<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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, $.625 par value 128,231,006
- ----------------------------- -------------------------------
Class Outstanding at October 31, 1998
<PAGE> 2
FIRST TENNESSEE NATIONAL CORPORATION
INDEX
Part I. Financial Information
Part II. Other Information
Signatures
Exhibit Index
Exhibit 3(b)
Exhibit 27
<PAGE> 3
PART I.
------
FINANCIAL INFORMATION
Item 1. Financial Statements.
- ------------------------------
The Consolidated Statements of Condition
The Consolidated Statements of Income
The Consolidated Statements of Shareholders' Equity
The Consolidated Statements of Cash Flows
The Notes to Consolidated Financial Statements
This financial information reflects all adjustments which are, in the
opinion of management, necessary for a fair presentation of the financial
position and results of operations for the interim periods presented.
<PAGE> 4
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CONDITION First Tennessee National Corporation
- ------------------------------------------------------------------------------------------------------------------------
September 30 December 31
------------------------ -----------
(Dollars in thousands)(Unaudited) 1998 1997 1997
- ------------------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
ASSETS:
Cash and due from banks $ 726,605 $ 730,013 $ 775,760
Federal funds sold and securities
purchased under agreements to resell 134,011 240,150 225,861
- ------------------------------------------------------------------------------------------------- -----------
Total cash and cash equivalents 860,616 970,163 1,001,621
- ------------------------------------------------------------------------------------------------- -----------
Investment in bank time deposits 2,786 1,672 2,522
Capital markets inventory 397,980 315,199 253,240
Mortgage loans held for sale 2,841,957 1,033,648 1,240,648
Securities available for sale 1,910,299 2,040,983 2,133,303
Securities held to maturity (market value of
$686,156 at September 30, 1998; $58,242 at
September 30, 1997; and $54,323 at December 31, 1997) 684,491 57,298 53,230
Loans, net of unearned income 8,315,716 8,082,274 8,311,350
Less: Allowance for loan losses 135,413 123,875 125,859
- ------------------------------------------------------------------------------------------------- -----------
Total net loans 8,180,303 7,958,399 8,185,491
- ------------------------------------------------------------------------------------------------- -----------
Premises and equipment, net 236,908 201,356 206,895
Real estate acquired by foreclosure 15,513 12,352 12,202
Mortgage servicing rights, net 518,991 368,037 408,921
Intangible assets, net 129,052 112,611 112,411
Capital markets receivables and other assets 1,469,113 1,010,729 777,413
- ------------------------------------------------------------------------------------------------- -----------
TOTAL ASSETS $17,248,009 $14,082,447 $14,387,897
================================================================================================= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Interest-bearing $ 8,384,401 $ 6,910,607 $ 7,135,733
Noninterest-bearing 2,716,088 2,346,463 2,536,046
- ------------------------------------------------------------------------------------------------- -----------
Total deposits 11,100,489 9,257,070 9,671,779
- ------------------------------------------------------------------------------------------------- -----------
Federal funds purchased and securities
sold under agreements to repurchase 2,136,500 1,909,928 2,085,679
Commercial paper and other short-term borrowings 1,336,243 731,765 702,388
Capital markets payables and other liabilities 1,257,096 994,858 705,062
Term borrowings 266,468 180,343 168,893
- ------------------------------------------------------------------------------------------------- -----------
Total liabilities 16,096,796 13,073,964 13,333,801
- ------------------------------------------------------------------------------------------------- -----------
Guaranteed preferred beneficial interests in
First Tennessee's junior subordinated debentures 100,000 100,000 100,000
- ------------------------------------------------------------------------------------------------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock - no par value (5,000,000 shares authorized,
but unissued) -- -- --
Common stock - $.625 par value (shares authorized -
400,000,000; shares issued - 128,087,054 at
September 30, 1998; 128,119,620 at September 30, 1997;
and 128,209,142 at December 31, 1997) 80,054 80,075 80,131
Capital surplus 78,128 44,574 49,536
Undivided profits 867,918 779,653 811,396
Accumulated other comprehensive income 25,392 6,799 15,333
Deferred compensation on restricted stock incentive plans (1,434) (2,618) (2,300)
Deferred compensation obligation 1,155 -- --
- ------------------------------------------------------------------------------------------------- -----------
Total shareholders' equity 1,051,213 908,483 954,096
- ------------------------------------------------------------------------------------------------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $17,248,009 $14,082,447 $14,387,897
================================================================================================= ===========
</TABLE>
[FN]
See accompanying notes to consolidated financial statements.
</FN>
<PAGE> 5
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME First Tennessee National Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------------- -----------------------------------
(Dollars in thousands except per share data)(Unaudited) 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 181,038 $ 178,530 $ 541,827 $ 518,752
Interest on investment securities:
Taxable 42,654 33,307 115,324 102,164
Tax-exempt 895 1,100 2,838 3,466
Interest on mortgage loans held for sale 51,112 21,680 130,170 52,398
Interest on capital markets inventory 9,351 3,661 21,442 9,613
Interest on other earning assets 3,217 3,467 9,828 8,590
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest income 288,267 241,745 821,429 694,983
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits:
Savings 1,812 2,035 5,466 6,236
Checking interest and money market account 28,317 23,185 85,415 68,167
Certificates of deposit under $100,000 and other time 35,921 40,164 110,581 120,818
Certificates of deposit $100,000 and more 29,836 11,782 72,790 35,829
Interest on short-term borrowings 52,482 37,084 139,053 93,547
Interest on term borrowings 5,238 3,887 14,134 12,251
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 153,606 118,137 427,439 336,848
- ----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 134,661 123,608 393,990 358,135
Provision for loan losses 13,127 12,753 39,427 37,783
- ----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 121,534 110,855 354,563 320,352
- ----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Mortgage banking 160,063 88,402 375,120 227,537
Capital markets 35,370 28,903 103,590 69,358
Deposit transactions and cash management 23,358 22,327 66,125 63,109
Trust services and investment management 12,619 10,805 38,080 29,573
Merchant processing 10,074 8,575 25,023 23,488
Cardholder fees 5,392 4,941 15,258 14,358
Equity securities gains/(losses) -- (1) 38 (841)
Debt securities gains/(losses) 9 (22) (91) 58
All other income and commissions 21,035 16,416 54,677 45,959
- ----------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 267,920 180,346 677,820 472,599
- ----------------------------------------------------------------------------------------------------------------------------------
ADJUSTED GROSS INCOME AFTER PROVISION FOR LOAN LOSSES 389,454 291,201 1,032,383 792,951
- ----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Employee compensation, incentives, and benefits 145,038 109,542 391,452 300,202
Operations services 14,931 12,205 42,889 35,504
Occupancy 13,543 10,995 36,958 32,621
Equipment rentals, depreciation, and maintenance 11,636 9,789 32,023 29,223
Amortization of mortgage servicing rights 28,851 9,371 70,796 26,862
Communications and courier 10,636 8,745 30,340 26,234
Advertising and public relations 7,398 4,370 18,628 13,739
Amortization of intangible assets 2,726 2,419 8,021 7,229
All other 57,948 36,660 150,878 98,866
- ----------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 292,707 204,096 781,985 570,480
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 96,747 87,105 250,398 222,471
Applicable income taxes 34,927 32,417 89,477 82,856
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 61,820 $ 54,688 $ 160,921 $ 139,615
==================================================================================================================================
EARNINGS PER SHARE $ .48 $ .43 $ 1.26 $ 1.09
- ----------------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE $ .47 $ .42 $ 1.22 $ 1.06
- ----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING 128,264,415 128,098,162 128,104,556 128,420,938
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
See accompanying notes to consolidated financial statements.
</FN>
<PAGE> 6
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF First Tennessee
SHAREHOLDERS' EQUITY National Corporation
- -----------------------------------------------------------------------------------
(Dollars in thousands) 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C>
BALANCE, JANUARY 1 $ 954,096 $ 954,526
Comprehensive income:
Net income 160,921 139,615
Other comprehensive income, net of tax:
Unrealized market adjustments, net of
reclassification adjustment 10,059 4,102
- -----------------------------------------------------------------------------------
Comprehensive income 170,980 143,717
- -----------------------------------------------------------------------------------
Cash dividends declared (63,369) (58,199)
Common stock issued:
Keystone Mortgage, Inc. acquisition 5,221 --
Federal Flood Certification Corporation
acquisition -- 1,362
For exercise of stock options 17,868 16,537
Tax benefit from non-qualified stock options 15,315 --
Common stock repurchased (61,835) (156,781)
Amortization of deferred compensation
on restricted stock incentive plans 988 957
Other 11,949 6,364
- -----------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30 $ 1,051,213 $ 908,483
===================================================================================
</TABLE>
[FN]
See accompanying notes to consolidated financial statements.
</FN>
<PAGE> 7
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS First Tennessee National Corporation
- ----------------------------------------------------------------------------------------------------
Nine Months Ended September 30
---------------------------------
(Dollars in thousands)(Unaudited) 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 160,921 $ 139,615
Adjustments to reconcile net income to net cash
Provided/(used) by operating activities:
Provision for loan losses 39,427 37,783
Provision for deferred income tax 48,158 39,608
Depreciation and amortization of premises
and equipment 27,931 24,086
Amortization of mortgage servicing rights 70,796 26,862
Amortization of intangible assets 8,021 7,229
Net other amortization and accretion 9,393 3,767
Market value adjustment on foreclosed property 13,250 3,745
Gain on sale of securitized loans (643) --
Equity securities (gains)/losses (38) 841
Debt securities (gains)/losses 91 (58)
Net gain on disposal of fixed assets (385) (816)
Gain on sale of bank branches (567)
Net increase in:
Capital markets securities inventory (144,740) (164,797)
Mortgage loans held for sale (1,599,573) (246,286)
Capital markets receivables (341,203) (358,028)
Interest receivable (14,859) (8,544)
Other assets (532,390) (186,491)
Net increase/(decrease) in:
Capital markets payables 273,909 338,314
Interest payable (7,675) 3,739
Other liabilities 268,180 39,288
- ----------------------------------------------------------------------------------------------------
Total adjustments (1,882,917) (439,758)
- ----------------------------------------------------------------------------------------------------
Net cash used by operating activities (1,721,996) (300,143)
- ----------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Held to maturity securities:
Maturities 86,291 8,586
Purchases -- --
Available for sale securities:
Sales 42,387 121,301
Maturities 640,262 441,996
Purchases (439,318) (421,497)
Premises and equipment:
Sales 1,872 4,134
Purchases (55,382) (42,593)
Net decrease in loans (845,589) (393,251)
(Increase)/decrease in investment in bank time deposits (264) 250
Proceeds from loan securitizations 72,756 --
Sale of bank branches, net of cash and cash equivalents (7,654) --
Acquisitions, net of cash and cash equivalents acquired (9,311) --
- ----------------------------------------------------------------------------------------------------
Net cash used by investing activities (513,950) (281,074)
- ----------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Common stock:
Exercise of stock options 18,111 16,599
Cash dividends (84,587) (59,122)
Repurchase shares (61,854) (156,781)
Term Borrowings:
Issuance 99,218
Payments (1,811) (54,430)
Issuance of guaranteed preferred beneficial interests
in First Tennessee's junior subordinated debentures -- 100,000
Net increase in:
Deposits 1,441,188 224,008
Short-term borrowings 684,676 383,137
- ----------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,094,941 453,411
- ----------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (141,005) (127,806)
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 1,001,621 1,097,969
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 860,616 $ 970,163
====================================================================================================
Total interest paid $ 434,922 $ 332,855
Total income taxes paid 22,499 43,248
- ----------------------------------------------------------------------------------------------------
</TABLE>
[FN]
See accompanying notes to consolidated financial statements.
</FN>
<PAGE> 8
NOTE 1 - FINANCIAL INFORMATION
The unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles. In the
opinion of management, all necessary adjustments have been made for a fair
presentation of financial position and results of operations for the periods
presented. The operating results for the three month and nine month periods
ended September 30, 1998, 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 1998 Proxy
Statement & 1997 Financial Information.
Earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding for each period. Diluted earnings
per share is computed by dividing net income by the weighted average number of
common shares outstanding adjusted to include the number of additional common
shares that would have been outstanding if the dilutive potential common shares
resulting from options granted under First Tennessee National Corporation's
(First Tennessee) stock option plans had been issued. First Tennessee utilizes
the treasury stock method in this calculation. All per share amounts have been
restated for the effect of the February 20, 1998, two-for-one stock split.
