-----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, CDHwV2i9rsGPEo5SrPyAqKuq5VNHVrQK4qFSlJB1jBDNiCrLQNNSDAln57fSKie5 omWz18tzviZ2x/szwpd9qg== 0000950144-99-012945.txt : 19991115 0000950144-99-012945.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950144-99-012945 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 001-15185 FILM NUMBER: 99750300 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 September 30, 1999 -------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------- ------------- Commission file number 000-4491 -------- 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 130,374,434 - ----------------------------- ------------------------------- Class Outstanding at October 31, 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 - ----------------------------------------------------------------------------------------------------------- September 30 December 31 ---------------------------- ------------ (Dollars in thousands)(Unaudited) 1999 1998 1998 - -------------------------------------------------------------------------------------------- ------------ ASSETS: Cash and due from banks $ 860,519 $ 726,605 $ 811,881 Federal funds sold and securities purchased under agreements to resell 297,398 134,011 124,239 - -------------------------------------------------------------------------------------------- ------------ Total cash and cash equivalents 1,157,917 860,616 936,120 - -------------------------------------------------------------------------------------------- ------------ Investment in bank time deposits 1,598 2,786 1,211 Capital markets securities inventory 502,796 397,980 358,304 Mortgage loans held for sale 2,910,874 2,841,957 4,227,443 Securities available for sale 1,953,055 1,910,299 1,816,485 Securities held to maturity (market value of 785,065 at September 30, 1999; $686,156 at September 30, 1998; and $610,364 at December 31, 1998) 810,394 684,491 609,804 Loans, net of unearned income 8,956,320 8,315,716 8,557,064 Less: Allowance for loan losses 139,426 135,413 136,013 - -------------------------------------------------------------------------------------------- ------------ Total net loans 8,816,894 8,180,303 8,421,051 - -------------------------------------------------------------------------------------------- ------------ Premises and equipment, net 304,553 236,908 254,292 Real estate acquired by foreclosure 17,065 15,513 16,242 Mortgage servicing rights, net 868,589 518,991 664,438 Intangible assets, net 131,162 129,052 132,845 Capital markets receivables and other assets 1,627,100 1,469,113 1,295,726 - -------------------------------------------------------------------------------------------- ------------ TOTAL ASSETS $ 19,101,997 $ 17,248,009 $ 18,733,961 ============================================================================================ ============ LIABILITIES AND SHAREHOLDERS' EQUITY: Deposits: Interest-bearing $ 9,674,515 $ 8,384,401 $ 8,665,175 Noninterest-bearing 2,748,857 2,716,088 3,057,864 - -------------------------------------------------------------------------------------------- ------------ Total deposits 12,423,372 11,100,489 11,723,039 - -------------------------------------------------------------------------------------------- ------------ Federal funds purchased and securities sold under agreements to repurchase 1,979,934 2,136,500 2,912,018 Commercial paper and other short-term borrowings 1,494,301 1,336,243 1,427,274 Capital markets payables and other liabilities 1,480,796 1,257,096 1,057,646 Term borrowings 376,877 266,468 414,450 - -------------------------------------------------------------------------------------------- ------------ Total liabilities 17,755,280 16,096,796 17,534,427 - -------------------------------------------------------------------------------------------- ------------ Guaranteed preferred beneficial interests in First Tennessee's junior subordinated debentures 100,000 100,000 100,000 - -------------------------------------------------------------------------------------------- ------------ SHAREHOLDERS' EQUITY: Preferred stock - no par value (5,000,000 shares authorized, but unissued) -- -- -- Common stock - $.625 par value (shares authorized - 400,000,000; shares issued - 130,681,481 at September 30, 1999; 128,087,054 at September 30, 1998; and 128,974,362 at December 31, 1998) 81,676 80,054 80,609 Capital surplus 159,144 78,128 96,778 Undivided profits 1,018,112 867,918 908,977 Accumulated other comprehensive income (9,157) 25,392 12,872 Deferred compensation on restricted stock incentive plans (6,245) (1,434) (1,209) Deferred compensation obligation 3,187 1,155 1,507 - -------------------------------------------------------------------------------------------- ------------ Total shareholders' equity 1,246,717 1,051,213 1,099,534 - -------------------------------------------------------------------------------------------- ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 19,101,997 $ 17,248,009 $ 18,733,961 ============================================================================================ ============ See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF INCOME First Tennessee National Corporation - ------------------------------------------------------------------------------------------------------------------------ Three Months Ended Nine Months Ended September 30 September 30 ----------------------------- ------------------------------ (Dollars in thousands except per share data)(Unaudited) 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------ INTEREST INCOME: Interest and fees on loans $ 189,399 $ 181,038 $ 552,229 $ 541,827 Interest on investment securities: Taxable 46,001 42,654 127,250 115,324 Tax-exempt 602 895 2,093 2,838 Interest on mortgage loans held for sale 55,458 51,112 179,570 130,170 Interest on capital markets securities inventory 7,746 9,351 25,057 21,442 Interest on other earning assets 4,006 3,217 10,456 9,828 - ------------------------------------------------------------------------------------------------------------------------ Total interest income 303,212 288,267 896,655 821,429 - ------------------------------------------------------------------------------------------------------------------------ INTEREST EXPENSE: Interest on deposits: Savings 1,450 1,812 4,317 5,466 Checking interest and money market account 25,900 28,317 78,547 85,415 Certificates of deposit under $100,000 and other time 30,326 35,921 93,431 110,581 Certificates of deposit $100,000 and more 38,878 29,836 115,056 72,790 Interest on short-term borrowings 53,155 52,482 144,403 139,053 Interest on term borrowings 6,176 5,238 19,041 14,134 - ------------------------------------------------------------------------------------------------------------------------ Total interest expense 155,885 153,606 454,795 427,439 - ------------------------------------------------------------------------------------------------------------------------ NET INTEREST INCOME 147,327 134,661 441,860 393,990 Provision for loan losses 14,110 13,127 43,915 39,427 - ------------------------------------------------------------------------------------------------------------------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 133,217 121,534 397,945 354,563 - ------------------------------------------------------------------------------------------------------------------------ NONINTEREST INCOME: Mortgage banking 158,919 160,063 503,393 375,120 Capital markets 27,832 35,370 102,397 103,590 Deposit transactions and cash management 27,431 23,358 77,255 66,125 Trust services and investment management 15,715 12,619 45,059 38,080 Merchant processing 12,880 10,074 37,805 25,023 Cardholder fees 7,084 5,392 18,098 15,258 Equity securities gains 1,871 -- 1,863 38 Debt securities gains/(losses) (12) 9 (76) (91) All other income and commissions 34,592 21,035 81,302 54,677 - ------------------------------------------------------------------------------------------------------------------------ Total noninterest income 286,312 267,920 867,096 677,820 - ------------------------------------------------------------------------------------------------------------------------ ADJUSTED GROSS INCOME AFTER PROVISION FOR LOAN LOSSES 419,529 389,454 1,265,041 1,032,383 - ------------------------------------------------------------------------------------------------------------------------ NONINTEREST EXPENSE: Employee compensation, incentives and benefits 154,175 145,038 490,461 391,452 Amortization of mortgage servicing rights 22,784 28,851 83,619 70,796 Operations services 16,886 14,931 49,449 42,889 Occupancy 19,706 13,543 52,408 36,958 Equipment rentals, depreciation and maintenance 14,618 11,636 41,731 32,023 Communications and courier 13,816 10,636 38,853 30,340 Advertising and public relations 6,724 7,398 23,323 18,628 Amortization of intangible assets 2,629 2,726 7,806 8,021 All other expense 63,102 57,948 194,278 150,878 - ------------------------------------------------------------------------------------------------------------------------ Total noninterest expense 314,440 292,707 981,928 781,985 - ------------------------------------------------------------------------------------------------------------------------ INCOME BEFORE INCOME TAXES 105,089 96,747 283,113 250,398 Applicable income taxes 35,671 34,927 99,694 89,477 - ------------------------------------------------------------------------------------------------------------------------ NET INCOME $ 69,418 $ 61,820 $ 183,419 $ 160,921 ======================================================================================================================== EARNINGS PER SHARE $ .53 $ .48 $ 1.41 $ 1.26 - ------------------------------------------------------------------------------------------------------------------------ DILUTED EARNINGS PER SHARE $ .52 $ .47 $ 1.37 $ 1.22 - ------------------------------------------------------------------------------------------------------------------------ WEIGHTED AVERAGE SHARES OUTSTANDING 131,128,788 128,264,415 130,546,944 128,104,556 - ------------------------------------------------------------------------------------------------------------------------ See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY First Tennessee National Corporation - ------------------------------------------------------------------------------------- (Dollars in thousands)(Unaudited) 1999 1998 - ------------------------------------------------------------------------------------- BALANCE, JANUARY 1 $ 1,099,534 $ 954,096 Net income 183,419 160,921 Other comprehensive income: Unrealized market adjustments, net of tax and reclassification adjustment (22,029) 10,059 - ------------------------------------------------------------------------------------- Comprehensive income 161,390 170,980 - ------------------------------------------------------------------------------------- Cash dividends declared (74,285) (63,369) Common stock issued: Keystone Mortgage, Inc. acquisition (66) 5,221 Cambridge Mortgage Company acquisition 704 -- For exercise of stock options 29,933 17,868 Tax benefit from non-qualified stock options 11,320 15,315 Common stock repurchased (2,908) (61,835) Amortization on restricted stock incentive plans 1,579 988 Common stock adjustment McGuire Mortgage Co. acquisition (259) -- Other 19,775 11,949 - ------------------------------------------------------------------------------------- BALANCE, SEPTEMBER 30 $ 1,246,717 $ 1,051,213 ===================================================================================== See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS First Tennessee National Corporation - -------------------------------------------------------------------------------------------- Nine Months Ended September 30 ---------------------------- (Dollars in thousands)(Unaudited) 1999 1998 - -------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $ 183,419 $ 160,921 Adjustments to reconcile net income to net cash provided/(used) by operating activities: Provision for loan losses 43,915 39,427 Provision for deferred income tax 83,665 48,158 Depreciation and amortization of premises and equipment 38,329 27,931 Amortization of mortgage servicing rights 83,619 70,796 Amortization of intangible assets 7,806 8,021 Net other amortization and accretion 42,615 9,393 Market value adjustment on foreclosed property 4,240 13,250 Gain on sale of securitized loans -- (643) Equity securities gains (1,863) (38) Debt securities losses 76 91 Net gains on disposal of fixed assets (232) (385) Gain on sale of bank branches (4,245) (567) Net (increase)/decrease in: Capital markets securities inventory (134,976) (144,740) Mortgage loans held for sale 1,316,569 (1,599,573) Capital markets receivables (278,343) (341,203) Interest receivable 3,483 (14,859) Other assets (477,836) (532,390) Net increase/(decrease) in: Capital markets payables 381,491 273,909 Interest payable (947) (7,675) Other liabilities 2,937 268,180 - -------------------------------------------------------------------------------------------- Total adjustments 1,110,303 (1,882,917) - -------------------------------------------------------------------------------------------- Net cash (used)/provided by operating activities 1,293,722 (1,721,996) - -------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Held to maturity securities: Maturities 174,341 86,291 Purchases -- -- Available for sale securities: Sales 32,056 42,387 Maturities 568,600 640,262 Purchases (697,010) (439,318) Premises and equipment: Sales 9,301 1,872 Purchases (91,822) (55,382) Net decrease in loans (853,938) (845,589) Increase in investment in bank time deposits (387) (264) Proceeds from loan securitizations -- 72,756 Sale of bank branches, net of cash and cash equivalents (4,778) (7,654) Acquisitions, net of cash and cash equivalents acquired (8,505) (9,311) - -------------------------------------------------------------------------------------------- Net cash used by investing activities (872,142) (513,950) - -------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Common stock: Exercise of stock options 32,027 18,111 Cash dividends (73,857) (84,587) Repurchase of shares (2,908) (61,854) Term borrowings: Issuance 52,421 99,218 Payments (90,273) (1,811) Net increase/(decrease) in: Deposits 747,874 1,441,188 Short-term borrowings (865,067) 684,676 - -------------------------------------------------------------------------------------------- Net cash (used)/provided by financing activities (199,783) 2,094,941 - -------------------------------------------------------------------------------------------- Net increase/(decrease) in cash and cash equivalents 221,797 (141,005) - -------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of period 936,120 1,001,621 - -------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 1,157,917 $ 860,616 ============================================================================================ Total interest paid $ 455,527 $ 434,922 Total income taxes paid 18,472 22,499 - -------------------------------------------------------------------------------------------- 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 and nine month periods ended September 30, 1999, are not necessarily indicative of the results that may be expected going forward. For further information, refer to the audited consolidated financial statements and footnotes included in the 1999 Proxy Statement & 1998 Financial Information. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of condition and measure those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. This Statement has been amended by SFAS No. 137 which delayed the effective date to fiscal years beginning after June 15, 2000; which for First Tennessee will mean the first quarter of 2001. Earlier adoption is allowed. Because of the complexity of this standard and uncertainties associated with predicting future derivative usage and related fair values, it is not practicable at this time to predict what the impact of adopting this Statement will be to First Tennessee's financial position and results of operations. On January 1, 1999, First Tennessee adopted SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise." This Statement amends SFAS No. 65, which required that retained securities be classified as trading securities. SFAS No. 134 allows these securities to be classified as trading, held to maturity or available for sale based on the intent and ability of the enterprise. On January 1, 1999, First Tennessee adopted Statement of Position 98-5, "Reporting on the Costs of Start-up Activities." This Statement requires that the costs of start-up activities, including organization costs, be expensed as incurred. The impact of adopting this standard was immaterial to First Tennessee. 9 NOTE 2 - BUSINESS COMBINATIONS/DIVESTITURES On March 31, 1999, First Tennessee acquired Cambridge Mortgage Company of Seattle, Washington, for approximately 22,000 shares of its common stock. Cambridge was merged into FT Mortgage Companies, an indirect wholly-owned subsidiary of First Tennessee. This acquisition was accounted for as a purchase and was immaterial to First Tennessee. On June 1, 1999, First Tennessee Bank National Association, a wholly-owned subsidiary of First Tennessee National Corporation, acquired from National Processing Co. their remittance processing business locations in Atlanta, Dallas, Louisville and Phoenix for approximately $6.0 million. The acquisition of these units was accounted for as a purchase and was immaterial to First Tennessee. On July 20, 1999, First Tennessee completed the sale of substantially all of the assets and liabilities of Planters Bank of Tunica, Mississippi, a wholly-owned subsidiary, to First Security Bank of Batesville, Mississippi. This transaction was completed for approximately $10.5 million and was immaterial to First Tennessee. On October 1, 1999, First Tennessee acquired Elliot Ames, Inc. of Los Altos, California, for approximately 242,000 shares of its common stock. Elliot Ames 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. 10 NOTE 3 - EARNINGS PER SHARE The following table shows a reconciliation of earnings per share to diluted earnings per share.
