<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 September 30, 1997
------------------
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
----------------------------------------
(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
----------------------------------------------
(Registrant's telephone number, including area code)
None
---------------------------------------------
(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 64,103,572
- ----------------------------- -------------------------------
Class Outstanding at October 31, 1997
<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 Consolidated 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>
<CAPTION>
CONSOLIDATED STATEMENTS OF CONDITION First Tennessee National Corporation
- -----------------------------------------------------------------------------------------------------------
September 30 December 31
----------------------------- ------------
(Dollars in thousands)(Unaudited) 1997 1996 1996
- -------------------------------------------------------------------------------------------- ------------
<S> <C> <C> <C>
ASSETS:
Cash and due from banks $ 730,013 $ 778,719 $ 959,604
Federal funds sold and securities
purchased under agreements to resell 240,150 168,253 138,365
- -------------------------------------------------------------------------------------------- ------------
Total cash and cash equivalents 970,163 946,972 1,097,969
- -------------------------------------------------------------------------------------------- ------------
Investment in bank time deposits 1,672 936 1,922
Capital markets securities inventory 315,199 179,169 150,402
Mortgage loans held for sale 1,033,648 737,037 787,362
Securities available for sale 2,040,983 2,154,602 2,173,620
Securities held to maturity (market value of
$58,242 at September 30, 1997;
$68,736 at September 30, 1996; and
$66,677 at December 31, 1996) 57,298 68,357 65,914
Loans, net of unearned income 8,082,274 7,630,034 7,728,203
Less: Allowance for loan losses 123,875 117,717 117,748
- -------------------------------------------------------------------------------------------- ------------
Total net loans 7,958,399 7,512,317 7,610,455
- -------------------------------------------------------------------------------------------- ------------
Premises and equipment, net 201,356 184,903 185,624
Real estate acquired by foreclosure 12,352 7,059 7,823
Intangible assets, net 112,611 121,928 119,465
Mortgage servicing rights, net 368,037 244,334 266,027
Capital markets receivables and other assets 1,010,729 643,731 592,319
- -------------------------------------------------------------------------------------------- ------------
TOTAL ASSETS $ 14,082,447 $ 12,801,345 $ 13,058,902
============================================================================================ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Interest bearing $ 6,910,608 $ 6,910,157 $ 6,677,669
Noninterest bearing 2,346,462 2,161,931 2,355,393
- -------------------------------------------------------------------------------------------- ------------
Total deposits 9,257,070 9,072,088 9,033,062
- -------------------------------------------------------------------------------------------- ------------
Federal funds purchased and securities
sold under agreements to repurchase 1,909,928 1,589,888 1,881,187
Commercial paper and other short-term borrowings 731,765 322,297 377,369
Capital markets payables and other liabilities 994,858 636,038 578,113
Term borrowings 180,343 255,998 234,645
- -------------------------------------------------------------------------------------------- ------------
Total liabilities 13,073,964 11,876,309 12,104,376
- -------------------------------------------------------------------------------------------- ------------
Guaranteed preferred beneficial interests in
First Tennessee's subordinated debentures 100,000 -- --
- -------------------------------------------------------------------------------------------- ------------
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 - 64,059,810 at
September 30, 1997; 67,143,632 at September 30, 1996;
and 66,857,519 at December 31, 1996) 80,075 83,929 83,572
Capital surplus 44,574 60,802 48,657
Undivided profits 779,653 790,005 823,175
Unrealized market adjustment 6,799 (5,764) 2,697
Deferred compensation on restricted stock incentive plans (2,618) (3,936) (3,575)
- -------------------------------------------------------------------------------------------- ------------
Total shareholders' equity 908,483 925,036 954,526
- -------------------------------------------------------------------------------------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 14,082,447 $ 12,801,345 $ 13,058,902
============================================================================================ ============
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME First Tennessee National Corporation
- -----------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------- -----------------------------
(Dollars in thousands except per share data)(Unaudited) 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 178,530 $ 164,075 $ 518,752 $ 485,878
Interest on investment securities:
Taxable 33,307 34,176 102,164 100,499
Tax-exempt 1,100 1,241 3,466 3,910
Interest on mortgage loans held for sale 21,680 22,034 52,398 63,518
Interest on capital markets inventory 3,661 2,483 9,613 11,268
Interest on other earning assets 3,467 1,768 8,590 4,330
- -----------------------------------------------------------------------------------------------------------------------
Total interest income 241,745 225,777 694,983 669,403
- -----------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits:
Savings 2,035 2,336 6,236 7,250
Checking interest and money market 23,185 21,573 68,167 70,449
Certificates of deposit under $100,000 and other time 40,164 41,888 120,818 124,630
Certificates of deposit $100,000 and more 11,782 12,042 35,829 34,659
Interest on short-term borrowings 37,084 27,617 93,547 83,241
Interest on term borrowings 3,887 5,272 12,251 15,793
- -----------------------------------------------------------------------------------------------------------------------
Total interest expense 118,137 110,728 336,848 336,022
- -----------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 123,608 115,049 358,135 333,381
Provision for loan losses 12,753 8,853 37,783 24,445
- -----------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 110,855 106,196 320,352 308,936
- -----------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Mortgage banking 84,432 71,495 219,719 190,516
Capital markets 28,903 16,951 69,358 62,217
Deposit transactions and cash management 22,327 20,141 63,109 57,436
Merchant processing 8,575 6,636 23,488 17,519
Cardholder fees 4,941 4,224 14,358 12,579
Trust services and investment management 10,805 8,727 29,573 25,481
Equity securities gains/(losses) (1) 49 (841) 539
Debt securities gains/(losses) (22) (5) 58 (185)
