10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
	THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2005
	- or -
o	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934
	For the Transition period from __________ to__________
	Commission File Number 001-15185

FIRST HORIZON NATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

TENNESSEE	62-0803242
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)
165 Madison Avenue, Memphis, Tennessee	38103
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including Area Code: 901-523-4444

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Exchange on which Registered
$0.625 Par Value Common Capital Stock	New York Stock Exchange, Inc.
(including rights attached thereto)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
x YES o NO

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
o YES x NO

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x YES o NO

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
x Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o YES x NO

At June 30, 2005, the aggregate market value of the voting and non-voting common equity of the registrant held by non-affiliates of the registrant was approximately $5.2 billion.

At February 24, 2006, the registrant had 126,698,027 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the 2005 Annual Report to shareholders – Parts I, II, and IV

Portions of Proxy Statement to be furnished to shareholders in connection with Annual Meeting of Shareholders scheduled for 4/18/06 – Part III

PART I

ITEM 1

BUSINESS

General.

          First Horizon National Corporation (the “Corporation,” “we,” or “us”) is a Tennessee corporation headquartered in Memphis, Tennessee and incorporated in 1968. The Corporation is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended, and is a financial holding company under the provisions of the Gramm-Leach-Bliley Act. At December 31, 2005, the Corporation had total assets of $36.6 billion and ranked 1^st in terms of total assets among Tennessee-headquartered bank holding companies and ranked 27^th nationally.

          Through its principal subsidiary, First Tennessee Bank National Association (the “Bank”), and its other banking-related subsidiaries, the Corporation provides diversified financial services through four business segments. The segments reflect the common activities and operations of aggregated business segments across the various delivery channels: Retail/Commercial Banking, Mortgage Banking, and Capital Markets. In addition, the Corporate segment provides essential support within the Corporation. The percentage of consolidated revenues (for this purpose, the sum of net interest income and noninterest income) ascribed to each of our segments for the past three years was: Retail/Commercial Banking, 57% (2005), 53% (2004), and 42% (2003); Mortgage Banking, 28% (2005), 28% (2004), and 35% (2003); Capital Markets, 14% (2005), 17% (2004), and 22% (2003); and Corporate, 1% (2005), 2% (2004), and 1% (2003). Financial and other additional information concerning our segments appears in the response to Item 7 of Part II hereof and Note 22 to the Consolidated Financial Statements contained in the Corporation’s 2005 Annual Report to shareholders. During 2005 approximately 59% of revenues were provided by fee income and approximately 41% of revenues were provided by net interest income. As a financial holding company, the Corporation coordinates the financial resources of the consolidated enterprise and maintains systems of financial, operational and administrative control intended to coordinate selected policies and activities, including as described in Item 9A of Part II hereto.

          The Bank is a national banking association with principal offices in Memphis, Tennessee. It received its charter in 1864. During 2005 through its various business lines, including consolidated subsidiaries, the Bank generated gross revenue (net interest income plus noninterest income) of approximately $2.4 billion and contributed substantially all of consolidated net income from continuing operations. At December 31, 2005, the Bank had $36.3 billion in total assets, $23.4 billion in total deposits, and $20.4 billion in total net loans. Among Tennessee headquartered banks, the Bank ranked 1^st in Tennessee deposit market share at June 30, 2005. On December 31, 2005, the Bank had 500 banking locations (183 financial centers and 317 off-premises ATMs) in 17 Tennessee counties, including all of the major metropolitan areas of the state; 13 banking locations in Mississippi (7 financial centers and 6 off-premises ATMs); 1 off-premises ATM in Arkansas; 1 off-premises ATM in Kentucky; 8 financial centers in Virginia; 2 off-premises ATMs in North Carolina; 8 banking locations in Georgia (6 financial centers and 2 off-premises ATMs); 6 banking locations in Texas (4 financial centers and 2 off-premises ATMs); 1 off-premises ATM in Colorado; and 2 off-premises ATMs in Arizona. At December 31, 2005, First Horizon Home Loan Corporation, a subsidiary of the Bank with principal offices in the Dallas, Texas metropolitan area, and its affiliates provided mortgage banking services through 413 offices, including satellite branches, in 44 states and, at December 31, 2005, ranked in the top 20 nationally in retail mortgage loan originations and top 15 nationally in mortgage loan servicing, as reported by Inside Mortgage Finance. FTN Financial products and services, at December 31, 2005, were offered through 18

offices in 15 states, and FTN Financial Capital Markets, a division of the Bank, ranked as one of the leading underwriters of U.S. agency debt.

          At December 31, 2005, the Corporation provided the following services through its subsidiaries:

• general banking services for consumers, businesses, financial institutions, and governments

• mortgage banking services

• through FTN Financial – sales, trading, and underwriting of bank-eligible securities and other fixed-income securities eligible for underwriting by financial subsidiaries; mortgage loans; advisory services; equity sales, trading, and research; and various investment banking services

• transaction processing - credit card merchant processing, nationwide check clearing services, and remittance processing

• trust, fiduciary, and agency services

• credit card products

• discount brokerage and full-service brokerage

• venture capital

• equipment finance

• investment and financial advisory services, including investment advisor to First Funds, a proprietary family of mutual funds

• mutual fund sales as agent

• retail and commercial insurance sales as agent

• private mortgage reinsurance

• services related to health savings accounts

At the date of the filing of this report on Form 10-K, the Corporation has previously announced the sale of its credit card merchant processing business and a transaction which, if closed, would result in the Corporation no longer providing advisory services to mutual funds or offering its proprietary family of mutual funds.

          An element of the Corporation’s business strategy is to seek acquisitions and consider divestitures that would enhance long-term shareholder value. The Corporation has a department charged with this responsibility which is constantly reviewing and developing opportunities to achieve this element of the Corporation’s strategy. Acquisitions and divestitures which closed during the past three years are described in Note 2 to the Consolidated Financial Statements.

          All of the Corporation’s operating subsidiaries are listed in Exhibit 21. The Bank has filed notice with the Comptroller of the Currency (“Comptroller” or “OCC”) as a government securities broker/dealer. The FTN Financial Capital Markets division of the Bank is registered with the Securities and Exchange Commission (“SEC”) as a municipal securities dealer. The Bank is supervised and regulated as described below. Highland Capital Management Corp., Martin and Company, Inc., First Tennessee Advisory Services, a separately identifiable department of the Bank, and First Tennessee Brokerage, Inc. are registered with the SEC as investment advisers. Hickory Venture Capital Corporation is licensed as a Small Business Investment Company. First Tennessee Brokerage, Inc., FTN Financial Securities Corp. and FTN Midwest Securities Corp. are registered as broker-dealers with the SEC and all states where they conduct business for which registration is required. Pursuant to federal law, First Horizon Home Loan Corporation is regulated by the Comptroller

2

and, under regulations promulgated by the Comptroller, is exempt from licensing as a mortgage lender in all states where it does business. First Tennessee Insurance Services, Inc. (“FTIS”) and First Horizon Insurance Services, Inc. (“FHIS”) are licensed as insurance agencies in all states where they do business for which licensing is required. FT Reinsurance Company is licensed by the state of South Carolina as a monoline insurance company. FT Insurance Corporation is licensed as an insurance agency in Alabama. Synaxis Group, Inc.’s subsidiaries, which include Synaxis, Inc., Synaxis Insurance Services, Inc., Synaxis Risk Services, Inc., Merritt & McKenzie, Inc., and Van Meter Insurance, Inc., are licensed as insurance agencies in all states where they do business for which licensing is required. FTN Financial Securities Corp., FTN Midwest Securities Corp., FHIS, and FTIS and all of the subsidiaries listed in the preceding sentence are financial subsidiaries under the Gramm-Leach-Bliley Act. First Tennessee Brokerage, Inc. is licensed as an insurance agency in the states where it does business for which licensing is required for the sale of annuity products.

          Expenditures for research and development activities were not material in any of the last three fiscal years ended December 31, 2005.

          Neither the Corporation nor any of its significant subsidiaries is dependent upon a single customer or very few customers.

          At December 31, 2005, the Corporation and its subsidiaries had 13,501 employees and 13,175 full-time-equivalent employees, not including contract labor for certain services.

          For additional information on the business of the Corporation, refer to the Management’s Discussion and Analysis of Results of Operations and Financial Condition and Glossary sections contained in pages 3 through 51 of the Corporation’s 2005 Annual Report to shareholders, which sections are incorporated herein by reference.

          The Corporation’s current internet address is www.fhnc.com. The Corporation makes available free of charge on its Internet website its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments thereto as soon as reasonably practicable after the Corporation files such material with, or furnishes such material to, the Securities and Exchange Commission, as applicable.

Supervision and Regulation.

          The following summary sets forth certain of the material elements of the regulatory framework applicable to bank holding companies and financial holding companies and their subsidiaries and to companies engaged in securities and insurance activities and provides certain specific information about the Corporation. The bank regulatory framework is intended primarily for the protection of depositors and the Federal Deposit Insurance Funds and not for the protection of security holders. In addition, certain activities of the Corporation and its subsidiaries are subject to various securities and insurance laws and are regulated by the Securities and Exchange Commission and the state insurance departments of the states in which they operate. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by express reference to each of the particular statutory and regulatory provisions. A change in applicable statutes, regulations or regulatory policy may have a material effect on the business of the Corporation.

3

          General

          The Corporation is a bank holding company and financial holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the “BHCA”) and is registered with the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Corporation is subject to the regulation and supervision of and examination by the Federal Reserve under the BHCA. The Corporation is required to file with the Federal Reserve annual reports and such additional information as the Federal Reserve may require pursuant to the BHCA.

          Under the BHCA, prior to March 13, 2000, bank holding companies could not in general directly or indirectly acquire the ownership or control of more than 5% of the voting shares or substantially all of the assets of any company, including a bank, without the prior approval of the Federal Reserve, and a bank holding company and its subsidiaries were generally limited to engaging in banking and activities found by the Federal Reserve to be so closely related to banking as to be a proper incident thereto. Since March 13, 2000, eligible bank holding companies that elect to become financial holding companies may affiliate with securities firms and insurance companies and engage in activities that are “financial in nature” generally without the prior approval of the Federal Reserve. See “Gramm-Leach-Bliley Act” below.

          In addition, the BHCA permits the Federal Reserve to approve an application by a bank holding company to acquire a bank located outside the acquirer’s principal state of operations without regard to whether the transaction is prohibited under state law. See “Interstate Banking and Branching Legislation.” The Tennessee Bank Structure Act of 1974, among other things, prohibits (subject to certain exceptions) a bank holding company from acquiring a bank for which the home state is Tennessee (a “Tennessee bank”) if, upon consummation, the company would directly or indirectly control 30% or more of the total deposits in insured depository institutions in Tennessee. As of June 30, 2005, the Corporation estimates that it held approximately 22.5% of such deposits. Subject to certain exceptions, the Tennessee Bank Structure Act prohibits a bank holding company from acquiring a bank in Tennessee which has been in operation for less than three years. Tennessee law permits a Tennessee bank to establish branches in any county in Tennessee. See also “- Interstate Banking and Branching Legislation” below.

          The Bank is a national banking association subject to regulation, examination and supervision by the Comptroller as its primary federal regulator. In addition, the Bank is insured by, and subject to regulation by, the Federal Deposit Insurance Corporation (the “FDIC”). The Bank is also subject to various requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon and limitations on the types of investments that may be made, activities that may be engaged in, and types of services that may be offered. Various consumer laws and regulations also affect the operations of the Bank. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve as it attempts to control the money supply and credit availability in order to influence the economy.

          Payment of Dividends

          The Corporation is a legal entity separate and distinct from its banking and other subsidiaries. The principal source of cash flow of the Corporation, including cash flow to pay dividends on its stock or principal (premium, if any) and interest on debt securities, is dividends from the Bank. There are statutory and regulatory limitations on the payment of dividends by the Bank to the Corporation, as well as by the Corporation to its shareholders.

4

          As a national bank, the Bank is required by federal law to obtain the prior approval of the Comptroller for the payment of dividends if the total of all dividends declared by the board of directors of the Bank in any year will exceed the total of (i) its net profits (as defined and interpreted by regulation) for that year plus (ii) the retained net profits (as defined and interpreted by regulation) for the preceding two years, less any required transfers to surplus. A national bank also can pay dividends only to the extent that retained net profits (including the portion transferred to surplus) exceed bad debts (as defined by regulation).

          If, in the opinion of the applicable federal bank regulatory authority, a depository institution or a holding company is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition of the depository institution or holding company, could include the payment of dividends), such authority may require that such institution or holding company cease and desist from such practice. The federal banking agencies have indicated that paying dividends that deplete a depository institution’s or holding company’s capital base to an inadequate level would be such an unsafe and unsound banking practice. Moreover, the Federal Reserve, the Comptroller and the FDIC have issued policy statements which provide that bank holding companies and insured depository institutions generally should only pay dividends out of current operating earnings.

          In addition, under the Federal Deposit Insurance Act (“FDIA”), an FDIC-insured depository institution may not make any capital distributions (including the payment of dividends) or pay any management fees to its holding company or pay any dividend if it is undercapitalized or if such payment would cause it to become undercapitalized.

          At December 31, 2005, under dividend restrictions imposed under applicable federal laws, the Bank, without obtaining regulatory approval, could legally declare aggregate dividends of approximately $815.3 million.

          Under Tennessee law, the Corporation is not permitted to pay dividends if, after giving effect to such payment, it would not be able to pay its debts as they become due in the usual course of business or the Corporation’s total assets would be less than the sum of its total liabilities plus any amounts needed to satisfy any preferential rights if the Corporation was dissolving.

          The payment of dividends by the Corporation and the Bank may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines and debt covenants.

          Transactions with Affiliates

          There are various legal restrictions on the extent to which the Corporation and its nonbank subsidiaries (including for purposes of this paragraph, in certain situations, subsidiaries of the Bank) can borrow or otherwise obtain credit from the Bank. There are also legal restrictions on the Bank’s purchases of or investments in the securities of and purchases of assets from the Corporation and its nonbank subsidiaries, the Bank’s loans or extensions of credit to third parties collateralized by the securities or obligations of the Corporation and its nonbank subsidiaries, the issuance of guaranties, acceptances and letters of credit on behalf of the Corporation and its nonbank subsidiaries, and certain bank transactions with the Corporation and its nonbank subsidiaries, or with respect to which the Corporation and its nonbank subsidiaries act as agent, participate or have a financial interest. Subject to certain limited exceptions, the Bank (including for purposes of this paragraph all subsidiaries of the Bank) may not extend credit to the Corporation or to any other affiliate (other than another subsidiary bank and certain exempted affiliates) in an amount which exceeds 10% of the Bank’s capital stock and surplus and may not extend credit in the aggregate to all such affiliates in an amount which exceeds 20% of its capital

5

stock and surplus. Further, there are legal requirements as to the type, amount and quality of collateral which must secure such extensions of credit by the Bank to the Corporation or to such other affiliates. Also, extensions of credit and other transactions between the Bank and the Corporation or such other affiliates must be on terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the Bank as those prevailing at the time for comparable transactions with non-affiliated companies. Also, the Bank and certain of its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with extensions of credit, leases or sales of property, or furnishing of services.

          Capital Adequacy

          The Federal Reserve has adopted risk-based capital guidelines for bank holding companies. The minimum guideline for the ratio of total capital (“Total Capital”) to risk-weighted assets (including certain off-balance-sheet items, such as standby letters of credit) is 8%, and the minimum ratio of Tier 1 Capital (defined below) to risk-weighted assets is 4%. At least half of the Total Capital must be composed of common stock, minority interests in the equity accounts of consolidated subsidiaries, non-cumulative perpetual preferred stock and a limited amount of cumulative perpetual preferred stock and trust preferred securities, less any amounts of goodwill, other intangible assets, and other items that are required to be deducted (“Tier 1 Capital”). The remainder may consist of qualifying subordinated debt, certain types of mandatory convertible securities and perpetual debt, other preferred stock and a limited amount of loan loss reserves. At December 31, 2005, the Corporation’s consolidated Tier 1 Capital and Total Capital ratios were 8.55% and 12.30%, respectively.

          The Federal Reserve Board, the FDIC, and the OCC have adopted rules to incorporate market and interest-rate risk components into their risk-based capital standards and that explicitly identify concentration of credit risk and certain risks arising from non-traditional activities, and the management of such risks, as important factors to consider in assessing an institution’s overall capital adequacy. Under the market risk requirements, capital is allocated to support the amount of market risk related to a financial institution’s ongoing trading activities for banks with relatively large trading activities. Institutions are able to satisfy any additional capital requirement, in part, by issuing short-term subordinated debt that qualifies as Tier 3 capital. Based on present practices and activity levels, these trading-related market risk rules have no significant impact on the Corporation’s regulatory capital requirements.

          In addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier 1 Capital to quarterly average assets, less goodwill and certain other intangible assets (the “Leverage Ratio”), of 3% for bank holding companies that meet certain specific criteria, including having the highest regulatory rating. All other bank holding companies generally are required to maintain a Leverage Ratio of at least 3%, plus an additional cushion of 100 to 200 basis points. The Corporation’s Leverage Ratio at December 31, 2005 was 6.67%. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the Federal Reserve has indicated that it will consider a “tangible Tier 1 Capital leverage ratio” (deducting all intangibles) and other indicia of capital strength in evaluating proposals for expansion or new activities.

          The Bank is subject to risk-based and leverage capital requirements similar to those described above adopted by the Comptroller. The Corporation believes that the Bank was in compliance with applicable minimum capital requirements as of December 31, 2005. Neither the Corporation nor the Bank has been advised by any federal banking agency of any specific minimum Leverage Ratio requirement applicable to it.

6

          Failure to meet capital guidelines could subject a bank to a variety of enforcement remedies, including the termination of deposit insurance by the FDIC, and to certain restrictions on its business and in certain circumstances to the appointment of a conservator or receiver. See “––Prompt Corrective Action.”

          In June 1999, the Basel Committee on Banking Supervision launched its efforts to develop an improved capital adequacy framework by issuing its proposals to revise the 1988 Capital Accord. The new capital framework would consist of minimum capital requirements, a supervisory review process and the effective use of market discipline. In its proposal for minimum capital requirements, the Committee set out options from which banks could choose depending on the complexity of their business and the quality of their risk management. A standardized approach would refine the current measurement framework and introduce the use of external credit assessments to determine a bank’s capital charge. Banks with more advanced risk management capabilities could make use of an internal risk-rating based approach. Under this approach, some of the key elements of credit risk, such as the probability of default of the borrower, would be estimated internally by a bank. The Committee also proposes an explicit capital charge for operational risk to provide for problems like internal systems failure.

          The supervisory review aspect of the new framework would seek to ensure that a bank’s capital position is consistent with its overall risk profile and strategy. The supervisory review process would also encourage early supervisory intervention when a bank’s capital position deteriorates. The third aspect of the new framework, market discipline, would call for detailed disclosure of a bank’s capital adequacy in order to encourage high disclosure standards and to enhance the role of market participants in encouraging banks to hold adequate capital. Banks would also be required to disclose how they evaluate their own capital adequacy.

          In June 2004, the Basel Committee issued its final framework. In September 2005, the U.S. Regulators decided to delay implementation of Basel II in the United States which was expected to start in 2008 with a two-year phase in. The delay was due to reaction to the results of a simulation exercise that indicated some Basel II banks would have very low risk based capital requirements thus providing potential detrimental effects on competition in the U.S. banking sector. A Notice of Proposed Rulemaking (NPR) in now expected in early 2006. That NPR is expected to require implementation of the advanced measurement methods for large internationally active banks (core banks) and allows for other banks to opt-in should they so choose. Under the proposed rules the Corporation would not be considered a core bank that would be required to implement the new rules but could evaluate whether to opt in. For those non-core banks that do not opt in, an Advanced Notice of Proposed Rulemaking (APNR) was issued in October 2005, known as Basel IA, which proposed certain revision to the current Basel I capital rules. Going forward, the regulators plan to coordinate the issuance of the Basel II NPR with the issuance of a Basel IA NPR in a manner that will allow for some overlap in the comment period to allow the effects of the two proposals to be evaluated side by side. The proposed plan now for Basel II is a parallel run in 2008 and a three-year phase in over 2009-2011. The Corporation cannot predict at this time the final form the U.S. Regulators’ rules will take, or the effect they would have on the financial condition or results of operations of the Bank or the Corporation. The Corporation intends to continue to monitor the evolution of the proposed rulemaking and its potential impacts to the Corporation and the industry.

          Holding Company Structure and Support of Subsidiary Banks

          Because the Corporation is a holding company, its right to participate in the assets of any subsidiary upon the latter’s liquidation or reorganization will be subject to the prior claims of the subsidiary’s creditors (including depositors in the case of the Bank) except to the extent that the Corporation may itself be a creditor with recognized claims against the subsidiary. In addition, depositors

7

of a bank, and the FDIC as their subrogee, would be entitled to priority over the creditors in the event of liquidation of a bank subsidiary.

          Under Federal Reserve policy, the Corporation is expected to act as a source of financial strength to, and to commit resources to support, the Bank. This support may be required at times when, absent such Federal Reserve policy, the Corporation may not be inclined to provide it. In addition, any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.

          Cross-Guarantee Liability

          Under the FDIA, a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to any commonly controlled FDIC-insured depository institution “in danger of default.” “Default” is defined generally as the appointment of a conservator or receiver and “in danger of default” is defined generally as the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance. The FDIC’s claim for damages is superior to claims of shareholders of the insured depository institution or its holding company but is subordinate to claims of depositors, secured creditors and holders of subordinated debt (other than affiliates) of the commonly controlled insured depository institution. The Bank is currently the only depository institution owned by the Corporation. In the event that the Corporation established or acquired another depository institution, any loss suffered by the FDIC in respect of one subsidiary bank would likely result in assertion of the cross-guarantee provisions, the assessment of such estimated losses against the Corporation’s other subsidiary bank(s), and a potential loss of the Corporation’s investment in such subsidiary bank.

          Prompt Corrective Action

          The FDIA requires, among other things, the federal banking regulators to take “prompt corrective action” in respect of FDIC-insured depository institutions that do not meet minimum capital requirements. Under the FDIA, insured depository institutions are divided into five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” Under applicable regulations, an institution is defined to be well capitalized if it maintains a Leverage Ratio of at least 5%, a Tier 1 Capital ratio of at least 6% and a Total Capital ratio of at least 10% and is not subject to a directive, order or written agreement to meet and maintain specific capital levels. An institution is defined to be adequately capitalized if it meets all of its minimum capital requirements as described above. An institution will be considered undercapitalized if it fails to meet any minimum required measure, significantly undercapitalized if it has a Total Risk-Based Capital ratio of less than 6%, a Tier 1 Risk-Based Capital ratio of less than 3% or a Leverage Ratio of less than 3% and critically undercapitalized if it fails to maintain a level of tangible equity equal to at least 2% of total assets. An institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating.

          The FDIA generally prohibits an FDIC-insured depository institution from making any capital distribution (including payment of dividends) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to restrictions on borrowing from the Federal Reserve System. In addition, undercapitalized depository institutions are subject to growth limitations and are required to submit capital restoration

8

plans. An insured depository institution’s holding company must guarantee the capital plan, up to an amount equal to the lesser of 5% of the depository institution’s assets at the time it becomes undercapitalized or the amount of the capital deficiency when the institution fails to comply with the plan, for the plan to be accepted by the applicable federal regulatory authority. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital. If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized.

          Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and cessation of receipt of deposits from correspondent banks. Critically undercapitalized depository institutions are subject to appointment of a receiver or conservator, generally within 90 days of the date on which they become critically undercapitalized.

          The Corporation believes that at December 31, 2005 the Bank had sufficient capital to qualify as “well capitalized” under the regulatory capital requirements discussed above.

          Interstate Banking and Branching Legislation

          The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “IBBEA”) authorized two methods of interstate expansion by banks and bank holding companies without geographic limitation.

          According to IBBEA, a bank may merge with a bank in another state and continue to operate the merged bank’s branches as interstate branches. IBBEA allowed states to opt out of allowing the operation of interstate branches pursuant to merger transactions, if they did so by May 31, 1997. Two states, Texas and Montana enacted such opt-out legislation, but both of these states have since enacted legislation to allow interstate branching through merger transactions. Tennessee did not opt out of interstate branching.

          For merger transactions, states may impose restrictions on such transactions. Many states have requirements for a minimum period of time that a bank must have been in existence before a merger is allowed. According to IBBEA, the maximum period allowed for such age restrictions is five years. Additionally, national and state deposit concentration limits apply to interstate mergers

          IBBEA also provides that a bank may establish and operate a de novo branch or acquire an existing branch in a state in which a bank is not headquartered and does not maintain a branch if the host state permits de novo branching. Various states permit de novo branching; and some states require reciprocal branching statutes to allow de novo branching. Tennessee permits de novo branching on a reciprocal basis.

          Once a bank has established branches in a state through an interstate merger transaction or through de novo branching, the bank may then establish and acquire additional branches within that state to the same extent that a state chartered bank is allowed to establish or acquire branches within the state.

          Gramm-Leach-Bliley Act

          The Gramm-Leach-Bliley Act of 1999 repealed or modified a number of significant provisions of then-current laws, including the Glass-Steagall Act and the Bank Holding Company Act of 1956, which imposed restrictions on banking organizations’ ability to engage in certain types of activities. The Act generally allows bank holding companies such as the Corporation broad authority to engage in activities

9

that are financial in nature or incidental to such a financial activity, including insurance underwriting and brokerage; merchant banking; securities underwriting, dealing and market-making; real estate development; and such additional activities as the Federal Reserve in consultation with the Secretary of the Treasury determines to be financial in nature or incidental thereto. A bank holding company may engage in these activities directly or through subsidiaries by qualifying as a “financial holding company.” To qualify a bank holding company must file a declaration with the Federal Reserve and certify that all of its subsidiary depository institutions are well-managed and well-capitalized. The Act also permits national banks such as the Bank to engage in certain of these activities through financial subsidiaries. To control or hold an interest in a financial subsidiary, a national bank must meet the following requirements: (1) the national bank must receive approval from the Comptroller for the financial subsidiary to engage in the activities, (2) the national bank and its depository institution affiliates must each be well-capitalized and well-managed, (3) the aggregate consolidated total assets of all of the national bank’s financial subsidiaries must not exceed 45% of the national bank’s consolidated total assets or, if less, $50 billion, (4) the national bank must have in place adequate policies and procedures to identify and manage financial and operational risks and to preserve the separate identities and limited liability of the national bank and the financial subsidiary, and (5) if the financial subsidiary will engage in principal transactions and the national bank is one of the one hundred largest banks, the national bank must have outstanding at least one issue of unsecured long-term debt that is currently rated in one of the three highest investment grade rating categories (or if in the second fifty largest banks, an alternative requirement is that the national bank has a current long-term issuer credit rating within the three highest investment grade rating categories). No new financial activity may be commenced under the Act unless the national bank and all of its depository institution affiliates have at least “satisfactory” CRA ratings. Certain restrictions apply if the bank holding company or the national bank fails to continue to meet one or more of the requirements listed above. In addition, the Act contains a number of other provisions that may affect the Bank’s operations, including functional regulation of the Bank’s securities and investment management operations by the SEC and the Bank’s insurance operations by the States and limitations on the use and disclosure to third parties of customer information. The Corporation is a financial holding company and the Bank has a number of financial subsidiaries.

          FDIC Insurance Assessments; DIFA

          The FDIC insurance premium charged on bank deposits insured by the Bank Insurance Fund (“BIF”) and on deposits insured by the Savings Association Insurance Fund (“SAIF”), including savings association deposits acquired by banks, ranges from 0 to 27 cents per $100 of deposits, depending on the institution’s risk classification, based on capital and supervisory risk factors. The Deposit Insurance Funds Act of 1996 (“DIFA”) provides for assessments to be imposed on insured depository institutions with respect to deposits insured by the BIF (in addition to any assessments imposed on depository institutions with respect to SAIF-insured deposits) to pay for the cost of Financing Corporation (“FICO”) bonds. All banks are assessed to pay the interest due on FICO bonds. The cost to the Corporation on an annual basis is immaterial. In early 2006, the BIF and SAIF were merged into a new Deposit Insurance Fund (“DIF”).

          Under the FDIA, insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by a federal bank regulatory agency.

10

          Depositor Preference

          Federal law provides that deposits and certain claims for administrative expenses and employee compensation against an insured depository institution would be afforded a priority over other general unsecured claims against such an institution, including federal funds and letters of credit, in the “liquidation or other resolution” of such an institution by any receiver.

          Securities Regulation

          Certain of the Corporation’s subsidiaries are subject to various securities laws and regulations and capital adequacy requirements promulgated by the regulatory and exchange authorities of the jurisdictions in which they operate.

          The Corporation’s registered broker-dealer subsidiaries are subject to the SEC’s net capital rule, Rule 15c3-1. That rule requires the maintenance of minimum net capital and limits the ability of the broker-dealer to transfer large amounts of capital to a parent company or affiliate. Compliance with the rule could limit operations that require intensive use of capital, such as underwriting and trading.

          Certain of the Corporation’s subsidiaries and a division of the Bank are registered investment advisers who are regulated under the Investment Advisers Act of 1940. Among other activities, certain of these investment advisers provide investment advice to investment companies regulated under the Investment Company Act of 1940. Advisory contracts with these investment companies automatically terminate under these laws upon an assignment of the contract by the investment adviser unless appropriate consents are obtained. Subsidiaries of the Corporation are subject to certain restrictions in their dealings with investment companies advised by these affiliated investment advisers. At the date of the filing of this report on Form 10-K, the Corporation has previously announced a transaction which, if closed, would result in the Corporation no longer advising or offering its proprietary family of mutual funds.

          Insurance Activities

          Subsidiaries of the Corporation sell various types of insurance as agent in a number of the states. Insurance activities are subject to regulation by the states in which such business is transacted. Although most of such regulation focuses on insurance companies and their insurance products, insurance agents and their activities are also subject to regulation by the states, including, among other things, licensing and marketing and sales practices.

Competition.

          The Corporation and its subsidiaries face substantial competition in all aspects of the businesses in which they engage from national and state banks located in Tennessee and large out-of-state banks as well as from savings and loan associations, credit unions, other financial institutions, consumer finance companies, trust companies, investment counseling firms, money market mutual funds, insurance companies, securities firms, mortgage banking companies and others. For certain information on the competitive position of the Corporation and the Bank, refer to the “General” subsection above of this Item 1. Also, refer to the subsections entitled “Supervision and Regulation” and “Effect of Governmental Policies,” both of which are relevant to an analysis of the Corporation’s competitors. Due to the intense competition in the financial industry, the Corporation makes no representation that its competitive position has remained constant, nor can it predict whether its position will change in the future.

11

Sources and Availability of Funds.

          Specific reference is made to the Management’s Discussion and Analysis of Results of Operations and Financial Condition and Glossary sections, including the subsection entitled “Liquidity Management,” contained in pages 3 through 51 (including pages 25 through 29) of the Corporation’s 2005 Annual Report to shareholders, which sections are incorporated herein by reference.

Effect of Governmental Policies.

          The Bank is affected by the policies of regulatory authorities, including the Federal Reserve System and the Comptroller. An important function of the Federal Reserve System is to regulate the national money supply.

          Among the instruments of monetary policy used by the Federal Reserve are: purchases and sales of U.S. Government securities in the marketplace; changes in the discount rate, which is the rate any depository institution must pay to borrow from the Federal Reserve; and changes in the reserve requirements of depository institutions. These instruments are effective in influencing economic and monetary growth, interest rate levels and inflation.

          The monetary policies of the Federal Reserve System and other governmental policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. Because of changing conditions in the national and international economy and in the money market, as well as the result of actions by monetary and fiscal authorities, it is not possible to predict with certainty future changes in interest rates, deposit levels, loan demand or the business and earnings of the Corporation and the Bank or whether the changing economic conditions will have a positive or negative effect on operations and earnings.

          Various bills are from the time to time introduced in the United States Congress and the Tennessee General Assembly and other state legislatures, and regulations are proposed by the regulatory agencies which could affect the business of the Corporation and its subsidiaries. It cannot be predicted whether or in what form any of these proposals will be adopted or the extent to which the business of the Corporation and its subsidiaries may be affected thereby.

Statistical Information Required by Guide 3.

          The statistical information required to be displayed under Item I pursuant to Guide 3, “Statistical Disclosure by Bank Holding Companies,” of the Exchange Act Industry Guides is incorporated herein by reference to the Consolidated Financial Statements and the notes thereto and the Management’s Discussion and Analysis of Results of Operations and Financial Condition and Glossary sections set forth at pages 3 through 51 of the Corporation’s 2005 Annual Report to shareholders. Certain information not contained in the 2005 Annual Report to shareholders, but required by Guide 3, is contained in the tables immediately following:

12

FIRST HORIZON NATIONAL CORPORATION
ADDITIONAL GUIDE 3 STATISTICAL INFORMATION
ON DECEMBER 31
(Unaudited)

Investment Portfolio
(Dollars in thousands)	2005		2004		2003
Mortgage-backed securities & collateralized mortgage obligations	$	2,525,865	$	2,391,162	$	2,200,862
U.S. Treasury		41,113		41,244		47,977
U. S. government agencies		133,918		40,959		1,164
States and political subdivisions		2,525		8,268		14,423
Other		209,065		199,364		205,944
Total	$	2,912,486	$	2,680,997	$	2,470,370

Loan Portfolio
(Dollars in thousands)	2005		2004		2003		2002		2001
Commercial:
Commercial, financial and industrial	$	6,578,130	$	5,560,736	$	4,502,917	$	4,134,158	$	4,176,738
Real estate commercial		1,213,052		960,178		968,064		1,037,341		929,036
Real estate construction		2,108,121		1,208,703		690,402		551,449		492,531
Retail:
Real estate residential		8,357,143		7,244,716		6,817,122		4,721,307		3,732,767
Real estate construction		1,925,060		1,035,562		527,260		342,127		211,429
Other retail		168,413		168,806		212,362		286,069		459,510
Credit card receivables		251,016		248,972		272,398		272,994		281,132
Total	$	20,600,935	$	16,427,673	$	13,990,525	$	11,345,445	$	10,283,143

Short-Term Borrowings
(Dollars in thousands)	2005		2004		2003
Federal funds purchased and securities sold under agreements to repurchase	$	3,735,742	$	3,247,048	$	3,079,248
Commercial paper		10,695		23,712		31,793
Trading liabilities		793,638		426,343		127,717
Other short-term borrowings		791,322		116,064		102,418
Total	$	5,331,397	$	3,813,167	$	3,341,176

Maturities of Certificates of Deposits $100,000 and more on December 31, 2005

	0-3		3-6		6-12		Over 12
(Dollars in thousands)	Months		Months		Months		Months		Total
Certificates of deposit $100,000 and more	$	10,293,604	$	134,939	$	119,704	$	383,448	$	10,931,695

13

Contractual Maturities of Commercial & Real Estate Construction Loans on December 31, 2005

			After 1 Year
(Dollars in thousands)	Within 1 Year		Within 5 Years		After 5 Years		Total
Commercial, financial and industrial	$	3,921,567	$	2,239,351	$	417,212	$	6,578,130
Real estate commercial		371,184		682,431		159,437		1,213,052
Commercial real estate construction		1,561,911		542,852		3,358		2,108,121
Retail real estate construction		1,918,278		6,782		—		1,925,060
Total	$	7,772,940	$	3,471,416	$	580,007	$	11,824,363
For maturities over one year:
Interest rates - floating			$	2,146,053	$	246,614	$	2,392,667
Interest rates - fixed				1,325,363		333,393		1,658,756
Total			$	3,471,416	$	580,007	$	4,051,423

ITEM 1A
RISK FACTORS

          This item outlines specific risks that could affect the ability of our various businesses to compete, change our risk profile, or eventually impact our financial results. The risks we face generally are similar to those experienced, to varying degrees, by all financial services companies.

          Our strategies and management’s ability to react to changing competitive and economic environments have enabled us historically to compete effectively, manage risks to acceptable levels, and create industry leading profitability levels. However, our operating environment continues to evolve and new risks continue to emerge. To address that challenge we have established an enterprise-wide risk management committee that oversees processes for monitoring evolving risks and oversees various initiatives designed to manage and control our potential exposure.

          We have outlined potential risk factors below that we presently believe could be important to us; however, other risks may prove to be important in the future. New risks may emerge at any time and we cannot predict with certainty all potential developments which could affect our financial performance. The following discussion highlights potential risks which could intensify over time or shift dynamically in a way that might change our risk profile. In addition to the factors discussed elsewhere in this report (including the material incorporated into this report), among the factors that could cause our future results to differ materially from our past results and from expectations are those discussed in this item.

Forward-Looking Statements

          This report, including materials incorporated into it, may contain forward-looking statements with respect to our beliefs, plans, goals, expectations, and estimates. Forward-looking statements are statements that are not a representation of historical information but rather are related to future operations, strategies, financial results or other developments. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “should,” “is likely,” “will,” “going forward,” and other expressions that indicate future events and trends identify forward-looking statements.

          Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, operational, economic and competitive uncertainties and contingencies, many of which are beyond any company’s control, and many of which, with respect to future business decisions and actions (including acquisitions and divestitures), are subject to change. Examples of uncertainties and contingencies include, among other important factors: general and local economic and business conditions; expectations of and actual timing and amount of interest rate movements, including the slope of the yield curve, which can have a significant impact on a financial services institution; market and monetary fluctuations; inflation or deflation; investor responses to these conditions; the financial condition of borrowers and other counterparties; competition within and outside the financial services industry; geopolitical developments including possible terrorist activity; natural disasters; effectiveness of our hedging practices; technology; demand for our product offerings; new products and services in the industries in which we operate; and critical accounting estimates.

14

          Other factors are those inherent in originating and servicing loans including prepayment risks, pricing concessions, fluctuation in U.S. housing prices, fluctuation of collateral values, and changes in customer profiles. Additionally, the actions of the Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, the National Association of Securities Dealers, Inc. and its affiliates, and other regulators; regulatory and judicial proceedings and changes in laws and regulations applicable to us; and our success in executing our business plans and strategies and managing the risks involved in the foregoing, could cause actual results to differ. We assume no obligation to update any forward-looking statements that are made in this report or in any other statement, release, report, or filing from time to time. Actual results could differ because of several factors, including those presented below and in other sections of this report. Readers of this report should carefully consider the factors discussed in this Item below, among others, in evaluating forward-looking statements and assessing our prospects.

Competition Risks

          Like all financial services companies, we compete for customers. Our primary areas of competition include: retail and commercial deposits and bank loans, wealth management, home mortgage loans and lines of credit, mortgage servicing, capital markets products and services, and other consumer and business financial products and services. Our competitors in these areas include national and state banks, savings and loan associations, credit unions, consumer finance companies, trust companies, investment counseling firms, money market mutual funds, insurance companies and agencies, securities firms, mortgage banking companies, and other financial services companies that serve the markets which we serve. We expect that competition will continue to grow more intense with respect to most of our products and services. For additional information regarding competition for customers, refer to the “Competition” heading of Part I, Item 1 beginning on page 11 of this report.

          While we face competition for customers, we also compete for financial capital (see “Financing, Funding, and Liquidity Risks” beginning on page 18 of this report) and to acquire and retain the human capital we need to thrive. Some of the keys to our ability to manage our competitive challenges are:

• Our leading position in many of our markets and business lines

• Our historical growth and retention of consumer and business customer bases

• Historically strong employee value and loyalty ratings and national workplace recognition resulting in attraction and retention of high performing employees

Using those factors and others, we have focused on the delivery of products and services in a manner that maximizes the value our customers obtain from their relationships with us, and we have developed strategies that have enabled us to gain market share in our targeted markets over time. We also have developed strategies to attract and retain customers and talent that are displaced when competitors merge.

Growth Risks

          Every organization faces risks associated with growth. Our growth in 2005 resulted primarily from a combination of: our national expansion strategy in banking; acquisition of customers from competitors that have merged with each other; and targeted non-bank business acquisitions.

15

          Our national expansion strategy is primarily organic. Our strategy is to expand our banking business in selected national markets by building on our mortgage customer relationships in those markets. Our strategy is unusual in the financial services industry; many banks elect to become national in scope by acquiring large local and regional banks in targeted geographic areas. We believe our national expansion strategy should reduce some of the costs and risks associated with the acquisition model. The successful execution of our strategy depends upon a number of key elements, including:

• our ability to successfully penetrate new markets at a reasonable cost and within a reasonable time frame;

• our ability to cross-sell our home mortgage customers into bank products and services;

• our ability to attract and retain commercial and other non-mortgage customers;

• our ability to develop profitable customer relationships while expanding our existing information processing, technology, and other operational infrastructures effectively and efficiently; and

• our ability to manage the liquidity and capital requirements associated with such growth.

We have in place a number of strategies designed to achieve each of those elements. Our challenge is to execute those strategies and adjust them as conditions change.

          To the extent we engage in bank or non-bank business acquisitions, we face various risks associated with that practice, including:

• our ability to integrate the acquired company into our operations quickly and cost-effectively;

• our ability to integrate the name recognition and goodwill of the acquired company with our own; and,

• our ability to retain customers and key employees of the acquired company.

Credit Risks

          Like all other lenders, we face the risk that our customers may not repay their loans and that the realizable value of collateral may be insufficient to avoid a loss. In our business some level of credit loss is unavoidable and overall levels of credit loss can vary over time. Our ability to manage credit risks depends primarily upon our ability to assess the creditworthiness of customers and the value of collateral, including real estate. We control credit risk by diversifying our loan portfolio and by recording and managing an allowance for expected loan losses based on the factors mentioned above and in accordance with applicable accounting rules. We also record loan charge-offs in accordance with accounting and regulatory guidelines and rules. These guidelines and rules could change and cause charge-offs to increase for reasons related or unrelated to the underlying performance of our portfolio; this risk is shared with all financial institutions. The models and approaches we use to originate and manage loans are continually updated to take into account changes in the competitive environment, in real estate prices, and in the economy, among other things. Additional information concerning credit risks and our management of them is set forth under the captions “Credit Risk Management” beginning on page 29, “Foreclosure Reserves” beginning on page 43, and “Allowance for Loan Losses” beginning on page 44, of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2005 Annual Report to Shareholders, which is part of the

16

material from that Report that has been incorporated by reference into Item 7 of Part II of this report.

Risk From Economic Downturns

          Delinquencies and credit losses generally increase during economic downturns due to an increase in liquidity problems for customers and downward pressure on collateral values. Likewise, demand for loans, deposit products, fixed income products, and financial services may decline during an economic downturn. Accordingly, an economic downturn (local, regional, or national) can hurt our financial performance in the form of higher loan losses, lower loan levels, lower deposit levels, and lower fees from transactions and services. These risks are faced by all financial services companies and we have in place processes and tools that we believe allow us to monitor and manage those risks.

Hedge Risks

          In the normal course of our businesses, including (among others) banking, mortgage, and capital markets, we attempt to partially or fully hedge various financial risks. We do that primarily by using derivative instruments or by engaging in business activities that are countercyclical to the risks at issue. Our hedging activities are discussed in more detail in various places under the following captions of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2005 Annual Report to Shareholders, which is part of the material from that Report that has been incorporated by reference into Item 7 of Part II of this report: “Risk Management,” beginning on page 23; and, “Critical Accounting Policies,” beginning on page 37. Hedging creates certain risks for us, including the risk that the other party to the hedge transaction will fail to perform (counterparty risk, which is a type of credit risk), and the risk that the hedge will not fully protect us from loss as intended (hedge failure risk). Although we actively manage those risks, unexpected counterparty failure or hedge failure could have a significant adverse effect on our liquidity and earnings.

Reputation Risks

          Our ability to conduct and grow our businesses, and to obtain and retain customers, is highly dependent upon external perceptions of our business practices and our financial stability. Our reputation is, therefore, a key asset for us. Our reputation is affected principally by our own practices and how those practices are perceived and understood by others. Adverse perceptions regarding the practices of our competitors, or our industry as a whole, also may adversely impact our reputation. In addition, adverse perceptions relating to parties with whom we have important relationships may adversely impact our reputation.

          Damage to our reputation could hinder our ability to access the capital markets, could hamper our ability to attract new customers and retain existing ones, and could undermine our ability to attract and retain talented employees, among other things. Adverse impacts on our reputation, or the reputation of our industry, may also result in greater regulatory and/or legislative scrutiny, which may lead to laws or regulations that change or constrain our business or operations. Events that result in damage to our reputation also may increase our litigation risk.

          As with all other risks, we actively devote significant resources to safeguard our reputation. Senior management oversees processes for reputation risk monitoring, assessment, and management.

17

Operational Risks

          Our ability to grow is dependent in part upon our ability to create and maintain an appropriate operational and organizational infrastructure, manage expenses as we expand, and recruit and retain personnel with the ability to manage an increasingly complex business. Operational risk can arise in many ways, including: errors related to failed or inadequate processes; faulty or disabled computer systems; fraud, theft, physical security breaches, electronic data and related security breaches, or other criminal conduct by employees or third parties; and exposure to other external events. In addition, we outsource some of our operational functions to third parties; those third parties may experience similar errors or disruptions that could adversely impact us and over which we may have limited control. Failure to build and maintain the necessary operational infrastructure, or failure of our disaster preparedness plans if primary infrastructure components suffer damage, can lead to risk of loss of service to customers, legal actions, or noncompliance with applicable laws or regulatory standards. Operational risk is specifically managed through internal monitoring, measurement, and assessment by line management and oversight of processes by top management; regulatory guidance for mitigating operational risk is followed. Additional information concerning operational risks and our management of them appears under the caption “Operational Risk Management” beginning on page 29 of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2005 Annual Report to Shareholders, which is part of the material from that Report that has been incorporated by reference into Item 7 of Part II of this report.

Financing, Funding, and Liquidity Risks

          Management of liquidity and related risks is a key function for our business. Additional information concerning liquidity risk management is set forth under the caption “Liquidity Management” beginning on page 25 of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2005 Annual Report to Shareholders, which is part of the material from that Report that has been incorporated by reference into Item 7 of Part II of this report.

          Our funding requirements currently are met principally by deposits, financing from other financial institutions, and financing using the capital markets. In general, the costs of our funding directly impact our costs of doing business and, therefore, can positively or negatively affect our financial results. 

          A number of factors could make such funding more difficult, more expensive, or unavailable on affordable terms, including, but not limited to, our financial results, organizational changes, adverse impacts on our reputation, changes in the activities of our business partners, disruptions in the capital markets, specific events that adversely impact the financial services industry, counterparty availability, changes affecting our loan portfolio or other assets, changes affecting our corporate and regulatory structure, interest rate fluctuations, ratings agency actions, general economic conditions, and the legal, regulatory, accounting, and tax environments governing our funding transactions. In addition, our ability to raise funds is strongly affected by the general state of the U.S. and world economies and financial markets, and may become increasingly difficult due to economic and other factors.

          We depend significantly on our ability to sell or securitize first and second mortgage loans and home equity lines of credit (which we refer to as HELOC). Those actions involve the sale of whole loans or of beneficial interests in loans. Although the market for loans is substantial,

18

if it experiences difficulties we may be unable to sell or securitize our mortgage or HELOC loans at all, or at favorable pricing levels. If we were unable to continue to sell or securitize our loans at current levels, we would seek alternative funding sources to fund loan originations and meet our other liquidity needs. If we were unable to find cost-effective and stable alternatives, that failure could negatively impact our liquidity and could potentially increase our cost of funds and lower our loan growth.

          When we sell or securitize mortgage and HELOC loans, we sometimes do so with limited or full recourse, which means, in effect, that we will take some or significant financial responsibility for the loan if it defaults. Additional information concerning these risks is set forth under the caption “Foreclosure Reserves” beginning on page 43 of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2005 Annual Report to Shareholders, which is part of the material from that Report that has been incorporated by reference into Item 7 of Part II of this report. In many instances, we sell or securitize loans with no recourse. However, if a loan sold with no recourse defaults, we could still bear responsibility to the buyer if the loan did not conform to representations we made to the buyer at the time of sale. We manage that risk of non-conformity through origination and documentation controls and procedures.

          Rating agencies assign credit ratings to issuers and their debt. In that role, agencies directly affect the availability and cost of our funding. The Corporation and the Bank currently receive ratings from several rating entities for unsecured borrowings. A rating below investment grade typically reduces availability and increases the cost of market-based funding. A debt rating of Baa3 or higher by Moody’s Investors Service, or BBB- or higher by Standard & Poor’s and Fitch Ratings, is considered investment grade for many purposes. Currently, all three rating agencies rate the unsecured senior debt of the Corporation and the Bank as investment grade. Because we depend on institutional borrowing and the capital markets for funding and capital, we could experience reduced liquidity and increased cost of funding if our debt ratings were lowered, particularly if lowered below investment grade. Please note that a credit rating is not a recommendation to buy, sell, or hold securities, is subject to revision or withdrawal at any time, and should be evaluated independently of any other rating.

          Regulatory laws or rules that establish minimum capital levels, regulate deposit insurance, and govern related funding matters for banks could be changed in a manner that could increase our overall cost of capital and thus reduce our earnings.

Interest Rate and Yield Curve Risks

          A significant portion of our business involves borrowing and lending money. Accordingly, changes in interest rates directly impact our revenues and expenses, and potentially could compress our net interest margin. We actively manage our balance sheet to control the risks of a reduction in net interest margin brought about by ordinary fluctuations in rates. Additional information concerning those risks and our management of them appears under the caption “Interest Rate Risk Management” beginning on page 23 of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2005 Annual Report to Shareholders, which is part of the material from that Report that has been incorporated by reference into Item 7 of Part II of this report.

          Our mortgage lending and servicing businesses also are affected by changes in interest rates. Generally, when rates increase, demand for mortgage loans and HELOC decrease (and our revenues from new originations fall), and when rates decrease, demand increases (and our

19

origination revenues increase). In a contrary fashion, when interest rates increase, the value of mortgage servicing rights (MSR) that we retain increases, and when rates decline the value of MSR declines. Within our mortgage businesses, therefore, there is a partial natural hedge against ordinary interest rate changes. Additional information concerning those risks and our management of them appears under the caption “Mortgage Servicing Rights and Other Related Retained Interests” beginning on page 37 of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2005 Annual Report to Shareholders, which is part of the material from that Report that has been incorporated by reference into Item 7 of Part II of this report.

          Our mortgage lending business is affected by changes in interest rates in another manner. During the period of loan origination and prior to the loan’s sale in the secondary market (when loans are in the “pipeline” and the “warehouse”), we are exposed to the risk of interest rate changes for those loans as to which we have agreed to lock in the customer’s mortgage rate. We manage that risk through hedging activities and other methods. Additional information concerning those risks and our management of them appears under the caption “Pipeline and Warehouse” beginning on page 42 of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2005 Annual Report to Shareholders, which is part of the material from that Report that has been incorporated by reference into Item 7 of Part II of this report.

          Like all financial services companies, we face the risks of abnormalities in the yield curve. The yield curve simply shows the interest rates applicable to short and long term debt. The curve is steep when short-term rates are much lower than long-term rates; it is flat when short-term rates are equal, or nearly equal, to long-term rates; and it is inverted when short-term rates exceed long-term rates. Historically, the yield curve normally is relatively steep. However, during most of 2005 the yield curve has been relatively flat. A flat or inverted yield curve tends to decrease net interest margin, as the warehouse yields narrow relative to their short-term funding sources, and it tends to reduce demand for long-term debt, adversely impacting the revenues of our capital markets business.

          Lastly, expectations by the market regarding the direction of future interest rate movements, particularly long-term rates, can impact the demand for long-term debt which in turn can impact the revenues of our capital markets business. That risk is most apparent during times when strong expectations have not yet been reflected in market rates, or when expectations are especially weak or uncertain.

Securities Inventories Risks

          Our capital markets business buys and sells various types of securities for its customers. In the course of that business we hold inventory positions and are exposed to certain risks of market fluctuations. In addition, we are exposed to credit risk associated with debt securities. We manage the risks of holding inventories of securities through certain policies and procedures. Additional information concerning those risks and our management of them appears under the caption “Market Risk Management” beginning on page 29 of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2005 Annual Report to Shareholders, which is part of the material from that Report that has been incorporated by reference into Item 7 of Part II of this report, and in the “Credit Risks” discussion beginning on page 16 of this report.

20

Regulatory and Legal Risks

          We operate in a heavily regulated industry and therefore are subject to many banking, deposit, insurance, brokerage, and consumer lending regulations in addition to the rules applicable to all companies publicly traded in the U.S. securities markets. Failure to comply with applicable regulations could result in financial, structural, and operational penalties. In addition, efforts to comply with applicable regulations may increase our costs and/or limit our ability to pursue certain business opportunities. See “Supervision and Regulation” in Item 1 of this report, beginning on page 3 above, for additional information concerning financial industry regulations. Federal and state regulations significantly limit the types of activities in which we, as a financial institution, may engage. In addition, we are subject to a wide array of other regulations that govern other aspects of how we conduct our business, such as in the areas of employment and intellectual property. Federal and state legislative and regulatory authorities occasionally consider changing these regulations or adopting new ones. Such actions could limit the amount of interest or fees we can charge, could restrict our ability to collect loans or realize on collateral, or could materially affect us in other ways. Additional federal and state consumer protection regulations also could expand the privacy protections afforded to customers of financial institutions, restricting our ability to share or receive customer information and increasing our costs. In addition, changes in accounting rules can significantly affect how we record and report assets, liabilities, revenues, expenses, and earnings.

          We also face litigation risks from customers (singly or in class actions) and from federal or state regulators. Litigation is an unavoidable part of doing business in our industry, and we manage those risks through internal controls, personnel training, insurance, litigation management, and other means. However, the commencement, outcome, and magnitude of litigation cannot be predicted or controlled with certainty.

Risks of Expense Control

          Expenses and other costs directly affect our earnings. Our ability to successfully manage expenses is important to our long-term survival. Many factors can influence the amount of our expenses, as well as how quickly they grow. As our businesses change or expand, additional expenses can arise from using outsourced services, asset purchases, structural reorganization, evolving business strategies, and changing regulations, among other things.

Geographic Risks

          Our mortgage and capital markets businesses are national in scope. Our national expansion strategy is making our banking business national as well. At present, however, a majority of our banking business is grounded in, and depends upon, the major Tennessee markets. As a result, to a greater degree than many of our competitors that operate nationally or in much broader regions, our banking business currently is exposed to adverse economic, regulatory, natural disaster, and other risks that might primarily impact Tennessee and the mid-South region of the U.S.

ITEM 1B
UNRESOLVED STAFF COMMENTS

None.

ITEM 2
PROPERTIES

          The Corporation has no properties that it considers materially important to its financial statements.

ITEM 3
LEGAL PROCEEDINGS

          The Corporation is a party to no material pending legal proceedings the nature of which are required to be disclosed pursuant to the Instructions contained in the Form of this Report.

21

ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          There were no matters submitted during the fourth quarter of 2005 to a vote of security holders, through the solicitation of proxies or otherwise.

SUPPLEMENTAL PART I INFORMATION

Executive Officers of Registrant

          The following is a list of executive officers of the Corporation as of March 1, 2006. The executive officers are elected at the April meeting of the Corporation’s Board of Directors following the annual meeting of shareholders for a term of one year and until their successors are elected and qualified.

