<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark one)
(X)QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
-------------
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------- -------------
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 No.)
165 Madison Avenue, Memphis, Tennessee 38103
- --------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(901) 523-4027
----------------------------------------------------
(Registrant's telephone number, including area code)
None
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $1.25 par value 64,083,009
- ----------------------------- ----------------------------
Class Outstanding at July 31, 1997
<PAGE> 2
FIRST TENNESSEE NATIONAL CORPORATION
INDEX
Part I. Financial Information
Part II. Other Information
Signatures
Exhibit Index
Exhibit 10(a)
Exhibit 11
Exhibit 27
<PAGE> 3
PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements.
The Consolidated Statements of Condition
The Consolidated Statements of Income
The Statements of Cash Flows
The Notes to Consolidated Financial Statements
This financial information reflects all adjustments which are, in the
opinion of management, necessary for a fair presentation of operations for the
interim periods presented.
<PAGE> 4
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CONDITION First Tennessee National Corporation
- --------------------------------------------------------------------------------------------------------
June 30 December 31
----------------------- --------------
(Dollars in thousands)(Unaudited) 1997 1996 1996
- ---------------------------------------------------------------------------------------- --------------
<S> <C> <C> <C>
ASSETS:
Cash and due from banks $ 634,748 $ 674,458 $ 959,604
Federal funds sold and securities
purchased under agreements to resell 357,229 104,257 138,365
- ---------------------------------------------------------------------------------------- --------------
Total cash and cash equivalents 991,977 778,715 1,097,969
- ---------------------------------------------------------------------------------------- --------------
Investment in bank time deposits 1,501 1,642 1,922
Capital markets securities inventory 282,753 196,821 150,402
Mortgage loans held for sale 814,160 1,103,237 787,362
Securities available for sale 2,081,222 2,176,485 2,173,620
Securities held to maturity (market value of $60,571
at June 30, 1997; $71,870 at June 30, 1996; and
$66,677 at December 31, 1996) 59,814 71,599 65,914
Loans, net of unearned income 8,006,472 7,487,691 7,728,203
Less: Allowance for loan losses 123,458 116,478 117,748
- ---------------------------------------------------------------------------------------- --------------
Total net loans 7,883,014 7,371,213 7,610,455
- ---------------------------------------------------------------------------------------- --------------
Premises and equipment, net 190,696 181,591 185,624
Real estate acquired by foreclosure 14,410 8,714 7,823
Intangible assets, net 113,280 124,110 119,465
Mortgage servicing rights, net 330,281 211,282 266,027
Capital markets receivables and other assets 916,485 729,548 592,319
- ---------------------------------------------------------------------------------------- --------------
TOTAL ASSETS $13,679,593 $12,954,957 $13,058,902
======================================================================================== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Demand $ 1,617,425 $ 1,859,864 $ 2,122,997
Checking/Interest 175,886 172,356 154,812
Savings 682,600 744,624 627,984
Money market account 2,973,174 2,546,617 2,685,931
Certificates of deposit under $100,000 and other time 2,778,707 2,900,771 2,868,322
Certificates of deposit $100,000 and more 826,200 748,146 573,016
- ---------------------------------------------------------------------------------------- --------------
Total deposits 9,053,992 8,972,378 9,033,062
- ---------------------------------------------------------------------------------------- --------------
Federal funds purchased and securities
sold under agreements to repurchase 1,860,025 1,525,945 1,881,187
Commercial paper and other short-term borrowings 728,314 591,944 377,369
Capital markets payables and other liabilities 874,571 715,029 578,113
Term borrowings 181,768 257,327 234,645
- ---------------------------------------------------------------------------------------- --------------
Total liabilities 12,698,670 12,062,623 12,104,376
- ---------------------------------------------------------------------------------------- --------------
Guaranteed preferred beneficial interests in
First Tennessee's subordinated debentures 100,000 - -
- ---------------------------------------------------------------------------------------- --------------
SHAREHOLDERS' EQUITY:
Preferred stock - no par value (5,000,000 shares authorized,
but unissued) - - -
Common stock - $1.25 par value (shares authorized -
200,000,000; shares issued - 64,036,864 at June 30, 1997;
67,122,092 at June 30, 1996; and 66,857,519 at
December 31, 1996) 80,046 83,903 83,572
Capital surplus 46,234 58,780 48,657
Undivided profits 756,281 761,000 823,175
Unrealized market adjustment 1,277 (7,051) 2,697
Deferred compensation on restricted stock incentive plans (2,915) (4,298) (3,575)
- ---------------------------------------------------------------------------------------- --------------
Total shareholders' equity 880,923 892,334 954,526
- ---------------------------------------------------------------------------------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $13,679,593 $12,954,957 $13,058,902
======================================================================================== ==============
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME First Tennessee National Corporation
- -----------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------------ ------------------------
(Dollars in thousands except per share data)(Unaudited) 1997 1996 1997 1996
- --------------------------------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 173,265 $ 161,636 $ 340,222 $ 321,803
Interest on investment securities:
Taxable 34,268 34,227 68,857 66,323
Tax-exempt 1,160 1,326 2,366 2,669
Interest on mortgage loans held for sale 15,843 22,603 30,718 41,484
Interest on capital markets inventory 3,373 4,527 5,952 8,785
Interest on other earning assets 3,003 1,655 5,123 2,562
- ------------------------------------------------------------------------------------------------------------
Total interest income 230,912 225,974 453,238 443,626
- ------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits:
Checking/Interest 817 670 1,350 1,319
Savings 2,105 2,411 4,201 4,914
Money market account 21,913 22,970 43,632 47,557
Certificates of deposit under $100,000 and other time 40,163 41,311 80,654 82,742
Certificates of deposit $100,000 and more 13,462 12,651 24,047 22,617
Interest on short-term borrowings 29,507 27,793 56,463 55,624
Interest on term borrowings 3,927 5,214 8,364 10,521
- ------------------------------------------------------------------------------------------------------------
Total interest expense 111,894 113,020 218,711 225,294
- ------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 119,018 112,954 234,527 218,332
