FIRST HORIZON NATIONAL CORP (Form: 10-K, Received: 02/26/2009 17:15:17)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

- or -

o 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

FIRST HORIZON NATIONAL CORPORATION

(Exact name of registrant as specified in its charter)


TENNESSEE	62-0803242
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

165 Madison Avenue, Memphis, Tennessee	38103
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including Area Code: 901-523-4444

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Name of Exchange on which Registered

$0.625 Par Value Common Capital Stock	New York Stock Exchange, Inc.
(including rights attached thereto)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
x YES o NO

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
o YES x NO

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x YES o NO

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)


x Large Accelerated Filer	o Accelerated Filer	o Non-Accelerated Filer	o Smaller Reporting Company
		(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o YES x NO

At June 30, 2008, the aggregate market value of the voting and non-voting common equity of the registrant held by non-affiliates of the registrant was approximately $1.37 billion.

At January 30, 2009, the registrant had 205,539,708 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:


	Portions of the 2008 Annual Report to shareholders – Parts I, II, and IV

	Portions of Proxy Statement to be furnished to shareholders in connection with Annual Meeting of Shareholders scheduled for 4/21/09 – Part III

PART I

Note on Page Number References

In this report, references to specific pages in the Corporation’s 2008 Annual Report to shareholders, or to specific pages of its consolidated financial statements or the notes thereto, relate to page numbers appearing in Exhibit 13 to this report. The Exhibit 13 page numbers do not necessarily correspond to page numbers appearing in the printed 2008 Annual Report to shareholders.

ITEM 1
BUSINESS

General.

First Horizon National Corporation (the “Corporation,” “we,” or “us”) is a Tennessee corporation headquartered in Memphis, Tennessee and incorporated in 1968. The Corporation is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended, and is a financial holding company under the provisions of the Gramm-Leach-Bliley Act. At December 31, 2008, the Corporation had total assets of $31.0 billion and ranked 1 ^st in terms of total assets among Tennessee-headquartered bank holding companies.

Through its principal subsidiary, First Tennessee Bank National Association (the “Bank”), and its other banking-related subsidiaries, the Corporation provides diversified financial services through five business segments. Three of the segments reflect the common activities and operations of aggregated business segments across the various delivery channels: Regional Banking, Capital Markets, and Mortgage Banking. National Specialty Lending consists of traditional consumer and construction lending activities in national markets outside of the Bank’s Tennessee-based market footprint; those operations largely were discontinued in 2008. In addition, the Corporate segment provides essential support within the Corporation. The approximate percentage of consolidated revenues (for this purpose, the sum of net interest income and noninterest income) ascribed to each of our segments for the past three years is set forth below.


REVENUE MIX ASSOCIATED WITH BUSINESS SEGMENTS

	2008			2007			2006

Regional Banking		35	%		51	%		44	%
Capital Markets		26	%		23	%		21	%
National Specialty Lending		7	%		15	%		15	%
Mortgage Banking		27	%		10	%		23	%
Corporate		5	%		1	%		(3	)%

Financial and other additional information concerning our segments appears in the response to Item 7 of Part II hereof and Note 22 to the Consolidated Financial Statements contained in the Corporation’s 2008 Annual Report to Shareholders. During 2008 approximately 62% of revenues were provided by fee income and approximately 38% of revenues were provided by net interest income. As a financial holding company, the Corporation coordinates the financial resources of the consolidated enterprise and maintains systems of financial, operational and administrative control intended to coordinate selected policies and activities, including as described in Item 9A of Part II hereto.

The Bank is a national banking association with principal offices in Memphis, Tennessee. It received its charter in 1864. During 2008 through its various business lines, including consolidated subsidiaries, the Bank generated gross revenue (net interest income plus noninterest income) of approximately $2.4 billion and contributed the majority of consolidated revenue from continuing operations. At December 31, 2008, the Bank had $30.8 billion in total assets, $14.5 billion in total deposits, and $20.4 billion in total net loans. Among Tennessee headquartered banks, the Bank ranked 1 ^st in Tennessee deposit market share at June 30, 2008.

At December 31, 2008, the Corporation’s subsidiaries had over 200 business locations in 15 U.S. states, Hong Kong, and Tokyo, excluding off-premises ATMs. Almost all of those locations were bank financial centers and FTN Financial offices.

At December 31, 2008, the Bank had 202 financial center bank branch locations in three states: 191 branches in 17 Tennessee counties, including all of the major metropolitan areas of the state; 2 branches in Georgia; and 9 branches in Mississippi. The branches in Mississippi and Georgia are associated with Tennessee-based metropolitan market areas included within the Bank’s regional footprint. Nearly all bank branch locations have on-premises ATMs. Financial center bank branches provide a full range of banking services. The Bank also has off-premises ATMs and support offices in its banking markets, and offices associated with its headquarters in Memphis, Tennessee.

FTN Financial products and services, at December 31, 2008, were offered through 19 offices in total, including 17 offices in 14 states plus an office in each of Hong Kong and Tokyo.

At December 31, 2008, the Corporation provided the following services through its subsidiaries:


	●	general banking services for consumers, businesses, financial institutions, and governments

	●	mortgage banking services

	●	through FTN Financial – sales, trading, and underwriting of bank-eligible securities and other fixed-income securities eligible for underwriting by financial subsidiaries; equity sales, trading, and research; loan sales; advisory services; correspondent banking; and structured finance

	●	transaction processing – nationwide check clearing services and remittance processing

	●	trust, fiduciary, and agency services

	●	credit card products

	●	discount brokerage and full-service brokerage

	●	equipment finance

	●	investment and financial advisory services

	●	mutual fund sales as agent

	●	retail and commercial insurance sales as agent

	●	private mortgage reinsurance

	●	services related to health savings accounts

An element of the Corporation’s business strategy is to consider acquisitions and divestitures that would enhance long-term shareholder value. Acquisitions and divestitures which closed during the past three years are described in Note 2 to the Consolidated Financial Statements.

All of the Corporation’s operating subsidiaries are listed in Exhibit 21. The Bank has filed notice with the Comptroller of the Currency (“Comptroller” or “OCC”) as a government securities broker/dealer. The FTN Financial Capital Markets division of the Bank is registered with the Securities and Exchange Commission (“SEC”) as a municipal securities dealer. The Bank is supervised and regulated as described below. Highland Capital Management Corp., Martin and Company, Inc., First Tennessee Advisory Services, Inc., FTN Midwest Asset Management Corp., and First Tennessee Brokerage, Inc. are registered with the SEC as investment advisers. Hickory Venture Capital Corporation is licensed as a Small Business Investment Company. First Tennessee Brokerage, Inc., FTN Financial Securities Corp. and FTN Equity Capital Markets Corp. are registered as broker-dealers with the SEC and all states where they conduct business for which registration is required. First Tennessee Insurance Services, Inc. and First Horizon Insurance Services, Inc. are licensed as insurance agencies in all states where they do business for which licensing is required. FT Reinsurance Company is licensed by the state of South Carolina as a captive insurance company. First Horizon Insurance, Inc.’s subsidiaries, First Horizon Insurance Group, Inc. and First Horizon Insurance Agency, Inc., are licensed as insurance agencies in all states where they do business for which licensing is required. FTN Financial Securities Corp., First Horizon Insurance Services, Inc., FTN Equity Capital Markets Corp., FTN Midwest Asset Management Corp., First Tennessee Insurance Services, Inc., First Horizon Insurance Group, Inc., and First Horizon Insurance Agency, Inc. are financial subsidiaries under the Gramm-Leach-Bliley Act. First Tennessee Brokerage, Inc. is licensed as an insurance agency in the states where it does business for which licensing is required for the sale of annuity products. FTN Financial Asia, Ltd. is a Hong Kong based subsidiary. FTN Financial Asia, Ltd. is registered to carry on a Type 1 regulated activity (Dealing in Securities) with the Securities and Futures Commission in Hong Kong, and its Tokyo, Japan office is registered with the Kanto Local Finance Bureau as a Type-I Financial Instruments Business pursuant to the Financial Instruments and Exchange Law of Japan.

Expenditures for research and development activities were not material in any of the last three fiscal years ended December 31, 2008.

Neither the Corporation nor any of its significant subsidiaries is dependent upon a single customer or very few customers.

The Corporation does not experience material seasonality. The Corporation does experience a degree of seasonal variation in certain revenues and expenses. In the Regional Banking and Capital Markets businesses, historically these variations have somewhat increased certain expenses, and somewhat diminished certain revenues, principally in the first quarter of each year.

At December 31, 2008, the Corporation and its subsidiaries had 6,266 employees, or 6,095 full-time-equivalent employees, not including contract labor for certain services.

For additional information on the business of the Corporation, refer to the Management’s Discussion and Analysis of Results of Operations and Financial Condition and Glossary sections contained in pages 3 through 62 of the Corporation’s 2008 Annual Report to Shareholders, which sections are incorporated herein by reference.

The Corporation’s current internet address is www.fhnc.com. In the Investor Relations – SEC Filings section of its internet website, the Corporation makes available free of charge its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments thereto as soon as reasonably practicable after the Corporation files such material with, or furnishes such material to, the Securities and Exchange Commission.

Supervision and Regulation.

The following summary sets forth certain of the material elements of the regulatory framework applicable to bank holding companies and financial holding companies and their subsidiaries and to companies engaged in securities and insurance activities and provides certain specific information about the Corporation. The bank regulatory framework is intended primarily for the protection of depositors and the Federal Deposit Insurance Funds and not for the protection of security holders. In addition, certain activities of the Corporation and its subsidiaries are subject to various securities and insurance laws and are regulated by the Securities and Exchange Commission and the state insurance departments of the states in which they operate. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by express reference to each of the particular statutory and regulatory provisions. A change in applicable statutes, regulations or regulatory policy may have a material effect on the business of the Corporation.

General

The Corporation is a bank holding company and financial holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the “BHCA”), and is registered with the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Corporation is subject to the regulation and supervision of and examination by the Federal Reserve under the BHCA. The Corporation is required to file with the Federal Reserve annual reports and such additional information as the Federal Reserve may require pursuant to the BHCA.

Under the BHCA, prior to March 13, 2000, bank holding companies could not in general directly or indirectly acquire the ownership or control of more than 5% of the voting shares or substantially all of the assets of any company, including a bank, without the prior approval of the Federal Reserve, and a bank holding company and its subsidiaries were generally limited to engaging in banking and activities found by the Federal Reserve to be so closely related to banking as to be a proper incident thereto. Since March 13, 2000, eligible bank holding companies that elect to become financial holding companies may affiliate with securities firms and insurance companies and engage in activities that are “financial in nature” generally without the prior approval of the Federal Reserve. See “Gramm-Leach-Bliley Act” below.

In addition, the BHCA permits the Federal Reserve to approve an application by a bank holding company to acquire a bank located outside the acquirer’s principal state of operations without regard to whether the transaction is prohibited under state law. See “Interstate Banking and Branching Legislation.” The Tennessee Bank Structure Act of 1974, among other things, prohibits (subject to certain exceptions) a bank holding company from acquiring a bank for which the home state is Tennessee (a “Tennessee bank”) if, upon consummation, the company would directly or indirectly control 30% or more of the total deposits in insured depository institutions in Tennessee. As of June 30, 2008, the Corporation estimates that it held approximately 14.3% of such deposits. Subject to certain exceptions, the Tennessee Bank Structure Act prohibits a bank holding company from acquiring a bank in Tennessee which has been in operation for less than three years. Tennessee law permits a Tennessee bank to establish branches in any county in Tennessee. See also “- Interstate Banking and Branching Legislation” below.

The Bank is a national banking association subject to regulation, examination and supervision by the Comptroller as its primary federal regulator. In addition, the Bank is insured by, and subject to regulation by, the Federal Deposit Insurance Corporation (the “FDIC”). The Bank is also subject to various requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be granted and the

interest that may be charged thereon and limitations on the types of investments that may be made, activities that may be engaged in, and types of services that may be offered. Various consumer laws and regulations also affect the operations of the Bank. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve as it attempts to control the money supply and credit availability in order to influence the economy. Also, the Bank and certain of its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with extensions of credit, leases or sales of property, or furnishing products or services.

Payment of Dividends

The Corporation is a legal entity separate and distinct from its banking and other subsidiaries. The principal source of cash flow of the Corporation, including cash flow to pay dividends on its stock or principal (premium, if any) and interest on debt securities, is dividends from the Bank. There are statutory and regulatory limitations on the payment of dividends by the Bank to the Corporation, as well as by the Corporation to its shareholders.

As a national bank, the Bank is required by federal law to obtain the prior approval of the Comptroller for the payment of cash dividends if the total of all dividends declared by the board of directors of the Bank in any year will exceed the total of (i) its net profits (as defined and interpreted by regulation) for that year plus (ii) the retained net profits (as defined and interpreted by regulation) for the preceding two years, less any required transfers to surplus. A national bank also can pay dividends only to the extent that retained net profits (including the portion transferred to surplus) exceed bad debts (as defined by regulation).

If, in the opinion of the applicable federal bank regulatory authority, a depository institution or a holding company is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition of the depository institution or holding company, could include the payment of dividends), such authority may require that such institution or holding company cease and desist from such practice. The federal banking agencies have indicated that paying dividends that deplete a depository institution’s or holding company’s capital base to an inadequate level would be such an unsafe and unsound banking practice. Moreover, the Federal Reserve, the Comptroller and the FDIC have issued policy statements which provide that bank holding companies and insured depository institutions generally should only pay dividends out of current operating earnings.

In addition, under the Federal Deposit Insurance Act (“FDIA”), an FDIC-insured depository institution may not make any capital distributions (including the payment of dividends) or pay any management fees to its holding company or pay any dividend if it is undercapitalized or if such payment would cause it to become undercapitalized.

At December 31, 2008 and at January 1, 2009, under dividend restrictions imposed under applicable federal laws as outlined above, the Bank could not legally declare cash dividends on the Bank’s common or preferred stock without obtaining regulatory approval. The application of those restrictions to the Bank is discussed in more detail under the heading “Liquidity Management” in the Management’s Discussion and Analysis section beginning on page 32 of the Corporation’s 2008 Annual Report to Shareholders, which section is incorporated herein by reference. As mentioned in that section, the Bank has applied for OCC approval to declare dividends on the Bank’s outstanding preferred stock payable in April 2009. The Bank has not requested approval to pay common dividends to the Corporation, its sole common stockholder.

Under Tennessee law, the Corporation is not permitted to pay cash dividends if, after giving effect to such payment, it would not be able to pay its debts as they become due in the usual course of

business or the Corporation’s total assets would be less than the sum of its total liabilities plus any amounts needed to satisfy any preferential rights if the Corporation was dissolving. In addition, in deciding whether or not to declare a dividend of any particular size, the Corporation’s Board must consider the Corporation’s current and prospective capital, liquidity, and other needs.

The payment of cash dividends by the Corporation and the Bank also may be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines and debt covenants. In addition, in 2008 the Corporation issued preferred stock and a common stock warrant under the Treasury’s CPP, as discussed more fully under “EESA Legislation & TARP Participation” beginning on page 9 of this Report. Under the terms of that issuance, the Corporation is not permitted to increase its cash common dividend rate for a period of three years without permission of the Treasury. The Corporation’s cash common dividend rate was zero when the preferred shares were issued.

In 2008 the Corporation discontinued paying a quarterly cash dividend to common stockholders and began distributing a dividend consisting of common stock instead. Under Tennessee law, the Corporation may declare and distribute a common stock dividend so long as the issuance of such shares is authorized by its charter. The Corporation’s charter currently authorizes the issuance of 400 million common shares, inclusive of shares already issued and outstanding. That authority may be increased if approved by vote of the Corporation’s stockholders. Other factors that could restrict the Corporation’s ability to declare a common stock dividend include future stock issuances and outstanding contractual obligations to issue common shares in the future. Examples of such obligations include stock warrants and employee stock compensation awards.

Transactions with Affiliates

There are various legal restrictions on the extent to which the Corporation and its nonbank subsidiaries (including for purposes of this paragraph, in certain situations, subsidiaries of the Bank) can borrow or otherwise obtain credit from the Bank. There are also legal restrictions on the Bank’s purchases of or investments in the securities of and purchases of assets from the Corporation and its nonbank subsidiaries, the Bank’s loans or extensions of credit to third parties collateralized by the securities or obligations of the Corporation and its nonbank subsidiaries, the issuance of guaranties, acceptances and letters of credit on behalf of the Corporation and its nonbank subsidiaries, and certain bank transactions with the Corporation and its nonbank subsidiaries, or with respect to which the Corporation and its nonbank subsidiaries act as agent, participate or have a financial interest. Subject to certain limited exceptions, the Bank (including for purposes of this paragraph all subsidiaries of the Bank) may not extend credit to the Corporation or to any other affiliate (other than another subsidiary bank and certain exempted affiliates) in an amount which exceeds 10% of the Bank’s capital stock and surplus and may not extend credit in the aggregate to all such affiliates in an amount which exceeds 20% of its capital stock and surplus. Further, there are legal requirements as to the type, amount and quality of collateral which must secure such extensions of credit by the Bank to the Corporation or to such other affiliates. Extensions of credit and other transactions between the Bank and the Corporation or such other affiliates must be on terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the Bank as those prevailing at the time for comparable transactions with non-affiliated companies.

Capital Adequacy

The Federal Reserve has adopted risk-based capital guidelines for bank holding companies. The minimum guideline for the ratio of total capital (“Total Capital”) to risk-weighted assets (including certain off-balance-sheet items, such as standby letters of credit) is 8%, and the minimum ratio of Tier 1 Capital (defined below) to risk-weighted assets is 4%. At least half of the Total Capital must be composed

of common stock, minority interests in the equity accounts of consolidated subsidiaries, non-cumulative perpetual preferred stock and a limited amount of cumulative perpetual preferred stock and trust preferred securities, less any amounts of goodwill, other intangible assets, and other items that are required to be deducted (“Tier 1 Capital”). The remainder may consist of qualifying subordinated debt, certain types of mandatory convertible securities and perpetual debt, other preferred stock and a limited amount of loan loss reserves. At December 31, 2008, the Corporation’s consolidated Total Capital and Tier 1 Capital ratios were 20.18% and 15.03%, respectively.

The Federal Reserve Board, the FDIC, and the OCC have adopted rules to incorporate market and interest-rate risk components into their risk-based capital standards and that explicitly identify concentration of credit risk and certain risks arising from non-traditional activities, and the management of such risks, as important factors to consider in assessing an institution’s overall capital adequacy. Under the market risk requirements, capital is allocated to support the amount of market risk related to a financial institution’s ongoing trading activities for banks with relatively large trading activities. Institutions are able to satisfy any additional capital requirement, in part, by issuing short-term subordinated debt that qualifies as Tier 3 capital. Based on present practices and activity levels, the Corporation believes that these trading-related market risk rules have no significant impact on the Corporation’s ability to meet regulatory capital requirements.

Shortly before this Report was filed, the U.S. Department of the Treasury, the Federal Reserve Board, the FDIC, and the OCC announced the initiation of a new Capital Assistance Program (“CAP”). Under the CAP, the capital needs of the major U.S. banking institutions are to be evaluated under a more challenging economic environment. If that assessment indicates a need for additional capital, the affected institution will be allowed to seek additional private capital and, failing that, may be required to issue mandatory convertible preferred shares to a government agency. Preferred shares issued by affected institutions to the Treasury under the TARP (see “EESA Legislation & TARP Participation” beginning on page 9 of this Report) may be exchanged for this new preferred. At this time it is not known whether the CAP applies to the Bank or the Corporation nor, if so, whether additional capital will be required or the terms upon which such additional capital may be issued.

In addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier 1 Capital to quarterly average assets, less goodwill and certain other intangible assets (the “Leverage Ratio”), of 3% for bank holding companies that meet certain specific criteria, including having the highest regulatory rating. All other bank holding companies generally are required to maintain a Leverage Ratio of at least 3%, plus an additional cushion of 100 to 200 basis points. The Corporation’s Leverage Ratio at December 31, 2008, was 12.22%. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the Federal Reserve has indicated that it will consider a “tangible Tier 1 Capital leverage ratio” (deducting all intangibles) and other indicia of capital strength in evaluating proposals for expansion or new activities.

The Bank is subject to risk-based and leverage capital requirements similar to those described above adopted by the Comptroller. The Corporation believes that the Bank was in compliance with applicable minimum capital requirements as of December 31, 2008. Neither the Corporation nor the Bank has been advised by any federal banking agency of any specific minimum Leverage Ratio requirement applicable to it.

Failure to meet capital guidelines could subject a bank to a variety of enforcement remedies, including the termination of deposit insurance by the FDIC, and to certain restrictions on its business and in certain circumstances to the appointment of a conservator or receiver. See “––Prompt Corrective Action” at page 8.

In 1999, the Basel Committee on Banking Supervision launched its efforts to develop an improved capital adequacy framework by issuing its proposals to revise the 1988 Capital Accord, sometimes known as Basel I. In June 2004, the Basel Committee issued its final framework. The new capital framework (Basel II) consists of minimum capital requirements, a supervisory review process, and the effective use of market discipline. Basel II seeks to ensure that a bank’s capital position is consistent with its overall risk profile and strategy, encourages early supervisory intervention when a bank’s capital position deteriorates, and calls for detailed disclosure of a bank’s capital adequacy and how it evaluates its own capital adequacy.

In September 2006 the U.S. regulators published a revised Notice of Proposed Rulemaking (NPR) for Basel II. The Final Rule on Advanced Capital Adequacy Framework – Basel II, has been approved by all regulatory agencies and was published in the Federal Register on December 7, 2007. It took effect on April 1, 2008. The Final Rule currently applies only to certain core banks with total assets of $250 billion or more, but allows non-core banks to opt-in. Under the Final Rules the Bank is considered to be a non-core bank. For those non-core banks that do not opt in, a NPR was issued in December 2006, known as Basel IA, which proposed certain revisions to the current Basel I capital rules. In July 2008 the agencies issued a supplemental NPR. If implemented, the net effect of the 2008 NPR would allow non-core banks the option of adopting the Standardized Approach of the Basel II Framework or remaining under the current Basel I framework. The comment period for the 2008 NPR expired in October 2008.

Holding Company Structure and Support of Subsidiary Banks

Because the Corporation is a holding company, its right to participate in the assets of any subsidiary upon the latter’s liquidation or reorganization will be subject to the prior claims of the subsidiary’s creditors (including depositors in the case of the Bank) except to the extent that the Corporation may itself be a creditor with recognized claims against the subsidiary. In addition, depositors of a bank, and the FDIC as their subrogee, would be entitled to priority over the creditors in the event of liquidation of a bank subsidiary.

Under Federal Reserve policy, the Corporation is expected to act as a source of financial strength to, and to commit resources to support, the Bank. This support may be required at times when, absent such Federal Reserve policy, the Corporation may not be inclined to provide it. In addition, any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.

Cross-Guarantee Liability

Under the FDIA, a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to any commonly controlled FDIC-insured depository institution “in danger of default.” “Default” is defined generally as the appointment of a conservator or receiver and “in danger of default” is defined generally as the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance. The FDIC’s claim for damages is superior to claims of shareholders of the insured depository institution or its holding company but is subordinate to claims of depositors, secured creditors and holders of subordinated debt (other than affiliates) of the commonly controlled insured depository institution. The Bank is currently the only depository institution owned by the Corporation. In the event that the Corporation established or acquired another depository institution, any loss suffered by the FDIC in respect of one subsidiary bank would likely result in assertion of the cross-guarantee provisions, the assessment of such estimated losses against the Corporation’s other subsidiary bank(s), and a potential loss of the Corporation’s investment in such subsidiary bank.

Prompt Corrective Action

The FDIA requires, among other things, the federal banking regulators to take “prompt corrective action” in respect of FDIC-insured depository institutions that do not meet minimum capital requirements. Under the FDIA, insured depository institutions are divided into five capital tiers: “well

capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” Under applicable regulations, an institution is defined to be well capitalized if it maintains a Leverage Ratio of at least 5%, a Tier 1 Capital ratio of at least 6% and a Total Capital ratio of at least 10% and is not subject to a directive, order, or written agreement to meet and maintain specific capital levels. An institution is defined to be adequately capitalized if it meets all of its minimum capital requirements as described above. An institution will be considered undercapitalized if it fails to meet any minimum required measure; significantly undercapitalized if it has a Total Risk-Based Capital ratio of less than 6%, a Tier 1 Risk-Based Capital ratio of less than 3%, or a Leverage Ratio of less than 3%; and critically undercapitalized if it fails to maintain a level of tangible equity equal to at least 2% of total assets. An institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating.

The FDIA generally prohibits an FDIC-insured depository institution from making any capital distribution (including payment of dividends) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to restrictions on borrowing from the Federal Reserve System. In addition, undercapitalized depository institutions are subject to growth limitations and are required to submit capital restoration plans. An insured depository institution’s holding company must guarantee the capital plan, up to an amount equal to the lesser of 5% of the depository institution’s assets at the time it becomes undercapitalized or the amount of the capital deficiency when the institution fails to comply with the plan, for the plan to be accepted by the applicable federal regulatory authority. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital. If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized.

Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and cessation of receipt of deposits from correspondent banks. Critically undercapitalized depository institutions are subject to appointment of a receiver or conservator, generally within 90 days of the date on which they become critically undercapitalized.

At December 31, 2008, the Bank had sufficient capital to qualify as “well capitalized” under the regulatory capital requirements discussed above.

EESA Legislation & TARP Participation

In October 2008, the U.S. Congress enacted the Emergency Economic Stabilization Act of 2008 (“EESA”). EESA was an attempt to address several difficulties facing the banking system and financial markets in the U.S. Among other things, EESA temporarily increased the FDIC deposit account insurance limit from $100,000 to $250,000, created, preserved, or extended certain tax incentives, and authorized the SEC to modify a ‘fair value’ accounting rule. Under EESA the U.S. Department of the Treasury (“Treasury”) and the FDIC have established, among other things, a Troubled Asset Relief Program (“TARP”) and, under the TARP, a Capital Purchase Program (“CPP”) and a Temporary Liquidity Guarantee Program (“TLGP”), all of which are applicable to banks and their holding companies.

The Corporation is a participant in the CPP. In November 2008 the Corporation issued 866,540 preferred shares and a ten-year warrant to purchase 12,743,235 common shares at $10.20 per share to the Treasury for a capital contribution of $866,540,000.

Participation in the CPP made several terms, restrictions, and covenants applicable to the Corporation or the Bank, including the following:


a.	The preferred shares carry a 5% per year cumulative preferred dividend rate, applied against the liquidation value of $1,000 per preferred share. The dividend rate increases to 9% after five years. Dividends compound if they accrue in arrears.

b.	The preferred shares have no redemption date, and the holder of the shares has no right to compel the Corporation to purchase the shares. The holder does have certain registration rights to facilitate a sale of the shares.

c.	During the first three years after the preferred issuance, the Corporation may not redeem the preferred shares except in conjunction with a qualified equity offering meeting certain requirements. After three years, the Corporation may redeem the preferred shares for $1,000 per share plus accrued and unpaid dividends subject to the approval of the Corporation’s primary banking regulator (currently the Federal Reserve Board).

d.	The preferred shares generally are non-voting.

e.	During the time that the preferred shares are outstanding, a number of restrictions apply to the Corporation, including, among others:

	1.	The Corporation is not free to issue other preferred stock that is senior to the CPP preferred shares.

	2.	Until the third anniversary of the sale of the preferred shares, subject to certain exceptions, the Corporation may not increase its common cash dividend or repurchase common or other equity shares (subject to certain limited exceptions) without Treasury’s approval. At the time the preferred shares were issued, the Corporation did not pay a regular cash dividend on its common shares.

	3.	If the Corporation were to resume paying a common cash dividend in the future, any such dividend would have to be discontinued if a preferred dividend were missed. Any such discontinuance could be resumed only if all preferred dividends in arrears were paid. Similar restrictions apply to the Corporation’s ability to repurchase common or other equity shares if preferred dividends are missed.

	4.	Failure to pay the preferred dividend is not an event of default. However, a failure to pay a total of six preferred dividends, whether or not consecutive, gives the holders of the preferred shares the right to elect two directors to the Corporation’s Board of Directors. That right will continue until the Corporation pays all dividends in arrears.

	5.	In conformity with requirements of the CPP agreements and the TARP, the Corporation has obtained from its executive officers certain compensation waivers and a compensation restriction agreement that affects certain compensation arrangements in certain circumstances.

f.	The number of common shares covered by the warrant, and the per-share price, are subject to pro-rata anti-dilution adjustment if common stock splits and dividends occur. Accordingly,


		these adjustment provisions apply to each stock dividend beginning with the dividend paid in January 2009.

	g.	To the extent required to comply with any changes in applicable federal statutes, the Treasury has retained the right to unilaterally amend the agreement under which the preferred shares and warrant were sold.

In February 2009, shortly before this Report was filed, the U.S. Congress enacted the American Recovery and Reinvestment Act of 2009 (the “Recovery Act”). A provision of the Recovery Act significantly expanded EESA’s restrictions on executive compensation and extended those new restrictions to certain additional employees. The Corporation expects that the Treasury will apply these new restrictions to the Corporation and the Bank in respect of the preferred stock sold to the Treasury last year. Among other things, under the amended restrictions, incentive compensation, including bonus and retention awards, will be prohibited for the five executives whose compensation is described in detail in our proxy statement (the “named executives”) and for the twenty employees, excluding the named executives, whose total compensation is the highest (the “Highest 20”). An exception provided in the Act allows such persons to receive restricted stock awards having grant values that comprise not more than one-third of their total compensation; such awards may not fully vest sooner than the date the preferred stock sold to the Treasury is redeemed. Also, this restriction does not apply to payments required by certain prior written contracts. This incentive restriction and the other compensation restrictions will continue to apply for as long as the Treasury holds Corporation preferred stock. The Recovery Act permits the Corporation to redeem the preferred stock, subject to regulatory approval. These incentive compensation restrictions are new and raise numerous interpretive questions which may not be resolved for some time. See “Recovery Act Risks” beginning on page 31 for additional information.

Interstate Banking and Branching Legislation

Under current federal law, a bank may merge with a bank in another state and continue to operate the merged bank’s branches as interstate branches, unless a state has opted out of allowing such transactions, which currently none do. States may impose restrictions on such merger transactions, including minimum age requirements (up to a maximum of five years), and state deposit concentration limits. Many states have imposed such age requirements for a minimum period of time that a bank must have been in existence before a merger is allowed. Additionally, national and state deposit concentration limits apply to interstate mergers.

Federal law also allows a bank to establish and operate a de novo branch or acquire an existing branch in a state in which a bank is not headquartered and does not maintain a branch if the host state explicitly permits de novo branching. Various states permit de novo branching, and some states require reciprocal branching statutes to allow de novo branching. Tennessee permits de novo branching on a reciprocal basis.

Once a bank has established branches in a state through an interstate merger transaction or through de novo branching, the bank may then establish and acquire additional branches within that state to the same extent that a state chartered bank is allowed to establish or acquire branches within the state.

Gramm-Leach-Bliley Act

The Gramm-Leach-Bliley Act of 1999 (“GLB Act”) repealed or modified a number of significant provisions of then-current laws, including the Glass-Steagall Act and the Bank Holding Company Act of 1956, which imposed restrictions on banking organizations’ ability to engage in certain types of activities. The GLB Act generally allows bank holding companies such as the Corporation broad authority to engage in activities that are financial in nature or incidental to such a financial activity, including insurance underwriting and brokerage; merchant banking; securities underwriting, dealing and market-making; real estate development; and such additional activities as the Federal Reserve in consultation with the Secretary of the Treasury determines to be financial in nature or incidental thereto. A bank holding company may engage in these activities directly or through subsidiaries by qualifying as a “financial holding company.” To qualify, a bank holding company must file an initial declaration with the Federal Reserve, certifying that all of its subsidiary depository institutions are well-managed and well-capitalized. The GLB Act also permits national banks such as the Bank to engage in certain of these activities through financial subsidiaries. To control or hold an interest in a financial subsidiary, a national bank must meet the following requirements:


(1)	the national bank must receive approval from the Comptroller for the financial subsidiary to engage in the activities;


(2)	the national bank and its depository institution affiliates must each be well-capitalized and well-managed;

(3)	the aggregate consolidated total assets of all of the national bank’s financial subsidiaries must not exceed 45% of the national bank’s consolidated total assets or, if less, $50 billion;

(4)	the national bank must have in place adequate policies and procedures to identify and manage financial and operational risks and to preserve the separate identities and limited liability of the national bank and the financial subsidiary; and

(5)	if the financial subsidiary will engage in principal transactions and the national bank is one of the one hundred largest banks, the national bank must have outstanding at least one issue of unsecured long-term debt that is currently rated in one of the three highest investment grade rating categories (or if in the second fifty largest banks, an alternative requirement is that the national bank has a current long-term issuer credit rating within the three highest investment grade rating categories). If this fifth requirement ceases to be met after a national bank controls or holds an interest in a financial subsidiary, the bank cannot invest additional capital in that subsidiary until the requirement again is met.

No new financial activity may be commenced under the GLB Act unless the national bank and all of its depository institution affiliates have at least “satisfactory” CRA ratings. Certain restrictions apply if the bank holding company or the national bank fails to continue to meet one or more of the requirements listed above. In addition, the GLB Act contains a number of other provisions that may affect the Bank’s operations, including functional regulation of the Bank’s securities operations by the SEC and the Bank’s insurance operations by the States and limitations on the use and disclosure to third parties of customer information. The Corporation is a financial holding company and the Bank has a number of financial subsidiaries.

FDIC Insurance Assessments; DIFA

The Deposit Insurance Fund (“DIF”) was formed in March 2006 when the FDIC merged the Bank Insurance Fund with the Savings Association Insurance Fund pursuant to the the Federal Deposit Insurance Reform Act of 2005 (“2005 Reform Act”). Prior to 2008, the FDIC insurance premium charged on bank deposits insured by the DIF varied depending on the institution’s risk classification, based on capital and supervisory risk factors. As part of the 2005 Reform Act, Congress provided credits to certain institutions that paid high premiums in the past to bolster the FDIC’s insurance reserves; as a result, an institution could have had credits reduce or eliminate DIF premiums in 2007 on a one-time basis. Beginning in 2008 new risk category and DIF premium structures became effective. The new rate ranges are based on four new Risk Categories that in turn are based on asset size as well as capital, supervisory, credit, and other risk factors. Somewhat different factors are used for institutions in different situations. Within the range for a given Risk Category, the rate applicable to any particular institution is determined by the FDIC according to formal guidelines. In 2008, rates for institutions ranged from 5 to 43 basis points of U.S. deposits.

During 2008, losses from bank failures diminished the DIF. Late in 2008 the FDIC announced a multi-year restoration plan for the DIF which included an increase in deposit insurance rates of 7 basis points across all rate categories, effective for the first quarter of 2009. Further rate increases may be imposed in 2009 or later to restore or maintain the DIF.

The Deposit Insurance Funds Act of 1996 (“DIFA”) provides for assessments to be imposed on insured depository institutions with respect to deposits insured by the DIF to pay for the cost of Financing

Corporation (“FICO”) bonds. All banks are assessed to pay the interest due on FICO bonds. The FICO assessment cost to the Corporation on an annual basis is immaterial.

Under the FDIA, insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by a federal bank regulatory agency.

Depositor Preference

Federal law provides that deposits and certain claims for administrative expenses and employee compensation against an insured depository institution would be afforded a priority over other general unsecured claims against such an institution, including federal funds and letters of credit, in the “liquidation or other resolution” of such an institution by any receiver.

Securities Regulation

Certain of the Corporation’s subsidiaries are subject to various securities laws and regulations and capital adequacy requirements promulgated by the regulatory and exchange authorities of the jurisdictions in which they operate.

The Corporation’s registered broker-dealer subsidiaries are subject to the SEC’s net capital rule, Rule 15c3-1. That rule requires the maintenance of minimum net capital and limits the ability of the broker-dealer to transfer large amounts of capital to a parent company or affiliate. Compliance with the rule could limit operations that require intensive use of capital, such as underwriting and trading.

Certain of the Corporation’s subsidiaries are registered investment advisers which are regulated under the Investment Advisers Act of 1940. Advisory contracts with clients automatically terminate under these laws upon an assignment of the contract by the investment adviser unless appropriate consents are obtained.

In 2007, the SEC and Federal Reserve Board adopted regulations that expanded significantly the SEC’s ability to regulate securities businesses conducted by banks, but also created specific exceptions to that authority for certain services and products. Securities activities and products covered by the exceptions may continue to be conducted by the Bank. All other securities activities and products must be conducted through a broker-dealer registered with the SEC. Key portions of those new rules applied to the Bank’s subsidiaries beginning January 1, 2009. The Bank adjusted its practices during 2008 as necessary in order to fall within applicable exceptions.

Insurance Activities

Subsidiaries of the Corporation sell various types of insurance as agent in a number of the states. Insurance activities are subject to regulation by the states in which such business is transacted. Although most of such regulation focuses on insurance companies and their insurance products, insurance agents and their activities are also subject to regulation by the states, including, among other things, licensing and marketing and sales practices.

Competition.

The Corporation and its subsidiaries face substantial competition in all aspects of the businesses in which they engage from national and state banks located in Tennessee and large out-of-state and non-

U.S. banks as well as from savings and loan associations, credit unions, other financial institutions, consumer finance companies, trust companies, investment counseling firms, money market and other mutual funds, insurance companies and agencies, securities firms, mortgage banking companies, and others. Late in 2008 certain financial companies or their affiliates that traditionally were not banks were allowed to convert to bank status, and thus are able to compete more directly with the Bank for deposits and other traditional banking services and products. Those companies include investment banks, brokerage firms, insurance company affiliates, and the financing company associated with an automobile manufacturer. More such conversions are possible in the future. For additional information on the competitive position of the Corporation and the Bank, refer to the “General” subsection above of this Item 1. Also, refer to the subsections entitled “Supervision and Regulation” and “Effect of Governmental Policies,” both of which are relevant to an analysis of the Corporation’s competitors. Due to the intense competition in the financial services industry, the Corporation makes no representation that its competitive position has remained constant, nor can it predict whether its position will change in the future.

Sources and Availability of Funds.

Specific reference is made to the Management’s Discussion and Analysis and Glossary sections, including the subsection entitled “Liquidity Management,” contained in pages 3 through 62 (including pages 32 through 36) of the Corporation’s 2008 Annual Report to Shareholders, which sections are incorporated herein by reference.

Effect of Governmental Policies.

The Bank is affected by the policies of regulatory authorities, including the Federal Reserve System and the Comptroller. An important function of the Federal Reserve System is to regulate the national money supply.

Among the instruments of monetary policy used by the Federal Reserve are: purchases and sales of U.S. Government securities in the marketplace; changes in the discount rate, which is the rate any depository institution must pay to borrow from the Federal Reserve; changes in the reserve requirements of depository institutions; and, indirectly, changes in the federal funds rate, which is the rate at which depository institutions lend balances to each other overnight. These instruments have been effective in influencing economic and monetary growth, interest rate levels, and inflation.

The monetary policies of the Federal Reserve System and other governmental policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. Because of changing conditions in the national and international economy and in the money markets, as well as the result of actions by monetary and fiscal authorities, it is not possible to predict with certainty future changes in interest rates, deposit levels, loan demand or the business and results of operations of the Corporation and the Bank or whether the changing economic conditions will have a positive or negative effect on operations and earnings.

Various bills are from the time to time introduced in the United States Congress and the Tennessee General Assembly and other state legislatures, and regulations are proposed by the regulatory agencies which could affect the business of the Corporation and its subsidiaries. A recent example of such legislation is discussed under “EESA Legislation & TARP Participation” beginning on page 9 of this report. It cannot be predicted whether or in what form any particular proposals will be adopted or the extent to which the business of the Corporation and its subsidiaries may be affected thereby.

Non-U.S. Operations.

The Corporation has no material non-U.S. operations.

Statistical Information Required by Guide 3.

The statistical information required to be displayed under Item I pursuant to Guide 3, “Statistical Disclosure by Bank Holding Companies,” of the Exchange Act Industry Guides is incorporated herein by reference to the Consolidated Financial Statements and the notes thereto and the Management’s Discussion and Analysis of Results of Operations and Financial Condition and Glossary sections set forth at pages 3 through 62 of the Corporation’s 2008 Annual Report to Shareholders. Certain information not contained in the 2008 Annual Report to Shareholders, but required by Guide 3, is contained in the tables immediately following:

FIRST HORIZON NATIONAL CORPORATION
ADDITIONAL GUIDE 3 STATISTICAL INFORMATION
ON DECEMBER 31
(Unaudited)


Investment Portfolio

*(Dollars in thousands)*		2008		2007		2006

Government agency issued mortgage-backed securities & collateralized mortgage obligations	$	2,587,497	$	2,532,869	$	3,340,864
U.S. Treasuries		48,720		42,015		50,363
Other U.S. government agencies*		133,701		228,010		245,140
States and municipalities		65,360		1,721		1,769
Other		289,875		228,176		285,348

Total	$	3,125,153	$	3,032,791	$	3,923,484

* Includes securities issued by government sponsored entities which are not backed by the full faith and credit of the U.S. government.

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


Loan Portfolio

*(Dollars in thousands)*	2008		2007		2006		2005		2004

Commercial:
Commercial, financial and industrial	$	7,863,727	$	7,140,087	$	7,201,009	$	6,578,117	$	5,560,736
Real estate commercial		1,454,040		1,294,922		1,136,590		1,213,052		960,178
Real estate construction		1,778,140		2,753,475		2,753,458		2,108,121		1,208,703
Retail:
Real estate residential		8,161,435		7,791,885		7,973,313		8,368,219		7,259,019
Real estate construction		980,798		2,008,289		2,085,133		1,925,060		1,035,562
Other retail		135,779		144,019		161,178		168,413		168,806
Credit card receivables		189,554		204,812		203,307		251,016		248,972
Real estate loans pledged against other collaterized borrowings		714,717		766,027		590,917		—		—

Total	$	21,278,190	$	22,103,516	$	22,104,905	$	20,611,998	$	16,441,976


Short-Term Borrowings

*(Dollars in thousands)*	2008		2007		2006

Federal funds purchased and securities sold under agreements to repurchase	$	1,751,079	$	4,829,597	$	4,961,799
Commercial paper		3,130		2,076		5,619
Trading liabilities		359,502		556,144		789,957
Other short-term borrowings		4,276,559		3,420,919		1,252,894

Total	$	6,390,270	$	8,808,736	$	7,010,269

Maturities of Certificates of Deposit $100,000 and more on December 31, 2008


*(Dollars in thousands)*		0-3 Months		3-6 Months		6-12 Months		Over 12 Months		Total

Certificates of deposit $100,000 and more	$	379,344	$	172,984	$	595,545	$	234,363	$	1,382,236

Contractual Maturities of Commercial & Real Estate Construction Loans on December 31, 2008


*(Dollars in thousands)*	Within 1 Year		After 1 Year Within 5 Years		After 5 Years		Total

Commercial, financial and industrial	$	3,824,664	$	2,931,638	$	1,107,425	$	7,863,727
Real estate commercial		595,840		687,174		171,026		1,454,040
Commercial real estate construction		1,443,699		334,441		—		1,778,140
Retail real estate construction		980,798		—		—		980,798

Total	$	6,845,001	$	3,953,253	$	1,278,451	$	12,076,705

For maturities over one year:
Interest rates - floating			$	2,817,344	$	647,299	$	3,464,643
Interest rates - fixed				1,135,909		631,152		1,767,061

Total			$	3,953,253	$	1,278,451	$	5,231,704

ITEM 1A
RISK FACTORS

This item outlines specific risks that could affect the ability of our various businesses to compete, change our risk profile, or eventually impact our financial results. The risks we face generally are similar to those experienced, to varying degrees, by all financial services companies. Our operating environment continues to evolve and new risks continue to emerge. To address that challenge we have an enterprise-wide risk management committee that oversees processes for monitoring evolving risks and oversees various initiatives designed to manage and control our potential exposure.

We have outlined potential risk factors below that we presently believe could be important to us; however, other risks may prove to be important in the future. New risks may emerge at any time and we cannot predict with certainty all potential developments which could affect our financial performance. The following discussion highlights potential risks which could intensify over time or shift dynamically in a way that might change our risk profile. In addition to the factors discussed elsewhere in this report (including the material incorporated into this report), among the factors that could cause our future results to differ materially from our past results and from expectations are those discussed in this item.

Forward-Looking Statements

This report, including materials incorporated into it, may contain forward-looking statements with respect to our beliefs, plans, goals, expectations, and estimates. Forward-looking statements are statements that are not a representation of historical information but rather are related to future operations, strategies, financial results or other developments. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “should,” “is likely,” “will,” “going forward,” and other expressions that indicate future events and trends identify forward-looking statements.

Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, operational, economic and competitive uncertainties and contingencies, many of which are beyond any company’s control, and many of which, with respect to future business decisions and actions (including acquisitions and divestitures), are subject to change. Examples of uncertainties and contingencies include, among other important factors: general and local economic and business conditions, including economic recession or depression; expectations of and actual timing and amount of interest rate movements, including the slope of the yield curve, which can have a significant impact on a financial services institution; market and monetary fluctuations; inflation or deflation; customer, investor, regulatory, and legislative responses to any or all of these conditions; the

financial condition of borrowers and other counterparties; competition within and outside the financial services industry; geopolitical developments including possible terrorist activity; natural disasters; effectiveness and cost-efficiency of our hedging practices; technology; demand for our product offerings; new products and services in the industries in which we operate; and critical accounting estimates. Other factors are those inherent in lending and holding loan-based assets including prepayment risks, pricing concessions, fluctuation in U.S. housing and other real estate prices, fluctuation of collateral values, and changes in customer profiles. Additionally, the actions of the Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Federal Reserve), Financial Industry Regulatory Authority (FINRA), Federal Deposit Insurance Corporation (FDIC), and other regulators; actions of the U.S. Department of the Treasury, which has purchased securities from us under its Capital Purchase Program; regulatory, administrative, and judicial proceedings and changes in laws and regulations applicable to us; and our success in executing our business plans and strategies and managing the risks involved in the foregoing, could cause actual results to differ.

We assume no obligation to update any forward-looking statements that are made in this report or in any other statement, release, report, or filing from time to time. Actual results could differ because of one or more factors, including those listed above or presented below, in other sections of this report, or in material incorporated by reference into this report. Readers of this report should carefully consider the factors discussed in this Item below, among others, in evaluating forward-looking statements and assessing our prospects.

Competition Risks

Like all financial services companies, we compete for customers. Our primary areas of competition include: retail and commercial deposits and bank loans, wealth management, personal or consumer loans including home mortgages and lines of credit, capital markets products and services, and other consumer and business financial products and services. Our competitors in these areas include national, state, and non-US banks, savings and loan associations, credit unions, consumer finance companies, trust companies, investment counseling firms, money market and other mutual funds, insurance companies and agencies, securities firms, mortgage banking companies, hedge funds, and other financial services companies that serve the markets which we serve. Some competitors are banks, subject to the same regulatory regime as we are, while others are not banks and in many cases experience a significantly different or reduced degree of regulation. We expect that competition will continue to grow more intense with respect to most of our products and services. For additional information regarding competition for customers, refer to the “Competition” heading of Part I, Item 1 beginning on page 13 of this report.

While we face competition for customers, we also compete for financial capital (see “Financing, Funding, and Liquidity Risks” beginning on page 22 of this report) and to acquire and retain the human capital we need to thrive. Labor markets change over time; the segments of that market most useful to us may contract with demographic shifts relating to age, birth rates, education levels, geography, local or regional economic conditions, and other factors.

Growth and Disposition Risks

Every organization faces risks associated with growth. Our growth in recent years resulted primarily from a combination of: our expansion strategy in banking based on our mortgage operations; acquisition of customers from competitors that have merged with each other; and targeted non-bank business acquisitions. In 2007 and 2008 we modified our strategy in response to substantial and rapid changes in business conditions and to take advantage of certain opportunities. As a result, in 2008 we sold

our national mortgage platforms, closed our national specialty lending operations, and renewed our emphasis on financial services in our traditional Tennessee-based markets. Additional information concerning these matters is presented under “Recent Downturns and Disruptions” beginning on page 28.

Although our strategy is expected to evolve as business conditions continue to change, at present our strategy’s primary components are to invest capital and other resources in our current Tennessee-based retail/commercial banking market footprints, and in our capital markets business. In any case growth is expected to be coordinated with a focus on stronger and more stable returns on capital. Our growth in the past has been primarily organic rather than through substantial acquisitions; in the future, that pattern may shift if opportunities present themselves. We believe that the successful execution of our strategy depends upon a number of key elements, including:


	●	our ability to attract and retain banking customers in our Tennessee-based regional banking market areas;

	●	in our capital markets business, our ability to maintain or strengthen our existing customer relationships while at the same time successfully identifying and exploiting opportunities for new products and services, and for new customers, in the US and overseas;

	●	our ability to develop and retain profitable customer relationships while expanding or enhancing our existing information processing, technology, and other operational infrastructures effectively and efficiently;

	●	our ability to manage the liquidity and capital requirements associated with organic growth; and

	●	our ability to manage the operational, cultural, and (in some cases) liquidity and capital difficulties associated with growth through purchases.

We have in place strategies designed to achieve those elements that are significant to us at present. Our challenge is to execute those strategies and adjust them, or adopt new strategies, as conditions change.

To the extent we engage in bank or non-bank business acquisitions, we face various risks associated with that practice, including:


	●	our ability to identify, analyze, and correctly assess the contingent risks in the acquisition and to price the transaction appropriately;

	●	our ability to integrate the acquired company into our operations quickly and cost-effectively;

	●	our ability to integrate the name recognition and goodwill of the acquired company with our own; and,

	●	our ability to retain customers and key employees of the acquired company.

At times a company must consider disposing of or otherwise exiting businesses or units that no longer fit into management’s plans for the future. Key risks associated with dispositions, including closures, include:


	●	our ability to price a sale transaction appropriately and otherwise negotiate appropriate terms;

	●	our ability to identify and implement key customer, technology systems, and other transition actions to avoid or minimize negative effects on retained businesses;

	●	our ability to assess and manage any loss of synergies that the disposed or exited business had with our retained businesses; and

	●	our ability to manage capital, liquidity, and other challenges that may arise in the event of a closure or other disposition that results in significant cash expenditures or a financial loss to us.

Credit Risks

Like all other lenders, we face the risk that our customers may not repay their loans and that the realizable value of collateral may be insufficient to avoid a loss. In our business some level of credit loss is unavoidable and overall levels of credit loss can vary over time. In 2008 credit losses increased to historically high levels, as mentioned in “Recent Downturns and Disruptions” beginning on page 28.

Our ability to manage credit risks depends primarily upon our ability to assess the creditworthiness of customers and the value of collateral, including real estate. We manage credit risk by diversifying our loan portfolio and managing its granularity, and by recording and managing an allowance for expected loan losses based on the factors mentioned above and in accordance with applicable accounting rules. We also record loan charge-offs in accordance with accounting and regulatory guidelines and rules. These guidelines and rules could change and cause charge-offs to increase for reasons related or unrelated to the underlying performance of our portfolio. This risk is shared with all financial institutions. Moreover, the SEC could take accounting positions applicable to our holding company that may be inconsistent with those taken by the OCC or other regulators for the Bank. A significant challenge for us is to keep the models and approaches we use to originate and manage loans updated to take into account changes in the competitive environment, in real estate prices and other collateral values, and in the economy, among other things, based on our experience originating loans and servicing loan portfolios. Additional information concerning credit risks and our management of them is set forth under the captions “Credit Risk Management” beginning on page 37, “Foreclosure Reserves” beginning on page 54, and “Allowance for Loan Losses” beginning on page 47, of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2008 Annual Report to Shareholders, which is part of the material from that Report that has been incorporated by reference into Item 7 of Part II of this report.

Insurance

We use insurance to manage a number of risks, including damage or destruction of property, legal and other liability, and certain types of credit risks. Not all such risks are insured, in any given insured situation our insurance may be inadequate to cover all loss, and many risks we face are uninsurable. For those risks that are insured, we also face the risks that the insurer may default on its obligations or that the insurer may refuse to honor them. We treat the former risk as a type of credit risk, which we manage by reviewing the insurers that we use and by striving to use more than one insurer when feasible and practical. The risk of refusal, whether due to honest disagreement or bad faith, is inherent in any contractual situation.

A portion of our retail loan portfolio involves mortgage default insurance. If a default insurer were to experience a significant credit downgrade or were to become insolvent, that could adversely affect the carrying value of loans insured by that company, which could result in an immediate increase in our loan loss provision or write-down of the carrying value of those loans on our balance sheet and, in either case, a corresponding impact on our financial results. If many default insurers were to experience downgrades or insolvency at the same time, the risk of a financial impact would be amplified and the disruption to the default insurance industry could curtail our ability to originate new loans that need such insurance, which would result in a loss of business for us.

Risk From Economic Downturns and Changes

Delinquencies and credit losses generally increase during economic downturns due to an increase in liquidity problems for customers and downward pressure on collateral values. Likewise, demand for

loans (at a given level of creditworthiness), deposit products, fixed income products, and financial services may decline during an economic downturn, and may be adversely affected by other national, regional, or local economic factors that impact demand for loans and other financial products and services. Such factors include, for example, changes in interest rates, real estate prices, or expectations concerning rates or prices. Accordingly, an economic downturn or other adverse economic change (local, regional, or national) can hurt our financial performance in the form of higher loan losses, lower loan production levels, lower deposit levels, and lower fees from transactions and services. These risks are faced by all financial services companies. Additional information illustrating these risks is given in “Recent Downturns and Disruptions” beginning on page 28.

Hedge Risks

In the normal course of our businesses, including (among others) banking, mortgage, and capital markets, we attempt to create partial or full economic hedges of various, though not all, financial risks. Our hedging activities are discussed in more detail in various places under the following captions of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2008 Annual Report to Shareholders, which is part of the material from that Report that has been incorporated by reference into Item 7 of Part II of this report: “Risk Management,” beginning on page 29; and, “Critical Accounting Policies,” beginning on page 47. Hedging creates certain risks for us, including the risk that the other party to the hedge transaction will fail to perform (counterparty risk, which is a type of credit risk), and the risk that the hedge will not fully protect us from loss as intended (hedge failure risk). Unexpected counterparty failure or hedge failure could have a significant adverse effect on our liquidity and earnings.

Reputation Risks

Our ability to conduct and grow our businesses, and to obtain and retain customers, is highly dependent upon external perceptions of our business practices and our financial stability. Our reputation is, therefore, a key asset for us. Our reputation is affected principally by our own practices and how those practices are perceived and understood by others. Adverse perceptions regarding the practices of our competitors, or our industry as a whole, also may adversely impact our reputation. In addition, adverse perceptions relating to parties with whom we have important relationships may adversely impact our reputation. Senior management oversees processes for reputation risk monitoring, assessment, and management.

Damage to our reputation could hinder our ability to access the capital markets or otherwise impact our liquidity, could hamper our ability to attract new customers and retain existing ones, could create or aggravate regulatory difficulties, and could undermine our ability to attract and retain talented employees, among other things. Adverse impacts on our reputation, or the reputation of our industry, may also result in greater regulatory and/or legislative scrutiny, which may lead to laws or regulations that change or constrain our business or operations. Events that result in damage to our reputation also may increase our litigation risk.

Operational Risks

Our ability to conduct and grow our businesses is dependent in part upon our ability to create and maintain an appropriate operational and organizational infrastructure, manage expenses, and recruit and retain personnel with the ability to manage a complex business. Operational risk can arise in many ways, including: errors related to failed or inadequate processes; faulty or disabled computer systems; fraud, theft, physical security breaches, electronic data and related security breaches, or other criminal conduct by employees or third parties; and exposure to other external events.

In addition, we outsource some of our operational functions to third parties. Those third parties may experience similar errors or disruptions that could adversely impact us and over which we may have limited control and, in some cases, limited ability to quickly obtain an alternate vendor. To the extent we increase our reliance on third party vendors to perform or assist operational functions, the challenge of managing the associated risks becomes more difficult.

For example, in 2008 we sold our national mortgage origination and servicing platforms. We retained significant servicing right assets, however, and we continue to originate mortgage products in our regional banking markets in and around Tennessee. Of practical necessity, we have outsourced our servicing functions to the purchaser of our platforms, and we have outsourced many key roles in the Tennessee-based mortgage origination process to a third party. Managing the operational, compliance, reputational, liability, and other risks associated with this level of outsourcing in those business areas is an ongoing challenge for us.

Failure to build and maintain the necessary operational infrastructure, or failure of our disaster preparedness plans if primary infrastructure components suffer damage, can lead to risk of loss of service to customers, legal actions, and noncompliance with applicable laws or regulatory standards. Operational risk is specifically managed through internal monitoring, measurement, and assessment by line management and oversight of processes by top management, and by maintaining systems to adhere to regulatory guidance. Additional information concerning operational risks and our management of them appears under the caption “Operational Risk Management” beginning on page 37 of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2008 Annual Report to Shareholders, which is part of the material from that Report that has been incorporated by reference into Item 7 of Part II of this report.

Financing, Funding, and Liquidity Risks

Management of liquidity and related risks is a key function for our business. Additional information concerning liquidity risk management is set forth under the caption “Liquidity Management” beginning on page 32 of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2008 Annual Report to Shareholders, which is part of the material from that Report that has been incorporated by reference into Item 7 of Part II of this report.

Our funding requirements currently are met principally by deposits and financing from other financial institutions. Historically we also depended upon financing from institutional investors by means of the capital markets; however, in 2008 and continuing into early 2009 we have not been able to utilize those markets economically, and we are not able to predict when we will be able to utilize them again. In general, the costs of our funding directly impact our costs of doing business and, therefore, can positively or negatively affect our financial results.

A number of factors could make such funding more difficult, more expensive, or unavailable on affordable terms, including, but not limited to, our financial results, organizational changes, adverse impacts on our reputation, changes in the activities of our business partners, disruptions in the capital markets, specific events that adversely impact the financial services industry, counterparty availability, changes affecting our loan portfolio or other assets, changes affecting our corporate and regulatory structure, interest rate fluctuations, ratings agency actions, general economic conditions, and the legal, regulatory, accounting, and tax environments governing our funding transactions. In addition, our ability to raise funds is strongly affected by the general state of the U.S. and world economies and financial markets, and may become or remain increasingly difficult due to economic and other factors beyond our control.

Events affecting interest rates, markets, and other factors which adversely impact our ability or desire to access the capital markets for funding likewise may adversely affect the demand for our services in our capital markets business. As a result, disruptions in those areas may adversely impact our earnings in that business unit as well as in our regional banking unit. For instance, the disruptions in 2007 and 2008 that were related to mortgages and mortgage-backed assets significantly reduced the demand for certain of our capital markets products and services, and increased the costs and uncertainties associated with our mortgage servicing portfolio.

Rating agencies assign credit ratings to issuers and their debt. In that role, agencies directly affect the availability and cost of our funding. The Corporation and the Bank currently receive ratings from several rating entities for unsecured borrowings. A rating below investment grade typically reduces availability and increases the cost of market-based funding. A debt rating of Baa3 or higher by Moody’s Investors Service, or BBB- or higher by Standard & Poor’s and Fitch Ratings, is considered investment grade for many purposes. At the present time, all three rating agencies rate the unsecured senior debt of the Corporation and the Bank as investment grade, although we are at or near the lowest levels of that grade. To the extent that in the future we depend on institutional borrowing and the capital markets for funding and capital, we could experience reduced liquidity and increased cost of funding if our debt ratings were lowered further, particularly if lowered below investment grade. In addition, other actions by ratings agencies can create uncertainty about our ratings in the future and thus can adversely affect the cost and availability of funding, including placing us on negative outlook or on watchlist. Please note that a credit rating is not a recommendation to buy, sell, or hold securities, is subject to revision or withdrawal at any time, and should be evaluated independently of any other rating.

Regulatory laws or rules that establish minimum capital levels or define risk-weighting for capital, regulate deposit insurance, and govern related funding matters for banks could be changed in a manner that could increase our overall cost of capital and thus reduce our earnings.

Before we disposed of our national lending operations, we depended on our ability to sell or securitize first- and second-lien mortgage loans and, prior to 2007, home equity line of credit loans (which we refer to as HELOC), and we depended upon our ability to sell mortgage servicing rights. Those actions involved the sale of whole loans or of beneficial interests in loans. In 2007 the markets for loans, loan securitizations, and servicing rights experienced significant disruptions; additional information concerning that is presented in “Recent Downturns and Disruptions” beginning on page __ of this report. Going forward, our mortgage origination activity continues within our Tennessee-based regional banking footprint. Most mortgages originated are processed, sold, and serviced on a private-label basis through a third party under contract with us. However, risks pertaining to our new loan originations, our retained loans and servicing rights assets, and our former funding activities, continue.

When we sold or securitized mortgage and HELOC loans, we sometimes did so with varying degrees of recourse, which meant, in effect, that we retained some of the risk for the loan if it defaulted. Generally we sold or securitized loans with no recourse. A loan sold with recourse means the seller retains substantial or full responsibility if it defaults. For a loan we sold without recourse, we could still bear responsibility to the buyer in many cases if the loan defaulted early or was paid off early (typically within the first 90 days), or if the loan did not conform to representations we made to the buyer at the time of sale. At present, in those cases where we are responsible for a loan for representation non-conformity, usually we satisfy our obligations to the buyer by repurchase. Typically we had similar obligations for breach of representation non-conformity, or early default, if the loan was included on a non-recourse basis in a securitization transaction or if the transaction was a sale of servicing rights. Loans repurchased for representation non-conformity frequently involve default or fraud and therefore frequently result in losses to us. We managed the risk of non-conformity through origination and documentation controls and procedures, and through post-closing quality control processes. In 2008 we experienced an increase in

loan repurchases for these reasons, particularly with respect to loans originated under so-called ‘stated income’ procedures, and that increase could continue throughout 2009. Management maintains a reserve for losses related to loan repurchases due to both non-conformity and recourse obligations. Additional information concerning these risks is set forth under the caption “Foreclosure Reserves” beginning on page 54 of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2008 Annual Report to Shareholders, which is part of the material from that Report that has been incorporated by reference into Item 7 of Part II of this report.

Interest Rate and Yield Curve Risks

A significant portion of our business involves borrowing and lending money. Accordingly, changes in interest rates directly impact our revenues and expenses, and potentially could expand or compress our net interest margin. We actively manage our balance sheet to control the risks of a reduction in net interest margin brought about by ordinary fluctuations in rates. Additional information concerning those risks and our management of them appears under the caption “Interest Rate Risk Management” beginning on page 29 of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2008 Annual Report to Shareholders, which is part of the material from that Report that has been incorporated by reference into Item 7 of Part II of this report.

Our mortgage servicing rights (MSR) portfolio is affected by changes in interest rates. Although we sold our mortgage servicing platform in 2008, at present we still retain substantial MSR assets. The value of MSR assets declines when the underlying loans are refinanced or otherwise paid early. Generally, when interest rates increase, the value of MSR generally increases, and when rates decline the value of MSR tends to decline. However, those general tendencies do not result in concrete outcomes in all circumstances; for example, a decrease in interest rates does not always result in a predictable increase in refinancings because other factors may blunt loan demand or curtail credit availability. Additional information concerning those risks and our management of them appears under the caption “Mortgage Servicing Rights and Other Related Retained Interests” beginning on page 49 of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2008 Annual Report to Shareholders, which is part of the material from that Report that has been incorporated by reference into Item 7 of Part II of this report.

Like all financial services companies, we face the risks associated with movements in the yield curve. The yield curve simply shows the interest rates applicable to short and long term debt. The curve is steep when short-term rates are much lower than long-term rates; it is flat when short-term rates are equal, or nearly equal, to long-term rates; and it is inverted when short-term rates exceed long-term rates. Historically, the yield curve normally is positively sloped. However, the yield curve can be relatively flat or inverted for short or even protracted periods. A flat or inverted yield curve tends to decrease net interest margin, and it tends to reduce demand for long-term debt securities, adversely impacting the revenues of our capital markets business. A prolonged inversion of the yield curve historically is so uncommon that it is difficult to predict all the effects that such a market condition is reasonably likely to create. One such effect upon us during a recent inversion period was an overall increase in the cost of hedging MSR. This cost is tied to factors including volatility in the market place, the shape of the yield curve, product duration, risk tolerance and other effects which may favorably or unfavorably impact hedging cost.

Expectations by the market regarding the direction of future interest rate movements, particularly long-term rates, can impact the demand for long-term debt which in turn can impact the revenues of our capital markets business. That risk is most apparent during times when strong expectations have not yet been reflected in market rates, or when expectations are especially weak or uncertain.

Securities Inventories and Market Risks

Our capital markets business buys and sells various types of securities for its institutional customers. In the course of that business we hold inventory positions and are exposed to certain risks of market fluctuations. In addition, we are exposed to credit risk and interest rate risk associated with debt securities. We manage the risks of holding inventories of securities through certain policies and procedures, including hedging activities related to certain interest rate risks. Additional information concerning those risks and our management of them appears under the caption “Market Risk Management” beginning on page 36 of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2008 Annual Report to Shareholders, which is part of the material from that Report that has been incorporated by reference into Item 7 of Part II of this report, and in the “Credit Risks” discussion beginning on page 20 of this report.

In addition, we earn fees and other income related to our brokerage business and our management of assets for customers. Declines, disruptions, or precipitous changes in markets or market prices can adversely affect those revenue sources.

Venture Capital Risks

Venture capital investments are inherently volatile. The companies in which we have invested are much less mature, smaller, and much more unproven than a typical public company. Accordingly, those investments carry a substantial risk of loss. Venture capital investments also are inherently illiquid. Success in this business can only be assessed in the long term and depends to a very large extent upon the ability of management to find sound investment prospects, negotiate financially appropriate investment terms, and oversee each investment as the company uses the venture capital and develops. In the short term, venture capital losses are not uncommon even if the business proves to be successful in the long term. In 2008 we decided to begin winding down this business; however, due to the illiquid nature of these investments, the wind-down process could be lengthy.

Regulatory and Legal Risks

We operate in a heavily regulated industry and therefore are subject to many banking, deposit, insurance, insurance brokerage, securities brokerage and underwriting, and consumer lending regulations in addition to the rules applicable to all companies publicly traded in the U.S. securities markets and, in particular, on the New York Stock Exchange. Failure to comply with applicable regulations could result in financial, structural, and operational penalties. In addition, efforts to comply with applicable regulations may increase our costs and/or limit our ability to pursue certain business opportunities. See “Supervision and Regulation” in Item 1 of this report, beginning on page 4 above, for additional information concerning financial industry regulations. Federal and state regulations significantly limit the types of activities in which we, as a financial institution, may engage. In addition, we are subject to a wide array of other regulations that govern other aspects of how we conduct our business, such as in the areas of employment and intellectual property. Federal and state legislative and regulatory authorities occasionally consider changing these regulations or adopting new ones. Such actions could limit the amount of interest or fees we can charge, could restrict our ability to collect loans or realize on collateral, or could materially affect us in other ways. Additional federal and state consumer protection regulations also could expand the privacy protections afforded to customers of financial institutions, restricting our ability to share or receive customer information and increasing our costs. In addition, changes in accounting rules can significantly affect how we record and report assets, liabilities, revenues, expenses, and earnings.

The Bank is required to maintain certain regulatory capital levels and ratios, as discussed under the caption “Capital Adequacy” beginning on page 6 of this report. If the Bank experiences continuing financial losses, its ability to meet those requirements could be adversely affected. Pressure to maintain capital and capital ratios during times of financial loss, especially protracted loss, may lead to actions that are adverse to our shareholders. Such actions that have already occurred include the elimination of our common cash dividend, the sale of our stock at a time when market prices are disadvantageous, and a contraction of our balance sheet (involving sales or other dispositions of assets or businesses) at a time when market values are depressed. Further such actions could occur if losses continue or worsen.

Some state authorities from time to time have challenged, and on occasion continue to challenge, the position of the OCC that it is the exclusive regulator of various aspects of national banks or their operating subsidiaries. If one or more of those challenges were successful, or if Congress or the OCC were to change the applicable banking laws or regulations, we could be impacted significantly, due, among other things, to possible increased regulatory burdens, governmental and private party actions alleging non-compliance with state law, and the expense of tracking and complying with the different laws and regulations of those states in which we do business.

In addition, some local governments or agencies recently have claimed that certain lenders in their communities have created a public nuisance, engaged in predatory or discriminatory lending, or otherwise are liable for the alleged consequences of inappropriate consumer lending, especially home mortgage lending. Mass claims of this sort, where alleged damages are measured on a statistical and/or city-wide basis, create litigation costs immediately and create a risk of significant litigation losses for those lenders which are named as defendants in them. Moreover, claims of this sort adversely alter the business climate and raise the costs for all lenders, both in the communities involved and in similar communities across the country.

In 2008 the U.S. Congress enacted the Emergency Economic Stabilization Act of 2008, sometimes known as EESA. Under authority of EESA the U.S. Department of the Treasury has initiated a Capital Purchase Program, sometimes referred to as the CPP, which has been implemented in conjunction with the U.S. banking regulators. Under the CPP, the Treasury has purchased preferred stock from approved financial institutions upon terms and conditions set by the Treasury, and in late 2008 the Treasury purchased preferred stock from us. Additional information concerning our participation in the CPP and a debt guarantee program appears in “EESA Legislation and TARP Participation” beginning on page 9 of this report. Other significant programs are expected to be implemented under EESA, and EESA may be expanded or supplemented by additional legislation. EESA and its announced programs are broad, large, and largely untested. These programs create risks that did not exist previously. Among others, those risks include: whether participation in any of these programs will expose us to intrusive, expensive, or counterproductive government mandates or restrictions; whether failure to participate in any particular program, especially if many competitors do participate, will put us in a disadvantageous position; and, whether the programs as a whole will have significant unintended or unexpected effects on the financial services industry as a whole, or upon regional financial services companies in particular.

We also face litigation risks from customers, employees, vendors, contractual parties, and other persons, either singly or in class actions, and from federal or state regulators. Litigation is an unavoidable part of doing business, and we seek to manage those risks through internal controls, personnel training, insurance, litigation management, our compliance and ethics processes, and other means. However, the commencement, outcome, and magnitude of litigation cannot be predicted or controlled with certainty.

Holding Company Dividends

Historically the Corporation has depended upon common dividends from the Bank for cash to fund common dividends paid to the Corporation’s shareholders. However, in part because of the losses experienced by the Bank for 2007 and 2008, regulatory constraints generally will prevent the Bank from declaring and paying dividends to the Corporation in 2009 without regulatory approval. Additional information concerning those regulatory restrictions on the Bank is discussed in more detail under the heading “Liquidity Management” in the Management’s Discussion and Analysis section beginning on page 32 of our 2008 Annual Report to Shareholders, which section is incorporated herein by reference. In 2008 the Corporation discontinued paying a quarterly cash dividend to common stockholders, and began distributing a dividend payable in shares of common stock. As a CPP participant under EESA, we will not be able to reinstate a common cash dividend unless we obtain regulatory consent, among other things. Additional information concerning our participation in the CPP appears in “EESA Legislation and TARP Participation” beginning on page 9 of this report.

Accounting Estimate Risks

The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make significant estimates that affect the financial statements. Two of our most critical estimates are the level of the allowance for credit losses and the valuation of mortgage servicing rights. However, other estimates occasionally become highly significant, especially in volatile situations such as litigation and other loss contingency matters. Estimates are made at specific points in time; as actual events unfold, estimates are adjusted accordingly. Due to the inherent nature of these estimates, it is possible that, at some time in the future, we may significantly increase the allowance for credit losses and/or sustain credit losses that are significantly higher than the provided allowance, or we may recognize a significant provision for impairment of our mortgage servicing rights, goodwill, or other assets, or we may recognize a significant decline in the fair value of our mortgage servicing rights, or we may make some other adjustment that will differ materially from the estimates that we make today. For additional information concerning the sensitivity of these estimates, refer to “Critical Accounting Policies” beginning on page 47 of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2008 Annual Report to Shareholders.

Risks of Expense Control

Expenses and other costs directly affect our earnings. Our ability to successfully manage expenses is important to our long-term survival. Many factors can influence the amount of our expenses, as well as how quickly they grow. As our businesses change, either by expansion or contraction, additional expenses can arise from asset purchases, structural reorganization, evolving business strategies, and changing regulations, among other things. We manage expense growth and risk through a variety of means, including selectively outsourcing or multi-sourcing various functions and procurement coordination and processes.

Geographic Risks

Our capital markets business is national in scope, and capital markets is developing business in selected Asian markets. Our traditional banking business remains grounded in, and depends upon, the major Tennessee markets. As a result, to a greater degree than many of our competitors that operate nationally or in much broader regions, our banking business currently is exposed to adverse economic, regulatory, natural disaster, and other risks that might primarily impact Tennessee and neighboring states where we do business.

Non-U.S. Operations Risks

We have two capital markets offices outside of the United States, in Hong Kong and Tokyo. Opening and operating non-U.S. offices creates a number of risks. Specific risks associated with any non-U.S. presence include: the risk that taxes, licenses, fees, prohibitions, and other barriers and constraints may be created or increased by the U.S. or other countries that would impact our ability to operate overseas profitably or at all; the risk that our assets and operations in a particular country could be nationalized in whole or part without adequate compensation; the risk that currency exchange rates could move unfavorably so as to diminish or destroy the U.S. dollar value of assets, or to enlarge the U.S. dollar value of liabilities, denominated in those currencies; and the risk that political or cultural preferences in a particular host country might become antagonistic to U.S. companies. Our ability to manage those and other risks will depend upon a number of factors, including: our ability to recognize and anticipate differences in cultural and other expectations applicable to customers, employees, regulators, and vendors and other business partners; our ability to recognize and act upon opportunities and constraints peculiar to the countries and cultures in which our offices operate; our ability to recognize and manage any exchange rate risks to which we are exposed; and our ability to anticipate the stability of or changes in the political, legal, and monetary systems of the countries in which our offices operate.

Recent Downturns and Disruptions

In 2007 and 2008 the U.S. economy in general, and the business environment for financial services companies in particular, experienced a significant downturn. Examples of some of the most significant events related to the downturn include the following:


	●	Residential housing values in the U.S. have fallen in nearly every market, and in some highly-populated markets values have fallen significantly.

	●	The volume of residential housing transactions also has stagnated or fallen, and in some markets volume has fallen significantly.

	●	Except for “conforming loans,” which are loan products conforming to standards of certain government sponsored entities, rates for some types of home mortgage products have risen sharply and some mortgage products, with new and more restrictive credit criteria, have become difficult for borrowers to obtain even at high interest rates, making it difficult or impossible for some borrowers to refinance an existing mortgage.

	●	In 2007 investor demand for new-issue mortgage-backed securities fluctuated suddenly and sharply, and for some categories of mortgages it disappeared almost entirely. Although this disruption moderated somewhat in 2008, demand for new-issue non-conforming mortgage-backed securities has not rebounded and seems unlikely to do so for the foreseeable future.

	●	Many companies in the U.S. in many sectors of the economy have reported financial losses or significant reductions in earnings during 2008. Banks and other companies in the financial services industry have, in general, been especially hard hit. A number of banks failed, or were acquired under circumstances of substantial financial stress, in 2008.

	●	In 2008 the principal outlets for home mortgages in the U.S., the so-called government-sponsored entities (GSEs), failed financially and were, in effect, taken over by the federal government. Substantial new legislation was enacted during 2008 which changed how the GSEs operate and are regulated. Although by the end of 2008 the function of the GSEs as a buyer of so-called conforming mortgages was continuing, the current situation may be transitional and it is not clear what the status or function of the GSEs will be in the future.

	●	Unemployment has risen in the latter half of 2008 as some companies have failed and others have reduced their staff.

	●	Because of these factors, among others, loan defaults, foreclosures, and bankruptcies have risen significantly for individuals and businesses.


	●	The U.S. Congress enacted sweeping legislation late in 2008, the EESA law mentioned above, under which the Department of the Treasury has invested substantial amounts of capital in banks, including us, and under which government agencies have substantial new powers. At December 31, 2008 EESA had not yet been fully implemented; additional programs could be adopted with unknown consequences to us.

	●	Early in 2009 Congress amended the EESA law, enacted a major economic stimulus and spending law, and is considering specific additional legislation. Members of Congress have publicly spoken of still other possible legislative actions. Some of those measures could, if enacted, have a substantially larger impact on us than EESA and some could have a substantial adverse effect on our business, operations, and prospects.

	●	A U.S. government agency has taken a substantial, possibly a controlling, stake in an American insurance holding company. There has been public speculation that a U.S. government agency could take a similar position in one or more large U.S. banking institutions, rather than let the institution(s) fail. The government’s indefinite control and operation of such companies would be, in effect, the ‘nationalization’ of the affected companies. In addition, the government could exercise control over, or very powerfully influence, the banking and other institutions that receive government aid without completely nationalizing them. The competitive and financial impacts upon us of such actions, whether they applied to us directly or only to certain competing institutions, cannot be predicted but could be significantly adverse to us.

	●	The Federal Reserve has lowered certain short-term interest rates. This has triggered reductions in the prime lending rates charged by most U.S. banks and in some cases has adversely affected the net interest margins that banks achieve.

Some geographic areas and business sectors, and some companies and banks, were hurt more than others, or experienced the downturn at different rates or different times. However, by the end of 2008 it is clear that the many and varied significant events of 2007 and 2008 have become a general and serious economic recession. At this time it is not known, and not possible to predict, how long or deep this downturn ultimately will be. Although these adverse events did not create new types of risks, we believe it is useful to highlight in this section some of the key impacts of those events on our business to illustrate how events beyond our control can adversely affect us.

Exit from National Mortgage and Specialty Lending Businesses

Many of the significant disruptions in 2007 and 2008 impacted our mortgage businesses substantially. We decided to exit those businesses except in our traditional Tennessee-based banking region. In August 2008 we sold our mortgage origination and servicing platforms to MetLife Bank N.A., and during the year we exited the national specialty lending businesses associated with the mortgage business.

Substantial Increase in Losses Related to Loans and Exited Businesses

Although we sold or closed our national mortgage and other lending businesses, we retain as assets many of the loans that those businesses created which we did not sell, or were not able to sell, in the normal course. Most of those loans are secured by residential or other real estate situated across the U.S. We also retain a substantial portion of the mortgage servicing rights that we previously serviced, we retain the hedge positions that we obtained to manage certain risks related to those servicing rights, and we retain the risk of liability to parties with whom we made contracts in the course of operating those businesses. These legacy assets and positions continue to impose risks on us. For example:


	●	The loans on our books have experienced significantly higher default and loss rates compared to recent years past. For example, due to declining home values, home loans secured on a second-lien basis in some cases have little or no collateral value to cover the loan if it defaults. Accordingly, a default on such a loan today will result in a much higher loss than would have resulted previously. It is not possible to predict when default and loss rates will stabilize.

	●	The incidence of parties claiming that loans that we sold to them did not meet contractual standards has risen recently. That trend may continue as parties seek to mitigate losses they experienced while holding those loans by any means possible.

	●	The incidence of counterparty loss on hedges, swaps, and other such instruments may rise as those counterparties experience financial stress or failure.

Other trends adverse to us may emerge from these legacy assets and positions as counterparties are stressed by economic conditions, and of course some of these impacts apply to continuing businesses. Over time those losses and risks related to legacy items should diminish since there will be many fewer new loans and new contracts, but it is not possible to predict when that may occur.

Our other lending businesses remain in place, and we are constantly seeking ways to prudently expand them. We are experiencing a significant increase in default and loss rates in most of those products as well, and demand for new loans has diminished somewhat as business activity in general has become more subdued. We have made adjustments to our underwriting, credit review, and loss mitigation processes and we will continue to seek ways to manage risk and minimize loss; however, we remain in the business of lending and that business carries more risk at present than it has in recent years past. That higher level of risk could increase further, and in any case that risk is likely to continue at an elevated level at least until the economy improves to a significant extent.

We regularly review and adjust the allowance for loan losses for adequacy considering economic conditions and trends, collateral values and credit quality indicators, including past charge-off experience and levels of past due loans and nonperforming assets as well as changes in housing price appreciation and depreciation. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. That process was made significantly more difficult in 2008, as changes in business and economic conditions required us to adjust and re-adjust our methods. If the credit quality of our customer base continues to materially weaken, if the risk profile of a market, industry or group of customers continues to change materially, or if the allowance for loan losses for any reason is not adequate, our financial condition or results of operations could be adversely affected.

Decrease in Business Activities

The slowdown has reduced business activity, including activity which we finance by making loans and activity from which we earn fee revenues. Some activities have fallen off substantially, notably (for us) certain capital markets structured finance activities. All of these impacts reduce our revenues and our opportunities for new business.

Net Interest Margin Compression

Falling interest rates in the U.S. could stimulate new demand for consumer and business loans and business activity in general. However, falling rates could also compress our net interest margin, which would negatively affect our financial results. Moreover, that compression could occur whether or not our loan or other businesses experienced any significant stimulus.

