<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
--------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-4491
------
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 130,641,323
- ----------------------------- ----------------------------
Class Outstanding at July 31, 1999
<PAGE> 2
FIRST TENNESSEE NATIONAL CORPORATION
INDEX
Part I. Financial Information
Part II. Other Information
Signatures
Exhibit Index
<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
- ----------------------------------------------------------------------------------------------------------------------
June 30 December 31
--------------------------------- -------------
(Dollars in thousands)(Unaudited) 1999 1998 1998
- --------------------------------------------------------------------------------------------------- -------------
<S> <C> <C> <C>
ASSETS:
Cash and due from banks $ 764,018 $ 766,038 $ 811,881
Federal funds sold and securities
purchased under agreements to resell 228,032 151,614 124,239
- --------------------------------------------------------------------------------------------------- -------------
Total cash and cash equivalents 992,050 917,652 936,120
- --------------------------------------------------------------------------------------------------- -------------
Investment in bank time deposits 1,497 2,536 1,211
Capital markets inventory 461,674 394,992 358,304
Mortgage loans held for sale 2,868,885 2,483,532 4,227,443
Securities available for sale 1,965,893 1,916,427 1,816,485
Securities held to maturity (market value of
$855,060 at June 30, 1999; $731,277 at
June 30, 1998; and $610,364 at December 31, 1998) 871,283 732,541 609,804
Loans, net of unearned income 8,661,277 7,945,756 8,557,064
Less: Allowance for loan losses 138,595 129,858 136,013
- --------------------------------------------------------------------------------------------------- -------------
Total net loans 8,522,682 7,815,898 8,421,051
- --------------------------------------------------------------------------------------------------- -------------
Premises and equipment, net 297,121 220,271 254,292
Real estate acquired by foreclosure 16,968 20,923 16,242
Mortgage servicing rights, net 898,428 530,933 664,438
Intangible assets, net 133,731 125,937 132,845
Capital markets receivables and other assets 1,593,438 1,408,921 1,295,726
- --------------------------------------------------------------------------------------------------- -------------
TOTAL ASSETS $ 18,623,650 $ 16,570,563 $ 18,733,961
=================================================================================================== =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Interest-bearing $ 8,633,781 $ 8,094,858 $ 8,665,175
Noninterest-bearing 2,882,834 2,848,482 3,057,864
- --------------------------------------------------------------------------------------------------- -------------
Total deposits 11,516,615 10,943,340 11,723,039
- --------------------------------------------------------------------------------------------------- -------------
Federal funds purchased and securities
sold under agreements to repurchase 2,228,111 1,760,537 2,912,018
Commercial paper and other short-term borrowings 1,736,261 1,249,800 1,427,274
Capital markets payables and other liabilities 1,521,718 1,264,862 1,057,646
Term borrowings 326,860 266,543 414,450
- --------------------------------------------------------------------------------------------------- -------------
Total liabilities 17,329,565 15,485,082 17,534,427
- --------------------------------------------------------------------------------------------------- -------------
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 - 130,558,709 at
June 30, 1999; 127,695,802 at June 30, 1998;
and 128,974,362 at December 31, 1998) 81,599 79,810 80,609
Capital surplus 147,284 62,921 96,778
Undivided profits 973,534 827,233 908,977
Accumulated other comprehensive income (4,690) 16,120 12,872
Deferred compensation on restricted stock incentive plans (6,829) (1,758) (1,209)
Deferred compensation obligation 3,187 1,155 1,507
- --------------------------------------------------------------------------------------------------- -------------
Total shareholders' equity 1,194,085 985,481 1,099,534
- --------------------------------------------------------------------------------------------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 18,623,650 $ 16,570,563 $ 18,733,961
=================================================================================================== =============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME First Tennessee National Corporation
- --------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------------------- --------------------------------
(Dollars in thousands except per share data)(Unaudited) 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 181,582 $ 177,958 $ 362,830 $ 360,789
Interest on investment securities:
Taxable 43,021 39,461 81,249 72,670
Tax-exempt 737 952 1,491 1,943
Interest on mortgage loans held for sale 55,377 48,208 124,112 79,058
Interest on capital markets inventory 8,614 5,849 17,311 12,091
Interest on other earning assets 3,846 3,693 6,450 6,611
- --------------------------------------------------------------------------------------------------------------------------------
Total interest income 293,177 276,121 593,443 533,162
- --------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits:
Savings 1,439 1,833 2,867 3,654
Checking interest and money market account 26,078 28,083 52,647 57,098
Certificates of deposit under $100,000 and other time 30,726 36,951 63,105 74,660
Certificates of deposit $100,000 and more 33,869 25,301 76,178 42,954
Interest on short-term borrowings 48,627 46,526 91,248 86,571
Interest on term borrowings 6,072 5,238 12,865 8,896
- --------------------------------------------------------------------------------------------------------------------------------
Total interest expense 146,811 143,932 298,910 273,833
- --------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 146,366 132,189 294,533 259,329
Provision for loan losses 14,979 12,785 29,805 26,300
- --------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 131,387 119,404 264,728 233,029
- --------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Mortgage banking 175,696 122,500 344,474 215,057
Capital markets 30,177 30,223 74,565 68,220
Deposit transactions and cash management 26,608 22,732 49,824 42,767
Trust services and investment management 14,753 13,340 29,344 25,461
Merchant processing 14,216 7,740 24,925 14,949
Cardholder fees 6,052 5,354 11,014 9,866
Equity securities gains/(losses) -- 31 (8) 38
Debt securities gains/(losses) (38) (122) (64) (100)
All other income and commissions 26,757 18,125 46,710 33,642
- --------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 294,221 219,923 580,784 409,900
- --------------------------------------------------------------------------------------------------------------------------------
ADJUSTED GROSS INCOME AFTER PROVISION FOR LOAN LOSSES 425,608 339,327 845,512 642,929
- --------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Employee compensation, incentives, and benefits 162,391 132,771 336,286 246,414
Amortization of mortgage servicing rights 29,937 24,645 60,835 41,945
Operations services 16,861 13,923 32,563 27,958
Occupancy 17,051 12,020 32,702 23,415
Equipment rentals, depreciation, and maintenance 13,644 10,651 27,113 20,387
Communications and courier 12,670 10,373 25,037 19,704
Advertising and public relations 10,183 5,541 16,599 11,230
Amortization of intangible assets 2,601 2,655 5,177 5,295
All other 65,353 45,791 131,176 92,930
- --------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 330,691 258,370 667,488 489,278
- --------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 94,917 80,957 178,024 153,651
Applicable income taxes 33,945 28,211 64,023 54,550
- --------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 60,972 $ 52,746 $ 114,001 $ 99,101
================================================================================================================================
EARNINGS PER SHARE $ .47 $ .41 $ .88 $ .77
- --------------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE $ .45 $ .40 $ .85 $ .75
- --------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING 130,710,221 127,899,012 130,251,199 128,023,302
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY First Tennessee National Corporation
- ---------------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE, JANUARY 1 $ 1,099,534 $ 954,096
Net income 114,001 99,101
Other comprehensive income:
Unrealized market adjustments, net of tax and
reclassification adjustment (17,562) 788
- ---------------------------------------------------------------------------------------------------
Comprehensive income 96,439 99,889
- ---------------------------------------------------------------------------------------------------
Cash dividends declared (49,445) (42,233)
Common stock issued:
Cambridge Mortgage Company acquisition 704 --
For exercise of stock options 26,421 15,073
Tax benefit from non-qualified stock options 9,823 13,385
Common stock repurchased -- (60,814)
Amortization on restricted stock incentive plans 994 664