Statement of Financial Accounting Standards (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 for First Tennessee is unrealized holding gains/(losses)
on available-for-sale securities. First Tennessee adopted this standard
beginning with the first quarter of 1998. Comparative financial statements for
earlier periods have been adjusted to reflect application of the provisions of
this statement.
In February 1998, the Financial Accounting Standards Board issued SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits." The new Statement revises the required disclosures for employee
benefit plans, but it does not change the measurement or recognition of such
plans. First Tennessee will adopt this standard in the 1998 annual financial
statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." The new
Statement requires that an entity recognize all derivatives as either assets or
liabilities in the statement of condition and measure those instruments at fair
value. The accounting for changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation. This Statement
is effective for all quarters of fiscal years beginning after June 15, 1999;
which for First Tennessee will mean the first quarter of 2000. Earlier adoption
is allowed. Because of the complexity of this standard and uncertainties
associated with predicting future derivative usage and related fair values, it
is not practicable at this time to predict what the impact of adopting this
Statement will be to First Tennessee's financial position and results of
operations.
<PAGE> 9
NOTE 2 - BUSINESS COMBINATIONS
On July 1, 1998, First Tennessee acquired Keystone Mortgage, Inc.
(Keystone) of Kirkland, Washington, and merged Keystone with and into FT
Mortgage Companies, an indirect, wholly-owned subsidiary of First Tennessee.
First Tennessee will issue approximately 192,000 shares of its common stock for
this acquisition which was accounted for as a purchase and was immaterial to
First Tennessee.
NOTE 3 - REMIC SECURITIES
Through the use of a Real Estate Mortgage Investment Conduit (REMIC),
First Tennessee securitized certain consumer real estate loans in the second
quarter of 1998. These securitized loans are now classified as held-to-maturity
investment securities. The following tables provide maturity and market value
information on the REMIC securities as of September 30, 1998:
<TABLE>
<CAPTION>
At September 30, 1998
----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REMIC securities $637,863 $7,077 $(6,766) $638,174
====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
As of September 30, 1998
---------------------------
REMIC Securities
---------------------------
By Contractual Maturity Amortized Estimated
(Dollars in thousands) Cost Fair Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
After 5 years; within 10 years $440,309 $445,126
After 10 years 197,554 193,048
- -----------------------------------------------------------------------------------------------------
Total $637,863 $638,174
=====================================================================================================
</TABLE>
<PAGE> 10
NOTE 4 -- LOANS
The composition of the loan portfolio at September 30 is detailed below:
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Commercial $4,076,573 $3,692,179
Consumer* 2,832,518 2,810,802
Permanent mortgage* 408,034 653,054
Credit card receivables 573,248 541,151
Real estate construction 397,686 347,262
Nonaccrual - Regional banking group 8,437 11,671
Nonaccrual - Mortgage banking 19,220 26,155
- ---------------------------------------------------------------------------------------
Loans, net of unearned income 8,315,716 8,082,274
Allowance for loan losses 135,413 123,875
- ---------------------------------------------------------------------------------------
Total net loans $8,180,303 $7,958,399
=======================================================================================
</TABLE>
[FN]
*As a result of the Real Estate Mortgage Investment Conduit (REMIC) certain
securitized consumer and permanent mortgage loans are now classified as REMIC
securities.
</FN>
The following table presents information concerning nonperforming loans at
September 30:
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans $ 9,270 $ 11,179
Other nonaccrual loans 18,387 26,647
- ---------------------------------------------------------------------------------------
Total nonperforming loans $ 27,657 $ 37,826
=======================================================================================
</TABLE>
[FN]
At September 30, 1997, there were $196,000 of restructured impaired loans.
</FN>
Nonperforming loans consist of impaired loans, other nonaccrual loans and
certain restructured loans. An impaired loan is a loan that management believes
the contractual amount due probably will not be collected. Impaired loans are
generally carried on a nonaccrual status. Nonaccrual loans are loans on which
interest accruals have been discontinued due to the borrower's financial
difficulties. Management may elect to continue the accrual of interest when the
estimated net realizable value of collateral is sufficient to recover the
principal balance and accrued interest.
Generally, interest payments received on impaired loans are applied to
principal. Once all principal has been received, additional payments are
recognized as interest income on a cash basis. The following table presents
information concerning impaired loans:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------------------------
(Dollars in thousands) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total interest on impaired loans $ 488 $ 57 $ 845 $ 454
Average balance of impaired loans 8,668 10,218 8,904 11,417
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE> 11
An allowance for loan losses is maintained for all impaired loans. Activity
in the allowance for loan losses related to non-impaired loans, impaired loans,
and for the total allowance for the nine months ended September 30, 1998 and
1997, is summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Non-impaired Impaired Total
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1996 $ 114,217 $ 3,531 $ 117,748
Provision for loan losses 33,982 3,801 37,783
Charge-offs 34,760 3,374 38,134
Less loan recoveries 6,362 116 6,478
- -----------------------------------------------------------------------------------
Net charge-offs 28,398 3,258 31,656
- -----------------------------------------------------------------------------------
Balance at September 30, 1997 $ 119,801 $ 4,074 $ 123,875
===================================================================================
Balance at December 31, 1997 $ 122,107 $ 3,752 $ 125,859
Allowance from acquisitions 140 -- 140
Provision for loan losses 39,487 (60) 39,427
Securitization adjustment (3,575) -- (3,575)
Charge-offs 33,562 1,634 35,196
Less loan recoveries 8,126 632 8,758
- -----------------------------------------------------------------------------------
Net charge-offs 25,436 1,002 26,438
- -----------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1998 $ 132,723 $ 2,690 $ 135,413
===================================================================================
</TABLE>
<PAGE> 12
NOTE 5 -- 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:
<TABLE>
<CAPTION>
September 30 December 31
----------------------- -----------
(Dollars in thousands)(Unaudited) 1998 1997 1997
- ---------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
FIRST TENNESSEE NATIONAL CORPORATION:
Subordinated capital notes:
Matures on June 1, 1999--10 3/8% $ 74,940 $ 74,850 $ 74,873
Matures on November 15, 2005--6 3/4% 74,418 74,336 74,356
FIRST TENNESSEE BANK NATIONAL ASSOCIATION:
Notes payable to Federal Home Loan Bank:
Matures on January 29, 1999--7.95% 15,000 15,000 15,000
Matures through 2009--8.10% 2,233 2,433 2,383
Matures on January 1, 2028--4.00% 41 -- --
Matures on May 1, 2028--4.00% 40 -- --
Matured through 1998--7.50% -- 2,739 1,383
Matured on October 3, 1997--8.05% -- 10,000 --
Subordinated capital notes:
Matures on April 1, 2008--6.40% 99,257 -- --
Industrial development bond payable to City of
Alcoa, Tennessee; matures 1999--6.50% 100 200 200
CLEVELAND BANK AND TRUST COMPANY:
Industrial development bond payable to City of
Cleveland, Tennessee; matures through 1999--
65% of prime 439 785 698
- ---------------------------------------------------------------------------------- -----------
TOTAL $266,468 $180,343 $ 168,893
================================================================================== ===========
</TABLE>
<PAGE> 13
NOTE 6 - EARNINGS PER SHARE
The following table shows a reconciliation of earnings per share to diluted
earnings per share. All share and per share data have been adjusted to reflect
the 1998 two-for-one stock split.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------ ------------------------------
(Dollars in thousands, except per share data) 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS PER SHARE COMPUTATION:
Net income $ 61,820 $ 54,688 $ 160,921 $ 139,615
Weighted average shares outstanding 127,987,844 128,098,162 127,965,200 128,420,938
Shares attributable to deferred compensation 276,571 -- 139,356 --
- -----------------------------------------------------------------------------------------------------------------------------
Total weighted average shares per income statement 128,264,415 128,098,162 128,104,556 128,420,938
Earnings per share $ .48 $ .43 $ 1.26 $ 1.09
- -----------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE COMPUTATION:
Net income $ 61,820 $ 54,688 $ 160,921 $ 139,615
Weighted average shares outstanding 128,264,415 128,098,162 128,104,556 128,420,938
Dilutive effect due to stock options 3,215,503 3,663,280 3,669,142 3,485,818
- -----------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding, as adjusted 131,479,918 131,761,442 131,773,698 131,906,756
Diluted earnings per share $ .47 $ .42 $ 1.22 $ 1.06
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 14
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
DESCRIPTION
First Tennessee National Corporation (First Tennessee) is headquartered in
Memphis, Tennessee, and is a nationwide, diversified financial services
institution which provides banking and other financial services to its customers
through various national and regional business lines. The Regional Banking Group
includes the retail/commercial bank, the credit card division and the trust
division. The National Lines of Business include FT Mortgage Companies and
affiliates (also referred to as mortgage banking), First Tennessee Capital
Markets (also referred to as capital markets) and transaction processing (credit
card merchant processing, automated teller machine network and check clearing
operations).
INTRODUCTION
The following is a discussion and analysis of the financial condition and
results of operations of First Tennessee for the three-month and nine-month
periods ended September 30, 1998, compared to the three-month and nine-month
periods ended September 30, 1997. 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 1997 financial statements, notes, and management's
discussion and analysis is provided as an appendix to the 1998 proxy statement.
Certain revenues and expenses are allocated and equity is assigned to the
various business lines to reflect the inherent risk in each business line, based
on management's best estimates. These allocations are periodically reviewed and
may be revised from time to time to more accurately reflect current business
conditions and risks. In addition, certain reclassifications of accounts may
occur to reflect current reporting standards within the industry. In each case
the previous history is restated to ensure comparability. For purposes of this
discussion, noninterest income and total revenues exclude securities gains and
losses. 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.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
- --------------------------------------------------------------
Management's discussion and analysis may contain forward-looking statements with
respect to First Tennessee's beliefs, plans, goals, expectations, and estimates.
Forward-looking statements are statements not based on historical information
but rather relate to future operations, strategies, financial results or other
developments. Forward-looking statements are necessarily based upon estimates
and assumptions that are inherently subject to significant business, economic
and competitive uncertainties and contingencies, many of which are beyond a
company's control, and many of which, with respect to future business decisions,
are subject to change. Examples of uncertainties and contingencies, include,
among other important factors, general and local economic and business
conditions; interest rates, markets and monetary fluctuations; inflation;
competition within and without the financial services industry; and new products
and services in the industries in which First Tennessee operates. Other factors
are those inherent in originating loans, including prepayment risks and
fluctuating collateral values and changes in customer profiles. Uncertainties
regarding changes in technology and future acquisitions can also affect results.
Additionally, the policies of the Office of the Comptroller of the Currency and
the Board of Governors of the Federal Reserve System, unanticipated regulatory
and judicial proceedings, and changes in laws and regulations applicable to
First Tennessee and First Tennessee's success in managing the risks involved in
the foregoing could cause actual results to differ. First Tennessee assumes no
obligation to update any forward-looking statements that are made from time to
time.
SECURITIZATION ACTIVITY
During the second quarter of 1998, First Tennessee Bank National Association
(FTBNA) securitized a portion of its direct automobile loan receivables. Also
during the second quarter, FTBNA securitized a portion of its consumer real
estate loans through the use of a Real Estate Mortgage Investment Conduit
(REMIC). All of the interests in the REMIC are owned by subsidiaries of First
Tennessee, including FTBNA. This transaction affects categorization of
individual line items on the balance sheet. Consequently, loans have been
reduced and investment securities have been increased.
For a more complete understanding, where significant, these trends are discussed
and identified as "Managed" information, which adds data on these securitized
loans to "Reported" data for loans. "Reported" information has been prepared in
conformity with generally accepted accounting principles. "Managed" information
treats loans securitized and sold with servicing retained and loans securitized
through the REMIC as if they had not been securitized and/or sold. "Managed"
information does not include the mortgage banking servicing portfolio.
<PAGE> 15
THIRD QUARTER OVERVIEW (comparison of third quarter 1998 to third quarter
1997)
* Earnings for 1998 were $61.8 million, up 13 percent from last year's earnings
of $54.7 million.
