UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended June 30, 2009

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

For the transition period from                      to                     

FIRST HORIZON NATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

Tennessee		62-0803242
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
165 Madison Avenue, Memphis, Tennessee		38103
(Address of principal executive offices)		(Zip Code)

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

(Former name, former address and former fiscal year,
if changed since last report)

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

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “accelerated filer,” “large accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes o No þ 

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

Class		Outstanding on June 30, 2009
Common Stock, $.625 par value		215,207,891

 

 

FIRST HORIZON NATIONAL CORPORATION

INDEX

Part I. Financial Information			3
Part II. Other Information			99
Signatures			102
Exhibit Index			103
EX-10.1(D)
EX-10.1(E)
EX-10.1(F)
EX-10.1(G)
EX-10.1(H)
EX-10.2(B)
EX-10.2(C)
EX-10.2(D)
EX-10.2(E)
EX-10.2(F)
EX-10.6(A)
EX-31.(A)
EX-31.(B)
EX-32.(A)
EX-32.(B)

PART I.

FINANCIAL INFORMATION

Item 1.		Financial Statements
		The Consolidated Condensed Statements of Condition
		The Consolidated Condensed Statements of Income
		The Consolidated Condensed Statements of Equity
		The Consolidated Condensed Statements of Cash Flows
		The Notes to Consolidated Condensed Financial Statements

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

CONSOLIDATED CONDENSED STATEMENTS OF CONDITION

		First Horizon National Corporation
		June 30								December 31
(Dollars in thousands)(Unaudited)		2009				2008				2008
Assets:
Cash and due from banks		$	419,696			$	838,376			$	552,423
Federal funds sold and securities purchased under agreements to resell			531,638				1,166,982				772,357
Total cash and cash equivalents			951,334				2,005,358				1,324,780
Interest-bearing cash			672,553				39,829				207,792
Trading securities			1,117,212				1,473,815				945,766
Trading securities — divestiture			—				89,239				—
Loans held for sale			481,284				2,554,030				566,654
Securities available for sale (Note 3)			2,821,079				2,896,688				3,125,153
Securities held to maturity (fair value of $- on June 30, 2009; $240 on June 30, 2008) (Note 3)			—				240				—
Loans, net of unearned income (Note 4)			19,585,827				22,225,232				21,278,190
Less: Allowance for loan losses			961,482				575,149				849,210
Total net loans			18,624,345				21,650,083				20,428,980
Mortgage servicing rights (Note 5)			337,096				903,634				376,844
Mortgage servicing rights — divestiture			—				235,761				—
Goodwill (Note 6)			192,408				192,408				192,408
Other intangible assets, net (Note 6)			41,937				48,615				45,082
Capital markets receivables			959,514				994,571				1,178,932
Premises and equipment, net			325,666				344,410				333,931
Real estate acquired by foreclosure			116,584				141,857				125,538
Other assets			2,117,931				1,908,795				2,170,120
Other assets-divestiture			—				70,628				—
Total assets		$	28,758,943			$	35,549,961			$	31,021,980
Liabilities and equity:
Deposits:
Savings		$	4,593,215			$	4,041,352			$	4,824,939
Time deposits			2,149,812				2,468,521				2,294,644
Other interest-bearing deposits			2,110,787				1,880,678				1,783,362
Certificates of deposit $100,000 and more			1,434,008				1,953,432				1,382,236
Interest-bearing			10,287,822				10,343,983				10,285,181
Noninterest-bearing			4,689,639				4,453,332				3,956,633
Deposits-divestiture			—				296,632				—
Total deposits			14,977,461				15,093,947				14,241,814
Federal funds purchased and securities sold under agreements to repurchase			2,404,985				2,620,014				1,751,079
Trading liabilities			286,282				464,225				359,502
Other short-term borrowings and commercial paper			2,555,704				5,998,810				4,279,689
Term borrowings			2,511,674				5,783,407				4,022,297
Other collateralized borrowings			723,677				767,010				745,363
Total long-term debt			3,235,351				6,550,417				4,767,660
Capital markets payables			965,442				868,883				1,115,428
Other liabilities			939,736				959,476				932,176
Other liabilities-divestiture			—				1,466				—
Total liabilities			25,364,961				32,557,238				27,447,348
Equity:
First Horizon National Corporation Shareholders’ Equity:
Preferred stock — no par value (shares authorized — 5,000,000; shares issued — series CPP 866,540 on June 30, 2009 and December 31, 2008) (Note 12)			790,596				—				782,680
Common stock — $.625 par value (shares authorized - 400,000,000; shares issued - 215,207,891 on June 30, 2009; 214,259,176 on June 30, 2008; and 214,084,507 on December 31, 2008) *			134,505				122,345				128,302
Capital surplus			1,128,286				980,428				1,048,602
Capital surplus common stock warrant — CPP (Note 12)			83,860				—				83,860
Accumulated other comprehensive loss, net			(138,892	)			(51,599	)			(151,831	)
Undivided profits			1,100,462				1,646,272				1,387,854
Total First Horizon National Corporation Shareholders’ Equity			3,098,817				2,697,446				3,279,467
Noncontrolling interest (Note 12)			295,165				295,277				295,165
Total equity			3,393,982				2,992,723				3,574,632
Total liabilities and equity		$	28,758,943			$	35,549,961			$	31,021,980

See accompanying notes to consolidated financial statements.

Certain previously reported amounts have been reclassified to agree with current presentation.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