Common stock adjustment McGuire Mortgage Co. acquisition (259) --
Other 9,874 5,421
- ---------------------------------------------------------------------------------------------------
BALANCE, JUNE 30 $ 1,194,085 $ 985,481
===================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS First Tennessee National Corporation
- -----------------------------------------------------------------------------------------------
Six Months Ended June 30, 1999
-------------------------------
(Dollars in thousands)(Unaudited) 1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 114,001 $ 99,101
Adjustments to reconcile net income to net cash
provided/(used) by operating activities:
Provision for loan losses 29,805 26,300
Provision for deferred income tax 58,092 25,668
Depreciation and amortization of premises
and equipment 24,107 17,747
Amortization of mortgage servicing rights 60,835 41,945
Amortization of intangible assets 5,177 5,295
Net other amortization and accretion 28,154 5,718
Market value adjustment on foreclosed property 3,199 7,050
Gain on sale of securitized loans -- (643)
Equity securities (gains)/losses 8 (38)
Debt securities losses 64 100
Net gains on disposal of fixed assets (265) (292)
Net (increase)/decrease in:
Capital markets securities inventory (103,370) (141,752)
Mortgage loans held for sale 1,358,558 (1,242,884)
Capital markets receivables (312,480) (374,554)
Interest receivable 5,536 (5,640)
Other assets (317,858) (424,012)
Net increase/(decrease) in:
Capital markets payables 355,377 298,221
Interest payable (15,790) 5,076
Other liabilities 96,278 239,379
- -----------------------------------------------------------------------------------------------
Total adjustments 1,275,427 (1,517,316)
- -----------------------------------------------------------------------------------------------
Net cash (used)/provided by operating activities 1,389,428 (1,418,215)
- -----------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Held to maturity securities:
Maturities 118,216 32,739
Purchases -- --
Available for sale securities:
Sales 18,979 40,279
Maturities 415,320 452,014
Purchases (609,411) (271,675)
Premises and equipment:
Sales 2,831 1,208
Purchases (64,964) (29,835)
Net decrease in loans (515,872) (457,282)
Increase in investment in bank time deposits (286) (14)
Proceeds from loan securitizations -- 72,756
Acquisitions, net of cash and cash equivalents acquired (8,505) (9,412)
- -----------------------------------------------------------------------------------------------
Net cash used by investing activities (643,692) (169,222)
- -----------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Common stock:
Exercise of stock options 28,403 15,247
Cash dividends (49,067) (42,321)
Repurchase shares -- (60,833)
Term Borrowings:
Issuance 2,421 99,218
Payments (90,209) (1,674)
Net increase/(decrease) in:
Deposits (206,424) 1,271,561
Short-term borrowings (374,930) 222,270
- -----------------------------------------------------------------------------------------------
Net cash (used)/provided by financing activities (689,806) 1,503,468
- -----------------------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash equivalents 55,930 (83,969)
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 936,120 1,001,621
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 992,050 $ 917,652
===============================================================================================
Total interest paid $ 314,412 $ 268,589
Total income taxes paid 18,026 21,831
- -----------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<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 six month periods ended June 30,
1999, 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 1999 Proxy Statement & 1998 Financial
Information.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This 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 has been amended by
SFAS No. 137 which delayed the effective date to fiscal years beginning after
June 15, 2000; which for First Tennessee will mean the first quarter of 2001.
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.
On January 1, 1999, First Tennessee adopted SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after Securitization of Mortgage Loans Held
for Sale by a Mortgage Banking Enterprise." This Statement amends SFAS No. 65,
which required that retained securities be classified as trading securities.
SFAS No. 134 allows these securities to be classified as trading, held to
maturity or available for sale based on the intent and ability of the
enterprise.
On January 1, 1999, First Tennessee adopted Statement of Position 98-5,
"Reporting on the Costs of Start-up Activities." This Statement requires that
the costs of start-up activities, including organization costs, be expensed as
incurred. The impact of adopting this standard was immaterial to First
Tennessee.
NOTE 2 - BUSINESS COMBINATIONS/DIVESTITURES
On March 31, 1999, First Tennessee acquired Cambridge Mortgage Company of
Seattle, Washington, for approximately 22,000 shares of its common stock.
Cambridge was merged into FT Mortgage Companies, an indirect wholly owned
subsidiary of First Tennessee. This acquisition was accounted for as a purchase
and was immaterial to First Tennessee.
On June 1, 1999, First Tennessee Bank National Association, a wholly-owned
subsidiary of First Tennessee National Corporation, acquired from National
Processing Co. their remittance processing business locations in Atlanta,
Dallas, Louisville and Phoenix for approximately $6.0 million. The acquisition
of these units was accounted for as a purchase and was immaterial to First
Tennessee.
On July 20, 1999, First Tennessee completed the sale of substantially all of
the assets and liabilities of Planters Bank of Tunica, Mississippi, a
wholly-owned subsidiary, to First Security Bank of Batesville, Mississippi.
This transaction was completed for approximately $10.5 million and was
immaterial to First Tennessee.
<PAGE> 9
NOTE 3 - EARNINGS PER SHARE
The following table shows a reconciliation of earnings per share to diluted
earnings per share.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------------- -----------------------------
(Dollars in thousands, except per share data) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS PER SHARE COMPUTATION:
Net income $ 60,972 $ 52,746 $ 114,001 $ 99,101
Weighted average shares outstanding 130,308,530 127,760,553 129,883,561 127,953,690
Shares attributable to deferred compensation 401,691 138,459 367,638 69,612
- -----------------------------------------------------------------------------------------------------------------------------
Total weighted average shares per income statement 130,710,221 127,899,012 130,251,199 128,023,302
Earnings per share $ .47 $ .41 $ .88 $ .77
- -----------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE COMPUTATION:
Net income $ 60,972 $ 52,746 $ 114,001 $ 99,101
Weighted average shares outstanding 130,710,221 127,899,012 130,251,199 128,023,302
Dilutive effect due to stock options 3,972,396 3,748,256 3,974,353 3,899,720
- -----------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding, as adjusted 134,682,617 131,647,268 134,225,552 131,923,022
Diluted earnings per share $ .45 $ .40 $ .85 $ .75
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 10
NOTE 4 - LOANS
The composition of the loan portfolio at June 30 is detailed below:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial $ 4,295,676 $ 3,985,494
Consumer* 2,954,702 2,615,277
Permanent mortgage* 454,364 366,653
Credit card receivables 576,377 560,995
Real estate construction 351,651 396,075
Nonaccrual - Regional banking group 11,633 8,281
Nonaccrual - Mortgage banking 16,874 12,981
- ------------------------------------------------------------------------------------------
Loans, net of unearned income 8,661,277 7,945,756
Allowance for loan losses 138,595 129,858
- ------------------------------------------------------------------------------------------
Total net loans $ 8,522,682 $ 7,815,898
==========================================================================================
<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>
</TABLE>
The following table presents information concerning nonperforming loans at June
30:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans $ 12,428 $ 8,581
Other nonaccrual loans 16,079 12,681
- ------------------------------------------------------------------------------------------
Total nonperforming loans $ 28,507 $ 21,262
==========================================================================================
<FN>
Restructured impaired loans at June 30, 1998 were $117,000.
</FN>
</TABLE>
Nonperforming loans consist of impaired loans, other nonaccrual loans and
certain restructured loans. An impaired loan is a loan that management believes
the contractual amount due probably will not be collected. Impaired loans are
generally carried on a nonaccrual status. Nonaccrual loans are loans on which
interest accruals have been discontinued due to the borrower's financial
difficulties. Management may elect to continue the accrual of interest when the
estimated net realizable value of collateral is sufficient to recover the
principal balance and accrued interest.
