Prior to 2009, FHN utilized loan sales and securitizations as a significant source of liquidity for its mortgage banking operations. Since that time FHN has focused the originations of mortgages within its regional banking footprint. FHN no longer retains financial interests in loans it transfers to third parties. During third quarter 2011, FHN transferred $53.3 million of single-family residential mortgage loans in whole loan sales resulting in $1.1 million of net pre-tax gains. Additionally during third quarter 2011, FHN transferred $187.7 million in unpaid principal balance ($126 million after consideration of partial charge-offs and associated LOCOM) of nonperforming permanent mortgages in a bulk sale resulting in $29.8 million of net pre-tax losses in Provision for loan losses on the Consolidated Condensed Statements of Income. During third quarter 2010, FHN transferred $191.6 million of single-family residential mortgage loans in whole loan sales resulting in $4.0 million of net pre-tax gains. During the nine months ended September 30, 2011, FHN transferred $245.9 million of single-family residential mortgage loans in whole loan sales resulting in $4.7 million of net pre-tax gains. During the nine months ended September 30, 2010, FHN transferred $545.4 million of single-family residential mortgage loans in whole loan sales resulting in $11.1 million of net pre-tax gains.

Interests retained from prior loan sales, including GSE securitizations, typically included MSR and excess interest. Interests retained from proprietary securitizations included MSR and various financial assets (see discussion below). MSR were initially valued at fair value and the remaining retained interests were 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.

In certain cases, FHN continues to service and receive servicing fees related to the transferred loans. In third quarter 2011 and 2010, FHN received annual servicing fees approximating .29 percent of the outstanding balance of underlying single-family residential mortgage loans and .34 percent inclusive of income related to excess interest. In third quarter 2011 and 2010, FHN received annual servicing fees approximating .50 percent of the outstanding balance of underlying loans for HELOC and home equity loans transferred. MSR related to loans transferred and serviced by FHN, as well as MSR related to loans serviced by FHN and transferred by others, are discussed further in Note 5 – Mortgage Servicing Rights.

Other financial assets retained in proprietary or GSE securitizations may include excess interest (structured as interest-only strips), interest-only strips, or principal-only strips. 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. All financial assets retained from off balance sheet securitizations are recognized on the Consolidated Condensed Statements of Condition in trading securities at fair value with realized and unrealized gains and losses included in current earnings as a component of Mortgage banking noninterest income on the Consolidated Condensed Statements of Income.

The sensitivity of the fair value of all retained or purchased MSR to immediate 10 percent and 20 percent adverse changes in assumptions on September 30, 2011 and 2010, are as follows:

The sensitivity of the fair value of other retained interests to immediate 10 percent and 20 percent adverse changes in assumptions on September 30, 2011 and 2010, are as follows:

These sensitivities are hypothetical and should not be considered predictive of future performance. As the figures indicate, changes in fair value based on a 10 percent variation in assumptions cannot necessarily be extrapolated because the relationship between the change in assumption and the change in fair value may not be linear. Also, the effect on the fair value of the retained interest caused by a particular assumption variation is calculated independently from all other assumption changes. 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.

For the three and nine months ended September 30, 2011 and 2010, cash flows received and paid related to consumer loan sales and securitizations were as follows:

Three Months Ended
September 30

Nine Months Ended
September 30

(Dollars in thousands)

2011

2010

2011

2010

Proceeds from initial sales and securitizations ^(a)

$143,620

$195,612

$339,736

$556,510

Servicing fees retained ^(b)

17,304

22,253

58,639

78,143

Purchases of GNMA guaranteed mortgages

7,162

16,810

45,073

53,416

Purchases of previously transferred financial assets^{(c) (d)}

60,760

54,679

202,396

242,083

Other cash flows received on retained interests

2,117

2,590

6,205

7,573

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

(a)	Includes $89.2 million of proceeds related to bulk sales of nonperforming permanent mortgages.

(b)	Includes servicing fees on MSR associated with loan sales and purchased MSR.

(c)	Includes repurchases of both delinquent and performing loans, foreclosed assets, and make-whole payments for economic losses incurred by purchaser. Also includes buy outs from GSEs in order to facilitate foreclosures.

(d)	Nine months ended September 30, 2011 includes $32.7 million related to clean-up calls exercised by FHN in second quarter.

The principal amount of loans transferred through loan sales and securitizations and other loans managed with them, the principal amount of delinquent loans, and the net credit losses during the three and nine months ended September 30, 2011, are as follows:

(Dollars in thousands)

Total Principal
Amount of Loans

Principal Amount
of Delinquent Loans ^(a)

Net Credit
Losses ^(b)

On September 30, 2011

Three Months Ended
September 30, 2011

Nine Months Ended
September 30, 2011

Type of loan:

Real estate residential

$19,007,433

$784,806

$159,488

$415,486

Total loans managed or transferred ^(c)

$19,007,433

$784,806

$159,488

$415,486

Loans sold

(11,887,315

)

Loans held for sale

(311,348

)

Loans held in portfolio

$6,808,770

(a)

Loans 90 days or more past due include $39.6 million of GNMA guaranteed mortgages.

(b)

Principal amount of loans securitized and sold includes $8.7 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 proprietary trusts, where FHN retained interests other than servicing rights. See Note 9 - Contingencies and Other Disclosures for discussion related to repurchase obligations for loans transferred to GSEs and private investors.

(c)

Amount represents real estate residential loans transferred in proprietary securitizations and whole loan sales in which FHN has a retained interest other than servicing rights. For loans transferred to GSEs, includes all loans with retained interests.


(Dollars in thousands)	Total Principal Amount of Loans			Principal Amount of Delinquent Loans ^(a)		Net Credit Losses ^(b)
	On September 30, 2010					Three months ended September 30, 2010		Nine months ended September 30, 2010
Type of loan:
Real estate residential		$22,634,349			$1,025,506		$137,760		$432,367

Total loans managed or transferred ^(c)		$22,634,349			$1,025,506		$137,760		$432,367

Loans sold		(14,711,540	)
Loans held for sale		(369,339	)

Loans held in portfolio		$7,553,470

(a)

Loans 90 days or more past due include $38.4 million of GNMA guaranteed mortgages.

(b)

Principal amount of loans securitized and sold includes $10.8 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 proprietary trusts, where FHN retained interests other than servicing rights. See Note 9 - Contingencies and Other Disclosures for discussion related to repurchase obligations for loans transferred to GSEs and private investors.

(c)

Secured Borrowings. 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 Qualified Special Purpose Entities ("QSPE") under the applicable accounting rules at that time 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 Accounting Standards Codification 860-10-50, "Transfers and Servicing" ("ASC 860-10-50"). With the prospective adoption of ASU 2009-17 in first quarter 2010, all amounts related to consolidated proprietary securitization trusts have been included in restricted balances on the Consolidated Condensed Statements of Condition.

In 2007, FTBNA executed a securitization of certain small issuer trust preferreds for which the underlying trust did not qualify as a sale under ASC 860. Therefore, FTBNA has accounted for the funds received through the securitization as a secured borrowing. On September 30, 2011, FTBNA had $112.5 million of loans, net of unearned income, $1.7 million of trading securities, and $51.9 million of term borrowings on the Consolidated Condensed Statements of Condition related to this transaction. On September 30, 2010, FTBNA had $112.5 million of loans, net of unearned income, $1.7 million of trading securities, and $51.0 million of term borrowings on the Consolidated Condensed Statements of Condition related to this transaction. See Note 14 – Variable Interest Entities for additional information.