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Pricing Supplement dated October 10, 2000 Rule #424(b)(3)
(To Prospectus dated April 6, 2000) File No. 333-33136
ADVANTA CORP.
For use only by residents of:
CA, CO, CT, DE, FL, GA, KS, MA, MD, MN, NJ, NY, OR and PA
ADVANTA INVESTMENT NOTES
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
$5,000 - $49,999 $50,000 PLUS
Annual Annual
Percentage Percentage
Term Interest Rate Yield* Interest Rate Yield*
---- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
91 days 8.16% 8.50% 8.16% 8.50%
6 month 9.85% 10.35% 10.08% 10.60%
12 month 10.44% 11.00% 10.66% 11.25%
18 month 10.53% 11.10% 10.75% 11.35%
24 month 10.89% 11.50% 11.11% 11.75%
30 month 10.93% 11.55% 11.15% 11.79%
48 month 10.97% 11.59% 11.20% 11.85%
60 month 11.02% 11.65% 11.24% 11.89%
</TABLE>
REDIRESERVE VARIABLE RATE CERTIFICATES**
<TABLE>
<CAPTION>
Annual
Percentage
Tier Interest Rate Yield*
---- ------------- ----------
<S> <C> <C>
$100 to $4,999 5.25% 5.39%
$5,000 to $24,999 8.25% 8.60%
$25,000 to $49,999 8.50% 8.87%
$50,000 plus 8.75% 9.14%
</TABLE>
Minimum Investment $5,000
RECENT DEVELOPMENTS
On October 9, 2000 Advanta Corp. (the "Company" or "Advanta") announced that, on
a preliminary basis, the Company estimates that net income for the third quarter
will be approximately $8 million or approximately $0.32 per share on a diluted
basis for Class A
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and Class B shares combined. Operating earnings per share, on a diluted basis,
for the third quarter are expected to be approximately breakeven. The results
for the third quarter have been impacted primarily by a slower than anticipated
turnaround of the Company's leasing business, lower mortgage origination volume
due to continued implementation during the quarter of processes required by the
regulatory agreements, and strengthening of reserves for the Company's business
credit card unit due to the maturing and growth of this portfolio as well as
regulatory factors and considerations. Advanta expects to release its final
earnings results for the third quarter on Tuesday, October 24, 2000.
Earnings for the third quarter are expected to include approximately $23 million
of provisions and charges consisting of the following items: (i) a charge of
approximately $10 million due to continued charge-offs largely concentrated
within certain unprofitable segments of the leasing business from prior periods;
(ii) an increase of approximately $10 million in reserve coverage for the
Company's business credit card unit, of which approximately $6 to $8 million is
attributable to a change in the methodology for calculating on-balance sheet
reserves for this business which the Company is undertaking as a result of
recent discussions with the Federal Deposit Insurance Corporation ("FDIC")
relating to the implementation of the agreement between Advanta Bank Corp. and
the FDIC that was previously disclosed on June 2, 2000 and the remainder of
which is attributable to the maturing and growth of this portfolio; and (iii) a
$3 million charge in the Company's insurance business relating to a large policy
claim settled during the quarter. Excluding these items, earnings per share for
the third quarter would have been in the area of $1.23 per share on a diluted
basis. Similarly, operating earnings for the third quarter would have been
substantially higher excluding these items.
The Company has pursued aggressive remedial initiatives in the leasing business,
including the addition of experienced leadership to oversee collections. The
Company has also implemented its plan to discontinue lease originations from the
unprofitable segments of the broker channel and improve the yields on new
originations. In addition, the Company is actively pursuing strategic
alternatives for the leasing business, including its possible divestiture.
The Company also announced that it is revising its outlook for the remainder of
the year. Although the Company anticipates moderate improvement in results for
the fourth quarter, it expects pro forma operating results for the second half
of the year will be below its previously announced estimates of between
$0.90-$1.10 per share because it anticipates that the factors impacting third
quarter results for the mortgage and leasing businesses will continue into the
fourth quarter. Because the Company is in the process of evaluating strategic
alternatives for its mortgage and leasing businesses, it is not in a position
to provide specific guidance for the remainder of the year at this time. The
Company will update its progress on the evaluation of strategic alternatives at
its October 24 conference call.
In addition, the Company announced that it has received notice that one of its
largest mortgage subservicing clients will move aspects of its servicing
in-house and will terminate its subservicing contract with the Company effective
during the fourth quarter. The Company expects to collect a termination fee,
which will partially offset the financial impact of the cancellation of this
contract.
