EX-99 3 a4496887ex99.txt EXHIBIT 99.1 PRESS RELEASE Exhibit 99.1 FTN Reports Record Third Quarter Earnings, A 33 Percent Increase in the Quarterly Dividend, a New Chairman of the Board, and Other Board Appointments MEMPHIS, Tenn.--(BUSINESS WIRE)--Oct. 22, 2003--First Tennessee National Corporation (FTNC)(NYSE:FTN) announced today earnings for third quarter 2003 of $118.3 million, or $.91 diluted earnings per share, compared with last year's earnings of $95.6 million, or $.73 diluted earnings per share. This represents 25 percent growth from third quarter 2002 earnings per share. Return on average shareholders' equity and return on average assets for third quarter 2003 were 25.9 percent and 1.71 percent, respectively, and were 23.8 percent and 1.84 percent for third quarter 2002, respectively. Total assets were $25.5 billion, shareholders' equity was $1.9 billion and market capitalization was $5.4 billion on September 30, 2003, compared to $22.7 billion, $1.6 billion and $4.4 billion, respectively, on September 30, 2002. For the first nine months of 2003, earnings totaled $355.7 million or $2.72 diluted earnings per share. For the same period in 2002, earnings were $273.1 million or $2.09 diluted earnings per share. Return on average shareholders' equity was 26.7 percent and return on average assets was 1.88 percent for the first nine months of 2003 compared to 23.7 percent and 1.83 percent, respectively, for the first nine months of 2002. "This record third quarter continues us on a course which should culminate in our third consecutive year of industry leading growth in excess of 20 percent," said President and CEO Ken Glass. "I'm especially pleased with First Horizon's ability to manage through this quarter's extremely volatile interest rate environment. Once again we were able to take advantage of our strong performance by making investments in initiatives that should help sustain our excellent record of growth into next year and beyond." Total revenues increased 27 percent in third quarter 2003 to $736.4 million compared to $580.7 million in third quarter 2002. Noninterest income provides the majority of FTNC's revenue and contributed 71 percent to total revenue in third quarter 2003 compared to 68 percent in third quarter 2002. Third quarter 2003 noninterest income increased 34 percent to $525.5 million from $392.0 million in 2002. Noninterest expense increased 28 percent to $539.9 million from $421.4 million in 2002. Included in this increase were investments in initiatives that will enhance FTNC's ability to remain a high-performing financial services company. These investments included costs associated with management's initiatives to develop an infrastructure to support business expansion. This included enhancements to business processes such as the design of computer systems and workflow that provide added flexibility and increased management information support. In tandem with these investments, management has implemented programs to curtail costs including restructuring debt and consolidating consumer-lending functions in First Horizon. Additionally, expenditures were made in a non-management performance bonus award to build employee value and increased advertising cost in order to enhance market perception and customer acquisition, especially in the Middle Tennessee marketplace. The effective tax rate increased to 34.4 percent for third quarter 2003 compared to 31.3 percent for the same period in 2002. Third quarter 2002's expense reflected a $3.7 million benefit resulting from a change in the tax status of a subsidiary of First Tennessee Bank National Association which had a one-time effect on 2002 in the third and fourth quarters. For the first nine months of 2003, total revenues were $2,196.4 million, an increase of 37 percent from 2002. Noninterest income for the nine-month period was $1,592.3 million and contributed 72 percent to total revenue as compared to $1,053.5 million, or 66 percent, of total revenue in 2002. Noninterest expense for the nine months was $1,591.7 million in 2003 compared to $1,128.7 million in 2002. A more detailed discussion by segment follows. Business Segments First Horizon Pre-tax income for First Horizon increased 97 percent to $115.3 million for third quarter 2003, compared to $58.6 million for third quarter 2002. Total revenues were $387.8 million in third quarter 2003, an increase of 70 percent from $228.3 million in 2002. Net interest income increased 61 percent to $99.9 million in 2003 from $62.0 million. Net interest income in First Horizon Equity Lending increased $9.7 million primarily due to an increase of 109 percent in home equity lines of credit, which averaged $2.3 billion in third quarter 2003 compared to $1.1 billion in 2002. The remaining increase of $28.2 million in net interest income reflects the impact of a larger portfolio of loans held for sale (warehouse), which grew 90 percent on average to $5.7 billion from $3.0 billion in third quarter 2002. Net interest spread on the warehouse, however, was negatively impacted by lower mortgage rates compared to third quarter 2002. Noninterest income increased 73 percent to $287.9 million in 2003 compared to $166.3 million in 2002. Noninterest income consists primarily of mortgage banking-related fees from the origination process, fees from mortgage servicing and mortgage servicing rights (MSR) net hedge gains or losses. Total noninterest income is net of amortization, impairment and other expenses related to MSR and related hedges. Loan origination volumes increased 59 percent in third quarter 2003 to $14.6 billion. However, due to the large overhang of $5.9 billion of mortgage loans held for sale on June 30, 2003, loans securitized and sold into the secondary market increased 133 percent to $17.4 billion. Fees from the origination process (generally driven by either origination volumes or loans securitized and sold) increased 81 percent to $299.5 million compared to $165.7 million in 2002. Driven by low mortgage interest rates, refinance activity represented 72 percent of total originations during third quarter 2003 compared to 66 percent in third quarter 2002. Home purchase related originations grew 29 percent in 2003, demonstrating First Horizon's success in penetrating the purchase market. First Horizon's access to the purchase market should help production levels as mortgage rates rise. The mortgage-servicing portfolio was $67.6 billion on September 30, 2003, an increase of 30 percent compared to $52.1 billion on September 30, 2002. The sustained growth of this asset in a period of high prepayment levels was made possible, in part, by the recapture of refinances from the existing servicing portfolio. Servicing fees increased 23 percent as a result of this increase in the servicing portfolio. However, total fees associated with mortgage servicing increased only 6 percent due to the unfavorable impact of early payoffs. MSR amortization was $33.5 million in third quarter 2003 compared with $28.2 million in third quarter 2002. In 2003 there was a MSR impairment loss of $47.8 million compared to a $42.5 million loss in 2002. Net MSR hedging gains (including the effect of time decay and excluding SFAS 133 hedge ineffectiveness which is included in the Corporate segment - see also A-17) were $20.5 million in 2003 compared to $18.0 million net gains in 2002. The interest rate environment in 2003 impacted increased net hedge gains and increased MSR amortization and impairment losses. The provision for loan losses was $7.1 million in 2003 compared to $4.3 million in 2002. 