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Priming the Pump

At the age of 34, Hugh Miller has been chief executive of Delta Financial Corp. for seven years. Officially, that is. In many ways, Miller’s been handling the job since 1985. At that time fresh out of college and selling insurance-he was offered an office at the company by his father, Delta’s founder. “Then it …

At the age of 34, Hugh Miller has been chief executive of Delta Financial Corp. for seven years. Officially, that is. In many ways, Miller’s been handling the job since 1985. At that time fresh out of college and selling insurance-he was offered an office at the company by his father, Delta’s founder. “Then it was, ‘could the bookkeeper report to me?” recounts Miller. “Then, ‘would I mind having the underwriter report to me?’ The next thing I knew, I had all eight people at the company working for me, in just three months’ time.”

Back then, the tiny Woodbury, NY, company was in a little-known business one that today is getting its fair share of publicity-sub-prime lending, or making loans to those people who have been denied by conventional lenders because of their spotty credit histories. About 94 percent of Delta’s borrowers are overextended with debt like credit cards and car loans, but have some equity in a home. Delta consolidates the lot into a home equity loan, and then repackages it for sale as an asset-backed security.

Sub-prime lending has taken its knocks lately with a rash of financial blowups, mostly among auto lenders. But the senior Miller’s early confidence in his son has been justified. Delta, now 550 employees strong, has flourished in both good and bad economies by sticking to its tradition of paying careful attention to credit histories, and coddling the 1,000-odd mortgage brokers and correspondents who bring in loans with extra service. Now, with Miller leading the way his father’s preferred role is now ambassador-at-large-the company is in a growth spurt. Armed with cash from its $61 million IPO last year, Delta purchased Fidelity Mortgage, a retail originator of sub-prime loans in the Southeast and Midwest that is taking it into direct sales for the first time.

That’s a smart move, says Jeffrey Evanson, a Piper Jaffray analyst who gives Miller high marks for his ability to see where the market is headed. “Wall Street has come to understand that, generally, loans generated through retail are worth more, so investors are willing to pay more for those companies,” he says. Evanson is projecting earnings per share for Delta of $1.95 this year, and $2.40 in 1998, and has a “strong buy” recommendation on the stock.

But with competitors like the higher-profile Money Store, and new players crowding into sub-prime lending-even some banks have decided there’s profit in it-Miller can’t afford to let up. To build volume, more acquisitions are on the agenda, and he plans to offer other products and boost fee income by taking on more third-party loan servicing; Delta’s servicing portfolio passed the $1 billion mark last year.

Meanwhile, as competition heats up, managing people could prove more difficult than judging credit risk. Recently, Miller ran an ad in a trade publication, accompanying a story on the expertise of Delta’s servicing group. “We got zero responses to our ad, and everyone who was interviewed in the article got job offers,” says a chagrined Miller. “I won’t do that again.”

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