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On August 2, 2000 Advanta announced results for the second quarter of 2000. Pro
forma operating income was $16.6 million, or $0.65 per share on a diluted basis
for Class A and Class B shares combined, reflecting income for Advanta Mortgage
that is essentially the same as a portfolio lender and excluding carrying value
adjustments made pursuant to agreements with the Office of the Comptroller of
the Currency (the "OCC") that were announced on July 31, 2000 and discussed
below. While pro forma operating income for the Company was up 30% year on year
before the carrying value adjustments, the Company reported a net loss for the
quarter of $192.7 million or $7.64 per share. This was largely because Advanta
National Bank ("ANB") recorded a $214 million non-cash charge resulting from a
reduction in the carrying value of its retained interests in mortgage
securitizations and a $22 million non-cash charge reflecting an increase in
mortgage loan loss reserves.
On July 31, 2000, the Company announced that its bank subsidiary, ANB, had
concluded discussions and signed an agreement with the OCC regarding the
carrying value of ANB's retained interests in mortgage securitizations and
allowance for loan losses. For ANB's June 30 Call Report, the agreement
provides that the retained interests be calculated based on an 18% discount
rate on the interest-only strip ("I/O") and subordinated trust assets, a 15%
discount rate on the contractual mortgage servicing rights ("CMSR"), a
prepayment rate that represents the average prepayment experience for the six
months ended February 29, 2000 and cumulative loss rates as a percentage of
original principal balance of 6% on closed end mortgage loans and 8% for HELOC
(open end) mortgage loans. Consistent with the agreement, ANB recorded a $214
million non-cash charge to reduce the June 30 carrying value of its retained
interests in mortgage securitizations. Also pursuant to the agreement with the
OCC, ANB recorded a $22 million non-cash charge to increase its allowance for
loan losses at June 30, 2000. These non-cash adjustments are reflected in
results for the second quarter, as discussed above.
The agreement announced on July 31, 2000 also contains provisions regarding the
use of similar assumptions for the calculation of the carrying value of the
residual assets in future periods. Beginning with the third quarter of 2000, the
agreement requires ANB to maintain its allowance for loan losses at a level of
at least 5.38% of the unpaid principal balance of all loans owned by ANB or
reported on its books, less any loans held for sale.
On June 2, 2000, the Company announced that its banking subsidiaries, ANB and
Advanta Bank Corp. ("ABC"), had each reached agreements with their respective
bank regulatory agencies, primarily relating to the banks' subprime lending
operations. The agreements outline a series of steps to modify processes and
formalize and document certain practices and procedures for the banks' subprime
lending operations. The agreements establish temporary asset growth limits at
ANB and deposit growth limits at ABC. In addition, the
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agreements contain restrictions on taking brokered deposits at ANB and require
that as of September 30, 2000, ANB maintain capital ratios at the same levels
as March 31, 2000.
As described above, the agreements also required the Company to change its
charge-off policy for delinquent mortgages to 180 days and modify its accounting
processes and methodology for its allowance for loan losses and valuation of
residual assets.
On May 17, 2000 the Company announced that it is evaluating strategic
alternatives to maximize shareholder value of its Mortgage and Leasing
businesses. Although there are no specific actions contemplated at this time,
these strategic alternatives could include the sale of, or strategic alliances
or partnerships in respect of, all or a portion of the Company's mortgage loan
origination, mortgage servicing or equipment leasing businesses.
AN OFFER CAN ONLY BE MADE BY THE PROSPECTUS DATED APRIL 6, 2000, IN CONJUNCTION
WITH THIS PRICING SUPPLEMENT. SEE "RISK FACTORS" BEGINNING AT PAGE 7 OF THE
PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE NOTES AND REDIRESERVE CERTIFICATES. THE
NOTES AND REDIRESERVE CERTIFICATES REPRESENT OBLIGATIONS OF ADVANTA CORP. AND
ARE NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENTAL OR PRIVATE ENTITY.
* The Annual Percentage Yield assumes all interest reinvested daily at the
stated rate.
* The interest rate we pay on any particular RediReserve Certificate depends on
the tier into which the holder's end-of- the-day balance falls. We will not pay
interest on a RediReserve Certificate for any day on which the end-of-the-day
balance is less than $100. Interest rates and annual percentage yields for each
tier may change from week to week and will apply to outstanding RediReserve
Certificates. We currently set the interest rates each Sunday and they are
effective through Saturday. Interest rates for each one week period, currently
commencing on Sunday, will be at least equal to the rate on the thirteen week
U.S. Treasury Bill auctioned on the immediately preceding Monday less one
percent (1%).
FOR MORE INFORMATION CALL
1-800-223-7074
