Household International reported Wednesday that its first-quarter earnings rose 16% over the year-earlier period to $431.8 million, its 11th straight quarter of record results.

Earnings per share rose 17%, to 91 cents. Officials for the Prospect, Ill., finance company credited brand recognition, geographic diversification, and other factors.

Chief executive William Aldinger said the other factors included heavy spending on modeling and other technology that has helped to cut costs and lift sales. Household has 150 PhDs on staff to develop underwriting, collection, and bankruptcy models, he noted.

"Collectively, our investment has begun to pay off," Mr. Aldinger said in an interview. "When you get our cost structure combined with advanced technology and our broad business activities, it gives us a leg up."

He said Household has 45 million customers from 46 states, Europe, and Canada. About 13% of its first-quarter income was generated outside the United States, and the chief executive said he would like that to be 30%.

"We want to balance out the U.S. economy with non-U.S. business," he said. "We're making more investments internationally, but to date, prices have been too expensive." He said Europe and Japan top the list of areas it is lining up for overseas expansion.

Mr. Aldinger said credit quality is a bigger concern than usual given the state of the economy. "Credit always worries me," he said. "Even in the best of times I always look over my shoulder at credit."

Household's credit quality stayed strong in the first quarter, but declining economic indicators could hurt origination and loss rates, Mr. Aldinger said.

Nonetheless, Household has set a 2001 earnings-growth target of 13% to 15%, a projection that allows for the possibility of a recession.

"We think we're ready for it and we think we're better prepared than most of the competition," Mr. Aldinger said. "Even in a slowing economy, we'll grow receivables between 11% and 14%."

The company also reported that its managed portfolio grew 17%, to $88.4 billion, against the first quarter of 2000 despite a refinance boom that has siphoned loans from many lenders' portfolios.

Refinance activity, which has increased to more than 50% of mortgage applications over the last four months, only began to affect Household at the end of March, officials said. The company was able to stave off dramatic runoff, however.

"Even though we're seeing a pickup in attrition, we're seeing a pickup in sales," Mr. Aldinger said. "We think a combination of our prepayment penalties and our service levels have helped us keep customers."

Prepayment penalties, however, have come under fire in the last year from consumer activists and some politicians as an unnecessary condition that surfaces mainly in subprime loans and punishes lower-income, minority, and elderly borrowers. Many prime loans, these critics say, have no such conditions.

Mr. Aldinger says prepayment penalties are needed for all loans, since lenders lose money on loans that prepay soon after closing - and that's not how Household wants to do business.

"It's convenient for politicians and writers to point out how we really don't need them, but keep in mind there's a real cost involved to do a home mortgage," he said. "If you ran a business, how would you feel if in six months, because Greenspan lowered rates, you spent $3,000 to originate a mortgage that went somewhere else?"

Moreover, Mr. Aldinger said, lenders like Household fund their loans with term money, which has to be repaid regardless of how the consumer behaves.

He acknowledged that some unscrupulous lenders have excessive prepayment penalties and take advantage of unsophisticated borrowers, but,

"it's ridiculous to say prepayment penalties are not appropriate - they are appropriate." They are less prevalent in the prime market, he said, because the lenders stress growth more than profitability.

Mr. Aldinger said Household focuses on the long term, so it sometimes takes immediate earnings opportunities off the table and invests them back into the company. Furthermore, he said, the economic downturn may bring attractive acquisition opportunities Household's way.

"We want to continue to block and tackle over the long run and not be a flashing star," he said. "We think this evolving recession will give us a chance to pick up some assets very cheaply and use our acquisition and execution skills to give us more certainty in earnings over the next couple of years."

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