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, 2001
- 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: 901-523-4444
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on which Registered
------------------- ------------------------------------
$0.625 PAR VALUE COMMON CAPITAL STOCK NEW YORK STOCK EXCHANGE, INC.
(INCLUDING RIGHTS ATTACHED THERETO)
Securities registered pursuant to Section 12(g) of the Act: NONE
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. X
---
At February 22, 2002, the aggregate market value of the voting stock of the
registrant held by non-affiliates of the registrant was approximately $4.26
billion.
At February 22, 2002, the registrant had 125,853,984 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 4/16/02 - Parts I,
II, III and IV.
PART I
ITEM 1
BUSINESS
General.
First Tennessee National Corporation (the "Corporation") is a Tennessee
corporation incorporated in 1968. The Corporation is registered as a bank
holding company under the Bank Holding Company Act of 1956, as amended, and
elected, effective March 13, 2000, to become a financial holding company
pursuant to the provisions of the Gramm-Leach-Bliley Act. See "Supervision and
Regulation - Financial Modernization Legislation" below. At December 31, 2001,
the Corporation had total assets of $20.6 billion and ranked second in terms of
total assets among Tennessee-headquartered bank holding companies and ranked
32nd 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 22 to the Consolidated Financial
Statements. During 2001 approximately 65% of revenues were provided by fee
income and approximately 35% of revenues were provided by net interest income.
As a financial 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 2001 it generated gross revenue (net interest income plus
noninterest income) of approximately $1.97 billion and contributed 98% of
consolidated net income from continuing operations. At December 31, 2001, the
Bank had $20.2 billion in total assets, $13.4 billion in total deposits, and
$10.0 billion in net loans. Within the State of Tennessee at September 30, 2001,
the Bank ranked second in terms of total assets and ranked first in deposit
market share. Nationally, it ranked 48th among banks in terms of total assets as
of September 30, 2001. On September 30, 2001, the Corporation's subsidiary banks
had 443 banking locations (187 financial centers and 256 free-standing ATMs) in
21 Tennessee counties, including all of the major metropolitan areas of the
state, 20 banking locations (including 14 free-standing ATMs) in Mississippi and
8 banking locations (including 4 free-standing ATMs) in Arkansas, and consumer
finance offices in 12 states nationwide. First Horizon Home Loan Corporation, a
subsidiary of the Bank, and its affiliates, at December 31, 2001, provided
mortgage banking services through approximately 136 offices in 31 states and
ranked in the top 20 nationally in retail mortgage loan originations and
mortgage loan servicing. First Tennessee Capital Markets (which changed its name
in January 2002 to FTN Financial Capital Markets), a division of the Bank, had
at December 31, 2001, offices in 8 states and ranked as one of the leading
underwriters of U.S. agency debt.
The Corporation provides the following services through its
subsidiaries:
- general banking services for consumers, businesses, financial
institutions, and governments
- mortgage banking services
- capital markets--primarily sales and underwriting of
bank-eligible securities and
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securities eligible for
underwriting by financial subsidiaries, mortgage loans and
advisory services, and equity research.
- transaction processing - credit card merchant processing,
nationwide check clearing services, and remittance processing
- trust, fiduciary, and agency services
- credit card products
- discount brokerage and brokerage
- venture capital
- 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
- private mortgage reinsurance
- consumer finance lending
An element of the Corporation's business strategy is to seek
acquisitions and consider divestitures that would enhance long-term shareholder
value. The Corporation has a department charged with this responsibility which
is constantly reviewing and developing opportunities to achieve this element of
the Corporation's strategy. Acquisitions and divestitures 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 16, 2002 (herein referred to, including such Appendix, as
the "2002 Proxy Statement"), which note is incorporated herein by reference.
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 municipal securities offices in Memphis, Tennessee; Los
Angeles, California; Mobile, Alabama; Chicago, Illinois; Overland Park, Kansas;
Dallas, Texas; and New York, New York, and additional offices in Nashville,
Tennessee and Cleveland, Ohio. The subsidiary banks are supervised and regulated
as described below. Highland Capital Management Corp., Martin and Company, Inc.
and First Tennessee Advisory Services, a separately identifiable department of
the Bank, are registered with the SEC as investment advisers. First Tennessee
Brokerage, Inc. is registered as an investment adviser in Tennessee, Texas and
Virginia. Hickory Venture Capital Corporation is licensed as a Small Business
Investment Company. First Tennessee Brokerage, Inc. and First Tennessee
Securities Corporation are registered as broker-dealers with the SEC and all
states where they conduct business for which registration is required. First
Horizon Home Loan Corporation 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 all states where it does business for which licensing
is required. FT Reinsurance Company is licensed by the state of South Carolina
as a monoline insurance company. FT Insurance Corporation is licensed as an
insurance agency in Alabama. First Horizon Insurance Services, Inc., Polk &
Sullivan Group, Inc., Mann, Smith & Cummings, Inc., MASMIC, Inc., Merritt &
McKenzie, Inc., Frost Specialty Risk, Inc., and Van Meter Insurance, Inc. are
licensed as insurance agencies in all states where they do business for which
licensing is required. First Tennessee Brokerage, Inc. is licensed as an
insurance agency in the states where it does business for which licensing is
3
required for the sale of annuity products. First Tennessee Securities
Corporation and all of the subsidiaries listed in the second preceding sentence
are financial subsidiaries under the Gramm-Leach-Bliley Act.