				First Horizon National Corporation
		Three Months Ended								Six Months Ended
		June 30								June 30
(Dollars in thousands except per share data)(Unaudited)		2009				2008				2009				2008
Interest income:
Interest and fees on loans		$	197,688			$	285,419			$	403,427			$	617,095
Interest on investment securities			36,460				39,212				76,562				79,947
Interest on loans held for sale			6,577				54,217				14,309				112,655
Interest on trading securities			14,067				30,182				29,722				66,078
Interest on other earning assets			703				6,455				1,568				16,153
Total interest income			255,495				415,485				525,588				891,928
Interest expense:
Interest on deposits:
Savings			8,865				18,362				24,269				44,250
Time deposits			16,268				25,540				34,512				57,042
Other interest-bearing deposits			896				3,556				1,964				9,462
Certificates of deposit $100,000 and more			7,968				17,361				17,427				48,429
Interest on trading liabilities			5,265				9,400				10,733				19,015
Interest on short-term borrowings			3,535				49,425				7,798				119,474
Interest on long-term debt			13,612				52,946				33,212				127,269
Total interest expense			56,409				176,590				129,915				424,941
Net interest income			199,086				238,895				395,673				466,987
Provision for loan losses			260,000				220,000				560,000				460,000
Net interest income/(expense) after provision for loan losses			(60,914	)			18,895				(164,327	)			6,987
Noninterest income:
Capital markets			187,478				122,338				401,702				253,795
Deposit transactions and cash management			41,815				46,797				80,847				89,350
Mortgage banking			15,483				172,418				131,232				331,130
Trust services and investment management			7,651				8,883				14,471				17,992
Insurance commissions			6,555				6,822				13,473				14,966
Gains/(losses) from loan sales and securitizations			552				(6,984	)			1,521				(11,081	)
Debt securities gains/(losses), net			—				—				—				931
Losses on divestitures			—				(429	)			—				(1,424	)
Equity securities gains/(losses), net			(330	)			(972	)			(332	)			64,043
All other income and commissions			33,074				50,173				57,233				88,420
Total noninterest income			292,278				399,046				700,147				848,122
Adjusted gross income after provision for loan losses			231,364				417,941				535,820				855,109
Noninterest expense:
Employee compensation, incentives and benefits			199,650				277,078				448,161				564,548
Operations services			17,930				19,124				34,469				38,088
Occupancy			15,863				30,018				31,913				58,609
Legal and professional fees			14,919				14,030				29,027				29,052
Equipment rentals, depreciation and maintenance			8,338				18,268				17,036				33,279
Communications and courier			7,171				11,477				14,375				22,481
Amortization of intangible assets			1,509				2,182				3,145				4,622
All other expense			146,552				90,822				251,134				146,536
Total noninterest expense			411,932				462,999				829,260				897,215
Loss before income taxes			(180,568	)			(45,058	)			(293,440	)			(42,106	)
Benefit for income taxes			(74,538	)			(28,821	)			(122,315	)			(36,967	)
Loss from continuing operations			(106,030	)			(16,237	)			(171,125	)			(5,139	)
Income from discontinued operations, net of tax			548				—				548				883
Net loss		$	(105,482	)		$	(16,237	)		$	(170,577	)		$	(4,256	)
Net income attributable to noncontrolling interest			2,844				2,844				5,594				6,905
Net loss attributable to controlling interest		$	(108,326	)		$	(19,081	)		$	(176,171	)		$	(11,161	)
Preferred stock dividends			14,856				—				29,811				—
Net loss available to common shareholders		$	(123,182	)		$	(19,081	)		$	(205,982	)		$	(11,161	)
Loss per share from continuing operations (Note 8)		$	(0.58	)		$	(0.10	)		$	(0.96	)		$	(0.07	)
Diluted loss per share from continuing operations (Note 8)		$	(0.58	)		$	(0.10	)		$	(0.96	)		$	(0.07	)
Loss per share available to common shareholders (Note 8)		$	(0.58	)		$	(0.10	)		$	(0.96	)		$	(0.07	)
Diluted loss per share available to common shareholders (Note 8)		$	(0.58	)		$	(0.10	)		$	(0.96	)		$	(0.07	)
Weighted average common shares outstanding — basic (Note 8)			213,735				187,911				213,733				162,976
Weighted average common shares outstanding — diluted (Note 8)			213,735				187,911				213,733				162,976

See accompanying notes to consolidated condensed financial statements.

Certain previously reported amounts have been reclassified to agree with current presentation.

CONSOLIDATED CONDENSED STATEMENTS OF EQUITY

		First Horizon National Corporation
		2009												2008
						Noncontrolling												Noncontrolling
(Dollars in thousands)(Unaudited)		Controlling Interest				Interest				Total				Controlling Interest				Interest				Total
Balance, January 1		$	3,279,467			$	295,165			$	3,574,632			$	2,135,596			$	295,277			$	2,430,873
Adjustment to reflect adoption of measurement date provisions for SFAS No. 157			—				—				—				(12,502	)			—				(12,502	)
Adjustment to reflect change in accounting for split dollar life insurance arrangements (EITF Issue No. 06-4)			—				—				—				(8,530	)			—				(8,530	)
Net income/(loss)			(176,171	)			5,594				(170,577	)			(11,161	)			6,905				(4,256	)
Other comprehensive income/(loss):
Unrealized fair value adjustments, net of tax:
Cash flow hedges			—				—				—				(6	)			—				(6	)
Securities available for sale			16,854				—				16,854				(4,999	)			—				(4,999	)
Recognized pension and other employee benefit plans net periodic benefit costs			(3,915	)			—				(3,915	)			1,506				—				1,506
Comprehensive income/(loss)			(163,232	)			5,594				(157,638	)			(14,660	)			6,905				(7,755	)
Preferred stock — (CPP) accretion			7,916				—				7,916				—				—				—
Preferred stock — (CPP) dividends			(29,791	)			—				(29,791	)			—				—				—
Cash dividends declared			—				—				—				(64,426	)			—				(64,426	)
Common stock issuance (69 million shares issued at $10 per share, net of offering costs)			—				—				—				659,762				—				659,762
Common stock repurchased			(365	)			—				(365	)			(214	)			—				(214	)
Common stock issued for
Stock options and restricted stock			1,263				—				1,263				572				—				572
Excess tax benefit (shortfall) from stock-based compensation arrangements			—				—				—				(1,531	)			—				(1,531	)
Stock-based compensation expense			3,339				—				3,339				3,379				—				3,379
Dividends paid to noncontrolling interest of subsidiary preferred stock			—				(5,594	)			(5,594	)			—				(6,905	)			(6,905	)
Other changes in equity			220				—				220				—				—				—
Balance, June 30		$	3,098,817			$	295,165			$	3,393,982			$	2,697,446			$	295,277			$	2,992,723

See accompanying notes to consolidated condensed financial statements.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

		First Horizon National Corporation
		Six Months Ended June 30
(Dollars in thousands) (Unaudited)		2009				2008
Operating Activities
Net loss		$	(170,577	)		$	(4,256	)
Adjustments to reconcile net loss to net cash provided/(used) by operating activities:
Provision for loan losses			560,000				460,000
Benefit for deferred income tax			(120,293	)			(36,967	)
Depreciation and amortization of premises and equipment			16,901				23,075
Amortization of intangible assets			3,145				4,622
Net other amortization and accretion			23,549				23,901
Decrease/(increase) in derivatives, net			199,383				(34,458	)
Market value adjustment on mortgage servicing rights			(79,330	)			2,992
Provision for foreclosure reserve			41,365				8,386
Loss on divestitures			—				1,424
Stock-based compensation expense			3,339				3,379
Excess tax benefit from stock-based compensation arrangements			—				1,531
Equity securities (gains)/losses, net			332				(64,043	)
Debt securities gains, net			—				(931	)
Gains on repurchases of debt			(60	)			(12,596	)
Net losses on disposal of fixed assets			5,139				4,723
Net (increase)/decrease in:
Trading securities			(117,663	)			171,252
Loans held for sale			85,370				939,182
Capital markets receivables			219,418				(470,152	)
Interest receivable			12,262				28,900
Other assets			(138,854	)			(48,515	)
Net increase/(decrease) in:
Capital markets payables			(149,986	)			282,525
Interest payable			(21,338	)			(39,776	)
Other liabilities			127,670				(297,053	)
Trading liabilities			(73,220	)			(91,919	)
Total adjustments			597,129				859,482
Net cash provided by operating activities			426,552				855,226
Investing Activities
Available for sale securities:
Sales			19,606				89,839
Maturities			376,361				421,799
Purchases			(60,865	)			(313,613	)
Premises and equipment:
Sales			—				11,738
Purchases			(13,775	)			—
Net (increase)/decrease in:
Securitization retained interests classified as trading securities			(53,783	)			35,276
Loans			1,237,067				(176,354	)
Interest-bearing cash			(464,761	)			(407	)
Cash payments related to divestitures			—				(113,300	)
Net cash provided/(used) by investing activities			1,039,850				(45,022	)
Financing Activities
Common stock:
Exercise of stock options			3				511
Cash dividends paid			—				(25,220	)
Repurchase of shares			(365	)			(214	)
Issuance of common shares			—				659,762
Excess tax benefit from stock-based compensation arrangements			—				(1,531	)
Cash dividends paid — preferred stock — CPP			(21,784	)			—
Cash dividends paid — preferred stock — noncontrolling interest			(6,959	)			(8,740	)
Long-term debt:
Issuance			—				25,002
Payments/Maturities			(1,471,617	)			(180,762	)
Cash paid for repurchase of debt			(4,710	)			(139,454	)
Net increase/(decrease) in:
Deposits			735,663				(1,739,180	)
Short-term borrowings			(1,070,079	)			345,265
Net cash used by financing activities			(1,839,848	)			(1,064,561	)
Net decrease in cash and cash equivalents			(373,446	)			(254,357	)
Cash and cash equivalents at beginning of period			1,324,780				2,259,715
Cash and cash equivalents at end of period		$	951,334			$	2,005,358
Cash and cash equivalents from discontinued operations at end of period, included above		$	548			$	—
Total interest paid			150,878				463,052
Total income taxes paid		$	106,734			$	185,964

See accompanying notes to consolidated condensed financial statements.

