-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cbhy5fxAMBOQ9hHsqUINSr1C6L7na+lqUoqo5W7m2b04xdIHqEYV0oboKGxVoAxZ TpNrbW+Z8VDZSfFTuT0rNQ== 0000950144-99-005935.txt : 19990517 0000950144-99-005935.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950144-99-005935 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST TENNESSEE NATIONAL CORP CENTRAL INDEX KEY: 0000036966 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 620201385 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-04491 FILM NUMBER: 99621356 BUSINESS ADDRESS: STREET 1: PO BOX 84 CITY: MEMPHIS STATE: TN ZIP: 38101 BUSINESS PHONE: 9015234638 MAIL ADDRESS: STREET 1: P O BOX 84 CITY: MEMPHIS STATE: TN ZIP: 38101 FORMER COMPANY: FORMER CONFORMED NAME: FIRST TENNESSEE BANKS INC DATE OF NAME CHANGE: 19600201 10-Q 1 FIRST TENNESSEE NATIONAL CORPORATION 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark one) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 -------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------- ------------- Commission file number 0-4491 ------- FIRST TENNESSEE NATIONAL CORPORATION ---------------------------------------- (Exact name of registrant as specified in its charter) Tennessee 62-0803242 - ---------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 165 Madison Avenue, Memphis, Tennessee 38103 - --------------------------------------- --------- (Address of principal executive offices) (Zip Code) (901) 523-4027 ---------------------------------------------- (Registrant's telephone number, including area code) None --------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.625 par value 130,254,126 - ----------------------------- ----------------------------- Class Outstanding at April 30, 1999 2 FIRST TENNESSEE NATIONAL CORPORATION INDEX Part I. Financial Information Part II. Other Information Signatures Exhibit Index 3 PART I. ------- FINANCIAL INFORMATION Item 1. Financial Statements. - ------------------------------ The Consolidated Statements of Condition The Consolidated Statements of Income The Consolidated Statements of Shareholders' Equity The Consolidated Statements of Cash Flows The Notes to Consolidated Financial Statements This financial information reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the interim periods presented. 4 CONSOLIDATED STATEMENTS OF CONDITION
First Tennessee National Corporation - -------------------------------------------------------------------------------------------------------------------- March 31 December 31 ------------------------------- ------------ (Dollars in thousands)(Unaudited) 1999 1998 1998 - ------------------------------------------------------------------------------------------------- ------------ ASSETS: Cash and due from banks $ 589,789 $ 758,601 $ 811,881 Federal funds sold and securities purchased under agreements to resell 91,701 89,850 124,239 - ------------------------------------------------------------------------------------------------- ------------ Total cash and cash equivalents 681,490 848,451 936,120 - ------------------------------------------------------------------------------------------------- ------------ Investment in bank time deposits 1,416 12,711 1,211 Capital markets inventory 420,133 368,727 358,304 Mortgage loans held for sale 3,201,792 2,248,053 4,227,443 Securities available for sale 1,882,113 1,914,152 1,816,485 Securities held to maturity (market value of $544,529 at March 31, 1999; $53,203 at March 31, 1998; and $610,364 at December 31, 1998) 546,844 52,127 609,804 Loans, net of unearned income 8,782,802 8,488,358 8,557,064 Less: Allowance for loan losses 139,387 130,026 136,013 - ------------------------------------------------------------------------------------------------- ------------ Total net loans 8,643,415 8,358,332 8,421,051 - ------------------------------------------------------------------------------------------------- ------------ Premise`s and equipment, net 272,736 207,634 254,292 Real estate acquired by foreclosure 16,870 11,575 16,242 Mortgage servicing rights, net 814,827 456,837 664,438 Intangible assets, net 130,925 127,925 132,845 Capital markets receivables and other assets 1,712,443 1,291,038 1,295,726 - ------------------------------------------------------------------------------------------------- ------------ TOTAL ASSETS $18,325,004 $15,897,562 $18,733,961 ================================================================================================= ============ LIABILITIES AND SHAREHOLDERS' EQUITY: Deposits: Interest-bearing $ 9,381,365 $ 8,041,821 $ 8,665,175 Noninterest-bearing 2,816,442 2,772,951 3,057,864 - ------------------------------------------------------------------------------------------------- ------------ Total deposits 12,197,807 10,814,772 11,723,039 - ------------------------------------------------------------------------------------------------- ------------ Federal funds purchased and securities sold under agreements to repurchase 1,615,831 1,685,000 2,912,018 Commercial paper and other short-term borrowings 1,318,451 802,122 1,427,274 Capital markets payables and other liabilities 1,535,425 1,251,451 1,057,646 Term borrowings 400,501 266,577 414,450 - ------------------------------------------------------------------------------------------------- ------------ Total liabilities 17,068,015 14,819,922 17,534,427 - ------------------------------------------------------------------------------------------------- ------------ Guaranteed preferred beneficial interests in First Tennessee's junior subordinated debentures 100,000 100,000 100,000 - ------------------------------------------------------------------------------------------------- ------------ SHAREHOLDERS' EQUITY: Preferred stock - no par value (5,000,000 shares authorized, but unissued) -- -- -- Common stock - $.625 par value (shares authorized - 400,000,000; shares issued - 129,908,808 at March 31, 1999; 128,197,715 at March 31, 1998; and 128,974,362 at December 31, 1998) 81,193 80,123 80,609 Capital surplus 133,857 53,975 96,778 Undivided profits 937,339 830,453 908,977 Accumulated other comprehensive income 9,604 15,093 12,872 Deferred compensation on restricted stock incentive plans (7,441) (2,004) (1,209) Deferred compensation obligation 2,437 -- 1,507 - ------------------------------------------------------------------------------------------------- ------------ Total shareholders' equity 1,156,989 977,640 1,099,534 - ------------------------------------------------------------------------------------------------- ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $18,325,004 $15,897,562 $18,733,961 ================================================================================================= ============ See accompanying notes to consolidated financial statements.
5 CONSOLIDATED STATEMENTS OF INCOME
First Tennessee National Corporation - -------------------------------------------------------------------------------------- Three Months Ended March 31 ----------------------------- (Dollars in thousands except per share data) (Unaudited) 1999 1998 - -------------------------------------------------------------------------------------- INTEREST INCOME: Interest and fees on loans $ 181,248 $ 182,831 Interest on investment securities: Taxable 38,228 33,209 Tax-exempt 754 991 Interest on mortgage loans held for sale 68,735 30,850 Interest on capital markets inventory 8,697 6,242 Interest on other earning assets 2,604 2,918 - -------------------------------------------------------------------------------------- Total interest income 300,266 257,041 - -------------------------------------------------------------------------------------- INTEREST EXPENSE: Interest on deposits: Savings 1,428 1,821 Checking interest and money market account 26,569 29,015 Certificates of deposit under $100,000 and other time 32,379 37,709 Certificates of deposit $100,000 and more 42,309 17,653 Interest on short-term borrowings 42,621 40,045 Interest on term borrowings 6,793 3,658 - -------------------------------------------------------------------------------------- Total interest expense 152,099 129,901 - -------------------------------------------------------------------------------------- NET INTEREST INCOME 148,167 127,140 Provision for loan losses 14,826 13,515 - -------------------------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 133,341 113,625 - -------------------------------------------------------------------------------------- NONINTEREST INCOME: Mortgage banking 168,778 92,557 Capital markets 44,388 37,997 Deposit transactions and cash management 22,964 20,035 Trust services and investment management 14,591 12,121 Merchant processing 10,709 7,209 Cardholder fees 4,962 4,512 Equity securities gains/(losses) (8) 7 Debt securities gains/(losses) (26) 22 All other income and commissions 20,205 15,517 - -------------------------------------------------------------------------------------- Total noninterest income 286,563 189,977 - -------------------------------------------------------------------------------------- ADJUSTED GROSS INCOME AFTER PROVISION FOR LOAN LOSSES 419,904 303,602 - -------------------------------------------------------------------------------------- NONINTEREST EXPENSE: Employee compensation, incentives, and benefits 173,895 113,643 Amortization of mortgage servicing rights 30,898 17,300 Operations services 15,702 14,035 Occupancy 15,651 11,395 Equipment rentals, depreciation, and maintenance 13,469 9,736 Communications and courier 12,367 9,331 Advertising and public relations 6,416 5,689 Amortization of intangible assets 2,576 2,640 All other 65,823 47,139 - -------------------------------------------------------------------------------------- Total noninterest expense 336,797 230,908 - -------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 83,107 72,694 Applicable income taxes 30,078 26,339 - -------------------------------------------------------------------------------------- NET INCOME $ 53,029 $ 46,355 ====================================================================================== EARNINGS PER SHARE $ .41 $ .36 - -------------------------------------------------------------------------------------- DILUTED EARNINGS PER SHARE $ .40 $ .35 - -------------------------------------------------------------------------------------- WEIGHTED AVERAGE SHARES OUTSTANDING 129,787,078 128,148,972 - -------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements.
6 CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
First Tennessee National Corporation - ------------------------------------------------------------------------------------- (Dollars in thousands) 1999 1998 - ------------------------------------------------------------------------------------- BALANCE, JANUARY 1 $ 1,099,534 $ 954,096 Net income 53,029 46,355 Other comprehensive income: Unrealized market adjustments, net of tax and reclassification adjustment (3,267) (240) - ------------------------------------------------------------------------------------- Comprehensive income 49,762 46,115 - ------------------------------------------------------------------------------------- Cash dividends declared (24,668) (21,158) Common stock issued: Cambridge Mortgage Company acquisition 421 -- For exercise of stock options 13,995 3,900 Tax benefit from non-qualified stock options 7,850 1,245 Common stock repurchased -- (12,117) Amortization on restricted stock incentive plans 382 295 Other 9,713 5,264 - ------------------------------------------------------------------------------------- BALANCE, MARCH 31 $ 1,156,989 $ 977,640 ===================================================================================== See accompanying notes to consolidated financial statements.
7 CONSOLIDATED STATEMENTS OF CASH FLOWS
First Tennessee National Corporation - --------------------------------------------------------------------------------------------- Three Months Ended March 31 --------------------------- (Dollars in thousands)(Unaudited) 1999 1998 - --------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $ 53,029 $ 46,355 Adjustments to reconcile net income to net cash provided/(used) by operating activities: Provision for loan losses 14,826 13,515 Provision for deferred income tax 32,927 8,976 Depreciation and amortization of premises and equipment 11,801 8,634 Amortization of mortgage servicing rights 30,898 17,300 Amortization of intangible assets 2,576 2,640 Net other amortization and accretion 11,649 2,325 Market value adjustment on foreclosed property 2,400 5,700 Equity securities (gains)/losses 8 (7) Debt securities (gains)/losses 26 (22) Net (gains)/losses on disposal of fixed assets 219 (309) Net (increase)/decrease in: Capital markets securities inventory (61,829) (115,487) Mortgage loans held for sale 1,025,651 (1,007,405) Capital markets receivables (401,084) (379,449) Interest receivable 1,029 (16,211) Other assets (210,960) (195,578) Net increase in: Capital markets payables 446,833 345,208 Interest payable 8,612 19,138 Other liabilities 8,538 180,056 - --------------------------------------------------------------------------------------------- Total adjustments 924,120 (1,110,976) - --------------------------------------------------------------------------------------------- Net cash (used)/provided by operating activities 977,149 (1,064,621) - --------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Held to maturity securities: Maturities 62,436 1,101 Purchases -- -- Available for sale securities: Sales 5,504 4,775 Maturities 238,034 226,701 Purchases (313,098) (11,753) Premises and equipment: Sales 96 891 Purchases (28,931) (9,060) Net decrease in loans (241,096) (191,686) Increase in investment in bank time deposits (205) (10,189) Acquisitions, net of cash and cash equivalents acquired (1,755) (9,719) - --------------------------------------------------------------------------------------------- Net cash (used)/provided by investing activities (279,015) 1,061 - --------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Common stock: Exercise of stock options 15,950 3,994 Cash dividends (24,411) (21,165) Repurchase shares -- (12,127) Term Borrowings: Issuance 1,099 99,218 Payments (15,150) (1,578) Net increase in: Deposits 474,768 1,142,993 Short-term borrowings (1,405,020) (300,945) - --------------------------------------------------------------------------------------------- Net cash (used)/provided by financing activities (952,764) 910,390 - --------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (254,630) (153,170) - --------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of period 936,120 1,001,621 - --------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 681,490 $ 848,451 ============================================================================================= Total interest paid $ 143,342 $ 110,679 Total income taxes paid 17,460 2,500 - --------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements.
8 NOTE 1 - FINANCIAL INFORMATION The unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles. In the opinion of management, all necessary adjustments have been made for a fair presentation of financial position and results of operations for the periods presented. The operating results for the three month period ended March 31, 1999, are not necessarily indicative of the results that may be expected going forward. For further information, refer to the audited consolidated financial statements and footnotes included in the 1999 Proxy Statement & 1998 Financial Information. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of condition and measure those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. This Statement is effective for all quarters of fiscal years beginning after June 15, 1999; which for First Tennessee will mean the first quarter of 2000. Earlier adoption is allowed. Because of the complexity of this standard and uncertainties associated with predicting future derivative usage and related fair values, it is not practicable at this time to predict what the impact of adopting this Statement will be to First Tennessee's financial position and results of operations. On January 1, 1999, First Tennessee adopted SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise." This Statement amends SFAS No. 65, which required that retained securities be classified as trading securities. SFAS No. 134 allows these securities to be classified as trading, held to maturity or available for sale based on the intent and ability of the enterprise. On January 1, 1999, First Tennessee adopted Statement of Position 98-5, "Reporting on the Costs of Start-up Activities." This Statement requires that the costs of start-up activities, including organization costs, be expensed as incurred. The impact of adopting this standard was immaterial to First Tennessee. NOTE 2 - BUSINESS COMBINATIONS On March 31, 1999, First Tennessee acquired Cambridge Mortgage Company of Seattle, Washington, for approximately 21,000 shares of its common stock. Cambridge was merged into FT Mortgage Companies, an indirect wholly owned subsidiary of First Tennessee. This acquisition was accounted for as a purchase and was immaterial to First Tennessee. 9 NOTE 3 - EARNINGS PER SHARE The following table shows a reconciliation of earnings per share to diluted earnings per share.
