UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

(Mark one)

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

For the quarterly period ended: September 30, 2009

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: 001-15185

CIK number: 0000036966

First Horizon National Corporation

(Exact Name of Registrant as Specified in Charter)

TN (State or Other Jurisdiction of Incorporation)		62-0803242 (IRS Employer Identification No.)

165 MADISON AVENUE
MEMPHIS, TENNESSEE		38103
(Address of Principal Executive Office)		(Zip Code)

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

(Former name or former address, if changed from last report)

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

Yes  X  No___

Indicate by check mark whether the registrant 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___No___

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   x		Accelerated filer ___		Non-accelerated filer ___		Smaller reporting company ___
				(Do not check if a smaller reporting company)

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

Yes___No  x  

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 September 30, 2009
Common Stock, $.625 par value			218,653,769

FIRST HORIZON NATIONAL CORPORATION

INDEX

Part I. Financial Information		3
Part II. Other Information		100
Signatures		102
Exhibit Index		103
EX-10.8(b)
EX-10.8(i)
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
		September 30								December 31
(Dollars in thousands)(Unaudited)		2009				2008				2008
Assets:
Cash and due from banks			$328,150				$815,935				$552,423
Federal funds sold and securities purchased under agreements to resell			622,733				921,295				772,357
Total cash and cash equivalents			950,883				1,737,230				1,324,780
Interest-bearing cash			166,352				37,546				207,792
Trading securities			701,151				1,561,024				945,766
Loans held for sale			502,687				718,029				566,654
Securities available for sale (Note 3)			2,645,922				2,840,739				3,125,153
Loans, net of unearned income (Note 4)			18,524,685				21,601,898				21,278,190
Less: Allowance for loan losses			944,765				760,456				849,210
Total net loans			17,579,920				20,841,442				20,428,980
Mortgage servicing rights (Note 5)			289,282				798,491				376,844
Goodwill (Note 6)			178,381				192,408				192,408
Other intangible assets, net (Note 6)			40,498				46,887				45,082
Capital markets receivables			797,949				1,651,547				1,178,932
Premises and equipment, net			321,788				336,078				333,931
Real estate acquired by foreclosure			111,389				151,461				125,538
Other assets			2,179,650				1,891,494				2,170,120
Total assets			$26,465,852				$32,804,376				$31,021,980
Liabilities and equity:
Deposits:
Savings			$4,416,121				$4,350,832				$4,824,939
Time deposits			2,156,768				2,510,344				2,294,644
Other interest-bearing deposits			2,162,059				1,638,731				1,783,362
Certificates of deposit $100,000 and more			1,263,331				1,470,089				1,382,236
Interest-bearing			9,998,279				9,969,996				10,285,181
Noninterest-bearing			4,236,704				3,808,239				3,956,633
Total deposits			14,234,983				13,778,235				14,241,814
Federal funds purchased and securities sold under agreements to repurchase			2,267,644				1,890,681				1,751,079
Trading liabilities			415,293				380,896				359,502
Other short-term borrowings and commercial paper			1,739,202				6,149,073				4,279,689
Term borrowings			2,368,381				4,545,791				4,022,297
Other collateralized borrowings			711,087				749,797				745,363
Total long-term debt			3,079,468				5,295,588				4,767,660
Capital markets payables			542,829				1,645,118				1,115,428
Other liabilities			816,224				791,867				932,176
Total liabilities			23,095,643				29,931,458				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 September 30, 2009 and December 31, 2008) (Note 12)			794,630				-				782,680
Common stock - $.625 par value (shares authorized - 400,000,000; shares issued - 218,653,769 on September 30, 2009; 217,503,590 on September 30, 2008; and 217,488,665 on December 31, 2008) *			136,659				125,996				128,302
Capital surplus			1,170,916				1,016,498				1,048,602
Capital surplus common stock warrant - CPP (Note 12)			83,860				-				83,860
Accumulated other comprehensive loss, net			(116,265	)			(48,037	)			(151,831	)
Undivided profits			1,005,244				1,483,184				1,387,854
Total First Horizon National Corporation Shareholders’ Equity			3,075,044				2,577,641				3,279,467
Noncontrolling interest (Note 12)			295,165				295,277				295,165
Total equity			3,370,209				2,872,918				3,574,632
Total liabilities and equity			$26,465,852				$32,804,376				$31,021,980

  See accompanying notes to consolidated financial statements.