Expenditures for research and development activities were not material
for the years 1999, 2000 or 2001.
Neither the Corporation nor any of its significant subsidiaries is
dependent upon a single customer or very few customers.
At December 31, 2001, the Corporation and its subsidiaries had 9,861
full-time-equivalent employees, not including contract labor for certain
services.
For additional information on the business of the Corporation, refer to
the Management's Discussion and Analysis and Glossary sections contained in the
2002 Proxy Statement, which sections are incorporated herein by reference.
Supervision and Regulation.
The following summary sets forth certain of the material elements of
the regulatory framework applicable to bank holding companies and financial
holding companies and their subsidiaries and to companies engaged in securities
and insurance activities and provides certain specific information about the
Corporation. The bank regulatory framework is intended primarily for the
protection of depositors and the Federal Deposit Insurance Funds and not for the
protection of security holders. In addition, certain activities of the
Corporation and its subsidiaries are subject to various securities and insurance
laws and are regulated by the Securities and Exchange Commission and the state
insurance departments of the states in which they operate. To the extent that
the following information describes statutory and regulatory provisions, it is
qualified in its entirety by express reference to each of the particular
statutory and regulatory provisions. A change in applicable statutes,
regulations or regulatory policy may have a material effect on the business of
the Corporation.
General
The Corporation is a bank holding company and financial 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 subject to the regulation and
supervision of and examination by the Federal Reserve under the BHCA. The
Corporation is required to file with the Federal Reserve annual reports and such
additional information as the Federal Reserve may require pursuant to the BHCA.
Under the BHCA, prior to March 13, 2000, bank holding companies could
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, and the
BHCA also generally limited the types of activities in which a bank holding
company and its subsidiaries could engage to banking and activities found by the
Federal Reserve to be so closely related to banking as to be a proper incident
thereto. Since March 13, 2000, eligible bank holding companies that elect to
become financial holding companies may affiliate with securities firms and
insurance companies and engage in activities that are "financial
4
in nature"generally without the prior approval of the Federal Reserve. See
"-Financial Modernization Legislation" below.
In addition, the BHCA permits the Federal Reserve to approve an
application by a bank holding company to acquire a bank located outside the
acquirer's principal state of operations without regard to whether the
transaction is prohibited under state law. See " --Interstate Banking and
Branching Legislation." The Tennessee Bank Structure Act of 1974, among other
things, prohibits (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, 2001, the Corporation estimates that it held approximately 16% 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. See also "- Interstate
Banking and Branching Legislation" below.
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. In addition, the Subsidiary
Banks are insured by, and subject to regulation by, the Federal Deposit
Insurance Corporation (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.
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).
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
5
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, 2001, under dividend restrictions imposed under
applicable federal laws, the Subsidiary Banks, without obtaining regulatory
approval, could legally declare aggregate dividends of approximately $275.6
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.
Transactions with Affiliates
There are various legal restrictions on the extent to which the
Corporation and its nonbank subsidiaries (including for purposes of this
paragraph, 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.
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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, 2001, the Corporation's consolidated Tier 1 Capital
and Total Capital ratios were 8.43% and 11.41%, respectively.
The Federal Reserve Board, the FDIC and the OCC have adopted rules to
incorporate market and interest-rate risk components into their risk-based
capital standards and 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. Under the market risk requirements, capital is
allocated to support the amount of market risk related to a financial
institution's ongoing trading activities for banks with relatively large trading
activities. Institutions will be able to satisfy this additional requirement, in
part, by issuing short-term subordinated debt that qualifies as Tier 3 capital.
The amount of the Corporation's trading activities does not presently require an
allocation of capital.
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, 2001 was 6.86%. 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.
Each of the Subsidiary Banks is subject to risk-based and leverage
capital requirements similar to those described above adopted by the
Comptroller. The Corporation believes that each of the Subsidiary Banks was in
compliance with applicable minimum capital requirements as of December 31, 2001.