All other income and commissions 20,386 14,201 53,777 42,614
- -----------------------------------------------------------------------------------------------------------------------
Total noninterest income 180,346 142,419 472,599 408,716
- -----------------------------------------------------------------------------------------------------------------------
ADJUSTED GROSS INCOME AFTER PROVISION FOR LOAN LOSSES 291,201 248,615 792,951 717,652
- -----------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Employee compensation, incentives, and benefits 109,542 94,005 300,202 286,009
Operations services 12,205 11,706 35,504 32,783
Occupancy 10,995 10,129 32,621 29,286
Equipment rentals, depreciation, and maintenance 9,789 8,488 29,223 25,126
Amortization of mortgage servicing rights 9,371 6,669 26,862 18,534
Communications and courier 8,745 8,097 26,234 24,883
Advertising and public relations 4,370 3,469 13,739 12,927
Legal and professional fees 3,830 2,924 10,045 8,786
Amortization of intangible assets 2,419 2,412 7,229 7,128
Deposit insurance premium 371 4,259 1,106 5,142
All other 32,459 22,754 87,715 67,891
- -----------------------------------------------------------------------------------------------------------------------
Total noninterest expense 204,096 174,912 570,480 518,495
- -----------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 87,105 73,703 222,471 199,157
Applicable income taxes 32,417 26,906 82,856 72,572
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME $ 54,688 $ 46,797 $ 139,615 $ 126,585
=======================================================================================================================
NET INCOME PER COMMON SHARE $ .85 $ .69 $ 2.17 $ 1.88
- -----------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING 64,049,081 67,144,391 64,210,469 67,223,305
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS First Tennessee National Corporation
- ------------------------------------------------------------------------------------------
Nine Months Ended September 30
------------------------------
(Dollars in thousands)(Unaudited) 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 139,615 $ 126,585
Adjustments to reconcile net income to net cash
provided/(used) by operating activities:
Provision for loan losses 37,783 24,445
Provision for deferred income tax 39,608 39,465
Depreciation and amortization of premises
and equipment 24,086 21,381
Amortization of mortgage servicing rights 26,862 18,534
Amortization of intangible assets 7,229 7,128
Net other amortization and accretion 3,767 (3,834)
Market value adjustment on foreclosed property 3,745 3,029
Equity securities (gains)/losses 841 (539)
Debt securities (gains)/losses (58) 185
Net gain on disposal of fixed assets (816) (43)
Net (increase)/decrease in:
Capital markets securities inventory (164,797) 3,486
Mortgage loans held for sale (246,286) 52,146
Capital markets receivables (358,028) (66,367)
Interest receivable (8,544) (5,586)
Other assets (186,491) (149,721)
Net increase/(decrease) in:
Capital markets payables 338,314 58,802
Interest payable 3,739 2,196
Other liabilities 39,288 (51,861)
- ------------------------------------------------------------------------------------------
Total adjustments (439,758) (47,154)
- ------------------------------------------------------------------------------------------
Net cash provided/(used) by operating activities (300,143) 79,431
- ------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Held to maturity securities:
Maturities 8,586 7,766
Purchases -- (1,463)
Available for sale securities:
Sales 121,301 381,195
Maturities 441,996 316,193
Purchases (421,497) (840,550)
Premises and equipment:
Sales 4,134 941
Purchases (42,593) (28,705)
Net increase in loans (393,251) (312,043)
Decrease in investment in bank time deposits 250 1,183
Acquisitions, net of cash and cash equivalents acquired -- 400
- ------------------------------------------------------------------------------------------
Net cash used by investing activities (281,074) (475,083)
- ------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Common stock:
Exercise of stock options 16,599 3,948
Cash dividends (59,122) (53,517)
Repurchase shares (156,781) (14,093)
Payments of term borrowings (54,430) (4,149)
Issuance of guaranteed preferred beneficial interests
in First Tennessee's subordinated debentures 100,000 --
Net increase in:
Deposits 224,008 483,147
Short-term borrowings 383,137 151,440
- ------------------------------------------------------------------------------------------
Net cash provided by financing activities 453,411 566,776
- ------------------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash equivalents (127,806) 171,124
- ------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 1,097,969 775,848
- ------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 970,163 $ 946,972
==========================================================================================
Total interest paid $ 332,855 $ 326,812
Total income taxes paid 43,248 33,107
</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 nine month period ended September 30,
1997, 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 1996 annual report to shareholders.
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
per Share," specifies the computation, presentation, and disclosure requirements
for earnings per share (EPS). The objective of SFAS No. 128 is to simplify the
computation and to make the U.S. standard more compatible with EPS standards of
other countries and with that of the International Accounting Standards
Committee. When adopted for the 1997 annual report, the standard is not expected
to have a material impact on the EPS computation of First Tennessee National
Corporation (First Tennessee).
SFAS No. 130, "Reporting Comprehensive Income," establishes standards
for reporting comprehensive income and its components in the financial
statements. Comprehensive income is the total of net income and all other
nonowner changes in equity. The only component of comprehensive income First
Tennessee currently would be required to report is unrealized holding
gains/(losses) on available-for-sale securities. First Tennessee will adopt this
standard in the first quarter of 1998.
First Tennessee uses derivative financial instruments in order to
manage exposure to fluctuations in interest rates and to meet the financial
needs of customers. For interest rate risk management purposes, First Tennessee
primarily utilizes interest rate swaps. Mortgage banking operations mainly use
mandatory forward delivery commitments and purchased options to hedge against
risks associated with the warehouse, the pipeline, or the servicing portfolio.
Capital markets uses various derivatives, including interest rate swaps,
futures, forward and option contracts and securities underwriting commitments in
order to meet the needs of its customers with forwards being the most commonly
used instrument.