Deposit run-off risks

As mentioned under “Financing, Funding, and Liquidity Risks” beginning on page 22 above, we rely significantly upon deposits for liquidity and to fund our business operations. Generally, deposits are a relatively stable and cost-effective source of funding for banks due to many factors, including FDIC deposit insurance. Changes in deposit levels can be influenced substantially by many factors, including customer satisfaction and the interest rates offered to deposit customers. Those rates, in turn, generally reflect prevailing market conditions. During 2008, the media occasionally highlighted the risk of an extreme form of deposit run-off, sometimes referred to as a ‘run on the bank.’ More moderate levels of run-off can adversely affect banks but are substantially less dramatic and have been significantly less reported. The increased level of public concern created by the current adverse business environment, punctuated by media reports of potential or actual bank failures, increased the risk of some level of deposit run-off for all depositary institutions in 2008. That increased run-off risk applies both generally and in relation to deposits that exceed FDIC insurance coverage. Although late in 2008 FDIC insurance coverage levels were increased and actual run-off activity was mitigated, this risk nevertheless is likely to continue at some elevated level until the economic situation becomes more stable. To manage this risk we maintain cash reserves and access to other liquidity sources to accommodate normal and, to a degree, unusual withdrawal activity, and we strive to respond promptly and accurately to customer concerns that might arise.

Potential regulatory and legislative actions may adversely affect mortgage assets

The U.S. Congress and other governmental bodies have considered, and in the future may enact or adopt, new laws and regulations intended to modify the terms of outstanding consumer loans in a manner benefiting borrowers at the expense of lenders, restrict the ability of lenders to make new loans, and increase the regulatory burdens and legal risks on lenders and loan servicers. Among other things these initiatives, if enacted or adopted, could pressure or force us to reduce the interest and/or principal of loans, delay foreclosure, provide new defenses to foreclosure or otherwise impair our ability to foreclose on a defaulted mortgage loan, adversely affect our rights if a borrower declares bankruptcy, or otherwise adversely affect our rights with respect to borrowers who are in default or who qualify for such initiatives. The outcome of these initiatives is uncertain.

Recovery Act Risks

In February 2009, shortly before this Report was filed, the U.S. Congress enacted the American Recovery and Reinvestment Act of 2009 (the “Recovery Act”). Additional information concerning the Recovery Act is provided in “EESA Legislation & TARP Participation,” particularly the last paragraph of that section on page 11 of this report. Among other things, the Recovery Act generally prohibits incentive compensation, including bonus and retention awards, for the five executives whose compensation is described in detail in our proxy statement (the “named executives”) and for the twenty employees, excluding the named executives, whose total compensation is the highest (the “Highest 20”). This restriction on incentives would cease to apply once all of the preferred stock that we sold to the Treasury is redeemed. Many interpretive questions related to the compensation provisions remain unresolved at this early time. The Recovery Act has created several new risks for us and for other institutions that sold preferred stock to the Treasury, including the following:


	●	Pay Substantially Less Linked to Performance. The restriction on incentive compensation in the Recovery Act may adversely affect our ability to attract, retain, and motivate our highest performing employees, and therefore may adversely affect our business. Historically, we have embraced a pay-for-performance philosophy for employees at many levels of the company. The restriction on incentives may substantially de-link pay from performance for our named executives and for those employees who are in the Highest 20 group. For those de-linked persons salary is likely to become the largest component of their compensation package. It is uncertain how a salary-dominated pay structure for those persons might affect our overall performance during the period in which the restriction applies to us. We believe that strongly linking significant components of pay to performance, particularly at the highest levels, benefits the company and its shareholders, and that the de-linking described above is likely to be disruptive to that philosophy at those levels and contrary to the company’s best interests.

	●	Risks if We Desire to Redeem the Preferred. One way to avoid or mitigate the risks outlined above would be to redeem the preferred shares we sold to the Treasury as soon as possible. However, any redemption would reduce our capital and we cannot redeem stock unless our Board and our regulators conclude it is consistent with safety, soundness, and other corporate and regulatory considerations. Those considerations could constrain our ability to redeem the preferred shares, especially in the short term, unless we create or raise an acceptable amount of replacement capital. Creating new capital typically relies upon retaining earnings. Raising new capital could be significantly dilutive to existing shareholders, especially under current market conditions, and it may not be feasible if, at the time we wish to go to market, the market is disrupted or perceives us unfavorably.

	●	Interest Rates and Other Economic Changes. The Recovery Act will result in a substantial increase in government expenditures and could substantially increase government debt. It is not clear how those events will affect interest rates or the inflation rate, among other things, but both could rise as a result of the Act. As mentioned above, our businesses are very sensitive to changes in interest rates and sudden changes in rates often have had an adverse effect on us and other financial services companies. In addition, increased interest rates tend to dampen economic activity; if rates were sustained at relatively high levels the current economic recession could be prolonged or deepened, which would adversely affect our customers and us.

ITEM 1B
UNRESOLVED STAFF COMMENTS

None.

ITEM 2
PROPERTIES

The Corporation has no properties that it considers materially important to its financial statements.

ITEM 3
LEGAL PROCEEDINGS

The Corporation is a party to no material pending legal proceedings the nature of which are required to be disclosed pursuant to the Instructions contained in the Form of this Report.

ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted during the fourth quarter of 2008 to a vote of security holders, through the solicitation of proxies or otherwise.

SUPPLEMENTAL PART I INFORMATION

Executive Officers of the Registrant

The following is a list of executive officers of the Corporation as of January 31, 2009. The executive officers generally are elected at the April meeting of the Corporation’s Board of Directors following the annual meeting of shareholders for a term of one year and until their successors are elected and qualified. As shown in more detail below, during each of the last five fiscal years three of the executive officers were employed principally by the Corporation or its subsidiaries in an executive capacity (Messrs. Burkett, Hilliard, and Keen), three others were employed by the Corporation or its subsidiaries but did not hold an executive position during the entire period (Messrs. Gusmus, Olivier, and Tuggle), and the remainder were first employed by the Corporation during that period (Messrs. Daniel, Jordan, Losch, and Rose).


Name and Age		Current (Year First Elected to Office) and Recent Offices and Positions

Charles G. Burkett Age: 58		President – Tennessee and National Banking of the Corporation and the Bank (2004) Prior to November, 2005, Mr. Burkett was President – First Tennessee Financial Services and Executive Vice President of the Corporation and the Bank. Prior to April 2004 Mr. Burkett was President – Retail Financial Services/Memphis Financial Services.

John M. Daniel Age: 54		Executive Vice President – Human Resources of the Corporation and the Bank (2008) From September 2006 until July 2008, Mr. Daniel was Executive Vice President – Employee Services of the Corporation and the Bank. From January 2001 to September 2006, Mr. Daniel was Executive Vice President in charge of Human Resources for Regions Financial Corporation.

Frank J. Gusmus Jr. Age: 54		President – FTN Financial of the Corporation and the Bank (2008) From August 2008 to October 2008, Mr. Gusmus served as Interim President – FTN Financial of the Corporation and Bank. Prior to that time over the past five years Mr. Gusmus held the following positions with the Bank or a subsidiary: from July 2007 to August 2008, Financial Services Manager, FTN Financial; from August 2006 to July 2007, Division Manager of Capital Markets, FTN Financial and President, FTN Financial Securities Corp.; from March 2005 to August 2006, Financial Services Manager, FTN Financial; and prior to March 2005, Chief Financial Officer, FTN Financial.

Herbert H. Hilliard Age: 61		Executive Vice President, Risk Management (2001) and Government Relations, and CRA (1988) of the Corporation and the Bank


D. Bryan Jordan Age: 47		President and Chief Executive Officer of the Corporation and the Bank (2008) From May 2007 until September 2008 Mr. Jordan was Executive Vice President and Chief Financial Officer of the Corporation and the Bank. From 2000 until 2002 Mr. Jordan was Comptroller, and from 2002 until April 2007 Mr. Jordan was Chief Financial Officer, of Regions Financial Corp. During that time he was also an Executive Vice President and, from November 2006, a Senior Executive Vice President of Regions.

James F. Keen Age: 58		Executive Vice President (2003), Chief Accounting Officer of the Corporation and the Bank (2008) and principal accounting officer Mr. Keen was Corporate Controller of the Corporation from 1988 until July 2008, and of the Bank from 2001 until July 2008. In that capacity Mr. Keen was the Corporation’s principal accounting officer.

William C. Losch III Age: 38		Executive Vice President and Chief Financial Officer of the Corporation and the Bank (2009) From 1998 to January 2009, Mr. Losch was with Wachovia Corporation. Most recently he served as Senior Vice President and Chief Financial Officer of its Retail and Small Business Banking unit from 2003 to 2005, and as Senior Vice President and Chief Financial Officer of its General Bank unit from 2006 to January 2009.

James Gregory Olivier Age: 46		Executive Vice President and Chief Credit Officer of the Corporation and the Bank (2007) From December 2003 to June 2007, Mr. Olivier held the position of Executive Vice President – Credit Risk Manager for the Corporation and Bank. Prior to that time he served as Senior Vice President and Wholesale Credit Products Manager for Wachovia Corp.

Michael D. Rose Age: 66		Chairman of the Board of the Corporation and the Bank (2007) Mr. Rose is the retired Chairman of Gaylord Entertainment Company, Nashville, Tennessee, a diversified hospitality and entertainment company. He served as Chairman of Gaylord Entertainment Company from April 2001 to May 2005. Mr. Rose has been director of the Corporation and Bank since 1984, and was a non-employee director until January 2007 when he was appointed Chairman of the Board.

Charles T. Tuggle, Jr. Age: 60		Executive Vice President and General Counsel of the Corporation and the Bank (2008) From October 2003 to 2007 Mr. Tuggle was an Executive Vice President of the Bank’s FTN Financial division; during that time prior to 2007 Mr. Tuggle served as Chief Risk Officer of FTN Financial. From 1998 to October 2003 Mr. Tuggle was Chairman and Chief Executive Officer of the law firm Baker, Donelson, Bearman, Caldwell & Berkowitz, PC.

Declaration of Covenant
Relating To
The Bank’s Class A Non-Cumulative Perpetual Preferred Stock

On March 23, 2005, the Bank issued 300,000 shares of Class A Non-Cumulative Perpetual Preferred Stock (“Bank Preferred Stock”). That issuance was the subject of the Corporation’s Current Report on Form 8-K filed March 24, 2005. The Bank made a Declaration of Covenant dated as of July 20, 2005 (“Declaration”) in connection with the Bank Preferred Stock. The Declaration was the subject of

Item 8.01 of the Corporation’s Current Report on Form 8-K filed July 22, 2005. Under the Declaration, the Bank has promised to redeem shares of the Bank Preferred Stock only if and to the extent that the redemption price is equal to or less than the New Equity Amount as of the date of redemption. “New Equity Amount” means, on any date, the net proceeds to the Bank or subsidiaries of the Bank received during the six months prior to such date from new issuances of common stock of the Bank or of other securities or combinations of securities that


	(i)	qualify as Tier 1 capital of the Bank, and

	(ii)	as reasonably determined in good faith by the Bank’s Board of Directors, (x) on a liquidation or dissolution of the Bank rank pari passu with or junior to the Bank Preferred Stock (or, if all of the Bank Preferred Stock has been redeemed, would have ranked pari passu with or junior to the Bank Preferred Stock had it remained outstanding), (y) are perpetual, with no prepayment obligation on the part of the issuer, whether at the election of holders or otherwise (although such securities may be subject to early redemption at the option of the issuer), and (z) dividends or other distributions on which are non-cumulative;

provided , however , that the net proceeds of such securities or combinations of securities (A) if issued to any affiliate of the Bank other than the Corporation, shall not qualify as a New Equity Amount and (B) if issued to the Corporation shall qualify as a New Equity Amount only if such securities or combinations of securities have been purchased by the Corporation with the net proceeds from new issuances of common stock of the Corporation or of securities or combinations of securities by the Corporation during such six-month period that


	(i)	qualify as Tier 1 capital of the Corporation and

	(ii)	as reasonably determined in good faith by the Corporation’s Board of Directors, (x) on a liquidation or dissolution of the issuer rank junior to all indebtedness for money borrowed and claims of other creditors of the issuer, (y) are perpetual, with no prepayment obligation on the part of the issuer, whether at the election of holders or otherwise (although such securities may be subject to early redemption at the option of the issuer), and (z) dividends or other distributions on which are non-cumulative.

The covenants in the Declaration run in favor of persons that buy, hold, or sell debt of the Bank during the period that such debt is “Covered Debt.” The Bank’s 5.05% Subordinated Bank Notes Due January 15, 2015 (“2015 Notes”) are the initial Covered Debt. Other debt will replace the 2015 Notes as the Covered Debt under the Declaration on the earlier to occur of (x) the date two years prior to the 2015 Notes’ maturity, or (y) the date the Bank gives notice of a redemption of the 2015 Notes such that, or the date 2015 Notes are repurchased in such an amount that, the outstanding principal amount of 2015 Notes is or will become less than $100 million.

The Declaration is subject to various additional terms and conditions. The Declaration may be terminated if the holders of at least 51% by principal amount of the Covered Debt so agree, or if the Bank no longer has any long-term indebtedness rated by a nationally recognized statistical rating organization.

The summary description of the Declaration in this report is qualified in its entirety by the full terms of the Declaration, which are controlling.

PART II

Note on Page Number References

ITEM 5
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES


	(a) Market for the Corporation’s Common Stock:

The Corporation’s common stock, $0.625 par value, is listed and trades on the New York Stock Exchange, Inc. under the symbol FHN. As of December 31, 2008, there were 7,515 shareholders of record of the Corporation’s common stock. Additional information called for by this Item is incorporated herein by reference to:


	(i)	the Summary of Quarterly Financial Information Table (Table 27)(page 58), the Selected Financial and Operating Data Table (page 2), and the “Liquidity Management” subsection (beginning on page 32) of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section contained in the Corporation’s 2008 Annual Report to Shareholders,

	(ii)	Note 18 to the Consolidated Financial Statements beginning on page 102 of the 2008 Annual Report to Shareholders, and

	(iii)	the “Payment of Dividends” and “Transactions with Affiliates” subsections beginning on pages 5 and 6, respectively, of Item 1 of Part I of this report on Form 10-K.

The Corporation has provided the information required by Item 201(e) of Regulation S-K on page 152 of its 2008 Annual Report to Shareholders under the caption “Total Shareholder Return Performance Graph.” That information is not “filed” with this report and is not incorporated by reference herein.


	(b) Sale of Unregistered Equity Securities:

On November 14, 2008, the Corporation issued and sold to the U.S. Department of the Treasury (“Treasury”) 866,540 preferred shares and a ten-year warrant to purchase 12,743,235 common shares for a capital contribution of $866,540,000. The sale was in conjunction with the Treasury’s Capital Purchase Program (“CPP”) under the Emergency Economic Stabilization Act of 2008 (“EESA”). Additional information concerning the CPP is presented under “EESA Legislation & TARP Participation” beginning on page 9 of this report. There was no underwriter associated with this transaction. The sale of preferred shares and the warrant in connection with the transaction was exempt from registration pursuant, among other things, to Section 4(2) of the Securities Act of 1933, as amended. Except for such shares, during 2008 the Corporation sold no equity securities without registration under the Securities Act of 1933, as amended.


	(c) Issuer Repurchases:

Repurchases are made in the open market or through privately negotiated transactions and are subject to market conditions, accumulation of excess equity and prudent capital management. Pursuant to

Board authority, the Corporation may repurchase shares from time to time for general purposes and for its stock option and other compensation plans, and will evaluate the level of capital and take action designed to generate or use capital as appropriate for the interests of the shareholders. Since becoming a participant in the U.S. Treasury’s capital purchase program, all purchase authorization is subject to substantial restrictions under that program. See “EESA Legislation & TARP Participation” beginning on page 9 of this report for additional information concerning those restrictions. Additional information concerning repurchase activity during the final three months of 2008 is presented in Table 14, and the surrounding notes and other text, of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section appearing on pages 28 and 29 of the Corporation’s 2008 Annual Report to shareholders, which information is incorporated herein by this reference.

ITEM 6
SELECTED FINANCIAL DATA

The information called for by this Item is incorporated herein by reference to the Selected Financial and Operating Data table appearing on page 2 of the Corporation’s 2008 Annual Report to shareholders.

ITEM 7
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION

The information called for by this Item is incorporated herein by reference to the Management’s Discussion and Analysis of Results of Operations and Financial Condition section, Glossary section, and the Consolidated Historical Statements of Income and Consolidated Average Balance Sheets and Related Yields and Rates tables appearing on pages 3-62 and 148-150 of the Corporation’s 2008 Annual Report to Shareholders.

ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information called for by this Item is incorporated herein by reference to the “Interest Rate Risk Management” subsection of Note 26 to the Consolidated Financial Statements, and to the “Risk Management-Interest Rate Risk Management” subsection of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section, both of which appear, respectively, on pages 140-141 and on pages 29-32 of the Corporation’s 2008 Annual Report to Shareholders.

ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information called for by this Item is incorporated herein by reference to the Consolidated Financial Statements and the notes thereto and to the Summary of Quarterly Financial Information table appearing, respectively, on pages 66-147 and on page 58 of the Corporation’s 2008 Annual Report to Shareholders.

ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A
CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures . The Corporation’s management, with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by the annual report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Corporation’s disclosure controls and procedures are effective to ensure that material information relating to the Corporation and the Corporation’s consolidated subsidiaries is made known to such officers by others within these entities, particularly during the period this annual report was prepared, in order to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting . The report of management required by Item 308(a) of Regulation S-K, and the attestation report required by Item 308(b) of Regulation S-K, appear at pages 63-64 of the Corporation’s 2008 Annual Report to Shareholders and are incorporated herein by this reference.

Changes in Internal Control over Financial Reporting . There have not been any changes in the Corporation’s internal control over financial reporting during the Corporation’s fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

ITEM 9A(T)
CONTROLS AND PROCEDURES

Not applicable.

ITEM 9B
OTHER INFORMATION

There is no information required to have been disclosed in a report on Form 8-K during the fourth quarter of 2008 that has not been reported.

PART III

ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information called for by this Item as it relates to directors and nominees for director of the Corporation, the Audit Committee of the Corporation’s Board of Directors, members of the Audit Committee, and audit committee financial expert is incorporated herein by reference to the “Corporate Governance and Board Matters” section and the “Vote Item No. 1—Election of Directors” section of the Corporation’s 2009 Proxy Statement (excluding the Audit Committee Report, the statements regarding the existence, availability, and location of the Audit Committee’s charter, and the Compensation Committee Report). The information required by this Item as it relates to executive officers of the Corporation is incorporated herein by reference to the information provided under the heading “Executive Officers of the Registrant” in the Supplemental Part I Information following Item 4 of this Report. The information required by this Item as it relates to compliance with Section 16(a) of the Securities Exchange

Act of 1934 is incorporated herein by reference to the “Section 16(a) Beneficial Ownership Reporting Compliance” section of the 2009 Proxy Statement.

In 2008 there were no material amendments to the procedures, described in the Corporation’s 2009 Proxy Statement, by which security holders may recommend nominees to the Corporation’s Board of Directors.

The Corporation’s Board of Directors has adopted a Code of Ethics for Senior Financial Officers that applies to the Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer and also applies to all professionals serving in the financial, accounting, or audit areas of the Corporation and its subsidiaries. A copy of the Code has been filed (or incorporated by reference) as Exhibit 14 to this report and is posted on the Corporation’s current internet website (www.fhnc.com). (Click on “Investor Relations,” and then “Corporate Governance.”) A paper copy of the Code is available without charge upon written request addressed to the Corporate Secretary of the Corporation at its main office, 165 Madison Avenue, Memphis, Tennessee 38103. The Corporation intends to satisfy its disclosure obligations under Item 5.05 of Form 8-K related to Code amendments or waivers by posting such information on the Corporation’s internet website, the address for which is listed above.

ITEM 11
EXECUTIVE COMPENSATION

The information called for by this Item is incorporated herein by reference to the “Compensation Committee Interlocks and Insider Participation,” “Executive Compensation,” and “Director Compensation” sections of the Corporation’s 2009 Proxy Statement.

The Corporation has provided the information required by Item 407(e)(5) of Regulation S-K in its 2009 Proxy Statement under the caption “Compensation Committee Report.” That information is not “filed” with this report and is not incorporated by reference herein.

ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Securities Authorized for Issuance under Equity Compensation Plans

Equity Compensation Plan Information

The following table provides information as of December 31, 2008 with respect to shares of Corporation common stock that may be issued under its existing equity compensation plans, including the following plans:


●	1990 Stock Option Plan (“1990 Plan”)

●	1995 & 1997 Employee Stock Option Plans (“1995 Plan” and “1997 Plan,” respectively)

●	2000 Employee Stock Option Plan (“Executive Plan”)

●	2003 Equity Compensation Plan (“2003 Plan”)

●	2000 Non-employee Directors’ Deferred Compensation Stock Option Plan (“Directors’ Plan”)

●	1995 Non-employee Directors’ Deferred Compensation Stock Option Plan (“1995 Directors’ Plan”)

●	1991, 1997, & 2002 Bank Director and Advisory Board Member Deferral Plans (“Advisory Board Plans”)

Of the 15,302,812 compensatory options outstanding at December 31, 2008, approximately 34.7% were issued in connection with employee and director cash deferral elections. The Corporation received approximately $36.7 million in employee cash deferrals and $2.5 million in non-employee directors and advisory board retainer and meeting fee deferrals. The opportunity to defer portions of their compensation in exchange for options has not been offered to employees, directors or advisory board members with respect to compensation earned at any time since January 1, 2005.

The following table includes information with respect to shares subject to outstanding options granted under equity compensation plans that are no longer in effect. Footnotes (2) and (5) to the table set forth the total number of shares of Corporation common stock issuable upon the exercise of options under the expired plans as of December 31, 2008. No additional options may be granted under those expired plans.

The numbers of shares covered by stock options, as well as the option prices, reported in the following table have been adjusted proportionately to reflect the estimated economic effects of dividends paid in common stock effective October 1, 2008 and January 2, 2009. The cumulative compound adjustment factor related to those two dividends is 4.9547%. For administrative reasons outstanding options have not been formally adjusted at this time; however, administrative action has been taken which in most cases will provide the same economic and dilutive effect as an adjustment if and when affected options are exercised.

Equity Compensation Plan Information


	A			B			C

Plan Category	Number of Securities to be Issued upon Exercise of Outstanding Options			Weighted Average Exercise Price of Outstanding Options			Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Col. A)

Equity Compensation Plans Approved by Shareowners (1)		5,538,156	(2)		$	31.36		3,494,124	(3)

Equity Compensation Plans Not Approved by Shareowners (4)		9,764,657	(5)		$	31.22		—

Total		15,302,812			$	31.27		3,494,124

In the table, column C shows the number of shares available for future award grants under the plans indicated at December 31, 2008, assuming eventual full exercise or issuance of all shares covered by awards outstanding on that date. Shares covered by outstanding options are shown in column A. A total of 1,520,408 shares are covered by outstanding awards other than options, including 1,301,392 under plans approved by shareowners and 219,016 under plans not approved by shareowners.


(1)	Consists of the Executive Plan, Directors’ Plan, 1995 Directors’ Plan, 1995 Plan, 1990 Plan, and the 2003 Plan.

(2)	Includes 976,312 outstanding options issued in connection with employee and non-employee director cash deferrals of approximately $7.6 million. Also includes information for equity compensation plans that have expired. The Directors’ Plan, the 1995 Directors’ Plan, the 1995 Plan and the 1990 Plan were approved by shareholders in 2000, 1995, 1995 and 1990, respectively. The plans expired January 2007, June 1999, April 2005 and April 2000, respectively. As of December 31, 2008, a total of 1,233,069


	shares of Corporation common stock were issuable upon the exercise of outstanding options under these expired plans. No additional options may be granted under these expired plans.

(3)	As of December 31, 2008, an aggregate of 3,494,124 shares were available for awards other than options under the 2003 Plan.

(4)	Consists of the 1997 Plan and the Advisory Board Plans.

(5)	Includes 4,339,104 outstanding options issued in connection with employee and advisory board cash deferrals of approximately $31.7 million. Also includes information for equity compensation plans that have expired or terminated. The 1997 Bank Director and Advisory Board Member Deferral Plan and the 1991 Bank Director and Advisory Board Member Deferral Plan expired in January 2002 and January 1997, respectively, and the 2002 Bank Director and Advisory Board Member Deferral Plan was terminated in April 2005. As of December 31, 2008, a total of 9,764,657 shares of Corporation common stock were issuable upon the exercise of outstanding options under these expired or terminated plans. No additional options may be granted under these expired or terminated plans.

Description of Equity Compensation Plans Not Approved by Shareholders

The 1997 Plan

The 1997 Plan was adopted by the Board of Directors on April 16, 1996 and expired in April 2007. The 1997 Plan provided for granting of nonqualified stock options.

Options granted under the 1997 Plan have been granted to substantially all employees of the Corporation under our FirstShare and management option programs. The FirstShare program was a broad-based employee plan, where all employees of the Corporation (except management level employees) received a stock option award annually. Management level employees receive annual stock option awards under the management option program. The FirstShare options vest 100 percent after three years and have a term of 10 years. The management options vest 50 percent after 3 years and 50 percent after 4 years, unless a specified stock price is achieved within the 3 year period. The management options have a term of 7 years. In addition to the above, prior to 2005 certain employees could elect to defer a portion of their annual compensation into stock options under the 1997 Plan. These options vest after 6 months and have a term of 20 years. The options vest on an accelerated basis in the event of a change in control of First Horizon. All options granted under the 1997 Plan have an exercise price equal to the fair market value on the date of grant. Notwithstanding the above, under our deferred compensation stock option program, the option price per share may be less than 100 percent of the fair market value of the share at the time the option is granted if the employee has entered into an agreement with the Corporation to receive a stock option grant in lieu of compensation and the amount of compensation foregone when added to the cash exercise price of the options equals at least the fair market value of the shares on the date of grant. The deferred compensation stock option program has not been effective since January 2005.

As of December 31, 2008, options covering 9,701,515 shares of Corporation common stock were outstanding under the 1997 Plan, no shares remained available for future option grants, and options covering 17,907,808 shares had been exercised during the life of the plan. Of the options outstanding under the 1997 Plan, approximately 44% were issued in connection with employee cash deferral elections. The Corporation received approximately $31.2 million in cash deferrals to offset a portion of the exercise price. The 1997 Plan was filed as Exhibit 10(c) in the Corporation’s Form 10-Q for the quarter ended September 30, 2002, filed with the SEC, and is listed as Exhibit 10.2(d) to this Report. An amendment to the Plan is filed as Exhibit 10.2(h) to this Report.

The Advisory Board Plans

The Advisory Board Plans were adopted by the Board of Directors in October 2001, January 1997 and January 1991. The 2002 Advisory Board Plan was terminated in 2005, and the 1997 and 1991 plans expired in 2002 and 1997, respectively.

Options granted under the Advisory Board Plans were granted only to regional and advisory board members, or to directors of certain bank affiliates, in any case who were not employees. The options were granted in lieu of the participants receiving retainers or attendance fees for bank board and advisory board meetings. The number of shares subject to grant equaled the amount of fees/retainers earned divided by one half of the fair market value of one share of common stock on the date of the option grant. The exercise price plus the amount of fees foregone equaled the fair market value of the stock on the date of the grant. The options were vested at the grant date. Those granted on or prior to January 2, 2004 have a term of 20 years, while those granted on or after July 1, 2004 have a term of 10 years.

As of December 31, 2008, options covering 63,142 shares of Corporation common stock were outstanding under the Advisory Board Plans, zero shares remained available for future option grants, and options covering 178,484 shares had been exercised during the life of the plan.

The 1997 and 1991 Advisory Board Plans were filed as Exhibits 10(t) and 10(u), respectively, to the Corporation’s 2002 Form 10-K, and are listed as Exhibits 10.1(f) and 10.1(g) to this Report. The 2002 Advisory Board Plan was filed as Exhibit 10(s) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, and is listed as Exhibit 10.1(h) to this Report. An amendment to these Plans is filed as Exhibit 10.2(h) to this Report.

Beneficial Ownership of Corporation Stock

The information required by this Item pursuant to Item 403(a) and (b) of Regulation S-K is incorporated herein by reference to the “Stock Ownership Information” section of the Corporation’s 2009 Proxy Statement.

Change in Control Arrangements

The Corporation is unaware of any arrangements which may result in a change in control of the Corporation.

ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

A portion of the information called for by this Item is incorporated herein by reference to the “Transactions with Related Persons” section of the 2009 Proxy Statement. The Corporation’s independent directors and nominees are identified in the first paragraph of the “Independence and Categorical Standards” section of the 2009 Proxy Statement, which paragraph is incorporated herein by reference.

ITEM 14
PRINCIPAL ACCOUNTANT FEES AND SERVICES

In July 2003, the Audit Committee of the Board of Directors adopted a policy providing for pre-approval of all audit and non-audit services to be performed by the Corporation’s registered public accounting firm that performs the audit of our consolidated financial statements that are filed with the

SEC. Services either may be approved in advance by the Audit Committee specifically on a case-by-case basis (“specific pre-approval”) or may be approved in advance (“advance pre-approval”). Advance pre-approval requires the Committee to identify in advance the specific types of service that may be provided and the fee limits applicable to such types of service, which limits may be expressed as a limit by type of service or by category of services. Unless the type of service to be provided by the Corporation’s registered public accounting firm has received advance pre-approval under the policy and the fee for such service is within the limit pre-approved, the service will require specific pre-approval by the Committee. The terms of and fee for the annual audit engagement must receive the specific pre-approval of the Committee. “Audit,” “Audit-related,” “Tax,” and “All Other” services, as those terms are defined in the policy, have the advance pre-approval of the Committee, but only to the extent those services have been specified by the Committee and only in amounts that do not exceed the fee limits specified by the Committee. Such advance pre-approval is to be for a term of 12 months following the date of pre-approval unless the Committee specifically provides for a different term. Unless the Committee specifically determines otherwise, the aggregate amount of the fees pre-approved for All Other services for the fiscal year must not exceed seventy-five percent (75%) of the aggregate amount of the fees pre-approved for the fiscal year for Audit services, Audit-related services, and those types of Tax services that represent tax compliance or tax return preparation. The policy delegates the authority to pre-approve services to be provided by the Corporation’s registered public accounting firm, other than the annual audit engagement and any changes thereto, to the Chairperson of the Committee. The Chairperson may not, however, make a determination that causes the 75% limit described above to be exceeded. Any service pre-approved by the Chairperson will be reported to the Committee at its next regularly scheduled meeting.

Information regarding fees billed to the Corporation by KPMG LLP for the two most recent fiscal years is incorporated herein by reference to the “Vote Item No. 2” section of the 2009 Proxy Statement. No services were approved by the Audit Committee pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X.

PART IV

Note on Page Number References

ITEM 15
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as a part of this Report:

Financial Statements:


Page 66*	1.	Consolidated Statements of Condition as of December 31, 2008 and 2007.

Page 67*	2.	Consolidated Statements of Income for the years ended December 31, 2008, 2007 and 2006.

Page 68*	3.	Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2008, 2007, and 2006.

Page 69*	4.	Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006.

Pages 70-147*	5.	Notes to the Consolidated Financial Statements

Pages 64-65*	6.	Reports of Independent Registered Public Accounting Firm


	*	The consolidated financial statements of the Corporation, the notes thereto, and the reports of independent public accountants, as listed above, are incorporated herein by reference to the indicated pages of the Corporation’s 2008 Annual Report to Shareholders.

Financial Statement Schedules: Not applicable.

Exhibits:


	Exhibits marked with an “*” represent a management contract or compensatory plan or arrangement required to be identified and filed as an exhibit.

	Exhibits marked with a “+” are filed herewith.

	The phrase “2008 named executive officers” refers to those executive officers whose 2008 compensation is described in detail in the Corporation’s 2009 Proxy Statement.


3.1		Amended and Restated Charter of the Corporation, incorporated herein by reference to Exhibit 3(i) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 3-31-04.


3.2		Amendment to Charter, incorporated herein by reference to Exhibit 3.1 to the Corporation’s Current Report on Form 8-K filed April 18, 2008.

3.3		Articles of Amendment of the Amended and Restated Charter of First Horizon National Corporation, designating Fixed Rate Cumulative Perpetual Preferred Stock, Series CPP, incorporated herein by reference to Exhibit 3.1 to the Corporation’s Current Report on Form 8-K filed November 17, 2008.

3.4		Bylaws of the Corporation, as amended and restated as of November 19, 2008, incorporated herein by reference to Exhibit 3.2 to the Corporation’s Current Report on Form 8-K filed November 24, 2008.

3.5		Warrant to Purchase Common Stock dated November 14, 2008 issued in connection with sale of preferred stock under the Troubled Asset Relief Program, incorporated herein by reference to Exhibit 3.2 to the Corporation’s Current Report on Form 8-K filed November 17, 2008.

4.1		Shareholder Protection Rights Agreement, dated as of October 20, 1998, between the Corporation and First Tennessee Bank National Association, as Rights Agent, including as Exhibit A the forms of Rights Certificate and Election to Exercise and as Exhibit B the form of Articles of Amendment designating Participating Preferred Stock, incorporated herein by reference to Exhibits 1, 2, and 3 to the Corporation’s Registration Statement on Form 8-A filed 10-23-98.

4.2		The Corporation and certain of its consolidated subsidiaries have outstanding certain long-term debt. See Note 10 in the Corporation’s 2008 Annual Report to Shareholders. At December 31, 2008, none of such debt exceeded 10% of the total assets of the Corporation and its consolidated subsidiaries. Thus, copies of constituent instruments defining the rights of holders of such debt are not required to be included as exhibits. The Corporation agrees to furnish copies of such instruments to the Securities and Exchange Commission upon request.

4.3		Three principal agreements related to a note program for First Tennessee Bank National Association (the “Bank”): (i) form of Distribution Agreement dated February 18, 2005 among the registrant, the Bank, and the agents therein named; (ii) form of Fiscal and Paying Agency Agreement dated as of February 18, 2005 between the Bank and JPMorgan Chase Bank, National Association; and (iii) form of Interest Calculation Agreement dated as of February 18, 2005 between the Bank and JPMorgan Chase Bank, National Association. All such agreements are incorporated herein by reference to Exhibit 4(c) to the Corporation’s Current Report on Form 8-K filed February 25, 2005.

*Deferral Plans and Related Exhibits

*10.1(a1)		Directors and Executives Deferred Compensation Plan, as amended and restated, incorporated herein by reference to Exhibit 10(h) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 6-30-03 and form of individual agreement, incorporated herein by reference to Exhibit 10(h) to the Corporation’s 1996 Annual report on Form 10-K.

*10.1(a2)		Rate Applicable to Directors and Executive Officers Under the Directors and Executives Deferred Compensation Plan, incorporated herein by reference to Exhibit 10.1(a) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.


*10.1(a3)		Form of Amendment to Directors and Executives Deferred Compensation Plan, incorporated herein by reference to Exhibit 10.1(a3) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.

*10.1(b)		Director Deferral Agreements with schedule, incorporated herein by reference to Exhibit 10(k) to the Corporation’s 1992 Annual Report on Form 10-K and Exhibit 10(j) to the Corporation’s 1995 Annual Report on Form 10-K.

*10.1(c)		Form of First Horizon National Corporation Deferred Compensation Plan as Amended and Restated, incorporated herein by reference to Exhibit 10.1(c) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.

*10.1(d)		Non-Employee Directors’ Deferred Compensation Stock Option Plan, as amended and restated, incorporated herein by reference to Exhibit 10(m) to the Corporation’s 1997 Annual Report on Form 10-K.

*10.1(e)		2000 Non-Employee Directors’ Deferred Compensation Stock Option Plan, as amended and restated 4-20-04, incorporated herein by reference to Exhibit 10(n) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 6-30-04.

*10.1(f)		[1991] Bank Advisory Director Deferral Plan, incorporated herein by reference to Exhibit 10(u) to the Corporation’s 2002 Annual Report on Form 10-K.

*10.1(g)		[1997] Bank Director and Advisory Board Member Deferral Plan, incorporated herein by reference to Exhibit 10(t) to the Corporation’s 2002 Annual Report on Form 10-K.

*10.1(h)		2002 Bank Director and Advisory Board Member Deferral Plan, as amended and restated 4-20-04, incorporated herein by reference to Exhibit 10(s) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 6-30-04.

*10.1(i)		Form of First Horizon Deferred Compensation Plan as Amended and Restated, incorporated herein by reference to Exhibit 10.1(i) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.

*10.1(j)		Form of FTN Financial Deferred Compensation Plan Amended and Restated Effective January 1, 2008, incorporated herein by reference to Exhibit 10.1(j) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.

*10.1(k)		Form of Deferred Compensation Agreement used under the registrant’s 2003 Equity Compensation Plan and First Tennessee National Corporation Non-Qualified Deferred Compensation Plan, along with form of Salary, Commission, and Annual Bonus Deferral Programs Overview, form of Deferred Stock Option (“DSO”) Program Summary, and description of share receipt deferral feature, incorporated herein by reference to Exhibit 10(z) to the Corporation’s Current Report on Form 8-K dated January 3, 2005.

*10.1(l)		Description of April 19, 2005 amendments to the First Horizon National Corporation Nonqualified Deferred Compensation Plan (formerly First Tennessee National Corporation Nonqualified Deferred Compensation Plan), incorporated herein by reference to Exhibit 10.1(l) to the Corporation’s Current Report on Form 8-K dated April 19, 2005.


*10.1(m)		Description of changes to options granted in January 2005 to certain employees in connection with deferrals of salary earned in 2004, incorporated herein by reference to Exhibit 10.1(m) to the Corporation’s Current Report on Form 8-K dated October 19, 2005.

*Stock-Based Incentive Plans

*10.2(a)		1990 Stock Option Plan, as amended, and 1-21-97, 10-22-97, and 10-18-00 amendments, incorporated herein by reference to Exhibit 10(f) to the Corporation’s 1992, 1996, 1997 and 2000 Annual Reports on Form 10-K.

*10.2(b1)		1992 Restricted Stock Incentive Plan, as amended and restated, incorporated herein by reference to Exhibit 10(d) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 3-31-99.

*10.2(b2)		Amendment to 1992 Restricted Stock Incentive Plan, incorporated herein by reference to Exhibit 10.2(b2) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.

*10.2(c)		1995 Employee Stock Option Plan, as amended and restated, incorporated herein by reference to Exhibit 10.2(c) to the Corporation’s Current Report on Form 8-K dated July 19, 2005.

*10.2(d)		1997 Employee Stock Option Plan, as amended and restated, incorporated herein by reference to Exhibit 10(c) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 9-30-02.

*10.2(e)		2000 Employee Stock Option Plan, as amended and restated April 14, 2008, incorporated herein by reference to Exhibit 10.2 to the Corporation’s Current Report on Form 8-K filed April 28, 2008.

*10.2(f)		2003 Equity Compensation Plan, as amended and restated April 14, 2008, incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed April 28, 2008.

*10.2(g)		Amendments to certain Stock-Based and Incentive Plans of First Horizon National Corporation, amending the 2003 Equity Compensation Plan, the 2002 Management Incentive Plan, and the Non-Employee Directors’ Deferred Compensation Stock Option Plan, incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed July 17, 2008.

*10.2(h)+		Amended and Restated Amendments to Certain Stock-Based Plans of First Horizon National Corporation Related to Capital Adjustments, approved December 15, 2008.

*TARSAP/PARSAP Restricted Stock Agreements and Related Documents

*10.3(a)		Form of accelerated (performance based) Restricted Stock Agreement under the 1992 Restricted Stock Incentive Plan, incorporated herein by reference to Exhibit 10.3(a) to the Corporation’s 2004 Annual Report on Form 10-K.


*10.3(b)		Form of accelerated (performance based) Restricted Stock Agreement under the 2003 Equity Compensation Plan, incorporated herein by reference to Exhibit 10.3(b) to the Corporation’s 2004 Annual Report on Form 10-K.

*10.3(c)		Description of performance criteria related to TARSAP/PARSAP awards granted prior to 2005, incorporated herein by reference to Exhibit 10.3(c) to the Corporation’s 2004 Annual Report on Form 10-K.

*10.3(d)		Form of 2005 PARSAP Agreement (for the CEO), incorporated herein by reference to Exhibit 10.3(d) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.

*10.3(e)		Form of 2005 PARSAP Agreement (for executive officers other than the CEO), incorporated herein by reference to Exhibit 10.3(e) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.

*10.3(f)		Description of performance criteria related to 2005 PARSAP Agreement, incorporated herein by reference to Exhibit 10.3(f) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.

*Performance-Based Incentive Award Documents

*10.4(a)		Form of Notice of 2006 LTIP award under the 2003 Equity Compensation Plan, incorporated herein by reference to Exhibit 10.4(d) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006.

*10.4(b)		Form of Notice of 2006 LTIP award, used for mid-year awards, under the 2003 Equity Compensation Plan, incorporated herein by reference to Exhibit 10.4(e) to the Corporation’s Current Report on Form 8-K dated October 18, 2006.

*10.4(c)		Form of 2006 Promotional Performance Share Unit grant notice to Mr. Baker, incorporated herein by reference to Exhibit 10.5(i) of the Corporation’s Current Report on Form 8-K dated February 14, 2006.

*10.4(d)		Form of Performance Stock Units Grant Notice [2007], incorporated herein by reference to Exhibit 10.4(f) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.

*10.4(e1)		Form of Performance Restricted Stock award grant notice under 2003 Equity Compensation Plan [2008], incorporated herein by reference to Exhibit 10.5(s) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008.

*10.4(e2)+		Text of Notice Announcing Modification of Performance Goal Calculation Method Related to 2008 Executive Awards of Performance Restricted Stock.

*Other Stock-Based Incentive Plan Agreements and Related Documents

*10.5(a)		Form of Restricted Stock Agreement for Non-Employee Director used under the 2003 Equity Compensation Plan, incorporated herein by reference to Exhibit 10(aa) to the Corporation’s Current Report on Form 8-K dated January 18, 2005.


*10.5(b)		April 2003 Restricted Stock Agreement under the 2003 Equity Compensation Plan with J. Kenneth Glass, incorporated herein by reference to Exhibit 10.5(b) to the Corporation’s 2004 Annual Report on Form 10-K.

*10.5(c)		Form of Agreement To Defer Receipt Of Shares Following Option Exercise, incorporated herein by reference to Exhibit 10.5(c) to the Corporation’s 2004 Annual Report on Form 10-K.

*10.5(d)		Form of Agreement to Exchange Shares for RSUs and Defer Receipt of Shares [relating to Restricted Stock], incorporated herein by reference to Exhibit 10.5(d) to the Corporation’s 2004 Annual Report on Form 10-K.

*10.5(e)		Form of Stock Option Grant Notice, incorporated herein by reference to Exhibit 10.5(e) to the Corporation’s 2004 Annual Report on Form 10-K.

*10.5(f)		Form of Stock Option Reload Grant Notification, incorporated herein by reference to Exhibit 10.5(f) to the Corporation’s 2004 Annual Report on Form 10-K.

*10.5(g)		Form of Stock Option Grant Notice (used for executive officers during 2005), incorporated herein by reference to Exhibit 10.5(g) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.

*10.5(h)		Form of Restricted Stock Grant Notice (used during 2005), incorporated herein by reference to Exhibit 10.5(h) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.

*10.5(i)		Form of Management Stock Option Grant Notice (used for executive officers during 2006), incorporated herein by reference to Exhibit 10.5(j) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.

*10.5(j)		Form of Management Restricted Stock Grant Notice (used for executive officers during 2006), incorporated herein by reference to Exhibit 10.5(k) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.

*10.5(k)+		Sections of Director Policy pertaining to compensation and retirement.

*10.5(l)		First Tennessee Stock Option Enhancement Program, incorporated herein by reference to Exhibit 10.5(o) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006.

*10.5(m)		Form of Management Stock Option Grant Notice [2007], incorporated herein by reference to Exhibit 10.5(p) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.

*10.5(n)		Form of stock option grant notice used for special grant to Mr. Jordan in lieu of bonus, incorporated herein by reference to Exhibit 10.5(r) to the Corporation’s Current Report on Form 8-K filed February 29, 2008.


*10.5(o)		Form of Retention Restricted Stock award grant notice under 2003 Equity Compensation Plan [2008], incorporated herein by reference to Exhibit 10.5(t) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008.

*Management Cash Incentive Plan Documents

*10.6(a)		2002 Management Incentive Plan, as amended and restated April 14, 2008, incorporated herein by reference to Exhibit 10.3 to the Corporation’s Current Report on Form 8-K filed April 28, 2008.

*10.6(b1)		Capital Markets Incentive Compensation Plan, incorporated herein by reference to Exhibit 10.6(c) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006. Certain information in this exhibit has been omitted pursuant to a request for confidential treatment. The omitted information has been submitted separately to the Securities and Exchange Commission. In accordance with the Corporation’s bylaws, the Corporation’s Board Compensation Committee’s charter, and action of that Committee on July 18, 2006, the annual incentive bonus to the head of the Capital Markets unit is subject to final review and approval by the Chief Executive Officer and the Compensation Committee.

*10.6(b2)		Amendment to Capital Markets Incentive Compensation Plan, incorporated herein by reference to Exhibit 10.6(c2) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.

*10.6(c)		Firstpower Annual Bonus Plan, incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed August 21, 2008.

Other Material Contract Exhibits relating to Employment, Retirement, Severance, or Separation

*10.7(a1)		February 2007 form of change-in-control severance agreement between the Corporation and its executive officers, incorporated herein by reference to Exhibit 10.7(a2) to the Corporation’s Current Report on Form 8-K dated February 20, 2007.

*10.7(a2)		Form of Amendment to February 2007 form of change-in-control severance agreement between the Corporation and its executive officers, incorporated herein by reference to Exhibit 10.7(a4) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.

*10.7(b)		October 2007 form of change-in-control severance agreement between the Corporation and its executive officers, incorporated herein by reference to Exhibit 10.7(a5) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.

*10.7(c)		Form of Change in Control Severance Agreement offered to executive officers on or after November 14, 2008, incorporated herein by reference to Exhibit 10.2 to the Corporation’s Current Report on Form 8-K filed November 24, 2008.

*10.7(d)		Form of Pension Restoration Plan (amended and restated as of January 1, 2008), incorporated herein by reference to Exhibit 10.7(e) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.

*10.7(e)		Conformed copy of J. Kenneth Glass Retirement Agreement, incorporated by reference to Exhibit 10.7(l) to the Corporation’s Current Report on Form 8-K dated March 21, 2007.


*10.7(f)		Conformed copy of offer letter concerning employment of D. Bryan Jordan, incorporated by reference to Exhibit 10.7(m) to the Corporation’s Current Report on Form 8-K dated April 13, 2007.

*10.7(g)		Form of Elbert L. Thomas, Jr. Retirement Agreement, incorporated herein by reference to Exhibit 10.7(o) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007.

*10.7(h)		Conformed copy of Retirement Agreement with John P. O’Connor, Jr., incorporated herein by reference to Exhibit 10.7(s) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008.

*10.7(i)		Conformed copy of Retirement Agreement with Gerald L. Baker, incorporated herein by reference to Exhibit 10.7(t) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.

*10.7(j)		Conformed copy of Separation Agreement with Sarah L. Meyerrose dated August 12, 2008, incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed August 14, 2008.

*10.7(k)		Conformed copy of offer letter concerning employment of William C. Losch, III (principal financial officer), incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed November 24, 2008.

*10.7(l)+		Conformed copy of Retention Agreement with Frank J. Gusmus Jr. dated January 8, 2009

Other Material Contract Exhibits related to Management or Directors

*10.8(a)		Survivor Benefits Plan, as amended and restated July 18, 2006, incorporated herein by reference to Exhibit 10.8 to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.

*10.8(b)		Description of other compensation and benefit arrangements for the Corporation’s non-employee directors, incorporated herein by reference to Exhibit 10.7(c) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006.

*10.8(c)		Long-Term Disability Program, incorporated herein by reference to Exhibit 10(v) to the Corporation’s 2003 Annual Report on Form 10-K.

*10.8(d1)		2004 Form of Indemnity Agreement between the Corporation and its directors and executive officers, incorporated herein by reference to Exhibit 10.13 to the Corporation’s 2004 Annual Report on Form 10-K.

*10.8(d2)		Form of amendment to 2004 form of Indemnity Agreement with directors and executive officers, incorporated herein by reference to Exhibit 10.4 to the Corporation’s Current Report on Form 8-K filed April 28, 2008.

*10.8(e)		Form of Indemnity Agreement with directors and executive officers (April 2008 revision), incorporated herein by reference to Exhibit 10.5 to the Corporation’s Current Report on Form 8-K filed April 28, 2008.


*10.8(f)+		Description of Certain Benefits Available to Executive Officers.

*10.8(g)		Form of Split Dollar Life Insurance Agreement [Thomas], incorporated herein by reference to Exhibit 10.7(p) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007.

*10.8(h)		Form of Split Dollar Life Insurance Agreement [O’Connor], incorporated herein by reference to Exhibit 10.7(q) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007.

*10.8(i)		Description of salaries of the 2007 named executive officers, incorporated herein by reference to Exhibit 10.7(r) to the Corporation’s Current Report on Form 8-K filed February 29, 2008.

*10.8(j)		2008 annualized salary rate of D. Bryan Jordan, changed effective September 1, 2008, incorporated herein by reference to Exhibit 10.7(x) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.

*10.8(k)		2008 annualized salary rate of Thomas C. Adams, Jr., incorporated herein by reference to Exhibit 10.2 to the Corporation’s Current Report on Form 8-K filed August 21, 2008.

*10.8(l)+		Annualized salary rates in effect at January 1, 2009 of Charles T. Tuggle, Jr. and Frank J. Gusmus Jr.

*10.8(m)		Description of special bonus paid to Elbert L. Thomas, Jr., incorporated herein by reference to Exhibit 10.7(w) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.

*10.8(n)		Form of letter agreement with executive officers related to compensation, in conformity with the Troubled Asset Relief Program, incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed November 17, 2008.

*10.8(o)		Form of waiver required of initial senior executive officers in connection with sale of preferred stock under the Troubled Asset Relief Program, incorporated herein by reference to Exhibit 10.2 to the Corporation’s Current Report on Form 8-K filed November 17, 2008.

Other Material Contract Exhibits

10.9		Form of Settlement Agreement related to McLean litigation, incorporated by reference to Exhibit 10.10 to the registrant’s Current Report on Form 8-K dated February 15, 2007.

10.10		Conformed copy of Asset Purchase Agreement dated June 3, 2008 related to the sale of certain mortgage business operations and assets, incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K/A filed June 4, 2008.

10.11		Conformed copy of Mortgage Loan Subservicing Agreement dated June 3, 2008 related to the subservicing of certain mortgage loans, incorporated herein by reference to Exhibit 10.2 to the Corporation’s Current Report on Form 8-K/A filed June 4, 2008.

10.12		Conformed copy of Servicing Rights Purchase and Sale Agreement dated June 3, 2008 related to the sale of certain mortgage servicing rights assets, incorporated herein by


		reference to Exhibit 10.3 to the Corporation’s Current Report on Form 8-K/A filed June 4, 2008.

10.13		Letter agreement dated November 14, 2008 with the U.S. Department of the Treasury, including Securities Purchase Agreement – Standard Terms, incorporated herein by reference to Exhibit 10.3 to the Corporation’s Current Report on Form 8-K filed November 17, 2008.

13+		Pages 2 through 150 of the First Horizon National Corporation 2008 Annual Report to Shareholders, a copy of which is furnished for the information of the Securities and Exchange Commission. Portions of the Annual Report not incorporated herein by reference are deemed not to be “filed” with the Commission.

14+		Code of Ethics for Senior Financial Officers.

21+		Subsidiaries of the Corporation.

23+		Accountant’s Consents.

24+		Power of Attorney.

31(a)+		Rule 13a-14(a) Certifications of CEO (pursuant to Section 302 of Sarbanes-Oxley Act of 2002)

31(b)+		Rule 13a-14(a) Certifications of CFO (pursuant to Section 302 of Sarbanes-Oxley Act of 2002)

32(a)+		18 USC 1350 Certifications of CEO (pursuant to Section 906 of Sarbanes-Oxley Act of 2002)

32(b)+		18 USC 1350 Certifications of CFO (pursuant to Section 906 of Sarbanes-Oxley Act of 2002)

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	FIRST HORIZON NATIONAL CORPORATION

Date: February 26, 2009	By:	/s/ William C. Losch III

		William C. Losch III, Executive Vice
		President and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Title	Date

D. Bryan Jordan *	President, Chief Executive Officer,	February 26, 2009
	and Director (principal executive officer)
D. Bryan Jordan

William C. Losch III*	Executive Vice President and Chief	February 26, 2009
	Financial Officer (principal financial officer)
William C. Losch III

James F. Keen*	Executive Vice President and	February 26, 2009
	Chief Accounting Officer (principal
James F. Keen	accounting officer)

Michael D. Rose*	Chairman of the Board and Director	February 26, 2009

Michael D. Rose

Robert B. Carter*	Director	February 26, 2009

Robert B. Carter

Simon F. Cooper*	Director	February 26, 2009

Simon F. Cooper

Mark A. Emkes*	Director	February 26, 2009

Mark A. Emkes

James A. Haslam, III*	Director	February 26, 2009

James A. Haslam, III

R. Brad Martin*	Director	February 26, 2009

R. Brad Martin

Vicki R. Palmer *	Director	February 26, 2009

Vicki R. Palmer

Colin V. Reed*	Director	February 26, 2009

Colin V. Reed


William B. Sansom*	Director	February 26, 2009

William B. Sansom

Luke Yancy III*	Director	February 26, 2009

Luke Yancy III


*By:	/s/ Clyde A. Billings, Jr.	February 26, 2009

	Clyde A. Billings, Jr.
	As Attorney-in-Fact

EXHIBIT INDEX


	Exhibits marked with an “*” represent a management contract or compensatory plan or arrangement required to be identified and filed as an exhibit.

	Exhibits marked with a “+” are filed herewith.

	The phrase “2008 named executive officers” refers to those executive officers whose 2008 compensation is described in detail in the Corporation’s 2009 Proxy Statement.


3.1		Amended and Restated Charter of the Corporation, incorporated herein by reference to Exhibit 3(i) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 3-31-04.

3.2		Amendment to Charter, incorporated herein by reference to Exhibit 3.1 to the Corporation’s Current Report on Form 8-K filed April 18, 2008.

3.3		Articles of Amendment of the Amended and Restated Charter of First Horizon National Corporation, designating Fixed Rate Cumulative Perpetual Preferred Stock, Series CPP, incorporated herein by reference to Exhibit 3.1 to the Corporation’s Current Report on Form 8-K filed November 17, 2008.

3.4		Bylaws of the Corporation, as amended and restated as of November 19, 2008, incorporated herein by reference to Exhibit 3.2 to the Corporation’s Current Report on Form 8-K filed November 24, 2008.

3.5		Warrant to Purchase Common Stock dated November 14, 2008 issued in connection with sale of preferred stock under the Troubled Asset Relief Program, incorporated herein by reference to Exhibit 3.2 to the Corporation’s Current Report on Form 8-K filed November 17, 2008.

4.1		Shareholder Protection Rights Agreement, dated as of October 20, 1998, between the Corporation and First Tennessee Bank National Association, as Rights Agent, including as Exhibit A the forms of Rights Certificate and Election to Exercise and as Exhibit B the form of Articles of Amendment designating Participating Preferred Stock, incorporated herein by reference to Exhibits 1, 2, and 3 to the Corporation’s Registration Statement on Form 8-A filed 10-23-98.

4.2		The Corporation and certain of its consolidated subsidiaries have outstanding certain long-term debt. See Note 10 in the Corporation’s 2008 Annual Report to Shareholders. At December 31, 2008, none of such debt exceeded 10% of the total assets of the Corporation and its consolidated subsidiaries. Thus, copies of constituent instruments defining the rights of holders of such debt are not required to be included as exhibits. The Corporation agrees to furnish copies of such instruments to the Securities and Exchange Commission upon request.

4.3		Three principal agreements related to a note program for First Tennessee Bank National Association (the “Bank”): (i) form of Distribution Agreement dated February 18, 2005 among the registrant, the Bank, and the agents therein named; (ii) form of Fiscal and Paying Agency Agreement dated as of February 18, 2005 between the Bank and JPMorgan Chase Bank, National Association; and (iii) form of Interest Calculation Agreement dated as of February 18, 2005 between the Bank and JPMorgan Chase Bank, National Association. All such agreements are incorporated herein by reference to Exhibit 4(c) to the Corporation’s Current


		Report on Form 8-K filed February 25, 2005.

*Deferral Plans and Related Exhibits

*10.1(a1)		Directors and Executives Deferred Compensation Plan, as amended and restated, incorporated herein by reference to Exhibit 10(h) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 6-30-03 and form of individual agreement, incorporated herein by reference to Exhibit 10(h) to the Corporation’s 1996 Annual report on Form 10-K.

*10.1(a2)		Rate Applicable to Directors and Executive Officers Under the Directors and Executives Deferred Compensation Plan, incorporated herein by reference to Exhibit 10.1(a) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.

*10.1(a3)		Form of Amendment to Directors and Executives Deferred Compensation Plan, incorporated herein by reference to Exhibit 10.1(a3) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.

*10.1(b)		Director Deferral Agreements with schedule, incorporated herein by reference to Exhibit 10(k) to the Corporation’s 1992 Annual Report on Form 10-K and Exhibit 10(j) to the Corporation’s 1995 Annual Report on Form 10-K.

*10.1(c)		Form of First Horizon National Corporation Deferred Compensation Plan as Amended and Restated, incorporated herein by reference to Exhibit 10.1(c) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.

*10.1(d)		Non-Employee Directors’ Deferred Compensation Stock Option Plan, as amended and restated, incorporated herein by reference to Exhibit 10(m) to the Corporation’s 1997 Annual Report on Form 10-K.

*10.1(e)		2000 Non-Employee Directors’ Deferred Compensation Stock Option Plan, as amended and restated 4-20-04, incorporated herein by reference to Exhibit 10(n) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 6-30-04.

*10.1(f)		[1991] Bank Advisory Director Deferral Plan, incorporated herein by reference to Exhibit 10(u) to the Corporation’s 2002 Annual Report on Form 10-K.

*10.1(g)		[1997] Bank Director and Advisory Board Member Deferral Plan, incorporated herein by reference to Exhibit 10(t) to the Corporation’s 2002 Annual Report on Form 10-K.

*10.1(h)		2002 Bank Director and Advisory Board Member Deferral Plan, as amended and restated 4-20-04, incorporated herein by reference to Exhibit 10(s) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 6-30-04.

*10.1(i)		Form of First Horizon Deferred Compensation Plan as Amended and Restated, incorporated herein by reference to Exhibit 10.1(i) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.

*10.1(j)		Form of FTN Financial Deferred Compensation Plan Amended and Restated Effective January 1, 2008, incorporated herein by reference to Exhibit 10.1(j) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.


*10.1(k)		Form of Deferred Compensation Agreement used under the registrant’s 2003 Equity Compensation Plan and First Tennessee National Corporation Non-Qualified Deferred Compensation Plan, along with form of Salary, Commission, and Annual Bonus Deferral Programs Overview, form of Deferred Stock Option (“DSO”) Program Summary, and description of share receipt deferral feature, incorporated herein by reference to Exhibit 10(z) to the Corporation’s Current Report on Form 8-K dated January 3, 2005.

*10.1(l)		Description of April 19, 2005 amendments to the First Horizon National Corporation Nonqualified Deferred Compensation Plan (formerly First Tennessee National Corporation Nonqualified Deferred Compensation Plan), incorporated herein by reference to Exhibit 10.1(l) to the Corporation’s Current Report on Form 8-K dated April 19, 2005.

*10.1(m)		Description of changes to options granted in January 2005 to certain employees in connection with deferrals of salary earned in 2004, incorporated herein by reference to Exhibit 10.1(m) to the Corporation’s Current Report on Form 8-K dated October 19, 2005.

*Stock-Based Incentive Plans

*10.2(a)		1990 Stock Option Plan, as amended, and 1-21-97, 10-22-97, and 10-18-00 amendments, incorporated herein by reference to Exhibit 10(f) to the Corporation’s 1992, 1996, 1997 and 2000 Annual Reports on Form 10-K.

*10.2(b1)		1992 Restricted Stock Incentive Plan, as amended and restated, incorporated herein by reference to Exhibit 10(d) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 3-31-99.

*10.2(b2)		Amendment to 1992 Restricted Stock Incentive Plan, incorporated herein by reference to Exhibit 10.2(b2) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.

*10.2(c)		1995 Employee Stock Option Plan, as amended and restated, incorporated herein by reference to Exhibit 10.2(c) to the Corporation’s Current Report on Form 8-K dated July 19, 2005.

*10.2(d)		1997 Employee Stock Option Plan, as amended and restated, incorporated herein by reference to Exhibit 10(c) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 9-30-02.

*10.2(e)		2000 Employee Stock Option Plan, as amended and restated April 14, 2008, incorporated herein by reference to Exhibit 10.2 to the Corporation’s Current Report on Form 8-K filed April 28, 2008.

*10.2(f)		2003 Equity Compensation Plan, as amended and restated April 14, 2008, incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed April 28, 2008.

*10.2(g)		Amendments to certain Stock-Based and Incentive Plans of First Horizon National Corporation, amending the 2003 Equity Compensation Plan, the 2002 Management Incentive Plan, and the Non-Employee Directors’ Deferred Compensation Stock Option Plan, incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed July 17, 2008.


*10.2(h)+		Amended and Restated Amendments to Certain Stock-Based Plans of First Horizon National Corporation Related to Capital Adjustments, approved December 15, 2008.

*TARSAP/PARSAP Restricted Stock Agreements and Related Documents

*10.3(a)		Form of accelerated (performance based) Restricted Stock Agreement under the 1992 Restricted Stock Incentive Plan, incorporated herein by reference to Exhibit 10.3(a) to the Corporation’s 2004 Annual Report on Form 10-K.

*10.3(b)		Form of accelerated (performance based) Restricted Stock Agreement under the 2003 Equity Compensation Plan, incorporated herein by reference to Exhibit 10.3(b) to the Corporation’s 2004 Annual Report on Form 10-K.

*10.3(c)		Description of performance criteria related to TARSAP/PARSAP awards granted prior to 2005, incorporated herein by reference to Exhibit 10.3(c) to the Corporation’s 2004 Annual Report on Form 10-K.

*10.3(d)		Form of 2005 PARSAP Agreement (for the CEO), incorporated herein by reference to Exhibit 10.3(d) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.

*10.3(e)		Form of 2005 PARSAP Agreement (for executive officers other than the CEO), incorporated herein by reference to Exhibit 10.3(e) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.

*10.3(f)		Description of performance criteria related to 2005 PARSAP Agreement, incorporated herein by reference to Exhibit 10.3(f) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.

*Performance-Based Incentive Award Documents

*10.4(a)		Form of Notice of 2006 LTIP award under the 2003 Equity Compensation Plan, incorporated herein by reference to Exhibit 10.4(d) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006.

*10.4(b)		Form of Notice of 2006 LTIP award, used for mid-year awards, under the 2003 Equity Compensation Plan, incorporated herein by reference to Exhibit 10.4(e) to the Corporation’s Current Report on Form 8-K dated October 18, 2006.

*10.4(c)		Form of 2006 Promotional Performance Share Unit grant notice to Mr. Baker, incorporated herein by reference to Exhibit 10.5(i) of the Corporation’s Current Report on Form 8-K dated February 14, 2006.

*10.4(d)		Form of Performance Stock Units Grant Notice [2007], incorporated herein by reference to Exhibit 10.4(f) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.


*10.4(e1)		Form of Performance Restricted Stock award grant notice under 2003 Equity Compensation Plan [2008], incorporated herein by reference to Exhibit 10.5(s) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008.

*10.4(e2)+		Text of Notice Announcing Modification of Performance Goal Calculation Method Related to 2008 Executive Awards of Performance Restricted Stock.

*Other Stock-Based Incentive Plan Agreements and Related Documents

*10.5(a)		Form of Restricted Stock Agreement for Non-Employee Director used under the 2003 Equity Compensation Plan, incorporated herein by reference to Exhibit 10(aa) to the Corporation’s Current Report on Form 8-K dated January 18, 2005.

*10.5(b)		April 2003 Restricted Stock Agreement under the 2003 Equity Compensation Plan with J. Kenneth Glass, incorporated herein by reference to Exhibit 10.5(b) to the Corporation’s 2004 Annual Report on Form 10-K.

*10.5(c)		Form of Agreement To Defer Receipt Of Shares Following Option Exercise, incorporated herein by reference to Exhibit 10.5(c) to the Corporation’s 2004 Annual Report on Form 10-K.

*10.5(d)		Form of Agreement to Exchange Shares for RSUs and Defer Receipt of Shares [relating to Restricted Stock], incorporated herein by reference to Exhibit 10.5(d) to the Corporation’s 2004 Annual Report on Form 10-K.

*10.5(e)		Form of Stock Option Grant Notice, incorporated herein by reference to Exhibit 10.5(e) to the Corporation’s 2004 Annual Report on Form 10-K.

*10.5(f)		Form of Stock Option Reload Grant Notification, incorporated herein by reference to Exhibit 10.5(f) to the Corporation’s 2004 Annual Report on Form 10-K.

*10.5(g)		Form of Stock Option Grant Notice (used for executive officers during 2005), incorporated herein by reference to Exhibit 10.5(g) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.

*10.5(h)		Form of Restricted Stock Grant Notice (used during 2005), incorporated herein by reference to Exhibit 10.5(h) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.

*10.5(i)		Form of Management Stock Option Grant Notice (used for executive officers during 2006), incorporated herein by reference to Exhibit 10.5(j) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.

*10.5(j)		Form of Management Restricted Stock Grant Notice (used for executive officers during 2006), incorporated herein by reference to Exhibit 10.5(k) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.

*10.5(k)+		Sections of Director Policy pertaining to compensation and retirement.


*10.5(l)		First Tennessee Stock Option Enhancement Program, incorporated herein by reference to Exhibit 10.5(o) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006.

*10.5(m)		Form of Management Stock Option Grant Notice [2007], incorporated herein by reference to Exhibit 10.5(p) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.

*10.5(n)		Form of stock option grant notice used for special grant to Mr. Jordan in lieu of bonus, incorporated herein by reference to Exhibit 10.5(r) to the Corporation’s Current Report on Form 8-K filed February 29, 2008.

*10.5(o)		Form of Retention Restricted Stock award grant notice under 2003 Equity Compensation Plan [2008], incorporated herein by reference to Exhibit 10.5(t) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008.

*Management Cash Incentive Plan Documents

*10.6(a)		2002 Management Incentive Plan, as amended and restated April 14, 2008, incorporated herein by reference to Exhibit 10.3 to the Corporation’s Current Report on Form 8-K filed April 28, 2008.

*10.6(b1)		Capital Markets Incentive Compensation Plan, incorporated herein by reference to Exhibit 10.6(c) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006. Certain information in this exhibit has been omitted pursuant to a request for confidential treatment. The omitted information has been submitted separately to the Securities and Exchange Commission. In accordance with the Corporation’s bylaws, the Corporation’s Board Compensation Committee’s charter, and action of that Committee on July 18, 2006, the annual incentive bonus to the head of the Capital Markets unit is subject to final review and approval by the Chief Executive Officer and the Compensation Committee.

*10.6(b2)		Amendment to Capital Markets Incentive Compensation Plan, incorporated herein by reference to Exhibit 10.6(c2) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.

*10.6(c)		Firstpower Annual Bonus Plan, incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed August 21, 2008.

Other Material Contract Exhibits relating to Employment, Retirement, Severance, or Separation

*10.7(a1)		February 2007 form of change-in-control severance agreement between the Corporation and its executive officers, incorporated herein by reference to Exhibit 10.7(a2) to the Corporation’s Current Report on Form 8-K dated February 20, 2007.

*10.7(a2)		Form of Amendment to February 2007 form of change-in-control severance agreement between the Corporation and its executive officers, incorporated herein by reference to Exhibit 10.7(a4) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.


*10.7(b)		October 2007 form of change-in-control severance agreement between the Corporation and its executive officers, incorporated herein by reference to Exhibit 10.7(a5) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.

*10.7(c)		Form of Change in Control Severance Agreement offered to executive officers on or after November 14, 2008, incorporated herein by reference to Exhibit 10.2 to the Corporation’s Current Report on Form 8-K filed November 24, 2008.

*10.7(d)		Form of Pension Restoration Plan (amended and restated as of January 1, 2008), incorporated herein by reference to Exhibit 10.7(e) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.

*10.7(e)		Conformed copy of J. Kenneth Glass Retirement Agreement, incorporated by reference to Exhibit 10.7(l) to the Corporation’s Current Report on Form 8-K dated March 21, 2007.

*10.7(f)		Conformed copy of offer letter concerning employment of D. Bryan Jordan, incorporated by reference to Exhibit 10.7(m) to the Corporation’s Current Report on Form 8-K dated April 13, 2007.

*10.7(g)		Form of Elbert L. Thomas, Jr. Retirement Agreement, incorporated herein by reference to Exhibit 10.7(o) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007.

*10.7(h)		Conformed copy of Retirement Agreement with John P. O’Connor, Jr., incorporated herein by reference to Exhibit 10.7(s) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008.

*10.7(i)		Conformed copy of Retirement Agreement with Gerald L. Baker, incorporated herein by reference to Exhibit 10.7(t) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.

*10.7(j)		Conformed copy of Separation Agreement with Sarah L. Meyerrose dated August 12, 2008, incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed August 14, 2008.

*10.7(k)		Conformed copy of offer letter concerning employment of William C. Losch, III (principal financial officer), incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed November 24, 2008.

*10.7(l)+		Conformed copy of Retention Agreement with Frank J. Gusmus Jr. dated January 8, 2009

Other Material Contract Exhibits related to Management or Directors

*10.8(a)		Survivor Benefits Plan, as amended and restated July 18, 2006, incorporated herein by reference to Exhibit 10.8 to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.

*10.8(b)		Description of other compensation and benefit arrangements for the Corporation’s non-employee directors, incorporated herein by reference to Exhibit 10.7(c) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006.


*10.8(c)		Long-Term Disability Program, incorporated herein by reference to Exhibit 10(v) to the Corporation’s 2003 Annual Report on Form 10-K.

*10.8(d1)		2004 Form of Indemnity Agreement between the Corporation and its directors and executive officers, incorporated herein by reference to Exhibit 10.13 to the Corporation’s 2004 Annual Report on Form 10-K.

*10.8(d2)		Form of amendment to 2004 form of Indemnity Agreement with directors and executive officers, incorporated herein by reference to Exhibit 10.4 to the Corporation’s Current Report on Form 8-K filed April 28, 2008.

*10.8(e)		Form of Indemnity Agreement with directors and executive officers (April 2008 revision), incorporated herein by reference to Exhibit 10.5 to the Corporation’s Current Report on Form 8-K filed April 28, 2008.

*10.8(f)+		Description of Certain Benefits Available to Executive Officers.

*10.8(g)		Form of Split Dollar Life Insurance Agreement [Thomas], incorporated herein by reference to Exhibit 10.7(p) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007.

*10.8(h)		Form of Split Dollar Life Insurance Agreement [O’Connor], incorporated herein by reference to Exhibit 10.7(q) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007.

*10.8(i)		Description of salaries of the 2007 named executive officers, incorporated herein by reference to Exhibit 10.7(r) to the Corporation’s Current Report on Form 8-K filed February 29, 2008.

*10.8(j)		2008 annualized salary rate of D. Bryan Jordan, changed effective September 1, 2008, incorporated herein by reference to Exhibit 10.7(x) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.

*10.8(k)		2008 annualized salary rate of Thomas C. Adams, Jr., incorporated herein by reference to Exhibit 10.2 to the Corporation’s Current Report on Form 8-K filed August 21, 2008.

*10.8(l)+		Annualized salary rates in effect at January 1, 2009 of Charles T. Tuggle, Jr. and Frank J. Gusmus Jr.

*10.8(m)		Description of special bonus paid to Elbert L. Thomas, Jr., incorporated herein by reference to Exhibit 10.7(w) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.

*10.8(n)		Form of letter agreement with executive officers related to compensation, in conformity with the Troubled Asset Relief Program, incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed November 17, 2008.

*10.8(o)		Form of waiver required of initial senior executive officers in connection with sale of preferred stock under the Troubled Asset Relief Program, incorporated herein by reference to Exhibit 10.2 to the Corporation’s Current Report on Form 8-K filed November 17, 2008.


Other Material Contract Exhibits

10.9		Form of Settlement Agreement related to McLean litigation, incorporated by reference to Exhibit 10.10 to the registrant’s Current Report on Form 8-K dated February 15, 2007.

10.10		Conformed copy of Asset Purchase Agreement dated June 3, 2008 related to the sale of certain mortgage business operations and assets, incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K/A filed June 4, 2008.

10.11		Conformed copy of Mortgage Loan Subservicing Agreement dated June 3, 2008 related to the subservicing of certain mortgage loans, incorporated herein by reference to Exhibit 10.2 to the Corporation’s Current Report on Form 8-K/A filed June 4, 2008.

10.12		Conformed copy of Servicing Rights Purchase and Sale Agreement dated June 3, 2008 related to the sale of certain mortgage servicing rights assets, incorporated herein by reference to Exhibit 10.3 to the Corporation’s Current Report on Form 8-K/A filed June 4, 2008.

10.13		Letter agreement dated November 14, 2008 with the U.S. Department of the Treasury, including Securities Purchase Agreement – Standard Terms, incorporated herein by reference to Exhibit 10.3 to the Corporation’s Current Report on Form 8-K filed November 17, 2008.

13+		Pages 2 through 150 of the First Horizon National Corporation 2008 Annual Report to Shareholders, a copy of which is furnished for the information of the Securities and Exchange Commission. Portions of the Annual Report not incorporated herein by reference are deemed not to be “filed” with the Commission.

14+		Code of Ethics for Senior Financial Officers.

21+		Subsidiaries of the Corporation.

23+		Accountant’s Consents.

24+		Power of Attorney.

31(a)+		Rule 13a-14(a) Certifications of CEO (pursuant to Section 302 of Sarbanes-Oxley Act of 2002)

31(b)+		Rule 13a-14(a) Certifications of CFO (pursuant to Section 302 of Sarbanes-Oxley Act of 2002)

32(a)+		18 USC 1350 Certifications of CEO (pursuant to Section 906 of Sarbanes-Oxley Act of 2002)

32(b)+		18 USC 1350 Certifications of CFO (pursuant to Section 906 of Sarbanes-Oxley Act of 2002)

EXHIBIT 10.2(h)

AMENDED AND RESTATED
AMENDMENTS TO CERTAIN STOCK-BASED PLANS OF
FIRST HORIZON NATIONAL CORPORATION
RELATED TO CAPITAL ADJUSTMENTS

Approved by the Board of Directors December 15, 2008

2003 Equity Compensation Plan

1. The final sentence of Section 4(B) of the 2003 Equity Compensation Plan, relating to the elimination of fractional shares, hereby is deleted and replaced with the following sentences, which shall read as follows:


	“After any adjustment made pursuant to this paragraph, the number of Shares subject to each outstanding Award may be rounded down to the nearest whole number of shares or to the nearest fraction of a whole share specified by the Committee, all as the Committee may determine from time to time. The Committee may approve different rounding methods for different Award types and for different Award tranches or sizes within any single type. Notwithstanding any other provision of this paragraph, in the case of any stock dividend paid or payable at a rate of 10% or less:


	(i)	The Company may implement any required adjustment of an Award by either of the following alternative methods applicable to that Award, in lieu of the method provided above.

		(a) The Company may defer making any formal adjustment to individual Awards until such time as it is deemed administratively practicable and convenient. If the Company expects a series of quarterly or other periodic stock dividends to occur, the Company may make a single adjustment that would have the same cumulative effect as having made adjustments for all such stock dividends, except that the Company may make a single final rounding down adjustment for any fractional shares rather than having to account for rounding at the time of each such stock dividend.

		(b) In the case of an Option or SAR Award, prior to making any such formal adjustment(s) to such individual Award or in lieu of making any such formal adjustment(s), the Company may make one or more informal adjustments to such individual Award at the time that the holder exercises such Award (in whole or in part) in accordance with its original terms as if no adjustment had been made for any such stock dividends. In that case, as soon as administratively practicable thereafter, the Company shall issue to the Award holder for no additional consideration such whole number of additional Shares to which the Award holder would have been entitled if formal adjustments to the holder’s Award had been made for each such stock dividend (except for a single final rounding down adjustment for any fractional shares). In any case under this alternative: (1) the Company may impose such limitations on the issuance of such additional Shares, including the forfeiture of such additional Shares, if it is not administratively practicable for the Company to issue


		such additional Shares after any exercise of a stock option Award within such period of time as may, in the discretion of the Company, be appropriate to best preserve the status of such Awards under Section 409A as Grandfathered Options or Excepted Options, as hereinafter defined; and (2) if approved by the Committee, the Company may withhold the issuance of additional Shares in such amount as may be appropriate to defray applicable withholding and other taxes with respect to the additional Shares or may make other arrangements to defray applicable withholding and other taxes from other sources.

	(ii)	The Committee may delegate to the executive officer of the Company in charge of human resources the task of establishing and implementing appropriate policies, procedures, and methods to implement any such alternative adjustment methods within parameters approved by the Committee.

	(iii)	Regardless of whether formal adjustments to individual Awards are deferred or whether only informal adjustments are made to individual Awards, the number of Shares available for Awards under the Plan shall be deemed to be increased as if formal adjustments were made at the time of each such stock dividend.

	(iv)	Notwithstanding any provision herein to the contrary, neither this section nor any policies or procedures adopted hereunder shall be deemed to authorize any feature for the deferral of compensation other than the deferral of recognition of income until the later of (a) the exercise or disposition of the Award under Treasury Regulation §1.83-7 or (b) the time any Shares acquired pursuant to the exercise of the Award first become substantially vested as defined in Treasury Regulation §1.83-3(b). In the event of any partial exercise or disposition of an Award or any partial vesting and delivery of Shares under an Award, the foregoing provisions in this (iv) shall be applied to the Award in the same proportions.

	(v)	For purposes of this section, the term “Grandfathered Options” shall mean options that were both issued and exercisable prior to January 1, 2005 and thus grandfathered from being subject to Section 409A of the Internal Revenue Code, and the term “Excepted Options” shall mean stock options with an exercise price which may never be less than the fair market value of the stock on the date of grant and thus qualify for the exception in Treas. Reg. §1.409A-1(b)(5)(i)(A). It is not intended that any adjustment will constitute either a material modification of a Grandfathered Option within the meaning of Treasury Regulation §1.409A-6(a)(4) or a modification of an Excepted Option within the meaning of Treasury Regulation §1.409A-1(b)(5)(v). This section shall be interpreted in accordance with such intention, and all policies and procedures adopted hereunder shall be in accordance with such intention.

2000 Employee Stock Option Plan
1997 Employee Stock Option Plan
1995 Employee Stock Option Plan
1990 Employee Stock Option Plan
1984 Stock Option Plan
2000 Non-Employee Directors’ Deferred Compensation Stock Option Plan
Non-Employee Directors’ Deferred Compensation Stock Option Plan [adopted in 1995 and amended and restated October 22, 1997]
2002 Bank Director and Advisory Board Member Deferral Plan
Bank Director and Advisory Board Member Deferral Plan [originally approved 1996]
Bank Advisory Director Deferral Plan [originally effective 1992]

2. The second sentence of Section 13 of each of the 2000 Employee Stock Option Plan, the 1997 Employee Stock Option Plan, and the 1995 Employee Stock Option Plan, the second sentence of Section 14 of each of the 1990 Employee Stock Option Plan and the 1984 Stock Option Plan, the second sentence of Section 5(b) of each of the 2000 Non-Employee Directors’ Deferred Compensation Stock Option Plan and the Non-Employee Directors’ Deferred Compensation Stock Option Plan [adopted in 1995 and amended and restated October 22, 1997], and the second sentence of Section 9 of each of the 2002 Bank Director and Advisory Board Member Deferral Plan, the Bank Director and Advisory Board Member Deferral Plan [originally approved 1996], and the Bank Advisory Director Deferral Plan [originally effective 1992], in each case relating to the elimination of fractional shares, in each case hereby is deleted and replaced with the following sentences, which shall read as follows:

“After any adjustment made pursuant to this Section, the number of shares subject to each outstanding option may be rounded down to the nearest whole number of shares or to the nearest fraction of a whole share specified by the Committee, all as the Committee may determine from time to time. The Committee may approve different rounding methods for different tranches of options or for options of different sizes within any single tranche.”

3. New sentences shall be added at the end of Section 13 of each of the 2000 Employee Stock Option Plan, the 1997 Employee Stock Option Plan, and the 1995 Employee Stock Option Plan, at the end of Section 14 of each of the 1990 Employee Stock Option Plan and the 1984 Stock Option Plan, at the end of Section 5(b) of each of the 2000 Non-Employee Directors’ Deferred Compensation Stock Option Plan and the Non-Employee Directors’ Deferred Compensation Stock Option Plan [adopted in 1995 and amended and restated October 22, 1997], and at the end of Section 9 of each of the 2002 Bank Director and Advisory Board Member Deferral Plan, the Bank Director and Advisory Board Member Deferral Plan [originally approved 1996], and the Bank Advisory Director Deferral Plan [originally effective 1992], which in each case shall read as follows:


	“Notwithstanding any other provision of this Section, in the case of any stock dividend paid or payable at a rate of 10% or less:


	(i)	The Company may implement any required adjustment of an option by either of the following alternative methods applicable to that option, in lieu of the method provided above.