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

  * Outstanding shares have been restated to reflect stock dividends distributed through October 1, 2009.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME								First Horizon National Corporation
		Three Months Ended								Nine Months Ended
		September 30								September 30
(Dollars in thousands except per share data)(Unaudited)		2009				2008				2009				2008
Interest income:
Interest and fees on loans		$	184,910			$	281,648			$	588,338			$	898,743
Interest on investment securities			33,495				38,733				110,057				118,681
Interest on loans held for sale			5,820				29,078				20,129				141,732
Interest on trading securities			11,780				27,586				41,502				93,665
Interest on other earning assets			355				6,198				1,922				22,350
Total interest income			236,360				383,243				761,948				1,275,171
Interest expense:
Interest on deposits:
Savings			7,553				17,005				31,821				60,957
Time deposits			13,980				22,443				48,493				79,216
Other interest-bearing deposits			1,316				2,849				3,280				11,573
Certificates of deposit $100,000 and more			5,809				15,184				23,236				63,552
Interest on trading liabilities			4,691				8,304				15,424				27,319
Interest on short-term borrowings			2,649				47,192				10,447				166,666
Interest on long-term debt			9,461				47,119				42,673				175,754
Total interest expense			45,459				160,096				175,374				585,037
Net interest income			190,901				223,147				586,574				690,134
Provision for loan losses			185,000				340,000				745,000				800,000
Net interest income/(expense) after provision for loan losses			5,901				(116,853	)			(158,426	)			(109,866	)
Noninterest income:
Capital markets			129,043				86,854				514,127				320,505
Mortgage banking			59,211				106,817				190,443				437,947
Deposit transactions and cash management			41,738				45,802				122,585				135,152
Trust services and investment management			7,347				8,154				21,818				26,146
Insurance commissions			5,907				7,332				19,380				22,298
Gains/(losses) from loan sales and securitizations			2,155				3,238				3,676				(7,843	)
Equity securities gains/(losses), net			65				(210	)			(267	)			63,833
Debt securities gains, net			-				-				-				931
Losses on divestitures			-				(17,489	)			-				(18,913	)
All other income and commissions			58,352				55,575				115,585				143,996
Total noninterest income			303,818				296,073				987,347				1,124,052
Adjusted gross income after provision for loan losses			309,719				179,220				828,921				1,014,186
Noninterest expense:
Employee compensation, incentives and benefits			178,734				207,423				614,301				755,433
Legal and professional fees			17,077				16,556				45,688				44,710
Occupancy			16,207				26,854				47,465				84,786
Operations services			15,392				18,881				47,439				54,454
Equipment rentals, depreciation and maintenance			8,695				12,268				25,561				45,371
Communications and courier			6,837				9,243				20,688				30,780
Amortization of intangible assets			1,445				1,802				4,590				6,424
All other expense			105,514				94,488				354,458				237,815
Total noninterest expense			349,901				387,515				1,160,190				1,259,773
Loss before income taxes			(40,182	)			(208,295	)			(331,269	)			(245,587	)
Benefit for income taxes			(15,368	)			(87,824	)			(136,834	)			(123,088	)
Loss from continuing operations			(24,814	)			(120,471	)			(194,435	)			(122,499	)
Loss from discontinued operations, net of tax			(10,200	)			(1,749	)			(11,156	)			(3,977	)
Net loss		$	(35,014	)		$	(122,220	)		$	(205,591	)		$	(126,476	)
Net income attributable to noncontrolling interest			2,969				2,875				8,563				9,780
Net loss attributable to controlling interest		$	(37,983	)		$	(125,095	)		$	(214,154	)		$	(136,256	)
Preferred stock dividends			14,876				-				44,688				-
Net loss available to common shareholders		$	(52,859	)		$	(125,095	)		$	(258,842	)		$	(136,256	)
Loss per share from continuing operations (Note 8)		$	(0.20	)		$	(0.57	)		$	(1.14	)		$	(0.72	)
Diluted loss per share from continuing operations (Note 8)		$	(0.20	)		$	(0.57	)		$	(1.14	)		$	(0.72	)
Loss per share available to common shareholders (Note 8)		$	(0.24	)		$	(0.58	)		$	(1.19	)		$	(0.74	)
Diluted loss per share available to common shareholders (Note 8)		$	(0.24	)		$	(0.58	)		$	(1.19	)		$	(0.74	)
Weighted average common shares outstanding - basic (Note 8)			217,186				217,062				217,152				182,858
Weighted average common shares outstanding - diluted (Note 8)			217,186				217,062				217,152				182,858

  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
		Controlling				Noncontrolling								Controlling				Noncontrolling
(Dollars in thousands)(Unaudited)		Interest				Interest				Total				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 under the Fair Value Measurements and Disclosures topic (ASC 820)			-				-				-				(12,502	)			-				(12,502	)
Adjustment to reflect change in accounting for split dollar life insurance arrangements (ASC 715-60)			-				-				-				(8,530	)			-				(8,530	)
Net income/(loss)			(214,154	)			8,563				(205,591	)			(136,256	)			9,780				(126,476	)
Other comprehensive income/(loss):
Unrealized fair value adjustments, net of tax:
Cash flow hedges			-				-				-				(6	)			-				(6	)
Securities available for sale			25,216				-				25,216				(2,679	)			-				(2,679	)
Recognized pension and other employee benefit plans net periodic benefit costs			10,350				-				10,350				2,749				-				2,749
Comprehensive income/(loss)			(178,588	)			8,563				(170,025	)			(136,192	)			9,780				(126,412	)
Preferred stock - (CPP) accretion			11,950				-				11,950				-				-				-
Preferred stock - (CPP) dividends			(44,657	)			-				(44,657	)			-				-				-
Cash dividends declared			-				-				-				(64,431	)			-				(64,431	)
Common stock issuance (69 million shares issued at $10 per share, net of offering costs)			-				-				-				659,659				-				659,659
Common stock repurchased			(388	)			-				(388	)			(262	)			-				(262	)
Common stock issued for stock options and restricted stock			1,681				-				1,681				572				-				572
Excess tax benefit (shortfall) from stock-based compensation arrangements			-				-				-				(1,531	)			-				(1,531	)
Stock-based compensation expense			5,359				-				5,359				5,262				-				5,262
Dividends paid to noncontrolling interest of subsidiary preferred stock			-				(8,563	)			(8,563	)			-				(9,780	)			(9,780	)
Other changes in equity			220				-				220				-				-				-
Balance, September 30			$3,075,044				$295,165				$3,370,209				$2,577,641				$295,277				$2,872,918

