US Bancorp, Wells Fargo Roll Out Quarterlies

Several leading payments industry banks and credit card issuers reported solid but unspectacular third quarter results today with weakness in home equity portfolios dragging down returns.   

U.S. Bancorp (NYSE: USB) reported net income of nearly $1.2 billion in the third quarter, down about 2 percent from the same period a year ago. Total net revenues for the $223 billion-asset bank came in at $3.5 billion, up more than 3 percent from the third quarter of 2006. 

The provision for credit losses in the quarter was $199 million, up $64 million, or 47 percent, from third quarter 2006. U.S. Bancorp attributed the increase to a growth in credit card accounts and higher commercial loan losses. Net charge offs were $199 million compared with $135 million a year ago.  

The credit card division reported average loans (receivables) of $9.9 billion, up 27 percent from $7.7 billion. In comparison, the home equity and second mortgages group saw loans of $16 billion, up 2 percent from $15.2 billion. The net charge off ratio for credit cards was 3.09 percent, up more than 8 percent from 2.85 percent a year ago.  

The Payment Services division, which includes consumer and business credit cards, stored-value cards, debit cards, corporate and purchasing card services, consumer lines of credit, ATM processing and merchant processing, contributed $276 million to the bank’s net income in the third quarter of 2007, a 9 percent increase over the same period in 2006. Payment processing revenue saw account growth, higher transaction volumes and business expansion. The growth in total non-interest expense year-over-year primarily reflected new business initiatives, including costs associated with marketing, transaction processing and acquisitions, as well as higher collection costs.

The increase in the provision for credit losses was driven by an increase in net charge offs of $26 million year-over-year reflecting portfolio growth and the favorable prior year effects of changes in bankruptcy laws in late 2005, the bank reported.

San Francisco-based Wells Fargo (NYSE: WFC) reported net income in the third quarter of nearly $2.3 billion, up 4 percent from a year ago. Revenues of more than $9.8 billion were up about 10 percent from $8.9 billion.  

Net credit losses were $892 million, up 34 percent from $663 million in the same period a year ago. "Almost half of the increase in net credit losses from second quarter 2007 was concentrated in the home equity portfolio, where losses accelerated in the quarter given the steeper than anticipated decline in national home prices," said Chief Credit Officer Mike Loughlin in a press release. "The remainder of the increased credit losses was concentrated in the auto portfolio (seasonally higher in the second half of the year) and in unsecured consumer credit (largely due to portfolio growth, with loss rates remaining relatively stable).” 

Credit card loans 90 days or more past due tallied $303 million at the end of the quarter, up 42 percent from $213 million a year ago. All loan products 90 days or more past due rose nearly 30 percent to $1.3 billion from $975 million.