1993. In both years, the
increase was principally due to the retention of net income after dividends.
The Consolidated Statements of Shareholders' Equity highlight the detailed
changes in equity since December 31, 1993.
Capital adequacy is an important indicator of financial stability and
performance. Management's objectives are to maintain a level of capitalization
that is sufficient to sustain asset growth, take advantage of profitable growth
opportunities, and promote depositor and investor confidence. Overall, First
Tennessee's capital position remained strong with a ratio of average equity to
assets of 7.24 percent and 7.18 percent for 1995 and 1994, respectively. The
period-end equity to assets ratio improved 14 basis points from 7.09 percent at
December 31, 1994, to 7.23 percent at December 31, 1995. Double leverage
increased to 107.2 percent at December 31, 1995, from 99.7 percent at
December 31, 1994.
Banking industry regulators define minimum capital ratios for bank
holding companies and their subsidiaries. Based on the risk-based capital
rules and definitions prescribed by the banking regulators, should an
institution's capital ratios decline below predetermined levels, it would
become subject to a series of increasingly restrictive regulatory actions. The
system categorizes a financial institution's capital position into one of five
categories ranging from well-capitalized to critically under-capitalized. For
an institution to qualify as well-capitalized, Tier 1, Total Capital and
Leverage capital ratios must be at least 6 percent, 10 percent, and 5 percent,
respectively. First Tennessee and its affiliates, on December 31, 1995, had
sufficient capital to qualify as well-capitalized institutions as shown in
Table 10 - Regulatory Capital.
At December 31, 1995, book value per common share was $13.00 based on
shares outstanding of approximately 67.2 million compared with $11.37 based on
shares outstanding of 68.1 million at December 31, 1994. First Tennessee's
shares are traded on The Nasdaq Stock Market under the symbol FTEN. The sales
price ranges, earnings per share, and dividends by quarter for each of the last
two years are presented in Table 16 - Summary of Quarterly Financial
Information. At December 31, 1995, the closing sales price was $30.25 per
share. This price was 233 percent of year-end book value per share, and the
dividend yield is 3.5 percent for 1996 based on current dividends per share.
The quarterly dividend was last increased at the October 24, 1995, board
meeting to $.265 per share, up from $.235 per share. The two-for-one stock
split, effective February 16, 1996, changed the par value of First Tennessee's
common stock from $2.50 to $1.25 per share and the shares of common stock
authorized doubled from 100 million to 200 million.
At the October 1995 board of directors meeting, authority was given to
management to purchase up to $60 million of First Tennessee stock to manage the
capital balance between debt and equity and reduce excess equity levels. The
purchase of these shares was completed prior to year-end 1995 and is expected
to have a positive impact on future earnings. In total during 1995, First
Tennessee purchased approximately 4.8 million shares of its common stock.
Approximately 3.4 million shares were issued for acquisitions closed during the
year, and approximately 438,000 shares were issued for benefit programs. The
company plans to continue to purchase shares pursuant to board authority for
various stock option plans, and from time to time, will evaluate the level of
capital and take action designed to generate or use the capital to maximize the
benefit to shareholders. During 1994, approximately 1.1 million shares were
repurchased, with 304,000 shares being issued for acquisitions and 322,000
shares being issued for benefit plans. This share information has been
restated for the two-for-one stock split that occurred in the first quarter of
1996.
ASSET QUALITY
First Tennessee manages asset quality through diversification in the loan
portfolio and adherence to its credit policy. Management strives to identify
loans experiencing difficulty early enough to correct the problems, to
recognize nonperforming loans in a timely manner, to record charge-offs
promptly based on realistic assessments of current collateral values and the
borrower's ability to repay, and to maintain adequate reserves to cover
inherent losses in the loan portfolio. First Tennessee's goal is not to avoid
risk, but to manage it, and to include credit risk as part of the pricing
decision of each product. At December 31, 1995, First Tennessee had no
concentrations of 10 percent or more of total loans in any single industry.
ALLOWANCE 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 for loan losses is increased by the provision for loan losses and
<PAGE> 11
recoveries and is decreased by charged-off loans. The evaluation process
to determine potential losses includes consideration of the industry,
specific conditions of the individual borrower, and the general economic
environment. While management uses available information to recognize
potential losses on loans, future additions to the reserve may be necessary
based on changes in economic conditions. Table 11 - Analysis of Allowance for
Loan Losses summarizes loans charged off and recoveries of loans previously
charged off by loan category, and additions to the reserve which have been
charged to operating expense. The allowance for loan losses is allocated
according to the amount systematically estimated as necessary to provide for
the inherent losses within the various categories of loans. This allocation is
based primarily on previous charge-off experience adjusted for changes in the
risk characteristics of each category. In addition, classified loans over $1
million are evaluated separately and a specific reserve is set based on the
expected loss of the individual loan. The anticipated effect of economic
conditions on loan categories is another factor used in determining the
quantifying amounts. A general reserve is also maintained to supplement
specific allocations. Table 12 - Loans and Foreclosed Real Estate gives a
breakdown of the allowance allocation by major loan types and commercial loan
grades at December 31, 1995, compared with the same period in 1994.
The total allowance for loan losses for 1995 increased 2 percent from
the 1994 and 1993 levels. The ratio of allowance for loan losses to loans, net
of unearned income, was reduced to 1.39 percent at December 31, 1995, from 1.57
percent at December 31, 1994, as a result of the loan growth experienced in
1995. Excluding mortgage warehouse loans, this ratio was 1.54 percent and 1.69
percent in 1995 and 1994, respectively.
NET CHARGE-OFFS
Each lending product has, as a normal course of business, an expected level of
net charge-offs based on the profit margin of that product. The level of
charge-offs can vary from period to period due to the size, type, and number of
individual credits; all of which may be cyclical, depending on economic
conditions.
In 1995, net charge-offs increased $2.5 million to $20.5 million at
December 31. Net charge-offs were $18.0 million and $29.9 million for 1994 and
1993, respectively. The ratio of net charge-offs to total loans remained at
.27 percent for 1995 and 1994. This ratio for 1993 was .53 percent of total
loans.
Commercial and real estate loan recoveries exceeded charge-offs by
$1.0 million in 1995. This compares with net charge-offs of $2.5 million in
1994, a more normal level of charge-offs. Consumer loan net charge-offs in
1995 were $6.6 million, an increase of $1.8 million from 1994; and credit card
receivables net charge-offs were $14.9 million, an increase of $4.1 million in
1995; both reflecting growth in these consumer loan portfolios and a return
toward a more historical level of charge-offs.
Asset quality levels were at their best in 1994. Going forward, in
light of current expected economic conditions and trends, the absolute level of
net charge-offs will continue to increase from the low levels experienced in
1994 and 1995. Despite a possible increase, management believes that during
1996 there will be no significant deterioration in the asset quality ratios.
NONPERFORMING ASSETS
Nonaccrual and restructured loans constitute nonperforming loans, and these,
along with foreclosed real estate and other assets, represent nonperforming
assets. Nonaccrual loans consist of those loans on which recognition of
interest income was discontinued. Restructured loans generally take the form
of an extension of the original repayment period and/or a reduction or deferral
of interest or principal because of a deterioration in the financial position
of the borrower.
Nonperforming assets decreased 17 percent in 1995 and 41 percent in
1994. Nonperforming loans increased $2.0 million, or 12 percent in 1995,
compared with a decrease of $12 million or 41 percent in 1994. At December 31,
1995, foreclosed properties amounted to $11.8 million, a decrease of 39 percent
from the $19.2 million of foreclosed properties reported in 1994. Nonperforming
assets along with past due loans are presented in Table 14 - Nonperforming
Assets. Table 15 - Changes in Nonperforming Assets, gives additional
information for 1993 to 1995.
PAST DUE LOANS AND POTENTIAL PROBLEM ASSETS
Past due loans are loans contractually past due 90 days or more as to interest
or principal payments, but have not yet been put on nonaccrual status. Past
due loans were $33.3 million or .4 percent of loans at December 31, 1995, a
$10.0 million increase from the $23.3 million or .3 percent of loans at
December 31, 1994, reflecting the overall trends in both permanent mortgage and
<PAGE> 12
consumer loan delinquencies, the change in the loan mix, and the return to
more historical past due levels.
Potential problem assets, which are not included in nonperforming
assets, decreased to $66.6 million at December 31, 1995, from the previous
year's level, and were less than 1 percent of total loans in 1995. Potential
problem assets 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 for loans classified substandard and
doubtful.
<PAGE> 13
ANALYSIS OF NONINTEREST INCOME (TABLE 2)
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993 1992
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NONINTEREST INCOME:
Mortgage banking $212,579 $187,340 $138,960 $ 33,539
Bond division 82,814 77,478 91,525 80,275
Deposit transactions and cash management 70,957 64,169 58,377 53,914
Cardholder and merchant processing 36,984 31,402 28,467 26,556
Trust services 35,632 28,933 26,532 23,819
Equity securities gains/(losses) 3,195 24,251 (479) 342
Debt securities gains/(losses) (751) (4,298) 1,371 (1,535)
All other:
Check clearing fees 17,585 16,124 14,569 12,956
Other service charges 7,709 7,334 9,296 6,942
Other 29,859 26,006 21,303 18,532
- - ---------------------------------------------------------------------------------------
Total other income 55,153 49,464 45,168 38,430
- - ---------------------------------------------------------------------------------------
Total noninterest income $496,563 $458,739 $389,921 $255,340
=======================================================================================
</TABLE>
<TABLE>
<CAPTION>
ANALYSIS OF NONINTEREST INCOME
Growth rates (%)
---------------------
(Dollars in thousands) 1991 1990 95/94 95/90
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NONINTEREST INCOME:
Mortgage banking $ 17,593 $ 19,483 13.5 + 61.3 +
Bond division 68,628 41,704 6.9 + 14.7 +
Deposit transactions and cash management 46,300 40,246 10.6 + 12.0 +
Cardholder and merchant processing 25,834 22,299 17.8 + 10.6 +
Trust services 20,996 17,994 23.2 + 14.6 +
Equity securities gains/(losses) (713) (1,039) 86.8 - 38.4 +
Debt securities gains/(losses) (47) (932) 82.5 + 3.6 +
All other:
Check clearing fees 8,879 8,610 9.1 + 15.4 +
Other service charges 5,539 4,936 5.1 + 9.3 +
Other 13,652 19,798 14.8 + 8.6 +
- - --------------------------------------------------------------
Total other income 28,070 33,344 11.5 + 10.6 +
- - --------------------------------------------------------------
Total noninterest income $206,661 $173,099 8.2 + 23.5 +
===============================================================
</TABLE>
Certain previously reported amounts have been reclassified to agree with
current presentation.
<PAGE> 14
ANALYSIS OF CHANGES IN NET INTEREST INCOME (Table 4)
<TABLE>
<CAPTION>
1995 Compared to 1994 1994 Compared to 1993
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 $22,727 $ 30,160 $ 52,887 $ 7,161 $ 25,836 $ 32,997
Consumer 15,284 23,987 39,271 (6,269) 44,906 38,637
Mortgage warehouse loans held for sale 3,400 (4,664) (1,264) (40) 11,117 11,077
Permanent mortgage 43 7,978 8,021 (4,344) 2,530 (1,814)
Credit card receivables 2,463 6,431 8,894 735 4,722 5,457
Real estate construction 1,191 10,462 11,653 697 3,379 4,076
Nonaccrual 213 (162) 51 357 (786) (429)
- - ------------------------------------------------ ------- --------
Total loans 47,800 71,713 119,513 (2,663) 92,664 90,001
- - ------------------------------------------------ ------- --------
Investment securities:
U.S. Treasury and other U.S.government agencies 6,728 (3,583) 3,145 (1,288) (36,689) (37,977)
States and municipalities (521) (271) (792) (679) (2,347) (3,026)
Other 582 (1,627) (1,045) (1,410) (7,539) (8,949)
- - ------------------------------------------------- -------- --------
Total investment securities 6,751 (5,443) 1,308 (3,340) (46,612) (49,952)
- - ------------------------------------------------- -------- --------
Other earning assets:
Investment in bank time deposits 79 (104) (25) 1 43 44
Federal funds sold and securities
purchased under agreements to resell 2,447 (1,532) 915 2,297 1,589 3,886
Broker/dealer securities inventory 1,811 (1,896) (85) 1,836 1,595 3,431
- - ------------------------------------------------- -------- --------
Total other earning assets 4,466 (3,661) 805 3,706 3,655 7,361
- - ------------------------------------------------- -------- --------
Total earning assets 67,849 53,777 121,626 13,635 33,775 47,410
- - ------------------------------------------------------------------------------------------------------------------------------
Total interest income - FTE $121,626 $ 47,410
==============================================================================================================================
INTEREST EXPENSE:
Interest-bearing deposits:
Checking/Interest $ (552) $ (888) $ (1,440) $(1,055) $ (557) $ (1,612)
Savings (1,096) (1,568) (2,664) (4,832) 2,840 (1,992)
Money market account 27,022 4,588 31,610 10,147 2,807 12,954
Certificates of deposit under $100,000 and
other time 27,890 17,923 45,813 424 4,343 4,767
Certificates of deposit $100,000 and more 8,674 3,239 11,913 616 1,856 2,472
- - ------------------------------------------------- -------- --------
Total interest-bearing deposits 69,142 16,090 85,232 4,571 12,018 16,589
Federal funds purchased and securities
sold under agreements to repurchase 19,623 20,820 40,443 10,818 478 11,296
Commercial paper and other short-term borrowings 8,658 (17,502) (8,844) 4,661 (2,023) 2,638
Term borrowings (862) 9,309 8,447 21 (87) (66)
- - ------------------------------------------------- -------- --------
Total interest-bearing liabilities 96,428 28,850 125,278 19,025 11,432 30,457
- - -----------------------------------------------------------------------------------------------------------------------------
Total interest expense $125,278 $ 30,457
=============================================================================================================================
Net interest income - FTE $ (3,652) $ 16,953
=============================================================================================================================
</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> 15
RATE SENSITIVITY ANALYSIS AT DECEMBER 31, 1995 (TABLE 5)
<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 $4,114 $421 $ 857 $2,731 $ 8,123
Investment securities 154 133 334 1,490 2,111
Other earning assets 250 -- -- -- 250
- - --------------------------------------------------------------------------------------------------------------
Total earning assets $4,518 $554 $1,191 $4,221 $10,484
==============================================================================================================
EARNING ASSET FUNDING:
Interest-bearing deposits $2,389 $673 $ 577 $2,959 $ 6,598
Short-term purchased funds 1,761 -- -- -- 1,761
Term borrowings 21 1 3 235 260
Noninterest-bearing funds 309 (66) (11) 1,633 1,865
- - --------------------------------------------------------------------------------------------------------------
Total earning asset funding $4,480 $608 $ 569 $4,827 $10,484
==============================================================================================================
RATE SENSITIVITY GAP:
Period $ 38 $(54) $ 622 $ (606)
Cumulative 38 (16) 606 --
- - ---------------------------------------------------------------------------------------------------
RATE SENSITIVITY GAP ADJUSTED FOR INTEREST
RATE FUTURES AND INTEREST RATE SWAPS:
Period $ (307) $ (1) $ 826 $ (518)
Cumulative (307) (308) 518 --
- - ---------------------------------------------------------------------------------------------------
ADJUSTED GAP AS A PERCENT OF EARNING ASSETS:
Period (2.9)% -- % 7.9 % (5.0)%
Cumulative (2.9) (2.9) 5.0 --
- - ---------------------------------------------------------------------------------------------------
</TABLE>
Interest-sensitive categories represent ranges in which assets and liabilities
can be repriced, not necessarily their actual maturities. The 'Other' column
amounts include assets and liabilities with interest sensitivity of more than
12 months or with indefinite repricing schedules.
<PAGE> 16
ANALYSIS OF NONINTEREST EXPENSE (TABLE 6)
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993 1992
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NONINTEREST EXPENSE:
Employee compensation, incentives,
and benefits $340,508 $349,769 $308,601 $214,303
Operations services 38,798 33,679 28,705 24,252
Occupancy 37,867 34,102 27,673 24,738
Equipment rentals, depreciation,
and maintenance 31,845 29,202 22,246 17,516
Communications and courier 29,880 30,653 24,775 18,049
Amortization of mortgage servicing rights 14,980 14,936 25,478 4,482
Legal and professional fees 13,403 13,747 11,274 11,391
Advertising and public relations 12,972 10,678 7,987 6,165
Deposit insurance premium 9,957 16,923 16,585 16,177
Amortization of intangible assets 8,100 6,406 5,871 9,866
All other:
Supplies 11,866 11,472 10,312 6,520
Fed service fees 9,489 8,544 7,778 7,228
Travel and entertainment 8,211 10,144 8,868 5,774
Foreclosed real estate 4,962 3,862 1,542 4,935
Contribution to charitable foundation -- 9,379 -- --
Other 40,829 44,760 46,683 34,734
- - ---------------------------------------------------------------------------------------
Total other expense 75,357 88,161 75,183 59,191
- - ---------------------------------------------------------------------------------------
Total noninterest expense $613,667 $628,256 $554,378 $406,130
=======================================================================================
</TABLE>
ANALYSIS OF NONINTEREST EXPENSE
<TABLE>
<CAPTION>
Growth rates (%)
---------------------
(Dollars in thousands) 1991 1990 95/94 95/90
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NONINTEREST EXPENSE:
Employee compensation, incentives,
and benefits $177,648 $154,918 2.6 - 17.1 +
Operations services 21,860 18,517 15.2 + 15.9 +
Occupancy 22,036 20,542 11.0 + 13.0 +
Equipment rentals, depreciation,
and maintenance 13,944 12,918 9.1 + 19.8 +
Communications and courier 16,515 14,617 2.5 - 15.4 +
Amortization of mortgage servicing rights 1,361 917 .3 + 74.8 +
Legal and professional fees 8,348 6,621 2.5 - 15.1 +
Advertising and public relations 4,941 4,499 21.5 + 23.6 +
Deposit insurance premium 13,373 7,597 41.2 - 5.6 +
Amortization of intangible assets 7,711 7,075 26.4 + 2.7 +
All other:
Supplies 5,752 5,808 3.4 + 15.4 +
Fed service fees 5,311 4,960 11.1 + 13.9 +
Travel and entertainment 4,898 5,161 19.1 - 9.7 +
Foreclosed real estate 7,449 3,048 28.5 + 10.2 +
Contribution to charitable foundation -- -- -- --
Other 32,563 28,553 8.8 - 7.4 +
- - ---------------------------------------------------------------
Total other expense 55,973 47,530 14.5 - 9.7 +
- - ---------------------------------------------------------------
Total noninterest expense $343,710 $295,751 2.3 - 15.7 +
===============================================================
</TABLE>
Certain previously reported amounts have been reclassified to agree with
current presentation.
<PAGE> 17
MATURITIES OF INVESTMENT SECURITIES AT DECEMBER 31, 1995 (AMORTIZED COST)
(TABLE 7)
<TABLE>
<CAPTION>
After 1 Year After 5 Years
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>
SECURITIES HELD TO MATURITY:
States and municipalities** $ 9,493 8.97% $ 18,944 8.22 % $ 20,274 8.37 % $ 26,020 9.19 %
- - -----------------------------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE:
Mortgage-backed securities and collateralized
mortgage obligations* $ 2,516 6.08% $101,427 6.36 % $310,075 6.18 % $1,233,896 6.45 %
U.S. Treasury and other U.S. government agencies 112,533 5.37 145,233 6.34 12,270 6.65 1,224 7.52
States and municipalities** 1,889 7.19 9,271 9.05 16,285 8.92 602 8.94
Other 498 9.01 15,474 7.10 1,394 9.39 53,927*** 6.14
- - ----------------------------------------------------------------------------------------------------------------------------------
Total $117,436 5.43% $271,405 6.48 % $340,024 6.34 % $1,289,649 6.44 %
==================================================================================================================================
</TABLE>
* Includes $1,646.1 million of government agency issued mortgage-backed
securities and collateralized mortgage obligations which, when adjusted
for early paydowns, have an estimated average life of 2.2 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 percent.
*** Represents equity securities with no stated maturity.
<PAGE> 18
MATURITIES OF LOANS AT DECEMBER 31, 1995 (TABLE 8)
<TABLE>
<CAPTION>
After 1 Year
(Dollars in thousands) Within 1 Year Within 5 Years After 5 Years Total
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $2,217,072 $ 960,715 $ 153,142 $3,330,929
Consumer 96,233 1,270,674 1,158,982 2,525,889
Credit card receivables 529,104 -- -- 529,104
Real estate construction 172,950 56,223 9,690 238,863
Permanent mortgage 80,753 75,634 533,071 689,458
Nonaccrual 8,547 7,286 3,207 19,040
- - ----------------------------------------------------------------------------------------------------------
Total loans, net of unearned income* $3,104,659 $2,370,532 $1,858,092 $7,333,283
==========================================================================================================
For maturities over one year:
Interest rates - floating $ 762,474 $ 469,911 $1,232,385
Interest rates - fixed 1,608,058 1,388,181 2,996,239
- - ----------------------------------------------------------------------------------------------------------
Total $2,370,532 $1,858,092 $4,228,624
==========================================================================================================
</TABLE>
* Excludes $789.2 million of mortgage warehouse loans held for sale with
maturities greater than 5 years. These loans are sold within one year of
origination.
