Back to GetFilings.com
1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
- 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
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:
$0.625 PAR VALUE COMMON CAPITAL STOCK (INCLUDING RIGHTS ATTACHED THERETO)
(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. _____
At February 26, 1999, the aggregate market value of the voting stock of the
registrant held by non-affiliates of the registrant was approximately $4.84
billion.
At February 26, 1999, the registrant had 129,809,484 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
1. Portions of Proxy Statement furnished to shareholders in connection
with Annual Meeting of Shareholders scheduled for 4/20/99 - Parts I,
II, III and IV.
2
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, 1998, the
Corporation had total assets of $18.7 billion and ranked third in terms of total
assets among Tennessee-headquartered bank holding companies and ranked 39th
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 engaged in the commercial banking business. Significant
operations are also conducted in the mortgage banking, capital markets, and
transaction processing divisions, which are described in more detail in the
response to Item 7 of Part II hereof and Note 21 to the Consolidated Financial
Statements. During 1998 approximately 65% of revenues were provided by fee
income and approximately 35% of revenues were provided by net interest 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 allow 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 1998 it generated gross revenue (net interest income plus
noninterest income) of approximately $1.5 billion and contributed 90% of
consolidated net income from continuing operations. At December 31, 1998, the
Bank had $17.8 billion in total assets, $11.0 billion in total deposits, and
$12.3 billion in net loans. Within the State of Tennessee at December 31, 1998,
the Bank led the state in deposit market share and lending, ranking first in
deposit market share in four of the state's five metropolitan regions.
Nationally, it ranked 51st among banks in terms of total assets as of September
30, 1998. On December 31, 1998, the Corporation's subsidiary banks had 302
banking locations (including 126 free-standing ATM machines) in 19 Tennessee
counties, including all of the major metropolitan areas of the state, 14 banking
locations (including 7 free-standing ATMs) in Mississippi and 7 banking
locations (including 3 free-standing ATMs) in Arkansas. FT Mortgage Companies, a
subsidiary of the Bank, and its affiliates, at December 31, 1998, provided
mortgage banking services through approximately 151 offices in 31 states and
ranked in the top 10 nationally in retail mortgage loan originations and in the
top 20 nationally in mortgage loan servicing. First Tennessee Capital Markets, a
division of the Bank, had at December 31, 1998, offices in 6 states and ranked
as one of the leading underwriters of U.S. agency debt.
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 an
Appendix to the Corporation's Proxy Statement furnished to shareholders in
connection with the Annual Meeting of Shareholders scheduled for April 20, 1999
(herein referred to, including such Appendix, as the "1999 Proxy Statement"),
which note is incorporated herein by reference.
The Corporation provides the following services through its
subsidiaries:
1
3
- general banking services for consumers, businesses, financial
institutions, and governments
- mortgage banking services
- capital markets--primarily sales and underwriting of
bank-eligible securities and mortgage loans and advisory
services
- transaction processing - merchant credit card and automated
teller machine transaction processing, nationwide check
clearing services, and transaction-oriented cash management
products
- trust, fiduciary, and agency services
- credit card products
- discount brokerage, brokerage, venture capital and equipment
finance
- investment and financial advisory services, including
investment advisor to First Funds, a family of mutual funds
- mutual fund sales as agent
- insurance sales as agent
- check processing software and systems
- private mortgage reinsurance
- consumer finance lending.
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 Capital Markets 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; Dallas, Texas; and New York,
New York. The subsidiary banks are supervised and regulated as described below.
Highland Capital Management Corp, Martin and Company, Inc., and First Tennessee
Brokerage, Inc., are registered with the SEC as investment advisers. Hickory
Venture Capital Corporation is licensed as a Small Business Investment Company.
First Tennessee Brokerage, Inc. is registered with the SEC and all 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. FT Reinsurance Company is licensed by the state of Vermont as a
monoline insurance company.
Expenditures for research and development activities were not material
for the years 1996, 1997 or 1998.
Neither the Corporation nor any of its significant subsidiaries is
dependent upon a single customer or very few customers.
