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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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__________
Commission File Number 0-4491
FIRST TENNESSEE NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
TENNESSEE 62-0803242
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
165 Madison Avenue, Memphis, Tennessee 38103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including Area Code: 901-523-5630
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
$1.25 Par Value Common Capital Stock
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X YES NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
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At February 21, 1997, the aggregate market value of the voting stock of the
registrant held by non-affiliates of the registrant was approximately $2.89
billion.
At February 21, 1997, the registrant had 64,350,661 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Shareholders for the year ended 12/31/96 -
Parts I, II, and IV.
2. Portions of Proxy Statement furnished to shareholders in connection
with Annual Meeting of Shareholders scheduled for 4/15/97 -Part III.
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PART I
ITEM 1
BUSINESS
General.
First Tennessee National Corporation (the "Corporation") is a Tennessee
corporation incorporated in 1968 and registered as a bank holding company under
the Bank Holding Company Act of 1956, as amended. At December 31, 1996, the
Corporation had total assets of $13.1 billion and ranked second in terms of
total assets among Tennessee-headquartered bank holding companies and ranked
45th nationally.
Through its principal subsidiary, First Tennessee Bank National
Association (the "Bank"), and its other banking and banking-related
subsidiaries, the Corporation provides a broad range of financial services. The
Corporation is primarily engaged in the commercial banking business. Significant
operations are, however, conducted in mortgage banking and the bond division,
which are described in more detail in the response to Item 7 of Part II hereof
and Note 16 to the Consolidated Financial Statements. During 1996 approximately
56% of revenues were provided by fee income and approximately 44% of revenues
were provided by net interest income. As a bank holding company, the Corporation
coordinates the financial resources of the consolidated enterprise and maintains
systems of financial, operational and administrative control that allows
coordination of selected policies and activities.
The Bank is a national banking association with principal offices in
Memphis, Tennessee. It received its charter in 1864 and operates primarily on a
regional basis. During 1996 it generated gross revenue (net interest income
plus noninterest income) of approximately $967.3 million and contributed 95% of
consolidated net income from continuing operations. At December 31, 1996, the
Bank had $12.1 billion in total assets, $8.2 billion in total deposits, and
$7.9 billion in net loans. Within the State of Tennessee on December 31, 1996,
it ranked first among banks in terms of total assets and deposits. Nationally,
it ranked 55th in terms of total assets as of September 30, 1996. On December
31, 1996, the Corporation's subsidiary banks had 263 banking locations
(including 30 free-standing ATM machines) in 21 Tennessee counties, including
all of the major metropolitan areas of the state, 15 banking locations in
Mississippi and 11 banking locations (including 3 free-standing ATM's) in
Arkansas. Subsidiaries of the Bank at December 31, 1996, provided mortgage
banking services through approximately 147 offices in 29 states.
An element of the Corporation's business strategy is to seek
acquisitions that would enhance long-term shareholder value. The Corporation has
an acquisitions department charged with this responsibility which is constantly
reviewing and developing opportunities to achieve this element of the
Corporation's strategy. Acquisitions which closed during the past three years
are described in Note 2 to the Consolidated Financial Statements contained in
the Corporation's 1996 Annual Report to Shareholders (the "1996 Annual Report"),
which note is incorporated herein by reference.
The Corporation provides the following services through its
subsidiaries:
- general banking services for consumers, small businesses,
corporations, financial institutions, and governments
- mortgage banking services
- bond division--primarily sales and underwriting of
bank-eligible securities and mortgage loans and advisory
services
- trust, fiduciary, and agency services
- nationwide check clearing services
- credit card products
- merchant credit card and automated teller machine transaction
processing
- discount brokerage, brokerage, venture capital, equipment
finance and credit life insurance
- investment and financial advisory services
- mutual fund sales as agent
- insurance sales as agent
- check processing software and systems.
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All of the Corporation's subsidiaries are listed in Exhibit 21. The
Bank has filed notice with the Comptroller of the Currency ("Comptroller") as a
government securities broker/dealer. The bond division of the Bank is registered
with the Securities and Exchange Commission ("SEC") as a municipal securities
dealer with offices in Memphis and Knoxville, Tennessee; Mobile, Alabama;
Chicago, Illinois; Overland Park, Kansas; and Dallas, Texas. The subsidiary
banks are supervised and regulated as described below. Highland Capital
Management Corp. is registered with the SEC and certain states as an investment
adviser. Hickory Venture Capital Corporation is licensed as a Small Business
Investment Company. First Tennessee Brokerage, Inc. is registered with the SEC
and certain states as a broker-dealer. FT Mortgage Companies is licensed as a
mortgage lender (or exempt from licensing) in all states where it does business
and is regulated by the Comptroller as well as various state regulators. First
Tennessee Insurance Services ("FTIS"), a department of the Bank with offices in
Dandridge, Tennessee, is licensed in several states as a non-resident insurance
agency. Certain employees of FTIS are licensed as insurance agents in Tennessee
and other states.
Expenditures for research and development activities were not material
for the years 1994, 1995 or 1996.
Neither the Corporation nor any of its significant subsidiaries is
dependent upon a single customer or very few customers.
At December 31, 1996, the Corporation and its subsidiaries had
approximately 7,745 full-time-equivalent employees, not including contract labor
for certain services, such as guard and house-keeping.
Supervision and Regulation.
The Corporation is a bank holding company within the meaning of the
Bank Holding Company Act of 1956, as amended (the "BHCA"), and is registered
with the Board of Governors of the Federal Reserve System (the "Federal
Reserve"). The Corporation is required to file with the Board annual reports and
such additional information as the Board may require pursuant to the BHCA. The
Board may also make examinations of the Corporation and its subsidiaries. The
following summary of the BHCA and of the other acts described herein is
qualified in its entirety by express reference to each of the particular acts.
General
As a bank holding company, the Corporation is subject to the regulation
and supervision of the Federal Reserve under the BHCA. Under the BHCA, bank
holding companies may not in general directly or indirectly acquire the
ownership or control of more than 5% of the voting shares or substantially all
of the assets of any company, including a bank, without the prior approval of
the Federal Reserve Board. The BHCA also restricts the types of activities in
which a bank holding company and its subsidiaries may engage. Generally,
activities are limited to banking and activities found by the Federal Reserve to
be so closely related to banking as to be a proper incident thereto.
In addition, the BHCA permits the Federal Reserve to approve an
application by a bank holding company to acquire a bank located outside the
acquiror's principal state of operations without regard to whether the
transaction is prohibited under state law. See " --Interstate Banking and
Branching Legislation." Effective September 29, 1995, the Tennessee Bank
Structure Act of 1974 was amended to, among other things, prohibit (subject to
certain exceptions) a bank holding company from acquiring a bank for which the
home state is Tennessee (a "Tennessee bank") if, upon consummation, the company
would directly or indirectly control 30% or more of the total deposits in
insured depository institutions in Tennessee. As of September 30, 1996, the
Corporation estimates that it held approximately 14% of such deposits. Subject
to certain exceptions, the Tennessee Bank Structure Act prohibits a bank holding
company from acquiring a bank in Tennessee which has been in operation for less
than five years. Tennessee law permits a Tennessee Bank to establish branches in
any county in Tennessee. Management cannot predict the extent to which the
business of the Corporation and its subsidiaries may be affected by recent
federal and Tennessee legislation relating to interstate and intrastate
acquisitions and branching activities.
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The Corporation's subsidiary banks (the "Subsidiary Banks") are subject
to supervision and examination by applicable federal and state banking agencies.
The Bank, First National Bank of Springdale, Springdale, Arkansas, and First
Tennessee Bank National Association Mississippi, Southaven, Mississippi, are
national banking associations subject to regulation and supervision by the
Comptroller as their primary federal regulator. The remaining Subsidiary Banks
are Cleveland Bank and Trust Company, Cleveland, Tennessee, and Peoples and
Union Bank, Lewisburg, Tennessee, which are Tennessee state-chartered banks, and
Peoples Bank, Senatobia, Mississippi, and Planters Bank, Tunica, Mississippi,
which are Mississippi state-chartered banks, none of which are members of the
Federal Reserve System, and therefore are subject to the regulations of and
supervision by the Federal Deposit Insurance Corporation (the "FDIC") as well as
state banking authorities. In addition, all of the Subsidiary Banks are insured
by, and subject to regulation by, the FDIC. The Subsidiary Banks are also
subject to various requirements and restrictions under federal and state law,
including requirements to maintain reserves against deposits, restrictions on
the types and amounts of loans that may be granted and the interest that may be
charged thereon and limitations on the types of investments that may be made,
activities that may be engaged in, and types of services that may be offered.
Various consumer laws and regulations also affect the operations of the
Subsidiary Banks. In addition to the impact of regulation, commercial banks are
affected significantly by the actions of the Federal Reserve as it attempts to
control the money supply and credit availability in order to influence the
economy.
Payment of Dividends
The Corporation is a legal entity separate and distinct from its
banking and other subsidiaries. The principal source of cash flow of the
Corporation, including cash flow to pay dividends on its stock or principal
(premium, if any) and interest on debt securities, is dividends from the
Subsidiary Banks. There are statutory and regulatory limitations on the payment
of dividends by the Subsidiary Banks to the Corporation, as well as by the
Corporation to its shareholders.
Each Subsidiary Bank that is a national bank is required by federal law
to obtain the prior approval of the Comptroller for the payment of dividends if
the total of all dividends declared by the board of directors of such Subsidiary
Bank in any year will exceed the total of (i) its net profits (as defined and
interpreted by regulation) for that year plus (ii) the retained net profits (as
defined and interpreted by regulation) for the preceding two years, less any
required transfers to surplus. A national bank also can pay dividends only to
the extent that retained net profits (including the portion transferred to
surplus) exceed bad debts (as defined by regulation).
State-chartered banks are subject to varying restrictions on the
payment of dividends under applicable state laws. Tennessee law imposes dividend
restrictions on Tennessee state banks substantially similar to those imposed
under federal law on national banks, as described above. Mississippi law
prohibits Mississippi state banks from declaring a dividend without the prior
written approval of the Mississippi Banking Commissioner.
If, in the opinion of the applicable federal bank regulatory authority,
a depository institution or a holding company is engaged in or is about to
engage in an unsafe or unsound practice (which, depending on the financial
condition of the depository institution or holding company, could include the
payment of dividends), such authority may require that such institution or
holding company cease and desist from such practice. The federal banking
agencies have indicated that paying dividends that deplete a depository
institution's or holding company's capital base to an inadequate level would be
such an unsafe and unsound banking practice. Moreover, the Federal Reserve, the
Comptroller and the FDIC have issued policy statements which provide that bank
holding companies and insured depository institutions generally should only pay
dividends out of current operating earnings.
In addition, under the Federal Deposit Insurance Act ("FDIA"), an
FDIC-insured depository institution may not make any capital distributions
(including the payment of dividends) or pay any management fees to its holding
company or pay any dividend if it is undercapitalized or if such payment would
cause it to become undercapitalized.
At December 31, 1996, under dividend restrictions imposed under
applicable federal and state laws, the Subsidiary Banks, without obtaining
regulatory approval, could legally declare aggregate dividends of approximately
$293 million.
The payment of dividends by the Corporation and the Subsidiary Banks
may also be affected or limited by other factors, such as the requirement to
maintain adequate capital above regulatory guidelines and debt covenants.
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Transactions with Affiliates
There are various legal restrictions on the extent to which the
Corporation and its nonbank subsidiaries can borrow or otherwise obtain credit
from the Subsidiary Banks. There are also legal restrictions on the Subsidiary
Banks' purchases of or investments in the securities of and purchases of assets
from the Corporation and its nonbank subsidiaries, a Subsidiary Bank's loans or
extensions of credit to third parties collateralized by the securities or
obligations of the Corporation and its nonbank subsidiaries, the issuance of
guaranties, acceptances and letters of credit on behalf of the Corporation and
its nonbank subsidiaries, and certain bank transactions with the Corporation and
its nonbank subsidiaries, or with respect to which the Corporation and its
nonbank subsidiaries act as agent, participate or have a financial interest.
Subject to certain limited exceptions, a Subsidiary Bank (including for purposes
of this paragraph all subsidiaries of such Subsidiary Bank) may not extend
credit to the Corporation or to any other affiliate (other than another
Subsidiary Bank and certain exempted affiliates) in an amount which exceeds 10%
of the Subsidiary Bank's capital stock and surplus and may not extend credit in
the aggregate to all such affiliates in an amount which exceeds 20% of its
capital stock and surplus. Further, there are legal requirements as to the type,
amount and quality of collateral which must secure such extensions of credit by
the Subsidiary Banks to the Corporation or to such other affiliates. Also,
extensions of credit and other transactions between a Subsidiary Bank and the
Corporation or such other affiliates must be on terms and under circumstances,
including credit standards, that are substantially the same or at least as
favorable to such Subsidiary Bank as those prevailing at the time for comparable
transactions with non-affiliated companies. Also, the Corporation and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or furnishing
of services.
Capital Adequacy
The Federal Reserve has adopted risk-based capital guidelines for bank
holding companies. The minimum guideline for the ratio of total capital ("Total
Capital") to risk-weighted assets (including certain off-balance-sheet items,
such as standby letters of credit) is 8%, and the minimum ratio of Tier 1
Capital (defined below) to risk-weighted assets is 4%. At least half of the
Total Capital must be composed of common stock, minority interests in the equity
accounts of consolidated subsidiaries, noncumulative perpetual preferred stock
and a limited amount of cumulative perpetual preferred stock, less goodwill and
certain other intangible assets ("Tier 1 Capital"). The remainder may consist of
qualifying subordinated debt, certain types of mandatory convertible securities
and perpetual debt, other preferred stock and a limited amount of loan loss
reserves. At December 31, 1996, the Corporation's consolidated Tier 1 Capital
and Total Capital ratios were 8.96% and 11.77%, respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio of Tier 1 Capital to quarterly average assets, less goodwill and certain
other intangible assets (the "Leverage Ratio"), of 3% for bank holding companies
that meet certain specific criteria, including having the highest regulatory
rating. All other bank holding companies generally are required to maintain a
Leverage Ratio of at least 3%, plus an additional cushion of 100 to 200 basis
points. The Corporation's Leverage Ratio at December 31, 1996 was 6.78%. The
guidelines also provide that bank holding companies experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. Furthermore, the Federal Reserve has indicated that it
will consider a "tangible Tier 1 Capital leverage ratio" (deducting all
intangibles) and other indicia of capital strength in evaluating proposals for
expansion or new activities.
Each of the Subsidiary Banks is subject to risk-based and leverage
capital requirements similar to those described above adopted by the Comptroller
or the FDIC, as the case may be. The Corporation believes that each of the
Subsidiary Banks was in compliance with applicable minimum capital requirements
as of December 31, 1996. Neither the Corporation nor any of the Subsidiary Banks
has been advised by any federal banking agency of any specific minimum Leverage
Ratio requirement applicable to it.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business and in certain circumstances
to the appointment of a conservator or receiver. See "--Prompt Corrective
Action."
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The Federal Deposit Insurance Corporation Improvement Act of 1991
required each federal banking agency to revise its risk-based capital standards
within 18 months of enactment of the statute to ensure that those standards take
adequate account of interest rate risk, concentration of credit risk and the
risk of non-traditional activities, as well as reflect the actual performance
and expected risk of loss on multifamily mortgages. On December 15, 1994, the
federal banking agencies adopted amendments to their respective risk-based
capital requirements that explicitly identify concentration of credit risk and
certain risks arising from non-traditional activities, and the management of
such risks, as important factors to consider in assessing an institution's
overall capital adequacy. The amendments do not, however, mandate any specific
adjustments to the risk-based capital calculations as a result of such factors.
On August 2, 1995, the federal banking agencies published amendments to
their risk-based capital rules that, effective September 1, 1995, include
interest-rate risk as a qualitative factor to be considered in assessing capital
adequacy. Concurrent with the publication of the amendments, the federal banking
agencies proposed a system for measuring interest-rate risk and announced their
intention, after a trial period, to evaluate the reliability and accuracy of the
proposed system and to initiate a rulemaking process for the purpose of amending
the risk-based capital rules to include an explicit capital charge for
interest-rate risk that will be based upon the level of a bank's measured
interest-rate risk exposure.
In August 1996, the federal banking regulators adopted amendments to
their risk-based capital rules to incorporate a measure for market risk in
foreign exchange and commodity activities and in the trading of debt and equity
instruments. These amendments, which become effective at year end 1997, will
require banks with relatively large trading activities to calculate a capital
charge for market risk using their own internal value-at-risk models (subject to
parameters set by the regulators) or, alternatively, risk management techniques
developed by the regulators. As a result, in addition to existing capital
requirements for credit risk, certain institutions will be required to hold
capital based on the measure of their market risk exposure. These institutions
will be able to satisfy this additional requirement, in part, by issuing
short-term subordinated debt that qualifies as Tier 3 capital.
Holding Company Structure and Support of Subsidiary Banks
Because the Corporation is a holding company, its right to participate
in the assets of any subsidiary upon the latter's liquidation or reorganization
will be subject to the prior claims of the subsidiary's creditors (including
depositors in the case of the Subsidiary Banks) except to the extent that the
Corporation may itself be a creditor with recognized claims against the
subsidiary. In addition, depositors of a bank, and the FDIC as their subrogee,
would be entitled to priority over the creditors in the event of liquidation of
a bank subsidiary.
Under Federal Reserve policy, the Corporation is expected to act as a
source of financial strength to, and to commit resources to support, each of the
Subsidiary Banks. This support may be required at times when, absent such
Federal Reserve policy, the Corporation may not be inclined to provide it. In
addition, any capital loans by a bank holding company to any of its subsidiary
banks are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
Cross-Guarantee Liability
Under the FDIA, a depository institution insured by the FDIC can be
held liable for any loss incurred by, or reasonably expected to be incurred by,
the FDIC after August 9, 1989 in connection with (i) the default of a commonly
controlled FDIC-insured depository institution or (ii) any assistance provided
by the FDIC to any commonly controlled FDIC-insured depository institution "in
danger of default." "Default" is defined generally as the appointment of a
conservator or receiver and "in danger of default" is defined generally as the
existence of certain conditions indicating that a default is likely to occur in
the absence of regulatory assistance. The FDIC's claim for damages is superior
to claims of shareholders of the insured depository institution or its holding
company but is subordinate to claims of depositors, secured creditors and
holders of subordinated debt (other than affiliates) of the commonly controlled
insured depository institution. The Subsidiary Banks are subject to these
cross-guarantee provisions. As a result, any loss suffered by the FDIC in
respect of any of the Subsidiary Banks would likely result in assertion of the
cross-guarantee provisions, the assessment of such estimated losses
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against the Corporation's other Subsidiary Banks and a potential loss of the
Corporation's investment in such Subsidiary Banks.
Prompt Corrective Action
The FDIA requires, among other things, the federal banking regulators
to take "prompt corrective action" in respect of FDIC-insured depository
institutions that do not meet minimum capital requirements. Under the FDIA,
insured depository institutions are divided into five capital tiers: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." Under applicable
regulations, an institution is defined to be well capitalized if it maintains a
Leverage Ratio of at least 5%, a Tier 1 Capital ratio of at least 6% and a Total
Capital ratio of at least 10% and is not subject to a directive, order or
written agreement to meet and maintain specific capital levels. An institution
is defined to be adequately capitalized if it meets all of its minimum capital
requirements as described above. An institution will be considered
undercapitalized if it fails to meet any minimum required measure, significantly
undercapitalized if it has a Total Risk-Based Capital ratio of less than 6%, a
Tier 1 Risk-Based Capital ratio of less than 3% or a Leverage Ratio of less than
3% and critically undercapitalized if it fails to maintain a level of tangible
equity equal to at least 2% of total assets. An institution may be deemed to be
in a capitalization category that is lower than is indicated by its actual
capital position if it receives an unsatisfactory examination rating.
The FDIA generally prohibits an FDIC-insured depository institution
from making any capital distribution (including payment of dividends) or paying
any management fee to its holding company if the depository institution would
thereafter be undercapitalized. Undercapitalized depository institutions are
subject to restrictions on borrowing from the Federal Reserve System. In
addition, undercapitalized depository institutions are subject to growth
limitations and are required to submit capital restoration plans. An insured
depository institution's holding company must guarantee the capital plan, up to
an amount equal to the lesser of 5% of the depository institution's assets at
the time it becomes undercapitalized or the amount of the capital deficiency
when the institution fails to comply with the plan for the plan to be accepted
by the applicable federal regulatory authority. The federal banking agencies may
not accept a capital plan without determining, among other things, that the plan
is based on realistic assumptions and is likely to succeed in restoring the
depository institution's capital. If a depository institution fails to submit an
acceptable plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject
to a number of requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject to appointment
of a receiver or conservator, generally within 90 days of the date on which they
become critically undercapitalized.
The Corporation believes that at December 31, 1996 all of the
Subsidiary Banks had sufficient capital to qualify as "well capitalized" under
the regulatory capital requirements discussed above.
Various other legislation, including proposals to revise the bank
regulatory system and to limit the investments that a depository institution may
make with insured funds, is from time to time introduced in Congress. See the
"Effect of Governmental Policies" subsection.
Interstate Banking and Branching Legislation
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "IBBEA") authorizes interstate acquisitions of banks and bank holding
companies without geographic limitation beginning one year after enactment. In
addition, beginning June 1, 1997, a bank may merge with a bank in another state
as long as neither of the states has opted out of interstate branching between
the date of enactment of the IBBEA and May 31, 1997. The IBBEA further provides
that states may enact laws permitting interstate merger transactions prior to
June 1, 1997. A bank may establish and operate a de novo branch in a state in
which the bank does not maintain a branch if that state explicitly permits de
novo branching. Once a bank has established branches in a state through an
interstate merger transaction, the bank may establish and acquire additional
branches at any location in the state where any bank involved in the interstate
merger transaction could have
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established or acquired branches under applicable federal or state law. A bank
that has established a branch in a state through de novo branching may establish
and acquire additional branches in such state in the same manner and to the same
extent as a bank having a branch in such state as a result of an interstate
merger. If a state opts out of interstate branching within the specified time
period, no bank in any other state may establish a branch in the opting out of
state, whether through an acquisition or de novo.
FDIC Insurance Assessments; DIFA
The FDIC reduced the insurance premiums it charges on bank deposits
insured by the Bank Insurance Fund ("BIF") to the statutory minimum of $2,000.00
for "well capitalized" banks, effective January 1, 1996. Premiums related to
deposits assessed by the Savings Association Insurance Fund ("SAIF"), including
savings association deposits acquired by banks, continued to be assessed at a
rate of between 23 cents and 31 cents per $100.00 of deposits. On September 30,
1996, the Deposit Insurance Funds Act of 1996 ("DIFA") was enacted and signed
into law. DIFA provided for a special assessment to recapitalize the SAIF to
bring the SAIF up to statutory required levels. The assessment imposed a
one-time fee to banks that own previously acquired thrift deposits of $ .526 per
$100 of thrift deposits they held at March 31, 1995. The pre-tax cost to the
Corporation of the one-time assessment in the third quarter of 1996 was $3.8
million. DIFA further provides for assessments to be imposed on insured
depository institutions with respect to deposits insured by the BIF (in addition
to assessments currently imposed on depository institutions with respect to
SAIF-insured deposits) to pay for the cost of Financing Corporation ("FICO")
bonds. All banks will be assessed to pay the interest due on FICO bonds starting
on January 1, 1997. The Corporation expects the cost to the Corporation to be
immaterial.
Under the FDIA, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe and unsound practices,
is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by a federal bank
regulatory agency.
Depositor Preference
Federal law provides that deposits and certain claims for
administrative expenses and employee compensation against an insured depository
institution would be afforded a priority over other general unsecured claims
against such an institution, including federal funds and letters of credit, in
the "liquidation or other resolution" of such an institution by any receiver.
Competition.
The Corporation and its subsidiaries face substantial competition in
all aspects of the businesses in which they engage from national and state banks
located in Tennessee and large out-of-state banks as well as from savings and
loan associations, credit unions, other financial institutions, consumer finance
companies, trust companies, investment counseling firms, money market mutual
funds, insurance companies, securities firms, mortgage banking companies and
others. For certain information on the competitive position of the Corporation
and the Bank, refer to page 1. Also, refer to the subsections entitled
"Supervision and Regulation" and "Effect of Governmental Policies," both of
which are relevant to an analysis of the Corporation's competitors. Due to the
intense competition in the financial industry, the Corporation makes no
representation that its competitive position has remained constant, nor can it
predict whether its position will change in the future.
Sources and Availability of Funds.
Specific reference is made to the Management's Discussion and Analysis
and Glossary sections, including the subsection entitled "Deposits, Other
Sources of Funds, and Liquidity Management," contained in the 1996 Annual
Report, which sections are specifically incorporated herein by reference, along
with all of the tables in the 1996 Annual Report, which are identified
separately in response to Item 7 of Part II of this Form 10-K, which are
incorporated herein by reference. As permitted by SEC rules, attached to this
Form 10-K as Exhibit 13 are only those sections of the 1996 Annual Report that
have been incorporated by reference into this Form 10-K.
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Effect of Governmental Policies.
The Bank is affected by the policies of regulatory authorities,
including the Federal Reserve System and the Comptroller. An important function
of the Federal Reserve System is to regulate the national money supply.
Among the instruments of monetary policy used by the Federal Reserve
are: purchases and sales of U.S. Government securities in the marketplace;
changes in the discount rate, which is the rate any depository institution must
pay to borrow from the Federal Reserve; and changes in the reserve requirements
of depository institutions. These instruments are effective in influencing
economic and monetary growth, interest rate levels and inflation.
The monetary policies of the Federal Reserve System and other
governmental policies have had a significant effect on the operating results of
commercial banks in the past and are expected to continue to do so in the
future. Because of changing conditions in the national economy and in the money
market, as well as the result of actions by monetary and fiscal authorities, it
is not possible to predict with certainty future changes in interest rates,
deposit levels, loan demand or the business and earnings of the Corporation and
the Bank or whether the changing economic conditions will have a positive or
negative effect on operations and earnings.
Bills are pending before the United States Congress and the Tennessee
General Assembly and other state legislatures and regulations have been proposed
by the bank regulatory agencies which could affect the business of the
Corporation and its subsidiaries, and there are indications that other bills may
be introduced in the future. It cannot be predicted whether or in what form any
of these proposals will be adopted or the extent to which the business of the
Corporation and its subsidiaries may be affected thereby.
Statistical Information Required by Guide 3.
The statistical information required to be displayed under Item I
pursuant to Guide 3, "Statistical Disclosure by Bank Holding Companies," of the
Exchange Act Industry Guides is incorporated herein by reference to the
Consolidated Financial Statements and the notes thereto and the Management's
Discussion and Analysis and Glossary sections in the 1996 Annual Report along
with all of the tables and graph identified in response to Item 7 of Part II of
this Form 10-K; certain information not contained in the 1996 Annual Report, but
required by Guide 3, is contained in the tables immediately following:
8
<PAGE> 10
FIRST TENNESSEE NATIONAL CORPORATION
ADDITIONAL GUIDE 3 STATISTICAL INFORMATION
BALANCES AT DECEMBER 31
(Thousands)
(Unaudited)
II. Investment Portfolio
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage-backed securities &
collateralized mortgage
obligations $1,585,512 $1,661,477 $1,630,642
U.S. Treasury and other
U.S. government agencies 472,106 273,841 386,504
States and political subdivisions 92,031 104,140 77,382
Other 89,885 71,941 76,387
------------------------------------
Total $2,239,534 $2,111,399 $2,170,915
====================================
- ------------------------------------------------------------------------------------------
</TABLE>
III. Loan Portfolio
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $3,521,473 $3,330,929 $2,991,231 $2,694,416 $2,348,739
Consumer 2,683,959 2,525,889 2,263,007 1,819,950 1,342,650
Credit card receivables 564,803 529,104 475,489 428,075 412,207
Real estate construction 297,797 238,863 160,368 75,844 48,598
Permanent mortgage 641,245 689,458 591,094 514,424 603,572
Nonaccrual 18,926 19,040 16,853 27,639 32,782
--------------------------------------------------------------
Total $7,728,203 $7,333,283 $6,498,042 $5,560,348 $4,788,548
==============================================================
- ------------------------------------------------------------------------------------------
</TABLE>
VII. Short-Term Borrowings
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased and
securities sold under
agreements to repurchase $1,881,187 $1,674,225 $1,457,517
Commercial paper 22,648 29,402 67,820
Other short-term borrowings 354,721 57,118 284,702
------------------------------------
Total $2,258,556 $1,760,745 $1,810,039
====================================
- ------------------------------------------------------------------------
</TABLE>
9
<PAGE> 11
FOREIGN OUTSTANDINGS AT DECEMBER 31
<TABLE>
<CAPTION>
1996 1995 1994
------------------ ------------------- ------------------
% TOTAL % Total % Total
(Dollars in thousands) AMOUNT ASSETS Amount Assets Amount Assets
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BY COUNTRY:
Denmark $6,000 .05% $ - - % $ 4 - %
Israel 999 .01 2,085 .02 2,118 .02
Canada 741 .01 185 - 124 -
Saudi Arabia 640 - 74 - - -
Thailand - - - - 446 -
Japan 27 - 119 - 645 .01
All other 336 - 499 - 241 -
- ------------------------------------------------------------------------------------------------------------------------------
Total $8,743 .07% $2,962 .02% $3,578 .03%
==============================================================================================================================
BY TYPE:
Loans:
Banks and other financial institutions $7,392 .06% $ 364 - % $ 657 .01%
Governments and other institutions 999 .01 2,000 .02 2,000 .02
- ------------------------------------------------------------------------------------------------------------------------------
Total loans 8,391 .07 2,364 .02 2,657 .03
Cash 235 - 425 - 344 -
Customers' acceptances 117 - 88 - 523 -
Accrued interest receivable - - 85 - 54 -
- ------------------------------------------------------------------------------------------------------------------------------
Total $8,743 .07% $2,962 .02% $3,578 .03%
==============================================================================================================================
</TABLE>
MATURITIES OF SHORT-TERM PURCHASED FUNDS AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
0-3 3-6 6-12 Over 12
(Dollars in thousands) Months Months Months Months Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates of deposit $100,000 and more $ 265,405 $106,393 $79,756 $121,462 $ 573,016
Federal funds purchased and securities
sold under agreements to repurchase 1,881,187 - - - 1,881,187
Commercial paper and other short-term borrowings 371,776 251 301 5,041 377,369
- -------------------------------------------------------------------------------------------------------------------
Total $2,518,368 $106,644 $80,057 $126,503 $2,831,572
===================================================================================================================
</TABLE>
10
<PAGE> 12
ITEM 2
PROPERTIES
The Corporation has no properties that it considers materially
important to its financial statements.
ITEM 3
LEGAL PROCEEDINGS
The Corporation is a party to no material pending legal proceedings the
nature of which are required to be disclosed pursuant to the Instructions
contained in the Form of this Report.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of this
fiscal year to a vote of security holders, through the solicitation of proxies
or otherwise.
ITEM 4A
EXECUTIVE OFFICERS OF REGISTRANT
The following is a list of executive officers of the Corporation as of
March 1, 1997. Officers are elected for a term of one year and until their
successors are elected and qualified.
Name and Age Offices and Positions - Year First Elected to Office
Susan Schmidt Bies Executive Vice President (1985)
Age: 49 of the Corporation and the Bank
and Risk Management Manager (1995)
J. Kenneth Glass President - Tennessee Banking Group
Age: 50 of the Bank (1993) and Executive Vice President
of the Corporation (1995)
Ralph Horn Chairman of the Board (1996) and Chief Executive
Age: 55 Officer (1994) of the Corporation and the Bank
and President of the Corporation (1991) and the
Bank (1993)
Harry A. Johnson, III Executive Vice President (1990) and
Age: 48 General Counsel (1988) of the
Corporation and the Bank
James F. Keen Senior Vice President
Age: 46 and Controller of the Corporation (1988) and
principal accounting officer
John C. Kelley. Jr. President - Memphis Banking Group of
Age: 53 the Bank (1993) and Executive Vice President of the
Corporation (1991)
George Perry Lewis Executive Vice President of the
Age: 58 Bank (1976) and Money Management
Group Manager (1984)
11
<PAGE> 13
John P. O'Connor, Jr. Executive Vice President of the Corporation (1990)
Age: 53 and the Bank (1987) and Chief Credit
Officer (1988)
Elbert L. Thomas, Jr. Executive Vice President (1995) and
Age: 48 Chief Financial Officer (1995)
of the Corporation and the Bank
G. Robert Vezina Executive Vice President of the
Age: 62 Corporation and the Bank (1990) and
Personnel Division Manager (1984)
Each of the executive officers has been employed by the Corporation or
its subsidiaries during each of the last five years. Prior to February of 1995,
Ms. Bies was Chief Financial Officer of the Corporation and Bank. Mr. Glass was
Executive Vice President of the Bank and Tennessee Banking Group Manager prior
to January 1993. Mr. Horn was Vice Chairman of the Bank prior to February 1993.
Mr. Keen was Senior Vice President of the Bank prior to April 1993 and
Controller of the Bank prior to January 1993. Mr. Kelley was Executive Vice
President of the Bank and Corporate Services Group Manager prior to January of
1993. Mr. Thomas was a Senior Vice President of the Corporation and the Bank
prior to December 1995. From January of 1993 to February of 1995, Mr. Thomas was
Manager of Corporate Development. Prior to January of 1993, he was Manager of
Corporate Tax.
PART II
ITEM 5
MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
(a) Market for the Corporation's Common Stock:
The Corporation's common stock, $1.25 par value, trades
over-the-counter on the Nasdaq Stock Market's National Market System under the
symbol FTEN. As of December 31, 1996, there were 9,030 shareholders of record of
the Corporation's common stock. Additional information called for by this Item
is incorporated herein by reference to the Summary of Quarterly Financial
Information Table, the Selected Financial Data Table, Note 9 to the
Consolidated Financial Statements, and the "Deposits, Other Sources of Funds,
and Liquidity Management" subsection of the Management's Discussion and Analysis
section of the 1996 Annual Report and to the "Payment of Dividends" and
"Transactions with Affiliates" subsections contained in Item 1 of Part I of this
Form 10-K, which is incorporated herein by reference.
(b) Sale of Unregistered Securities:
During 1996, an aggregate of 93 shares of the Corporation's common
stock, $1.25 par value, were sold by the Corporation without registration under
the Securities Act of 1933, as amended (the "Securities Act"). The shares were
sold on April 16, 1996, to the three new directors of the Corporation for cash
at a price of $32.38 per share, for an aggregate total of $3,012, pursuant to
the terms of the Corporation's National Bank Director Qualifying Share Purchase
Program (the "Director Program"). The price represented the market value on the
date of sale. No underwriter was involved in the transaction. The shares were
sold pursuant to the Regulation D exemption from registration under the
Securities Act (Rules 505 and 506 and Section 4(6)). No unregistered shares were
sold by the Corporation during 1995. An aggregate of 54 shares (adjust for stock
splits) were sold by the Corporation during 1994 without registration. The
shares were sold under the Director Program on January 18, 1994 to a new
director for a total purchase price of $1,026.
(c) Description of the Corporation's Capital Stock:
Authorized Capital Stock. The authorized capital stock of the
Corporation currently consists of 5,000,000 shares of preferred stock, without
par value ("preferred stock"), which may be issued from time to time by
resolution of the
12
<PAGE> 14
Corporation's Board of Directors (the "Board") and 200,000,000 shares of common
stock, $1.25 par value (the "common stock"). As of December 31, 1996, there were
66,857,519 shares of common stock and no shares of preferred stock outstanding.
As of that date, approximately 13 million shares of common stock were reserved
for issuance under various employee stock plans and the Corporation's divided
reinvestment plan, and 668,576 shares of preferred stock were reserved for
issuance under the Rights Plan (as defined below). Also, the Corporation has on
file with the SEC an effective shelf registration pursuant to which it may offer
from time to time, at its discretion, senior or subordinated debt securities,
preferred stock, including depository shares, and common stock at an aggregate
initial offering price not to exceed $225 million (net of prior issuances).
Preferred Stock. The Board is authorized, without further action by the
shareholders, to provide for the issuance of up to 5,000,000 shares of preferred
stock, from time to time in one or more series and, with respect to each such
series, has the authority to fix the powers (including voting power),
designations, preferences and relative, participating, optional or other special
rights and the qualifications, limitations or restrictions thereof.
Common Stock. The Board is authorized to issue a maximum of 200,000,000
shares of common stock. The holders of the common stock are entitled to receive,
ratably, such dividends as may be declared by the Board from funds legally
available therefor, provided that if any shares of preferred stock are at the
time outstanding, the payment of dividends on common stock or other
distributions (including purchases of common stock) may be subject to the
declaration and payment of full cumulative dividends, and the absence of
arrearages in any mandatory sinking fund, on outstanding shares of preferred
stock. The holders of the outstanding shares of common stock are entitled to one
vote for each such share on all matters presented to shareholders and are not
entitled to cumulate votes for the election of directors. Upon any dissolution,
liquidation or winding up of the Corporation resulting in a distribution of
assets to the shareholders, the holders of common stock are entitled to receive
such assets ratably according to their respective holdings after payment of all
liabilities and obligations and satisfaction of the liquidation preferences of
any shares of preferred stock at the time outstanding. The shares of common
stock have no preemptive, redemption, subscription or conversion rights. Under
the Corporation's Charter, the Board is authorized to issue authorized shares of
common stock without further action by the shareholders. However, the common
stock is traded in the over-the-counter market and is quoted on the Nasdaq Stock
Market's National Market, which requires shareholder approval of the issuance of
additional shares of common stock in certain situations. The Transfer Agent for
the common stock is Norwest Bank Minnesota, National Association.
The Board is divided into three classes, which results in approximately
1/3 of the directors being elected each year. In addition, the Charter and the
Bylaws, among other things, generally give to the Board the authority to fix the
number of directors on the Board and to remove directors from and fill vacancies
on the Board, other than removal for cause and the filling of vacancies created
thereby which are reserved to shareholders exercising at least a majority of the
voting power of all outstanding voting stock of the Corporation. To change these
provisions of the Bylaws, other than by action of the Board, and to amend these
provisions of the Charter or to adopt any provision of the Charter inconsistent
with such Bylaw provisions, would require approval by the holders of at least
80% of the voting power of all outstanding voting stock. Such classification of
the Board and such other provisions of the Charter and the Bylaws may have a
significant effect on the ability of the shareholders of the Corporation to
change the composition of an incumbent Board or to benefit from certain
transactions which are opposed by the Board.
Shareholder Protection Rights Plan. Each share of common stock that is
currently outstanding has, and each share of common stock that is issued prior
to the expiration date described in the next paragraph will have, attached to it
one right (a "Right") issued pursuant to a Shareholder Protection Rights
Agreement dated as of September 7, 1989, as amended and restated as of January
21, 1997 (the "Rights Plan"). Each Right entitles its holder to purchase 1/100th
of a share of Participating Preferred Stock, without par value, for $150.00 (the
"Exercise Price"), subject to adjustment, upon the business day following the
earlier of (i) the 10th business day (subject to certain adjustments by the
Board) after commencement of a tender or exchange offer which, if consummated,
would result in a person or group owning 10% or more of the outstanding shares
of common stock (an "Acquiring Person") and (ii) the first date (the "Flip-in
Date") of public announcement by the Corporation that a person has become an
Acquiring Person.
The Rights will expire on the earliest of (i) the Exchange Time
(defined below), (ii) September 18, 1999 and (iii) the date on which the Rights
are redeemed as described below. The Board may, at its option, at any time until
10 business
13
<PAGE> 15
days after the Flip-in Date, redeem all the Rights at a price of $0.0033 per
Right, as adjusted from time to time pursuant to the Rights Plan.
If a Flip-in Date occurs, each Right (other than Rights beneficially
owned by the Acquiring Person or its affiliates, associates or transferees,
which Rights will become void), will constitute the right to purchase shares of
common stock or Participating Preferred Stock having an aggregate market price
equal to twice the Exercise Price for an amount in cash equal to the
then-current Exercise Price. In addition, the Board may, at its option, at any
time after a Flip-in Date and prior to the time that an Acquiring Person becomes
the beneficial owner of more than 50% of the outstanding shares of common stock,
elect to exchange the Rights (other than Rights beneficially owned by the
Acquiring Person or its affiliates, associates or transferees) for shares of
common stock or a Participating Preferred Stock at an exchange ratio of one
share of common stock or 1/100th of a share of Participating Preferred Stock per
Right (the "Exchange Time").
The Corporation may not agree to be acquired by an Acquiring Person
without providing that each Right, upon such acquisition, will constitute the
right to purchase common stock of the Acquiring Person having an aggregate
market price equal to twice the Exercise Price for an amount in cash equal to
the then-current Exercise Price.
The Rights will not prevent a takeover of the Corporation. The Rights,
however, may have certain anti-takeover effects. The Rights may cause
substantial dilution to a person or group that acquires 10% or more of the
outstanding common stock unless the Rights are first redeemed by the
Corporation's Board.
Subordinated Capital Notes due 1999. On June 10, 1987, the Corporation
issued $75,000,000 principal amount of 103/8% Subordinated Capital Notes Due
1999 (the "Capital Notes"). The Capital Notes currently constitute Tier 2
capital under the Federal Reserve's risk-based capital guidelines. Pursuant to
the Indenture, dated as of June 1, 1987 (the "Indenture"), between the
Corporation and BankAmerica National Trust Company, formerly Security Pacific
National Trust Company (New York), Trustee, at maturity the Capital Notes are
required to be exchanged for common stock, preferred stock or certain other
eligible capital securities to be issued by the Corporation ("Capital
Securities") having a market value equal to the principal amount of the Capital
Notes, except to the extent that the Corporation, at its option, shall elect to
pay in cash such principal amount from amounts representing proceeds of other
issuances of Capital Securities designated for such use.
ITEM 6
SELECTED FINANCIAL DATA
The information called for by this Item is incorporated herein by
reference to the Selected Financial Data Table in the 1996 Annual Report.
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The information called for by this Item is incorporated herein by
reference to the Management's Discussion and Analysis section and Glossary
section in the 1996 Annual Report and the following tables in the 1996 Annual
Report:
<TABLE>
<S> <C>
Analysis of Noninterest Income Analysis of Allowance for Loan Losses
Net Interest Income and Earning Assets Loans and Foreclosed Real Estate at December 31
Net Interest Margin Composition Net Charge-Offs as a Percent of Average Loans by Category
Analysis of Changes In Net Interest Income Nonperforming Assets at December 31
Rate Sensitivity Analysis at December 31, 1996 Changes in Nonperforming Assets
Analysis of Noninterest Expense Summary of Quarterly Financial Information
Maturities of Loans at December 31, 1996 Consolidated Average Balance Sheet and Related Yields and Rates
Maturities of Investment Securities at December 31, 1996 Consolidated Historical Performance Statements of Income
Credit Ratings at December 31, 1996 Selected Financial Data
Capital Ratios
</TABLE>
14
<PAGE> 16
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item is incorporated herein by
reference to the Consolidated Financial Statements and the notes thereto and to
the Summary of Quarterly Financial Information Table in the 1996 Annual Report.
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The information called for by this Item is inapplicable.
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this Item as it relates to directors and
nominees for director of the Corporation is incorporated herein by reference to
the "Election of Directors" section of the Corporation's Proxy Statement mailed
to shareholders in connection with the Corporation's Annual Meeting of
Shareholders scheduled for April 15, 1997, (the "1997 Proxy Statement"). The
information required by this Item as it relates to executive officers of the
Corporation is incorporated herein by reference to Item 4A in Part I of this
Report. The information required by this Item as it relates to compliance with
Section 16(a) of the Securities Exchange Act of 1934 is incorporated herein by
reference to the "Section 16(a) Beneficial Ownership Reporting Compliance"
section of the 1997 Proxy Statement.
ITEM 11
EXECUTIVE COMPENSATION
The information called for by this Item is incorporated herein by
reference to the "Executive Compensation" section of the 1997 Proxy Statement
(excluding the Board Compensation Committee Report and the Total Shareholder
Return Performance Graph).
ITEM 12
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this Item is incorporated herein by
reference to the Stock Ownership Table and the two paragraphs preceding the
table in the 1997 Proxy Statement.
The Corporation is unaware of any arrangements which may result in a
change in control of the Corporation.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this Item is incorporated herein by
reference to the "Certain Relationships and Related Transactions" section of the
1997 Proxy Statement.
15
<PAGE> 17
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
Financial Statements:
- Consolidated Statements of Condition as of December 31, 1996
and 1995
- Consolidated Statements of Income for the years ended December
31, 1996, 1995 and 1994
- Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1996, 1995 and 1994
- Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
- Notes to the Consolidated Financial Statements
- Report of Independent Public Accountants
The consolidated financial statements of the Corporation, the
notes thereto, and the report of independent public
accountants, in the 1996 Annual Report, as listed above, are
incorporated herein by reference.
Financial Statement Schedules: Not applicable.
Exhibits:
(3)(i) Restated Charter of the Corporation, as amended, attached as
Exhibit 3(i) to the Corporation's Annual Report on Form 10-K
for the year ended 12-31-95, and incorporated herein by
reference.
(3)(ii) Bylaws of the Corporation, as amended.
(4)(a) Amended and Restated Shareholder Protection Rights Agreement,
dated as of 9-7-89, as amended as of 1-21-97, between the
Corporation and First Tennessee Bank National Association, as
Rights Agent, including as Exhibit A the forms of Rights
Certificate and of Election to Exercise and as Exhibit B the
form of Charter Amendment designating a series of
Participating Preferred Stock of the Corporation with terms as
specified, attached as Exhibit 1 to the Corporation's
Registration Statement on Form 8-A/A filed 1-21-97, and
incorporated herein by reference.
(4)(b) Indenture, dated as of 6-1-87, between the Corporation and
Security Pacific National Trust Company (New York), Trustee,
attached as Exhibit 4(b) to the Corporation's Annual Report on
Form 10-K for the year ended 12-31-91, and incorporated herein
by reference.
(4)(c) The Corporation and certain of its consolidated subsidiaries
have outstanding certain long-term debt. See Note 11 in the
Corporation's 1996 Annual Report to Shareholders. None of such
debt exceeds 10% of the total assets of the Corporation and
its consolidated subsidiaries. Thus, copies of constituent
instruments defining the rights of holders of such debt are
not required to be included as exhibits. The Corporation
agrees to furnish copies of such instruments to the Securities
and Exchange Commission upon request.
*(10)(a) Management Incentive Plan, as amended (1), and 1-21-97
amendment.
*(10)(b) 1997 Employee Stock Option Plan, as amended and restated.
*(10)(c) 1989 Restricted Stock Incentive Plan, as amended (1), and
1-21-97 amendment.
*(10)(d) 1992 Restricted Stock Incentive Plan (1), and 1-21-97
amendment.
*(10)(e) 1984 Stock Option Plan, as amended (1), and 1-21-97 amendment.
*(10)(f) 1990 Stock Option Plan, as amended (1), and 1-21-97 amendment.
*(10)(g) Survivor Benefits Plan, as amended (1), and 1-21-97 amendment.
*(10)(h) Amendment and Restated Directors and Executives Deferred
Compensation Plan and form of individual agreement.
*(10)(i) Pension Restoration Plan, as amended and restated (3) and
1-21-97 amendment.
*(10)(j) Director Deferral Agreements (2) with schedule. (3)
16
<PAGE> 18
*(10)(k) Form of Severance Agreements dated 1-28-97.
*(10)(l) 1995 Employee Stock Option Plan (3) and 1-21-97 amendment.
*(10)(m) Non-Employee Directors' Deferred Compensation Stock Option
Plan. (3)
*(10)(n) Ronald Terry post-retirement arrangement. (3)
(11) Statement re: computation of per share earnings.
(13) The portions of the 1996 Annual Report to Shareholders which
have been incorporated by reference into this Form 10-K.
(21) Subsidiaries of the Corporation.
(23) Accountants' Consents
(24) Powers of Attorney
(27) Financial Data Schedule (for SEC use only)
(99) Annual Report on Form ll-K for the Corporation's Savings Plan
and Trust, for fiscal year ended 12-31- 96, as authorized by
SEC Rule 15d-21 (to be filed as an Amendment to Form lO-K).
* Exhibits marked with an "*" represent management
contract or compensatory plan or arrangement required
to be filed as an exhibit.
(1) These documents are incorporated herein by reference
to the exhibit with the corresponding number
contained in the Corporation's 1992 Annual Report on
Form 10-K.
(2) This document is incorporated herein by reference
to exhibits 10(k) contained in the Corporation's
1992 Annual Report on Form 10-K.
(3) These documents are incorporated herein by reference
to the exhibit with the corresponding number
contained in the Corporation's 1995 Annual Report on
Form 10-K.
(b) No reports on Form 8-K were filed during the fourth quarter of
1996.
17
<PAGE> 19
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST TENNESSEE NATIONAL CORPORATION
Date: March 27, 1997 By: Elbert L. Thomas, Jr.
------------------------------------------
Elbert L. Thomas, Jr., Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Ralph Horn* Chairman of the Board, President and March 27, 1997
- ------------------------------ Chief Executive Officer (principal executive
Ralph Horn officer) and a Director
Elbert L. Thomas, Jr.* Executive Vice President March 27, 1997
- ------------------------------ and Chief Financial Officer
Elbert L. Thomas, Jr. (principal financial officer)
James F. Keen* Senior Vice President March 27, 1997
- ------------------------------ and Controller (principal
James F. Keen accounting officer)
Robert C. Blattberg* Director March 27, 1997
- ------------------------------
Robert C. Blattberg
Carlos H. Cantu* Director March 27, 1997
- ------------------------------
Carlos H. Cantu
George E. Cates* Director March 27, 1997
- ------------------------------
George E. Cates
J. Kenneth Glass* Director March 27, 1997
- ------------------------------
J. Kenneth Glass
James A. Haslam, III* Director March 27, 1997
- ------------------------------
James A. Haslam, III
John C. Kelley, Jr.* Director March 27, 1997
- ------------------------------
John C. Kelley, Jr.
R. Brad Martin* Director March 27, 1997
- ------------------------------
R. Brad Martin
Joseph Orgill, III* Director March 27, 1997
- ------------------------------
Joseph Orgill, III
Vicki G. Roman* Director March 27, 1997
- ------------------------------
Vicki G. Roman
</TABLE>
18
<PAGE> 20
<TABLE>
<S> <C> <C>
Michael D. Rose* Director March 27, 1997
- ------------------------------
Michael D. Rose
William B. Sansom* Director March 27, 1997
- ------------------------------
William B. Sansom
Gordon P. Street, Jr.* Director March 27, 1997
- ------------------------------
Gordon P. Street, Jr.
*By: Clyde A. Billings, Jr. March 27, 1997
------------------------------
Clyde A. Billings, Jr.
As Attorney-in-Fact
</TABLE>
19
<PAGE> 21
EXHIBIT INDEX
Item No. Description
(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
12-31-95, and incorporated herein by reference.
(3)(ii) Bylaws of the Corporation, as amended.
(4)(a) Amended and Restated Shareholder Protection Rights Agreement dated as
of 9-7-89, as amended as of 1-21-97, between the Corporation and First
Tennessee Bank National Association, as Rights Agent, including as
Exhibit A the forms of Rights Certificate and of Election to Exercise
and as Exhibit B the form of Charter Amendment designating a series of
Participating Preferred Stock of the Corporation with terms as
specified, attached as Exhibit 1 to the Corporation's Registration
Statement on Form 8-A/A filed 1-21-97, and incorporated herein by
reference.
(4)(b) Indenture, dated as of June 1, 1987, between the Corporation and
Security Pacific National Trust Company (New York), Trustee, attached
as Exhibit 4(b) to the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1991, and incorporated herein by reference.
(4)(c) The Corporation and certain of its consolidated subsidiaries have
outstanding certain long-term debt. See Note 11 in the Corporation's
1996 Annual Report to Shareholders. None of such debt exceeds 10% of
the total assets of the Corporation and its consolidated subsidiaries.
Thus, copies of constituent instruments defining the rights of holders
of such debt are not required to be included as exhibits. The
Corporation agrees to furnish copies of such instruments to the
Securities and Exchange Commission upon request.
*(10)(a) Management Incentive Plan, as amended (1), and 1-21-97 amendment.
*(10)(b) 1997 Employee Stock Option Plan, as amended and restated.
*(10)(c) 1989 Restricted Stock Incentive Plan, as amended (1), and 1-21-97
amendment.
*(10)(d) 1992 Restricted Stock Incentive Plan (1), and 1-21-97 amendment.
*(10)(e) 1984 Stock Option Plan, as amended (1), and 1-21-97 amendment.
*(10)(f) 1990 Stock Option Plan, as amended (1), and 1-21-97 amendment.
*(10)(g) Survivor Benefits Plan, as amended (1), and 1-21-97 amendment.
*(10)(h) Amended and Restated Directors and Executives Deferred Compensation
Plan and form of individual agreement.
*(10)(i) Pension Restoration Plan, as amended and restated (3) and 1-21-97
amendment.
*(10)(j) Director Deferral Agreements (2) with schedule. (3)
*(10)(k) Form of Severance Agreements dated 1-28-97.
*(10)(l) 1995 Employee Stock Option Plan (3) and 1-21-97 amendment.
*(10)(m) Non-Employee Directors Deferred Compensation Stock Option Plan. (3)
*(10)(n) Ronald Terry post-retirement arrangement. (3)
(11) Statement re: computation of per share earnings.
(13) The portions of the 1996 Annual Report to Shareholders which have been
incorporated by reference into this Form 10-K.
(21) Subsidiaries of the Corporation.
(23) Accountants' Consents
(24) Powers of Attorney
(27) Financial Data Schedule (for SEC use only)
(99) Annual Report on Form ll-K for the Corporation's Savings Plan and
Trust, for fiscal year ended December 31, 1996, as authorized by SEC
Rule 15d-21 (to be filed as an amendment to Form 10-K).
* Exhibits marked with an "*" represent management contract or
compensatory plan or arrangement required to be filed as an
exhibit.
(1) These documents are incorporated herein by reference to the
exhibit with the corresponding number contained in the
Corporation's 1992 Annual Report on Form 10-K.
(2) This document is incorporated herein by reference to
exhibits 10(k) contained in the Corporation's 1992 Annual
Report on Form 10-K.
(3) These documents are incorporated herein by reference to the
exhibit with the corresponding number contained in the
Corporation's 1995 Annual Report on Form 10-K.
20
<PAGE> 1
EXHIBIT 3 (ii)
BY LAWS
OF
FIRST TENNESSEE NATIONAL CORPORATION
(As Amended and Restated March 15, 1977)
ARTICLE I.
OFFICES
1. The principal office shall be in Memphis, Tennessee.
2. The Corporation may also have offices in such other
places as the Board of Directors may from time to time appoint, or
the business of the Corporation may require.
ARTICLE II.
SHAREHOLDERS' MEETINGS
1. Meetings of the shareholders of the Corporation may be
held either in the State of Tennessee or elsewhere: but in the
absence of notice to the contrary, shareholders' meetings shall be
held at the office of the Corporation in Memphis, Tennessee.
2. The annual meeting of shareholders for the election of
directors and for the transaction of such other business as may
properly come before the meeting shall be held each year on the
Third Tuesday in April, or if that day is a legal holiday, on the
next succeeding day not a legal holiday, at a time to be fixed by
resolution of the Board of Directors; at which meeting they shall
elect by ballot, by plurality vote, a Board of Directors and may
transact such other business as may properly come before the
meeting.
3. The holders of a majority of the shares issued and out-
standing and entitled to vote thereat, present in person or repre-
sented by proxy, shall be requisite, and shall constitute a quorum
at all meetings of the shareholders, for the transaction of busi-
ness, except as otherwise provided by law, by the Charter of
Incorporation, and these Bylaws. If, however, such majority shall
not be present or represented at the meeting of the shareholders,
the shareholders entitled to vote thereat, present in person or by
Proxy, shall have power to adjourn the meeting from time to time
<PAGE> 2
without notice other than announcement at the meeting until the
requisite amount of voting shares shall be present. At such ad-
journed meeting at which the requisite amount of voting shares shall
be represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
4. Written notice of the annual meeting stating the place,
day and hour of the meeting shall be mailed to each shareholder
entitled to vote thereat at such address as appears on the stock
records of the Corporation, at least ten (10), but not more than
sixty (60), days prior to the meeting.
5. Special meetings of the shareholders for any purpose or
purposes, unless otherwise prescribe by statute, may be called (i)
by the Chairman of the Board of Directors, and shall be called by
the Chairman of the Board of Directors or the Secretary at the
request in writing of a majority of the Board of Directors, or (ii).
by the holders of not less than one-tenth (1/10) of all the shares
entitled to vote at such meeting. Such call shall state the purpose
or purposes of the proposed meeting.
