<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 27, 1999
----------------
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 27, 1999 Advanta Corp. (the "Company" or "Advanta") reported net
operating income for the first quarter of 1999 of $10.2 million, before
non-recurring charges and non-operating gains. This represents $0.40 per share
on a diluted basis for its Class A and Class B shares combined. It also reflects
the Company's previously announced plan to report income for its mortgage
business that is essentially equal to that of a portfolio lender.
Advanta also reported certain non-recurring charges and non-operating gains this
quarter resulting in net income for the quarter of $6.8 million, or $0.25 per
share on a diluted basis for its Class A and Class B shares combined. The
Company recognized non-recurring charges, after tax, of approximately $14.5
million which principally related to its exit from the auto finance business and
severance and outplacement associated with previously announced cost cutting
initiatives implemented this quarter. In addition, the Company recognized
non-operating gains of approximately $11.1 million, after tax, in connection
with an investment held by Advanta Partners, the Company's private equity
investment affiliate.
This quarter, Advanta continued the initiatives it began last quarter to
increase profits, and optimize cash flow and returns on invested capital. In
this regard, the Company: (1) implemented cost reduction initiatives across all
business lines; (2) increased the weighted average coupon of mortgage loans
originated through direct to consumer channels; (3) increased fee income from
direct to consumer channels; (4) increased the proportion of mortgage
originations from direct to consumer channels; (5) became much more selective in
purchasing mortgage loans through wholesale channels; and (6) exited the auto
finance business. Highlights on the Company's operations this quarter follow.
COMPANY ACHIEVES LOWER EXPENSE RATIO
- ------------------------------------
Advanta's operating expense ratio for the quarter of 3.47% was significantly
lower than the 3.90% reported in the fourth quarter of 1998. It was also lower
than the ratio of 3.59% that was reported for the full 1998 fiscal year. Total
pretax operating expenses for the quarter were $86.4 million, approximately 6.9%
below operating expenses of $92.4 million reported in the fourth quarter of
1998.
Total managed receivables for the Company's businesses at the end of this
quarter were $9.96 billion, an increase of 1.8% from $9.80 billion at
December 31, 1998 and an increase of 35.5% from $7.35 billion at
March 31, 1998.
<PAGE> 3
ADVANTA MORTGAGE - PRICING IMPROVEMENTS RESULT IN HIGHER PROFITS
- ----------------------------------------------------------------
The Company reported net income of $5.8 million from its mortgage business this
quarter, after excluding after tax charges associated with exiting the auto
finance business of approximately $10.4 million. This compares to net income of
$2.5 million reported in the fourth quarter of 1998. This increase resulted from
a combination of higher lending margins, higher origination fee income, higher
servicing revenues and lower operating expenses.
As a result of strategies to increase coupon rates and collect more up-front
fees, Advanta Mortgage increased its lending margin this quarter. The weighted
average yield of mortgage loans originated by the Company's direct to consumer
channels this quarter was 12.13% compared to 11.56% for full year 1998.
Originations from the direct to consumer channels represented 56.3% of total
originations in the first quarter compared to 37.2% in the prior quarter and
24.9% in the first quarter of 1998. The steps taken to enhance pricing and
productivity reduced loan production in January and February. However, in March,
despite the higher pricing, loan production from the direct channels of $158
million was only slightly lower than the average monthly production of
approximately $169 million in the fourth quarter of 1998. Due to the impact on
loan production in January and February, however, total originations from the
direct channels this quarter of $403 million were lower than the $507 million in
the fourth quarter of 1998, but they were considerably higher than the $283
million originated in the same quarter last year.
The Company also implemented price increases on originations from brokers.
Broker based originations totaled $110 million during the quarter compared to
$128 million last quarter, but were significantly higher than the $78 million
originated in the first quarter of last year. Similar to the direct channels,
the Company's strategies to raise yields on loans originated from brokers
reduced volumes in January and February of this year. In March, originations
from brokers were approximately $51.7 million compared to average monthly
originations of $42.8 million last quarter.
Originations from wholesale channels of $199 million this quarter were
significantly lower than originations of $719 million last quarter. This
decrease reflects the Company's strategy to obtain better wholesale pricing and
its willingness to reduce volume levels in order to purchase loans with
appropriate profitability characteristics.
