<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
--------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-4491
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FIRST TENNESSEE NATIONAL CORPORATION
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(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 No.)
165 Madison Avenue, Memphis, Tennessee 38103
- ---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(901) 523-4027
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(Registrant's telephone number, including area code)
None
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(Former name, former address and former fiscal year,
if changed since last report)
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.
Yes X No
----- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $1.25 par value 67,182,416
- ----------------------------- ----------------------------
Class Outstanding at April 30, 1996
<PAGE> 2
FIRST TENNESSEE NATIONAL CORPORATION
INDEX
Part I. Financial Information
Part II. Other Information
Signatures
Exhibit Index
Exhibit 11
Exhibit 27
<PAGE> 3
PART I.
------
FINANCIAL INFORMATION
Item 1. Financial Statements.
- ------------------------------
The Consolidated Statements of Condition
The Consolidated Statements of Income
The Statements of Cash Flows
The Notes to Consolidated Financial Statements
This financial information reflects all adjustments which are, in the
opinion of management, necessary for a fair presentation of the financial
position and results of operations for the interim periods presented.
<PAGE> 4
<TABLE>
CONSOLIDATED First Tennessee
STATEMENTS OF National
CONDITION Corporation
- ------------------------------------------------------------------------------------------------
<CAPTION>
March 31 December 31
-------- -----------
(Dollars in thousands)(Unaudited) 1996 1995 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Cash and due from banks $ 658,101 $ 562,465 $ 710,870
Federal funds sold and securities purchased
under agreements to resell 52,063 260,800 64,978
- -------------------------------------------------------------------------------------------------
Total cash and cash equivalents 710,164 823,265 775,848
- -------------------------------------------------------------------------------------------------
Investment in bank time deposits 1,628 3,673 2,119
Broker/dealer securities inventory 358,212 166,373 182,655
Mortgage warehouse loans held for sale 1,138,871 412,661 789,183
Securities available for sale 2,163,053 1,167,269 2,036,668
Securities held to maturity (market value of $73,688
at March 31, 1996; $961,960 at March 31, 1995;
and $75,750 at December 31, 1995) 72,296 988,386 74,731
Loans, net of unearned income 7,325,244 6,638,666 7,333,283
Less: Allowance for loan losses 114,631 109,862 112,567
- -------------------------------------------------------------------------------------------------
Total net loans 7,210,613 6,528,804 7,220,716
- -------------------------------------------------------------------------------------------------
Premises and equipment, net 178,970 159,458 177,400
Real estate acquired by foreclosure 13,215 18,455 11,794
Intangible assets 126,355 93,624 128,985
Mortgage servicing rights 184,054 77,542 149,220
Bond division receivables and other assets 661,001 476,741 527,563
- -------------------------------------------------------------------------------------------------
TOTAL ASSETS $12,818,432 $10,916,251 $12,076,882
=================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Demand $ 1,824,027 $ 1,664,689 $ 1,983,994
Checking/Interest 158,344 495,494 103,860
Savings 673,140 593,972 592,320
Money market account 2,535,464 1,804,214 2,499,817
Certificates of deposit under $100,000
and other time 2,843,388 2,877,951 2,882,094
Certificates of deposit $100,000 and more 718,224 498,336 520,112
- -------------------------------------------------------------------------------------------------
Total deposits 8,752,587 7,934,656 8,582,197
- -------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold under
agreements to repurchase 1,552,661 1,353,036 1,674,225
Commercial paper and other short-term borrowings 567,106 162,298 86,520
Bond division payables and other liabilities 804,464 459,548 600,699
Term borrowings 258,633 203,553 260,017
- -------------------------------------------------------------------------------------------------
Total liabilities 11,935,451 10,113,091 11,203,658
- -------------------------------------------------------------------------------------------------
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 - 67,394,920 at
March 31, 1996; 68,304,134 at March 31, 1995;
and 67,178,236 at December 31, 1995) 84,244 85,380 83,973
Capital surplus 67,573 93,382 63,610
Undivided profits 736,443 636,062 716,861