At December 31, 1998, the Corporation and its subsidiaries had
10,214 full-time-equivalent employees, not including contract labor for
certain services, such as guard and house-keeping.
For additional information on the business of the Corporation, refer to
the Management's Discussion and Analysis and Glossary sections contained in the
1999 Proxy Statement, which sections are incorporated herein by reference.
2
4
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"). The Corporation is required to file with the Board annual reports and
such additional information as the Board may require pursuant to the BHCA. The
Board may also make examinations of the Corporation and its subsidiaries. The
following summary of the BHCA 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 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 to
be so closely related to banking as to be a proper incident thereto.
In addition, the BHCA permits the Federal Reserve 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 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 June 30, 1998, the
Corporation estimates that it held approximately 15% 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.
The Corporation's subsidiary banks (the "Subsidiary Banks") are subject
to supervision and examination by applicable federal and state banking agencies.
The Bank and First National Bank of Springdale, Springdale, Arkansas, are
national banking associations subject to regulation and supervision by the
Comptroller as their primary federal regulator. First Tennessee Bank National
Association Mississippi, Southaven, Mississippi, merged with and into the Bank
in December of 1998. The remaining Subsidiary Banks are Cleveland Bank and Trust
Company, Cleveland, Tennessee, and Peoples and 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 as it attempts to control
the money supply and credit availability in order to influence the economy.
3
5
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, 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 Act ("FDIA"), an
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.
At December 31, 1998, under dividend restrictions imposed under
applicable federal and state laws, the Subsidiary Banks, without obtaining
regulatory approval, could legally declare aggregate dividends of approximately
$246 million. Under Tennessee law, the Corporation is not permitted to pay
dividends if, after giving effect to such payment, it would not be able to pay
its debts as they become due in the usual course of business or the
Corporation's total assets would be less than the sum of its total liabilities
plus any amounts needed to satisfy any preferential rights if the Corporation
was dissolving.
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.
4
6
Transactions with Affiliates
There are various legal restrictions on the extent to which the
Corporation and its nonbank subsidiaries (including, in certain situations,
subsidiaries of the Subsidiary Banks) 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 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, 1998, the Corporation's consolidated Tier 1 Capital
and Total Capital ratios were 7.85% and 11.91%, respectively.
In addition, the Federal Reserve 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 (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, 1998 was 5.54%. 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 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.
5
7
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, 1998. 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.
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 "--Prompt Corrective
Action."
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 adopted amendments to their respective risk- based
capital requirements 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 level of a bank's measured
interest-rate risk exposure.
In August 1996, the federal banking regulators adopted amendments to
their 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 became effective at year end 1997, 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 regulators) or, alternatively, risk management techniques
developed by the regulators. As a result, in addition to existing capital
requirements for credit risk, certain institutions are required to hold capital
based on 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.
On November 5, 1997, the federal banking regulators proposed for
comment regulations establishing new risk-based capital requirements for
recourse arrangements and direct credit substitutes. "Recourse" for this purpose
means any retained risk of loss associated with any transferred asset that
exceeds a pro rata share of the bank's or bank holding company's remaining claim
on the asset, if any. Under existing regulations, banks and bank holding
companies have to maintain capital against the full amount of any assets for
which risk of loss is retained, unless the resulting capital amount would exceed
the maximum contractual liability or exposure retained, in which case the
capital required would equal, dollar-for-dollar, such maximum contractual
liability or exposure. The proposal would extend this treatment to direct credit
substitutes. "Direct credit substitute" means any assumed risk of loss
associated with any asset or other claim that exceeds the bank's or bank holding
company's pro rata share of the asset or claim, if any. The proposal also
included a multi-level
6
8
approach to assessing capital charges based upon the relative credit risk of the
bank's or bank holding company's position in a securitization (i.e., recourse
arrangements, direct credit substitute or asset-backed security) and the rating
assigned to such position by a nationally recognized statistical rating agency.
The Corporation does not believe the adoption of this proposal will have a
material adverse effect on its operations or financial position.
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 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 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 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 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 against the
Corporation's other Subsidiary Banks and a potential loss of the Corporation's
investment in such Subsidiary Banks.