Three Months Ended Nine Months Ended September 30 September 30 --------------------------- --------------------------- (Dollars in thousands, except per share data) 1999 1998 1999 1998 - -------------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE COMPUTATION: Net income $69,418 $61,820 $183,419 $160,921 Weighted average shares outstanding 130,685,907 127,987,844 130,153,949 127,965,200 Shares attributable to deferred compensation 442,881 276,571 392,995 139,356 - -------------------------------------------------------------------------------------------------------------- Total weighted average shares per income statement 131,128,788 128,264,415 130,546,944 128,104,556 Earnings per share $ .53 $ .48 $ 1.41 $ 1.26 - -------------------------------------------------------------------------------------------------------------- DILUTED EARNINGS PER SHARE COMPUTATION: Net income $69,418 $61,820 $183,419 $160,921 Weighted average shares outstanding 131,128,788 128,264,415 130,546,944 128,104,556 Dilutive effect due to stock options 3,046,877 3,215,503 3,661,797 3,669,142 - -------------------------------------------------------------------------------------------------------------- Weighted average shares outstanding, as adjusted 134,175,665 131,479,918 134,208,741 131,773,698 Diluted earnings per share $ .52 $ .47 $ 1.37 $ 1.22 - -------------------------------------------------------------------------------------------------------------- *As a result of the Real Estate Mortgage Investment Conduit (REMIC) certain securitized consumer and permanent mortgage loans are now classified as REMIC securities
11 NOTE 4 - LOANS The composition of the loan portfolio at September 30 is detailed below:
(Dollars in thousands) 1999 1998 - ------------------------------------------------------------------------------- Commercial $4,330,516 $4,076,573 Consumer* 3,136,311 2,832,518 Permanent mortgage* 470,550 408,034 Credit card receivables 578,370 573,248 Real estate construction 407,882 397,686 Nonaccrual - Regional banking group 11,476 8,437 Nonaccrual - Mortgage banking 21,215 19,220 - ------------------------------------------------------------------------------- Loans, net of unearned income 8,956,320 8,315,716 Allowance for loan losses 139,426 135,413 - ------------------------------------------------------------------------------- Total net loans $8,816,894 $8,180,303 =============================================================================== *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 September 30:
(Dollars in thousands) 1999 1998 - ------------------------------------------------------------------------------- Impaired loans $12,599 $ 9,270 Other nonaccrual loans 20,092 18,387 - ------------------------------------------------------------------------------- Total nonperforming loans $32,691 $27,657 ===============================================================================
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 Nine Months Ended September 30 September 30 ------------------ ------------------ (Dollars in thousands) 1999 1998 1999 1998 - ------------------------------------------------------------------------------- Total interest on impaired loans $ 50 $ 488 $ 365 $ 845 Average balance of impaired loans 12,792 8,668 13,027 8,904 - -------------------------------------------------------------------------------
An allowance for loan losses is maintained for all impaired loans. Activity in the allowance for loan losses related to non-impaired loans, impaired loans, and for the total allowance for the nine months ended September 30, 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 Allowance for acquisitions 140 -- 140 Provision for loan losses 39,487 (60) 39,427 Securitization adjustment (3,575) -- (3,575) Charge-offs 33,562 1,634 35,196 Less loan recoveries 8,126 632 8,758 - ------------------------------------------------------------------------------- Net charge-offs 25,436 1,002 26,438 - ------------------------------------------------------------------------------- Balance at September 30, 1998 $ 132,723 $ 2,690 $ 135,413 =============================================================================== Balance at December 31, 1998 $ 133,572 $ 2,441 $ 136,013 Provision for loan losses 36,492 7,423 43,915 Securitization adjustment (1,790) -- (1,790) Adjustment due to divesture (893) -- (893) Charge-offs 37,416 6,593 44,009 Less loan recoveries 4,885 1,305 6,190 - ------------------------------------------------------------------------------- Net charge-offs 32,531 5,288 37,819 - ------------------------------------------------------------------------------- BALANCE AT September 30, 1999 $ 134,850 $ 4,576 $ 139,426 ===============================================================================
12 NOTE 5 - BUSINESS SEGMENT INFORMATION First Tennessee provides traditional retail/commercial banking and other financial services to its customers. These products and services are categorized into two broad groups: a regional banking group and national lines of business. The national lines of business include mortgage banking, capital markets and transaction processing. The other segment is used to isolate corporate items. Total revenue, expense and asset levels reflect those which are specifically identifiable or which are allocated based on an internal allocation method. Because the allocations are based on internally developed assignments and allocations, they are to an extent subjective. This assignment and allocation has been consistently applied for all periods presented. The following table reflects the approximate amounts of consolidated revenue, expense, tax, and assets for the quarterly and year to date periods ending September 30, 1999 and 1998.
Regional Banking Mortgage Capital Transaction (Dollars in thousands) Group Banking Markets Processing Other Consolidated - ----------------------------------------------------------------------------------------------- 3Q99 Interest income $ 223,418 $ 66,213 $ 9,112 $ 4,469 $ -- $ 303,212 Interest expense 94,536 52,718 8,183 448 -- 155,885 - ----------------------------------------------------------------------------------------------- Net interest income 128,882 13,495 929 4,021 -- 147,327 Other revenues 66,842 161,135 27,846 28,631 1,858 286,312 Other expenses* 127,136 153,709 20,886 24,284 2,535 328,550 - ----------------------------------------------------------------------------------------------- Pre-tax income 68,588 20,921 7,889 8,368 (677) 105,089 Income taxes 21,716 8,058 2,974 3,180 (257) 35,671 - ----------------------------------------------------------------------------------------------- Net income $ 46,872 $ 12,863 $ 4,915 $ 5,188 $ (420) $ 69,418 =============================================================================================== Average assets $12,206,651 $5,182,985 $749,903 $493,788 $ -- $18,633,327 - ----------------------------------------------------------------------------------------------- 3Q98 Interest income $ 214,816 $ 58,051 $ 11,234 $ 4,166 $ -- $ 288,267 Interest expense 96,997 46,191 10,064 354 -- 153,606 - ----------------------------------------------------------------------------------------------- Net interest income 117,819 11,860 1,170 3,812 -- 134,661 Other revenues 54,087 161,171 35,374 17,277 11 267,920 Other expenses* 113,887 146,623 26,625 16,667 2,032 305,834 - ----------------------------------------------------------------------------------------------- Pre-tax income 58,019 26,408 9,919 4,422 (2,021) 96,747 Income taxes 20,457 9,835 3,723 1,680 (768) 34,927 - ----------------------------------------------------------------------------------------------- Net income $ 37,562 $ 16,573 $ 6,196 $ 2,742 $(1,253) $ 61,820 =============================================================================================== Average assets $11,240,955 $4,343,648 $827,575 $464,932 $ -- $16,877,110 - ----------------------------------------------------------------------------------------------- *Includes loan loss provision.
Regional Banking Mortgage Capital Transaction (Dollars in thousands) Group Banking Markets Processing Other Consolidated - ----------------------------------------------------------------------------------------------- Year To Date 99 Interest income $ 646,458 $ 205,716 $ 30,846 $ 13,635 $ -- $ 896,655 Interest expense 268,399 157,861 26,909 1,626 -- 454,795 - ----------------------------------------------------------------------------------------------- Net interest income 378,059 47,855 3,937 12,009 -- 441,860 Other revenues 183,234 508,807 102,409 70,859 1,787 867,096 Other expenses* 374,292 507,805 77,567 59,584 6,595 1,025,843 - ----------------------------------------------------------------------------------------------- Pre-tax income 187,001 48,857 28,779 23,284 (4,808) 283,113 Income taxes 62,778 19,043 10,852 8,848 (1,827) 99,694 - ----------------------------------------------------------------------------------------------- Net income $ 124,223 $ 29,814 $ 17,927 $ 14,436 $(2,981) $ 183,419 =============================================================================================== Average assets $11,887,829 $5,342,462 $841,211 $494,518 $ -- $18,566,020 - ----------------------------------------------------------------------------------------------- Year To Date 98 Interest income $ 632,625 $ 147,854 $ 27,345 $ 13,605 $ -- $ 821,429 Interest expense 287,548 113,902 23,827 2,162 -- 427,439 - ----------------------------------------------------------------------------------------------- Net interest income 345,077 33,952 3,518 11,443 -- 393,990 Other revenues 151,444 377,957 103,597 44,873 (51) 677,820 Other expenses* 328,282 363,318 77,912 45,808 6,092 821,412 - ----------------------------------------------------------------------------------------------- Pre-tax income 168,239 48,591 29,203 10,508 (6,143) 250,398 Income taxes 59,336 17,516 10,966 3,992 (2,333) 89,477 - ----------------------------------------------------------------------------------------------- Net income $ 108,903 $ 31,075 $ 18,237 $ 6,516 $(3,810) $ 160,921 =============================================================================================== Average assets $11,074,389 $3,732,501 $682,448 $493,300 $ -- $15,982,638 - ----------------------------------------------------------------------------------------------- *Includes loan loss provision.
13 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, check clearing operations and retail lockbox 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. If a revision is made, 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. Growth rates in the various tables are computed using numbers rounded to the nearest thousand. The following is a discussion and analysis of the financial condition and results of operations of First Tennessee for the three month and nine month periods ended September 30, 1999, compared to the three month and nine month periods ended September 30, 1998. To assist the reader in obtaining a better understanding of First Tennessee and its performance, this discussion should be read in conjunction with First Tennessee's unaudited consolidated financial statements and accompanying notes appearing in this report. Additional information including the 1998 financial statements, notes, and management's discussion and analysis is provided as an appendix to the 1999 proxy statement. Management's discussion and analysis may contain forward-looking statements with respect to First Tennessee's beliefs, plans, goals, expectations, and estimates. These statements are contained in certain sections that follow such as Year 2000. Forward-looking statements are statements that are not based on historical information but rather are related to future operations, strategies, financial results or other developments. Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies; many of which are beyond a company's control, and many of which, with respect to future business decisions, are subject to change. Examples of uncertainties and contingencies include, among other important factors, general and local economic and business conditions; interest rate, market and monetary fluctuations; inflation; competition within and without the financial services industry; and new products and services in the industries in which First Tennessee operates. Other factors are those inherent in originating loans, including prepayment risks and fluctuating collateral values and changes in customer profiles. Additionally, the policies of the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System, unanticipated regulatory and judicial proceedings, and changes in laws and regulations applicable to First Tennessee and First Tennessee's success in managing the risks involved in the foregoing could cause actual results to differ. The forward-looking statements related to Year 2000 reflect management's best current estimates, which are based on numerous assumptions about future events, including the continued availability of certain resources, representations received from third party service providers and other third parties, and additional factors. Those additional factors include, but are not limited to, uncertainties in the cost 14 of hardware and software, the availability and cost of programmers and other systems personnel, inaccurate or incomplete execution of the phases, ineffective remediation of the computer code, and whether First Tennessee's customers, vendors, competitors and counterparties effectively address the Year 2000 issue. There can be no guarantee that these estimates, including Year 2000 costs, will be achieved, and actual results could differ materially from those estimates. First Tennessee assumes no obligation to update any forward-looking statements that are made from time to time. SECURITIZATION ACTIVITY First Tennessee Bank National Association (FTBNA) securitized approximately $73 million of direct automobile loan receivables during 1998. During 1998 and 1999, FTBNA securitized $711 million and $378 million, respectively, of its consumer real estate loans from the consumer loan and permanent mortgage portfolios through the use of a Real Estate Mortgage Investment Conduit (REMIC). All of the interests in the REMIC are owned by subsidiaries of First Tennessee, including FTBNA. This transaction affects categorization of individual line items on the balance sheet. Consequently, loans have been reduced and investment securities have been increased. For a more complete understanding, where significant, these transactions are discussed and identified as "Managed" information, which adds data on these securitized loans to "Reported" data for loans. "Reported" information has been prepared in conformity with generally accepted accounting principles. "Managed" information treats loans securitized and sold with servicing retained and loans securitized through the REMIC as if they had not been securitized and/or sold. "Managed" information does not include the mortgage banking servicing portfolio. FINANCIAL HIGHLIGHTS (COMPARISON OF THIRD QUARTER 1999 TO THIRD QUARTER 1998) - - Record earnings of $69.4 million for the third quarter of 1999 were achieved, up 12 percent from last year's third quarter earnings of $61.8 million. - - Diluted earnings per share were $.52 in 1999, up 11 percent over the $.47 earned in 1998. Basic earnings per share were $.53 in 1999 and $.48 in 1998, an increase of 10 percent. - - Total revenues grew 7 percent with growth in fee income of 6 percent and growth in net interest income of 9 percent. Fee income contributed 66 percent to total revenues in 1999 compared with 67 percent in 1998. - - Return on average assets was 1.48 percent in 1999 compared with 1.45 percent in 1998. Return on average shareholders' equity was 22.6 percent in 1999 compared with a return on shareholders' equity of 24.4 percent in 1998. Strong internal equity generation caused the decline in this ratio. - - The consolidated net interest margin was 3.82 percent in 1999 compared with 3.75 percent in 1998. The improvement in the margin was primarily related to strong loan growth and lower funding costs. - - At September 30, 1999, First Tennessee was ranked as one of the top 50 bank holding companies nationally in market capitalization ($3.7 billion) and assets ($19.1 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. 15 INCOME STATEMENT ANALYSIS NONINTEREST INCOME - ------------------ Fee income (noninterest income excluding securities gains and losses) provides the majority of First Tennessee's revenue. During the third quarter of 1999, fee income increased 6 percent (from $267.9 million to $284.5 million) and contributed 66 percent to total revenue. In comparison, fee income contributed 67 percent to total revenue in the third quarter of 1998. The growth rate in fee income was positively impacted by the acquisition of several processing units of National Processing Co. (NPC). Excluding this acquisition, total fee income growth would have been 3 percent. MORTGAGE BANKING Mortgage banking fee income, First Tennessee's largest contributing business line to noninterest income, experienced a 1 percent decline (from $160.1 million to $158.9 million) from the third quarter of 1998 as shown in Table 1. Also included in Table 1 is the statistical information related to originations and servicing volume.