6. Written notice of a special meeting of shareholders,
stating the place, day and hour and the purpose or purposes for
which the meeting is called and the person or persons calling the
meeting, shall be mailed, postage prepaid, at least ten (10) days
before the date of such meeting, to each shareholder entitled to
vote thereat at such address as appears on the stock transfer
records of the Corporation.
7. Special meetings of the shareholders may be held at any
time on written waiver of notice or by consent of all of the share-
holders.
8. Any shareholder may waive notice of any meeting either
before, at or after the meeting.
9. At each meeting of shareholders, each shareholder shall
have one vote for each share of stock having voting power registered
in his name on the records of the Corporation on the record date for
that meeting, and every shareholder having the right to vote shall
be entitled to vote in person or by proxy appointed by instrument in
writing.
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<PAGE> 3
10. Any director may be removed by the shareholders with or
without cause, at any time by the affirmative vote of the holders of
a majority of the stock entitled to vote, by resolution adopted at
any meeting of shareholders, whether an annual or a special meeting.
ARTICLE III
DIRECTORS
1. The business and affairs of the Corporation shall be
directed by a Board of Directors, which shall consist of 19 members.
Directors need not be shareholders.
2. Each director shall serve for the term of one year and
until his successor shall have been duly elected and qualified:
subject, however, to the right of the removal of any director at any
time by the affirmative vote of the majority of the shares entitled
to vote by resolution adopted at any meeting of shareholders,
whether an annual or a special meeting.
3. The directors may hold their meetings at the office of the
Corporation in Memphis, Tennessee, or at such other place or places,
either in the State of Tennessee or elsewhere, as they may from time
to time determine.
4. A majority of the Board of Directors at a meeting duly
assembled shall be necessary to constitute a quorum for the trans-
action of business, and the vote of a majority of the directors
present at a meeting at which a quorum is present shall be the act
of the Board of Directors, unless the vote of a greater number is
required by law, by the Charter, or these Bylaws.
5. As compensation, the directors, for their services, shall
be paid such amounts at such time as may, from tine to time, be
determined by resolution of the entire Board of Directors; provide
that nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity and
being compensated therefor.
6. The directors, by resolution adopted by a majority of the
entire Board, may designate any executive committee, consisting of
three or more directors, and other committees, consisting of three
or more directors, officers or employees, and may delegate to such
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<PAGE> 4
committee or committees all such authority of the Board that it
deems desirable, including, without limitation, authority to elect
corporate officers, fix their salaries and, to the extent such is
not provided by law, the Charter or these Bylaws, to establish their
authority and responsibility, except that no such committee or
committees, unless specifically so authorized by the Board, shall
have and exercise the authority of the Board to:
(a) Adopt, amend or repeal the Bylaws;
(b) Submit to shareholders any action that needs
shareholders' authorization under Chapters 1
through 14, Title 48, Tennessee Code Annotated,
and any and all amendments and supplements
thereto;
(c) Fill vacancies in the Board or in any committee; and
(d) Declare dividends or make other corporate distributions.
Regular and special meetings of committees may be held with or with-
out notice as prescribed by resolution of the directors.
ARTICLE IV.
POWERS OF DIRECTORS
1. The Board of Directors shall have, in addition to such
powers as are hereinafter expressly conferred on it and all such
powers as may be conferred on it by law, all such powers as may be
exercised by the Corporation, subject to the provisions of the law,
the Charter and these Bylaws.
2. The Corporation shall be managed by the Board of Directors,
which shall exercise all powers conferred under the laws of the
State of Tennessee, including without limitation the powers speci-
fied in the Charter of the Corporation, as amended, and the power:
(a) To purchase or otherwise acquire property, rights
or privileges for the Corporation which the Corpora-
tion has power to take, at such prices and on such
terms as the Board of Directors may deem proper;
(b) To pay for such property, rights or privileges in
whole or in part with money, stocks, bonds, deben-
tures or other securities of the Corporation, or
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<PAGE> 5
by the delivery of other property of the
Corporation;
(c) To create, make and issue mortgages, bonds, deeds
of trust, trust agreements and negotiable or trans-
ferable instruments end securities, secured by
mortgage or otherwise, and to do every act and thing
necessary to effectuate the same;
(d) To elect the corporate officers and fix their salaries;
to appoint employees and trustees; and to dismiss them
at its discretion; to fix their duties and emoluments,
and to change them from time to time; and to require
security as it may deem proper;
(e) To confer on any Officer of the Corporation the power
of selecting, discharging or suspending such employees;
and
(f) To determine by whom and in what manner the Corporation's
bills, notes, receipts, acceptances, guaranties, endorse-
ments, checks, releases, contracts or other documents
shall be signed.
ARTICLE V.
MEETINGS OF DIRECTORS
1. Following each annual election of directors, the newly
elected directors shall meet for the purpose of organization, the
election of officers and the transaction of other business, and,
if a majority of the directors be present at such place, day and
hour, no prior notice of such meeting shall be required to be
given to the directors. The place, day and hour of such meeting
may also be fixed by written consent of the directors.
2. Meetings of the directors shall be held at least once each
calendar quarter at such time and place as the Board of Directors
may by resolution determine. Notice of the time and place of the
meetings shall be given as specified for a special meeting.
3. Special meetings of the directors may be called by the
Chairman or the Board of Directors or the President on two days'
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<PAGE> 6
notice in writing or on one day's notice by telegram to each direc-
tor, and shall be called by the Chairman in like manner on the
written request of two directors. The notice shall state thou
place, day and hour where it is to be held.
4. Special meetings of the directors may be held at any time
on written waiver of notice or by consent of all the directors.
5. A majority of the directors shall constitute a quorum, but
a smaller number may adjourn from time to time, without further
notice, if the time and place to which the meeting is adjourned are
fixed at the meeting at which the adjournment is taken and if the
period of adjournment does not exceed thirty (30) days in any one
(1) adjournment.
6. The directors may take action which they are required or
permitted to take, without a meeting, on written consent setting
forth the action so taken, signed by all of the directors entitled
to vote thereon.
ARTICLE VI.
OFFICERS
1. The officers of the Corporation shall be chosen at the
annual organizational meeting following the annual meeting of share-
holders, for a term of one (1) year and until their successors are
elected and qualified. The officers of the Corporation shall con-
sist of a Chairman of the Board of Directors, a President, such
number of Vice Chairmen as the Board may from time to time determine
and appoint, a Financial Vice President, a Secretary, a Treasurer, a
Controller and an Auditor, and such number of Executive Vice Presidents.
Senior Vice Presidents and Vice Presidents, Assistant Secretaries,
Assistant Controllers, Assistant Auditors, and Corporate Officers as
the Board may from time to time determine and appoint. Any person
may hold two or more offices, except that the President shall not
also be the Secretary or an Assistant Secretary. The officers,
other than the Chairman of the Board of Directors, need not be
directors or shareholders.
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<PAGE> 7
2. The Board may appoint such other officers and agents as it
shall deem necessary, who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board.
3. If the office of any officer or officers appointed by the
Board of Directors becomes vacant for any reason, the vacancy may
be filled by the Board of Directors.
4. The officers of the Corporation shall hold office until
their successors are elected and qualified. Any officer shall be
subject to removal at any time with or without cause by the affirma-
tive vote of a majority of the Board of Directors.
5. The salaries and compensation of all officers of the
Corporation shall be fixed by the Board.
ARTICLE VII.
CHAIRMAN OF THE BOARD OF DIRECTORS
1. The Chairman of the Board of Directors shall be the Chief
Executive Officer of the Corporation; he shall preside at all
meetings of the shareholders; he shall have general management of
the business of the Corporation and shall exercise general super-
vision over all of its affairs and shall see that all orders and
resolutions of the Board are carried into effect.
2. He shall have the general powers and duties of supervision.
and management usually vested in the office of Chairman of the Board
of Directors and Chief Executive Officer of a Corporation.
ARTICLE VIII.
THE PRESIDENT
1. The President, in the absence of the Chairman of the
Board, shall preside at all meetings of shareholders, and he shall
be charged with the active management and administration of the
business of the Corporation with power to make all contracts in the
conduct of the regular and ordinary business of the Corporation; and
he may appoint and discharge agents and employees of the Corporation
and fix their compensation, subject to the general supervisory powers
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<PAGE> 8
of the Chairman of the Board of Directors and of the Board of
Directors, and do and perform such other duties as from time to time
may be assigned to him by the Board of Directors and as may be
authorized by law.
ARTICLE IX.
VICE CHAIRMAN
1. Vice Chairmen shall perform such of the duties and exer-
cise such of the powers as may be prescribed by the Board of Direc-
tors or the Chairman of the Board of Directors.
ARTICLE X.
CHAIRMAN OF THE CREDIT POLICY COMMITTEE
1. The Chairman of the Credit Policy Committee shall perform
such of the duties and exercise such of the powers as may be pre-
scribed by the Board of Directors or the Chairman of the Board of
Directors.
ARTICLE XI.
FINANCIAL VICE PRESIDENT
1. The Financial Vice President shall perform such of the
duties and exercise such of the powers as may be prescribed by the
Board of Directors or the Chairman of the Board of Directors.
ARTICLE XII.
VICE PRESIDENT
1. Vice Presidents shall perform such of the duties and
exercise such of the powers as may be prescribed by the Board of
Directors, the Chairman of the Board of Directors or the President.
ARTICLE XIII.
SECRETARY
1. The Secretary shall attend all sessions of the Board and
of the shareholders and record all votes and the minutes of all
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<PAGE> 9
proceedings in a book to be kept for that purpose. He shall give or
cause to be given notice of all meetings or the shareholders and of
the Board of Directors and shall perform such other duties as are
incident to his office or as may be prescribed by the Board of
Directors or the Chairman of the Board of Directors.
2. In the absence or disability of the Secretary, the Assistant
Secretary shall perform all the duties and exercise all of the
powers of the Secretary and shall perform such other duties as the
Board of Directors or the Chairman of the Board of Directors shall
prescribe.
ARTICLE XIV.
TREASURER
1. The Treasurer shall have custody of the funds and securi-
ties of the Corporation and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and
shall deposit all monies and other valuable effects in the name and
to the credit of the Corporation such depositories as may be
designated by the Board of Directors.
2. He shall disburse the funds of the Corporation as may be
ordered by the Board, or by the Chairman of the Board of Directors,
or by the President, taking proper vouchers for such disbursements,
and shall render to the Board, the Chairman of the Board, or the
President, whenever they may require it, an account of all his
transactions as Treasurer and of the financial condition of the
Corporation, and at a regular meeting of the Board preceding the
annual shareholders' meeting, a like report for the preceding year.
3. He shall keep or cause to be kept an account of stock
registered and transferred in such manner and subject to such
regulations as the Board of Directors may prescribe
4. He shall give the Corporation a bond, if required by the
Board of Directors, in such sum and in form and with security satis-
factory to the Board of Directors for the faithful performance of
the duties of his office end the restoration to the Corporation, in
case of his death, resignation or removal from office, of all books,
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<PAGE> 10
papers, vouchers, money and other property of whatever kind in his
possession, belonging to the corporation. He shall perform such
other duties as the Board of Directors may from time to time pre-
scribe or require.
5. In the absence or disability of the Treasurer, the Assis-
tant Treasurer shall perform all the duties and exercise all of the
powers of the Treasurer and shall perform such other duties as the
Board of Directors or the Chairman of the Board of Directors shall
prescribe.
ARTICLE XV.
AUDITOR
1. The Auditor shall perform such of the duties and exercise
such of the powers as may be prescribed by the Board of Directors.
2. In the absence or disability of the Auditor, the Assistant
Auditor shall perform all the duties and exercise all the powers of
the Auditor and shall perform such other duties as the Board of
Directors shall prescribe.
ARTICLE XVI.
CONTROLLER
1. The Controller shall assist the management of the Corpora-
tion in setting the financial goals and policies of the Corporation;
shall provide financial and statistical information to the share-
holders and to the management of the Corporation and shall perform
such other duties and exercise such other powers as may be pre-
scribed by the Board of Directors, the Chairman of the Board of
Directors or the President.
2. In the absence or disability of the Controller, the Assis-
tant Controller shall perform all duties and exercise all Powers of
the Controller and shall perform such other duties as the Board of
Directors or the Chairman of the Board of Directors shall prescribe.
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<PAGE> 11
ARTICLE XVII
CORPORATE OFFICER
1. Corporate Officers shall have such authority and perform
such of the duties and exercise such of the powers as may be pre-
scribed by the Board of Directors, the President or any Vice Chair-
man.
ARTICLE XVIII.
DUTIES OF OFFICERS MAY BE DELEGATED
1. In case of the absence of any officer of the Corporation,
or for any other reason that the Board may deem sufficient, the
Board may delegate, for the time being, the powers or duties, or any
of them, of such officer to any other officer, or to any director,
provided a majority of the entire Board concur therein.
ARTICLE XIX.
CERTIFICATES OF STOCK
1. The certificates of stock of the Corporation shall be
numbered, shall be entered in the book or records of the Corpora-
tion as they are issued, and shall be signed by the Chairman of the
Board and any one of the following: the President, the Treasurer or
the Secretary. Each certificate shall include the following upon
the face thereof:
(a) That the Corporation is organized under the laws of this
state;
(b) The name of the Corporation;
(c) The name of the person to whom issued;
(d) The number and class of shares, and the designation of
the series, if any, which such certificate represents;
(e) The par value of each share represented by such certifi-
cate: or a statement that the shares are without par
value; and
(f) Such other provisions as the Board may from time to
time require.
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<PAGE> 12
Either or both of the signatures upon a certificate may be facsimiles
if the certificate is countersigned by a transfer agent, or regis-
tered by a registrar other than an officer or employee of the
Corporation.
ARTICLE XX.
TRANSFERS OF STOCK AND RECORD DATE
1. Transfers of shares of stock shall be made upon the books
of the Corporation by the person named in the certificate or by an
attorney, lawfully constituted in writing, and upon surrender of the
certificate therefor.
The Board of Directors may appoint suitable agents in Memphis,
Tennessee, and elsewhere to facilitate transfers by shareholders
under such regulations as the Board may from time to time prescribe.
The transfer books may be closed by the Board for such period, not
to exceed 40 days, as may be deemed advisable for dividend or other
purposes, or in lieu of closing the books, the Board may fix in
advance a date as the record date for determining shareholders
entitled notice of and to vote at a meeting of shareholders, or
entitled to payment of any dividend. The record date shall not be
less than 10 days prior to the date on which the particular action
requiring such determination is to be taken. All certificates
surrendered the the Corporation for transfer shall be canceled, and
no new certificate shall be issued until the former certificate for
like number of shares shall have been surrendered and canceled,
except that in case of a lost or destroyed certificate a new one may
be issued on the terms prescribe by Article XXII of these Bylaws.
ARTICLE XXI
REGISTERED SHAREHOLDERS
1. The Corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact there-
of; and, accordingly shall not be bound to recognize any equitable
or other claim to or interest in such share on the part of any other
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<PAGE> 13
person, whether or not it shall have express or other notice thereof,
save as expressly provided by the laws of Tennessee.
ARTICLE XXII.
LOST CERTIFICATE
1. The agent for transfer of the Corporation's stock may
issue new share certificates in place of certificates represented to
have been lost, destroyed, stolen or mutilated upon receiving an
indemnity satisfactory to the agent and the Secretary or Treasurer
of the Corporation, without further action of the Board of Directors.
ARTICLE XXIII.
FISCAL YEAR.
1. The Board of Directors of the Corporation shall have
authority from time to time to determine whether the Corporation
shall operate upon a calendar year basis or upon a fiscal year
basis, and if the latter, said Board shall have power to determine
when the said fiscal year shall begin and end.
ARTICLE XXIV.
DIVIDENDS
1. Dividends on the capital stock of the Corporation may be
declared by the Board of Directors at any regular or special meeting
pursuant to law.
2. Before payment of any dividend, there may be set aside out
of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discre-
tion, think proper as a reserve fund to meet contingencies, or for
equalizing dividends or for repairing or maintaining any property of
the Corporation, or for such other purposes as the directors shall
think conducive to the interest of the Corporation.
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<PAGE> 14
ARTICLE XXV
SEAL
1. This Corporation shall have a Corporate Seal which shall
consist of an imprint of the name of the Corporation, the state of
its incorporation, the year of incorporation and the words "Corporate
Seal."
ARTICLE XXVI.
NOTICES
1. Whenever under the provisions of these Bylaws notice is
required to be given to any director, officer or shareholder, it
shall not be construed to mean personal notice, but such notice may
be given in writing by depositing the same in the United States
Mail, or by telegram addressed to such shareholder, at such address
as appears on the stock transfer books of the Corporation, and
addressed to such director or officer at such address as appears on
the records of the Corporation, and such notice shall be deemed to
be given at the time when the same shall be thus deposited, or the
telegram sent.
2. Any director, officer or shareholder may waive any notice
of any meeting required to be given under these Bylaws either be-
fore, at or after the meeting.
ARTICLE XXVII.
AMENDMENTS
1. The Board of Directors shall have power to make, amend and
repeal the Bylaws of the Corporation by vote of a majority of all
the directors, at any regular or special meeting of the Board.
2. The shareholders may make, alter, amend and repeal the
Bylaws of this Corporation at any annual meeting or at a special
meeting called for that purpose, and all Bylaws made by the direc-
tors may be altered or repealed by vote of the majority of the
shareholders.
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<PAGE> 15
ARTICLE XXVIII
INDEMNIFICATION
1. If any current or former director or officer of First
Tennessee National Corporation ("First Tennessee") shall be wholly
successful, on the merits or otherwise, in any threatened or actual
criminal or civil suit or proceeding other than by or in the right
of First Tennessee to procure a judgement in its favor, including
any suit or proceeding instituted as a result of such director or
officer serving another corporation or other business entity in any
capacity at the request of First Tennessee, which was commenced by
reason of the fact that he is or was a director or officer of First
Tennessee or served such other corporation or other business entity
in any capacity, he shall be indemnified by First Tennessee against
all reasonable expenses, including attorney fees, actually and
necessarily incurred as a result of such threatened or actual suit
or proceeding, or any appeal therein.
2. If any current or former director or officer of First
Tennessee shall be wholly successful, on the merits or otherwise, in
any actual suit by or in the right of First Tennessee to procure a
judgment in its favor, which was commenced by reason of the fact
that he is or was a director or officer of First Tennessee, he shall
be indemnified by First Tennessee against all reasonable expenses;
including attorney fees, actually and necessarily incurred as a
result of such suit or proceeding, or any appeal therein.
3. If any current or former director or officer of First
Tennessee has not been wholly successful, on the merits or other-
wise, in defense of a threatened or actual suit or proceeding of the
character described in Section 1 of this bylaw or a civil action of
the character described in Section 2, unless ordered by the Court
under Section 48-410 of the Tennessee Code Annotated ("T.C.A."), he
shall be indemnified by First Tennessee (1) in a suit or proceeding
of the character described in Section 1, against judgments and
fines; and (2) in a suit or proceeding of the character described in
Sections 1 or 2, against amounts paid in settlement and reasonable
expenses, including attorney fees, actually and necessarily incurred
as a result of such suit or proceeding, or any appeal therein, only
if authorized in the specific case:
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<PAGE> 16
a. By the Board of First Tennessee acting by a quorum consisting
of Directors who are not parties to such action or proceeding
upon a finding that:
(1) In a suit or proceeding other than by or in the right
of First Tennessee, the director or officer has acted
in good faith for a purpose which he has reasonably
believed to be in the best interest of First Tennessee,
and, in criminal actions or proceedings, in addition,
had no reasonable cause to believe that his conduct
was unlawful; or
(2) In a suit or proceeding by or in the right of First
Tennessee, the director or officer has not breached
his duty to First Tennessee under T.C.A. 48-813; and
(3) In the case of any settlement, in addition to the
appropriate standard of conduct under 3.a. (1) or (2),
the settlement is in the best interest of First Tennes-
ee; and if the settlement has been approved by a court,
that the indemnification would not be inconsistent with
any condition with respect to indemnification imposed
by the court in approving the settlement.
b. If a quorum under 3.a. is not available with due diligence:
(1) By the Board of First Tennessee upon the opinion in
writing of independent legal counsel that indemnification
is proper in the circumstances because the applicable
standard of conduct set forth in 3.a.(1), (2) or (3)
has been met by such director or officer; or
(2) By the shareholders of First Tennessee upon finding that
the director or officer has met the applicable standard
of conduct set forth in 3.a.(1), (2) or (3).
4. A director or officer of First Tennessee shall be deemed
to be serving another corporation or other business entity at the
request of First Tennessee only if such request is reflected in the
records of a committee appointed by the Board of first Tennessee for
the purpose of making such requests.
5. Expenses incurred in defending a civil or criminal action,
suit or proceeding may be paid by first Tennessee in advance of the
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<PAGE> 17
final disposition of such action, suit or proceeding if authorized
by the procedure established under 3.a. or b. of this bylaw.
6. If any expenses or other amounts are paid by way of in-
demnification otherwise than by court order under T.C.A. 48-410 or
action by the shareholders, First Tennessee shall give notice to the
shareholders as provided in T.C.A. 48-411(3).
7. Every employee of First Tennessee shall be indemnified by
First Tennessee to the same extent as directors or officers of First
Tennessee.
8. a. The right of indemnification set forth above shall
not be deemed to restrict any right of indemnifica-
tion provided to any director, officer or employee of
First Tennessee or any of its subsidiaries
pursuant to a contract, agreement or resolution
executed upon the approval or ratification of the
Board of First Tennessee acting by a quorum of dis-
interested directors, provided that any such con-
tract shall not enlarge the rights of indemnification
permitted under the Tennessee Central Corporation Act.
b. This bylaw shall not be construed to affect or re-
strict in any manner any right of indemnification
granted by First Tennessee to persons other than
directors, officers and employees of First Tennessee
or any of its subsidiaries.
9. a. No combination of rights shall permit any current or
former director, officer or employee of First Tennes-
see to receive a double recovery.
b. The right of indemnification provided in this bylaw
shall inure to the benefit of the heirs, executors or
administrators of each such current or former direc-
tor, officer of employee of First Tennessee and shall or
in no event be construed to enlarge the rights of
indemnification permitted under the Tennessee General
Corporation Act.
-17-
<PAGE> 18
ARTICLE XXIX
RETIREMENT
1. Directors. Any director who shall attain the age of
seventy (70) shall be automatically retired from the Board at
time of the next succeeding annual meeting of shareholders. How-
ever, a director may be retired before age seventy (70) as herein-
after provided.
Effective December 31, 1978, directors shall be retired from
the Board as follows:
(1) The retirement age for Directors will be sixty-five (65).
Any Director who becomes sixty-five prior to December 31;
1978 or any December 31 thereafter will be retired as of
the December 31 following his sixty-fifth birthday.
(2) For the purpose of maintaining Boards of active business
and professional men, Directors leaving their present
occupation or the position held at their last election (by
retirement or otherwise), will be expected to tender their
resignation from the Board upon such occasion. The resig-
nation will ordinarily be accepted unless (a) the Director
assumes another management position deemed appropriate by
the Board for continuation, or (b) the Director is so en-
gaged in some specific project for the Board as to make
his resignation detrimental to the Corporation. Under
this circumstance, the Board may elect to set a subsequent
date for his retirement timed to coincide with the comple-
tion of the project.
(3) Directors who are also Officers of the Corporation shall
be retired from the Board on the date they retire from or
otherwise discontinue active service with the Corporation
or its affiliates.
Any director of the Corporation who has retired from the Board
is eligible for election to a position on the Honorary Advisory
Board, the duties of which shall be as specified by such resolutions
as the Board of Directors may from time to time adopt. Membership
on the Honorary Advisory Board shall continue at the discretion of
the Board of Directors.
-18-
<PAGE> 19
2. Officers and Employees. As each officer or employee
attains the age of sixty-five years, his employment by the Corpora-
tion shall automatically be terminated and his salary discontinued
on the first day of the month coincident with or immediately following
his sixty-fifth birthday; however, the Board of Directors, in its
discretion, may continue any such officer or employee in service and
designate the capacity in which he shall serve, and shall fix the
remuneration he shall receive. The Board may also re-employ any
former officer who had theretofore been retired.
ARTICLE XXX.
CONVEYANCES
1. All transfers and conveyances of real estate made by the
Corporation shall be executed by any officer of the Corporation, ex-
cept the Auditor and Assistant Auditor, with seal attested by any
other officer of the Corporation.
2. Any officer of the Corporation, except the Auditor and
Assistant Auditor, is authorized and empowered to sell, assign,
transfer, and deliver any and all bonds, stocks, or other indicia of
ownership of personal property which may now or hereafter be assigned
to it, or owned or held by it, and to execute releases of assignments
and conveyances made to the Corporation or instruments in which the
Corporation is named beneficiary.
-19-
<PAGE> 20
RESOLUTION OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
JANUARY 17, 1978
RESOLVED, that Article III, Section 1, of the Bylaws of
the Company be, and hereby is, amended to provide for a board of
directors to consist of 18, rather than 19, members effective
as of April 18, 1978, by deleting the number 19 from said section
of the Bylaws and substituting therefor the number 18.
RESOLVED, that Article XXIX, Section 1, of the Bylaws of the
Company be, and hereby is, amended and restated so as to read as
follows:
"1. Directors. Any director who shall attain the age of
seventy (70) shall be automatically retired from the Board at the
time of the next succeeding annual meeting of shareholders.
However, a director may be retired before age seventy (70) as
hereinafter provided.
Effective December 31, 1978, directors who are not also
officers of the Corporation or its affiliates shall be retired-
from the Board as follows:
(1) Any director who shall attain the age of sixty-
five (65) shall be automatically retired from
the Board at the time of the next succeeding
annual meeting of shareholders.
(2) For the purpose of maintaining Boards of active
business and professional men, directors leaving
their present occupation or the position held at
their last election (by retirement or otherwise),
will be expected to tender their resignation from
the Board upon such occasion. The resignation will
ordinarily be accepted unless (a) the director
assumes another management position deemed appro-
priate by the Board for continuation, or (b) the
director is so engaged in some specific project
for the Board as to make his resignation detri-
mental to the Corporation. Under this circumstance,
the Board may elect to set a subsequent date for his
retirement timed to coincide with the completion
of the project.
Effective January 17, 1978, directors who are also officers
of the Corporation or its affiliates shall be retired from the
Board on the date they retire from or otherwise discontinue active
service with the Corporation or its affiliates.
Any director of the Corporation who has retired from the
Board is eligible for election to a position on the Honorary
Advisory Board, the duties of which shall be as specified by
such resolutions as the Board of Directors may from time to time
adopt. Membership on the Honorary Advisory Board shall continue
at the discretion of the Board of Directors."
A-1, p.1
<PAGE> 21
RESOLUTION OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
MAY 16, 1978
RESOLVED, that Article XXIX, Section 1 of the Bylaws of
the Company be, and in hereby, amended to delete the word
"Advisory" from the phrase "Honorary Advisory Board" where-
ever that phrase appears in said section.
A-1, p.3
<PAGE> 22
RESOLUTION OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
DECEMBER 19, 1978
RESOLVED, that as a result of the Age Discrimination
in Employment Act Amendments of 1978, Article XXIX, Section 2,
of the Bylaws of the Company be, and hereby is, amended and
restated as of January 1, 1979, so as to read as follows:
"2. Officers and Employees. As each officer or
employee attains the age of 70 years, his or
her employment by the Corporation shall auto-
matically be terminated and his or her salary
discontinued on the first day of the month
coincident with or immediately following the
70th birthday. Provided, however, each officer
or employee who meets the exclusion for execu-
tives and top policy makers under the Age
Discrimination in Employment Act; as amended
from time to time, shall automatically be ter-
minated and his or salary discontinued on the
first day of the month coincident with or
immediately following the 65th birthday.
The Board of Directors, in its discretion,
may continue any such officer or employee in
service and designate the capacity in which he or
she shall serve, and shall fix the remuneration
he or she shall receive. The Board of Directors
may also re-employ any former officer who had
theretofore been retired."
A-1, p.5
<PAGE> 23
RESOLUTION OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
APRIL 15, 1980
RESOLVED, that Article III, Section 6 of the Bylaws be, and hereby is,
amended to provide for committees to consist of two, rather than three,
members by deleting the number three, wherever it appears, from said section
of Bylaws and substituting therefor the number two.
<PAGE> 24
RESOLUTION OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
OCTOBER 21, 1980
RESOLVED, that Article VI, Section 5, of the Bylaws of the Company be,
and hereby is, amended and restated to read as follows:
"5. The Board, or a committee thereof, shall fix the
remuneration of executive officers. The renumeration
of non-executive officers shall be fixed by the Board
or by management under such policies and procedures as
shall be established by the Board or a committee there-
of."
<PAGE> 25
RESOLUTION OF BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
JANUARY 19, 1982
RESOLVED, that Article V, Section 2, of the Bylaws of
the Company be, and hereby is, amended by deleting the
words "at least once each calendar quarter" from said
section of Bylaws.
<PAGE> 26
RESOLUTION OF BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
January 20, 1987
A new section 11 of Article II of the Bylaws of the
Company is adopted as follows:
"11. At an annual or special meeting of shareholders,
only such business shall be conducted, and only such
proposals shall be acted upon, as shall have been properly
brought before an annual or special meeting of
shareholders. To be properly brought before an annual or
special meeting of shareholders, business must be (i) in
the case of a special meeting called by or at the direction
of the Board of Directors, specified in the notice of the
special meeting (or any supplement thereto), or (ii) in the
case of an annual meeting properly brought before the
meeting by or at the direction of the Board of Directors or
otherwise properly brought before the annual meeting by a
shareholder. For business to be properly brought before
such a meeting of shareholders by a shareholder, the
shareholder must have given timely notice thereof in
writing to the Secretary of the Corporation. To be timely,
a shareholder's notice must be delivered to or mailed and
received at the principal executive offices of the
Corporation not less than 30 days nor more than 60 days
prior to the date of the meeting; provided, however, that
if less than 40 days' notice or prior public disclosure of
the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so delivered
or received not later than the close of business on the
10th day following the earlier of (i) the day on which such
notice of the date of the meeting was mailed or (ii) the
day on which such public disclosure was made. A
shareholder's notice to the Secretary shall set forth as to
each matter the shareholder proposes to bring before a
meeting of shareholders (i) a brief description of the
business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (ii)
the name and address, as they appear on the Corporation's
books, of the shareholder proposing such business and any
other shareholders known by such shareholder to be
supporting such proposal, (iii) the class and number of
shares of the Corporation which are beneficially owned by
such shareholder on the date of such shareholder's notice
and by any other shareholders known by such shareholder to
be supporting such proposal on the date of such
shareholder's notice, and (iv) any material interest of the
shareholder in such proposal. Notwithstanding anything in
these Bylaws to the contrary, no business shall be
<PAGE> 27
conducted at a meeting of shareholders except in accordance
with the procedures set forth in this Section 11. The
Chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that the business was
not properly brought before the meeting in accordance with
the procedures prescribed by these Bylaws, and if he should
so determine, he shall so declare to the meeting and any
such business not properly brought before the meeting shall
not be transacted."
<PAGE> 28
RESOLUTION OF BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
January 20, 1987
A new Section 7 of Article III of the Bylaws of the
Company is adopted as follows:
"7. Only persons nominated in accordance with the
procedures set forth in this Section 7 shall be eligible
for election as directors. Nominations of persons for
election to the Board may be made at a meeting of
shareholders (i) by or at the direction of the Board, or
(ii) by any shareholder of the Corporation entitled to vote
for the election of directors at such meeting who complies
with the notice procedures set forth in this Section 7.
Such nominations, other than those made by or at the
direction of the Board, shall be made pursuant to timely
notice in writing to the Secretary of the Corporation. To
be timely, a shareholder's notice must be delivered to or
mailed and received at the principal executive offices of
the Corporation not less than 30 days nor more than 60 days
prior to the date of a meeting; provided, however, that if
fewer than 40 days' notice or prior public disclosure of
the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so delivered
or received not later than the close of business on the
10th day following the earlier of (i) the day on which such
notice of the date of such meeting was mailed or (ii) the
day on which such public disclosure was made. A
shareholder's notice to the Secretary shall set forth (i)
as to each person whom the shareholder proposes to nominate
for election or reelection as a director (a) the name, age,
business address and residence address of such person. (b)
the principal occupation or employment of such person, (c)
the class and number of shares of the Corporation which are
beneficially owned by such person on the date of such
shareholder's notice and (d) any other information relating
to such person that is required to be disclosed in
solicitations of proxies for election of directors or, is
otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended
(including, without limitation, such person's written
consent to being named in the proxy statement as a nominee
and to serving as a director if elected); and (ii) as to
the shareholder giving the notice (a) the name and address,
as they appear on the Corporation's books; of such
shareholder and any other shareholders known by such
shareholder to be supporting such nominees and (b) the
class and number of shares of the Corporation which are
beneficially owned by such shareholder on the date of such
<PAGE> 29
shareholder's notice and by any other shareholders known by
such shareholder to be supporting such nominees on the date
of such shareholder's notice. No person shall be eligible
for election as a director of the Corporation unless
nominated in accordance with the procedures set forth in
this Section 7. The Chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures
prescribed by these Bylaws, and if he should so determine,
he shall so declare to the meeting and the defective
nomination shall be disregarded."
<PAGE> 30
RESOLUTION OF BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
January 20, 1987
Article V, Section 3 of the Bylaws of the Company is
amended to read as follows:
"3. Special meetings of the directors may be called
by the Chairman of the Board of Directors or the President
on two days' notice by mail, or on one day's notice by
telegram or cablegram, or on two hours' notice given
personally or by telephone to each director, and shall be
called by the Chairman in like manner on the written
request of a majority of directors then in office. The
notice shall state the place, day and hour where the
meeting is to be held."
<PAGE> 31
RESOLUTION OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
JANUARY 20, 1987
ADOPTED SUBJECT TO
APPROVAL OF PROPOSAL 3
BY THE SHAREHOLDERS
APRIL 21, 1987
RESOLVED, that Article III, Section 2 of the Bylaws of
First Tennessee National Corporation ("Company") is amended to
read as follows:
"2. Except as otherwise provided by law or by the Charter,
the term of each director hereafter elected shall be
from the time of his election and qualification until
the third annual meeting next following his election
and until his successor shall have been duly elected
and qualified; subject, however, to the right of the
removal of any director as provided by law, by the
Charter or by these Bylaws."
<PAGE> 32
RESOLUTION OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
JANUARY 20, 1987
ADOPTED SUBJECT TO
APPROVAL OF PROPOSAL 3
BY THE SHAREHOLDERS
APRIL 21, 1987
RESOLVED, that a new Section 8 of Article III of the Bylaws
of the Company is adopted as follows:
"8. Except as otherwise provided by law or by the Charter,
newly created directorships resulting from any
increase in the authorized number of directors or any
vacancies on the Board of Directors resulting from
death, resignation, retirement, disqualification or
any other cause (except removal from office) shall be
filled only by the Board of Directors, provided that a
quorum is then in office and present, or only by a
majority of the directors then in office, if less than
a quorum is then in office or by the sole remaining
director. Any vacancies on the Board of Directors
resulting from removal from office may be filled by
the affirmative vote of the holders of at least a
majority of the voting power of all outstanding voting
stock or, if the shareholders do not so fill such a
vacancy, by a majority of the directors then in
office. Directors elected to fill a newly created
directorship or other vacancy shall hold office for
the remainder of the full term of the class of
directors in which the new directorship was created or
the vacancy occurred and until such director's
successor has been duly elected and qualified. The
directors of any class of directors of the Corporation
may be removed by the shareholders only for cause by
the affirmative vote of the holders of at least a
majority of the voting power of all outstanding voting
stock."
<PAGE> 33
RESOLUTION OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
JANUARY 20, 1987
ADOPTED SUBJECT TO
APPROVAL OF PROPOSAL 3
BY THE SHAREHOLDERS
APRIL 21, 1987
RESOLVED, that Article 11, Section 10 of the Bylaws of the
Company is repealed, and Section 11 of Article II of the Bylaws
of the Company is renumbered to become Section 10.
<PAGE> 34
RESOLUTION OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
JANUARY 20, 1987
ADOPTED SUBJECT TO
APPROVAL OF PROPOSAL 3
BY THE SHAREHOLDERS
APRIL 21, 1987
RESOLVED, that Article XXVII, Section 2 of the Bylaws of
the Company is amended to read as follows:
"2. The shareholders may make, alter, amend and repeal the
Bylaws of this Corporation at any annual meeting or at
a special meeting called for that purpose only by the
affirmative vote of the holders of at least eighty
percent (80%) of the voting power of all outstanding
voting stock, and all Bylaws made by the directors may
be altered or repealed only by the vote of the holders
of at least eighty percent (80%) of the voting power
of all outstanding voting stock."
<PAGE> 35
RESOLUTION OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
October 16, 1990
RESOLVED, that Article XXIX, Section 1, of the Bylaws of
the Company be, and it hereby is, amended to read as follows:
Directors who are not also officers of the Corporation
or its affiliates shall be retired from the Board of
Directors as follows:
(1) Any director who shall attain the age of
sixty-five (65) shall not thereafter be nominated for
a directorship and shall be automatically retired from
the Board at the expiration of the term for which he
or she was elected.
(2) For the purpose of maintaining boards of
active business and professional persons, directors
leaving the occupation or the position held at their
last election (by retirement or otherwise) will be
expected to tender their resignation from the Board
upon such occasion. A resignation will ordinarily be
accepted unless (a) the director assumes another
management position deemed appropriate by the Board
for continuation, or (b) the director is so engaged in
some specific project for the Board as to make his or
her resignation detrimental to the Corporation. Under
this circumstance, the Board may elect to set a
subsequent date for his or her retirement to coincide
with the completion of the project.
Directors who are also officers of the Corporation or
any of its affiliates will be retired from the Board on the
date they retire from or otherwise discontinue active
Service with the Corporation and its affiliates.
All directors of the Corporation who have served until
retirement, as specified herein, will be asked to serve on
the Honorary Board of Directors. Those directors who do
not serve until retirement but who have served for a
minimum of 10 years as an active member of the Board and
who retire in good standing will also be asked to serve.
Members of the Honorary Board shall have no authority to
bind the Corporation. They shall not attend Board meetings
of the Corporation and Shall not have any authority to vote
on any matter being considered by the Board.
<PAGE> 36
RESOLUTION OF BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
January 22, 1991
RESOLVED, that Article III, Section 1 of the Bylaws of First
Tennessee National Corporation be, and hereby is, amended to provide
for a Board of Directors to consist of 13, rather than 15 members,
effective as of the Annual Meeting of Shareholders, April 16, 1991,
by deleting the number 15 from said section of the Bylaws and
substituting therefor the number 13.
<PAGE> 37
Amendment to Bylaws of First Tennessee
National Corporation, adopted 4-16-91
ARTICLE XXVIII
INDEMNIFICATION
1. If any current or former officer of the Corporation
[including for purposes of this Article an individual who, while an
officer, is or was serving another corporation or other enterprise
(including an employee benefit plan) in any capacity at the request
of the Corporation and unless the context requires otherwise the
estate or personal representative of such officer] is wholly
successful, on the merits or otherwise, in the defense of any
threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative and
whether formal or informal ("Proceeding"), to which he was a party
because he is or was an officer of the Corporation, he shall be
indemnified by the Corporation against all reasonable expenses,
including attorney fees, incurred in connection with such
Proceeding, or any appeal therein.
2. If any current or former officer of the Corporation has not
been wholly successful on the merits or otherwise, in the defense of
a Proceeding, to which he was or was threatened to be made a party
because he was or is an officer, he shall be indemnified by the
Corporation against any judgment, settlement, penalty, fine
(including any excise tax assessed with respect to an employee
benefit plan), or other liability and any reasonable expenses,
including attorney fees, incurred as a result of such Proceeding, or
any appeal therein, if authorized in the specific case after a
determination has been made that indemnification is permissible
because the following standard of conduct has been met:
(1) He conducted himself in good faith, and
(2) He reasonably believed:
(A) In the case of conduct in his official capacity
as an officer of the Corporation that his conduct
was in the Corporation's best interest; and
(B) In all other cases that his conduct was at least
not opposed to its best interests; and
(3) In the case of any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful;
provided, however, the Corporation may not indemnify an officer in
connection with a Proceeding by or in the right of the Corporation
in which the officer was adjudged liable to the Corporation or in
connection with any other proceeding charging improper benefit to
him, whether or not involving action in his official capacity, in
which he was adjudged liable on the basis that personal benefit was
improperly received by him.
-31-
<PAGE> 38
3. The determination required by Section 2 herein shall be
made as follows:
(1) By the Board of Directors by a majority vote of a
quorum consisting of directors not at the time parties
to the Proceeding;
(2) If a quorum cannot be obtained, by majority vote of a
committee duly designated by the Board of Directors
(in which designation directors who are parties may
participate) consisting solely of two or more
directors not at the time parties to the Proceeding;
(3) By independent special legal counsel;
(A) Selected by the Board of Directors or its
committee in the manner prescribed in subsection
(1) or (2); or
(B) If a quorum of the Board of Directors cannot be
obtained under Subsection (1) and a committee
cannot be designated under subsection (2),
selected by majority vote of the full Board of
Directors (in which selection directors who are
parties may participate); or, if a determination
pursuant to Subsections 1, 2, or 3 of this
Section 3 cannot be obtained, then
(4) By the shareholders, but Shares owned by or voted
under the control of directors who are at the time
parties to the Proceeding may not be voted on the
determination.
4. An officer of the Corporation shall be deemed to be serving
another corporation or other enterprise or employee benefit plan at
the request of the Corporation only if such request is reflected in
the records of the Board of Directors or a committee appointed by
the Board of Directors for the purpose of making such requests.
5. The Corporation shall pay for or reimburse reasonable
expenses, including attorney fees, incurred by an officer who is a
party to a Proceeding in advance of the final disposition of the
Proceeding if:
(1) The officer furnishes to the Corporation a written
affirmation of his good faith belief that he has met
the standard of conduct described in Section 2 herein;
(2) The officer furnishes to the Corporation a written
undertaking, executed personally or on his behalf, to
repay the advance if it is ultimately determined that
he is not entitle to indemnification; and
-32-
<PAGE> 39
(3) A determination is made that the facts then known to
those making the determination would not preclude
indemnification under this bylaw.
6. The undertaking required by Section 5 herein must be an
unlimited general obligation of the officer but need not be secured
and may be accepted without reference to financial ability to make
repayment.
7. Determinations and authorizations of payments under Section
5 herein shall be made in the same manner as is specified in
Section 3 herein.
8. Every employee and every former director of the Corporation
shall be indemnified by the Corporation to the same extent as
officers of the Corporation.
9. The right of indemnification set forth above shall not be
deemed exclusive of any other rights to which an officer, employee,
or former director seeking indemnification may be entitled. No
combination of rights shall permit any officer, employee or former
director of the Corporation to receive a double or greater recovery.
10. The Corporation shall indemnify each of its directors and
such of the non-director officers of the Corporation or any of its
subsidiaries as the Board of Directors may designate, and shall
advance expenses, including attorney's fees, to each director and
such designated officers, to the maximum extent permitted (or not
prohibited) by law, and in accordance with the foregoing, the Board
of Directors is expressly authorized to enter into individual
indemnity agreements on behalf of the Corporation with each director
and such designated officers which provide for such indemnification
and expense advancement and to adopt resolutions, which provide for
such indemnification and expense advancement.
-33-
<PAGE> 40
RESOLUTION OF BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
July 16, 1991
RESOLVED, that Article III, Section 1 of the Bylaws of First
Tennessee National Corporation be, and hereby is, amended to provide
for a Board Of Directors to consist of 14, rather than 13 members,
effective as of August 1, 1991, by deleting the number 13 from said
section of the Bylaws and substituting therefor the number 14.
January 19, 1993
RESOLVED, that Article III, Section 1 of the Bylaws of First Tennessee National
Corporation be, and hereby is, amended to provide for a Board of Directors to
consist of 13, rather than 14 members, effective as of January 31, 1993, by
deleting the number 14 from said section of the Bylaws and substituting
therefor the number 13.
<PAGE> 41
RESOLUTION OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
October 20, 1993
RESOLVED, that Article XXIX, Section 1, of the Bylaws of the Company
be, and it hereby is, amended be deleting it in its entirety and amending it to
read as follows:
Directors who are not also officers of the Corporation or its
affiliates shall be retired from the Board of Directors as follows:
(1) Any director who shall attain the age of
sixty-five (65) on or before the last day of the term for
which he or she was elected shall not be nominated for
re-election and shall be retired from the Board at the
expiration of such term.
(2) For the purpose of maintaining boards of active
business and professional persons, directors leaving the
occupation or the position held at their last election (by
retirement or otherwise) will be expected to tender their
resignation from the Board upon such occasion. A resignation
will ordinarily be accepted unless (a) the director assumes
another management position deemed appropriate by the Board
for continuation, or (b) the director is so engaged in some
specific project for the Board as to make his or her
resignation detrimental to the Corporation. Under this
circumstance, the Board may elect to set a subsequent date for
his or her retirement to coincide with the completion of the
project.
Directors who are also officers of the Corporation or any of
its affiliates will be retired from the Board on the date they retire
from or otherwise discontinue active service with the Corporation and
its affiliates.
All directors of the Corporation who have served until
retirement, as specified herein, will be asked to serve on the
Honorary Board of Directors. Those directors who do not serve until
retirement but who have served for a minimum of 10 years as an active
member of the Board and who retire in good standing will also be asked
to serve. Members of the Honorary Board shall have no authority to
bind the Bank. They shall not attend Board meetings of the
Corporation and shall not have any authority to vote on any matter
being considered by the Board.
<PAGE> 42
RESOLUTION OF BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
December 21, 1993
RESOLVED, that Article III, Section 1 of the Bylaws of First Tennessee National
Corporation be, and hereby is, amended to provide for a Board of Directors to
consist of 14, rather than 13 members, effective as of December 21, 1993, by
deleting the number 13 from said section of the Bylaws and substituting
therefor the number 14.
RESOLUTION OF BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
March 2, 1994
RESOLVED, that Article III, Section 1 of the Bylaws of First Tennessee National
Corporation be, and hereby is, amended to provide for a Board of Directors to
consist of 11, rather than 14 members, effective as of April 19, 1994, by
deleting the number 14 from said section of the Bylaws and substituting
therefor the number 11.
<PAGE> 43
RESOLUTIONS OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
April 19, 1994
RESOLVED, that Article VII of the Bylaws of First Tennessee National
Corporation be, and it hereby is, amended by deleting it in its entirety and
substituting therefor the following:
ARTICLE VII.
The Chairman of the Board of Directors and
The Chief Executive Officer
1. The Chairman of the Board of Directors shall preside
at all meetings of the shareholders and of the Board of Directors and
shall have such powers and perform such duties as may be provided for
herein and as may be incident to the office and as may be assigned by
the Board of Directors. If and at such times as the Board of
Directors so determines, the Chairman of the Board may also serve as
the Chief Executive Officer of the Corporation.
2. The Chief Executive Officer, in the absence of the
Chairman of the Board of Directors, shall preside at all meetings of
the shareholders and of the Board of Directors. The Chief Executive
Officer shall be responsible for carrying out the orders of and the
resolutions and policies adopted by the Board of Directors and shall
have general management of the business of the Corporation and shall
exercise general supervision over all of its affairs. In addition,
the Chief Executive Officer shall have such powers and perform such
duties as may be provided for herein and as may be incident to the
office and as may be assigned by the Board of Directors.
FURTHER RESOLVED, that Article VIII of the Bylaws be, and it hereby
is, amended by deleting it in its entirety and substituting therefore the
following:
ARTICLE VIII
The President.
1. The President, in the absence of the Chairman of the
Board of Directors and the Chief Executive Officer, shall preside at
all meetings of the shareholders and of the Board of Directors and
shall be charged with the active management and administration of the
business of the Corporation with the power to make all contracts in
the conduct of the regular and ordinary business of the Corporation,
and he may appoint and discharge agents and employees of the
Corporation and fix their compensation, subject to the general
supervisory powers of the Chairman of the Board of Directors and of
the Chief Executive Officer and of the Board of Directors. In
addition, he shall have such powers and perform such duties as may be
provided for herein and as may be incident to the office and as may be
assigned by the Board of Directors or the chairman of the Board of
Directors or the Chief Executive Officer.
FURTHER RESOLVED, that Articles IX, X, XI, XII, XIII, XIV, XVI and XIX
be, and they hereby are, amended by substituting the phrase "the Chairman of
the Board of Directors or the Chief Executive Officer" for the phrase "the
Chairman of the Board of Directors" or the phrase "the Chairman of the Board"
wherever either of such phrases appears in such Articles.
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RESOLUTION OF
BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
JULY 19, 1994
------------------------------------
RESOLVED, that Article XXIX, Section 2, of the Bylaws of the Company
be, and it hereby is, amended by deleting it in its entirety and amending it to
read as follows:
"2. Officers and Employees. Except as provided in the
following sentence, the Corporation has no compulsory
retirement age for its officers or employees. Each officer or
employee who has attained 65 years of age and who, for the
two-year period immediately before attaining such age, has been
employeed in a "bona fide executive" or a "high policy-making"
position as those terms are used and defined in the Age
Discrimination in Employment Act, Section 12(c), and the
regulations relating to that section prescribed by the Equal
Employment Opportunity Commission, all as amended from time to
time (collectively, the "ADEA"), shall automatically be terminated
by way of compulsory retirement and his or her salary discontinued
on the first day of the month coincident with or immediately
following the 65th birthday, provided such employee is entitled to
an immediate nonforfeitable annual retirement benefit, as
specified in the ADEA, in the aggregate amount of at least
$44,000. Notwithstanding the prior sentence, the Board of
Directors, in its discretion, may continue any such officer or
employee in service and designate the capacity in which he or she
shall serve, and shall fix the remuneration he or she shall
receive. The Board of Directors may also reemploy any former
officer who had theretofor been retired."
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RESOLUTION OF BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
October 18, 1994
------------------------------------
RESOLVED, that Article III, Section 1 of the Bylaws of First Tennessee National
Corporation be, and hereby is, amended to provide for a Board of Directors to
consist of 12, rather than 11 members, effective as of October 18, 1994, by
deleting the number 11 from said section of the Bylaws and substituting
therefor the number 12.
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RESOLUTION OF BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
December 19, 1995
RESOLVED, that the second paragraph of Section 1 of Article XXIX of
the Bylaws of the Corporation be, and it hereby is, amended by deleting it in
its entirety and substituting therefor the following:
Directors who are also officers of the Corporation or any of
its affiliates will be retired from the Board on the date of
the annual meeting coincident with or next following the date
of the Director's retirement from or other discontinuation of
active service with the Corporation and its affiliates.
<PAGE> 47
RESOLUTION OF BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
April 16, 1996
RESOLVED, that Article III, Section 1 of the Bylaws of First Tennessee National
Corporation be, and hereby is, amended to provide for a Board of Directors to
consist of 11, rather than 12 members, effective as of April 16, 1996, by
deleting the number 12 from said section of the Bylaws and substituting therefor
the number 11.
RESOLUTION OF BOARD OF DIRECTORS OF
FIRST TENNESSEE NATIONAL CORPORATION
December 17, 1996
RESOLVED, that Article III, Section 1 of the Bylaws of First Tennessee National
Corporation be, and hereby is, amended to provide for a Board of Directors to
consist of 13, rather than 11 members, effective as of December 17, 1996, by
deleting the number 11 from said section of the Bylaws and substituting therefor
the number 13.
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EXHIBIT 10(a)
1-21-97 AMENDMENT TO
FIRST TENNESSEE NATIONAL CORPORATION
MANAGEMENT INCENTIVE PLAN
_________________________________________________
1. Subsection (l) of Section I of the First Tennessee National
Corporation Management Incentive Plan (the "Plan") is amended by deleting the
section in its entirety and substituting therefor the following:
(l) "Change in Control" means the occurrence of any one of the
following events:
(i) individuals who, on January 21, 1997, constitute the
Board (the "Incumbent Directors") cease for any reason to constitute
at least a majority of the Board, provided that any person becoming a
director subsequent to January 21, 1997, whose election or nomination
for election was approved by a vote of at least three-fourths (3/4) of
the Incumbent Directors then on the Board (either by a specific vote
or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without written objection
to such nomination) shall be an Incumbent Director; provided, however,
that no individual elected or nominated as a director of the Company
initially as a result of an actual or threatened election contest with
respect to directors or as a result of any other actual or threatened
solicitation of proxies or consents by or on behalf of any person
other than the Board shall be deemed to be an Incumbent Director;
(ii) any "Person" (as defined under Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and
as used in Section 13(d) or Section 14(d) of the Exchange Act) is or
becomes a "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's
then outstanding securities eligible to vote for the election of the
Board (the "Company Voting Securities"); provided, however, that the
event described in this paragraph (ii) shall not be deemed to be a
change in control by virtue of any of the following acquisitions: (A)
by the Company or any entity in which the Company directly or
indirectly beneficially owns more than 50% of the voting securities or
interests (a "Subsidiary"), (B) by an employee stock ownership or
employee benefit plan or trust sponsored or maintained by the Company
or any Subsidiary, (C) by any underwriter temporarily holding
securities pursuant to an offering of such securities, or (D) pursuant
to a Non-Qualifying Transaction (as defined in paragraph (iii));
(iii) consummation of a merger, consolidation, share exchange
or similar form of corporate transaction involving the Company or any
of its Subsidiaries that requires the approval of the Company's
shareholders, whether for such transaction or the issuance of
securities in the transaction (a "Business Combination"), unless
immediately following such Business Combination: (A) more than 50% of
the total voting power of (x) the corporation resulting from such
Business Combination (the "Surviving Corporation"), or (y) if
applicable,
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the ultimate parent corporation that directly or indirectly has
beneficial ownership of 100% of the voting securities eligible to
elect directors of the Surviving Corporation (the "Parent
Corporation"), is represented by Company Voting Securities that were
outstanding immediately prior to the consummation of such Business
Combination (or, if applicable, is represented by shares into which
such Company Voting Securities were converted pursuant to such
Business Combination), and such voting power among the holders thereof
is in substantially the same proportion as the voting power of such
Company Voting Securities among the holders thereof immediately prior
to the Business Combination, (B) no person (other than any employee
benefit plan sponsored or maintained by the Surviving Corporation or
the Parent Corporation), is or becomes the beneficial owner, directly
or indirectly, of 20% or more of the total voting power of the
outstanding voting securities eligible to elect directors of the
Parent Corporation (or, if there is no Parent Corporation, the
Surviving Corporation) and (C) at least a majority of the members of
the board of directors of the Parent Corporation (or, if there is no
Parent Corporation, the Surviving Corporation) were Incumbent
Directors at the time of the Board's approval of the execution of the
initial agreement providing for such Business Combination (any
Business Combination which satisfies all of the criteria specified in
(A), (B) and (C) above shall be deemed to be a "Non-Qualifying
Transaction"); or
(iv) the shareholders of the Company approve a plan of
complete liquidation or dissolution of the Company or a sale of all or
substantially all of the Company's assets.
Notwithstanding the foregoing, a Change in Control of the Company
shall not be deemed to occur solely because any person acquires beneficial
ownership of more than 20% of the Company Voting Securities as a result of the
acquisition of Company Voting Securities by the Company which reduces the
number of Company Voting Securities outstanding; provided, that if after such
acquisition by the Company such person becomes the beneficial owner of
additional Company Voting Securities that increases the percentage of
outstanding Company Voting Securities beneficially owned by such person, a
change in control of the Company shall then occur.
2. Section X of the Plan is amended by deleting it in its
entirety and substituting therefor the following:
If a Change in Control occurs, an award under the Plan shall be paid
at the time specified below to each Participant without regard to any contrary
provisions of the Plan, computed as follows: the award to be paid will be in
the form of a lump sum cash amount equal to the portion of the Participant's
target award for the Plan Year in which a Change in Control occurs in an amount
equal to the product of (i) the Participant's target bonus under the Plan for
such Plan Year, and (ii) a fraction, the numerator of which is the number of
days in the Plan Year in which a Change in Control occurs through the date of
the Change in Control, and the denominator of which is three hundred sixty-five
(365). Payment of an award under this Section of the Plan shall be made
immediately upon the occurrence of an event described in Section I(l)(i),
I(l)(ii) or I(l)(iv) and, in the event an agreement to effectuate a Change in
Control pursuant to a Business Combination has been executed,
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<PAGE> 3
shall be made three business days prior to the date the Chief Executive Officer
of the Company believes in good faith to be the effective date of the merger or
other transaction described in Section I(l)(iii) hereof. Any payments made as
a result of the operation of this Section 10.2 of the Plan shall reduce dollar
for dollar any other payments otherwise due under the Plan.