<PAGE> 19
REGULATORY CAPITAL AT DECEMBER 31, 1995 (Table 10)
<TABLE>
<CAPTION>
Peoples
(Dollars in thousands) First Tennessee (1) FTBNA (2) CBT (3) and Union (4)
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CAPITAL:
Tier 1 capital:
Shareholders' common equity $ 873,224 $ 790,003 $ 25,224 $ 15,221
Disallowed intangibles (98,933) (69,669) -- --
Adjust for unrealized (gains)/losses on
available for sale securities (10,582) (8,303) (968) (119)
- - ------------------------------------------------------------------------------------------------------------------
Total Tier 1 capital 763,709 712,031 24,256 15,102
- - ------------------------------------------------------------------------------------------------------------------
Tier 2 capital:
Qualifying debt 148,969 75,000 -- --
Qualifying allowance for loan losses 111,325 104,279 1,881 864
- - ------------------------------------------------------------------------------------------------------------------
Total Tier 2 capital 260,294 179,279 1,881 864
- - ------------------------------------------------------------------------------------------------------------------
Total capital $ 1,024,003 $ 891,310 $ 26,137 $ 15,966
==================================================================================================================
Risk-adjusted assets $ 8,904,769 $ 8,341,667 $149,266 $ 69,027
Quarterly average assets* 11,984,206 11,042,163 240,657 122,127
- - ------------------------------------------------------------------------------------------------------------------
RATIOS:
Tier 1 capital to risk-adjusted assets 8.58 % 8.54 % 16.25 % 21.88 %
Tier 2 capital to risk-adjusted assets 2.92 2.15 1.26 1.25
- - ------------------------------------------------------------------------------------------------------------------
Total capital to risk-adjusted assets 11.50 % 10.69 % 17.51 % 23.13 %
==================================================================================================================
Leverage - Tier 1 capital to
adjusted quarterly average assets
less disallowed intangibles 6.43 % 6.49 % 10.08 % 12.37 %
- - ------------------------------------------------------------------------------------------------------------------
Peoples FNB
(Dollars in thousands) Planters (5) FTBNA-MS (6) Bank (7) Springdale (8)
- - ------------------------------------------------------------------------------------------------------------------
CAPITAL:
Tier 1 capital:
Shareholders' common equity $ 6,639 $ 6,878 $ 17,996 $ 50,006
Disallowed intangibles -- (665) (8,885) (23,099)
Adjust for unrealized (gains)/losses on
available for sale securities 23 (88) (416) (494)
- - ------------------------------------------------------------------------------------------------------------------
Total Tier 1 capital 6,662 6,125 8,695 26,413
- - ------------------------------------------------------------------------------------------------------------------
Tier 2 capital:
Qualifying debt -- -- -- --
Qualifying allowance for loan losses 394 345 625 1,520
- - ------------------------------------------------------------------------------------------------------------------
Total Tier 2 capital 394 345 625 1,520
- - ------------------------------------------------------------------------------------------------------------------
Total capital $ 7,056 $ 6,470 $ 9,320 $ 27,933
==================================================================================================================
Risk-adjusted assets $ 30,968 $ 39,331 $ 49,750 $184,161
Quarterly average assets* 58,886 61,895 103,576 356,629
- - ------------------------------------------------------------------------------------------------------------------
RATIOS:
Tier 1 capital to risk-adjusted assets 21.51 % 15.57 % 17.48 % 14.34 %
Tier 2 capital to risk-adjusted assets 1.27 .88 1.25 .83
- - ------------------------------------------------------------------------------------------------------------------
Total capital to risk-adjusted assets 22.78 % 16.45 % 18.73 % 15.17 %
==================================================================================================================
Leverage - Tier 1 capital to
adjusted quarterly average assets
less disallowed intangibles 11.31 % 10.00 % 9.18 % 7.92 %
- - ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Adjusted for unrealized (gains)/losses on available for sale securities.
(1) First Tennessee National Corporation
(2) First Tennessee Bank National Association
(3) Cleveland Bank and Trust Company
(4) Peoples and Union Bank
(5) Planters Bank
(6) First Tennessee Bank National Association Mississippi
(7) Peoples Bank of Senatobia
(8) First National Bank of Springdale
Based on regulatory guidelines.
<PAGE> 20
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES (TABLE 11)
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993 1992 1991 1990
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES:
Beginning balance $ 109,859 $ 110,720 $ 103,223 $ 97,550 $ 93,187 $ 70,374
Provision for loan losses 20,592 17,182 36,461 45,248 60,694 71,156
Allowance from acquisitions 2,632 -- 971 -- 9,327 --
Charge-offs:
Commercial 5,614 6,458 16,905 20,597 34,589 28,278
Consumer 12,373 9,180 8,909 10,524 14,614 12,905
Credit card receivables 16,874 12,674 13,357 17,013 16,913 11,510
Real estate construction 44 -- 2,320 173 6,888 6,214
Permanent mortgage 326 884 1,170 2,339 2,546 1,756
- - --------------------------------------------------------------------------------------------------------------------------
Total charge-offs 35,231 29,196 42,661 50,646 75,550 60,663
- - --------------------------------------------------------------------------------------------------------------------------
Recoveries:
Commercial 6,728 4,001 6,266 5,833 5,481 8,321
Consumer 5,732 4,415 3,590 2,759 2,921 2,552
Credit card receivables 2,022 1,890 2,262 1,985 1,278 1,141
Real estate construction 59 373 159 215 150 286
Permanent mortgage 174 474 449 279 62 20
- - --------------------------------------------------------------------------------------------------------------------------
Total recoveries 14,715 11,153 12,726 11,071 9,892 12,320
- - --------------------------------------------------------------------------------------------------------------------------
Net charge-offs 20,516 18,043 29,935 39,575 65,658 48,343
- - --------------------------------------------------------------------------------------------------------------------------
Ending balance $ 112,567 $ 109,859 $ 110,720 $ 103,223 $ 97,550 $ 93,187
==========================================================================================================================
LOANS, OUTSTANDING AT DECEMBER 31* $8,122,466 $ 7,013,449 $6,823,566 $ 5,105,048 $ 4,870,568 $ 4,677,996
- - --------------------------------------------------------------------------------------------------------------------------
AVERAGE LOANS, OUTSTANDING
DURING THE YEAR* $7,593,272 $ 6,752,290 $5,611,668 $ 4,887,215 $ 4,666,672 $ 4,542,714
- - --------------------------------------------------------------------------------------------------------------------------
RATIOS* :
Allowance to loans 1.39 % 1.57 % 1.62 % 2.02 % 2.00 % 1.99 %
Net charge-offs to average loans .27 .27 .53 .81 1.41 1.06
Net charge-offs to allowance 18.2 16.4 27.0 38.3 67.3 51.9
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of unearned income.
<PAGE> 21
LOANS AND FORECLOSED REAL ESTATE AT DECEMBER 31 (TABLE 12)
<TABLE>
<CAPTION>
1995 1994
---------------------------------------------------------------------- --------------------
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 $ 256 $ -- $ 3 $ 259 $ -- $ 210 $ --
B 415 18 60 493 1 402 1
C 2,009 172 477 2,658 27 2,361 27
D 60 1 13 74 5 75 7
E 24 -- 9 33 3 27 4
F 27 1 2 30 7 41 9
- - ----------------------------------------------------------------------------------------------------------------------------------
2,791 192 564 3,547 43 3,116 48
Impaired loans:
Contractually past due 5 2 1 8 2 -- --
Contractually current 1 -- 3 4 1 -- --
Nonaccrual loans:
Contractually past due 1 -- -- 1 -- 6 2
Contractually current -- -- -- -- -- 4 2
- - ----------------------------------------------------------------------------------------------------------------------------------
Total commercial and
commercial real estate loans $2,798 $194 $568 $3,560 $ 46 $3,126 $ 52
- - ----------------------------------------------------------------------------------------------------------------------------------
Retail:
Consumer 2,526 21 2,263 20
Credit card 529 21 475 19
Permanent mortgages 689 4 591 2
Mortgage warehouse loans held for sale 789 -- 515 --
Mortgage banking nonaccrual loans 6 1 6 1
- - ----------------------------------------------------------------------------------------------------------------------------------
Total retail loans 4,539 47 3,850 42
- - ----------------------------------------------------------------------------------------------------------------------------------
Other/Unfunded commitments 23 3 37 3
General reserve -- 17 -- 13
- - ----------------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income $8,122 $113 $7,013 $110
==================================================================================================================================
Foreclosed real estate:
Foreclosed property $ 1 $ 8 $ 2 $ 11 $ 14
Foreclosed property - mortgage banking 1 5
- - ----------------------------------------------------------------------------------------------------------------------------------
Total foreclosed real estate $ 12 $ 19
==================================================================================================================================
</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.
*IMPAIRED - A loan for which it is probable that all amounts due, according to
the contractual terms of the loan agreement, will not be collected.
*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.
Based on internal loan classifications.
<PAGE> 22
NET CHARGE-OFFS AS A PERCENT OF AVERAGE LOANS (TABLE 13)
Net of unearned income 1995 1994
- - --------------------------------------------------------
Commercial and commercial real estate (.03) % .07%
Consumer .28 .23
Credit card receivables 3.09 2.49
Permanent mortgage .02 .07
- - --------------------------------------------------------
<PAGE> 23
NONPERFORMING ASSETS AT DECEMBER 31 (TABLE 14)
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AMOUNTS:
Impaired loans* $ 11,865
Other nonaccrual loans 7,175
- - ---------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 19,040 $ 16,853 $ 27,599
Restructured loans -- 158 1,195
- - ---------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 19,040 17,011 28,794
Foreclosed real estate 11,794 19,215 35,048
Other assets 1,022 2,055 1,292
- - ---------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 31,856 $ 38,281 $ 65,134
=====================================================================================================================
Non-government guaranteed past due loans** $ 21,942 $ 13,297 $ 13,634
Government guaranteed past due loans** 11,331 10,030 11,560
Past due loans**
- - ---------------------------------------------------------------------------------------------------------------------
RATIOS***:
Nonperforming loans to total loans .23 % .24 % .42 %
Nonperforming assets to total loans
plus foreclosed real estate and other assets .39 .54 .95
Nonperforming assets and non-government guaranteed past due loans
to total loans plus foreclosed real estate and other assets**** .66 .73 1.15
- - ---------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1992 1991 1990
- - ---------------------------------------------------------------------------------------------------------------------
AMOUNTS:
Impaired loans*
Other nonaccrual loans
- - ---------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans $ 32,761 $ 50,729 $ 73,701
Restructured loans 2,493 4,526 1,128
- - ---------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 35,254 55,255 74,829
Foreclosed real estate 29,690 45,816 34,101
Other assets 1,292 723 109
- - ---------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 66,236 $ 101,794 $ 109,039
=====================================================================================================================
Non-government guaranteed past due loans** $ 15,000
Government guaranteed past due loans** 8,906
Past due loans** $ 23,758 $ 19,732
- - ---------------------------------------------------------------------------------------------------------------------
RATIOS***:
Nonperforming loans to total loans .69 % 1.13 % 1.60 %
Nonperforming assets to total loans
plus foreclosed real estate and other assets 1.29 2.07 2.31
Nonperforming assets and non-government guaranteed past due loans
to total loans plus foreclosed real estate and other assets**** 1.58
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes $303,000 of restructured loans.
** Loans that are 90 days or more past due as to principal and/or interest
and not yet impaired or on nonaccrual status. Detail on government
guaranteed and non-government guaranteed past due loans is unavailable
for years prior to 1992.
*** Total loans are expressed net of unearned income.
**** Not available for years prior to 1992.
<PAGE> 24
CHANGES IN NONPERFORMING ASSETS (TABLE 15)
<TABLE>
<CAPTION>
(Dollars in millions) 1995 1994 1993
- - -----------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $ 38.3 $ 65.1 $ 67.6
New nonperformers 23.5 18.0 22.4
Acquisitions 1.1 -- 22.8
Return to accrual (.2) (2.0) (3.4)
Payments (26.0) (37.5) (31.0)
Charge-offs (4.8) (5.3) (13.2)
Market writedowns -- -- (.1)
- - ------------------------------------------------------------
Ending balance $ 31.9 $ 38.3 $ 65.1
============================================================
</TABLE>
<PAGE> 25
SUMMARY OF QUARTERLY FINANCIAL INFORMATION (TABLE 16)
<TABLE>
<CAPTION>
1995 1994
--------------------------------------- -----------------------------------------
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 $216.8 $211.5 $202.8 $191.4 $185.6 $179.0 $170.2 $166.3
Interest expense 112.4 112.9 107.4 99.1 90.0 79.7 70.7 66.2
Provision for loan losses 7.3 5.9 3.2 4.2 4.3 4.2 2.9 5.8
Noninterest income before
securities transactions 139.2 126.4 114.8 113.7 102.0 105.5 110.4 120.9
Securities gains/(losses) 1.9 -- -- .5 (2.7) .2 7.7 14.7
Noninterest expense 169.1 151.1 145.5 147.9 147.8 145.5 165.4 169.5
Net income 45.7 43.8 40.8 34.6 32.9 37.6 36.8 39.8
- - ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE $ .67 $ .65 $ .60 $ .50 $ .48 $ .56 $ .53 $ .58
- - ---------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK INFORMATION:
Closing price per share:
High $ 30 7/8 $ 27 13/16 $ 23 1/8 $ 21 1/2 $ 23 3/4 $ 23 7/8 $ 22 5/8 $ 19 7/8
Low 26 3/4 23 1/8 20 5/8 19 5/8 19 7/8 21 3/4 18 7/8 18 11/16
Period-end 30 1/4 27 3/4 23 1/8 20 7/8 20 3/8 22 1/2 21 7/8 19 1/8
Dividends declared per share .265 .235 .235 .235 .235 .21 .21 .21
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Per share data reflects the 1996 two-for-one stock split.
<PAGE> 26
GRAPH TITLE: 1995 Net Interest Income and
Net Interest Margin
NARRATIVE DESCRIPTION: This is a combination line and bar graph with the
x-axis representing 1995 quarterly periods and the
left y-axis representing ranges from $0 to $105.8
million and the right y-axis ranges from 0 percent to
4.00 percent. The bars represent the fully taxable
equivalent of the net interest income in dollars and
the line represents the net interest margin percent.
The bars begin in the first quarter of 1995 at $93.5
million and increase to $105.8 million in the fourth
quarter of 1995. The net interest margin line begins
in the first quarter of 1995 at 3.92 percent,
decreases to 3.91 percent in the second quarter,
decreases to 3.85 percent in the third quarter and
finally increases to 4.00 percent in the fourth
quarter of 1995.
DATA POINTS: 1995 NET NET
QUARTERLY INTEREST INTEREST
PERIOD INCOME MARGIN
(in millions)
---------- ------------- ---------
FIRST $ 93.5 3.92
SECOND 96.6 3.91
THIRD 99.8 3.85
FOURTH 105.8 4.00
<PAGE> 27
GLOSSARY
ALLOWANCE FOR LOAN LOSSES--Valuation reserve representing the amount considered
by management to be adequate to cover estimated losses inherent in the loan
portfolio.
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 yields and rates.
BASIS RISK--Refers to changes in the relationship between various interest rate
segments (e.g. the difference between the Prime and Fed Funds Rates).
BOOK VALUE PER SHARE--A ratio determined by dividing assets, net of
liabilities, at the end of a period by the number of common shares outstanding
at the end of that period.
CHARGE-OFFS--The amount charged against the allowance for loan losses to reduce
specific loans to their collectible amount.
CLASSIFIED LOAN--A loan 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. In compliance
with the standards established by the Office of the Comptroller of the Currency
(OCC) these loans are classified as substandard, doubtful, and loss depending
on the severity of the loan's deterioration.
COMMERCIAL AND STANDBY LETTERS OF CREDIT--Commercial letters of credit are
issued or confirmed by an entity to ensure the payment of its customers'
payables and receivables. Standby letters of credit are issued by an entity to
ensure its customers' performance in dealing with others.
COMMITMENT TO EXTEND CREDIT--Agreements to make or acquire a loan or lease as
long as agreed-upon terms (e.g., expiry, covenants, or notice) are met.
Generally these commitments have fixed expiration dates or other termination
clauses and may require payment of a fee.
CORE DEPOSITS--Core deposits consist of all interest-bearing and
noninterest-bearing deposits, except certificates of deposit over $100,000.
They include checking interest deposits, money market deposit accounts, time
and other savings, plus demand deposits.
DERIVATIVE FINANCIAL INSTRUMENT--Futures, forwards, swaps, option contracts,
or other financial instruments with similar characteristics, such as interest
rate caps or floors, or fixed-rate loan commitments.
DIVIDEND PAYOUT RATIO--Cash dividends per share paid as a percent of net income
per share.
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 or dividend income or
yield-related fee income, such as loans and investment securities.
EARNINGS PER SHARE--Net income, divided by the average number of common shares
outstanding in the period.
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 which has been adjusted by
increasing tax-exempt income to a level that would yield the same after-tax
income had that income been subject to taxation.
HEDGE--An instrument used to reduce risk by entering into a transaction which
offsets existing or anticipating exposures to changes in interest rates.
INTEREST FREE SOURCES--Noninterest bearing liabilities (such as demand
deposits, other liabilities, and shareholders' equity) net of nonearning assets
(such as cash, fixed assets, and other assets).
INTEREST RATE CAPS AND FLOORS--Contracts with notional principal amounts that
require the seller, in exchange for a fee, to make payments to the purchaser if
a specified market interest rate exceeds a fixed upper "capped" level or falls
below a fixed lower "floor" level on specified future dates.
INTEREST RATE FORWARD AND FUTURES CONTRACTS--Contracts representing commitments
either to purchase or sell at a specified future date a specified security or
financial instrument at a specified price, and may be settled in cash or
through delivery. These obligations are generally short term in nature.
INTEREST RATE OPTION (OPTIONS)--A contract that grants the holder (purchaser),
for a fee, the right to either purchase or sell a financial instrument at a
specified price within a specified period of time or on a specified date from
the writer (seller) of the option.
INTEREST RATE SENSITIVITY--The relationship of changes in interest income and
interest expense to fluctuations in interest rates over a defined period of
time.
INTEREST RATE SWAP (SWAP)--An agreement in which two entities agree to
exchange, at specified intervals, interest payment streams calculated on an
agreed upon notional principal amount with at least one stream based on a
floating rate index.
<PAGE> 28
INTEREST SENSITIVITY GAP--The difference between interest-rate sensitive assets
and interest-rate sensitive liabilities over a designated time period. A net
asset position is the amount by which interest-rate sensitive assets exceed
interest-rate sensitive liabilities. An excess of liabilities would represent
LEVERAGE RATIO -- Tier 1 capital divided by quarterly average assets excluding
the adjustment for available for sale securities unrealized gains or losses,
goodwill, and certain other intangible assets.
LIQUIDITY -- The ability of a corporation to generate adequate funds to meet
its cash flow requirements. It is measured by the ability to quickly convert
assets into cash with minimal exposure to interest rate risk, by the size and
stability of the core deposit base, and by additional borrowing capacity within
the money markets.
MORTGAGE LOANS SOLD WITH RECOURSE -- Mortgages sold with an agreement to
repurchase any loans upon default.
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.
NET INTEREST INCOME (NII) -- Interest income less interest expense.
NET INTEREST MARGIN -- 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 taxable-equivalent net interest income by average
interest earning assets.
NET INTEREST SPREAD -- The difference between the average yield earned on
earning assets on a fully taxable equivalent 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 a cash basis as it is collected after recovery of principal.
NONPERFORMING ASSETS -- Interest earning assets 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, and repossessed assets.
NOTIONAL PRINCIPAL AMOUNT -- An amount on which interest rate swaps and
interest rate options, caps and floors payments are based. The "notional
amount" is not paid or received.
OPERATING MARGIN (ALSO CALLED RETURN ON REVENUE - ROR) -- A measure of
profitability that indicates operational efficiency and productivity. It is
calculated by dividing the fully taxable equivalent pre-tax profit before loan
loss provision by the fully taxable equivalent net interest income plus
noninterest income.
PRICE/EARNINGS RATIO -- The relationship of the market price of a share of
common stock to the earnings per share of the stock, expressed as a multiple.
PROVISION FOR LOAN LOSSES -- The periodic charge to earnings for potential
losses in the loan portfolio.
PURCHASED FUNDS -- The combination of certificates of deposit greater than
$100,000, federal funds purchased, securities sold under agreement to
repurchase, commercial paper, and other short-term borrowings.
RECOVERIES -- The amount added to the allowance for loan losses when funds are
received on a loan which was previously charged off.
RESTRUCTURED LOANS -- The 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.
RETURN ON AVERAGE ASSETS (ROA) -- A measure of profitability that indicates how
effectively an institution utilized its assets. It is calculated by dividing
annualized 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.
REVENUE -- The sum of net interest income and noninterest income. For some
comparisons, securities gains/losses are excluded.
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 instruments.
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 1 CAPITAL ratio consists of
shareholders' equity before any adjustments for available for sale securities
unrealized gains (losses) reduced by goodwill and certain other intangible
assets divided by risk-adjusted assets, while TOTAL CAPITAL ratio is Tier 1
capital plus the allowable portion of the allowance for loan losses and
qualifying subordinated debt divided by risk-adjusted assets.
<PAGE> 29
SECURITIES AVAILABLE FOR SALE -- Investment Securities that will be held for
indefinite periods of time and which may be sold as part of the bank's
asset/liability strategy.
SECURITIES HELD TO MATURITY -- Investment securities that the bank has the
ability and the intent to hold until maturity.