Unrealized market adjustment on available for
sale securities (916) (9,038) 10,582
Deferred compensation on restricted stock
incentive plan (4,363) (2,626) (1,802)
- -------------------------------------------------------------------------------------------------
Total shareholders' equity 882,981 803,160 873,224
- -------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $12,818,432 $10,916,251 $12,076,882
=================================================================================================
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
CONSOLIDATED First Tennessee
STATEMENTS OF National
INCOME Corporation
- ----------------------------------------------------------------------------------------
Three Months Ended
March 31
----------------------------
(Dollars in thousands except per share data)(Unaudited) 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $160,167 $141,672
Interest on investment securities:
Taxable 32,096 33,671
Tax-exempt 1,343 1,088
Interest on mortgage warehouse loans held for sale 18,881 7,983
Interest on broker/dealer securities inventory 4,258 3,497
Interest on other earning assets 907 3,473
- ----------------------------------------------------------------------------------------
Total interest income 217,652 191,384
- ----------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits:
Checking/Interest 649 2,146
Savings 2,503 2,928
Money market account 24,587 21,324
Certificates of deposit under $100,000 and other time 41,431 38,507
Certificates of deposit $100,000 and more 9,966 6,777
Interest on short-term borrowings 27,831 23,221
Interest on term borrowings 5,307 4,163
- ----------------------------------------------------------------------------------------
Total interest expense 112,274 99,066
- ----------------------------------------------------------------------------------------
NET INTEREST INCOME 105,378 92,318
Provision for loan losses 8,033 4,148
- ----------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 97,345 88,170
- ----------------------------------------------------------------------------------------
NONINTEREST INCOME:
Mortgage banking 58,119 46,769
Bond division 28,121 18,419
Deposit transactions and cash management 17,319 18,555
Cardholder and merchant processing 9,876 7,657
Trust services 8,614 10,323
Equity securities gains 475 198
Debt securities gains/(losses) (217) 264
All other 14,270 11,229
- ----------------------------------------------------------------------------------------
Total noninterest income 136,577 113,414
- ----------------------------------------------------------------------------------------
ADJUSTED GROSS INCOME AFTER PROVISION FOR LOAN LOSSES 233,922 201,584
- ----------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Employee compensation, incentives, and benefits 98,942 79,324
Operations services 10,656 9,011
Occupancy 9,325 9,110
Amortization of mortgage servicing rights 9,083 2,818
Communications and courier 8,241 7,334
Equipment rentals, depreciation, and maintenance 8,181 8,188
Advertising and public relations 4,939 3,900
Legal and professional fees 2,500 5,196
Amortization of intangible assets 2,354 1,797
Deposit insurance premium 419 4,358
All other 20,946 16,127
- ----------------------------------------------------------------------------------------
Total noninterest expense 175,586 147,163
- ----------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 58,336 54,421
Applicable income taxes 20,895 19,814
- ----------------------------------------------------------------------------------------
NET INCOME $ 37,441 $ 34,607
========================================================================================
NET INCOME PER COMMON SHARE $ .56 $ .51
- ----------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING 67,301,454 68,217,294
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE> 6
<TABLE>
CONSOLIDATED First Tennessee
STATEMENTS National
OF CASH FLOWS Corporation
- ------------------------------------------------------------------------------------------
<CAPTION>
Three Months Ended March 31
---------------------------
(Dollars in thousands)(Unaudited) 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 37,441 $ 34,607
Adjustments to reconcile net income to net cash
provided/(used) by operating activities:
Provision for loan losses 8,033 4,148
Provision for deferred income tax 20,895 11,964
Depreciation and amortization of premises and equipment 6,916 5,840
Amortization of mortgage servicing rights 9,083 2,818
Amortization of intangibles 2,354 1,797
Net amortization of premiums and accretion of discounts 5,317 4,056
Market value adjustment on foreclosed property 1,137 651
Equity securities gains (475) (198)
Debt securities (gains)/losses 217 (264)
Net loss on disposal of fixed assets 49 1,621