Generally, interest payments received on impaired loans are applied to
principal. Once all principal has been received, additional payments are
recognized as interest income on a cash basis. The following table presents
information concerning impaired loans:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------- ------------------------
(Dollars in thousands) 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total interest on impaired loans $ 32 $ 225 $ 315 $ 357
Average balance of impaired loans 13,290 8,667 13,146 9,024
- --------------------------------------------------------------------------------------------
</TABLE>
An allowance for loan losses is maintained for all impaired loans. Activity in
the allowance for loan losses related to non-impaired loans, impaired loans,
and for the total allowance for the three months ended June 30, 1999 and 1998,
is summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Non-impaired Impaired Total
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1997 $ 122,107 $ 3,752 $ 125,859
Provision for loan losses 26,727 (427) 26,300
Securitization adjustment (3,575) -- (3,575)
Charge-offs 23,013 1,102 24,115
Less loan recoveries 4,852 537 5,389
- -----------------------------------------------------------------------------------
Net charge-offs 18,161 565 18,726
- -----------------------------------------------------------------------------------
Balance at June 30, 1998 $ 127,098 $ 2,760 $ 129,858
===================================================================================
Balance at December 31, 1998 $ 133,572 $ 2,441 $ 136,013
Provision for loan losses 22,767 7,038 29,805
Securitization adjustment (1,790) -- (1,790)
Charge-offs 24,627 5,016 29,643
Less loan recoveries 3,298 912 4,210
- -----------------------------------------------------------------------------------
Net charge-offs 21,329 4,104 25,433
- -----------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 $ 133,220 $ 5,375 $ 138,595
===================================================================================
</TABLE>
<PAGE> 11
NOTE 5 - BUSINESS SEGMENT INFORMATION
First Tennessee provides traditional retail/commercial banking and other
financial services to its customers. These products and services are
categorized into two broad groups: a regional banking group and national lines
of business. The national lines of business include mortgage banking, capital
markets and transaction processing. The other segment is used to isolate
corporate items. Total revenue, expense and asset levels reflect those which
are specifically identifiable or which are allocated based on an internal
allocation method. Because the allocations are based on internally developed
assignments and allocations, they are to an extent subjective. This assignment
and allocation has been consistently applied for all periods presented. The
following table reflects the approximate amounts of consolidated revenue,
expense, tax, and assets for the quarterly and year to date periods ending June
30, 1999 and 1998.
<TABLE>
<CAPTION>
Regional
Banking Mortgage Capital Transaction
(Dollars in thousands) Group Banking Markets Processing Other Consolidated
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2Q99
Interest income $ 214,177 $ 63,474 $ 11,220 $ 4,306 $ -- $ 293,177
Interest expense 87,189 49,061 10,033 528 -- 146,811
- ------------------------------------------------------------------------------------------------------------------
Net interest income 126,988 14,413 1,187 3,778 -- 146,366
Other revenues 61,834 177,607 30,177 24,641 (38) 294,221
Other expenses* 126,837 173,072 24,077 19,655 2,029 345,670
- ------------------------------------------------------------------------------------------------------------------
Pre-tax income 61,985 18,948 7,287 8,764 (2,067) 94,917
Income taxes 21,299 7,359 2,741 3,330 (784) 33,945
- ------------------------------------------------------------------------------------------------------------------
Net income $ 40,686 $ 11,589 $ 4,546 $ 5,434 $(1,283) $ 60,972
==================================================================================================================
Average assets $11,900,026 $5,122,155 $928,856 $490,440 $ -- $18,441,477
- ------------------------------------------------------------------------------------------------------------------
2Q98
Interest income $ 209,541 $ 54,055 $ 7,998 $ 4,527 $ -- $ 276,121
Interest expense 94,724 41,499 6,966 743 -- 143,932
- ------------------------------------------------------------------------------------------------------------------
Net interest income 114,817 12,556 1,032 3,784 -- 132,189
Other revenues 51,993 123,369 30,226 14,426 (91) 219,923
Other expenses* 110,198 120,282 23,455 15,190 2,030 271,155
- ------------------------------------------------------------------------------------------------------------------
Pre-tax income 56,612 15,643 7,803 3,020 (2,121) 80,957
Income taxes 19,614 5,347 2,908 1,147 (805) 28,211
- ------------------------------------------------------------------------------------------------------------------
Net income $ 36,998 $ 10,296 $ 4,895 $ 1,873 $(1,316) $ 52,746
==================================================================================================================
Average assets $10,998,014 $4,006,728 $614,186 $504,540 $ -- $16,123,468
- ------------------------------------------------------------------------------------------------------------------
<FN>
*Includes loan loss provision.
</FN>
<CAPTION>
Regional
Banking Mortgage Capital Transaction
(Dollars in thousands) Group Banking Markets Processing Other Consolidated
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year To Date 99
Interest income $ 423,041 $ 139,503 $ 21,733 $ 9,166 $ -- $ 593,443
Interest expense 173,863 105,143 18,726 1,178 -- 298,910
- ------------------------------------------------------------------------------------------------------------------
Net interest income 249,178 34,360 3,007 7,988 -- 294,533
Other revenues 116,392 347,672 74,564 42,228 (72) 580,784
Other expenses* 247,157 354,096 56,681 35,300 4,059 697,293
- ------------------------------------------------------------------------------------------------------------------
Pre-tax income 118,413 27,936 20,890 14,916 (4,131) 178,024
Income taxes 41,060 10,985 7,878 5,668 (1,568) 64,023
- ------------------------------------------------------------------------------------------------------------------
Net income $ 77,353 $ 16,951 $ 13,012 $ 9,248 $(2,563) $ 114,001
==================================================================================================================
Average assets $11,725,776 $5,423,522 $887,621 $494,889 $ -- $18,531,808
- ------------------------------------------------------------------------------------------------------------------
Year To Date 98
Interest income $ 417,809 $ 89,803 $ 16,111 $ 9,439 $ -- $ 533,162
Interest expense 190,551 67,711 13,763 1,808 -- 273,833
- ------------------------------------------------------------------------------------------------------------------
Net interest income 227,258 22,092 2,348 7,631 -- 259,329
Other revenues 97,357 216,786 68,223 27,596 (62) 409,900
Other expenses* 214,395 216,695 51,287 29,141 4,060 515,578
- ------------------------------------------------------------------------------------------------------------------
Pre-tax income 110,220 22,183 19,284 6,086 (4,122) 153,651
Income taxes 38,879 7,681 7,243 2,312 (1,565) 54,550
- ------------------------------------------------------------------------------------------------------------------
Net income $ 71,341 $ 14,502 $ 12,041 $ 3,774 $(2,557) $ 99,101
==================================================================================================================
Average assets $10,989,725 $3,421,863 $608,682 $507,720 $ -- $15,527,990
- ------------------------------------------------------------------------------------------------------------------
<FN>
*Includes loan loss provision.
</FN>
</TABLE>
<PAGE> 12
ITEM 2. FIRST TENNESSEE NATIONAL CORPORATION
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
trust services. 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
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 management discussion and analysis (MD&A), noninterest
income (also called fee 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.
The following is a discussion and analysis of the financial condition and
results of operations of First Tennessee for the three month and six month
periods ended June 30, 1999, compared to the three month and six month periods
ended June 30, 1998. 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 1998 financial statements, notes, and management's discussion and
analysis is provided as an appendix to the 1999 proxy statement.
