The fierce competition in credit card cards is not squeezing Crestar Bank of Richmond, Va.

Though operating in the shadow of nearby Signet Bank, which has grown rapidly to join the card industry's top tier, Crestar has also been accelerating its growth since 1992 and profiting handsomely, with Thomas N. Hammelman, executive vice president of the consumer finance group, in the driver's seat.

Last year, receivables increased 73% to $976 million, and by Sept. 30 this year, outstandings were up to $1.3 billion. The $14 billionasset institution went from the 49th largest card lender in 1993 to 41st in 1994, according to American Banker's ranking of the top 50 companies in credit card lending.

Crestar's card portfolio -- at 800,000 accounts, up 45% from 1993 -- is generating a return on equity exceeding 45% and return on outstandings above 2.75%, based on third-quarter figures.

Located in a six-story building in Richmond's Westend, along a tree4ined cul-de-sac, the consumer finance group devises marketing strategy undaunted by its second-tier status.

The building houses collections, management offices, and customer service. Processing is handled by MBNA Corp.'s Texas processing affiliate.

A wiry, expressive 47-yearold, Mr. Hammelman insists on sharing the accolades with his staff for the company's successes, but he is firmly in charge.

In his comer office, with windows overlooking groves of pines, his desk faces pictures of Albert Einstein and Clint Eastwood, which he said speaks to his business philosophy: "You have to know what you're doing and you have to get it done."

Mr. Hammelman began his career at Mercantile Bancorp. in St. Louis in 1968, where he remained for 10 years. Then he hit the road, heading up card divisions for Norwest Corp. in Minneapolis and First City Bancorporation of Texas, Houston.

After he had returned to Mercantile as president of card services, Crestar hired him away in 1989 to assemble a staff and launch a competitive card product.

Formerly called United Virginia Bank, Crestar has been a credit card lender since the 1960s.

One of the first BankAmericard issuers, it maintained a low profile until the current chairman, Richard Tilghman, decided the time had come for revving up consumer lending.

Offering a 7.9% year-long introductory rate followed by 3.9% over prime, or a 12.9% fixed rate card, Crestar is one of the lowest-rate issuers in the country, on a par with the likes of Advanta Corp., Wachovia Corp., First USA Inc., and Signet Banking Corp.

Although Signet's $6 billion of receivables dwarf Crestar's, Mr. Hammelman said there is no real cross-town rivalry.

"Our competition can come from anywhere in the country," said Cherie L. Heintz, marketing communications manager. "As far as we're concerned in the credit card business, it's not a physical facility, it's what appears in the mailbox."

Still, the bank's greatest growth comes from the WashingtonMaryland-Virginia region, through aggressive direct-mail campaigns and cross-selling in branches, which Mr. Hammelman said, also provide "a big bang for the buck."

He added that Signet's most lucrative state is California.

David M. West, vice president and securities analyst for Davenport & Co. in Virginia, said that although Crestar has been making headway in Virginia, Maryland, and Washington, it would be hard to say it had any impact on Signet because the banks are so different in scale and scope.

"Signet's effort is much more broad," he said.

Even so, Mr. Hammelman said Crestar sends out almost 20 million offers per year to lowrisk customers nationwide, with concentrations in large metropolitan areas. Texas is one of its strongest markets, after Virginia.

With a smaller marketing budget than that of a Signet or First USA, which Mr. Hammelman would not divulge, he said the bank carefully targets highincome, low-risk, revolving accounts and has a high acceptance rate.

"Our primary focus is families in the 25 to 55 age group," said Mr. Hammelman. Average monthly balances are $2,300 per account.

Mr. Hammelman said the bank's market segmentation and pricing policy yield high-value customers with low operating and collections costs. Chargeoffs run 2.25% of outstandings.

A $20 annual fee weeds out convenience users, Mr. Hammelman added.

It costs Crestar $25 to $35 to acquire an account, well below the national average of $70 for a large bank, and it costs about $35 per year to maintain an account. As long as a customer generates at least $75 in annual revenue, it will be profitable, Mr. Hammelman said.

"We're pretty cost-oriented," he said. He called Crestar a lean organization with well-chosen strategic alliances to keep expenses down.

Besides outsourcing to MBNA Corp., Crestar uses credit scoring models developed by Fair, Isaac & Co. and others, and is vigilant about collections and customer service to keep expenses low.

Although MBNA is not using a neural network for fraud detection, Pam Flippin, vice president and customer relations manager, said tight fraud controls are in place. Crestar's fraud level is 0.19% of gross volume, or $2.3 million in 1993 -- about the national average.

Crestar also reduces expenses by tightly targeting those most likely to respond to its offers, rather than blanketing the market with mass solicitations.

"We've been first out of the box with a few concepts no one else has done," said Annette D. Jones, vice president, market development. She was referring to Crestar's balance transfer program, which charges a 9.9% fixed rate until it is paid off.

Mr. Hammelman said that the offer was successful at attracting customers, while undercutting the competition.

Merrill H. Ross, bank analyst for Wheat First Butcher & Singer, of Richmond, said Crestar's balance transfer program has been "successful beyond their expectations, but not beyond their capacity to fund [it]."

She said the bank's management had been leery of putting too many assets into the card business at first, and was intent on diversifying its core businesses to avoid the problems Virginia bankers had experienced from the real estate collapse of the late 1980s.

The high profitability has encouraged further investment and growth in credit cards.

Part of Crestar's success can be attributed an unusual management structure. Rather than setting credit cards apart as a free standing business, they fall within the consumer finance group along with all other consumer lending.

The integration "makes us cost-effective, with no multiple management structure," said Mr. Hammelman.

He stressed that strong backoffice operations have to keep pace with growth.

To promote customer retention, service representatives are trained to be proactive, assisting customers with questions, problems, and account adjustments. Customer surveys are conducted monthly to review service levels and satisfaction.

Mr. Hammelman said innovations in the marketplace, such as cobranding, are not in Crestar's immediate future.

"We are not unmindful of the evolution of strategies in this business," he said. "We watch it like a hawk. But as far as our return on investments, we haven't been compelled to diversify."

Crestar's relative success in the tough credit card market, along with its size and strength as a local franchise, may make the bank a target for takeover.

While Crestar would be an attractive acquisition for many larger superregionals, given its strong commercial and consumer businesses and a 300-branch service network, Mr. West, the securities analyst, said it would be an expensive proposition.

Still, Francis X. Suozzo, an analyst at S.G. Warburg Pincus, said, "I think within the next three years there is a reasonable chance that Crestar will be acquired or will merge with another bank, maybe from the southeast region, but it could come from outside the region -- like Banc One or BankAmerica."

A Crestar spokesman said it has no intentions of merging or selling. In fact, it has been busy acquiring on its own. In 1993 alone, Crestar acquired five regional thrifts. But most recent purchases have had no impact on card growth.

Mr. Hammelman looks to a future of continued progress for the card portfolio, but he said the game will become even more demanding. Although competition may drive interest rates down even further, he said Crestar is "at the edge of what's endurable from an economic standpoint."

In the long run, he predicts that with the cost of lending going up, "prices will have to rise to maintain profitability."

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