Certain previously reported amounts have been reclassified to agree with current presentation.

Notes to Consolidated Condensed Financial Statements

Note 1 — Financial Information

The unaudited interim consolidated condensed financial statements of First Horizon National Corporation (FHN), including its subsidiaries, have been prepared in conformity with accounting principles generally accepted in the United States of America and follow general practices within the industries in which it operates. This preparation requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions are based on information available as of the date of the financial statements and could differ from actual results. In the opinion of management, all necessary adjustments have been made for a fair presentation of financial position and results of operations for the periods presented. The operating results for the interim 2009 periods are not necessarily indicative of the results that may be expected going forward. For further information, refer to the audited consolidated financial statements in the 2008 Annual Report to shareholders.

Subsequent Events. Events occurring after the date of the Consolidated Condensed Statements of Condition but before the issuance of the financial statements included in this filing have been evaluated through the time of this filing.

Investment Securities. Securities that FHN has the ability and positive intent to hold to maturity are classified as securities held to maturity and are carried at amortized cost. The amortized cost of all securities is adjusted for amortization of premium and accretion of discount to maturity, or earlier call date if appropriate, using the level yield method. Such amortization and accretion is included in interest income from securities. Investment securities are reviewed quarterly for possible other-than-temporary impairment. The review includes an analysis of the facts and circumstances of each individual investment such as the degree of loss, the length of time the fair value has been below cost, the expectation for that security’s performance, the creditworthiness of the issuer and FHN’s intent and ability to hold the security. Securities that may be sold prior to maturity and equity securities are classified as securities available for sale and are carried at fair value. The unrealized gains and losses on securities available for sale, including debt securities for which no credit impairment exists, are excluded from earnings and are reported, net of tax, as a component of other comprehensive income within shareholders’ equity.

Upon adoption of FASB Staff Position No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (FSP FAS 115-2) for the quarter ended March 31, 2009, the “intent and ability to hold to recovery” indicator was replaced for debt securities with a requirement that an entity’s management assess whether it intends to sell a security or if it is more-likely-than-not that it will be required to sell the security prior to recovery for the debt security when determining other-than-temporary impairment. Realized gains and losses for investment securities are determined by the specific identification method and reported in noninterest income. Declines in value judged to be other-than-temporary based on FHN’s analysis of the facts and circumstances related to an individual investment, including securities that FHN has the intent to sell, are also determined by the specific identification method, and reported in noninterest income. After adoption of FSP FAS 115-2, for impaired debt securities that FHN does not intend to sell and will not be required to sell prior to recovery but for which credit losses exist, the other-than-temporary impairment recognized has been separated between the total impairment related to credit losses which is reported in noninterest income, and the impairment related to all other factors which is excluded from earnings and reported, net of tax, as a component of other comprehensive income within shareholders’ equity.

Loans Held for Sale and Securitization. In conjunction with the adoption of FASB Staff Position No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”(FSP FAS 157-4), FHN revised its methodology for determining the fair value of certain loans within its mortgage warehouse. FHN now determines the fair value of the applicable loans using a discounted cash flow model using observable inputs, including current mortgage rates for similar products, with adjustments for differences in loan characteristics reflected in the model’s discount rates. This change in methodology had a minimal effect on the valuation of the applicable loans. Previously, fair values of these loans were determined through reference to recent security trade prices for similar products, published third party bids or observable whole loan sale prices with adjustments for differences in loan characteristics.

Accounting Changes. Effective June 30, 2009, FHN adopted FASB Staff Position No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (FSP FAS 107-1). FSP FAS 107-1 amends Statement of Financial Accounting Standards No. 107, “Disclosures about Fair Value of Financial Instruments” (SFAS No. 107) to require disclosures about fair value of financial instruments in interim financial statements. FSP FAS 107-1 requires that disclosures of the methods and significant assumptions used to estimate the fair value of financial instruments be included in both interim and annual financial statements. Comparative disclosures are required only for periods ending subsequent to initial adoption. Upon adoption of FSP FAS 107-1, FHN revised its disclosures accordingly.

Note 1 — Financial Information (continued)

Effective June 30, 2009, FHN adopted Statement of Financial Accounting Standards No. 165, “Subsequent Events” (SFAS No. 165). SFAS No. 165 provides general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. SFAS No. 165 requires disclosure of the date through which subsequent events have been evaluated and whether that date is the date the financial statements were issued or the date the financial statements were available to be issued. An assessment of subsequent events must be performed for both interim and annual reporting periods. FHN applied the guidance of SFAS No. 165 when assessing subsequent events through the time of this filing and the effects of adoption were not material.

In April 2009, the FASB issued FSP FAS 115-2 which replaces the “intent and ability to hold to recovery” indicator of other-than-temporary impairment in FASB Staff Position No. FAS 115-1 and 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (FSP FAS 115-1) for debt securities. FSP FAS 115-2 specifies that a debt security is considered other-than-temporarily impaired when an entity’s management intends to sell the security or that it is more-likely-than-not that the entity will be required to sell the security prior to recovery of its cost basis. FSP FAS 115-2 requires that for impaired held-to-maturity and available-for-sale debt securities that an entity does not intend to sell and will not be required to sell prior to recovery but for which credit losses exist, the other-than-temporary impairment should be separated between the total impairment related to credit losses, which should be recognized in current earnings, and the amount of impairment related to all other factors, which should be recognized in other comprehensive income. FSP FAS 115-2 discusses the proper interaction of its guidance with other authoritative guidance, including FSP FAS 115-1, which provides additional factors that must be considered in an other-than-temporary impairment analysis. FSP FAS 115-2 also provides that in periods in which other-than-temporary impairments are recognized, the total impairment must be presented in the investor’s income statement with an offset for the amount of total impairment that is recognized in other comprehensive income. FSP FAS 115-2 requires additional disclosures including a rollforward of amounts recognized in earnings for debt securities for which an other-than-temporary impairment has been recognized and the noncredit portion of the other-than-temporary impairment that has been recognized in other comprehensive income. FHN initially applied the guidance of FSP FAS 115-2 when assessing debt securities for other-than-temporary impairment as of March 31, 2009 and the effects of adoption were not material.

In April 2009, the FASB issued FSP FAS 157-4 which provides factors that an entity should consider when determining whether a market for an asset is not active. If after evaluating the relevant factors, the evidence indicates that a market is not active, FSP FAS 157-4 provides an additional list of factors that an entity must consider when determining whether events and circumstances indicate that a transaction which occurred in such inactive market is orderly. FSP FAS 157-4 requires that entities place more weight on observable transactions determined to be orderly and less weight on transactions for which there is insufficient information to determine whether the transaction is orderly when determining the fair value of an asset or liability under Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS No. 157). FSP FAS 157-4 requires enhanced disclosures, including disclosure of a change in valuation technique which results from its application and disclosure of fair value measurements for debt and equity securities by major security types. FHN initially applied the guidance of FSP FAS 157-4 in its fair value measurements as of March 31, 2009 and the effects of adoption were not significant.