2002 included a $7.4 million reduction in provision resulting from a change in risk profile due to the sale of Money Center loans. This improvement in asset quality is related to strengthening customer demographics and a positive shift in the mix of the loan portfolio. Noninterest expense increased 60 percent in 2003 to $265.4 million compared to $165.4 million in 2002. The growth was primarily the result of an increase of 79 percent in personnel expense resulting from higher commission expense related to the increased mortgage origination volume produced during 2003. For the first nine months of 2003, pre-tax income increased 139 percent to $344.9 from $144.1 million in 2002. Total revenues for the nine-month period were $1,105.1 million, an increase of 85 percent from $596.5 million in 2002. Total noninterest expense for the nine-month period increased 72 percent to $733.5 million from $427.5 million in 2002 for the same reasons discussed earlier. Going forward, fee income from refinance loan originations will generally depend on mortgage interest rates. Over time, an increase in rates should reduce origination fees and profit from the sale of loans, but should also reduce MSR amortization expense and impairment losses, while a decrease in rates should increase this net revenue. Flat to rising interest rates should reduce net secondary marketing trading gains, while falling rates should increase this net revenue. If total origination volume increases and/or the yield curve steepens, net interest income from the warehouse should increase, while if volume decreases and/or the yield curve flattens, this revenue should decrease. In third quarter 2003, mortgage interest rates began to rise from recent historically low levels, and refinance origination volumes are expected to decline in fourth quarter. Continued success in our national cross-sell strategies should increase revenues from products other than traditional mortgage origination and servicing. First Tennessee Banking Group Pre-tax income for First Tennessee Banking Group (previously referred to as FTN Banking Group) decreased 14 percent to $46.9 million in third quarter 2003, compared to $54.6 million for the same period in 2002. This decline was driven by a $13.4 million drop in net interest income; however, balance sheet leveraging capacity which is normally used within First Tennessee Banking Group has been employed by the First Horizon segment as the growth in the mortgage warehouse produced $28.2 million net interest income growth over last year. Total revenues for the segment were $184.4 million, a decrease of 1 percent from $185.6 million in third quarter 2002. Net interest income decreased 12 percent to $98.3 million from $111.7 million in 2002. The decline in net interest income was related to compression in the net interest margin primarily due to the repricing of assets to lower yields while liability rates have become less sensitive to rate movements in this historically low interest rate environment and due to a change in the mix of the loan portfolio to floating rate products. Investment yields have declined as accelerated prepayments of investments in mortgage-backed securities have resulted in increased amortization of premiums in addition to the effect of proceeds from these prepaid investments being reinvested at lower rates. Noninterest income increased 16 percent to $86.1 million compared to $73.9 million in 2002. This increase was due, in part, to improvements in insurance revenue and trust and investment management fees. Also impacting this increase were net securities gains of $4.2 million in third quarter 2003. Included in this amount were net gains of $10.1 million from FTNC's wholly owned venture capital subsidiary, Hickory Venture Capital Corporation, primarily resulting from the sale of a venture capital investment and net losses of $5.9 million primarily resulting from sales of lower-yielding securities in the investment portfolio. Noninterest expense increased 12 percent in 2003 to $129.4 million from $115.9 million last year. Contributing to this increase were higher personnel costs primarily related to growth in Synaxis, a wholly owned insurance broker, incentives associated with the sale of a venture capital investment and increased benefit costs. Also impacting expense growth were litigation costs and initiatives promoting expense efficiencies and enhancing revenue growth. The provision for loan losses was $8.1 million in third quarter 2003 compared to $15.1 million in third quarter 2002 primarily due to improvement in specific allocations related to large commercial credits. (Further discussion of asset quality trends is included in the Asset Quality section below.) Going forward the level of provision for loan losses should fluctuate primarily with the strength or weakness of the Tennessee economy. For the first nine months of 2003, pre-tax income decreased 41 percent to $108.6 million from $182.9 million in 2002. Total revenues for the nine-month period were $539.3 million, a decrease of 5 percent from $568.8 million in 2002. Total noninterest expense for the nine-month period increased 13 percent to $387.5 million from $341.5 for the same period in 2002. FTN Financial Pre-tax income for FTN Financial was $42.2 million for third quarter 2003 compared to $42.9 million for third quarter 2002. Total revenues increased 1 percent to $135.4 million from $134.6 million in third quarter 2002. Fee income was $124.7 million in 2003 compared to $125.7 million in 2002. Revenues from fixed income products were lower, primarily due to the impact this quarter's market volatility had on delaying customers' purchasing decisions. These decreases were partially offset by higher revenues in lending through correspondent services and other revenues, which include investment banking, equity research and sales, and portfolio advisory services. Capital market business with depositories and non-depository customers decreased 4 percent and represented 39 percent and 22 percent of revenue, respectively. Other revenue sources increased 9 percent and contributed to 39 percent of revenue. Noninterest expense increased 1 percent in third quarter 2003 to $92.1 million compared to $90.9 million for the same period last year. For the first nine months of 2003, pre-tax income increased 21 percent to $141.0 million from $116.3 million in 2002. Total revenues for the period were $458.1 million, an increase of 30 percent from $352.6 million in 2002. Total noninterest expense for the nine-month period increased 34 percent to $315.7 million from $236.2 million in 2002. Going forward, revenues will fluctuate based on factors which include the expansion or contraction of the customer base, the volume of investment banking transactions and the introduction of new products, as well as the strength of loan growth in the U.S. economy and volatility in the interest rate environment and the equity markets. Transaction Processing Pre-tax income for Transaction Processing decreased 33 percent to $3.8 million in 2003, compared to $5.7 million in 2002 primarily due to a drop in express processing transactions. Express processing revenues decreased 8 percent as the volume of transactions processed for customers declined 11 percent compared to third quarter 2002. On the other hand, the volume of merchant transactions processed grew 12 percent over third quarter 2002 creating growth in merchant revenues of 15 percent. These increases were primarily due to recent acquisitions and some recovery in the hospitality industry. For the first nine months of 2003, pre-tax income decreased 24 percent to $13.1 million from $17.3 million in 2002. Corporate The Corporate segment's results showed a pre-tax loss of $27.6 million in third quarter 2003, compared to a loss of $22.4 million in third quarter 2002. 