Net (increase)/decrease in:
Broker/dealer securities inventory (175,557) 3,658
Mortgage warehouse loans held for sale (349,688) 102,746
Bond division receivables (129,686) (127,738)
Interest receivable 1,809 1,621
Other assets (72,160) (27,455)
Net increase/(decrease) in:
Bond division payables 121,458 97,086
Interest payable 6,977 6,795
Other liabilities 82,738 (160)
- -------------------------------------------------------------------------------------------
Total adjustments (460,583) 88,986
- -------------------------------------------------------------------------------------------
Net cash (used)/provided by operating activities (423,142) 123,593
- -------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from maturities of:
Held to maturity securities 2,427 17,494
Available for sale securities 98,774 27,571
Proceeds from sale of:
Available for sale securities 79,285 62,889
Premises and equipment 30 29
Payments for purchase of:
Held to maturity securities - (1,343)
Available for sale securities (322,280) (65,217)
Premises and equipment (8,160) (7,306)
Net (increase)/decrease in loans 259 (144,198)
Decrease/(increase) in investment in bank time deposits 491 (1,139)
- -------------------------------------------------------------------------------------------
Net cash used by investing activities (149,174) (111,220)
- -------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from:
Exercise of stock options 1,502 1,221
Issuance of term borrowings - 90,000
Payments for:
Capital lease obligations (59) (37)
Term borrowings (1,427) (236)
Stock repurchase (505) -
Cash dividends (17,869) (15,054)
Equity distributions related to acquisitions - (14)
Net increase/(decrease) in:
Deposits 165,968 51,765
Short-term borrowings 359,022 (294,705)
- -------------------------------------------------------------------------------------------
Net cash provided/(used) by financing activities 506,632 (167,060)
- -------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (65,684) (154,687)
- -------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 775,848 977,952
- -------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $710,164 $823,265
===========================================================================================
Total interest paid $100,785 $ 89,591
Total income taxes paid 462 2,906
</TABLE>
<PAGE> 7
NOTE 1 - FINANCIAL INFORMATION
The unaudited interim consolidated financial statements have been prepared in
accordance with generally accepted accounting principles. In the opinion of
management, all necessary adjustments have been made for a fair presentation of
financial position and results of operations for the periods presented. The
operating results for the three month period ended March 31, 1996, are not
necessarily indicative of the results that may be expected going forward. For
further information, refer to the audited consolidated financial statements and
footnotes included in the 1995 Annual Report to shareholders.
<PAGE> 8
NOTE 2 -- LOANS
The composition of the loan portfolio at March 31 is detailed below:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
- ------------------------------------------------------------------
<S> <C> <C>
Commercial $3,316,086 $3,055,676
Consumer 2,563,818 2,283,324
Permanent mortgage 673,104 641,687
Credit card receivables 514,277 448,004
Real estate construction 244,975 194,438
Nonaccrual 12,984 15,537
- ------------------------------------------------------------------
Loans, net of unearned income 7,325,244 6,638,666
Allowance for loan losses 114,631 109,862
- ------------------------------------------------------------------
Total net loans $7,210,613 $6,528,804
==================================================================
</TABLE>
The following table presents information concerning nonperforming loans at
March 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
- -------------------------------------------------------------------
<S> <C> <C>
Impaired loans $ 7,377 $ 9,820
Other nonaccrual loans 5,607 5,717
Other restructured loans - 102
- ------------------------------------------------------------------
Total nonperforming loans $12,984 $15,639
==================================================================
</TABLE>
Nonperforming loans consist of impaired loans, other nonaccrual loans, and
certain restructured loans. An impaired loan is a loan that management
believes the contractual amount due probably will not be collected. Impaired
loans are generally carried on a nonaccrual status. Nonaccrual loans are loans
on which interest accruals have been discontinued due to the borrower's
financial difficulties. Management may elect to continue the accrual of
interest when the estimated net realizable value of collateral is sufficient to
recover principal balance and accrued interest.
