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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 26, 1999
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Advanta Corp.
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(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
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Item 5. Other Events
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On October 26, 1999 Advanta Corp. (the "Company" or "Advanta") announced net
income for the third quarter of 1999 of $14.2 million, or $0.55 per share on a
diluted basis for its Class A and Class B shares combined. This net income
reflects the Company's previously announced plan to report income for its
mortgage business that is essentially equal to that of a portfolio lender. Net
income increased 15.2% over the prior quarter's results of $12.3 million, or
$0.49 per share. The increase reported over last quarter resulted primarily from
an increase in gross revenues of $5.2 million and the Company's continued focus
on efficiency and productivity initiatives which resulted in holding operating
expenses flat to the prior quarter, despite increased marketing and development
activities.
This quarter, Advanta furthered its previously discussed initiatives to increase
profits, and optimize cash flow and returns on invested capital. This quarter,
Advanta Mortgage increased its lending margin and decreased its over 30 day
delinquency rate as compared to the prior quarter. Advanta Business Cards
experienced increased benefits from the pricing initiatives implemented last
quarter. Highlights on the Company's operations this quarter follow.
COMPANY MAINTAINS EXPENSE RATIO
Advanta's operating expense ratio for the quarter remained flat at 3.24% as
compared to the 3.25% reported in the second quarter of this year. Total
operating expenses for Advanta Mortgage decreased $2.4 million and were
essentially unchanged at Advanta Leasing as compared to the results reported for
the second quarter. Offsetting these improvements was an increase in operating
expenses at Advanta Business Cards relating to investments in new initiatives,
including market expansion and development of its Internet originations
platform.
ADVANTA MORTGAGE - LOWER EXPENSES FUEL PROFIT GROWTH
Advanta Mortgage reported net income of $7.9 million for this quarter on a basis
that is essentially the same as a portfolio lender. This compares to pro forma
net income from operations of $7.6 million for the second quarter of 1999 and
net income of $5.8 million reported by this business in the first quarter of
1999. The increase in net income this quarter was primarily due to a $2.4
million decrease in operating expenses that was largely offset by a $1.7 million
increase in the provision for credit losses to increase the on-balance sheet
allowance for loan losses.
Advanta Mortgage increased the lending margin from the prior quarter despite
increases in market interest rates. The weighted average yield of mortgage loans
originated this quarter increased by 65 basis points. In addition to benefiting
from higher yields on newly originated loans, the Company's overall portfolio
yields are increasing as loans originated from direct
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channels, which typically have better yields, make up a larger portion of the
total portfolio. Originations from the direct to consumer channels represented
65.0% of total originations this quarter compared to 56.1% in the prior quarter
and 30.8% in the third quarter of 1998. At the end of this quarter, loans
originated through direct to consumer channels represented approximately 39.7%
of the total portfolio as compared to 30.1% at the same time last year and 37.1%
at the end of the second quarter of this year.
Advanta Mortgage continues to focus on profitable lending margins and improved
operating efficiencies. Total mortgage originations were $567.3 million as
compared to $727.7 million last quarter. The decrease was predominately
associated with the substantial reduction in purchasing wholesale pools and a
reduction in broker originations due to pricing discipline. Based on current
market pricing, the Company has decided not to purchase additional wholesale
pools. Also affecting originations was unusually light direct originations in
September. Contributing to the decrease in originations last month were weather
conditions and systems implementations, including the training and other efforts
associated with implementation of the Advanta Intelligent Mortgage System, the
Company's new automated sales and underwriting system. Current origination
volumes in October are returning to more typical levels. The Company's emphasis
continues to be profitable loan growth as well as our discipline of not
compromising our return goals for volume. Advanta Mortgage's sub-serviced
portfolio increased to $10.5 billion at the end of this quarter from $9.4
billion at the end of last quarter.
Credit quality at Advanta Mortgage improved during the quarter. The over 30 day
delinquency rate decreased to 7.93% from 8.54% reported last quarter, despite an
increase in the average age of the portfolio to 20 months at September 30, 1999
from 17 months at the end of the prior quarter. The net managed charge-off rate
for home equity loans was 0.86% this quarter compared to 0.66% reported last
quarter, consistent with the continued seasoning of the Company's portfolio.
