First Horizon Sees Profits Fall Nearly 90 Percent; May Consider Exit from Mortgage Banking?

First Horizon National Corp. (FHN: 10.95 +6.21%) said Thursday that first quarter earnings took a steep hit, as the Memphis, Tenn.-based bank continues to deal with with worsening credit quality and a mortgage business gone sour. The bank reported earnings of $7.9 million, $.06/share, compared with a profit of $70.5 million, $.55/share, one year ago.

Reuters reported that the earnings missed analysts expectations; most had pegged First Horizon’s first quarter result at 11 cents per share, the news agency said.

Provisioning for future loan losses rose to $240 million in Q1, up from $156.6 million at the end of 2007, as the bank cited “portfolio deterioration due to declining economic conditions, especially in national construction and home equity loans.” Net charge-offs on bad loans reached 181 basis points relative to assets, up from 93 basis points one quarter earlier. A basis point is one one-hundredth of a percent.

Non-performing assets, usually defined as loans 30 or more days delinquent but not yet charged off, reached 278 basis points relative to assets in Q1, up from 166 basis points in Q4. That’s an eye-popping jump of 78 percent in NPAs in just one quarter, for those keeping track of such things.

A mortgage exit?
First Horizon has been scaling back it mortgage business, and said Thursday that it had sold $7.5 billion in servicing rights during the first quarter; the bank expects to unload another $9 billion or so in the second quarter of this year, company executives said on a conference call with analysts, moving the total loan portfolio well below the $100 billion mark.

From Reuters, an admission that the bank may actually even exit mortgage banking altogether:

The sales will bring the bank’s servicing portfolio down to $90 billion by the second quarter, freeing up capital and lowering hedge costs, the bank said.

“We are focused on reducing our balance sheets and lower-return businesses such as mortgages,” Baker said.

Baker said closure of the mortgage banking business “could always be an option” and said First Horizon is still looking for strategic partners for that segment.

Disclosure: The author held no positions in FHN when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.