Management's discussion and analysis may contain forward-looking statements
with respect to First Tennessee's beliefs, plans, goals, expectations, and
estimates. These statements are contained in certain sections that follow such
as Year 2000. Forward-looking statements are statements that are not based on
historical information but rather are related 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 rate, market 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. 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. The forward-looking statements related to Year 2000 reflect
management's best current estimates, which are based on numerous assumptions
about future events, including the continued availability of certain resources,
representations received from third party service providers and other third
parties, and additional factors. Those additional factors include, but are not
limited to, uncertainties in the cost of hardware and software, the
<PAGE> 13
availability and cost of programmers and other systems personnel, inaccurate or
incomplete execution of the phases, ineffective remediation of the computer
code, and whether First Tennessee's customers, vendors, competitors and
counterparties effectively address the Year 2000 issue. There can be no
guarantee that these estimates, including Year 2000 costs, will be achieved, and
actual results could differ materially from those estimates. First Tennessee
assumes no obligation to update any forward-looking statements that are made
from time to time.
SECURITIZATION ACTIVITY
First Tennessee Bank National Association (FTBNA) securitized approximately $73
million of direct automobile loan receivables during the second quarter of
1998. During 1998 and 1999, FTBNA securitized $711 million and $378 million,
respectively, of its consumer real estate loans from the consumer loan and
permanent mortgage portfolios 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 transactions 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.
FINANCIAL HIGHLIGHTS (COMPARISON OF SECOND QUARTER 1999 TO SECOND QUARTER 1998)
- - Earnings for the second quarter of 1999 were $61.0 million, up 16
percent from last year's second quarter earnings of $52.7 million.
- - Diluted earnings per share were $.45 in 1999, up 13 percent over the
$.40 earned in 1998. Basic earnings per share were $.47 in 1999 and
$.41 in 1998, an increase of 15 percent.
- - Total revenues grew 25 percent with growth in fee income of
approximately 34 percent and growth in net interest income of 11
percent. Mortgage banking led the increase in fee income with growth
of 43 percent. Fee income contributed 67 percent to total revenues in
1999 compared with 62 percent in 1998.
- - Return on average assets was 1.33 percent in 1999 compared with 1.31
percent in 1998. Return on average shareholders' equity was 20.9
percent in 1999 compared with a return of 22.2 percent in 1998. Strong
internal equity generation caused the decline in this ratio.
- - The consolidated net interest margin was 3.81 percent in 1999 compared
with 3.86 percent in 1998. The lower margin was primarily related to
the increased volume in the mortgage warehouse which produces a
narrower spread. The consolidated net interest margin compression was
partially offset by the 12 basis point improvement in the regional
banking group's margin.
- - Asset quality remained stable with the nonperforming assets ratio
remaining flat at .53 percent for the second quarters of 1999 and
1998.
- - At June 30, 1999, First Tennessee was ranked as one of the top 50 bank
holding companies nationally in market capitalization ($5.0 billion)
and assets ($18.6 billion). FT Mortgage Companies continued to rank as
one of the top retail mortgage originators in the nation, and First
Tennessee Capital Markets continued to rank as one of the largest U.S.
agency underwriters in the nation during the quarter.
<PAGE> 14
INCOME STATEMENT ANALYSIS
NONINTEREST INCOME
- ------------------
Fee income (noninterest income excluding securities gains and losses) provides
the majority of First Tennessee's revenue. During the second quarter of 1999,
fee income increased 34 percent (from $220.0 million to $294.3 million) and
contributed 67 percent to total revenue. In comparison, fee income contributed
62 percent to total revenue in the second quarter of 1998. Fee income increased
in all of the major categories with the exception of capital markets which
remained flat with the previous year. Mortgage banking led the growth with an
increase of 43 percent while merchant processing experienced exceptional growth
of 84 percent.
MORTGAGE BANKING
Mortgage banking fee income, First Tennessee's largest contributing business
line to noninterest income, grew 43 percent (from $122.5 million to $175.7
million) from the second quarter of 1998 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>
Second Quarter Six Months
------------------------ Growth ------------------------ Growth
(Dollars in millions) 1999 1998 Rate (%) 1999 1998 Rate (%)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NONINTEREST INCOME:
Secondary marketing activities $ 68.2 $ 47.1 44.8 $ 140.5 $ 87.8 60.0
Loan origination fees 48.1 36.8 30.5 102.0 59.3 72.0
Servicing fees 43.7 27.5 59.0 82.7 52.8 56.5
Sale of mortgage servicing rights 3.7 -- NM 3.7 -- NM
Miscellaneous 12.0 11.1 8.7 15.6 15.2 3.3
- -----------------------------------------------------------------------------------------------------------------
Total noninterest income $ 175.7 $ 122.5 43.4 $ 344.5 $ 215.1 60.2
=================================================================================================================
Mortgage loan originations $ 5,639.3 $ 4,862.4 16.0 $ 11,607.8 $ 9,539.1 21.7
Servicing portfolio $ 46,145.0 $ 32,147.5 43.5 $ 46,145.0 $ 32,147.5 43.5
- -----------------------------------------------------------------------------------------------------------------
<FN>
NM = not meaningful
</FN>
</TABLE>
Income derived from the mortgage origination function increased 39 percent from
the second quarter of 1998 (from $83.9 million to $116.3 million). FT Mortgage
Companies originated $5.6 billion of mortgage loans during the second quarter
of 1999 and ranked as one of the largest retail mortgage loan originators in
the nation. This origination volume, consisting of refinances and home
purchases, represented an increase of 16 percent over the $4.9 billion in
mortgage loans originated in the second quarter of 1998. The strong real estate
market and expansion of FT Mortgage's market share led to a 36 percent increase
in home purchase-related mortgages for the second quarter of 1999. Refinance
activity decreased 9 percent and accounted for 35 percent of total origination
volume during the second quarter of 1999, compared to 45 percent in 1998. The
increased volume of originations, coupled with more profitable execution of
loan sales into the secondary market resulted in the increase in income from
secondary marketing activities.
Mortgage servicing fee income increased 59 percent from the second quarter of
1998 (from $27.5 million to $43.7 million). The mortgage servicing portfolio
(which includes servicing for ourselves and others) totaled $46.1 billion at
June 30, 1999, up 44 percent from $32.1 billion at June 30, 1998. This growth
was generated through FT Mortgage's loan origination network. The change in the
portfolio since second quarter 1998 resulted from originations of $25.3
billion, less $1.3 billion in sales of servicing released originations and
principal reductions of $10.0 billion from payments and payoffs received in the
normal course of business. In addition, servicing rights of $1.9 billion were
sold during the second quarter of 1999.
<PAGE> 15
Growth in miscellaneous noninterest income came principally from repositioning
servicing hedges in the second quarter of 1999. The growth rate was diminished
by the inclusion of gains from the sale of interests in a multi-family joint
venture during the second quarter of 1998.
CAPITAL MARKETS
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 solely for distribution
to customers by the sales staff. Inventory is hedged to protect against
movements in interest rates. Fee income in capital markets remained flat with
the previous year's second quarter results of $30.2 million. With the
anticipation of rising interest rates during the quarter, volume from
traditional products declined as many customers delayed purchasing securities.
This slowdown in demand was eased by continued growth in capital markets'
customer base. Total securities bought and sold increased 46 percent over the
same period in 1998 (from $95.2 billion to $138.8 billion). The increase in
total volume came from a change in the mix of securities distributed, with a
higher emphasis on discount notes during 1999. Total underwritings during the
second quarter of 1999 were $8.0 billion compared with $7.1 billion for the
same period in 1998. Capital markets continued to rank as one of the largest
U.S. agency underwriters in the nation during the quarter.