Three Months Ended March 31 --------------------------------- (Dollars in thousands, except per share data) 1999 1998 - -------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE COMPUTATION: Net income $ 53,029 $ 46,355 Weighted average shares outstanding 129,453,871 128,148,972 Shares attributable to deferred compensation 333,207 -- - -------------------------------------------------------------------------------------------------------- Total weighted average shares per income statement 129,787,078 128,148,972 Earnings per share $ .41 $ .36 - -------------------------------------------------------------------------------------------------------- DILUTED EARNINGS PER SHARE COMPUTATION: Net income $ 53,029 $ 46,355 Weighted average shares outstanding 129,787,078 128,148,972 Dilutive effect due to stock options 3,976,333 4,052,867 - -------------------------------------------------------------------------------------------------------- Weighted average shares outstanding, as adjusted 133,763,411 132,201,839 Diluted earnings per share $ .40 $ .35 - --------------------------------------------------------------------------------------------------------
10 NOTE 4 -- LOANS The composition of the loan portfolio at March 31 is detailed below:
(Dollars in thousands) 1999 1998 - ---------------------------------------------------------------------------------------------- Commercial $4,212,886 $3,900,827 Consumer* 3,163,967 2,912,412 Permanent mortgage* 444,666 676,584 Credit card receivables 560,674 551,059 Real estate construction 369,814 407,279 Nonaccrual - Regional banking group 12,629 10,914 Nonaccrual - Mortgage banking 18,166 29,283 - ---------------------------------------------------------------------------------------------- Loans, net of unearned income 8,782,802 8,488,358 Allowance for loan losses 139,387 130,026 - ---------------------------------------------------------------------------------------------- Total net loans $8,643,415 $8,358,332 ============================================================================================== *As a result of the Real Estate Mortgage Investment Conduit (REMIC) certain securitized consumer and permanent mortgage loans are now classified as REMIC securities.
The following table presents information concerning nonperforming loans at March 31:
(Dollars in thousands) 1999 1998 - -------------------------------------------------------------------------------------------- Impaired loans $13,169 $10,405 Other nonaccrual loans 17,626 29,792 - -------------------------------------------------------------------------------------------- Total nonperforming loans $30,795 $40,197 ============================================================================================ At March 31, 1998, there were $117,000 of restructured impaired loans.
Nonperforming loans consist of impaired loans, other nonaccrual loans and certain restructured loans. An impaired loan is a loan that management believes the contractual amount due probably will not be collected. Impaired loans are generally carried on a nonaccrual status. Nonaccrual loans are loans on which interest accruals have been discontinued due to the borrower's financial difficulties. Management may elect to continue the accrual of interest when the estimated net realizable value of collateral is sufficient to recover the principal balance and accrued interest. Generally, interest payments received on impaired loans are applied to principal. Once all principal has been received, additional payments are recognized as interest income on a cash basis. The following table presents information concerning impaired loans:
Three Months Ended March 31 --------------------------- (Dollars in thousands) 1999 1998 - -------------------------------------------------------------------------------------------- Total interest on impaired loans $ 283 $ 132 Average balance of impaired loans 13,000 9,384 - --------------------------------------------------------------------------------------------
An allowance for loan losses is maintained for all impaired loans. Activity in the allowance for loan losses related to non-impaired loans, impaired loans, and for the total allowance for the three months ended March 31, 1999 and 1998, is summarized as follows:
(Dollars in thousands) Non-impaired Impaired Total - --------------------------------------------------------------------------------------------- Balance at December 31, 1997 $122,107 $3,752 $125,859 Provision for loan losses 12,896 619 13,515 Charge-offs 11,776 600 12,376 Less loan recoveries 2,579 449 3,028 - --------------------------------------------------------------------------------------------- Net charge-offs 9,197 151 9,348 - --------------------------------------------------------------------------------------------- Balance at March 31, 1998 $125,806 $4,220 $130,026 ============================================================================================= Balance at December 31, 1998 $133,572 $2,441 $136,013 Provision for loan losses 11,799 3,027 14,826 Charge-offs 11,768 1,773 13,541 Less loan recoveries 1,669 420 2,089 - --------------------------------------------------------------------------------------------- Net charge-offs 10,099 1,353 11,452 - --------------------------------------------------------------------------------------------- BALANCE AT MARCH 31, 1999 $135,272 $4,115 $139,387 =============================================================================================
11 NOTE 5 -- BUSINESS SEGMENT INFORMATION First Tennessee provides traditional retail/commercial banking and other financial services to its customers. These products and services are categorized into two broad groups: a regional banking group and national lines of business. The national lines of business include mortgage banking, capital markets and transaction processing. The other segment is used to isolate corporate items. Total revenue, expense and asset levels reflect those which are specifically identifiable or which are allocated based on an internal allocation method. Because the allocations are based on internally developed assignments and allocations, they are to an extent subjective. This assignment and allocation has been consistently applied for all periods presented. The following table reflects the approximate amounts of consolidated revenue, expense, tax, and assets for the quarters ended March 31, 1999 and 1998.
Regional Banking Mortgage Capital Transaction (Dollars in thousands) Group Banking Markets Processing Other Consolidated - ------------------------------------------------------------------------------------------------------------------------------- 1999 Interest income $ 208,864 $ 76,029 $ 10,513 $ 4,860 $ -- $ 300,266 Interest expense 86,674 56,082 8,693 650 -- 152,099 - ------------------------------------------------------------------------------------------------------------------------------- Net interest income 122,190 19,947 1,820 4,210 -- 148,167 Other revenues 54,558 170,065 44,387 17,587 (34) 286,563 Other expenses* 120,320 181,024 32,604 15,645 2,030 351,623 - ------------------------------------------------------------------------------------------------------------------------------- Pre-tax income 56,428 8,988 13,603 6,152 (2,064) 83,107 Income taxes 19,761 3,626 5,137 2,338 (784) 30,078 - ------------------------------------------------------------------------------------------------------------------------------- Net income $ 36,667 $ 5,362 $ 8,466 $ 3,814 $(1,280) $ 53,029 =============================================================================================================================== Average assets $11,549,590 $5,728,237 $845,929 $499,387 $ -- $18,623,143 - ------------------------------------------------------------------------------------------------------------------------------- 1998 Interest income $ 208,268 $ 35,748 $ 8,113 $ 4,912 $ -- $ 257,041 Interest expense 95,827 26,212 6,797 1,065 -- 129,901 - ------------------------------------------------------------------------------------------------------------------------------- Net interest income 112,441 9,536 1,316 3,847 -- 127,140 Other revenues 45,364 93,417 37,997 13,170 29 189,977 Other expenses* 104,197 96,413 27,832 13,951 2,030 244,423 - ------------------------------------------------------------------------------------------------------------------------------- Pre-tax income 53,608 6,540 11,481 3,066 (2,001) 72,694 Income taxes 19,265 2,334 4,335 1,165 (760) 26,339 - ------------------------------------------------------------------------------------------------------------------------------- Net income $ 34,343 $ 4,206 $ 7,146 $ 1,901 $(1,241) $ 46,355 =============================================================================================================================== Average assets $10,981,344 $2,830,500 $603,116 $510,935 $ -- $14,925,895 - ------------------------------------------------------------------------------------------------------------------------------- *Includes loan loss provision.
12 Item 2. FIRST TENNESSEE NATIONAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION DESCRIPTION First Tennessee National Corporation (First Tennessee) is headquartered in Memphis, Tennessee, and is a nationwide, diversified financial services institution which provides banking and other financial services to its customers through various national and regional business lines. The Regional Banking Group includes the retail/commercial bank, the credit card division and trust services. The National Lines of Business include FT Mortgage Companies and affiliates (also referred to as mortgage banking), First Tennessee Capital Markets (also referred to as capital markets) and transaction processing (credit card merchant processing, automated teller machine network and check clearing operations). INTRODUCTION Certain revenues and expenses are allocated and equity is assigned to the various business lines to reflect the inherent risk in each business line, based on management's best estimates. These allocations are periodically reviewed and may be revised from time to time to more accurately reflect current business conditions and risks. In addition, certain reclassifications of accounts may occur to reflect current reporting standards within the industry. In each case the previous history is restated to ensure comparability. For purposes of this management discussion and analysis (MD&A), noninterest income (also called fee income) and total revenues exclude securities gains and losses. Net interest income has been adjusted to a fully taxable equivalent (FTE) basis for certain tax-exempt loans and investments included in earning assets. Earning assets, including loans, have been expressed as averages, net of unearned income. The following is a discussion and analysis of the financial condition and results of operations of First Tennessee for the three month period ended March 31, 1999, compared to the three month period ended March 31, 1998. To assist the reader in obtaining a better understanding of First Tennessee and its performance, this discussion should be read in conjunction with First Tennessee's unaudited consolidated financial statements and accompanying notes appearing in this report. Additional information including the 1998 financial statements, notes, and management's discussion and analysis is provided as an appendix to the 1999 proxy statement. Management's discussion and analysis may contain forward-looking statements with respect to First Tennessee's beliefs, plans, goals, expectations, and estimates. These statements are contained in certain sections that follow such as Year 2000. Forward-looking statements are statements that are not based on historical information but rather are related to future operations, strategies, financial results or other developments. Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies many of which are beyond a company's control, and many of which, with respect to future business decisions, are subject to change. Examples of uncertainties and contingencies include, among other important factors, general and local economic 13 and business conditions; interest rate, market and monetary fluctuations; inflation; competition within and without the financial services industry; and new products and services in the industries in which First Tennessee operates. Other factors are those inherent in originating loans, including prepayment risks and fluctuating collateral values and changes in customer profiles. Uncertainties regarding changes in technology within First Tennessee and by third-party vendors of First Tennessee, and future acquisitions can also affect results. Additionally, the policies of the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System, unanticipated regulatory and judicial proceedings, and changes in laws and regulations applicable to First Tennessee and First Tennessee's success in managing the risks involved in the foregoing, could cause actual results to differ. First Tennessee assumes no obligation to update any forward-looking statements that are made from time to time. SECURITIZATION ACTIVITY First Tennessee Bank National Association (FTBNA) securitized approximately $73 million of direct automobile loan receivables during the second quarter of 1998. Also during 1998, FTBNA securitized $711 million of its consumer real estate loans from the consumer loan and permanent mortgage portfolios through the use of a Real Estate Mortgage Investment Conduit (REMIC). All of the interests in the REMIC are owned by subsidiaries of First Tennessee, including FTBNA. This transaction affects categorization of individual line items on the balance sheet. Consequently, loans have been reduced and investment securities have been increased. For a more complete understanding, where significant, these transactions are discussed and identified as "Managed" information, which adds data on these securitized loans to "Reported" data for loans. "Reported" information has been prepared in conformity with generally accepted accounting principles. "Managed" information treats loans securitized and sold with servicing retained and loans securitized through the REMIC as if they had not been securitized and/or sold. "Managed" information does not include the mortgage banking servicing portfolio. FINANCIAL HIGHLIGHTS (COMPARISON OF FIRST QUARTER 1999 TO FIRST QUARTER 1998) * Earnings for the first quarter of 1999 were $53.0 million, up 14 percent from last year's first quarter earnings of $46.4 million. * Diluted earnings per share were $.40 in 1999, up 14 percent over the $.35 earned in 1998. Basic earnings per share were $.41 in 1999 and $.36 in 1998, an increase of 14 percent. * Total revenues grew 37 percent with growth in fee income of approximately 51 percent and growth in net interest income of 17 percent. Mortgage banking and capital markets led the increase in fee income with growth of 82 percent and 17 percent, respectively. Fee income contributed 66 percent to total revenues in 1999 compared with 60 percent in 1998. * Return on average shareholders' equity was 19.1 percent in 1999 compared with a return of 19.6 percent in 1998. Strong internal 14 equity generation caused the decline in this ratio. Return on average assets was 1.15 percent in 1999 compared with 1.26 percent in 1998. The decline in the return on average assets was due to growth in assets, primarily from an extraordinary rise in the mortgage warehouse. * The consolidated net interest margin was 3.76 percent in 1999 compared with 4.03 percent in 1998. The lower margin was primarily related to the increased volume in the mortgage warehouse which produces a narrower spread. The consolidated net interest margin compression was partially offset by the 14 basis points improvement in the regional banking group's margin. * Asset quality remained stable with the nonperforming assets ratio decreasing to .54 percent for the first quarter of 1999 compared with .61 percent in 1998. * At March 31, 1999, First Tennessee was ranked as one of the top 50 bank holding companies nationally in market capitalization ($4.8 billion) and assets ($18.3 billion). FT Mortgage Companies continued to rank as one of the top retail mortgage originators in the nation, and First Tennessee Capital Markets continued to rank as one of the largest U.S. agency underwriters in the nation during the quarter. INCOME STATEMENT ANALYSIS NONINTEREST INCOME - ------------------ Fee income (noninterest income excluding securities gains and losses) provides the majority of First Tennessee's revenue. During the first quarter of 1999, fee income increased 51 percent (from $189.9 million to $286.6 million) and contributed 66 percent to total revenue. Fee income contributed 60 percent to total revenue in the first quarter of 1998. Fee income increased in all of the major categories with mortgage banking experiencing 82 percent growth and capital markets experiencing 17 percent growth. MORTGAGE BANKING Mortgage banking fee income, First Tennessee's largest contributing business line to noninterest income, grew 82 percent (from $92.6 million to $168.8 million) from the first quarter of 1998 as shown in Table 1. The increase came primarily from the mortgage origination function (loan origination fees and secondary marketing activities). TABLE 1 - MORTGAGE BANKING
First Quarter ----------------------- Growth (Dollars in millions) 1999 1998 Rate (%) - ----------------------------------------------------------------------------------------------- NONINTEREST INCOME: Secondary marketing activities $ 72.3 $ 40.7 77.5 Loan origination fees 53.6 22.5 138.6 Servicing fees 39.3 25.3 55.2 Miscellaneous 3.6 4.1 (11.4) - ----------------------------------------------------------------------------------------------- Total noninterest income 168.8 92.6 82.4 =============================================================================================== Mortgage loan originations $ 5,968.5 $ 4,676.7 27.6 Servicing portfolio $42,883.5 $29,452.0 45.6 - ----------------------------------------------------------------------------------------------- NM = not meaningful