Effective January 1, 2009, FHN adopted the provisions of SFAS No. 157 for existing fair value measurement requirements related to non-financial assets and liabilities which are recognized at fair value on a non-recurring basis. The effective date for the application of SFAS No. 157’s measurement framework to such non-financial assets and liabilities was previously delayed under FASB Staff Position No. 157-2, “Effective Date of FASB Statement No. 157”. SFAS No. 157 establishes a hierarchy to be used in performing measurements of fair value. Additionally, SFAS No. 157 emphasizes that fair value should be determined from the perspective of a market participant while also indicating that valuation methodologies should first reference available market data before using internally developed assumptions. SFAS No. 157 also provides expanded disclosure requirements regarding the effects of fair value measurements on the financial statements. The effect of adopting the provisions of SFAS No. 157 for non-financial assets and liabilities which are recognized at fair value on a non-recurring basis on January 1, 2009, was not significant to FHN. Effective January 1, 2008, FHN adopted SFAS No. 157 for existing fair value measurement requirements related to financial assets and liabilities as well as to non-financial assets and liabilities which are remeasured at least annually. Upon the adoption of the provisions of SFAS No. 157 for financial assets and liabilities as well as non-financial assets and liabilities remeasured at least annually on January 1, 2008, a negative after-tax cumulative-effect adjustment of $12.5 million was made to the opening balance of undivided profits for interest rate lock commitments which FHN previously measured under the guidance of EITF 02-3, “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities” (EITF 02-3). Second quarter 2008 earnings were positively impacted by a net of $13.7 million related to the adoption of SFAS No. 157 as (1) FHN continued to deliver loans that had been commitments upon adoption of SFAS No. 157, (2) some commitments existing at March 31, 2008 were delivered as loans during the second quarter of 2008 and (3) additional commitments that would have been deferred under EITF 02-3 were made. Substantially all commitments existing at August 31, 2008 were sold to MetLife Bank, N.A. (MetLife).

Note 1 — Financial Information (continued)

Effective January 1, 2009, FHN adopted Statement of Financial Accounting Standards No. 141-R, “Business Combinations” (SFAS No. 141-R) and Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51” (SFAS No. 160). SFAS No. 141-R requires that an acquirer recognize the assets acquired and liabilities assumed in a business combination, as well as any noncontrolling interest in the acquiree, at their fair values as of the acquisition date, with limited exceptions. Additionally, SFAS No. 141-R provides that an acquirer cannot specify an effective date for a business combination that is separate from the acquisition date. SFAS No. 141-R also provides that acquisition-related costs which an acquirer incurs should be expensed in the period in which the costs are incurred and the services are received. SFAS No. 160 requires that acquired assets and liabilities be measured at full fair value without consideration to ownership percentage. Under SFAS No. 160, any noncontrolling interests in an acquiree should be presented as a separate component of equity rather than on a mezzanine level. Additionally, SFAS No. 160 provides that net income or loss should be reported in the consolidated income statement at its consolidated amount, with disclosure on the face of the consolidated income statement of the amount of consolidated net income which is attributable to the parent and noncontrolling interests, respectively. Upon adoption, the retrospective application of SFAS No. 160’s presentation and disclosure requirements resulted in an
increase to consolidated net income of $4.1 million for first quarter 2008. FHN also recognized an increase of total shareholders’ equity of $295.2 million upon adoption of SFAS No. 160 as a result of reclassifying the noncontrolling interest previously recognized on the Consolidated Condensed Statements of Condition as “Preferred stock of subsidiary” as a separate component of equity.

Effective January 1, 2009, FHN adopted FASB Staff Position No. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (FSP FAS 141(R)-1). FSP FAS 141(R)-1 amends SFAS No. 141-R to require that an acquirer recognize at fair value as of the acquisition date an asset acquired or liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of the asset or liability can be determined during the measurement period. FSP FAS 141(R)-1 provides that if the acquisition-date fair value of an asset acquired or liability assumed in a business combination that arises from a contingency cannot be determined during the measurement period, the asset or liability should be recognized at the acquisition date if information available before the end of the measurement period indicates that it is probable that an asset existed or a liability had been incurred at the acquisition date and the amount of the asset or liability can be reasonably estimated. Additionally, FSP FAS 141(R)-1 requires enhanced disclosures regarding assets and liabilities arising from contingencies which are recognized at the acquisition date of a business combination, including the nature of the contingencies, the amounts recognized at the acquisition date and the measurement basis applied. The adoption of FSP FAS 141(R)-1 had no effect on FHN’s statement of condition or results of operations.

Effective January 1, 2009, FHN adopted Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (SFAS No. 161). SFAS No. 161 requires enhanced disclosures related to derivatives accounted for in accordance with SFAS No. 133 and reconsiders existing disclosure requirements for such derivatives and any related hedging items. The disclosures provided in SFAS No. 161 are required for both interim and annual reporting periods. Upon adoption of SFAS No. 161, FHN revised its disclosures accordingly.

FHN also adopted FASB Staff Position No. FAS 140-3, “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions” (FSP FAS 140-3) as of January 1, 2009, for initial transfers of financial assets executed after such date. FSP FAS 140-3 permits a transferor and transferee to separately account for an initial transfer of a financial asset and a related repurchase financing that are entered into contemporaneously with, or in contemplation of, one another if certain specified conditions are met at the inception of the transaction. FSP FAS 140-3 requires that the two transactions have a valid and distinct business or economic purpose for being entered into separately and that the repurchase financing not result in the initial transferor regaining control over the previously transferred financial asset. The effect of adopting FSP FAS 140-3 was immaterial to FHN.

Effective December 31, 2008, FHN adopted FASB Staff Position No. EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20” (FSP EITF 99-20-1). FSP EITF 99-20-1 amends EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets” (EITF 99-20) to align its impairment model with the impairment model in Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (SFAS No. 115), resulting in a consistent determination of whether other-than-temporary impairments of available for sale or held to maturity debt securities have occurred. Since FHN recognizes all retained interests from securitization transactions at fair value as trading securities and as all of its beneficial interests classified as available for sale securities are outside the scope of EITF 99-20, the effect of adopting FSP EITF 99-20-1 was immaterial to FHN.

Effective December 31, 2008, FHN adopted FASB Staff Position No. FAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities about Transfers of Financial Assets and Interests in Variable Interest Entities” (FSP FAS 140-4) which requires additional disclosures related to

Note 1 — Financial Information (continued)

transfers of financial assets as well as FHN’s involvement with variable interest entities and qualifying special purpose entities. Upon adoption of FSP FAS 140-4, FHN revised its disclosures accordingly.

Effective December 31, 2008, FHN adopted FASB Staff Position No. FAS 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161” (FSP FAS 133-1). FSP FAS 133-1 requires sellers of credit derivatives and similar guarantee contracts to make disclosures regarding the nature, term, fair value, potential losses and recourse provisions for those contracts. Since FHN is not a seller of credit derivatives or similar financial guarantees, the effect of adopting FSP FAS 133-1 was immaterial to FHN.