OTHER FEE INCOME
Noninterest income from deposit transactions and cash management increased 17
percent from the second quarter of 1998 (from $22.7 million to $26.6 million)
due to increased fees from business and consumer deposit accounts and growth in
cash management from ACH processing and retail and wholesale lockbox
processing. Since the second quarter of 1998, trust and investment management
fees grew 11 percent (from $13.3 million to $14.8 million). This growth was
primarily due to growth in assets under management related to a strong stock
market and growth in customer accounts. Assets under management grew from $8.5
billion in the second quarter of 1998 to $9.4 billion in the second quarter of
1999. Fee income from merchant processing grew 84 percent (from $7.7 million to
$14.2 million) due to growth in transaction volume, pricing changes and a
special assessment received from a large customer. Merchant transactions
processed grew 10 percent since the second quarter of 1998 (from 39 million
transactions in the second quarter of 1998 to 43 million transactions in 1999).
Cardholder fees increased 13 percent (from $5.4 million to $6.1 million) during
this same period, as strong consumer purchasing activity led to higher
interchange collections.
All other income and commissions increased 48 percent from the second quarter
of 1998 (from $18.1 million to $26.8 million). This growth was principally in
the other category which grew 76 percent (from $9.6 million to $17.0 million)
in part due to the acquisition of four remittance processing locations of
National Processing Co. (a subsidiary of National Processing Inc.) during the
second quarter of 1999. Also contributing to the 48 percent growth were other
service charges which increased 11 percent (from $4.2 million to $4.7 million)
and included growth in servicing fees from securitizations; insurance premiums
and commissions which increased 33 percent (from $1.9 million to $2.5 million);
and check clearing fees which increased 9 percent (from $2.4 million to $2.6
million).
NET INTEREST INCOME
- -------------------
Net interest income increased 10 percent (from $133.2 million to $147.1
million) from the second quarter of 1998, primarily due to the 12 percent
increase in earning assets (from $13.8 billion to $15.5 billion). The
consolidated net interest margin (margin) declined from 3.86 percent in the
second quarter of 1998 to 3.81 percent in the second quarter of 1999, primarily
due to the negative impact the mortgage warehouse has on the margin. 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 second quarters of 1999 and 1998.
<PAGE> 16
TABLE 2 - NET INTEREST MARGIN
<TABLE>
<CAPTION>
Second Quarter
--------------------
1999 1998
- -----------------------------------------------------------------------------------
<S> <C> <C>
REGIONAL BANKING GROUP:
Yields on earning assets 7.80% 8.23%
Rates paid on interest-bearing liabilities 3.73 4.40
- -----------------------------------------------------------------------------------
Net interest spread 4.07 3.83
- -----------------------------------------------------------------------------------
Effect of interest-free sources .77 .90
Loan fees .13 .13
FRB interest and penalties .01 --
- -----------------------------------------------------------------------------------
Net interest margin - Regional banking group 4.98% 4.86%
MORTGAGE BANKING (.99) (.88)
CAPITAL MARKETS (.20) (.13)
TRANSACTION PROCESSING .02 .01
- -----------------------------------------------------------------------------------
Net interest margin 3.81% 3.86%
===================================================================================
</TABLE>
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.
The regional banking group's margin increased from 4.86 percent in the second
quarter of 1998 to 4.98 percent in the second quarter of 1999. This improvement
came from lower funding costs both in deposits and purchased funds.
NONINTEREST EXPENSE
- -------------------
Total noninterest expense (operating expense) for the second quarter of 1999
increased 28 percent (from $258.4 million to $330.7 million) over the same
period in 1998 primarily from increased costs to support the higher levels of
activity in mortgage banking. Table 3 provides a breakdown of total expenses by
business line.
TABLE 3 - OPERATING EXPENSE COMPOSITION
<TABLE>
<CAPTION>
Second Quarter Six Months
-------------------- Growth -------------------- Growth
(Dollars in millions) 1999 1998 Rate (%) 1999 1998 Rate (%)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Regional banking group $ 114.6 $ 98.5 16.4 $ 222.0 $ 190.2 16.7
Mortgage banking 170.3 119.2 42.8 349.4 214.6 62.8
Capital markets 24.1 23.5 2.7 56.7 51.3 10.5
Transaction processing 19.7 15.2 29.4 35.3 29.1 21.1
Other 2.0 2.0 -- 4.1 4.1 --
- -------------------------------------------------------------------------------------------------
Total operating expense $ 330.7 $ 258.4 28.0 $ 667.5 $ 489.3 36.4
=================================================================================================
</TABLE>
<PAGE> 17
Mortgage banking accounted for 71 percent of the overall expense growth; a 43
percent increase from the previous year. Expense growth for this business line
varies with volume and type of activity. The increase was mainly in personnel
expense due to increased loan production and expenses related to the larger
servicing portfolio. During this period, amortization of capitalized mortgage
servicing rights increased 21 percent (from $24.6 million to $29.9 million).
Increased activity in mortgage banking represented the majority of the growth
in other expenses (such as contract employment, amortization of hedge
instruments, legal and professional fees, etc.). Approximately half of the
growth in the other category was due to higher amortization expense related to
servicing hedge instruments.
The regional banking group accounted for 22 percent of the overall expense
growth and increased 16 percent from the previous year. This increase was due
to investments in our nationwide expansion strategy for consumer lending,
growth in the insurance business, and costs for the marketing campaign to
increase awareness of our new brand.
Transaction processing accounted for 6 percent of the overall expense growth
and grew 29 percent from the previous year. This expense growth was partially
due to the acquisition of several remittance processing locations of National
Processing Co.
Capital markets expense growth slowed to only 3 percent. Expenses for this
business line are primarily variable in nature, and the easing of expense
growth generally mirrors the leveling off of revenue from this business.
<PAGE> 18
PROVISION FOR LOAN LOSSES/ASSET QUALITY
The provision for loan losses increased 17 percent (from $12.8 million to $15.0
million) from June 30, 1998, due to increased inherent risk in the loan
portfolio and a change in the loan mix related to growth in loans with higher
risk/reward profiles. The provision for loan losses is the charge to operating
earnings that management determines to be necessary to maintain the allowance
for loan losses at an adequate level reflecting management's estimate of the
risk of loss inherent in the loan portfolio. 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>
June 30
-------------------------
(Dollars in thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nonperforming loans $ 11,633 $ 8,281
Foreclosed real estate 5,267 4,323
Other assets 202 214
- -------------------------------------------------------------------------------------------------------
Total Regional Banking Group 17,102 12,818
- -------------------------------------------------------------------------------------------------------
Mortgage Banking nonperforming loans 16,874 12,981
Mortgage Banking foreclosed real estate 11,701 16,600
- -------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 45,677 $ 42,399
=======================================================================================================
Loans and leases 90 days past due $ 23,593 $ 27,192
Potential problem assets* $ 66,842 $ 66,194
<CAPTION>
Second Quarter
-------------------------
1999 1998
-------------------------
<S> <C> <C>
ALLOWANCE FOR CREDIT LOSSES:
Beginning balance at March 31 $ 139,387 $ 130,026
Provision for loan losses 14,979 12,785
Securitization adjustments (1,790) (3,575)
Charge-offs (16,102) (11,739)
Loan recoveries 2,121 2,361
- -------------------------------------------------------------------------------------------------------
Ending balance at June 30 $ 138,595 $ 129,858
=======================================================================================================
<CAPTION>
June 30
-------------------------
1999 1998
-------------------------
<S> <C> <C>
Allowance to total loans 1.60% 1.63%
Nonperforming loans to total loans .33 .27
Nonperforming assets to total loans, foreclosed
real estate and other assets .53 .53
Allowance to nonperforming assets 303 306
- -------------------------------------------------------------------------------------------------------
<FN>
* Includes loans and leases 90 days past due
</FN>
</TABLE>
The allowance for loan losses increased 7 percent or $8.7 million from second
quarter 1998. Period-end loans grew 9 percent over this same period. The ratio
of allowance for loan losses to total loans, net of unearned income, was 1.60
percent at June 30, 1999, compared with 1.63 percent at June 30, 1998.