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 First
Tennessee 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 contracts used to hedge interest rate risk, income
and expense are deferred and amortized over the lives of the hedged assets or
<PAGE> 8
liabilities. The amortization of these gains and losses is an adjustment
to interest income or expense of the hedged item. Fees are deferred and
amortized over the lives of the contracts. Any related assets or liabilities are
recorded on the balance sheet in other assets or other liabilities.
For those derivatives used to manage interest rate risk that are
terminated prior to maturity, realized gains and losses are deferred and
amortized straight-line over the remaining original life of the agreement as an
adjustment to the hedged asset or liability. If the underlying hedged asset or
liability is sold or prepaid, the related portion of any unrecognized gain or
loss on the derivative is recognized in current earnings as part of the gain or
loss on the sale or prepayment.
Forward and option contracts used by mortgage banking operations to
hedge against interest rate risks in the warehouse and the pipeline are
designated to a specific asset and are reviewed periodically for a high
correlation of expected changes in value. Option contracts used to hedge against
risks in the servicing portfolio are designated to a specific risk tranche of
servicing rights, must reduce earnings risk, and are periodically reviewed for a
high correlation of expected changes in value.
Forward and option contracts used to hedge the warehouse are considered
in the lower of cost or market valuation of the warehouse with any related gains
or losses being recognized in mortgage banking noninterest income. Premiums paid
for purchased options are deferred and reported with the hedged assets and are
amortized over the lives of the contracts to mortgage banking noninterest
income.
Options used to hedge the servicing portfolio are adjusted for changes
in intrinsic value with gains and losses recognized as a basis adjustment of the
related mortgage servicing rights risk tranche. Premiums are deferred and
amortized on a straight-line basis over the contract life to other noninterest
expense. The deferred gains and losses are recognized on the balance sheet in
mortgage servicing rights, and unamortized premiums are recorded in other
assets.
For derivatives hedging the warehouse and pipeline that are terminated
prior to maturity, gains and losses are recognized in current earnings as
mortgage banking noninterest income for excess coverage and are deferred and
recognized at the time the loan is sold if the sale is deferred to a future
date. For derivatives hedging the servicing portfolio that are terminated prior
to maturity, gains and losses are split between the return of time value premium
and the intrinsic value. Gains or losses from the change in the intrinsic value
are deferred as a basis adjustment to the related mortgage servicing rights risk
tranche, and the gains or losses resulting from the return of time value premium
are recognized in current earnings in other noninterest expense.
<PAGE> 9
Any contracts that fail to qualify for hedge accounting are measured at
fair value with any gains or losses included in current earnings in noninterest
income.
Derivative contracts utilized in trading activities by capital markets
are measured at fair value, and gains or losses are recognized in capital
markets noninterest income as they occur. Related assets are recorded on the
balance sheet as capital markets securities inventory or receivables and any
liabilities are recognized as capital markets payables.
Cash flows from derivative contracts are reported as operating
activities on the Consolidated Statements of Cash Flows.
<PAGE> 10
NOTE 2 -- LOANS
The composition of the loan portfolio at September 30 is detailed below:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C>
Commercial $3,692,179 $3,465,575
Consumer 2,810,802 2,657,539
Permanent mortgage 653,054 653,205
Credit card receivables 541,151 537,034
Real estate construction 347,262 298,074
Nonaccrual - Regional banking group 11,671 12,390
Nonaccrual - Mortgage banking 26,155 6,217
- ------------------------------------------------------------------------------------
Loans, net of unearned income 8,082,274 7,630,034
Allowance for loan losses 123,875 117,717
- ------------------------------------------------------------------------------------
Total net loans $7,958,399 $7,512,317
====================================================================================
</TABLE>
The following table presents information concerning nonperforming loans
at September 30:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans $11,179 $11,777
Other nonaccrual loans 26,647 6,830
- --------------------------------------------------------------------------------
Total nonperforming loans $37,826 $18,607
================================================================================
</TABLE>
[FN]
Restructured impaired loans at September 30, 1997 and 1996, were $196,000 and
$279,000, respectively.
</FN>
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
the 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. The following table presents
information concerning impaired loans:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------------------------
(Dollars in thousands) 1997 1996 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total interest on impaired loans $ 57 $ 91 $ 454 $ 475
Average balance of impaired loans 10,218 10,723 11,417 9,289
- ----------------------------------------------------------------------------------
</TABLE>
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 nine months ended
September 30, 1996 and 1997, is summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Non-impaired Impaired Total
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1995 $109,051 $3,516 $112,567
Provision for loan losses 24,111 334 24,445
Charge-offs 27,935 816 28,751
Less loan recoveries 9,099 357 9,456
- -----------------------------------------------------------------------------------------
Net charge-offs/(recoveries) 18,836 459 19,295
- -----------------------------------------------------------------------------------------
Balance at September 30, 1996 $114,326 $3,391 $117,717
=========================================================================================
Balance at December 31, 1996 $114,217 $3,531 $117,748
Provision for loan losses 33,982 3,801 37,783
Charge-offs 34,760 3,374 38,134
Less loan recoveries 6,362 116 6,478
- -----------------------------------------------------------------------------------------
Net charge-offs 28,398 3,258 31,656
- -----------------------------------------------------------------------------------------
Balance at September 30, 1997 $119,801 $4,074 $123,875
=========================================================================================
</TABLE>
<PAGE> 11
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 and nine month periods ended September 30, 1997,
compared to the three month and nine month periods ended September 30, 1996. 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 1996 financial
statements, notes and management's discussion is provided in the 1996 annual
report.
BUSINESS DESCRIPTION
First Tennessee is headquartered in Memphis, Tennessee, and is a
nationwide, diversified financial services institution which provides banking
and other financial services to its customers through various national and
regional business lines. The regional banking group includes the
retail/commercial bank, the credit card division and the trust division. The
national lines of business include FT Mortgage Companies and affiliates (also
referred to as mortgage banking), First Tennessee Capital Markets (also referred
to as capital markets) and transaction processing (merchant processing,
automated teller machine network and check clearing operations).