WATCH LIST LOANS -- Identified loans 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> 30
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CONDITION First Tennessee National Corporation
- - -----------------------------------------------------------------------------------------------------
December 31
---------------------------
(Dollars in thousands) 1995 1994
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 710,870 $ 724,828
Federal funds sold and securities purchased under
agreements to resell 64,978 253,124
- - -----------------------------------------------------------------------------------------------------
Total cash and cash equivalents 775,848 977,952
- - -----------------------------------------------------------------------------------------------------
Investment in bank time deposits 2,119 2,534
Broker/dealer securities inventory 182,655 170,031
Securities available for sale 2,036,668 1,166,738
Securities held to maturity (market value of $75,750 at
December 31, 1995, and $951,444 at December 31,1994) 74,731 1,004,177
Loans, net of unearned income 8,122,466 7,013,449
Less: Allowance for loan losses 112,567 109,859
- - -----------------------------------------------------------------------------------------------------
Total net loans 8,009,899 6,903,590
- - -----------------------------------------------------------------------------------------------------
Premises and equipment, net 177,400 159,036
Real estate acquired by foreclosure 11,794 19,215
Intangible assets 128,985 91,725
Mortgage servicing rights 149,220 72,722
Bond division receivables and other assets 527,563 365,229
- - -----------------------------------------------------------------------------------------------------
TOTAL ASSETS $12,076,882 $10,932,949
=====================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Demand $ 1,983,994 $ 1,733,336
Checking/Interest 103,860 508,741
Savings 592,320 605,388
Money market account 2,499,817 1,819,825
Certificates of deposit under $100,000 and other time 2,882,094 2,771,012
Certificates of deposit $100,000 and more 520,112 442,004
- - -----------------------------------------------------------------------------------------------------
Total deposits 8,582,197 7,880,306
- - -----------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold under
agreements to repurchase 1,674,225 1,457,517
Commercial paper and other short-term borrowings 86,520 352,522
Bond division payables and other liabilities 600,699 353,928
Term borrowings 260,017 113,771
- - -----------------------------------------------------------------------------------------------------
Total liabilities 11,203,658 10,158,044
- - -----------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Preferred stock - no par value (5,000,000 shares
authorized, but unissued) -- --
Common stock - $1.25 par value (shares authorized - 200,000,000;
shares issued - 67,178,236 at December 31, 1995, and
68,147,916 at December 31, 1994) 83,973 85,185
Capital surplus 63,610 91,558
Undivided profits 716,861 625,231
Unrealized market adjustment on available for sale securities 10,582 (24,273)
Deferred compensation on restricted stock incentive plan (1,802) (2,796)
- - -----------------------------------------------------------------------------------------------------
Total shareholders' equity 873,224 774,905
- - -----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $12,076,882 $10,932,949
=====================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 31
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME First Tennessee National Corporation
- - --------------------------------------------------------------------------------------------------
Year Ended December 31
---------------------------------------------
(Dollars in thousands except per share data) 1995 1994 1993
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 665,727 $ 546,385 $ 455,988
Interest on investment securities:
Taxable 130,830 128,895 175,828
Tax-exempt 4,621 5,139 7,204
Interest on broker/dealer securities inventory 12,630 12,810 9,304
Interest on other earning assets 8,720 7,829 3,899
- - --------------------------------------------------------------------------------------------------
Total interest income 822,528 701,058 652,223
- - --------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits:
Checking/Interest 7,734 9,174 10,786
Savings 10,789 13,453 15,445
Money market account 88,090 56,480 43,526
Certificates of deposit under $100,000 and other time 167,850 122,037 117,270
Certificates of deposit $100,000 and more 30,579 18,666 16,194
Interest on short-term borrowings 108,815 77,216 63,282
Interest on term borrowings 18,018 9,571 9,637
- - --------------------------------------------------------------------------------------------------
Total interest expense 431,875 306,597 276,140
- - --------------------------------------------------------------------------------------------------
NET INTEREST INCOME 390,653 394,461 376,083
Provision for loan losses 20,592 17,182 36,461
- - --------------------------------------------------------------------------------------------------
NET INEREST INCOME AFTER PROVISION FOR LOAN LOSSES 370,061 377,279 339,622
- - --------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Mortgage banking 212,579 187,340 138,960
Bond division 82,814 77,478 91,525
Deposit transactions and cash management 70,957 64,169 58,377
Cardholder and merchant processing 36,984 31,402 28,467
Trust services 35,632 28,933 26,532
Equity securities gains/(losses) 3,195 24,251 (479)
Debt securities gains/(losses) (751) (4,298) 1,371
All other 55,153 49,464 45,168
- - --------------------------------------------------------------------------------------------------
Total noninterest income 496,563 458,739 389,921
- - --------------------------------------------------------------------------------------------------
ADJUSTED GROSS INCOME AFTER PROVISION
FOR LOAN LOSSES 866,624 836,018 729,543
- - --------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Employee compensation, incentives, and benefits 340,508 349,769 308,601
Operations services 38,798 33,679 28,705
Occupancy 37,867 34,102 27,673
Equipment rentals, depreciation, and maintenance 31,845 29,202 22,246
Communications and courier 29,880 30,653 24,775
Amortization of mortgage servicing rights 14,980 14,936 25,478
Legal and professional fees 13,403 13,747 11,274
Advertising and public relations 12,972 10,678 7,987
Deposit insurance premium 9,957 16,923 16,585
Amortization of intangible assets 8,100 6,406 5,871
All other 75,357 88,161 75,183
- - --------------------------------------------------------------------------------------------------
Total noninterest expense 613,667 628,256 554,378
- - --------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 252,957 207,762 175,165
Applicable income taxes 88,069 60,694 65,449
- - --------------------------------------------------------------------------------------------------
NET INCOME $ 164,888 $ 147,068 $ 109,716
==================================================================================================
NET INCOME PER COMMON SHARE $ 2.42 $ 2.15 $ 1.61
- - --------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING 68,024,794 68,441,382 68,145,768
- - --------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 32
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY First Tennessee National Corporation
- - --------------------------------------------------------------------------------------------------------------
<CAPTION>
Common Common Capital Undivided
(Dollars in thousands) Shares Total Stock Surplus Profits
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 63,955,238 $ 630,244 $79,944 $ 88,294 $463,442
Adjustments for poolings of interests 3,914,448 19,998 4,893 10,417 4,688
- - --------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1992, RESTATED 67,869,686 650,242 84,837 98,711 468,130
Net income -- 109,716 -- -- 109,716
Cash dividends declared -- (43,582) -- -- (43,582)
Common stock issued:
For exercise of stock options 231,508 2,093 289 1,804 --
Restricted: employee benefit plan 119,282 -- 149 2,132 --
incentive to non-employee
directors 3,000 -- 4 51 --
Converted subordinated debt 576,898 3,860 721 3,139 --
Common stock repurchased (241,100) (4,797) (301) (4,496) --
Amortization of deferred compensation
on restricted stock incentive plan -- 1,397 -- -- --
Other -- 2,179 -- 2,439 (260)
- - --------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993, RESTATED 68,559,274 721,108 85,699 103,780 534,004
Net income -- 147,068 -- -- 147,068
Cash dividends declared -- (55,871) -- -- (55,871)
Common stock issued:
Emerald Mortgage Company acquisition 303,852 7,105 380 6,725 --
For exercise of stock options 321,914 2,808 402 2,406 --
Restricted: employee benefit plan 90,000 -- 113 1,603 --
incentive to non-employee
directors 3,300 -- 4 75 --
Common stock repurchased (1,137,816) (26,583) (1,422) (25,161) --
Change in unrealized market adjustment
on available for sale securities -- (24,273) -- -- --
Amortization of deferred compensation
on restricted stock incentive plan -- 1,374 -- -- --
Other 7,392 2,169 9 2,130 30
- - --------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 68,147,916 774,905 85,185 91,558 625,231
Adjustment related to change in reporting
date for acquisition accounted for as a
pooling of interests -- (7,757) -- -- (7,757)
- - --------------------------------------------------------------------------------------------------------------
ADJUSTED BALANCE, JANUARY 1, 1995 68,147,916 767,148 85,185 91,558 617,474
Net income -- 164,888 -- -- 164,888
Cash dividends declared -- (65,576) -- -- (65,576)
Common stock issued:
Peoples Commercial Services
Corporation acquisition 841,810 17,865 1,052 16,813 --
Financial Investment Corp.
acquisition 2,565,482 69,997 3,207 66,790 --
For exercise of stock options 437,778 4,834 547 4,287 --
Restricted employee benefit plan 8,200 -- 11 160 --
Common stock repurchased (4,827,108) (122,796) (6,034) (116,762) --
Change in unrealized market adjustment
on available for sale securities -- 34,855 -- -- --
Amortization of deferred compensation
on restricted stock incentive plan -- 1,165 -- -- --
Other 4,158 844 5 764 75
- - --------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 67,178,236 $ 873,224 $83,973 $ 63,610 $716,861
==============================================================================================================
</TABLE>
<PAGE> 33
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- - ----------------------------------------------------------------
<CAPTION>
Unrealized Deferred
Market Compen-
(Dollars in thousands) Adjustment sation
- - ----------------------------------------------------------------
<S> <C> <C>
BALANCE, DECEMBER 31, 1992 $ -- $ (1,436)
Adjustments for poolings of interests -- --
- - ----------------------------------------------------------------
BALANCE, DECEMBER 31, 1992, RESTATED -- (1,436)
Net income -- --
Cash dividends declared -- --
Common stock issued:
For exercise of stock options -- --
Restricted: employee benefit plan -- (2,281)
incentive to non-employee
directors -- (55)
Converted subordinated debt -- --
Common stock repurchased -- --
Amortization of deferred compensation
on restricted stock incentive plan -- 1,397
Other -- --
- - ----------------------------------------------------------------
BALANCE, DECEMBER 31, 1993, RESTATED -- (2,375)
Net income -- --
Cash dividends declared -- --
Common stock issued:
Emerald Mortgage Company acquisition -- --
For exercise of stock options --
Restricted: employee benefit plan -- (1,716)
incentive to non-employee
directors -- (79)
Common stock repurchased -- --
Change in unrealized market adjustment
on available for sale securities (24,273) --
Amortization of deferred compensation
on restricted stock incentive plan -- 1,374
Other -- --
- - ----------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 (24,273) (2,796)
Adjustment related to change in reporting
date for acquisition accounted for as a -- --
pooling of interests
- - ----------------------------------------------------------------
ADJUSTED BALANCE, JANUARY 1, 1995 (24,273) (2,796)
Net income -- --
Cash dividends declared -- --
Common stock issued:
Peoples Commercial Services
Corporation acquisition -- --
Financial Investment Corp.
acquisition -- --
For exercise of stock options -- --
Restricted employee benefit plan -- (171)
Common stock repurchased -- --
Change in unrealized market adjustment
on available for sale securities 34,855 --
Amortization of deferred compensation
on restricted stock incentive plan -- 1,165
Other -- --
- - ----------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 $ 10,582 $ (1,802)
================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 34
<TABLE>
<CAPTION>
CONSOLIDATED
STATEMENTS
OF CASH FLOWS First Tennessee National Corporation
- - --------------------------------------------------------------------------------------------------
Year Ended December 31
----------------------------------
(Dollars in thousands) 1995 1994 1993
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $164,888 $147,068 $ 109,716
Adjustments to reconcile net income to net cash
provided/(used) by operating activities:
Provision for loan losses 20,592 17,182 36,461
Provision/(benefit) for deferred income tax 33,508 (3,036) (2,228)
Depreciation and amortization of premises and equipment 25,289 21,081 17,311
Amortization of mortgage servicing rights 14,980 14,936 25,478
Amortization of intangibles 8,100 6,406 5,871
Net amortization of premiums and accretion of discounts 20,575 13,695 25,542
Market value adjustment on foreclosed property 4,266 1,808 927
Market value adjustment on securities held for sale -- -- (248)
Securities contributed to charitable trust -- 9,379 --
Equity securities/(gains) losses (3,195) (24,251) 479
Debt securities/(gains) losses 751 4,298 (1,123)
Net gain on disposal of branch -- -- (672)
Net (gain)/loss on disposal of fixed assets 1,421 108 (709)
Net (increase)/decrease in:
Broker/dealer securities inventory (12,624) 8,632 9,944
Mortgage warehouse loans held for sale (273,217) 748,002 (488,893)
Bond division receivables (34,024) 39,667 (30,178)
Interest receivable (5,145) (6,237) 9,245
Other assets (266,296) (7,784) (93,541)
Net increase/(decrease) in:
Bond division payables 39,104 (50,511) 30,760
Interest payable 18,046 14,492 713
Other liabilities 152,854 (54,526) 48,638
- - --------------------------------------------------------------------------------------------------
Total adjustments (255,015) 753,341 (406,223)
- - --------------------------------------------------------------------------------------------------
Net cash (used)/provided by operating activities (90,127) 900,409 (296,507)
- - --------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from maturities of:
Held to maturity securities 89,457 352,299 --
Available for sale securities 189,229 299,928 --
Investment securities -- -- 1,618,957
Proceeds from sale of:
Available for sale securities 443,135 423,817 --
Debt securities -- -- 481,173
Equity securities -- -- 6,248
Premises and equipment 2,756 1,320 1,284
Payments for purchase of:
Held to maturity securities (38,709) (488,710) --
Available for sale securities (375,926) (416,288) --
Debt securities -- -- (1,290,599)
Equity securities -- -- (17,597)
Premises and equipment (38,545) (40,045) (35,216)
Net increase in loans (658,230) (940,878) (754,120)
Decrease/(increase) in investment in bank time deposits 415 5,103 (2,484)
Branch sale, including cash and cash equivalents sold -- -- (18,339)
Acquisitions, net of cash and cash equivalents acquired 58,527 130 (102,577)
- - --------------------------------------------------------------------------------------------------
Net cash used by investing activities (327,891) (803,324) (113,270)
- - --------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from:
Exercise of stock options 4,977 2,777 2,052
Issuance of long-term debt 164,182 2,984 --
Payments for:
Capital lease obligations (234) (233) (232)
Long-term debt (18,035) (1,346) (37,971)
Stock repurchase (122,796) (26,583) (4,797)
Cash dividends (62,694) (41,022) (51,970)
Equity distributions related to acquisitions (23) (47) --
Net increase/(decrease) in:
Deposits 306,737 277,653 226,056
Short-term borrowings (56,200) (127,949) 240,697
- - --------------------------------------------------------------------------------------------------
Net cash provided by financing activities 215,914 86,234 373,835
- - --------------------------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash equivalents (202,104) 183,319 (35,942)
- - --------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 977,952 794,633 830,575
- - --------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $775,848 $977,952 $ 794,633
==================================================================================================
Total interest paid $396,063 $291,985 $ 273,704
Total income taxes paid 53,065 69,036 72,590
- - -------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 35
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of First Tennessee National Corporation
(First Tennessee) and its subsidiaries conform to generally accepted accounting
principles and, as to its banking subsidiaries, with general practice within
the banking industry. First Tennessee offers a full range of banking and
bank-related services. First Tennessee's banking subsidiaries offer general
banking products in 21 Tennessee counties including the five major metropolitan
areas and in northern Mississippi and northwest Arkansas. Mortgage banking
provides services in 28 states. First Tennessee offers related financial
services including bond broker, agency, capital markets services, merchant
credit card processing, nationwide check clearing, integrated check processing
solutions, trust services, brokerage, venture capital, and credit life
insurance.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of First Tennessee 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. All significant intercompany accounts and
transactions have been eliminated. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the balance sheet dates and
revenues and expenses for the periods shown. Actual results could differ from
the estimates and assumptions used in the consolidated financial statements.
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. 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. The following significant stock
transactions have been adjusted for a two-for-one stock split that First
Tennessee effected in February 1996. In 1995, First Tennessee issued
approximately 7,980,000 shares of its common stock related to the acquisitions
of Carl I. Brown and Company, Community Bancshares, Inc., Peoples Commercial
Services Corporation, and Financial Investment Corp. In 1994, First Tennessee
issued approximately 7,716,000 shares of its common stock related to the
acquisitions of SNMC Management Corporation, Highland Capital Management Corp.,
Cleveland Bank and Trust Company, Planters Bank, and Emerald Mortgage Company.
In 1993, approximately 298,000 shares of First Tennessee common stock were
issued in exchange for all of the common stock of New South Bancorp (see
Note 2 - Business Combinations).
BROKER/DEALER SECURITIES INVENTORY. Securities purchased in connection with
underwriting or dealer activities are carried at market value. Realized and
unrealized gains and losses on these securities are reflected in noninterest
income as bond division income.
SECURITIES HELD TO MATURITY. Securities which First Tennessee has the ability
and positive intent to hold to maturity are carried at cost, adjusted for
amortization of premiums and accretion of discounts, which are recognized as
adjustments to interest income. Realized gains and losses and unrealized
permanent impairments in value are reported in noninterest income.
SECURITIES AVAILABLE FOR SALE. Securities available for sale include both debt
and equity securities and are reported at fair value, with unrealized gains and
losses excluded from earnings and reported as a separate component of
shareholders' equity. Gains and losses from sales are computed by the specific
identification method and are reported 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 as determined using aggregated
methodology. Gains and losses realized from the sale of these assets and
adjustments to market value are included in noninterest income.
<PAGE> 36
LOANS. Loans are stated at principal amounts outstanding net of unearned
income. 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
nonperforming loans are impaired loans, as defined in SFAS No. 114, "Accounting
by Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures," and
other nonaccrual loans. Also included are loans which have been restructured
in accordance with criteria in SFAS No. 15, "Accounting by Debtors and
Creditors for Troubled Debt Restructuring."
Impaired loans are generally carried on a nonaccrual status. 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 on 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. Once all principal has been received, additional
interest payments are recognized as interest income on a cash basis.
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 primarily 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
represents assets that have been acquired in satisfaction of debt. 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 and the excess of cost over net assets of acquired
subsidiaries (goodwill). 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
<PAGE> 37
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 events or
circumstances should occur, First Tennessee 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 to the related goodwill.
CAPITALIZED MORTGAGE SERVICING RIGHTS. In May 1995, the Financial Accounting
Standards Board issued SFAS No. 122, "Accounting for Mortgage Servicing Rights
an amendment of FASB Statement No. 65." SFAS No. 122, among other provisions,
requires the recognition of originated mortgage servicing rights (OMSRs), as
well as purchased mortgage servicing rights (PMSRs), as assets by allocating
the total cost incurred between the loan and the servicing right based on their
relative fair value. Under SFAS No. 65, the cost of the OMSRs was included
with the cost of the related loans and written off against proceeds when the
loans were sold. PMSRs were previously recorded as assets under SFAS No. 65.
First Tennessee elected to adopt this statement as of January 1, 1995. SFAS
No. 122 prohibits retroactive application; therefore, First Tennessee's
financial reporting for prior periods was accounted for under the original SFAS
No. 65.
The value of pre-SFAS No. 122 PMSRs was established using the lesser
of: a discounted cash flow analysis; current market value; or the amount of
consideration specifically paid by First Tennessee. The PMSRs were being
amortized using an accelerated method over the estimated life of the servicing
income. A quarterly value impairment analysis was performed using a discounted
methodology that was disaggregated by purchase transaction. This was the basis
of presentation for years prior to 1995.
During 1995, the value of OMSRs was established by allocating the
total costs incurred between the loan and the servicing rights based on their
relative fair values. To determine the fair value of the servicing rights
created, First Tennessee uses the market prices under current sales contracts
which are tested against prices obtained from flow and bulk purchasers of
servicing and prices determined using a valuation model that calculates the
present value of future cash flows. For purposes of impairment evaluation and
measurement, the mortgage servicing rights are stratified based on the
predominant risk characteristics of the underlying loans. For First Tennessee
these risk characteristics include adjustable rate conventional and government;
fixed rate conventional and government by interest rate band; and multifamily.
In addition the pre-SFAS No. 122 PMSRs have been restratified using the same
risk characteristics with the reallocated basis being determined by current
discount cash flow analysis. The combined PMSRs and OMSRs are being amortized
as noninterest expense over the period of and in proportion to the estimated
net servicing revenues. A quarterly value impairment analysis is performed
using a discounted cash flow methodology that is disaggregated by predominant
risk characteristics. Impairment shall be recognized through a valuation
allowance for individual stratum.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS. First Tennessee utilizes a variety of
off-balance sheet financial instruments to manage various financial risks.
These instruments include interest rate swaps, futures, forwards, and option
contracts. To qualify as a hedge used to manage interest rate risk, the
following criteria must be met: (1) the asset or liability to be hedged
exposes the institution to interest rate risk; (2) the instrument alters or
reduces sensitivity to interest rate changes; and (3) the instrument is
designated and effective as a hedge. For interest rate swaps used to hedge
interest rate risk, income and expense is accrued and recognized as an
adjustment to the interest income or expense of the related on-balance sheet
asset or liability. Fees on interest rate swaps are deferred and amortized
over the lives of the contracts. Realized gains and losses on all off-balance
sheet transactions used to manage interest rate risk that are terminated prior
to maturity are deferred and amortized as an adjustment to the hedged asset or
liability, over the remaining original life of the agreement. For interest
rate forwards, futures, and options used to hedge interest rate risk, 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. Customer related swaps are recorded at market value with
changes in market value recognized in noninterest income. Off-balance sheet
financial instruments held or issued by the bond division are valued at
prevailing market rates on a present value basis. Realized and unrealized
gains and losses are included in noninterest income as bond division income.
<PAGE> 38
Realized and unrealized gains and losses related to foreign currency exchange
agreements with customers are included in noninterest income as foreign
exchange income.
TRUST SERVICES INCOME. Prior to January 1, 1995, trust services income was
reported on a cash basis, which was not materially different 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. First Tennessee 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
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 poolings of interests. All references to per share amounts
for all years presented have been adjusted for the two-for-one stock split on
February 16, 1996.
<PAGE> 39
NOTE 2 -- BUSINESS COMBINATIONS
All of the share information provided in this footnote has been adjusted to
reflect the two-for-one stock split effected by First Tennessee in February
1996. Additional information including asset size and origination volume can
be found in Table 1 - Acquisitions in the Management Discussion and Analysis.
The following acquisitions occurred during 1995 and were accounted for as
poolings of interests; therefore, the financial statements for all periods
presented reflect the combined companies.
On January 3, 1995, First Tennessee acquired for approximately 1,731,000
shares of its common stock all of the outstanding capital stock of Carl I.
Brown and Company (Carl I. Brown), a mortgage company in Kansas City, Missouri.
Carl I. Brown became a wholly owned subsidiary of First Tennessee Bank National
Association (FTBNA), the principal subsidiary of First Tennessee. On February
24, 1995, First Tennessee acquired for approximately 2,842,000 shares of its
common stock all of the outstanding capital stock of Community Bancshares, Inc.