This quarter, Advanta Mortgage also invested in strategic initiatives to improve
its long term profitability. Considerable efforts were directed toward
implementation of the Advanta Intelligent Mortgage System and the development of
a strategic marketing agreement with NextCard.
ADVANTA BUSINESS CARDS REPORTS HIGHER YIELDS
Advanta Business Cards reported net income of $6.0 million this quarter compared
to $5.6 million last quarter. The increase resulted from continued improvements
in portfolio yields. The average yield on the Company's business credit card
portfolio, including fee income, increased this quarter to 22.35% from 21.72%
last quarter due to increases in rates and higher fee income. This quarter's
results also include an increase in operating expenses of $1.3 million,
primarily attributable to market expansion and Internet initiatives. During the
third
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quarter, the Company made additional investments in our Internet based
originations platform which incorporates sophisticated automated decisioning
that is tailored to each applicant and is able to provide instant approval.
Credit quality continues to improve as over 30 day delinquencies decreased from
3.74% last quarter to 3.42% this quarter. The net managed charge-off rate on
business credit card loans of 5.25% this quarter was comparable to 5.22% last
quarter. Managed receivables for Advanta Business Cards at the end of the
quarter were $930 million, up 4.9% from last quarter and 19.5% from the same
quarter last year.
ADVANTA LEASING SERVICES - CONTINUED GROWTH IN MANAGED PORTFOLIO
Advanta Leasing Services reported net income of $1.1 million this quarter,
compared to net income of $1.5 million reported last quarter. The Company closed
the quarter with a managed portfolio of leases of $781 million. This represents
an increase of 4.9% from managed lease receivables of $744 million last quarter.
Lease receivables originated this quarter of $112.6 million were comparable to
the $113.4 million originated last quarter. Over 30-day delinquencies were 8.30%
this quarter as compared to 7.33% last quarter. The net managed charge-off rate
for Advanta Leasing Services of 3.76% this quarter was higher than the 3.23%
reported last quarter.
Total managed receivables for the Company's businesses at the end of this
quarter were $10.09 billion, an increase of 13.5% from $8.89 billion at
September 30, 1998. Pro forma year to date net operating income of $36.7 million
or $1.44 per share has the Company well positioned to achieve prior guidance of
$2.00 per share for the year.
ADVANTA INSURANCE REPORTS WRITTEN PREMIUM GROWTH
Advanta Insurance continues to experience substantial increases in written
premium, predominantly driven by the Company's venture to direct market auto
insurance. Total written premiums for Advanta Insurance were $19.8 million this
quarter as compared to $12.7 million for the second quarter and $12.0 million in
the first quarter. The Company plans to substantially increase volumes next
quarter and total written premiums are expected to significantly exceed this
year's target of $50 million. The increase in written premiums will create long
term value; however, Advanta Insurance is not expected to report a profit this
year as a result of the high volume of policy originations.
ADVANTA REPORTS CONTINUED POSITIVE OPERATING CASH FLOW
Advanta had positive operating cash flow of approximately $30.8 million this
quarter, an increase of 14.8% over the prior quarter, after considering key
non-cash income and expense
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items and the cash impact of loan originations. This positive cash flow is
largely attributable to increases in operating income and the proportion of
mortgage loans originated through direct channels. This quarter, origination
fees collected by the Company exceeded premiums and broker fees paid by
approximately $16.7 million. This positive operating cash flow was offset by a
net investment in subordinated trust assets of $51.9 million, consistent with
the structure of the Company's securitizations.
The Company's use of deposit funding at its two FDIC-insured banks for its
lending activities continues to support a high level of liquidity at the parent
and at the Company's banks. Advanta ended the quarter with $1.4 billion in total
liquidity after paying approximately $93 million of Medium Term Notes and other
parent debt maturities during the quarter. In addition, the Company had
financed, with parent and bank funds, loan receivables on its books totaling
$1.0 billion and had available approximately $1.4 billion in unused warehouse
lines and Commercial Paper conduit facilities.