Prompt Corrective Action
The FDIA requires, among other things, the federal banking regulators
to take "prompt corrective action" in respect of FDIC-insured depository
institutions that do not meet minimum capital requirements. Under the FDIA,
insured depository institutions are divided into five capital tiers: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." Under applicable
regulations, an institution is defined to be well capitalized if it maintains a
Leverage Ratio of at least 5%, a Tier 1 Capital ratio of at least 6% and a Total
Capital ratio of at least 10% and is not subject to a directive, order or
written agreement to meet and maintain specific capital levels. An institution
is defined to be adequately capitalized if it meets all of its minimum capital
requirements as described above. An institution will be considered
undercapitalized if it fails to meet any minimum required measure, significantly
7
9
undercapitalized if it has a Total Risk-Based Capital ratio of less than 6%, a
Tier 1 Risk-Based Capital ratio 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 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.
The 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. An 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, 1998 all of the
Subsidiary Banks had sufficient capital to qualify as "well capitalized" under
the regulatory capital requirements discussed above.
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 Banking and Branching Legislation
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "IBBEA") authorizes interstate acquisitions of banks and bank holding
companies without geographic limitation beginning one year after enactment. In
addition, since 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. Tennessee did not opt out of
interstate branching. The IBBEA further provides that states may enact laws
permitting interstate merger transactions prior to June 1, 1997. Tennessee did
not enact such a law. A bank may establish and operate a de novo branch in a
state in which the bank does not maintain a branch if that state explicitly
permits de novo branching. Once a bank has established branches in a state
through an interstate merger transaction, the bank may establish and acquire
additional branches at any location in the state where any bank involved in the
interstate merger transaction could have established or acquired branches under
applicable federal or state law. A bank that has established a branch in a state
through de novo branching may establish and acquire additional branches in such
state in the same manner and to the same extent as a bank having a branch in
such state as a result of an interstate merger. If a state opts out of
interstate branching within the specified time period, no bank in any other
state may establish a branch in the opting out of state,
8
10
whether through an acquisition or de novo.
FDIC Insurance Assessments; DIFA
The FDIC reduced the insurance premiums it charges on bank deposits
insured by the Bank Insurance Fund ("BIF") to the statutory minimum of $2,000.00
for "well capitalized" banks, effective January 1, 1996. Premiums related to
deposits assessed by the Savings Association Insurance Fund ("SAIF"), including
savings association deposits acquired by banks, continued to be assessed at a
rate 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 one-time assessment in the third quarter of 1996 was $3.8
million. DIFA further provides for assessments to be imposed on insured
depository institutions with respect to 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 are being assessed to pay the interest due on FICO bonds since
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
Federal 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 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
9
11
in the 1999 Proxy Statement, which sections are incorporated herein by
reference.
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 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 1999 Proxy Statement;
certain information not contained in the 1999 Proxy Statement, but required by
Guide 3, is contained in the tables immediately following:
10
12
FIRST TENNESSEE NATIONAL CORPORATION
ADDITIONAL GUIDE 3 STATISTICAL INFORMATION
BALANCES AT DECEMBER 31
(Thousands)
(Unaudited)
INVESTMENT PORTFOLIO 1998 1997 1996
- ----------------------------------------------------------------------------
Mortgage-backed securities &
collateralized mortgage
obligations $2,068,529 $1,641,918 $1,585,512
U.S. Treasury and other
U.S. government agencies 151,215 366,012 472,106
States and political
subdivisions 60,807 76,620 92,031
Other 145,738 101,983 89,885
- ----------------------------------------------------------------------------
Total $2,426,289 $2,186,533 $2,239,534
============================================================================
LOAN PORTFOLIO 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
Commercial $4,116,918 $3,768,554 $3,521,473 $3,330,929 $2,991,231