Generally, interest payments received on impaired loans are applied to
principal. Once all principal has been received, additional payments are
recognized as interest income on a cash basis. Total interest income
recognized on impaired loans was $141,000 for the three months ended March 31,
1996. The average balance of impaired loans for the same period was
approximately $8,649,000. Total restructured impaired loans at March 31, 1996,
were $279,000.
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 three months ended
March 31, 1996, is summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Non-impaired Impaired Total
- ------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1996 $109,051 $ 3,516 $112,567
Provision for loan losses 9,304 (1,271) 8,033
Charge-offs 8,719 131 8,850
Less loan recoveries 2,694 187 2,881
- ------------------------------------------------------------------
Net charge-offs 6,025 (56) 5,969
- ------------------------------------------------------------------
BALANCE AT MARCH 31, 1996 $112,330 $ 2,301 $114,631
==================================================================
</TABLE>
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following is a discussion and analysis of the financial condition and
results of operations of First Tennessee National Corporation (First Tennessee)
for the three month period ended March 31, 1996, compared to the three month
period ended March 31, 1995. To assist the reader in obtaining a better
understanding of First Tennessee and its performance, this discussion should be
read in conjunction with First Tennessee's unaudited consolidated financial
statements and accompanying notes appearing in this report. Additional
information including the 1995 financial statements, notes and management's
discussion is provided in the 1995 Annual Report.
OVERVIEW
Net income for the first quarter of 1996 was $37.4 million, an increase of 8
percent over the $34.6 million earned in the first quarter of 1995. For the
first quarters, earnings per share increased 10 percent to $.56 in 1996 from
$.51 per share in 1995. Return on average assets was 1.22 percent and return on
average equity was 17.27 percent for the first quarter of 1996 compared with
1.31 percent and 18.04 percent, respectively, for the same period in 1995.
During the first quarter of 1996, the company's board of directors approved a
two-for-one stock split. For each share held, each shareholder of record as of
February 2, 1996, received one additional share of stock on February 16, 1996.
As a result of the stock split, the outstanding shares doubled to 67.2 million.
All share information has been adjusted for this split.
INCOME STATEMENT/BALANCE SHEET DISCUSSION
A. Noninterest Income
Noninterest income, also called fee income, grew 21 percent or $23.4 million
from the first quarter of 1995. The rise in fee income resulted largely from
increases experienced in two specialty lines of business - the bond division
and mortgage banking.
The bond division achieved record fee income of $28.1 million during the
quarter, an increase of $9.7 million, or 53 percent, over the same period in
1995. This increase resulted from non-bank customer base expansion; and a
resurgence in bank customer demand for securities resulting from lower loan
demand and the ability to restructure their portfolios due to an accounting
change which occurred in the fourth quarter of 1995.
Mortgage banking noninterest income increased $11.4 million, or 24 percent,
principally from an increase of 206 percent in origination volume, and growth
in the servicing portfolio of 42 percent. Refinance activity increased from 10
percent of total originations in the first quarter of 1995 to 47 percent in the
first quarter of 1996. The growth in fee income was lower due to secondary
marketing losses from the rise in interest rates experienced in the first
quarter of 1996 and a gain of $12 million from bulk sales of servicing during
the first quarter of 1995.
Fee income in cardholder and merchant processing increased $2.2 million, or 29
percent, from the expansion of new customer bases and relationships. As a
result of the decrease in FDIC premiums, fee income from deposit transactions
and cash management was negatively impacted since this fee was no longer
collected from corporate and cash management customers. Trust services also
showed a decline in fee income from 1995 to 1996. However, an accounting
change made in the first quarter of 1995 from cash basis to accrual basis
distorts this growth rate. For comparative purposes, using cash basis
accounting, the year over year fee income growth would have been 17 percent.
B. Net Interest Income
For the first quarter of 1996, net interest income, on a taxable-equivalent
basis, increased $13.3 million, or 14 percent, over the first quarter of 1995.