TABLE 1 - MORTGAGE BANKING Third Quarter Nine Months ----------------------- Growth ----------------------- Growth (Dollars in millions) 1999 1998 Rate(%) 1999 1998 Rate(%) - ------------------------------------------------------------------------------------------------------------------ NONINTEREST INCOME: Secondary marketing activities $ 73.0 $ 69.8 4.6 $ 213.5 $ 157.6 35.5 Loan origination fees 38.9 41.0 (5.1) 140.9 100.3 40.5 Servicing fees 43.4 30.8 40.6 126.0 83.6 50.7 Sale of mortgage servicing rights .2 -- NM 3.9 -- NM Miscellaneous 3.4 18.5 (81.6) 19.1 33.6 (43.4) - ----------------------------------------------------------------------------------------------------------------- Total noninterest income $ 158.9 $ 160.1 (.7) $ 503.4 $ 375.1 34.2 ================================================================================================================= Refinance originations $ 852.5 $ 2,728.6 (68.8) $ 6,382.4 $ 7,816.0 (18.3) New loan originations 3,534.6 2,907.7 21.6 9,612.5 7,359.4 30.6 - ----------------------------------------------------------------------------------------------------------------- Mortgage loan originations $ 4,387.1 $ 5,636.3 (22.2) $15,994.9 $15,175.4 5.4 ================================================================================================================= Servicing portfolio $48,656.8 $35,292.6 37.9 $48,656.8 $35,292.6 37.9 - ----------------------------------------------------------------------------------------------------------------- NM = not meaningful
Total income derived from the mortgage origination process (loan origination fees and secondary marketing activities) increased 1 percent (from $110.8 million to $111.9 million) from the third quarter of 1998, and was impacted by the higher interest rate environment in 1999. Total origination volume decreased 22 percent. Home purchase-related mortgages were up 22 percent while refinance volume declined 69 percent. Loan origination fees decreased 5 percent from the third quarter of 1998. The primary driver of this decline was less fees from wholesale brokers. Total income from secondary marketing activities (recognition of mortgage servicing rights (MSRs) and hedging and other loan sale activities) increased 5 percent from the third quarter of 1998. Net gains from hedging and other loan sale activities offset a 22 percent decrease in income generated from MSRs retained. The 22 percent decline in the recognition of MSRs retained was consistent with the decline in origination volume. Mortgage servicing income increased 41 percent from the third quarter of 1998 (from $30.8 million to $43.4 million). As rising interest rates led to a decline in origination volume, it also contributed to a decline in mortgage prepayments resulting in continued growth in the servicing portfolio. The mortgage servicing portfolio (which includes servicing for ourselves and others) grew to $48.7 billion at September 30, 1999, up 38 percent from $35.3 billion at September 30, 1998. The majority of this growth was generated through FT Mortgage's retail loan origination network. The change in the portfolio since third quarter 1998 resulted from originations of $24.1 billion, less $1.3 billion in sales of 16 servicing released originations and principal reductions of $9.4 billion from payments and payoffs received in the normal course of business. Included in the loan servicing portfolio was $1.7 billion of servicing rights previously sold but not yet transferred. The decrease in mortgage miscellaneous income, (from $18.5 million to $3.4 million) was primarily due to gains from the sale of servicing hedges recognized in the third quarter of 1998. Servicing hedges are used to protect the value of the servicing portfolio which can erode when declining interest rates accelerate prepayments. CAPITAL MARKETS First Tennessee Capital Markets generates fee income primarily from the purchase and sale of securities as both principal and agent. Inventory positions are limited to the procurement of securities solely for distribution to customers by the sales staff. Inventory is hedged to protect against movements in interest rates. Fee income in capital markets decreased 21 percent from the previous year's third quarter (from $35.4 million to $27.8 million). These results are primarily due to a change in product mix driven by the customer base regarding their cash needs over the millennium. As a result of liquidity concerns, many customers put their money in cash and other short-term liquid securities. Volume, however, continued to be strong with an 18 percent increase in total securities bought and sold for customers from the previous year (from $109.1 billion to $128.8 billion). Total underwritings declined from the third quarter of 1998 (from $12.8 billion to $5.9 billion). OTHER FEE INCOME Noninterest income from deposit transactions and cash management increased 17 percent from the third quarter of 1998 (from $23.4 million to $27.4 million) primarily from growth in customer service charges. Since the third quarter of 1998, trust services and investment management fees grew 25 percent (from $12.6 million to $15.7 million). This growth was primarily due to increased assets under management from growth in customer accounts. Assets under management were up 11 percent (from $8.2 billion to $9.1 billion) from the third quarter of 1998. Fee income from merchant processing grew 28 percent (from $10.1 million to $12.9 million) from both a change in the mix of the customer base from more indirect to more direct customer volume and pricing changes. Total merchant transactions processed declined 23 percent since the third quarter of 1998 (from 43 million transactions in the third quarter of 1998 to 33 million transactions for the quarter in 1999). During this same period, direct customer volume increased 23 percent while indirect customer volume declined 92 percent. Cardholder fees increased 31 percent (from $5.4 million to $7.1 million) during this same period due to price increases and higher interchange collections. All other income and commissions increased 64 percent from the third quarter of 1998 (from $21.0 million to $34.6 million). This growth was principally in the other category which grew 97 percent (from $12.4 million to $24.4 million). Both of these growth rates were impacted by the NPC acquisition. Excluding the NPC acquisition, all other income and commissions would have grown 31 percent. Additional contributors to this growth included: the sale of a bank branch in Tunica, Mississippi ($4.2 million pre-tax), insurance premiums and commissions which increased 48 percent (from $2.1 million to $3.2 million) and check clearing fees which increased 19 percent (from $2.5 million to $3.0 million) due to customer base expansion. Securities gains and losses during the third quarter of 1999 included the $1.8 million gain from the sale of a software application company investment at First Tennessee's subsidiary, Hickory Venture Capital Company. NET INTEREST INCOME - ------------------- Net interest income increased 9 percent (from $135.7 million to $148.1 million) from the third quarter of 1998, primarily due to the 7 percent increase in earning assets (from $14.4 billion to $15.5 billion). The consolidated net interest margin (margin) improved from 3.75 percent in the third quarter of 1998 to 3.82 percent in the third quarter of 1999, principally from strong loan growth and lower funding costs. Table 2 details the computation of the net interest margin for the regional banking group and the impact that the other business lines had on the consolidated margin for the third quarters of 1999 and 1998. 17
TABLE 2 - NET INTEREST MARGIN Third Quarter ------------------ 1999 1998 - ---------------------------------------------------------------------------- REGIONAL BANKING GROUP: Yields on earning assets 7.98 % 8.23 % Rates paid on interest-bearing liabilities 3.90 4.38 - ---------------------------------------------------------------------------- Net interest spread 4.08 3.85 - ---------------------------------------------------------------------------- Effect of interest-free sources .74 .90 Loan fees .15 .13 - ---------------------------------------------------------------------------- Net interest margin - Regional banking group 4.97 % 4.88 % MORTGAGE BANKING (1.00) (.96) CAPITAL MARKETS (.17) (.20) TRANSACTION PROCESSING .02 .03 - ---------------------------------------------------------------------------- Net interest margin 3.82 % 3.75 % ============================================================================
As shown in Table 2, the margin is affected by the activity levels and related funding for First Tennessee's specialty lines of business, as these nonbank business lines typically produce different margins than traditional banking activities. For example, in mortgage banking because the spread between the rates on mortgage loans temporarily in the warehouse and the related short-term funding rates is less than the comparable spread earned in the regional banking group, the overall margin is compressed. Consequently, as the warehouse volume increases, the margin also compresses. Capital markets tends to compress the margin because of its strategy to reduce market risk by hedging its inventory in the cash markets which effectively eliminates net interest income on these positions. As a result, First Tennessee's consolidated margin cannot be readily compared to that of other bank holding companies. The regional banking group's margin increased from 4.88 percent in the third quarter of 1998 to 4.97 percent in the third quarter of 1999. This improvement came from loan growth and lower funding costs both in deposits and purchased funds. 18 NONINTEREST EXPENSE - ------------------- Total noninterest expense (operating expense) for the third quarter of 1999 increased 7 percent (from $292.7 million to $314.4 million) over the same period in 1998. This growth rate was affected by the NPC acquisition. Excluding this acquisition, total operating expense would have increased 5 percent. Additionally, expense growth in mortgage banking and capital markets fluctuates based on activity levels and mix of products sold. Excluding the NPC acquisition and these two business lines, the remaining operating expense grew 10 percent. Employee compensation, incentives and benefits (personnel expense), the largest component of noninterest expense, increased 6 percent from the previous year. Excluding NPC, personnel expenses increased 3 percent. Personnel expense decreased 25 percent at capital markets and increased only 2 percent at mortgage banking due to lower commissions, workforce reductions, and changes in management incentive compensation plans, offset by increases in non-origination functions at mortgage banking. Additional business line information related to expenses is provided in Table 3 and the discussion that follows.
TABLE 3 - OPERATING EXPENSE COMPOSITION Third Quarter Nine Months ----------------------- Growth ----------------------- Growth (Dollars in millions) 1999 1998 Rate(%) 1999 1998 Rate(%) - ------------------------------------------------------------------------------------------------------------------- Regional banking group $ 114.7 $ 102.8 11.6 $ 336.7 $ 293.0 14.9 Mortgage banking 152.1 144.6 5.1 501.5 359.2 39.6 Capital markets 20.8 26.6 (21.6) 77.5 77.9 (.4) Transaction processing 24.3 16.7 45.7 59.6 45.8 30.1 Other 2.5 2.0 24.9 6.6 6.1 8.3 - ------------------------------------------------------------------------------------------------------------------- Total operating expense $ 314.4 $ 292.7 7.4 $ 981.9 $ 782.0 25.6 ===================================================================================================================
Mortgage banking accounted for 34 percent of the overall expense growth and grew 5 percent from the previous year. Expense growth for this business line varies with volume and type of activity. The increase was mainly due to higher amortization expense of servicing hedge instruments related to a substantially larger servicing portfolio. During this period, amortization of capitalized mortgage servicing rights decreased 21 percent (from $28.9 million to $22.8 million). Mortgage banking expense growth was also affected by additional technology-related conversion and training programs, lease abandonment costs and expenditures related to the process of consolidating corporate facilities. The regional banking group accounted for 55 percent of the overall expense growth and increased 12 percent from the previous year. This growth rate was affected by technology-related costs, investments in our nationwide expansion strategy for consumer lending, growth in the insurance business, costs for the marketing campaign to increase awareness of our new brand, and branch expansion in targeted growth markets. Transaction processing accounted for 35 percent of the overall expense growth and grew 46 percent from the previous year. Virtually all of this expense growth was related to operation of the locations acquired from NPC. Capital markets experienced a decline of 22 percent in expenses from third quarter of 1998. INCOME TAXES - ------------ The effective tax rate decreased to a 33.9 percent rate in the third quarter of 1999 from a 36.1 percent rate in the third quarter of 1998. This decrease was largely due to an adjustment of deferred tax liabilities resulting from a lower effective state tax rate. 19 PROVISION FOR LOAN LOSSES/ASSET QUALITY The provision for loan losses increased 7 percent (from $13.1 million to $14.1 million) from the third quarter of 1998, due to increased inherent risk in the loan portfolio and a change in the loan mix related to growth in loans with higher risk/reward profiles. The provision for loan losses is the charge to operating earnings that management determines to be necessary to maintain the allowance for loan losses at an adequate level reflecting management's estimate of the risk of loss inherent in the loan portfolio. Additional asset quality information is provided in Table 4 - Asset Quality Information and Table 5 - Charge-off Ratios.
TABLE 4 - ASSET QUALITY INFORMATION September 30 ----------------------- (Dollars in thousands) 1999 1998 - ----------------------------------------------------------------------- Nonperforming loans $11,476 $ 8,437 Foreclosed real estate 5,825 4,703 Other assets 85 207 - ----------------------------------------------------------------------- Total Regional Banking Group 17,386 13,347 - ----------------------------------------------------------------------- Mortgage Banking nonperforming loans 21,215 19,220 Mortgage Banking foreclosed real estate 11,240 10,810 - ----------------------------------------------------------------------- Total nonperforming assets $49,841 $43,377 ======================================================================= Loans and leases 90 days past due $24,004 $34,012 Potential problem assets* $68,532 $70,464 Third Quarter ------------------------ 1999 1998 ------------------------ ALLOWANCE FOR CREDIT LOSSES: Beginning balance at June 30 $138,595 $129,858 Provision for loan losses 14,110 13,127 Allowance from acquisition -- 140 Adjustment due to divestiture (893) -- Charge-offs (14,366) (11,081) Loan recoveries 1,980 3,369 - ----------------------------------------------------------------------- Ending balance at September 30 $139,426 $135,413 ======================================================================= September 30 ----------------------- 1999 1998 ----------------------- Allowance to total loans 1.56% 1.63% Nonperforming loans to total loans .37 .33 Nonperforming assets to total loans, foreclosed real estate and other assets .56 .52 Allowance to nonperforming assets 280 312 - ----------------------------------------------------------------------- *Includes loans and leases 90 days past due.
The allowance for loan losses increased 3 percent or $4.0 million from third quarter 1998. Period-end loans grew 8 percent over this same period. The ratio of allowance for loan losses to total loans, net of unearned income, was 1.56 percent at September 30, 1999, compared with 1.63 percent at September 30, 1998. The ratio of net charge-offs to average loans increased from .38 percent for the third quarter of 1998 to .56 percent for the third quarter of 1999. This increase was due to higher consumer loan charge-offs, a change in the mix of consumer loan products to those with higher risk/return profiles, and a return to a more normal level of commercial loan charge-offs. The credit card receivables charge-off ratio remained stable at 3.55 percent for the third quarter of 1999 compared to 3.52 percent for the third quarter of 1998. 20 The ratio of nonperforming loans to total loans was .37 percent for the third quarter of 1999 compared with .33 percent for the same period in 1998. At September 30, 1999, First Tennessee had no concentrations of 10 percent or more of total loans in any single industry.
TABLE 5 - CHARGE-OFF RATIOS Third Quarter ------------------ 1999 1998 - ------------------------------------------------------------------- Commercial and commercial real estate .10 % (.04)% Consumer .74 .36 Credit card receivables 3.55 3.52 Permanent mortgage (.09) .01 Total net charge-offs .56 .38 - -------------------------------------------------------------------
21 BALANCE SHEET LOANS AND DEPOSITS - ------------------ As previously discussed, for a more complete understanding of loan growth trends it is helpful to analyze information on a "reported" as well as a "managed" basis. "Reported" information is derived from consolidated financial statements that have been prepared in conformity with generally accepted accounting principles. "Managed" information treats consumer loans securitized and sold with servicing retained and loans securitized through the REMIC and held by First Tennessee as if they had not been securitized and/or sold. "Managed" information does not include the mortgage banking servicing portfolio. Table 6 - Selected Loans includes information for reported and managed assets and Table 7 - - Investment Securities includes reported information and information excluding the REMIC. At September 30, 1999, First Tennessee reported total assets of $19.1 billion compared with $17.2 billion at September 30, 1998. The growth in the period-end balance sheet was primarily funded by a 25 percent increase in short-term purchased funds (from $5.6 billion to $7.0 billion).
TABLE 6 - SELECTED LOANS 1999 1998 AS As Growth 1999 1998 Growth (Dollars in millions) REPORTED Reported Rate(%) MANAGED* Managed* Rate(%) - -------------------------------------------------------------------------------------------------------- SEPTEMBER 30 PERIOD-END Consumer loans $3,136.3 $2,832.5 10.7 $3,713.2 $3,209.3 15.7 Permanent mortgages 470.6 408.0 15.3 677.8 697.3 (2.8) Total loans 8,956.3 8,315.7 7.7 9,740.5 8,981.8 8.4 - -------------------------------------------------------------------------------------------------------- THIRD QUARTER AVERAGES Consumer loans $3,048.7 $2,698.7 13.0 $3,645.0 $3,094.5 17.8 Permanent mortgages 460.2 390.9 17.7 674.2 690.8 (2.4) Total loans 8,803.2 8,102.2 8.7 9,613.6 8,797.9 9.3 - -------------------------------------------------------------------------------------------------------- YEAR-TO-DATE AVERAGES Consumer loans $3,046.1 $2,750.1 10.8 $3,515.7 $2,980.4 18.0 Permanent mortgages 444.4 503.2 (11.7) 677.0 675.1 .3 Total loans 8,709.3 8,174.5 6.5 9,411.5 8,576.6 9.7 - -------------------------------------------------------------------------------------------------------- *Excludes managed loans in the mortgage banking servicing portfolio.
