<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): January 26, 1999
----------------
Advanta Corp.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 0-14120 23-1462070
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(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
</TABLE>
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
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<PAGE> 2
Item 5. Other Events
On January 26, 1999 Advanta Corp. (the "Company" or "Advanta") reported net
income for the fourth quarter of 1998 of $4.6 million, or $0.16 per share on a
diluted basis for its Class A and Class B shares combined. This reflects the
Company's previously announced plan to report income for its mortgage business
that is essentially equal to that of a portfolio lender. The Company also
reported net income of $35.4 million for the full year excluding the gain from
the consumer credit card transaction, the results of the consumer credit card
business through February 20, 1998 and the restructuring and other similar
charges reported in the first quarter. Additionally, Advanta closed the year
in a strong cash position with approximately $441 million of unrestricted cash
and equivalents at the parent and approximately $761 million in unrestricted
cash and equivalents at its two banks, after paying down approximately $263
million in long term debt at the parent this year. The Company had a strong
capital position with equity, including capital securities, of approximately
$660 million.
Reported results for the fourth quarter included nonrecurring revenues of
approximately $11 million from the sale of the Company's investment in
affordable housing partnerships and approximately $6 million from a tax
settlement. These revenues were more than offset by increases in the allowance
for loan losses and other reserves to strengthen the balance sheet.
Consolidated results for the year, after including the gain from the first
quarter consumer credit card business transaction, the results of operations of
that business for the period leading up to the transaction and the
restructuring and other similar charges taken in the first quarter, were $447.9
million or $15.71 per share on a diluted basis for the Company's Class A and
Class B shares combined.
OPERATIONS
- ----------
Total managed receivables for the Company's businesses at year end were $9.8
billion, an increase of 10.1% from $8.9 billion at September 30, 1998 and an
increase of 48.0% from $6.6 billion at the end of last year.
For the full year, loan originations at Advanta Mortgage totaled $5.3 billion
compared to $3.7 billion in 1997. Consistent with its strategy, in 1998
Advanta Mortgage significantly grew loan production from its direct to consumer
channels. Total loan production from the direct to consumer channels this year
of $1.7 billion was 91.4% higher than in 1997. In the fourth quarter, loan
originations for the direct to consumer channels of $507 million were 4.9%
higher than originations of $483 million from these channels last quarter and
102.2% higher than the fourth quarter of last year. Loan originations from the
indirect businesses were $854 million this quarter compared to $1.09 billion in
the third quarter.
The Company closed the year servicing an $8.3 billion portfolio for third
parties compared to $7.6 billion at the end of the last quarter and $9.2
billion at the end of last year.
<PAGE> 3
The Company's business credit card operations originated $399 million in
receivables this quarter, up 14.1% from the last quarter, and closed the year
with a managed portfolio of business credit card loans of $815 million, up
22.9% from $663 million at the end of 1997. Advanta Leasing originated $103
million in lease receivables this quarter and closed the year with a managed
portfolio of loans and leases of $670 million, an increase of 11.6% over the
portfolio of $601 million a year ago.
For the year, operating expenses were 3.68% of average managed receivables.
This quarter operating expenses totaled $94.6 million, or 3.96% of average
managed receivables, an increase from 3.73% last quarter.
LIQUIDITY
- ---------
Advanta was highly liquid at December 31, 1998. After paying down
approximately $263 million of Medium Term Notes and other parent debt which
matured this year, the Company had approximately $441 million in unrestricted
cash and equivalents at the parent and $761 million of unrestricted cash and
equivalents at its two banks. The Company had financed, with parent and bank
funds, loan receivables totaling $972 million that were on the books. At
December 31, 1998, the Company had available over $770 million in unused
warehouse lines and Commercial Paper conduit facilities. Additionally, the
Company has the ability to fund its businesses through its two FDIC insured
banks.
SECURITIZATION INCOME
- ---------------------
Consistent with the Company's guidance in its third quarter earnings
announcement, the Company reported income for Advanta Mortgage that is
essentially equal to that of a portfolio lender. To accomplish this, Advanta
Mortgage substantially offset the amortization of its Retained Interest Only
Strip ("IO Strip") and Contractual Mortgage Servicing Rights ("CMSR") by
recognizing gains of $32.9 million from the securitization and sale of
approximately $1.1 billion of loans this quarter. In addition, the Company
recognized gains of $1.1 million from the sale of $42 million in whole loans to
third parties this quarter. The increase in the IO Strip and CMSR to $296.5
million this quarter from $267.0 million last quarter resulted from the
deferral of losses on hedging activities associated with loan production and
transaction expenses. These are items which would also be deferred by a
portfolio lender.
