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First Horizon Meets Loss Estimate; Shares Tank

  • First Horizon posts a second-quarter net loss of $124.8 million, or 50 cents a share.
  • Previously announced charges of $272 million take 67-cent bite from earnings.
  • Repurchased $36.9 million worth of shares during the second quarter; $74.5 remaining authorized for buybacks.

Updated with market close information and comment from Deutsche Bank analyst Matt O'Connor.

NEW YORK ( TheStreet) -- First Horizon National Corp. (FHN - Get Report) of Memphis, Tenn., on Friday reported a second-quarter net loss to common shareholders of $124.8 million, or 50 cents a share, matching the consensus estimate among analysts polled by Thomson Reuters.

The company had previously announced $272 million in second-quarter charges "for mortgage repurchase and litigation matters," which "a negative impact on earnings per share of approximately $.67 for the quarter."

First Horizon's shares declined over 5% to close at $8.09.

First Horizon earned $30.5 million, or 12 cents a share, in the first quarter, and $20.0 million, or eight cents a share, during the second quarter of 2011.

First Horizon said that "the repurchase liability for first lien mortgage loans increased to $360.5 million in second quarter from $161.2 million in first quarter," and that the company's second-quarter mortgage putback provision "reflects a change in estimate of FHN's repurchase obligations for alleged breaches of reps and warranties related to mortgage loans sold," to Fannie Mae (FNMA) and Freddie Mac (FMCC).

The company reported second-quarter net interest income of $172.7 million, increasing from $171.9 million the previous quarter, but declining slightly from $172.9 million a year earlier. Main subsidiary First Tennessee Bank grew its second-quarter revenue 3% from the first quarter, "driven by higher net interest income and fees," as "period-end loans and average deposits in the bank both grew 3 percent from first to second quarter."

The second-quarter net interest margin was 3.16%, increasing from 3.12% in the first quarter, although it was down from 3.20% a year earlier. The net interest margin is the spread between the average yield on loans and investments and the average cost for deposits and borrowings. The industry trend over the past year has been for margins to contract, as short-term interest rates remain close to zero, and long-term rates continue to decline.

A release of $25 million in loan loss reserves had a positive effect on second-quarter bottom line. First Horizon's loan quality continued to improve, as its annualized ratio of net charge-offs to average loans declined to 1.01% in the first quarter, from 1.16% the previous quarter, and 1.67% a year earlier. Reserves covered 1.98% of total loans as of June 30, implying further reserve releases over coming quarters.
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