JUL 20, 2012 10:41am ET

GSE Buybacks Hammer Bottom Line at First Horizon

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First Horizon National in Memphis said Friday that it lost close to $125 million in the second quarter after it bought back scores of soured mortgage loans from Fannie Mae and Freddie Mac.

The $25.5 billion-asset parent of First Tennessee Bank took a pretax charge of $272 million related to the mortgages, most of which were originated by its national mortgage-lending unit that it sold to MetLife in 2008. (MetLife has since exited the mortgage business except its servicing portfolio.)

First Horizon, which disclosed plans to take the second-quarter charge in June, sold nearly $58 billion of loans to Fannie and Freddie between 2005 and 2008.

The charge reduced earnings per share by 67 cents, resulting in a per-share loss of 50 cents for the quarter, in line with analysts’ estimates. The company reported profits of $20 million in last year's second quarter and $30.5 million in the first quarter of this year.

Apart from the hefty charge, there were some positive signs in the second quarter. Revenue rose 3% from the prior quarter, due to an increase in period-end loans and increased fee income generated by its capital markets group.

The company also reported improvements in asset quality as charge-offs declined 14% from the first quarter, to $40 million, and nonperforming assets fell 9%, to $467 million.

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