<PAGE> 1
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): April 21, 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> 2
Item 5. Other Events
On April 21, 1998 Advanta Corporation announced, consistent with earlier
estimates, that it realized an after tax gain of $536.4 million in the first
quarter from its transaction with Fleet Financial Group. The Company also
announced that it closed the quarter with equity of $650.1 million after
recognizing the effects of: (1) the gain from the Fleet transaction; (2) after
tax charges totaling $132.7 million for restructuring and other similar items
(as set forth in detail in the supplement); and (3) the Company's previously
announced $850 million share repurchase. As previously estimated, as a result of
the Fleet transaction and share repurchase, the Company had approximately $600
million available in unrestricted cash at the Parent. At March 31, 1998, the
Company continues to have a strong cash position with approximately $400 million
of unrestricted cash, cash equivalents and marketable securities at the Parent
after using some of its cash to finance receivables on an interim basis. In
addition, the Company had approximately $1.1 billion in cash, cash equivalents
and marketable securities at its two banks. Management also reaffirmed that it
is on track to earn $70 million in 1998 from its ongoing mortgage and business
services units. This $70 million represents dilutive earnings per share of
$2.64, for Class A and Class B shares combined, based on the share count at
March 31, 1998 of approximately 26.5 million shares.
In this quarter, Advanta reported net income from Advanta Mortgage and Advanta
Business Services of $6.3 million. Highlights relating to the first quarter
operating results of these businesses and the Company's first quarter
restructuring charge follow:
- Managed receivables for the Company's ongoing businesses,
Advanta Mortgage and Advanta Business Services, expanded by
11.6% in the first quarter to $7.38 billion from $6.61 billion
at year-end 1997, an annualized growth rate of over 46%.
- The Company's operating expense ratio was 3.36%, compared to
3.65% in the last quarter and 3.23% reported in the first
quarter of last year.
- Advanta Mortgage originated a record $1.14 billion in new loans
during the first quarter, an increase of 58.6% over the year-ago
level. Managed receivables expanded by $0.74 billion during this
quarter to $6.05 billion.
- As of March 31, 1998, Advanta Mortgage serviced $8.8 billion of
loans for third parties on a fee basis compared to $5.6 billion
at this time last year and $9.2 billion at the end of 1997.
- Net managed charge-off and delinquency rates for Advanta
Mortgage were 0.87% and 7.05%, respectively. Charge-offs
decreased slightly from the 0.91% reported in the last quarter
and the delinquency rate was below the 7.38% at the end of that
period.
- 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 first quarter earnings of $9.8 million.
Prepayment rate assumptions used in valuing the Company's IO
Strip were revised to 24% for fixed rate loans, 29% for
intermediate rate loans and 34% for ARMs.
<PAGE> 3
- Advanta Business Services' managed business loan and lease
receivables of $1.29 billion at March 31, 1998 grew by 35.7%
from $0.95 billion at the close of the first quarter of last
year and 2.4% since the prior quarter.
- Net managed charge-offs on business loans and leases were 4.54%.
This represents an increase from 3.68% reported in the last
quarter, while the over 30 day delinquency rate decreased to
6.15% from 6.46%.
- Including the $536.4 million gain on the transaction with Fleet,
the $132.7 million after-tax charges for restructuring and other
similar items, and other income, which primarily consists of net
income of the consumer card unit until the Fleet transaction, of
$8.8 million, the Company reported consolidated net income of
$418.8 million. This represents diluted earnings per share of
$11.04, for Class A and Class B shares combined, on
approximately 37.9 million weighted average shares outstanding.
Last year, in the same period, the Company had reported a net
loss of $19.8 million, or diluted loss per share of $0.51, on
42.5 million weighted average shares outstanding.
Advanta is a highly focused financial services company with 2,300 employees,
approximately $10.0 billion in managed assets and an additional $8.8 billion in
assets serviced for third parties. Advanta provides consumers and small
businesses with innovative products and services including mortgages, equipment
leases, corporate 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> 4
Form 8-K Advanta Corp.
April 21, 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> 5
Form 8-K Advanta Corp.
April 21, 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
April 21, 1998
<PAGE> 6
Form 8-K Advanta Corp.