Certain revenues and expenses are allocated and equity is assigned to
the various business lines to reflect the inherent risk in each business line,
based on management's best estimates. These allocations are periodically
reviewed and may be revised from time to time to accurately reflect current
business conditions and risks. In addition, certain reclassifications of
accounts may occur to reflect current reporting standards within the industry.
In each case the previous history is restated to ensure comparability.
THIRD QUARTER OVERVIEW
Net income for the third quarter of 1997 increased 17 percent (from
$46.8 million to $54.7 million). This record earnings level resulted from
record-breaking revenues in three business lines (the retail/commercial bank,
mortgage banking, and capital markets). Earnings per share grew 23 percent (from
$.69 to $.85) from the third quarter of 1996. Return on average common equity
was 24.56 percent and return on average assets was 1.61 percent for the third
quarter of 1997.
On September 30, 1996, Federal legislation was enacted which required
all banks to help bail out the Savings and Loan industry. The pre-tax cost to
First Tennessee of the one-time Savings Association Insurance Fund (SAIF)
assessment was $3.8 million in the third quarter of 1996. The table below
details the impact of this assessment on the comparability of income and
profitability ratios.
<PAGE> 12
Income and Profitability Ratios for the Third Quarter Table
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
One-Time SAIF Assessment
------------------------
Included Excluded
-------- --------
<S> <C> <C> <C>
Net income (millions) $ 54.7 $ 46.8 $ 49.1
Earnings per share $ .85 $ .69 $ .73
Return on average assets 1.61% 1.47% 1.55%
Return on average common equity 24.56% 20.71% 21.75%
- ----------------------------------------------------------------------------
</TABLE>
Total assets grew 10 percent (from $12.8 billion to $14.1 billion) and
shareholders' equity declined 2 percent (from $925.0 million to $908.5 million)
from September 30, 1996, to September 30, 1997. Stock repurchase programs
implemented since the third quarter of 1996 reduced period-end shares
outstanding 5 percent (from 67.1 million to 64.1 million).
QUARTERLY INCOME STATEMENT REVIEW
NONINTEREST INCOME
Fee income (noninterest income excluding securities gains and losses)
for the third quarter contributed 59 percent to total revenue and grew 27
percent (from $142.4 million to $180.4 million) from the third quarter of 1996.
The rise in noninterest income came from record-breaking fees from mortgage
banking, capital markets, and merchant processing.
Total mortgage banking fee income grew 18 percent from the third
quarter of 1996 (from $71.5 million to $84.4 million) through growth in
origination-related fees and servicing fees.
Origination-related fee income (fees from mortgage origination and the
secondary marketing process) increased 27 percent (from $46.9 million to $59.3
million). Mortgage loan originations increased 24 percent to a record level of
$3.0 billion for the third quarter of 1997 (compared with $2.4 billion for the
third quarter of 1996). The higher level of production was in part due to the
increase in refinance activity, which accounted for approximately 26 percent of
the origination volume during the third quarter of 1997 compared with 19 percent
for the same period in 1996. As a consequence of a more stable interest rate
environment and less price concessions, secondary marketing activities improved
$8.5 million in the third quarter of 1997 compared to the same period in 1996.
Income derived from the creation of originated mortgage servicing rights
remained relatively flat to third quarter 1996 levels. This occurred because the
servicing rights on loans retained from the higher origination volume during the
quarter had a higher value and a lower volume of loans were sold.
Servicing fees, which are fees collected for gathering and processing
monthly mortgage payments, grew 24 percent (from $18.8 million to $23.4
million), commensurate with the increase in the servicing portfolio from $21.7
<PAGE> 13
billion at September 30, 1996, to $25.7 billion at September 30, 1997.
Fees from the sale of mortgage servicing rights declined $4.1 million
as more servicing was retained.
Capital markets fee income increased 71 percent (from $17.0 million to
$28.9 million). Total securities bought and sold increased 44 percent (from
$43.6 billion to $63.0 billion) and total underwritings increased 129 percent
(from $3.7 billion to $8.5 billion) from the third quarter of 1996. This growth
was due to market expansion through continued growth in the customer base of
existing offices and the opening of an office in Chicago during 1997.
Additionally, the increase in volume was reflective of improvement in the demand
for securities by customers. Expectations of higher interest rates lowered
transaction volume in the first two quarters of 1997, however, as the pressure
for higher interest rates subsided, the demand for securities returned.
Additionally, First Tennessee Capital Assets Corporation, a subsidiary of First
Tennessee Bank National Association which helps customers securitize whole loan
packages, experienced increased volume from bank customers selling loans to
improve their liquidity positions.
Fee income from deposit transactions and cash management increased 11
percent (from $20.1 million to $22.3 million) with increased volumes driven
primarily by growth in sales and moderate price increases. Noninterest income
from trust and investment management services increased 24 percent (from $8.7
million to $10.8 million) over the third quarter of 1996. This growth was
primarily due to strong investment management performance.
The addition of new merchants and continued growth in transactions from
existing customers contributed to the record volume levels in merchant
processing and the 29 percent increase (from $6.6 million to $8.6 million) in
fee income. Cardholder noninterest income grew 17 percent (from $4.2 million to
$4.9 million) primarily from pricing changes consistent with overall repricing
trends in the industry.
Other noninterest income increased 44 percent (from $14.2 million to
$20.4 million). Approximately 61 percent of the increase came from mortgage
banking and included a gain on the sale of a mortgage servicing hedge ($2.1
million). The remaining increase was spread over a number of categories.