* Diluted earnings per share (adjusted for the 1998 two-for-one stock split)
were $.47 in 1998, up 12 percent over the $.42 earned in 1997. Basic earnings
per share were $.48 in 1998 compared with $.43 in 1997.
* Return on average shareholders' equity was 24.4 percent in 1998 compared with
24.6 percent in 1997, and return on average assets was 1.45 percent in 1998
compared with 1.61 percent in 1997. The decline in the return on average
assets was attributable to the 25 percent growth in average assets, of which
51 percent was in the mortgage warehouse.
* Total revenues grew 32 percent with growth in fee income of 49 percent and
growth in net interest income of 9 percent. Mortgage banking and capital
markets led the increase in fee income with growth of 81 percent and 22
percent, respectively.
* The consolidated net interest margin was 3.75 percent in 1998 compared with
4.24 percent in 1997. The lower margin was primarily related to the growth in
the mortgage warehouse.
* Nonperforming assets improved in both mortgage banking and the regional
banking group from the previous year.
* At September 30, 1998, First Tennessee was ranked in the top 50 bank holding
companies nationally in market capitalization ($3.5 billion) and assets
($17.2 billion). FT Mortgage Companies was ranked in the top 10 nationally in
retail mortgage originations, and First Tennessee Capital Markets was again
one of the top five underwriters of U.S. agency debt in the third quarter.
INCOME STATEMENT ANALYSIS
NONINTEREST INCOME
- ------------------
Fee income (noninterest income excluding securities gains and losses) provides
the majority of First Tennessee's revenue. During the third quarter of 1998, fee
income increased 49 percent (from $180.4 million to $267.9 million) and
contributed 67 percent to total revenue. Fee income contributed 59 percent to
total revenue for the third quarter of 1997.
Mortgage banking fee income, First Tennessee's largest contributing business
line to noninterest income, grew 81 percent (from $88.4 million to $160.1
million) from the third quarter of 1997 as shown in Table 1. The increase came
primarily from the mortgage origination function (loan origination fees and
secondary marketing activities).
TABLE 1 - MORTGAGE BANKING
<TABLE>
<CAPTION>
Third Quarter Nine Months
-------------------------- Growth -------------------------- Growth
(Dollars in millions) 1998 1997 Rate (%) 1998 1997 Rate (%)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NONINTEREST INCOME:
Secondary marketing activities $ 69.8 $ 35.1 98.8 $ 157.6 $ 84.1 87.3
Loan origination fees 41.0 24.1 69.6 100.3 61.0 64.3
Servicing fees 30.8 23.4 31.9 83.6 69.5 20.4
Sale of mortgage servicing rights -- 1.8 NM -- 5.1 NM
Miscellaneous 18.5 4.0 366.3 33.6 7.8 330.4
- ---------------------------------------------------------------------------------------------------------------------
Total noninterest income 160.1 88.4 81.1 375.1 227.5 64.9
=====================================================================================================================
Mortgage loan originations $ 5,636.3 $ 3,028.9 86.1 $ 15,175.4 $ 7,368.1 106.0
Servicing portfolio $ 35,292.6 $ 25,672.2 37.5 $ 35,292.6 $ 25,672.2 37.5
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
NM = not meaningful
</FN>
<PAGE> 16
Income derived from the mortgage origination function (loan origination fees
plus secondary marketing activities) increased 87 percent from the third quarter
of 1997 (from $59.2 million to $110.8 million), as FT Mortgage Companies
originated a record $5.6 billion of mortgage loans in the third quarter of 1998.
FT Mortgage Companies continued to be ranked as one of the top 10 retail
mortgage originators in the nation. A favorable interest rate environment and a
strong real estate market led to increased mortgage originations. This level of
originations was an 86 percent increase over the $3.0 billion of mortgage loans
originated in the third quarter of 1997 and resulted in 88 percent more loans
sold into the secondary market than in 1997. The higher volume of sales
accounted for most of the 99 percent increase in income from secondary marketing
activities coupled with more profitable execution of trades stemming from more
favorable interest rates. Refinance activity accounted for approximately 47
percent of total loan originations in the third quarter of 1998, compared with
26 percent in the third quarter of 1997.
The servicing portfolio totaled $35.3 billion at September 30, 1998, up 37
percent from September 30, 1997, when the portfolio totaled $25.7 billion. Since
the third quarter of 1997, the portfolio has grown due to originations of $18.4
billion, reduced by servicing released sales of $1.7 billion and principal
reductions and payoffs of $7.1 billion from payments received in the normal
course of business. Mortgage servicing fees increased 32 percent from the third
quarter of 1997 (from $23.4 million to $30.8 million). No servicing rights were
sold during the third quarter of 1998 and only a minimal amount was sold in the
third quarter of 1997.
The increase in mortgage miscellaneous income relates primarily to recognized
gains from hedging the servicing portfolio. The recognized gains from hedge
activities will vary from period to period depending on the interest rate
environment and market conditions. Servicing hedges are used to protect the
value of the servicing portfolio which can erode when declining interest rates
accelerate expected prepayments.
First Tennessee Capital Markets generates fee income primarily from the purchase
and sale of securities as both principal and agent. Inventory positions are
limited to the procurement of securities for distribution to customers by the
sales staff. Inventory is hedged to protect against movements in interest rates.
Fee income in capital markets grew 22 percent (from $28.9 million to $35.4
million) over the third quarter of 1997. Total securities bought and sold
increased 73 percent over the same period in 1997 (from $63.0 billion to $109.1
billion). The increased core volume growth, paralleling the growth in revenue,
came from strong performance in all of the offices including the recently opened
New York office, continued expansion of the customer base and additional product
penetration. The majority of the remaining volume growth was due to additional
emphasis on short-term U. S. agency notes. Total underwritings during the third
quarter of 1998 were $12.8 billion compared with $8.5 billion for the same
period in 1997. For the third quarter of 1998, capital markets again ranked as
one of the top five underwriters of U.S. government agency debt.
Noninterest income from deposit transactions and cash management increased 5
percent from the third quarter of 1997 (from $22.3 million to $23.4 million).
Since the third quarter of 1997, trust and investment management fees grew 17
percent (from $10.8 million to $12.6 million). This growth was primarily due to
growth in assets under management and acquisition activity (Martin & Company,
L.P.). Assets under management grew from $6.4 billion in the third quarter of
1997 to $8.2 billion in the third quarter of 1998. Due to higher volume, fee
income from merchant processing increased 17 percent from the third quarter of
1997 (from $8.6 million to $10.1 million). In addition, equipment sales and
lease fees and expenses, which had previously been recorded separately, are now
being recorded as net revenue due to a new outsourcing agreement. Cardholder
fees increased 9 percent (from $4.9 million to $5.4 million) during this same
period, as strong purchasing volume led to higher interchange collections
partially offset by the collection of fewer late fees due to lower
delinquencies.
All other noninterest income increased 28 percent from the third quarter of 1997
(from $16.4 million to $21.0 million). Other service charges increased 48
percent (from $2.7 million to $4.0 million) and included strong growth in
investment/mutual fund sales and servicing fees collected from securitized
transactions. Insurance premiums and commissions increased 26 percent (from $1.7
million to $2.1 million) from the third quarter of 1997. While check
<PAGE> 17
clearing fees declined 14 percent (from $2.9 million to $2.5 million) from the
previous year due to the continuing impact of industry consolidations, these
fees have shown a steady improvement during 1998. The remainder of the growth
was spread over several categories including gains related to foreclosures, fees
received from flood zone certifications, and a gain on the sale of two
Mississippi bank branches.
NET INTEREST INCOME
- -------------------
Net interest income increased 9 percent (from $124.7 million to $135.7 million)
from the third quarter of 1997, primarily due to the 23 percent increase in
earning assets (from $11.7 billion to $14.4 billion). The consolidated net
interest margin (margin) declined from 4.24 percent in the third quarter of 1997
to 3.75 percent in the third quarter of 1998, primarily from the build-up of the
mortgage warehouse which produced almost 65 percent of the increase in earning
assets. Growth in demand deposit accounts contributed to the improvement in the
regional banking group's margin from 4.74 percent in the third quarter of 1997
to 4.87 percent in the third quarter of 1998. Table 2 details the computation of
the net interest margin for the regional banking group and the impact that the
other business lines had on the consolidated margin for the third quarters of
1998 and 1997.
TABLE 2 - NET INTEREST MARGIN
<TABLE>
<CAPTION>
Third Quarter
---------------------
1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
REGIONAL BANKING GROUP:
Yields on earning assets 8.23% 8.29 %
Rates paid on interest-bearing liabilities 4.38 4.55
- ------------------------------------------------------------------------------
Net interest spread 3.85 3.74
- ------------------------------------------------------------------------------
Effect of interest-free sources .89 .89
Loan fees .13 .11
- ------------------------------------------------------------------------------
Net interest margin - Regional banking group 4.87% 4.74 %
MORTGAGE BANKING (.95) (.38)
CAPITAL MARKETS (.20) (.14)
TRANSACTION PROCESSING .03 .02
- ------------------------------------------------------------------------------
Net interest margin 3.75% 4.24 %
==============================================================================
</TABLE>
<PAGE> 18
As shown in Table 2, 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 banking
activities. For example, in mortgage banking because the spread between the
rates on mortgage loans temporarily in the warehouse and the related short-term
funding rates is less than the comparable spread earned in the regional banking
group, the overall margin is compressed. Consequently, as the warehouse volume
increases, the margin also compresses. Capital markets tends to compress the
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. As a result, First Tennessee's consolidated margin cannot be readily
compared to that of other bank holding companies.
NONINTEREST EXPENSE
- -------------------
Total noninterest expense (operating expense) for the third quarter of 1998
increased 43 percent (from $204.1 million to $292.7 million) over the same
period in 1997. Table 3 provides a breakdown of total expenses by business line.
TABLE 3 - OPERATING EXPENSE COMPOSITION
<TABLE>
<CAPTION>
Third Quarter
----------------------------- Growth
(Dollars in millions) 1998 1997 Rate (%)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Regional banking group $104.7 $ 90.1 16.3
Mortgage banking 144.7 77.9 85.7
Capital markets 26.6 21.4 24.3
Transaction processing 16.7 14.7 13.5
- ---------------------------------------------------------------------------
Total operating expense $292.7 $204.1 43.4
===========================================================================
</TABLE>
<PAGE> 19
The increase in operating expense in mortgage banking accounted for 75 percent
of the overall expense growth. Mortgage banking expense growth was mainly in
personnel from increased loan production and amortization expense due to the
larger servicing portfolio and prepayments. Capital markets accounted for 6
percent of the overall expense growth. Excluding mortgage banking and capital
markets, overall operating expenses increased 16 percent from the third quarter
of 1997. Investments in expanding consumer lending beyond our traditional
markets, growth in our insurance business, consolidation expenses of our
merchant processing operation, and technology contributed to this growth rate.
Employee compensation, incentives, and benefits (personnel expense), the largest
category of noninterest expense, increased 32 percent (from $109.5 million to
$145.0 million). Personnel expense includes commissions paid in several lines of
business such as capital markets and mortgage banking. As sales and/or
origination volumes increase or decrease or the product mix changes in these
business lines, the commissions change accordingly. Excluding these business
lines, personnel expense increased 13 percent largely due to market expansion in
our other business lines.
As a result of a larger servicing portfolio and additional prepayments,
amortization of capitalized mortgage servicing rights increased 208 percent
(from $9.4 million to $28.9 million). All other expense consists of numerous
categories such as contract employment, supplies, travel and entertainment,
foreclosed real estate expenses, legal and professional fees, and other. Since
the third quarter of 1997, all other expense increased 58 percent (from $36.7
million to $57.9 million). The majority of this growth was related to mortgage
banking. Excluding mortgage banking, all other expense increased 17 percent from
the third quarter of 1997 and was spread out over a number of categories.
PROVISION FOR LOAN LOSSES/ASSET QUALITY
- ---------------------------------------
The provision for loan losses increased 3 percent (from $12.8 million to $13.1
million) from third quarter 1997, and reflects loan growth and inherent risk in
the loan portfolio. The ratio of allowance for loan losses to loans was 1.63
percent at September 30, 1998, compared with 1.53 percent at September 30, 1997.
Additional asset quality information is provided in Table 4 - Asset Quality
Information and Table 5 - Charge-off Ratios.
