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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x][X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[FEE REQUIRED]
For the fiscal year ended December 31, 19951996
- or -
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 ORor 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from __________ to__________
Commission File Number 0-4491
FIRST TENNESSEE NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
TENNESSEE 62-0803242
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
165 Madison Avenue, Memphis, Tennessee 38103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including Area Code: 901-523-5630
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
$1.25 Par Value Common Capital Stock
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X YES NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
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At February 23, 1996,21, 1997, the aggregate market value of the voting stock of the
registrant held by non-affiliates of the registrant was approximately $2.05$2.89
billion.
At February 23, 1996,21, 1997, the registrant had 67,314,73364,350,661 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Shareholders for the year ended 12/31/9596 -
Parts I, II, and IV.
2. Portions of Proxy Statement furnished to shareholders in connection
with Annual Meeting of Shareholders scheduled for 4/16/95 - Part15/97 -Part III.
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PART I
ITEM 1
BUSINESS
General.
First Tennessee National Corporation (the "Corporation") is a Tennessee
corporation incorporated in 1968 and registered as a bank holding company under
the Bank Holding Company Act of 1956, as amended. At December 31, 1995,1996, the
Corporation had total assets of $12.1$13.1 billion and ranked firstsecond in terms of
total assets among Tennessee-headquartered bank holding companies and ranked
50th45th nationally.
Through its principal subsidiary, First Tennessee Bank National
Association (the "Bank"), and its other banking and banking-related
subsidiaries, the Corporation provides a broad range of financial services. The
Corporation is primarily engaged in the commercial banking business. Significant
operations are, however, conducted in mortgage banking and the bond division,
which are described in more detail in the response to Item 7 of Part II hereof
and Note 1816 to the Consolidated Financial Statements. During 19951996 approximately
56% of revenues were provided by fee income and approximately 44% of revenues
were provided by net interest income and
approximately 56% of revenues were provided by fee income-based business lines.income. As a bank holding company, the Corporation
coordinates the financial resources of the consolidated enterprise and maintains
systems of financial, operational and administrative control that allows
coordination of selected policies and activities.
The Bank is a national banking association with principal offices in
Memphis, Tennessee. It received its charter in 1864 and operates primarily on a
regional basis. During 19951996 it generated gross revenue (net interest income
plus noninterest income) of approximately $845.5$967.3 million and contributed 97.5%95% of
consolidated net income from continuing operations. At December 31, 1995,1996, the
Bank had $11.1$12.1 billion in total assets, $7.8$8.2 billion in total deposits, and
$7.5$7.9 billion in net loans. Within the State of Tennessee on December 31, 1995,1996,
it ranked first among banks in terms of total assets and deposits. Nationally,
it ranked 63rd55th in terms of total assets as of September 30, 1995.1996. On December
31, 1995,1996, the Corporation's subsidiary banks had 232263 banking locations
(including 30 free-standing ATM machines) in 2021 Tennessee counties, including
all of the major metropolitan areas of the state, 1115 banking locations in
Mississippi and 411 banking locations (including 3 free-standing ATM's) in
Arkansas. Subsidiaries of the Bank at December 31, 1995,1996, provided mortgage
banking services through approximately 145147 offices in 2829 states.
An element of the Corporation's business strategy is to seek
acquisitions that would enhance long-term shareholder value. The Corporation has
an acquisitions department charged with this responsibility which is constantly
reviewing and developing opportunities to achieve this element of the
Corporation's strategy. Acquisitions which closed during the past three years
are described in Note 2 to the Consolidated Financial Statements contained in
the Corporation's 19951996 Annual Report to Shareholders (the "1995"1996 Annual Report"),
which note is incorporated herein by reference.
The Corporation provides the following services through its
subsidiaries:
- general banking services for consumers, small businesses,
corporations, financial institutions, and governments
- mortgage banking services
- bond division--primarily sales and underwriting of
bank-eligible securities and mortgage loans and advisory
services
- trust, fiduciary, and agency services
- nationwide check clearing services
- credit card products
- merchant credit card and automated teller machine transaction
processing
- discount brokerage, brokerage, venture capital, equipment
finance and credit life insurance
- investment and financial advisory services
- mutual fund sales as agent
- insurance sales as agent
- check processing software and systems.
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All of the Corporation's subsidiaries are listed in Exhibit 21. The
Bank has filed notice with the Comptroller of the Currency ("Comptroller") as a
government securities broker/dealer. The bond division of the Bank is registered
with the Securities and Exchange Commission ("SEC") as a municipal securities
dealer with offices in Memphis and Knoxville, Tennessee; Mobile, Alabama;
Chicago, Illinois; Overland Park, Kansas; and Dallas, Texas. The subsidiary
banks are supervised and regulated as described below. Highland Capital
Management Corp. is registered with the SEC and certain states as an investment
adviser. Hickory Venture Capital Corporation is licensed as a Small Business
Investment Company. First Tennessee Brokerage, Inc. is registered with the SEC
and certain states as a broker-dealer. FT Mortgage Companies is licensed as a
mortgage lender (or exempt from licensing) in all states where it does business
and is regulated by the Comptroller as well as various state regulators. First
Tennessee Insurance Services ("FTIS"), a department of the Bank with offices in
Dandridge, Tennessee, is licensed in several states as a non-resident insurance
agency. Certain employees of FTIS are licensed as insurance agents in Tennessee
and other states.
Expenditures for research and development activities were not material
for the years 1993, 1994, 1995 or 1995.1996.
Neither the Corporation nor any of its significant subsidiaries is
dependent upon a single customer or very few customers.
At December 31, 1995,1996, the Corporation and its subsidiaries had
approximately 7,4767,745 full-time-equivalent employees, not including contract labor
for certain services, such as guard and house-keeping.
Supervision and Regulation.
The Corporation is a bank holding company within the meaning of the
Bank Holding Company Act of 1956, as amended (the "BHCA"), and is registered
with the Board of Governors of the Federal Reserve System (the "Federal
Reserve
Board"Reserve"). The Corporation is required to file with the Board annual reports and
such additional information as the Board may require pursuant to the Act.BHCA. The
Board may also make examinations of the Corporation and its subsidiaries. The
following summary of the ActBHCA and of the other acts described herein is
qualified in its entirety by express reference to each of the particular acts.
General
As a bank holding company, the Corporation is subject to the regulation
and supervision of the Federal Reserve Board under the BHCA. Under the BHCA, bank
holding companies may not in general directly or indirectly acquire the
ownership or control of more than 5% of the voting shares or substantially all
of the assets of any company, including a bank, without the prior approval of
the Federal Reserve Board. The BHCA also restricts the types of activities in
which a bank holding company and its subsidiaries may engage. Generally,
activities are limited to banking and activities found by the Federal Reserve Board to
be so closely related to banking as to be a proper incident thereto.
In addition, the BHCA permits the Federal Reserve Board to approve an
application by a bank holding company to acquire a bank located outside the
acquiror's principal state of operations without regard to whether the
transaction is prohibited under state law. See " --Interstate Act.Banking and
Branching Legislation." Effective September 29, 1995, the Tennessee Bank
Structure Act of 1974 was amended to, among other things, prohibit (subject to
certain exceptions) a bank holding company from acquiring a bank for which the
home state is Tennessee (a "Tennessee bank") if, upon consummation, the company
would directly or indirectly control 30% or more of the total deposits in
insured depository institutions in Tennessee. As of September 30, 1995,1996, the
Corporation estimates that it held approximately 17%14% of such deposits. Subject
to certain exceptions, the Tennessee Bank Structure Act prohibits a bank holding
company from acquiring a bank in Tennessee which has been in operation for less
than five years. Tennessee law permits a Tennessee Bank to establish branches in
any county in Tennessee. Management cannot predict the extent to which the
business of the Corporation and its subsidiaries may be affected by recent
federal and Tennessee legislation relating to interstate and intrastate
acquisitions and branching activities.
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The Corporation's subsidiary banks (the "Subsidiary Banks") are subject
to supervision and examination by applicable federal and state banking agencies.
