MBNA Meets Expectations as Earnings Jump 27%

The company added 2.7 million new credit card accounts in the first quarter.
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Credit card and consumer loan issuer

MBNA Corp.

(KRB)

reported a 27% increase in first quarter net earnings Wednesday. The numbers meet Wall Street expectations showing solid growth in outstanding managed loans and a decrease in default rates.

The company, parent of

MBNA America Bank

, said its net income in the first quarter rose to $234.6 million, or 28 cents per share, matching the forecast from

First Call/Thomson Financial

. Income increased 27.3% over $186.0 million, or 22 cents per share, reported in first-quarter 1999.

The results prompted shares of Wilmington, Del.-based MBNA to surge. In afternoon trading, the shares of MBNA were up 2 3/8, or 8.8%, to 29 1/2. (MBNA closed up 2 1/2, or 9%, at 29 5/8.)

The results were roughly in line with the company's average 25% quarterly year-over-year growth in each of the 37 quarters since it became a public company.

While that strong growth may fall somewhat short of some smaller competitors such as

Capital One

(COF) - Get Report

and

Providian

(PVN)

, analysts say the company is outperforming larger credit card issuers like

Chase Manhattan Bank

(CMB)

and

Citigroup

(C) - Get Report

.

"To produce 27% year-over-year running its core day-to-day card operations is exceptional," said Todd Pitsinger, analyst at

Friedman, Billings, Ramsey & Co.

in Arlington Va. He rates MBNA a long-term buy, and his firm has not underwritten MBNA stock or debt.

MBNA's bottom line was helped by a strong increase in the value of loans outstanding. Total managed loans on March 31 were valued at $73.0 billion, which is a $10.9 billion increase over first-quarter 1999. The company added 2.7 million new credit card accounts in the first quarter. Two hundred forty-five thousand customers were added through the company's new

MBNA.com

Web site.

While the number of accounts and outstanding loans grew, the rate of losses due to delinquencies and defaults declined to 4.06% from 4.21% during first-quarter 1999.

MBNA also acquired 97 new co-branding endorsements for its cards, including

J.P. Morgan

(JPM) - Get Report

,

United Parcel Service

(UPS) - Get Report

, and

America Online

(AOL)

. The endorsements, commonly known as "affinity marketing," usually involves incorporating a company or organization's logo or related images into a MBNA-issued card.

"They are the world-wide preeminent leader of affinity marketing with their cards, with about 5000 relationships. They are the envy of all their peers," added Pitsinger.

Higher interest rates have done little thus far to hurt MBNA's net margin on its outstanding loans, which fell to 7.10% from 7.60% during the quarter. However, if higher interest rates and faltering stock markets continue to dent consumer confidence as it has in recent months, the company could see a temperance in its growth.

"At some point, higher rates could compromise consumer confidence, and lead to a slower rate of consumer borrowing, but so far, the company has been largely able to mitigate the impact of higher rates," added Pittsinger.