TABLE 7 - INVESTMENT SECURITIES 1999 1998 1999 1998 EXCLUDING Excluding AS As Growth SECURITIZATION Securitization Growth (Dollars in millions) REPORTED Reported Rate(%) ACTIVITY Activity Rate(%) - -------------------------------------------------------------------------------------------------------- September 30 period-end $2,763.4 $2,594.8 6.5 $1,980.8 $1,956.8 1.2 Third quarter averages 2,792.7 2,615.8 6.8 1,978.4 1,950.7 1.4 Year-to-date averages 2,640.3 2,380.9 10.9 1,942.9 1,999.4 (2.8) - --------------------------------------------------------------------------------------------------------
Average total assets grew 10 percent (from $16.9 billion to $18.6 billion) from the third quarter of 1998. Over the same period, the mortgage warehouse increased 5 percent (from $2.9 billion to $3.0 billion) and accounted for 15 percent of the increase in total earning assets. Total managed loans grew 9 percent for the third quarter of 1999 (from $8.8 billion to $9.6 billion). Average commercial loans increased 7 percent (from $4.0 billion to $4.3 billion) and represented 45 percent of total managed loans. The 18 percent increase in managed consumer loans (from $3.1 billion to $3.6 billion) came primarily 22 from real estate-related lending, and these loans represented 38 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, continued to experience strong growth. On an average basis for both the third quarters of 1999 and 1998, credit card receivables were $.6 billion, managed permanent mortgages were $.7 billion and real estate construction loans were $.4 billion. Average investment securities increased 7 percent from third quarter 1998 (from $2.6 billion to $2.8 billion). Excluding the securitization activity, the growth would have been relatively flat to 1998 as shown in Table 7 - - Investment Securities. Since the third quarter of 1998, average core deposits grew 1 percent (from $9.0 billion to $9.1 billion) while interest-bearing core deposits decreased 1 percent (from $6.3 billion to $6.2 billion). Noninterest-bearing deposits increased 7 percent (from $2.7 billion to $2.9 billion) over this same period with growth in demand deposit balances accounting for 58 percent of this increase. Short-term purchased funds were up 20 percent (from $5.9 billion to $7.1 billion), and long-term debt increased 26 percent (from $266.5 million to $335.0 million) from the previous year. The increase in purchased funds was used to fund a larger balance sheet principally due to strong loan growth. CAPITAL - ------- Total capital (shareholders' equity plus qualifying capital securities) at September 30, 1999, was $1.3 billion, up 17 percent from $1.2 billion at September 30, 1998. Shareholders' equity (excluding the qualifying capital securities) was $1.2 billion at September 30, 1999, an increase of 19 percent from $1.1 billion at September 30, 1998. Average shareholders' equity increased 21 percent (from $1.0 billion to $1.2 billion) since the third quarter of 1998, reflecting strong internal capital generation. The average total capital to average assets ratio was 7.07 percent and the average shareholders' equity to average assets ratio was 6.53 percent for the third quarter of 1999. This compares with 6.55 percent and 5.96 percent, respectively, for the third quarter of 1998. Unrealized market valuations had no material effect on these ratios for the third quarters of 1998 or 1999. Diluted shares outstanding have increased 2.7 million since the third quarter of 1998 primarily as a result of minimal share repurchases for stock option exercises. This increase in shares created the difference between net income growth of 12 percent and diluted earnings per share growth of 11 percent. At September 30, 1999, the corporation's Tier 1 capital ratio was 8.79 percent, the total capital ratio was 12.18 percent and the leverage ratio was 6.53 percent. On September 30, 1999, First Tennessee's bank affiliates had sufficient capital to qualify as well-capitalized institutions. 23 OFF BALANCE SHEET ACTIVITY In the normal course of business, First Tennessee is a party to financial instruments that are not required to be reflected on a balance sheet. First Tennessee enters into transactions involving these instruments to meet the financial needs of its customers and manage its own exposure to fluctuations in interest rates. These instruments are categorized as "Lending related," "Mortgage banking," "Interest rate risk management," and "Capital markets" as noted in Table 8.
TABLE 8 - OFF-BALANCE SHEET FINANCIAL INSTRUMENTS AT SEPTEMBER 30, 1999 (Dollars in millions) Notional value - ------------------------------------------------------------------------------------------ LENDING Commitments to extend credit: RELATED: Consumer credit card lines $ 2,401.9 Consumer home equity 585.3 Commercial real estate and construction and land development 639.2 Mortgage banking 1,420.5 Other 1,250.0 Other commitments: Standby letters of credit 261.7 Commercial letters of credit 8.7 - ------------------------------------------------------------------------------------------ MORTGAGE Mortgage pipeline and warehouse hedging: BANKING: Interest rate contracts: Forward contracts - commitments to sell $ 2,970.3 Option contracts*: Put options - purchased 1,700.0 Call options - written 160.0 Servicing portfolio hedging: Interest rate contracts*: Caps - purchased 500.0 Caps - written 500.0 Floors - purchased 20,275.0 Floors - written 2,000.0 - ------------------------------------------------------------------------------------------ INTEREST Interest rate contracts: RATE RISK Swaps - receive fixed/pay floating $ 415.0 MANAGEMENT: Swaps - receive floating/pay floating 741.7 Caps - purchased 20.0 Caps - written 20.0 Equity contracts: Purchased options 1.9 - ------------------------------------------------------------------------------------------ CAPITAL Forward contracts: MARKETS: Commitments to buy $ 975.9 Commitments to sell 1,141.7 Option contracts: Written 65.0 Purchased 65.0 Securities underwriting commitments 11.6 - ------------------------------------------------------------------------------------------ *Mortgage banking option contracts had a value of $146.2 million recognized in the Consolidated Statements of Condition at September 30, 1999.
24 FINANCIAL HIGHLIGHTS (COMPARISON OF FIRST NINE MONTHS OF 1999 TO FIRST NINE MONTHS OF 1998) - - Earnings for 1999 were $183.4 million, up 14 percent from last year's earnings of $160.9 million. - - Diluted earnings per share were $1.37 in 1999, up 12 percent over the $1.22 earned in 1998. Basic earnings per share were $1.41 in 1999 and $1.26 in 1998. - - Total revenues grew 22 percent with growth in fee income of 28 percent and growth in net interest income of 12 percent. Mortgage banking led the increase with growth of 34 percent. Fee income contributed 66 percent to total revenues in 1999 compared with 63 percent in 1998. - - Return on average assets was 1.32 percent in 1999 compared with 1.35 percent in 1998. The decline in the return on average assets was due to growth in assets, largely from growth in the mortgage warehouse. Return on average shareholders' equity was 20.9 percent in 1999 compared with a return on shareholders' equity of 22.1 percent in 1998. Strong internal equity generation caused the decline in this ratio. - - The consolidated net interest margin was 3.80 percent in 1999 compared with 3.87 percent in 1998. NINE MONTH INCOME STATEMENT REVIEW - ---------------------------------- Noninterest income, excluding securities gains and losses, increased 28 percent (from $677.9 million to $865.3 million) over the same period last year. Excluding NPC, growth for the nine-month period would have been 26 percent. Fee income represented 66 percent of total revenues during the first nine months of 1999 and 63 percent for the same period in 1998. Mortgage banking fee income grew 34 percent (from $375.1 million to $503.4 million). See Table 1 - Mortgage Banking for a breakout of noninterest income as well as mortgage banking origination volume and servicing portfolio levels. For the first nine months of 1999, fee income from capital markets decreased only 1 percent (from $103.6 million to $102.4 million) compared to the record performance experienced during the same nine-month period in 1998. Fee income in deposit transactions and cash management grew 17 percent (from $66.1 million to $77.2 million). Trust services and investment management fees increased 18 percent (from $38.1 million to $45.1 million), and merchant processing fees grew 51 percent (from $25.0 million to $37.8 million). Cardholder fees increased 19 percent (from $15.3 million to $18.1 million). All other income and commissions increased 49 percent (from $54.7 million to $81.3 million). Excluding NPC, all other income and commissions would have increased 31 percent. The remaining growth was spread over a number of categories, with other service charges increasing 18 percent (from $11.2 million to $13.2 million) which included growth in investment/mutual fund sales and servicing fees from securitizations. Insurance premiums and commissions increased 40 percent (from $5.7 million to $8.0 million) and check clearing fees increased 16 percent (from $7.0 million to $8.2 million). The other category increased 69 percent (from $30.8 million to $51.9 million). Excluding NPC, the other category would have grown 37 percent. Additional reasons for the year-to-date trends have already been identified in the quarterly comparison. Net interest income increased 12 percent (from $397.0 million to $444.1 million) from the first nine months of 1998 primarily due to the 14 percent increase in earning assets. Year-to-date consolidated margin declined from 3.87 percent in 1998 to 3.80 percent in 1999, primarily from the build-up of the mortgage warehouse which produced 49 percent of the increase in earning assets. In the regional banking group the year-to-date margin improved from 4.83 percent in 1998 to 4.95 percent in 1999. Noninterest expense increased 26 percent (from $782.0 million to $981.9 million) primarily from increased costs to support the higher levels of activity in mortgage banking. See Table 3 - Operating Expense Composition for a breakdown of total expenses by business line. Mortgage banking accounted for 71 percent of the overall expense growth and grew 40 percent from the previous year. Expense growth for this business line varies with the volume and type of activity. During this period, amortization of capitalized mortgage servicing rights increased 18 percent (from $70.8 million to $83.6 million). The regional banking group accounted for 22 percent of the overall expense growth and increased 15 percent from the previous year. The reasons for the year-to-date trends were similar to the quarterly trend information already discussed. 25 For the nine-month period, the effective tax rate was 35.2 percent in 1999 compared with a rate of 35.7 percent for the same period in 1998. The provision for loan losses increased 11 percent (from $39.4 million to $43.9 million) from the previous year. The increase reflects the inherent risk in the loan portfolio from loan growth and a change in the loan mix partially due to securitizations and growth in loans with higher risk/reward profiles. NINE MONTH BALANCE SHEET REVIEW - ------------------------------- Average total assets grew 16 percent (from $16.0 billion to $18.6 billion) and average managed loans (including loans securitized) grew 10 percent (from $8.6 billion to $9.4 billion) from the first nine months of 1998. Average loans (excluding loans securitized) grew 7 percent (from $8.2 billion to $8.7 billion) during this same period. For a better understanding of the effect of securitizations on these growth trends, refer to Table 6 - Selected Loans and Table 7 - Investment Securities. Average commercial loans increased 8 percent (from $3.9 billion to $4.2 billion), average consumer loans grew 11 percent (from $2.8 billion to $3.0 billion) and credit card receivables increased slightly while averaging $.6 billion. The permanent mortgage portfolio decreased 12 percent (from $.5 billion to $.4 billion) due to securitization activity, and real estate construction loans averaged $.4 billion while experiencing a decline of 7 percent from 1998. Average investment securities increased 11 percent (from $2.4 billion to $2.6 billion) from 1998. With the strong origination volume, the mortgage warehouse grew 39 percent (from $2.4 billion to $3.4 billion). Average core deposits increased 3 percent (from $8.9 billion to $9.2 billion) and interest-bearing core deposits remained level while averaging $6.4 billion. Noninterest-bearing deposits increased 10 percent (from $2.6 billion to $2.8 billion). Short-term purchased funds increased 36 percent (from $5.2 billion to $7.0 billion), and long-term debt grew 58 percent (from $234.7 million to $371.8 million) for the nine-month period. The increase in total purchased funds was primarily used to fund the growth in mortgage banking and loan growth. 26 YEAR 2000 - --------- Many computer programs were originally designed to store and process data using two digits rather than four to define a calendar year. This could cause programs that have date sensitive software to recognize a date using "00" as the year 1900 rather than the year 2000. The "Year 2000 computer issue" can create risk for a company from unforeseen problems in its own computer systems and from the company's vendors and customers. First Tennessee began planning its Year 2000 remediation strategy to fix this computer issue in 1995. Among other things, the process included the formation of a company-wide project team that meets regularly to coordinate and review the status of conversion initiatives. First Tennessee's senior executives and the board of directors also regularly review the Year 2000 program and its progress. The main phases involved in the Year 2000 project are assessment (determining the magnitude of the problem and assessing necessary effort), renovation (making changes or enhancements to hardware and software and associated components), validation (testing and verifying changes), and implementation (certification, acceptance and initial installation). A comprehensive review to assess the systems affected by this issue has been completed, estimated cost projections have been determined and an implementation plan has been compiled. As a result of the assessment review, First Tennessee has modified or replaced certain existing systems. New systems are providing additional functionality to meet the expanding needs of customers and will be Year 2000 compliant. As of September 30, 1999, all mission critical and noncritical systems with date processing functions have been renovated and validated as Year 2000 compliant. All these systems have been implemented. Management believes the efforts described above will provide reasonable assurance that its systems will be adequately prepared for the Year 2000. Costs of new systems are being capitalized and amortized, and spending for maintenance and modification associated with Year 2000 is expensed as incurred. The total gross cost of Year 2000 compliance is estimated to be $40 million, and all but an immaterial amount had been incurred as of September 30, 1999, with approximately 45 percent of this cost being capitalized. The remaining costs will be used to finish rolling out systems already validated and certified. Consistent with current corporate accounting policy, the capitalized costs are being amortized on a straight-line basis over a maximum period of five years once the systems project is substantially complete and ready for its intended use. First Tennessee is also assessing Year 2000 readiness on the part of external entities, particularly mission critical vendors, significant credit customers, business partners, funds providers, and financial market counterparties. During 1998, First Tennessee initiated a review process with its large commercial customers to identify, assess and mitigate potential risks, including credit risk, associated with customers' failure to adequately address their Year 2000 issues. First Tennessee is continuing, when it deems appropriate, to discuss these matters with, obtain written certification from, and test the systems of other companies as to their Year 2000 compliance. If Year 2000 issues are not adequately addressed by First Tennessee and significant third parties, First Tennessee's business, financial condition or results of operations could be materially adversely affected. However, our regular contingency planning processes have been adapted and are continuing to be tested and monitored to aid us in preparing for the most significant potential risks from both internal and external sources. The contingency plans include such items as outsourcing options, business resumption plans for all of the business units, identification of alternative sources of liquidity, and evaluation of alternative manual processes. As a financial institution, First Tennessee's Year 2000 efforts are subject to regulation and monitoring by bank and bank holding company regulatory agencies. These agencies, under the auspices of the Federal Financial Institutions Examination Council ("FFIEC") have established specific deadline requirements for achieving Year 2000 compliance. First Tennessee is current in meeting these requirements. The Office of the Comptroller of the Currency, which is our primary bank regulator, also includes a review of the risk assessments and contingency plans in its quarterly examination of Year 2000 preparedness. The foregoing statements are forward looking. Actual results could differ because of several factors, including those presented in the Introduction section at the beginning of this MD&A discussion. The Year 2000 disclosures contained in this report are designated as Year 2000 Readiness Disclosures related to the Year 2000 Information and Readiness Disclosure Act. 27 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. 28 Part II. OTHER INFORMATION Items 1, 2, 3, 4 and 5 - ---------------------- As of the end of the third quarter, 1999, the answers to Items 1, 2, 3, 4 and 5 were either inapplicable or negative, and therefore, these items are omitted. Item 6 - Exhibits and Reports on Form 8-K. - ------------------------------------------ (a) Exhibits. Exhibit No. Description ----------- ----------- 3(b) Bylaws, as amended. 4 Instruments defining the rights of security holders, including indentures.* **10(a) Management Incentive Plan, as amended and restated. **10(b) 1997 Employee Stock Option Plan, as amended and restated. **10(n) 2000 Employee Stock Option Plan **10(o) 2000 Non-Employee Directors' Deferred Compensation Stock Option Plan. 27 Financial Data Schedule (for SEC use only). * 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 third quarter of 1999. 29 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST TENNESSEE NATIONAL CORPORATION (Registrant) DATE: 11/12/99 By: Elbert L. Thomas Jr. --------------------- ----------------------------------------- Elbert L. Thomas Jr. Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) 30 EXHIBIT INDEX Exhibit No. Description ----------- ----------- 3(b) Bylaws, as amended. 4 Instruments defining the rights of security holders, including indentures.* **10(a) Management Incentive Plan, as amended and restated. **10(b) 1997 Employee Stock Option Plan, as amended and restated. **10(n) 2000 Employee Stock Option Plan **10(o) 2000 Non-Employee Directors' Deferred Compensation Stock Option Plan. 27 Financial Data Schedule (for SEC use only). * 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, AS AMENDED 1 EXHIBIT 3(b) BYLAWS OF FIRST TENNESSEE NATIONAL CORPORATION (AS AMENDED AND RESTATED OCTOBER 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. 1 2 Memphis time or on such other date and/or at such other time as the Board of Directors may fix by resolution by vote of a majority of the entire Board of Directors. At the meeting, the shareholders shall elect by ballot, by plurality vote, 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 2 3 the notice provisions of Section 2.8 is also required. 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 3 4 Section 3.6. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 90 days nor more 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 4 5 place, day and hour of such meeting may also be fixed by resolution or by written consent of the directors. In addition, the Board of Directors may approve an annual schedule for additional regular meetings of the Board of Directors and of committees thereof. 