Even amid alarms about rising loan delinquencies, MBNA Corp. doesn't stop growing - or pleasing its shareholders.
The king of the affinity credit card - with products that appeal to Frank Sinatra fans and Lexus owners, to followers of baseball, football, and hockey teams as well as the Nascar circuit - just keeps minting profits, with no end in sight to its growth.
"Success is never final," said Charles M. Cawley, president of the Wilmington, Del., card-issuing machine. "Today we own the affinity business. If we spend too much time thinking about that, tomorrow we won't."
Since its spinoff in 1991 by Baltimore-based MNC Financial Inc., MBNA has seen nothing but blue skies.
In 1995 it had net income of $353 million, up 32% from the previous year. Managed loans grew 43%, to $26.7 billion, and the issuer added six million accounts, for a total of 13.2 million, making it second only to Citicorp in the bank card industry.
At the end of this year's first quarter, outstandings had grown 37% year-over-year, to $27.8 billion. The company's MBNA America Bank added 1.8 million new accounts in the quarter, and net income rose 34.2%, to $92.2 million.
MBNA garnered 143 organizational endorsements in the first quarter alone. One of the newest products, the Prince's Trust MasterCard, issued by MBNA's British subsidiary, will donate a percentage of charge volume to a charity founded by Charles, Prince of Wales, that helps disadvantaged youths establish businesses.
MBNA has put cards in the hands of 56% of all the physicians in the United States, 70% of dentists, and 30% of lawyers through agreements with their professional associations. More than 800,000 teachers carry an MBNA card. The issuer markets to college and university students, environmental groups, Rolls-Royce enthusiasts, and others.
This month, the issuer signed a deal with the U.S. Military Academy at West Point to put out cards bearing the school's name. MBNA also serves the Naval Academy and Coast Guard Academy.
But the bank doesn't need an established group to promote a card. The marketing department often concocts card affiliations, such as people with the same last name or those living in the same state.
"It's important to find new ways to sell our products," said Mr. Cawley, who also is chairman and chief executive of MBNA America. The past two years have been the "most competitive I've ever seen," said the veteran of 30 years in the card business. Still, he said, MBNA "will continue to prosper."
Analysts agree.
"I believe strongly they can sustain earnings growth at 20% or better," said Susan L. Roth of Bear, Stearns & Co. She projects 30% for 1996, falling back to 20% annually over the long term.
Issuing cards to groups of people with a common interest is "more defensible" than strategies based on price competition, which are easily copied, Ms. Roth said.
"I'm very high on them," said Sam Liss, managing director, CS First Boston. "They've put together a terrific niche that allows them not to compete in the price game.
"The pace at which they've grown over the last two years is extraordinary."
Katrina Blecher, an analyst with Gruntal & Co., said the card issuer "continues to grow market share at the expense of other companies." She also noted MBNA's ability to post consistent earnings gains in an environment of increasing delinquencies that have alarmed much of the card and consumer loan industries. MBNA registered a first-quarter delinquency rate of 3.85%, slightly less than the industry average of 3.9%. The bank attracts customers with average monthly balances of $3,000, well above the industry's average of $1,961.
The typical customer owns a home, has family income of $59,000, and has a 14-year habit of paying bills on time - a testament to MBNA's vaunted emphasis on customer retention, on the theory that a long-term customer is far more profitable than one who is likely to leave for the next low teaser rate.
"MBNA has identified what they do and really focused on doing that better than anyone else in the industry," said Marc Altman, senior vice president, EFS Inc., a student loan processor in Indianapolis. "It's just about the only organization that can create affinities through card design," said Mr. Altman, formerly a card executive at First of America Bank Corp. The creative team is "very good at identifying what people might bite on."
MBNA keeps specific strategies close to the vest. Everything from marketing to card production is done in-house, allowing for a high level of customization. With 10 working groups concentrating on different segments of the business, the issuer has been able to maintain the focus of a specialist while growing into an industry giant.
It is widely admired for what few have been able to duplicate: making money on card programs that appeal to tiny segments of the population.
"The larger you get the tougher it is to do that," said Mr. Cawley. "Our biggest challenge is keeping the focus down, so the Society for the Preservation of Barbershop Quartet Singing is as important as L.L. Bean or the National Football League - where we opened half a million accounts in the first six months."
The bank prides itself more on superior customer service than low interest rates.
James L. Accomando, a Fairfield Conn.-based consultant, said MBNA has one of the highest employee-to-customer ratios. "They're not the cheapest guys out there, but they maintain a very high quality standard for their accounts."
MBNA "defies gravity" by continuing to grow without wavering on its pricing principles, said Robert McKinley, president of RAM Research Group in Frederick, Md. "That's something everyone else hasn't been able to duplicate." Though MBNA offers teaser rates, they are usually for a shorter period of time than other issuers', and might apply only on balance transfers.
The company has expanded by opening offices across the United States and overseas. It plans to follow its successful entry into Britain - where it got $900 million of outstandings and 500,000 accounts through 280 programs in 1995 - with three other countries by next year. Possible sites include Belgium, Holland, and the Scandinavian nations.
Back home, the third- largest issuer, First USA Inc., may be moving in on the affinity turf. The low-rate specialist has been working with Carl Novotny and Steven Marcus, who in the past designed programs for MBNA, including a major deal with the American Dental Association.
Mr. Novotny founded Transnational Financial Services, a consulting firm that was under contract to MBNA from 1982 to 1993. He left in 1987 in a disagreement with the issuer. In 1992, after a noncompete clause expired, he and Mr. Marcus formed Boston-based Affinity Partners Inc. In January, the firm, under contract to First USA, was renamed First USA Partners in what Mr. Novotny termed "a reaffirmation of First USA's commitment to partnership marketing."
Mr. Cawley called First USA "a tough competitor" but noted that as for the affinity business, "We sign the number of new groups in two weeks that they signed in a year."
"We absolutely win our share of deals," Mr. Novotny retorted. Some of his big wins for First USA include the American Kennel Club, Audubon Society, and World Wildlife Federation.
Mr. Cawley said nontraditional competitors owned or backed by such large corporations as AT&T and General Motors are the biggest competitive threats.
But for now, Mr. Cawley is most concerned with finding good customers.
"The whole business is based on people's integrity and paying habits," he said. "Our job is to get the right customers and keep them."