Consumer 3,018,782 2,855,240 2,683,959 2,525,889 2,263,007
Credit card receivables 594,467 581,451 564,803 529,104 475,489
Real estate construction 375,890 404,196 297,797 238,863 160,368
Permanent mortgage 423,200 663,494 641,245 689,458 591,094
Nonaccrual 27,807 38,415 18,926 19,040 16,853
- -------------------------------------------------------------------------------------------------------
Total $8,557,064 $8,311,350 $7,728,203 $7,333,283 $6,498,042
=======================================================================================================
11
13
SHORT-TERM BORROWINGS AT DECEMBER 31 1998 1997 1996
(Dollars in thousands)
- ----------------------------------------------------------------------------------
Federal funds purchased
and securities sold under
agreements to repurchase $2,912,018 $2,085,679 $1,881,187
Commercial paper 23,203 23,176 22,648
Other short-term
borrowings 1,404,071 679,212 354,721
- ----------------------------------------------------------------------------------
Total $4,339,292 $2,788,067 $2,258,556
==================================================================================
FOREIGN OUTSTANDINGS AT DECEMBER 31 1998 1997 1996
----------------- ------------------ ------------------
% Total % Total % Total
(Dollars in thousands) Amount Assets Amount Assets Amount Assets
- -------------------------------------------------------------------------------------------------------
BY COUNTRY:
Denmark $6,000 .03% $ 6,000 .04% $6,000 .05%
Israel 1,313 .01 1,020 .01 999 .01
Saudi Arabia 570 -- 86 -- 640 --
Canada 433 -- 985 .01 741 .01
Switzerland 14 -- 4,523 .03 4 --
Indonesia -- -- 1,318 .01 -- --
All other 863 .01 1,229 .01 359 --
- -------------------------------------------------------------------------------------------------------
Total $9,193 .05% $15,161 .11% $8,743 .07%
=======================================================================================================
BY TYPE:
Loans:
Banks and other financial
institutions $7,971 .04% $13,942 .10% $7,341 .06%
Governments and other institutions 1,000 .01% 1,000 .01 999 .01
- -------------------------------------------------------------------------------------------------------
Total Loans 8,971 .05% 14,942 .11 8,340 .07
Cash 129 -- 199 -- 286 --
Customers' acceptances 93 -- 20 -- 117 --
Accrued interest receivable -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------
Total $9,193 .05% $15,161 .11% $8,743 .07%
=======================================================================================================
12
14
MATURITIES OF SHORT-TERM PURCHASED FUNDS AT DECEMBER 31, 1998
0-3 3-6 6-12 Over 12
(Dollars in thousands) Months Months Months Months Total
- ------------------------------------------------------------------------------------------------------------------
Certificates of deposit $100,000 and more $1,807,875 $193,594 $ 99,577 $89,757 $2,190,803
Federal funds purchased and securities
sold under agreements to repurchase 2,912,018 -- -- -- 2,912,018
Commercial paper and other short-term
borrowings 952,073 403,863 66,000 5,338 1,427,274
- ------------------------------------------------------------------------------------------------------------------
Total $5,671,966 $597,457 $165,577 $95,095 $6,530,095
==================================================================================================================
CONTRACTUAL MATURITIES OF COMMERCIAL AND NONACCRUAL LOANS AT DECEMBER 31, 1998
Within After 1 Year After
(Dollars in thousands) 1 Year Within 5 Years 5 Years Total
- ------------------------------------------------------------------------------------------------
Commercial $2,262,296 $1,478,304 $ 376,318 $4,116,918
Real estate construction 264,322 83,587 27,981 375,890
Nonaccrual 12,138 2,262 13,407 27,807
- -----------------------------------------------------------------------------------------------
Total commercial and nonaccrual $2,538,756 $1,564,153 $ 417,706 $4,520,615
===============================================================================================
For maturities over one year:
Interest rates - floating $1,075,449 $ 282,943 $1,358,392
Interest rates - fixed 488,704 134,763 623,467
- -----------------------------------------------------------------------------------------------
Total $1,564,153 $ 417,706 $1,981,859
===============================================================================================
13
15
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 1998 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, 1999. The executive officers are elected at the April meeting of the
Corporation's Board of Directors following the annual meeting of shareholders
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) and Auditor (1998)
Age: 51 of the Corporation and the Bank
and Risk Management Manager (1995)
J. Kenneth Glass President - Tennessee Banking Group
Age: 52 of the Bank (1993) and Executive Vice President
of the Corporation (1995)