Name and Age	Offices and Positions (Year First Elected to Office)
Gerald L. Baker Age: 62	Chief Operating Officer of the Corporation and the Bank (2005)
Charles G. Burkett Age: 54	President –Tennessee and National Banking and Executive Vice President of the Corporation and the Bank (2004)
J. Kenneth Glass Age: 59	Chairman of the Board (2004), President (2001) and Chief Executive Officer (2002) of the Corporation and the Bank
Herbert H. Hilliard Age: 58	Executive Vice President, Risk Management (2001) and Government Relations and CRA (1988) of the Corporation and the Bank
Jim L. Hughes Age: 64	President – FTN Financial and Executive Vice President of the Corporation (2004) and President – FTN Financial of the Bank (1999)
Harry A. Johnson, III Age: 57	Executive Vice President (1990) and General Counsel (1988) of the Corporation and the Bank
James F. Keen Age: 55	Executive Vice President (2003), Corporate Controller of the Corporation (1988) and the Bank (2001) and principal accounting officer
Peter F. Makowiecki Age: 46	President – Mortgage Banking of the Corporation and the Bank (2006), Executive Vice President of the Corporation (2006), and Vice President of the Bank (2003)
Larry B. Martin Age: 58	Chief Operating Officer – First Tennessee Financial Services of the Corporation and the Bank (2004)
Marlin L. Mosby, III Age: 42	Executive Vice President (2002) and Chief Financial Officer (2003) of the Corporation and the Bank
Sarah L. Meyerrose Age: 50	Executive Vice President – Operations and Technology of the Corporation and the Bank (2005)
John P. O’Connor, Jr. Age: 62	Executive Vice President of the Corporation (1990) and the Bank (1987) and Chief Credit Officer (1988)
Elbert L. Thomas, Jr. Age: 57	Executive Vice President (1995) and Interest Rate Risk Manager (2003) of the Corporation and the Bank

22

          Each of the executive officers has been employed by the Corporation or its subsidiaries during each of the last five years. Prior to November 2005, Mr. Baker was Executive Vice President of the Corporation and the Bank and President – First Horizon Financial Services; and prior to January 2006, Mr. Baker was President – Mortgage Banking and President and Chief Executive Officer of First Horizon Home Loan Corporation. Prior to November, 2005, Mr. Burkett was President – First Tennessee Financial Services and Executive Vice President of the Corporation and the Bank; prior to April 2004 Mr. Burkett was President – Retail Financial Services/Memphis Financial Services; and, prior to July of 2001 Mr. Burkett was Executive Vice President, Manager Affluent Market of the Bank. Prior to July of 2002, Mr. Glass was President and Chief Operating Officer of the Corporation and the Bank, and prior to July 2001, he was President-Retail Financial Services of the Corporation and the Bank. Prior to April of 2000, Mr. Glass was Executive Vice President of the Corporation and prior to April of 1999, he was President-Tennessee Banking Group of the Bank. Mr. Makowiecki also serves as Chief Executive Officer of First Horizon Home Loan Corporation (since January 2006), and he served as Chief Financial Officer of First Horizon Home Loan Corporation from 2000 until January 2006. Prior to April 2004, Mr. Martin was President – Business Financial Services/Tennessee Financial Services, and prior to July of 2001, he was Chairman and CEO – Knoxville of the Bank. Prior to November 2005, Ms. Meyerrose was Executive Vice President, Corporate and Employee Services of the Corporation and the Bank; and from July 2001 to July 2002, Ms. Meyerrose was also Executive Vice President, Wealth Management. Prior to November 2003, Mr. Mosby was Executive Vice President-Strategic Planning and Investor Relations and prior to April 2002, he was Senior Vice President, Strategic Planning. Mr. Thomas was appointed Executive Vice President-Interest Rate Risk Manager in October 2003 following his return after a disability leave which commenced December 1, 2002. Prior to December 1, 2002, Mr. Thomas was Chief Financial Officer of the Company and the Bank. Mr. Keen was appointed Chief Financial Officer on an interim basis, from December 1, 2002 until November 17, 2003.

          In addition to the foregoing persons, John H. Hamilton (age: 56), the Corporation’s Executive Vice President – Bank Services Group, was first elected to that position in 2004, and has been employed by the Corporation or its subsidiaries during each of the last five years. Mr. Hamilton was an executive officer within the meaning the rules applicable to this report at the beginning of 2005, but that status ceased on April 19, 2005. Whenever in this report data is disclosed for all executive officers, data for Mr. Hamilton pertaining to the period prior to April 19, 2005 is included, and data for Mr. Hamilton from and after that date is excluded. Prior to April 2004, Mr. Hamilton was Executive Vice President – Product Management and Delivery Services. Prior to June 2002, Mr. Hamilton was Executive Vice President, Manager Bank Services Group and prior to April 2002, he was Executive Vice President-Corporate Financial Services.

Declaration of Covenant
Relating To
The Bank’s Class A Non-Cumulative Perpetual Preferred Stock

          On March 23, 2005, the Bank issued 300,000 shares of Class A Non-Cumulative Perpetual Preferred Stock (“Bank Preferred Stock”). That issuance was the subject of the Corporation’s Current Report on Form 8-K filed March 24, 2005. The Bank made a Declaration of Covenant dated as of July 20, 2005 (“Declaration”) in connection with the Bank Preferred Stock. The Declaration was the subject of Item 8.01 of the Corporation’s Current Report on Form 8-K filed July 22, 2005. Under the Declaration, the Bank has promised to redeem shares of the Bank Preferred Stock only if and to the extent that the redemption price is equal to or less than the New Equity Amount as of the date of redemption. “New Equity Amount” means, on any date, the net proceeds to the Bank or subsidiaries of the Bank received during the six months prior to such date from new issuances of common stock of the Bank or of other securities or combinations of securities that

23

(i)

qualify as Tier 1 capital of the Bank, and

(ii)

as reasonably determined in good faith by the Bank’s Board of Directors, (x) on a liquidation or dissolution of the Bank rank pari passu with or junior to the Bank Preferred Stock (or, if all of the Bank Preferred Stock has been redeemed, would have ranked pari passu with or junior to the Bank Preferred Stock had it remained outstanding), (y) are perpetual, with no prepayment obligation on the part of the issuer, whether at the election of holders or otherwise (although such securities may be subject to early redemption at the option of the issuer), and (z) dividends or other distributions on which are non-cumulative;

provided, however, that the net proceeds of such securities or combinations of securities (A) if issued to any affiliate of the Bank other than the Corporation, shall not qualify as a New Equity Amount and (B) if issued to the Corporation shall qualify as a New Equity Amount only if such securities or combinations of securities have been purchased by the Corporation with the net proceeds from new issuances of common stock of the Corporation or of securities or combinations of securities by the Corporation during such six-month period that

(i)

qualify as Tier 1 capital of the Corporation and

(ii)

as reasonably determined in good faith by the Corporation’s Board of Directors, (x) on a liquidation or dissolution of the issuer rank junior to all indebtedness for money borrowed and claims of other creditors of the issuer, (y) are perpetual, with no prepayment obligation on the part of the issuer, whether at the election of holders or otherwise (although such securities may be subject to early redemption at the option of the issuer), and (z) dividends or other distributions on which are non-cumulative.

          The covenants in the Declaration run in favor of persons that buy, hold, or sell debt of the Bank during the period that such debt is “Covered Debt.” The Bank’s 5.05% Subordinated Bank Notes Due January 15, 2015 (“2015 Notes”) are the initial Covered Debt. Other debt will replace the 2015 Notes as the Covered Debt under the Declaration on the earlier to occur of (x) the date two years prior to the 2015 Notes’ maturity, or (y) the date the Bank gives notice of a redemption of the 2015 Notes such that, or the date 2015 Notes are repurchased in such an amount that, the outstanding principal amount of 2015 Notes is or will become less than $100 million.

          The Declaration is subject to various additional terms and conditions. The Declaration may be terminated if the holders of at least 51% by principal amount of the Covered Debt so agree, or if the Bank no longer has any long-term indebtedness rated by a nationally recognized statistical rating organization.

          The summary description of the Declaration in this report is qualified in its entirety by the full terms of the Declaration, which are controlling.

24

PART II

ITEM 5
MARKET FOR THE REGISTRANT’S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS, AND
ISSUER PURCHASES OF EQUITY SECURITIES

(a) Market for the Corporation’s Common Stock:

          The Corporation’s common stock, $0.625 par value, is listed and trades on the New York Stock Exchange, Inc. under the symbol FHN. As of December 31, 2005, there were 8,209 shareholders of record of the Corporation’s common stock. Additional information called for by this Item is incorporated herein by reference to the Summary of Quarterly Financial Information Table (Table 25), the Selected Financial and Operating Data Table, and the “Liquidity Management” subsection of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section contained in the Corporation’s 2005 Annual Report to shareholders, Note 18 to the Consolidated Financial Statements contained in the 2005 Annual Report, and to the “Payment of Dividends” and “Transactions with Affiliates” subsections contained in Item 1 of Part I of this Form 10-K, which are incorporated herein by reference.

(b) Sale of Unregistered Securities:

          On March 1, 2005, FHN purchased all of the outstanding stock of Greenwich Home Mortgage Corporation. A portion of the total purchase price was paid to ten shareholders of Greenwich in the form of a total of 90,867 shares of FHN's common stock, par value $0.625 per share, inclusive of shares issued into escrow accounts established under the acquisition agreement. There was no underwriter associated with the privately negotiated transaction. The issuance of FHN shares in connection with the transaction was exempt from registration pursuant, among other things, to Section 4(2) of the Securities Act of 1933, as amended. Except for such shares, during 2005 the Corporation sold no equity securities without registration under the Securities Act of 1933, as amended.

(c) Issuer Repurchases:

          Repurchases are made in the open market or through privately negotiated transactions and are subject to market conditions, accumulation of excess equity and prudent capital management. Pursuant to Board authority, the Corporation may repurchase shares from time to time for its stock option and other compensation plans and will evaluate the level of capital and take action designed to generate or use capital as appropriate for the interests of the shareholders. Additional information concerning repurchase activity during the final three months of 2005 is presented in Table 13, and the surrounding notes and other text, of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section appearing on page 22 of the Corporation’s 2005 Annual Report to shareholders, which information is incorporated herein by this reference.

ITEM 6
SELECTED FINANCIAL DATA

          The information called for by this Item is incorporated herein by reference to the Selected Financial and Operating Data table appearing on page 2 of the Corporation’s 2005 Annual Report to shareholders.

25

ITEM 7
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION

          The information called for by this Item is incorporated herein by reference to the Management’s Discussion and Analysis of Results of Operations and Financial Condition section, Glossary section, and the Consolidated Historical Statements of Income and Consolidated Average Balance Sheets and Related Yields and Rates tables appearing on pages 3–113 of the Corporation’s 2005 Annual Report to shareholders.

ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          The information called for by this Item is incorporated herein by reference to the “Interest Rate Risk Management” subsection of Note 25 to the Consolidated Financial Statements, and to the “Risk Management-Interest Rate Risk Management” subsection of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section, both of which appear, respectively, on page 107 and on pages 23–25 of the Corporation’s 2005 Annual Report to shareholders.

ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

          The information called for by this Item is incorporated herein by reference to the Consolidated Financial Statements and the notes thereto and to the Summary of Quarterly Financial Information table appearing, respectively, on pages 55–110 and on page 47 of the Corporation’s 2005 Annual Report to shareholders.

ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

          None.

ITEM 9A
CONTROLS AND PROCEDURES

          Evaluation of Disclosure Controls and Procedures. The Corporation’s management, with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by the annual report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Corporation’s disclosure controls and procedures are effective to ensure that material information relating to the Corporation and the Corporation’s consolidated subsidiaries is made known to such officers by others within these entities, particularly during the period this annual report was prepared, in order to allow timely decisions regarding required disclosure.

          Management’s Report on Internal Control over Financial Reporting. The report of management required by Item 308(a) of Regulation S-K, and the attestation report required by Item 308(b) of Regulation S-K, appear at pages 52–53 of the Corporation’s 2005 Annual Report to shareholders and are incorporated herein by this reference.

26

          Changes in Internal Control over Financial Reporting. There have not been any changes in the Corporation’s internal control over financial reporting during the Corporation’s fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

ITEM 9B
OTHER INFORMATION

          There is no information required to have been disclosed in a report on Form 8-K during the fourth quarter of 2005 that has not been reported.

PART III

ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

          The information called for by this Item as it relates to directors and nominees for director of the Corporation, audit committee financial expert, and members of the Audit Committee of the Corporation’s Board of Directors is incorporated herein by reference to the “Corporate Governance and Board Matters” section and the “Vote Item No. 1––Election of Directors” section of the Corporation’s 2006 Proxy Statement (excluding the Audit Committee Report, the statements regarding the independence of members of the Audit Committee, and the Board Compensation Committee Report on Executive Compensation). The information required by this Item as it relates to executive officers of the Corporation is incorporated herein by reference to the information provided under the heading “Executive Officers of Registrant” in the Supplemental Part I Information following Item 4 of this Report. The information required by this Item as it relates to compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated herein by reference to the “Section 16(a) Beneficial Ownership Reporting Compliance” section of the 2006 Proxy Statement.

          The Corporation’s Board of Directors has adopted a Code of Ethics for Senior Financial Officers that applies to the Chief Executive Officer, Chief Financial Officer, and Controller and also applies to all professionals serving in the financial, accounting, or audit areas of the Corporation and its subsidiaries. A copy of the Code has been filed (or incorporated by reference) as Exhibit 14 to this report and is posted on the Corporation’s current internet website (www.fhnc.com). (Click on “Investor Relations,” and then “Corporate Governance.”) A paper copy of the Code is available without charge upon written request addressed to the Corporate Secretary of the Corporation at its main office, 165 Madison Avenue, Memphis, Tennessee 38103. The Corporation intends to satisfy its disclosure obligations under Item 5.05 of Form 8-K related to Code amendments or waivers by posting such information on the Corporation’s internet website, the address for which is listed above.

ITEM 11
EXECUTIVE COMPENSATION

          The information called for by this Item is incorporated herein by reference to the “Compensation of Directors” and “Executive Compensation” sections of the Corporation’s 2006 Proxy Statement, but excluding the sub-section captioned “Total Shareholder Return Performance Graph,” which sub-section is not “filed” with the Commission and is not incorporated into this Form 10-K.

27

ITEM 12
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS

Equity Compensation Plan Information

          The information required by this Item pursuant to Item 201(d) of Regulation S-K is incorporated herein by reference to the “Equity Compensation Plan Information” section of the Corporation’s 2006 Proxy Statement, immediately following Vote Item No. 2.

Beneficial Ownership of Corporation Stock

          The information required by this Item pursuant to Item 403(a) and (b) of Regulation S-K is incorporated herein by reference to the “Stock Ownership Information” section of the Corporation’s 2006 Proxy Statement.

Change in Control Arrangements

          The Corporation is unaware of any arrangements which may result in a change in control of the Corporation.

ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          The information called for by this Item is incorporated herein by reference to the “Certain Relationships and Related Transactions” section of the 2006 Proxy Statement.

ITEM 14
PRINCIPAL ACCOUNTANT FEES AND SERVICES

          The Audit Committee of the Board of Directors has adopted an Audit and Non-Audit Services Pre-Approval Policy, a copy of which is set forth as part of Appendix C to the Corporation’s 2006 Proxy Statement (pages C-6 – C-8) and is incorporated herein by reference.

          Information regarding fees billed to the Corporation by KPMG LLP for the two most recent fiscal years is incorporated herein by reference to the “Vote Item No. 3” section of the 2006 Proxy Statement. No services were approved by the Audit Committee pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X.

28

PART IV

ITEM 15
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as a part of this Report:

Financial Statements:

Page 55*	1.	Consolidated Statements of Condition as of December 31, 2005 and 2004.
Page 56*	2.	Consolidated Statements of Income for the years ended December 31, 2005, 2004 and 2003.
Page 57*	3.	Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2005, 2004, and 2003.
Page 58*	4.	Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003.
Pages 59–110*	5.	Notes to the Consolidated Financial Statements
Pages 53–54*	6.	Reports of Independent Registered Public Accounting Firm
*The consolidated financial statements of the Corporation, the notes thereto, and the reports of independent public accountants, as listed above, are incorporated herein by reference to the indicated pages of the Corporation’s 2005 Annual Report to shareholders.

Financial Statement Schedules: Not applicable.

Exhibits:

Exhibits marked with an “*” represent a management contract or compensatory plan or arrangement required to be identified and filed as an exhibit.

Exhibits marked with a “+” are filed herewith.

3.1	Amended and Restated Charter of the Corporation, incorporated herein by reference to Exhibit 3(i) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 3-31-04.
3.2	Bylaws of the Corporation, as amended and restated as of February 27, 2006, incorporated herein by reference to Exhibit 3.2 to the Corporation’s Current Report on Form 8-K dated February 27, 2006.
4.1	Shareholder Protection Rights Agreement, dated as of October 20, 1998, between the Corporation and First Tennessee Bank National Association, as Rights Agent, including as Exhibit A the forms of Rights Certificate and Election to Exercise and as Exhibit B the form of Articles of Amendment designating Participating Preferred Stock, incorporated herein by reference to Exhibits 1, 2, and 3 to the Corporation’s Registration Statement on Form 8-A filed 10-23-98.

29

4.2

The Corporation and certain of its consolidated subsidiaries have outstanding certain long-term debt. See Note 10 in the Corporation’s 2005 Annual Report to shareholders. At December 31, 2005, none of such debt exceeded 10% of the total assets of the Corporation and its consolidated subsidiaries. Thus, copies of constituent instruments defining the rights of holders of such debt are not required to be included as exhibits. The Corporation agrees to furnish copies of such instruments to the Securities and Exchange Commission upon request.

4.3

Three principal agreements related to a note program for First Tennessee Bank National Association (the “Bank”): (i) form of Distribution Agreement dated February 18, 2005 among the registrant, the Bank, and the agents therein named; (ii) form of Fiscal and Paying Agency Agreement dated as of February 18, 2005 between the Bank and JPMorgan Chase Bank, National Association; and (iii) form of Interest Calculation Agreement dated as of February 18, 2005 between the Bank and JPMorgan Chase Bank, National Association. All such agreements are incorporated herein by reference to Exhibit 4(c) to the Corporation’s Current Report on Form 8-K filed February 25, 2005.

               *Deferral Plans and Related Exhibits

*10.1(a)	Directors and Executives Deferred Compensation Plan, as amended and restated, incorporated herein by reference to Exhibit 10(h) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 6-30-03 and form of individual agreement, incorporated herein by reference to Exhibit 10(h) to the Corporation’s 1996 Annual report on Form 10-K.
*10.1(b)	Director Deferral Agreements with schedule, incorporated herein by reference to Exhibit 10(k) to the Corporation’s 1992 Annual Report on Form 10-K and Exhibit 10(j) to the Corporation’s 1995 Annual Report on Form 10-K.
*10.1(c)	First Tennessee National Corporation Nonqualified Deferred Compensation Plan, incorporated herein by reference to Exhibit 10(a) to the Corporation’s 2003 Annual Report on Form 10-K.
*10.1(d)	Non-Employee Directors’ Deferred Compensation Stock Option Plan, as amended and restated, incorporated herein by reference to Exhibit 10(m) to the Corporation’s 1997 Annual Report on Form 10-K.
*10.1(e)	2000 Non-Employee Directors’ Deferred Compensation Stock Option Plan, as amended and restated 4-20-04, incorporated herein by reference to Exhibit 10(n) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 6-30-04.
*10.1(f)	[1991] Bank Advisory Director Deferral Plan, incorporated herein by reference to Exhibit 10(u) to the Corporation’s 2002 Annual Report on Form 10-K.
*10.1(g)	[1997] Bank Director and Advisory Board Member Deferral Plan, incorporated herein by reference to Exhibit 10(t) to the Corporation’s 2002 Annual Report on Form 10-K.
*10.1(h)	2002 Bank Director and Advisory Board Member Deferral Plan, as amended and restated 4-20-04, incorporated herein by reference to Exhibit 10(s) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 6-30-04.

30

*10.1(i)	First Horizon Nonqualified Deferred Compensation Plan, incorporated herein by reference to Exhibit 4(c) to the Corporation’s Registration Statement on Form S-8 (No. 333-106015), filed June 11, 2003.
*10.1(j)	FTN Financial Deferred Compensation Plan, incorporated herein by reference to Exhibit 4.3 to the Corporation’s Registration Statement on Form S-8 (No. 333-110845), filed December 1, 2003.
*10.1(k)	Form of Deferred Compensation Agreement used under the registrant’s 2003 Equity Compensation Plan and First Tennessee National Corporation Non-Qualified Deferred Compensation Plan, along with form of Salary, Commission, and Annual Bonus Deferral Programs Overview, form of Deferred Stock Option (“DSO”) Program Summary, and description of share receipt deferral feature, incorporated herein by reference to Exhibit 10(z) to the Corporation’s Current Report on Form 8-K dated January 3, 2005.
*10.1(l)	Description of April 19, 2005 amendments to the First Horizon National Corporation Nonqualified Deferred Compensation Plan (formerly First Tennessee National Corporation Nonqualified Deferred Compensation Plan), incorporated herein by reference to Exhibit 10.1(l) to the Corporation’s Current Report on Form 8-K dated April 19, 2005.
*10.1(m)	Description of changes to options granted in January 2005 to certain employees in connection with deferrals of salary earned in 2004, incorporated herein by reference to Exhibit 10.1(m) to the Corporation’s Current Report on Form 8-K dated October 19, 2005.
*Stock-Based Incentive Plans
*10.2(a)	1990 Stock Option Plan, as amended, and 1-21-97, 10-22-97, and 10-18-00 amendments, incorporated herein by reference to Exhibit 10(f) to the Corporation’s 1992, 1996, 1997 and 2000 Annual Reports on Form 10-K.
*10.2(b)	1992 Restricted Stock Incentive Plan, as amended and restated, incorporated herein by reference to Exhibit 10(d) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 3-31-99.
*10.2(c)	1995 Employee Stock Option Plan, as amended and restated, incorporated herein by reference to Exhibit 10.2(c) to the Corporation’s Current Report on Form 8-K dated July 19, 2005.
*10.2(d)	1997 Employee Stock Option Plan, as amended and restated, incorporated herein by reference to Exhibit 10(c) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 9-30-02.
*10.2(e)	2000 Employee Stock Option Plan, as amended and restated, incorporated herein by reference to Exhibit 10.2(e) to the Corporation’s Current Report on Form 8-K dated July 19, 2005.
*10.2(f)	2003 Equity Compensation Plan, incorporated herein by reference to Appendix A to the Corporation’s Proxy Statement furnished to shareholders in connection with the annual meeting held on April 20, 2004, filed March 10, 2004.

31

*TARSAP/PARSAP Restricted Stock Agreements and Related Documents
*10.3(a)	Form of accelerated (performance based) Restricted Stock Agreement under the 1992 Restricted Stock Incentive Plan, incorporated herein by reference to Exhibit 10.3(a) to the Corporation’s 2004 Annual Report on Form 10-K.
*10.3(b)	Form of accelerated (performance based) Restricted Stock Agreement under the 2003 Equity Compensation Plan, incorporated herein by reference to Exhibit 10.3(b) to the Corporation’s 2004 Annual Report on Form 10-K.
*10.3(c)	Description of performance criteria related to TARSAP/PARSAP awards granted prior to 2005, incorporated herein by reference to Exhibit 10.3(c) to the Corporation’s 2004 Annual Report on Form 10-K.
*10.3(d)	Form of 2005 PARSAP Agreement (for the CEO), incorporated herein by reference to Exhibit 10.3(d) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.
*10.3(e)	Form of 2005 PARSAP Agreement (for executive officers other than the CEO), incorporated herein by reference to Exhibit 10.3(e) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.
*10.3(f)	Description of performance criteria related to 2005 PARSAP Agreement, incorporated herein by reference to Exhibit 10.3(f) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.
*LTIP Documents
*10.4(a)	Form of Notice of 2003 LTIP award under the 2003 Equity Compensation Plan, with form of related Restricted Stock Agreement, incorporated herein by reference to Exhibit 10.4(a) to the Corporation’s 2004 Annual Report on Form 10-K. Messrs. Burkett, Hughes, and Baker are the 2005 named executive officers whose bonuses are based on a measure of business unit earnings, as described in the bracketed text in Section 5.0 of the Notice. Messrs. Hughes and Baker received no Restricted Stock Agreement in connection with their 2003 LTIP awards.
*10.4(b)	Form of Notice of 2004 LTIP award under the 2003 Equity Compensation Plan, incorporated herein by reference to Exhibit 10.4(b) to the Corporation’s 2004 Annual Report on Form 10-K. Messrs. Burkett, Hughes, and Baker are the 2005 named executive officers whose bonuses are based on a measure of business unit earnings, as described in the bracketed text in Section 5.0 of the Notice.
*10.4(c)	Form of Notice of 2005 LTIP award under the 2003 Equity Compensation Plan, incorporated herein by reference to Exhibit 10.4(c) to the Corporation’s 2004 Annual Report on Form 10-K. Messrs. Burkett, Hughes, Baker, and Martin are the 2005 named executive officers whose bonuses are based on a measure of business unit earnings, as noted in the exhibit.
*Other Stock-Based Incentive Plan Agreements and Related Documents
*10.5(a)	Form of Restricted Stock Agreement for Non-Employee Director used under the 2003 Equity Compensation Plan, incorporated herein by reference to Exhibit 10(aa) to the Corporation’s Current Report on Form 8-K dated January 18, 2005.

32

*10.5(b)	April 2003 Restricted Stock Agreement under the 2003 Equity Compensation Plan with J. Kenneth Glass, incorporated herein by reference to Exhibit 10.5(b) to the Corporation’s 2004 Annual Report on Form 10-K.
*10.5(c)	Form of Agreement To Defer Receipt Of Shares Following Option Exercise, incorporated herein by reference to Exhibit 10.5(c) to the Corporation’s 2004 Annual Report on Form 10-K.
*10.5(d)	Form of Agreement to Exchange Shares for RSUs and Defer Receipt of Shares [relating to Restricted Stock], incorporated herein by reference to Exhibit 10.5(d) to the Corporation’s 2004 Annual Report on Form 10-K.
*10.5(e)	Form of Stock Option Grant Notice, incorporated herein by reference to Exhibit 10.5(e) to the Corporation’s 2004 Annual Report on Form 10-K.
*10.5(f)	Form of Stock Option Reload Grant Notification, incorporated herein by reference to Exhibit 10.5(f) to the Corporation’s 2004 Annual Report on Form 10-K.
*10.5(g)	Form of Stock Option Grant Notice (used for executive officers after 2004), incorporated herein by reference to Exhibit 10.5(g) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.
*10.5(h)	Form of Restricted Stock Grant Notice (used after 2004), incorporated herein by reference to Exhibit 10.5(h) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.
*10.5(i)	Form of 2006 Promotional Performance Share Unit grant notice to Mr. Baker, incorporated herein by reference to Exhibit 10.5(i) of the Corporation’s Current Report on Form 8-K dated February 14, 2006.
*Management Cash Incentive Plan Documents
*10.6(a)	2002 Management Incentive Plan, as amended April 19, 2005, incorporated herein by reference to Exhibit 10.6(a) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.
*10.6(b)	Description of target payouts and performance criteria approved for 2006 annual cash bonuses to 2005 named executive officers under the 2002 Management Incentive Plan, incorporated herein by reference to Exhibit 10.6(b) of the Corporation’s Current Report on Form 8-K dated February 14, 2006.
Other Material Contract Exhibits
*10.7	2005 form of change-in-control severance agreement between the registrant and its executive officers, incorporated herein by reference to Exhibit 10.15 to the Corporation’s Current Report on Form 8-K dated April 19, 2005. Messrs. Burkett, Hughes, Baker, and Martin are the 2005 named executive officers whose bonuses are based on a measure of business unit earnings, as noted in the exhibit. Currently, the “salary amount” referred to in Section 5(iv)(C) for all executive officers is to be “three.”

33

*10.8	Survivor Benefits Plan, as amended and restated, incorporated herein by reference to Exhibit 10(g) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.
*10.9	Description of compensation and benefit arrangements for the Corporation’s non-employee directors, as revised April 19, 2005, incorporated herein by reference to Exhibit 10.16 to the Corporation’s Current Report on Form 8-K dated April 19, 2005.
*10.10	Long-Term Disability Program, incorporated herein by reference to Exhibit 10(v) to the Corporation’s 2003 Annual Report on Form 10-K.
*10.11	Amended and Restated Pension Restoration Plan, as amended and restated 4-20-04, incorporated herein by reference to Exhibit 10(i) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.
*10.12	Jim L. Hughes employment agreement, incorporated herein by reference to Exhibit 10(w) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.
*10.13	Form of Indemnity Agreement between the Corporation and its directors and executive officers, incorporated herein by reference to Exhibit 10.13 to the Corporation’s 2004 Annual Report on Form 10-K.
*10.14	Description of 2006 salaries approved for 2005 named executive officers, incorporated herein by reference to Exhibit 10.14 to the Corporation’s Current Report on Form 8-K dated February 14, 2006.
*10.15+	Description of Certain Benefits Available to Executive Officers.
13+	Pages 2 through 113 of the First Horizon National Corporation 2005 Annual Report to shareholders, a copy of which is furnished for the information of the Securities and Exchange Commission. Portions of the Annual Report not incorporated herein by reference are deemed not to be “filed” with the Commission.
14	Code of Ethics for Senior Financial Officers, incorporated herein by reference to Exhibit 14 to the Corporation’s 2003 Annual Report on Form 10-K
21+	Subsidiaries of the Corporation.
23+	Accountant’s Consents.
24+	Powers of Attorney.
31(a)+	Rule 13a-14(a) Certifications of CEO (pursuant to Section 302 of Sarbanes-Oxley Act of 2002)
31(b)+	Rule 13a-14(a) Certifications of CFO (pursuant to Section 302 of Sarbanes-Oxley Act of 2002)
32(a)+	18 USC 1350 Certifications of CEO (pursuant to Section 906 of Sarbanes-Oxley Act of 2002)
32(b)+	18 USC 1350 Certifications of CFO (pursuant to Section 906 of Sarbanes-Oxley Act of 2002)

34

          Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	FIRST HORIZON NATIONAL CORPORATION
Date: March 8, 2006	By:	/s/ Marlin L. Mosby, III
		Marlin L. Mosby, III, Executive Vice President and Chief Financial Officer

          Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
J. Kenneth Glass*	Chairman of the Board, President,	March 8, 2006
	Chief Executive Officer and a Director
J. Kenneth Glass	(principal executive officer)
Marlin L. Mosby, III*	Executive Vice President and Chief	March 8, 2006
	Financial Officer (principal
Marlin L. Mosby, III	financial officer)
James F. Keen*	Executive Vice President and	March 8, 2006
	Corporate Controller (principal
James F. Keen	accounting officer)
Robert C. Blattberg*	Director	March 8, 2006
Robert C. Blattberg
	Director
Simon F. Cooper
James A. Haslam, III*	Director	March 8, 2006
James A. Haslam, III
R. Brad Martin*	Director	March 8, 2006
R. Brad Martin
Vicki R. Palmer *	Director	March 8, 2006
Vicki R. Palmer
Michael D. Rose*	Director	March 8, 2006
Michael D. Rose
Mary F. Sammons*	Director	March 8, 2006
Mary F. Sammons
William B. Sansom*	Director	March 8, 2006
William B. Sansom

35

Jonathan P. Ward*	Director	March 8, 2006
Jonathan P. Ward
Luke Yancy III*	Director	March 8, 2006
Luke Yancy III

*By:	/s/ Clyde A. Billings, Jr.	March 8, 2006
	Clyde A. Billings, Jr.
	As Attorney-in-Fact

36

EXHIBIT INDEX

Exhibits marked with an “*” represent a management contract or compensatory plan or arrangement required to be identified and filed as an exhibit.

Exhibits marked with a “+” are filed herewith.

3.1	Amended and Restated Charter of the Corporation, incorporated herein by reference to Exhibit 3(i) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 3-31-04.
3.2	Bylaws of the Corporation, as amended and restated as of February 27, 2006, incorporated herein by reference to Exhibit 3.2 to the Corporation’s Current Report on Form 8-K dated February 27, 2006.
4.1	Shareholder Protection Rights Agreement, dated as of October 20, 1998, between the Corporation and First Tennessee Bank National Association, as Rights Agent, including as Exhibit A the forms of Rights Certificate and Election to Exercise and as Exhibit B the form of Articles of Amendment designating Participating Preferred Stock, incorporated herein by reference to Exhibits 1, 2, and 3 to the Corporation’s Registration Statement on Form 8-A filed 10-23-98.
4.2	The Corporation and certain of its consolidated subsidiaries have outstanding certain long-term debt. See Note 10 in the Corporation’s 2005 Annual Report to shareholders. At December 31, 2005, none of such debt exceeded 10% of the total assets of the Corporation and its consolidated subsidiaries. Thus, copies of constituent instruments defining the rights of holders of such debt are not required to be included as exhibits. The Corporation agrees to furnish copies of such instruments to the Securities and Exchange Commission upon request.
4.3	Three principal agreements related to a note program for First Tennessee Bank National Association (the “Bank”): (i) form of Distribution Agreement dated February 18, 2005 among the registrant, the Bank, and the agents therein named; (ii) form of Fiscal and Paying Agency Agreement dated as of February 18, 2005 between the Bank and JPMorgan Chase Bank, National Association; and (iii) form of Interest Calculation Agreement dated as of February 18, 2005 between the Bank and JPMorgan Chase Bank, National Association. All such agreements are incorporated herein by reference to Exhibit 4(c) to the Corporation’s Current Report on Form 8-K filed February 25, 2005.
*Deferral Plans and Related Exhibits
*10.1(a)	Directors and Executives Deferred Compensation Plan, as amended and restated, incorporated herein by reference to Exhibit 10(h) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 6-30-03 and form of individual agreement, incorporated herein by reference to Exhibit 10(h) to the Corporation’s 1996 Annual report on Form 10-K.
*10.1(b)	Director Deferral Agreements with schedule, incorporated herein by reference to Exhibit 10(k) to the Corporation’s 1992 Annual Report on Form 10-K and Exhibit 10(j) to the Corporation’s 1995 Annual Report on Form 10-K.

37

*10.1(c)	First Tennessee National Corporation Nonqualified Deferred Compensation Plan, incorporated herein by reference to Exhibit 10(a) to the Corporation’s 2003 Annual Report on Form 10-K.
*10.1(d)	Non-Employee Directors’ Deferred Compensation Stock Option Plan, as amended and restated, incorporated herein by reference to Exhibit 10(m) to the Corporation’s 1997 Annual Report on Form 10-K.
*10.1(e)	2000 Non-Employee Directors’ Deferred Compensation Stock Option Plan, as amended and restated 4-20-04, incorporated herein by reference to Exhibit 10(n) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 6-30-04.
*10.1(f)	[1991] Bank Advisory Director Deferral Plan, incorporated herein by reference to Exhibit 10(u) to the Corporation’s 2002 Annual Report on Form 10-K.
*10.1(g)	[1997] Bank Director and Advisory Board Member Deferral Plan, incorporated herein by reference to Exhibit 10(t) to the Corporation’s 2002 Annual Report on Form 10-K.
*10.1(h)	2002 Bank Director and Advisory Board Member Deferral Plan, as amended and restated 4-20-04, incorporated herein by reference to Exhibit 10(s) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 6-30-04.
*10.1(i)	First Horizon Nonqualified Deferred Compensation Plan, incorporated herein by reference to Exhibit 4(c) to the Corporation’s Registration Statement on Form S-8 (No. 333-106015), filed June 11, 2003.
*10.1(j)	FTN Financial Deferred Compensation Plan, incorporated herein by reference to Exhibit 4.3 to the Corporation’s Registration Statement on Form S-8 (No. 333-110845), filed December 1, 2003.
*10.1(k)	Form of Deferred Compensation Agreement used under the registrant’s 2003 Equity Compensation Plan and First Tennessee National Corporation Non-Qualified Deferred Compensation Plan, along with form of Salary, Commission, and Annual Bonus Deferral Programs Overview, form of Deferred Stock Option (“DSO”) Program Summary, and description of share receipt deferral feature, incorporated herein by reference to Exhibit 10(z) to the Corporation’s Current Report on Form 8-K dated January 3, 2005.
*10.1(l)	Description of April 19, 2005 amendments to the First Horizon National Corporation Nonqualified Deferred Compensation Plan (formerly First Tennessee National Corporation Nonqualified Deferred Compensation Plan), incorporated herein by reference to Exhibit 10.1(l) to the Corporation’s Current Report on Form 8-K dated April 19, 2005.
*10.1(m)	Description of changes to options granted in January 2005 to certain employees in connection with deferrals of salary earned in 2004, incorporated herein by reference to Exhibit 10.1(m) to the Corporation’s Current Report on Form 8-K dated October 19, 2005.
*Stock-Based Incentive Plans
*10.2(a)	1990 Stock Option Plan, as amended, and 1-21-97, 10-22-97, and 10-18-00 amendments, incorporated herein by reference to Exhibit 10(f) to the Corporation’s 1992, 1996, 1997 and 2000 Annual Reports on Form 10-K.

38

*10.2(b)	1992 Restricted Stock Incentive Plan, as amended and restated, incorporated herein by reference to Exhibit 10(d) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 3-31-99.
*10.2(c)	1995 Employee Stock Option Plan, as amended and restated, incorporated herein by reference to Exhibit 10.2(c) to the Corporation’s Current Report on Form 8-K dated July 19, 2005.
*10.2(d)	1997 Employee Stock Option Plan, as amended and restated, incorporated herein by reference to Exhibit 10(c) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 9-30-02.
*10.2(e)	2000 Employee Stock Option Plan, as amended and restated, incorporated herein by reference to Exhibit 10.2(e) to the Corporation’s Current Report on Form 8-K dated July 19, 2005.
*10.2(f)	2003 Equity Compensation Plan, incorporated herein by reference to Appendix A to the Corporation’s Proxy Statement furnished to shareholders in connection with the annual meeting held on April 20, 2004, filed March 10, 2004.
*TARSAP/PARSAP Restricted Stock Agreements and Related Documents
*10.3(a)	Form of accelerated (performance based) Restricted Stock Agreement under the 1992 Restricted Stock Incentive Plan, incorporated herein by reference to Exhibit 10.3(a) to the Corporation’s 2004 Annual Report on Form 10-K.
*10.3(b)	Form of accelerated (performance based) Restricted Stock Agreement under the 2003 Equity Compensation Plan, incorporated herein by reference to Exhibit 10.3(b) to the Corporation’s 2004 Annual Report on Form 10-K.
*10.3(c)	Description of performance criteria related to TARSAP/PARSAP awards granted prior to 2005, incorporated herein by reference to Exhibit 10.3(c) to the Corporation’s 2004 Annual Report on Form 10-K.
*10.3(d)	Form of 2005 PARSAP Agreement (for the CEO), incorporated herein by reference to Exhibit 10.3(d) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.
*10.3(e)	Form of 2005 PARSAP Agreement (for executive officers other than the CEO), incorporated herein by reference to Exhibit 10.3(e) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.
*10.3(f)	Description of performance criteria related to 2005 PARSAP Agreement, incorporated herein by reference to Exhibit 10.3(f) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.
*LTIP Documents
*10.4(a)	Form of Notice of 2003 LTIP award under the 2003 Equity Compensation Plan, with form of related Restricted Stock Agreement, incorporated herein by reference to Exhibit 10.4(a) to the

39

	Corporation’s 2004 Annual Report on Form 10-K. Messrs. Burkett, Hughes, and Baker are the 2005 named executive officers whose bonuses are based on a measure of business unit earnings, as described in the bracketed text in Section 5.0 of the Notice. Messrs. Hughes and Baker received no Restricted Stock Agreement in connection with their 2003 LTIP awards.
*10.4(b)	Form of Notice of 2004 LTIP award under the 2003 Equity Compensation Plan, incorporated herein by reference to Exhibit 10.4(b) to the Corporation’s 2004 Annual Report on Form 10-K. Messrs. Burkett, Hughes, and Baker are the 2005 named executive officers whose bonuses are based on a measure of business unit earnings, as described in the bracketed text in Section 5.0 of the Notice.
*10.4(c)	Form of Notice of 2005 LTIP award under the 2003 Equity Compensation Plan, incorporated herein by reference to Exhibit 10.4(c) to the Corporation’s 2004 Annual Report on Form 10-K. Messrs. Burkett, Hughes, Baker, and Martin are the 2005 named executive officers whose bonuses are based on a measure of business unit earnings, as noted in the exhibit.
*Other Stock-Based Incentive Plan Agreements and Related Documents
*10.5(a)	Form of Restricted Stock Agreement for Non-Employee Director used under the 2003 Equity Compensation Plan, incorporated herein by reference to Exhibit 10(aa) to the Corporation’s Current Report on Form 8-K dated January 18, 2005.
*10.5(b)	April 2003 Restricted Stock Agreement under the 2003 Equity Compensation Plan with J. Kenneth Glass, incorporated herein by reference to Exhibit 10.5(b) to the Corporation’s 2004 Annual Report on Form 10-K.
*10.5(c)	Form of Agreement To Defer Receipt Of Shares Following Option Exercise, incorporated herein by reference to Exhibit 10.5(c) to the Corporation’s 2004 Annual Report on Form 10-K.
*10.5(d)	Form of Agreement to Exchange Shares for RSUs and Defer Receipt of Shares [relating to Restricted Stock], incorporated herein by reference to Exhibit 10.5(d) to the Corporation’s 2004 Annual Report on Form 10-K.
*10.5(e)	Form of Stock Option Grant Notice, incorporated herein by reference to Exhibit 10.5(e) to the Corporation’s 2004 Annual Report on Form 10-K.
*10.5(f)	Form of Stock Option Reload Grant Notification, incorporated herein by reference to Exhibit 10.5(f) to the Corporation’s 2004 Annual Report on Form 10-K.
*10.5(g)	Form of Stock Option Grant Notice (used for executive officers after 2004), incorporated herein by reference to Exhibit 10.5(g) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.
*10.5(h)	Form of Restricted Stock Grant Notice (used after 2004), incorporated herein by reference to Exhibit 10.5(h) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.
*10.5(i)	Form of 2006 Promotional Performance Share Unit grant notice to Mr. Baker, incorporated herein by reference to Exhibit 10.5(i) of the Corporation’s Current Report on Form 8-K dated February 14, 2006.

40

*Management Cash Incentive Plan Documents
*10.6(a)	2002 Management Incentive Plan, as amended April 19, 2005, incorporated herein by reference to Exhibit 10.6(a) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.
*10.6(b)	Description of target payouts and performance criteria approved for 2006 annual cash bonuses to 2005 named executive officers under the 2002 Management Incentive Plan, incorporated herein by reference to Exhibit 10.6(b) of the Corporation’s Current Report on Form 8-K dated February 14, 2006.
Other Material Contract Exhibits
*10.7	2005 form of change-in-control severance agreement between the registrant and its executive officers, incorporated herein by reference to Exhibit 10.15 to the Corporation’s Current Report on Form 8-K dated April 19, 2005. Messrs. Burkett, Hughes, Baker, and Martin are the 2005 named executive officers whose bonuses are based on a measure of business unit earnings, as noted in the exhibit. Currently, the “salary amount” referred to in Section 5(iv)(C) for all executive officers is to be “three.”
*10.8	Survivor Benefits Plan, as amended and restated, incorporated herein by reference to Exhibit 10(g) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.
*10.9	Description of compensation and benefit arrangements for the Corporation’s non-employee directors, as revised April 19, 2005, incorporated herein by reference to Exhibit 10.16 to the Corporation’s Current Report on Form 8-K dated April 19, 2005.
*10.10	Long-Term Disability Program, incorporated herein by reference to Exhibit 10(v) to the Corporation’s 2003 Annual Report on Form 10-K.
*10.11	Amended and Restated Pension Restoration Plan, as amended and restated 4-20-04, incorporated herein by reference to Exhibit 10(i) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.
*10.12	Jim L. Hughes employment agreement, incorporated herein by reference to Exhibit 10(w) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.
*10.13	Form of Indemnity Agreement between the Corporation and its directors and executive officers, incorporated herein by reference to Exhibit 10.13 to the Corporation’s 2004 Annual Report on Form 10-K.
*10.14	Description of 2006 salaries approved for 2005 named executive officers, incorporated herein by reference to Exhibit 10.14 to the Corporation’s Current Report on Form 8-K dated February 14, 2006.
*10.15+	Description of Certain Benefits Available to Executive Officers.
13+	Pages 2 through 113 of the First Horizon National Corporation 2005 Annual Report to shareholders, a copy of which is furnished for the information of the Securities and Exchange

41

	Commission. Portions of the Annual Report not incorporated herein by reference are deemed not to be “filed” with the Commission.
14	Code of Ethics for Senior Financial Officers, incorporated herein by reference to Exhibit 14 to the Corporation’s 2003 Annual Report on Form 10-K
21+	Subsidiaries of the Corporation.
23+	Accountant’s Consents.
24+	Powers of Attorney.
31(a)+	Rule 13a-14(a) Certifications of CEO (pursuant to Section 302 of Sarbanes-Oxley Act of 2002)
31(b)+	Rule 13a-14(a) Certifications of CFO (pursuant to Section 302 of Sarbanes-Oxley Act of 2002)
32(a)+	18 USC 1350 Certifications of CEO (pursuant to Section 906 of Sarbanes-Oxley Act of 2002)
32(b)+	18 USC 1350 Certifications of CFO (pursuant to Section 906 of Sarbanes-Oxley Act of 2002)

42

EX-10

EXHIBIT 10.15

LIST OF CERTAIN BENEFITS
AVAILABLE TO CERTAIN EXECUTIVE OFFICERS

The following benefits are available to some or all executive officers (among other persons), but not to all full-time employees of the registrant.

1)	If the Board has authorized a stock repurchase program, an executive may request the repurchase of shares of the registrant at the day’s volume-weighted average price with no payment of any fees or commissions if the repurchase of the shares is otherwise permissible under the authorized program.
2)	An automobile allowance is paid to certain executive officers and others up to a limit based on Internal Revenue Service guidance. The limit applicable to 2005 was $19,150 annually. In 2005 certain maintenance and repair expenses associated with automobiles covered by the allowance were reimbursed by the registrant.
3)	Employees above a certain grade level, including executive officers, who are members of a country club or other social organization and who use the club in part for business purposes may request payment of 50% of the annual dues associated with the club.
4)	The registrant’s disability insurance program generally is available to employees. Persons above a certain grade level, including executive officers, are paid an amount each year intended to reimburse premiums associated with the program.
5)	The registrant makes available or pays for tax preparation, tax consulting, estate planning, and financial counseling services for executive officers.
6)	The registrant occasionally allows certain employees, including executive officers, or their spouses to travel for personal purposes in company aircraft on trips that occur for business reasons. Such cases typically result in no additional costs for the registrant, since the seat filled would have otherwise been empty, but do result in the recognition of taxable income for the employee involved.
7)	On occasion spouses of certain employees, including executive officers, are asked by the registrant, for business reasons, to accompany the employee on a business trip or function. In those cases the registrant may pay the travel, accommodation, and other expenses of the spouse incidental to the trip or function, some or all of which can result in taxable income for the employee.
8)	The registrant provides a relocation benefit to a wide range of employees, including executive officers, under varying circumstances and subject to certain constraints. The benefit may be in the form of an allowance or a reimbursement of actual expenses.

9)	The registrant offers certain health club benefits to a wide range of employees, including executive officers.
10)	The registrant provides a cash allowance to certain employees, including executive officers, which is intended to defray expenses associated with goods and services purchased personally and used at least in part for business purposes (such as cell phone service).
11)	Payments are made to partly or fully cover tax obligations related to the benefits listed in paragraphs 2 and 4 and, in certain instances, 6 and 7 above. When taxes are covered fully, the benefit is, in effect, provided on an after-tax basis.

EX-13

FINANCIAL INFORMATION AND DISCUSSION
TABLE OF CONTENTS

Selected Financial and Operating Data	2
Management's Discussion and Analysis of Results of Operations and Financial Condition	3
General Information	3
Forward-Looking Statements	3
Financial Summary	4
Business Line Review	5
Income Statement Review—2005 compared to 2004	7
Statement of Condition Review—2005 compared to 2004	16
Income Statement Review—2004 compared to 2003	19
Statement of Condition Review—2004 compared to 2003	20
Capital	21
Risk Management	23
Critical Accounting Policies	37
Quarterly Financial Information	47
Accounting Changes	47
Subsequent Events	48
Glossary of Selected Financial Terms	49
Report of Management on Internal Control over Financial Reporting	52
Reports of Independent Registered Public Accounting Firm	53
Consolidated Statements of Condition	55
Consolidated Statements of Income	56
Consolidated Statements of Shareholders' Equity	57
Consolidated Statements of Cash Flows	58
Notes to Consolidated Financial Statements	59
Consolidated Historical Statements of Income	111
Consolidated Average Balance Sheets and Related Yields and Rates	112

First Horizon National Corporation 1

SELECTED FINANCIAL AND OPERATING DATA

(Dollars in millions except per share   data)	2005			2004			2003			2002			2001			2000
Net income before cumulative adjustment*	$	441.1		$	454.4		$	473.3		$	376.5		$	326.4		$	232.6
Cumulative effect of changes in accounting   principle		(3.1	)		-			-			-			(8.2	)		-
Net income		438.0			454.4			473.3			376.5			318.2			232.6
Common Stock Data
Earnings per share before cumulative adjustment*	$	3.52		$	3.64		$	3.73		$	2.97		$	2.55		$	1.79
Earnings per share		3.49			3.64			3.73			2.97			2.49			1.79
Diluted earnings per share before cumulative   adjustment*		3.42			3.54			3.62			2.89			2.48			1.77
Diluted earnings per share		3.40			3.54			3.62			2.89			2.42			1.77
Cash dividends declared per share		1.74			1.63			1.30			1.05			.91			.88
Year-end book value per share		18.18			16.39			15.01			13.35			11.66			10.70
Closing price of common stock per share:
High		44.55			48.01			47.98			40.45			37.25			29.06
Low		35.13			41.59			36.14			30.05			27.38			16.06
Year-end		38.44			43.11			44.10			35.94			36.26			28.94
Dividends per share/year-end closing price		4.5	%		3.8	%		2.9	%		2.9	%		2.5	%		3.0	%
Dividends per share/diluted earnings per share		51.2			46.0			35.9			36.3			36.7			49.7
Price/earnings ratio		11.3	x		12.2	x		12.2	x		12.4	x		15.0	x		16.3	x
Market capitalization	$	4,888.7		$	5,368.0		$	5,552.0		$	4,553.9		$	4,597.0		$	3,744.7
Average shares (thousands)		125,475			124,731			126,765			126,714			127,777			129,865
Average diluted shares (thousands)		128,950			128,436			130,876			130,221			131,538			131,663
Period-end shares outstanding (thousands)		126,222			123,532			124,834			125,600			125,865			128,745
Volume of shares traded (thousands)		162,220			173,177			176,528			139,946			110,154			99,469
Selected Average Balances
Total assets	$	36,560.4		$	27,305.8		$	25,133.6		$	20,704.0		$	19,227.2		$	19,325.3
Total loans**		18,294.4			15,384.6			12,656.3			10,634.5			10,104.3			9,932.0
Investment securities		2,880.0			2,449.1			2,544.9			2,466.4			2,595.3			2,862.7
Earning assets		31,950.0			23,718.3			21,328.9			17,397.4			16,125.4			16,095.5
Deposits		23,015.8			17,635.5			16,111.6			13,674.8			12,540.6			12,932.0
Term borrowings		2,560.1			2,248.0			1,342.9			685.5			521.5			384.3
Shareholders' equity		2,143.4			1,905.5			1,800.4			1,568.3			1,401.3			1,276.6
Selected Period-End Balances
Total assets	$	36,579.1		$	29,771.7		$	24,506.7		$	23,823.1		$	20,621.6		$	18,559.6
Total loans**		20,600.9			16,427.7			13,990.5			11,345.4			10,283.1			10,239.5
Investment securities		2,912.5			2,681.0			2,470.4			2,700.3			2,525.9			2,839.0
Earning assets		31,578.0			25,952.3			20,621.1			19,999.8			17,085.7			15,193.3
Deposits		23,437.8			19,782.2			15,871.3			16,126.5			13,854.6			12,308.0
Term borrowings		3,437.6			2,616.4			1,726.8			929.7			550.4			409.7
Shareholders' equity		2,312.3			2,041.0			1,890.3			1,691.2			1,477.8			1,384.2
Selected Ratios
Return on average shareholders' equity before   cumulative adjustment*		20.58	%		23.85	%		26.29	%		24.00	%		23.29	%		18.22	%
Return on average shareholders' equity		20.43			23.85			26.29			24.00			22.71			18.22
Return on average assets before cumulative   adjustment*		1.21			1.66			1.88			1.82			1.70			1.20
Return on average assets		1.20			1.66			1.88			1.82			1.66			1.20
Net interest margin		3.08			3.62			3.78			4.35			4.29			3.75
Allowance for loan losses to loans**		.92			.96			1.15			1.27			1.46			1.36
Net charge-offs to average loans**		.21			.27			.54			.93			.80			.62
Period-end shareholders' equity to period-end assets		6.32			6.86			7.71			7.10			7.17			7.46
Average tangible equity to average tangible assets		4.87			6.24			6.37			6.70			6.66			5.98
* Cumulative adjustment reflects the effect of changes in accounting principles related to FASB Interpretation No. 47 and derivatives.
** Net of unearned income.

See accompanying notes to consolidated financial statements.

2 First Horizon National Corporation

FIRST HORIZON NATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

GENERAL INFORMATION

First Horizon National Corporation (FHN) is a national financial services institution. From a small community bank chartered in 1864, FHN has grown to be one of the top 30 largest bank holding companies in the United States in terms of asset size.

Approximately 13,000 employees provide a broad array of financial services to individual and business customers through hundreds of offices located in 46 states.

FHN companies have been recognized as some of the nation's best employers by AARP, Working Mother and Fortune magazines. FHN also was named one of the nation's 100 best corporate citizens by Business Ethics magazine.

FHN provides a broad array of financial services to its customers through three national businesses. The combined strengths of our businesses create an extensive range of financial products and services. In addition, the corporate segment provides essential support within the corporation.

• Retail/Commercial Banking offers financial products and services, including traditional lending and deposit taking, to retail and commercial customers. Additionally, the retail/commercial bank provides investments, insurance, financial planning, trust services and asset management, credit card, cash management, merchant services, check clearing, and correspondent services.

• Mortgage Banking helps provide home ownership through First Horizon Home Loans, which operates offices in 44 states and is one of the top 15 mortgage servicers and top 20 originators of mortgage loans to consumers. This segment consists of core mortgage banking elements including originations and servicing and the associated ancillary revenues related to these businesses.

• Capital Markets provides a broad spectrum of financial services for the investment and banking communities through the integration of capital markets securities activities, equity research and investment banking.

• Corporate consists of unallocated corporate expenses, expense on subordinated debt issuances and preferred stock, bank-owned life insurance, unallocated interest income associated with excess equity, net impact of raising incremental capital, funds management and venture capital.

For the purpose of this management's discussion and analysis (MD&A), earning assets have been expressed as averages, and loans have been disclosed net of unearned income. The following financial discussion should be read with the accompanying consolidated financial statements and notes. A glossary is included at the end of the MD&A to assist with terminology.