(CBI), of Germantown, Tennessee. CBI, the parent company of Community First
Bank, merged into First Tennessee, and Community First Bank merged into FTBNA.
The following presents certain financial data pertaining to the combination
of First Tennessee with Carl I. Brown and CBI for the years ended 1994 and
1993:
<TABLE>
<CAPTION>
(Dollars in thousands,
except per share data) 1994 1993
- - ------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL REVENUE:*
First Tennessee, as originally reported $769,735 $698,265
Carl I. Brown** 71,138 55,975
CBI 12,420 11,764
Eliminations (93) --
- - ------------------------------------------------------------------------------------
First Tennessee $853,200 $766,004
====================================================================================
NET INCOME:
First Tennessee, as originally reported $146,349 $106,082
Carl I. Brown** (1,882) 1,328
CBI 2,601 2,306
- - ------------------------------------------------------------------------------------
First Tennessee $147,068 $109,716
====================================================================================
NET INCOME PER SHARE:
First Tennessee, as originally reported $ 2.28 $ 1.66
Carl I. Brown** (10.89) 7.68
CBI .81 .81
First Tennessee 2.15 1.61
- - ------------------------------------------------------------------------------------
</TABLE>
* Total revenue is net interest income and noninterest income.
** Twelve months ended for Carl I. Brown is October 31.
Carl I. Brown had a fiscal reporting period ending October 31, and the
results of its operations for the two-month period ended December 31, 1994, are
not included in the Consolidated Statements of Income. These results were
recognized directly through an adjustment to beginning retained earnings for
1995 on the Consolidated Statements of Shareholders' Equity. The following
presents certain financial data for Carl I. Brown's two-month period ended
December 31, 1994:
<TABLE>
<CAPTION>
For the Two
Months Ended
(Dollars in thousands) December 31, 1994
- - ---------------------------------------------------------------------------
<S> <C>
Total revenue* $ 6,425
Total expense** 14,182
- - ---------------------------------------------------------------------------
Net income $(7,757)
===========================================================================
</TABLE>
* Total revenue is net interest income and noninterest income.
** Total expense includes income tax expense.
The following acquisitions occurred in 1995 and were accounted for as
purchases. 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 these acquisitions are
included in First Tennessee's consolidated results of operations from the date
of acquisition.
On April 1, 1995, First Tennessee acquired for approximately 842,000 shares
<PAGE> 40
of its common stock all of the outstanding shares of Peoples Commercial
Services Corporation (Peoples), parent company of Peoples Bank, headquartered
in Senatobia, Mississippi. As approved by the First Tennessee Board of
Directors, the shares issued in this transaction had been repurchased in the
open market. Peoples was merged with and into First Tennessee while Peoples
Bank became a wholly owned subsidiary of First Tennessee. The cost of the
acquisition, totaling approximately $17.9 million of First Tennessee's common
stock, exceeded the estimated net fair value of tangible assets and liabilities
acquired by approximately $9.5 million. Intangible assets totaling
approximately $2.7 million have been identified and are being amortized over
the expected useful lives of the individual components. The excess of
consideration paid over the estimated net fair value of the tangible and
intangible assets acquired, totaling approximately $6.8 million, has been
recorded as goodwill and is being amortized using the straight-line method over
25 years.
On October 1, 1995, First Tennessee acquired for approximately 2,565,000
shares of its common stock all of the outstanding shares of Financial
Investment Corp. (FIC), parent company of First National Bank of Springdale
(FNB), headquartered in Springdale, Arkansas. As approved by the First
Tennessee Board of Directors, the shares issued in this transaction had been
repurchased in the open market. FIC was merged with and into First Tennessee
while FNB became a wholly owned subsidiary of First Tennessee. The cost of the
acquisition, totaling approximately $70.0 million of First Tennessee's common
stock, exceeded the estimated net fair value of tangible assets and liabilities
acquired by approximately $27.2 million. Intangible assets totaling
approximately $9.2 million have been identified and are being amortized over
the expected useful lives of the individual components. The excess of
consideration paid over the estimated net fair value of the tangible and
intangible assets acquired, totaling approximately $18.0 million, has been
recorded as goodwill and is being amortized using the straight-line method over
25 years.
The following presents on a proforma basis certain financial data pertaining
to the Peoples and FIC transactions as if they had been acquired at the
beginning of the periods. The proforma results presented are not necessarily
indicative of the future results of operations of the combined company or the
results of operations that would have actually occurred had the merger been in
effect for the periods presented.
<TABLE>
<CAPTION>
(Dollars in thousands,
except per share data) 1995 1994
- - -------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL REVENUE:*
First Tennessee, as originally reported $887,216 $769,735
Peoples 1,232 3,679
FIC 10,312 14,801
Purchase accounting adjustments (1,674) (3,503)
- - -------------------------------------------------------------------------------------
First Tennessee proforma $897,086 $784,712
=====================================================================================
NET INCOME:
First Tennessee, as originally reported $164,888 $146,349
Peoples 430 919
FIC 2,158 4,695
Purchase accounting adjustments (1,896) (3,728)
- - -------------------------------------------------------------------------------------
First Tennessee proforma $165,580 $148,235
=====================================================================================
NET INCOME PER SHARE:
First Tennessee, as originally reported $ 2.42 $ 2.28
Peoples 3.23 6.91
FIC 1.21 2.63
First Tennessee proforma 2.36 2.32
- - -------------------------------------------------------------------------------------
</TABLE>
*Total revenue is net interest income and noninterest income.
On July 1, 1995, First Tennessee acquired certain assets and certain
liabilities of HomeBanc Mortgage Corporation (HomeBanc) of Atlanta, Georgia,
for approximately $6.7 million. HomeBanc was merged into Sunbelt National
Mortgage Corporation. This acquisition was accounted for as a purchase and was
immaterial to First Tennessee.
The following four acquisitions occurred in 1994 and were accounted for as
poolings of interests; therefore, the financial statements for all periods
presented reflect the combined companies.
On January 4, 1994, First Tennessee acquired for approximately 3,502,000
shares of its common stock all of the outstanding capital stock of SNMC
Management Corporation (SNMC). SNMC, the parent of Sunbelt National Mortgage
Corporation headquartered in Dallas, Texas, became a wholly owned subsidiary of
FTBNA.
<PAGE> 41
On March 1, 1994, First Tennessee acquired for approximately 936,000 shares
of its common stock all of the outstanding shares of Highland Capital
Management Corp. (HCMC). HCMC merged with First Tennessee Investment
Management, Inc., a wholly owned subsidiary of First Tennessee. The combined
organization became a wholly owned subsidiary of First Tennessee with the name
Highland Capital Management Corp.
First Tennessee acquired Cleveland Bank and Trust Company (CBT) of
Cleveland, Tennessee, on March 16, 1994, for approximately 2,306,000 shares of
its common stock and acquired Planters Bank (Planters) of Tunica, Mississippi,
on August 9, 1994, for approximately 668,000 shares of its common stock. Both
of these banks became wholly owned subsidiaries of First Tennessee.
On October 1, 1994, First Tennessee acquired Emerald Mortgage Company
(Emerald) of Lynnwood, Washington, for approximately 304,000 shares of its
common stock. Emerald was merged into SNMC. This acquisition was accounted
for as a purchase and was immaterial to First Tennessee.
On December 31, 1993, First Tennessee acquired for approximately 298,000
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 First
Tennessee. 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 First Tennessee. The consolidated financial
statements of First Tennessee give effect to the merger which was 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.
On October 1, 1993, FTBNA acquired for cash Maryland National Mortgage
Corporation (MNMC) headquartered in Baltimore, Maryland. In 1994, MNMC changed
its name to MNC Mortgage Corp. 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. The operating results of this acquisition are included in First
Tennessee's consolidated results of operations from the date of acquisition.
The cost of the acquisition, totaling approximately $114.8 million, exceeded
the estimated net fair value of tangible assets and liabilities acquired by
approximately $75.0 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 net fair value of the tangible and intangible assets acquired,
totaling approximately $43.1 million, has been recorded as goodwill and is
being amortized using the straight-line method over 25 years.
<PAGE> 42
NOTE 3 -- INVESTMENT SECURITIES
Reconciliations of the amortized cost to the estimated market values of
investments in securities at December 31, 1995, are provided below. Also
provided are the amortized cost and estimated market value by contractual
maturity. 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.
SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
- - ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1995:
States and municipalities $ 74,731 $ 1,289 $ (270) $ 75,750
- - ------------------------------------------------------------------------------------
Estimated
BY CONTRACTUAL MATURITY Amortized Market
(Dollars in thousands) Cost Value
- - ------------------------------------------------------------------------------------
AT DECEMBER, 1995:
Within 1 year $ 9,493 $ 9,556
After 1 year; within 5 years 18,944 19,224
After 5 years; within 10 years 20,274 20,658
After 10 years 26,020 26,312
- - ------------------------------------------------------------------------------------
Total $ 74,731 $ 75,750
====================================================================================
</TABLE>
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
- - ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1995:
U.S. Treasury and other
U.S. government agencies $ 271,260 $ 3,289 $ (708) $ 273,841
Government agency
issued MBS 294,731 6,239 (1,266) 299,704
Government agency
issued CMOs 1,351,342 11,154 (2,586) 1,359,910
States and municipalities 28,047 1,388 (26) 29,409
Private issued CMOs 1,841 22 -- 1,863
Other 17,366 591 (500) 17,457
Equity 53,927 2,163 (1,606) 54,484
- - ------------------------------------------------------------------------------------
Total $2,018,514 $24,846 $ (6,692) $2,036,668
====================================================================================
</TABLE>
<TABLE>
<CAPTION>
Estimated
BY CONTRACTUAL MATURITY Amortized Market
(Dollars in thousands) Cost Value
- - ------------------------------------------------------------------------------------
<S> <C> <C>
AT DECEMBER 31, 1995:
Within 1 year $ 114,920 $ 114,975
After 1 year; within 5 years 169,978 172,880
After 5 years; within 10 years 29,949 30,933
After 10 years 1,826 1,919
- - ------------------------------------------------------------------------------------
Subtotal 316,673 320,707
- - ------------------------------------------------------------------------------------
Mortgage-backed securities and CMOs 1,647,914 1,661,477
Equity securities 53,927 54,484
- - ------------------------------------------------------------------------------------
Total $2,018,514 $2,036,668
====================================================================================
</TABLE>
Proceeds from the sales of available for sale debt securities were
$428,590,000 and $404,972,000 in 1995 and 1994, respectively. Gross gains of
$514,000 and $264,000 and gross losses of $742,000 and $5,384,000 were realized
on 1995 and 1994 debt sales, respectively. Proceeds from the sales of equity
securities during 1995 and 1994 were $14,545,000 and $18,845,000, respectively.
<PAGE> 43
Gross gains of $5,466,000 and $15,788,000 and gross losses of $114,000 and
$153,000 were realized on the 1995 and 1994 equity sales, respectively. In
1995, losses totaling $1,400,000 on debt securities and $2,157,000 on equity
securities were recognized for securities, that in the opinion of management,
have been permanently impaired. During 1994, First Tennessee contributed
$9,379,000 of equity securities to establish a charitable foundation. Gross
gains of $8,616,000 were realized on the contribution. During 1995 and 1994,
$877,000 and $822,000 of recoveries were realized as gains on debt securities
that had previously been written down. There was no change in net unrealized
holding gain or loss on broker/dealer securities inventory for 1995. The
change in net unrealized losses on broker/dealer securities inventory
recognized in bond division income was $426,000 for 1994.
Securities included in the Consolidated Statements of Condition of
$1,590,984,000 and $1,424,466,000 at December 31, 1995 and 1994, respectively,
were pledged to secure public deposits, securities sold under agreement to
repurchase, and for other purposes. Equity securities include venture capital
investment securities.
As a result of the report, "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities," issued by
the Financial Accounting Standards Board, First Tennessee reclassified certain
of its securities from the Held to Maturity category to the Available for Sale
category on December 1, 1995. The following table provides certain information
related to the reclassification:
<TABLE>
<CAPTION>
Estimated Net
Amortized Market Unrealized
(Dollars in thousands) Cost Value Gain/(Loss)
- - ----------------------------------------------------------------------
<S> <C> <C> <C>
AT DECEMBER 1, 1995:
U.S. Treasury and other
U.S. government agencies $ 38,578 $ 38,843 $ 265
Government agency
issued MBS 120,820 119,208 (1,612)
Government agency
issued CMOs 742,032 745,949 3,917
States and municipalities 13,968 14,631 663
Private issued CMOs 12,718 12,920 202
- - ----------------------------------------------------------------------
Total $928,116 $931,551 $3,435
======================================================================
</TABLE>
Reconciliations of the amortized cost to the estimated market values of
investments in securities at December 31, 1994, are provided below. Also
provided are the amortized cost and estimated market value by contractual
maturity. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligation with or without call
or prepayment penalties.
SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
- - ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1994:
U.S. Treasury and other
U.S. government agencies $ 63,550 $ 55 $ (1,791) $ 61,814
Government agency
issued MBS 139,954 15 (11,265) 128,704
Government agency
issued CMOs 724,682 -- (38,487) 686,195
States and municipalities 61,723 757 (1,517) 60,963
Private issued CMOs 2,493 -- (55) 2,438
Other 11,775 52 (497) 11,330
- - ------------------------------------------------------------------------------------
Total $1,004,177 $879 $(53,612) $951,444
====================================================================================
</TABLE>
<PAGE> 44
<TABLE>
<CAPTION>
Estimated
BY CONTRACTUAL MATURITY Amortized Market
(Dollars in thousands) Cost Value
- - -----------------------------------------------------------------------------------
<S> <C> <C>
AT DECEMBER 31, 1994:
Within 1 year $ 38,725 $38,825
After 1 year; within 5 years 66,853 65,434
After 5 years; within 10 years 16,458 15,712
After 10 years 15,012 14,136
- - -----------------------------------------------------------------------------------
Subtotal 137,048 134,107
- - -----------------------------------------------------------------------------------
Mortgage-backed securities and CMOs 867,129 817,337
- - -----------------------------------------------------------------------------------
Total $1,004,177 $951,444
===================================================================================
</TABLE>
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
- - ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1994:
U.S. Treasury and other
U.S. government agencies $ 333,469 $ 295 $(10,810) $ 322,954
Government agency
issued MBS 179,058 2,903 (4,668) 177,293
Government agency
issued CMOs 614,551 64 (28,804) 585,811
States and municipalities 14,780 1,103 (224) 15,659
Private issued CMOs 409 -- -- 409
Private issued asset-backed 2,020 -- (42) 1,978
Other 6,272 18 (1,220) 5,070
Equity 55,834 3,941 (2,211) 57,564
- - ------------------------------------------------------------------------------------
Total $1,206,393 $8,324 $(47,979) $1,166,738
====================================================================================
</TABLE>
<TABLE>
<CAPTION>
Estimated
BY CONTRACTUAL MATURITY Amortized Market
(Dollars in thousands) Cost Value
- - ---------------------------------------------------------------------------------
<S> <C> <C>
AT DECEMBER 31, 1994:
Within 1 year $ 25,293 $ 25,918
After 1 year; within 5 years 313,104 302,007
After 5 years; within 10 years 14,899 14,583
After 10 years 3,245 3,153
- - ---------------------------------------------------------------------------------
Subtotal 356,541 345,661
- - ---------------------------------------------------------------------------------
Mortgage-backed securities and CMOs 794,018 763,513
Equity securities 55,834 57,564
- - ---------------------------------------------------------------------------------
Total $ 1,206,393 $1,166,738
=================================================================================
</TABLE>
<PAGE> 45
NOTE 4 -- LOANS
Although First Tennessee has a loan portfolio diversified by type of risk, the
ability of its customers to honor their contracts is to some extent dependent
upon their regional economic condition. In order to mitigate the impact of
credit risk, First Tennessee manages the concentration of this risk across
various geographical regions. First Tennessee grants commercial and consumer
loans primarily to customers throughout Tennessee and its contiguous states.
Mortgage loans are originated through offices in 28 states, with the majority
of these being securitized and sold.
The composition of the loan portfolio at December 31 is summarized below:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994
- - ----------------------------------------------------------------------------
<S> <C> <C>
Commercial $3,330,929 $2,991,231
Consumer 2,525,889 2,263,007
Mortgage warehouse loans held for sale 789,183 515,407
Permanent mortgage 689,458 591,094
Credit card receivables 529,104 475,489
Real estate construction 238,863 160,368
Nonaccrual 19,040 16,853
- - ----------------------------------------------------------------------------
Loans, net of unearned income 8,122,466 7,013,449
Allowance for loan losses 112,567 109,859
- - ----------------------------------------------------------------------------
Total net loans $8,009,899 $6,903,590
============================================================================
</TABLE>
Additional detail on consumer loans by product is provided in the following
table as of December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994
- - -----------------------------------------------------------------------------
<S> <C> <C>
Real estate $1,576,215 $1,416,275
Auto 606,199 499,304
Student 231,732 216,404
Other 111,743 131,024
- - -----------------------------------------------------------------------------
Total consumer loans, net of unearned income $2,525,889 $2,263,007
=============================================================================
</TABLE>
At December 31, 1995 and 1994, real estate consumer loans included
$1,537,064,000 and $1,384,656,000 of first and second liens and home equity
loans, respectively.
On January 1, 1995, First Tennessee adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures." On that date,
impaired loans totaling $9,742,000 were identified. These impaired loans had a
related allowance that totaled $2,542,000.
The following table presents information concerning nonperforming loans at
December 31, 1995:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995
- - ---------------------------------------------------------------
<S> <C>
Impaired loans $11,865
Other nonaccrual loans 7,175
- - ---------------------------------------------------------------
Total $19,040
===============================================================
</TABLE>
Total interest income recognized on impaired loans was $1,405,000 for the
year ended December 31, 1995. Interest income which would have been earned
under the original terms of these loans was approximately $1,374,000 in 1995.
The average balance of impaired loans was approximately $10,441,000 for the
year ended December 31, 1995. Total restructured impaired loans at
December 31, 1995 were $303,000. At December 31, 1995, there were no
outstanding commitments to advance additional funds to customers whose loans
had been restructured.
An allowance for loan losses is maintained for all impaired loans.
Activity in the allowance for loan losses related to non-impaired loans,
impaired loans, and for the total allowance for the year ended December 31,
1995, is summarized as follows:
<PAGE> 46
<TABLE>
<CAPTION>
1995
(Dollars in thousands) Non-impaired Impaired Total
- - ---------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $109,859 $ -- $109,859
Transfer of allowance (2,542) 2,542 --
Allowance from acquisitions 2,632 -- 2,632
Provision for loan losses 14,388 6,204 20,592
Charge-offs 29,766 5,465 35,231
Less loan recoveries 14,480 235 14,715
- - ---------------------------------------------------------------------------
Net charge-offs 15,286 5,230 20,516
- - ---------------------------------------------------------------------------
Balance at end of year $109,051 $3,516 $112,567
===========================================================================
</TABLE>
The following table presents information concerning nonperforming loans at
December 31, 1994:
<TABLE>
<CAPTION>
(Dollars in thousands) 1994
- - ---------------------------------------------------------------
<S> <C>
Nonaccrual loans $16,853
Restructured loans 158
- - ---------------------------------------------------------------
Total $17,011
===============================================================
</TABLE>
Total interest recorded on nonaccrual and restructured loans was
$1,368,000 in 1994. Interest income which would have been earned under the
original terms of these loans was approximately $1,591,000 in 1994. At
December 31, 1994,there were no outstanding commitments to advance additional
funds to customers whose loans had been restructured.
The allowance for loan losses includes management's estimate of the
amounts expected to be lost on specific loans and for losses on other as yet
unidentified loans included in loans outstanding. In estimating the potential
losses on specific loans, management relies on a combination of in-house
prepared discounted cash flow analyses and valuations by independent
appraisers. In estimating the reserve component for unidentified losses within
the portfolio, management relies on historical experience by loan type adjusted
for any known trends in the portfolio. The amounts that will ultimately be
realized could differ materially in the near term from the amounts assumed in
arriving at the allowance for possible loan losses reported in the financial
statements.
Activity in the allowance for loan losses for the years ended December
31, 1994 and 1993, is summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993
- - ---------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $110,720 $103,223
Allowance from acquisitions -- 971
Provision for loan losses 17,182 36,461
Charge-offs 29,196 42,661
Less loan recoveries 11,153 12,726
- - ---------------------------------------------------------------
Net charge-offs 18,043 29,935
- - ---------------------------------------------------------------
Balance at end of year $109,859 $110,720
===============================================================
</TABLE>
In the ordinary course of business, First Tennessee 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 to directors and executive officers of First Tennessee and their
associates were $128,911,000 and $94,470,000 at December 31, 1995 and 1994,
respectively. The following table summarizes the changes to these amounts:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994
- - ---------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $ 94,470 $ 81,278
Additions 202,652 149,108
Deletions:
Repayments 167,720 128,263
No longer related 491 7,653
- - ---------------------------------------------------------------
Total deletions 168,211 135,916
- - ---------------------------------------------------------------
Balance at end of year $128,911 $ 94,470
===============================================================
</TABLE>
Included on the Consolidated Statements of Condition in "Bond division
receivables and other assets" are amounts due from customers on acceptances and
in "Bond division payables and other liabilities" are bank acceptances
outstanding of $4,663,000 and $4,530,000 at December 31, 1995 and 1994,
respectively.