		(a) The Company may defer making any formal adjustment to individual options until such time as it is deemed administratively practicable and convenient. If the Company expects a series of quarterly or other periodic stock dividends to occur, the Company may make a single adjustment that would have the same cumulative effect as having made adjustments for all such stock dividends, except that the Company may make a single final rounding down adjustment for any fractional shares rather than having to account for rounding at the time of each such stock dividend.

		(b) Prior to making any such formal adjustment(s) to such individual option or in lieu of making any such formal adjustment(s), the Company may make one or more informal adjustments to such individual option at the time that the holder exercises such option (in whole or in part) in accordance with its original terms as if no adjustment had been made for any such stock dividends. In that case, as soon as administratively practicable thereafter, the Company shall issue to the option holder for no additional consideration such whole number of additional shares to which the option holder would have been entitled if formal adjustments to the holder’s option had been made for each such stock dividend (except for a single final rounding down adjustment for any fractional shares). In any case under this alternative: (1) the Company may impose such limitations on the issuance of such additional shares, including the forfeiture of such additional shares, if it is not administratively practicable for the Company to issue such additional shares after any exercise of a stock option within such period of time as may, in the discretion of the Company, be appropriate to best preserve the status of such options under Section 409A as Grandfathered Options or Excepted Options, as hereinafter defined; and (2) if approved by the Committee, the Company may withhold the issuance of additional shares in such amount as may be appropriate to defray applicable withholding and other taxes with respect to the additional shares or may make other arrangements to defray applicable withholding and other taxes from other sources.

	(iv)	The Committee may delegate to the executive officer of the Company in charge of human resources the task of establishing and implementing appropriate policies, procedures, and methods to implement any such alternative adjustment methods within parameters approved by the Committee.

	(v)	Regardless of whether formal adjustments to individual options are deferred or whether only informal adjustments are made to individual options, the number of shares available for the issuance of options under the Plan shall be deemed to be increased as if formal adjustments were made at the time of each such stock dividend.

	(iv)	Notwithstanding any provision herein to the contrary, neither this section nor any policies or procedures adopted hereunder shall be deemed to authorize any feature for the deferral of compensation other than the deferral of recognition of income until the later of (a) the exercise or disposition of the options under Treasury Regulation §1.83-7 or (b) the time any shares acquired pursuant to the exercise of the options first become substantially vested as defined in Treasury Regulation §1.83-3(b). In the event of any partial exercise or disposition of an option or any partial vesting and


		delivery of shares under an option, the foregoing provisions in this (iv) shall be applied to the options in the same proportions.

	(v)	For purposes of this section, the term “Grandfathered Options” shall mean options that were both issued and exercisable prior to January 1, 2005 and thus grandfathered from being subject to Section 409A of the Internal Revenue Code, and the term “Excepted Options” shall mean stock options with an exercise price which may never be less than the fair market value of the stock on the date of grant and thus qualify for the exception in Treas. Reg. §1.409A-1(b)(5)(i)(A). It is not intended that any adjustment will constitute either a material modification of a Grandfathered Option within the meaning of Treasury Regulation §1.409A-6(a)(4) or a modification of an Excepted Option within the meaning of Treasury Regulation §1.409A-1(b)(5)(v). This section shall be interpreted in accordance with such intention, and all policies and procedures adopted hereunder shall be in accordance with such intention.

1992 Restricted Stock Incentive Plan

4. The final sentence of Section 11 of the 1992 Restricted Stock Incentive Plan, relating to the elimination of fractional shares, hereby is deleted and replaced with the following sentences, which shall read as follows:

“After any adjustment made pursuant to this Section, the number of shares subject to each outstanding award may be rounded down to the nearest whole number of shares or to the nearest fraction of a whole share specified by the Committee, all as the Committee may determine from time to time. The Committee may approve different rounding methods for different tranches of awards and for different sizes of awards within any single tranche.

5. The foregoing amendments shall be effective immediately as to all awards presently outstanding or granted in the future under the amended plans, and as to all stock dividends declared by the Board of Directors in 2008 or later years.

Exhibit 10.4(e2)

TEXT OF NOTICE ANNOUNCING MODIFICATION OF PERFORMANCE GOAL
CALCULATION METHOD RELATED TO 2008 EXECUTIVE AWARDS OF
PERFORMANCE RESTRICTED STOCK


Note:	The Corporation issued two types of performance-based awards in 2008, one (performance restricted stock) primarily for executives and one (LTI Units) which executives did not receive. Both types used the same performance goal. The following notice was written for and sent to LTI recipients, but also applied to the executives’ performance goal and was sent to them.

Changes to the Earnings Per Share (EPS) Targets for the Long-Term Incentive Cash Unit and Performance Restricted Stock

In April of this year, you received a cash-based long-term incentive units award (LTIs), with vesting subject to achieving an annual EPS of $2 per share by the end of 2012.

The issuance of approximately 70 million additional shares in May diluted this performance target and further dilution will occur as dividends are paid in stock.

To address this issue, the Company recently approved a change in the performance target for the LTI program. A straight formula will be used to adjust the $2 earnings target as follows:


	●	Multiply $2 by a fraction, of which the numerator is 126 million shares (outstanding shares when the target was set) and the denominator is the number of actual shares outstanding at the end of the performance year (Example: if 200 million shares are outstanding at the end of the year, the EPS target for that performance year would be 126/200 × $2 = $1.26)

What does this mean? At the time when the awards are scheduled to vest, the revised formula will be applied and award vesting will be determined based on this adjusted performance criteria.

EXHIBIT 10.5(k)

SECTIONS OF DIRECTOR POLICY

PERTAINING TO COMPENSATION AND RETIREMENT

(As amended February 17, 2009)

This exhibit sets forth excerpts from the Director Policy of First Horizon National Corporation of all sections in that Policy pertaining to compensation and retirement of directors. Other sections of the Policy have been omitted.

I. STATEMENT OF POLICY

* * * * *

Compensation

	Annual Retainer	Daily Board Attendance Fee	Daily Audit Committee Attendance Fee	Daily Attendance Fee—All Other Committees
FHNC and FTB (jointly)	$45,000	$2,000	$2,000	$1,500
Chairman, Audit Committee			$5,000 (inclusive of attendance fees)
Chairman, Compensation Committee				$4,000 (inclusive of attendance fees)
Chairman, Nominating and Corporate Governance Committee				$4,000 (inclusive of attendance fees)
Chairman, Trust Committee				$4,000 (inclusive of attendance fees)

Unless payment is deferred under a duly adopted Company plan or agreement, the annual retainer will be paid quarterly in advance, and the attendance fees will be paid following the meeting. Directors are permitted to elect to defer into an interest-accruing account or the First

Horizon National Corporation Non-Qualified Deferred Compensation Plan or any other duly adopted deferral plan, now existing or hereafter approved.

To improve the directors’ knowledge and understanding of FHNC and FTB and their markets, customers and officers and to enhance each director’s service as a director of FHNC, FHNC’s non-employee directors are encouraged to become, where practicable, members of one of FTB’s Regional Boards. A director who becomes a member of a Regional Board shall not be compensated as a member of the Regional Board but shall receive attendance fees for attendance at Regional Board meetings (at the same rate as is paid for other Regional Board members, not to exceed $500 per meeting) as part of his or her FHNC director compensation. Such director shall report back to the FHNC Board regarding his or her attendance at Regional Board meetings. Membership by an FHNC director on a Regional Board is deemed by FHNC’s Board of Directors to be part of the FHNC director’s service as a director of FHNC.

In addition to retainer and attendance fees, non-employee directors will receive an annual award of restricted stock units (“RSUs”) under the Company’s 2003 Equity Compensation Plan, or any duly adopted successor plan. Director RSUs: generally will be granted annually in April on the first trading day which begins after the first trading-day session that follows the release of quarterly earnings for the first quarter; will vest on the second Monday in February following the grant; will be paid at vesting in shares of the Company’s common stock only; will earn dividend equivalents that will cumulate and be paid in cash at vesting; and will carry no voting or other rights associated with actual stock. When vesting occurs, shares will be delivered reasonably promptly thereafter but in no event later than March 14 following the vesting date. If a director leaves the Board before vesting, the RSUs will be forfeited unless the departure is due to death, disability, retirement, or change in control. The number of director RSUs to be granted for any full-year grant will be determined by dividing $45,000 by the fair market value of the Company’s common stock on the grant date. Beginning in 2007, RSU grants will be phased in for each director on a pro-rata basis as his or her outstanding restricted shares vest. As a result of the phase-in, each director will have one of the following occur each year: 800 restricted shares will vest; or, a full grant of RSUs will vest; or, a combination of restricted shares (less than 800) and RSUs (less than 100%) will vest. If a new non-employee director joins the Board other than at an annual meeting, he or she would be granted RSUs pro-rated for the number of quarters remaining until the next annual shareholder meeting, starting with that quarter in which the new director is appointed. For example, a new non-employee director appointed in October would receive two-fourths of the usual annual number of RSUs, granted in October one full business day following the registrant’s earnings release and vesting the following year in February.

For purposes of non-employee director equity-based awards: “disability” means total and permanent disability; “retirement” means any termination, not caused by death or disability, after the attainment of age 65 or ten years of service as a director of the Company; and, “fair market value” and “change in control” have the meanings given in the plan under which the award was granted.

The foregoing equity-based awards are to be made automatically without further action by the Board. However, in a particular case or circumstance, the Board may change or make specific exceptions to any equity award otherwise called for above. Directors may receive such

other awards under the Company’s 2003 Equity Compensation Plan, or any duly adopted successor plan, as may be approved by the Board. Perquisites and other benefits for non-employee directors are to be provided or paid as approved by the Board.

Inside directors will receive no compensation for board or committee membership, committee chairmanship or attendance.

* * * * *

Retirement

Directors of FHNC or FTB shall be retired from the Board of Directors in accordance with the applicable provisions of the Bylaws of FHNC or FTB as in effect on the date hereof and as they may be amended from time to time.

II. IMPLEMENTATION OF POLICY

This policy shall be implemented by the Chairman of the Board in cooperation with the Nominating and Corporate Governance Committee of the Board of Directors of FHNC and FTB. The Chairman of the Board may adopt appropriate interpretations and procedures to assist in implementation of this Policy.

III. DELEGATION OF AUTHORITY

The Chairman of the Board is delegated the authority to make exceptions to any provision of this policy except the provisions dealing with compensation and retirement. The Nominating and Corporate Governance Committee is delegated the authority to make exceptions to any provision of this policy except the provision dealing with retirement. Any exception to this policy shall be reported to the Board at its next regularly scheduled meeting.

Exhibit 10.7(l)


Frank Gusmus	1/8/09
1134 St Vincent Place
Memphis, TN 38120

RETENTION AGREEMENT

This Agreement is made by and between Frank Gusmus, (“you”) and First Tennessee Bank National Association and its predecessors, successors, assigns, subsidiaries, parents, affiliates, and their respective directors, officers, employees and agents, attorneys and representatives, both past, present, or future (“the company”).

This Agreement supersedes any previous agreement between you and the company related to the term of your employment.

1. Agreement

Your signature at the conclusion of this document represents your voluntary acceptance of this Agreement. This Agreement should be returned to Linda Bacon, Mgr. Employee Relations after you have fully executed it.

2. Consideration

The Company agrees to employ you unless a termination for cause occurs as described in section 2(a) herein, and you agree to remain in the position of President of FTN Financial until December 31, 2011 or later. The Company also agrees to vest any unvested restricted stock upon your retirement. In return for the Company’s agreements described in this section, you agree to the post-employment restrictions contained in section 3 of this Agreement.

Nothing in this Agreement is intended to affect your Directors and Executives Deferred Compensation Plan (“D & E plan”) benefits as previously approved by the Compensation Committee of the Board of Directors. All of the terms and conditions of that plan will continue as if you had remained an employee of the Company until the age of sixty-five (65). You will be entitled to

all benefits including payments beginning at the age of sixty-five (65) unless you are entitled to earlier payments as provided for by the plan, for example, due to a change in control.

You acknowledge that you are not otherwise entitled to the benefits described in this section. Payments or benefits to which you are already entitled will be paid in accordance with the applicable policies and plans.

2(a). Your employment will only be terminated by the Company prior to December 31, 2011 for cause, which shall mean a) your death; b) your disability, as such term is defined pursuant to the provisions of the Company’s long-term disability plan; c) your acting unlawfully or with gross negligence in a manner materially detrimental to the Company or any of its affiliates; d) your failure substantially to perform your duties or responsibilities or to follow any reasonable direction of the Company; e) your willful breach or habitual neglect of your duties hereunder; f) your conviction of a felony or commission of any act involving dishonesty or fraud; or g) your violation of the published policy or policies of the Company.

3. Non-Competition, Non-Solicitation and Non-Interference

For a period of two (2) years following the termination of your employment with the Company, whether on December 31, 2011 or any other date, you agree that:

A. Non-Competition : You will not directly or indirectly engage as an owner, employer, employee, director principal agent or otherwise, with any company engaged in a similar line of business in competition with the Company.

B. Non-Solicitation: You will not, without the express written approval of the Company, directly or indirectly, on behalf of yourself or for others, solicit or contact in any manner (with the intent of providing any service or product competitive with any service or product which is provided at the time of such contact by the Company) any customer of the Company with whom you had actual contact while employed by the Company.

C. Non-Interference: You will not directly or indirectly induce or encourage:


	(i) any employee or contractor of the Company to leave his/her position to seek employment or association with any person or entity other than the Company; or

	(ii) any dealer, supplier or customer of the Company to modify or terminate any relationship, whether or not evidenced by a written contract, with the Company.

You acknowledge and agree that the restrictions set forth in paragraph 3 hereof are reasonable and necessary for the protection of Company business and goodwill. You further agree that if you breach or threaten to breach any of your obligations in this Agreement, the Company in addition to any other remedies available to it under the law may obtain specific performance and/or injunctive relief against you to prevent such continued or threatened breach. You also acknowledge and agree that the Company shall be reimbursed by you for all attorneys’ fees and costs incurred by it in enforcing any of its right or remedies under this section or any other provision of the Agreement.

4. Severability

A finding that any provision of this Agreement is void or unenforceable shall not affect the validity or enforceability of any other provisions of this Agreement.

5. Drafting

This Agreement is a product of negotiations between the parties and in construing the provisions of this Agreement, no inference or presumption shall be drawn against either party on the basis of which party or their attorneys drafted this Agreement.

6. Sole Agreement

By your signature, you also confirm that the only consideration for your signing this Agreement are the terms set forth within it, and that, other than as

set forth herein, no other promise or agreement of any kind has been made to you by the Company or anyone acting by, for, or on its behalf.

YOU ALSO AFFIRM THAT YOU HAVE BEEN FREE TO DISCUSS THIS MATTER PRIVATELY AND THOROUGHLY WITH AN ATTORNEY OF YOUR CHOICE AND THAT YOU FULLY UNDERSTAND THE MEANING AND INTENT OF THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, ITS FINAL AND BINDING EFFECT.

This Agreement may be enforced by the parties in any state or federal court of competent jurisdiction.

This Agreement is signed in duplicate originals at First Tennessee in Memphis, Tennessee.

I HAVE READ, UNDERSTOOD AND KNOWINGLY VOLUNTARILY SIGNED AND ACCEPTED WITH FULL KNOWLEDGE OF MY RIGHTS ON THE DATE SET FORTH BELOW.


/s/ Frank Gusmus	1/8/09

Frank Gusmus	Date

Witnessed by:

/s/ Denise L. Mueller	1/8/09


Notary of the State of Tennessee	[Notary Seal]

DESCRIPTION OF KEY COMPENSATION TERMS APPLICABLE TO
EMPLOYMENT RELATIONSHIP OF FRANK GUSMUS AT 1/8/2009

The following is a description of the key compensation terms in effect for Frank Gusmus at the time the Retention Agreement was entered into between Mr. Gusmus and First Tennessee Bank National Association. These are the key terms that became effective in 2009 and are part of the employment relationship that is the subject of that Agreement.

________________________________________________

Annual salary rate :
$600,000

Annual bonus opportunity :

Mr. Gusmus’ annual bonus is 15% of the manager’s bonus pool established and measured in accordance with the Capital Markets Incentive Compensation Plan. Bonuses will be paid through, and will be subject to the conditions of, the 2002 Management Incentive Plan. Therefore, each bonus is subject to Compensation Committee oversight and discretion. If a bonus amount exceeds $1,400,000, the excess will be paid in shares of restricted stock, granted under the 2003 Equity Compensation Plan, with vesting to occur three years from the grant date or upon retirement approved by the Compensation Committee. Total bonus (cash and restricted stock) for any year may not exceed $4,400,000.

Stock Awards other than as described above :
After 2008, no new grants are expected.

Retirement Benefits :

In addition to special benefits specified in the Retention Agreement and to ordinary benefits under plans generally available to a wide range of employees, Mr. Gusmus participates in the Pension Restoration Plan.

EXHIBIT 10.8(f)

LIST OF CERTAIN BENEFITS
AVAILABLE TO CERTAIN EXECUTIVE OFFICERS
(As in effect February 1, 2009)

The following benefits are available to some or all executive officers (among other persons), but not to all full-time employees of the Corporation.


1)	If the Board has authorized a stock repurchase program, an executive may request the repurchase of shares of the Corporation at the day’s volume-weighted average price with no payment of any fees or commissions if the repurchase of the shares is otherwise permissible under the authorized program.

2)	An automobile allowance is paid to certain officers including one executive officer (not the CEO) up to a limit based on business need. The current limit for the executive officer is $14,650 per year. Certain maintenance and repair expenses associated with automobiles are included in the allowance.

3)	In a program that is being fully phased out and terminated in 2009, employees above a certain grade level, including four executive officers in 2008 but none in 2009, who are members of a country club or other social organization and who use the club in part for business purposes may request payment of 50% of the annual dues associated with the club.

4)	The Corporation’s disability insurance program generally is available to employees. Persons above a certain grade level, including executive officers, receive an additional benefit. Executive officers are paid an amount each year intended to reimburse premiums associated with the additional benefit.

5)	The Corporation makes available or pays for tax preparation, tax consulting, estate planning, and financial counseling services for executive officers. Current limits on this benefit applicable to executives are: $15,000 per year for the CEO ($22,500 in any year in which a new financial counseling firm is engaged); and $5,000 per year for other executives ($7,500 in any year in which a new financial counseling firm is engaged).

6)	On occasion spouses of certain employees, including executive officers, are asked by the Corporation, for business reasons, to accompany the employee on a business trip or function. In those cases the Corporation may pay the travel, accommodation, and other expenses of the spouse incidental to the trip or function, some or all of which can result in taxable income for the employee. Also, on occasion the Corporation may provide or pay for a memento, gift, or other gratuity that the employee or spouse receives in connection with the business trip or function.

7)	The Corporation provides a relocation benefit to a wide range of employees, including executive officers, under varying circumstances and subject to certain constraints. The benefit may be in the form of an allowance or a reimbursement of actual expenses.

8)	The Corporation offers reimbursement up to $300 annually for certain health club benefits to a wide range of employees, including executive officers. The Corporation provides a cash allowance to certain employees, including executive officers, which is intended to defray expenses associated with goods and services purchased personally and used at least in part for business purposes (such as cell phone service).

EXHIBIT 10.8(l)

ANNUALIZED SALARY RATES IN EFFECT AT JANUARY 1, 2009
OF CHARLES T. TUGGLE, JR. AND FRANK J. GUSMUS JR.

The following annualized salary rates were in effect at January 1, 2009 for the following executive officers: Charles T. Tuggle, Jr., $475,000; and Frank J. Gusmus Jr., $600,000.

EXHIBIT 13

FINANCIAL INFORMATION AND DISCUSSION

TABLE OF CONTENTS


Selected Financial and Operating Data					2
Management’s Discussion and Analysis of Results of Operations and Financial Condition
General Information					3
Forward-Looking Statements					4
Financial Summary					4
Business Line Review					6
Income Statement Review – 2008 compared to 2007					11
Statement of Condition Review – 2008 compared to 2007					21
Income Statement Review – 2007 compared to 2006					25
Statement of Condition Review – 2007 compared to 2006					27
Capital					27
Risk Management					29
Market Uncertainties and Prospective Trends					29
Critical Accounting Policies					47
Quarterly Financial Information					58
Accounting Changes					58
Glossary of Selected Financial Terms					60
Report of Management on Internal Control over Financial Reporting					63
Reports of Independent Registered Public Accounting Firm					64
Consolidated Statements of Condition					66
Consolidated Statements of Income					67
Consolidated Statements of Shareholders’ Equity					68
Consolidated Statements of Cash Flows					69
Notes to Consolidated Financial Statements					70
Consolidated Historical Statements of Income					148
Consolidated Average Balance Sheets and Related Yields and Rates					149
Information Concerning Certain Officer Certifications					151
Total Shareholder Return Performance Graph					152

FIRST HORIZON NATIONAL CORPORATION

SELECTED FINANCIAL AND OPERATING DATA


(Dollars in millions except per share data)	2008				2007				2006				2005				2004				2003

Income/(loss) from continuing operations		$	(192.9	)		$	(174.9	)		$	250.8			$	410.7			$	430.1			$	445.2
Income from discontinued operations, net of tax			0.9				4.8				210.8				17.1				15.6				7.4
Income/(loss) before cumulative effect of changes in accounting principle			(192.0	)			(170.1	)			461.6				427.8				445.7				452.6
Cumulative effect of changes in accounting principle, net of tax			-				-				1.3				(3.1	)			-				-
Net income/(loss)			(192.0	)			(170.1	)			462.9				424.7				445.7				452.6
Income/(loss) available to common shareholders			(199.4	)			(170.1	)			462.9				424.7				445.7				452.6

Common Stock Data
Earnings/(loss) per common share from continuing operations		$	(1.11	)		$	(1.32	)		$	1.92			$	3.12			$	3.29			$	3.35
Earnings/(loss) per common share			(1.10	)			(1.29	)			3.54				3.22				3.40				3.40
Diluted earnings/(loss) per common share from continuing operations			(1.11	)			(1.32	)			1.87				3.02				3.19				3.24
Diluted earnings/(loss) per common share			(1.10	)			(1.29	)			3.45				3.12				3.31				3.29
Cash dividends declared per common share			.38				1.72				1.72				1.66				1.55				1.24
Year-end book value per common share			12.13				16.03				18.68				17.59				15.87				14.54
Closing price of common stock per share:
High			21.07				43.00				40.74				42.45				45.74				45.71
Low			4.80				17.15				35.44				33.47				39.63				34.43
Year-end			10.57				17.29				39.81				36.63				41.07				42.02
Cash dividends per common share/year-end closing price			3.6	%			9.9	%			4.3	%			4.5	%			3.8	%			2.9	%
Cash dividends per common share/diluted earnings per common share			NM				NM				49.7	%			53.1	%			46.9	%			37.6	%
Price/earnings ratio			NM				NM				11.5	x			11.7	x			12.4	x			12.7	x
Market capitalization		$	2,175.5			$	2,303.8			$	5,246.4			$	4,888.7			$	5,368.0			$	5,552.0
Average shares (thousands)			180,711				132,078				130,619				131,692				130,911				133,046
Average diluted shares (thousands)			180,711				132,078				134,321				136,134				134,818				137,361
Period-end shares outstanding (thousands)			205,283				132,627				131,053				132,476				129,653				131,019
Volume of shares traded (thousands)			1,394,389				486,219				184,886				170,258				181,757				185,274

Selected Average Balances
Total assets		$	34,422.7			$	38,175.4			$	38,764.6			$	36,560.4			$	27,305.8			$	25,133.6
Total assets – divestiture			182.3				123.1				-				-				-				-
Total loans, net of unearned income			21,660.7				22,106.7				21,504.2				18,334.7				15,440.5				12,679.8
Total loans held for sale – divestiture			110.4				117.8				-				-				-				-
Investment securities			2,964.0				3,380.2				3,481.5				2,906.2				2,471.1				2,563.5
Earning assets			30,426.2				33,405.4				34,042.3				31,976.2				23,740.3				21,347.5
Deposits			14,920.9				20,313.8				22,751.7				23,015.8				17,635.5				16,111.6
Total deposits – divestiture			48.8				95.3				-				-				-				-
Long-term debt			6,108.6				6,567.7				5,062.4				2,560.1				2,248.0				1,342.9
Shareholders’ equity			2,635.4				2,423.5				2,423.0				2,177.0				1,937.7				1,829.4

Selected Period-End Balances
Total assets		$	31,022.0			$	37,015.5			$	37,918.3			$	36,579.1			$	29,771.7			$	24,506.7
Total assets – divestiture			-				305.7				-				-				-				-
Total loans, net of unearned income			21,278.2				22,103.5				22,104.9				20,612.0				16,441.9				14,021.3
Total loans held for sale – divestiture			-				289.9				-				-				-				-
Investment securities			3,125.2				3,032.8				3,923.5				2,941.2				2,704.6				2,491.1
Earning assets			26,895.9				31,785.6				32,353.3				31,606.7				25,975.9				20,641.8
Deposits			14,241.8				17,032.3				20,213.2				23,317.6				19,757.0				15,855.4
Total deposits – divestiture			-				230.4				-				-				-				-
Long-term debt			4,767.7				6,828.4				5,836.4				3,437.6				2,616.4				1,726.8
Shareholders’ equity			3,279.5				2,135.6				2,462.4				2,347.5				2,074.1				1,921.6

Selected Ratios
Return on average common shareholders’ equity from continuing operations			(7.90	)%			(7.22	)%			10.35	%			18.87	%			22.19	%			24.34	%
Return on average common shareholders’ equity before cumulative effect of changes in accounting principle			(7.87	)			(7.02	)			19.05				19.65				23.00				24.74
Return on average common shareholders’ equity			(7.87	)			(7.02	)			19.11				19.51				23.00				24.74
Return on average assets from continuing operations			(.56	)			(.46	)			.65				1.12				1.58				1.77
Return on average assets before cumulative effect of changes in accounting principle			(.56	)			(.45	)			1.19				1.17				1.63				1.80
Return on average assets			(.56	)			(.45	)			1.19				1.16				1.63				1.80
Net interest margin			2.95				2.82				2.93				3.08				3.61				3.78
Allowance for loan losses to loans			3.99				1.55				.98				.92				.96				1.14
Net charge-offs to average loans			2.64				.60				.26				.20				.27				.54
Period-end shareholders’ equity to period-end assets			10.57				5.77				6.49				6.42				6.97				7.84
Average tangible equity to average tangible assets			7.00				5.56				5.39				4.97				6.36				6.48

NM - not meaningful
See accompanying notes to consolidated financial statements.
Certain previously reported amounts have been reclassified to agree with current presentation.

FIRST HORIZON NATIONAL CORPORATION

FIRST HORIZON NATIONAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

GENERAL INFORMATION

From a small community bank chartered in 1864, First Horizon National Corporation (FHN) has grown to be one of the 40 largest bank holding companies in the United States in terms of asset size.

FHN’s 6,000 employees provide financial services through more than 200 bank locations in and around Tennessee and 19 capital markets offices in the U.S. and abroad.

The corporation’s two major brands – First Tennessee and FTN Financial – provide customers with a broad range of products and services. First Tennessee has the leading combined deposit market share in the 17 Tennessee counties where it does business and one of the highest customer retention rates of any bank in the country. FTN Financial (FTNF) is an industry leader in fixed income sales, trading and strategies for institutional clients in the U.S. and abroad.

AARP and Working Mother magazine have recognized FHN as one of the nation’s best employers.

In first quarter 2008, FHN revised its business line segments to better align with its strategic direction, representing a focus on its regional banking franchise and capital markets business. To implement this change, the prior Retail/Commercial Banking segment was split into its major components with the national portions of consumer lending and construction lending assigned to a new National Specialty Lending segment that more appropriately reflects the ongoing wind down of these businesses. Additionally, correspondent banking was shifted from Retail/Commercial Banking to the Capital Markets segment to better represent the complementary nature of these businesses. To reflect its geographic focus, the remaining portions of the Retail/Commercial Banking segment now represent the new Regional Banking segment. All prior period information has been revised to conform to the current segment structure and the business line reviews below are based on the new segment presentation.

•

Regional Banking offers financial products and services, including traditional lending and deposit-taking, to retail and commercial customers in Tennessee and surrounding markets. Additionally, Regional Banking provides investments, insurance, financial planning, trust services and asset management, credit card, cash management, and check clearing services. On March 1, 2006, FHN sold its national merchant processing business. The continuing effects of the divestiture, which is included in the Regional Banking segment, are being accounted for as a discontinued operation.

•

Capital Markets provides a broad spectrum of financial services for the investment and banking communities through the integration of traditional capital markets securities activities, equity research, loan sales, portfolio advisory services, structured finance and correspondent banking services.

•

National Specialty Lending consists of traditional consumer and construction lending activities outside the regional banking footprint. In January 2008, FHN announced the discontinuation of national home builder and commercial real estate lending through its First Horizon Construction Lending offices.

•

Mortgage Banking now consists of the origination of mortgage loans in and around the regional banking footprint and servicing activities related to the remaining portfolio. Historically, this division provided mortgage loans and servicing to consumers and operated in approximately 40 states. On August 31, 2008, FHN completed the sale of its servicing platform, origination offices outside Tennessee, and $19.1 billion in unpaid principal balance of the servicing portfolio to MetLife Bank, N.A., (MetLife).

•

Corporate consists of unallocated corporate expenses including restructuring, repositioning, and efficiency initiatives, gains and losses on repurchases of debt, expense on subordinated debt issuances and preferred stock, bank-owned life insurance, unallocated interest income associated with excess equity, net impact of raising incremental capital, revenue and expense associated with deferred compensation plans, funds management and venture capital.

FIRST HORIZON NATIONAL CORPORATION

For the purpose of this management’s discussion and analysis (MD&A), earning assets have been expressed as averages, unless otherwise noted, and loans have been disclosed net of unearned income. The following financial discussion should be read with the accompanying consolidated financial statements and notes. A glossary is included at the end of the MD&A to assist with terminology.

FORWARD-LOOKING STATEMENTS

This MD&A contains forward-looking statements with respect to FHN’s beliefs, plans, goals, expectations, and estimates. Forward-looking statements are statements that are not a representation of historical information but rather are related to future operations, strategies, financial results or other developments. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “should,” “is likely,” “will,” "going forward," and other expressions that indicate future events and trends identify forward-looking statements. Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, operational, economic and competitive uncertainties and contingencies, many of which are beyond a company’s control, and many of which, with respect to future business decisions and actions (including acquisitions and divestitures), are subject to change. Examples of uncertainties and contingencies include, among other important factors, general and local economic and business conditions; recession or other economic downturns, expectations of and actual timing and amount of interest rate movements, including the slope of the yield curve (which can have a significant impact on a financial services institution); market and monetary fluctuations; inflation or deflation; customer and investor responses to these conditions; the financial condition of borrowers and other counterparties; competition within and outside the financial services industry; geopolitical developments including possible terrorist activity; recent and future legislative and regulatory developments; natural disasters; effectiveness of FHN’s hedging practices; technology; demand for FHN’s product offerings; new products and services in the industries in which FHN operates; and critical accounting estimates. Other factors are those inherent in originating, selling and servicing loans including prepayment risks, pricing concessions, fluctuation in U.S. housing prices, fluctuation of collateral values, and changes in customer profiles. Additionally, the actions of the Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Federal Reserve), Financial Industry Regulatory Authority (FINRA), U.S. Department of the Treasury (UST), and other regulators and agencies; regulatory and judicial proceedings and changes in laws and regulations applicable to FHN; and FHN’s success in executing its business plans and strategies and managing the risks involved in the foregoing, could cause actual results to differ. FHN assumes no obligation to update any forward-looking statements that are made from time to time. Actual results could differ because of several factors, including those presented in this Forward-Looking Statements section, in other sections of this MD&A, in Item 1A of FHN’s 2008 annual report on Form 10-K, and in other parts of that annual report.

FINANCIAL SUMMARY

For 2008 FHN reported a net loss available to common shareholders of $199.4 million, or $1.10 diluted loss per share compared to a loss of $170.1 million, or $1.29 diluted loss per share in 2007.

Comparisons between reported earnings are directly and significantly affected by a number of factors in both 2008 and 2007. Several significant items including increased provisioning, housing and credit market disruptions, and restructuring, repositioning and efficiency initiatives impacted FHN’s performance in 2008 and 2007.

The results of operations for 2008 were significantly impacted by real estate, credit market, and economic conditions which began during the latter half of 2007. The economic downturn was initially confined to the real estate and credit markets. Tightened credit and a large supply of available real estate negatively impacted collateral values. The impact on FHN was originally limited to high-risk portfolios in certain geographic regions. However, as general economic conditions also declined, credit issues began to surface in other portfolios. Commercial credits were impacted by the difficult business environment in 2008 and consumer portfolios were impacted by stressed consumer financial circumstances. With financial institutions’ reluctance to lend and increased difficulty of obtaining low cost funding, the U.S. Government, through the Treasury Department (UST), administered the Capital Purchase Program (CPP), among other programs, for the purpose of bolstering confidence in financial institutions

FIRST HORIZON NATIONAL CORPORATION

and reestablishing the availability of credit in the marketplace. While the lending and credit environment was extremely difficult in 2008, favorable interest rate movements positively impacted certain areas of FHN.

The deterioration in the loan portfolios affected all segments. The national construction lending and national home equity portfolios, for which originations were curtailed in late 2007, are included in the National Specialty Lending segment. The credit deterioration of these portfolios, specifically the construction portfolios significantly affected provisioning and net charge-offs during 2008. The Regional Banking and Capital Markets segments were also impacted as the economy’s problems broadened. Commercial loans in the Regional Banking segment began to show stress in 2008 as commercial credits deteriorated and the portfolio experienced downward credit grading. Commercial loans in the Capital Markets segment, which include loans to banks, showed deterioration due to current stress in the financial system. In 2008, provision expense exceeded net charge-offs building the allowance for loan loss reserve.

Due to the tightening credit market and economic stress, the Federal Reserve Bank reduced its target federal funds rate to historical lows. The interest rate movements resulted in increased Capital Markets’ fixed income business and Mortgage Banking income. Hedging gains on mortgage servicing rights (MSR) more than compensated for fair value declines of MSR. The interest rate movements created opportunity for Capital Markets as customers repositioned fixed income portfolios. Due to credit market disruptions, no pooled trust preferred securities transactions were executed in 2008, effectively eliminating structured finance transaction revenue for Capital Markets for the year. Additionally, a lower of cost or market (LOCOM) charge was taken on trust preferred loans before they were moved to the loan portfolio in the second quarter.

Aside from external market factors, other events affected FHN’s 2008 performance. FHN continued efforts to refocus on its core businesses – Regional Banking and Capital Markets. A component of this effort was completed in the third quarter when FHN sold its national mortgage servicing platform and origination offices outside Tennessee and $19.1 billion in unpaid principal balance of its servicing portfolio to MetLife. FHN continues to originate mortgage loans in and around the Regional Banking market and continues to service, through sub-servicing arrangements, the remaining servicing portfolio. In the second quarter, FHN completed the divestitures of the First Horizon Bank branches which were those branches that operated outside of the core Regional Banking footprint. Performance was also affected by charges related to restructuring, repositioning and efficiency initiatives.

In 2008, FHN committed to build and conserve capital. In the second quarter, FHN completed the issuance of 69 million common shares which generated approximately $660 million of net cash proceeds. FHN also increased capital through participation in the U.S. Treasury’s CPP mentioned above. Preferred shares and a common stock warrant were issued to the UST for $866.5 million in cash proceeds. In an effort to conserve capital, the quarterly cash dividend was replaced with a quarterly stock dividend. Capital ratio improvements were also positively affected by balance sheet contraction of $6 billion in total assets.

Beginning in 2007 and continuing throughout 2008, FHN conducted an ongoing, company-wide review of business practices with the goal of improving overall profitability and productivity. In order to redeploy capital to higher-return businesses, origination through national construction lending operations was discontinued; FHN sold the national mortgage origination and servicing platforms, including servicing on $19.1 billion of unpaid principal balance; and the sale of the remaining First Horizon Bank branches was completed. Total net charges of $91.4 million were recognized in 2008 related to restructuring, repositioning and efficiency initiatives. See Table 1 and Note 27 for further details.

In 2007, a $55.7 million charge related to FHN’s contingent share of certain Visa legal matters negatively impacted results. In 2008, $30.0 million of this charge was reversed due to Visa Inc.’s funding of the escrow account. See Note 18 for further details on this matter.

Return on average common equity and return on average assets for 2008 were (7.87) percent and (.56) percent, respectively, compared to (7.02) percent and (.45) percent in 2007. Tangible common equity to tangible common assets ratio improved to 7.34 percent in 2008 from 5.13 percent in 2007. Tier 1 capital ratio was 15.03 percent as of December 31, 2008 compared to 8.12 percent on December 31, 2007. Total assets were $31.0 billion and shareholders’ equity was $3.3 billion on December 31, 2008, compared to $37.0 billion and $2.1 billion, respectively, on December 31, 2007.

FIRST HORIZON NATIONAL CORPORATION

FHN’s performance in 2007 was impacted by credit market disruptions, provisioning, restructuring, repositioning, and efficiency initiatives (including goodwill impairments on divested FH Bank), and a Mortgage Banking segment goodwill impairment. In 2007, the industry experienced high levels of adjustable rate loan defaults and severely curtailed demand in the secondary markets.

In 2007, widening credit spreads generated lower gain on sale margins in Mortgage Banking and resulted in lower asset values for those assets measured at fair value. HELOC and second-lien loan sales and securitizations were limited and fair value adjustments on residual values of prior securitizations and LOCOM adjustments on loans held for sale were taken. Capital Markets’ fees from structured finance, including fees from pooled trust preferred transactions, began to decline as investor demand for credit products weakened.

Provision was lower in 2007 than in 2008 as housing market deterioration did not begin until the latter half of 2007 and was largely confined to discontinued product structures in higher risk markets. Restructuring, repositioning, and efficiency initiatives resulted in $98.7 million of net charges. Also impacting 2007 performance was a $71.1 million goodwill impairment associated with the Mortgage Banking business segment.

BUSINESS LINE REVIEW

Regional Banking

The Regional Banking segment had a pre-tax loss of $125.2 million in 2008 compared to pre-tax income of $220.6 million in 2007. Total revenues decreased 9 percent, or $83.7 million, in 2008. The provision for loan losses increased to $328.8 million in 2008 from $62.6 million in 2007. This increase primarily reflects deterioration and downward credit grading of the commercial loan portfolio.

Net interest income decreased 12 percent to $480.7 million in 2008 from $547.2 million in 2007. The decrease in net interest income was primarily attributable to increased nonaccrual loans and the effects of increased competition for deposits. Net interest margin in Regional Banking was 4.36 percent in 2008 compared to 4.90 percent in 2007. The decrease was primarily driven by increased commercial nonaccrual loans and lower deposit spreads due to Federal Reserve rate reductions.

Noninterest income declined 5 percent, or $17.3 million, in 2008 to $350.1 million. Trust revenue decreased by $6.6 million from 2007 as the value of assets under management declined consistent with 2008 market declines. Miscellaneous income declined $6.5 million from $83.6 million in 2007 as FHN discontinued the sale of U.S. Mint licensed products and positive market adjustments on customer derivatives decreased. Other service charges declined $2.9 million, primarily driven by a decrease in mutual fund sales, while insurance commissions decreased $2.2 million due to a soft property and casualty market. Bank card fees declined $1.5 million as consumer spending decreased and resulted in lower interchange fees in 2008. Partially offsetting the above declines were increased deposit related service charges primarily driven by higher cash management fees as lower balances reduced associated customer earnings credits.

Noninterest expense declined slightly to $627.3 million in 2008 compared to $631.4 million in 2007. Increased personnel, infrastructure, credit-related costs, public relations and foreclosed property losses were more than offset by expense declines from efficiency initiatives.

Capital Markets

Pre-tax income increased from $70.4 million in 2007 to $112.7 million in 2008. Total revenues were $611.7 million in 2008 compared to $406.5 million in 2007.

Net interest income was $77.3 million in 2008 compared to $54.4 million in 2007. This increase is primarily attributable to a steeper yield curve and the effect of increases in the average trust preferred loan balance.

Income from fixed income sales increased to $493.8 million in 2008 from $217.7 million in 2007, reflecting an increase in activity during 2008 as the Federal Reserve aggressively lowered rates resulting in a steeper yield curve as compared to 2007. Other product revenues decreased to $40.6 million in 2008 compared to $134.5 million in

FIRST HORIZON NATIONAL CORPORATION

2007 as no pooled trust preferred transactions were executed in 2008 and a $36.2 million LOCOM adjustment was taken on the trust preferred warehouse before the loans were transferred to the portfolio. Revenues from other products include fee income from activities such as equity research, loan sales, portfolio advisory, structured finance, and correspondent banking services.

Provision expense was $80.1 million in 2008 compared to $8.1 million in 2007, primarily as a result of deterioration of commercial loans, including loans to banks, as the housing market and general economic decline impacted financial institutions to which FHN extended credit.

Noninterest expense increased 28 percent, or $90.9 million, to $418.9 million in 2008, primarily due to increased personnel costs related to higher production levels in 2008 compared to 2007.

Mortgage Banking

Effective August 31, 2008, FHN completed the sale of Mortgage Banking’s servicing operations, origination offices outside of Tennessee and servicing on loans with an outstanding principal balance of $19.1 billion to MetLife. As a result of this transaction, components of origination activity and operating expenses for 2008 are significantly lower when compared to 2007.

Pre-tax income was $201.4 million in 2008 compared to a pre-tax loss of $313.3 million in 2007. Total revenues increased by $465.8 million to $655.7 million in 2008.

Net interest income decreased slightly to $95.3 million in 2008 from $98.8 million in 2007 primarily due to lower loan volumes combined with lower spreads on reduced custodial deposit balances. In 2007, net interest income was favorably impacted by $15.7 million due to the reclassification of $175 million from excess mortgage servicing rights to trading securities in second quarter. This reclassification was the outcome of capital management initiatives which resulted in modification of the Pooling and Servicing Agreements (PSA) for private (non-GSE) securitizations which were active as of March 31, 2007. The modifications separated master servicing from retained yield. Offsetting the increase in net interest income was a decline in servicing fees and a decline in the change of mortgage servicing rights (MSR) value due to runoff. Provision expense increased to $29.1 million in 2008 from deterioration in the permanent mortgage portfolio.

Noninterest income increased to $560.3 million in 2008 compared to $91.1 million in 2007. Noninterest income consists primarily of mortgage banking-related revenue, net of costs, from the origination and sale of mortgage loans, fees from mortgage servicing, and changes in the fair value of MSR net of hedge gains or losses.

Mortgage loan origination volumes decreased to $17.4 billion in 2008 from $27.4 billion in 2007, as home purchase-related originations declined due to the August 2008 divestiture of national origination offices to MetLife. Net revenue from origination activity increased to $223.6 million from $118.4 million in 2007 reflecting the $142.2 million positive impact of adopting new accounting standards in 2008. Loans delivered into the secondary market decreased 24 percent to $19.9 billion from $26.3 billion. Gain on loan sale deliveries increased to $78.4 million despite decreased volume as 2007 was negatively impacted by credit market disruptions which affected pricing and dealer concessions. Gains in 2008 were negatively impacted by a $15.5 million adjustment to reflect revised cash flow expectations for mortgage origination activity. 2008 origination income was negatively impacted by a $15.2 million fair value adjustment of the remaining mortgage warehouse in the fourth quarter.

Through various servicing portfolio sales executed in 2008, including the $19.1 billion sale to MetLife in the third quarter, the unpaid principal balance (UPB) of the servicing portfolio decreased to $63.7 billion on December 31, 2008 from $103.7 billion on December 31, 2007. The sales reduced servicing rights assets by $485.8 million. Consistent with the decline in the servicing portfolio, total fees associated with mortgage servicing decreased 26 percent to $231.9 million from $311.4 million. Changes in the balance of MSR due to runoff positively impacted servicing income in 2008 by $109.7 million as the size of the portfolio declined. Changes in MSR value other than runoff (valuation model inputs or assumptions) negatively impacted net servicing revenues by $384.2 million in 2008 compared to $239.3 million in 2007 as lower interest rates increased prepayment speed model assumptions. Lower interest rates positively impacted servicing hedge gains by $548.8 million in 2008 compared to $73.2 million

FIRST HORIZON NATIONAL CORPORATION

in 2007 resulting in net servicing income of $292.0 million compared to a net servicing loss of $68.9 million in 2007.

Noninterest expense was $425.1 million in 2008 compared to $503.2 million in 2007. Noninterest expense in 2008 was negatively impacted by the immediate recognition of $121.8 million of origination costs previously deferred due to accounting for the mortgage warehouse at elected fair value and also by a $6.5 million charge for minimum fee guarantees on prior servicing sales. Offsetting this increase in noninterest expense was a decline due to the divestiture of certain mortgage banking operations in the third quarter 2008. Noninterest expense in 2007 was impacted by a goodwill impairment of $71.1 million and $8.4 million of expense related to a legal settlement.

National Specialty Lending

National Specialty Lending had a pre-tax loss of $559.3 million in 2008 compared to a pre-tax loss of $67.3 million in 2007. The pre-tax loss in 2008 is primarily a result of an increase in the provision for loan losses to $642.0 million in 2008 compared to $194.4 million in 2007 due to deterioration in the national construction lending and home equity portfolios.

Net interest income declined to $190.0 million in 2008 as compared to $243.9 million in 2007 as a result of the increase in nonaccrual construction loans and the continued contraction of loan portfolios from the wind-down of operations. Noninterest income was a loss of $10.2 million in 2008 compared to a gain of $21.3 million in 2007. The decrease is primarily due to market disruptions that began in 2007 which resulted in no second-lien or HELOC loan sales in 2008, an increase in HELOC residual write-downs, and a decrease in servicing fees resulting from pay downs and a smaller servicing portfolio. Noninterest expense was $97.2 million in 2008 compared to $138.1 million in 2007. Noninterest expense declined principally due to lower personnel costs related to the business wind-down initiated during first quarter 2008.

Corporate

The Corporate segment’s results yielded pre-tax income of $20.8 million in 2008 compared to a pre-tax loss of $226.0 million in 2007. Net interest income was $51.7 million in 2008 compared to a negative $3.6 million in 2007 as the common stock issuance reduced the need for higher cost short term funding. Noninterest income was $56.6 million in 2008 compared to $28.0 million in 2007. 2008 was positively impacted by a $65.9 million securities gain resulting from the redemption of Visa Inc.’s shares in conjunction with its IPO and $33.8 million of gains related to bank note repurchases. These items were partially offset by $31.7 million of restructuring related charges and a $30.6 million decrease in deferred compensation income (partially offset by a corresponding decrease in deferred compensation expense). Noninterest income in 2007 included $9.3 million of net gains related to restructuring initiatives and net security losses of $1.2 million.

Noninterest expense decreased to $87.5 million in 2008 from $242.7 million in 2007. The decrease was primarily attributable to a reversal of $30.0 million related to the Visa contingent liability for certain Visa legal matters ($55.7 million was initially recorded in 2007), a $40.6 million decrease related to restructuring charges, and a $39.3 million decrease in deferred compensation expense. (See Note 18, Contingencies and Other Disclosures for a detailed discussion surrounding FHN’s contingent liability for certain Visa legal matters.) The decrease in deferred compensation expense is partially offset by a $30.6 million decrease in deferred compensation income. Partially offsetting these declines was a $14.2 million increase in legal and professional fees primarily due to consulting fees.

RESTRUCTURING, REPOSITIONING, AND EFFICIENCY INITIATIVES

Beginning in 2007, FHN conducted a company-wide review of business practices with the goal of improving its overall profitability and productivity. In addition, during 2007 management announced its intention to sell 34 full-service First Horizon Bank branches in its national banking markets. These sales were completed in second quarter 2008. In the second half of 2007, FHN also took actions to right size First Horizon Home Loans’ mortgage banking operations and to downsize FHN’s national lending operations, in order to redeploy capital to higher-return businesses. As part of its strategy to reduce its national real estate portfolio, FHN announced in January 2008 that it was discontinuing national homebuilder and commercial real estate lending through its First Horizon Construction

FIRST HORIZON NATIONAL CORPORATION

Lending offices. Additionally, FHN initiated the repositioning of First Horizon Home Loans’ mortgage banking operations, which included sales of MSR in fourth quarter 2007 and the first, second and third quarters of 2008.

In June 2008, FHN announced that it had reached a definitive agreement with MetLife for the sale of more than 230 retail and wholesale mortgage origination offices nationwide as well as its loan origination and servicing platform. Effective August 31, 2008, the parties completed the initial settlement for MetLife’s acquisition of substantially all of FHN’s mortgage origination pipeline, related hedges, certain fixed assets and other associated assets. MetLife did not acquire any portion of FHN’s mortgage loan warehouse. First Horizon retained its mortgage operations in and around Tennessee, continuing to originate home loans for customers in its banking market footprint. FHN also agreed with MetLife for the sale of servicing assets and related hedges on $19.1 billion of first lien mortgage loans and associated custodial deposits. Additionally, FHN has 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 Statements of Condition for the reporting period ending June 30, 2008. In third quarter 2008, FHN recognized a loss on divestiture of $17.5 million related to this transaction which is included in the noninterest income section of the Consolidated Statements of Income as losses on divestitures. In fourth quarter 2008, the parties completed a post-closing true up which resulted in FHN recognizing a gain on divestiture of $0.9 million within its Consolidated Statements of Income.

Net costs recognized by FHN in the year ended December 31, 2008 related to restructuring, repositioning, and efficiency activities were $91.4 million. Of this amount, $49.1 million represented exit costs that were accounted for in accordance with Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (SFAS No. 146).

Significant expenses recognized in 2008 resulted from the following actions:

•

Expense of $49.1 million associated with organizational and compensation changes due to right sizing operating segments, the divestiture of certain First Horizon Bank branches, the divestiture of certain mortgage banking operations and consolidating functional areas.

•

Loss of $16.6 million on the divestiture of mortgage banking operations.

•

Loss of $2.4 million from the sales of certain First Horizon Bank branches.

•

Transaction costs of $12.7 million from the contracted sales of mortgage servicing rights.

•

Expense of $10.7 million for the write-down of certain premises and equipment, intangibles and other assets resulting from FHN’s divestiture of certain mortgage operations and from the change in FHN’s national banking strategy.

Net costs recognized by FHN in the year ended December 31, 2007 related to restructuring, repositioning, and efficiency activities were $98.7 million. Of this amount, $47.9 million represented exit costs accounted for in accordance with SFAS No. 146.

Significant expenses recognized in 2007 resulted from the following actions:

•

Expense of $20.4 million associated with organizational and compensation changes for right sizing operating segments and consolidating functional areas.

•

Non-core business repositioning costs of $17.4 million, including costs associated with the exit of the collectible coin merchandising business and the transition of the non-prime mortgage origination business to a broker model.

•

Expense of $17.2 million related to other restructuring, repositioning, and efficiency initiatives, including facilities consolidation, procurement centralization, multi-sourcing and the divestiture of certain loan portfolios.

•

Costs of $24.3 million related to the divestiture of 34 full-service First Horizon Bank locations in Virginia, Maryland, Georgia, and Texas, including $13.9 million for the write-down of goodwill and other intangibles; partially offset by $15.7 million of gains realized in 2007 from the disposition of 15 of these locations.

FIRST HORIZON NATIONAL CORPORATION

•

Expense of $11.3 million related to the restructuring of mortgage operations through office closures, associated sales force decreases, and the reduction of management and support staff and downsizing of national lending operations through the reduction of consumer and construction sales forces and decreasing management, support staff and back-office costs.

•

Expense of $17.4 million for asset impairments related to the discontinuance of technology projects.

•

Transaction costs of $6.4 million from sales of mortgage servicing rights.

Provision for loan losses of $7.7 million was incurred during 2007 in relation to the divestiture of a non-strategic loan portfolio. Losses from the mortgage banking divestiture and gains and losses from the disposition of the First Horizon Bank branches are included in gains/(losses) on divestitures in the noninterest income section of the Consolidated Statements of Income. Transaction costs related to transfers of mortgage servicing rights are recorded as a reduction of mortgage banking income in the noninterest income section of the Consolidated Statements of Income. All other costs associated with the restructuring, repositioning, and efficiency initiatives implemented by management are included in the noninterest expense section of the Consolidated Statements of Income, including severance and other employee-related costs recognized in relation to such initiatives which are recorded in employee compensation, incentives, and benefits, facilities consolidation costs and related asset impairment costs which are included in occupancy, costs associated with the impairment of premises and equipment which are included in equipment rentals, depreciation, and maintenance, and other costs associated with such initiatives, including professional fees, intangible asset impairment costs, and asset impairment costs related to the discontinuance of technology projects, which are included in all other expense and goodwill impairment.

Settlement of the obligations arising from current initiatives will be funded from operating cash flows. The effect of suspending depreciation on assets held for sale was immaterial to FHN’s results of operations for all periods. As a result of the change in FHN’s national banking strategy, a write-down of other intangibles of $2.4 million was recognized in first quarter 2008 related to certain banking licenses. As part of the divestiture of certain mortgage banking assets, an impairment of $1.7 million was recognized in second quarter 2008 related to noncompete agreements. The recognition of these impairment losses will have no effect on FHN’s debt covenants. The impairment loss related to such intangible assets was recorded as an unallocated corporate charge within the Corporate segment and is included in all other expense on the Consolidated Statements of Income. As a result of the restructuring, repositioning, and efficiency initiatives implemented to date by management, the effects of $175 million in aggregate annual pre-tax improvements were experienced by FHN beginning in its first quarter 2008 run-rate. An additional $70 million in pre-tax annual profitability improvements was experienced by the end of 2008 in relation to the First Horizon Bank branch divestitures and the restructuring of mortgage operations and national lending operations. Due to the broad nature of the actions being taken, all components of income and expense will be affected from the efficiency benefits.

Charges related to restructuring, repositioning, and efficiency initiatives for the twelve months ended December 31, 2008, and 2007 are presented in the following table based on the income statement line item affected. See Note 27 – Restructuring, Repositioning, and Efficiency Charges and Note 2 – Acquisitions/Divestitures for additional information.

FIRST HORIZON NATIONAL CORPORATION

Table 1 - Restructuring, Repositioning, and Efficiency Initiatives


(Dollars in thousands)	2008				2007

Provision for loan losses related to divestiture of a loan portfolio		$	-			$	7,672
Noninterest income:
Mortgage banking			(12,667	)			(6,428	)
Gains/(losses) on divestitures			(19,019	)			15,695

Total noninterest income			(31,686	)			9,267

Adjusted gross income after provision for loan losses			(31,686	)			1,595

Noninterest expense:
Employee compensation, incentives and benefits			24,418				25,665
Occupancy			8,111				14,312
Equipment rentals, depreciation and maintenance			4,340				6,524
Legal and professional fees			4,342				9,977
Operations services			1				359
Communications and courier			42				28
Goodwill impairment			-				13,010
All other expense			18,473				30,438

Total noninterest expense			59,727				100,313

Loss before income taxes		$	91,413			$	98,718

Activity in the restructuring and repositioning liability for the twelve months ended December 31, 2008 is presented in the following table:


(Dollars in thousands)	Liability

Beginning Balance: January 1, 2008		$	19,675
Severance and other employee related costs			24,400
Facility consolidation costs			16,751
Other exit costs, professional fees and other			7,902

Total Accrued			68,728
Payments*			38,016
Accrual Reversals			6,545

Restructuring and Repositioning Reserve Balance: December 31, 2008		$	24,167


* Includes payments related to:	Twelve Months Ended December 31, 2008
Severance and other employee related costs		$	16,235
Facility consolidation costs			14,223
Other exit costs, professional fees and other			7,558

		$	38,016

INCOME STATEMENT REVIEW – 2008 COMPARED TO 2007

Total consolidated revenue increased 33 percent to $2.4 billion from $1.8 billion in 2007, primarily from increased mortgage banking and capital markets revenue. A more detailed discussion of the major line items follows.

NET INTEREST INCOME

Net interest income declined to $895.1 million in 2008 compared to $940.6 million in 2007 as average earning assets declined 9 percent to $30.4 billion and average interest-bearing liabilities declined 10 percent to $26.0 billion in 2008. See also the Consolidated Average Balance Sheet and Related Yields and Rates table.

FIRST HORIZON NATIONAL CORPORATION

The activity levels and related funding for FHN’s mortgage production and servicing and capital markets activities affect the net interest margin. These activities typically produce different margins than traditional banking activities. Mortgage production and servicing activities can affect the overall margin based on a number of factors, including the shape of the yield curve, the size of the mortgage warehouse, the time it takes to deliver loans into the secondary market, the amount of custodial balances, and the level of MSR. Due to the August 2008 divestiture of certain mortgage banking operations to MetLife, origination activities and the size of the mortgage warehouse have significantly decreased and therefore had less of an impact on net interest margin during the second half of the year. Capital Markets’ activities tend to compress the margin because of the strategy to reduce market risk by economically hedging a portion of its inventory on the balance sheet. As a result of these impacts, FHN’s consolidated margin cannot be readily compared to that of other bank holding companies. Table 2 details the computation of the net interest margin for FHN for the last three years.

The consolidated net interest margin was 2.95 percent for 2008 compared to 2.82 percent for 2007. The widening in the margin occurred as the net interest spread increased to 2.55 percent from 2.19 percent in 2007 while the impact of free funding decreased from 63 basis points to 40 basis points. The increase in the margin is attributable to a decrease in interest-bearing assets, increased spreads on capital markets’ trading inventory and the mortgage warehouse, and a reduced need for higher cost short-term funding because of the common stock issuance in the second quarter 2008. The positive effects more than offset the negative impact of an increase in nonaccrual loans.

Table 2 - Net Interest Margin


	2008			2007			2006

Consolidated yields and rates:
Loans, net of unearned income		5.33	%		7.34	%		7.40	%
Loans held for sale		5.86			6.54			6.64
Investment securities		5.49			5.59			5.42
Capital markets securities inventory		4.57			5.29			5.33
Mortgage banking trading securities		12.98			12.28			10.84
Other earning assets		1.84			4.88			4.72

Yields on earning assets		5.29			6.91			6.85

Interest-bearing core deposits		2.26			3.34			2.98
Certificates of deposit $100,000 and more		3.79			5.36			5.06
Federal funds purchased and securities sold under agreements to repurchase		2.04			4.72			4.58
Capital markets trading liabilities		4.73			5.42			5.68
Commercial paper and other short-term borrowings		2.33			4.83			5.04
Long-term debt		3.56			5.67			5.55

Rates paid on interest-bearing liabilities		2.74			4.72			4.54

Net interest spread		2.55			2.19			2.31
Effect of interest-free sources		.40			.63			.62

FHN – NIM		2.95	%		2.82	%		2.93	%

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

In the short term, the net interest margin is expected to remain under pressure as deposit pricing remains challenging. In the longer term, net interest margin should be positively influenced by the reduction of lower margin national businesses.

Table 3 shows how the changes in yields or rates and average balances compared to the prior year affected net interest income.

FIRST HORIZON NATIONAL CORPORATION

Table 3 - Analysis of Changes in Net Interest Income


(Fully taxable equivalent) (Dollars in thousands)	2008 Compared to 2007 Increase/(Decrease) Due to*												2007 Compared to 2006 Increase/(Decrease) Due to*
(Fully taxable equivalent) (Dollars in thousands)	Rate**				Volume**				Total				Rate**				Volume**				Total

Interest income – FTE:
Loans		$	(436,294	)		$	(31,897	)		$	(468,191	)		$	(13,408	)		$	44,300			$	30,892
Loans held for sale			(24,906	)			(77,126	)			(102,032	)			(4,394	)			(30,181	)			(34,575	)
Investment securities:
U.S. Treasury			(1,848	)			(1,859	)			(3,707	)			62				2,033				2,095
U.S. government agencies			(3,297	)			(22,740	)			(26,037	)			5,919				(7,161	)			(1,242	)
States and municipalities			328				1,517				1,845				(6	)			(1	)			(7	)
Other			1,092				741				1,833				(48	)			(739	)			(787	)

Total investment securities			(3,591	)			(22,475	)			(26,066	)			5,635				(5,576	)			59

Capital markets securities inventory			(14,318	)			(31,176	)			(45,494	)			(881	)			(11,708	)			(12,589	)
Mortgage banking trading securities			3,118				(17,029	)			(13,911	)			6,251				9,478				15,729
Other earning assets:
Federal funds sold and securities purchased under agreements to resell			(34,953	)			(7,747	)			(42,700	)			2,559				(26,012	)			(23,453	)
Interest-bearing deposits with other financial institutions			(2,608	)			2,432				(176	)			291				2				293

Total other earning assets			(40,893	)			(1,983	)			(42,876	)			2,961				(26,121	)			(23,160	)

Total earning assets/total interest income – FTE			(507,383	)			(191,188	)		$	(698,570	)			20,218				(43,862	)		$	(23,644	)

Interest expense:
Interest-bearing deposits:
Savings		$	(56,064	)		$	20,031			$	(36,033	)		$	16,279			$	11,165			$	27,444
Time deposits			(19,764	)			(15,582	)			(35,346	)			11,268				5,027				16,295
Other interest-bearing deposits			(11,594	)			(396	)			(11,990	)			1,407				(33	)			1,374

Total interest-bearing core deposits			(93,785	)			10,417				(83,369	)			30,000				15,113				45,113

Certificates of deposit $100,000 and more			(86,029	)			(206,992	)			(293,021	)			27,709				(151,572	)			(123,863	)
Federal funds purchased and securities sold under agreements to repurchase			(104,633	)			(54,624	)			(159,257	)			6,600				13,581				20,181
Capital markets trading liabilities			(6,102	)			(12,219	)			(18,321	)			(3,363	)			(21,184	)			(24,547	)
Other short term borrowings and commercial paper			(48,641	)			103,392				54,751				(1,696	)			26,674				24,978
Long-term debt			(130,088	)			(24,369	)			(154,457	)			6,058				85,225				91,283

Total interest-bearing liabilities/total interest expense			(527,686	)			(125,987	)		$	(653,674	)			51,931				(18,786	)		$	33,145

Net interest income – FTE										$	(44,896	)										$	(56,789	)

The changes in interest due to both rate and volume have been allocated to change due to rate and change due to volume in proportion to the absolute amounts of the changes in each.

Variances are computed on a line-by-line basis and are non-additive.

NONINTEREST INCOME

Noninterest income contributed 62 percent to total revenue in 2008 compared to 48 percent in 2007 and increased $631.4 million to $1.5 billion in 2008. Impacting this increase were mortgage banking and capital markets noninterest income and securities gains which were partially offset by declines in loan sale and securitization income and loss on divestitures related to restructuring, repositioning and efficiency initiatives. Table 4 provides six years of detailed information concerning FHN’s noninterest income. The following discussion provides additional information about various line items reported in the table.

FIRST HORIZON NATIONAL CORPORATION

Table 4 - Noninterest Income


(Dollars in thousands)	2008				2007				2006				2005				2004			2003				Compound Annual Growth Rates (%)
																								08/07			08/03

Noninterest income:
Capital markets		$	524,420			$	334,371			$	383,047			$	353,005			$	376,558		$	538,919			56.8	+		*
Deposit transactions and cash management			179,034				175,271				168,599				156,190				148,511			146,696			2.1	+		4.1	+
Mortgage banking			518,034				69,454				370,613				479,619				444,758			649,496			645.9	+		4.4	-
Trust services and investment management			33,821				40,335				41,514				44,614				47,274			45,873			16.1	-		5.9	-
Insurance commissions			29,104				31,739				46,632				54,091				56,109			57,811			8.3	-		12.8	-
Gains/(losses) from loan sales and securitizations			(8,625	)			23,881				51,675				47,575				23,115			-			136.1	-		NM
Equity securities gains/(losses), net			65,349				(7,475	)			10,271				(579	)			2,040			8,491			974.2	+		50.4	+
Debt securities gains/(losses), net			761				6,292				(75,900	)			1				18,708			(6,113	)		87.9	-		165.9	+
Gains/(losses) on divestitures			(19,019	)			15,695				-				7,029				1,200			12,498			221.2	-		208.8	-
All other income and commissions:
Brokerage management fees and commissions			32,234				37,830				37,182				30,865				28,590			23,215			14.8	-		6.8	+
Bank-owned life insurance			25,143				25,172				19,064				16,335				12,842			13,763			*			12.8	+
Bankcard income			22,081				24,874				26,105				27,136				24,993			22,587			11.2	-		*
Other service charges			12,630				14,296				14,561				14,330				11,498			11,720			11.7	-		1.5	+
Remittance processing			12,953				13,451				14,737				15,411				19,515			23,666			3.7	-		11.4	-
Reinsurance fees			11,919				9,052				6,792				5,850				5,913			6,224			31.7	+		13.9	+
ATM interchange fees			9,224				8,472				7,091				5,995				4,973			4,113			8.9	+		17.5	+
Deferred compensation (a)			(22,901	)			7,727				14,647				7,721				8,633			4,575			396.4	-		238.0	-
Letter of credit fees			5,657				6,738				7,271				7,883				6,793			4,944			16.0	-		2.7	+
Electronic banking fees			6,217				6,561				5,975				5,977				6,071			6,311			5.2	-		*
Check clearing fees			3,125				4,896				6,385				7,333				10,052			11,839			36.2	-		23.4	-
Federal flood certifications			3,645				4,797				4,996				9,359				5,375			4,161			24.0	-		2.6	-
Gain on early extinguishment of debt			33,845				-				-				-				-			-			NM			NM
Other			12,662				6,520				5,636				11,516				18,310			8,608			94.2	+		8.0	+

Total all other income and commissions			168,434				170,386				170,442				165,711				163,558			145,726			1.1	-		2.9	+

Total noninterest income		$	1,491,313			$	859,949			$	1,166,893			$	1,307,256			$	1,281,831		$	1,599,397			73.4	+		1.4	-

NM – not meaningful

* Amount is less than one percent.

(a) Deferred compensation market value adjustments are offset by a reduction to noninterest other expense.

Capital Markets Noninterest Income

The major component of revenue in the Capital Markets segment is generated from the purchase and sale of securities as both principal and agent, and from other fee sources including equity research, loan sales, portfolio advisory activities and structured finance. Securities inventory positions are generally procured for distribution to customers by the sales staff. A portion of the inventory is hedged to protect against movements in fair value due to changes in interest rates.

Capital markets noninterest income increased to $524.4 million in 2008 from $334.4 million in 2007. Revenues from other products represented only 6 percent of total noninterest income in 2008 compared to 35 percent in 2007. These revenues decreased $86.1 million primarily due to decreased fees from structured finance activities. Revenues from fixed income sales increased $276.1 million from 2007 due primarily to a steepened yield curve, market volatility and other factors.

FIRST HORIZON NATIONAL CORPORATION

Table 5 - Capital Markets Noninterest Income


(Dollars in thousands)	2008			2007			2006			Compound Annual Growth Rates (%)
										08/07			08/06

Noninterest income:
Fixed income		$	493,836		$	217,700		$	180,183		126.8	+		65.6	+
Other product revenue			30,584			116,671			202,864		73.8	-		61.2	-

Total capital markets noninterest income		$	524,420		$	334,371		$	383,047		56.8	+		17.0	+

Mortgage Banking Noninterest Income

Effective August 31, 2008, FHN completed the sale of Mortgage Banking’s servicing operations, origination offices outside of Tennessee and $19.1 billion of servicing to MetLife. As a result of this transaction, origination activity for 2008 is significantly lower when compared to 2007. Prior to the third quarter 2008 sale of the national origination offices, First Horizon Home Loans, a former division of FTBNA, offered residential mortgage banking products and services to customers, which consisted primarily of the origination or purchase of single-family residential mortgage loans. First Horizon Home Loans originated mortgage loans through its retail and wholesale operations for sale to secondary market investors and subsequently serviced the majority of those loans. Although origination activity has declined substantially since the sale of the national mortgage offices, FHN continues to service, through a sub-servicing arrangement, the remaining portfolio. Table 6 provides a summary of First Horizon Home Loans’ production/origination of mortgage loans through December 31, 2008, 2007 and 2006.

Table 6 - Production/Origination of Mortgage Loans


	2008			2007			2006

Retail channel		44	%		53	%		57	%
Wholesale channel		53			47			40
Correspondent brokers		3			-			3

Mortgage banking noninterest income increased by $448.5 million in 2008 to $518.0 million from $69.5 million in 2007 as shown in Table 7.

Prior to adoption of new accounting standards in 2008, origination income included origination fees, net of costs, gains/(losses) recognized on loans sold including the capitalized fair value of MSR, and the value recognized on loans in process including results from hedging. Origination fees, net of costs (including incentives and other direct costs), were deferred and included in the basis of the loans in calculating gains and losses upon sale. Gain or loss was recognized due to changes in fair value of an interest rate lock commitment made to the customer. Gains or losses from the sale of loans were recognized at the time a mortgage loan was sold into the secondary market. See Critical Accounting Policies and Note 1 – Summary of Significant Accounting Policies for more discussion of the effects of adopting the new accounting standards.

Upon adoption of the new accounting standards, origination income includes origination fees, fair value and LOCOM adjustments of the warehouse, gains/(losses) recognized on loans sold including the capitalized fair value of MSR, and the value recognized on loans in process including results from hedging. Upon election of fair value accounting for substantially all warehouse loans, the value recognized on these loans includes changes in investor prices, MSR and concessions. The related origination fees are no longer deferred but recognized in origination income upon closing of a loan.

Net revenue from origination activity increased 89 percent to $223.6 million in 2008 from $118.4 million in 2007 as 2007 was negatively impacted by secondary market disruptions since credit and liquidity risk in the pipeline and warehouse were not hedged. Gain on sale margins were impacted as a result of significant spread widening on ARM and nonagency eligible production. Origination income in 2008 was impacted by several factors. The

FIRST HORIZON NATIONAL CORPORATION

adoption of accounting standards in the first quarter, including the fair value election for substantially all mortgage warehouse loans, positively impacted gross origination income by $142.2 million. The third quarter 2008 sale of national origination offices to MetLife significantly reduced origination volumes as compared to 2007 with originations continuing only within FHN’s regional banking footprint. Also in third quarter, origination income was negatively impacted by a $15.5 million charge related to amounts owed to private mortgage insurers on loans previously sold. 2008 origination income was also negatively impacted by a $15.2 million valuation adjustment of the remaining mortgage warehouse in the fourth quarter.

Servicing income includes servicing fees and net gains or losses from hedging MSR. Mortgage servicing noninterest income reflects the change in the fair value of the MSR asset combined with net economic hedging results. FHN employs hedging strategies intended to counter changes in the value of MSR and other retained interests due to changing interest rate environments (refer to discussion of MSR under Critical Accounting Policies). Net servicing income increased $360.8 million in 2008 from a net servicing loss of $68.9 million in 2007.

Through various servicing portfolio sales executed in 2008, including the $19.1 billion sale to MetLife in the third quarter, the servicing portfolio decreased to $63.7 billion compared to $103.7 billion on December 31, 2007. The sales reduced servicing assets by $485.8 million. Consistent with the decline in the servicing portfolio, total fees associated with mortgage servicing decreased 26 percent to $231.9 million from $311.4 million. Changes in MSR due to runoff positively impacted servicing income in 2008 compared to 2007 by $109.7 million as the size of the portfolio declined. Changes in MSR value other than runoff (valuation model inputs or assumptions) negatively impacted net servicing revenues by $384.2 million in 2008 compared to $235.0 million in 2007 as lower interest rates increased prepayment speeds. However, lower interest rates positively impacted servicing hedge gains by $548.8 million in 2008 compared to $73.2 million in 2007 increasing 2008 net servicing income to $292.0 million compared to a net servicing loss of $68.9 million in 2007.

Table 7 - Mortgage Banking Noninterest Income


	2008			2007				2006			Compound Annual Growth Rates (%)
	2008			2007				2006			08/07			08/06

Noninterest income (thousands) :
Origination income		$	223,596		$	118,436			$	308,099		88.8	+		14.8	-
Servicing (expense)/income			291,962			(68,857	)			37,517		524.0	+		179.0	+
Other			2,477			19,875				24,997		87.5	-		68.5	-

Total mortgage banking noninterest income		$	518,035		$	69,454			$	370,613		645.9	+		18.2	+

Mortgage banking statistics (millions) :
Refinance originations		$	8,975.9		$	10,872.2			$	10,226.7		17.4	-		6.3	-
Home-purchase originations			8,465.9			16,502.9				16,887.6		48.7	-		29.2	-

Mortgage loan originations		$	17,441.8		$	27,375.1			$	27,114.3		36.3	-		19.8	-

Servicing portfolio - owned		$	63,660.7		$	103,708.7			$	101,369.2		38.6	-		20.8	-

Other income includes FHN’s share of earnings from nonconsolidated subsidiaries accounted for under the equity method, which provided ancillary activities to mortgage banking, and fees from retail construction lending. FHN’s interests in these nonconsolidated subsidiaries were transferred to MetLife in the third quarter 2008. In the fourth quarter 2008, other mortgage banking income was negatively impacted by the recognition of a $6.5 million liability for minimum fee guarantees on prior servicing sales.

Management continues to explore additional opportunities for balance sheet repositioning and the redeployment of capital which includes a reduction of the servicing portfolio and associated MSR. Generally, revenues from mortgage originations and mortgage servicing are principally impacted by interest rates. Specifically, an increase in interest rates should reduce origination income but increase servicing revenues due to reduced overall originations and the slow down of prepayments, respectively. Weakening of the housing market should decrease origination income but a resulting decrease in payoffs could increase servicing income. Due to the sale of the national

FIRST HORIZON NATIONAL CORPORATION

origination offices to MetLife, interest rate exposure on origination income will be less significant. In future periods, actual results could differ because of several factors, including those presented in the Forward-Looking Statements section of the MD&A discussion.

Deposit Transactions and Cash Management

Deposit transactions include services related to retail deposit products (such as service charges on checking accounts), cash management products and services such as electronic transaction processing (automated clearing house and Electronic Data Interchange), account reconciliation services, cash vault services, lockbox processing, and information reporting to large corporate clients. Noninterest income from deposit transactions and cash management increased to $179.0 million in 2008 from $175.3 million in 2007, reflecting increased corporate cash management fees from lower customer earnings credits.

Gains/(Losses) from Loan Sales and Securitizations

Gains/(losses) from loan sales and securitizations include net gains recognized on HELOC and second-lien mortgage loans sold, including changes in the fair value of MSR, servicing fees, and gains or losses related to fair value adjustments on retained interests classified as mortgage trading securities. Noninterest income from loan sales and securitizations decreased to a loss of $8.6 million in 2008 compared to gains of $23.9 million in 2007. The decrease is primarily due to market disruptions beginning in 2007 which resulted in no second-lien or HELOC loan sales in 2008, an increase in HELOC residual write-downs, and a decrease in servicing fees resulting from run off and a smaller servicing portfolio.

Insurance Commissions

Insurance commissions are derived from the sale of insurance products, including acting as an independent agent to provide commercial and personal property and casualty, life, long-term care, and disability insurance. Noninterest income from insurance commissions decreased to $29.1 million in 2008 from $31.7 million in 2007 primarily due to a soft property and casualty market and a decline in mortgage related insurance sales.

Trust Services and Investment Management

Trust services and investment management fees include investment management, personal trust, employee benefits, and custodial trust services and are influenced by equity and fixed income market activity. Noninterest income from trust services and investment management was $33.8 million in 2008 compared to $40.3 million in 2007 due to market related declines in trust asset values.

Gains/(Losses) on Divestitures

In 2008, losses from divestitures were $19.0 million and were related to the sale of mortgage banking operations and certain First Horizon Bank branches. Gains from divestitures in 2007 were $15.7 million and were related to the sale of certain First Horizon Bank branches. See the discussion of Restructuring, Repositioning and Efficiency Initiatives for further details.

Securities Gains/(Losses)

Net securities gains in 2008 were $66.1 million and primarily related to the redemption of FHN’s Class B shares in connection with Visa Inc.’s IPO which resulted in a gain of $65.9 million. Net securities losses of $1.2 million in 2007 primarily related to changes in the investment portfolio that were made to compensate for loan growth in first quarter which were offset by impairment charges related to securities that, in the opinion of management, have been other-than-temporarily impaired.

All Other Income and Commissions

All other income, which includes brokerage management fees and commissions, bankcard fees, revenue from bank-owned life insurance, remittance processing income, revenue related to deferred compensation plans (which

FIRST HORIZON NATIONAL CORPORATION

are principally offset by a related item in noninterest expense), other service charges, and various other fees (see Table 4 for additional detail) was $168.4 million in 2008 compared to $170.4 million in 2007. Other income was positively impacted by $33.8 million of debt repurchase gains and an increase in reinsurance fees. Offsetting these increases was a $30.6 million decrease in income related to deferred compensation plans and a $5.6 million decline in brokerage fees and commissions which were impacted by market conditions. All other components decreased slightly. In 2007, other income was negatively impacted by $16.8 million related to LOCOM and other consumer lending (HELOC and second-lien) adjustments.

NONINTEREST EXPENSE

Total noninterest expense for 2008 decreased 10 percent to $1.7 billion from $1.8 billion in 2007. Table 8 provides detail by segment. Table 9 provides detail by category for the past six years with growth rates.

Employee compensation, incentives and benefits (personnel expense), the largest component of noninterest expense, decreased $7.2 million from $968.1 million in 2007. Personnel expense was impacted by restructuring, repositioning, and efficiency initiatives previously discussed and increased costs related to higher capital markets production. These results also reflect reductions in personnel expense in Mortgage Banking and National Specialty Lending directly related to the contraction in revenue. Included in personnel expense is the net periodic benefit cost for FHN’s pension plan of $1.7 million in 2008, as compared to $10.9 million in 2007. Based on current conditions, FHN anticipates that net periodic benefit cost for the Pension Plan will increase by $9.1 million in 2009 from losses experienced on assets in the qualified pension plan and a decrease in the discount rate.

Occupancy costs decreased 20 percent or $26.2 million primarily due to the sale of certain Mortgage Banking operations to MetLife in 2008. Restructuring related charges included in occupancy expense decreased $6.2 million from 2007. Equipment rentals, depreciation and maintenance, communications and courier, intangible amortization, and all other expense experienced declines consistent with FHN’s focus on restructuring and efficiency initiatives. In 2007, goodwill impairments totaled $84.1 million; including a $71.1 million impairment related to the Mortgage Banking segment goodwill and $13.0 million related to First Horizon Bank branches. There were no goodwill impairments in 2008.

All other noninterest expense decreased $57.4 million in 2008 despite a $25.4 million increase in loan closing costs related to the fair value election for substantially all mortgage warehouse loans. As a result of this election, such costs are immediately recognized compared to previously being deferred and included in mortgage banking income. Losses and expenses related to foreclosed real estate increased by $17.0 million consistent with declines in the real estate market and increased defaults on insured mortgages resulted in a $16.5 million increase in reinsurance reserves. Contract employment expenses increased by $12.0 million largely due to higher outsourcing costs in 2008. Deposit insurance premiums increased $11.3 million from 2007. In 2007, a $55.7 million charge was taken to reflect FHN’s proportionate share of Visa, Inc.’s various legal matters while $30.0 million of the charge was reversed in 2008. All other expense categories decreased consistent with FHN’s focus on efficiency initiatives and reduction of non-core businesses.

Table 8 - Noninterest Expense Composition


(Dollars in thousands)	2008			2007			2006

Regional Banking		$	627,273		$	631,356		$	659,790
Capital Markets			418,916			328,062			358,901
National Specialty Lending			97,181			138,077			161,335
Mortgage Banking			425,148			503,207			476,862
Corporate			87,534			242,731			85,733

Total noninterest expense		$	1,656,052		$	1,843,433		$	1,742,621

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

FIRST HORIZON NATIONAL CORPORATION

Table 9 - Noninterest Expense


(Dollars in thousands)	2008			2007			2006			2005			2004			2003			Compound Annual Growth Rates (%)
																			08/07			08/03

Noninterest expense:
Employee compensation, incentives and benefits		$	960,917		$	968,122		$	1,023,685		$	988,946		$	899,803		$	1,004,754		*			*
Occupancy			104,968			131,173			116,670			104,161			87,570			81,832		20.0	-		5.1	+
Operations services			77,474			74,200			70,041			71,949			59,642			59,210		4.4	+		5.5	+
Legal and professional fees			63,718			56,882			43,012			43,734			36,730			58,967		12.0	+		1.6	+
Equipment rentals, depreciation and maintenance			57,069			72,926			73,882			74,367			70,400			67,019		21.7	-		3.2	-
Communications and courier			39,863			43,909			53,249			54,388			47,930			49,122		9.2	-		4.1	-
Amortization of intangible assets			8,229			10,959			11,462			10,700			6,157			5,256		24.9	-		9.4	+
Goodwill Impairment			-			84,084			-			-			-			-		NM			NM
All other expense:
Computer software			30,389			53,942			34,381			28,542			26,719			27,107		43.7	-		2.3	+
Advertising and public relations			33,014			42,346			47,427			46,321			39,846			43,836		22.0	-		5.5	-
Travel and entertainment			17,371			26,099			32,306			31,022			29,914			36,348		33.4	-		13.7	-
Low income housing expense			18,734			20,922			17,027			12,987			13,662			12,132		10.5	-		9.1	+
Contract employment			33,545			21,543			27,420			30,344			23,722			34,389		55.7	+		0.5	-
Distributions on preferred stock of subsidiary			13,989			18,799			18,146			10,757			-			2,282		25.6	-		43.7	+
Foreclosed real estate			33,002			16,048			4,384			3,933			5,834			13,137		105.6	+		20.2	+
Supplies			10,740			13,909			15,072			17,290			17,185			18,541		22.8	-		10.3	-
Loan closing costs			38,221			12,783			12,095			7,969			18,623			3,691		199.0	+		59.6	+
Customer relations			8,875			9,801			8,688			9,868			9,167			7,602		9.4	-		3.1	+
Other insurance and taxes			6,848			8,841			8,615			9,349			8,744			10,122		22.5	-		7.5	-
Employee training and dues			6,286			6,562			6,917			6,268			5,956			5,559		4.2	-		2.5	+
Fed service fees			7,053			6,047			6,543			7,568			8,838			9,195		16.6	+		5.2	-
Complimentary check expense			4,776			5,058			5,371			4,621			3,482			3,168		5.6	-		8.6	+
Loan insurance expense			5,270			4,610			6,577			7,970			8,070			6,710		14.3	+		4.7	-
Bank examinations costs			4,144			4,504			4,367			3,958			3,128			3,150		8.0	-		5.6	+
Deposit insurance premium			14,664			3,327			3,198			3,012			3,024			2,703		340.8	+		40.2	+
Distributions on guaranteed preferred securities			-			-			-			-			-			8,070		NM			NM
Other			56,893			126,037			92,086			36,870			27,662			70,062		54.9	-		4.1	-

Total all other expense			343,814			401,178			350,620			278,649			253,576			317,804		14.3	-		1.6	+

Total noninterest expense		$	1,656,052		$	1,843,433		$	1,742,621		$	1,626,894		$	1,461,808		$	1,643,964		10.2	-		*

NM – not meaningful
* Amount is less than one percent.