FORWARD-LOOKING STATEMENTS

This MD&A contains forward-looking statements with respect to FHN's beliefs, plans, goals, expectations, and estimates. Forward-looking statements are statements that are not a representation of historical information but rather are related to future operations, strategies, financial results or other developments. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “should,” “is likely,” “will,” “going forward,” and other expressions that indicate future events and trends identify forward-looking statements. Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, operational, economic and competitive uncertainties

First Horizon National Corporation 3

and contingencies, many of which are beyond a company's control, and many of which, with respect to future business decisions and actions (including acquisitions and divestitures), are subject to change. Examples of uncertainties and contingencies include, among other important factors, general and local economic and business conditions; expectations of and actual timing and amount of interest rate movements, including the slope of the yield curve (which can have a significant impact on a financial services institution); market and monetary fluctuations; inflation or deflation; investor responses to these conditions; the financial condition of borrowers and other counterparties; competition within and outside the financial services industry; geopolitical developments including possible terrorist activity; natural disasters; effectiveness of FHN's hedging practices; technology; demand for FHN's product offerings; new products and services in the industries in which FHN operates; and critical accounting estimates. Other factors are those inherent in originating and servicing loans including prepayment risks, pricing concessions, fluctuation in U.S. housing prices, fluctuation of collateral values, and changes in customer profiles. Additionally, the actions of the Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, and other regulators; regulatory and judicial proceedings and changes in laws and regulations applicable to FHN; and FHN's success in executing its business plans and strategies and managing the risks involved in the foregoing, could cause actual results to differ. FHN assumes no obligation to update any forward-looking statements that are made from time to time. Actual results could differ because of several factors, including those presented in this Forward-Looking Statements section.

FINANCIAL SUMMARY

Earnings for 2005 were $438.0 million, or $3.40 diluted earnings per share, including the cumulative effect of a change in accounting principle. Earnings before the unfavorable cumulative effect ($3.1 million, net of taxes) were $441.1 million or $3.42 diluted earnings per share. Earnings for 2004 were $454.4 million, or $3.54 diluted earnings per share.

• Retail/Commercial Banking pre-tax income increased 21 percent to $475.1 million

• Commercial loans grew 30 percent and retail loans grew 10 percent in 2005

• Retail/Commercial Banking deposits grew 12 percent in 2005 to $10.8 billion

• Capital Markets and Mortgage Banking pre-tax income decreased in 2005 as the continued flattening of the yield curve created pressure on earnings

• Cross-sell penetration of banking products to mortgage customers increased to 38 percent in 2005

• Home-purchase originations grew 25 percent as expansion of the sales force increased market share

• Capital Markets revenues from products other than fixed income grew 10 percent in 2005

Generally, FHN's performance in 2005 was driven by Retail/Commercial Banking which contributed 74 percent of pre-tax income. National expansion continues to favorably impact the bank's performance through successful cross-sell penetration to mortgage customers and expansion of the banking franchise into new markets. Additionally, FHN's leading market position in Tennessee has grown through an expanding sales force, the addition of financial centers in a key metropolitan market and successful marketing to customers of merging banks. The success of these initiatives can be seen through loan growth of 18 percent and deposit growth of 12 percent compared to 2004. Asset quality indicators also remained positive with a net charge-off ratio of 21 basis points compared to 27 basis points in 2004.

Mortgage Banking produced 29 percent of pre-tax income in both 2005 and 2004. Results for 2005 were favorably impacted by a 17 percent increase in mortgage loan originations and a similar increase in the associated revenues. This growth was led by a 25 percent increase in home-purchase originations as expansion of the sales force increased market share. In addition, fees associated with mortgage servicing increased 22 percent as the servicing portfolio grew, and servicing profitability continued to improve as the servicing cost per loan decreased 10 percent. However, continued flattening of the yield curve during 2005 unfavorably impacted Mortgage Banking's results through

4 First Horizon National Corporation

compression of the spread on the warehouse and unfavorable net hedge results and trading securities valuations.

Capital Markets contributed four percent of pre-tax income in 2005 as it continued to be negatively impacted by the flattening of the yield curve with reduced revenues from fixed income products and compressed spread on securities inventories. However, revenues continued to reflect strong diversification as revenue from fee sources other than fixed income increased 10 percent in 2005, primarily due to increased fees from investment banking and loan sales activities.

The Corporate segment, which absorbs costs associated with supporting the corporate structure, yielded a pre-tax loss of $45.2 million, or a negative seven percent of pre-tax income, in 2005.

2005 results include a charge of $3.1 million, net of taxes, or $0.02 diluted earnings per share, reflecting the cumulative effect of a change in accounting principle related to the adoption of FASB Interpretation No. (FIN) 47, “Accounting for Conditional Asset Retirement Obligations.” FIN 47 requires recognition of a liability at the time of acquisition or construction for assets that will require certain remediation expenditures when the assets are removed from service. The adoption of FIN 47 is not expected to have a material effect on earnings in 2006. In addition, the adoption of Staff Accounting Bulletin (SAB) No. 105 in 2004, which prohibited the inclusion of estimated servicing cash flows within the valuation of interest rate lock commitments, lowered pre-tax earnings by $8.4 million in 2004 and diluted earnings per share by $0.04. FHN previously included a portion of the value of the associated servicing cash flows when recognizing loan commitments at inception and throughout their lives. This impact was a one-time accounting change and does not affect the ongoing economic value of this business.

Return on average shareholders' equity and return on average assets for 2005 were 20.4 percent and 1.20 percent, respectively. Excluding the cumulative effect, return on average shareholders' equity and return on average assets were 20.6 percent and 1.21 percent, respectively, compared to 23.9 percent and 1.66 percent in 2004. Total assets were $36.6 billion and shareholders' equity was $2.3 billion on December 31, 2005, compared to $29.8 billion and $2.0 billion, respectively, on December 31, 2004. The increase in total assets resulted from growth in Capital Markets' balance sheet due to the 2005 acquisition of the fixed income business of Spear, Leeds and Kellogg (SLK) and loan growth in Retail/Commercial Banking.

BUSINESS LINE REVIEW

Retail/Commercial Banking

Pre-tax income increased 21 percent to $475.1 million in 2005 compared to $392.5 million in 2004. Retail/Commercial Banking contributed 74 percent of total pre-tax income in 2005 compared to 59 percent in 2004. Total revenues increased 16 percent, or $191.9 million, in 2005.

Net interest income increased 24 percent to $859.1 million in 2005 from $694.1 million in 2004. The increase in net interest income is primarily attributable to 18 percent loan growth, with commercial loans growing 30 percent to $8.7 billion from $6.7 billion and retail loans growing 9 percent to $9.5 billion from $8.7 billion. This growth resulted from expansion of the sales force, which increased market share in the core bank, as well as cross-sell opportunities in FHN's national markets with a substantial mortgage presence. Deposit account balances increased 12 percent compared to 2004. Net interest margin in Retail/Commercial Banking was stable in 2005 at 4.28 percent compared to 4.31 percent in 2004.

Noninterest income grew 6 percent, or $26.9 million, led by an increase of $15.7 million in revenue from loan sales and securitizations of home equity lines of credit (HELOC) and second-lien mortgages as FHN continues to utilize securitizations to manage liquidity and fund new loan growth. Partially offsetting this was a negative impact of $14.5 million, which resulted from the write-off of net capitalized expenses on HELOC held for sale as they prepaid faster than anticipated. Merchant

First Horizon National Corporation 5

processing fees grew 18 percent, or $13.5 million, reflecting increased volume from existing customers as well as an expanded customer base. Fees from deposit services charges increased 5 percent, or $7.7 million, reflecting deposit growth. As FHN continues to divest non-strategic activities, results for 2005 included $7.0 million of divestiture gains from the sale of three financial centers. Similarly, in 2004 divestiture gains of $7.0 million resulted from the sale of certain merchant relationships and an insurance subsidiary.

The provision for loan losses increased to $67.1 million in 2005 from $48.4 million in 2004 as the loan portfolio grew by 18 percent. This increase included $3.8 million in 2005 related to losses in the areas impacted by Hurricanes Katrina and Rita. The net charge-off ratio continued to remain at low levels with 21 basis points in 2005 compared to 27 basis points in 2004, reflecting the stable risk profile of both the commercial and retail loan portfolios.

Noninterest expense was $827.0 million in 2005 compared to $736.4 million in 2004 reflecting higher personnel costs which were largely attributable to national expansion initiatives. The efficiency ratio for retail/commercial banking improved to 60.4 percent in 2005 from 62.6 percent in 2004.

Mortgage Banking

Pre-tax income was $191.6 million in 2005 compared to $195.2 million in 2004. Mortgage Banking contributed 29 percent of total pre-tax income in 2005 and 2004. Total revenues increased 6 percent, or $39.9 million, in 2005.

Net interest income decreased 4 percent to $146.8 million in 2005 from $153.4 million in 2004. The warehouse grew 19 percent; however, the flattening of the yield curve resulted in compression of the spread on the warehouse. Spread on the warehouse was 2.47 percent in 2005 compared to 3.80 percent for 2004.

Noninterest income increased 10 percent to $511.4 million in 2005 compared to $464.9 million in 2004. Noninterest income consists primarily of mortgage banking-related revenue, net of costs, from the origination and sale of mortgage loans, fees from mortgage servicing and mortgage servicing rights (MSR) net hedge gains or losses. Mortgage servicing noninterest income is net of amortization, impairment and other expenses related to MSR and related hedges.

Mortgage loan origination volumes increased 17 percent to $35.7 billion in 2005 from $30.5 billion in 2004, as home purchase-related originations grew 25 percent, or $4.2 billion, and refinance activity grew 7 percent, or $1.0 billion. The increase in home purchase originations demonstrates FHN's success in executing its strategy to grow the purchase market and reflects a sales force of 2,600, which increased by 200, or 9 percent, from 2004. Loans delivered into the secondary market increased 18 percent to $34.6 billion from $29.3 billion. Net revenue from origination activity increased 17 percent to $398.7 million from $339.8 million in 2004.

The mortgage-servicing portfolio (which includes servicing for ourselves and others) grew 10 percent to $95.3 billion on December 31, 2005, from $86.6 billion on December 31, 2004. Total fees associated with mortgage servicing increased 22 percent to $280.2 million from $230.3 million, reflecting growth in the servicing portfolio and the favorable impact of lower prepayment activity. The growth in the servicing portfolio and rising interest rates led to a 26 percent increase in capitalized mortgage servicing rights and a 24 percent, or $36.2 million, increase in amortization expense compared to 2004. In addition, net servicing revenues were unfavorably impacted by a decline in net hedge gains of $41.1 million in 2005 as the continued flattening of the yield curve negatively impacted income from swaps and rising interest rates led to increased option expense.

Noninterest expense increased 10 percent to $466.0 million in 2005 compared to $423.2 million in 2004 due to costs associated with the increased volume of loans delivered into the secondary market. However, as a result of reduced refinancing activity and improvements in processes and technology, productivity improved resulting in a 10 percent reduction of servicing costs per loan compared to year-end 2004.

6 First Horizon National Corporation

Capital Markets

Pre-tax income declined from $88.2 million in 2004 to $23.7 million in 2005 primarily due to a decrease in fixed income revenues and net interest income. Total revenues were $339.3 million in 2005 compared to $389.1 million in 2004.

Net interest income decreased $33.8 million, reflecting a $19.4 million incremental cost of equity charge, largely related to the capital requirements of the SLK acquisition in first quarter 2005, and the compression of the spread on Capital Markets' securities inventory resulting from the flattening of the yield curve.

Revenues from fixed income sales decreased $30.8 million from 2004, while revenues from other fee sources increased $14.8 million. Revenues from other fee sources include fee income from activities such as loan sales, investment banking, equity research, portfolio advisory and the sale of bank-owned life insurance. Revenue from these other sources represented 45 percent of total noninterest income in 2005 compared to 39 percent in 2004 and increased 10 percent to $165.6 million from $150.8 million, primarily due to increased fees from investment banking and loan sales activities.

Noninterest expense increased 5 percent, or $14.7 million, primarily due to amortization and other increased costs resulting from the SLK acquisition and the acquisition of the assets of Alterity Partners, LLC (Alterity) on September 23, 2004.

Corporate

The Corporate segment's results yielded a pre-tax loss of $45.2 million in 2005 compared to a pre-tax loss of $9.1 million in 2004. Net security losses were $.6 million in 2005 compared to net security gains of $19.8 million in 2004 resulting from the sale of debt securities as the size of the investment portfolio was temporarily reduced to balance an increase in loans held for sale resulting from a delay in the closing of a securitization and from net gains due to the liquidation of a holding company investment. Results in 2005 include $10.8 million in dividend expense on $300 million of noncumulative perpetual preferred stock issued in first quarter 2005.

INCOME STATEMENT REVIEW – 2005 COMPARED TO 2004

Total revenue increased 7 percent to $2,383.8 million from $2,219.4 million in 2004, including a 15 percent increase in net interest income and a 3 percent increase in noninterest income. A more detailed discussion of the major line items follows.

NET INTEREST INCOME

Net interest income increased 15 percent to $984.1 million in 2005 from $856.3 million in 2004 as earning assets grew 35 percent to $31.9 billion and interest-bearing liabilities grew 40 percent to $27.4 billion in 2005. See also the Consolidated Average Balance Sheet and Related Yields and Rates table.

The activity levels and related funding for FHN's mortgage production and servicing and capital markets activities affect the net interest margin. These activities typically produce different margins than traditional banking activities. Mortgage production and servicing activities can affect the overall margin based on a number of factors, including the size of the mortgage warehouse, the time it takes to deliver loans into the secondary market, the amount of custodial balances, and the level of MSR. Capital Markets' activities tend to compress the margin because of its strategy to reduce market risk by economically hedging a portion of its inventory on the balance sheet. As a result of these impacts, FHN's consolidated margin cannot be readily compared to that of other bank holding companies. Table 1 details the computation of the net interest margin for FHN for the last three years.

The consolidated net interest margin was 3.08 percent for 2005 compared to 3.62 percent for 2004. This compression in the margin occurred as the net interest spread decreased to 2.64

First Horizon National Corporation 7

percent from 3.33 percent in 2004 while earning assets and net interest income increased. The decline in the margin is attributable to two items, the acquisition of SLK and a flatter yield curve. The acquisition of SLK in first quarter 2005 increased the negative pressure on the corporate margin as Capital Markets' balance sheet grew $3.6 billion. In addition, Mortgage Banking negatively impacted the corporate margin in 2005 as the flattening of the yield curve decreased spread on the warehouse by 133 basis points to 2.47 percent.

Table 1 - Net Interest Margin

	2005			2004			2003
Consolidated yields and rates:
Loans, net of unearned income		6.20	%		5.04	%		5.20	%
Loans held for sale		6.28			5.43			5.18
Investment securities		4.34			4.28			4.40
Capital markets securities inventory		4.70			3.56			3.76
Mortgage banking trading securities		12.27			12.05			10.94
Other earning assets		2.87			1.06			.75
Yields on earning assets		5.76			4.92			4.94
Interest-bearing core deposits		2.03			1.39			1.38
Certificates of deposit $100,000 and more		3.34			1.57			1.34
Federal funds purchased and securities sold under agreements to repurchase		2.98			1.22			.99
Capital markets trading liabilities		5.28			3.80			4.04
Commercial paper and other short-term borrowings		3.55			1.96			2.06
Term borrowings		3.96			2.24			2.64
Rates paid on interest-bearing liabilities		3.12			1.59			1.48
Net interest spread		2.64			3.33			3.46
Effect of interest-free sources		.44			.29			.32
FHN – NIM		3.08	%		3.62	%		3.78	%
Certain previously reported amounts have been reclassified to agree with current presentation.

In the near-term, a modest compression of the net interest margin is expected as flattening of the yield curve negatively impacts the spread on the mortgage warehouse. Over the long term, FHN's strategies to manage the interest rate sensitivity of the balance sheet position are designed to allow the net interest margin to improve in a higher interest rate environment. Flattening in the spread between short-term and long-term interest rates generally has an unfavorable impact on net interest margin, primarily from narrower spreads on the mortgage warehouse and capital markets inventories.

8 First Horizon National Corporation

Table 2 shows how the changes in yields or rates and average balances compared to the prior year affected net interest income.

Table 2 - Analysis of Changes in Net Interest Income

	2005 Compared to 2004 Increase/(Decrease) Due to*									2004 Compared to 2003 Increase/(Decrease) Due to*
(Fully taxable equivalent) (Dollars in thousands)	Rate**			Volume**			Total			Rate**			Volume**			Total
Interest income - FTE:
Loans	$	198,298		$	160,522		$	358,820		$	(22,647	)	$	139,657		$	117,010
Loans held for sale		40,180			110,870			151,050			10,240			(12,500	)		(2,260	)
Investment securities:
U.S. Treasury		391			(125	)		266			22			54			76
U.S. government agencies		547			18,978			19,525			3,006			3,886			6,892
States and municipalities		(135	)		(333	)		(468	)		(63	)		(739	)		(802	)
Other		863			130			993			(5,230	)		(8,084	)		(13,314	)
Total investment securities		1,888			18,428			20,316			(3,164	)		(3,984	)		(7,148	)
Capital markets securities inventory		11,064			63,509			74,573			(1,800	)		(5,038	)		(6,838	)
Mortgage banking trading securities		563			10,007			10,570			1,818			7,922			9,740
Other earning assets:
Federal funds sold and securities purchased under agreements to resell		25,531			32,347			57,878			2,162			541			2,703
Investment in bank time deposits		197			(5	)		192			5			71			76
Total other earning assets		25,810			32,260			58,070			2,178			601			2,779
Total earning assets/total interest income   - FTE		224,523			448,876		$	673,399			(7,145	)		120,428		$	113,283
Interest expense:
Interest-bearing deposits:
Savings	$	13		$	(4	)	$	9		$	(402	)	$	(32	)	$	(434	)
Checking interest and money market		32,162			3,296			35,458			54			1,224			1,278
Certificates of deposit under $100,000 and other time		9,261			9,692			18,953			291			2,630			2,921
Total interest-bearing core deposits		42,761			11,659			54,420			8			3,757			3,765
Certificates of deposit $100,000 and more		168,797			87,183			255,980			12,972			25,696			38,668
Federal funds purchased and securities sold under agreements to repurchase		78,305			13,201			91,506			8,445			(274	)		8,171
Capital markets trading liabilities		10,401			49,773			60,174			(1,327	)		(772	)		(2,099	)
Commercial paper and other short-term borrowings		3,787			28,903			32,690			(162	)		(283	)		(445	)
Term borrowings		43,163			7,723			50,886			(6,146	)		20,991			14,845
Total interest-bearing liabilities/total interest expense		386,333			159,323		$	545,656			18,827			44,078		$	62,905
Net interest income - FTE							$	127,743								$	50,378

*	The changes in interest due to both rate and volume have been allocated to change due to rate and change due to volume in proportion to the absolute amounts of the changes in each.
**	Variances are computed on a line-by-line basis and are non-additive.
Certain previously reported amounts have been reclassified to agree with current presentation.

First Horizon National Corporation 9

NONINTEREST INCOME

Noninterest income provides the majority of FHN's revenue and contributed 59 percent to total revenue in 2005 compared with 61 percent in 2004. Noninterest income increased $36.6 million led by increases in mortgage banking noninterest income and revenue from loan sales and securitizations. Table 3 provides six years of detailed information concerning FHN's noninterest income. The following discussion provides additional information about various line items reported in the table.

Table 3 - Noninterest Income

																		Compound Annual Growth Rates (%)
(Dollars in thousands)	2005			2004		2003			2002			2001			2000			05/04			05/00
Noninterest income:
Mortgage banking	$	482,950		$	444,758	$	649,496		$	436,706		$	285,032		$	122,454			8.6	+		31.6	+
Capital markets		353,005			376,558		538,919			448,016			344,278			118,709			6.3	-		24.4	+
Deposit transactions and cash management		156,190			148,514		146,701			143,315			133,631			116,080			5.2	+		6.1	+
Merchant processing		88,581			75,086		57,609			48,403			45,426			48,232			18.0	+		12.9	+
Insurance commissions		54,091			56,109		57,811			50,446			16,844			12,203			3.6	-		34.7	+
Revenue from loan sales and securitizations		47,575			23,115		-			-			-			-			105.8	+		NM
Trust services and investment management		44,614			47,274		45,873			48,369			56,705			65,817			5.6	-		7.5	-
Gains on divestitures		7,029			7,000		22,498			4,550			80,357			157,635			NM			NM
Equity securities (losses)/gains, net		(579	)		2,040		8,491			(9,435	)		(3,290	)		754			NM			NM
Debt securities   gains/(losses), net		1			18,708		(6,113	)		255			(1,041	)		(4,961	)		NM			NM
All other income:
Cardholder fees		27,381			25,075		22,698			20,145			20,137			29,666			9.2	+		1.6	-
Other service charges		22,470			19,709		19,810			21,204			24,932			23,199			14.0	+		.6	-
Remittance processing		15,411			19,515		23,666			26,016			22,820			24,314			21.0	-		8.7	-
Check clearing fees		7,333			10,052		11,839			13,180			11,615			11,129			27.0	-		8.0	-
Other		93,704			89,673		68,286			60,765			57,575			71,866			4.5	+		5.5	+
Total other income		166,299			164,024		146,299			141,310			137,079			160,174			1.4	+		.8	+
Total noninterest income	$	1,399,756		$	1,363,186	$	1,667,584		$	1,311,935		$	1,095,021		$	797,097			2.7	+		11.9	+
NM - Due to the variable nature of these items the growth rate is considered to be not meaningful.

Mortgage Banking

First Horizon Home Loans, an indirect subsidiary of FHN, offers residential mortgage banking products and services to customers, which consist primarily of the origination or purchase of single-family residential mortgage loans. First Horizon Home Loans originates mortgage loans through its retail and wholesale operations and also purchases mortgage loans from third-party mortgage bankers (correspondent brokers) for sale to secondary market investors and subsequently services the majority of those loans. Table 4 provides a summary of First Horizon Home Loans' production/origination of mortgage loans during 2005, 2004 and 2003.

10 First Horizon National Corporation

Table 4 - Production/Origination of Mortgage Loans

	2005			2004			2003
Retail channel		57	%		57	%		56%
Wholesale channel		38			36			35
Correspondent brokers		5			7			9

Origination income includes origination fees, net of costs, gains or losses recognized on loans sold including the capitalized net present value of the MSR, and the value recognized on loans in process including results from hedging. Origination fees, net of costs (including incentives and other direct costs), are deferred and included in the basis of the loans in calculating gains and losses upon sale. Gains or losses from the sale of loans are recognized at the time a mortgage loan is sold into the secondary market. A portion of the gain or loss is recognized at the time an interest rate lock commitment is made to the customer. In second quarter 2004, FHN adopted SAB No. 105, which prohibited the inclusion of estimated servicing cash flows within the valuation of interest rate lock commitments under SFAS No. 133. Previously, FHN included a portion of the value of the associated servicing cash flows when recognizing loan commitments at inception and throughout their lives. The adoption of SAB No. 105, which lowered pre-tax earnings by $8.4 million in 2004, was a one-time change and does not affect the ongoing economic value of this business.

Servicing income includes servicing fees, net gains or losses from hedging MSR, amortization and impairment of MSR, and gains or losses related to fair value adjustments on retained interests classified as mortgage trading securities, primarily interest-only strips, and associated hedges. First Horizon Home Loans employs hedging strategies intended to counter changes in the value of MSR and other retained interests due to changing interest rate environments (refer to discussion of MSR under Critical Accounting Policies).

Other income includes FHN's share of earnings from nonconsolidated subsidiaries accounted for under the equity method which provide ancillary activities to mortgage banking. As shown in Table 5, total mortgage banking noninterest income increased 9 percent in 2005.

Table 5 - Mortgage Banking Noninterest Income

							Compound Annual Growth Rates (%)
(Dollars in thousands and volume in millions)	2005		2004		2003		05/04			05/03
Noninterest income:
Origination income	$	398,726	$	339,845	$	602,203		17.3	+		18.6	-
Servicing income		58,188		83,796		8,186		30.6	-		166.6	+
Other		26,036		21,117		39,107		23.3	+		18.4	-
Total mortgage banking noninterest income	$	482,950	$	444,758	$	649,496		8.6	+		13.8	-
Refinance originations - first lien	$	14,778.8	$	13,791.5	$	33,810.7		7.2	+		33.9	-
Home-purchase originations - first lien		20,903.1		16,673.8		13,280.1		25.4	+		25.5	+
Mortgage loan originations	$	35,681.9	$	30,465.3	$	47,090.8		17.1	+		13.0	-
Servicing portfolio	$	95,283.8	$	86,586.9	$	68,913.7		10.0	+		17.6	+
Certain previously reported amounts have been reclassified to agree with current presentation.

Origination income was $398.7 million in 2005 compared to $339.8 million in 2004, primarily reflecting increased origination volume driven by growth in home-purchase originations as an expanded sales force led to market share gains. Loans securitized and sold into the secondary market increased 18 percent to $34.6 billion as origination volume increased.

Servicing income decreased to $58.2 million in 2005 from $83.8 million in 2004. As the servicing portfolio grew 10 percent in 2005, total fees associated with mortgage servicing increased 22 percent or $49.9 million. However, servicing income was unfavorably impacted by a decline in net hedge gains of $41.1 million in 2005 as the continued flattening of the yield curve negatively impacted

First Horizon National Corporation 11

income from swaps and rising interest rates led to increased option expense. In addition, the increase in size of the servicing portfolio and rising interest rates led to a 26 percent increase in capitalized mortgage servicing rights and a 24 percent, or $36.2 million, increase in amortization expense. However, impairment costs decreased $1.8 million to $35.2 million in 2005 due to the impact that rising interest rates had on the reduced number of loans paying off prematurely.

Other mortgage income increased 23 percent to $26.0 million for 2005 compared with $21.2 million in 2004 primarily due to changes in ancillary activities which include mortgage insurance, flood insurance, credit report, appraisal and tax services.

Going forward, revenue from refinance loan originations will depend on mortgage interest rates. Over time, an increase in rates should reduce origination fees and profit from the sale of loans, but should also reduce MSR impairment losses, while a decrease in rates should increase this net revenue. Home-purchase related originations should reflect the relative strength or weakness of the economy and the growth of the sales force. Actual results could differ because of several factors, including those presented in the Forward-Looking Statements section of the MD&A discussion.

Capital Markets

Capital markets noninterest income, the major component of revenue in the Capital Markets segment, is primarily generated from the purchase and sale of securities as both principal and agent, and from investment banking, loan sales, portfolio advisory and equity research activities. 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 fair value due to changes in interest rates.

Capital markets noninterest income decreased to $353.0 million in 2005 from $376.5 million in 2004, as revenues from fixed income sales fell $30.8 million. Revenues from other fee sources represented 43 percent of total noninterest income in 2005 compared to 38 percent in 2004. These revenues increased 5 percent from 2004, primarily due to increased fees from investment banking.

Table 6 - Capital Markets Noninterest Income

							Compound Annual Growth Rates (%)
(Dollars in thousands)	2005		2004		2003		05/04			05/03
Noninterest income:
Fixed income	$	202,105	$	232,917	$	366,488		13.2	-		25.7	-
Other products and services		150,900		143,641		172,431		5.1	+		6.5	-
Total capital markets noninterest income	$	353,005	$	376,558	$	538,919		6.3	-		19.1	-
Certain previously reported amounts have been reclassified to agree with current presentation.

Deposit Transactions and Cash Management

Deposit transactions include services related to retail deposit products (such as service charges on checking accounts), cash management products and services such as electronic transaction processing (automated clearing house and Electronic Data Interchange), account reconciliation services, cash vault services, lockbox processing, and information reporting to large corporate clients. Noninterest income from deposit transactions and cash management increased to $156.2 million in 2005 from $148.5 million in 2004, reflecting deposit growth.

Merchant Processing

Merchant processing involves converting transactions from plastic media such as debit cards, credit cards, purchase cards, and private label credit cards into cash for merchants that sell goods and services to consumers and businesses. Fee income from merchant processing increased 18 percent in 2005 to $88.6 million from $75.1 million in 2004, reflecting increased volume from existing customers as well as an expanded customer base.

12 First Horizon National Corporation

Insurance Commissions

Insurance commissions are derived from the sale of insurance products, including acting as an independent agent to provide commercial and personal property and casualty, life, long-term care, and disability insurance. Noninterest income from insurance commissions decreased to $54.1 million in 2005 from $56.1 million in 2004 due to certain small agency divestitures which lowered commissions by $2.9 million in 2005.

Revenue from Loan Sales and Securitizations

Revenue from loan sales and securitizations includes net gains recognized on HELOC and second-lien mortgage loans sold, including the capitalized net present value of the MSR, servicing fees, amortization and impairment of MSR, and gains or losses related to fair value adjustments on retained interests classified as mortgage trading securities. Noninterest income from loans sales and securitizations increased to $47.6 million in 2005 compared to $23.1 million in 2004 as FHN continues to utilize loan sales and securitizations to manage liquidity and fund new loan growth.

Trust Services and Investment Management

Trust services and investment management fees include investment management, personal trust, employee benefits, and custodial trust services and are influenced by equity and fixed income market activity. Noninterest income from trust services and investment management was $44.6 million in 2005 compared to $47.3 million in 2004.

Gains on Divestitures

Gains from divestitures totaled $7.0 million in 2005 and in 2004. FHN continues to divest non-strategic activities, and in 2005 recognized divestiture gains from the sale of three financial centers in a non-strategic Tennessee market. Divestiture gains in 2004 resulted from the sale of certain merchant relationships and an insurance subsidiary. See Note 2 - Acquisitions/Divestitures for additional information.

Securities Gains/(Losses)

In 2005 there were $.6 million of net securities losses compared to $20.7 million of net securities gains in 2004. Net securities losses for 2005 were primarily due to other-than-temporary impairment of certain equity securities. In 2004, net securities gains included $18.7 million of gains from the sale of investments securities, a gain of $5.5 million from the liquidation of a holding company investment, and a loss of $3.9 million related to other-than-temporary impairment of an investment in Freddie Mac equity securities.

All Other Income

All other income, which includes cardholder fees, remittance processing income, check clearing fees and other service charges, was $166.3 million in 2005 compared to $164.0 million in 2004.

NONINTEREST EXPENSE

Total noninterest expense for 2005 increased 11 percent to $1,670.9 million from $1,504.3 million in 2004. Table 8 provides detail by category for the past six years with growth rates.

Employee compensation, incentives and benefits (personnel expense), the largest component of noninterest expense, increased 9 percent to $998.2 million from $915.0 million in 2004 primarily due to national expansion initiatives. Included in personnel expense is the net periodic benefit cost for FHN's pension plan of $8.1 million in 2005, as compared to $7.1 million in 2004. FHN anticipates, based on current conditions, that net periodic benefit cost for the Pension Plan will increase by $3.2 million in 2006 due to normal growth in the qualified pension plan, a decrease in assumed

First Horizon National Corporation 13

earnings on assets in the qualified plan, and increased costs resulting from a full year of expense related to participants added to the supplemental executive retirement plan during 2005.

All other noninterest expense categories increased 14 percent, or $83.4 million, which included growth in occupancy expense, operations services, dividends on FTBNA perpetual preferred stock, legal and professional fees, contract employment, communications and courier expense, and advertising and public relations. These increases primarily resulted from activity associated with national expansion strategies and other growth initiatives. Additional detail of noninterest expense by business line is provided in Table 7.

Table 7 - Noninterest Expense Composition

(Dollars in thousands)	2005		2004		2003
Retail/Commercial Banking	$	827,077	$	736,388	$	717,826
Mortgage Banking		465,992		423,238		457,552
Capital Markets		315,546		300,918		396,802
Corporate		62,317		43,796		95,492
Total noninterest expense	$	1,670,932	$	1,504,340	$	1,667,672
Certain previously reported amounts have been reclassified to agree with current presentation.

14 First Horizon National Corporation

Table 8 - Noninterest Expense

													Compound Annual Growth Rates (%)
(Dollars in thousands)	2005		2004		2003		2002		2001		2000		05/04			05/00
Noninterest expense:
Employee compensation, incentives and benefits	$	998,180	$	914,947	$	995,609	$	830,672	$	670,934	$	508,335		9	.1 +		14	.4 +
Occupancy		106,038		89,402		83,583		76,669		69,069		80,453		18	.6 +		5	.7 +
Operations services		79,551		67,523		67,948		60,238		59,635		70,875		17	.8 +		2	.3 +
Equipment rentals, depreciation and maintenance		77,117		72,695		68,973		68,736		74,106		68,230		6	.1 +		2	.5 +
Communications and courier		56,106		49,590		50,535		45,085		42,191		41,892		13	.1 +		6	.0 +
Amortization of intangible assets		13,734		9,541		7,980		6,200		10,805		11,738		43	.9 +		3	.2 +
All other expense:
Advertising and public relations		46,389		39,961		43,955		35,982		35,508		26,693		16	.1 +		11	.7 +
Legal and professional fees		45,239		37,730		60,001		37,340		32,087		26,794		19	.9 +		11	.0 +
Computer software		32,654		28,906		28,828		26,140		25,107		19,205		13	.0 +		11	.2 +
Travel and entertainment		32,126		30,794		37,432		22,501		17,489		13,891		4	.3 +		18	.3 +
Contract employment		31,062		23,714		33,790		28,987		30,082		28,157		31	.0 +		2	.0 +
Supplies		17,636		17,591		18,783		15,145		13,765		16,411			.3 +		1	.5 +
Fed service fees		7,568		8,838		9,195		9,597		7,761		7,112		14	.4 -		1	.3 +
Foreclosed real estate		7,265		5,834		13,137		21,479		25,452		16,080		24	.5 +		14	.7 -
Deposit insurance premium		3,012		3,024		2,703		2,393		2,463		2,589			.4 -		3	.1 +
Charitable contributions		2,203		1,497		13,370		48,337		1,745		1,188		47	.2 +		13	.1 +
Distributions on guaranteed preferred securities		-		-		8,070		8,070		8,070		8,070		NM			100	.0 -
Distributions on preferred stock of subsidiary		10,757		-		2,282		4,564		4,535		1,178		NM			55	.6 +
Other		104,295		102,753		121,498		69,171		71,348		44,636		1	.5 +		18	.5 +
Total other expense		340,206		300,642		393,044		329,706		275,412		212,004		13	.2 +		9	.9 +
Total noninterest expense	$	1,670,932	$	1,504,340	$	1,667,672	$	1,417,306	$	1,202,152	$	993,527		11	.1 +		11	.0 +
NM - not meaningful

PROVISION FOR LOAN LOSSES

The provision for loan losses is the charge to earnings that management determines to be necessary to maintain the allowance for loan losses at an adequate level reflecting management's estimate of probable incurred losses in the loan portfolio. An analytical model based on historical loss experience adjusted for current events, trends and economic conditions is used by management to determine the amount of provision to be recognized and to assess the adequacy of the loan loss allowance. The provision for loan losses increased 40 percent to $67.7 million in 2005 from $48.3 million in 2004 as the loan portfolio grew $2.9 billion. Included in the provision for 2005 is $3.8 million related to expected hurricane losses.

Going forward the level of provision for loan losses should fluctuate primarily with the strength or weakness of the economies of the markets where FHN does business over the long-run and will experience short-term fluctuations depending on the type and quantity of loan growth and impacts from asset quality movements. Additionally, asset quality in general should remain relatively stable based on expected economic conditions with normal short-term fluctuations; however, asset quality performance during 2005 was relatively strong.

First Horizon National Corporation 15

STATEMENT OF CONDITION REVIEW - 2005 COMPARED TO 2004

Total assets were $36.6 billion on December 31, 2005, compared with $29.8 billion on December 31, 2004. Average assets grew to $36.6 billion in 2005 from $27.3 billion in 2004. Growth in earning assets accounted for 89 percent of the increase in total average assets.

EARNING ASSETS

Earning assets consist of loans, loans held for sale, investment securities, trading securities and other earning assets. During 2005, earning assets averaged $31.9 billion compared with $23.7 billion for 2004. A more detailed discussion of the major line items follows.

Loans

Average loans increased 19 percent to $18.3 billion during 2005 as retail loans grew 10 percent and commercial loans grew 30 percent. Average loans were $15.4 billion during 2004. Average loans represented 57 percent of average earning assets in 2005 and 65 percent in 2004. In 2004, FHN transferred approximately $1.6 billion of real estate residential loans to held for sale as a result of management's ongoing evaluation of alternative sources of funding, including securitizations, as loan growth exceeded core deposit growth. Additional loan information is provided in Table 9 and Note 4 -Loans.

Table 9 - Average Loans

(Dollars in millions)	2005		Percent of Total			2005 Growth Rate			2004		Percent of Total			2004 Growth Rate			2003		Percent of Total
Commercial:
Commercial, financial and industrial	$	5,979.9		33	%		23.4	%	$	4,845.6		31	%		12.6	%	$	4,304.6		34	%
Real estate commercial		1,116.4		6			16.4			959.3		6			(9.2	)		1,056.4		8
Real estate construction		1,642.4		9			83.4			895.6		6			41.5			632.9		5
Total commercial		8,738.7		48			30.4			6,700.5		43			11.8			5,993.9		47
Retail:
Real estate residential		7,661.0		42			1.7			7,533.0		49			31.8			5,716.9		45
Real estate construction		1,488.9		8			108.4			714.6		5			68.5			424.0		4
Other retail		165.0		1			(11.4	)		186.3		1			(28.2	)		259.5		2
Credit card receivables		240.8		1			(3.8	)		250.2		2			(4.5	)		262.0		2
Total retail		9,555.7		52			10.0			8,684.1		57			30.3			6,662.4		53
Total loans, net of unearned	$	18,294.4		100	%		18.9	%	$	15,384.6		100	%		21.6	%	$	12,656.3		100	%

Commercial loans consist of commercial, financial and industrial; commercial real estate; and commercial construction loans. Commercial, financial and industrial loans continued as the single largest loan category within commercial loans and represented 68 percent of the commercial loan portfolio in 2005 and 72 percent in 2004. Commercial, financial and industrial loans increased 23 percent in 2005, or $1.1 billion, reflecting sales force expansion outside the Tennessee market and increased market share in Tennessee, which includes the effect of recent industry consolidation within the Tennessee market. Commercial construction loans grew 83 percent in 2005, or $746.8 million, primarily from growth in loans to single-family residential builders made through First Horizon Home Loans, reflecting the demand for single-family housing and commercial real estate development and expansion of the sales force and geographic reach. Additional commercial loan information is provided in Table 10.

16 First Horizon National Corporation

The retail loan portfolio consists of residential real estate (principally secured by first and/or second liens on residential property), other retail (automobile and other retail installment loans requiring periodic payments of principal and interest), credit card, and retail construction loans.

Residential real estate loans accounted for 80 percent of the retail loan portfolio in 2005 and 87 percent in 2004. The residential real estate loan portfolio averaged $7.7 billion for 2005 compared to $7.5 billion for 2004. The retail real estate construction portfolio increased 108 percent or $774.3 million in 2005. Retail real estate construction loans are a one-time close product where First Horizon Home Loans provides construction financing and a permanent mortgage to individuals for the purpose of constructing a home. Upon completion of construction, the permanent mortgage is classified as held for sale and sold into the secondary market. The increase in these loans reflects the favorable housing environment and expansion of the sales force and geographic reach.

Table 10 - Contractual Maturities of Commercial Loans on December 31, 2005

(Dollars in thousands)	Within 1 Year		After 1 Year Within 5 Years		After 5 Years		Total
Commercial, financial and industrial	$	3,921,567	$	2,239,351	$	417,212	$	6,578,130
Real estate commercial		371,184		682,431		159,437		1,213,052
Real estate construction		1,561,911		542,852		3,358		2,108,121
Total commercial loans, net of unearned income	$	5,854,662	$	3,464,634	$	580,007	$	9,899,303
For maturities over one year:
Interest rates – floating			$	2,139,351	$	246,614	$	2,385,965
Interest rates – fixed				1,325,283		333,393		1,658,676
Total			$	3,464,634	$	580,007	$	4,044,641

Commercial loan growth should be strong as a result of our national expansion of single-family residential construction lending and greater market demand for commercial and industrial loans. Year-over-year growth in retail loans will be primarily driven by leveraging our national sales platform.

Investment Securities

The investment portfolio of FHN consists principally of debt securities used as a source of income, liquidity and collateral for repurchase agreements or public fund deposits. Additionally, the investment portfolio is used as a tool to manage risk from movements in interest rates. The investment portfolio is classified into two categories: securities available for sale (AFS) and securities held to maturity (HTM). Table 11 shows information pertaining to the composition, yields and contractual maturities of the investment securities portfolio.

Investment securities averaged $2.9 billion in 2005 and $2.4 billion in 2004. Investment securities represented 9 percent of earning assets in 2005 and 10 percent in 2004.

On December 31, 2005, AFS securities totaled $2.9 billion and consisted primarily of mortgage-backed securities (MBS), collateralized mortgage obligations (CMO), U.S. Treasury, U.S. government agencies, and equity securities. On December 31, 2005, these securities had $64.6 million of net unrealized losses that resulted in a decrease in book equity of $39.5 million, net of $25.1 million of deferred income taxes. See Note 3 - Investment Securities for additional detail. On December 31, 2004, AFS securities totaled $2.7 billion and had $11.6 million of net unrealized losses that resulted in a decrease in book equity of $7.1 million, net of $4.5 million of deferred income taxes.

First Horizon National Corporation 17

Table 11 - Contractual Maturities of Investment Securities on December 31, 2005
(Amortized Cost)

	Within 1 Year					After 1 Year Within 5 Years					After 5 Years Within 10 Years					After 10 Years
(Dollars in thousands)	Amount		Yield			Amount		Yield			Amount		Yield			Amount			Yield
Securities held to maturity (HTM):
States and municipalities*	$	100		9.07	%	$	283		8.53	%	$	-		-	%	$	-			-	%
Total	$	100		9.07	%	$	283		8.53	%	$	-		-	%	$	-			-	%
Securities available for sale (AFS):
Government agency issued MBS and CMO**	$	-		-	%	$	138,337		4.36	%	$	38,866		5.56	%	$	2,410,214			4.47	%
U.S. Treasuries		987		4.21			39,839		4.32			364		4.28			-			-
Other U.S. government agencies		6,211		3.86			53,797		4.58			76,333		4.31			-			-
States and municipalities*		-		-			-		-			-		-			2,115			6.83
Other		6,481		6.36			1,640		4.93			1,088		5.26			200,422	***		5.52
Total	$	13,679		5.07	%	$	233,613		4.41	%	$	116,651		4.74	%	$	2,612,751			4.55	%

*	Weighted average yields on tax-exempt obligations have been computed by adjusting allowable tax-exempt income to a fully taxable equivalent basis.
**	Represents government agency issued mortgage-backed securities and collateralized mortgage obligations which, when adjusted for early paydowns, have an estimated average life of 3.7 years.
***	Represents equity securities with no stated maturity.

Loans Held for Sale

Loans held for sale consist of the mortgage warehouse, HELOC, second-lien mortgages, student loans, small issuer trust preferred securities and credit card receivables. The mortgage warehouse accounts for the majority of loans held for sale. Loans held for sale represented 19 percent of total earning assets in 2005 compared with 18 percent in 2004. During 2005 loans held for sale averaged $6.0 billion, an increase of 44 percent, or $1.8 billion from 2004. This growth is related to higher levels of HELOC and second-lien mortgages held for sale and securitization as FHN continues to fund loan growth and maintain a stable liquidity position through loan sales or securitizations. In addition, mortgage warehouse loans increased due to the higher level of originations in 2005. Since mortgage warehouse loans and other loans held for sale are generally held in inventory for a short period of time, there may be significant differences between average and period-end balances. On December 31, 2005, loans held for sale were $4.4 billion, down from $5.2 billion at the end of 2004 principally due to lower levels of HELOC and warehouse loans held for sale. These impacts were partially offset by higher levels of second-lien mortgages and small issuer trust preferred securities in 2005.

Trading Securities/Other Earning Assets

Trading securities increased 152 percent to $2.5 billion in 2005 from $1.0 billion in 2004. Other earning assets increased 214 percent to $2.3 billion in 2005 from $.7 billion in 2004. These increases were primarily attributable to the acquisition of SLK.

CORE DEPOSITS

During 2005 core deposits increased 13 percent, or $1.4 billion, and averaged $12.1 billion. Interest-bearing core deposits increased 13 percent or $769.5 million to an average balance of $6.9 billion in 2005. Growth in interest-bearing core deposits is attributable to expansion strategies which emphasize a focus on convenient hours, free checking and targeted financial center expansions. Noninterest-bearing core deposits, which averaged $5.3 billion in 2005, increased 13 percent or $589.8 million primarily due to an increase in corporate deposits, which includes growth in small business customers and larger balances in a cash management product, and an increase in mortgage escrow balances. Going forward, FHN expects to implement strategic growth initiatives including offering financial

18 First Horizon National Corporation

services, such as deposit-taking, in key markets where FHN already has an established mortgage-banking customer base.

SHORT-TERM PURCHASED FUNDS/TERM BORROWINGS

Short-term purchased funds (certificates of deposit greater than $100,000, federal funds purchased, securities sold under agreements to repurchase, trading liabilities, commercial paper, and other short-term borrowings), averaged $18.0 billion for 2005, up 60 percent or $6.8 billion from 2004. The increase in short-term purchased funds was used to fund earning asset growth of 35 percent or $8.2 billion in 2005. Short-term purchased funds accounted for 55 percent of FHN's funding (core deposits plus purchased funds and term borrowings) in 2005 and 46 percent in 2004. See Note 9 – Short-Term Borrowings for additional information.

Term borrowings include senior and subordinated borrowings and advances with original maturities greater than one year. Term borrowings increased 14 percent, or $312.1 million, and averaged $2.6 billion in 2005. The increase in term borrowings was also utilized to fund earning asset growth. Term borrowings on December 31, 2005, were $3.4 billion, an increase of 31 percent, or $821.3 million from 2004 year-end. See Note 10 – Term Borrowings for additional information.

INCOME STATEMENT REVIEW – 2004 COMPARED TO 2003

Earnings in 2004 were $454.4 million, a decrease of 4 percent from $473.3 million earned in 2003. Diluted earnings per common share decreased 2 percent to $3.54 in 2004 from $3.62 in 2003. Return on average assets was 1.66 percent in 2004 compared with 1.88 percent in 2003, and return on average shareholders' equity was 23.9 percent in 2004 compared with 26.3 percent in 2003.

During 2004 net interest income increased 6 percent to $856.3 million from $805.8 million in 2003. Net interest income was positively impacted by growth in the retail and commercial lending portfolios, as loans comprised 65 percent of the earning asset base in 2004 compared to 59 percent in 2003. Some of this positive impact was offset by the divestiture of substantially all of the assets and liabilities of FHN's wholly-owned subsidiary, First National Bank of Springdale (Springdale) on December 31, 2003, which contributed $10.5 million to net interest income in 2003. In addition, the adoption of SFAS No. 150 on July 1, 2003, resulted in FHN classifying its mandatorily redeemable preferred stock of subsidiary to term borrowings which had a negative impact on net interest income in 2004. The December 31, 2003, adoption of FIN 46 which required the deconsolidation of First Tennessee Capital I (see Note 11 – Guaranteed Preferred Beneficial Interests in First Horizon's Junior Subordinated Debentures) also had a negative impact on net interest income in 2004. The combined impact of adopting these two standards on a prospective basis was to increase interest expense by $10.4 million in 2004. An increase in funding costs as noninterest-bearing deposits decreased 9 percent, primarily due to lower escrow balances in mortgage banking, also had a negative impact on net interest income in 2004. The consolidated net interest margin decreased to 3.62 percent for 2004 compared with 3.78 percent for 2003. See Table 1 for a detailed computation of the net interest margin for FHN.

Noninterest income contributed 61 percent to total revenue in 2004 compared to 67 percent in 2003. Mortgage banking noninterest income decreased 32 percent, or $204.7 million, as origination income fell $262.4 million, reflecting a decrease in refinance origination volume and lower margins related to competitive pricing pressures and a change in the relative mix of originations from a higher percentage of fixed rate to a higher percentage of adjustable-rate mortgages. Total servicing income increased $75.6 million due to the positive impact of servicing fee growth combined with a decline in impairment costs of $121.3 million, which resulted from the impact that rising interest rates had on mortgage prepayments in the servicing portfolio. These positive impacts were partially offset by higher amortization costs, which increased $20.4 million, and lower net hedge gains, which fell $67.2 million, reflecting the impacts of interest rate volatility, the flattening of the yield curve and higher costs associated with increased use of option-based hedge instruments. See Table 5 for detail of mortgage

First Horizon National Corporation 19

banking noninterest income. Capital markets noninterest income decreased to $376.5 million in 2004 from $538.9 million in 2003, primarily due to a reduction in fixed income securities sales. Revenue was favorably impacted in 2003 by higher cash flows from prepayments of mortgage-backed products and agency calls. Merchant processing fees increased 30 percent to $75.1 million from $57.6 million in 2003, as new and existing clients experienced increases in transaction activity. Gains from divestitures totaled $7.0 million in 2004 and $22.5 million in 2003. Divestiture gains in 2004 resulted primarily from the sale of certain merchant relationships. The gains in 2003 reflect FHN's divestiture of Springdale, as well as the sale of certain merchant relationships. In 2004 there were $20.7 million of net securities gains compared to $2.4 million in 2003. Net securities gains for 2004 included $18.7 million of gains from sales of investment securities compared to net losses of $6.1 million in 2003. In 2004 net securities gains from equity investments included a $3.9 million loss related to other-than-temporary impairment of an investment in Freddie Mac equity securities and a $5.5 million gain resulting from the liquidation of a holding company investment. In 2003, net securities gains from equity investments of $8.5 million primarily resulted from the sale of a venture capital investment. All other noninterest income increased 12 percent in 2004, to $164.0 million from $146.3 million.

Total noninterest expense for 2004 decreased 10 percent to $1,504.3 million from $1,667.7 million in 2003. Based on the strong earnings experienced in 2003, noninterest expense included $85.4 million of discretionary spending on performance enhancing initiatives. Personnel expense decreased 8 percent to $915.0 million from $995.6 million in 2003 primarily due to lower activity levels in capital markets in 2004, reflecting lower commissions and incentives. All other expense decreased 12 percent to $589.3 million from $672.1 million in 2003. The declines in advertising, legal and professional fees, charitable contributions, and other expenses were primarily related to discretionary spending reductions in 2004. The decline in travel and entertainment, contract employment and foreclosed real estate were primarily related to the lower activity levels in mortgage banking in 2004. In addition, the adoption of SFAS No. 150 and FIN 46, reduced noninterest expense as it increased interest expense by $10.4 million in 2004.

The provision for loan losses decreased 44 percent to $48.3 million in 2004 from $86.7 million in 2003. The improvement in provision was related to a positive shift in the mix of the loan portfolio and a reduction in specific allocations related to large commercial credits.

STATEMENT OF CONDITION REVIEW – 2004 COMPARED TO 2003

During 2004, earning assets averaged $23.7 billion compared with $21.3 billion for 2003. Average earning assets were 87 percent of total average assets in 2004, compared with 85 percent in 2003. Average loans increased 22 percent to $15.4 billion during 2004 as retail loans grew 30 percent and commercial loans grew 12 percent. Average loans represented 65 percent of average earning assets in 2004 compared to 59 percent in 2003. In 2004, FHN transferred approximately $1.6 billion of real estate residential loans to available for sale as a result of management's ongoing evaluation of alternative sources of funding, including securitizations, as loan growth exceeded core deposit growth. On December 31, 2003, FHN sold substantially all of the assets and liabilities of Springdale which had average loans of approximately $175 million in 2003.

Commercial, financial and industrial loans increased 13 percent, or $541.0 million, in 2004 as general economic conditions improved. Commercial construction loans grew 42 percent in 2004 or $262.7 million, primarily from growth in loans to single-family residential builders made through First Horizon Home Loans, reflecting the strong demand for single-family housing and expansion of the sales force and geographic reach. Commercial real estate loans decreased 9 percent or $97.1 million primarily due to the divestiture of Springdale. The residential real estate loan portfolio grew 32 percent or $1.8 billion in 2004, primarily due to growth in HELOC. The retail real estate construction portfolio increased 69 percent or $290.6 million in 2004. Retail real estate residential construction loans are a one-time close product where First Horizon Home loans provides construction financing and a permanent mortgage to individuals for the purpose of constructing a home. The increase in these loans reflects the favorable housing environment and expansion of the sales force and geographic

20 First Horizon National Corporation

reach. Other retail loans decreased 28 percent or $73.2 million in 2004, largely due to a decline in automobile lending.

Investment securities averaged $2.4 billion in 2004 and $2.5 billion in 2003. Investment securities represented 10 percent of earning assets in 2004 and 12 percent in 2003.

Loans held for sale represented 18 percent of total earning assets in 2004 compared with 21 percent in 2003. During 2004 loans held for sale averaged $4.2 billion, a decrease of 5 percent, or $241.3 million, from 2003. At year-end 2004, loans held for sale totaled $5.2 billion compared to $3.0 billion at the end of 2003 due to an increase in HELOC held for sale.

During 2004 core deposits decreased 2 percent, or $185.8 million, and averaged $10.8 billion. This decrease reflects the divestiture of Springdale which had core deposits of approximately $245 million in 2003 and a decline in escrow balances due to lower mortgage refinance originations in 2004. Interest-bearing core deposits increased 4 percent or $254.9 million to an average balance of $6.1 billion in 2004. This growth rate was negatively impacted by the divestiture of Springdale, which had interest-bearing core deposits of approximately $200 million in 2003. Growth in interest-bearing core deposits is attributable to expansion strategies which emphasize a focus on convenient hours, free checking and targeted financial center expansions. Noninterest-bearing core deposits, which averaged $4.7 billion in 2004, decreased 9 percent or $440.6 million primarily due to lower escrow balances in mortgage banking.

Short-term purchased funds averaged $11.2 billion for 2004, up 17 percent or $1.6 billion from the previous year. The increase in short-term purchased funds was used to fund earning asset growth of 11 percent or $2.4 billion in 2004. Term borrowings increased 67 percent or $905.1 million and averaged $2.2 billion in 2004. The increase in term borrowings was also utilized in funding earning asset growth. Term borrowings on December 31, 2004, were $2.6 billion, an increase of 52 percent, or $.9 billion from 2003 year-end.

CAPITAL

Capital adequacy is an important indicator of financial stability and performance. Management's objectives are to provide capital sufficient to cover the risk inherent in FHN's businesses, to maintain excess capital to well-capitalized standards, and to assure ready access to the capital markets. FHN's capital position remained strong as shown in Table 12. Unrealized market valuations had no material effect on the ratios.

Average shareholders' equity increased 12 percent in 2005 to $2.1 billion from $1.9 billion in 2004, which increased 6 percent from $1.8 billion in 2003. Shareholders' equity was $2.3 billion at year-end 2005, up 13 percent from 2004, which increased 8 percent from year-end 2003. The increase in shareholders' equity during 2005 and 2004 came from retention of net income after dividends and the effects of stock option exercises reduced by shares repurchased. Pursuant to board authority, FHN may repurchase shares from time to time and will evaluate the level of capital and take action designed to generate or use capital, as appropriate, for the interests of the shareholders. In order to maintain FHN's well-capitalized status while sustaining strong balance sheet growth, FHN raised approximately $295 million of additional capital and did not repurchase a significant number of shares in 2005. The Consolidated Statements of Shareholders' Equity highlight the changes in equity since December 31, 2002. See also the Subsequent Events section of this MD&A for additional information.

