SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 22, 1998
________________________ADVANTA Corp.____________________________
(Exact name of registrant as specified in its charter)
_______Delaware__________ _____0-14120________ ___23-1462070____
(State or other jurisdic- (Commission File (IRS Employer
tion of incorporation or Number) Identification No.)
Organization)
Welsh and McKean Roads, P.O. Box 844, Spring House, PA
(Address of principal executive offices)
19477
(Zip Code)
Registrant's telephone number, including area code: (215) 657-4000
<PAGE>
Item 5. Other Events
On July 22, 1998 Advanta Corporation announced that its net
income for the second quarter of 1998 was $9.5 million, or $0.35
per share on a diluted basis for its Class A and Class B shares
combined. This represents an increase of $3.2 million, or 51%
from the net income of $6.3 million from Advanta Mortgage and
Advanta Business Services that was reported in the first quarter
of this year. Advanta also announced that it closed the quarter
in a strong capital position with equity, including capital
securities, of approximately $658.6 million and in a strong cash
position with approximately $475 million of unrestricted cash and
equivalents at the parent and $580 million in unrestricted cash
and equivalents at its two banks. The Company continues to be
comfortable with its earlier estimates of net income of
approximately $70 million in 1998.
<PAGE>
Highlights included the following items:
Loan Originations
The Company reported that loan production at its mortgage and
business services units continues to be strong. Loans originated
by these businesses totaled $1.67 billion this quarter, an
increase of 32.0% over the second quarter of last year and 12.2%
over the first quarter of 1998. Advanta's total managed
receivables expanded by 9.4% this quarter to $8.04 billion from
$7.35 billion at March 31, 1998, an annualized growth rate of
37.6%.
Advanta Mortgage originated $1.25 billion in new loans during the
second quarter, an increase of 36.3% over the year-ago quarter
and 9.8% over the first quarter of 1998. As a result, the
mortgage unit's managed receivables increased this quarter by
9.9% to $6.65 billion, an annualized growth rate of 39.6%.
Highlights relating to loan originations follow:
Loans originated directly from consumers totaled $382
million, an increase of 35.0% over the $283 million
originated in the first quarter of this year and 75.0% over
the $218 million that was originated in the second quarter
of last year. The Company's newly launched direct response
television business generated $49 million in originations
directly from consumers, 84.9% higher this quarter than in
the first quarter.
Originations through brokers grew by 35.4% in the second
quarter to $106 million from $78 million last quarter and
$66 million in the second quarter of last year.
Loan originations of the conduit business were $376 million
this quarter compared to $404 million last quarter and $299
million in the second quarter of 1997.
Loan originations of the corporate finance business of $324
million this quarter were slightly lower than the $349
million originated last quarter and were higher than the
$299 million originated through this channel in the
comparable period last year.
Auto loan originations were $58 million compared to $21
million in the first quarter and $33 million in the second
quarter of last year.
<PAGE>
Advanta Business Services originated $348 million in business
credit card receivables and $74 million in lease receivables
this quarter. The managed portfolio of business loans and
leases of $1.38 billion at June 30, 1998 grew by 6.4% from the
preceding quarter and 26.4% from the year ago quarter. Business
credit card originations were 20.3% higher than in the first
quarter of this year and lease originations were 18.7% higher
than in the first quarter of this year.
Gain on Sale
Advanta Mortgage completed three securitizations with an
aggregate principal balance of $1.06 billion this quarter. In
addition, the Company sold $89 million in whole loans and
increased its portfolio of loans held in off-balance sheet
Commercial Paper conduit facilities by approximately $64
million. The Company recognized $53.9 million in gains
resulting from the securitization and sale of these receivables.
In this quarter, in accordance with Advanta's practice of
regularly reviewing and, where appropriate, adjusting the gain
receivable ("IO Strip") assumptions for the Company's experience,
the Company recognized a pretax charge against second quarter
earnings of $23.9 million. Prepayment rate assumptions used in
valuing the Company's IO Strip were revised to 27% for fixed rate
loans, 33% for intermediate rate loans and 39% for ARMs. At the
end of the first quarter the prepayment assumptions were 24% for
fixed rate loans, 29% for intermediate rate loans and 34% for
ARMs.
Advanta Business Services recognized $7.5 million in
securitization income. This includes approximately $3.9 million
in gains from the securitization of $72.6 million of leases. The
remainder represents excess servicing income received from
business card loans.
Contract Servicing
The Company's contract servicing portfolio was $8.2 billion
versus $8.8 billion at the end of the first quarter and $7.5
billion at the comparable period last year. The decrease in
contract servicing volume since the first quarter resulted from
the previously announced withdrawal of business by certain
customers who have begun servicing their own portfolios, and from
higher prepayments in our sub-serviced portfolios. The Company
has revised its guidance and expects that this portfolio will
range from $7.0 billion to $8.0 billion by the end of 1998.