FIRST HORIZON NATIONAL CORPORATION

PROVISION FOR LOAN LOSSES

The provision for loan losses is the charge to earnings that management determines to be necessary to maintain the allowance for loan and lease losses (ALLL) at a sufficient level reflecting management’s estimate of probable incurred losses in the loan portfolio. Analytical models based on loss experience adjusted for current events, trends, and economic conditions are used by management to determine the amount of provision to be recognized and to assess the adequacy of the loan loss allowance. In response to economic conditions beginning in 2007, FHN conducted focused portfolio management activities to identify problem credits and to reach appropriate provisioning and reserve levels. The provision for loan losses increased 296 percent to $1.1 billion in 2008 from $272.8 million in 2007. While all portfolios were affected by the weakening real estate markets and the general decline in economic conditions in 2008, the increase primarily reflects deterioration in the national residential and commercial real estate construction portfolios (one-time close retail real estate construction loans extended to consumers and loans to homebuilders, including condominium construction loans). See Credit Risk Management and Allowance for Loan Losses and Charge-offs for further details.

Going forward, the level of provision for loan losses will fluctuate based upon the level of performance in the loan portfolios and will be affected by economic conditions.

INCOME TAXES

The effective tax rate for 2008 and 2007 was 45 percent, reflecting the tax rate effect of the reported loss in 2008. The effective tax rate for 2007 was negatively impacted by the impairment of goodwill related to Mortgage Banking and First Horizon Bank branches. The effective tax rates for both years were favorably impacted by affordable housing tax credits, settlements of certain prior year’s tax examinations and the tax effects of increases in the cash surrender value of life insurance. Tax rates were negatively affected by the tax effects of preferred stock dividends.

FHN and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states’ jurisdictions. With few exceptions, FHN is no longer subject to U.S. federal or state and local income tax examinations by tax authorities for years 2004 and prior. The Internal Revenue Service (IRS) has completed its examination of all U.S. federal returns through 2004 which are closed under the statute. All proposed adjustments with respect to examinations of federal returns filed for 2004 and prior years have been settled.

FHN adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), on January 1, 2007. As a result of the implementation of FIN 48, FHN recognized a $.9 million increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to the January 1, 2007, balance of undivided profits. The total balance of unrecognized tax benefits at December 31, 2007, was $31.6 million and has decreased to $31.1 million as of December 31, 2008. First Horizon does not expect that unrecognized tax benefits will significantly increase or decrease during 2009.

On December 31, 2008, there were no tax positions included in the balance of unrecognized tax benefits for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

FHN’s FIN 48 policy is to recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. Interest accrued as of December 31, 2008 was approximately $6 million. The total amount of interest and penalties recognized in the Consolidated Statements of Income during 2008 was $1.7 million. See also Note 16 – Income Taxes for additional information.

DISCONTINUED OPERATIONS

Performance in 2008 was favorably impacted by $.9 million related to an earn-out associated with the merchant processing divestiture. On March 1, 2006, FHN sold its national merchant processing business for an after-tax gain of $209.0 million. This divestiture was accounted for as a discontinued operation, and accordingly, current and prior periods were adjusted to exclude the impact of merchant operations from the results of continuing operations.

FIRST HORIZON NATIONAL CORPORATION

STATEMENT OF CONDITION REVIEW – 2008 COMPARED TO 2007

Total assets were $31.0 billion on December 31, 2008, compared to $37.0 billion on December 31, 2007. Average assets decreased to $34.4 billion in 2008 from $38.2 billion in 2007 due to continued efforts to reduce balance sheet risk.

Effective January 1, 2008, upon adoption of Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS No. 159), FHN elected the fair value option on a prospective basis for almost all types of mortgage loans originated for sale purposes. Such loans are carried at fair value, with changes in the fair value of these loans recognized in the mortgage banking noninterest income section of the Consolidated Statements of Income. After adoption of SFAS No. 159, FHN continued to account for all mortgage loans held for sale which were originated prior to 2008 and for mortgage loans held for sale for which fair value accounting was not elected at the lower of cost or market value. For such loans, net origination fees and costs were deferred and included in the basis of the loans in calculating gains and losses upon sale. Also included in the basis of first-lien mortgage loans was the value accreted during the time that the loan was a locked commitment. The cost basis of loans qualifying for fair value hedge accounting under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS No. 133), was adjusted to reflect changes in fair value. Gains and losses realized from the sale of these assets were included in noninterest income. Interests retained from the sale of such loans are included as a component of trading securities on the Consolidated Statements of Condition.

Effective January 1, 2008, FHN adopted SEC Staff Accounting Bulletin No. 109, “Written Loan Commitments Recorded at Fair Value Through 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 net impact of $1.0 million on 2008 pre-tax earnings.

Effective January 1, 2008, FHN adopted SFAS No. 157, “Fair Value Measurements” (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. In February 2008, the FASB staff issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157” (FSP FAS 157-2), which delayed the effective date of SFAS No. 157 until fiscal years beginning after November 15, 2008, for non-financial assets and liabilities which are recognized at fair value on a non-recurring basis. 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. 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). The effect of the change in accounting for these interest rate lock commitments produced a positive effect of $19.4 million on 2008 pre-tax earnings as existing commitments were delivered as loans and 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. Application of SFAS No. 157 to non-financial assets and liabilities which are recognized at fair value on a non-recurring basis is not expected to be significant to FHN.

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.

FIRST HORIZON NATIONAL CORPORATION

EARNING ASSETS

Earning assets consist of loans, loans held for sale, investment securities, trading securities and other earning assets. Earning assets averaged $30.4 billion and $33.4 billion for 2008 and 2007, respectively. A more detailed discussion of the major line items follows.

Loans

Average loans decreased 2 percent to $21.7 billion during 2008 driven by elevated charge-offs and declines in both commercial and consumer construction portfolios as FHN discontinued loan origination through its national construction lending channel. Average loans were $22.1 billion during 2007. Average loans represented 71 percent of average earning assets in 2008 and 66 percent in 2007. Additional loan information is provided in Table 10 and Note 4 – Loans.

Table 10 - Average Loans


(Dollars in millions)	2008			Percent of Total			2008 Growth Rate		2007			Percent of Total			2007 Growth Rate		2006			Percent of Total

Commercial:
Commercial, financial and industrial		$	7,346.4		34	%		3.3 %		$	7,109.9		32	%		6.5 %		$	6,674.9		31	%
Real estate commercial (a)			1,431.8		6			12.6			1,271.4		6			3.9			1,223.2		6
Real estate construction (b)			2,317.3		11			(19.1)			2,865.8		13			15.8			2,475.5		11

Total commercial			11,095.5		51			(1.3)			11,247.1		51			8.4			10,373.6		48

Retail:
Real estate residential (c)			7,998.9		37			3.3			7,741.2		35			(8.7)			8,481.2		39
Real estate construction (d)			1,501.7		7			(28.4)			2,095.9		9			3.0			2,034.9		10
Other retail			139.1		1			(6.8)			149.3		1			(7.8)			162.0		1
Credit card receivables			193.2		1			(1.6)			196.4		1			(6.2)			209.4		1
Real estate loans pledged against other collateralized borrowings (e)			732.3		3			8.2			676.8		3		NM				243.1		1

Total retail			10,565.2		49			(2.7)			10,859.6		49			(2.4)			11,130.6		52

Total loans, net of unearned		$	21,660.7		100	%		(2.0)%		$	22,106.7		100	%		2.8 %		$	21,504.2		100	%

(a)

Includes nonconstruction income property loans and land loans not involving development.

(b)

Includes homebuilder, condominium, income property construction and land development loans.

(c)

Includes primarily home equity loans and lines of credit (average for 2008, 2007, and 2006 $3.7 billion, $3.9 billion and $4.9 billion, respectively).

(d)

Includes one-time close product.

(e)

Includes on-balance sheet securitizations of home equity loans.

Commercial, financial and industrial (C&I) loans comprised 66 percent of total commercial loans in 2008 as compared to 63 percent in 2007. The C&I portfolio was primarily generated by the Regional Bank and is diversified across industry types. This portfolio grew $236.5 million or 3 percent in 2008 primarily as a result of approximately $340 million, net of LOCOM, of smaller issuer trust preferred loans that were moved to the loan portfolio in the second quarter of 2008.

Income commercial real estate (Income CRE) includes loans for the construction and mini-permanent financing of traditional commercial real estate property types, including office, multi-family, industrial and retail space. Residential commercial real estate (Residential CRE) includes loans to homebuilders and condominium developers. Both are included in the commercial real estate commercial and commercial real estate construction line items in Table 10 above. In 2008, Income CRE and Residential CRE averaged $3.7 billion as compared to $4.1 billion in 2007.

Income CRE loans increased $133.5 million or 7 percent which was the result of loan growth in the first half of 2008 and comprised 19 percent of total commercial loans. Average loan growth in 2008 was largely generated within the Regional Bank.

FIRST HORIZON NATIONAL CORPORATION

Residential CRE consists of loans to developers to finance land, land acquisition and development, and vertical construction of attached and detached single family residences (including condominiums). Residential CRE comprised 15 percent of commercial loans in 2008. Approximately two-thirds of the Residential CRE portfolio was generated by the national construction lending platform, with the remaining through the Regional Bank. Residential CRE loans decreased 24 percent or $541.2 million from 2007 due to the wind-down of national construction lending products and higher charge-offs since 2007. Additional commercial loan information is provided in Table 11.

Residential real estate loans (inclusive of real estate loans pledged against other collateralized borrowings) comprised 83 percent of the retail loan portfolio in 2008 and 78 percent in 2007. This category of loans includes first and second-lien home equity lines and loans and residential first mortgages. This portfolio increased 4 percent or $313.2 million as a result of approximately $600 million of permanent mortgages that were transferred from held for sale to the loan portfolio throughout 2008. The one time close (OTC) portfolio comprised 14 percent of the retail portfolio in 2008 compared to 19 percent in 2007 and contracted by $594.2 million consistent with the discontinuation of national construction lending. These loans were provided for construction and permanent mortgage financing to individuals for the purpose of constructing a home.

The credit card and other retail portfolios (automobile and other retail installment loans requiring periodic payments of principal and interest) are relatively modest in size and declined 4 percent in 2008.

The commercial and retail construction and home equity portfolios are expected to continue to contract in 2009 due to conditions in the housing market and FHN’s strategic goal to reduce real estate concentrations in general. This contraction will likely more than offset new loan production.

Table 11 - Contractual Maturities of Commercial Loans on December 31, 2008


(Dollars in thousands)	Within 1 Year			After 1 Year Within 5 Years			After 5 Years			Total

Commercial, financial and industrial		$	3,824,664		$	2,931,638		$	1,107,425		$	7,863,727
Real estate commercial			595,840			687,174			171,026			1,454,040
Real estate construction			1,443,699			334,441			-			1,778,140

Total commercial loans, net of unearned income		$	5,864,203		$	3,953,253		$	1,278,451		$	11,095,907

For maturities over one year:
Interest rates – floating					$	2,817,344		$	647,299		$	3,464,643
Interest rates – fixed						1,135,909			631,152			1,767,061

Total					$	3,953,253		$	1,278,451		$	5,231,704

Investment Securities

The investment portfolio of FHN consists principally of debt securities used as a source of income, liquidity and collateral for repurchase agreements or public fund deposits. Additionally, the investment portfolio is used as a tool to manage risk from movements in interest rates. As of December 31, 2008, all securities in the portfolio were classified as available-for-sale (AFS). Table 12 shows information pertaining to the composition, yields and contractual maturities of the investment securities portfolio.

Investment securities averaged $3.0 billion in 2008 compared to $3.4 billion in 2007 and represented 10 percent of earning assets in both 2008 and 2007.

On December 31, 2008, AFS securities totaled $3.1 billion and consisted of government agency issued mortgage-backed securities (MBS), government agency issued collateralized mortgage obligations (CMO), U.S. Treasuries, U.S. government agencies, municipal bonds, and equity securities. On December 31, 2008, these securities had $69.2 million of net unrealized gains that resulted in an increase in book equity of $42.8 million, net of $26.4 million of deferred income taxes. See Note 3 – Investment Securities for additional detail. On December 31, 2007, AFS securities totaled $3.0 billion and had $33.5 million of net unrealized gains that resulted in an increase in book equity of $20.5 million, net of $13.0 million of deferred income taxes.

FIRST HORIZON NATIONAL CORPORATION

Table 12 - Contractual Maturities of Investment Securities on December 31, 2008 (Amortized Cost)


(Dollars in thousands)	Within 1 Year						After 1 Year Within 5 Years						After 5 Years Within 10 Years						After 10 Years
	Amount			Yield			Amount			Yield			Amount			Yield			Amount				Yield

Total securities held to maturity		$	-		-	%		$	-		-	%		$	-		-	%		$	-			-	%

Securities available for sale (AFS):
Government agency issued MBS and CMO**		$	-		-	%		$	-		-	%		$	135,913		6.16	%		$	2,385,073			6.04	%
U.S. Treasuries			7,995		0.73				39,916		2.18				-		-				-			-
Other U.S. government agencies			-		-				22,567		4.45				108,649		5.67				-			-
States and municipalities*			-		-				1,650		2.55				6,890		3.61				57,375			3.22
Other			1,366		10.00				848		4.93	%			-		-				287,663	***		4.88

Total		$	9,361		2.08	%		$	64,981		2.95	%		$	251,452		5.88	%		$	2,730,111			5.86	%

Weighted average yields on tax-exempt obligations have been computed by adjusting allowable tax-exempt income to a fully taxable equivalent basis.

Represents government agency-issued mortgage-backed securities and collateralized mortgage obligations which, when adjusted for early paydowns, have an estimated average life of 1.41 years.

***

Represents equity securities with no stated maturity.

Loans Held for Sale/Loans Held for Sale – Divestiture

Loans held for sale consists of the mortgage warehouse, student loans, small business loans, and home equity loans. Small issuer trust preferred loans were included in average loans held for sale through the third quarter 2008. The mortgage warehouse accounted for the majority of loans held for sale during 2008, but declined in the latter half of 2008 as a result of the sale of national mortgage origination offices to MetLife. Loans held for sale represented 9 percent of total earning assets in 2008 compared with 12 percent in 2007. During 2008 loans held for sale averaged $2.6 billion, a decrease of 33 percent, or $1.3 billion from 2007. This decline is primarily related to a smaller warehouse as the national mortgage origination platform was sold in August 2008 and the remaining warehouse is contracting. Also impacting the decrease were moves of first and second-lien mortgages and small issuer trust preferred loans to the loan portfolio throughout 2008. Since mortgage warehouse loans and other loans held for sale are generally held in inventory for a short period of time, there may be significant differences between average and period-end balances. On December 31, 2008, there were no loans classified as held for sale – divestiture although these loans averaged $110.4 million as FHN completed the final First Horizon Bank branch sale in the second quarter 2008.

Trading Securities/Other Earning Assets

Trading securities decreased 30 percent to $1.9 billion in 2008 from $2.7 billion in 2007 primarily as a result of trading inventory management initiatives beginning in 2007. Other earning assets, which are comprised of securities purchased under agreements to resell, federal funds sold and interest-bearing deposits with other financial institutions, decreased slightly by 3 percent to $1.3 billion in 2008 from $1.4 billion in 2007 due to lower levels of securities purchased under agreements to resell in Capital Markets. Offsetting this decline was an increase in interest bearing cash as the Federal Reserve began paying interest on these deposits in the fourth quarter 2008.

CORE DEPOSITS

During 2008, core deposits decreased 4 percent, or $512.6 million and averaged $12.9 billion. Interest-bearing core deposits increased 4 percent or $319.2 million to an average balance of $8.6 billion in 2008. Growth in interest-bearing core deposits is primarily due to growth in savings deposits. Noninterest- bearing core deposits averaged $4.3 billion in 2008 and $5.1 billion in 2007 as custodial deposits were transferred when the related serviced loans were sold in 2008 and competition for deposits increased in 2008.

SHORT-TERM PURCHASED FUNDS/LONG-TERM DEBT

Short-term purchased funds (certificates of deposit greater than $100,000, federal funds purchased, securities sold under agreements to repurchase, trading liabilities, commercial paper, and other short-term borrowings), averaged

FIRST HORIZON NATIONAL CORPORATION

$11.3 billion for 2008, down 20 percent from $14.0 billion in 2007. The decrease was primarily driven by a decline in purchased CD’s as FHN focused on lower cost more stable funding sources such as the Federal Reserve term-auction facility and Federal Home Loan Bank borrowings. Purchased federal funds also decreased as lending among financial institutions tightened in 2008. Short-term purchased funds accounted for 37 percent of FHN’s funding (core deposits plus purchased funds and term borrowings) in 2008, and 41 percent in 2007. See Note 9 – Short-Term Borrowings for additional information.

Long-term debt includes senior and subordinated borrowings and advances with original maturities greater than one year. Average long-term debt decreased 7 percent, or $459.1 million, and averaged $6.1 billion in 2008. As of December 31, 2008, long-term debt was $4.8 billion, a decrease of 30 percent, or $2.1 billion from 2007 year-end. The decrease was the result of bank note maturities and repurchases as funding needs decreased due to asset contraction. See Note 10 – Long-Term Debt for additional information.

INCOME STATEMENT REVIEW – 2007 COMPARED TO 2006

A net loss was reported for 2007 of $170.1 million, or $1.29 diluted earnings per share. Earnings for 2006 were $462.9 million, or $3.45 diluted earnings per share. Return on average shareholders’ equity and return on average assets for 2007 were (7.02) percent and (.45) percent, respectively, compared to 19.1 percent and 1.19 percent in 2006.

There was no cumulative effect of a change in accounting principle adjustment that impacted results in 2007. Earnings in 2006 included a favorable impact of $1.3 million (net of tax) or $.01 per diluted share from the cumulative effect of a change in accounting principle. FHN adopted SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123-R) in 2006 and retroactively applied the provisions of the standard. A cumulative effect adjustment of $1.1 million was recognized, reflecting the change in accounting for share-based compensation expense based on estimated forfeitures rather than actual forfeitures. In 2006, FHN also adopted SFAS No. 156, “Accounting for Servicing of Financial Assets,” which allows servicing assets to be measured at fair value with changes in fair value reported in current earnings. The adoption of this standard was applied on a prospective basis and resulted in a cumulative effect adjustment of $.2 million, representing the excess of the fair value of the servicing asset over the recorded value on January 1, 2006.

Comparisons between reported earnings are directly and significantly affected by a number of factors in both 2007 and 2006. Several significant items including housing and credit market disruptions, increased provisioning, restructuring, repositioning and efficiency initiatives, and goodwill impairment impacted FHN’s performance in 2007. The sale of FHN’s national merchant processing business and related transactions had a significant impact on 2006 results. Further details on these and other items of significance impacting 2006 are presented below.

Following an updated valuation based on strategic cash flow projections and market-to-book values, FHN incurred a fourth quarter 2007 non-cash pre-tax impairment charge of $71.1 million for the write-down of goodwill associated with the Mortgage Banking business segment. FHN engaged an independent valuation firm to assist in computing the fair value estimate for the impairment assessment by utilizing two separate valuation methodologies and applying a weighted average to each methodology in order to determine fair value for the Mortgage Banking business segment. The valuation methodologies utilized included a discounted cash flow valuation technique and a comparison of the average price to book value of comparable businesses.

Throughout 2007, FHN conducted an ongoing, company-wide review of business practices with the goal of improving overall profitability and productivity. Management announced its intention to sell 34 full-service First Horizon Bank branches in its national banking markets, as well as plans to right size First Horizon Home Loans’ mortgage banking operations and balance sheet utilization and to downsize national lending operations, in order to redeploy capital to higher-return businesses. Total net charges of $98.7 million were recognized in 2007 related to restructuring, repositioning and efficiency initiatives. See Table 1 for further details.

Also impacting results in 2007 were $55.7 million of expenses associated with the recognition of a contingent guarantee related to Visa’s litigation matters.

FIRST HORIZON NATIONAL CORPORATION

Net interest income declined to $940.6 million in 2007 compared to $996.9 million in 2006 as earning assets declined 2 percent to $33.4 billion and interest-bearing liabilities declined 1 percent to $28.9 billion in 2007. Net interest margin was 2.82 percent for 2007 compared to 2.93 in 2006. The decline in the margin was primarily attributable to competitive pricing pressure in a contracting national housing market, additional non-accrual construction loans, and higher deposit rates in Tennessee markets.

Noninterest income contributed 48 percent to total revenue in 2007 compared to 54 percent in 2006. Capital markets noninterest income decreased to $334.4 million in 2007 from $383.0 million in 2006. Revenues from fixed income sales increased $37.5 million from 2006 while revenues from other products decreased $86.2 million.

Mortgage banking noninterest income decreased 81 percent in 2007 to $69.5 million from $370.6 million in 2006. Net revenue from origination activity decreased 62 percent to $118.4 million in 2007 from $308.1 million in 2006 reflecting declines in gain on sales margins experienced in 2007 as a result of secondary market disruptions causing significant spread-widening on ARM and nonagency eligible production throughout the second half of the year. Net servicing income decreased $106.4 million or 284 percent in 2007. Total fees associated with mortgage servicing decreased 5 percent in 2007 to $311.4 million as the change in PSA reduced income by $36.2 million offset by an increase in the average portfolio. Servicing hedging activities and changes in MSR value other than runoff negatively impacted net servicing revenues by $133.5 million in 2007 as compared to 2006. In 2007, there was a reduction of approximately $135 million in the carrying value of servicing assets primarily associated with increased weighting of broker quotes and observable trading data. Additionally, the change in the value of MSR due to runoff increased net revenues by $43.9 million in 2007 as compared to 2006 of which $19.7 million is attributable to the change in PSA mentioned above.

Noninterest income from deposit transactions and cash management increased to $175.3 million in 2007 from $168.6 million in 2006, reflecting increased NSF charges and corporate cash management fees. Noninterest income from loans sales and securitizations decreased to $23.9 million in 2007 from $51.7 million in 2006 primarily due to market disruptions experienced during the second half of 2007 which resulted in reduced volume delivered into the secondary market and valuation adjustments on related servicing assets. Results for 2006 included the loss of $12.7 million from the sale of no-balance HELOC. Noninterest income from insurance commissions decreased to $31.7 million in 2007 from $46.6 million in 2006 due to the sale of two insurance subsidiaries in 2006. Gains on divestitures of $15.7 million were recognized in 2007 related to the sale of certain First Horizon bank branches. Net securities losses of $1.2 million were recognized in 2007 primarily related to changes in the investment portfolio. In 2006, $65.6 million of net securities losses were principally related to restructuring the investment portfolio in first quarter as well as net securities gains from the sale of MasterCard Inc. securities and venture capital investments. All other income remained flat at $170.4 million in 2007 compared to $170.5 million in 2006. Other income was negatively impacted incrementally by $16.8 million related to LOCOM and other consumer lending adjustments.

Total noninterest expense for 2007 increased 6 percent to $1.8 billion from $1.7 billion in 2006. Personnel expense decreased 5 percent to $968.1 million from $1.0 billion in 2006 primarily due to restructuring, repositioning, and efficiency initiatives and reductions in personnel expense in Regional Banking, Mortgage Banking, and Capital Markets directly related to revenue contraction. Occupancy costs increased 12 percent or $14.5 million primarily due to restructuring initiatives. In 2007, FHN recognized goodwill impairments of $13.0 million related to certain First Horizon bank branches and $71.1 million for the Mortgage Banking segment. All other noninterest expense, which includes advertising and public relations costs, computer software expense, travel and entertainment, contract employment, and various other expense items (see Table 9 for additional detail) increased 36 percent, or $33.9 million in 2007. This increase included the $55.7 million related to FHN’s proportionate share of Visa’s various legal matters. Computer software, legal and professional fees, and other expenses in 2007 were incurred in FHN’s restructuring, repositioning, and efficiency initiatives.

The provision for loan losses increased 228 percent to $272.8 million in 2007 from $83.1 million in 2006. The increase primarily reflects deterioration in the national residential real estate construction portfolios (one-time close retail real estate construction loans extended to consumers and loans to homebuilders, including condominium construction loans).

FIRST HORIZON NATIONAL CORPORATION

STATEMENT OF CONDITION REVIEW – 2007 COMPARED TO 2006

During 2007, earning assets averaged $33.4 billion compared with $34.0 billion for 2006. Average earning assets were 88 percent of total average assets in 2007 and 2006. Average loans increased 3 percent to $22.1 billion during 2007 as retail loans decreased by 2 percent which was more than offset by growth in commercial loans of 8 percent. Average loans represented 66 percent of average earning assets in 2007 compared to 63 percent in 2006.

Commercial, financial and industrial loans increased 7 percent in 2007, or $435.0 million, reflecting growth in the regional middle market portfolio. Income commercial real estate (Income CRE) and residential commercial real estate (Residential CRE) averaged $4.1 billion in 2007 as compared to $3.7 billion in 2006. The Income CRE portfolio increased $260.1 million or 16 percent in 2007. Residential CRE grew $149.9 million or 7 percent in 2007. The residential real estate loan portfolio (including real estate loans pledged against other collateralized borrowings) decreased by 4 percent, or $306.3 million in 2007 as a result of the strategic plan to sell a significant portion of new production through the first half of 2007, and a decrease in production related to policy and strategic changes restricting production beginning in third quarter 2007. The retail real estate construction portfolio increased 3 percent or $61.0 million in 2007.

Investment securities averaged $3.4 billion in 2007 and $3.5 billion in 2006. Investment securities represented 10 percent of earning assets in 2007 and 2006.

Loans held for sale represented 12 percent of total earning assets in 2007 compared with 13 percent in 2006. During 2007 loans held for sale averaged $3.9 billion, a decrease of 11 percent, or $.5 billion from 2006. This decline was related to lower levels of HELOC, second lien, small issuer trust preferred and mortgage warehouse loans held for sale.

Trading securities decreased 5 percent to $2.7 billion in 2007 from $2.8 billion in 2006. Other earning assets decreased 28 percent to $1.4 billion in 2007 from $1.9 billion in 2006 due to lower levels of securities purchased under agreements to resell in Capital Markets.

During 2007, core deposits increased 3 percent, or $417.5 million, and averaged $13.4 billion. Interest-bearing core deposits increased 6 percent or $487.4 million to an average balance of $8.3 billion in 2007. Growth in interest-bearing core deposits was primarily due to growth in savings deposits. Average noninterest-bearing core deposits decreased slightly from $5.2 billion in 2006 to $5.1 billion in 2007.

Short-term purchased funds averaged $14.0 billion for 2007, down 15 percent from $16.4 billion in the previous year. Long-term borrowings increased 30 percent, or $1.5 billion, and averaged $5.6 billion in 2007. The increase in term borrowings was utilized to fund loan growth.

CAPITAL

Management’s objectives are to provide capital sufficient to cover the risks inherent in FHN’s businesses, to maintain excess capital to well-capitalized standards, and to assure ready access to the capital markets. In the second quarter of 2008, FHN completed a public offering of 69 million shares of common stock. In the fourth quarter 2008, FHN completed the issuance and sale of preferred stock and a common stock warrant under the U.S. Treasury Capital Purchase Program which generated $866.5 million of proceeds. To conserve FHN’s capital, the quarterly cash dividend was replaced with a quarterly stock dividend at a rate to be determined quarterly.

Average shareholders’ equity increased to $2.6 billion in 2008 from $2.4 billion in 2007 which was flat compared to 2006. Shareholders’ equity was $3.3 billion at year-end 2008, an increase of 54 percent from 2007, which decreased 13 percent from year-end 2006. The increase in shareholders’ equity during 2008 was a result of the second quarter stock issuance that generated approximately $660 million of net proceeds and the proceeds from the CPP preferred issuance. As a result of these equity issuances, shareholder’s equity increased despite a reported net loss and cash dividends paid in 2008. Pursuant to board authority, FHN may repurchase shares from time to time and will evaluate the level of capital and take action designed to generate or use capital, as

FIRST HORIZON NATIONAL CORPORATION

appropriate, for the interests of the shareholders, subject to legal, regulatory, and CPP constraints. In order to maintain FHN’s well-capitalized status while sustaining strong balance sheet growth, FTBNA issued approximately $250 million of subordinated notes which qualify as Tier 2 capital under the risk-based capital guidelines in 2006. FHN also repurchased 4 million shares of its common stock in 2006 through an accelerated share repurchase program under an existing share repurchase authorization. This share repurchase program was concluded for an adjusted purchase price of $165.1 million. The share repurchase was funded with a portion of the proceeds from the merchant processing sale.

Table 13 - Capital Ratios


	2008			2007			2006

Average shareholders’ equity to average assets		7.66	%		6.35	%		6.25	%
Period-end shareholders’ equity to assets		10.57			5.77			6.49
FHN’s tier 1 risk-based capital		15.03			8.12			8.87
FHN’s total risk-based capital		20.19			12.75			13.21
FHN’s leverage ratio		12.22			6.64			6.94
Tangible common equity to risk weighted assets ratio		8.80			6.16			6.96
Tangible common equity to tangible assets ratio		7.34			5.13			5.65

Banking regulators define minimum capital ratios for bank holding companies and their bank subsidiaries. Based on the capital rules and definitions prescribed by the banking regulators, should any depository institution’s capital ratios decline below predetermined levels, it would become subject to a series of increasingly restrictive regulatory actions. The system categorizes a depository institution’s capital position into one of five categories ranging from well-capitalized to critically under-capitalized. For an institution to qualify as well-capitalized, Tier 1 Capital, Total Capital and Leverage capital ratios must be at least 6 percent, 10 percent and 5 percent, respectively. As of December 31, 2008, FHN and FTBNA had sufficient capital to qualify as well-capitalized institutions as shown in Note 13 – Regulatory Capital. In 2009, capital ratios are expected to remain strong and significantly above well-capitalized standards despite a difficult operating environment.

Table 14 - Issuer Purchases of Equity Securities


(Volume in thousands)	Total Number of Shares Purchased			Average Price Paid per Share			Total Number of Shares Purchased as Part of Publicly Announced Programs			Maximum Number of Shares that May Yet Be Purchased Under the Programs

2008
October 1 to October 31		-				NA		-			37,417
November 1 to November 30			*			8.39			*		37,417
December 1 to December 31		4				10.33		4			37,413

Total		4			$	10.33		4

* Amount is less than 500 shares

Compensation Plan Programs:

–

A consolidated compensation plan share purchase program was announced on August 6, 2004. This plan consolidated into a single share purchase program all of the previously authorized compensation plan share programs as well as the renewal of the authorization to purchase shares for use in connection with two compensation plans for which the share purchase authority had expired. The total amount originally authorized under this consolidated compensation plan share purchase program is 25.1 million shares. On April 24, 2006, an increase to the authority under this purchase program of 4.5 million shares was announced for a new total authorization of 29.6 million shares. Effective October 1, 2008, the authority was increased to reflect the 3.0615% stock dividend distributed effective October 1, 2008. The shares may be purchased over the option exercise period of the various compensation plans on or before December 31, 2023. Stock options granted after January 2, 2004, must be exercised no later than the tenth anniversary of the grant date. On December 31, 2008, the maximum number of shares that may be purchased under the program was 29.7 million shares.

Other Programs:

–

On October 16, 2007, the board of directors approved a 7.5 million share purchase authority that will expire on December 31, 2010. Effective October 1, 2008, the authority was increased to reflect the 3.0615% stock dividend distributed effective October 1, 2008. Purchases will be made in the open market or through privately negotiated transactions and will be subject to market conditions, accumulation of excess

FIRST HORIZON NATIONAL CORPORATION

equity, prudent capital management, and legal and regulatory constraints. Until the third anniversary of the sale of the preferred shares issued in the CPP, FHN may not repurchase common or other equity shares (subject to certain limited exceptions) without the UST’s approval. This authority is not tied to any compensation plan, and replaces an older non-plan share purchase authority which was terminated. On December 31, 2008, the maximum number of shares that may be purchased under the program was 7.7 million shares.

On December 31, 2008, book value per common share was $12.13 compared to $16.03 for 2007 and $18.68 for 2006. Average shares for the three-year period were 180.7 million in 2008, 132.1 million in 2007 and 130.6 million in 2006. Period-end shares outstanding for this same three-year period were 205.3 million, 132.6 million and 131.1 million, respectively. FHN’s shares are traded on The New York Stock Exchange under the symbol FHN. The sales price ranges, net income/(loss) available to common shareholders per share and dividends declared by quarter, for each of the last two years, are presented in Table 27. All per share information has been adjusted for the stock dividends declared in July and October 2008.

RISK MANAGEMENT

FHN has an enterprise-wide approach to risk governance, measurement, management, and reporting including an economic capital allocation process that is tied to risk profiles used to measure risk-adjusted returns. The Enterprise-wide Risk/Return Management Committee oversees risk management governance. Committee membership includes the CEO and other executive officers of FHN. The Chief Risk Officer oversees reporting for the committee. Risk management objectives include evaluating risks inherent in business strategies, monitoring proper balance of risks and returns, and managing risks to minimize the probability of future negative outcomes. The Enterprise-wide Risk/Return Management Committee oversees and receives regular reports from the Credit Risk Management Committee, Asset/Liability Committee (ALCO), Capital Management Committee, Compliance Risk Committee, Operational Risk Committee, and the Executive Program Governance Forum. The Chief Credit Officer, EVP Funds Management and Corporate Treasurer, Chief Financial Officer, SVP Corporate Compliance, Chief Risk Officer, and EVP and Chief Information Officer chair these committees respectively. Reports regarding Credit, Asset/Liability Management, Market Risk, Capital Management, Compliance, and Operational Risks are provided to the Credit Policy and Executive and/or Audit Committee of the Board and to the full Board. In response to FHN’s participation in the U.S. Treasury’s Troubled Asset Relief Program (TARP), the Compensation Committee, Chief Risk Officer, and Chief Credit Officer convene annually to review and assess key business risks and the relation of those risks to compensation and incentives plans in which named executives participate. The first of such meetings occurred in January 2009.

Risk management practices include key elements such as independent checks and balances, formal authority limits, policies and procedures, and portfolio management all executed through experienced personnel. The Internal Audit Department, Credit Risk Assurance Group, Credit Policy and Regulations Group, and Credit Portfolio Management Group also evaluate risk management activities. These evaluations are reviewed with management and the Audit Committee, as appropriate.

MARKET UNCERTAINTIES AND PROSPECTIVE TRENDS

Given the significant current uncertainties that exist within the housing and credit markets, it is anticipated that 2009 will continue to be challenging for FHN. While the reduction of mortgage banking operations is expected to significantly decrease sensitivity to market pricing uncertainty, FHN will continue to be affected by market factors as it disposes of the remaining mortgage loan warehouse and attempts to reduce the remaining servicing portfolio. In addition, current volatility and reduced liquidity in the capital markets may adversely impact market execution putting continued pressure on revenues. As difficulties in the credit markets persist, FHN will continue to adapt its liquidity management strategies. Further deterioration of general economic conditions could result in increased credit costs depending on the length and depth of this market cycle.

INTEREST RATE RISK MANAGEMENT

Interest rate risk is the risk that changes in prevailing interest rates will adversely affect assets, liabilities, capital, income and/or expense at different times or in different amounts. ALCO, a committee consisting of senior management that meets regularly, is responsible for coordinating the financial management of interest rate risk.

FIRST HORIZON NATIONAL CORPORATION

FHN primarily manages interest rate risk by structuring the balance sheet to attempt to maintain the desired level of associated earnings while operating within prudent risk limits and thereby preserving the value of FHN’s capital.

Net interest income and the financial condition of FHN are affected by changes in the level of market interest rates as the repricing characteristics of loans and other assets do not necessarily match those of deposits, other borrowings and capital. When earning assets reprice more quickly than liabilities, net interest income will benefit in a rising interest rate environment and will be negatively impacted when interest rates decline. In the case of floating rate assets and liabilities with similar repricing frequencies, FHN may also be exposed to basis risk which results from changing spreads between earning and borrowing rates. Generally, when interest rates decline, Mortgage Banking faces increased prepayment risk associated with MSR.

FHN uses simulation analysis as its primary tool to evaluate interest rate risk exposure. This type of analysis computes net interest income at risk under a variety of market interest rate scenarios to dynamically identify interest rate risk exposures. This simulation, which considers forecasted balance sheet changes, prepayment speeds, deposit mix, pricing impacts, and other changes in the net interest spread, provides an estimate of the annual net interest income at risk for given changes in interest rates. The results help FHN develop strategies for managing exposure to interest rate risk. Like any forecasting technique, interest rate simulation modeling is based on a number of assumptions and judgments. In this case, the assumptions relate primarily to loan and deposit growth, asset and liability prepayments, interest rates, and on- and off-balance sheet hedging strategies. Management believes the assumptions used in its simulations are reasonable. Nevertheless, simulation modeling provides only a sophisticated estimate, not a precise calculation of exposure to changes in interest rates.

The simulation models used to analyze the regional bank’s net interest income create various at-risk scenarios looking at increases and/or decreases in interest rates from an instantaneous movement or a staggered movement over a certain time period. In addition, the risk of changes in the yield curve is estimated by flattening and steepening the yield curve to historical levels. These hypothetical rate moves are used to simulate net interest income exposure to historically extreme movements in interest rates. Management reviews these different scenarios to determine alternative strategies and executes based on that evaluation. The models are regularly updated to incorporate management action. Any scenarios that indicate a change in net interest income of three percent or more from a base NII are presented to the Board quarterly. At December 31, 2008 the interest rate environment was at an unprecedented low level. Under these market conditions, traditional scenarios forecasting declining rates are no longer meaningful. Accordingly, declining rate shock scenarios (including minus 25 basis points and minus 200 basis points) that had been modeled in prior periods were not performed. The remaining scenarios performed attempt to capture risk to NII from rising rates and changes in the shape of the yield curve. Based on the rate sensitivity position on December 31, 2008, net interest income exposure over the next 12 months to a rate shock of plus 200 basis points is estimated to be a favorable variance of approximately 7 percent of base net interest income. A flattening yield curve scenario results in a favorable variance in net interest income of approximately 2 percent. Both of these are hypothetical rate scenarios. These scenarios are used as one estimate of risk, and do not necessarily represent management’s current view of future interest rates or market developments. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions, and management’s strategies, among other factors, including those presented in the Forward-Looking Statements section of this MD&A.

The simulation models used to analyze Regional Banking’s net interest income exclude the potential impacts to certain elements of Mortgage Banking’s net interest income. Net interest income earned on swaps and similar derivative instruments used to protect the value of MSR increases when the yield curve steepens and decreases when the yield curve flattens. Other than the impact related to the immediate change in market value of balance sheet accounts, such as MSR, these simulation models and related hedging strategies exclude the dynamics related to how fee income and noninterest expense may be affected by actual changes in interest rates or expectations of changes. Due to the third quarter 2008 sale of certain mortgage banking operations, Mortgage Banking revenue mix was significantly impacted. In 2006, 2007 and through August 2008, Mortgage Banking revenue was primarily generated from originating, selling and servicing residential mortgage loans and was highly sensitive to changes in interest rates due to the direct effect changes in interest rates have on loan demand. After the third quarter divestiture, Mortgage Banking income was primarily composed of servicing residential mortgage loans and fair value adjustments to the remaining warehouse. In general, low or declining interest rates typically lead to increased origination fees and profit from the sale of loans but potentially lower servicing-related income

FIRST HORIZON NATIONAL CORPORATION

due to the impact of higher loan prepayments on the value of mortgage servicing assets. Conversely, high or rising interest rates typically reduce mortgage loan demand and hence income from originations and sales of loans while servicing-related income may rise due to lower prepayments. Net interest income earned on warehouse loans held for sale and on swaps and similar derivative instruments used to protect the value of MSR increases when the yield curve steepens and decreases when the yield curve flattens or inverts. Prior to the sale of certain mortgage banking operations to MetLife, the earnings impact from originations and sales of loans on total earnings was more significant than servicing-related income. Given the repositioning of mortgage banking operations in third quarter 2008, the origination activity has been significantly reduced thereby reducing interest rate risk exposure.

Lastly, a steepening yield curve positively impacts the demand for fixed income securities and, therefore, Capital Markets’ revenue.

Generally, the effects of a steepening yield curve on FHN’s consolidated pre-tax income are positive, especially when driven by falling short term rates, benefiting Capital Markets’ and Mortgage Banking’s results.

As a result of the MetLife transaction, mortgage banking origination activity was significantly reduced in periods after third quarter 2008 as FHN focuses on origination within its regional banking footprint. Accordingly, the following discussion of pipeline and warehouse related derivatives is primarily applicable to reporting periods occurring through the third quarter 2008.

To determine the amount of interest rate risk and exposure to changes in fair value of loan commitments, warehouse loans and MSR, Mortgage Banking uses multiple scenario rate shock analysis, including the magnitude and direction of interest rate changes, prepayment speeds, and other factors that could affect mortgage banking. In certain cases, derivative financial instruments are used to aid in managing the exposure of the balance sheet and related net interest income and noninterest income to changes in interest rates. As discussed in Critical Accounting Policies, derivative financial instruments are used by mortgage banking for two purposes. First, forward sales contracts and futures contracts are used to protect against changes in fair value of the pipeline and mortgage warehouse, primarily used from the time an interest rate is committed to the customer until the mortgage is sold into the secondary market due to increases in interest rates. Second, interest rate contracts are utilized to protect against MSR prepayment risk that generally accompanies declining interest rates. As interest rates fall, the value of MSR should decrease and the value of the servicing hedge should increase. The converse is also true. Prior to the January 1, 2006, adoption of SFAS No. 156, ineffectiveness in these hedging strategies (when changes in the value of the derivative instruments did not match changes in the value of the hedged portion of MSR for any given change in long-term interest rates) was reflected in noninterest income. Subsequent to the adoption of SFAS No. 156, mortgage servicing noninterest income reflects the change in fair value of the MSR asset combined with net economic hedging results.

Derivative instruments are also used to protect against the risk of loss arising from adverse changes in the fair value of a portion of Capital Markets’ securities inventory due to changes in interest rates. FHN does not use derivative instruments to protect against changes in fair value of loans or loans held for sale other than the mortgage pipeline, warehouse and certain small issuer trust preferred loans.

Management uses the results of interest rate exposure models to formulate strategies to improve balance sheet positioning, earnings, or both, within FHN’s interest rate risk, liquidity and capital guidelines.

Table 15 details the interest rate sensitivity profile on December 31, 2008, on capital markets trading securities based on projected cash flows categorized by anticipated settlement date and mortgage banking trading securities categorized by expected maturity dates. Also provided are the average rates earned on these trading securities. Table 15 also provides both the notional and fair values of derivative financial instruments held for trading. The information provided in this section, including the discussion regarding simulation analysis and rate shock analysis, is forward-looking. Actual results could differ because of interest rate movements, the ability of management to execute its business plans and other factors, including those presented in the Forward-Looking Statements section of this MD&A.

FIRST HORIZON NATIONAL CORPORATION

Table 15 - Risk Sensitivity Analysis


*Held for Trading* (Dollars in millions)	2009				2010				2011				2012				2013				2014+				Total				Fair Value

Assets:
Trading securities		$	781				-				-				-				-			$	165			$	946			$	946
Average interest rate			4.03	%			-				-				-				-				13.99	%			5.77	%

Interest Rate Derivatives (notional value):
*Capital Markets:*
Forward contracts:
Commitments to buy		$	4,567				-				-				-				-				-			$	4,567			$	(28	)
Weighted average settlement price			101.24	%			-				-				-				-				-				101.24	%
Commitments to sell		$	4,750				-				-				-				-				-			$	4,750			$	28
Weighted average settlement price			101.18	%			-				-				-				-				-				101.18	%
Caps purchased		$	10			$	20				-				-				-			$	16			$	46					*
Weighted average strike price			5.75	%			4.25	%			-				-				-				7.16	%			5.59	%
Caps written		$	(10	)		$	(20	)			-				-				-			$	(16	)		$	(46	)				*
Weighted average strike price			5.75	%			4.25	%			-				-				-				7.16	%			5.59	%
Floors purchased		$	20			$	50			$	150			$	10				-				-			$	230			$	11
Weighted average strike price			7.75	%			6.20	%			6.50	%			5.50	%			-				-				6.50	%
Floors written		$	(20	)		$	(50	)		$	(150	)		$	(10	)			-				-			$	(230	)		$	(11	)
Weighted average strike price			7.75	%			6.20	%			6.50	%			5.50	%			-				-				6.50	%
Swap contracts purchased		$	43			$	107			$	282			$	336			$	215			$	170			$	1,153			$	(89	)
Average pay rate (fixed)			6.70	%			6.23	%			5.72	%			5.21	%			5.51	%			5.28	%			5.55	%
Average receive rate (floating)			4.89	%			3.60	%			3.78	%			2.72	%			3.03	%			3.21	%			3.27	%
Swap contracts purchased		$	270			$	45			$	75				-				-				-			$	390			$	12
Average pay rate (floating)			4.03	%			3.66	%			3.82	%			-				-				-				3.95	%
Average receive rate (fixed)			7.60	%			4.89	%			6.12	%			-				-				-				7.00	%
Swap contracts sold		$	(43	)		$	(107	)		$	(282	)		$	(155	)		$	(165	)		$	(157	)		$	(909	)		$	61
Average pay rate (floating)			4.89	%			3.60	%			3.78	%			3.58	%			3.39	%			3.47	%			3.65	%
Average receive rate (fixed)			6.70	%			6.23	%			5.72	%			5.48	%			5.99	%			5.71	%			5.83	%
Swap contracts sold		$	(270	)		$	(45	)		$	(75	)			-				-				-			$	(390	)		$	(12	)
Average pay rate (fixed)			7.60	%			4.89	%			6.12	%			-				-				-				7.00	%
Average receive rate (floating)			4.03	%			3.66	%			3.82	%			-				-				-				3.95	%
Futures contracts:
Commitments to sell		$	4			$	4				-				-				-				-			$	8					*
Weighted average settlement price			98.79	%			98.17	%			-				-				-				-				98.48	%

* Amount is less than $500,000

LIQUIDITY MANAGEMENT
ALCO focuses on the funding of assets with liabilities of the appropriate duration, while mitigating the risk of not meeting unexpected cash needs. The objective of liquidity management is to ensure the continuous availability of funds to meet the demands of depositors, other creditors and borrowers, and the requirements of ongoing operations. This objective is met by maintaining liquid assets in the form of trading securities and securities available for sale, growing core deposits, and the repayment of loans. ALCO is responsible for managing these needs by taking into account the marketability of assets; the sources, stability and availability of funding; and the level of unfunded commitments. See Note 26 – Derivatives and Off-Balance Sheet Arrangements for additional information. Subject to market conditions and compliance with applicable regulatory requirements from time to time, funds are available from a number of sources, including core deposits, the securities available for sale portfolio, the Federal Home Loan Bank (FHLB), the Federal Reserve Banks, access to Federal Reserve Bank programs such as the Term Auction Facility (TAF), availability to the overnight and term Federal Funds markets, and dealer and commercial customer repurchase agreements.

Core deposits are a significant source of funding and have been a stable source of liquidity for banks. The Federal Deposit Insurance Corporation insures these deposits to the extent authorized by law. Total loans, excluding loans held for sale and real estate loans pledged against other collateralized borrowings, to core deposits ratio was 160 percent in 2008, 156 percent in 2007, and 157 percent in 2006. Should loan growth exceed core deposit growth, alternative sources of funding loan growth may be necessary in order to maintain an adequate liquidity position. The ratio is expected to continue to decline as the national construction loan portfolios decrease.

In 2005, FTBNA established a bank note program providing additional liquidity of $5.0 billion. On December 31, 2008, $2.5 billion was outstanding through the bank note program with $1.6 billion scheduled to mature in 2009.

FIRST HORIZON NATIONAL CORPORATION

During 2008 and continuing into early 2009, market and other conditions have been such that FTBNA has not been able to utilize the bank note program, and instead has obtained less credit sensitive sources of funding including secured sources such as FHLB borrowings and Federal Reserve Term Auction Facility (TAF). FTBNA expects that its inability to use the bank note program will continue for some time to come, and cannot predict when that inability will end.

FHN and FTBNA have the ability to generate liquidity by issuing preferred or common equity or incurring other debt subject to market conditions and compliance with applicable regulatory requirements from time to time. In 2008, FHN issued 69 million shares of common stock which generated approximately $660 million in net proceeds. Additionally, in 2008, FHN issued and sold perpetual preferred stock and a common stock warrant to the UST under the CPP which generated $866.5 million in proceeds. Further, liquidity has been obtained through FTBNA’s issuance of approximately $250 million of subordinated notes in 2006. In addition, liquidity has been obtained through issuance of $300 million of guaranteed preferred beneficial interests in FHN’s junior subordinated debentures through two Delaware business trusts, wholly owned by FHN. See Note 10 – Long-Term Debt, Note 11 – Guaranteed Preferred Beneficial Interests in First Horizon’s Junior Subordinated Debentures and Note 12 – Preferred Stock and Other Capital for additional information. FHN also evaluates alternative sources of funding, including loan sales, syndications, and FHLB borrowings in its management of liquidity.

Parent company liquidity is maintained by cash flows stemming from dividends and interest payments collected from subsidiaries along with net proceeds from stock sales through employee plans, which represent the primary sources of funds to pay cash dividends to shareholders and interest to debt holders. The amount paid to the parent company through FTBNA common dividends is managed as part of FHN’s overall cash management process, subject to applicable regulatory restrictions described in the next paragraph. As discussed above, the parent company also has the ability to enhance its liquidity position by raising equity or incurring debt subject to market conditions and compliance with applicable regulatory requirements from time to time.

Certain regulatory restrictions exist regarding the ability of FTBNA to transfer funds to FHN in the form of cash, common dividends, loans or advances. At any given time, the pertinent portions of those regulatory restrictions allow FTBNA to declare preferred or common dividends without prior regulatory approval in an amount equal to FTBNA’s retained net income for the two most recent completed years plus the current year to date. For any period, FTBNA’s ‘retained net income’ generally is equal to FTBNA’s regulatory net income reduced by the preferred and common dividends declared by FTBNA. Excess dividends in either of the two most recent completed years may be offset with available retained net income in the two years immediately preceding it. Applying the applicable rules, FTBNA’s total amount available for dividends was ($222.1) million at December 31, 2008 and at January 1, 2009. Earnings (or losses) and dividends declared during 2009 will change the amount available during 2009 until December 31.

FTBNA has requested approval from the OCC to declare and pay dividends on its preferred stock outstanding payable in April 2009. FTBNA has not requested approval to pay common dividends to its sole common stockholder, FHN. Although FHN has funds available for dividends even without FTBNA dividends, availability of funds is not the sole factor considered by FHN’s Board in deciding whether or not to declare a dividend of any particular size; the Board also must consider FHN’s current and prospective capital, liquidity and other needs. Under the terms of the CPP FHN is not permitted to increase its cash common dividend rate for a period of three years without permission of the Treasury. At the time of the preferred share and common stock warrant issuance, FHN did not pay a common cash dividend.

On April 27, 2008, FHN’s Board of Directors determined to cease paying cash dividends following the cash dividend of 20 cents per share paid on July 1, 2008. Instead, the Board began declaring a dividend in shares of common stock. Quarterly stock dividends were distributed on October 1, 2008 and January 1, 2009. The Board has approved the stock dividend to be distributed in April 2009. The Board has also approved and FHN paid the 5% dividend on the CPP preferred on February 15, 2009. The Board currently intends to reinstate a cash dividend at an appropriate and prudent level once earnings and other conditions improve sufficiently, consistent with legal, regulatory, CPP, and other constraints.

The Consolidated Statements of Cash Flows provide information on cash flows from operating, investing and financing activities for each of the three years ended December 31, 2008, 2007, and 2006. In 2008, liquidity was

FIRST HORIZON NATIONAL CORPORATION

predominantly provided by a contracting balance sheet and common and preferred equity issuances. Net cash provided by operating activities was the primary contributor of liquidity during 2008. Net cash provided by operating activities was $4.3 billion and was primarily the result of balance sheet reductions that occurred in 2008 as well as the impact of cash-related operating income items. Loans held for sale decreased by $2.9 billion as the mortgage warehouse was significantly reduced due to the national mortgage origination platform sale in third quarter of 2008. While the mortgage warehouse was not sold to MetLife, a majority of the loans were sold after the transaction. Cash flows were not used to originate new loans through this channel. Trading securities decreased by $.8 billion and the decline was principally from trading inventory management initiatives at capital markets. Net positive cash flows from MSR sales and an increase in capital markets payables were offset by increases of capital markets receivables and other assets. Operating activities in 2007 and 2006 were also the primary contributor of net positive cash flows.

Investing activities provided $.2 billion of net cash in 2008 primarily from a $.4 billion decrease in loans. The net decrease in loans occurred as pay downs and charge-offs more than offset new loan growth. Cash provided through the available for sale securities portfolio was minimal in 2008 as sales and maturities were slightly higher than securities purchased. In 2007, investing activities had a negligible effect on cash flows while liquidity in 2006 was negatively impacted due to loan growth and restructuring within the investment portfolio.

In 2008, FHN’s primary use of cash related to financing activities. Cash provided by deposits and short-term borrowings decreased by $2.3 billion and $2.2 billion, respectively. The decline in deposits is primarily due to a decrease in certificates of deposit greater than $100,000 of $1.7 billion as FHN focused on lower cost funding. Purchased fed funds declined due to tightened credit markets and were replaced by funding from the Federal Reserve’s TAF. Bank and extendable notes matured or were repurchased, consistent with balance sheet contraction. Cash proceeds were generated through the issuance of 69 million common shares and through participation in the U.S. Treasury CPP. The common stock issuance provided approximately $660 million net proceeds while the issuance of preferred CPP and common stock warrant to the U.S. Treasury provided $866.5 million. In 2007, liquidity from financing activities was negatively impacted from deposit declines while cash flow in 2006 was positively impacted by long-term debt issuances and increased short-term borrowings.

Off-balance Sheet Arrangements and Other Contractual Obligations

First Horizon Home Loans, the former mortgage banking division of FHN, originated conventional conforming and federally insured single-family residential mortgage loans. Likewise, FTN Financial Capital Assets Corporation purchases the same types of loans from customers. Substantially all of these mortgage loans are exchanged for securities, which are issued through investors, including government sponsored enterprises (GSE), such as Government National Mortgage Association (GNMA) for federally insured loans and Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) for conventional loans, and then sold in the secondary markets. Each GSE has specific guidelines and criteria for sellers and servicers of loans backing their respective securities. Many private investors were also active in the secondary market as issuers and investors. The risk of credit loss with regard to the principal amount of the loans sold was generally transferred to investors upon sale to the secondary market. To the extent that transferred loans were subsequently determined not to meet the agreed upon qualifications or criteria, the purchaser had the right to return those loans to FHN. In addition, certain mortgage loans were sold to investors with limited or full recourse in the event of mortgage foreclosure (refer to discussion of foreclosure reserves under Critical Accounting Policies). After sale, these loans were not reflected on the Consolidated Statements of Condition. See also Note 18 – Restrictions, Contingencies and Other Disclosures.

FHN’s use of government agencies as an efficient outlet for mortgage loan production was an essential source of liquidity for FHN and other participants in the housing industry in recent years. During 2008 and 2007, approximately $15.6 billion and $18.3 billion, respectively, of conventional and federally insured mortgage loans were securitized and sold by FHN through these investors.

Historically, certain of FHN’s originated loans, including non-conforming first-lien mortgages, second-lien mortgages and HELOC originated primarily through FTBNA, did not conform to the requirements for sale or securitization through government agencies. FHN pooled and securitized these non-conforming loans in proprietary transactions. After securitization and sale, these loans were not reflected on the Consolidated Statements of Condition, except as

FIRST HORIZON NATIONAL CORPORATION

described hereafter (see Credit Risk Management – Mortgage Banking). These transactions, which were conducted through single-purpose business trusts, were an efficient way for FHN to monetize these assets. On December 31, 2008 and 2007, the outstanding principal amount of loans in these off-balance sheet business trusts was $22.8 billion and $25.6 billion, respectively. FHN has substantially reduced its origination of these loans in response to disruptions in the credit markets and did not execute a securitization of these loans during 2008. Given the historical significance of FHN’s origination of non-conforming loans, the use of single-purpose business trusts to securitize these loans was an important source of liquidity to FHN. See Note 24 – Loan Sales and Securitizations for additional information.

Pension obligations are funded by FHN to provide current and future benefit to participants in FHN’s noncontributory, defined benefit pension plan. On December 31, 2008, the annual measurement date, pension obligations were $472.1 million with $378.5 million of assets in the trust to fund those obligations. FHN made a contribution of $30.0 million to the qualified pension plan in fourth quarter 2008. A second contribution may be made in 2009 attributable to the 2008 plan year. This decision will be based upon pension funding requirements under the Pension Protection Act, the maximum deductible under the Internal Revenue Code, and the actual performance of plan assets during 2009. Given these uncertainties, we cannot estimate the amount of a future contribution at this time. The nonqualified pension plans and other postretirement benefit plans are unfunded. FHN contributed $6.2 million in 2008 to the unfunded plans to cover all benefits paid under the nonqualified plans and anticipates the 2009 contribution to be $5.6 million. The discount rate for 2008 of 6.85 percent for the qualified pension plan and 6.90 percent for the nonqualified supplemental executive retirement plan was determined by using a hypothetical AA yield curve represented by a series of annualized individual discount rates from one-half to thirty years. The discount rates for the pension and nonqualified supplemental executive retirement plans are selected based on data specific to FHN’s plans and employee population. See Note 20 – Savings, Pension and Other Employee Benefits for additional information.

FHN has various other financial obligations, which may require future cash payments. Table 16 sets forth contractual obligations representing required and potential cash outflows as of December 31, 2008. Purchase obligations represent obligations under agreements to purchase goods or services that are enforceable and legally binding on FHN and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions, and the approximate timing of the transaction. In addition, FHN enters into commitments to extend credit to borrowers, including loan commitments, standby letters of credit, and commercial letters of credit. These commitments do not necessarily represent future cash requirements, in that these commitments often expire without being drawn upon. See Note 26 – Derivatives and Off-Balance Sheet Arrangements for additional information.

Table 16 - Contractual Obligations


(Dollars in thousands)	Payments due by period (a)
	Less than 1 year			1-3 years			4-5 years			After 5 years			Total

Contractual obligations:
Time deposit maturities (b)		$	2,613,829		$	577,307		$	279,033		$	206,710		$	3,676,879
Long-term debt (c)			1,560,608			911,246			350,296			1,784,574			4,606,724
Annual rental commitments under noncancelable leases (d)			35,064			47,302			24,749			30,280			137,395
Purchase obligations			49,732			68,605			30,149			15,233			163,719

Total contractual obligations		$	4,259,233		$	1,604,460		$	684,227		$	2,036,797		$	8,584,717

(a)

On December 31, 2008, a liability for unrecognized tax benefits of $31.1 million has been excluded from this table as the timing of payment cannot be reasonably estimated.

(b)

See Note 8 – Time Deposit Maturities for further details.

(c)

See Note 10 – Long-Term Debt for further details.

(d)

See Note 5 – Premises, Equipment and Leases for further details.

FIRST HORIZON NATIONAL CORPORATION

Credit Ratings

Maintaining adequate credit ratings on debt issues is critical to liquidity because it affects the ability of FHN to attract funds from various sources, such as brokered deposits or wholesale borrowings of which FHN had $1.5 billion and $1.9 billion on December 31, 2008 and 2007, respectively, on a cost-competitive basis (see also Liquidity Management). The various credit ratings are detailed in Table 17. The availability and cost of funds other than core deposits is also dependent upon marketplace perceptions of the financial soundness of FHN, which include such issues as capital levels, asset quality and reputation. The availability of core deposit funding is dependent upon federal deposit insurance, which can be removed only in extraordinary circumstances, but may also be influenced to some extent by the same factors that affect other funding sources.

Table 17 - Credit Ratings


	Standard & Poor’s (a)	Moody’s (b)	Fitch (c)

First Horizon National Corporation
Overall credit rating: Long-term/Outlook	BBB/Stable	Baa1/Negative	BBB+/Negative
Subordinated debt	BBB–	Baa2	BBB
Cumulative perpetual preferred stock (issued to US Treasury)			BBB–
Capital securities*	BB–	Baa2	BBB–

First Tennessee Bank National Association
Overall credit rating: Long-term/Short-term/Outlook	BBB+/A-2/Stable	A3/P-2/Negative	BBB+/F2/Negative
Non-cumulative perpetual preferred stock	BB	Baa2	BBB
Long-term/short-term deposits	BBB+/A-2	A3/P-2	A–/F1
Other long-term/short-term funding**	BBB+/A-2	A3/P-2	BBB+/F2
Subordinated debt	BBB	Baa1	BBB

FT Real Estate Securities Company, Inc.
Preferred stock	BB	Baa2

Guaranteed preferred beneficial interests in First Horizon’s junior subordinated debentures issued through a wholly-owned unconsolidated business trust.

Other funding includes senior bank notes.

A rating is not a recommendation to buy, sell or hold securities and is subject to revision or withdrawal at any time and should be evaluated independently of any other rating.

(a)

Last change in rating was on February 24, 2009.

(b)

Last change in rating was on January 24, 2008.

(c)

Last change in rating was on December 3, 2008.

MARKET RISK MANAGEMENT

Capital markets buys and sells various types of securities for its customers. When these securities settle on a delayed basis, they are considered forward contracts. Securities inventory positions are generally procured for distribution to customers by the sales staff, and ALCO policies and guidelines have been established with the objective of limiting the risk in managing this inventory.

CAPITAL MANAGEMENT

The capital management objectives of FHN are to provide capital sufficient to cover the risks inherent in FHN’s businesses, to maintain excess capital to well-capitalized standards and to assure ready access to the capital markets. Management has a Capital Management committee that is responsible for capital management oversight and provides a forum for addressing management issues related to capital adequacy. The committee reviews sources and uses of capital, key capital ratios, segment economic capital allocation methodologies, and other factors in monitoring and managing current capital levels, as well as potential future sources and uses of capital. The committee also recommends capital management policies, which are submitted for approval to the Enterprise-wide Risk/Return Management Committee and the Board.

FIRST HORIZON NATIONAL CORPORATION

OPERATIONAL RISK MANAGEMENT

Operational risk is the risk of loss from inadequate or failed internal processes, people, and systems or from external events. This risk is inherent in all businesses. Management, measurement, and reporting of operational risk are overseen by the Operational Risk Committee, which is chaired by the Chief Risk Officer. Key representatives from the business segments, legal, risk management, information technology risk, corporate real estate, employee services, records management, bank operations, funds management, and insurance are represented on the committee. Subcommittees manage and report on business continuity planning, information technology risk, insurance, compliance, records management, customer complaint, and reputation risks. Summary reports of the committee’s activities and decisions are provided to the Enterprise-wide Risk/Return Management Committee. Emphasis is dedicated to refinement of processes and tools to aid in measuring and managing material operational risks and providing for a culture of awareness and accountability.

COMPLIANCE RISK MANAGEMENT

Compliance risk is the risk of legal or regulatory sanctions, material financial loss, or loss to reputation as a result of failure to comply with laws, regulations, rules, related self-regulatory organization standards, and codes of conduct applicable to banking activities. Management, measurement, and reporting of compliance risk are overseen by the Compliance Risk Committee, which is chaired by the SVP of Corporate Compliance. Key executives from the business segments, legal, risk management, and service functions are represented on the committee. Summary reports of the committee’s activities and decisions are provided to the Enterprise-wide Risk/Return Management Committee, and to the Audit Committee of the Board, as applicable. Reports include the status of regulatory activities, internal compliance program initiatives, and evaluation of emerging compliance risk areas.

CREDIT RISK MANAGEMENT

Credit risk is the risk of loss due to adverse changes in a borrower’s ability to meet its financial obligations under agreed upon terms. FHN is subject to credit risk in lending, trading, investing, liquidity/funding and asset management activities. The nature and amount of credit risk depends on the types of transactions, the structure of those transactions and the parties involved. In general, credit risk is incidental to trading, liquidity/funding and asset management activities, while it is central to the profit strategy in lending. As a result, the majority of credit risk is associated with lending activities.

FHN has policies and guidelines, and processes and management committees in place that are designed to assess and monitor credit risks. The Credit Risk Management Committee is responsible for enterprise-wide credit risk oversight and provides a forum for addressing management issues. The committee approves and recommends credit policies, which are submitted for final approval to the Credit Policy and Executive Committee of the Board, and underwriting guidelines to manage the level and composition of credit risk in its loan portfolio and review performance relative to these policies. In addition, the Financial Counterparty Credit Committee, composed of senior managers, assesses the credit risk of financial counterparties and sets limits for exposure based upon the credit quality of the counterparty.

A series of regularly scheduled portfolio review meetings are in place to provide oversight regarding the accuracy of credit risk grading and the adequacy of commercial credit servicing. A series of watch list meetings are in place to oversee the management of emerging potential problem commercial assets. The Credit Risk Management function assesses the portfolio trends and the results of these meetings and utilizes this information to inform management regarding the current state of credit quality as part of the estimation process for determining the allowance for loan losses.

All of the above activities are subject to independent review by FHN’s Credit Risk Assurance Group, which encompasses both Credit Review and Credit Quality Control functions. The EVP of Credit Risk Assurance is appointed by and reports to the Credit Policy & Executive Committee of the Board. Credit Risk Assurance is charged with providing the Board and executive management with independent, objective, and timely assessments of FHN’s portfolio quality, adequacy of credit policies, and credit risk management processes.

FIRST HORIZON NATIONAL CORPORATION

FHN’s goal is to manage risk and price loan products based on risk management decisions and strategies. Management strives to identify potential problem loans and nonperforming loans early enough to correct the deficiencies and prevent further credit deterioration. It is management’s objective that both charge- offs and asset write-downs are recorded promptly, based on management’s assessments of current collateral values and the borrower’s ability to repay.

FHN has a significant concentration of loans secured by residential real estate (52 percent of total loans) primarily in three portfolios. The retail real estate residential portfolio including real estate loans pledged against other collateralized borrowings (41 percent of total loans) was comprised of primarily 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 OTC portfolio (5 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 (6 percent of total loans) has also been negatively impacted by the housing industry downturn, as builder liquidity has been severely stressed.

As of December 31, 2008, loans to banks and bank holding companies, trust preferred loans, and loans participating with downstream correspondents totaling $1.7 billion (8 percent of total loans) are included within the Commercial, Financial and Industrial portfolio. Due to the higher credit losses experienced throughout the financial services industry and the limited availability of market liquidity, these loans experienced increased stress throughout 2008.

On December 31, 2008, FHN did not have any concentrations of 10 percent or more of total commercial, financial and industrial loans in any single industry.

Allowance for Loan Losses and Charge-offs

Management’s policy is to maintain the ALLL at a level sufficient to absorb estimated probable incurred losses in the loan portfolio. The allowance for loan losses is increased by the provision for loan losses and recoveries and is decreased by charged-off loans. The adequacy of the allowance for loan losses is analyzed quarterly. The Chief Credit Officer has the responsibility for performing a comprehensive review of the allowance for loan losses and reviewing that analysis with the Credit Policy and Executive Committee of the Board each quarterly reporting period. Analytical models, based on loss experience adjusted for current events, trends and economic conditions, are used to assess the adequacy of the allowance for loan losses. This methodology determines an estimated loss percentage (reserve rate), which is applied against the balance of loans in each segment of the loan portfolio at the evaluation date. The nature of the process by which FHN determines the appropriate allowance for loan losses requires the exercise of considerable judgment. After review of all relevant factors, management believes the allowance for loan losses is adequate and reflects its best estimate of probable incurred losses. See Critical Accounting Policies for more detail.

Table 18 summarizes, by category, loans charged-off and recoveries of loans previously charged-off, net charge off ratios, and additions to the ALLL through provision. The total allowance for loan losses increased to $849.2 million on December 31, 2008, from $342.3 million at December 31, 2007. Period-end loans decreased in 2008 after remaining flat in 2007. The ratio of allowance for loan losses to loans, net of unearned income, was 3.99 percent on December 31, 2008, compared to 1.55 percent on December 31, 2007, and .98 percent on December 31, 2006. Provision for loan losses increased by 296 percent to $1.1 billion in 2008 compared to $272.8 million in 2007. Deterioration in FHN’s portfolios began with real estate related portfolios; especially those related to high-risk products and were generally confined to high risk geographic locations. However, as broader economic conditions continued to decline in 2008, deterioration occurred in all portfolios.

Net charge-offs increased to $572.8 million for the year ended December 31, 2008, an increase from $131.8 million in 2007 and $55.1 million in 2006. The increase in the 2008 level of net charge-offs was primarily due to increased net charge-offs in the national construction (Res CRE and OTC), commercial (C&I), and HELOC portfolios. Commercial, financial and industrial (C&I) net charge-offs were $101.1 million in 2008 compared to $35.5 million in 2007, as the weakening economy impacted commercial credits. Commercial real estate

FIRST HORIZON NATIONAL CORPORATION

construction and real estate commercial net charge-offs increased to $191.1 million in 2008 from $28.6 million in 2007 due to the significant deterioration in the residential housing market.

The retail real estate portfolios, which includes HELOC, home equity installment loans, construction (OTC), and permanent mortgages, also experienced deterioration and higher net charge offs in 2008. OTC net charge-offs increased to $141.3 million in 2008 compared to $23.5 million in 2007 as deterioration that began in 2007 continued into 2008. HELOC net charge-offs increased to $77.4 million in 2008 from $25.9 million in 2007 and home equity installment loans net charge offs increased to $39.4 million in 2008 from $6.7 million in 2007. Credit card receivable net charge-offs increased to $9.3 million in 2008 from $6.1 million in 2007 as the decline in the economy impacted consumers’ financial condition.

While charge-offs increased due to deteriorating economic conditions, FHN’s methodology of charging down collateral dependent commercial loans to net realizable value (NRV) also impacted charge-off trends, especially in comparison to applicable ALLL. Generally, classified nonaccrual loans over $1 million are deemed to be impaired in accordance with Statement of Financial Accounting Standards, No. 114, “Accounting by Creditors for Impairment of a Loan” (SFAS No. 114) and are assessed for impairment measurement. A majority of these SFAS No. 114 loans (generally commercial loans over $1 million that are not expected to pay all contractually due principal and interest) are included in the Residential CRE (Homebuilder and Condominium Construction) portfolio. Once impairment is detected, loans are then written down to the fair value of the underlying collateral, less costs to sell (net realizable value). Fair value is based on recent appraisals of collateral. Collateral values are monitored and further charge-offs are taken if it is determined that the collateral values have continued to decline. Historically, as problem loans had been identified, estimated probable losses were reserved for in the ALLL and these loans were subsequently charged-off as appropriate. Given the deterioration in the real estate markets and the growing number of loans determined to be collateral dependent under SFAS No. 114, charge-offs of these loans have been accelerated to the time when the impairments are initially detected as opposed to historical trends which reflected additions to the ALLL for probable inherent losses.

Also impacting increased charge-offs related to SFAS No. 114 loans are the dramatic declines in collateral values experienced due to the prevailing real estate market conditions. Therefore, charge-offs are not only higher due to the increased credit deterioration related to these loans throughout 2008, but also due to the increased rate at which loans are charged down to net realizable value because of rapidly declining collateral values.

As of December 31, 2008, the total value of SFAS No. 114 commercial loans considered collateral dependent carried at net realizable value (NRV) was $414.9 million, while net charge-offs related to these loans were $198.5 million or 35 percent of total net charge-offs during 2008. Because of the accelerated recognition of impairment of these loans, the elevated charge-offs decrease the ALLL. Compression occurs in the ALLL to net charge-offs ratio as the ALLL is generally not replenished for charge-offs related to SFAS No.114 collateral dependent loans because reserves are not carried for these loans. The OTC portfolio of the winding-down National Specialty Lending Segment has experienced significant deterioration in 2008. Generally, OTC loans are written down to appraised value if, when the loan becomes 90 days past due or is considered substandard, recently obtained appraisals indicate a decline in fair value. Subsequent charge downs are taken thereafter in accordance with regulatory guidelines. During 2008, net charge-offs related to OTC loans were $141.3 million, approximately 25 percent of total net charge-offs.

Asset quality is expected to remain stressed in 2009 due to the expectation that the housing industry and broader economic conditions may continue to deteriorate. Actual results could differ because of several factors, including those presented in the Forward-Looking Statements section of this MD&A discussion.

FIRST HORIZON NATIONAL CORPORATION

Table 18 - Analysis of Allowance for Loan Losses


(Dollars in thousands)	2008				2007				2006				2005				2004				2003

Allowance for loan losses:
Beginning balance		$	342,341			$	216,285			$	189,705			$	158,159			$	160,333			$	144,298
Provision for loan losses			1,080,000				272,765				83,129				67,678				48,348				86,698
Loans transferred to held for sale			-				2,655				-				-				(8,382	)			-
Acquisitions/(divestitures), net			(370	)			(17,598	)			(1,470	)			1,386				-				(2,652	)
Charge-offs:
Commercial:
Commercial, financial and industrial			105,626				42,639				28,095				12,789				11,925				12,460
Real estate commercial			22,518				2,504				2,070				498				2,690				3,067
Real estate construction			170,995				26,272				115				2,805				779				7,642
Retail:
Real estate residential			131,015				37,345				23,405				18,744				21,271				35,809
Real estate construction			143,541				23,806				1,962				374				-				-
Other retail			8,991				7,490				6,753				6,101				7,094				9,920
Credit card receivables			9,742				6,851				6,226				10,839				12,870				13,538

Total charge-offs			592,428				146,907				68,626				52,150				56,629				82,436

Recoveries:
Commercial:
Commercial, financial and industrial			4,495				7,169				4,725				3,328				3,473				2,438
Real estate commercial			81				223				296				1,173				51				166
Real estate construction			2,305				2				-				-				10				1
Retail:
Real estate residential			7,815				4,256				4,307				5,300				4,517				4,820
Real estate construction			2,253				280				-				-				-				-
Other retail			2,309				2,458				3,090				3,697				4,211				5,653
Credit card receivables			409				753				1,129				1,134				2,227				1,347

Total recoveries			19,667				15,141				13,547				14,632				14,489				14,425

Net charge-offs			572,761				131,766				55,079				37,518				42,140				68,011

Ending balance		$	849,210			$	342,341			$	216,285			$	189,705			$	158,159			$	160,333

Reserve for off-balance sheet commitments		$	18,752			$	10,726			$	9,378			$	10,650			$	7,904			$	7,804
Total of allowance for loan losses and reserve for off- balance sheet commitments		$	867,962			$	353,067			$	225,663			$	200,355			$	166,063			$	168,137

Loans and commitments:
Period end loans, net of unearned		$	21,278,190			$	22,103,516			$	22,104,905			$	20,611,998			$	16,441,928			$	14,021,318
Insured retail residential and construction loans (a)			591,116				913,164				729,842				826,904				665,909				862,675

Loans excluding insured loans		$	20,687,074			$	21,190,352			$	21,375,063			$	19,785,094			$	15,776,019			$	13,158,643

Off-balance sheet commitments (b)		$	6,441,854			$	6,929,299			$	7,587,028			$	9,090,618			$	6,226,245			$	5,464,097

Average loans, net of unearned		$	21,660,704			$	22,106,682			$	21,504,175			$	18,334,684			$	15,440,501			$	12,679,804

Allowance and net charge off Ratios (c):
Allowance to total loans			3.99	%			1.55	%			.98	%			.92	%			.96	%			1.14	%
Allowance to total loans excluding insured loans			4.11				1.62				1.01				.96				1.00				1.22
Allowance to net charge-offs			1.48	x			2.60	x			3.93	x			5.06	x			3.75	x			2.36	x
Total commercial net charge-offs			2.63				.57				.24				.13				.18				.34
Retail real estate net charge-offs			2.58				.54				.20				.15				.20				.50
Other retail net charge-offs			4.81				3.37				2.26				1.46				1.55				1.64
Credit card receivables net charge-offs			4.83				3.11				2.43				4.03				4.25				4.65
Total net charge-offs to average loans			2.64				.60				.26				.20				.27				.54

(a)

Whole-loan insurance is obtained on certain retail residential and construction loans. Insuring these loans absorbs credit risk and results in lower allowance for loan losses.

(b)

Amount of off-balance sheet commitments for which a reserve has been provided. See Note 26 – Derivatives and Off-Balance Sheet Arrangements for further details on off-balance sheet commitments.

(c)

Loans net of unearned income. Net charge-off ratios are calculated based on average loans.

Table 10 provides information on the relative size of each loan portfolio.

FIRST HORIZON NATIONAL CORPORATION

Components of the Allowance for Loan Losses

The allowance for loan losses includes the following components: reserves for commercial loans evaluated based on pools of credit graded loans and reserves for pools of smaller-balance homogeneous retail and commercial loans, both determined in accordance with SFAS No. 5, “Accounting for Contingencies.” Also included are reserves, determined in accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” related to loans determined by management to be individually impaired. The reserve factors applied to these pools are an estimate of probable incurred losses based on management’s evaluation of historical losses from loans with similar characteristics, adjusted for current economic factors and trends. Table 19 gives a breakdown of the allowance allocation by major loan types and commercial loan grades on December 31, 2008, compared with December 31, 2007.

To assess the quality of individual commercial loans, all commercial loans are internally assigned a credit grade. During 2006, a new credit grading system was implemented that assigns credit grades ranging from 1 to 16. However, the allowance for loan losses continues to be based on historical losses which had assigned grades of 1 to 10. Therefore, to maintain the integrity and accuracy of the allowance methodology, at each reporting period the new assigned loan grades are back-converted to the old grades for proper assignment of reserves. The credit grading system is intended to identify and measure the credit quality of lending relationships by analyzing the migration of loans between grading categories. It is also integral to the estimation methodology utilized in determining the allowance for loan losses since an allowance is established for pools of commercial loans based on the credit grade assigned. The appropriate relationship manager performs the process of classifying commercial loans into the appropriate credit grades initially as a component of the approval of the loan and has responsibility for insuring that the loan is properly graded throughout the life of the loan. The proper loan grade for all commercial loans in excess of $1 million is confirmed by a senior credit officer in the approval process. To determine the most appropriate credit grade for each loan, FHN utilizes a credit risk grading system that employs scorecards to particular categories of loans. The scorecards consist of a number of objective and subjective measures that are weighted in a manner that produces a rank ordering of risk within pass-graded credits. Loan grades are frequently reviewed by commercial loan review to determine if any changes in the circumstances of the loan require a different risk grade.

A reserve rate is established for each loan grade based on a historical three-year moving average of actual charge-offs. The reserve rate is then adjusted for current events, trends, and economic conditions that affect the asset quality of the loan portfolio. Some of the factors considered in making these adjustments include: levels of and trends in delinquencies; classified loans and nonaccrual loans; trends in outstandings and maturities; effects of changes in lending policies and underwriting guidelines; introduction of new loan products with different risk characteristics; experience, ability and depth of lending management and staff; migration trends of loan grades; and charge-off trends that may skew the historical three-year moving average. Finally, the reserve rates for each loan grade are reviewed quarterly to reflect local, regional and national economic trends; concentrations of cyclical industries; and the economic prospects for industry concentrations. To supplement management’s process in setting these additional adjustments, an economic model is used that evaluates the correlation between historical charge-offs and a number of state and national economic indicators.

The allowance for loan losses for smaller-balance homogenous loans (retail loans) is determined based on pools of similar loan types that have similar credit risk characteristics, which is consistent with industry practice. FHN manages retail loan credit risk on a portfolio basis. Reserves by portfolio are determined using analytical models that incorporate various factors including, but not limited to, historical delinquency trends, experienced loss frequencies, and experienced loss severities. Generally, reserves for retail loans reflect inherent losses in the portfolio that are expected to be recognized over the following twelve months.