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 5 6 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. 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 6 7 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. 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 7 8 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, 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; 8 9 (e) The par value of each share represented by such certificate; or a statement that the shares are without par value; and (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 9 10 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: (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 10 11 indemnification; and (c) A determination is made that the facts then known to those making the determination would not preclude indemnification under this bylaw. 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 position deemed appropriate by the 11 12 Board of Directors for continuation, or (ii) the director is so engaged in some specific project for the Board of Directors as to make his or her resignation detrimental to the Corporation. Under this circumstance, the Board of Directors may elect to set a subsequent date for his or her retirement to coincide with the completion of the project. Directors who are also officers of the Corporation or any of its affiliates will be retired from the Board of Directors on 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 and the President - Business Financial Services/Memphis Financial Services of First Tennessee Bank National Association (the "Bank"), the principal subsidiary of the Corporation, or either 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 12 13 "emergency." An "emergency" shall be deemed to exist whenever any two of the officers identified in Section 9.2 of these Bylaws in good faith determine that a quorum of the directors cannot readily be assembled because of a catastrophic event. 9.2 NOTICE OF MEETING. A meeting of the Board of Directors may be called by any one director or by any 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 13 14 absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends or for repairing or maintaining any property of the Corporation, or for such other purposes as the directors shall think conducive to the interest of the Corporation. 10.3 SEAL. This Corporation shall have a Corporate Seal which shall consist of an imprint of the name 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.(A) 3 MANAGEMENT INCENTIVE PLAN, AS AMENDED AND RESTATED 1 EXHIBIT 10(a) FIRST TENNESSEE NATIONAL CORPORATION MANAGEMENT INCENTIVE PLAN (Amended and Restated October 20, 1999) 1. PURPOSE. The purpose of the First Tennessee National Corporation Management Incentive Plan (the "Plan") is to promote the interests of the shareholders of First Tennessee National Corporation (the "Company") by providing an incentive to key officers and employees of the Company and subsidiaries of the Company who can contribute most to the short-term and long-term growth and profitability of the Company. It is intended that incentive awards paid under the Plan fall within the "performance-based compensation" exception contained in Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Tax Code"). 2. EFFECTIVE DATE OF PLAN. The Plan was originally effective January 1, 1974. The Plan, as amended and restated on October 20, 1999, shall be effective immediately. 3. PLAN ADMINISTRATION. The Plan shall be administered by a committee ("Committee") whose members shall be appointed from time to time by, and shall serve at the pleasure of, the Board of Directors of the Company. In addition, all members shall be directors and shall meet the definitional requirements for both "non-employee director" (with any exceptions therein permitted) contained in the then current Securities and Exchange Commission Rule 16b-3 or any successor provision and "outside director" as defined for purposes of Section 162(m) of the Tax Code or any successor provision. The Committee shall adopt such rules of procedure as it may deem proper. The powers of the Committee shall include plenary authority to interpret the Plan, and subject to the provisions hereof, to determine the persons who are eligible to receive awards under the Plan, the terms of any awards, the Corporate Financial Criteria, Performance Goals, and other criteria applicable to such awards, and the extent to which the Company and the Participants in the Plan have achieved the performance goals. The Committee shall have the power, in its sole and complete discretion, to reduce the amount of or eliminate any award under the Plan, but the Committee shall have no power to increase any award that has been calculated pursuant to the provisions of this Plan. 4. ELIGIBILITY. All key officers and employees of the Company or any of its subsidiaries are eligible for participation in the Plan. Actual participation in the Plan for the Plan Year will be limited to and awards may be granted under the Plan to those key officers and employees of the Company or any subsidiary of the Company who, in the judgment of the Committee, have an identifiable impact upon the growth and profitability of the Company who are selected for participation in the Plan for the Plan Year by the Committee. Determination by the Committee of the key officers and employees who will participate in the Plan for the Plan Year shall be conclusive. 5. AWARDS. Prior to or within 90 days after the commencement of each calendar year (the "Plan Year"), the Committee shall designate the following: 1. The key officers and employees, if any, who will participate (the "Participants") in the Plan for the Plan Year. 2. The Corporate Financial Criteria, as defined herein, which will apply to awards for the Plan Year and the weighting of the Corporate Financial Criteria. 3. The Performance Goals, as defined herein, to be met by the Company for Participants to earn awards for the Plan Year and a payout matrix or grid or formula for such Corporate Financial Criteria and Performance Goals. 1 2 After the period of time specified in the prior sentence, the Committee may designate additional officers and employees who will participate in the Plan for the Plan Year (also "Participants" for purposes hereof); provided, however, that any award earned by such Participant for participation for such partial Plan Year will be pro-rated based on the number of days during the Plan Year in which the Participant participated in the Plan. Awards under the Plan shall be paid to the Participants as provided for herein in cash and common stock of the Company in such proportion as may be established by the Committee from time to time. A maximum of 300,000 shares of the Company's common stock, $0.625 par value (the "common stock"), in the aggregate may be issued to Participants as awards under the Plan. If common stock is used in payment of awards, it will be provided from shares purchased in the open market or privately or by the issuance of previously authorized but unissued shares and shall be issued at 100% of fair market value as of the date the award is approved by the Committee. "Fair Market Value" for purposes of the Plan shall be the mean between the high and low sales prices at which shares of the Company were sold on the valuation day as quoted by the Nasdaq Stock Market or, if there were no sales on that day, then on the last day prior to the valuation day during which there were sales. In the event that this method of valuation is not practicable, then the Committee, in its discretion, shall establish the method by which fair market value shall be determined. A Participant who terminates employment, either voluntarily or involuntarily, before the payment date for awards for the Plan Year that have not been deferred is thereby ineligible for an award under the Plan; provided, however, the Committee may, in its sole and complete discretion, determine to pay an award in the event termination was the result of death, disability, retirement, or a reduction in work force. 6. CORPORATE FINANCIAL CRITERIA. For each Plan Year, the Committee shall designate one or more of the corporate financial criteria (the "Corporate Financial Criteria") set forth in this Section 6 for use in determining an award for a Participant for such Plan Year. Corporate financial criteria designated for any Participant for a Plan Year may be different from those designated for other Participants in the same year. The Committee may specify Corporate Financial Criteria in relation to consolidated Company performance or in relation to performance of identifiable segments, business lines, departments, or subsidiaries of the Company. Corporate Financial Criteria shall consist of the following financial measures: book value, earnings per share, market capitalization, net income, price-earnings ratio, return on assets, return on equity, and return on revenue; provided, however, that the Committee retains the discretion to determine whether an award will be paid under any one or more of such Corporate Financial Criteria. 7. PERFORMANCE GOALS. For each Plan Year, the Committee shall establish specific, objective performance goals (the "Performance Goals"), for each of the Corporate Financial Criteria designated by the Committee for the Plan Year against which actual performance is to be measured to determine the amount of awards. Performance Goals established by the Committee may be described by means of a grid or matrix, providing for goals resulting in the payment of awards in such percentages as the Committee may designate of the target award payable to the Participant pursuant to the provisions of this Plan. A Performance Goal may be expressed in any form the Committee determines, including, but not limited to, the following: percentage growth, absolute growth, cumulative growth, performance versus an index, performance versus a peer group, a designated absolute amount, and a per share amount. 8. DETERMINATION AND PAYMENT OF AWARDS. 8.1 As soon as practicable after the end of the Plan Year, the Committee will determine the amount of the award earned by each Participant, based on application of the criteria specified in this Section 8 and the recommendation of the Chief Executive Officer of the Company. Payment will be made promptly after determination of the awards by the Committee unless payment of an award has been deferred pursuant to Section 11.6 hereof. Such Committee determination must include a certification in writing that the Performance Goals and any other material terms of the award were in fact satisfied; provided that minutes of the Committee meeting (or any action by written consent) shall satisfy the written certification requirement. 2 3 8.2 For any Participant holding the office of Chairman of the Board, Chief Executive Officer or President of the Company, the award will be the amount obtained by multiplying the following amounts: (1) Salary dollars earned by the Participant with respect to the Plan Year, (2) a specified percentage (expressed as a decimal) determined by the Committee to apply to the Participant for the Plan Year, and (3) the percentage achievement (expressed as a decimal) by the Company of the Performance Goals for the Corporate Financial Criteria designated by the Committee for the Plan Year. 8.3 For any Participant who is not covered by Section 8.2, the award will be the amount obtained by multiplying the following amounts: (1) Salary dollars earned by the Participant with respect to the Plan Year, (2) a specified percentage (expressed as a decimal) determined by the Committee to apply to the Participant for the Plan Year, (3) the percentage achievement (expressed as a decimal) by the Company of the Performance Goals for the Corporate Financial Criteria designated by the Committee for the Plan Year, and (4) if the Committee determines to apply the following percentage to the Participant for the Plan Year, the Participant's percentage achievement (expressed as a decimal) of his/her personal plan goals (as recommended by the Chief Executive Officer of the Company and approved by the Committee). 8.4 Notwithstanding anything herein to the contrary, the maximum dollar amount that may be awarded for any Plan Year to any Participant may not exceed $1.5 million. 8.5 Notwithstanding anything herein to the contrary, for each Participant who is the Chief Executive Officer of the Company or other officer whose salary is subject to the provisions of Section 162(m) of the Tax Code, in calculating any award under the Plan "salary" shall be limited to salary at the annual rate established or in effect for the Participant at the time the Committee establishes Performance Goals for the Plan Year and for each Participant specified by a bank regulatory authority of the Company or any of its subsidiaries, that Participant's award shall be calculated as required by such bank regulatory authority, subject to the maximum dollar limitation imposed by Section 8.4 hereof. 9. TERMINATION SUSPENSION OR MODIFICATION OF THE PLAN. The Board of Directors may at any time, with or without notice, terminate, suspend, or modify the Plan in whole or in part, except that the Board of Directors shall not amend the Plan in violation of the law. The Committee is expressly permitted to make any amendment to the Plan, which is not in violation of law, that is required to conform the Plan to the requirements of Section 162(m). 10. CHANGE IN CONTROL. 10.1 For purposes of this Plan, 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 3 4 Company representing 20% or more of the combined voting power of 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 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 consummation of 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 stockholders, 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 in 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 stockholders 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. 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 person, a Change in Control of the Company shall then occur. For purposes of this Section 10.1, "Company Voting Securities" means the Company's then outstanding securities eligible to vote for the election of the Board, and "Subsidiary" means an entity in which the Company directly or indirectly beneficially owns more than 50% of the voting securities or interests. 10.2 If a Change in Control occurs, an award under the Plan shall be paid at the time specified below to each Participant without regard to any contrary provisions of the Plan, computed as follows: the award to be paid will be in the form of a lump sum cash amount equal to the portion of the Participant's target award for the Plan Year in which a Change in Control occurs in an amount equal to the product of (I) the Participant's target bonus under the Plan for such Plan Year, and (ii) a fraction, the numerator of which is the number of days in the Plan Year in which a Change in Control occurs through the date of the Change in Control, and the denominator of which is three hundred sixty-five (365). Payment of an award under this Section 10.2 of the Plan shall be made immediately upon the occurrence of an event described in Section 10.1(I), 10.1 (ii) or 10.1 (iv) and, in the event an agreement to effectuate a Change in Control pursuant to a Business Combination has been executed, shall be made three business days prior to the date the Chief Executive Officer of the Company believes in good faith to be the effective date of the merger or other transaction described in Section 10.1 (iii) hereof. Any payments made as a result of the operation of this Section 10.2 of the Plan shall reduce dollar for dollar any other payments otherwise due under the Plan. 4 5 11. MISCELLANEOUS. 11.1 NO ASSIGNMENTS. No award under this Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, including any such liability which is for alimony or other payments for the support of a spouse or former spouse, or for any other relative of Participant prior to actually being received by Participant or his/her designated beneficiary, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to such award shall be void. 11.2 NO RIGHT OF EMPLOYMENT. Neither the adoption of the Plan nor the determination of eligibility to participate in the Plan nor the granting of an award under the Plan shall confer upon any Participant any right to continue in the employ of the Company or any of its subsidiaries or interfere in any way with the right of the Company or the subsidiary to terminate such employment at any time. 11.3 TAX WITHHOLDING. The Company shall have the right to withhold the amount of any tax attributable to amounts payable under the Plan, and the Company may defer making payment or delivery of any benefits under the Plan if any tax is payable until indemnified to its satisfaction. 11.4 GOVERNING LAW. The Plan and all determinations under the Plan shall be governed by and construed in accordance with the laws of the State of Tennessee. 11.5 OTHER PLANS. Nothing in this Plan shall be construed as limiting the authority of the Committee, the Board of Directors, the Company or any subsidiary of the Company to establish any other compensation plan or as in any way limiting its or their authority to pay bonuses or supplemental compensation to any persons employed by the Company or a subsidiary of the Company, whether or not such person is a Participant in this Plan and regardless of how the amount of such compensation or bonus is determined. 11.6 DEFERRALS OF AWARDS. A Participant may elect to defer payment of his/her cash award under the Plan if deferral of an award under the Plan is permitted pursuant to the terms of a deferred compensation program of the Company existing at the time the election to defer is permitted to be made, and the Participant complies with the terms of such program. 11.7 SECTION 162(M). It is the intention of the Company that all payments made under the Plan shall fall within the "performance-based compensation" exception contained in Section 162(m) of the Tax Code. Thus, unless the Board of Directors expressly determines otherwise and, except for Section 10.2 of the Plan, if any Plan provision is found not to be in compliance with such exception, that provision shall be deemed to be amended so that the provision does comply to the extent permitted by law, and in every event, the Plan shall be construed in favor of its meeting the "performance-based compensation" exception contained in Section 162(m). 11.8 ADJUSTMENT FOR CHANGES IN CAPITALIZATION. 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 be reflected proportionately: (I) in an increase in the aggregate number of shares then available for awards under the Plan and (ii) in the number available for award to any one person. Any fractional shares resulting from such adjustments shall be eliminated. If changes in capitalization other than those considered above shall occur, the Board of Directors shall make such adjustments in the number and class of shares for which awards may thereafter be granted as the Board in its discretion may consider appropriate, and all such adjustments shall be conclusive. 12. AUTOMATIC, NON-DISCRETIONARY ADJUSTMENT. 12.1 For the 1999 Plan Year only, the amount of any cash award otherwise payable under 5 6 Sections 1.0-11.0 of this Plan shall be adjusted in accordance with the provisions of this Section 12.1. The amount of cash that is payable to a participant under the Plan, taking into account the adjustment provided for in this Section 12.1 and net of any amount of bonus that has been deferred, shall be equal to "A"in the following formula: A = B - (.25) (C-D), where B = the cash award payable to the participant, computed under only Sections 1.0-11.0 of the Plan, net of the amount of bonus that has been deferred or in lieu of which the participant has elected to receive a stock option. C = the amount of the participant's target bonus, calculated assuming 100% achievement of the corporate Performance Goals and 90% achievement of the participant's personal plan goals. D = the amount of bonus deemed to be deferred by the participant, assuming the participant's bonus is an amount equal to "C." 12.2 For the 2000 and 2001 Plan Years only, the amount of any cash award otherwise payable under Sections 1.0-11.0 of this Plan shall be adjusted in accordance with the provisions of this Section 12.2. The amount of cash that is payable to a participant under the Plan, taking into account the adjustment provided for in this Section 12.2 and net of any amount of bonus that has been deferred, shall be equal to "A" in the following formula: A = (.75) B-C, where B = the cash award payable to the participant, computed under only Sections 1.0-11.0 of the Plan. C = the amount of bonus that has been deferred or in lieu of which the participant has elected to receive a stock option. 