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US Bancorp Feels Some Heat from Housing Woes

U.S. Bancorp here reported a drop in net income of more than 20% in the fourth quarter of 2007 as compared to the same period the year before. The company cited the challenging economic environment facing the financial services industry as a factor in its performance.

Net income in the fourth quarter was $942 million, 21% less than the $1.19 billion reported for the fourth quarter of 2006. Diluted earnings per common share of $0.53 in the fourth quarter were lower than the same period of 2006 by 19.7%, or $0.13 per diluted common share. Return on average assets and return on average common equity were 1.63% and 18.3%, respectively, for the fourth quarter of 2007, compared with returns of 2.18% and 23.2%, respectively, for the same period 12 months earlier.

Several significant items impacted the company's quarterly results, including pretax charges of $215 million for the company's proportionate share of a contingent obligation to indemnify Visa Inc. for certain litigation matters and $107 million for valuation losses related to securities purchased from certain money market funds managed by an affiliate. The cumulative impact of these charges in the fourth quarter of 2007 was $0.13 per diluted common share. U.S. Bancorp's results for the third quarter of 2007 included a $115 million charge for the company's proportionate share of Visa's settlement with American Express, while the fourth quarter of 2006 included a $52 million gain related to the sale of a 401(k) recordkeeping business, a $22 million debt prepayment charge and a reduction in tax liabilities related to the resolution of various income tax examinations.

Average loans for the fourth quarter were $7.8 billion, 5.4% higher than the fourth quarter of 2006, driven by a 7.5% rise in average total retail loans, a 6.4% increase in total commercial loans and an 6.8% increase in residential mortgages. The growth in average loans was partially offset by a minor decline in total commercial real estate loans. Average loans for the fourth quarter were 2.7% higher than the third quarter of 2007, reflecting growth in residential mortgages and total retail loans, driven by growth in average credit card balances and installment loans. Total commercial loans grew 4.7% when compared with the third quarter of 2007 on strong growth in national corporate banking balances and seasonally higher commercial leasing. Total commercial real estate loans also increased slightly from the third quarter of 2007, primarily reflecting changing market conditions that have limited borrower access to the capital markets.

Provision for credit losses for the fourth quarter was $225 million, an increase of 33.1% from the fourth quarter of 2006 and 13.1% from the third quarter of 2007. The increase in the provision for credit losses from 2006 reflected growth in credit card accounts, increasing retail loan delinquencies and higher commercial losses. Net charge-offs in the fourth quarter were $225 million, compared with net charge-offs of $199 million in the third quarter of 2007 and $169 million in the fourth quarter of 2006. Total nonperforming assets were $690 million at Dec. 31, compared with $641 million at Sept. 30, 2007, and $587 million at Dec. 31, 2006. Reflecting continued stress in mortgage-related lending, including construction lending and homebuilding industries, nonperforming assets increased 7.6% during the fourth quarter, compared with the third quarter of 2007. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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