NET INTEREST INCOME
For purposes of this discussion, net interest income has been adjusted
to a fully taxable equivalent (FTE) basis for certain tax-exempt loans and
investments. Earning assets, including loans, have been expressed as averages,
net of unearned income.
For the third quarter of 1997, net interest income increased 7 percent
(from $116.3 million to $124.7 million) from the third quarter of 1996. This
increase was due to a 6 basis point improvement in the net interest margin and a
6 percent increase in average earning assets.
<PAGE> 14
NET INTEREST MARGIN
The net interest margin (margin) has remained relatively stable over
the past few quarters and was 4.24 percent for the third quarter of 1997
compared with 4.18 percent for the third quarter of 1996. As shown in the Net
Interest Margin Computation Table, the net interest spread (the difference
between the yield on earning assets and the rates paid on interest-bearing
liabilities) increased 4 basis points while the effect of interest-free sources
increased 2 basis points. The components of net interest margin (specifically
the rate paid on interest-bearing liabilities and the effect of interest-free
sources) reflect a change from prior period calculations in the categorization
of various noninterest-bearing accounts.
Net Interest Margin Computation Table
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Third Quarter
-------------
1997 1996
---- ----
<S> <C> <C>
Yield on earning assets 8.15% 8.06%
Rate paid on interest-bearing liabilities 4.78 4.73
---- ----
Net interest spread 3.37 3.33
Effect of interest-free sources .79 .77
Loan fees .09 .09
FRB interest and penalties(F1) (.01) (.01)
---- ----
Net interest margin 4.24% 4.18%
==== ====
- ---------------------------------------------------------------------------
</TABLE>
[FN]
F1 Federal Reserve Bank
</FN>
The overall net interest margin is lowered by the activity levels of
and related funding for First Tennessee's fee-based businesses, as these nonbank
business lines generally produce lower margins than banking-related units.
Consequently, First Tennessee's consolidated margin cannot readily be compared
to that of other bank holding companies. The Net Interest Margin Composition
Table provides a breakdown by business line of the impact on the consolidated
margin.
Net Interest Margin Composition Table
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Third Quarter
-------------
1997 1996
---- ----
<S> <C> <C>
Regional banking group 4.75% 4.42%
Capital markets (.14) (.10)
Mortgage banking (.38) (.19)
Transaction processing .01 .05
---- ----
Total net interest margin 4.24% 4.18%
==== ====
- ---------------------------------------------------------------------------
</TABLE>
The regional banking group's margin improved from 4.42 percent to 4.75
percent due to positive changes in the mix of deposit liabilities. Since the
third quarter of 1996, deposit liabilities have shifted from higher cost
certificates of deposit to lower cost money market deposit products. This lower
cost of funds and the above market level of growth in loans helped achieve the
increase in net interest margin.
<PAGE> 15
The negative impact on the net interest margin from mortgage banking
occurs because the spread between the rates on mortgage loans temporarily in the
warehouse and the related short-term funding rates is significantly less than
the comparable spread earned in the regional banking group. Thus as the
origination volume and resulting warehouse volume fluctuates, the negative
impact on margin also fluctuates. Capital markets also tends to negatively
impact the net interest margin because of its strategy to reduce market risk by
hedging its inventory in the cash markets which effectively eliminates net
interest income on these positions.
NONINTEREST EXPENSE
Total noninterest expense (operating expense) for the third quarter of
1997 increased 17 percent (from $174.9 million to $204.1 million) over the same
period in 1996. Excluding the $3.8 million pre-tax SAIF charge, operating
expense growth would have been 19 percent.
Employee compensation, incentives, and benefits (personnel expense),
the largest category, increased 17 percent (from $94.0 million to $109.5
million). Personnel expense includes commissions paid in several lines of
business, such as capital markets and mortgage banking. As the sales and/or
originations increase or decrease or the product mix changes in these business
lines, the commissions change accordingly. Excluding mortgage banking and
capital markets, personnel expense and total operating expense each would have
increased 7 percent.
As a result of the growth in the servicing portfolio and in mortgage
servicing rights, amortization of mortgage servicing rights increased 41 percent
(from $6.7 million to $9.4 million).
The decrease in the deposit insurance premium from the third quarter of
1996 reflects the one-time SAIF assessment charged in that quarter.
Other expenses increased 43 percent (from $22.8 million to $32.5
million) from the third quarter of 1996. Approximately 53 percent of this
increase ($5.1 million) was related to mortgage banking. The use of contract
employment increased partially due to higher origination volume. In addition,
miscellaneous expenses have been incurred to cure the documentation backlog
that occurred earlier in 1997. The remaining increase was spread over a number
of categories and included $2.0 million of dividend expense associated with the
$100 million qualifying capital securities issued on January 6, 1997.
PROVISION FOR LOAN LOSSES/ASSET QUALITY
The provision for loan losses increased $3.9 million to $12.8 million
for the quarter ended September 30, 1997. The increase in provision reflects a
higher amount of allowance for loan losses commensurate with loan growth;
inherent losses in the consumer and credit card portfolios reflecting the
<PAGE> 16
national trend in consumer asset quality; and inherent losses resulting from
mortgages repurchased during 1997.
The allowance for loan losses remained stable at 1.53 percent
of net loans on September 30, 1997, compared with 1.54 percent on
September 30, 1996.
Net charge-offs to average net loans for the third quarter was .62
percent, an increase from the .41 percent in the third quarter of 1996. The
increase in the level of net charge-offs was primarily related to commercial
lending, repurchased mortgages and credit card loans. The commercial loan net
charge-offs reflects a more normalized charge-off and recovery level. The amount
and ratio of credit card net charge-offs increased from the previous year,
consistent with trends in the industry. However, the ratio of net charge-offs to
average credit card receivables declined from the first and second quarter of
1997, and still remained favorable to industry averages. The overall net
charge-off ratio was impacted by $1.4 million in net charge-offs from mortgage
banking related to the mortgage loans repurchased since the beginning of 1997.