2003's pre-tax loss included costs of $8.7 million associated with management's initiatives to develop an infrastructure to support business expansion. This included enhancements to business processes such as the design of computer systems and workflow that provide added flexibility and increased management information support. In tandem with these investments, management has implemented programs to curtail costs including restructuring debt which resulted in a loss of $5.8 million in third quarter 2003. Additionally, expenditures of $2.8 million were made in a non-management performance bonus award to build employee value. Included in the pre-tax loss for third quarter 2002 is a $13.0 million contribution to First Tennessee Foundation, a non-profit entity dedicated to supporting charitable causes in the diverse communities where FTNC does business. Asset Quality Net charge-offs decreased to $14.0 million in third quarter 2003 compared to $23.8 million last year. Net charge-offs were impacted in third quarter 2003 by improvement in both the consumer and commercial loan portfolios, and third quarter 2002 net charge-offs included $2.4 million related to the sale of Money Center loans. Nonperforming assets decreased to $84.2 million on September 30, 2003, compared to $91.9 million on September 30, 2002. As a result of improvement in asset quality, total FTNC provision for loan losses decreased to $16.3 million in third quarter 2003 compared to $20.2 million in third quarter 2002 which included the $7.4 million reduction in provision resulting from a change in risk profile due to the sale of Money Center loans. The decrease in provision is primarily due to improvement in specific allocations related to large commercial credits, a change in the mix of the retail loan portfolio to loans with lower risk factors, and the effect of providing whole-loan insurance for a segment of the loan portfolio. An analytical model based on historical loss experience adjusted for current events, trends and economic conditions is used by management to determine the amount of provision to be recognized and to assess the adequacy of the loan loss allowance. (See the table on A-12 for an analysis of the allowance for loan losses and details on nonperforming assets and the table on A-13 for asset quality ratios). Average Balance Sheet Total FTNC average assets increased 33 percent in third quarter 2003 to $27.4 billion. Total loans increased 21 percent to $13.0 billion. Loans held for sale increased 90 percent to $5.7 billion due to the increased origination volume. Interest-bearing core deposits increased 1 percent in 2003 while total core deposits increased 18 percent and purchased funds increased 40 percent. Average shareholders' equity increased 14 percent in third quarter 2003. The consolidated net interest margin decreased to 3.63 percent for third quarter 2003 compared to 4.34 percent for the same period in 2002 primarily due to the repricing of assets to lower yields while liability rates have become less sensitive to rate movements in this historically low interest rate environment and due to a change in the mix of the loan portfolio to a higher percentage of floating rate products. Investment yields have declined as accelerated prepayments of investments in mortgage-backed securities resulted in increased amortization of premiums in addition to the effect of proceeds from these prepaid investments being reinvested at lower rates. The adoption of SFAS No. 150 in third quarter 2003 further compressed the consolidated net interest margin by five basis points. Historically, the expense associated with FTNC's trust preferred and REIT preferred stock was classified as noninterest expense, but upon adoption of SFAS No. 150 is now classified as interest expense on a prospective basis. In the near-term, a recent decline in prepayment volume and a slowdown in the repricing of the commercial and retail loan portfolios coupled with steps management has taken to manage the interest rate sensitivity position of the company should result in a more stable net interest margin (see A-14 for third quarter margin). Over the long-term, FTNC's strategies to manage the interest rate sensitivity of the balance sheet position should allow the net interest margin to remain stable when interest rates rise. BOARD OF DIRECTORS' ACTIONS At its quarterly meeting the board of directors approved payment of the 429th consecutive quarterly dividend of $.40 per share of common stock. This represents an increase of 33 percent, reflecting management's confidence in the ability of the company to continue to produce high-performing results. This keeps FTNC within its stated dividend payout range of between 35 percent and 40 percent of earnings per share. Over a three-year period, FTNC has increased its dividend by 82 percent. The dividend is payable on January 1, 2004, to shareholders of record on December 12, 2003. Additionally, the board announced that Ralph Horn has selected early retirement as chairman of the board effective December 31, 2003, and as planned, Ken Glass will assume the chairmanship along with his current role as president and CEO, which he has held since July 2002. "We have been working on this transition for the last couple of years," said Horn. "This move is especially appropriate given the solid direction Ken has provided during our strong recent performance. Since taking over as CEO, Ken has done an outstanding job, and I have great confidence in his ability to lead us as we transition to a national financial services company." Glass, 57, joined FTNC in 1974 as corporate controller. He was named COO and president in 2001, before taking on the CEO's responsibilities last year. He earned his B.A. from Harding University and completed the Harvard Business School Advanced Management Program. Horn, 62, joined FTNC in 1963 as a management trainee in the capital markets group. He became president of the corporation in 1991, and was named CEO in 1994. He has been chairman of the board since January 1, 1996. In another action, the board appointed Mary Sammons a member of the board of directors of FTNC. Sammons is president and chief executive officer of Rite Aid Corporation. She is a member of Rite Aid's board of directors and is also chairperson of the National Association of Chain Drug Stores. "Mary will be a valuable addition to our board, especially with her insight into the retailing industry," said Ralph Horn. The board also approved Marty Mosby as chief financial officer effective November 17, 2003, replacing Elbert L. (Eb) Thomas, Jr., who is recovering from recent surgery. Thomas will remain with the company as executive vice president and interest rate risk manager. James F. Keen, acting CFO for the past 11 months, will continue his responsibilities as corporate controller and principal accounting officer. "Eb Thomas has provided great service in his role of CFO of First Tennessee," said Glass. "We're extremely fortunate to have someone of his experience and expertise continuing with us in an executive capacity." Mosby, 40, joined FTNC in 1988 as a staff economist and asset/liability management analyst. He was senior vice president of investor relations and strategic planning before being named executive vice president of strategic planning and investor relations and chair of the executive risk management committee in 2001. He earned his B.A. from the University of Memphis and his M.A. at the University of Pennsylvania. OTHER INFORMATION This press release contains forward-looking statements involving significant risks and uncertainties. A number of important factors could cause actual results to differ materially from those in the forward-looking information. Those factors include general economic and financial market conditions, including expectations of and actual timing and amount of interest rate movements, competition, ability to execute business plans, geo-political developments, items already mentioned in this press release, and other factors described in our recent filings with the Securities and Exchange Commission (SEC). FTNC disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements included herein to reflect future events or developments. In compliance with the SEC's regulations concerning fair disclosure, FTNC provides additional disclosure and discussion related to First Tennessee's earnings and business segment performance through a toll-free prerecorded disclosure available by dialing 1-888-203-1112 and entering the access code 232615 (outside the United States dial 1-719-457-0820 and enter the access code 232615). This message will be available from 8:00 a.m. CDT Wednesday, October 22, 2003, through 11:00 p.m. CDT Tuesday, October 28, 2003. For three weeks from the press release date, FTNC will respond to individual requests for clarification of the provided disclosures. However, we will make every effort not to provide, and you should not expect to receive, material non-public information as that term is defined in the SEC Regulation FD. GENERAL INFORMATION The First Tennessee National Corporation (NYSE:FTN) family of companies provides financial services to individuals and business customers through First Tennessee Bank, which has earned one of the highest customer retention rates of any bank in the country; First Horizon Home Loans, which earned a top-five