Advanta Reinventing Itself in Low-Key Way

FORT WASHINGTON, Pa. - He may talk softly and greet janitors by their first name, but don't let Milton Riseman fool you. He's no pushover.

Rather, the president and chief executive of Advanta Mortgage Corp. is aggressively trying to pull his company into the top ranks of makers of credit-impaired and home equity loans.

A string of unsettling chargeoffs for bad loans and major executive changes over the last year has taken its toll on Advanta. In an industry that has had so much growth and saw so many new entrants in 1994, Advanta Mortgage was one of only two lenders to see their home equity originations fall in 1994, according to David Olson, a Columbia, Md., consultant. (Fleet Financial was the other.)

But Advanta Mortgage has emerged from nearly a year of reevaluation with newfound vigor and purpose.

The bicoastal lender - it's based here and in San Diego - has restructured itself and changed its overall focus. It open a retail operation this month and expand its product menu.

"Our goal is to be consistently profitable," Mr. Riseman said. "We will never have an overwhelming market share, nor do I believe you have to have one to be successful in this business."

Instead, the mortgage subsidiary of Advanta Corp., Horsham, Pa., has adopted a steady four-pronged approach to home equity lending.

The primary purpose is to enrich Advanta's home-loan portfolio. To do that, the lender will cultivate correspondent lending, wholesale lending, originations by telephone and mail, and retail originating.

"We are really in a transition," he said, his hands clasped behind his head, his legs crossed in front of him.

Milton Riseman, at the center of the transition, is a lanky man with a slight hunch from his years of four-mile morning jogs. He took over for Dennis Eickhoff, who stepped down a year ago "to pursue other opportunities," he said then.

Around that time, Advanta's lending operation had been stung by prepayments and credit problems in some credit-impaired home equity loans - a common trouble among such mortgage companies.

In the fourth quarter of 1993, Advanta Mortgage was forced to take a $4.5 million writedown because of greater-than-expected prepayments. The company also added $10 million to reserves to bail out a $75 million portfolio of no-income-verification loans, which Advanta decided to "walk away from."

Both problems bothered analysts.

Chargeoffs continued to rise last year, according to the company. It took $20.7 million in hits last year, up 48% from 1993.

But Moshe A. Orenbuch, a research analyst at Sanford C. Bernstein, New York, said the higher chargeoffs did not amount to a red flag that would impede the company's growth. He said Advanta wrote off the nonperforming loans quickly, when it was less expensive to make note of them on its balance sheet.

Mr. Riseman said chargeoffs would "significantly" decline this year. He attributed the 1994 chargeoffs to a change in accounting policy.

"I don't think that there is this kind of ticking time bomb," Mr. Orenbuch said. "They are sitting there with the same challenges all lenders are facing right now; it is just a difficult market."

The company's home loan originations fell 3%, to $493 million from 1993 to 1994.

Advanta has adopted a active approach to lending under Mr. Riseman.

In March, Advanta will open four retail branches. It hopes to have some 20 operational by yearend. The offices will be in California and around Pennsylvania.

He said the new branch system would be more competitive because it would offer better service.

Advanta will also test heavy TV advertising like that done by the Money Store. The test will take place in a Midwest city Mr. Riseman declined to identify.

He expects that this year, 25% of Advanta's business will come from mail and telephone originations, 20% from buying loans from other lenders, and 55% from mortgage brokers.

These strategies are a direct result of a yearlong study by Advanta of the home equity lending market, he said. The study focused particularly on identifying Advanta's competitors and what their plans are for the near future.

But he faces another problem. Two of his top executives have jumped to competitors since the beginning of this year.

Last month, Gregory Bowcott joined CWM Mortgage Holdings Inc., to head a unit that will buy credit-impaired loans from other lenders on behalf of the Pasadena, Calif., conduit.

Mark E. Costello also left last month for Ames Financial Corp., Los Angeles, where he will lead its strong move into wholesale lending.

Mr. Riseman played down the executive changes. He said they were "behind us."

"We hired from within," he said. "It's no big deal."

It may or may not be. But for Advanta, the changes come at a particularly crucial time, considering all the moves Mr. Riseman is making.

In some ways, Mr. Riseman lives a move mogul's life. He operates Advanta from Pennsylvania and San Diego, continuously shuttling across the nation.

On his personal schedule, his secretary marks each travel day with a small picture of an airplane. His March schedule, for example, had airplane pictures on at least half the days.

"You really have to enjoy it," he said of his chosen profession. "I wouldn't be doing what I am doing if I didn't."

He also manages via technology. Advanta has boardrooms in Pennsylvania and San Diego equipped with the latest video conferencing equipment.

"I spend hours in here," he said as he ran his hand over the console.

He is able to keep in close touch with many of his employees, no matter what coast they are closest to. On a recent walk around Advanta Mortgage's Fort Washington office, he came across an employee whose wife had just had a baby.

"How big was he?" Mr. Riseman asked.

"Seven pounds, one ounce," said Chris Jorgenson, a sales executive.

"Not bad," Mr. Riseman said, and he gave the new father a punch in the shoulder.

Mr. Riseman is hoping to do the same to Advanta down the road. He is confident Advanta will come out of its transformation in fine shape.

"We are not looking to jet-power this thing into the next century," he said. "Predictable earnings, that's our challenge."

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