6 EX-10.(B) 4 1997 ESOP, AS AMENDED AND RESTATED 1 EXHIBIT 10(b) FIRST TENNESSEE NATIONAL CORPORATION 1997 EMPLOYEE STOCK OPTION PLAN (Adopted 10-22-96, Amended and Restated 10-20-99) 1. PURPOSE. The 1997 Employee Stock Option Plan (the "Plan") of First Tennessee National Corporation and any successor thereto, (the "Company") is designed to enable employees of the Company and its subsidiaries to obtain a proprietary interest in the Company, and thus to share in the future success of the Company's business. Accordingly, the Plan is intended as a further means not only of attracting and retaining outstanding personnel, but also of promoting a closer identity of interest between employees and shareholders. 2. DEFINITIONS. As used in the Plan, the following terms shall have the respective meanings set forth below: (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 "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 1 2 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 person, a change in control of the Company shall then occur. (b) "Committee" means the Stock Option Committee or any successor committee designated by the Board of Directors to administer the Stock Option Plan, as provided in Section 5(a) hereof. (c) "Early Retirement" means termination of employment after an employee has fulfilled all service requirements for an early pension, and before his or her Normal Retirement Date, under the terms of the First Tennessee National Corporation Pension Plan, as amended from time to time. (d) "Quota" means the portion of the total number of shares subject to an option which the grantee of the option may purchase during the several periods of the term of the option (if the option is subject to quotas), as provided in Section 8(b) hereof. (e) "Retirement" means termination of employment after an employee has fulfilled all service requirements for a pension under the terms of the First Tennessee National Corporation Pension Plan, as amended from time to time. (f) "Subsidiary" means a subsidiary corporation as defined in Section 425 of the Internal Revenue Code. (g) "Successor" means the legal representative of the estate of a deceased grantee or the person or persons who shall acquire the right to exercise an option or related SAR by bequest or inheritance or by reason of the death of the grantee, as provided in Section 10 hereof. (h) "Term of the Option" means the period during which a particular option may be exercised, as provided in Section 8(a) hereof. (i) "Three months after cessation of employment" means a period of time beginning at 12:01 A.M. on the day following the date notice of termination of employment was given and ending at 11:59 P.M. on the date in the third following month corresponding numerically with the date notice of 2 3 termination of employment was given ( or in the event that the third following month does not have a date so corresponding, then the last day of the third following month). (j) "Five years after (an event occurring on day x)" and "five years from (an event occurring on day x)" means a period of time beginning at 12:01 A.M. on the day following day x and ending at 11:59 P.M. on the date in the fifth following year corresponding numerically with day x (or in the event that the fifth following year does not have a date so corresponding, then the last day of the sixtieth following month). (k) "Voluntary Resignation" means any termination of employment that is not involuntary and that is not the result of the employee's death, disability, early retirement or retirement. 3. EFFECTIVE DATE OF PLAN. The Plan shall become effective upon approval by the Board of Director of the Company. No options may be granted under the Plan after the month and day in the year 2006 corresponding to the day before the month and day on which the Plan becomes effective. The term of options granted on or before such date may, however, extend beyond that date. 4. SHARES SUBJECT TO THE PLAN. (a) The Company may grant options under the Plan authorizing the issuance of no more than 17,200,000 shares of its $0.625 par value (adjusted for any stock splits) common stock, which will be provided from shares purchased in the open market or privately (that became authorized but unissued shares under state corporation law) or by the issuance of previously authorized but unissued shares. (b) Shares as to which options previously granted under this Plan shall for any reason lapse shall be restored to the total number available for grant of options. 5. PLAN ADMINISTRATION. (a) The Plan shall be administered by a Stock Option Committee (the "Committee") whose members shall be appointed from time to time by, and shall serve at the pleasure of, the Board of Directors of the Company. In addition, all members shall be directors and shall meet the definitional requirements for "non-employee director" (with any exceptions therein permitted) contained in the then current SEC Rule 16b-3 or any successor provision. (b) The Committee shall adopt such rules of procedure as it may deem proper. (c) The powers of the Committee shall include plenary authority to interpret the Plan, and subject to the provisions hereof, to determine the persons to whom options shall be granted, the number of shares subject to each option, the term of the option, and the date on which options shall be granted. 6. ELIGIBILITY. (a) Options may be granted under the Plan to employees of the Company or any subsidiary selected by the Committee. Determination by the Committee of the employees to whom options shall be granted shall be conclusive. (b) An individual may receive more than one option. 7. OPTION PRICE. The option price per share to be paid by the grantee to the Company upon exercise of the option shall be determined by the Committee, but shall not be less than 100% of the fair market value of the share at the time 3 4 the option is granted, nor shall the price per share be less than the par value of the share. Notwithstanding the prior sentence, the option price per share may be less than 100% of the fair market value of the share at the time the option is granted if: (a) The grantee of the option has entered into an agreement with the Company pursuant to which the grant of the option is in lieu of the payment of compensation; and (b) The amount of such compensation when added to the cash exercise price of the option equals at least 100% of the fair market value (at the time the option is granted) of the shares subject to option. "Fair market value" for purposes of the Plan shall be the mean between the high and low sales prices at which shares of the Company were sold on the valuation day as quoted by the Nasdaq Stock Market or, if there were no sales on that day, then on the last day prior to the valuation day during which there were sales. In the event that this method of valuation is not practicable, then the Committee, in its discretion, shall establish the method by which fair market value shall be determined. 8. TERMS OR QUOTAS OF OPTIONS: (a) TERM. Each option granted under the Plan shall be exercisable only during a term (the "Term of the Option") commencing one year, or such other period of time (which may be less than or more than one year) as is determined to be appropriate by the Committee, after the date when the option was granted and ending (unless the option shall have terminated earlier under other provisions of the Plan) on a date to be fixed by the Committee. Notwithstanding the foregoing, each option granted under the Plan shall become exercisable in full immediately upon a Change in Control. (b) QUOTAS. The Committee shall have authority to grant options exercisable in full at any time during their term, or exercisable in quotas. Quotas or portions thereof not purchased in earlier periods shall be cumulated and be available for purchase in later periods. In exercising his or her option, the grantee may purchase less than the full quota available to him or her. (c) EXERCISE OF STOCK OPTIONS. Stock options shall be exercised by delivering, mailing, or transmitting to the Committee or its designee (for all purposes under the Plan, in the absence of an express designation by the Committee, the Company's Personnel Division Manager is deemed to be the Committee's designee) the following items: (i) A notice, in the form, by the method, and at times prescribed by the Committee, specifying the number of shares to be purchased; and (ii) A check or money order payable to the Company for the full option price. In addition, the Committee in its sole discretion may determine that it is an appropriate method of payment for grantees to pay, or make partial payment of, the option price with shares of Company common stock in lieu of cash. In addition, in its sole discretion the Committee may determine that it is an appropriate method of payment for grantees to pay for any shares subject to an option by delivering a properly executed exercise notice together with a copy of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds to pay the purchase price (a "cashless exercise"). To facilitate the foregoing, the Company may enter into agreements for coordinated procedures with one or more brokerage firms. The value of Company common stock surrendered in payment of the exercise price shall be its fair market value, determined pursuant to Section 7, on the date of exercise. Upon receipt of such notice of exercise of a stock option and upon payment of the option price by a method other than a cashless exercise, the Company shall promptly deliver to the grantee (or, in the event the grantee has executed a deferral agreement, the Company 4 5 shall deliver to the grantee at the time specified in such deferral agreement) a certificate or certificates for the shares purchased, without charge to him or her for issue or transfer tax. (d) POSTPONEMENTS. The Committee may postpone any exercise of an option for such period of time as the Committee in its discretion reasonably believes necessary to prevent any acts or omissions that the Committee reasonably believes will be or will result in the violation of any state or federal law; and the Company shall not be obligated by virtue of any provision of the Plan or the terms of any prior grant of an option to recognize the exercise of an option or to sell or issue shares during the period of such postponement. Any such postponement shall automatically extend the time within which the option may be exercised, as follows: The exercise period shall be extended for a period of time equal to the number of days of the postponement, but in no event shall the exercise period be extended beyond the last day of the postponement for more days than there were remaining in the option exercise period on the first day of the postponement. Neither the Company nor any subsidiary of the Company, nor any of their respective directors or officers shall have any obligation or liability to the grantee of an option or to a successor with respect to any shares as to which the option shall lapse because of such postponement. (e) NON-TRANSFERABILITY. All options granted under the Plan shall be non-transferable other than by will or by the laws of descent and distribution, subject to Section 10 hereof, and an option may be exercised during the lifetime of the grantee only by him or her or by his/her guardian or legal representative. (f) CERTIFICATES. The stock certificate or certificates to be delivered under this Plan may, at the request of the grantee, be issued in his or her name or, with the consent of the Company, the name of another person as specified by the grantee. (g) RESTRICTIONS. This subsection (g) shall be void and of no legal effect in the event of a Change of Control. Notwithstanding anything in any other section or subsection herein to the contrary, the following provisions shall apply to all options (except options designated by the Committee as FirstShare options), exercises and grantees. An amount equal to the spread realized in connection with the exercise of an option within six months prior to a grantee's voluntary resignation shall be paid to the Company by the grantee in the event that the grantee, within six months following voluntary resignation, engages, directly or indirectly, in any activity determined by the Committee to be competitive with any activity of the Company or any of its subsidiaries. (h) TAXES. The Company shall be entitled to withhold the amount of any tax attributable to amounts payable or shares deliverable under the Plan, and the Company may defer making payment or delivery of any benefits under the Plan if any tax is payable until indemnified to its satisfaction. The Committee may, in its discretion and subject to such rules which it may adopt, permit a grantee to satisfy, in whole or in part, any federal, state and local withholding tax obligation which may arise in connection with the exercise of a stock option, by electing either: (i) to have the Company withhold shares of Company common stock from the shares to be issued upon the exercise of the option; (ii) to permit a grantee to tender back shares of Company common stock issued upon the exercise of an option; or (iii) to deliver to the Company previously owned shares of Company common stock, having, in the case of (i), (ii), or (iii), a fair market value equal to the amount of the federal, state, and local withholding tax associated with the exercise of the option. 5 6 (i) ADDITIONAL PROVISIONS APPLICABLE TO OPTION AGREEMENTS IN LIEU OF COMPENSATION. If the Committee, in its discretion permits participants to enter into agreements as contemplated by Section 7 herein, then such agreements must be irrevocable and cannot be changed by the participant once made, and such agreements must be made at least prior to the performance of any services with respect to which an option may be granted. If any participant who enters into such an agreement terminates employment prior to the grant of the option, then the option will not be granted and all compensation which would have been covered by the option will be paid to the participant in cash. 9. EXERCISE OF OPTION BY GRANTEE ON CESSATION OF EMPLOYMENT. If a person to whom an option has been granted shall cease, for a reason other than his or her death, disability, early retirement, retirement, or voluntary resignation, to be employed by the Company or a subsidiary, the option shall terminate three months after the cessation of employment, unless it terminates earlier under other provisions of the Plan. Until the option terminates, it may be exercised by the grantee for all or a portion of the shares as to which the right to purchase had accrued under the Plan at the time of cessation of employment, subject to all applicable conditions and restrictions provided in Section 8 hereof. If a person to whom an option has been granted shall retire or become disabled, the option shall terminate five years after the date of early retirement, retirement or disability, unless it terminates earlier under other provisions of the Plan. Although such exercise by a retiree or disabled grantee is not limited to the exercise rights which had accrued at the date of early retirement, retirement or disability, such exercise shall be subject to all applicable conditions and restrictions prescribed in Section 8 hereof. If a person shall voluntarily resign, his option to the extent not previously exercised shall terminate at once. 10. EXERCISE OF OPTION AFTER DEATH OF GRANTEE. If the grantee of an option shall die while in the employ of the Company or within three months after ceasing to be an employee, and if the option was in effect at the time of his or her death (whether or not its term had then commenced), the option may, until the expiration of five years from the date of death of the grantee or until the earlier expiration of the term of the option, be exercised by the successor of the deceased grantee. Although such exercise is not limited to the exercise rights which had accrued at the date of death of the grantee, such exercise shall be subject to all applicable conditions and restrictions prescribed in Section 8 hereof. 11. PYRAMIDING OF OPTIONS. The Committee in its sole discretion may from time to time permit the method of exercising options known as pyramiding (the automatic application of shares received upon the exercise of a portion of a stock option to satisfy the exercise price for additional portions of the option). 12. SHAREHOLDER RIGHTS. No person shall have any rights of a shareholder by virtue of a stock option except with respect to shares actually issued to him or her, and issuance of shares shall confer no retroactive right to dividends. 13. ADJUSTMENT FOR CHANGES IN CAPITALIZATION. 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 be reflected proportionately: (a) in an increase in the aggregate number of shares then available for the grant of options under the Plan, or becoming available through the termination or forfeiture of options previously granted but unexercised; (b) in the number subject to options then outstanding; and (c) in the quotas remaining available for exercise under outstanding options, and a proportionate reduction shall be made in the per-share option price as to any outstanding options or portions thereof not yet exercised. Any fractional shares resulting from such adjustments shall be eliminated. If changes in capitalization other than those considered above shall occur, the Board of Directors shall make such adjustments in the number and class of shares for which options may thereafter be granted, and in the number and class of shares remaining subject to options previously granted and in the per-share option price as the Board in its discretion may 6 7 consider appropriate, and all such adjustments shall be conclusive. 14. TERMINATION, SUSPENSION, OR MODIFICATION OF PLAN. The Board of Directors may at any time terminate, suspend, or modify the Plan, except that the Board of Directors shall not amend the Plan in violation of law. No termination, suspension, or modification of the Plan shall adversely affect any right acquired by any grantee, or by any successor of a grantee (as provided in Section 10 hereof), under the terms of an option granted before the date of such termination, suspension, or modification, unless such grantee or successor shall consent, but it shall be conclusively presumed that any adjustment for changes in capitalization as provided in Section 13 does not adversely affect any such right. 15. APPLICATION OF PROCEEDS. The proceeds received by the Company from the sale of its shares under the Plan will be used for general corporate purposes. 16. NO RIGHT TO EMPLOYMENT. Neither the adoption of the Plan nor the granting of any stock option shall confer upon the grantee any right to continue in the employ of the Company or any of its subsidiaries or interfere in any way with the right of the Company or the subsidiary to terminate such employment at any time. 17 GOVERNING LAW. The Plan and all determinations thereunder shall be governed by and construed in accordance with the laws of the State of Tennessee. 18. 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 Company as hereinbefore defined and any successor or assignee to the business or assets which by reason hereof becomes bound by this Plan. 7 EX-10.(N) 5 2000 EMPLOYEE STOCK OPTION PLAN 1 EXHIBIT 10(n) FIRST TENNESSEE NATIONAL CORPORATION 2000 EMPLOYEE STOCK OPTION PLAN (Adopted 10-20-99) 1. PURPOSE. The 2000 Employee Stock Option Plan (the "Plan") of First Tennessee National Corporation and any successor thereto (the "Company"), is designed to enable employees of the Company and its subsidiaries to obtain a proprietary interest in the Company, and thus to share in the future success of the Company's business. Accordingly, the Plan is intended as a further means not only of attracting and retaining outstanding personnel, but also of promoting a closer identity of interest between employees and shareholders. 