First Horizon National Corporation 21

Table 12 - Capital Ratios

	2005			2004			2003
Average shareholders' equity to average assets		5.86	%		6.98	%		7.16	%
Period-end shareholders' equity to assets		6.32			6.86			7.71
FHN's tier 1 risk-based capital		8.55			8.62			9.22
FHN's total risk-based capital		12.30			13.18			13.19
FHN's leverage		6.67			7.16			7.19

Banking regulators define minimum capital ratios for bank holding companies and their bank subsidiaries. Based on the capital rules and definitions prescribed by the banking regulators, should any depository institution's capital ratios decline below predetermined levels, it would become subject to a series of increasingly restrictive regulatory actions. The system categorizes a depository institution's capital position into one of five categories ranging from well-capitalized to critically under-capitalized. For an institution to qualify as well-capitalized, Tier 1 Capital, Total Capital and Leverage capital ratios must be at least 6 percent, 10 percent and 5 percent, respectively. As of December 31, 2005, FHN and FTBNA had sufficient capital to qualify as well-capitalized institutions as shown in Note 13 – Regulatory Capital.

Table 13 - Issuer Purchases of Equity Securities

(Volume in thousands)	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
2005
October 1 to October 31		-		-		-		30,010
November 1 to November 30		-		-		-		30,010
December 1 to December 31		-		-		-		30,010
Total		-		-		-
Compensation Plan Programs:

–	A consolidated compensation plan share purchase program was approved on July 20, 2004, and was announced on August 6, 2004. This plan consolidated into a single share purchase program all of the previously authorized compensation plan share programs as well as the renewal of the authorization to purchase shares for use in connection with two compensation plans for which the share purchase authority had expired. The total amount authorized under this consolidated compensation plan share purchase program is 25.1 million shares which may be purchased over the option exercise period of the various compensation plans on or before December 31, 2023. Stock options granted after January 2, 2004, must be exercised no later than the tenth anniversary of the grant date.
Other Programs:
–	A non-stock option plan-related authority was announced on October 18, 2000, authorizing the purchase of up to 9.5 million shares. On October 16, 2001, it was announced that FHN's board of directors extended the expiration date of this program from June 30, 2002, until December 31, 2004. On October 19, 2004, the board of directors extended the authorization until December 31, 2007.

On December 31, 2005, book value per common share was $18.18 compared to $16.39 for 2004 and $15.01 for 2003. Average shares for the three-year period were 125.5 million in 2005, 124.7 million in 2004 and 126.8 million in 2003. Period-end shares outstanding for this same three-year period were 126.2 million, 123.5 million and 124.8 million, respectively. The decline in shares outstanding in 2004 was primarily related to share repurchases made to offset the impact of the issuance of trust preferred securities and the divestiture of Springdale. FHN's shares are traded on The New York Stock Exchange under the symbol FHN. The sales price ranges, net income per share and dividends declared by quarter, for each of the last two years, are presented in Table 25.

22 First Horizon National Corporation

RISK MANAGEMENT

FHN has an enterprise-wide approach to risk governance, measurement, management, and reporting including an economic capital allocation process that is tied to risk profiles used to measure risk-adjusted returns. The Enterprise-wide Risk/Return Management Committee oversees risk management governance. Committee membership includes the CEO and other executive officers of FHN. The Executive Vice President (EVP) of Risk Management oversees reporting for the committee. Risk management objectives include evaluating risks inherent in business strategies, monitoring proper balance of risks and returns, and managing risks to minimize the probability of future negative outcomes. The Enterprise-wide Risk/Return Management Committee oversees and receives regular reports from the Senior Credit Policy Committee, Asset/Liability Committee (ALCO), Capital Management Committee, and Operational Risk Committee. The EVP and Chief Credit Officer, EVP of Interest Rate Risk Management, EVP and Chief Financial Officer, and EVP of Risk Management chair these committees, respectively. Reports regarding Credit, Asset/Liability, Market, Capital Management, and Operational Risks are provided to the Executive and Audit Committees of the Board and to the full Board.

Risk management practices include key elements such as independent checks and balances, formal authority limits, policies and procedures, and portfolio management all executed through experienced personnel. The internal audit department also evaluates risk management activities. These activities include performing internal audits, the results of which are reviewed with management and the Audit Committee, as appropriate.

INTEREST RATE RISK MANAGEMENT

Interest rate sensitivity risk is defined as the risk that future changes in interest rates will adversely impact income. The primary objective of managing interest rate risk is to minimize the volatility to earnings from changes in interest rates and preserve the value of FHN's capital. ALCO, a committee consisting of senior management that meets regularly, is responsible for coordinating the financial management of interest rate risk. FHN primarily manages interest rate risk by structuring the balance sheet to attempt to maintain the desired level of net interest income while managing interest rate risk and liquidity. In some instances derivatives are used to manage interest rate risk.

Net interest income and the financial condition of FHN are affected by changes in the level of market interest rates as the repricing characteristics of loans and other assets do not necessarily match those of deposits, other borrowings and capital. To the extent that earning assets reprice more quickly than liabilities, net interest income will benefit in a rising interest rate environment and will be negatively impacted in a declining interest rate environment. In the case of floating rate assets and liabilities, FHN may also be exposed to basis risk, which results from changing spreads between loan and deposit rates. Generally, a decline in interest rates increases prepayment risk for MSR.

FHN uses simulation analysis as its primary tool to evaluate interest rate risk exposure. This type of analysis computes net interest income at risk under a variety of market interest rate scenarios to dynamically identify interest rate risk exposures. This simulation, which considers forecasted balance sheet changes, prepayment speeds, deposit mix, pricing impacts, and other changes in the net interest spread, provides an estimate of the annual net interest income at risk for given changes in interest rates. The results help FHN develop strategies for managing exposure to interest rate risk. Like any forecasting technique, interest rate simulation modeling is based on a number of assumptions and judgments. In this case, the assumptions relate primarily to loan and deposit growth, asset and liability prepayments, interest rates, and on- and off-balance sheet management strategies. Management believes the assumptions used in its simulations are reasonable. Nevertheless, simulation modeling provides only a sophisticated estimate, not a precise calculation of exposure to changes in interest rates.

The simulation models used to analyze the retail/commercial bank's net interest income create various at-risk scenarios looking at increases and/or decreases in interest rates from an instantaneous movement or a staggered movement over a certain time period. In addition, the risk of changes in the

First Horizon National Corporation 23

yield curve is estimated by flattening and steepening the yield curve to historical levels. Management reviews these different scenarios to determine alternative strategies and executes based on that evaluation. The models are continuously updated to incorporate management action. Any scenarios that indicate a net interest income at risk of 3 percent or more are presented to the Board quarterly. A 300 basis point staggered increase or decrease in interest rates over a one-year period is a key scenario analyzed. These hypothetical rate moves are used to simulate net interest income exposure to historically extreme movements in interest rates. The bank's rate sensitivity position shows a risk to scenarios that project declining rates. This position is driven primarily by the impact of increased prepayments on loans and investment securities. Based on the rate sensitivity position on December 31, 2005, net interest income exposure over the next 12 months to a staggered decrease in interest rates of 300 basis points is estimated to be approximately five percent of base net interest income. A staggered increase of 300 basis points results in a favorable variance in net interest income of approximately four percent. A 300 basis point staggered increase and a 300 basis point staggered decrease in interest rates are hypothetical rate scenarios. These scenarios are used as one estimate of risk, and do not necessarily represent management's current view of future interest rates or market developments. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions, and management's strategies, among other factors, including those presented in the Forward-Looking Statements section of this MD&A.

Other than the impact related to the immediate change in value of balance sheet accounts, such as MSR, these simulation models and related hedging strategies exclude the dynamics related to how fee income and noninterest expense may be affected by actual changes in interest rates or expectations of changes. Mortgage banking revenue, which is generated from originating, selling and servicing residential mortgage loans, is highly sensitive to changes in interest rates due to the direct effect changes in interest rates have on loan demand. In general, low or declining interest rates typically lead to increased origination fees and profit from the sale of loans but potentially lower servicing-related income due to the impact of higher loan prepayments on the value of mortgage servicing assets. Conversely, high or rising interest rates typically reduce mortgage loan demand and hence income from originations and sales of loans while servicing-related income may rise due to lower prepayments. The effect of income from originations and sales of loans on total earnings is more significant than servicing related income. Net interest income earned on warehouse loans held for sale and on swaps and similar derivative instruments used to protect the value of MSR increases when the yield curve steepens and decreases when the yield curve flattens. In addition, a flattening yield curve negatively impacts the demand for fixed income securities and, therefore, Capital Markets' revenue, as well as trading inventory spreads.

To determine the amount of interest rate risk and exposure to changes in fair value of loan commitments, warehouse loans and MSR, mortgage banking uses multiple scenario rate shock analysis, including the magnitude and direction of interest rate changes, prepayment speeds, and other factors that could affect mortgage banking. In certain cases, derivative financial instruments are used to aid in managing the exposure of the balance sheet and related net interest income and noninterest income to changes in interest rates. As discussed in Critical Accounting Policies, derivative financial instruments are used by mortgage banking for two purposes. First, forward sales contracts and futures contracts are used to protect against changes in fair value of the pipeline and mortgage warehouse from the time an interest rate is committed to the customer until the mortgage is sold into the secondary market due to increases in interest rates. Second, interest rate contracts are utilized to protect against MSR prepayment risk that generally accompanies declining interest rates. As interest rates fall, the value of MSR should decrease and the value of the servicing hedge should increase. The converse is also true. Ineffectiveness in these hedging strategies (when changes in the value of the derivative instruments do not match changes in the value of the hedged portion of MSR for any given change in long-term interest rates) is reflected in noninterest income.

Derivative instruments are also used to protect against the risk of loss arising from adverse changes in the fair value of capital markets' securities inventory due to changes in interest rates. FHN does not use derivative instruments to protect against prepayment risk, due to interest rate changes or other factors, of loans or loans held for sale other than the mortgage warehouse.

24 First Horizon National Corporation

Management uses the results of interest rate exposure models to formulate strategies to improve balance sheet positioning, earnings, or both, within FHN's interest rate risk, liquidity and capital guidelines.

Table 14 details FHN's interest rate sensitivity profile on December 31, 2005, based on projected cash flows categorized by anticipated settlement date on capital markets trading securities and expected maturity dates on mortgage banking trading securities. Also provided are the average rates earned on these trading securities. Table 14 also provides both the notional and fair values of derivative financial instruments held for trading. The information provided in this section, including the discussion regarding simulation analysis and rate shock analysis, is forward-looking. Actual results could differ because of interest rate movements, the ability of management to execute its business plans and other factors, including those presented in the Forward-Looking Statements section of this MD&A.

Table 14 - Risk Sensitivity Analysis

Held for Trading (Dollars in millions)	2006			2007			2008			2009		2010			2011+			Total			Fair Value
Assets:
Trading securities	$	1,831			-			-			-		-		$	302		$	2,133		$	2,133
Average interest rate		4.84	%		-			-			-		-			11.49	%		5.78	%
Interest Rate Derivatives (notional value):
Capital Markets:
Forward contracts:
Commitments to buy	$	1,798			-			-			-		-			-		$	1,798		$	(3	)
Weighted average settlement price		99.37	%		-			-			-		-			-			99.37	%
Commitments to sell	$	2,311			-			-			-		-			-		$	2,311		$	3
Weighted average settlement price		99.25	%		-			-			-		-			-			99.25	%
Caps purchased		-			-		$	10			-		-			-		$	10			*
Weighted average strike price		-			-			4.50	%		-		-			-			4.50	%
Caps written		-			-		$	(10	)		-		-			-		$	(10	)		*
Weighted average strike price		-			-			4.50	%		-		-			-			4.50	%
Floors purchased		-			-			-			-	$	50		$	20		$	70			*
Weighted average strike price		-			-			-			-		6.34	%		5.50	%		6.10	%
Floors written		-			-			-			-	$	(50	)	$	(20	)	$	(70	)		*
Weighted average strike price		-			-			-			-		6.34	%		5.50	%		6.10	%
Swap contracts	$	8		$	29		$	29			-	$	8		$	45		$	119		$	(1	)
Average pay rate (floating)		7.21	%		7.32	%		6.64	%		-		6.92	%		4.42	%		6.02	%
Average receive rate (fixed)		6.48	%		6.42	%		4.95	%		-		9.64	%		4.91	%		5.70	%
Swap contracts	$	(8	)	$	(29	)	$	(29	)		-	$	(8	)	$	(45	)	$	(119	)	$	1
Average pay rate (fixed)		6.48	%		6.42	%		4.95	%		-		9.64	%		4.91	%		5.70	%
Average receive rate (floating)		7.21	%		7.32	%		6.64	%		-		6.92	%		4.42	%		6.02	%
Future contracts:
Commitments to sell	$	336		$	86			-			-		-			-		$	422			*
Weighted average settlement price		97.11	%		95.19	%		-			-		-			-			96.72	%
* Amount is less than $500,000

LIQUIDITY MANAGEMENT

ALCO focuses on being able to fund assets with liabilities of the appropriate duration, as well as the risk of not being able to meet unexpected cash needs. The objective of liquidity management is to ensure the continuous availability of funds to meet the demands of depositors, other creditors and borrowers, and the requirements of ongoing operations. This objective is met by maintaining liquid assets in the form of trading securities and securities available for sale, maintaining sufficient unused borrowing capacity in the national money markets, growing core deposits, and the repayment of loans and the capability to sell or securitize loans. ALCO is responsible for managing these needs by taking into account the marketability of assets; the sources, stability and availability of funding; and the level of unfunded commitments. See Note 25 - Derivatives and Off-Balance Sheet Arrangements for

First Horizon National Corporation 25

additional information. Funds are available from a number of sources, including core deposits, the portfolio of securities available for sale, the Federal Home Loan Bank, the Federal Reserve Banks, access to capital markets through issuance of senior or subordinated bank notes and institutional certificates of deposit, availability to the overnight and term Federal Funds markets, access to retail brokered certificates of deposit, dealer and commercial customer repurchase agreements, and through the sale or securitization of loans.

Core deposits are a significant source of funding and have been a stable source of liquidity for banks. These deposits are insured by the Federal Deposit Insurance Corporation to the extent authorized by law. For 2005, the ratio of average total loans, excluding loans held for sale, to core deposits was 151 percent compared with 143 percent and 116 percent in 2004 and 2003, respectively. As loan growth currently exceeds core deposit growth, alternative sources of funding loan growth may be necessary in order to maintain an adequate liquidity position. One means of maintaining a stable liquidity position is to sell loans either through whole-loan sales or loan securitizations. FHN periodically evaluates its liquidity position in conjunction with determining its ability and intent to hold loans to maturity.

In February 2005, FTBNA established a bank note program providing additional liquidity of $5.0 billion. This bank note program provides a facility under which FTBNA may continuously issue short- and medium-term unsecured notes. On December 31, 2005, $4.3 billion was available under existing conditions through the bank note program as a funding source. Prior to February 2005, FTBNA had a bank note program under which the bank was able to borrow funds from time to time at maturities of 30 days to 30 years. This bank note program has been terminated in connection with the establishment of the new program. That termination does not affect any previously-issued notes outstanding. In November 2005, FTBNA entered into a $3.0 billion floating rate extendible note program. The extendible note program provides FTBNA with a facility under which it may issue and offer unsecured and unsubordinated notes with initial maturities of thirteen months and final maturities of five years. On December 31, 2005, $1.7 billion was available under existing conditions through the extendible note program.

FHN and FTBNA have the ability to generate liquidity by issuing preferred equity or incurring other debt. Liquidity has been obtained through FTBNA's issuance of 300,000 shares of noncumulative perpetual preferred stock which provided approximately $295 million in capital. In addition, liquidity has been obtained through issuance of $300 million of guaranteed preferred beneficial interests in FHN's junior subordinated debentures through two Delaware business trusts, wholly owned by FHN, and through preferred stock issued by an indirect wholly-owned subsidiary of FHN which provided approximately $45 million in capital. See Note 10–Term Borrowings, Note 11–Guaranteed Preferred Beneficial Interests in First Horizon's Junior Subordinated Debentures and Note 12–Preferred Stock of Subsidiary for additional information.

The Consolidated Statements of Cash Flows provide information on cash flows from operating, investing and financing activities for each of the three years ended December 31, 2005. Net cash provided by financing activities was the primary contributor to an increase in cash and cash equivalents for both 2005 and 2004, mainly resulting from growth in deposits and term borrowings. Strong deposit growth provided a significant portion of FHN's positive cash flows from financing activities and was utilized to meet increased liquidity needs related to strong loan growth as reflected in negative cash flows from investing activities during both periods. The issuance of term borrowings is an essential source of cash flows, and term borrowings were also utilized to better match the increased liquidity needs related to strong loan growth during both 2005 and 2004. In 2004, cash flows from operating activities were negative primarily due to funding increased levels of HELOC held for sale and growth in MSR and other retained interests resulting from securitization activities. In 2003, positive cash flows from operating activities as the mortgage warehouse decreased in a rising mortgage interest rate environment provided liquidity to fund growth in the loan portfolio. Earnings represent a significant source of liquidity, consistently providing positive cash flows in each of the three years. Sales and maturities of investment securities largely offset purchases in each of the three years.

26 First Horizon National Corporation

Parent company liquidity is maintained by cash flows stemming from dividends and interest payments collected from subsidiaries, which represent the primary source of funds to pay dividends to shareholders and interest to debt holders. The amount of dividends from FTBNA is subject to certain regulatory restrictions that are described in Note 18–Restrictions, Contingencies and Other Disclosures. The parent company statements are presented in Note 26–Parent Company Financial Information. The parent company also has the ability to enhance its liquidity position by raising equity or incurring debt. Under an effective shelf registration statement on file with the SEC, FHN, as of December 31, 2005, may offer, from time to time, at its discretion, debt securities and common and preferred stock aggregating up to $125 million. In addition, $50 million of borrowings under unsecured lines of credit from non-affiliated banks were available to the parent company to provide for general liquidity needs.

Off-balance Sheet Arrangements and Other Contractual Obligations

First Horizon Home Loans originates conventional conforming and federally insured single-family residential mortgage loans. Likewise, FTN Financial Capital Assets Corporation purchases the same types of loans from customers. Substantially all of these mortgage loans are exchanged for securities, which are issued through investors, such as GNMA for federally insured loans and FNMA and FHLMC for conventional loans, and then sold in the secondary markets. Each of the investors has specific guidelines and criteria for sellers and servicers of loans backing their respective securities. Many private investors are also active in the secondary market as issuers and investors. The risk of credit loss with regard to the principal amount of the loans sold is generally transferred to investors upon sale to the secondary market. To the extent that transferred loans are subsequently determined not to meet the agreed upon qualifications or criteria, the purchaser has the right to return those loans to FHN. In addition, certain mortgage loans are sold to investors with limited or full recourse in the event of mortgage foreclosure (refer to discussion of foreclosure reserves under Critical Accounting Policies). After sale, these loans are not reflected on the Consolidated Statements of Condition. See also Note 18–Restrictions, Contingencies and Other Disclosures.

FHN's use of government agencies as an efficient outlet for mortgage loan production is an essential source of liquidity for FHN and other participants in the housing industry. During 2005 and 2004, approximately $16.6 billion and $19.3 billion, respectively, of conventional and federally insured mortgage loans were securitized and sold by First Horizon Home Loans through these investors.

Certain of FHN's originated loans, including non-conforming first-lien mortgages, second-lien mortgages and HELOC originated primarily through FTBNA, do not conform to the requirements for sale or securitization through government agencies. FHN pools and securitizes these non-conforming loans in proprietary transactions. After securitization and sale, these loans are not reflected on the Consolidated Statements of Condition, except as described hereafter (see Credit Risk Management–Mortgage Banking). These transactions, which are conducted through single-purpose business trusts, are the most efficient way for FHN and other participants in the housing industry to monetize these assets. On December 31, 2005 and 2004, the outstanding principal amount of loans in these off-balance sheet business trusts was $20.0 billion and $11.3 billion, respectively. Given the significance of FHN's origination of non-conforming loans, the use of single-purpose business trusts to securitize these loans is an important source of liquidity to FHN. See Note 24–Securitizations for additional information.

Pension obligations are funded by FHN to provide current and future benefit to participants in FHN's noncontributory, defined benefit pension plan. On September 30, 2005, the annual measurement date, pension obligations were $379.8 million with $401.9 million of assets in the trust to fund those obligations. All qualified plans are generally funded to the amounts of accumulated benefit obligations. FHN expects to contribute the maximum tax deductible contribution to the pension plan in 2006, which is estimated to be approximately $20 million. In 2005, FHN contributed $37.7 million to the pension plan. The discount rate for 2005 of 5.87 percent was determined by using a hypothetical AA yield curve represented by a series of annualized individual discount rates from one-half to thirty years. The discount rate for the pension plan is selected based on data specific to FHN's plans and employee population. See Note 20–Savings, Pension and Other Employee Benefits for additional information.

First Horizon National Corporation 27

FHN has various other financial obligations, which may require future cash payments. Table 15 sets forth contractual obligations representing required and potential cash outflows as of December 31, 2005. Purchase obligations represent obligations under agreements to purchase goods or services that are enforceable and legally binding on FHN and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions, and the approximate timing of the transaction. In addition, FHN enters into commitments to extend credit to borrowers, including loan commitments, standby letters of credit, and commercial letters of credit. These commitments do not necessarily represent future cash requirements, in that these commitments often expire without being drawn upon. See Note 25–Derivatives and Off-Balance Sheet Arrangements for additional information.

Table 15 - Contractual Obligations

	Payments due by period
(Dollars in thousands)	Less than 1 year		1-3 years		4-5 years		After 5 years		Total
Contractual obligations:
Time deposit maturities*	$	11,937,607	$	917,870	$	255,558	$	299,606	$	13,410,641
Term borrowings**		350,338		2,007,301		458		1,109,187		3,467,284
Annual rental commitments under noncancelable leases***		70,757		102,517		44,475		47,062		264,811
Purchase obligations		99,832		79,761		8,424		8,208		196,225
Total contractual obligations	$	12,458,534	$	3,107,449	$	308,915	$	1,464,063	$	17,338,961
* See Note 8 –Time Deposit Maturities for further details.
** See Note 10 –Term Borrowings for further details.
*** See Note 5 –Premises, Equipment and Leases for further details.

Credit Ratings

Maintaining adequate credit ratings on debt issues is critical to liquidity because it affects the ability of FHN to attract funds from various sources, such as brokered deposits or wholesale borrowings of which FHN had $10.1 billion and $6.2 billion on December 31, 2005 and 2004, respectively, on a cost-competitive basis (see also Liquidity Management). The various credit ratings are detailed in Table 16. The availability of funds other than core deposits is also dependent upon marketplace perceptions of the financial soundness of FHN, which include such issues as capital levels, asset quality and reputation. The availability of core deposit funding is dependent upon federal deposit insurance, which can be removed only in extraordinary circumstances, but may also be influenced to some extent by the same factors that affect other funding sources.

28 First Horizon National Corporation

Table 16 - Credit Ratings

	Standard & Poor's		Moody's		Fitch
First Horizon National Corporation
Overall credit rating		A-/Stable		A2/Stable		A/Stable/F1
Subordinated debt		BBB+		A3		A-
Capital securities*		BBB		A3		A-
First Tennessee Bank National Association
Overall credit rating		A/Stable/A-1		A1/Stable/P-1		A/Stable/F1
Non-cumulative perpetual preferred stock		BBB+		A3		A-
Long-term/short-term deposits		A/A-1		A1/P-1		A+/F1
Other long-term/short-term funding**		A/A-1		A1/P-1		A/F1
Subordinated debt		A-		A2		A-
FT Real Estate Securities Company, Inc.
Preferred stock		BBB+		A3

*	Guaranteed preferred beneficial interests in First Horizon's junior subordinated debentures issued through a wholly-owned unconsolidated business trust.
**	Other funding includes senior bank notes and extendible notes.
A rating is not a recommendation to buy, sell or hold securities and is subject to revision or withdrawal at any time and should be evaluated independently of any other rating.

MARKET RISK MANAGEMENT

Capital markets buys and sells various types of securities for its customers. When these securities settle on a delayed basis, they are considered forward contracts. Inventory positions are limited to the procurement of securities solely for distribution to customers by the sales staff, and ALCO policies and guidelines have been established with the objective of limiting the risk in managing this inventory.

CAPITAL MANAGEMENT

The capital management objectives of FHN are to provide capital sufficient to cover the risks inherent in FHN's businesses, to maintain excess capital to well-capitalized standards and to assure ready access to the capital markets. Management has a Capital Management committee that is responsible for capital management oversight and provides a forum for addressing management issues related to capital adequacy. The committee reviews sources and uses of capital, key capital ratios, segment economic capital allocation methodologies, and other factors in monitoring and managing current capital levels, as well as potential future sources and uses of capital. The committee also recommends capital management policies, which are submitted for approval to the Enterprise-wide Risk/Return Management Committee and the Board.

OPERATIONAL RISK MANAGEMENT

Operational risk is the risk of loss from inadequate or failed internal processes, people, and systems or from external events. This risk is inherent in all businesses. Management, measurement, and reporting of operational risk are overseen by the Operational Risk Committee, which is chaired by the EVP of Risk Management. Key representatives from the business segments, legal, shared services, risk management, and insurance are represented on the committee. Subcommittees manage and report on business continuity planning, data security, insurance, compliance, records management, product and system development and reputation risks. Summary reports of the committee's activities and decisions are provided to the Enterprise-wide Risk/Return Management Committee. Significant emphasis is dedicated to refinement of processes and tools to aid in measuring and managing material operational risks and providing for a culture of awareness and accountability.

CREDIT RISK MANAGEMENT

Credit risk is the risk of loss due to adverse changes in a borrower's ability to meet its financial obligations under agreed upon terms. FHN is subject to credit risk in lending, trading, investing, liquidity/funding and asset management activities. The nature and amount of credit risk depend on the

First Horizon National Corporation 29

types of transactions, the structure of those transactions and the parties involved. In general, credit risk is incidental to trading, investing, liquidity/funding and asset management activities, while it is central to the profit strategy in lending. As a result, the majority of credit risk is associated with lending activities.

FHN has processes and management committees in place that are designed to assess and monitor credit risks. Management's Asset Quality Committee has the responsibility to evaluate its assessment of current asset quality for each lending product. In addition, the Asset Quality Committee evaluates the projected changes in classified loans, non-performing assets and charge-offs. A primary objective of this committee is to provide information about changing trends in asset quality by region or loan product, and to provide to senior management a current assessment of credit quality as part of the estimation process for determining the allowance for loan losses. The Senior Credit Watch Committee has primary responsibility to enforce proper loan risk grading, to identify credit problems, and to monitor actions to rehabilitate certain credits. Management also has a Senior Credit Policy Committee that is responsible for enterprise-wide credit risk oversight and provides a forum for addressing credit management issues. The committee also recommends credit policies, which are submitted for approval to the Executive Committee of the Board, and approves underwriting guidelines to manage the level and composition of credit risk in its loan portfolio and review performance relative to these policies. In addition, the Financial Counterparty Credit Committee, composed of senior managers, assesses the credit risk of financial counterparties and sets limits for exposure based upon the credit quality of the counterparty. FHN's goal is to manage risk and price loan products based on risk management decisions and strategies. Management strives to identify potential problem loans and nonperforming loans early enough to correct the deficiencies. It is management's objective that both charge-offs and asset write-downs are recorded promptly, based on management's assessments of current collateral values and the borrower's ability to repay.

FHN has a significant concentration in loans secured by real estate which is geographically diversified nationwide. In 2005, 65 percent of total loans are secured by real estate compared to 66 percent in 2004 (see Table 9). Three lending products have contributed to this level of real estate lending–(1) significant levels of second mortgages identified as HELOC which comprise 28 percent of total loans; (2) commercial construction lending which comprises 9 percent of total loans and includes loans to single-family builders; and (3) retail real estate construction, loans to individual consumers to build a home, which grew 108 percent, or $774.3 million, in 2005 and comprises 8 percent of total loans. FHN's commercial real estate lending is well-diversified by product type and industry. On December 31, 2005, FHN did not have any concentrations of 10 percent or more of total commercial, financial and industrial loans in any single industry.

Allowance for Loan Losses and Charge-offs

Management's policy is to maintain the allowance for loan losses at a level sufficient to absorb estimated probable incurred losses in the loan portfolio. The allowance for loan losses is increased by the provision for loan losses and recoveries and is decreased by charged-off loans. The adequacy of the allowance for loan losses is analyzed quarterly. The Chief Credit Officer has the responsibility for performing a comprehensive review of the allowance for loan losses and making a recommendation to the Executive Committee of the Board for approval of the allowance for loan losses at each quarterly reporting period. An analytical model, based on historical loss experience adjusted for current events, trends and economic conditions, is used to assess the adequacy of the allowance for loan losses. This methodology determines an estimated loss percentage (reserve rate), which is applied against the balance of loans in each segment of the loan portfolio at the evaluation date. The nature of the process by which FHN determines the appropriate allowance for loan losses requires the exercise of considerable judgment. After review of all relevant factors, management believes the allowance for loan losses is adequate and reflects its best estimate of probable incurred losses.

The total allowance for loan losses increased to $189.7 million on December 31, 2005, from $158.2 million at year-end 2004, which was down $2.1 million since year-end 2003. Period-end loans increased 25 percent in 2005 after increasing 17 percent in 2004. The ratio of allowance for loan losses to loans, net of unearned income, was .92 percent on December 31, 2005, compared to .96 percent on December 31, 2004, primarily reflecting the stable risk profile of both the commercial and

30 First Horizon National Corporation

retail loan portfolios. The ratio of allowance for loan losses to loans was 1.15 percent on December 31, 2003.

Table 18 summarizes by category loans charged-off and recoveries of loans previously charged-off. This table also shows the additions to the reserve through provision. Table 17 shows net charge-off ratios. Net charge-offs decreased to $37.5 million for the year ended December 31, 2005, down from $42.1 million in 2004 and $68.0 million in 2003. The decrease in the 2005 level of net charge-offs was impacted by improvement in both the retail and commercial loan portfolios. Total commercial loan net charge-offs were $11.6 million in 2005 compared to $11.9 million in 2004. The commercial loan net charge-offs, which were not concentrated in any one industry or region, decreased as the economy improved. Residential real estate loan net charge-offs decreased to $13.4 million in 2005 from $16.8 million in 2004 as successful cross-sell efforts to mortgage banking customers led to an improvement in the mix of the portfolio as evidenced by an overall increase in credit scores and reduced loan to value ratios. Credit card receivables net charge-offs decreased to $9.7 million from $10.6 million in 2004, and other retail loan net charge-offs decreased to $2.4 million in 2005 from $2.9 million in 2004. The ratio of net charge-offs to average loans decreased to .21 percent for 2005 from .27 percent for 2004 and .54 percent for 2003.

Table 17 - Net Charge-off Ratios*

	2005			2004			2003
Commercial		.13	%		.18	%		.34	%
Retail real estate		.15			.20			.50
Other retail		1.46			1.55			1.64
Credit card receivables		4.03			4.25			4.65
Total net charge-offs		.21			.27			.54
Loans are averages expressed net of unearned income.
* Table 9 provides information on the relative size of each loan portfolio.

Going forward, asset quality indicators should reflect the relative strength of the economy and the early recognition and resolution of asset quality issues. In addition, asset quality ratios could be affected by balance sheet strategies and shifts in loan mix to and from products with different risk/return profiles. Actual results could differ because of several factors, including those presented in the Forward-Looking Statements section of this MD&A discussion.

First Horizon National Corporation 31

Table 18 - Analysis of Allowance for Loan Losses

(Dollars in thousands)	2005			2004			2003			2002			2001			2000
Allowance for loan losses:
Beginning balance	$	158,159		$	160,333		$	144,298		$	150,614		$	139,210		$	134,979
Provision for loan losses		67,678			48,348			86,698			92,184			93,220			67,491
Loans transferred to held for sale		-			(8,382	)		-			-			-			-
Securitizations		-			-			-			-			-			(2,173	)
Acquisitions/(divestitures), net		1,386			-			(2,652	)		-			(1,337	)		-
Charge-offs:
Commercial:
Commercial, financial and industrial		12,789			11,925			12,460			37,241			22,596			6,583
Real estate commercial		498			2,690			3,067			2,966			4,156			857
Real estate construction		2,805			779			7,642			3,367			968			47
Retail:
Real estate residential		18,744			21,271			35,809			36,726			30,532			17,348
Real estate construction		374			-			-			-			-			-
Other retail		6,101			7,094			9,920			19,979			20,603			20,868
Credit card receivables		10,839			12,870			13,538			12,862			13,369			25,485
Total charge-offs		52,150			56,629			82,436			113,141			92,224			71,188
Recoveries:
Commercial:
Commercial, financial and industrial		3,328			3,473			2,438			2,136			1,991			2,903
Real estate commercial		1,173			51			166			41			280			480
Real estate construction		-			10			1			-			-			-
Retail:
Real estate residential		5,300			4,517			4,820			4,693			2,788			857
Other retail		3,697			4,211			5,653			6,419			4,953			3,937
Credit card receivables		1,134			2,227			1,347			1,352			1,733			1,924
Total recoveries		14,632			14,489			14,425			14,641			11,745			10,101
Net charge-offs		37,518			42,140			68,011			98,500			80,479			61,087
Ending balance	$	189,705		$	158,159		$	160,333		$	144,298		$	150,614		$	139,210
Reserve for off-balance sheet commitments	$	10,650		$	7,904		$	7,804		$	5,368		$	4,759		$	4,486
Total of allowance for loan losses and reserve   for off-balance sheet commitments	$	200,355		$	166,063		$	168,137		$	149,666		$	155,373		$	143,696
Loans and commitments:
Period end loans, net of unearned	$	20,600,935		$	16,427,673		$	13,990,525		$	11,345,445		$	10,283,143		$	10,239,450
Insured retail residential and construction loans*		826,904			665,909			862,675			785,270			-			-
Loans excluding insured loans	$	19,774,031		$	15,761,764		$	13,127,850		$	10,560,175		$	10,283,143		$	10,239,450
Off-balance sheet commitments**	$	9,090,618		$	6,226,245		$	5,464,097		$	3,398,534		$	2,895,681		$	2,069,143
Average loans, net of unearned	$	18,294,410		$	15,384,650		$	12,656,318		$	10,634,530		$	10,104,277		$	9,931,955
Ratios***:
Allowance to loans		.92	%		.96	%		1.15	%		1.27	%		1.46	%		1.36	%
Allowance to loans excluding insured loans		.96			1.00			1.22			1.37			1.46			1.36
Allowance to net charge-offs		5.06	x		3.75	x		2.36	x		1.46	x		1.87	x		2.28	x
Net charge-offs to average loans		.21			.27			.54			.93			.80			.62

*	Whole-loan insurance is obtained on certain retail residential and construction loans. Insuring these loans absorbs credit risk and results in lower allowance for loan losses.
**	Amount of off-balance sheet commitments for which a reserve has been provided. See Note 25 – Derivatives and Off-Balance Sheet Arrangements for further details on off-balance sheet commitments.
***	Net of unearned income.

32 First Horizon National Corporation

Table 19 - Loans and Foreclosed Real Estate on December 31

	2005													2004
(Dollars in millions)	Commercial		Construction and Development		Commercial Real Estate		Total		% of Total			Allowance for Loan Losses		Total		% of Total			Allowance for Loan Losses
Internal grades:
1	$	301	$	-	$	-	$	301		2	%	$	1	$	269		2	%	$	1
2		461		2		52		515		3			3		529		3			4
3		743		24		58		825		4			9		674		4			8
4		3,980		1,133		866		5,979		29			65		4,656		28			56
5		925		894		216		2,035		10			29		1,419		9			20
6		50		30		11		91		-			4		74		1			3
7		46		5		1		52		-			5		53		-			5
8, 9, 10 (Classifieds)		52		13		5		70		-			10		20		-			3
		6,558		2,101		1,209		9,868		48			126		7,694		47			100
Impaired loans:
Contractually past due		13		7		3		23		-			6		34		-			10
Contractually current		8		-		1		9		-			3		1		-			-
Total commercial and commercial real estate loans		6,579		2,108		1,213		9,900		48			135		7,729		47			110
Retail:
Real estate residential								8,357		41			37		7,245		44			30
Real estate construction								1,925		9			4		1,036		6			3
Other retail								168		1			4		169		1			5
Credit card receivables								251		1			10		249		2			10
Total retail loans								10,701		52			55		8,699		53			48
Total loans							$	20,601		100	%	$	190	$	16,428		100	%	$	158
Foreclosed real estate:
Commercial	$	12	$	-	$	2	$	14						$	15
Retail								5							4
Mortgage banking								8							9
Total foreclosed real estate							$	27						$	28

Loans are expressed net of unearned income. All amounts in the Allowance for Loan Losses columns have been rounded to the nearest million dollars. All data is based on internal loan classifications.
Definitions of each credit grade are provided below:
Grade 1:	Firmly established, stable companies with excellent earnings, liquidity, and capital. Possess many of the same characteristics as Standard & Poor's (S&P) AA rated companies.
Grade 2:	Well-established, stable companies with good to very good earnings, liquidity, and capital. Possess many of the same characteristics as S&P A rated companies.
Grade 3:	Reasonably well-established, stable companies with above average to good earnings, liquidity, and capital and with consistent, positive trends relative to industry norms.
Grade 4:	Reasonably well-established, stable companies with average earnings, liquidity, and capital.
Grade 5:	New and established companies with some potential weakness. Capital considered less than average and history of average to below average earnings without consistent positive trends. Overall acceptable credits with minor weaknesses which warrant additional servicing.
Grade 6:	Financial condition adversely affected by temporary lack of earnings or liquidity or changes in the operating environment. An action plan is required to rehabilitate the credit or have it refinanced elsewhere.
Grade 7:	Significant developing weaknesses or adverse trends in earnings, liquidity, capital, or operating environment. Limited alternate financing is available.
Grade 8:	Significantly higher than normal probability that: (1) legal action will be required; (2) liquidation of collateral will be required; (3) there will be a loss; or all three will occur. This grade is believed to be substantially equivalent to the regulators' classification of substandard.
Grade 9:	Excessive degree of risk. Financial and management deficiencies are well-defined and make the obligor's ability to repay from anticipated sources under existing terms and conditions uncertain. Collateral shortfall and/or undeterminable collateral values exist. Timing and amount of loss are uncertain. This grade is believed to be substantially equivalent to the regulators' classification of doubtful.
Grade 10:	Borrowers are deemed incapable of repayment and debt is deemed uncollectible. Loans should no longer be carried as an active bank asset. This grade is believed to be substantially equivalent to the regulators' classification of loss.
Impaired:	A loan for which it is probable that all amounts due, according to the contractual terms of the loan agreement, will not be collected and the loan is placed on non-accrual status. Reserves for impaired loans are based on the value of the collateral or the cash flow of the entity compared to the outstanding balance.

First Horizon National Corporation 33

Components of the Allowance for Loan Losses

The allowance for loan losses is composed of the following components: reserves for individually impaired commercial loans, reserves for commercial loans evaluated based on pools of credit graded loans, and reserves for pools of smaller-balance homogeneous retail and commercial loans. Reserves for individually impaired commercial loans are computed in accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” and are based on either the estimated collateral value less selling costs (if the loan is a collateral dependent loan), or the present value of expected future cash flows discounted at the loan's effective interest rate. Reserves for commercial loans evaluated based on pools of credit graded loans and reserves for pools of smaller-balance homogeneous retail and commercial loans are determined in accordance with SFAS No. 5, “Accounting for Contingencies.” The reserve factors applied to these pools are an estimate of probable incurred losses based on management's evaluation of historical losses from loans with similar characteristics, adjusted for current economic factors and trends. Table 19 gives a breakdown of the allowance allocation by major loan types and commercial loan grades on December 31, 2005, compared with December 31, 2004.

To assess the quality of individual commercial loans, all commercial loans are internally assigned a credit grading, ranging from grades 1 to 10. The credit grading system is intended to identify and measure the credit quality of lending relationships by analyzing the migration of loans between grading categories. It is also integral to the estimation methodology utilized in determining the allowance for loan losses since an allowance is established for pools of commercial loans based on the credit grade assigned. The appropriate relationship manager performs the process of classifying commercial loans into the appropriate credit grades initially as a component of the approval of the loan and has responsibility for insuring that the loan is properly graded throughout the life of the loan. The proper loan grade for all commercial loans in excess of $1 million is confirmed by a senior credit officer in the approval process. To determine the most appropriate credit grade for each loan, based on the size of the loan, credit officers examine and consider both financial and non-financial data as discussed in the credit grade definitions disclosed in Table 19. Loan grades are frequently reviewed by commercial loan review to determine if any changes in the circumstances of the loan require a different risk grade.

A reserve rate is established for each loan grade based on a historical three-year moving average of actual charge-offs. The reserve rate is then adjusted for current events, trends, and economic conditions that affect the asset quality of the loan portfolio. Some of the factors considered in making these adjustments include: levels of and trends in delinquencies; classified loans and nonaccrual loans; trends in outstandings and maturities; effects of changes in lending policies and underwriting guidelines; introduction of new loan products with different risk characteristics; experience, ability and depth of lending management and staff; migration trends of loan grades; and charge-off trends that may skew the historical three-year moving average. Finally, the reserve rates for each loan grade are reviewed quarterly to reflect local, regional and national economic trends; concentrations of cyclical industries; and the economic prospects for industry concentrations. To supplement management's process in setting these additional adjustments, an economic model is used that evaluates the correlation between historical charge-offs and a number of state and national economic indicators. Also, all classified loans $1 million and greater are reviewed individually in accordance with SFAS No. 114, and a specific reserve is set based on the exposure (the difference between the outstanding loan amount and either the present value of expected future cash flows or the estimated net realizable value of the collateral) and the probability of loss.

Table 20 shows the reserve rates (percentage of allowance for loan losses to outstanding balances) by loan category. The average reserve rate for all commercial loans was 1.28 percent in 2005 compared to 1.30 percent in 2004, which was down from 1.49 percent in 2003. This decrease was primarily due to improvement in the historical three-year moving average of actual net charge-offs.

34 First Horizon National Corporation

Table 20 - Average Reserve Rates

	2005			Loans % of Total		2004			Loans % of Total		2003			Loans % of Total		2002			Loans % of Total		2001			Loans % of Total
Commercial, commercial real estate and   commercial construction*		1.28	%		47.9		1.30	%		46.9		1.49	%		43.8		1.29	%		50.0		1.31	%		54.1
Impaired		28.13			.2		28.57			.2		29.41			.2		30.61			.5		44.74			.4
Retail real estate		.40			49.9		.40			50.4		.56			52.5		.77			44.6		.99			38.3
Other retail		2.38			.8		2.96			1.0		2.35			1.5		1.05			2.5		1.96			4.5
Credit card receivables		3.98			1.2		4.02			1.5		4.76			2.0		5.13			2.4		4.63			2.7

* Excludes impaired loans.

The allowance for loan losses for smaller-balance homogenous loans (retail loans) is determined based on pools of similar loan types that have similar credit risk characteristics, which is consistent with industry practice. FHN manages retail loan credit risk on a portfolio basis. Reserve rates are established for each segment of the retail loan portfolio based on historical loss experience and are adjusted to reflect current events, trends and economic conditions. Some of the factors for making these adjustments include: changes in underwriting guidelines or credit scoring models; trends in consumer payment patterns, delinquencies and personal bankruptcies; changes in the mix of loan products outstanding; experience, ability and depth of lending management and staff; value of underlying collateral; and charge-off trends.

The average reserve rate for retail real estate loans was .40 percent for 2005 and 2004 compared to .56 percent for 2003. The average reserve rate for other retail loans, a diminishing portfolio of loans which represented less than 1 percent of total loans in 2005, decreased to 2.38 percent for 2005 from 2.96 percent for 2004. The average reserve rate for credit card receivables was 3.98 percent for 2005 and was 4.02 percent for 2004 after decreasing from 4.76 percent for 2003 due to the transfer of a portfolio of credit card receivables to held for sale.

Nonperforming Assets

Nonperforming loans consist of impaired, other nonaccrual and restructured loans. These, along with foreclosed real estate and other assets, represent nonperforming assets. Impaired loans are those loans for which it is probable that all amounts due, according to the contractual terms of the loan agreement, will not be collected and for which recognition of interest income has been discontinued. Other nonaccrual loans are residential and other retail loans on which recognition of interest income has been discontinued. Restructured loans generally take the form of an extension of the original repayment period and/or a reduction or deferral of interest or principal because of deterioration in the financial position of the borrower.

Overall, nonperforming assets remained stable, totaling $79.7 million on December 31, 2005, compared to $77.3 million on December 31, 2004. Nonperforming assets in retail/commercial banking were $59.7 million for 2005 compared to $60.3 million for 2004. However, the retail/commercial banking nonperforming assets ratio decreased to .29 percent from .37 percent as loans increased 24 percent. Mortgage banking nonperforming assets were $20.0 million for 2005 compared to $17.0 million for 2004.

Information regarding nonperforming assets and past-due loans is presented in Table 22. Table 21 gives additional information related to changes in nonperforming assets for 2003 through 2005.

First Horizon National Corporation 35

Table 21 - Changes in Nonperforming Assets

(Dollars in thousands)	2005			2004			2003
Beginning balance	$	77,338		$	76,195		$	75,671
Additional nonperforming assets		79,554			77,059			115,851
Payments, sales and other dispositions		(67,036	)		(61,852	)		(92,916	)
Charge-offs		(10,187	)		(14,064	)		(22,411	)
Ending balance	$	79,669		$	77,338		$	76,195

Table 22 -Nonperforming Assets on December 31

(Dollars in thousands)	2005			2004			2003			2002			2001			2000
Retail/Commercial Banking:
Nonperforming loans*	$	40,771		$	41,102		$	43,228		$	58,454		$	41,671		$	41,541
Foreclosed real estate		18,932			19,247			14,677			8,188			9,924			3,997
Other assets		-			-			336			33			130			97
Total Retail/Commercial Banking		59,703			60,349			58,241			66,675			51,725			45,635
Mortgage Banking:
Nonperforming loans		11,488			8,458			8,556			5,733			21,285			19,761
Foreclosed real estate		8,478			8,531			9,398			3,263			12,065			12,293
Total Mortgage Banking		19,966			16,989			17,954			8,996			33,350			32,054
Total nonperforming assets	$	79,669		$	77,338		$	76,195		$	75,671		$	85,075		$	77,689
Potential problem assets***	$	187,208		$	98,926		$	118,142		$	125,255		$	123,535		$	107,605
Loans 30 to 89 days past due		97,780			69,593			88,874			100,723			117,298			105,705
Loans 30 to 89 days past due – guaranteed		1,108			977			2,697			3,348			5,215			20,957
Loans 90 days past due		37,067			33,343			27,240			37,083			37,665			42,292
Loans 90 days past due – guaranteed		5,481			5,617			5,676			6,038			6,199			16,534
Loans held for sale 30 to 89 days past due**		45,788			56,379			73,458			10,731			11,415			22,240
Loans held for sale 30 to 89 days past due – guaranteed**		30,868			43,542			60,551			-			-			-
Loans held for sale 90 days past due**		176,591			180,617			198,955			-			-			1,789
Loans held for sale 90 days past due – guaranteed**		173,357			179,792			198,955			-			-			707
Ratios:
Allowance to nonperforming loans in the loan portfolio		465	%		385	%		371	%		247	%		239	%		227	%
Nonperforming assets to loans, foreclosed real estate and other assets
(Retail/Commercial Banking)		.29			.37			.42			.59			.50			.45
Nonperforming assets to unpaid principal balance of servicing portfolio (Mortgage Banking)		.02			.02			.03			.02			.07			.07

*	Total impaired loans included in nonperforming loans were $36.6 million, $34.8 million, $34.4 million, $49.3 million, $37.8 million and $41.2 million for the years 2005 through 2000, respectively.
**	Prior to 2003 government guaranteed loans repurchased through GNMA's repurchase program were classified as receivables in “Other assets” on the Consolidated Statements of Condition and are not included in past due loan statistics. Guaranteed loans include FHA, VA, student and GNMA loans repurchased through the GNMA repurchase program.
***	Includes past due loans.
Certain previously reported amounts have been reclassified to agree with current presentation.

Past Due Loans and Potential Problem Assets

Past due loans are loans contractually past due 90 days or more as to interest or principal payments, but which have not yet been put on nonaccrual status. Past due loans increased $3.7 million in 2005 to $37.1 million. However, while total past due balances increased, the ratio of past due loans in the loan portfolio to total loans decreased to .18 percent on December 31, 2005 compared to .20 percent on December 31, 2004 as loans increased 25 percent from December 31, 2004. Loans 30 to 89 days past due increased $28.2 million to $97.8 million while the ratio of loans 30 to 89 days past due in the loan portfolio increased to .47 percent of total loans on December 31, 2005 compared to .42 percent on December 31, 2004. This increase follows a period of significant

36 First Horizon National Corporation

declines in delinquencies and continues to remain below historical levels. Additional historical past due loan information can be found in Table 22.

Potential problem assets in the loan portfolio, which are not included in nonperforming assets, increased to $187.2 million, or .91 percent of total loans, on December 31, 2005, from $98.9 million, or .60 percent of total loans, on December 31, 2004. The increase reflects a return to historical levels of potential problem assets from the low level experienced in 2004. This includes the impact from the identification of certain misrepresentations by customers in a pool of collateralized retail real estate related loans in 2005. The current expectation of losses from potential problem assets has been included in management's analysis for assessing the adequacy of the allowance for loan losses. Potential problem assets represent those assets where information about possible credit problems of borrowers has caused management to have serious doubts about the borrower's ability to comply with present repayment terms. This definition is believed to be substantially consistent with the standards established by the Office of the Comptroller of the Currency for loans classified substandard.

Mortgage Banking

First Horizon Home Loans originates mortgage loans through its retail and wholesale operations and also purchases mortgage loans from third-party mortgage bankers (known as correspondent brokers) for sale to secondary market investors and subsequently services the majority of those loans. The secondary market for mortgages allows First Horizon Home Loans to sell mortgage loans to investors, including government agencies, such as FNMA, FHLMC and GNMA. Many private investors are also active in the secondary market as issuers and investors. The majority of First Horizon Home Loans' mortgage loans are sold through transactions with government agencies. The risk of credit loss with regard to the principal amount of the loans sold is generally transferred to investors upon sale to the secondary market. To the extent that transferred mortgage loans are subsequently determined not to meet the agreed-upon qualifications or criteria, the purchaser has the right to return those loans to First Horizon Home Loans. In addition, certain mortgage loans are sold to investors with limited or full recourse in the event of mortgage foreclosure (refer to discussion of foreclosure reserves under Critical Accounting Policies).

CRITICAL ACCOUNTING POLICIES

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

FHN's accounting policies are fundamental to understanding management's discussion and analysis of results of operations and financial condition. The consolidated financial statements of FHN are prepared in conformity with accounting principles generally accepted in the United States of America and follow general practices within the industries in which it operates. The preparation of the financial statements requires management to make certain judgments and assumptions in determining accounting estimates. Accounting estimates are considered critical if (a) the estimate requires management to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (b) different estimates reasonably could have been used in the current period, or changes in the accounting estimate are reasonably likely to occur from period to period, that would have a material impact on the presentation of FHN's financial condition, changes in financial condition or results of operations.

It is management's practice to discuss critical accounting policies with the Board of Directors' Audit Committee including the development, selection and disclosure of the critical accounting estimates. Management believes the following critical accounting policies are both important to the portrayal of the company's financial condition and results of operations and require subjective or complex judgments. These judgments about critical accounting estimates are based on information available as of the date of the financial statements.

Mortgage Servicing Rights and Other Related Retained Interests

When First Horizon Home Loans sells mortgage loans in the secondary market to investors, it generally retains the right to service the loans sold in exchange for a servicing fee that is collected

First Horizon National Corporation 37

over the life of the loan as the payments are received from the borrower. In addition, some ancillary income in the form of late fees and float on escrow balances are collected during the normal course of servicing the loans. An amount is capitalized as MSR on the Consolidated Statements of Condition based on the expected present value of the anticipated cash flows received for servicing the loan, net of the estimated costs of servicing the loan. During 2005 and 2004, First Horizon Home Loans capitalized $423.3 million and $438.0 million, respectively, of MSR in connection with sales of first-lien mortgage loans in the secondary market and acquisition of servicing rights from third parties. On December 31, 2005 and 2004, the total outstanding principal amount of First Horizon Home Loans' first-lien servicing portfolio aggregated $95.3 billion and $86.6 billion, respectively.

MSR Estimated Fair Value

The fair value of MSR typically rises as market interest rates increase and declines as market interest rates decrease; however, the extent to which this occurs depends in part on (1) the magnitude of changes in market interest rates, and (2) the differential between the then current market interest rates for mortgage loans and the mortgage interest rates included in the mortgage-servicing portfolio.

Since sales of MSR tend to occur in private transactions and the precise terms and conditions of the sales are typically not readily available, there is a limited market to refer to in determining the fair value of MSR. As such, like other participants in the mortgage banking business, First Horizon Home Loans relies primarily on a discounted cash flow model to estimate the fair value of its MSR. This model calculates estimated fair value of the MSR using numerous tranches of MSR, which share similar key characteristics, such as interest rates, type of product (fixed vs. variable), age (new, seasoned, moderate), agency type and other factors.

Estimating the cash flow components of net servicing income from the loan and the resultant fair value of the MSR requires FHN to make several critical assumptions based upon current market and loan production data.

Prepayment speeds: Generally, when market interest rates decline and other factors favorable to prepayments occur there is a corresponding increase in prepayments as customers refinance existing mortgages under more favorable interest rate terms. When a mortgage loan is prepaid, the anticipated cash flows associated with servicing that loan are terminated, resulting in impairment of the fair value of the capitalized MSR. To the extent that actual borrower prepayments do not react as anticipated by the prepayment model (i.e., the historical data observed in the model does not correspond to actual market activity), it is possible that the prepayment model could fail to accurately predict mortgage prepayments and could result in significant earnings volatility. To estimate prepayment speeds, First Horizon Home Loans utilizes a third-party prepayment model, which is based upon statistically derived data linked to certain key principal indicators involving historical borrower prepayment activity associated with mortgage loans in the secondary market, current market interest rates and other factors, including First Horizon Home Loans' own historical prepayment experience. For purposes of model valuation, estimates are made for each product type within the MSR portfolio on a monthly basis.

Discount rate: Represents the rate at which expected cash flows are discounted to arrive at the net present value of servicing income. Discount rates will change with market conditions (i.e., supply vs. demand) and be reflective of the yields expected to be earned by market participants investing in MSR.

Cost to service: Expected costs to service are estimated based upon the incremental costs that a market participant would use in evaluating the potential acquisition of MSR.

Float income: Estimated float income is driven by expected float balances (principal, interest and escrow payments that are held pending remittance to the investor or other third party) and current market interest rates, including the thirty-day London Inter-Bank Offered Rate (LIBOR) and five-year swap interest rates, which are updated on a monthly basis for purposes of estimating the fair value of MSR.

First Horizon Home Loans engages in a process referred to as “price discovery” on a quarterly basis to assess the reasonableness of the estimated fair value of MSR. Price discovery is conducted through

38 First Horizon National Corporation

a process of obtaining the following information: (a) quarterly informal (and an annual formal) valuation of the servicing portfolio by an independent third party: a prominent mortgage-servicing broker, and (b) a collection of surveys and benchmarking data made available by independent third parties that include peer participants in the mortgage banking business. Although there is no single source of market information that can be relied upon to assess the fair value of MSR, First Horizon Home Loans reviews all information obtained during price discovery to determine whether the estimated fair value of MSR is reasonable when compared to market information. On December 31, 2005, 2004 and 2003, First Horizon Home Loans determined that its MSR valuations and assumptions were reasonable based on the price discovery process.