The Bank, First National Bank of Springdale, Springdale, Arkansas, and First
Tennessee Bank National Association Mississippi, Southaven, Mississippi, are
national banking associations subject to regulation and supervision by the
Comptroller as their primary federal regulator. The remaining Subsidiary Banks
are Cleveland Bank and Trust Company, Cleveland, Tennessee, and Peoples and
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Union Bank, Lewisburg, Tennessee, which are Tennessee state-chartered banks, and
Peoples Bank, Senatobia, Mississippi, and Planters Bank, Tunica, Mississippi,
which are Mississippi state-chartered banks, none of which are members of the
Federal Reserve System, and therefore are subject to the regulations of and
supervision by the Federal Deposit Insurance Corporation (the "FDIC") as well as
state banking authorities. In addition, all of the Subsidiary Banks are insured
by, and subject to regulation by, the FDIC. The Subsidiary Banks are also
subject to various requirements and restrictions under federal and state law,
including requirements to maintain reserves against deposits, restrictions on
the types and amounts of loans that may be granted and the interest that may be
charged thereon and limitations on the types of investments that may be made,
activities that may be engaged in, and types of services that may be offered.
Various consumer laws and regulations also affect the operations of the
Subsidiary Banks. In addition to the impact of regulation, commercial banks are
affected significantly by the actions of the Federal Reserve
Board as it attempts to
control the money supply and credit availability in order to influence the
economy.
Payment of Dividends
The Corporation is a legal entity separate and distinct from its
banking and other subsidiaries. The principal source of cash flow of the
Corporation, including cash flow to pay dividends on its stock or principal
(premium, if any) and interest on debt securities, is dividends from the
Subsidiary Banks. There are statutory and regulatory limitations on the payment
of dividends by the Subsidiary Banks to the Corporation, as well as by the
Corporation to its shareholders.
Each Subsidiary Bank that is a national bank is required by federal law
to obtain the prior approval of the Comptroller for the payment of dividends if
the total of all dividends declared by the board of directors of such Subsidiary
Bank in any year will exceed the total of (i) its net profits (as defined and
interpreted by regulation) for that year plus (ii) the retained net profits (as
defined and interpreted by regulation) for the preceding two years, less any
required transfers to surplus. A national bank also can pay dividends only to
the extent that retained net profits (including the portion transferred to
surplus) exceed bad debts (as defined by regulation).
State-chartered banks are subject to varying restrictions on the
payment of dividends under applicable state laws. Tennessee law imposes dividend
restrictions on Tennessee state banks substantially similar to those imposed
under federal law on national banks, as described above. Mississippi law
prohibits Mississippi state banks from declaring a dividend without the prior
written approval of the Mississippi Banking Commissioner.
If, in the opinion of the applicable federal bank regulatory authority,
a depository institution or a holding company is engaged in or is about to
engage in an unsafe or unsound practice (which, depending on the financial
condition of the depository institution or holding company, could include the
payment of dividends), such authority may require that such institution or
holding company cease and desist from such practice. The federal banking
agencies have indicated that paying dividends that deplete a depository
institution's or holding company's capital base to an inadequate level would be
such an unsafe and unsound banking practice. Moreover, the Federal Reserve, Board, the
Comptroller and the FDIC have issued policy statements which provide that bank
holding companies and insured depository institutions generally should only pay
dividends out of current operating earnings.
In addition, under the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"FDIA"), aan
FDIC-insured depository institution may not make any capital distributions
(including the payment of dividends) or pay any management fees to its holding
company or pay any dividend if it is undercapitalized or if such payment would
cause it to become undercapitalized.
See "--FDICIA."
At December 31, 1995,1996, under dividend restrictions imposed under
applicable federal and state laws, the Subsidiary Banks, without obtaining
regulatory approval, could legally declare aggregate dividends of approximately
$236$293 million.
The payment of dividends by the Corporation and the Subsidiary Banks
may also be affected or limited by other factors, such as the requirement to
maintain adequate capital above regulatory guidelines and debt covenants.
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covenants.
Transactions with Affiliates
There are various legal restrictions on the extent to which the
Corporation and its nonbank subsidiaries can borrow or otherwise obtain credit
from the Subsidiary Banks. There are also legal restrictions on the Subsidiary
Banks' purchases of or investments in the securities of and purchases of assets
from the Corporation and its nonbank subsidiaries, a Subsidiary Bank's loans or
extensions of credit to third parties collateralized by the securities or
obligations of the Corporation and its nonbank subsidiaries, the issuance of
guaranties, acceptances and letters of credit on behalf of the Corporation and
its nonbank subsidiaries, and certain bank transactions with the Corporation and
its nonbank subsidiaries, or with respect to which the Corporation and its
nonbank subsidiaries act as agent, participate or have a financial interest.
Subject to certain limited exceptions, a Subsidiary Bank (including for purposes
of this paragraph all subsidiaries of such Subsidiary Bank) may not extend
credit to the Corporation or to any other affiliate (other than another
Subsidiary Bank and certain exempted affiliates) in an amount which exceeds 10%
of the Subsidiary Bank's capital stock and surplus and may not extend credit in
the aggregate to all such affiliates in an amount which exceeds 20% of its
capital stock and surplus. Further, there are legal requirements as to the type,
amount and quality of collateral which must secure such extensions of credit by
the Subsidiary Banks to the Corporation or to such other affiliates. Also,
extensions of credit and other transactions between a Subsidiary Bank and the
Corporation or such other affiliates must be on terms and under circumstances,
including credit standards, that are substantially the same or at least as
favorable to such Subsidiary Bank as those prevailing at the time for comparable
transactions with non-affiliated companies. Also, the Corporation and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or furnishing
of services.
Capital Adequacy
The Federal Reserve Board has adopted risk-based capital guidelines for bank
holding companies. The minimum guideline for the ratio of total capital ("Total
Capital") to risk-weighted assets (including certain off-balance-sheet items,
such as standby letters of credit) is 8%, and the minimum ratio of Tier 1
Capital (defined below) to risk-weighted assets is 4%. At least half of the
Total Capital must be composed of common stock, minority interests in the equity
accounts of consolidated subsidiaries, noncumulative perpetual preferred stock
and a limited amount of cumulative perpetual preferred stock, less goodwill and
certain other intangible assets ("Tier 1 Capital"). The remainder may consist of
qualifying subordinated debt, certain types of mandatory convertible securities
and perpetual debt, other preferred stock and a limited amount of loan loss
reserves. At December 31, 1995,1996, the Corporation's consolidated Tier 1 Capital
and Total Capital ratios were 8.58%8.96% and 11.50%11.77%, respectively.
In addition, the Federal Reserve Board has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio of Tier 1 Capital to quarterly average assets, less goodwill and certain
other intangible assets subject to
certain exceptions (the "Leverage Ratio"), of 3% for bank holding companies
that meet certain specific criteria, including having the highest regulatory
rating. All other bank holding companies generally are required to maintain a
Leverage Ratio of at least 3%, plus an additional cushion of 100 to 200 basis
points. The Corporation's Leverage Ratio at December 31, 19951996 was 6.43%6.78%. The
guidelines also provide that bank holding companies experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. Furthermore, the Federal Reserve Board has indicated that it
will consider a "tangible Tier 1 Capital leverage ratio" (deducting all
intangibles) and other indicia of capital strength in evaluating proposals for
expansion or new activities.
Each of the Subsidiary Banks is subject to risk-based and leverage
capital requirements similar to those described above adopted by the Comptroller
or the FDIC, as the case may be. The Corporation believes that each of the
Subsidiary Banks was in compliance with applicable minimum capital requirements
as of December 31, 1995.1996. Neither the Corporation nor any of the Subsidiary Banks
has been advised by any federal banking agency of any specific minimum Leverage
Ratio requirement applicable to it.
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Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business and in certain circumstances
to the appointment of a conservator or receiver. See "--FDICIA."--Prompt Corrective
Action."
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The Federal Deposit Insurance Corporation Improvement Act of 1991
required each federal banking agency to revise its risk-based capital standards
within 18 months of enactment of the statute to ensure that those standards take
adequate account of interest rate risk, concentration of credit risk and the
risk of non-traditional activities, as well as reflect the actual performance
and expected risk of loss on multifamily mortgages. On December 15, 1994, the
federal banking agencies have proposed regulations
that would add an additionaladopted amendments to their respective risk-based
capital requirementrequirements that explicitly identify concentration of credit risk and
certain risks arising from non-traditional activities, and the management of
such risks, as important factors to consider in assessing an institution's
overall capital adequacy. The amendments do not, however, mandate any specific
adjustments to the risk-based capital calculations as a result of such factors.
On August 2, 1995, the federal banking agencies published amendments to
their risk-based capital rules that, effective September 1, 1995, include
interest-rate risk as a qualitative factor to be considered in assessing capital
adequacy. Concurrent with the publication of the amendments, the federal banking
agencies proposed a system for measuring interest-rate risk and announced their
intention, after a trial period, to evaluate the reliability and accuracy of the
proposed system and to initiate a rulemaking process for the purpose of amending
the risk-based capital rules to include an explicit capital charge for
interest-rate risk that will be based upon the amountlevel of an institution's exposurea bank's measured
interest-rate risk exposure.
