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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 March 31, 2003

OR

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

For the transition period from ______ to ______

Commission file number 000-4491

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  |_|

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)

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   126,298,626  
Class  Outstanding on April 30, 2003 


FIRST TENNESSEE NATIONAL CORPORATION

INDEX

Part I. Financial Information

Part II. Other Information

Signatures

Certifications

Exhibit Index


2



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 that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the interim periods presented.


3



CONSOLIDATED STATEMENTS OF CONDITION   First Tennessee National Corporation
             
    March 31   December 31  
     
 
 
(Dollars in thousands)(Unaudited)     2003   2002   2002  
 
Assets:                
Cash and due from banks     $ 962,208   $ 674,369   $ 1,068,110  
Federal funds sold and securities    
  purchased under agreements to resell       267,167     186,061     260,607  
 
    Total cash and cash equivalents       1,229,375     860,430     1,328,717  
 
Investment in bank time deposits       554     1,329     1,906  
Trading securities       825,886     939,082     893,997  
Loans held for sale       4,747,446     2,146,747     4,797,565  
Securities available for sale       2,129,055     2,022,979     2,419,908  
Securities held to maturity (market value of    
   $243,211 on March 31, 2003; $396,132 on    
   March 31, 2002; and $284,510 on December 31, 2002)       237,985     399,917     280,377  
Loans, net of unearned income       11,909,771     10,344,027     11,345,445  
  Less: Allowance for loan losses       144,484     148,602     144,298  
 
    Total net loans       11,765,287     10,195,425     11,201,147  
 
Premises and equipment, net       255,723     246,507     254,132  
Real estate acquired by foreclosure       13,962     23,248     11,451  
Mortgage servicing rights, net       482,841     748,933     440,482  
Goodwill       168,557     156,354     164,617  
Other intangible assets, net       33,132     28,028     29,648  
Capital markets receivables and other assets       2,921,328     1,844,403     1,999,148  
 
Total assets     $ 24,811,131   $ 19,613,382   $ 23,823,095  
 
                   
Liabilities and shareholders’ equity:                  
Deposits:                  
  Interest-bearing     $ 9,913,891   $ 9,652,637   $ 10,564,489  
  Noninterest-bearing       5,090,700     3,489,083     5,149,414  
 
    Total deposits       15,004,591     13,141,720     15,713,903  
 
Federal funds purchased and securities    
  sold under agreements to repurchase       3,755,503     2,245,130     3,126,350  
Commercial paper and other short-term borrowings       346,891     351,216     361,208  
Capital markets payables and other liabilities       2,767,094     1,611,425     1,856,347  
Term borrowings       1,030,017     600,582     929,715  
 
    Total liabilities       22,904,096     17,950,073     21,987,523  
 
Guaranteed preferred beneficial interests in                  
  First Tennessee’s junior subordinated debentures       100,000     100,000     100,000  
Preferred stock of subsidiary       44,417     44,212     44,392  
 
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 – 125,666,395 on March 31, 2003;    
  125,851,831 on March 31, 2002; and 125,600,024 on    
  December 31, 2002)       78,541     78,657     78,500  
Capital surplus       121,703     110,728     119,318  
Undivided profits       1,536,821     1,311,070     1,461,946  
Accumulated other comprehensive income       19,584     17,793     26,487  
Deferred compensation on restricted stock incentive plans       (5,154 )   (7,695 )   (5,796 )
Deferred compensation obligation       11,123     8,544     10,725  
 
    Total shareholders’ equity       1,762,618     1,519,097     1,691,180  
 
Total liabilities and shareholders’ equity     $ 24,811,131   $ 19,613,382   $ 23,823,095  
 

See accompanying notes to consolidated financial statements.


4



CONSOLIDATED STATEMENTS OF INCOME First Tennessee National Corporation
     
Three Months Ended
March 31 		 
 
 
(Dollars in thousands except per share data)(Unaudited) 2003   2002  
 
Interest income:            
Interest and fees on loans     $ 156,677   $ 166,963  
Interest on investment securities:    
  Taxable       30,974     36,044  
  Tax-exempt       123     296  
Interest on loans held for sale       55,044     40,417  
Interest on trading securities       10,986     12,971  
Interest on other earning assets       1,135     1,289  
 
    Total interest income       254,939     257,980  
 
Interest expense:    
Interest on deposits:    
  Savings       281     571  
  Checking interest and money market account       6,159     10,085  
  Certificates of deposit under $100,000 and other time       15,300     18,578  
  Certificates of deposit $100,000 and more       17,749     21,071  
Interest on short-term borrowings       14,434     16,717  
Interest on term borrowings       7,593     6,606  
 
    Total interest expense       61,516     73,628  
 
Net interest income       193,423     184,352  
Provision for loan losses       27,450     25,922  
 
Net interest income after provision for loan losses       165,973     158,430  
 
Noninterest income:    
Mortgage banking       271,848     121,257  
Capital markets       139,242     99,436  
Deposit transactions and cash management       32,776     32,424  
Trust services and investment management       11,383     14,089  
Insurance premiums and commissions       14,463     13,520  
Merchant processing       12,576     10,213  
Equity securities losses, net       (1,499 )   —  
Debt securities gains/(losses), net       443     (34 )
All other income and commissions       36,918     34,027  
 
    Total noninterest income       518,150     324,932  
 
Adjusted gross income after provision for loan losses       684,123     483,362  
 
Noninterest expense:    
Employee compensation, incentives and benefits       318,982     217,599  
Occupancy       19,605     17,135  
Equipment rentals, depreciation and maintenance       17,190     15,918  
Operations services       17,758     14,516  
Communications and courier       14,789     13,327  
Amortization of intangible assets       1,774     1,598  
All other expense       112,381     72,583  
 
    Total noninterest expense       502,479     352,676  
 
Pretax income       181,644     130,686  
Applicable income taxes       62,615     43,605  
 
Net income     $ 119,029   $ 87,081  
 
Earnings per common share (Note 3)       .94     .69  
 
Diluted earnings per common share (Note 3)       .91     .67  
 
Weighted average shares outstanding       126,764,004     126,784,812  
 

See accompanying notes to consolidated financial statements.


5




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CONSOLIDATED STATEMENTS
OF SHAREHOLDERS’ EQUITY		 First Tennessee National Corporation
         
(Dollars in thousands)(Unaudited) 2003   2002  
 
Balance, January 1     $ 1,691,180   $ 1,477,762  
Net income       119,029     87,081  
Other comprehensive income:    
  Unrealized loss on cash flow hedge, net of tax       137     —  
  Unrealized market adjustments, net of tax       (7,040 )   (5,485 )
 
Comprehensive income       112,126     81,596  
 
Cash dividends declared       (37,710 )   (31,425 )
Common stock issued for exercise of stock options       14,597     11,342  
Tax benefit from non-qualified stock options       3,728     2,951  
Common stock repurchased       (27,234 )   (27,088 )
Amortization on restricted stock incentive plans       641     600  
Other       5,290