Provision for loan losses 12,504 7,559 25,030 15,592
- ------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 106,514 105,395 209,497 202,740
- ------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Mortgage banking 71,100 60,902 135,287 119,021
Capital markets 19,990 17,145 40,455 45,266
Deposit transactions and cash management 21,558 19,860 40,782 37,295
Merchant processing 8,164 5,116 14,913 10,883
Cardholder fees 4,893 4,362 9,417 8,355
Trust services and investment management 9,498 8,458 18,768 16,754
Equity securities gains/(losses) (846) 15 (840) 490
Debt securities gains/(losses) 57 37 80 (180)
All other income and commissions 18,763 13,825 33,391 28,413
- ------------------------------------------------------------------------------------------------------------
Total noninterest income 153,177 129,720 292,253 266,297
- ------------------------------------------------------------------------------------------------------------
ADJUSTED GROSS INCOME AFTER PROVISION FOR LOAN LOSSES 259,691 235,115 501,750 469,037
- ------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Employee compensation, incentives, and benefits 96,764 93,062 190,660 192,004
Operations services 12,338 10,421 23,299 21,077
Occupancy 10,963 9,828 21,626 19,157
Equipment rentals, depreciation, and maintenance 10,276 8,517 19,434 16,638
Communications and courier 8,803 8,545 17,489 16,786
Amortization of mortgage servicing rights 8,656 4,166 17,491 11,865
Advertising and public relations 4,437 4,519 9,369 9,458
Legal and professional fees 2,971 3,362 6,215 5,862
Amortization of intangible assets 2,403 2,362 4,810 4,716
Deposit insurance premium 370 464 735 883
All other 28,077 22,751 55,256 45,137
- ------------------------------------------------------------------------------------------------------------
Total noninterest expense 186,058 167,997 366,384 343,583
- ------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 73,633 67,118 135,366 125,454
Applicable income taxes 27,269 24,771 50,439 45,666
- ------------------------------------------------------------------------------------------------------------
NET INCOME $ 46,364 $ 42,347 $ 84,927 $ 79,788
============================================================================================================
NET INCOME PER COMMON SHARE $ .72 $ .63 $ 1.32 $ 1.19
- ------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING 64,005,532 67,224,935 64,292,500 67,263,195
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS First Tennessee National Corporation
- -----------------------------------------------------------------------------------------
Six Months Ended June 30
-------------------------
(Dollars in thousands)(Unaudited) 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 84,927 $ 79,788
Adjustments to reconcile net income to net cash
provided/(used) by operating activities:
Provision for loan losses 25,030 15,592
Provision for deferred income tax 25,299 27,324
Depreciation and amortization of premises
and equipment 16,044 13,912
Amortization of mortgage servicing rights 17,491 13,899
Amortization of intangible assets 4,810 4,716
Net other amortization and accretion 2,536 15,790
Market value adjustment on foreclosed property 1,645 1,394
Equity securities (gains)/losses 840 (490)
Debt securities (gains)/losses (80) 180
Net gain on disposal of fixed assets (203) (8)
Net increase in:
Capital markets securities inventory (132,351) (14,166)
Mortgage loans held for sale (26,798) (314,054)
Capital markets receivables (272,074) (123,154)
Interest receivable (5,004) (4,112)
Other assets (131,628) (161,486)
Net increase/(decrease) in:
Capital markets payables 249,030 60,608
Interest payable (155) (208)
Other liabilities 26,915 38,143
- -----------------------------------------------------------------------------------------
Total adjustments (198,653) (426,120)
- -----------------------------------------------------------------------------------------
Net cash used by operating activities (113,726) (346,332)
- -----------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Held to maturity securities:
Maturities 6,071 4,554
Purchases -- (1,463)
Available for sale securities:
Sales 103,950 360,773
Maturities 213,993 218,299
Purchases (227,359) (746,117)
Premises and equipment:
Sales 4,017 834
Purchases (23,924) (18,345)
Net increase in loans (305,206) (162,868)
Decrease in investment in bank time deposits 421 477
Acquisitions, net of cash and cash equivalents acquired -- 400
- -----------------------------------------------------------------------------------------
Net cash used by investing activities (228,037) (343,456)
- -----------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Common stock:
Exercise of stock options 11,134 2,712
Cash dividends (39,931) (35,727)
Repurchase shares (133,182) (12,093)
Payments of term borrowings (52,963) (2,776)
Issuance of guaranteed preferred beneficial interests
in First Tennessee's subordinated debentures 100,000 --
Net increase in:
Deposits 20,930 383,395
Short-term borrowings 329,783 357,144
- -----------------------------------------------------------------------------------------
Net cash provided by financing activities 235,771 692,655
- -----------------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash equivalents (105,992) 2,867
- -----------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 1,097,969 775,848
- -----------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 991,977 $ 778,715
=========================================================================================
Total interest paid $ 218,696 $ 218,537
Total income taxes paid 24,159 18,341
</TABLE>
<PAGE> 7
NOTE 1 - FINANCIAL INFORMATION
The unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles. In the
opinion of management, all necessary adjustments have been made for a fair
presentation of financial position and results of operations for the periods
presented. The operating results for the six month period ended June 30, 1997,
are not necessarily indicative of the results that may be expected going
forward. For further information, refer to the audited consolidated financial
statements and footnotes included in the 1996 annual report to shareholders.
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
per Share," specifies the computation, presentation, and disclosure
requirements for earnings per share (EPS). The objective of SFAS No. 128 is to
simplify the computation and to make the U.S. standard more compatible with EPS
standards of other countries and with that of the International Accounting
Standards Committee. When adopted for the 1997 annual report, the standard is
not expected to have a material impact on the EPS computation of First
Tennessee National Corporation (First Tennessee).
SFAS No. 130, "Reporting Comprehensive Income," establishes standards
for reporting comprehensive income and its components in the financial
statements. Comprehensive income is the total of net income and all other
nonowner changes in equity. The only component of comprehensive income First
Tennessee currently would be required to report is unrealized holding
gains/(losses) on available-for-sale securities. First Tennessee will adopt
this standard in the first quarter of 1998.