In August 1996, the federal banking regulators adopted amendments to
interest rate risk.
Managementtheir risk-based capital rules to incorporate a measure for market risk in
foreign exchange and commodity activities and in the trading of debt and equity
instruments. These amendments, which become effective at year end 1997, will
require banks with relatively large trading activities to calculate a capital
charge for market risk using their own internal value-at-risk models (subject to
parameters set by the Corporation is unableregulators) or, alternatively, risk management techniques
developed by the regulators. As a result, in addition to predict whether or whenexisting capital
requirements mayfor credit risk, certain institutions will be changed and, if so, at what levels andrequired to hold
capital based on what schedule.the measure of their market risk exposure. These institutions
will be able to satisfy this additional requirement, in part, by issuing
short-term subordinated debt that qualifies as Tier 3 capital.
Holding Company Structure and Support of Subsidiary Banks
Because the Corporation is a holding company, its right to participate
in the assets of any subsidiary upon the latter's liquidation or reorganization
will be subject to the prior claims of the subsidiary's creditors (including
depositors in the case of bank
subsidiaries)the Subsidiary Banks) except to the extent that the
Corporation may itself be a creditor with recognized claims against the
subsidiary. In addition, depositors of a bank, and the FDIC as their subrogee,
would be entitled to priority over the creditors in the event of liquidation of
a bank subsidiary.
Under Federal Reserve Board policy, the Corporation is expected to act as a
source of financial strength to, and to commit resources to support, each of the
Subsidiary Banks. This support may be required at times when, absent such
Federal Reserve Board policy, the Corporation may not be inclined to provide it. In
addition, any capital loans by a bank holding company to any of its subsidiary
banks are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
Cross-Guarantee Liability
Under the Federal Deposit Insurance Act (the "FDIA"),FDIA, a depository institution insured by the FDIC can be
held liable for any loss incurred by, or reasonably expected to be incurred by,
the FDIC after August 9, 1989 in connection with (i) the default of a commonly
controlled FDIC-insured depository institution or (ii) any assistance provided
by the FDIC to any commonly controlled FDIC-insured depository institution "in
danger of default." "Default" is defined generally as the appointment of a
conservator or receiver and "in danger of default" is defined generally as the
existence of certain conditions indicating that a default is likely to occur in
the absence of regulatory assistance. The FDIC's claim for damages is superior
to claims of shareholders of the insured depository institution or its holding
company but is subordinate to claims of depositors, secured creditors and
holders of subordinated debt (other than affiliates) of the commonly controlled
insured depository institution. The Subsidiary Banks are subject to these
cross-guarantee provisions. As a result, any loss suffered by the FDIC in
respect of any of the Subsidiary Banks would likely result in assertion of the
cross-guarantee provisions, the assessment of such estimated losses
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against the Corporation's other Subsidiary Banks and a potential loss of the
Corporation's investment in such Subsidiary Banks.
FDICIAPrompt Corrective Action
The Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), which was enacted on December 19, 1991, substantially
revised the depository institution regulatory and funding provisions
of the FDIA and made revisions to several other federal banking
statutes. Amongrequires, among other things, FDICIA requires the federal banking regulators
to take "prompt corrective action" in respect of FDIC-insured depository
institutions that do not meet minimum capital requirements. FDICIA establishesUnder the FDIA,
insured depository institutions are divided into five capital tiers: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." Under applicable
regulations, a FDIC-insured depositoryan institution is defined to be well capitalized if it maintains a
Leverage Ratio of at least 5%, a risk-adjusted Tier 1 Capital Ratioratio of at least 6% and a Total
Capital Ratioratio of at least 10% and is not subject to a directive, order or
written agreement to meet and maintain specific capital levels. An insured depository institution
is defined to be adequately capitalized if it meets all of its minimum capital
requirements as 5
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described above. An insured depository institution will be considered
undercapitalized if it fails to meet any minimum required measure, significantly
undercapitalized if it has a Total Risk-Based Capital Ratioratio of less than 6%, a
Tier 1 Risk-Based Capital Ratioratio of less than 3% or a Leverage Ratio of less than
3% and critically undercapitalized if it fails to maintain a level of tangible
equity equal to at least 2% of total assets. An insured depository institution may be deemed to be
in a capitalization category that is lower than is indicated by its actual
capital position if it receives an unsatisfactory examination rating.
FDICIAThe FDIA generally prohibits an FDIC-insured depository institution
from making any capital distribution (including payment of dividends) or paying
any management fee to its holding company if the depository institution would
thereafter be undercapitalized. Undercapitalized depository institutions are
subject to restrictions on borrowing from the Federal Reserve System. In
addition, undercapitalized depository institutions are subject to growth
limitations and are required to submit capital restoration plans. AAn insured
depository institution's holding company must guarantee the capital plan, up to
an amount equal to the lesser of 5% of the depository institution's assets at
the time it becomes undercapitalized or the amount of the capital deficiency
when the institution fails to comply with the plan for the plan to be accepted
by the applicable federal regulatory authority. The federal banking agencies may
not accept a capital plan without determining, among other things, that the plan
is based on realistic assumptions and is likely to succeed in restoring the
depository institution's capital. If a depository institution fails to submit an
acceptable plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject
to a number of requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject to appointment
of a receiver or conservator, generally within 90 days of the date on which they
become critically undercapitalized.
The Corporation believes that at December 31, 19951996 all of the
Subsidiary Banks were well capitalizedhad sufficient capital to qualify as "well capitalized" under
the criteriaregulatory capital requirements discussed above.
FDICIA contains numerous other provisions, including new
accounting, audit and reporting requirements, beginning in 1995
termination of the "too big to fail" doctrine except in special cases,
limitations on the FDIC's payment of deposits at foreign branches, new
regulatory standards in such areas as asset quality, earnings and
compensation and revised regulatory standards for, among other things,
powers of state banks, real estate lending and capital adequacy.
FDICIA also requires that a depository institution provide 90 days
prior notice of the closing of any branches.
Various other legislation, including proposals to revise the bank
regulatory system and to limit the investments that a depository institution may
make with insured funds, is from time to time introduced in Congress. See the
"Effect of Governmental Policies" subsection.
Interstate Act
Subject to certain limitations, the federalBanking and Branching Legislation
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Interstate
Act"(the "IBBEA"), authorizes interstate acquisitions of banks and bank holding
companies without geographic limitation beginning one year after enactment. In
addition, beginning June 1, 1997, a bank may merge with a bank in another state
as long as neither of the states has opted out of interstate branching between
the date of enactment of the IBBEA and May 31, 1997. The IBBEA further provides
that states may enact laws permitting interstate merger transactions prior to
June 1, 1997. A bank may establish and operate a de novo branch in a state in
which was enacted on September 29, 1994,the bank does not maintain a branch if that state explicitly permits onde
novo branching. Once a bank has established branches in a state through an
interstate basis (i)merger transaction, the bank holding company acquisitions after September
29, 1995, of banks which satisfy a minimum age requirement, ifmay establish and acquire additional
branches at any imposed by state law, which cannot exceed five years; (ii) bank
mergers after May 31, 1997, unless the home state of either bank has
enacted legislation to "opt out" of this provision of the federal
Interstate Act; (iii) bank branching de novo if the host state has
enacted legislation to "opt in" to this provision of the federal
Interstate Act; and (iv) certain bank agency activities after
September 29, 1995. The federal Interstate Act imposes a 30%
intrastate deposit cap on interstate acquisitions, except for the
initial acquisitionlocation in the state unless a different intrastate cap
has been adopted bywhere any bank involved in the applicable state, and a 10% national deposit
cap. With respect to the Interstate Act, Tennessee has adopted a five
year minimum age requirement for banks (see "--General"), has not
"opted out" of the bankinterstate
merger provisions, and has not "opted in" to
the de novo bank branching provision.transaction could have
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Brokered Deposits and "Pass-Through" Insurance
The FDIC has adopted regulationsestablished or acquired branches under FDICIA governing the
receipt of brokered deposits and "pass-through" insurance. Under the
regulations, a bank cannot accept a rolloverapplicable federal or renew brokered
deposits unless (i) it is well capitalized or (ii) it is adequately
capitalized and receives a waiver from the FDICIA.state law. A bank
that cannot
receive brokered deposits also cannot offer "pass-through" insurance
on certain employee benefit accounts. Whether or not it has obtainedestablished a branch in a state through de novo branching may establish
and acquire additional branches in such a waiver, an adequately capitalized bank may not pay an interest
rate on any depositsstate in excess of 75 basis points over certain
prevailing market rates specified by regulation. There are no such
restrictions onthe same manner and to the same
extent as a bank that is well capitalized. Because it believes
that allhaving a branch in such state as a result of an interstate
merger. If a state opts out of interstate branching within the Subsidiary Banks were well capitalized asspecified time
period, no bank in any other state may establish a branch in the opting out of
December 31,
1995, the Corporation believes the brokered deposits regulation will
have no present effect on the fundingstate, whether through an acquisition or liquidity of any of the
Subsidiary Banks.de novo.
