SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 27,1998
Advanta Corp.
(Exact name of registrant as specified in its charter)
Delaware________ 0-14120___ 23-1462070___
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
Welsh and McKean Roads, P.O. Box 844, Spring House, PA 19477___
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 657-4000
<PAGE>
Item 5. Other Events
On October 27, 1998 Advanta Corp. (the "Company" or "Advanta")
announced that its net income for the third quarter of 1998 was
$15 million, or $0.58 per share on a diluted basis for its Class
A and Class B shares combined. This represents an increase of
$5.5 million, or 59% from the net income of $9.5 million that was
reported in the second quarter of this year. Advanta also
announced that it closed the quarter in a strong cash position
with approximately $400 million of unrestricted cash and
equivalents at the parent and approximately $485 million in
unrestricted cash and equivalents at its two banks after paying
down approximately $170 million in long term debt this quarter.
Additionally, the Company had a strong capital position with
equity, including capital securities, of approximately $667
million.
Advanta also announced that beginning in the fourth quarter of
this year, it expects to report income for its mortgage business
that is essentially equal to that of a portfolio lender, rather
than the front-ended income typically reported through gain on
sale accounting. Since gain on sale accounting is required under
generally accepted accounting principles for securitizations
structured as sales, the Company will accomplish this change by
increasing its use of on balance sheet funding and decreasing its
degree of reliance on securitizations structured as sales. This
will include greater use of deposit funding through the Company's
two banks and the use of other funding sources which are
accounted for as debt. Because of the Company's strong liquidity
position, significant tangible net worth and its past success in
raising deposits at its banks, it is in a position to make this
change. The Company is now revising its previous guidance on
fourth quarter earnings. Under the new method, Advanta expects
net income in the fourth quarter of this year to be approximately
$4 million, which translates into 1998 full year net income from
its ongoing Mortgage and Business Services businesses of
approximately $35 million.
Operations
The Company continued to increase loan production at its mortgage
and business services units. Loans originated by these
businesses were approximately $2 billion this quarter and total
managed receivables expanded to $8.9 billion at the end of the
quarter.
Advanta Mortgage originated $1.6 billion in new loans during this
quarter bringing originations for the nine months ended September
30, 1998 to $4.0 billion. Advanta Mortgage closed the quarter
with managed receivables of $7.5 billion and a contract servicing
portfolio of $7.6 billion. Advanta Business Services originated
$350 million in business credit card receivables and $95 million
in lease receivables this quarter and closed the quarter with a
portfolio of loans and leases of $1.4 billion. The Company's
operating expenses this quarter totaled $80.2 million, or 3.73%
of average managed receivables down from 3.86% last quarter.
<PAGE>
Liquidity
Advanta was highly liquid at September 30, 1998. After paying
down approximately $170 million of Medium Term Notes which
matured, the Company had approximately $400 million in
unrestricted cash and equivalents at the parent and $485 million
of unrestricted cash and equivalents at its two banks. The
Company had financed with parent and bank funds loans totaling
$939 million that were on the books awaiting sale or settlement.
At September 30, 1998, the Company had available $881 million in
unused warehouse lines and Commercial Paper conduit facilities.
Importantly, the Company also has the ability to fund its
business through its two FDIC insured banks.
During this quarter, Advanta Mortgage completed three
securitizations with an aggregate principal balance of $1.1
billion. In addition, the Company sold $109 million in whole
loans and increased its portfolio of loans held in off-balance
sheet Commercial Paper conduit facilities and other off-balance
sheet facilities by approximately $530 million.
Securitization Income in the Third Quarter
Advanta Mortgage recognized $56 million in gains resulting from
the securitization and sale of its receivables. In this quarter,
in accordance with Advanta's practice of regularly reviewing and,
where appropriate, adjusting the gain receivable ("IO Strip")
assumptions for its experience, the Company recognized a pretax
charge against third quarter earnings of $17 million. Prepayment
rate assumptions used in valuing the Company's IO Strip were
revised to 29% for fixed rate loans, 37% for intermediate rate
loans and 43% for ARMs. At the end of the second quarter the
prepayment assumptions were 27% for fixed rate loans, 33% for
intermediate rate loans and 39% for ARMs.