  See accompanying notes to consolidated condensed financial statements.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS		First Horizon National Corporation
		Nine Months Ended September 30
(Dollars in thousands)(Unaudited)			2009				2008
Operating Activities
Net loss		$	(205,591	)		$	(126,476	)
Adjustments to reconcile net loss to net cash provided/(used) by operating activities:
Provision for loan losses			745,000				800,000
Benefit for deferred income tax			(95,169	)			(221,764	)
Depreciation and amortization of premises and equipment			24,663				31,995
Amortization of intangible assets			4,590				6,424
Net other amortization and accretion			33,183				34,236
Decrease/(increase) in derivatives, net			151,077				(33,393	)
Market value adjustment on mortgage servicing rights			(42,662	)			63,769
Provision for foreclosure losses			94,775				10,432
Goodwill impairment			14,027				-
Loss on divestitures			-				18,913
Stock-based compensation expense			5,359				5,262
Excess tax benefit from stock-based compensation arrangements			-				1,531
Equity securities (gains)/losses, net			267				(63,833	)
Debt securities gains, net			-				(931	)
Gains on repurchases of debt			(12,860	)			(31,515	)
Net losses on disposal of fixed assets			5,907				23,795
Net (increase)/decrease in:
Trading securities			184,481				76,639
Loans held for sale			63,967				2,775,183
Capital markets receivables			380,983				(1,127,128	)
Interest receivable			8,222				24,753
Other assets			(70,440	)			122,709
Net increase/(decrease) in:
Capital markets payables			(572,599	)			1,058,760
Interest payable			(26,255	)			(38,792	)
Other liabilities			(86,133	)			(300,074	)
Trading liabilities			55,791				(175,248	)
Total adjustments			866,174				3,061,723
Net cash provided by operating activities			660,583				2,935,247
Investing Activities
Held to maturity securities:
Maturities			-				240
Available for sale securities:
Sales			42,756				104,940
Maturities			552,043				503,984
Purchases			(69,850	)			(348,888	)
Premises and equipment:
Purchases			(18,427	)			(37,050	)
Net (increase)/decrease in:
Securitization retained interests classified as trading securities			60,134				43,237
Loans			2,067,162				272,115
Interest-bearing cash			41,440				1,876
Cash payments related to divestitures			-				(20,518	)
Net cash provided/(used) by investing activities			2,675,258				519,936
Financing Activities
Common stock:
Exercise of stock options			3				511
Cash dividends paid			-				(64,069	)
Repurchase of shares			(388	)			(261	)
Issuance of common shares			-				659,660
Excess tax benefit from stock-based compensation arrangements			-				(1,531	)
Cash dividends paid - preferred stock - CPP			(32,616	)			-
Cash dividends paid - preferred stock - noncontrolling interest			(9,803	)			(11,584	)
Long-term debt:
Issuance			-				25,002
Payments/Maturities			(1,484,294	)			(1,354,261	)
Cash paid for repurchase of debt			(151,910	)			(212,260	)
Net increase/(decrease) in:
Deposits			(6,807	)			(2,785,070	)
Short-term borrowings			(2,023,923	)			(233,805	)
Net cash used by financing activities			(3,709,738	)			(3,977,668	)
Net decrease in cash and cash equivalents			(373,897	)			(522,485	)
Cash and cash equivalents at beginning of period			1,324,780				2,259,715
Cash and cash equivalents at end of period		$	950,883			$	1,737,230
Total interest paid			201,027				621,812
Total income taxes paid		$	106,886			$	183,536

  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 the provisions of the FASB Codification update to FASB Accounting Standards Codification (ASC) 320-10-35 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 the amendments to ASC 320-10-35, 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. Currently, FHN does not have other than temporarily impaired debt securities for which credit losses exist.

Loans Held for Sale and Securitization. In conjunction with the adoption of the provisions of the FASB Codification update to ASC 820-10, 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 September 30, 2009, FHN adopted the provisions of FASB Codification Update 2009-01 which creates ASC 105, “Generally Accepted Accounting Principles”. ASC 105 establishes the FASB Accounting Standards Codification (the “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 ASC 105, all guidance contained in the FASB Accounting Standards Codification carries an equal level of authority, with ASC 105 superseding all non-SEC accounting and reporting standards which existed as of its effective date. The effect of adopting the provisions of ASC 105 was immaterial to

Note 1 - Financial Information (continued)

FHN. In accordance with ASC 105, all references to authoritative accounting standards have been revised to reflect their Codification citation.

Effective June 30, 2009, FHN adopted the provisions of the FASB Codification update to ASC 825-10-50, which requires disclosures about fair value of financial instruments in interim financial statements. ASC 825-10-50, as amended, requires that disclosures be included in both interim and annual financial statements of the methods and significant assumptions used to estimate the fair value of financial instruments. Comparative disclosures are required only for periods ending subsequent to initial adoption. Upon adoption of the amendments to ASC 825-10-50, FHN revised its disclosures accordingly.

Effective June 30, 2009, FHN adopted ASC 855-10 which provides general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. ASC 855-10-50 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 initially applied the guidance of ASC 855-10 when assessing subsequent events through the time of the filing of the financial statements for the quarter ended June 30, 2009, and the effects of adoption were not material.