15 Income derived from the mortgage origination function increased 99 percent from the first quarter of 1998 (from $63.2 million to $125.9 million). FT Mortgage Companies originated a first-quarter record $6.0 billion of mortgage loans and ranked as one of the largest retail mortgage loan originators in the nation. This origination volume, consisting of refinances and home purchases, represented an increase of 28 percent over the $4.7 billion in mortgage loans originated in the first quarter of 1998. The strong real estate market and expansion of FT Mortgage's market share led to a 38 percent increase in home purchase-related mortgages for the first quarter of 1999. Refinance activity increased 22 percent and accounted for 58 percent of total origination volume during the first quarter of 1999, compared to 60 percent in 1998. The increased volume of originations, coupled with more profitable execution of loan sales into the secondary market resulted in the increase in income from secondary marketing activities. Mortgage servicing fee income increased 55 percent from the first quarter of 1998 (from $25.3 million to $39.3 million). The mortgage servicing portfolio (which includes servicing for ourselves and others) totaled $42.9 billion at March 31, 1999, up 46 percent from $29.5 billion at March 31, 1998. This growth was generated through FT Mortgage's loan origination network. The change in the portfolio since first-quarter 1998 resulted from originations of $24.5 billion, less $1.3 billion in sales of servicing released originations and principal reductions of $9.8 billion from payments and payoffs received in the normal course of business. CAPITAL MARKETS First Tennessee Capital Markets generates fee income primarily from the purchase and sale of securities as both principal and agent. Inventory positions are limited to the procurement of securities solely for distribution to customers by the sales staff. Inventory is hedged to protect against movements in interest rates. During the first quarter of 1999, capital markets achieved a record level of fee income, a 17 percent increase over the first quarter of 1998 (from $38.0 million to $44.4 million). Total securities bought and sold increased 72 percent over the same period in 1998 (from $84.7 billion to $145.9 billion). The increase in volume and revenues came from continued customer base expansion, additional product penetration, and strong performance in all of the offices. Total underwritings during the first quarter of 1999 were $18.4 billion compared with $11.3 billion for the same period in 1998. Capital markets continued to rank as one of the largest U.S. agency underwriters in the nation during the quarter. OTHER FEE INCOME Noninterest income from deposit transactions and cash management increased 15 percent from the first quarter of 1998 (from $20.0 million to $23.0 million) due to increased fees from business and consumer deposit accounts and growth in cash 16 management from ACH processing and retail and wholesale lockbox processing. Since the first quarter of 1998, trust and investment management fees grew 20 percent (from $12.1 million to $14.6 million). This growth was primarily due to growth in assets under management related to a strong stock market and customer base expansion. Assets under management grew from $8.3 billion in the first quarter of 1998 to $9.1 billion in the first quarter of 1999. Fee income from merchant processing grew 49 percent from the first quarter of 1998 (from $7.2 million to $10.7 million) due to growth in transaction volume which increased 21 percent (from 33 million transactions processed in the first quarter of 1998 to 40 million transactions in 1999) and a special assessment received from a large customer. Cardholder fees increased 10 percent (from $4.5 million to $5.0 million) during this same period, as strong consumer purchasing activity led to higher interchange collections, reduced by the collection of fewer late fees due to lower delinquencies. All other income and commissions increased 30 percent from the first quarter of 1998 (from $15.5 million to $20.2 million). This growth was spread over a number of categories, with other service charges increasing 53 percent (from $2.9 million to $4.5 million) which included growth in investment/mutual fund sales and servicing fees from the securitized transactions completed in the second quarter of 1998. Insurance premiums and commissions increased 37 percent (from $1.7 million to $2.3 million). The other category increased 21 percent (from $8.7 million to $10.6 million) with the growth being spread over several categories. NET INTEREST INCOME - ------------------- Net interest income increased 16 percent (from $128.2 million to $148.9 million) from the first quarter of 1998, primarily due to the 24 percent increase in earning assets (from $12.8 billion to $15.9 billion). The consolidated net interest margin (margin) declined from 4.03 percent in the first quarter of 1998 to 3.76 percent in the first quarter of 1999, primarily from the build-up of the mortgage warehouse which produced 72 percent of the increase in earning assets. Table 2 details the computation of the net interest margin for the regional banking group and the impact that the other business lines had on the consolidated margin for the first quarters of 1999 and 1998. 17 TABLE 2 - NET INTEREST MARGIN
First Quarter -------------------- 1999 1998 - ------------------------------------------------------------------------------------- REGIONAL BANKING GROUP: Yields on earning assets 7.84% 8.25% Rates paid on interest-bearing liabilities 3.89 4.51 - ------------------------------------------------------------------------------------- Net interest spread 3.95 3.74 - ------------------------------------------------------------------------------------- Effect of interest-free sources .80 .90 Loan fees .15 .13 FRB interest and penalties .01 -- - ------------------------------------------------------------------------------------- Net interest margin - Regional banking group 4.91% 4.77% MORTGAGE BANKING (1.03) (.61) CAPITAL MARKETS (.13) (.13) TRANSACTION PROCESSING .01 -- - ------------------------------------------------------------------------------------- Net interest margin 3.76% 4.03% =====================================================================================
As shown in Table 2, the margin is affected by the activity levels and related funding for First Tennessee's specialty lines of business, as these nonbank business lines typically produce different margins than traditional banking activities. For example, in mortgage banking because the spread between the rates on mortgage loans temporarily in the warehouse and the related short-term funding rates is less than the comparable spread earned in the regional banking group, the overall margin is compressed. Consequently, as the warehouse volume increases, the margin also compresses. Capital markets tends to compress the margin because of its strategy to reduce market risk by hedging its inventory in the cash markets which effectively eliminates net interest income on these positions. As a result, First Tennessee's consolidated margin cannot be readily compared to that of other bank holding companies. NONINTEREST EXPENSE - ------------------- Total noninterest expense (operating expense) for the first quarter of 1999 increased 46 percent (from $230.9 million to $336.8 million) over the same period in 1998 primarily from increased costs to support the higher levels of activity in mortgage banking and capital markets. Table 4 provides a breakdown of total expenses by business line. TABLE 3 - OPERATING EXPENSE COMPOSITION
First Quarter ----------------------- Growth (Dollars in millions) 1999 1998 Rate (%) - ------------------------------------------------------------------------------------- Regional banking group $107.4 $ 91.7 17.0 Mortgage banking 179.1 95.4 87.9 Capital markets 32.6 27.8 17.1 Transaction processing 15.6 13.9 12.1 Other 2.1 2.1 -- - ------------------------------------------------------------------------------------- Total operating expense $336.8 $230.9 45.9 =====================================================================================
Mortgage banking accounted for 79 percent of the overall expense growth and grew 88 percent from the previous year. Expense growth for this business line varies with the volume and type of activity. The increase was mainly in personnel expense from increased loan production and amortization expense due to the larger servicing portfolio and faster prepayments. During this period, amortization of capitalized mortgage servicing rights increased 79 percent (from $17.3 million to $30.9 million). Increased activity in mortgage banking represented the majority of the growth in other expenses (such as contract employment, amortization of hedge instruments, legal and professional fees, etc.). The regional banking group accounted for 15 percent of the overall expense 18 growth and increased 17 percent from the previous year. This increase was due to investments in our nationwide expansion strategy for consumer lending, growth in the insurance business, costs related to the implementation of our branding strategy, and increased technology expenses. Capital markets accounted for 5 percent of the overall expense growth and grew 17 percent from the previous year. Expenses for this business line are primarily variable in nature, and the increase reflects the growth in volume as well as costs from business expansion due to opening a new office and hiring additional salespeople and traders. PROVISION FOR LOAN LOSSES/ASSET QUALITY The provision for loan losses increased 10 percent (from $13.5 million to $14.8 million) from March 31, 1998, due to increased inherent risk in the loan portfolio from loan growth and a change in the loan mix partially due to securitizations. The provision for loan losses is the charge to operating earnings that management determines to be necessary to maintain the allowance for loan losses at an adequate level reflecting management's estimate of the risk of loss inherent in the loan portfolio. Additional asset quality information is provided in Table 4 - Asset Quality Information and Table 5 - Charge-off Ratios. TABLE 4 - ASSET QUALITY INFORMATION
March 31 ------------------------ (Dollars in thousands) 1999 1998 - ----------------------------------------------------------------------------------------------------- Nonperforming loans $ 12,629 $ 10,914 Foreclosed real estate 6,121 4,294 Other assets 189 225 - ----------------------------------------------------------------------------------------------------- Total Regional Banking Group 18,939 15,433 - ----------------------------------------------------------------------------------------------------- Mortgage Banking nonperforming loans 18,166 29,283 Mortgage Banking foreclosed real estate 10,749 7,281 - ----------------------------------------------------------------------------------------------------- Total nonperforming assets $ 47,854 $ 51,997 ===================================================================================================== Loans and leases 90 days past due $ 28,006 $ 29,062 Potential problem assets* $ 64,974 $ 70,652 First Quarter ------------------------- 1999 1998 ------------------------- ALLOWANCE FOR CREDIT LOSSES: Beginning balance at December 31 $136,013 $125,859 Provision for loan losses 14,826 13,515 Charge-offs (13,541) (12,376) Loan recoveries 2,089 3,028 - ----------------------------------------------------------------------------------------------------- Ending balance at March 31 $139,387 $130,026 ===================================================================================================== March 31 ------------------------- 1999 1998 ------------------------- Allowance to total loans 1.59% 1.53% Nonperforming loans to total loans .35 .47 Nonperforming assets to total loans, foreclosed real estate and other assets .54 .61 Allowance to nonperforming assets 291 250 - ----------------------------------------------------------------------------------------------------- * Includes loans and leases 90 days past due.
The ratio of net charge-offs to average loans increased from .45 percent for the first quarter of 1998 to .53 percent for the first quarter of 1999; however, the credit card receivables charge-off ratio improved from 4.29 percent at March 31, 1998, to 3.65 percent at March 31, 1999. In the first quarter of 1998, 19 commercial and commercial real estate net charge-offs were in a net recovery position. This position changed to a more normal level in 1999, thus causing the overall charge-off ratio to increase. The ratio of nonperforming loans to total loans decreased to .35 percent for the first quarter of 1999 compared with .47 percent for the same period in 1998, primarily from improvement in nonperforming loans in mortgage banking. At March 31, 1999, First Tennessee had no concentrations of 10 percent or more of total loans in any single industry. TABLE 5 - CHARGE-OFF RATIOS
First Quarter ----------------- 1999 1998 - ---------------------------------------------------------------------------------- Commercial and commercial real estate .12% (.03)% Consumer .53 .39 Credit card receivables 3.65 4.29 Permanent mortgage* .03 (.02) ================================================================================== Total net charge-offs excluding repurchased mortgages .51% .41% Impact of repurchased mortgages .02 .04 - ---------------------------------------------------------------------------------- Total net charge-offs .53% .45% ================================================================================== * Excludes impact of repurchased mortgages.
BALANCE SHEET LOANS AND DEPOSITS - ------------------ As previously discussed, for a more complete understanding of loan growth trends it is helpful to analyze information on a "reported" as well as a "managed" basis. "Reported" information is derived from consolidated financial statements that have been prepared in conformity with generally accepted accounting principles. "Managed" information treats consumer loans securitized and sold with servicing retained and loans securitized through the REMIC and held by First Tennessee as if they had not been securitized and/or sold. "Managed" information does not include the mortgage banking servicing portfolio. Table 6 - Selected Loans includes information for reported and managed assets and Table 7 - - Investment Securities includes reported information and information excluding the REMIC. At March 31, 1999, First Tennessee reported total assets of $18.3 billion compared with $15.9 billion at March 31, 1998. Mortgage loans held for sale (mortgage warehouse) increased 42 percent (from $2.2 billion to $3.2 billion). The growth in the period end balance sheet was funded by a 44 percent increase in short-term purchased funds (from $4.1 billion to $5.9 billion). 20 TABLE 6 - SELECTED LOANS
1999 AS Growth 1999 Growth (Dollars in millions) REPORTED 1998 Rate (%) MANAGED* Rate (%) - ----------------------------------------------------------------------------------------------------------------------- MARCH 31 PERIOD-END Consumer loans $ 3,164.0 $ 2,912.4 8.6 $ 3,446.4 18.3 Permanent mortgages 444.7 676.6 (34.3) 683.2 1.0 Total loans 8,782.8 8,488.4 3.5 9,303.8 9.6 - ----------------------------------------------------------------------------------------------------------------------- YEAR-TO-DATE AVERAGES Consumer loans $ 3,090.3 $ 2,879.2 7.3 $ 3,392.4 17.8 Permanent mortgages 424.3 668.9 (36.6) 677.2 1.2 Total loans 8,653.2 8,368.7 3.4 9,208.2 10.0 - ----------------------------------------------------------------------------------------------------------------------- * Excludes managed loans in the mortgage banking servicing portfolio.
TABLE 7 - INVESTMENT SECURITIES
1999 1999 EXCLUDING AS Growth SECURITIZATION Growth (Dollars in millions) REPORTED 1998 Rate (%) ACTIVITY Rate (%) - ----------------------------------------------------------------------------------------------------------------------- March 31 period-end $ 2,429.0 $ 1,966.3 23.5 $ 1,920.2 (2.3) Year-to-date averages 2,429.9 2,099.1 15.8 1,888.3 (10.0) - -----------------------------------------------------------------------------------------------------------------------
Average total assets grew 25 percent (from $14.9 billion to $18.6 billion) from the first quarter of 1998. Due to strong origination volume, the mortgage warehouse increased 131 percent (from $1.7 billion to $3.9 billion) and accounted for 60 percent of the increase in total assets. The continuation of favorable economic conditions led to 10 percent growth in total managed loans for the first quarter of 1999 (from $8.4 billion to $9.2 billion). Average commercial loans increased 9 percent (from $3.8 billion to $4.2 billion) and represented 45 percent of total managed loans. The 18 percent increase in managed consumer loans (from $2.9 billion to $3.4 billion) came primarily from real estate-related lending, and these loans represented 37 percent of total managed loans. First Horizon Equity Lending (previously known as Gulf Pacific Mortgage) which is active in originating home equity loans and second mortgages, experienced strong growth in 1999. Average investment securities increased 16 percent from first quarter 1998 (from $2.1 billion to $2.4 billion). Table 7 - Investment Securities shows the impact the securitization activity had on this growth rate. Since the first quarter of 1998, average core deposits grew 4 percent (from $8.9 billion to $9.3 billion) while interest-bearing core deposits remained relatively flat. Noninterest-bearing deposits grew 14 percent (from $2.5 billion to $2.8 billion) over this same period with growth in mortgage escrow balances accounting for 37 percent of this increase. Short-term purchased funds were up 64 percent (from $4.3 billion to $7.0 billion) from the previous year, and were primarily used to fund the growth in the mortgage warehouse. CAPITAL - ------- Total capital (shareholders' equity plus qualifying capital securities) at March 31, 1999, was $1.3 billion, up 17 percent from $1.1 billion at March 31, 1998. Shareholders' equity (excluding the qualifying capital securities) was $1.2 billion at March 31, 1999, an increase of 18 percent from $1.0 billion at March 31, 1998. Average shareholders' equity increased 18 percent (from $1.0 billion to $1.1 21 billion) since the first quarter of 1998, reflecting strong internal capital generation. The average total capital to average assets ratio was 6.58 percent and the average shareholders' equity to average assets ratio was 6.05 percent for the first quarter of 1999. This compares with 7.08 percent and 6.41 percent, respectively for the first quarter of 1998. The capital ratios have been adversely impacted by the effect of assets, primarily the mortgage warehouse, increasing faster than equity. Excluding the effects of unrealized market valuations the average total capital to average assets ratio would have been 6.53 percent and the average shareholders' equity to average assets ratio would have been 5.99 percent for the first quarter of 1999. At March 31, 1999, the corporation's Tier 1 capital ratio was 8.25 percent, the total capital ratio was 11.78 percent and the leverage ratio was 5.91 percent. On March 31, 1999, First Tennessee's bank affiliates had sufficient capital to qualify as well-capitalized institutions. OFF BALANCE SHEET ACTIVITY In the normal course of business, First Tennessee is a party to financial instruments that are not required to be reflected on a balance sheet. First Tennessee enters into transactions involving these instruments to meet the financial needs of its customers and manage its own exposure to fluctuations in interest rates. These instruments are categorized into "Lending related," "Mortgage banking," Interest rate risk management and "Capital markets" as noted in Table 8. TABLE 8 - OFF-BALANCE SHEET FINANCIAL INSTRUMENTS AT MARCH 31, 1999
(Dollars in millions) Notional value - ----------------------------------------------------------------------------------------------------------------------- LENDING Commitments to extend credit: RELATED: Consumer credit card lines $ 2,270.2 Consumer home equity 547.0 Commercial real estate and construction and land development 348.5 Mortgage banking 1,978.0 Other 1,440.7 Other commitments: Standby letters of credit 425.0 Commercial letters of credit 4.6 - ----------------------------------------------------------------------------------------------------------------------- MORTGAGE Mortgage pipeline and warehouse hedging: BANKING: Interest rate contracts: Forward contracts - commitments to sell $ 4,317.8 Option contracts: Put options purchased* 8.0 Call options written 25.0 Servicing portfolio hedging: Interest rate contracts: Caps - purchased* 1,250.0 Caps - written 1,250.0 Floors - purchased* 20,750.0 Floors - written 5,400.0 Swaption - purchased* 4,300.0 Swaption - written 1,000.0 - ----------------------------------------------------------------------------------------------------------------------- INTEREST Interest rate contracts: RATE RISK Swaps - receive fixed/pay floating $ 602.0 MANAGEMENT: Swaps - receive floating/pay floating 200.0 Caps - purchased 20.0 Caps - written 20.0 Equity contracts: Purchased options 1.9 - ----------------------------------------------------------------------------------------------------------------------- CAPITAL Forward contracts: MARKETS: Commitments to buy $ 2,916.1 Commitments to sell 3,074.0 Option contracts: Written 5.0 Purchased 5.0 Securities underwriting commitments 3.2 - ----------------------------------------------------------------------------------------------------------------------- * Mortgage banking option contracts in total had a book value of $156.4 million at March 31, 1999.
