With sharp gains in production and net income, two high-profile lenders demonstrated that subprime lending was the place to be in the first half of 1997.
The figures help to temper concerns that rose last week when Cityscape, another large subprime lender, reported disappointing results.
United Companies Financial said its loan volume jumped $21%, to $1.25 billion, and net income increased to $43.9 million, from $33.5 million, compared with the first half of 1996.
And Delta Financial Corp. said its first-half loan production rose 106%, to $502.4 million, and net income climbed 101%, to $14.2 million, compared with the year earlier.
Executives at both companies linked the increases to new product lines and geographic expansion.
"Continued originations growth in our newer markets" are allowing Delta to profit through increased economies of scale, said Hugh Miller, chairman of Melville, N.Y.-based Delta.
Many industry analysts said they expect the companies to continue doing well. "It's been a low interest rate environment, and there is good market demand for these products," said Luke T. Smith, specialty finance company analyst at Chesapeake Securities, Chesapeake, Md. "For the foreseeable future the market seems to be in good shape."
Indeed, the UBS Securities unit of Union Bank of Switzerland issued a "buy" recommendation for United Companies after its earnings announcement, saying the company is very well positioned.
United Companies, based in Baton Rouge, La., "is a leading national participant in the subprime mortgages business and possesses a valuable retail originations network," said UBS analyst Gareth Plank.
But some industry observers are less sure about the future for subprime lenders, saying that rising delinquencies and increased competition pose threats. They cited last week's report on the first-ever decline in quarterly earnings at Cityscape, an industry pioneer, as an indication that things may be slowing.
Still, second-quarter results for United Companies and Delta were solid. United Companies said loan production jumped to $757 million, up 13% from last year's second quarter, while net income rose 52%, to $23.8 million.
During Delta's second quarter, loan volume surged 107%, to $265 million, while net income dropped to $7.2 million, from $7.3 million. The flat earnings were caused by a change in the company's schedule for securitizing loans, not because of operational weakness, said Delta's Mr. Miller.