TABLE 4 - ASSET QUALITY INFORMATION
<TABLE>
<CAPTION>
September 30
----------------------------
(Dollars in thousands) 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C>
Nonperforming loans* $27,657 $37,826
Foreclosed real estate** 15,513 12,352
Other assets 207 221
- --------------------------------------------------------------------------------------
Total nonperforming assets $43,377 $50,399
======================================================================================
Loans and leases 90 days past due $34,012 $30,298
Potential problem assets*** $70,464 $72,362
<CAPTION>
Third Quarter
-----------------------------
1998 1997
-----------------------------
<S> <C> <C>
ALLOWANCE FOR CREDIT LOSSES:
Beginning balance at June 30 $129,858 $ 123,458
Provision for loan losses 13,127 12,753
Allowance from acquisition 140 --
Charge-offs (11,081) (14,521)
Loan recoveries 3,369 2,185
- ---------------------------------------------------------------------------------------
Ending balance at September 30 $135,413 $ 123,875
=======================================================================================
<CAPTION>
September 30
-----------------------------
1998 1997
-----------------------------
<S> <C> <C>
Allowance to total loans 1.63% 1.53%
Nonperforming loans to total loans .33 .47
Nonperforming assets to total loans, foreclosed real
estate and other assets .52 .62
Allowance to nonperforming assets 312 246
- ---------------------------------------------------------------------------------------
</TABLE>
[FN]
*Includes $19.2 million and $26.2 million in 1998 and 1997, respectively, in
mortgage banking.
**Includes $10.8 million and $7.4 million in 1998 and 1997, respectively, in
mortgage banking.
***Includes loans and leases 90 days past due.
</FN>
<PAGE> 20
The ratio of net charge-offs to average loans improved from .62 percent for the
third quarter of 1997 to .38 percent for the third quarter of 1998. The credit
card receivables charge-off ratio improved from 4.54 percent to 3.52 percent
over this same period and reached its lowest level since the first quarter of
1996. The favorable change in the commercial and commercial real estate
charge-off ratio to a net recovery position for the third quarter of 1998 was
due to several recoveries during the quarter. The ratio of nonperforming loans
to total loans decreased to .33 percent for the third quarter of 1998 compared
with .47 percent for the same period in 1997. At September 30, 1998, First
Tennessee had no concentrations of 10 percent or more of total loans in any
single industry.
TABLE 5 - CHARGE-OFF RATIOS
<TABLE>
<CAPTION>
Third Quarter
-----------------------------
1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Commercial and commercial real estate (.04)% .17%
Consumer .36 .39
Credit card receivables 3.52 4.54
Permanent mortgage* .01 .18
========================================================================================
Total net charge-offs excluding repurchased mortgages .35 % .55%
Impact of repurchased mortgages .03 .07
- ----------------------------------------------------------------------------------------
Total net charge-offs .38 % .62%
========================================================================================
</TABLE>
[FN]
*Excludes mortgage loans repurchased beginning the first quarter of 1997 to
correct file documentation in order to certify loan pools. This occurred
principally from the consolidation of five separate mortgage operations during
1996.
</FN>
<PAGE> 21
BALANCE SHEET
LOANS AND DEPOSITS
- ------------------
As previously discussed, for a more complete understanding of loan growth trends
it is helpful to analyze information on a "reported" as well as a "managed"
basis. "Reported" information is derived from consolidated financial statements
that have been prepared in conformity with generally accepted accounting
principles. "Managed" information treats consumer loans securitized and sold
with servicing retained and loans securitized through the REMIC and held by
First Tennessee as if they had not been securitized and/or sold. "Managed"
information does not include the mortgage banking servicing portfolio. Table 6 -
Selected Loans includes information for reported and managed assets and Table 7
- - Investment Securities includes reported information and information excluding
the REMIC.
At September 30, 1998, First Tennessee reported total assets of $17.2 billion
compared with $14.1 billion at September 30, 1997. Mortgage loans held for sale
(mortgage warehouse) increased 175 percent (from $1.0 billion to $2.8 billion)
from September 30, 1997. An increase in core deposits of 7 percent (from $8.4
billion to $9.0 billion) and a 61 percent increase in short-term purchased funds
(from $3.5 billion to $5.6 billion) funded the growth in the period-end balance
sheet.
TABLE 6 - SELECTED LOANS
<TABLE>
<CAPTION>
1998
AS Growth 1998 Growth
(Dollars in millions) REPORTED 1997 Rate (%) MANAGED* Rate (%)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SEPTEMBER 30 PERIOD-END
Consumer loans $ 2,832.5 $ 2,810.8 .8 $ 3,209.3 14.2
Permanent mortgages 408.0 653.1 (37.5) 697.3 6.8
Total loans 8,315.7 8,082.3 2.9 8,981.8 11.1
- -----------------------------------------------------------------------------------------
THIRD QUARTER AVERAGES
Consumer loans $ 2,698.7 $ 2,781.3 (3.0) $ 3,094.5 11.3
Permanent mortgages 390.9 640.7 (39.0) 690.8 7.8
Total loans 8,102.2 8,014.9 1.1 8,797.9 9.8
- -----------------------------------------------------------------------------------------
YEAR-TO-DATE AVERAGES
Consumer loans $ 2,750.1 $ 2,737.4 .5 $ 2,980.4 8.9
Permanent mortgages 503.2 632.7 (20.5) 675.1 6.7
Total loans 8,174.5 7,883.5 3.7 8,576.6 8.8
- -----------------------------------------------------------------------------------------
</TABLE>
[FN]
*Excludes managed loans in the mortgage banking servicing portfolio.
</FN>
TABLE 7 - INVESTMENT SECURITIES
<TABLE>
<CAPTION>
1998
1998 EXCLUDING
AS Growth SECURITIZATION Growth
(Dollars in millions) REPORTED 1997 Rate (%) ACTIVITY Rate (%)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
September 30 period-end $ 2,594.8 $ 2,098.3 23.7 $ 1,956.8 (6.7)
Third quarter averages 2,615.8 2,102.7 24.4 1,950.7 (7.2)
Year-to-date averages 2,380.9 2,155.6 10.5 1,999.4 (7.2)
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 22
<PAGE> 23
Average total assets grew 25 percent (from $13.5 billion to $16.9 billion) from
the third quarter of 1997. Due to strong origination volume, the mortgage
warehouse increased 154 percent (from $1.1 billion to $2.9 billion) and
accounted for over 50 percent of the increase in total assets. For the third
quarter of 1998, managed total loans grew 10 percent (from $8.0 billion to $8.8
billion). Average commercial loans increased 9 percent (from $3.7 billion to
$4.0 billion) and represented 46 percent of total managed loans. This increase
was above the national average and was due to growth in a number of different
industries. The 11 percent increase in managed consumer loans (from $2.8 billion
to $3.1 billion) came primarily from real estate-related lending, and these
loans represented 35 percent of total managed loans. Managed permanent mortgage
loans increased 8 percent (from $.6 billion to $.7 billion), with the majority
of the growth originated by mortgage banking. In addition, most of the 20
percent increase (from $.3 billion to $.4 billion) in average real estate
construction loans came from growth in residential construction loans originated
by mortgage banking. Average credit card receivables grew 5 percent (from $.5
billion to $.6 billion). Average investment securities increased 24 percent from
third quarter 1997 (from $2.1 billion to $2.6 billion). Table 7 - Investment
Securities shows the impact the securitization activity had on this growth rate.
Since the third quarter of 1997, average core deposits grew 8 percent (from $8.3
billion to $9.0 billion) and interest-bearing core deposits grew 4 percent (from
$6.1 billion to $6.3 billion). Noninterest-bearing deposits grew 20 percent
(from $2.2 billion to $2.7 billion) over this same period with growth in
mortgage escrow balances accounting for 53 percent of this increase. Short-term
purchased funds were up 67 percent (from $3.6 billion to $5.9 billion) from the
previous year, and were primarily used to fund the growth in the mortgage
warehouse.
CAPITAL
- -------
Total capital (shareholders' equity plus qualifying capital securities) at
September 30, 1998, was $1.2 billion, up 14 percent from September 30, 1997.
Shareholders' equity (excluding the qualifying capital securities) was $1.1
billion at September 30, 1998, an increase of 16 percent from $.9 billion at
September 30, 1997.
Average shareholders' equity increased 14 percent (from $.9 billion to $1.0
billion) since the third quarter of 1997. Despite the increase in shareholders'
equity, the capital ratios declined as a result of the 25 percent increase in
average assets driven by the 154 percent growth in the mortgage warehouse. The
average total capital to average assets ratio was 6.55 percent and the average
shareholders' equity to average assets ratio was 5.96 percent for the third
quarter of 1998. This compares with 7.29 percent and 6.55 percent, respectively,
for the third quarter of 1997. Excluding the effects of unrealized market
valuations, the average total capital to average assets ratio would have been
6.46 percent and the average shareholders' equity to average assets ratio would
have been 5.87 percent for the third quarter of 1998.
At September 30, 1998, the corporation's Tier 1 capital ratio was 8.51 percent,
the total capital ratio was 11.72 percent and the leverage ratio was 6.08
percent. On September 30, 1998, First Tennessee's bank affiliates had sufficient
capital to qualify as well capitalized institutions.
OFF-BALANCE SHEET ACTIVITY
In the normal course of business, First Tennessee is a party to financial
instruments that are not required to be reflected on a balance sheet. First
Tennessee enters into transactions involving these instruments to meet the
financial needs of its customers and manage its own exposure to fluctuations in
interest rates. These instruments are categorized into "Lending related,"
"Mortgage banking," "Interest rate risk management," and "Capital markets" as
noted in Table 8.
<PAGE> 24
TABLE 8 - OFF-BALANCE SHEET FINANCIAL INSTRUMENTS AT SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
(Dollars in millions) Notional value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
LENDING RELATED:
Commitments to extend credit:
Consumer credit card lines $2,038.3
Consumer home equity 505.8
Commercial real estate and construction and land development 400.7
Mortgage banking 2,902.2
Other 1,815.3
Other commitments:
Standby letters of credit 463.6
Commercial letters of credit 12.6
Foreign exchange contracts - net position .3
MORTGAGE BANKING:
Mortgage pipeline and warehouse hedging:
Interest rate contracts:
Forward contracts - commitments to sell 3,514.9
Option contracts:
Put options purchased* 55.0
Call options written 100.0
Servicing portfolio hedging:
Interest rate contracts:
Floors - purchased* 9,575.0
Floors - written 6,600.0
INTEREST RATE RISK MANAGEMENT:
Interest rate contracts:
Swaps - receive fixed/pay floating 617.0
Swaps - receive floating/pay floating 150.0
Caps - purchased 20.0
Caps - written 20.0
Equity contracts:
Purchased options 1.9
CAPITAL MARKETS:
Forward contracts:
Commitments to buy 2,117.2
Commitments to sell 2,215.5
Securities underwriting commitments .2
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
*Mortgage banking purchased interest rate contracts had a value of $172.2
million recognized in the Consolidated Statements of Condition at September 30,
1998.
</FN>
NINE MONTH REVIEW (comparison of first nine months of 1998 to first nine months
of 1997)
* Earnings for 1998 were $160.9 million, up 15 percent from last year's
earnings of $139.6 million.
* Diluted earnings per share (adjusted for the 1998 two-for-one stock split)
were $1.22 in 1998, up 15 percent over the $1.06 earned in 1997. Basic
earnings per share were $1.26 in 1998 and $1.09 in 1997.
* Return on average shareholders' equity was 22.1 percent in 1998 compared with
a return of 21.5 percent in 1997 and return on average assets was 1.35
percent in 1998 compared with 1.43 percent in 1997. The decline in the return
on average assets was attributable to the 22 percent growth in average
assets, of which 52 percent was in the mortgage warehouse.
* Total revenues grew 29 percent with growth in fee income of 43 percent and
growth in net interest income of 10 percent. Mortgage banking and capital
markets led the increase in fee income with growth of 65 percent and 49
percent, respectively.
* The consolidated net interest margin was 3.87 percent in 1998 compared
with 4.25 percent in 1997.