FDIC Insurance Premiums
The Subsidiary Banks are required to pay semiannual FDIC
deposit insurance assessments. As required by FDICIA, the FDIC
adopted a risk-based premium schedule which increased the assessment
rates for most FDIC-insured depository institutions. Under the
schedule, the premiums initially range from $.23 to $.31 for every
$100 of deposits.Assessments; DIFA
The FDIC revisedreduced the assessment rate schedule forinsurance premiums it charges on bank deposits
insured by the Bank Insurance Fund ("BIF") on August 8, 1995 (effective
retroactively to June 1, 1995) to providethe statutory minimum of $2,000.00
for a range of $.04 to
$.31 for every $100 of deposits. The FDIC again revised the BIF
schedule on November 14, 1995 (effective"well capitalized" banks, effective January 1, 1996)1996. Premiums related to
provide
for a range of $.00 to $.27, subject to a minimum assessment of
$1,000 per semiannual period. Each financial institution is assigned
to one of three capital groups -- well capitalized, adequately
capitalized or undercapitalized -- and further assigned to one of
three subgroups within a capital group, on the basis of supervisory
evaluations by the institution's primary federal and, if applicable,
state supervisors and other information relevant to the institution's
financial condition and the risk posed to the applicable FDIC deposit
insurance fund. The actual assessment rate applicable to a particular
institution will, therefore, depend in part upon the risk assessment
classification so assigned to the institution by the FDIC.
A portion of the deposits of the Bank are insuredassessed by the Savings Association Insurance Fund ("SAIF") as, including
savings association deposits acquired by banks, continued to be assessed at a
resultrate of between 23 cents and 31 cents per $100.00 of deposits. On September 30,
1996, the Deposit Insurance Funds Act of 1996 ("DIFA") was enacted and signed
into law. DIFA provided for a special assessment to recapitalize the SAIF to
bring the SAIF up to statutory required levels. The assessment imposed a
one-time fee to banks that own previously acquired thrift deposits of $ .526 per
$100 of thrift deposits they held at March 31, 1995. The pre-tax cost to the
Corporation of the acquisitionone-time assessment in the third quarter of Home Financial Corporation in 1992. The assessment
rate schedule1996 was $3.8
million. DIFA further provides for SAIF remains at $.23assessments to $.31 for every $100 of
deposits.
The FDIC is authorized by federal law to raise insurance
premiums in certain circumstances. The law specifies a designated
reserve ratio target of 1.25 percent of estimatedbe imposed on insured
deposits and
requires the FDIC to set assessments at a level to maintain the target
or, if the reserve ratio is less than the target, to set assessments
rates at a level sufficient to increase the reserve ratio to the
target within one year or as otherwise specified by the FDIC under the
law. The target ratio has been achieveddepository institutions with respect to BIF.deposits insured by the BIF (in addition
to assessments currently imposed on depository institutions with respect to
SAIF-insured deposits) to pay for the cost of Financing Corporation ("FICO")
bonds. All banks will be assessed to pay the interest due on FICO bonds starting
on January 1, 1997. The Corporation expects the cost to the Corporation to be
immaterial.
Under the FDIA, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe and unsound practices,
is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by a federal bank
regulatory agency.
Depositor Preference
The Omnibus Budget Reconciliation Act of 1993Federal law provides that deposits and certain claims for
administrative expenses and employee compensation against an insured depository
institution would be afforded a priority over other general unsecured claims
against such an institution, including federal funds and letters of credit, in
the "liquidation or other resolution" of such an institution by any receiver.
Competition.
The Corporation and its subsidiaries face substantial competition in
all aspects of the businesses in which they engage from national and state banks
located in Tennessee and large out-of-state banks as well as from savings and
loan
7
9 associations, credit unions, other financial institutions, consumer finance
companies, trust companies, investment counseling firms, money market mutual
funds, insurance companies, securities firms, mortgage banking companies and
others. For certain information on the competitive position of the Corporation
and the Bank, refer to page 1. Also, refer to the subsections entitled
"Supervision and Regulation" and "Effect of Governmental Policies," both of
which are relevant to an analysis of the Corporation's competitors. Due to the
intense competition in the financial industry, the Corporation makes no
representation that its competitive position has remained constant, nor can it
predict whether its position will change in the future.
Sources and Availability of Funds.
Specific reference is made to the Management's Discussion and Analysis
and Glossary sections, including the subsection entitled "Deposits, Other
Sources of Funds, and Liquidity Management," contained in the 19951996 Annual
Report, which sections are specifically incorporated herein by reference, along
with all of the tables and graph in the 19951996 Annual Report, which are identified
separately in response to Item 7 of Part II of this Form 10-K, which are
incorporated herein by reference. As permitted by SEC rules, attached to this
Form 10-K as Exhibit 13 are only those sections of the 19951996 Annual Report that
have been incorporated by reference into this Form 10-K.
7
9
Effect of Governmental Policies.
The Bank is affected by the policies of regulatory authorities,
including the Federal Reserve System and the Comptroller. An important function
of the Federal Reserve System is to regulate the national money supply.
Among the instruments of monetary policy used by the Federal Reserve
are: purchases and sales of U.S. Government securities in the marketplace;
changes in the discount rate, which is the rate any depository institution must
pay to borrow from the Federal Reserve; and changes in the reserve requirements
of depository institutions. These instruments are effective in influencing
economic and monetary growth, interest rate levels and inflation.
The monetary policies of the Federal Reserve System and other
governmental policies have had a significant effect on the operating results of
commercial banks in the past and are expected to continue to do so in the
future. Because of changing conditions in the national economy and in the money
market, as well as the result of actions by monetary and fiscal authorities, it
is not possible to predict with certainty future changes in interest rates,
deposit levels, loan demand or the business and earnings of the Corporation and
the Bank or whether the changing economic conditions will have a positive or
negative effect on operations and earnings.
Bills are pending before the United States Congress and the Tennessee
General Assembly and other state legislatures and regulations have been proposed
by the bank regulatory agencies which could affect the business of the
Corporation and its subsidiaries, and there are indications that other
similar bills may
be introduced in the future. It cannot be predicted whether or in what form any
of these proposals will be adopted or the extent to which the business of the
Corporation and its subsidiaries may be affected thereby.
Statistical Information Required by Guide 3.
The statistical information required to be displayed under Item I
pursuant to Guide 3, "Statistical Disclosure by Bank Holding Companies," of the
Exchange Act Industry Guides is incorporated herein by reference to the
Consolidated Financial Statements and the notes thereto and the Management's
Discussion and Analysis and Glossary sections in the 19951996 Annual Report along
with all of the tables and graph identified in response to Item 7 of Part II of
this Form 10-K; certain information not contained in the 19951996 Annual Report, but
required by Guide 3, is contained in the tables immediately following:
8
10
FIRST TENNESSEE NATIONAL CORPORATION
ADDITIONAL GUIDE 3 STATISTICAL INFORMATION
BALANCES AT DECEMBER 31
(Thousands)
(Unaudited)
II. Investment Portfolio
(Book Value):
1996 1995 * 1994
* 1993 **
- - -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities &
collateralized mortgage
obligations $1,681,593 $1,678,238 $1,677,277$1,585,512 $1,661,477 $1,630,642
U.S. Treasury and other
U.S. government agencies 264,837 350,276 443,848472,106 273,841 386,504
States and political subdivisions 104,082 77,522 93,90092,031 104,140 77,382
Other 60,887 64,879 96,280
---------------------------------------------------------89,885 71,941 76,387
------------------------------------
Total $2,239,534 $2,111,399 $2,170,915
$2,311,305====================================
- - ------------------------------------------------------------------------------------------------
* Balances represent securities held - to - maturity
and securities available - for - sale.