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 banking regulators have adopted a final rule which amends
their regulatory capital standards regarding certain recourse obligations,
direct credit substitutes, residual interests
7
and other positions in securitized transactions that expose banking
organizations to credit risk. The final rule, which is effective January 1, 2002
treats recourse obligations and direct credit substitutes more consistently than
the current risk-based capital standards, and introduces a credit ratings-based
approach to assigning risk weights within a securitization. In addition, the
rule imposes a "dollar-for-dollar" capital charge on residual interests and a
concentration limit of 25% of Tier 1 capital on credit-enhancing interest-only
strips, a subset of residual interests. The Corporation does not expect the
adoption of this final rule to have a material effect on the financial condition
or results of operations of the Bank or the Corporation.
In January 2001, the Basel Committee proposed its second draft of a new
capital adequacy framework. The new capital framework would consist of minimum
capital requirements, a supervisory review process and the effective use of
market discipline. In its proposal for minimum capital requirements, the
Committee set out options from which banks could choose depending on the
complexity of their business and the quality of their risk management. A
standardized approach would refine the current measurement framework and
introduce the use of external credit assessments to determine a bank's capital
charge. Banks with more advanced risk management capabilities could make use of
an internal risk-rating based approach. Under this approach, some of the key
elements of credit risk, such as the probability of default of the borrower,
would be estimated internally by a bank. The Committee is also proposing an
explicit capital charge for operational risk to provide for problems like
internal systems failure.
The supervisory review aspect of the new framework would seek to ensure
that a bank's capital position is consistent with its overall risk profile and
strategy. The supervisory review process would also encourage early supervisory
intervention when a bank's capital position deteriorates. The third aspect of
the new framework, market discipline, would call for detailed disclosure of a
bank's capital adequacy in order to encourage high disclosure standards and to
enhance the role of market participants in encouraging banks to hold adequate
capital. Banks must also disclose how they evaluate their own capital adequacy.
To address concerns within the banking industry that compliance with
the new framework would be costly and result in increased regulatory burden, the
Basel Committee agreed in June 2001 to modify some of its earlier proposals. A
third draft of the proposed capital rules is expected to be issued and finalized
during 2002. Implementation of some form of the new guidelines is expected in
2005. The Corporation cannot predict at this time whether the new capital
adequacy framework will be adopted or in what form, or the effect it would have
on the financial condition or results of operations of the Bank or the
Corporation.
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
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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
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
9
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, 2001 all of the
Subsidiary Banks had sufficient capital to qualify as "well capitalized" under
the regulatory capital requirements discussed above.
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. Effective July 1, 2001, Tennessee permits de novo
branching on a reciprocity basis. 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, whether through an
acquisition or de novo.
Financial Modernization Legislation
The Gramm-Leach-Bliley Act was enacted into law on November 12, 1999.
The Act repeals or modifies a number of significant provisions of current laws,
including the Glass-Steagall Act and the Bank Holding Company Act of 1956, which
impose restrictions on banking organizations' ability to engage in certain types
of activities. The Act generally allows bank holding companies such as the
Corporation broad authority to engage in activities that are financial in nature
or incidental to such a financial activity, including insurance underwriting and
brokerage; merchant banking; securities underwriting, dealing and market-making;
real estate development; and such additional activities as the Federal Reserve
in consultation with the Secretary of the Treasury determines to be financial in
nature or incidental thereto. A bank holding company may engage in these
activities directly or through subsidiaries by qualifying as a "financial
holding company." To qualify a bank holding company must file a declaration with
the Federal Reserve and certify that all of its subsidiary depository
institutions are well-managed and well-capitalized. The Act also permits
national banks such as the Bank to engage in certain
10
of these activities through financial subsidiaries. To control or hold an
interest in a financial subsidiary, a national bank must meet the following
requirements: (1) the national bank must receive approval from the Comptroller
for the financial subsidiary to engage in the activities, (2) the national bank
and its depository institution affiliates must each be well-capitalized and
well-managed, (3) the aggregate consolidated total assets of all of the national
bank's financial subsidiaries must not exceed 45% of the national bank's
consolidated total assets or, if less, $50 billion, (4) the national bank must
have in place adequate policies and procedures to identify and manage financial
and operational risks and to preserve the separate identities and limited
liability of the national bank and the financial subsidiary, and (5) if the
financial subsidiary will engage in principal transactions and the national bank
is one of the one hundred largest banks, the national bank must have outstanding
at least one issue of unsecured long-term debt that is currently rated in one of
the three highest investment grade rating categories (or if in the second fifty
largest banks, an alternative requirement is that the national bank has a
current long-term issuer credit rating within the three highest investment grade
rating categories). No new financial activity may be commenced under the Act
unless the national bank and all of its depository institution affiliates have
at least "satisfactory" CRA ratings. Certain restrictions apply if the bank
holding company or the national bank fails to continue to meet one or more of
the requirements listed above. In addition, the Act contains a number of other
provisions that may affect the Bank's operations, including functional
regulation of the Bank's securities and investment management operations by the
SEC and the Bank's insurance operations by the States and limitations on the use
and disclosure to third parties of customer information. The Act generally
became effective March 11, 2000, although certain provisions took effect later,
such as functional regulation (May 12, 2001, except for certain matters), and
compliance with privacy regulations was required by July 1, 2001. The
Corporation has elected to become a financial holding company and currently, the
Bank has eight financial subsidiaries. The Corporation cannot predict at this
time the potential effect that the Act will have on its business and operations,
although the Corporation expects that the general effect of the Act will be to
increase competition in the financial services industry generally.