FIRST HORIZON NATIONAL CORPORATION

Table 19 - Loans and Allowance for Loan Loss on December 31


(Dollars in millions)	2008																		2007
	C&I and Other			Income CRE			Residential CRE			Total			% of Total			Allowance for Loan Losses			Total			% of Total			Allowance for Loan Losses

Internal grades:
1		$	135		$	-		$	-		$	135		-	%		$	1		$	15		-	%		$	-
2			8			2			-			10		-				-			78		-				-
3			155			6			-			161		1				1			262		1				2
4			296			10			-			306		1				3			476		2				3
5			523			23			3			549		3				6			721		3				6
6			645			96			7			748		4				8			1,036		5				10
7			969			200			6			1,175		6				12			1,565		7				16
8			1,156			302			18			1,476		7				16			2,499		11				30
9			924			261			24			1,209		6				13			1,611		7				22
10			648			94			23			765		4				9			1,028		5				21
11			741			261			129			1,131		5				21			999		5				32
12			280			86			73			439		2				15			421		2				25
13			912			312			242			1,466		7				96			204		1				22
14, 15, 16 (Classifieds)			384			241			427			1,052		5				179			147		1				19

			7,776			1,894			952			10,622		50				380			11,062		50				208
SFAS 114 Impaired Loans			44			94			336			474		2				12			127		1				16

Total commercial loans		$	7,820		$	1,988		$	1,288		$	11,096		52			$	392		$	11,189		51			$	224

Consumer:
Consumer real estate (Home Equity Installment and HELOC)*												7,749		36				182			8,048		36				45
OTC (Consumer Residential Construction Loans)												981		5				200			2,008		9				60
Permanent mortgage												1,127		5				54			510		2				1
Credit card and other												325		2				21			349		2				12

Total consumer loans												10,182		48				457			10,915		49				118

Total loans											$	21,278		100	%		$	849		$	22,104		100	%		$	342

Includes real estate loans pledged against other collateralized borrowings.

Loans are expressed net of unearned income. All data is based on internal loan classifications.

FHN employs a dual grade commercial risk grading methodology to assign a probability of default estimate to individual credits. The methodology utilizes multiple scorecards that have been developed using a combination of objective and subjective factors specific to various portfolio segments that result in a rank-ordering of risk in the “pass grades” of 1-11. Each grade corresponds to an estimated one-year default probability percentage; a PD 1 has the lowest expected default probability, and probabilities increase as grades progress down the scale. PD 12 is referred to as the “pass-watch” grade and is situationally assigned when a credit is judged to need additional attention. PD 13-16 correspond to the regulatorily-defined categories of special mention (13), substandard (14), doubtful (15) and loss (16).

Impaired: A loan for which it is probable that all amounts due, according to the contractual terms of the loan agreement, will not be collected and the loan is placed on non-accrual status. Reserves for impaired loans are based on the value of the collateral or the cash flow of the entity compared to the outstanding balance.

Table 20 - Average Reserve Rates


	2008			Loans % of Total		2007			Loans % of Total		2006			Loans % of Total		2005			Loans % of Total		2004			Loans % of Total

Commercial, commercial real estate and commercial construction*		2.96	%		49.5		1.85	%		50.5		1.30	%		48.1		1.28	%		47.9		1.30	%		46.8
Impaired		2.72			1.7		17.40			.3		23.71			.1		28.13			.2		28.57			.2
Retail real estate including loans pledged against other collateralized borrowings		3.15			47.2		1.32			47.6		.49			50.0		.40			49.9		.40			50.5
Other retail		5.99			.7		3.47			.7		2.48			.8		2.38			.8		2.96			1.0
Credit card receivables		4.68			.9		3.41			.9		3.45			1.0		3.98			1.2		4.02			1.5

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

* Excludes impaired loans.

The average reserve rate for commercial loans increased to 2.96 percent from 1.85 percent reflecting downward credit grading of the entire commercial portfolio, including deterioration of national commercial construction loans. Average reserve rates for impaired loans declined in 2008 as FHN began charging down SFAS No. 114 collateral dependent loans to NRV and reserves are not carried for a majority of these loans. The average reserve rate for retail real estate loans was 3.15 percent for 2008 compared to 1.32 percent for 2007. This increase was primarily

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driven by deterioration in real estate construction loans and increase in home equity reserves. The average reserve rate for other retail loans, which represented less than one percent of total loans in 2008, was 5.99 percent for 2008 compared to 3.47 percent for 2007. The average reserve rate for credit card receivables, also less than one percent of total loans, increased to 4.68 percent for 2008 from 3.41 in 2007.

Nonperforming Assets

Nonperforming loans (NPLs) consist of impaired, other nonaccrual and restructured loans. These, along with foreclosed real estate (excluding foreclosed real estate from GNMA loans), represent nonperforming assets (NPAs). Impaired loans are those loans for which it is probable that all amounts due, according to the contractual terms of the loan agreement, will not be collected and for which recognition of interest income has been discontinued. Other nonaccrual loans are residential and other retail loans on which recognition of interest income has been discontinued.

Nonperforming assets increased to $1.2 billion on December 31, 2008, from $392.4 million on December 31, 2007. The nonperforming assets ratio increased to 5.38 percent in 2008 from 1.66 percent in 2007. Nonperforming loans in the loan portfolio were $1.0 billion on December 31, 2008, compared to $283.3 million on December 31, 2007. The ratio of NPLs in the loan portfolio to total loans was 4.91 percent on December 31, 2008, compared to 1.28 percent on December 31, 2007. This increase in NPLs and NPAs was primarily attributable to continued deterioration in the OTC and homebuilder/condominium construction portfolios which was driven by the severe downturn in the housing markets and construction business. OTC loans are included in the Retail Real Estate Construction line of Table 10 and are included in the National Specialty Lending segment. Nonperforming OTC loans increased to $422.0 million on December 31, 2008 from $115.7 million on December 31, 2007. Nonperforming homebuilder/condominium construction (Res CRE) loans, (included in the Commercial Real Estate Construction line of Table 10) increased to $395.7 million on December 31, 2008 from $128.1 million on December 31, 2007. Also impacting higher NPLs in 2008 was the commercial and industrial portfolio (C&I) primarily due to the decline in general economic conditions that affected nearly all businesses. C&I nonperformers increased approximately $56 million to $80.2 million in 2008.

In addition, National Specialty Lending foreclosed assets increased $18.6 million in 2008, which is primarily attributed to the deterioration in the construction portfolios. The nonperforming held for sale loans, which were $8.5 million on December 31, 2008, are written down to lower of cost or market, while foreclosed assets are either charged-off or written down to net realizable value at foreclosure. The nonperforming asset ratio is expected to remain under pressure throughout the balance of the negative housing and broader economic cycle.

The ALLL to non-performing loans in the loan portfolio (“NPL ratio”) decreased to .81 times in 2008 compared to 1.21 times in 2007. While non-performing loans increased from the same period last year, a portion of these loans do not carry reserves. The SFAS No. 114 loans mentioned above that are charged down to NRV represent 40 percent of NPLs in the loan portfolio as of December 31, 2008. This approach compresses the ALLL to non-performing loans ratio because collateral dependent SFAS No. 114 loans are included in NPLs, but reserves for these loans are not carried in the ALLL. Residential CRE (Homebuilder and Condominium Construction) loans were $336.4 million or 71 percent of all SFAS No. 114 loans while the remainder is included in the C&I and Income CRE (Income-producing Commercial Real Estate) portfolios. Additionally, OTC loans that are 90 days past due are generally charged down to current appraised value (and over time, further reductions may be taken) and are included in non-performing loans. As of December 31, 2008, charged-down OTC loans accounted for 16 percent of non-performing loans. The ALLL related to OTC loans was $200.5 million which provides a coverage ratio of 20 percent for inherent losses in the portfolio. Because of the methodologies described above, the ALLL to NPL ratio is negatively impacted. NPLs for which reserves are actually carried were approximately $465.1 million as of December 31, 2008.

Table 21 gives additional information related to changes in nonperforming assets for 2006 through 2008 and nonperforming assets by segment. Information regarding nonperforming assets and past-due loans is presented in Table 22.

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Table 21 - Nonperforming Assets


Change in Nonperforming Assets

(Dollars in thousands)	2008				2007				2006

Beginning balance		$	392,427			$	139,028			$	79,669
Additional nonperforming assets			1,677,830				442,524				192,187
Payments, sales and other dispositions			(524,684	)			(95,864	)			(114,202	)
Charge-offs			(387,616	)			(93,261	)			(18,626	)

Ending balance		$	1,157,957			$	392,427			$	139,028

Nonperforming Assets by Segment

Regional Banking:
Nonperforming loans		$	163,933			$	30,608			$	40,924
Foreclosed real estate			31,665				35,026				24,211

Total Regional Banking			195,598				65,634				65,135

Capital Markets:
Nonperforming loans			27,339				8,970				4,453
Foreclosed real estate			600				810				-

Total Capital Markets			27,939				9,780				4,453

National Specialty Lending:
Nonperforming loans			834,042				243,711				37,461
Foreclosed real estate			52,725				34,120				12,124

Total National Specialty Lending			886,767				277,831				49,585

Mortgage Banking:
Nonperforming loans – including held for sale (a)			28,335				23,797				10,793
Foreclosed real estate			19,318				15,385				9,062

Total Mortgage Banking			47,653				39,182				19,855

Total nonperforming loans			1,053,649				307,086				93,631

Total foreclosed real estate & other assets			104,308				85,341				45,397

Total nonperforming assets (a) (b)		$	1,157,957			$	392,427			$	139,028

(a)

Includes $19,867 of loans held to maturity as of December 31, 2008.

(b)

Total impaired loans included in nonperforming loans were $474.1 million, $126.6 million and $29.7 million for the years 2008, 2007 and 2006, respectively.

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Table 22 - Nonperforming Assets and Delinquencies on December 31


(Dollars in thousands)	2008				2007				2006				2005				2004				2003

Total nonperforming loans		$	1,053,649			$	307,086			$	93,631			$	52,259			$	49,560			$	51,784

Total foreclosed real estate & other assets			104,308				85,341				45,397				27,410				27,778				24,411

Total nonperforming assets (a)		$	1,157,957			$	392,427			$	139,028			$	79,669			$	77,338			$	76,195

Total loans, net of unearned income		$	21,278,190			$	22,103,516			$	22,104,905			$	20,611,998			$	16,441,928			$	14,021,318
Insured loans			591,116				913,164				729,842				826,904				665,909				862,675

Loans excluding insured loans		$	20,687,074			$	21,190,352			$	21,375,063			$	19,785,094			$	15,776,019			$	13,158,643

Foreclosed real estate from GNMA loans (b)		$	21,230			$	18,642			$	18,121			$	-			$	-			$	-
Potential problem assets (c)			1,180,942				222,471				161,727				187,208				98,926				118,142
Loans 30 to 89 days past due			360,735				287,949				131,211				97,980				69,593				88,874
Loans 30 to 89 days past due – guaranteed portion (d)			94				92				161				1,021				873				2,404
Loans 90 days past due			85,364				56,755				35,248				37,067				33,343				27,240
Loans 90 days past due – guaranteed portion (d)			228				178				242				5,348				5,561				5,620
Loans held for sale 30 to 89 days past due			45,307				57,317				31,264				45,788				56,379				73,458
Loans held for sale 30 to 89 days past due – guaranteed portion (d)			45,296				57,317				24,586				30,868				43,542				60,551
Loans held for sale 90 days past due			47,704				194,754				131,944				176,591				180,617				198,955
Loans held for sale 90 days past due – guaranteed portion (d)			42,250				190,721				128,627				173,357				179,792				198,955

Ratios:
Allowance to nonperforming loans in the loan portfolio			0.81	x			1.21	x			2.61	x			4.65	x			3.85	x			3.71	x
NPL % (e)			4.91	%			1.28	%			0.37	%			0.25	%			0.30	%			0.37	%
NPA % (f)			5.38	%			1.59	%			0.54	%			0.29	%			0.37	%			0.41	%

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

(a)

Includes $19,867 of loans held to maturity as of December 31, 2008.

(b)

Prior to 2006, properties acquired by foreclosure through GNMA’s repurchase program were classified as receivables in “Other Assets” on the Consolidated Statements of Condition.

(c)

Includes past due loans.

(d)

Guaranteed loans include FHA, VA, student and GNMA loans repurchased through the GNMA repurchase program.

(e)

Nonperforming loans in the loan portfolio to total period end loans.

(f)

Nonperforming assets related to the loan portfolio to total loans plus foreclosed real estate and other assets.

Past Due Loans and Potential Problem Assets

Past due loans are loans contractually past due 90 days or more as to interest or principal payments, but which have not yet been put on nonaccrual status. Past due loans in the loan portfolio increased to $85.3 million on December 31, 2008, compared to $56.8 million on December 31, 2007, with a ratio of past due loans in the loan portfolio to total loans of .40 percent on December 31, 2008, compared to .26 percent on December 31, 2007. Loans 30 to 89 days past due increased $72.8 million to $360.7 million while the ratio of portfolio loans 30 to 89 days past due to total loans increased to 1.70 percent on December 31, 2008, compared to 1.30 percent on December 31, 2007. This increase is primarily due to the severe housing market and declining general economic conditions and its impact on both commercial and retail real estate portfolios. Additional historical past due loan information can be found in Table 22.

Potential problem assets represent those assets where information about possible credit problems of borrowers has caused management to have serious doubts about the borrower’s ability to comply with present repayment terms. This definition is believed to be substantially consistent with the standards established by the Office of the Comptroller of the Currency for loans classified substandard. Potential problem assets in the loan portfolio, which includes loans past due 90 days or more but excludes nonperforming assets, increased to $1.2 billion, or 6 percent of total loans, on December 31, 2008, from $222.5 million, or 1 percent of total loans, on December 31, 2007. The current expectation of losses from potential problem assets has been included in management’s analysis for assessing the adequacy of the allowance for loan losses.

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The following table provides additional asset quality data by loan portfolio:

Table 23 - Asset Quality by Portfolio


	2008				2007

Commercial (C&I & Other)
Period-end loans ($ millions)		$	7,820			$	7,120

30+ Delinq. %			.52	%			.50	%
NPL %			1.03				.34
Charge-offs %			1.36				.49

Allowance / Loans %			2.45	%			*
Allowance / Charge-offs			1.92	x			*

Income CRE (Income-producing Commercial Real Estate)
Period-end loans ($ millions)		$	1,988			$	1,977

30+ Delinq. %			2.42	%			1.96	%
NPL %			5.02				.26
Charge-offs %			1.43				.02

Allowance / Loans %			4.71	%			*
Allowance / Charge-offs			3.26	x			*

Residential CRE (Homebuilder and Condominium Construction)
Period-end loans ($ millions)		$	1,288			$	2,092

30+ Delinq. %			3.74	%			3.56	%
NPL %			30.71				6.12
Charge-offs %			9.57				1.30

Allowance / Loans %			8.25	%			*
Allowance / Charge-offs			.65	x			*

Consumer Real Estate (Home Equity Installment and HELOC)
Period-end loans ($ millions)		$	7,749			$	8,048

30+ Delinq. %			1.97	%			1.43	%
NPL %			.07				.09
Charge-offs %			1.48				.41

Allowance / Loans %			2.35	%			.56	%
Allowance / Charge-offs			1.55	x			1.38	x

OTC (Consumer Residential Construction Loans)
Period-end loans ($ millions)		$	981			$	2,008

30+ Delinq. %			4.43	%			2.50	%
NPL %			43.03				5.76
Charge-offs %			9.41				1.12

Allowance / Loans %			20.44	%			2.99	%
Allowance / Charge-offs			1.42	x			2.55	x

Permanent Mortgage
Period-end loans ($ millions)		$	1,127			$	510

30+ Delinq. %			6.94	%			5.59	%
NPL %			3.73				.36
Charge-offs %			.74				.09

Allowance / Loans %			4.76	%			.20	%
Allowance / Charge-offs			8.60	x			-

Credit Card and Other
Period-end loans ($ millions)		$	325			$	342

30+ Delinq. %			2.57	%			2.17	%
NPL %			-				-
Charge-offs %			4.82				3.22

Allowance / Loans %			6.60	%			3.44	%
Allowance / Charge-offs			1.34	x			1.08	x

Prior period information by commercial loan portfolio is unavailable. These ratios for the total commercial portfolio are provided below.

The allowance to loans ratio was 3.53% and 2.00% for 2008 and 2007, respectively.

The allowance to charge-offs ratio was 1.34x and 3.50x for 2008 and 2007, respectively.

Loans are expressed net of unearned income. All data is based on internal loan classification.

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Mortgage Banking

First Horizon Home Loans, the former mortgage banking division of FHN, originated mortgage loans through its retail and wholesale operations and also purchased mortgage loans from third-party mortgage bankers (known as correspondent brokers) for sale to secondary market investors and subsequently serviced the majority of those loans. The secondary market for mortgages allowed First Horizon Home Loans to sell mortgage loans to investors, including GSE, such as FNMA, FHLMC and GNMA. Private investors participate in the secondary market as issuers and investors. The majority of First Horizon Home Loans’ mortgage loans were sold through transactions with government agencies. The risk of credit loss with regard to the principal amount of the loans sold was generally transferred to investors upon sale to the secondary market. To the extent that transferred mortgage loans are subsequently determined not to meet the agreed-upon qualifications or criteria, or to the extent that transferred mortgages default shortly after the sale, the purchaser has the right to return those loans to FHN. In addition, certain mortgage loans were sold to investors with limited or full recourse in the event of mortgage foreclosure (refer to discussion of foreclosure reserves under Critical Accounting Policies).

CRITICAL ACCOUNTING POLICIES

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

FHN’s accounting policies are fundamental to understanding management’s discussion and analysis of results of operations and financial condition. The consolidated financial statements of FHN are 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. The preparation of the financial statements requires management to make certain judgments and assumptions in determining accounting estimates. Accounting estimates are considered critical if (a) the estimate requires management to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (b) different estimates reasonably could have been used in the current period, or changes in the accounting estimate are reasonably likely to occur from period to period, that would have a material impact on the presentation of FHN’s financial condition, changes in financial condition or results of operations.

It is management’s practice to discuss critical accounting policies with the Board of Directors’ Audit Committee including the development, selection and disclosure of the critical accounting estimates. Management believes the following critical accounting policies are both important to the portrayal of the company’s financial condition and results of operations and require subjective or complex judgments. These judgments about critical accounting estimates are based on information available as of the date of the financial statements.

ALLOWANCE FOR LOAN LOSSES

Management’s policy is to maintain the ALLL at a level sufficient to absorb estimated probable incurred losses in the loan portfolio. Management performs periodic and systematic detailed reviews of its loan portfolio to identify trends and to assess the overall collectibility of the loan portfolio. Accounting standards require that loan losses be recorded when management determines it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Management believes the accounting estimate related to the ALLL is a “critical accounting estimate” because: changes in it can materially affect the provision for loan losses and net income, it requires management to predict borrowers’ likelihood or capacity to repay, and it requires management to distinguish between losses incurred as of a balance sheet date and losses expected to be incurred in the future. Accordingly, this is a highly subjective process and requires significant judgment since it is often difficult to determine when specific loss events may actually occur. The ALLL is increased by the provision for loan losses and recoveries and is decreased by charged-off loans. This critical accounting estimate applies to all of FHN’s business line segments. The Credit Policy and Executive Committee of FHN’s board of directors reviews quarterly the level of the ALLL.

FHN’s methodology for estimating the ALLL is not only critical to the accounting estimate, but to the credit risk management function as well. Key components of the estimation process are as follows: (1) commercial loans determined by management to be individually impaired loans are evaluated individually and specific reserves are determined based on the difference between the outstanding loan amount and the estimated net realizable value of the collateral (if collateral dependent) or the present value of expected future cash flows; (2) individual commercial loans not considered to be individually impaired are segmented based on similar credit risk characteristics and

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evaluated on a pool basis; (3) reserve rates for the commercial segment are calculated based on historical charge-offs and are adjusted by management to reflect current events, trends and conditions (including economic factors and trends); (4) management’s estimate of probable incurred losses reflects the reserve rate applied against the balance of loans in the commercial segment of the loan portfolio; (5) retail loans are segmented based on loan type; (6) reserve amounts for each retail portfolio segment are calculated using analytical models based on loss experience adjusted by management to reflect current events, trends and conditions (including economic factors and trends); and (7) the reserve amount for each retail portfolio segment reflects management’s estimate of probable incurred losses in the retail segment of the loan portfolio.

Principal loan amounts are charged off against the ALLL in the period in which the loan or any portion of the loan is deemed to be uncollectible.

Given the substantial instability in the current housing market and significant deterioration experienced in the commercial, OTC and home equity portfolios, FHN proactively reviews and analyzes these portfolios to more promptly identify and resolve problem loans.

For commercial loans, reserves are established using historical loss factors by grade level. Relationship managers risk rate each loan using grades that reflect both the probability of default and estimated loss severity in the event of default. Portfolio reviews are conducted quarterly to provide independent oversight of risk grading decisions for larger credits. Loans with emerging weaknesses receive increased oversight through our “Watch List” process. For new “Watch List” loans, senior credit management reviews risk grade appropriateness and action plans. After initial identification, relationship managers prepare monthly updates for review and discussion by more senior business line and credit officers. This oversight is intended to bring consistent grading and allow timely identification of loans that need to be further downgraded or placed on non-accrual status. When a loan becomes classified, the asset generally transfers to the specialists in our Loan Rehab and Recovery group where the accounts receive more detailed monitoring; at this time, new appraisals are typically ordered for real estate collateral dependent credits. Loans are placed on non-accrual if it becomes evident that full collection of principal and interest is at risk or if the loans become 90 days or more past due.

Generally, classified commercial nonaccrual loans over $1 million are deemed to be impaired in accordance with SFAS No. 114 “Accounting by Creditors for Impairment of a Loan” and are assessed for impairment measurement. For impaired assets viewed as collateral dependent, fair value estimates are obtained from a recently received and reviewed appraisal. Appraised values are adjusted down for costs associated with asset disposal and for our estimate of any further deterioration in values since the most recent appraisal. Upon the determination of impairment, FHN charges off the full difference between book value and our best estimate of the asset’s net realizable value . The total value of commercial SFAS No. 114 impaired loans considered collateral dependent and written down to NRV at December 31, 2008 was $414.9 million.

For OTC real estate construction loans, reserve levels are established based on portfolio modeling and monthly portfolio reviews conducted with business line managers and credit officers. The inherent risk in credits is examined and evaluated based on factors such as draw inactivity and borrower conditions, often recognizing problems prior to delinquency. In addition, OTC loans that reach 90 days past due are placed on non-accrual. A new appraisal is ordered for loans that reach 90 days past due or are classified as substandard during the monthly portfolio review. Loans are initially written down to current appraised value. Periodically, loans are assessed for further charge down.

For home equity loans and lines, reserve levels are established through the use of segmented roll-rate models. Loans are classified substandard at 90 days delinquent. Our collateral position is assessed prior to the asset becoming 180 days delinquent. If the value does not support foreclosure, balances are charged-off and other avenues of recovery are pursued. If the value supports foreclosure, the loan is charged down to net realizable value and is placed on non-accrual status. When collateral is taken to OREO, the asset is assessed for further write down to appraised value.

FHN believes that the critical assumptions underlying the accounting estimate made by management include: (1) the commercial loan portfolio has been properly risk graded based on information about borrowers in specific industries and specific issues with respect to single borrowers; (2) borrower specific information made

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available to FHN is current and accurate; (3) the loan portfolio has been segmented properly and individual loans have similar credit risk characteristics and will behave similarly; (4) known significant loss events that have occurred were considered by management at the time of assessing the adequacy of the ALLL; (5) the economic factors utilized in the allowance for loan losses estimate are used as a measure of actual incurred losses; (6) the period of history used for historical loss factors is indicative of the current environment; and (7) the reserve rates, as well as other adjustments estimated by management for current events, trends, and conditions, utilized in the process reflect an estimate of losses that have been incurred as of the date of the financial statements.

While management uses the best information available to establish the ALLL, future adjustments to the ALLL and methodology may be necessary if economic or other conditions differ substantially from the assumptions used in making the estimates or, if required by regulators, based upon information at the time of their examinations. Such adjustments to original estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels vary from previous estimates.

Beginning in the later half of 2007 and throughout 2008, FHN continued to actively review its loan portfolios and apply additional review procedures to more promptly identify potential problem loans and to determine reserve sufficiency. These actions were necessary due to strongly adverse real estate market conditions, rapid material declines in collateral values in certain high risk geographic locations and a broader economic downturn. The extent to which supplementary procedures were applied was based on observable trends and risks within the portfolio. As a result of focused portfolio management activities, the C&I and commercial real estate portfolios experienced downward grade migration (especially in homebuilder finance and condominium construction loans) which increased the associated reserve levels. Furthermore, as a result of the current stress in the financial system, loans to financial institutions, which are primarily included in the C&I portfolio, were reviewed extensively and resulted in some downward grade migration and resultant reserve increase. Also, during 2007, management adjusted its loss recognition practices and in most cases instead of carrying an allowance for loan losses, impaired commercial loans considered collateral dependent were charged down to a net realizable value. A detailed review of the OTC loans resulted in a reserve which reflects the current observable inherent losses in that mature, winding-down portfolio. Additionally, enhanced analysis procedures were applied to the home equity portfolio resulting in the identification of increased loss severities and reserve increase. As a result of management’s existing processes coupled with the results of the additional review procedures, FHN recognized $1.1 billion of provision expense in 2008, increasing the allowance for loan losses to $849.2 million.

Mortgage Servicing Rights and Other Related Retained Interests

When FHN sold mortgage loans in the secondary market to investors, it generally retained the right to service the loans sold in exchange for a servicing fee that is collected over the life of the loan as the payments are received from the borrower. An amount was capitalized as MSR on the Consolidated Statements of Condition at current fair value. The changes in fair value of MSR are included as a component of Mortgage Banking – Noninterest Income on the Consolidated Statements of Income.

Effective January 1, 2006, FHN elected early adoption of SFAS No. 156. This amendment to Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (SFAS No. 140) required servicing rights be initially measured at fair value. Subsequently, companies are permitted to elect, on a class-by-class basis, either fair value or amortized cost accounting for servicing rights. FHN elected fair value accounting for all classes of mortgage servicing rights. Accordingly, FHN recognized the cumulative effect of a change in accounting principle totaling $.2 million, net of tax, representing the excess of the fair value of the servicing asset over the recorded value on January 1, 2006.

MSR Estimated Fair Value

In accordance with Statement of Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets – an Amendment of FASB Statement No. 140,” FHN has elected fair value accounting for all classes of mortgage servicing rights. The fair value of MSR typically rises as market interest rates increase and declines as market interest rates decrease; however, the extent to which this occurs depends in part on (1) the magnitude of changes in market interest rates, and (2) the differential between the then current market interest rates for mortgage loans and the mortgage interest rates included in the mortgage-servicing portfolio.

FIRST HORIZON NATIONAL CORPORATION

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, like other participants in the mortgage banking business, 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, moderate), agency type and other factors. FHN uses assumptions in the model that it believes are comparable to those used by other participants in the mortgage banking business and reviews estimated fair values and assumptions with third-party brokers and other service providers on a quarterly basis. FHN also compares its estimates of fair value and assumptions to recent market activity and against its own experience.

Estimating the cash flow components of net servicing income from the loan and the resultant fair value of the MSR requires FHN to make several critical assumptions based upon current market and loan production data.

Prepayment Speeds: Generally, when market interest rates decline and other factors favorable to prepayments occur, there is a corresponding increase in prepayments as customers refinance existing mortgages under more favorable interest rate terms. When a mortgage loan is prepaid the anticipated cash flows associated with servicing that loan are terminated, resulting in a reduction of the fair value of the capitalized MSR. To the extent that actual borrower prepayments do not react as anticipated by the prepayment model (i.e., the historical data observed in the model does not correspond to actual market activity), it is possible that the prepayment model could fail to accurately predict mortgage prepayments and could result in significant earnings volatility. To estimate prepayment speeds, FHN utilizes a third-party prepayment model, which is based upon statistically derived data linked to certain key principal indicators involving historical borrower prepayment activity associated with mortgage loans in the secondary market, current market interest rates and other factors. For purposes of model valuation, estimates are made for each product type within the MSR portfolio on a monthly basis.

Table 24 - Mortgage Banking Prepayment Assumptions


	2008			2007			2006

Prepayment speeds
Actual		13.1	%		15.4	%		17.4	%
Estimated*		25.3			15.2			13.9

Estimated prepayment speeds represent monthly average prepayment speed estimates for each of the years presented.

Discount Rate: Represents the rate at which expected cash flows are discounted to arrive at the net present value of servicing income. Discount rates will change with market conditions (i.e., supply vs. demand) and be reflective of the yields expected to be earned by market participants investing in MSR.

Cost to Service: Expected costs to service are estimated based upon the incremental costs that a market participant would use in evaluating the potential acquisition of MSR.

Float Income: Estimated float income is driven by expected float balances (principal, interest and escrow payments that are held pending remittance to the investor or other third party) and current market interest rates, including the thirty-day London Inter-Bank Offered Rate (LIBOR) and five-year swap interest rates, which are updated on a monthly basis for purposes of estimating the fair value of MSR.

FHN engages in a process referred to as “price discovery” on a quarterly basis to assess the reasonableness of the estimated fair value of MSR. Price discovery is conducted through a process of obtaining the following information: (a) quarterly informal (and an annual formal) valuation of the servicing portfolio by prominent independent mortgage-servicing brokers, and (b) a collection of surveys and benchmarking data made available by independent third parties that include peer participants in the mortgage banking business. Although there is no single source of market information that can be relied upon to assess the fair value of MSR, FHN reviews all information obtained during price discovery to determine whether the estimated fair value of MSR is reasonable when compared to market information. On December 31, 2008 and 2007, FHN determined that its MSR valuations and assumptions were reasonable based on the price discovery process.

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The First Horizon Risk Management Committee (FHRMC) reviews the overall assessment of the estimated fair value of MSR monthly. The FHRMC is responsible for approving the critical assumptions used by management to determine the estimated fair value of First Horizon’s MSR. In addition, FHN’s MSR Committee reviews the initial capitalization rates for newly originated MSR, the assessment of the fair value of MSR and the source of significant changes to the MSR carrying value each quarter.

Hedging the Fair Value of MSR

FHN enters into financial agreements to hedge MSR in order to minimize the effects of loss in value of MSR associated with increased prepayment activity that generally results from declining interest rates. In a rising interest rate environment, the value of the MSR generally will increase while the value of the hedge instruments will decline. Specifically, FHN enters into interest rate contracts (including swaps, swaptions and mortgage forward sales contracts) to hedge against the effects of changes in fair value of its MSR. Substantially all capitalized MSR are hedged. The hedges are economic hedges only, and are terminated and reestablished as needed to respond to changes in market conditions. Changes in the value of the hedges are recognized as a component of net servicing income in mortgage banking noninterest income. Successful economic hedging will help minimize earnings volatility that may result from carrying MSR at fair value. Subsequent to the sale of certain mortgage banking operations to MetLife, FHN determines the fair value of the derivatives used to hedge MSR (and excess interests as discussed below) using inputs observed in active markets for similar instruments with typical inputs including the LIBOR curve, option volatility and option skew. Prior to the MetLife transaction, fair values of these derivatives were obtained through proprietary pricing models which were compared to market value quotes received from third party broker-dealers in the derivative markets.

In conjunction with the repositioning of its mortgage banking operations, FHN no longer retains servicing on the loans it sells. In prior periods, FHN generally experienced increased loan origination and production in periods of low interest rates which resulted in the capitalization of new MSR associated with new production. This provided for a “natural hedge” in the mortgage-banking business cycle. New production and origination did not prevent FHN from recognizing losses due to reduction in carrying value of existing servicing rights as a result of prepayments; rather, the new production volume resulted in loan origination fees and the capitalization of MSR as a component of realized gains related to the sale of such loans in the secondary market, thus the natural hedge, which tended to offset a portion of the reduction in MSR carrying value during a period of low interest rates. In a period of increased borrower prepayments, these losses could have been significantly offset by a strong replenishment rate and strong net margins on new loan originations. To the extent that First Horizon Home Loans was unable to maintain a strong replenishment rate, or in the event that the net margin on new loan originations declined from historical experience, the value of the natural hedge might have diminished, thereby significantly impacting the results of operations in a period of increased borrower prepayments.

FHN does not specifically hedge the change in fair value of MSR attributed to other risks, including unanticipated prepayments (representing the difference between actual prepayment experience and estimated prepayments derived from the model, as described above), discount rates, cost to service and other factors. To the extent that these other factors result in changes to the fair value of MSR, FHN experiences volatility in current earnings due to the fact that these risks are not currently hedged.

Excess Interest (Interest-Only Strips) Fair Value – Residential Mortgage Loans

In certain cases, when FHN sold mortgage loans in the secondary market, it retained an interest in the mortgage loans sold primarily through excess interest. These financial assets represent rights to receive earnings from serviced assets that exceed contractually specified servicing fees and are legally separable from the base servicing rights. Consistent with MSR, the fair value of excess interest typically rises as market interest rates increase and declines as market interest rates decrease. Additionally, similar to MSR, the market for excess interest is limited, and the precise terms of transactions involving excess interest are not typically readily available. Accordingly, FHN relies primarily on a discounted cash flow model to estimate the fair value of its excess interest.

Estimating the cash flow components and the resultant fair value of the excess interest requires FHN to make certain critical assumptions based upon current market and loan production data. The primary critical assumptions used by FHN to estimate the fair value of excess interest include prepayment speeds and discount rates, as discussed above. FHN’s excess interest is included as a component of trading securities on the Consolidated

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Statements of Condition, with realized and unrealized gains and losses included in current earnings as a component of mortgage banking income on the Consolidated Statements of Income.

Hedging the Fair Value of Excess Interest

FHN utilizes derivatives (including swaps, swaptions and mortgage forward sales contracts) that change in value inversely to the movement of interest rates to protect the value of its excess interest as an economic hedge. Realized and unrealized gains and losses associated with the change in fair value of derivatives used in the economic hedge of excess interest are included in current earnings in mortgage banking noninterest income as a component of servicing income. Excess interest is included in trading securities with changes in fair value recognized currently in earnings in mortgage banking noninterest income as a component of servicing income.

The extent to which the change in fair value of excess interest is offset by the change in fair value of the derivatives used to hedge this asset depends primarily on the hedge coverage ratio maintained by FHN. Also, as noted above, to the extent that actual borrower prepayments do not react as anticipated by the prepayment model (i.e., the historical data observed in the model does not correspond to actual market activity), it is possible that the prepayment model could fail to accurately predict mortgage prepayments, which could significantly impact FHN’s ability to effectively hedge certain components of the change in fair value of excess interest and could result in significant earnings volatility.

Principal Only and Subordinated Bond Certificates

In some instances, FHN retained interests in the loans it securitized by retaining certificated principal only strips or subordinated bonds. Subsequent to the MetLife transaction, FHN uses observable inputs such as trades of similar instruments, yield curves, credit spreads and consensus prepayment speeds to determine the fair value of principal only strips. Prior to the MetLife transaction, FHN used the market prices from comparable assets such as publicly traded FNMA trust principal only strips that were adjusted to reflect the relative risk difference between readily marketable securities and privately issued securities in valuing the principal only strips. The fair value of subordinated bonds is determined using the best available market information, which may include trades of comparable securities, independently provided spreads to other marketable securities, and published market research. Where no market information is available, the company utilizes an internal valuation model. As of December 31, 2008, no market information was available, and the subordinated bonds were valued using an internal model which includes assumptions about timing, frequency and severity of loss, prepayment speeds of the underlying collateral, and the yield that a market participant would require. The assumptions were consistent with those embedded in the December 31, 2007 values, when there was more market information available, except that loss frequency and loss severity assumptions were worsened consistent with published industry cumulative historical loss information and published market projections of future deteriorations in real estate values. As of December 31, 2007, the subordinated bonds were valued using trades of comparable market securities and independently provided spreads. Both the principal only strips and the subordinated bonds are collateralized by prime or Alt-A jumbo loans which FHN originated and sold into private label securitizations, primarily in 2006 and 2007. FHN does not utilize derivatives to hedge against changes in the fair value of these certificates.

Residual-Interest Certificates Fair Value – HELOC and Second-lien Mortgages

In certain cases, when FHN sold HELOC or second-lien mortgages in the secondary market, it retained an interest in the loans sold primarily through a residual-interest certificate. Residual-interest certificates are financial assets which represent rights to receive earnings to the extent of excess income generated by the underlying loan collateral of certain mortgage-backed securities, which is not needed to meet contractual obligations of senior security holders. The fair value of a residual-interest certificate typically changes based on the differences between modeled prepayment speeds and credit losses and actual experience. Additionally, similar to MSR and interest-only certificates, the market for residual-interest certificates is limited, and the precise terms of transactions involving residual-interest certificates are not typically readily available. Accordingly, FHN relies primarily on a discounted cash flow model, which is prepared monthly, to estimate the fair value of its residual-interest certificates.

Estimating the cash flow components and the resultant fair value of the residual-interest certificates requires FHN to make certain critical assumptions based upon current market and loan production data. The primary critical assumptions used by FHN to estimate the fair value of residual-interest certificates include prepayment speeds, credit losses and discount rates, as discussed above. FHN’s residual-interest certificates are included as a component of trading securities on the Consolidated Statements of Condition, with realized and unrealized gains

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and losses included in current earnings as a component of other income on the Consolidated Statements of Income. FHN does not utilize derivatives to hedge against changes in the fair value of residual-interest certificates.

Pipeline and Warehouse

As a result of the MetLife transaction, mortgage banking origination activity will be significantly reduced in periods after third quarter 2008 as FHN focuses on origination within its regional banking footprint. Accordingly, the following discussion of pipeline and warehouse related derivatives is primarily applicable to reporting periods occurring through the third quarter 2008.

During the period of loan origination and prior to the sale of mortgage loans in the secondary market, FHN has exposure to mortgage loans that are in the “mortgage pipeline” and the “mortgage warehouse”. The mortgage pipeline consists of loan applications that have been received, but have not yet closed as loans. Pipeline loans are either “floating” or “locked”. A floating pipeline loan is one on which an interest rate has not been locked by the borrower. A locked pipeline loan is one on which the potential borrower has set the interest rate for the loan by entering into an interest rate lock commitment. Once a mortgage loan is closed and funded, it is included within the mortgage warehouse, or the “inventory” of mortgage loans that are awaiting sale and delivery into the secondary market.

Interest rate lock commitments are derivatives pursuant to SFAS 133 and are therefore recorded at estimates of fair value. Effective January 1, 2008, FHN applied the provisions of Staff Accounting Bulletin No. 109, “Written Loan Commitments Recorded at Fair Value Through Earnings” (SAB No. 109) prospectively for derivative loan commitments issued or modified after that date. SAB No. 109 requires inclusion of expected net future cash flows related to loan servicing activities in the fair value measurement of a written loan commitment. Also on January 1, 2008, FHN adopted Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS No. 157), which affected the valuation of interest rate lock commitments 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”.

FHN adopted Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115” (SFAS No. 159) on January 1, 2008. Prior to adoption of SFAS No. 159, all warehouse loans were carried at the lower of cost or market, where carrying value was adjusted for successful hedging under SFAS No. 133 and the comparison of carrying value to market was performed for aggregate loan pools. Upon adoption of SFAS No. 159, FHN elected to prospectively account for substantially all of its mortgage loan warehouse products at fair value upon origination and correspondingly discontinued the application of SFAS No. 133 hedging relationships for these new originations.

The fair value of interest rate lock commitments and the fair value of warehouse loans are impacted principally by changes in interest rates, but also by changes in borrower’s credit, and changes in profit margins required by investors for perceived risks (i.e., liquidity). FHN does not hedge against credit and liquidity risk in the pipeline or warehouse. Third party models are used to manage the interest rate risk.

The fair value of loans whose principal market is the securitization market is based on recent security trade prices for similar product with a similar delivery date, with necessary pricing adjustments to convert the security price to a loan price. Loans whose principal market is the whole loan market are priced based on recent observable whole loan trade prices or published third party bid prices for similar product, with necessary pricing adjustments to reflect differences in loan characteristics. Typical adjustments to security prices for whole loan prices include adding the value of MSR to the security price or to the whole loan price if the price is servicing retained, adjusting for interest in excess of (or less than) the required coupon or note rate, adjustments to reflect differences in the characteristics of the loans being valued as compared to the collateral of the security or the loan characteristics in the benchmark whole loan trade, adding interest carry, reflecting the recourse obligation that will remain after sale, and adjusting for changes in market liquidity or interest rates if the benchmark security or loan price is not current. Additionally, loans that are delinquent or otherwise significantly aged are discounted to reflect the less marketable nature of these loans.

The fair value of FHN’s warehouse (first-lien mortgage loans held for sale) changes with fluctuations in interest rates from the loan closing date through the date of sale of the loan into the secondary market. Typically, the fair

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value of the warehouse declines in value when interest rates increase and rises in value when interest rates decrease. To mitigate this risk, FHN entered into forward sales contracts and futures contracts to provide an economic hedge against those changes in fair value on a significant portion of the warehouse. These derivatives are recorded at fair value with changes in fair value recorded in current earnings as a component of the gain or loss on the sale of loans in mortgage banking noninterest income.

Prior to the adoption of SFAS No. 159, to the extent that these interest rate derivatives were designated to hedge specific similar assets in the warehouse and prospective analyses indicated that high correlation is expected, the hedged loans were considered for hedge accounting under SFAS No. 133. Anticipated correlation was determined by projecting a dollar offset relationship for each tranche based on anticipated changes in the fair value of the hedged mortgage loans and the related derivatives, in response to various interest rate shock scenarios. Hedges were reset daily and the statistical correlation was calculated using these daily data points. Retrospective hedge effectiveness was measured using the regression results. FHN generally maintained a coverage ratio (the ratio of expected change in the fair value of derivatives to expected change in the fair value of hedged assets) of approximately 100 percent on warehouse loans accounted for under SFAS No. 133.

Warehouse loans qualifying for SFAS No. 133 hedge accounting treatment totaled $2.6 billion on December 31, 2007. The balance sheet impacts of the related derivatives were net liabilities of $18.8 million on December 31, 2007. Net losses of $15.5 million representing the ineffective portion of these fair value hedges were recognized as a component of gain or loss on sale of loans for the year ended December 30, 2007.

Interest rate lock commitments generally have a term of up to 60 days before the closing of the loan. During this period, the value of the lock changes with changes in interest rates. The interest rate lock commitment does not bind the potential borrower to entering into the loan, nor does it guarantee that FHN will approve the potential borrower for the loan. Therefore, when determining fair value, FHN makes estimates of expected “fallout” (locked pipeline loans not expected to close), using models, which consider cumulative historical fallout rates and other factors. Fallout can occur for a variety of reasons including falling rate environments when a borrower will abandon an interest rate lock commitment at one lender and enter into a new lower interest rate lock commitment at another, when a borrower is not approved as an acceptable credit by the lender, or for a variety of other non-economic reasons. Changes in the fair value of interest rate lock commitments are recorded in current earnings as gain or loss on the sale of loans in mortgage banking noninterest income.

Because interest rate lock commitments are derivatives, they do not qualify for hedge accounting treatment under SFAS 133. However, FHN economically hedges the risk of changing interest rates by entering into forward sales and futures contracts. The extent to which FHN is able to economically hedge changes in the mortgage pipeline depended largely on the hedge coverage ratio that was maintained relative to mortgage loans in the pipeline. The hedge coverage ratio could change significantly due to changes in market interest rates and the associated forward commitment prices for sales of mortgage loans in the secondary market. Increases or decreases in the hedge coverage ratio could result in significant earnings volatility to FHN.

For the period ended December 31, 2008, the valuation model utilized to estimate the fair value of loan applications locked prospectively from January 1, 2008, recognizes the full fair value of the ultimate loan adjusted for estimated fallout and estimated cost assumptions a market participant would use to convert the lock into a loan. The fair value of interest rate lock commitments was $.2 million on December 31, 2008. For the period ended December 31, 2007, the valuation model utilized to estimate the fair value of interest rate lock commitments assumed a zero fair value on the date of the lock with the borrower. Subsequent to the lock date, the model calculated the change in value due solely to the change in interest rates and estimated fallout resulting in a net liability with an estimated fair value of $9.9 million on December 31, 2007 .

Foreclosure Reserves

As discussed above, FHN originated mortgage loans with the intent to sell those loans to GSE and other private investors in the secondary market. Certain of the mortgage loans were sold with limited or full recourse in the event of foreclosure. On December 31, 2008 and 2007, the outstanding principal balance of mortgage loans sold with limited recourse arrangements where some portion of the principal is at risk and serviced by FHN was $3.5 billion and $3.3 billion, respectively. Additionally, on December 31, 2008 and 2007, $1.7 billion and $5.3 billion, respectively, of mortgage loans were outstanding which were sold under limited recourse arrangements where the

FIRST HORIZON NATIONAL CORPORATION

risk is limited to interest and servicing advances. On December 31, 2008 and 2007, $80.9 million and $102.8 million, respectively, of mortgage loans were outstanding which were serviced under full recourse arrangements.

Loans sold with limited recourse include loans sold under government guaranteed mortgage loan programs including the Federal Housing Administration (FHA) and Veterans Administration (VA). FHN continues to absorb losses due to uncollected interest and foreclosure costs and/or limited risk of credit losses in the event of foreclosure of the mortgage loan sold. Generally, the amount of recourse liability in the event of foreclosure is determined based upon the respective government program and/or the sale or disposal of the foreclosed property collateralizing the mortgage loan. Another instance of limited recourse is the VA/No bid. In this case, the VA guarantee is limited and FHN may be required to fund any deficiency in excess of the VA guarantee if the loan goes to foreclosure.

Loans sold with full recourse generally include mortgage loans sold to investors in the secondary market which are uninsurable under government guaranteed mortgage loan programs, due to issues associated with underwriting activities, documentation or other concerns.

Management closely monitors historical experience, borrower payment activity, current economic trends and other risk factors, and establishes a reserve for foreclosure losses for loans sold with limited recourse, loans serviced with full recourse, and loans sold with general representations and warranties, including early payment defaults. Management believes the foreclosure reserve is sufficient to cover incurred foreclosure losses relating to loans being serviced as well as loans sold where the servicing was not retained. The reserve for foreclosure losses is based upon a historical progression model using a rolling 12-month average, which predicts the probability or frequency of a mortgage loan entering foreclosure. In addition, other factors are considered, including qualitative and quantitative factors (e.g., current economic conditions, past collection experience, risk characteristics of the current portfolio and other factors), which are not defined by historical loss trends or severity of losses. On December 31, 2008 and 2007, the foreclosure reserve was $37.0 million and $16.2 million, respectively. Table 25 provides a summary of reserves for foreclosure losses for the periods ended December 31, 2008 and 2007. The servicing portfolio has decreased from $103.7 billion on December 30, 2007, to $63.7 billion on December 31, 2008 as FHN has reduced its servicing portfolio through sales through the end of 2008, while the foreclosure reserve has experienced increases primarily due to increases in both frequency and severity of projected losses.

Table 25 - Reserves for Foreclosure Losses


(Dollars in thousands)	2008				2007				2006

Beginning balance		$	16,160			$	14,036			$	16,372
Provision for foreclosure losses			33,578				11,488				13,897
Charge-offs			(13,612	)			(11,848	)			(18,363	)
Recoveries			830				2,484				2,130

Ending balance		$	36,956			$	16,160			$	14,036

Goodwill and Assessment of Impairment

FHN’s policy is to assess goodwill for impairment at the reporting unit level on an annual basis or between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value. Accounting standards require management to estimate the fair value of each reporting unit in making the assessment of impairment at least annually. As of October 1, 2008 and 2007, FHN engaged an independent valuation firm to assist in the computation of the fair value estimates of each reporting unit as part of its annual impairment assessment. The valuation utilized three separate methodologies and applied a weighted average to each in order to determine fair value for each reporting unit. The valuation as of October 1, 2008 indicated no goodwill impairment in any of the reporting units. The valuation as of October 1, 2007, indicated goodwill impairment for the Mortgage Banking segment.

Management believes the accounting estimates associated with determining fair value as part of the goodwill impairment test is a “critical accounting estimate” because estimates and assumptions are made about FHN’s future performance and cash flows, as well as other prevailing market factors (interest rates, economic trends, etc.). FHN’s policy allows management to make the determination of fair value using internal cash flow models or

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by engaging independent third parties. If a charge to operations for impairment results, this amount would be reported separately as a component of noninterest expense. This critical accounting estimate applies to the Regional Banking and Capital Markets business segments. National Specialty Lending and Mortgage Banking have no goodwill. Reporting units have been defined as the same level as the operating business segments.

The impairment testing process conducted by FHN begins by assigning net assets and goodwill to each reporting unit. FHN then completes “step one” of the impairment test by comparing the fair value of each reporting unit (as determined based on the discussion below) with the recorded book value (or “carrying amount”) of its net assets, with goodwill included in the computation of the carrying amount. If the fair value of a reporting unit exceeds its carrying amount, goodwill of that reporting unit is not considered impaired, and “step two” of the impairment test is not necessary. If the carrying amount of a reporting unit exceeds its fair value, step two of the impairment test is performed to determine the amount of impairment. Step two of the impairment test compares the carrying amount of the reporting unit’s goodwill to the “implied fair value” of that goodwill. The implied fair value of goodwill is computed by assuming all assets and liabilities of the reporting unit would be adjusted to the current fair value, with the offset as an adjustment to goodwill. This adjusted goodwill balance is the implied fair value used in step two. An impairment charge is recognized for the amount by which the carrying amount of goodwill exceeds its implied fair value.

In connection with obtaining the independent valuation, management provided certain data and information that was utilized in the estimation of fair value. This information included budgeted and forecasted earnings of FHN at the reporting unit level. Management believes that this information is a critical assumption underlying the estimate of fair value. Other assumptions critical to the process were also made, including discount rates, asset and liability growth rates, and other income and expense estimates.

While management uses the best information available to estimate future performance for each reporting unit, future adjustments to management’s projections may be necessary if conditions differ substantially from the assumptions used in making the estimates.

Contingent Liabilities

A liability is contingent if the amount or outcome is not presently known, but may become known in the future as a result of the occurrence of some uncertain future event. FHN estimates its contingent liabilities based on management’s estimates about the probability of outcomes and their ability to estimate the range of exposure. Accounting standards require that a liability be recorded if management determines that it is probable that a loss has occurred and the loss can be reasonably estimated. In addition, it must be probable that the loss will be confirmed by some future event. As part of the estimation process, management is required to make assumptions about matters that are by their nature highly uncertain.

The assessment of contingent liabilities, including legal contingencies and income tax liabilities, involves the use of critical estimates, assumptions and judgments. Management’s estimates are based on their belief that future events will validate the current assumptions regarding the ultimate outcome of these exposures. However, there can be no assurance that future events, such as court decisions or I.R.S. positions, will not differ from management’s assessments. Whenever practicable, management consults with third party experts (attorneys, accountants, claims administrators, etc.) to assist with the gathering and evaluation of information related to contingent liabilities. Based on internally and/or externally prepared evaluations, management makes a determination whether the potential exposure requires accrual in the financial statements.

OTHER ITEMS

FAIR VALUE MEASUREMENTS

As a financial services institution, fair value measurements are applied to a significant portion of FHN’s Consolidated Statement of Condition. A summary of line items significantly affected by fair value measurements, a brief description of current accounting practices and a description of current valuation methodologies are presented in Table 26 below. As of December 31, 2008, the total amount of assets and liabilities measured at fair value using significant unobservable inputs was 21 percent and 4 percent, respectively, in relation to the total amount of assets and liabilities measured at fair value. See Note 23 – Fair Values of Assets and Liabilities–for additional information.

FIRST HORIZON NATIONAL CORPORATION

Table 26 - Application of Fair Value Measurements


Line Item	Description of Accounting	Valuation Discussion

Mortgage trading securities	Retained interests in securitizations and associated financing liabilities, as applicable, are recognized at fair value through current earnings.	See Critical Accounting Policies.

Capital markets trading securities and trading liabilities	Capital Markets trading positions are recognized at fair value through current earnings.	Long positions are valued at bid price in bid-ask spread. Short positions are valued at ask price. Positions are valued using observable inputs including current market transactions, LIBOR and U.S. treasury curves, credit spreads and consensus prepayment speeds.

Loans held for sale	Substantially all mortgage loans held for sale are recognized at elected fair value with changes in fair value recognized currently in earnings.	See Critical Accounting Policies.

	The warehouse of trust preferred loans was measured at the lower of cost or market prior to its transfer to the loan portfolio in second quarter 2008.	See discussion in Note 23.

Securities available for sale	Securities are recognized at fair value with changes in fair value recorded, net of tax, within other comprehensive income. Other than temporary impairments are recognized by reducing the value of the investment to fair value through earnings.	Valuations are performed using observable inputs obtained from market transactions in similar securities, when available. Typical inputs include LIBOR and U.S. treasury curves, consensus prepayment estimates and credit spreads. When available, broker quotes are used to support valuations.

Allowance for loan losses	The appropriate reserve for collateral dependent loans is determined by estimating the fair value of the collateral and reducing this amount by estimated costs to sell.	See Critical Accounting Policies.

Mortgage servicing rights and associated financing liabilities	MSR and associated financing liabilities, as applicable, are recognized at fair value upon inception. Both are subsequently recognized at elected fair value with changes in fair value recognized through current earnings.	See Critical Accounting Policies.

Other assets and other liabilities	Interest rate lock commitments qualifying as derivatives are recognized at fair value with changes in fair value recognized through current earnings.	See Critical Accounting Policies.

	Freestanding derivatives and derivatives used for fair value hedging relationships (whether economic or qualified under SFAS No. 133) are recognized at fair value with changes in fair value included in earnings. Cash flow hedges qualifying under SFAS No. 133 are recognized at fair value with changes in fair value included in other comprehensive income, to the extent the hedge is effective, until the hedge transaction occurs. Ineffectiveness attributable to cash flow hedges is recognized in current earnings.	Valuations for forwards and futures contracts are based on current transactions involving identical securities. Valuations of other derivatives are based on inputs observed in active markets for similar instruments. Typical inputs include the LIBOR curve, option volatility and option skew. See Critical Accounting policies for discussion of the valuation procedures for derivatives used to hedge MSR and excess interest.

	Deferred compensation assets are measured at fair value with changes in fair value recognized in current earnings.	Valuations of applicable deferred compensation assets are based on quoted prices in active markets.

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QUARTERLY FINANCIAL INFORMATION

Table 27 - Summary of Quarterly Financial Information


(Dollars in millions except per share data)	2008																2007
	Fourth Quarter				Third Quarter				Second Quarter				First Quarter				Fourth Quarter				Third Quarter				Second Quarter				First Quarter

Summary income information:
Interest income		$	331.6			$	383.2			$	415.5			$	476.4			$	545.1			$	582.7			$	594.9			$	583.2
Interest expense			126.6				160.1				176.6				248.4				319.2				344.9				355.5				345.8
Provision for loan losses			280.0				340.0				220.0				240.0				156.6				43.3				44.4				28.5
Noninterest income			338.0				305.2				399.0				449.1				93.1				203.4				280.3				283.2
Noninterest expense			349.7				402.3				465.8				438.3				561.5				421.6				457.3				403.0
Income/(loss) from continuing operations			(55.7	)			(125.1	)			(19.1	)			7.0				(252.8	)			(14.4	)			22.0				70.3
Income from discontinued operations, net of tax			-				-				-				.9				4.2				.2				.2				.2
Net income/(loss)			(55.7	)			(125.1	)			(19.1	)			7.9				(248.6	)			(14.2	)			22.2				70.5
Income/(loss) available to common shareholders			(63.1	)			(125.1	)			(19.1	)			7.9				(248.6	)			(14.2	)			22.2				70.5

Earnings/(loss) per common share
from continuing operations		$	(.31	)		$	(.61	)		$	(.11	)		$	.05			$	(1.91	)		$	(.11	)		$	.18			$	.53
Earnings/(loss) per common share			(.31	)			(.61	)			(.11	)			.06				(1.88	)			(.11	)			.17				.54
Diluted earnings/(loss) per common
share from continuing operations			(.31	)			(.61	)			(.11	)			.05				(1.91	)			(.11	)			.16				.52
Diluted earnings/(loss) per common share			(.31	)			(.61	)			(.11	)			.06				(1.88	)			(.11	)			.16				.52

Common stock information:
Closing price per share:
High (a)		$	11.88			$	14.24			$	14.24			$	21.07			$	26.89			$	37.34			$	39.26			$	43.00
Low (a)			7.43				4.80				7.08				13.35				17.15				25.40				36.62				38.04
Period-end (a)			10.57				9.19				7.08				13.35				17.29				25.40				37.16				39.57
Dividends declared per share (b)			NM	(c)			NM	(d)			0.19	(e)			0.19	(e)			0.43	(e)			0.43	(e)			0.43	(e)			0.43	(e)

(a)

Per share data restated for October 1, 2008 and January 1, 2009 stock dividends.

(b)

Third and fourth quarter 2008 dividend declared paid in shares.

(c)

Stock dividend rate of 1.837% per share.

(d)

Stock dividend rate of 3.0615% per share.

(e)

Cash dividends per share restated for October 1, 2008 and January 1, 2009 stock dividends.

ACCOUNTING CHANGES

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.

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (SFAS No. 162). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States. As the GAAP hierarchy will reside in accounting literature established by the FASB upon adoption of SFAS No. 162, it will become applicable to preparers of financial statements. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board’s amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The adoption of SFAS No. 162 will have no effect on FHN’s statement of condition or results of operations.

FIRST HORIZON NATIONAL CORPORATION

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 will be required for both interim and annual reporting periods. SFAS No. 161 is effective prospectively for quarterly interim periods beginning after November 15, 2008. FHN is currently assessing the effects of adopting SFAS No. 161.

In February 2008, FASB Staff Position No. FAS 140-3, “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions” (FSP FAS 140-3), was issued. 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. FSP FAS 140-3 is effective prospectively for initial transfers executed in reporting periods beginning on or after November 15, 2008. The effect of adopting FSP FAS 140-3 will not be material to FHN.

In December 2007, the FASB issued 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 non-controlling 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. SFAS No. 141-R and SFAS No. 160 are effective prospectively for periods beginning on or after December 15, 2008, with the exception of SFAS No. 160’s presentation and disclosure requirements which should be retrospectively applied to all periods presented. While earnings per share for prior periods will not be effected by the adoption SFAS No. 160, the retrospective application of SFAS No. 160’s presentation and disclosure requirements will result in an increase to consolidated net income of approximately $14, $19, and $18, respectively, for 2008, 2007, and 2006. FHN expects to recognize an increase of total shareholders’ equity approximating $298 million upon adoption of SFAS No. 160 as a result of reclassifying the noncontrolling interest previously recognized on the Consolidated Statements of Condition as “Preferred stock of subsidiary” as a separate component of equity.

In June 2007, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 07-1, “Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies” (SOP 07-1), which provides guidance for determining whether an entity is within the scope of the AICPA’s Investment Companies Guide. Additionally, SOP 07-1 provides certain criteria that must be met in order for investment company accounting applied by a subsidiary or equity method investee to be retained in the financial statements of the parent company or an equity method investor. SOP 07-1 also provides expanded disclosure requirements regarding the retention of such investment company accounting in the consolidated financial statements. In May 2007, FASB Staff Position No. FIN 46(R)-7, “Application of FASB Interpretation No. 46(R) to Investment Companies” (FSP FIN 46(R)-7) was issued. FSP FIN 46(R)-7 amends FIN 46(R) to provide a permanent exception to its scope for companies within the scope of the revised Investment Companies Guide under SOP 07-1. In February 2008, the FASB issued FASB Staff Position No. SOP 07-1-1, “The Effective Date of AICPA Statement of Position 07-1” which indefinitely defers the effective date of SOP 07-1 and FSP FIN 46(R)-7.

FIRST HORIZON NATIONAL CORPORATION

GLOSSARY OF SELECTED FINANCIAL TERMS

Allowance for Loan Losses – Valuation reserve representing the amount considered by management to be adequate to cover estimated probable incurred losses in the loan portfolio.

Basis Point – The equivalent of one-hundredth of one percent. One hundred basis points equals one percent. This unit is generally used to measure movements in interest yields and rates.

Book Value Per Common Share – A ratio determined by dividing shareholders’ equity at the end of a period by the number of common shares outstanding at the end of that period.

Commercial Paper – A short-term unsecured debt obligation of the parent company with maturities typically of less than 90 days.

Commercial and Standby Letters of Credit – Commercial letters of credit are issued or confirmed by an entity to ensure the payment of its customers’ payables and receivables. Standby letters of credit are issued by an entity to ensure its customers’ performance in dealing with others.

Commitment to Extend Credit – Agreements to make or acquire a loan or lease as long as agreed-upon terms (e.g., expiration date, covenants, or notice) are met. Generally these commitments have fixed expiration dates or other termination clauses and may require payment of a fee.

Core Deposits – Core deposits consist of all interest-bearing and noninterest-bearing deposits, except certificates of deposit over $100,000. They include checking interest deposits, money market deposit accounts, time and other savings, plus demand deposits.

Derivative Financial Instrument – A contract or agreement whose value is derived from changes in interest rates, foreign exchange rates, prices of securities or commodities, or financial or commodity indices.

Diluted Earnings Per Common Share – Net income, divided by weighted average shares outstanding plus the effect of common stock equivalents that have the potential to be converted into common shares.

Earning Assets – Assets that generate interest or dividend income or yield-related fee income, such as loans and investment securities.

Earnings Per Common Share – Net income, divided by the weighted average number of common shares.

Excess Interest-Only Strip – Financial asset representing the right to receive earnings from serviced assets that exceeds contractually specified servicing fees and are legally separable from the base servicing rights.

Fully Taxable Equivalent (FTE) – Reflects the rate of tax-exempt income adjusted to a level that would yield the same after-tax income had that income been subject to taxation.

Interest-Only Strip – Mortgage security consisting of the interest rate portion of a stripped mortgage backed security.

Interest Rate Caps and Floors – Contracts with notional principal amounts that require the seller, in exchange for a fee, to make payments to the purchaser if a specified market interest rate exceeds a fixed upper “capped” level or falls below a fixed lower “floor” level on specified future dates.

Interest Rate Forward Contracts – Contracts representing commitments either to purchase or sell at a specified future date a specified security or financial instrument at a specified price, and may be settled in cash or through delivery.

Interest Rate Option – A contract that grants the holder (purchaser), for a fee, the right to either purchase or sell a financial instrument at a specified price within a specified period of time or on a specified date from or to the writer (seller) of the option.

FIRST HORIZON NATIONAL CORPORATION

GLOSSARY OF SELECTED FINANCIAL TERMS (continued)

Interest Rate Swap – An agreement in which two entities agree to exchange, at specified intervals, interest payment streams calculated on an agreed-upon notional principal amount with at least one stream based on a floating rate index.

Interest Rate Swaptions – Are options on interest rate swaps that give the purchaser the right, but not the obligation, to enter into an interest rate swap agreement during a specified period of time.

Leverage Ratio – Ratio consisting of Tier 1 capital divided by quarterly average assets adjusted for certain unrealized gains/(losses) on available for sale securities, goodwill, certain other intangible assets, the disallowable portion of mortgage servicing rights and other disallowed assets.

Lower of Cost or Market (LOCOM) – A method of accounting for certain assets by recording them at the lower of their historical cost or their current market value.

Market Capitalization – Market value of a company computed by multiplying the number of shares outstanding by the current stock price.

Marketing G/L (Trading Gains) – The net result of hedging activities.

Mortgage Backed Securities – Investment securities backed by a pool of mortgages or trust deeds. Principal and interest payments on the underlying mortgages are used to pay principal and interest on the securities.

Mortgage Pipeline – Interest rate commitments made to customers on mortgage loans that have not yet been closed and funded.

Mortgage Warehouse – A mortgage loan that has been closed and funded and is awaiting sale and delivery into the secondary market.

Mortgage Servicing Rights (MSR) – The right to service mortgage loans, generally owned by someone else, for a fee. Loan servicing includes collecting payments; remitting funds to investors, insurance companies, and taxing authorities; collecting delinquent payments; and foreclosing on properties when necessary.

Net Interest Income (NII) – Interest income less interest expense.

Net Interest Margin (NIM) – Expressed as a percentage, net interest margin is a ratio computed by dividing fully taxable equivalent net interest income by average earning assets.

Net Interest Spread – The difference between the average yield earned on earning assets on a fully taxable equivalent basis and the average rate paid for interest-bearing liabilities.

Nonaccrual Loans – Loans on which interest accruals have been discontinued due to the borrower’s financial difficulties. Interest income on these loans is reported on a cash basis as it is collected after recovery of principal.

Nonperforming Assets – Interest-earning assets on which interest income is not being accrued, real estate properties acquired through foreclosure and repossessed assets.

Origination Fees – A fee charged to the borrower by the lender to originate a loan. Usually stated as a percentage of the face value of the loan.

Provision for Loan Losses – The periodic charge to earnings for potential losses in the loan portfolio.

Purchase Obligation – An agreement to purchase goods or services that is enforceable and legally binding and that specifies all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction.

FIRST HORIZON NATIONAL CORPORATION

GLOSSARY OF SELECTED FINANCIAL TERMS (continued)

Purchased Funds – The combination of certificates of deposit greater than $100,000, federal funds purchased, securities sold under agreement to repurchase, bank notes, commercial paper, and other short-term borrowings.

Repurchase Agreement – A method of short-term financing where one party agrees to buy back, at a future date (generally overnight) and an agreed-upon price, a security it sells to another party.

Residual-Interest Certificates – Financial assets which represent rights to receive earnings to the extent of excess income generated by the underlying loan collateral of certain mortgage-backed securities, which is not needed to meet contractual obligations of senior security holders.

Return on Average Assets (ROA) – A measure of profitability that is calculated by dividing net income by total average assets.

Return on Average Equity (ROE) – A measure of profitability that indicates what an institution earned on its shareholders’ investment. ROE is calculated by dividing net income by total average shareholders’ equity.

Risk-Adjusted Assets – A regulatory risk-based calculation that takes into account the broad differences in risks among a banking organization’s assets and off-balance sheet financial instruments.

SFAS No. 114 Loans – Commercial loans over $1 million that are not expected to pay all contractually due principal and interest and consumer loans that have experienced a troubled debt restructuring. These loans are generally written down to an estimate of collateral value less cost to sell.

Tier 1 Capital Ratio – Ratio consisting of shareholders’ equity adjusted for certain unrealized gains/(losses) on available for sale securities, reduced by goodwill, certain other intangible assets, the disallowable portion of mortgage servicing rights and other disallowed assets divided by risk-adjusted assets.

Total Capital Ratio – Ratio consisting of Tier 1 capital plus the allowable portion of the allowance for loan losses and qualifying subordinated debt divided by risk-adjusted assets.

FIRST HORIZON NATIONAL CORPORATION

REPORT OF MANAGEMENT
ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of First Horizon National Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. First Horizon National Corporation’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Even effective internal controls, no matter how well designed, have inherent limitations such as the possibility of human error or of circumvention or overriding of controls, and consideration of cost in relation to benefit of a control. Moreover, effectiveness must necessarily be considered according to the existing state of the art of internal control. Further, because of changes in conditions, the effectiveness of internal controls may diminish over time.

Management assessed the effectiveness of First Horizon National Corporation’s internal control over financial reporting as of December 31, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Based on our assessment and those criteria, management believes that First Horizon National Corporation maintained effective internal control over financial reporting as of December 31, 2008.

First Horizon National Corporation’s independent auditors have issued an attestation report on First Horizon National Corporation’s internal control over financial reporting. That report appears on the following page.

FIRST HORIZON NATIONAL CORPORATION

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
First Horizon National Corporation:

We have audited First Horizon National Corporation’s (the Company) internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, First Horizon National Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of condition of First Horizon National Corporation as of December 31, 2008 and 2007, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2008, and our report dated February 26, 2009 expressed an unqualified opinion on those consolidated financial statements.

Memphis, Tennessee
February 26, 2009

FIRST HORIZON NATIONAL CORPORATION

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
First Horizon National Corporation:

We have audited the accompanying consolidated statements of condition of First Horizon National Corporation and subsidiaries (the Company) as of December 31, 2008 and 2007, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Horizon National Corporation as of December 31, 2008 and 2007, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 26, 2009 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Memphis, Tennessee
February 26, 2009

FIRST HORIZON NATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF CONDITION


(Dollars in thousands)	December 31
	2008				2007

Assets:
Cash and due from banks (Note 18)		$	552,423			$	1,170,220
Federal funds sold and securities purchased under agreements to resell			772,357				1,089,495

Total cash and cash equivalents			1,324,780				2,259,715

Interest-bearing cash			207,792				39,422
Trading securities			945,766				1,768,763
Loans held for sale			566,654				3,461,712
Loans held for sale – divestiture			-				289,878
Securities available for sale (Note 3)			3,125,153				3,032,551
Securities held to maturity (fair value of $242 on December 31, 2007) (Note 3)			-				240
Loans, net of unearned income (Note 4)			21,278,190				22,103,516
Less: Allowance for loan losses			849,210				342,341

Total net loans			20,428,980				21,761,175

Mortgage servicing rights, net (Note 6)			376,844				1,159,820
Goodwill (Note 7)			192,408				192,408
Other intangible assets, net (Note 7)			45,082				56,907
Capital markets receivables			1,178,932				524,419
Premises and equipment, net (Note 5)			333,931				399,305
Real estate acquired by foreclosure			125,538				103,982
Other assets			2,170,120				1,949,308
Other assets – divestiture			-				15,856

Total assets		$	31,021,980			$	37,015,461

Liabilities and shareholders’ equity:
Deposits:
Savings		$	4,824,939			$	3,872,684
Time deposits			2,294,644				2,826,301
Other interest-bearing deposits			1,783,362				1,946,933
Interest-bearing deposits – divestiture			-				189,051
Certificates of deposit $100,000 and more			1,382,236				3,129,532
Certificates of deposit $100,000 and more – divestiture			-				12,617

Interest-bearing			10,285,181				11,977,118
Noninterest-bearing			3,956,633				5,026,417
Deposits – divestiture			-				28,750

Total deposits			14,241,814				17,032,285

Federal funds purchased and securities sold under agreements to repurchase (Note 9)			1,751,079				4,829,597
Federal funds purchased and securities sold under agreements to repurchase – divestiture			-				20,999
Trading liabilities (Note 9)			359,502				556,144
Other short-term borrowings and commercial paper (Note 9)			4,279,689				3,422,995
Term borrowings			4,022,297				6,027,967
Other collateralized borrowings			745,363				800,450

Total long-term debt (Note 10)			4,767,660				6,828,417

Capital markets payables			1,115,428				586,358
Other liabilities			932,176				1,305,868
Other liabilities – divestiture			-				1,925

Total liabilities			27,447,348				34,584,588

Preferred stock of subsidiary (Note 12)			295,165				295,277

Shareholders’ equity:
Preferred stock – no par value (5,000,000 shares authorized, but unissued)			-				-
Preferred stock series CPP – no par value (866,540 shares authorized and issued on December 31, 2008)			782,680				-
Common stock – $.625 par value (shares authorized – 400,000,000; shares issued – 205,282,811 on December 31, 2008 and 132,627,292 on December 31, 2007)*			128,302				78,979
Capital surplus			1,048,602				361,826
Capital surplus common stock warrant – CPP			83,860				-
Undivided profits			1,387,854				1,742,892
Accumulated other comprehensive (loss), net (Note 15)			(151,831	)			(48,101	)

Total shareholders’ equity			3,279,467				2,135,596

Total liabilities and shareholders’ equity		$	31,021,980			$	37,015,461

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 declared through December 31, 2008.

FIRST HORIZON NATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME


(Dollars in thousands except per share data)	Year Ended December 31
	2008				2007				2006

Interest income:
Interest and fees on loans		$	1,153,546			$	1,621,881			$	1,591,006
Interest on investment securities			162,306				188,733				188,151
Interest on loans held for sale			151,554				253,587				288,161
Interest on trading securities			114,625				174,188				171,063
Interest on other earning assets			24,694				67,570				90,730

Total interest income			1,606,725				2,305,959				2,329,111

Interest expense:
Interest on deposits:
Savings			79,921				115,954				88,510
Time deposits			101,225				136,571				120,276
Other interest-bearing deposits			13,863				25,852				24,479
Certificates of deposit $100,000 and more			76,293				369,313				493,177
Interest on trading liabilities			33,195				51,516				76,064
Interest on short-term borrowings			189,568				294,074				248,915
Interest on long-term debt			217,578				372,037				280,753

Total interest expense			711,643				1,365,317				1,332,174

Net interest income			895,082				940,642				996,937
Provision for loan losses			1,080,000				272,765				83,129

Net interest income/(loss) after provision for loan losses			(184,918	)			667,877				913,808

Noninterest income:
Capital markets			524,420				334,371				383,047
Deposit transactions and cash management			179,034				175,271				168,599
Mortgage banking			518,034				69,454				370,613
Trust services and investment management			33,821				40,335				41,514
Insurance commissions			29,104				31,739				46,632
Gains/(losses) from loan sales and securitizations			(8,625	)			23,881				51,675
Equity securities gains/(losses), net			65,349				(7,475	)			10,271
Debt securities gains/(losses), net			761				6,292				(75,900	)
Gains/(losses) on divestitures			(19,019	)			15,695				-
All other income and commissions (Note 14)			168,434				170,386				170,442

Total noninterest income			1,491,313				859,949				1,166,893

Adjusted gross income after provision for loan losses			1,306,395				1,527,826				2,080,701

Noninterest expense:
Employee compensation, incentives and benefits			960,917				968,122				1,023,685
Occupancy			104,968				131,173				116,670
Equipment rentals, depreciation and maintenance			57,069				72,926				73,882
Legal and professional fees			63,718				56,882				43,012
Operations services			77,474				74,200				70,041
Communications and courier			39,863				43,909				53,249
Amortization of intangible assets			8,229				10,959				11,462
Goodwill impairment			-				84,084				-
All other expense (Note 14)			343,814				401,178				350,620

Total noninterest expense			1,656,052				1,843,433				1,742,621

Income/(loss) before income taxes			(349,657	)			(315,607	)			338,080
Provision/(benefit) for income taxes (Note 16)			(156,814	)			(140,731	)			87,278

Income/(loss) from continuing operations			(192,843	)			(174,876	)			250,802
Income from discontinued operations, net of tax			883				4,765				210,767

Income/(loss) before cumulative effect of changes in accounting principle			(191,960	)			(170,111	)			461,569
Cumulative effect of changes in accounting principle, net of tax			-				-				1,345

Net income/(loss)		$	(191,960	)		$	(170,111	)		$	462,914

Preferred stock dividends			7,413				-				-
Net income/(loss) available to common shareholders		$	(199,373	)		$	(170,111	)		$	462,914

Earnings/(loss) per share from continuing operations (Note 17)		$	(1.11	)		$	(1.32	)		$	1.92

Diluted earnings/(loss) per share from continuing operations (Note 17)		$	(1.11	)		$	(1.32	)		$	1.87

Earnings/(loss) per share available to common shareholders (Note 17)		$	(1.10	)		$	(1.29	)		$	3.54

Diluted earnings/(loss) per share available to common shareholders (Note 17)		$	(1.10	)		$	(1.29	)		$	3.45

Weighted average common shares (Note 17)			180,711				132,078				130,619

Diluted average common shares (Note 17)			180,711				132,078				134,321

See accompanying notes to consolidated financial statements.

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

FIRST HORIZON NATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


(Amounts in thousands)	Common Shares			Total				Preferred Stock – Capital Surplus			Common Stock				Capital Surplus				Capital Surplus – Warrants			Undivided Profits				Accumulated Other Comprehensive Income/(Loss)

Balance, December 31, 2005		126,222			$	2,347,539			$	-		$	78,889			$	404,964			$	-		$	1,905,930			$	(42,244	)
Net income		-				462,914				-			-				-				-			462,914				-
Other comprehensive income:
Unrealized fair value adjustments, net of tax:
Cash flow hedges		-				427				-			-				-				-			-				427
Securities available for sale		-				46,224				-			-				-				-			-				46,224
Minimum pension liability, net of tax		-				(197	)			-			-				-				-			-				(197	)

Comprehensive income		-				509,368				-			-				-				-			462,914				46,454

Cash dividends declared ($1.72/share)*		-				(224,532	)			-			-				-				-			(224,532	)			-
Common stock repurchased		(4,088	)			(168,654	)			-			(2,555	)			(166,099	)			-			-				-
Common stock issued for:
Stock options and restricted stock		2,469				57,174				-			1,543				55,631				-			-				-
Acquisitions		13				486				-			8				478				-			-				-
Tax benefit from incentive plans		-				3,592				-			-				3,592				-			-				-
Stock-based compensation expense		-				15,891				-			-				15,891				-			-				-
Adjustment to reflect change in accounting for employee stock option forfeitures		-				(1,780	)			-			-				(1,780	)			-			-				-
Adjustment to initially apply SFAS No. 158, net of tax		-				(76,658	)			-			-				-				-			-				(76,658	)
Other		250				(36	)			-			156				(156	)			-			(36	)			-

Balance, December 31, 2006		124,866				2,462,390				-			78,041				312,521				-			2,144,276				(72,448	)
Adjustment to reflect change in accounting for tax benefits (FIN 48)		-				(862	)			-			-				-				-			(862	)			-
Adjustment to reflect change in accounting for purchases of life insurance (EITF Issue No. 06-5)		-				(548	)			-			-				-				-			(548	)			-
Effects of changing pension and postretirement plans measurement dates pursuant to SFAS No. 158:
Service cost, interest cost, and expected return on plan assets for October 1 – December 31, net of tax		-				(711	)			-			-				-				-			(711	)			-
Amortization of prior service cost, transition asset/obligation, and net actuarial gain/loss for October 1 – December 31, net of tax		-				-				-			-				-				-			(1,366	)			1,366
Additional gain for October 1 – December 31, net of tax		-				6,944				-			-				-				-			-				6,944

Beginning balance, as adjusted		124,866				2,467,213				-			78,041				312,521				-			2,140,789				(64,138	)
Net income/(loss)		-				(170,111	)			-			-				-				-			(170,111	)			-
Other comprehensive income:
Unrealized fair value adjustments, net of tax:
Cash flow hedges		-				(344	)			-			-				-				-			-				(344	)
Securities available for sale		-				13,700				-			-				-				-			-				13,700
Pension and postretirement plans:
Prior service cost arising during period		-				(95	)			-			-				-				-			-				(95	)
Net actuarial gain/(loss) arising during period		-				(2,284	)			-			-				-				-			-				(2,284	)
Amortization of prior service cost, transition asset/obligation, and net actuarial gain/loss included in net periodic benefit cost		-				5,060				-			-				-				-			-				5,060

Comprehensive income/(loss)		-				(154,074	)			-			-				-				-			(170,111	)			16,037

Cash dividends declared ($1.72/share)*		-				(227,757	)			-			-				-				-			(227,757	)			-
Common stock repurchased		(27	)			(1,114	)			-			(17	)			(1,097	)			-			-				-
Common stock issued for:
Stock options and restricted stock		1,384				33,736				-			865				32,871				-			-				-
Tax benefit from incentive plans		-				6,258				-			-				6,258				-			-				-
Stock-based compensation expense		-				11,338				-			-				11,338				-			-				-
Other		143				(4	)			-			90				(65	)			-			(29	)			-

Balance, December 31, 2007		126,366				2,135,596				-			78,979				361,826				-			1,742,892				(48,101	)
Adjustment to reflect change in accounting for split dollar life insurance (EITF Issue No. 06-4)		-				(8,530	)			-			-				-				-			(8,530	)			-
Adjustment to reflect change in accounting for fair value of interest rate lock commitments (SFAS No. 157)		-				(12,502	)			-			-				-				-			(12,502	)			-

Beginning balance, as adjusted		126,366				2,114,564				-			78,979				361,826				-			1,721,860				(48,101	)
Net (loss)		-				(191,960	)			-			-				-				-			(191,960	)			-
Other comprehensive income/(loss):
Unrealized fair value adjustments, net of tax:
Cash flow hedges		-				(6	)			-			-				-				-			-				(6	)
Securities available for sale		-				21,852				-			-				-				-			-				21,852
Pension and postretirement plans:
Prior service cost arising during period		-				(37	)			-			-				-				-			-				(37	)
Net actuarial (loss) arising during period		-				(127,960	)			-			-				-				-			-				(127,960	)
Amortization of prior service cost, transition asset/obligation, and net actuarial gain/loss included in net periodic benefit cost		-				2,421				-			-				-				-			-				2,421

Comprehensive (loss)		-				(295,690	)			-			-				-				-			(191,960	)			(103,730	)

Preferred stock and common stock warrant issuance – CPP		-				866,540				782,680			-				-				83,860			-				-
Cash dividends declared ($.19/share)*		-				(64,428	)			-			-				-				-			(64,428	)			-
Stock dividends declared		9,689				-				-			6,056				71,525				-			(77,581	)			-
Common stock issuance (69 million shares issued at $10 per share net of offering costs)		69,000				659,656				-			43,125				616,531				-			-				-
Common stock repurchased		-				(306	)			-			(19	)			(287	)			-			-				-
Common stock issued for:
Stock options and restricted stock – equity awards		258				(1,956	)			-			128				(2,084	)			-			-				-
Tax benefit from incentive plans		-				(7,910	)			-			-				(7,910	)			-			-				-
Stock-based compensation expense		-				9,034				-			-				9,034				-			-				-
Other		(30	)			(37	)			-			33				(33	)			-			(37	)			-

Balance, December 31, 2008		205,283			$	3,279,467			$	782,680		$	128,302			$	1,048,602			$	83,860		$	1,387,854			$	(151,831	)

See accompanying notes to consolidated financial statements.