First Tennessee uses derivative financial instruments in order to
manage exposure to fluctuations in interest rates and to meet the financial
needs of customers. For interest rate risk management purposes, First
Tennessee primarily utilizes interest rate swaps. Mortgage banking operations
mainly use mandatory forward delivery commitments and purchased options to
hedge against risks associated with the warehouse (mortgage loans that are held
for sale), the pipeline (unfunded mortgage loans in process), or the
servicing portfolio. Capital Markets uses various derivatives, including
interest rate swaps, futures, forward and options contracts and agency
securities underwriting commitments in order to meet the needs of its customers
with forwards being the most commonly used instrument.
INTEREST RATE RISK MANAGEMENT DERIVATIVE FINANCIAL INSTRUMENTS
To qualify as a hedge used to manage interest rate risk, the following
criteria must be met: (1) the asset or liability to be hedged exposes First
Tennessee to interest rate risk; (2) the instrument alters or reduces
sensitivity to interest rate changes; and (3) the instrument is designated and
effective as a hedge.
For interest rate swaps used to hedge interest rate risk, income and
expense related to the next settlement payment are accrued as an adjustment to
interest income or expense of the hedged item. Any related assets or
liabilities are recorded on the Statement of Condition in other assets or other
liabilities.
For those derivatives used to manage interest rate risk that are
terminated prior to maturity, realized gains and losses are deferred and
amortized straight-line over the remaining original life of the agreement as an
adjustment to the yield of the hedged asset or liability. If the underlying
hedged asset or liability is sold or prepaid, the related portion of any
unrecognized gain or loss on the derivative is recognized in current earnings
as part of the gain or loss on the sale or prepayment.
Any contracts that fail to qualify for hedge accounting are measured at
fair value with any gains or losses included in current earnings in noninterest
income.
MORTGAGE BANKING DERIVATIVE FINANCIAL INSTRUMENTS
Forward and option contracts used by mortgage banking operations to
hedge against interest rate risks in the warehouse and the pipeline are
designated to a specific asset and are reviewed periodically for a high
correlation of expected changes in value. Option contracts used to hedge
against risks in the servicing portfolio must meet the following criteria: (1)
designated to a specific risk tranche of servicing rights; (2) must reduce
earnings risk; and (3) must be periodically reviewed for a high correlation of
expected changes in value.
<PAGE> 8
Forward contracts used to hedge the warehouse are considered in the
lower of cost or market valuation of the warehouse with any related gains or
losses being recognized in mortgage banking noninterest income. Premiums paid
for purchased options are deferred and reported with the hedged assets and are
amortized over the lives of the contracts to mortgage banking noninterest
income.
Options used to hedge the servicing portfolio are adjusted for changes
in intrinsic value with gains and losses recognized as a basis adjustment of
the related mortgage servicing rights risk tranche. Premiums are deferred and
amortized on a straight-line basis over the contract life to other noninterest
expense. The deferred gains and losses are recognized on the balance sheet in
mortgage servicing rights, and unamortized premiums are recorded in other
assets.
For derivatives hedging the warehouse and pipeline that are terminated
prior to maturity, gains and losses are recognized in current earnings
as mortgage banking noninterest income or expense for excess coverage and are
deferred and recognized at the time the loan is sold if the sale is deferred to
a future date. For derivatives hedging the servicing portfolio that are
terminated prior to maturity, gains and losses are split between the return of
the time value premium and the intrinsic value. Gains or losses from the
change in the intrinsic value are deferred as a basis adjustment to the related
mortgage servicing rights risk tranche, and gains or losses resulting from
the return of the time value premium are recognized in current earnings in other
noninterest expense.
Any contracts that fail to qualify for hedge accounting are measured
at fair value with any gains or losses included in current earnings in
noninterest income.
CAPITAL MARKETS DERIVATIVE FINANCIAL INSTRUMENTS
Derivative contracts utilized in trading activities by Capital Markets
are measured at fair value, and gains or losses are recognized in Capital
Markets income as they occur. Related assets are recorded on the balance sheet
as Capital Markets securities inventory or receivables and any liabilities are
recognized as Capital Markets payables.
Cash flows from all derivative contracts are reported as operating
activities on the Consolidated Statements of Cash Flows.
<PAGE> 9
NOTE 2 -- LOANS
The composition of the loan portfolio at June 30 is detailed below:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
Commercial $3,707,017 $3,394,050
Consumer 2,751,428 2,603,152
Permanent mortgage 636,859 658,219
Credit card receivables 537,398 534,784
Real estate construction 335,443 283,150
Nonaccrual - Regional banking group 11,506 9,730
Nonaccrual - Mortgage banking 26,821 4,606
- -----------------------------------------------------------------------------------
Loans, net of unearned income 8,006,472 7,487,691
Allowance for loan losses 123,458 116,478
- -----------------------------------------------------------------------------------
Total net loans $7,883,014 $7,371,213
===================================================================================
</TABLE>
The following table presents information concerning nonperforming loans at
June 30:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans $11,451 $ 8,949
Other nonaccrual loans 26,876 5,387
- -----------------------------------------------------------------------------------
Total nonperforming loans $38,327 $14,336
===================================================================================
<FN>
Restructured impaired loans at June 30, 1997 and 1996, were $196,000 and
$279,000, respectively.
</FN>
</TABLE>
Nonperforming loans consist of impaired loans, other nonaccrual loans and
certain restructured loans. An impaired loan is a loan that management
believes the contractual amount due probably will not be collected. Impaired
loans are generally carried on a nonaccrual status. Nonaccrual loans are loans
on which interest accruals have been discontinued due to the borrower's
financial difficulties. Management may elect to continue the accrual of
interest when the estimated net realizable value of collateral is sufficient to
recover the principal balance and accrued interest.
