FIRST TENNESSEE NATIONAL CORP - 10-Q Quarterly Report

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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

(Mark one)

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to ______________

Commission file number 000-4491

CIK number 0000036966

FIRST TENNESSEE NATIONAL CORPORATION

(Exact name of registrant as specified in its charter)


Tennessee		62-0803242
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

165 Madison Avenue, Memphis, Tennessee		38103
(Address of principal executive offices)		(Zip Code)

(901) 523-4444
(Registrant’s telephone number, including area code)

None
(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [x] No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Common Stock, $.625 par value		126,486,638

Class		Outstanding on July 31, 2002

TABLE OF CONTENTS


PART I.
PART II.
SIGNATURES
EXHIBIT INDEX

FIRST TENNESSEE NATIONAL CORPORATION

INDEX

Part I. Financial Information

Part II. Other Information

Signatures

Exhibit Index

PART I.

FINANCIAL INFORMATION

Item 1. Financial Statements.


	The Consolidated Statements of Condition

	The Consolidated Statements of Income

	The Consolidated Statements of Shareholders’ Equity

	The Consolidated Statements of Cash Flows

	The Notes to Consolidated Financial Statements

This financial information reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the interim periods presented.


CONSOLIDATED STATEMENTS OF CONDITION			First Tennessee National Corporation

			June 30						December 31

(Dollars in thousands)(Unaudited)			2002			2001			2001

Assets:
Cash and due from banks			$	890,972		$	741,436		$	885,183
Federal funds sold and securities purchased under agreements to resell				225,540			92,388			229,440

		Total cash and cash equivalents		1,116,512			833,824			1,114,623

Investment in bank time deposits				1,140			1,098			1,740
Trading securities				633,464			589,852			646,179
Loans held for sale				2,243,146			2,465,810			3,399,309
Securities available for sale				2,044,435			1,977,007			2,064,611
Securities held to maturity (market value of $367,052 on June 30, 2002; $546,950 on June 30, 2001; and $459,109 on December 31, 2001)				362,493			559,975			461,259
Loans, net of unearned income				10,544,657			9,959,561			10,283,143
	Less: Allowance for loan losses			151,804			148,658			155,373

		Total net loans		10,392,853			9,810,903			10,127,770

Premises and equipment, net				247,774			269,029			251,504
Real estate acquired by foreclosure				21,499			15,525			21,989
Mortgage servicing rights, net				624,645			743,185			665,005
Goodwill				163,213			114,245			143,147
Other intangible assets, net				33,175			16,172			41,857
Capital markets receivables and other assets				1,927,536			1,399,551			1,677,798

Total assets			$	19,811,885		$	18,796,176		$	20,616,791

Liabilities and shareholders’ equity:
Deposits:
	Interest-bearing		$	8,875,425		$	8,806,175		$	9,596,230
	Noninterest-bearing			3,520,655			3,464,930			4,010,104

		Total deposits		12,396,080			12,271,105			13,606,334

Federal funds purchased and securities sold under agreements to repurchase				3,132,475			2,771,149			2,921,543
Commercial paper and other short-term borrowings				313,673			395,512			449,151
Capital markets payables and other liabilities				1,611,066			1,355,778			1,467,453
Term borrowings				650,968			479,579			550,361

		Total liabilities		18,104,262			17,273,123			18,994,842

Guaranteed preferred beneficial interests in First Tennessee’s junior subordinated debentures				100,000			100,000			100,000
Preferred stock of subsidiary				44,236			44,137			44,187

Shareholders’ equity
Preferred stock — no par value (5,000,000 shares authorized, but unissued)				—			—			—
Common stock — $.625 par value (shares authorized - 400,000,000; shares issued - 125,434,878 on June 30, 2002; 126,336,782 on June 30, 2001; and 125,865,188 on December 31, 2001)				78,397			78,960			78,666
Capital surplus				116,790			97,342			106,682
Undivided profits				1,335,102			1,177,967			1,263,649
Accumulated other comprehensive income				30,012			21,584			23,278
Deferred compensation on restricted stock incentive plans				(7,070	)		(3,199	)		(2,126	)
Deferred compensation obligation				10,156			6,262			7,613

		Total shareholders’ equity		1,563,387			1,378,916			1,477,762

Total liabilities and shareholders’ equity			$	19,811,885		$	18,796,176		$	20,616,791

See accompanying notes to consolidated financial statements.