Per share data restated to reflect the effect of stock dividends declared through December 31, 2008.

FIRST HORIZON NATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


(Dollars in thousands)		Year Ended December 31
(Dollars in thousands)		2008				2007				2006

Operating	Net (loss)/income		$	(191,960	)		$	(170,111	)		$	462,914
Activities	Adjustments to reconcile net (loss)/income to net cash provided/(used) by operating activities:
	Provision for loan losses			1,080,000				272,765				83,129
	Provision/(benefit) for deferred income tax			(411,429	)			(215,294	)			102,738
	Depreciation and amortization of premises and equipment			41,278				57,125				53,550
	Amortization of intangible assets			8,229				10,959				11,687
	Net other amortization and accretion			47,941				63,550				79,569
	Decrease/(increase) in derivatives, net			(110,044	)			62,278				(126,440	)
	Market value adjustment on mortgage servicing rights			422,561				238,236				(50,204	)
	Provision for foreclosure reserve			15,924				10,567				12,903
	Goodwill impairment			-				84,084				-
	Impairment of other intangible assets			4,034				990				-
	Cumulative effect of changes in accounting principle, net of tax			-				-				(1,345	)
	(Gain)/loss on divestitures			19,020				(15,695	)			(211,172	)
	Stock-based compensation expense			9,034				11,338				15,891
	Excess tax benefit/(provision) from stock-based compensation arrangements			7,910				(6,258	)			(3,592	)
	Equity securities (gains)/losses, net			(65,349	)			7,475				(10,271	)
	Debt securities (gains)/losses, net			(761	)			(6,292	)			75,900
	Gains on repurchases of debt			(33,845	)			-				-
	Net losses on disposal of fixed assets			3,218				1,753				2,928
	Net (increase)/decrease in:
	Trading securities			782,470				461,982				(97,317	)
	Loans held for sale			2,926,558				(588,135	)			1,550,690
	Capital markets receivables			(654,513	)			207,863				(220,774	)
	Interest receivable			46,314				18,678				(23,125	)
	Net decrease in MSR due to sale			256,323				90,074				-
	Other assets			(224,416	)			(189,834	)			(361,868	)
	Net increase/(decrease) in:
	Capital markets payables			529,070				(213,131	)			208,162
	Interest payable			(51,765	)			(8,739	)			33,988
	Other liabilities			1,484				160,787				41,824
	Trading liabilities			(196,642	)			(233,813	)			(3,681	)

	Total adjustments			4,452,604				283,313				1,163,170

	Net cash provided by operating activities			4,260,644				113,202				1,626,084

Investing	Held to maturity securities:
Activities	Maturities			240				29				115
	Available for sale securities:
	Sales			157,984				653,627				2,968,277
	Maturities			592,776				847,174				679,456
	Purchases			(729,984	)			(573,426	)			(4,597,779	)
	Premises and equipment:
	Sales			-				-				50
	Purchases			(23,666	)			(33,539	)			(100,263	)
	Net increase in securitization retained interests classified as trading securities			(47,336	)			-				-
	Net (increase)/decrease in loans			418,985				(754,806	)			(1,639,761	)
	Net (increase)/decrease in interest-bearing cash			(168,370	)			(21,381	)			(7,350	)
	Cash (payments)/receipts related to divestitures			(40,608	)			23,318				293,358

	Net cash provided/(used) by investing activities			160,021				140,996				(2,403,897	)

Financing	Common stock:
Activities	Exercise of stock options			511				34,542				57,082
	Cash dividends paid			(120,575	)			(225,011	)			(223,386	)
	Repurchase of shares			(303	)			(1,104	)			(165,572	)
	Issuance of common shares			659,656				-				-
	Issuance of preferred equity and common stock warrant - CPP			866,540				-				-
	Excess tax benefit from stock-based compensation arrangements			(7,910	)			6,258				3,592
	Long-term debt:
	Issuance			25,002				1,230,171				2,804,057
	Payments			(1,969,207	)			(292,288	)			(412,769	)
	Cash paid for repurchase of debt			(244,928	)			-				-
	Issuance of preferred stock of subsidiary			-				8				-
	Repurchase of preferred stock of subsidiary			(112	)			(1	)			-
	Net increase/(decrease) in:
	Deposits			(2,321,483	)			(2,956,271	)			(3,224,535	)
	Short-term borrowings			(2,242,791	)			2,063,121				1,682,553

	Net cash provided/(used) by financing activities			(5,355,600	)			(140,575	)			521,022

	Net increase/(decrease) in cash and cash equivalents			(934,935	)			113,623				(256,791	)

	Cash and cash equivalents at beginning of period			2,259,715				2,146,092				2,402,883

	Cash and cash equivalents at end of period		$	1,324,780			$	2,259,715			$	2,146,092

	Cash and cash equivalents from discontinued operations at beginning of period, included above		$	-			$	-			$	874
	Total interest paid			761,130				1,374,583				1,296,324
	Total income taxes paid			336,681				13,052				115,930

See accompanying notes to consolidated condensed financial statements.

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

FIRST HORIZON NATIONAL CORPORATION

Notes to Consolidated Financial Statements

Note 1 q Summary of Significant Accounting Policies

Basis of Accounting. The consolidated 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.

Principles of Consolidation and Basis of Presentation. The consolidated financial statements include the accounts of FHN and other entities in which it has a controlling financial interest. Variable Interest Entities (VIE) for which FHN or a subsidiary has been determined to be the primary beneficiary are also consolidated. Affiliates for which FHN is not considered the primary beneficiary and that FHN does not have a controlling financial interest in are accounted for by the equity method. These investments are included in other assets, and FHN’s proportionate share of income or loss is included in noninterest income. All significant intercompany transactions and balances have been eliminated. For purposes of comparability, certain prior period amounts have been reclassified to conform to current year presentation. Business combinations accounted for as purchases are included in the financial statements from the respective dates of acquisition.

Revenue Recognition. FHN derives a significant portion of its revenues from fee based services. Noninterest income from transaction based fees is generally recognized when the transactions are completed. Noninterest income from service based fees is generally recognized over the period in which FHN provides the service.

Deposit Transactions and Cash Management. Deposit transactions include services related to retail deposit products (such as service charges on checking accounts), cash management products and services such as electronic transaction processing (automated clearing house and Electronic Data Interchange), account reconciliation services, cash vault services, lockbox processing, and information reporting to large corporate clients.

Insurance Commissions. Insurance commissions are derived from the sale of insurance products, including acting as an independent agent to provide commercial and personal property and casualty, life, long-term care, and disability insurance.

Trust Services and Investment Management. Trust services and investment management fees include investment management, personal trust, employee benefits, and custodial trust services.

Statements of Cash Flows. For purposes of these statements, cash and due from banks, federal funds sold, and securities purchased under agreements to resell are considered cash and cash equivalents. Federal funds are usually sold for one-day periods, and securities purchased under agreements to resell are short-term, highly liquid investments.

Trading Activities. Securities purchased in connection with underwriting or dealer activities (long positions) are carried at market value as trading securities. Gains and losses, both realized and unrealized, on these securities are reflected in capital markets noninterest income. Trading liabilities include securities that FHN has sold to other parties but does not own (short positions). FHN is obligated to purchase securities at a future date to cover the short positions. Assets and liabilities for unsettled trades are recorded on the Consolidated Statements of Condition as “Capital markets receivables” or “Capital markets payables”. Retained interests, in the form of excess interest, interest-only and principal-only strips, and subordinated securities from sales and securitizations of first-lien mortgages are recognized at fair value as trading securities with gains and losses, both realized and unrealized, recognized in mortgage banking income. Retained interests, in the form of certificated residual interests from the securitization of second-lien mortgages and home equity lines of credit (HELOC) are recognized at fair value as trading securities with gains and losses, both realized and unrealized, recognized in gains/(losses) from loans sales and securitizations.

FIRST HORIZON NATIONAL CORPORATION

Note 1 q Summary of Significant Accounting Policies (continued)

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. Realized gains and losses and declines in value judged to be other-than-temporary are determined by the specific identification method and reported in noninterest income.

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 are excluded from earnings and are reported, net of tax, as a component of other comprehensive income within shareholders’ equity. Venture capital investments are classified as securities available for sale and are carried at fair value. Upon adoption of Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS No. 157) on January 1, 2008, unrealized gains and losses on such securities are recognized prospectively in noninterest income. Prior to FHN’s adoption of SFAS No. 157, venture capital investments were initially valued at cost based on their unmarketable nature. Subsequently, these investments were adjusted to reflect changes in valuation as a result of public offerings or other-than-temporary declines in value.

Securities Purchased under Resale Agreements and Securities Sold under Repurchase Agreements. FHN enters into short-term purchases of securities under agreements to resell which are accounted for as collateralized financings except where FHN does not have an agreement to sell the same or substantially the same securities before maturity at a fixed or determinable price. Securities delivered under these transactions are delivered to either the dealer custody account at the Federal Reserve Bank or to the applicable counterparty. Collateral is valued daily and FHN may require counterparties to deposit additional collateral or FHN may return collateral pledged when appropriate to maintain full collateralization for these transactions.

Securities sold under agreements to repurchase are offered to cash management customers as an automated, collateralized investment account. Securities sold are also used by the retail/commercial bank to obtain favorable borrowing rates on its purchased funds. As of December 31, 2008 and 2007, FHN had pledged $1.2 billion and $1.5 billion, respectively, of available for sale securities as collateral for these arrangements.

Loans Held for Sale and Securitization and Residual Interests. Prior to fourth quarter 2008, FHN originated first-lien mortgage loans (the warehouse) for the purpose of selling them in the secondary market, through sales to agencies for securitization, proprietary securitizations, and to a lesser extent through other loan sales. In addition, FHN evaluated its liquidity position in conjunction with determining its ability and intent to hold loans for the foreseeable future and sold certain of the second-lien mortgages and HELOC it produced in the secondary market through securitizations and loan sales through third quarter 2007. Loan securitizations involve the transfer of the loans to qualifying special purposes entities (QSPE) that are not subject to consolidation in accordance with Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (SFAS No. 140). FHN generally retained the right to service the transferred loans. As a result of the sale of its national mortgage origination offices to MetLife Bank, N.A., mortgage banking origination activity will be significantly reduced in periods after third quarter 2008 as FHN focuses on origination within its regional banking footprint.

Loans originated or purchased for resale, together with mortgage loans previously sold which may be unilaterally called by FHN, are included in loans held for sale in the consolidated statements of condition. Effective January 1, 2008, upon adoption of Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS No. 159), FHN elected the fair value option on a prospective basis for almost all types of mortgage loans originated for sale purposes. Such loans are carried at fair value, with changes in the fair value of these loans recognized in the mortgage banking noninterest income section of the Consolidated Statements of Income. For mortgage loans originated for sale for which the fair value option is elected, loan origination fees are recorded by FHN when earned and related direct loan origination costs are recognized when incurred. Interests retained from the sale or securitization of such loans are included as a

FIRST HORIZON NATIONAL CORPORATION

Note 1 q Summary of Significant Accounting Policies (continued)

component of trading securities on the Consolidated Statements of Condition, with related cash receipts and payments classified prospectively in investing activities on the Consolidated Statements of Cash Flows based on the purpose for which such financial assets were retained. See Note 23 – Fair Values of Assets and Liabilities for additional information.

After adoption of SFAS No. 159, FHN continued to account for all mortgage loans held for sale which were originated prior to 2008 and for mortgage loans held for sale for which fair value accounting was not elected at the lower of cost or market value. For such loans, net origination fees and costs were deferred and included in the basis of the loans in calculating gains and losses upon sale. Also included in the basis of first-lien mortgage loans was the value accreted during the time that the loan was a locked commitment. The cost basis of loans qualifying for fair value hedge accounting under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS No. 133), was adjusted to reflect changes in fair value. Gains and losses realized from the sale of these assets were included in noninterest income. Interests retained from the sale of such loans are included as a component of trading securities on the Consolidated Statements of Condition.

Mortgage loans insured by the Federal Housing Administration (FHA) and mortgage loans guaranteed by the Veterans Administration (VA) are generally securitized through the Government National Mortgage Association (GNMA). Conforming conventional loans are generally securitized through government- sponsored enterprises (GSE) such as the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). In addition, FHN has completed proprietary securitizations of nonconforming first-lien and second-lien mortgages and HELOC, which do not conform to the requirements for sale or securitization through government agencies or GSE. Most of these securitizations are accounted for as sales; those that do not qualify for sale treatment are accounted for as financing arrangements.

Interests retained from loan sales, including agency securitizations, include MSR and excess interest. Interests retained from proprietary securitizations include MSR and various financial assets. MSR are initially valued at fair value, and the remaining retained interests are initially valued by allocating the remaining cost basis of the loan between the security or loan sold and the remaining retained interests based on their relative fair values at the time of securitization or sale. All retained interests, including MSR, are carried at fair value.

Financial assets retained in a proprietary or agency securitization may include certificated residual interests, excess interest (structured as interest-only strips), interest-only strips, principal-only strips, or subordinated bonds. Residual interests represent rights to receive earnings to the extent of excess income generated by the underlying loans. Excess interest represents rights to receive interest from serviced assets that exceed contractually specified rates. Principal-only strips are principal cash flow tranches, and interest-only strips are interest cash flow tranches. Subordinated bonds are bonds with junior priority. All financial assets retained from a securitization are recognized on the Consolidated Statements of Condition in trading securities at fair value with realized and unrealized gains and losses included in current earnings as a component of noninterest income on the Consolidated Statements of Income.

The fair values of the certificated residual interests and the excess interest are determined using market prices from closely comparable assets such as MSR that are tested against prices determined using a valuation model that calculates the present value of estimated future cash flows. The fair value of these retained interests typically changes based on changes in the discount rate and differences between modeled prepayment speeds and credit losses and actual experience. In some instances, FHN retains interests in the loans it securitized by retaining certificated principal only strips or subordinated bonds. Subsequent to the MetLife transaction, FHN uses observable inputs such as trades of similar instruments, yield curves, credit spreads and consensus prepayment speeds to determine the fair value of principal only strips. Prior to the MetLife transaction, FHN used the market prices from comparable assets such as publicly traded FNMA trust principal only strips that are adjusted to reflect the relative risk difference between readily marketable securities and privately issued securities in valuing the principal only strips. The fair value of subordinated bonds is determined using the best available market information, which may include trades of comparable securities, independently provided spreads to other marketable securities, and published market research. Where no market information is available, the company utilizes an internal valuation model. As of December 31, 2008, no market information

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was available, and the subordinated bonds were valued using an internal model which includes assumptions about timing, frequency and severity of loss, prepayment speeds of the underlying collateral, and the yield that a market participant would require. The assumptions were consistent with those embedded in the December 31, 2007 values, when there was more market information available, except that loss frequency and loss severity assumptions were worsened consistent with published industry cumulative historical loss information and published market projections of future deteriorations in real estate values. As of December 31, 2007, the subordinated bonds were valued using trades of comparable market securities and independently provided spreads.

FHN recognizes all its classes of 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. 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, like other participants in the mortgage banking business, 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. FHN also periodically compares its estimates of fair value and assumptions with brokers, service providers, and recent market activity and against its own experience. 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.

Loans. Loans are stated at principal amounts outstanding, net of unearned income. Interest on loans is recognized on an accrual basis at the applicable interest rate on the principal amount outstanding. Loan origination fees and direct costs as well as premiums and discounts are amortized as level yield adjustments over the respective loan terms. Unamortized net fees or costs are recognized upon early repayment of the loans. Loan commitment fees are generally deferred and amortized on a straight-line basis over the commitment period. Impaired loans are generally carried on a nonaccrual status. Loans are ordinarily placed on nonaccrual status when, in management’s opinion, the collection of principal or interest is unlikely. Accrued but uncollected interest is reversed and charged against interest income when the loan is placed on nonaccrual status. On retail loans, accrued but uncollected interest is reversed when the loan is fully or partially charged off. Management may elect to continue the accrual of interest when the estimated net realizable value of collateral is sufficient to recover the principal balance and accrued interest. Interest payments received on nonaccrual and impaired loans are normally applied to principal. Once all principal has been received, additional interest payments are recognized on a cash basis as interest income.

Allowance for Loan Losses. The allowance for loan losses is maintained at a level that management determines is sufficient to absorb estimated probable incurred losses in the loan portfolio. Management’s evaluation process to determine the adequacy of the allowance utilizes analytical models based on loss experience adjusted for current events, trends and economic conditions. In response to economic conditions, in 2008 and fourth quarter 2007, FHN conducted focused portfolio management activities to identify problem credits and to ensure appropriate provisioning and reserve levels. The actual amounts realized could differ in the near term from the amounts assumed in arriving at the allowance for loan losses reported in the financial statements.

All losses of principal are charged to the allowance for loan losses in the period in which the loan is deemed to be uncollectible. Additions are made to the allowance through periodic provisions charged to current operations and recovery of principal on loans previously charged off.

Premises and Equipment. Premises and equipment are carried at cost less accumulated depreciation and amortization and include additions that materially extend the useful lives of existing premises and equipment. All other maintenance and repair expenditures are expensed as incurred. Gains and losses on dispositions are reflected in noninterest income and expense.

Depreciation and amortization are computed on the straight-line method over the estimated useful lives of the assets and are recorded as noninterest expense. Leasehold improvements are amortized over the lesser of the

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lease periods or the estimated useful lives using the straight-line method. Useful lives utilized in determining depreciation for furniture, fixtures and equipment and buildings are three to fifteen and seven to forty-five years, respectively.

Real Estate Acquired by Foreclosure. Properties acquired by foreclosure in compliance with HUD servicing guidelines are included in “Real estate acquired by foreclosure” and are carried at the estimated amount of the underlying government insurance or guarantee. On December 31, 2008, FHN had $21.2 million in these foreclosed properties. All other real estate acquired by foreclosure consists of properties that have been acquired in satisfaction of debt. These properties are carried at the lower of the outstanding loan amount or estimated fair value less estimated cost to sell the real estate. Losses arising at foreclosure are charged to the appropriate reserve. Required developmental costs associated with foreclosed property under construction are capitalized and included in determining the estimated net realizable value of the property, which is reviewed periodically, and any write-downs are charged against current earnings.

Intangible Assets. Intangible assets consist of “Other intangible assets” and “Goodwill.” The “Other intangible assets” represents identified intangible assets, including customer lists, acquired contracts, covenants not to compete and premium on purchased deposits, which are amortized over their estimated useful lives, except for those assets related to deposit bases that are primarily amortized over 10 years. Management evaluates whether events or circumstances have occurred that indicate the remaining useful life or carrying value of amortizing intangibles should be revised. Goodwill represents the excess of cost over net assets of acquired subsidiaries less identifiable intangible assets. On an annual basis, FHN tests goodwill for impairment. For the year ended December 31, 2006, impairment of “Other intangible assets” or “Goodwill” recognized was immaterial to FHN. However, as a result of impairment assessments completed in relation to two full-service First Horizon Bank branches sold as part of FHN’s restructuring, repositioning, and efficiency initiatives, a goodwill writedown of $13.0 million and writedowns of other intangible assets of $.9 million were recognized during 2007. Additionally, in fourth quarter 2007, FHN incurred a noncash impairment charge of $71.1 million for the writedown of goodwill associated with the Mortgage Banking business segment. While impairment of “Goodwill” recognized was immaterial to FHN for the year ended December 31, 2008, writedowns of other intangible assets of $4.0 million were recognized during 2008 in relation to FHN’s divestiture of certain mortgage operations and from the change in FHN’s national banking strategy. See Note 27 – Restructuring, Repositioning, and Efficiency Initiatives for additional information regarding the writedown of other intangible assets during 2008 and the writedown of goodwill and other intangible assets during 2007 in relation to FHN’s restructuring, repositioning, and efficiency initiatives. See Note 7 – Intangible Assets for additional information regarding the goodwill impairment charge recognized by the Mortgage Banking business segment in 2007.

Derivative Financial Instruments. FHN accounts for derivative financial instruments in accordance with SFAS No. 133 which requires recognition of all derivative instruments on the balance sheet as either an asset or liability measured at fair value through adjustments to either accumulated other comprehensive income within shareholders’ equity or current earnings. Fair value is defined as the price that would be received to sell a derivative asset or paid to transfer a derivative liability in an orderly transaction between market participants on the transaction date. Fair value is determined using available market information and appropriate valuation methodologies.

FHN prepares written hedge documentation, identifying the risk management objective and designating the derivative instrument as a fair value hedge, cash flow hedge or free-standing derivative instrument entered into as an economic hedge or to meet customers’ needs. All transactions designated as SFAS No. 133 hedges must be assessed at inception and on an ongoing basis as to the effectiveness of the derivative instrument in offsetting changes in fair value or cash flows of the hedged item. For a fair value hedge, changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability are recognized currently in earnings. For a cash flow hedge, changes in the fair value of the derivative instrument, to the extent that it is effective, are recorded in accumulated other comprehensive income and subsequently reclassified to earnings as the hedged transaction impacts net income. Any ineffective portion of a cash flow hedge is recognized currently in earnings. For free-standing derivative instruments, changes in fair values are recognized currently in earnings. See Note 26 – Derivatives and Off-Balance Sheet Arrangements for additional information.

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Cash flows from derivative contracts are reported as operating activities on the Consolidated Statements of Cash Flows.

Advertising and Public Relations. Advertising and public relations costs are generally expensed as incurred.

Income Taxes. FHN accounts for income taxes using the liability method pursuant to Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (SFAS No. 109). Under this method, FHN’s deferred tax assets and liabilities are determined by applying the applicable federal and state income tax rates to its cumulative temporary differences. These temporary differences represent differences between financial statement carrying amounts and the corresponding tax bases of certain assets and liabilities. Deferred taxes are provided as a result of such temporary differences.

FHN and its eligible subsidiaries are included in a consolidated federal income tax return. FHN files separate returns for subsidiaries that are not eligible to be included in a consolidated federal income tax return. Based on the laws of the applicable state where it conducts business operations, FHN either files consolidated, combined or separate returns. With few exceptions, FHN is no longer subject to U.S. federal or state and local tax examinations by tax authorities for years before 2005. The Internal Revenue Servide (IRS) has completed its examination of all U.S. federal returns through 2004. All proposed adjustments with respect to examinations of federal returns filed for 2004 and prior years have been settled.

FHN adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48) on January 1, 2007. As a result of the implementation of FIN 48, FHN recognized a $.9 million increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to the January 1, 2007 balance of undivided profits. The total balance of unrecognized tax benefits at December 31, 2008 and December 31, 2007, respectively, were $31.1 and $31.6 million. FHN does not expect that unrecognized tax benefits will significantly increase or decrease within the next twelve months. FHN recognizes accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. FHN had approximately $6.0 and $4.2 million accrued for the payment of interest at December 31, 2008 and December 31, 2007, respectively.

Earnings per Share. Earnings per share is computed by dividing net income or loss available to common shareholders by the weighted average number of common shares outstanding for each period. Diluted earnings per share in net income periods is computed by dividing net income available to common shareholders by the weighted average number of common shares adjusted to include the number of additional common shares that would have been outstanding if the dilutive potential common shares resulting from options granted under FHN’s stock option plans and deferred compensation arrangements had been issued. FHN utilizes the treasury stock method in this calculation. Diluted earnings per share does not reflect an adjustment for potentially dilutive shares in net loss periods. As a result of the stock dividends declared in 2008, weighted average basic and diluted shares were restated to reflect the effect of the stock dividends.

Equity Compensation. FHN accounts for its employee stock-based compensation plans using the grant date fair value of an award to determine the expense to be recognized over the life of the award. For awards with service vesting criteria, expense is recognized using the straight-line method over the requisite service period (generally the vesting period) and is adjusted for anticipated forfeitures. For awards vesting based on a performance measure, anticipated performance is projected to determine the number of awards expected to vest, and the corresponding aggregate expense is adjusted to reflect the elapsed portion of the performance period. The fair value of equity awards with cash payout requirements, as well as awards for which fair value cannot be estimated at grant date, is remeasured each reporting period through vesting date.

For all stock option awards granted prior to adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123-R), FHN permits vesting of the option to continue after retirement. To account for these stock option awards, FHN uses the nominal vesting period approach. Under the nominal vesting period approach, awards granted to employees near retirement eligibility are expensed over the option’s normal vesting period until an employee’s actual retirement date, at which point all remaining unamortized compensation expense is immediately accelerated. Awards granted after the adoption of SFAS No. 123-R are amortized using the nonsubstantive vesting methodology. The nonsubstantive vesting methodology requires that

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expense associated with options that continue vesting after retirement be recognized over a period ending no later than an employee’s retirement eligibility date. Had FHN followed the nonsubstantive vesting period method for all awards previously granted, the effect of the change in expense attribution on earnings and per share amounts would have been negligible.

Accounting Changes. 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.

In December 2008 the FASB issued 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 transfers of financial assets as well as FHN’s involvement with variable interest entities and qualifying special purpose entities. FSP FAS 140-4 was effective for fiscal year ended after December 15, 2008 and FHN has 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 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 net impact of $1.0 million on 2008 pre-tax earnings.

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

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annually. In February 2008, the FASB staff issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157” (FSP FAS 157-2), which delayed the effective date of SFAS No. 157 until fiscal years beginning after November 15, 2008, for non-financial assets and liabilities which are recognized at fair value on a non-recurring basis. 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. 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). The effect of the change in accounting for these interest rate lock commitments produced a positive effect of $19.4 million on 2008 pre-tax earnings as existing commitments were delivered as loans and 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. Application of SFAS No. 157 to non-financial assets and liabilities which are recognized at fair value on a non-recurring basis is not expected to be significant to FHN.

In October 2008, the FASB issued FASB Staff Position No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active” (FSP FAS 157-3). FSP FAS 157-3 clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that asset is not active. FSP FAS 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued. FHN applied the guidance of FSP FAS 157-3 in its fair value measurements as of September 30, 2008 and the effects of adoption were not material.

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 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 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.

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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.

Effective January 1, 2007, FHN adopted Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments” (SFAS No. 155), which permits fair value remeasurement for hybrid financial instruments that contain an embedded derivative that otherwise would require bifurcation. Additionally, SFAS No. 155 clarifies the accounting guidance for beneficial interests in securitizations. Under SFAS No. 155, all beneficial interests in a securitization require an assessment in accordance with SFAS No. 133 to determine if an embedded derivative exists within the instrument. In addition, effective January 1, 2007, FHN adopted Derivatives Implementation Group Issue B40, “Application of Paragraph 13(b) to Securitized Interests in Prepayable Financial Assets” (DIG B40). DIG B40 provides an exemption from the embedded derivative test of paragraph 13(b) of SFAS No. 133 for instruments that would otherwise require bifurcation if the test is met solely because of a prepayment feature included within the securitized interest and prepayment is not controlled by the security holder. Since FHN presents all retained interests in its proprietary securitizations as trading securities and due to the clarifying guidance of DIG B40, the impact of adopting SFAS No. 155 was immaterial to the results of operations.

Effective January 1, 2007, FHN adopted FIN 48 which provides guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on the classification and disclosure of uncertain tax positions in the financial statements. Upon adoption of FIN 48, FHN recognized a cumulative effect adjustment to the beginning balance of undivided profits in the amount of $.9 million for differences between the tax benefits recognized in the statements of condition prior to the adoption of FIN 48 and the amounts reported after adoption.

Effective January 1, 2007, FHN adopted EITF Issue No. 06-5, “Accounting for Purchases of Life Insurance—Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance” (EITF 06-5). EITF 06-5 provides that in addition to cash surrender value, the asset recognized for a life insurance contract should consider certain other provisions included in a policy’s contractual terms with additional amounts being discounted if receivable beyond one year. Additionally, EITF 06-5 requires that the determination of the amount that could be realized under an insurance contract be performed at the individual policy level. FHN recognized a reduction of undivided profits in the amount of $.5 million as a result of adopting EITF 06-5.

Effective January 1, 2007, FHN elected early adoption of the final provisions of Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (SFAS No. 158), which required that the annual measurement date of a plan’s assets and liabilities be as of the date of the financial statements. As a result of adopting the measurement date provisions of SFAS No. 158, total equity was increased by $6.2 million on January 1, 2007, consisting of a reduction to undivided profits of $2.1 million and a credit to accumulated other comprehensive income of $8.3 million. Effective December 31, 2006, FHN adopted the provisions of SFAS No. 158 related to the requirements to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in the statements of condition. SFAS No. 158 did not change measurement or recognition requirements for periodic pension and postretirement costs. SFAS No. 158 also provides that changes in the funded status of a defined benefit postretirement plan should be recognized in the year such changes occur through comprehensive income. As a result of adopting the recognition provisions of SFAS No. 158, unrecognized transition assets and obligations, unrecognized actuarial gains and losses, and

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unrecognized prior service costs and credits were recognized as a component of accumulated other comprehensive income resulting in a reduction in equity of $76.7 million, net of tax, on December 31, 2006.

In fiscal 2006, FHN adopted SEC Staff Accounting Bulletin No. 108 (SAB No. 108). SAB No. 108 requires that registrants assess the impact on both the statement of condition and the statement of income when quantifying and evaluating the materiality of a misstatement. Under SAB No. 108, adjustment of financial statements is required when either approach results in quantifying a misstatement that is material to a reporting period presented within the financial statements, after considering all relevant quantitative and qualitative factors. The adoption of SAB No. 108 had no effect on FHN’s statement of condition or results of operations.

Effective January 1, 2006, FHN elected early adoption of Statement of Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets – an amendment of FASB Statement No. 140” (SFAS No. 156). This amendment to SFAS No. 140 requires servicing rights be initially measured at fair value. Subsequently, companies are permitted to elect, on a class-by-class basis, either fair value or amortized cost accounting for their servicing rights. FHN elected fair value accounting for its MSR. Accordingly, FHN recognized the cumulative effect of a change in accounting principle totaling $.2 million, net of tax, representing the excess of the fair value of the servicing asset over the recorded value on January 1, 2006.

FHN also adopted Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections” (SFAS No. 154), as of January 1, 2006. SFAS No. 154 requires retrospective application of voluntary changes in accounting principle. A change in accounting principle mandated by new accounting pronouncements should follow the transition method specified by the new guidance. However, if transition guidance is not otherwise specified, retrospective application will be required. SFAS No. 154 does not alter the accounting requirement for changes in estimates (prospective) and error corrections (restatement). The adoption of SFAS No. 154 did not affect FHN’s reported results of operations.

FHN adopted SFAS No. 123-R as of January 1, 2006. SFAS No. 123-R requires recognition of expense over the requisite service period for awards of share-based compensation to employees. The grant date fair value of an award is used to measure the compensation expense to be recognized over the life of the award. For unvested awards granted prior to the adoption of SFAS No. 123-R, the fair values utilized equal the values developed in preparation of the disclosures required under the original SFAS No. 123. Compensation expense recognized after adoption of SFAS No. 123-R incorporates an estimate of awards expected to ultimately vest, which requires estimation of forfeitures as well as projections related to the satisfaction of performance conditions that determine vesting. As permitted by SFAS No. 123-R, FHN retroactively applied the provisions of SFAS No. 123-R to its prior period financial statements. The Consolidated Statements of Income were revised to incorporate expenses previously presented in the footnote disclosures. The Consolidated Statements of Condition were revised to reflect the effects of including equity compensation expense in those prior periods. Additionally, all deferred compensation balances were reclassified within equity to capital surplus. Since FHN’s prior disclosures included forfeitures as they occurred, a cumulative effect adjustment, as required by SFAS No. 123-R, of $1.1 million net of tax, was made for unvested awards that were not expected to vest due to anticipated forfeiture.

Accounting Changes Issued but Not Currently Effective. 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. In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (SFAS No. 162). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States. As the GAAP hierarchy will reside in accounting literature established by the FASB upon adoption of SFAS No. 162, it will become applicable to preparers of financial statements. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board’s amendments to AU

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Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The adoption of SFAS No. 162 will have no effect on FHN’s statement of condition or results of operations.

In March 2008, the FASB issued 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 will be required for both interim and annual reporting periods. SFAS No. 161 is effective prospectively for quarterly interim periods beginning after November 15, 2008. FHN is currently assessing the effects of adopting SFAS No. 161.

In December 2007, the FASB issued 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 non-controlling 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. SFAS No. 141-R and SFAS No. 160 are effective prospectively for periods beginning on or after December 15, 2008, with the exception of SFAS No. 160’s presentation and disclosure requirements which should be retrospectively applied to all periods presented. While earnings per share for prior periods will not be effected by the adoption of SFAS No. 160, the retrospective application of SFAS No. 160’s presentation and disclosure requirements will result in an increase to consolidated net income of approximately $14 million, $19 million, and $18 million, respectively, for 2008, 2007, and 2006. FHN expects to recognize an increase of total shareholders’ equity approximating $295 million upon adoption of SFAS No. 160 as a result of reclassifying the noncontrolling interest previously recognized on the Consolidated Statements of Condition as “Preferred stock of subsidiary” as a separate component of equity.

FIRST HORIZON NATIONAL CORPORATION

Note 1 q Summary of Significant Accounting Policies (continued)

Staff Position No. SOP 07-1-1, “The Effective Date of AICPA Statement of Position 07-1” which indefinitely defers the effective date of SOP 07-1 and FSP FIN 46(R)-7.

Note 2 q Acquisitions/Divestitures

Effective August 31, 2008, FHN sold more than 230 retail and wholesale mortgage origination offices nationwide as well as its loan origination and servicing platforms. Additionally, as of that date, the parties completed the initial settlement for MetLife’s acquisition of substantially all of FHN’s mortgage origination pipeline, related hedges, certain fixed assets and other associated assets. MetLife did not acquire any portion of FHN’s mortgage loan warehouse. First Horizon retained its mortgage operations in and around Tennessee, continuing to originate home loans for customers in its banking market footprint. FHN also agreed with MetLife for the sale of servicing assets, and related hedges, on $19.1 billion of first lien mortgage loans and associated custodial deposits. Additionally, FHN has 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 ending June 30, 2008. In third quarter 2008, FHN recognized a loss on divestiture of $17.5 million related to this transaction which is included in the noninterest income section of the Consolidated Statements of Income as losses on divestitures. In fourth quarter 2008, the parties completed a post-closing true up which resulted in FHN recognizing a gain on divestiture of $0.9 million within its Consolidated Statements of Income.

Due to efforts initiated by FHN in 2007 to improve profitability, in July 2007 management decided to pursue the sale, closure, or consolidation of 34 full-service First Horizon Bank branches in Atlanta, Baltimore, Dallas and Northern Virginia. In September 2007, it was announced that agreements for the sale of all 34 of the branches had been reached. Aggregate gains of $15.7 million were recognized in fourth quarter 2007 from the disposition of 15 of the branches. Additionally, losses of $1.0 million, $0.4 million and $1.0 million were recognized in the first second and fourth quarters of 2008, respectively, from the disposition of the remaining First Horizon Bank 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 ending prior to June 30, 2008. The gains and losses realized on the disposition of First Horizon Bank branches are included in the noninterest income section of the Consolidated Statements of Income as gains and losses on divestitures.

On June 28, 2006, First Horizon Merchant Services, Inc. (FHMS) sold all of the outstanding capital stock of Global Card Services, Inc. (GCS), a wholly-owned subsidiary. As a result, tax benefits of $4.2 million were recognized associated with the difference between FHMS’ tax basis in the stock and net proceeds from the sale.

On March 1, 2006, FHN sold substantially all the assets of its national merchant processing business conducted primarily through FHMS and GCS. The sale was to NOVA Information Systems (NOVA), a wholly-owned subsidiary of U.S. Bancorp. This transaction resulted in a pre-tax gain of $351.5 million. During 2007, gains of $4.1 million resulted from an earn-out from the sale. This divestiture was accounted for as a discontinued operation, and prior periods were adjusted to exclude the impact of merchant operations from the results of continuing operations. In conjunction with the sale, FHN entered into a transitional service agreement with NOVA to provide or continue on-going services such as telecommunications, back-end processing and disaster recovery until NOVA converted the operations to their systems.

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.

FIRST HORIZON NATIONAL CORPORATION

Note 3 q Investment Securities

The following tables summarize FHN’s securities held to maturity and available for sale on December 31, 2008 and 2007:


(Dollars in thousands)	On December 31, 2008
	Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Fair Value

Total securities held to maturity		$	-		$	-		$	-			$	-

Securities available for sale:
U.S. Treasuries		$	47,911		$	809		$	-			$	48,720
Government agency issued MBS*			1,217,608			31,909			-				1,249,517
Government agency issued CMO*			1,303,378			34,602			-				1,337,980
Other U.S. government agencies*			131,216			2,485			-				133,701
States and municipalities			65,915			-			(555	)			65,360
Other			2,214			-			(35	)			2,179
Equity**			287,663			33			-				287,696

Total securities available for sale***		$	3,055,905		$	69,838		$	(590	)		$	3,125,153

Includes securities issued by government sponsored entities.

Includes FHLB and FRB stock, venture capital, money market, and cost method investments.

***

Includes $2.7 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes.


(Dollars in thousands)	On December 31, 2007
(Dollars in thousands)	Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Fair Value

Securities held to maturity:
States and municipalities		$	240		$	2		$	-			$	242

Total securities held to maturity		$	240		$	2		$	-			$	242

Securities available for sale:
U.S. Treasuries		$	41,948		$	67		$	-			$	42,015
Government agency issued MBS*			1,311,349			11,048			(176	)			1,322,221
Government agency issued CMO*			1,193,528			18,186			(1,066	)			1,210,648
Other U.S. government agencies*			222,501			6,069			(560	)			228,010
States and municipalities			1,500			-			(19	)			1,481
Other			2,855			2			(25	)			2,832
Equity**			225,389			-			(45	)			225,344

Total securities available for sale***		$	2,999,070		$	35,372		$	(1,891	)		$	3,032,551

Includes securities issued by government sponsored entities.

Includes FHLB and FRB stock, venture capital, money market, and cost method investments.

***

Includes $2.7 billion of securities pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes.

FIRST HORIZON NATIONAL CORPORATION

Note 3 q Investment Securities (continued)

Provided below are the amortized cost and fair value by contractual maturity for the securities portfolios on December 31, 2008:


(Dollars in thousands)	Held to Maturity						Available for Sale
	Amortized Cost			Fair Value			Amortized Cost			Fair Value

Within 1 year		$	-		$	-		$	9,362		$	9,366
After 1 year; within 5 years			-			-			64,980			65,989
After 5 years; within 10 years			-			-			115,539			117,230
After 10 years			-			-			57,375			57,375

Subtotal			-			-			247,256			249,960

Government agency issued MBS and CMO			-			-			2,520,986			2,587,497
Equity securities			-			-			287,663			287,696

Total		$	-		$	-		$	3,055,905		$	3,125,153

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 years ended December 31:


(Dollars in thousands)	AFS Debt*				AFS Equity*				Total

2008
Gross gains on sales		$	919			$	67,253			$	68,171
Gross losses on sales			(157	)			(1,904	)			(2,061	)

2007
Gross gains on sales		$	6,312			$	4,099			$	10,411
Gross losses on sales			(20	)			(1,087	)			(1,107	)

2006
Gross gains on sales		$	3,132			$	11,258			$	14,390
Gross losses on sales			(79,209	)			(813	)			(80,022	)

*AFS – Available for sale

Losses totaling $1.5 million, $10.4 million and $.2 million for the years 2008, 2007 and 2006, respectively, were recognized in the Consolidated Statements of Income for securities that, in the opinion of management, have been other-than-temporarily impaired. During 2006, $.2 million of recoveries were realized as gains on debt securities that had previously been written down.

FIRST HORIZON NATIONAL CORPORATION

Note 3 q Investment Securities (continued)

The following tables provide information on investments within the available for sale portfolio that have unrealized losses on December 31, 2008 and 2007:


(Dollars in thousands)	On December 31, 2008
	Less than 12 months							12 Months or Longer							Total
	Fair Value			Unrealized Losses				Fair Value			Unrealized Losses				Fair Value			Unrealized Losses

U.S. Treasuries		$	-		$	-			$	-		$	-			$	-		$	-
Government agency issued MBS			-			-				-			-				-			-
Government agency issued CMO			-			-				-			-				-			-
Other U.S. government agencies			-			-				-			-				-			-
States and municipalities			945			(555	)			-			-				945			(555	)
Other			-			-				813			(35	)			813			(35	)

Total debt securities			945			(555	)			813			(35	)			1,758			(590	)
Equity			-			-				-			-				-			-

Total temporarily impaired securities		$	945		$	(555	)		$	813		$	(35	)		$	1,758		$	(590	)

The gross unrealized losses on December 31, 2008, were principally related to states and municipalities. FHN has reviewed these securities in accordance with its accounting policy for other-than-temporary impairment and does not consider them other-than-temporarily impaired. FHN has both the intent and ability to hold these securities for the time necessary to recover the amortized cost.


(Dollars in thousands)	On December 31, 2007
	Less than 12 months							12 Months or Longer							Total
	Fair Value			Unrealized Losses				Fair Value			Unrealized Losses				Fair Value			Unrealized Losses

U.S. Treasuries		$	-		$	-			$	-		$	-			$	-		$	-
Government agency issued MBS			130,366			(176	)			-			-				130,366			(176	)
Government agency issued CMO			-			-				128,834			(1,066	)			128,834			(1,066	)
Other U.S. government agencies			-			-				24,312			(560	)			24,312			(560	)
Other			2,232			(20	)			822			(24	)			3,054			(44	)

Total debt securities			132,598			(196	)			153,968			(1,650	)			286,566			(1,846	)
Equity			186			(45	)			-			-				186			(45	)

Total temporarily impaired securities		$	132,784		$	(241	)		$	153,968		$	(1,650	)		$	286,752		$	(1,891	)

On December 31, 2008 and 2007, FHN had $193.0 million and $153.5 million, respectively, of cost method investments. These investments included Federal Reserve Bank and Federal Home Loan Bank stock of $169.9 million and $118.8 million on December 31, 2008 and 2007, respectively. These investments, which do not have a readily determinable market and for which it is not practicable to estimate a fair value, are evaluated for impairment only if there are identified events or changes in circumstances that may have had a significant adverse effect on the fair value of the investment.

FIRST HORIZON NATIONAL CORPORATION

Note 4 q Loans

A summary of the major categories of loans outstanding on December 31 is shown below:

(Dollars in thousands)

2008

2007

Commercial:

Commercial, financial and industrial

7,863,727

7,140,087

Real estate commercial

1,454,040

1,294,922

Real estate construction

1,778,140

2,753,475

Retail:

Real estate residential

8,161,435

7,791,885

Real estate construction

980,798

2,008,289

Other retail

135,779

144,019

Credit card receivables

189,554

204,812

Real estate loans pledged against other collateralized borrowings

714,717

766,027

Loans, net of unearned income

21,278,190

22,103,516

Allowance for loan losses

849,210

342,341

Total net loans

20,428,980

21,761,175

On December 31, 2008, $5.4 billion of commercial, financial and industrial loans were pledged to secure potential discount window borrowings from the Federal Reserve Bank.

On December 31, 2008, FHN did not have any concentrations of 10 percent or more of total commercial, financial and industrial loans in any single industry.

Nonperforming loans consist of loans which management has identified as impaired, other nonaccrual loans and loans which have been restructured. On December 31, 2008 and 2007, there were no significant outstanding commitments to advance additional funds to customers whose loans had been restructured. The following table presents nonperforming loans on December 31:


(Dollars in thousands)	2008			2007

Impaired loans		$	474,090		$	126,612
Other nonaccrual loans*			579,558			180,475

Total nonperforming loans		$	1,053,648		$	307,087

On December 31, 2008 and 2007, other nonaccrual loans included $8.5 million and $23.8 million, respectively, of loans held for sale.

Interest income received during 2008 for impaired loans was $24.5 million and for other nonaccrual loans was $20.6 million. Under their original terms, interest income would have been approximately $32.4 million for the

FIRST HORIZON NATIONAL CORPORATION

Note 4 q Loans (continued)

impaired loans and $23.8 million for the other nonaccrual loans outstanding on December 31, 2008. Interest income received during 2007 for impaired loans was $5.1 million and for other nonaccrual loans was $8.1 million. Under their original terms, interest income would have been approximately $8.8 million for the impaired loans and $8.0 million for the other nonaccrual loans outstanding on December 31, 2007. Interest income received during 2006 for impaired loans was $.7 million and for other nonaccrual loans was $2.5 million. Under their original terms, interest income would have been approximately $2.5 million for the impaired loans and $6.2 million for the other nonaccrual loans outstanding on December 31, 2006. The average balance of impaired loans was approximately $379.0 million for 2008, $74.7 million for 2007 and $29.9 million for 2006. Generally, impaired commercial loans considered collateral dependent have been charged down to net realizable value and other impaired loans have an associated allowance for loan loss.

Activity in the allowance for loan losses related to non-impaired and impaired loans for years ended December 31 is summarized as follows:


(Dollars in thousands)	Non-impaired				Impaired				Total

Balance on December 31, 2005		$	185,334			$	4,371			$	189,705
Provision for loan losses			66,523				16,606				83,129
Adjustment due to divestiture, acquisition or transfer			(1,470	)			-				(1,470	)
Charge-offs			(57,061	)			(11,565	)			(68,626	)
Recoveries			12,966				581				13,547

Net charge-offs			(44,095	)			(10,984	)			(55,079	)

Balance on December 31, 2006			206,292				9,993				216,285
Provision for loan losses			221,253				51,512				272,765
Adjustment due to divestiture, acquisition or transfer			(14,943	)			-				(14,943	)
Charge-offs			(99,625	)			(47,282	)			(146,907	)
Recoveries			12,906				2,235				15,141

Net charge-offs			(86,719	)			(45,047	)			(131,766	)

Balance on December 31, 2007			325,883				16,458				342,341
Provision for loan losses			828,963				251,037				1,080,000
Adjustment due to divestiture, acquisition or transfer			(370	)			-				(370	)
Charge-offs			(333,462	)			(258,966	)			(592,428	)
Recoveries			15,893				3,774				19,667

Net charge-offs			(317,569	)			(255,192	)			(572,761	)

Balance on December 31, 2008		$	836,907			$	12,303			$	849,210

Included in other assets and in other liabilities on the Consolidated Statements of Condition are amounts due from customers on acceptances and bank acceptances outstanding of $2.0 million, $3.4 million, and $7.7 million on December 31, 2008, 2007, and 2006, respectively. Retail real estate construction loans are a one-time close product where FHN provides construction and permanent mortgage financing to individuals for the purpose of constructing a home. Upon completion of construction, the permanent mortgage had historically been classified as held for sale and sold. Due to the market disruptions experienced in 2008, demand for many of these permanent mortgages decreased significantly. FHN currently transfers the loans to held for sale or retains them in the loan portfolio based upon management’s ability and intent at the time of conversion to permanent financing. FHN transferred approximately $.1 billion, $2.1 billion and $1.6 billion of OTC loans in 2008, 2007, and 2006, respectively, from the loan portfolio to held-for-sale. Additionally, FHN transferred approximately $.6 billion and $.1 billion of real estate residential loans from held for sale into the loan portfolio in 2008 and 2007, respectively.

FIRST HORIZON NATIONAL CORPORATION

Note 5 q Premises, Equipment and Leases

Premises and equipment on December 31 are summarized below:


(Dollars in thousands)	2008			2007

Land		$	64,201		$	65,218
Buildings			332,645			330,412
Leasehold improvements			57,842			75,213
Furniture, fixtures and equipment			221,894			321,539

Premises and equipment, at cost			676,582			792,382
Less accumulated depreciation and amortization			342,651			393,077

Premises and equipment, net		$	333,931		$	399,305

Excluded from the analysis were $11.6 million of Premises and equipment, net related to First Horizon Bank branches held for sale as of 2007. There were no premises and equipment included in held for sale as of December 31, 2008.

FHN is obligated under a number of noncancelable operating leases for premises and equipment with terms up to 30 years, which may include the payment of taxes, insurance and maintenance costs.

Minimum future lease payments for noncancelable operating leases on premises and equipment on December 31, 2008, are shown below:


(Dollars in thousands)

2009	$	35,064
2010		28,020
2011		19,282
2012		14,091
2013		10,658
2014 and after		30,280

Total minimum lease payments	$	137,395

Payments required under capital leases are not material.

Aggregate minimum income under sublease agreements for these periods is $15.2 million.

Rent expense incurred under all operating lease obligations was as follows for the years ended December 31:


(Dollars in thousands)	2008				2007				2006

Rent expense, gross		$	61,496			$	84,130			$	84,553
Sublease income			(4,043	)			(3,395	)			(3,556	)

Rent expense, net		$	57,453			$	80,735			$	80,997

Note 6 q Mortgage Servicing Rights

On January 1, 2006, FHN elected early adoption of SFAS No. 156, which requires servicing rights be initially measured at fair value. Subsequently, companies are permitted to elect, on a class-by-class basis, either fair value or amortized cost accounting for their servicing rights. Accordingly, FHN began initially recognizing all its classes of mortgage servicing rights (MSR) at fair value and elected to irrevocably continue application of fair value accounting to all its classes of MSR. 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. FHN recognized the cumulative effect of a change in accounting principle totaling $.2 million, net of tax, representing the excess of the fair value of the servicing asset over the recorded value on January 1, 2006. The balance of MSR included on the Consolidated Statements of Condition represents the rights to service approximately $65.2 billion and $104.3 billion of mortgage loans on December 31, 2008 and 2007, respectively, for which a servicing right has been capitalized.

FIRST HORIZON NATIONAL CORPORATION

Note 6 q Mortgage Servicing Rights (continued)

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, like other participants in the mortgage banking business, 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 December 31, 2008 and 2007:


(Dollars in thousands)	First Liens				Second Liens				HELOC

Fair value on January 1, 2007		$	448,915			$	2,005			$	3,348
Addition of mortgage servicing rights			66,080				59				153
Reductions due to loan payments			(49,421	)			(575	)			(1,091	)
Changes in fair value due to:
Changes in valuation model inputs or assumptions			(60,356	)			(60	)			(174	)
Reclassification to trading assets			(173,496	)			-				-
Other changes in fair value			(1,411	)			-				25

Fair value on December 31, 2007			230,311				1,429				2,261
Addition of mortgage servicing rights			-				-				187
Reductions due to loan payments			(22,869	)			(259	)			(412	)
Changes in fair value due to:
Changes in valuation model inputs or assumptions			(104,449	)			(189	)			(579	)
Other changes in fair value			-				-				14

Fair value on December 31, 2008		$	102,993			$	981			$	1,471

Servicing, late and other ancillary fees recognized within mortgage banking income were $86.6 million, $85.2 million and $92.3 million for the years ended December 31, 2008, 2007 and 2006, respectively, related to securitization activity. Servicing, late and other ancillary fees recognized within revenue from loan sales and securitizations were $1.2 million, $1.5 million and $1.9 million for the years ended December 31, 2008, 2007 and 2006, respectively, related to securitization activity.

FIRST HORIZON NATIONAL CORPORATION

Note 6 q Mortgage Servicing Rights (continued)

Following is a summary of changes in capitalized MSR related to loan sale activity as of December 31, 2008 and 2007:


(Dollars in thousands)	First Liens				Second Liens				HELOC

Fair value on January 1, 2007		$	1,046,300			$	22,086			$	11,288
Addition of mortgage servicing rights			283,561				11,523				1,940
Reductions due to loan payments			(164,832	)			(8,628	)			(3,606	)
Reductions due to sale			(96,502	)			-				-
Changes in fair value due to:
Changes in valuation model inputs or assumptions			(176,726	)			(676	)			(327	)
Reclassification to trading assets			(1,051	)			-				-
Other changes in fair value			1,354				98				17

Fair value on December 31, 2007			892,104				24,403				9,312
Addition of mortgage servicing rights			241,750				-				1,001
Reductions due to loan payments			(86,127	)			(6,226	)			(1,701	)
Reductions due to sale			(485,759	)			-				-
Changes in fair value due to:
Changes in valuation model inputs or assumptions			(311,353	)			(5,607	)			(2,987	)
Other changes in fair value			789				6				1,794

Fair value on December 31, 2008		$	251,404			$	12,576			$	7,419

Servicing, late and other ancillary fees recognized within mortgage banking income were $146.0 million, $227.6 million and $237.2 million for the years ended December 31, 2008, 2007 and 2006, respectively, related to loan sale activity. Servicing, late and other ancillary fees recognized within revenue from loan sales and securitizations were $15.7 million, $17.3 million and $11.1 million for the years ended December 31, 2008, 2007 and 2006, respectively, related to loan sale activity.

In 2008, FHN sold the rights to service $51.8 billion of loans which resulted in a $485.8 million reduction in MSR attributable to loan sales. Included in this change is the third quarter 2008 sale of $19.1 billion of servicing to MetLife. Changes in assumptions primarily reflect a decrease in MSR values as interest rate declines increased prepayment assumptions.

In 2007, FHN sold the rights to service $7.3 billion of loans which resulted in a $96.5 million reduction in MSR. Changes in assumptions include a $97.4 million decline in MSR due to ongoing disruptions in the mortgage market which resulted in more emphasis on third party broker price discovery and, when available, observable market trades in valuation modeling. This amount is attributable to MSR related to loan sales. In conjunction with capital management initiatives, FHN modified Pooling and Servicing Agreements (PSA) on its private securitizations during the second quarter of 2007 to segregate the retained yield component from the master servicing fee. The retained yield of $174.5 million, which primarily related to proprietary securitizations, was reclassified from mortgage servicing rights to trading securities on the Consolidated Statements of Condition.

The fair value of MSR typically rises as market interest rates increase and declines as market interest rates decrease; however, the extent to which this occurs depends in part on (1) the magnitude of changes in market interest rates, and (2) the differential between the then current market interest rates for mortgage loans and the mortgage interest rates included in the mortgage-servicing portfolio. FHN enters into financial agreements to hedge MSR in order to minimize the effects of loss in value of MSR associated with increased prepayment activity that generally results from declining interest rates. In a rising interest rate environment, the value of the MSR generally will increase while the value of the hedge instruments will decline. Specifically, FHN enters into interest rate contracts (including swaps, swaptions and mortgage forward sales contracts) to hedge against the effects of changes in fair value of its MSR. Substantially all capitalized MSR are hedged. The hedges are economic hedges only, and are terminated and reestablished as needed to respond to changes in market conditions. Changes in the value of the hedges are recognized as a component of net servicing income in mortgage banking noninterest

FIRST HORIZON NATIONAL CORPORATION

Note 6 q Mortgage Servicing Rights (continued)

income. Successful economic hedging will help minimize earnings volatility that may result from carrying MSR at fair value.

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 $27.1 million and $88.5 million at December 31, 2008 and 2007, respectively. The aggregate principal balance serviced by FHN for these transactions was $3.3 billion and $6.0 billion as December 31, 2008 and 2007, 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 December 31, 2008, FHN had transferred $28.0 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 Statement of Position as of December 31, 2008. 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.

FIRST HORIZON NATIONAL CORPORATION

Note 7 q Intangible Assets

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


(Dollars in thousands)	Goodwill				Other Intangible Assets*

December 31, 2005		$	281,440			$	76,647
Amortization expense			-				(11,462	)
Minimum pension liability adjustment			-				(1,657	)
Adjustment to initially apply SFAS No. 158			-				(804	)
Divestitures			(11,777	)			(4,318	)
Additions			5,919				6,124

December 31, 2006			275,582				64,530
Amortization expense			-				(10,959	)
Impairment			(84,084	)			(990	)
Divestitures			(3,924	)			(563	)
Additions**			4,834				4,889

December 31, 2007			192,408				56,907
Amortization expense			-				(8,229	)
Impairment			-				(4,034	)
Divestitures			-				(32	)
Additions			-				470

December 31, 2008		$	192,408			$	45,082

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

Preliminary purchase price allocations on acquisitions are based upon estimates of fair value and are subject to change.

The gross carrying amount of other intangible assets subject to amortization is $133.6 million on December 31, 2008, net of $88.6 million of accumulated amortization. Estimated aggregate amortization expense is expected to be $6.1 million, $5.9 million, $5.6 million, $4.2 million and $3.9 million for the twelve- month periods of 2009, 2010, 2011, 2012 and 2013, respectively.

In 2008, FHN recognized $4.0 million of intangible impairments. The impairments were related to noncompete agreements associated with the divestiture of certain mortgage banking operations and the write-off of state banking licenses due to FHN’s focus on the Tennessee regional banking market.

In 2007, FHN recorded $13.0 million of goodwill impairment and a write-down of $.9 million of core deposit intangibles primarily related to the sale of certain First Horizon Bank branches. Following an updated valuation based on strategic cash flow projections and market-to-book values, FHN incurred a fourth quarter 2007 non-cash pre-tax impairment charge of $71.1 million for the write-down of goodwill associated with the Mortgage Banking business segment. FHN engaged an independent valuation firm to assist in computing the fair value estimate for the impairment assessment by utilizing two separate valuation methodologies and applying a weighted average to each methodology in order to determine fair value for the Mortgage Banking business segment. The valuation methodologies utilized included a comparison of the average price to book value of comparable businesses and a discounted cash flow valuation technique.

FIRST HORIZON NATIONAL CORPORATION

Note 7 q Intangible Assets (continued)

The following is a summary of goodwill detailed by reportable segments for the three years ended December 31:


(Dollars in thousands)	Regional Banking				Mortgage Banking				Capital Markets			Total

December 31, 2005		$	104,781			$	61,593			$	115,066		$	281,440
Divestitures			(11,777	)			-				-			(11,777	)
Additions			1,272				4,647				-			5,919

December 31, 2006			94,276				66,240			$	115,066			275,582
Divestitures			(3,924	)			-				-			(3,924	)
Impairment			(13,010	)			(71,074	)			-			(84,084	)
Additions*			-				4,834				-			4,834

December 31, 2007			77,342				-				115,066			192,408

December 31, 2008		$	77,342			$	-			$	115,066		$	192,408

Preliminary purchase price allocations on acquisitions are based upon estimates of fair value and are subject to change.

There is no associated goodwill with the National Specialty Lending segment.

Note 8 q Time Deposit Maturities

Following is a table of maturities for time deposits outstanding on December 31, 2008, which include “Certificates of deposit under $100,000 and other time” and “Certificates of deposit $100,000 and more”. “Certificates of deposit $100,000 and more” totaled $1.4 billion on December 31, 2008. Time deposits are included in “Interest-bearing” deposits on the Consolidated Statements of Condition.


(Dollars in thousands)

2009	$	2,613,830
2010		344,924
2011		232,383
2012		159,390
2013		119,643
2014 and after		206,710

Total	$	3,676,880

FIRST HORIZON NATIONAL CORPORATION

Note 9 q Short-Term Borrowings

Short-term borrowings include federal funds purchased and securities sold under agreements to repurchase, commercial paper, trading liabilities and other borrowed funds.

Federal funds purchased and securities sold under agreements to repurchase and commercial paper generally have maturities of less than 90 days. Trading liabilities, which represent short positions in securities, are generally held for less than 90 days. Other short-term borrowings have original maturities of one year or less. On December 31, 2008, capital markets trading securities with a fair value of $60.6 million were pledged to secure other short-term borrowings.

The detail of these borrowings for the years 2008, 2007 and 2006 is presented in the following table:


(Dollars in thousands)	Federal Funds Purchased and Securities Sold Under Agreements to Repurchase				Commercial Paper				Trading Liabilities				Other Short-term Borrowings

2008
Average balance		$	3,409,496			$	2,325			$	702,407			$	5,136,144
Year-end balance			1,751,079				3,130				359,502				4,276,559
Maximum month-end outstanding			6,433,001				3,355				1,503,348				6,461,018
Average rate for the year			2.04	%			2.79	%			4.73	%			2.33	%
Average rate at year-end			.25				.51				4.82				.79

2007
Average balance		$	4,853,599			$	2,080			$	950,555			$	1,343,572
Year-end balance			4,829,597				2,076				556,144				3,420,919
Maximum month-end outstanding			6,167,114				2,659				1,360,764				3,420,919
Average rate for the year			4.72	%			3.76	%			5.42	%			4.83	%
Average rate at year-end			3.23				3.66				5.26				4.35

2006
Average balance		$	4,562,953			$	2,704			$	1,338,872			$	792,280
Year-end balance			4,961,799				5,619				789,957				1,252,894
Maximum month-end outstanding			6,000,299				5,619				1,542,381				1,252,894
Average rate for the year			4.58	%			2.29	%			5.68	%			5.05	%
Average rate at year-end			4.67				3.99				5.87				5.01

FIRST HORIZON NATIONAL CORPORATION

Note 10 q Long-Term Debt

The following table presents information pertaining to long-term debt (debt with original maturities greater than one year) for FHN and its subsidiaries on December 31:

(Dollars in thousands)

2008

2007

First Tennessee Bank National Association:

Subordinated notes (qualifies for total capital under the Risk-Based Capital guidelines):

Matures on January 15, 2015 – 5.05%

454,055

405,553

Matures on May 15, 2013 – 4.625%

280,801

258,745

Matured on December 1, 2008 – 5.75%

140,836

Matured on April 1, 2008 – 6.40%

89,982

Matures on April 1, 2016 – 5.65%

297,652

261,890

Bank notes (a)

2,471,164

3,144,764

Extendible notes – 5.05% on December 31, 2007

1,249,818

Other collateralized borrowings – Matures on December 22, 2037 (b)
2.30% on December 31, 2008 and 5.29% on December 31, 2007

48,855

42,997

Federal Home Loan Bank borrowings (c)

3,354

3,700

FIN 46 trust preferred debt (d)
6.53% on December 31, 2008 and 6.35% on December 31, 2007

30,500

10,000

First Horizon National Corporation:

Subordinated capital notes (qualifies for total capital under the Risk-Based Capital guidelines):

Matures on May 15, 2013 – 4.50%

112,243

103,524

Subordinated notes (Note 11):

Matures on January 6, 2027 – 8.07%

107,765

104,723

Matures on April 15, 2034 – 6.30%

219,274

209,010

FT Real Estate Securities Company, Inc.

Cumulative preferred stock (qualifies for total capital under the Risk-Based Capital guidelines):

Matures on March 31, 2031 – 9.50%

45,489

45,421

First Horizon ABS Trust

Other collateralized borrowings (e)

Matures on October 25, 2034
0.60% on December 31, 2008 and 4.76% on December 31, 2007

179,114

196,314

Matures on October 26, 2026
0.57% on December 31, 2008 and 4.73% on December 31, 2007

253,438

277,838

Matures on September 25, 2029
0.57% on December 31, 2008 and 4.73% on December 31, 2007

263,956

283,302

Total

4,767,660

6,828,417

(a)

The bank notes were issued with variable interest rates and have remaining terms of 1 to 3 years. These bank notes had weighted average interest rates of 2.58 percent and 5.05 percent on December 31, 2008 and 2007, respectively.

(b)

Secured by $49.0 million of trust preferred loans.

(c)

The Federal Home Loan Bank (FHLB) borrowings were issued with fixed interest rates and have remaining terms of 1 to 21 years. These borrowings had weighted average interest rates of 2.70 percent and 2.98 percent on December 31, 2008 and 2007, respectively.

(d)

See Note 25 – Variable Interest Entities for further details.

(e)

Secured by $715.0 million of retail real estate residential loans. See Note 24 – Loan Sales and Securitizations for further details.

Annual principal repayment requirements as of December 31, 2008, are as follows:


(Dollars in thousands)

2009	$	1,560,608
2010		148,648
2011		762,598
2012		148
2013		350,148
2014 and after		1,784,574

FIRST HORIZON NATIONAL CORPORATION

Note 10 q Long-Term Debt (continued)

All subordinated notes are unsecured and are subordinate to other present and future senior indebtedness. FTBNA’s subordinated notes and FHN’s subordinated capital notes qualify as Tier 2 capital under the risk-based capital guidelines. Prior to February 2005, FTBNA had a bank note program under which the bank was able to borrow funds from time to time at maturities of 30 days to 30 years. This bank note program was terminated in connection with the establishment of a new program. That termination did not affect any previously issued notes outstanding. In February 2005, FTBNA established a new bank note program providing additional liquidity of $5.0 billion. This bank note program provides FTBNA with a facility under which it may continuously issue and offer short- and medium-term unsecured notes. On December 31, 2008, $1.6 billion was available under current conditions by the terms of the bank note program. During 2008 and continuing into early 2009, market and other conditions have been such that FTBNA has not been able to utilize the bank note program, and instead has obtained less credit sensitive sources of funding including secured sources such as Federal Home Loan Bank borrowings and the Federal Reserve Term Auction Facility. FTBNA expects that its inability to use the bank note program will continue for some time to come, and cannot predict when that inability will end.

Note 11 q Guaranteed Preferred Beneficial Interests in First Horizon’s Junior Subordinated Debentures

On December 30, 1996, FHN, through its underwriter, sold $100 million of capital securities. First Tennessee Capital I (Capital I), a Delaware business trust wholly owned by FHN, issued $100 million of Capital Securities, Series A at 8.07 percent. The proceeds were loaned to FHN as junior subordinated debt. FHN has, through various contractual arrangements, fully and unconditionally guaranteed all of Capital I’s obligations with respect to the capital securities. The sole asset of Capital I is $103 million of junior subordinated debentures issued by FHN. These junior subordinated debentures also carry an interest rate of 8.07 percent. Both the capital securities of Capital I and the junior subordinated debentures of FHN will mature on January 6, 2027; however, under certain circumstances, the maturity of both may be shortened to a date not earlier than January 6, 2017. The capital securities qualify as Tier 1 capital. The junior subordinated debentures are included in the Consolidated Statements of Condition in “Long-term debt” (see Note 10 – Long-Term Debt).

On March 29, 2004, FHN, through its underwriter, sold $200 million of capital securities. First Tennessee Capital II (Capital II), a Delaware business trust wholly owned by FHN, issued $200 million of Capital Securities, Series B at 6.30 percent. The proceeds were loaned to FHN as junior subordinated debt. FHN has, through various contractual arrangements, fully and unconditionally guaranteed all of Capital II’s obligations with respect to the capital securities. The sole asset of Capital II is $206 million of junior subordinated debentures issued by FHN. These junior subordinated debentures also carry an interest rate of 6.30 percent. Both the capital securities of Capital II and the junior subordinated debentures of FHN will mature on April 15, 2034; however, under certain circumstances, the maturity of both may be shortened to a date not earlier than April 15, 2009. The capital securities qualify as Tier 1 capital. The junior subordinated debentures are included in the Consolidated Statements of Condition in “Long-term debt” (see Note 10 – Long-Term Debt).

Note 12 q Preferred Stock and Other Capital

FHN Preferred Stock and Warrant

On November 14, 2008, FHN issued and sold 866,540 preferred shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series CPP, along with a Warrant to purchase common stock. The issuance occurred in connection with, and is governed by, the Treasury Capital Purchase Program administered by the U.S. Treasury under the Troubled Asset Relief Program (“TARP”). The Preferred Shares have an annual 5% cumulative preferred dividend rate, payable quarterly. The dividend rate increases to 9% after five years. Dividends compound if they accrue in arrears. The Board has approved and FHN paid the 5% dividend on the CPP preferred on February 15, 2009. Preferred Shares have a liquidation preference of $1,000 per share plus accrued dividends. The Preferred Shares have no redemption date and are not subject to any sinking fund. The Preferred Shares carry certain restrictions. The Preferred Shares have a senior rank and also provides limitations on certain compensation arrangements of executive officers. During the first three years, FHN may not reinstate a cash dividend on its common shares nor purchase equity shares without the approval of the U.S. Treasury, subject to certain limited

FIRST HORIZON NATIONAL CORPORATION

Note 12 q Preferred Stock and Other Capital (continued)

exceptions. FHN may not reinstate a cash dividend on its common shares to the extent preferred dividends remain unpaid. Generally, the Preferred Shares are non-voting. However, should FHN fail to pay six quarterly dividends, the holder may elect two directors to FHN’s Board of Directors until such dividends are paid. In connection with the issuance of the Preferred Shares, a Warrant to purchase 12,743,235 common shares was issued with an exercise price of $10.20 per share. The Warrant is immediately exercisable and expires in ten years. The Warrant is subject to a proportionate anti-dilution adjustment in the event of stock dividends or splits, among other things. As a result of the 1.837% stock dividend distributed on January 1, 2009, the Warrant was adjusted to cover 12,977,328 common shares at a purchase price of $10.02 per share.

The Preferred Shares and Warrant qualify as Tier 1 capital and are presented in permanent equity on the Consolidated Statement of Condition in the amounts of $782.7 million and $83.9 million, respectively.

Subsidiary Preferred Stock

On September 14, 2000, FT Real Estate Securities Company, Inc. (FTRESC), an indirect subsidiary of FHN, issued 50 shares of 9.50% Cumulative Preferred Stock, Class B (Class B Preferred Shares), with a liquidation preference of $1.0 million per share. An aggregate total of 47 Class B Preferred Shares have been sold privately to nonaffiliates. These securities qualify as Tier 2 capital and are presented in the Consolidated Statements of Condition as “Long-term debt”. FTRESC is a real estate investment trust (REIT) established for the purpose of acquiring, holding and managing real estate mortgage assets. Dividends on the Class B Preferred Shares are cumulative and are payable semi-annually.

The Class B Preferred Shares are mandatorily redeemable on March 31, 2031, and redeemable at the discretion of FTRESC in the event that the Class B Preferred Shares cannot be accounted for as Tier 2 regulatory capital or there is more than an insubstantial risk that dividends paid with respect to the Class B Preferred Shares will not be fully deductible for tax purposes. They are not subject to any sinking fund and are not convertible into any other securities of FTRESC, FHN or any of its subsidiaries. The shares are, however, automatically exchanged at the direction of the Office of the Comptroller of the Currency for preferred stock of FTBNA, having substantially the same terms as the Class B Preferred Shares in the event FTBNA becomes undercapitalized, insolvent or in danger of becoming undercapitalized.

The following indirect, wholly-owned subsidiaries of FHN have also issued preferred stock. First Horizon Preferred Funding, LLC and First Horizon Preferred Funding II, LLC have each issued $1.0 million of Class B Preferred Units. Additionally, FHTRS, Inc. has issued $310.1 million of Class A Preferred Shares. On December 31, 2008 and 2007, the amount of Class B Preferred Shares and Units that are perpetual in nature that was recognized as “Preferred stock of subsidiary” on the Consolidated Statements of Condition was $.3 million and $.5 million, respectively. The remaining balance has been eliminated in consolidation.

On March 23, 2005, FTBNA issued 300,000 shares of Class A Non-Cumulative Perpetual Preferred Stock (Class A Preferred Stock) with a liquidation preference of $1,000 per share. These securities qualify as Tier 1 capital. On December 31, 2008 and 2007, $294.8 million of Class A Preferred Stock was recognized as “Preferred stock of subsidiary” on the Consolidated Statements of Condition.

Note 13 q 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

FIRST HORIZON NATIONAL CORPORATION

Note 13 q Regulatory Capital (continued)

assets, and of Tier 1 capital to average assets (leverage). Management believes, as of December 31, 2008, 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 18.21 percent, 13.87 percent and 11.42 percent, respectively, on December 31, 2008, and were 11.43 percent, 7.45 percent and 6.21 percent, respectively, on December 31, 2007.


(Dollars in thousands)	First Horizon National Corporation							First Tennessee Bank National Association
	Amount				Ratio			Amount				Ratio

On December 31, 2008:
Actual:
Total Capital		$	5,083,609			20.18	%		$	4,794,737			19.21	%
Tier 1 Capital			3,784,152			15.03				3,578,078			14.34
Leverage			3,784,152			12.22				3,578,078			11.64
For Capital Adequacy Purposes:
Total Capital			2,014,829	≥		8.00				1,996,781	≥		8.00
Tier 1 Capital			1,007,415	≥		4.00				998,391	≥		4.00
Leverage			1,238,942	≥		4.00				1,229,693	≥		4.00
To Be Well Capitalized Under Prompt Corrective Action Provisions:
Total Capital										2,495,976	≥		10.00
Tier 1 Capital										1,497,586	≥		6.00
Leverage										1,537,116	≥		5.00

On December 31, 2007:
Actual:
Total Capital		$	3,860,056			12.75	%		$	3,634,308			12.10	%
Tier 1 Capital			2,459,528			8.12				2,333,781			7.77
Leverage			2,459,528			6.64				2,333,781			6.35
For Capital Adequacy Purposes:
Total Capital			2,421,751	≥		8.00				2,401,999	≥		8.00
Tier 1 Capital			1,210,876	≥		4.00				1,201,000	≥		4.00
Leverage			1,480,820	≥		4.00				1,468,946	≥		4.00
To Be Well Capitalized Under Prompt Corrective Action Provisions:
Total Capital										3,002,499	≥		10.00
Tier 1 Capital										1,801,499	≥		6.00
Leverage										1,836,182	≥		5.00

FIRST HORIZON NATIONAL CORPORATION

Note 14 q Other Income and Other Expense

Following is detail concerning “All other income and commissions” and “All other expense” as presented in the Consolidated Statements of Income:


(Dollars in thousands)	2008				2007			2006

All other income and commissions:
Brokerage management fees and commissions		$	32,234			$	37,830		$	37,182
Bank-owned life insurance			25,143				25,172			19,064
Bankcard income			22,081				24,874			26,105
Other service charges			12,630				14,296			14,561
Remittance processing			12,953				13,451			14,737
Reinsurance fees			11,919				9,052			6,792
ATM interchange fees			9,224				8,472			7,091
Deferred compensation (a)			(22,901	)			7,727			14,647
Letter of credit fees			5,657				6,738			7,271
Electronic banking fees			6,217				6,561			5,975
Check clearing fees			3,125				4,896			6,385
Federal flood certifications			3,645				4,797			4,996
Gain on repurchases of debt			33,845				-			-
Other			12,662				6,520			5,636

Total		$	168,434			$	170,386		$	170,442

All other expense:
Computer software		$	30,389			$	53,942		$	34,381
Advertising and public relations			33,014				42,346			47,427
Travel and entertainment			17,371				26,099			32,306
Contract employment			33,545				21,543			27,420
Low income housing expense			18,734				20,922			17,027
Distributions on preferred stock of subsidiary			13,989				18,799			18,146
Foreclosed real estate			33,002				16,048			4,384
Supplies			10,740				13,909			15,072
Loan closing costs			38,221				12,783			12,095
Customer relations			8,875				9,801			8,688
Other insurance and taxes			6,848				8,841			8,615
Employee training and dues			6,286				6,562			6,917
Fed service fees			7,053				6,047			6,543
Complimentary check expense			4,776				5,058			5,371
Loan insurance expense			5,270				4,610			6,577
Bank examinations costs			4,144				4,504			4,367
Deposit insurance premium			14,664				3,327			3,198
Other (b) (c)			56,893				126,037			92,086

Total		$	343,814			$	401,178		$	350,620

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

(a)

Deferred compensation market value adjustments are offset by a reduction to noninterest other expense.

(b)

Includes a portion of net charges for restructuring, repositioning, and efficiency initiatives (Note 27).

(c)

2008 includes a net $30.0 million reversal of expense related to Visa litigation matters for which FHN is contingently liable. 2007 includes a $55.7 million charge related to this matter.

FIRST HORIZON NATIONAL CORPORATION

Note 15 q Components of Other Comprehensive Income/(loss)

Following is detail of “Accumulated other comprehensive income/(loss)” as presented in the Consolidated Statements of Condition:


(Dollars in thousands)	Before- Tax Amount				Tax Benefit/ (Expense)				Accumulated Other Comprehensive Income/(Loss)

December 31, 2005		$	(52,892	)		$	20,576			$	(42,244	)
Other comprehensive income:
Unrealized market adjustments on cash flow hedge			684				(257	)			427
Minimum pension liability			(316	)			119				(197	)
Unrealized market adjustments on securities available for sale			10,021				(3,898	)			6,123
Adjustment for net losses included in net income			65,629				(25,528	)			40,101

Total other comprehensive income/(loss)			76,018				(29,564	)		$	46,454
Adjustment to initially apply SFAS No. 158			(122,587	)			45,929				(76,658	)

December 31, 2006		$	(46,569	)		$	16,365			$	(72,448	)

Effects of changing pension plan measurement date pursuant to SFAS No. 158
Amortization of prior service cost, transition asset/obligation, and net actuarial gain/(loss) for October 1 – December 31		$	2,204			$	(838	)		$	1,366
Additional actuarial gain/(loss) for October 1 – December 31			11,419				(4,475	)			6,944

Beginning balance, as adjusted			13,623				(5,313	)			(64,138	)
Other comprehensive income:
Unrealized market adjustments on cash flow hedge			(551	)			207				(344	)
Unrealized market adjustments on securities available for sale			21,240				(8,263	)			12,977
Adjustment for net gains/(losses) included in net income			1,183				(460	)			723
Pension and postretirement plans:
Prior service cost arising during period			(152	)			57				(95	)
Net actuarial gain/(loss) arising during period			(4,164	)			1,880				(2,284	)
Amortization of prior service cost, transition asset/obligation, and net actuarial gain/(loss) included in net periodic benefit cost			8,119				(3,059	)			5,060

December 31, 2007		$	25,675			$	(9,638	)		$	(48,101	)

Other comprehensive income:
Unrealized market adjustments on cash flow hedge			(10	)			4				(6	)
Unrealized market adjustments on securities available for sale			35,863				(13,882	)			21,981
Adjustment for net gains/(losses) included in net income			(210	)			81				(129	)
Pension and postretirement plans:
Prior service cost arising during period			(59	)			22				(37	)
Net actuarial gain/(loss) arising during period			(208,158	)			80,198				(127,960	)
Amortization of prior service cost, transition asset/obligation, and net actuarial gain/(loss) included in net periodic benefit cost			3,913				(1,492	)			2,421

December 31, 2008		$	(168,661	)		$	64,931			$	(151,831	)

FIRST HORIZON NATIONAL CORPORATION

Note 16 q Income Taxes

The components of income tax expense/(benefit) are as follows:


(Dollars in thousands)	2008				2007				2006

Current:
Federal		$	237,894			$	73,063			$	(3,965	)
State			16,722				1,500				(11,495	)
Deferred:
Federal			(373,335	)			(178,879	)			92,291
State			(38,095	)			(36,415	)			10,447

Total		$	(156,814	)		$	(140,731	)		$	87,278

The effective tax rates for 2008, 2007 and 2006 were 44.85 percent, 44.59 percent and 25.82 percent, respectively. Income tax expense was different than the amounts computed by applying the statutory federal income tax rate to income before income taxes because of the following:


(Dollars in thousands)	2008				2007				2006

Federal income tax rate	35%				35%				35%

Tax computed at statutory rate		$	(122,380	)		$	(110,463	)		$	118,328
Increase/(decrease) resulting from:
State income taxes			(13,884	)			(22,278	)			(681	)
Tax credits			(19,064	)			(20,332	)			(18,340	)
Goodwill			-				20,058				-
Other			(1,486	)			(7,716	)			(12,029	)

Total		$	(156,814	)		$	(140,731	)		$	87,278

A deferred tax asset or liability is recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax consequence is calculated by applying enacted statutory tax rates, applicable to future years, to these temporary differences. The deferred tax assets above are net of an immaterial valuation allowance due to capital losses and a full valuation reserve against miscellaneous state net operating losses. Other than these items, no valuation allowance related to deferred tax assets has been recorded on December 31, 2008 and 2007, as management believes it is more likely than not that the remaining deferred tax assets will be fully realized because of future reversals of existing temporary differences, future taxable income exclusive of reversing temporary differences, and taxable income in prior carryback years. In 2008 and 2007, FHN paid in excess of $300 million in taxes. Additionally, FHN expects to utilize prior taxable income in the allowable two-year carryback period. Temporary differences which gave rise to deferred tax (assets)/liabilities on December 31, 2008 and 2007, were as follows:


(Dollars in thousands)	2008				2007

Deferred tax assets:
Loss reserves		$	(335,171	)		$	(143,130	)
Employee benefits			(115,292	)			(103,586	)
Accrued expenses			(27,054	)			(33,796	)
Other			(16,148	)			(19,188	)

Gross deferred tax assets			(493,665	)			(299,700	)

Deferred tax liabilities:
Capitalized mortgage servicing rights			134,210				427,298
Asset securitizations			12,976				14,439
Depreciation and amortization			20,817				32,695
Federal Home Loan Bank stock			17,092				16,135
Deferred fees and expenses			8,835				18,970
Investment in debt securities (SFAS No. 115)			26,938				13,027
Other intangible assets			21,870				5,365
Other			-				8,835

Gross deferred tax liabilities			242,738				536,764

Net deferred tax (assets) liabilities		$	(250,927	)		$	237,064

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

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Note 16 q Income Taxes (continued)

The total balance of unrecognized tax benefits at December 31, 2008, was $31.1 million. The rollforward of unrecognized tax benefits follows:


(Dollars in thousands)

Balance at January 1, 2008	$	31,560
Increases related to prior year tax positions		-
Decreases related to prior year tax positions		-
Increases related to current year tax positions		4,040
Settlements		(1,525	)
Lapse of statute		(2,967	)

Balance at December 31, 2008	$	31,108

Note 17 q Earnings per Share

The following table shows a reconciliation of the numerators used in calculating earnings per share:


(In thousands, except per share data)	2008				2007				2006

Net income/(loss) from continuing operations		$	(192,843	)		$	(174,876	)		$	250,802
Income from discontinued operations, net of tax			883				4,765				210,767
Cumulative effect of changes in accounting principle, net of tax			-				-				1,345

Net income/(loss)		$	(191,960	)		$	(170,111	)		$	462,914

Net income/(loss) from continuing operations		$	(192,843	)		$	(174,876	)		$	250,802
Preferred stock dividends			7,413				-				-

Net income/(loss) from continuing operations available to common shareholders		$	(200,256	)		$	(174,876	)		$	250,802

Net income/(loss)		$	(191,960	)		$	(170,111	)		$	462,914
Preferred stock dividends			7,413				-				-

Net income/(loss) available to common shareholders		$	(199,373	)		$	(170,111	)		$	462,914

The following table provides a reconciliation of weighted average common to diluted shares:


(In thousands, except per share data)	2008				2007				2006

Weighted average common shares		$	180,711			$	132,078			$	130,619
Effect of dilutive securities			-				-				3,702

Diluted average common shares		$	180,711			$	132,078			$	134,321

The following tables provide a reconciliation of earnings per share from continuing operations:
Earnings/(loss) per common share from continuing operations:
Net income/(loss) from continuing operations		$	(1.07	)		$	(1.32	)		$	1.92
Preferred stock dividends			(.04	)			-				-

Earnings/(loss) per common share from continuing operations		$	(1.11	)		$	(1.32	)		$	1.92

Diluted earnings/(loss) per common share from continuing operations:
Net income/(loss) from continuing operations		$	(1.07	)		$	(1.32	)		$	1.87
Preferred stock dividends			(.04	)			-				-

Diluted earnings/(loss) per common share from continuing operations		$	(1.11	)		$	(1.32	)		$	1.87

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Note 17 q Earnings per Share (continued)

The following table provides a reconciliation of earnings per share from net income available to common shareholders:


(In thousands, except per share data)	2008				2007				2006

Earnings/(loss) per common share:
Net income/(loss) from continuing operations		$	(1.07	)		$	(1.32	)		$	1.92
Income from discontinued operations, net of tax			.01				.03				1.61
Cumulative effect of changes in accounting principle, net of tax			-				-				.01

Net income/(loss)			(1.06	)			(1.29	)			3.54
Preferred stock dividends			(.04	)			-				-

Earnings/(loss) per common share		$	(1.10	)		$	(1.29	)		$	3.54

Diluted earnings/(loss) per common share:
Net income/(loss) from continuing operations		$	(1.07	)		$	(1.32	)		$	1.87
Income from discontinued operations, net of tax			.01				.03				1.57
Cumulative effect of changes in accounting principle, net of tax			-				-				.01

Net income/(loss)			(1.06	)			(1.29	)			3.45
Preferred stock dividends			(.04	)			-				-

Diluted earnings/(loss) per common share		$	(1.10	)		$	(1.29	)		$	3.45

Due to the net loss attributable to common shareholders for the twelve months ended December 31, 2008 and December 31, 2007, no potentially dilutive shares were included in the loss per share calculations as including such shares would have been antidilutive. Stock options of 17.3 million and 18.6 million with weighted average exercise prices of $32.25 and $33.07 per share for the twelve months ended December 31, 2008 and 2007, respectively, were not included in the computation of diluted loss per common share because such shares would have had an antidilutive effect on earnings per common share. Other equity awards of 1.0 million and .9 million for the twelve months ended December 31, 2008 and 2007, respectively, and 1.7 million potentially dilutive shares related to the CPP common stock Warrant were excluded from the computation of diluted loss per common share because such shares would have had an antidilutive effect on loss per common share. Outstanding stock options of 6.1 million with a weighted average exercise price of $41.06 per share for the year ended December 31, 2006, were not included in the computation of diluted earnings per share because such shares would have had an antidilutive effect on earnings per common share.

