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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 24, 2000
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Advanta Corp.
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(Exact name of registrant as specified in its charter)
Delaware 0-14120 23-1462070
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(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
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(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
On October 24, 2000 Advanta Corp. (the "Company" or "Advanta") announced that
it has accepted a proposal to sell its Mortgage business to a major financial
institution in a cash transaction for a price in excess of book value and is
negotiating an agreement with this party. Under the terms of the proposal, the
Company expects to receive proceeds that will result in excess liquidity when
added to the Company's existing cash and equivalent position. As a result, the
Company intends to use a portion of this liquidity to pay off all institutional
medium term notes currently outstanding. The Company also intends to seek
shareholder approval for the transaction. While there can be no assurance that
a definitive agreement will be reached and a number of items remain to be
negotiated, if the transaction is consummated under the terms of the proposal,
it will result in the sale of virtually all mortgage assets which represent 33%
of owned assets at September 30, 2000. Until the agreement is signed, the
Company will make no further updates to its disclosures related to the sale or
use of proceeds other than those made in its press release and scheduled
conference call. Advanta also indicated that the initial due diligence has been
completed with respect to the strategic alternatives process for its leasing
business and bids are being solicited from interested parties.
Advanta also announced its final results for the third quarter of 2000. Net
income for the quarter was $15.7 million, or $0.62 per share on a diluted basis
for Class A and Class B shares combined. Pro forma operating income was
$464,000, or $0.02 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. As previously announced, results for the quarter include $23
million of provisions and charges which consist of a charge of approximately $10
million in the leasing business due to continued charge-offs largely
concentrated within certain unprofitable segments of this business from prior
periods; an increase of approximately $10 million in reserve coverage for the
business credit card unit, approximately $6 to $8 million of which strengthened
on-balance sheet reserves and is attributable to a revision of the methodology
for estimating loan losses as a result of recent discussions with the Federal
Deposit Insurance Corporation relating to the implementation of the agreement
between Advanta Bank Corp. and the FDIC that was previously disclosed on June 2,
2000, with the remainder due to the maturing and growth of this portfolio; and a
charge of approximately $3 million in the 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 $1.53 per share on a diluted basis
and operating earnings for the third quarter would have been $0.58.
Advanta also provided a growth outlook for its Business Card operations for
2001. Next year, Advanta plans to grow its managed business credit card
receivables by 30% to 50%. Guidance for Advanta Corp. will be provided upon the
resolution of the strategic alternatives process and will include the Company's
strategy to achieve a targeted efficiency ratio upon the conclusion of the
strategic alternatives process.
"Advanta is one of the nation's largest issuers of MasterCard business credit
cards to small businesses," said Dennis Alter, Chairman and Chief Executive
Officer. "Our plans are to continue to enhance this very profitable business,
leveraging our information based strategic
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skills and resources to offer targeted credit card and other products to the
expanding small business market."
Pretax income for Advanta Business Cards was $14.2 million this quarter after
the $10 million increase in the on-balance sheet allowance for loan losses, as
compared to pretax income of $9.2 million for the third quarter of 1999. The
asset quality of the Business Card portfolio was consistent with the Company's
expectations and after increasing the allowance, reserves as a percent of owned
receivables increased to 6.7% at September 30, 2000 while charge-offs for the
quarter were 4.8% on an annualized basis. Based on the average net charge-offs
for the quarter, the on-balance sheet allowance for business credit card losses
represents 16 months of charge-off coverage. Managed receivables for Advanta
Business Cards at the end of the quarter were $1.5 billion, as compared to $1.4
billion at June 30, 2000 and $930 million at September 30, 1999.