Generally, interest payments received on impaired loans are applied to
principal. Once all principal has been received, additional payments are
recognized as interest income on a cash basis. The following table presents
information concerning impaired loans:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------------------------------------
(Dollars in thousands) 1997 1996 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total interest on impaired loans $ 246 $ 243 $ 397 $ 384
Average balance of impaired loans 12,202 8,479 12,026 8,564
- -----------------------------------------------------------------------------------
</TABLE>
An allowance for loan losses is maintained for all impaired loans.
Activity in the allowance for loan losses related to non-impaired loans,
impaired loans, and for the total allowance for the six months ended June 30,
1996 and 1997, is summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Non-impaired Impaired Total
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1995 $109,051 $3,516 $112,567
Provision for loan losses 16,065 (473) 15,592
Charge-offs 17,710 299 18,009
Less loan recoveries 6,009 319 6,328
- -----------------------------------------------------------------------------------
Net charge-offs/(recoveries) 11,701 (20) 11,681
- -----------------------------------------------------------------------------------
Balance at June 30, 1996 $113,415 $3,063 $116,478
===================================================================================
Balance at December 31, 1996 $114,217 $3,531 $117,748
Provision for loan losses 23,251 1,779 25,030
Charge-offs 22,124 1,489 23,613
Less loan recoveries 4,206 87 4,293
- -----------------------------------------------------------------------------------
Net charge-offs 17,918 1,402 19,320
- -----------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1997 $119,550 $3,908 $123,458
===================================================================================
</TABLE>
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the financial condition and
results of operations of First Tennessee National Corporation (First Tennessee)
for the three month and six month periods ended June 30, 1997, compared to the
three month and six month periods ended June 30, 1996. To assist the reader in
obtaining a better understanding of First Tennessee and its performance, this
discussion should be read in conjunction with First Tennessee's unaudited
consolidated financial statements and accompanying notes appearing in this
report. Additional information including the 1996 financial statements, notes
and management's discussion is provided in the 1996 annual report.
BUSINESS DESCRIPTION
First Tennessee is headquartered in Memphis, Tennessee, and is a
nationwide, diversified financial services institution which provides banking
and other financial services to its customers through various national and
regional business lines. The Regional Banking Group includes the
retail/commercial bank, the credit card division and the trust division. The
National Lines of Business include mortgage banking, First Tennessee Capital
Markets (also referred to as capital markets) and transaction processing.
Expenses are allocated to the various business lines based on management's
best estimates and equity is assigned to reflect the inherent risk in each
business line. These allocations are periodically reviewed and may be revised
from time to time, in which case the previous history is restated to ensure
comparability.
SECOND QUARTER OVERVIEW
Earnings per share for the second quarter of 1997 grew 14 percent (from
$.63 to $.72). Net income for the second quarter of 1997 increased 9 percent
(from $42.3 million to $46.4 million). The growth in earnings came primarily
from the fee based businesses. Return on average assets was 1.43 percent and
return on average common equity was 21.81 percent for the second quarter of
1997 compared with 1.34 percent and 19.48 percent, respectively, for the same
period in 1996. Total assets grew 6 percent (from $13.0 billion to $13.7
billion) and shareholders' equity declined 1 percent (from $892.3 million to
$880.9 million) from June 30, 1996, to June 30, 1997. Stock repurchase
programs implemented since the second quarter of 1996 reduced period-end shares
outstanding 5 percent (from 67.1 million to 64.0 million).
INCOME STATEMENT REVIEW
NONINTEREST INCOME
Fee income (noninterest income excluding securities gains and losses)
contributed 56 percent to total revenue and grew 19 percent (from $129.7
million to $154.0 million). The rise in fee income came primarily from
mortgage banking due to the benefit of less interest rate volatility and growth
in servicing fees.
Total mortgage banking fee income grew 17 percent from the second quarter
of 1996 (from $60.9 million to $71.1 million). Mortgage servicing fee income
increased 36 percent from the second quarter of 1996 (from $16.4 million to
$22.4 million) as the servicing portfolio grew from $20.5 billion at June 30,
1996, to $23.9 billion at June 30, 1997. Revenues from the sale of mortgage
servicing rights remained flat ($1.8 million in 1996 and $1.7 million in 1997).
Total fee income related to the mortgage origination and secondary
marketing process increased 10 percent (from $42.7 million to $47.0 million).
Mortgage loan originations declined 14 percent from $2.8 billion in the second
quarter of 1996 to $2.4 billion in the second quarter of 1997 with higher
interest rates causing an industrywide slowdown in refinance activity and new
loan originations. During the second quarter of 1996, refinance activity
accounted for 26 percent of originations compared to 20 percent in the second
quarter of 1997. As a consequence of a more stable rate environment, less
volume of loans sold, and a higher mix of adjustable rate mortgage products,
secondary marketing activities resulted in a $17.2 million improvement in the
second quarter of 1997 compared to the same period in 1996. With less
origination volume than the second quarter of 1996, income derived from the
creation of originated mortgage servicing rights decreased $9.9 million.
Capital markets fee income grew 17 percent (from $17.1 million to $20.0
million). This growth was due in part to increased customer penetration, a more
favorable market environment and increased sales of whole loan mortgage
products.
Fee income from deposit transactions and cash management increased 9
percent (from $19.9 million to $21.6 million). Noninterest income from trust
and investment management services (personal trust, corporate trust, employee
benefits and Highland Capital Management Corp.) increased 12 percent (from $8.5
to $9.5 million) over the second quarter of 1996 primarily due to the increased
portfolio market values under the management of Highland Capital and income
from new asset management accounts.
<PAGE> 11
Merchant processing fee income increased 60 percent (from $5.1 million to
$8.2 million) primarily due to volume growth and gains on equipment sold.
Cardholder noninterest income grew 12 percent (from $4.4 million to $4.9
million) with higher customer purchases, the introduction of a cash advance
charge and increases in delinquencies fees.
Net securities losses were $.8 million for the second quarter of 1997.
This included a $1.1 million loss in a venture capital company investment which
was partially offset by securities gains from the investment portfolio during
the second quarter of 1997.
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.