Note 18 q Restrictions, Contingencies and Other Disclosures

Restrictions on cash and due from banks. The commercial banking subsidiaries of FHN are required to maintain average reserve and clearing balances with the Federal Reserve Bank under the Federal Reserve Act and Regulation D. The balances required on December 31, 2008 and 2007, were $244.3 million and $258.5 million, respectively. These reserves are included in “Cash and due from banks” on the Consolidated Statements of Condition.

Restrictions on dividends. Cash dividends are paid by FHN from its assets, which are mainly provided by dividends from its subsidiaries. Certain regulatory restrictions exist regarding the ability of FTBNA to transfer funds to FHN in the form of cash, dividends, loans or advances. As of December 31, 2008, FTBNA had undivided profits of $1,600.6 million, none of which was available for distribution to FHN as dividends without prior regulatory approval. At any given time, the pertinent portions of those regulatory restrictions allow FTBNA to declare preferred or common dividends without prior regulatory approval in an amount equal to FTBNA’s retained net income for the two most recent completed years plus the current year to date. For any period, FTBNA’s ‘retained net income’ generally is equal to FTBNA’s regulatory net income reduced by the preferred and common dividends declared by FTBNA. Excess dividends in either of the two most recent completed years may be offset with available retained net income in the two years immediately preceding it. Applying the applicable rules, FTBNA’s total amount

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Note 18 q Restrictions, Contingencies and Other Disclosures (continued)

available for dividends was ($222.1) million at December 31, 2008 and at January 1, 2009. Earnings (or losses) and dividends declared during 2009 will change the amount available during 2009 until December 31.

In addition, in 2008 FHN issued and sold preferred stock and a common stock warrant under the Treasury’s CPP. Under the terms of that issuance, FHN is not permitted to increase its cash common dividend rate for a period of three years without permission of the Treasury. At the time of the preferred shares and common stock warrant issuance, FHN did not pay a common cash dividend.

FTBNA has requested approval from the OCC to declare and pay dividends on its preferred stock outstanding payable in April 2009. FTBNA has not requested approval to pay common dividends to its sole common stockholder, FHN. FHN estimates that it will have sufficient cash available to pay the 5% dividend on the CPP preferred issued to the U.S. Treasury as well as its other current obligations throughout 2009 even if FTBNA were unable to pay a common dividend to FHN during the year.

Restrictions on intercompany transactions. Under Federal banking law, banking subsidiaries may not extend credit to the parent company in excess of 10 percent of the bank’s capital stock and surplus, as defined, or $520.9 million on December 31, 2008. The parent company had covered transactions of $4.5 million from FTBNA on December 31, 2008. In addition, the aggregate amount of covered transactions with all affiliates, as defined, is limited to 20 percent of the bank’s capital stock and surplus, or $1 billion on December 31, 2008. FTBNA’s total covered transactions with all affiliates including the parent company on December 31, 2008 were $484.3 million. Certain loan agreements also define other restricted transactions related to additional borrowings.

Contingencies. Contingent liabilities arise in the ordinary course of business, including those related to litigation. Various claims and lawsuits are pending against FHN and its subsidiaries. In view of the inherent difficulty of predicting the outcome of legal matters, particularly where the claimants seek very large or indeterminate damages, or where the cases present novel legal theories or involve a large number of parties, FHN cannot state with confidence what the eventual outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss or impact related to each pending matter may be. FHN establishes loss contingency reserves for litigation matters when estimated loss is both probable and estimable as prescribed by applicable financial accounting guidance. A reserve generally is not established when a loss contingency either is not probable or its amount is not estimable. If loss for a matter is probable and a range of possible loss outcomes is the best estimate available, accounting guidance generally requires a reserve to be established at the low end of the range. Based on current knowledge, and after consultation with counsel, management is of the opinion that loss contingencies related to pending matters should not have a material adverse effect on the consolidated financial condition of FHN, but may be material to FHN’s operating results for any particular reporting period.

Other disclosures – Company Owned Life Insurance. FHN has purchased life insurance on certain of its employees and is the beneficiary on these policies. On December 31, 2008, the cash surrender value of these policies, which is included in “Other assets” on the Consolidated Statements of Condition, was $746.3 million. There are restrictions on $61.4 million of the proceeds from these benefits which relate to certain compensation plans. FHN has not borrowed against the cash surrender value of these policies.

Other disclosures – Indemnification agreements and guarantees. In the ordinary course of business, FHN enters into indemnification agreements for legal proceedings against its directors and officers and standard representations and warranties for underwriting agreements, merger and acquisition agreements, loan sales, contractual commitments, and various other business transactions or arrangements. The extent of FHN’s obligations under these agreements depends upon the occurrence of future events; therefore, it is not possible to estimate a maximum potential amount of payouts that could be required with such agreements.

FHN is a member of the Visa USA network. On October 3, 2007, the Visa organization of affiliated entities completed a series of global restructuring transactions to combine its affiliated operating companies, including Visa USA, under a single holding company, Visa Inc. (Visa). Upon completion of the reorganization, the members of the Visa USA network remained contingently liable for certain Visa litigation matters. Based on its proportionate membership share of Visa USA, FHN recognized a contingent liability of $55.7 million within noninterest expense in fourth quarter 2007 related to this contingent obligation.

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Note 18 q Restrictions, Contingencies and Other Disclosures (continued)

In March 2008, Visa completed its initial public offering (IPO). Visa funded an escrow account from IPO proceeds that will be used to make payments related to the Visa litigation matters. Upon funding of the escrow, FHN reversed $30.0 million of the contingent liability previously recognized with a corresponding credit to noninterest expense for its proportionate share of the escrow account. A portion of FHN’s Class B shares of Visa were redeemed as part of the IPO resulting in $65.9 million of equity securities gains in first quarter 2008.

In October 2008, Visa announced that it had agreed to settle litigation with Discover Financial Services (Discover) for $1.9 billion. $1.7 billion of this settlement amount will be paid from the escrow account established as part of Visa’s IPO. In connection with this settlement, FHN recognized additional expense of $11.0 million within noninterest expense in third quarter 2008. In December 2008, Visa deposited additional funds into the escrow account and FHN recognized a corresponding credit to noninterest expense of $11.0 million for its proportionate share of the amount funded. As of December 31, 2008, FHN’s contingent liability for Visa litigation matters was $25.7 million.

After the partial share redemption in conjunction with the IPO, FHN holds approximately 2.4 million Class B shares of Visa, which are included in the Consolidated Statement of Condition at their historical cost of $0. Conversion of these shares into Class A shares of Visa and, with limited exceptions, transfer of these shares are restricted until the later of the third anniversary of the IPO and the final resolution of the covered litigation. The final conversion ratio, which is currently estimated to approximate 63 percent, will fluctuate based on the ultimate settlement of the Visa litigation matters for which FHN has a proportionate contingent obligation. Future funding of the escrow will dilute this exchange rate by an amount that is yet to be determined.

FHN services a mortgage loan portfolio of approximately $63.7 billion on December 31, 2008; a significant portion of which is held by GNMA, FNMA, FHLMC or private security holders. In connection with its servicing activities, FHN guarantees the receipt of the scheduled principal and interest payments on the underlying loans. In the event of customer non-performance on the loan, FHN is obligated to make the payment to the security holder. Under the terms of the servicing agreements, FHN can utilize payments received from other prepaid loans in order to make the security holder whole. In the event payments are ultimately made by FHN to satisfy this obligation, for loans sold with no recourse, all funds are recoverable from the government agency at foreclosure sale. See Note 24 – Loan Sales and Securitizations for additional information on loans sold with recourse.

FHN is also subject to losses in its loan servicing portfolio due to loan foreclosures and other recourse obligations. Certain agencies have the authority to limit their repayment guarantees on foreclosed loans resulting in certain foreclosure costs being borne by servicers. In addition, FHN has exposure on all loans sold with recourse. FHN has various claims for reimbursement, repurchase obligations, and/or indemnification requests outstanding with government agencies or private investors. FHN has evaluated all of its exposure under recourse obligations based on factors, which include loan delinquency status, foreclosure expectancy rates and claims outstanding. Accordingly, FHN had an allowance for losses on the mortgage servicing portfolio of approximately $37.0 million and $16.2 million on December 31, 2008 and 2007, respectively. FHN has sold certain mortgage loans with an agreement to repurchase the loans upon default. For the single-family residential loans, in the event of borrower nonperformance, FHN would assume losses to the extent they exceed the value of the collateral and private mortgage insurance, FHA insurance or VA guarantees. On December 31, 2008 and 2007, FHN had single-family residential loans with outstanding balances of $80.9 million and $102.8 million, respectively, that were serviced on a full recourse basis. On December 31, 2008 and 2007, the outstanding principal balance of loans sold with limited recourse arrangements where some portion of the principal is at risk and serviced by FHN was $3.5 billion and $3.3 billion, respectively. Additionally, on December 31, 2008 and 2007, $1.7 billion and $5.3 billion, respectively, of mortgage loans were outstanding which were sold under limited recourse arrangements where the risk is limited to interest and servicing advances.

FHN has securitized and sold HELOC and second-lien mortgages which are held by private security holders, and on December 31, 2008, the outstanding principal balance of these loans was $210.6 million and $54.9 million, respectively. On December 31, 2007, the outstanding principal balance of securitized and sold HELOC and second-lien mortgages was $264.1 million and $72.2 million, respectively. In connection with its servicing activities, FTBNA does not guarantee the receipt of the scheduled principal and interest payments on the underlying loans but does have residual interests of $8.2 million and $18.6 million on December 31, 2008 and 2007, respectively,

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Note 18 q Restrictions, Contingencies and Other Disclosures (continued)

which are available to make the security holder whole in the event of credit losses. FHN has projected expected credit losses in the valuation of the residual interest.

In conjunction with the sale of its servicing platform to MetLife, FHN entered into a three year subservicing arrangement with MetLife for the remaining portion of its servicing portfolio. As part of the subservicing agreement, FHN has agreed to a make-whole arrangement whereby if the number of loans subserviced by MetLife and the direct servicing cost per loan (determined using loans serviced on behalf of both FHN and MetLife) both fall below specified levels, FHN will make a payment to MetLife according to a contractually specified formula. The make-whole payment is subject to a cap, which is $19.4 million if determined in the four quarters immediately following the transaction, and which declines to $15.0 million if triggered in later periods. As part of the divestiture transaction with MetLife, FHN recognized a contingent liability of $1.2 million representing the estimated fair value of its performance obligation under the make-whole arrangement.

Note 19 q Shareholder Protection Rights Agreement

On October 20, 1998, FHN adopted a Shareholder Protection Rights Agreement (the “Agreement”) and declared a dividend of one right on each outstanding share of common stock held on November 2, 1998, or issued thereafter and prior to the time the rights separate and thereafter pursuant to options and convertible securities outstanding at the time the rights separate.

The Agreement provides that until the earlier of the tenth business day (subject to certain adjustments by the board of directors) after a person or group commences a tender or exchange offer that will, subject to certain exceptions, result in such person or group owning 10 percent or more of FHN’s common stock, or the tenth business day (subject to certain adjustments by the board) after the public announcement by FHN that a person or group owns 10 percent or more of FHN’s common stock, the rights will be evidenced by the common stock certificates, will automatically trade with the common stock, and will not be exercisable. Thereafter, separate rights certificates will be distributed, and each right will entitle its holder to purchase one one-hundredth of a share of participating preferred stock having economic and voting terms similar to those of one share of common stock for an exercise price of $150.

If any person or group acquires 10 percent or more of FHN’s common stock, then each right (other than rights beneficially owned by holders of 10 percent or more of the common stock or affiliates, associates or transferees thereof, which rights become void) will entitle its holder to purchase, for the exercise price, a number of shares of FHN common stock or participating preferred stock having a market value of twice the exercise price. Also, if there is a 10 percent shareholder and FHN is involved in certain significant transactions, each right will entitle its holder to purchase, for the exercise price, a number of shares of common stock of the other party having a market value of twice the exercise price. If any person or group acquires 10 percent or more (but not more than 50 percent) of FHN’s common stock, FHN’s board of directors may, at its option, exchange one share of FHN common stock or one one-hundredth of a share of participating preferred stock for each right (other than rights which have become void). The board of directors may amend the Agreement in any respect prior to the tenth business day after announcement by FHN that a person or group has acquired 10 percent or more of FHN’s common stock. The rights will expire on the earliest of the following times: the time of the exchange described in the second preceding sentence; December 31, 2009; or the date the rights are redeemed as described in the following sentence. The rights may be redeemed by the board of directors for $0.001 per right until 10 business days after FHN announces that any person or group owns 10 percent or more of FHN’s common stock.

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Note 20 q Savings, Pension and Other Employee Benefits

Savings plan. FHN has a contributory, qualified defined contribution plan that covers substantially all employees. Under this plan, employees can invest their money in any of the available investment funds and receive a company match of $.50 for each $1.00 invested up to 6 percent of pre-tax contributions made by the employee, subject to Code limitations. The company match contribution is invested in company stock. The savings plan also allows employees to invest in a non-leveraged employee stock ownership plan (“ESOP”). Dividends on shares held by the ESOP are charged to retained earnings and the shares are considered outstanding in computing earnings per share. The number of allocated shares held by the ESOP totaled 10,397,890 on December 31, 2008.

FHN also provides “flexible dollars” to assist employees with the cost of annual benefits and/or allows the employee to contribute to his or her qualified savings plan. These “flexible dollars” are pre-tax contributions and are based upon the employees’ years of service and qualified compensation.

Contributions made by FHN through the flexible benefits plan and the company matches were $25.4 million for 2008, $30.4 million for 2007 and $31.3 million for 2006.

Effective January 1, 2008, the company added a new program to the savings plan that is provided only to employees who are not eligible for the pension plan. With the new program, FHN will generally make contributions to eligible employees’ savings plan accounts based upon company performance. Contribution amounts will be a percentage of each employee’s base salary (as defined in the savings plan) earned the prior year. FHN intends to make a contribution for this plan in 2009 related to the 2008 plan year.

Pension plan. FHN closed participation in the noncontributory, qualified defined benefit pension plan to employees hired or re-hired on September 1, 2007 or later. This did not impact the benefits of employees currently participating in the plan. Certain employees of FHN’s insurance subsidiaries are not covered by the pension plan. Pension benefits are based on years of service, average compensation near retirement, and estimated social security benefits at age 65. FHN contributions are based upon actuarially determined amounts necessary to fund the total benefit obligation.

FHN also maintains nonqualified plans including a supplemental retirement plan that covers certain employees whose benefits under the pension plan have been limited.

Other employee benefits. FHN provides postretirement medical insurance to retirement-eligible employees. The postretirement medical plan is contributory with retiree contributions adjusted annually and is based on criteria that are a combination of the employee’s age and years of service. For any employee retiring on or after January 1, 1995, FHN contributes a fixed amount based on years of service and age at the time of retirement. FHN’s post-retirement benefits include prescription drug benefits. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) introduced a prescription drug benefit under Medicare Part D as well as a federal subsidy to sponsors of retiree health care that provide a benefit that is actuarially equivalent to Medicare Part D. FHN anticipates receiving a prescription drug subsidy under the Act through 2012.

Actuarial assumptions. FHN’s process for developing the long-term expected rate of return is based on two primary sources of investment portfolio returns: capital market exposure and active management benefit. Capital market exposure refers to the Plan’s broad allocation of its assets to asset classes, such as Large Cap Equity and Fixed Income. Active management refers to hiring investment managers to select individual securities that are expected to outperform the market. Active management provides only a small measure of the plan’s overall return. FHN also considers expectations for inflation, real interest rates, and various risk premiums based primarily on the historical risk premium for each asset class. The expected return is based upon a twenty year time horizon. This resulted in the selection of an 8.42 percent assumption for 2009 for the defined benefit pension plan and 5.47 percent for postretirement medical plan assets dedicated to employees who retired prior to January 1, 1993.

The discount rates for the three years ended 2008 for pension and other benefits were determined by using a hypothetical AA yield curve represented by a series of annualized individual discount rates from one-half to thirty years. The discount rates are selected based upon data specific to FHN’s plan and employee population. The bonds used to create the hypothetical yield curve were subjected to several requirements to ensure that the

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Note 20 q Savings, Pension and Other Employee Benefits (continued)

resulting rates were representative of the bonds that would be selected by management to fulfill the company’s funding obligations. In addition to the AA rating, only non-callable bonds were included. Each bond issue was required to have at least $150 million par outstanding so that each issue was sufficiently marketable. Finally, bonds more than two standard deviations from the average yield were removed.

The actuarial assumptions used in the defined benefit pension plan and the other employee benefit plans were as follows:


	Benefit Obligations									Net Periodic Benefit Cost
	2008			2007			2006			2008			2007			2006

Discount rate
Qualified pension		6.85	%		7.00	%		6.06	%		7.00	%		5.97	%		5.87	%
Nonqualified pension		6.90			6.70			5.88			6.70			6.12			5.87
Other nonqualified pension		6.95			6.55			N/A			6.83			N/A			N/A
Postretirement benefit		6.90			6.60			5.85			6.60			5.83			5.64

Expected long-term rate of return
Qualified pension/postretirement benefits		8.42			8.87			8.35			8.87			8.35			8.65
Postretirement benefit (retirees prior to January 1, 1993)		5.47			5.77			5.43			5.77			5.43			5.62

Rate of compensation increase		4.10			4.10			4.10			4.10			4.10			4.42

Measurement date		12/31/2008			12/31/2007			9/30/2006			12/31/2008			12/31/2007			9/30/2006

The assumed health care cost trend rates used in the defined benefit pension plan and the other employee benefit plan were as follows:


	2008						2007

Assumed Health Care Cost Trend Rates on December 31	Participants under age 65			Participants 65 years and older			Participants under age 65			Participants 65 years and older


Health care cost trend rate assumed for next year		8.50	%		10.50	%		9.00	%		11.00	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)		6.00			6.00			6.00			6.00
Year that the rate reaches the ultimate trend rate		2013			2017			2013			2017

The health care cost trend rate assumption has a significant effect on the amounts reported. A one-percentage-point change in assumed health care cost trend rates would have the following effects:


(Dollars in thousands)	1% Increase			1% Decrease

Adjusted total service and interest cost components		$	1,816		$	1,661
Adjusted postretirement benefit obligation at end of plan year			23,822			21,490

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Note 20 q Savings, Pension and Other Employee Benefits (continued)

The components of net periodic benefit cost for the plan years 2008, 2007 and 2006 were as follows:


(Dollars in thousands)	Total Pension Benefits												Other Benefits
(Dollars in thousands)	2008				2007				2006				2008				2007				2006

Components of net periodic benefit cost
Service cost		$	15,809			$	19,206			$	18,081			$	276			$	298			$	332
Interest cost			29,516				26,250				21,942				2,339				1,112				1,116
Expected return on plan assets			(46,938	)			(42,549	)			(35,778	)			(1,749	)			(1,762	)			(1,683	)
Amortization of unrecognized:
Transition (asset)/obligation			-				-				-				988				988				989
Prior service cost/(credit)			864				880				844				(176	)			(176	)			(176	)
Actuarial (gain)/loss			2,417				7,138				7,074				(368	)			(711	)			(562	)

Net periodic benefit cost/(income)		$	1,668			$	10,925			$	12,163			$	1,310			$	(251	)		$	16

SFAS 88 settlement expense/(income)			1,269				456				-				-				-				-

Total SFAS 87 and SFAS 88 expense/(income)		$	2,937			$	11,381			$	12,163			$	1,310			$	(251	)		$	16

In 2008 and 2007, lump sum payments from a nonqualified plan triggered settlement accounting. In accordance with its practice, FHN performed a remeasurement of the plan in conjunction with the settlement and recognized the SFAS No. 88 settlement expense reflected above.

Effective December 31, 2006, FHN adopted SFAS No. 158, which required the recognition of the overfunded or underfunded status of a defined benefit plan and postretirement plan as an asset or liability in the statements of condition. SFAS No. 158 did not change measurement or recognition requirements for periodic pension and postretirement costs. Effective January 1, 2007, FHN elected adoption of the final provisions of SFAS No. 158, which required that the annual measurement date of a plan’s assets and liabilities be as of the date of the financial statements.

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Note 20 q Savings, Pension and Other Employee Benefits (continued)

The following tables set forth the plans’ benefit obligations and plan assets for 2008 and 2007:


(Dollars in thousands)	Total Pension Benefits								Other Benefits
(Dollars in thousands)	2008				2007				2008				2007

Change in benefit obligation
Benefit obligation, beginning of year		$	429,707			$	406,999			$	24,420			$	19,540
Benefit obligation, new plan			-				28,236				-				-
Adoption of EITF 06-4 for Endorsement split dollar life insurance			-				-				13,725				-
Service cost			15,809				19,206				276				298
Interest cost			29,516				26,250				2,339				1,112
Plan amendments			59				207				-				-
Adjustment for measurement date change			-				10,359				-				351
Actuarial (gain)/loss			16,063				(39,291	)			(3,929	)			3,590
Actual benefits paid			(18,077	)			(21,139	)			(1,422	)			(847	)
Liability (gain)/loss due to curtailment			(1,829	)			(1,120	)			-				-
Expected Medicare Part D reimbursement			-				-				353				376
Special termination benefits			826				-				-				-

Benefit obligation, end of year		$	472,074			$	429,707			$	35,762			$	24,420

Change in plan assets*
Fair value of plan assets, beginning of year		$	503,541			$	421,428			$	21,808			$	21,660
Actual return on plan assets			(141,105	)			23,864				(6,487	)			995
Employer contributions			35,989				79,388				706				-
Actual benefits paid – settlement payments			(18,448	)			(21,139	)			(1,422	)			(847	)
Actual benefits paid – annuities			(1,458	)			-				-				-

Fair value of plan assets, end of year		$	378,519			$	503,541			$	14,605			$	21,808

Funded status of the plan		$	(93,555	)		$	73,834			$	(21,157	)		$	(2,612	)

Additional Amounts Recognized in the Statement of Financial Position
Other assets		$	-			$	121,495			$	-			$	-
Other liabilities			(93,555	)			(47,661	)			(21,157	)			(2,612	)

Net asset/(liability) at end of year		$	(93,555	)		$	73,834			$	(21,157	)		$	(2,612	)

For fiscal year 2008, the change in benefit obligation and plan assets are for the period beginning January 1, 2008 and ending December 31, 2008.

In 2007, FHN determined that a previously existing unfunded deferred compensation plan met the requirements for recognition as a pension plan under Statement of Financial Accounting Standards No. 87, “Employers’ Accounting for Pensions”. Accordingly, FHN began accounting for the plan as a pension plan prospectively from January 1, 2007. The initial recognition of the pension liability for this plan is presented as a new pension plan in the reconciliation of pension benefit obligations for 2007.

The accumulated benefit obligation for the pension plan was $432.0 million as of December 31, 2008 and $392.1 million as of December 31, 2007. At December 31, 2008, both the projected benefit obligation and the accumulated benefit obligation are greater than the fair market value of plan assets. FHN made a $30.0 million contribution in December 2008 to the qualified pension plan. A second contribution may be made in 2009

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Note 20 q Savings, Pension and Other Employee Benefits (continued)

attributable to the 2008 plan year. This decision will be based upon pension funding requirements under the Pension Protection Act, the maximum deductible under the Internal Revenue Code, and the actual performance of plan assets during 2009. Given these uncertainties, we cannot estimate the amount of a future contribution at this time. The nonqualified pension plans and other postretirement benefit plans are unfunded. Contributions to these plans cover all benefits paid under the nonqualified plans. This amount was $6.2 million for 2008 and $5.4 million for 2007. FHN anticipates this amount will be $5.6 million in 2009.

Upon adoption of SFAS No. 158, unrecognized transition assets and obligations, unrecognized actuarial gains and losses, and unrecognized prior service costs and credits were recognized as a component of accumulated other comprehensive income. Amounts recognized in accumulated other comprehensive income on a pre-tax basis for the years ended December 31, 2008 and 2007 consist of:


(Dollars in thousands)	Total Pension Benefits						Other Benefits
(Dollars in thousands)	2008			2007			2008				2007

Amounts Recognized in Accumulated Other Comprehensive Income
Net transition (asset)/obligation		$	-		$	-		$	3,703			$	4,692
Prior service cost/(credit)			5,051			5,856			(848	)			(1,024	)
Net actuarial (gain)/loss			306,898			105,652			(859	)			(5,430	)

Total		$	311,949		$	111,508		$	1,996			$	(1,762	)

Other amounts recognized in other comprehensive income were as follows:


(Dollars in thousands)	Total Pension Benefits								Other Benefits
(Dollars in thousands)	2008				2007				2008				2007

Changes in plan assets and benefit obligation recognized in other comprehensive income
Net actuarial (gain)/loss arising during measurement period		$	204,106			$	(11,647	)		$	4,052			$	4,684
Prior service cost arising during measurement period			59				207				-				-
Items amortized during the measurement period:
Transition (asset)/obligation			-				-				(988	)			(1,235	)
Prior service (credit)/cost			(864	)			(1,098	)			176				220
Net actuarial (gain)/loss			(2,417	)			(9,087	)			623				877
Loss due to settlement			(443	)			(456	)			-				-

Total recognized in other comprehensive income		$	200,441			$	(22,081	)		$	3,863			$	4,546

The estimated net actuarial (gain)/loss, prior service cost/(credit), and transition (asset)/obligation for the plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost during the following fiscal year are as follows:


(Dollars in thousands)	Total Pension Benefits						Other Benefits
	2008			2007			2008				2007

Net Transition (Asset)/Obligation		$	-		$	-		$	987			$	988
Prior Service Cost/(Credit)			758			865			(176	)			(176	)
Net Actuarial (Gain)/Loss			7,893			1,973			-				(233	)

FHN expects no defined benefit pension plan’s and other employee benefit plan’s assets to be returned to FHN in 2009.

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Note 20 q Savings, Pension and Other Employee Benefits (continued)

The following table provides detail on expected benefit payments, which reflect expected future service, as appropriate and projected Medicare reimbursements:


(Dollars in thousands)	Pension Benefits			Other Benefits			Medicare Reimbursements

2009		$	19,746		$	2,734		$	491
2010			20,902			2,879			546
2011			22,227			3,007			608
2012			24,398			3,122			687
2013			26,526			3,217			-
2014 – 2018			167,530			16,672			-

The following table sets forth FHN’s pension plan asset allocation on measurement dates for 2008 and 2007:


	Targeted Allocation					Percentage of Plan Assets on December 31
						2008					2007

Equity securities		70	%				60.0	%				67.3	%
Large capital equity				35	%				27.3	%				31.2	%
Small capital equity				20					19.8					18.3
International equity				15					12.9					17.8
Other		30					40.0					32.7
Fixed income									30.6					30.4
Money market									9.4					2.3

Total									100.0	%				100.0	%

The $30.0 million contribution was made in December 2008 and was invested in a money market fund as of December 31, 2008. This amount will be allocated to alternative investments in 2009.

The primary investment objective is to ensure, over the long-term life of the pension plan, an adequate pool of sufficiently liquid assets to support the benefit obligations to participants, retirees, and beneficiaries. In meeting this objective, the pension plan seeks to achieve a high level of investment return consistent with a prudent level of portfolio risk. Investment objectives are long-term in nature covering typical market cycles of three to five years. Any shortfall of investment performance compared to investment objectives should be explainable in terms of general economic and capital market conditions.

The Retirement Investment Committee, comprised of senior managers within the organization, meets quarterly to review asset performance and the need for rebalancing. At a minimum, rebalancing occurs annually for the purpose of remaining within the established target asset allocation ranges and to maintain liquidity for benefit payments. Risk management is also reviewed and evaluated based upon the organization’s ability to assume investment risk.

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Note 20 q Savings, Pension and Other Employee Benefits (continued)

The following table sets forth the asset allocation for FHN’s retiree medical plan with measurement dates for 2008 and 2007:


	Percentage of Plan Assets on December 31
	2008					2007

Equity securities		61.8	%				68.4	%
Large capital equity				42.7	%				54.0	%
Small capital equity				19.1					14.4
Other		38.2					31.6
Fixed income				35.1					27.2
Cash equivalents and money market				3.1					4.4

Total				100.0	%				100.0	%

The primary investment objective is to ensure, over the long-term life of the retiree medical obligation, an adequate pool of sufficiently liquid assets to partially support the obligations to retirees and beneficiaries. The allocation utilizing a tactical blend of individual securities and registered funds across the broad asset classes is designed to capture a reasonable balance of risk and return based upon historical averages. In meeting this objective, the retiree medical plan seeks to achieve a high level of investment return consistent with a prudent level of portfolio risk. Investment objectives are long-term in nature (longer than 10 years).

Tactical allocation with the broad strategic objective of 70/30 equity to fixed blend is contemplated periodically with an attention to the likelihood of improving the return potential coupled with a reduction of the risk level.

The number of shares of FHN common stock held by the plan was 680,515 for 2008 and 660,300 for 2007. The increase is related to stock dividends received on common stock held in 2008.

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Note 21 q Stock Option, Restricted Stock Incentive, and Dividend Reinvestment Plans

Stock option plans. FHN issues non-qualified stock options to employees under various plans, which provide for the issuance of FHN common stock at a price equal to the higher of the closing price or its fair market value at the date of grant. All options vest within 3 to 4 years and expire 7 years or 10 years from the date of grant. A deferral program, which was discontinued in 2005, allowed for foregone compensation plus the exercise price to equal the fair market value of the stock on the date of grant if the grantee agreed to receive the options in lieu of compensation. Any options issued below market on the date of grant during 2005 were related to 2004 salary deferrals for employees and 2004 board compensation for directors. Options that were part of compensation deferral prior to January 2, 2004, expire 20 years from the date of grant. Stock options granted after January 2, 2004, that are part of the compensation deferral expire 10 years from the date of grant. There were 4,225,736 shares available for option or share grants on December 31, 2008.

The stock option plan includes various antidilutive provisions in the event the value of awards become diminished from several factors. In 2008, FHN began paying quarterly stock dividends in lieu of quarterly cash dividends. Stock dividends increase the number of shares outstanding, thereby decreasing the compensation value of the equity award. Consequently, the shares and option prices reported in the following tables have been proportionately adjusted to reflect the estimated economic effect of dividends distributed in common stock effective October 1, 2008 and January 2, 2009. For administrative reasons, outstanding options have not been formally adjusted at this time; however, in most cases, awards will be adjusted to provide the economic and dilutive effect as an adjustment if and when affected options are exercised. The Black Scholes Fair Value of the stock options and compensation expense are not affected.

The summary of stock option plans activity during the year ended December 31, 2008, is shown below:


	Options Outstanding			Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (thousands)

January 1, 2008		18,217,233			$	33.02
Options granted		822,753				13.17
Options exercised		(40,059	)			12.26
Options forfeited		(1,353,434	)			36.88
Options expired		(2,343,681	)			35.61

December 31, 2008		15,302,812				31.27		4.75		$	195

Options exercisable		12,107,871				30.98		4.72			186
Options expected to vest		2,028,745				32.43		4.89			6

The total intrinsic value of options exercised during 2008, 2007 and 2006, was $.3 million, $18.6 million and $37.4 million, respectively. On December 31, 2008, there was $3.8 million of unrecognized compensation cost related to nonvested stock options. That cost is expected to be recognized over a weighted- average period of 1.10 years. The following data summarizes information about stock options granted during 2008, 2007 and 2006:


	Number Granted		Weighted Average Fair Value per Option at Grant Date

2008:
Options granted		822,753		$	1.65

2007:
Options granted		2,009,149		$	5.02

2006:
Options granted		1,720,758		$	5.92

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Note 21 q Stock Option, Restricted Stock Incentive, and Dividend Reinvestment Plans (continued)

FHN used the Black-Scholes Option Pricing Model to estimate the fair value of stock options granted in 2008, 2007 and 2006, with the following assumptions:


	2008	2007	2006

Expected dividend yield	5.97%	4.99%	4.42%
Expected weighted-average lives of options granted	5.07 years	5.44 years	5.27 years
Expected weighted-average volatility	25.89%	17.45%	19.03%
Expected volatility range	24.10% – 42.60%	16.50% – 23.30%	18.11% – 24.40%
Risk-free interest rates range	2.80% – 3.32%	4.54% – 4.85%	4.78% – 5.00%

Expected lives of options granted are determined based on the vesting period, historical exercise patterns and contractual term of the options. Expected volatility is estimated using average of daily high and low stock prices. Expected volatility assumptions are determined over the period of the expected lives of the options.

Restricted stock incentive plans. FHN has authorized the issuance of its common stock for awards to executive and other management employees who have a significant impact on the profitability of FHN. Under a performance accelerated restricted stock program, restricted shares can vest as early as 3 years instead of 10 years following the grant date if predetermined performance criteria are met. Under the long-term incentive and corporate performance programs, performance stock units vest only if predetermined performance measures are met. Units are forfeited if the performance criteria are not met. In 2006, restricted stock and stock options, which were to vest over 3 and 4 years if predetermined performance measures were met, were awarded to certain executive officers. These performance measures were not met and the awards were forfeited in 2007 and 2008. In 2008, executives were awarded performance restricted stock with 50% vesting in 2011 and 50% vesting in 2012 subject to certain performance criteria being met. If performance criteria are not met in 2011, that portion of the award is eligible for vesting in 2012. Additionally, retention awards were granted to certain employees with 50% of the award to be paid in cash in 2009 and 50% to be paid in shares in 2010, pending service conditions. Further, awards of restricted stock may be awarded to new executive level employees upon hiring from time to time. Restricted shares granted in 2008 are included in the table below. Historically, FHN granted restricted stock awards to management employees, which typically vest over 3 and 4 years. In 2008, FHN granted stock option and long term incentive cash units in lieu of restricted stock.

Additionally, one of the plans allows stock awards to be granted to non-employee directors upon approval by the board of directors. It has been the recent practice of the board to grant 8,396 shares of restricted stock to each new non-employee director upon election to the board, with restrictions lapsing at a rate of ten percent per year. In 2007, the old restricted stock program was discontinued. Each new non-employee director instead will receive an annual award of restricted stock units (“RSUs”) valued at $45,000 or a pro-rated portion amount depending on the director’s start date. Each RSU award will be scheduled to vest the following year and will be paid in common shares (including any shares earned as a result of the stock dividend) plus accrued cash dividends at vesting. In 2008, two new non-employee directors were granted RSUs under this plan. Existing non-employee directors also will participate in the new RSU program, but participation will be phased in as the old restricted stock awards vest. As a result, one existing non-employee received an RSU award in 2008. After 2007, each such director should have one of the following occur each year: 840 old restricted shares will vest; or, a full grant of new RSUs will vest; or, a combination of old restricted shares (less than 840) and new RSUs (less than 100%) will vest. In 2008 a majority of the existing non-employee directors who fulfilled the vesting requirements had at least 840 old restricted shares vest. In 2008, 2,519 restricted shares were immediately vested as a result of a director retirement while 4,198 shares were forfeited as a result of a director resignation.

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Note 21 q Stock Option, Restricted Stock Incentive, and Dividend Reinvestment Plans (continued)

The summary of restricted and performance stock activity during the year ended December 31, 2008, is presented below:


	Shares/ Units*			Weighted average grant date fair value

Nonvested on January 1, 2008		1,601,857			$	38.31
Shares/units granted		815,216				13.92
Shares/units vested		(202,944	)			37.86
Shares/units canceled		(751,222	)			37.15

Nonvested on December 31, 2008		1,462,907			$	25.38

Stock units are paid in cash or shares only upon vesting. All units granted in 2008 and prior years were cancelled and no cash or shares were distributed.

On December 31, 2008, there was $9.6 million of unrecognized compensation cost related to nonvested restricted stock plans. That cost is expected to be recognized over a weighted-average period of 3.04 years. The total grant date fair value of shares vested during 2008, 2007 and 2006, was $7.7 million, $2.8 million and $1.6 million, respectively.

The board of directors approved amendments to the restricted stock plan during 1998 permitting deferral by participants of the receipt of restricted stock prior to the lapse of restrictions. Due to deferred compensation legislation passed in 2004, participants are no longer allowed to make voluntary deferral elections under the stock programs.

The compensation cost that has been included in income from continuing operations pertaining to both stock option and restricted stock plans was $5.8 million, $10.8 million and $21.6 million for 2008, 2007 and 2006, respectively. The corresponding total income tax benefits recognized in the income statements were $2.2 million, $4.0 million and $8.2 million for 2008, 2007 and 2006, respectively.

Consistent with Tennessee state law, only new or authorized, but unissued, shares may be utilized in connection with any issuance of FHN common stock which may be required as a result of share based compensation awards. FHN historically obtains authorization from the Board of Directors to repurchase any shares that may be issued at the time a plan is approved or amended. These authorizations are automatically adjusted for stock splits and stock dividends. Repurchases are authorized to be made in the open market or through privately negotiated transactions and will be subject to market conditions, accumulation of excess equity, legal, regulatory, and U.S. Treasury requirements, and prudent capital management. FHN does not currently expect to repurchase a material number of shares related to the plans during the next annual period.

Run Rate. For the period 2006 through 2008, the average annual run rate was 1.93 percent using the Risk Metrics methodology for determining run rate. This met our commitment to shareholders made in 2006.

Dividend reinvestment plan. The Dividend Reinvestment and Stock Purchase Plan (the Plan) authorizes the sale of FHN’s common stock from shares acquired on the open market to shareholders who choose to invest all or a portion of their cash dividends or make optional cash payments of $25 to $10,000 per quarter without paying commissions. The price of shares purchased on the open market is the average price paid.

Note 22 q Business Segment Information

FHN has five business segments, Regional Banking, Capital Markets, National Specialty Lending, Mortgage Banking and Corporate. The Regional Banking segment offers financial products and services, including traditional lending and deposit taking, to retail and commercial customers in Tennessee and surrounding markets. Additionally, Regional Banking provides investments, insurance, financial planning, trust services and asset management, credit card, cash management, and check clearing services. The Capital Markets segment consists of traditional capital

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Note 22 q Business Segment Information (continued)

markets securities activities, equity research, loan sales, portfolio advisory, structured finance and correspondent banking. The National Specialty Lending segment consists of traditional consumer and construction lending activities in other national markets. The Mortgage Banking segment consists of core mortgage banking elements including originations and servicing and the associated ancillary revenues related to these businesses. In August 2008, FHN completed the divestiture of certain mortgage banking operations to MetLife. FHN will continue to originate loans in and around the Tennessee banking footprint and service the remaining servicing portfolio. The Corporate segment consists of restructuring, repositioning and efficiency initiatives, gains and losses on repurchases of debt, unallocated corporate expenses, expense on subordinated debt issuances and preferred stock, bank- owned life insurance, unallocated interest income associated with excess equity, net impact of raising incremental capital, revenue and expense associated with deferred compensation plans, funds management, and venture capital. Periodically, FHN adapts its segments to reflect changes in expense allocations among segments. Previously reported amounts have been reclassified to agree with current presentation.

Total revenue, expense and asset levels reflect those which are specifically identifiable or which are allocated based on an internal allocation method. Because the allocations are based on internally developed assignments and allocations, they are to an extent subjective. This assignment and allocation has been consistently applied for all periods presented. The following table reflects the amounts of consolidated revenue, expense, tax, and assets for each segment for the years ended December 31:


(Dollars in thousands)		2008				2007				2006

Consolidated	Net interest income		$	895,082			$	940,642			$	996,937
	Provision for loan loss			1,080,000				272,765				83,129
	Noninterest income			1,491,313				859,949				1,166,893
	Noninterest expense			1,656,052				1,843,433				1,742,621

	Income/(loss) before income taxes			(349,657	)			(315,607	)			338,080
	Provision/(benefit) for income taxes			(156,814	)			(140,731	)			87,278

	Income/(loss) from continuing operations			(192,843	)			(174,876	)			250,802
	Income from discontinued operations, net of tax			883				4,765				210,767

	Income/(loss) before cumulative effect of changes in accounting principle			(191,960	)			(170,111	)			461,569
	Cumulative effect of changes in accounting principle, net of tax			-				-				1,345

	Net income/(loss)		$	(191,960	)		$	(170,111	)		$	462,914

	Average assets		$	34,422,678			$	38,175,420			$	38,764,568

	Depreciation, amortization and MSR impairment		$	97,448			$	131,634			$	144,806
	Expenditures for long-lived assets			23,666				33,539				100,263

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

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Note 22 q Business Segment Information (continued)


(Dollars in thousands)		2008				2007				2006

Regional	Net interest income		$	480,684			$	547,157			$	552,442
Banking	Provision for loan loss			328,767				62,629				51,400
	Noninterest income			350,144				367,413				392,143
	Noninterest expense			627,273				631,356				659,790

	Income/(loss) before income taxes			(125,212	)			220,585				233,395
	Provision/(benefit) for income taxes			(72,561	)			73,273				52,620

	Income/(loss) from continuing operations			(52,651	)			147,312				180,775
	Income from discontinued operations, net of tax			883				4,765				210,767

	Income/(loss) before cumulative effect of changes in accounting principle			(51,768	)			152,077				391,542
	Cumulative effect of changes in accounting principle, net of tax			-				-				394

	Net income/(loss)		$	(51,768	)		$	152,077			$	391,936

	Average assets		$	12,031,137			$	12,349,779			$	11,940,263

	Depreciation, amortization and MSR impairment		$	50,586			$	60,028			$	59,193
	Expenditures for long-lived assets			18,088				22,509				80,010

Capital Markets	Net interest income		$	77,300			$	54,386			$	53,441
	Provision for loan loss			80,112				8,097				2,685
	Noninterest income			534,427				352,154				406,395
	Noninterest expense			418,916				328,062				358,901

	Income before income taxes			112,699				70,381				98,250
	Provision for income taxes			41,932				26,170				36,663

	Income before cumulative effect of changes in accounting principle			70,767				44,211				61,587
	Cumulative effect of changes in accounting principle, net of tax			-				-				192

	Net income		$	70,767			$	44,211			$	61,779

	Average assets		$	5,156,599			$	5,746,595			$	6,344,086

	Depreciation and amortization		$	10,068			$	12,268			$	15,235
	Expenditures for long-lived assets			1,854				1,089				4,158

National Specialty	Net interest income		$	190,028			$	243,900			$	288,215
Lending	Provision for loan loss			642,002				194,436				29,108
	Noninterest income/(loss)			(10,180	)			21,265				44,970
	Noninterest expense			97,181				138,077				161,335

	Income/(loss) before income taxes			(559,335	)			(67,348	)			142,742
	Provision/(benefit) for income taxes			(208,205	)			(26,183	)			51,774

	Income/(loss) before cumulative effect of changes in accounting principle			(351,130	)			(41,165	)			90,968
	Cumulative effect of changes in accounting principle, net of tax			-				-				115

	Net income/(loss)		$	(351,130	)		$	(41,165	)		$	91,083

	Average assets		$	8,516,023			$	9,716,110			$	9,891,340

	Depreciation and amortization		$	34,971			$	43,759			$	48,432
	Expenditures for long-lived assets			840				643				1,041

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

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Note 22 q Business Segment Information (continued)


(Dollars in thousands)		2008				2007				2006

Mortgage	Net interest income		$	95,341			$	98,769			$	100,548
Banking	Provision/(benefit) for loan loss			29,119				(69	)			(70	)
	Noninterest income			560,326				91,096				385,231
	Noninterest expense			425,148				503,207				476,862

	Income/(loss) before income taxes			201,400				(313,273	)			8,987
	Provision/(benefit) for income taxes			70,675				(130,456	)			994

	Income/(loss) before cumulative effect of changes in accounting principle			130,725				(182,817	)			7,993
	Cumulative effect of changes in accounting principle, net of tax			-				-				414

	Net income/(loss)		$	130,725			$	(182,817	)		$	8,407

	Average assets		$	4,992,186			$	6,377,477			$	6,377,754

	Depreciation, amortization and MSR impairment*		$	2,610			$	14,821			$	21,746
	Expenditures for long-lived assets			556				7,580				10,291

Corporate	Net interest income/(expense)		$	51,729			$	(3,570	)		$	2,291
	Provision for loan loss			-				7,672				6
	Noninterest income/(loss)			56,596				28,021				(61,846	)
	Noninterest expense			87,534				242,731				85,733

	Income/(loss) before income taxes			20,791				(225,952	)			(145,294	)
	Provision/(benefit) for income taxes			11,345				(83,535	)			(54,773	)

	Income/(loss) before cumulative effect of changes in accounting principle			9,446				(142,417	)			(90,521	)
	Cumulative effect of changes in accounting principle, net of tax			-				-				230

	Net income/(loss)		$	9,446			$	(142,417	)		$	(90,291	)

	Average assets		$	3,726,734			$	3,985,459			$	4,211,125

	Depreciation and amortization		$	(787	)		$	758			$	200
	Expenditures for long-lived assets			2,328				1,718				4,763

Effective January 1, 2006, FHN elected early adoption of SFAS No. 156 which requires MSR to be measured at fair value both initially and prospectively; thus, amortization and impairment are no longer recorded.

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

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Note 23 q Fair Value of Assets & Liabilities

Effective January 1, 2008, 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. FHN determined that the election reduced certain timing differences and better matched changes in the value of such loans with changes in the value of derivatives used as economic hedges for these assets. No transition adjustment was required upon adoption of SFAS No. 159 as FHN continued to account for mortgage loans held for sale which were originated prior to 2008 at the lower of cost or market value. Mortgage loans originated for sale are included in loans held for sale on the Consolidated Statements of Condition. Other interests retained in relation to residential loan sales and securitizations are included in trading securities on the Consolidated Statements of Condition. Additionally, 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 re-measured at least annually. FSP FAS 157-2 delays the effective date of SFAS No. 157 until fiscal years beginning after November 15, 2008, for non-financial assets and liabilities which are recognized at fair value on a non-recurring basis. Therefore, in 2008, FHN did not apply the provisions of SFAS No. 157 for non-recurring fair value measurements related to its non-financial long-lived assets under SFAS No. 144 (including real estate acquired by foreclosure) or its non-financial liabilities for exit or disposal activities initially measured at fair value under SFAS No. 146, as well as to goodwill and indefinite-lived intangible assets which are measured at fair value on a recurring basis for impairment assessment purposes but are not recognized in the financial statements at fair value.

In accordance with SFAS No. 157, FHN groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. This hierarchy requires FHN to maximize the use of observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Each fair value measurement is placed into the proper level based on the lowest level of significant input. These levels are:

•

Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.

•

Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

•

Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models, and similar techniques.

For applicable periods, all divestiture-related line items in the Consolidated Statements of Condition have been combined with the related non-divestiture line items in preparation of the disclosure tables in this footnote. The table below presents the balances of assets and liabilities measured at fair value on a recurring basis. Derivatives in an asset position are included within Other assets while derivatives in a liability position are included within Other liabilities. Derivative positions constitute the only recurring Level 3 measurements within Other assets and Other liabilities.

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Note 23 q Fair Value of Assets & Liabilities (continued)


(Dollars in thousands)	December 31, 2008
	Total			Level 1			Level 2			Level 3

Trading securities		$	945,766		$	1,113		$	791,111		$	153,542
Loans held for sale			268,952			-			257,622			11,330
Securities available for sale			2,955,607			41,268			2,777,192			137,147
Mortgage servicing rights, net			376,844			-			-			376,844
Other assets (a)			603,096			27,012			575,839			245

Total		$	5,150,265		$	69,393		$	4,401,764		$	679,108

Trading liabilities		$	359,502		$	126		$	359,376		$	-
Other short-term borrowings and commercial paper			27,957			-			-			27,957
Other liabilities (a)			262,435			557			261,866			12

Total		$	649,894		$	683		$	621,242		$	27,969

(a)

Derivatives are included in this category.

In third quarter 2008, FHN revised its methodology for valuing hedges of MSR and excess interest that were retained from prior securitizations. FHN now determines the fair value of the derivatives used to hedge MSR and excess interests using inputs observed in active markets for similar instruments with typical inputs including the LIBOR curve, option volatility and option skew. Previously, fair values of these derivatives were obtained through proprietary pricing models which were compared to market value quotes received from third party broker-dealers in the derivative markets. Accordingly, the applicable amounts are presented as a transfer out of net derivative assets and liabilities in the following rollforward for the twelve month period ended December 31, 2008. The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:


(Dollars in thousands)	Twelve Months Ended December 31, 2008
(Dollars in thousands)	Trading securities				Loans held for sale				Securities available for sale				Mortgage servicing rights, net				Net derivative assets and liabilities				Other short-term borrowings and commercial paper

Balance, beginning of year		$	476,404			$	-			$	159,301			$	1,159,820			$	81,517			$	-
Total net gains/(losses) for the period included in:
Net income			(109,232	)			(2,551	)			303				(429,854	)			146,737				(34,978	)
Other comprehensive income			-				-				(3,641	)			-				-				-
Purchases, sales, issuances and settlements, net			(235,569	)			(2,711	)			(18,816	)			(353,122	)			(119,926	)			62,935
Net transfers into/(out) of Level 3			21,939				16,592				-				-				(108,095	)			-

Balance, end of period		$	153,542			$	11,330			$	137,147			$	376,844			$	233			$	27,957

Net unrealized gains/(losses) included in net income for the period relating to assets and liabilities held at December 31, 2008		$	(172,366	)(a)		$	(10,742	)(b)		$	303(c	)		$	(328,112	)(d)		$	72(b	)		$	(19,974	)

(a)

Twelve months ended December 31, 2008 includes $23.8 million included in Capital markets noninterest income, $138.5 million included in Mortgage banking noninterest income, and $10.1 million included in Revenue from loan sales and securitizations.

(b)

Included in Mortgage banking noninterest income.

(c)

Represents recognized gains and losses attributable to venture capital investments classified within securities available for sale that are included in Securities gains/(losses) in noninterest income.

(d)

Twelve months ended December 31, 2008 includes $312.9 million included in Mortgage banking noninterest income and $15.2 million included in revenue from loan sales and securitizations.

Additionally, FHN may be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or market accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis in 2008 which were still held in the balance sheet at December 31, 2008, the following table provides the level of valuation assumptions used to determine each adjustment and the carrying value of the related individual assets or portfolios at December 31, 2008.

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Note 23 q Fair Value of Assets & Liabilities (continued)


(Dollars in thousands)	Carrying value at December 31, 2008												Twelve Months Ended December 31, 2008
	Total			Level 1			Level 2			Level 3			Total losses

Loans held for sale		$	116,892		$	-		$	78,739		$	38,153		$	27,503
Securities available for sale			1,117			-			1,117			-			1,897	(a)
Loans, net of unearned income (b)			414,902			-			-			414,902			198,485
Other assets			113,832			-			-			113,832			9,229

														$	237,114

(a)

Represents recognition of other than temporary impairment for cost method investments classified within securities available for sale.

(b)

Represents carrying value of loans for which adjustments are based on the appraised value of the collateral. Writedowns on these loans are recognized as part of provision.

In first quarter 2008, FHN recognized a lower of cost or market reduction in value of $36.2 million for its warehouse of trust preferred loans, which was classified within level 3 for loans held for sale at March 31, 2008. The determination of estimated market value for the warehouse was based on a hypothetical securitization transaction for the warehouse as a whole. FHN used observable data related to prior securitization transactions as well as changes in credit spreads in the collateralized debt obligation (CDO) market since the most recent transaction. FHN also incorporated significant internally developed assumptions within its valuation of the warehouse, including estimated prepayments and estimated defaults. In accordance with SFAS No. 157, FHN excluded transaction costs related to the hypothetical securitization in determining fair value.

In second quarter 2008, FHN designated its trust preferred warehouse as held to maturity. Accordingly, these loans were excluded from loans held for sale in the nonrecurring measurements table as of December 31, 2008. In conjunction with the transfer of these loans to held to maturity status, FHN performed a lower of cost or market analysis on the date of transfer. This analysis was based on the pricing of market transactions involving securities similar to those held in the trust preferred warehouse with consideration given, as applicable, to any differences in characteristics of the market transactions, including issuer credit quality, call features and term. As a result of the lower of cost or market analysis, FHN determined that its existing valuation of the trust preferred warehouse was appropriate.

In first quarter 2008, FHN recognized a lower of cost or market reduction in value of $17.0 million relating to mortgage warehouse loans. Approximately $10.5 million was attributable to increased delinquencies or aging of loans. The market values for these loans were estimated using historical sales prices for these type loans, adjusted for incremental price concessions that a third party investor is assumed to require due to tightening credit markets and deteriorating housing prices. These assumptions were based on published information about actual and projected deteriorations in the housing market as well as changes in credit spreads. The remaining reduction in value of $6.5 million was attributable to lower investor prices, due primarily to credit spread widening. This reduction was calculated by comparing the total fair value of loans (using the same methodology that is used for fair value option loans) to carrying value for the aggregate population of loans that were not delinquent or aged.

FHN also recognized a lower of cost or market reduction in value of $8.3 million relating to mortgage warehouse loans during second quarter of 2008. Approximately $7.1 million was attributable to increased repurchases and delinquencies or aging of warehouse loans; the remaining reduction in value was attributable to lower investor prices, due primarily to credit spread widening. The market values for these loans were estimated using historical sales prices for these types of loans, adjusted for incremental price concessions that a third party investor was assumed to require due to tightening credit markets and deteriorating housing prices. These assumptions were based on published information about actual and projected deteriorations in the housing market as well as changes in credit spreads.

FHN also recognized a lower of cost or market reduction in value of $1.3 million relating to mortgage warehouse loans during third quarter of 2008. This was primarily attributable to increased repurchases and delinquencies of

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Note 23 q Fair Value of Assets & Liabilities (continued)

warehouse loans with some reduction in value attributable to lower investor prices, due primarily to credit spread widening. The market values for these loans were estimated using historical sales prices for similar type loans, adjusted for incremental price concessions that a third party investor was assumed to require due to tightening credit markets and deteriorating housing prices. These assumptions were based on published information about actual and projected deteriorations in the housing market as well as changes in credit spreads.

FHN also recognized a lower of cost or market reduction in value of $.2 million relating to mortgage warehouse loans during the fourth quarter of 2008. This was primarily attributable to increased levels and severity of repurchases and delinquencies of warehouse loans partially offset by higher investor prices, due primarily to lower overall market interest rate levels. The market values for these loans were estimated using historical sales prices for similar type loans, adjusted for incremental price concessions that a third party investor was assumed to require due to tightening credit markets and deteriorating housing prices. These assumptions were based on published information about actual and projected deteriorations in the housing market as well as changes in credit spreads.

Fair Value Option

As described above, upon adoption of SFAS No. 159, management elected fair value accounting for substantially all forms of mortgage loans originated for sale. In the second and third quarters of 2008, agreements were reached for the transfer of certain servicing assets and delivery of the servicing assets occurred. However, due to certain recourse provisions, these transactions did not qualify for sale treatment and the associated proceeds have been recognized within commercial paper and other short term borrowings in the Consolidated Statement of Position as of December 31, 2008. Since servicing assets 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. Additionally, as the servicing assets have already been delivered to the buyer, the fair value of the financing liabilities associated with the transaction does not reflect any instrument-specific credit risk.

The following table reflects the differences between the fair value carrying amount of mortgages held for sale measured at fair value under SFAS No. 159 and the aggregate unpaid principal amount FHN is contractually entitled to receive at maturity.


(Dollars in thousands)	December 31, 2008
	Fair value carrying amount			Aggregate unpaid principal			Fair value carrying amount less aggregate unpaid principal

Loans held for sale reported at fair value:
Total loans		$	268,952		$	305,303		$	(36,351	)
Nonaccrual loans			2,098			4,785			(2,687	)
Loans 90 days or more past due and still accruing			2,176			4,898			(2,722	)

Assets and liabilities accounted for under SFAS No. 159 are initially measured at fair value. Gains and losses from initial measurement and subsequent changes in fair value are recognized in earnings. The change in fair value related to initial measurement and subsequent changes in fair value for mortgage loans held for sale and other short term borrowings for which FHN elected the fair value option are included in current period earnings with classification in the income statement line item shown below.

For the year ended December 31, 2008, the amounts for loans held for sale includes approximately $21.9 million of losses included in earnings that are attributable to changes in instrument-specific credit risk, which was determined based on both a quality adjustment for delinquencies and the full credit spread on the non-conforming loans.

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Note 23 q Fair Value of Assets & Liabilities (continued)


(Dollars in thousands)	Twelve Months Ended December 31, 2008

Changes in fair value included in net income:
Mortgage banking noninterest income
Loans held for sale		$	(21,870	)
Commercial paper and other short-term borrowings			(19,974	)
Estimated changes in fair value due to credit risk			(21,865	)

Interest income on mortgage loans held for sale measured at fair value is calculated based on the note rate of the loan and is recorded in the interest income section of the Consolidated Statements of Income as interest on loans held for sale.

Determination of Fair Value

In accordance with SFAS No. 157, fair values are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following describes the assumptions and methodologies used to estimate the fair value for financial instruments and MSR recorded at fair value in the Consolidated Statement of Condition and for estimating the fair value of financial instruments for which fair value is disclosed under Statement of Financial Accounting Standards No. 107, “Disclosure about Fair Value of Financial Instruments” (SFAS No. 107).

Short-term financial assets. Federal funds sold, securities purchased under agreements to resell and interest bearing deposits with other financial institutions are carried at historical cost. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization.

Trading securities and trading liabilities. Trading securities and trading liabilities are recognized at fair value through current earnings. Trading inventory held for broker-dealer operations is included in trading securities and trading liabilities. Broker-dealer long positions are valued at bid price in the bid-ask spread. Short positions are valued at the ask price. Inventory positions are valued using observable inputs including current market transactions, LIBOR and U.S. treasury curves, credit spreads and consensus prepayment speeds.

Trading securities also includes retained interests in prior securitizations that qualify as financial assets which may include certificated residual interests, excess interest (structured as interest-only strips), interest-only strips, principal-only strips, or subordinated bonds. Residual interests represent rights to receive earnings to the extent of excess income generated by the underlying loans. Excess interest represents rights to receive interest from serviced assets that exceed contractually specified rates. Principal-only strips are principal cash flow tranches, and interest-only strips are interest cash flow tranches. Subordinated bonds are bonds with junior priority. All financial assets retained from a securitization are recognized on the Consolidated Statements of Condition in trading securities at fair value with realized and unrealized gains and losses included in current earnings as a component of noninterest income on the Consolidated Statements of Income.

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Note 23 q Fair Value of Assets & Liabilities (continued)

include trades of comparable securities, independently provided spreads to other marketable securities, and published market research. Where no market information is available, the company utilizes an internal valuation model. As of December 31, 2008, no market information was available, and the subordinated bonds were valued using an internal model which includes assumptions about timing, frequency and severity of loss, prepayment speeds of the underlying collateral, and the yield that a market participant would require. The assumptions were consistent with those embedded in the December 31, 2007 values, when there was more market information available, except that loss frequency and loss severity assumptions were worsened consistent with published industry cumulative historical loss information and published market projections of future deteriorations in real estate values. As of December 31, 2007, the subordinated bonds were valued using trades of comparable market securities and independently provided spreads.

Securities available for sale. Securities available for sale includes the investment portfolio accounted for as available-for-sale under SFAS No. 115, federal bank stock holdings, short-term investments in mutual funds and venture capital investments. Valuations of available-for-sale securities are performed using observable inputs obtained from market transactions in similar securities. Typical inputs include LIBOR and U.S. treasury curves, consensus prepayment estimates and credit spreads. When available, broker quotes are used to support these valuations.

Stock held in the Federal Reserve Bank and Federal Home Loan Banks are recognized at historical cost in the Consolidated Statements of Condition which is considered to approximate fair value. Short-term investments in mutual funds are measured at the funds’ reported closing net asset values. Venture capital investments are typically measured using significant internally generated inputs including adjustments to referenced transaction values and discounted cash flows analysis.

Securities held to maturity. Valuations are performed using observable inputs obtained from market transactions in similar securities. Typical inputs include LIBOR and U.S. treasury curves, consensus prepayment estimates and credit spreads.

Loans held for sale. The fair value of mortgage loans whose principal market is the securitization market is based on recent security trade prices for similar product with a similar delivery date, with necessary pricing adjustments to convert the security price to a loan price. Loans whose principal market is the whole loan market are priced based on recent observable whole loan trade prices or published third party bid prices for similar product, with necessary pricing adjustments to reflect differences in loan characteristics. Typical adjustments to security prices for whole loan prices include adding the value of MSR to the security price or to the whole loan price if the price is servicing retained, adjusting for interest in excess of (or less than) the required coupon or note rate, adjustments to reflect differences in the characteristics of the loans being valued as compared to the collateral of the security or the loan characteristics in the benchmark whole loan trade, adding interest carry, reflecting the recourse obligation that will remain after sale, and adjusting for changes in market liquidity or interest rates if the benchmark security or loan price is not current. Additionally, loans that are delinquent or otherwise significantly aged are discounted to reflect the less marketable nature of these loans. The fair value of non-mortgage loans held for sale is approximated by their carrying values based on current transaction values.

Loans, net of unearned income. Loans, net of unearned income are recognized at the amount of funds advanced, less charge offs and an estimation of credit risk represented by the allowance for loan losses. The fair value estimates for SFAS No. 107 disclosure purposes differentiate loans based on their financial characteristics, such as product classification, loan category, pricing features and remaining maturity.

The fair value of floating rate loans is estimated through comparison to recent market activity in loans of similar product types, with adjustments made for differences in loan characteristics. In situations where market pricing inputs are not available, fair value is considered to approximate book value due to the monthly repricing for commercial and consumer loans, with the exception of floating rate 1-4 family residential mortgage loans which reprice annually and will lag movements in market rates. The fair value for floating rate 1-4 family mortgage loans is calculated by discounting future cash flows to their present value. Future cash flows are discounted to their present value by using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same time period. Prepayment assumptions based on historical prepayment speeds and industry speeds for similar loans have been applied to the floating rate 1-4 family residential mortgage portfolio.

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Note 23 q Fair Value of Assets & Liabilities (continued)

The fair value of fixed rate loans is estimated through comparison to recent market activity in loans of similar product types, with adjustments made for differences in loan characteristics. In situations where market pricing inputs are not available, fair value is estimated by discounting future cash flows to their present value. Future cash flows are discounted to their present value by using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same time period. Prepayment assumptions based on historical prepayment speeds and industry speeds for similar loans have been applied to the fixed rate mortgage and installment loan portfolios.

Mortgage servicing rights. FHN recognizes all its classes of MSR at fair value. 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, like other participants in the mortgage banking business, 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. FHN also periodically compares its estimates of fair value and assumptions with brokers, service providers, and recent market activity and against its own experience. 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.

Derivative assets and liabilities. Derivatives include interest rate lock commitments from mortgage banking operations and other derivative instruments primarily used in risk management activities. Interest rate lock commitments are derivatives pursuant to SFAS No. 133 and are therefore recorded at estimates of fair value. Effective January 1, 2008, FHN applied the provisions of SAB No. 109 prospectively for derivative loan commitments issued or modified after that date. SAB No. 109 requires inclusion of expected net future cash flows related to loan servicing activities in the fair value measurement of a written loan commitment. Also on January 1, 2008, FHN adopted SFAS No. 157, which affected the valuation of interest rate lock commitments previously measured under the guidance of EITF 02-3. The interest rate lock commitment does not bind the potential borrower to entering into the loan, nor does it guarantee that FHN will approve the potential borrower for the loan. Therefore, when determining fair value, FHN makes estimates of expected "fallout” (locked pipeline loans not expected to close), using models, which consider cumulative historical fallout rates and other factors. Other valuation inputs associated with interest rate lock commitments are determined in a manner consistent with that used for mortgage loans held for sale described above.

Fair value for forwards and futures contracts used to hedge the mortgage pipeline and warehouse are based on current transactions involving identical securities. Valuations of other derivatives are based on inputs observed in active markets for similar instruments. Typical inputs include the LIBOR curve, option volatility and option skew.

Nonearning assets. For the purposes of SFAS No. 107 disclosures, nonearning assets include cash and due from banks, accrued interest receivable, and capital markets receivables. Due to the short-term nature of cash and due from banks, accrued interest receivable and capital markets receivables, the fair value is approximated by the book value.

Other assets. For purposes of SFAS No. 107 disclosures, other assets consists of investments in low income housing partnerships and deferred compensation assets that are considered financial assets. Investments in low income housing partnerships are written down to estimated fair value quarterly based on the estimated value of the associated tax credits. Deferred compensation assets are recognized at fair value, which is based on quoted prices in active markets.

Defined maturity deposits. The fair value is estimated by discounting future cash flows to their present value. Future cash flows are discounted by using the current market rates of similar instruments applicable to the remaining maturity. For the purpose of SFAS No. 107 disclosures, defined maturity deposits include all certificates of deposit and other time deposits.

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Note 23 q Fair Value of Assets & Liabilities (continued)

Undefined maturity deposits. In accordance with SFAS No. 107, the fair value is approximated by the book value. For the purpose of this disclosure, undefined maturity deposits include demand deposits, checking interest accounts, savings accounts, and money market accounts.

Short-term financial liabilities. The fair value of federal funds purchased, securities sold under agreements to repurchase, commercial paper and other short-term borrowings is approximated by the book value. The carrying amount is a reasonable estimate of fair value because of the relatively short time between the origination of the instrument and its expected realization. Commercial paper and short-term borrowings includes a liability associated with transfers of mortgage servicing rights that did not qualify for sale accounting. This liability is accounted for at elected fair value, which is measured consistent with the related MSR, as described above.

Long-term debt. The fair value is approximated by the present value of the contractual cash flows discounted by the investor’s yield which considers FHN’s and FTBNA’s debt ratings.

Other noninterest-bearing liabilities. For the purpose of SFAS No. 107 disclosures, other noninterest-bearing liabilities include accrued interest payable and capital markets payables. Due to the short-term nature of these liabilities, the book value is considered to approximate fair value.

Loan Commitments. Fair values are based on fees charged to enter into similar agreements taking into account the remaining terms of the agreements and the counterparties’ credit standing.

Other Commitments. Fair values are based on fees charged to enter into similar agreements.

SFAS No. 107 requires the disclosure of estimated fair values of all asset, liability and off-balance sheet financial instruments. The following fair value estimates are determined as of a specific point in time utilizing various assumptions and estimates. The use of assumptions and various valuation techniques, as well as the absence of secondary markets for certain financial instruments, will likely reduce the comparability of fair value disclosures between financial institutions. Due to market illiquidity, the fair values for loans, net of unearned income, loans held for sale, and long-term debt as of December 31, 2008, involved the use of significant internally-developed pricing assumptions for certain components of these line items. These assumptions are considered to reflect inputs that market participants would use in transactions involving these instruments as of the measurement date. The following table summarizes the book value and estimated fair value of financial instruments recorded in the Consolidated Statements of Condition as well as off-balance sheet commitments as of December 31, 2008 and 2007. In accordance with SFAS No. 107, we have not included assets and liabilities that are not financial instruments (including MSR) in the table below. This includes the value of long-term relationships with deposit and trust customers, premises and equipment, goodwill and other intangibles, deferred taxes and certain other assets and other liabilities. Accordingly, the total of the fair value amounts does not represent, and should not be construed to represent, the underlying value of the company.

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Note 23 q Fair Value of Assets & Liabilities (continued)


(Dollars in thousands)	December 31, 2008						December 31, 2007
	Book Value			Fair Value			Book Value			Fair Value

Assets:
Loans, net of unearned income		$	20,428,980		$	18,787,501		$	21,761,175		$	21,770,188
Short-term financial assets			980,150			980,150			1,128,917			1,128,917
Trading securities			945,766			945,766			1,768,763			1,768,763
Loans held for sale			566,654			566,654			3,751,590			3,789,845
Securities available for sale			3,125,153			3,125,153			3,032,551			3,032,551
Securities held to maturity			-			-			240			242
Derivative assets			576,131			576,131			208,747			208,747
Nonearning assets			1,839,227			1,839,227			1,846,879			1,846,879
Other assets			140,797			140,797			197,396			197,396

Liabilities:
Deposits:
Defined maturity		$	3,676,880		$	3,761,102		$	6,012,551		$	6,042,083
Undefined maturity			10,564,934			10,564,934			11,019,734			11,019,734

Total deposits			14,241,814			14,326,036			17,032,285			17,061,817
Trading liabilities			359,502			359,502			556,144			556,144
Short-term financial liabilities			6,030,768			6,030,768			8,273,591			8,273,591
Long-term debt			4,767,660			3,842,696			6,828,417			6,636,214
Derivative liabilities			262,434			262,434			123,580			123,580
Other noninterest-bearing liabilities			1,191,758			1,191,758			713,538			713,538

	Contractual Amount			Fair Value			Contractual Amount			Fair Value



Off-Balance Sheet Commitments:
Loan commitments		$	9,600,616		$	2,654		$	14,099,224		$	5,212
Other commitments			631,716			6,166			809,133			7,671

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

127

FIRST HORIZON NATIONAL CORPORATION

Note 24 q Loan Sales and Securitizations

FHN historically utilized loan sales and securitizations as a significant source of liquidity for its mortgage banking operations. With FHN’s current focus on origination of mortgages within its regional banking footprint and the related sale of national mortgage origination offices to MetLife, loan sale and securitization activity has decreased significantly since third quarter 2008. Additionally, subsequent to the MetLife transaction, FHN is no longer retaining financial interests in loans it transfers to third parties. In accordance with applicable accounting standards, loan sale and securitization activity for which FHN has retained an interest in the related transfers is included in this disclosure. For classification purposes, all loans transferred to GSE (e.g., FNMA, FHLMC and GNMA), including those subsequently securitized by an agency, are considered loan sales while transfers attributed to securitizations consist solely of proprietary securitizations executed by FHN.

During 2008, 2007 and 2006, FHN transferred $19.5 billion, $20.1 billion and $15.5 billion, respectively of single-family residential mortgage loans in sales that were not securitizations. These transactions primarily reflect sales to GSE. In 2008, 2007 and 2006, FHN recognized net pre-tax gains of $236.7 million, $111.9 million and $188.4 million, respectively, from the sale of single-family residential mortgage loans which includes gains recognized on the capitalization of MSR associated with these loans.

During 2007 and 2006, FHN transferred $1.1 billion and $2.6 billion, respectively, of home equity loans and HELOC in sales that were not securitizations. These transactions were executed with other financial institutions. In 2007 and 2006, FHN recognized net pre-tax gains of $20.3 million and $37.5 million, respectively, from these transactions, which includes gains recognized on the capitalization of MSR associated with these loans.

During 2007 and 2006, FHN securitized $5.2 billion and $8.6 billion, respectively, of single-family residential mortgage loans in proprietary securitization transactions, and the resulting securities were sold as senior and subordinate certificates. In 2007 and 2006, FHN recognized net pre-tax gains of $11.7 million and $124.1 million, respectively, from the sale of securitized single-family residential mortgage loans which includes gains recognized on the capitalization of MSR associated with these loans.

During 2008, 2007 and 2006, FHN transferred $19.9 million, $33.8 million and $69.4 million, respectively of HELOC related to proprietary securitization transactions. In 2008, 2007 and 2006, FHN recognized net pre-tax gains of $.4 million, $.9 million and $2.1 million, respectively related to HELOC securitizations which includes gains recognized on the capitalization of MSR associated with these loans.

In 2008 and 2007, FHN capitalized approximately $242.8 million and $297.0 million, respectively, in originated MSR related to loan sales. In 2008 and 2007, FHN capitalized approximately $.2 million and $66.3 million, respectively, in originated MSR related to securitizations. These MSR, as well as other MSR held by FHN, are discussed further in Note 6 – Mortgage Servicing Rights. In certain cases, FHN continues to service and receive servicing fees related to the transferred loans, and has also retained interests in loan sales and securitizations including residual interest certificates and financial assets including excess interest (structured as interest-only strips), principal-only strips, interest-only strips, or subordinated bonds. FHN received annual servicing fees approximating .27 percent in 2008, .28 percent in 2007 and .33 percent in 2006 of the outstanding balance of underlying single-family residential mortgage loans. FHN received annual servicing fees approximating .50 percent in 2008, 2007 and 2006 of the outstanding balance of underlying loans for HELOC and home equity loans transferred. The investors and the securitization trusts have no recourse to other assets of FHN for failure of debtors to pay when due. FHN is obligated to repurchase loans under standard representations and warranties provided to the buyers, which include evidence of borrower fraud and failure to adhere to underwriting guidelines.

Interests retained from loan sales, including agency securitizations, include MSR and excess interest. Interests retained from proprietary securitizations include MSR and various financial assets. MSR are initially valued at fair value, and the remaining retained interests are initially valued by allocating the remaining cost basis of the loan between the security or loan sold and the remaining retained interests based on their relative fair values at the time of sale or securitization. MSR are recognized at fair value in periods subsequent to the related sale or securitization with realized and unrealized gains and losses included in current earnings as a component of noninterest income on the Consolidated Statements of Income.

128

FIRST HORIZON NATIONAL CORPORATION

Note 24 q Loan Sales and Securitizations (continued)

Financial assets retained in a proprietary or GSE securitization may include certificated residual interests, excess interest (structured as interest-only strips), interest-only strips, principal-only strips, or subordinated bonds. Residual interests represent rights to receive earnings to the extent of excess income generated by the underlying loans. Excess interest represents rights to receive interest from serviced assets that exceed contractually specified rates. Principal-only strips are principal cash flow tranches, and interest-only strips are interest cash flow tranches. Subordinated bonds are bonds with junior priority. All financial assets retained from a securitization are recognized on the on the Consolidated Statements of Condition in trading securities at fair value with realized and unrealized gains and losses included in current earnings as a component of noninterest income on the Consolidated Statements of Income.

As of December 31, 2008 and 2007, $103.0 million and $230.3 million, respectively, of first lien MSR are associated with proprietary securitization transactions with the remainder associated with loan sales. As of December 31, 2008 and 2007, second lien MSR includes $1.0 million and $1.4 million, respectively, of MSR related to prior securitization activity with the remainder related to loan sales. As of December 31, 2008 and 2007, HELOC MSR included $1.5 million and $2.3 million, respectively, of MSR related to prior securitization activity with the remainder related to loan sales. As of December 31, 2008 and 2007, $57.0 million and $131.6 million, respectively, of excess interest IO are associated with proprietary securitization transactions with the remainder associated with loan sales. All other retained interests relate to securitization activity.

The sensitivity of the fair value of all retained or purchased interests for MSR to immediate 10 percent and 20 percent adverse changes in assumptions on December 31, 2008, are as follows:


(Dollars in thousands except for annual cost to service)	First Liens				Second Liens				HELOC

December 31, 2008
Fair value of retained interests		$	354,397			$	13,557			$	8,890
Weighted average life (in years)			2.6				2.1				2.4
Annual prepayment rate			32.8	%			36.5	%			34.0	%
Impact on fair value of 10% adverse change		$	(26,106	)		$	(1,336	)		$	(729	)
Impact on fair value of 20% adverse change			(49,444	)			(2,540	)			(1,392	)
Annual discount rate on servicing cash flows			11.1	%			14.0	%			18.0	%
Impact on fair value of 10% adverse change		$	(7,780	)		$	(335	)		$	(264	)
Impact on fair value of 20% adverse change			(15,164	)			(653	)			(512	)
Annual cost to service (per loan)*		$	54			$	50			$	50
Impact on fair value of 10% adverse change			(4,284	)			(331	)			(277	)
Impact on fair value of 20% adverse change			(8,569	)			(663	)			(554	)
Annual earnings on escrow			1.6	%			.4	%			.4	%
Impact on fair value of 10% adverse change		$	(6,318	)		$	(58	)		$	(28	)
Impact on fair value of 20% adverse change			(12,635	)			(117	)			(55	)

The annual cost to service includes an incremental cost to service delinquent loans. Historically, this fair value sensitivity disclosure has not included this incremental cost. The annual cost to service first-lien mortgage loans without the incremental cost to service delinquent loans was $44 as of December 31, 2008.