** Balances represent the investment portfolio.
------------------------------------------------------------------------------------------
III. Loan Portfolio
1996 1995 1994 1993 1992
1991
- - ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial $3,521,473 $3,330,929 $2,991,231 $2,694,416 $2,348,739
$2,376,048
Consumer 2,683,959 2,525,889 2,263,007 1,819,950 1,342,650
1,131,176
Credit card receivables 564,803 529,104 475,489 428,075 412,207
402,822
Real estate construction 297,797 238,863 160,368 75,844 48,598
107,466
Permanent mortgage 641,245 689,458 591,094 514,424 603,572
651,856
Nonaccrual 18,926 19,040 16,853 27,639 32,782
50,729
-----------------------------------------------------------------------------------------------------------------------------------------------------
Total $7,728,203 $7,333,283 $6,498,042 $5,560,348 $4,788,548
$4,720,097==============================================================
- - ---------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
VII. Short-Term Borrowings
1996 1995 1994
1993
- - -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and
securities sold under
agreements to repurchase $1,881,187 $1,674,225 $1,457,517
$1,025,124
Commercial paper 22,648 29,402 67,820 32,283
Other short-term borrowings 354,721 57,118 284,702
900,390
-----------------------------------------------------------------------------------------
Total $2,258,556 $1,760,745 $1,810,039
$1,957,797====================================
- - -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
9
11
FOREIGN OUTSTANDINGS AT DECEMBER 31
1996 1995 1994
1993
---------------------- --------------------- ----------------------------------------- ------------------- ------------------
% TOTAL % Total % Total
(Dollars in thousands) AMOUNT ASSETS Amount Assets Amount Assets
- - ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
BY COUNTRY:
Denmark $6,000 .05% $ - - % $ 4 - %
Israel $2,085 .02% $2,118 .02% $2,142 .02%999 .01 2,085 .02 2,118 .02
Canada 741 .01 185 --- 124 -- 296 --
Indonesia 153 -- -- -- 715 .01-
Saudi Arabia 640 - 74 - - -
Thailand - - - - 446 -
Japan 27 - 119 --- 645 .01
585 .01
United Kingdom 101 -- 68 -- 2,454 .02
Saudi Arabia 74 -- -- -- 241 --
Thailand -- -- 446 -- -- --
All other 245 -- 177 -- 165 --336 - 499 - 241 -
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total $8,743 .07% $2,962 .02% $3,578 .03%
$6,598 .06%
==============================================================================================================================================================================================================================================
BY TYPE:
Loans:
Banks and other financial institutions $7,392 .06% $ 364 --- % $ 657 .01%
$4,073 .04%
Governments and other institutions 2,000 .02999 .01 2,000 .02 2,000 .02
- - ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total loans 8,391 .07 2,364 .02 2,657 .03
6,073 .06
Cash 235 - 425 --- 344 -- 478 ---
Customers' acceptances 117 - 88 --- 523 -- 47 ---
Accrued interest receivable 85 -- 54 -- -- --
- - ----------------------------------------------------------------------------------------------------------------85 - 54 -
- ------------------------------------------------------------------------------------------------------------------------------
Total $8,743 .07% $2,962 .02% $3,578 .03%
$6,598 .06%
==============================================================================================================================================================================================================================================
MATURITIES OF SHORT-TERM PURCHASED FUNDS AT DECEMBER 31, 19951996
0-3 3-6 6-12 Over 12
(Dollars in thousands) Months Months Months Months Total
- - ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Certificates of deposit $100,000 and more $ 260,519 $86,488 $76,376265,405 $106,393 $79,756 $121,462 $ 96,729 520,112573,016
Federal funds purchased and securities
sold under agreements to repurchase 1,674,225 -- -- -- 1,674,2251,881,187 - - - 1,881,187
Commercial paper and other short-term borrowings 80,735 76 151 5,558 86,520371,776 251 301 5,041 377,369
- - ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total $2,015,479 $86,564 $76,527 $102,287 $2,280,857
=====================================================================================================================$2,518,368 $106,644 $80,057 $126,503 $2,831,572
===================================================================================================================
10
12
ITEM 2
PROPERTIES
The Corporation has no properties that it considers materially
important to its financial statements.
ITEM 3
LEGAL PROCEEDINGS
The Corporation is a party to no material pending legal proceedings the
nature of which are required to be disclosed pursuant to the Instructions
contained in the Form of this Report.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of this
fiscal year to a vote of security holders, through the solicitation of proxies
or otherwise.
ITEM 4A
EXECUTIVE OFFICERS OF REGISTRANT
The following is a list of executive officers of the Corporation as of
March 1, 1996.1997. Officers are elected for a term of one year and until their
successors are elected and qualified.
Name and Age Offices and Positions - Year First Elected to Office
Susan Schmidt Bies Executive Vice President (1985)
Age: 48 of the Corporation and the Bank
and Manager of Risk Management (1995)
J. Kenneth Glass President - Tennessee Banking Group
Age: 49 of the Bank (1993) and Executive Vice President
of the Corporation (1995)
Ralph Horn Chairman of the Board (1996) and Chief Executive
Age: 54 Officer (1994) of the Corporation and the Bank
and President of the Corporation (1991) and the
Bank (1993)
Harry A. Johnson, III Executive Vice President (1990) and
Age: 47 General Counsel (1988) of the
Corporation and the Bank
James F. Keen Senior Vice President
Age: 45 and Controller of the Corporation (1988) and
principal accounting officer
John C. Kelley. Jr. President - Memphis Banking Group of
Age: 51Name and Age Offices and Positions - Year First Elected to Office
Susan Schmidt Bies Executive Vice President (1985)
Age: 49 of the Corporation and the Bank
and Risk Management Manager (1995)
J. Kenneth Glass President - Tennessee Banking Group
Age: 50 of the Bank (1993) and Executive Vice President
of the Corporation (1995)
Ralph Horn Chairman of the Board (1996) and Chief Executive
Age: 55 Officer (1994) of the Corporation and the Bank
and President of the Corporation (1991) and the
Bank (1993)
Harry A. Johnson, III Executive Vice President (1990) and
Age: 48 General Counsel (1988) of the
Corporation and the Bank
James F. Keen Senior Vice President
Age: 46 and Controller of the Corporation (1988) and
principal accounting officer
John C. Kelley. Jr. President - Memphis Banking Group of
Age: 53 the Bank (1993) and Executive Vice President of the
Corporation (1991)
George Perry Lewis Executive Vice President of the
Age: 58 Bank (1976) and Money Management
Group Manager (1984)
11
13
George Perry Lewis Executive Vice President of the
Age: 57 Bank (1976) and Money Management
Group Manager (1984)
John P. O'Connor, Jr. Executive Vice President of the
Age: 52 Corporation (1990) and the Bank (1987)
and Chief Credit Officer (1988)
Elbert L. Thomas, Jr. Executive Vice President (1995) and
Age: 47 Chief Financial Officer (1995)
of the Corporation and the Bank
G. Robert Vezina Executive Vice President of the
Age: 61John P. O'Connor, Jr. Executive Vice President of the Corporation (1990)
Age: 53 and the Bank (1987) and Chief Credit
Officer (1988)
Elbert L. Thomas, Jr. Executive Vice President (1995) and
Age: 48 Chief Financial Officer (1995)
of the Corporation and the Bank
G. Robert Vezina Executive Vice President of the
Age: 62 Corporation and the Bank (1990) and
Personnel Division Manager (1984)
Each of the executive officers has been employed by the Corporation or
its subsidiaries during each of the last five years. Prior to February of 1995,
Ms. Bies was Chief Financial Officer of the Corporation and Bank. Mr. Glass was
Executive Vice President of the Bank and Tennessee Banking Group Manager prior
to January 1993. Mr. Horn was Vice Chairman of the Bank from
August 1991 through Januaryprior to February 1993. Prior to August 1991, Mr. Horn was Executive
Vice President of the Bank and Manager of its Bond Division.
Mr. Keen was Senior Vice President of the Bank prior to April 1993 and
Controller of the Bank prior to January 1993. Mr. Kelley was Executive Vice
President of the Bank and Corporate Services Group Manager prior to January of
1993. Mr. Thomas was a Senior Vice President of the Corporation and the Bank
prior to December 1995. From January of 1993 to February of 1995, Mr. Thomas was
Manager of Corporate Development. Prior to January of 1993, he was Manager of
Corporate Tax.
PART II
ITEM 5
MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
(a) Market for the Corporation's Common Stock:
The Corporation's common stock, $1.25 par value, trades
over-the-counter on the Nasdaq Stock Market's National Market System under the
symbol FTEN. As of December 31, 1995,1996, there were 8,7969,030 shareholders of record of
the Corporation's common stock. Additional information called for by this Item
is incorporated herein by reference to the Summary of Quarterly Financial
Information Table, the Selected Financial Data Table, Note 199 to the
Consolidated Financial Statements, and the Deposits,"Deposits, Other Sources of Funds,
and Liquidity ManagementManagement" subsection of the Management's Discussion and Analysis
section of the 19951996 Annual Report and to the Payment"Payment of Dividends
subsectionDividends" and
"Transactions with Affiliates" subsections contained in Item 1 of Part I of this
Form 10-K, which is incorporated herein by reference.