In April 2009, the FASB issued a Codification update to ASC 320-10-35 which replaces the “intent and ability to hold to recovery” indicator of other-than-temporary impairment in ASC 320-10-35 for debt securities. The updated provisions of ASC 320-10-35 specify 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. ASC 320-10-35, as amended, 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. ASC 320-10-35, as amended, discusses the proper interaction of its guidance with SEC Staff Accounting BulletinTopic 5M, which provides additional factors that must be considered in an other-than-temporary impairment analysis. ASC 320-10-35, as amended, 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. ASC 320-10-35 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 provided in the Codification update to ASC 320-10-35 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 a Codification update to ASC 820-10 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, ASC 820-10 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. ASC 820-10, as amended, 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. The Codification update to ASC 820-10 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 provided in the Codification update to ASC 820-10 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 the Codification update to ASC 820 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 ASC 820’s measurement framework to such non-financial assets and liabilities was previously delayed under transitional guidance issued by the FASB. ASC 820, as amended, establishes a hierarchy to be used in performing measurements of fair value. Additionally, the updated provisions of ASC 820 emphasize 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. ASC 820, as amended, also provides expanded disclosure requirements regarding the effects of fair value measurements on the financial statements. The effect of adopting the updated provisions of ASC 820 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

Note 1 - Financial Information (continued)

ASC 820’s Codification update 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 updated provisions of ASC 820 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 ASC 815-10-45. The effect of the change in accounting for these interest rate lock commitments produced a $15.7 million negative effect on first quarter 2008 pre-tax earnings as the $14.2 million positive effect of delivering the loans associated with the commitments existing at the beginning of the quarter was more than offset by a negative impact of $29.9 million for commitments remaining on the balance sheet at quarter end that was previously deferred under the guidance of ASC 815-10-45 until delivery of the associated loans. Second quarter 2008 earnings were positively impacted by a net of $13.7 million as (1) FHN continued to deliver loans that had been commitments upon adoption of the amendments to ASC 820, (2) some commitments existing at March 31, 2008 were delivered as loans during the second quarter 2008 and (3) additional commitments that would have been deferred under the guidance of ASC 815-10-45 were made. Third quarter 2008 earnings were positively impacted by a net $20.8 million as (1) FHN continued to deliver loans that had been commitments upon adoption of the amendments to ASC 820, (2) some commitments existing at June 30, 2008 were delivered as loans during the third quarter 2008 and (3) additional commitments that would have been deferred under ASC 815-10-45 were made. Substantially all commitments existing at August 31, 2008 were sold to MetLife Bank, N.A (MetLife).

Effective January 1, 2009, FHN adopted the provisions of the Codification update to ASC 805 and ASC 810. ASC 805, as amended, 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, the updated provisions of ASC 805 provide that an acquirer cannot specify an effective date for a business combination that is separate from the acquisition date. ASC 805, as amended, 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. ASC 810, as amended, requires that acquired assets and liabilities be measured at full fair value without consideration to ownership percentage. Under the updated provisions of ASC 810, any noncontrolling interests in an acquiree should be presented as a separate component of equity rather than on a mezzanine level. Additionally, ASC 810, as amended, 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. The retrospective application of ASC 810’s presentation and disclosure requirements resulted in an increase to consolidated net income of $2.9 million for third quarter 2008, and $9.8 million for the nine months ended September 30, 2008. FHN also recognized an increase of total shareholders’ equity of $295.2 million upon adoption of the amendments to ASC 810 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 the provisions of an additional Codification update to ASC 805 which requires 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. ASC 805, as amended, 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, ASC 805, as amended, 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 the Codification update to ASC 805 had no effect on FHN’s statement of condition or results of operations.

Effective January 1, 2009, FHN adopted the provisions of the Codification update to ASC 815-10-50 which provides amendments that enhance disclosures related to derivatives accounted for in accordance with ASC 815 and reconsiders existing disclosure requirements for such derivatives and any related hedging items. The additional disclosures provided in ASC 815-10-50, as amended, are required for both interim and annual reporting periods. Upon adoption of the Codification update to ASC 815-10-50, FHN revised its disclosures accordingly.

FHN also adopted the provisions of the Codification update to ASC 860-10 as of January 1, 2009, for initial transfers of financial assets executed after such date. The Codification update amends ASC 860-10 to permit 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. ASC 860-10, as amended, requires that the two

Note 1 - Financial Information (continued)

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 the Codification update to ASC 860-10 was immaterial to FHN.

Effective December 31, 2008, FHN adopted the provisions of the Codification update to ASC 325 which aligns its impairment model for beneficial interests in securitized financial assets with the impairment model in ASC 320, 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 ASC 325, the effect of adopting the Codification update to ASC 325 was immaterial to FHN.

Effective December 31, 2008, FHN adopted the provisions of the Codification update to ASC 810 and ASC 860 which require additional disclosures related to transfers of financial assets as well as FHN’s involvement with variable interest entities and qualifying special purpose entities. Upon adoption of the Codification update to ASC 810 and ASC 860, FHN revised its disclosures accordingly.

Effective December 31, 2008, FHN adopted the provisions of the Codification update to ASC 815-10-50 which 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 the Codification update to ASC 815-10-50 was immaterial to FHN.

Effective January 1, 2008, FHN adopted the provisions of the Codification update to ASC 825 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 ASC 825, 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, ASC 825 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. ASC 825 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. ASC 825 also provides expanded disclosure requirements regarding the effects of electing the fair value option on the financial statements. Upon adoption of the updated provisions of ASC 825, 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 ASC 825’s amendment of ASC 320, 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 ASC 825. FHN did not elect fair value accounting for any other loan commitments under ASC 825. The prospective application of SAB No. 109 and the prospective election to recognize substantially all new mortgage loan originations at fair value under ASC 825 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 the updated provisions of ASC 825 as loans and commitments remaining on the balance sheet at the end of first quarter 2008 were sold. Third quarter 2008 earnings were negatively affected by $35.2 million related to the adoption of SAB No. 109 and the updated provisions of ASC 825 as remaining loans and commitments on the balance sheet were sold either as part of the transaction with MetLife Bank, N.A. or through subsequent deliveries of the mortgage warehouse.

