SAN DIEGO — Home Federal Savings & Loan, which is absorbing dramatic losses in its credit card program, on Wednesday partially withdrew from that market by announcing an agreement in principle to sell the bulk of its credit card portfolio to Beneficial National Bank.
The agreement calls for Beneficial, a subsidiary of Peapack, N.J.-based Beneficial Corp., to acquire 180,000 of Home Federal's MasterCard and Visa accounts with $260 million in total credit card loans outstanding.
Neither company released a price for the proposed sale, scheduled to be completed during the fourth quarter, although Home Federal acknowledged that it would sell the division at a "premium."
In August, Home Federal acknowledged that unspecified losses in the once-heavily promoted credit card business would cause earnings to drop "significantly below" projections. At the time, analysts suggested that Home Federal's projected third-quarter profit of $20 million could be slashed by more than two-thirds.
Lax Checking Cited
Analysts have blamed the firm's credit card problems in part on lax checking of the creditworthiness of its customers. Before soliciting customers, Home Federal ran credit checks on names of potential customers gleaned from purchased lists. But the firm failed to later re-check their credit to reflect changes between the time the lists were purchased and the time the credit cards were sent, analysts said.
By year-end, the company is expected to increase its reserve for credit card losses from its current $5.8 million to about $15 million, or 4% of its total consumer receivables, close to the industry average of between 3% and 4%.
Home Federal also plans to sell its remaining 141,000 credit card accounts, with $45 million in outstanding loans, according to a company spokeswoman. She added that Home Federal will continue to offer credit cards to its customers through Beneficial, "which we feel is a more profitable way to provide this service."
"It sounds like they're getting out of the business," said Tom Klingenstein, an analyst with Wertheim & Co. in New York.
The proposed credit card portfolio purchase would be the sixth acquisition in three years by the New Jersey-based bank, according to Beneficial National Chairman and Chief Executive Joseph N. Scarpinato.
"The majority of problems with that portfolio were (generated by) rapid growth," Scarpinato said. "They went from a very small player to a pretty significant size in a short period of time."
Home Federal, the nation's ninth-largest S&L, has assets of $9.6 billion and shareholders equity of $650 million, or about 6.8% of assets.