ranking in customer satisfaction from J.D. Power and Assoc.; FTN Financial, one of the nation's top underwriters of U.S. government agency securities; and First Horizon Merchant Services, one of the most successful processors of credit card payments for the travel industry. More than 12,000 FTN employees provide financial services through hundreds of offices located in more than 30 states. FTN companies have been recognized as some of the nation's best employers by AARP and Working Mother, Business Week and Fortune magazines. FTN also was named one of the nation's 100 best corporate citizens by Business Ethics magazine. More information can be found at www.FirstTennessee.com. Description -- FTNC is a nationwide, diversified financial services institution. -- One of the 50 largest bank holding companies in the United States in asset size and market capitalization. -- Included in the Standard and Poor's 500 Index Banking and other financial services are provided through: -- First Tennessee Banking Group (includes Retail/Commercial Bank, Investments, Financial Planning, Insurance, Trust Services, Credit Card, and Cash Management) -- Three national lines of business - -- First Horizon (includes First Horizon Home Loans and First Horizon Equity Lending) -- FTN Financial (includes Capital Markets, Equity Research, Investment Banking, Strategic Alliances, and Correspondent Services) -- Transaction Processing (includes First Horizon Merchant Services (credit card merchant processing) and Express Processing (nationwide payment processing operation)) FIRST TENNESSEE NATIONAL CORPORATION PER SHARE DATA AND FINANCIAL RATIOS (Unaudited) ---------------------------------------------------------------------- YEAR-TO-DATE ---------------------------------------------------------------------- Year-to-date September 30 --------------- Growth 2003 2002 Rate (%) ------- ------- --------- EARNINGS DATA: -------------- Net income $355.7 $273.1 30.2 + Diluted earnings per common share 2.72 2.09 30.1 + Dividends declared .90 .75 Diluted shares outstanding (millions) 130.9 130.4 SELECTED FINANCIAL RATIOS: -------------------------- Return on average assets 1.88 1.83 Return on average shareholders' equity 26.7 23.7 ---------------------------------------------------------------------- ---------------------------------------------------------------------- QUARTERLY ---------------------------------------------------------------------- Growth 3Q03 3Q02 Rate (%) ------- ------- --------- EARNINGS DATA: -------------- Net income (millions) $118.3 $95.6 23.8 + Diluted earnings per common share .91 .73 24.7 + Dividends declared .30 .25 Diluted shares outstanding (millions) 130.6 130.2 SELECTED FINANCIAL RATIOS: -------------------------- Return on average assets 1.71% 1.84% Return on average shareholders' equity 25.9 23.8 ---------------------------------------------------------------------- ---------------------------------------------------------------------- QUARTERLY INFORMATION ---------------------------------------------------------------------- 3Q03 2Q03 1Q03 4Q02 3Q02 ------ ------ ------ ------ ----- EARNINGS DATA: -------------- Net income (millions) $118.3 $118.4 $119.0 $103.4 $95.6 Diluted earnings per common share .91 .90 .91 .80 .73 Dividends declared .30 .30 .30 .30 .25 Diluted shares outstanding (millions) 130.6 131.9 130.3 129.7 130.2 SELECTED FINANCIAL RATIOS: -------------------------- Return on average assets 1.71% 1.89% 2.07% 1.80% 1.84% Return on average shareholders' equity 25.9 26.5 27.7 24.8 23.8 ---------------------------------------------------------------------- A-1 FIRST TENNESSEE NATIONAL CORPORATION STATEMENTS OF INCOME Yearly Growth (Unaudited) ---------------------------------------------------------------------- Year-to-date September 30 -------------------- Growth (Thousands) 2003 2002 Rate (%) ---------------------------------------------------------------------- Interest income $796,996 $767,257 3.9 + Less interest expense 192,862 217,098 11.2 -- ---------------------------------------------------------------------- Net interest income 604,134 550,159 9.8 + Provision for loan losses 71,306 69,388 2.8 + ---------------------------------------------------------------------- Net interest income after provision for loan losses 532,828 480,771 10.8 + Noninterest income: Mortgage banking 830,432 409,994 102.5 + Capital markets 421,149 321,926 30.8 + Deposit transactions and cash management 108,730 105,547 3.0 + Insurance premiums and commissions 44,113 36,678 20.3 + Merchant processing 41,731 35,838 16.4 + Trust services and investment management 34,219 38,181 10.4 -- Divestitures - 2,250 100.0 -- Securities gains/(losses) 2,370 (2,362) NM Other 109,529 105,406 3.9 + ---------------------------------------------------------------------- Total noninterest income 1,592,273 1,053,458 51.1 + ---------------------------------------------------------------------- Adjusted gross income after provision for loan losses 2,125,101 1,534,229 38.5 + Noninterest expense: Employee compensation, incentives and benefits 1,030,296 698,218 47.6 + Occupancy 62,014 55,470 11.8 + Operations services 52,788 44,770 17.9 + Equipment rentals, depreciation, and maintenance 51,016 51,005 - Communications and courier 46,625 38,873 19.9 + Amortization of intangible assets 5,577 4,631 20.4 + Other 343,391 235,684 45.7 + ---------------------------------------------------------------------- Total noninterest expense 1,591,707 1,128,651 41.0 + ---------------------------------------------------------------------- Pretax income 533,394 405,578 31.5 + Applicable income taxes 177,730 132,461 34.2 + ---------------------------------------------------------------------- Net income $355,664 $273,117 30.2 + ========== ========== ---------------------------------------------------------------------- A-2 FIRST TENNESSEE NATIONAL CORPORATION OTHER INCOME AND OTHER EXPENSE Yearly Growth (Unaudited) ---------------------------------------------------------------------- Year-to-date September 30 ------------------- Growth (Thousands) 2003 2002 Rate (%) ---------------------------------------------------------------------- All other income and commissions: Other service charges $ 14,808 $ 16,155 8.3 -- Cardholder fees 16,569 14,821 11.8 + Check clearing fees 8,926 9,790 8.8 -- Other 69,226 64,640 7.1 + ---------------------------------------------------------------------- Total $109,529 $105,406 3.9 + ---------------------------------------------------------------------- All other expense: Advertising and public relations $ 33,530 $ 21,336 57.2 + Contract employment 33,697 21,569 56.2 + Legal and professional fees 45,022 24,090 86.9 + Travel and entertainment 27,763 15,885 74.8 + Computer software 20,648 18,256 13.1 + Supplies 17,611 12,464 41.3 + Foreclosed real estate 10,968 18,932 42.1 -- Fed services fees 7,005 7,186 2.5 -- Distributions on guaranteed preferred securities (a) 4,035 6,053 33.3 -- Contributions 12,997 14,825 12.3 -- Distributions on preferred stock of subsidiary (a) 2,282 3,423 33.3 -- Deposit insurance premium 2,021 1,813 11.5 + Other 125,812 69,852 80.1 + ---------------------------------------------------------------------- Total $343,391 $235,684 45.7 + ---------------------------------------------------------------------- (a) On July 1, 2003, FTNC adopted SFAS No. 150 and classified its mandatorily redeemable preferred stock of subsidiary and guaranteed preferred securities to term borrowings. As required by SFAS No. 150, the distributions on these instruments have been classified as interest expense on a prospective basis. A-3 FIRST TENNESSEE NATIONAL CORPORATION STATEMENTS OF INCOME Quarterly Growth (Unaudited) ---------------------------------------------------------------------- Quarter Ended September 30 ------------------ Growth (Thousands) 2003 2002 Rate (%) ---------------------------------------------------------------------- Interest income $276,258 $260,577 6.0 + Less interest expense 65,298 71,936 9.2 -- ---------------------------------------------------------------------- Net interest income 210,960 188,641 11.8 + Provision for loan losses 16,355 20,180 19.0 -- ---------------------------------------------------------------------- Net interest income after