To accomplish its strategy of reporting income that is essentially the same as a
portfolio lender, Advanta Mortgage substantially offset the amortization of its
Retained Interest Only Strip ("IO Strip") and Contractual Mortgage Servicing
Rights ("CMSR") by recognizing gains of $31.3 million from the securitization
and sale of approximately
<PAGE> 4
$634 million of loans this quarter. The decrease in the IO Strip and CMSR from
$296.5 million last quarter to $285.9 million this quarter resulted primarily
from the write-off of the IO Strip relating to securitized auto loans and the
impact of gains on hedging activities.
The net managed charge-off rate for home equity loans of 0.51% this quarter was
approximately the same as the charge-off rate of 0.56% reported last quarter.
The combined over 30 day delinquency rate for home equity and auto loans of
8.00% was in line with the 7.84% reported last quarter.
Advanta Mortgage also experienced an increase in its sub-serviced portfolio to
$8.9 billion from $8.3 billion at the end of last quarter.
ADVANTA BUSINESS CARDS REPORTS HIGHER YIELDS
- --------------------------------------------
Advanta Business Cards reported net income of $4.0 million this quarter with
significant improvements in portfolio yields. The average yield on the Company's
business credit card portfolio, including fee income, increased this quarter to
20.36% from 19.85% last quarter due to increases in rates and higher fee income.
This was partially offset by an increase in the net managed charge-off rate on
business credit card loans of 5.61% this quarter compared to 5.46% last quarter.
Managed receivables for Advanta Business Cards at the end of the quarter were
$832 million, up 2.1% from last quarter and 18.8% from the same quarter last
year.
ADVANTA LEASING SERVICES - ORIGINATIONS ON TRACK
- ------------------------------------------------
Advanta Leasing Services reported net income of $0.8 million this quarter. The
Company originated $110 million in lease receivables this quarter and closed the
quarter with a managed portfolio of leases of $712 million, an increase of 6.3%
from managed lease receivables of $670 million last quarter. The net managed
charge-off rate for Advanta Leasing Services of 2.91% this quarter was in line
with the 2.94% reported last quarter. Over 30 day delinquencies improved
considerably this quarter to 8.25% from 8.97% last quarter.
ADVANTA INSURANCE EXPECTS REVENUE GROWTH
- ----------------------------------------
The Company's exclusive and unique joint venture with Progressive Insurance to
direct market auto insurance is beginning to grow rapidly. The Company plans to
substantially increase volumes and written premiums are expected to exceed $50
million this year. This venture is still in its early stages and is not expected
to report a profit this year.
<PAGE> 5
ADVANTA REPORTS POSITIVE OPERATING CASH FLOW
- --------------------------------------------
Advanta had positive operating cash flow of approximately $6.4 million this
quarter after considering: (1) key non-cash income and expense items; (2) the
net investment in subordinated trust assets in order to support loan growth; and
(3) the cash impact of loan originations. This positive cash flow is primarily
attributable to increases in operating income and the proportion of mortgage
loans originated from direct channels. This quarter, origination fees collected
by the Company exceeded premiums and broker fees paid by approximately $12.5
million.
The Company's efforts to increase the use of deposit funding at its two
FDIC-insured banks for its lending activities continue to bolster liquidity at
the parent and at the Company's banks. After paying down approximately $99
million of Medium Term Notes and other parent debt this quarter, the Company had
approximately $429 million in unrestricted cash and equivalents at the parent
compared to $441 million at December 31, 1998. At the end of the quarter, the
Company had approximately $1.05 billion of unrestricted cash and equivalents at
its two banks. In addition, the Company had financed, with parent and bank
funds, loan receivables on its books totaling $1.16 billion and had available
over $1.3 billion in unused warehouse lines and Commercial Paper conduit
facilities.
Advanta is a highly focused financial services company with over 2,500
employees, over $12.8 billion in managed assets and approximately $8.9 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> 6
Form 8-K Advanta Corp.
April 27, 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> 7
Form 8-K Advanta Corp.
April 27, 1999
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 27, 1999
<PAGE> 8
Form 8-K Advanta Corp.