Effective January 1, 2008, FHN adopted SFAS No. 159 which allows an irrevocable election to measure certain financial assets and liabilities at fair value on an instrument-by-instrument basis, with unrealized gains and losses recognized currently in earnings. Under SFAS No. 159, the fair value option may only be elected at the time of initial recognition of a financial asset or liability or upon the occurrence of certain specified events. Additionally, SFAS No. 159 provides that application of the fair value option must be based on the fair value of an entire financial asset or liability and not selected risks inherent in those assets or liabilities. SFAS No. 159 requires that assets and liabilities which are measured at fair value pursuant to the fair value option be reported in the financial statements in a manner that separates those fair values from the carrying amounts of similar assets and liabilities which are measured using another measurement attribute. SFAS No. 159 also provides expanded disclosure requirements regarding the effects of electing the fair value option on the financial statements. Upon adoption of SFAS No. 159, FHN elected the fair value option on a prospective basis for almost all types of mortgage loans originated for sale purposes. Additionally, in accordance with SFAS No. 159’s amendment of SFAS No. 115, FHN began prospectively classifying cash flows associated with its retained interests in securitizations recognized as trading securities within investing activities in the Consolidated Condensed Statements of Cash Flows.

Effective January 1, 2008, FHN adopted SEC Staff Accounting Bulletin No. 109, “Written Loan Commitments Recorded at Fair ValueThrough Earnings” (SAB No. 109) prospectively for derivative loan commitments issued or modified after that date. SAB No. 109 rescinds SAB No. 105’s prohibition on inclusion of expected net future cash flows related to loan servicing activities in the fair value measurement of a written loan commitment. SAB No. 109 also applies to any loan commitments for which fair value accounting is elected under SFAS No. 159. FHN did not elect fair value accounting for any other loan commitments under SFAS No. 159. The prospective application of SAB No. 109 and the prospective election to recognize substantially all new mortgage loan originations at fair value under SFAS No. 159 resulted in a positive impact of $58.1 million on first quarter 2008 pre-tax earnings. Second quarter 2008 earnings were negatively impacted by $20.9 million related to the adoption of SAB No. 109 and SFAS No. 159 as loans and commitments remaining on the balance sheet at the end of first quarter 2008 were sold.

Effective January 1, 2008, FHN adopted FASB Staff Position No. FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” (FSP FAS 157-1), which amends SFAS No. 157 to exclude Statement of Financial Accounting Standards No. 13, “Accounting for Leases” (SFAS No. 13), and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under SFAS No. 13 from its scope. The adoption of FSP FAS 157-1 had no effect on FHN’s statement of condition or results of operations.

Effective January 1, 2008, FHN adopted EITF Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements” (EITF 06-4). EITF 06-4 requires that a liability be recognized for contracts written to employees which provide future postretirement benefits that are covered by endorsement split-dollar life insurance arrangements because such obligations are not considered to be effectively settled upon entering into the related insurance arrangements. FHN recognized a decrease to undivided profits of $8.5 million, net of tax, upon adoption of EITF 06-4.

Effective January 1, 2008, FHN adopted FASB Staff Position No. FIN 39-1, “Amendment of FASB Interpretation No. 39” (FSP FIN 39-1). FSP FIN 39-1 permits the offsetting of fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement. Upon adoption of FSP FIN 39-1, entities were permitted to change their previous accounting policy election to offset or

Note 1 — Financial Information (continued)

not offset fair value amounts recognized for derivative instruments under master netting arrangements. FSP FIN 39-1 requires additional disclosures for derivatives and collateral associated with master netting arrangements, including the separate disclosure of amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral under master netting arrangements as of the end of each reporting period for entities that made an accounting policy decision to not offset fair value amounts. FHN retained its previous accounting policy election to not offset fair value amounts recognized for derivative instruments under master netting arrangements upon adoption of FSP FIN 39-1, and has revised its disclosures accordingly.

FHN also adopted FASB Statement 133 Implementation Issue No. E23, “Issues Involving the Application of the Shortcut Method under Paragraph 68” (DIG E23) as of January 1, 2008, for hedging relationships designated on or after such date. DIG E23 amends SFAS No. 133 to explicitly permit use of the shortcut method for hedging relationships in which an interest rate swap has a nonzero fair value at inception of the hedging relationship which is attributable solely to the existence of a bid-ask spread in the entity’s principal market under SFAS No. 157. Additionally, DIG E23 allows an entity to apply the shortcut method to a qualifying fair value hedge when the hedged item has a trade date that differs from its settlement date because of generally established conventions in the marketplace in which the transaction to acquire or issue the hedged item is executed. Preexisting shortcut hedging relationships were analyzed as of DIG E23’s adoption date to determine whether they complied with the revised shortcut criteria at their inception or should be dedesignated prospectively. The adoption of DIG E23 had no effect on FHN’s financial position or results of operations as all of FHN’s preexisting hedging relationships met the requirements of DIG E23 at their inception.

Accounting Changes Issued but Not Currently Effective. In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, “Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140” (SFAS No. 166). SFAS No. 166 provides for the removal of the qualifying special purpose entity (QSPE) concept from GAAP, resulting in the evaluation of all former QSPEs for consolidation on and after January 1, 2010 in accordance with Statement of Financial Accounting Standards No. 167, “Amendments to FASB Interpretation No. 46(R)” (SFAS No. 167). SFAS No. 166 modifies the criteria for achieving sale accounting for transfers of financial assets and defines the term participating interest to establish specific conditions for reporting a transfer of a portion of a financial asset as a sale. SFAS No. 166 also provides that a transferor should recognize and initially measure at fair value all assets obtained (including a transferor’s beneficial interest) and liabilities incurred as a result of a transfer of financial assets accounted for as a sale. SFAS No. 166 requires enhanced disclosures which are generally consistent with, and supersede, the disclosures previously required by FSP FAS 140-4. SFAS No. 166 is effective prospectively for new transfers of financial assets occurring in fiscal years beginning after November 15, 2009, and in interim periods within those fiscal years. SFAS No. 166’s disclosure requirements should be applied to transfers that occurred both before and after its effective date, with comparative disclosures required only for periods subsequent to initial adoption for those disclosures not previously required under FSP FAS 140-4. FHN is currently assessing the effects of adopting SFAS No. 166.

In June 2009, the FASB issued SFAS No. 167 which revises the criteria for determining the primary beneficiary of a variable interest entity (VIE) by replacing the prior quantitative-based risks and rewards test required under FASB Interpretation No. 46-R, “Consolidation of Variable Interest Entities — revised December 2003” (FIN 46-R) with a qualitative analysis. While SFAS No. 167 retains the guidance in FIN 46-R which requires a reassessment of whether an entity is a VIE only when certain triggering events occur, it adds an additional criterion which triggers a reassessment of an entity’s status when an event occurs such that the holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance. Additionally, SFAS No. 167 requires continual reconsideration of conclusions regarding which interest holder is the VIE’s primary beneficiary. SFAS No. 167 requires separate presentation on the face of the balance sheet of the assets of a consolidated VIE that can only be used to settle the VIE’s obligations and the liabilities of a consolidated VIE for which creditors or beneficial interest holders have no recourse to the general credit of the primary beneficiary. SFAS No. 167 also requires enhanced disclosures which are generally consistent with, and supersede, the disclosures previously required by FSP FAS 140-4. SFAS No. 167 is effective for periods beginning after November 15, 2009, and requires reevaluation under its amended consolidation requirements of all QSPEs and entities currently subject to FIN 46-R as of the beginning of the first annual period that begins after November 15, 2009. If consolidation of a VIE is required upon initial adoption, the assets, liabilities, and noncontrolling interests of the VIE should be measured at their carrying amounts as if SFAS No. 167 had been applied from inception of the VIE, with any difference between the net amounts recognized and the amount of any previously recognized interests reflected as a cumulative effect adjustment to undivided profits. However, if determining the carrying amounts is not practicable, the assets, liabilities, and noncontrolling interests of the VIE may be measured at fair value. Further, if determining the carrying amounts is not practicable, and if the activities of the VIE are primarily related to securitizations or other forms of

