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Subject: Companies In The News
Date: Tue, 3 Nov 92 12:44:32 EST
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11/3/92


TITLE Companies In The News Advanta Picks Its Prospects In No-Fee
Credit Card Market


John A. Jones Competition has grown tougher in the credit card
business since Advanta Corp. started marketing cards with no an-
nual fees.

Some of the big banks, which do charge fees, are fighting back
with lower interest rates. But Advanta still claims a strong lead
in the card price war.

Investor's Business Daily, Financial/Bus. Services ranks 27th,
based on six-month stock- price performance with added weight
given to recent months. In this series, leading companies within
the group are reviewed.  Advanta, based in Horsham, Pa., dates
back to 1951 when Jack Alter founded Teachers Service Organiza-
tion, which evolved into Advanta. His son, Dennis Alter, became
chief executive of the predecessor company in 1972 and chairman
of Advanta in 1985.  About 70% of Advanta's revenue comes from
credit cards. Home equity loans account for 15% of revenue, with
a managed loan portfolio of $780 million.

Third Quarter Up 88%

The balance of revenue comes from insurance, primarily consumer
credit, and small equipment leasing.  Third-quarter earnings rose
88% to 60 cents a share from 32 cents a year earlier. Net income
was up 96% to $13.7 million from $7 million on a 31% gain in
sales to $68.2 million from $52.2 million.  For the nine months
to Sept. 30, earnings rose 66% to $1.44 a share from 87 cents a
year earlier. Net income was up 89% to $33.2 million from $17.6
million. Nine-month sales rose 27% to $189.7 million from $149.3
million.  President and Chief Operating Officer Richard
Greenawalt said receivables are growing faster than the number of
accounts, indicating Advanta's success in targeting "the right
consumers." Advanta scans its database to pick out prospects
based on credit records, spending patterns and other data.
Dennis Alter

Advanta has developed its own "niche marketing" strategies, pri-
marily by direct mail, to offer selected consumers a no-fee gold
credit card with a variable interest rate that can be much lower
than those of banks.  Advanta's annual card borrowing rates now
range from 11.9% to 18.9%, compared with an industry average of
about 18%. The company makes up for the lower rates with in-
creased volume. Advanta reported its average managed credit-card
receivables in the third quarter were up 43% from a year earlier.
Advanta funds part of its lending operations by securitizing
credit-card receivables and home equity loan assets, pooling the
loan balances into securities for sale to investors.  Income from
credit-card securitization in the third quarter totaled $24.4
million, up 62% from $15.1 million a year earlier, reflecting a
95% increase in the average amount of securitized credit-card re-
ceivables outstanding and a wider net interest spread.  Despite a
relatively stable 30-day delinquency rate, the provision for
credit losses was $2.7 million higher than net charge-offs for
the quarter. As a result, Advanta's reserve coverage for impaired
assets rose to 138% at Sept. 30 from 92.6% a year earlier.  The
company had $4.1 billion of managed assets on Sept. 30, and the
total of receivables securitized was $3.4 billion.  Dirk L. God-
sey, an analyst at Hambrecht & Quist Inc. in San Francisco, said
the industry is changing in favor of companies with unique data-
base marketing capabilities.  "The mass marketing days are over,"
Godsey said. "It's no longer a market share game, but a share-
of-wallet game."

Banking On Experience

Deborah Dove, vice president for investor relations, said Advanta
has focused on the no-fee gold card market since 1987.

"We've gleaned a lot more information than our competitors" from
that experience, she said. As a result Advanta can use its data-
base to find groups of customers who are more likely to borrow on
their cards.

Some observers have questioned Advanta's method of writing down
its account acquisition costs, but Dove said Advanta's accounting
is "either on par with the industry, or more conservative." How-
ever, she said Advanta may in the future shorten the period for
amortizing its costs of acquiring business.  David B. Hilder of
First Boston Corp. said a Financial Accounting Standards Board
task force is studying the issue of amortizing credit card origi-
nation costs. Advanta now amortizes those costs over five years,
he said, but even if the FASB cuts the period to one year it
should not affect the company's results materially.  Advanta gen-
erally securitizes about 60% of its receivables within a year,
and the origination costs are written down to zero at the time
they are securitized, he noted.  Wednesday: Paychex Inc.

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