Each month, the First Horizon Risk Management Committee (FHRMC) reviews the overall assessment of the estimated fair value of MSR. The FHRMC is responsible for approving the critical assumptions used by management to determine the estimated fair value of First Horizon Home Loans' MSR. Each quarter, FHN's MSR Committee reviews the original valuation, impairment, and the initial capitalization rates for newly originated MSR. In addition, each quarter the Executive Committee of FHN's board of directors reviews the initial capitalization rates and approves the amortization expense.

MSR are included on the Consolidated Statements of Condition, net of accumulated amortization. The changes in fair value of MSR are included as a component of mortgage banking noninterest income on the Consolidated Statements of Income.

Hedging the Fair Value of MSR Under SFAS No. 133

First Horizon Home Loans also enters into interest rate contracts (including swaps, swaptions, and mortgage forward sales contracts) to hedge against the effects of changes in fair value of its MSR due solely to changes in the benchmark interest rate (10-year LIBOR swap rate). Substantially all capitalized MSR are hedged for economic purposes with the vast majority of MSR routinely qualifying for hedge accounting. For purposes of measuring effectiveness of the hedge, time decay and recognized net interest income, including changes in value attributable to changes in spot and forward prices, if applicable, are excluded from the change in value of the related derivatives. Interest rate derivative contracts used to hedge against interest rate risk in the servicing portfolio are designated to specific risk tranches of servicing. First Horizon Home Loans enters into hedges of the MSR to minimize the effects of loss in value of MSR associated with increased prepayment activity that generally results from declining interest rates. In a rising interest rate environment, the value of the MSR generally will increase while the value of the hedge instruments will decline. Hedges are reset at least monthly and more frequently, as needed, to respond to changes in interest rates or hedge composition. Generally, a coverage ratio approximating 100 percent is maintained on hedged MSR. Prior to acquiring a new hedge instrument, First Horizon Home Loans performs a prospective evaluation of anticipated hedge effectiveness by reviewing the historical regression between the underlying index of the proposed hedge instrument and the mortgage rate. At the end of each hedge period, the change in the fair value of the hedged MSR asset due to the change in benchmark interest rate is calculated and becomes a historical data point. Retrospective hedge effectiveness is determined by performing a regression analysis of all collected data points over a rolling 12-month period.

MSR subject to SFAS No. 133 hedges totaled $1.3 billion and $1.0 billion on December 31, 2005 and 2004, respectively. The balance sheet impacts of the related derivatives were a net liability of $21.2 million and a net asset of $79.0 million on December 31, 2005 and 2004, respectively. Included as a component of net servicing income in mortgage banking noninterest income were net losses of $1.9 million, net gains of $1.4 million, and net gains of $19.7 million in 2005, 2004 and 2003, respectively, representing fair value hedge ineffectiveness. Pursuant to SFAS No. 133, the basis in MSR that qualify for hedge accounting are adjusted for the impact of hedge performance in net servicing income. Also included in net servicing income were gains of $13.9 million, $46.5 million, and $95.4 million in 2005, 2004, and 2003, respectively, representing derivative gains from net interest income on swaps, net of time decay, which were excluded from the assessment of hedge effectiveness.

First Horizon Home Loans generally experiences increased loan origination and production in periods of low interest rates which, at the time of sale, result in the capitalization of new MSR associated with

First Horizon National Corporation 39

new production. This provides for a “natural hedge” in the mortgage-banking business cycle. New production and origination does not prevent First Horizon Home Loans from recognizing impairment expense on existing servicing rights as a result of prepayments; rather, the new production volume results in loan origination fees and the capitalization of MSR as a component of realized gains related to the sale of such loans in the secondary market, thus the natural hedge, which tends to offset a portion of the MSR impairment charges during a period of low interest rates. In a period of increased borrower prepayments, impairment can be significantly offset by a strong replenishment rate and strong net margins on new loan originations. To the extent that First Horizon Home Loans is unable to maintain a strong replenishment rate, or in the event that the net margin on new loan originations declines from historical experience, the value of the natural hedge may diminish, thereby significantly impacting the results of operations in a period of increased borrower prepayments.

First Horizon Home Loans does not specifically hedge the change in fair value of MSR attributed to other risks, including unanticipated prepayments (representing the difference between actual prepayment experience and estimated prepayments derived from the model, as described above), basis risk (meaning, the risk that changes in the benchmark interest rate may not correlate to changes in the mortgage market interest rate), discount rates, cost to service and other factors. To the extent that these other factors result in changes to the fair value of MSR, First Horizon experiences volatility in current earnings due to the fact that these risks are not currently hedged.

Actual vs. Estimated Prepayment Assumptions

As discussed above, the estimate of the cash flow components of net servicing income associated with MSR requires management to make several critical assumptions based upon current market and loan production data, including prepayment speeds, discount rate, cost to service and float income. Inherent in estimating such assumptions are uncertainties associated with the mortgage banking business (primarily, the change in market interest rates which vary significantly due to multiple economic and non-economic factors) as well as the composition of the MSR portfolio, which is not static and changes significantly based upon the production and sale of new loans, customer prepayment experience and other factors. As a result, the estimated assumptions used to value MSR -particularly the estimate of prepayment speeds – can vary significantly from actual experience, resulting in the recognition of additional impairment charges in current earnings. Table 23 provides a summary of actual and estimated weighted average prepayment speeds used in determining the estimated fair value of MSR for the years ended December 31, 2005, 2004 and 2003.

Each month the actual cash flows of the last 12 months from the total servicing portfolio are compared with the expected cash flow assumptions. Although actual cash flows of individual components differ from expected cash flows, the difference for overall cash flows from the entire servicing portfolio for each of the 12-month periods ending December 31, 2005, 2004 and 2003 was negligible.

For 2005, 2004 and 2003, the amortization rates calculated by the model were 17.1 percent, 17.3 percent and 22.7 percent, respectively, while the related actual runoff was 24.8 percent, 27.8 percent and 55.3 percent, respectively. While actual runoff rates tend to lag interest rate changes, impairment expense generally has an immediate response to changes in the prevailing interest rate environment as FHN's valuation model incorporates all current market drivers when generating future cash flow estimates. To the extent such changes in future cash flows are not completely hedged using derivative instruments, impairment expense can vary accordingly. During 2005, 2004 and 2003, impairment charges associated with MSR of $35.2 million, $37.1 million and $158.3 million, respectively, were recognized.

40 First Horizon National Corporation

Table 23 - Mortgage Banking Prepayment Assumptions

	2005			2004			2003
Prepayment speeds
Actual		24.8	%		27.8	%		55	.3%
Estimated*		22.4			23.8			67	.0

* Estimated prepayment speeds represent monthly average prepayment speed estimates for each of the years presented.

Interest-Only Certificates Fair Value – Residential Mortgage Loans

In certain cases, when First Horizon Home Loans sells mortgage loans in the secondary market, it retains an interest in the mortgage loans sold primarily through interest-only certificates. Interest-only certificates are financial assets, which represent rights to receive earnings from serviced assets that exceed contractually specified servicing fees. Consistent with MSR, the fair value of an interest-only certificate typically rises as market interest rates increase and declines as market interest rates decrease. Additionally, similar to MSR, the market for interest-only certificates is limited, and the precise terms of transactions involving interest-only certificates are not typically readily available. Accordingly, First Horizon Home Loans relies primarily on a discounted cash flow model to estimate the fair value of its interest-only certificates.

Estimating the cash flow components and the resultant fair value of the interest-only certificates requires First Horizon Home Loans to make certain critical assumptions based upon current market and loan production data. The primary critical assumptions used by First Horizon Home Loans to estimate the fair value of interest-only securities include prepayment speeds and discount rates, as discussed above. First Horizon Home Loans' interest-only certificates are included as a component of trading securities on the Consolidated Statements of Condition, with realized and unrealized gains and losses included in current earnings as a component of mortgage banking noninterest income on the Consolidated Statements of Income.

Hedging the Fair Value of Interest-Only Certificates

First Horizon Home Loans utilizes derivatives (including swaps, swaptions, and mortgage forward sales contracts) that change in value inversely to the movement of interest rates to protect the value of its interest-only securities as an economic hedge. Realized and unrealized gains and losses associated with the change in fair value of derivatives used in the economic hedge of interest-only securities are included in current earnings in mortgage banking noninterest income as a component of servicing income. Interest-only securities are included in trading securities with changes in fair value recognized currently in earnings in mortgage banking noninterest income as a component of servicing income.

The extent to which the change in fair value of interest-only securities is offset by the change in fair value of the derivatives used to hedge these instruments depends primarily on the hedge coverage ratio maintained by First Horizon Home Loans. Also, as noted above, to the extent that actual borrower prepayments do not react as anticipated by the prepayment model (i.e., the historical data observed in the model does not correspond to actual market activity), it is possible that the prepayment model could fail to accurately predict mortgage prepayments, which could significantly impact First Horizon Home Loans' ability to effectively hedge certain components of the change in fair value of interest-only certificates and could result in significant earnings volatility.

Residual-Interest Certificates Fair Value – HELOC and Second-lien Mortgages

In certain cases, when FHN sells HELOC or second-lien mortgages in the secondary market, it retains an interest in the loans sold primarily through a residual-interest certificate. Residual-interest certificates are financial assets which represent rights to receive earnings to the extent of excess income generated by the underlying loan collateral of certain mortgage-backed securities, which is not needed to meet contractual obligations of senior security holders. The fair value of a residual-interest certificate typically changes based on the differences between modeled prepayment speeds and credit

First Horizon National Corporation 41

losses and actual experience. Additionally, similar to MSR and interest-only certificates, the market for residual-interest certificates is limited, and the precise terms of transactions involving residual-interest certificates are not typically readily available. Accordingly, FHN relies primarily on a discounted cash flow model, which is prepared monthly, to estimate the fair value of its residual-interest certificates.

Estimating the cash flow components and the resultant fair value of the residual-interest certificates requires FHN to make certain critical assumptions based upon current market and loan production data. The primary critical assumptions used by FHN to estimate the fair value of residual-interest securities include prepayment speeds, credit losses and discount rates, as discussed above. FHN's residual-interest certificates are included as a component of trading securities on the Consolidated Statements of Condition, with realized and unrealized gains and losses included in current earnings as a component of other income on the Consolidated Statements of Income. FHN does not utilize derivatives to hedge against changes in the fair value of residual-interest certificates.

Pipeline and Warehouse

During the period of loan origination, and prior to the sale of mortgage loans in the secondary market, First Horizon Home Loans has exposure to mortgage loans that are in the “mortgage pipeline” and the “mortgage warehouse”. The mortgage pipeline consists of loan applications that have been received, but have not yet closed as loans. Pipeline loans are either “floating” or “locked”. A floating pipeline loan is one on which an interest rate has not been locked by the borrower. A locked pipeline loan is one on which the potential borrower has set the interest rate for the loan by entering into an interest rate lock commitment resulting in interest rate risk to First Horizon Home Loans. Once a mortgage loan is closed and funded, it is included within the mortgage warehouse, or the “inventory” of mortgage loans that are awaiting sale and delivery (currently an average of approximately 30 days) into the secondary market. First Horizon Home Loans is exposed to credit risk while a mortgage loan is in the warehouse. Third party models are used in managing interest rate risk related to price movements on loans in the pipeline and the warehouse.

First Horizon Home Loans' warehouse (first-lien mortgage loans held for sale) is subject to changes in fair value, primarily due to fluctuations in interest rates from the loan closing date through the date of sale of the loan into the secondary market. Typically, the fair value of the warehouse declines in value when interest rates increase and rises in value when interest rates decrease. To mitigate this risk, First Horizon Home Loans enters into forward sales contracts and futures contracts to provide an economic hedge against those changes in fair value on a significant portion of the warehouse. These derivatives are recorded at fair value with changes in fair value recorded in current earnings as a component of the gain or loss on the sale of loans in mortgage banking noninterest income.

To the extent that these interest rate derivatives are designated to hedge specific similar assets in the warehouse and prospective analyses indicate that high correlation is expected, the hedged loans are considered for hedge accounting under SFAS No. 133. Anticipated correlation is determined based on the historical regressions between the change in fair value of the derivatives and the change in fair value of hedged mortgage loans. Beginning in fourth quarter 2005, anticipated correlation is determined by projecting a dollar offset relationship for each tranche based on anticipated changes in the fair value of the hedged mortgage loans and the related derivatives, in response to various interest rate shock scenarios. Hedges are reset daily and the statistical correlation is calculated using these daily data points. Retrospective hedge effectiveness is measured using the regression results. First Horizon Home Loans generally maintains a coverage ratio (the ratio of expected change in the fair value of derivatives to expected change in the fair value of hedged assets) of approximately 100 percent on warehouse loans accounted for under SFAS No. 133.

Warehouse loans qualifying for SFAS No. 133 hedge accounting treatment totaled $1.4 billion and $.6 billion on December 31, 2005 and 2004, respectively. The balance sheet impacts of the related derivatives were net liabilities of $.5 million and $2.3 million on December 31, 2005 and 2004, respectively. Included as a component of the gain or loss on the sale of loans in mortgage banking noninterest income were net losses of $1.2 million, net losses of $16.6 million, and net gains of $29.9 million in 2005, 2004 and 2003, respectively, representing fair value hedge ineffectiveness.

42 First Horizon National Corporation

Pursuant to SFAS No. 133, the basis in loans that qualify for hedge accounting are adjusted for the impact of hedge performance through gain or loss on the sale of loans.

Mortgage banking interest rate lock commitments are short-term commitments to fund mortgage loan applications in process (the pipeline) for a fixed term at a fixed price. During the term of an interest rate lock commitment, First Horizon Home Loans has the risk that interest rates will change from the rate quoted to the borrower. First Horizon Home Loans enters into forward sales contracts with respect to fixed rate loan commitments and futures contracts with respect to adjustable rate loan commitments as economic hedges designed to protect the value of the interest rate lock commitment from changes in value due to changes in interest rates. Under SFAS No. 133 interest rate lock commitments qualify as derivative financial instruments and as such do not qualify for hedge accounting treatment. As a result, the interest rate lock commitments are recorded at fair value with changes in fair value recorded in current earnings as gain or loss on the sale of loans in mortgage banking noninterest income. Interest rate lock commitments generally have a term of up to 60 days before the closing of the loan. The interest rate lock commitment, however, does not bind the potential borrower to entering into the loan, nor does it guarantee that First Horizon Home Loans will approve the potential borrower for the loan. Therefore, First Horizon Home Loans makes estimates of expected “fallout” (locked pipeline loans not expected to close), using models which consider cumulative historical fallout rates and other factors. Fallout can occur for a variety of reasons including falling rate environments when a borrower will abandon an interest rate lock commitment at one lender and enter into a new lower interest rate lock commitment at another, when a borrower is not approved as an acceptable credit by the lender, or for a variety of other non-economic reasons. Note that once a loan is closed, the risk of fallout is eliminated and the associated mortgage loan is included in the mortgage loan warehouse.

The extent to which First Horizon Home Loans is able to economically hedge changes in the mortgage pipeline depends largely on the hedge coverage ratio that is maintained relative to mortgage loans in the pipeline. The hedge coverage ratio can change significantly due to changes in market interest rates and the associated forward commitment prices for sales of mortgage loans in the secondary market. Increases or decreases in the hedge coverage ratio can result in significant earnings volatility to FHN.

For the periods ended December 31, 2005 and 2004, the valuation model utilized to estimate the fair value of interest rate lock commitments assumes a zero fair value on the date of the lock with the borrower. Subsequent to the lock date, the model calculates the change in value due solely to the change in interest rates resulting in an asset with an estimated fair value of $8.3 million on December 31, 2005, and an asset with an estimated fair value of $16.5 million on December 31, 2004.

Foreclosure Reserves

As discussed above, First Horizon Home Loans typically originates mortgage loans with the intent to sell those loans to government agencies and other private investors in the secondary market. Certain of the mortgage loans are sold with limited or full recourse in the event of foreclosure. On December 31, 2005 and 2004, $3.2 billion and $3.4 billion, respectively, of mortgage loans were outstanding which were sold under limited recourse arrangements where some portion of the principal is at risk. On December 31, 2005 and 2004, $147.3 million and $186.8 million, respectively, of mortgage loans were outstanding which were sold under full recourse arrangements.

Loans sold with limited recourse include loans sold under government guaranteed mortgage loan programs including the Federal Housing Administration (FHA) and Veterans Administration (VA). First Horizon Home Loans continues to absorb losses due to uncollected interest and foreclosure costs and/or limited risk of credit losses in the event of foreclosure of the mortgage loan sold. Generally, the amount of recourse liability in the event of foreclosure is determined based upon the respective government program and/or the sale or disposal of the foreclosed property collateralizing the mortgage loan. Another instance of limited recourse is the VA/No bid. In this case, the VA guarantee is limited and First Horizon Home Loans may be required to fund any deficiency in excess of the VA guarantee if the loan goes to foreclosure.

First Horizon National Corporation 43

Loans sold with full recourse generally include mortgage loans sold to investors in the secondary market which are uninsurable under government guaranteed mortgage loan programs, due to issues associated with underwriting activities, documentation or other concerns.

Management closely monitors historical experience, borrower payment activity, current economic trends and other risk factors, and establishes a reserve for foreclosure losses for loans sold with limited and full recourse which management believes is sufficient to cover incurred foreclosure losses in the servicing portfolio. The reserve for foreclosure losses is based upon a historical progression model using a rolling 12-month average, which predicts the probability or frequency of a mortgage loan entering foreclosure. In addition, other factors are considered, including qualitative and quantitative factors (e.g., current economic conditions, past collection experience, risk characteristics of the current portfolio and other factors), which are not defined by historical loss trends or severity of losses. On December 31, 2005 and 2004, the foreclosure reserve was $16.4 million and $18.5 million, respectively. While the servicing portfolio has grown from $86.6 billion on, December 31, 2004, to $95.3 billion on December 31, 2005, the foreclosure reserve has decreased primarily due to a reduction in the recourse portfolio. Table 24 provides a summary of reserves for foreclosure losses for the years ended December 31, 2005, 2004 and 2003.

Table 24 - Reserves for Foreclosure Losses

(Dollars in thousands)	2005			2004			2003
Beginning balance	$	18,500		$	22,323		$	33,033
Provision for foreclosure losses		8,562			3,574			10,012
Charge-offs		(13,224	)		(11,448	)		(22,735	)
Recoveries		2,534			4,051			2,013
Ending balance	$	16,372		$	18,500		$	22,323

Allowance for Loan Losses

Management's policy is to maintain the allowance for loan losses at a level sufficient to absorb estimated probable incurred losses in the loan portfolio. Management performs periodic and systematic detailed reviews of its loan portfolio to identify trends and to assess the overall collectibility of the loan portfolio. Accounting standards require that loan losses be recorded when management determines it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Management believes the accounting estimate related to the allowance for loan losses is a “critical accounting estimate” because: changes in it can materially affect the provision for loan losses and net income, it requires management to predict borrowers' likelihood or capacity to repay, and it requires management to distinguish between losses incurred as of a balance sheet date and losses expected to be incurred in the future. Accordingly, this is a highly subjective process and requires significant judgment since it is often difficult to determine when specific loss events may actually occur. The allowance for loan losses is increased by the provision for loan losses and recoveries and is decreased by charged-off loans. This critical accounting estimate applies primarily to the Retail/Commercial Banking segment. The Executive Committee of FHN's board of directors approves the level of the allowance for loan losses.

FHN's methodology for estimating the allowance for loan losses is not only critical to the accounting estimate, but to the credit risk management function as well. Key components of the estimation process are as follows: (1) commercial loans determined by management to be individually impaired loans are evaluated individually and specific reserves are determined based on the difference between the outstanding loan amount and the estimated net realizable value of the collateral (if collateral dependent) or the present value of expected future cash flows; (2) individual commercial loans not considered to be individually impaired are segmented based on similar credit risk characteristics and evaluated on a pool basis; (3) retail loans are segmented based on loan types and credit score bands and loan to value; (4) reserve rates for each portfolio segment are calculated based on historical

44 First Horizon National Corporation

charge-offs and are adjusted by management to reflect current events, trends and conditions (including economic factors and trends); and (5) management's estimate of probable incurred losses reflects the reserve rate applied against the balance of loans in each segment of the loan portfolio.

Principal loan amounts are charged off against the allowance for loan losses in the period in which the loan or any portion of the loan is deemed to be uncollectible.

FHN believes that the critical assumptions underlying the accounting estimate made by management include: (1) the commercial loan portfolio has been properly risk graded based on information about borrowers in specific industries and specific issues with respect to single borrowers; (2) borrower specific information made available to FHN is current and accurate; (3) the loan portfolio has been segmented properly and individual loans have similar credit risk characteristics and will behave similarly; (4) known significant loss events that have occurred were considered by management at the time of assessing the adequacy of the allowance for loan losses; (5) the economic factors utilized in the allowance for loan losses estimate are used as a measure of actual incurred losses; (6) the period of history used for historical loss factors is indicative of the current environment; and (7) the reserve rates, as well as other adjustments estimated by management for current events, trends, and conditions, utilized in the process reflect an estimate of losses that have been incurred as of the date of the financial statements.

While management uses the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses and methodology may be necessary if economic or other conditions differ substantially from the assumptions used in making the estimates or, if required by regulators, based upon information at the time of their examinations. Such adjustments to original estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels vary from previous estimates. There have been no significant changes to the methodology for the years ended December 31, 2005, 2004 and 2003.

Goodwill and Assessment of Impairment

FHN's policy is to assess goodwill for impairment at the reporting unit level on an annual basis or between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value. Accounting standards require management to estimate the fair value of each reporting unit in making the assessment of impairment at least annually. As of October 1, 2005, FHN engaged an independent valuation firm to compute the fair value estimates of each reporting unit as part of its annual impairment assessment. The independent valuation utilized three separate valuation methodologies and applied a weighted average to each methodology in order to determine fair value for each reporting unit. The valuation as of October 1, 2005, indicated no goodwill impairment for any of the reporting units.

Management believes the accounting estimates associated with determining fair value as part of the goodwill impairment test is a “critical accounting estimate” because estimates and assumptions are made about FHN's future performance and cash flows, as well as other prevailing market factors (interest rates, economic trends, etc.). FHN's policy allows management to make the determination of fair value using internal cash flow models or by engaging independent third parties. If a charge to operations for impairment results, this amount would be reported separately as a component of noninterest expense. This critical accounting estimate applies to the Retail/Commercial Banking, Mortgage Banking and Capital Markets business segments. Reporting units have been defined as the same level as the operating business segments.

The impairment testing process conducted by FHN begins by assigning net assets and goodwill to each reporting unit. FHN then completes “step one” of the impairment test by comparing the fair value of each reporting unit (as determined based on the discussion below) with the recorded book value (or “carrying amount”) of its net assets, with goodwill included in the computation of the carrying amount. If the fair value of a reporting unit exceeds its carrying amount, goodwill of that reporting unit is not considered impaired, and “step two” of the impairment test is not necessary. If the carrying amount of

First Horizon National Corporation 45

a reporting unit exceeds its fair value, step two of the impairment test is performed to determine the amount of impairment. Step two of the impairment test compares the carrying amount of the reporting unit's goodwill to the “implied fair value” of that goodwill. The implied fair value of goodwill is computed by assuming all assets and liabilities of the reporting unit would be adjusted to the current fair value, with the offset as an adjustment to goodwill. This adjusted goodwill balance is the implied fair value used in step two. An impairment charge is recognized for the amount by which the carrying amount of goodwill exceeds its implied fair value.

In connection with obtaining the independent valuation, management provided certain data and information that was utilized by the third party in its determination of fair value. This information included budgeted and forecasted earnings of FHN at the reporting unit level. Management believes that this information is a critical assumption underlying the estimate of fair value. The independent third party made other assumptions critical to the process, including discount rates, asset and liability growth rates, and other income and expense estimates, through discussions with management.

While management uses the best information available to estimate future performance for each reporting unit, future adjustments to management's projections may be necessary if economic conditions differ substantially from the assumptions used in making the estimates.

Contingent Liabilities

A liability is contingent if the amount is not presently known, but may become known in the future as a result of the occurrence of some uncertain future event. FHN estimates its contingent liabilities based on management's estimates about the probability of outcomes and their ability to estimate the range of exposure. Accounting standards require that a liability be recorded if management determines that it is probable that a loss has occurred and the loss can be reasonably estimated. In addition, it must be probable that the loss will be confirmed by some future event. As part of the estimation process, management is required to make assumptions about matters that are by their nature highly uncertain.

The assessment of contingent liabilities, including legal contingencies and income tax liabilities, involves the use of critical estimates, assumptions and judgments. Management's estimates are based on their belief that future events will validate the current assumptions regarding the ultimate outcome of these exposures. However, there can be no assurance that future events, such as court decisions or I.R.S. positions, will not differ from management's assessments. Whenever practicable, management consults with third party experts (attorneys, accountants, claims administrators, etc.) to assist with the gathering and evaluation of information related to contingent liabilities. Based on internally and/or externally prepared evaluations, management makes a determination whether the potential exposure requires accrual in the financial statements. Note 18 – Restrictions, Contingencies and Other Disclosures provides additional information.

46 First Horizon National Corporation

QUARTERLY FINANCIAL INFORMATION

Table 25 - Summary of Quarterly Financial Information

		2005									2004
	(Dollars in millions except    per share data)	Fourth Quarter			Third Quarter		Second Quarter		First Quarter		Fourth Quarter		Third Quarter		Second Quarter		First Quarter
	Summary income information:
	Interest income	$	519.5		$	497.5	$	438.4	$	384.8	$	334.8	$	300.2	$	277.8	$	254.0
	Interest expense		264.6			237.3		196.8		157.4		106.4		81.9		64.2		58.0
	Provision for loan losses		16.2			22.6		15.8		13.1		11.7		10.1		12.3		14.2
	Noninterest income		343.4			369.5		343.4		343.4		313.1		327.6		352.3		370.1
	Noninterest expense		420.8			436.2		419.1		394.8		382.7		365.6		384.0		372.0
	Income before cumulative adjustment*		113.0			116.2		102.7		109.2		103.1		113.6		118.4		119.3
	Cumulative adjustment, net of tax		(3.1	)		-		-		-		-		-		-		-
	Net income		109.9			116.2		102.7		109.2		103.1		113.6		118.4		119.3
	Earnings per common share before cumulative adjustment*	$	.89		$	.92	$	.82	$	.88	$	.83	$	.91	$	.95	$	.95
	Earnings per common share		.87			.92		.82		.88		.83		.91		.95		.95
	Diluted earnings per common share before cumulative adjustment*		.87			.90		.80		.85		.81		.89		.92		.92
	Diluted earnings per common share		.85			.90		.80		.85		.81		.89		.92		.92
	Common stock information:
	Closing price per share:
	High	$	40.02		$	44.55	$	43.26	$	44.28	$	44.23	$	45.72	$	48.01	$	47.91
	Low		35.13			36.35		38.77		40.00		41.59		42.82		43.00		42.70
	Period-end		38.44			36.35		42.20		40.79		43.11		43.36		45.47		47.70
	Dividends declared per share		.45			.43		.43		.43		.43		.40		.40		.40
* The cumulative adjustment reflects the effects of a change in accounting principle.

ACCOUNTING CHANGES

In February 2006, the FASB issued SFAS No.155, “Accounting for Certain Hybrid Financial Instruments,” which permits fair value remeasurement for any hybrid financial instruments that contain an embedded derivative that otherwise would require bifurcation. Additionally, SFAS No. 155 clarifies the accounting guidance for beneficial interests in securitizations. SFAS No. 155 is effective for fiscal years beginning after September 15, 2006. Since FHN accounts for its beneficial interests in securitizations as trading securities, the adoption of SFAS No. 155 is not expected to have a significant impact on the results of operations.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (SFAS No. 154), which requires retrospective application of voluntary changes in accounting principle. A change in accounting principle mandated by new accounting pronouncements should follow the transition method specified by the new guidance. However, if transition guidance is not otherwise specified, SFAS No. 154's retrospective application requirement will apply. SFAS No. 154 does not alter the accounting requirement for changes in estimates (prospective) and error corrections (restatement). SFAS No. 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123-R), which requires recognition of expense over the requisite service period for awards of share-based compensation to employees. Due to SEC action in April 2005, the mandatory adoption

First Horizon National Corporation 47

date for SFAS No. 123-R was moved to January 1, 2006 with earlier adoption permitted. As permitted by the original SFAS No. 123, FHN has accounted for its equity awards under the provisions of APB No. 25. Upon adoption of SFAS No. 123-R, the grant date fair value of an award will be used to measure the compensation expense recognized for the award. For unvested awards granted prior to the adoption of SFAS 123-R, the fair values utilized will equal the values used in preparation of the disclosures required under the original SFAS 123. Compensation expense recognized after adoption of SFAS 123-R will incorporate an estimate of awards expected to ultimately vest, which requires estimation of forfeitures as well as projections related to the satisfaction of performance conditions that determine vesting. Upon initial adoption of SFAS 123-R, FHN is required to reclassify deferred compensation balances to capital surplus and to make a cumulative effect adjustment for outstanding unvested awards that are not expected to vest due to anticipated forfeiture. As permitted by SFAS No. 123-R, FHN intends to retroactively apply the provisions of SFAS No. 123-R to its prior period financial statements. Given the current structure of FHN's compensation program, utilization of the Black-Scholes model and applying management's current interpretation, the adoption of SFAS No. 123-R is estimated to result in a reduction of 2006 pre-tax income between $15 million and $21 million, which represents approximately $.07 to $.10 per share.

In the first quarter of 2006, the FASB is expected to issue an amendment to SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” that will require servicing rights to be initially measured at fair value. Subsequently, companies will be permitted to elect, on a class-by-class basis, either fair value or amortized cost accounting for their servicing rights. If this standard is issued as expected, adoption as of January 1, 2006, will be permitted if no quarterly financial statements for 2006 have been issued. A cumulative effect of a change in accounting would be required as of the date of adoption for companies electing to use the fair value method rather than the amortized cost method that is currently required. FHN is currently evaluating the impact of electing fair value accounting for its classes of servicing rights and may elect this methodology in 2006 if the final standard is issued when expected.

SUBSEQUENT EVENTS

On March 1, 2006 FHN sold substantially all the assets of its national merchant processing business conducted primarily through First Horizon Merchant Services, Inc. and Global Card Services, Inc. The sale was to NOVA Information Systems (NOVA), a wholly-owned subsidiary of U.S. Bancorp. As part of the transaction, FHN also entered into an agreement that will offer NOVA's merchant processing services to FHN's current and prospective customers.

This divestiture resulted in a pre-tax gain to FHN of approximately $340 million. In addition, a supplement to the purchase price may be paid to FHN if certain performance goals are achieved during a period following closing. FHN expects to use a portion of the proceeds from the transaction to repurchase shares of its common stock and to invest in earnings enhancements. This divestiture will be accounted for as a discontinued operation, and prior periods will be adjusted to exclude the impact of merchant operations from the results of continuing operations (see also Note 2–Acquisitions/Divestitures for additional information).

On March 1, 2006, FHN entered into an agreement with Goldman Sachs to purchase four million shares of FHN common stock in connection with an accelerated share repurchase program under an existing share repurchase authorization. The initial purchase price of the shares will be $39.43 per share or approximately $158 million excluding transaction costs. The share repurchase was funded with a portion of the proceeds from the merchant processing sale and settled on March 3, 2006. The repurchased shares are subject to a purchase price adjustment that will be based upon the actual volume weighted average price during the repurchase period and certain other provisions. The final settlement is expected to occur in second quarter 2006.

48 First Horizon National Corporation

GLOSSARY OF SELECTED FINANCIAL TERMS

Allowance for Loan Losses – Valuation reserve representing the amount considered by management to be adequate to cover estimated probable incurred losses in the loan portfolio.

Basis Point – The equivalent of one-hundredth of one percent (0.01). One hundred basis points equals one percent. This unit is generally used to measure movements in interest yields and rates.

Book Value Per Common Share – A ratio determined by dividing shareholders' equity at the end of a period by the number of common shares outstanding at the end of that period.

Commercial Paper – A short-term unsecured debt obligation of the parent company with maturities typically of 30 days to 270 days.

Commercial and Standby Letters of Credit – Commercial letters of credit are issued or confirmed by an entity to ensure the payment of its customers' payables and receivables. Standby letters of credit are issued by an entity to ensure its customers' performance in dealing with others.

Commitment to Extend Credit – Agreements to make or acquire a loan or lease as long as agreed-upon terms (e.g., expiration date, covenants, or notice) are met. Generally these commitments have fixed expiration dates or other termination clauses and may require payment of a fee.

Core Deposits – Core deposits consist of all interest-bearing and noninterest-bearing deposits, except certificates of deposit over $100,000. They include checking interest deposits, money market deposit accounts, time and other savings, plus demand deposits.

Derivative Financial Instrument – A contract or agreement whose value is derived from changes in interest rates, foreign exchange rates, prices of securities or commodities, or financial or commodity indices.

Diluted Earnings Per Common Share – Net income, divided by weighted average shares outstanding plus the effect of common stock equivalents that have the potential to be converted into common shares.

Earning Assets – Assets that generate interest or dividend income or yield-related fee income, such as loans and investment securities.

Earnings Per Common Share – Net income, divided by the weighted average number of common shares.

Fully Taxable Equivalent (FTE) – Reflects the rate of tax-exempt income adjusted to a level that would yield the same after-tax income had that income been subject to taxation.

Interest-Only Strip – Mortgage security consisting of the interest rate portion of a stripped mortgage backed security.

Interest Rate Caps and Floors – Contracts with notional principal amounts that require the seller, in exchange for a fee, to make payments to the purchaser if a specified market interest rate exceeds a fixed upper “capped” level or falls below a fixed lower “floor” level on specified future dates.

Interest Rate Forward Contracts – Contracts representing commitments either to purchase or sell at a specified future date a specified security or financial instrument at a specified price, and may be settled in cash or through delivery.

Interest Rate Option – A contract that grants the holder (purchaser), for a fee, the right to either purchase or sell a financial instrument at a specified price within a specified period of time or on a specified date from or to the writer (seller) of the option.

First Horizon National Corporation 49

GLOSSARY OF SELECTED FINANCIAL TERMS (continued)

Interest Rate Swap – An agreement in which two entities agree to exchange, at specified intervals, interest payment streams calculated on an agreed-upon notional principal amount with at least one stream based on a floating rate index.

Leverage Ratio – Ratio consisting of Tier 1 capital divided by quarterly average assets adjusted for certain unrealized gains/(losses) on available for sale securities, goodwill, certain other intangible assets, the disallowable portion of mortgage servicing rights and other disallowed assets.

Market Capitalization – Market value of a company computed by multiplying the number of shares outstanding by the current stock price.

Mortgage Backed Securities – Investment securities backed by a pool of mortgages or trust deeds. Principal and interest payments on the underlying mortgages are used to pay principal and interest on the securities.

Mortgage Pipeline – Interest rate commitments made to customers on mortgage loans that have not yet been closed and funded.

Mortgage Warehouse – A mortgage loan that has been closed and funded and is awaiting sale and delivery into the secondary market.

Mortgage Servicing Rights (MSR) – The right to service mortgage loans, generally owned by someone else, for a fee. Loan servicing includes collecting payments; remitting funds to investors, insurance companies, and taxing authorities; collecting delinquent payments; and foreclosing on properties when necessary.

Net Interest Income (NII) – Interest income less interest expense.

Net Interest Margin (NIM) – Expressed as a percentage, net interest margin is a measure of the profitability of earning assets. It is computed by dividing fully taxable equivalent net interest income by average earning assets.

Net Interest Spread – The difference between the average yield earned on earning assets on a fully taxable equivalent basis and the average rate paid for interest-bearing liabilities.

Nonaccrual Loans – Loans on which interest accruals have been discontinued due to the borrower's financial difficulties. Interest income on these loans is reported on a cash basis as it is collected after recovery of principal.

Nonperforming Assets – Interest-earning assets on which interest income is not being accrued, real estate properties acquired through foreclosure and repossessed assets.

Principal-Only Strip – Mortgage security consisting of the principal portion of a stripped mortgage backed security.

Provision for Loan Losses – The periodic charge to earnings for potential losses in the loan portfolio.

Purchase Obligation – An agreement to purchase goods or services that is enforceable and legally binding and that specifies all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction.

Purchased Funds – The combination of certificates of deposit greater than $100,000, federal funds purchased, securities sold under agreement to repurchase, bank notes, commercial paper, and other short-term borrowings.

50 First Horizon National Corporation

GLOSSARY OF SELECTED FINANCIAL TERMS (continued)

Repurchase Agreement – A method of short-term financing where one party agrees to buy back, at a future date (generally overnight) and an agreed-upon price, a security it sells to another party.

Return on Average Assets (ROA) – A measure of profitability that indicates how effectively an institution utilized its assets. It is calculated by dividing net income by total average assets.

Return on Average Equity (ROE) – A measure of profitability that indicates what an institution earned on its shareholders' investment. ROE is calculated by dividing net income by total average shareholders' equity.

Risk-Adjusted Assets – A regulatory risk-based calculation that takes into account the broad differences in risks among a banking organization's assets and off-balance sheet financial instruments.

Tier 1 Capital Ratio – Ratio consisting of shareholders' equity adjusted for certain unrealized gains/(losses) on available for sale securities, reduced by goodwill, certain other intangible assets, the disallowable portion of mortgage servicing rights and other disallowed assets divided by risk-adjusted assets.

Total Capital Ratio – Ratio consisting of Tier 1 capital plus the allowable portion of the allowance for loan losses and qualifying subordinated debt divided by risk-adjusted assets.

First Horizon National Corporation 51

FIRST HORIZON NATIONAL CORPORATION
REPORT OF MANAGEMENT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING

Management of First Horizon National Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. First Horizon National Corporation's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Even effective internal controls, no matter how well designed, have inherent limitations such as the possibility of human error or of circumvention or overriding of controls, and consideration of cost in relation to benefit of a control. Moreover, effectiveness must necessarily be considered according to the existing state of the art of internal control. Further, because of changes in conditions, the effectiveness of internal controls may diminish over time.

Management assessed the effectiveness of First Horizon National Corporation's internal control over financial reporting as of December 31, 2005. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Based on our assessment and those criteria, management believes that First Horizon National Corporation maintained effective internal control over financial reporting as of December 31, 2005.

First Horizon National Corporation's independent auditors have issued an attestation report on management's assessment of First Horizon National Corporation's internal control over financial reporting. That report appears on the following page.

52 First Horizon National Corporation

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
First Horizon National Corporation:

We have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that First Horizon National Corporation (the Company) maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that First Horizon National Corporation maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by COSO. Also, in our opinion, First Horizon National Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of condition of First Horizon National Corporation as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2005, and our report dated March 3, 2006 expressed an unqualified opinion on those consolidated financial statements.

Memphis, Tennessee
March 3, 2006

First Horizon National Corporation 53

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
First Horizon National Corporation:

We have audited the accompanying consolidated statements of condition of First Horizon National Corporation (the Company) as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three year period ended December 31, 2005. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Horizon National Corporation as of December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of First Horizon National Corporation's internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 3, 2006 expressed an unqualified opinion on management's assessment of, and the effective operation of, internal control over financial reporting.

Memphis, Tennessee
March 3, 2006

54 First Horizon National Corporation

CONSOLIDATED STATEMENTS OF CONDITION

	December 31
(Dollars in thousands)	2005			2004
Assets:
Cash and due from banks (Note 18)	$	946,421		$	638,189
Federal funds sold and securities purchased under agreements to resell		1,485,199			682,310
Total cash and cash equivalents		2,431,620			1,320,499
Investment in bank time deposits		10,687			5,329
Trading securities		2,133,428			988,015
Loans held for sale		4,435,343			5,167,981
Securities available for sale (Note 3)		2,912,103			2,680,556
Securities held to maturity (fair value of $390 on December 31, 2005, and $457 on December 31, 2004) (Note 3)		383			441
Loans, net of unearned income (Note 4)		20,600,935			16,427,673
Less: Allowance for loan losses		189,705			158,159
Total net loans		20,411,230			16,269,514
Mortgage servicing rights, net (Note 6)		1,314,629			1,036,458
Goodwill (Note 7)		308,788			187,200
Other intangible assets, net (Note 7)		85,863			34,769
Capital markets receivables		511,508			276,298
Premises and equipment, net (Note 5)		414,980			379,359
Real estate acquired by foreclosure		27,410			27,777
Other assets		1,581,089			1,397,487
Total assets	$	36,579,061		$	29,771,683
Liabilities and shareholders' equity:
Deposits:
Checking interest and money market	$	4,425,664		$	4,220,376
Savings		279,408			289,831
Certificates of deposit under $100,000 and other time		2,478,946			2,061,262
Certificates of deposit $100,000 and more		10,931,695			8,216,176
Interest-bearing		18,115,713			14,787,645
Noninterest-bearing		5,322,057			4,994,522
Total deposits		23,437,770			19,782,167
Federal funds purchased and securities sold under agreements to repurchase (Note 9)		3,735,742			3,247,048
Trading liabilities (Note 9)		793,638			426,343
Commercial paper and other short-term borrowings (Note 9)		802,017			139,776
Term borrowings (Note 10)		3,437,643			2,616,368
Capital markets payables		591,404			390,323
Other liabilities		1,173,262			1,128,217
Total liabilities		33,971,476			27,730,242
Preferred stock of subsidiary (Note 12)		295,274			458
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 – 126,222,327 on December 31, 2005 and 123,531,904 on December 31, 2004)		78,889			77,207
Capital surplus		267,678			173,872
Undivided profits		2,015,982			1,795,853
Accumulated other comprehensive loss, net (Note 15)		(42,244	)		(9,928	)
Deferred compensation on incentive plans		(20,111	)		(8,181	)
Deferred compensation obligation		12,117			12,160
Total shareholders' equity		2,312,311			2,040,983
Total liabilities and shareholders' equity	$	36,579,061		$	29,771,683
See accompanying notes to consolidated financial statements.
Certain previously reported amounts have been reclassified to agree with current presentation.

First Horizon National Corporation 55

CONSOLIDATED STATEMENTS OF INCOME

	Year Ended December 31
(Dollars in thousands except per share data)	2005			2004		2003
Interest income:
Interest and fees on loans	$	1,133,490		$	774,688	$	657,546
Interest on investment securities		124,471			104,144		111,257
Interest on loans held for sale		377,882			226,832		229,091
Interest on trading securities		138,521			53,398		50,515
Interest on other earning assets		65,810			7,740		4,961
Total interest income		1,840,174			1,166,802		1,053,370
Interest expense:
Interest on deposits:
Savings		408			399		832
Checking interest and money market		59,475			24,017		22,739
Certificates of deposit under $100,000 and other time		79,013			60,060		57,139
Certificates of deposit $100,000 and more		363,983			108,003		69,336
Interest on trading liabilities		80,191			20,017		22,116
Interest on short-term borrowings		171,936			47,740		40,014
Interest on term borrowings		101,141			50,255		35,410
Total interest expense		856,147			310,491		247,586
Net interest income		984,027			856,311		805,784
Provision for loan losses		67,678			48,348		86,698
Net interest income after provision for loan losses		916,349			807,963		719,086
Noninterest income:
Mortgage banking		482,950			444,758		649,496
Capital markets		353,005			376,558		538,919
Deposit transactions and cash management		156,190			148,514		146,701
Merchant processing		88,581			75,086		57,609
Insurance commissions		54,091			56,109		57,811
Revenue from loan sales and securitizations		47,575			23,115		-
Trust services and investment management		44,614			47,274		45,873
Gains on divestitures		7,029			7,000		22,498
Equity securities (losses)/gains, net		(579	)		2,040		8,491
Debt securities gains/(losses), net		1			18,708		(6,113	)
All other income (Note 14)		166,299			164,024		146,299
Total noninterest income		1,399,756			1,363,186		1,667,584
Adjusted gross income after provision for loan losses		2,316,105			2,171,149		2,386,670
Noninterest expense:
Employee compensation, incentives and benefits		998,180			914,947		995,609
Occupancy		106,038			89,402		83,583
Operations services		79,551			67,523		67,948
Equipment rentals, depreciation and maintenance		77,117			72,695		68,973
Communications and courier		56,106			49,590		50,535
Amortization of intangible assets		13,734			9,541		7,980
All other expense (Note 14)		340,206			300,642		393,044
Total noninterest expense		1,670,932			1,504,340		1,667,672
Income before income taxes		645,173			666,809		718,998
Provision for income taxes (Note 16)		204,075			212,401		245,689
Income before cumulative effect of changes in accounting principle		441,098			454,408		473,309
Cumulative effect of changes in accounting principle, net of tax		(3,098	)		-		-
Net income	$	438,000		$	454,408	$	473,309
Earnings per common share before cumulative effect (Note 17)	$	3.52		$	3.64	$	3.73
Earnings per common share from cumulative effect (Note 17)		(.03	)		-		-
Earnings per common share (Note 17)	$	3.49		$	3.64	$	3.73
Diluted earnings per common share before cumulative effect (Note 17)	$	3.42		$	3.54	$	3.62
Diluted earnings per common share from cumulative effect (Note 17)		(.02	)		-		-
Diluted earnings per common share (Note 17)	$	3.40		$	3.54	$	3.62
Weighted average common shares (Note 17)		125,475			124,730		126,765
Diluted average common shares (Note 17)		128,950			128,436		130,876
See accompanying notes to consolidated financial statements.
Certain previously reported amounts have been reclassified to agree with current presentation.

56 First Horizon National Corporation

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

	(Amounts in thousands)	Common Shares			Total			Common Stock			Capital Surplus			Undivided Profits			Accumulated Other Comprehensive (Loss)/Income			Deferred Compen- sation			Deferred Compen- sation Obligation
	Balance, December 31, 2002		125,600		$	1,691,180		$	78,500		$	119,318		$	1,461,946		$	26,487		$	(5,796	)	$	10,725
	Net income		-			473,309			-			-			473,309			-			-			-
	Other comprehensive income:
	Unrealized fair value adjustments, net of tax:
	Cash flow hedges		-			137			-			-			-			137			-			-
	Securities available for sale		-			(24,813	)		-			-			-			(24,813	)		-			-
	Minimum pension liability, net of tax		-			(1,129	)		-			-			-			(1,129	)		-			-
	Comprehensive income		-			447,504			-			-			473,309			(25,805	)		-			-
	Cash dividends declared ($1.30/share)		-			(163,452	)		-			-			(163,452	)		-			-			-
	Common stock repurchased		(4,855	)		(209,125	)		(3,035	)		(96,972	)		(109,118	)		-			-			-
	Common stock issued for stock options and restricted stock		3,955			77,875			2,472			83,772			-			-			(8,369	)		-
	Tax benefit from incentive plans		-			27,842			-			27,842			-			-			-			-
	Stock-based compensation expense		-			18,103			-			12,982			-			-			5,121			-
	Other		134			391			84			(1,125	)		14			-			-			1,418
	Balance, December 31, 2003		124,834			1,890,318			78,021			145,817			1,662,699			682			(9,044	)		12,143
	Net income		-			454,408			-			-			454,408			-			-			-
	Other comprehensive income:
	Unrealized fair value adjustments, net of tax:
	Securities available for sale		-			(10,291	)		-			-			-			(10,291	)		-			-
	Minimum pension liability, net of tax		-			(319	)		-			-			-			(319	)		-			-
	Comprehensive income		-			443,798			-			-			454,408			(10,610	)		-			-
	Cash dividends declared ($1.63/share)		-			(201,316	)		-			-			(201,316	)		-			-			-
	Common stock repurchased		(4,134	)		(184,102	)		(2,584	)		(61,577	)		(119,941	)		-			-			-
	Common stock issued for stock options and restricted stock		2,716			67,068			1,697			66,353			-			-			(982	)		-
	Tax benefit from incentive plans		-			15,502			-			15,502			-			-			-			-
	Stock-based compensation expense		-			9,712			-			7,867			-			-			1,845			-
	Other		116			3			73			(90	)		3			-			-			17
	Balance, December 31, 2004		123,532			2,040,983			77,207			173,872			1,795,853			(9,928	)		(8,181	)		12,160
	Net income		-			438,000			-			-			438,000			-			-			-
	Other comprehensive income:
	Unrealized fair value adjustments, net of tax:
	Cash flow hedges		-			(77	)		-			-			-			(77	)		-			-
	Securities available for sale		-			(32,375	)		-			-			-			(32,375	)		-			-
	Minimum pension liability, net of tax		-			136			-			-			-			136			-			-
	Comprehensive income		-			405,684			-			-			438,000			(32,316	)		-			-
	Cash dividends declared ($1.74/share)		-			(217,835	)		-			-			(217,835	)		-			-			-
	Common stock repurchased		(11	)		(488	)		(7	)		(481	)		-			-			-			-
	Common stock issued for:
	Stock options and restricted stock		2,037			41,073			1,274			55,100			-			-			(15,301	)		-
	Acquisitions		608			24,893			380			24,513			-			-			-			-
	Tax benefit from incentive plans		-			8,297			-			8,297			-			-			-			-
	Stock-based compensation expense		-			9,740			-			6,369			-			-			3,371			-
	Other		56			(36	)		35			8			(36	)		-			-			(43	)
	Balance, December 31, 2005		126,222		$	2,312,311		$	78,889		$	267,678		$	2,015,982		$	(42,244	)	$	(20,111	)	$	12,117
See accompanying notes to consolidated financial statements.
Certain previously reported amounts have been reclassified to agree with current presentation.

First Horizon National Corporation 57

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year Ended December 31
(Dollars in thousands)		2005			2004			2003
Operating	Net income	$	438,000		$	454,408		$	473,309
Activities	Adjustments to reconcile net income to net cash   provided/(used) by operating activities:
	Provision for loan losses		67,678			48,348			86,698
	Provision for deferred income tax		35,586			41,472			113,716
	Depreciation and amortization of premises and equipment		51,844			48,731			45,087
	Amortization and impairment of mortgage servicing rights		230,044			191,363			290,597
	Amortization of intangible assets		13,734			9,541			7,980
	Net other amortization and accretion		90,572			74,950			81,567
	Decrease in derivatives, net		142,769			159,123			58,298
	Market value adjustment on foreclosed property		6,314			4,022			11,644
	Cumulative effect of changes in accounting principle, net of tax		3,098			-			-
	Gain on divestiture		(7,029	)		(7,000	)		(22,498	)
	Loss on early retirement of debt		-			-			5,766
	Equity securities losses/(gains), net		579			(2,040	)		(8,491	)
	Debt securities (gains)/losses, net		(1	)		(18,708	)		6,113
	Net losses/(gains) on disposals of fixed assets		566			(589	)		1,437
	Net (increase)/decrease in:
	Trading securities		(455,467	)		(187,525	)		85,374
	Loans held for sale		423,719			(566,337	)		1,819,842
	Capital markets receivables		(235,210	)		321,123			(327,190	)
	Interest receivable		(58,610	)		(19,528	)		(8,369	)
	Other assets		(747,923	)		(724,706	)		(427,934	)
	Net increase/(decrease) in:
	Capital markets payables		201,004			(314,578	)		282,070
	Interest payable		50,736			12,504			579
	Other liabilities		(120,571	)		123,931			(5,842	)
	Trading liabilities		367,295			298,625			(88,563	)
	Total adjustments		60,727			(507,278	)		2,007,881
	Net cash provided/(used) by operating activities		498,727			(52,870	)		2,481,190
Investing	Maturities of held to maturity securities		60			589			142,723
Activities	Available for sale securities:
	Sales		67,729			1,298,485			992,017
	Maturities		481,028			415,647			1,546,914
	Purchases		(830,539	)		(1,920,053	)		(2,745,032	)
	Premises and equipment:
	Sales		744			1,048			847
	Purchases		(95,661	)		(78,763	)		(149,600	)
	Net increase in loans		(3,878,845	)		(4,165,896	)		(2,808,349	)
	Net (increase)/decrease in investment in bank time deposits		(5,358	)		(4,831	)		1,346
	Proceeds from divestitures, net of cash and cash equivalents		19,100			7,000			21,577
	Acquisitions, net of cash and cash equivalents acquired		(841,950	)		-			(1,930	)
	Net cash used by investing activities		(5,083,692	)		(4,446,774	)		(2,999,487	)
Financing	Common stock:
Activities	Exercise of stock options		41,289			67,935			77,591
	Cash dividends paid		(214,024	)		(198,495	)		(150,863	)
	Repurchase of shares		(488	)		(184,224	)		(209,263	)
	Term borrowings:
	Issuance		1,923,750			1,506,605			925,887
	Payments		(1,074,555	)		(610,585	)		(287,207	)
	Issuance of preferred stock of subsidiary		295,400			-			260
	Net increase/(decrease) in:
	Deposits		3,597,156			3,910,748			45,770
	Short-term borrowings		1,127,558			173,365			(57,801	)
	Net cash provided by financing activities		5,696,086			4,665,349			344,374
	Net increase/(decrease) in cash and cash equivalents		1,111,121			165,705			(173,923	)
	Cash and cash equivalents at beginning of period		1,320,499			1,154,794			1,328,717
	Cash and cash equivalents at end of period	$	2,431,620		$	1,320,499		$	1,154,794
	Total interest paid	$	804,574		$	297,089		$	246,136
	Total income taxes paid		200,176			182,255			159,188
See accompanying notes to consolidated financial statements.
Certain previously reported amounts have been reclassified to agree with current presentation.

58 First Horizon National Corporation

Notes to Consolidated Financial Statements

Note 1 q Summary of Significant Accounting Policies

Basis of Accounting. The consolidated financial statements of First Horizon National Corporation (FHN), including its subsidiaries, have been prepared in conformity with accounting principles generally accepted in the United States of America and follow general practices within the industries in which it operates. This preparation requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions are based on information available as of the date of the financial statements and could differ from actual results.

Principles of Consolidation and Basis of Presentation. The consolidated financial statements include the accounts of FHN and other entities in which it has a controlling financial interest. Variable Interest Entities (VIE) for which FHN or a subsidiary has been determined to be the primary beneficiary are also consolidated. Affiliates for which FHN is not considered the primary beneficiary and that FHN does not have a controlling financial interest in are accounted for by the equity method. These investments are included in other assets, and FHN's proportionate share of income or loss is included in noninterest income. All significant intercompany transactions and balances have been eliminated. For purposes of comparability, certain prior period amounts have been reclassified to conform to current year presentation. None of these reclassifications had any effect on net income or earnings per share for any of the periods presented. Business combinations accounted for as purchases are included in the financial statements from the respective dates of acquisition.

Revenue Recognition. FHN derives a significant portion of its revenues from fee based services. Noninterest income from transaction based fees is generally recognized when the transactions are completed. Noninterest income from service based fees is generally recognized over the period in which FHN provides the service.

Deposit Transactions and Cash Management. Deposit transactions include services related to retail deposit products (such as service charges on checking accounts), cash management products and services such as electronic transaction processing (automated clearing house and Electronic Data Interchange), account reconciliation services, cash vault services, lockbox processing, and information reporting to large corporate clients.

Merchant Processing. Merchant processing involves converting transactions from plastic media such as debit cards, credit cards, purchase cards, and private label credit cards into cash for merchants that sell goods and services to consumers and businesses.

Insurance Commissions. Insurance commissions are derived from the sale of insurance products, including acting as an independent agent to provide commercial and personal property and casualty, life, long-term care, and disability insurance.