<PAGE>
Credit Quality
Net managed charge-offs for home equity loans were 0.61% this
quarter compared to 0.49% last quarter. The combined delinquency
rate for home equity and auto loans of 6.86% was slightly below
the 7.05% for the last quarter.
Net managed charge-offs on business credit card loans increased
from 5.71% last quarter to 6.57% this quarter as the portfolio
continued to season. For the lease portfolio, net managed charge-
offs decreased significantly from 3.17% last quarter to 2.26%
this quarter due to improvements in collection efforts. The
combined over 30 day delinquency rate for business loans and
leases was 5.22% this quarter compared to 6.15% last quarter.
This was the result of improvements in both business card and
leasing delinquencies which are attributable to improvements in
collection efforts.
Liquidity
At June 30, 1998, Advanta had approximately $475 million in
unrestricted cash and equivalents at the parent and $580 million
of unrestricted cash and equivalents at its two banks. The
decrease in cash and equivalents at the Company's banks during
this quarter is primarily attributable to the following
previously announced transactions: (1) Advanta National Bank
repurchased approximately $93 million of its debt, and (2)
Advanta National Bank retained $445 million of notes issued in
connection with the Company's second quarter securitization of
mortgage receivables. These transactions are part of the
Company's ongoing plan to efficiently manage its liquidity while
maintaining funding flexibility.
Operating Expenses
The Company's operating expenses this quarter totaled $74.5
million, or 3.86% of average managed receivables. As the
Company's managed portfolio continues to grow during the year, it
is expected that the ratio of operating expenses to managed
receivables will be within the range of 3.60% to 3.90%.
Advanta is a highly focused financial services company with 2,400
employees, over $10.0 billion in managed assets and $8.2 billion
in assets serviced for third parties. Advanta provides consumers
and small businesses with innovative products and services
including mortgages, equipment leases, business credit cards,
insurance and deposit products. The Company also provides a full
range of loan purchasing, contract servicing and securitization
services to the mortgage industry.
This Report on Form 8-K contains forward-looking statements that are
subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected. The
most significant among these risks and uncertainties are: (1)
factors that affect consumer debt; (2) competitive pressures; (3)
the level of delinquencies and charge-offs; (4) the rate of
prepayments; (5) the level of expenses; (6) the timing of the
securitizations of the Company's receivables; and (7) the ratings
on the debt of the Company and its subsidiaries. Additional
risks that may affect the Company's future performance are
detailed in the Company's filings with the Securities and
Exchange Commission, including its most recent Annual Report on
Form 10-K and its Quarterly Reports on Form 10-Q.
<PAGE>
Item 7. Financial Statements and Exhibits
(c) Exhibits
The following exhibits are filed as part of this Report on Form
8-K.
27 Financial Data Schedules
99 Selected Summary Financial Information
<PAGE>
Exhibit 99
Advanta Corp.
Highlights
Supplemental Consolidating Income Statement
(In thousands)
Three Months Ended June 30, 1998
Advanta
Advanta Business Other
Mortgage Services (A) Total
Revenues:
Gain on sale of receivables $ 53,859 $ 7,451 $ - $ 61,310
Interest income 26,523 7,786 13,114 47,423
Servicing revenues 22,162 - - 22,162
Imputed interest (13,995) - - (13,995)
Other 1,150 14,882 (1,918) 14,114
Total revenues 89,699 30,119 11,196 131,014
Expenses:
Operating expenses 53,613 17,913 2,939 74,465
Interest expense 23,105 5,252 7,869 36,226
Provision for credit losses 2,334 4,512 - 6,846
Total expenses 79,052 27,677 10,808 117,537
Income before income taxes 10,647 2,442 388 13,477
Provision for income taxes 3,194 733 79 4,006
Net income $ 7,453 $ 1,709 $ 309 $ 9,471
(A) Other includes the insurance and venture capital divisions.
<PAGE>
Advanta Corp.