Effective January 1, 2008, FHN adopted the provisions of the Codification update which amended ASC 820 to exclude ASC 840, “Leases”, from its scope. The adoption of the Codification update to ASC 820 had no effect on FHN’s statement of condition or results of operations.

Effective January 1, 2008, FHN adopted the provisions of the Codification update to ASC 715 which 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 the amendments to ASC 715.

Note 1 - Financial Information (continued)

Effective January 1, 2008, FHN adopted the provisions of the Codification update to ASC 815 which 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 the amendments to ASC 815, entities were permitted to change their previous accounting policy election to offset or not offset fair value amounts recognized for derivative instruments under master netting arrangements. ASC 815, as amended, 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 the updated provisions of ASC 815, and has revised its disclosures accordingly.

FHN also adopted the provisions of the Codification update to ASC 815-20-25 as of January 1, 2008, for hedging relationships designated on or after such date. The updated provisions of ASC 815-20-25 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 ASC 820. Additionally, ASC 815-20-25, as amended, 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 the adoption date of the amendments to ASC 815-20-25 to determine whether they complied with the revised shortcut criteria at their inception or should be dedesignated prospectively. The adoption of the updated provisions of ASC 815-20-25 had no effect on FHN’s financial position or results of operations as all of FHN’s preexisting hedging relationships met the requirements of ASC 815-20-25, as amended, at their inception.

Accounting Changes Issued but Not Currently Effective. In August 2009, the FASB issued Accounting Standards Update No. 2009-05, “Measuring Liabilities at Fair Value” (ASU 09-05). ASU 09-05 updates ASC 820 to clarify that a quoted price for the identical liability, when traded as an asset in an active market, is a Level 1 measurement for that liability when no adjustment to the quoted price is required. ASU 09-05 further amends ASC 820 to provide that if a quoted price for an identical liability does not exist in an active market, the fair value of the liability should be measured using an approach that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs. Under the updated provisions of ASC 820, for such liabilities fair value will be measured using either a valuation technique that uses the quoted price of the identical liability when traded as an asset, a valuation technique that uses the quoted price for similar liabilities or similar liabilities when traded as an asset, or another valuation technique that is consistent with the principles of ASC 820. The update to ASC 820 is effective for the first reporting period beginning after the issuance of ASU 09-05. The adoption of the Codification update to ASC 820 will not have a material effect on FHN’s statement of condition or results of operations.

In June 2009, the FASB issued a Codification update to ASC 860 which 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 ASC 810. The amendments to ASC 860 modify the criteria for achieving sale accounting for transfers of financial assets and define the term participating interest to establish specific conditions for reporting a transfer of a portion of a financial asset as a sale. The updated provisions of ASC 860 also provide 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. ASC 860, as amended, requires enhanced disclosures which are generally consistent with, and supersede, the disclosures previously required by the Codification update to ASC 810 and ASC 860 which was effective for periods ending after December 15, 2008. The provisions of the Codification update to ASC 860 are 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. ASC 860’s amended disclosure requirements should be applied to transfers that occurred both before and after the effective date of the Codification update, with comparative disclosures required only for periods subsequent to initial adoption for those disclosures not previously required under the Codification update to ASC 810 and ASC 860 which was effective for periods ending after December 15, 2008. FHN is currently assessing the effects of adopting the provisions of the Codification update to ASC 860.

In June 2009, the FASB issued a Codification update to ASC 810 which revises the criteria for determining the primary beneficiary of a variable interest entity (VIE) by replacing the quantitative-based risks and rewards test previously required with a qualitative analysis. While ASC 810, as amended, retains the previous guidance in ASC 810 which requires a reassessment of whether an entity is a VIE only when certain triggering events occur, it adds an additional criteria which triggers a reassessment of an entity’s status when an event occurs such

Note 1 - Financial Information (continued)

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, the amendments to ASC 810 require continual reconsideration of conclusions regarding which interest holder is the VIE’s primary beneficiary. Following the Codification update, ASC 810 will require 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 (e.g., consolidated residential mortgage securitization trusts). ASC 810, as amended, also requires enhanced disclosures which are generally consistent with, and supersede, the disclosures previously required by the Codification update to ASC 810 and ASC 860 which was effective for periods ending after December 15, 2008. The provisions of the Codification update to ASC 810 are effective for periods beginning after November 15, 2009 and require reevaluation under ASC 810’s amended consolidation requirements of all QSPEs and entities currently subject to ASC 810 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 ASC 810, as amended, 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 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 ASC 825 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 the amendments to ASC 810 results in deconsolidation of a VIE, any retained interest in the VIE should be measured at its carrying value as if ASC 810, as amended, 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 the Codification update to ASC 810 and ASC 860 which was effective for periods ending after December 15, 2008.

FHN is continuing to assess the effects of adopting the Codification Update to ASC 810 on all of its proprietary residential mortgage securitization trusts based on the size and priority of interests retained. Presented below by the total percentage of denominated financial interests retained in a trust are the aggregate unpaid principal balances as of September 30, 2009, of loans held by FHN’s off balance sheet proprietary first lien securitization trusts and off balance sheet HELOC and home equity loan securitization trusts, as well as the nature of FHN’s retained interests in such trusts.