Trust Services and Investment Management. Trust services and investment management fees include investment management, personal trust, employee benefits, and custodial trust services.

Statements of Cash Flows. For purposes of these statements, cash and due from banks, federal funds sold, and securities purchased under agreements to resell are considered cash and cash equivalents. Federal funds are usually sold for one-day periods, and securities purchased under agreements to resell are short-term, highly liquid investments.

Trading Activities. Securities purchased in connection with underwriting or dealer activities (long positions) are carried at market value as trading securities. Gains and losses, both realized and unrealized, on these securities are reflected in capital markets noninterest income. Trading liabilities include securities that FHN has sold to other parties but does not own (short positions). FHN is obligated to purchase securities at a future date to cover the short positions. Assets and liabilities for unsettled trades are recorded on the balance sheet as capital markets receivables or capital markets

First Horizon National Corporation 59

Note 1 q Summary of Significant Accounting Policies (continued)

payables. Retained interests, in the form of interest-only and principal-only strips, and subordinated securities from securitizations of first-lien mortgages are recognized at fair value as trading securities with gains and losses, both realized and unrealized, recognized in mortgage banking income. Retained interests, in the form of certificated residual interests from the securitization of second-lien mortgages and HELOC are recognized at fair value as trading securities with gains and losses, both realized and unrealized, recognized in revenue from loans sales and securitizations.

Investment Securities. Securities that FHN has the ability and positive intent to hold to maturity are classified as securities held to maturity and are carried at amortized cost. The amortized cost of all securities is adjusted for amortization of premium and accretion of discount to maturity, or earlier call date if appropriate, using the level yield method. Such amortization and accretion is included in interest income from securities. Investment securities are reviewed quarterly for possible other-than-temporary impairment. The review includes an analysis of the facts and circumstances of each individual investment such as the degree of loss, the length of time the fair value has been below cost, the expectation for that security's performance, the creditworthiness of the issuer and FHN's intent and ability to hold the security. Realized gains and losses and declines in value judged to be other-than-temporary are determined by the specific identification method and reported in noninterest income.

Securities that may be sold prior to maturity and equity securities are classified as securities available for sale and are carried at fair value. The unrealized gains and losses on securities available for sale are excluded from earnings and are reported, net of tax, as a component of other comprehensive income within shareholders' equity. Venture capital investments for which there are not active market quotes are initially valued at cost. Subsequently, these investments are adjusted to reflect changes in valuation as a result of initial public offerings or other-than-temporary declines in value.

Securities Purchased under Resale Agreements and Securities Sold under Repurchase Agreements. FHN enters into short-term purchases of securities under agreements to resell which are accounted for as collateralized financings except where FHN does not have an agreement to sell the same or substantially the same securities before maturity at a fixed or determinable price. Securities delivered under these transactions are delivered to either the dealer custody account at the Federal Reserve Bank or to the applicable counterparty. Collateral is valued daily and FHN may require counterparties to deposit additional collateral or return collateral pledged when appropriate.

Securities sold under agreements to repurchase are offered to cash management customers as an automated, collateralized investment account. Securities sold are also used by the retail/commercial bank to obtain favorable borrowing rates on its purchased funds.

Loans Held for Sale and Securitization and Residual Interests. FHN's mortgage lenders originate first-lien mortgage loans (the warehouse) for the purpose of selling them in the secondary market, primarily through proprietary and agency securitizations, and to a lesser extent through loan sales. In addition, FHN evaluates its liquidity position in conjunction with determining its ability and intent to hold loans for the foreseeable future and sells certain of the second-lien mortgages and HELOC it produces in the secondary market through securitizations and loan sales. Loan securitizations involve the transfer of the loans to qualifying special purposes entities (QSPE) that are not subject to consolidation in accordance with Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (SFAS No. 140). FHN generally retains the right to service the transferred loans.

Loans held for sale include loans originated or purchased for resale together with mortgage loans previously sold to and now held in special purpose entities, which loans may be unilaterally called by FHN. Loans held for sale are recorded at the lower of aggregate cost or fair value. The carrying value of loans held for sale is net of deferred origination fees and costs. Net origination fees and costs are deferred on loans held for sale and included in the basis of the loans in calculating gains and losses upon sale. Also included in the lower of cost or fair value analysis are the estimated costs and fair values of first-lien mortgage loan commitments. The cost basis of loans qualifying for fair value hedge

60 First Horizon National Corporation

Note 1 q Summary of Significant Accounting Policies (continued)

accounting under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS No. 133), is adjusted to reflect changes in fair value. Gains and losses realized from the sale of these assets, whether sold directly or through securitization, and adjustments to fair value are included in noninterest income.

Mortgage loans insured by the Federal Housing Administration (FHA) and mortgage loans guaranteed by the Veterans Administration (VA) are generally securitized through the Government National Mortgage Association (GNMA). Conforming conventional loans are generally securitized through government-sponsored enterprises (GSE) such as the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). In addition, FHN has completed proprietary securitizations of nonconforming first-lien and second-lien mortgages and HELOC, which do not conform to the requirements for sale or securitization through government agencies or GSE. Retained interests include mortgage servicing rights (MSR), interest-only and principal-only securities, subordinate securities, and certificated residual interests.

The retained interests are initially valued by allocating the total cost basis of the loan between the security or loan sold and the retained interests based on their relative fair values at the time of securitization or sale. The retained interests, other than MSR, are carried at fair value as a component of trading securities on the Consolidated Statements of Condition, with realized and unrealized gains and losses included in current earnings as a component of noninterest income on the Consolidated Statements of Income.

Retained interests in a securitization may include certificated residual interests, or financial assets including excess interest (structured as interest-only strips), interest-only strips, principal-only strips, or subordinated bonds. Residual interests are financial assets, which represent rights to receive earnings to the extent of excess income generated by the underlying loans. Excess interest is a financial asset that represents rights to receive interest from serviced assets that exceed contractually specified rates. Principal-only strips are financial assets, which represent principal cash flow tranches retained as a result of FHN's securitization transactions. Interest-only strips are financial assets, which represent interest cash flow tranches retained as a result of FHN's securitization transactions. Subordinated bonds are bonds with junior priority which are retained as a result of securitization. All retained interests are recognized on the balance sheet in trading securities at fair value.

The fair values of the certificated residual interests, the excess interest, and the interest-only strips are determined using market prices from closely comparable assets such as MSR that are tested against prices determined using a valuation model that calculates the present value of estimated future cash flows. To determine the fair value of the principal-only strips, FHN uses the market prices from comparable assets such as publicly traded FNMA trust principal-only strips that are adjusted to reflect the relative risk difference between readily marketable securities and privately issued securities. The fair value of subordinated bonds is determined using a spread to an interpolated Treasury rate, which is supplied by broker dealers. The fair value of these retained interests typically changes based on changes in the discount rate and differences between modeled prepayment speeds and credit losses and actual experience.

MSR are initially valued by allocating the total cost between the loan and the servicing right based on their relative fair values. Since sales of MSR tend to occur in private transactions and the precise terms and conditions of the sales are typically not readily available, there is a limited market to refer to in determining the fair value of MSR. As such, like other participants in the mortgage banking business, FHN relies primarily on a discounted cash flow model to estimate the fair value of its MSR. This model calculates estimated fair value of the MSR using numerous tranches of MSR, which share similar key characteristics such as interest rates, type of product (fixed vs. variable), age (new, seasoned, or moderate), agency type and other factors. FHN uses assumptions in the model that it believes are comparable to those used by brokers and other service providers on a quarterly basis. FHN also compares its estimates of fair value and assumptions to recent market activity and against its own experience.

First Horizon National Corporation 61

Note 1 q Summary of Significant Accounting Policies (continued)

MSR are periodically evaluated for impairment. Impairment occurs when the current fair value of the retained interest is less than its recorded value. For purposes of impairment evaluation and measurement, the MSR are stratified based on the predominant risk characteristics of the underlying loans. These strata currently include adjustable and fixed rate loans. The MSR are amortized over the period of and in proportion to the estimated net servicing revenues. A quarterly value impairment analysis is performed using a discounted cash flow methodology that is disaggregated by predominant risk characteristics. Impairment, if any, is recognized through a valuation allowance for individual strata. However, if the impairment is determined to be other than temporary, a direct write-off of the asset is made. The cost basis of MSR qualifying for SFAS No. 133 fair value hedge accounting is adjusted to reflect changes in fair value.

Loans. Loans are stated at principal amounts outstanding, net of unearned income. Interest on loans is recognized on an accrual basis at the applicable interest rate on the principal amount outstanding. Loan origination fees and direct costs as well as premiums and discounts are amortized as level yield adjustments over the respective loan terms. Unamortized net fees or costs are recognized upon early repayment of the loans. Loan commitment fees are generally deferred and amortized on a straight-line basis over the commitment period. Impaired loans are generally carried on a nonaccrual status. Loans are ordinarily placed on nonaccrual status when, in management's opinion, the collection of principal or interest is unlikely, the loan has been classified as “doubtful”, or when the collection of principal or interest is 90 days or more past due. Accrued but uncollected interest is reversed and charged against interest income when the loan is placed on nonaccrual status. On retail loans, accrued but uncollected interest is reversed when the loan is fully or partially charged off. Management may elect to continue the accrual of interest when the estimated net realizable value of collateral is sufficient to recover the principal balance and accrued interest. Interest payments received on nonaccrual and impaired loans are normally applied to principal. Once all principal has been received, additional interest payments are recognized on a cash basis as interest income.

Allowance for Loan Losses. The allowance for loan losses is maintained at a level that management determines is adequate to absorb estimated probable incurred losses in the loan portfolio. Management's evaluation process to determine the adequacy of the allowance utilizes an analytical model based on historical loss experience, adjusted for current events, trends and economic conditions. The actual amounts realized could differ in the near term from the amounts assumed in arriving at the allowance for loan losses reported in the financial statements.

All losses of principal are charged to the allowance for loan losses in the period in which the loan is deemed to be uncollectible. Additions are made to the allowance through periodic provisions charged to current operations and recovery of principal on loans previously charged off.

Premises and Equipment. Premises and equipment are carried at cost less accumulated depreciation and amortization and include additions that materially extend the useful lives of existing premises and equipment. All other maintenance and repair expenditures are expensed as incurred. Gains and losses on dispositions are reflected in noninterest income and expense.

Depreciation and amortization are computed on the straight-line method over the estimated useful lives of the assets and are recorded as noninterest expense. Leasehold improvements are amortized over the lesser of the lease periods or the estimated useful lives using the straight-line method. Useful lives utilized in determining depreciation for furniture, fixtures and equipment and buildings are three to fifteen and seven to forty-five years, respectively.

Real Estate Acquired by Foreclosure. Real estate acquired by foreclosure consists of properties that have been acquired in satisfaction of debt. These properties are carried at the lower of the outstanding loan amount or estimated fair value less estimated cost to sell the real estate. Losses arising at foreclosure are charged to the appropriate reserve. Required developmental costs associated with foreclosed property under construction are capitalized and included in determining the estimated net realizable value of the property, which is reviewed periodically, and any write-downs are

62 First Horizon National Corporation

Note 1 q Summary of Significant Accounting Policies (continued)

charged against current earnings. During the normal course of business, FHN may purchase real estate at foreclosure sale. Losses arising from the purchase of real estate at foreclosure sale are charged to the foreclosure reserve.

Intangible Assets. Intangible assets consist of “Other intangible assets” and “Goodwill.” The “Other intangible assets” represents identified intangible assets, including customer lists, acquired contracts, covenants not to compete and premium on purchased deposits, which are amortized over their estimated useful lives, except for those assets related to deposit bases that are primarily amortized over 10 years. Management evaluates whether events or circumstances have occurred that indicate the remaining useful life or carrying value of amortizing intangibles should be revised. “Goodwill” represents the excess of cost over net assets of acquired subsidiaries less identifiable intangible assets. On an annual basis, FHN tests goodwill for impairment. For the three year period ended December 31, 2005, no impairment of “Other intangible assets” or “Goodwill” was recognized.

Derivative Financial Instruments. FHN accounts for derivative financial instruments in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. SFAS No. 133 requires recognition of all derivative instruments on the balance sheet as either an asset or liability measured at fair value through adjustments to either accumulated other comprehensive income within shareholders' equity or current earnings. Fair value is defined as the amount FHN would receive or pay in the market to replace the derivatives as of the valuation date. Fair value is determined using available market information and appropriate valuation methodologies.

FHN prepares written hedge documentation, identifying the risk management objective and designating the derivative instrument as a fair value hedge, cash flow hedge or free-standing derivative instrument entered into as an economic hedge or to meet customers' needs. All transactions designated as SFAS No. 133 hedges must be assessed at inception and on an ongoing basis as to the effectiveness of the derivative instrument in offsetting changes in fair value or cash flows of the hedged item. For a fair value hedge, changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability are recognized currently in earnings. For a cash flow hedge, changes in the fair value of the derivative instrument, to the extent that it is effective, is recorded in accumulated other comprehensive income and subsequently reclassified to earnings as the hedged transaction impacts net income. Any ineffective portion of a cash flow hedge is recognized currently in earnings. For free-standing derivative instruments, changes in fair values are recognized currently in earnings. See Note 25–Derivatives and Off-Balance Sheet Arrangements for additional information.

Cash flows from derivative contracts are reported as operating activities on the Consolidated Statements of Cash Flows.

Advertising and Public Relations. Advertising and public relations costs are generally expensed as incurred.

Income Taxes. FHN accounts for income taxes using the liability method pursuant to SFAS No. 109, “Accounting for Income Taxes”. Under this method, FHN's deferred tax assets and liabilities are determined by applying the applicable federal and state income tax rates to its cumulative temporary differences. These temporary differences represent differences between financial statement carrying amounts and the corresponding tax bases of certain assets and liabilities. Deferred taxes are provided as a result of such temporary differences.

FHN and its eligible subsidiaries are included in a consolidated federal income tax return. FHN files separate returns for subsidiaries that are not eligible to be included in a consolidated federal income tax return. Based on the laws of the applicable state where it conducts business operations, FHN either files consolidated, combined or separate returns.

FHN's federal and state income tax returns are subject to examination by governmental authorities. Various examinations are currently in progress. FHN believes that the resolution of both the

First Horizon National Corporation 63

Note 1 q Summary of Significant Accounting Policies (continued)

examinations in progress and the examination of years not currently in progress will not have a significant impact on FHN's consolidated financial position or results of operations.

Earnings per Share. Earnings per share are computed by dividing net income by the weighted average number of common shares outstanding for each period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares adjusted to include the number of additional common shares that would have been outstanding if the dilutive potential common shares resulting from options granted under FHN's stock option plans and deferred compensation arrangements had been issued. FHN utilizes the treasury stock method in this calculation.

Stock Options. FHN accounts for its employee stock-based compensation plans under the intrinsic value based method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25). The following pro forma presentation of net income and earnings per share is determined utilizing various assumptions and estimates and is based on stock compensation plan provisions in effect during the reportable period and may not reflect the actual impact of adopting a fair value based method of accounting for stock options. Had compensation cost for these plans been determined consistent with SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123), FHN's net income and earnings per share would have been reduced to pro forma amounts provided in the table below:

	December 31
(Dollars in thousands except per share data)	2005		2004		2003
Net income, as reported	$	438,000	$	454,408	$	473,309
Add: Stock-based employee compensation expense included in reported net    income, net of related tax effects		2,895		3,414		6,402
Less: Total stock-based employee compensation expense determined under the    fair value method for all awards, net of related tax effects		16,198		12,114		27,139
Pro forma net income	$	424,697	$	445,708	$	452,572
Earnings per share, as reported	$	3.49	$	3.64	$	3.73
Pro forma earnings per share		3.38		3.57		3.57
Diluted earnings per share, as reported		3.40		3.54		3.62
Pro forma diluted earnings per share		3.28		3.47		3.46

For all stock option awards accounted for under APB No. 25 and disclosed under SFAS No. 123, FHN permits vesting of the option to continue after retirement. To account for its stock option awards, FHN uses the nominal vesting period approach. Under the nominal vesting period approach, awards granted to employees near retirement eligibility are expensed over the option's normal vesting period until an employee's actual retirement date, at which point all remaining unamortized compensation expense is immediately accelerated. Awards granted after the adoption of SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123-R) will be amortized using the nonsubstantive vesting methodology. The nonsubstantive vesting methodology requires an option's value to be recognized over a period ending no later than an employee's retirement eligibility date. Had FHN followed the nonsubstantive vesting period method for all awards previously granted, the effect of the change in expense attribution on the above pro forma diluted earnings per share amounts would have been negligible. Since FHN accounts for its option grants under APB No. 25, the use of the nominal vesting methodology had no impact on the earnings per share amounts presented in the accompanying statements of income.

Accounting Changes. Effective December 31, 2005, FHN adopted FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (FIN 47). FIN 47 requires recognition of a liability at the time of acquisition or construction for assets that will require certain remediation expenditures when the assets are removed from service. FIN 47 clarified that future expenses to remove asbestos from buildings should be estimated and accrued as a liability at the time of

64 First Horizon National Corporation

Note 1 q Summary of Significant Accounting Policies (continued)

acquisition with an offset to increase the cost of the associated structure. FHN currently owns certain buildings that contain asbestos. As a result of adopting FIN 47, FHN recognized a cumulative effect of a change in accounting principle equaling $3.1 million, net of tax. FHN increased the value of its recorded tangible assets by $4.5 million at the time it recognized an associated conditional retirement obligation in the amount of $9.4 million.

Effective January 1, 2005, FHN adopted AICPA Statement of Position 03-3, “Accounting for Loans or Certain Debt Securities Acquired in a Transfer” (SOP 03-3), which modifies the accounting for certain loans that are acquired with evidence of deterioration in credit quality since origination. SOP 03-3 does not apply to loans recorded at fair value or to mortgage loans classified as held for sale. SOP 03-3 limits the yield that may be accreted on applicable loans to the excess of the cash flows expected, at acquisition, to be collected over the investor's initial investment in the loan. SOP 03-3 also prohibits the “carrying over” of valuation allowances on applicable loans. The impact of adopting SOP 03-3 was immaterial to the results of operations.

In November 2005, the FASB issued FSP FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (FSP FAS 115-1), which supercedes the previously deferred recognition guidance of EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (EITF 03-1). FSP FAS 115-1 is effective January 1, 2006, and references previously existing GAAP. Therefore, adoption of FSP FAS 115-1 did not impact FHN's accounting for other-than-temporary impairment of investments. Effective July 1, 2004, FHN adopted the remaining provisions of EITF 03-1, including guidance for measuring and disclosing impairments of marketable securities and cost method investments. Adoption of these requirements did not have a material effect on the results of operations.

On July 1, 2004, FHN adopted FASB Staff Position FAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (FSP FAS 106-2). FSP FAS 106-2 requires a plan sponsor to determine if benefits offered through a postretirement health care plan are actuarially equivalent to Medicare Part D. If benefits are determined to be actuarially equivalent, the resulting effect on the plan's obligations should be reflected as an actuarial gain in determining the plan's accumulated postretirement benefit obligation. The impact of adopting FSP FAS 106-2 was immaterial to FHN.

In April 2004, FHN adopted Staff Accounting Bulletin No. 105, “Application of Accounting Principles to Loan Commitments” (SAB No. 105). SAB No. 105 prohibits the inclusion of estimated servicing cash flows and internally-developed intangible assets within the valuation of interest rate lock commitments under SFAS No. 133. SAB No. 105 also requires disclosure of a registrant's methods of accounting for interest rate lock commitments recognized under SFAS No. 133 and associated hedging strategies, if applicable. SAB No. 105 was effective for disclosures and interest rate lock commitments initiated after March 31, 2004. The adoption of SAB No. 105 resulted in an accounting change in 2004 and lowered pre-tax earnings by $8.4 million. Since prior periods were not restated, this accounting change resulted in a varying impact on comparability with prior periods. However, the ongoing economic value of FHN's business was not affected.

On March 31, 2004, FHN adopted FASB Interpretation No. 46 (revised 2003), “Consolidation of Variable Interest Entities,” (FIN 46-R), which clarified certain aspects of FIN 46, and on December 31, 2003, adopted FIN 46, which addressed consolidation by a business enterprise of VIE in which it is the primary beneficiary. Upon adoption of FIN 46, FHN deconsolidated its subsidiary, First Tennessee Capital I (Capital I), which has issued $100.0 million of capital securities that are fully and unconditionally guaranteed by FHN. FHN did not consolidate or deconsolidate any other significant VIE in connection with the adoption of FIN 46, and accordingly, it did not have a material impact on FHN's financial position or results of operations. Upon adoption of FIN 46-R, FHN reassessed certain of its nonconsolidated interests as VIE but did not meet the criteria of primary beneficiary and, therefore, did not consolidate or deconsolidate any other significant VIE, and accordingly, it did not have a material

First Horizon National Corporation 65

Note 1 q Summary of Significant Accounting Policies (continued)

impact on FHN's financial position or results of operations. See Note 25–Derivatives and Off-Balance Sheet Arrangements for additional information.

On December 31, 2003, FHN adopted SFAS No. 132 (revised 2003), “Employers' Disclosures about Pensions and Other Postretirement Benefits” (SFAS No. 132-R). This standard does not change the measurement or recognition of those plans required by SFAS No. 87 and SFAS No. 106. Additionally, the disclosure requirements of the original SFAS No. 132 have been retained. SFAS No. 132-R requires additional disclosure about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The adoption of SFAS No. 132 (revised 2003) did not have an impact on the results of operations.

On July 1, 2003, FHN adopted SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (SFAS No. 150), and classified $45.1 million of mandatorily redeemable preferred stock of subsidiary as term borrowings. Historically, the related distributions on these instruments were classified as noninterest expense on the Consolidated Statements of Income, but as of July 1, 2003, were classified as interest expense on a prospective basis. As required by SFAS No. 150, prior periods were not restated.

On July 1, 2003, FHN adopted SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments,” which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133. The impact of adopting this standard was immaterial to FHN.

On January 1, 2003, FHN adopted SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement requires that a liability for the cost associated with an exit or disposal activity be recognized and measured initially at fair value in the period in which the liability is incurred. Prior to the effective date of this statement, costs associated with an exit or disposal plan were recognized at the date of commitment, as required under EITF Issue 94-3. This statement does not apply to costs associated with an exit activity that involves an entity newly acquired in a business combination or with a disposal activity covered by SFAS No. 144. The impact of adopting this statement was immaterial to FHN.

On January 1, 2003, FHN adopted the final provisions of FASB Interpretation No. 45, “Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” This interpretation elaborates on the disclosures to be made by a guarantor in interim and annual financial statements about obligations assumed under certain guarantees it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. This interpretation does not prescribe a specific approach for subsequently measuring the guarantor's liability over the term of the related guarantee. This interpretation also incorporates, without change, the guidance in FASB Interpretation No. 34, “Disclosure of Indirect Guarantees of Indebtedness of Others,” which is superseded. The impact of adopting this statement was immaterial to FHN.

Accounting Changes Issued but Not Currently Effective. In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments,” which permits fair value remeasurement for any hybrid financial instruments that contain an embedded derivative that otherwise would require bifurcation. Additionally, SFAS No. 155 clarifies the accounting guidance for beneficial interests in securitizations. SFAS No. 155 is effective for fiscal years beginning after September 15, 2006. Since FHN accounts for its beneficial interests in securitizations as trading securities, the adoption of SFAS No. 155 is not expected to have a significant impact on the results of operations.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (SFAS No. 154), which requires retrospective application of voluntary changes in accounting principle. A change in accounting principle mandated by new accounting pronouncements should follow the transition method specified by the new guidance. However, if transition guidance is not otherwise

66 First Horizon National Corporation

Note 1 q Summary of Significant Accounting Policies (continued)

specified, SFAS No. 154's retrospective application requirement will apply. SFAS No. 154 does not alter the accounting requirement for changes in estimates (prospective) and error corrections (restatement). SFAS No. 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005.

In December 2004, the FASB issued SFAS No. 123-R, which requires recognition of expense over the requisite service period for awards of share-based compensation to employees. Due to SEC action in April 2005, the mandatory adoption date for SFAS No. 123-R was moved to January 1, 2006 with earlier adoption permitted. As permitted by the original SFAS No. 123, FHN has accounted for its equity awards under the provisions of APB No. 25. Upon adoption of SFAS No. 123-R, the grant date fair value of an award will be used to measure the compensation expense recognized for the award. For unvested awards granted prior to the adoption of SFAS No. 123-R, the fair values utilized will equal the values used in preparation of the disclosures required under the original SFAS No. 123. Compensation expense recognized after adoption of SFAS No. 123-R will incorporate an estimate of awards expected to ultimately vest, which requires estimation of forfeitures as well as projections related to the satisfaction of performance conditions that determine vesting. Upon initial adoption of SFAS No. 123-R, FHN is required to reclassify deferred compensation balances included in shareholders' equity to capital surplus and to make a cumulative effect adjustment for outstanding unvested awards that are not expected to vest due to anticipated forfeiture. As permitted by SFAS No. 123-R, FHN intends to retroactively apply the provisions of SFAS No. 123-R to its prior period financial statements.

Note 2 q Acquisitions/Divestitures

On March 1, 2006, FHN sold substantially all the assets of its national merchant processing business conducted primarily through First Horizon Merchant Services, Inc. (FHMS) and Global Card Services, Inc. The sale is to NOVA Information Systems (NOVA), a wholly-owned subsidiary of U.S. Bancorp. This transaction resulted in a pre-tax gain of approximately $340 million. In addition, a supplement to the purchase price may be paid to FHN if certain performance goals are achieved during a period following closing. This divestiture will be accounted for as a discontinued operation, and prior periods will be adjusted to exclude the impact of merchant operations from the results of continuing operations. Financial information for discontinued operations is summarized below:

	Year Ended December 31
(Dollars in thousands)	2005		2004		2003
Total revenues	$	89,169	$	87,155	$	78,187
Total expenses		61,931		56,403		56,564
Income before income taxes		27,238		30,752		21,623
Provision for income taxes		10,165		11,477		7,951
Net income from discontinued operations	$	17,073	$	19,275	$	13,672
Total average assets for merchant operations were $200.8 million and $121.8 million for December 31, 2005 and 2004, respectively.

On December 9, 2005, First Tennessee Bank National Association (FTBNA) sold three financial centers in Dyersburg, Tennessee, to First South Bank. This transaction resulted in a divestiture gain of $7.0 million. Immediately preceding the sale, the financial centers had loans of approximately $80 million and deposits of approximately $70 million.

On August 26, 2005, FHN acquired West Metro Financial Services Inc. (West Metro), a Georgia bank holding company. West Metro was merged with and into FHN. At the same time West Metro's subsidiary, First National Bank West Metro, with total assets of approximately $135 million, loans of approximately $115 million, and deposits of approximately $120 million, was merged with and into FTBNA. Total consideration of $32 million, consisting of approximately $11 million in cash and $21

First Horizon National Corporation 67

Note 2 q Acquisitions/Divestitures (continued)

million in FHN shares (approximately 518,000 shares of common stock), exceeded the estimated fair value of tangible assets and liabilities acquired by approximately $16 million. Intangible assets totaling approximately $3 million have been identified and are being amortized over their expected useful lives. The acquisition was immaterial to FHN.

On April 1, 2005, FTBNA acquired substantially all of the assets of MSAver Resources, L.L.C. of Overland Park, Kansas, a national leader in administering health savings accounts. The acquisition was immaterial to FHN.

On March 1, 2005, First Horizon Home Loan Corporation, a subsidiary of FTBNA, acquired Greenwich Home Mortgage Corporation of Cedar Knolls, New Jersey, for an initial payment of approximately $7.8 million in cash and FHN common stock. Net assets purchased, combined with the operating performance of the acquired business, will impact future payments owed to the sellers. The acquisition was immaterial to FHN.

On January 7, 2005, FHN's capital markets division, FTN Financial, completed the acquisition of the assets and operations of the fixed income business of Spear, Leeds & Kellogg (SLK), a division of Goldman Sachs & Co. for approximately $150.0 million in cash. Total consideration paid exceeded the estimated fair value of tangible assets and liabilities acquired by approximately $97 million. Intangible assets totaling approximately $55 million have been identified and are being amortized over their expected useful lives. The acquisition was immaterial to FHN.

On December 31, 2004, Synaxis Group, Inc., a subsidiary of FTBNA, completed the sale of substantially all the assets of Mann, Smith & Cummings, Inc. of Clarksville, TN. This transaction resulted in a divestiture gain of $1.2 million.

On September 23, 2004, FTN Midwest Securities Corp., a wholly-owned subsidiary of FTBNA, acquired certain assets and assumed certain liabilities of Alterity Partners, LLC, a mergers and acquisitions advisory services company based in New York, New York, for approximately $8.0 million in cash. The acquisition was immaterial to FHN.

On June 29, 2004, FHMS recognized a divestiture gain of $1.8 million resulting from the sale of certain merchant relationships to Humboldt Merchant Services, LP, of Eureka, California (an affiliate of First National Bank of Nevada, Reno, Nevada).

On December 31, 2003, FHN completed the sale of substantially all of the assets and liabilities of its wholly-owned subsidiary, First National Bank of Springdale (FNB) of Springdale, Arkansas to First Security Bank of Searcy, Arkansas. This transaction resulted in a divestiture gain of $12.5 million. Immediately preceding the sale, FNB had investment securities of approximately $125 million, loans of approximately $165 million, deposits of approximately $300 million and equity of approximately $40 million.

On December 31, 2003, FHMS recognized a divestiture gain of $10.0 million resulting from the sale of certain merchant relationships referred by selected agent banks within the merchant portfolio to NOVA. During 2004, divestiture gains of $4.0 million resulted from an earn-out on the 2003 sale of merchant relationships.

On August 1, 2003, FHMS acquired Global Card Services, Inc., a merchant processing company based in Orlando, Florida, for approximately $15.8 million in cash. The acquisition was immaterial to FHN.

In addition to the acquisitions mentioned above, FHN also acquires assets from time to time in transactions that are considered business combinations but are not material to FHN individually or in the aggregate.

68 First Horizon National Corporation

Note 3 q Investment Securities

The following tables summarize FHN's securities held to maturity and available for sale on December 31, 2005 and 2004:

	On December 31, 2005*
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities held to maturity:
States and municipalities	$	383	$	7	$	-		$	390
Total securities held to maturity	$	383	$	7	$	-		$	390
Securities available for sale:
U.S. Treasuries	$	41,190	$	5	$	(82	)	$	41,113
Government agency issued MBS**		920,105		319		(27,765	)		892,659
Government agency issued CMO**		1,667,312		985		(35,091	)		1,633,206
Other U.S. government agencies**		136,341		-		(2,423	)		133,918
States and municipalities		2,115		27		-			2,142
Other		9,209		9		(50	)		9,168
Equity		200,422		51		(576	)		199,897
Total securities available for sale	$	2,976,694	$	1,396	$	(65,987	)	$	2,912,103

*	Includes $2.5 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes.
**	Includes securities issued by government sponsored entities which are not backed by the full faith and credit of the U.S. government.

	On December 31, 2004*
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities held to maturity:
States and municipalities	$	441	$	16	$	-		$	457
Total securities held to maturity	$	441	$	16	$	-		$	457
Securities available for sale:
U.S. Treasuries	$	41,423	$	11	$	(190	)	$	41,244
Government agency issued MBS**		881,888		668		(7,937	)		874,619
Government agency issued CMO**		1,521,088		1,505		(6,050	)		1,516,543
Other U.S. government agencies**		40,794		165		-			40,959
States and municipalities		7,704		125		(2	)		7,827
Other		7,272		105		(7	)		7,370
Equity		191,994		8		(8	)		191,994
Total securities available for sale	$	2,692,163	$	2,587	$	(14,194	)	$	2,680,556

*	Includes $2.4 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes.
**	Includes securities issued by government sponsored entities which are not backed by the full faith and credit of the U.S. government.

First Horizon National Corporation 69

Note 3 q Investment Securities (continued)

Provided below are the amortized cost and fair value by contractual maturity for the securities portfolios on December 31, 2005:

	Held to Maturity				Available for Sale
(Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within 1 year	$	100	$	101	$	13,678	$	13,661
After 1 year; within 5 years		283		289		95,277		94,490
After 5 years; within 10 years		-		-		77,785		76,048
After 10 years		-		-		2,115		2,142
Subtotal		383		390		188,855		186,341
Government agency issued MBS and CMO		-		-		2,587,417		2,525,865
Equity securities		-		-		200,422		199,897
Total	$	383	$	390	$	2,976,694	$	2,912,103
Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

The table below provides information on realized gross gains and realized gross losses on sales from the available for sale portfolio for the years ended December 31:

(Dollars in thousands)	AFS Debt*			AFS Equity*			Total
2005
Gross gains on sales	$	1		$	62		$	63
2004
Gross gains on sales	$	18,712		$	6,593		$	25,305
Gross losses on sales		(4	)		(653	)		(657	)
2003
Gross gains on sales	$	847		$	11,444		$	12,291
Gross losses on sales		(6,973	)		-			(6,973	)
* AFS - Available for sale

Losses totaling $.6 million, $3.9 million and $3.0 million for the years 2005, 2004 and 2003, respectively, were recognized for securities that, in the opinion of management, have been other-than-temporarily impaired.

70 First Horizon National Corporation

Note 3 q Investment Securities (continued)

The following table provides information on investments that have unrealized losses on December 31, 2005 and 2004:

	On December 31, 2005
	Less than 12 months					12 Months or Longer					Total
(Dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasuries	$	39,573	$	(66	)	$	363	$	(16	)	$	39,936	$	(82	)
Government agency issued MBS		294,513		(6,781	)		592,307		(20,984	)		886,820		(27,765	)
Government agency issued CMO		703,810		(13,805	)		744,792		(21,286	)		1,448,602		(35,091	)
Other U.S. government agencies		133,918		(2,423	)		-		-			133,918		(2,423	)
Other		7,650		(32	)		836		(18	)		8,486		(50	)
Total debt securities		1,179,464		(23,107	)		1,338,298		(42,304	)		2,517,762		(65,411	)
Equity		26,605		(576	)		-		-			26,605		(576	)
Total temporarily impaired securities	$	1,206,069	$	(23,683	)	$	1,338,298	$	(42,304	)	$	2,544,367	$	(65,987	)

The gross unrealized losses on December 31, 2005, principally related to U.S. Government agencies, were primarily caused by interest rate changes. FHN has reviewed these securities in accordance with its accounting policy for other-than-temporary impairment and does not consider them other-than-temporarily impaired.

	On December 31, 2004
	Less than 12 months					12 Months or Longer					Total
(Dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasuries	$	34,901	$	(181	)	$	170	$	(9	)	$	35,071	$	(190	)
Government agency issued MBS		832,535		(7,655	)		16,192		(282	)		848,727		(7,937	)
Government agency issued CMO		908,590		(6,050	)		-		-			908,590		(6,050	)
State and municipalities		663		(2	)		-		-			663		(2	)
Other		861		(7	)		-		-			861		(7	)
Total debt securities		1,777,550		(13,895	)		16,362		(291	)		1,793,912		(14,186	)
Equity		226		(8	)		-		-			226		(8	)
Total temporarily impaired securities	$	1,777,776	$	(13,903	)	$	16,362	$	(291	)	$	1,794,138	$	(14,194	)

On December 31, 2004, FHN held two investment securities having continuous unrealized loss positions for more than 12 months. The unrealized losses were related to changes in interest rates. FHN has not recognized any other-than-temporary impairment in connection with these securities.

On December 31, 2005 and 2004, FHN had $143.2 million and $125.2 million, respectively, of cost method investments. These investments included Federal Reserve Bank and Federal Home Loan Bank stock of $108.2 million and $94.1 million on December 31, 2005 and 2004, respectively. These investments, which do not have a readily determinable market and for which it is not practicable to estimate a fair value, are evaluated for impairment only if there are identified events or changes in circumstances that may have had a significant adverse effect on the fair value of the investment.

First Horizon National Corporation 71

Note 4 q Loans

A summary of the major categories of loans outstanding on December 31 is shown below:

(Dollars in thousands)	2005		2004
Commercial:
Commercial, financial and industrial	$	6,578,130	$	5,560,736
Real estate commercial		1,213,052		960,178
Real estate construction		2,108,121		1,208,703
Retail:
Real estate residential		8,357,143		7,244,716
Real estate construction		1,925,060		1,035,562
Other retail		168,413		168,806
Credit card receivables		251,016		248,972
Loans, net of unearned income		20,600,935		16,427,673
Allowance for loan losses		189,705		158,159
Total net loans	$	20,411,230	$	16,269,514

On December 31, 2005, $5.3 billion of real estate residential qualifying loans were pledged to secure potential Federal Home Loan Bank borrowings. Qualifying loans are comprised of residential mortgage loans secured by first and second liens and home equity lines of credit. In addition, $5.6 billion of commercial, financial and industrial loans were pledged to secure potential discount window borrowings from the Federal Reserve Bank.

Nonperforming loans consist of loans which management has identified as impaired, other nonaccrual loans and loans which have been restructured. On December 31, 2005 and 2004, there were no outstanding commitments to advance additional funds to customers whose loans had been restructured. The following table presents nonperforming loans on December 31:

(Dollars in thousands)	2005		2004
Impaired loans		$ 36,635		$ 34,831
Other nonaccrual loans*		15,624		14,729
Total nonperforming loans		$ 52,259		$ 49,560

* On December 31, 2005 and 2004, other nonaccrual loans included $11.5 million and $8.5 million, respectively, of loans held for sale.

Interest income received during 2005 for impaired loans was $.5 million and for other nonaccrual loans was $.1 million. Under their original terms, interest income would have been approximately $2.6 million for the impaired loans and $1.1 million for the other nonaccrual loans outstanding on December 31, 2005. Interest income received during 2004 for impaired loans was $.5 million and for other nonaccrual loans was $.1 million. Under their original terms, interest income would have been approximately $2.6 million for the impaired loans and $1.0 million for the other nonaccrual loans outstanding on December 31, 2004. Interest income received during 2003 for impaired loans was $.4 million and for other nonaccrual loans was $14,000. Under their original terms, interest income would have been approximately $2.9 million for the impaired loans and $.7 million for the other nonaccrual loans outstanding on December 31, 2003. The average balance of impaired loans was approximately $36.3 million for 2005, $36.9 million for 2004 and $45.4 million for 2003. All impaired loans have an associated allowance for loan loss.

72 First Horizon National Corporation

Note 4 q Loans (continued)

Activity in the allowance for loan losses related to non-impaired and impaired loans for years ended December 31 is summarized as follows:

(Dollars in thousands)	Non-impaired			Impaired			Total
Balance on December 31, 2002	$	129,229		$	15,069		$	144,298
Adjustment due to divestiture		(2,652	)		-			(2,652	)
Provision for loan losses		73,249			13,449			86,698
Charge-offs		(63,113	)		(19,323	)		(82,436	)
Recoveries		12,440			1,985			14,425
Net charge-offs		(50,673	)		(17,338	)		(68,011	)
Balance on December 31, 2003		149,153			11,180			160,333
Loans transferred to held for sale		(8,382	)		-			(8,382	)
Provision for loan losses		40,402			7,946			48,348
Charge-offs		(45,772	)		(10,857	)		(56,629	)
Recoveries		12,271			2,218			14,489
Net charge-offs		(33,501	)		(8,639	)		(42,140	)
Balance on December 31, 2004		147,672			10,487			158,159
Allowance from acquisitions		1,902			-			1,902
Adjustment due to divestiture		(516	)		-			(516	)
Provision for loan losses		61,799			5,879			67,678
Charge-offs		(41,963	)		(10,187	)		(52,150	)
Recoveries		10,741			3,891			14,632
Net charge-offs		(31,222	)		(6,296	)		(37,518	)
Balance on December 31, 2005	$	179,635		$	10,070		$	189,705

Included in other assets and in other liabilities on the Consolidated Statements of Condition are amounts due from customers on acceptances and bank acceptances outstanding of $5.3 million and $9.2 million on December 31, 2005 and 2004, respectively. In 2005, FHN transferred approximately $.3 billion of real estate residential loans from held for sale into the loan portfolio. In 2004, FHN transferred approximately $1.6 billion of real estate residential loans to held for sale.

First Horizon National Corporation 73

Note 5 q Premises, Equipment and Leases

Premises and equipment on December 31 are summarized below:

(Dollars in thousands)	2005		2004
Land	$	58,210	$	51,253
Buildings		293,582		267,362
Leasehold improvements		77,493		58,999
Furniture, fixtures and equipment		331,411		316,082
Premises and equipment, at cost		760,696		693,696
Less accumulated depreciation and amortization		345,716		314,337
Premises and equipment, net	$	414,980	$	379,359

FHN is obligated under a number of noncancelable operating leases for premises and equipment with terms up to 30 years, which may include the payment of taxes, insurance and maintenance costs.

Minimum future lease payments for noncancelable operating leases on premises and equipment on December 31, 2005, are shown below:

(Dollars in thousands)
2006	$	70,757
2007		60,109
2008		42,408
2009		26,539
2010		17,936
2011 and after		47,062
Total minimum lease payments	$	264,811
Payments required under capital leases are not material.

Aggregate minimum income under sublease agreements for these periods is $5.4 million.

Rent expense incurred under all operating lease obligations was as follows for the years ended December 31:

(Dollars in thousands)	2005			2004			2003
Rent expense, gross	$	84,609		$	69,581		$	64,260
Sublease income		(3,158	)		(3,217	)		(4,543	)
Rent expense, net	$	81,451		$	66,364		$	59,717

74 First Horizon National Corporation

Note 6 q Mortgage Servicing Rights

Following is a summary of changes in capitalized MSR, net of accumulated amortization and valuation allowance, included in the Consolidated Statements of Condition:

(Dollars in thousands)
December 31, 2002	$	440,482
Addition of mortgage servicing rights		536,655
Amortization		(132,273	)
Market value adjustments		115,673
Sales of mortgage servicing rights		(6,275	)
Permanent impairment		(155,586	)
Increase in valuation allowance		(2,738	)
December 31, 2003		795,938
Addition of mortgage servicing rights		450,826
Amortization		(154,301	)
Market value adjustments		(18,943	)
Permanent impairment		(69,299	)
Decrease in valuation allowance		32,237
December 31, 2004		1,036,458
Addition of mortgage servicing rights		437,121
Amortization		(194,800	)
Market value adjustments		71,094
Permanent impairment		(38,239	)
Decrease in valuation allowance		2,995
December 31, 2005	$	1,314,629
MSR on December 31, 2005, 2004 and 2003 had estimated market values of approximately $1,334.5 million, $1,049.7 million and $838.5 million, respectively. These balances represent the rights to service approximately $93.7 billion, $83.6 billion and $65.1 billion of mortgage loans on December 31, 2005, 2004 and 2003, respectively, for which a servicing right has been capitalized. The following is a rollforward of the valuation allowance required due to temporary impairment as of December 31, 2005, 2004 and 2003:

(Dollars in thousands)
Balance on December 31, 2002	$	33,730
Permanent impairment		(155,586	)
Servicing valuation provision		158,324
Balance on December 31, 2003		36,468
Permanent impairment		(69,299	)
Servicing valuation provision		37,062
Balance on December 31, 2004		4,231
Permanent impairment		(38,239	)
Servicing valuation provision		35,244
Balance on December 31, 2005	$	1,236

First Horizon National Corporation 75

Note 6 q Mortgage Servicing Rights (continued)

Estimated MSR amortization expense for the years ending 2006, 2007, 2008, 2009 and 2010 are $187.7 million, $162.7 million, $140.5 million, $121.4 million, and $103.3 million, respectively. The assumptions underlying these estimates are subject to modification based on changes in market conditions and portfolio behavior (such as prepayment speeds). As a result, these estimates are subject to change in a manner and amount that is not presently determinable by management.

For purposes of impairment evaluation and measurement, the MSR are stratified based on the predominant risk characteristics of the underlying loans. These strata currently include adjustable- and fixed-rate loans and geographic risk characteristics. The MSR are amortized over the period of and in proportion to the estimated net servicing revenues. A quarterly impairment analysis is performed using a discounted cash flow methodology that is disaggregated by predominant risk characteristics. Impairment, if any, is recognized through a valuation allowance for individual strata. However, if the impairment is determined to be other-than-temporary, a direct write-off of the asset is made.

Note 7 q Intangible Assets

The following is a summary of intangible assets, net of accumulated amortization, included in the Consolidated Statements of Condition:

(Dollars in thousands)	Goodwill			Other Intangible Assets*
December 31, 2002	$	164,617		$	29,648
Amortization expense		-			(7,980	)
Minimum pension liability adjustment		-			(89	)
Divestitures		(13,303	)		(1,632	)
Acquisitions**		23,493			18,795
December 31, 2003		174,807			38,742
Amortization expense		-			(9,541	)
Minimum pension liability adjustment		-			(129	)
Divestitures		(810	)		(359	)
Acquisitions**		13,203			6,056
December 31, 2004		187,200			34,769
Amortization expense		-			(13,734	)
Minimum pension liability adjustment		-			1,555
Divestitures		-			(633	)
Acquisitions**		121,588			63,906
December 31, 2005	$	308,788		$	85,863

*	Represents customer lists, acquired contracts, premium on purchased deposits, covenants not to compete and assets related to the minimum pension liability.
**	Preliminary purchase price allocations on acquisitions are based upon estimates of fair value and are subject to change.

76 First Horizon National Corporation

Note 7 q Intangible Assets (continued)

The gross carrying amount of other intangible assets subject to amortization is $159.6 million on December 31, 2005, net of $73.7 million of accumulated amortization. Estimated aggregate amortization expense is expected to be $12.6 million, $11.6 million, $9.7 million, $8.0 million, and $6.7 million for 2006, 2007, 2008, 2009 and 2010, respectively.

The following is a summary of goodwill detailed by reportable segments for the three years ended December 31, 2005:

(Dollars in thousands)	Retail/ Commercial Banking			Mortgage Banking			Capital Markets		Total
December 31, 2002	$	98,945		$	52,378		$	13,294	$	164,617
Divestitures		(13,303	)		-			-		(13,303	)
Acquisitions*		23,883			(390	)		-		23,493
December 31, 2003		109,525			51,988			13,294		174,807
Divestitures		(810	)		-			-		(810	)
Acquisitions*		5,626			3,226			4,351		13,203
December 31, 2004		114,341			55,214			17,645		187,200
Acquisitions*		17,788			6,379			97,421		121,588
December 31, 2005	$	132,129		$	61,593		$	115,066	$	308,788
* Preliminary purchase price allocations on acquisitions are based upon estimates of fair value and are subject to change.

Note 8 q Time Deposit Maturities

Following is a table of maturities for time deposits outstanding on December 31, 2005, which include “Certificates of deposit under $100,000 and other time” and “Certificates of deposit $100,000 and more”. “Certificates of deposit $100,000 and more” totaled $10.9 billion on December 31, 2005. Time deposits are included in “Interest-bearing” deposits on the Consolidated Statements of Condition.

(Dollars in thousands)
2006	$	11,937,607
2007		631,547
2008		286,323
2009		139,815
2010		115,743
2011 and after		299,606
Total	$	13,410,641

Note 9 q Short-Term Borrowings

Short-term borrowings include federal funds purchased and securities sold under agreements to repurchase, commercial paper, trading liabilities and other borrowed funds.

Federal funds purchased and securities sold under agreements to repurchase and commercial paper generally have maturities of less than 90 days. Trading liabilities, which include short positions in securities, are generally held for less than 90 days. Other short-term borrowings have original maturities of one year or less. On December 31, 2005, capital markets trading securities with a fair value of $731.8 million were pledged to secure other short-term borrowings.

First Horizon National Corporation 77

Note 9 q Short-Term Borrowings (continued)

The detail of these borrowings for the years 2005, 2004 and 2003 is presented in the following table:

(Dollars in thousands)	Federal Funds Purchased and Securities Sold Under Agreements to Repurchase			Commercial Paper			Trading Liabilities			Other Short-term Borrowings
2005
Average balance	$	4,582,178		$	7,001		$	1,519,337		$	987,771
Year-end balance		3,735,742			10,695			793,638			791,322
Maximum month-end outstanding		5,458,983			26,466			1,663,319			1,339,531
Average rate for the year		2.98	%		1.50	%		5.28	%		3.57	%
Average rate at year-end		3.51			1.98			5.97			3.84
2004
Average balance	$	3,685,153		$	20,385		$	527,032		$	116,269
Year-end balance		3,247,048			23,712			426,343			116,064
Maximum month-end outstanding		4,387,946			30,885			900,233			189,683
Average rate for the year		1.22	%		.89	%		3.80	%		2.14	%
Average rate at year-end		1.87			1.18			3.52			1.37
2003
Average balance	$	3,712,768		$	20,902		$	547,071		$	130,189
Year-end balance		3,079,248			31,793			127,717			102,418
Maximum month-end outstanding		4,703,454			31,793			981,736			237,908
Average rate for the year		.99	%		.93	%		4.04	%		2.25	%
Average rate at year-end		.79			.78			5.47			.98
Certain previously reported amounts have been reclassified to agree with current presentation.

On December 31, 2005, $50 million of borrowings under unsecured lines of credit from non-affiliated banks were available to the parent company to provide for general liquidity needs at an annual facility fee of .10 percent.

78 First Horizon National Corporation

Note 10 q Term Borrowings

The following table presents information pertaining to term borrowings (debt with original maturities greater than one year) for FHN and its subsidiaries on December 31:

(Dollars in thousands)	2005		2004
First Tennessee Bank National Association:
Subordinated notes (qualifies for total capital under the Risk-Based Capital guidelines):
Matures on January 15, 2015 – 5.05%	$	392,279	$	400,872
Matures on May 15, 2013 – 4.625%		251,135		258,837
Matures on December 1, 2008 – 5.75%		136,847		140,402
Matures on April 1, 2008 – 6.40%		89,841		89,771
Bank notes*		874,672		1,249,950
Extendible notes**
Final maturity of November 17, 2010 – 4.36%		1,249,110		-
Federal Home Loan Bank borrowings***		4,381		4,717
Other****		-		1,259
First Horizon National Corporation:
Subordinated capital notes (qualifies for total capital under the Risk-Based Capital   guidelines):
Matures on May 15, 2013 – 4.50%		100,478		103,601
Matured on November 15, 2005 – 6.75%		-		22,875
Subordinated notes (Note 11):
Matures on January 6, 2027 – 8.07%		99,737		101,064
Matures on April 15, 2034 – 6.30%		193,878		197,803
FT Real Estate Securities Company, Inc.
Cumulative preferred stock (qualifies for total capital under the Risk-Based Capital   guidelines) (Note 12):
Matures on March 31, 2031 – 9.50%		45,285		45,217
Total	$	3,437,643	$	2,616,368

*	The bank notes were issued with variable interest rates and have remaining terms of 1 to 3 years. These bank notes had weighted average interest rates of 4.66 percent and 2.35 percent on December 31, 2005 and 2004, respectively.
**	As of December 31, 2005, the extendible notes had a contractual maturity of January 17, 2007, but are extendible at the investors' option to the final maturity date of November 17, 2010.
***	The Federal Home Loan Bank (FHLB) borrowings were issued with fixed interest rates and have remaining terms of 4 to 24 years. These borrowings had weighted average interest rates of 3.40 percent and 3.57 percent on December 31, 2005 and 2004, respectively.
****	Other long-term debt was comprised of unsecured obligations issued with fixed interest rates and had a weighted average interest rate of 5.00 percent on December 31, 2004.

Annual principal repayment requirements as of December 31, 2005, are as follows:

(Dollars in thousands)
2006	$	350,338
2007		1,400,338
2008		606,963
2009		321
2010		137
2011 and after		1,109,187

All subordinated notes are unsecured and are subordinate to other present and future senior indebtedness. FTBNA's subordinated notes and FHN's subordinated capital notes qualify as Tier 2 risk-based capital under the Office of the Comptroller of the Currency and Federal Reserve Board guidelines for assessing capital adequacy. Prior to February 2005, FTBNA had a bank note program

First Horizon National Corporation 79

Note 10 q Term Borrowings (continued)

under which the bank was able to borrow funds from time to time at maturities of 30 days to 30 years. This bank note program was terminated in connection with the establishment of a new program. That termination did not affect any previously issued notes outstanding. In February 2005, FTBNA established a new bank note program providing additional liquidity of $5.0 billion. This bank note program provides FTBNA with a facility under which it may continuously issue and offer short- and medium-term unsecured notes. On December 31, 2005, $4.3 billion was available under current conditions through the bank note program.

In November 2005, FTBNA entered into a $3.0 billion floating rate extendible note program. The extendible note program provides FTBNA with a facility under which it may issue and offer unsecured and unsubordinated notes with initial maturities of thirteen months and final maturities of five years. On December 31, 2005, $1.7 billion was available under current conditions through the extendible note program.

Note 11 q Guaranteed Preferred Beneficial Interests in First Horizon's Junior Subordinated Debentures

On December 30, 1996, FHN, through its underwriter, sold $100 million of capital securities. First Tennessee Capital I (Capital I), a Delaware business trust wholly owned by FHN, issued $100 million of Capital Securities, Series A at 8.07 percent. The proceeds were loaned to FHN as junior subordinated debt. FHN has, through various contractual arrangements, fully and unconditionally guaranteed all of Capital I's obligations with respect to the capital securities. The sole asset of Capital I is $103 million of junior subordinated debentures issued by FHN. These junior subordinated debentures also carry an interest rate of 8.07 percent. Both the capital securities of Capital I and the junior subordinated debentures of FHN will mature on January 6, 2027; however, under certain circumstances, the maturity of both may be shortened to a date not earlier than January 6, 2017. The capital securities qualify as Tier 1 capital. The junior subordinated debentures are included in the Consolidated Statements of Condition in “Term borrowings” (see Note 10—Term Borrowings).

On March 29, 2004, FHN, through its underwriter, sold $200 million of capital securities. First Tennessee Capital II (Capital II), a Delaware business trust wholly owned by FHN, issued $200 million of Capital Securities, Series B at 6.30 percent. The proceeds were loaned to FHN as junior subordinated debt. FHN has, through various contractual arrangements, fully and unconditionally guaranteed all of Capital II's obligations with respect to the capital securities. The sole asset of Capital II is $206 million of junior subordinated debentures issued by FHN. These junior subordinated debentures also carry an interest rate of 6.30 percent. Both the capital securities of Capital II and the junior subordinated debentures of FHN will mature on April 15, 2034, however, under certain circumstances, the maturity of both may be shortened to a date not earlier than April 15, 2009. The capital securities qualify as Tier 1 capital. The junior subordinated debentures are included in the Consolidated Statements of Condition in “Term borrowings” (see Note 10—Term Borrowings).

Note 12 q Preferred Stock of Subsidiary

On September 14, 2000, FT Real Estate Securities Company, Inc. (FTRESC), an indirect subsidiary of FHN, issued 50 shares of 9.50% Cumulative Preferred Stock, Class B (Class B Preferred Shares), with a liquidation preference of $1.0 million per share. An aggregate total of 47 Class B Preferred Shares have been sold privately to nonaffiliates. These securities qualify as Tier 2 capital and are presented in the Consolidated Statements of Condition as “Term borrowings”. FTRESC is a real estate investment trust (REIT) established for the purpose of acquiring, holding and managing real estate mortgage assets. Dividends on the Class B Preferred Shares are cumulative and are payable semi-annually.