This increase was due to a larger balance sheet with increased levels of
earnings assets (13 percent) and a relatively flat net interest margin.
B.1. Balance Sheet Growth
Total assets increased $1.9 billion, or 17 percent, compared to March 31, 1995.
Period end net loans increased $687 million, or 10 percent; the mortgage
warehouse increased $726 million, or 176 percent; and investment securities
<PAGE> 10
increased $80 million, or 4 percent. The growth in the period end balance
sheet was partially funded by a $439 million, or 8 percent increase, in
interest-bearing core deposits. The balance sheet growth is attributable to
internal growth and the acquisitions of Peoples Commercial Services Corporation
(parent company of Peoples Bank in Senatobia, Mississippi acquired on April 1,
1995, with assets of $98 million at acquisition) and Financial Investment
Corporation (parent company of First National Bank of Springdale, in
Springdale, Arkansas acquired on October 1, 1995, with assets of $349 million
at acquisition). Excluding these two acquisitions, net loans grew 7 percent
and interest-bearing core deposits grew 3 percent.
In comparing average balances, from first quarter 1995, total assets grew $1.6
billion, or 15 percent; net loans grew $791 million, or 12 percent, and
interest-bearing core deposits grew $406 million, or 7 percent. Net commercial
loans grew $326 million, or 11 percent, and net consumer loans grew $277
million, or 12 percent. This loan growth is reflective of strong economic
growth, with the state of Tennessee experiencing real gross state product of 4
percent during the past year. Commercial loans represented 45 percent and
consumer loans represented 35 percent of total loans. Credit card receivables
grew $58 million, or 13 percent, as a result of targeted marketing campaigns.
The permanent mortgage portfolio increased $69 million or 11 percent, and real
estate construction grew $62 million, or 33 percent.
With the increase in mortgage originations, average mortgage warehouse loans
held for sale increased $680 million, or 177 percent, from the first quarter of
1995. This growth was funded by an increase of $752 million, or 33 percent, in
purchased funds from the first quarter of 1995.
B.2. Net interest margin
The net interest margin is affected by the activity levels and related funding
for First Tennessee's specialty lines of business (mortgage banking, bond
division, credit card, trust services, First Express - check clearing operation
and transaction processing), as these nonbank business lines typically produce
different margins from traditional retail/commercial banking activities.
Consequently, First Tennessee's consolidated margin cannot be readily compared
to that of other bank holding companies.
The mortgage warehouse balance almost tripled between the first quarters of
1995 and 1996, adding $6.1 million to net interest income in 1996 compared with
$3.6 million in the first quarter of 1995. Because the spread between the
yields on mortgage loans temporarily in the warehouse and the related
short-term funding rates is significantly less than the comparable spread
earned in the retail/commercial bank, the consolidated margin was negatively
impacted 20 basis points in the first quarter of 1996 compared with 2 basis
points in the first quarter of 1995.
The bond division contributed $.8 million more to net interest income in 1996
than in 1995. Because of its strategy to hedge inventory in the cash markets,
the bond division also tends to negatively impact the consolidated net interest
margin, since the net interest income is effectively eliminated on these
positions. This negative impact was 11 basis points in the first quarter of
1996, an improvement from the negative 16 basis point impact in the first
quarter of 1995.
The decline in the net interest margin in the other specialty lines of
business, as shown in the table below (Net Interest Margin Composition), came
from pricing pressures experienced in credit card, and the decreasing value of
demand deposits at First Express as a result of lower long term interest rates.
The retail/commercial bank margin improved from 4.01 percent in the first
quarter of 1995 to 4.22 percent in the first quarter of 1996. In May of 1996,
the amortization of a $1 billion basis swap, executed in May of 1993 and
terminated at the beginning of 1995, will end. With First Tennessee's existing
balance sheet mix, the current interest rate environment, and the costs
associated with the basis swap ending in May, the retail/commercial bank's
margin is expected to continue to improve throughout 1996. Going forward, the
consolidated margin will continue to be influenced by the activity levels in
the specialty lines of business.
