Note 20 q Stock Option, Restricted Stock Incentive, and Dividend Reinvestment Plans

Restricted stock plans

FHN has authorized the issuance of its common stock for awards to executive and other management employees who have a significant impact on the profitability of FHN. All unvested awards either have a service and/or a performance condition which must be met in order for the shares to ultimately vest. On December 31, 2011, there were 3,921,288 shares available for grants, of this amount, 3,216,237 are available to be granted as restricted shares.

Performance condition grants. Under the long-term incentive and corporate performance programs, performance stock or units vest only if predetermined performance measures are met. The awards are forfeited if performance goals are not achieved within the specified performance periods. In 2011, 2010, and 2009, executives were awarded performance stock units subject to certain performance criteria being met under this program. Additionally, in 2010 FHN granted restricted stock with employee-specific performance conditions to a new senior manager in addition to the customary annual management grants. In 2008, executives were awarded performance restricted stock with 50 percent vesting in 2011 and 50 percent vesting in 2012 subject to certain performance criteria being met. As of December 31, 2011, performance conditions related to the 2009 performance stock unit grant have been met. Accordingly, 50 percent of the units granted in 2009 will vest in 2012 and 50 percent will vest in 2013 if employment continues with FHN unless waived at retirement by the Compensation Committee. In February 2012 the Compensation Committee determined that the performance conditions of 2010 performance stock unit awards have been met at a level which will result in payment of the units at 50 percent of target, again assuming continued employment until vesting. The 2010 units could achieve a higher payout level if performance improves during the final two years of the performance period. The performance conditions related to the 2011 performance stock units and the 2010 performance stock granted to a senior manager have not yet been achieved. The 2008 performance restricted stock awards outstanding at year-end 2011 have since been forfeited due to non-performance.

Service condition grants to employees. In 2011 and 2010, executives and management were awarded restricted stock and units with service conditions only. Half of the 2010 restricted awards are scheduled to vest in 2013 and the remainder is scheduled to vest in 2014. Half of the management 2011 awards will vest in 2014 and the remainder in 2015. Additionally, retention restricted stock shares and units were awarded to selected employees. Fifty percent of the retention restricted shares awarded to executives are scheduled to vest in 2014 and the remainder is expected to vest in 2015. Retention restricted stock units awarded to other select employees will all vest in second quarter 2014 provided continued employment with FHN. Further, from time to time awards of restricted stock may be awarded to new employees upon hiring or as retention grants to certain existing employees. Restricted stock and stock units granted in 2011 are included in the table below.

Director grants. FHN's active stock plan allows stock awards to be granted to non-employee directors upon approval by the board of directors. Prior to 2007 the board granted 8,930 shares of restricted stock to each new non-employee director upon election to the board, with restrictions lapsing at a rate of ten percent per year. That program was discontinued in 2007, although legacy awards remain outstanding. In 2011, each non-employee director received an annual award of restricted stock units ("RSUs") valued at $45,000. For a director newly elected after the annual shareholder meeting, that amount is pro-rated. Each RSU award is scheduled to vest the following year and is paid in common stock plus any accrued cash dividends.

The summary of restricted and performance stock and unit activity during the year ended December 31, 2011, is presented below:



	Shares/ Units			Weighted average grant date fair value

Nonvested on January 1, 2011		4,098,232			$	11.53
Shares/units granted		1,591,932				10.75
Shares/units vested		(307,165	)			16.64
Shares/units cancelled		(576,807	)			10.55

Nonvested on December 31, 2011		4,806,192			$	10.96

On December 31, 2011, there was $23.7 million of unrecognized compensation cost related to nonvested restricted stock plans. That cost is expected to be recognized over a weighted-average period of 2.1 years. The total grant date fair value of shares vested during 2011, 2010 and 2009, was $5.1 million, $7.1 million and $3.2 million, respectively.

The compensation cost that has been included in income from continuing operations pertaining to both stock option and restricted stock plans was $14.2 million, $12.0 million, and $9.0 million for 2011, 2010, and 2009, respectively. The corresponding total income tax benefits recognized in the income statements were $5.4 million, $4.6, million and $3.4 million for 2011, 2010, and 2009, respectively.

Consistent with Tennessee state law, only authorized, but unissued, stock may be utilized in connection with any issuance of FHN common stock which may be required as a result of stock based compensation awards. FHN historically obtains authorization from the Board of Directors to repurchase any stock that may be issued at the time a plan is approved or amended. These authorizations are automatically adjusted for stock splits and stock dividends. Repurchases are authorized to be made in the open market or through privately negotiated transactions and will be subject to market conditions, accumulation of excess equity, legal and regulatory restrictions, and prudent capital management. FHN does not currently expect to repurchase a material number of shares under the compensation plan-related repurchase program during the next annual period.

Stock option plans. FHN has issued non-qualified stock options to employees under various plans, which provide for the issuance of FHN common stock at a price equal to the higher of the closing price or its fair market value at the date of grant. All options vest within 3 to 4 years and expire 7 years or 10 years from the date of grant. A deferral program, which was discontinued in 2005, allowed for foregone compensation plus the exercise price to equal the fair market value of the stock on the date of grant if the grantee agreed to receive the options in lieu of compensation. Options that were part of compensation deferral prior to January 2, 2004, expire 20 years from the date of grant. Stock options granted after January 2, 2004, which are part of the compensation deferral, expire 10 years from the date of grant. FHN discontinued stock option grants in 2009 and resumed them in 2011.

The summary of stock option plans activity for the year ended December 31, 2011, is shown below:



	Options Outstanding			Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (thousands)

January 1, 2011		11,588,747			$	26.86
Options granted		1,005,224				11.85
Options forfeited		(65,653	)			17.25
Options expired		(2,077,173	)			32.03

December 31, 2011		10,451,145				23.98		4.16		$	96

Options exercisable		9,259,031				25.73		3.99			96
Options expected to vest		1,186,849				11.62		5.43			-

The total intrinsic value of options exercised during 2011, 2010 and 2009 was immaterial. On December 31, 2011, there was $2.4 million of unrecognized compensation cost related to nonvested stock options. That cost is expected to be recognized over a weighted-average period of 3.0 years.

In 2011, FHN granted 1,005,224 stock options with a weighted average fair value of $5.21 per option at grant date. No stock options were granted in 2010 or 2009.

FHN used the Black-Scholes Option Pricing Model to estimate the fair value of stock options granted in 2011, with the following assumptions:


		2011

Expected dividend yield		0.34%
Expected weighted-average lives of options granted		6.59 years
Expected weighted-average volatility		40.70%
Expected volatility range		35.04% 57.69%
Risk-free interest rate		2.91%

Expected lives of options granted are determined based on the vesting period, historical exercise patterns and contractual term of the options. For options granted in 2011, FHN used a blended volatility rate in order to more accurately reflect expected volatility. A portion of the weighted average volatility rate was derived by compiling daily closing stock prices over a historical period approximating the expected lives of the options. Additionally, because of market volatility experienced during this time period related to economic conditions and the impact on stock prices of financial institutions, FHN also incorporated a measure of implied volatility so as to incorporate more recent, normalized market conditions that are considered to better reflect future volatility.

Dividend reinvestment plan. The Dividend Reinvestment and Stock Purchase Plan authorizes the sale of FHN's common stock from stock acquired on the open market to shareholders who choose to invest all or a portion of their cash dividends or make optional cash payments of $25 to $10,000 per quarter without paying commissions. The price of stock purchased on the open market is the average price paid.