The major publicly traded credit card companies have recorded another quarter of significant growth and healthy profit margins, though a turn in the credit cycle was hinted.
The three companies whose specialties make them stock market proxies for the card industry - Advanta Corp., First USA Inc., and MBNA Corp. - were joined by Signet Banking Corp.'s February spinoff, Capital One Financial Corp.
Capital One, dealing with its initial financing and raising its marketing expenditures, reported the only decline in year-to-year earnings comparisons, which were reported on a pro forma basis.
Capital One chairman and chief executive officer Richard D. Fairbank spoke confidently about the future, saying a foundation has been laid.
Looking at the whole picture, analysts and other observers said rising interest rates have not greatly affected credit card earnings but could begin to squeeze the more marginal players by yearend.
"The larger companies will continue to take market share at the same speed they are taking it now," said Salomon Brothers analyst Thomas Facciola, "and there is a chance that these companies are going to grab more market share by the end of the year. The low-lying fruit has been picked from the tree; now you need a ladder to work at the rest."
The $9.8 billion-asset Advanta, based in Horsham, Pa., and also active in second mortgages, increased its earnings for the 23d consecutive quarter. Its net income of $30.8 million was up 24%, as average credit card receivables rose 71%. Accounts opened during the quarter totaled 378,000, up 37% from the year-earlier period.
Dallas-based First USA, profiting on both the card-issuing and merchant- servicing sides of its business, posted profit growth of 72%, to $46.8 million, in its third fiscal quarter, ended March 31.
For the first nine months of its fiscal year, net income was $125.2 million, compared with $68 million the previous year. The nine-month earnings figure does not include an extraordinary tax-related item.
"Earnings per share (73 cents for the quarter) were about a penny above our estimate, but credit quality deteriorated less than we expected," said Moshe Orenbuch, analyst at Sanford C. Bernstein & Co. "First USA's margin was up five quarters in a row," in contrast to the decline at Advanta attributed to "the thousands of new cards issued at introductory rates."
During the latest quarter, First USA opened 776,000 credit card accounts, a 36.5% gain. The $5.9 billion-asset First USA also said its merchant unit processed $19.4 billion of credit card sales during the 1994 calendar year and $4.8 billion in the latest quarter, up 7%.
Capital One's first-quarter earnings of $25.1 million were up from the pro forma $21.8 million in the fourth quarter but fell from $30.5 million in the first quarter of 1994.
Mr. Fairbank said he was pleased with the $561 million increase in managed credit card loans, to more than $7.9 billion. The Falls Church, Va.-based company added 434,000 accounts, net, bringing its total to nearly 5.5 million. Annualized balance growth was 30%.
"Capital One now has access to new, permanent funding sources, which allowed us to support further asset growth and reduce our bridge financing loan from $1.7 billion to $200 million by quarter-end, as promised," Mr. Fairbank said. For the first quarter, Capital One raised $2 billion in funding.
"Capital One did better than we expected," said Mr. Facciola of Salomon, "but you should take into account that competition was its fiercest in January because card companies were sending out 300 million pieces of mail."
MBNA, based in Newark, Del., announced a 31% increase in first-quarter earnings, to $68.7 million. Managed loans were up $1.6 billion from yearend, to $20.3 billion, making MBNA about as big as the Discover card organization and second only to Citicorp among MasterCard and Visa issuers.
Continuing to concentrate on the association and affinity market, MBNA said it had added 238 organizations to its rolls in the quarter, along with 1.6 million new accounts and two million total cardholders.
The card companies will continue their substantial growth rates in the next few quarters, analysts said.
"There will be stabilization in margins but a weakening credit quality as the economy turns down a bit," said Bernstein's Mr. Orenbuch. "You have seen it in First USA, then you will in Capital One, then MBNA, and Advanta. It depends on the timing of repricing of introductory rates."