22 OTHER YEAR 2000 - --------- Many computer programs were originally designed to store and process data using two digits rather than four to define a calendar year. This could cause programs that have date sensitive software to recognize a date using "00" as the year 1900 rather than the year 2000. The "Year 2000 computer issue" can create risk for a company from unforeseen problems in its own computer systems and from the company's vendors and customers. First Tennessee began planning its Year 2000 remediation strategy to fix this computer issue in 1995. Among other things, the process included the formation of a company-wide project team that meets regularly to coordinate and review the status of conversion initiatives. The main phases involved in the Year 2000 project are assessment, renovation, validation, and implementation. A comprehensive review to assess the systems affected by this issue has been completed, estimated cost projections have been determined and an implementation plan has been compiled. As a result of the assessment review, First Tennessee is in the process of modifying or replacing certain existing systems. New systems being acquired will provide new functionality to meet the expanding needs of customers and will be Year 2000 compliant. Modifications to systems are made in the renovation phase. These modifications are then subjected to current and future date testing during the next phase, the validation phase. Finally, after systems are thoroughly tested, the implementation phase begins. Training and product integration occur during this final phase to aid in assuring a smooth transition to the normal day-to-day operations. The substantial completion of these phases is expected to occur by the end of the second quarter of 1999. As of March 31, 1999, for mission critical systems, First Tennessee had completed over 99 percent of renovation and 95 percent was validated and implemented, of which 3 percent are pending vendor testing with external vendors. For all systems, the completion status was approximately 97 percent renovated, 86 percent validated and implemented. Management believes the efforts described above will provide reasonable assurance that its systems will be adequately prepared for the Year 2000. Costs of new systems will be capitalized and amortized, and spending for maintenance and modification associated with Year 2000 will be expensed as incurred. The total gross cost of Year 2000 compliance is estimated to range from $40 million to $45 million, of which approximately $30 million had been incurred as of March 31, 1999, with approximately 55 percent of this being capitalized. Consistent with current corporate accounting policy, the capitalized costs will be amortized on a straight-line basis over a maximum period of five years once the systems project is substantially complete and ready for its intended use. As part of our Year 2000 preparedness, First Tennessee is also assessing business risks that potentially could arise from customers, business partners, vendors, and government agencies that may fail to successfully complete renovation of their systems before January 1, 2000. The processes include periodic assessments of Year 2000 readiness of material credit customers, funds providers, financial market counterparties, and mission critical vendors. During 1998, First Tennessee initiated a review with its large commercial customers 23 to identify, assess and mitigate potential risks, including credit risk, associated with customers' failure to adequately address their Year 2000 issues. We will continue to assess these external sources for Year 2000 readiness. While First Tennessee continues, when it deems appropriate, to discuss these matters with, obtain written certification from, and test the systems of other companies as to their Year 2000 compliance, there can be no assurance that any potential impact associated with Year 2000 issues after December 31, 1999, would not have a material adverse effect on First Tennessee's business, financial condition or results of operations. However, our regular contingency planning processes are being adapted to aid us in preparing for the most significant potential risks from these external sources. The Office of the Comptroller of the Currency, which is our primary bank regulator, includes a review of the risk assessments and contingency plans in its quarterly examination of Year 2000 preparedness. Our contingency plans are being adapted to include such items as outsourcing options, business resumption plans for all of the business units, identification of alternative sources of liquidity, and evaluation of alternative manual processes. The adaptation and testing of these contingency plans should be finalized by the third quarter of 1999. The foregoing statements are forward looking. Actual results could differ because of several factors, including those presented at the beginning of this MD&A discussion. The Year 2000 disclosures contained in this report are designated as Year 2000 Readiness Disclosures related to the Year 2000 Information and Readiness Disclosure Act. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information called for by this item is incorporated herein by reference to Management's Discussion and Analysis included as Item 2 of Part I of this report and to Note 1 of the Consolidated Financial Statements and the "Risk Management-Interest Rate Risk Management" Subsection of the Management's Discussion and Analysis section contained in the Financial Information Appendix to the Corporation's proxy statement furnished to shareholders in connection with the Annual Meeting of Shareholders held on April 20, 1999, filed March 17, 1999. 24 Part II. OTHER INFORMATION Items 1, 3, 4 and 5 - ------------------- As of the end of the first quarter, 1999, the answers to Items 1, 3, 4 and 5 were either inapplicable or negative, and therefore, these items are omitted. Item 2 - Changes in Securities. - ------------------------------- On March 31, 1999, the Corporation acquired Cambridge Mortgage, Inc. ("Cambridge"), Seattle, Washington, and merged Cambridge with and into FT Mortgage Companies, an indirect, wholly-owned subsidiary of the Corporation. At closing, the Corporation acquired from the three shareholders of Cambridge all 38,250 shares of Cambridge's common stock, $1.00 par value, in exchange for an initial closing payment of 20,914 shares of Corporation's common stock, $0.625 par value. It is estimated that approximately 800 additional shares of the Corporation's common stock will be issued to the shareholders of Cambridge during the second quarter of 1999 in payment of the balance of the acquisition price. No underwriter was involved in the transaction. The shares were sold in a private offering pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933, based on the limited number of shareholders receiving the Corporation's common stock. Item 6 - Exhibits and Reports on Form 8-K. - ------------------------------------------ (a) Exhibits.
Exhibit No. Description - ----------- ----------- 3(b) Bylaws, as amended. Filed Herewith 4 Instruments defining the rights of security holders, including indentures.* **10(d) 1992 Restricted Stock Incentive Plan, as amended and restated. Filed Herewith **10(i) Amended and Restated Pension Restoration Plan, as amended and restated, attached as Exhibit 10(i) to the Corporation's 1998 Form 10-K and incorporated herein by reference. 27 Financial Data Schedule (for SEC use only). Filed Herewith
*The Corporation agrees to furnish copies of the instruments, including indentures, defining the rights of the holders of the long-term debt of the Corporation and its consolidated subsidiaries to the Securities and Exchange Commission upon request. **This is a management contract or compensatory plan or arrangement required to be filed as an exhibit. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the first quarter of 1999. 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST TENNESSEE NATIONAL CORPORATION ------------------------------------ (Registrant) DATE: 5/14/99 By: Elbert L. Thomas Jr. --------------------- --------------------------- Elbert L. Thomas Jr. Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) 26 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ----------- ----------- 3(b) Bylaws, as amended. Filed Herewith 4 Instruments defining the rights of security holders, including indentures.* **10(d) 1992 Restricted Stock Incentive Plan, as amended and restated. Filed Herewith **10(i) Amended and Restated Pension Restoration Plan, as amended and restated, attached as Exhibit 10(i) to the Corporation's 1998 Form 10-K and incorporated herein by reference. 27 Financial Data Schedule (for SEC use only). Filed Herewith
*The Corporation agrees to furnish copies of the instruments, including indentures, defining the rights of the holders of the long-term debt of the Corporation and its consolidated subsidiaries to the Securities and Exchange Commission upon request. **This is a management contract or compensatory plan or arrangement required to be filed as an exhibit. EX-3.(B) 2 BYLAWS OF FIRST TENNESSEE NATIONAL CORPORATION 1 EXHIBIT 3(b) BYLAWS OF FIRST TENNESSEE NATIONAL CORPORATION (AS AMENDED AND RESTATED APRIL 20, 1999) ARTICLE ONE OFFICES 1.1 PRINCIPAL OFFICE. The principal office of First Tennessee National Corporation (the "Corporation") shall be 165 Madison Avenue, Memphis, Tennessee. 1.2 OTHER OFFICES. The Corporation may have offices at such other places, either within or without the State of Tennessee, as the Board of Directors may from time to time designate or as the business of the Corporation may from time to time require. 1.3 REGISTERED OFFICE. The registered office of the Corporation required to be maintained in the State of Tennessee shall be the same as its principal office and may be changed from time to time as provided by law. ARTICLE TWO SHAREHOLDERS 2.1 PLACE OF MEETINGS. Meetings of the shareholders of the Corporation may be held either in the State of Tennessee or elsewhere; but in the absence of notice to the contrary, shareholders' meetings shall be held at the principal office of the Corporation in Memphis, Tennessee. 2.2 QUORUM AND ADJOURNMENTS. The holders of a majority of the shares issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall be requisite, and shall constitute a quorum at all meetings of the shareholders, for the transaction of business, except as otherwise provided by law, the Restated Charter of the Corporation, as amended from time to time (the "Charter), or these Bylaws. In the event a quorum is not obtained at the meeting, the holders of a majority of the shares entitled to vote thereat, present in person or by proxy, shall have power to adjourn the meeting from time to time and, whether or not a quorum is obtained at the meeting, the Chairman of the meeting shall have the power to adjourn the meeting from time to time, in either case without notice, except as otherwise provided by law, other than announcement at the meeting. At such adjourned meeting at which the requisite amount of voting shares shall be represented, any business may be transacted which might have been transacted at the meeting as originally notified. 2.3 NOTICE OF MEETINGS. Unless otherwise required by applicable law, written notice of the annual and each special meeting stating the date, time and place of the meeting shall be mailed, postage prepaid, or otherwise delivered to each shareholder entitled to vote thereat at such address as appears on the records of shareholders of the Corporation, at least ten (10) days, but not more than two (2) months, prior to the meeting date. In addition, notice of any special meeting shall state the purpose or purposes for which the meeting is called and the person or persons calling the meeting. In the event of an adjournment of a meeting to a date more than four months after the date fixed for the original meeting or the Board of Directors fixes a new record date for the adjourned meeting, a new notice of the adjourned meeting must be given to shareholders as of the new record date. Any previously scheduled meeting may be postponed, and any special meeting may be canceled, by resolution of the Board of Directors upon public notice given prior to the date scheduled for such meeting. 2.4 ANNUAL MEETINGS. The annual meeting of shareholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held each year on the third Tuesday in April, or if that day is a legal holiday, on the next succeeding business day not a legal holiday, at 10:00 a.m. Memphis time or on such other date and/or at such other time as the Board of Directors may fix by resolution by vote 1 2 of a majority of the entire Board of Directors. At the meeting, the shareholders shall elect by ballot, by plurality vote, directors to succeed directors in the class of directors whose term expires at the meeting and directors elected by the Board of Directors to fill vacancies in other classes of directors and may transact such other business as may properly come before the meeting. 2.5 SPECIAL MEETINGS. Special meetings of the shareholders for any purpose or purposes, unless otherwise prescribed by statute, may be called by Chairman of the Board and shall be called by the Chairman of the Board or the Secretary at the request in writing of a majority of the Board of Directors. Only such business within the purpose or purposes described in the notice of the meeting may be conducted at the meeting. 2.6 WAIVER OF NOTICE. Any shareholder may waive in writing notice of any meeting either before, at or after the meeting. Attendance by a shareholder in person or by proxy at a meeting shall constitute a waiver of objection to lack of notice or defective notice and a waiver of objection to consideration of a matter that was not described in the meeting notice unless the shareholder objects in the manner required by law. 2.7 VOTING. Unless otherwise required by the Charter, at each meeting of shareholders, each shareholder shall have one vote for each share of stock having voting power registered in the shareholder's name on the records of the Corporation on the record date for that meeting, and every shareholder having the right to vote shall be entitled to vote in person or by proxy appointed by instrument in writing or any other method permitted by law. 2.8 PROCEDURES FOR BRINGING BUSINESS BEFORE SHAREHOLDER MEETING. At an annual or special meeting of shareholders, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before an annual or special meeting of shareholders. To be properly brought before an annual or special meeting of shareholders, business must be (i) in the case of a special meeting called by the Chairman of the Board or at the request of the Board of Directors, specified in the notice of the special meeting (or any supplement thereto), or (ii) in the case of an annual meeting properly brought before the meeting by or at the direction of the Board of Directors or (iii) otherwise properly brought before the annual or special meeting by a shareholder. For business to be properly brought before such a meeting of shareholders by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 90 days nor more than 120 days prior to the date of the meeting; provided, however, that if fewer than 100 days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholders to be timely must be so delivered or received not later than the close of business on the 10th day following the earlier of (i) the day on which such notice of the date of such meeting was mailed or (ii) the day on which such public disclosure was made. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before a meeting of shareholders (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (ii) the name and address, as they appear on the Corporation's books, of the shareholder proposing such business and any other shareholders known by such shareholder to be supporting such proposal, (iii) the class and number of shares of the Corporation which are beneficially owned by such shareholder on the date of such shareholder's notice and by any other shareholders known by such shareholder to be supporting such proposal on the date of such shareholder's notice, and (iv) any material interest of the shareholder in such proposal. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at a meeting of shareholders except in accordance with the procedures set forth in this Section 2.8. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that the business was not properly brought before the meeting in accordance with the procedures prescribed by these Bylaws, and if the Chairman should so determine, the Chairman shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. 2.9 SEC PROXY RULES. In addition to complying with the provisions of Section 2.8, a shareholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder with respect to the matters set forth in Section 2.8. Nothing in Section 2.8 shall be deemed to affect any rights of shareholders to request inclusion of proposals in the Corporation's proxy statement pursuant to rules of the Securities and Exchange Commission. For such proposals to be acted upon at a meeting, however, compliance with the notice provisions of Section 2.8 is also required. 2 3 ARTICLE THREE DIRECTORS 3.1 POWERS OF DIRECTORS. The business and affairs of the Corporation shall be managed under the direction of and all corporate powers shall be exercised by or under the authority of the Board of Directors. 3.2 NUMBER AND QUALIFICATIONS. The Board of Directors shall consist of 12 members. The Board of Directors has the power to change from time to time the number of directors specified in the preceding sentence. Any such change in the number of directors constituting the Corporation's Board Directors must be made exclusively by means of an amendment to these Bylaws adopted by a majority of the entire Board of Directors then in office. Directors need not be shareholders of the Corporation nor residents of the State of Tennessee. 3.3 TERM OF OFFICE. Except as otherwise provided by law or by the Charter, the term of each director hereafter elected shall be from the time of his or her election and qualification until the third annual meeting next following such election and until a successor shall have been duly elected and qualified; subject, however, to the right of the removal of any director as provided by law, by the Charter or by these Bylaws. 3.4 COMPENSATION. The directors shall be paid for their services on the Board of Directors and on any Committee thereof such compensation (which may include cash, shares of stock of the Corporation and options thereon) and benefits together with reasonable expenses, if any, at such times as may, from time to time, be determined by resolution adopted by a majority of the entire Board of Directors; provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and being compensated therefor. 