<PAGE> 11
<TABLE>
<CAPTION>
NET INTEREST MARGIN COMPOSITION First Quarter
1996 1995
----- ----
<S> <C> <C>
Retail/commercial bank 4.22% 4.01%
Basis swap (.16) (.20)
Bond division (.11) (.16)
Mortgage banking (.20) (.02)
Other specialty lines of business .19 .29
---- ----
Total net interest margin 3.94% 3.92%
==== ====
</TABLE>
C. Provision for Loan Losses/Asset quality
The provision for loan losses increased $3.9 million to $8.0 million at March
31, 1996. The higher provision results from a return to a more normalized asset
quality position, and an increase in the level of allowance for loan losses
commensurate with current loan growth. The allowance for loan losses to loans
was 1.56 percent at March 31, 1996, and 1.65 percent at March 31, 1995. The
increase in past due loans reflects the overall trends in both permanent
mortgage and the consumer loan delinquencies, the change in the loan mix, and a
return to more normalized past due levels. At March 31, 1996, First Tennessee
had no concentration of 10 percent or more of total loans in any single
industry.
<TABLE>
<CAPTION>
March 31,
----------------------
ASSET QUALITY INFORMATION 1996 1995
(Dollars in thousands) -------- --------
<S> <C> <C>
Nonaccrual loans $ 12,705 $ 15,537
Restructured loans 279 102
-------- --------
Total nonperforming loans 12,984 15,639
Foreclosed real estate 13,215 18,455
Other assets 966 1,922
-------- --------
Total nonperforming assets $ 27,165 $ 36,016
======== ========
Loans 90 days past due $ 33,593 $ 24,480
Potential problem assets $ 69,498 $ 67,189
Allowance for credit losses:
Beginning balance $112,567 $109,859
Provision for loan losses 8,033 4,148
Charge-offs (8,850) (7,291)
Loan recoveries 2,881 3,146
-------- --------
Ending balance $114,631 $109,862
======== ========
Allowance as a % of loans 1.56% 1.65%
Nonperforming loans to total loans .18% .24%
Nonperforming assets to total loans,
foreclosed real estate and other assets .37% .54%
Allowance to nonperforming assets 422.0% 305.0%
</TABLE>
<TABLE>
<CAPTION>
March 31,
----------------------
NET CHARGE-OFFS AS A PERCENT OF AVERAGE LOANS 1996 1995
-------- --------
<S> <C> <C>
Commercial and commercial real estate (.08)% (.09)%
Consumer .37% .22%
Credit card receivables 3.32% 3.01%
Permanent mortgage .05% .05%
Total .33% .26%
</TABLE>
D. Noninterest Expense
Total noninterest expense for the first quarter of 1996 increased $28.4
million, or 19 percent over the same period in 1995. Employee compensation,
incentives, and benefits (staff expense) represented the majority of this
increase with growth of $19.6 million or 25 percent. The increase in staff
expense came primarily from the volume-based businesses where commissions and
incentives increased 118 percent from the previous year.
<PAGE> 12
With higher origination volume and a larger servicing portfolio, expenses
related to amortization and hedging of mortgage servicing rights increased $6.3
million. The increase in advertising and public relations primarily resulted
from selective marketing expansion in the credit card business line in response
to an increasingly competitive environment. The decrease in the deposit
insurance premium reflects the decrease in the FDIC premium rate to zero at the
beginning of 1996. The remaining expense in this category is the Savings
Association Insurance Fund (SAIF) assessment on deposits that First Tennessee
acquired in 1992 and a small FDIC administrative fee. Congress is discussing
various proposals to recapitalize SAIF in which a one-time assessment could
potentially be charged to all institutions with SAIF-insured deposits. During
the quarter, approximately $2 million related to the back office consolidation
within mortgage banking was recognized.
