On June 7, 2013, First Tennessee Bank National Association ("FTBNA") acquired substantially all of the assets and liabilities of Mountain National Bank ("MNB") a community bank headquartered in Sevierville, Tennessee from the Federal Deposit Insurance Corporation ("FDIC"), as receiver, pursuant to a purchase and assumption agreement. Prior to the acquisition, MNB was organized as a national banking association and operated 12 branches in Sevier and Blount counties in eastern Tennessee. MNB's principal business was to accept demand and savings deposits from the general public and to make commercial, residential mortgage, and consumer loans. The acquisition will allow FHN to expand and strengthen market share in eastern Tennessee.

Excluding purchase accounting adjustments, FHN acquired approximately $451 million in assets, including approximately $249 million in loans, and assumed approximately $362 million of MNB deposits. There was no premium associated with the acquired deposits and assets were acquired at a discount of $33 million from book value. FHN did not enter into a loss-sharing agreement with the FDIC associated with the MNB purchase.

FHN has accounted for the acquisition as a business combination in accordance with ASC 805, "Business Combinations," which requires acquired assets and liabilities (other than tax balances) to be recorded at fair value. Generally, the fair value for the acquired loans were estimated using a discounted cash flow analysis with significant unobservable inputs (Level 3) including adjustments for expected credit losses, prepayments speeds, current market rates for similar loans, and an adjustment for investor-required yield given product-type and various risk characteristics (refer to Note 4 - Loans for additional information).

Because of the short time period between the June 7, 2013, closing of the transaction and the end of FHN's fiscal quarter on June 30, 2013, FHN continues to analyze the estimates of the fair value of the assets acquired and liabilities assumed, and as such the amounts recorded are provisional and are based on information that was available at the date of the acquisition. FHN believes that information provides a reasonable basis for estimating fair values. FHN expects to substantially complete the purchase price allocation by the end of 2013; however, the fair value estimates are subject to refinement for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. In addition, the tax treatment is complex and subject to interpretations that may result in future adjustments of deferred taxes as of the acquisition date.

Based on the timing of the acquisition occurring late in the second quarter, management may make revisions to its assessment of which loans should be classified as purchased credit impaired in accordance with ASC 310-30. This on-going assessment will be completed during third quarter 2013. FHN does not expect a change in designation to impact its estimate of fair value as of the acquisition date based on the information available.

The following schedule details significant assets acquired and liabilities assumed from the FDIC for MNB and provisional estimated purchase accounting/fair value adjustments at June 7:

		Mountain National Bank
				Purchase Accounting/
		Acquired from			Fair Value		As recorded
(Dollars in thousands)		FDIC			Adjustments		by FHN
Assets:
Cash and cash equivalents		$	54,872		$	-	$	54,872
Interest-bearing cash			26,984			-		26,984
Securities available-for-sale			74,640			(240)		74,400
Loans, net of unearned income			249,001			(34,000)		215,001
Core deposit intangible			-			2,300		2,300
Premises and equipment			9,366			-		9,366
Real estate acquired by foreclosure			33,294			(10,463)		22,831
Deferred tax asset			(286)			2,915		2,629
Other assets			2,712			-		2,712
	Total assets acquired	$	450,583		$	(39,488)	$	411,095

Liabilities:
Deposits		$	362,098		$	-	$	362,098
Securities sold under agreements to repurchase			1,930			-		1,930
Federal Home Loan Bank advances			50,040			5,586		55,626
Other liabilities			4,844			-		4,844
	Total liabilities assumed		418,912			5,586		424,498
Acquired noncontrolling interest			117			-		117
	Total liabilities assumed and acquired noncontrolling interest	$	419,029		$	5,586	$	424,615
Excess of assets acquired over liabilities assumed		$	31,554
Aggregate purchase accounting/fair value adjustments					$	(45,074)
Goodwill							$	13,520

In relation to the acquisition FHN recorded $13.5 million in goodwill, representing the excess of the estimated fair values of liabilities assumed over the estimated fair value of the assets acquired (refer to Note - 6 - Intangible Assets for additional information), of this amount $7.9 million is expected to be deductible for tax purposes.

FHN's operating results for the quarter ended June 30, 2013, include the operating results of the acquired assets and assumed liabilities of MNB subsequent to the acquisition on June 7, 2013.

FHN acquires or divests assets from time to time in transactions that are considered business combinations or divestitures but are not material to FHN individually or in the aggregate.