Advanta Business Services recognized $12.8 million in
securitization income which included approximately $3.6 million
in gains from the securitization of $78 million of leases. The
remainder represents excess servicing income received from
business card loans.
Credit Quality
Net managed charge-offs for home equity loans were 0.56% this
quarter compared to 0.61% last quarter. The combined over 30 day
delinquency rate for home equity and auto loans of 7.16% was
slightly above the 6.86% for the last quarter.
Net managed charge-offs on business credit card loans of 5.79%
this quarter were better than the 6.57% last quarter as a result
of the changes in underwriting standards that were implemented
over a year ago. For the lease portfolio, net managed charge-
offs of 2.29% this quarter were comparable to the 2.26% rate
experienced last quarter. The combined over 30 day delinquency
rate for business loans and leases was 5.83% this quarter
compared to 5.22% last quarter due to temporary timing
differences.
Advanta is a highly focused financial services company with 2,600
employees, over $11 billion in managed assets and $7.6 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 Press Release 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>
Form 8-K Advanta Corp.
October 27, 1998
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 Schedule.
99 Selected Summary Financial Data.
<PAGE>
Form 8-K Advanta Corp.
October 27, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of l934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Advanta Corp.
By:/s/ Elizabeth H. Mai
Elizabeth H. Mai, Senior Vice President,
Secretary and General Counsel
October 27, 1998
<PAGE>
Form 8-K Advanta Corp.
October 27, 1998
Index to Exhibits
Exhibit Number Per
Item 60l of
Regulation S-K Description of Document
27 Financial Data Schedule.
99 Selected Summary Financial Data
<PAGE>
Exhibit 99
Advanta Corp.
Highlights
Supplemental Consolidating Income Statement
(in thousands)
Three Months Ended September 30, 1998
Advanta
Advanta Business
Mortgage Services Other Total
(A)
Revenues:
Gain on sale of receivables $38,494 $12,781 $ $51,275
Interest income 28,663 9,726 11,915 50,304
Servicing revenues 26,082 4,595 30,677
Imputed interest 4,895 4,895
Other 1,291 8,000 840 10,131
Total revenues 99,425 35,102 12,755 147,282
Expenses:
Operating expenses 59,175 19,961 1,103 80,239
Interest expense 22,070 5,180 11,915 39,165
Provision for credit losses 3,724 2,690 6,414
Total expenses 84,969 27,831 13,018 125,818
Income before income taxes 14,456 7,271 (263) 21,464
Provision for income taxes 4,337 2,181 (79) 6,439
Net income $10,119 $ 5,090 $ (184) 15,025
(A) Other includes the insurance and venture capital divisions.
<PAGE>
Advanta Corp.
Highlights
($ in thousands, except per share data)
Three Months Ended
Percent Change
September 30, June 30, September 30, from
ORIGINATIONS (A) 1998 1998 1997 Prior Quarter
Direct $ 483,290 $ 382,242 $ 219,837 26.4%
Broker 162,531 106,188 62,096 53.1
Conduit 584,418 376,145 332,460 55.4
Corp. Finance 320,871 324,484 292,500 -1.1
Auto 18,593 58,356 42,633 -68.1
Total Advanta
Mortgage loans $ 1,569,703 $ 1,247,415 $ 949,526 25.8%
Leases $ 95,344 $ 74,352 $ 84,567 28.2%
Business cards 349,645 348,222 294,001 0.4
Total leases and
business cards $ 444,989 $ 422,574 $ 378,568 5.3%
SECURITIZATION/SALES
VOLUME (A)
Advanta Mortgage $ 1,508,537 $ 1,215,097 $ 922,927 24.1%
Leases and business
cards 105,613 135,426 90,766 -22.0
Total securitization/
sales volume $ 1,614,150 $ 1,350,523 $ 1,013,693 19.5%
AVERAGE MANAGED
RECEIVABLES (A)
Advanta Mortgage loans $ 7,085,359 $ 6,208,526 $ 4,233,530 14.1%
Leases and business
cards 1,380,195 1,340,936 1,135,803 2.9
Other loans 17,704 14,785 37,450 19.7
Total average managed
receivables $ 8,483,258 $ 7,564,247 $ 5,406,783 12.1
Total average serviced
receivables $16,490,158 $15,898,544 $13,541,695 3.7%
ENDING MANAGED
RECEIVABLES (A)
Mortgage loans $ 7,454,791 $ 6,646,001 $ 4,582,133 12.2%
Total serviced
mortgage loans 15,050,208 14,818,228 13,525,696 1.6
Leases and business
cards 1,415,806 1,377,316 1,200,748 2.8
Other loans 17,763 17,649 37,321 0.6
Total managed
receivables $ 8,888,360 $ 8,040,966 $ 5,820,202 10.5
Total serviced
receivables $16,483,777 $16,213,193 $14,763,765 1.7%
KEY IO ASSUMPTIONS
Assumed Prepayments Rates
Fixed 29% 27%
ARMs 43% 39%
Intermediate 37% 33%
Assumed loss rate 95bp 95bp
Assumed discount rate 14% 14%
(A) Excludes consumer credit card business.