April 27, 1999
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> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 90,758
<INT-BEARING-DEPOSITS> 68,378
<FED-FUNDS-SOLD> 113,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,491,079
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,196,539
<ALLOWANCE> 37,898
<TOTAL-ASSETS> 4,027,103
<DEPOSITS> 2,001,940
<SHORT-TERM> 608,966
<LIABILITIES-OTHER> 332,007
<LONG-TERM> 423,563
0
1,010
<COMMON> 267
<OTHER-SE> 559,350
<TOTAL-LIABILITIES-AND-EQUITY> 4,027,103
<INTEREST-LOAN> 28,692
<INTEREST-INVEST> 24,137
<INTEREST-OTHER> 11,118
<INTEREST-TOTAL> 63,947
<INTEREST-DEPOSIT> 26,482
<INTEREST-EXPENSE> 43,277
<INTEREST-INCOME-NET> 20,670
<LOAN-LOSSES> 10,148
<SECURITIES-GAINS> 289
<EXPENSE-OTHER> 95,366
<INCOME-PRETAX> 10,966
<INCOME-PRE-EXTRAORDINARY> 6,773
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,773
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
<YIELD-ACTUAL> 1.47
<LOANS-NON> 58,112
<LOANS-PAST> 95
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 33,437
<CHARGE-OFFS> 7,775
<RECOVERIES> 2,088
<ALLOWANCE-CLOSE> 37,898
<ALLOWANCE-DOMESTIC> 37,898
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE> 1
<TABLE>
Exhibit 99
ADVANTA CORP.
HIGHLIGHTS
SUPPLEMENTAL CONSOLIDATING INCOME STATEMENT
(IN THOUSANDS)
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
--------------------------------------------------------------
ADVANTA ADVANTA
ADVANTA LEASING BUSINESS
MORTGAGE SERVICES CARDS OTHER (A) TOTAL
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
REVENUES:
Gain on sale of receivables $ 36,560 $ 4,357 $ 6,172 $(12,320) $ 34,769
Interest income 42,443 1,084 5,363 15,057 63,947
Servicing revenues 22,320 1,433 3,485 -- 27,238
Other 1,494 6,792 6,897 18,620 33,803
-------- -------- -------- -------- --------
Total revenues 102,817 13,666 21,917 21,357 159,757
-------- -------- -------- -------- --------
EXPENSES:
Operating expenses 67,037 8,964 11,029 1,623 88,653
Interest expense 23,607 2,652 2,288 14,730 43,277
Provision for credit losses 2,703 681 2,184 4,580 10,148
Unusual charges (b) -- -- -- 6,713 6,713
-------- -------- -------- -------- --------
Total expenses 93,347 12,297 15,501 27,646 148,791
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES 9,470 1,369 6,416 (6,289) 10,966
Income tax expense (benefit) 3,622 523 2,453 (2,405) 4,193
======== ======== ======== ======== ========
NET INCOME $ 5,848 $ 846 $ 3,963 (3,884) $ 6,773
======== ======== ======== ======== ========
</TABLE>
(a) Other includes the insurance and venture capital divisions, and costs
associated with exiting the auto finance business.
(b) Unusual charges include non-recurring charges associated with cost
reduction initiatives.
-more-
<PAGE> 2
<TABLE>
ADVANTA CORP.
HIGHLIGHTS
RECONCILIATION TO PORTFOLIO LENDER EARNINGS FORMAT
(IN THOUSANDS)
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
------------------------------------------------
PRO FORMA PORTFOLIO
AS REPORTED ADJUSTMENTS LENDER
----------- ----------- ----------
<S> <C> <C> <C>
REVENUES:
Gain on sale of receivables $ 34,769 $(36,560)[a] $ (1,791)
Interest income 63,947 165,649 [b] 229,596
Servicing revenues 27,238 (7,482)[c] 19,756
Other 33,803 33,803
-------- -------- --------
Total revenues 159,757 121,607 281,364
-------- -------- --------
EXPENSES:
Operating expenses 88,653 1,798 [d] 90,451
Interest expense 43,277 111,030 [b] 154,307
Provision for credit losses 10,148 8,779 [e] 18,927
Unusual charges 6,713 6,713
-------- -------- --------
Total expenses 148,791 121,607 270,398
-------- -------- --------
INCOME BEFORE INCOME TAXES $ 10,966 $ 0 $ 10,966
======== ======== ========
</TABLE>
FOOTNOTES FOR PRO FORMA ADJUSTMENTS:
[a] Represents the reclassification of net gains recognized on the sale of
mortgage loans for the period.
[b] Represents the adjustment to interest income and interest expense as if
the securitized 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
mortgage loans for the period presented.
[d] Represents the reclassification of securitization costs incurred by the
Company.
[e] Represents the amount by which the provision for credit losses would
have increased had the securitized mortgage loans remained on the
balance sheet and the provision for credit losses on securitized
receivables been equal to actual reported charge-offs.
-more-
<PAGE> 3
<TABLE>
ADVANTA CORP.