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<PAGE> 1
EXHIBIT 10(b)
FIRST TENNESSEE NATIONAL CORPORATION
1997 EMPLOYEE STOCK OPTION PLAN
(Adopted 10-22-96, Amended and Restated 1-21-97)
1. PURPOSE. The 1997 Employee Stock Option Plan (the "Plan") of First Tennessee
National Corporation and any successor thereto, (the "Company") is designed to
enable employees of the Company and its subsidiaries to obtain a proprietary
interest in the Company, and thus to share in the future success of the
Company's business. Accordingly, the Plan is intended as a further means not
only of attracting and retaining outstanding personnel, but also of promoting a
closer identity of interest between employees and shareholders.
2. DEFINITIONS. As used in the Plan, the following terms shall have the
respective meanings set forth below:
(a) "Change in Control" means the occurrence of any one of the
following events:
(i) individuals who, on January 21, 1997, constitute
the Board (the "Incumbent Directors") cease for any reason to
constitute at least a majority of the Board, provided that any
person becoming a director subsequent to January 21, 1997,
whose election or nomination for election was approved by a
vote of at least three-fourths (3/4) of the Incumbent
Directors then on the Board (either by a specific vote or by
approval of the proxy statement of the Company in which such
person is named as a nominee for director, without written
objection to such nomination) shall be an Incumbent Director;
provided, however, that no individual elected or nominated as
a director of the Company initially as a result of an actual
or threatened election contest with respect to directors or as
a result of any other actual or threatened solicitation of
proxies or consents by or on behalf of any person other than
the Board shall be deemed to be an Incumbent Director;
(ii) any "Person" (as defined under Section 3(a)(9)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and as used in Section 13(d) or Section 14(d)
of the Exchange Act) is or becomes a "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 20% or
more of the combined voting power of the Company's then
outstanding securities eligible to vote for the election of
the Board (the "Company Voting Securities"); provided,
however, that the event described in this paragraph (ii) shall
not be deemed to be a change in control by virtue of any of
the following acquisitions: (A) by the Company or any entity
in which the Company directly or indirectly beneficially owns
more than 50% of the voting securities or interests (a
"Subsidiary"), (B) by an employee stock ownership or employee
benefit plan or trust sponsored or maintained by the Company
or any Subsidiary, (C) by any underwriter temporarily holding
securities pursuant to an offering of such securities, or (D)
pursuant to a Non-Qualifying Transaction (as defined in
paragraph (iii));
(iii) the shareholders of the Company approve a
merger, consolidation, share exchange or similar form of
corporate transaction involving the Company or any of its
Subsidiaries that requires the approval of the Company's
shareholders, whether for such transaction or the issuance of
securities in the transaction (a "Business Combination"),
unless immediately following such Business Combination: (A)
more than 50% of the total voting power of (x) the corporation
resulting from such Business Combination (the "Surviving
Corporation"), or (y) if applicable, the ultimate parent
corporation that directly or indirectly has beneficial
ownership of 100% of the voting securities eligible to elect
directors of the Surviving Corporation (the "Parent
Corporation"), is represented by Company Voting Securities
that were outstanding immediately prior to the consummation of
such Business Combination (or, if applicable, is represented
by shares into which such Company Voting Securities were
converted pursuant to such Business Combination), and such
voting power among the holders thereof is in substantially the
same proportion as the voting power of such Company Voting
Securities among the holders thereof immediately prior to the
Business Combination, (B) no person (other than any employee
benefit plan sponsored or maintained by the Surviving
Corporation or the Parent Corporation), is or becomes the
beneficial owner, directly or indirectly, of 20% or more of
the total voting power of the outstanding voting
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<PAGE> 2
securities eligible to elect directors of the Parent
Corporation (or, if there is no Parent Corporation, the
Surviving Corporation) and (C) at least a majority of the
members of the board of directors of the Parent Corporation
(or, if there is no Parent Corporation, the Surviving
Corporation) were Incumbent Directors at the time of the
Board's approval of the execution of the initial agreement
providing for such Business Combination (any Business
Combination which satisfies all of the criteria specified in
(A), (B) and (C) above shall be deemed to be a "Non-Qualifying
Transaction"); or
(iv) the shareholders of the Company approve a plan
of complete liquidation or dissolution of the Company or a
sale of all or substantially all of the Company's assets.
Computations required by paragraph (iii) shall be made on and as of the
date of shareholder approval and shall be based on reasonable assumptions that
will result in the lowest percentage obtainable.
Notwithstanding the foregoing, a Change in Control of the Company shall
not be deemed to occur solely because any person acquires beneficial ownership
of more than 20% of the Company Voting Securities as a result of the acquisition
of Company Voting Securities by the Company which reduces the number of Company
Voting Securities outstanding; provided, that if after such acquisition by the
Company such person becomes the beneficial owner of additional Company Voting
Securities that increases the percentage of outstanding Company Voting
Securities beneficially owned by such person, a change in control of the Company
shall then occur.
(b) "Committee" means the Stock Option Committee or any successor
committee designated by the Board of Directors to administer
the Stock Option Plan, as provided in Section 5(a) hereof.
(c) "Early Retirement" means termination of employment after an
employee has fulfilled all service requirements for an early
pension, and before his or her Normal Retirement Date, under
the terms of the First Tennessee National Corporation Pension
Plan, as amended from time to time.
(d) "Quota" means the portion of the total number of shares
subject to an option which the grantee of the option may
purchase during the several periods of the term of the option
(if the option is subject to quotas), as provided in Section
8(b) hereof.
(e) "Retirement" means termination of employment after an employee
has fulfilled all service requirements for a pension under the
terms of the First Tennessee National Corporation Pension
Plan, as amended from time to time.
(f) "Subsidiary" means a subsidiary corporation as defined in
Section 425 of the Internal Revenue Code.
(g) "Successor" means the legal representative of the estate of a
deceased grantee or the person or persons who shall acquire
the right to exercise an option or related SAR by bequest or
inheritance or by reason of the death of the grantee, as
provided in Section 10 hereof.
(h) "Term of the Option" means the period during which a
particular option may be exercised, as provided in Section
8(a) hereof.
(i) "Three months after cessation of employment" means a period of
time beginning at 12:01 A.M. on the day following the date
notice of termination of employment was given and ending at
11:59 P.M. on the date in the third following month
corresponding numerically with the date notice of termination
of employment was given ( or in the event that the third
following month does not have a date so corresponding, then
the last day of the third following month).
(j) "Five years after (an event occurring on day x)" and "five
years from (an event occurring on day x)" means a period of
time beginning at 12:01 A.M. on the day following day x and
ending at 11:59 P.M. on the date
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in the fifth following year corresponding numerically with day
x (or in the event that the fifth following year does not have
a date so corresponding, then the last day of the sixtieth
following month).
(k) "Voluntary Resignation" means any termination of employment
that is not involuntary and that is not the result of the
employee's death, disability, early retirement or retirement.
3. EFFECTIVE DATE OF PLAN. The Plan shall become effective upon approval by the
Board of Director of the Company. No options may be granted under the Plan after
the month and day in the year 2006 corresponding to the day before the month and
day on which the Plan becomes effective. The term of options granted on or
before such date may, however, extend beyond that date.
4. SHARES SUBJECT TO THE PLAN.
(a) The Company may grant options under the Plan authorizing the
issuance of no more than 2,100,000 shares of its $1.25 par
value (adjusted for any stock splits) common stock, which will
be provided from shares purchased in the open market or
privately (that became authorized but unissued shares under
state corporation law) or by the issuance of previously
authorized but unissued shares.
(b) Shares as to which options previously granted under this Plan
shall for any reason lapse shall be restored to the total
number available for grant of options.
5. PLAN ADMINISTRATION.
(a) The Plan shall be administered by a Stock Option Committee
(the "Committee") whose members shall be appointed from time
to time by, and shall serve at the pleasure of, the Board of
Directors of the Company. In addition, all members shall be
directors and shall meet the definitional requirements for
"non-employee director" (with any exceptions therein
permitted) contained in the then current SEC Rule 16b-3 or any
successor provision.
(b) The Committee shall adopt such rules of procedure as it may
deem proper.
(c) The powers of the Committee shall include plenary authority to
interpret the Plan, and subject to the provisions hereof, to
determine the persons to whom options shall be granted, the
number of shares subject to each option, the term of the
option, and the date on which options shall be granted.
6. ELIGIBILITY.
(a) Options may be granted under the Plan to employees of the
Company or any subsidiary selected by the Committee.
Determination by the Committee of the employees to whom
options shall be granted shall be conclusive.
(b) An individual may receive more than one option.
7. OPTION PRICE. The option price per share to be paid by the grantee to the
Company upon exercise of the option shall be determined by the Committee, but
shall not be less than 100% of the fair market value of the share at the time
the option is granted, nor shall the price per share be less than the par value
of the share. Notwithstanding the prior sentence, the option price per share may
be less than 100% of the fair market value of the share at the time the option
is granted if:
(a) The grantee of the option has entered into an agreement with
the Company pursuant to which the grant of the option is in
lieu of the payment of compensation; and
(b) The amount of such compensation when added to the cash
exercise price of the option equals at least 100% of the fair
market value (at the time the option is granted) of the shares
subject to option.
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"Fair market value" for purposes of the Plan shall be the mean between the high
and low sales prices at which shares of the Company were sold on the valuation
day as quoted by the Nasdaq Stock Market or, if there were no sales on that day,
then on the last day prior to the valuation day during which there were sales.
In the event that this method of valuation is not practicable, then the
Committee, in its discretion, shall establish the method by which fair market
value shall be determined.
8. TERMS OR QUOTAS OF OPTIONS:
(a) TERM. Each option granted under the Plan shall be exercisable
only during a term (the "Term of the Option") commencing one
year, or such other period of time (which may be less than or
more than one year) as is determined to be appropriate by the
Committee, after the date when the option was granted and
ending (unless the option shall have terminated earlier under
other provisions of the Plan) on a date to be fixed by the
Committee. Notwithstanding the foregoing, each option granted
under the Plan shall become exercisable in full immediately
upon a Change in Control.
(b) QUOTAS. The Committee shall have authority to grant options
exercisable in full at any time during their term, or
exercisable in quotas. Quotas or portions thereof not
purchased in earlier periods shall be cumulated and be
available for purchase in later periods. In exercising his or
her option, the grantee may purchase less than the full quota
available to him or her.
(c) EXERCISE OF STOCK OPTIONS. Stock options shall be exercised by
delivering, mailing, or transmitting to the Committee or its
designee (for all purposes under the Plan, in the absence of
an express designation by the Committee, the Company's
Personnel Division Manager is deemed to be the Committee's
designee) the following items:
(i) A notice, in the form, by the method, and at times
prescribed by the Committee, specifying the number of shares
to be purchased; and
(ii) A check or money order payable to the Company for the
full option price.
In addition, the Committee in its sole discretion may
determine that it is an appropriate method of payment for
grantees to pay, or make partial payment of, the option price
with shares of Company common stock in lieu of cash. In
addition, in its sole discretion the Committee may determine
that it is an appropriate method of payment for grantees to
pay for any shares subject to an option by delivering a
properly executed exercise notice together with a copy of
irrevocable instructions to a broker to deliver promptly to
the Company the amount of sale or loan proceeds to pay the
purchase price (a "cashless exercise"). To facilitate the
foregoing, the Company may enter into agreements for
coordinated procedures with one or more brokerage firms. The
value of Company common stock surrendered in payment of the
exercise price shall be its fair market value, determined
pursuant to Section 7, on the date of exercise. Upon receipt
of such notice of exercise of a stock option and upon payment
of the option price by a method other than a cashless
exercise, the Company shall promptly deliver to the grantee a
certificate or certificates for the shares purchased, without
charge to him or her for issue or transfer tax.
(d) POSTPONEMENTS. The Committee may postpone any exercise of an
option for such period of time as the Committee in its
discretion reasonably believes necessary to prevent any acts
or omissions that the Committee reasonably believes will be or
will result in the violation of any state or federal law; and
the Company shall not be obligated by virtue of any provision
of the Plan or the terms of any prior grant of an option to
recognize the exercise of an option or to sell or issue shares
during the period of such postponement. Any such postponement
shall automatically extend the time within which the option
may be exercised, as follows: The exercise period shall be
extended for a period of time equal to the number of days of
the postponement, but in no event shall the exercise period be
extended beyond the last day of the postponement for more days
than there were remaining in the option exercise period on the
first day of the postponement. Neither the Company nor any
subsidiary of the Company, nor any of their respective
directors or officers shall have any obligation or liability
to the grantee of an option or to a
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successor with respect to any shares as to which the option
shall lapse because of such postponement.
(e) NON-TRANSFERABILITY. All options granted under the Plan shall
be non-transferable other than by will or by the laws of
descent and distribution, subject to Section 10 hereof, and an
option may be exercised during the lifetime of the grantee
only by him or her or by his/her guardian or legal
representative.
(f) CERTIFICATES. The stock certificate or certificates to be
delivered under this Plan may, at the request of the grantee,
be issued in his or her name or, with the consent of the
Company, the name of another person as specified by the
grantee.
(g) RESTRICTIONS. This subsection (g) shall be void and of no
legal effect in the event of a Change of Control.
Notwithstanding anything in any other section or subsection
herein to the contrary, the following provisions shall apply
to all options, exercises and grantees. An amount equal to the
spread realized in connection with the exercise of an option
within six months prior to a grantee's voluntary resignation
shall be paid to the Company by the grantee in the event that
the grantee, within six months following voluntary
resignation, engages, directly or indirectly, in any activity
determined by the Committee to be competitive with any
activity of the Company or any of its subsidiaries.
(h) TAXES. The Company shall be entitled to withhold the amount of
any tax attributable to amounts payable or shares deliverable
under the Plan, and the Company may defer making payment or
delivery of any benefits under the Plan if any tax is payable
until indemnified to its satisfaction. The Committee may, in
its discretion and subject to such rules which it may adopt,
permit a grantee to satisfy, in whole or in part, any federal,
state and local withholding tax obligation which may arise in
connection with the exercise of a stock option, by electing
either:
(i) to have the Company withhold shares of Company common
stock from the shares to be issued upon the exercise of the
option;
(ii) to permit a grantee to tender back shares of Company
common stock issued upon the exercise of an option; or
(iii) to deliver to the Company previously owned shares of
Company common stock, having, in the case of (i), (ii), or
(iii), a fair market value equal to the amount of the federal,
state, and local withholding tax associated with the exercise
of the option.
(i) ADDITIONAL PROVISIONS APPLICABLE TO OPTION AGREEMENTS IN LIEU
OF COMPENSATION. If the Committee, in its discretion permits
participants to enter into agreements as contemplated by
Section 7 herein, then such agreements must be irrevocable and
cannot be changed by the participant once made, and such
agreements must be made at least prior to the performance of
any services with respect to which an option may be granted.
If any participant who enters into such an agreement
terminates employment prior to the grant of the option, then
the option will not be granted and all compensation which
would have been covered by the option will be paid to the
participant in cash.
9. EXERCISE OF OPTION BY GRANTEE ON CESSATION OF EMPLOYMENT. If a person to whom
an option has been granted shall cease, for a reason other than his or her
death, disability, early retirement, retirement, or voluntary resignation, to be
employed by the Company or a subsidiary, the option shall terminate three months
after the cessation of employment, unless it terminates earlier under other
provisions of the Plan. Until the option terminates, it may be exercised by the
grantee for all or a portion of the shares as to which the right to purchase had
accrued under the Plan at the time of cessation of employment, subject to all
applicable conditions and restrictions provided in Section 8 hereof. If a person
to whom an option has been granted shall retire or become disabled, the option
shall terminate five years after the date of early retirement, retirement or
disability, unless it terminates earlier under other provisions of the Plan.
Although such exercise by a retiree
5
<PAGE> 6
or disabled grantee is not limited to the exercise rights which had accrued at
the date of early retirement, retirement or disability, such exercise shall be
subject to all applicable conditions and restrictions prescribed in Section 8
hereof. If a person shall voluntarily resign, his option to the extent not
previously exercised shall terminate at once.
10. EXERCISE OF OPTION AFTER DEATH OF GRANTEE. If the grantee of an option shall
die while in the employ of the Company or within three months after ceasing to
be an employee, and if the option was in effect at the time of his or her death
(whether or not its term had then commenced), the option may, until the
expiration of five years from the date of death of the grantee or until the
earlier expiration of the term of the option, be exercised by the successor of
the deceased grantee. Although such exercise is not limited to the exercise
rights which had accrued at the date of death of the grantee, such exercise
shall be subject to all applicable conditions and restrictions prescribed in
Section 8 hereof.
11. PYRAMIDING OF OPTIONS. The Committee in its sole discretion may from time to
time permit the method of exercising options known as pyramiding (the automatic
application of shares received upon the exercise of a portion of a stock option
to satisfy the exercise price for additional portions of the option).
12. SHAREHOLDER RIGHTS. No person shall have any rights of a shareholder by
virtue of a stock option except with respect to shares actually issued to him or
her, and issuance of shares shall confer no retroactive right to dividends.
13. ADJUSTMENT FOR CHANGES IN CAPITALIZATION. Any increase in the number of
outstanding shares of common stock of the Company occurring through stock splits
or stock dividends after the adoption of the Plan shall be reflected
proportionately:
(a) in an increase in the aggregate number of shares then
available for the grant of options under the Plan, or becoming
available through the termination or forfeiture of options
previously granted but unexercised;
(b) in the number subject to options then outstanding; and
(c) in the quotas remaining available for exercise under
outstanding options,
and a proportionate reduction shall be made in the per-share option price as to
any outstanding options or portions thereof not yet exercised. Any fractional
shares resulting from such adjustments shall be eliminated. If changes in
capitalization other than those considered above shall occur, the Board of
Directors shall make such adjustments in the number and class of shares for
which options may thereafter be granted, and in the number and class of shares
remaining subject to options previously granted and in the per-share option
price as the Board in its discretion may consider appropriate, and all such
adjustments shall be conclusive.
14. TERMINATION, SUSPENSION, OR MODIFICATION OF PLAN. The Board of Directors may
at any time terminate, suspend, or modify the Plan, except that the Board of
Directors shall not amend the Plan in violation of law. No termination,
suspension, or modification of the Plan shall adversely affect any right
acquired by any grantee, or by any successor of a grantee (as provided in
Section 10 hereof), under the terms of an option granted before the date of such
termination, suspension, or modification, unless such grantee or successor shall
consent, but it shall be conclusively presumed that any adjustment for changes
in capitalization as provided in Section 13 does not adversely affect any such
right.
15. APPLICATION OF PROCEEDS. The proceeds received by the Company from the sale
of its shares under the Plan will be used for general corporate purposes.
16. NO RIGHT TO EMPLOYMENT. Neither the adoption of the Plan nor the granting of
any stock option shall confer upon the grantee any right to continue in the
employ of the Company or any of its subsidiaries or interfere in any way with
the right of the Company or the subsidiary to terminate such employment at any
time.
17 GOVERNING LAW. The Plan and all determinations thereunder shall be governed
by and construed in accordance with the laws of the State of Tennessee.
6
<PAGE> 7
18. SUCCESSORS. This Plan shall bind any successor of the Company, its assets or
its businesses (whether direct or indirect, by purchase, merger, consolidation
or otherwise), in the same manner and to the same extent that the Company would
be obligated under this Plan if no succession had taken place. In the case of
any transaction in which a successor would not by the foregoing provision or by
operation of law be bound by this Plan, the Company shall require such successor
expressly and unconditionally to assume and agree to perform the Company's
obligations under this Plan, in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken place. The
term "Company," as used in the Plan, shall mean the Company as hereinbefore
defined and any successor or assignee to the business or assets which by reason
hereof becomes bound by this Plan.
7
<PAGE> 1
EXHIBIT 10(c)
1-21-97 AMENDMENT TO
FIRST TENNESSEE NATIONAL CORPORATION
1989 RESTRICTED STOCK INCENTIVE PLAN
___________________________________________
1. The first sentence of Section 1 of the First Tennessee National
Corporation 1989 Restricted Stock Incentive Plan (the "Plan") is amended by
inserting the phrase "and any successor thereto" after the second reference to
"First Tennessee National Corporation" in such sentence.
2. Subsection (g) of Section 5 of the Plan is amended by deleting the
second sentence of subsection (g) and the balance of the subsection following
the second sentence and substituting therefor the following:
A "Change in Control" means the occurrence of any one of the following
events:
(i) individuals who, on January 21, 1997, constitute the
Board (the "Incumbent Directors") cease for any reason to constitute
at least a majority of the Board, provided that any person becoming a
director subsequent to January 21, 1997, whose election or nomination
for election was approved by a vote of at least three-fourths (3/4) of
the Incumbent Directors then on the Board (either by a specific vote
or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without written objection
to such nomination) shall be an Incumbent Director; provided, however,
that no individual elected or nominated as a director of the Company
initially as a result of an actual or threatened election contest with
respect to directors or as a result of any other actual or threatened
solicitation of proxies or consents by or on behalf of any person
other than the Board shall be deemed to be an Incumbent Director;
(ii) any "Person" (as defined under Section 3(a)(9) of the
Securitie Exchange Act of 1934, as amended (the "Exchange Act") and
as used in Section 13(d) or Section 14(d) of the Exchange Act) is or
becomes a "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's
then outstanding securities eligible to vote for the election of the
Board (the "Company Voting Securities"); provided, however, that the
event described in this paragraph (ii) shall not be deemed to be a
change in control by virtue of any of the following acquisitions: (A)
by the Company or any entity in which the Company directly or
indirectly beneficially owns more than 50% of the voting securities or
interests (a "Subsidiary"), (B) by an employee stock ownership or
employee benefit plan or trust sponsored or maintained by the Company
or any Subsidiary, (C) by any underwriter temporarily holding
securities pursuant to an offering of such securities, or (D) pursuant
to a Non-Qualifying Transaction (as defined in paragraph (iii));
(iii) the shareholders of the Company approve a merger,
consolidation, share exchange or similar form of corporate transaction
involving the Company or any of its Subsidiaries that requires the
approval of the Company's shareholders, whether for such
<PAGE> 2
transaction or the issuance of securities in the transaction (a
"Business Combination"), unless immediately following such Business
Combination: (A) more than 50% of the total voting power of (x) the
corporation resulting from such Business Combination (the "Surviving
Corporation"), or (y) if applicable, the ultimate parent corporation
that directly or indirectly has beneficial ownership of 100% of the
voting securities eligible to elect directors of the Surviving
Corporation (the "Parent Corporation"), is represented by Company
Voting Securities that were outstanding immediately prior to the
consummation of such Business Combination (or, if applicable, is
represented by shares into which such Company Voting Securities were
converted pursuant to such Business Combination), and such voting
power among the holders thereof is in substantially the same
proportion as the voting power of such Company Voting Securities among
the holders thereof immediately prior to the Business Combination, (B)
no person (other than any employee benefit plan sponsored or
maintained by the Surviving Corporation or the Parent Corporation), is
or becomes the beneficial owner, directly or indirectly, of 20% or
more of the total voting power of the outstanding voting securities
eligible to elect directors of the Parent Corporation (or, if there is
no Parent Corporation, the Surviving Corporation) and (C) at least a
majority of the members of the board of directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving
Corporation) were Incumbent Directors at the time of the Board's
approval of the execution of the initial agreement providing for such
Business Combination (any Business Combination which satisfies all of
the criteria specified in (A), (B) and (C) above shall be deemed to be
a "Non-Qualifying Transaction"); or
(iv) the shareholders of the Company approve a plan of
complete liquidation or dissolution of the Company or a sale of all or
substantially all of the Company's assets.
Computations required by paragraph (iii) shall be made on and as of
the date of shareholder approval and shall be based on reasonable assumptions
that will result in the lowest percentage obtainable.
Notwithstanding the foregoing, a Change in Control of the Company
shall not be deemed to occur solely because any person acquires beneficial
ownership of more than 20% of the Company Voting Securities as a result of the
acquisition of Company Voting Securities by the Company which reduces the
number of Company Voting Securities outstanding; provided, that if after such
acquisition by the Company such person becomes the beneficial owner of
additional Company Voting Securities that increases the percentage of
outstanding Company Voting Securities beneficially owned by such person, a
change in control of the Company shall then occur.
3. The Plan is amended by adding a new Section 15 at the end thereof,
which will read as follows:
15. Successors. This Plan shall bind any successor of the Company,
its assets or its businesses (whether direct or indirect, by purchase,
merger, consolidation or otherwise), in the same manner and to the
same extent that the Company would be obligated under this Plan if no
succession had taken place. In the case of any transaction in which a
successor would
<PAGE> 3
not by the foregoing provision or by operation of law be bound by this
Plan, the Company shall require such successor expressly and
unconditionally to assume and agree to perform the Company's
obligations under this Plan, in the same manner and to the same extent
that the Company would be required to perform if no such succession
had taken place. The term "Company," as used in the Plan, shall mean
the Company as hereinbefore defined and any successor or assignee to
the business or assets which by reason hereof becomes bound by this
Plan.
<PAGE> 1
EXHIBIT 10(d)
1-21-97 AMENDMENT TO
FIRST TENNESSEE NATIONAL CORPORATION
1992 RESTRICTED STOCK INCENTIVE PLAN
________________________________________________
1. The first sentence of Section 1 of the First Tennessee National
Corporation 1992 Restricted Stock Incentive Plan (the "Plan") is amended by
inserting the phrase "and any successor thereto" after the second reference to
"First Tennessee National Corporation" in such sentence.
2. Subsection (g) of Section 5 of the Plan is amended by deleting the
second sentence of subsection (g) and the balance of the subsection following
the second sentence and substituting therefor the following:
A "Change in Control" means the occurrence of any one of the following
events:
(i) individuals who, on January 21, 1997, constitute the
Board (the "Incumbent Directors") cease for any reason to constitute
at least a majority of the Board, provided that any person becoming a
director subsequent to January 21, 1997, whose election or nomination
for election was approved by a vote of at least three-fourths (3/4) of
the Incumbent Directors then on the Board (either by a specific vote
or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without written objection
to such nomination) shall be an Incumbent Director; provided, however,
that no individual elected or nominated as a director of the Company
initially as a result of an actual or threatened election contest with
respect to directors or as a result of any other actual or threatened
solicitation of proxies or consents by or on behalf of any person
other than the Board shall be deemed to be an Incumbent Director;
(ii) any "Person" (as defined under Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and
as used in Section 13(d) or Section 14(d) of the Exchange Act) is or
becomes a "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's
then outstanding securities eligible to vote for the election of the
Board (the "Company Voting Securities"); provided, however, that the
event described in this paragraph (ii) shall not be deemed to be a
change in control by virtue of any of the following acquisitions: (A)
by the Company or any entity in which the Company directly or
indirectly beneficially owns more than 50% of the voting securities or
interests (a "Subsidiary"), (B) by an employee stock ownership or
employee benefit plan or trust sponsored or maintained by the Company
or any Subsidiary, (C) by any underwriter temporarily holding
securities pursuant to an offering of such securities, or (D) pursuant
to a Non-Qualifying Transaction (as defined in paragraph (iii));
(iii) the shareholders of the Company approve a merger,
consolidation, share exchange or similar form of corporate transaction
involving the Company or any of its Subsidiaries that requires the
approval of the Company's shareholders, whether for such
<PAGE> 2
transaction or the issuance of securities in the transaction (a
"Business Combination"), unless immediately following such Business
Combination: (A) more than 50% of the total voting power of (x) the
corporation resulting from such Business Combination (the "Surviving
Corporation"), or (y) if applicable, the ultimate parent corporation
that directly or indirectly has beneficial ownership of 100% of the
voting securities eligible to elect directors of the Surviving
Corporation (the "Parent Corporation"), is represented by Company
Voting Securities that were outstanding immediately prior to the
consummation of such Business Combination (or, if applicable, is
represented by shares into which such Company Voting Securities were
converted pursuant to such Business Combination), and such voting
power among the holders thereof is in substantially the same
proportion as the voting power of such Company Voting Securities among
the holders thereof immediately prior to the Business Combination, (B)
no person (other than any employee benefit plan sponsored or
maintained by the Surviving Corporation or the Parent Corporation), is
or becomes the beneficial owner, directly or indirectly, of 20% or
more of the total voting power of the outstanding voting securities
eligible to elect directors of the Parent Corporation (or, if there is
no Parent Corporation, the Surviving Corporation) and (C) at least a
majority of the members of the board of directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving
Corporation) were Incumbent Directors at the time of the Board's
approval of the execution of the initial agreement providing for such
Business Combination (any Business Combination which satisfies all of
the criteria specified in (A), (B) and (C) above shall be deemed to be
a "Non-Qualifying Transaction"); or
(iv) the shareholders of the Company approve a plan of
complete liquidation or dissolution of the Company or a sale of all or
substantially all of the Company's assets.
Computations required by paragraph (iii) shall be made on and as of
the date of shareholder approval and shall be based on reasonable assumptions
that will result in the lowest percentage obtainable.
Notwithstanding the foregoing, a Change in Control of the Company
shall not be deemed to occur solely because any person acquires beneficial
ownership of more than 20% of the Company Voting Securities as a result of the
acquisition of Company Voting Securities by the Company which reduces the
number of Company Voting Securities outstanding; provided, that if after such
acquisition by the Company such person becomes the beneficial owner of
additional Company Voting Securities that increases the percentage of
outstanding Company Voting Securities beneficially owned by such person, a
change in control of the Company shall then occur.
3. The Plan is amended by adding a new Section 15 at the end thereof,
which will read as follows:
15. Successors. This Plan shall bind any successor of the Company,
its assets or its businesses (whether direct or indirect, by purchase,
merger, consolidation or otherwise), in the same manner and to the
same extent that the Company would be obligated under this Plan if no
succession had taken place. In the case of any transaction in which a
successor would
<PAGE> 3
not by the foregoing provision or by operation of law be bound by this
Plan, the Company shall require such successor expressly and
unconditionally to assume and agree to perform the Company's
obligations under this Plan, in the same manner and to the same extent
that the Company would be required to perform if no such succession
had taken place. The term "Company," as used in the Plan, shall mean
the Company as hereinbefore defined and any successor or assignee to
the business or assets which by reason hereof becomes bound by this
Plan.
<PAGE> 1
EXHIBIT 10(e)
1-21-97 AMENDMENT TO
1984 STOCK OPTION PLAN OF
FIRST TENNESSEE NATIONAL CORPORATION
____________________________________
1. The first sentence of Section 1 of the 1984 Stock Option Plan of
First Tennessee National Corporation (the "Plan") is amended by inserting the
phrase "and any successor thereto" after "First Tennessee National
Corporation."
2. Section 2 of the Plan is amended by deleting the definition of the
term "Change in Control" in its entirety and substituting therefor the
following:
"Change in Control" means the occurrence of any one of the following
events:
(i) individuals who, on January 21, 1997, constitute the
Board (the "Incumbent Directors") cease for any reason to constitute
at least a majority of the Board, provided that any person becoming a
director subsequent to January 21, 1997, whose election or nomination
for election was approved by a vote of at least three-fourths (3/4) of
the Incumbent Directors then on the Board (either by a specific vote
or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without written objection
to such nomination) shall be an Incumbent Director; provided, however,
that no individual elected or nominated as a director of the Company
initially as a result of an actual or threatened election contest with
respect to directors or as a result of any other actual or threatened
solicitation of proxies or consents by or on behalf of any person
other than the Board shall be deemed to be an Incumbent Director;
(ii) any "Person" (as defined under Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and
as used in Section 13(d) or Section 14(d) of the Exchange Act) is or
becomes a "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's
then outstanding securities eligible to vote for the election of the
Board (the "Company Voting Securities"); provided, however, that the
event described in this paragraph (ii) shall not be deemed to be a
change in control by virtue of any of the following acquisitions: (A)
by the Company or any entity in which the Company directly or
indirectly beneficially owns more than 50% of the voting securities or
interests (a "Subsidiary"), (B) by an employee stock ownership or
employee benefit plan or trust sponsored or maintained by the Company
or any Subsidiary, (C) by any underwriter temporarily holding
securities pursuant to an offering of such securities, or (D) pursuant
to a Non-Qualifying Transaction (as defined in paragraph (iii));
(iii) the shareholders of the Company approve a merger,
consolidation, share exchange or similar form of corporate transaction
involving the Company or any of its Subsidiaries that requires the
approval of the Company's shareholders, whether for such
-1-
<PAGE> 2
transaction or the issuance of securities in the transaction (a
"Business Combination"), unless immediately following such Business
Combination: (A) more than 50% of the total voting power of (x) the
corporation resulting from such Business Combination (the "Surviving
Corporation"), or (y) if applicable, the ultimate parent corporation
that directly or indirectly has beneficial ownership of 100% of the
voting securities eligible to elect directors of the Surviving
Corporation (the "Parent Corporation"), is represented by Company
Voting Securities that were outstanding immediately prior to the
consummation of such Business Combination (or, if applicable, is
represented by shares into which such Company Voting Securities were
converted pursuant to such Business Combination), and such voting
power among the holders thereof is in substantially the same
proportion as the voting power of such Company Voting Securities among
the holders thereof immediately prior to the Business Combination, (B)
no person (other than any employee benefit plan sponsored or
maintained by the Surviving Corporation or the Parent Corporation), is
or becomes the beneficial owner, directly or indirectly, of 20% or
more of the total voting power of the outstanding voting securities
eligible to elect directors of the Parent Corporation (or, if there is
no Parent Corporation, the Surviving Corporation) and (C) at least a
majority of the members of the board of directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving
Corporation) were Incumbent Directors at the time of the Board's
approval of the execution of the initial agreement providing for such
Business Combination (any Business Combination which satisfies all of
the criteria specified in (A), (B) and (C) above shall be deemed to be
a "Non-Qualifying Transaction"); or
(iv) the shareholders of the Company approve a plan of
complete liquidation or dissolution of the Company or a sale of all or
substantially all of the Company's assets.
Computations required by paragraph (iii) shall be made on and as of
the date of shareholder approval and shall be based on reasonable assumptions
that will result in the lowest percentage obtainable.
Notwithstanding the foregoing, a Change in Control of the Company
shall not be deemed to occur solely because any person acquires beneficial
ownership of more than 20% of the Company Voting Securities as a result of the
acquisition of Company Voting Securities by the Company which reduces the
number of Company Voting Securities outstanding; provided, that if after such
acquisition by the Company such person becomes the beneficial owner of
additional Company Voting Securities that increases the percentage of
outstanding Company Voting Securities beneficially owned by such person, a
change in control of the Company shall then occur.
3. The Plan is amended by adding a new Section 17 at the end thereof,
which shall read as follows:
17. Successors. This Plan shall bind any successor of the Company,
its assets or its businesses (whether direct or indirect, by purchase,
merger, consolidation or otherwise), in the same manner and to the
same extent that the Company would be obligated under this Plan
-2-
<PAGE> 3
if no succession had taken place. In the case of any transaction in
which a successor would not by the foregoing provision or by operation
of law be bound by this Plan, the Company shall require such successor
expressly and unconditionally to assume and agree to perform the
Company's obligations under this Plan, in the same manner and to the
same extent that the Company would be required to perform if no such
succession had taken place. The term "Company," as used in the Plan,
shall mean the Company as hereinbefore defined and any successor or
assignee to the business or assets which by reason hereof becomes
bound by this Plan.
-3-
<PAGE> 1
EXHIBIT 10(f)
1-21-97 AMENDMENT TO
1990 STOCK OPTION PLAN OF
FIRST TENNESSEE NATIONAL CORPORATION
________________________________________
1. The first sentence of Section 1 of the 1990 Stock Option Plan of
First Tennessee National Corporation (the "Plan") is amended by inserting the
phrase "and any successor thereto" after "First Tennessee National
Corporation."
2. Section 2 of the Plan is amended by deleting the definition of the
term "Change in Control" in its entirety and substituting therefor the
following:
"Change in Control" means the occurrence of any one of the following
events:
(i) individuals who, on January 21, 1997, constitute the
Board (the "Incumbent Directors") cease for any reason to constitute
at least a majority of the Board, provided that any person becoming a
director subsequent to January 21, 1997, whose election or nomination
for election was approved by a vote of at least three-fourths (3/4) of
the Incumbent Directors then on the Board (either by a specific vote
or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without written objection
to such nomination) shall be an Incumbent Director; provided, however,
that no individual elected or nominated as a director of the Company
initially as a result of an actual or threatened election contest with
respect to directors or as a result of any other actual or threatened
solicitation of proxies or consents by or on behalf of any person
other than the Board shall be deemed to be an Incumbent Director;
(ii) any "Person" (as defined under Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and
as used in Section 13(d) or Section 14(d) of the Exchange Act) is or
becomes a "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's
then outstanding securities eligible to vote for the election of the
Board (the "Company Voting Securities"); provided, however, that the
event described in this paragraph (ii) shall not be deemed to be a
change in control by virtue of any of the following acquisitions: (A)
by the Company or any entity in which the Company directly or
indirectly beneficially owns more than 50% of the voting securities or
interests (a "Subsidiary"), (B) by an employee stock ownership or
employee benefit plan or trust sponsored or maintained by the Company
or any Subsidiary, (C) by any underwriter temporarily holding
securities pursuant to an offering of such securities, or (D) pursuant
to a Non-Qualifying Transaction (as defined in paragraph (iii));
(iii) the shareholders of the Company approve a merger,
consolidation, share exchange or similar form of corporate transaction
involving the Company or any of its Subsidiaries that requires the
approval of the Company's shareholders, whether for such
-1-
<PAGE> 2
transaction or the issuance of securities in the transaction (a
"Business Combination"), unless immediately following such Business
Combination: (A) more than 50% of the total voting power of (x) the
corporation resulting from such Business Combination (the "Surviving
Corporation"), or (y) if applicable, the ultimate parent corporation
that directly or indirectly has beneficial ownership of 100% of the
voting securities eligible to elect directors of the Surviving
Corporation (the "Parent Corporation"), is represented by Company
Voting Securities that were outstanding immediately prior to the
consummation of such Business Combination (or, if applicable, is
represented by shares into which such Company Voting Securities were
converted pursuant to such Business Combination), and such voting
power among the holders thereof is in substantially the same
proportion as the voting power of such Company Voting Securities among
the holders thereof immediately prior to the Business Combination, (B)
no person (other than any employee benefit plan sponsored or
maintained by the Surviving Corporation or the Parent Corporation), is
or becomes the beneficial owner, directly or indirectly, of 20% or
more of the total voting power of the outstanding voting securities
eligible to elect directors of the Parent Corporation (or, if there is
no Parent Corporation, the Surviving Corporation) and (C) at least a
majority of the members of the board of directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving
Corporation) were Incumbent Directors at the time of the Board's
approval of the execution of the initial agreement providing for such
Business Combination (any Business Combination which satisfies all of
the criteria specified in (A), (B) and (C) above shall be deemed to be
a "Non-Qualifying Transaction"); or
(iv) the shareholders of the Company approve a plan of
complete liquidation or dissolution of the Company or a sale of all or
substantially all of the Company's assets.
Computations required by paragraph (iii) shall be made on and as of
the date of shareholder approval and shall be based on reasonable assumptions
that will result in the lowest percentage obtainable.
Notwithstanding the foregoing, a Change in Control of the Company
shall not be deemed to occur solely because any person acquires beneficial
ownership of more than 20% of the Company Voting Securities as a result of the
acquisition of Company Voting Securities by the Company which reduces the
number of Company Voting Securities outstanding; provided, that if after such
acquisition by the Company such person becomes the beneficial owner of
additional Company Voting Securities that increases the percentage of
outstanding Company Voting Securities beneficially owned by such person, a
change in control of the Company shall then occur.
3. The Plan is amended by adding a new Section 18 at the end thereof,
which shall read as follows:
18. Successors. This Plan shall bind any successor of the Company,
its assets or its businesses (whether direct or indirect, by purchase,
merger, consolidation or otherwise), in the same manner and to the
same extent that the Company would be obligated under this Plan
-2-
<PAGE> 3
if no succession had taken place. In the case of any transaction in
which a successor would not by the foregoing provision or by operation
of law be bound by this Plan, the Company shall require such successor
expressly and unconditionally to assume and agree to perform the
Company's obligations under this Plan, in the same manner and to the
same extent that the Company would be required to perform if no such
succession had taken place. The term "Company," as used in the Plan,
shall mean the Company as hereinbefore defined and any successor or
assignee to the business or assets which by reason hereof becomes
bound by this Plan.
-3-
<PAGE> 1
EXHIBIT 10(g)
1-27-97 AMENDMENTS TO
FIRST TENNESSEE NATIONAL CORPORATION
SURVIVOR BENEFITS PLAN
__________________________________
1. The first sentence of the First Tennessee National Corporation
Survivor Benefits Plan (the "Plan") is amended by inserting the phrase ",and
any successor thereto," after "First Tennessee National Corporation."
2. Section X(C) of the Plan is amended by deleting it in its
entirety and substituting therefor the following:
C. Amendment and Termination. The Company shall have the right, at
any time and from time to time, to amend in whole or in part, or to terminate
any of the provisions of the plan, subject to the provisions of Paragraph
VII.B. and such amendment or termination shall be binding upon all participants
and parties in interest. Notwithstanding the foregoing, no amendment or
termination of the Plan occurring on or after the date on which a Change in
Control (as defined herein) occurs shall reduce or eliminate any benefit
payable hereunder to any employee who had qualified for participation in the
Plan prior to the date of such Change in Control. For purposes of this
Paragraph C, a "Change in Control" means the occurrence of any one of the
following events:
(i) individuals who, on January 21, 1997, constitute the
Board (the "Incumbent Directors") cease for any reason to constitute
at least a majority of the Board, provided that any person becoming a
director subsequent to January 21, 1997, whose election or nomination
for election was approved by a vote of at least three-fourths (3/4) of
the Incumbent Directors then on the Board (either by a specific vote
or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without written objection
to such nomination) shall be an Incumbent Director; provided, however,
that no individual elected or nominated as a director of the Company
initially as a result of an actual or threatened election contest with
respect to directors or as a result of any other actual or threatened
solicitation of proxies or consents by or on behalf of any person
other than the Board shall be deemed to be an Incumbent Director;
(ii) any "Person" (as defined under Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and
as used in Section 13(d) or Section 14(d) of the Exchange Act) is or
becomes a "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's
then outstanding securities eligible to vote for the election of the
Board (the "Company Voting Securities"); provided, however, that the
event described in this paragraph (ii) shall not be deemed to be a
change in control by virtue of any of the following acquisitions: (A)
by the Company or any entity in which the Company directly or
indirectly beneficially owns more than 50% of the voting securities or
interests (a "Subsidiary"), (B) by an employee stock ownership or
employee benefit plan or trust sponsored or maintained by the Company
or any Subsidiary, (C) by any underwriter
<PAGE> 2
temporarily holding securities pursuant to an offering of such
securities, or (D) pursuant to a Non-Qualifying Transaction (as
defined in paragraph (iii));
(iii) consummation of a merger, consolidation, share exchange
or similar form of corporate transaction involving the Company or any
of its Subsidiaries that requires the approval of the Company's
shareholders, whether for such transaction or the issuance of
securities in the transaction (a "Business Combination"), unless
immediately following such Business Combination: (A) more than 50% of
the total voting power of (x) the corporation resulting from such
Business Combination (the "Surviving Corporation"), or (y) if
applicable, the ultimate parent corporation that directly or
indirectly has beneficial ownership of 100% of the voting securities
eligible to elect directors of the Surviving Corporation (the "Parent
Corporation"), is represented by Company Voting Securities that were
outstanding immediately prior to the consummation of such Business
Combination (or, if applicable, is represented by shares into which
such Company Voting Securities were converted pursuant to such
Business Combination), and such voting power among the holders thereof
is in substantially the same proportion as the voting power of such
Company Voting Securities among the holders thereof immediately prior
to the Business Combination, (B) no person (other than any employee
benefit plan sponsored or maintained by the Surviving Corporation or
the Parent Corporation), is or becomes the beneficial owner, directly
or indirectly, of 20% or more of the total voting power of the
outstanding voting securities eligible to elect directors of the
Parent Corporation (or, if there is no Parent Corporation, the
Surviving Corporation) and (C) at least a majority of the members of
the board of directors of the Parent Corporation (or, if there is no
Parent Corporation, the Surviving Corporation) were Incumbent
Directors at the time of the Board's approval of the execution of the
initial agreement providing for such Business Combination (any
Business Combination which satisfies all of the criteria specified in
(A), (B) and (C) above shall be deemed to be a "Non-Qualifying
Transaction"); or
(iv) the shareholders of the Company approve a plan of
complete liquidation or dissolution of the Company or a sale of all or
substantially all of the Company's assets.
Notwithstanding the foregoing, a change in control of the Company
shall not be deemed to occur solely because any person acquires beneficial
ownership of more than 20% of the Company Voting Securities as a result of the
acquisition of Company Voting Securities by the Company which reduces the
number of Company Voting Securities outstanding; provided, that if after such
acquisition by the Company such person becomes the beneficial owner of
additional Company Voting Securities that increases the percentage of
outstanding Company Voting Securities beneficially owned by such person, a
change in control of the Company shall then occur.
3. Section X(E) of the Plan is amended by deleting it in its entirety
and substituting therefor the following:
17. Successors. This Plan shall bind any successor of the Company,
its assets or its businesses (whether direct or indirect, by purchase,
merger, consolidation or otherwise), in
<PAGE> 3
the same manner and to the same extent that the Company would be
obligated under this Plan if no succession had taken place. In the
case of any transaction in which a successor would not by the
foregoing provision or by operation of law be bound by this Plan, the
Company shall require such successor expressly and unconditionally to
assume and agree to perform the Company's obligations under this Plan,
in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. The term
"Company," as used in the Plan, shall mean the Company as hereinbefore
defined and any successor or assignee to the business or assets which
by reason hereof becomes bound by this Plan.
<PAGE> 1
EXHIBIT 10(h)
FIRST TENNESSEE NATIONAL CORPORATION
DIRECTORS AND EXECUTIVES DEFERRED COMPENSATION PLAN
(AMENDED AND RESTATED AS OF JANUARY 21, 1997)
I. PURPOSE
The purpose of the First Tennessee National Corporation Directors and Executives
Deferred Compensation Plan (hereinafter referred to as the "Plan") is to advance
the interests of First Tennessee National Corporation, and any successor
thereto, and its subsidiaries (hereinafter collectively referred to as the
"Company") by encouraging and enabling the Company to attract, motivate and
retain executives and nonemployee members of the Board of Directors.
II. EFFECTIVE DATE
The effective date of the Plan is July 1, 1985.
III. DEFINITIONS
A. "Accrual Account" means a bookkeeping account maintained for each
Participant which will reflect the sum of each deferral plus interest payable at
the Applicable Rate, compounded annually, on the original amount of deferral
less Interim Distributions, if any.
B. "Administrator", for the purpose of this agreement, means the Vice
President, Compensation.
C. "Applicable Rate" means that rate approved annually by the
Committee, to be not less than the Guaranteed Rate nor more than the Projected
Rate, which is credited on the Total Compensation deferred.
D. "Board" means the Board of Directors of First Tennessee National
Corporation.
E. "Base Salary" means the gross monthly salary paid to the
Participants, not including Nonemployee Directors.
F. "Cause." Termination by the Company of a Participant's employment
for "Cause" shall mean termination upon (a) the willful and continued failure by
a Participant to perform substantially his or her duties with the Company (other
than any such failure resulting from his or her incapacity due to physical or
mental illness) after a demand for substantial performance is delivered to the
Participant by the Chairman of the Board or President of the Company which
specifically identities the manner in which such executive believes that the
Participant has not substantially performed his or her duties, or (b) the
willful engaging by a Participant in illegal conduct which is materially and
demonstrably injurious to the Company. For purposes of this subsection (F), no
act, or failure to act,
1
<PAGE> 2
on a Participant's part shall be considered "willful" unless done, or omitted to
be done, by the Participant in bad faith and without reasonable belief that the
Participant's action or omission was in, or not opposed to, the best interests
of the Company. Any act, or failure to act, based upon authority given pursuant
to a resolution duly adopted by the Board or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by a Participant in good faith and in the best interests of the Company.
It is also expressly understood that a Participant's attention to matters not
directly related to the business of the Company shall not provide a basis for
termination for Cause so long as the Board has approved the Participant's
engagement in such activities. Notwithstanding the foregoing, a Participant
shall not be deemed to have been terminated for Cause unless and until there
shall have been delivered to the Participant a copy of a resolution duly adopted
by the affirmative vote of not less than three quarters of the entire membership
of the Board at a meeting of the Board called and held for the purpose (after
reasonable notice to the Participant and an opportunity for Participant,
together with his or her counsel, to be heard before the Board), finding that in
the good faith opinion of the Board the Participant was guilty of the conduct
set forth above in (a) or (b) of this subsection (F) and specifying the
particulars thereof in detail.
G. "Change in Control" means the occurrence of any one of the following
events:
(i) individuals who, on January 21, 1997, constitute the Board
(the "Incumbent Directors") cease for any reason to constitute at least
a majority of the Board, provided that any person becoming a director
subsequent to January 21, 1997, whose election or nomination for
election was approved by a vote of at least three-fourths (3/4) of the
Incumbent Directors then on the Board (either by a specific vote or by
approval of the proxy statement of the Company in which such person is
named as a nominee for director, without written objection to such
nomination) shall be an Incumbent Director; provided, however, that no
individual elected or nominated as a director of the Company initially
as a result of an actual or threatened election contest with respect to
directors or as a result of any other actual or threatened solicitation
of proxies or consents by or on behalf of any person other than the
Board shall be deemed to be an Incumbent Director;
(ii) any "Person" (as defined under Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and as
used in Section 13(d) or Section 14(d) of the Exchange Act) is or
becomes a "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's
then outstanding securities eligible to vote for the election of the
Board (the "Company Voting Securities"); provided, however, that the
event described in this paragraph (ii) shall not be deemed to be a
change in control by virtue of any of the following acquisitions: (A)
by the Company or any entity in which the Company directly or
indirectly beneficially owns more than 50% of the voting securities or
interests (a "Subsidiary"), (B) by an employee stock ownership or
employee benefit plan or trust sponsored or maintained by the Company
or any Subsidiary, (C) by any underwriter temporarily holding
securities pursuant to an offering of such securities, or (D) pursuant
to a Non-Qualifying Transaction (as defined in paragraph (iii));
2
<PAGE> 3
(iii) the consummation of a merger, consolidation, share
exchange or similar form of corporate transaction involving the Company
or any of its Subsidiaries that requires the approval of the Company's
shareholders, whether for such transaction or the issuance of
securities in the transaction (a "Business Combination"), unless
immediately following such Business Combination: (A) more than 50% of
the total voting power of (x) the corporation resulting from such
Business Combination (the "Surviving Corporation"), or (y) if
applicable, the ultimate parent corporation that directly or indirectly
has beneficial ownership of 100% of the voting securities eligible to
elect directors of the Surviving Corporation (the "Parent
Corporation"), is represented by Company Voting Securities that were
outstanding immediately prior to the consummation of such Business
Combination (or, if applicable, is represented by shares into which
such Company Voting Securities were converted pursuant to such Business
Combination), and such voting power among the holders thereof is in
substantially the same proportion as the voting power of such Company
Voting Securities among the holders thereof immediately prior to the
Business Combination, (B) no person (other than any employee benefit
plan sponsored or maintained by the Surviving Corporation or the Parent
Corporation), is or becomes the beneficial owner, directly or
indirectly, of 20% or more of the total voting power of the outstanding
voting securities eligible to elect directors of the Parent Corporation
(or, if there is no Parent Corporation, the Surviving Corporation) and
(C) at least a majority of the members of the board of directors of the
Parent Corporation (or, if there is no Parent Corporation, the
Surviving Corporation) were Incumbent Directors at the time of the
Board's approval of the execution of the initial agreement providing
for such Business Combination (any Business Combination which satisfies
all of the criteria specified in (A), (B) and (C) above shall be deemed
to be a "Non- Qualifying Transaction"); or
(iv) the shareholders of the Company approve a plan of
complete liquidation or dissolution of the Company or a sale of all or
substantially all of the Company's assets.
Notwithstanding the foregoing, a Change in Control of the Company shall not be
deemed to occur solely because any person acquires beneficial ownership of more
than 20% of the Company Voting Securities as a result of the acquisition of
Company Voting Securities by the Company which reduces the number of Company
Voting Securities outstanding; provided, that if after such acquisition by the
Company such person becomes the beneficial owner of additional Company Voting
Securities that increases the percentage of outstanding Company Voting
Securities beneficially owned by such person, a Change in Control of the Company
shall then occur.
H. "Committee", for the purpose of this agreement, means the Human
Resources Committee of the Board of Directors.
I. "Director's Compensation" means the total sum of fees and retainer
earned by a Nonemployee Director.
J. "Deferral and Acknowledgment Agreement" means an agreement
substantially in the form of Exhibit A attached hereto.
3
<PAGE> 4
K. "Guaranteed Rate" means the annualized rate on ten (10) year United
States Treasury obligations during each Plan Year as published by Data
Resources, Inc.
L. "Incentive Compensation" means the gross amount earned by a
Participant during the Plan Year under the Company's Management Incentive Plan,
Annual Bonus Plan or the Bond Division Management Bonus Plan.
M. "Nonemployee Director" means a member of the Board of Directors of
the Company who is not concurrently a common law employee of the Company.
N. "Normal Retirement" means any termination by a Participant after
attaining the age of 65.
O. "Participant" means an individual who is authorized by the Committee
to participate in this Plan and who has executed a Deferral and Acknowledgment
Agreement.
P. "Plan Year" means (i) July 1, 1985 through December 31, 1985 and
(ii) each and every calendar year thereafter.
Q. "Projected Rate" means that rate applicable to each Participant
group as set forth below which will be credited on each date for which interest
is to be credited under the Plan:
<TABLE>
<CAPTION>
Attained Age At End of
Year of Deferral Election Projected Rate
------------------------- --------------
<S> <C>
39 & Under 19%
40 - 44 20%
45 - 49 21%
50 - 54 22%
55 - 59 23%
60 & Over 24%
</TABLE>
R. "Total Compensation" means the sum of Base Salary and Incentive
Compensation, or, in the case of a Nonemployee Director, the sum of the
Director's retainer and fees.
IV. TERM
This plan is effective on the date hereof and shall be effective until
terminated by the Board; however, this Plan provides only for a deferral and
corresponding interest rate for the first Plan Year with subsequent deferrals
and corresponding interest rates to be approved by the Committee for each
separate Plan Year. This Plan may be amended, renewed, restated or extended for
additional Plan Years by the Committee and the Committee may in its sole
discretion, on the basis of financial or other considerations, not authorize the
execution of Deferral and Acknowledgment Agreements by Participants
prospectively deferring compensation for additional years. Notwithstanding the
foregoing, neither the termination nor any amendment of the Plan or any Deferral
and
4
<PAGE> 5
Acknowledgment Agreement shall, without the consent of the Participant, affect
the Participant's rights under any Deferral and Acknowledgment Agreement in
existence on the date of such termination or amendment.
V. DEFERRAL AND ACKNOWLEDGMENT AGREEMENT
A. Election to Defer. As hereinafter provided and subject to acceptance
by the Company, a Participant may elect to reduce the amount of Total
Compensation which will be paid to him or her during the Plan Year by executing
and delivering to the Company in a timely fashion a Deferral and Acknowledgment
Agreement. Notwithstanding anything herein to the contrary, during the ten
consecutive Plan Years commencing with the Plan Year with respect to which a
Participant is first authorized to participate in the Plan, such Participant may
elect to make no more than five deferrals. The preceding sentence does not
confer upon any Participant the right to make a deferral with respect to any
Plan Year; it merely places a limitation upon the total number of deferrals a
Participant may make if otherwise authorized to participate in the Plan, except
for Participants who are Nonemployee Directors who may elect to make no more
than six deferrals. Notwithstanding the 10-year limitation in this Section V(A),
employee Participants may make salary deferrals for the 1995 Plan Year unless
such a deferral would cause the Participant to exceed the five deferral
limitation.
B. Creation of Contractual Obligation. The Company, by acceptance of a
properly executed and timely delivered Deferral and Acknowledgment Agreement
agrees to pay to the Participant or his or her Designated Beneficiary, as
defined in Paragraph VII, the benefits described in Paragraph VI, which shall be
calculated based upon (i) the amount of the Total Compensation deferred by each
Participant, (ii) the interest rate established for the Plan Year by the
Committee applied to the amount deferred, (iii) the time which elapses between
the date of deferral and the date of the benefit payments, and (iv) other
factors established in this Plan and by the Committee.
C Acceptance. The Administrator is authorized to accept and approve a
properly executed Deferral and Acknowledgment Agreement on behalf of the
Company.
D. Timing of Election. A Participant may execute and deliver to the
Company a Deferral and Acknowledgment Agreement:
1. on or before December 15 of any calendar year, however, such a
Deferral and Acknowledgment Agreement shall be effective to
reduce a Participant's Total Compensation only for the next
subsequent Plan Year;
2. in the first Plan Year only, on or before July 31, 1985,
however, such a Deferral and Acknowledgment Agreement may be
executed an delivered only by a Participant who is employed as
an employee or is a Nonemployee Director on June 1, 1985 and
is only effective to reduce a Participant's Total Compensation
earned during the period from the date of the execution and
delivery of the Deferral and Acknowledgment Agreement until
the end of the first Plan Year of this Plan;
3. notwithstanding any other provision of this Plan or any
Deferral and Acknowledgment
5
<PAGE> 6
Agreement, no Deferral and Acknowledgment Agreement shall be
effective to defer compensation which is earned by any
Participant on or before the date upon which the Deferral and
Acknowledgment Agreement is properly executed and timely
delivered to the Company.