Ralph Horn Chairman of the Board (1996) and Chief Executive
Age: 57 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: 50 General Counsel (1988) of the
Corporation and the Bank
James F. Keen Senior Vice President
Age: 48 and Corporate Controller of the Corporation (1988)
and principal accounting officer
14
16
Name and Age Offices and Positions - Year First Elected to Office
- ------------ ----------------------------------------------------
John C. Kelley. Jr. President - Memphis Banking Group of
Age: 55 the Bank (1993) and Executive Vice President of the
Corporation (1995)
George Perry Lewis Executive Vice President of the
Age: 60 Bank (1976) and Money Management
Group Manager (1984)
Sarah L. Meyerrose Executive Vice President of the
Age: 43 Corporation and the Bank and
Personnel Division Manager (1998)
John P. O'Connor, Jr. Executive Vice President of the Corporation (1990)
Age: 55 and the Bank (1987) and Chief Credit
Officer (1988)
Elbert L. Thomas, Jr. Executive Vice President (1995) and
Age: 50 Chief Financial Officer (1995)
of the Corporation and the Bank
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. 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. From July of 1995 to June of 1998, Ms. Meyerrose was President,
Kingsport/Bristol of the Bank, and prior to July of 1995 she was Executive Vice
President - Retail, Johnson City of the Bank.
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, $0.625 par value, trades
over-the-counter on the Nasdaq Stock Market's National Market System under the
symbol FTEN. As of December 31, 1998, there were 9,973 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 and Operating Data Table, Note 17 to
the Consolidated Financial Statements, and the "Deposits, Other Sources of
Funds, and Liquidity Management" subsection of the Management's Discussion and
Analysis section contained in the 1999 Proxy Statement and to the "Payment of
Dividends" 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 1998 all sales of shares of the Corporation's common stock
without registration under the Securities Act of 1933, as amended, were
previously disclosed in Form 10-Q's filed during 1998 except for the shares
issued in connection with the acquisition by the Corporation of McGuire Mortgage
Company
15
17
("McGuire"), Prairie Village, Kansas, on December 31, 1998. McGuire was merged
with and into FT Mortgage Companies, an indirect, wholly-owned subsidiary of the
Corporation. At closing, the Corporation acquired from the two shareholders of
McGuire all 6,000 shares of McGuire's common stock, $10.00 par value, in
exchange for an initial closing payment of 351,000 shares of the Corporation's
common stock, $0.625 par value. No underwriter was involved in this transaction.
The shares were sold in a private offering pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933, based on the
limited number of shareholders receiving the Corporation's common stock.
In the Corporation's Form 10-Q filed for the third quarter of 1998 it
was estimated that approximately 47,000 shares of the Corporation's common stock
would be issued to the shareholders of Keystone Mortgage, Inc. during the fourth
quarter of 1998 in addition to the 144,531 shares issued during the third
quarter of 1998. The actual number of additional shares issued to the
shareholders of Keystone Mortgage, Inc. on December 11, 1998 was 45,300 shares.
(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 Corporation's Board of Directors (the "Board") and 400,000,000
shares of common stock, $0.625 par value (the "common stock"). As of December
31, 1998 and adjusted for the February 20, 1998 2-for-1 stock split, there were
128,974,362 shares of common stock and no shares of preferred stock outstanding.
As of that date, approximately 23 million shares of common stock were reserved
for issuance under various employee stock plans and the Corporation's divided
reinvestment plan, and 1,289,743 shares of preferred stock were reserved for
issuance under the Rights Plan (as defined below). Although shares have been
reserved for issuance under the employee stock plans, the plans generally permit
the Corporation to repurchase shares on the open market or privately for
issuance under such plans. The Board has authorized management to repurchase
shares from time to time for the plans. A total of 1.9 million shares were
repurchased and 2.1 million shares were issued for the plans in 1998. Pursuant
to Board authority, the Corporation plans to continue to purchase shares from
time to time for the plans and will evaluate the level of capital and take
action designed to generate or use capital as appropriate for the interest of
the shareholders. Also, the Corporation has on file with the SEC one 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) and another effective shelf
registration pursuant to which up to $200 million of capital securities
(guaranteed preferred beneficial interests in the Corporation's subordinated
debentures) is available for issuance.