<PAGE> 47
NOTE 5 -- PREMISES AND EQUIPMENT
Premises and equipment at December 31 are summarized below:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994
- - -------------------------------------------------------------
<S> <C> <C>
Land $ 27,564 $ 25,515
Buildings 121,932 106,770
Leasehold improvements 18,260 16,037
Furniture, fixtures, and equipment 160,535 147,096
- - -------------------------------------------------------------
Premises and equipment, at cost 328,291 295,418
Less accumulated depreciation
and amortization 150,891 136,382
- - -------------------------------------------------------------
Premises and equipment, net $177,400 $159,036
=============================================================
</TABLE>
<PAGE> 48
NOTE 6 -- INTANGIBLE ASSETS
Following is a summary of intangible assets, net of accumulated amortization,
included in the Consolidated Statements of Condition:
<TABLE>
<CAPTION>
Premium on
Purchased Deposits
(Dollars in thousands) Goodwill and Assets
- - --------------------------------------------------------
<S> <C> <C>
December 31, 1992 $20,747 $32,761
Amortization expense 1,674 4,197
Acquisitions/Divestitures 43,492 408
- - --------------------------------------------------------
December 31, 1993 62,565 28,972
Amortization expense 3,073 3,333
Acquisitions/Divestitures 6,594 -
- - --------------------------------------------------------
December 31, 1994 66,086 25,639
Amortization expense 3,676 4,424
Acquisitions/Divestitures 29,382 15,978
- - --------------------------------------------------------
DECEMBER 31, 1995 $91,792 $37,193
========================================================
</TABLE>
<PAGE> 49
NOTE 7 -- CONTINGENCIES
Various claims and lawsuits are pending against First Tennessee 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 First Tennessee and
its subsidiaries.
<PAGE> 50
NOTE 8:-- CAPITALIZED MORTGAGE SERVICING RIGHTS
Following is a summary of capitalized mortgage servicing rights, net of
accumulated amortization, included in the Consolidated Statements of Condition:
<TABLE>
<CAPTION>
Capitalized
Mortgage
Servicing
(Dollars in thousands) Rights
- - -------------------------------------------------------
<S> <C>
December 31, 1992 $ 62,537
Amortization expense (25,478)
Acquisitions/Divestitures 48,924
- - -------------------------------------------------------
December 31, 1993 $ 85,983
Amortization expense (14,936)
Acquisitions/Divestitures 1,675
- - -------------------------------------------------------
December 31, 1994 $ 72,722
Amortization expense (14,980)
Acquisitions/Divestitures 91,478
- - -------------------------------------------------------
DECEMBER 31, 1995* $ 149,220
- - -------------------------------------------------------
Fair value at December 31, 1995 $ 166,247
- - -------------------------------------------------------
</TABLE>
* Includes $11.3 million of originated loan servicing rights which are related
to loans held for sale to investors.
The mortgage servicing rights capitalized at December 31, 1995, represents
the rights to service approximately $12 billion of mortgage loans. In
addition, First Tennessee has approximately $5.3 billion of loans for which the
mortgage servicing rights were not capitalized. The estimated fair value of
the servicing for these loans was $43.6 million. No valuation allowance was
required as of December 31, 1995.
<PAGE> 51
NOTE 9 -- 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 and cash management advances
from the Federal Home Loan Bank.
Federal funds purchased arise principally from First Tennessee'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
First Tennessee'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 two to 30 days at December 31, 1995.
Commercial paper is an obligation of First Tennessee and had original
maturities ranging from two to 90 days at December 31, 1995.
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) 1995 1994 1993
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased and
securities sold under
agreements to repurchase:
Balance:
Average $1,491,033 $1,045,571 $1,028,981
Year-end 1,674,225 1,457,517 1,025,124
Maximum month-end outstanding 1,953,448 1,457,517 1,239,396
Rate:
Average for the year 5.43 % 3.87 % 2.84 %
Average at year-end 4.96 5.15 2.73
Commercial paper:
Balance:
Average $ 35,579 $ 34,351 $ 30,269
Year-end 29,402 67,820 32,283
Maximum month-end outstanding 44,755 67,820 54,809
Rate:
Average for the year 5.14 % 3.77 % 3.06 %
Average at year-end 4.59 4.57 3.06
Other short-term borrowings:
Balance:
Average $ 368,630 $ 645,447 $ 694,236
Year-end 57,118 284,702 900,390
Maximum month-end outstanding 547,131 894,840 1,114,552
Rate:
Average for the year 7.07 % 5.46 % 4.78 %
Average at year-end 6.52 8.05 5.30
- - --------------------------------------------------------------------------------
</TABLE>
<PAGE> 52
NOTE 10 -- CASH AND DUE FROM BANKS
Commercial banking subsidiaries of First Tennessee 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 $24,297,000 at December 31, 1995, and $82,440,000
at December 31, 1994.
<PAGE> 53
NOTE 11 -- LEASE COMMITMENTS
Leased capital assets included in "Bond division receivables and other assets"
on the Consolidated Statements of Condition at December 31 are summarized
below:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994
- - -----------------------------------------------------------------
<S> <C> <C>
Premises $2,243 $2,243
Less accumulated amortization 1,706 1,599
- - -----------------------------------------------------------------
Leased capital assets, net $ 537 $ 644
=================================================================
</TABLE>
Future minimum lease payments for capitalized leases together with the
present value of net minimum lease payments at December 31, 1995, are as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Premises
- - -----------------------------------------------------------------
<S> <C>
1996 $ 234
1997 234
1998 237
1999 193
2000 124
2001 and after 137
- - -----------------------------------------------------------------
Total 1,159
Less amount representing interest 242
- - -----------------------------------------------------------------
Present value of net minimum lease payments $ 917
=================================================================
</TABLE>
Rent expense under all operating lease obligations aggregated $27,779,000 for
1995, $27,865,000 for 1994, and $18,875,000 for 1993. Rent expense was reduced
in 1994 and 1993 by amortization of a deferred gain resulting from the sale of
an office building in 1985. This amortization totaled $585,000 in 1994, and
$1,062,000 in 1993. Rent income received aggregated $1,776,000, $2,498,000,
and $2,117,000 for the years 1995, 1994, and 1993, respectively.
With respect to many leased locations, First Tennessee pays taxes, insurance,
and maintenance costs. Most of the leases are for terms ranging from one to 15
years and include renewal options for additional periods of one to 25 years. At
December 31, 1995, First Tennessee's long-term leases required minimum annual
rentals as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Premises Equipment Total
- - -------------------------------------------------------------------
<S> <C> <C> <C>
1996 $18,403 $ 2,594 $20,997
1997 16,327 1,982 18,309
1998 14,271 902 15,173
1999 9,797 728 10,525
2000 7,641 365 8,006
2001 and after 13,924 -- 13,924
- - -------------------------------------------------------------------
Total $80,363 $ 6,571 $86,934
===================================================================
</TABLE>
Aggregate minimum income under sublease agreements for these periods is
$2,739,000.
<PAGE> 54
NOTE 12 -- TERM BORROWINGS
Term borrowings on the financial statements consist of borrowings with
maturities greater than one year. The following table presents information
pertaining to term borrowings for First Tennessee and its subsidiaries at
December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994
- - ----------------------------------------------------------------------------
<S> <C> <C>
FIRST TENNESSEE NATIONAL CORPORATION:
Subordinated capital notes:
Matures on June 1, 1999 -- 10 3/8% $ 74,692 $ 74,602
Matures on November 15, 2005 -- 6 3/4% 74,193 --
Sinking fund debentures -- 7 3/8% -- 13,950
FIRST TENNESSEE BANK NATIONAL ASSOCIATION:
Notes payable to Federal Home Loan Bank:
Matures on January 3, 1997 -- 7.95% 25,000 --
Matures on April 3, 1997 -- 7.95% 25,000 --
Matures on October 3, 1997 -- 8.05% 10,000 --
Principal payments of approximately $4,898,000,
$5,279,000, and $1,382,000 due 1996, 1997,
and 1998, respectively -- 7.50% 11,559 --
Matures on January 29, 1999 -- 7.95% 15,000 --
Matures on June 30, 1999 -- One month LIBOR + .05%
(5.7375% and 6.175% at December 31, 1995 and
1994, respectively) 20,000 20,000
Monthly payments of approximately $17,000 due
through November 1, 2009 -- 8.10% 2,783 2,984
Industrial development bond payable to
City of Alcoa, Tennessee -- 6.50%;
payment of $400,000 due 1999 400 500
CLEVELAND BANK AND TRUST COMPANY:
Industrial development bond payable to City of
Cleveland, Tennessee -- 65% of prime (5.525%
and 5.520% at December 31, 1995 and 1994,
respectively); monthly payments of
approximately $29,000 due through 1999 1,390 1,735
- - ----------------------------------------------------------------------------
Total $260,017 $113,771
============================================================================
</TABLE>
Annual principal repayment requirements for the years 1996 through 2000
approximate $5,446,000, $65,827,000, $1,930,000, $110,946,000, and $200,000,
respectively. Total repayment requirements for 2001 through 2009 are
approximately $76,783,000.
Subordinated capital notes were issued on June 10, 1987, at 10.375 percent
with interest 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. First Tennessee may elect to pay the
principal amount in cash, in whole or in part, from designated proceeds.
Subordinated capital notes were also issued on November 9, 1995, at 6.75
percent with interest payable on May 15 and November 15 of each year beginning
on May 15, 1996. Proceeds from this issuance were used to purchase First
Tennessee common stock and redeem the outstanding sinking fund debentures.
A portion of the long-term debt issued by the parent company was
downstreamed to FTBNA to support asset growth and improve bank capital ratios.
The bank previously issued $75,000,000 in notes to the parent company
corresponding to the subordinated capital notes issued in 1987. Interest rate
and maturity terms are identical to the corporate debt. The subordinated
capital notes meet bank regulatory capital guidelines.
<PAGE> 55
NOTE 13 -- SAVINGS, PENSION AND OTHER EMPLOYEE BENEFITS
SAVINGS PLAN. Substantially all employees of First Tennessee and its
subsidiaries participate in a contributory savings plan in conjunction with a
flexible benefits plan. First Tennessee 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 employees may then
direct that all or a portion of the contribution be allocated to their savings
plan accounts. Employees may also make pre-tax and after-tax personal
contributions to the savings plan. Pre-tax contributions invested in First
Tennessee'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) 1995 1994 1993
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Flexible benefits contributions:
Performance dollars $ 4,675 $ 4,144 $ 3,937
Service dollars 1,866 1,758 1,716
- - -----------------------------------------------------------------------------------------
Total 6,541 5,902 5,653
Company matching contribution 3,455 2,374 1,976
- - -----------------------------------------------------------------------------------------
Total employer contribution $ 9,996 $ 8,276 $ 7,629
=========================================================================================
</TABLE>
The figures in the table above include 1995 flexible benefit contributions
and company matching contributions for employees of CBI, Peoples, and FIC,
companies acquired by First Tennessee during 1995. Also during 1995, First
Tennessee acquired Carl I. Brown. The 1994 totals include HCMC and CBT,
companies acquired by First Tennessee during 1994. Also during 1994, First
Tennessee acquired Planters, SNMC, and Emerald. Emerald was merged into SNMC.
Each of these companies sponsored a savings, thrift, or ESOP plan.
Community First Bank Profit Sharing Trust is a 401(k) savings plan. This
plan was frozen effective as of the acquisition. Expense for this plan was
$3,000 for the period preceding the acquisition date of February 24, 1995. For
the years ended December 31, 1994 and 1993, the expense was $258,000 and
$122,000 respectively. In 1995, the Community First Bank Profit Sharing Trust
was merged into the First Tennessee Savings Plan.
The Peoples Bank of Senatobia Profit Sharing Plan is a 401(k) savings
plan. This plan was frozen effective as of the acquisition. No further
employee or employer contributions are being made into this plan. Expense for
this plan was $13,000 for the period preceding the acquisition date of April 1,
1995.
The First National Bank of Springdale 401(k) Profit Sharing Plan was
frozen as of the acquisition. No further employee or employer contributions
are being made into this plan. Expense for this plan was $14,000 for the
period preceding the acquisition date of October 1, 1995.
The Carl I. Brown and Company Employee Savings Trust is a 401(k) savings
plan. This plan was frozen as of December 31, 1995. No further employee or
employer contributions are being made into this plan. Expense under this plan
was $134,000, $ 145,000, and $91,000 for the years ended December 31, 1995,
1994, and 1993, respectively.
The HCMC Profit Sharing Trust is a 401(k) savings plan. This plan was
frozen effective as of the acquisition. No further employee or employer
contributions are being made into this plan. In 1994, expense for this plan
was $28,000 for the two months preceding the acquisition date of March 1, 1994.
For the year ended December 31, 1993, the expense for this plan was $165,000.
The CBT Retirement Plan was a thrift plan for all eligible employees.
Expense for this plan in 1994 was $75,000 for the period preceding the
acquisition date of March 16, 1994. For the year ended December 31, 1993, the
expense for this plan was $298,000. Effective as of the merger, CBT's
retirement plan was terminated. In accordance with the plan and with ERISA,
all amounts credited to the plan became fully vested and nonforfeitable.
Planters' Retirement Plan is an Employee Stock Ownership Plan. The
benefits provided under the plan are funded by employer contributions to
eligible employees. Expense for this plan was $29,000 and $45,000 for the
years ended December 31, 1994 and 1993, respectively. This plan was terminated
in 1994.
SNMC began sponsoring on April 1, 1993, the SNMC Savings Plan, a defined
contribution plan which covered substantially all its employees. The SNMC
Savings Plan was frozen as of December 31, 1995. No further employee or
employer contributions are being made into this plan. Expense under this plan
was $621,000, $650,000, and $600,000 for years ended December 31, 1995, 1994,
and 1993, respectively.
Emerald's 401(k) Savings Plan was frozen effective as of the acquisition.
Also, Emerald's Profit Sharing Plan was terminated effective as of the
acquisition. In accordance with the Profit Sharing Plan and with ERISA, all
amounts credited to the plan became fully vested and nonforfeitable.
<PAGE> 56
PENSION PLAN. Substantially all employees of First Tennessee 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, First Tennessee 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 $278,000 in 1995, $2,993,000 in 1994, and
$882,000 in 1993.
The components of net periodic pension cost were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the year $ 5,210 $ 6,792 $ 4,522
Interest cost on projected
benefit obligation 6,907 6,459 5,683
Return on plan assets (27,516) (676) (8,847)
Net amortization and deferral 15,677 (9,582) (476)
- - ------------------------------------------------------------------------------------------
Net periodic pension cost $ 278 $ 2,993 $ 882
==========================================================================================
</TABLE>
The following table sets forth the plan's funded status at December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994
- - ------------------------------------------------------------------------------------------
<S> <C> <C>
Plan assets at fair value $ 150,685 $ 110,574
Actuarial present value of projected
benefit obligation* 108,215 83,648
- - ------------------------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 42,470 26,926
Unrecognized net (gain)/loss from past
experience different from that assumed
and effects of changes in assumptions 72 4,752
Prior service cost not yet recognized in
net periodic pension cost 3,138 1,194
Unrecognized net transitional asset (3,240) (3,700)
- - ------------------------------------------------------------------------------------------
Prepaid pension cost
recognized in the Consolidated
Statements of Condition $ 42,440 $ 29,172
==========================================================================================
</TABLE>
*At December 31, 1995 and 1994, respectively, the actuarial present values of
the accumulated benefit obligation were $86,495,000 and $60,026,000, of which
vested benefits were $84,302,000 and $57,769,000. 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 4.7 percent, respectively,
in 1995 and 8.5 percent and 4.8 percent, respectively, in 1994. The expected
long-term rate of return on assets was 10 percent for 1995 and 9.5 percent for
1994.
FIC sponsored the First National Bank of Springdale Pension Plan and Trust,
which is a defined benefit pension plan. This plan was frozen as of the
acquisition. No further employer contributions are being made into this plan.
This plan will be merged into the First Tennessee plan. Participants employed
at the time of the acquisition will receive vesting and benefit service credit
in the First Tennessee plan from their original date of hire by FIC.
OTHER EMPLOYEE BENEFITS. In November 1992, FASB issued SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." 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. On January 1, 1994, First Tennessee adopted SFAS No. 112 with the
recognition of $2.3 million of pre-tax postemployment benefits related to prior
service rendered and rights vested. Total expense recognized in 1995 and 1994
was $1.9 million and $2.5 million, respectively.
First Tennessee 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.
<PAGE> 57
First Tennessee provides postretirement medical insurance to full-time
employees retiring under the provisions of the First Tennessee Pension Plan.
The postretirement medical plan is contributory with retiree contributions
adjusted annually. In 1992, First Tennessee 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, First Tennessee 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 Statements of Condition at December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994
- - ------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees $ (14,236) $ (15,039)
Actives (8,948) (5,886)
- - ------------------------------------------------------------------------------------------
Total APBO (23,184) (20,925)
Plan assets at fair value 11,055 10,637
- - ------------------------------------------------------------------------------------------
APBO in excess of plan assets (12,129) (10,288)
Unrecognized:
Net transition obligation 16,807 17,796
Prior service cost 44 47
Prepaid benefit cost (394) (868)
- - ------------------------------------------------------------------------------------------
Prepaid postretirement benefit cost $ 4,328 $ 6,687
==========================================================================================
</TABLE>
Net periodic postretirement benefit cost for the periods ending December
31 included the following components:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 427 $ 556 $ 434
Interest cost on APBO 1,762 1,578 1,582
Actual return on assets (1,867) (864) (388)
Amortization of transition obligation over 20 years 989 989 989
Total of other components 1,048 172 (292)
- - ------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 2,359 $ 2,431 $ 2,325
==========================================================================================
</TABLE>
For measurement purposes, in 1995 the annual rate of increase in the per
capita cost of covered health care benefits was assumed to be 10.75 percent
decreasing evenly to a rate of 5.75 percent by the year 2000 and remaining at
that level thereafter. In 1994, the annual rate of increase was assumed to be
13 percent decreasing evenly to a rate of 7 percent by the year 2000 and
remaining 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, 1995 $23,184 $24,688 6.5+
Service and interest cost 2,189 2,320 6.0+
- - ----------------------------------------------------------------------------------------
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.25 percent in 1995 and 8.5 percent in 1994. 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 expected long-term rate of return on plan assets before
income taxes was 6.5 percent for 1995 and 1994. The trust holding the plan
assets for all other First Tennessee employees, actives and those retired since
1992, is not subject to federal income taxes. The expected long-term rate of
return on plan assets before income taxes was 10 percent for 1995 and 9.5
percent for 1994.
In 1995, medical plan expense based on claims incurred was $8,673,000 for
5,304 active participants. Medical plan expense in 1994 was $9,841,000 for
5,400 active participants. The 1993 medical plan expense was $8,195,000 for
5,187 active participants. First Tennessee does not currently provide group
life insurance upon retirement; however, seven employees, most of whom retired
prior to August 1, 1963, are currently provided coverage totaling $125,000.
Group life insurance expense based on benefits incurred was $783,000 for 7,744
participants in 1995; $1,088,000 for 6,413 participants in 1994; and $1,132,000
for 6,408 participants in 1993.
<PAGE> 58
NOTE 14 -- SHAREHOLDER PROTECTION RIGHTS AGREEMENT
In September 1989, First Tennessee 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 First Tennessee's common stock or commences a tender offer that will result
in such person or group owning 10 percent or more of First Tennessee'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 $38.34 which has been
adjusted for the two-for-one stock split on February 16, 1996.
If any person or group acquires 10 percent or more of First Tennessee'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 First Tennessee common stock or participating preferred
stock having a market value of twice the exercise price. Also, if First
Tennessee 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 First Tennessee's common stock,
First Tennessee's Board of Directors may, at its option, exchange one share of
First Tennessee 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 $0.0033 per right prior to the day when any person or group
acquires 10 percent or more of First Tennessee's common stock.
<PAGE> 59
NOTE 15 -- STOCK OPTION, RESTRICTIVE STOCK INCENTIVE,
AND DIVIDEND REINVESTMENT PLANS
At its January meeting, the board of directors authorized a two-for-one split
of First Tennessee's common stock. The shares were distributed February 16,
1996, to shareholders of record on February 2, 1996. Share and per share
amounts in the accompanying text and table have been adjusted for the split.
STOCK OPTION PLANS. In 1995, First Tennessee's shareholders approved a new
stock option plan that provides for the granting of non-qualified and incentive
stock options to all employees of First Tennessee. The Plan authorizes the
issuance of 3,000,000 shares. The Plan is designed to give employees a
proprietary interest in First Tennessee. The options granted under this Plan
allow for the purchase of First Tennessee's common stock at a price equal to
its fair market value at the date of grant; however, the exercise price may be
less than 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. Options for 1,062,800 shares
were granted in 1995. These options are exercisable three years from the date
of grant and expire ten years from the date of grant. The plan also provides
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 under this plan.
Also approved in 1995 was the Non-Employee Directors' Deferred
Compensation Stock Option Plan. Under this plan options of 450,000 shares may
be granted to non-employee members of the Board of Directors electing to
receive them in lieu of retainer/fees. Options for 69,036 shares were granted
during 1995.
First Tennessee also has a stock option plan, approved in 1990, which
provides for the granting of both non-qualified and incentive stock options to
key executives and employees. The options granted under this plan allow for
the purchase of First Tennessee's common stock at a price equal to its fair
market value at the date of grant; however, the exercise price may be less than
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 1995, options for 54,612 shares
were granted in lieu of compensation and options for 9,000 shares were granted
where the exercise price was equal to the market value on the date of grant
under this Plan. In 1994, options for 27,648 shares were granted in lieu of
compensation and options for 1,057,846 shares were granted where the exercise
price was equal to the market value on the date of grant under the Plan. The
plan also provides for the grant of SARs exercisable for the economic
appreciation of the stock in the form of cash and/or stock. No SARs have been
granted under this plan.
Under a stock option plan established in 1984, similar to the
aforementioned 1990 Plan, stock options and SARs may no longer be granted;
however, options for 785,196 shares remained outstanding at the end of 1995.
In addition, there were 46,292 SARs outstanding under this Plan at the end of
1995. Total stock appreciation rights expense associated with fluctuations in
the market value of First Tennessee stock was $26,000, $6,000, and $67,000 for
the years 1995, 1994, and 1993, respectively.