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
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 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 cost to the Corporation on an annual basis has been
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.
11
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.
Securities Regulation
Certain of the Corporation's subsidiaries are subject to various
securities laws and regulations and capital adequacy requirements promulgated by
the regulatory and exchange authorities of the jurisdictions in which they
operate.
The Corporation's registered broker-dealer subsidiaries are subject to
the SEC's net capital rule, Rule 15c3-1. That rule requires the maintenance of
minimum net capital and limits the ability of the broker-dealer to transfer
large amounts of capital to a parent company or affiliate. Compliance with the
rule could limit operations that require intensive use of capital, such as
underwriting and trading.
Certain of the Corporation's subsidiaries are registered investment
advisers who are regulated under the Investment Advisers Act of 1940. These
subsidiaries, among other activities, provide investment advice to investment
companies regulated under the Investment Company Act of 1940. Advisory contracts
with these investment companies automatically terminate under these laws upon an
assignment of the contract by the investment adviser unless appropriate consents
are obtained. Subsidiaries of the Corporation are subject to certain
restrictions in their dealings with investment companies advised by a subsidiary
of the Corporation.
Insurance Activities
Subsidiaries of the Corporation sell various types of insurance as
agent in a number of the states. Insurance activities are subject to regulation
by the states in which such business is transacted. Although most of such
regulation focuses on insurance companies and their insurance products,
insurance agents and their activities are also subject to regulation by the
states, including, among other things, licensing and marketing and sales
practices.
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 the "General" subsection above of this Item 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.
12
Sources and Availability of Funds.
Specific reference is made to the Management's Discussion and Analysis
and Glossary sections, including the subsection entitled "Deposits, Other
Sources of Funds, and Liquidity Management," contained in the 2002 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.
Various bills are from the time to time introduced in the United States
Congress and the Tennessee General Assembly and other state legislatures, and
regulations are proposed by the regulatory agencies which could affect the
business of the Corporation and its subsidiaries. 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 2002 Proxy Statement;
certain information not contained in the 2002 Proxy Statement, but required by
Guide 3, is contained in the tables immediately following:
13
FIRST TENNESSEE NATIONAL CORPORATION
ADDITIONAL GUIDE 3 STATISTICAL INFORMATION
AS OF DECEMBER 31
(Unaudited)
INVESTMENT PORTFOLIO
(Dollars in thousands) 2001 2000 1999
-------------------------------------------------------------------------------------------------
Mortgage-backed securities &
collateralized mortgage
obligations $ 2,153,012 $ 2,303,079 $ 2,579,259
U.S. Treasury and other
U. S. government agencies 136,827 143,152 165,477
States and political subdivisions 45,416 55,976 41,603
Other 190,615 336,849 314,953
----------- ----------- -----------
Total $ 2,525,870 $ 2,839,056 $ 3,101,292
=========== =========== ===========
LOAN PORTFOLIO
(Dollars in thousands) 2001 2000 1999 1998 1997
-------------------------------------------------------------------------------------------------------------------------------
Commercial:
Commercial, financial and
industrial $ 4,176,738 $ 3,964,396 $ 3,660,642 $ 3,460,215 $ 3,103,563
Real estate commercial 929,036 946,903 776,553 667,674 673,046
Real estate construction 492,531 415,713 353,659 303,759 360,187
Retail:
Real estate residential 3,732,767 3,573,260 2,814,249 2,476,355 2,641,707
Real estate construction 211,429 179,515 132,740 73,115 45,148
Consumer 459,510 840,228 1,018,110 981,479 906,248
Credit card receivables 281,132 319,435 607,205 594,467 581,451
------------ ------------ ----------- ----------- -----------
Total $ 10,283,143 $ 10,239,450 $ 9,363,158 $ 8,557,064 $ 8,311,350
============ ============ =========== =========== ===========
SHORT-TERM BORROWINGS
(Dollars in thousands) 2001 2000 1999
-------------------------------------------------------------------------------------------------
Federal funds purchased and
securities sold under
agreements to repurchase $ 2,921,543 $ 2,981,026 $ 2,856,282
Commercial paper 22,273 19,169 16,272
Other short-term borrowings 426,878 437,366 1,533,957
----------- ----------- -----------