On a basis that is essentially the same as a portfolio lender, net income for
Advanta Mortgage was $813,000 as compared to $8.6 million for the quarter ended
September 30, 1999. The decrease year on year is substantially due to lower
mortgage origination volume as a result of continued implementation during the
quarter of processes required by the agreements between the Company's bank
subsidiaries and their regulators and the maintenance of an infrastructure
commensurate with normal mortgage volumes. The Company anticipates fourth
quarter mortgage origination volume to be in line with the third quarter's
originations. During the quarter, the Company securitized approximately $1
billion of mortgage loans. Net income for Advanta Mortgage and for the Company
was higher than its preliminary estimates for this quarter due to higher than
expected mortgage securitization income.
At September 30, 2000, Advanta National Bank ("ANB") was in compliance with the
increased capital ratios required by the agreements with its regulator. As
anticipated, the Company achieved these ratios through a combination of
decreasing the assets at ANB and making aggregate capital and other investments
in ANB of approximately $70 million.
Advanta generated approximately $14 million of cash flow from operations, after
considering key mortgage non-cash income and expense items and the cash impact
of mortgage loan originations. During the quarter, the Company completed its
first public business credit card securitization. At the end of the quarter, the
Company financed, with parent and bank funds, loan receivables on its books
totaling $921 million and ended the quarter with over $750 million in total
liquidity. At September 30, 2000, the Company had available approximately $1.1
billion in unused warehouse lines and commercial paper conduit facilities.
Advanta management will hold a conference call with analysts and institutional
investors today, October 24, 2000, at 9:00 am Eastern time. The call will be
broadcast simultaneously for the public over the Internet through
http://www.advanta.com or http://www.vcall.com. To listen to the live call,
please go to the web site at least fifteen minutes early to register, download,
and install any necessary audio software. For those unable to listen to the live
broadcast, replays will be available shortly after the call on the Vcall site.
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Advanta (www.advanta.comhttp://www.advanta.com) is a highly focused financial
services company with over 2,700 employees, servicing approximately $25 billion
of assets, including approximately $12 billion in managed assets and
approximately $13 billion in assets serviced for third parties. Advanta provides
consumers and small businesses with targeted financial products and services,
including non-conforming mortgages, business credit cards, equipment leases,
insurance and deposit products. The Company is also one of the largest servicers
of non-conforming mortgages for third parties in the country.
Advanta has leveraged its first-class direct marketing and information based
expertise to develop state-of-the-art data warehousing and statistical modeling
tools that identify potential customers and new target markets. Advanta created
one of the first automated underwriting and sales engines in the non-conforming
mortgage industry. The Company also offers its customers and business partners a
broad range of self-service financial solutions and other services on the
Internet.
Advanta was named one of the 500 Most Admired Companies in America in FORTUNE
Magazine's most recent annual survey. In June 2000, American Banker ranked
Advanta Bank Corp. third among the top 100 community banks in the nation in
terms of return on average assets.
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) the Company's managed net interest margin; (2)
competitive pressures; (3) factors that affect the level of delinquencies and
charge-offs, including a deterioration of general economic conditions; (4) the
rate of prepayments; (5) interest rate fluctuations; (6) the level of expenses;
(7) managed and sub-serviced receivables volume; (8) the timing of the
securitizations of the Company's receivables; (9) the level of insurance policy
renewals; (10) the effects of government regulation, including restrictions and
limitations imposed by banking laws, regulators, examinations, and the
agreements between the Company's bank subsidiaries and their regulators; (11)
the level of conservatism and volatility associated with the assumptions
underlying the valuation of retained interests in securitizations; (12)
relationships with significant vendors, business partners and customers; (13)
the amount and cost of financing available to the Company; (14) the ratings on
the debt of the Company and its subsidiaries; (15) the ability to attract and
retain key personnel and customers; and (16) the results of the evaluation of
strategic alternatives, including the completion of a definitive agreement and
the closing and timing of any transaction. 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 24, 2000
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 24, 2000
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
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Elizabeth H. Mai, Senior Vice President,
Secretary and General Counsel
October 24, 2000
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Form 8-K Advanta Corp.
October 24, 2000
Index to Exhibits
Exhibit Number Per
Item 60l of
Regulation S-K Description of Document
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99 Selected Summary Financial Data