3.5 COMMITTEES. The directors, by resolution adopted by a majority of the entire Board of Directors, may designate an executive committee and other committees, consisting of two or more directors, and may delegate to such committee or committees all such authority of the Board of Directors that it deems desirable, including, without limitation, authority to appoint corporate officers, fix their salaries, and, to the extent such is not provided by law, the Charter or these Bylaws, to establish their authority and responsibility, except that no such committee or committees shall have and exercise the authority of the Board of Directors to: (a) authorize distributions (which include dividend declarations), except according to a formula or method prescribed by the Board of Directors, (b) fill vacancies on the Board of Directors or on any of its committees, (c) adopt, amend or repeal bylaws, (d) authorize or approve the reacquisition of shares, except according to a formula or method prescribed by the Board of Directors, or (e) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize a committee to do so within limits specifically prescribed by the Board of Directors. 3.6 PROCEDURES FOR DIRECTOR NOMINATIONS. Except as provided in Section 3.7 with respect to vacancies on the Board of Directors, only persons nominated in accordance with the procedures set forth in this Section 3.6 shall be eligible for election as directors. Nominations of persons for election to the Board of Directors may be made at a meeting of shareholders (i) by or at the direction of the Board of Directors, or (ii) by any shareholder of the Corporation entitled to vote for the election of directors at such meeting who complies with the notice procedures set forth in this Section 3.6. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a shareholder's notice must be 3 4 delivered to or mailed and received at the principal executive offices of the Corporation not less than 90 days nor more than 120 days prior to the date of a meeting; provided, however, that if fewer than 100 days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so delivered or received not later than the close of business on the 10th day following the earlier of (i) the day on which such notice of the date of such meeting was mailed or (ii) the day on which such public disclosure was made. A shareholder's notice to the Secretary shall set forth (i) as to each person whom the shareholder proposes to nominate for election or reelection as a director (a) the name, age, business address and residence address of such person, (b) the principal occupation or employment of such person, (c) the class and number of shares of the Corporation which are beneficially owned by such person on the date of such shareholder's notice and (d) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors or, is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including, without limitation, such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (ii) as to the shareholder giving the notice (a) the name and address, as they appear on the Corporation's books, of such shareholder and any other shareholders known by such shareholder to be supporting such nominees and (b) the class and number of shares of the Corporation which are beneficially owned by such shareholder on the date of such shareholder's notice and by any other shareholders known by such shareholder to be supporting such nominees on the date of such shareholder's notice. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 3.6. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if the Chairman should so determine, the Chairman shall so declare to the meeting and the defective nomination shall be disregarded. 3.7 VACANCIES; REMOVAL FROM OFFICE. Except as otherwise provided by law or by the Charter, newly created directorships resulting from any increase in the authorized number of directors or any vacancies on the Board of Directors resulting from death, resignation, retirement, disqualification or any other cause (except removal from office) shall be filled only by the Board of Directors, provided that a quorum is then in office and present, or only by a majority of the directors then in office, if less than a quorum is then in office or by the sole remaining director. Any vacancies on the Board of Directors resulting from removal from office may be filled by the affirmative vote of the holders of at least a majority of the voting power of all outstanding voting stock or, if the shareholders do not so fill such a vacancy, by a majority of the directors then in office. Directors elected to fill a newly created directorship or other vacancy shall hold office for a term expiring at the next shareholders' meeting at which directors are elected and until such director's successor has been duly elected and qualified. The directors of any class of directors of the Corporation may be removed by the shareholders only for cause by the affirmative vote of the holders of at least a majority of the voting power of all outstanding voting stock. 3.8 PLACE OF MEETINGS. The directors may hold meetings of the Board of Directors or of a committee thereof at the principal office of the Corporation in Memphis, Tennessee, or at such other place or places, either in the State of Tennessee or elsewhere, as the Board of Directors or the members of the committee, as applicable, may from time to time determine by resolution or by written consent or as may be specified in the notice of the meeting. 3.9 QUORUM. A majority of the directors shall constitute a quorum for the transaction of business, but a smaller number may adjourn from time to time, without further notice, if the time and place to which the meeting is adjourned are fixed at the meeting at which the adjournment is taken and if the period of adjournment does not exceed thirty (30) days in any one (1) adjournment. The vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless the vote of a greater number is required by law, the Charter, or these Bylaws. 3.10 REGULAR MEETINGS. Following each annual meeting of shareholders, the newly elected directors, together with the incumbent directors whose terms do not expire at such meeting, shall meet for the purpose of organization, the appointment of officers and the transaction of other business, and, if a majority of the directors be present at such place, day and hour, no prior notice of such meeting shall be required to be given to the directors. The place, day and hour of such meeting may also be fixed by resolution or by written consent of the directors. In addition, the Board of Directors may approve an annual schedule for additional regular meetings of the Board of Directors and 4 5 of committees thereof. 3.11 SPECIAL MEETINGS. Special meetings of the directors may be called by the Chairman of the Board, the Chief Executive Officer, or the President (or as to any committee of the Board of Directors, by the person or persons specified in the resolution of the Board of Directors establishing the committee) on two days' notice by mail or on one day's notice by telegram or cablegram, or on two hours' notice given personally or by telephone or facsimile transmission to each director (or member of the committee, as appropriate), and shall be called by the Chairman of the Board or Secretary in like manner on the written request of a majority of directors then in office. The notice shall state the day and hour of the meeting and the place where the meeting is to be held. Special meetings of the directors may be held at any time on written waiver of notice or by consent of all the directors, either of which may be given either before, at or after the meeting. 3.12 ACTION WITHOUT A MEETING. The directors may (whether acting in lieu of a meeting of the Board of Directors or of a committee thereof) take action which they are required or permitted to take, without a meeting, on written consent setting forth the action so taken, signed by all of the directors entitled to vote thereon. If all the directors entitled to vote consent to taking such action without a meeting, the affirmative vote of the number of directors necessary to authorize or take such action at a meeting is the act of the Board of Directors or committee, as appropriate. 3.13 TELEPHONE MEETINGS. Directors may participate in a meeting of the Board of Directors or of a committee thereof by, or conduct a meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director so participating is deemed to be present in person at such meeting. ARTICLE FOUR OFFICERS 4.1 DESIGNATED OFFICERS. The officers of the Corporation shall consist of a Chairman of the Board, a Chief Executive Officer, a President, such number of Vice Chairmen as the Board may from time to time determine and appoint, an Auditor, a Chief Credit Officer, a Chief Financial Officer, a Controller, a General Counsel, a Manager of Risk Management, an Executive Vice President -- Employee Services, a Secretary, and a Treasurer, and such number of Executive Vice Presidents, Senior Vice Presidents and Vice Presidents and such other Officers and assistant Officers as may be from time to time determined and appointed in accordance with the provisions of this Article Four. The title of any officer may include any additional descriptive designation determined to be appropriate. Any person may hold two or more offices, except that the President shall not also be the Secretary or an Assistant Secretary. The officers, other than the Chairman of the Board, need not be directors, and officers need not be shareholders. 4.2 APPOINTMENT OF OFFICERS. Except as otherwise provided in this Section 4.2, the officers of the Corporation shall be appointed by the Board of Directors at the annual organizational meeting of the Board of Directors following the annual meeting of shareholders. The Board of Directors may delegate to a committee of the Board of Directors the power to create corporate offices, define the authority and responsibility of such offices, except to the extent such authority or responsibility would not be consistent with the law or the Charter, and to appoint persons to any office of the Corporation except the offices of the Chairman of the Board, Chief Executive Officer, and President, any office the incumbent in which is designated by the Board as an Executive Officer (as defined in Section 4.5 hereof), and, upon the recommendation of the Audit Committee, the Auditor. In addition, the Board of Directors may delegate to the officers appointed to the Corporation's personnel committee, acting as a committee, the authority to appoint persons to any offices of the Corporation of the level of Vice President and below annually at the personnel committee meeting following the annual meeting of shareholders and to appoint persons to any office of the Corporation of the level of Senior Vice President and below during the period of time between the annual appointment of officers by the Board of Directors or pursuant to this section 4.2 of the Bylaws. Notwithstanding the delegation of authority pursuant to this section 4.2 of the Bylaws, the Board of Directors retains the authority to appoint all officers and such other officers and agents as it shall deem necessary, who shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. 5 6 4.3 TERM. The officers of the Corporation shall be appointed for a term of one (1) year and until their successors are appointed and qualified, subject to the right of removal specified in Section 4.4 of these Bylaws. The designation of a specified term does not grant to any officer any contract rights. 4.4 VACANCIES, RESIGNATIONS AND REMOVAL. If the office of any officer or officers becomes vacant for any reason, the vacancy may be filled by the Board of Directors or, if such officer was appointed by a committee, by the committee appointing such officer. Any officer may resign at any time by delivering a written notice to the Chairman of the Board, Chief Executive Officer, President, Secretary, or Executive Vice President -- Employee Services of the Corporation, or the designee of any of them, which shall be effective upon delivery unless it specifies a later date acceptable to the Corporation. Any officer designated by the Board as an Executive Officer shall be subject to removal at any time with or without cause only by the affirmative vote of a majority of the Board of Directors. The Auditor shall be subject to removal at any time with or without cause only by the affirmative vote of a majority of the Board of Directors, upon the recommendation of the Audit Committee. Any other officer shall be subject to removal at any time with or without cause by the affirmative vote of a majority of the Board of Directors, and in the event the officer was, or could have been, appointed by a committee, then by the affirmative vote of a majority of either such committee or the Board of Directors. 4.5 COMPENSATION. The Board of Directors, or a committee thereof, shall fix the compensation of Executive Officers (as defined herein) of the Corporation. "Executive Officers" shall be those officers of the Corporation identified as such from time to time in a resolution or resolutions of the Board of Directors. The compensation of officers who are not Executive Officers shall be fixed by the Board of Directors, by a committee thereof, or by management under such policies and procedures as shall be established by the Board of Directors or a committee thereof. 4.6 DELEGATION OF OFFICER DUTIES. In case of the absence of any officer of the Corporation, or for any reason that the Board of Directors (or, in addition, in the case of any officer appointed by a committee, such committee or any other committee which could appoint such officer pursuant to Section 4.2 of these Bylaws) may deem sufficient, the Board of Directors (or committee, as applicable) may delegate, for the time being, the powers or duties, or any of them, of such officer to any other officer, or to any director. 4.7 CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at all meetings of the shareholders and of the Board of Directors and shall have such powers and perform such duties as may be provided for herein and as are normally incident to the office and as may be assigned by the Board of Directors. If and at such times as the Board of Directors so determines, the Chairman of the Board may also serve as the Chief Executive Officer of the Corporation. 4.8 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer, in the absence of the Chairman of the Board, shall preside at all meetings of the shareholders and of the Board of Directors. The Chief Executive Officer shall be responsible for carrying out the orders of and the resolutions and policies adopted by the Board of Directors and shall have general management of the business of the Corporation and shall exercise general supervision over all of its affairs. In addition, the Chief Executive Officer shall have such powers and perform such duties as may be provided for herein and as are normally incident to the office and as may be prescribed by the Board of Directors. If and at such time as the Board of Directors so determines, the Chief Executive Officer may also serve as the President of the Corporation. 4.9 PRESIDENT. The President, in the absence of the Chairman of the Board and the Chief Executive Officer, shall preside at all meetings of the shareholders and of the Board of Directors. The President shall be the Chief Executive Officer of the Corporation unless the Board of Directors has appointed another person to such office, in which case the President shall be the Chief Operating Officer of the Corporation and shall have such powers and perform such duties as may be provided for herein and as are normally incident to the office and as may be prescribed by the Board of Directors, the Chairman of the Board, or the Chief Executive Officer. 6 7 4.10 VICE CHAIRMEN. Vice Chairmen shall perform such duties and exercise such powers as may be prescribed by the Board of Directors, the Chairman of the Board, or the Chief Executive Officer. 4.11 CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall be the principal financial officer of the Corporation. The Chief Financial Officer is authorized to sign any document filed with the Securities and Exchange Commission or any state securities commission on behalf of the Corporation and shall perform such duties and exercise such powers as are normally incident to the office and as may be prescribed by the Board of Directors, the Chairman of the Board, or the Chief Executive Officer. 4.12 CHIEF CREDIT OFFICER. The Chief Credit Officer shall perform such duties and exercise such powers as are normally incident to the office and as may be prescribed by the Board of Directors, the Chairman of the Board, or the Chief Executive Officer. 4.13 GENERAL COUNSEL. The General Counsel shall perform such duties and exercise such powers as are normally incident to the office and as may be prescribed by the Board of Directors, the Chairman of the Board, or the Chief Executive Officer. 4.14 EXECUTIVE VICE PRESIDENT -- EMPLOYEE SERVICES. The Executive Vice President -- Employee Services shall perform such duties and exercise such powers as are normally incident to the office and as may be prescribed by the Board of Directors, the Chairman of the Board, or the Chief Executive Officer. 4.15 MANAGER OF RISK MANAGEMENT. The Manager of Risk Management shall perform such duties and exercise such powers as are normally incident to the office and as may be prescribed by the Board of Directors, the Chairman of the Board, or the Chief Executive Officer. 4.16 EXECUTIVE VICE PRESIDENTS, SENIOR VICE PRESIDENTS AND VICE PRESIDENTS. Executive Vice Presidents, Senior Vice Presidents and Vice Presidents shall perform such duties and exercise such powers as may be prescribed by the Board of Directors, a committee thereof, the personnel committee, the Chairman of the Board, or the Chief Executive Officer. 4.17 SECRETARY. The Secretary shall attend all sessions of the Board of Directors and of the shareholders and record all votes and the minutes of all proceedings in books to be kept for that purpose. The Secretary shall give or cause to be given notice of all meetings of the shareholders and of the Board of Directors, shall authenticate records of the Corporation, and shall perform such other duties as are incident to the office or as may be prescribed by the Board of Directors, the Chairman of the Board or the Chief Executive Officer. In the absence or disability of the Secretary, the Assistant Secretary or such other officer or officers as may be authorized by the Board of Directors or Executive Committee thereof shall perform all the duties and exercise all of the powers of the Secretary and shall perform such other duties as the Board of Directors, Chairman of the Board or the Chief Executive Officer shall prescribe. 