2. DEFINITIONS. As used in the Plan, the following terms shall have the respective meanings set forth below: (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 "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 1 2 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 person, a change in control of the Company shall then occur. (b) "Committee" means the Stock Option Committee or any successor committee designated by the Board of Directors to administer this Plan, as provided in Section 5(a) hereof. (c) "Early Retirement" means termination of employment after an employee has fulfilled all service requirements for an early pension, and before his or her Normal Retirement Date, under the terms of the First Tennessee National Corporation Pension Plan, as amended from time to time. (d) "Quota" means the portion of the total number of shares subject to an option which the grantee of the option may purchase during the several periods of the term of the option (if the option is subject to quotas), as provided in Section 8(b) hereof. (e) "Retirement" means termination of employment after an employee has fulfilled all service requirements for a pension under the terms of the First Tennessee National Corporation Pension Plan, as amended from time to time. (f) "Subsidiary" means a subsidiary corporation as defined in Section 425 of the Internal Revenue Code. (g) "Successor" means the legal representative of the estate of a deceased grantee or the person or persons who shall acquire the right to exercise an option or related SAR by bequest or inheritance or by reason of the death of the grantee, as provided in Section 10 hereof. (h) "Term of the Option" means the period during which a particular option may be exercised, as provided in Section 8(a) hereof. (i) "Three months after cessation of employment" means 5:00 p.m Memphis time on the date corresponding numerically with the date reflected in the Company's records as the effective date of termination of employment in the third month following the month in which the effective date of 2 3 termination of employment occurs (or in the event that such third following month does not have a date so corresponding, then the last day of the third following month). Also, if the last day of such period is not a business day, then the period will end at 5:00 p.m. Memphis time on the last business day of such period. (j) "Five years after (an event occurring on day x)" and "five years from (an event occurring on day x)" means 5:00 p.m. on the date in the fifth year following the year in which day x occurred corresponding numerically with day x (or in the event that day x is February 29, then February 28 in the fifth following year). Also, if the last day of such period is not a business day, then the period will end at 5:00 p.m. Memphis time on the last business day of such period. (k) "Voluntary Resignation" means any termination of employment that is not involuntary and that is not the result of the employee's death, disability, early retirement or retirement. 3. EFFECTIVE DATE OF PLAN. The Plan shall become effective upon approval at a shareholder meeting by the holders of a majority of the shares of Company common stock present, or represented, at such meeting and entitled to vote on the Plan. No options may be granted under the Plan after the month and day in the year 2010 corresponding to the day before the month and day on which the Plan becomes effective. The term of options granted on or before such date may, however, extend beyond that date, but no incentive stock options may be granted which are exercisable after the expiration of ten (10) years after the date of the grant. 4. SHARES SUBJECT TO THE PLAN. (a) The Company may grant options under the Plan authorizing the issuance of no more than 1,500,000 shares of its $0.625 par value (adjusted for any stock splits) common stock, which will be provided from shares purchased in the open market or privately or by the issuance of previously authorized but unissued shares. For purposes of computing the maximum number of shares that may be issued under the Plan, if shares are tendered in payment of all or a portion of the exercise price, then the number of shares issued in connection with such exercise is the number of shares subject to option that was exercised, net of the number tendered in payment. (b) Shares as to which options previously granted under this Plan shall for any reason lapse shall be restored to the total number available for grant of options. 5. PLAN ADMINISTRATION. (a) The Plan shall be administered by a Stock Option Committee (the "Committee") whose members shall be appointed from time to time by, and shall serve at the pleasure of, the Board of Directors of the Company. In addition, all members shall be directors and shall meet the definitional requirements for "non-employee director" (with any exceptions therein permitted) contained in the then current SEC Rule 16b-3 or any successor provision. (b) The Committee shall adopt such rules of procedure as it may deem proper. (c) The powers of the Committee shall include plenary authority to interpret the Plan, and subject to the provisions hereof, to determine the persons to whom options shall be granted, the number of shares subject to each option, the terms and term of the option, and the date on which options shall be granted. 3 4 6. ELIGIBILITY. (a) Options may be granted under the Plan to employees of the Company or any subsidiary selected by the Committee. Determination by the Committee of the employees to whom options shall be granted shall be conclusive. (b) An individual may receive more than one option, subject, however, to the following limitations: (I) in the case of an incentive stock option (as described in Section 422A of the Internal Revenue Code of 1986), the aggregate fair market value (determined at the time the options are granted) of the Company's common stock with respect to which incentive stock options are exercisable for the first time during any calendar year by any individual employee (under this Plan and all other similar plans of the Company and its subsidiaries) shall not exceed $100,000, and (ii) the maximum number of shares with respect to which options are granted to an individual during the term of the Plan, as defined in Section 3 hereof, shall not exceed 1,000,000 shares. Incentive stock options granted hereunder shall be clearly identified as such at the time of grant. 7. OPTION PRICE. The option price per share to be paid by the grantee to the Company upon exercise of the option shall be determined by the Committee, but shall not be less than 100% of the fair market value of the share at the time the option is granted, nor shall the price per share be less than the par value of the share. Notwithstanding the prior sentence, the option price per share may be less than 100% of the fair market value of the share at the time the option is granted if: (a) The grantee of the option has entered into an agreement with the Company pursuant to which the grant of the option (which must be a non-qualified option and not an incentive stock option) is in lieu of the payment of compensation; and (b) The amount of such compensation when added to the cash exercise price of the option equals at least 100% of the fair market value (at the time the option is granted) of the shares subject to option. "Fair market value" for purposes of the Plan shall be the mean between the high and low sales prices at which shares of the Company were sold on the New York Stock Exchange on the valuation day or, if there were no sales on that day, then on the last day prior to the valuation day during which there were sales. In the event that this method of valuation is not practicable, then the Committee, in its discretion, shall establish the method by which fair market value shall be determined. 8. TERMS OR QUOTAS OF OPTIONS: (a) TERM. Each option granted under the Plan shall be exercisable only during a term (the "Term of the Option") commencing one year, or such other period of time (which may be less than or more than one year) as is determined to be appropriate by the Committee, after the date when the option was granted and ending (unless the option shall have terminated earlier under other provisions of the Plan) on a date to be fixed by the Committee. Notwithstanding the foregoing, each option granted under the Plan shall become exercisable in full immediately upon a Change in Control. (b) QUOTAS. The Committee shall have authority to grant options exercisable in full at any time during their term, or exercisable in quotas. Quotas or portions thereof not purchased in earlier periods shall be cumulated and be available for purchase in later periods. In exercising an option, the grantee may purchase less than the full quota available to him or her. (c) EXERCISE OF STOCK OPTIONS. Stock options shall be exercised by delivering, mailing, or transmitting to the Committee or its designee (for all purposes under the Plan, in the absence of an express 4 5 designation by the Committee, the Company's Executive Vice President-Employee Services is deemed to be the Committee's designee) the following items: (i) A notice, in the form and by the method (which may include use of a telephone or other means of electronic communication) and at times prescribed by the Committee, specifying the number of shares to be purchased; and (ii) A check or money order payable to the Company for the full option price. In addition, the Committee in its sole discretion may determine that it is an appropriate method of payment for grantees to pay, or make partial payment of, the option price with shares of Company common stock in lieu of cash. In addition, in its sole discretion the Committee may determine that it is an appropriate method of payment for grantees to pay for any shares subject to an option by delivering a properly executed exercise notice together with irrevocable instructions (which may be by the use of a telephone or other means of electronic communication) to a broker to deliver promptly to the Company the amount of sale or loan proceeds to pay the purchase price (a "cashless exercise"). To facilitate the foregoing, the Company may enter into agreements for coordinated procedures with one or more brokerage firms. The value of Company common stock surrendered in payment of the exercise price shall be its fair market value, determined pursuant to Section 7, on the date of exercise. Upon receipt of such notice of exercise of a stock option and upon payment of the option price by a method other than a cashless exercise, the Company shall promptly deliver to the grantee (or, in the event the grantee has executed a deferral agreement, the Company shall deliver to the grantee at the time specified in such deferral agreement) a certificate or certificates for the shares purchased, without charge to him or her for issue or transfer tax. (d) POSTPONEMENTS. The Committee may postpone any exercise of an option for such period of time as the Committee in its discretion reasonably believes necessary to prevent any acts or omissions that the Committee reasonably believes will be or will result in the violation of any state or federal law; and the Company shall not be obligated by virtue of any provision of the Plan or the terms of any prior grant of an option to recognize the exercise of an option or to sell or issue shares during the period of such postponement. Any such postponement shall automatically extend the time within which the option may be exercised, as follows: The exercise period shall be extended for a period of time equal to the number of days of the postponement, but in no event shall the exercise period be extended beyond the last day of the postponement for more days than there were remaining in the option exercise period on the first day of the postponement. Neither the Company nor any subsidiary of the Company, nor any of their respective directors or officers shall have any obligation or liability to the grantee of an option or to a successor with respect to any shares as to which the option shall lapse because of such postponement. (e) NON-TRANSFERABILITY. All options granted under the Plan shall be non-transferable other than by will or by the laws of descent and distribution, subject to Section 10 hereof, and an option may be exercised during the lifetime of the grantee only by him or her or by his/her guardian or legal representative. (f) CERTIFICATES. The stock certificate or certificates to be delivered under this Plan may, at the request of the grantee, be issued in his or her name or, with the consent of the Company, as specified by the grantee. (g) RESTRICTIONS. This subsection (g) shall be void and of no legal effect in the event of a Change of Control. Notwithstanding anything in any other section or subsection herein to the contrary, the following provisions shall apply to all options (except options designated by the Committee as FirstShare options), exercises and grantees. An amount equal to the spread realized in connection 5 6 with the exercise of an option within six months prior to a grantee's voluntary resignation shall be paid to the Company by the grantee in the event that the grantee, within six months following voluntary resignation, engages, directly or indirectly, in any activity determined by the Committee to be competitive with any activity of the Company or any of its subsidiaries. (h) TAXES. The Company shall be entitled to withhold the amount of any tax attributable to amounts payable or shares deliverable under the Plan, and the Company may defer making payment or delivery of any benefits under the Plan if any tax is payable until indemnified to its satisfaction. The Committee may, in its discretion and subject to such rules which it may adopt, permit a grantee to satisfy, in whole or in part, any federal, state and local withholding tax obligation which may arise in connection with the exercise of a stock option by electing either: (i) to have the Company withhold shares of Company common stock from the shares to be issued upon the exercise of the option; (ii) to permit a grantee to tender back shares of Company common stock issued upon the exercise of an option; or (iii) to deliver to the Company previously owned shares of Company common stock, having, in the case of (I), (ii), or (iii), a fair market value equal to the amount of the federal, state, and local withholding tax associated with the exercise of the option. (i) ADDITIONAL PROVISIONS APPLICABLE TO OPTION AGREEMENTS IN LIEU OF COMPENSATION. If the Committee, in its discretion permits participants to enter into agreements as contemplated by Section 7 herein, then such agreements must be irrevocable and cannot be changed by the participant once made, and such agreements must be made at least prior to the performance of any services with respect to which an option may be granted. If any participant who enters into such an agreement terminates employment prior to the grant of the option, then the option will not be granted and all compensation which would have been covered by the option will be paid to the participant in cash. 9. EXERCISE OF OPTION BY GRANTEE ON CESSATION OF EMPLOYMENT. If a person to whom an option has been granted shall cease, for a reason other than his or her death, disability, early retirement, retirement, or voluntary resignation, to be employed by the Company or a subsidiary, the option shall terminate three months after the cessation of employment, unless it terminates earlier under other provisions of the Plan. Until the option terminates, it may be exercised by the grantee for all or a portion of the shares as to which the right to purchase had accrued under the Plan at the time of cessation of employment, subject to all applicable conditions and restrictions provided in Section 8 hereof. If a person to whom an option has been granted shall retire or become disabled, the option shall terminate three years (unless the option was granted in lieu of compensation, in which case it shall be five years) after the date of early retirement, retirement or disability, unless it terminates earlier under other provisions of the Plan. Although such exercise by a retiree or disabled grantee is not limited to the exercise rights which had accrued at the date of early retirement, retirement or disability, such exercise shall be subject to all applicable conditions and restrictions prescribed in Section 8 hereof. If a person shall voluntarily resign, his option to the extent not previously exercised shall terminate at once. 10. EXERCISE OF OPTION AFTER DEATH OF GRANTEE. If the grantee of an option shall die while in the employ of the Company or within three months after ceasing to be an employee, and if the option was in effect at the time of his or her death (whether or not its term had then commenced), the option may, until the expiration of three years (unless the option was granted in lieu of compensation, in which case it shall be five years) from the date of death of the grantee or until the earlier expiration of the term of the option, be exercised by the successor of the deceased grantee. Although such exercise is not limited to the exercise rights which had accrued at the date of death of the grantee, such exercise shall be subject to all applicable conditions and restrictions prescribed in Section 8 hereof. 6 7 11. PYRAMIDING OF OPTIONS. The Committee in its sole discretion may from time to time permit the method of exercising options known as pyramiding (the automatic application of shares received upon the exercise of a portion of a stock option to satisfy the exercise price for additional portions of the option). 12. SHAREHOLDER RIGHTS. No person shall have any rights of a shareholder by virtue of a stock option except with respect to shares actually issued to him or her, and issuance of shares shall confer no retroactive right to dividends. 13. ADJUSTMENT FOR CHANGES IN CAPITALIZATION. 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 be reflected proportionately: (a) in an increase in the aggregate number of shares then available for the grant of options under the Plan, or becoming available through the termination or forfeiture of options previously granted but unexercised; (b) in the number available to grant to any one person; (c) in the number subject to options then outstanding; and (d) in the quotas remaining available for exercise under outstanding options, and a proportionate reduction shall be made in the per-share option price as to any outstanding options or portions thereof not yet exercised. Any fractional shares resulting from such adjustments shall be eliminated. If changes in capitalization other than those considered above shall occur, the Board of Directors shall make such adjustments in the number and class of shares for which options may thereafter be granted, and in the number and class of shares remaining subject to options previously granted and in the per-share option price as the Board in its discretion may consider appropriate, and all such adjustments shall be conclusive; provided, however, that the Board shall not make any adjustments with respect to the number of shares subject to previously granted incentive stock options or available for grant as options if such adjustment would constitute the adoption of a new plan requiring shareholder approval before further incentive stock options could be granted. 14. TERMINATION, SUSPENSION, OR MODIFICATION OF PLAN. The Board of Directors may at any time terminate, suspend, or modify the Plan, except that the Board of Directors shall not amend the Plan in violation of law. No termination, suspension, or modification of the Plan shall adversely affect any right acquired by any grantee, or by any successor of a grantee (as provided in Section 10 hereof), under the terms of an option granted before the date of such termination, suspension, or modification, unless such grantee or successor shall consent, but it shall be conclusively presumed that any adjustment for changes in capitalization as provided in Section 13 does not adversely affect any such right. 15. APPLICATION OF PROCEEDS. The proceeds received by the Company from the sale of its shares under the Plan will be used for general corporate purposes. 16. NO RIGHT TO EMPLOYMENT. Neither the adoption of the Plan nor the granting of any stock option shall confer upon the grantee any right to continue in the employ of the Company or any of its subsidiaries or interfere in any way with the right of the Company or the subsidiary to terminate such employment at any time. 17 GOVERNING LAW. The Plan and all determinations thereunder shall be governed by and construed in accordance with the laws of the State of Tennessee. 