Note 1 — Financial Information (continued)

asset-backed financings and the assets of the VIE can be used only to settle obligations of the entity, then the assets and liabilities of the VIE may be measured at their unpaid principal balances. The fair value option provided under SFAS No. 159 may also be elected for financial assets and financial liabilities requiring consolidation as a result of initial adoption, provided that the election is made for all eligible financial assets and financial liabilities of the VIE. If initial application of SFAS No. 167 results in deconsolidation of a VIE, any retained interest in the VIE should be measured at its carrying value as if SFAS No. 167 had been applied from inception of the VIE. Comparative disclosures are required only for periods subsequent to initial adoption for those disclosures not previously required under FSP FAS 140-4. FHN is currently assessing the effects of adopting SFAS No. 167.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162” (SFAS No. 168). SFAS No. 168 establishes the FASB Accounting Standards Codification as the single source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP, other than guidance issued by the SEC. Under SFAS No. 168, all guidance contained in the FASB Accounting Standards Codification carries an equal level of authority, with SFAS No. 168 superseding all then-existing non-SEC accounting and reporting standards as of its effective date. SFAS No. 168 is effective for periods ending after September 15, 2009. The effect of adopting SFAS No. 168 will not be material to FHN.

In December 2008, FASB Staff Position No. FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (FSP FAS 132(R)-1), was issued. FSP FAS 132(R)-1 provides detailed disclosure requirements to enhance the disclosures about an employer’s plan assets currently required by Statement of Financial Accounting Standards No. 132(R), “Employers’ Disclosures about Pensions and Other Postretirement Benefits” (SFAS No. 132(R)). FSP FAS 132(R)-1 is effective prospectively for annual periods ending after December 15, 2009. FHN is currently assessing the effects of adopting FSP FAS 132(R)-1.

Note 2 — Acquisitions/Divestitures

Effective August 31, 2008, FHN sold more than 230 retail and wholesale mortgage origination offices nationwide, the loan origination and servicing platform, substantially all of FHN’s mortgage origination pipeline and related hedges, certain fixed assets and other associated assets to MetLife. MetLife did not acquire any portion of FHN’s mortgage loan warehouse. FHN retained its mortgage operations in and around Tennessee, continuing to originate home loans for customers in its regional banking market footprint. FHN also sold servicing assets, and related hedges, on $19.1 billion of first lien mortgage loans and associated custodial deposits. Additionally, FHN entered into a subservicing agreement with MetLife for the remainder of FHN’s servicing portfolio. MetLife generally paid book value for the assets and liabilities it acquired, less a purchase price reduction. The assets and liabilities related to the mortgage operations divested were included in the Mortgage Banking segment and were reflected as “divestiture” on the Consolidated Condensed Statements of Condition for the reporting period ended June 30, 2008. FHN recognized a loss on divestiture of $17.5 million in the third quarter 2008 and a gain on divestiture of $0.9 million in the fourth quarter of 2008. Gains and losses related to this transaction were included in the noninterest income section of the Consolidated Condensed Statements of Income as gains/losses on divestitures.

Due to efforts initiated by FHN in 2007 to improve profitability, FHN sold 34 branches in Atlanta, Baltimore, Dallas, and Northern Virginia which were outside the Regional Bank’s footprint. The First Horizon Bank branch sales were completed in 2008 resulting in losses of $1.0 million, $0.4 million, and $1.0 million in the first, second, and fourth quarters of 2008, respectively. Aggregate gains of $15.7 million were recognized in fourth quarter 2007 from the disposition of 15 of the branches. These transactions resulted in the transfer of certain loans, certain fixed assets (including branch locations), and assumption of all the deposit relationships of the First Horizon Bank branches that were divested. The assets and liabilities related to the First Horizon Bank branches were included in the Regional Banking segment and were reflected as “divestiture” on the Consolidated Condensed Statements of Condition for reporting periods ended prior to June 30, 2008. The gains and losses realized on the disposition of First Horizon Bank branches were included in the noninterest income section of the Consolidated Condensed Statements of Income as gains and losses on divestitures.

In addition to the divestitures mentioned above, FHN acquires or divests assets from time to time in transactions that are considered business combinations or divestitures but are not material to FHN individually or in the aggregate.

Note 3 — Investment Securities

     The following tables summarize FHN’s securities held to maturity and available for sale on June 30, 2009 and 2008:

		On June 30, 2009
						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
(Dollars in thousands)		Cost				Gains				Losses				Value
Securities available for sale:
U.S. Treasuries		$	47,945			$	466			$	(5	)		$	48,406
Government agency issued MBS (a)			1,068,909				48,638				—				1,117,547
Government agency issued CMO (a)			1,125,714				43,717				—				1,169,431
Other U.S. government agencies (a)			121,416				3,802				—				125,218
States and municipalities			46,200				45				—				46,245
Other			2,212				11				(35	)			2,188
Equity (b)			311,852				303				(111	)			312,044
Total securities available for sale (c)		$	2,724,248			$	96,982			$	(151	)		$	2,821,079

		On June 30, 2008
						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
(Dollars in thousands)		Cost				Gains				Losses				Value
Securities held to maturity:
States and municipalities		$	240			$	—			$	—			$	240
Total securities held to maturity		$	240			$	—			$	—			$	240
Securities available for sale:
U.S. Treasuries		$	47,950			$	—			$	(178	)		$	47,772
Government agency issued MBS (a)			1,281,553				11,978				(945	)			1,292,586
Government agency issued CMO (a)			1,120,686				17,394				(823	)			1,137,257
Other U.S. government agencies (a)			136,439				—				(2,043	)			134,396
States and municipalities			31,630				—				(19	)			31,611
Other			3,127				3				(54	)			3,076
Equity (b)			250,000				35				(45	)			249,990
Total securities available for sale (c)		$	2,871,385			$	29,410			$	(4,107	)		$	2,896,688

Note 3 — Investment Securities (continued)

The following tables provide information on investments within the available for sale portfolio that have unrealized losses on June 30, 2009 and 2008:

		On June 30, 2009
		Less than 12 months								12 Months or Longer								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
(Dollars in thousands)		Value				Losses				Value				Losses				Value				Losses
U.S. Treasuries		$	7,989			$	(5	)		$	—			$	—			$	7,989			$	(5	)
Other			—				—				284				(35	)			284				(35	)
Total debt securities			7,989				(5	)			284				(35	)			8,273				(40	)
Equity			—				—				120				(111	)			120				(111	)
Total temporarily impaired securities		$	7,989			$	(5	)		$	404			$	(146	)		$	8,393			$	(151	)

FHN has reviewed investment securities that are in unrealized loss positions in accordance with its accounting policy for other-than-temporary impairment and does not consider them other-than-temporarily impaired. FHN does not intend to sell the debt securities and it is more-likely-than-not that FHN will not be required to sell the securities prior to recovery. Additionally, the decline in value is not attributable to credit losses. For equity securities, FHN has both the ability and intent to hold these securities for the time necessary to recover the amortized cost.