E. Amount of Deferral. A Participant who is not a Nonemployee Director
may elect to defer during any Plan Year any dollar amount which is less than or
equal to thirty-five percent (35%) of a Participant's Total Compensation
applicable to the Plan Year. However, a Nonemployee Director may defer any
dollar amount which is less than or equal to one hundred percent (100%) of his
or her Director's Compensation. Notwithstanding any provision of any Deferral
and Acknowledgment Agreement or this Plan to the contrary, the Deferral and
Acknowledgment Agreement of a Participant shall be modified automatically if
necessary such that all actual reductions pursuant to his or her Deferral and
Acknowledgment Agreement are made from his or her Base Salary or Incentive
Compensation or, in the case of a Nonemployee Director, from his or her
Director's Compensation.
F. Accrual of Interest. Where applicable under the terms of this Plan,
interest on the amounts in an Accrual Account shall accrue interest at the
Applicable Rate, commencing on the date on which the Total Compensation deferred
under the Deferral and Acknowledgment Agreement would have been paid. The
Applicable Rate may be adjustable only on an annual basis, effective January 1
of each Plan Year; provided, however, that no adjustment to the Applicable Rate
may affect amounts previously accrued. Notwithstanding the provisions of the
prior sentence, the Applicable Rate will be replaced by the Guaranteed Rate if
the Plan otherwise requires a recalculation of interest at the Guaranteed Rate.
The Applicable Rate for the first Plan Year shall be the Projected Rate and
shall remain so unless adjusted by the Committee as set forth herein.
VI. PAYMENT OF BENEFITS
A. Retirement Benefit. If a Participant terminates employment with the
Company and such termination constitutes a Normal Retirement, then the Company
shall pay to the Participant the monthly benefit defined in Paragraph 2 of each
of his or her Deferral and Acknowledgment Agreements on those dates specified in
this paragraph. The first benefit payable under Paragraph 2 of a Deferral and
Acknowledgment Agreement shall be paid on the thirty-first (31st) day of January
following the calendar year in which the Participant attains Normal Retirement.
Notwithstanding the foregoing, any Deferral and Acknowledgment Agreement
executed by a Participant which defers compensation which would otherwise be
payable to the Participant in or after the Plan Year in which he or she attains
Normal Retirement shall provide that the first benefit payable shall be paid on
the thirty-first (31st) day of January following the later of (i) the fifth
(5th) anniversary of the date upon which the Deferral and Acknowledgment
Agreement is accepted by the Company or (ii) his or her Normal Retirement.
B. Alternative Retirement Benefit. If a Participant, prior to a Change
in Control, is, on the date of Normal Retirement, or becomes thereafter, but
prior to a Change in Control, a proprietor, officer, partner, or employee of, or
otherwise is or becomes, prior to a Change in Control, affiliated with (i) any
business that is in competition with the Company or (ii) any government agency
having
6
<PAGE> 7
regulatory jurisdiction over the business activities of the Company, then, upon
that date, no further benefit payments shall be made to the Participant or any
other person under any provision of this Plan, except that, the Participant
shall be paid in lump sum on the thirty-first (31st) day of January following
that date, an amount equal to the value of the Accrual Account recalculated over
the entire period of deferral at an interest rate equal to the Guaranteed Rate,
compounded annually, from the date on which the deferred compensation would have
been paid to the date on which the act occurs or status is first attained. In
the event Interim Distributions are made to the Participant, said payments shall
reduce the amount to which the Guaranteed Rate is applied. If the above
calculation results in a negative amount, such amount shall not be collected
from, or enforced against the Participant as a claim by the Company.
C. Interim Distributions. A Participant shall be paid the benefits
defined in Paragraph 3 of his or her Deferral and Acknowledgment Agreement on
those dates stated in that paragraph of each Deferral and Acknowledgment
Agreement (hereinafter referred to as "Interim Distributions"). However, no
Interim Distribution shall be paid to any Participant as a result of the
Deferral and Acknowledgment Agreement if the Participant is age fifty-eight (58)
or older on any day during the Plan Year in which a Deferral and Acknowledgment
Agreement is executed. No Interim Distribution shall be paid to a Participant on
or after the date upon which the Participant or his or her Designated
Beneficiary receives any benefit or payment under any other paragraph of this
Plan or any other paragraph of his or her Deferral and Acknowledgment Agreement.
D. Pre-Retirement, Pre-Disability Death Benefit. If a Participant dies
on or before the date upon which he or she is first entitled to receive a
benefit under this paragraph, then his or her Designated Beneficiary, as defined
in Paragraph VII, shall be paid in lump sum or, at the discretion of the
Administrator, in five (5) annual installments with interest paid on the unpaid
balance at the Applicable Rate, an amount equal to the value of the Accrual
Account. In the event Interim Distributions are made to the participant, said
payments shall reduce the amount to which the Applicable Rate is applied. If the
above calculation results in a negative amount, such amount shall not be
collected from or enforced against the Designated Beneficiary or the
Participant's estate as a claim by the Company. If the Participant's Designated
Beneficiary receives or is entitled to receive a benefit hereunder, then no
person or persons shall receive or be entitled to receive any benefit or payment
under any other paragraph of this Plan or under any Deferral and Acknowledgment
Agreement, notwithstanding any other provision of this Plan or any Deferral and
Acknowledgment Agreement. The benefit payable under this paragraph, if lump sum,
shall be paid on the thirty-first day of January following the Participant's
date of death (including interest thereon at the Applicable Rate). In the event
installment payments are elected, said payments shall commence on the
thirty-first day of January following the Participant's death and continue
thereafter on January 31st of each successive year.
E. Pre-Retirement Disability Benefit. If a Participant suffers a
Disability or becomes Disabled, as those terms are defined in the First
Tennessee National Corporation Long Term Disability Income Plan, as amended from
time to time, prior to that date upon which he or she receives or is entitled to
receive a benefit under this paragraph, then he or she shall be paid by the
Company in lump sum, or at the discretion of the Administrator, in five (5)
annual installments with interest paid on the unpaid balance at the Applicable
Rate, an amount equal to the value of the
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<PAGE> 8
Accrual Account. In the event Interim Distributions are made to a Participant,
said payments shall reduce the amount to which the Applicable Rate is applied.
If the above calculation results in a negative amount, such amount shall not be
collected from, or enforced against the Participant as a claim by the Company.
If the Participant receives or is entitled to receive a benefit hereunder, then
no person or persons shall receive or be entitled to receive any benefit or
payment under any other paragraph of this Plan or under any Deferral and
Acknowledgment Agreement, notwithstanding any other provisions of this Plan or
any Deferral and Acknowledgment Agreement. The benefit payable under this
paragraph, if lump sum, shall be paid on the thirty-first (31st) day of January
following the Participant's date of Disability (including interest thereon at
the Applicable Rate). In the event installments payments are elected, said
payments shall commence on the thirty-first day of January following the
Participant's Disability and continue thereafter on January 31st of each
successive year.
F. Termination of Employment Prior to Retirement. If a Participant,
prior to a Change in Control, terminates employment with the Company or is
terminated by the Company for Cause and if such termination is prior to death,
disability and Normal Retirement, then he or she shall be paid in lump sum on
the thirty-first (31st) day of January following his or her date of termination
an amount equal to the value of the Accrual Account recalculated over the entire
period of deferral at an interest rate equal to the Guaranteed Rate, compounded
annually, from the date on which the deferred compensation would have been paid
to the date on which the benefit herein is paid. In the event Interim
Distributions are made, said payments shall reduce the amount to which the
Guaranteed Rate is applied. If the above calculation results in a negative
amount, such amount shall not be collected from, or enforced against the
Participant as a claim by the Company. If the Participant receives or is
entitled to receive a benefit hereunder, then no person or persons shall then or
thereafter receive any benefit or payment under any other paragraph of this Plan
or any Deferral and Acknowledgment Agreement, notwithstanding any other
provision of this Plan or any Deferral and Acknowledgment Agreement.
Notwithstanding the foregoing, if the Participant's termination occurs prior to
a Change in Control and prior to death, disability and Normal Retirement and is
as the result of any reason other than voluntary termination, or a termination
by the Company for Cause, then the value of the Accrual Account distributed to
such Participant shall be calculated over the entire period of deferral at the
Applicable Rate.
G. Early Retirement Benefit. If a Participant other than a Nonemployee
Director terminates employment with the Company after the date on which he or
she qualifies to receive an early retirement benefit, as defined in the First
Tennessee National Corporation Pension Plan, or if a Participant who is a
Nonemployee Director terminates as a director of the Company after at least 10
years of service as a director of the Company, then the Participant shall be
entitled to receive a monthly benefit as described in paragraph 2 of each of his
or her Deferral and Acknowledgment Agreements, however, the Accrual Account
shall be recalculated over the entire period of deferral using an interest rate
equal to the Guaranteed Rate (unless a higher rate is approved by the
Committee). In addition, said benefit shall commence on the later of (i) the
thirty-first (31st) day of January following the calendar year in which the
Participant commences early retirement, or (ii) the January 31 of the year
immediately following the fifth anniversary of the execution date of the
Deferral and Acknowledgment Agreement (unless a later date, which is prior to or
coincident with the Participant's attainment of the age of 65, is approved by
the Committee). In the event Interim Distributions are made, said payments shall
reduce the amount to which the Guaranteed Rate is
8
<PAGE> 9
applied. If the above calculation results in a negative amount, such amount
shall not be collected from, or enforced against the Participant as a claim by
the Company. If the Participant receives or is entitled to receive a benefit
hereunder, then no person or persons shall then or thereafter receive any
benefit or payment under any other paragraph of this Plan or any Deferral and
Acknowledgment Agreement, notwithstanding any other provision of this Plan or
any Deferral and Acknowledgment Agreement.
H. Change in Control.
(i) This Section VI.H(i) applies solely to Participants who are current
or former Nonemployee Directors. After a Change in Control, the value
of the Accrual Account distributed to a Participant or to the trustee
of a trust for the benefit of one or more Participants shall be
calculated over the entire period of deferral through the date of the
Change in Control at the Applicable Rate. Thereafter, interest shall
accrue at the Applicable Rate unless the Participant voluntarily
terminates or is terminate by the Company for Cause, in which case
interest shall accrue from the date of the Change in Control at the
Guaranteed Rate. Thus, if a Participant's termination occurs on or
after a Change in Control and is the result of any reason other than a
voluntary termination or a termination by the Company for Cause, then
the value of the Accrual Account distributed to such Participant shall
be calculated over the entire period of deferral at the Applicable
Rate.
(ii) Notwithstanding any provision of this Plan to the contrary, in the
event a Change in Control or "Pre-Change in Control Date" (as defined
below) occurs, the Company shall make a lump sum payment (a "Payment")
to each Participant other than current or former Nonemployee Directors
(except as provided below) on a date (the "Payment Date") no later than
2 business days after the Change in Control has occurred (or, if an
agreement to effectuate a Change in Control pursuant to a Business
Combination has been executed, on the date (the "Pre-Change in Control
Date") that is the third business day prior to the date the Chief
Executive Officer of the Company believes in good faith will be the
effective date of the Change in Control, but in any event prior to the
effective date of such Change in Control). For purposes of this Section
VI.H (ii), "Determination Date" shall mean the date of the Change in
Control (or, if an agreement to effectuate a Change in Control pursuant
to a Business Combination has been executed, the date one month prior
to the date such agreement was executed). If a Payment is to be made,
the amount of the Payment shall be determined as follows:
(1) (a) If on the Payment Date a Participant is (I) employed by
the Company or any Subsidiary (provided that any Participant
whose employment is terminated by the Company other than for
Cause (as defined below) on or after the Determination Date
shall be deemed solely for purposes of this Section
VI.H(ii)(1)(a) to be employed on the Payment Date by the
Company or any Subsidiary), (II) receiving or entitled to
receive benefits under Section VI.A, or (III) otherwise
designated by the Committee as eligible to receive benefits
under this Section VI.H(ii)(1)(a), the Company shall pay on
the Payment Date to such Participant a Payment in an amount
equal to the present value as of the Payment Date of the
remaining scheduled Interim Distributions and
9
<PAGE> 10
retirement distributions to be made to such Participant as of
December 31, 1996 (based upon assumed continued accruals at an
interest rate equal to the Applicable Rate effect on December
31, 1996, as disclosed to such Participant by the Company in
its statement of benefits under this Plan), to the extent such
distributions have not been made; provided, that in the event
a Participant eligible for a Payment under this Section
VI.H(ii)(1)(a) has already received prior to the Payment Date
a lump sum benefit under Section VI.F, the amount of Payment
to such Participant shall be an amount equal to the excess, if
any, of (x) the amount of the Payment determined under this
Section VI.H(ii)(1)(a) (without regard to this proviso), over
(y) the amount of the lump sum benefit already received
pursuant to Section VI.F. For purposes of this Section
VI.H(ii)(1)(a), the "present value" shall be determined on an
interest-only basis (i.e., without discount for mortality)
using a discount rate of 4.2%, compounded annually (see
Exhibit B for an illustration of such present value
calculation).
(b) For purposes of Section VI.H(ii), termination by the
Company of a Participant's employment for "Cause" shall mean
termination upon (I) the willful and continued failure by such
Participant to perform substantially such Participant's duties
with the Company (other than any such failure resulting from
such Participant's incapacity due to physical or mental
illness) after a written demand for substantial performance is
delivered to such Participant by the Chairman of the Board,
Chief Executive Officer or President of the Company which
specifically identifies the manner in which such person
believes that such Participant has not substantially performed
such Participant's duties, which failure to perform causes
material and demonstrable economic harm to the Company or its
Affiliates (as defined below), (II) the willful engaging by
such Participant in illegal conduct which is materially and
demonstrably injurious to the Company, or (III) the conviction
of such Participant of, or a plea of guilty or nolo contendere
by such Participant to, a felony. For purposes of this Section
VI.H(ii)(1)(b), no act, or failure to act, on such
Participant's part shall be considered "willful" unless done,
or omitted to be done, by such Participant in bad faith and
without reasonable belief that such Participant's action or
omission was in, or not opposed to, the best interests of the
Company or its Affiliates. Any act, or failure to act, based
upon authority given pursuant to a resolution duly adopted by
the Board or based upon the advice of counsel for the Company
or upon the instructions of the Chief Executive Officer or
other senior executive officer of the Company shall be
conclusively presumed to be done, or omitted to be done, by
such Participant in good faith and in the best interests of
the Company and its Affiliates. For purposes of this Section
VI.H(ii)(1)(b), "Affiliate" means any person directly or
indirectly controlling, controlled by, or under common control
with the Company. It is also expressly understood that such
Participant's attention to matters or such Participant's
engagement in activities not directly related to the business
of the Company shall not provide a basis for termination for
Cause so long as the Board has approved such Participant's
engagement in such activities prior to or following a Change
in Control. Notwithstanding the foregoing, in the case of
clause (I) or (II) of this Section VI.H(ii)(1)(b), such
Participant shall not be deemed to have been terminated for
10
<PAGE> 11
Cause unless and until there shall have been delivered to such
Participant a copy of a resolution duly adopted by the
affirmative vote of not less than three-fourths (3/4) of the
entire membership of the Board (excluding such Participant if
such Participant is a Board member) at a meeting of the Board
called and held for such purpose (after reasonable notice to
such Participant and an opportunity for such Participant,
together with such Participant's counsel, to be heard before
the Board), finding that in the good faith opinion of the
Board such Participant was guilty of the conduct set forth
above in clause (I) or (II) of this Section VI.H(ii)(1)(b) and
specifying the particulars thereof in detail. The Company must
notify such Participant of any event constituting Cause within
ninety (90) days following the Company's knowledge of its
existence or such event shall not constitute Cause under this
Section VI.H(ii)(1)(b).
(2) If on the Payment Date a Participant is (a) entitled to
receive a lump sum benefit under Section VI.B or (b) entitled
to receive a lump sum benefit under Section VI.F (other than
any Participant eligible to receive a Payment pursuant to the
proviso in clause (I) of Section VI.H(ii)(1)(a)), the Company
shall pay on the Payment Date to such Participant a Payment in
an amount equal to the amount of such lump sum benefit
otherwise payable under such applicable Section to such
Participant (with continued interest accruals through the
Payment Date only).
(3) If on the Payment Date a Participant is receiving or entitled
to receive benefits under Section VI.G (other than any
Participant designated by the Committee as eligible to receive
benefits under Section VI.H(ii)(1)(a)(III) above), the Company
shall pay on the Payment Date to such Participant a Payment in
an amount equal to the unpaid balance as of the Payment Date
of the Accrual Account (as recalculated under Section VI.G) in
respect of such Participant; provided, that if such
Participant has begun receiving monthly payments under Section
VI.G, the Payment shall be in an amount equal to the present
value as of the Payment Date of the remaining monthly payments
to be made to such Participant under Section VI.G. For
purposes of this Section VI.H(ii)(3), the "present value"
shall be determined in the same manner as under Section
VI.H(ii)(1)(a), except that the discount rate of 4.2% shall be
replaced by the discount rate used to determine (under such
Participant's applicable Deferral and Acknowledgment Agreement
or Agreements) the monthly payments that are currently being
paid to such Participant.
(4) If on the Payment Date a Participant (or such Participant's
Designated Beneficiary) is receiving or entitled to receive a
benefit under Section VI.D or Section VI.E, the Company shall
pay on the Payment Date to such Participant (or such
Participant's Designated Beneficiary) a Payment in an amount
equal to the amount of such lump sum benefit otherwise payable
under such applicable Section to such Participant (or such
Participant's Designated Beneficiary) (with continued interest
accruals through the Payment Date only); provided, that if
such Participant (or such Participant's Designated
Beneficiary) is scheduled to receive such benefit in
installments, the Company shall pay to such Participant (or
such Participant's Designated Beneficiary)
11
<PAGE> 12
the unpaid balance as of the Payment Date of the Accrual
Account in respect of such Participant; provided, further,
that if such Participant (or such Participant's Designated
Beneficiary) has begun to receive installment payments under
Section VI.D or Section VI.E, the Payment shall be in an
amount equal to the present value as of the Payment Date of
the remaining installment payments to be made to such
Participant under such applicable Section. For purposes of
this Section VI.H(ii)(4), the "present value" shall be
determined in the same manner as under Section VI.H(ii)(1)(a),
except that the discount rate of 4.2% shall be replaced by the
discount rate used by the Administrator to determine the
installment payments that are currently being paid to such
Participant.
If any Participant receives a payment pursuant to this Section
VI.H(ii), then no persons or persons shall receive or be
entitled to receive any benefit or payment under any other
paragraph of this Plan or under any Deferral and
Acknowledgment Agreement, notwithstanding any other provision
of this Plan or any Deferral and Acknowledgment Agreement.
(iii) The provisions of Section VI.H(ii) shall not apply to a
Participant who is a current or former Nonemployee Director; provided,
however, that the provisions of Section VI.H(ii) shall apply to the
extent any Participant defers Base Salary or Incentive Compensation
earned while such Participant was not a Nonemployee Director.
VII. BENEFICIARY DESIGNATION
Upon the death of the Participant, any benefit or benefits remaining to be paid
to the Participant under the terms and conditions of this Plan, shall be paid to
that person or persons designated by the Participant in the Deferral and
Acknowledgment Agreement governing said benefit or benefits. If no Designated
Beneficiary has been chosen by the Participant or if no Designated Beneficiary
is then living on the date of the Participant's death, then the remaining
benefit or benefits shall be paid to the personal representative, executor, or
administrator of the Participant's estate who shall be deemed to be a Designated
Beneficiary.
VIII. RECALCULATION EVENTS
A. Treatment of This Plan Under Applicable Federal Income Tax Laws. The
adoption and maintenance of the Plan is conditioned upon (i) the applicability
of Section 451 (a) of the Internal Revenue Code of 1986 ("Code") to the
Participant's recognition of gross income as a result of his or her
participation, (ii) the fact that Participants will not recognize gross income
as a result of participation in this Plan until and to the extent that benefits
are received, (iii) the applicability of Code Section 404 (a) (5) to the
deductibility of the amounts paid to Participants hereunder, (iv) the fact that
the Company will not receive a deduction for amounts credited to any accounting
reserve created as a result of this Plan until and only to the extent that
benefits are paid, and (v) the very limited applicability of the provisions of
the Employee Retirement Income Security Act of 1974. If
12
<PAGE> 13
the Internal Revenue Service, the Department of Labor or any court determines or
find as a fact or legal conclusion that any of the above conditions is untrue
and issues or intends to issue an assessment, determination, opinion or report
stating such, or if the opinion of the legal counsel of the Company based upon
legal authorities then existing is that any of the above assumptions is
incorrect, then, if the Committee so elects, a Recalculation Event shall be
deemed to have occurred. If a Recalculation Event occurs under this or any other
section of this Plan, then the Participant thereafter, or a Designated
Beneficiary, shall be paid benefits on the dates stated in Paragraph VI, herein,
or in the Deferral and Acknowledgment Agreement; however, the amount of each
benefit stated in Paragraphs 2 and 3 of the Deferral and Acknowledgment
Agreement shall be recalculated and restated, at the Committee's discretion,
using a rate of interest not less than the Guaranteed Rate nor more than the
Projected Rate on each date upon which interest should have been or will be
calculated, compounded annually. If the Participant receives or is entitled to
receive a benefit as a result of the occurrence of a Recalculation Event, then
no person or persons shall receive or be entitled to receive any benefit or
payment under any other Paragraph of this Plan or under any Deferral and
Acknowledgment Agreement, notwithstanding any other provision of the Plan or the
Deferral and Acknowledgment Agreement.
B. Changes in the Internal Revenue Code of 1986. Subsequent to December
15, 1992, and prior to a Change in Control, (1) if Code Section 11(b) is deleted
or amended or a surtax or other addition to tax is imposed hereafter and, as a
result thereof, the amount of federal income tax imposed on taxable income of
corporations in excess of One Hundred Thousand Dollars ($100,000) is less than
thirty-four percent (34%), (2) if a tax is imposed by the federal government on
income, sales, consumption, or the value of goods and services which is not
currently contained in the Code, or (3) if the Code is amended or restated so
extensively that in the opinion of the legal counsel of the Company the tax
treatment of this Plan to the Company has materially changed to the detriment of
the Company, then, if the Committee so elects, a Recalculation Event shall be
deemed to have occurred and a benefit will be payable only as described in
Paragraph VIII.A.
[Plan does not contain a Section IX.]
X. CLAIMS PROCEDURE
A. Administration. The Plan shall be administered by the Administrator.
B. Benefit Payments. All benefits described in this Plan shall be paid
when due. In the event the Participant or Designated Beneficiary fails to
receive a benefit which he or she feels is due, a written claim for the benefit
shall be submitted in writing to the Administrator. The Administrator shall
review the claim when filed and advise the claimant as to whether the claim is
approved or denied. If the claim is wholly or partially denied, the
Administrator shall furnish a written denial within 90 days after receipt of the
filed claim unless special circumstances required an extension of time for
processing the claim, in which case the Administrator shall furnish the written
denial within 180 days after receipt of the filed claim. The written denial
shall contain (a) the specific reason or reasons for denial; (b) specific
reference to pertinent Plan provisions on which the denial is based; (c) a
description of any additional information necessary for the claimant to perfect
the claim and an
13
<PAGE> 14
explanation of why such material or information is necessary; and (d)
appropriate information as to the steps to be taken if the claimant wishes to
appeal the denial of the claim.
C. Appeal. The claimant may appeal the denial of the claim to the
Committee within 90 days after receipt of such decision. The appeal shall be in
writing addressed to the Committee and shall state the reason why it should
grant the appeal. The Committee shall conduct a full and fair review of the
claim and shall issue its decision within 60 days of the receipt of the appeal
unless there are special circumstances, in which case a decision shall be
rendered within 120 days of the receipt of the appeal. The Committee's decision
shall be in writing, stating the reasons therefor and shall make specific
references to the pertinent Plan provisions on which the decision is based.
D. Binding Effect. The Committee's decision upon appeal, or the
Administrator's initial decision if no appeal is taken, shall be final,
conclusive and binding on all parties.
E. Claims after Change in Control. Notwithstanding anything in Section
X to the contrary, after a Change in Control:
1. Subsection (D) shall be inoperative;
2. the "90" and "180" day periods in subsection (B) shall be
changed to "15" and "30" day periods, respectively;
3. the "90", "60" and "120" day periods in subsection (C) shall
be changed to "30", "15", and "30" day periods, respectively;
and
4. if the claim has not been wholly approved within 90 days after
receipt by the Administrator, then the claimant may bring a
lawsuit in a court of competent jurisdiction to enforce
claimant's rights under the Plan. All attorneys' fees and all
other costs and expenses incurred by claimant in connection
with such litigation shall be the obligation of and shall be
paid on a timely basis by the Company regardless of whether
claimant prevails in such litigation.
XI. MISCELLANEOUS PROVISIONS
A. Governing Law. This Plan and the Deferral and Acknowledgment
Agreements are subject to the laws of the State of Tennessee.
B. Successors This Plan shall bind any successor of the Company, its
assets or its businesses (whether direct or indirect, by purchase, merger,
consolidation or otherwise), in the same manner and to the same extent that the
Company would be obligated under this Plan if no succession had taken place. In
the case of any transaction in which a successor would not by the foregoing
provision or by operation of law be bound by this Plan, the Company shall
require such successor expressly and unconditionally to assume and agree to
perform the Company's obligations under this Plan, in the same manner and to the
same extent that the Company would be required to perform if
14
<PAGE> 15
no such succession had taken place. The term "Company," as used in the Plan,
shall mean the Company as hereinbefore defined and any successor or assignee to
the business or assets which by reason hereof becomes bound by this Plan.
C. Discharge of Company's Obligation. The payment by the Company of the
benefits due under each and every Deferral and Acknowledgment Agreement to the
Participant or to the Designated Beneficiary discharges the Company's
obligations hereunder, and the Participant has no further rights under this Plan
or the Deferral and Acknowledgment Agreements upon receipt by the appropriate
person of all benefits.
D. Social Security and Income Tax Withholding. The Participants agree
as a condition of participation hereunder that the Company may withhold federal,
state, and local income taxes and Social Security taxes from any distribution or
benefit paid hereunder.
E. Notice; Delivery of Deferral and Acknowledgment Agreement. Any
notice required to be delivered hereunder and any Deferral and Acknowledgment
Agreement is properly delivered to the Company when personally delivered to, or
actually received from the United States mail, postage prepaid, by the
Administrator.
F. Nature of Obligations Created Hereunder. The Participants agree as a
condition of participation hereunder that:
1. the Company only has a contractual obligation to make payments
to or on behalf of the Participants, and the rights of
Participants under this Plan and the Deferral and
Acknowledgment Agreements are no greater than the rights of
any general unsecured creditor of the Company;
2. to the extent that any person, other than a Participant,
acquires a right to receive payments from the Company under
this Plan or any Deferral and Acknowledgment Agreement, such
right is no greater than the rights of any general unsecured
creditor of the Company;
3. nothing contained in this Plan or any Deferral and
Acknowledgment Agreement shall create or be construed to
create a trust of any kind or a fiduciary relationship between
the Company and any Participant;
4. the rights of any Participant may not be sold, assigned,
transferred, pledged, or encumbered, nor shall any interest of
the Participant be liable to the claim of any creditor of the
Participant or subject to any judicial process involving the
Participant;
5. no Participant shall have any rights in any specific assets of
the Company, and any accounting reserve established as a
result of the Plan only reflects a contractual obligation of
the Company on its books of accounting and does not constitute
a segregated fund of assets or separation of assets, and the
obligations of the Company
15
<PAGE> 16
only are payable from its operating assets at the time the
payment is due.
6. neither this Plan nor any Deferral and Acknowledgment
Agreement constitutes a modification of the employment
conditions of any Participant, and no right to continued
employment is created by this Plan or the Deferral and
Acknowledgment Agreement.
16
<PAGE> 17
EXHIBIT A
DEFERRAL AND ACKNOWLEDGMENT AGREEMENT
FOR THE FIRST TENNESSEE NATIONAL CORPORATION
DIRECTORS AND EXECUTIVES DEFERRED COMPENSATION PLAN
---------------------------------------------------
1. Amount of Deferral. I, ________________________________________________,
hereby agree to participate in the First Tennessee National Corporation
Directors and Executives Deferred Compensation Plan ("Plan"). I have read the
Plan in its entirety and agree to its terms and conditions, which are
incorporated herein by reference. Pursuant to the terms of the Plan, I elect
to defer from my Base Salary to be paid to me in 19__, and from my Incentive
Compensation payable in 19__, if any, the following:
(a)__________________ Dollars or __________% from my Base Salary;
(b)__________________ Dollars or __________% from my
Incentive Compensation Annual Award;
(c)__________________ Dollars or __________% from my Incentive
Compensation Long-Term Award*;
(d) Other
(Explain) _________________________________________________
_________________________________________________
_________________________________________________
* Only cash award may be deferred.
I understand that my Base Salary and Incentive Compensation which ordinarily
would be paid to me will be reduced by the amount of my deferral. I recognize
that I am entitled to benefits hereunder and that this Agreement is subject to
the terms and conditions of the Plan.
2. Retirement Benefits. Retirement benefits will begin on January 31 following
the later of (1) the fifth anniversary of the execution of this Agreement or
(2) the Normal Retirement date, as set forth in the Plan. In consideration for
my deferral, the Company shall pay to me the following benefits from my Accrual
Account on the dates specified in Paragraph VI of the Plan, if I am entitled to
these benefits under the terms and conditions of the Plan:
A total of one hundred eighty (180) monthly payments, calculated initially
as 180 equal payments, including interest at the Applicable Rate in effect on
January 1 following attainment of Normal Retirement. In the event the
Applicable Rate in effect on the date of the first payment hereunder is changed
during the period in which benefits are being paid, a recalculation of the
monthly benefit for the remaining period shall be made to reflect the change in
the Applicable Rate.
<PAGE> 18
3. Interim Distributions. In consideration for my deferral, the Company shall
pay to me the benefits set forth on Exhibit "B", a copy of which is attached
hereto and made a part hereof, on January 31 of each year in which I am
entitled to receive such benefits under the terms and conditions of the Plan.
An Interim Distribution shall be payable so long as the value of the Accrual
Account equals or exceeds the value of the benefit payable. In the event that,
on any January 31 of a year in which an Interim Distribution is payable the
value of the Accrual Account is less than the amount of the scheduled payment,
then the balance of the Accrual Account shall be paid to the Participant and no
further benefits shall be payable under the Plan.
4. Primacy of Plan. I recognize that I am entitled to benefits hereunder and
that this Agreement is subject to the terms and conditions of the Plan.
5. Designated Beneficiary. For any and all purposes of this Plan, I hereby
designate ______________________________________ as my beneficiary pursuant to
Paragraph VII of the Plan.
_______________________________
Signature
_______________________________
Date
Accepted by Company:
_______________________________
Signature
_______________________________
Date
<PAGE> 19
AMENDMENT TO
DEFERRAL AND ACKNOWLEDGMENT AGREEMENT[S]
FOR THE FIRST TENNESSEE NATIONAL CORPORATION
DIRECTORS AND EXECUTIVES DEFERRED COMPENSATION PLAN
---------------------------------------------------
The Deferral and Acknowledgment Agreement[s] for the First Tennessee
National Corporation Directors and Executives Deferred Compensation Plan by and
between _______________________("Participant") and First Tennessee National
Corporation [is] [are] hereby amended, effective as of January 21, 1997, as set
forth below:
1. Paragraph 4 is revised in its entirety to read as follows:
"4. Primacy of Plan. I hereby acknowledge that I am entitled to benefits
hereunder and that this Agreement is subject to the terms and conditions of the
Plan (attached as Annex A), except as provided to the contrary in paragraph 6
of this Agreement."
2. A new paragraph 6 is added at the end of [each of] the Agreement[s] to
read in its entirety as follows:
"6. Change in Control. (I) Notwithstanding anything in the Plan or this
Agreement to the contrary, in the event a Change in Control (as defined in the
Plan) or the "Pre-Change in Control Date" (as defined below) occurs, if on the
"Payment Date" (as defined below) I am (a) employed by the Company or any
Subsidiary (provided that if my employment is terminated by the Company other
than for Cause (as defined in Section VI.H(ii)(1)(b) of the Plan) on or after
the Determination Date, I shall be deemed solely for purposes of this paragraph
6(i)(a) to be employed on the Payment Date by the Company or any Subsidiary),
(b) receiving or entitled to receive benefits under Section VI.A of the Plan,
or (c) otherwise designated by the Committee as eligible to receive benefits
under Section VI.H(ii)(1)(a)(III) of the Plan, the Company shall make a lump
sum payment ("Payment") to me on a date (the "Payment Date") no later than 2
business days after the Change in Control has occurred (or, if an agreement to
effectuate a Change in Control pursuant to a Business Combination has been
executed, on the date (the "Pre-Change in Control Date") that is the third
business day prior to the date of Chief Executive Officer of the Company
believes in good faith will be the effective date of such Change in Control,
but in any event prior to the effective date of such Change in Control). For
purposes of this paragraph 6, "Determination Date" shall mean the date of the
Change in Control (or, if an agreement to effectuate a Change in Control
pursuant to a Business Combination has been executed, the date one month prior
to the date such agreement was executed).
(ii) If a Payment is to be made, such Payment shall be in an amount equal
to the present value as of the Payment Date, determined on an interest-only
basis (i.e., without discount for mortality) using a discount rate of 4.2%,
compounded annually, of the remaining scheduled Interim Distributions and
retirement distributions (as described on Exhibit 1) to be made to me under the
Plan as set forth in this Agreement [and all other Deferral and Acknowledgment
Agreements in respect of the Plan to which I am a party], and no further
benefits will be payable to me under the Plan or pursuant to this Agreement [or
any other Deferral and Acknowledgment Agreements in respect of the Plan to
which I am a party]; provided, that in the event I am eligible for a Payment
under paragraph 6(i) and I have already received a lump sum
-1-
<PAGE> 20
benefit under Section VI.F of the Plan, the amount of the Payment to be made to
me shall be an amount equal to the excess, if any, of (x) the amount of the
Payment determined under this paragraph 6(ii) (without regard to this proviso),
over (y) the amount of the lump sum benefit I have already received pursuant to
Section VI.F of the Plan.
(iii) If a Change in Control of the Company were to occur on a date after
the date (a) all scheduled Interim Distributions and retirement distributions
(as described on Exhibit 1) under the Plan have been distributed to me, or (b)
a distribution or series of distributions (other than in connection with a
Change in Control of the Company) in lieu of such scheduled Interim
Distributions and retirement distributions has been distributed to me, I would
not receive any additional benefits as a result to such Change in Control,
except that if (x) I am eligible for a Payment under paragraph 6(i)(a) above,
(y) my employment is terminated by the Company other than for Cause (as defined
in Section VI.H(ii)(1)(b) of the Plan) on or after the Determination Date, and
(z) I have received a lump sum benefit under Section VI.F of the Plan, I will
be entitled to the Payment described in the proviso of paragraph 6(ii). The
amounts shown on the attached Exhibit 2 would be the total amounts payable
under paragraphs 6(i) and 6(ii) above (taking into account any payment made
pursuant to Section VI.F of the Plan, if applicable) if the Payment were made
on the possible Change in Control dates shown on Exhibit 2. The possible
Change in Control dates shown on Exhibit 2 are for illustrative purposes only,
however, and are not an indication that a Change in Control of the Company will
occur, is projected to occur or that there is any current plan to effect a
Change in Control of the Company.
(iv) If I am not eligible for a Payment under clause (a), (b), or (c) of
paragraph 6(i) above, then in the event a Change in Control (as defined in the
Plan) occurs, my benefits under this Agreement (and the amount of any lump sum
payment otherwise payable to me under the Plan) will be determined in
accordance with the applicable provisions of Section VI.H(ii) of the Plan.
(v) It is understood that all references to Sections and defined terms
used in this paragraph 6 are references to such Sections and defined terms as
in effect as of the date hereof under the Plan. Any amendment or modification
of such Sections or defined terms shall not, without my written consent,
adversely affect my rights under this Agreement."
IN WITNESS WHEREOF, the parties hereto have executed or caused to be duly
executed this Amendment on the dates indicated below.
COMPANY
-------------------------------
By:
Date:
PARTICIPANT
-------------------------------
Date:
-2-
<PAGE> 1
EXHIBIT 10(i)
1-21-97 AMENDMENT TO
FIRST TENNESSEE NATIONAL CORPORATION
AMENDED AND RESTATED PENSION RESTORATION PLAN
___________________________________________
1. The first sentence of Section I of the First Tennessee
National Corporation Amended and Restated Pension Restoration Plan (the "Plan")
is amended by inserting the phrase "and any successor thereto" after "First
Tennessee National Corporation" in the first line thereof.
2. Section VIII(E) of the Plan is amended by deleting the section
in its entirety and substituting therefor the following:
E. Successors. This Plan shall bind any successor of
the Company, its assets or its businesses (whether direct or indirect, by
purchase, merger, consolidation or otherwise), in the same manner and to the
same extent that the Company would be obligated under this Plan if no
succession had taken place. In the case of any transaction in which a
successor would not by the foregoing provision or by operation of law be bound
by this Plan, the Company shall require such successor expressly and
unconditionally to assume and agree to perform the Company's obligations under
this Plan, in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. The term "Company,"
as used in the Plan, shall mean the Company as hereinbefore defined and any
successor or assignee to the business or assets which by reason hereof becomes
bound by this Plan.
3. Section IX of the Plan is amended by deleting the section in
its entirety and substituting therefor the following:
IX. CHANGE IN CONTROL.
A. "Change in Control" means the occurrence of any one of the
following events:
(i) individuals who, on January 21, 1997, constitute the
Board (the "Incumbent Directors") cease for any reason to constitute
at least a majority of the Board, provided that any person becoming a
director subsequent to January 21, 1997, whose election or nomination
for election was approved by a vote of at least three-fourths (3/4) of
the Incumbent Directors then on the Board (either by a specific vote
or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without written objection
to such nomination) shall be an Incumbent Director; provided, however,
that no individual elected or nominated as a director of the Company
initially as a result of an actual or threatened election contest with
respect to directors or as a result of any other actual or threatened
solicitation of proxies or consents by or on behalf of any person
other than the Board shall be deemed to be an Incumbent Director;
-1-
<PAGE> 2
(ii) any "Person" (as defined under Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and
as used in Section 13(d) or Section 14(d) of the Exchange Act) is or
becomes a "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's
then outstanding securities eligible to vote for the election of the
Board (the "Company Voting Securities"); provided, however, that the
event described in this paragraph (ii) shall not be deemed to be a
change in control by virtue of any of the following acquisitions: (A)
by the Company or any entity in which the Company directly or
indirectly beneficially owns more than 50% of the voting securities or
interests (a "Subsidiary"), (B) by an employee stock ownership or
employee benefit plan or trust sponsored or maintained by the Company
or any Subsidiary, (C) by any underwriter temporarily holding
securities pursuant to an offering of such securities, or (D) pursuant
to a Non-Qualifying Transaction (as defined in paragraph (iii));
(iii) consummation of a merger, consolidation, share exchange
or similar form of corporate transaction involving the Company or any
of its Subsidiaries that requires the approval of the Company's
shareholders, whether for such transaction or the issuance of
securities in the transaction (a "Business Combination"), unless
immediately following such Business Combination: (A) more than 50% of
the total voting power of (x) the corporation resulting from such
Business Combination (the "Surviving Corporation"), or (y) if
applicable, the ultimate parent corporation that directly or
indirectly has beneficial ownership of 100% of the voting securities
eligible to elect directors of the Surviving Corporation (the "Parent
Corporation"), is represented by Company Voting Securities that were
outstanding immediately prior to the consummation of such Business
Combination (or, if applicable, is represented by shares into which
such Company Voting Securities were converted pursuant to such
Business Combination), and such voting power among the holders thereof
is in substantially the same proportion as the voting power of such
Company Voting Securities among the holders thereof immediately prior
to the Business Combination, (B) no person (other than any employee
benefit plan sponsored or maintained by the Surviving Corporation or
the Parent Corporation), is or becomes the beneficial owner, directly
or indirectly, of 20% or more of the total voting power of the
outstanding voting securities eligible to elect directors of the
Parent Corporation (or, if there is no Parent Corporation, the
Surviving Corporation) and (C) at least a majority of the members of
the board of directors of the Parent Corporation (or, if there is no
Parent Corporation, the Surviving Corporation) were Incumbent
Directors at the time of the Board's approval of the execution of the
initial agreement providing for such Business Combination (any
Business Combination which satisfies all of the criteria specified in
(A), (B) and (C) above shall be deemed to be a "Non-Qualifying
Transaction"); or
(iv) the shareholders of the Company approve a plan of
complete liquidation or dissolution of the Company or a sale of all or
substantially all of the Company's assets.
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<PAGE> 3
Notwithstanding the foregoing, a Change in Control of the Company
shall not be deemed to occur solely because any person acquires beneficial
ownership of more than 20% of the Company Voting Securities as a result of the
acquisition of Company Voting Securities by the Company which reduces the
number of Company Voting Securities outstanding; provided, that if after such
acquisition by the Company such person becomes the beneficial owner of
additional Company Voting Securities that increases the percentage of
outstanding Company Voting Securities beneficially owned by such person, a
change in control of the Company shall then occur.
B. Notwithstanding anything herein to the contrary, upon a Change
in Control, the benefits payable under the Plan (both benefits that have
accrued at the time of such Change in Control and benefits that accrue
thereafter) shall be fully vested and nonforfeitable, and may not be reduced
or terminated after such Change in Control for any individual who was a
participant in the Plan at the time of such Change in Control.
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<PAGE> 1
EXHIBIT 10(k)
January 28, 1997
[Employee's name]
First Tennessee National Corporation
165 Madison Avenue
Memphis, Tennessee 38103
Dear [Employee]:
First Tennessee National Corporation, a Tennessee corporation
(including any successor thereto, the "Company"), considers the establishment
and maintenance of a sound and vital management to be essential to protecting
and enhancing the best interests of the Company and its shareholders. In this
connection, the Company recognizes that, as is the case with many publicly held
corporations, the possibility of a change in control may arise and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its shareholders. Accordingly, the Board of
Directors of the Company (the "Board") has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management to their assigned duties
without distraction in circumstances arising from the possibility of a change in
control of the Company. In particular, the Board believes it important, should
the Company or its shareholders receive a proposal for transfer of control of
the Company, that you be able, if requested, to assess and advise the Board
whether such proposal would be in the best interests of the Company and its
shareholders and to take such other action regarding such proposal as the Board
might determine to be appropriate, without being influenced by the uncertainties
of your own situation.
In order to induce you to remain in the employ of the Company,
this letter agreement, which has been approved by the Board, sets forth certain
benefits which the Company agrees will be provided to you in the event of a
"change in control" of the Company under the circumstances described below.
<PAGE> 2
1. Agreement to Provide Services; Right to Terminate.
(i) Except as otherwise provided in paragraph (ii) below, the
Company or you may terminate your employment at any time, subject to the
Company's providing the benefits hereinafter specified in accordance with the
terms hereof.
(ii) In the event a tender offer or exchange offer is made by
a Person (as hereinafter defined) for more than 20 percent (20%) of the combined
voting power of the Company's out standing securities ordinarily having the
right to vote at elections of directors, including shares of the common capital
stock of First Tennessee National Corporation, par value $1.25 per share (the
"Company Voting Securities"), you agree that you will not leave the employ of
the Company (other than as a result of Disability, Retirement, or upon an event
which would constitute Good Reason if such event occurred after a change in
control of the Company, as such terms are hereinafter defined) and will render
the services contemplated in the recitals to this Agreement until such tender
offer or exchange offer has been abandoned or terminated or a change in control
of the Company, as defined in Section 3 hereof, has occurred; provided, however,
that such obligation shall not extend for a period exceeding one hundred and
eighty (180) days from the initial event resulting in the obligation under this
paragraph (ii). For purposes of this Agreement, the term "Person" shall mean and
include any individual, corporation, partnership, group, association or other
"person", as such term is defined in Section 3(a)(9) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and as used in Section 13(d) or
Section 14(d) of the Exchange Act, other than the Company, an entity in which
the Company directly or indirectly beneficially owns more than 50% of the voting
securities or interests (a "Subsidiary"), or any employee stock ownership or
other employee benefit plan or trust sponsored by the Company or a Subsidiary.
2. Term of Agreement. This Agreement shall commence on the
date hereof and shall continue in effect until you or the Company shall have
given three (3) years prior written notice of termination of this Agreement;
provided, that, notwithstanding the delivery of any such notice, this Agreement
shall continue in effect for a period of thirty-six (36) months after a change
in control of the Company, as defined in Section 3 hereof, if such change in
control shall have occurred during the term of this Agreement. Notwithstanding
anything in this Section 2 to the contrary, this Agreement shall terminate if
you or the Company terminate your employment prior to a change in control of the
Company, unless you reasonably demonstrate that such termination of employment
was at the request of a third party who has taken steps reasonably calculated to
effect a change in control or otherwise arose in connection with or in
anticipation of a change in control, in which case your employment shall for all
purposes
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<PAGE> 3
of this Agreement be deemed to have been terminated by you for Good Reason
immediately following a change in control of the Company.
3. Change in Control. For purposes of this Agreement, a
"change in control" means the occurrence of any one of the following events:
(i) individuals who, on January 21, 1997, constitute the Board
(the "Incumbent Directors") cease for any reason to constitute at least
a majority of the Board, provided that any person becoming a director
subsequent to January 21, 1997, whose election or nomination for
election was approved by a vote of at least three-fourths (3/4) of the
Incumbent Directors then on the Board (either by a specific vote or by
approval of the proxy statement of the Company in which such person is
named as a nominee for director, without written objection to such
nomination) shall be an Incumbent Director; provided, however, that no
individual elected or nominated as a director of the Company initially
as a result of an actual or threatened election contest with respect to
directors or as a result of any other actual or threatened solicitation
of proxies or consents by or on behalf of any person other than the
Board shall be deemed to be an Incumbent Director;
(ii) any Person is or becomes a "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined
voting power of the Company Voting Securities; provided, however, that
the event described in this paragraph (ii) shall not be deemed to be a
change in control by virtue of any of the following acquisitions: (A)
by any underwriter temporarily holding securities pursuant to an
offering of such securities, or (B) pursuant to a Non-Qualifying
Transaction (as defined in paragraph (iii));
(iii) the consummation of a merger, consolidation, share
exchange or similar form of corporate transaction involving the Company
or any of its Subsidiaries that requires the approval of the Company's
stockholders, whether for such transaction or the issuance of
securities in the transaction (a "Business Combination"), unless
immediately following such Business Combination: (A) more than 60% of
the total voting power of (x) the corporation resulting from such
Business Combination (the "Surviving Corporation"), or (y) if
applicable, the ultimate parent corporation that directly or indirectly
has beneficial ownership of 100% of the voting securities eligible to
elect directors of the Surviving Corporation (the "Parent
Corporation"), is represented by Company Voting Securities that were
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<PAGE> 4
outstanding immediately prior to the consummation of such Business
Combination (or, if applicable, is represented by shares into which
such Company Voting Securities were converted pursuant to such Business
Combination), and such voting power among the holders thereof is in
substantially the same proportion as the voting power of such Company
Voting Securities among the holders thereof immediately prior to the
Business Combination, (B) no person (other than any employee benefit
plan sponsored or maintained by the Surviving Corporation or the Parent
Corporation), is or becomes the beneficial owner, directly or
indirectly, of 20% or more of the total voting power of the outstanding
voting securities eligible to elect directors of the Parent Corporation
(or, if there is no Parent Corporation, the Surviving Corporation) and
(C) at least two-thirds (2/3) of the members of the board of directors
of the Parent Corporation (or, if there is no Parent Corporation, the
Surviving Corporation) were Incumbent Directors at the time of the
Board's approval of the execution of the initial agreement providing
for such Business Combination (any Business Combination which satisfies
all of the criteria specified in (A), (B) and (C) above shall be deemed
to be a "Non-Qualifying Transaction"); or
(iv) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company or a sale of all or
substantially all of the Company's assets.
Notwithstanding the foregoing, a change in control of the Company shall
not be deemed to occur solely because any person acquires beneficial
ownership of more than 20% of the Company Voting Securities as a result
of the acquisition of Company Voting Securities by the Company which
reduces the number of Company Voting Securities outstanding; provided,
that if after such acquisition by the Company such person becomes the
beneficial owner of additional Company Voting Securities that increases
the percentage of outstanding Company Voting Securities beneficially
owned by such person, a change in control of the Company shall then
occur.
4. Termination Following Change in Control. If any of the
events described in Section 3 hereof constituting a change in control of the
Company shall have occurred, you shall be entitled to the benefits provided in
Section 5 upon your termination of employment within thirty-six (36) months
following such change in control; provided, however, that you shall be entitled
to the benefits provided in Section 5(viii) whether or not your employment has
been terminated. For purposes of this Agreement, "Disability," "Retirement,"
"Cause" and "Good Reason" have the meanings set forth below in this Section 4.
4
<PAGE> 5
(i) Disability. Termination by the Company of your employment
based on "Disability" shall mean termination because of your "disability" under
the Company's Long Term Disability Plan, or any successor or substitute plan or
plans of the Company, in effect immediately prior to the change in control of
the Company.
(ii) Retirement. Termination by you or by the Company of your
employment based on "Retirement" shall mean termination as a result of your
mandatory retirement in accordance with the Company's retirement policy
generally applicable to similarly situated officers, as in effect immediately
prior to the change in control of the Company, or in accordance with any
retirement arrangement established with your written consent.
(iii) Cause. Termination by the Company of your employment for
"Cause" shall mean termination upon (a) the willful and continued failure by you
to perform substantially your duties with the Company (other than any such
failure resulting from your incapacity due to physical or mental illness) after
a written demand for substantial performance is delivered to you by the Chairman
of the Board, Chief Executive Officer or President of the Company which
specifically identifies the manner in which such person believes that you have
not substantially performed your duties, which failure to perform causes
material and demonstrable economic harm to the Company or its Affiliates, (b)
the willful engaging by you in illegal conduct which is materially and
demonstrably injurious to the Company, or (c) the conviction of, or a plea of
guilty or nolo contendere to, a felony. For purposes of this paragraph (iii), no
act, or failure to act, on your part shall be considered "willful" unless done,
or omitted to be done, by you in bad faith and without reasonable belief that
your action or omission was in, or not opposed to, the best interests of the
Company or its Affiliates. Any act, or failure to act, based upon authority
given pursuant to a resolution duly adopted by the Board or based upon the
advice of counsel for the Company or upon the instructions of the Chief
Executive Officer or other senior executive officer of the Company shall be
conclusively presumed to be done, or omitted to be done, by you in good faith
and in the best interests of the Company and its Affiliates. For purposes of
this Agreement, "Affiliate" means any person directly or indirectly controlling,
controlled by, or under common control with the Company. It is also expressly
understood that your attention to matters or your engagement in activities not
directly related to the business of the Company shall not provide a basis for
termination for Cause so long as the Board has approved your engagement in such
activities prior to or following a change in control. Notwithstanding the
foregoing, in the case of clause (a) or (b) of this paragraph (iii), you shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to you a copy of a resolution duly adopted by the
5
<PAGE> 6
affirmative vote of not less than three-fourths (3/4) of the entire membership
of the Board (excluding you if you are a Board member) at a meeting of the Board
called and held for such purpose (after reasonable notice to you and an
opportunity for you, together with your counsel, to be heard before the Board),
finding that in the good faith opinion of the Board you were guilty of the
conduct set forth above in (a) or (b) of this paragraph (iii) and specifying the
particulars thereof in detail. The Company must notify you of any event
constituting Cause within ninety (90) days following the Company's knowledge of
its existence or such event shall not constitute Cause under this Agreement.
(iv) Good Reason. Termination by you of your employment for
"Good Reason" shall mean termination based upon the occurrence after a change in
control of the Company of any of the following events, without your written
consent specifically acknowledging that any such event shall not give rise to
Good Reason under this Agreement:
(A) a determination by you, in your reasonable judgment, that
there has been an adverse change in your status, title(s) or
position(s) with the Company as in effect immediately prior to the
change in control, including, without limitation, any adverse change in
your status, title(s) or position(s) as a result of a diminution in
your duties or responsibilities, or the assignment to you of any duties
or responsibilities which are inconsistent with such status, title(s),
or position(s) as in effect immediately prior to the change in control,
or any removal of you from, or any failure to reappoint or reelect you
to, such position(s) (except in connection with the termination of your
employment for Cause, Disability or Retirement or as a result of your
death or by you other than for Good Reason);
(B) a reduction by the Company in your base salary or annual
target bonus opportunity (including any adverse change in the formula
for such annual bonus target) as in effect immediately prior to the
change in control or as the same may be increased from time to time
thereafter;
(C) the failure by the Company to continue in effect any
employee benefit plan, compensation plan, welfare benefit plan or
material fringe benefit plan in which you are participating immediately
prior to such change in control or the taking of any action by the
Company which would adversely affect your participation in or reduce
your benefits under any such plan, unless you are permitted to
participate in other plans providing you with substantially equivalent
benefits in the aggregate (at substantially equivalent cost with
respect to welfare benefit plans);
6
<PAGE> 7
(D) the failure by the Company to provide and credit you with
the number of paid vacation days to which you are then entitled in
accordance with the Company's normal vacation policy as in effect
immediately prior to the change in control;
(E) the Company's requiring you to (i) be based at (a) an
office that is greater than 25 miles from where your office is located
immediately prior to the change in control or (b) at an office not
appropriate for your position (including, without limitation, your
removal from the Company's principal executive offices), except for
required travel on the Company's business to an extent substantially
consistent with the business travel obligations which you undertook on
behalf of the Company prior to the change in control, or (ii) travel on
Company business to a substantially greater extent than was required
immediately prior to the change in control;
(F) the failure by the Company to obtain from any Successor
(as hereinafter defined) the assent to this Agreement contemplated by
Section 6 hereof;
(G) any purported termination by the Company of your
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of paragraph (v) below (and, if applicable,
paragraph (iii) above); and for purposes of this Agreement, no such
purported termination shall be effective; or
(H) any refusal by the Company to continue to allow you to
attend to matters or engage in activities not directly related to the
business of the Company which, prior to the change in control, you were
permitted by the Board to attend to or engage in.
An isolated and inadvertent action taken in good faith and which is remedied by
the Company within ten (10) days after receipt of notice thereof given by
Executive shall not constitute Good Reason. Notwithstanding anything herein to
the contrary, termination of your employment for any or no reason (other than
Cause or Retirement) during the 30-day period commencing one (1) year after the
date of a change in control shall constitute termination for Good Reason;
provided, however, that this sentence shall not apply if a change in control
pursuant to Section 3(iii) shall have occurred and such change in control would
not have occurred if (x) "60%" in subclause (A) of such Section 3(iii) were
replaced by "50%" and (y) "two-thirds (2/3)" in subclause (C) of such Section
3(iii) were replaced by "a majority". For purposes of this Agreement, "Plan"
shall mean any compensation plan such as an incentive, stock option, restricted
stock, pension restoration or deferred compensation
7
<PAGE> 8
plan or any employee benefit plan such as a thrift, pension, profit sharing,
medical, disability, accident, life insurance plan or a relocation plan or
policy or any other plan, program or policy of the Company intended to benefit
employees, including, without limitation, any Plans established after the date
hereof.
(v) Notice of Termination. Any purported termination by the
Company or by you following a change in control shall be communicated by written
Notice of Termination to the other party hereto. For purposes of this Agreement,
a "Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon.
(vi) Date of Termination. "Date of Termination" means (A) the
effective date on which Executive's employment by the Company terminates as
specified in a prior written notice by the Company or Executive, as the case may
be, to the other, delivered pursuant to Section 10 or (B) if Executive's
employment by the Company terminates by reason of death, the date of death of
Executive. In the case of termination by the Company of your employment for
Cause, if you have not previously expressly agreed in writing to the
termination, then within thirty (30) days after receipt by you of the Notice of
Termination with respect thereto, you may notify the Company that a dispute
exists concerning the termination, in which event the Date of Termination shall
be the date set by mutual written agreement of the parties. During the pendency
of any such dispute, the Company will continue to pay you your full compensation
in effect just prior to the time the Notice of Termination is given and until
the dispute is resolved.
5. Compensation Upon Termination or During Disability; Other
Agreements.