80 First Horizon National Corporation

Note 12 q Preferred Stock of Subsidiary (continued)

The Class B Preferred Shares are mandatorily redeemable on March 31, 2031, and redeemable at the discretion of FTRESC in the event that the Class B Preferred Shares cannot be accounted for as Tier 2 regulatory capital or there is more than an insubstantial risk that dividends paid with respect to the Class B Preferred Shares will not be fully deductible for tax purposes. They are not subject to any sinking fund and are not convertible into any other securities of FTRESC, FHN or any of its subsidiaries. The shares are, however, automatically exchanged at the direction of the Office of the Comptroller of the Currency for preferred stock of FTBNA, having substantially the same terms as the Class B Preferred Shares in the event FTBNA becomes undercapitalized, insolvent or in danger of becoming undercapitalized.

On July 1, 2003, FHN adopted certain provisions of SFAS No. 150, which requires certain financial instruments with both liability and equity characteristics to be classified as liabilities on the statement of condition. Upon adoption of this statement, FHN classified its mandatorily redeemable preferred stock of subsidiary in “Term borrowings” (See Note 10 – Term Borrowings). Historically, the related distributions on these instruments ($4.6 million annually) were classified as noninterest expense on the Consolidated Statements of Income, but as of July 1, 2003, are classified as interest expense on a prospective basis. Restatement of prior periods was not permitted.

The following indirect, wholly-owned subsidiaries of FHN have also issued preferred stock. First Horizon Mortgage Loan Corporation has issued $1.0 million of Class B Preferred Shares. Additionally, FHRIII, LLC and FHRIV, LLC have each issued $1.0 million of Class B Preferred Units. On December 31, 2005 and 2004, $.5 million of Class B Preferred Shares and Units that are perpetual in nature and not subject to the provisions of SFAS No. 150 was recognized as “Preferred stock of subsidiary” on the Consolidated Statements of Condition. The remaining balance has been eliminated in consolidation.

On March 23, 2005, FTBNA issued 300,000 shares of Class A Non-Cumulative Perpetual Preferred Stock (Class A Preferred Stock) with a liquidation preference of $1,000 per share. These securities qualify as Tier 1 capital. On December 31, 2005, $294.8 million of Class A Preferred Stock was recognized as “Preferred stock of subsidiary” on the Consolidated Statements of Condition.

Note 13 q Regulatory Capital

FHN is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on FHN's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, specific capital guidelines that involve quantitative measures of assets, liabilities and certain derivatives as calculated under regulatory accounting practices must be met. Capital amounts and classification are also subject to qualitative judgment by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require FHN to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets (leverage). Management believes, as of December 31, 2005, that FHN met all capital adequacy requirements to which it was subject.

The actual capital amounts and ratios of FHN and FTBNA are presented in the table below. In addition, FTBNA must also calculate its capital ratios after excluding financial subsidiaries as defined by the Gramm-Leach-Bliley Act of 1999. Based on this calculation FTBNA's Total Capital, Tier 1 Capital and Leverage ratios were 11.26 percent, 8.18 percent and 6.67 percent, respectively, on December 31, 2005, and were 12.37 percent, 8.41 percent and 7.04 percent, respectively, on December 31, 2004.

First Horizon National Corporation 81

Note 13 q Regulatory Capital (continued)

	First Horizon National Corporation						First Tennessee Bank National Association
(Dollars in thousands)	Amount			Ratio			Amount			Ratio
On December 31, 2005:
Actual:
Total Capital	$	3,579,489			12.30	%	$	3,441,714			11.61	%
Tier 1 Capital		2,489,026			8.55			2,451,252			8.27
Leverage		2,489,026			6.67			2,451,252			6.62
For Capital Adequacy Purposes:
Total Capital		2,328,950	≥		8.00			2,370,729	≥		8.00
Tier 1 Capital		1,164,475	≥		4.00			1,185,364	≥		4.00
Leverage		1,493,291	≥		4.00			1,482,214	≥		4.00
To Be Well Capitalized Under Prompt Corrective Action Provisions:
Total Capital								2,963,411	≥		10.00
Tier 1 Capital								1,778,047	≥		6.00
Leverage								1,852,767	≥		5.00
On December 31, 2004:
Actual:
Total Capital	$	3,182,733			13.18	%	$	3,064,060			12.79	%
Tier 1 Capital		2,080,237			8.62			2,061,564			8.61
Leverage		2,080,237			7.16			2,061,564			7.15
For Capital Adequacy Purposes:
Total Capital		1,931,256	≥		8.00			1,916,456	≥		8.00
Tier 1 Capital		965,628	≥		4.00			958,228	≥		4.00
Leverage		1,162,155	≥		4.00			1,152,831	≥		4.00
To Be Well Capitalized Under Prompt Corrective Action Provisions:
Total Capital								2,395,570	≥		10.00
Tier 1 Capital								1,437,342	≥		6.00
Leverage								1,441,039	≥		5.00

82 First Horizon National Corporation

Note 14 q Other Income and Other Expense

Following is detail concerning “All other income” and “All other expense” as presented in the Consolidated Statements of Income:

(Dollars in thousands)	2005		2004		2003
All other income:
Cardholder fees	$	27,381	$	25,075	$	22,698
Other service charges		22,470		19,709		19,810
Remittance processing		15,411		19,515		23,666
Check clearing fees		7,333		10,052		11,839
Other		93,704		89,673		68,286
Total	$	166,299	$	164,024	$	146,299
All other expense:
Advertising and public relations	$	46,389	$	39,961	$	43,955
Legal and professional fees		45,239		37,730		60,001
Computer software		32,654		28,906		28,828
Travel and entertainment		32,126		30,794		37,432
Contract employment		31,062		23,714		33,790
Supplies		17,636		17,591		18,783
Fed service fees		7,568		8,838		9,195
Foreclosed real estate		7,265		5,834		13,137
Deposit insurance premium		3,012		3,024		2,703
Contributions		2,203		1,497		13,370
Distributions on guaranteed preferred securities		—		—		8,070
Distributions on preferred stock of subsidiary		10,757		—		2,282
Other		104,295		102,753		121,498
Total	$	340,206	$	300,642	$	393,044
Certain previously reported amounts have been reclassified to agree with current presentation.

Note 15 q Components of Other Comprehensive (Loss)/Income

Following is detail of “Accumulated other comprehensive (loss)/income” as presented in the Consolidated Statements of Condition:

(Dollars in thousands)	Before-Tax Amount			Tax (Expense)/ Benefit			Accumulated Other Comprehensive (Loss)/Income
December 31, 2002							$	26,487
Other comprehensive income:
Unrealized market adjustments on cash flow hedge	$	224		$	(87	)		137
Minimum pension liability		(1,786	)		657			(1,129	)
Unrealized market adjustments on securities available for sale		(37,988	)		14,637			(23,351	)
Adjustment for net gains included in net income		(2,378	)		916			(1,462	)
December 31, 2003	$	(41,928	)	$	16,123			682
Other comprehensive income:
Minimum pension liability	$	(505	)	$	186			(319	)
Unrealized market adjustments on securities available for sale		3,961			(1,533	)		2,428
Adjustment for net gains included in net income		(20,748	)		8,029			(12,719	)
December 31, 2004	$	(17,292	)	$	6,682			(9,928	)
Other comprehensive income:
Unrealized market adjustments on cash flow hedge	$	(123	)	$	46			(77	)
Minimum pension liability		215			(79	)		136
Unrealized market adjustments on securities available for sale		(53,562	)		20,834			(32,728	)
Adjustment for net gains included in net income		578			(225	)		353
December 31, 2005	$	(52,892	)	$	20,576		$	(42,244	)

First Horizon National Corporation 83

Note 16 q Income Taxes

The components of income tax expense/(benefit) are as follows:

(Dollars in thousands)	2005		2004		2003
Current:
Federal	$	159,860	$	169,158	$	134,793
State		8,629		1,771		(2,820	)
Deferred:
Federal		33,297		29,855		80,779
State		2,289		11,617		32,937
Total	$	204,075	$	212,401	$	245,689

The effective tax rates for 2005, 2004 and 2003 were 31.63 percent, 31.85 percent and 34.17 percent, respectively. Income tax expense was different than the amounts computed by applying the statutory federal income tax rate to income before income taxes because of the following:

(Dollars in thousands)	2005			2004			2003
Federal income tax rate	35%			35%			35%
Tax computed at statutory rate	$	225,811		$	233,383		$	251,649
Increase/(decrease) resulting from:
State income taxes		7,096			8,702			19,582
Tax credits		(17,937	)		(17,201	)		(14,703	)
Other		(10,895	)		(12,483	)		(10,839	)
Total	$	204,075		$	212,401		$	245,689

A deferred tax asset or liability is recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax consequence is calculated by applying enacted statutory tax rates, applicable to future years, to these temporary differences. Temporary differences which gave rise to deferred tax (assets)/liabilities on December 31, 2005 and 2004, were as follows:

(Dollars in thousands)	2005			2004
Deferred tax assets:
Loss reserves	$	(74,376	)	$	(67,307	)
Employee benefits		(46,041	)		(47,556	)
Accrued expenses		(7,439	)		(8,326	)
Investments in debt and equity securities		(31,530	)		(15,544	)
Other		(4,600	)		(3,565	)
Gross deferred tax assets		(163,986	)		(142,298	)
Deferred tax liabilities:
Capitalized mortgage servicing rights		392,087			348,258
Asset securitizations		8,861			24,943
Depreciation and amortization		45,604			33,803
Federal Home Loan Bank stock		13,494			12,265
Deferred fees and expenses		38,775			39,754
Other intangible assets		18,242			16,200
Other		12,277			17,063
Gross deferred tax liabilities		529,340			492,286
Net deferred tax liabilities	$	365,354		$	349,988

The deferred tax assets above are net of an insignificant valuation allowance due to capital losses. Other than these capital losses, no valuation allowance related to deferred tax assets has been

84 First Horizon National Corporation

Note 16 q Income Taxes (continued)

recorded on December 31, 2005 and 2004, as management believes it is more likely than not that the remaining deferred tax assets will be fully realized.

Note 17 q Earnings per Share

The following table shows a reconciliation of earnings per common share to diluted earnings per common share:

(In thousands, except per share data)	2005			2004		2003
Income before cumulative effect of changes in accounting principle	$	441,098		$	454,408	$	473,309
Cumulative effect of changes in accounting principle, net of tax		(3,098	)		-		-
Net income	$	438,000		$	454,408	$	473,309
Weighted average common shares		125,475			124,730		126,765
Effect of dilutive securities		3,475			3,706		4,111
Diluted average common shares		128,950			128,436		130,876
Earnings per common share:
Income before cumulative effect of changes in accounting principle	$	3.52		$	3.64	$	3.73
Cumulative effect of changes in accounting principle, net of tax		(.03	)		-		-
Net income	$	3.49		$	3.64	$	3.73
Diluted earnings per common share:
Income before cumulative effect of changes in accounting principle	$	3.42		$	3.54	$	3.62
Cumulative effect of changes in accounting principle, net of tax		(.02	)		-		-
Net income	$	3.40		$	3.54	$	3.62
Outstanding stock options of 4,731, 2,808 and 1,257 with weighted average exercise prices of $43.30, $45.70 and $40.73 per share for the years ended December 31, 2005, 2004 and 2003, respectively, were not included in the computation of diluted earnings per share because such shares would have had an antidilutive effect on earnings per share.

Note 18 q Restrictions, Contingencies and Other Disclosures

Restrictions on cash and due from banks. The commercial banking subsidiaries of FHN are required to maintain average reserve and clearing balances with the Federal Reserve Bank under the Federal Reserve Act and Regulation D. The balances required on December 31, 2005 and 2004, were $265.5 million and $225.2 million, respectively. These reserves are included in “Cash and due from banks” on the Consolidated Statements of Condition.

Restrictions on dividends. Dividends are paid by FHN from its assets, which are mainly provided by dividends from its subsidiaries. Certain regulatory restrictions exist regarding the ability of FTBNA to transfer funds to FHN in the form of cash, dividends, loans or advances. As of December 31, 2005, FTBNA had undivided profits of $2,167.2 million of which $815.3 million was available for distribution to FHN as dividends without prior regulatory approval.

Restrictions on intercompany transactions. Under Federal banking law, banking subsidiaries may not extend credit to the parent company in excess of 10 percent of the bank's capital stock and surplus, as defined, or $338.0 million on December 31, 2005. The parent company had covered transactions of $47.9 million from FTBNA on December 31, 2005. In addition the aggregate amount of covered transactions with all affiliates, as defined, is limited to 20 percent of the bank's capital stock and surplus, or $676.0 million on December 31, 2005. FTBNA's total covered transactions with all affiliates on December 31, 2005 were $238.7 million. Certain loan agreements also define other restricted transactions related to additional borrowings.

First Horizon National Corporation 85

Note 18 q Restrictions, Contingencies and Other Disclosures (continued)

Contingencies. Contingent liabilities arise in the ordinary course of business, including those related to litigation. Various claims and lawsuits are pending against FHN and its subsidiaries. Although FHN cannot predict the outcome of these lawsuits, after consulting with counsel, management has been able to form an opinion on the effect all of these lawsuits, except the matter mentioned in the paragraph below, will have on the consolidated financial statements. It is management's opinion that when resolved, these lawsuits will not have a material adverse effect on the consolidated financial statements of FHN.

In November 2000, a complaint was filed in state court in Jackson County, Missouri against FHN's subsidiary, First Horizon Home Loans. The case generally concerns the charging of certain loan origination fees, including fees permitted by Kansas law but allegedly restricted or not permitted by Missouri law, when First Horizon Home Loans or its predecessor, McGuire Mortgage Company, made certain second-lien mortgage loans. Among other relief, plaintiffs seek a refund of fees, a repayment and forgiveness of loan interest, prejudgment interest, punitive damages, and loan rescission. In response to pre-trial motions, the court has ruled that Missouri law governs the loan transactions and has certified a statewide class action; plaintiffs contend the class involves approximately 4,800 loans, but the exact size is in dispute. Discovery is ongoing and additional pre-trial motions are pending. Trial is currently scheduled for May 2006. FHN believes that it has meritorious defenses and it intends to continue to protect its rights and defend this lawsuit vigorously, through trial and appeal, if necessary.

Other disclosures—Company Owned Life Insurance. FHN has purchased life insurance on certain of its employees and is the beneficiary on these policies. On December 31, 2005, the cash surrender value of these policies, which is included in “Other assets” on the Consolidated Statements of Condition, was $502.3 million. There are restrictions on $67.0 million of the proceeds from these benefits which relate to certain compensation plans. FHN has not borrowed against the cash surrender value of these policies.

Other disclosures—Indemnification agreements and guarantees. In the ordinary course of business, FHN enters into indemnification agreements for legal proceedings against its directors and officers and standard representation warranties for underwriting agreements, merger and acquisition agreements, loan sales, contractual commitments, and various other business transactions or arrangements. The extent of FHN's obligations under these agreements depends upon the occurrence of future events; therefore, it is not possible to estimate a maximum potential amount of payouts that could be required with such agreements.

First Horizon Home Loans services a first-lien mortgage loan portfolio of approximately $95.3 billion as of December 31, 2005, a significant portion of which is held by GNMA, FNMA, FHLMC or private security holders. In connection with its servicing activities, First Horizon Home Loans guarantees the receipt of the scheduled principal and interest payments on the underlying loans. In the event of customer non-performance on the loan, First Horizon Home Loans is obligated to make the payment to the security holder. Under the terms of the servicing agreements, First Horizon Home Loans can utilize payments received from other prepaid loans in order to make the security holder whole. In the event payments are ultimately made by First Horizon Home Loans to satisfy this obligation, for loans sold with no recourse, all funds are recoverable from the government agency at foreclosure sale. See Note 24–Securitizations for additional information on loans sold with recourse.

First Horizon Home Loans is also subject to losses in its loan servicing portfolio due to loan foreclosures and other recourse obligations. Certain agencies have the authority to limit their repayment guarantees on foreclosed loans resulting in certain foreclosure costs being borne by servicers. In addition, First Horizon Home Loans has exposure on all loans sold with recourse. First Horizon Home Loans has various claims for reimbursement, repurchase obligations, and/or indemnification requests outstanding with government agencies or private investors. First Horizon Home Loans has evaluated all of its exposure under recourse obligations based on factors, which include loan delinquency status, foreclosure expectancy rates and claims outstanding. Accordingly, First Horizon Home Loans had an allowance for losses on the mortgage servicing portfolio of approximately

86 First Horizon National Corporation

Note 18 q Restrictions, Contingencies and Other Disclosures (continued)

$16.4 million and $18.5 million as of December 31, 2005 and 2004, respectively. First Horizon Home Loans has sold certain mortgage loans with an agreement to repurchase the loans upon default. As of December 31, 2005 and 2004, First Horizon Home Loans had single-family residential loans with outstanding balances of $147.3 million and $186.8 million, respectively that were sold on a recourse basis. For the single-family residential loans, in the event of borrower nonperformance, First Horizon Home Loans would assume losses to the extent they exceed the value of the collateral and private mortgage insurance, FHA insurance or VA guarantees. As of December 31, 2005 and 2004, the outstanding principal balance of loans sold with limited recourse and serviced by First Horizon Home Loans was $3.2 billion and $3.4 billion, respectively.

FHN has securitized and sold home equity lines of credit and second-lien mortgages which are held by private security holders, and on December 31, 2005, the outstanding principal balance of these loans was $640.6 million and $142.7 million, respectively. On December 31, 2004, the outstanding principal balance of these loans was $1.3 billion and $229.3 million. In connection with its servicing activities, FTBNA does not guarantee the receipt of the scheduled principal and interest payments on the underlying loans but does have residual interests of $57.0 million and $64.3 million on December 31, 2005 and 2004, respectively, which are available to make the security holder whole in the event of credit losses. FHN has projected expected credit losses in the valuation of the residual interest.

Note 19 q Shareholder Protection Rights Agreement

On October 20, 1998, FHN adopted a Shareholder Protection Rights Agreement (the “Agreement”) and declared a dividend of one right on each outstanding share of common stock held on November 2, 1998, or issued thereafter and prior to the time the rights separate and thereafter pursuant to options and convertible securities outstanding at the time the rights separate.

The Agreement provides that until the earlier of the tenth business day (subject to certain adjustments by the board of directors) after a person or group commences a tender or exchange offer that will, subject to certain exceptions, result in such person or group owning 10 percent or more of FHN's common stock, or the tenth business day (subject to certain adjustments by the board) after the public announcement by FHN that a person or group owns 10 percent or more of FHN's common stock, the rights will be evidenced by the common stock certificates, will automatically trade with the common stock, and will not be exercisable. Thereafter, separate rights certificates will be distributed, and each right will entitle its holder to purchase one one-hundredth of a share of participating preferred stock having economic and voting terms similar to those of one share of common stock for an exercise price of $150.

If any person or group acquires 10 percent or more of FHN's common stock, then each right (other than rights beneficially owned by holders of 10 percent or more of the common stock or affiliates, associates or transferees thereof, which rights become void) will entitle its holder to purchase, for the exercise price, a number of shares of FHN common stock or participating preferred stock having a market value of twice the exercise price. Also, if there is a 10 percent shareholder and FHN is involved in certain significant transactions, each right will entitle its holder to purchase, for the exercise price, a number of shares of common stock of the other party having a market value of twice the exercise price. If any person or group acquires 10 percent or more (but not more than 50 percent) of FHN's common stock, FHN's board of directors may, at its option, exchange one share of FHN common stock or one one-hundredth of a share of participating preferred stock for each right (other than rights which have become void). The board of directors may amend the Agreement in any respect prior to the tenth business day after announcement by FHN that a person or group has acquired 10 percent or more of FHN's common stock. The rights will expire on the earliest of the following times: the time of the exchange described in the second preceding sentence; December 31, 2009; or the date the rights are redeemed as described in the following sentence. The rights may be redeemed by the board of directors for $0.001 per right until 10 business days after FHN announces that any person or group owns 10 percent or more of FHN's common stock.

First Horizon National Corporation 87

Note 20 q Savings, Pension and Other Employee Benefits

Savings plan. Substantially all employees of FHN are covered by a contributory savings plan in conjunction with a flexible benefits plan. During the year, FHN makes contributions to each employee's flexible benefits plan account. These contributions are based on length of service and a percentage of the employee's salary. The employees have the option to direct a portion or all of the contribution into their savings plan accounts. Employees may also make pre-tax and after-tax personal contributions to the savings plan. FHN matches certain employee pre-tax contributions invested in FHN's common stock fund (or for employees of First Horizon Home Loans, contributions made to any savings plan fund) at a rate of $.50 for each $1.00 invested up to 6 percent of the employee's qualifying salary. Contributions made by FHN to the flexible benefits plan were $30.2 million for 2005, $26.8 million for 2004 and $24.4 million for 2003. A feature of the savings plan allows employees to choose to invest their savings in one or more of ten various component funds, including a nonleveraged employee stock ownership plan (ESOP). Compensation cost related to the ESOP is measured as the amount allocated from matching contributions and discretionary contributions contributed to the ESOP and is included in the contributions amount above. Dividends on shares held by the ESOP are charged to retained earnings and shares held by the ESOP are treated as outstanding in computing earnings per share. The number of allocated shares held by the ESOP totaled 8,262,203 on December 31, 2005.

Pension plan. FHN provides pension benefits to employees retiring under the provisions of a noncontributory, defined benefit pension plan. Employees of FHN's mortgage subsidiary and certain insurance subsidiaries are not covered by the pension plan. Pension benefits are based on years of service, average compensation near retirement and estimated social security benefits at age 65. The annual funding is based on an actuarially determined amount using the entry age cost method.

FHN also maintains a nonqualified supplemental executive retirement plan that covers certain employees whose benefits under the pension plan have been limited under Tax Code Section 415 and Tax Code Section 401(1)(17), which limit compensation to $210,000 for purposes of benefit calculations. Compensation is defined in the same manner as it is under the pension plan. Participants receive the difference between the monthly pension payable, if tax code limits did not apply, and the actual pension payable. All benefits provided under this plan are unfunded and payments to plan participants are made by FHN.

Other employee benefits. FHN provides postretirement medical insurance to full-time employees retiring under the provisions of the FHN Pension Plan. The postretirement medical plan is contributory with retiree contributions adjusted annually. The plan is based on criteria that are a combination of the employee's age and years of service and utilizes a two-step approach. For any employee retiring on or after January 1, 1995, FHN contributes a fixed amount based on years of service and age at time of retirement. FHN's postretirement benefits include prescription drug benefits. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) introduces a prescription drug benefit under Medicare Part D as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. On July 1, 2004, FHN adopted FSP FAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003”. FSP FAS 106-2 requires a plan sponsor to determine if benefits offered through a postretirement health care plan are actuarially equivalent to Medicare Part D. Plan benefits were determined to be actuarially equivalent in 2005. Due to recognizing the Medicare Part D subsidy in 2005 the accumulated postretirement benefit obligation was reduced by $7.2 million and net periodic cost was reduced by $.4 million.

Actuarial assumptions. To develop the expected long-term rate of return on assets assumption, FHN considered the current level of expected returns on risk free investments (primarily government bonds), the historical level of the risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class. Since FHN's investment policy is to actively manage certain asset classes where the potential exists to outperform the broader market, the expected returns for those asset classes were adjusted to reflect the expected additional returns. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long-term rate of return on assets assumption for the portfolio. This resulted in the selection of an 8.65 percent assumption for 2006.

88 First Horizon National Corporation

Note 20 q Savings, Pension and Other Employee Benefits (continued)

The discount rates for 2005 and 2004 for pension and postretirement benefits were determined by using a hypothetical AA yield curve represented by a series of annualized individual discount rates from one-half to thirty years. The discount rate is selected based on data specific to FHN's plans and employee population. For 2003, the discount rate was determined by monitoring Moody's AA corporate rates as of the measurement date to establish an annual discount rate. These rates were not based on FHN's specific participant data but were intended to be reflective of the interest rate at which pension liabilities could be settled. The rates as reflected by Moody's AA corporate rates were rounded to the nearest .25 percent.

The actuarial assumptions used in the defined benefit pension plan and the other employee benefit plan were as follows:

	Pension Benefits									Postretirement Benefits
	2005			2004			2003			2005			2004			2003
Weighted average assumptions used to determine benefit   obligations as of September 30 measurement date
Discount rate		5.87	%		6.47	%		6.25	%		5.64	%		6.07	%		6.25	%
Rate of compensation increase		4.42			5.42			5.42			N/A			N/A			N/A
Weighted average assumptions used to determine net   periodic benefit cost for the fiscal year
Discount rate		6.47	%		6.25	%		6.75	%		6.00	%		6.25	%		6.75	%
Expected return on plan assets		8.70			8.75			8.75			8.70			8.75			8.75
Expected return on plan assets dedicated to employees who retired prior to January 1, 1993		N/A			N/A			N/A			5.70			5.75			5.75
Rate of compensation increase		5.42			5.42			4.54			N/A			N/A			N/A
Certain previously reported amounts have been reclassified to agree with current presentation.

The assumed health care cost trend rates used in the defined benefit pension plan and the other employee benefit plan were as follows:

	2005						2004
Assumed Health Care Cost Trend    Rates on December 31	Participants under age 65			Participants 65 years and older			Participants under age 65			Participants 65 years and older
Health care cost trend rate assumed for next year		10.0	%		12.0	%		9.0	%		11.0	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)		6.0			6.0			6.0			8.0
Year that the rate reaches the ultimate trend rate		2013			2017			2010			2010

The health care cost trend rate assumption has a significant effect on the amounts reported. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

(Dollars in thousands)	1% Increase		1% Decrease
Adjusted total service and interest cost components	$	2,435	$	2,174
Adjusted postretirement benefit obligation at end of plan year		22,239		19,024

First Horizon National Corporation 89

Note 20 q Savings, Pension and Other Employee Benefits (continued)

The components of net periodic benefit cost for the plan years 2005, 2004 and 2003 were as follows:

	Pension Benefits									Postretirement Benefits
(Dollars in thousands)	2005			2004			2003			2005			2004			2003
Components of net periodic benefit cost
Service cost	$	15,781		$	14,359		$	12,832		$	761		$	723		$	732
Interest cost		21,271			19,335			17,950			1,537			1,932			1,750
Expected return on plan assets		(33,835	)		(30,940	)		(26,645	)		(1,670	)		(1,626	)		(1,376	)
Amortization of prior service cost		827			684			736			(176	)		(176	)		(176	)
Recognized losses/(gain)		4,055			3,711			637			(171	)		-			-
Amortization of transition (asset)/obligation		-			-			(20	)		989			989			989
Net periodic cost	$	8,099		$	7,149		$	5,490		$	1,270		$	1,842		$	1,919
The following table sets forth the plans' funded status reconciled to the amounts shown in the Consolidated Statements of Condition:

	Pension Benefits						Postretirement Benefits
(Dollars in thousands)	2005			2004			2005			2004
Change in benefit obligation
Benefit obligation at beginning of plan year	$	333,408		$	312,357		$	29,668		$	31,869
Service cost		15,781			14,359			761			723
Interest cost		21,271			19,335			1,537			1,932
Amendments		1,857			-			-			-
Actuarial loss/(gain)		18,902			(1,174	)		(10,563	)		(3,257	)
Benefits paid		(11,449	)		(11,469	)		(850	)		(1,599	)
Benefit obligation at end of plan year	$	379,770		$	333,408		$	20,553		$	29,668
Change in plan assets
Fair value of plan assets at beginning of plan year	$	348,065		$	288,059		$	21,560		$	20,803
Actual return on plan assets		27,765			14,434			950			1,741
Employer contribution		37,558			57,041			-			615
Benefits paid		(11,449	)		(11,469	)		(850	)		(1,599	)
Fair value of plan assets at end of plan year	$	401,939		$	348,065		$	21,660		$	21,560
Net funded status on September 30	$	22,169		$	14,657		$	1,107		$	(8,108	)
Unrecognized net actuarial loss/(gain)		130,681			109,765			(10,597	)		(925	)
Unrecognized net transitional obligation		-			-			6,917			7,906
Unrecognized prior service cost/(benefit)		6,791			5,760			(1,420	)		(1,596	)
Prepaid benefit cost on September 30		159,641			130,182			(3,993	)		(2,723	)
Contributions paid from October 1 to December 31		124			145			-			-
Prepaid benefit cost on December 31	$	159,765		$	130,327		$	(3,993	)	$	(2,723	)
Amounts recognized in the Consolidated Statements of Condition consist of the following:
Prepaid benefit cost	$	159,765		$	130,327
Accrued benefit liability		(6,733	)		(5,393	)
Intangible asset		2,461			906
Accumulated other comprehensive income		4,272			4,487
Net amount recognized	$	159,765		$	130,327

90 First Horizon National Corporation

Note 20 q Savings, Pension and Other Employee Benefits (continued)

The accumulated benefit obligation for the pension plan was $343.7 million and $284.7 million on September 30, 2005 and 2004, respectively. FHN expects to contribute the maximum tax deductible contribution to the pension plan, which is estimated to be approximately $20 million and expects to make no contribution to the other employee benefit plan in 2006. On September 30, 2005, the qualified pension plan had $168.9 million in prepaid benefit cost, while the supplemental executive retirement plan had $(9.3) million in benefit cost. The accrued benefit liability, intangible asset and accumulated other comprehensive income is attributable to the unfunded supplemental executive retirement plan.

The following table provides detail on expected benefit payments, which reflect expected future service, as appropriate, and projected Medicare reimbursements:

(Dollars in thousands)	Pension Benefits		Postretirement Benefits		Medicare Reimbursements
2006	$	11,206	$	1,629	$	420
2007		13,020		1,730		477
2008		14,538		1,813		543
2009		16,128		1,884		610
2010		17,778		1,952		672
Years 2011 – 2015		118,805		10,297		2,474

The following provides the amount included within other comprehensive income for the period arising from a change in the minimum pension liability:

	Pension Benefits
(Dollars in thousands)	2005			2004
(Decrease)/increase in minimum pension liability included in other comprehensive income	$	(215	)	$	505

The following table sets forth FHN's pension plan asset allocation on September 30, 2005 and 2004:

						Percentage of Plan Assets on September 30
	Targeted Range					2005					2004
Equity securities		70	%				69.7	%				68.1	%
Large capital equity				35	%				31.7	%				39.0	%
Small capital equity				20					21.0					19.2
International equity				15					17.0					9.9
Other		30					30.3					31.9
Fixed income									29.3					31.3
Money market									1.0					.6
Total									100.0	%				100.0	%

First Horizon National Corporation 91

Note 20 q Savings, Pension and Other Employee Benefits (continued)

The primary investment objective is to ensure, over the long-term life of the pension plan, an adequate pool of sufficiently liquid assets to support the benefit obligations to participants, retirees and beneficiaries. In meeting this objective, the pension plan seeks to achieve a high level of investment return consistent with a prudent level of portfolio risk. Investment objectives are long-term in nature covering typical market cycles of three to five years. Any shortfall of investment performance compared to investment objectives should be explainable in terms of general economic and capital market conditions. In addition, the investment objective will be implemented through traditional long-term stock and bond strategies. It is not contemplated at this time that any derivative instruments will be used to achieve investment objectives.

During 2005 FHN reviewed its pension portfolio investment strategy and decided to maintain its equity exposure at 70 percent of total plan assets in 2006. The expected return on plan assets assumption for 2006 will be 8.65 percent.

Risk Management Practices: The asset allocation policy and the associated risk budget has been developed based on an evaluation of the organization's ability and willingness to assume investment risk in light of the Retirement Investment Committee's financial and benefits-related goals and objectives.

Frequency of Rebalancing: The Retirement Investment Committee will rebalance the portfolio assets as necessary to maintain liquidity for benefit payments and/or stay within the established target asset allocation ranges. At a minimum rebalancing will take place on an annual basis.

The following table sets forth FHN's other benefit plan asset allocation on September 30, 2005 and 2004:

	Percentage of Plan Assets on September 30
	2005					2004
Equity securities		56.6	%				55.5	%
Large capital equity				44.1	%				44.3	%
Small capital equity				12.5					11.2
Other		43.4					44.5
Fixed income				42.1					43.5
Cash equivalents and money market				1.3					1.0
Total				100.0	%				100.0	%

The primary investment objective is to ensure, over the long-term life of the retiree medical obligation, an adequate pool of sufficiently liquid assets to partially support the obligations to retirees and beneficiaries. The allocation utilizing a tactical blend of individual securities and registered funds across the broad asset classes is designed to capture a reasonable balance of risk and return based on historical averages and parameters of Trust policy. In meeting this objective, the retiree medical plan seeks to achieve a high level of investment return consistent with a prudent level of portfolio risk. Investment objectives are long-term in nature (longer than 10 years). It is not contemplated at this time that any derivative instruments will be used to achieve investment objectives.

Tactical allocation within the broad strategic objective of 55/45 equity to fixed blend is contemplated periodically with an attention to the likelihood of improving the return potential coupled with a reduction of the risk level.

92 First Horizon National Corporation

Note 20 q Savings, Pension and Other Employee Benefits (continued)

The following table sets forth the amounts of FHN common stock and amounts and types of mutual funds managed by FTBNA that are included in plan assets:

	Pension Benefits				Postretirement Benefits
(Dollars in thousands)	2005		2004		2005		2004
First Funds Capital Appreciation Portfolio Class I	$	84,405	$	66,781	$	2,728	$	2,423
First Funds Core Equity Portfolio Class I		103,165		106,722		7,204		7,106
First Funds Intermediate Bond Portfolio Class I		117,540		108,624		6,929		7,049
First Funds U.S. Government Money Market Portfolio		3,959		-		-		-
First Horizon National Corporation Common Stock*		24,002		28,631		-		-

* The number of shares of FHN common stock held by the pension plan was 660,300 on September 30, 2005 and September 30, 2004.

FHN plans to merge its First Funds family of funds with mutual funds managed by Goldman Sachs Asset Management. The merger is expected to be completed in the first quarter of 2006 pending fund shareholder and regulatory approvals.

FHN provides benefits to former and inactive employees after employment but before retirement. The obligation recognized was $2.3 million in 2005, $2.0 million in 2004 and $3.6 million in 2003.

Medical and group life insurance expenses incurred for active employees are shown in the following table:

(Dollars in thousands)	2005		2004		2003
Medical plan expense based on claims incurred	$	35,068	$	27,312	$	23,919
Participants		9,591		9,130		8,576
Group life insurance expense based on benefits incurred	$	2,476	$	2,992	$	2,171
Participants		13,466		12,709		11,653

First Horizon National Corporation 93

Note 21 q Stock Option, Restricted Stock Incentive, and Dividend Reinvestment Plans

Stock option plans. FHN issues non-qualified stock options under various plans to employees, non-employee directors, and bank advisory board members. The plans provide for the issuance of FHN common stock at a price equal to its fair market value at the date of grant. However, if the grantee agreed to receive the options in lieu of compensation, the exercise price was less than the fair market value. The foregone compensation plus the exercise price equaled the fair market value of the stock on the date of grant. This deferral program was discontinued in 2005, and any options issued below market on the date of grant during 2005 were related to 2004 salary deferrals for employees and 2004 board compensation for directors. All options vest within 3 to 5 years and expire 7 years or 10 years from the date of grant, except for those options that were previously part of compensation deferral, which vest immediately or after 6 months and expire 20 years from the date of grant. After January 2, 2004, stock options granted that are part of the compensation deferral vest immediately or after 6 months and expire 10 years from the date of grant. There were 1,344,980 shares available for option plan grants on December 31, 2005.

As a result of plan amendments adopted by the board of directors during 1997, employees have deferred the receipt of shares upon the exercise of stock options. Effective in 2005, no new deferral agreements are being executed. The summary of stock option activity is shown below:

	Options Outstanding			Weighted Average Exercise Price
January 1, 2003		22,298,743		$	27.26
Options granted		3,931,673			36.80
Options exercised*		(4,688,153	)		24.49
Options canceled		(419,602	)		34.56
December 31, 2003		21,122,661			29.51
Options exercisable		15,290,028			27.08
January 1, 2004		21,122,661		$	29.51
Options granted		2,961,967			42.67
Options exercised*		(2,829,981	)		25.24
Options canceled		(822,413	)		37.85
December 31, 2004		20,432,234			31.68
Options exercisable		13,690,108			27.82
January 1, 2005		20,432,234		$	31.68
Options granted		2,401,011			39.76
Options exercised*		(1,678,262	)		24.85
Options canceled		(865,528	)		39.95
December 31, 2005		20,289,455			32.87
Options exercisable		13,187,630			28.63

* Stock options exercised for 2005, 2004 and 2003 respectively, included 14,346, 83,998 and 178,747 options converted to stock equivalents as part of the deferred compensation program.

94 First Horizon National Corporation

Note 21 q Stock Option, Restricted Stock Incentive, and Dividend Reinvestment Plans
(continued)

The following table summarizes information about stock options outstanding on December 31, 2005:

Exercise Price Range	Options Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price- Options Outstanding		Options Exercisable		Weighted Average Exercise Price- Options Exercisable
$  4.00 – $20.00		2,688,402		8.24	$	16.30		2,688,402	$	16.30
$20.01 – $30.00		3,805,052		10.89		25.07		3,790,309		25.08
$30.01 – $40.00		8,040,606		5.88		35.01		5,136,465		33.56
$40.01 – $50.00		5,755,395		6.28		42.79		1,572,454		42.18

As FHN accounts for these stock option plans pursuant to APB Opinion No. 25, additional compensation cost would have been recognized in income under SFAS No. 123 for all stock-based compensation awards. Total additional compensation cost would have been $13.3 million for 2005, $13.9 million for 2004 and $32.9 million for 2003. See Note 1–Summary of Significant Accounting Policies for pro forma information.

FHN used the Black-Scholes Option Pricing Model to estimate the fair value of stock options granted in 2005, 2004 and 2003, with the following assumptions:

	2005	2004	2003
Expected dividend yield	4.26%	3.51%	3.00%
Expected option lives of options issued at market	5.11 years	4.93 years	5.42 years
Expected option lives of options issued below market*	5.34 years	4.54 years	4.68 years
Expected volatility	22.84%	26.57%	30.63%
Risk-free interest rates	3.89%	3.04%	4.24%

* Options are issued with an exercise price less than the fair market value on the date of grant if the grantee has agreed to receive the options in lieu of compensation. The foregone compensation plus the exercise price equals the fair market value on the date of grant.

	Number Issued		Weighted Average Fair Value per Option at Grant Date
2005:
Options issued at market on the date of grant		2,325,709	$	6.42
Options issued below market on the date of grant*		75,302		21.73
2004:
Options issued at market on the date of grant		2,608,368	$	8.61
Options issued below market on the date of grant*		353,599		22.42
2003:
Options issued at market on the date of grant		3,258,924	$	8.52
Options issued below market on the date of grant*		672,749		20.19

* Options are issued with an exercise price less than the fair market value on the date of grant if the grantee has agreed to receive the options in lieu of compensation. The foregone compensation plus the exercise price equals the fair market value on the date of grant.

Restricted stock incentive plans. FHN has authorized the issuance of its common stock for awards to executive employees who have a significant impact on the profitability of FHN under a performance accelerated restricted stock program. Additionally, one of the plans allows stock awards to be granted to non-employee directors upon approval by the board of directors. It has been the recent practice of

First Horizon National Corporation 95

Note 21 q Stock Option, Restricted Stock Incentive, and Dividend Reinvestment Plans
(continued)

the board to grant 8,000 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. In 2005, FHN granted 253,539 restricted shares under these programs. FHN granted 129,871 restricted stock awards to management employees which typically vest over 3 and 4 years. In addition, 533,837 performance stock units were granted to executive employees in 2005. The performance stock units will vest in 2008 only if predetermined performance measures are met. In 2004, 22,844 restricted shares were granted and 200,444 shares were granted in 2003. Compensation expense related to these plans was $9.1 million, $1.8 million and $5.1 million for the years 2005, 2004 and 2003, respectively.

The board of directors approved amendments to the restricted stock plan during 1998 permitting deferral by participants of the receipt of restricted stock prior to the lapse of restrictions. Due to deferred compensation legislation passed in 2004, participants are no longer allowed to make voluntary deferral elections under the stock programs.

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

96 First Horizon National Corporation

Note 22 q Business Segment Information

FHN has four business segments, Retail/Commercial Banking, Mortgage Banking, Capital Markets and Corporate. The Retail/Commercial Banking segment offers financial products and services, including traditional lending and deposit taking, to retail and commercial customers. Additionally, Retail/Commercial Banking provides investments, insurance, financial planning, trust services and asset management, credit card, cash management, merchant services, check clearing, and correspondent services. The Mortgage Banking segment consists of core mortgage banking elements including originations and servicing and the associated ancillary revenues related to these businesses. The Capital Markets segment consists of traditional capital markets securities activities, equity research and investment banking. The Corporate segment consists of unallocated corporate expenses, expense on subordinated debt issuances and preferred stock, bank-owned life insurance, unallocated interest income associated with excess equity, net impact of raising incremental capital, funds management and venture capital. In 2005, FHN adapted its segments to reflect changes in expense allocations between segments and the reclassification of certain trust preferred assets and related net interest income to the Capital Markets segment from Retail/Commercial Banking. Previously reported amounts have been reclassified to agree with current presentation.

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 amounts of consolidated revenue, expense, tax, and assets for each segment for the three years ended December 31:

(Dollars in thousands)		2005			2004		2003
Consolidated	Net interest income	$	984,027		$	856,311	$	805,784
	Provision for loan losses		67,678			48,348		86,698
	Noninterest income		1,399,756			1,363,186		1,667,584
	Noninterest expense		1,670,932			1,504,340		1,667,672
	Pre-tax income		645,173			666,809		718,998
	Provision for income taxes		204,075			212,401		245,689
	Income before cumulative effect of changes in      accounting principle		441,098			454,408		473,309
	Cumulative effect of changes in accounting principle,   net of tax		(3,098	)		-		-
	Net income	$	438,000		$	454,408	$	473,309
	Average assets	$	36,560,436		$	27,305,833	$	25,133,612
	Depreciation, amortization and MSR impairment	$	386,194		$	324,585	$	425,231
	Expenditures for long-lived assets		95,661			78,763		149,600
Retail/Commercial	Net interest income	$	859,087		$	694,096	$	594,398
Banking	Provision for loan losses		67,061			48,401		85,130
	Noninterest income		510,132			483,255		442,889
	Noninterest expense		827,077			736,388		717,826
	Pre-tax income		475,081			392,562		234,331
	Provision for income taxes		146,621			115,899		70,598
	Income before cumulative effect of changes in      accounting principle		328,460			276,663		163,733
	Cumulative effect of changes in accounting principle,   net of tax		(3,098	)		-		-
	Net income	$	325,362		$	276,663	$	163,733
	Average assets	$	21,525,744		$	17,334,142	$	14,057,342
	Depreciation, amortization and MSR impairment	$	106,751		$	93,527	$	82,206
	Expenditures for long-lived assets		68,290			45,660		59,290
Certain previously reported amounts have been reclassified to agree with current presentation.

First Horizon National Corporation 97

Note 22 q Business Segment Information (continued)

(Dollars in thousands)		2005			2004			2003
Mortgage	Net interest income	$	146,743		$	153,368		$	190,604
Banking	Provision for loan losses		617			(53	)		1,568
	Noninterest income		511,471			464,975			664,248
	Noninterest expense		465,992			423,238			457,552
	Pre-tax income		191,605			195,158			395,732
	Provision for income taxes		67,031			71,199			146,808
	Net income	$	124,574		$	123,959		$	248,924
	Average assets	$	6,318,409		$	5,295,512		$	6,441,890
	Depreciation, amortization and MSR impairment	$	251,099		$	220,055		$	317,946
	Expenditures for long-lived assets		22,347			25,148			79,120
Capital Markets	Net interest (expense)/ income	$	(28,400	)	$	5,452		$	8,062
	Noninterest income		367,704			383,690			545,787
	Noninterest expense		315,546			300,918			396,802
	Pre-tax income		23,758			88,224			157,047
	Provision for income taxes		8,023			32,817			58,722
	Net income	$	15,735		$	55,407		$	98,325
	Average assets	$	5,390,481		$	1,839,760		$	2,062,288
	Depreciation and amortization	$	12,973		$	8,120		$	4,444
	Expenditures for long-lived assets		2,662			3,922			7,562
Corporate	Net interest income	$	6,597		$	3,395		$	12,720
	Noninterest income		10,449			31,266			14,660
	Noninterest expense		62,317			43,796			95,492
	Pre-tax loss		(45,271	)		(9,135	)		(68,112	)
	Income tax benefit		(17,600	)		(7,514	)		(30,439	)
	Net loss	$	(27,671	)	$	(1,621	)	$	(37,673	)
	Average assets	$	3,325,802		$	2,836,419		$	2,572,092
	Depreciation and amortization	$	15,371		$	2,883		$	20,635
	Expenditures for long-lived assets		2,362			4,033			3,628
Certain previously reported amounts have been reclassified to agree with current presentation.

98 First Horizon National Corporation

Note 23 q Fair Value of Financial Instruments

Accounting standards require the disclosure of estimated fair values of all asset, liability and off-balance sheet financial instruments. The following fair value estimates are determined as of a specific point in time utilizing various assumptions and estimates. The use of assumptions and various valuation techniques, as well as the absence of secondary markets for certain financial instruments, will likely reduce the comparability of fair value disclosures between financial institutions. In some cases, book value is a reasonable estimate of fair value due to the relatively short period of time between origination of the instrument and its expected realization. The following table summarizes the book value and estimated fair value of financial instruments recorded in the Consolidated Statements of Condition as well as off-balance sheet commitments as of December 31, 2005 and 2004:

	December 31, 2005						December 31, 2004
(Dollars in thousands)	Book Value			Fair Value			Book Value			Fair Value
Assets:
Loans, net of unearned income:
Floating	$	14,541,499		$	14,540,403		$	11,821,969		$	11,821,652
Fixed		6,018,665			5,924,676			4,564,602			4,556,283
Nonaccrual		40,771			40,771			41,102			41,102
Allowance for loan losses		(189,705	)		(189,705	)		(158,159	)		(158,159	)
Total net loans		20,411,230			20,316,145			16,269,514			16,260,878
Liquid assets		3,629,314			3,629,314			1,675,654			1,675,654
Loans held for sale		4,435,343			4,450,081			5,167,981			5,194,866
Securities available for sale		2,912,103			2,912,103			2,680,556			2,680,556
Securities held to maturity		383			390			441			457
Derivative assets		49,259			49,259			134,451			134,451
Nonearning assets		1,608,700			1,608,700			1,007,215			1,007,215
Liabilities:
Deposits:
Defined maturity	$	13,410,641		$	13,405,293		$	10,277,438		$	10,311,409
Undefined maturity		10,027,129			10,027,129			9,504,729			9,504,729
Total deposits		23,437,770			23,432,422			19,782,167			19,816,138
Short-term borrowings		5,331,397			5,331,397			3,813,167			3,813,167
Term borrowings		3,437,643			3,465,705			2,616,368			2,647,367
Derivative liabilities		88,305			88,305			31,268			31,268
Other noninterest-bearing liabilities		696,558			696,558			444,924			444,924
Preferred stock of subsidiary		295,274			303,281			458			515
	Contractual Amount			Fair Value			Contractual Amount			Fair Value
Off-Balance Sheet Commitments:
Loan commitments	$	16,932,527			$9,735		$	13,622,394			$11,010
Other commitments		771,604			8,439			703,214			8,962

The following describes the assumptions and methodologies used to estimate the fair value for financial instruments:

Floating rate loans. With the exception of floating rate 1-4 family residential mortgage loans, the fair value is approximated by the book value. Floating rate 1-4 family residential mortgage loans reprice annually and will lag movements in market rates; whereas, commercial and consumer loans typically reprice monthly. The fair value for floating rate 1-4 family mortgage loans is calculated by discounting future cash flows to their present value. Future cash flows are discounted to their present value by using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same time period. Prepayment assumptions based on historical prepayment speeds and

First Horizon National Corporation 99

Note 23 q Fair Value of Financial Instruments (continued)

industry speeds for similar loans have been applied to the floating rate 1-4 family residential mortgage portfolio.

Fixed rate loans. The fair value is estimated by discounting future cash flows to their present value. Future cash flows are discounted to their present value by using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same time period. Prepayment assumptions based on historical prepayment speeds and industry speeds for similar loans have been applied to the fixed rate mortgage and installment loan portfolios.

Nonaccrual loans. The fair value is approximated by the book value.

Allowance for loan losses. The fair value is approximated by the book value. Additionally, the credit exposure known to exist in the loan portfolio is embodied in the allowance for loan losses.

Liquid assets. The fair value is approximated by the book value. For the purpose of this disclosure, liquid assets consist of federal funds sold, securities purchased under agreements to resell, capital markets securities inventory, mortgage banking trading securities, and investment in bank time deposits.

Loans held for sale. Fair value of mortgage loans held for sale is based primarily on quoted market prices. Fair value of home equity lines of credit held for sale is based upon market values as evidenced in prior securitizations. Fair value of other loans held for sale is approximated by their carrying values.

Securities available for sale. Fair values are based primarily on quoted market prices.

Securities held to maturity. Fair values for marketable securities are based primarily on quoted market prices.

Derivative assets. Fair values are based primarily on quoted market prices.

Nonearning assets. The fair value is approximated by the book value. For the purpose of this disclosure, nonearning assets include cash and due from banks, accrued interest receivable and capital markets receivables.

Defined maturity deposits. The fair value is estimated by discounting future cash flows to their present value. Future cash flows are discounted by using the current market rates of similar instruments applicable to the remaining maturity. For the purpose of this disclosure, defined maturity deposits include all certificates of deposit and other time deposits.

Undefined maturity deposits. The fair value is approximated by the book value. For the purpose of this disclosure, undefined maturity deposits include demand deposits, checking interest accounts, savings accounts, and money market accounts.

Short-term borrowings. The fair value of federal funds purchased, securities sold under agreements to repurchase, commercial paper, trading liabilities, and other short-term borrowings is approximated by the book value.

Term borrowings. The fair value is approximated by the present value of the contractual cash flows discounted by the investor's yield which considers FHN's and FTBNA's debt ratings.

Derivative liabilities. Fair values are based primarily on quoted market prices.

100 First Horizon National Corporation

Note 23 q Fair Value of Financial Instruments (continued)

Other noninterest-bearing liabilities. For the purpose of this disclosure, other noninterest-bearing liabilities include accrued interest payable and capital markets payables. The fair value is approximated by the book value.

Preferred stock of subsidiary. The fair value is approximated by the current trade amount of similar instruments.

Loan Commitments. Fair values are based on fees charged to enter into similar agreements taking into account the remaining terms of the agreements and the counterparties' credit standing.

Other Commitments. Fair values are based on fees charged to enter into similar agreements.

Note 24 q Securitizations

During 2005 and 2004, FHN securitized $29.5 billion and $26.4 billion, respectively, of single-family residential loans in primarily proprietary and agency securitization transactions, and the resulting securities were sold as senior and subordinate certificates. In 2005 and 2004, FHN recognized net pre-tax gains of $321.9 million and $196.9 million, respectively, from the sale of securitized loans which includes gains recognized on the capitalization of MSR associated with these loans. In 2005 and 2004, FHN capitalized approximately $437.1 million and $319.2 million, respectively, in originated MSR. These MSR, as well as other MSR held by FHN, are discussed further in Note 6 – Mortgage Servicing Rights. In certain cases, FHN continues to service and receive servicing fees related to the securitized loans, and has also retained residual interest certificates or financial assets including excess interest (structured as interest-only strips), principal-only strips, interest-only strips, or subordinated bonds. FHN received annual servicing fees approximating .32 percent in 2005 and .31 percent in 2004 of the outstanding balance of underlying mortgage loans. FHN received annual servicing fees approximating .50 percent in 2005 and 2004 of the outstanding balance of underlying loans for HELOC securitizations. Additionally, FHN retained rights to future cash flows on the HELOC securitizations arising after investors in the securitization trust have received the return for which they contracted. The investors and the securitization trusts have no recourse to other assets of First Horizon Home Loans or FHN for failure of debtors to pay when due.

The sensitivity of the current fair value of all retained or purchased interests for MSR to immediate 10 percent and 20 percent adverse changes in assumptions on December 31, 2005, are as follows:

(Dollars in thousands   except for annual cost to service)	MSR 1st Liens			MSR 2nd Liens			MSR HELOC
December 31, 2005
Fair value of retained interests	$	1,314,597		$	5,470		$	14,384
Weighted average life (in years)		6.5			2.8			2.0
Annual prepayment rate		11.8	%		30.0	%		49.0	%
Impact on fair value of 10% adverse change	$	(48,523	)	$	(461	)	$	(971	)
Impact on fair value of 20% adverse change		(96,281	)		(681	)		(1,932	)
Annual discount rate on residual cash flows		10.1	%		14.0	%		18.0	%
Impact on fair value of 10% adverse change	$	(49,192	)	$	(238	)	$	(310	)
Impact on fair value of 20% adverse change		(97,395	)		(371	)		(604	)
Annual cost to service (per loan)	$	46		$	50		$	50
Impact on fair value of 10% adverse change		(9,970	)		(234	)		(221	)
Impact on fair value of 20% adverse change		(23,034	)		(349	)		(442	)
Annual earnings on escrow		4.1	%		2.9	%		4.4	%
Impact on fair value of 10% adverse change	$	(24,615	)	$	(211	)	$	(561	)
Impact on fair value of 20% adverse change		(52,324	)		(303	)		(1,121	)

First Horizon National Corporation 101

Note 24 q Securitizations (continued)

The sensitivity of the current fair value of retained interests for other residuals to immediate 10 percent and 20 percent adverse changes in assumptions on December 31, 2005, are as follows:

(Dollars in thousands   except for annual cost to service)	Excess Interest IO			Certificated PO			IO			Subordinated Bonds			Residual Interest Certificates 2nd Liens			Residual Interest Certificates HELOC
December 31, 2005
Fair value of retained interests	$	230,683		$	9,386		$	634		$	4,684		$	9,316		$	47,638
Weighted average life (in years)		7.4			4.2			1.0			6.5			2.5			2.0
Annual prepayment rate		8.5	%		18.0	%		65.3	%		30.0	%		30.0	%		44.0	%
Impact on fair value of 10% adverse change	$	(6,869	)	$	(2,359	)	$	120		$	(1	)	$	(288	)	$	(2,275	)
Impact on fair value of 20% adverse change		(14,464	)		(2,690	)		258			(1	)		(546	)		(4,358	)
Annual discount rate on residual cash flows		11.5	%		10.8	%		13.0	%		22.1	%		20.0	%		18.0	%
Impact on fair value of 10% adverse change	$	(8,587	)	$	(2,358	)	$	(10	)	$	(157	)	$	(408	)	$	(1,459	)
Impact on fair value of 20% adverse change		(17,617	)		(2,633	)		(11	)		(305	)		(786	)		(2,825	)

These sensitivities are hypothetical and should not be considered to be predictive of future performance. As the figures indicate, changes in fair value based on a 10 percent variation in assumptions generally cannot necessarily be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated independently from any change in another assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities. Furthermore, the estimated fair values as disclosed should not be considered indicative of future earnings on these assets.