April 21, 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
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 94,517
<INT-BEARING-DEPOSITS> 230,746
<FED-FUNDS-SOLD> 114,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,571,764
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 916,166
<ALLOWANCE> 17,914
<TOTAL-ASSETS> 3,532,356
<DEPOSITS> 935,041
<SHORT-TERM> 662,888
<LIABILITIES-OTHER> 311,415
<LONG-TERM> 972,911
0
1,010
<COMMON> 258
<OTHER-SE> 548,833
<TOTAL-LIABILITIES-AND-EQUITY> 3,532,356
<INTEREST-LOAN> 46,454
<INTEREST-INVEST> 26,857
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 73,311
<INTEREST-DEPOSIT> 36,249
<INTEREST-EXPENSE> 31,295
<INTEREST-INCOME-NET> 5,767
<LOAN-LOSSES> 33,961
<SECURITIES-GAINS> 32
<EXPENSE-OTHER> 264,373
<INCOME-PRETAX> 397,328
<INCOME-PRE-EXTRAORDINARY> 397,328
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 418,787
<EPS-PRIMARY> 11.84
<EPS-DILUTED> 11.84
<YIELD-ACTUAL> .64
<LOANS-NON> 33,691
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 137,773
<CHARGE-OFFS> 39,153
<RECOVERIES> 3,753
<ALLOWANCE-CLOSE> 17,914
<ALLOWANCE-DOMESTIC> 14,180
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,734
</TABLE>
<PAGE> 1
Exhibit 99
ADVANTA AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
SUPPLEMENTARY SUMMARY OF EQUITY
(in millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
------------------
<S> <C>
Balance at December 31, 1997
(including Mandatorily Redeemable Preferred Securities) $ 1,027.0
------------
Components of net income:
Gain on transfer of credit cards 536.4
Restructure/other similar charges, net of tax (132.7)
Mortgage, Leases & Corporate Cards, net of tax 6.3
Other, net 8.8
------------
Total net income 418.8
------------
Components of other changes in equity:
Share repurchase (850.0)
Capital credits from stock option exercises
associated with the Fleet transaction 50.1
Other, net 4.2
------------
Total other changes in equity (795.7)
------------
Balance at March 31, 1998
------------
(including Mandatorily Redeemable Preferred Securities) $ 650.1
============
</TABLE>
<PAGE> 2
ADVANTA AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
SUPPLEMENTAL SUMMARY OF RESTRUCTURING/OTHER SIMILAR CHARGES
(in millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
------------------
<S> <C>
Severance & outplacement costs associated with workforce reduction, option
exercise and other employee costs associated with Fleet Transaction/Tender
Offer $ 62.3
Expense associated with exited business/product 54.1
Impairment of facility assets related to restructuring 8.7
Equity losses 42.5
------------
Total restructure/other similar charges before income tax benefit 167.6
Related income tax benefit 34.9
------------
Total restructure/other similar charges after income tax benefit $ 132.7
============
</TABLE>
<PAGE> 3
ADVANTA AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
SUPPLEMENTAL CONSOLIDATING INCOME STATEMENT
(in millions)
Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
Advanta
Advanta Business
Mortgage Services Other Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Income from personal finance activities
$ 45.2 $ 45.2
Business loan and lease revenues $ 17.2 17.2
Gain on transfer of credit cards $ 541.3 541.3
Other 9.3 5.9 119.3 134.5
------------ ------------ ------------ ------------
Total revenues 54.5 23.1 660.6 738.2
------------ ------------ ------------ ------------
Expenses:
Provision for credit losses 2.6 3.1 28.3 34.0
Restructure/other similar charges 167.6 167.6
Other 45.0 17.9 76.4 139.3
------------ ------------ ------------ ------------
Total expenses 47.6 21.0 272.3 340.9
------------ ------------ ------------ ------------
Income before income tax 6.9 2.1 388.3 397.3
(Benefit)/Provision for income taxes 2.1 .6 (24.2) (21.5)
------------ ------------ ------------ ------------
Net income $ 4.8 $ 1.5 $ 412.5 418.8
============ ============ ============ ============
</TABLE>
Note: Other includes income from the credit card division up to the February 20,
1998 date of the Fleet transaction.
<PAGE> 4
ADVANTA AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
OPERATING RESULTS
($ in millions, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1998 1997
---------- ----------
<S> <C> <C>
Net Revenues(1) $ 154.4 $ 182.5
Provision for Losses $ 34.0 $ 60.4
Operating Expenses(2) $ 264.4 $ 148.8
Net Income $ 418.8 ($ 19.8)
Diluted Earnings Per Common Share(3) $ 11.04 ($ 0.51)
Weighted Average Diluted Shares (Millions) 37,915 42,521
Return on Common Equity 260.14% (20.49%)
</TABLE>
(1) March 1998 revenues exclude a $541.3 million one time pretax gain on
transfer of credit card relationships and includes equity loss of $42.5
million which is reflected in Restructure/other similar charges in the
Supplemental Consolidating Income Statement.
(2) March 1998 operating expenses include pretax restructuring and other
similar charges of $125.1 million. Excluding amortization of credit card
DAC and restructuring and other similar charges, operating expenses
decreased 7.6% from the prior year's first quarter.