7 8 18. 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 Company as hereinbefore defined and any successor or assignee to the business or assets which by reason hereof becomes bound by this Plan. 8 EX-10.(O) 6 2000 NON-EMPLOYEE DIRECTORS' DEFERRED COMPENSATION 1 EXHIBIT 10(o) FIRST TENNESSEE NATIONAL CORPORATION 2000 NON-EMPLOYEE DIRECTORS' DEFERRED COMPENSATION STOCK OPTION PLAN ADOPTED OCTOBER 20, 1999 1. PURPOSE. The 2000 Non-Employee Directors' Deferred Compensation Stock Option Plan of the First Tennessee National Corporation has been adopted to advance the interests of shareholders by encouraging non-employee members of the Board of Directors to acquire proprietary interests in the Company in the form of Stock Options granted in lieu of Retainer/Fees that otherwise would have been paid in cash for serving on the Board of Directors or any committee thereof. 2. DEFINITIONS. As used in the Plan, the following terms shall have the respective meanings set forth below: (a) "Board" means the Board of Directors of the Company. (b) "Common Stock" means the common stock, par value $0.625 per share (appropriately adjusted for subsequent stock splits), of the Company. (c) "Company" means the First Tennessee National Corporation, a corporation established under the laws of the State of Tennessee. (d) "Deferred Compensation Stock Option" or "Stock Option" means a right granted at the election of a Non-Employee Director pursuant to Section 6. (e) "Disability" means total and permanent disability, which if the Participant were an employee of the Company, would be treated as a total and permanent disability under the terms of the Company's long-term disability plan for employees, as may be in effect from time to time. (f) "Early Retirement" means retirement from Board service after the age of 55 with 120 or more full months of aggregate Board service. (g) "Fair Market Value" means the average of the high and low sales prices at which shares of Common Stock are traded, as publicly reported by the Wall Street Journal, on the applicable date or, if there were no sales of Common Stock reported for such date, the last prior date for which a sale is reported. (h) "Grant Date" means the applicable date, as specified in Section 7, on which a Stock Option is granted to a Non-Employee Director by reason of an election made pursuant to Section 6. (i) "Non-Employee Director" means a member of the Board who is not an employee of the Company or any subsidiary or affiliate of the Company at the time such person elects to receive Retainer/Fees in the form of Stock Options. (j) "Normal Retirement" means the date at which any Non-Employee Director is no longer qualified to serve on the Board based on the then-current retirement age policy contained in the Company's by-laws or, if not in the by-laws, as adopted by the Board. (k) "Participant" means a person who has received one or more Stock Options or the legal representative, heir or estate of such person. (l) "Plan" means the 2000 Non-Employee Directors' Deferred Compensation Stock Option Plan. 1 2 (m) "Retainer/Fees" means the retainer and meeting attendance fees payable to a Non-Employee Director for service as member of the Board and/or member of any committee of the Board. (n) "1934 Act" means the Securities Exchange Act of 1934, as amended from time to time. 3. EFFECTIVE DATE. The Plan shall be effective on the date it is approved by the shareholders of the Company and shall remain in effect through the last Grant Date occurring with respect to calendar year 2004, unless the Plan is terminated by the Board earlier than such date subject to the provisions of Section 11. If shareholder approval is not obtained by June 30, 2000, the Plan shall be nullified and all elections to receive Stock Options shall be rescinded and all Non-Employee Directors shall receive cash equal to all Retainer/Fees that had been the subject of an election hereunder. Upon termination of the Plan, the applicable terms of the Plan shall continue to apply to all Stock Options which are outstanding on the date the Plan is terminated and to any Stock Options which are granted subsequent to such date pursuant to Section 11. 4. PLAN OPERATION. The Plan is intended to meet the requirements of a "formula plan" for purposes of Rule 16b-3 under the 1934 Act as currently applicable to the Plan and accordingly is intended to be self-governing. To this end the Plan is expected to require no discretionary action by any administrative body except as contemplated by Section 5(b). However, should any questions of interpretation arise, they shall be resolved by the Human Resources Committee of the Board or such other Committee as the Board may from time to time designate. The Plan shall be interpreted to comply with Rule 16b-3 under the 1934 Act, as then applicable to the Company's employee benefit plans, and any action under this Plan that would be inconsistent with the requirements of Rule 16b-3 as then applicable shall be null and void. 5. COMMON STOCK AVAILABLE FOR STOCK OPTIONS. (a) A maximum of 400,000 shares of Common Stock may be issued upon the exercise of Stock Options granted under the Plan. Shares of Common Stock shall not be deemed issued until the applicable Stock Option has been exercised and, accordingly, any shares of Common Stock represented by Stock Options which expire unexercised or which are canceled shall remain available for issuance under the Plan. For purposes of computing the maximum number of shares that may be issued under the Plan, if shares are tendered in payment of all or portion of the exercise price, then the number of shares issued in connection with such exercise is the number of shares subject to option that was exercised, net of the number tendered in payment. (b) Any increase in the number of outstanding shares of Common Stock occurring through stock splits or stock dividends after the adoption of the Plan shall be reflected proportionately in an increase in the aggregate number of shares then available for the grant of Stock Options under the Plan, or becoming available through the termination or forfeiture of Stock Options previously granted but unexercised and in the number subject to Stock Options then outstanding, and a proportionate reduction shall be made in the per-share exercise price as to any outstanding Stock Options or portions thereof not yet exercised. Any fractional shares resulting from such adjustments shall be eliminated. If changes in capitalization other than those considered above shall occur, the Board, as it deems appropriate to preserve Participant's benefits and to meet the intent of the Plan, may make equitable adjustments to the number of shares available under the Plan and covered by outstanding Stock Options and to the exercise prices of outstanding Stock Options in the event of any change in capitalization or similar action affecting Common Stock. Such actions may include, but are not limited to, any combination or exchange of shares, merger, consolidation, recapitalization, spin-off or other distribution (other than normal cash dividends) of Company assets to shareholders, or any other change affecting the Common Stock. 6. ELECTIONS TO RECEIVE STOCK OPTIONS. Each Non-Employee may make a one-time irrevocable election to receive Stock Options under the Plan, provided that such election conforms to the following: 2 3 (a) Each Non-Employee Director serving as of October 20, 1999, must make his or her election under the Plan no later than December 31, 1999. Such election, if any, shall be applicable to Retainer/Fees otherwise payable to such Non-Employee Director for service from January 1, 2000 through December 31, 2004, subject to the requirements of Section 9. (b) Each Non-Employee Director who is newly appointed or elected to the Board after October 20, 1999, must make his or her election, if any, under the Plan no later than 30 days following the commencement of such person's Board service. Such election, if any, shall be applicable to Retainer/Fees earned by such Non-Employee Director from the date of such election (but not before January 1, 2000) through December 31, 2004, subject to the requirements of Section 9. The above notwithstanding, no election under the Plan shall be permitted after June 30, 2004. (c) In making an irrevocable election to receive Retainer/Fees in the form of Stock Options, the Non- Employee Director must designate that the election is for all or a specified portion of the Retainer/Fees payable to him or her through December 31, 2004. 7. EFFECTIVE GRANT DATES. (a) The Grant Dates for Stock Options granted pursuant to an election covered by Section 6(a) made by a Non-Employee Director serving on the Board as of October 20, 1999 for each of the calendar years such election is in effect shall be the first business day of July of such calendar year and the first business day of January of the following calendar year. (b) The Grant Dates for Stock Options granted pursuant to an election covered by Section 6(b) made by a Non-Employee Director elected or appointed to the Board after October 20, 1999, shall be: (i) For the initial Stock Option granted, the earliest calendar date specified by Section 7(a) to occur after such election, or, if then required by Rule 16b-3 under the 1934 Act as then applicable to the Plan, the first business day following the last day of the second full calendar quarter of Board service after an election pursuant to Section 6 has been made. (ii) For all Stock Options granted subsequent to the initial Stock Option, for each of the calendar years such election is in effect the first business day of each subsequent July of such calendar year and each subsequent January of the following calendar year. 8. STOCK OPTION GRANTS. Stock Options granted under the Plan shall have the following terms and conditions: (a) Each Stock Option shall have a per share exercise price equal to 80% of the Fair Market Value on the Grant Date. (b) Each Stock Option shall cover the number of shares represented by "A" in the following formula: A = B/C, where B = Amount of Retainer/Fees Earned C = 20% of Fair Market Value of one share of Common Stock on the Grant Date. If the number of Common Shares resulting from this calculation is not a whole number, the amount will be rounded up to the next whole number. The "Amount of Retainer/Fees Earned" for purposes of this calculation shall be such amount as was payable to the Participant since the prior applicable Grant Date or since January 1, 2000 in the case of an election pursuant to Section 6(a), or the date of the election (but not before January 1, 2000) in the case of an election pursuant to Section 6(b). 3 4 (c) Each Stock Option shall expire on the twentieth anniversary of its Grant Date, subject to earlier or later expiration in accordance with Section 9. (d) Each Stock Option shall be immediately exercisable upon grant, except, however, that the Board may postpone the exercise of a Stock Option during such period of time that is deemed reasonably necessary to prevent any acts or omissions that the Board reasonably believes could result in the violation of any state or federal law. 9. TERMINATION OF BOARD SERVICE. (a) If a Non-Employee Director terminates Board service for any reason (or becomes an employee of the Company) prior to a Grant Date upon which he or she would otherwise receive a Stock Option under the Plan, no future Stock Options shall be granted to him or her and any Retainer/Fees that have been earned, but which were to be paid in the form of a Stock Option will be paid in cash instead. (b) If a Participant terminates Board service with less than 120 full months of aggregate Board service or prior to Normal or Early Retirement for any reason other than death or Disability, all outstanding Stock Options held by such Participant shall expire on the first anniversary of such person's termination of Board service. (c) If a Participant terminates Board service due to death, Disability or because of Normal or Early Retirement, each outstanding Stock Option held by such Participant shall terminate at the earlier of the fifth anniversary of such Participant's termination of Board service or the end of the term of the Stock Option. (d) The above notwithstanding, any Stock Option held by a Participant at the time of the Participant's death shall expire on the later of the date provided for by Section 9(b) or 9(c), or the first anniversary of the Participant's death. 10. EXERCISE PAYMENT. A Stock Option, or portion thereof, may be exercised by written notice of the exercise delivered to the Human Resources Committee of the Board, or its designee, accompanied by payment of the exercise price. Such payment may be made by cash, personal check or Common Stock already owned by the Participant, valued at the Fair Market Value on the date of exercise, or a combination of such payment methods. As soon as practicable after notice of exercise and receipt of full payment for shares of Common Stock being acquired, the Company shall deliver a certificate to the Participant representing the Common Stock purchased through the Stock Option. 11. TERMINATION, SUSPENSION AND AMENDMENT OF THE PLAN. The Board may at any time terminate, suspend or amend the Plan, except that the Plan may not be amended in any manner which knowingly would: (a) cause the Plan not to comply with Rule 16b-3 under the 1934 Act as then applicable to the Company's employee benefit plans; (b) cause Participants not to be deemed "non-employee directors" for purposes of Rule 16b-3 under the 1934 Act as then applicable to the Company's employee benefits plans; or (c) adversely affect a Participant's rights under the Plan, without the consent of the Participant. If the Plan is terminated or suspended prior to December 31, 2004, any Retainer/Fees which have been earned but not paid as of the effective date of termination of the Plan and which are the subject of an election pursuant to Section 6, will be delivered in the form of Stock Options on the appropriate Grant Date, notwithstanding that such date is subsequent to the date the Plan has otherwise been terminated or suspended. 12. RELOAD OPTION GRANTS. (a) Reload Grants. Automatically upon the compliance by the Participant with the following, the Participant will receive an additional option (a "Reload Option") at the time and subject to the terms and conditions described in this Section 12(a): 4 5 1. The Participant must exercise a Stock Option, using the attestation method of exercise to pay all or a portion of the exercise price of the Stock Option. Under the "attestation method" the Participant or other person who holds legal title to shares of Common Stock beneficially owned by the Participant attests to the ownership of a sufficient amount of shares of Common Stock to pay all or a portion of the exercise price of the Stock Option without actually tendering such shares, and as a result the Company issues to the Participant (or defers delivery of) that number of shares equal to the number of shares subject to Stock Option or Reload Option being exercised net of the shares attested to. 2. The Participant must not have previously received the grant of a Reload Option in connection with the exercise of a portion of the Stock Option. 3. The Participant must be a current Director of the Corporation at the time of the exercise of the Stock Option. 4. There must be at least one year remaining in the term of the Stock Option at the time of its exercise. 5. The Reload Option will be granted on and as of the time and date of the valid exercise of the Stock Option by the Participant. 6. The exercise price per share of the Reload Option will be the Fair Market Value of one share of Common Stock on the date of exercise of Stock Option. 7. The number of shares of Common Stock with respect to which the Reload Option will be granted will be equal to the number of shares attested to by the Participant in payment in all or a portion of the exercise price of the Stock Option. 8. The Reload Option will be exercisable during a term commencing at the time of the valid exercise of the Stock Option and ending on the same date at the same time as the original term of the Stock Option ends. 9. No Reload Option will be granted upon the exercise of a Reload Option. 10. A Participant who has received more than one Stock Option and who otherwise complies with this Section 12(a) will receive a Reload Option with respect to each such Stock Option. 11. The sale or other transfer of certain of the shares received upon the exercise of a Reload Option will be restricted, as follows: (i) No restriction will apply to the shares received upon the exercise of a Reload Option if the Reload Option was granted in connection with the exercise of an option in which the Participant elected to defer receipt of shares. (ii) Subject to (v), the restriction will apply to that number of shares received upon the exercise of a Reload Option equal to the product of x times y times z divided by w, where "x" is the number of shares received upon the exercise of the Reload Option, "y" is .50, "z" is the difference between the fair market value of one share at the time of exercise minus the exercise price of one share, and "w" is the fair market value of one share at the time of exercise. (iii) The restriction period will last until the earliest to occur of the following: five years following the exercise of the Reload Option, death, disability, Normal Retirement, 5 6 Early Retirement, a change in control as defined in the Company's 1997 Employee Stock Option Plan or termination of service as a director for any reason. (iv) During the restriction period the Participant cannot sell or otherwise transfer the shares, and the shares either will be legended accordingly or will be held in book-entry form by the Company's transfer agent with appropriate limitations on transfer ability in place. (v) In the event that the Participant determines to sell shares of Common Stock to pay the taxes associated with the exercise of a Reload Option, then 50% of the shares so sold to pay the taxes may be shares that otherwise would be restricted pursuant to the provisions hereof. (b) General. The term "Stock Option" as used in Sections 2(k), 3 (the last sentence), 5, 8(d), 9(b), 9(d), 10 and 12 shall be deemed to include a "Reload Option" for all purposes of such Sections. 13. GENERAL PROVISIONS. (a) Stock Options shall not be transferable or assignable other than by (a) will or the laws of descent and distribution, or (b) to the extent permitted by Rule 16b-3 under the 1934 Act as then applicable to the Company's employee benefits plans, by gift or other transfer to any "family member" of a Non-Employee Director as the term "family member" is defined in the instructions to Form S-8 promulgated by the Securities and Exchange Commission. (b) Stock Options shall be evidenced by written agreements or such other appropriate documentation prescribed by the Human Resources Committee of the Board or its designee. (c) Neither the Plan nor the granting of Stock Options nor any other action taken pursuant to the Plan, shall constitute or be evidence of any agreement or understanding, express or implied, that the Company shall retain the services of a Participant for any period of time or at any particular rate of compensation as a member of the Board. Nothing in the Plan shall in any way limit or affect the right of the Board or the shareholders of the Company to remove any Participant from the Board or otherwise terminate his or her service as a member of the Board. (d) The validity, construction and effect of the plan and any such actions taken under or relating to the Plan shall be determined in accordance with the laws of the State of Tennessee and applicable federal law. 6 EX-27 7 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIRST TENNESSEE NATIONAL CORPORATION'S SEPTEMBER 30, 1999, FINANCIAL STATEMENTS FILED IN ITS 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 860,519 1,598 297,398 502,796 1,953,055 810,394 785,065 11,867,194 139,426 19,101,997 12,423,372 3,474,235 1,480,796 376,877 100,000 0 81,676 1,165,041 19,101,997 731,799 129,343 35,513 896,655 291,351 454,795 441,860 43,915 1,787 981,928 283,113 183,419 0 0 183,419 1.41 1.37 3.80 32,691 24,992 0 44,528 136,013 43,990 6,153 139,426 139,426 0 0
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