<PAGE> 25
INCOME STATEMENT REVIEW
- -----------------------
Noninterest income, excluding securities gains and losses, increased 43 percent
(from $473.4 million to $677.9 million) over the same period last year. Fee
income represented 63 percent of total revenues during the first nine months of
1998 and 57 percent for the same period in 1997. Mortgage banking fee income
grew 65 percent (from $227.5 million to $375.1 million). See Table 1 - Mortgage
Banking for a breakout of noninterest income as well as mortgage banking
origination volume and servicing portfolio levels. Fee income from capital
markets increased 49 percent (from $69.4 million to $103.6 million) from 1997,
reflecting a record nine-month period. The increase was principally due to
strong performance in all offices, increased underwriting activity, customer
base expansion and additional emphasis on short-term agency notes. For the first
nine months of 1998, fee income in deposit transactions and cash management grew
5 percent (from $63.1 million to $66.1 million). The 29 percent increase in
trust services and investment service fees (from $29.6 million to $38.1 million)
was principally due to acquisition activity, increased assets under management
and strong market performance. Merchant processing fees increased 7 percent
(from $23.5 million to $25.0 million), and cardholder fees increased 6 percent
(from $14.4 million to $15.3 million). All other income and commissions
increased 19 percent (from $46.0 million to $54.7 million). Other service
charges increased 44 percent (from $7.8 million to $11.2 million) and insurance
premiums and commissions increased 22 percent (from $4.7 million to $5.7
million). Check clearing fees declined 35 percent (from $10.7 million to $7.0
million). The reasons for the year-to-date trends were similar to the quarterly
trend information already discussed.
Net interest income increased 10 percent (from $361.4 million to $397.0 million)
from the first nine months of 1997. The year-to-date consolidated margin
declined from 4.25 percent in 1997 to 3.87 in 1998, primarily from the build-up
of the mortgage warehouse which produced 65 percent of the 20 percent increase
in earning assets year-over-year. Growth in demand deposit accounts contributed
to the year-to-date improvement in the regional banking group's margin from 4.67
percent in 1997 to 4.83 percent in 1998.
The provision for loan losses increased 4 percent (from $37.8 million to $39.4
million) from the previous year. The increase reflects the change in loan mix
due to securitizations, the inherent risk in the loan portfolio and a higher
amount of allowance commensurate with loan growth.
Noninterest expense increased 37 percent (from $570.5 million to $782.0 million)
from the first nine months of 1997. Excluding the commission-based businesses of
mortgage banking and capital markets, total noninterest expense increased 12
percent. Personnel expense, the largest category, increased 30 percent (from
$300.2 million to $391.5 million). Excluding mortgage banking and capital
markets, personnel expense increased 13 percent. Due to a larger servicing
portfolio and higher prepayments, amortization expense of mortgage servicing
rights increased 164 percent (from $26.9 million to $70.8 million). All other
expense increased 53 percent (from $98.9 million to $150.9 million) primarily
due to mortgage banking. Excluding this line of business, all other expense
increased 11 percent over the same period last year. The reasons for the
year-to-date trends were similar to the quarterly trend information already
discussed.
BALANCE SHEET REVIEW
- --------------------
Average total assets grew 22 percent (from $13.1 billion to $16.0 billion) year
over year. With the strong origination volume, the mortgage warehouse grew 167
percent (from $.9 billion to $2.4 billion) and accounted for over 50 percent of
the growth in total assets. Total managed loans grew 9 percent (from $7.9
billion to $8.6 billion) from the first nine months of 1997. Average commercial
loans increased 8 percent (from $3.6 billion to $3.9 billion), average managed
consumer loans grew 9 percent (from $2.7 billion to $3.0 billion) and average
credit card receivables grew 3 percent (from $.5 billion to $.6 billion).
Managed permanent mortgages increased 7 percent (from $.6 billion to $.7
billion). Real estate construction loans grew 29 percent (from $.3 billion to
$.4 billion), primarily due to growth in residential construction loans
originated by mortgage banking. For a better understanding of the impact
securitizations had on these growth trends refer to Table 6 - Selected Loans.
Due to the securitization activity, average investment securities increased 10
percent (from $2.2 billion to $2.4 billion) from 1997. Table 7 - Investment
Securities discloses the impact securitization activity had on this growth rate.
<PAGE> 26
Average core deposits increased 8 percent (from $8.3 billion to $8.9 billion)
and interest-bearing core deposits increased 4 percent (from $6.1 billion to
$6.3 billion). Noninterest-bearing deposits increased 19 percent (from $2.2
billion to $2.6 billion). Short-term purchased funds increased 61 percent (from
$3.2 billion to $5.2 billion) for the nine-month period, primarily funding the
growth in the mortgage warehouse.
YEAR 2000
- ---------
Many computer programs were originally designed to store and process data using
two digits rather than four to define a calendar year. Any of First Tennessee's
programs that have date sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This "Year 2000 computer issue" can
create risk for a company from unforeseen problems in its own computer systems
and from the company's vendors and customers.
First Tennessee began planning its Year 2000 remediation strategy in 1995. Among
other things, the process included the formation of a company-wide project team
that meets regularly to coordinate and review the status of conversion
initiatives. The main phases involved in the Year 2000 project are assessment,
renovation, validation, and implementation. A comprehensive review to assess the
systems affected by this issue has been completed, estimated cost projections
have been determined and an implementation plan has been compiled. As a result
of the assessment review, First Tennessee is in the process of modifying or
replacing certain existing systems. New systems being acquired will provide new
functionality to meet the expanding needs of customers and must be Year 2000
compliant.
Modifications to systems are made in the renovation phase. These modifications
are then subjected to intensive testing during the next phase, the validation
phase. Finally, after systems are adequately tested, the implementation phase
begins. Training and product integration occur during this final phase to assure
a smooth transition to the normal day-to-day operations. The completion of these
phases is expected to occur early in 1999. As of September 30, 1998, First
Tennessee had completed approximately 90 percent of renovation, 70 percent of
validation and 65 percent of implementation for mission critical systems. For
all systems, the completion status was approximately 85 percent renovated, 55
percent validated and 45 percent implemented. Management believes the efforts
described above will provide reasonable assurance that its systems will be
adequately prepared for the Year 2000.
Costs of new systems will be capitalized and amortized, and spending for
maintenance and modification associated with Year 2000 will be expensed as
incurred. The total gross cost of Year 2000 compliance is estimated to range
from $35 million to $40 million, of which approximately $20 million had been
incurred as of September 30, 1998, with approximately 70 percent of this being
capitalized. Consistent with current corporate accounting policy, the
capitalized costs will be amortized on a straight-line basis over a five-year
period once the systems project is substantially complete and ready for its
intended use.
As part of our Year 2000 preparedness, First Tennessee is also assessing
business risks that potentially could arise from customers, vendors and
government agencies who may fail to successfully complete renovation of their
systems before January 1, 2000. The processes include periodic assessments of
Year 2000 readiness of material credit customers, funds providers, financial
market counterparties, and mission critical vendors. During 1998, First
Tennessee has initiated a review with its large commercial customers to
identify, assess and mitigate potential risks, including credit risk, associated
with customers' failure to adequately address their Year 2000 issues. This
assessment process is expected to be completed early in 1999. While First
Tennessee continues to discuss these matters with, obtain written certification
from, and test the systems of other companies as to their Year 2000 compliance,
there can be no assurance that any potential impact associated with incompatible
systems after December 31, 1999, would not have a material adverse effect on
First Tennessee's business, financial condition or results of operations.
However, our regular contingency planning processes will be adapted to prepare
for the most significant potential risks from these external sources. The Office
of the Comptroller of the Currency, which is our primary bank regulator, will be
including a review of the risk assessments and contingency plans in its
quarterly examination of Year 2000 preparedness. Our contingency plans will be
<PAGE> 27
adapted to include such items as outsourcing options, business resumption plans
for all of the business units, identifying alternative sources of liquidity, and
evaluating alternative manual processes. The adaptation and testing of these
contingency plans should be finalized early in 1999.
The foregoing statements are forward looking. Actual results could differ
because of several factors, including those set forth in the subsection entitled
"Factors That May Affect Future Results and Financial Condition."
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------------------------------------------------------------------
The information called for by this item is incorporated herein by reference to
Management's Discussion and Analysis included as Item 2 of Part I of this report
and to Note 1 of the Consolidated Financial Statements and the "Risk
Management-Interest Rate Risk Management" Subsection of the Management's
Discussion and Analysis section contained in the Financial Information Appendix
to the Corporation's proxy statement furnished to shareholders in connection
with the Annual Meeting of Shareholders held on April 21, 1998, filed March 19,
1998.
<PAGE> 28
Part II.
OTHER INFORMATION
Items 1, 3, and 4.
- ------------------
As of the end of the third quarter, 1998, the answers to Items 1, 3, and 4 were
either inapplicable or negative, and therefore, these items are omitted.
Item 2 - Changes in Securities.
- -------------------------------
On July 1, 1998, the Corporation acquired Keystone Mortgage, Inc. ("Keystone"),
Kirkland, Washington, and merged Keystone with and into FT Mortgage Companies,
an indirect, wholly-owned subsidiary of the Corporation. At closing, the
Corporation acquired from the 16 shareholders of Keystone all 1,000 shares of
Keystone's common stock, no par value, in exchange for an initial closing
payment of 144,531 shares of the Corporation's common stock, $0.625 par value.
An estimated 47,000 additional shares of the Corporation's common stock will be
issued to the shareholders of Keystone during the fourth quarter of 1998 in
payment of the balance of the acquisition price. No underwriter was involved in
the transaction. The shares were sold in a private offering pursuant to an
exemption from registration under Section 4(2) of the Securities Act of 1933,
based on the limited number of shareholders receiving the Corporation's common
stock.
Item 5 - Other Information.
- ---------------------------
The Securities and Exchange Commission ("SEC") amended its proxy rules,
generally effective June 29, 1998, to require a disclosure in issuer proxy
statements of the date after which notice of a shareholder proposal submitted
outside the SEC Rule 14(a)-8 proxy rule process is considered untimely, either
calculated in a manner provided by SEC rules or as established by an issuer's
advance notice bylaw provision, if any. Under the Corporation's advance notice
bylaw provision, which was amended by the Board of Directors of the Corporation
on October 21, 1998, procedures must be followed by a shareholder desiring to
submit an item for vote at a shareholder meeting. The notice required by the
proxy rules, which reflects the amendment to the advance bylaw notice provision
and updates the disclosure in the Corporation's March 20, 1998 Proxy Statement,
is as follows:
SHAREHOLDER PROPOSALS
If you intend to present a shareholder proposal at the 1999 Annual Meeting, it
must be received by the Corporate Secretary, First Tennessee National
Corporation, P.O. Box 84, Memphis, Tennessee 38101, not later than November 20,
1998, for inclusion in the proxy statement and form of proxy relating to that
meeting.
In addition, Sections 2.8 and 3.6 of our Bylaws provide that a shareholder who
wishes to nominate a person for election to the Board or submit a proposal at a
shareholder meeting must comply with certain procedures, which require a written
notification to us, generally not less than 90 nor more than 120 days prior to
the date of the shareholder meeting. If, however, we give fewer than 100 days'
notice or prior public disclosure of the shareholder meeting date to
shareholders, then we must receive the shareholder notification not later than
10 days after the earlier of the date notice of the shareholder meeting was
mailed or publicly disclosed. The shareholder must disclose certain information
about the nominee or item proposed, the shareholder and any other shareholders
known to support the nominee or proposal. As provided in the Corporation's
bylaws, the date and time of the annual meeting shall be the third Tuesday in
April, or if that day is a legal holiday, on the next succeeding business day
not a legal holiday, at 10:00 a.m. Memphis time or such other day and/or at such
other time as the Board of Directors may fix by resolution. The meeting date for
1999, computed according to the bylaws, is April 20, 1999.
<PAGE> 29
Item 6 - Exhibits and Reports on Form 8-K.
- ------------------------------------------
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3(b) Bylaws, as amended.
4 Instruments defining the rights of security holders,
including indentures.*
27 Financial Data Schedule (for SEC use only).
</TABLE>
[FN]
*The Corporation agrees to furnish copies of the instruments, including
indentures, defining the rights of the holders of the long-term debt of the
Corporation and its consolidated subsidiaries to the Securities and Exchange
Commission upon request.
</FN>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the third quarter of 1998.