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 400,000,000
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
16
18
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. On October 20, 1998, the Board
adopted a Shareholder Protection Rights Agreement (the "1998 Plan") and declared
a dividend of one right on each share of common stock outstanding on November 2,
1998, or generally issued thereafter and prior to the time the rights separate.
This plan is substantially identical to the Corporation's existing Rights Plan
(defined below) and will not become operative until the expiration on September
18, 1999 (or an earlier redemption) of the existing Rights (defined below).
Under the 1998 Plan, the exercise price is $150.00 per right, the redemption
price is a fixed $0.001 per right, and the expiration date of the plan is
December 31, 2009.
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"). Until
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 tenth business day (the
"Flip-in Date") after the first date of public announcement by the Corporation
that a person has become an Acquiring Person, the Rights will be evidenced by
the common stock certificates, will automatically trade with the common stock,
and will not be exercisable. Thereafter, separate rights certificates will be
distributed, and each right will entitle its holder to purchase one
one-hundredth of a share of Participating Preferred Stock having economic and
voting terms similar to those of one share of common stock for $75.00, subject
to adjustment (the "Exercise Price").
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 amend the
17
19
Rights Plan in any respect other than to change the Redemption Price or
expiration date (and may amend the 1998 Plan in any respect) prior to the
Flip-in Date. The Board may, at its option, at any time prior to the close of
business on the Flip-in Date, redeem all the Rights at a price of $0.0017 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 entitle its holder to purchase a number of
shares of common stock or Participating Preferred Stock having a market value of
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, 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").
Also, if after an Acquiring Person controls the Corporation's Board of
Directors, the Corporation is involved in a merger or sells more than 50% of its
assets or earning power or is involved with an Acquiring Person in certain
self-dealing transactions (or has entered into an agreement to do any of the
foregoing) and, in the case of a merger, the Acquiring Person will receive
different treatment than all other shareholders, each Right will entitle its
holder to purchase a number of shares of common stock of the Acquiring Person
having a market value of 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 10 3/8% Subordinated Capital Notes Due
1999 (the "Capital Notes"). Pursuant to the Indenture, dated as of June 1, 1987
(the "Indenture"), between the Corporation and U.S. Bank Trust National
Association (as successor to 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 and Operating Data Table in the 1999 Proxy
Statement.
18
20
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, Glossary section,
and the Consolidated Historical Performance Statements of Income and
Consolidated Average Balance Sheets and Related Yields and Rates tables in the
1999 Proxy Statement.
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this Item is incorporated herein by
reference to Note 1 to the Consolidated Financial Statements and the "Risk
Management-Interest Rate Risk Management" subsection of the Management's
Discussion and Analysis section contained in the 1999 Proxy Statement.
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 1999 Proxy
Statement.
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 1999 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 "Section 16(a) Beneficial Ownership Reporting Compliance"
section of the 1999 Proxy Statement.
ITEM 11
EXECUTIVE COMPENSATION
The information called for by this Item is incorporated herein by
reference to the "Executive Compensation" section of the 1999 Proxy Statement
(excluding the Board Compensation Committee Report and the Total Shareholder
Return Performance Graph).
19
21
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 and Information Table" section of the 1999
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
1999 Proxy Statement.
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, 1998
and 1997
- Consolidated Statements of Income for the years ended December
31, 1998, 1997 and 1996
- Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1998, 1997 and 1996
- Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996
- 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 1999 Proxy Statement, as listed above, are
incorporated herein by reference.
Financial Statement Schedules: Not applicable.
Exhibits:
(3)(i) Restated Charter of the Corporation, as amended, attached as
Exhibit 3(i) to the Corporation's 1997 Annual Report on Form
10-K and incorporated herein by reference.
(3)(ii) Bylaws of the Corporation, as amended and restated.
