1Q Earnings: Small Business Woes Continue to Affect Advanta
Aspan, Maria, American Banker
Following reports of deterioration in the small-business loan portfolios of several large banking companies, Advanta Corp., which specializes in issuing credit cards to small businesses, posted a 68.4% drop in its card-related income, to $6.7 million.
The Spring House, Pa., company said Tuesday that its overall first-quarter profit fell 14% from a year earlier, to $18.4 million. Of that, $11.7 million came from gains on Visa Inc.'s initial public offering.
Advanta's provisions for credit losses nearly tripled, to $28.4 million. It added 67,000 customers, nearly a third less than a year earlier. Transaction volume inched up 1.4%, to $3.4 million. Managed receivables grew 12.2%, to $6.3 million, but chargeoffs surged 313 basis points, to 6.43%.
"This is a very difficult environment," Dennis Alter, the company's chief executive, said in a conference call. "We're part of this macro phenomenon, but we don't take too much comfort in that. ... We're not hiding behind what's happening to every other card issuer in this country."
Advanta's small-business losses, which previously had been below-average according to surveys in which the company took part, have accelerated and are now average, Mr. Alter said.
"We're aware of it and are working to slow the pace and begin to reduce it," he said. "We've redirected our best and brightest" employees and are "focused brutally" on addressing the losses.
Advanta intends to sign up "substantially fewer" customers this year than last, and is sending some operations offshore in order to reduce costs, Mr. Alter said.
The company plans to reject or give smaller lines to applicants with "certain profiles ... where we would project higher losses," he said. "We've also closed accounts and cut lines ... where we see performance inconsistent with what we would have expected."
Philip M. …