FHN uses assumptions and estimates in determining the fair value allocated to retained interests at the time of initial securitization. The key economic assumptions used to measure the fair value of the MSR at the date of securitization were as follows:

	MSR 1st Liens		MSR 2nd Liens		MSR HELOC
2005
Weighted average life (in years)		5.4-6.6		N/A	N/A
Annual prepayment rate		11.5%-15.2%		N/A	N/A
Annual discount rate		10.06%-10.14%		N/A	N/A
Annual cost to service (per loan)		$45-$46		N/A	N/A
Annual earnings on escrow		3.21%-4.31%		N/A	N/A
2004
Weighted average life (in years)		5.0-6.5		2.9	1.7-2.0
Annual prepayment rate		11.3%-16.1%		30.0%	40%-45%
Annual discount rate		10.1%-10.2%		20.0%	18%-20%
Annual cost to service (per loan)		$44-$45		$50	$50
Annual earnings on escrow		2.73%-3.76%		2.0%	2.0%
N/A - not applicable

102 First Horizon National Corporation

Note 24 q Securitizations (continued)

The key economic assumptions used to measure the fair value of other retained interests at the date of securitization were as follows:

	Excess Interest IO		Certificated PO	IO	Subordinated Bond	Residual Interest Certificates 2nd Liens	Residual Interest Certificates HELOC
2005
Weighted average life (in years)		5.8-7.2	3.0-5.7	N/A	N/A	N/A	N/A
Annual prepayment rate		8.3%-11.8%	13.6%-23.3%	N/A	N/A	N/A	N/A
Annual discount rate		11.5%	5.6%-14.54%	N/A	N/A	N/A	N/A
2004
Weighted average life (in years)		5.1-6.8	1.8-9.4	3.3-6.2	7.6	2.9	1.7-2.0
Annual prepayment rate		9.3%-14.4%	7.6%-40.0%	25.0%	40.0%	30.0%	40%-45%
Annual discount rate		11.5%	5.11%-17.93%	13.0%	6.1%-8.8%	20.0%	18%-20%
N/A – not applicable

FTN Financial Capital Assets Corporation (FTNFCAC), an indirect wholly-owned subsidiary of FHN, enters into transactions where mortgage loans are purchased, pooled, securitized and sold. During 2005 and 2004, $701.0 million and $154.6 million of mortgage loans were sold for pre-tax gains of $8.4 million and $3.3 million, respectively, that were recognized in capital markets noninterest income. FTNFCAC does not retain servicing rights or any other form of retained interest on these securitizations.

FHN has also securitized certain real estate loans through a real estate mortgage investment conduit (REMIC) in prior years and retained all of the securitized assets. Fair value for these securities was based upon cash flows discounted at a market yield. Market yields were computed by adding Treasury yields at year-end plus an appropriate spread estimated by observing quotes on similarly structured marketable securities and changes in swap spreads.

For the years ended December 31, 2005, 2004 and 2003, cash flows received and paid related to securitizations were as follows:

(Dollars in thousands)		2005		2004		2003
Proceeds from initial securitizations	$	30,379,770	$	26,834,087	$	47,037,436
Servicing fees retained**		287,290		232,566		186,728
Purchases of GNMA guaranteed mortgages		212,145		315,646		554,483
Purchases of delinquent or foreclosed assets		9,260		13,213		33,581
Other cash flows received on retained interests*		76,425		57,637		181,512

*	Other cash flows include all cash flows from other retained interests and REMIC securities.
**	Includes servicing fees on originated, securitized and purchased MSR.

As of December 31, 2005, the principal amount of loans securitized and other loans managed with them, and the principal amount of delinquent loans, in addition to net credit losses during 2005 are as follows:

(Dollars in thousands)	Total Principal Amount of Loans			Principal Amount of Delinquent Loans*		Net Credit Losses
	On December 31, 2005					For the Year Ended December 31, 2005
Type of loan:
Real estate residential	$	79,776,689		$	487,503	$21,868
Total loans managed or securitized**		79,776,689		$	487,503	$21,868
Loans securitized and sold		(67,504,477	)
Loans held for sale or securitization		(3,915,069	)
Loans held in portfolio	$	8,357,143

*	Loans 90 days or more past due include $173.4 million of GNMA guaranteed mortgages.
**	Securitized loans are real estate residential loans in which FHN has a retained interest other than servicing rights.

First Horizon National Corporation 103

Note 25 q Derivatives and Off-Balance Sheet Arrangements

In the normal course of business, FHN utilizes various financial instruments, through its mortgage banking, capital markets and risk management operations, which include derivative contracts and credit-related arrangements, as part of its risk management strategy and as a means to meet customers' needs. These instruments are subject to credit and market risks in excess of the amount recorded on the balance sheet in accordance with generally accepted accounting principles. The contractual or notional amounts of these financial instruments do not necessarily represent credit or market risk. However, they can be used to measure the extent of involvement in various types of financial instruments. Controls and monitoring procedures for these instruments have been established and are routinely reevaluated. The Asset/Liability Committee (ALCO) monitors the usage and effectiveness of these financial instruments. ALCO, in conjunction with credit officers, also periodically reviews counterparty creditworthiness.

Credit risk represents the potential loss that may occur because a party to a transaction fails to perform according to the terms of the contract. The measure of credit exposure is the replacement cost of contracts with a positive fair value. FHN manages credit risk by entering into financial instrument transactions through national exchanges, primary dealers or approved counterparties, and using mutual margining agreements whenever possible to limit potential exposure. With exchange-traded contracts, the credit risk is limited to the clearinghouse used. For non-exchange traded instruments, credit risk may occur when there is a gain in the fair value of the financial instrument and the counterparty fails to perform according to the terms of the contract and/or when the collateral proves to be of insufficient value. Market risk represents the potential loss due to the decrease in the value of a financial instrument caused primarily by changes in interest rates, mortgage loan prepayment speeds or the prices of debt instruments. FHN manages market risk by establishing and monitoring limits on the types and degree of risk that may be undertaken. FHN continually measures this risk through the use of models that measure value-at-risk and earnings-at-risk.

Derivative Instruments. FHN enters into various derivative contracts both in a dealer capacity, to facilitate customer transactions, and also as a risk management tool. Where contracts have been created for customers, FHN enters into transactions with dealers to offset its risk exposure. Derivatives are also used as a risk management tool to hedge FHN's exposure to changes in interest rates or other defined market risks.

Derivative instruments are recorded on the Consolidated Statements of Condition as other assets or other liabilities measured at fair value. Fair value is defined as the amount FHN would receive or pay in the market to replace the derivatives as of the valuation date. Fair value is determined using available market information and appropriate valuation methodologies. Changes in the instrument's fair value are recognized currently in earnings or other comprehensive income. If certain criteria are met and hedge accounting under SFAS No. 133 is achieved, changes in the fair value of the asset or liability being hedged are also recognized currently in earnings. Cash flows from derivative contracts are reported as operating activities on the Consolidated Statements of Cash Flows.

Interest rate forward contracts are over-the-counter contracts where two parties agree to purchase and sell a specific quantity of a financial instrument at a specified price, with delivery or settlement at a specified date. Futures contracts are exchange-traded contracts where two parties agree to purchase and sell a specific quantity of a financial instrument at a specific price, with delivery or settlement at a specified date. Interest rate option contracts give the purchaser the right, but not the obligation, to buy or sell a specified quantity of a financial instrument, at a specified price, during a specified period of time. Caps and floors are options that are linked to a notional principal amount and an underlying indexed interest rate. Interest rate swaps involve the exchange of interest payments at specified intervals between two parties without the exchange of any underlying principal.

104 First Horizon National Corporation

Note 25 q Derivatives and Off-Balance Sheet Arrangements (continued)

Mortgage Banking

Mortgage banking interest rate lock commitments are short-term commitments to fund mortgage loan applications in process (the pipeline) for a fixed term at a fixed price. During the term of an interest rate lock commitment, First Horizon Home Loans has the risk that interest rates will change from the rate quoted to the borrower. First Horizon Home Loans enters into forward sales contracts with respect to fixed rate loan commitments and futures contracts with respect to adjustable rate loan commitments as economic hedges designed to protect the value of the interest rate lock commitments from changes in value due to changes in interest rates. Under SFAS No. 133 interest rate lock commitments qualify as derivative financial instruments and as such do not qualify for hedge accounting treatment. As a result, the interest rate lock commitments are recorded at fair value with changes in fair value recorded in current earnings as gain or loss on the sale of loans in mortgage banking noninterest income. See Note 1–Summary of Significant Accounting Policies–for impact of SAB No. 105 on the valuation of interest rate lock commitments. Changes in the fair value of the derivatives that serve as economic hedges of interest rate lock commitments are also included in current earnings as a component of gain or loss on the sale of loans in mortgage banking noninterest income.

First Horizon Home Loans' warehouse (mortgage loans held for sale) is subject to changes in fair value, primarily due to fluctuations in interest rates from the loan closing date through the date of sale of the loan into the secondary market. Typically, the fair value of the warehouse declines in value when interest rates increase and rises in value when interest rates decrease. To mitigate this risk, First Horizon Home Loans enters into forward sales contracts and futures contracts to provide an economic hedge against those changes in fair value on a significant portion of the warehouse. These derivatives are recorded at fair value with changes in fair value recorded in current earnings as a component of the gain or loss on the sale of loans in mortgage banking noninterest income.

To the extent that these interest rate derivatives are designated to hedge specific similar assets in the warehouse and prospective analyses indicate that high correlation is expected, the hedged loans are considered for hedge accounting under SFAS No. 133. Anticipated correlation is determined based on historical regressions between the change in fair value of the derivatives and the change in fair value of hedged mortgage loans. Beginning in fourth quarter 2005, anticipated correlation is determined by projecting a dollar offset relationship for each tranche based on anticipated changes in the fair value of the hedged mortgage loans and the related derivatives, in response to various interest rate shock scenarios. Hedges are reset daily and the statistical correlation is calculated using these daily data points. Retrospective hedge effectiveness is measured using the regression correlation results. First Horizon Home Loans generally maintains a coverage ratio (the ratio of expected change in the fair value of derivatives to expected change in the fair value of hedged assets) of approximately 100 percent on warehouse loans accounted for under SFAS No. 133. Effective SFAS No. 133 hedging results in adjustments to the recorded value of the hedged loans. These basis adjustments, as well as the change in fair value of derivatives attributable to effective hedging, are included as a component of the gain or loss on the sale of loans in mortgage banking noninterest income.

Warehouse loans qualifying for SFAS No. 133 hedge accounting treatment totaled $1.4 billion and $.6 billion on December 31, 2005 and 2004, respectively. The balance sheet impacts of the related derivatives were net liabilities of $.5 million and $2.3 million on December 31, 2005 and 2004, respectively.

First Horizon Home Loans also enters into interest rate contracts (including swaps, swaptions, and mortgage forward sales) to hedge against the effects of changes in fair value of its MSR due solely to changes in the benchmark rate (10-year LIBOR swap rate). All capitalized MSR are hedged for economic purposes with the vast majority of MSR routinely qualifying for hedge accounting. For purposes of measuring effectiveness of the hedge, time decay and recognized net interest income, including changes in value attributable to changes in spot and forward prices, if applicable, are excluded from the change in value of the related derivatives. Interest rate derivative contracts used to

First Horizon National Corporation 105

Note 25 q Derivatives and Off-Balance Sheet Arrangements (continued)

hedge against interest rate risk in the servicing portfolio are designated to specific risk tranches of servicing. First Horizon Home Loans enters into hedges of the MSR to minimize the effects of loss in value of MSR associated with increased prepayment activity that generally results from declining interest rates. In a rising interest rate environment, the value of the MSR generally will increase while the value of the hedge instruments will decline. Hedges are reset at least monthly and more frequently, as needed, to respond to changes in interest rates or hedge composition. Generally, a coverage ratio approximating 100 percent is maintained on hedged MSR. Prior to acquiring a new hedge instrument, First Horizon Home Loans performs a prospective evaluation of anticipated hedge effectiveness by reviewing the historical regression between the underlying index of the proposed hedge instrument and the mortgage rate. At the end of each hedge period, the change in the fair value of the hedged MSR asset due to the change in benchmark interest rate is calculated and becomes a historical data point. Retrospective hedge effectiveness is determined by performing a regression analysis of all collected data points over a rolling 12-month period. Effective hedging under SFAS No. 133 results in adjustments to the recorded value of the MSR. These basis adjustments, as well as the change in fair value of derivatives attributable to effective hedging, are included as a component of servicing income in mortgage banking noninterest income. MSR subject to SFAS No. 133 hedges totaled $1.3 billion and $1.0 billion on December 31, 2005 and 2004, respectively. The balance sheet impacts of the related derivatives were a net liability of $21.2 million on December 31, 2005, and a net asset of $79.0 million on December 31, 2004.

The following table summarizes certain information related to mortgage banking hedging activities for the years ended December 31:

(Dollars in thousands)	2005			2004			2003
Warehouse loans
Fair value hedge ineffectiveness net (losses)/gains	$	(1,168	)	$	(16,571	)	$	29,909
Mortgage servicing rights
Fair value hedge ineffectiveness net (losses)/gains		(1,891	)		1,373			19,715
Net gains excluded from assessment of effectiveness*		13,884			46,546			95,420
* Represents the derivative gain from net interest income on swaps, net of time decay.

First Horizon Home Loans uses different MSR stratification for purposes of determining hedge effectiveness pursuant to SFAS No. 133 and impairment testing pursuant to SFAS No. 140. The hedge results under SFAS No. 133 are allocated at a loan level and the loans are then aggregated into the SFAS No. 140 strata. This adjusted MSR basis is subsequently compared to the full fair value of the MSR to test for asset impairment. MSR basis is reduced to the extent that adjusted basis exceeds fair value. This reduction in basis as a result of impairment is a component of servicing income in mortgage banking noninterest income.

First Horizon Home Loans utilizes derivatives (including swaps, swaptions, and mortgage forward sales contracts) that change in value inversely to the movement of interest rates to protect the value of its interest-only securities as an economic hedge. Changes in the fair value of these derivatives are recognized currently in earnings in mortgage banking noninterest income as a component of servicing income. Interest-only securities are included in trading securities with changes in fair value recognized currently in earnings in mortgage banking noninterest income as a component of servicing income.

Capital Markets

Capital Markets trades U.S. Treasury, U.S. Agency, mortgage-backed, corporate and municipal fixed income securities and other securities for distribution to customers. When these securities settle on a delayed basis, they are considered forward contracts. Capital Markets also enters into interest rate contracts, including options, caps, swaps, futures and floors for its customers. In addition, Capital Markets enters into futures contracts to economically hedge interest rate risk associated with its

106 First Horizon National Corporation

Note 25 q Derivatives and Off-Balance Sheet Arrangements (continued)

securities inventory. These transactions are measured at fair value, with changes in fair value recognized currently in capital markets noninterest income. Related assets are recorded on the balance sheet as other assets and any liabilities are recognized as other liabilities. Credit risk related to these transactions is controlled through credit approvals, risk control limits and ongoing monitoring procedures through ALCO.

In fourth quarter 2005, Capital Markets utilized a forward contract as a cash flow hedge of the risk of change in the fair value of a forecasted sale of certain loans. It is expected that $77 thousand of net losses recorded in other comprehensive income on December 31, 2005, will be recognized in earnings in first quarter 2006. The amount of SFAS No. 133 hedge ineffectiveness related to this cash flow hedge was immaterial.

Interest Rate Risk Management

FHN's ALCO focuses on managing market risk by controlling and limiting earnings volatility attributable to changes in interest rates. Interest rate risk exists to the extent that interest-earning assets and liabilities have different maturity or repricing characteristics. FHN uses derivatives, including swaps, caps, options, and collars, that are designed to moderate the impact on earnings as interest rates change. FHN's interest rate risk management policy is to use derivatives not to speculate but to hedge interest rate risk or market value of assets or liabilities.

FHN has entered into pay floating, receive fixed interest rate swaps to hedge the interest rate risk of certain large institutional certificates of deposit, totaling $61.2 million and $149.7 million on December 31, 2005 and 2004, respectively, and certain long-term debt obligations, totaling $1.2 billion on December 31, 2005 and 2004. These swaps have been accounted for as fair value hedges under the short cut method. The balance sheet impact of these swaps was $1.6 million in other assets and $28.3 million in other liabilities on December 31, 2005, and was $13.9 million in other assets and $11.2 million in other liabilities on December 31, 2004. Interest paid or received for these swaps is recognized as an adjustment of the interest expense of the liabilities whose risk is being managed. In addition, FHN has entered into certain interest rate swaps and caps as a part of our relationship with loan customers. These derivatives are not designated as hedging instruments and are entered into as part of a product offering to our commercial customers with customer derivatives paired with offsetting market instruments that, when completed, are designed to eliminate market risk. These contracts do not qualify for hedge accounting and are measured at fair value with gains or losses included in current earnings in noninterest income.

Off-Balance Sheet Arrangements

Credit-Related Commitments. FHN enters into fixed and variable loan commitments with customers. When these commitments have contract rate adjustments that lag changes in market rates, the financial instruments have characteristics similar to option contracts. FHN follows the same credit policies and underwriting practices in making commitments as it does for on-balance sheet instruments. Each counterparty's creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if any, is based on management's credit evaluation of the counterparty.

Commitments to extend credit are contractual obligations to lend to a customer as long as all established contractual conditions are met. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The majority of FHN's loan commitments has maturities less than one year and reflects the prevailing market rates at the time of the commitment. Since commitments may expire without being fully drawn upon, total contractual amounts do not necessarily represent future credit exposure or liquidity requirements.

Other commitments include standby and commercial letters of credit and other credit enhancements. Standby and commercial letters of credit and other credit enhancements are conditional commitments issued by FHN to guarantee the performance and/or payment of a customer to a third party in

First Horizon National Corporation 107

Note 25 q Derivatives and Off-Balance Sheet Arrangements (continued)

connection with specified transactions. The credit risk involved in issuing these commitments is essentially the same as that involved in extending loan facilities to customers, as performance under any of these facilities would result in a loan being funded to the customer.

FHN services loans for others, and, in some cases, provides guarantees or recourse on the serviced loans. See Note 18–Restrictions, Contingencies and Other Disclosures for additional information.

The following is a summary of each class of credit-related commitments outstanding on December 31:

(Dollars in millions)	2005		2004
Commitments to extend credit:
Consumer credit card lines	$	2,432.5	$	2,002.3
Consumer home equity		6,991.3		5,868.7
Commercial real estate and construction and land development		3,686.0		2,489.0
Commercial and other		3,822.8		3,262.3
Total loan commitments		16,932.6		13,622.3
Other commitments:
Standby letters of credit		724.6		618.8
Other		47.0		84.4
Total loan and other commitments	$	17,704.2	$	14,325.5

Variable Interest Entities. On December 31, 2003, FHN adopted FIN 46 which addressed consolidation of VIE, and on March 31, 2004, adopted FIN 46-R which clarified certain of the provisions of FIN 46. A VIE exists when equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities by itself. Under the provisions of FIN 46, FHN is deemed to be the primary beneficiary and required to consolidate the VIE if it has a variable interest that will absorb the majority of the VIE's expected losses, receive the majority of expected residual returns, or both. A variable interest is a contractual, ownership or other interest that changes with changes in the fair value of the VIE's net assets. Expected losses and expected residual returns are measures of variability in the expected cash flow of a VIE.

Upon adoption of FIN 46, FHN deconsolidated its subsidiary, First Tennessee Capital I (Capital I), which has issued $100.0 million of capital securities that are fully and unconditionally guaranteed by FHN. As a result of this deconsolidation the capital securities are not included on FHN's Statement of Condition. However, $103.0 million of junior subordinated debentures issued by FHN to Capital I is included in term borrowings (See Note 11–Guaranteed Preferred Beneficial Interests in First Horizon's Junior Subordinated Debentures). FHN did not consolidate or deconsolidate any other significant VIE in connection with the adoption of FIN 46, and accordingly, it did not have a material impact on FHN's financial position or results of operations. Upon adoption of FIN 46-R, FHN reassessed certain of its nonconsolidated interests as VIE but did not meet the criteria of primary beneficiary and, therefore, did not consolidate or deconsolidate any other significant VIE, and accordingly, it did not have a material impact on FHN's financial position or results of operations.

Since 1997, First Tennessee Housing Corporation (FTHC), a wholly-owned subsidiary, makes equity investments as a limited partner, in various partnerships that sponsor affordable housing projects utilizing the Low Income Housing Tax Credit (LIHTC) pursuant to Section 42 of the Internal Revenue Code. The purpose of these investments is to achieve a satisfactory return on capital and to support FHN's community reinvestment initiatives. The activities of the limited partnerships include the identification, development, and operation of multi-family housing that is leased to qualifying residential tenants generally within FHN's primary geographic region. On December 31, 2005 and 2004, FTHC's maximum exposure to loss resulting from LIHTC investments was $106.7 million and $112.9 million, respectively. This represents the investment value of $102.6 million and $106.3 million included in “Other assets” on the Consolidated Statements of Condition and unfunded commitments of $4.1 million and $6.6 million on December 31, 2005 and 2004, respectively.

108 First Horizon National Corporation

Note 26 q Parent Company Financial Information

Following are condensed statements of the parent company:

Statements of Condition	December 31
(Dollars in thousands)	2005		2004
Assets:
Cash	$	305	$	46
Securities purchased from subsidiary bank under agreements to resell		143,183		148,393
Total cash and cash equivalents		143,488		148,439
Investment in bank time deposits		16,477		30,777
Securities available for sale		29,197		32,976
Notes receivable		3,700		-
Investments in subsidiaries:
Bank		2,558,271		2,306,458
Non-bank		34,131		34,239
Other assets		272,958		249,683
Total assets	$	3,058,222	$	2,802,572
Liabilities and shareholders' equity:
Commercial paper and other short-term borrowings	$	10,695	$	23,712
Accrued employee benefits and other liabilities		307,424		278,834
Term borrowings		427,792		459,043
Total liabilities		745,911		761,589
Shareholders' equity		2,312,311		2,040,983
Total liabilities and shareholders' equity	$	3,058,222	$	2,802,572

Statements of Income	Year Ended December 31
(Dollars in thousands)	2005			2004			2003
Dividend income:
Bank	$	220,065		$	110,109		$	272,987
Non-bank		5,484			9,059			8,545
Total dividend income		225,549			119,168			281,532
Interest income		4,096			3,816			3,848
Other income		164			4,801			686
Total income		229,809			127,785			286,066
Interest expense:
Short-term debt		487			252			314
Term borrowings		21,243			13,581			15,352
Total interest expense		21,730			13,833			15,666
Compensation, employee benefits and other expense		40,642			28,944			59,863
Total expense		62,372			42,777			75,529
Income before income taxes and equity in undistributed net income of subsidiaries		167,437			85,008			210,537
Income tax benefit		(33,172	)		(20,899	)		(34,125	)
Income before equity in undistributed net income of subsidiaries		200,609			105,907			244,662
Equity in undistributed net income/(loss) of subsidiaries:
Bank		236,525			349,999			229,404
Non-bank		866			(1,498	)		(757	)
Net income	$	438,000		$	454,408		$	473,309

First Horizon National Corporation 109

Note 26 q Parent Company Financial Information (continued)

Statements of Cash Flows	Year Ended December 31
(Dollars in thousands)	2005			2004			2003
Operating activities:
Net income	$	438,000		$	454,408		$	473,309
Less undistributed net income of subsidiaries		237,391			348,501			228,647
Income before undistributed net income of subsidiaries		200,609			105,907			244,662
Adjustments to reconcile income to net cash provided by operating activities:
Deferred income tax provision/(benefit)		2,572			(10,657	)		(319	)
Depreciation and amortization		10,886			5,122			9,182
Loss on debt purchase		-			-			5,766
Loss/(gain) on sale of securities		641			(2,408	)		(284	)
Net increase in interest receivable and other assets		(28,890	)		(63,809	)		(116,934	)
Net increase in interest payable and other liabilities		19,523			69,293			108,740
Total adjustments		4,732			(2,459	)		6,151
Net cash provided by operating activities		205,341			103,448			250,813
Investing activities:
Securities:
Sales and prepayments		62			20,926			356
Purchases		(175	)		(190	)		(362	)
Decrease/(increase) in investment in bank time deposits		14,300			123,190			(56,000	)
Proceeds from sale of a subsidiary		-			-			49,833
Return on investment in subsidiary		1,290			5,005			1,614
Cash investments in subsidiaries		(16,632	)		(10,000	)		(1,930	)
Net cash (used)/provided by investing activities		(1,155	)		138,931			(6,489	)
Financing activities:
Common stock:
Exercise of stock options		41,289			67,935			77,591
Cash dividends		(214,024	)		(198,495	)		(150,863	)
Repurchase of shares		(488	)		(184,224	)		(209,263	)
Term borrowings:
Payment		(22,897	)		(9,500	)		(57,739	)
Issuance		-			204,186			99,350
(Decrease)/increase in short-term borrowings		(13,017	)		(8,081	)		4,098
Net cash used by financing activities		(209,137	)		(128,179	)		(236,826	)
Net (decrease)/increase in cash and cash equivalents		(4,951	)		114,200			7,498
Cash and cash equivalents at beginning of year		148,439			34,239			26,741
Cash and cash equivalents at end of year	$	143,488		$	148,439		$	34,239
Total interest paid	$	20,977		$	11,132		$	15,326
Total income taxes paid		171,930			159,700			133,950

110 First Horizon National Corporation

CONSOLIDATED HISTORICAL STATEMENTS OF INCOME (Unaudited)

																		Growth Rates (%)
(Dollars in millions except per share data)	2005			2004		2003			2002			2001			2000			05/04			05/00*
Interest income:
Interest and fees on loans	$	1,133.5		$	774.7	$	657.6		$	666.0		$	811.7		$	915.0			46.3	+		4.4	+
Investment securities		124.5			104.2		111.2			143.0			168.2			198.8			19.5	+		8.9	-
Loans held for sale		377.9			226.8		229.1			184.0			165.9			197.3			66.6	+		13.9	+
Trading securities inventory		138.5			53.4		50.5			43.7			48.6			34.4			159.4	+		32.1	+
Other earning assets		65.8			7.7		5.0			5.5			7.1			20.1			754.5	+		26.8	+
Total interest income		1,840.2			1,166.8		1,053.4			1,042.2			1,201.5			1,365.6			57.7	+		6.1	+
Interest expense:
Deposits:
Savings		.4			.4		.8			2.2			3.8			5.5			-			40.8	-
Checking interest and money market		59.5			24.0		22.8			37.1			84.9			110.8			147.9	+		11.7	-
Certificates of deposit under $100,000 and other time		79.0			60.1		57.1			71.2			111.1			129.2			31.4	+		9.4	-
Certificates of deposit $100,000 and more		364.0			108.0		69.4			79.8			137.1			254.9			237.0	+		7.4	+
Trading liabilities		80.2			20.0		22.1			16.0			10.1			11.8			301.0	+		46.7	+
Short-term borrowings		171.9			47.8		40.0			51.7			135.4			228.2			259.6	+		5.5	-
Term borrowings		101.1			50.2		35.4			28.6			30.2			24.3			101.4	+		33.0	+
Total interest expense		856.1			310.5		247.6			286.6			512.6			764.7			175.7	+		2.3	+
Net interest income		984.1			856.3		805.8			755.6			688.9			600.9			14.9	+		10.4	+
Provision for loan losses		67.7			48.3		86.7			92.2			93.2			67.5			40.2	+		.1	+
Net interest income after provision		916.4			808.0		719.1			663.4			595.7			533.4			13.4	+		11.4	+
Noninterest income:
Mortgage banking		482.9			444.8		649.5			436.7			285.0			122.5			8.6	+		31.6	+
Capital markets		353.0			376.5		538.9			448.0			344.3			118.7			6.3	-		24.4	+
Deposit transactions and cash management		156.2			148.5		146.7			143.3			133.6			116.1			5.2	+		6.1	+
Merchant processing		88.6			75.1		57.6			48.4			45.4			48.2			18.0	+		12.9	+
Insurance commissions		54.1			56.1		57.8			50.4			16.8			12.2			3.6	-		34.7	+
Revenue from loan sales and securitizations		47.6			23.1		-			-			-			-			105.8	+		NM
Trust services and investment management		44.6			47.3		45.9			48.4			56.7			65.8			5.6	-		7.5	-
Gains on divestitures		7.0			7.0		22.5			4.6			80.4			157.6			NM			NM
Equity securities (losses)/gains, net		(.6	)		2.0		8.5			(9.4	)		(3.3	)		.8			NM			NM
Debt securities gains/(losses), net		-			18.7		(6.1	)		.2			(1.0	)		(5.0	)		NM			NM
All other income		166.3			164.0		146.3			141.3			137.1			160.2			1.4	+		.8	+
Total noninterest income		1,399.7			1,363.1		1,667.6			1,311.9			1,095.0			797.1			2.7	+		11.9	+
Adjusted gross income after provision		2,316.1			2,171.1		2,386.7			1,975.3			1,690.7			1,330.5			6.7	+		11.7	+
Noninterest expense:
Employee compensation, incentives and benefits		998.2			915.0		995.6			830.6			670.9			508.3			9.1	+		14.4	+
Occupancy		106.0			89.4		83.6			76.7			69.1			80.5			18.6	+		5.7	+
Operations services		79.6			67.5		67.9			60.2			59.6			70.9			17.8	+		2.3	+
Equipment rentals, depreciation and maintenance		77.1			72.7		69.0			68.7			74.1			68.2			6.1	+		2.5	+
Communications and courier		56.1			49.6		50.5			45.1			42.2			41.9			13.1	+		6.0	+
Amortization of intangible assets		13.7			9.5		8.0			6.2			10.8			11.7			43.9	+		3.2	+
All other expense		340.2			300.6		393.1			329.7			275.4			212.0			13.2	+		9.9	+
Total noninterest expense		1,670.9			1,504.3		1,667.7			1,417.2			1,202.1			993.5			11.1	+		11.0	+
Income before income taxes		645.2			666.8		719.0			558.1			488.6			337.0			3.2	-		13.9	+
Provision for income taxes		204.1			212.4		245.7			181.6			162.2			104.4			3.9	-		14.3	+
Income before cumulative effect of changes in   accounting principle		441.1			454.4		473.3			376.5			326.4			232.6			2.9	-		13.7	+
Cumulative effect of changes in accounting principle, net   of tax		(3.1	)		-		-			-			(8.2	)		-			NM			NM
Net income	$	438.0		$	454.4	$	473.3		$	376.5		$	318.2		$	232.6			3.6	-		13.5	+
Fully taxable equivalent adjustment	$	1.1		$	1.1	$	1.3		$	1.5		$	2.1		$	2.6			-			15.8	-
Earnings per common share before cumulative   effect of changes in accounting principle	$	3.52		$	3.64	$	3.73		$	2.97		$	2.55		$	1.79			3.3	-		14.5	+
Earnings per common share	$	3.49		$	3.64	$	3.73		$	2.97		$	2.49		$	1.79			4.1	-		14.3	+
Diluted earnings per common share before   cumulative effect of changes in accounting   principle	$	3.42		$	3.54	$	3.62		$	2.89		$	2.48		$	1.77			3.4	-		14.1	+
Diluted earnings per common share	$	3.40		$	3.54	$	3.62		$	2.89		$	2.42		$	1.77			4.0	-		13.9	+
* Compound annual growth rate.
Certain previously reported amounts have been reclassified to agree with current presentation.
NM - Due to the variable nature of these items the growth rate is considered to be not meaningful.

First Horizon National Corporation 111

CONSOLIDATED AVERAGE BALANCE SHEETS AND RELATED YIELDS AND RATES (Unaudited)

	2005								2004								Average Balance Growth (%)
(Fully taxable equivalent) (Dollars in millions)	Average Balance			Interest Income/ Expense			Average Yields/ Rates		Average Balance			Interest Income/ Expense			Average Yields/ Rates		05/04
Assets:
Earning assets:
Loans, net of unearned income**	$	18,294.4		$	1,133.9			6.20%	$	15,384.6		$	775.1			5.04%		18.9	+
Loans held for sale		6,020.4			377.9			6.28		4,179.4			226.8			5.43		44.0	+
Investment securities:
U.S. Treasuries		41.7			1.1			2.57		48.4			.8			1.67		13.8	-
U.S. government agencies		2,635.3			115.1			4.37		2,194.9			95.6			4.35		20.1	+
States and municipalities		4.7			.2			5.01		10.8			.7			6.52		56.5	-
Other		198.3			8.7			4.39		195.0			7.7			3.96		1.7	+
Total investment securities		2,880.0			125.1			4.34		2,449.1			104.8			4.28		17.6	+
Capital markets securities inventory		2,155.6			101.4			4.70		753.1			26.8			3.56		186.2	+
Mortgage banking trading securities		303.5			37.2			12.27		221.3			26.7			12.05		37.1	+
Other earning assets:
Federal funds sold and securities purchased under agreements to resell		2,288.0			65.5			2.86		722.2			7.6			1.06		216.8	+
Investment in bank time deposits		8.1			.3			3.47		8.6			.1			1.04		5.8	-
Total other earning assets		2,296.1			65.8			2.87		730.8			7.7			1.06		214.2	+
Total earning assets		31,950.0			1,841.3			5.76		23,718.3			1,167.9			4.92		34.7	+
Allowance for loan losses		(175.3	)							(165.2	)							6.1	+
Cash and due from banks		752.2								739.2								1.8	+
Capital markets receivables		574.0								212.2								170.5	+
Premises and equipment, net		394.2								364.4								8.2	+
Other assets		3,065.3								2,436.9								25.8	+
Total assets/Interest income	$	36,560.4		$	1,841.3				$	27,305.8		$	1,167.9					33.9	+
Liabilities and shareholders' equity:
Interest-bearing liabilities:
Interest-bearing deposits:
Savings	$	290.8		$	.4			.14%	$	293.8		$	.4			.14%		1.0	-
Checking interest and money market		4,322.8			59.5			1.38		3,846.1			24.0			.62		12.4	+
Certificates of deposit under $100,000 and other time		2,242.8			79.0			3.52		1,947.0			60.1			3.08		15.2	+
Total interest-bearing core        deposits		6,856.4			138.9			2.03		6,086.9			84.5			1.39		12.6	+
Certificates of deposit $100,000 and   more		10,896.3			364.0			3.34		6,875.3			108.0			1.57		58.5	+
Federal funds purchased and  securities sold under agreements  to repurchase		4,582.2			136.6			2.98		3,685.2			45.1			1.22		24.3	+
Capital markets trading liabilities		1,519.3			80.2			5.28		527.0			20.0			3.80		188.3	+
Commercial paper and other  short-term borrowings		994.8			35.3			3.55		136.7			2.7			1.96		627.7	+
Term borrowings		2,560.1			101.1			3.96		2,248.0			50.2			2.24		13.9	+
Total interest-bearing liabilities		27,409.1			856.1			3.12		19,559.1			310.5			1.59		40.1	+
Demand deposits		1,896.1								1,805.6								5.0	+
Other noninterest-bearing deposits		3,367.0								2,867.7								17.4	+
Capital markets payables		404.0								174.9								131.0	+
Other liabilities		1,110.9								992.5								11.9	+
Guaranteed preferred beneficial  interests in First Horizon's junior  subordinated debentures (Note 11)		-								-								-
Preferred stock of subsidiary  (Note 12)		229.9								.5								NM
Shareholders' equity		2,143.4								1,905.5								12.5	+
Total liabilities and shareholders'   equity/Interest expense	$	36,560.4		$	856.1				$	27,305.8		$	310.5					33.9	+
Net interest income-tax equivalent  basis/Yield				$	985.2			3.08%				$	857.4			3.62%
Fully taxable equivalent adjustment					(1.1	)							(1.1	)
Net interest income				$	984.1							$	856.3
Net interest spread								2.64%								3.33%
Effect of interest-free sources used  to fund earning assets								.44								.29
Net interest margin								3.08%								3.62%
Certain previously reported amounts have been reclassified to agree with current presentation.
Yields and corresponding income amounts are adjusted to a fully taxable equivalent. Earning assets yields are expressed net of unearned income. Rates are expressed net of unamortized debenture cost for long-term debt. Net interest margin is computed using total net interest income.

112 First Horizon National Corporation

2003										2002									2001									2000									Average  Balance  Growth (%)
	Average Balance			Interest Income/ Expense			Average Yields/ Rates			Average Balance			Interest Income/ Expense			Average Yields/ Rates			Average Balance			Interest Income/ Expense			Average Yields/ Rates			Average Balance			Interest Income/ Expense			Average Yields/ Rates			05/00*
	$	12,656.3		$	658.1			5.20	%	$	10,634.5		$	666.6			6.27	%	$	10,104.3		$	812.5			8.04	%	$	9,932.0		$	915.9			9.22	%		13.0	+
		4,420.7			229.1			5.18			3,024.2			184.0			6.09			2,388.0			165.9			6.95			2,450.8			197.3			8.05			19.7	+
		45.3			.7			1.62			55.5			1.7			3.04			31.5			1.6			4.98			33.0			2.1			6.41			4.8	+
		2,107.6			88.7			4.21			1,819.7			106.8			5.87			1,781.0			116.5			6.54			1,734.7			117.7			6.78			8.7	+
		22.1			1.5			6.80			34.9			2.5			7.30			50.8			3.8			7.53			48.7			3.6			7.49			37.4	-
		369.9			21.0			5.69			556.3			32.8			5.89			732.0			47.5			6.49			1,046.3			76.8			7.34			28.3	-
		2,544.9			111.9			4.40			2,466.4			143.8			5.83			2,595.3			169.4			6.53			2,862.7			200.2			6.99			.1	+
		894.3			33.7			3.76			734.4			31.2			4.25			681.9			36.6			5.37			519.5			34.7			6.68			32.9	+
		154.7			16.9			10.94			131.3			12.6			9.55			127.5			12.1			9.48			-			-			-			N/A
		656.3			4.9			.75			404.8			5.4			1.35			226.5			7.0			3.07			328.4			20.0			6.10			47.4	+
		1.7			.1			.82			1.8			.1			2.07			1.9			.1			6.56			2.1			.1			5.07			31.0	+
		658.0			5.0			.75			406.6			5.5			1.35			228.4			7.1			3.10			330.5			20.1			6.09			47.4	+
		21,328.9			1,054.7			4.94			17,397.4			1,043.7			6.00			16,125.4			1,203.6			7.46			16,095.5			1,368.2			8.50			14.7	+
		(160.3	)								(151.2	)								(145.2	)								(140.0	)								4.6	+
		748.3									775.3									756.5									815.8									1.6	-
		460.1									256.2									208.2									56.6									58.9	+
		300.7									246.3									268.7									294.6									6.0	+
		2,455.9									2,180.0									2,013.6									2,202.8									6.8	+
	$	25,133.6		$	1,054.7					$	20,704.0		$	1,043.7					$	19,227.2		$	1,203.6					$	19,325.3		$	1,368.2						13.6	+
	$	306.1		$	.8			.27	%	$	302.7		$	2.2			.72	%	$	304.4		$	3.8			1.26	%	$	337.4		$	5.5			1.64	%		2.9	-
		3,659.7			22.8			.62			3,557.5			37.1			1.04			3,548.2			84.9			2.39			3,371.5			110.8			3.29			5.1	+
		1,866.3			57.1			3.06			1,937.1			71.2			3.68			2,092.3			111.1			5.31			2,310.3			129.2			5.59			.6	-
		5,832.1			80.7			1.38			5,797.3			110.5			1.91			5,944.9			199.8			3.36			6,019.2			245.5			4.08			2.6	+
		5,165.5			69.4			1.34			3,843.0			79.8			2.08			3,142.7			137.1			4.36			3,959.7			254.9			6.44			22.4	+
		3,712.7			36.9			.99			3,134.3			45.5			1.45			3,162.7			115.6			3.66			2,899.4			169.4			5.84			9.6	+
		547.1			22.1			4.04			360.3			16.0			4.44			190.2			10.1			5.34			177.1			11.8			6.64			53.7	+
		151.1			3.1			2.06			177.1			6.2			3.50			375.1			19.8			5.27			873.3			58.8			6.74			2.6	+
		1,342.9			35.4			2.64			685.5			28.6			4.17			521.5			30.2			5.79			384.3			24.3			6.34			46.1	+
		16,751.4			247.6			1.48			13,997.5			286.6			2.05			13,337.1			512.6			3.84			14,313.0			764.7			5.34			13.9	+
		2,076.0									1,882.0									1,660.7									1,759.2									1.5	+
		3,038.0									2,152.5									1,792.3									1,193.9									23.0	+
		401.5									193.4									182.7									56.3									48.3	+
		944.1									766.0									709.1									618.8									12.4	+
		100.0									100.0									100.0									100.0									100.0	-
		22.2									44.3									44.0									7.5									98.3	+
		1,800.4									1,568.3									1,401.3									1,276.6									10.9	+
	$	25,133.6		$	247.6					$	20,704.0		$	286.6					$	19,227.2		$	512.6					$	19,325.3		$	764.7						13.6	+
				$	807.1			3.78	%				$	757.1			4.35	%				$	691.0			4.29	%				$	603.5			3.75	%
					(1.3	)								(1.5	)								(2.1	)								(2.6	)
				$	805.8								$	755.6								$	688.9								$	600.9
								3.46	%								3.95	%								3.62	%								3.16	%
								.32									.40									.67									.59
								3.78	%								4.35	%								4.29	%								3.75	%
* Compound annual growth rate
** Includes loans on nonaccrual status.
NM – The growth rate is considered to be not meaningful.

First Horizon National Corporation 113

Notwithstanding anything to the contrary set forth in any of our filings with the Securities and Exchange Commission under the securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate future filings by reference, including the annual report on Form 10-K or the proxy statement, in whole or in part, the following “Information Concerning Certain Officer Certifications” is not a component of any such filings and shall not be incorporated by reference into any such filings. It is disclosed in our annual report to shareholders and accompanies our proxy statement in accordance with applicable rules of the New York Stock Exchange.

Information Concerning Certain Officer Certifications

Our chief executive officer and our chief financial officer each year make certain certifications that are included as Exhibits 31(a) and 31(b) to our annual report on Form 10-K which is filed with the Securities and Exchange Commission.

A copy of our most recent annual report on Form 10-K, including the financial statements and schedules thereto, is available free of charge to each shareholder of record upon written request to the treasurer, First Horizon National Corporation, P.O. Box 84, Memphis, Tennessee 38101. Each such written request must set forth a good faith representation that as of the record date specified in the notice of our 2006 annual shareholders meeting the person making the request was a beneficial owner of a security entitled to vote at the annual meeting of shareholders. The exhibits to the annual report on Form 10-K also will be supplied upon written request to the treasurer and payment to us of the cost of furnishing the requested exhibit or exhibits. That report (including Exhibits 31(a) and 31(b)) also is available to the public without charge through the U.S. Securities and Exchange Commission's website at www.sec.gov.

In addition, shortly after our 2005 shareholders meeting, our chief executive officer submitted a certification to the New York Stock Exchange concerning our compliance with certain listing requirements related to corporate governance. That certification contained no qualifications.

114 First Horizon National Corporation

EX-21

Exhibit 21

SUBSIDIARIES

          The following are lists of consolidated subsidiaries of First Horizon National Corporation (“FHNC”) and of First Tennessee Bank National Association (“FTBNA”), information concerning a consolidated entity not controlled by FHNC, and information concerning certain unconsolidated entities, all at December 31, 2005. Each consolidated entity is 100% owned by its immediate parent, except as described below in note (2) to the FHNC table and notes (3) and (4) to the FTBNA table, and all are included in the Consolidated Financial Statements.

Direct Consolidated Entities of FHNC:

Entity	Type of Ownership by FHNC	Jurisdiction of Incorporation/ Organization
First Tennessee Bank National Association (1)	Direct		United States
Hickory Capital Corporation	Direct		Tennessee
Highland Capital Management Corp.	Direct		Tennessee
Martin & Company, Inc.	Direct		Tennessee
Mountain Financial Company*	Direct		Tennessee
Norlen Life Insurance Company	Direct		Arizona
WTB Capital Trust (2)	Direct		Delaware

*	Inactive at December 31, 2005.
(1)	At December 31, 2005, 300,000 shares of non-voting preferred stock issued by this subsidiary are outstanding and are not owned by FHNC. That preferred stock has an aggregate liquidation preference amount of $300,000,000 and is not participating with the common stock in the event of liquidation. Divisions of this subsidiary do business in certain jurisdictions under the following names: First Express, First Horizon, First Horizon Bank, First Horizon Equity Lending, People’s Bank, FTN Financial Capital Markets, Gulf Pacific Mortgage, and First Horizon Money Center.
(2)	This consolidated entity is a Delaware statutory business trust. FHNC owns all of the preferred (nonvoting) interests in the trust, but none of the common (voting) interests. The preferred interests represent approximately 97% of the total interests measured by stated liquidation amounts.

Consolidated Subsidiaries of FTBNA:

Subsidiary of FTBNA	Type of Ownership by FTBNA		Jurisdiction of Incorporation/ Organization
Check Consultants, Incorporated*		Direct		Tennessee
Community Money Center, Inc.*		Direct		Tennessee
First Express Remittance Processing, Inc.		Direct		Tennessee
First Horizon Insurance Services, Inc.		Direct		Tennessee
FHMSH, Inc.		Direct		Delaware
First Horizon Merchant Services, Inc. (1)		Indirect		Tennessee
Global Card Services, Inc. (1)		Indirect		Florida
First Horizon Mint Distribution, Inc.		Direct		Tennessee
First Horizon Money Center, Inc.*		Direct		Tennessee
First Horizon MSaver, Inc.		Direct		Tennessee

1

First Tennessee ABS, Inc.*	Direct	Delaware
First Tennessee Brokerage, Inc.	Direct	Tennessee
First Tennessee Equipment Finance Corporation	Direct	Tennessee
First Tennessee Housing Corporation	Direct	Tennessee
CC Community Development Holdings, Inc.	Indirect	Tennessee
First Tennessee Insurance Services, Inc.	Direct	Tennessee
First Tennessee Merchant Equipment, Inc.*	Direct	Tennessee
FT Building, LLC	Direct	Tennessee
FT Insurance Corporation	Direct	Alabama
FT Mortgage Holding Corporation (3)	Direct	Delaware
Federal Flood Certification Corporation	Indirect	Texas
FHEL, Inc.	Indirect	Delaware
FHRF, Inc. (3)	Indirect	Delaware
First Horizon Mortgage Loan Corporation (3)	Indirect	Delaware
FT Real Estate Securities Company, Inc. (3)	Indirect	Arkansas
FHRIII, LLC	Indirect	Delaware
FHTRS, Inc.	Indirect	Delaware
FH-FF Mortgage Services, L.P. (3)	Indirect	Delaware
FHR Holding, Inc.	Indirect	Delaware
FHRV, LLC	Indirect	Delaware
FHRVI, LLC	Indirect	Delaware
First Horizon Home Loan Corporation	Indirect	Kansas
First Tennessee Mortgage Services, Inc.	Indirect	Tennessee
FHREC, Inc.	Indirect	Delaware
FHRIV, LLC	Indirect	Delaware
First Horizon Asset Securities, Inc.	Indirect	Delaware
FT Real Estate Information Mortgage Solutions Holdings, Inc.	Indirect	Delaware
FT Real Estate Information Mortgage Solutions, Inc.	Indirect	Delaware
Total Mortgage Solutions, LP (4)	Indirect	Delaware
FT Reinsurance Company	Indirect	South Carolina
FTN Financial Capital Assets Corporation	Direct	Tennessee
FTN Financial Securities Corp.	Direct	Tennessee
FTN Financial Securitization Corporation	Direct	Delaware
FTN Investment Corp.	Direct	Delaware
FTN Midwest Securities Corp.	Direct	Delaware
Healthcare Acquisition Parent, LLC*	Indirect	Delaware
Healthcare Acquisition Partners Holdings, LLC*	Indirect	Delaware
FTN Premium Services, Inc.	Direct	Tennessee
FTN Ramp, LLC*	Direct	Delaware
Hickory Venture Capital Corporation	Direct	Alabama
JPO, Inc.	Direct	Tennessee
JV Mortgage Solutions LLC (4)	Direct	Delaware

2

Synaxis Group, Inc.	Direct	Delaware
SFSR, Inc.	Indirect	Tennessee
Employers Risk Services, Inc.	Indirect	Kentucky
Merritt & McKenzie, Inc.	Indirect	Georgia
Synaxis, Inc.	Indirect	Tennessee
Synaxis Insurance Services, Inc.	Indirect	Tennessee
Synaxis Risk Services, Inc.	Indirect	Tennessee
Van Meter Insurance, Inc.	Indirect	Kentucky

*	Inactive at December 31, 2005.
(1)	Substantially affected, after December 31, 2005, by asset sale described in FHNC’s Current Report on Form 8-K dated January 31, 2006.
(2)	Divisions of this subsidiary do business in certain jurisdictions under the following names: First Horizon Home Loans, First Horizon Lending Center, McGuire Mortgage, OneLoan.
(3)	The following subsidiaries are not wholly-owned by their immediate parent:

FT Mortgage Holding Corporation	FHNC owns <1% of the common stock with the balance owned by the subsidiary’s immediate parent.
FHRF, Inc.	First Tennessee Mortgage Services, Inc. owns 1.01% of the common stock with the balance owned by the subsidiary’s immediate parent.
First Horizon Mortgage Loan Corporation	FHNC owns <1% of the common stock directly with the balance of the common stock owned by the subsidiary’s immediate parent.
FT Real Estate Securities Company, Inc.	FHNC owns <1% of the common stock with the balance of the common stock owned by the subsidiary’s immediate parent. Some preferred stock is not owned directly or indirectly by FHNC.
FH-FF Mortgage Services, L.P.	FHTRS, Inc. owns a 99% limited partnership interest and First Tennessee Mortgage Services, Inc. owns a 1% general partnership interest.

(4) The following consolidated subsidiaries are not wholly-owned directly or indirectly by FHNC:

JV Mortgage Solutions, LLC	First Tennessee Bank National Association owns 50%.
Total Mortgage Solutions, LP	FT Real Estate Information Mortgage Solutions, Inc. owns 49.5% and JV Mortgage Solutions, LLC owns 1%.

Unconsolidated Entities:

FHNC owns 100% of the common securities of the following unconsolidated entities:

          First Tennessee Capital I, a Delaware business trust

          First Tennessee Capital II, a Delaware business trust

3

EX-23

Exhibit 23

[Logo]
KPMG LLP
Suite 900, Morgan Keegan Tower
Fifty North Front Street
Memphis, TN 38103

Consent of Independent Registered Public Accounting Firm

The Board of Directors
First Horizon National Corporation:

We consent to the incorporation by reference into the previously filed registration statements Nos. 33-9846, 33-40398, 33-44142, 33-52561, 33-57241, 33-63809, 33-64471, 333-16225, 333-16227, 333-17457, 333-17457-01, 333-17457-02, 333-17457-03, 333-17457-04, 333-70075, 333-91137, 333-92145, 333-92147, 333-56052, 333-73440, 333-73442, 333-106015, 333-108738, 333-108750, 333-109862, 333-110845, 333-123372, 333-123404, 333-124297, and 333-124299 of First Horizon National Corporation (the Company) of our reports dated March 3, 2006, with respect to the Company’s consolidated statements of condition as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2005, management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2005, and the effectiveness of internal control over financial reporting as of December 31, 2005, which reports are incorporated by reference into the Company’s 2005 Annual Report on Form 10-K, and to all references to our firm included therein.

/s/ KPMG LLP
Memphis, Tennessee
March 3, 2006

KPMG LLP, a U.S. limited liability partnership, is the
U.S. member firm of KPMG International,
a Swiss cooperative.

EX-24

EXHIBIT 24

POWER OF ATTORNEY

          KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below does hereby constitute and appoint MARLIN L. MOSBY, III, JAMES F. KEEN, CLYDE A. BILLINGS, JR., and MILTON A. GUTELIUS, JR., jointly and each of them severally, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to execute and sign the Annual Report on Form 10-K for the fiscal year ended December 31, 2005 to be filed with the Securities and Exchange Commission, pursuant to the provisions of the Securities Exchange Act of 1934, by First Horizon National Corporation (“Corporation”) and, further, to execute and sign any and all amendments thereto and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, or their or his or her substitute or substitutes, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

	Signature		Title	Date
/s/ J. Kenneth Glass		Chairman of the Board, President and		March 8, 2006
		Chief Executive Officer and a Director
J. Kenneth Glass		(principal executive officer)
/s/ Marlin L. Mosby III		Executive Vice President and Chief		March 8, 2006
		Financial Officer (principal financial officer)
Marlin L. Mosby, III
/s/ James F. Keen		Executive Vice President and Corporate		March 8, 2006
		Controller (principal accounting officer)
James F. Keen
/s/ Robert C. Blattberg		Director		March 8, 2006
Robert C. Blattberg
				March __, 2006
		Director
Simon F. Cooper
/s/ James A. Haslam, III		Director		March 8, 2006
James A. Haslam, III
/s/ R. Brad Martin		Director		March 8, 2006
R. Brad Martin
/s/ Vicki R. Palmer		Director		March 8, 2006
Vicki R. Palmer

1 of 2

/s/ Michael D. Rose	Director	March 8, 2006
Michael D. Rose
/s/ Mary F. Sammons	Director	March 8, 2006
Mary F. Sammons
/s/ William B. Sansom	Director	March 8, 2006
William B. Sansom
/s/ Jonathan P. Ward	Director	March 8, 2006
Jonathan P. Ward
/s/ Luke Yancy III	Director	March 8, 2006
Luke Yancy III

2 of 2

EX-31

Exhibit 31(a)

FIRST HORIZON NATIONAL CORPORATION
RULE 13a – 14(a) CERTIFICATIONS OF CEO
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(ANNUAL REPORT)

CERTIFICATIONS

I, J. Kenneth Glass, Chairman of the Board, President and Chief Executive Officer of First Horizon National Corporation, certify that:

1.	I have reviewed this annual report on Form 10-K of First Horizon National Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date	March 8, 2006
/s/ J. Kenneth Glass
J. Kenneth Glass
Chairman of the Board, President and Chief Executive Officer

EX-31

Exhibit 31(b)

FIRST HORIZON NATIONAL CORPORATION
RULE 13a – 14(a) CERTIFICATIONS OF CFO
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(ANNUAL REPORT)

CERTIFICATIONS

I, Marlin L. Mosby III, Executive Vice President and Chief Financial Officer of First Horizon National Corporation, certify that:

1.	I have reviewed this annual report on Form 10-K of First Horizon National Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date	March 8, 2006
/s/ Marlin L. Mosby III
Marlin L. Mosby III
Executive Vice President and Chief Financial Officer

EX-32

Exhibit 32(a)

CERTIFICATION OF PERIODIC REPORT
18 USC 1350 CERTIFICATIONS OF CEO
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
As Codefied at 18 U.S.C. Section 1350

I, the undersigned J. Kenneth Glass, Chairman of the Board, President and Chief Executive Officer of First Horizon National Corporation (“Corporation”), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, as follows:

1.	The Corporation’s Annual Report on Form 10-K for the year ended December 31, 2005, (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934.
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

Dated:	March 8, 2006
/s/ J. Kenneth Glass
J. Kenneth Glass
Chairman of the Board, President and Chief Executive Officer

EX-32

Exhibit 32(b)

CERTIFICATION OF PERIODIC REPORT
18 USC 1350 CERTIFICATIONS OF CFO
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
As Codefied at 18 U.S.C. Section 1350

I, the undersigned Marlin L. Mosby III, Executive Vice President and Chief Financial Officer of First Horizon National Corporation (“Corporation”), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, as follows:

1.	The Corporation’s Annual Report on Form 10-K for the year ended December 31, 2005, (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934.
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

Dated:	March 8, 2006
/s/ Marlin L. Mosby III
Marlin L. Mosby III
Executive Vice President and Chief Financial Officer