4.18 TREASURER. The Treasurer shall have the custody of the funds and securities of the Corporation and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer, or the President, taking proper vouchers for such disbursements, and shall render to the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer, or the President, whenever they may require it, an account of all of his or her transactions as Treasurer and of the financial condition of the Corporation, and at a regular meeting of the Board of Directors preceding the annual shareholders' meeting, a like report for the preceding year. The Treasurer shall keep or cause to be kept an account of stock registered and transferred in such manner and subject to such regulations as the Board of Directors may prescribe. The Treasurer shall give the Corporation a bond, if required by the Board of Directors, in such a sum and in form and with security satisfactory to the Board of Directors for the faithful performance of the duties of the office and the restoration to the Corporation, 7 8 in case of his or her death, resignation or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession, belonging to the Corporation. The Treasurer shall perform such other duties as the Board of Directors may from time to time prescribe or require. In the absence or disability of the Treasurer, the Assistant Treasurer shall perform all the duties and exercise all of the powers of the Treasurer and shall perform such other duties as the Board of Directors, the Chairman of the Board, or the Chief Executive Officer shall prescribe. 4.19 AUDITOR. The Auditor shall perform such duties and exercise such powers as are normally incident to the office and as may be prescribed by the Board of Directors or the Chairman of the Audit Committee. 4.20 CONTROLLER. The Controller shall be the principal accounting officer of the Corporation. The Controller is authorized to sign any document filed with the Securities and Exchange Commission or any state securities commission on behalf of the Corporation and shall assist the management of the Corporation in setting the financial goals and policies of the Corporation, shall provide financial and statistical information to the shareholders and to the management of the Corporation and shall perform such other duties and exercise such other powers as may be prescribed by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President. In the absence or disability of the Controller, the Assistant Controller shall perform all the duties and exercise all powers of the Controller and shall perform such duties as the Board of Directors or the Chairman of the Board or the Chief Executive Officer shall prescribe. 4.21 OTHER OFFICERS. Officers holding such other offices as may be created pursuant to Sections 4.1 and 4.2 of these Bylaws shall have such authority and perform such duties and exercise such powers as may be prescribed by the Board of Directors, a committee thereof, the personnel committee, the Chairman of the Board or the Chief Executive Officer. 4.22 OFFICER COMMITTEES. The directors, by resolution adopted by a majority of the entire Board of Directors, may designate one or more committees, consisting of two or more officers, and may delegate to such committee or committees all such authority that the Board of Directors deems desirable that is permitted by law. Members of such committees may take action without a meeting and may participate in meetings to the same extent and in the same manner that directors may take action and may participate pursuant to Sections 3.12 and 3.13 of these Bylaws. ARTICLE FIVE SHARES OF STOCK 5.1 CERTIFICATES. The certificates representing shares of stock of the Corporation shall be numbered, shall be entered in the books or records of the Corporation as they are issued, and shall be signed by the Chairman of the Board or the Chief Executive Officer and any one of the following: the President, the Treasurer, or the Secretary. Either or both of the signatures upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent, or registered by a registrar other than an officer or employee of the Corporation. Each certificate shall include the following upon the face thereof: (a) A statement that the Corporation is organized under the laws of the State of Tennessee; (b) The name of the Corporation; (c) The name of the person to whom issued; (d) The number and class of shares, and the designation of the series, if any, which such certificate represents; (e) The par value of each share represented by such certificate; or a statement that the shares are without par value; and 8 9 (f) Such other provisions as the Board of Directors may from time to time require. 5.2 SHARES NOT REPRESENTED BY CERTIFICATES. Notwithstanding the provisions of Section 5.1 of these Bylaws, the Board of Directors may authorize the issuance of some or all of the shares of any class without certificates. The Corporation shall send to each shareholder to whom such shares have been issued or transferred at the appropriate time any written statement providing information about such shares, which is required by law. 5.3 STOCK TRANSFERS AND RECORD DATES. Transfers of shares of stock shall be made upon the books of the Corporation by the record owner or by an attorney, lawfully constituted in writing, and upon surrender of any certificate therefor. The Board of Directors may appoint suitable agents in Memphis, Tennessee, and elsewhere to facilitate transfers by shareholders under such regulations as the Board of Directors may from time to time prescribe. The transfer books may be closed by the Board of Directors for such period, not to exceed 40 days, as may be deemed advisable for dividend or other purposes, or in lieu of closing the books, the Board of Directors may fix in advance a date as the record date for determining shareholders entitled notice of and to vote at a meeting of shareholders, or entitled to payment of any dividend or other distribution. The record date for voting or taking other action as shareholders shall not be less than 10 days nor more than 70 days prior to the meeting date or action requiring such determination of shareholders. The record date for dividends and other distributions shall not be less than 10 days prior to the payment date of the dividend or other distribution. All certificates surrendered to the Corporation for transfer shall be canceled, and no new certificate shall be issued until the former certificate for like number of shares shall have been surrendered and canceled, except that in case of a lost or destroyed certificate a new one may be issued on the terms prescribed by Section 5.5 of these Bylaws. 5.4 RECORD OWNERS. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof; and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, except as required by applicable law. 5.5 LOST, DESTROYED, STOLEN OR MUTILATED CERTIFICATES. The agent for transfer of the Corporation's stock may issue new share certificates in place of certificates represented to have been lost, destroyed, stolen or mutilated upon receiving an indemnity satisfactory to the agent and the Secretary or Treasurer of the Corporation, without further action of the Board of Directors. ARTICLE SIX INDEMNIFICATION 6.1 INDEMNIFICATION OF OFFICERS WHEN WHOLLY SUCCESSFUL. If any current or former officer of the Corporation [including for purposes of this Article an individual who, while an officer, is or was serving another corporation or other enterprise (including an employee benefit plan and a political action committee, which serves the interests of the employees of the Corporation or any of its subsidiaries) in any capacity at the request of the Corporation and unless the context requires otherwise the estate or personal representative of such officer] is wholly successful, on the merits or otherwise, in the defense of any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal ("Proceeding"), to which the officer was a party because he or she is or was an officer of the Corporation, the officer shall be indemnified by the Corporation against all reasonable expenses, including attorney fees, incurred in connection with such Proceeding, or any appeal therein. 6.2 INDEMNIFICATION OF OFFICERS WHEN NOT WHOLLY SUCCESSFUL. If any current or former officer of the Corporation has not been wholly successful on the merits or otherwise, in the defense of a Proceeding, to which the officer was or was threatened to be made a party because he or she was or is an officer, the officer shall be indemnified by the Corporation against any judgment, settlement, penalty, fine (including any excise tax assessed with respect to an employee benefit plan), or other liability and any reasonable expenses, including attorney fees, incurred as a result of such Proceeding, or any appeal therein, if authorized in the specific case after a determination has been made that indemnification is permissible because the following standard of conduct has been met: 9 10 (a) The officer conducted himself or herself in good faith, and (b) The officer reasonably believed: (i) in the case of conduct in the officer's official capacity as an officer of the Corporation that the officer's conduct was in the Corporation's best interest; and (ii) in all other cases that the officer's conduct was at least not opposed to its best interests; and (c) In the case of any criminal proceeding, the officer had no reasonable cause to believe his or her conduct was unlawful; provided, however, the Corporation may not indemnify an officer in connection with a Proceeding by or in the right of the Corporation in which the officer was adjudged liable to the Corporation or in connection with any other proceeding charging improper benefit to the officer, whether or not involving action in his or her official capacity, in which the officer was adjudged liable on the basis that personal benefit was improperly received by the officer. 6.3 PROCEDURES FOR INDEMNIFICATION DETERMINATIONS. The determination required by Section 6.2 herein shall be made as follows: (a) By the Board of Directors by a majority vote of a quorum consisting of directors not at the time parties to the Proceeding; (b) If a quorum cannot be obtained, by majority vote of a committee duly designated by the Board of Directors (in which designation directors who are parties may participate) consisting solely of two or more directors not at the time parties to the Proceeding; (c) By independent special legal counsel: (i) selected by the Board of Directors or its committee in the manner prescribed in subsection (a) or (b); or (ii) if a quorum of the Board of Directors cannot be obtained under subsection (a) and a committee cannot be designated under subsection (b), selected by majority vote of the full Board of Directors (in which selection directors who are parties may participate); or, if a determination pursuant to subsections (a), (b), or (c) of this Section 6.3 cannot be obtained, then (d) By the shareholders, but shares owned by or voted under the control of directors who are at the time parties to the Proceeding may not be voted on the determination. 6.4 SERVING AT THE REQUEST OF THE CORPORATION. An officer of the Corporation shall be deemed to be serving another corporation or other enterprise or employee benefit plan or political action committee at the request of the Corporation only if such request is reflected in the records of the Board of Directors or a committee appointed by the Board of Directors for the purpose of making such requests. Approval by the Board of Directors, or a committee thereof, may occur before or after commencement of such service by the officer. 6.5 ADVANCEMENT OF EXPENSES. The Corporation shall pay for or reimburse reasonable expenses, including attorney fees, incurred by an officer who is a party to a Proceeding in advance of the final disposition of the Proceeding if: (a) The officer furnishes to the Corporation a written affirmation of the officer's good faith belief that the officer has met the standard of conduct described in Section 6.2 herein; (b) The officer furnishes to the Corporation a written undertaking, executed personally or on behalf of the officer, to repay the advance if it is ultimately determined that the officer is not entitled to indemnification; and (c) A determination is made that the facts then known to those making the determination would not preclude indemnification under this bylaw. 10 11 6.6 UNDERTAKING REQUIRED FOR EXPENSES. The undertaking required by Section 6.5 herein must be an unlimited general obligation of the officer but need not be secured and may be accepted without reference to financial ability to make repayment. 6.7 PROCEDURES FOR EXPENSE DETERMINATIONS. Determinations and authorizations of payments under Section 6.5 herein shall be made in the same manner as is specified in Section 6.3 herein. 6.8 INDEMNIFICATION OF EMPLOYEES AND FORMER DIRECTORS. Every employee and every former director of the Corporation shall be indemnified by the Corporation to the same extent as officers of the Corporation. 6.9 NONEXCLUSIVITY OF RIGHT OF INDEMNIFICATION. The right of indemnification set forth above shall not be deemed exclusive of any other rights, including, but not limited to, rights created pursuant to Section 6.11 of these Bylaws, to which an officer, employee, or former director seeking indemnification may be entitled. No combination of rights shall permit any officer, employee or former director of the Corporation to receive a double or greater recovery. 6.10 MANDATORY INDEMNIFICATION OF DIRECTORS AND DESIGNATED OFFICERS. The Corporation shall indemnify each of its directors and such of the non-director officers of the Corporation or any of its subsidiaries as the Board of Directors may designate, and shall advance expenses, including attorney's fees, to each director and such designated officers, to the maximum extent permitted (or not prohibited) by law, and in accordance with the foregoing, the Board of Directors is expressly authorized to enter into individual indemnity agreements on behalf of the Corporation with each director and such designated officers which provide for such indemnification and expense advancement and to adopt resolutions which provide for such indemnification and expense advancement. 6.11 INSURANCE. Notwithstanding anything in this Article Six to the contrary, the Corporation shall have the additional power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Corporation, or who, while a director, officer, employee or agent of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, political action committee, or other enterprise, against liability asserted against or incurred by the person in that capacity or arising from the person's status as a director, officer, employee, or agent, whether or not the Corporation would have the power to indemnify the person against the same liability. ARTICLE SEVEN RETIREMENT 7.1 NON-EMPLOYEE DIRECTORS. Directors who are not also officers of the Corporation or its affiliates shall be retired from the Board of Directors as follows: (a) Any director who shall attain the age of sixty-five (65) on or before the last day of the term for which he or she was elected shall not be nominated for re-election and shall be retired from the Board of Directors at the expiration of such term; provided, however, any director first elected to the Board of Directors prior to April 17, 1996, may serve a minimum of two three-year terms. (b) For the purpose of maintaining boards of active business and professional persons, directors leaving the occupation or the position held at their last election (by retirement or otherwise) will be expected to tender their resignation from the Board of Directors upon such occasion. A resignation will ordinarily be accepted unless (i) the director assumes another management position deemed appropriate by the Board of Directors for continuation, or (ii) the director is so engaged in some specific project for the Board of Directors as to make his or her resignation detrimental to the Corporation. Under this circumstance, the Board of Directors may elect to set a subsequent date for his or her retirement to coincide with the completion of the project. 11 12 Directors who are also officers of the Corporation or any of its affiliates will be retired from the Board of Directors on the date of the annual meeting coincident with or next following the date of the director's retirement from or other discontinuation of active service with the Corporation and its affiliates. 7.2 OFFICERS AND EMPLOYEES. Except as provided in the following sentence, the Corporation has no compulsory retirement age for its officers or employees. Each officer or employee who has attained 65 years of age and who, for the two-year period immediately before attaining such age, has been employed in a "bona fide executive" or a "high policy-making" position as those terms are used and defined in the Age Discrimination in Employment Act, Section 12(c), and the regulations relating to that section prescribed by the Equal Employment Opportunity Commission, all as amended from time to time (collectively, the "ADEA"), shall automatically be terminated by way of compulsory retirement and his or her salary discontinued on the first day of the month coincident with or immediately following the 65th birthday, provided such employee is entitled to an immediate nonforfeitable annual retirement benefit, as specified in the ADEA, in the aggregate amount of at least $44,000. Notwithstanding the prior sentence, the Board of Directors, in its discretion, may continue any such officer or employee in service and designate the capacity in which he or she shall serve, and shall fix the remuneration he or she shall receive. The Board of Directors may also re-employ any former officer who had theretofore been retired. ARTICLE EIGHT EXECUTION OF DOCUMENTS 8.1 DEFINITION OF "DOCUMENT." For purposes of this Article Eight of the Bylaws, the term "document" shall mean a document of any type, including, but not limited to, an agreement, contract, instrument, power of attorney, endorsement, assignment, transfer, stock or bond power, deed, mortgage, deed of trust, lease, indenture, conveyance, proxy, waiver, consent, certificate, declaration, receipt, discharge, release, satisfaction, settlement, schedule, account, affidavit, security, bill, acceptance, bond, undertaking, check, note or other evidence of indebtedness, draft, guaranty, letter of credit, and order. 8.2 EXECUTION OF DOCUMENTS. Except as expressly provided in Section 5.1 of these Bylaws (with respect to signatures on certificates representing shares of stock of the Corporation), the Chairman of the Board, the Chief Executive Officer, the President, any Vice Chairman, any Executive Vice President, any Senior Vice President, any Vice President, the Chief Financial Officer, the Chief Credit Officer, the General Counsel, the Executive Vice President - Employee Services, the Manager of Risk Management, the Controller, the Treasurer, the Secretary, and any other officer, or any of them acting individually, may (i) execute and deliver in the name and on behalf of the Corporation or in the name and on behalf of any division or department of the Corporation any document pertaining to the business, affairs, or property of the Corporation or any division or department of the Corporation, and (ii) delegate to any other officer, employee or agent of the Corporation the power to execute and deliver any such document. In addition, the President - Retail Financial Services, the President - Business Financial Services/Memphis Financial Services, and the Group Manager - Money Management of First Tennessee Bank National Association (the "Bank"), the principal subsidiary of the Corporation, or any of them acting individually, may, as agent of the Corporation, execute and deliver in the name and on behalf of the Corporation any such document. 