(i) In the event that during the thirty-six (36) month period
following a change in control of the Company you fail to perform your duties as
a result of incapacity due to physical or mental illness, you shall continue to
receive your base salary at the rate then in effect and any benefits or awards
under any Plans shall continue to accrue during such period, to the extent not
inconsistent with such Plans, until your employment is terminated pursuant to
and in accordance with paragraphs 4(i) and 4(vi) hereof. Thereafter, if your
employment is terminated for Disability within thirty-six (36) months after a
change in control of the Company, your benefits shall be determined in
accordance with the Plans, and you shall receive benefits under the Company's
disability policies at the greater of the rate immediately prior to the change
in control or your Date of Termination.
(ii) If, within thirty-six (36) months after a change in
control of the Company, your employment by the Company shall be terminated by
the Company for Cause or by you (other than for
8
<PAGE> 9
Good Reason or Retirement), the Company shall pay you your base salary (subject
to any deferral elections) through the Date of Termination at the rate in effect
just prior to the time a Notice of Termination is given plus any bonus amounts
which have become earned or payable, but which have not yet been paid to you.
Thereupon the Company shall have no further obligations to you under this
Agreement. Following your termination of employment, your accrued benefits under
the Company's Plans shall be paid pursuant to the terms of such Plans.
(iii) If, within thirty-six (36) months after a change in
control of the Company, your employment by the Company shall be terminated on
account of Disability, death or Retirement, the Company shall pay you your base
salary (subject to any deferral elections) through the Date of Termination at
the rate in effect just prior to the time a Notice of Termination is given plus
any bonus amounts which have become earned or payable, but which have not yet
been paid to you, and a portion of your annual bonus for the fiscal year in
which your Date of Termination occurs in an amount at least equal to (A) the
product of (1) your bonus amount (as defined below), and (2) a fraction, the
numerator of which is the number of days in the fiscal year in which the Date of
Termination occurs through the Date of Termination, and the denominator of which
is three hundred sixty-five (365), reduced by (B) any amounts paid from the
Company's annual incentive plan for the fiscal year in which your Date of
Termination occurs. Thereupon, the Company shall have no further obligations to
you under this Agreement. Following your termination of employment, your accrued
benefits under the Company's Plans shall be paid pursuant to the terms of such
Plans; provided, however, that in the event of termination of employment on
account of your death within thirty-six (36) months after a change in control of
the Company, life insurance benefits paid pursuant to the Company's welfare
benefit plans shall be based on the terms of such plans in effect on the date of
death, or if more favorable to you, the terms of such plans in effect
immediately prior to the change in control.
(iv) If, within thirty-six (36) months after a change in
control of the Company, your employment by the Company shall be terminated (a)
by the Company other than for Cause, Disability or Retirement or (b) by you for
Good Reason, then the Company shall pay to you, no later than the fifth day
following the Date of Termination, without regard to any contrary provisions of
any Plan, a lump sum cash amount equal to the sum of the following amounts:
(A) your base salary (subject to any deferral elections)
through the Date of Termination at the rate in effect just prior to the
time a Notice of Termination is given (not taking into account any
reductions constituting Good Reason) plus any bonus amounts which have
become earned
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<PAGE> 10
or payable, but which have not yet been paid to you, plus the value of
your accrued but unused vacation days;
(B) a portion of your annual bonus for the fiscal year in
which your Date of Termination occurs in an amount at least equal to
(1) the product of (x) your bonus amount (as defined below), and (y) a
fraction, the numerator of which is the number of days in the fiscal
year in which the Date of Termination occurs through the Date of
Termination, and the denominator of which is three hundred sixty-five
(365), reduced by (2) any amounts paid from the Company's annual
incentive plan for the fiscal year in which your Date of Termination
occurs; and
(C) an amount equal to three (3)times the sum of (1) your
highest annual rate of base salary from the Company (or if applicable
any Subsidiary or Parent (as defined in Section 15)) during the
12-month period immediately prior to your Date of Termination, and (2)
your bonus amount.
For purposes of this Agreement, the term "base salary" shall
include any amounts deducted with respect to you or for your account pursuant to
Sections 125 and 401(k) of the Internal Revenue Code of 1986, as amended, (the
"Code") or any other deferred compensation plan or program. For purposes of this
Agreement, the term "bonus amount" means the greater of your target bonus under
the Management Incentive Plan, as amended, or any successor or substitute
plan, immediately prior to your Date of Termination or such target bonus
immediately prior to the change in control.
(v) If, within thirty-six (36) months after a change in
control of the Company, your employment by the Company shall be terminated (a)
by the Company other than for Cause, Disability or Retirement or (b) by you for
Good Reason, then the Company shall maintain in full force and effect, for the
continued benefit of you and your spouse and dependents for a period terminating
on the earliest of (a) three (3) years after the Date of Termination, (b) the
commencement date of equivalent benefits from a new employer or (c) your normal
retirement date under the terms of the First Tennessee National Corporation
Pension Plan, as amended (or any successor or substitute plan or plans of the
Company), the benefits provided to you and your spouse and dependents under all
employee welfare benefit Plans in which you were entitled to participate
immediately prior to the Date of Termination (or, if more favorable to you, the
benefits provided under such Plans, on a Plan by Plan basis, in which you were
entitled to participate immediately prior to the change in control), provided
that your continued participation is possible under the general terms and
provisions of such Plans (and any applicable funding media) and you continue to
pay an amount equal to your contribution as in effect prior to the change in
control
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or your Date of Termination, as applicable to the benefit provided under such
Plans for such participation. If, at the end of thirty-six (36) months after the
Termination Date, you have not reached your normal retirement date and you have
not previously received or are not then receiving equivalent benefits from a new
employer, the Company shall arrange, at its sole cost and expense, to enable you
to convert your and your spouse's and dependents' coverage under such Plans to
individual policies or programs upon the same terms as employees of the Company
may apply for such conversions. In the event that your participation in any such
Plan is barred, the Company, at its sole cost and expense, shall arrange to have
issued for the benefit of you and your spouse and dependents individual policies
of insurance pro viding benefits substantially similar (on an after-tax basis)
to those which you otherwise would have been entitled to receive under such
Plans pursuant to this paragraph (v) or, if such insurance is not available at a
reasonable cost to the Company, the Company shall otherwise provide you and your
dependents with equivalent benefits (on an after-tax basis). You shall not be
required to pay any premiums or other charges in an amount greater than that
which you would have paid in order to participate in such Plans. Following your
termination of employment, your accrued benefits under the Company's Plans shall
be paid pursuant to the terms of such Plans.
(vi) Except as specifically provided in paragraph (v) above,
the amount of any payment provided for in this Section 5 shall not be reduced,
offset or subject to recovery by the Company by reason of any compensation
earned by you as the result of employment by another employer after the Date of
Termination, or otherwise.
(vii) If, within thirty-six (36) months after a change in
control of the Company, your employment by the Company shall be terminated (a)
by the Company other than for Cause, Disability or Retirement or (b) by you for
Good Reason, then the Company shall provide you with reasonable outplacement
services.
(viii) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment, award,
benefit or distribution (or any acceleration of any payment, award, benefit or
distribution) by the Company (or any of its Affiliates) or any entity which
effectuates a change in control (or any of its affiliated entities) to you or
for your benefit (whether pursuant to the terms of this Agreement or otherwise,
but determined without regard to any additional payments required under this
Section 5(viii)) (the "Payments") would be subject to the excise tax imposed by
Section 4999 of the Code, or any interest or penalties are incurred by Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Company shall pay to
11
<PAGE> 12
you an additional payment or payments (collectively, a "Gross-Up Payment") in an
amount such that after payment by you of all taxes (including any Excise Tax)
imposed upon the Gross-Up Payment, you retain an amount of the Gross-Up Payment
equal to the sum of (x) the Excise Tax imposed upon the Payments and (y) the
product of any deductions disallowed because of the inclusion of the Gross-up
Payment in your adjusted gross income and the highest applicable marginal rate
of federal income taxation for the calendar year in which the Gross-up Payment
is to be made. For purposes of determining the amount of the Gross- up Payment,
you shall be deemed to (i) pay federal income taxes at the highest marginal
rates of federal income taxation for the calendar year in which the Gross-up
Payment is to be made, (ii) pay applicable state and local income taxes at the
highest marginal rate of taxation for the calendar year in which the Gross-up
Payment is to be made, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes and (iii)
have otherwise allowable deductions for federal income tax purposes at least
equal to the Gross-up Payment. The receipt of a Gross-Up Payment shall in no
event be conditioned upon your termination of employment or your receipt of any
other benefits under this Agreement.
Subject to the foregoing provisions of this Section 5(viii),
all determinations required to be made under this Section 5, including whether
and when a Gross-Up Payment is required, the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determinations, shall be made
by the public accounting firm that is retained by the Company as of the date
immediately prior to the change in control (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Company and you within
fifteen (15) business days of the receipt of notice from the Company or you that
there has been a Payment, or such earlier time as is requested by the Company
(collectively, the "Determination"). In the event that the Accounting Firm is
serving as accountant or auditor for the individual, entity or group effecting
the change in control, the Company shall appoint another nationally recognized
public accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the Company
and the Company shall enter into any agreement requested by the Accounting Firm
in connection with the performance of the services hereunder. The Gross-up
Payment under this Section 5(viii) with respect to any Payments shall be made no
later than thirty (30) days following such Payment. If the Accounting Firm
determines that no Excise Tax is payable by you, it shall furnish you with a
written opinion to such effect, and to the effect that failure to report the
Excise Tax, if any, on your applicable federal income tax return will not result
in the imposition of a negligence or similar penalty. The Determination
12
<PAGE> 13
by the Accounting Firm shall be binding upon the Company and you.
As a result of the uncertainty in the application of Section
4999 of the Code at the time of the Determination, it is possible that a
Gross-Up Payment which will not have been made by the Company should have been
made ("Underpayment") or a Gross-Up Payment is made by the Company which should
not have been made ("Overpayment"), consistent with the calculations required to
be made hereunder. In the event that you thereafter are required to make payment
of any Excise Tax or additional Excise Tax, the Accounting Firm shall determine
the amount of the Underpayment that has occurred and any such Underpayment
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code) shall be promptly paid by the Company to you or for your benefit. In the
event the amount of the Gross-up Payment exceeds the amount necessary to
reimburse you for your Excise Tax, the Accounting Firm shall determine the
amount of the Overpayment that has been made and any such Overpayment (together
with interest at the rate provided in Section 1274(b)(2) of the Code) shall be
promptly paid by you (but only to the extent you have received a refund if the
applicable Excise Tax has been paid to the Internal Revenue Service) to or for
the benefit of the Company. You shall cooperate, to the extent your expenses are
reimbursed by the Company, with any reasonable requests by the Company in
connection with any contests or disputes with the Internal Revenue Service in
connection with the Excise Tax.
6. Successors; Binding Agreement.
(i) The Company will seek, by written request at least five
(5) business days prior to the time a Person becomes a Successor (as hereinafter
defined), to have such Person, by agreement in form and substance satisfactory
to you, assent to the fulfillment of the Company's obligations under this
Agreement. Failure of such Person to furnish such assent by the later of (A)
three (3) business days prior to the time such Person becomes a Successor or (B)
two (2) business days after such Person receives a written request to so assent
shall constitute Good Reason for termination by you of your employment if a
change in control of the Company occurs or has occurred. For purposes of this
Agreement, "Successor" shall mean any Person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time),
the Company's business directly, by merger or consolidation, or indirectly, by
purchase of the Company's voting securities or otherwise.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die following your termination of employment while any amount would still
be payable to you hereunder if you had continued to live, all such amounts,
13
<PAGE> 14
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to your devisee, legatee or other designee or, if there be no
such designee, to your estate.
(iii) For purposes of this Agreement, the "Company" shall
include any corporation or other entity which is the surviving or continuing
entity in respect of any merger, consolidation or form of business combination
in which the Company ceases to exist.
7. Fees and Expenses; Mitigation. (i) The Company shall
reimburse you, on a current basis upon receipt of reasonable written evidence of
such fees and expenses, for all legal fees and related expenses incurred by you
in connection with this Agreement (including claims under the First Tennessee
National Corporation Directors and Executives Deferred Compensation Plan, or any
successor plan or plans thereto) following a change in control of the Company,
including, without limitation, (a) all such fees and expenses, if any, incurred
in contesting or disputing any termination of your employment or incurred by you
in seeking advice with respect to the matters set forth in Section 5(viii)
hereof or (b) your seeking to obtain or enforce any right or benefit provided by
this Agreement, in each case, regardless of whether or not your claim is upheld
by a court of competent jurisdiction; provided, however, you shall be required
to repay any such amounts to the Company to the extent that a court issues a
final and non-appealable order setting forth the determination that the position
taken by you was frivolous or advanced by you in bad faith.
(ii) You shall not be required to mitigate the amount of any
payment the Company becomes obligated to make to you in connection with this
Agreement, by seeking other employment or otherwise.
8. Taxes. All payments to be made to you under this Agreement
will be subject to required withholding of federal, state and local income and
employment taxes.
9. Survival. The respective obligations of, and benefits
afforded to, the Company and you as provided in Sections 5, 6(ii), 7, 8, 13 and
14 of this Agreement shall survive termination of this Agreement.
10. Notice. (i) For the purposes of this Agreement, notices
and all other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid and addressed,
in the case of the Company, to the address set forth on the first page of this
Agreement or, in the case of the undersigned employee, to the address set forth
below his signature, provided
14
<PAGE> 15
that all notices to the Company shall be directed to the attention of the
Chairman of the Board, Chief Executive Officer or President of the Company, with
a copy to the Secretary of the Company, or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
(ii) A written notice of your Date of Termination by the
Company or you, as the case may be, to the other, shall (i) indicate the
specific termination provision in this Agreement relied upon, (ii) to the extent
applicable, set forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of your employment under the provision so
indicated and (iii) specify the termination date (which date shall be not less
than fifteen (15) (thirty (30), if termination is by the Company for Disability)
nor more than sixty (60) days after the giving of such notice). The failure by
you or the Company to set forth in such notice any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right you
or the Company have hereunder or preclude you or the Company from asserting such
fact or circumstance in enforcing your or the Company's rights hereunder.
11. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such modification, waiver or discharge is
agreed to in a writing signed by you and, on behalf of the Company, by the
Chairman of the Board, Chief Executive Officer or President of the Company. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or of compliance with, any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. No agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which
are not expressly set forth in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Tennessee.
12. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
13. Employee's Commitment. You agree that subsequent to your
period of employment with the Company, you will not at any time communicate or
disclose to any unauthorized person, without the written consent of the Company,
any proprietary processes of the Company or any Affiliate or other confidential
information concerning their business, affairs, products,
15
<PAGE> 16
suppliers or customers which, if disclosed, would have a material adverse effect
upon the business or operations of the Company and its Affiliates, taken as a
whole; it being understood, however, that the obligations under this Section 13
shall not apply to the extent that the aforesaid matters (a) are disclosed in
circumstances where you are legally required to do so or (b) become generally
known to and available for use by the public otherwise than by your wrongful act
or omission.
14. Related Agreements. To the extent that any provision of
any other agreement between the Company or any of its Subsidiaries and you shall
limit, qualify or be inconsistent with any provision of this Agreement, then for
purposes of this Agreement, while the same shall remain in force, the provision
of this Agreement shall control and such provision of such other agreement shall
be deemed to have been superseded, and to be of no force or effect, as if such
other agreement had been formally amended to the extent necessary to accomplish
such purpose. Moreover, the benefits provided under this Agreement shall offset
any and all benefits provided under any severance plan, program or similar
arrangement (including any severance provisions of any employment agreement) of
the Company and its Subsidiaries.
15. Employment. Employment with the Company for purposes of
this Agreement shall include employment with any of its Subsidiaries or with any
entity which directly or indirectly beneficially owns more than 50% of the
voting securities of the Company ("Parent").
16. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
16
<PAGE> 17
If this letter correctly sets forth our agreement on the
subject matter hereof, kindly sign and return to the Company the enclosed copy
of this letter which will then constitute our agreement on this subject.
Sincerely,
FIRST TENNESSEE NATIONAL CORPORATION
By
------------------------------------
Name: G. Robert Vezina
Title: Executive Vice President
Agreed to this day
of , 199_.
- ------------------------------
Employee
Home Address:
- ------------------------------
- ------------------------------
- ------------------------------
- ------------------------------
17
<PAGE> 1
EXHIBIT 10(l)
1-21-97 AMENDMENT TO
FIRST TENNESSEE NATIONAL CORPORATION
1995 EMPLOYEE STOCK OPTION PLAN
______________________________________________
1. The first sentence of Section 1 of the 1995 Employee Stock Option
Plan of First Tennessee National Corporation (the "Plan") is amended by
inserting the phrase "and any successor thereto" after "First Tennessee
National Corporation."
2. Section 2 of the Plan is amended by deleting the definition of the
term "Change in Control" in its entirety and substituting therefor the
following:
(a) "Change in Control" means the occurrence of any one of the
following events:
(i) individuals who, on January 21, 1997, constitute the
Board (the "Incumbent Directors") cease for any reason to constitute
at least a majority of the Board, provided that any person becoming a
director subsequent to January 21, 1997, whose election or nomination
for election was approved by a vote of at least three-fourths (3/4) of
the Incumbent Directors then on the Board (either by a specific vote
or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without written objection
to such nomination) shall be an Incumbent Director; provided, however,
that no individual elected or nominated as a director of the Company
initially as a result of an actual or threatened election contest with
respect to directors or as a result of any other actual or threatened
solicitation of proxies or consents by or on behalf of any person
other than the Board shall be deemed to be an Incumbent Director;
(ii) any "Person" (as defined under Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and
as used in Section 13(d) or Section 14(d) of the Exchange Act) is or
becomes a "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's
then outstanding securities eligible to vote for the election of the
Board (the "Company Voting Securities"); provided, however, that the
event described in this paragraph (ii) shall not be deemed to be a
change in control by virtue of any of the following acquisitions: (A)
by the Company or any entity in which the Company directly or
indirectly beneficially owns more than 50% of the voting securities or
interests (a "Subsidiary"), (B) by an employee stock ownership or
employee benefit plan or trust sponsored or maintained by the Company
or any Subsidiary, (C) by any underwriter temporarily holding
securities pursuant to an offering of such securities, or (D) pursuant
to a Non-Qualifying Transaction (as defined in paragraph (iii));
(iii) the shareholders of the Company approve a merger,
consolidation, share exchange or similar form of corporate transaction
involving the Company or any of its Subsidiaries that requires the
approval of the Company's shareholders, whether for such
-1-
<PAGE> 2
transaction or the issuance of securities in the transaction (a
"Business Combination"), unless immediately following such Business
Combination: (A) more than 50% of the total voting power of (x) the
corporation resulting from such Business Combination (the "Surviving
Corporation"), or (y) if applicable, the ultimate parent corporation
that directly or indirectly has beneficial ownership of 100% of the
voting securities eligible to elect directors of the Surviving
Corporation (the "Parent Corporation"), is represented by Company
Voting Securities that were outstanding immediately prior to the
consummation of such Business Combination (or, if applicable, is
represented by shares into which such Company Voting Securities were
converted pursuant to such Business Combination), and such voting
power among the holders thereof is in substantially the same
proportion as the voting power of such Company Voting Securities among
the holders thereof immediately prior to the Business Combination, (B)
no person (other than any employee benefit plan sponsored or
maintained by the Surviving Corporation or the Parent Corporation), is
or becomes the beneficial owner, directly or indirectly, of 20% or
more of the total voting power of the outstanding voting securities
eligible to elect directors of the Parent Corporation (or, if there is
no Parent Corporation, the Surviving Corporation) and (C) at least a
majority of the members of the board of directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving
Corporation) were Incumbent Directors at the time of the Board's
approval of the execution of the initial agreement providing for such
Business Combination (any Business Combination which satisfies all of
the criteria specified in (A), (B) and (C) above shall be deemed to be
a "Non-Qualifying Transaction"); or
(iv) the shareholders of the Company approve a plan of
complete liquidation or dissolution of the Company or a sale of all or
substantially all of the Company's assets.
Computations required by paragraph (iii) shall be made on and as of
the date of shareholder approval and shall be based on reasonable assumptions
that will result in the lowest percentage obtainable.
Notwithstanding the foregoing, a Change in Control of the Company
shall not be deemed to occur solely because any person acquires beneficial
ownership of more than 20% of the Company Voting Securities as a result of the
acquisition of Company Voting Securities by the Company which reduces the
number of Company Voting Securities outstanding; provided, that if after such
acquisition by the Company such person becomes the beneficial owner of
additional Company Voting Securities that increases the percentage of
outstanding Company Voting Securities beneficially owned by such person, a
change in control of the Company shall then occur.
3. The Plan is amended by adding a new Section 17 at the end thereof,
which shall read as follows:
17. Successors. This Plan shall bind any successor of the Company,
its assets or its businesses (whether direct or indirect, by purchase,
merger, consolidation or otherwise), in the same manner and to the
same extent that the Company would be obligated under this Plan
-2-
<PAGE> 3
if no succession had taken place. In the case of any transaction in
which a successor would not by the foregoing provision or by operation
of law be bound by this Plan, the Company shall require such successor
expressly and unconditionally to assume and agree to perform the
Company's obligations under this Plan, in the same manner and to the
same extent that the Company would be required to perform if no such
succession had taken place. The term "Company," as used in the Plan,
shall mean the Company as hereinbefore defined and any successor or
assignee to the business or assets which by reason hereof becomes
bound by this Plan.
-3-
<PAGE> 1
EXHIBIT 11
FIRST TENNESSEE NATIONAL CORPORATION
PRIMARY EARNINGS PER SHARE
AND FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
Computation for Statements of Income: 1996 1995 1994
- ------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Per statements of income (Thousands):
Net income $ 179,907 $ 164,888 $ 147,068
=========== =========== ===========
Per statements of income:
Weighted average shares outstanding 67,196,586 68,024,794 68,441,382
=========== =========== ===========
Primary earnings per share (a):
Net income $ 2.68 $ 2.42 $ 2.15
=========== =========== ===========
Additional Primary computation
- ------------------------------
Adjustment to weighted average shares
outstanding:
Weighted average shares outstanding
per primary computation above 67,196,586 68,024,794 68,441,382
Add dilutive effect of outstanding
options (as determined by the
application of the treasury stock
method) 971,608 639,766 535,064
----------- ---------- -----------
Weighted average shares outstanding,
as adjusted 68,168,194 68,664,560 68,976,446
=========== =========== ===========
Primary earnings per share, as adjusted (b):
Net income $ 2.64 $ 2.40 $ 2.13
=========== =========== ===========
Additional Fully Diluted Computation
- ------------------------------------
Adjustment to weighted average shares
outstanding:
Weighted average shares outstanding
per primary computation above 68,168,194 68,664,560 68,976,446
Additional dilutive effect of outstanding
options (as determined by the application
of the treasury stock method) 49,630 99,014 25,962
----------- ----------- -----------
Weighted average shares outstanding,
as adjusted 68,217,824 68,763,574 69,002,408
=========== =========== ===========
Fully diluted earnings per share, as adjusted (b):
Net income $ 2.64 $ 2.40 $ 2.13
=========== =========== ===========
</TABLE>
(a) These figures agree with the related amounts in the statements of income.
(b) This calculation is submitted in accordance with Securities Exchange Act
of 1934 Release No. 9083 although not required by footnote 2 paragraph 14
of APB Opinion No. 15 because it results in dilution of less than 3%.
Per share data reflects the 1996 two-for-one stock split.
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
====================================
OVERVIEW OF 1996 OPERATIONS
Earnings for 1996 reflect the sixth consecutive year of record earnings
for First Tennessee National Corporation (First Tennessee). Net income for the
year increased 9 percent to $179.9 million from $164.9 million earned in
1995. Net income per share was $2.68 in 1996, up 11 percent from the $2.42
earned in 1995. Returns remained strong with 1.43 percent return on average
assets and 20.05 percent return on average equity in 1996 compared with
1.45 percent and 20.04 percent, respectively, in 1995.
Additional financial highlights in 1996 (which are detailed in the
following financial discussion) include:
* Noninterest income contributed 56 percent to total revenue and
grew 17 percent
* Mortgage banking led the increase in noninterest income with
growth of 29 percent
* Net interest income increased 15 percent, and the net interest margin
improved to 4.13 percent from 3.92 percent
* Asset quality remained strong with the nonperforming asset ratio
declining to .35 percent
* At year-end, First Tennessee was ranked in the top 50 bank holding
companies in market capitalization with $2.5 billion and assets of
$13.1 billion
The acquisitions of Peoples Commercial Services Corporation (the parent
company of Peoples Bank of Senatobia, Mississippi) and Financial Investment
Corporation (the parent company of First National Bank of Springdale, Arkansas)
which were completed in 1995, affect the comparability of financial information.
These acquisitions were accounted for as purchases and their financials are only
included from the dates of acquisition. Additional details regarding
acquisitions can be found in Note 2 - Acquisitions. Information has been
included related to these acquisitions in the following financial discussion to
assist in making accurate comparisons.
The following financial discussion should be read with the accompanying
consolidated financial statements and notes. A glossary is included at the end
of this section to assist with terminology. For purposes of this financial
discussion, reference to the bond division includes First Tennessee Capital
Assets Corporation, an affiliate of First Tennessee Bank National Association
(FTBNA).
INCOME STATEMENT ANALYSIS
1996 COMPARED TO 1995
NONINTEREST INCOME
Noninterest income, also called fee income, provides the majority of First
Tennessee's revenue. During 1996, fee income, excluding securities gains and
losses, increased 17 percent, from $490.2 million to $573.8 million, and in
both 1995 and 1996 contributed 56 percent to total revenue. This high
contribution level ranks First Tennessee fifth among bank holding companies in
the nation for this ratio. Table 1 - Analysis of Noninterest Income provides
six years of detail by category with growth rates.
MORTGAGE BANKING
FT Mortgage Companies, an affiliate of FTBNA, both originates and services
residential mortgage loans. After origination, mortgage loans are typically sold
to investors, primarily in the secondary market, while the rights to service
such loans are usually retained. Servicing rights permit the owner to collect
fees for gathering and processing monthly mortgage payments. Mortgage banking
fee income increased 29 percent in 1996, from $212.6 million to $274.3 million,
due to the 44 percent growth in origination volume and 34 percent growth in the
servicing portfolio.
Income derived from the loan origination function increased 44 percent in
1996, from $59.6 million to $85.6 million, as FT Mortgage Companies originated
$10.4 billion of mortgage loans in 1996 and ranked as one of the top 10
mortgage originators in the nation. In 1995, $7.2 billion of mortgage loans
were originated. Refinance activity accounted for approximately 30 percent of
total retail loan originations in 1996, compared with 22 percent in 1995. The
record year of origination volume was also the leading driver for the
57 percent increase, from $62.8 million to $98.7 million, in income derived from
<PAGE> 2
the delivery of more mortgage loans into the secondary market and the creation
of originated mortgage servicing rights.
Mortgage servicing fee income increased 26 percent in 1996, from
$54.8 million to $69.2 million. The mortgage servicing portfolio, which
includes servicing for ourselves and others, totaled $22.3 billion at
December 31, 1996, compared with $16.7 billion at December 31, 1995. The change
in the portfolio during 1996 was created from originations of $10.4 billion,
reductions from sales of servicing of $2.2 billion and principal reductions of
$2.6 billion from payments received in the normal course of business. Revenues
from the sale of mortgage servicing rights declined 41 percent in 1996, from
$35.4 million to $20.8 million, as a result of a change in volume and mix of
servicing sold. During 1996, First Tennessee sold $.4 billion less mortgage
servicing rights than in 1995.
BOND DIVISION
Bond division revenues increased 4 percent in 1996, from $82.8 million to
$85.9 million. Bond division revenues are generated primarily from the purchase
and sale of securities as both principal and agent. Inventory positions are
limited to the procurement of securities solely for distribution to customers
by the sales staff. Inventory is hedged to protect against movements in
interest rates. Total securities bought and sold by the bond division increased
20 percent in 1996, from $182.0 billion to $217.8 billion. During 1996, the
positive impact on fee income from customer base expansion and higher
transaction volumes was lessened by several factors. Community banks, the bond
division's primary customer base, experienced strong loan growth during the
year thus reducing their investment security demands. In addition, with the
expectation of higher interest rates, the mix of securities bought and sold by
customers changed, unfavorably affecting profitability.
DEPOSIT TRANSACTIONS AND CASH MANAGEMENT
Noninterest income from deposit transactions and cash management increased
6 percent in 1996, from $74.1 million to $78.2 million. These fees are generated
from the sale of retail deposit and cash management products and services. The
increase in 1996 was a result of the higher transaction volume due to both new
product sales and an expanded customer base, as well as pricing changes. The
growth in fees collected from retail and business customers was partially offset
by the reduction in the FDIC premium in 1995 as these fees were no longer
assessed to customers.
CARDHOLDER AND MERCHANT PROCESSING
Fee income from cardholder and merchant processing, two separate divisions
related to the credit card business, grew 21 percent in 1996, from $34.0 million
to $41.3 million, due to an 18 percent increase in merchant processing volume,
pricing structure changes and continued expansion of customer relationships.
TRUST SERVICES
Trust services includes fees from the managed asset segment, corporate
trust services and custodial services. During 1996, noninterest income from
trust services grew 18 percent, from $31.4 million to $37.1 million, excluding
the impact of an accounting change which added $4.2 million to 1995 fees. With
this accounting change, the income growth as reported was 4 percent. Noninterest
income from corporate trust services, an indenture trustee business that acts as
trustee on public bond issues, declined 2 percent due to reductions in new debt
issuance by municipalities. Fees from the sales of an annuity product previously
sold through a third party vendor increased fee income $1.2 million in 1996.
Managed trust assets, which include personal trust, employee benefits and
investment management, grew 12 percent during 1996 and reached $5.8 billion on
December 31, 1996, compared with $5.2 billion at December 31, 1995. Total trust
assets, including funds of indenture trustee business and custodial account
asset values, were $15.1 billion at the end of 1996 and $14.9 billion at the end
of 1995.
SECURITIES GAINS/(LOSSES)
In 1996, there were $2.7 million of net securities losses which included an
equity securities loss of $3.0 million in the venture capital company's
investment portfolio. During 1995, net security gains of $2.4 million were
recorded which included $4.6 million of securities gains in the venture capital
companies and securities losses related to the write-down of $3.6 million of
<PAGE> 3
securities that, in the opinion of management, had been permanently impaired.
ALL OTHER NONINTEREST INCOME
All Other noninterest income grew 12 percent in 1996, from $51.0 million to
$57.0 million. This category includes fees generated by check clearing, other
service charges, foreclosure gains and electronic banking surcharges.
Approximately 25 percent of the increase came from the implementation of a
first-time surcharge to ATM users who were not First Tennessee customers. Other
service charges are generated from banking services performed, but are not
directly related to deposit transactions, such as fees for money orders,
travelers checks, savings bonds, safe deposit box rentals, mutual fund services
and safekeeping. During 1996, these fees grew 28 percent with the increase being
spread over several of these categories.
EXCLUDING ACQUISITIONS
As previously discussed, the method of accounting for acquisitions impacts
the comparability of financial statements. Excluding Peoples Commercial Services
Corporation, Financial Investment Corporation and securities gains and losses in
both periods, growth in total noninterest income would have remained 17 percent.
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 included in earning assets. Earning assets, including loans, have
been expressed as averages, net of unearned income. Table 2 - Net Interest
Income and Earning Assets provides net interest income and earning assets detail
for the past three years. Table 4 - Analysis of Changes in Net Interest Income
gives volume and rate detail by category.
During 1996, net interest income increased 15 percent, from $395.7 million
to $456.6 million, with earning assets increasing 10 percent, from $10.1 billion
to $11.1 billion, from growth in commercial loans, consumer loans and mortgage
loans held for sale. Total interest-bearing liabilities grew 12 percent, from
$8.5 billion to $9.5 billion, for the year.
The net interest spread increased 20 basis points reflecting lower
liability costs and the steepening of the yield curve during 1996. The increase
in mortgage servicing rights and share repurchase programs decreased
interest-free sources and unfavorably impacted net interest margin (margin)
14 basis points. Consequently, the overall margin improved 21 basis points in
1996. Fifteen basis points of this annual improvement came from the expiration
in May 1996 of amortization expense related to a basis swap entered into in
May 1993.
The margin is affected by the activity levels and related funding for First
Tennessee's specialty lines of business, as these nonbank business lines
typically produce different margins than traditional retail/commercial banking
activities. Consequently, First Tennessee's consolidated margin cannot readily
be compared to that of other bank holding companies. Table 3 - Net Interest
Margin Composition provides a breakdown by business line of the impact on the
consolidated margin for the past three years.
The margin in the retail/commercial bank was diminished by the basis swap
previously discussed. Excluding the basis swap, the margin in the
retail/commercial bank was 4.31 percent in 1996, 4.12 percent in 1995 and
4.31 percent in 1994. Mortgage banking negatively impacts the margin because the
spread between the rates on mortgage loans temporarily in the warehouse and the
related short-term funding rates are significantly less than the comparable
spread earned in the retail/commercial bank. As origination volume increases,
the compression to margin also increases. The bond division also negatively
impacts the margin because of its strategy to hedge inventory in the cash
markets which effectively eliminates net interest income on these positions,
but reduces the risk of large market losses due to interest rate movements.
The balance sheet at December 31, 1996, was asset sensitive to interest
rate movements and within First Tennessee's guideline limits, with $197 million
more assets than liabilities scheduled to reprice within one year (1.8 percent
of earning assets) as shown in Table 5 - Rate Sensitivity Analysis at believes
that during 1997 the overall asset quality position will December 31, 1996.
This point-in-time measurement indicates that over the course of a year a
downward movement in rates may negatively impact the margin since assets will
reprice faster than liabilities, while upward rate movements may favorably
<PAGE> 4
impact margin.
With First Tennessee's existing balance sheet mix and the current interest
rate environment, the retail/commercial bank's margin is expected to improve in
1997 as a result of the basis swap loss being fully amortized and through
initiatives to lower the cost of interest-bearing liabilities. Going forward,
the consolidated margin will continue to be influenced by the activity levels in
the specialty lines of business.
EXCLUDING ACQUISITIONS
Excluding Peoples Commercial Services Corporation and Financial Investment
Corporation, growth in total net interest income would have been 13 percent.
PROVISION FOR LOAN LOSSES
The provision for loan losses is the charge to operating earnings that
management determines to be necessary to maintain the allowance for loan losses
at an adequate level reflecting management's estimate of the risk of loss
inherent in the loan portfolio. The provision for loan losses was $35.7 million
in 1996 compared with $20.6 million in 1995. The increase in provision relates
to a higher amount of allowance for loan losses commensurate with loan growth.
In addition, given economic trends, the level of provision was increased to
reserve for higher potential losses inherent in the loan portfolio. A more
detailed discussion follows in the Asset Quality section.
NONINTEREST EXPENSE
Noninterest expense, also called operating expense, increased 16 percent in
1996, from $609.7 million to $704.5 million, primarily because of growth in
mortgage banking. Table 6 - Analysis of Noninterest Expense provides detail by
category for the past six years with growth rates.
Operating expense in the mortgage banking division, excluding one-time
acquisition costs incurred in 1995, increased 31 percent, from $195.6 million to
$256.0 million, and accounted for 64 percent of the overall expense growth.
Mortgage banking expense growth was driven by a larger servicing portfolio and
increased mortgage origination production costs which are primarily variable in
nature. Excluding mortgage banking, overall operating expenses increased
8 percent during 1996.
Employee compensation, incentives, and benefits (personnel expense), the
largest component of noninterest expense, increased 13 percent in 1996, from
$340.5 million to $385.4 million. Personnel expense includes commissions paid in
several lines of business, such as the bond division and mortgage banking. As
the revenues increase or decrease in these business lines, the amount of
commissions change accordingly. Personnel expense increased 23 percent in
mortgage banking and 7 percent in the bond division during 1996.
As a result of a larger servicing portfolio, amortization of capitalized
mortgage servicing rights increased 74 percent, from $15.0 million to
$26.0 million. The 48 percent reduction, from $9.9 million to $5.1 million, in
deposit insurance premium expense includes the benefit of the reduction in the
FDIC premium to zero at the beginning of 1996 with only minimal administrative
costs being assessed to banks, partially offset by the one-time SAIF assessment
discussed below. Advertising and public relations increased 36 percent, from
$13.0 million to $17.6 million, from targeted promotional programs including
home banking products such as Smart Phone Banking, Touchtone Banking,
PC Banking and Internet Banking, as well as the introduction of customer
loyalty programs.
All Other expense consists of many smaller expense categories such as
supplies, contract employment, travel and entertainment, Fed service fees,
foreclosed real estate expenses, contributions and other. During 1996, All
Other expense increased 37 percent, from $71.4 million to $97.8 million, with
the growth in mortgage banking accounting for 83 percent of this increase.
EXCLUDING ACQUISITIONS, ONE-TIME ITEMS, ETC.
On September 30, 1996, Federal legislation assessed a one-time fee to banks
that own previously acquired thrift deposits. 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. Excluding this one-time SAIF
assessment, the acquisitions of Peoples Commercial Services Corporation and
Financial Investment Corporation, and the one-time acquisition costs
<PAGE> 5
incurred in 1995, the growth rate of total noninterest expense would have been
15 percent.
Excluding personnel expense in Peoples Commercial Services Corporation,
Financial Investment Corporation, and the commission-based businesses of
mortgage banking and the bond division, personnel expense increased 6 percent in
1996.
INCOME STATEMENT ANALYSIS
1995 COMPARED TO 1994
Earnings in 1995 reflected the fifth consecutive year of record earnings
with net income of $164.9 million, an increase of 12 percent from $147.1 million
earned in 1994. Earnings per share increased 13 percent from $2.15 in 1994 to
$2.42 in 1995. Return on average assets improved to 1.45 percent in 1995 from
1.39 percent in 1994, and return on average equity improved to 20.04 percent in
1995 from 19.36 percent in 1994.
Noninterest income, excluding securities gains and losses in both periods,
increased 12 percent during 1995, from $436.2 million to $490.2 million.
Mortgage banking contributed 47 percent of the growth in fee income between 1995
and 1994. During 1995, mortgage banking fee income increased 13 percent, from
$187.3 million to $212.6 million, from increased origination volume and a larger
servicing portfolio. Bond division fee income increased 7 percent in 1995, from
$77.5 million to $82.8 million, as a result of expansion in the nonbank customer
base. During 1995, deposit transactions and cash management grew 13 percent,
from $65.8 million to $74.1 million; cardholder and merchant processing
increased 12 percent, from $30.3 million to $34.0 million; and trust services
grew 23 percent, from $28.9 million to $35.6 million. Accounting adjustments
made in both trust services as well as deposit transactions and cash management
in 1995 affect the comparability of these growth rates. Excluding these
accounting adjustments, growth in both trust services as well as deposit
transactions and cash management would have been 9 percent.
In 1994, there were $24.3 million of equity securities gains which included
$16.7 million realized as venture capital gains and $7.5 million of other equity
securities gains. Debt securities losses included $5.0 million of losses
resulting from securities being sold in the normal course of business.
Net interest income, on a fully taxable equivalent basis, totaled
$395.7 million in 1995, down 1 percent, or $3.6 million, from 1994 due to
compression in the net interest margin from 4.25 percent in 1994 to
3.92 percent in 1995. The compression in the net interest margin resulted from
the negative impact of a $1 billion basis swap combined with the effect of
repricing mismatches on First Tennessee's balance sheet and off-balance sheet
positions from the extreme interest rate movements in 1994 and the flattening
of the yield curve in 1995.
The provision for loan losses increased 20 percent during 1995, to
$20.6 million, from a historically low level of $17.2 million in 1994.
Noninterest expense decreased 3 percent in 1995, from $625.7 million to
$609.7 million. Personnel expense, the largest component, decreased 3 percent,
from $349.8 million to $340.5 million, primarily from the benefit of operating
efficiencies especially in mortgage banking with consolidation synergies.
Deposit insurance decreased 41 percent in 1995, from $16.9 million to
$9.9 million, as a result of a lower deposit rate assessment during the year.
During 1995 and 1994, a number of one-time items occurred that affect the
comparability of the periods. These one-time items included purchase
acquisitions, acquisition expenses, accounting changes and charitable
foundation contribution expenses. Excluding these items in 1995 and 1994,
noninterest expense decreased 2 percent.
The effective tax rate in 1995 was 34.8 percent compared with 29.2 percent
in 1994. The lower tax rate in 1994 resulted from the elimination of a deferred
tax valuation allowance related to an acquisition and the establishment of a
charitable foundation. Without these items, the effective tax rate in 1994 would
have been 34.3 percent.
BALANCE SHEET REVIEW
At December 31, 1996, First Tennessee reported total assets of
$13.1 billion compared with $12.1 billion at the end of 1995 and $10.9 billion
at the end of 1994. Average assets were $12.6 billion in 1996 compared with
$11.4 billion in 1995 and $10.6 billion in 1994.
<PAGE> 6
EARNING ASSETS
Loans, investment securities and the mortgage warehouse are the primary
earning assets. For purposes of this discussion, loans are expressed as
averages, net of unearned income, unless otherwise noted. For 1996, earning
assets averaged $11.1 billion compared with $10.1 billion for 1995 and
$9.4 billion for 1994. Average earning assets were 88 percent of total average
assets in 1996 and 89 percent of total average assets in both 1995 and 1994.
LOANS
Loans grew 8 percent, or $584.9 million, during 1996 and 15 percent, or
$902.8 million, during 1995. Loans represented 68 percent of earning assets in
both 1996 and 1995 and 64 percent in 1994. Additional loan information is
provided in Table 7 - Maturities of Loans at December 31, 1996, and Note 4 -
Loans.
Commercial loans continued as the single largest loan category and
represented approximately 45 percent of total loans between 1994 and 1996
(45 percent in 1996 and 46 percent in both 1995 and 1994). During 1996,
commercial loans grew 7 percent, or $235.1 million, compared with 13 percent,
or $372.7 million, in 1995. The increase in commercial loans, influenced by
strong economic growth in Tennessee, came from lending to small businesses and
middle market companies in Tennessee and the Mid-South region.
The consumer loan portfolio consists of real estate, automobile, student
and other consumer installment loans that require periodic payments of principal
and interest. The consumer loan portfolio represented approximately 35 percent
of total loans between 1994 and 1996 (35 percent in 1996, 34 percent in 1995 and
35 percent in 1994). During 1996, consumer loans grew 10 percent, or
$240.4 million, compared with 14 percent, or $284.5 million, in 1995. Growth in
real estate loans, primarily secured by first and second liens on residential
property, contributed significantly to the increase in the consumer loan
portfolio. First Tennessee is active in originating second mortgages not only
in Tennessee through FTBNA, but also outside this market through Gulf Pacific
Mortgage, a division of FTBNA.
The permanent mortgage portfolio includes certain mortgage loans that First
Tennessee periodically decides to retain. The permanent mortgage portfolio
represented approximately 9 percent of total loans between 1994 and 1996
(9 percent in 1996, 10 percent in 1995 and 9 percent in 1994). This portfolio
of loans grew only $1.6 million in 1996 as new loans were securitized and sold
and older loans paid down, and it grew 18 percent, or $100.9 million, in 1995
as management decided to retain additional loans.
Between 1994 and 1996, credit card receivables (i.e., outstanding balances
on credit card accounts) represented 7 percent of total loans. Credit card
receivables increased 10 percent, or $49.8 million, in 1996 and increased
11 percent, or $47.7 million, during 1995. The increased use of debt by
consumers led to this growth, while targeted promotional campaigns,
cross-selling efforts and selective pricing programs helped retain customers
during this intensely competitive period.
The real estate construction loan portfolio represented approximately
3 percent of total loans between 1994 and 1996 (4 percent in 1996, 3 percent in
1995 and 2 percent in 1994). During 1996, this portfolio grew 27 percent, or
$58.7 million, compared with 84 percent, or $99.1 million, in 1995. The increase
during these periods is reflective of economic growth in Tennessee and
favorable market conditions.
Going forward, with the anticipated slow growth in the national and
regional economies, First Tennessee expects to experience moderate loan growth.
The permanent mortgage portfolio will continue to decline as loans are
securitized and sold in the normal course of business. In the consumer-related
loan portfolios, targeted promotional programs will help sustain growth, while
the introduction of an automated credit scoring product for small business loans
will help support commercial loan growth.
EXCLUDING ACQUISITIONS
Excluding the acquisitions of Peoples Commercial Services Corporation and
Financial Investment Corporation, total loan growth would have been 7 percent in
1996 and 14 percent in 1995.
INVESTMENT SECURITIES
The investment portfolio consists principally of debt securities that First
Tennessee uses as a source of income and liquidity, to balance interest rate
risk with other categories of the balance sheet and to supply securities to
<PAGE> 7
pledge as required collateral for certain deposits. Table 8 - Maturities of
Investment Securities at December 31, 1996, shows information pertaining to
the composition, yields and maturities of the securities portfolio. Average
investment securities increased 2 percent, or $42.3 million, in 1996 and
decreased 4 percent, or $87.7 million, in 1995. Investment securities
represented 20 percent of earning assets in 1996 compared with 21 percent in
1995 and 24 percent in 1994.
The investment portfolio is classified into two categories: securities
available for sale (AFS) and securities held to maturity (HTM). The securities
portfolio totaled $2.2 billion at December 31, 1996. The majority of these
securities were classified as AFS with an average life of 2.6 years. These
securities consisted primarily of mortgage-backed securities, collateralized
mortgage obligations (CMOs), U.S. Treasuries, U.S. government agencies and
equities. At December 31, 1996, these securities had approximately $5.9 million
of net unrealized gains that resulted in an increase in book equity of
approximately $3.7 million, net of $2.2 million of deferred income taxes. At
December 31, 1995, the AFS securities portfolio totaled $2.0 billion and had
approximately $18.2 million of net unrealized gains that resulted in an increase
in book equity of approximately $10.6 million, net of $7.6 million of deferred
income taxes. At December 31, 1994, the AFS securities portfolio totaled
$1.2 billion and had approximately $39.7 million of net unrealized losses that
resulted in a decrease in book equity of $24.3 million, net of a $15.4 million
deferred income tax benefit.
At December 31, 1996, the HTM securities (which were all municipal bonds),
totaled $65.9 million and had an average life of 5.1 years. The HTM securities
portfolio had a net unrealized gain at December 31, 1996, of $.8 million. At
December 31, 1995, the securities classified as HTM totaled $74.7 million and
had a net unrealized gain of $1.0 million, and at December 31, 1994, the HTM
securities portfolio totaled $1.0 billion and had a net unrealized loss of
$52.7 million. During 1995, accounting rules permitted banks to reclassify
their AFS and HTM securities without adverse ramifications. This action is the
reason for the change in the size of these two portfolios between 1994 and
1995.
Corporate guidelines call for all securities purchased for the investment
portfolio to be rated investment grade by Moody's Investors Service or Standard
& Poor's. At December 31, 1996, First Tennessee was in compliance with these
guidelines. Securities backed by the U.S. government and its agencies, both on a
direct and indirect basis, represented 92 percent of the investment portfolio at
December 31, 1996.
EXCLUDING ACQUISITIONS
Excluding the acquisitions of Peoples Commercial Services Corporation and
Financial Investment Corporation, average investment securities would have
decreased 4 percent in 1996 and decreased 7 percent in 1995.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale (mortgage warehouse) are loans that have been
originated and are awaiting securitization and/or delivery. These mortgages
represented approximately 10 percent of total earning assets in 1996 compared
with 7 percent in 1995 and 8 percent in 1994. During 1996, the mortgage
warehouse averaged $1.1 billion and increased 50 percent, or $353.4 million,
from 1995. During 1995, mortgage warehouse loans averaged $706.1 million and
decreased 8 percent, or $61.8 million, from 1994. Since the mortgage warehouse
loans are generally held in inventory for a short period of time (30 to
60 days), there may be significant differences between average and period-end
balances. At year-end 1996, the mortgage warehouse totaled $787.4 million
compared with $789.2 million and $515.4 million at year-end 1995 and 1994,
respectively.
DEPOSITS, OTHER SOURCES OF FUNDS AND LIQUIDITY MANAGEMENT
DEPOSITS
During 1996, core deposits grew 7 percent, or $509.3 million, and averaged
$8.1 billion. This compares with growth of 5 percent, or $346.3 million, and an
average balance of $7.6 billion in 1995. In 1994, these deposits averaged
$7.3 billion. Growth in 1996 came from expansion of First Tennessee's targeted
market, the introduction of a new relationship-based deposit product, and the
increase in customers related to electronic banking promotions and increased
debit card usage.
<PAGE> 8
Interest-bearing core deposits grew 8 percent, or $440.1 million, during
1996 compared with 6 percent, or $342.2 million, in 1995. Noninterest-bearing
demand deposits grew 4 percent, or $69.3 million, during 1996 and were
relatively flat during 1995 with growth of $4.1 million.
OTHER SOURCES OF FUNDS
Purchased funds averaged $2.9 billion for 1996, up 21 percent, or
$516.8 million, from the previous year. This increase funded the growth in
mortgage warehouse loans and other earning assets during 1996. Purchased funds
increased 11 percent, or $238.2 million, during 1995. Purchased funds
represented 26 percent of the corporation's funding (core deposits plus
purchased funds and term borrowings) in 1996, 24 percent in 1995 and 23 percent
in 1994. See Note 8 - Short-Term Borrowings for additional information.
Term borrowings include senior and subordinated borrowings and advances
with original maturities greater than one year. Term borrowings increased
21 percent, or $44.7 million, during 1996 compared with an increase of
105 percent, or $107.1 million, in 1995. During 1995, First Tennessee (the
parent company) issued $75 million of 10-year subordinated debt. See
Note 11 - Term Borrowings for additional information.
EXCLUDING ACQUISITIONS
Excluding Peoples Commercial Services Corporation and Financial Investment
Corporation, growth in core deposits would have been 4 percent in 1996 and
3 percent in 1995; growth in interest-bearing core deposits would have been
5 percent in both 1996 and 1995; and noninterest-bearing demand deposits would
have grown 2 percent in 1996 and would have decreased 1 percent in 1995.
Excluding the acquisitions, growth in purchased funds would have been
19 percent in 1996 and 10 percent in 1995.
LIQUIDITY MANAGEMENT
The objective of liquidity management is to ensure the continuous
availability of funds to meet the demands of depositors, investors and
borrowers. The Asset/Liability Committee, a committee consisting of senior
management that meets regularly, is responsible for managing these needs which
take into account the marketability of assets; the sources, stability and
availability of funding; and the level of unfunded commitments. Core deposits
are First Tennessee's primary source of funding and one of the most stable
sources of liquidity for a bank. In 1996, core deposits funded 73 percent of
earning assets compared with 75 percent in 1995 and 77 percent in 1994. FTBNA
enhanced its liquidity position during 1996 by establishing a $3 billion Bank
Note program. Under this program, the bank may borrow funds, from time to time,
at maturities of 30 days to 30 years. At December 31, 1996, essentially all of
this program was available as a funding source.
Parent company liquidity is maintained by cash flows stemming from
dividends and interest payments collected from subsidiaries, which represent the
primary source of funds to pay dividends to shareholders and interest payments
to debtholders. The amount of dividends from bank subsidiaries is subject to
certain regulatory restrictions, which are described in Note 9 - Restrictions,
Contingencies and Other Disclosures. The parent company statements are presented
in Note 22 - Parent Company Financial Information. The parent company also has
the ability to enhance its liquidity position by raising equity or incurring
debt. Under an effective shelf registration statement on file with the
Securities and Exchange Commission (SEC), First Tennessee, as of
December 31, 1996, may offer from time to time, at its discretion, debt
securities, and common and preferred stock up to $225 million. At
December 31, 1996, First Tennessee also had an effective $300 million capital
securities shelf on file with the SEC. On December 30, 1996, First Tennessee
sold $100 million of capital securities from this shelf. See
Note 21 - Guaranteed Preferred Beneficial Interests in First Tennessee's
Subordinated Debentures for additional detail. The transaction settled on
January 6, 1997, leaving $200 million available for issuance.
Maintaining adequate credit ratings on debt issues is critical to liquidity
because it affects the ability of First Tennessee to attract funds from various
sources on a cost competitive basis. The various credit ratings are detailed in
Table 9 - Credit Ratings at December 31, 1996.
<PAGE> 9
CAPITAL
Total shareholders' equity at December 31, 1996, was $954.5 million, up
9 percent, or $81.3 million, from the balance at the end of 1995. This followed
an increase of 13 percent, or $98.3 million, from year-end 1994. In both years,
the increase was primarily due to the retention of net income after dividends.
The Consolidated Statements of Shareholders' Equity highlights the changes in
equity since December 31, 1993.
Capital adequacy is an important indicator of financial stability and
performance. Management's objectives are to maintain a level of capitalization
that is sufficient to sustain asset growth, take advantage of profitable growth
opportunities and promote depositor and investor confidence. Overall, First
Tennessee's capital position remained strong as shown in Table 10 - Capital
Ratios.
Banking regulators define minimum capital ratios for bank holding companies
and their subsidiaries. Based on the risk-based capital rules and definitions
prescribed by the banking regulators, should an institution's capital ratios
decline below predetermined levels, it would become subject to a series of
increasingly restrictive regulatory actions. The system categorizes a financial
institution's capital position into one of five categories ranging from
well-capitalized to critically under-capitalized. For an institution to qualify
as well-capitalized, Tier 1, Total Capital and Leverage capital ratios must be
at least 6 percent, 10 percent and 5 percent, respectively. As of December 31,
1996, First Tennessee and all of its banking affiliates had sufficient capital
to qualify as well-capitalized institutions as shown in Note 10 - Regulatory
Capital. On December 30, 1996, First Tennessee sold $100 million of capital
securities which, given the structure used, qualify as Tier 1 Capital. The
issuance of these securities will augment the risk-based capital ratios and the
total equity ratios going forward. Additional information regarding this
transaction can be found in Note 21.
At December 31, 1996, book value per common share was $14.28 based on
shares outstanding of 66.9 million compared with book value per common share of
$13.00 based on shares outstanding of 67.2 million at December 31, 1995. At
December 31, 1994, book value per common share was $11.37 based on shares
outstanding of 68.1 million. First Tennessee's shares are traded on The Nasdaq
Stock Market national market system under the symbol FTEN and are listed in the
financial section of most newspapers as FstTN Ntl. The sales price ranges,
earnings per share and dividends by quarter for each of the last two years are
presented in Table 16 - Summary of Quarterly Financial Information. At
December 31, 1996, the closing sales price was $37.50 per share. This price was
263 percent of year-end book value per share, and the annual dividend yield was
3.6 percent for 1996 based on dividends paid in 1996. The quarterly dividend
was last increased at the October 23, 1996, board of directors' meeting to
$.30 per share, up 13 percent from $.265 per share.
At the October and December 1996 board of directors' meetings, authority
was given to management to purchase additional stock to reduce excess equity
levels, manage the capital of the affiliate banks and efficiently balance the
levels between debt and equity. The purchase of the shares under the $50 million
program is expected to be completed by June 1997, and the purchase of up to an
additional $130 million of stock is expected to be completed by December 1998.
In addition to First Tennessee's ongoing share repurchases, 1.9 million shares,
at a cost of $71.7 million, were purchased subsequent to year-end under an
accelerated stock repurchase plan. The actual price of the stock will be settled
at the end of the program. In total during 1996, First Tennessee purchased
approximately 826,000 shares of its common stock. Approximately 497,000 shares
were issued for benefit plans. During 1995, approximately 4.8 million shares
were repurchased, with 3.4 million shares being issued for acquisitions and
446,000 shares being issued for benefit plans. Approximately 1.1 million shares
were repurchased, with 304,000 shares being issued for acquisitions and
412,000 shares being issued for benefit plans during 1994. First Tennessee
plans to continue to purchase shares, pursuant to board authority, for various
stock option plans, and from time to time, will evaluate the level of capital
and take action designed to generate or use the capital to maximize the benefit
to shareholders.
ASSET QUALITY
First Tennessee manages asset quality through diversification in the loan
portfolio and adherence to its credit policy. Management strives to identify
<PAGE> 10
loans experiencing difficulty early enough to correct the deficiencies, to
recognize nonperforming loans in a timely manner, to record charge-offs
promptly based on realistic assessments of current collateral values and the
borrower's ability to repay, and to maintain adequate reserves to cover
inherent losses in the loan portfolio. First Tennessee's goal is not to avoid
risk, but to manage it, and to include credit risk as part of the pricing
decision for each product. At December 31, 1996, First Tennessee had no
concentrations of 10 percent or more of total loans in any single industry.
ALLOWANCE FOR LOAN LOSSES
Management's policy is to maintain the allowance for loan losses at a level
sufficient to absorb all estimated losses inherent in the loan portfolio. The
allowance for loan losses is increased by the provision for loan losses and
recoveries and is decreased by charged-off loans. The evaluation process to
determine potential losses includes consideration of the industry, specific
conditions of the individual borrower and the general economic environment.