129

FIRST HORIZON NATIONAL CORPORATION

Note 24 q Loan Sales and Securitizations (continued)

The sensitivity of the fair value of all retained or purchased interests for MSR to immediate 10 percent and 20 percent adverse changes in assumptions on December 31, 2007, are as follows:


(Dollars in thousands except for annual cost to service)	First Liens				Second Liens				HELOC

December 31, 2007
Fair value of retained interests		$	1,122,415			$	25,832			$	11,573
Weighted average life (in years)			5.4				2.6				2.9
Annual prepayment rate			16.0	%			30.9	%			42.0	%
Impact on fair value of 10% adverse change		$	(51,647	)		$	(1,426	)		$	(733	)
Impact on fair value of 20% adverse change			(98,892	)			(2,707	)			(1,399	)
Annual discount rate on servicing cash flows			11.1	%			14.0	%			18.0	%
Impact on fair value of 10% adverse change		$	(41,043	)		$	(674	)		$	(295	)
Impact on fair value of 20% adverse change			(79,167	)			(1,313	)			(574	)
Annual cost to service (per loan)*		$	56			$	50			$	50
Impact on fair value of 10% adverse change			(14,213	)			(465	)			(293	)
Impact on fair value of 20% adverse change			(28,425	)			(929	)			(585	)
Annual earnings on escrow			3.8	%			4.3	%			4.4	%
Impact on fair value of 10% adverse change		$	(26,170	)		$	(697	)		$	(412	)
Impact on fair value of 20% adverse change			(54,942	)			(1,393	)			(825	)

The sensitivity of the fair value of retained interests for other residuals to immediate 10 percent and 20 percent adverse changes in assumptions on December 31, 2008, are as follows:


(Dollars in thousands except for annual cost to service)	Excess Interest IO				Certificated PO				IO				Subordinated Bonds				Residual Interest Certificates 2nd Liens				Residual Interest Certificates HELOC

December 31, 2008
Fair value of retained interests		$	102,657			$	13,887			$	406			$	4,637			$	3,504			$	4,717
Weighted average life (in years)			2.6				4.8				8.3				2.0				2.6				2.3
Annual prepayment rate			32.1	%			49.4	%			12.7	%			7.1	%			29.6	%			27.0	%
Impact on fair value of 10% adverse change		$	(11,019	)		$	(498	)		$	(12	)		$	(211	)		$	(37	)		$	(397	)
Impact on fair value of 20% adverse change			(20,934	)			(1,127	)			(22	)			(258	)			(70	)			(751	)
Annual discount rate on residual cash flows			12.2	%			30.6	%			19.3	%			26.3	%			34.9	%			33.0	%
Impact on fair value of 10% adverse change		$	(3,543	)		$	(370	)		$	(21	)		$	(163	)		$	(137	)		$	(443	)
Impact on fair value of 20% adverse change			(6,897	)			(781	)			(40	)			(291	)			(259	)			(826	)

130

FIRST HORIZON NATIONAL CORPORATION

Note 24 q Loan Sales and Securitizations (continued)

The sensitivity of the fair value of retained interests for other residuals to immediate 10 percent and 20 percent adverse changes in assumptions on December 31, 2007, are as follows:


(Dollars in thousands except for annual cost to service)	Excess Interest IO				Certificated PO				IO				Subordinated Bonds				Residual Interest Certificates 2nd Liens				Residual Interest Certificates HELOC

December 31, 2007
Fair value of retained interests		$	396,701			$	14,850			$	526			$	23,123			$	5,036			$	13,556
Weighted average life (in years)			6.6				4.3				6.4				10.3				2.5				2.1
Annual prepayment rate			12.8	%			18.5	%			14.8	%			14.9	%			29.0	%			35.0	%
Impact on fair value of 10% adverse change		$	(19,006	)		$	(626	)		$	(26	)		$	(268	)		$	(53	)		$	(493	)
Impact on fair value of 20% adverse change			(36,546	)			(1,320	)			(50	)			(563	)			(96	)			(929	)
Annual discount rate on residual cash flows			12.1	%			13.9	%			12.7	%			33.3	%			33.0	%			31.0	%
Impact on fair value of 10% adverse change		$	(15,855	)		$	(537	)		$	(22	)		$	(1,492	)		$	(196	)		$	(558	)
Impact on fair value of 20% adverse change			(30,505	)			(1,039	)			(43	)			(2,826	)			(369	)			(1,051	)

These sensitivities are hypothetical and should not be considered to be predictive of future performance. As the figures indicate, changes in fair value based on a 10 percent variation in assumptions generally cannot necessarily be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated independently from any change in another assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities. Furthermore, the estimated fair values as disclosed should not be considered indicative of future earnings on these assets.

FHN uses assumptions and estimates in determining the fair value allocated to retained interests at the time of initial securitization. The key economic assumptions used to measure the fair value of the MSR at the date of securitization or loan sale were as follows:


	First Liens	Second Liens	HELOC

2008
Weighted average life (in years)	2.4 – 7.0	2.7 – 3.1	1.7 – 1.8
Annual prepayment rate	11.7% – 34.7%	26% – 30%	43% – 44%
Annual discount rate	9.36% – 11.7%	14.0%	18.0%
Annual cost to service (per loan)*	$52 – $69	$50	$50
Annual earnings on escrow	1.6% – 3.8%	3.80% – 5.32%	5.32%

2007
Weighted average life (in years)	5.9 – 8.0	2.7 – 3.1	1.7 – 1.8
Annual prepayment rate	10.0% – 15.7%	26% – 30%	43% – 44%
Annual discount rate	9.2% – 10.9%	14.0%	18.0%
Annual cost to service (per loan)*	$54 – $59	$50	$50
Annual earnings on escrow	3.8% – 5.0%	3.80% – 5.32%	5.32%

The annual cost to service includes an incremental cost to service delinquent loans. Historically, the disclosure of annual cost to service assumptions has not included this incremental cost. The range of annual cost to service loans without the incremental cost to service delinquent loans was $44 – $53 for MSR capitalized during the year ended December 31, 2008.

131

FIRST HORIZON NATIONAL CORPORATION

Note 24 q Loan Sales and Securitizations (continued)

The key economic assumptions used to measure the fair value of other retained interests at the date of securitization were as follows:


	Excess Interest IO	Certificated PO	Subordinated Bond

2008
Weighted average life (in years)	4.7 – 6.1	N/A	N/A
Annual prepayment rate	10.2% – 19.7%	N/A	N/A
Annual discount rate	11.8%	N/A	N/A

2007
Weighted average life (in years)	5.2 – 9.4	3.1 – 5.8	5.8 – 10.8
Annual prepayment rate	8.2% – 17.1%	14.6% – 23.8%	12.0% – 18.0%
Annual discount rate	11.5% – 12.3%	6.1% – 14.9%	7.9% – 127.2%

For the years ended December 31, 2008, 2007 and 2006, cash flows received and paid related to loan sales were as follows:


(Dollars in thousands)	2008			2007			2006

Proceeds from initial sales		$	19,523,904		$	21,282,957		$	18,121,024
Servicing fees retained*			161,336			244,901			248,274
Purchases of GNMA guaranteed mortgages			103,436			160,928			159,666
Purchases of delinquent or foreclosed assets			6,110			6,865			5,280
Other cash flows received on retained interests			25,569			62,142			28,855

Includes servicing fees on MSR associated with loan sales and purchased MSR.

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

For the years ended December 31, 2008, 2007 and 2006, cash flows received and paid related to securitizations were as follows:


(Dollars in thousands)	2008			2007			2006

Proceeds from initial securitizations		$	19,925		$	5,230,889		$	8,630,289
Servicing fees retained			87,786			86,740			94,242
Purchases of delinquent or foreclosed assets			3,042			7,083			2,735
Other cash flows received on retained interests			21,737			33,557			25,717

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

132

FIRST HORIZON NATIONAL CORPORATION

Note 24 q Loan Sales and Securitizations (continued)

As of December 31, 2008, the principal amount of loans transferred through loan sales and securitizations and other loans managed with them, and the principal amount of delinquent loans, in addition to net credit losses during 2008 are as follows:


(Dollars in thousands)	Total Principal Amount of Loans				Principal Amount of Delinquent Loans (a)			Net Credit Losses (b) (c)

	On December 31, 2008							For the Year Ended On December 31, 2008
Type of loan:
Real estate residential		$	50,602,981			$	778,929		$	283,862


Total loans managed or transferred (d)			50,602,981			$	778,929		$	283,862

Loans sold (e)			(42,035,488	)
Loans held for sale (e)			(406,058	)

Loans held in portfolio		$	8,161,435

(a)

Loans 90 days or more past due include $42.2 million of GNMA guaranteed mortgages. $385.3 million of delinquent loans have been securitized while $127.6 million have been sold.

(b)

Principal amount of loans securitized and sold includes $37.1 billion of loans securitized through GNMA, FNMA or FHLMC. FHN retains interests other than servicing rights on a portion of these securitized loans. No delinquency or net credit loss data is included for the loans securitized through FNMA or FHMLC because these agencies retain credit risk. The remainder of loans securitized and sold were securitized through properietary trusts, where FHN retained interests other than servicing rights.

(c)

$142.9 million associated with loan sales and $17.7 million associated with securitizations.

(d)

Transferred loans are real estate residential loans in which FHN has a retained interest other than servicing rights.

(e)

$37.6 billion associated with loan sales and $4.9 billion associated with securitizations.

As of December 31, 2007, the principal amount of loans transferred through loan sales and securitizations and other loans managed with them, and the principal amount of delinquent loans, in addition to net credit losses during 2007 are as follows:


(Dollars in thousands)	Total Principal Amount of Loans				Principal Amount of Delinquent Loans (a)			Net Credit Losses (b) (c)

	On December 31, 2007							For the Year Ended December 31, 2007
Type of loan:
Real estate residential		$	90,021,060			$	424,819		$	75,661


Total loans managed or transferred (d)			90,021,060			$	424,819		$	75,661

Loans sold (e)			(79,115,895	)
Loans held for sale (e)			(3,113,280	)

Loans held in portfolio		$	7,791,885

(a)

Loans 90 days or more past due include $190.7 million of GNMA guaranteed mortgages. $89.7 million of delinquent loans have been securitized and $86.3 million were sold.

(b)

Principal amount of loans securitized and sold includes $72.5 billion of loans securitized through GNMA, FNMA or FHLMC. FHN retains interests other than servicing rights on a portion of these securitized loans. No delinquency or net credit loss data is included for the loans securitized through FNMA or FHMLC because these agencies retain credit risk. The remainder of loans securitized and sold were securitized through properietary trusts, where FHN retained interests other than servicing rights.

(c)

$38.0 million associated with loan sales and $4.5 million associated with securitizations.

(d)

Transferred loans are real estate residential loans in which FHN has a retained interest other than servicing rights.

(e)

$76.7 billion associated with loan sales and $5.5 billion associated with securitizations.

133

FIRST HORIZON NATIONAL CORPORATION

Note 24 q Loan Sales and Securitizations (continued)

Secured Borrowings. In 2007 and 2006, FTBNA executed several securitizations of retail real estate residential loans for the purpose of engaging in secondary market financing. Since the related trusts did not qualify as QSPE and since the cash flows on the loans are pledged to the holders of the trusts’ securities, FTBNA recognized the proceeds as secured borrowings in accordance with SFAS No. 140. As of December 31, 2008, FTBNA had recognized $714.7 million of loans net of unearned income and $696.5 million of other collateralized borrowings in its Consolidated Statement of Condition related to these transactions. As of December 31, 2007, FTBNA had recognized $766.0 million of loans net of unearned income and $757.5 million of other collateralized borrowings in its Consolidated Statement of Condition related to these transactions. See Note 25 – Variable Interest Entities for additional information.

In third quarter 2007, FTBNA executed a securitization of certain small issuer trust preferreds for which the underlying trust did not qualify as a QSPE under SFAS No. 140. Therefore, FTNBA has accounted for the funds received through the securitization as a secured borrowing. As of December 31, 2008, FTBNA had recognized $112.5 million of loans net of unearned income, $1.7 million of trading securities and $48.9 million of other collateralized borrowings in its Consolidated Statement of Condition related to this transaction. As of December 31, 2007, FTBNA had recognized $112.8 million of loans net of unearned income and $43.0 million of other collateralized borrowings in its Consolidated Statement of Condition related to this transaction. See Note 25 – Variable Interest Entities for additional information.

134

FIRST HORIZON NATIONAL CORPORATION

Note 25 q Variable Interest Entities

Under the provisions of FASB Interpretation No. 46, “Consolidation of Variable Interest Entities – revised December 2003” (FIN 46-R), FHN is deemed to be the primary beneficiary and required to consolidate a variable interest entity (VIE) if it has a variable interest that will absorb the majority of the VIE’s expected losses, receive the majority of expected residual returns, or both. A VIE exists when equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities by itself. A variable interest is a contractual, ownership or other interest that changes with changes in the fair value of the VIE’s net assets or the VIE’s cash flows. Expected losses and expected residual returns are measures of variability in the expected cash flow of a VIE.

Consolidated Variable Interest Entities. In 2007 and 2006, FTBNA established several Delaware statutory trusts (Trusts), for the purpose of engaging in secondary market financing. Except for recourse due to breaches of standard representations and warranties made by FTBNA in connection with the sale of the retail real estate residential loans by FTBNA to the Trusts, the creditors of the Trusts hold no recourse to the assets of FTBNA. Additionally, FTBNA has no contractual requirements to provide financial support to the Trusts. Since the Trusts did not qualify as QSPE, FTBNA treated the proceeds as secured borrowings in accordance with SFAS No. 140. FTBNA determined that the Trusts were VIEs because the holders of the equity investment at risk did not have adequate decision making ability over the trusts’ activities. Thus, FTBNA assessed whether it was the primary beneficiary of the associated trusts. Since there was an overcollateralization of the Trusts, any excess of cash flows received on the transferred loans above the amounts passed through to the security holders would revert to FTBNA. Accordingly, FTBNA determined that it was the primary beneficiary of the Trusts because it absorbed a majority of the expected losses of the Trusts.

FTBNA holds variable interests in trusts which have issued mandatorily redeemable preferred capital securities (trust preferreds) for smaller banking and insurance enterprises. FTBNA has no voting rights for the trusts’ activities. The trusts’ only assets are junior subordinated debentures of the issuing enterprises. The creditors of the trusts hold no recourse to the assets of FTBNA. These trusts meet the definition of a VIE because the holders of the equity investment at risk do not have adequate decision making ability over the trusts’ activities. In situations where FTBNA holds a majority of the trust preferreds issued by a trust, it is considered the primary beneficiary of that trust because FTBNA will absorb a majority of the trust’s expected losses. FTBNA has no contractual requirements to provide financial support to the trusts. In situations where FTBNA holds a majority, but less than all, of the trust preferreds for a trust, consolidation of the trust results in recognition of amounts received from other parties as debt. See Note 10 – Long-Term Debt for further detail.

FHN has established certain rabbi trusts related to deferred compensation plans offered to its employees. FHN contributes employee cash compensation deferrals to the trusts and directs the underlying investments made by the trusts. The assets of these trusts are available to FHN’s creditors only in the event that FHN becomes insolvent. These trusts are considered VIEs because either there is no equity at risk in the trusts or because FHN provided the equity interest to its employees in exchange for services rendered. Given that the trusts were created in exchange for the employees’ services, FHN is considered the primary beneficiary of the rabbi trusts because it is most closely related to their purpose and design. FHN has the obligation to fund any liabilities to employees that are in excess of a rabbi trust’s assets.

The following table summarizes VIEs consolidated by FHN:

As of December 31, 2008
(Dollars in thousands)

Assets

Liabilities

Type

Carrying
Value

Classification

Carrying
Value

Classification

On balance sheet consumer loan securitizations

714,717

Loans, net of unearned income

696,508

Other collateralized borrowings

Small issuer trust preferred holdings

465,350

Loans, net of unearned income

30,500

Term borrowings

Rabbi trusts used for deferred compensation plans

88,356

Other assets

57,661

Other liabilities

135

FIRST HORIZON NATIONAL CORPORATION

Note 25 q Variable Interest Entities (continued)

As of December 31, 2007
(Dollars in thousands)

Assets

Liabilities

Type

Carrying
Value

Classification

Carrying
Value

Classification

On balance sheet consumer loan securitizations

766,027

Loans, net of unearned income

757,453

Other collateralized borrowings

Small issuer trust preferred holdings

61,900

Loans, net of unearned income

10,000

Term borrowings

Rabbi trusts used for deferred compensation plans

158,724

Other assets

160,818

Other liabilities

Nonconsolidated Variable Interest Entities. Since 1997, First Tennessee Housing Corporation (FTHC), a wholly-owned subsidiary, makes equity investments as a limited partner, in various partnerships that sponsor affordable housing projects utilizing the Low Income Housing Tax Credit (LIHTC) pursuant to Section 42 of the Internal Revenue Code. The purpose of these investments is to achieve a satisfactory return on capital and to support FHN’s community reinvestment initiatives. The activities of the limited partnerships include the identification, development, and operation of multi-family housing that is leased to qualifying residential tenants generally within FHN’s primary geographic region. LIHTC partnerships are considered VIEs because FTHC, as the holder of the equity investment at risk, does not have the ability to significantly affect the success of the entity through voting rights. FTHC is not considered the primary beneficiary of the LIHTC partnerships because an agent relationship exists between FTHC and the general partners, whereby the general partners cannot sell, transfer or otherwise encumber their ownership interest without the approval of FTHC. Because this results in a de facto agent relationship between the partners, the general partners are considered the primary beneficiaries because their operations are most closely associated with the LIHTC partnerships’ operations. FTHC has no contractual requirements to provide financial support to the LIHTC partnerships beyond its initial funding commitments.

FTBNA holds variable interests in trusts which have issued mandatorily redeemable trust preferreds for smaller banking and insurance enterprises. FTBNA has no voting rights for the trusts’ activities. The trusts’ only assets are junior subordinated debentures of the issuing enterprises. These trusts meet the definition of a VIE because the holders of the equity investment at risk do not have adequate decision making ability over the trusts’ activities. In situations where FTBNA did not intend to hold the trust preferreds for more than a brief period and situations where FTBNA did not hold a majority of the trust preferreds issued by a trust, it is not considered the primary beneficiary of that trust because FTBNA does not absorb a majority of the expected losses of the trust. FTBNA has no contractual requirements to provide financial support to the trusts.

In third quarter 2007, FTBNA executed a securitization of certain small issuer trust preferreds for which the underlying trust did not qualify as a QSPE under SFAS No. 140. This trust was determined to be a VIE because the holders of the equity investment at risk do not have adequate decision making ability over the trust’s activities. FTBNA determined that it was not the primary beneficiary of the trust due to the size and priority of the interests it retained in the securities issued by the trust. Accordingly, FTBNA has accounted for the funds received through the securitization as a collateralized borrowing in its Consolidated Statement of Condition. FTBNA has no contractual requirement to provide financial support to the trust.

As discussed in Note 11, FHN has issued junior subordinated debt to Capital I and Capital II totaling $309.0 million. Both Capital I and Capital II are considered VIEs because FHN’s capital contributions to these trusts are not considered “at risk” in evaluating whether the equity investments at risk in the trusts have adequate decision making ability over the trusts’ activities. Capital I and Capital II are not consolidated by FHN because the holders of the securities issued by the trusts absorb a majority of expected losses and residual returns.

Wholly-owned subsidiaries of FHN serve as investment advisor and administrator of certain “fund of funds” investment vehicles, whereby the subsidiaries receive fees for management of the funds’ operations and through revenue sharing agreements based on the funds’ performance. The funds are considered VIEs because the holders of the equity at risk do not have voting rights or the ability to control the funds’ operations. The subsidiaries have not made any investment in the funds. Further, the subsidiaries are not obligated to provide any financial support

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Note 25 q Variable Interest Entities (continued)

to the funds. The funds are not consolidated by FHN because its subsidiaries do not absorb a majority of expected losses or residual returns.

The following table summarizes VIEs that are not consolidated by FHN:

As of December 31, 2008
(Dollars in thousands)

Maximum
Loss Exposure

Liability
Recognized

Classification

Type

Low Income Housing Partnerships (a) (b)

131,150

–

Other assets

Small Issuer Trust Preferred Holdings

43,000

–

Loans, net of unearned income

On Balance Sheet Trust Preferred Securitization

65,318

48,855

(c)

Proprietary Trust Preferred Issuances

N/A

309,000

Term borrowings

Management of Fund of Funds

N/A

(a)

Maximum loss exposure represents $113.8 million of current investments and $17.3 million of contractual funding commitments. Only the current investment amount is included in Other Assets.

(b)

A liability is not recognized because investments are written down over the life of the related tax credit.

(c)

$112.5 million was classified as Loans, net of unearned income and $1.7 million was classifed as Trading securities which are offset by $48.9 million classified as Other collateralized borrowings.

As of December 31, 2007
(Dollars in thousands)

Maximum
Loss Exposure

Liability
Recognized

Classification

Type

Low Income Housing Partnerships (a) (b)

118,046

–

Other assets

Small Issuer Trust Preferred Holdings

374,450

–

(c)

On Balance Sheet Trust Preferred Securitization

69,791

42,997

(d)

Proprietary Trust Preferred Issuances

N/A

309,000

Term borrowings

Management of Fund of Funds

N/A

(a)

Maximum loss exposure represents $111.8 million of current investments and $6.3 million of contractual funding commitments. Only the current investment amount is included in Other Assets.

(b)

A liability is not recognized because investments are written down over the life of the related tax credit.

(c)

$331.5 million was classified as Loans held for sale and $43.0 million was classified as Loans, net of unearned income.

(d)

$112.8 million was classified as Loans, net of unearned income which is offset by $43.0 million classified as Other collateralized borrowings.

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Note 26 q Derivatives and Off-Balance Sheet Arrangements

In the normal course of business, FHN utilizes various financial instruments, through its mortgage banking, capital markets and risk management operations, which include derivative contracts and credit-related arrangements, as part of its risk management strategy and as a means to meet customers’ needs. These instruments are subject to credit and market risks in excess of the amount recorded on the balance sheet in accordance with generally accepted accounting principles. The contractual or notional amounts of these financial instruments do not necessarily represent credit or market risk. However, they can be used to measure the extent of involvement in various types of financial instruments. Controls and monitoring procedures for these instruments have been established and are routinely reevaluated. The Asset/Liability Committee (ALCO) monitors the usage and effectiveness of these financial instruments.

Credit risk represents the potential loss that may occur because a party to a transaction fails to perform according to the terms of the contract. The measure of credit exposure is the replacement cost of contracts with a positive fair value. FHN manages credit risk by entering into financial instrument transactions through national exchanges, primary dealers or approved counterparties, and using mutual margining agreements whenever possible to limit potential exposure. With exchange-traded contracts, the credit risk is limited to the clearinghouse used. For non-exchange traded instruments, credit risk may occur when there is a gain in the fair value of the financial instrument and the counterparty fails to perform according to the terms of the contract and/or when the collateral proves to be of insufficient value. Market risk represents the potential loss due to the decrease in the value of a financial instrument caused primarily by changes in interest rates, mortgage loan prepayment speeds or the prices of debt instruments. FHN manages market risk by establishing and monitoring limits on the types and degree of risk that may be undertaken. FHN continually measures this risk through the use of models that measure value-at-risk and earnings-at-risk.

Derivative Instruments. FHN enters into various derivative contracts both in a dealer capacity, to facilitate customer transactions, and also as a risk management tool. Where contracts have been created for customers, FHN enters into transactions with dealers to offset its risk exposure. Derivatives are also used as a risk management tool to hedge FHN’s exposure to changes in interest rates or other defined market risks.

Derivative instruments are recorded on the Consolidated Statements of Condition as other assets or other liabilities measured at fair value. Fair value is defined as the price that would be received to sell a derivative asset or paid to transfer a derivative liability in an orderly transaction between market participants on the transaction date. Fair value is determined using available market information and appropriate valuation methodologies. For a fair value hedge, changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability are recognized currently in earnings. For a cash flow hedge, changes in the fair value of the derivative instrument, to the extent that it is effective, are recorded in accumulated other comprehensive income and subsequently reclassified to earnings as the hedged transaction impacts net income. Any ineffective portion of a cash flow hedge is recognized currently in earnings. For freestanding derivative instruments, changes in fair value are recognized currently in earnings. Cash flows from derivative contracts are reported as operating activities on the Consolidated Statements of Cash Flows.

Interest rate forward contracts are over-the-counter contracts where two parties agree to purchase and sell a specific quantity of a financial instrument at a specified price, with delivery or settlement at a specified date. Futures contracts are exchange-traded contracts where two parties agree to purchase and sell a specific quantity of a financial instrument at a specific price, with delivery or settlement at a specified date. Interest rate option contracts give the purchaser the right, but not the obligation, to buy or sell a specified quantity of a financial instrument, at a specified price, during a specified period of time. Caps and floors are options that are linked to a notional principal amount and an underlying indexed interest rate. Interest rate swaps involve the exchange of interest payments at specified intervals between two parties without the exchange of any underlying principal. Swaptions are options on interest rate swaps that give the purchaser the right, but not the obligation, to enter into an interest rate swap agreement during a specified period of time.

On December 31, 2008 and 2007 respectively, FHN had approximately $62.8 million and $27.1 million of cash receivables and $196.2 million and $3.4 million of cash payables related to collateral posting under master netting arrangements with derivative counterparties.

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Note 26 q Derivatives and Off-Balance Sheet Arrangements (continued)

Mortgage Banking

As a result of the MetLife transaction, mortgage banking origination activity was significantly reduced in the period after third quarter 2008 as FHN focuses on origination within its regional banking footprint. Accordingly, the following discussion of pipeline and warehouse related derivatives is primarily applicable to reporting periods occurring through the third quarter 2008.

Mortgage banking interest rate lock commitments are short-term commitments to fund mortgage loan applications in process (the pipeline) for a fixed term at a fixed price. During the term of an interest rate lock commitment, FHN has the risk that interest rates will change from the rate quoted to the borrower. FHN enters into forward sales contracts with respect to fixed rate loan commitments and futures contracts with respect to adjustable rate loan commitments as economic hedges designed to protect the value of the interest rate lock commitments from changes in value due to changes in interest rates. Under SFAS No. 133, interest rate lock commitments qualify as derivative financial instruments and as such do not qualify for hedge accounting treatment. As a result, the interest rate lock commitments are recorded at fair value, exclusive of the value of associated servicing rights, with changes in fair value recorded in current earnings as gain or loss on the sale of loans in mortgage banking noninterest income. Prior to the adoption of SAB No. 109 fair value excluded the value of associated servicing rights. Additionally, on January 1, 2008, FHN adopted SFAS No. 157 which affected the valuation of interest rate lock commitments previously measured under the guidance of EITF 02-03 by requiring recognition of concessions upon entry into the lock. Changes in the fair value of the derivatives that serve as economic hedges of interest rate lock commitments are also included in current earnings as a component of gain or loss on the sale of loans in mortgage banking noninterest income.

FHN’s’ warehouse (mortgage loans held for sale) is subject to changes in fair value, due to fluctuations in interest rates from the loan closing date through the date of sale of the loan into the secondary market. Typically, the fair value of the warehouse declines in value when interest rates increase and rises in value when interest rates decrease. To mitigate this risk, FHN enters into forward sales contracts and futures contracts to provide an economic hedge against those changes in fair value on a significant portion of the warehouse. These derivatives are recorded at fair value with changes in fair value recorded in current earnings as a component of the gain or loss on the sale of loans in mortgage banking noninterest income.

FHN adopted SFAS No. 159 on January 1, 2008. As discussed below, prior to adoption of SFAS No. 159, all warehouse loans were carried at the lower of cost or market, where carrying value was adjusted for successful hedging under SFAS No. 133 and the comparison of carrying value to market was performed for aggregate loan pools. To the extent that these interest rate derivatives were designated to hedge specific similar assets in the warehouse and prospective analyses indicate that high correlation was expected, the hedged loans were considered for hedge accounting under SFAS No. 133. Anticipated correlation was determined by projecting a dollar offset relationship for each tranche based on anticipated changes in the fair value of the hedged mortgage loans and the related derivatives, in response to various interest rate shock scenarios. Hedges were reset daily and the statistical correlation was calculated using these daily data points. Retrospective hedge effectiveness was measured using the regression correlation results. FHN generally maintained a coverage ratio (the ratio of expected change in the fair value of derivatives to expected change in the fair value of hedged assets) of approximately 100 percent on warehouse loans hedged under SFAS No. 133. Effective SFAS No. 133 hedging resulted in adjustments to the recorded value of the hedged loans. These basis adjustments, as well as the change in fair value of derivatives attributable to effective hedging, were included as a component of the gain or loss on the sale of loans in mortgage banking noninterest income. Warehouse loans qualifying for SFAS No. 133 hedge accounting treatment totaled $2.6 billion on December 31, 2007. There were no warehouse loans qualifying for SFAS No. 133 hedge accounting treatment at December 31, 2008. The balance sheet impact of the related derivatives was net liabilities of $18.8 million on December 31, 2007. Net losses of $15.5 million representing the ineffective portion of these fair value hedges were recognized as a component of gain or loss on sale of loans for the twelve months ended December 31, 2007.

Upon adoption of SFAS No. 159, FHN elected to prospectively account for substantially all of its mortgage loan warehouse products at fair value upon origination and correspondingly discontinued the application of SFAS No.

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Note 26 q Derivatives and Off-Balance Sheet Arrangements (continued)

133 hedging relationships for all new originations. FHN enters into forward sales and futures contracts to provide an economic hedge against changes in fair value on a significant portion of the warehouse.

In accordance with SFAS No. 156, FHN revalues MSR to current fair value each month. Changes in fair value are included in servicing income in mortgage banking noninterest income. FHN also enters into economic hedges of the MSR to minimize the effects of loss in value of MSR associated with increased prepayment activity that generally results from declining interest rates. In a rising interest rate environment, the value of the MSR generally will increase while the value of the hedge instruments will decline. FHN enters into interest rate contracts (including swaps, swaptions, and mortgage forward sales contracts) to hedge against the effects of changes in fair value of its MSR. Substantially all capitalized MSR are hedged for economic purposes.

FHN utilizes derivatives (including swaps, swaptions, and mortgage forward sales contracts) that change in value inversely to the movement of interest rates to protect the value of its interest-only securities as an economic hedge. Changes in the fair value of these derivatives are recognized currently in earnings in mortgage banking noninterest income as a component of servicing income. Interest-only securities are included in trading securities with changes in fair value recognized currently in earnings in mortgage banking noninterest income as a component of servicing income.

Capital Markets

Capital Markets trades U.S. Treasury, U.S. Agency, mortgage-backed, corporate and municipal fixed income securities, and other securities principally for distribution to customers. When these securities settle on a delayed basis, they are considered forward contracts. Capital Markets also enters into interest rate contracts, including options, caps, swaps and floors for its customers. In addition, Capital Markets enters into futures contracts to economically hedge interest rate risk associated with a portion of its securities inventory. These transactions are measured at fair value, with changes in fair value recognized currently in capital markets noninterest income. Related assets and liabilities are recorded on the balance sheet as other assets and other liabilities. Credit risk related to these transactions is controlled through credit approvals, risk control limits and ongoing monitoring procedures through the Credit Risk Management Committee.

Capital Markets hedged $244.6 million and $47.5 million of held-to-maturity trust preferred loans in 2008 and 2007 respectively, which have an initial fixed rate term of five years before conversion to a floating rate. Capital Markets has entered into pay fixed, receive floating interest rate swaps to hedge the interest rate risk associated with this initial five year term. The balance sheet impact of those swaps was $27.7 million and $1.6 million in other liabilities on December 31, 2008 and 2007 respectively. Interest paid or received for these swaps was recognized as an adjustment of the interest income of the assets whose risk is being hedged.

Interest Rate Risk Management

FHN’s ALCO focuses on managing market risk by controlling and limiting earnings volatility attributable to changes in interest rates. Interest rate risk exists to the extent that interest-earning assets and liabilities have different maturity or repricing characteristics. FHN uses derivatives, including swaps, caps, options, and collars, that are designed to moderate the impact on earnings as interest rates change. FHN’s interest rate risk management policy is to use derivatives not to speculate but to hedge interest rate risk or market value of assets or liabilities. In addition, FHN has entered into certain interest rate swaps and caps as a part of a product offering to commercial customers with customer derivatives paired with offsetting market instruments that, when completed, are designed to eliminate market risk. These contracts do not qualify for hedge accounting and are measured at fair value with gains or losses included in current earnings in noninterest income.

FHN has entered into pay floating, receive fixed interest rate swaps to hedge the interest rate risk of certain large institutional certificates of deposit, totaling $62.5 million on December 31, 2007. These swaps matured in first quarter 2008 and had been accounted for as fair value hedges under the shortcut method. The balance sheet impact of these swaps was $43.5 thousand in other liabilities on December 31, 2007. Interest paid or received for these swaps was recognized as an adjustment of the interest expense of the liabilities whose risk is being managed.

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Note 26 q Derivatives and Off-Balance Sheet Arrangements (continued)

FHN has entered into pay floating, receive fixed interest rate swaps to hedge the interest rate risk of certain long-term debt obligations, totaling $1.1 billion and $1.2 billion on December 31, 2008 and 2007, respectively. These swaps have been accounted for as fair value hedges under the shortcut method. The balance sheet impact of these swaps was $145.6 million in other assets on December 31, 2008 and was $30.7 million in other assets and $.7 million in other liabilities on December 31, 2007. Interest paid or received for these swaps was recognized as an adjustment of the interest expense of the liabilities whose risk is being managed.

FHN had utilized an interest rate swap as a cash flow hedge of the interest payment on floating-rate bank notes with a fair value of $100.0 million on December 31, 2007, and a maturity in first quarter 2009. The interest rate swap on these notes was terminated in the first quarter 2008. The balance sheet impact of this swap was $9.8 thousand in other assets and $6.1 thousand, net of tax, in other comprehensive income on December 31, 2007. There was no ineffectiveness related to this hedge.

In first quarter 2006, FHN determined that derivative transactions used in hedging strategies to manage interest rate risk on subordinated debt related to its trust preferred securities did not qualify for hedge accounting under the shortcut method. As a result, any fluctuations in the market value of the derivatives should have been recorded through the income statement with no corresponding offset to the hedged item. While management believed these hedges would have qualified for hedge accounting under the long haul method, that accounting could not be applied retroactively. FHN evaluated the impact to all quarterly and annual periods since the inception of the hedges and concluded that the impact was immaterial in each previous period. In first quarter 2006, FHN recorded an adjustment to recognize the cumulative impact of these transactions that resulted in a negative $15.6 million impact to noninterest income. FHN subsequently redesignated these hedge relationships under SFAS No. 133 using the long haul method. For the period of time during first quarter 2006 that these hedge relationships were not redesignated under SFAS No. 133, the swaps were measured at fair value with gains or losses included in current earnings. FHN has entered into pay floating, receive fixed interest rate swaps to hedge the interest rate risk of the subordinated debt totaling $.3 billion on December 31, 2008, and 2007. The balance sheet impact of these swaps was $1.4 million in other assets on December 31, 2008 and $11.9 million in other liabilities on December 31, 2007. There was no ineffectiveness related to these hedges. Interest paid or received for these swaps was recognized as an adjustment of the interest expense of the liabilities whose risk is being managed.

Off-Balance Sheet Arrangements

Credit-Related Commitments. FHN enters into fixed and variable interest rate loan commitments with customers. When these commitments have contract rate adjustments that lag changes in market rates, the financial instruments have characteristics similar to option contracts. FHN follows the same credit policies and underwriting practices in making commitments as it does for on-balance sheet instruments. Each counterparty’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if any, is based on management’s credit evaluation of the counterparty.

Commitments to extend credit are contractual obligations to lend to a customer as long as all established contractual conditions are met. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The majority of FHN’s loan commitments have maturities less than one year and reflect the prevailing market rates at the time of the commitment. Since commitments may expire without being fully drawn upon, total contractual amounts do not necessarily represent future credit exposure or liquidity requirements.

Other commitments include standby and commercial letters of credit and other credit enhancements. Standby and commercial letters of credit and other credit enhancements are conditional commitments issued by FHN to guarantee the performance and/or payment of a customer to a third party in connection with specified transactions. The credit risk involved in issuing these commitments is essentially the same as that involved in extending loan facilities to customers, as performance under any of these facilities would result in a loan being funded to the customer.

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Note 26 q Derivatives and Off-Balance Sheet Arrangements (continued)

FHN services loans for others, and, in some cases, provides guarantees or recourse on the serviced loans. See Note 18 – Restrictions, Contingencies and Other Disclosures for additional information.

The following is a summary of each class of credit-related commitments outstanding on December 31:

(Dollars in millions)

2008

2007

Commitments to extend credit:

Consumer credit card lines

1,598.8

1,711.8

Consumer home equity

3,620.5

5,899.3

Commercial real estate and construction and land development

929.5

2,731.1

Commercial and other

3,451.8

3,757.0

Total loan commitments

9,600.6

14,099.2

Other commitments:

Standby letters of credit

616.6

767.1

Other

15.2

42.1

Total loan and other commitments

10,232.4

14,908.4

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Note 27 q Restructuring, Repositioning, and Efficiency

In June 2008, FHN announced that it had reached a definitive agreement with MetLife, for the sale of more than 230 retail and wholesale mortgage origination offices nationwide as well as its loan origination and servicing platform. Effective August 31, 2008, the parties completed the initial settlement for MetLife’s acquisition of substantially all of FHN’s mortgage origination pipeline, related hedges, certain fixed assets and other associated assets. MetLife did not acquire any portion of FHN’s mortgage loan warehouse. First Horizon retained its mortgage operations in and around Tennessee, continuing to originate home loans for customers in its banking market footprint. FHN also sold MetLife servicing assets, and related hedges, on $19.1 billion of first lien mortgage loans and associated custodial deposits. Additionally, FHN has 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 Statements of Condition for the reporting period ending June 30, 2008. In third quarter 2008, FHN recognized a loss on divestiture of $17.5 million related to this transaction which is included in the noninterest income section of the Consolidated Statements of Income as losses on divestitures. In fourth quarter 2008, the parties completed a post-closing true up which resulted in FHN recognizing a gain on divestiture of $0.9 million within its Consolidated Statements of Income.

Net costs recognized by FHN in the year ended December 31, 2008 related to restructuring, repositioning, and efficiency activities were $91.4 million. Of this amount, $49.1 million represents exit costs that have been accounted for in accordance with Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (SFAS No. 146).

Significant expenses recognized in 2008 resulted from the following actions:

•

Loss of $16.6 million on the divestiture of mortgage banking operations.

•

Loss of $2.4 million from the sales of certain First Horizon Bank branches.

•

Transaction costs of $12.7 million from the contracted sales of mortgage servicing rights.

•

Expense of $10.7 million for the writedown of certain premises and equipment, intangibles and other assets resulting from FHN’s divestiture of certain mortgage operations and from the change in FHN’s national banking strategy.

Net costs recognized by FHN in the year ended December 31, 2007 related to restructuring, repositioning, and efficiency activities were $98.7 million. Of this amount, $47.9 million represents exit costs that have been accounted for in accordance with SFAS No. 146.

Significant expenses recognized in 2007 resulted from the following actions:

•

Expense of $20.4 million associated with organizational and compensation changes for right sizing operating segments and consolidating functional areas.

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Note 27 q Restructuring, Repositioning, and Efficiency (continued)

•

Costs of $24.3 million related to the divestiture of 34 full-service First Horizon Bank locations in Virginia, Maryland, Georgia, and Texas, including $13.9 million for the writedown of goodwill and other intangibles; partially offset by $15.7 million of gains realized in 2007 from the disposition of 15 of these locations.

•

Expense of $11.3 million related to the restructuring of mortgage operations through office closures, associated sales force decreases, and the reduction of management and support staff and downsizing of national lending operations through the reduction of consumer and construction sales forces and decreasing management, support staff and back-office costs.

•

Expense of $17.4 million for asset impairments related to the discontinuance of technology projects.

•

Transaction costs of $6.4 million from sales of mortgage servicing rights.

Provision for loan losses of $7.7 million was incurred during 2007 in relation to the divestiture of a non-strategic loan portfolio. Losses from the mortgage banking divestiture and gains and losses from disposition of the First Horizon Bank branches are included in losses/gains on divestitures in the noninterest income section of the Consolidated Statements of Income. Transaction costs related to transfers of mortgage servicing rights are recorded as a reduction of mortgage banking income in the noninterest income section of the Consolidated Statements of Income. All other costs associated with the restructuring, repositioning, and efficiency initiatives implemented by management are included in the noninterest expense section of the Consolidated Statements of Income, including severance and other employee-related costs recognized in relation to such initiatives which are recorded in employee compensation, incentives, and benefits, facilities consolidation costs and related asset impairment costs which are included in occupancy, costs associated with the impairment of premises and equipment which are included in equipment rentals, depreciation, and maintenance, and other costs associated with such initiatives, including professional fees, intangible asset impairment costs, and asset impairment costs related to the discontinuance of technology projects, which are included in all other expense and goodwill impairment.

Activity in the restructuring and repositioning liability for 2008 and 2007 is presented in the following table, along with other restructuring and repositioning expenses recognized. All costs associated with the restructuring, repositioning, and efficiency initiatives implemented in 2008 and 2007 are recorded as unallocated corporate charges within the Corporate segment.

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Note 27 q Restructuring, Repositioning, and Efficiency (continued)


(Dollars in thousands)	2008						2007

	Charged to Expense			Liability			Charged to Expense				Liability

Beginning Balance		$	-		$	19,675		$	-			$	-
Severance and other employee related costs*			24,400			24,400			25,532				25,532
Facility consolidation costs			16,751			16,751			13,131				13,131
Other exit costs, professional fees and other			7,902			7,902			9,255				9,255

Total Accrued			49,053			68,728			47,918				47,918
Payments**						38,016							27,081
Accrual reversals						6,545							1,162

Restructuring and Repositioning Reserve Balance					$	24,167						$	19,675

Other Restructuring & Repositioning (Income) and Expense:
Provision for loan portfolio divestiture			-						7,672
Mortgage banking expense on servicing sales			12,667						6,428
Loss/(gain) on divestitures			19,020						(15,695	)
Impairment of premises and equipment			5,650						9,288
Impairment of intangible assets			4,030						13,999
Impairment of other assets			993						29,108

Total Other Restructuring and Repositioning Income and Expense			42,360						50,800

Total Restructuring, Repositioning Charges		$	91,413					$	98,718

Includes $1.2 million of deferred severance-related payments that will be paid after 2008.

Includes payments related to:


	2008			2007
Severance and other employee related costs		$	16,235		$	15,174
Facility consolidation costs			14,223			3,992
Other exit costs, professional fees and other			7,558			7,915

		$	38,016		$	27,081

Note 28 q Other Events

On January 30, 2009, FHN contracted to sell mortgage servicing rights related to approximately $14 billion of first lien mortgage loans owned or securitized by Fannie Mae or Freddie Mac. After the sale, the unpaid principal amount of FHN’s loan servicing portfolio will be reduced to approximately $48 billion and will reduce the associated capitalized MSR. This transaction reflects FHN’s continued efforts to reduce risk through balance sheet contraction.

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Note 29 q Parent Company Financial Information

Following are condensed statements of the parent company:


Statements of Condition	December 31

(Dollars in thousands)	2008			2007

Assets:
Cash		$	11,549		$	-
Securities purchased from subsidiary bank under agreements to resell			-			20,025

Total cash and cash equivalents			11,549			20,025
Interest-bearing cash			240,963			206,054
Securities available for sale			4,537			7,191
Notes receivable			3,700			3,700
Investments in subsidiaries:
Bank			3,372,064			2,298,517
Non-bank			20,814			28,155
Other assets			215,337			302,207

Total assets		$	3,868,964		$	2,865,849

Liabilities and shareholders’ equity:
Other short-term borrowings and commercial paper		$	16,830		$	2,076
Accrued employee benefits and other liabilities			129,685			307,220
Long-term debt			442,982			420,957

Total liabilities			589,497			730,253
Shareholders’ equity			3,279,467			2,135,596

Total liabilities and shareholders’ equity		$	3,868,964		$	2,865,849


Statements of Income	Year Ended December 31

(Dollars in thousands)	2008				2007				2006

Dividend income:
Bank		$	-			$	230,000			$	415,000
Non-bank			3,852				11,292				4,763

Total dividend income			3,852				241,292				419,763
Interest income			4,035				6,266				6,675
Other income			(1,724	)			(1,656	)			(12,569	)

Total income			6,163				245,902				413,869

Interest expense:
Short-term debt			285				395				365
Long-term debt			18,940				26,935				27,001

Total interest expense			19,225				27,330				27,366
Compensation, employee benefits and other expense			49,290				39,041				33,452

Total expense			68,515				66,371				60,818

Income/(loss) before income taxes			(62,352	)			179,531				353,051
Income tax benefit			(20,884	)			(30,486	)			(36,844	)

Income/(loss) before cumulative effect of changes in accounting principle			(41,468	)			210,017				389,895
Cumulative effect of changes in accounting principle, net of tax			-				-				127

Income/(loss) before equity in undistributed net income of subsidiaries			(41,468	)			210,017				390,022
Equity in undistributed net income/(loss) of subsidiaries:
Bank			(148,288	)			(372,265	)			73,345
Non-bank			(2,204	)			(7,863	)			(453	)

Net income/(loss)		$	(191,960	)		$	(170,111	)		$	462,914

146

FIRST HORIZON NATIONAL CORPORATION

Note 29 q Parent Company Financial Information (continued)


Statements of Cash Flows	Year Ended December 31

(Dollars in thousands)	2008				2007				2006

Operating activities:
Net income/(loss)		$	(191,960	)		$	(170,111	)		$	462,914
Less undistributed net income of subsidiaries			(150,492	)			(380,128	)			72,892

Income before undistributed net income of subsidiaries			(41,468	)			210,017				390,022
Adjustments to reconcile income to net cash provided by operating activities:
Deferred income tax benefit			(1,160	)			(9,838	)			(928	)
Depreciation and amortization			5,990				5,239				2,716
Cumulative effect of changes in accounting principle			-				-				(127	)
Stock-based compensation expense			2,930				4,968				4,455
Loss on sale of securities			-				3,641				174
Net (increase)/decrease in interest receivable and other assets			92,001				14,617				(39,641	)
Net increase/(decrease) in interest payable and other liabilities			(110,378	)			(14,030	)			30,249

Total adjustments			(10,617	)			4,597				(3,102	)

Net cash provided/(used) by operating activities			(52,085	)			214,614				386,920

Investing activities:
Securities:
Sales and prepayments			2,714				30,606				38
Purchases			(1,528	)			(550	)			(3,475	)
Increase in interest-bearing cash			(34,909	)			(185,477	)			(4,100	)
Advances to subsidiaries			-				-				(30,000	)
Repayment of advances to subsidiaries			-				-				30,000
Return on investment in subsidiary			2,918				-				127
Cash investments in subsidiaries			(1,346,169	)			589				(687	)

Net cash used by investing activities			(1,376,974	)			(154,832	)			(8,097	)

Financing activities:
Preferred stock:
Proceeds from issuance of preferred stock and common stock warrant - CPP			866,540				-				-
Common stock:
Exercise of stock options			511				34,542				57,082
Proceeds from issuance of common stock			659,656				-				-
Cash dividends			(120,575	)			(225,011	)			(223,386	)
Repurchase of shares			(303	)			(1,104	)			(165,572	)
Long-term debt:
Payment			-				(30,000	)			-
Increase/(decrease) in short-term borrowings			14,754				(3,544	)			(5,075	)

Net cash provided/(used) by financing activities			1,420,583				(225,117	)			(336,951	)

Net increase/(decrease) in cash and cash equivalents			(8,476	)			(165,335	)			41,872

Cash and cash equivalents at beginning of year			20,025				185,360				143,488

Cash and cash equivalents at end of year		$	11,549			$	20,025			$	185,360

Total interest paid		$	19,014			$	27,426			$	26,840
Total income taxes paid			332,600				11,390				102,685

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

147

FIRST HORIZON NATIONAL CORPORATION

CONSOLIDATED HISTORICAL STATEMENTS OF INCOME (Unaudited)


(Dollars in millions except per share data)	2008				2007				2006				2005				2004			2003				Growth Rates (%)
																								08/07			08/03**

Interest income:
Interest and fees on loans		$	1,153.5			$	1,621.9			$	1,591.0			$	1,133.5			$	774.7		$	657.6			28.9	-		11.9	+
Investment securities			162.3				188.7				188.1				125.2				104.4			111.3			14.0	-		7.8	+
Loans held for sale			151.6				253.6				288.2				377.9				226.8			229.1			40.2	-		7.9	-
Trading securities inventory			114.6				174.2				171.1				138.5				53.4			50.5			34.2	-		17.8	+
Other earning assets			24.7				67.5				90.7				65.1				7.5			4.9			63.4	-		38.2	+

Total interest income			1,606.7				2,305.9				2,329.1				1,840.2				1,166.8			1,053.4			30.3	-		8.8	+

Interest expense:
Deposits:
Savings			79.9				115.9				88.5				44.4				19.6			19.8			31.1	-		32.2	+
Time deposits			101.2				136.6				120.3				79.0				60.1			57.1			25.9	-		12.1	+
Other interest-bearing deposits			13.8				25.9				24.5				15.5				4.8			3.8			46.7	-		29.4	+
Certificates of deposit $100,000 and more			76.3				369.3				493.2				364.1				108.0			69.4			79.3	-		1.9	+
Interest on trading liabilities			33.2				51.5				76.1				80.2				20.0			22.1			35.5	-		8.5	+
Interest on short-term borrowings			189.6				294.1				248.9				171.9				47.8			40.0			35.5	-		36.5	+
Interest on long-term debt			217.6				372.0				280.7				101.1				50.2			35.4			41.5	-		43.8	+

Total interest expense			711.6				1,365.3				1,332.2				856.2				310.5			247.6			47.9	-		23.5	+

Net interest income			895.1				940.6				996.9				984.0				856.3			805.8			4.8	-		2.1	+
Provision for loan losses			1,080.0				272.8				83.1				67.7				48.3			86.7			295.9	+		65.6	+

Net interest income/(loss) after provision			(184.9	)			667.8				913.8				916.3				808.0			719.1			127.7	-		176.2	-

Noninterest income:
Capital markets			524.4				334.4				383.0				353.0				376.5			538.9			56.8	+		*
Deposit transactions and cash management			179.0				175.3				168.6				156.2				148.5			146.7			2.1	+		4.1	+
Mortgage banking			518.0				69.5				370.6				479.6				444.8			649.5			645.3	+		4.4	-
Trust services and investment management			33.8				40.3				41.5				44.6				47.3			45.9			16.1	-		5.9	-
Insurance commissions			29.1				31.7				46.6				54.1				56.1			57.8			8.2	-		12.8	-
Gains/(losses) from loan sales and securitizations			(8.6	)			23.9				51.7				47.6				23.1			-			136.0	-		NM
Equity securities gains/(losses), net			65.3				(7.5	)			10.3				(.5	)			2.0			8.5			NM			NM
Debt securities gains/(losses), net			.8				6.3				(75.9	)			-				18.7			(6.1	)		NM			NM
Gains/(losses) on divestitures			(19.0	)			15.7				-				7.0				1.2			12.5			NM			NM
All other income and commissions			168.5				170.4				170.5				165.7				163.6			145.7			1.1	-		3.0	+

Total noninterest income			1,491.3				860.0				1,166.9				1,307.3				1,281.8			1,599.4			73.4	+		1.4	-

Adjusted gross income after provision			1,306.4				1,527.8				2,080.7				2,223.6				2,089.8			2,318.5			14.5	-		10.8	-

Noninterest expense:
Employee compensation, incentives and benefits			960.9				968.1				1,023.7				988.9				899.8			1,004.8			*			*
Occupancy			105.0				131.2				116.7				104.2				87.6			81.8			20.0	-		5.1	+
Equipment rentals, depreciation and maintenance			57.1				72.9				73.9				74.4				70.4			67.0			21.7	-		3.1	-
Legal and Professional Fees			63.7				56.9				43.0				45.2				37.7			60.0			12.0	+		1.2	+
Operations services			77.5				74.2				70.0				71.9				59.6			59.2			4.4	+		5.5	+
Communications and courier			39.9				43.9				53.2				54.4				47.9			49.1			9.1	-		4.1	-
Amortization of intangible assets			8.2				11.0				11.5				10.7				6.2			5.3			25.5	-		9.1	+
Goodwill impairment			-				84.1				-				-				-			-			NM			NM
All other expense			343.8				401.1				350.6				277.2				252.6			316.8			14.3	-		1.6	+

Total noninterest expense			1,656.1				1,843.4				1,742.6				1,626.9				1,461.8			1,644.0			10.2	-		0.1	+

Income/(loss) before income taxes			(349.7	)			(315.6	)			338.1				596.7				628.0			674.5			NM			NM
Provision/(benefit) for income taxes			(156.8	)			(140.7	)			87.3				186.0				197.9			229.3			NM			NM

Income/(loss) from continuing operations			(192.9	)			(174.9	)			250.8				410.7				430.1			445.2			NM			NM
Income from discontinued operations, net of tax			0.9				4.8				210.8				17.1				15.6			7.4			NM			NM

Income/(loss) before cumulative effect of changes in accounting principle			(192.0	)			(170.1	)			461.6				427.8				445.7			452.6			NM			NM
Cumulative effect of changes in accounting principle, net of tax			-				-				1.3				(3.1	)			-			-			NM			NM

Net income/(loss)		$	(192.0	)		$	(170.1	)		$	462.9			$	424.7			$	445.7		$	452.6			NM			NM

Preferred stock dividends			7.4				-				-				-				-			-
Net income/(loss) available to common shareholders		$	(199.4	)		$	(170.1	)		$	462.9			$	424.7			$	445.7		$	452.6

Fully taxable equivalent adjustment		$	1.4			$	.7			$	1.2			$	1.1			$	1.1		$	1.3			92.9	+		*

Earnings/(loss) per common share from continuing operations		$	(1.11	)		$	(1.32	)		$	1.92			$	3.12			$	3.29		$	3.35			NM			NM

Diluted earnings/(loss) per common share from continuing operations		$	(1.11	)		$	(1.32	)		$	1.87			$	3.02			$	3.19		$	3.24			NM			NM

Earnings/(loss) per common share		$	(1.10	)		$	(1.29	)		$	3.54			$	3.22			$	3.40		$	3.40			NM			NM

Diluted earnings/(loss) per common share		$	(1.10	)		$	(1.29	)		$	3.45			$	3.12			$	3.31		$	3.29			NM			NM

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

NM – not meaningful

Amount is less than one percent.

Compound annual growth rate.

148

FIRST HORIZON NATIONAL CORPORATION

CONSOLIDATED AVERAGE BALANCE SHEETS AND RELATED YIELDS AND RATES (Unaudited)



(Fully taxable equivalent) (Dollars in millions)	2008											2007											Average Balance Growth(%)
	Average Balance				Interest Income/ Expense				Average Yields/ Rates			Average Balance				Interest Income/ Expense				Average Yields/ Rates
																							08/07

Assets:
Earning assets:
Loans, net of unearned income**		$	21,660.7			$	1,154.1			5.33	%		$	22,106.7			$	1,622.3			7.34	%		2.0	-
Loans held for sale			2,588.0				151.6			5.86				3,876.2				253.6			6.54			33.2	-
Investment securities:
U.S. Treasuries			46.7				1.1			2.30				99.0				4.8			4.83			52.8	-
U.S. government agencies			2,618.9				146.0			5.57				3,033.2				172.0			5.67			13.7	-
States and municipalities			37.8				1.8			4.92				1.8				–			.90			NM
Other			260.6				13.9			5.32				246.2				12.0			4.89			5.8	+

Total investment securities			2,964.0				162.8			5.49				3,380.2				188.8			5.59			12.3	-

Capital markets securities inventory			1,519.3				69.5			4.57				2,172.9				115.0			5.29			30.1	-
Mortgage banking trading securities			350.5				45.5			12.98				483.9				59.4			12.28			27.6	-
Other earning assets:
Federal funds sold and securities purchased under agreements to resell			1,175.7				23.0			1.96				1,355.0				65.7			4.85			13.2	-
Interest-bearing cash			168.0				1.6			.98				30.5				1.8			5.97			450.8	+

Total other earning assets			1,343.7				24.6			1.84				1,385.5				67.5			4.88			3.0	-

Total earning assets			30,426.2				1,608.1			5.29				33,405.4				2,306.6			6.91			8.9	-
Allowance for loan losses			(563.1	)										(234.1	)									140.5	-
Cash and due from banks			653.9											821.5										20.4	-
Capital markets receivables			294.7											156.8										87.9	+
Premises and equipment, net			359.4											433.7										17.1	-
Other assets			3,251.6											3,592.1										9.5	-

Total assets/Interest income		$	34,422.7			$	1,608.1						$	38,175.4			$	2,306.6						9.8	-

Liabilities and shareholders’ equity:
Interest-bearing liabilities:
Interest-bearing deposits:
Savings		$	4,274.9			$	79.9			1.87	%		$	3,567.6			$	115.9			3.25	%		19.8	+
Time deposits			2,549.7				101.2			3.97				2,909.0				136.6			4.69			12.4	-
Other interest bearing deposits			1,816.8				13.9			.76				1,845.6				25.9			1.40			1.6	-

Total interest-bearing core deposits			8,641.4				195.0			2.26				8,322.2				278.4			3.34			3.8	+
Certificates of deposit $100,000 and more			2,012.0				76.3			3.79				6,892.3				369.3			5.36			70.8	-
Federal funds purchased and securities sold under agreements to repurchase			3,414.3				69.8			2.04				4,853.6				229.1			4.72			29.7	-
Capital markets trading liabilities			702.4				33.2			4.73				950.6				51.5			5.42			26.1	-
Other short-term borrowings and commercial paper			5,138.5				119.7			2.33				1,345.7				65.0			4.83			281.8	+
Long-term debt			6,108.6				217.6			3.56				6,567.7				372.0			5.67			7.0	-

Total interest-bearing liabilities			26,017.2				711.6			2.74				28,932.1				1,365.3			4.72			10.1	-
Noninterest-bearing deposits			4,267.5											5,099.3										16.3	-
Capital markets payables			269.5											179.3										50.3	+
Other liabilities			937.9											1,245.9										24.7	-
Guaranteed preferred beneficial interests in
First Horizon’s junior subordinated debentures (Note 11)			-											-										NM
Preferred stock of subsidiary (Note 12)			295.2											295.3										NM
Shareholders’ equity			2,635.4											2,423.5										8.7	+

Total liabilities and shareholders’ equity/Interest expense		$	34,422.7			$	711.6						$	38,175.4			$	1,365.3						9.8	-

Net interest income-tax equivalent basis/Yield						$	896.4			2.95	%						$	941.3			2.82	%
Fully taxable equivalent adjustment							(1.4	)										(.7	)

Net interest income						$	895.0										$	940.6

Net interest spread										2.55	%										2.19	%
Effect of interest-free sources used to fund earning assets										.40											.63

Net interest margin										2.95	%										2.82	%

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

Yields and corresponding income amounts are adjusted to a fully taxable equivalent. Earning assets yields are expressed net of unearned income.

Rates are expressed net of unamortized debenture cost for long-term debt. Net interest margin is computed using total net interest income.

149

FIRST HORIZON NATIONAL CORPORATION

2006

2005

2004

2003

Average
Balance
Growth(%)

Average
Balance

Interest
Income/
Expense

Average
Yields/
Rates

Average
Balance

Interest
Income/
Expense

Average
Yields/
Rates

Average
Balance

Interest
Income/
Expense

Average
Yields/
Rates

Average
Balance

Interest
Income/
Expense

Average
Yields/
Rates

08/03***





$

21,504.2

$

1,591.4

7.40

%

$

18,334.7

$

1,133.9

6.18

%

$

15,440.5

$

775.1

5.02

%

$

12,679.8

$

658.1

5.19

%

11.3

+

4,336.6

288.2

6.64

5,980.1

377.9

6.32

4,123.5

226.8

5.50

4,397.2

229.1

5.21

10.1

-



56.8

2.7

4.72

41.7

1.1

2.57

48.4

.8

1.67

45.3

.7

1.62

*

3,161.5

173.3

5.48

2,635.3

115.1

4.37

2,194.9

95.6

4.35

2,107.6

88.7

4.21

4.4

+

1.9

-

1.26

4.7

.2

5.01

10.8

.7

6.52

22.1

1.5

6.80

11.3

+

261.3

12.8

4.90

224.5

9.4

4.21

217.0

7.9

3.65

388.5

21.1

5.45

7.7

-

3,481.5

188.8

5.42

2,906.2

125.8

4.33

2,471.1

105.0

4.25

2,563.5

112.0

4.37

2.9

+

2,394.0

127.5

5.33

2,155.6

101.4

4.70

753.1

26.8

3.56

894.3

33.7

3.76

11.2

+

403.0

43.7

10.84

303.5

37.2

12.27

221.3

26.7

12.05

154.7

16.9

10.94

17.8

+





1,892.5

89.2

4.71

2,288.0

64.8

2.83

722.2

7.4

1.03

656.3

4.8

.73

12.4

+

30.5

1.5

5.02

8.1

.3

3.47

8.6

.1

1.04

1.7

.1

.82

150.6

+

1,923.0

90.7

4.72

2,296.1

65.1

2.83

730.8

7.5

1.03

658.0

4.9

.73

15.3

+

34,042.3

2,330.3

6.85

31,976.2

1,841.3

5.75

23,740.3

1,167.9

4.91

21,347.5

1,054.7

4.93

7.3

+

(204.7

)





(175.3

)





(165.2

)





(160.3

)





28.6

-

787.4





726.0





717.2





729.7





2.2

-

173.1





574.0





212.2





460.1





8.5

-

432.3





394.2





364.4





300.7





3.6

+

3,534.2





3,065.3





2,436.9





2,455.9





5.8

+

$

38,764.6

$

2,330.3



$

36,560.4

$

1,841.3



$

27,305.8

$

1,167.9



$

25,133.6

$

1,054.7



6.5

+







$

3,191.4

$

88.5

2.77

%

$

2,843.1

$

44.4

1.56

%

$

2,614.4

$

19.6

.75

%

$

2,532.7

$

19.8

.78

%

11.0

+

2,795.3

120.3

4.30

2,242.8

79.0

3.52

1,947.0

60.1

3.08

1,866.3

57.1

3.06

6.4

+

1,848.1

24.5

1.32

1,770.5

15.5

.87

1,525.5

4.8

.32

1,433.1

3.8

.26

4.9

+

7,834.8

233.3

2.98

6,856.4

138.9

2.03

6,086.9

84.5

1.39

5,832.1

80.7

1.38

8.2

+

9,747.7

493.2

5.06

10,896.3

364.1

3.34

6,875.3

108.0

1.57

5,165.5

69.4

1.34

17.2

-



4,562.9

208.9

4.58

4,582.2

136.6

2.98

3,685.2

45.1

1.22

3,712.7

36.9

.99

1.7

-

1,338.9

76.1

5.68

1,519.3

80.2

5.28

527.0

20.0

3.80

547.1

22.1

4.04

5.1

+



795.0

40.0

5.04

994.8

35.3

3.55

136.7

2.7

1.96

151.1

3.1

2.06

102.4

+

5,062.4

280.7

5.55

2,560.1

101.1

3.96

2,248.0

50.2

2.24

1,342.9

35.4

2.64

35.4

+

29,341.7

1,332.2

4.54

27,409.1

856.2

3.12

19,559.1

310.5

1.59

16,751.4

247.6

1.48

9.2

+

5,169.2





5,263.1





4,673.3





5,114.0





3.6

-

231.8





404.0





174.9





401.5





7.7

-

1,303.6





1,077.3





960.3





915.1





*





-





-





-





100.0





NM

295.3





229.9





.5





22.2





67.8

+

2,423.0





2,177.0





1,937.7





1,829.4





7.6

+



$

38,764.6

$

1,332.2



$

36,560.4

$

856.2



$

27,305.8

$

310.5



$

25,133.6

$

247.6



6.5

+



$

998.1

2.93

%



$

985.1

3.08

%



$

857.4

3.61

%



$

807.1

3.78

%



(1.2

)





(1.1

)





(1.1

)





(1.3

)



$

996.9





$

984.0





$

856.3





$

805.8





2.31

%





2.63

%





3.32

%





3.45

%







.62





.45





.29





.33





2.93

%





3.08

%





3.61

%





3.78

%

*

Amount less than one percent.

**

Includes loans on nonaccrual status.

***

Compound annual growth rate

NM – not meaningful

150

FIRST HORIZON NATIONAL CORPORATION

Notwithstanding anything to the contrary set forth in any of our filings with the Securities and Exchange Commission under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate future filings by reference, including the annual report on Form 10-K or the proxy statement, in whole or in part, the following “Information Concerning Certain Officer Certifications” is not a component of any such filings and shall not be incorporated by reference into any such filings. It is disclosed in our annual report to shareholders and accompanies our proxy statement in accordance with applicable rules of the New York Stock Exchange.

Information Concerning Certain Officer Certifications

Our chief executive officer and our chief financial officer each year make certain certifications that are included as Exhibits 31(a) and 31(b) to our annual report on Form 10-K which is filed with the Securities and Exchange Commission.

A copy of our most recent annual report on Form 10-K, including the financial statements and schedules thereto, is available free of charge to each shareholder of record upon written request to the treasurer, First Horizon National Corporation, P.O. Box 84, Memphis, Tennessee 38101. Each such written request must set forth a good faith representation that as of the record date specified in the notice of our 2009 annual shareholders meeting the person making the request was a beneficial owner of a security entitled to vote at the annual meeting of shareholders. The exhibits to the annual report on Form 10-K also will be supplied upon written request to the treasurer and payment to us of the cost of furnishing the requested exhibit or exhibits. That report (including Exhibits 31(a) and 31(b)) also is available to the public without charge through the U.S. Securities and Exchange Commission’s website at www.sec.gov.

In addition, shortly after our 2008 shareholders meeting, our chief executive officer submitted a certification to the New York Stock Exchange concerning our compliance with certain listing requirements related to corporate governance. That certification contained no qualifications.

151

FIRST HORIZON NATIONAL CORPORATION

Total Shareholder Return Performance Graph

Notwithstanding anything to the contrary set forth in any of our previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate future filings by reference, including this proxy statement, in whole or in part, the following Total Shareholder Return Performance Graph shall not be incorporated by reference into any such filings.

The following graph compares the yearly percentage change in our cumulative total shareholder return with returns based on the Standard and Poor’s 500 index and a peer group consisting of the top 30 bank holding companies in the U.S. based on reported asset size as of December 31, 2008.



	2003			2004			2005			2006			2007			2008

First Horizon National Corp		$	100.00		$	101.38		$	94.45		$	107.07		$	51.13		$	33.65
Top 30 Banks			100.00			110.17			113.33			134.45			113.09			80.79
S&P 500 Index			100.00			126.38			137.75			141.88			161.20			166.89

Source: SNL The preceding graph assumes $100 is invested on December 31, 2003 and dividends are reinvested. Returns are market-capitalization weighted.

The Top 30 consists of the following (with First Horizon excluded): JPMorgan Chase & Co., Citigroup Inc., Bank of America Corporation, Wells Fargo & Company, PNC Financial Services Group, Inc., U.S. Bancorp, Bank of New York Company, Inc., SunTrust Banks, Inc., State Street Corporation, Capital One Financial Corporation, BB&T Corporation, Regions Financial Corporation, Fifth Third Bancorp, KeyCorp, Northern Trust Corporation, Comerica Incorporated, M&T Bank Corporation, Marshall & Ilsley Corporation, Zions Bancorporation, Huntington Bancshares Incorporated, Popular, Inc., Synovus Financial Corp., Colonial BancGroup, Inc., Associated Banc-Corp, BOK Financial Corporation, First BanCorp., Webster Financial Corporation, Commerce Bancshares, Inc., and First Citizens BancShares, Inc.

152

FIRST HORIZON NATIONAL CORPORATION

Exhibit 14

FIRST HORIZON NATIONAL CORPORATION

Code of Ethics
for
Senior Financial Officers
(Adopted January 20, 2004; Restated for all Amendments)

Introduction

This Code of Ethics for Senior Financial Officers has been adopted by the Board of Directors of First Horizon National Corporation pursuant to Section 406 of the Sarbanes-Oxley Act of 2002 to promote honest and ethical conduct, proper disclosure of financial information, and compliance with applicable governmental laws, rules, and regulations by the Corporation’s personnel who have financial responsibilities. This Code supplements, but does not replace, the applicable policies of the Corporation as well as the Code of Business Conduct and Ethics, which is the Corporation’s statement of its ethical principles, and “A Matter of Principles,” which provides practical guidance to employees to allow them to put those ethical principles, and the Corporation’s policies, into practice in everyday situations. Both the Code of Business Conduct and Ethics and A Matter of Principles are applicable to all employees of the Corporation and its subsidiaries, including Senior Financial Officers, as defined below.

Applicability

This Code is applicable to the Corporation’s Senior Financial Officers. As used in this Code, “Senior Financial Officer” means the Corporation’s Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. In addition, the Principles and Practices contained in this Code shall also apply to all professionals serving in the financial, accounting or audit areas of the Corporation and its subsidiaries (“Financial Professionals”), except where such Principles and Practices are specifically assigned to the Senior Financial Officers.

Principles and Practices

In performing his or her duties, each of the Senior Financial Officers and Financial Professionals must:


	(1)	engage in and promote honest and ethical conduct, avoiding conflicts of interest, as defined in the Corporation’s Conflict of Interest and Confidentiality Policy, between personal and professional relationships;

	(2)	provide, or cause to be provided, full, fair, accurate, timely, and understandable disclosure in reports and documents that the Corporation files with or submits to the Securities and Exchange Commission (“SEC”) and in other public communications in compliance with the Corporation’s Disclosure Controls and


		Procedures. Specifically, the Senior Financial Officers will (a) establish and maintain disclosure controls and procedures designed to ensure that material information relating to the Corporation, including its consolidated subsidiaries, is made known to the Corporation’s Chief Executive Officer and Chief Financial Officer as well as to those responsible for preparing periodic reports and other public communications containing financial information; (b) establish and maintain internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) promptly disclose to the Audit Committee and the independent auditor (i) any significant deficiencies and material weaknesses in the design or operation of such internal control over financial reporting which are reasonably likely to adversely affect the Corporation’s ability to record, process, summarize and report financial information and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Corporation’s internal control over financial reporting, as defined in the Corporation’s Disclosure Controls and Procedures; and (d) review for accuracy and completeness each periodic report and each other document containing financial information that is required to be discussed with the Audit Committee under the provision of the New York Stock Exchange Listing Standards before it is filed or released;

	(3)	comply and take all reasonable actions to cause others to comply with applicable governmental laws, rules, and regulations;

	(4)	take no action, directly or indirectly, to fraudulently influence, coerce, manipulate or mislead the independent auditor of the Corporation or its subsidiaries for the purpose of rendering the financial statements of the Corporation or its subsidiaries misleading;

	(5)	discharge his or her responsibilities with respect to the disclosure process diligently; and

	(6)	promptly report violations of this Code to the Audit Committee.

Waiver

Any request for a waiver of any provision of this Code must be in writing and addressed to the Audit Committee. Any waiver of this Code may only be made by the Board of Directors or the Audit Committee, and any waiver with respect to a Senior Financial Officer will be disclosed promptly on Form 8-K or by another means approved by the SEC.

Compliance and Accountability

The Audit Committee will report material violations of this Code to the Board of Directors and recommend to the Board appropriate action. The Board may designate appropriate persons to determine appropriate action, and such action shall be reasonably designed to deter wrongdoing and to promote accountability for adherence to this Code. Failure to observe the terms of this Code may result in disciplinary action, up to and including termination of employment. Violations of this Code may also constitute violations of law and may result in civil and criminal penalties.

Code Amendment History

4/24/04 — Reflects holding company name change

7/15/08 — Reflects change in title of Company’s principal accounting officer

Exhibit 21

SUBSIDIARIES

The following are lists of consolidated subsidiaries of First Horizon National Corporation (“FHNC”) and of First Tennessee Bank National Association (“FTBNA”), and information concerning certain unconsolidated entities, all at December 31, 2008. Each consolidated entity is 100% owned by its immediate parent, except as described below in note (1) to the FHNC table and notes (1) and (2) to the FTBNA table, and all are included in the Consolidated Financial Statements. Consolidated entities not listed include certain trusts not controlled by FHNC (FHNC owns non-voting preferred interests but no voting interests) which are not significant subsidiaries of FHNC.

Direct Consolidated Entities of FHNC :


Entity	Type of Ownership by FHNC		Jurisdiction of Incorporation/ Organization

First Tennessee Bank National Association (1)		Direct	United States
Hickory Capital Corporation		Direct	Tennessee
Highland Capital Management Corp.		Direct	Tennessee
Martin & Company, Inc.		Direct	Tennessee
Mountain Financial Company*		Direct	Tennessee



	*		Inactive at December 31, 2008.

	(1)		At December 31, 2008, 300,000 shares of non-voting preferred stock issued by this subsidiary are outstanding and are not owned by FHNC. That preferred stock has an aggregate liquidation preference amount of $300,000,000 and is not participating with the common stock in the event of liquidation. At December 31, 2008, divisions of this subsidiary did business in certain jurisdictions under the following names: First Express, First Horizon, First Horizon Bank, First Horizon Home Loans, First Horizon Equity Lending, First Tennessee Home Loans, People’s Bank, and FTN Financial Capital Markets.

Consolidated Subsidiaries of FTBNA :


Subsidiary of FTBNA	Type of Ownership by FTBNA		Jurisdiction of Incorporation/ Organization

Check Consultants, Incorporated*		Direct	Tennessee
Community Money Center, Inc.*		Direct	Tennessee
First Express Remittance Processing, Inc.		Direct	Tennessee
First Horizon ABS Trust 2006 – HE1 (1)		Direct	Delaware
First Horizon ABS Trust 2006 – HE2 (1)		Direct	Delaware
First Horizon ABS Trust 2007 – HE1 (1)		Direct	Delaware
First Horizon Mint Distribution, Inc.		Direct	Tennessee
First Horizon Money Center, Inc.*		Direct	Tennessee
First Horizon Msaver, Inc.		Direct	Tennessee
Hickory Venture Capital Corporation		Direct	Alabama
JPO, Inc.		Direct	Tennessee
FT Reinsurance Company		Direct	South Carolina
First Horizon Asset Securities, Inc.		Direct	Delaware


FTRE Holding, LLC	Direct	Delaware
FTRE Holding II, LLC	Indirect	Delaware
First Horizon Preferred Funding II LLC	Indirect	Delaware
FT Real Estate Securities Company, Inc.	Indirect	Arkansas
First Horizon Preferred Funding LLC	Indirect	Delaware
FHTRS, Inc. (2)	Indirect	Delaware
FH-FF Mortgage Services LLC (2)	Indirect	Delaware
First Horizon Advisory Services, Inc.	Direct	Tennessee
First Tennessee ABS, Inc.*	Direct	Delaware
First Tennessee Brokerage, Inc.	Direct	Tennessee
First Tennessee Equipment Finance Corporation	Direct	Tennessee
First Tennessee Housing Corporation	Direct	Tennessee
CC Community Development Holdings, Inc.	Indirect	Tennessee
First Tennessee Merchant Equipment, Inc.*	Direct	Tennessee
FT Building, LLC	Direct	Tennessee
FTN Financial Capital Assets Corporation	Direct	Tennessee
FTN Financial Securities Corp.	Direct	Tennessee
FTN Financial Securitization Corporation	Direct	Delaware
FTN Financial Investment Corp.	Direct	Delaware
FTN Financial Asia Limited	Indirect	Hong Kong
FTN Investment Corp.	Direct	Delaware
FTN Equity Capital Markets Corp. (3)	Direct	Delaware
FTN Midwest Asset Management Corp.	Indirect	Delaware
FTN Premium Services, Inc.	Direct	Tennessee
First Tennessee Insurance Services, Inc.	Direct	Tennessee
First Horizon Insurance Services, Inc.	Direct	Tennessee
First Horizon Insurance, Inc.	Direct	Delaware
First Horizon Insurance Group, Inc.	Indirect	Tennessee
First Horizon Insurance Agency, Inc.	Indirect	Georgia
SFSR, Inc.	Indirect	Tennessee
Synaxis Insurance Services, Inc.*	Direct	Tennessee



	*		Inactive at December 31, 2008.

	(1)		The following consolidated subsidiaries are not wholly-owned directly or indirectly by FHNC:

			First Horizon ABS Trust 2006 – HE1, First Horizon ABS Trust 2006 – HE2, and First Horizon ABS Trust 2007 – HE1 are trusts to which FTBNA transferred certain assets. Those trusts issued debt securities secured by those assets. FTBNA retains certain rights as transferor.

	(2)		The following subsidiaries are not wholly-owned by their immediate parent:


FHTRS, Inc.		Common stock is owned 61% by FTBNA and 39% by FT Real Estate Securities Company Inc.; preferred stock is owned 100% by FTRE Holding II, LLC.

FH-FF Mortgage Services LLC		FHTRS, Inc. owns a 99% interest and FTBNA owns a 1% interest


	(3)		Formerly known as FTN Midwest Securities Corp. At December 31, 2008, the regulatory process for the name change had not yet been fully completed.

Selected Unconsolidated Entities :


FHNC owns 100% of the common securities of the following unconsolidated entities:

	First Tennessee Capital I, a Delaware business trust

	First Tennessee Capital II, a Delaware business trust

Exhibit 23

[Logo]

KPMG LLP
Suite 900, Morgan Keegan Tower
Fifty North Front Street
Memphis, TN 38103

Consent of Independent Registered Public Accounting Firm

The Board of Directors
First Horizon National Corporation:

We consent to the incorporation by reference into the previously filed registration statements Nos. 33-9846, 33-40398, 33-44142, 33-52561, 33-57241, 33-64471, 333-16225, 333-16227, 333-17457, 333-17457-01, 333-17457-02, 333-17457-03, 333-17457-04, 333-70075, 333-91137, 333-92145, 333-92147, 333-56052, 333-73440, 333-73442, 333-106015, 333-108738, 333-108750, 333-109862, 333-110845, 333-123404, 333-124297, 333-124299, 333-133635, 333-147409, 333-150448, and 333-156614 of First Horizon National Corporation (the Company) of our reports dated February 26, 2009, with respect to the Company’s consolidated statements of condition as of December 31, 2008 and 2007, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2008, and the effectiveness of internal control over financial reporting as of December 31, 2008, which reports are incorporated by reference into the Company’s 2008 Annual Report on Form 10-K.

/s/ KPMP LLP
Memphis,Tennessee
February 26, 2009

KPMG LLP, a U.S. limited liability partnership, is the
U.S. member firm of KPMG International, a
Swiss cooperative

EXHIBIT 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below does hereby constitute and appoint WILLIAM C. LOSCH III, JAMES F. KEEN, CLYDE A. BILLINGS, JR., and THOMAS C. ADAMS, JR., jointly and each of them severally, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to execute and sign the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 to be filed with the Securities and Exchange Commission, pursuant to the provisions of the Securities Exchange Act of 1934, by First Horizon National Corporation (“Corporation”) and, further, to execute and sign any and all amendments thereto and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, or their or his or her substitute or substitutes, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.


Signature	Title	Date


/s/ D. Bryan Jordan	President and Chief Executive Officer
	and Director (principal executive	February 26, 2009
D. Bryan Jordan	officer)

/s/ William C. Losch III	Executive Vice President and Chief
	Financial Officer (principal financial	February 26, 2009
William C. Losch III	officer)

/s/ James F. Keen	Executive Vice President and Chief
	Accounting Officer (principal	February 26, 2009
James F. Keen	accounting officer)

/s/ Michael D. Rose	Chairman of the Board and Director	February 26, 2009

Michael D. Rose

/s/ Robert B. Carter
	Director	February 26, 2009
Robert B. Carter

/s/ Simon F. Cooper
	Director	February 26, 2009
Simon F. Cooper

/s/ Mark A. Emkes
	Director	February 26, 2009
Mark A. Emkes


Signature	Title	Date


/s/ James A. Haslam, III
	Director	February 26, 2009
James A. Haslam, III

/s/ R. Brad Martin
	Director	February 26, 2009
R. Brad Martin

/s/ Vicki R. Palmer
	Director	February 26, 2009
Vicki R. Palmer

/s/ Colin V. Reed
	Director	February 26, 2009
Colin V. Reed

/s/ William B. Sansom
	Director	February 26, 2009
William B. Sansom

/s/ Luke Yancy III
	Director	February 26, 2009
Luke Yancy III

Exhibit 31(a)

FIRST HORIZON NATIONAL CORPORATION
RULE 13a – 14(a) CERTIFICATIONS OF CEO
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(ANNUAL REPORT)

CERTIFICATIONS

I, D. Bryan Jordan, President and Chief Executive Officer of First Horizon National Corporation, certify that:

1.	I have reviewed this annual report on Form 10-K of First Horizon National Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 26, 2009

/s/ D. Bryan Jordan
D. Bryan Jordan
President and Chief Executive Officer

Exhibit 31(b)

FIRST HORIZON NATIONAL CORPORATION
RULE 13a – 14(a) CERTIFICATIONS OF CFO
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(ANNUAL REPORT)

CERTIFICATIONS

I, William C. Losch III, Executive Vice President and Chief Financial Officer of First Horizon National Corporation, certify that:

1.	I have reviewed this annual report on Form 10-K of First Horizon National Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 26, 2009

/s/ William C. Losch III
William C. Losch III
Executive Vice President and Chief Financial Officer

Exhibit 32(a)

CERTIFICATION OF PERIODIC REPORT
18 USC 1350 CERTIFICATIONS OF CEO
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
As Codified at 18 U.S.C. Section 1350

I, the undersigned D. Bryan Jordan, President and Chief Executive Officer of First Horizon National Corporation (“Corporation”), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, as follows:

1.	The Corporation’s Annual Report on Form 10-K for the year ended December 31, 2008, (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

Dated: February 26 , 2009

/s/ D. Bryan Jordan
D. Bryan Jordan
President and Chief Executive Officer

Exhibit 32(b)

CERTIFICATION OF PERIODIC REPORT
18 USC 1350 CERTIFICATIONS OF CFO
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
As Codified at 18 U.S.C. Section 1350

I, the undersigned William C. Losch III, Executive Vice President and Chief Financial Officer of First Horizon National Corporation (“Corporation”), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, as follows:

1.	The Corporation’s Annual Report on Form 10-K for the year ended December 31, 2008, (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

Dated: February 26, 2009

/s/ William C. Losch III
William C. Losch III
Executive Vice President and Chief Financial Officer