To make year over year expense growth more comparable, if the FDIC premium, the
one-time acquisition costs in the first quarter of 1995, and the acquisitions
closed after first quarter 1995 are excluded, and all expenses related to
mortgage banking and the bond division are excluded, expenses grew 7 percent
between first quarter 1995 and 1996.
E. Capital
Shareholders' equity at March 31, 1996, was $883.0 million, an increase of $79.8
million, or 10 percent, from March 31, 1995. As a result of stock repurchased
in the latter part of 1995, period end equity to assets declined from 7.36
percent to 6.89 percent (March 1995 to March 1996). From time to time, the
company will evaluate the level of capital and take action designed to generate
or use the capital (i.e., acquisitions, stock buybacks, etc.) to maximize the
benefit to shareholders. At March 31, 1996, the Corporation's Tier 1 capital
ratio was 8.68 percent, the Total capital ratio was 11.57 percent and the
Leverage ratio was 6.45 percent. On March 31, 1996, First Tennessee's bank
subsidiaries had sufficient capital to qualify as well-capitalized institutions
under the regulatory capital standards.
OFF-BALANCE SHEET ACTIVITY
In the normal course of business, First Tennessee is a party to financial
instruments that are not required to be reflected on a balance sheet. First
Tennessee enters into transactions involving these instruments in order to meet
the financial needs of its customers and manage its own exposure to
fluctuations in interest rates. These instruments are categorized into those
"Held or issued for purposes other than broker/dealer operations" and those
"Held or issued for broker/dealer operations" as noted in the Off-Balance Sheet
Financial Instruments table.
<PAGE> 13
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS AT MARCH 31, 1996
<TABLE>
<CAPTION>
Notional
(Dollars in millions) Value
- ---------------------------------------------------------------------
<S> <C>
HELD OR ISSUED FOR PURPOSES OTHER THAN BROKER/DEALER OPERATIONS
Commitments to extend credit:
Consumer credit card lines $1,659.7
Consumer home equity 271.4
Commercial real estate and
construction and land development 337.0
Mortgage banking 971.7
Other 1,458.7
Commercial and standby letters of credit 236.2
Foreign exchange contracts, net position .1
Interest rate risk management activities:
Interest rate swap receive fixed/
pay floating - amortizing 344.5
Mortgage banking
Commitments to sell loans, net position 1,606.7
Put options purchased 602.5
HELD OR ISSUED FOR BROKER/DEALER OPERATIONS
Forward contracts:
Commitments to buy 1,811.7
Commitments to sell 1,943.5
Futures contracts:
Commitments to buy 85.3
When-issued securities:
Commitments to buy .2
Commitments to sell .2
Securities underwriting commitments .3
</TABLE>
<PAGE> 14
Part II.
--------
OTHER INFORMATION
Items 1, 3, 4 and 5.
- --------------------
As of the end of the first quarter, 1996, the answers to Items 1, 3, 4 and 5
were either inapplicable or negative, and therefore, these items are omitted.
Item 2. Changes in Securities.
- -------------------------------
The Restated Charter, as amended, of the Corporation has been amended,
effective February 16, 1996, to change each of the 100 million authorized
shares of common stock, with a par value of $2.50, into two shares of common
stock (for an aggregate of 200 million shares of common stock), with a par
value of $1.25, to reflect the 2-for-1 stock split declared by the
Corporation's Board of Directors on January 16, 1996, which was payable
February 16, 1996, to shareholders of record February 2, 1996. The stock split
doubled the Corporation's shares of common stock outstanding and the shares of
common stock authorized but unissued without changing the Corporation's stated
capital.
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
(a) Exhibits furnished in accordance with the provisions of the Exhibit
Table of Item 601 of Regulation S-K are included as described in the
Exhibit Index which is a part of this report. Exhibits not listed in the
Exhibit Index are omitted because they are inapplicable.
(b) No reports on Form 8-K were filed during the first quarter of 1996.
<PAGE> 15
SIGNATURES
Pursuant to the requirements 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
------------------------------------
(Registrant)
DATE: 5/15/96 By: /s/ Elbert L. Thomas Jr.