Highlights
($ in thousands, except per share data)
Three Months Ended
Percent
Change
June 30, March 31, June 30, from Prior
ORIGINATIONS (A) 1998 1998 1997 Quarter
Direct $ 382,242 $ 283,048 $ 218,392 35.0%
Broker 106,188 78,423 66,156 35.4
Conduit 376,145 403,811 298,735 -6.9
Corp. Finance 324,484 349,415 298,968 -7.1
Auto 58,356 21,103 32,651 176.5
Total Advanta
Mortgage loans $ 1,247,415 $ 1,135,800 $ 914,902 9.8%
Leases $ 74,352 $ 62,651 $ 87,876 18.7%
Corporate cards 348,222 289,400 262,644 20.3
Total leases and
corporate cards $ 422,574 $ 352,051 $ 350,520 20.0%
SECURITIZATION/SALES VOLUME (A)
Mortgage $ 1,215,097 $ 1,014,860 $ 765,856 19.7%
Leases and corporate
cards 135,426 110,218 214,317 22.9
Total
securitization/sales
volume $ 1,350,523 $ 1,125,078 $ 980,173 20.0%
AVERAGE MANAGED RECEIVABLES (A)
Mortgage loans $ 6,208,526 $ 5,620,710 $3,557,933 10.5%
Leases and corporate
cards 1,340,936 1,262,704 1,013,505 6.2
Other loans 14,785 12,458 25,390 18.7
Total average managed
receivables $ 7,564,247 $ 6,895,872 4,596,828 9.7%
Total average
serviced receivables $15,898,544 $16,000,830 $11,149,846 -0.6%
ENDING MANAGED RECEIVABLES (A)
Mortgage loans $ 6,646,001 $ 6,046,393 $ 3,934,002 9.9%
Total serviced
mortgage loans 14,818,228 14,817,825 11,447,944 0.0
Leases and corporate
cards 1,377,316 1,294,447 1,089,592 6.4
Other loans 17,649 11,770 37,480 49.9
Total managed
receivables 8,040,966 7,352,610 5,061,074 9.4
Total serviced
receivables $16,213,193 $16,124,042 $12,575,016 0.6%
KEY IO ASSUMPTIONS
Assumed Prepayment Rates
Fixed 27% 24%
ARMs 39% 34%
Intermediate 33% 29%
Assumed loss rate 95 bps 80 bps
Assumed discount rate 14% 14%
(A) Excludes consumer credit card business and gain on transfer
of the business.
<PAGE>
Advanta Corp.
Highlights
($ in thousands, except per share data)
Three Months Ended
Percent
Change
from
EARNINGS June 30, March 31, June 30, Prior
1998 1998 1997 Quarter
As a % of average managed
receivables (A):
Operating expenses 3.86% 3.36% 3.53% 14.9%
Charge-offs 1.49 4.35 5.54 -65.7
Earnings per common share 0.35 11.84 0.09 -97.0
Diluted earnings per share 0.35 11.04 0.09 -96.8
Return on average
common equity 6.37% 260.14% 2.10% -97.6
COMMON STOCK DATA
Weighted average
common shares
used to compute:
Earnings per common share 24,523 35,278 42,772 -30.5%
Diluted earnings per share 24,702 37,915 43,208 -34.8
Ending shares outstanding 25,368 25,234 44,068 0.5
Stock price:
Class A
High $ 26.250 $ 32.750 $ 37.250 -19.8
Low 19.250 21.000 20.000 -8.3
Closing 21.938 22.500 36.750 -2.5
Class B
High 24.250 31.250 36.250 -22.4
Low 17.500 19.688 18.875 -11.1
Closing 19.875 21.000 35.688 -5.4
Cash dividends declared
Class A 0.063 0.063 0.110 0.0
Class B 0.076 0.076 0.132 0.0
Book value per common share 20.44 20.20 17.32 1.2
(A) Includes consumer credit card business and gain on transfer
of the business.
<PAGE>
ADVANTA CORP.
Guidance Information
($ in millions)
Note: All data relates to the managed portfolio unless otherwise
noted
Updated as of
July 22, 1998
Ending Receivables
Advanta Mortgage $8,000 to $9,000
Mortgage Loans Serviced for Fee $7,000 to $8,000(A)
Advanta Business Services $1,500 to $1,800
Revenue Assumptions
Advanta Mortgage:
Gain on sale (as a % of
receivables securitized or sold) 4.20% to 4.60%(A)
Servicing fee income (as a % of
average serviced receivables) 55 bps to 65 bps
Advanta Business Services:
Securitization income (as a % of leases
securitized and business credit card
loans originated) 2.25% to 2.75%(B)
Fee income 3.00% to 3.50%(B)
IO Strip Valuation Assumptions as of
June 30, 1998:
Assumed Prepayment Rates
Fixed 27.0%(A)
ARMs 39.0%(A)
Intermediate 33.0%(A)
Assumed loss rate 95 bps(A)
Assumed discount rate 14%
Net Charge-Off Ratios
Advanta Mortgage 70 bps to 80 bps
Advanta Business Services 400 bps to 450 bps
Operating Expenses 3.60% to 3.90%(A)
Equity/Managed Assets(C) 6% to 7%
Segment Net Income
Advanta Mortgage Approx. $60
Advanta Business Services Approx. $10
Net Income Approx. $70
3rd Quarter $15 to $20
4th Quarter $35 to $40
Note: The above information reflects the Company's good-faith
estimates of certain preliminary projected results for 1998.
This information is subject to various risks and
uncertainties, as described in the accompanying press
release.
(A) Indicates modification to previous guidance
(B) Indicates new guidance category
(C) Equity includes Capital Securities
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ADVANTA Corp.
Date: July 22, 1998 By:/s/Elizabeth H. Mai
Elizabeth H. Mai,
Senior Vice President,
Secretary & General Counsel
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