First Tennessee National Corp. reported second-quarter earnings of $42.3 million, 4% more than a year earlier.

The Memphis bank said the diversity of its business offset slumping fee income in its bond division.

As interest rates rose, quarterly fee income from the bond division fell 24% to $17.1 million. But net interest income generated by First Tennessee's commercial bank rose 18%, to $113 million, on the strength of an improved economy. Earnings per share of 63 cents came in 1 cent below analysts' consensus forecast.

"The value of First Tennessee's diversified business mix was clearly demonstrated this quarter as the countercyclical nature of several of our business lines came into play," said chairman and chief executive Ralph Horn.

An increase in homebuying boosted mortgage banking income, which surged 42% to $60.9 million for the quarter.

First Tennessee, which has $13 billion of assets, is unusually strong in fee income. Noninterest income constituted 53% of the company's revenues.

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