April 17, 2008 / 11:26 AM / 12 years ago

UPDATE 2-First Horizon profit falls 89 percent

(Adds CEO, CFO comments, byline)

By Karey Wutkowski

WASHINGTON, April 17 (Reuters) - First Horizon National Corp (FHN.N), the largest bank in Tennessee, said on Thursday first-quarter earnings fell a steeper-than-expected 89 percent, hurt by higher loan loss provisions and portfolio deterioration.

The bank said it will continue to shrink its mortgage banking business over the next several quarters but believes the segment still has value over the long term.

The company reported net income of $7.9 million, or 6 cents per share, compared with a profit of $70.5 million, or 55 cents per share, a year earlier.

Analysts on average had forecast earnings of 11 cents per share, according to Reuters Estimates.

First Horizon’s provision for loan losses increased to $240 million in the quarter from $156.5 million in the prior quarter.

It said the increased provisioning reflects portfolio deterioration, especially in national construction and home equity portfolios.

Credit-card network Visa Inc’s (V.N) recent initial public offering resulted in a $95.9 million benefit to pretax earnings, First Horizon said.

The bank said it will continue to consider near-term strategies to reduce its mortgage business, as an additional $7.5 billion of servicing was sold during the first quarter.

First Horizon Chief Executive Jerry Baker said during the earnings call that the bank plans to sell an additional $9 billion of servicing in the second quarter.

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. But he said the mortgage business still has value over time.

The bank expects the U.S. economy to remain soft for the remainder of 2008, Chief Financial Officer Bryan Jordan said on the call.

He said charge-offs will remain at about $100 million per quarter for the foreseeable future.

“Given the economic environment, we will continue to focus on improving our capital position,” Jordan said.

The Memphis-based bank said it will continue investing in its successful regional banking and capital markets businesses.

First Horizon also said its board approved a quarterly dividend of 20 cents a share, payable July 1 to holders of record on June 13.

Shares of First Horizon were down 27 cents, or 2.1 percent, at $12.32 in early trading on the New York Stock Exchange. (Editing by Mark Porter)

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