<PAGE>
Advanta Corp.
Highlights
($ in thousands, except per share data)
Three Months Ended
Percent
Change
from
EARNINGS Sept. 30, June 30, Sept. 30, Prior
1998 1998 1997 Quarter
As a % of average
managed receivables (A):
Operating expenses 3.73% 3.86% 3.30% -3.4%
Charge-offs 1.35 1.49 5.39 -9.4
Earnings per common share $ 0.58 $ 0.35 $ 0.95 65.7
Diluted earnings per share 0.58 0.35 0.92 65.7
Return on average
common equity 10.59% 6.37% 21.27% 66.2%
COMMON STOCK DATA
Weighted average common
shares used to compute:
Earnings per common share 24,482 24,523 42,875 -0.2%
Diluted earnings per share 24,514 24,702 46,115 -0.8
Ending shares
outstanding (B) 26,021 25,368 44,305 2.6
Stock price:
Class A
High $22.750 $26.250 $37.500 -13.3
Low 9.375 19.250 26.188 -51.3
Closing 12.875 21.938 29.125 -41.3
Class B
High 20.563 24.250 36.500 -15.2
Low 8.250 17.500 24.750 -52.9
Closing 10.500 19.875 27.250 -47.2
Cash dividends declared
Class A 0.063 0.063 0.110 0.0
Class B 0.076 0.076 0.132 0.0
Book value per common
share 20.39 20.32 18.04 0.3
(A) Includes consumer credit card business (where applicable).
(B) Includes the repurchase through September 30, 1998 of
372,000 Class A shares for the Company's ESOP. Through October
23, 1998, the Company had repurchased 309,800 Class B shares and
1,002,500 Class A shares under its stock buy back program
including 947,500 Class A shares for its ESOP.
<PAGE>
ADVANTA CORP.
Guidance Information
($ in millions)
Note: All data relates to the managed portfolio unless otherwise noted
Updated as of
October 27, 1998
Ending Receivables
Advanta Mortgage $8,000 to $9,000
Mortgage Loans Serviced for Fee $7,000 to $8,000
Advanta Business Services $1,500 to $1,800
Revenue Assumptions
Advanta Mortgage:
Gain on sale (as a % of
receivables securitized or sold) 3.80% to 4.20%(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%
Fee income 3.50% to 4.50%(A)
IO Strip Valuation Assumptions as of
September 30, 1998:
Assumed Prepayment Rates
Fixed 29.0%(A)
ARMs 43.0%(A)
Intermediate 37.0%(A)
Assumed loss rate 95 bps
Assumed discount rate 14%
Net Charge-Off Ratios
Advanta Mortgage 80 bps to 90 bps (A)
Advanta Business Services 400 bps to 450 bps
Operating Expenses 3.60% to 3.90%
Equity/Managed Assets(B) 5.00% to 6.00%(A)
Segment Net Income
Advanta Mortgage Approx. $25(A)
Advanta Business Services Approx. $10
Net Income
4th Quarter Approx $4(A)
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) Equity includes Capital Securities
<PAGE>
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