provision for loan losses 194,605 168,461 15.5 + Noninterest income: Mortgage banking 282,022 158,811 77.6 + Capital markets 122,876 124,151 1.0 -- Deposit transactions and cash management 37,328 36,730 1.6 + Insurance premiums and commissions 14,465 10,765 34.4 + Merchant processing 15,295 12,998 17.7 + Trust services and investment management 12,011 10,768 11.5 + Divestitures - 2,250 100.0 -- Securities gains/(losses) 4,178 (11) NM Other 37,328 35,483 5.2 + ---------------------------------------------------------------------- Total noninterest income 525,503 391,945 34.1 + ---------------------------------------------------------------------- Adjusted gross income after provision for loan losses 720,108 560,406 28.5 + Noninterest expense: Employee compensation, incentives and benefits 348,974 258,061 35.2 + Occupancy 22,620 19,883 13.8 + Operations services 17,700 15,387 15.0 + Equipment rentals, depreciation, and maintenance 17,210 18,493 6.9 -- Communications and courier 15,960 13,331 19.7 + Amortization of intangible assets 2,065 1,676 23.2 + Other 115,363 94,547 22.0 + ---------------------------------------------------------------------- Total noninterest expense 539,892 421,378 28.1 + ---------------------------------------------------------------------- Pretax income 180,216 139,028 29.6 + Applicable income taxes 61,933 43,457 42.5 + ---------------------------------------------------------------------- Net income $118,283 $ 95,571 23.8 + ================== ---------------------------------------------------------------------- A-4 FIRST TENNESSEE NATIONAL CORPORATION OTHER INCOME AND OTHER EXPENSE Quarterly Growth (Unaudited) ---------------------------------------------------------------------- Quarter Ended September 30 ------------------ Growth (Thousands) 2003 2002 Rate (%) ---------------------------------------------------------------------- All other income and commissions: Other service charges $ 4,759 $ 4,764 .1 -- Cardholder fees 5,841 5,126 13.9 + Check clearing fees 2,819 3,350 15.9 -- Other 23,909 22,243 7.5 + ---------------------------------------------------------------------- Total $ 37,328 $ 35,483 5.2 + ---------------------------------------------------------------------- All other expense: Advertising and public relations $ 9,358 $ 6,767 38.3 + Contract employment 11,969 7,265 64.7 + Legal and professional fees 19,978 9,200 117.2 + Travel and entertainment 10,424 5,699 82.9 + Computer software 7,396 6,109 21.1 + Supplies 6,205 4,346 42.8 + Foreclosed real estate 3,322 9,650 65.6 -- Fed services fees 2,206 2,331 5.4 -- Distributions on guaranteed preferred securities (a) - 2,018 100.0 -- Contributions 607 13,581 95.5 -- Distributions on preferred stock of subsidiary (a) - 1,141 100.0 -- Deposit insurance premium 682 614 11.1 + Other 43,216 25,826 67.3 + ---------------------------------------------------------------------- Total $115,363 $ 94,547 22.0 + ---------------------------------------------------------------------- (a) On July 1, 2003, FTNC adopted SFAS No. 150 and classified its mandatorily redeemable preferred stock of subsidiary and guaranteed preferred securities to term borrowings. As required by SFAS No. 150, the distributions on these instruments have been classified as interest expense on a prospective basis. A-5 FIRST TENNESSEE NATIONAL CORPORATION STATEMENTS OF INCOME Quarterly (Unaudited) ---------------------------------------------------------------------- (Thousands) 3Q03 2Q03 1Q03 4Q02 3Q02 ---------------------------------------------------------------------- Interest income $276,258 $265,799 $254,939 $271,836 $260,577 Less interest expense 65,298 66,048 61,516 69,483 71,936 ---------------------------------------------------------------------- Net interest income 210,960 199,751 193,423 202,353 188,641 Provision for loan losses 16,355 27,501 27,450 22,796 20,180 ---------------------------------------------------------------------- Net interest income after provision for loan losses 194,605 172,250 165,973 179,557 168,461 Noninterest income: Mortgage banking 282,022 276,562 271,848 255,843 158,811 Capital markets 122,876 158,598 139,675 126,090 124,151 Deposit transactions and cash management 37,328 38,626 32,776 37,768 36,730 Insurance premiums and commissions 14,465 15,185 14,463 13,768 10,765 Merchant processing 15,295 13,860 12,576 12,565 12,998 Trust services and investment management 12,011 10,825 11,383 10,188 10,768 Divestitures - - - 2,300 2,250 Securities gains/(losses) 4,178 (752) (1,056) (6,818) (11) Other 37,328 35,716 36,485 35,903 35,483 ---------------------------------------------------------------------- Total noninterest income 525,503 548,620 518,150 487,607 391,945 ---------------------------------------------------------------------- Adjusted gross income after provision for loan losses 720,108 720,870 684,123 667,164 560,406 Noninterest expense: Employee compensation, incentives and benefits 348,974 362,340 318,982 300,344 258,061 Occupancy 22,620 19,789 19,605 21,199 19,883 Operations services 17,700 17,330 17,758 15,468 15,387 Equipment rentals, depreciation, and maintenance 17,210 16,616 17,190 17,731 18,493 Communications and courier 15,960 15,876 14,789 14,575 13,331 Amortization of intangible assets 2,065 1,738 1,774 1,569 1,676 Other 115,363 115,647 112,381 143,797 94,547 ---------------------------------------------------------------------- Total noninterest expense 539,892 549,336 502,479 514,683 421,378 ---------------------------------------------------------------------- Pretax income 180,216 171,534 181,644 152,481 139,028 Applicable income taxes 61,933 53,182 62,615 49,147 43,457 ---------------------------------------------------------------------- Net income $118,283 $118,352 $119,029 $103,334 $ 95,571 ================================================= ---------------------------------------------------------------------- A-6 FIRST TENNESSEE NATIONAL CORPORATION OTHER INCOME AND OTHER EXPENSE Quarterly (Unaudited) ---------------------------------------------------------------------- (Thousands) 3Q03 2Q03 1Q03 4Q02 3Q02 ---------------------------------------------------------------------- All other income and commissions: Other service charges $ 4,759 $ 4,925 $ 5,124 $ 5,049 $ 4,764 Cardholder fees 5,841 5,600 5,128 5,324 5,126 Check clearing fees 2,819 2,955 3,152 3,390 3,350 Other 23,909 22,236 23,081 22,140 22,243 ---------------------------------------------------------------------- Total $ 37,328 $ 35,716 $ 36,485 $ 35,903 $35,483 ---------------------------------------------------------------------- All other expense: Advertising and public relations $ 9,358 $ 11,486 $ 12,686 $ 14,646 $ 6,767 Contract employment 11,969 11,230 10,498 11,230 7,265 Legal and professional fees 19,978 14,896 10,148 13,250 9,200 Travel and entertainment 10,424 9,072 8,267 6,616 5,699 Computer software 7,396 6,836 6,416 7,884 6,109 Supplies 6,205 6,039 5,367 5,482 4,346 Foreclosed real estate 3,322 2,692 4,954 2,547 9,650 Fed services fees 2,206 2,359 2,440 2,411 2,331 Distributions on guaranteed preferred securities (a) - 2,017 2,018 2,017 2,018 Contributions 607 10,440 1,950 33,512 13,581 Distributions on preferred stock of subsidiary (a) - 1,141 1,141 1,141 1,141 Deposit insurance premium 682 701 638 580 614 Other 43,216 36,738 45,858 42,481 25,826 ---------------------------------------------------------------------- Total $115,363 $115,647 $112,381 $143,797 $94,547 ---------------------------------------------------------------------- (a) On July 1, 2003, FTNC adopted SFAS No. 150 and classified its mandatorily redeemable preferred stock of subsidiary and guaranteed preferred securities to term borrowings. As required by SFAS No. 150, the distributions on these instruments have been classified as interest expense on a prospective basis. A-7 FIRST TENNESSEE NATIONAL CORPORATION AVERAGE STATEMENTS OF CONDITION Yearly Growth (Unaudited) ---------------------------------------------------------------------- Year-to-date September 30 ------------------------ Growth (Thousands) 2003 2002 Rate (%) ---------------------------------------------------------------------- Loans, net of unearned income: Commercial: Commercial, financial and industrial $ 4,255,501 $ 3,976,772 7.0 + Real