(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,
20
22
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) Shareholder Protection Rights Agreement, dated as of October
20, 1998, between the Corporation and First Tennessee Bank
National Association, as Rights Agent, including as Exhibit A
the forms of Rights Certificate and Election to Exercise and
as Exhibit B the form of Articles of Amendment designating
Participating Preferred Stock, attached as Exhibits 1, 2, and
3 to the Corporation's Registration Statement on Form 8-A
filed 10-23-98, and incorporated herein by reference.
(4)(c) Indenture, dated as of 6-1-87, between the Corporation and
U.S.Bank Trust National Association (as successor to 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 12-31-91, and incorporated herein by
reference.
(4)(d) The Corporation and certain of its consolidated subsidiaries
have outstanding certain long-term debt. See Note 10 in the
Corporation's 1999 Proxy Statement. 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 and restated. (5)
*(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. (4)
*(10)(d) 1992 Restricted Stock Incentive Plan, as amended and restated.
*(10)(e) 1984 Stock Option Plan, as amended (1), 1-21-97 amendment (4)
and 10-22-97 amendment.(5)
*(10)(f) 1990 Stock Option Plan, as amended (1), 1-21-97 amendment (4),
10-22-97 amendment.(5)
*(10)(g) Survivor Benefits Plan, as amended and restated. (5)
*(10)(h) Amendment and Restated Directors and Executives Deferred
Compensation Plan ad form of individual agreement. (4)
*(10)(i) Amended and Restated Pension Restoration Plan, as amended and
restated.
*(10)(j) Director Deferral Agreements (2) with schedule. (3)
*(10)(k) Form of Severance Agreements dated 1-28-97. (4)
*(10)(l) 1995 Employee Stock Option Plan, as amended and restated.
*(10)(m) Non-Employee Directors' Deferred Compensation Stock Option
Plan, as amended and restated. (5)
(21) Subsidiaries of the Corporation.
(23) Accountants' Consents
(24) Powers of Attorney
(27) Financial Data Schedule
(99)(a) The Corporation's Proxy Statement furnished to shareholders in
connection with Annual Meeting of Shareholders scheduled for
April 20, 1999, including Financial Information Appendix and
excluding the Board Compensation Committee Report and the
Total Shareholder Return Performance Graph, filed March 17,
1999, and incorporated herein by reference.
(99)(b) Annual Report on Form ll-K for the Corporation's Savings Plan
and Trust, for fiscal year
21
23
ended 12-31-98, as authorized by SEC Rule 15d-21 (to be filed
as an Amendment to Form lO-K).
* Exhibits marked with an "*" represent a 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) This document is incorporated herein by reference to
exhibits 10(k) 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.
(4) These documents are incorporated herein by reference
to the exhibit with the corresponding number
contained in the Corporation's 1996 Annual Report on
Form 10-K.
(5) These documents are incorporated herein by reference
to the exhibit with the corresponding number
contained in the Corporation's 1997 Annual Report on
Form 10-K.
(b) A report on Form 8-K was filed on October 23, 1998 (with a
Date of Report of October 20, 1998) disclosing under Item 5, Other Events, the
declaration of a dividend of one right to be issued pursuant to a new
Shareholder Protection Rights Agreement (the "plan") for each outstanding share
of the Corporation's common stock held of record on November 2, 1998 or
generally issued thereafter and prior to the expiration date of the plan.
22
24
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 23, 1999 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 23, 1999
- -------------------------------- Chief Executive Officer (principal executive
Ralph Horn officer) and a Director
Elbert L. Thomas, Jr.* Executive Vice President March 23, 1999
- -------------------------------- and Chief Financial Officer
Elbert L. Thomas, Jr. (principal financial officer)
James F. Keen* Senior Vice President March 23, 1999
- -------------------------------- and Controller (principal
James F. Keen accounting officer)
Robert C. Blattberg* Director March 23, 1999
- --------------------------------
Robert C. Blattberg
Carlos H. Cantu* Director March 23,1999
- --------------------------------
Carlos H. Cantu
George E. Cates* Director March 23, 1999
- --------------------------------
George E. Cates
J. Kenneth Glass* Director March 23, 1999
- --------------------------------
J. Kenneth Glass
James A. Haslam, III* Director March 23, 1999
- -----------------------
James A. Haslam, III
John C. Kelley, Jr.* Director March 23, 1999
- --------------------------
John C. Kelley, Jr.