8.3 METHOD OF EXECUTION BY SECRETARY. Unless otherwise required by law, the signature of the Secretary on any document may be a facsimile. ARTICLE NINE EMERGENCY BYLAWS 9.1 DEFINITION OF EMERGENCY. The provisions of this Article Nine shall be effective only during an "emergency." An "emergency" shall be deemed to exist whenever any two of the officers identified in Section 9.2 of these Bylaws in good faith determine that a quorum of the directors cannot readily be assembled because of a catastrophic event. 12 13 9.2 NOTICE OF MEETING. A meeting of the Board of Directors may be called by any one director or by any one of the following officers: Chairman of the Board, Chief Executive Officer, President, any Vice Chairman, any Executive Vice President, Chief Credit Officer, Chief Financial Officer, Controller, General Counsel, Manager of Risk Management, Executive Vice President - Employee Services, or Secretary. Notice of such meeting need be given only to those directors whom it is practical to reach by any means the person calling the meeting deems feasible, including, but not limited to, by publication and radio. Such notice shall be given at least two hours prior to commencement of the meeting. 9.3 QUORUM AND SUBSTITUTE DIRECTORS.. If a quorum has not been obtained, then one or more officers of the Corporation or the Bank present at the emergency meeting of the Board of Directors, as are necessary to achieve a quorum, shall be considered to be substitute directors for purposes of the meeting, and shall serve in order of rank, and within the same rank in order of seniority determined by hire date by the Corporation, the Bank or any of their subsidiaries. In the event that less than a quorum of the directors (including any officers who serve as substitute directors for the meeting) are present, those directors present (including such officers serving as substitute directors) shall constitute a quorum. 9.4 ACTION AT MEETING. The Board as constituted pursuant to Section 9.3 and after notice has been provided pursuant to Section 9.2 may take any of the following actions: (i) prescribe emergency powers of the Corporation, (ii) delegate to any officer or director any of the powers of the Board of Directors, (iii) designate lines of succession of officers and agents in the event that any of them are unable to discharge their duties, (iv) relocate the principal office or designate alternative or multiple principal offices, and (v) take any other action that is convenient, helpful, or necessary to carry on the business of the Corporation. 9.5 EFFECTIVENESS OF NON-EMERGENCY BYLAWS. All provisions of these Bylaws not contained in this Article Nine, which are consistent with the emergency bylaws contained in Article Nine, shall remain effective during the emergency. 9.6 TERMINATION OF EMERGENCY. Any emergency causing this Article Nine to become operative shall be deemed to be terminated whenever either of the following conditions is met: (i) the directors and any substitute directors determine by a majority vote at a meeting that the emergency is over or (ii) a majority of the directors elected pursuant to the provisions of these Bylaws other than this Article Nine hold a meeting and determine that the emergency is over. 9.7 ACTION TAKEN IN GOOD FAITH. Any corporate action taken in good faith in accordance with the provisions of this Article Nine binds the Corporation and may not be used to impose liability on any director, substitute director, officer, employee or agent of the Corporation. ARTICLE TEN MISCELLANEOUS PROVISIONS 10.1 FISCAL YEAR. The Board of Directors of the Corporation shall have authority from time to time to determine whether the Corporation shall operate upon a calendar year basis or upon a fiscal year basis, and if the latter, said Board of Directors shall have power to determine when the said fiscal year shall begin and end. 10.2 DIVIDENDS. Dividends on the capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting pursuant to law. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends or for repairing or maintaining any property of the Corporation, or for such other purposes as the directors shall think conducive to the interest of the Corporation. 13 14 10.3 SEAL. This Corporation shall have a Corporate Seal which shall consist of an imprint of the name of the Corporation, the state of its incorporation, the year of incorporation and the words "Corporate Seal." The Corporate Seal shall not be required to establish the validity or authenticity of any document executed in the name and on behalf of the Corporation. 10.4 NOTICES. Whenever notice is required to be given to any director, officer or shareholder under any of the provisions of the law, the Charter, or these Bylaws (except for notice required by Sections 2.8 and 3.6 of these Bylaws), it shall not be construed to require personal notice, but such notice may be given in writing by depositing the same in the United States mail, postage prepaid, or by telegram, teletype, facsimile transmission or other form of wire, wireless, or other electronic communication or by private carrier addressed to such shareholder at such address as appears on the Corporation's current record of shareholders, and addressed to such director or officer at such address as appears on the records of the Corporation. If mailed as provided above, notice to a shareholder shall be deemed to be effective at the time when it is deposited in the mail. 10.5 BYLAW AMENDMENTS. The Board of Directors shall have power to make, amend and repeal the Bylaws or any Bylaw of the Corporation by vote of not less than a majority of the directors then in office, at any regular or special meeting of the Board of Directors. The shareholders may make, amend and repeal the Bylaws or any Bylaw of this Corporation at any annual meeting or at a special meeting called for that purpose only by the affirmative vote of the holders of at least eighty percent (80%) of the voting power of all outstanding voting stock, and all Bylaws made by the directors may be amended or repealed by the shareholders only by the vote of the holders of at least eighty percent (80%) of the voting power of all outstanding voting stock. Without further authorization, at any time the Bylaws are amended, the Secretary is authorized to restate the Bylaws to reflect such amendment, and the Bylaws, as so restated, shall be the Bylaws of the Corporation. 14 EX-10.(D) 3 FIRST TENNESSEE NATIONAL CORP 1992 STOCK PLAN 1 EXHIBIT 10(d) FIRST TENNESSEE NATIONAL CORPORATION 1992 RESTRICTED STOCK INCENTIVE PLAN (As Amended and Restated 4-20-99) 1. Purpose. The purpose of the First Tennessee National Corporation 1992 Restricted Stock Incentive Plan (the "Plan") is to advance the interests of First Tennessee National Corporation and any successor thereto (the "Company") by awarding restricted shares of the common capital stock of First Tennessee National Corporation, par value $0.625 per share ("Common Stock"), to certain officers and other key executives of the Company and its subsidiaries who make exceptional contributions to the Company by their ability, loyalty, industry, and innovativeness and by making automatic, nondiscretionary grants of restricted shares to non-employee Directors. The Company intends that the Plan will closely associate the interests of officers and key executives and Directors with those of the Company's shareholders and will facilitate securing, retaining, and motivating officers and key executives and Directors of high caliber and potential. 2. Administration. The Plan shall be administered by the Human Resources Committee (the "Committee") of the Board of Directors (the "Board") of the Company. No person shall be appointed to the Committee (a) who is (or has been during the one year period prior to such appointment) eligible to receive an award under the Plan (except as specifically provided under Section 4(b) for non-employee Directors) or any other similar plan of the Company; or (b) who has received an award under the Plan (except for an award under section 4(b)) if, at the time of such appointment, any restriction on the transferability of the shares so awarded remains in effect or remained in effect at any time during the one-year period immediately prior to such appointment. The Committee shall have full and final authority in its discretion to interpret conclusively the provisions of the Plan; to decide all questions of fact arising in its application; to determine the employees to whom awards shall be made under the Plan; to determine the award to be made and the amount, size, terms and restrictions of each such award; to determine the time when awards will be granted; and to make all other determinations necessary or advisable for the administration of the Plan other than determinations required in connection with awards granted under Section 4(b), except to the extent permitted under Rule 16b-3 of the Securities and Exchange Commission ("SEC"). 3. Shares Subject to Plan. The shares issued under the Plan shall not exceed in the aggregate 1,320,000 shares of Common Stock. Such shares shall be authorized and unissued shares. Any shares which are awarded hereunder and subsequently forfeited shall again be available under the Plan. 4. Participants. (a) Persons eligible to participate in the Plan and receive awards under Section 5 shall be limited to those officers and other key executives of the Company or any of its subsidiaries who, in the judgment of the Committee, make a significant impact upon the profitability of the Company through their decisions, actions and counsel. Members of the Board who are not also officers or employees of the Company or its subsidiaries shall not be eligible for Page 1 of 11 2 selection or awards, except as specifically provided in Section 4(b). (b) Each current Director of the Company on the effective date of the Plan who is not a salaried officer or employee of the Company or any of its subsidiaries ("non-employee Director") shall receive an award of 6,000 shares of restricted Common Stock ("restricted shares") on May 1, 1992 or the date required by Section 14 of the Plan, if later. Each new non-employee Director who becomes a Director after the effective date of the Plan shall receive an award of 6,000 restricted shares on the later of the date specified in the prior sentence or the first business day of the month following the date such person becomes a Director. Restricted shares granted under this Section 4(b) shall be evidenced by a written agreement in such form as the Committee shall from time to time approve, which agreement shall comply with and be subject to the following terms and conditions: (1) Restrictions. Share awarded, and the right to vote such shares and to receive dividends thereon, may not be sold, assigned, transferred, exchanged, pledged, hypothecated, or otherwise encumbered during the restriction period specified herein. During the restriction period the non-employee Director shall have all other rights of a shareholder, including, but not limited to, the right to vote and receive dividends on such shares. (2) Certificates. Each certificate evidencing restricted shares shall be deposited with the Company Treasurer, accompanied by a stock power in blank executed by the non-employee Director, and shall bear an appropriate restrictive legend. (3) Forfeiture. In the event that the non-employee Director's directorship terminates for any reason other than death, disability (defined as a total and permanent disability), retirement (which is defined as any termination not caused by death or disability, after the attainment of age 65 or ten years of service as a director of the Company), or a Change in Control (defined below) of the Company, all shares which at the time are restricted shares shall be forfeited to the Company. If a non-employee Director's directorship ends as a result of death, disability, retirement, or a Change in Control, all restrictions shall lapse. A "Change in Control" of the Company shall have occurred when a person (other than the Company, a subsidiary of the Company, or an employee benefit or stock plan of the Company) or other entity, alone or together with its Affiliates and Associates (as those terms are used in the regulations under the Securities Exchange Act of 1934), becomes the beneficial owner of 20% or more of the general voting power of the Company. (4) Lapse of Restrictions. Subject to the provisions of Section 4(b)(3), all restrictions shall lapse at the rate of ten percent (10%) per year on the month and day in each year following the year of grant corresponding to the day before the month and day on which the grant was made. (5) Fair market value. Fair market value as of any date shall be the mean between the high and low sales prices at which shares of Company Common Stock were sold on the valuation Page 2 of 11 3 day as quoted by NASDAQ or, if there were no sales on that date, then on the last day prior to the valuation day during which there were sales. (6) Tax Election. The non-employee Director will enter into an agreement with the Company not to make an election under Section 83(b) of the Internal Revenue Code of 1986, as amended. (7) Nontransferability. If required by the then current SEC Rule 16b-3 or any successor provision, then notwithstanding anything herein to the contrary, restricted shares acquired under this Section 4(b) of the Plan may not be sold for at least six months after acquisition, except in the case of the non-employee Director's death or disability. 5. Awards. The Committee shall make awards of shares of Common Stock to persons eligible under Section 4(a) in accordance with terms and conditions set forth in restricted stock agreements (the "Agreements") executed by participants in such form and containing such terms and conditions (including those set forth below) consistent with the Plan as the Committee shall determine. (a) Restriction Period. At the time of each award, the Committee shall determine the period during which the shares awarded shall be subject to the risks of forfeiture and other terms and conditions in the Agreements. The Committee may at any time accelerate the date of lapse of restrictions with respect to all or any part of the shares awarded to a participant. (b) Certificates. Each certificate issued in respect of shares awarded to a participant shall be deposited with the Company, or its designee, together with a stock power executed in blank by the participant, and shall bear an appropriate legend disclosing the restrictions on transferability imposed on such shares by the Plan and the Agreements. (c) Restrictions Upon Transfer. Shares awarded, and the right to vote such shares and to receive dividends thereon, may not be sold, assigned, transferred, exchanged, pledged, hypothecated, or otherwise encumbered during the restriction period applicable to such shares. During the restriction period the participant shall have all other rights of a stockholder, including, but not limited to, the right to vote and receive dividends on such shares. If as a result of a stock dividend, stock split, recapitalization, or other adjustment in the stated capital of First Tennessee National Corporation, or as the result of a merger, consolidation, or other reorganization, the Common Stock is increased, reduced, or otherwise changed and by virtue thereof the recipient shall be entitled to new or additional or different shares, such shares shall be subject to the same terms, conditions, and restrictions as the original shares. (d) Lapse of Restrictions. The Agreements shall specify the terms and conditions upon which any restrictions upon any shares awarded under the Plan shall lapse. Upon the lapse of such restrictions, certificates evidencing such shares of common stock without the foregoing restrictive legend shall be issued to the participant or his legal representative unless a valid deferral election has been made pursuant to Section 16 hereof, in which case certificates shall Page 3 of 11 4 be issued as provided in Section 16. Each such new certificate shall bear such alternative legend as the Committee shall specify. (e) Termination Prior to Lapse of Restrictions. In the event of the termination of a participant's employment for any reason (except (i) death or (ii), if the Committee approves, retirement or total and permanent disability) prior to the lapse of Plan or Agreement restrictions, all shares subject to unlapsed restrictions shall be forfeited by such participant to the Company without payment of any consideration by the Company, and neither the participant nor any successors, heirs, assigns or personal representatives of such participant shall thereafter have any further rights or interest in such shares or certificates. (f) Death, Disability or Retirement of Participant. Unless the Agreements provided otherwise, all restrictions imposed by this Plan and the Agreement shall lapse upon the death of the participant, or, if such lapsing is approved by the Committee. upon the total and permanent disability or retirement of the participant. (g) Change in Control. Notwithstanding anything herein to the contrary (except for Section 4(b)(3), which is applicable solely to non-employee directors), all restrictions imposed by this Plan or any Agreement shall lapse immediately upon a Change in Control (as such term is defined in the following sentence). A "Change in Control" means the occurrence of any one of the following events: (i) individuals who, on January 21, 1997, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to January 21, 1997, whose election or nomination for election was approved by a vote of at least three-fourths (3/4) of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; provided, however, that no individual elected or nominated as a director of the Company initially as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director; (ii) any "Person" (as defined under Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in Section 13(d) or Section 14(d) of the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board (the "Company Voting Securities"); provided, however, that the event described in this paragraph (ii) shall not be deemed to be a change in control by virtue of any of the following acquisitions: (A) by the Company or any entity in which the Company directly or indirectly beneficially owns more than 50% of the voting securities or interests (a Page 4 of 11 5 "Subsidiary"), (B) by an employee stock ownership or employee benefit plan or trust sponsored or maintained by the Company or any Subsidiary, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, or (D) pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii)); (iii) the shareholders of the Company approve a merger, consolidation, share exchange or similar form of corporate transaction involving the Company or any of its Subsidiaries that requires the approval of the Company's shareholders, whether for such transaction or the issuance of securities in the transaction (a "Business Combination"), unless immediately following such Business Combination: (A) more than 50% of the total voting power of (x) the corporation resulting from such Business Combination (the "Surviving Corporation"), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the "Parent Corporation"), is represented by Company Voting Securities that were outstanding immediately prior to the consummation of such Business Combination (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a "Non-Qualifying Transaction"); or (iv) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or a sale of all or substantially all of the Company's assets. Computations required by paragraph (iii) shall be made on and as of the date of shareholder approval and shall be based on reasonable assumptions that will result in the lowest percentage obtainable. Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that if after such acquisition by the Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such Page 5 of 11 6 person, a change in control of the Company shall then occur. 6. Supplemental Cash Payments. Agreements entered into in connection with awards under Section 5 may provide for the payment by the Company of supplemental cash payments to a participant at the end of the restriction period or periods relating to such restricted stock award. Supplemental cash payments shall be in such amounts and subject to such terms and conditions as shall be provided by the Committee at the time of grant; provided, however, in no event shall the amount of each payment exceed the fair market value of the shares with respect to which restrictions lapse at the time of such payment. 7. Loans. The Committee may, in its discretion to further the purposes of the Plan, provide for cash loans to participants who receive awards under Section 5 in connection with all or part of any restricted stock award under the Plan. Any such loan shall be evidenced by loan agreements or other instruments in such form and containing such terms and conditions (including, without limitation, provisions for the forgiveness or acceleration of such loans or parts thereof) as the Committee shall prescribe from time to time. 8. Rights to Terminate Employment. Nothing in the Plan or in any Agreement entered into pursuant to the Plan shall confer upon any participant the right to continue in the employment or to continue as a Director of the Company or affect any right which the Company may have to terminate the employment or directorship of such participant. 9. Withholding. Whenever the Company proposes or is required to issue or transfer shares of Common Stock under the Plan, the Company shall have the right to withhold from sums due the recipient, or to require the recipient to remit to the Company, any amount sufficient to satisfy any federal, state and/or local withholding tax requirements prior to the delivery of any certificate for such shares. Whenever payments are to be made in cash, such payments shall be net of an amount sufficient to satisfy any federal, state and/or local withholding tax requirements imposed with respect to such payments. 10. Non-Uniform Determinations. The Committee's determinations under Sections 4(a) and 5 of the Plan (including, without limitation, determinations of the persons to receive awards, the form, amount and the timing of such awards, and the terms and provisions of such awards and the Agreements) need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, awards under the Plan, regardless of whether such persons are similarly situated. 11. Adjustments. In the event of any change in the outstanding Common Stock by reason of a stock dividend or distribution, recapitalization, merger, consolidation, split-up, combination, exchange of shares or the like, the Committee shall appropriately adjust the number and class of shares which may be issued under the Plan and shall provide for corresponding equitable adjustments in shares previously awarded and still subject to restrictions hereunder. Notwithstanding anything herein to the contrary, if Committee action under this Section 11 with respect to awards under Page 6 of 11 7 Section 4(b) of the Plan to non-employee Directors would affect the status of a Director as a "disinterested person" under Rule 16b-3, then the first sentence of this Section 11 shall not apply to awards to non-Employee Directors under Section 4(b). For such awards under Section 4(b), any increase in the number of outstanding shares of common stock of the Company occurring through stock splits or stock dividends after the adoption of the Plan shall automatically be reflected proportionately (1) in the number and class of shares which may be issued under the Plan and (2) in shares previously awarded and still subject to restrictions hereunder. Any fractional shares resulting from such adjustments shall be eliminated. 12. Amendment. The Committee may discontinue, suspend or amend the Plan at any time, except that without shareholder approval, the Committee may not materially (a) increase the maximum number of shares which may be issued under the Plan (other than increases pursuant to paragraph 11 hereof); (b) increase the benefits accruing to participants under the Plan; or (c) modify the requirements as to eligibility for participation in the Plan. Also, if required by the then current Rule 16b-3 or any successor provision, the Plan provisions contained in Section 4(b) regarding the automatic, non-discretionary grants to non-employee Directors shall not be amended more than once every six months, other than to comport with changes in the Internal Revenue Code, ERISA, or the rules thereunder. The termination, suspension or any modification or amendment of the Plan shall not, without the consent of a participant, affect a participant's rights under an award granted prior thereto. 13. Effect on Other Plans. Participation in the Plan shall not affect an employee's eligibility to participate in any other benefit or incentive plan of the Company, and any awards made pursuant to the Plan shall not be used in determining the benefits provided under any other plan of the Company, unless specifically provided in such other plan. 14. Duration of the Plan. The Plan shall become effective when it is approved by the shareholders of the Company. The Plan shall remain in effect until all shares awarded under the Plan are free of all restrictions imposed by the Plan and Agreements, but no award shall be made more than ten years after the date the Plan is approved by the shareholders of the Company. Notwithstanding anything herein to the contrary, Section 4(b) of the Plan shall not become effective until the first business day of the month following receipt by the Company of a no-action or interpretive letter from the staff of the SEC confirming that participation and an award under Section 4(b) will no affect the status of a director as a "disinterested person" under Rule 16b-3 or an opinion of counsel, which may be in-house counsel, to that effect. 15. Successors. This Plan shall bind any successor of the Company, its assets or its businesses (whether direct or indirect, by purchase, merger, consolidation or otherwise), in the same manner and to the same extent that the Company would be obligated under this Plan if no succession had taken place. In the case of any transaction in which a successor would not by the foregoing provision or by operation of law be bound by this Plan, the Company shall require such successor expressly and unconditionally to assume and agree to perform the Company's obligations under this Plan, in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. The term "Company," as used in the Plan, shall mean the Page 7 of 11 8 Company as hereinbefore defined and any successor or assignee to the business or assets which by reason hereof becomes bound by this Plan. 16. Deferrals. Notwithstanding anything in this Plan to the contrary, the provisions of this Section 16 shall apply to all deferral elections made in compliance with this section. All participants who have received awards under Section 5 of the Plan, some or all of the restrictions on which have not lapsed as of December 15, 1998, and all persons who receive an award under Section 5 of the Plan after December 15, 1998 whose Agreement provides that the participant may elect to defer under the Plan with respect to such award are permitted to make deferral elections with respect to such awards of restricted stock by following the provisions of this Section 16. (a) Participants who elect to defer must enter into an irrevocable deferral agreement, in the form approved by the Committee, which provides for the exchange of shares of restricted stock for restricted stock units ("RSU's"), and the effective date (as defined below) of such deferral election must occur before restrictions are scheduled to lapse with respect to such shares of restricted stock, assuming accelerated performance criteria are met, and must be at least any minimum number of days before restrictions are scheduled to lapse that is required by the Committee. (b) Participants must tender certificates for the shares of restricted stock with respect to which the deferral agreement is being entered into at the time the deferral agreement is tendered, if the shares are not held in book-entry format by the Corporation's transfer agent. Participants agree to execute any form that may be required by the transfer agent with respect to book-entry or certificated shares. (c) The effective date of the deferral election is the close of business on the business day on which the Manager of the Personnel Division, or her designee, receives the deferral election and, if the shares of restricted stock are not held in book-entry format, certificates for the shares of restricted stock with any properly completed and executed stock powers that may be requested by the Personnel Division. (d) The participant must select a deferral period, which is a period of time that ends on any future date, not in any event to exceed actual retirement (whether normal or early) plus five years. (e) Until the accelerated lapse date approved by the Committee, or if accelerated performance criteria are not met, until the date specified in the participant's Agreement as the date on which restrictions on the Restricted Shares will lapse, RSU's will remain subject to forfeiture in the same manner as Restricted Shares would have remained subject to forfeiture under the provisions of the Plan and related Agreement, except as is provided below in the event of death, disability, retirement, or other termination of employment, or Change in Control. In other words, RSU's will be subject to restrictions identical to the restrictions on Restricted Shares, and restrictions on RSU's will lapse, if at all, at the same time that restrictions on Page 8 of 11 9 Restricted Shares would have lapsed had the participant not made a deferral election. If accelerated performance criteria have been met, then RSU's will be fully vested and not subject to forfeiture. (f) A participant's deferral election must be for 100% percent of the shares of restricted stock with respect to which restrictions are scheduled to lapse if performance criteria are met for a performance period (generally 1/3 of the shares originally awarded). A participant may make a separate election for each of the three different accelerated performance criteria performance periods applicable to an award under the Plan, but any election must be for 100 percent of the shares with respect to which restrictions may lapse if performance criteria are met. (g) For each participant electing to defer, upon the effective date of the deferral a deferral account will be established by the Corporation, consisting of a subaccount reflecting RSU's and, unless a participant has elected to receive earnings attributable to RSU's currently, and not on a deferred basis, pursuant to subsection 16(l), a subaccount representing cash equal to the earnings credited to the account with respect to the dividend equivalents and interest thereon. The participant's RSU subaccount will be credited with RSU's, based on the number of shares of restricted stock exchanged by the participant pursuant to the participant's deferral election, with each RSU being equivalent to one share of the Corporation's common stock. Additional RSU's will be credited to the participant's RSU subaccount at the time of the payment of any stock split or stock dividend on the Corporation's common stock in accordance with subsection (h) herein. (h) Any stock split and stock dividend that is declared with respect to the Corporation's common stock having a payment date that occurs on or after the Effective Date and before the deferral period has terminated will result in a corresponding stock split or stock dividend being made with respect to the RSU's in Participant's deferral account with the result that Participant will be issued that number of shares of the Corporation's common stock at the termination of the deferral period that Participant would have owned had he or she received shares of restricted stock, without restriction, at the time of the lapsing of restrictions on the restricted stock had Participant not entered into this Agreement and had Participant then maintained ownership of such common stock through the payment date of the stock dividend or stock split. (i) Earnings will be credited to the participant's cash subaccount and accrued on the RSU's as follows: on each date on which the Corporation pays a dividend on its shares of common stock, an amount equal to such dividend will be credited to the participant's account with respect to each RSU. Then, as of January 1st of each year, an additional amount will be credited to the participant's account to reflect earnings on the dividend equivalents from the time they were credited to the account for the prior plan year. The rate of earnings credited for the year will be the rate disclosed under the caption "Annualized Ten Year Treasury Rate" in the Federal Reserve Statistical Release in January of the year following the year with Page 9 of 11 10 respect to which earnings are to be credited, and the amount will be computed by multiplying the dividend equivalent by the rate by a factor representing the fraction of the year (e.g., 100% for a January 1st dividend equivalent, 75% for an April 1st dividend equivalent, 50% for a July 1st dividend equivalent, and 25% for a October 1 dividend equivalent) remaining after the dividend equivalent was credited to the participant's account. Interest will compound as follows: for any cash credited to the account that existed on the first day of the prior plan year (excluding any dividend equivalent that is credited to the account on such day), earnings will be credited in an amount equal to the amount of such cash multiplied by the applicable ten year treasury rate factor. For the portion of the year in which a distribution from the deferral account is made to the participant, earnings will be credited on any cash credited to the account during such year from the time such cash is credited through the date of distribution at the rate employed for the previous year. (j) Payment from the participant's deferral account will be made in a single lump sum, computed as follows: with respect to the participant's RSU subaccount, one share of the Corporation's common stock will be paid to the participant for each RSU credited to such subaccount, and with respect to the participant's cash subaccount, cash in the amount credited to such subaccount will be paid to the participant. (k) Payment from the participant's deferral account will be made to the participant (or, in the event of the participant's death, his or her beneficiary) only at the following times: (1) if restrictions on the RSU's have already lapsed at the time payment is scheduled to be made, then on the earliest to occur of the following dates: the date selected by the participant, the date of a Change in Control as defined in the Plan, or a date selected by the Corporation following the participant's death, disability, or termination of employment for any reason other than normal or early retirement that is no later than the last day of the month following the month in which there occurs the death, disability, or termination of employment of the participant for any reason other than normal or early retirement, or (2) if restrictions on the RSU's have not lapsed at the time payment is otherwise scheduled to be made and subject to the last two sentences of this subsection 16(k), then on the earliest to occur of the following dates: (i) the later of the date selected by the participant or the date restrictions on the RSU's lapse, if the shares have not been forfeited before such lapse date, (ii) the date of a Change in Control as defined in the Plan, or (iii) a date selected by the Corporation following the participant's death, or if the Committee approves, the participant's retirement or disability that is no later than the last day of the month following the month in which there occurs the death or, if the Committee has approved, the disability or retirement of the participant. The RSU's and any right to receive Restricted Shares without restrictions will be forfeited by the participant if there occurs a termination of the participant's employment prior to the lapsing of restrictions on RSU's or if the participant becomes disabled or retires prior to a lapsing of restrictions on RSU's and the Committee has not acted to approve payment to the participant in the event of disability or retirement. Notwithstanding a forfeiture of RSU's, the balance in participant's cash subaccount within participant's deferral account will be paid to participant immediately following the occurrence of such a forfeiture. Page 10 of 11 11 (l) A participant is permitted to elect to receive earnings attributable to the participant's RSU subaccount currently, and not on a deferred basis, by indicating such an election on the participant's irrevocable deferred agreement. If such an election is made, the participant will receive in cash on each date on which the Corporation pays a dividend on its shares of common stock an amount equal to such dividend with respect to each RSU in the participant's RSU account. Such payment will be made in lieu of crediting any amount to participant's cash subaccount pursuant to subsection 16(i) and such participant's cash subaccount will be deemed to be "zero" for all purposes of the Plan. Page 11 of 11 EX-27 4 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIRST TENNESSEE NATIONAL CORPORATION'S MARCH 31, 1999, FINANCIAL STATEMENTS FILED IN ITS 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCES TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 589,789 1,416 91,701 420,133 1,882,113 546,844 544,529 11,984,594 139,387 18,325,004 12,197,807 2,934,282 1,535,425 400,501 100,000 0 81,193 1,075,796 18,325,004 249,983 38,982 11,301 300,266 102,685 152,099 148,167 14,826 (34) 336,797 83,107 53,029 0 0 53,029 .41 .40 3.76 30,795 30,452 0 36,969 136,013 13,541 2,089 139,387 139,387 0 0
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