estate commercial 1,059,544 1,019,989 3.9 + Real estate construction 619,386 505,902 22.4 + ---------------------------------------------------------------------- Total commercial loans 5,934,431 5,502,663 7.8 + Retail: Real estate residential 5,435,338 4,063,105 33.8 + Real estate construction 399,867 241,004 65.9 + Other retail 266,425 422,061 36.9 -- Credit card receivables 260,925 265,065 1.6 -- ---------------------------------------------------------------------- Total retail loans 6,362,555 4,991,235 27.5 + ---------------------------------------------------------------------- Total loans, net of unearned income 12,296,986 10,493,898 17.2 + Investment securities 2,298,828 2,041,081 12.6 + REMIC securities 213,533 378,789 43.6 -- Loans held for sale 5,009,762 2,517,729 99.0 + Other earning assets 1,672,139 1,295,995 29.0 + ---------------------------------------------------------------------- Total earning assets 21,491,248 16,727,492 28.5 + Cash and due from banks 749,020 764,945 2.1 -- Other assets 3,062,879 2,501,564 22.4 + ---------------------------------------------------------------------- Total assets $25,303,147 $19,994,001 26.6 + ======================== Certificates of deposit under $100,000 and other time $ 1,869,818 $ 1,941,429 3.7 -- Other interest-bearing deposits 3,933,577 3,882,263 1.3 + ---------------------------------------------------------------------- Total interest-bearing core deposits 5,803,395 5,823,692 .3 -- Demand deposits 1,808,119 1,648,672 9.7 + Other noninterest-bearing deposits 3,197,857 1,958,413 63.3 + ---------------------------------------------------------------------- Total core deposits 10,809,371 9,430,777 14.6 + Certificates of deposit $100,000 and more 5,162,273 3,645,645 41.6 + ---------------------------------------------------------------------- Total deposits 15,971,644 13,076,422 22.1 + Short-term borrowed funds 4,417,816 3,560,106 24.1 + Term borrowings (a) 1,306,106 620,462 110.5 + ---------------------------------------------------------------------- Other liabilities 1,729,102 1,053,048 64.2 + Qualifying capital securities (a) (b) 66,300 100,000 33.7 -- Preferred stock of subsidiary (a) 29,540 44,224 33.2 -- Shareholders' equity 1,782,639 1,539,739 15.8 + ---------------------------------------------------------------------- Total liabilities and shareholders' equity $25,303,147 $19,994,001 26.6 + ======================== ---------------------------------------------------------------------- (a) See A-18 for additional information on the impact of adopting SFAS No. 150 in third quarter 2003 (b) Guaranteed preferred beneficial interests in FTNC's junior subordinated debentures A-8 FIRST TENNESSEE NATIONAL CORPORATION AVERAGE STATEMENTS OF CONDITION Quarterly Growth (Unaudited) ---------------------------------------------------------------------- Quarter Ended September 30 ------------------------ Growth (Thousands) 2003 2002 Rate (%) ---------------------------------------------------------------------- Loans, net of unearned income: Commercial: Commercial, financial and industrial $ 4,442,516 $ 3,941,955 12.7 + Real estate commercial 1,025,846 1,056,567 2.9 -- Real estate construction 652,125 504,831 29.2 + ---------------------------------------------------------------------- Total commercial loans 6,120,487 5,503,353 11.2 + Retail: Real estate residential 5,951,230 4,316,801 37.9 + Real estate construction 446,521 278,165 60.5 + Other retail 259,109 396,765 34.7 -- Credit card receivables 261,470 261,848 .1 -- ---------------------------------------------------------------------- Total retail loans 6,918,330 5,253,579 31.7 + ---------------------------------------------------------------------- Total loans, net of unearned income 13,038,817 10,756,932 21.2 + Investment securities 2,435,754 2,056,508 18.4 + REMIC securities 172,180 341,920 49.6 -- Loans held for sale 5,707,743 3,010,485 89.6 + Other earning assets 1,846,153 1,176,666 56.9 + ---------------------------------------------------------------------- Total earning assets 23,200,647 17,342,511 33.8 + Cash and due from banks 740,811 743,931 .4 -- Other assets 3,495,376 2,514,702 39.0 + ---------------------------------------------------------------------- Total assets $27,436,834 $20,601,144 33.2 + ======================== --------- Certificates of deposit under $100,000 and other time $ 1,839,091 $ 1,971,204 6.7 -- Other interest-bearing deposits 3,962,033 3,778,666 4.9 + ---------------------------------------------------------------------- Total interest-bearing core deposits 5,801,124 5,749,870 .9 + Other noninterest-bearing deposits 3,717,556 2,180,687 70.5 + Demand deposits 1,800,013 1,668,748 7.9 + ---------------------------------------------------------------------- Total core deposits 11,318,693 9,599,305 17.9 + Certificates of deposit $100,000 and more 5,809,623 3,657,351 58.8 + ---------------------------------------------------------------------- Total deposits 17,128,316 13,256,656 29.2 + Short-term borrowed funds 4,659,584 3,807,310 22.4 + Term borrowings (a) 1,697,232 653,415 159.7 + Other liabilities 2,136,474 1,145,968 86.4 + Qualifying capital securities (a) (b) - 100,000 100.0 -- Preferred stock of subsidiary (a) 271 44,249 99.4 -- Shareholders' equity 1,814,957 1,593,546 13.9 + ---------------------------------------------------------------------- Total liabilities and shareholders' equity $27,436,834 $20,601,144 33.2 + =========== =========== ---------------------------------------------------------------------- (a) See A-18 for additional information on the impact of adopting SFAS No. 150 in third quarter 2003 (b) Guaranteed preferred beneficial interests in FTNC's junior subordinated debentures A-9 FIRST TENNESSEE NATIONAL CORPORATION AVERAGE STATEMENTS OF CONDITION Quarterly (Unaudited) ---------------------------------------------------------------------- (Millions) 3Q03 2Q03 1Q03 4Q02 3Q02 ---------------------------------------------------------------------- Loans, net of unearned income: Commercial: Commercial, financial and industrial $ 4,442.5 $ 4,274.6 $ 4,045.0 $ 4,016.0 $ 3,941.9 Real estate commercial 1,025.9 1,091.3 1,061.9 1,054.5 1,056.6 Real estate construction 652.1 616.4 589.0 548.6 504.8 ---------------------------------------------------------------------- Total commercial loans 6,120.5 5,982.3 5,695.9 5,619.1 5,503.3 Retail: Real estate residential 5,951.2 5,409.7 4,933.9 4,547.1 4,316.8 Real estate construction 446.5 396.4 355.7 324.0 278.2 Other retail 259.1 265.3 275.0 297.6 396.8 Credit card receivables 261.5 260.6 260.7 264.1 261.8 ---------------------------------------------------------------------- Total retail loans 6,918.3 6,332.0 5,825.3 5,432.8 5,253.6 ---------------------------------------------------------------------- Total loans, net of unearned income 13,038.8 12,314.3 11,521.2 11,051.9 10,756.9 Investment securities 2,435.7 2,199.2 2,259.6 2,300.6 2,056.5 REMIC securities 172.2 213.4 256.0 303.9 341.9 Loans held for sale 5,707.7 5,160.6 4,143.7 4,527.0 3,010.5 Other earning assets 1,846.2 1,676.7 1,489.7 1,201.8 1,176.7 ---------------------------------------------------------------------- Total earning assets 23,200.6 21,564.2 19,670.2 19,385.2 17,342.5 Cash and due from banks 740.8 732.9 773.7 806.1 743.9 Other assets 3,495.4 2,814.8 2,871.6 2,619.6 2,514.7 ---------------------------------------------------------------------- Total assets $27,436.8 $25,111.9 $23,315.5 $22,810.9 $20,601.1 ====================================================== Certificates of deposit under $100,000 and other time $ 1,839.1 $ 1,872.1 $ 1,898.9 $ 1,924.2 $ 1,971.2 Other interest- bearing deposits 3,962.0 3,942.5 3,895.5 3,794.8 3,778.7 ---------------------------------------------------------------------- Total interest- bearing core deposits 5,801.1 5,814.6 5,794.4 5,719.0 5,749.9 Demand deposits 1,800.0 1,807.5 1,817.1 1,861.9 1,668.7 Other noninterest- bearing deposits 3,717.6 3,195.8 2,668.7 2,728.3 2,180.7 ---------------------------------------------------------------------- Total core deposits 11,318.7 10,817.9 10,280.2 10,309.2 9,599.3 Certificates of deposit $100,000 and more 5,809.6 4,987.7 4,677.1 4,428.6 3,657.4 ---------------------------------------------------------------------- Total