The credit card lending specialists Providian Financial Corp. and Metris Cos. each approximately doubled first-quarter earnings, buoying hopes that card industry profits can continue their upward course.
The two issuers' year-to-year percentage increases-102% for Providian and 93% for Metris-outdid those of the larger monoline lenders MBNA Corp. and Capital One Financial Corp., which reported 25% and 13%, respectively, last week.
Providian outearned Capital One, even though Providian's $14.3 billion of managed loans trailed Capital One's $17.4 billion.
With all the companies benefiting from increases in fee income and improvements in credit quality, the credit card business is reasserting its primacy as a bank profitability generator.
"The first-quarter results reinforce the growing leadership of the credit card sector within financial services," said Robert G. Hottensen Jr., a managing director at Goldman, Sachs & Co. "You are seeing the fruits of niche strategies, improving credit quality, marketing investments, and industry consolidation."
San Francisco-based Providian said Thursday that its quarterly net of $113.5 million was up from $56.1 million a year earlier. Per-share, it doubled to 78 cents.
Metris reported Wednesday net income of $21.6 million, up from $11.2 million. The per-share figure rose 30 cents, to 85 cents.
Providian's accounts grew by more than one million during the quarter-a time of year that usually sees slower account growth-bringing its customer base to nine million. The net interest margin expanded over the 12 months to 12.26% from 11.09%.
"This is probably the fourth quarter in a row where every initiative we are in is exceeding our expectations," said Shailesh J. Metha, chairman and chief executive officer of Providian. "We are getting rewarded for superb execution."
The company has been a beneficiary of consolidation, its earnings boosted by its 1998 acquisition of, and ability to reprice, $2.2 billion of loans formerly held by First Union Corp. of Charlotte, N.C. Interest rate hikes and cross-selling contributed to the higher income.
Revenues, at $851 million, were 88% higher than in the first quarter of 1998. The $14.3 billion of managed loans were up by $3.6 billion.
Credit card "spread" receivables rose to $9.8 billion from $8.6 billion a year earlier, and the unbanked, or secured card, portfolio rose to $3.4 billion from $992 million.
Providian said its "customer-focused approach," marketing investment, and technology will enable it to sustain its returns. It plans to invest a minimum of $75 million in its Internet banking initiative this year and predicts earnings of $3.50 a share for 1999, 72% more than in 1998.
Thirty-day or more delinquencies rose to 4.91% of managed loans from 4.61% in the first quarter of 1998. The net chargeoff rate was 7.62%, up from 6.78% or $179 million over the same period last year, but lower than the 8.13% on Dec. 31.
Metris, while reporting a 4% decline in managed credit card loans, to $5.1 million, benefited from a 61% jump in first-quarter interest income, to $32.4 million. Meanwhile, fees and other credit card revenues rose to $46.6 million from $13 million.
Loans 30 or more days delinquent were 8% of the managed portfolio on March 31, up from 6.8% at yearend and 7.4% in March 1998. Chargeoffs were 9.4% for the latest quarter, 10.4% in December, and 8.8% in March 1998.
Growing consistently on its much larger base, MBNA of Wilmington, Del., last week reported earnings of $186 million. Accounts grew by 5.2 million, and chargeoffs increased to 4.36%, up from 4.19% in the first 1998 quarter and 4.21% in the fourth quarter.
Capital One's income rose to $82.4 million. The Falls Church, Va., company's earnings were helped in part by a steady increase in credit quality, with chargeoffs declining to 3.93% for the first quarter from 4.51% in the fourth quarter and 6.04% in the first quarter last year.
"These are the sharpest improvements we have seen in credit quality since 1994," Mark C. Alpert, an analyst with BT Alex. Brown, said of the trend. He called the industry's improving health "dollars from heaven. It has nothing to do with receivables growth."
Given lower market interest rates and higher fee income, the issuers have seen "massive margin improvements," he said.
Another bullish factor is the card companies' penchant for plowing profits into loan-loss reserves and marketing initiatives.
"They are not letting every dollar fall to the bottom line and that makes us very optimistic for long-term growth," Mr. Alpert said.