by Calculated Risk on 1/19/2007 03:17:00 PM

From Reuters: First Horizon profits fall, hurt by mortgage unit

First Horizon National Corp. said on Wednesday quarterly earnings fell a steeper-than-expected 28 percent as mortgage banking revenue plunged.
...
First Horizon of Memphis, Tennessee said pretax income from mortgage banking slid 91 percent to $3.5 million, while revenue from mortgage banking fell 27 percent to $111.9 million.

UPDATE from Tanta (lifted from comments):

Lordy, the whole statement's worth a read. Looks like a perfect storm:

1. The carry trade died: "Net interest income decreased 41 percent to $20.4 million in fourth quarter 2006 from $34.7 million in fourth quarter 2005. An inverted yield curve resulted in compression of the spread on the warehouse, which was 1.24 percent in fourth quarter 2006 compared to 2.06 percent for the same period in 2005. Additionally, an 18 percent decrease in the warehouse related to lower origination activity negatively impacted net interest income."

2. Gain on sale dropped: "Net origination income decreased 22 percent to $69.2 million from $89.1 million in fourth quarter 2005 as loans delivered into the secondary market decreased 21 percent to $6.3 billion."

3. Keeping the loans rather than selling them didn't help credit quality: "Provision for loan losses increased to $23.0 million in fourth quarter 2006 from $16.2 million in fourth quarter 2005. This increase primarily reflects continued growth of the commercial and construction loan portfolios and an expectation of slowing economic growth. As a result of this increase, the allowance to loans ratio has increased from 92 basis points in fourth quarter 2005 to 98 basis points in fourth quarter 2006. Nonperforming assets were $139.0 million on December 31, 2006, compared to $79.7 million on December 31, 2005. The nonperforming assets ratio related to the loan portfolio increased to 58 basis points in fourth quarter 2006 from 33 basis points last year. The nonperforming asset ratio continues to migrate from historical low levels due to maturation of the loan portfolio, issues with several commercial credits in the retail commercial bank's traditional lending markets, and deterioration in the residential real estate portfolio reflecting the slow down in the housing market. The net charge-off ratio increased to 25 basis points in fourth quarter 2006 from 22 basis points in 2005 as net charge-offs grew to $13.5 million from $11.0 million during a period of strong loan growth."

I also see they increased their portfolio of residential construction loans by 11%, and also took a $7MM loss, part of which was "the result of employee misrepresentation in our construction lending business."