		On June 30, 2008
		Less than 12 months								12 Months or Longer								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
(Dollars in thousands)		Value				Losses				Value				Losses				Value				Losses
U.S. Treasuries		$	47,671			$	(178	)		$	—			$	—			$	47,671			$	(178	)
Government agency issued MBS			399,880				(945	)			—				—				399,880				(945	)
Government agency issued CMO			115,658				(823	)			—				—				115,658				(823	)
Other U.S. government agencies			111,489				(1,635	)			22,908				(408	)			134,397				(2,043	)
States and municipalities			1,481				(19	)			—				—				1,481				(19	)
Other			—				—				580				(54	)			580				(54	)
Total debt securities			676,179				(3,600	)			23,488				(462	)			699,667				(4,062	)
Equity			186				(45	)			—				—				186				(45	)
Total temporarily impaired securities		$	676,365			$	(3,645	)		$	23,488			$	(462	)		$	699,853			$	(4,107	)

Note 4 — Loans

The composition of the loan portfolio is detailed below:

		June 30								December 31
(Dollars in thousands)		2009				2008				2008
Commercial:
Commercial, financial and industrial		$	7,400,396			$	7,717,110			$	7,863,727
Real estate commercial			1,506,911				1,463,726				1,454,040
Real estate construction			1,337,330				2,271,533				1,778,140
Retail:
Real estate residential			7,785,906				8,196,622				8,161,435
Real estate construction			557,822				1,513,845				980,798
Other retail			129,848				138,970				135,779
Credit card receivables			186,376				195,703				189,554
Real estate loans pledged against other collateralized borrowings			681,238				727,723				714,717
Loans, net of unearned income			19,585,827				22,225,232				21,278,190
Allowance for loan losses			961,482				575,149				849,210
Total net loans		$	18,624,345			$	21,650,083			$	20,428,980

FHN has a significant concentration of loans secured by residential real estate (51 percent of total loans) primarily in three portfolios. The retail real estate residential portfolio including real estate loans pledged against other collateralized borrowings (43 percent of total loans) was primarily comprised of home equity lines and loans. While this portfolio has been stressed by the downturn in the housing market and rising unemployment, it contains loans extended to strong borrowers with high credit scores and is geographically diversified. The One-Time Close (OTC) portfolio (3 percent of total loans) has been negatively impacted by the downturn in the housing industry, certain discontinued product types, and the decreased availability of permanent mortgage financing. The Residential CRE portfolio (5 percent of total loans) has also been negatively impacted by the housing industry downturn as builder liquidity has been severely stressed.

On June 30, 2009, FHN had trust preferred loans to banks and insurance related businesses totaling $.5 billion (2 percent of total loans) that are included within the Commercial, Financial, and Industrial portfolio. Due to higher credit losses experienced throughout the financial services industry and the limited availability of market liquidity, these loans have experienced some stress during the economic downturn.

On June 30, 2009, FHN did not have any concentrations of Commercial, Financial and Industrial loans in any single industry of 10 percent or more of total loans.

Nonperforming loans consist of loans which management has identified as impaired, other nonaccrual loans, and loans which have been restructured. On June 30, 2009 and 2008, there were no significant outstanding commitments to advance additional funds to customers whose loans had been restructured. The following table presents nonperforming loans on:

		June 30								December 31
(Dollars in thousands)		2009				2008				2008
Impaired loans		$	547,697			$	372,494			$	474,090
Other nonaccrual loans*			579,261				397,524				579,558
Total nonperforming loans		$	1,126,958			$	770,018			$	1,053,648

Note 4 — Loans (continued)

Generally, interest payments received on impaired loans are applied to principal. Once all principal has been received, additional payments are recognized as interest income on a cash basis. The following table presents information concerning impaired loans:

		Three Months Ended								Six Months Ended
		June 30								June 30
(Dollars in thousands)		2009				2008				2009				2008
Total interest on impaired loans		$	421			$	198			$	664			$	260
Average balance of impaired loans			536,990				318,082				516,023				254,259

Activity in the allowance for loan losses related to non-impaired and impaired loans for the six months ended June 30, 2009 and 2008 is summarized as follows:

(Dollars in thousands)		Non-impaired				Impaired				Total
Balance on December 31, 2007		$	325,883			$	16,458			$	342,341
Provision for loan losses			378,778				81,222				460,000
Divestitures/acquisitions/transfers			(382	)			—				(382	)
Charge-offs			(140,331	)			(92,810	)			(233,141	)
Recoveries			5,849				482				6,331
Net charge-offs			(134,482	)			(92,328	)			(226,810	)
Balance on June 30, 2008		$	569,797			$	5,352			$	575,149
Balance on December 31, 2008		$	836,907			$	12,303			$	849,210
Provision for loan losses			402,092				157,908				560,000
Charge-offs			(303,446	)			(164,045	)			(467,491	)
Recoveries			17,345				2,418				19,763
Net charge-offs			(286,101	)			(161,627	)			(447,728	)
Balance on June 30, 2009		$	952,898			$	8,584			$	961,482

Note 5 — Mortgage Servicing Rights

FHN recognizes all its classes of mortgage servicing rights (MSR) at fair value. Classes of MSR are determined in accordance with FHN’s risk management practices and market inputs used in determining the fair value of the servicing asset. The balance of MSR included on the Consolidated Condensed Statements of Condition represents the rights to service approximately $48.6 billion of mortgage loans on June 30, 2009, for which a servicing right has been capitalized.

Since sales of MSR tend to occur in private transactions and the precise terms and conditions of the sales are typically not readily available, there is a limited market to refer to in determining the fair value of MSR. As such, FHN relies primarily on a discounted cash flow model to estimate the fair value of its MSR. This model calculates estimated fair value of the MSR using predominant risk characteristics of MSR, such as interest rates, type of product (fixed vs. variable), age (new, seasoned, or moderate), agency type and other factors. FHN uses assumptions in the model that it believes are comparable to those used by brokers and other service providers. Due to ongoing disruptions in the mortgage market, more emphasis has been placed on third party broker price discovery and, when available, observable market trades in valuing MSR. FHN also periodically compares its estimates of fair value and assumptions with brokers, service providers, and recent market activity and against its own experience.

Following is a summary of changes in capitalized MSR related to proprietary securitization activities utilizing qualifying special purpose entities (QSPEs) as of June 30, 2009 and 2008:

		First				Second
(Dollars in thousands)		Liens				Liens				HELOC
Fair value on January 1, 2008		$	230,311			$	1,429			$	2,260
Addition of mortgage servicing rights			—				—				101
Reductions due to loan payments			(12,748	)			(154	)			(220	)
Changes in fair value due to:
Changes in valuation model inputs or assumptions			50,191				(9	)			(362	)
Other changes in fair value			—				—				14
Fair value on June 30, 2008		$	267,754			$	1,266			$	1,793
Fair value on January 1, 2009		$	102,993			$	981			$	1,471
Addition of mortgage servicing rights			—				—				11
Reductions due to loan payments			(12,113	)			(97	)			(158	)
Changes in fair value due to:
Changes in valuation model inputs or assumptions			14,682				45				—
Fair value on June 30, 2009		$	105,562			$	929			$	1,324

Servicing, late and other ancillary fees recognized within mortgage banking income were $14.7 million and $21.3 million for the three months ended June 30, 2009 and 2008, respectively, related to securitization activity and $33.5 million and $43.3 million for the six months ended June 30, 2009 and 2008, respectively. Servicing, late and other ancillary fees recognized within revenue from loan sales and securitizations were $.2 million and $.3 million for the three months ended June 30, 2009 and 2008, respectively, related to securitization activity and $.5 million and $.6 million for the six months ended June 30, 2009 and 2008, respectively.