Loans and leases past due 90 days or more decreased $2.1 million from
the third quarter of 1996 and decreased $1.2 million from the second quarter of
1997.
Nonperforming assets increased from $25.9 million to $50.4 million for
the third quarter of 1997. Since September 30, 1996, the mortgage banking
operation added $19.9 million to nonperforming loans and $4.0 million to
foreclosed real estate. This increase came primarily from a larger number of
mortgage loans being repurchased by mortgage banking during the first quarter of
1997 to correct loan file documentation in order to certify loan pools. The
backlog in the documentation and pool certification process occurred principally
as a result of disruptions in the normal business routine caused by the
consolidation of five mortgage banking operations which occurred concurrently
with an unanticipated higher level of loan originations last year due to large
refinance volume. Since the first quarter of 1997, nonperforming assets in
mortgage banking have decreased $6.4 million. Excluding the impact of the
mortgage banking operation on nonperforming assets, the ratio of nonperforming
loans to total loans was .14 percent and the ratio of nonperforming assets to
total loans plus foreclosed real estate and other assets was .21 percent for the
third quarter of 1997.
<PAGE> 17
Asset Quality Information Table(F1)
(Dollars in thousands)
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30
------------
1997 1996
---- ----
<S> <C> <C>
Nonperforming loans $37,826 $18,607
Foreclosed real estate 12,352 7,059
Other assets 221 203
------- -------
Total nonperforming assets $50,399 $25,869
======= =======
Loans 90 days past due $30,298 $32,424
Potential problem assets(F2) 72,362 77,984
Third Quarter
------------
1997 1996
---- ----
<S> <C> <C>
Allowance for credit losses:
Balance at June 30 $123,458 $116,478
Provision for loan losses 12,753 8,853
Charge-offs (14,521) (10,742)
Loan recoveries 2,185 3,128
-------- --------
Balance at September 30 $123,875 $117,717
September 30
------------
1997 1996
---- ----
<S> <C> <C>
Allowance to total loans 1.53% 1.54%
Nonperforming loans to total loans .47 .24
Nonperforming assets to total loans,
foreclosed real estate and other assets .62 .34
Allowance to nonperforming assets 245.8 455.1
- ----------------------------------------------------------------------
</TABLE>
[FN]
F1 total loans are net of unearned income
F2 includes loans 90 days past due
</FN>
Net Charge-offs as a Percentage of Average Loans Table(F1)
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30
------------
1997 1996
---- ----
<S> <C> <C>
Total net charge-offs excluding
repurchased mortgages(F2) .55% .41%
Impact of repurchased mortgages .07 --
---- ----
Total net charge-offs .62% .41%
==== ====
BREAKDOWN BY LOAN TYPE:
Commercial and commercial real estate .17% (.02)%
Consumer .39 .39
Credit card receivables 4.54 3.94
Permanent mortgage(F3) .18 (.02)
- ---------------------------------------------------------------------
</TABLE>
[FN]
F1 average loans are net of unearned income
F2 see discussion for more information
F3 excludes repurchased mortgages
</FN>
<PAGE> 18
BALANCE SHEET REVIEW
For purposes of this discussion, loans are expressed net of unearned
income, unless otherwise noted. Period-end total assets grew 10 percent from
$12.8 billion at September 30, 1996 to $14.1 billion at September 30, 1997.
Period-end loans increased 6 percent (from $7.6 billion to $8.1 billion) from
September 30, 1996, to September 30, 1997; mortgage loans held for sale
(mortgage warehouse) increased 40 percent (from $.7 billion to $1.0 billion);
and investment securities decreased 6 percent (from $2.2 billion to $2.1
billion). The growth in the period-end balance sheet was primarily funded by a
38 percent increase in short-term borrowed funds (from $1.9 billion to $2.6
billion). At September 30, 1997, First Tennessee had no concentration of 10
percent or more of total loans in any single industry.
Comparing average balances from third quarter 1996, total assets grew 7
percent (from $12.6 billion to $13.5 billion) and loans grew 7 percent (from
$7.5 billion to $8.0 billion). Average commercial loans increased 8 percent
(from $3.4 billion to $3.7 billion) and represented 46 percent of total loans
during the third quarter of 1997. Average consumer loans grew 6 percent (from
$2.6 billion to $2.8 billion) and represented 35 percent of total loans. Average
credit card receivables grew 1 percent (from $539 million to $544 million). The
permanent mortgage portfolio declined 2 percent (from $653 million to $641
million) as a result of older loans paying down. Real estate construction loans
grew 18 percent (from $289 million to $340 million). Mortgage warehouse loans
increased 4 percent to $1.1 billion for the third quarter of 1997. Short-term
borrowed funds increased 28 percent (from $2.1 billion to $2.7 billion).
CAPITAL
Average shareholders' equity declined 2 percent (from $898.9 million to
$883.3 million) from the third quarter of 1996. However, the internal equity
generation rate (net income less dividends declared as a percentage of average
shareholders' equity) improved to 16.1 percent for the third quarter of 1997
compared with 12.9 percent for the third quarter of 1996. This ratio reflects
the amount of income earned on the equity base. Since September 30, 1996,
approximately $171.0 million of equity has been repurchased which includes the
settlement of an accelerated share repurchase program for an additional $11.6
million during the third quarter of 1997.
The equity repurchased since September 30, 1996, resulted in a decline
in average shares outstanding of 5 percent (from 67.1 million to 64.0 million).
Approximately .4 million shares were repurchased in the fourth quarter of 1996.