deposits 17,128.3 15,805.6 14,957.3 14,737.8 13,256.7 Short-term borrowed funds 4,659.6 4,567.9 4,018.9 4,003.1 3,807.3 Term borrowings (a) 1,697.2 1,205.7 1,007.8 878.4 653.4 Other liabilities 2,136.5 1,597.3 1,445.9 1,394.0 1,146.0 Qualifying capital securities (a)(b) - 100.0 100.0 100.0 100.0 Preferred stock of subsidiary (a) .3 44.4 44.4 44.4 44.2 Shareholders' equity 1,814.9 1,791.0 1,741.2 1,653.2 1,593.5 ---------------------------------------------------------------------- Total liabilities and shareholders' equity $27,436.8 $25,111.9 $23,315.5 $22,810.9 $20,601.1 ====================================================== Diluted shares outstanding 130.6 131.9 130.3 129.7 130.2 ---------------------------------------------------------------------- (a) See A-18 for additional information on the impact of adopting SFAS No. 150 in third quarter 2003 (b) Guaranteed preferred beneficial interests in FTNC's junior subordinated debentures A-10 FIRST TENNESSEE NATIONAL CORPORATION PERIOD-END STATEMENTS OF CONDITION (Unaudited) ---------------------------------------------------------------------- September 30 ------------------------ Growth (Thousands) 2003 2002 Rate (%) ---------------------------------------------------------------------- Loans, net of unearned income: Commercial: Commercial, financial and industrial $ 4,444,138 $ 4,095,708 8.5 + Real estate commercial 1,051,389 1,045,327 .6 + Real estate construction 648,504 521,700 24.3 + ---------------------------------------------------------------------- Total commercial loans 6,144,031 5,662,735 8.5 + Retail: Real estate residential 6,224,859 4,385,514 41.9 + Real estate construction 467,110 301,509 54.9 + Consumer 248,401 308,923 19.6 -- Credit card receivables 264,655 263,947 .3 + ---------------------------------------------------------------------- Total retail loans 7,205,025 5,259,893 37.0 + ---------------------------------------------------------------------- Total loans, net of unearned income 13,349,056 10,922,628 22.2 + Investment securities 2,572,726 2,226,774 15.5 + REMIC securities 149,714 321,293 53.4 -- Loans held for sale 2,896,741 3,792,082 23.6 -- Other earning assets 1,558,538 1,270,358 22.7 + ---------------------------------------------------------------------- Total earning assets 20,526,775 18,533,135 10.8 + Cash and due from banks 858,925 1,136,062 24.4 -- Other assets 4,103,638 3,075,380 33.4 + ---------------------------------------------------------------------- Total assets $25,489,338 $22,744,577 12.1 + ======================== Certificates of deposit under $100,000 and other time $ 1,839,159 $ 1,940,934 5.2 -- Other interest-bearing deposits 3,955,275 3,747,686 5.5 + ---------------------------------------------------------------------- Total interest-bearing core deposits 5,794,434 5,688,620 1.9 + Demand deposits 2,318,845 2,206,873 5.1 + Other noninterest-bearing deposits 2,500,925 2,136,071 17.1 + ---------------------------------------------------------------------- Total core deposits 10,614,204 10,031,564 5.8 + Certificates of deposit $100,000 and more 5,941,708 3,759,857 58.0 + ---------------------------------------------------------------------- Total deposits 16,555,912 13,791,421 20.0 + Short-term borrowed funds 2,661,410 4,176,107 36.3 -- Term borrowings (a) 1,697,045 654,533 159.3 + Other liabilities 2,723,058 2,350,476 15.9 + Qualifying capital securities (a) (b) - 100,000 100.0 -- Preferred stock of subsidiary (a) 347 44,261 99.2 -- Shareholders' equity 1,851,566 1,627,779 13.7 + ---------------------------------------------------------------------- Total liabilities and shareholders' equity $25,489,338 $22,744,577 12.1 + ======================== ---------------------------------------------------------------------- (a) See A-18 for additional information on the impact of adopting SFAS No. 150 in third quarter 2003 (b) Guaranteed preferred beneficial interests in FTNC's junior subordinated debentures A-11 FIRST TENNESSEE NATIONAL CORPORATION ASSET QUALITY HIGHLIGHTS (Unaudited) ---------------------------------------------------------------------- (Thousands) 3Q03 2Q03 1Q03 4Q02 3Q02 ---------------------------------------------------------------------- ALLOWANCE FOR LOAN LOSSES: Beginning Reserve $159,080 $144,484 $144,298 $143,749 $147,417 Provision (a) 16,355 27,501 27,450 22,796 20,180 Charge-offs (17,913) (16,383) (30,861) (26,528) (27,436) Loan recoveries 3,879 3,478 3,597 4,281 3,588 ---------------------------------------------------------------------- Ending Balance $161,401 $159,080 $144,484 $144,298 $143,749 ================================================= NONPERFORMING ASSETS: Lending Activities: Nonperforming loans $ 47,102 $ 57,324 $ 52,690 $ 55,060 $ 53,691 Foreclosed real estate 13,029 8,000 9,684 7,891 7,799 Other assets 365 52 57 33 112 ---------------------------------------------------------------------- Total Lending Activities 60,496 65,376 62,431 62,984 61,602 ---------------------------------------------------------------------- Mortgage Production Activities: Nonperforming loans - held for sale 11,658 7,245 7,139 5,733 - Nonperforming loans - loan portfolio 1,037 2,026 4,550 3,394 18,289 Foreclosed real estate 10,960 8,414 4,245 3,560 11,983 ---------------------------------------------------------------------- Total Mortgage Production Activities 23,655 17,685 15,934 12,687 30,272 ---------------------------------------------------------------------- Total nonperforming assets $ 84,151 $ 83,061 $ 78,365 $ 75,671 $ 91,874 ================================================= Loans and leases past due 90 days or more $ 28,459 $ 32,208 $ 36,794 $ 37,301 $ 33,838 ---------------------------------------------------------------------- (a) Provision was reduced by $7.4 million in third quarter 2002 related to the change in First Tennessee's risk profile after the sale of a portfolio of loans originated through First Horizon Money Centers. A-12 FIRST TENNESSEE NATIONAL CORPORATION ASSET QUALITY HIGHLIGHTS (Unaudited) ---------------------------------------------------------------------- (Thousands) 3Q03 2Q03 1Q03 4Q02 3Q02 ---------------------------------------------------------------------- FTNC CONSOLIDATED: Nonperforming loans ratio (a) .36% .46% .48% .52% .66% Nonperforming assets ratio (b) .54 .59 .60 .62 .84 Allowance to total loans 1.21 1.25 1.21 1.27 1.32 Allowance to nonperforming loans (c) 335.28 268.04 252.42 246.86 199.71 Allowance to nonperforming assets (d) 222.64 209.82 202.85 206.32 156.46 Net charge-off ratio (e) .43 .42 .95 .81 .89 LENDING ACTIVITIES: Nonperforming loans ratio (a) .37% .46% .46% .50% .51% Nonperforming assets ratio (b) .47 .53 .54 .57 .59 Allowance to total loans 1.24 1.27 1.24 1.31 1.33 Allowance to nonperforming loans 337.55 274.27 272.03 260.51 259.56 Allowance to nonperforming assets 262.81 240.49 229.59 227.73 226.23 Net charge-off ratio (e) .44 .42 .90 .85 .77 MORTGAGE PRODUCTION ACTIVITIES: Nonperforming assets ratio (f) .03% .03% .03% .02% .06% ---------------------------------------------------------------------- (a) Ratio is nonperforming loans in the loan portfolio to total loans (b) Ratio is nonperforming assets in the loan portfolio to total loans plus foreclosed real estate and other assets (c) Ratio is allowance to nonperforming loans in the loan portfolio (d) Ratio is allowance to nonperforming assets in the loan portfolio (e) Ratio is net charge-offs to average total loans (f) Ratio is nonperforming assets to unpaid principal balance of servicing portfolio A-13 FIRST TENNESSEE NATIONAL CORPORATION NET INTEREST MARGIN (NIM) HIGHLIGHTS (Unaudited) ---------------------------------------------------------------------- 3Q03 2Q03 1Q03 4Q02 3Q02 ---------------------------------------------------------------------- Consolidated Yields and Rates: Investment securities 3.76% 4.26% 4.97% 5.46% 5.83% Loans, net of unearned 4.96 5.13 5.42 5.66 6.06 Other earning assets 4.55 4.70 4.77 5.24 5.50 ---------------------------------------------------------------------- Yields on earning assets 4.69 4.90 5.18 5.51 5.89 ---------------------------------------------------------------------- Interest bearing core deposits 1.30 1.46 1.52 1.72 1.90 CD's over $100,000 1.22 1.41 1.54 1.90 2.09 Fed funds