In November 1991, the First Tennessee Board of Directors approved the
Bank Advisory Director Deferral Plan for FTBNA's regional advisory board
members. Options are awarded to those electing to receive them in lieu of
attendance fees. Options for 15,720 and 14,348 shares were granted during 1995
and 1994, respectively.
On February 24, 1995, First Tennessee acquired CBI which had a stock
option plan that provided for the granting of stock options to certain key
employees. All outstanding options were exercised prior to the acquisition.
Options for 127,804 shares were outstanding at December 31, 1994.
RESTRICTED STOCK INCENTIVE PLANS. First Tennessee has authorized a total of
855,000 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 First Tennessee. 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 lapsed in 1995. Each award under
the 1983 Plan provides for supplemental cash payments when the restrictions
lapse. No shares were granted under the 1989 Plan in 1995 or 1994. At
December 31, 1995, the 1989 Plan had 3,252 shares available to be awarded.
In 1992, First Tennessee's shareholders approved the 1992 Restricted
Stock Incentive Plan for awards to executive employees who have a significant
impact on the profitability of First Tennessee. The Plan authorized the
issuance of 660,000 shares. In addition, the Plan provides for 3,000 shares of
restricted stock to be granted to each new non-employee director upon election
to the Board with restrictions lapsing at 300 shares per year over the 10 years
following the grant. One officer was granted 8,200 restricted shares in 1995.
In 1994, 96,000 restricted shares were granted. At December 31, 1995, the 1992
Plan had 484,912 shares available to be awarded.
Compensation expense related to these plans was $1,165,000,
$1,374,000, and $1,586,000 for the years 1995, 1994, and 1993, respectively.
<PAGE> 60
The summary of stock option and restricted stock activity is shown below:
<TABLE>
<CAPTION>
Weighted
Exercise Average
Available Options Price Exercise
for Grant Outstanding Per Share Price
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JANUARY 1, 1994,
AS ORIGINALLY REPORTED 1,357,972 1,139,910 $10.40-34.29 $23.29
Adjustments for
two-for-one stock split 1,357,972 1,139,910
Adjustments for
pooling of interests 158,008
---------- ---------
JANUARY 1, 1994, RESTATED 2,715,944 2,437,828 $ 5.20-17.15 $11.35
Options granted (1,099,842) 1,116,844 $ 9.50-22.32 $19.66
Restricted stock incentive awards (96,000)
Stock options exercised (324,232) $ 5.20-17.15 $ 8.70
SARs exercised (200) $11.09 $11.09
Unissued options lapsed (59,818)
Restricted stock canceled 2,700
Stock options canceled 55,114 (57,436) $ 6.94-20.13 $13.80
--------- ---------
DECEMBER 31, 1994 1,518,098 3,172,804 $ 6.94-22.32 $14.50
========= =========
Options exercisable 1,399,302 $ 6.94-17.15 $10.47
- - ------------------------------------------------------------------------------------
JANUARY 1, 1995 1,518,098 3,172,804 $ 6.94-22.32 $14.50
Options granted (1,211,168) 1,211,168 $10.19-27.82 $20.64
Restricted stock incentive awards (8,200)
Shares authorized 3,450,000
Stock options exercised (439,372) $ 6.94-20.13 $11.05
Unissued options lapsed (9,914)
Stock options canceled 260,366 (260,366) $ 8.34-21.13 $20.49
---------- ---------
DECEMBER 31, 1995 3,999,182 3,684,234 $ 8.19-27.82 $16.50
========== =========
Options exercisable 1,653,598 $ 8.19-25.63 $12.40
- - ------------------------------------------------------------------------------------
</TABLE>
DIVIDEND REINVESTMENT PLAN. The Dividend Reinvestment and Stock Purchase
Plan, originally adopted in 1979, was amended in 1995 to authorize the sale of
600,000 additional shares of First Tennessee'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 $10,000 per quarter. The number of shares of
common stock now authorized totals 1,000,000. In 1988, First Tennessee began
purchasing these shares on the open market. The price of the shares purchased
directly from First Tennessee 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> 61
NOTE 16 -- INCOME TAXES
The components of income tax expense/(benefit) are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993
- - ---------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $46,502 $55,435 $ 58,573
State 8,059 9,325 9,275
Deferred:
Federal 29,734 (3,272) (2,276)
State 3,774 (794) 282
Tax law rate change -- -- (405)
- - ---------------------------------------------------------------------------
Total $88,069 $60,694 $ 65,449
===========================================================================
</TABLE>
The effective tax rates for 1995, 1994, and 1993, were 34.82 percent, 29.21
percent and 37.36 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) 1995 1994 1993
- - ----------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 35% 35% 35%
- - ----------------------------------------------------------------------------
Tax computed at statutory rate $88,535 $72,712 $61,263
Increase/(decrease) resulting from:
Tax-exempt interest (2,922) (2,989) (3,808)
State income taxes 7,691 6,059 5,363
Adjustment of prior years'
estimated liabilities (5,675) (5,883) --
Valuation allowance -- (8,038) 6,128
Charitable foundation -- (2,921) --
Tax law rate changes -- -- (405)
Other 440 1,754 (3,092)
- - ----------------------------------------------------------------------------
Total $88,069 $60,694 $65,449
============================================================================
</TABLE>
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, 1995, were as follows:
<TABLE>
<CAPTION>
Deferred Deferred
(Dollars in thousands) Assets Liabilities Total
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation $ -- $ 4,628 $ 4,628
Loss reserves (36,264) -- (36,264)
Originated mortgage servicing rights -- 22,299 22,299
Investments in debt and equity securities -- 6,736 6,736
Employee benefits -- 6,119 6,119
Purchase accounting adjustments -- 4,510 4,510
Intangible assets -- 5,600 5,600
Lease operations -- 3,728 3,728
Hedging transactions -- 4,453 4,453
Net operating loss carryforwards (7,499) -- (7,499)
Other (2,822) 5,601 2,779
- - -------------------------------------------------------------------------------
Net deferred tax (asset)/liability at
end of year $(46,585) $63,674 $ 17,089
===============================================================================
</TABLE>
<PAGE> 62
NOTE 17 -- BUSINESS SEGMENT INFORMATION
The following information is presented to comply with the business
segment requirements of SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise." First Tennessee has several specialty lines of business
which include mortgage banking and the bond division. The mortgage banking
operations consist of units which originate loans, primarily to securitize and
sell, and service mortgages. The bond division distributes certain securities
and loans to its customer base. For purposes of this disclosure, all of the
other specialty lines of business are included in the banking group.
Total revenue, expense, and asset levels reflect those which are
specifically identifiable or which are allocated based 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 has been consistently applied for all periods presented.
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>
Banking Mortgage Bond
(Dollars in thousands) Group Banking Division Consolidated
- - ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Interest income $ 735,377 $ 59,718 $ 27,433 $ 822,528
Interest expense 371,238 33,093 27,544 431,875
- - --------------------------------------------------------------------------
Net interest
income 364,139 26,625 (111) 390,653
Other revenues 200,380 213,369 82,814 496,563
Other expenses 380,007 195,419 58,833 634,259
- - --------------------------------------------------------------------------
Pre-tax income $ 184,512 $ 44,575 $ 23,870 $ 252,957
==========================================================================
Identifiable assets $10,559,010 $1,168,010 $349,862 $ 12,076,882
- - --------------------------------------------------------------------------
1994
Interest income $ 615,048 $ 61,026 $ 24,984 $ 701,058
Interest expense 253,757 28,642 24,198 306,597
- - --------------------------------------------------------------------------
Net interest
income 361,291 32,384 786 394,461
Other revenues 193,677 187,584 77,478 458,739
Other expenses 376,770 210,185 58,483 645,438
- - --------------------------------------------------------------------------
Pre-tax income $ 178,198 $ 9,783 $ 19,781 $ 207,762
==========================================================================
Identifiable assets $ 9,838,270 $ 772,410 $322,269 $ 10,932,949
- - --------------------------------------------------------------------------
1993
Interest income $ 583,853 $ 50,600 $ 17,770 $ 652,223
Interest expense 229,330 29,957 16,853 276,140
- - --------------------------------------------------------------------------
Net interest
income 354,523 20,643 917 376,083
Other revenues 158,558 139,838 91,525 389,921
Other expenses 358,670 168,865 63,304 590,839
- - --------------------------------------------------------------------------
Pre-tax income $ 154,411 $ (8,384) $ 29,138 $ 175,165
==========================================================================
Identifiable assets $ 8,832,189 $1,533,675 $434,880 $ 10,800,744
- - --------------------------------------------------------------------------
</TABLE>
Capital expenditures and depreciation and amortization occurred primarily
in the banking group. Capital expenditures were $38,545,000, $40,045,000, and
$35,216,000 for the years ended December 31, 1995, 1994, and 1993,
respectively. Depreciation and amortization was $68,944,000, $56,118,000, and
$74,202,000 for 1995, 1994, and 1993, respectively.
<PAGE> 63
NOTE 18 -- OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
In the normal course of business, First Tennessee enters into transactions
involving financial instruments that are subject to credit and market risks but
are not required to be reflected on the balance sheet. First Tennessee
utilizes these financial instruments, which include credit commitments and
other off-balance sheet financial instruments, in order to meet the financial
needs of its customers and to manage its own exposure to fluctuations in
interest rates.
RISKS
Credit risk is the possibility that a loss might occur from the
failure of a counterparty to perform according to the terms of a transaction.
Currently, First Tennessee enters into financial instrument transactions
through national exchanges, primary dealers, or approved counterparties.
Whenever possible mutual margining agreements are used to limit potential
exposure. The credit risk associated with exchange-traded futures contracts is
limited to the relevant clearing house. For non-exchange traded instruments,
credit risk may occur when there is a gain in the fair value of the financial
instrument and the counterparty fails to perform according to the terms of the
contract and/or when the collateral proves to be of insufficient value. The
credit exposure is limited to the amount of the fair value of the instrument
rather than the notional amount. Options written do not expose First Tennessee
to credit risk, except to the extent of the underlying risk associated with any
financial instrument that First Tennessee may be obligated to acquire under
certain written put options.
Settlement Risk is an underlying risk when the financial instrument
obligates First Tennessee to acquire and/or deliver under a contract but the
counterparty fails to meet its obligations. First Tennessee believes its
credit and settlement procedures reduce these risks.
Market risk is the possibility that future changes in market rates or
prices might decrease the value of First Tennessee's position. The measurement
of market risk associated with financial instruments is meaningful only when all
related and offsetting on- and off-balance sheet hedges are aggregated, and the
resulting net positions are identified.
CONTROLS
First Tennessee follows the same credit policies and underwriting
practices in making commitments as it does for on-balance sheet instruments.
Each customer's creditworthiness is evaluated on a case-by-case basis. The
amount of collateral obtained, if any, is based on management's credit
evaluation of the counterparty.
The use of financial instruments is monitored by management's
Asset/Liability Committee (ALCO). The primary objective of ALCO is to manage
market and interest rate risk by controlling and limiting the degree of
earnings volatility attributable to changes in interest rates. Counterparty
credit limits are reviewed and revised periodically by ALCO, in conjunction
with senior credit officers, for each operating unit. In addition, controls
and monitoring procedures for these instruments have been established and are
routinely revised. First Tennessee has no financial instruments with leverage
features.
OFF-BALANCE SHEET CREDIT COMMITMENTS
Commitments to Extend Credit are agreements to lend to a customer at a
future date that 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 fully drawn upon, the total commitment amounts
do not necessarily represent future cash requirements.
Commercial and Standby Letters of Credit are conditional commitments
issued by First Tennessee to guarantee the performance of a customer to a third
party. The credit risk involved in issuing commercial and standby letters of
credit is essentially the same as that involved in extending loan facilities to
customers.
At December 31, 1995 and 1994, First Tennessee's outstanding
off-balance sheet credit commitments included the following, which represented
the maximum credit exposure associated with these instruments:
<TABLE>
<CAPTION>
(Dollars in millions) 1995 1994
- - ----------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit:
Consumer credit card lines $1,596 $1,735
Consumer home equity 249 199
Commercial real estate and
construction and land development 330 257
Mortgage banking 569 753
Other 1,381 1,237
Commercial and standby letters of credit 255 216
- - ----------------------------------------------------------------------
</TABLE>
Mortgage Loans Sold with Recourse First Tennessee has sold certain
mortgage loans with an agreement to repurchase the loans upon default. As of
December 31, 1995 and 1994, the outstanding principal amount of these loans
was $682.1 million and $607.7 million, respectively. Credit risk, to the
extent of recourse, totaled approximately $421.0 million and $312.3 million at
December 31, 1995 and 1994, respectively. A reserve has been established in
<PAGE> 64
order to cover any future defaults. These loans are reviewed on a regular
basis to ensure that reserves are adequate to provide for foreclosure losses.
The reserve was $14.1 million and $11.3 million at December 31, 1995 and 1994,
respectively.
OTHER OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
First Tennessee enters into a variety of off-balance sheet financial
instruments as part of its boker/dealer operations and for purposes other than
broker/dealer operations. These other activities include interest rate risk
management and meeting customer needs.
HELD OR ISSUED FOR PURPOSES OTHER THAN BROKER/DEALER OPERATIONS
Interest Rate Risk Management Activities First Tennessee uses
off-balance sheet financial instruments primarily to hedge potential
fluctuations in income or market values as part of its overall asset/liability
management and mortgage banking hedging strategies. As a result of interest
rate fluctuations, these financial instruments will develop unrealized gains or
losses that mitigate changes in the underlying hedged portion of the balance
sheet. These off-balance sheet financial instruments when utilized effectively
are designed to moderate the impact on earnings as interest rates move up or
down. ALCO policy prohibits positions to generate speculative earnings.
Other Activities First Tennessee enters into fixed and variable rate
loan commitments with customers. Fixed rate loan commitments and variable rate
loan commitments with contract rate adjustments that lag changes in market
rates are financial instruments with characteristics similar to option
contracts.
The following tables set forth the notional or contractual amounts and
related fair values for First Tennessee's off-balance sheet financial
instruments at December 31, 1995 and 1994, for both interest rate risk
management and other activities. First Tennessee's maximum exposure resulting
from these off-balance sheet financial instruments at December 31, 1995 and
1994, is represented by the fair value amounts.
HELD OR ISSUED FOR PURPOSES OTHER THAN BROKER/DEALER OPERATIONS
AT DECEMBER 31
<TABLE>
<CAPTION>
1995 1994
----------------- -----------------
Notional Fair Notional Fair
(Dollars in millions) Value Value Value Value
- - ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST RATE RISK MANAGEMENT ACTIVITIES:
Interest rate swap agreements:
Receive fixed/pay floating -
amortizing $378.2 $(1.3) $ 550.0 $(33.3)
Basis swap - - 1,000.0 (35.3)
Interest rate forward contracts:
Mortgage banking
commitments to sell 952.1 (4.5) 447.8
Mortgage banking
commitments to buy - - (22.6)
- - ---------------------------------------------------------------------------------
Net position 952.1 (4.5) 425.2 .7*
Interest rate option contracts:
Mortgage banking put option
purchased 32.0 (.3) 13.0 -
Mortgage banking call option
purchased - - 6.0 -
- - ---------------------------------------------------------------------------------
</TABLE>
*Only net position available.
Mortgage banking loan commitments have an additional off-balance sheet value
resulting from originated mortgage servicing rights of approximately $4.1
million at December 31, 1995.
HELD OR ISSUED FOR PURPOSES OTHER THAN BROKER/DEALER OPERATIONS
AT DECEMBER 31
<TABLE>
<CAPTION>
1995 1994
---------------- -----------------
Notional Fair Notional Fair
(Dollars in millions) Value Value Value Value
- - -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OTHER ACTIVITES:
Loan commitments $4,123.6 $4.7 $4,180.3 $2.8
Commercial and Standby letters
of credit 254.7 3.2 216.4 2.7
Foreign exchange contracts:
Contracts to buy (.5) (.3)
Contracts to sell .3 .2
- - -------------------------------------------------------------------------
Net position (.2) - (.1) -
Interest rate option contracts:
Written option contracts - - (2.8) -
Purchased option contracts - - 2.8 -
- - -------------------------------------------------------------------------
</TABLE>
<PAGE> 65
Interest Rate Swaps The rate sensitive position of a bank can be
altered either by holding fixed rate debt instruments in the securities
portfolio and/or by holding certain off-balance sheet financial instruments.
During the fourth quarter of 1993 and beginning of 1994, First Tennessee
lengthened the maturity of its prime rate loans and thus restructured the asset
sensitive position created from the mortgage company acquisitions by executing
index amortizing swaps. With these swaps First Tennessee receives a fixed
interest rate and pays a floating rate applied to an amortizing notional
principal amount. The notional total of the index amortizing swaps held by
First Tennessee is $378.2 million. Approximately 74 percent of these have a
final maturity in the fourth quarter of 1996 and the remainder have a final
maturity in 1997. All of these have the opportunity to be called in 1996. As
of December 31, 1995 and 1994, respectively, these swaps had depreciated market
values of $1.3 million and $33.3 million.
At December 31, 1994, First Tennessee had a $1 billion notional
principal swap (basis swap). This swap was terminated in 1995 in order to
restructure the rate sensitive position and limit the loss going forward in a
rising rate scenario. As of December 31, 1995, deferred losses from terminated
swap transactions were $6.9 million and will be amortized through May 1996.
The following information illustrates the maturities, indices, and
weighted average rates received on the interest rate swaps used by First
Tennessee in its interest rate risk program as of December 31, 1995:
<TABLE>
<CAPTION>
Final Maturity In
-----------------
(Dollars in millions) 1996 1997 Total
- - --------------------------------------------------------------------
<S> <C> <C> <C>
AMORTIZING SWAPS:
Notional value $280 $98 $378*
Weighted average
rate received 4.58% 5.59% 4.84%
- - --------------------------------------------------------------------
</TABLE>
* All have the opportunity of being called in 1996.
First Tennessee pays either 3 month or 6 month LIBOR depending on the
contractual arrangements.
Interest Rate Forward Contracts Forward contracts are commitments 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 First Tennessee has the ability to offset open positions
prior to settlement.
The mortgage banking companies use forward contracts to hedge interest
rates between the time the mortgage loan is committed to the customer and the
time it is funded and securitized. 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.
Interest Rate Options First Tennessee purchases interest rate options
as a tool to manage interest rate risk in the mortgage banking operations. In
a rising interest rate environment, purchased put option contracts give First
Tennessee the right to sell mortgage loans to the seller of the option and are
used to cover the uncertainty of more loan applications closing than expected.
HELD OR ISSUED FOR BROKER/DEALER OPERATIONS
The bond division buys and sells mortgage securities, municipal bonds,
and other securities that settle on a delayed basis as part of its
broker/dealer operations. These are considered forward contracts. These
transactions are measured at fair value, and gains or losses are recognized in
earnings as they occur. Futures contracts are utilized by the bond division,
from time to time, to manage exposure arising from the inventory position.
First Tennessee's ALCO policy allows the bond division the ability to
execute off-balance sheet derivative financial instruments. As shown in the
table below, the bond division's 1994 swap position was offset with a
combination of option and futures contracts.
<PAGE> 66
HELD OR ISSUED FOR BROKER/DEALER OPERATIONS
1995
<TABLE>
<CAPTION>
At For The Period Ended
December 31 December 31
--------------- --------------------
Net Average
Notional Fair Gain/ Fair
(Dollars in millions) Value Value (Loss) Value
- - -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BROKER/DEALER ACTIVITIES:
Forward contracts:
Commitments to buy:
Gain position $(268.9) $ 1.8
Loss position (704.0) (3.6)
Commitments to sell:
Gain position 744.3 3.5
Loss position 278.8 (2.2)
- - -----------------------------------------------------------------------------
Net position 50.2 (.5) $58.6 $(1.6)
Futures contracts:
Contracts to buy - - .9 *
Contracts to sell - - (.3) *
- - -----------------------------------------------------------------------------
Net position - - .6 *
Option contracts:
Option contract written - - .6 *
Option contract purchased - - .1 *
- - -----------------------------------------------------------------------------
Net position - - .7 *
Interest rate swap - floating - - (1.6) *
- - -----------------------------------------------------------------------------
*Amount is less than $100,000.
</TABLE>
HELD OR ISSUED FOR BROKER/DEALER OPERATIONS
1994
<TABLE>
<CAPTION>
At For The Period Ended
December 31 December 31
---------------- --------------------
Net Average
Notional Fair Gain/ Fair
(Dollars in millions) Value Value (Loss) Value
- - ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BROKER/DEALER ACTIVITIES:
Forward contracts:
Commitments to buy $(424.9) $ .9
Commitments to sell 502.3 (1.7)
- - ----------------------------------------------------------------------------
Net position 77.4 (.8) $22.5 $ (.8)
Futures contracts:
Contracts to buy (269.0) (.6) (.7) (.2)
Contracts to sell - - .7 .1
- - ----------------------------------------------------------------------------
Net position (269.0) (.6) - (.1)
Option contracts:
Option contract written (235.0) (.7) (.9) (.5)
Option contract purchased 5.0 - .5 -
- - ----------------------------------------------------------------------------
Net position (230.0) (.7) (.4) (.5)
Interest rate swap:
Receive fixed/pay floating 75.0 1.3 1.3 .7
- - ----------------------------------------------------------------------------
</TABLE>
<PAGE> 67
NOTE 19 -- RESTRICTIONS ON DIVIDENDS AND
INTERCOMPANY TRANSACTIONS
Dividends are paid by First Tennessee 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
First Tennessee in the form of cash dividends, loans, or advances. As of
December 31, 1995, the banking subsidiaries had undivided profits of
$610,313,000 of which $236,281,000 was available for distribution to First
Tennessee as dividends without prior regulatory approval.
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 $99,349,000 at December 31, 1995. There were no extensions of
credit to the parent from its banking subsidiaries at December 31, 1995.
Certain loan agreements and indentures also define other restricted trans-
actions related to additional borrowings and public offerings of capital stock.