Advanta is a highly focused financial services company with over 2,500
employees, approximately $12.2 billion in managed assets and approximately $10.5
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.
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Form 8-K Advanta Corp.
October 26, 1999
Item 7. Financial Statements and Exhibits.
- ------------------------------------------
(c) Exhibits:
The following exhibits are filed as part of this Report on Form 8-K.
99 Selected Summary Financial Data.
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Form 8-K Advanta Corp.
October 26, 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
October 26, 1999
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Form 8-K Advanta Corp.
October 26, 1999
Index to Exhibits
-----------------
Exhibit Number Per
Item 60l of
Regulation S-K Description of Document
- -------------- -----------------------
99 Selected Summary Financial Data
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Exhibit 99
ADVANTA CORP.
SUPPLEMENTAL CONSOLIDATING INCOME STATEMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
---------------------------------------------------------------------
ADVANTA ADVANTA
ADVANTA LEASING BUSINESS
MORTGAGE SERVICES CARDS OTHER (a) TOTAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
REVENUES:
Gain on sale of receivables $ 40,139 $ 4,015 $ 7,206 $ $ 51,360
Interest income 28,239 3,023 12,428 17,495 61,185
Servicing revenues 24,802 1,602 3,144 29,548
Other 1,135 4,703 10,159 2,653 18,650
-------- -------- -------- -------- --------
Total revenues 94,315 13,343 32,937 20,148 160,743
-------- -------- -------- -------- --------
EXPENSES:
Operating expenses 53,733 7,802 12,472 8,695 82,702
Interest expense 21,581 2,719 4,906 12,729 41,935
Provision for credit losses 4,078 874 5,500 10,452
Minority int. in inc. of consolidated sub 1,865 155 200 2,220
-------- -------- -------- -------- --------
Total expenses 81,257 11,550 23,078 21,424 137,309
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES 13,058 1,793 9,859 (1,276) 23,434
Income tax expense 5,158 708 3,894 (504) 9,256
-------- -------- -------- -------- --------
NET INCOME $ 7,900 $ 1,085 $ 5,965 $ (772) $ 14,178
======== ======== ======== ======== ========
</TABLE>
(a) Other includes the insurance and venture capital divisions.
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ADVANTA CORP.
RECONCILIATION TO PORTFOLIO LENDER EARNINGS FORMAT
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------------------------------------------------
ADVANTA
ADVANTA MORTGAGE AS PRO FORMA
MORTGAGE AS PRO FORMA PORTFOLIO REMAINING PRO FORMA
REPORTED ADJUSTMENTS LENDER BUSINESSES CONSOLIDATED
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES:
Gain on sale of receivables $ 40,139 $ (40,139) [a] $ 0 $ 11,221 $ 11,221
Interest income 28,239 182,379 [b] 210,618 32,946 243,564
Servicing revenues 24,802 (7,815) [c] 16,987 4,746 21,733
Other 1,135 1,135 17,515 18,650
--------- --------- --------- --------- ---------
Total revenues 94,315 134,425 228,740 66,428 295,168
--------- --------- --------- --------- ---------
EXPENSES:
Operating expenses 53,733 1,895 [d] 55,628 28,969 84,597
Interest expense 21,581 117,076 [b] 138,657 20,354 159,011
Provision for credit losses 4,078 15,454 [e] 19,532 6,374 25,906
Minority interest in income of
consolidated subsidiary 1,865 0 1,865 355 2,220
--------- --------- --------- --------- ---------
Total expenses 81,257 134,425 215,682 56,052 271,734
--------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 13,058 0 13,058 10,376 23,434
Income tax expense 5,158 0 5,158 4,098 9,256
--------- --------- --------- --------- ---------
NET INCOME $ 7,900 $ 0 $ 7,900 $ 6,278 $ 14,178
--------- --------- --------- --------- ---------
</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.
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ADVANTA CORP.