For the second quarter of 1997, net interest income increased 5 percent
(from $114.4 million to $120.1 million) from the second quarter of 1996. This
increase was due to a 17 basis point improvement in the net interest margin and
a 1 percent increase in earning assets.
NET INTEREST MARGIN
The net interest margin (margin) improved from 4.09 percent for the second
quarter of 1996 to 4.26 percent for the second quarter of 1997. As shown in
the Net Interest Margin Computation Table, the net interest spread (the
difference between the yield on earning assets and the rates paid on
interest-bearing liabilities) increased 30 basis points while the effect of net
free funds decreased 13 basis points primarily due to the impact of share
repurchase programs and the movement of certain demand deposits (a source of
interest free funding) to sweep accounts. Approximately 9 basis points of the
net interest margin improvement came from the expiration in May 1996 of the
amortization expense related to a terminated basis swap.
<PAGE> 12
NET INTEREST MARGIN COMPUTATION TABLE
- -------------------------------------
<TABLE>
<CAPTION>
Second Quarter
--------------
1997 1996
---- ----
<S> <C> <C>
Yield on earning assets 8.14% 8.04%
Rate paid on interest-bearing liabilities 4.49 4.69
----- -----
Net interest spread 3.65 3.35
Effect of interest-free sources .53 .66
Loan fees .09 .10
FRB<F1> interest and penalties (.01) (.02)
----- -----
Net interest margin 4.26% 4.09%
===== =====
- ----------------------------------------------------------------
<FN>
<F1>Federal Reserve Bank
</FN>
</TABLE>
The net interest margin is affected by the activity levels of and related
funding for First Tennessee's specialty lines of business, as these nonbank
business lines generally produce lower margins than banking segments.
Consequently, First Tennessee's consolidated margin cannot readily be compared
to that of other bank holding companies. The Net Interest Margin Composition
Table provides a breakdown by business line of the impact on the consolidated
margin.
NET INTEREST MARGIN COMPOSITION TABLE
- -------------------------------------
<TABLE>
<CAPTION>
Second Quarter
--------------
1997 1996
---- ----
<S> <C> <C>
Regional banking group 4.66% 4.40%
Capital markets (.09) (.09)
Mortgage banking (.32) (.24)
Transaction processing .01 .02
---- ----
Total net interest margin 4.26% 4.09%
==== ====
- ----------------------------------------------------------------
</TABLE>
The regional banking group's margin improved from 4.40 percent to 4.66
percent because of loan and deposit growth, improvement in net interest spread
and the expiration of the basis swap amortization expense.
The negative impact on the net interest margin from mortgage banking
occurs because the spread between the rates on mortgage loans temporarily in
the warehouse and the related short-term funding rates are significantly less
than the comparable spread earned in the regional banking group. The increase
in nonperforming loans in mortgage banking has also negatively affected the
margin (see Provision for Loan Losses/Asset Quality). Capital markets also
tends to negatively impact the net interest margin because of its strategy to
reduce market risk by hedging its inventory in the cash markets which
effectively eliminates net interest income on these positions.
<PAGE> 13
NONINTEREST EXPENSE
Total noninterest expense (operating expense) for the second quarter of
1997 increased 11 percent (from $168.0 million to $186.1 million) over the same
period in 1996. Employee compensation, incentives, and benefits (personnel
expense), the largest category, increased 4 percent (from $93.1 million to
$96.8 million). Personnel expense includes commissions paid in several lines
of business, such as capital markets and mortgage banking. As the sales and/or
originations increase or decrease or the product mix changes in these business
lines, the commissions change accordingly. Personnel expense decreased 3
percent in mortgage banking due to lower originations, and personnel expense
increased 7 percent in capital markets due to business expansion, primarily as a
result of the newly opened Chicago office.
Amortization of mortgage servicing rights increased 108 percent (from $4.2
million to $8.7 million) as a result of a larger servicing portfolio,
implementation of a new accounting standard (Statement of Financial Accounting
Standards (SFAS) No. 125, "Accounting for the Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities"), and an adjustment which
lowered the expense in the second quarter of 1996, due to lower than expected
refinancing activities.
Excluding expenses in capital markets and mortgage banking, expense growth
between the second quarters of 1996 and 1997 was 10 percent. Most of this
growth relates to personnel expense ($4.0 million), dividend expense associated
with the $100 million qualifying capital securities issued on January 6, 1997
($2.0 million) and equipment rental, depreciation and occupancy ($1.8 million).
PROVISION FOR LOAN LOSSES/ASSET QUALITY
The provision for loan losses increased $4.9 million to $12.5 million for
the quarter ended June 30, 1997. The increase in provision reflects a higher
amount of allowance for loan losses commensurate with loan growth. The level
of provision was also increased to reflect increases in consumer debt burdens
and resulting higher losses in consumer lending nationwide. However, the
allowance for loan losses to loans remained stable at 1.54 percent on June 30,
1997, compared with 1.56 percent on June 30, 1996.
Net charge-offs to average net loans for the second quarter was .54
percent, an increase from the .31 percent in the second quarter of 1996. The
increase in net charge-offs was primarily related to consumer and credit card
lending and fewer recoveries in commercial lending. Despite First Tennessee's
increase in credit card net charge-offs from the previous year, this ratio
still remained favorable to industry averages, and delinquency ratios for
consumer loans also were favorable to industry averages.
<PAGE> 14
Loans and leases past due 90 days or more decreased $.7 million from the
second quarter of 1996 and decreased $4.6 million from the first quarter of
1997.
Nonperforming assets increased 121 percent (from $24.0 million to $53.0
million) from the second quarter of 1996. The mortgage banking operation added
$22.2 million to nonperforming loans and $6.4 million to foreclosed real estate
primarily from a larger number of mortgage loans repurchased by mortgage
banking during the first quarter of 1997 to correct loan file documentation in
order to certify loan pools. This backlog in the documentation and pool
certification process occurred principally as a result of disruptions in the
normal business routine caused by the consolidation of five mortgage banking
operations concurrent with an unanticipated higher level of loan originations
last year due to large refinance volume. As this documentation is corrected
the level of mortgage banking nonperforming assets will decrease.