<PAGE> 30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST TENNESSEE NATIONAL CORPORATION
------------------------------------
(Registrant)
DATE: 11/12/98 By:Elbert L. Thomas Jr.
--------------------- ------------------------------
Elbert L. Thomas Jr.
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
<PAGE> 31
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3(b) Bylaws, as amended.
4 Instruments defining the rights of security holders,
including indentures.*
27 Financial Data Schedule (for SEC use only).
</TABLE>
[FN]
*The Corporation agrees to furnish copies of the instruments, including
indentures, defining the rights of the holders of the long-term debt of the
Corporation and its consolidated subsidiaries to the Securities and Exchange
Commission upon request.
</FN>
<PAGE> 1
Exhibit 3(b)
BYLAWS OF
FIRST TENNESSEE NATIONAL CORPORATION
(AS AMENDED AND RESTATED OCTOBER 21, 1998)
ARTICLE ONE
OFFICES
1.1 PRINCIPAL OFFICE. The principal office of First Tennessee National
Corporation (the "Corporation") shall be 165 Madison Avenue, Memphis, Tennessee.
1.2 OTHER OFFICES. The Corporation may have offices at such other
places, either within or without the State of Tennessee, as the Board of
Directors may from time to time designate or as the business of the Corporation
may from time to time require.
1.3 REGISTERED OFFICE. The registered office of the Corporation
required to be maintained in the State of Tennessee shall be the same as its
principal office and may be changed from time to time as provided by law.
ARTICLE TWO
SHAREHOLDERS
2.1 PLACE OF MEETINGS. 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 principal
office of the Corporation in Memphis, Tennessee.
2.2 QUORUM AND ADJOURNMENTS. The holders of a majority of the shares
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall be requisite, and shall constitute a quorum at all
meetings of the shareholders, for the transaction of business, except as
otherwise provided by law, the Restated Charter of the Corporation, as amended
from time to time (the "Charter), or these Bylaws. In the event a quorum is not
obtained at the meeting, the holders of a majority of the shares entitled to
vote thereat, present in person or by proxy, shall have power to adjourn the
meeting from time to time and, whether or not a quorum is obtained at the
meeting, the Chairman of the meeting shall have the power to adjourn the meeting
from time to time, in either case without notice, except as otherwise provided
by law, other than announcement at the meeting. At such adjourned 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.
2.3 NOTICE OF MEETINGS. Unless otherwise required by applicable law,
written notice of the annual and each special meeting stating the date, time and
place of the meeting shall be mailed, postage prepaid, or otherwise delivered to
each shareholder entitled to vote thereat at such address as appears on the
records of shareholders of the Corporation, at least ten (10) days, but not more
than two (2) months, prior to the meeting date. In addition, notice of any
special meeting shall state the purpose or purposes for which the meeting is
called and the person or persons calling the meeting. In the event of an
adjournment of a meeting to a date more than four months after the date fixed
for the original meeting or the Board of Directors fixes a new record date for
the adjourned meeting, a new notice of the adjourned meeting must be given to
shareholders as of the new record date. Any previously scheduled meeting may be
postponed, and any special meeting may be canceled, by resolution of the Board
of Directors upon public notice given prior to the date scheduled for such
meeting.
2.4 ANNUAL MEETINGS. 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 business day
not a legal holiday, at 10:00 a.m. Memphis time or on such other date and/or at
such other time as the Board of Directors may fix by resolution by vote of a
majority of the entire Board of Directors. At the meeting, the shareholders
shall elect by ballot, by plurality vote,
1
<PAGE> 2
directors to succeed directors in the class of directors whose term expires at
the meeting and directors elected by the Board of Directors to fill vacancies in
other classes of directors and may transact such other business as may properly
come before the meeting.
2.5 SPECIAL MEETINGS. Special meetings of the shareholders for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
Chairman of the Board and shall be called by the Chairman of the Board or the
Secretary at the request in writing of a majority of the Board of Directors.
Only such business within the purpose or purposes described in the notice of the
meeting may be conducted at the meeting.
2.6 WAIVER OF NOTICE. Any shareholder may waive in writing notice of
any meeting either before, at or after the meeting. Attendance by a shareholder
in person or by proxy at a meeting shall constitute a waiver of objection to
lack of notice or defective notice and a waiver of objection to consideration of
a matter that was not described in the meeting notice unless the shareholder
objects in the manner required by law.
2.7 VOTING. Unless otherwise required by the Charter, at each meeting
of shareholders, each shareholder shall have one vote for each share of stock
having voting power registered in the shareholder's 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 or any other method permitted by law.
2.8 PROCEDURES FOR BRINGING BUSINESS BEFORE SHAREHOLDER MEETING. 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 the Chairman of the Board
or at the request 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 (iii) otherwise properly brought before the annual or special
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 90 days nor more
than 120 days prior to the date of the meeting; provided, however, that if fewer
than 100 days' notice or prior public disclosure of the date of the meeting is
given or made to shareholders, notice by the shareholders 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 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 conducted at a meeting of
shareholders except in accordance with the procedures set forth in this Section
2.8. 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 the
Chairman should so determine, the Chairman shall so declare to the meeting and
any such business not properly brought before the meeting shall not be
transacted.
2.9 SEC PROXY RULES. In addition to complying with the provisions of
Section 2.8, a shareholder shall also comply with all applicable requirements of
the Securities Exchange Act of 1934 and the rules and regulations thereunder
with respect to the matters set forth in Section 2.8. Nothing in Section 2.8
shall be deemed to affect any rights of shareholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to rules of the
Securities and Exchange Commission. For such proposals to be acted upon at a
meeting, however, compliance with the notice provisions of Section 2.8 is also
required.
2
<PAGE> 3
ARTICLE THREE
DIRECTORS
3.1 POWERS OF DIRECTORS. The business and affairs of the Corporation
shall be managed under the direction of and all corporate powers shall be
exercised by or under the authority of the Board of Directors.
3.2 NUMBER AND QUALIFICATIONS. The Board of Directors shall consist of
12 members. The Board of Directors has the power to change from time to time the
number of directors specified in the preceding sentence. Any such change in the
number of directors constituting the Corporation's Board Directors must be made
exclusively by means of an amendment to these Bylaws adopted by a majority of
the entire Board of Directors then in office. Directors need not be shareholders
of the Corporation nor residents of the State of Tennessee.
3.3 TERM OF OFFICE. Except as otherwise provided by law or by the
Charter, the term of each director hereafter elected shall be from the time of
his or her election and qualification until the third annual meeting next
following such election and until a 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.
3.4 COMPENSATION. The directors shall be paid for their services on the
Board of Directors and on any Committee thereof such compensation (which may
include cash, shares of stock of the Corporation and options thereon) and
benefits together with reasonable expenses, if any, at such times as may, from
time to time, be determined by resolution adopted by a majority of the entire
Board of Directors; provided that nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
being compensated therefor.
3.5 COMMITTEES. The directors, by resolution adopted by a majority of
the entire Board of Directors, may designate an executive committee and other
committees, consisting of two or more directors, and may delegate to such
committee or committees all such authority of the Board of Directors that it
deems desirable, including, without limitation, authority to appoint 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 shall have and exercise the
authority of the Board of Directors to:
(a) authorize distributions (which include dividend declarations),
except according to a formula or method prescribed by the Board of
Directors,
(b) fill vacancies on the Board of Directors or on any of its
committees,
(c) adopt, amend or repeal bylaws,
(d) authorize or approve the reacquisition of shares, except according
to a formula or method prescribed by the Board of Directors, or
(e) authorize or approve the issuance or sale or contract for sale of
shares, or determine the designation and relative rights,
preferences and limitations of a class or series of shares, except
that the Board of Directors may authorize a committee to do so
within limits specifically prescribed by the Board of Directors.
3.6 PROCEDURES FOR DIRECTOR NOMINATIONS. Except as provided in Section
3.7 with respect to vacancies on the Board of Directors, only persons nominated
in accordance with the procedures set forth in this Section 3.6 shall be
eligible for election as directors. Nominations of persons for election to the
Board of Directors may be made at a meeting of shareholders (i) by or at the
direction of the Board of Directors, 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 3.6. Such
nominations, other than those made by or at the direction of the Board of
Directors, 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 90 days nor more
3
<PAGE> 4
than 120 days prior to the date of a meeting; provided, however, that if fewer
than 100 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 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 3.6. 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 the Chairman
should so determine, the Chairman shall so declare to the meeting and the
defective nomination shall be disregarded.
3.7 VACANCIES; REMOVAL FROM OFFICE. 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 a term expiring at
the next shareholders' meeting at which directors are elected 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.
3.8 PLACE OF MEETINGS. The directors may hold meetings of the Board of
Directors or of a committee thereof at the principal office of the Corporation
in Memphis, Tennessee, or at such other place or places, either in the State of
Tennessee or elsewhere, as the Board of Directors or the members of the
committee, as applicable, may from time to time determine by resolution or by
written consent or as may be specified in the notice of the meeting.
3.9 QUORUM. A majority of the directors shall constitute a quorum for
the transaction of business, 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. 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, the Charter, or these Bylaws.
3.10 REGULAR MEETINGS. Following each annual meeting of shareholders,
the newly elected directors, together with the incumbent directors whose terms
do not expire at such meeting, shall meet for the purpose of organization, the
appointment 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 resolution or by
written consent of the directors. In addition, the Board of Directors may
approve an annual schedule for additional regular meetings of the Board of
Directors and of committees thereof.
4
<PAGE> 5
3.11 SPECIAL MEETINGS. Special meetings of the directors may be called
by the Chairman of the Board, the Chief Executive Officer, or the President (or
as to any committee of the Board of Directors, by the person or persons
specified in the resolution of the Board of Directors establishing the
committee) 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 or facsimile
transmission to each director (or member of the committee, as appropriate), and
shall be called by the Chairman of the Board or Secretary in like manner on the
written request of a majority of directors then in office. The notice shall
state the day and hour of the meeting and the place where the meeting is to be
held. Special meetings of the directors may be held at any time on written
waiver of notice or by consent of all the directors, either of which may be
given either before, at or after the meeting.
3.12 ACTION WITHOUT A MEETING. The directors may (whether acting in
lieu of a meeting of the Board of Directors or of a committee thereof) 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. If all the directors entitled to vote
consent to taking such action without a meeting, the affirmative vote of the
number of directors necessary to authorize or take such action at a meeting is
the act of the Board of Directors or committee, as appropriate.
3.13 TELEPHONE MEETINGS. Directors may participate in a meeting of the
Board of Directors or of a committee thereof by, or conduct a meeting through
the use of, any means of communication by which all directors participating may
simultaneously hear each other during the meeting. A director so participating
is deemed to be present in person at such meeting.
ARTICLE FOUR
OFFICERS
4.1 DESIGNATED OFFICERS. The officers of the Corporation shall consist
of a Chairman of the Board, a Chief Executive Officer, a President, such number
of Vice Chairmen as the Board may from time to time determine and appoint, an
Auditor, a Chief Credit Officer, a Chief Financial Officer, a Controller, a
General Counsel, a Manager of Risk Management, a Personnel Division Manager, a
Secretary, and a Treasurer, and such number of Executive Vice Presidents, Senior
Vice Presidents and Vice Presidents and such other Officers and assistant
Officers as may be from time to time determined and appointed in accordance with
the provisions of this Article Four. The title of any officer may include any
additional descriptive designation determined to be appropriate. 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, need not be directors, and officers need not be shareholders.
4.2 APPOINTMENT OF OFFICERS. Except as otherwise provided in this
Section 4.2, the officers of the Corporation shall be appointed by the Board of
Directors at the annual organizational meeting of the Board of Directors
following the annual meeting of shareholders. The Board of Directors may
delegate to a committee of the Board of Directors the power to create corporate
offices, define the authority and responsibility of such offices, except to the
extent such authority or responsibility would not be consistent with the law or
the Charter, and to appoint persons to any office of the Corporation except the
offices of the Chairman of the Board, Chief Executive Officer, and President,
any office the incumbent in which is designated by the Board as an Executive
Officer (as defined in Section 4.5 hereof), and, upon the recommendation of the
Audit Committee, the Auditor. In addition, the Board of Directors may delegate
to the officers appointed to the Corporation's personnel committee, acting as a
committee, the authority to appoint persons to any offices of the Corporation of
the level of Vice President and below annually at the personnel committee
meeting following the annual meeting of shareholders and to appoint persons to
any office of the Corporation of the level of Senior Vice President and below
during the period of time between the annual appointment of officers by the
Board of Directors or pursuant to this section 4.2 of the Bylaws.