		Aggregate Unpaid				Nature of Financial Interests
Dollars in thousands		Principal Balance				Retained (a)
First Lien:
Less than 1%			$17,339,132			MSR & excess interest
Between 1% and 2%			1,275,366			(b)
Between 2% and 5%			336,082			(c)
Over 5%			35,680			(d)
HELOC and Home Equity Loans:
N/A			$    222,836			MSR & residual interest

(a)		In addition to the financial interests retained, which are listed in the table above, FHN also retained non-financial interests including repurchase obligations, clean up calls, and required servicing advances for all proprietary securitization trusts.
(b)		Interests retained include MSR and excess interest, as well as principal-only strips.
(c)		Interests retained include MSR and excess interest, as well as interest-only strips, principal-only strips, and/or subordinated bonds for certain securitizations.
(d)		Interests retained include MSR and excess interest, as well as subordinated bonds.

Based on its current level of involvement, upon adoption of the Codification update to ASC 810 proprietary first lien securitization trusts for which FHN retains over 5% of the denominated financial interests will be consolidated by FHN as the retention of MSR and other retained interests, including subordinated bonds, results in FHN being considered the trust’s primary beneficiary under the qualitative analysis required by ASC 810, as amended. Additionally, FHN believes that upon adoption of the amendments to ASC 810 it is possible that it will

Note 1 - Financial Information (continued)

consolidate certain proprietary first lien securitization trusts where FHN and its consolidated subsidiaries retain between 2% and 5% of the denominated financial interests, based on the size and priority of the interests retained. Further, the previously off balance sheet HELOC and home equity loan securitization trusts will be consolidated upon adoption of the amendments to ASC 810 as FHN will be considered the primary beneficiary of those trusts based on its retention of MSR and non-denominated residual interests.

In December 2008, the FASB issued a Codification Update to ASC 715 which provides detailed disclosure requirements to enhance the disclosures about an employer’s postretirement benefit plan assets currently required by ASC 715-20-50. The amendments to ASC 715 are effective prospectively for annual periods ending after December 15, 2009. FHN is currently assessing the effects of adopting the Codification update to ASC 715.

Note 2 - Acquisitions/Divestitures

Continuing the efforts to refocus on core businesses, a definitive agreement was reached with Point Capital Partners LLC in third quarter 2009 for the sale of FTN Equity Capital Markets Corp. (“FTN ECM”), the institutional equity research division of FTN Financial. While the sale is expected to close in fourth quarter 2009 subject to regulatory approval and customary closing conditions, FHN incurred a pre-tax goodwill impairment of $14.0 million (approximately $9 million after taxes) in third quarter 2009. The financial results of FTN ECM, including the third quarter goodwill impairment, are reflected in the Income/loss from discontinued operations, net of tax line on the Consolidated Condensed Statements of Income for all periods presented.

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 available for sale securities on September 30, 2009, and 2008:

		On September 30, 2009
						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
(Dollars in thousands)		Cost				Gains				Losses				Value
Securities available for sale:
U.S. Treasuries		$	47,964				$      361			$	-			$	48,325
Government agency issued MBS (a)			995,576				58,338				-				1,053,914
Government agency issued CMO (a)			1,029,977				45,776				-				1,075,753
Other U.S. government agencies (a)			116,019				5,753				-				121,772
States and municipalities			46,090				-				-				46,090
Other			2,212				30				(40	)			2,202
Equity (b)			297,565				366				(65	)			297,866
Total securities available for sale (c)		$	2,535,403			$	110,624			$	(105	)		$	2,645,922

		On September 30, 2008
						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
(Dollars in thousands)		Cost				Gains				Losses				Value
Securities available for sale:
U.S. Treasuries		$	47,897			$	134			$	-			$	48,031
Government agency issued MBS (a)			1,247,796				13,408				(340	)			1,260,864
Government agency issued CMO (a)			1,080,662				14,617				(491	)			1,094,788
Other U.S. government agencies (a)			133,402				2,118				(200	)			135,320
States and municipalities			31,630				44				-				31,674
Other			2,374				-				(239	)			2,135
Equity (b)			267,876				51				-				267,927
Total securities available for sale (c)		$	2,811,637			$	30,372			$	(1,270	)		$	2,840,739

(a)		Includes securities issued by government sponsored entities.
(b)		Includes investments in FHLB stock of $124.0 million, FRB stock of $26.0 million, remainder is venture capital, money market, and cost method investments.
(c)		Includes $2.5 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes. As of September 30, 2008, FHN had pledged $1.4 billion of available for sale securities as collateral for securities sold under repurchase agreements. Additionally, $50.7 million is restricted pursuant to reinsurance contract agreements.

Note 3 - Investment Securities (continued)

Provided below are the amortized cost and fair value by contractual maturity for the available for sale securities portfolio on September 30, 2009:

		Available for Sale
		Amortized				Fair
(Dollars in thousands)		Cost				Value
Within 1 year		$	41,509			$	41,838
After 1 year; within 5 years			28,382				29,575
After 5 years; within 10 years			99,032				103,625
After 10 years			1,036,725				1,095,063
Subtotal			1,205,648				1,270,101
Government agency issued MBS and CMO			1,029,978				1,075,753
Equity and other securities			299,777				300,068
Total		$	2,535,403			$	2,645,922

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

The table below provides information on realized gross gains and realized gross losses on sales from the available for sale portfolio for the nine months ended September 30:

		Available for Sale
(Dollars in thousands)		Debt				Equity				Total
September 30, 2009
Gross gains on sales		$	-			$	2,209			$	2,209
Gross losses on sales			-				(403	)			(403	)
September 30, 2008
Gross gains on sales			230				65,939				66,169
Gross losses on sales			-				-				-

Proceeds from the sale of AFS securities generating gains or losses in the first nine months of 2009 and 2008 were $3.9 million and $67.2 million, respectively.

Losses totaling $.5 million and $1.5 million for the nine months ended September 30, 2009 and 2008, respectively, were recognized for securities that, in the opinion of management have been other-than-temporarily impaired. The other-than-temporarily impaired securities are related to cost method investment securities.