--------------------- --------------------------
Elbert L. Thomas Jr.
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
<PAGE> 16
EXHIBIT INDEX
Exhibit No. Exhibit Description Page No.
- ----------- ------------------- --------
3(i) Restated Charter of the Corporation, as amended, attached as
exhibit 3(i) to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1995, and incorporated herein by
reference.
11 Statement re Computation of Per Share Earnings. Filed Herewith
27 Financial Data Schedule (for SEC use only) Filed Herewith
<PAGE> 1
EXHIBIT 11
FIRST TENNESSEE NATIONAL CORPORATION
PRIMARY EARNINGS PER SHARE
AND FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------------
Computation for Statements of Income: 1996 1995
- ------------------------------------- ---------- ----------
<S> <C> <C>
Per statements of income (Thousands):
Net income $ 37,441 $ 34,607
========== ==========
Per statements of income:
Weighted average shares outstanding 67,301,454 68,217,294
========== ==========
Primary earnings per share (a):
Net income $ .56 $ .51
========== ==========
Additional Primary computation
- -------------------------------
Adjustment to weighted average shares
outstanding:
Weighted average shares outstanding
per primary computation above 67,301,454 68,217,294
Add dilutive effect of outstanding
options (as determined by the
application of the treasury stock
method) 1,562,381 918,180
---------- ----------
Weighted average shares outstanding,
as adjusted 68,863,835 69,135,474
========== ===========
Primary earnings per share, as adjusted (b):
Net income $ .54 $ .50
========== ===========
Additional Fully Diluted Computation
- ------------------------------------
Adjustment to weighted average share
outstanding:
Weighted average shares outstanding
per primary computation above 68,863,835 69,135,474
Additional dilutive effect of outstanding
options (as determined by the application
of the treasury stock method) 118,071 40,644
---------- ----------
Weighted average shares outstanding,
as adjusted 68,981,906 69,176,118
========== ==========
Fully diluted earnings per share, as adjusted (b):
Net income $ .54 $ .50
========== ==========
</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.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FIRST TENNESSEE NATIONAL CORPORATION'S MARCH 31, 1996, FINANCIAL STATEMENTS
FILED IN ITS 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 658,101
<INT-BEARING-DEPOSITS> 1,628
<FED-FUNDS-SOLD> 52,063
<TRADING-ASSETS> 358,212
<INVESTMENTS-HELD-FOR-SALE> 2,163,053
<INVESTMENTS-CARRYING> 72,296
<INVESTMENTS-MARKET> 73,688
<LOANS> 8,464,115
<ALLOWANCE> 114,631
<TOTAL-ASSETS> 12,818,432
<DEPOSITS> 8,752,587
<SHORT-TERM> 2,119,767
<LIABILITIES-OTHER> 804,464
<LONG-TERM> 258,633
0
0
<COMMON> 84,244
<OTHER-SE> 798,737
<TOTAL-LIABILITIES-AND-EQUITY> 12,818,432
<INTEREST-LOAN> 179,048
<INTEREST-INVEST> 33,439
<INTEREST-OTHER> 5,165
<INTEREST-TOTAL> 217,652
<INTEREST-DEPOSIT> 79,136
<INTEREST-EXPENSE> 112,274
<INTEREST-INCOME-NET> 105,378
<LOAN-LOSSES> 8,033
<SECURITIES-GAINS> 258
<EXPENSE-OTHER> 175,586
<INCOME-PRETAX> 58,336
<INCOME-PRE-EXTRAORDINARY> 37,441
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,441
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.56
<YIELD-ACTUAL> 3.94
<LOANS-NON> 12,984
<LOANS-PAST> 35,593
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 69,498
<ALLOWANCE-OPEN> 112,567
<CHARGE-OFFS> 8,850
<RECOVERIES> 2,881
<ALLOWANCE-CLOSE> 114,631
<ALLOWANCE-DOMESTIC> 114,631
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