CONSOLIDATED STATEMENTS OF INCOME			First Tennessee National Corporation

			Three Months Ended						Six Months Ended
			June 30						June 30

(Dollars in thousands except per share data)(Unaudited)			2002			2001			2002			2001

Interest income:
Interest and fees on loans				$ 166,322			$ 205,296			$ 333,285			$ 431,480
Interest on investment securities:
	Taxable			36,357			42,400			72,401			86,658
	Tax-exempt			196			399			492			839
Interest on loans held for sale				32,046			45,287			72,463			79,938
Interest on trading securities				11,935			11,824			24,906			24,926
Interest on other earning assets				1,844			1,900			3,133			4,418

		Total interest income		248,700			307,106			506,680			628,259

Interest expense:
Interest on deposits:
	Savings			586			1,080			1,157			2,327
	Checking interest and money market account			9,954			24,433			20,039			52,612
	Certificates of deposit under $100,000 and other time			18,356			29,941			36,934			62,821
	Certificates of deposit $100,000 and more			18,308			37,125			39,379			82,407
Interest on short-term borrowings				17,328			40,009			34,045			94,519
Interest on term borrowings				7,002			7,650			13,608			15,388

		Total interest expense		71,534			140,238			145,162			310,074

Net interest income				177,166			166,868			361,518			318,185
Provision for loan losses				23,108			17,436			48,836			36,425

Net interest income after provision for loan losses				154,058			149,432			312,682			281,760

Noninterest income:
Mortgage banking				129,926			107,761			251,183			195,950
Capital markets				98,175			65,740			197,611			144,550
Deposit transactions and cash management				36,393			31,674			68,817			59,434
Trust services and investment management				13,324			14,409			27,413			29,605
Merchant processing				12,627			11,330			22,840			22,960
Divestitures				—			70,033			—			81,467
Equity securities losses				(2,196	)		(3,250	)		(2,196	)		(3,303	)
Debt securities losses				(121	)		(140	)		(155	)		(237	)
All other income and commissions				48,453			36,137			96,000			76,216

		Total noninterest income		336,581			333,694			661,513			606,642

Adjusted gross income after provision for loan losses				490,639			483,126			974,195			888,402

Noninterest expense:
Employee compensation, incentives and benefits				222,558			190,400			440,157			369,054
Occupancy				18,452			18,310			35,587			35,562
Equipment rentals, depreciation and maintenance				16,594			22,741			32,512			40,542
Operations services				14,867			16,691			29,383			31,514
Communications and courier				12,215			11,785			25,542			23,096
Amortization of intangible assets				1,357			2,877			2,955			5,757
All other expense				68,732			82,658			141,509			150,456

		Total noninterest expense		354,775			345,462			707,645			655,981

Pretax income				135,864			137,664			266,550			232,421
Applicable income taxes				45,399			48,650			89,004			81,035

Income before debt restructurings and cumulative effect of changes in accounting principles				90,465			89,014			177,546			151,386
Debt restructurings				—			(3,225	)		—			(3,225	)
Cumulative effect of changes in accounting principles				—			—			—			(8,168	)

Net income				$ 90,465			$ 85,789			$ 177,546			$ 139,993

Earnings per common share before debt restructurings and cumulative effect of changes in accounting principles (Note 3)				$ .71			$ .70			$ 1.40			$ 1.18
Earnings per common share (Note 3)				.71			.67			1.40			1.09

Diluted earnings per common share before debt restructurings and cumulative effect of changes in accounting principles (Note 3)				$ .69			$ .68			$ 1.36			$ 1.14
Diluted earnings per common share (Note 3)				.69			.65			1.36			1.06

Weighted average shares outstanding				126,680,703			127,889,957			126,732,470			128,593,538

See accompanying notes to consolidated financial statements.


CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY		First Tennessee National Corporation

(Dollars in thousands)(Unaudited)		2002			2001

Balance, January 1		$	1,477,762		$	1,384,156
Net income			177,546			139,993
Other comprehensive income:
	Unrealized loss on cash flow hedge		(1,320	)		—
	Unrealized market adjustments, net of tax and reclassification adjustment		8,054			6,986

Comprehensive income			184,280			146,979

Cash dividends declared			(62,819	)		(56,084	)
Common stock issued for exercise of stock options			34,597			49,135
Tax benefit from non-qualified stock options			10,109			19,055
Common stock repurchased			(88,060	)		(171,369	)
Amortization on restricted stock incentive plans			1,225			984
Other			6,293			6,060

Balance, June 30		$	1,563,387		$	1,378,916

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

First Tennessee National Corporation

Six Months Ended June 30

(Dollars in thousands)(Unaudited)

2002

2001

Operating Activities:

Net income

177,546

139,993

Adjustments to reconcile net income to net cash provided/(used) by operating activities:

Provision for loan losses

48,836

36,425

Provision for deferred income tax

43,788

13,244

Depreciation and amortization of premises and equipment

27,518

28,411

Amortization and impairment of mortgage servicing rights

115,927

95,801

Amortization of intangible assets

2,955

5,757

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