While management uses analytical modeling techniques to recognize potential
losses on loans, future additions to the reserve may be necessary based on loan
growth and changes in economic conditions. Table 11 - Analysis of Allowance for
Loan Losses summarizes, by category, loans charged off and recoveries of loans
previously charged off, and additions to the reserve which have been charged to
operating expense. The allowance for loan losses is allocated according to the
amount systematically estimated as necessary to provide for the inherent losses
within the various categories of loans. This allocation is based primarily on
previous charge-off experience adjusted for changes in the risk characteristics
of each category. In addition, classified loans over $1 million are evaluated
separately and a specific reserve is set based on the expected loss of the
individual loan. The anticipated effect of economic conditions on loan
portfolios is another factor used in determining the allocable amounts.
A general reserve is also maintained to supplement specific allocations.
Table 12 - Loans and Foreclosed Real Estate at December 31 gives a breakdown of
the allowance allocation by major loan types and commercial loan grades at
December 31, 1996, compared with the same period in 1995.
The total allowance for loan losses increased 5 percent, or $5.2 million,
in 1996 and 2 percent, or $2.7 million, in 1995. The ratio of allowance for loan
losses to loans, net of unearned income, was 1.52 percent at December 31, 1996,
compared with 1.54 percent at December 31, 1995, and 1.69 percent at
December 31, 1994.
NET CHARGE-OFFS
Each lending product has, as a normal course of business, an expected level
of net charge-offs based on the profit margin of that product. The level of
charge-offs can vary from period to period due to the size, type and number of
individual credits; all of which may be cyclical, depending on economic
conditions.
Net charge-offs increased to $30.5 million at December 31, 1996. Net
charge-offs were $20.5 million for 1995 and $18.0 million for 1994. The ratio of
net charge-offs to total loans increased to .41 percent for 1996 from
.30 percent for both 1995 and 1994 as a result of higher losses primarily in
the consumer loan and credit card portfolios. Additional detail regarding
charge-offs and recoveries can be found in Table 11.
Commercial and commercial real estate loan recoveries exceeded charge-offs
in both 1996 and 1995 as shown in Table 13 - Net Charge-Offs as a Percentage of
Average Loans by Category. Consumer loan net charge-offs as a percentage of
average loans increased 10 basis points between 1996 and 1995, and credit card
receivables net charge-offs as a percentage of average loans increased 84 basis
points between 1996 and 1995. The increases in both consumer loans and credit
card receivables net charge-offs during these periods reflected a deteriorating
industry trend in overall credit quality. However, the asset quality of the
consumer loan and credit card portfolios continued to be favorable to national
averages.
Going forward, in light of current anticipated economic conditions and
trends, the absolute level of net charge-offs will continue to increase from the
low levels experienced in the past several years. It is expected that the future
net charge-off level for commercial loans will increase as the level of
recoveries declines. Consumer loans and credit card receivables net charge-offs
will continue to increase paralleling industry trends. Despite these increases,
management believes that during 1997 the overall asset quality position will
<PAGE> 11
remain positive.
NONPERFORMING ASSETS
Nonperforming loans consist of impaired, nonaccrual and restructured loans,
and these, along with foreclosed real estate and other assets, represent
nonperforming assets. Nonaccrual loans are those loans on which recognition of
interest income has been discontinued. Restructured loans generally take the
form of an extension of the original repayment period and/or a reduction or
deferral of interest or principal because of a deterioration in the financial
position of the borrower.
Nonperforming assets decreased 15 percent, or $4.9 million, in 1996 and
17 percent, or $6.4 million, in 1995. Nonperforming loans decreased 1 percent,
or $.1 million, in 1996 compared with an increase of 12 percent, or
$2.0 million, in 1995. At December 31, 1996, foreclosed properties amounted to
$7.8 million, a decrease of 34 percent from the $11.8 million of foreclosed
properties reported in 1995.
Nonperforming assets and loan information is presented in Table 14 -
Nonperforming Assets at December 31. Table 15 - Changes in Nonperforming Assets
gives additional information for 1994 to 1996.
PAST DUE LOANS AND POTENTIAL PROBLEM ASSETS
Past due loans are loans contractually past due 90 days or more as to
interest or principal payments, but have not yet been put on nonaccrual status.
The ratio of past due loans to total loans was essentially unchanged from 1995
to 1996 at .4 percent. Past due loans were $30.7 million in 1996 compared to
$30.6 in 1995. Additional historical past due loan information can be found in
Table 14.
Potential problem assets, which are not included in nonperforming assets,
increased to $78.4 million at December 31, 1996, from $66.6 million at
December 31, 1995, and were 1 percent of total loans in 1996 and 1995.
Potential problem assets represent those assets where information about
possible credit problems of borrowers has caused management to have serious
doubts about the borrower's ability to comply with present repayment terms.
This definition is believed to be substantially consistent with the standards
established by the Office of the Comptroller of the Currency for loans
classified substandard and doubtful.
<PAGE> 12
TABLE 1 ANALYSIS OF NONINTEREST INCOME
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NONINTEREST INCOME:
Mortgage banking $ 274,284 $ 212,579 $ 187,340 $ 138,960
Bond division 85,871 82,814 77,478 91,525
Deposit transactions and cash management 78,228 74,124 65,797 59,580
Cardholder and merchant processing 41,340 34,049 30,271 27,790
Trust services 37,121 35,632 28,933 26,532
Equity securities gains/(losses) (2,495) 3,195 24,251 (479)
Debt securities gains/(losses) (186) (751) (4,298) 1,371
All other:
Check clearing fees 16,873 17,585 16,124 14,569
Other service charges 9,891 7,709 7,334 9,296
Other 30,222 25,675 22,936 18,958
- ------------------------------------------------------------------------------------------------
Total other income 56,986 50,969 46,394 42,823
- ------------------------------------------------------------------------------------------------
Total noninterest income $ 571,149 $ 492,611 $ 456,166 $ 388,102
================================================================================================
</TABLE>
Certain previously reported amounts have been reclassified to agree with current
presentation.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Growth rates (%)
--------------------------------------------------
(Dollars in thousands) 1992 1991 96/95 96/91
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NONINTEREST INCOME:
Mortgage banking $ 33,539 $ 17,593 29.0 + 73.2 +
Bond division 80,275 68,628 3.7 + 4.6 +
Deposit transactions and cash management 54,621 46,721 5.5 + 10.9 +
Cardholder and merchant processing 26,334 26,137 21.4 + 9.6 +
Trust services 23,819 20,996 4.2 + 12.1 +
Equity securities gains/(losses) 342 (713) - 28.5 -
Debt securities gains/(losses) (1,535) (47) 75.2 + 31.7 -
All other:
Check clearing fees 12,956 8,879 4.0 - 13.7 +
Other service charges 6,942 5,539 28.3 + 12.3 +
Other 16,556 11,506 17.7 + 21.3 +
- ---------------------------------------------------------------------------
Total other income 36,454 25,924 11.8 + 17.1 +
- ---------------------------------------------------------------------------
Total noninterest income $ 253,849 $ 205,239 15.9 + 22.7 +
===========================================================================
</TABLE>
Certain previously reported amounts have been reclassified to agree with current
presentation.
<PAGE> 13
TABLE 2 NET INTEREST INCOME AND EARNING ASSETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Years Ended December 31
------------------------------------
(Dollars in millions) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment securities $ 2,203.2 $ 2,161.0 $2,248.7
Loans 7,472.1 6,887.2 5,984.4
Other earning assets 1,386.7 1,046.5 1,173.1
- ------------------------------------------------------------------------------
Total earning assets $11,062.0 $10,094.7 $9,406.2
- ------------------------------------------------------------------------------
Net interest income - FTE $ 456.6 $ 395.7 $ 399.3
Yields on earning assets 8.15 % 8.20 % 7.50 %
Rates paid on interest-bearing
liabilities excluding basis swap 4.62 4.87 3.84
- ------------------------------------------------------------------------------
Net interest spread excluding basis swap 3.53 3.33 3.66
- ------------------------------------------------------------------------------
Effect of interest-free sources .67 .81 .68
Basis swap impact (.07) (.22) (.09)
- ------------------------------------------------------------------------------
Net interest margin 4.13 % 3.92 % 4.25 %
==============================================================================
</TABLE>
<PAGE> 14
TABLE 3 NET INTEREST MARGIN COMPOSITION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Retail/commercial bank 4.25 % 3.94 % 4.24 %
Bond division (.09) (.11) (.14)
Mortgage banking (.22) (.14) (.12)
Other lines of business .19 .23 .27
- ----------------------------------------------------------------------
Total net interest margin 4.13 % 3.92 % 4.25 %
======================================================================
</TABLE>
<PAGE> 15
TABLE 4 ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1996 Compared to 1995 1995 Compared to 1994
---------------------------------------------------------------------------
Increase/(Decrease) Due to* Increase/(Decrease) Due to*
(Fully taxable equivalent) ---------------------------------------------------------------------------
(Dollars in thousands) Rate** Volume** Total Rate** Volume** Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME - FTE:
Loans:
Commercial $ (7,084) $ 20,005 $ 12,921 $ 22,727 $ 30,160 $ 52,887
Consumer 2,238 21,688 23,926 15,284 23,987 39,271
Permanent mortgage (553) 148 (405) 43 7,978 8,021
Credit card receivables (4,580) 6,639 2,059 2,463 6,431 8,894
Real estate construction (1,946) 5,930 3,984 1,191 10,462 11,653
Nonaccrual 182 (60) 122 213 (162) 51
- ------------------------------------------ --------- ---------
Total loans (10,280) 52,887 42,607 42,532 78,245 120,777
- ------------------------------------------ --------- ---------
Investment securities:
U.S. Treasury and other U.S. government
agencies 3,284 1,835 5,119 6,728 (3,583) 3,145
States and municipalities (542) 1,387 845 (521) (271) (792)
Other (27) (84) (111) 582 (1,627) (1,045)
- ------------------------------------------ --------- ---------
Total investment securities 2,935 2,918 5,853 6,751 (5,443) 1,308
- ------------------------------------------ --------- ---------
Other earning assets:
Mortgage loans held for sale (171) 27,516 27,345 3,400 (4,664) (1,264)
Investment in bank time deposits (27) 581 554 79 (104) (25)
Federal funds sold and securities
purchased under agreements to resell (206) (3,337) (3,543) 2,447 (1,532) 915
Bond division securities inventory (1,097) 2,660 1,563 1,811 (1,896) (85)
- ------------------------------------------ --------- ---------
Total other earning assets 617 25,302 25,919 8,298 (8,757) (459)
- ------------------------------------------ --------- ---------
Total earning assets (6,631) 81,010 74,379 67,849 53,777 121,626
- -----------------------------------------------------------------------------------------------------------------------
Total interest income - FTE $ 74,379 $ 121,626
- -----------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest-bearing deposits:
Checking/Interest $ 736 $ (6,006) $ (5,270) $ (552) $ (888) $ (1,440)
Savings (2,826) 1,484 (1,342) (1,096) (1,568) (2,664)
Money market account (24,525) 26,619 2,094 27,022 4,588 31,610
Certificates of deposit under $100,000
and other time (2,160) 844 (1,316) 27,890 17,923 45,813
Certificates of deposit $100,000
and more (1,245) 16,949 15,704 8,674 3,239 11,913
- ------------------------------------------ --------- ---------
Total interest-bearing deposits (24,602) 34,472 9,870 69,142 16,090 85,232
Federal funds purchased and securities
sold under agreements to repurchase (8,130) 5,165 (2,965) 19,623 20,820 40,443
Commercial paper and other short-term
borrowings (3,683) 7,380 3,697 8,658 (17,502) (8,844)
Term borrowings (884) 3,716 2,832 (862) 9,309 8,447
- ------------------------------------------ --------- ---------
Total interest-bearing liabilities (35,897) 49,331 13,434 96,428 28,850 125,278
- -----------------------------------------------------------------------------------------------------------------------
Total interest expense $ 13,434 $ 125,278
- -----------------------------------------------------------------------------------------------------------------------
Net interest income - FTE $ 60,945 $ (3,652)
=======================================================================================================================
</TABLE>
* The changes in interest due to both rate and volume have been allocated to
change due to rate and change due to volume in proportion to the absolute
amounts of the changes in each.
** Variances are computed on a line-by-line basis and are non-additive.
<PAGE> 16
TABLE 5 RATE SENSITIVITY ANALYSIS AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Interest Sensitivity Period
-------------------------------------------------------------------
Within 3 After 3 Months After 6 Months
(Dollars in millions) Months Within 6 Months Within 12 Months Other Total
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans $ 3,678 $ 422 $ 867 $ 2,761 $ 7,728
Investment securities 186 150 444 1,460 2,240
Other earning assets 1,078 - - - 1,078
- -----------------------------------------------------------------------------------------------------------------
Total earning assets $ 4,942 $ 572 $ 1,311 $ 4,221 $ 11,046
=================================================================================================================
EARNING ASSET FUNDING:
Interest-bearing deposits $ 2,551 $ 816 $ 760 $ 2,783 $ 6,910
Short-term purchased funds 2,259 - - - 2,259
Term borrowings 26 26 13 170 235
Noninterest-bearing funds 256 (67) (12) 1,465 1,642
- -----------------------------------------------------------------------------------------------------------------
Total earning asset funding $ 5,092 $ 775 $ 761 $ 4,418 $ 11,046
=================================================================================================================
RATE SENSITIVITY GAP:
Period $ (150) $ (203) $ 550 $ (197)
Cumulative (150) (353) 197 -
- ------------------------------------------------------------------------------------------------------
RATE SENSITIVITY GAP ADJUSTED FOR INTEREST
RATE FUTURES AND INTEREST RATE SWAPS:
Period $ (181) $ (199) $ 577 $ (197)
Cumulative (181) (380) 197 -
- ------------------------------------------------------------------------------------------------------
ADJUSTED GAP AS A PERCENTAGE OF
EARNING ASSETS:
Period (1.6)% (1.8)% 5.2% (1.8)%
Cumulative (1.6) (3.4) 1.8 -
- ------------------------------------------------------------------------------------------------------
</TABLE>
Interest-sensitive categories represent ranges in which assets and liabilities
can be repriced, not necessarily their actual maturities. The 'Other' column
amounts include assets and liabilities with interest sensitivity of more than
12 months or with indefinite repricing schedules.
<PAGE> 17
TABLE 6 ANALYSIS OF NONINTEREST EXPENSE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NONINTEREST EXPENSE:
Employee compensation, incentives, and benefits $ 385,380 $ 340,508 $ 349,769 $ 308,601
Operations services 44,109 38,798 33,679 28,705
Occupancy 39,815 37,867 34,102 27,673
Equipment rentals, depreciation, and maintenance 34,121 31,845 29,202 22,246
Communications and courier 32,981 29,880 30,653 24,775
Amortization of mortgage servicing rights 26,041 14,980 14,936 25,478
Advertising and public relations 17,629 12,972 10,678 7,987
Legal and professional fees 12,050 13,403 13,747 11,274
Amortization of intangible assets 9,491 8,100 6,406 5,871
Deposit insurance premium 5,129 9,957 16,923 16,585
All other:
Supplies 14,383 11,866 11,472 10,312
Contract employment 11,288 5,744 5,323 5,631
Travel and entertainment 10,394 8,211 10,144 8,868
Fed service fees 7,814 9,489 8,544 7,778
Foreclosed real estate 7,533 4,962 3,862 1,542
Contribution to charitable foundation - - 9,379 -
Other 46,328 31,133 36,864 39,233
- ----------------------------------------------------------------------------------------------------------
Total other expense 97,740 71,405 85,588 73,364
- ----------------------------------------------------------------------------------------------------------
Total noninterest expense $ 704,486 $ 609,715 $ 625,683 $ 552,559
==========================================================================================================
</TABLE>
Certain previously reported amounts have been reclassified to agree with current
presentation.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Growth rates (%)
------------------------------------------------------------
(Dollars in thousands) 1992 1991 96/95 96/91
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NONINTEREST EXPENSE:
Employee compensation, incentives, and benefits $ 214,303 $ 177,648 13.2 + 16.8 +
Operations services 24,252 21,860 13.7 + 15.1 +
Occupancy 24,738 22,036 5.1 + 12.6 +
Equipment rentals, depreciation, and maintenance 17,516 13,944 7.1 + 19.6 +
Communications and courier 18,049 16,515 10.4 + 14.8 +
Amortization of mortgage servicing rights 4,482 1,361 73.8 + 80.5 +
Advertising and public relations 6,165 4,941 35.9 + 29.0 +
Legal and professional fees 11,391 8,348 10.1 - 7.6 +
Amortization of intangible assets 9,866 7,711 17.2 + 4.2 +
Deposit insurance premium 16,177 13,373 48.5 - 17.4 -
All other:
Supplies 6,520 5,752 21.2 + 20.1 +
Contract employment 1,893 1,445 96.5 + 50.9 +
Travel and entertainment 5,774 4,898 26.6 + 16.2 +
Fed service fees 7,228 5,311 17.7 - 8.0 +
Foreclosed real estate 4,935 7,449 51.8 + .2 +
Contribution to charitable foundation - - - -
Other 31,350 29,696 48.8 + 9.3 +
- --------------------------------------------------------------------------------------------
Total other expense 57,700 54,551 36.9 + 12.4 +
- --------------------------------------------------------------------------------------------
Total noninterest expense $ 404,639 $ 342,288 15.5 + 15.5 +
============================================================================================
</TABLE>
Certain previously reported amounts have been reclassified to agree with current
presentation.
<PAGE> 18
TABLE 7 MATURITIES OF LOANS AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
After 1 Year
(Dollars in thousands) Within 1 Year Within 5 Years After 5 Years Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 2,086,905 $ 1,263,187 $ 171,381 $3,521,473
Consumer 76,008 1,336,869 1,271,082 2,683,959
Credit card receivables 564,803 - - 564,803
Real estate construction 204,361 79,781 13,655 297,797
Permanent mortgage 86,092 75,782 479,371 641,245
Nonaccrual 9,187 1,150 8,589 18,926
- --------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income $ 3,027,356 $ 2,756,769 $ 1,944,078 $7,728,203
==========================================================================================================================
For maturities over one year:
Interest rates - floating $ 934,335 $ 506,666 $1,441,001
Interest rates - fixed 1,822,434 1,437,412 3,259,846
- --------------------------------------------------------------------------------------------------------------------------
Total $ 2,756,769 $ 1,944,078 $4,700,847
==========================================================================================================================
</TABLE>
<PAGE> 19
TABLE 8 MATURITIES OF INVESTMENT SECURITIES AT DECEMBER 31, 1996
(AMORTIZED COST)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
After 1 Year After 5 Years
Within 1 Year Within 5 Years Within 10 Years After 10 Years
---------------- ---------------- ---------------- ---------------------
(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY:
States and municipalities** $ 6,735 8.94% $ 13,875 7.32% $ 23,133 7.94% $ 22,171 8.50%
- ------------------------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE:
Mortgage-backed securities and
collateralized mortgage obligations* $ 24,572 5.37% $ 61,087 6.78% $ 322,607 6.58% $ 1,175,853 6.66%
U.S. Treasury and other U.S. government
agencies 183,610 6.21 278,207 6.34 6,057 7.17 1,609 7.26
States and municipalities** 1,804 10.49 9,180 9.46 12,485 10.34 1,700 8.93
Other 1,707 6.40 15,166 7.17 508 8.48 71,529 *** 5.53
- ------------------------------------------------------------------------------------------------------------------------------
Total $211,693 6.15% $363,640 6.53% $ 341,657 6.73% $ 1,250,691 6.60%
==============================================================================================================================
</TABLE>
* Includes $1,583 million of government agency issued mortgage-backed
securities and collateralized mortgage obligations which, when adjusted for
early paydowns, have an estimated average life of 2.6 years.
** Weighted average yields on tax-exempt obligations have been computed by
adjusting allowable tax-exempt income to a fully taxable equivalent basis
using a tax rate of 35 percent.
*** Represents equity securities with no stated maturity.
<PAGE> 20
TABLE 9 CREDIT RATINGS AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Standard Thomson
& Poor's Moody's BankWatch Fitch
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST TENNESSEE
Overall credit rating B
Subordinated capital notes due 1999 BBB+ Baa1
Subordinated capital notes due 2005 BBB+ Baa1 A-
Capital securities due 2027* BBB A3
Commercial paper TBW-1
- ------------------------------------------------------------------------------
FIRST TENNESSEE BANK NATIONAL ASSOCIATION
Short-term/long-term deposits A-1/A P-1/A1 TBW-1
Other short-term/long-term funding** A-1/A P-1/A1
Counterparty credit rating A A1
- ------------------------------------------------------------------------------
</TABLE>
* Guaranteed Preferred Beneficial Interests in First Tennessee's
Subordinated Debentures (See Note 21 for description of securities)
** Other funding includes certificates of deposit and bank notes.
<PAGE> 21
TABLE 10 CAPITAL RATIOS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Average equity to average assets 7.13% 7.24% 7.18%
Period-end equity to assets 7.31 7.23 7.09
Period-end double leverage 107.6 107.2 99.7
- ----------------------------------------------------------------------
</TABLE>
<PAGE> 22
TABLE 11 ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES:
Beginning balance $ 112,567 $ 109,859 $ 110,720
Provision for loan losses 35,677 20,592 17,182
Allowance from acquisitions - 2,632 -
Charge-offs:
Commercial 3,355 5,614 6,458
Consumer 15,531 12,373 9,180
Credit card receivables 22,964 16,874 12,674
Real estate construction 10 44 -
Permanent mortgage 522 326 884
- ------------------------------------------------------------------------------------------
Total charge-offs 42,382 35,231 29,196
- ------------------------------------------------------------------------------------------
Recoveries:
Commercial 3,712 6,728 4,001
Consumer 5,720 5,732 4,415
Credit card receivables 2,112 2,022 1,890
Real estate construction 171 59 373
Permanent mortgage 171 174 474
- ------------------------------------------------------------------------------------------
Total recoveries 11,886 14,715 11,153
- ------------------------------------------------------------------------------------------
Net charge-offs 30,496 20,516 18,043
- ------------------------------------------------------------------------------------------
Ending balance $ 117,748 $ 112,567 $ 109,859
==========================================================================================
LOANS, OUTSTANDING AT DECEMBER 31* $7,728,203 $7,333,283 $ 6,498,042
- ------------------------------------------------------------------------------------------
AVERAGE LOANS, OUTSTANDING DURING THE YEAR* $7,472,095 $6,887,218 $ 5,984,424
- ------------------------------------------------------------------------------------------
RATIOS*:
Allowance to loans 1.52% 1.54% 1.69%
Net charge-offs to average loans .41 .30 .30
Net charge-offs to allowance 25.9 18.2 16.4
- ------------------------------------------------------------------------------------------
</TABLE>
* Net of unearned income.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES:
Beginning balance $ 103,223 $ 97,550 $ 93,187
Provision for loan losses 36,461 45,248 60,694
Allowance from acquisitions 971 - 9,327
Charge-offs:
Commercial 16,905 20,597 34,589
Consumer 8,909 10,524 14,614
Credit card receivables 13,357 17,013 16,913
Real estate construction 2,320 173 6,888
Permanent mortgage 1,170 2,339 2,546
- ------------------------------------------------------------------------------------------
Total charge-offs 42,661 50,646 75,550
- ------------------------------------------------------------------------------------------
Recoveries:
Commercial 6,266 5,833 5,481
Consumer 3,590 2,759 2,921
Credit card receivables 2,262 1,985 1,278
Real estate construction 159 215 150
Permanent mortgage 449 279 62
- ------------------------------------------------------------------------------------------
Total recoveries 12,726 11,071 9,892
- ------------------------------------------------------------------------------------------
Net charge-offs 29,935 39,575 65,658
- ------------------------------------------------------------------------------------------
Ending balance $ 110,720 $ 103,223 $ 97,550
==========================================================================================
LOANS, OUTSTANDING AT DECEMBER 31* $5,560,348 $4,788,548 $ 4,720,097
- ------------------------------------------------------------------------------------------
AVERAGE LOANS, OUTSTANDING DURING THE YEAR* $4,996,339 $4,698,381 $ 4,608,110
- ------------------------------------------------------------------------------------------
RATIOS*:
Allowance to loans 1.99% 2.16% 2.07%
Net charge-offs to average loans .60 .84 1.42
Net charge-offs to allowance 27.0 38.3 67.3
- ------------------------------------------------------------------------------------------
</TABLE>
* Net of unearned income.
<PAGE> 23
TABLE 12 LOANS AND FORECLOSED REAL ESTATE AT DECEMBER 31
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------- ----------------
1996 1995
---------------------------------------------------------------- ----------------
Construction Allowance Allowance
and Commercial for Loan for Loan
(Dollars in millions) Commercial Development Real Estate TOTAL Loss Total Loss
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Internal grades:
A $ 225 $ - $ - $ 225 $ - $ 259 $ -
B 542 4 90 636 1 493 1
C 2,044 235 530 2,809 27 2,658 27
D 42 5 8 55 4 74 5
E 17 - 14 31 4 33 3
F 27 1 3 31 7 30 7
- ----------------------------------------------------------------------------------------------------------------------------------
2,897 245 645 3,787 43 3,547 43
Impaired loans:
Contractually past due 6 - 1 7 3 8 2
Contractually current 2 1 - 3 1 4 1
Nonaccrual loans:
Contractually past due 1 - - 1 - 1 -
Contractually current - - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Total commercial and commercial
real estate loans $ 2,906 $ 246 $ 646 $ 3,798 $ 47 $ 3,560 $ 46
- ----------------------------------------------------------------------------------------------------------------------------------
Retail:
Consumer 2,684 24 2,526 21
Credit card 565 24 529 21
Permanent mortgages 642 3 689 4
Mortgage banking nonaccrual 8 1 6 1
- ----------------------------------------------------------------------------------------------------------------------------------
Total retail loans 3,899 52 3,750 47
- ----------------------------------------------------------------------------------------------------------------------------------
Other/Unfunded commitments 31 2 23 3
General reserve - 17 - 17
- ----------------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income $ 7,728 $ 118 $ 7,333 $ 113
==================================================================================================================================
Foreclosed real estate:
Foreclosed property $ 2 $ 2 $ 1 $ 5 $ 11
Foreclosed property - mortgage banking 3 1
- ----------------------------------------------------------------------------------------------------------------------------------
Total foreclosed real estate $ 8 $ 12
==================================================================================================================================
</TABLE>
All amounts in the Allowance for Loan Losses columns have been rounded to the
nearest million dollars. Grade A Loans have reserve amounts of less than
$500,000.
Definitions of each credit grade are provided below:
GRADE A - Established, stable companies with excellent earnings,
liquidity, and capital. Possess many of the same characteristics as
Standard & Poor's (S&P) AA rated companies.
GRADE B - Established, stable companies with good earnings, liquidity,
and capital. Possess many of the same characteristics as S&P A
rated companies.
GRADE C - Established, stable companies with satisfactory earnings,
liquidity, and capital and with consistent, positive trends
relative to industry norms.
GRADE D - Financial condition adversely affected by temporary lack of
earnings or liquidity or changes in the operating environment. An
action plan is required to rehabilitate the credit or have it
refinanced elsewhere.
GRADE E - Significant developing weaknesses or adverse trends in
earnings, liquidity, capital, or operating environment. No
discernable market for refinancing is available.
GRADE F - Significantly higher than normal probability that: (1) legal
action or liquidation of collateral is required; (2) there will be
a loss; or (3) both will occur. This grade is believed to be
substantially equivalent to the regulators' classifications of
substandard or doubtful.
IMPAIRED - A loan for which it is probable that all amounts due, according
to the contractual terms of the loan agreement, will not be
collected.
NONACCRUAL - A loan that is placed on nonaccrual status is not included in any
of these six grades, but is placed in a separate nonaccrual
category. Commercial and real estate loans are placed on nonaccrual
status automatically once they become 90 days or more past due.
Based on internal loan classifications.
<PAGE> 24
TABLE 13 NET CHARGE-OFFS AS A PERCENTAGE OF AVERAGE LOANS BY CATEGORY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Net of unearned income 1996 1995 1994
- -------------------------------------------------------------------
<S> <C> <C> <C>
Commercial and commercial real estate (.01)% (.03)% .07%
Consumer .38 .28 .23
Credit card receivables 3.93 3.09 2.49
Permanent mortgage .05 .02 .07
- -------------------------------------------------------------------
</TABLE>
A negative percentage of net charge-offs indicates that recoveries exceeded
charge-offs.
<PAGE> 25
TABLE 14 NONPERFORMING ASSETS AT DECEMBER 31
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AMOUNTS:
Impaired loans* $ 10,322 $ 11,865
Other nonaccrual loans 8,604 7,175
- --------------------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 18,926 19,040 $ 16,853 $ 27,599 $ 32,761 $ 50,729
Restructured loans - - 158 1,195 2,493 4,526
- --------------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 18,926 19,040 17,011 28,794 35,254 55,255
Foreclosed real estate 7,823 11,794 19,215 35,048 29,690 45,816
Other assets 196 1,022 2,055 1,292 1,292 723
- --------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 26,945 $ 31,856 $ 38,281 $ 65,134 $ 66,236 $ 101,794
================================================================================================================================
Non-government guaranteed past due loans** $ 20,011 $ 19,796 $ 11,213 $ 13,634 $ 13,876
Government guaranteed past due loans** 10,736 10,820 10,030 11,024 8,906
Past due loans** $ 23,758
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS***:
Nonperforming loans to total loans .24% .26% .26% .52% .74% 1.17%
Nonperforming assets to total loans plus
foreclosed real estate and other assets .35 .43 .59 1.16 1.37 2.14
Nonperforming assets and non-government
guaranteed past due loans to total loans plus
foreclosed real estate and other assets**** .61 .70 .76 1.41 1.66
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes $279,000 and $303,000 of restructured loans at December 31, 1996
and 1995, respectively.
** Loans that are 90 days or more past due as to principal and/or interest and
not yet impaired or on nonaccrual status. Detail on government guaranteed
and non-government guaranteed past due loans is unavailable for 1991.
*** Total loans are net of unearned income.
**** Not available for 1991.
Certain previously reported amounts have been adjusted to agree with current
presentation.
<PAGE> 26
TABLE 15 CHANGES IN NONPERFORMING ASSETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
(Dollars in millions) 1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $ 31.9 $ 38.3 $ 65.1
Additional nonperforming assets 22.6 23.5 18.0
Acquisitions - 1.1 -
Return to accrual - (.2) (2.0)
Payments (24.9) (26.0) (37.5)
Charge-offs (2.7) (4.8) (5.3)
- -------------------------------------------------------------------------
Ending balance $ 26.9 $ 31.9 $ 38.3
=========================================================================
</TABLE>
<PAGE> 27
TABLE 16 SUMMARY OF QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995
-----------------------------------------------------------------------------------------
(Dollars in millions except FOURTH THIRD SECOND FIRST Fourth Third Second First
per share data) QUARTER QUARTER QUARTER QUARTER Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY INCOME INFORMATION:
Interest income $227.1 $225.7 $226.0 $217.7 $216.8 $211.5 $202.8 $191.4
Interest expense 109.3 110.7 113.0 112.3 112.4 112.9 107.4 99.1
Provision for loan losses 11.3 8.8 7.6 8.0 7.3 5.9 3.2 4.2
Noninterest income before
securities transactions 165.5 142.4 129.7 136.3 138.2 125.3 113.7 113.0
Securities gains/(losses) (3.0) - - .3 1.9 - - .5
Noninterest expense 186.0 174.9 168.0 175.6 168.0 150.0 144.5 147.2
Net income 53.3 46.8 42.4 37.4 45.7 43.8 40.8 34.6
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE $ .80 $ .69 $ .63 $ .56 $ .66 $ .66 $ .59 $ .51
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCK INFORMATION:
Closing price per share:
High $38 5/8 $34 1/8 $35 $33 3/4 $30 7/8 $27 13/16 $23 1/8 $21 1/2
Low 34 1/8 28 7/8 30 1/2 29 1/8 26 3/4 23 1/8 20 5/8 19 5/8
Period-end 37 1/2 33 3/16 30 5/8 33 30 1/4 27 3/4 23 1/8 20 7/8
Dividends declared per share .300 .265 .265 .265 .265 .235 .235 .235
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 28
GLOSSARY
A
ALLOWANCE FOR LOAN LOSSES - Valuation reserve representing the amount considered
by management to be adequate to cover estimated losses inherent in the loan
portfolio.
B
BASIS POINT - The equivalent of one-hundredth of one percent (0.01). One hundred
basis points equals one percent. This unit is generally used to measure
movements in interest yields and rates.
BASIS RISK - Refers to changes in the relationship between various interest rate
segments (e.g., the difference between the Prime and the Fed Funds Rates).
BASIS SWAP - A notional principal swap that was intended to hedge the basis risk
of the loan portfolio. First Tennessee's basis swap was terminated in 1995 in
order to restructure the rate sensitive position and limit the loss going
forward in a rising rate scenario.
BOOK VALUE PER SHARE - A ratio determined by dividing shareholders' equity at
the end of a period by the number of common shares outstanding at the end of
that period.
C
CHARGE-OFFS - The amount charged against the allowance for loan losses to reduce
specific loans to their collectible amount.
CLASSIFIED LOAN - A loan that has caused management to have serious doubts about
the borrower's ability to comply with present repayment terms. Included in this
category are grade F performing and nonperforming loans. In compliance with the
standards established by the Office of the Comptroller of the Currency (OCC)
these loans are classified as substandard, doubtful or loss depending on the
severity of the loans deterioration.
COMMERCIAL PAPER - A short-term unsecured debt obligation of the parent company
with maturities typically of 30 days to 270 days.
COMMERCIAL AND STANDBY LETTERS OF CREDIT - Commercial letters of credit are
issued or confirmed by an entity to ensure the payment of its customers'
payables and receivables. Standby letters of credit are issued by an entity to
ensure its customers' performance in dealing with others.
COMMITMENT TO EXTEND CREDIT - Agreements to make or acquire a loan or lease as
long as agreed-upon terms (e.g., expiry, covenants or notice) are met. Generally
these commitments have fixed expiration dates or other termination clauses and
may require payment of a fee.
CORE DEPOSITS - Core deposits consist of all interest-bearing and
noninterest-bearing deposits, except certificates of deposit over $100,000. They
include checking interest deposits, money market deposit accounts, time and
other savings, and demand deposits.
D
DERIVATIVE FINANCIAL INSTRUMENT - Futures, forwards, swaps, option contracts or
other financial instruments with similar characteristics, such as interest rate
caps or floors, or fixed-rate loan commitments.
DIVIDEND PAYOUT RATIO - Cash dividends per share paid as a percent of net income
per share.
DOUBLE LEVERAGE RATIO - A ratio that measures the degree to which parent company
debt supports investments in subsidiaries. It is calculated by dividing the
parent company's investment in subsidiaries by total consolidated equity.
E
EARNING ASSETS - Assets that generate interest or dividend income or
yield-related fee income, such as loans and investment securities.
EARNINGS PER SHARE - Net income divided by the average number of common shares
outstanding in the period.
F
FEDERAL FUNDS SOLD/PURCHASED - Excess balances of depository institutions which
are loaned to each other, generally on an overnight basis.
<PAGE> 29
FULLY TAXABLE EQUIVALENT INCOME (FTE) - Income which has been adjusted by
increasing tax-exempt income to a level that would yield the same after-tax
income had that income been subject to taxation.
H
HEDGE - An instrument used to reduce risk by entering into a transaction which
offsets existing or anticipated exposures to changes in interest rates.
I
INTEREST-FREE SOURCES - Noninterest bearing liabilities (such as demand
deposits, other liabilities and shareholders' equity) less nonearning assets
(such as cash, fixed assets and other assets).
INTEREST RATE CAPS AND FLOORS - Contracts with notional principal amounts that
require the seller, in exchange for a fee, to make payments to the purchaser if
a specified market interest rate exceeds a fixed upper "capped" level or falls
below a fixed lower "floor" level on specified future dates.
INTEREST RATE FORWARD AND FUTURES CONTRACTS - Contracts representing commitments
either to purchase or sell at a specified future date a specified security or
financial instrument at a specified price, and may be settled in cash or through
delivery. These obligations are generally short term in nature.
INTEREST RATE OPTION (OPTIONS) - A contract that grants the holder (purchaser),
for a fee, the right to either purchase or sell a financial instrument at a
specified price within a specified period of time or on a specified date from
the writer (seller) of the option.
INTEREST RATE SENSITIVITY - The relationship of changes in interest income and
interest expense due to fluctuations in interest rates over a defined period of
time.
INTEREST RATE SWAP (SWAP) - An agreement in which two entities agree to
exchange, at specified intervals, interest payment streams calculated on an
agreed upon notional principal amount with at least one stream based on a
floating rate index.
INTEREST SENSITIVITY GAP - The difference between interest-rate sensitive assets
and interest-rate sensitive liabilities over a designated time period. A net
asset exists when interest-rate sensitive assets exceed interest-rate sensitive
liabilities. A net liability position exists when liabilities exceed assets.
L
LEVERAGE RATIO - Tier 1 capital divided by quarterly average assets excluding
any adjustments for available for sale securities unrealized gains/(losses),
goodwill and certain other intangible assets.
LIQUIDITY - The ability of a corporation to generate adequate funds to meet its
cash flow requirements. It is measured by the ability to quickly convert assets
into cash with minimal exposure to interest rate risk, by the size and stability
of the core deposit base, and by additional borrowing capacity within the money
markets.
M
MARKET CAPITALIZATION - Market value of a firm computed by multiplying the
amount of shares outstanding by the current stock price.
MORTGAGE LOANS SOLD WITH RECOURSE - Mortgages sold with an agreement to
repurchase any loans upon default.
MORTGAGE SERVICING RIGHTS - The right to service mortgage loans, generally owned
by someone else, for a fee. Loan servicing includes collecting payments;
remitting funds to investors, insurance companies and taxing authorities;
collecting delinquent payments; and foreclosing on properties when necessary.
N
NET INTEREST INCOME (NII) - Interest income less interest expense.
NET INTEREST MARGIN - A measurement of how effectively the bank utilizes its
earning assets in relationship to the interest cost of funding them. It is
computed by dividing fully taxable equivalent net interest income by average
interest earning assets.
NET INTEREST SPREAD - The difference between the average yield earned on earning
assets on a fully taxable equivalent basis and the average rate paid for
interest-bearing liabilities.
<PAGE> 30
NONACCRUAL LOANS - Loans on which interest accruals have been discontinued due
to the borrower's financial difficulties. Interest income on these loans is
reported on a cash basis as it is collected after recovery of principal.
NONPERFORMING ASSETS - Interest earning assets on which interest income is not
being accrued, restructured loans on which interest rates or terms of repayment
have been materially revised, real estate properties acquired through
foreclosure and repossessed assets.
NOTIONAL PRINCIPAL AMOUNT - An amount on which payments for interest rate swaps
and interest rate options, caps and floors are based. The "notional amount" is
not paid or received.
O
OPERATING MARGIN (ALSO CALLED RETURN ON REVENUE - ROR) - A measure of
profitability that indicates operation efficiency and productivity. It is
calculated by dividing the fully taxable equivalent pre-tax profit before loan
loss provision by the fully taxable equivalent net interest income plus
noninterest income.
P
PRICE/EARNINGS RATIO - The relationship of the market price of a share of common
stock to the earnings per share of the stock, expressed as a multiple.
PROVISION FOR LOAN LOSSES - The periodic charge to earnings for potential losses
in the loan portfolio.
PURCHASED FUNDS - The combination of certificates of deposit greater than
$100,000, federal funds purchased, securities sold under agreement to
repurchase, bank notes, commercial paper and other short-term borrowings.
R
RECOVERIES - The amount added to the allowance for loan losses when funds are
received on a loan which was previously charged off.
REPURCHASE AGREEMENT - A method of short-term financing in which one party
agrees to buy back, at a future date (generally overnight) and an agreed upon
price, a security it sells to another party.
RESTRUCTURED LOANS - Loans where the institution, for economic or legal reasons
related to the debtor's financial difficulties, grants a concession to the
debtor that it would not otherwise consider.
RETURN ON AVERAGE ASSETS (ROA) - A measure of profitability that indicates how
effectively an institution utilized its assets. It is calculated by dividing net
income by total average assets.
RETURN ON AVERAGE EQUITY (ROE) - A measure of profitability that indicates what
an institution earned on its shareholders' investment. ROE is calculated by
dividing net income by total average shareholders' equity.
REVENUE - The sum of net interest income and noninterest income. For some
comparisons, securities gains/(losses) are excluded.
RISK-ADJUSTED ASSETS - A regulatory risk-based calculation that takes into
account the broad differences in risks among a banking organization's assets and
off-balance sheet instruments.
S
SHAREHOLDER RETURN - The sum of dividend income and price appreciation of an
equity security for a given period of time.
T
TIER 1 CAPITAL RATIO - Ratio consisting of shareholders' equity before any
adjustments for available for sale securities unrealized gains/(losses) reduced
by goodwill and certain other intangible assets divided by risk-adjusted assets.
TOTAL CAPITAL RATIO - Tier 1 capital plus the allowable portion of the allowance
for loan losses and qualifying subordinated debt divided by risk-adjusted
assets.
W
WATCH LIST LOANS - Identified loans graded D and E requiring a closer level of
monitoring due to some of the following circumstances: impact of negative
economic conditions; changes in company ownership; underwriting exceptions; and
reduction in the value of collateral.
<PAGE> 31
CONSOLIDATED STATEMENTS OF CONDITION First Tennessee National Corporation
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
December 31
- -----------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and due from banks (Note 9) $ 959,604 $ 710,870
Federal funds sold and securities purchased under
agreements to resell 138,365 64,978
- -----------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 1,097,969 775,848
- -----------------------------------------------------------------------------------------------------------------
Investment in bank time deposits 1,922 2,119
Bond division securities inventory 150,402 182,655
Mortgage loans held for sale 787,362 789,183
Securities available for sale (Note 3) 2,173,620 2,036,668
Securities held to maturity (market value of $66,677 at
December 31, 1996, and $75,750 at December 31, 1995)(Note 3) 65,914 74,731
Loans, net of unearned income (Note 4) 7,728,203 7,333,283
Less: Allowance for loan losses 117,748 112,567
- -----------------------------------------------------------------------------------------------------------------
Total net loans 7,610,455 7,220,716
- -----------------------------------------------------------------------------------------------------------------
Premises and equipment, net (Note 5) 185,624 177,400
Real estate acquired by foreclosure 7,823 11,794
Intangible assets, net (Note 6) 119,465 128,985
Mortgage servicing rights, net (Note 7) 266,027 149,220
Bond division receivables and other assets 592,319 527,563
- -----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $13,058,902 $ 12,076,882
=================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Demand $ 2,122,997 $ 1,983,994
Checking/Interest 154,812 103,860
Savings 627,984 592,320
Money market account 2,685,931 2,499,817
Certificates of deposit under $100,000 and other time (Note 18) 2,868,322 2,882,094
Certificates of deposit $100,000 and more (Note 18) 573,016 520,112
- -----------------------------------------------------------------------------------------------------------------
Total deposits 9,033,062 8,582,197
- -----------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold under
agreements to repurchase (Note 8) 1,881,187 1,674,225
Commercial paper and other short-term borrowings (Note 8) 377,369 86,520
Bond division payables and other liabilities 578,113 600,699
Term borrowings (Note 11) 234,645 260,017
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 12,104,376 11,203,658
- -----------------------------------------------------------------------------------------------------------------
Guaranteed preferred beneficial interests in
First Tennessee's subordinated debentures (Note 21) - -
- -----------------------------------------------------------------------------------------------------------------
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 - 66,857,519 at
December 31, 1996, and 67,178,236 at December 31, 1995) 83,572 83,973
Capital surplus 48,657 63,610
Undivided profits 823,175 716,861
Unrealized market adjustment 2,697 10,582
Deferred compensation on restricted stock incentive plans (3,575) (1,802)
- -----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 954,526 873,224
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $13,058,902 $ 12,076,882
=================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 32
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME First Tennessee National Corporation
- ------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
- ------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands except per share data) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 653,466 $ 611,026 $ 490,420
Interest on investment securities:
Taxable 135,969 130,830 128,895
Tax-exempt 5,146 4,621 5,139
Interest on mortgage loans held for sale 82,046 54,701 55,965
Interest on bond securities inventory 14,139 12,630 12,810
Interest on other earning assets 5,731 8,720 7,829
- ------------------------------------------------------------------------------------------------------------------------------
Total interest income 896,497 822,528 701,058
- ------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits:
Checking/Interest 2,464 7,734 9,174
Savings 9,447 10,789 13,453
Money market account 90,184 88,090 56,480
Certificates of deposit under $100,000 and other time 166,534 167,850 122,037
Certificates of deposit $100,000 and more 46,283 30,579 18,666
Interest on short-term borrowings 109,547 108,815 77,216
Interest on term borrowings 20,850 18,018 9,571
- ------------------------------------------------------------------------------------------------------------------------------
Total interest expense 445,309 431,875 306,597
- ------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 451,188 390,653 394,461
Provision for loan losses 35,677 20,592 17,182
- ------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 415,511 370,061 377,279
- ------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Mortgage banking 274,284 212,579 187,340
Bond division 85,871 82,814 77,478
Deposit transactions and cash management 78,228 74,124 65,797
Cardholder and merchant processing 41,340 34,049 30,271
Trust services 37,121 35,632 28,933
Equity securities gains/(losses) (2,495) 3,195 24,251
Debt securities losses (186) (751) (4,298)
All other (Note 19) 56,986 50,969 46,394
- ------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 571,149 492,611 456,166
- ------------------------------------------------------------------------------------------------------------------------------
ADJUSTED GROSS INCOME AFTER PROVISION FOR LOAN LOSSES 986,660 862,672 833,445
- ------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Employee compensation, incentives, and benefits 385,380 340,508 349,769
Operations services 44,109 38,798 33,679
Occupancy 39,815 37,867 34,102
Equipment rentals, depreciation, and maintenance 34,121 31,845 29,202
Communications and courier 32,981 29,880 30,653
Amortization of mortgage servicing rights 26,041 14,980 14,936
Advertising and public relations 17,629 12,972 10,678
Legal and professional fees 12,050 13,403 13,747
Amortization of intangible assets 9,491 8,100 6,406
Deposit insurance premium 5,129 9,957 16,923
All other (Note 19) 97,740 71,405 85,588
- ------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 704,486 609,715 625,683
- ------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 282,174 252,957 207,762
Applicable income taxes (Note 15) 102,267 88,069 60,694
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 179,907 $ 164,888 $ 147,068
==============================================================================================================================
NET INCOME PER COMMON SHARE $ 2.68 $ 2.42 $ 2.15
- ------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING 67,196,586 68,024,794 68,441,382
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 33
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY First Tennessee National Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Unrealized Deferred
Common Common Capital Undivided Market Compen-
(Dollars in thousands) Shares Total Stock Surplus Profits Adjustment sation
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 68,559,274 $ 721,108 $85,699 $ 103,780 $534,004 $ $(2,375)
Net income -- 147,068 -- -- 147,068 -- --
Cash dividends declared -- (55,871) -- -- (55,871) -- --
Common stock issued:
Emerald Mortgage Company acquisition 303,852 7,105 380 6,725 -- -- --
For exercise of stock options 321,914 2,808 402 2,406 -- -- --
Restricted: employee benefit plan 90,000 -- 113 1,603 -- -- (1,716)
incentive to non-employee
directors 3,300 -- 4 75 -- -- (79)
Common stock repurchased (1,137,816) (26,583) (1,422) (25,161) -- -- --
Change in unrealized market adjustment -- (24,273) -- -- -- (24,273) --
Amortization of deferred compensation
on restricted stock incentive plans -- 1,374 -- -- -- -- 1,374
Other 7,392 2,169 9 2,130 30 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 68,147,916 774,905 85,185 91,558 625,231 (24,273) (2,796)
Adjustment related to change in
reporting date for acquisition
accounted for as a pooling of
interests -- (7,757) -- -- (7,757) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
ADJUSTED BALANCE, JANUARY 1, 1995 68,147,916 767,148 85,185 91,558 617,474 (24,273) (2,796)
Net income -- 164,888 -- -- 164,888 -- --
Cash dividends declared -- (65,576) -- -- (65,576) -- --
Common stock issued:
Peoples Commercial Services
Corporation acquisition 841,810 17,865 1,052 16,813 -- -- --
Financial Investment Corporation
acquisition 2,565,482 69,997 3,207 66,790 -- -- --
For exercise of stock options 437,778 4,834 547 4,287 -- -- --
Restricted: employee benefit plan 8,200 -- 11 160 -- -- (171)
Common stock repurchased (4,827,108) (122,796) (6,034) (116,762) -- -- --
Change in unrealized market adjustment -- 34,855 -- -- -- 34,855 --
Amortization of deferred compensation
on restricted stock incentive plans -- 1,165 -- -- -- -- 1,165
Other 4,158 844 5 764 75 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 67,178,236 873,224 83,973 63,610 716,861 10,582 (1,802)
Net income -- 179,907 -- -- 179,907 -- --
Cash dividends declared -- (73,593) -- -- (73,593) -- --
Common stock issued:
For exercise of stock options 394,457 5,569 493 5,076 -- -- --
Restricted: employee benefit plan 102,196 -- 128 2,890 -- -- (3,018)
incentive to non-employee
directors 9,000 -- 11 285 -- -- (296)
Common stock repurchased (826,463) (28,356) (1,033) (27,323) -- -- --
Change in unrealized market adjustment -- (7,885) -- -- -- (7,885) --
Amortization of deferred compensation
on restricted stock incentive plans -- 1,541 -- -- -- -- 1,541
Other 93 4,119 -- 4,119 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 66,857,519 $ 954,526 $83,572 $ 48,657 $823,175 $ 2,697 $(3,575)
=================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 34
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS FIRST TENNESSEE NATIONAL CORPORATION
- ------------------------------------------------------------------------------------------------------
Year Ended December 31
- ------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 179,907 $ 164,888 $ 147,068
Adjustments to reconcile net income to net cash
provided/(used) by operating activities:
Provision for loan losses 35,677 20,592 17,182
Provision/(benefit) for deferred income tax 39,274 33,508 (3,036)
Depreciation and amortization of premises and equipment 28,806 25,289 21,081
Amortization of mortgage servicing rights 26,041 14,980 14,936
Amortization of intangible assets 9,491 8,100 6,406
Net other amortization and accretion 11,208 20,575 13,695
Market value adjustment on foreclosed property 6,479 4,266 1,808
Securities contributed to charitable trust -- -- 9,379
Equity securities (gains)/losses 2,495 (3,195) (24,251)
Debt securities losses 186 751 4,298
Net loss on disposal of fixed assets 270 1,421 108
Net (increase)/decrease in:
Bond division securities inventory 32,253 (12,624) 8,632
Mortgage loans held for sale 1,821 (273,217) 748,002
Bond division receivables 29,174 (34,024) 39,667
Interest receivable (865) (5,145) (6,237)
Other assets (246,911) (266,296) (7,784)
Net increase/(decrease) in:
Bond division payables (39,643) 39,104 (50,511)
Interest payable (626) 18,046 14,492
Other liabilities (16,211) 152,620 (54,759)
- ------------------------------------------------------------------------------------------------------
Total adjustments (81,081) (255,249) 753,108
- ------------------------------------------------------------------------------------------------------
Net cash (used)/provided by operating activities 98,826 (90,361) 900,176
- ------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Held to maturity securities:
Maturities 10,184 89,457 352,299
Purchases (1,462) (38,709) (488,710)
Available for sale securities:
Sales 391,795 443,135 423,817
Maturities 476,770 189,229 299,928
Purchases (1,016,553) (375,926) (416,288)
Premises and equipment:
Sales 1,856 2,756 1,320
Purchases (37,549) (38,545) (40,045)
Net increase in loans (424,844) (658,230) (940,878)
Decrease in investment in bank time deposits 197 415 5,103
Acquisitions, net of cash and cash equivalents acquired 400 58,504 83
- ------------------------------------------------------------------------------------------------------
Net cash used by investing activities (599,206) (327,914) (803,371)
- ------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Common stock:
Exercise of stock options 5,779 4,977 2,777
Cash dividends (71,310) (62,694) (41,022)
Repurchase shares (28,356) (122,796) (26,583)
Term borrowings:
Issuance -- 164,182 2,984
Payments (25,544) (18,035) (1,346)
Net increase/(decrease) in:
Deposits 444,121 306,737 277,653
Short-term borrowings 497,811 (56,200) (127,949)
- ------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 822,501 216,171 86,514
- ------------------------------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash equivalents 322,121 (202,104) 183,319
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 775,848 977,952 794,633
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,097,969 $ 775,848 $ 977,952
======================================================================================================
Total interest paid $ 438,830 $ 396,063 $ 291,985
Total income taxes paid 51,625 53,065 69,036
- ------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING. The consolidated financial statements of First Tennessee
National Corporation (First Tennessee), including its subsidiaries, are prepared
in conformity with generally accepted accounting principles and follow general
practice within the banking industry. This preparation requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. These estimates and assumptions are based on
information available as of the date of the financial statements and could
differ from actual results.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION. The consolidated
financial statements include the accounts of First Tennessee and its
majority-owned subsidiaries. Affiliates that are not majority owned are
accounted for by the equity method. All significant intercompany transactions
and balances have been eliminated. For purposes of comparability, certain prior
period amounts have been reclassified to conform with current year presentation.
None of these reclassifications had any effect on net income or earnings per
share for any of the periods presented.
Prior year financial statements are restated to include the accounts of
companies that are acquired and accounted for as poolings of interests. Business
combinations accounted for as purchases are included in the financial statements
from the respective dates of acquisition.
STATEMENTS OF CASH FLOWS. For purposes of this statement, cash and due from
banks, federal funds sold, and securities purchased under agreements to resell
are considered cash and cash equivalents. Federal funds are usually sold for
one-day periods, and securities purchased under agreements to resell are
short-term, highly liquid investments.
The following significant non-cash stock transactions have been
adjusted for a two-for-one stock split that First Tennessee effected in February
1996. In 1995, First Tennessee issued approximately 7,980,000 shares of its
common stock related to the acquisitions of Carl I. Brown and Company, Community
Bancshares, Inc., Peoples Commercial Services Corporation and Financial
Investment Corporation. In 1994, First Tennessee issued approximately
7,716,000 shares of its common stock related to the acquisitions of SNMC
Management Corporation, Highland Capital Management Corp., Cleveland Bank and
Trust Company, Planters Bank and Emerald Mortgage Company.
BOND DIVISION SECURITIES INVENTORY. Securities purchased in connection with
underwriting or dealer activities are carried at market value. Gains and losses,
both realized and unrealized, on these securities are reflected in noninterest
income as bond division income.
INVESTMENT SECURITIES. Securities that First Tennessee has the ability and
positive intent to hold to maturity are classified as securities held to
maturity and are carried at amortized cost. Securities that may be sold prior to
maturity for asset/liability management purposes and equity securities are
classified as securities available for sale and are carried at fair value. The
unrealized gains and losses on securities available for sale are excluded from
earnings and are reported, net of tax, as a component of shareholders' equity.
The amortized cost of all securities is adjusted for amortization of
premium and accretion of discount to maturity, or earlier call date if
appropriate, using the level yield method. Such amortization and accretion is
included in interest income from securities. Realized gains and losses and
declines in value judged to be other than temporary are computed by the specific
identification method and reported in noninterest income.
SECURITIES PURCHASED UNDER RESALE AGREEMENTS AND SECURITIES SOLD UNDER
REPURCHASE AGREEMENTS. First Tennessee's bond division enters into short-term
purchases of securities under agreements to resell to hedge its trading
inventory in the cash market. Under these transactions, the securities are
delivered to the bond division's dealer custody account at the Federal Reserve
Bank.
Securities sold under agreements to repurchase are used by the
retail/commercial bank to obtain favorable borrowing rates on its purchased
funds. Under these transactions, securities are delivered to the counterparty's
account at the Federal Reserve Bank. In the normal course of business, First
Tennessee does not use this as its primary funding source.
<PAGE> 36
MORTGAGE BANKING. First Tennessee's mortgage lenders originate loans with the
intent to sell them in the secondary market. Mortgage loans held for sale are
recorded at the lower of aggregate cost or market value. Gains and losses
realized from the sale of these assets and adjustments to market value are
included in noninterest income.
Servicing rights related to the mortgages sold are ordinarily retained.
Accounting standards require the recognition of mortgage servicing rights (MSRs)
as separate assets by allocating the total cost incurred between the loan and
the servicing right based on their relative fair values. First Tennessee uses
market prices under current sales contracts to determine the fair value of the
servicing rights created. These current sales contracts are tested for
reasonableness against prices obtained from flow and bulk sales of servicing and
against prices determined using a valuation model which calculates the present
value of future cash flows.