The ratio of net charge-offs to average loans increased from .47 percent for
the second quarter of 1998 to .65 percent for the second quarter of 1999. This
increase was due to a change in the mix of consumer loan products to those with
higher risk/return profiles, and a return to a more normal level of commercial
loan charge-offs. The credit card receivables charge-off ratio, however, did
improve from 4.12 percent for the second quarter of 1998 to 3.51 percent for
the second quarter of 1999.
<PAGE> 19
The ratio of nonperforming loans to total loans was .33 percent for the second
quarter of 1999 compared with .27 percent for the same period in 1998. At June
30, 1999, First Tennessee had no concentrations of 10 percent or more of total
loans in any single industry.
TABLE 5 - CHARGE-OFF RATIOS
<TABLE>
<CAPTION>
Second Quarter
----------------
1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Commercial and commercial real estate .24% .01%
Consumer .77 .30
Credit card receivables 3.51 4.12
Permanent mortgage* .31 (.05)
============================================================================
Total net charge-offs excluding repurchased mortgages .63% .39%
Impact of repurchased mortgages .02 .08
- ----------------------------------------------------------------------------
Total net charge-offs .65% .47%
============================================================================
<FN>
* Excludes impact of repurchased mortgages.
</FN>
</TABLE>
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 June 30, 1999, First Tennessee reported total assets of $18.6 billion
compared with $16.6 billion at June 30, 1998. Mortgage loans held for sale
(mortgage warehouse) increased 16 percent (from $2.5 billion to $2.9 billion).
The growth in the period-end balance sheet was primarily funded by a 31 percent
increase in short-term purchased funds (from $4.8 billion to $6.3 billion).
<PAGE> 20
TABLE 6 - SELECTED LOANS
<TABLE>
<CAPTION>
1999 1998
AS As Growth 1999 1998 Growth
(Dollars in millions) REPORTED Reported Rate (%) MANAGED* Managed* Rate (%)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
JUNE 30 PERIOD-END
Consumer loans $ 2,954.7 $ 2,615.3 13.0 $ 3,572.1 $ 3,030.3 17.9
Permanent mortgages 454.4 366.7 23.9 675.1 676.1 (.2)
Total loans 8,661.3 7,945.8 9.0 9,499.4 8,670.2 9.6
- --------------------------------------------------------------------------------------------------------
SECOND QUARTER AVERAGES
Consumer loans $ 2,999.7 $ 2,674.4 12.2 $ 3,507.0 $ 2,965.0 18.3
Permanent mortgages 448.3 453.0 (1.0) 679.5 665.2 2.2
Total loans 8,669.8 8,055.5 7.6 9,408.3 8,558.3 9.9
- --------------------------------------------------------------------------------------------------------
YEAR-TO-DATE AVERAGES
Consumer loans $ 3,044.8 $ 2,776.3 9.7 $ 3,450.0 $ 2,922.4 18.1
Permanent mortgages 436.4 560.4 (22.1) 678.4 667.1 1.7
Total loans 8,661.5 8,211.3 5.5 9,308.8 8,464.0 10.0
- --------------------------------------------------------------------------------------------------------
<FN>
* Excludes managed loans in the mortgage banking servicing portfolio.
</FN>
</TABLE>
TABLE 7 - INVESTMENT SECURITIES
<TABLE>
<CAPTION>
1999 1998
1999 1998 EXCLUDING Excluding
AS As Growth SECURITIZATION Securitization Growth
(Dollars in millions) REPORTED Reported Rate (%) ACTIVITY Activity Rate (%)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
June 30 period-end $ 2,837.2 $ 2,648.9 7.1 $ 2,000.2 $ 1,965.0 1.8
Second quarter averages 2,694.4 2,422.1 11.2 1,961.1 1,950.2 .6
Year-to-date averages 2,562.9 2,261.5 13.3 1,924.9 2,024.2 (4.9)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Average total assets grew 14 percent (from $16.1 billion to $18.4 billion) from
the second quarter of 1998. Due to strong origination volume, the mortgage
warehouse increased 17 percent (from $2.7 billion to $3.2 billion) and
accounted for 19 percent of the increase in total assets. The continuation of
favorable economic conditions led to 10 percent growth in total managed loans
for the second quarter of 1999 (from $8.6 billion to $9.4 billion). Average
commercial loans increased 8 percent (from $3.9 billion to $4.2 billion) and
represented 45 percent of total managed loans. The 18 percent increase in
managed consumer loans (from $3.0 billion to $3.5 billion) came primarily from
real estate-related lending, and these loans represented 37 percent of total
managed loans. First Horizon Equity Lending (previously known as Gulf Pacific
Mortgage) which is active in originating home equity loans and second
mortgages, experienced strong growth in 1999. Average investment securities
increased 11 percent from second quarter 1998 (from $2.4 billion to $2.7
billion). Table 7 - Investment Securities shows the impact the securitization
activity had on this growth rate.
Since the second quarter of 1998, average core deposits grew 3 percent (from
$8.9 billion to $9.2 billion) while interest-bearing core deposits remained
relatively flat at $6.4 billion for 1999 compared to $6.3 billion for 1998.
Noninterest-bearing deposits grew 10 percent (from $2.6 billion to $2.8
billion) over this same period with growth in mortgage escrow balances
accounting for 22 percent of this increase. Short-term purchased funds were up
31 percent (from $5.2 billion to $6.9 billion) from the previous year, and were
primarily used to fund the growth in mortgage banking.
<PAGE> 21
CAPITAL
- -------
Total capital (shareholders' equity plus qualifying capital securities) at June
30, 1999, was $1.3 billion, up 19 percent from $1.1 billion at June 30, 1998.
Shareholders' equity (excluding the qualifying capital securities) was $1.2
billion at June 30, 1999, an increase of 21 percent from $1.0 billion at June
30, 1998.
Average shareholders' equity increased 23 percent (from $1.0 billion to $1.2
billion) since the second quarter of 1998, reflecting strong internal capital
generation. The average total capital to average assets ratio was 6.89 percent
and the average shareholders' equity to average assets ratio was 6.35 percent
for the second quarter of 1999. This compares with 6.53 percent and 5.91
percent, respectively for the second quarter of 1998. The capital ratios have
been adversely impacted by the effect of assets, primarily the mortgage
warehouse, increasing faster than equity. Unrealized market valuations had no
material effect on these ratios for the second quarters of 1998 or 1999.
Diluted shares outstanding have increased 3.0 million since the second quarter
of 1998 primarily as a result of minimal share repurchases for stock option
exercises. This increase in shares created the difference between net income
growth of 16 percent and diluted earnings per share growth of 13 percent.
At June 30, 1999, the corporation's Tier 1 capital ratio was 8.51 percent, the
total capital ratio was 12.00 percent and the leverage ratio was 6.21 percent.
On June 30, 1999, First Tennessee's bank affiliates had sufficient capital to
qualify as well-capitalized institutions.
<PAGE> 22
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 as "Lending related,"
"Mortgage banking," "Interest rate risk management" and "Capital markets" as
noted in Table 8.