Total $ 3,370,694 $ 3,437,561 $ 4,406,511
=========== =========== ===========
14
FOREIGN OUTSTANDINGS ON DECEMBER 31
2001 2000 1999
------------------- ------------------- -------------------
% TOTAL % Total % Total
(Dollars in thousands) AMOUNT ASSETS Amount Assets Amount Assets
----------------------------------------------------------------------------------------------------------------------
BY COUNTRY:
Israel $ 996 .01% $ 1,062 .01% $ 1,061 .01%
Canada 174 -- 790 .01 370 --
Taiwan 601 -- 556 -- 759 .01
Korea 387 -- -- -- 357 --
All other 1,047 .01 753 -- 317 --
----------------------------------------------------------------------------------------------------------------------
Total $ 3,205 .02% $ 3,161 .02% $ 2,864 .02%
======================================================================================================================
BY TYPE:
Loans:
Banks and other financial institutions $ 1,962 .01% $ 1,721 .01% $ 1,174 .01%
Governments and other institutions 987 .01 1,000 .01 1,000 .01
----------------------------------------------------------------------------------------------------------------------
Total loans 2,949 .02 2,721 .02 2,174 .02
Customers' acceptances -- -- 384 -- 187 --
Cash 252 -- 33 -- 480 --
Accrued interest receivable 4 -- 23 -- 23 --
----------------------------------------------------------------------------------------------------------------------
Total $ 3,205 .02% $ 3,161 .02% $ 2,864 .02%
======================================================================================================================
15
MATURITIES OF SHORT-TERM PURCHASED FUNDS ON DECEMBER 31, 2001
0-3 3-6 6-12 Over 12
(Dollars in thousands) Months Months Months Months Total
-------------------------------------------------------------------------------------------------------------------------
Certificates of deposit
$100,000 and more $ 3,208,312 $ 168,534 $ 176,594 $ 154,117 $ 3,707,557
Federal funds purchased and
securities sold under
agreements to repurchase 2,921,543 -- -- -- 2,921,543
Commercial paper and
other short-term borrowings 283,461 39,677 115,077 10,936 449,151
-------------------------------------------------------------------------------------------------------------------------
Total $ 6,413,316 $ 208,211 $ 291,671 $ 165,053 $ 7,078,251
=========================================================================================================================
CONTRACTUAL MATURITIES OF COMMERCIAL & REAL ESTATE CONSTRUCTION LOANS ON
DECEMBER 31, 2001
After 1 Year
(Dollars in thousands) Within 1 Year Within 5 Years After 5 Years Total
---------------------------------------------------------------------------------------------------------------------
Commercial, financial and industrial $ 2,394,669 $ 1,551,774 $230,295 $ 4,176,738
Real estate commercial 324,803 535,335 68,898 929,036
Commercial real estate construction 389,187 95,927 7,417 492,531
Consumer real estate construction 207,697 3,237 495 211,429
---------------------------------------------------------------------------------------------------------------------
Total $ 3,316,356 $ 2,186,273 $307,105 $ 5,809,734
=====================================================================================================================
For maturities over one year:
Interest rates - floating $ 939,411 $ 98,847 $ 1,038,258
Interest rates - fixed 1,246,862 208,258 1,455,120
---------------------------------------------------------------------------------------------------------------------
Total $ 2,186,273 $307,105 $ 2,493,378
=====================================================================================================================
16
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 2001 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, 2002. 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
------------ ----------------------------------------------------
Charles G. Burkett President - Retail Financial Services/Memphis
Age: 50 Financial Services of the Corporation and the
Bank (2001)
J. Kenneth Glass President and Chief Operating Officer
Age: 55 of the Corporation and the Bank (2001)
Herbert H. Hilliard Executive Vice President, Risk Management
Age: 54 (2001) and Government Relations and CRA
(1988) of the Corporation and the Bank
Ralph Horn Chairman of the Board (1996) and Chief
Age: 60 Executive Officer (1994) of the Corporation and
the Bank
Harry A. Johnson, III Executive Vice President (1990) and
Age: 53 General Counsel (1988) of the
Corporation and the Bank
17
James F. Keen Senior Vice President
Age: 51 and Corporate Controller of the Corporation
(1988) and the Bank (2001) and principal
accounting officer
Larry B. Martin President - Business Financial Services of the
Age: 54 Corporation and the Bank (2001)
Sarah L. Meyerrose Executive Vice President, Employee Services
Age: 46 (1998) and Wealth Management (2001) of the
Corporation and the Bank.