HIGHLIGHTS
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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PERCENT
CHANGE
SEPTEMBER 30, JUNE 30, SEPTEMBER 30, FROM
1999 1999 1998 PRIOR QUARTER
ORIGINATIONS ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Direct $ 368,654 $ 407,880 $ 483,290 -9.6%
Broker 125,204 152,533 162,531 -17.9
Conduit 66,952 153,575 584,418 -56.4
Corp. Finance 6,505 13,701 320,871 -52.5
Auto 0 0 18,593 0.0
----------- ----------- -----------
Total Advanta Mortgage loans $ 567,315 $ 727,689 $ 1,569,703 -22.0
Leases $ 112,615 $ 113,384 $ 91,736 -0.7
Business cards 484,727 471,239 349,645 2.9
SECURITIZATION/SALES VOLUME
Advanta Mortgage $ 746,893 $ 706,639 $ 1,508,537 5.7%
Leases 106,953 105,909 77,800 1.0
Business cards 257,750 0 7,400 0.0
----------- ----------- -----------
Total securitization/sales volume $ 1,111,596 $ 812,548 $ 1,593,737 36.8%
AVERAGE MANAGED RECEIVABLES
Mortgage loans $ 8,278,435 $ 8,263,300 $ 6,881,507 0.2%
Auto loans 111,357 140,560 243,896 -20.8
Leases 741,571 693,921 611,847 6.9
Business cards 906,032 866,732 768,348 4.5
Other loans 17,322 17,019 17,704 1.8
----------- ----------- -----------
Total average managed receivables $10,054,717 $ 9,981,532 $ 8,523,302 0.7
Total average serviced receivables $20,029,536 $19,182,200 $16,530,202 4.4%
ENDING MANAGED RECEIVABLES
Mortgage loans $ 8,260,900 $ 8,293,166 $ 7,216,187 -0.4%
Auto loans 101,045 122,836 238,604 -17.7
Leases 780,653 744,123 637,335 4.9
Business cards 930,009 886,237 778,471 4.9
Other loans 17,478 17,187 17,763 1.7
----------- ----------- -----------
Total managed receivables $10,090,085 $10,063,549 $ 8,888,360 0.3
Total serviced receivables $20,573,310 $19,503,445 $16,483,777 5.5%
IO AND CMSR ROLLFORWARD
Beginning balance $ 247,071 $ 271,876
Retained IO on sales, net 35,600 38,529
Hedge impact (1,513) (20,819)
Transaction expenses 2,796 2,507
Additional reserves 0 (10,000)
Interest income 4,738 7,970
Cash received (43,503) (42,966)
Other, net 362 (26)
----------- -----------
Ending balance $ 245,551 $ 247,071
</TABLE>
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ADVANTA CORP.
HIGHLIGHTS (CONTINUED)
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------
PERCENT
CHANGE
FROM
SEPTEMBER 30, JUNE 30, SEPTEMBER 30, PRIOR
1999 1999 1998 QUARTER
------------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
EARNINGS
As a % of average managed receivables:
Operating expenses 3.24% 3.25% 3.61% -0.3%
Charge-offs 1.59 1.46 1.34 9.0
Basic earnings per common share $ 0.57 $ 0.49 $ 0.58 16.3
Diluted earnings per common share $ 0.55 $ 0.49 $ 0.58 12.2
Return on average common equity 9.98% 8.94% 11.18% 11.6
COMMON STOCK DATA
Weighted average common shares
used to compute:
Basic earnings per common share 23,413 23,163 24,482 1.1%
Diluted earnings per common share 23,990 23,373 24,514 2.6
Ending shares outstanding 27,086 25,445 26,021 6.5
Stock price:
Class A
High $23.938 $18.250 $22.750 31.2%
Low 14.625 9.625 9.375 51.9
Closing 14.625 18.063 12.875 -19.0
Class B
High $19.125 $14.750 $20.563 29.7%
Low 11.375 7.594 8.250 49.8
Closing 11.750 13.563 10.500 -13.4
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 (A) $ 22.65 $ 22.39 $ 21.62 1.2%
</TABLE>
(A) Assumes conversion of the Class B Preferred Stock for periods prior to
September 1999.
-Statistical Supplement Available Upon Request-