Advanta regularly reviews and, where appropriate, adjusts the gain receivable
("IO Strip") assumptions for its experience. This quarter, due to prepayment
experience that was consistent with expectations, the Company did not change
the prepayment rate assumptions used in valuing its IO Strip and is still using
prepayment rates of 29% for fixed rate loans, 37% for intermediate rate loans
and 43% for ARMs. This quarter, the assumed loss rate was increased from 95
basis points to 100 basis points.
The Company also recognized securitization income of $3.8 million this quarter
from the securitization of $89.1 million of leases and $12.5 million of excess
servicing income received from business card loans. For the full year, the
Company recognized $11.7 million in securitization income from the
securitization of $299.2 million of leases and $35.3 million of excess
servicing income received from business card loans.
<PAGE> 4
CREDIT QUALITY
- --------------
The net managed charge-off rate for home equity loans of 0.55% this quarter
was approximately the same as last quarter. The combined over 30 day
delinquency rate for home equity and auto loans of 7.93% was higher than the
7.16% for the last quarter. The net managed charge-off rate on business credit
card loans of 5.46% this quarter was better than the 5.79% last quarter. For
the lease portfolio, the net managed charge-off rate was 2.94%, up from 2.29%
last quarter. The combined over 30 day delinquency rate for business loans and
leases was 6.47% this quarter compared to 5.83% last quarter.
Advanta is a highly focused financial services company with 2,700 employees,
over $12 billion in managed assets and approximately $8.3 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 Current 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> 5
Form 8-K Advanta Corp.
January 26, 1999
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> 6
Form 8-K Advanta Corp.
January 26, 1998
SIGNATURES
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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
January 26, 1999
<PAGE> 7
Form 8-K Advanta Corp.
January 26, 1999
Index to Exhibits
-----------------
<TABLE>
<S> <C>
Exhibit Number Per
Item 60l of
Regulation S-K Description of Document
- -------------- -----------------------
27 Financial Data Schedule.
99 Selected Summary Financial Data
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 90,597
<INT-BEARING-DEPOSITS> 80,028
<FED-FUNDS-SOLD> 267,400
<TRADING-ASSETS> 501,563
<INVESTMENTS-HELD-FOR-SALE> 591,955
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,172,370
<ALLOWANCE> 33,437
<TOTAL-ASSETS> 3,763,086
<DEPOSITS> 1,749,790
<SHORT-TERM> 490,812
<LIABILITIES-OTHER> 209,422
<LONG-TERM> 652,758
<COMMON> 267
0
1,010
<OTHER-SE> 559,027
<TOTAL-LIABILITIES-AND-EQUITY> 3,763,086
<INTEREST-LOAN> 127,362
<INTEREST-INVEST> 92,054
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 219,416
<INTEREST-DEPOSIT> 85,953
<INTEREST-EXPENSE> 98,322
<INTEREST-INCOME-NET> 35,141
<LOAN-LOSSES> 67,193
<SECURITIES-GAINS> 6,937
<EXPENSE-OTHER> 513,716
<INCOME-PRETAX> 432,329
<INCOME-PRE-EXTRAORDINARY> 447,880
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 447,880
<EPS-PRIMARY> 16.65
<EPS-DILUTED> 15.71
<YIELD-ACTUAL> 1.36
<LOANS-NON> 49,568
<LOANS-PAST> 30
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 137,773
<CHARGE-OFFS> 61,429
<RECOVERIES> 8,321
<ALLOWANCE-CLOSE> 33,437
<ALLOWANCE-DOMESTIC> 29,703
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,734
</TABLE>
<PAGE> 1
Exhibit 99
ADVANTA CORP.