John P. O'Connor, Jr. Executive Vice President of the Corporation
Age: 58 (1990) and the Bank (1987) and Chief Credit
Officer (1988)
Elbert L. Thomas, Jr. Executive Vice President (1995) and
Age: 53 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. From 1991 through July
2001, Mr. Horn also served as President of the Corporation and the Bank. Prior
to July of 2001, Mr.Glass was President-Retail Financial Services of the
Corporation and the Bank. Prior to April of 2000, Mr. Glass was Executive Vice
President of the Corporation and prior to April of 1999, he was
President-Tennessee Banking Group of the Bank. The Personnel Division changed
its name to the Employee Services Division in April of 1999. Prior to June of
1998, Ms. Meyerrose was President, Kingsport/Bristol of the Bank. Prior to July
of 2001, Mr. Burkett was Executive Vice President, Manager Affluent Market of
the Bank. Prior to July of 2001, Mr. Martin was Chairman and CEO-Knoxville 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, is listed and trades
on the New York Stock Exchange, Inc. under the symbol FTN. As of December 31,
2001, there were 9,338 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 18 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
2002 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:
18
During 2001 there were no sales of shares of the Corporation's common
stock without registration under the Securities Act of 1933, as amended.
(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, 2001 there were 125,865,188 shares of common stock and no shares of
preferred stock outstanding. As of that date, approximately 30.4 million shares
of common stock were reserved for issuance under various employee stock plans
and the Corporation's dividend reinvestment plan, and no shares of preferred
stock were reserved for issuance. 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 7.2 million shares were repurchased and
4.4 million shares were issued for the plans in 2001. 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 announced that the Board approved the
repurchase of up to 9.5 million shares by December 31, 2004, subject to market
conditions, accumulation of excess equity and prudent capital management. During
2001, 2.3 million shares were repurchased pursuant to this authority. 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 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
19
Board is authorized to issue authorized shares of common stock without further
action by the shareholders. However, the common stock is traded on the New York
Stock Exchange, Inc. which requires shareholder approval of the issuance of
additional shares of common stock in certain situations. The Transfer Agent for
the common stock is Wells Fargo Bank Minnesota, N.A.
The Board is divided into three classes, which results in approximately
one third 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 "Rights Plan") and
declared a dividend of one right on each share of common stock outstanding on
November 2, 1998, or issued thereafter and prior to the time the rights separate
and thereafter pursuant to options and convertible securities outstanding at the
time the rights separate. The Rights Plan became operative upon the expiration
on September 18, 1999 of a substantially identical plan that was adopted in
1989.
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 (but
not more than 50%) 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 $150.00, subject to adjustment (the "Exercise
Price").
The Rights will expire on the earliest of (i) the Exchange Time
(defined below), (ii) December 31, 2009, and (iii) the date on which the Rights
are redeemed as described below. The Board may amend the Rights 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 $0.001 per Right.
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
20
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.
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 2002 Proxy
Statement.
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 Statements of Income and Consolidated Average
Balance Sheets and Related Yields and Rates tables in the 2002 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 2002 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 2002 Proxy
Statement.
21
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 2002 Proxy Statement
(excluding the Audit Committee Report, the Audit Committee Charter, and the
statements regarding the independence of members of the Audit Committee). 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 2002 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 2002 Proxy Statement
(excluding the Board Compensation Committee Report and the Total Shareholder
Return Performance Graph).
ITEM 12
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this Item is incorporated herein by
reference to the "Stock Ownership Information and Table" section of the 2002
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
2002 Proxy Statement.
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
22
(a) The following documents are filed as a part of this Report:
Financial Statements:
- Consolidated Statements of Condition as of December 31, 2001
and 2000
- Consolidated Statements of Income for the years ended December
31, 2001, 2000 and 1999.
- Consolidated Statements of Shareholders' Equity for the years
ended December 31, 2001, 2000, and 1999.
- Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000, and 1999.
- 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 2002 Proxy Statement, as listed above, are
incorporated herein by reference.
Financial Statement Schedules: Not applicable.
Exhibits:
Exhibits marked with an "*" represent a management
contract or compensatory plan or arrangement required
to be identified and filed as an exhibit.
(3)(i) Restated Charter of the Corporation, as amended, incorporated
herein by reference to Exhibit 3(i) to the Corporation's1997
Annual Report on Form 10-K.
(3)(ii) Bylaws of the Corporation, as amended and restated.
(4)(a) 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, incorporated herein by reference to Exhibits
1, 2, and 3 to the Corporation's Registration Statement on
Form 8-A filed 10-23-98.
(4)(b) The Corporation and certain of its consolidated subsidiaries
have outstanding certain long-term debt. See Note 10 in the
Corporation's 2002 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,
incorporated herein by reference to Exhibit 10(a) to the
Corporation's Quarterly Report on Form 10-Q for the quarter
ended 9-30-01.
*(10)(b) 2000 Employee Stock Option Plan, as amended and restated,
incorporated herein by reference to Exhibit 10(b) to the
Corporation's 2000 Annual Report on Form 10-K.
*(10)(c) 1997 Employee Stock Option Plan, as amended and restated.