TABLE 8 - OFF-BALANCE SHEET FINANCIAL INSTRUMENTS AT JUNE 30, 1999
<TABLE>
<CAPTION>
(Dollars in millions) Notional value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
LENDING Commitments to extend credit:
RELATED: Consumer credit card lines $ 2,289.8
Consumer home equity 563.4
Commercial real estate and construction and land development 445.6
Mortgage banking 1,857.9
Other 1,406.3
Other commitments:
Standby letters of credit 240.8
Commercial letters of credit 11.1
- ----------------------------------------------------------------------------------------------------
MORTGAGE Mortgage pipeline and warehouse hedging:
BANKING: Interest rate contracts:
Forward contracts - commitments to sell $ 4,195.4
Servicing portfolio hedging:
Interest rate contracts:
Caps - purchased* 250.0
Caps - written 250.0
Floors - purchased* 20,025.0
Floors - written 2,000.0
Swaption - purchased* 3,300.0
- ----------------------------------------------------------------------------------------------------
INTEREST Interest rate contracts:
RATE RISK Swaps - receive fixed/pay floating $ 481.0
MANAGEMENT: Swaps - receive floating/pay floating 741.7
Caps - purchased 20.0
Caps - written 20.0
Equity contracts:
Purchased options 1.9
- ----------------------------------------------------------------------------------------------------
CAPITAL Forward contracts:
MARKETS: Commitments to buy $ 1,666.2
Commitments to sell 1,899.2
Option contracts:
Written 30.0
Purchased 30.0
Securities underwriting commitments 33.7
- ----------------------------------------------------------------------------------------------------
<FN>
* Mortgage banking option contracts had a value of $142.5 million recognized
in the Consolidated Statements of Condition at June 30, 1999.
</FN>
</TABLE>
<PAGE> 23
FINANCIAL HIGHLIGHTS (COMPARISON OF FIRST SIX MONTHS OF 1999 TO FIRST SIX MONTHS
OF 1998)
- - Earnings for 1999 were $114.0 million, up 15 percent from last year's
earnings of $99.1 million.
- - Diluted earnings per share were $.85 in 1999, up 13 percent over the
$.75 earned in 1998. Basic earnings per share were $.88 in 1999 and
$.77 in 1998.
- - Total revenues grew 31 percent with growth in fee income of 42 percent
and growth in net interest income of 13 percent. Increases were
experienced in all categories of fee income with mortgage banking
leading the increase with growth of 60 percent. Fee income contributed
66 percent to total revenues in 1999 compared with 61 percent in 1998.
- - Return on average assets was 1.24 percent in 1999 compared with 1.29
percent in 1998. The decline in the return on average assets was due to
growth in assets, largely due to growth in the mortgage warehouse.
Return on average shareholders' equity was 20.0 percent in 1999
compared with a return of 20.9 percent in 1998. Strong internal equity
generation caused the decline in this ratio.
- - The consolidated net interest margin was 3.78 percent in 1999 compared
with 3.94 percent in 1998.
INCOME STATEMENT REVIEW
- -----------------------
Noninterest income, excluding securities gains and losses, increased 42 percent
(from $410.0 million to $580.9 million) over the same period last year. Fee
income represented 66 percent of total revenues during the first six months of
1999 and 61 percent for the same period in 1998. Mortgage banking fee income
grew 60 percent (from $215.1 million to $344.5 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 9 percent (from $68.2 million to $74.6 million) from 1998,
reflecting a record six-month period. For the first six months of 1999, fee
income in deposit transactions and cash management grew 17 percent (from $42.8
million to $49.8 million). Trust services and investment service fees increased
15 percent (from $25.5 million to $29.3 million) and merchant processing fees
grew 67 percent (from $14.9 million to $24.9 million). Cardholder fees
increased 12 percent (from $9.9 million to $11.0 million). All other income and
commissions increased 39 percent (from $33.6 million to $46.7 million). This
growth was spread over a number of categories, with other service charges
increasing 28 percent (from $7.2 million to $9.2 million) which included growth
in investment/mutual fund sales and servicing fees from securitizations.
Insurance premiums and commissions increased 35 percent (from $3.5 million to
$4.8 million) and check clearing fees increased 14 percent (from $4.5 million
to $5.2 million). The other category increased 50 percent (from $18.4 million
to $27.5 million). The reasons for the year-to-date trends were similar to the
quarterly trend information already discussed.
Net interest income increased 13 percent (from $261.4 million to $296.1
million) from the first six months of 1998 primarily due to the 18 percent
increase in earning assets. Year-to-date consolidated margin declined from 3.94
percent in 1998 to 3.78 in 1999, primarily from the build-up of the mortgage
warehouse which produced 57 percent of the 18 percent increase in earning
assets year-over-year. In the regional banking group the year-to-date margin
improved from 4.81 percent in 1998 to 4.94 percent in 1999.
Noninterest expense increased 36 percent (from $489.3 million to $667.5
million) primarily from increased costs to support the higher levels of
activity in mortgage banking. See Table 3 - Operating Expense Composition for a
breakdown of total expenses by business line. Mortgage banking accounted for 76
percent of the overall expense growth and grew 63 percent from the previous
year. Expense growth for this business line varies with the volume and type of
activity. During this period, amortization of capitalized mortgage servicing
rights increased 45 percent (from $41.9 million to $60.8 million). The regional
banking group accounted for 18 percent of the overall expense growth and
increased 17 percent from the previous year. The reasons for the year-to-date
trends were similar to the quarterly trend information already discussed.
<PAGE> 24
The provision for loan losses increased 13 percent (from $26.3 million to $29.8
million) from the previous year. The increase reflects the inherent risk in the
loan portfolio from loan growth and a change in the loan mix partially due to
securitizations.
BALANCE SHEET REVIEW
- --------------------
Average total assets grew 19 percent (from $15.5 billion to $18.5 billion) and
average managed loans (including loans securitized) grew 10 percent (from $8.5
billion to $9.3 billion) from the first six months of 1998. Average loans
(excluding loans securitized) grew 5 percent (from $8.2 billion to $8.7
billion) during this same period. For a better understanding of the effect of
securitizations on these growth trends, refer to Table 6 - Selected Loans and
Table 7 - Investment Securities. Average commercial loans increased 9 percent
(from $3.9 billion to $4.2 billion), average consumer loans grew 10 percent
(from $2.8 billion to $3.0 billion) and average credit card receivables
remained level at $.6 billion. The permanent mortgage portfolio decreased 22
percent (from $.6 billion to $.4 billion) due to securitization activity, and
real estate construction loans averaged $.4 billion while experiencing a
decline of 8 percent from 1998. Average investment securities increased 13
percent (from $2.3 billion to $2.6 billion) from 1998. With the strong
origination volume, the mortgage warehouse grew 61 percent (from $2.2 billion
to $3.5 billion).
Average core deposits increased 4 percent (from $8.9 billion to $9.2 billion)
and interest-bearing core deposits remained level at $6.4 billion.
Noninterest-bearing deposits increased 12 percent (from $2.5 billion to $2.8
billion). Short-term purchased funds increased 46 percent (from $4.8 billion to
$6.9 billion) for the six-month period.
<PAGE> 25
YEAR 2000
- ---------
Many computer programs were originally designed to store and process data using
two digits rather than four to define a calendar year. This could cause
programs that have date sensitive software to recognize a date using "00" as
the year 1900 rather than the year 2000. The "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 to fix this
computer issue 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. First Tennessee's senior executives and
the board of directors also regularly review the Year 2000 program and its
progress. The main phases involved in the Year 2000 project are assessment
(determining the magnitude of the problem and assessing necessary effort),
renovation (making changes or enhancements to hardware and software and
associated components), validation (testing and verifying changes), and
implementation (certification, acceptance and initial installation). 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 are providing additional functionality to meet the
expanding needs of customers and will be Year 2000 compliant.
As of June 30, 1999, all mission critical systems have been renovated and
validated as Year 2000 compliant. When noncritical systems are included,
over 99 percent of all systems have been renovated and validated as compliant.