Notwithstanding the delegation of authority pursuant to this section 4.2 of the
Bylaws, the Board of Directors retains the authority to appoint all officers and
such other officers and agents as it shall deem necessary, who shall exercise
such powers and perform such duties as shall be determined from time to time by
the Board of Directors.
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4.3 TERM. The officers of the Corporation shall be appointed for a term
of one (1) year and until their successors are appointed and qualified, subject
to the right of removal specified in Section 4.4 of these Bylaws. The
designation of a specified term does not grant to any officer any contract
rights.
4.4 VACANCIES, RESIGNATIONS AND REMOVAL. If the office of any officer
or officers becomes vacant for any reason, the vacancy may be filled by the
Board of Directors or, if such officer was appointed by a committee, by the
committee appointing such officer. Any officer may resign at any time by
delivering a written notice to the Chairman of the Board, Chief Executive
Officer, President, Secretary, or Personnel Division Manager of the Corporation,
or the designee of any of them, which shall be effective upon delivery unless it
specifies a later date acceptable to the Corporation. Any officer designated by
the Board as an Executive Officer shall be subject to removal at any time with
or without cause only by the affirmative vote of a majority of the Board of
Directors. The Auditor shall be subject to removal at any time with or without
cause only by the affirmative vote of a majority of the Board of Directors, upon
the recommendation of the Audit Committee. Any other officer shall be subject to
removal at any time with or without cause by the affirmative vote of a majority
of the Board of Directors, and in the event the officer was, or could have been,
appointed by a committee, then by the affirmative vote of a majority of either
such committee or the Board of Directors.
4.5 COMPENSATION. The Board of Directors, or a committee thereof, shall
fix the compensation of Executive Officers (as defined herein) of the
Corporation. "Executive Officers" shall be those officers of the Corporation
identified as such from time to time in a resolution or resolutions of the Board
of Directors. The compensation of officers who are not Executive Officers shall
be fixed by the Board of Directors, by a committee thereof, or by management
under such policies and procedures as shall be established by the Board of
Directors or a committee thereof.
4.6 DELEGATION OF OFFICER DUTIES. In case of the absence of any officer
of the Corporation, or for any reason that the Board of Directors (or, in
addition, in the case of any officer appointed by a committee, such committee or
any other committee which could appoint such officer pursuant to Section 4.2 of
these Bylaws) may deem sufficient, the Board of Directors (or committee, as
applicable) 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.
4.7 CHAIRMAN OF THE BOARD. The Chairman of the Board 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 are
normally 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.
4.8 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer, in the
absence of the Chairman of the Board, 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 are normally incident
to the office and as may be prescribed by the Board of Directors. If and at such
time as the Board of Directors so determines, the Chief Executive Officer may
also serve as the President of the Corporation.
4.9 PRESIDENT. The President, in the absence of the Chairman of the
Board and the Chief Executive Officer, shall preside at all meetings of the
shareholders and of the Board of Directors. The President shall be the Chief
Executive Officer of the Corporation unless the Board of Directors has appointed
another person to such office, in which case the President shall be the Chief
Operating Officer of the Corporation and shall have such powers and perform such
duties as may be provided for herein and as are normally incident to the office
and as may be prescribed by the Board of Directors, the Chairman of the Board,
or the Chief Executive Officer.
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4.10 VICE CHAIRMEN. Vice Chairmen shall perform such duties and
exercise such powers as may be prescribed by the Board of Directors, the
Chairman of the Board, or the Chief Executive Officer.
4.11 CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall be the
principal financial officer of the Corporation. The Chief Financial Officer is
authorized to sign any document filed with the Securities and Exchange
Commission or any state securities commission on behalf of the Corporation and
shall perform such duties and exercise such powers as are normally incident to
the office and as may be prescribed by the Board of Directors, the Chairman of
the Board, or the Chief Executive Officer.
4.12 CHIEF CREDIT OFFICER. The Chief Credit Officer shall perform such
duties and exercise such powers as are normally incident to the office and as
may be prescribed by the Board of Directors, the Chairman of the Board, or the
Chief Executive Officer.
4.13 GENERAL COUNSEL. The General Counsel shall perform such duties and
exercise such powers as are normally incident to the office and as may be
prescribed by the Board of Directors, the Chairman of the Board, or the Chief
Executive Officer.
4.14 PERSONNEL DIVISION MANAGER. The Personnel Division Manager shall
perform such duties and exercise such powers as are normally incident to the
office and as may be prescribed by the Board of Directors, the Chairman of the
Board, or the Chief Executive Officer.
4.15 MANAGER OF RISK MANAGEMENT. The Manager of Risk Management shall
perform such duties and exercise such powers as are normally incident to the
office and as may be prescribed by the Board of Directors, the Chairman of the
Board, or the Chief Executive Officer.
4.16 EXECUTIVE VICE PRESIDENTS, SENIOR VICE PRESIDENTS AND VICE
PRESIDENTS. Executive Vice Presidents, Senior Vice Presidents and Vice
Presidents shall perform such duties and exercise such powers as may be
prescribed by the Board of Directors, a committee thereof, the personnel
committee, the Chairman of the Board, or the Chief Executive Officer.
4.17 SECRETARY. The Secretary shall attend all sessions of the Board of
Directors and of the shareholders and record all votes and the minutes of all
proceedings in books to be kept for that purpose. The Secretary shall give or
cause to be given notice of all meetings of the shareholders and of the Board of
Directors, shall authenticate records of the Corporation, and shall perform such
other duties as are incident to the office or as may be prescribed by the Board
of Directors, the Chairman of the Board or the Chief Executive Officer. In the
absence or disability of the Secretary, the Assistant Secretary or such other
officer or officers as may be authorized by the Board of Directors or Executive
Committee thereof 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,
Chairman of the Board or the Chief Executive Officer shall prescribe.
4.18 TREASURER. The Treasurer shall have the custody of the funds and
securities 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 in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer, the Chief Financial Officer, or the President, taking proper
vouchers for such disbursements, and shall render to the Board of Directors, the
Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer,
or the President, whenever they may require it, an account of all of his or her
transactions as Treasurer and of the financial condition of the Corporation, and
at a regular meeting of the Board of Directors preceding the annual
shareholders' meeting, a like report for the preceding year. The Treasurer 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.
The Treasurer shall give the Corporation a bond, if required by the Board of
Directors, in such a sum and in form and with security satisfactory to the Board
of Directors for the faithful performance of the duties of the office and the
restoration to the Corporation,
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in case of his or her death, resignation or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his or her
possession, belonging to the Corporation. The Treasurer shall perform such other
duties as the Board of Directors may from time to time prescribe or require. In
the absence or disability of the Treasurer, the Assistant 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, the Chairman of the Board,
or the Chief Executive Officer shall prescribe.
4.19 AUDITOR. The Auditor shall perform such duties and exercise such
powers as are normally incident to the office and as may be prescribed by the
Board of Directors or the Chairman of the Audit Committee.
4.20 CONTROLLER. The Controller shall be the principal accounting
officer of the Corporation. The Controller is authorized to sign any document
filed with the Securities and Exchange Commission or any state securities
commission on behalf of the Corporation and shall assist the management of the
Corporation in setting the financial goals and policies of the Corporation,
shall provide financial and statistical information to the shareholders and to
the management of the Corporation and shall perform such other duties and
exercise such other powers as may be prescribed by the Board of Directors, the
Chairman of the Board, the Chief Executive Officer or the President. In the
absence or disability of the Controller, the Assistant Controller shall perform
all the duties and exercise all powers of the Controller and shall perform such
duties as the Board of Directors or the Chairman of the Board or the Chief
Executive Officer shall prescribe.
4.21 OTHER OFFICERS. Officers holding such other offices as may be
created pursuant to Sections 4.1 and 4.2 of these Bylaws shall have such
authority and perform such duties and exercise such powers as may be prescribed
by the Board of Directors, a committee thereof, the personnel committee, the
Chairman of the Board or the Chief Executive Officer.
4.22 OFFICER COMMITTEES. The directors, by resolution adopted by a
majority of the entire Board of Directors, may designate one or more committees,
consisting of two or more officers, and may delegate to such committee or
committees all such authority that the Board of Directors deems desirable that
is permitted by law. Members of such committees may take action without a
meeting and may participate in meetings to the same extent and in the same
manner that directors may take action and may participate pursuant to Sections
3.12 and 3.13 of these Bylaws.
ARTICLE FIVE
SHARES OF STOCK
5.1 CERTIFICATES. The certificates representing shares of stock of the
Corporation shall be numbered, shall be entered in the books or records of the
Corporation as they are issued, and shall be signed by the Chairman of the Board
or the Chief Executive Officer and any one of the following: the President, the
Treasurer, or the Secretary. Either or both of the signatures upon a certificate
may be facsimiles if the certificate is countersigned by a transfer agent, or
registered by a registrar other than an officer or employee of the Corporation.
Each certificate shall include the following upon the face thereof:
(a) A statement that the Corporation is organized under the laws of
the State of Tennessee;
(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 certificate; or a
statement that the shares are without par value; and
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(f) Such other provisions as the Board of Directors may from time to
time require.
5.2 SHARES NOT REPRESENTED BY CERTIFICATES. Notwithstanding the
provisions of Section 5.1 of these Bylaws, the Board of Directors may authorize
the issuance of some or all of the shares of any class without certificates. The
Corporation shall send to each shareholder to whom such shares have been issued
or transferred at the appropriate time any written statement providing
information about such shares, which is required by law.
5.3 STOCK TRANSFERS AND RECORD DATES. Transfers of shares of stock
shall be made upon the books of the Corporation by the record owner or by an
attorney, lawfully constituted in writing, and upon surrender of any 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 of Directors may from time to time prescribe. The
transfer books may be closed by the Board of Directors 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 of Directors 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 or other
distribution. The record date for voting or taking other action as shareholders
shall not be less than 10 days nor more than 70 days prior to the meeting date
or action requiring such determination of shareholders. The record date for
dividends and other distributions shall not be less than 10 days prior to the
payment date of the dividend or other distribution. All certificates surrendered
to 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 prescribed by Section 5.5 of these Bylaws.
5.4 RECORD OWNERS. The Corporation shall be entitled to treat the
holder of record of any share or shares of stock as the holder in fact thereof;
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 person, whether or not it
shall have express or other notice thereof, except as required by applicable
law.
5.5 LOST, DESTROYED, STOLEN OR MUTILATED CERTIFICATES. 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 SIX
INDEMNIFICATION
6.1 INDEMNIFICATION OF OFFICERS WHEN WHOLLY SUCCESSFUL. 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 and a political action committee,
which serves the interests of the employees of the Corporation or any of its
subsidiaries) 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 the officer was a party because he or she is or was an
officer of the Corporation, the officer shall be indemnified by the Corporation
against all reasonable expenses, including attorney fees, incurred in connection
with such Proceeding, or any appeal therein.
6.2 INDEMNIFICATION OF OFFICERS WHEN NOT WHOLLY SUCCESSFUL. 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 the officer
was or was threatened to be made a party because he or she was or is an officer,
the officer 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:
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(a) The officer conducted himself or herself in good faith, and
(b) The officer reasonably believed: (i) in the case of conduct in the
officer's official capacity as an officer of the Corporation that
the officer's conduct was in the Corporation's best interest; and
(ii) in all other cases that the officer's conduct was at least
not opposed to its best interests; and
(c) In the case of any criminal proceeding, the officer had no
reasonable cause to believe his or her 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 the officer, whether or not involving action in his
or her official capacity, in which the officer was adjudged liable on the basis
that personal benefit was improperly received by the officer.
6.3 PROCEDURES FOR INDEMNIFICATION DETERMINATIONS. The determination
required by Section 6.2 herein shall be made as follows:
(a) By the Board of Directors by a majority vote of a quorum
consisting of directors not at the time parties to the Proceeding;
(b) 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;
(c) By independent special legal counsel: (i) selected by the Board of
Directors or its committee in the manner prescribed in subsection
(a) or (b); or (ii) if a quorum of the Board of Directors cannot
be obtained under subsection (a) and a committee cannot be
designated under subsection (b), 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 (a), (b), or (c) of this Section 6.3 cannot be
obtained, then
(d) 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.