Note 3 - Investment Securities (continued)

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

		On September 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
Other			-				-				140				(40	)			140				(40	)
Total debt securities			-				-				140				(40	)			140				(40	)
Equity			-				-				166				(65	)			166				(65	)
Total temporarily impaired securities		$	-			$	-				$    306				$    (105	)			$    306				$    (105	)
		On September 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
Government agency issued MBS			$   67,057			$	(340	)			$        -				$        -				$  67,057				$     (340	)
Government agency issued CMO			81,425				(491	)			-				-				81,425				(491	)
Other U.S. government agencies			-				-				22,647				(200	)			22,647				(200	)
Other			355				(17	)			411				(222	)			766				(239	)
Total debt securities			148,837				(848	)			23,058				(422	)			171,895				(1,270	)
Equity			-				-				-				-				-				-
Total temporarily impaired securities			$  148,837			$	(848	)			$23,058				$   (422	)			$ 171,895				$  (1,270	)

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.

Note 4 - Loans

The composition of the loan portfolio is detailed below:

		September 30								December 31
(Dollars in thousands)		2009				2008				2008
Commercial:
Commercial, financial and industrial		$	6,920,916			$	7,642,684				$  7,863,727
Real estate commercial			1,537,099				1,492,323				1,454,040
Real estate construction			1,130,710				2,020,455				1,778,140
Retail:
Real estate residential			7,590,699				8,192,926				8,161,435
Real estate construction			361,930				1,201,911				980,798
Other retail			124,376				139,441				135,779
Credit card receivables			189,452				194,966				189,554
Real estate loans pledged against other collateralized borrowings			669,503				717,192				714,717
Loans, net of unearned income			18,524,685				21,601,898				21,278,190
Allowance for loan losses			944,765				760,456				849,210
Total net loans		$	17,579,920			$	20,841,442				$ 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 (45 percent of total loans) is 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 Residential CRE portfolio, included in Commercial Real Estate Construction, (4 percent of total loans) has also been negatively impacted by the housing industry downturn as builder liquidity has been severely stressed. The One-Time Close (OTC) portfolio, included in Retail Residential Construction (2 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 size of the Residential CRE and OTC portfolios has significantly declined as FHN continues to wind down the national construction portfolios.

Additionally, on September 30, 2009, FHN had bank-related and trust preferred loans (including loans to bank and insurance-related businesses) totaling $.7 billion (4 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 stress during the economic downturn.

On September 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 September 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:

		September 30								December 31
(Dollars in thousands)		2009				2008				2008
Impaired loans		$	603,960			$	404,458				$    474,090
Other nonaccrual loans*			515,759				495,518				579,558
Total nonperforming loans		$	1,119,719			$	899,976				$ 1,053,648

*

On September 30, 2009 and 2008, and on December 31, 2008, other nonaccrual loans included $32.3 million, $9.1 million, and $8.5 million, respectively, of loans held for sale.

Note 4 - Loans (continued)

Generally, interest payments received on impaired and nonaccrual 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								Nine Months Ended
		September 30								September 30
(Dollars in thousands)		2009				2008				2009				2008
Total interest on impaired loans		$	454			$	167			$	1,118			$	427
Average balance of impaired loans			575,829				388,476				538,007				291,809

Activity in the allowance for loan losses related to non-impaired and impaired loans for the nine months ended September 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			626,612				173,388				800,000
Divestitures/acquisitions/transfers			(382	)			-				(382	)
Charge-offs			(219,760	)			(173,581	)			(393,341	)
Recoveries			10,392				1,446				11,838
Net charge-offs			(209,368	)			(172,135	)			(381,503	)
Balance on September 30, 2008		$	742,745			$	17,711			$	760,456
Balance on December 31, 2008		$	836,907			$	12,303			$	849,210
Provision for loan losses			510,164				234,836				745,000
Charge-offs			(441,523	)			(238,530	)			(680,053	)
Recoveries			26,764				3,844				30,608
Net charge-offs			(414,759	)			(234,686	)			(649,445	)
Balance on September 30, 2009		$	932,312			$	12,453			$	944,765

Note 5 - Mortgage Servicing Rights

FHN recognizes all 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. See Note 16 – Fair Value, the “Determination of Fair Value” section for a discussion of FHN’s MSR valuation methodology. The balance of MSR included on the Consolidated Condensed Statements of Condition represents the rights to service approximately $43.1 billion of mortgage loans on September 30, 2009, for which a servicing right has been capitalized.

In third quarter 2009, FHN reviewed the allocation of fair value between MSR and excess interest from prior first lien loan sales and securitizations. As a result, $11.9 million was reclassified from trading securities to MSR retained from securitizations and $.8 million was reclassified from MSR retained from prior loan sales to trading securities. This reclassification is reflected in the rollforwards below.