During the first quarter of 1997, approximately 3.2 million shares were
repurchased with 1.9 million of these shares repurchased under an accelerated
share repurchase program. First Tennessee has an ongoing share repurchase
program related to employee stock option plans.
<PAGE> 19
Return on average common equity was 24.56 percent and return on capital
(net income/total shareholders' equity plus qualifying capital securities) was
22.07 percent for the third quarter of 1997. Qualifying capital securities were
issued during the first quarter of 1997, and a portion of the proceeds were used
to fund stock repurchase programs.
The average common equity to assets ratio for the third quarter of 1997
was 6.55 percent compared to 7.12 percent for the third quarter of 1996. The
total average equity to assets ratio (including the qualifying capital
securities) for the third quarter of 1997 was 7.29 percent compared to 7.12
percent for the third quarter of 1996. The effects of unrealized market
adjustments had no material effect on these ratios.
At September 30, 1997, the corporation's Tier 1 capital ratio was 8.50
percent, the total capital ratio was 11.11 percent and the leverage ratio was
6.66 percent. On September 30, 1997, 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 its balance
sheet. First Tennessee enters into transactions involving these instruments to
meet the financial needs of its customers and manage its own exposure to
fluctuations in interest rates. These instruments are categorized into
"Lending," "Mortgage banking," "Interest rate risk management" and "Capital
markets" as noted in the Off-Balance Sheet Financial Instruments table.
Off-Balance Sheet Financial Instruments at September 30, 1997
(Dollars in billions)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Notional Value
--------------
<S> <C>
LENDING
Commitments to extend credit:
Consumer credit card lines $1,865.2
Consumer home equity 391.0
Commercial real estate and construction and land development 362.2
Mortgage banking 939.5
Other 1,753.1
Other Commitments:
Commercial and standby letters of credit 591.8
Foreign exchange contracts 2.7
MORTGAGE BANKING
Mortgage pipeline and warehouse hedging:
Interest rate forward contracts - commitments to sell 1,444.7
Interest rate option contracts - put option purchased(F1) 24.0
Servicing portfolio hedging:
Interest rate floors(F2) 2,675.0
INTEREST RATE RISK MANAGEMENT
Interest rate swap agreements:
Receive fixed/pay floating 210.0
Receive fixed/pay floating - amortizing 25.9
CAPITAL MARKETS
Forward contracts:
Commitments to buy 1,636.3
Commitments to sell 1,719.8
Securities underwriting commitments 2.5
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 20
[FN]
F1 Purchased options have a remaining book value of $105,000 at September 30,
1997
F2 Interest rate floors have a remaining book value of $13,830,000 at
September 30, 1997
</FN>
NINE MONTH REVIEW
INCOME STATEMENT REVIEW
Net income totaled $139.6 million for the nine months ended
September 30, 1997, an increase of 10 percent from $126.6 million for the same
period last year, and earnings per share increased 15 percent from $1.88 in
1996 to $2.17 in 1997. Return on average assets for the first nine months of
1997 was 1.43 percent and return on average common equity was 21.53 percent,
compared with 1.35 percent and 19.17 percent, respectively, for the same period
in 1996.
Noninterest income, excluding securities gains and losses, increased 16
percent (from $408.4 million to $473.4 million) over the same period last year.
Fee income represented 57 percent of total revenues during the first nine months
of 1997 and 55 percent for the first nine months of 1996. Generally due to
increased volumes, growth was seen in all major categories of noninterest
income. Mortgage banking fee income grew 15 percent (from $190.5 million to
$219.7 million) primarily from higher servicing fees related to a larger
servicing portfolio. Capital markets fee income increased 11 percent (from $62.2
million to $69.4 million) from the same period in 1996. Deposit transactions and
cash management fees grew 10 percent (from $57.4 million to $63.1 million).
Merchant processing fees increased 34 percent (from $17.5 million to $23.5
million), while cardholder fees increased 14 percent (from $12.6 million to
$14.4 million). Trust and investment management fees grew 16 percent (from $25.5
million to $29.6 million) from the previous year.
Net interest income stated on a fully taxable-equivalent basis totaled
$361.4 million, up 7 percent from $337.5 million for the same period in 1996.
Year-to-date net interest margin improved from 4.07 percent in 1996 to 4.25
percent in 1997. The growth in net interest income and the net interest margin
reflects continued strong loan growth and lower funding costs. Approximately 8
basis points of the improvement was due to the expiration of amortization
expense related to a basis swap terminated in May of 1996. The net interest
spread increased 21 basis points while the effect of net free funds decreased 3
basis points.
The provision for loan losses increased to $37.8 million from $24.4
million in the previous year. The increase reflects a higher amount of allowance
for loan losses commensurate with commercial loan growth and the higher level of
mortgage loans repurchased during 1997. In addition, the level of provision was
increased commensurate with loan growth and inherent losses in the consumer and
credit card portfolios.
<PAGE> 21
Noninterest expense increased 10 percent (from $518.5 million to $570.5
million). Personnel expense, the largest category, increased 5 percent (from
$286.0 million to $300.2 million). Due to a larger servicing portfolio,
amortization of mortgage servicing rights increased 45 percent (from $18.5
million to $26.9 million).
BALANCE SHEET REVIEW
During the nine months ended September 30, 1997, average total assets
grew 4 percent (from $12.5 billion to $13.1 billion) and average loans grew 6
percent (from $7.4 billion to $7.9 billion). Average commercial loans increased
8 percent (from $3.4 billion to $3.6 billion), average consumer loans grew 6
percent (from $2.6 billion to $2.7 billion), and average credit card receivables
grew 3 percent (from $526 million to $543 million) during the first nine months
of 1997. The permanent mortgage portfolio declined 5 percent (from $666 million
to $633 million), while real estate construction loans grew 19 percent (from
$267 million to $318 million) for the nine month period of 1997.