(b) Sale of Unregistered Securities:
During 1996, an aggregate of 93 shares of the Corporation's common
stock, $1.25 par value, were sold by the Corporation without registration under
the Securities Act of 1933, as amended (the "Securities Act"). The shares were
sold on April 16, 1996, to the three new directors of the Corporation for cash
at a price of $32.38 per share, for an aggregate total of $3,012, pursuant to
the terms of the Corporation's National Bank Director Qualifying Share Purchase
Program (the "Director Program"). The price represented the market value on the
date of sale. No underwriter was involved in the transaction. The shares were
sold pursuant to the Regulation D exemption from registration under the
Securities Act (Rules 505 and 506 and Section 4(6)). No unregistered shares were
sold by the Corporation during 1995. An aggregate of 54 shares (adjust for stock
splits) were sold by the Corporation during 1994 without registration. The
shares were sold under the Director Program on January 18, 1994 to a new
director for a total purchase price of $1,026.
(c) Description of the Corporation's Capital Stock:
Authorized Capital Stock. The authorized capital stock of the
Corporation currently consists of 5,000,000 shares of preferred stock, without
par value ("preferred stock"), which may be issued from time to time by
resolution of the
12
14
Corporation's Board of Directors (the "Board") and 200,000,000 shares of common
stock, $1.25 par value (the "common stock"). As of December 31, 1996, there were
66,857,519 shares of common stock and no shares of preferred stock outstanding.
As of that date, approximately 13 million shares of common stock were reserved
for issuance under various employee stock plans and the Corporation's divided
reinvestment plan, and 668,576 shares of preferred stock were reserved for
issuance under the Rights Plan (as defined below). Also, the Corporation has on
file with the SEC an effective shelf registration pursuant to which it may offer
from time to time, at its discretion, senior or subordinated debt securities,
preferred stock, including depository shares, and common stock at an aggregate
initial offering price not to exceed $225 million (net of prior issuances).
Preferred Stock. The Board is authorized, without further action by the
shareholders, to provide for the issuance of up to 5,000,000 shares of preferred
stock, from time to time in one or more series and, with respect to each such
series, has the authority to fix the powers (including voting power),
designations, preferences and relative, participating, optional or other special
rights and the qualifications, limitations or restrictions thereof.
Common Stock. The Board is authorized to issue a maximum of 200,000,000
shares of common stock. The holders of the common stock are entitled to receive,
ratably, such dividends as may be declared by the Board from funds legally
available therefor, provided that if any shares of preferred stock are at the
time outstanding, the payment of dividends on common stock or other
distributions (including purchases of common stock) may be subject to the
declaration and payment of full cumulative dividends, and the absence of
arrearages in any mandatory sinking fund, on outstanding shares of preferred
stock. The holders of the outstanding shares of common stock are entitled to one
vote for each such share on all matters presented to shareholders and are not
entitled to cumulate votes for the election of directors. Upon any dissolution,
liquidation or winding up of the Corporation resulting in a distribution of
assets to the shareholders, the holders of common stock are entitled to receive
such assets ratably according to their respective holdings after payment of all
liabilities and obligations and satisfaction of the liquidation preferences of
any shares of preferred stock at the time outstanding. The shares of common
stock have no preemptive, redemption, subscription or conversion rights. Under
the Corporation's Charter, the Board is authorized to issue authorized shares of
common stock without further action by the shareholders. However, the common
stock is traded in the over-the-counter market and is quoted on the Nasdaq Stock
Market's National Market, which requires shareholder approval of the issuance of
additional shares of common stock in certain situations. The Transfer Agent for
the common stock is Norwest Bank Minnesota, National Association.
The Board is divided into three classes, which results in approximately
1/3 of the directors being elected each year. In addition, the Charter and the
Bylaws, among other things, generally give to the Board the authority to fix the
number of directors on the Board and to remove directors from and fill vacancies
on the Board, other than removal for cause and the filling of vacancies created
thereby which are reserved to shareholders exercising at least a majority of the
voting power of all outstanding voting stock of the Corporation. To change these
provisions of the Bylaws, other than by action of the Board, and to amend these
provisions of the Charter or to adopt any provision of the Charter inconsistent
with such Bylaw provisions, would require approval by the holders of at least
80% of the voting power of all outstanding voting stock. Such classification of
the Board and such other provisions of the Charter and the Bylaws may have a
significant effect on the ability of the shareholders of the Corporation to
change the composition of an incumbent Board or to benefit from certain
transactions which are opposed by the Board.
Shareholder Protection Rights Plan. Each share of common stock that is
currently outstanding has, and each share of common stock that is issued prior
to the expiration date described in the next paragraph will have, attached to it
one right (a "Right") issued pursuant to a Shareholder Protection Rights
Agreement dated as of September 7, 1989, as amended and restated as of January
21, 1997 (the "Rights Plan"). Each Right entitles its holder to purchase 1/100th
of a share of Participating Preferred Stock, without par value, for $150.00 (the
"Exercise Price"), subject to adjustment, upon the business day following the
earlier of (i) the 10th business day (subject to certain adjustments by the
Board) after commencement of a tender or exchange offer which, if consummated,
would result in a person or group owning 10% or more of the outstanding shares
of common stock (an "Acquiring Person") and (ii) the first date (the "Flip-in
Date") of public announcement by the Corporation that a person has become an
Acquiring Person.
The Rights will expire on the earliest of (i) the Exchange Time
(defined below), (ii) September 18, 1999 and (iii) the date on which the Rights
are redeemed as described below. The Board may, at its option, at any time until
10 business
13
15
days after the Flip-in Date, redeem all the Rights at a price of $0.0033 per
Right, as adjusted from time to time pursuant to the Rights Plan.
If a Flip-in Date occurs, each Right (other than Rights beneficially
owned by the Acquiring Person or its affiliates, associates or transferees,
which Rights will become void), will constitute the right to purchase shares of
common stock or Participating Preferred Stock having an aggregate market price
equal to twice the Exercise Price for an amount in cash equal to the
then-current Exercise Price. In addition, the Board may, at its option, at any
time after a Flip-in Date and prior to the time that an Acquiring Person becomes
the beneficial owner of more than 50% of the outstanding shares of common stock,
elect to exchange the Rights (other than Rights beneficially owned by the
Acquiring Person or its affiliates, associates or transferees) for shares of
common stock or a Participating Preferred Stock at an exchange ratio of one
share of common stock or 1/100th of a share of Participating Preferred Stock per
Right (the "Exchange Time").
The Corporation may not agree to be acquired by an Acquiring Person
without providing that each Right, upon such acquisition, will constitute the
right to purchase common stock of the Acquiring Person having an aggregate
market price equal to twice the Exercise Price for an amount in cash equal to
the then-current Exercise Price.
The Rights will not prevent a takeover of the Corporation. The Rights,
however, may have certain anti-takeover effects. The Rights may cause
substantial dilution to a person or group that acquires 10% or more of the
outstanding common stock unless the Rights are first redeemed by the
Corporation's Board.
Subordinated Capital Notes due 1999. On June 10, 1987, the Corporation
issued $75,000,000 principal amount of 103/8% Subordinated Capital Notes Due
1999 (the "Capital Notes"). The Capital Notes currently constitute Tier 2
capital under the Federal Reserve's risk-based capital guidelines. Pursuant to
the Indenture, dated as of June 1, 1987 (the "Indenture"), between the
Corporation and BankAmerica National Trust Company, formerly Security Pacific
National Trust Company (New York), Trustee, at maturity the Capital Notes are
required to be exchanged for common stock, preferred stock or certain other
eligible capital securities to be issued by the Corporation ("Capital
Securities") having a market value equal to the principal amount of the Capital
Notes, except to the extent that the Corporation, at its option, shall elect to
pay in cash such principal amount from amounts representing proceeds of other
issuances of Capital Securities designated for such use.
ITEM 6
SELECTED FINANCIAL DATA
The information called for by this Item is incorporated herein by
reference to the Selected Financial Data Table in the 19951996 Annual Report.