Nonperforming assets in mortgage banking decreased $3.4 million from the first
quarter of 1997. Excluding the impact of the mortgage banking operation on
nonperforming assets, the ratio of nonperforming loans to total loans was
.14 percent and the ratio of nonperforming assets to total loans plus
foreclosed real estate and other assets was .21 percent for the second quarter
of 1997.
ASSET QUALITY INFORMATION TABLE
- -------------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30
---------------------
1997 1996
---------------------
<S> <C> <C>
Nonperforming loans $ 38,327 $ 14,336
Foreclosed real estate 14,410 8,714
Other assets 227 925
-------- --------
Total nonperforming assets $ 52,964 $ 23,975
======== ========
Loans 90 days past due $ 31,449 $ 32,157
Potential problem assets<F1> $ 77,926 $ 79,063
Second Quarter
----------------------
1997 1996
----------------------
Allowance for credit losses:
Beginning balance at March 31 $121,688 $114,631
Provision for loan losses 12,504 7,559
Charge-offs (12,960) (9,159)
Loan recoveries 2,226 3,447
-------- --------
Ending balance at June 30 $123,458 $116,478
======== ========
June 30
---------------------
1997 1996
---------------------
Allowance to total loans 1.54% 1.56%
Nonperforming loans to total loans .48 .19
Nonperforming assets to total loans, foreclosed
real estate and other assets .66 .32
Allowance to nonperforming assets 233.1 485.8
- -----------------------------------------------------------------------
<FN>
<F1>Includes loans 90 days past due
</FN>
</TABLE>
<PAGE> 15
NET CHARGE-OFFS AS A PERCENTAGE OF AVERAGE LOANS TABLE
- ------------------------------------------------------
<TABLE>
<CAPTION>
June 30
----------------
1997 1996
---- ----
<S> <C> <C>
Commercial and commercial real estate .09% (.13)%
Consumer .35 .27
Credit card receivables 5.15 3.98
Permanent mortgage .28 (.04)
Total .54 .31
- --------------------------------------------------------------
</TABLE>
BALANCE SHEET REVIEW
For purposes of this discussion, loans are expressed net of unearned
income, unless otherwise noted. Period-end total assets grew 6 percent from
$13.0 billion at June 30, 1996 to $13.7 billion at June 30, 1997. Period-end
loans increased 7 percent (from $7.5 billion to $8.0 billion) from June 30,
1996, to June 30, 1997; mortgage loans held for sale (mortgage warehouse)
decreased 26 percent (from $1.1 billion to $.8 billion); and investment
securities decreased 5 percent (from $2.2 billion to $2.1 billion). The growth
in the period-end balance sheet was primarily funded by a 4 percent increase
in interest-bearing core deposits (from $6.4 billion to $6.6 billion). At
June 30, 1997, First Tennessee had no concentration of 10 percent or more of
total loans in any single industry.
Comparing average balances from second quarter 1996, total assets grew 2
percent (from $12.7 billion to $13.0 billion); loans grew 7 percent (from $7.4
billion to $7.9 billion) and interest-bearing core deposits increased 5 percent
(from $6.3 billion to $6.6 billion). Average commercial loans increased 9
percent (from $3.3 billion to $3.6 billion) and represented 46 percent of total
loans during the second quarter of 1997. Average consumer loans grew 6 percent
(from $2.6 billion to $2.7 billion) and represented 35 percent of total loans.
Average credit card receivables grew 3 percent (from $523 million to $541
million). The permanent mortgage portfolio declined 6 percent (from $664
million to $627 million) as a result of older loans paying down. Real estate
construction loans grew 19 percent (from $265 million to $314 million).
<PAGE> 16
With the decrease in mortgage origination volume, average mortgage
warehouse loans decreased 32 percent (from $1.2 billion to $.8 billion) from
the second quarter of 1996.
CAPITAL
Average shareholders' equity declined 2 percent (from $874.4 million to
$852.7 million) from the second quarter of 1996. Average shares outstanding
declined 5 percent (from 67.2 million to 64.0 million). Approximately .4
million shares were repurchased in the fourth quarter of 1996. During the
first quarter of 1997, approximately 3.2 million shares were repurchased with
1.9 million of these shares repurchased under an accelerated share repurchase
program. First Tennessee has an ongoing share repurchase program related to
employee stock option plans.
Return on common equity was 21.81 percent and return on capital (net
income/total shareholders' equity plus qualifying capital securities) was 19.52
percent for the second quarter of 1997. Qualifying capital securities were
issued during the first quarter of 1997, and a portion of these proceeds were
used to fund stock repurchase programs.
The average common equity to assets ratio for the second quarter of 1997
was 6.56 percent compared to 6.88 percent for the second quarter of 1996. The
total average equity to assets ratio (including the qualifying capital
securities) for the second quarter of 1997 was 7.33 percent compared to 6.88
percent for the second quarter of 1996. The effects of unrealized market
adjustments had no material effect on these ratios.
At June 30, 1997, the corporation's Tier 1 capital ratio was 8.82 percent,
the total capital ratio was 11.51 percent and the leverage ratio was 6.90
percent. On June 30, 1997, First Tennessee's bank subsidiaries had sufficient
capital to qualify as well-capitalized institutions under the regulatory
capital standards.
OFF-BALANCE SHEET ACTIVITY
In the normal course of business, First Tennessee is a party to financial
instruments that are not required to be reflected on its balance sheet. First
Tennessee enters into transactions involving these instruments to meet the
financial needs of its customers and manage its own exposure to fluctuations in
interest rates. These instruments are categorized into "Lending," "Mortgage
banking," "Interest rate risk management" and "Capital markets" as noted in the
Off-Balance Sheet Financial Instruments table.
