First Horizon Warns, Cites Residential Contruction Exposure

Citing “increasing softness and volatility in residential construction lending and mortgage banking,” First Horizon National Corp. said Friday morning that it expects to bump its fourth-quarter provision for loan losses up to $150 million. The bank said its expected reserve for loan losses would “significantly exceed net charge-offs of roughly $50 million” for the quarter.

From the SEC filing:

The additional reserves are largely attributable to inherent losses within its residential construction portfolios — One-Time Close and Homebuilder –from discontinued product structures and higher-risk national markets such as Florida, California, Virginia, Georgia and Nevada.

The bank also said it expects its home equity portfolio to come under pressure in 2008, as the housing market continues to soften.

“The market continues to be volatile and challenging for two of our businesses, and we are acting aggressively to address the issues,� said Jerry Baker, First Horizon CEO. “We are navigating through the nationwide downturn in the housing market by proactively managing problem loans. And we are continuing to downsize our exposure to the housing and mortgage market, shrink our national real estate businesses, and focus on growing our Tennessee banking franchise.�

While it didn’t comment on earnings expectations, First Horizon did disclose that it expects its mortgage segment to report a loss in the fourth quarter on a pre-tax basis. It said the anticipated loss would be driven by roughly $70 million in goodwill impairment charges, the result of an updated valuation of its mortgage book, as well as $40 million in losses on the sale of loans.