Approximately 99 percent of all systems have been 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 are being capitalized and amortized, and spending for
maintenance and modification associated with Year 2000 is expensed as incurred.
The total gross cost of Year 2000 compliance is estimated to be $40 million, of
which approximately $35 million had been incurred as of June 30, 1999, with
approximately 55 percent of this being capitalized. The remaining costs will be
used to finish rolling out systems already validated and certified. Consistent
with current corporate accounting policy, the capitalized costs are being
amortized on a straight-line basis over a maximum period of five years once the
systems project is substantially complete and ready for its intended use.
First Tennessee is also assessing Year 2000 readiness on the part of external
entities, particularly mission critical vendors, significant credit customers,
business partners, funds providers, and financial market counterparties. During
1998, First Tennessee initiated a review process 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. First Tennessee is continuing, when it deems appropriate, to discuss
these matters with, obtain written certification from, and test the systems of
other companies as to their Year 2000 compliance. If Year 2000 issues are not
adequately addressed by First Tennessee and significant third parties, First
Tennessee's business, financial condition or results of operations could be
materially adversely affected. However, our regular contingency planning
processes are being adapted to aid us in preparing for the most significant
potential risks from both internal and external sources. The adaptation and
testing of these contingency plans should be finalized by the third quarter of
1999. These changes include such items as outsourcing options, business
resumption plans for all of the business units, identification of alternative
sources of liquidity, and evaluation of alternative manual processes.
As a financial institution, First Tennessee's Year 2000 efforts are subject to
regulation and monitoring by bank and bank holding company regulatory agencies.
These agencies, under the auspices of the Federal Financial Institutions
Examination Council ("FFIEC") have established specific deadline requirements
for achieving Year 2000 compliance. First Tennessee is current in meeting these
requirements. The Office of the Comptroller of the Currency, which is our
primary bank regulator, also includes a review of the risk assessments and
contingency plans in its quarterly examination of Year 2000 preparedness.
<PAGE> 26
The foregoing statements are forward looking. Actual results could differ
because of several factors, including those presented in the Introduction
section at the beginning of this MD&A discussion.
The Year 2000 disclosures contained in this report are designated as Year 2000
Readiness Disclosures related to the Year 2000 Information and Readiness
Disclosure Act.
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 20, 1999, filed March 17,
1999.
<PAGE> 27
Part II.
OTHER INFORMATION
Items 1, 3 and 5
- ----------------
As of the end of the second quarter, 1999, the answers to Items 1, 3 and 5 were
either inapplicable or negative, and therefore, these items are omitted.
Item 2 - Changes in Securities.
- -------------------------------
In the Corporation's Form 10-Q filed for the first quarter of 1999, it was
estimated that approximately 800 shares of the Corporation's common stock would
be issued to the shareholders of Cambridge Mortgage, Inc. ("Cambridge"),
Seattle, Washington, during the second quarter of 1999 in addition to the 20,914
shares of the Corporation's common stock issued during the first quarter of
1999. The actual number of additional shares issued to the shareholders of
Cambridge was 738 shares of June 14, 1999.
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
(a) The Corporation's Annual Meeting of Shareholders was held April 20,
1999.
(b) Proxies for the Annual Meeting were solicited pursuant to Regulation 14
under the Securities Exchange Act of 1934. There were no solicitations
in opposition to management's nominees for election to Class III
(Messrs. Cantu, Cates, Haslam and Horn). The Class III nominees were
elected for a three-year term or until their respective successors are
duly elected and qualified. Directors continuing in office are Messrs.
Blattberg, Glass, Kelley, Martin, Orgill, Rose and Sansom and Mrs.
Palmer.
(c) At the Annual Meeting, the shareholders also ratified the appointment
of Arthur Andersen LLP as Independent auditors for the year 1999. The
shareholder vote was as follows:
<TABLE>
<CAPTION>
Nominees Class III For Withheld
- ------------------ --- --------
<S> <C> <C>
Carlos H. Cantu 106,091,160 328,947
George E. Cates 106,164,143 255,964
James A. Haslam, III 106,099,286 320,821
Ralph Horn 106,177,579 242,528
</TABLE>
Ratification of Auditors
<TABLE>
<CAPTION>
For Withheld Abstained
--- -------- ---------
<S> <C> <C>
105,966,895 278,831 174,381
</TABLE>
There were no "broker non-votes" with respect to any of the nominees or the
ratification of auditors and no abstentions with respect to any of the nominees.
<PAGE> 28
Item 6 - Exhibits and Reports on Form 8-K.
- -----------------------------------------
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3(b) Bylaws, as amended, incorporated by reference to Exhibit 3(b) to
the Corporation's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999.
4 Instruments defining the rights of security holders, including
indentures.*
**10(d) 1992 Restricted Stock Incentive Plan, as amended and restated,
incorporated by reference to Exhibit 10(d)to the Corporation's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1999.
27 Financial Data Schedule (for SEC use only).
<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.
** This is a management contract or compensatory plan or arrangement
required to be filed as an exhibit.
</FN>
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the second quarter of 1999.
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST TENNESSEE NATIONAL CORPORATION
------------------------------------
(Registrant)
DATE: 8/13/99 By: James F. Keen
--------------------- --------------------------
James F. Keen
Senior Vice President and
Corporate Controller
(Duly Authorized Officer and
Principal Financial Officer)
<PAGE> 30
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3(b) Bylaws, as amended, incorporated by reference to Exhibit 3(b)
to the Corporation's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999.
4 Instruments defining the rights of security holders, including
indentures.*
**10(d) 1992 Restricted Stock Incentive Plan, as amended and restated,
incorporated by reference to Exhibit 10(d)to the Corporation's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1999.
27 Financial Data Schedule (for SEC use only).
<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.
** This is a management contract or compensatory plan or arrangement
required to be filed as an exhibit.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIRST
TENNESSEE NATIONAL CORPORATION'S JUNE 30, 1999, FINANCIAL STATEMENTS FILED IN
ITS 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCES TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 764,018
<INT-BEARING-DEPOSITS> 1,497
<FED-FUNDS-SOLD> 228,032
<TRADING-ASSETS> 461,674
<INVESTMENTS-HELD-FOR-SALE> 1,965,893
<INVESTMENTS-CARRYING> 871,283
<INVESTMENTS-MARKET> 855,060
<LOANS> 11,530,162
<ALLOWANCE> 138,595
<TOTAL-ASSETS> 18,623,650
<DEPOSITS> 11,516,615
<SHORT-TERM> 3,964,372
<LIABILITIES-OTHER> 1,521,718
<LONG-TERM> 326,860
100,000
0
<COMMON> 81,599
<OTHER-SE> 1,112,486
<TOTAL-LIABILITIES-AND-EQUITY> 18,623,650
<INTEREST-LOAN> 486,942
<INTEREST-INVEST> 82,740
<INTEREST-OTHER> 23,761
<INTEREST-TOTAL> 593,443
<INTEREST-DEPOSIT> 194,797
<INTEREST-EXPENSE> 298,910
<INTEREST-INCOME-NET> 294,533
<LOAN-LOSSES> 29,805
<SECURITIES-GAINS> (72)
<EXPENSE-OTHER> 667,488
<INCOME-PRETAX> 178,024
<INCOME-PRE-EXTRAORDINARY> 114,001
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 114,001
<EPS-BASIC> .88
<EPS-DILUTED> .85
<YIELD-ACTUAL> 3.78
<LOANS-NON> 28,507
<LOANS-PAST> 24,467
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 43,248
<ALLOWANCE-OPEN> 136,013
<CHARGE-OFFS> 29,643
<RECOVERIES> 4,210
<ALLOWANCE-CLOSE> 138,595
<ALLOWANCE-DOMESTIC> 138,595
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