HIGHLIGHTS
SUPPLEMENTAL CONSOLIDATING INCOME STATEMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, 1998
--------------------------------------------------------
ADVANTA
ADVANTA BUSINESS
MORTGAGE SERVICES OTHER (A) TOTAL
--------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Gain on sale of receivables $ 33,967 $ 16,314 $ $ 50,281
Interest income 28,668 5,738 13,972 48,378
Servicing revenues 25,279 4,715 29,994
Imputed interest 5,792 5,792
Other 22,611 4,321 1,141 28,073
--------------- ---------- -------------- ----------
Total revenues 116,317 31,088 15,113 162,518
--------------- ---------- -------------- ----------
EXPENSES:
Operating expenses 73,321 20,209 1,109 94,639
Interest expense 22,514 4,853 13,972 41,339
Provision for credit losses 16,887 3,085 19,972
--------------- ---------- -------------- ----------
Total expenses 112,722 28,147 15,081 155,950
--------------- ---------- -------------- ----------
INCOME BEFORE INCOME TAXES 3,595 2,941 32 6,568
Provision for income taxes 1,078 882 10 1,970
--------------- ---------- -------------- ----------
NET INCOME $ 2,517 $ 2,059 $ 22 $ 4,598
=============== ========== ============== ==========
</TABLE>
(A) Other includes the insurance and venture capital divisions.
<PAGE> 2
ADVANTA CORP.
HIGHLIGHTS
SUPPLEMENTAL CONSOLIDATING INCOME STATEMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------
ADVANTA
ADVANTA BUSINESS
MORTGAGE SERVICES OTHER (A) TOTAL
-------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Gain on sale of receivables $118,652 $47,079 $ $ 165,731
Interest income 101,877 33,185 84,354 219,416
Servicing revenues 100,183 17,606 26,040 143,829
Imputed interest 21,674 21,674
Credit card securitization income 84,144 84,144
Gain on transfer of consumer credit card
business 541,288 541,288
Other 26,447 28,496 15,495 70,438
-------------- -------------- -------------- ------------
Total revenues 368,833 126,366 751,321 1,246,520
-------------- -------------- -------------- ------------
EXPENSES:
Operating expenses 231,046 77,099 80,499 388,644
Interest expense 76,453 21,162 86,660 184,275
Provision for credit losses 25,577 13,337 28,279 67,193
Restructure/other similar charges 167,572 167,572
-------------- -------------- -------------- ------------
Total expenses 333,076 111,598 363,010 807,684
-------------- -------------- -------------- ------------
INCOME BEFORE INCOME TAXES 35,757 14,768 388,311 438,836
Provision for income taxes 10,667 4,430 (24,141) (9,044)
-------------- -------------- -------------- ------------
NET INCOME $25,090 $10,338 $ 412,452 $ 447,880
============== ============== ============== ============
</TABLE>
(A) Other includes the operating results of the consumer credit card
division up to February 20, 1998, the gain relating to the
transaction, restructuring and other similar charges taken in the
first quarter, and the insurance and venture capital divisions.
<PAGE> 3
ADVANTA CORP.
HIGHLIGHTS
RECONCILIATION TO PORTFOLIO LENDER EARNINGS FORMAT
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, 1998
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PRO FORMA PORTFOLIO
AS REPORTED ADJUSTMENTS LENDER
--------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Gain on sale of receivables $ 50,281 $ (33,967) [a] $ 16,314
Interest income 48,378 175,357 [b] 223,735
Servicing revenues 29,994 (4,250) [c] 25,744
Imputed interest 5,792 (5,792) [d]
Other 28,073 28,073
--------------------------------------------------------------
Total revenues 162,518 131,348 293,866
--------------------------------------------------------------
EXPENSES:
Operating expenses 94,639 1,760 [e] 96,399
Interest expense 41,339 114,191 [b] 155,530
Provision for credit losses 19,972 15,397 [f] 35,369
--------------------------------------------------------------
Total expenses 155,950 131,348 287,298
--------------------------------------------------------------
INCOME BEFORE INCOME TAXES $ 6,568 $ 0 $ 6,568
===============================================================
</TABLE>
FOOTNOTES FOR PRO FORMA ADJUSTMENTS:
[a] Represents the reclassification of net gains recognized on the sale of
Advanta Mortgage loans for the period.
[b] Represents the adjustment to interest income and interest expense as if
the securitized Advanta Mortgage loans were still owned by the Company
and remained on the balance sheet for the period presented.