HIGHLIGHTS
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------
PERCENT CHANGE
MARCH 31, DECEMBER 31, MARCH 31, FROM
ORIGINATIONS 1999 1998 1998 (A) PRIOR QUARTER
- ------------ ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Direct $ 403,204 $ 506,819 $ 283,048 -20.4%
Broker 109,538 128,285 78,423 -14.6
Conduit 181,835 388,594 403,811 -53.2
Corp. Finance 16,773 330,677 349,415 -94.9
Auto 5,103 6,298 21,103 -19.0
----------- ----------- -----------
Total Advanta Mortgage loans 716,453 $ 1,360,673 $ 1,135,800 -47.3%
Leases $ 109,836 $ 102,683 $62,651 7.0%
Business cards 400,428 399,080 289,400 0.3
----------- ----------- -----------
Total leases and business cards $ 510,264 $ 501,763 $ 352,051 1.7%
SECURITIZATION/SALES VOLUME
- ---------------------------
Advanta Mortgage $ 634,147 $ 1,124,060 $ 1,008,860 -43.6%
Leases 95,574 89,105 59,700 7.3
Business cards 24,248 24,024 50,469 0.0
----------- ----------- -----------
Total securitization/sales volume $ 753,969 $ 1,237,189 $ 1,119,029 -39.1%
AVERAGE MANAGED RECEIVABLES
- ---------------------------
Mortgage loans $ 8,114,144 $ 7,705,545 $ 5,396,611 5.3%
Auto loans 198,321 224,515 224,099 -11.7
Leases 677,768 638,399 584,645 6.2
Business cards 822,852 789,220 678,059 4.3
Other loans 17,820 17,866 12,458 -0.3
----------- ----------- -----------
Total average managed receivables $ 9,830,905 $ 9,375,545 $ 6,895,872 4.9
Total average serviced receivables $18,410,992 $17,123,098 $16,000,830 7.5%
ENDING MANAGED RECEIVABLES
- --------------------------
Mortgage loans $ 8,212,797 $ 8,074,295 $ 5,826,742 1.7%
Auto loans 185,621 210,951 219,651 -12.0
Leases 712,243 670,240 593,889 6.3
Business cards 832,086 814,734 700,558 2.1
Other loans 17,093 17,862 11,770 -4.3
----------- ----------- -----------
Total managed receivables $ 9,959,840 $ 9,788,082 $ 7,352,610 1.8
Total serviced receivables $18,870,671 $18,066,410 $16,124,042 4.5%
IO AND CMSR ROLLFORWARD
- -----------------------
Beginning Balance $ 296,478 $ 267,036
Retained IO on sales, net 31,297 32,261
Hedge impact (3,614) 22,524
Write-down related to auto loans (7,828) -
Transaction expenses 1,472 6,114
Interest income 11,118 5,792
Cash received (42,177) (37,877)
Other, net (873) 628
-------- ----------
Ending balance 285,873 296,478
</TABLE>
(A) Excludes consumer credit card business.
-more-
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<TABLE>
ADVANTA CORP.
HIGHLIGHTS
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------
PERCENT
CHANGE
FROM
MAR. 31, DEC. 31, MAR. 31, PRIOR
1999 1998 1998 (A) QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
EARNINGS
- --------
As a % of average managed receivables:
Operating expenses 3.47% 3.90% 3.30% -11.1%
Charge-offs 1.36 1.45 4.35 -6.0
Earnings per common share $ 0.25 $ 0.16 $ 11.84 56.3
Diluted earnings per share 0.25 0.16 11.04 56.3
Return on average common equity 4.54% 2.98% 260.14% 52.2
COMMON STOCK DATA
- -----------------
Weighted average common shares
used to compute:
Earnings per common share 23,122 23,185 35,278 -0.3
Diluted earnings per share 23,213 23,194 37,915 0.1
Ending shares outstanding 25,660 25,643 25,234 0.1
Stock price:
Class A
High $15.188 $14.875 $32.750 2.1
Low 10.313 7.125 21.000 44.7
Closing 11.063 13.250 22.500 -16.5
Class B
High $12.313 $12.000 $31.250 2.6
Low 7.750 5.250 19.688 47.6
Closing 8.938 11.063 21.000 -19.2
Cash dividends declared
Class A $ 0.063 $ 0.063 $ 0.063 0.0
Class B 0.076 0.076 0.076 0.0
Book value per common share (B) $ 22.10 $ 22.19 $ 21.04 -0.4
</TABLE>
(A) Includes consumer credit card business (where applicable).
(B) Assumes conversion of the Class B Preferred Stock.
-Statistical Supplement Available Upon Request-