<PAGE> 17
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS AT JUNE 30, 1997
- --------------------------------------------------------
(Dollars in billions)
<TABLE>
<CAPTION>
Notional value
--------------
<S> <C>
LENDING
Commitments to extend credit:
Consumer credit card lines $1,791.8
Consumer home equity 373.9
Commercial real estate and construction
and land development 377.1
Mortgage banking 840.4
Other 1,628.3
Other Commitments:
Commercial and standby letters of credit 560.2
Foreign exchange contracts .7
MORTGAGE BANKING
Mortgage pipeline and warehouse hedging:
Interest rate forward contracts - commitments to sell 1,201.0
Interest rate option contracts - put option purchased<F1> 27.0
Servicing portfolio hedging:
Interest rate floors<F2> 2,440.0
INTEREST RATE RISK MANAGEMENT
Interest rate swap agreements:
Receive fixed/pay floating 210.0
Receive fixed/pay floating - amortizing 28.6
CAPITAL MARKETS
Forward contracts:
Commitments to buy 1,152.9
Commitments to sell 1,079.0
Securities underwriting commitments 1.7
- ------------------------------------------------------------------------
<FN>
<F1>Purchased options have a remaining book value of $147,000 at
June 30, 1997
<F2>Interest rate floors have a remaining book value of $17,232,000
at June 30, 1997
</FN>
</TABLE>
SIX MONTH REVIEW
INCOME STATEMENT REVIEW
Net income totaled $84.9 million for the six months ended June 30, 1997,
an increase of 6 percent from $79.8 million for the same period last year, and
earnings per share increased 11 percent from $1.19 in 1996 to $1.32 in 1997.
Return on average assets for the first half of 1997 was 1.33 percent and return
on average common equity was 19.95 percent, compared with 1.28 percent and
18.37 percent, respectively, for the same period in 1996.
Noninterest income, excluding securities gains and losses, increased 10
percent (from $266.0 million to $293.0 million) over the same period last year.
Fee income represented 56 percent of total revenues during the first six
months of 1997 and 55 percent for the first six months of 1996. Mortgage
banking fee income grew 14 percent primarily from higher servicing fees related
to a larger servicing portfolio. Capital markets fee income declined 11
percent from the same period in 1996. A record level of fee income was earned
during the first quarter of 1996 related to stronger customer demand from the
<PAGE> 18
benefit of regulatory reclassifications of securities. Generally, increased
volumes, new products and fees created the growth in deposit transactions and
cash management fees of 9 percent, merchant processing fees of 37 percent,
cardholder fees of 13 percent, and trust and investment management fees of 12
percent from the previous year.
Net interest income stated on a fully taxable-equivalent basis totaled
$236.8 million, up 7 percent from $221.2 million for the same period in 1996.
Year-to-date net interest margin improved from 4.01 percent in 1996 to 4.25
percent in 1997. The net interest spread increased 36 basis points while the
effect of net free funds decreased 12 basis points due to share repurchase
programs and demand deposit transfers to sweep accounts. Approximately 13
basis points of the net interest margin improvement came from the expiration of
the basis swap.
The provision for loan losses increased to $25.0 million from $15.6
million in the previous year. The increase reflects a higher amount of
allowance for loan losses commensurate with loan growth and the higher level of
mortgage loans repurchased during 1997. In addition, the level of provision
was increased due to increases in consumer debt burdens and resulting higher
losses in consumer lending nationwide.
Noninterest expense totaled $366.4 million, up 7 percent from $343.6
million in 1996. Personnel expense, the largest category, totaled $190.7
million in 1997, which was relatively flat to the 1996 level of $192.0 million.
As a result of reduced volumes and a change in product mix, personnel expense
decreased 15 percent in capital markets and 6 percent in mortgage banking.
With a larger servicing portfolio and the implementation of SFAS No. 125, a
new accounting methodology related to excess servicing, amortization of
mortgage servicing rights increased 47 percent from $11.9 million in 1996 to
$17.5 million in 1997.
BALANCE SHEET REVIEW
Average total assets grew 3 percent (from $12.5 billion to $12.9 billion),
average loans grew 6 percent (from $7.4 billion to $7.8 billion) and
interest-bearing core deposits increased 5 percent (from $6.2 billion to $6.5
billion) from the first six months of 1996. Average commercial loans increased
8 percent (from $3.3 billion to $3.6 billion), average consumer loans grew 6
percent (from $2.6 billion to $2.7 billion), and average credit card
receivables grew 4 percent (from $520 million to $543 million) during the first
six months of 1997. The permanent mortgage portfolio declined 7 percent (from
$673 million to $629 million), while real estate construction loans grew 20
percent (from $255 million to $307 million) for the six month period of 1997.
<PAGE> 19
Part II.
OTHER INFORMATION
Items 1, 2, 3, and 5.
As of the end of the second quarter, 1997, the answers to Items 1, 2, 3, and 5
were either inapplicable or negative, and therefore, these items are omitted.
Item 4 Submission of Matters to a Vote of Security Holders.
(a) The Company's Annual Meeting of Shareholders was held April 15, 1997.
(b) Proxies for the Annual Meeting were solicited pursuant to Regulation 14
under the Securities Exchange Act of 1934. There were no solicitations
in opposition to management's nominees for election to Class I (Messrs.
Martin, Orgill and Sansom and Ms. Roman) or Class II (Messrs. Glass and
Kelley). The Class I nominees were elected for a three-year term and the
Class II nominees were elected for a one-year term, or in either case
until their respective successors are duly elected and qualified.
Directors continuing in office are Messrs. Blattberg, Cantu, Cates,
Haslam, Horn, Rose, and Street.