[c] Represents the reclassification of servicing revenues on securitized
Advanta Mortgage loans for the period presented.
[d] Represents the reclassification of imputed interest on the IO Strip.
[e] Represents the reclassification of securitization costs incurred by the
Company.
[f] Represents the amount by which the provision for credit losses would have
increased had the securitized Advanta Mortgage loans remained on the
balance sheet and the provision for credit losses on securitized
receivables been equal to actual reported charge-offs.
<PAGE> 4
ADVANTA CORP.
HIGHLIGHTS
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------
PERCENT CHANGE
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, FROM
ORIGINATIONS (A) 1998 1998 1997 PRIOR QUARTER
---------------- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Direct $506,819 $ 483,290 $250,597 4.9%
Broker 128,285 162,531 73,717 -21.1
Conduit 388,594 584,418 393,385 -33.5
Corp. Finance 330,677 320,871 270,102 3.1
Auto 6,298 18,593 98,924 -66.1
--------- -------- --------
Total Advanta Mortgage loans $1,360,673 $ 1,569,703 $1,086,725 -13.3
Leases $102,683 $ 95,344 $74,935 7.7%
Business cards 399,080 349,645 296,250 14.1
--------- -------- --------
Total leases and business cards $501,763 $ 444,989 $371,185 12.8
SECURITIZATION/SALES VOLUME (A)
-------------------------------
Advanta Mortgage $1,124,060 $ 1,508,537 $1,133,591 -25.5%
Leases and business cards 113,129 105,613 205,332 7.1
--------- -------- --------
Total securitization/sales volume $1,237,189 $ 1,614,150 $1,338,923 -23.4%
AVERAGE MANAGED RECEIVABLES (A)
-------------------------------
Advanta Mortgage loans $7,994,056 $ 7,085,359 $4,893,372 12.8%
Leases and business cards 1,427,619 1,380,195 1,224,945 3.4
Other loans 17,866 17,704 41,040 0.9
--------- ----------- ----------
Total average managed receivables $9,439,541 $ 8,483,258 $6,159,357 11.3
Total average serviced receivables $17,187,094 $ 16,490,158 $15,428,156 4.2
ENDING MANAGED RECEIVABLES (A)
------------------------------
Mortgage loans $8,285,246 $ 7,454,791 $5,308,836 11.1%
Total serviced mortgage loans 16,563,574 15,050,208 14,490,301 10.1
Leases and business cards 1,484,974 1,415,806 1,263,789 4.9
Other loans 17,862 17,763 40,978 0.6
--------- ---------- ----------
Total managed receivables $9,788,082 $ 8,888,360 $6,613,603 10.1
Total serviced receivables $18,066,410 $ 16,483,777 $15,795,068 9.6
</TABLE>
(A) Excludes consumer credit card business.
<PAGE> 5
ADVANTA CORP.
HIGHLIGHTS
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------
PERCENT
CHANGE
FROM
DEC. 31, SEPT. 30, DEC. 31, PRIOR
1998 1998 1997 QUARTER
-------- --------- -------- --------
<S> <C> <C> <C> <C>
EARNINGS
--------
As a % of average managed receivables (A):
Operating expenses 3.96% 3.73% 3.65% 6.2%
Charge-offs 1.44 1.35 4.84 6.7
Earnings per common share $0.16 $0.58 $0.98 -72.4
Diluted earnings per share 0.16 0.58 0.95 -72.4
Return on average common equity 2.98% 10.59% 20.49% -71.9
COMMON STOCK DATA
-----------------
Weighted average common shares
used to compute:
Earnings per common share 23,185 24,482 43,003 -5.3
Diluted earnings per share 23,194 24,514 46,025 -5.4
Ending shares outstanding 25,643 26,021 44,340 -1.5
Stock price:
Class A
High $ 14.875 $ 22.750 $ 38.750 -34.6
Low 7.125 9.375 24.250 -24.0
Closing 13.250 12.875 26.250 2.9
Class B
High $ 12.000 $ 20.563 $ 37.625 -41.6
Low 5.250 8.250 23.375 -36.4
Closing 11.063 10.500 25.375 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 (B) $ 22.19 $ 21.62 $ 19.90 2.6
</TABLE>
(A) Includes consumer credit card business (where applicable).
(B) Assumes conversion of the Class B Preferred Stock.