*(10)(d) 1992 Restricted Stock Incentive Plan, as amended and restated,
incorporated herein by reference to Exhibit 10(d) to the
Corporation's Quarterly Report on Form 10-Q for
23
the quarter ended 3-31-99.
*(10)(e) 1984 Stock Option Plan, as amended, 1-21-97 amendment and
10-22-97 amendment, incorporated herein by reference to
Exhibit 10(e) to the Corporations 1992, 1996 and 1997 Annual
Reports on Form 10-K.
*(10)(f) 1990 Stock Option Plan, as amended, and 1-21-97, 10-22-97, and
10-18-00 amendments, incorporated herein by reference to
Exhibit 10(f) to the Corporation's 1992, 1996, 1997 and 2000
Annual Reports on Form 10-K.
*(10)(g) Survivor Benefits Plan, as amended and restated, incorporated
herein by reference to Exhibit 10(g) to the Corporation's 1997
Annual Report on Form 10-K.
*(10)(h) Directors and Executives Deferred Compensation Plan, as
amended and restated, incorporated herein by reference to
Exhibit 10(h) to the Corporation's Quarterly Report on Form
10-Q for the quarter ended 6-30-01and form of individual
agreement, incorporated herein by reference to Exhibit 10(h)
to the Corporation's 1996 Annual Report on Form 10-K.
*(10)(i) Amended and Restated Pension Restoration Plan, as amended and
restated.
*(10)(j) Director Deferral Agreements with schedule, incorporated
herein by reference to Exhibit 10(k) to the Corporation's 1992
Annual Report on Form 10-K and Exhibit 10(j) to the
Corporation's 1995 Annual Report on Form 10-K.
*(10)(k) Form of Severance Agreements dated 1-28-97,
incorporated herein by reference to Exhibit 10(k) to the
Corporation's 1996 Annual Report
on Form 10-K.
(10)(l) 1995 Employee Stock Option Plan, as amended and restated,
incorporated herein by reference to Exhibit 10(l) to the
Corporation 2000 Annual Report on Form 10-K.
*(10)(m) Non-Employee Directors' Deferred Compensation Stock Option
Plan, as amended and restated, incorporated herein by
reference to Exhibit 10(m) to the Corporation's 1997 Annual
Report on Form 10-K.
*(10)(n) 2000 Non-Employee Directors' Deferred Compensation Stock
Option Plan, incorporated herein by reference to Exhibit 10(o)
to the Corporation's Quarterly Report on Form 10-Q for the
quarter ended 9-30-99.
*10(o) John C. Kelley, Jr. Non-compete and Early Retirement
Agreement.
*10(p) Susan Schmidt Bies Non-compete and Early Retirement Agreement.
*10(q) 2002 Management Incentive Plan
(21) Subsidiaries of the Corporation.
(23) Accountants' Consents
(24) Powers of Attorney
(99)(a) The Corporation's Proxy Statement furnished to shareholders
in connection with Annual Meeting of Shareholders scheduled
for April 16, 2002, including Financial Information Appendix
and excluding the Board Compensation Committee Report, the
Total Shareholder Return Performance Graph, the Audit
Committee Report, the Audit Committee Charter, and the
statements regarding the independence of members of the Audit
Committee, filed March 18, 2002, 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 12-31-01, as authorized by
SEC Rule 15d-21 (to be filed as an Amendment to Form l0-K).
(99)(c) Letter re Auditor containing representations specified in
Temporary Note 3T
(b) No reports on Form 8-K were filed during the fourth quarter of
2001.
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 25, 2002 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 and March 25, 2002
----------------------------- Chief Executive Officer (principal executive
Ralph Horn officer) and a Director
Elbert L. Thomas, Jr.* Executive Vice President March 25, 2002
----------------------------- and Chief Financial Officer
Elbert L. Thomas, Jr. (principal financial officer)
James F. Keen* Senior Vice President and March 25, 2002
----------------------------- Corporate Controller (principal
James F. Keen accounting officer)
Robert C. Blattberg* Director March 25, 2002
-----------------------------
Robert C. Blattberg
Carlos H. Cantu* Director March 25, 2002
-----------------------------
Carlos H. Cantu
George E. Cates* Director March 25, 2002
-----------------------------
George E. Cates
J. Kenneth Glass* Director March 25, 2002
-----------------------------
J. Kenneth Glass
James A. Haslam, III* Director March 25, 2002
-----------------------------
James A. Haslam, III
Director March , 2002
-----------------------------
R. Brad Martin
Joseph Orgill, III* Director March 25, 2002
-----------------------------
Joseph Orgill, III
25
Vicki R. Palmer * Director March 25, 2002
-----------------------------
Vicki R. Palmer
Michael D. Rose* Director March 25, 2002
-----------------------------
Michael D. Rose
William B. Sansom* Director March 25, 2002
-----------------------------
William B. Sansom
Luke Yancy, III* Director March 25, 2002
-----------------------------
Luke Yancy, III
*By: Clyde A. Billings, Jr. March 25, 2002
-------------------------
Clyde A. Billings, Jr.