For purposes of impairment evaluation and measurement, the MSRs are
stratified based on the predominant risk characteristics of the underlying
loans. For First Tennessee, these risk characteristics include adjustable rate
conventional and government; fixed rate conventional and government by interest
rate band; and multifamily. The MSRs are amortized as noninterest expense over
the period of and in proportion to the estimated net servicing revenues. A
quarterly value impairment analysis is performed using a discounted cash flow
methodology that is disaggregated by predominant risk characteristics.
Impairment, if any, is recognized through a valuation allowance for individual
strata.
Prior to January 1, 1995, only purchased mortgage servicing rights
(PMSRs) were recognized as assets. The value of PMSRs was established using the
lesser of a discounted cash flow analysis, current market value, or the amount
of consideration specifically paid by First Tennessee. The PMSRs were amortized
using an accelerated method over the estimated life of the servicing income. A
quarterly value impairment analysis was performed using a discounted methodology
that was disaggregated by purchase transaction. This was the basis of
presentation for years prior to 1995.
LOANS. Loans are stated at principal amounts outstanding, net of unearned
income. Interest on certain consumer installment loans is recognized by the
sum-of-the-months-digits method, which does not differ materially from the
effective interest method. Interest on other loans is recognized at the
applicable interest rate on the principal amount outstanding.
Impaired loans are generally carried on a nonaccrual status. Loans are
ordinarily placed on nonaccrual status when, in management's opinion, the
collection of principal or interest is unlikely, or when the collection of
principal or interest is 90 days or more past due. Consumer installment loans
and credit card receivables are not placed on nonaccrual status, but are charged
off when past due 120 days and 180 days, respectively.
Accrued but uncollected interest is reversed and charged against
interest income when the loan is placed on nonaccrual status. On consumer loans,
accrued but uncollected interest is reversed when the loan is charged off.
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. Interest payments received on nonaccrual and impaired
loans are normally applied to principal. Once all principal has been received,
additional interest payments are recognized on a cash basis as interest income.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is maintained at a
level that management determines is adequate to absorb losses inherent in the
loan portfolio. Management's assessment includes the systematic evaluation of
several factors: current and anticipated economic conditions and their impact on
specific borrowers and industry groups; the level of classified and
nonperforming loans; the historical loss experience by loan type; the results of
regulatory examinations of the portfolio; and, in specific cases, the estimated
value of underlying collateral. The actual amounts realized could differ in the
near term from the amounts assumed in arriving at the allowance for possible
loan losses reported in the financial statements.
All losses of principal are charged to the account when the loss
actually occurs or when a determination is made that a loss is probable.
Additions are made to the allowance through periodic provisions charged to
current operations or recovery of principal on loans previously charged off.
PREMISES AND EQUIPMENT. Premises and equipment are carried at cost less
accumulated depreciation and amortization and include additions that materially
<PAGE> 37
extend the useful lives of existing premises and equipment. All other
maintenance and repair expenditures are expensed as incurred. Gains and losses
on dispositions are reflected in noninterest income and expense.
Depreciation and amortization are computed principally on the
straight-line method over the estimated useful lives of the assets and are
expensed to noninterest expense. Leasehold improvements are amortized over the
lesser of the lease periods or the estimated useful lives using the
straight-line method.
REAL ESTATE ACQUIRED BY FORECLOSURE. Real estate acquired by foreclosure
consists of properties that have been acquired in satisfaction of debt. These
properties are carried at the lower of the outstanding loan amount or the
estimated fair market value minus the estimated cost to sell the real estate.
Losses arising at foreclosure are charged to the allowance for loan losses.
Required developmental costs associated with foreclosed property under
construction are capitalized and included in determining the estimated net
realizable value of the property which is reviewed periodically, and any
write-downs are charged against current earnings as market adjustments.
INTANGIBLE ASSETS. Intangible assets consists of "Premium on purchased deposits
and assets" and "Goodwill." The "Premium on purchased deposits and assets"
represents identified intangible assets, which are amortized over their
estimated useful lives, except for those assets related to deposit bases that
are primarily amortized over 10 years. "Goodwill" represents the excess of cost
over net assets of acquired subsidiaries less identifiable intangible assets and
is amortized to noninterest expense using the straight-line method over periods
ranging from 15 to 40 years. Management evaluates whether events or
circumstances have occurred that indicate the remaining useful life or carrying
value of goodwill should be revised.
DERIVATIVE FINANCIAL INSTRUMENTS. First Tennessee utilizes a variety of
derivative financial instruments to manage various financial risks. These
instruments include interest rate swaps, futures, forwards, and option
contracts. To qualify as a hedge used to manage interest rate risk, the
following criteria must be met: (1) the asset or liability to be hedged exposes
the institution to interest rate risk; (2) the instrument alters or reduces
sensitivity to interest rate changes; and (3) the instrument is designated and
effective as a hedge.
For interest rate swaps used to hedge interest rate risk, income and
expense are recorded as an adjustment to the interest income or expense of the
related on-balance sheet asset or liability. Fees on interest rate swaps are
deferred and amortized over the lives of the contracts. For those off-balance
sheet transactions used to manage interest rate risks that are terminated prior
to maturity, realized gains and losses are deferred and amortized over the
remaining original life of the agreement as an adjustment to the hedged asset or
liability. Gains and losses on interest rate forwards, futures, and option
contracts classified as hedges are deferred and amortized over the lives of the
hedged assets and liabilities. The amortization of these gains and losses is an
adjustment to interest income and expense. Any contracts that fail to qualify
for hedge accounting are included in current earnings in noninterest income.
Off-balance sheet financial instruments held or issued by the bond
division are valued at prevailing market rates on a present value basis.
Realized and unrealized gains and losses are included in noninterest income as
bond division income. Realized and unrealized gains and losses related to
foreign currency exchange agreements with customers are included in noninterest
income.
TRUST SERVICES INCOME. Trust services income is recorded on the accrual basis of
accounting. Prior to January 1, 1995, trust services income was reported on a
cash basis, which was not materially different from the accrual basis.
INCOME TAXES. The provision for income taxes is based on income reported for
consolidated financial statement purposes and includes deferred taxes resulting
from the recognition of certain revenues and expenses in different periods for
tax reporting purposes. First Tennessee files consolidated federal and state
income tax returns except for a credit life insurance company which files a
separate return.
INCOME PER SHARE. Income per share is computed by dividing net income by the
weighted average number of common shares outstanding for each period. Options
granted under the stock option plans are not included in the computation since
their dilutive effect is not material. Previously reported per share amounts
<PAGE> 38
have been restated for the effect of acquisitions accounted for as poolings of
interests and for the February 16, 1996, two-for-one stock split.
ACCOUNTING CHANGES. On January 1, 1996, First Tennessee adopted Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." This standard
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the expected undiscounted
future cash flows from the use of the asset and its eventual disposition are
less than the carrying amount of the asset, an impairment loss is recognized.
The impairment loss is measured based upon the present value of the expected
future cash flows. The adoption of this standard did not have a material impact
on the financial position or results of operations of First Tennessee.
SFAS No. 123, "Accounting for Stock-Based Compensation," was adopted
January 1, 1996. SFAS No. 123 defines a fair value-based method of accounting
for stock-based compensation plans. Under the fair value-based method,
compensation cost is measured at the grant date based upon the value of the
award and is recognized over the service period. The standard encourages all
entities to adopt this method of accounting; however, it allows an entity to
continue to measure compensation costs for its plans as prescribed in APB
Opinion No. 25, "Accounting for Stock Issued to Employees." Under this election,
First Tennessee continues to account for stock-based compensation in accordance
with APB Opinion No. 25 and provides additional disclosure on the pro forma
impact of the fair value-based method under SFAS No. 123. See Note 14 - Stock
Option, Restrictive Stock Incentive, and Dividend Reinvestment Plans for further
disclosure.
In June 1996, the Financial Accounting Standards Board issued SFAS No.
125, "Accounting for the Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which will be effective for transactions
occurring after December 31, 1996. The Statement provides consistent standards
for distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings based on a control-oriented "financial components"
approach. Under this approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and liabilities it has
incurred, derecognizes financial assets when control has been surrendered and
derecognizes liabilities when extinguished. First Tennessee adopted SFAS No. 125
on January 1, 1997. The impact of adoption will not be material to the financial
position or results of operations of First Tennessee.
<PAGE> 39
NOTE 2 - ACQUISITIONS
The following table provides information concerning acquisitions
completed during the three years ended December 31, 1996. Acquisitions accounted
for as poolings of interests are included in First Tennessee's consolidated
financial statements for all periods presented. Acquisitions accounted for as
purchases are included in the financial statements from the date of the
acquisition. All share information reflects the stock split effected on
February 16, 1996.
<TABLE>
<CAPTION>
Date of
Acquisition Location Acquisition
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Financial Investment Corporation Springdale, Arkansas 10/1/95
HomeBanc Mortgage Corporation* Atlanta, Georgia 7/1/95
Peoples Commercial Services Corporation Senatobia, Mississippi 4/1/95
Community Bancshares, Inc. Germantown, Tennessee 2/24/95
Carl I. Brown and Company Kansas City, Missouri 1/3/95
Emerald Mortgage Company Lynnwood, Washington 10/1/94
Planters Bank Tunica, Mississippi 8/9/94
Cleveland Bank and Trust Company Cleveland, Tennessee 3/16/94
Highland Capital Management Corp. Memphis, Tennessee 3/1/94
SNMC Management Corporation Dallas, Texas 1/4/94
- --------------------------------------------------------------------------------------------
</TABLE>
* Acquired certain assets and liabilities.
<TABLE>
<CAPTION>
Common
Shares Issued Method of
Acquisition (thousands) Accounting
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Financial Investment Corporation 2,565 Purchase
HomeBanc Mortgage Corporation* $7 million cash Purchase
Peoples Commercial Services Corporation 842 Purchase
Community Bancshares, Inc. 2,842 Pooling
Carl I. Brown and Company 1,731 Pooling
Emerald Mortgage Company 304 Purchase
Planters Bank 668 Pooling
Cleveland Bank and Trust Company 2,306 Pooling
Highland Capital Management Corp. 936 Pooling
SNMC Management Corporation 3,502 Pooling
- --------------------------------------------------------------------------------------------
</TABLE>
* Acquired certain assets and liabilities.
<PAGE> 40
NOTE 3 - INVESTMENT SECURITIES
The following tables summarize First Tennessee's securities held to
maturity and available for sale at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996*
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY:
States and municipalities $ 65,914 $ 1,083 $ (320) $ 66,677
- -----------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury and other
U.S. government agencies $ 469,483 $ 3,136 $ (513) $ 472,106
Government agency
issued MBS 318,924 4,248 (3,737) 319,435
Government agency
issued CMOs 1,263,693 4,865 (4,002) 1,264,556
States and municipalities 25,169 956 (8) 26,117
Private issue CMOs 1,502 19 -- 1,521
Other 17,381 138 (528) 16,991
Equity** 71,529 1,756 (391) 72,894
- -----------------------------------------------------------------------------------------------
Total securities available for sale $2,167,681 $15,118 $(9,179) $2,173,620
===============================================================================================
</TABLE>
* Includes $1,664,233,000 of securities pledged to secure public deposits,
securities sold under agreements to repurchase and for other purposes.
** Equity securities include venture capital investment securities.
<TABLE>
<CAPTION>
At December 31, 1995*
--------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY:
States and municipalities $ 74,731 $ 1,289 $ (270) $ 75,750
- -------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury and other
U.S. government agencies $ 271,260 $ 3,289 $ (708) $ 273,841
Government agency
issued MBS 294,731 6,239 (1,266) 299,704
Government agency
issued CMOs 1,351,342 11,154 (2,586) 1,359,910
States and municipalities 28,047 1,388 (26) 29,409
Private issue CMOs 1,841 22 -- 1,863
Other 17,366 591 (500) 17,457
Equity** 53,927 2,163 (1,606) 54,484
- -------------------------------------------------------------------------------------------------
Total securities available for sale $2,018,514 $ 24,846 $ (6,692) $2,036,668
=================================================================================================
</TABLE>
* Includes $1,590,984,000 of securities pledged to secure public deposits,
securities sold under agreements to repurchase and for other purposes.
** Equity securities include venture capital investment securities.
Provided below are the amortized cost and estimated fair value by
contractual maturity for the securities portfolios at December 31, 1996:
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
---------------------- --------------------------
Estimated Estimated
By Contractual Maturity Amortized Fair Amortized Fair
(Dollars in thousands) Cost Value Cost Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Within 1 year $ 6,735 $ 6,811 $ 187,121 $ 189,016
After 1 year; within 5 years 13,875 13,996 302,553 303,157
After 5 years; within 10 years 23,133 23,617 19,050 19,631
After 10 years 22,171 22,253 3,309 3,410
- ---------------------------------------------------------------------------------------------
Subtotal 65,914 66,677 512,033 515,214
- ---------------------------------------------------------------------------------------------
Mortgage-backed securities and CMOs -- -- 1,584,119 1,585,512
Equity securities -- -- 71,529 72,894
- ---------------------------------------------------------------------------------------------
Total $65,914 $66,677 $2,167,681 $2,173,620
=============================================================================================
</TABLE>
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
<PAGE> 41
The table below provides information on realized gross gains and
realized gross losses on sales from the available for sale portfolio for the
years ended December 31:
<TABLE>
<CAPTION>
Available Available
for Sale - for Sale -
(Dollars in thousands) Debt Equity Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1996
Gross gains on sales $ 1,164 $ 540 $ 1,704
Gross losses on sales (1,385) -- (1,385)
- --------------------------------------------------------------------------------
1995
Gross gains on sales $ 514 $ 5,466 $ 5,980
Gross losses on sales (742) (114) (856)
- --------------------------------------------------------------------------------
1994
Gross gains on sales $ 264 $ 15,788 $ 16,052
Gross losses on sales (5,384) (153) (5,537)
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 42
NOTE 4 - LOANS
A summary of the major categories of loans outstanding at December 31
is shown below:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Commercial $3,521,473 $3,330,929
Consumer:
Real estate* 1,753,933 1,576,215
Auto 571,473 606,199
Student 245,336 231,732
Other 113,217 111,743
- -----------------------------------------------------------------------------
Total consumer 2,683,959 2,525,889
Permanent mortgage 641,245 689,458
Credit card receivables 564,803 529,104
Real estate construction 297,797 238,863
Nonaccrual 18,926 19,040
- -----------------------------------------------------------------------------
Loans, net of unearned income** 7,728,203 7,333,283
Allowance for loan losses 117,748 112,567
- -----------------------------------------------------------------------------
Total net loans $7,610,455 $7,220,716
=============================================================================
</TABLE>
* Consumer real estate loans included $1,705,758,000 and $1,537,064,000 of
first and second liens and home equity loans at December 31, 1996 and 1995,
respectively.
** Loans are presented net of $5,023,000 and $6,079,000 unearned income for
December 31, 1996 and 1995, respectively.
On January 1, 1995, First Tennessee adopted SFAS No. 114, "Accounting
by Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures." On
that date, impaired loans included in nonperforming loans totaled $9,742,000
with a related allowance of $2,542,000. Included in nonperforming loans are
other nonaccrual loans and loans which have been restructured. At December 31,
1996 and 1995, there were no outstanding commitments to advance additional funds
to customers whose loans had been restructured. The following table presents
nonperforming loans at December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Impaired loans $ 10,322 $ 11,865
Other nonaccrual loans 8,604 7,175
- ---------------------------------------------------------------------------
Total nonperforming loans $ 18,926 $ 19,040
===========================================================================
</TABLE>
Restructured impaired loans at December 31, 1996 and 1995, were $279,000 and
$303,000, respectively.
Interest income recognized on impaired loans, which includes interest
earned in previous years, was $508,000 and for other nonaccrual loans was
$1,006,000 in 1996. For 1995, interest income recognized on impaired and other
nonaccrual loans was $1,405,000. Under their original terms, interest income
would have been approximately $886,000 for impaired loans and $501,000 for other
nonaccrual loans in 1996. For 1995, under their original terms, interest income
on impaired and other nonaccrual loans would have been approximately $1,374,000.
The average balance of impaired loans was approximately $9,784,000 for 1996 and
$10,441,000 for 1995.
<PAGE> 43
Activity in the allowance for loan losses related to non-impaired and
impaired loans for years ended December 31 is summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Non-impaired Impaired Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1993 $110,720
Provision for loan losses 17,182
Charge-offs (29,196)
Loan recoveries 11,153
- -------------------------------------------------------------------------------
Net charge-offs (18,043)
- -------------------------------------------------------------------------------
Balance at December 31, 1994 $ 109,859 $ -- 109,859
Transfer of allowance (2,542) 2,542 --
Allowance from acquisitions 2,632 -- 2,632
Provision for loan losses 14,388 6,204 20,592
Charge-offs (29,766) (5,465) (35,231)
Loan recoveries 14,480 235 14,715
- -------------------------------------------------------------------------------
Net charge-offs (15,286) (5,230) (20,516)
- -------------------------------------------------------------------------------
Balance at December 31, 1995 109,051 3,516 112,567
Provision for loan losses 33,179 2,498 35,677
Charge-offs (39,555) (2,827) (42,382)
Loan recoveries 11,542 344 11,886
- -------------------------------------------------------------------------------
Net charge-offs (28,013) (2,483) (30,496)
- -------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 $ 114,217 $ 3,531 $117,748
===============================================================================
</TABLE>
Certain executive officers and directors (and their associates) of
First Tennessee were loan customers during 1996 and 1995. Such loans are at
normal credit terms, including interest rates and collateral, and do not
represent more than a normal risk of collection. The following is a summary of
related party loans outstanding and the activity for the years ended
December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $ 128,911 $ 94,470
Additions 292,615 202,652
Deletions:
Repayments (254,775) (167,720)
No longer related (65,178) (491)
- --------------------------------------------------------------------------------
Total deletions (319,953) (168,211)
- --------------------------------------------------------------------------------
Balance at end of year $ 101,573 $ 128,911
================================================================================
</TABLE>
Amounts due from customers on acceptances and bank acceptances
outstanding were $4,329,000 and $4,663,000 at December 31, 1996 and 1995,
respectively.
<PAGE> 44
NOTE 5 - PREMISES, EQUIPMENT AND LEASES
Premises and equipment at December 31 are summarized below:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 29,130 $ 27,564
Buildings 130,822 121,932
Leasehold improvements 20,272 18,260
Furniture, fixtures and equipment 176,151 160,535
- --------------------------------------------------------------------------------
Premises and equipment, at cost 356,375 328,291
Less accumulated depreciation and amortization 170,751 150,891
- --------------------------------------------------------------------------------
Premises and equipment, net $185,624 $177,400
================================================================================
</TABLE>
First Tennessee is obligated under a number of noncancelable operating
leases for premises and equipment with terms up to 15 years, which may include
the payment of taxes, insurance and maintenance costs.
Minimum future lease payments for operating leases on premises and
equipment at December 31, 1996, are shown below:
<TABLE>
<CAPTION>
(Dollars in thousands)
- ---------------------------------------------------------------
<S> <C>
1997 $22,880
1998 19,744
1999 15,202
2000 11,089
2001 9,010
2002 and after 13,336
- ---------------------------------------------------------------
Total minimum lease payments $91,261
===============================================================
</TABLE>
Payments required under capital leases are not material.
Rent expense incurred under all operating lease obligations was as
follows for the years ended December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Rent expense, gross $ 27,746 $ 27,779 $ 28,450
Amortization of deferred gain -- -- (585)
Rent income (1,517) (1,776) (2,498)
- --------------------------------------------------------------------------------
Rent expense, net $ 26,229 $ 26,003 $ 25,367
================================================================================
</TABLE>
<PAGE> 45
NOTE 6 - INTANGIBLE ASSETS
Following is a summary of intangible assets, net of accumulated
amortization, included in the Consolidated Statements of Condition:
<TABLE>
<CAPTION>
Premium on
Purchased Deposits
(Dollars in thousands) Goodwill and Assets
- ---------------------------------------------------------------------------
<S> <C> <C>
December 31, 1993 $ 62,565 $ 28,972
Amortization expense (3,073) (3,333)
Acquisitions 6,594 --
- ---------------------------------------------------------------------------
December 31, 1994 66,086 25,639
Amortization expense (3,676) (4,424)
Acquisitions 29,382 15,978
- ---------------------------------------------------------------------------
December 31, 1995 91,792 37,193
Amortization expense (4,386) (5,105)
Acquisitions/Divestitures 237 (266)
- ---------------------------------------------------------------------------
DECEMBER 31, 1996 $ 87,643 $ 31,822
===========================================================================
</TABLE>
<PAGE> 46
NOTE 7 - CAPITALIZED MORTGAGE SERVICING RIGHTS
Following is a summary of changes in capitalized mortgage servicing
rights, net of accumulated amortization, included in the Consolidated Statements
of Condition:
<TABLE>
<CAPTION>
(Dollars in thousands)
- ------------------------------------------------------------------------------
<S> <C>
December 31, 1993 $ 85,983
Amortization (14,936)
Purchased mortgage servicing rights, net 1,675
- ------------------------------------------------------------------------------
December 31, 1994 72,722
Amortization (14,980)
Originated mortgage servicing rights 92,262
Purchased mortgage servicing rights, net (784)
- ------------------------------------------------------------------------------
December 31, 1995 149,220
Amortization (26,041)
Originated mortgage servicing rights 144,988
Sales of servicing rights (2,140)
- ------------------------------------------------------------------------------
DECEMBER 31, 1996 $266,027
==============================================================================
</TABLE>
The capitalized mortgage servicing rights at December 31, 1996 and 1995,
included originated mortgage servicing rights which were related to loans held
for sale to investors of $10,625,000 and $11,289,000. First Tennessee retains
the servicing when these loans are sold.
The mortgage servicing rights at December 31, 1996 and 1995, had
estimated market values of approximately $293.1 million and $166.2 million,
respectively. These balances represent the rights to service approximately
$19 billion and $12 billion of mortgage loans at December 31, 1996 and 1995.
In addition, First Tennessee had approximately $3 billion and $5 billion of
mortgage loans for which the servicing rights were not capitalized at
December 31, 1996 and 1995. These mortgage servicing rights had estimated
market values of $30.6 million and $43.6 million, respectively. No valuation
allowance was required as of December 31, 1996 or 1995.
<PAGE> 47
NOTE 8 - SHORT-TERM BORROWINGS
Short-term borrowings include federal funds purchased and securities
sold under agreements to repurchase, commercial paper, and other borrowed funds
which include term federal funds purchased, short-term bank notes, and advances
from the Federal Home Loan Bank. The advances from the Federal Home Loan Bank,
which totaled $200 million at December 31, 1996, are collateralized 150 percent
with first-lien permanent mortgage loans of First Tennessee Bank National
Association.
Federal funds purchased and securities sold under agreements to
repurchase, and commercial paper generally have maturities of less than 90 days.
Other short-term borrowings have original maturities of one year or less.
The detail of these borrowings for the years 1996, 1995 and 1994 is
presented in the following table:
<TABLE>
<CAPTION>
Federal Funds
Purchased and
Securities Sold Other
Under Agreements Commercial Short-term
(Dollars in thousands) to Repurchase Paper Borrowings
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1996
Average balance $ 1,588,101 $ 22,207 $ 497,870
Year-end balance 1,881,187 22,648 354,721
Maximum month-end outstanding 1,881,187 33,790 699,113
Average rate for the year 4.91% 4.39% 6.15%
Average rate at year-end 5.65 4.43 5.92
1995
Average balance $ 1,491,033 $ 35,579 $ 368,630
Year-end balance 1,674,225 29,402 57,118
Maximum month-end outstanding 1,953,448 44,755 547,131
Average rate for the year 5.43% 5.14% 7.07%
Average rate at year-end 4.96 4.59 6.52
1994
Average balance $ 1,045,571 $ 34,351 $ 645,447
Year-end balance 1,457,517 67,820 284,702
Maximum month-end outstanding 1,457,517 67,820 894,840
Average rate for the year 3.87% 3.77% 5.46%
Average rate at year-end 5.15 4.57 8.05
- -----------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, $40.0 million of unused borrowings under
unsecured lines of credit from non-affiliated banks were available to the parent
company to provide for general liquidity needs at an annual facility fee of
.125 percent.
<PAGE> 48
NOTE 9 - RESTRICTIONS, CONTINGENCIES AND OTHER DISCLOSURES
RESTRICTIONS ON CASH AND DUE FROM BANKS. The commercial banking subsidiaries of
First Tennessee are required to maintain average reserve balances with the
Federal Reserve Bank. The reserve balances required at December 31, 1996 and
1995, were $160,013,000 and $158,328,000, respectively. These reserves are
included in "Cash and due from banks" on the Consolidated Statements of
Condition.
RESTRICTIONS ON DIVIDENDS. Dividends are paid by First Tennessee from its assets
which are mainly provided by dividends from its subsidiaries. Certain regulatory
restrictions exist regarding the ability of the banking subsidiaries to transfer
funds to First Tennessee in the form of cash, dividends, loans or advances. As
of December 31, 1996, the banking subsidiaries had undivided profits of
$706,172,000 of which $293,094,000 was available for distribution to First
Tennessee as dividends without prior regulatory approval.
RESTRICTIONS ON INTERCOMPANY TRANSACTIONS. Under Federal Banking law, banking
subsidiaries may not extend credit to the parent company in excess of 10 percent
of the banks' capital stock and surplus, as defined, or $110,134,000 at
December 31, 1996. The parent company had borrowings of $18,250,000 from First
Tennessee Bank National Association (FTBNA) at December 31, 1996. Certain loan
agreements also define other restricted transactions related to additional
borrowings.
CONTINGENCIES. In May 1996, FTBNA was named as a defendant in a purported class
action lawsuit filed in federal court in Alabama wherein plaintiffs assert that
FTBNA and another defendant had engaged in unfair and deceptive practices in
connection with the financing of "nonrecurring sale items." The Complaint
alleges violations of the Truth In Lending Act and the federal RICO statute and
fraud by suppression with respect to Alabama residents. In addition to these
theories, plaintiffs proceed against FTBNA on an agency theory. The Complaint
seeks unqualified compensatory, triple, and punitive damages. Subsequently,
eight additional individual lawsuits and one class action lawsuit arising out of
the same set of circumstances have been filed in state court in Alabama,
asserting claims of fraud, specifically misrepresentation and failure to
disclose. Plaintiffs in the state cases also proceed against FTBNA on an agency
theory. FTBNA denies liability and denies that any co-defendant is its agent. In
addition to these lawsuits, 23 similar individual lawsuits have been threatened
to be filed in state court in Alabama. As a result, there can be no assurance
that FTBNA will not be named as a defendant in future similar lawsuits. Various
other claims and lawsuits are pending against First Tennessee and its
subsidiaries. Although First Tennessee cannot predict the outcome of the
foregoing actions, after consulting with counsel, it is management's opinion
that when resolved, the amount, if any, will not have a material adverse effect
on the consolidated financial statements of First Tennessee and its
subsidiaries.
OTHER DISCLOSURES - BANK OWNED LIFE INSURANCE. First Tennessee has purchased
life insurance on certain of its employees and is the beneficiary on these
policies. At December 31, 1996, the cash surrender value of the policies, which
is included in "Bond division receivables and other assets" on the Consolidated
Statements of Condition, was $65,710,000 with an original face value of
$60,000,000. There are no restrictions on the proceeds from these benefits, and
First Tennessee has not borrowed against the cash surrender value of these
policies.
<PAGE> 49
NOTE 10 - REGULATORY CAPITAL
First Tennessee is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on First Tennessee's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
specific capital guidelines that involve quantitative measures of assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices must be met. Capital amounts and classification are also
subject to qualitative judgment by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require First Tennessee to maintain minimum amounts and ratios of total
and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average
assets (leverage). Management believes, as of December 31, 1996, that First
Tennessee met all capital adequacy requirements to which it was subject.
The most recent notification from the Office of the Comptroller of the
Currency at June 30, 1996, categorized First Tennessee as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as well
capitalized First Tennessee must maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as set forth in the table. In the opinion
of management, at December 31, 1996, no conditions or events have occurred since
that notification that would change First Tennessee's category.
First Tennessee's actual capital amounts and ratios are also presented
in the table below:
<TABLE>
<CAPTION>
First Tennessee National First Tennessee Bank
Corporation National Association
--------------------------- --------------------------
(Dollars in thousands) Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996:
Actual:
Total Capital $1,123,633 11.81% $993,977 11.11%
Tier 1 Capital 856,769 9.00 809,513 9.05
Leverage 856,769 6.80 809,513 6.93
For Capital Adequacy Purposes:
Total Capital 761,209 >or= 8.00 715,724 >or= 8.00
Tier 1 Capital 380,604 >or= 4.00 357,862 >or= 4.00
Leverage 504,151 >or= 4.00 467,236 >or= 4.00
To Be Well Capitalized Under
Prompt Corrective
Action Provisions:
Total Capital 951,511 >or= 10.00 894,655 >or= 10.00
Tier 1 Capital 570,906 >or= 6.00 536,793 >or= 6.00
Leverage 630,189 >or= 5.00 584,045 >or= 5.00
- --------------------------------------------------------------------------------------
As of December 31, 1995:
Actual:
Total Capital $1,024,003 11.50% $891,310 10.69%
Tier 1 Capital 763,709 8.58 712,031 8.54
Leverage 763,709 6.43 712,031 6.49
For Capital Adequacy Purposes:
Total Capital 712,382 >or= 8.00 667,333 >or= 8.00
Tier 1 Capital 356,191 >or= 4.00 333,667 >or= 4.00
Leverage 475,411 >or= 4.00 438,900 >or= 4.00
To Be Well Capitalized Under
Prompt Corrective
Action Provisions:
Total Capital 890,477 >or= 10.00 834,167 >or= 10.00
Tier 1 Capital 534,286 >or= 6.00 500,500 >or= 6.00
Leverage 594,264 >or= 5.00 548,625 >or= 5.00
- --------------------------------------------------------------------------------------
</TABLE>
The following table details the actual regulatory capital ratios for
other bank subsidiaries at December 31, 1996:
<PAGE> 50
<TABLE>
<CAPTION>
FNB Peoples
CBT Springdale FTBNA-MS Peoples and Union Planters
(1) (2) (3) (4) (5) (6)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996:
Total Capital 17.21% 18.22% 17.55% 22.24% 20.52% 22.89%
Tier 1 Capital 15.95 17.14 16.56 20.98 19.30 21.62
Leverage 9.79 9.30 10.69 10.60 11.52 9.61
- ----------------------------------------------------------------------------------
</TABLE>
(1)Cleveland Bank and Trust Company (2)First National Bank of Springdale
(3)First Tennessee Bank National Association Mississippi
(4)Peoples Bank of Senatobia (5)Peoples and Union Bank (6)Planters Bank
<PAGE> 51
NOTE 11 - TERM BORROWINGS
The following table presents information pertaining to term
borrowings (debt with original maturities greater than one year) for First
Tennessee and its subsidiaries at December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
FIRST TENNESSEE NATIONAL CORPORATION:
Subordinated capital notes:
Matures on June 1, 1999 - 10 3/8% $ 74,782 $ 74,692
Matures on November 15, 2005 - 6 3/4% 74,275 74,193
FIRST TENNESSEE BANK NATIONAL ASSOCIATION:
Notes payable to Federal Home Loan Bank*:
Matures on January 3, 1997 - 7.95% 25,000 25,000
Matures on April 3, 1997 - 7.95% 25,000 25,000
Matures on January 29, 1999 - 7.95% 15,000 15,000
Matures on October 3, 1997 - 8.05% 10,000 10,000
Matures through 1998 - 7.50% 6,661 11,559
Matures through 2009 - 8.10% 2,583 2,783
Note at one month LIBOR + .05%
(5.7375% at December 31, 1995) -- 20,000
Industrial development bond payable to City of
Alcoa, Tennessee; matures 1999 - 6.50% 300 400
CLEVELAND BANK AND TRUST COMPANY:
Industrial development bond payable to City of
Cleveland, Tennessee; matures through 1999 -
65% of prime (5.3625% and 5.525% at
December 31, 1996 and 1995, respectively) 1,044 1,390
- ----------------------------------------------------------------------------------------
Total $234,645 $260,017
========================================================================================
</TABLE>
* The Federal Home Loan Bank borrowings were collateralized 150 percent with
first-lien permanent mortgage loans of FTBNA.
Annual principal repayment requirements as of December 31, 1996, are as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
- -----------------------------------------------
<S> <C>
1997 $65,827
1998 1,930
1999 90,848
2000 200
2001 200
2002-2010 76,583
- -----------------------------------------------
</TABLE>
At maturity, the 10 3/8 percent subordinated notes will be redeemed, at
First Tennessee's option, in cash from the proceeds of the sale of capital
securities, or exchanged for qualifying capital securities having a market value
equal to the principal amount of the notes. These notes are unsecured and
subordinate to all present and future senior debt of First Tennessee.
<PAGE> 52
NOTE 12 - SHAREHOLDER PROTECTION RIGHTS AGREEMENT
In September 1989, First Tennessee adopted a Shareholder Protection
Rights Agreement (the Agreement) and distributed a dividend of one right on each
outstanding share of common stock held on September 18, 1989, or issued
thereafter and prior to the time the rights separate. On January 21, 1997, First
Tennessee amended and restated the Agreement. As so amended, the Agreement
provides that until the 10th business day (subject to certain adjustments by the
board of directors) after a person or group commences a tender or exchange offer
that will result in such person or group owning 10 percent or more of First
Tennessee's common stock, or the public announcement by First Tennessee that a
person or group owns 10 percent or more of First Tennessee's common stock, the
rights will be evidenced by the common stock certificates, will automatically
trade with the common stock, and will not be exercisable. Thereafter, separate
rights certificates will be distributed, and each right will entitle its holder
to purchase one one-hundredth of a share of participating preferred stock having
economic and voting terms similar to those of one share of common stock for an
exercise price of $150.
If any person or group acquires 10 percent or more of First Tennessee's
common stock, then each right (other than rights beneficially owned by holders
of 10 percent or more of the common stock or transferees thereof, which rights
become void) will entitle its holder to purchase, for the exercise price, a
number of shares of First Tennessee common stock or participating preferred
stock having a market value of twice the exercise price. Also, if there is a
10 percent shareholder and First Tennessee is involved in certain significant
transactions, each right will entitle its holder to purchase, for the exercise
price, a number of shares of common stock of the other party having a market
value of twice the exercise price. If any person or group acquires between
10 percent and 50 percent of First Tennessee's common stock, First Tennessee's
board of directors may, at its option, exchange one share of First Tennessee
common stock or one one-hundredth of a share of participating preferred stock
for each right. The rights will expire on the earliest of one of the following
three times: the time of the exchange described in the preceding sentence;
September 18, 1999; or the date the rights are redeemed as described in the
following sentence. The rights may be redeemed by the board of directors for
$0.0033 per right until 10 business days after First Tennessee announces that
any person or group owns 10 percent or more of First Tennessee's common stock.
<PAGE> 53
NOTE 13 - SAVINGS, PENSION AND OTHER EMPLOYEE BENEFITS
SAVINGS PLAN. Substantially all employees of First Tennessee are covered by a
contributory savings plan in conjunction with a flexible benefits plan. During
the year, First Tennessee makes contributions to each eligible employee's
flexible benefits plan account. These contributions are based on length of
service and a percentage of the employee's salary. The employees have the option
to direct a portion or all of the contribution into their savings plan accounts.
Employees may also make pre-tax and after-tax personal contributions to the
savings plan. First Tennessee matches the majority of employee pre-tax
contributions invested in First Tennessee's common stock at a rate of $.50 for
each $1.00 invested up to 6 percent of the employee's qualifying salary.
Contributions made by First Tennessee to the flexible benefits plan were
$13,202,000 for 1996, $9,996,000 for 1995 and $8,276,000 for 1994.
ACTUARIAL ASSUMPTIONS. The actuarial assumptions used in the defined pension
plan and the other employee benefit plans were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.75% 7.25% 8.50%
Weighted average rate of increase in future compensation 4.0 4.7 4.8
Expected long-term rate of return on assets dedicated to
employees who retired prior to January 1, 1993 6.5 6.5 6.5
Expected long-term rate of return on assets 10.0 10.0 9.5
- -----------------------------------------------------------------------------------
</TABLE>
PENSION PLAN. Substantially all employees of First Tennessee are covered by a
noncontributory, defined benefit pension plan. Pension benefits are based on
years of service, average compensation near retirement, and estimated social
security benefits at age 65. The annual funding is based on an actuarially
determined amount using the entry age cost method. First Tennessee's policy to
fund amounts which are actuarially determined is in accordance with the
applicable provisions of the Employee Retirement Income Security Act.
The components of pension expense for the years ended December 31 were
as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 6,083 $ 5,210 $ 6,792
Interest cost on projected benefit obligation 7,895 6,907 6,459
Gain on plan assets (12,330) (27,516) (676)
Net amortization and deferral (2,398) 15,677 (9,582)
- ------------------------------------------------------------------------------
Pension expense/(benefit) $ (750) $ 278 $ 2,993
==============================================================================
</TABLE>
The following table sets forth the plan's funded status and amounts
recognized in the Consolidated Statements of Condition at December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C>
Plan assets at fair value $169,488 $150,685
Actuarial present value of projected benefit obligation* 107,403 108,215
- ------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 62,085 42,470
Unrecognized net (gain)/loss from past experience different
from that assumed and effects of changes in assumptions (9,963) 72
Prior service cost not yet recognized in pension expense 2,848 3,138
Unrecognized net transitional asset (2,780) (3,240)
- ------------------------------------------------------------------------------------
Prepaid pension expense $ 52,190 $ 42,440
====================================================================================
</TABLE>
* At December 31, 1996 and 1995, respectively, the actuarial present values of
the accumulated benefit obligation were $82,435,000 and $86,495,000, of which
vested benefits were $80,741,000 and $84,302,000. The accumulated benefit
obligation excludes projected future increases in compensation.
OTHER EMPLOYEE BENEFITS. First Tennessee provides postretirement medical
insurance to full-time employees retiring under the provisions of the First
Tennessee Pension Plan. The postretirement medical plan is contributory with
retiree contributions adjusted annually. The plan is based on criteria that are
a combination of the employee's age and years of service and utilizes a two-step
approach. For any employee retiring on or after January 1, 1995, First Tennessee
will contribute a fixed amount based on years of service and age at time of
retirement.
<PAGE> 54
The following table sets forth the plans' funded status reconciled to
the amount shown in the Consolidated Statements of Condition at December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees $(16,083) $(14,236)
Actives (7,779) (8,948)
- --------------------------------------------------------------------------------
Total APBO (23,862) (23,184)
Plan assets at fair value 11,198 11,055
- --------------------------------------------------------------------------------
APBO in excess of plan assets (12,664) (12,129)
Unrecognized:
Net transition obligation 15,818 16,807
Prior service cost 41 44
Prepaid benefit cost (1,270) (394)
- --------------------------------------------------------------------------------
Prepaid postretirement benefit cost $ 1,925 $ 4,328
================================================================================
</TABLE>
Postretirement benefit expense for the years ended December 31
included the following components:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 608 $ 427 $ 556
Interest cost on APBO 1,689 1,762 1,578
Actual return on assets (1,004) (1,867) (864)
Amortization of transition obligation 989 989 989
Total of other components 121 1,048 172
- ----------------------------------------------------------------------------
Postretirement benefit expense $ 2,403 $ 2,359 $2,431
============================================================================
</TABLE>
The cost of health care benefits was projected to increase at an annual
per capita rate of 9.75 percent in 1996 and decrease evenly to a rate of 5.75
percent by the year 2000 and remain at an even level thereafter. In 1995, the
annual rate of increase was assumed to be 10.75 percent decreasing evenly to a
rate of 5.75 percent by the year 2000 and remaining at that level thereafter. In
1994, the annual rate of increase was assumed to be 13 percent decreasing evenly
to a rate of 7 percent by the year 2000 and remaining at that level thereafter.
The health care cost trend rate assumption has a significant effect on the
amounts reported. The following table illustrates the effect of increasing the
assumed health care cost trend rate by 1 percent:
<TABLE>
<CAPTION>
(Dollars in thousands) Current Trend Increased Trend Percent Change
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
APBO at December 31, 1996 $23,862 $24,792 3.9+
Service and interest cost 2,297 2,392 4.1+
- -------------------------------------------------------------------------------
</TABLE>
The funding policy for the plan is to fund the maximum amount
deductible under the current tax regulations. The plan assets consist primarily
of equity and fixed income securities. The trust holding the plan assets for
employees that retired prior to January 1, 1993, is subject to federal income
taxes at a 35 percent tax rate. The trust holding the plan assets for all other
employees, actives and those retired since 1992, is not subject to federal
income taxes.
First Tennessee provides benefits to former and inactive employees
after employment but before retirement. The obligation/(benefit) recognized in
accordance with accounting standards was $(.3) million in 1996, $1.9 million in
1995 and $2.5 million in 1994.
Medical and group life insurance expenses incurred for active employees
are shown in the following table:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Medical plan expense based on claims incurred $10,762 $8,673 $9,841
Participants 5,267 5,304 5,400
- -----------------------------------------------------------------------------
Group life insurance expense based on benefits
incurred $ 865 $ 783 $1,088
Participants 8,022 7,744 6,413
- -----------------------------------------------------------------------------
</TABLE>
<PAGE> 55
NOTE 14 - STOCK OPTION, RESTRICTIVE STOCK INCENTIVE, AND DIVIDEND REINVESTMENT
PLANS
STOCK OPTION PLANS. First Tennessee issues non-qualified stock options under
various plans to employees, non-employee directors, and bank advisory board
members. The plans provide for the issuance of First Tennessee common stock at a
price equal to its fair market value at the date of grant; however, the exercise
price may be less than the fair market value if the grantee has agreed to
receive the options in lieu of compensation. The foregone compensation plus the
exercise price must equal the fair market value of the stock on the date of
grant. All options expire 10 years from the date of grant, except for those
options that were part of compensation deferral, which expire 20 years from the
date of grant. There were 1,776,607 shares available for option plan grants at
December 31, 1996. The summary of stock option activity is shown below:
<TABLE>
<CAPTION>
Options Weighted Average
Outstanding Exercise Price
- ------------------------------------------------------------------
<S> <C> <C>
January 1, 1994 2,437,828 $11.35
Options granted 1,116,844 19.66
Stock options exercised (324,232) 8.70
Stock options canceled (57,636) 13.80
----------
December 31, 1994 3,172,804 14.50
==========
Options exercisable 1,399,302 10.47
- ------------------------------------------------------------------
January 1, 1995 3,172,804 $14.50
Options granted 1,211,168 20.64
Stock options exercised (439,372) 11.05
Stock options canceled (260,366) 20.49
----------
December 31, 1995 3,684,234 16.50
==========
Options exercisable 1,653,598 12.40
- ------------------------------------------------------------------
January 1, 1996 3,684,234 $16.50
Options granted 2,078,798 29.05
Stock options exercised (397,821) 14.31
Stock options canceled (346,893) 25.66
----------
DECEMBER 31, 1996 5,018,318 21.24
==========
Options exercisable 2,285,900 16.80
- ------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Weighted Average
Exercise Price Options Remaining Weighted Average
Range Outstanding Contractual Life Exercise Price
- ------------------------------------------------------------------
<S> <C> <C> <C>
$ 8.00 - $12.00 909,143 4.36 years $ 8.86
$12.01 - $22.00 2,263,095 7.50 years 19.62
$22.01 - $30.00 786,077 16.63 years 27.11
$30.01 - $45.00 1,060,003 9.61 years 30.99
- ------------------------------------------------------------------
</TABLE>
First Tennessee accounts for these plans under APB Opinion No. 25,
"Accounting for Stock Issued to Employees," under which no compensation cost has
been recognized. Had compensation cost for these plans been determined
consistent with Statement of Financial Accounting Standard No. 123 (SFAS No.
123), "Accounting for Stock-Based Compensation," First Tennessee's net income
and income per share would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
December 31
-------------------
(Dollars in thousands except per share data) 1996 1995
- -------------------------------------------------------------------
<S> <C> <C>
Net income, as reported $179,907 $164,888
Pro forma net income 178,068 164,354
Income per share, as reported 2.68 2.42
Pro forma income per share 2.65 2.42
- -------------------------------------------------------------------
</TABLE>
<PAGE> 56
Total compensation costs that would have been recognized in income
under SFAS No. 123 for all stock-based compensation awards was $3,010,000 and
$874,000 for 1996 and 1995, respectively.
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years. First
Tennessee used the Black-Scholes Option Pricing Model to estimate the fair value
of stock options granted in 1996 and 1995 with the following assumptions:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
Expected dividend yield 3.76% 3.76%
Expected option lives of options issued at market 5.72 years 4.03 years
Expected option lives of options issued below market 2.65 years 5.96 years
Expected volatility 16.75% 16.75%
Risk-free interest rates 6.16% 6.62%
- ----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Weighted
Average
Grant Date
Number Fair Value
Issued per Option
- ----------------------------------------------------------------------------
<S> <C> <C>
1996:
Options issued at market on the date of grant 1,405,711 $5.32
Options issued below market on the date of grant 673,087 6.95
- ----------------------------------------------------------------------------
1995:
Options issued at market on the date of grant 1,071,800 $3.38
Options issued below market on the date of grant 139,368 8.51
- ----------------------------------------------------------------------------
</TABLE>
RESTRICTED STOCK INCENTIVE PLANS. First Tennessee has authorized the issuance of
its common stock for awards to executive employees who have a significant impact
on the profitability of First Tennessee under restricted stock incentive plans.
Additionally, the plans provide for 3,000 shares of restricted stock to be
granted to each new non-employee director upon election to the Board with
restrictions lapsing as defined in the plans. For the years 1996, 1995 and 1994,
First Tennessee granted 109,196; 8,200 and 96,000 restricted shares under the
plans, respectively. Compensation expense related to these plans was $1,541,000,
$1,165,000 and $1,374,000 for the years 1996, 1995 and 1994, respectively. There
were 378,968 shares available for restricted stock incentive grants at
December 31, 1996.
DIVIDEND REINVESTMENT PLAN. The Dividend Reinvestment and Stock Purchase Plan,
as amended in 1995, authorizes the sale of First Tennessee's common stock from
authorized, but unissued common stock or from shares acquired on the open market
to shareholders who choose to invest all or a portion of their cash dividends
and make optional cash payments of $25 to $10,000 per quarter without paying
commissions. Since 1988, shares for this plan have been purchased on the open
market. The price of the shares purchased directly from First Tennessee is the
mean between the high and low sales price on the investment date. The price of
shares purchased on the open market is the average price paid.
<PAGE> 57
NOTE 15 - INCOME TAXES
The components of income tax expense/(benefit) are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 52,090 $46,502 $55,435
State 10,903 8,059 9,325
Deferred:
Federal 40,266 29,734 (3,272)
State (992) 3,774 (794)
- --------------------------------------------------------------------------------
Total $102,267 $88,069 $60,694
================================================================================
</TABLE>
The effective tax rates for 1996, 1995 and 1994 were 36.24 percent,
34.82 percent and 29.21 percent, respectively. Income tax expense was different
than the amounts computed by applying the statutory federal income tax rate to
income before income taxes because of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 35 % 35 % 35 %
- ----------------------------------------------------------------------------------
Tax computed at statutory rate $ 98,761 $ 88,535 $ 72,712
Increase/(decrease) resulting from:
Tax-exempt interest (3,269) (2,922) (2,989)
State income taxes 6,472 7,691 6,059
Adjustment of prior years'
estimated liabilities -- (5,675) (5,883)
Valuation allowance -- -- (8,038)
Charitable foundation -- -- (2,921)
Other 303 440 1,754
- ----------------------------------------------------------------------------------
Total $ 102,267 $ 88,069 $ 60,694
==================================================================================
</TABLE>
A deferred tax asset or liability is recognized for the tax
consequences of temporary differences by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. As a
result of the implementation of SFAS No. 122, "Accounting for Mortgage Servicing
Rights an amendment of FASB Statement No. 65," in 1995, First Tennessee
recognizes deferred tax liabilities related to the difference between originated
mortgage servicing rights recorded as assets in the financial statements and the
corresponding tax bases of the mortgage servicing rights. Temporary differences
which gave rise to deferred tax (assets)/liabilities at December 31, 1996 and
1995, were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Loss reserves $ (50,121) $(36,264)
Net operating loss carryforwards (6,791) (7,499)
Hedging transactions (477) --
Other (5,744) (2,822)
- -------------------------------------------------------------------------------
Gross deferred tax assets (63,133) (46,585)
- -------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Originated mortgage servicing rights 74,838 22,299
Depreciation 7,150 4,628
Employee benefits 4,879 6,119
Purchase accounting adjustments 4,510 4,510
Intangible assets 4,870 5,600
Lease operations 2,662 3,728
Operations services 3,615 --
Investments in loans and securities 1,694 6,736
Hedging transactions -- 4,453
Other 10,840 5,601
- -------------------------------------------------------------------------------
Gross deferred tax liabilities 115,058 63,674
- -------------------------------------------------------------------------------
Net deferred tax liabilities $ 51,925 $ 17,089
===============================================================================
</TABLE>
<PAGE> 58
NOTE 16 - BUSINESS SEGMENT INFORMATION
First Tennessee provides traditional retail/commercial banking and
other financial services to its customers. First Tennessee has three reportable
segments: banking group, mortgage banking and bond division. Banking
subsidiaries offer general banking products in 21 Tennessee counties, in
northern Mississippi and in northwest Arkansas. Mortgage banking provides
services in 29 states, and the bond division has offices in Dallas, Kansas City,
Knoxville, Memphis and Mobile.
Total revenue, expense, and asset levels reflect those which are
specifically identifiable or which are allocated based on an internal allocation
method. Because the allocations are based on internally developed assignments
and allocations, they are to an extent subjective. This assignment and
allocation has been consistently applied for all periods presented. The
following table reflects the approximate amounts of consolidated revenue,
expense and assets for the three years ended December 31, for each segment:
<TABLE>
<CAPTION>
Banking Mortgage Bond
(Dollars in thousands) Group Banking Division Consolidated
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Interest income $ 788,443 $ 85,965 $ 22,089 $ 896,497
Interest expense 375,906 48,493 20,910 445,309
- ---------------------------------------------------------------------------------------------------
Net interest income 412,537 37,472 1,179 451,188
Other revenues 211,604 273,674 85,871 571,149
Other expenses 420,768 255,292 64,103 740,163
- ---------------------------------------------------------------------------------------------------
Pre-tax income $ 203,373 $ 55,854 $ 22,947 $ 282,174
===================================================================================================
Identifiable assets $11,298,138 $ 1,443,740 $ 317,024 $ 13,058,902
- ---------------------------------------------------------------------------------------------------
1995
Interest income $ 735,377 $ 59,718 $ 27,433 $ 822,528
Interest expense 371,238 33,093 27,544 431,875
- ---------------------------------------------------------------------------------------------------
Net interest income 364,139 26,625 (111) 390,653
Other revenues 196,428 213,369 82,814 492,611
Other expenses 376,055 195,419 58,833 630,307
- ---------------------------------------------------------------------------------------------------
Pre-tax income $ 184,512 $ 44,575 $ 23,870 $ 252,957
===================================================================================================
Identifiable assets $10,559,010 $ 1,168,010 $ 349,862 $ 12,076,882
- ---------------------------------------------------------------------------------------------------
1994
Interest income $ 615,048 $ 61,026 $ 24,984 $ 701,058
Interest expense 253,757 28,642 24,198 306,597
- ---------------------------------------------------------------------------------------------------
Net interest income 361,291 32,384 786 394,461
Other revenues 191,104 187,584 77,478 456,166
Other expenses 374,197 210,185 58,483 642,865
- ---------------------------------------------------------------------------------------------------
Pre-tax income $ 178,198 $ 9,783 $ 19,781 $ 207,762
===================================================================================================
Identifiable assets $ 9,838,270 $ 772,410 $ 322,269 $ 10,932,949
- ---------------------------------------------------------------------------------------------------
</TABLE>
Capital expenditures and depreciation and amortization occurred
primarily in the banking group. Capital expenditures were $37,549,000,
$38,545,000 and $40,045,000 for the years ended December 31, 1996, 1995 and
1994, respectively. Depreciation and amortization was $78,791,000, $68,944,000
and $56,118,000 for 1996, 1995 and 1994, respectively.
<PAGE> 59
NOTE 17 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
First Tennessee utilizes various financial instruments as part of its
risk management strategy and as a means to meet customers' needs. These
instruments are subject to credit and market risks that are not reflected on the
balance sheet. The activities which currently employ financial instruments with
off-balance sheet risk are mortgage banking, interest rate risk management and
bond division operations. First Tennessee also enters into commitments for
lending related purposes to meet customers' financial needs. Controls and
monitoring procedures for these instruments have been established and are
routinely revised. The Asset/Liability Committee (ALCO) monitors the usage and
effectiveness of financial instruments. ALCO, in conjunction with senior credit
officers, also periodically reviews and revises counterparty credit limits.
Credit Risk represents the maximum potential loss due to possible
non-performance by obligors and counterparties under the terms of contracts.
First Tennessee manages credit risk by entering into financial instrument
transactions through national exchanges, primary dealers or approved
counterparties, and using mutual margining agreements whenever possible to limit
potential exposure. With exchange-traded contracts, the credit risk is limited
to the clearinghouse used. For non-exchange traded instruments, credit risk may
occur when there is a gain in the fair value of the financial instrument and the
counterparty fails to perform according to the terms of the contract and/or when
the collateral proves to be of insufficient value.
Market Risk represents the potential loss due to the decrease in the
value of a financial instrument caused primarily by changes in interest rates,
prepayment speeds or the prices of debt instruments. The measurement of market
risk associated with financial instruments is meaningful only when all related
and offsetting on- and off-balance sheet hedges are aggregated, and the
resulting net positions are identified.
LENDING RELATED
First Tennessee enters into fixed and variable loan commitments with
customers. When these commitments have contract rate adjustments that lag
changes in market rates, the financial instruments have characteristics similar
to option contracts. First Tennessee follows the same credit policies and
underwriting practices in making commitments as it does for on-balance sheet
instruments. Each customer's creditworthiness is evaluated on a case-by-case
basis. The amount of collateral obtained, if any, is based on management's
credit evaluation of the counterparty.
Commitments to Extend Credit are contractual obligations to lend to a
customer as long as all established contractual conditions are met. These
commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The majority of First Tennessee's loan
commitments have maturities less than one year and reflect the prevailing market
rates at the time of the commitment. Since commitments may expire without being
fully drawn upon, the total contract amount does not necessarily represent
future cash requirements.
Commercial and Standby Letters of Credit are conditional commitments
issued by First Tennessee to guarantee the performance and/or payment of a
customer to a third party in connection with specified transactions. The credit
risk involved in issuing commercial and standby letters of credit is essentially
the same as that involved in extending loan facilities to customers.
The following is a summary of the maximum credit exposure of each class
of lending related off-balance sheet financial instruments outstanding at
December 31:
<TABLE>
<CAPTION>
(Dollars in millions) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit:
Consumer credit card lines $1,622 $1,595
Consumer home equity 320 249
Commercial real estate and construction and
land development 300 330
Mortgage banking 548 569
Other 1,642 1,381
- --------------------------------------------------------------------------------
Total loan commitments 4,432 4,124
Other commitments:
Standby letters of credit 470 250
Commercial letters of credit 3 5
- --------------------------------------------------------------------------------
Total loan and other commitments $4,905 $4,379
================================================================================
</TABLE>
<PAGE> 60
The following table shows the notional or contractual amounts and
related fair values for the off-balance sheet financial instruments at
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
NOTIONAL FAIR Notional Fair
(Dollars in millions) VALUE VALUE Value Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loan commitments $ 4,431.5 $ 2.2 $ 4,123.6 $ 4.7
Commercial and standby letters of credit 473.1 5.9 254.7 3.2
- --------------------------------------------------------------------------------------------
Foreign exchange contracts:
Contracts to buy $ (.2) $ -- $ (.5) $ --
Contracts to sell .5 -- .3 --
- --------------------------------------------------------------------------------------------
Net position $ .3 $ -- $ (.2) $ --
============================================================================================
</TABLE>
Mortgage banking loan commitments have an additional off-balance sheet value
resulting from originated mortgage servicing rights of approximately
$7.6 million at December 31, 1996, and $4.1 million at December 31, 1995.
MORTGAGE BANKING
First Tennessee uses both forward sales and option contracts to protect
the value of residential mortgage loans held for sale that are being
underwritten for future sale to investors in the secondary market. Adverse
market interest rate changes, between the time a customer receives a rate-lock
commitment and the fully funded loan is sold to an investor, can erode the value
of that mortgage. Therefore, First Tennessee enters into forward sales and
option contracts to mitigate the interest rate risk associated with the
origination and sale of mortgage loans.