(c) At the Annual Meeting, the shareholders also approved the Company's
Amended and Restated Management Incentive Plan (the "Plan") and ratified
the appointment of Arthur Andersen LLP as independent auditors for the
year 1997. The shareholder vote was as follows:
<TABLE>
<CAPTION>
For Withheld
---------- --------
<S> <C> <C> <C>
1. Nominees (Class I)
R. Brad Martin 51,393,538 352,542
Joseph Orgill, III 51,406,205 339,875
Vicki G. Roman 51,391,012 355,068
William B. Sansom 51,404,195 341,885
Nominees (Class II)
J. Kenneth Glass 51,396,009 350,071
John C. Kelley, Jr. 51,302,608 443,472
<CAPTION>
For Against Abstain
---------- --------- ---------
<S> <C> <C> <C> <C>
2. Approval of Plan 49,632,694 1,063,823 1,049,563
3. Ratification of Auditors 51,269,993 144,052 332,035
</TABLE>
There were no "broker non-votes" with respect to any of the nominees, approval
of the Plan, or the ratification of auditors and no abstentions with respect to
any of the nominees.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits furnished in accordance with the provisions of the Exhibit Table
of Item 601 of Regulation S-K are included as described in the Exhibit
Index which is a part of this report. Exhibits not listed in the Exhibit
Index are omitted because they are inapplicable.
(b) A report on Form 8-K was filed on April 15, 1997 (with a Date of Report
of April 14, 1997), disclosing under Item 5, Other Events, the Company's
earnings for the quarter ended March 31, 1997, and the following
financial statements: statements of condition for the three month periods
ended March 31, 1997 and 1996 and statements of income for the three
month periods ended March 31, 1997, December 31, 1996, September 30,
1996, June 30, 1996, and March 31, 1996.
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST TENNESSEE NATIONAL CORPORATION
------------------------------------
(Registrant)
DATE: 8/13/97 By: Elbert L. Thomas Jr.
--------------------- ---------------------------------
Elbert L. Thomas Jr.
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description Page No.
- ----------- ------------------- --------
<S> <C> <C>
10(a)<F1> Amended and Restated Management Incentive Plan, incorporated herein
by reference to Exhibit A to the Corporation's definitive proxy statement
filed on March 12, 1997 in connection with the April 15, 1997 Annual
Meeting of Shareholders.
11 Statement re Computation of Per Share Earnings. Filed Herewith
27 Financial Data Schedule (for SEC use only) Filed Herewith
<FN>
<F1>
A management contract or compensatory plan or arrangement required to be
filed as an exhibit.
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 11
FIRST TENNESSEE NATIONAL CORPORATION
PRIMARY EARNINGS PER SHARE
AND FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------- -------------------------
Computation for Statements of Income: 1997 1996 1997 1996
- ------------------------------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Per statements of income (Thousands):
Net income $46,364 $42,347 $84,927 $79,788
========== ========== ========== ==========
Per statements of income:
Weighted average shares outstanding 64,005,532 67,224,935 64,292,500 67,263,195
========== ========== ========== ==========
Primary earnings per share (a):
Net income $ .72 $ .63 $1.32 $1.19
========== ========== ========== ==========
Additional Primary computation
- -------------------------------
Adjustment to weighted average shares
outstanding:
Weighted average shares outstanding
per primary computation above 64,005,532 67,224,935 64,292,500 67,263,195
Add dilutive effect of outstanding
options (as determined by the
application of the treasury stock
method) 1,643,107 910,352 1,643,564 899,736
---------- ---------- ---------- ----------
Weighted average shares outstanding,
as adjusted 65,648,639 68,135,287 65,936,064 68,162,931
========== ========== ========== ==========
Primary earnings per share, as adjusted (b):
Net income $ .71 $ .62 $1.29 $1.17
========== ========== ========== ==========
Additional Fully Diluted Computation
- -------------------------------------
Adjustment to weighted average shares
outstanding:
Weighted average shares outstanding
per primary computation above 65,648,639 68,135,287 65,936,064 68,162,931
Additional dilutive effect of outstanding
options (as determined by the application
of the treasury stock method) 89,607 114 65,723 37,339
---------- ---------- ---------- ----------
Weighted average shares outstanding,
as adjusted 65,738,246 68,135,401 66,001,787 68,200,270
========== ========== ========== ==========
Fully diluted earnings per share, as adjusted (b):
Net income $ .71 $ .62 $1.29 $1.17
========== ========== ========== ==========
<FN>
(a) These figures agree with the related amounts in the statements of income.
(b) This calculation is submitted in accordance with Securities Exchange Act
of 1934 Release No. 9083 although not required by footnote 2 paragraph 14
of APB Opinion No. 15 because it results in dilution of less than 3%.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIRST
TENNESSEE NATIONAL CORPORATION'S JUNE 30, 1997, FINANCIAL STATEMENTS FILED IN
ITS 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCES TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 634,748
<INT-BEARING-DEPOSITS> 1,501
<FED-FUNDS-SOLD> 357,229
<TRADING-ASSETS> 282,753
<INVESTMENTS-HELD-FOR-SALE> 2,081,222
<INVESTMENTS-CARRYING> 59,814
<INVESTMENTS-MARKET> 60,571
<LOANS> 8,820,632
<ALLOWANCE> 123,458
<TOTAL-ASSETS> 13,679,593
<DEPOSITS> 9,053,992
<SHORT-TERM> 2,588,339
<LIABILITIES-OTHER> 874,571
<LONG-TERM> 181,768
100,000
0
<COMMON> 80,046
<OTHER-SE> 800,877
<TOTAL-LIABILITIES-AND-EQUITY> 13,679,593
<INTEREST-LOAN> 370,940
<INTEREST-INVEST> 71,223
<INTEREST-OTHER> 11,075
<INTEREST-TOTAL> 453,238
<INTEREST-DEPOSIT> 153,884
<INTEREST-EXPENSE> 218,711
<INTEREST-INCOME-NET> 234,527
<LOAN-LOSSES> 25,030
<SECURITIES-GAINS> (760)
<EXPENSE-OTHER> 366,384
<INCOME-PRETAX> 135,366
<INCOME-PRE-EXTRAORDINARY> 135,366
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,927
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 1.29
<YIELD-ACTUAL> 4.25
<LOANS-NON> 38,131
<LOANS-PAST> 32,293
<LOANS-TROUBLED> 196
<LOANS-PROBLEM> 45,633
<ALLOWANCE-OPEN> 117,748
<CHARGE-OFFS> 23,613
<RECOVERIES> 4,293
<ALLOWANCE-CLOSE> 123,458
<ALLOWANCE-DOMESTIC> 123,458
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