As Attorney-in-Fact
26
EXHIBIT INDEX
Item No. Description
-------- -----------
(3)(i) Restated Charter of the Corporation, as amended, incorporated herein by
reference to Exhibit 3(i) to the Corporation's 1997 Annual Report on
Form 10-K.
(3)(ii) Bylaws of the Corporation, as amended and restated.
(4)(a) 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, incorporated
herein by reference to Exhibits 1, 2, and 3 to the Corporation's
Registration Statement on Form 8-A filed 10-23-98.
(4)(b) The Corporation and certain of its consolidated subsidiaries have
outstanding certain long-term debt. See Note 10 in the Corporation's
2002 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, incorporated herein
by reference to Exhibit 10(a) to the Corporation's Quarterly Report on
Form 10-Q for the quarter ended 9-30-01.
*(10)(b) 2000 Employee Stock Option Plan, as amended and restated, incorporated
herein by reference to Exhibit 10(b) to the Corporation's 2000 Annual
Report on Form 10-K.
*(10)(c) 1997 Employee Stock Option Plan, as amended and restated.
*(10)(d) 1992 Restricted Stock Incentive Plan, as amended and restated,
incorporated herein by reference to Exhibit 10(d) to the Corporation's
Quarterly Report on Form 10-Q for the quarter ended 3-31-99.
*(10)(e) 1984 Stock Option Plan, as amended, and 1-21-97 and 10-22-97
amendments, incorporated herein by reference to Exhibit 10(e) to the
Corporation's 1992, 1996 and 1997 Annual Reports on Form 10-K.
*(10)(f) 1990 Stock Option Plan, as amended, and 1-21-97, 10-22-97 and 10-18-00
amendments, incorporated herein by reference to Exhibit 10(f) to the
Corporation's 1992, 1996, 1997 and 2000 Annual Reports on Form 10-K.
*(10)(g) Survivor Benefits Plan, as amended and restated, incorporated herein by
reference to Exhibit 10(g) to the Corporation's 1997 Annual Report on
Form 10-K.
*(10)(h) Directors and Executives Deferred Compensation Plan, as amended and
restated, incorporated herein by reference to Exhibit 10(h) to the
Corporation's Quarterly Report on Form 10-Q for the quarter ended
6-30-01 and form of individual agreement,
27
incorporated herein by reference to Exhibit 10(h) to the Corporation's
1996 Annual Report on Form 10-K.
*(10)(i) Amended and Restated Pension Restoration Plan, as amended and restated.
*(10)(j) Director Deferral Agreements with schedule, incorporated herein by
reference to Exhibit 10(k) to the Corporation's 1992 Annual Report on
Form 10-K and Exhibit 10(j) to the Corporation's 1995 Annual Report on
Form 10-K.
*(10)(k) Form of Severance Agreements dated 1-28-97, incorporated herein by
reference to Exhibit 10(k) to the Corporation's 1996 Annual Report on
Form 10-K.
*(10)(l) 1995 Employee Stock Option Plan, as amended and restated, incorporated
herein by reference to Exhibit 10(l) to the Corporation's 2000 Annual
Report on Form 10-K.
*(10)(m) Non-Employee Directors Deferred Compensation Stock Option Plan, as
amended and restated, incorporated herein by reference to Exhibit 10(m)
to the Corporation's 1997 Annual Report on Form 10-K.
*(10)(n) 2000 Non-Employee Directors' Deferred Compensation Stock Option Plan,
incorporated herein by reference to Exhibit 10(o) to the Corporation's
Quarterly Report on Form 10-Q for the quarter ended 9-30-00.
*10(o) John C. Kelley, Jr. Non-Compete and Early Retirement Agreement.
*10(p) Susan Schmidt Bies Non-Compete and Early Retirement Agreement.
*10(q) 2002 Management Incentive Plan.
21) Subsidiaries of the Corporation.
(23) Accountants' Consents
(24) Powers of Attorney
(99)(a) The Corporation's Proxy Statement furnished to shareholders in
connection with Annual Meeting of Shareholders scheduled for April 16,
2002, including Financial Information Appendix and excluding the Board
Compensation Committee Report, the Total Shareholder Return Performance
Graph, the Audit Committee Report, the Audit Committee Charter, and the
statements regarding the independence of members of the Audit
Committee, filed March 18, 2002, 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 12-31-01, as authorized by SEC Rule 15d-21
(to be filed as an amendment to Form 10-K).
(99)(c) Letter re Auditor containing representations specified in Temporary
Note 3T
* Exhibits marked with an "*" represent a management contract or
compensatory plan or arrangement required to be identified and
filed as an exhibit.
28