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
NOTIONAL FAIR Notional Fair
(Dollars in millions) VALUE VALUE Value Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage pipeline and warehouse hedging:
Interest rate forward contracts -
commitments to sell $ 1,089.0 $ 3.4 $ 952.1 $ (4.5)
Interest rate option contracts -
put option purchased 13.0 (.1) 32.0 (.3)
- --------------------------------------------------------------------------------------------------
</TABLE>
Residential mortgage loans are originated by First Tennessee to be sold
in the secondary market. Some of these loans are sold with provisions of
recourse. As of December 31, 1996 and 1995, the outstanding principal amount of
these loans was $469.7 million and $682.1 million, respectively. The associated
credit risk on these loans sold with recourse was $212.0 million and
$421.0 million for December 31, 1996 and 1995, respectively. A reserve has been
established to cover any inherent losses. These loans are reviewed on a regular
basis to ensure that reserves are adequate to provide for foreclosure losses.
INTEREST RATE RISK MANAGEMENT
First Tennessee's ALCO focuses on managing market risk by controlling
and limiting earnings volatility attributable to changes in interest rates.
Interest rate risk exists to the extent that interest-earning assets and
liabilities have different maturity or repricing characteristics. First
Tennessee uses off-balance sheet financial instruments that are designed to
moderate the impact on earnings as interest rates move up or down.
Interest Rate Swaps involve the exchange of interest payments at
specified intervals between two parties without the exchange of any underlying
principal. Notional amounts are used in such contracts to calculate interest
payments due to each counterparty and do not represent credit exposure. The
primary risks associated with swaps are the exposure to movements in interest
rates and the ability of counterparties to meet the terms of the contracts.
First Tennessee receives a fixed interest rate of 4.885 percent and pays a
floating rate applied to an amortizing notional principal on the swap contract
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
1996 1995
----------------- ------------------
NOTIONAL FAIR Notional Fair
(Dollars in millions) VALUE VALUE Value Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate swap agreements:
Receive fixed/pay floating - amortizing $ 34.2 $ (.2) $ 378.2 $ (1.3)
- ----------------------------------------------------------------------------------------
</TABLE>
The remaining index amortizing swap has a final maturity in 1997.
<PAGE> 61
First Tennessee recognized $6,900,000 and $15,467,000 of loss in 1996
and 1995, respectively, on a terminated basis swap.
BOND DIVISION OPERATIONS
The bond division buys and sells mortgage securities, municipal bonds
and other securities. When these securities settle on a delayed basis, they are
considered forward contracts. These transactions are measured at fair value, and
gains or losses are recognized in earnings as they occur. Futures contracts are
utilized by the bond division, from time to time, to manage exposure arising
from the inventory position. Credit risk related to these transactions is
controlled through credit approvals, risk control, limits and ongoing monitoring
procedures through ALCO.
<TABLE>
<CAPTION>
At For the Year Ended
December 31, 1996 December 31, 1996
----------------- ------------------
Net Average
Notional Fair Gain/ Fair
(Dollars in millions) Value Value (Loss) Value
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Forward contracts:
Commitments to buy:
Gain position $ (566.9) $ 4.2
Loss position (606.3) (3.3)
Commitments to sell:
Gain position 616.1 2.8
Loss position 547.5 (4.8)
- --------------------------------------------------------------------------
Net position $ (9.6) $ (1.1) $ 61.2 $ (.3)
==========================================================================
</TABLE>
At December 31, 1996, there were no futures or option contracts outstanding. A
net loss of approximately $100,000 was recognized on futures contracts in 1996.
The average fair value for futures and option contracts was less than $100,000
in 1996.
<TABLE>
<CAPTION>
At For the Year Ended
December 31, 1995 December 31, 1995
----------------- ------------------
Net Average
Notional Fair Gain/ Fair
(Dollars in millions) Value Value (Loss) Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Forward contracts:
Commitments to buy:
Gain position $ (268.9) $ 1.8
Loss position (704.0) (3.6)
Commitments to sell:
Gain position 744.3 3.5
Loss position 278.8 (2.2)
- -------------------------------------------------------------------------------
Net position 50.2 (.5) $ 58.6 $(1.6)
Futures contracts:
Contracts to buy -- -- .9 *
Contracts to sell -- -- (.3) *
- -------------------------------------------------------------------------------
Net position -- -- .6 *
Options contracts:
Options contracts written -- -- .6 *
Options contracts purchased -- -- .1 *
- -------------------------------------------------------------------------------
Net position -- -- .7 *
Interest rate swap - floating -- -- (1.6) *
- -------------------------------------------------------------------------------
</TABLE>
* Amount is less than $100,000.
<PAGE> 62
NOTE 18 - TIME DEPOSIT MATURITIES
Following is a table of maturities for time deposits which include
"Certificates of deposit under $100,000 and other time" and "Certificates of
deposit $100,000 and more" as reported on the Consolidated Statements of
Condition:
<TABLE>
<CAPTION>
(Dollars in thousands)
- -----------------------------------------------------------
<C> <C>
1997 $ 2,415,184
1998 631,406
1999 151,916
2000 90,918
2001 and after 151,914
- -----------------------------------------------------------
Total $ 3,441,338
===========================================================
</TABLE>
<PAGE> 63
NOTE 19 - OTHER INCOME AND OTHER EXPENSE
Following is detail concerning "All other income" and "All other
expense" as presented in the Consolidated Statements of Income:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ALL OTHER INCOME:
Check clearing fees $16,873 $17,585 $16,124
Other service charges 9,891 7,709 7,334
Other 30,222 25,675 22,936
- --------------------------------------------------------------------------------
Total $56,986 $50,969 $46,394
================================================================================
ALL OTHER EXPENSE:
Supplies $14,383 $11,866 $11,472
Contract employment 11,288 5,744 5,323
Travel and entertainment 10,394 8,211 10,144
Fed service fees 7,814 9,489 8,544
Foreclosed real estate 7,533 4,962 3,862
Contribution to charitable foundation -- -- 9,379
Other 46,328 31,133 36,864
- --------------------------------------------------------------------------------
Total $97,740 $71,405 $85,588
================================================================================
</TABLE>
<PAGE> 64
NOTE 20 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Accounting standards require the disclosure of estimated fair values of
all asset, liability and off-balance sheet financial instruments. The following
fair value estimates are determined as of a specific point in time utilizing
various assumptions and estimates. The use of assumptions and various valuation
techniques, as well as the absence of secondary markets for certain financial
instruments, will likely reduce the comparability of fair value disclosures
between financial institutions. In some cases, book value is a reasonable
estimate of fair value due to the relatively short period of time between
origination of the instrument and its expected realization. The following table
summarizes the book value and estimated fair value of financial instruments
recorded in the Consolidated Statements of Condition as of December 31, 1996 and
1995:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996 At December 31, 1995
----------------------------- ------------------------------
BOOK FAIR Book Fair
(Dollars in thousands) VALUE VALUE Value Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Loans, net of unearned income:
Floating $ 3,492,411 $ 3,492,699 $ 3,162,016 $ 3,162,016
Fixed 4,216,866 4,209,728 4,152,227 4,115,773
Nonaccrual 18,926 18,926 19,040 19,040
Allowance for loan losses (117,748) (117,748) (112,567) (112,567)
- ------------------------------------------------------------------------------------------------------
Total net loans 7,610,455 7,603,605 7,220,716 7,184,262
Liquid assets 290,689 290,689 249,752 249,752
Mortgage loans held for sale 787,362 783,993 789,183 791,349
Securities available for sale 2,173,620 2,173,620 2,036,668 2,036,668
Securities held to maturity 65,914 66,677 74,731 75,750
Interest rate floors 17,021 16,202 -- --
Nonearning assets 1,145,796 1,145,796 909,289 909,289
- ------------------------------------------------------------------------------------------------------
LIABILITIES:
Deposits:
Defined maturity $ 3,441,338 $ 3,455,330 $ 3,402,206 $ 3,366,434
Undefined maturity 5,591,724 5,591,724 5,179,991 5,179,991
- ------------------------------------------------------------------------------------------------------
Total deposits 9,033,062 9,047,054 8,582,197 8,546,425
Short-term borrowings 2,258,556 2,258,556 1,760,745 1,760,745
Term borrowings 234,645 241,616 260,017 274,799
Other noninterest-
bearing liabilities 176,340 173,727 216,544 214,553
- ------------------------------------------------------------------------------------------------------
</TABLE>
Information on the fair value of off-balance sheet financial instruments can be
found in Note 17 - Financial Instruments with Off-Balance Sheet Risk.
The following describes the assumptions and methodologies used to
estimate the fair value for financial instruments:
FLOATING RATE LOANS. With the exception of floating rate 1-4 family residential
mortgage loans, the fair value is approximated by the book value. Floating rate
1-4 family residential mortgage loans reprice annually and will lag movements in
market rates; whereas, commercial and consumer loans typically reprice monthly.
The fair value for floating rate 1-4 family mortgage loans is calculated by
discounting future cash flows to their present value. Future cash flows are
discounted to their present value by using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the same
time period. Prepayment assumptions based on historical prepayment speeds have
been applied to the floating rate 1-4 family residential mortgage portfolio.
FIXED RATE LOANS. The fair value is estimated by discounting future cash flows
to their present value. Future cash flows are discounted to their present value
by using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same time period. Prepayment assumptions
based on historical prepayment speeds have been applied to the fixed rate
mortgage and installment loan portfolios.
NONACCRUAL LOANS. The fair value is approximated by the book value.
ALLOWANCE FOR LOAN LOSSES. The fair value is approximated by the book value.
Additionally, the credit exposure known to exist in the loan portfolio is
embodied in the allowance for loan losses.
LIQUID ASSETS. The fair value is approximated by the book value. For the purpose
of this disclosure, liquid assets consist of federal funds sold, securities
purchased under agreements to resell, bond division securities inventory and
investment in bank time deposits.
MORTGAGE LOANS HELD FOR SALE. Fair values are based primarily on quoted market
prices.
SECURITIES AVAILABLE FOR SALE. Fair values are based primarily on quoted market
prices.
<PAGE> 65
SECURITIES HELD TO MATURITY. Fair values are based primarily on quoted market
prices.
INTEREST RATE FLOORS. Fair values are based primarily on quoted market prices.
NONEARNING ASSETS. The fair value is approximated by the book value. For the
purpose of this disclosure, nonearning assets include cash and due from banks,
accrued interest receivable, bond division receivables and excess mortgage
servicing fees.
DEFINED MATURITY DEPOSITS. The fair value is estimated by discounting future
cash flows to their present value. Future cash flows are discounted by using the
current market rates of similar instruments applicable to the remaining
maturity. For the purpose of this disclosure, defined maturity deposits include
all certificates of deposit and other time deposits.
UNDEFINED MATURITY DEPOSITS. The fair value is considered to be equal to the
book value. For the purpose of this disclosure, undefined maturity deposits
include demand deposits, checking interest accounts, savings accounts and money
market accounts.
SHORT-TERM BORROWINGS. The fair value of federal funds purchased, securities
sold under agreements to repurchase, commercial paper, bank notes and other
short-term borrowings is approximated by the book value. The fair value for
Federal Home Loan Bank borrowings is determined using discounted future cash
flows.
TERM BORROWINGS. The fair value is approximated by the present value of the
contractual cash flows discounted by the investor's yield which considers First
Tennessee's debt rating.
OTHER NONINTEREST-BEARING LIABILITIES. For the purpose of this disclosure, other
noninterest-bearing liabilities include accrued interest payable and bond
division payables. Accrued interest, which is not payable until maturity, has
been discounted to its present value given current market rates and the maturity
structure of the financial instrument. The fair value of bond division payables
approximates the book value.
<PAGE> 66
NOTE 21 - GUARANTEED PREFERRED BENEFICIAL INTERESTS IN FIRST TENNESSEE'S
SUBORDINATED DEBENTURES
On December 30, 1996, First Tennessee, through its underwriters, sold
to institutional investors $100 million of capital securities. First Tennessee
Capital I (Capital I), a Delaware business trust owned by First Tennessee,
issued $100 million of Capital Securities, Series A at 8.07%. The proceeds were
upstreamed to First Tennessee as junior subordinated debt under the same terms
and conditions. These capital securities qualify as Tier I capital, are fully
and unconditionally guaranteed by First Tennessee, and are presented in the
Consolidated Statements of Condition as "Guaranteed Preferred Beneficial
Interests in First Tennessee's Subordinated Debentures." The sole asset of
Capital I is $100 million of Junior Subordinated Debentures issued by First
Tennessee. These junior subordinated debentures also carry an interest rate of
8.07 percent. Both the capital securities of Capital I and the junior
subordinated debentures of First Tennessee will mature on January 6, 2027;
however, under certain circumstances, the maturity of both may be shortened to a
date not earlier than January 6, 2017. Although December 30, 1996, was the trade
date for this sale, the transaction settled on January 6, 1997. A portion of
these proceeds were used to purchase First Tennessee common stock. On
January 7, 1997, First Tennessee purchased and retired 1.9 million shares of
its common stock under an accelerated repurchase program with a non-affiliated
party. Under the terms of the program, the purchase price paid by First
Tennessee will be adjusted to reflect the market price of the stock repurchased
by the non-affiliated party at the conclusion of the repurchase program.
<PAGE> 67
NOTE 22 - PARENT COMPANY FINANCIAL INFORMATION
Following are condensed statements of the parent company:
<TABLE>
<CAPTION>
STATEMENTS OF CONDITION December 31
- ----------------------------------------------------------------------------
(Dollars in thousands) 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash $ 3,094 $ 1,732
Securities purchased from subsidiary
bank under agreements to resell 45,224 72,868
- ----------------------------------------------------------------------------
Total cash and cash equivalents 48,318 74,600
Investment in bank time deposits 4,240 100
Securities available for sale 19,900 1,515
Notes receivable - long-term 75,000 75,000
Investments in subsidiaries at equity:
Bank 1,015,354 924,916
Non-bank 12,181 11,263
Other assets 33,472 29,572
- ----------------------------------------------------------------------------
TOTAL ASSETS $1,208,465 $1,116,966
============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Commercial paper and other
short-term borrowings $ 32,648 $ 49,401
Accrued employee benefits
and other liabilities 53,925 45,372
Term borrowings 167,366 148,969
- ----------------------------------------------------------------------------
Total liabilities 253,939 243,742
Guaranteed preferred beneficial interests in
First Tennessee's subordinated debentures -- --
- ----------------------------------------------------------------------------
Shareholders' equity 954,526 873,224
- ----------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY: $1,208,465 $1,116,966
============================================================================
</TABLE>
<PAGE> 68
<TABLE>
<CAPTION>
STATEMENTS OF INCOME Year Ended December 31
- --------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend income:
Bank $ 87,130 $ 97,791 $ 65,086
Non-bank 2,850 3,982 1,197
- --------------------------------------------------------------------------------
Total dividend income 89,980 101,773 66,283
Interest income 9,626 9,950 9,687
Management fees -- -- 19,166
Other income 38 248 103
- --------------------------------------------------------------------------------
Total income 99,644 111,971 95,239
- --------------------------------------------------------------------------------
Interest expense:
Short-term debt 1,725 2,395 1,296
Term borrowings 13,150 9,569 8,898
- --------------------------------------------------------------------------------
Total interest expense 14,875 11,964 10,194
Compensation, employee benefits, and
other expense 10,203 15,685 19,143
- --------------------------------------------------------------------------------
Total expense 25,078 27,649 29,337
- --------------------------------------------------------------------------------
Income before income taxes
and equity in undistributed
net income of subsidiaries 74,566 84,322 65,902
Applicable income taxes (6,099) (6,825) 803
- --------------------------------------------------------------------------------
Income before equity in
undistributed net income
of subsidiaries 80,665 91,147 65,099
Equity in undistributed net
income of subsidiaries:
Bank 98,148 73,073 79,912
Non-bank 1,094 668 2,057
- --------------------------------------------------------------------------------
NET INCOME $ 179,907 $ 164,888 $147,068
================================================================================
</TABLE>
<PAGE> 69
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS Year Ended December 31
- ---------------------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 179,907 $ 164,888 $ 147,068
Less undistributed net income
of subsidiaries 99,242 73,741 81,969
- ---------------------------------------------------------------------------------------------
Income before undistributed
net income of subsidiaries 80,665 91,147 65,099
Adjustments to reconcile income
to net cash provided by
operating activities:
Provision for deferred income taxes (2,763) (17) (45)
Depreciation and amortization 2,087 1,926 2,328
Loss/(gain) on disposal of fixed assets 56 (225) --
Net change in interest
receivable and other assets (1,541) (4,042) (362)
Net change in interest
payable and other liabilities 9,879 4,077 1,393
- ---------------------------------------------------------------------------------------------
Total adjustments 7,718 1,719 3,314
- ---------------------------------------------------------------------------------------------
Net cash provided by
operating activities 88,383 92,866 68,413
- ---------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Securities:
Maturities 270 5,151 86
Purchases (18,660) (202) (400)
Premises and equipment:
Sales 21 1,608 --
Purchases (166) (426) (1,139)
Investment in subsidiaries -- 2,656 (1,462)
Increase in investment in bank time deposits (4,140) (100) --
Acquisitions, cash received/(paid) 400 22,040 (47)
- ---------------------------------------------------------------------------------------------
Net cash provided/(used) by
investing activities (22,275) 30,727 (2,962)
- ---------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Common stock:
Exercise of stock options 5,779 4,977 2,777
Cash dividends (71,310) (62,694) (40,314)
Repurchase shares (28,356) (122,796) (24,211)
Term borrowings:
Issuance 18,250 74,183 --
Payments -- (13,950) (850)
Increase/(decrease) in short-term borrowings (16,753) (18,419) 35,538
- ---------------------------------------------------------------------------------------------
Net cash used by
financing activities (92,390) (138,699) (27,060)
- ---------------------------------------------------------------------------------------------
Net increase/(decrease) in cash
and cash equivalents (26,282) (15,106) 38,391
- ---------------------------------------------------------------------------------------------
Cash and cash equivalents
at beginning of year 74,600 89,706 51,315
- ---------------------------------------------------------------------------------------------
Cash and cash equivalents
at end of year $ 48,318 $ 74,600 $ 89,706
=============================================================================================
Total interest paid $ 14,706 $ 11,281 $ 10,119
Total income taxes paid 44,050 42,400 56,923
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 70
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of First Tennessee National
Corporation:
We have audited the accompanying consolidated statements of condition of
First Tennessee National Corporation (a Tennessee corporation) and subsidiaries
as of December 31, 1996 and 1995, and the related consolidated statements of
income, shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of First Tennessee National
Corporation and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Memphis, Tennessee,
January 21, 1997. Arthur Andersen LLP
<PAGE> 71
<TABLE>
<CAPTION>
CONSOLIDATED HISTORICAL PERFORMANCE STATEMENTS OF INCOME (Unaudited) First Tennessee National Corporation
- ----------------------------------------------------------------------------------------------------------------------------------
Growth Rates (%)
-----------------------------------------------------------------------------------
(Dollars in millions except per share data) 1996 1995 1994 1993 1992 1991 96/95 96/91
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Commercial $277.2 $264.4 $211.6 $178.7 $180.4 $214.4 4.8+ 5.3+
Consumer 229.9 206.0 166.8 128.1 114.6 116.9 11.6+ 14.5+
Permanent mortgage 51.7 52.1 44.0 45.9 59.0 64.3 .8- 4.3-
Credit card receivables 67.6 65.5 56.6 51.1 53.2 53.0 3.2+ 5.0+
Real estate construction 27.1 23.0 11.4 7.3 6.0 13.1 17.8+ 15.6+
Investment securities:
Taxable 136.0 130.9 128.9 175.8 187.1 150.7 3.9+ 2.0-
Tax-exempt 5.1 4.6 5.2 7.2 8.7 11.9 10.9+ 15.6-
Other earning assets:
Mortgage loans held for sale 82.1 54.7 56.0 44.9 15.7 8.7 50.1+ 56.7+
Investments in bank time deposits .7 .2 .2 .2 2.5 23.3 250.0+ 50.4-
Federal funds sold and securities
purchased under agreements to resell 5.0 8.5 7.6 3.7 6.8 20.2 41.2- 24.4-
Bond division securities inventory 14.1 12.6 12.8 9.3 10.3 9.5 11.9+ 8.2+
- -------------------------------------------------------------------------------------------------------------
Total interest income 896.5 822.5 701.1 652.2 644.3 686.0 9.0+ 5.5+
- -------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits:
Checking/Interest 2.5 7.7 9.2 10.8 12.7 16.1 67.5- 31.1-
Savings 9.4 10.8 13.4 15.4 17.5 20.5 13.0- 14.4-
Money market account 90.2 88.1 56.5 43.5 52.7 73.3 2.4+ 4.2+
Certificates of deposit under $100,000
and other time 166.5 167.8 122.0 117.3 147.3 191.0 .8- 2.7-
Certificates of deposit $100,000 and more 46.3 30.6 18.7 16.2 20.5 33.1 51.3+ 6.9+
Federal funds purchased and securities
sold under agreements to repurchase 78.0 80.9 40.5 29.2 22.5 31.7 3.6- 19.7+
Commercial paper and other short-term
borrowings 29.3 25.7 35.6 33.6 13.7 10.3 14.0+ 23.3+
Federal Reserve Bank penalties 2.3 2.2 1.1 .5 .7 1.0 4.5+ 18.1+
Term borrowings 20.8 18.0 9.6 9.6 11.1 11.9 15.6+ 11.8+
- -------------------------------------------------------------------------------------------------------------
Total interest expense 445.3 431.8 306.6 276.1 298.7 388.9 3.1+ 2.7+
- -------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 451.2 390.7 394.5 376.1 345.6 297.1 15.5+ 8.7+
Provision for loan losses 35.7 20.6 17.2 36.5 45.2 60.7 73.3+ 10.1-
- -------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 415.5 370.1 377.3 339.6 300.4 236.4 12.3+ 11.9+
- -------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Mortgage banking 274.3 212.6 187.3 139.0 33.5 17.6 29.0+ 73.2+
Bond division 85.9 82.8 77.5 91.5 80.3 68.6 3.7+ 4.6+
Deposit transactions and cash management 78.2 74.1 65.8 59.6 54.6 46.7 5.5+ 10.9+
Cardholder and merchant processing 41.4 34.1 30.3 27.8 26.3 26.2 21.4+ 9.6+
Trust services 37.1 35.6 28.9 26.5 23.8 21.0 4.2+ 12.1+
Equity securities gains/(losses) (2.5) 3.2 24.3 (.5) .3 (.7) -- 28.5-
Debt securities gains/(losses) (.2) (.8) (4.3) 1.4 (1.5) -- 75.2- --
All other 57.0 51.0 46.4 42.8 36.5 25.9 11.8+ 17.1+
- -------------------------------------------------------------------------------------------------------------
Total noninterest income 571.2 492.6 456.2 388.1 253.8 205.3 15.9+ 22.7+
- -------------------------------------------------------------------------------------------------------------
ADJUSTED GROSS INCOME AFTER
PROVISION FOR LOAN LOSSES 986.7 862.7 833.5 727.7 554.2 441.7 14.4+ 17.4+
- -------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Employee compensation, incentives, and
benefits 385.4 340.5 349.8 308.6 214.3 177.6 13.2+ 16.8+
Operations services 44.1 38.8 33.7 28.7 24.3 21.9 13.7+ 15.1+
Occupancy 39.8 37.9 34.1 27.7 24.7 22.0 5.1+ 12.6+
Equipment rentals, depreciation, and
maintenance 34.1 31.8 29.2 22.2 17.5 14.0 7.1+ 19.6+
Communications and courier 33.0 29.9 30.7 24.8 18.0 16.5 10.4+ 14.8+
Amortization of mortgage servicing rights 26.0 15.0 14.9 25.5 4.5 1.4 73.8+ 80.5+
Advertising and public relations 17.6 13.0 10.7 8.0 6.2 4.9 35.9+ 29.0+
Legal and professional fees 12.1 13.4 13.7 11.3 11.4 8.3 10.1- 7.6+
Amortization of intangible assets 9.5 8.1 6.4 5.8 9.8 7.7 17.2+ 4.2+
Deposit insurance premium 5.1 9.9 16.9 16.6 16.2 13.4 48.5- 17.4-
All other 97.8 71.4 85.6 73.4 57.7 54.6 36.9+ 12.4+
- -------------------------------------------------------------------------------------------------------------
Total noninterest expense 704.5 609.7 625.7 552.6 404.6 342.3 15.5+ 15.5+
- -------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 282.2 253.0 207.8 175.1 149.6 99.4 11.5+ 23.2+
Applicable income taxes 102.3 88.1 60.7 65.4 56.9 27.6 16.1+ 30.0+
- -------------------------------------------------------------------------------------------------------------
NET INCOME $179.9 $164.9 $147.1 $109.7 $ 92.7 $ 71.8 9.1+ 20.2+
=============================================================================================================
FULLY TAXABLE EQUIVALENT ADJUSTMENT $ 5.4 $ 5.0 $ 4.8 $ 6.3 $ 8.4 $ 10.9 8.0+ 13.1-
- -------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE $ 2.68 $ 2.42 $ 2.15 $ 1.61 $ 1.44 $ 1.14 10.7+ 18.6+
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Certain previously reported amounts have been reclassified to agree with current
presentation.
<PAGE> 72
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA First Tennessee National Corporation
- ------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions except per share data) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUMMARY Interest income $ 896.5 $ 822.5 $ 701.1
INCOME Less interest expense 445.3 431.8 306.6
STATEMENTS -------------------------------------------------------------------------------------------------------------
Net interest income 451.2 390.7 394.5
Provision for loan losses 35.7 20.6 17.2
-------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 415.5 370.1 377.3
Noninterest income 571.2 492.6 456.2
-------------------------------------------------------------------------------------------------------------
Adjusted gross income after provision
for loan losses 986.7 862.7 833.5
Noninterest expense 704.5 609.7 625.7
-------------------------------------------------------------------------------------------------------------
Income before income taxes 282.2 253.0 207.8
Applicable income taxes 102.3 88.1 60.7
-------------------------------------------------------------------------------------------------------------
Net income $ 179.9 $ 164.9 $ 147.1
==============================================================================================================================
COMMON Net income per common share $ 2.68 $ 2.42 $ 2.15
STOCK Cash dividends declared per
DATA common share 1.095 .97 .87
Year-end book value per common share 14.28 13.00 11.37
Closing price of common stock per share:
High 38 5/8 30 7/8 23 7/8
Low 28 7/8 19 5/8 18 11/16
Year-end 37 1/2 30 1/4 20 3/8
Dividends/price 2.8-3.8 % 3.1-4.9 % 3.6-4.6 %
Dividends/earnings 40.9 40.1 40.5
Closing price/earnings 14.0 x 12.5 x 9.5 x
Market capitalization $ 2,507.2 $ 2,032.1 $ 1,388.5
Average shares outstanding (thousands) 67,197 68,025 68,442
Period-end shares outstanding (thousands) 66,858 67,178 68,148
Volume of shares traded (thousands) 54,519 65,648 46,692
- ------------------------------------------------------------------------------------------------------------------------------
SELECTED Total assets $12,588.3 $11,359.5 $10,579.8
AVERAGE Total loans* 7,472.1 6,887.2 5,984.4
BALANCES Investment securities 2,203.2 2,161.0 2,248.7
Earning assets 11,062.0 10,094.7 9,406.2
Deposits 8,945.5 8,132.4 7,714.4
Term borrowings 253.7 208.9 101.8
Shareholders' equity 897.5 822.8 759.5
- ------------------------------------------------------------------------------------------------------------------------------
SELECTED Total assets $13,058.9 $12,076.9 $10,932.9
PERIOD-END Total loans* 7,728.2 7,333.3 6,498.0
BALANCES Investment securities 2,239.5 2,111.4 2,170.9
Earning assets 11,045.8 10,483.6 9,610.1
Deposits 9,033.1 8,582.2 7,880.3
Term borrowings 234.6 260.0 113.8
Shareholders' equity 954.5 873.2 774.9
- ------------------------------------------------------------------------------------------------------------------------------
SELECTED Return on average equity 20.05 % 20.04 % 19.36 %
RATIOS Return on average assets 1.43 1.45 1.39
Net interest margin 4.13 3.92 4.25
Allowance for loan losses to loans* 1.52 1.54 1.69
Net charge-offs to average loans* .41 .30 .30
Average equity to average assets 7.13 7.24 7.18
Average tangible equity to average
tangible assets 6.20 6.36 6.38
Average equity to average net loans 12.20 12.15 12.94
- ------------------------------------------------------------------------------------------------------------------------------
RETURN TO Stock appreciation 24.0 % 48.5% 5.8 %
SHAREHOLDERS Dividend yield 3.6 4.8 4.5
Annual return 27.6 53.3 10.3
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Net of unearned income.
See accompanying notes to consolidated financial statements.
<PAGE> 73
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA First Tennessee National Corporation
- ------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions except per share data) 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUMMARY Interest income $ 652.2 $ 644.3 $ 686.0
INCOME Less interest expense 276.1 298.7 388.9
STATEMENTS -------------------------------------------------------------------------------------------------------------
Net interest income 376.1 345.6 297.1
Provision for loan losses 36.5 45.2 60.7
-------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 339.6 300.4 236.4
Noninterest income 388.1 253.8 205.3
-------------------------------------------------------------------------------------------------------------
Adjusted gross income after provision
for loan losses 727.7 554.2 441.7
Noninterest expense 552.6 404.6 342.3
-------------------------------------------------------------------------------------------------------------
Income before income taxes 175.1 149.6 99.4
Applicable income taxes 65.4 56.9 27.6
-------------------------------------------------------------------------------------------------------------
Net income $ 109.7 $ 92.7 $ 71.8
==============================================================================================================================
COMMON Net income per common share $ 1.61 $ 1.44 $ 1.14
STOCK Cash dividends declared per
DATA common share .75 .63 .57
Year-end book value per common share 10.52 9.58 9.16
Closing price of common stock per share:
High 23 1/2 19 13 13/16
Low 18 1/16 13 3/16 7 3/16
Year-end 19 1/4 18 3/8 13 13/16
Dividends/price 3.2-4.2 % 3.3-4.8 % 4.1-7.9 %
Dividends/earnings 46.6 43.8 50.0
Closing price/earnings 12.0 x 12.8 x 12.1 x
Market capitalization $ 1,319.8 $ 1,241.6 $ 875.3
Average shares outstanding (thousands) 68,146 64,354 63,346
Period-end shares outstanding (thousands) 68,560 67,572 63,368
Volume of shares traded (thousands) 50,972 42,788 31,428
- ------------------------------------------------------------------------------------------------------------------------------
SELECTED Total assets $ 9,982.4 $ 8,911.5 $ 8,188.6
AVERAGE Total loans* 4,996.4 4,698.4 4,608.1
BALANCES Investment securities 3,015.3 2,803.9 1,981.3
Earning assets 8,953.6 8,112.9 7,469.3
Deposits 7,186.0 7,030.2 6,579.2
Term borrowings 102.8 132.8 131.4
Shareholders' equity 684.1 622.5 559.4
- ------------------------------------------------------------------------------------------------------------------------------
SELECTED Total assets $10,800.7 $ 9,749.4 $ 9,296.7
PERIOD-END Total loans* 5,560.3 4,788.5 4,720.1
BALANCES Investment securities 2,364.3 3,214.0 2,672.9
Earning assets 9,511.8 8,806.4 8,162.3
Deposits 7,602.7 7,365.6 7,218.3
Term borrowings 92.0 133.8 131.2
Shareholders' equity 721.1 647.6 580.7
- ------------------------------------------------------------------------------------------------------------------------------
SELECTED Return on average equity 16.04 % 14.88 % 12.84 %
RATIOS Return on average assets 1.10 1.04 .88
Net interest margin 4.27 4.36 4.12
Allowance for loan losses to loans* 1.99 2.16 2.07
Net charge-offs to average loans* .60 .84 1.42
Average equity to average assets 6.85 6.99 6.83
Average tangible equity to average
tangible assets 6.28 6.38 6.34
Average equity to average net loans 14.00 13.55 12.41
- ------------------------------------------------------------------------------------------------------------------------------
RETURN TO Stock appreciation 4.8 % 33.0 % 82.6 %
SHAREHOLDERS Dividend yield 4.1 4.6 7.5
Annual return 8.9 37.6 90.1
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of unearned income.
See accompanying notes to consolidated financial statements.
<PAGE> 74
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS AND
RELATED YIELDS AND RATES (Unaudited) First Tennessee National Corporation
- --------------------------------------------------------------------------------------------------------------------------------
1996 1995
------------------------------------ --------------------------------------
Interest Average Interest Average
(Fully taxable equivalent) Average Income/ Yields/ Average Income/ Yields/
(Dollars in millions) Balance Expense Rates Balance Expense Rates
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning assets:
Loans, net of unearned income:
Commercial $ 3,383.5 $278.2 8.22 % $ 3,148.4 $265.3 8.43 %
Consumer 2,607.5 229.9 8.82 2,367.1 206.0 8.70
Permanent mortgage 660.0 51.7 7.83 658.4 52.1 7.91
Credit card receivables 530.2 67.6 12.74 480.4 65.5 13.63
Real estate construction 275.1 27.0 9.82 216.4 23.0 10.65
Nonaccrual loans 15.8 1.5 9.62 16.5 1.4 8.48
- --------------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income 7,472.1 655.9 8.78 6,887.2 613.3 8.90
- --------------------------------------------------------------------------------------------------------------------------------
Investment securities:
U.S. Treasury and other U.S. government
agencies 2,031.2 131.0 6.45 2,004.3 125.9 6.28
States and municipalities 98.1 7.9 8.02 81.4 7.0 8.63
Other 73.9 4.8 6.51 75.3 4.9 6.53
- --------------------------------------------------------------------------------------------------------------------------------
Total investment securities 2,203.2 143.7 6.52 2,161.0 137.8 6.38
- --------------------------------------------------------------------------------------------------------------------------------
Other earning assets:
Mortgage loans held for sale 1,059.4 82.1 7.74 706.1 54.7 7.75
Investment in bank time deposits 14.6 .7 5.05 3.1 .2 5.79
Federal funds sold and securities
purchased under agreements to resell 94.2 5.0 5.30 157.5 8.5 5.42
Bond division securities inventory 218.5 14.5 6.66 179.8 13.0 7.22
- --------------------------------------------------------------------------------------------------------------------------------
Total other earning assets 1,386.7 102.3 7.38 1,046.5 76.4 7.30
- --------------------------------------------------------------------------------------------------------------------------------
Total earning assets 11,062.0 901.9 8.15 10,094.7 827.5 8.20
Allowance for loan losses (117.1) (113.0)
Cash and due from banks 662.8 659.0
Premises and equipment, net 181.4 166.0
Bond division receivables and other assets 799.2 552.8
- --------------------------------------------------------------------------------------------------------------------------------
Total assets/Interest income $12,588.3 $901.9 $11,359.5 $827.5
================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Interest-bearing deposits:
Checking/Interest $ 134.2 $ 2.5 1.84 % $ 466.6 $ 7.7 1.66 %
Savings 692.5 9.4 1.36 602.2 10.8 1.79
Money market account 2,581.7 90.2 3.49 1,912.3 88.1 4.61
Certificates of deposit under $100,000
and other time 2,885.2 166.5 5.77 2,872.6 167.8 5.84
Certificates of deposit $100,000
and more 835.8 46.3 5.54 531.9 30.6 5.75
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 7,129.4 314.9 4.42 6,385.6 305.0 4.78
Federal funds purchased and securities
sold under agreements to repurchase 1,588.1 78.0 4.91 1,491.1 80.9 5.43
Commercial paper and other short-term
borrowings 520.1 31.6 6.07 404.2 27.9 6.90
Term borrowings 253.7 20.8 8.24 208.9 18.0 8.63
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 9,491.3 445.3 4.69 8,489.8 431.8 5.09
Demand deposits 1,816.1 1,746.8
Bond division payables and other
liabilities 383.4 300.1
Guaranteed preferred beneficial interests
in First Tennessee's subordinated
debentures -- --
Shareholders' equity 897.5 822.8
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders'
equity/Interest expense $12,588.3 $445.3 $11,359.5 $431.8
================================================================================================================================
Net interest income-tax equivalent
basis/Yield $456.6 4.13 % $395.7 3.92 %
Fully taxable equivalent adjustment (5.4) (5.0)
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income $451.2 $390.7
================================================================================================================================
Net interest spread 3.46 % 3.11 %
Effect of interest-free sources used to
fund earning assets .67 .81
- --------------------------------------------------------------------------------------------------------------------------------
Net interest margin 4.13 % 3.92 %
================================================================================================================================
</TABLE>
Certain previously reported amounts have been reclassified to agree with current
presentation. Yields and corresponding income amounts are adjusted to a fully
taxable equivalent. Earning assets yields are expressed net of unearned income.
Rates are expressed net of unamortized debenture cost for long-term debt. Net
interest margin is computed using total net interest income.
<PAGE> 75
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS AND
RELATED YIELDS AND RATES (Unaudited) First Tennessee National Corporation
- ----------------------------------------------------------------------------------------------------------------------------
1994 1993
----------------------------------- ------------------------------
Interest Average Interest Average
(Fully taxable equivalent) Average Income/ Yields/ Average Income/ Yields/
(Dollars in millions) Balance Expense Rates Balance Expense Rates
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning assets:
Loans, net of unearned income:
Commercial $ 2,775.7 $212.4 7.65 % $2,435.3 $179.4 7.37 %
Consumer 2,082.6 166.8 8.01 1,524.9 128.1 8.40
Permanent mortgage 557.5 44.0 7.90 527.4 45.9 8.70
Credit card receivables 432.7 56.6 13.08 396.5 51.1 12.90
Real estate construction 117.3 11.4 9.71 82.0 7.3 8.92
Nonaccrual loans 18.6 1.3 7.25 30.3 1.8 5.86
- ----------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income 5,984.4 492.5 8.23 4,996.4 413.6 8.28
- ----------------------------------------------------------------------------------------------------------------------------
Investment securities:
U.S. Treasury and other U.S. government
agencies 2,063.4 122.8 5.95 2,679.9 160.8 6.00
States and municipalities 84.3 7.8 9.26 109.2 10.8 9.92
Other 101.0 5.9 5.91 226.2 14.9 6.60
- ----------------------------------------------------------------------------------------------------------------------------
Total investment securities 2,248.7 136.5 6.07 3,015.3 186.5 6.19
- ----------------------------------------------------------------------------------------------------------------------------
Other earning assets:
Mortgage loans held for sale 767.9 56.0 7.29 615.3 44.9 7.29
Investment in bank time deposits 5.3 .2 3.88 4.2 .2 3.84
Federal funds sold and securities
purchased under agreements to resell 191.9 7.6 3.97 142.0 3.7 2.63
Bond division securities inventory 208.0 13.1 6.28 180.4 9.6 5.34
- ----------------------------------------------------------------------------------------------------------------------------
Total other earning assets 1,173.1 76.9 6.55 941.9 58.4 6.20
- ----------------------------------------------------------------------------------------------------------------------------
Total earning assets 9,406.2 705.9 7.50 8,953.6 658.5 7.35
Allowance for loan losses (113.1) (109.6)
Cash and due from banks 659.7 582.5
Premises and equipment, net 149.1 126.3
Bond division receivables and other assets 477.9 429.6
- ----------------------------------------------------------------------------------------------------------------------------
Total assets/Interest income $10,579.8 $705.9 $9,982.4 $658.5
============================================================================================================================
LIABILITIES AND SHARHOLDERS' EQUITY:
Interest-bearing liabilities:
Interest-bearing deposits:
Checking/Interest $ 518.8 $ 9.2 1.77 % $ 548.1 $ 10.8 1.97 %
Savings 686.5 13.4 1.96 567.9 15.4 2.72
Money market account 1,776.8 56.5 3.18 1,673.8 43.5 2.60
Certificates of deposit under $100,000
and other time 2,529.4 122.0 4.82 2,439.4 117.3 4.81
Certificates of deposit $100,000
and more 460.2 18.7 4.06 414.0 16.2 3.91
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 5,971.7 219.8 3.68 5,643.2 203.2 3.60
Federal funds purchased and securities
sold under agreements to repurchase 1,045.6 40.5 3.87 1,029.0 29.2 2.84
Commercial paper and other short-term
borrowings 683.2 36.7 5.37 724.5 34.1 4.70
Term borrowings 101.8 9.6 9.41 102.8 9.6 9.39
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 7,802.3 306.6 3.93 7,499.5 276.1 3.68
Demand deposits 1,742.7 1,542.8
Bond division payables and other
liabilities 275.3 256.0
Guaranteed preferred beneficial interests
in First Tennessee's subordinated
debentures -- --
Shareholders' equity 759.5 684.1
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders'
equity/Interest expense $10,579.8 $306.6 $9,982.4 $276.1
============================================================================================================================
Net interest income-tax equivalent
basis/Yield $399.3 4.25 % $382.4 4.27 %
Fully taxable equivalent adjustment (4.8) (6.3)
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income $394.5 $376.1
============================================================================================================================
Net interest spread 3.57 % 3.67 %
Effect of interest-free sources used to
fund earning assets .68 .60
- ----------------------------------------------------------------------------------------------------------------------------
Net interest margin 4.25 % 4.27 %
============================================================================================================================
</TABLE>
Certain previously reported amounts have been reclassified to agree with current
presentation. Yields and corresponding income amounts are adjusted to a fully
taxable equivalent. Earning assets yields are expressed net of unearned income.
Rates are expressed net of unamortized debenture cost for long-term debt. Net
interest margin is computed using total net interest income.
<PAGE> 76
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS AND
RELATED YIELDS AND RATES (Unaudited) First Tennessee National Corporation
- ----------------------------------------------------------------------------------------------------------
1992 1991
------------------------------- -----------------------------
Interest Average Interest Average
(Fully taxable equivalent) Average Income/ Yields/ Average Income/ Yields/
(Dollars in millions) Balance Expense Rates Balance Expense Rates
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning assets:
Loans, net of unearned income:
Commercial $ 2,332.2 $ 182.9 7.84% $ 2,264.8 $ 217.4 9.60%
Consumer 1,231.8 114.6 9.30 1,098.8 116.9 10.64
Permanent mortgage 643.2 59.0 9.17 684.0 64.3 9.41
Credit card receivables 388.1 53.2 13.72 370.4 53.0 14.31
Real estate construction 58.9 6.0 10.21 123.8 13.1 10.59
Nonaccrual loans 44.2 1.5 3.48 66.3 2.3 3.43
- ----------------------------------------------------------------------------------------------------------
Total loans, net of unearned income 4,698.4 417.2 8.88 4,608.1 467.0 10.13
- ----------------------------------------------------------------------------------------------------------
Investment securities:
U.S. Treasury and other U.S. government
agencies 2,224.4 154.3 6.94 1,449.7 122.6 8.46
States and municipalities 127.2 13.0 10.26 163.0 17.2 10.57
Other 452.3 32.6 7.21 368.6 28.0 7.58
- ----------------------------------------------------------------------------------------------------------
Total investment securities 2,803.9 199.9 7.13 1,981.3 167.8 8.47
- ----------------------------------------------------------------------------------------------------------
Other earning assets:
Mortgage loans held for sale 188.8 15.7 8.29 58.6 8.7 14.88
Investment in bank time deposits 40.6 2.5 6.08 331.3 23.3 7.03
Federal funds sold and securities
purchased under agreements to resell 222.8 6.8 3.05 365.2 20.2 5.52
Bond division securities inventory 158.4 10.6 6.70 124.8 9.9 7.94
- ----------------------------------------------------------------------------------------------------------
Total other earning assets 610.6 35.6 5.82 879.9 62.1 7.06
- ----------------------------------------------------------------------------------------------------------
Total earning assets 8,112.9 652.7 8.05 7,469.3 696.9 9.33
Allowance for loan losses (103.3) (100.0)
Cash and due from banks 487.7 447.3
Premises and equipment, net 117.3 107.8
Bond division receivables and other assets 296.9 264.2
- ----------------------------------------------------------------------------------------------------------
Total assets/Interest income $8,911.5 $652.7 $8,188.6 $696.9
==========================================================================================================
LIABILITIES AND SHARHOLDERS' EQUITY:
Interest-bearing liabilities:
Interest-bearing deposits:
Checking/Interest $ 491.4 $ 12.7 2.59% $ 414.5 $ 16.1 3.87%
Savings 518.0 17.5 3.38 420.1 20.5 4.88
Money market account 1,598.9 52.7 3.29 1,401.4 73.3 5.23
Certificates of deposit under $100,000
and other time 2,621.5 147.3 5.62 2,704.8 191.0 7.06
Certificates of deposit $100,000
and more 472.7 20.5 4.34 513.1 33.1 6.46
- ----------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 5,702.5 250.7 4.40 5,453.9 334.0 6.12
Federal funds purchased and securities
sold under agreements to repurchase 691.7 22.5 3.26 598.1 31.7 5.30
Commercial paper and other short-term
borrowings 251.1 14.4 5.75 147.7 11.3 7.68
Term borrowings 132.8 11.1 8.33 131.4 11.9 9.08
- ----------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 6,778.1 298.7 4.41 6,331.1 388.9 6.14
Demand deposits 1,327.7 1,125.3
Bond division payables and other
liabilities 183.2 172.8
Guaranteed preferred beneficial interests
in First Tennessee's subordinated
debentures -- --
Shareholders' equity 622.5 559.4
- ----------------------------------------------------------------------------------------------------------
Total liabilities and shareholders'
equity/Interest expense $8,911.5 $298.7 $8,188.6 $388.9
==========================================================================================================
Net interest income-tax equivalent
basis/Yield $354.0 4.36% $308.0 4.12%
Fully taxable equivalent adjustment (8.4) (10.9)
- ----------------------------------------------------------------------------------------------------------
Net interest income $345.6 $297.1
==========================================================================================================
Net interest spread 3.64% 3.19%
Effect of interest-free sources used to
fund earning assets .72 .93
- ----------------------------------------------------------------------------------------------------------
Net interest margin 4.36% 4.12%
==========================================================================================================
</TABLE>
Certain previously reported amounts have been reclassified to agree with current
presentation. Yields and corresponding income amounts are adjusted to a fully
taxable equivalent. Earning assets yields are expressed net of unearned income.
Rates are expressed net of unamortized debenture cost for long-term debt. Net
interest margin is computed using total net interest income.
<PAGE> 77
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS AND
RELATED YIELDS AND RATES (Unaudited) First Tennessee National Corporation
- -------------------------------------------------------------------------------
Average
Balance
Growth
Rates (%)
(Fully taxable equivalent) ----------------
(Dollars in millions) 96/95 96/91
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Earning assets:
Loans, net of unearned income:
Commercial 7.5+ 8.4+
Consumer 10.2+ 18.9+
Permanent mortgage .2+ .7-
Credit card receivables 10.4+ 7.4+
Real estate construction 27.1+ 17.3+
Nonaccrual loans 4.2- 24.9-
- -------------------------------------------------------
Total loans, net of unearned income 8.5+ 10.1+
- -------------------------------------------------------
Investment securities:
U.S. Treasury and other U.S. government
agencies 1.3+ 7.0+
States and municipalities 20.5+ 9.7-
Other 1.9- 27.5-
- -------------------------------------------------------
Total investment securities 2.0+ 2.1+
- -------------------------------------------------------
Other earning assets:
Mortgage loans held for sale 50.0+ 78.4+
Investment in bank time deposits 371.0+ 46.4-
Federal funds sold and securities
purchased under agreements to resell 40.2- 23.7-
Bond division securities inventory 21.5+ 11.9+
- -------------------------------------------------------
Total other earning assets 32.5+ 9.5+
- -------------------------------------------------------
Total earning assets 9.6+ 8.2+
Allowance for loan losses 3.6+ 3.2+
Cash and due from banks .6+ 8.2+
Premises and equipment, net 9.3+ 11.0+
Bond division receivables and other assets 44.6+ 24.8+
- -------------------------------------------------------
Total assets/Interest income 10.8+ 9.0+
=======================================================
LIABILITIES AND SHARHOLDERS' EQUITY:
Interest-bearing liabilities:
Interest-bearing deposits:
Checking/Interest 71.2- 20.2-
Savings 15.0+ 10.5+
Money market account 35.0+ 13.0+
Certificates of deposit under $100,000
and other time .4+ 1.3+
Certificates of deposit $100,000
and more 57.1+ 10.3+
- -------------------------------------------------------
Total interest-bearing deposits 11.6+ 5.5+
Federal funds purchased and securities
sold under agreements to repurchase 6.5+ 21.6+
Commercial paper and other short-term
borrowings 28.7+ 28.6+
Term borrowings 21.4+ 14.1+
- -------------------------------------------------------
Total interest-bearing liabilities 11.8+ 8.4+
Demand deposits 4.0+ 10.0+
Bond division payables and other
liabilities 27.8+ 17.3+
Guaranteed preferred beneficial interests
in First Tennessee's subordinated
debentures - -
Shareholders' equity 9.1+ 9.9+
- -------------------------------------------------------
Total liabilities and shareholders'
equity/Interest expense 10.8+ 9.0+
=======================================================
</TABLE>
Certain previously reported amounts have been reclassified to agree with current
presentation. Yields and corresponding income amounts are adjusted to a fully
taxable equivalent. Earning assets yields are expressed net of unearned income.
Rates are expressed net of unamortized debenture cost for long-term debt. Net
interest margin is computed using total net interest income.
<PAGE> 1
EXHIBIT 21
PARENTS AND SUBSIDIARIES
The following is a list of all subsidiaries of First Tennessee National
Corporation at December 31, 1996. Each subsidiary is 100% owned by its immediate
parent, and all are included in the Consolidated Financial Statements:
<TABLE>
<CAPTION>
Type of Ownership Jurisdiction of
Subsidiary By the Corporation Incorporation
---------- ------------------ -------------
<S> <C> <C>
Cleveland Bank & Trust Company Direct Tennessee
First National Bank of Springdale Direct United States
First Tennessee Bank National Association (1) Direct United States
"A" PLUS Strategic Alliances, Inc. Indirect Tennessee
Check Consultants, Incorporated Indirect Tennessee
Check Consultants Company of Tennessee, Inc. Indirect Tennessee
Community Leasing Corporation * Indirect Tennessee
Community Money Center, Inc.* Indirect Tennessee
East Tennessee Service Corporation Indirect Tennessee
Upper East Tennessee Insurance Agency Indirect Tennessee
First Funds, Inc.* Indirect Tennessee
First Tennessee Brokerage, Inc. Indirect Tennessee
First Tennessee Capital Assets Corporation Indirect Tennessee
First Tennessee Commercial Loan Management, Inc. Indirect Tennessee
First Tennessee Equipment Finance Corporation Indirect Tennessee
First Tennessee Merchant Equipment, Inc Indirect Tennessee
First Tennessee Merchant Services, Inc. Indirect Tennessee
FT Mortgage Holding Corporation Indirect Illinois
FT Mortgage Companies (2) Indirect Kansas
First Tennessee Mortgage Services, Inc. Indirect Tennessee
Hickory Venture Capital Corporation Indirect Alabama
JPO, Inc. Indirect Tennessee
TSMM Corporation Indirect Tennessee
First Tennessee Bank National Association Mississippi Direct United States
FTB Futures Corporation* Direct Tennessee
Hickory Capital Corporation Direct Tennessee
Highland Capital Management Corp. Direct Tennessee
Mountain Financial Company* Direct Tennessee
Norlen Life Insurance Company Direct Arizona
Peoples and Union Bank Direct Tennessee
Peoples Bank Direct Mississippi
Planters Bank Direct Mississippi
</TABLE>
*Inactive.
(1) Divisions of this subsidiary do business in certain
jurisdictions under the following names: First Express, First
Money Center, First Securities Company in Mobile, Garland
Capital Management, Garland Trust, Gulf Pacific Mortgage.
(2) Divisions of this subsidiary do business in certain
jurisdictions under the following names: Atlantic Coast
Mortgage, Capital Mortgage, Carl I. Brown Mortgage, CIB
Funding, CIB Mortgage, Emerald Mortgage, First Tennessee
Mortgage Company, Inc., Flagship Mortgage Bankers, FTB
Mortgage Services, HomeBanc Mortgage Corporation, MNC
Mortgage, Mortgage Resources, Premier Mortgage Resources,
Priority One, Provision Mortgage Bankers, Select Mortgage
Resources, SNMC National Mortgage, Sunbelt National Mortgage.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated January 21, 1997, included in First Tennessee National
Corporation's 1996 Annual Report on Form 10-K, into the Company's previously
filed registration statement file Nos. 33-8029, 33-9846, 33-40398, 33-44142,
33-52561, 33-57241, 33-58975, 33-63809, 33-64471, 333-16225, 333-16227,
333-17457, 333-17457-01, 333-17457-02, 333-17457-03, and 333-17457-04 and to
all references to our firm included therein.
Arthur Andersen LLP
Memphis, Tennessee
March 27, 1997
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below does hereby constitute and appoint ELBERT L. THOMAS, JR., JAMES F.
KEEN, CLYDE A. BILLINGS, JR., and TERESA A. FEHRMAN, jointly and each of them
severally, his or her true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to execute and sign the Annual
Report on Form 10-K for the fiscal year ended December 31, 1996 to be filed with
the Securities and Exchange Commission, pursuant to the provisions of the
Securities Exchange Act of 1934, by First Tennessee National Corporation
("Corporation") and, further, to execute and sign any and all amendments thereto
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, or their or his or her
substitute or substitutes, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all the acts that said attorneys-in-fact
and agents, or any of them, or their or his or her substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Ralph Horn Chairman of the Board, March 24, 1997
- ------------------------------ President and Chief Executive
Ralph Horn Officer and a Director
(principal executive officer)
Elbert L. Thomas, Jr. Executive Vice President and March 24, 1997
- ------------------------------ Chief Financial Officer
Elbert L. Thomas, Jr. (principal financial officer)
James F. Keen Senior Vice President and March 24, 1997
- ------------------------------ Controller (principal
James F. Keen accounting officer)
Robert C. Blattberg Director March 24, 1997
- ------------------------------
Robert C. Blattberg
Carlos H. Cantu Director March 24, 1997
- ------------------------------
Carlos H. Cantu
</TABLE>
Page 1 of 2
<PAGE> 2
<TABLE>
<S> <C> <C>
George E. Cates Director March 24, 1997
- ------------------------------
George E. Cates
J. Kenneth Glass Director March 24, 1997
- ------------------------------
J. Kenneth Glass
James A. Haslam, III Director March 24, 1997
- ------------------------------
James A. Haslam, III
John C. Kelley, Jr. Director March 24, 1997
- ------------------------------
John C. Kelley, Jr.
R. Brad Martin Director March 24, 1997
- ------------------------------
R. Brad Martin
Joseph Orgill, III Director March 24, 1997
- ------------------------------
Joseph Orgill, III
Vicki G. Roman Director March 24, 1997
- ------------------------------
Vicki G. Roman
Michael D. Rose Director March 24, 1997
- ------------------------------
Michael D. Rose
William B. Sansom Director March 24, 1997
- ------------------------------
William B. Sansom
Gordon P. Street, Jr. Director March 24, 1997
- ------------------------------
Gordon P. Street, Jr.
</TABLE>
Page 2 of 2
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIRST
TENNESSEE NATIONAL CORPORATION'S DECEMBER 31, 1996, FINANCIAL STATEMENTS FILED
IN ITS 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCES TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 959,604
<INT-BEARING-DEPOSITS> 1,922
<FED-FUNDS-SOLD> 138,365
<TRADING-ASSETS> 150,402
<INVESTMENTS-HELD-FOR-SALE> 2,173,620
<INVESTMENTS-CARRYING> 65,914
<INVESTMENTS-MARKET> 66,677
<LOANS> 8,515,565
<ALLOWANCE> 117,748
<TOTAL-ASSETS> 13,058,902
<DEPOSITS> 9,033,062
<SHORT-TERM> 2,258,556
<LIABILITIES-OTHER> 578,113
<LONG-TERM> 234,645
0
0
<COMMON> 83,572
<OTHER-SE> 870,954
<TOTAL-LIABILITIES-AND-EQUITY> 13,058,902
<INTEREST-LOAN> 735,512
<INTEREST-INVEST> 141,115
<INTEREST-OTHER> 19,870
<INTEREST-TOTAL> 896,497
<INTEREST-DEPOSIT> 314,912
<INTEREST-EXPENSE> 445,309
<INTEREST-INCOME-NET> 451,188
<LOAN-LOSSES> 35,677
<SECURITIES-GAINS> (2,681)
<EXPENSE-OTHER> 704,486
<INCOME-PRETAX> 282,174
<INCOME-PRE-EXTRAORDINARY> 282,174
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 179,907
<EPS-PRIMARY> 2.68
<EPS-DILUTED> 2.64
<YIELD-ACTUAL> 4.13
<LOANS-NON> 18,647
<LOANS-PAST> 30,747
<LOANS-TROUBLED> 279
<LOANS-PROBLEM> 47,698
<ALLOWANCE-OPEN> 112,567
<CHARGE-OFFS> 42,382
<RECOVERIES> 11,886
<ALLOWANCE-CLOSE> 117,748
<ALLOWANCE-DOMESTIC> 117,748
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