6.4 SERVING AT THE REQUEST OF THE CORPORATION. An officer of the
Corporation shall be deemed to be serving another corporation or other
enterprise or employee benefit plan or political action committee 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. Approval by the Board of Directors, or a committee
thereof, may occur before or after commencement of such service by the officer.
6.5 ADVANCEMENT OF EXPENSES. 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:
(a) The officer furnishes to the Corporation a written affirmation of
the officer's good faith belief that the officer has met the
standard of conduct described in Section 6.2 herein;
(b) The officer furnishes to the Corporation a written undertaking,
executed personally or on behalf of the officer, to repay the
advance if it is ultimately determined that the officer is not
entitled to indemnification; and
(c) A determination is made that the facts then known to those making
the determination would not preclude indemnification under this
bylaw.
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6.6 UNDERTAKING REQUIRED FOR EXPENSES. The undertaking required by
Section 6.5 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.
6.7 PROCEDURES FOR EXPENSE DETERMINATIONS. Determinations and
authorizations of payments under Section 6.5 herein shall be made in the same
manner as is specified in Section 6.3 herein.
6.8 INDEMNIFICATION OF EMPLOYEES AND FORMER DIRECTORS. Every employee
and every former director of the Corporation shall be indemnified by the
Corporation to the same extent as officers of the Corporation.
6.9 NONEXCLUSIVITY OF RIGHT OF INDEMNIFICATION. The right of
indemnification set forth above shall not be deemed exclusive of any other
rights, including, but not limited to, rights created pursuant to Section 6.11
of these Bylaws, 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.
6.10 MANDATORY INDEMNIFICATION OF DIRECTORS AND DESIGNATED OFFICERS.
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.
6.11 INSURANCE. Notwithstanding anything in this Article Six to the
contrary, the Corporation shall have the additional power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee, or agent of the Corporation, or who, while a director, officer,
employee or agent of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan, political action committee, or other enterprise, against
liability asserted against or incurred by the person in that capacity or arising
from the person's status as a director, officer, employee, or agent, whether or
not the Corporation would have the power to indemnify the person against the
same liability.
ARTICLE SEVEN
RETIREMENT
7.1 NON-EMPLOYEE DIRECTORS. Directors who are not also officers of the
Corporation or its affiliates shall be retired from the Board of Directors as
follows:
(a) 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 of Directors at the expiration of such term.
(b) 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 of
Directors upon such occasion. A resignation will ordinarily be
accepted unless (i) the director assumes another management
position deemed appropriate by the Board of Directors for
continuation, or (ii) the director is so engaged in some specific
project for the Board of Directors as to make his or her
resignation detrimental to the Corporation. Under this
circumstance, the Board of Directors 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 of Directors on
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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.
7.2 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 employed
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 re-employ any former officer who had theretofore been retired.
ARTICLE EIGHT
EXECUTION OF DOCUMENTS
8.1 DEFINITION OF "DOCUMENT." For purposes of this Article Eight of the
Bylaws, the term "document" shall mean a document of any type, including, but
not limited to, an agreement, contract, instrument, power of attorney,
endorsement, assignment, transfer, stock or bond power, deed, mortgage, deed of
trust, lease, indenture, conveyance, proxy, waiver, consent, certificate,
declaration, receipt, discharge, release, satisfaction, settlement, schedule,
account, affidavit, security, bill, acceptance, bond, undertaking, check, note
or other evidence of indebtedness, draft, guaranty, letter of credit, and order.
8.2 EXECUTION OF DOCUMENTS. Except as expressly provided in Section 5.1
of these Bylaws (with respect to signatures on certificates representing shares
of stock of the Corporation), the Chairman of the Board, the Chief Executive
Officer, the President, any Vice Chairman, any Executive Vice President, any
Senior Vice President, any Vice President, the Chief Financial Officer, the
Chief Credit Officer, the General Counsel, the Personnel Division Manager, the
Manager of Risk Management, the Controller, the Treasurer, the Secretary, and
any other officer, or any of them acting individually, may (i) execute and
deliver in the name and on behalf of the Corporation or in the name and on
behalf of any division or department of the Corporation any document pertaining
to the business, affairs, or property of the Corporation or any division or
department of the Corporation, and (ii) delegate to any other officer, employee
or agent of the Corporation the power to execute and deliver any such document.
In addition, the President - Tennessee Banking, the President - Memphis Banking,
and the Group Manager - Money Management of First Tennessee Bank National
Association (the "Bank"), the principal subsidiary of the Corporation, or any of
them acting individually, may, as agent of the Corporation, execute and deliver
in the name and on behalf of the Corporation any such document.
8.3 METHOD OF EXECUTION BY SECRETARY. Unless otherwise required by law,
the signature of the Secretary on any document may be a facsimile.
ARTICLE NINE
EMERGENCY BYLAWS
9.1 DEFINITION OF EMERGENCY. The provisions of this Article Nine shall
be effective only during an "emergency." An "emergency" shall be deemed to exist
whenever any two of the officers identified in Section 9.2 of these Bylaws in
good faith determine that a quorum of the directors cannot readily be assembled
because of a catastrophic event.
9.2 NOTICE OF MEETING. A meeting of the Board of Directors may be
called by any one director or by any
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one of the following officers: Chairman of the Board, Chief Executive Officer,
President, any Vice Chairman, any Executive Vice President, Chief Credit
Officer, Chief Financial Officer, Controller, General Counsel, Manager of Risk
Management, Personnel Division Manager, or Secretary. Notice of such meeting
need be given only to those directors whom it is practical to reach by any means
the person calling the meeting deems feasible, including, but not limited to, by
publication and radio. Such notice shall be given at least two hours prior to
commencement of the meeting.
9.3 QUORUM AND SUBSTITUTE DIRECTORS.. If a quorum has not been
obtained, then one or more officers of the Corporation or the Bank present at
the emergency meeting of the Board of Directors, as are necessary to achieve a
quorum, shall be considered to be substitute directors for purposes of the
meeting, and shall serve in order of rank, and within the same rank in order of
seniority determined by hire date by the Corporation, the Bank or any of their
subsidiaries. In the event that less than a quorum of the directors (including
any officers who serve as substitute directors for the meeting) are present,
those directors present (including such officers serving as substitute
directors) shall constitute a quorum.
9.4 ACTION AT MEETING. The Board as constituted pursuant to Section
9.3 and after notice has been provided pursuant to Section 9.2 may take any of
the following actions: (i) prescribe emergency powers of the Corporation, (ii)
delegate to any officer or director any of the powers of the Board of Directors,
(iii) designate lines of succession of officers and agents in the event that any
of them are unable to discharge their duties, (iv) relocate the principal office
or designate alternative or multiple principal offices, and (v) take any other
action that is convenient, helpful, or necessary to carry on the business of the
Corporation.
9.5 EFFECTIVENESS OF NON-EMERGENCY BYLAWS. All provisions of these
Bylaws not contained in this Article Nine, which are consistent with the
emergency bylaws contained in Article Nine, shall remain effective during the
emergency.
9.6 TERMINATION OF EMERGENCY. Any emergency causing this Article Nine
to become operative shall be deemed to be terminated whenever either of the
following conditions is met: (i) the directors and any substitute directors
determine by a majority vote at a meeting that the emergency is over or (ii) a
majority of the directors elected pursuant to the provisions of these Bylaws
other than this Article Nine hold a meeting and determine that the emergency is
over.
9.7 ACTION TAKEN IN GOOD FAITH. Any corporate action taken in good
faith in accordance with the provisions of this Article Nine binds the
Corporation and may not be used to impose liability on any director, substitute
director, officer, employee or agent of the Corporation.
ARTICLE TEN
MISCELLANEOUS PROVISIONS
10.1 FISCAL YEAR. 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 of Directors shall have power to determine when the said fiscal year shall
begin and end.
10.2 DIVIDENDS. 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. 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 discretion, 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.
10.3 SEAL. This Corporation shall have a Corporate Seal which shall
consist of an imprint of the name
13
<PAGE> 14
of the Corporation, the state of its incorporation, the year of incorporation
and the words "Corporate Seal." The Corporate Seal shall not be required to
establish the validity or authenticity of any document executed in the name and
on behalf of the Corporation.
10.4 NOTICES. Whenever notice is required to be given to any director,
officer or shareholder under any of the provisions of the law, the Charter, or
these Bylaws (except for notice required by Sections 2.8 and 3.6 of these
Bylaws), it shall not be construed to require personal notice, but such notice
may be given in writing by depositing the same in the United States mail,
postage prepaid, or by telegram, teletype, facsimile transmission or other form
of wire, wireless, or other electronic communication or by private carrier
addressed to such shareholder at such address as appears on the Corporation's
current record of shareholders, and addressed to such director or officer at
such address as appears on the records of the Corporation. If mailed as provided
above, notice to a shareholder shall be deemed to be effective at the time when
it is deposited in the mail.
10.5 BYLAW AMENDMENTS. The Board of Directors shall have power to make,
amend and repeal the Bylaws or any Bylaw of the Corporation by vote of not less
than a majority of the directors then in office, at any regular or special
meeting of the Board of Directors. The shareholders may make, amend and repeal
the Bylaws or any Bylaw 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 amended or repealed by
the shareholders only by the vote of the holders of at least eighty percent
(80%) of the voting power of all outstanding voting stock. Without further
authorization, at any time the Bylaws are amended, the Secretary is authorized
to restate the Bylaws to reflect such amendment, and the Bylaws, as so restated,
shall be the Bylaws of the Corporation.
14
<PAGE> 15
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIRST
TENNESSEE NATIONAL CORPORATION'S SEPTEMBER 30, 1998, FINANCIAL STATEMENTS FILED
IN ITS 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCES TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 726,605
<INT-BEARING-DEPOSITS> 2,786
<FED-FUNDS-SOLD> 134,011
<TRADING-ASSETS> 397,980
<INVESTMENTS-HELD-FOR-SALE> 1,910,299
<INVESTMENTS-CARRYING> 684,491
<INVESTMENTS-MARKET> 686,156
<LOANS> 11,157,673
<ALLOWANCE> 135,413
<TOTAL-ASSETS> 17,248,009
<DEPOSITS> 11,100,489
<SHORT-TERM> 3,472,743
<LIABILITIES-OTHER> 1,257,096
<LONG-TERM> 266,468
100,000
0
<COMMON> 80,054
<OTHER-SE> 971,159
<TOTAL-LIABILITIES-AND-EQUITY> 17,248,009
<INTEREST-LOAN> 671,997
<INTEREST-INVEST> 118,162
<INTEREST-OTHER> 31,270
<INTEREST-TOTAL> 821,429
<INTEREST-DEPOSIT> 274,252
<INTEREST-EXPENSE> 427,439
<INTEREST-INCOME-NET> 393,990
<LOAN-LOSSES> 39,427
<SECURITIES-GAINS> (53)
<EXPENSE-OTHER> 781,985
<INCOME-PRETAX> 250,398
<INCOME-PRE-EXTRAORDINARY> 160,921
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 160,921
<EPS-PRIMARY> 1.26<F1>
<EPS-DILUTED> 1.22<F1>
<YIELD-ACTUAL> 3.87
<LOANS-NON> 27,657
<LOANS-PAST> 35,784
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 34,680
<ALLOWANCE-OPEN> 125,859
<CHARGE-OFFS> 35,196
<RECOVERIES> 8,758
<ALLOWANCE-CLOSE> 135,413
<ALLOWANCE-DOMESTIC> 135,413
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>FIRST TENNESSEE NATIONAL CORPORATION EFFECTED A TWO-FOR-ONE STOCK SPLIT ON
FEBRUARY 20, 1998. FINANCIAL DATA SCHEDULES BEGINNING WITH THE DECEMBER 31,
1997 FINANCIAL DATA SCHEDULE FILED WITH THE 1997 FORM 10-K REFLECT THIS STOCK
SPLIT. PRIOR FINANCIAL DATA SCHEDULES HAVE NOT BEEN RESTATED TO REFLECT THE
STOCK SPLIT.
</FN>
</TABLE>