purchased and repos .92 1.11 1.09 1.28 1.55 Commercial paper and other short-term borrowings 3.86 3.78 3.45 3.53 3.98 Long-term debt 2.93 3.30 3.01 3.54 4.41 ---------------------------------------------------------------------- Rates paid on interest- bearing liabilities 1.44 1.59 1.60 1.83 2.06 ---------------------------------------------------------------------- Net interest spread 3.25 3.31 3.58 3.68 3.83 Effect of interest-free sources .33 .37 .34 .41 .41 Loan fees .05 .05 .06 .08 .10 FRB interest and penalties - (.01) (.01) - - ---------------------------------------------------------------------- FTNC - NIM 3.63% 3.72% 3.97% 4.17% 4.34% -----------------------------------=================================== A-14 FIRST TENNESSEE NATIONAL CORPORATION CAPITAL HIGHLIGHTS (Dollars in millions except per share amounts, Unaudited) ---------------------------------------------------------------------- 3Q03 2Q03 1Q03 4Q02 3Q02 ---------------------------------------------------------------------- Tier 1 Capital (a) $ 1,704.9 $ 1,665.8 $ 1,628.6 $ 1,558.5 $ 1,496.7 Tier 2 Capital (a) 785.6 806.3 458.0 456.4 469.7 ------------------------------------------------------ Total Capital (a) $ 2,490.5 $ 2,472.1 $ 2,086.6 $ 2,014.9 $ 1,966.4 ====================================================== Risk-Adjusted Assets (a) $18,640.0 $19,191.5 $17,603.3 $17,461.6 $17,084.5 Tier 1 Ratio (a) 9.15% 8.68% 9.25% 8.93% 8.76% Tier 2 Ratio (a) 4.21 4.20 2.60 2.61 2.75 ------------------------------------------------------ Total Capital Ratio (a) 13.36% 12.88% 11.85% 11.54% 11.51% ====================================================== Leverage Ratio (a) 6.27% 6.70% 7.06% 6.91% 7.36% Shareholders' Equity/Assets Ratio (b) 6.62 7.13 7.47 7.25 7.74 Book Value $ 14.64 $ 14.16 $ 13.91 $ 13.35 $ 12.84 ---------------------------------------------------------------------- (a) Current quarter is an estimate (b) Calculated on average balances A-15 FIRST TENNESSEE NATIONAL CORPORATION BUSINESS SEGMENT HIGHLIGHTS (Unaudited - Fully Taxable Equivalent Basis) ---------------------------------------------------------------------- (Thousands) 3Q03 2Q03 1Q03 4Q02 3Q02 ---------------------------------------------------------------------- FIRST TENNESSEE BANKING GROUP Total Revenues $184,307 $177,321 $177,614 $179,761 $185,693 Loan Loss Provision 8,141 19,110 15,941 19,737 15,158 Noninterest Expenses 129,343 132,027 126,078 132,408 115,877 ------------------------------------------------- Pre-Tax Income $ 46,823 $ 26,184 $ 35,595 $ 27,616 $ 54,658 FIRST HORIZON Total Revenues $387,805 $365,381 $351,879 $340,725 $228,174 Loan Loss Provision 7,108 7,824 11,781 2,449 4,195 Noninterest Expenses 265,342 247,203 220,898 204,690 165,469 ------------------------------------------------- Pre-Tax Income $115,355 $110,354 $119,200 $133,586 $ 58,510 FTN FINANCIAL Total Revenues $135,309 $171,757 $151,015 $137,480 $134,578 Loan Loss Provision 1,106 567 (272) 610 827 Noninterest Expenses 92,133 118,616 104,993 93,419 90,857 ------------------------------------------------- Pre-Tax Income $ 42,070 $ 52,574 $ 46,294 $ 43,451 $ 42,894 TRANSACTION PROCESSING Total Revenues $ 31,574 $ 31,288 $ 29,764 $ 30,454 $ 30,999 Noninterest Expenses 27,745 26,267 25,520 35,318 25,280 ------------------------------------------------- Pre-Tax Income $ 3,829 $ 5,021 $ 4,244 ($4,864) $ 5,719 CORPORATE (a) Total Revenues $ (2,230) $ 2,929 $ 1,634 $ 1,886 $ 1,527 Noninterest Expenses 25,329 25,223 24,990 48,848 23,895 ------------------------------------------------- Pre-Tax Income $(27,559) $(22,294) $(23,356) $(46,962) $(22,368) TOTAL CONSOLIDATED Total Revenues $736,765 $748,676 $711,906 $690,306 $580,971 Loan Loss Provision 16,355 27,501 27,450 22,796 20,180 Total Noninterest Expenses 539,892 549,336 502,479 514,683 421,378 ------------------------------------------------- Pre-Tax Income (FTE) $180,518 $171,839 $181,977 $152,827 $139,413 Fully Taxable Equivalent Adjustment 302 305 333 346 385 ------------------------------------------------- Consolidated Pretax Income $180,216 $171,534 $181,644 $152,481 $139,028 ---------------------------------------------------------------------- (a) Corporate includes certain corporate expenses, interest expense on trust preferred and REIT preferred stock, select components of SFAS 133 hedge ineffectiveness and other items not allocated or not specifically assigned to business segments. A-16 FIRST TENNESSEE NATIONAL CORPORATION SFAS No. 133 HIGHLIGHTS (Unaudited) FTNC uses derivative instruments primarily to hedge or protect the value of certain assets and liabilities recorded on its balance sheet from changes in interest rates. SFAS No. 133, which was adopted on January 1, 2002, establishes accounting requiring that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at its fair value. It requires that changes in the instrument's fair value be recognized currently in earnings (or other comprehensive income). If certain criteria are met, changes in the fair value of the asset or liability being hedged are also recognized currently in earnings. Fair value is determined on the last business day of a reporting period. This point in time measurement of derivative fair values and the related hedged item fair values may be well suited to the measurement of hedge effectiveness, as well as reported earnings, when hedge time horizons are short. The same measurement however may not consistently reflect the effectiveness of longer- term hedges and, in FTNC's view, can distort short-term measures of reported earnings. FTNC uses a combination of derivative financial instruments to hedge certain components of the interest rate risk associated with its portfolio of capitalized mortgage servicing rights, which currently have an average life of approximately three to four years. Over this long-term time horizon this combination of derivatives can be effective in significantly mitigating the effects of interest rate changes on the value of the servicing portfolio. However, these derivative financial instruments can and do demonstrate significant price volatility depending upon prevailing conditions in the financial markets. If a reporting period ends during a period of volatile financial market conditions, the effect of such point in time conditions on reported earnings does not reflect the underlying economics of the transactions or the true value of the hedges to FTNC over their estimated lives. The fact that the fair value of a particular derivative is unusually low or high on the last day of the reporting period is meaningful in evaluating performance during the period only if FTNC sells the derivative within the period of time before fair value changes and does not replace the hedge coverage with another derivative. FTNC believes the effect of such volatility on such short-term measures of earnings is not indicative of the expected long-term performance of this hedging practice. For its internal evaluation of performance for an applicable period, FTNC reclassifies select components of SFAS 133 hedge ineffectiveness from the reported net income of the First Horizon segment to the Corporate segment. The internal evaluation of First Horizon's long-term performance will include the long-term trend, if any, in these select components of SFAS 133 hedge ineffectiveness. A-17 FIRST TENNESSEE NATIONAL CORPORATION OTHER HIGHLIGHTS (Unaudited) Effective July 1, 2003, FTNC adopted Statement of Financial Accounting Standard (SFAS) No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity", and classified its mandatorily redeemable preferred stock of subsidiary ($45.1 million on July 1, 2003) and guaranteed preferred beneficial interests in FTNC's junior subordinated debentures ($100.0 million on July 1, 2003) as term borrowings. As required by SFAS No. 150 prior periods were not restated, resulting in growth rates that do not reflect real increases or decreases in obligations. Excluding the impact of adopting SFAS No. 150 ($145.1 million in third quarter 2003) term borrowings increased 138 percent to $1.6 billion. A-18 CONTACT: First Tennessee National Corporation, Memphis Financial Information: Jim Keen, 901-523-4212 or Media Information: Kim Cherry, 901-523-4726 or Investor Relations: Mark Yates, 901-523-4068