Magazine article American Banker

1Q Earnings: Cost Focus at First Horizon

Magazine article American Banker

1Q Earnings: Cost Focus at First Horizon

Article excerpt

First Horizon National Corp. blamed difficulty selling mortgages in the secondary market and increased repurchase requests for its decision to shutter its subprime business.

A $15 million increase in the cost of hedging its servicing portfolio in the first quarter was the Memphis banking company's largest in six years.

Gerald L. Baker, First Horizon's chief executive, said on a conference call Thursday that the company had underestimated what its hedging costs would be.

"We have anticipated that the yield curve would remain inverted, but had not counted on the volatility within the quarter," he said.

First Horizon reported late Wednesday that first-quarter earnings fell nearly 8% from the fourth quarter and 67% from a year earlier, to $70.5 million, or 55 cents a share.

The mortgage unit posted a net loss of $11.3 million.

The company said it remained cautiously optimistic, however, because originations fell only 2% during the quarter. The Mortgage Bankers Association estimated the average decline at 4%.

First Horizon's alternative-A business held steady as well, despite industry concerns that turmoil in the subprime market could creep into the alt-A sector. The company ended the quarter with $4 billion in its mortgage pipeline, the highest level in nearly two years.

First Horizon also got a $7.5 million tax break during the quarter from consolidating its mortgage operations with its bank, and a $10.3 million securities gain. …

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