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The information called for by this Item is incorporated herein by
reference to the Management's Discussion and Analysis section and Glossary
section in the 19951996 Annual Report and the following tables and graph in the 19951996 Annual
Report:
12
14
Tables: Graph:
- - ------- ------
Acquisitions 1995 Net Interest Income and Net
Analysis of Noninterest Income Interest MarginAnalysis of Allowance for Loan Losses
Net Interest Income and Earning Assets
Analysis of Changes In Net Interest Income
Rate Sensitivity Analysis at December 31, 1995
Analysis of Noninterest Expense
Maturities of Investment Securities at December 31, 1995
Maturities of Loans at December 31, 1995
Credit Ratings at December 31, 1995
Regulatory Capital at December 31, 1995
Analysis of Allowance for Loan Losses Loans and Foreclosed Real Estate at December 31
Net Interest Margin Composition Net Charge-Offs as a PercentagePercent of Average Loans by Category
Analysis of Changes In Net Interest Income Nonperforming Assets at December 31
Rate Sensitivity Analysis at December 31, 1996 Changes in Nonperforming Assets
Analysis of Noninterest Expense Summary of Quarterly Financial Information
Maturities of Loans at December 31, 1996 Consolidated Average Balance Sheet and Related Yields and Rates
Maturities of Investment Securities at December 31, 1996 Consolidated Historical Performance Statements of Income
Credit Ratings at December 31, 1996 Selected Financial Data
Capital Ratios
14
16
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item is incorporated herein by
reference to the Consolidated Financial Statements and the notes thereto and to
the Summary of Quarterly Financial Information Table in the 19951996 Annual Report.
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The information called for by this Item is inapplicable.
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this Item as it relates to directors and
nominees for director of the Corporation is incorporated herein by reference to
the "Election of Directors" section of the Corporation's Proxy Statement mailed
to shareholders in connection with the Corporation's Annual Meeting of
Shareholders scheduled for April 16, 1996,15, 1997, (the "1996"1997 Proxy Statement"). The
information required by this Item as it relates to executive officers of the
Corporation is incorporated herein by reference to Item 4A in Part I of this
Report. The information required by this Item as it relates to compliance with
Section 16(a) of the Securities Exchange Act of 1934 is incorporated herein by
reference to the "Compliance with Section"Section 16(a) of the Exchange Act"Beneficial Ownership Reporting Compliance"
section of the 19961997 Proxy Statement.
13
15
ITEM 11
EXECUTIVE COMPENSATION
The information called for by this Item is incorporated herein by
reference to the "Executive Compensation" section of the 19961997 Proxy Statement
(excluding the Board Compensation Committee Report and the Total Shareholder
Return Performance Graph).
ITEM 12
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this Item is incorporated herein by
reference to the Stock Ownership Table and the two paragraphs preceding the
table in the 19961997 Proxy Statement.
The Corporation is unaware of any arrangements which may result in a
change in control of the Corporation.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this Item is incorporated herein by
reference to the "Certain Relationships and Related Transactions" section of the
19961997 Proxy Statement.
15
17
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
Financial Statements:
- Consolidated Statements of Condition as of December 31, 19951996
and 19941995
- Consolidated Statements of Income for the years ended December
31, 1996, 1995 1994 and 19931994
- Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1996, 1995 1994 and 19931994
- Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 1994 and 19931994
- Notes to the Consolidated Financial Statements
- Report of Independent Public Accountants
The consolidated financial statements of the Corporation, the
notes thereto, and the report of independent public
accountants, in the 19951996 Annual Report, as listed above, are
incorporated herein by reference.
Financial Statement Schedules: Not applicable.
Exhibits:
(3)(i) Restated Charter of the Corporation, as amended.amended, attached as
Exhibit 3(i) to the Corporation's Annual Report on Form 10-K
for the year ended 12-31-95, and incorporated herein by
reference.
(3)(ii) Bylaws of the Corporation, as amended.
(4)(a) Amended and Restated Shareholder Protection Rights Agreement,
dated as of 9-7-89, as amended as of 1-21-97, between the
Corporation and First Tennessee Bank National Association, as
Rights Agent, including as Exhibit A the forms of Rights
Certificate and of Election to Exercise and as Exhibit B the
form of Charter Amendment designating a series of
Participating Preferred Stock of the Corporation with terms as
specified, attached as an
exhibitExhibit 1 to the Corporation's
Registration Statement on Form 8-A8-A/A filed 9-8-89,1-21-97, and
incorporated herein by reference.
(4)(b) Indenture, dated as of 6-1-87, between the Corporation and
Security Pacific National Trust Company (New York), Trustee,
attached as an exhibitExhibit 4(b) to the Corporation's Annual Report on
Form 10-K for the
14
16 year ended 12-31-91, and incorporated herein
by reference.
(4)(c) The Corporation and certain of its consolidated subsidiaries
have outstanding certain long-term debt. See Note 1211 in the
Corporation's 19951996 Annual Report to Shareholders. None of such
debt exceeds 10% of the total assets of the Corporation and
its consolidated subsidiaries. Thus, copies of constituent
instruments defining the rights of holders of such debt are
not required to be included as exhibits. The Corporation
agrees to furnish copies of such instruments to the Securities
and Exchange Commission upon request.
*(10)(a) Management Incentive Plan, as amended.amended (1), and 1-21-97
amendment.
*(10)(b) 1983 Restricted1997 Employee Stock IncentiveOption Plan, as amended.(1)amended and restated.
*(10)(c) 1989 Restricted Stock Incentive Plan, as amended.amended (1), and
1-21-97 amendment.
*(10)(d) 1992 Restricted Stock Incentive Plan.Plan (1), and 1-21-97
amendment.
*(10)(e) 1984 Stock Option Plan, as amended.amended (1), and 1-21-97 amendment.
*(10)(f) 1990 Stock Option Plan, as amended.amended (1), and 1-21-97 amendment.
*(10)(g) Survivor Benefits Plan, as amended.amended (1), and 1-21-97 amendment.
*(10)(h) Amendment and Restated Directors and Executives Deferred
Compensation Plan as
amended.(1)and form of individual agreement.
*(10)(i) Pension Restoration Plan, as amended and restated.restated (3) and
1-21-97 amendment.
*(10)(j) Director Deferral Agreements (2) with schedule. (3)
16
18
*(10)(k) Form of Severance Agreements dated 12-15-92 (2) with schedule.1-28-97.
*(10)(l) 1995 Employee Stock Option Plan.Plan (3) and 1-21-97 amendment.
*(10)(m) Non-Employee Directors' Deferred Compensation Stock Option
Plan. (3)
*(10)(n) Ronald Terry post-retirement arrangement. (3)
(11) Statement re: computation of per share earnings.
(13) The portions of the 19951996 Annual Report to Shareholders which
have been incorporated by reference into this Form 10-K.
(21) Subsidiaries of the Corporation.
(23) Accountants' Consents
(24) Powers of Attorney
(27) Financial Data Schedule (for SEC use only)
(99) Annual Report on Form ll-K for the Corporation's Savings Plan
and Trust, for fiscal year ended 12-31-95,12-31- 96, as authorized by
SEC Rule 15d-21 (to be filed as an amendmentAmendment to Form lO-K).
* Exhibits marked with an "*" represent management
contract or compensatory plan or arrangement required
to be filed as an exhibit.
(1) These documents are incorporated herein by reference
to the exhibit with the corresponding number
contained in the Corporation's 1992 Annual Report on
Form 10-K.
(2) These documents areThis document is incorporated herein by reference
to exhibits 10(k) and 10(l), respectively, contained in the Corporation's
1992 Annual Report on Form 10-K.
(3) These documents are incorporated herein by reference
to the exhibit with the corresponding number
contained in the Corporation's 1995 Annual Report on
Form 10-K.
(b) A reportNo reports on Form 8-K (with a Date of Report of November 1, 1995) waswere filed on November 2, 1995, in response to Item 5, Other Events,
disclosingduring the Corporation's earnings release for the thirdfourth quarter of
1995. The Report contained as exhibits the earnings release which had
attached to it unaudited summary statements of income and average
balance sheets for the three and six month periods ended September 30,
1995, and a September 30, 1995 period end balance sheet; the form of
Indenture for Subordinated Debt Securities to be entered into by the
Corporation and The Bank of New York ("BONY"), as Trustee; and The
Statement of Eligibility, Form T-1, for BONY.
151996.
17
1719
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST TENNESSEE NATIONAL CORPORATION
Date: March 25, 199627, 1997 By: Elbert L. Thomas, Jr.