Following is a summary of changes in capitalized MSR related to proprietary securitization activities utilizing qualifying special purpose entities (QSPEs) as of September 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			-				-				144
Reductions due to loan payments			(20,079	)			(223	)			(311	)
Changes in fair value due to:
Changes in valuation model inputs or assumptions			(12,130	)			(9	)			(362	)
Other changes in fair value			-				-				14
Fair value on September 30, 2008		$	198,102			$	1,197				$ 1,745
Fair value on January 1, 2009		$	102,993			$	981				$ 1,471
Addition of mortgage servicing rights			-				-				11
Reductions due to loan payments			(12,489	)			(98	)			(241	)
Reclassification from/(to) trading securities			11,853				-				-
Changes in fair value due to:
Changes in valuation model inputs or assumptions			4,270				45				-
Fair value on September 30, 2009		$	106,627				$928				$ 1,241

Servicing, late, and other ancillary fees recognized within mortgage banking income were $16.0 million and $20.9 million for the three months ended September 30, 2009, and 2008, respectively, related to securitization activity and $49.7 million and $64.1 million for the nine months ended September 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 September 30, 2009, and 2008, respectively, related to securitization activity and $.7 million and $.9 million for the nine months ended September 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 September 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			240,676				-				1,001
Reductions due to loan payments			(76,058	)			(4,745	)			(1,370	)
Reductions due to sale			(436,595	)			-				-
Changes in fair value due to:
Changes in valuation model inputs or assumptions			(48,376	)			(3,334	)			(1,803	)
Other changes in fair value			768				6				1,457
Fair value on September 30, 2008			$572,519				$16,330				$8,598
Fair value on January 1, 2009		$	251,404			$	12,576			$	7,419
Addition of mortgage servicing rights			189				-				-
Reductions due to loan payments			(35,768	)			(4,003	)			(1,464	)
Reductions due to sale			(77,591	)			(8,134	)			(1,548	)
Reclassification from/(to) trading securities			(776	)			-				-
Changes in fair value due to:
Changes in valuation model inputs or assumptions			38,347				-				-
Other changes in fair value			(1,387	)			483				739
Fair value on September 30, 2009			$174,418				$922				$5,146

Servicing, late, and other ancillary fees recognized within mortgage banking income were $13.6 million and $29.2 million for the three months ended September 30, 2009, and 2008, respectively, related to loan sale activity and $42.8 million and $123.7 million for the nine months ended September 30, 2009, and 2008, respectively. Servicing, late, and other ancillary fees recognized within revenue from loan sales and securitizations were $3.3 million and $3.8 million for the three months ended September 30, 2009, and 2008, respectively, related to loan sale activity and $10.2 million and $12.1 million for the nine months ended September 30, 2009, and 2008, respectively.

FHN services a portfolio of mortgage loans related to transfers performed by other parties utilizing QSPEs. FHN’s servicing assets represent its sole interest in these transactions. The total MSR recognized by FHN related to these transactions was $7.2 million and $47.9 million at September 30, 2009, and 2008, respectively. The aggregate principal balance serviced by FHN for these transactions was $1.0 billion and $3.4 billion at September 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 September 30, 2009, FHN had transferred $34.1 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 other short term borrowings and commercial paper in the Consolidated Condensed Statements of Condition as of September 30, 2009.

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			-				(6,424	)
Impairment			-				(4,034	)
Divestitures			-				(32	)
Additions			-				470
September 30, 2008		$	192,408			$	46,887
December 31, 2008		$	192,408			$	45,082
Impairment **			(14,027	)			(341	)
Additions			-				347
Amortization expense			-				(4,590	)
September 30, 2009		$	178,381			$	40,498

*		Represents customer lists, acquired contracts, premium on purchased deposits, and covenants not to compete.
**		See Note 2 - Acquisitions/Divestitures for further details regarding goodwill impairment.

The gross carrying amount of other intangible assets subject to amortization is $126.4 million on September 30, 2009, net of $85.9 million of accumulated amortization. Estimated aggregate amortization expense is expected to be $1.5 million for the remainder of 2009, and $5.9 million, $5.7 million, $4.3 million, $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 nine months ended September 30:

		Regional					Capital
(Dollars in thousands)		Banking					Markets				Total
December 31, 2007		$	77,342			$	115,066			$	192,408
September 30, 2008		$	77,342			$	115,066			$	192,408
December 31, 2008		$	77,342			$	115,066			$	192,408
Impairment			-				(14,027	)			(14,027	)
September 30, 2009		$	77,342			$	101,039			$	178,381

  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 September 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 19.51 percent, 15.08 percent, and 12.47 percent, respectively, on September 30, 2009, and were 14.65 percent, 10.43 percent, and 8.46 percent, respectively, on September 30, 2008.

	First Horizon									First Tennessee Bank
	National Corporation									National Association
(Dollars in thousands)			Amount			Ratio				Amount				Ratio
On September 30, 2009:
Actual:
Total Capital		$	4,754,979			21.61%				$	4,532,949			20.82%
Tier 1 Capital			3,563,650				16.20				3,404,528				15.63
Leverage			3,563,650				13.34				3,404,528				12.85
For Capital Adequacy Purposes:
Total Capital			1,759,961	³			8.00				1,742,115	³			8.00
Tier 1 Capital			879,981	³			4.00				871,058	³			4.00
Leverage			1,068,442	³			4.00				1,059,832	³			4.00
To Be Well Capitalized Under Prompt Corrective Action Provisions:
Total Capital											2,177,644	³			10.00
Tier 1 Capital											1,306,587	³			6.00
Leverage											1,324,790	³			5.00
On September 30, 2008:
Actual:
Total Capital		$	4,247,691			16.07%				$	4,076,009			15.54%
Tier 1 Capital			2,933,984				11.10				2,844,757				10.84
Leverage			2,933,984				8.84				2,844,757				8.64
For Capital Adequacy Purposes:
Total Capital			2,114,211	³			8.00				2,098,531	³			8.00
Tier 1 Capital			1,057,105	³			4.00				1,049,264	³			4.00
Leverage			1,327,049	³			4.00				1,317,648	³			4.00
To Be Well Capitalized Under Prompt Corrective Action Provisions:
Total Capital											2,623,163	³			10.00
Tier 1 Capital											1,573,898	³			6.00
Leverage											1,647,060	³			5.00