R. Brad Martin* Director March 23, 1999
- --------------------------------
R. Brad Martin
23
25
Signature Title Date
--------- ----- ----
Joseph Orgill, III* Director March 23, 1999
- --------------------------------
Joseph Orgill, III
Vicki R. Palmer * Director March 23, 1999
- -------------------------
Vicki R. Palmer
Michael D. Rose* Director March 23, 1999
- --------------------------------
Michael D. Rose
William B. Sansom* Director March 23, 1999
- --------------------------------
William B. Sansom
*By: Clyde A. Billings, Jr. March 23, 1999
-----------------------------------------------
Clyde A. Billings, Jr.
As Attorney-in-Fact
24
26
EXHIBIT INDEX
Item No. Description
- -------- -----------
(3)(i) Restated Charter of the Corporation, as amended, attached as Exhibit
3(i) to the Corporation's 1997 Annual Report on Form 10-K and
incorporated herein by reference.
(3)(ii) Bylaws of the Corporation, as amended and restated.
(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) Shareholder Protection Rights Agreement, dated as of October 20, 1998,
between the Corporation and First Tennessee Bank National Association,
as Rights Agent, including as Exhibit A the forms of Rights Certificate
and Election to Exercise and as Exhibit B the form of Articles of
Amendment designating Participating Preferred Stock, attached as
Exhibits 1, 2, and 3 to the Corporation's Registration Statement on
Form 8-A filed 10-23-98, and incorporated herein by reference.
(4)(c) Indenture, dated as of June 1, 1987, between the Corporation and U.S.
Bank Trust National Association (as successor to 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)(d) The Corporation and certain of its consolidated subsidiaries have
outstanding certain long-term debt. See Note 10 in the Corporation's
1999 Proxy Statement. 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 and restated. (5)
*(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. (4)
*(10)(d) 1992 Restricted Stock Incentive Plan, as amended and restated.
*(10)(e) 1984 Stock Option Plan, as amended (1), 1-21-97 amendment (4), and
10-22-97 amendment. (5)
*(10)(f) 1990 Stock Option Plan, as amended (1), 1-21-97 amendment (4), and
10-22-97 amendment. (5)
*(10)(g) Survivor Benefits Plan, as amended and restated. (5)
*(10)(h) Amended and Restated Directors and Executives Deferred Compensation
Plan and form of individual agreement. (4)
*(10)(i) Amended and Restated Pension Restoration Plan, as amended and restated.
*(10)(j) Director Deferral Agreements (2) with schedule. (3)
*(10)(k) Form of Severance Agreements dated 1-28-97. (4)
*(10)(l) 1995 Employee Stock Option Plan, as amended and restated.
*(10)(m) Non-Employee Directors Deferred Compensation Stock Option Plan, as
amended and restated. (5)
(21) Subsidiaries of the Corporation.
(23) Accountants' Consents
(24) Powers of Attorney
(27) Financial Data Schedule (for SEC use only)
(99)(a) The Corporation's Proxy Statement furnished to shareholders in
connection with Annual Meeting of Shareholders scheduled for April 20,
1999, including Financial Information Appendix and excluding the Board
Compensation Committee Report and the Total Shareholder Return
Performance Graph, filed March 17, 1999, and incorporated herein by
reference.
(99)(b) Annual Report on Form ll-K for the Corporation's Savings Plan and
Trust, for fiscal year ended December 31, 1998, as authorized by SEC
Rule 15d-21 (to be filed as an amendment to Form 10-K).
* Exhibits marked with an "*" represent a management contract or
compensatory plan or arrangement required to be filed as an
exhibit.
27
[FN]
(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) This document is incorporated herein by reference to exhibits
10(k) 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.
(4) These documents are incorporated herein by reference to the
exhibit with the corresponding number contained in the
Corporation's 1996 Annual Report on Form 10-K.
(5) These documents are incorporated herein by reference to the
exhibit with the corresponding number contained in the
Corporation's 1997 Annual Report on Form 10-K.