-----------------------------------------------------------------------------
Elbert L. Thomas, Jr., Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Ralph Horn* Chairman of the Board, President and March 25, 199627, 1997
- - ---------------------------------------------------- Chief Executive Officer (principal executive
Ralph Horn officer) and a Director
Elbert L. Thomas, Jr.* Executive Vice President March 25, 199627, 1997
- - ---------------------------------------------------- and Chief Financial Officer
Elbert L. Thomas, Jr. (principal financial officer)
James F. Keen* Senior Vice President March 25, 199627, 1997
- - ---------------------------------------------------- and Controller (principal
James F. Keen accounting officer)
Jack A. Belz* Director March 25, 1996
- - ----------------------
Jack A. Belz
Robert C. Blattberg* Director March 25, 199627, 1997
- - ----------------------------------------------------
Robert C. Blattberg
Carlos H. Cantu* Director March 27, 1997
- ------------------------------
Carlos H. Cantu
George E. Cates* Director March 27, 1997
- ------------------------------
George E. Cates
J. R. Hyde,Kenneth Glass* Director March 27, 1997
- ------------------------------
J. Kenneth Glass
James A. Haslam, III* Director March 25, 199627, 1997
- ------------------------------
James A. Haslam, III
John C. Kelley, Jr.* Director March 27, 1997
- ----------------------
J. R. Hyde, III------------------------------
John C. Kelley, Jr.
R. Brad Martin* Director March 25, 199627, 1997
- - ----------------------------------------------------
R. Brad Martin
Joseph Orgill, III* Director March 25, 199627, 1997
- - ----------------------------------------------------
Joseph Orgill, III
Richard E. Ray* Director March 25, 1996
- - ----------------------
Richard E. Ray
Vicki G. Roman* Director March 25, 199627, 1997
- - ----------------------------------------------------
Vicki G. Roman
1618
1820
Michael D. Rose* Director March 25, 199627, 1997
- - ----------------------------------------------------
Michael D. Rose
William B. Sansom* Director March 25, 199627, 1997
- - ----------------------------------------------------
William B. Sansom
Gordon P. Street, Jr.* Director March 25, 199627, 1997
- - ----------------------------------------------------
Gordon P. Street, Jr.
Ronald Terry* Director March 25, 1996
- - ----------------------
Ronald Terry
*By: March 25, 1996 Clyde A. Billings, Jr. -----------------------------------------March 27, 1997
------------------------------
Clyde A. Billings, Jr.
As Attorney-in-Fact
1719
1921
EXHIBIT INDEX
Item No. Description
- - -------- -----------
(3)(i) Restated Charter of the Corporation, as amended.
(3)(ii) Bylaws of the Corporation, as amended.
(4)(a) Shareholder Protection Rights Agreement dated as of 9-7-89 between the Corporation and First Tennessee Bank
National Association, as Rights Agent, including as Exhibit A the forms of Rights Certificate and of Election to
Exercise and as Exhibit B the form of Charter Amendment designating a series of Participating Preferred Stock of
the Corporation with terms as specified, attached as an exhibit to the Corporation's Registration Statement on
Form 8-A filed 9-8-89, and incorporated herein by reference.
(4)(b) Indenture, dated as of June 1, 1987, between the Corporation and Security Pacific National Trust Company
(New York), Trustee, attached as an exhibit to the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1991, and incorporated herein by reference.
(4)(c) The Corporation and certain of its consolidated subsidiaries have outstanding certain long-term debt. See Note 12
in the Corporation's 1995 Annual Report to Shareholders. None of such debt exceeds 10% of the total assets of the
Corporation and its consolidated subsidiaries. Thus, copies of constituent instruments defining the rights of
holders of such debt are not required to be included as exhibits. The Corporation agrees to furnish copies of
such instruments to the Securities and Exchange Commission upon request.
*(10)(a) Management Incentive Plan, as amended. (1)
*(10)(b) 1983 Restricted Stock Incentive Plan, as amended. (1)
*(10)(c) 1989 Restricted Stock Incentive Plan, as amended. (1)
*(10)(d) 1992 Restricted Stock Incentive Plan. (1)
*(10)(e) 1984 Stock Option Plan, as amended. (1)
*(10)(f) 1990 Stock Option Plan, as amended. (1)
*(10)(g) Survivor Benefits Plan, as amended. (1)
*(10)(h) Directors and Executives Deferred Compensation Plan, as amended. (1)
*(10)(i) Pension Restoration Plan, as amended and restated.
*(10)(j) Director Deferral Agreements (2) with Schedule.
*(10)(k) Severance Agreements dated 12-15-92 (2) with schedule.
*(10)(l) 1995 Employee Stock Option Plan.Item No. Description
(3)(i) Restated Charter of the Corporation, as amended, attached as Exhibit
3(i) to the Corporation's Annual Report on Form 10-K for the year ended
12-31-95, and incorporated herein by reference.
(3)(ii) Bylaws of the Corporation, as amended.
(4)(a) Amended and Restated Shareholder Protection Rights Agreement dated as
of 9-7-89, as amended as of 1-21-97, between the Corporation and First
Tennessee Bank National Association, as Rights Agent, including as
Exhibit A the forms of Rights Certificate and of Election to Exercise
and as Exhibit B the form of Charter Amendment designating a series of
Participating Preferred Stock of the Corporation with terms as
specified, attached as Exhibit 1 to the Corporation's Registration
Statement on Form 8-A/A filed 1-21-97, and incorporated herein by
reference.
(4)(b) Indenture, dated as of June 1, 1987, between the Corporation and
Security Pacific National Trust Company (New York), Trustee, attached
as Exhibit 4(b) to the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1991, and incorporated herein by reference.
(4)(c) The Corporation and certain of its consolidated subsidiaries have
outstanding certain long-term debt. See Note 11 in the Corporation's
1996 Annual Report to Shareholders. None of such debt exceeds 10% of
the total assets of the Corporation and its consolidated subsidiaries.
Thus, copies of constituent instruments defining the rights of holders
of such debt are not required to be included as exhibits. The
Corporation agrees to furnish copies of such instruments to the
Securities and Exchange Commission upon request.
*(10)(a) Management Incentive Plan, as amended (1), and 1-21-97 amendment.
*(10)(b) 1997 Employee Stock Option Plan, as amended and restated.
*(10)(c) 1989 Restricted Stock Incentive Plan, as amended (1), and 1-21-97
amendment.
*(10)(d) 1992 Restricted Stock Incentive Plan (1), and 1-21-97 amendment.
*(10)(e) 1984 Stock Option Plan, as amended (1), and 1-21-97 amendment.
*(10)(f) 1990 Stock Option Plan, as amended (1), and 1-21-97 amendment.
*(10)(g) Survivor Benefits Plan, as amended (1), and 1-21-97 amendment.
*(10)(h) Amended and Restated Directors and Executives Deferred Compensation
Plan and form of individual agreement.
*(10)(i) Pension Restoration Plan, as amended and restated (3) and 1-21-97
amendment.
*(10)(j) Director Deferral Agreements (2) with schedule. (3)
*(10)(k) Form of Severance Agreements dated 1-28-97.
*(10)(l) 1995 Employee Stock Option Plan (3) and 1-21-97 amendment.
*(10)(m) Non-Employee Directors Deferred Compensation Stock Option Plan. (3)
*(10)(n) Ronald Terry post-retirement arrangement. (3)
(11) Statement re: computation of per share earnings.
18
20
(13) The portions of the 1995 Annual Report to Shareholders which have been incorporated by reference into this
Form 10-K.
(21) Subsidiaries of the Corporation.
(23) Accountants' Consents
(24) Powers of Attorney
(27) Financial Data Schedule (for SEC use only)
(99) Annual Report on Form ll-K for the Corporation's Savings Plan and Trust, for fiscal year ended December 31, 1995,(13) The portions of the 1996 Annual Report to Shareholders which have been
incorporated by reference into this Form 10-K.
(21) Subsidiaries of the Corporation.
(23) Accountants' Consents
(24) Powers of Attorney
(27) Financial Data Schedule (for SEC use only)
(99) Annual Report on Form ll-K for the Corporation's Savings Plan and
Trust, for fiscal year ended December 31, 1996, as authorized by SEC
Rule 15d-21 (to be filed as an amendment to Form 10-K).
* Exhibits marked with an "*" represent management contract or
compensatory plan or arrangement required to be filed as an
exhibit.
(1) These documents are incorporated herein by reference to the
exhibit with the corresponding number contained in the
Corporation's 1992 Annual Report on Form 10-K.
(2) These documents areThis document is incorporated herein by reference to
exhibits 10(k) and 10(1), respectively, contained in the Corporation's 1992 Annual
Report on Form 10-K.
19(3) These documents are incorporated herein by reference to the
exhibit with the corresponding number contained in the
Corporation's 1995 Annual Report on Form 10-K.
20