(3) All periods reflect adoption of FAS 128; diluted EPS includes common
stock equivalents.
<PAGE> 5
ADVANTA AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
FINANCIAL CONDITION
($ in millions, except per share data)
<TABLE>
<CAPTION>
% CHANGE
MAR. 1998
MAR. 31, DEC. 31, MAR. 31, VERSUS
1998 1997 1997 MAR. 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Managed Receivables*
Advanta Mortgage(A) $ 6,046 $ 5,309 $ 3,276 84.6%
Advanta Business Services(B) $ 1,294 $ 1,264 $ 954 35.7%
Other Loans $ 12 $ 41 $ 25 (52.4%)
Total Managed Receivables(C) $ 7,352 $ 6,614 $ 4,255 72.8%
Total Serviced Receivables(C) $ 16,124 $ 15,795 $ 9,822 64.2%
Total Managed Assets(C) $ 9,979 $ 9,902 $ 7,971 25.2%
Stockholders' Equity(D) $ 650 $ 1,027 $ 937 (30.6%)
Book Value Per
Common Share $ 20.53 $ 19.01 $ 17.38 18.1%
Equity/Managed Assets(D) 6.5% 4.9% 4.7% 40.0%
Reserve for Credit Losses(E) $ 17.9 $ 19.4 $ 11.3 58.4%
Customer Accounts
Advanta Mortgage 114 103 64 77.1%
Advanta Business Services 291 271 193 51.0%
CREDIT QUALITY
Managed Net Charge-off Rate
For the Quarter ended
Advanta Mortgage(A) 0.87% 0.91% 0.60%
Advanta Business Services(B) 4.54% 3.68% 2.13%
Managed 30+ Day Delinquency Rate
Advanta Mortgage(A) 7.05% 7.38% 6.35%
Advanta Business Services(B) 6.15% 6.46% 6.95%
</TABLE>
(A) Includes Mortgages and Auto Loans. Excludes mortgages serviced on a
third party basis which at March 31, 1998, December 31, 1997 and March
31, 1997 approximated $8.8 billion, $9.2 billion and $5.6 billion,
respectively.
(B) Includes Leases and Business Cards.
(C) Excludes consumer credit card balances of $11.2 billion at December 31,
1997 and $12.2 billion at March 31, 1997.
(D) Equity includes capital securities and stockholders' equity.
(E) Excludes reserves related to the consumer credit business at March 31,
1997 and December 31, 1997.
* Managed figures combine both owned and securitized receivables.
--Statistical Supplement Available Upon Request--
<PAGE> 6
ADVANTA AND SUBSIDIARIES
GUIDANCE INFORMATION
($ IN MILLIONS)
NOTE: ALL DATA RELATES TO THE MANAGED PORTFOLIO UNLESS OTHERWISE NOTED
<TABLE>
<CAPTION>
UPDATED AS OF APRIL 21, 1998
-----------------------------
<S> <C>
ENDING RECEIVABLES
ADVANTA MORTGAGE $8,000 TO $9,000(A)
MORTGAGE LOANS SERVICED FOR FEE $9,000 TO $12,000(A)
ADVANTA BUSINESS SERVICES $1,500 TO $1,800
REVENUES
OWNED NET INTEREST MARGIN 2.00% TO 3.00%(A)
ADVANTA MORTGAGE 2.80% TO 3.00%
(EXCLUDES CONTRACT-FOR-FEE)
ADVANTA BUSINESS SERVICES 6.50% TO 7.00%
NET CHARGE-OFF RATIOS
ADVANTA MORTGAGE 70 BP TO 80 BP
ADVANTA BUSINESS SERVICES 400 BP TO 450 BP(A)
ADVANTA MORTGAGE GAIN ON SALE ASSUMPTIONS USED AS OF MARCH 31, 1998
ASSUMED PREPAYMENT RATES
FIXED 24.0%
ARMS 34.0%(A)
INTERMEDIATE 29.0%(B)
ASSUMED LOSS RATE 80 BP
ASSUMED DISCOUNT RATE 14%
OPERATING EXPENSES 3.25% TO 3.45%
EQUITY/MANAGED ASSETS 6% TO 7%
SEGMENT NET INCOME
ADVANTA MORTGAGE APPROX. $60
ADVANTA BUSINESS SERVICES APPROX. $10
NET INCOME APPROX. $70
2ND QUARTER $6 TO $7(B)
</TABLE>
<PAGE> 7
<TABLE>
<S> <C>
3RD QUARTER $15 TO $20(B)
4TH QUARTER $35 TO $40(B)
</TABLE>
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