<PAGE> 68
NOTE 20 -- OTHER INCOME AND OTHER EXPENSE
Following is detail concerning "All other income" and "All other expense" as
presented in the Consolidated Statements of Income:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993
- - ------------------------------------------------------------
<S> <C> <C> <C>
ALL OTHER INCOME:
Check clearing fees $ 17,585 $16,124 $14,569
Other service charges 7,709 7,334 9,296
Other 29,859 26,006 21,303
- - ------------------------------------------------------------
Total $ 55,153 $49,464 $45,168
============================================================
ALL OTHER EXPENSE:
Supplies $ 11,866 $11,472 $10,312
Fed service fees 9,489 8,544 7,778
Travel and entertainment 8,211 10,144 8,868
Foreclosed real estate 4,962 3,862 1,542
Contribution to charitable
foundation -- 9,379 --
Other 40,829 44,760 46,683
- - ------------------------------------------------------------
Total $ 75,357 $88,161 $75,183
============================================================
</TABLE>
<PAGE> 69
NOTE 21 - 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 First Tennessee's
financial instruments recorded in the Consolidated Statements of Condition at
December 31, 1995 and 1994:
<TABLE>
<CAPTION> Impact
Book Fair Favorable/ Percent
(Dollars in thousands) Value Value (Unfavorable) Change
- - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1995:
ASSETS:
Loans, net of unearned income:
Floating $3,162,016 $3,162,016 $ - -
Fixed 4,152,227 4,115,773 (36,454) .88 -
Nonaccrual 19,040 19,040 - -
Allowance for
loan losses (112,567) (112,567) - -
- - --------------------------------------------------------------------------------------
Total net loans 7,220,716 7,184,262 (36,454) .50 -
Liquid assets 249,752 249,752 - -
Mortgage warehouse loans held for sale 789,183 791,349 2,166 .27 +
Securities available for sale 2,036,668 2,036,668 - -
Securities held to maturity 74,731 75,750 1,019 1.36 +
Nonearning assets 909,289 909,289 - -
- - --------------------------------------------------------------------------------------
LIABILITIES:
Deposits:
Defined maturity $3,402,206 $3,366,434 $ 35,772 1.05 +
Undefined maturity 5,179,991 5,179,991 - -
- - --------------------------------------------------------------------------------------
Total deposits 8,582,197 8,546,425 35,772 .42 +
Short-term borrowings 1,760,745 1,760,745 - -
Term borrowings 260,017 274,799 (14,782) 5.69 -
Other noninterest-
bearing liabilities 216,544 214,553 1,991 .92 +
- - --------------------------------------------------------------------------------------
AT DECEMBER 31, 1994:
ASSETS:
Loans, net of unearned income:
Floating $2,859,796 $2,856,298 $ (3,498) .12 -
Fixed 3,621,393 3,479,671 (141,722) 3.91 -
Nonaccrual 16,853 16,853 - -
Allowance for
loan losses (109,859) (109,859) - -
- - --------------------------------------------------------------------------------------
Total net loans 6,388,183 6,242,963 (145,220) 2.27 -
Liquid assets 425,689 425,689 - -
Mortgage warehouse loans held for sale 515,407 516,520 1,113 .22 +
Securities available for sale 1,166,738 1,166,738 - -
Securities held to maturity 1,004,177 951,444 (52,733) 5.25 -
Nonearning assets 870,615 870,615 - -
- - --------------------------------------------------------------------------------------
LIABILITIES:
Deposits:
Defined maturity $3,213,016 $3,186,387 $ 26,629 .83 +
Undefined maturity 4,667,290 4,667,290 - -
- - --------------------------------------------------------------------------------------
Total deposits 7,880,306 7,853,677 26,629 .34 +
Short-term borrowings 1,810,039 1,810,038 1 -
Term borrowings 113,771 119,946 (6,175) 5.43 -
Other noninterest-
bearing liabilities 157,646 155,024 2,622 1.66 +
- - -------------------------------------------------------------------------------------------------
</TABLE>
See Note 18 - Off-Balance Sheet Financial Instruments for information
on the fair value of off-balance sheet financial instruments.
<PAGE> 70
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 First Tennessee 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
First Tennessee 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.
SECURITIES AVAILABLE FOR SALE. Market quotes are used for the fair value of
securities available for sale.
SECURITIES HELD TO MATURITY. Market quotes are used for the fair value of
securities held to maturity.
NONEARNING ASSETS. The fair value of nonearning assets are 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 First Tennessee 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. The fair value for Federal Home
Loan Bank borrowings was determined using discounted future cash flows.
TERM BORROWINGS. The fair value for term borrowings 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 First Tennessee's outstanding term borrowings 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> 71
NOTE 22 -- CONDENSED FINANCIAL INFORMATION
Following are condensed statements of the parent company:
<TABLE>
<CAPTION>
STATEMENTS OF CONDITION December 31
---------------------------
(Dollars in thousands) 1995 1994
- - ------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash $ 1,732 $ 892
Securities purchased from subsidiary
bank under agreements to resell 72,868 88,814
- - ------------------------------------------------------------------------------------
Total cash and cash equivalents 74,600 89,706
Investment in bank time deposits 100 -
Securities held to maturity - 5,012
Securities available for sale 1,515 1,465
Notes receivable--long-term 75,000 75,000
Investments in subsidiaries at equity:
Bank 924,916 758,829
Non-bank 11,263 13,605
Other assets 29,572 26,850
- - ------------------------------------------------------------------------------------
Total assets $1,116,966 $970,467
====================================================================================
Liabilities and shareholders' equity:
Commercial paper and other
short-term borrowings $ 49,401 $ 67,820
Accrued employee benefits
and other liabilities 45,372 39,082
Term borrowings 148,969 88,660
- - ------------------------------------------------------------------------------------
Total liabilities 243,742 195,562
Shareholders' equity 873,224 774,905
- - ------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $1,116,966 $970,467
====================================================================================
</TABLE>
<PAGE> 72
<TABLE>
<CAPTION>
STATEMENTS OF INCOME Year Ended December 31
---------------------------------------
(Dollars in thousands) 1995 1994 1993
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend income:
Bank $ 97,791 $ 65,086 $ 42,425
Non-bank 3,982 1,197 -
- - -------------------------------------------------------------------------------------
Total dividend income 101,773 66,283 42,425
Interest income 9,950 9,687 9,423
Management fees - 19,166 18,611
Other income 248 103 320
- - -------------------------------------------------------------------------------------
Total income 111,971 95,239 70,779
- - -------------------------------------------------------------------------------------
Interest expense:
Short-term debt 2,395 1,296 927
Term borrowings 9,569 8,898 9,157
- - -------------------------------------------------------------------------------------
Total interest expense 11,964 10,194 10,084
Compensation, employee benefits, and
other expense 15,685 19,143 19,030
- - -------------------------------------------------------------------------------------
Total expense 27,649 29,337 29,114
- - -------------------------------------------------------------------------------------
Income before income taxes
and equity in undistributed
net income of subsidiaries 84,322 65,902 41,665
Applicable income taxes (6,825) 803 (1,284)
- - -------------------------------------------------------------------------------------
Income before equity in
undistributed net income
of subsidiaries 91,147 65,099 42,949
Equity in undistributed net
income of subsidiaries:
Bank 73,073 79,912 65,120
Non-bank 668 2,057 1,647
- - -------------------------------------------------------------------------------------
Net income $164,888 $147,068 $109,716
=====================================================================================
</TABLE>
<PAGE> 73
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS Year Ended December 31
----------------------------------------
(Dollars in thousands) 1995 1994 1993
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $164,888 $147,068 $109,716
Less undistributed net income
of subsidiaries 73,741 81,969 66,767
- - -------------------------------------------------------------------------------------
Income before undistributed
net income of subsidiaries 91,147 65,099 42,949
Adjustments to reconcile income
to net cash provided by
operating activities:
Provision for deferred income taxes (17) (45) (1,228)
Depreciation and amortization 1,926 2,328 2,429
Gain on disposal of fixed assets (225) - -
Net (increase)/decrease in:
Interest receivable 184 (117) 291
Other assets (4,226) (245) (657)
Net increase/(decrease) in:
Interest payable 580 39 (329)
Other liabilities 3,497 1,354 2,944
- - -------------------------------------------------------------------------------------
Total adjustments 1,719 3,314 3,450
- - -------------------------------------------------------------------------------------
Net cash provided by
operating activities 92,866 68,413 46,399
- - -------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from maturity of
investment securities 5,000 20 5,000
Proceeds from sale of
premises and equipment 1,608 - -
Payments for purchase of:
Investment securities (202) (400) (5,715)
Investment in bank time deposits (100) - -
Premises and equipment (426) (1,139) (539)
Net decrease in loans - - 25,046
Return of investments 151 66 13
Investment in subsidiaries 2,656 (1,462) (971)
Cash received from acquisitions 22,063 - -
- - -------------------------------------------------------------------------------------
Net cash provided/(used) by
investing activities 30,750 (2,915) 22,834
- - -------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from exercise
of stock options 4,977 2,777 2,046
Proceeds from issuance of
subordinated capital notes 74,183 - -
Payments for:
Term borrowings (13,950) (850) (37,476)
Cash dividends (62,694) (40,314) (50,730)
Equity distributions related to acquisitions (23) (47) -
Repurchase of common stock (122,796) (24,211) (4,797)
Increase/(decrease) in borrowings (18,419) 35,538 10,427
- - -------------------------------------------------------------------------------------
Net cash used by
financing activities (138,722) (27,107) (80,530)
- - -------------------------------------------------------------------------------------
Net increase/(decrease) in cash
and cash equivalents (15,106) 38,391 (11,297)
- - -------------------------------------------------------------------------------------
Cash and cash equivalents
at beginning of year 89,706 51,315 62,612
- - -------------------------------------------------------------------------------------
Cash and cash equivalents
at end of year $ 74,600 $ 89,706 $ 51,315
=====================================================================================
Total interest paid $ 11,281 $ 10,119 $ 10,377
Total income taxes paid 42,400 56,923 55,869
- - -------------------------------------------------------------------------------------
</TABLE>
<PAGE> 74
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, 1995 and 1994, and the related consolidated statements of
income, shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1995. 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 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.
In our opinion, 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, 1995 and 1994, and the results
of their operations and their cash flow for each of the three years in the
period ended December 31, 1995, in confromity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 1995, the Company changed its method of accounting for mortgage
servicing rights.
Memphis, Tennessee, Arthur Andersen LLP
January 16, 1996.
<PAGE> 75
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA First Tennessee National Corporation
- - -------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions except per share data) 1995 1994 1993 1992 1991 1990
- - -------------------------------------------------------------------------------------------------------------------------------
SUMMARY INCOME STATEMENTS
<S> <C> <C> <C> <C> <C> <C>
Interest income $ 822.5 $ 701.1 $ 652.2 $ 644.3 $ 686.0 $ 710.7
Less interest expense 431.8 306.6 276.1 298.7 388.9 439.3
- - -------------------------------------------------------------------------------------------------------------------------------
Net interest income 390.7 394.5 376.1 345.6 297.1 271.4
Provision for loan losses 20.6 17.2 36.5 45.2 60.7 71.2
- - -------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 370.1 377.3 339.6 300.4 236.4 200.2
Noninterest income 496.5 458.7 389.9 255.3 206.7 173.1
- - -------------------------------------------------------------------------------------------------------------------------------
Adjusted gross income after
provision for loan losses 866.6 836.0 729.5 555.7 443.1 373.3
Noninterest expense 613.6 628.2 554.4 406.1 343.7 295.8
- - -------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 253.0 207.8 175.1 149.6 99.4 77.5
Applicable income taxes 88.1 60.7 65.4 56.9 27.6 20.0
- - -------------------------------------------------------------------------------------------------------------------------------
Net income $ 164.9 $ 147.1 $ 109.7 $ 92.7 $ 71.8 $ 57.5
===============================================================================================================================
COMMON STOCK DATA
Net income per common share $ 2.42 $ 2.15 $ 1.61 $ 1.44 $ 1.14 $ .90
Cash dividends declared per common share .97 .87 .75 .63 .57 .55
Year-end book value per common share 13.00 11.37 10.52 9.58 9.16 8.54
Closing price of common stock per share:
High 30 7/8 23 7/8 23 1/2 19 13 13/16 9
Low 19 5/8 18 11/16 18 1/16 13 3/16 7 3/16 6
Year-end 30 1/4 20 3/8 19 1/4 18 3/8 13 13/16 7 9/16
Dividends/price 3.1-4.9 % 3.6-4.6 % 3.2-4.2 % 3.3-4.8 % 4.1-7.9 % 6.1-9.1 %
Dividends/earnings 40.1 40.5 46.6 43.8 50.0 61.1
Closing price/earnings 12.5 x 9.5 x 12.0 x 12.8 x 12.1 x 8.4 x
Market capitalization $ 2,032.1 $ 1,388.5 $ 1,319.8 $ 1,241.6 $ 875.3 $ 478.8
Average shares outstanding (thousands) 68,025 68,442 68,146 64,354 63,346 64,142
Period-end shares outstanding (thousands) 67,178 68,148 68,560 67,572 63,368 63,316
Volume of shares traded (thousands) 65,648 46,692 50,972 42,788 31,428 17,240
- - -------------------------------------------------------------------------------------------------------------------------------
SELECTED AVERAGE BALANCES
Total assets $11,359.5 $ 10,579.8 $ 9,982.4 $ 8,911.5 $ 8,188.6 $ 7,741.2
Total loans* 7,593.3 6,752.3 5,611.7 4,887.2 4,666.7 4,542.7
Investment securities 2,161.0 2,248.7 3,015.3 2,803.9 1,981.3 1,671.0
Earning assets 10,094.7 9,406.2 8,953.6 8,112.9 7,469.3 7,031.4
Deposits 8,132.4 7,714.4 7,186.0 7,030.2 6,579.2 6,142.6
Term borrowings 208.9 101.8 102.8 132.8 131.4 132.2
Shareholders' equity 822.8 759.5 684.1 622.5 559.4 530.3
- - -------------------------------------------------------------------------------------------------------------------------------
SELECTED PERIOD-END BALANCES
Total assets $12,076.9 $ 10,932.9 $ 10,800.7 $ 9,749.4 $ 9,296.7 $ 8,024.5
Total loans* 8,122.5 7,013.4 6,823.6 5,105.1 4,870.6 4,678.0
Investment securities 2,111.4 2,170.9 2,364.3 3,214.0 2,672.9 1,761.6
Earning assets 10,483.6 9,610.1 9,511.8 8,806.4 8,162.3 7,189.4
Deposits 8,582.2 7,880.3 7,602.7 7,365.6 7,218.3 6,461.1
Term borrowings 260.0 113.8 92.0 133.8 131.2 131.6
Shareholders' equity 873.2 774.9 721.1 647.6 580.7 540.7
- - -------------------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS
Return on average equity 20.04 % 19.36 % 16.04 % 14.88 % 12.84 % 10.85 %
Return on average assets 1.45 1.39 1.10 1.04 .88 .74
Net interest margin 3.92 4.25 4.27 4.36 4.12 4.07
Allowance for loan losses to loans* 1.39 1.57 1.62 2.02 2.00 1.99
Net charge-offs to average loans* .27 .27 .53 .81 1.41 1.06
Average equity to average assets 7.24 7.18 6.85 6.99 6.83 6.85
Average tangible equity to average
tangible assets 6.36 6.38 6.28 6.38 6.34 6.47
Average equity to average net loans 11.00 11.44 12.43 13.01 12.25 11.90
- - -------------------------------------------------------------------------------------------------------------------------------
RETURN TO SHAREHOLDERS
Stock appreciation 48.5 % 5.8 % 4.8 % 33.0 % 82.6 % (9.0)%
Dividend yield 4.8 4.5 4.1 4.6 7.5 6.6
Annual return 53.3 10.3 8.9 37.6 90.1 (2.4)
- - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of unearned income.
The notes to consolidated financial statements should be read in conjunction
with this table. Common stock data reflects the 1996 two-for-one stock split.
<PAGE> 76
<TABLE>
<CAPTION>
CONSOLIDATED HISTORICAL PERFORMANCE STATEMENTS OF INCOME (Unaudited) First Tennessee National Corporation
- - -----------------------------------------------------------------------------------------------------------------------------
Growth Rates (%)
(Dollars in millions except -------------------
per share data) 1995 1994 1993 1992 1991 1990 95/94 95/90
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Commercial $264.4 $211.6 $178.7 $180.4 $214.4 $234.7 25.0 + 2.4 +
Consumer 206.0 166.8 128.1 114.6 116.9 121.4 23.5 + 11.2 +
Mortgage warehouse loans held for sale 54.7 56.0 44.9 15.7 8.7 8.5 2.3 - 45.1 +
Permanent mortgage 52.1 44.0 45.9 59.0 64.3 60.8 18.4 + 3.0 -
Credit card receivables 65.5 56.6 51.1 53.2 53.0 46.2 15.7 + 7.2 +
Real estate construction 23.0 11.4 7.3 6.0 13.1 25.4 101.8 + 2.0 -
Investment securities:
Taxable 130.9 128.9 175.8 187.1 150.7 130.7 1.6 + -
Tax-exempt 4.6 5.2 7.2 8.7 11.9 15.2 11.5 - 21.3 -
Other earning assets:
Investments in bank time deposits .2 .2 .2 2.5 23.3 30.4 - 63.4 -
Federal funds sold and securities
purchased under agreements to resell 8.5 7.6 3.7 6.8 20.2 25.4 11.8 + 19.7 -
Broker/dealer securities inventory 12.6 12.8 9.3 10.3 9.5 12.0 1.6 - 1.0 +
- - --------------------------------------------------------------------------------------------------------
Total interest income 822.5 701.1 652.2 644.3 686.0 710.7 17.3 + 3.0 +
- - --------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits:
Checking/Interest 7.7 9.2 10.8 12.7 16.1 16.8 16.3 - 14.4 -
Savings 10.8 13.4 15.4 17.5 20.5 20.9 19.4 - 12.4 -
Money market account 88.1 56.5 43.5 52.7 73.3 78.8 55.9 + 2.3 +
Certificates of deposit under
$100,000 and other time 167.8 122.0 117.3 147.3 191.0 207.9 37.5 + 4.2 -
Certificates of deposit
$100,000 and more 30.6 18.7 16.2 20.5 33.1 41.2 63.6 + 5.8 -
Federal funds purchased and
securities sold under
agreements to repurchase 80.9 40.5 29.2 22.5 31.7 47.2 99.8 + 11.4 +
Commercial paper and other
short-term borrowings 25.7 35.6 33.6 13.7 10.3 12.6 27.8 - 15.3 +
Federal Reserve Bank penalties 2.2 1.1 .5 .7 1.0 1.3 100.0 + 11.1 +
Term borrowings 18.0 9.6 9.6 11.1 11.9 12.6 87.5 + 7.4 +
- - --------------------------------------------------------------------------------------------------------
Total interest expense 431.8 306.6 276.1 298.7 388.9 439.3 40.8 + .3 -
- - --------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 390.7 394.5 376.1 345.6 297.1 271.4 1.0 - 7.6 +
Provision for loan losses 20.6 17.2 36.5 45.2 60.7 71.2 19.8 + 22.0 -
- - --------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 370.1 377.3 339.6 300.4 236.4 200.2 1.9 - 13.1 +
- - --------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Mortgage banking 212.6 187.3 138.9 33.5 17.6 19.5 13.5 + 61.3 +
Bond division 82.8 77.5 91.5 80.3 68.6 41.7 6.9 + 14.7 +
Deposit transactions and cash management 71.0 64.2 58.4 53.9 46.3 40.2 10.6 + 12.0 +
Cardholder and merchant processing 37.0 31.4 28.5 26.6 25.8 22.3 17.8 + 10.6 +
Trust services 35.6 28.9 26.5 23.8 21.0 18.0 23.2 + 14.6 +
Equity securities gains/(losses) 3.2 24.2 (.5) .3 (.7) (1.0) 86.8 - 38.4 +
Debt securities gains/(losses) (.8) (4.3) 1.4 (1.5) - (.9) 82.5 + 3.6 +
All other 55.1 49.5 45.2 38.4 28.1 33.3 11.5 + 10.6 +
- - --------------------------------------------------------------------------------------------------------
Total noninterest income 496.5 458.7 389.9 255.3 206.7 173.1 8.2 + 23.5 +
- - --------------------------------------------------------------------------------------------------------
ADJUSTED GROSS INCOME AFTER
PROVISION FOR LOAN LOSSES 866.6 836.0 729.5 555.7 443.1 373.3 3.7 + 18.3 +
- - --------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Employee compensation, incentives,
and benefits 340.5 349.8 308.6 214.3 177.6 154.9 2.6 - 17.1 +
Operations services 38.8 33.7 28.7 24.3 21.9 18.5 15.2 + 15.9 +
Occupancy 37.9 34.1 27.7 24.7 22.0 20.6 11.0 + 13.0 +
Equipment rentals, depreciation,
and maintenance 31.8 29.2 22.2 17.5 14.0 12.9 9.1 + 19.8 +
Communications and courier 29.9 30.7 24.8 18.0 16.5 14.6 2.5 - 15.4 +
Amortization of mortgage servicing rights 15.0 14.9 25.5 4.5 1.4 .9 .3 + 74.8 +
Legal and professional fees 13.4 13.7 11.3 11.4 8.3 6.6 2.5 - 15.1 +
Advertising and public relations 13.0 10.7 8.0 6.2 4.9 4.5 21.5 + 23.6 +
Deposit insurance premium 9.9 16.9 16.6 16.2 13.4 7.6 41.2 - 5.6 +
Amortization of intangible assets 8.1 6.4 5.8 9.8 7.7 7.1 26.4 + 2.7 +
All other 75.3 88.1 75.2 59.2 56.0 47.6 14.5 - 9.7 +
- - --------------------------------------------------------------------------------------------------------
Total noninterest expense 613.6 628.2 554.4 406.1 343.7 295.8 2.3 - 15.7 +
- - --------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 253.0 207.8 175.1 149.6 99.4 77.5 21.8 + 26.7 +
Applicable income taxes 88.1 60.7 65.4 56.9 27.6 20.0 45.1 + 34.5 +
- - --------------------------------------------------------------------------------------------------------
NET INCOME $164.9 $147.1 $109.7 $ 92.7 $ 71.8 $ 57.5 12.1 + 23.5 +
========================================================================================================
FULLY TAXABLE EQUIVALENT ADJUSTMENT $ 5.0 $ 4.8 $ 6.3 $ 8.4 $ 10.9 $ 14.5 4.2 + 19.2 -
- - --------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE $ 2.42 $ 2.15 $ 1.61 $ 1.44 $ 1.14 $ .90 12.6 + 21.9 +
- - --------------------------------------------------------------------------------------------------------
</TABLE>
Certain previously reported amounts have been reclassified to agree with
current presentation. Per share data reflects the 1996 two-for-one stock split.