Note 5 — Mortgage Servicing Rights (continued)

Following is a summary of changes in capitalized MSR related to loan sale activity as of June 30, 2009 and 2008:

		First				Second
(Dollars in thousands)		Liens				Liens				HELOC
Fair value on January 1, 2008		$	892,104			$	24,403			$	9,313
Addition of mortgage servicing rights			179,176				—				1,001
Reductions due to loan payments			(63,298	)			(4,200	)			(978	)
Reductions due to sale			(116,113	)			—				—
Changes in fair value due to:
Changes in valuation model inputs or assumptions			(48,377	)			(3,334	)			(1,803	)
Other changes in fair value			(42	)			3				727
Fair value on June 30, 2008		$	843,450			$	16,872			$	8,260
Fair value on January 1, 2009		$	251,404			$	12,576			$	7,419
Addition of mortgage servicing rights			189				—				—
Reductions due to loan payments			(23,880	)			(3,563	)			(1,037	)
Reductions due to sale			(77,591	)			—				—
Changes in fair value due to:
Changes in valuation model inputs or assumptions			64,603				—				—
Other changes in fair value			(1,347	)			64				444
Fair value on June 30, 2009		$	213,378			$	9,077			$	6,826

Servicing, late and other ancillary fees recognized within mortgage banking income were $13.0 million and $42.1 million for the three months ended June 30, 2009 and 2008, respectively, related to loan sale activity and $29.4 million and $94.4 million for the six months ended June 30, 2009 and 2008, respectively. Servicing, late and other ancillary fees recognized within revenue from loan sales and securitizations were $3.4 million and $4.0 million for the three months ended June 30, 2009 and 2008, respectively, related to loan sale activity and $6.9 million and $8.3 million for the six months ended June 30, 2009 and 2008, respectively.

FHN services a portfolio of mortgage loans related to transfers performed by other parties utilizing QSPEs. FHN’s MSR represents its sole interest in these transactions. The total MSR recognized by FHN related to these transactions was $7.4 million and $82.3 million at June 30, 2009 and 2008, respectively. The aggregate principal balance serviced by FHN for these transactions was $1.0 billion and $5.6 billion at June 30, 2009 and 2008, respectively. FHN has no obligation to provide financial support and has not provided any form of support to the
related trusts. The MSR recognized by FHN has been included in the first lien mortgage loans column within the rollforward of MSR resulting from loan sales activity.

As of June 30, 2009, FHN had transferred $39.7 million of MSR to third parties in transactions that did not qualify for sales treatment due to certain recourse provisions that were included within the sale agreements. These MSR are included within the first liens mortgage loans column within the rollforward of MSR resulting from loan sales activity. The proceeds from these transfers have been recognized within commercial paper and other short term borrowings in the Consolidated Condensed Statements of Condition as of June 30, 2009. Since MSR are recognized at fair value and since changes in the fair value of related financing liabilities will exactly mirror the change in fair value of the associated servicing assets, management elected to account for the financing liabilities at fair value under SFAS No. 159.

Note 6 — Intangible Assets

The following is a summary of intangible assets, net of accumulated amortization, included in the Consolidated Condensed Statements of Condition:

						Other
						Intangible
(Dollars in thousands)		Goodwill				Assets*
December 31, 2007		$	192,408			$	56,907
Amortization expense			—				(4,622	)
Impairment			—				(4,034	)
Divestitures			—				(26	)
Additions			—				390
June 30, 2008		$	192,408			$	48,615
December 31, 2008		$	192,408			$	45,082
Amortization expense			—				(3,145	)
June 30, 2009		$	192,408			$	41,937

*		Represents customer lists, acquired contracts, premium on purchased deposits, and covenants not to compete.

The gross carrying amount of other intangible assets subject to amortization is $126.4 million on June 30, 2009, net of $84.5 million of accumulated amortization. Estimated aggregate amortization expense is expected to be $3.0 million for the remainder of 2009, and $5.9 million, $5.7 million, $4.2 million and $3.9 million and $3.6 million for the twelve-month periods of 2010, 2011, 2012, 2013 and 2014, respectively.

The following is a summary of goodwill detailed by reportable segments for the six months ended June 30:

		Regional				Capital
(Dollars in thousands)		Banking				Markets				Total
December 31, 2007		$	77,342			$	115,066			$	192,408
June 30, 2008		$	77,342			$	115,066			$	192,408
December 31, 2008		$	77,342			$	115,066			$	192,408
June 30, 2009		$	77,342			$	115,066			$	192,408

There is no goodwill associated with the Mortgage Banking, National Specialty Lending, and Corporate segments.

Note 7 - Regulatory Capital

FHN is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on FHN’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, specific capital guidelines that involve quantitative measures of assets, liabilities and certain derivatives as calculated under regulatory accounting practices must be met. Capital amounts and classification are also subject to qualitative judgment by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require FHN to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets (leverage). Management believes, as of June 30, 2009, that FHN met all capital adequacy requirements to which it was subject.

The actual capital amounts and ratios of FHN and FTBNA are presented in the table below. In addition, FTBNA must also calculate its capital ratios after excluding financial subsidiaries as defined by the Gramm-Leach-Bliley Act of 1999. Based on this calculation FTBNA’s Total Capital, Tier 1 Capital and Leverage ratios were 18.62 percent, 14.34 percent and 11.64 percent, respectively, on June 30, 2009, and were 13.87 percent, 9.90 percent and 8.10 percent, respectively, on June 30, 2008.

		First Horizon								First Tennessee Bank
		National Corporation								National Association
(Dollars in thousands)		Amount				Ratio				Amount				Ratio
On June 30, 2009:
Actual:
Total Capital		$	4,801,814				20.77	%		$	4,564,673				19.92	%
Tier 1 Capital			3,596,285				15.55				3,421,808				14.93
Leverage			3,596,285				12.49				3,421,808				11.98
For Capital Adequacy Purposes:
Total Capital			1,849,870	³			8.00				1,833,312	³			8.00
Tier 1 Capital			924,935	³			4.00				916,656	³			4.00
Leverage			1,151,280	³			4.00				1,142,369	³			4.00
To Be Well Capitalized Under Prompt Corrective Action Provisions:
Total Capital											2,291,639	³			10.00
Tier 1 Capital											1,374,984	³			6.00
Leverage											1,427,961	³			5.00
On June 30, 2008:
Actual:
Total Capital		$	4,376,408				15.15	%		$	4,195,535				14.65	%
Tier 1 Capital			3,034,698				10.51				2,936,767				10.25
Leverage			3,034,698				8.45				2,936,767				8.24
For Capital Adequacy Purposes:
Total Capital			2,310,774	³			8.00				2,291,784	³			8.00
Tier 1 Capital			1,155,387	³			4.00				1,145,892	³			4.00
Leverage			1,436,005	³			4.00				1,425,665	³			4.00
To Be Well Capitalized Under Prompt Corrective Action Provisions:
Total Capital											2,864,730	³			10.00
Tier 1 Capital											1,718,838	³			6.00
Leverage											1,782,082	³			5.00