Interest-bearing core deposits increased 2 percent (from $6.0 billion to $6.1
billion) from the first nine months of 1996. Short-term borrowed funds increased
8 percent (from $3.0 billion to $3.2 billion).
<PAGE> 22
Part II.
OTHER INFORMATION
Items 1, 3, 4, and 5.
As of the end of the third quarter, 1997, 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
On July 14, 1997, the Corporation acquired Federal Flood Certification
Corporation ("Federal Flood"), Dallas, Texas, in a transaction in which a wholly
owned subsidiary of the Corporation merged with and into Federal Flood. At
closing, the Corporation acquired from the eight shareholders of Federal Flood
all 2,060 shares of Federal Flood's common stock, $1.00 par value, in exchange
for a closing payment of $95,000 cash and 35,113 shares of the Corporation's
common stock, $1,25 par value. On September 12, 1997, 2,164 additional shares
of the Corporation's common stock were issued to the shareholders of Federal
Flood in payment of the balance of the acquisition price. No underwriter was
involved in the transaction. The shares were sold in a private offering
pursuant to an exemption from registration under Section 4(2) of the Securities
Act of 1933, based on the limited number of shareholders of Federal Flood
receiving the Corporation's common stock.
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 third quarter of 1997.
<PAGE> 23
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: 11/13/97 By: Elbert L. Thomas Jr.
------------------ ---------------------------------
Elbert L. Thomas Jr.
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description Page No.
- ----------- ------------------- --------
<S> <C> <C>
11 Statement re Computation of Per Share Earnings. Filed Herewith
27 Financial Data Schedule (for SEC use only). Filed Herewith
</TABLE>
<PAGE> 1
EXHIBIT 11
FIRST TENNESSEE NATIONAL CORPORATION
PRIMARY EARNINGS PER SHARE
AND FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- -------------------------
Computation for Statements of Income: 1997 1996 1997 1996
- ------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Per statements of income (Thousands):
Net income $ 54,688 $ 46,797 $ 139,615 $ 126,585
=========== =========== =========== ===========
Per statements of income:
Weighted average shares outstanding 64,049,081 67,144,391 64,210,469 67,223,305
=========== =========== =========== ===========
Primary earnings per share (a):
Net income $ .85 $ .69 $ 2.17 $ 1.88
=========== =========== =========== ===========
Additional Primary computation
- ------------------------------
Adjustment to weighted average shares
outstanding:
Weighted average shares outstanding
per primary computation above 64,049,081 67,144,391 64,210,469 67,223,305
Add dilutive effect of outstanding
options (as determined by the
application of the treasury stock method) 1,802,865 916,346 1,680,832 905,313
Weighted average shares outstanding, ----------- ----------- ---------- ----------
as adjusted 65,851,946 68,060,737 65,891,301 68,128,618
=========== =========== =========== ===========
Primary earnings per share, as adjusted (b):
Net income $ .83 $ .69 $ 2.12 $ 1.86
=========== =========== =========== ===========
Additional Fully Diluted Computation
- ------------------------------------
Adjustment to weighted average shares
outstanding:
Weighted average shares outstanding
per primary computation above 65,851,946 68,060,737 65,891,301 68,128,618
Additional dilutive effect of outstanding
options (as determined by the application
of the treasury stock method) 162,209 60,642 93,564 45,163
Weighted average shares outstanding, ----------- ----------- ----------- -----------
as adjusted 66,014,155 68,121,379 65,984,865 68,173,781
=========== =========== =========== ===========
Fully diluted earnings per share, as adjusted (b):
Net income $ .83 $ .69 $ 2.12 $ 1.86
=========== =========== =========== ===========
</TABLE>
[FN]
(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%.
</FN>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIRST
TENNESSEE NATIONAL CORPORATION'S SEPTEMBER 30, 1997, FINANCIAL STATEMENTS FILED
IN ITS 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCES TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 730,013
<INT-BEARING-DEPOSITS> 1,672
<FED-FUNDS-SOLD> 240,150
<TRADING-ASSETS> 315,199
<INVESTMENTS-HELD-FOR-SALE> 2,040,983
<INVESTMENTS-CARRYING> 57,298
<INVESTMENTS-MARKET> 58,242
<LOANS> 9,115,922
<ALLOWANCE> 123,875
<TOTAL-ASSETS> 14,082,447
<DEPOSITS> 9,257,070
<SHORT-TERM> 2,641,693
<LIABILITIES-OTHER> 994,858
<LONG-TERM> 180,343
100,000
0
<COMMON> 80,075
<OTHER-SE> 828,408
<TOTAL-LIABILITIES-AND-EQUITY> 14,082,447
<INTEREST-LOAN> 571,150
<INTEREST-INVEST> 105,630
<INTEREST-OTHER> 18,203
<INTEREST-TOTAL> 694,983
<INTEREST-DEPOSIT> 231,050
<INTEREST-EXPENSE> 336,848
<INTEREST-INCOME-NET> 358,135
<LOAN-LOSSES> 37,783
<SECURITIES-GAINS> (783)
<EXPENSE-OTHER> 570,480
<INCOME-PRETAX> 222,471
<INCOME-PRE-EXTRAORDINARY> 222,471
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 139,615
<EPS-PRIMARY> 2.17
<EPS-DILUTED> 2.12
<YIELD-ACTUAL> 4.25
<LOANS-NON> 37,629
<LOANS-PAST> 31,130
<LOANS-TROUBLED> 197
<LOANS-PROBLEM> 41,231
<ALLOWANCE-OPEN> 117,748
<CHARGE-OFFS> 38,134
<RECOVERIES> 6,478
<ALLOWANCE-CLOSE> 123,875
<ALLOWANCE-DOMESTIC> 123,875
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