<PAGE> 77
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEET AND RELATED YIELDS AND RATES (Unaudited) First Tennessee National Corporation
- - ------------------------------------------------------------------------------------------------------------------------------------
1995 1994
---------------------------------- ----------------------------------
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 $ 3,148.4 $265.3 8.43% $ 2,775.7 $212.4 7.65%
Consumer 2,367.1 206.0 8.70 2,082.6 166.8 8.01
Mortgage warehouse loans held for sale 706.1 54.7 7.75 767.9 56.0 7.29
Permanent mortgage 658.4 52.1 7.91 557.5 44.0 7.90
Credit card receivables 480.4 65.5 13.63 432.7 56.6 13.08
Real estate construction 216.4 23.0 10.65 117.3 11.4 9.71
Nonaccrual loans 16.5 1.4 8.48 18.6 1.3 7.25
- - ------------------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income 7,593.3 668.0 8.80 6,752.3 548.5 8.12
- - ------------------------------------------------------------------------------------------------------------------------------------
Investment securities:
U.S. Treasury and other U.S. government agencies 2,004.3 125.9 6.28 2,063.4 122.8 5.95
States and municipalities 81.4 7.0 8.63 84.3 7.8 9.26
Other 75.3 4.9 6.53 101.0 5.9 5.91
- - ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities 2,161.0 137.8 6.38 2,248.7 136.5 6.07
- - ------------------------------------------------------------------------------------------------------------------------------------
Other earning assets:
Investment in bank time deposits 3.1 .2 5.79 5.3 .2 3.88
Federal funds sold and securities purchased
under agreements to resell 157.5 8.5 5.42 191.9 7.6 3.97
Broker/dealer securities inventory 179.8 13.0 7.22 208.0 13.1 6.28
- - ------------------------------------------------------------------------------------------------------------------------------------
Total other earning assets 340.4 21.7 6.37 405.2 20.9 5.16
- - ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 10,094.7 827.5 8.20 9,406.2 705.9 7.50
Allowance for loan losses (113.0) (113.1)
Cash and due from banks 659.0 659.7
Premises and equipment, net 166.0 149.1
Bond division receivables and other assets 552.8 477.9
- - ------------------------------------------------------------------------------------------------------------------------------------
Total assets / Interest income $11,359.5 $827.5 $10,579.8 $705.9
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Interest-bearing deposits:
Checking/Interest $ 466.6 $ 7.7 1.66% $ 518.8 $ 9.2 1.77%
Savings 602.2 10.8 1.79 686.5 13.4 1.96
Money market account 1,912.3 88.1 4.61 1,776.8 56.5 3.18
Certificates of deposit under $100,000 and
other time 2,872.6 167.8 5.84 2,529.4 122.0 4.82
Certificates of deposit $100,000 and more 531.9 30.6 5.75 460.2 18.7 4.06
- - ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 6,385.6 305.0 4.78 5,971.7 219.8 3.68
Federal funds purchased and securities sold
under agreements to repurchase 1,491.1 80.9 5.43 1,045.6 40.5 3.87
Commercial paper and other short-term borrowings 404.2 27.9 6.90 683.2 36.7 5.37
Term borrowings 208.9 18.0 8.63 101.8 9.6 9.41
- - ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 8,489.8 431.8 5.09 7,802.3 306.6 3.93
Demand deposits 1,746.8 1,742.7
Bond division payables and other liabilities 300.1 275.3
Shareholders' equity 822.8 759.5
- - ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity /
Interest expense $11,359.5 $431.8 $10,579.8 $306.6
====================================================================================================================================
Net interest income-tax equivalent basis / Yield $395.7 3.92% $399.3 4.25%
Fully taxable equivalent adjustment (5.0) (4.8)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net interest income $390.7 $394.5
====================================================================================================================================
Net interest spread 3.11% 3.57%
Effect of interest-free sources used to fund
earning assets .81 .68
- - ------------------------------------------------------------------------------------------------------------------------------------
Net interest margin 3.92% 4.25%
====================================================================================================================================
</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 interest income.
<PAGE> 78
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEET AND RELATED YIELDS AND RATES (Unaudited) First Tennessee 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 $2,435.3 $179.4 7.37% $2,332.2 $182.9 7.84%
Consumer 1,524.9 128.1 8.40 1,231.8 114.6 9.30
Mortgage warehouse loans held for sale 615.3 44.9 7.29 188.8 15.7 8.29
Permanent mortgage 527.4 45.9 8.70 643.2 59.0 9.17
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
Nonaccrual loans 30.3 1.8 5.86 44.2 1.5 3.48
- - -----------------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income 5,611.7 458.5 8.17 4,887.2 432.9 8.86
- - -----------------------------------------------------------------------------------------------------------------------------------
Investment securities:
U.S. Treasury and other U.S. government agencies 2,679.9 160.8 6.00 2,224.4 154.3 6.94
States and municipalities 109.2 10.8 9.92 127.2 13.0 10.26
Other 226.2 14.9 6.60 452.3 32.6 7.21
- - -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities 3,015.3 186.5 6.19 2,803.9 199.9 7.13
- - -----------------------------------------------------------------------------------------------------------------------------------
Other earning assets:
Investment in bank time deposits 4.2 .2 3.84 40.6 2.5 6.08
Federal funds sold and securities purchased
under agreements to resell 142.0 3.7 2.63 222.8 6.8 3.05
Broker/dealer securities inventory 180.4 9.6 5.34 158.4 10.6 6.70
- - -----------------------------------------------------------------------------------------------------------------------------------
Total other earning assets 326.6 13.5 4.14 421.8 19.9 4.71
- - -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 8,953.6 658.5 7.35 8,112.9 652.7 8.05
Allowance for loan losses (109.6) (103.3)
Cash and due from banks 582.5 487.7
Premises and equipment, net 126.3 117.3
Bond division receivables and other assets 429.6 296.9
- - -----------------------------------------------------------------------------------------------------------------------------------
Total assets / Interest income $9,982.4 $658.5 $8,911.5 $652.7
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Interest-bearing deposits:
Checking/Interest $ 548.1 $ 10.8 1.97% $ 491.4 $ 12.7 2.59%
Savings 567.9 15.4 2.72 518.0 17.5 3.38
Money market account 1,673.8 43.5 2.60 1,598.9 52.7 3.29
Certificates of deposit under $100,000 and
other time 2,439.4 117.3 4.81 2,621.5 147.3 5.62
Certificates of deposit $100,000 and more 414.0 16.2 3.91 472.7 20.5 4.34
- - -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 5,643.2 203.2 3.60 5,702.5 250.7 4.40
Federal funds purchased and securities sold
under agreements to repurchase 1,029.0 29.2 2.84 691.7 22.5 3.26
Commercial paper and other short-term borrowings 724.5 34.1 4.70 251.1 14.4 5.75
Term borrowings 102.8 9.6 9.39 132.8 11.1 8.33
- - -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 7,499.5 276.1 3.68 6,778.1 298.7 4.41
Demand deposits 1,542.8 1,327.7
Bond division payables and other liabilities 256.0 183.2
Shareholders' equity 684.1 622.5
- - -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity /
Interest expense $9,982.4 $276.1 $8,911.5 $298.7
====================================================================================================================================
Net interest income-tax equivalent basis / Yield $382.4 4.27% $354.0 4.36%
Fully taxable equivalent adjustment (6.3) (8.4)
- - -----------------------------------------------------------------------------------------------------------------------------------
Net interest income $376.1 $345.6
====================================================================================================================================
Net interest spread 3.67% 3.64%
Effect of interest-free sources used to fund
earning assets .60 .72
- - -----------------------------------------------------------------------------------------------------------------------------------
Net interest margin 4.27% 4.36%
====================================================================================================================================
</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 interest income.
<PAGE> 79
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEET AND RELATED YIELDS AND RATES (Unaudited) First Tennessee National Corporation
- - ------------------------------------------------------------------------------------------------------------------------------------
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 $2,264.8 $217.4 9.60% $2,199.2 $237.5 10.80%
Consumer 1,098.8 116.9 10.64 1,065.2 121.4 11.39
Mortgage warehouse loans held for sale 58.6 8.7 14.88 86.3 8.5 9.87
Permanent mortgage 684.0 64.3 9.41 593.8 60.8 10.23
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 25.6 11.42
Nonaccrual loans 66.3 2.3 3.43 59.9 4.5 7.48
- - ------------------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income 4,666.7 475.7 10.19 4,542.7 504.5 11.11
- - ------------------------------------------------------------------------------------------------------------------------------------
Investment securities:
U.S. Treasury and other U.S. government agencies 1,449.7 122.6 8.46 1,230.6 111.6 9.07
States and municipalities 163.0 17.2 10.57 207.9 22.1 10.61
Other 368.6 28.0 7.58 232.5 18.9 8.14
- - ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities 1,981.3 167.8 8.47 1,671.0 152.6 9.13
- - ------------------------------------------------------------------------------------------------------------------------------------
Other earning assets:
Investment in bank time deposits 331.3 23.3 7.03 358.8 30.4 8.49
Federal funds sold and securities purchased
under agreements to resell 365.2 20.2 5.52 323.5 25.4 7.86
Broker/dealer securities inventory 124.8 9.9 7.94 135.4 12.3 9.07
- - ------------------------------------------------------------------------------------------------------------------------------------
Total other earning assets 821.3 53.4 6.50 817.7 68.1 8.34
- - ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 7,469.3 696.9 9.33 7,031.4 725.2 10.31
Allowance for loan losses (100.0) (85.6)
Cash and due from banks 447.3 459.2
Premises and equipment, net 107.8 99.2
Bond division receivables and other assets 264.2 237.0
- - ------------------------------------------------------------------------------------------------------------------------------------
Total assets / Interest income $8,188.6 $696.9 $7,741.2 $725.2
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Interest-bearing deposits:
Checking/Interest $ 414.5 $ 16.1 3.87% $ 395.0 $ 16.8 4.25%
Savings 420.1 20.5 4.88 399.3 20.9 5.24
Money market account 1,401.4 73.3 5.23 1,208.7 78.8 6.52
Certificates of deposit under $100,000 and
other time 2,704.8 191.0 7.06 2,561.9 207.9 8.12
Certificates of deposit $100,000 and more 513.1 33.1 6.46 519.2 41.2 7.94
- - ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 5,453.9 334.0 6.12 5,084.1 365.6 7.19
Federal funds purchased and securities sold
under agreements to repurchase 598.1 31.7 5.30 632.0 47.2 7.47
Commercial paper and other short-term borrowings 147.7 11.3 7.68 144.0 13.9 9.66
Term borrowings 131.4 11.9 9.08 132.2 12.6 9.52
- - ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 6,331.1 388.9 6.14 5,992.3 439.3 7.33
Demand deposits 1,125.3 1,058.5
Bond division payables and other liabilities 172.8 160.1
Shareholders' equity 559.4 530.3
- - ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity /
Interest expense $8,188.6 $388.9 $7,741.2 $439.3
====================================================================================================================================
Net interest income-tax equivalent basis / Yield $308.0 4.12% $285.9 4.07%
Fully taxable equivalent adjustment (10.9) (14.5)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net interest income $297.1 $271.4
====================================================================================================================================
Net interest spread 3.19% 2.98%
Effect of interest-free sources used to fund
earning assets .93 1.09
- - ------------------------------------------------------------------------------------------------------------------------------------
Net interest margin 4.12% 4.07%
====================================================================================================================================
</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 interest income.
<PAGE> 80
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEET AND RELATED YIELDS AND RATES (Unaudited) First Tennessee National Corporation
- - --------------------------------------------------------------------------------------------------------------------------------
Average Balance
(Fully taxable equivalent) Growth Rates (%)
-----------------------------------------
(Dollars in millions) 95/94 95/90
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Earning assets:
Loans, net of unearned income:
Commercial 13.4 + 7.4 +
Consumer 13.7 + 17.3 +
Mortgage warehouse loans held for sale 8.0 - 52.3 +
Permanent mortgage 18.1 + 2.1 +
Credit card receivables 11.0 + 8.9 +
Real estate construction 84.5 + .7 -
Nonaccrual loans 11.3 - 22.7 -
- - -------------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income 12.5 + 10.8 +
- - -------------------------------------------------------------------------------------------------------------------------------
Investment securities:
U.S. Treasury and other U.S. government agencies 2.9 - 10.2 +
States and municipalities 3.4 - 17.1 -
Other 25.4 - 20.2 -
- - -------------------------------------------------------------------------------------------------------------------------------
Total investment securities 3.9 - 5.3 +
- - -------------------------------------------------------------------------------------------------------------------------------
Other earning assets:
Investment in bank time deposits 41.5 - 61.3 -
Federal funds sold and securities purchased
under agreements to resell 17.9 - 13.4 -
Broker/dealer securities inventory 13.6 - 5.8 +
- - -------------------------------------------------------------------------------------------------------------------------------
Total other earning assets 16.0 - 16.1 -
- - -------------------------------------------------------------------------------------------------------------------------------
Total earning assets 7.3 + 7.5 +
Allowance for loan losses .1 - 5.7 +
Cash and due from banks .1 - 7.5 +
Premises and equipment, net 11.3 + 10.8 +
Bond division receivables and other assets 15.7 + 18.5 +
- - -------------------------------------------------------------------------------------------------------------------------------
Total assets / Interest income 7.4 + 8.0 +
===============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Interest-bearing deposits:
Checking/Interest 10.1 - 3.4 +
Savings 12.3 - 8.6 +
Money market account 7.6 + 9.6 +
Certificates of deposit under $100,000 and
other time 13.6 + 2.3 +
Certificates of deposit $100,000 and more 15.6 + .5 +
- - -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 6.9 + 4.7 +
Federal funds purchased and securities sold
under agreements to repurchase 42.6 + 18.7 +
Commercial paper and other short-term borrowings 40.8 - 22.9 +
Term borrowings 105.2 + 9.6 +
- - -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 8.8 + 7.2 +
Demand deposits .2 + 10.5 +
Bond division payables and other liabilities 9.0 + 13.4 +
Shareholders' equity 8.3 + 9.2 +
- - -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity /
Interest expense 7.4 + 8.0 +
===============================================================================================================================
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 interest income.
<PAGE> 1
Exhibit 21
PARENTS AND SUBSIDIARIES
The following is a list of all subsidiaries of First Tennessee
National Corporation at December 31, 1995. 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>
Cleveland Bank & Trust Company Direct Tennessee
First National Bank of Springdale Direct United States
First Tennessee Bank National Association (1) Direct United States
"A" PLUS Strategic Alliances, Inc. Indirect Tennessee
Check Consultants, Incorporated Indirect Tennessee
Check Consultants Company of Tennessee, Inc. Indirect Tennessee
Community Leasing Corporation * Indirect Tennessee
Community Money Center, Inc.* Indirect Tennessee
East Tennessee Service Corporation Indirect Tennessee
Upper East Tennessee Insurance Agency Indirect Tennessee
First Funds, Inc.* Indirect Tennessee
First Tennessee Capital Assets Corporation Indirect Tennessee
First Tennessee Brokerage, Inc. Indirect Tennessee
First Tennessee Equipment Finance Corporation Indirect Tennessee
FT Mortgage Holding Corporation Indirect Illinois
FT Mortgage Companies (2) Indirect Kansas
First Tennessee Mortgage Services, Inc. Indirect Tennessee
Hickory Venture Capital Corporation Indirect Alabama
JPO, Inc. Indirect Tennessee
TSMM Corporation Indirect Tennessee
First Tennessee Bank National Association Mississippi Direct United States
FTB Futures Corporation* Direct Tennessee
Hickory Capital Corporation Direct Tennessee
Highland Capital Management Corp. Direct Tennessee
Mountain Financial Company* Direct Tennessee
Norlen Life Insurance Company Direct Arizona
Peoples and Union Bank Direct Tennessee
Peoples Bank Direct Mississippi
Planters Bank Direct Mississippi
*Inactive.
</TABLE>
(1) Divisions of this subsidiary do business in certain
jurisdictions under the following names: First Express, First
Money Center, First Securities Company in Mobile, Garland
Capital Management, Garland Trust, Gulf Pacific Mortgage.
(2) Divisions of this subsidiary do business in certain
jurisdictions under the following names: Atlantic Coast
Mortgage, Capital Mortgage, Carl I. Brown Mortgage, CIB
Funding, CIB Mortgage, Emerald Mortgage, First Tennessee
Mortgage Company, Inc., Flagship Mortgage Bankers, FTB
Mortgage Services, HomeBanc Mortgage Corporation, MNC
Mortgage, Mortgage Resources, Premier Mortgage Resources,
Priority One, Provision Mortgage Bankers, Select Mortgage
Resources, SNMC National Mortgage, Sunbelt National Mortgage,
Wolf and Company Mortgage Bankers.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated January 16, 1996, included in First Tennessee National
Corporation's 1995 Annual Report on Form 10-K, into the Company's previously
filed registration statement file Nos. 33-8029, 33-9846, 33-40398, 33-44142,
33-52105, 33-52561, 33-57241, 33-57697, 33-58975, 33-63809, and 33-64471 and to
all references to our firm included therein.
Arthur Andersen LLP
Memphis, Tennessee,
March 22, 1996.
<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 ELBERT L. THOMAS, JR., JAMES
F. KEEN, CLYDE A. BILLINGS, JR., and TERESA A. FEHRMAN, 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, 1995 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>
Ralph Horn Chairman of the Board, March 25, 1996
- - ---------------------------------- President and Chief Executive
Ralph Horn Officer and a Director
(principal executive officer)
Elbert L. Thomas, Jr. Executive Vice President and March 25, 1996
- - ---------------------------------- Chief Financial Officer
Elbert L. Thomas, Jr. (principal financial officer)
James F. Keen Senior Vice President and March 25, 1996
- - ---------------------------------- Controller (principal
James F. Keen accounting officer)
Jack A. Belz Director March 25, 1996
- - ----------------------------------
Jack A. Belz
Robert C. Blattberg Director March 25, 1996
- - ----------------------------------
Robert C. Blattberg
J. R. Hyde, III Director March 25, 1996
- - ----------------------------------
J. R. Hyde, III
</TABLE>
Page 1 of 2
<PAGE> 2
<TABLE>
<S> <C> <C>
R. Brad Martin Director March 25, 1996
- - ----------------------------------
R. Brad Martin
Joseph Orgill, III Director March 25, 1996
- - ----------------------------------
Joseph Orgill, III
Richard E. Ray Director March 25, 1996
- - ----------------------------------
Richard E. Ray
Vicki G. Roman Director March 25, 1996
- - ----------------------------------
Vicki G. Roman
Michael D. Rose Director March 25, 1996
- - ----------------------------------
Michael D. Rose
William B. Sansom Director March 25, 1996
- - ----------------------------------
William B. Sansom
Gordon P. Street, Jr. Director March 25, 1996
- - ----------------------------------
Gordon P. Street, Jr.
Ronald Terry Director March 25, 1996
- - ----------------------------------
Ronald Terry
</TABLE>
Page 2 of 2
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIRST
TENNESSEE NATIONAL CORPORATION'S DECEMBER 31, 1995, FINANCIAL STATEMENTS FILED
IN ITS 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCES TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 710,870
<INT-BEARING-DEPOSITS> 2,119
<FED-FUNDS-SOLD> 64,978
<TRADING-ASSETS> 182,655
<INVESTMENTS-HELD-FOR-SALE> 2,036,668
<INVESTMENTS-CARRYING> 74,731
<INVESTMENTS-MARKET> 75,750
<LOANS> 8,122,466
<ALLOWANCE> 112,567
<TOTAL-ASSETS> 12,076,882
<DEPOSITS> 8,582,197
<SHORT-TERM> 1,760,745
<LIABILITIES-OTHER> 600,699
<LONG-TERM> 260,017
0
0
<COMMON> 83,973
<OTHER-SE> 789,251
<TOTAL-LIABILITIES-AND-EQUITY> 12,076,882
<INTEREST-LOAN> 665,727
<INTEREST-INVEST> 135,451
<INTEREST-OTHER> 21,350
<INTEREST-TOTAL> 822,528
<INTEREST-DEPOSIT> 305,042
<INTEREST-EXPENSE> 431,875
<INTEREST-INCOME-NET> 390,653
<LOAN-LOSSES> 20,592
<SECURITIES-GAINS> 2,444
<EXPENSE-OTHER> 613,667
<INCOME-PRETAX> 252,957
<INCOME-PRE-EXTRAORDINARY> 164,888
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 164,888
<EPS-PRIMARY> 2.42
<EPS-DILUTED> 2.38
<YIELD-ACTUAL> 3.92
<LOANS-NON> 19,040
<LOANS-PAST> 33,273
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 66,621
<ALLOWANCE-OPEN> 109,859
<CHARGE-OFFS> 35,231
<RECOVERIES> 14,715
<ALLOWANCE-CLOSE> 112,567
<ALLOWANCE-DOMESTIC> 112,567
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
