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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): January 25, 2000
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 January 25, 2000 Advanta Corp. (the "Company" or "Advanta") announced
net operating income for the fourth quarter 1999 of $15.1 million, or $0.60 per
share on a diluted basis for its Class A and Class B shares combined, reflecting
income for Advanta Mortgage that is essentially the same as a portfolio lender.
This compares to $14.2 million or $0.55 per share last quarter and $4.6 million
or $0.16 per share for the prior year's fourth quarter results. The net
operating results this quarter exclude several unusual charges and credits
discussed below which increased reported net income to $16.6 million or $0.66
per share.
Highlights include:
- Full year 1999 operating EPS of $2.04 on net operating income of $52.2
million, after excluding all unusual charges, credits and non-operating
revenues recorded this year
- $1.5 billion of loans on the balance sheet at year end - approximately 54%
higher than September 30, 1999 and approximately 32% higher than December
31, 1998
- Advanta Mortgage direct originations of $441 million this quarter
increased 19.7% from the prior quarter on a record number of new direct
mortgage loans; lending margin also increased during the quarter
- Advanta Business Cards net income increases 23.0% for the quarter on
record number of new accounts, favorable pricing terms and higher fee
income
- Increased operating cash flow over $175 million in 1999, after considering
key non-cash income and expense items and the cash impact of mortgage loan
originations
This quarter, Advanta reported several unusual charges and credits resulting in
net income for the quarter of $16.6 million, or $0.66 per share on a diluted
basis for its Class A and Class B shares combined. The Company recorded a $50
million tax benefit relating to its former consumer credit card business. During
the quarter, the Company increased its use of on-balance sheet funding and grew
its on-balance sheet loan portfolio by reducing securitization volume by
approximately $420 million of mortgage loans. The Company recorded after tax
charges of $20.6 resulting from the increase in on and off balance sheet
reserves to further strengthen the balance sheet, the increase in the Interest
Only Strip ("IO Strip") discount rate and a writedown of assets associated with
the Corporate Finance business which was previously curtailed. Also impacting
net income for the quarter was a $6.1 million after tax charge to increase
restructuring reserves established in the first quarter of 1998. Net income for
1999 was $49.8 million or $1.96 per share on a diluted basis for its Class A and
Class B shares combined.
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ADVANTA MORTGAGE - RECORD NUMBER OF DIRECT LOANS ORIGINATED
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Advanta Mortgage increased direct originations 19.7% and broker originations
23.7% over last quarter while maintaining a strict discipline of not
compromising pricing or return goals for volume. Advanta Mortgage reported pro
forma net operating income of $9.0 million this quarter on a basis that is
essentially the same as a portfolio lender, an increase of 13.4% over the $7.9
million reported for third quarter 1999. This increase reflects higher yields on
originations, higher origination volume and an increase in subservicing revenues
from growth in the subservicing portfolio.
The on-balance sheet mortgage portfolio surpassed the $1 billion mark and ended
the year at $1.05 billion, an increase of 67.7% over the $625.4 million reported
at September 30, 1999. The total managed mortgage portfolio was $8.3 billion at
December 31, 1999. The Company's decision to grow the on-balance sheet portfolio
of mortgage loans and reduce securitization income, as well as the other unusual
charges recorded this quarter, resulted in Advanta Mortgage reporting GAAP net
income below that of a portfolio lender by $35.2 million. During 1999, the
Company reduced the IO Strip and CMSR by $75.2 million to $208.3 million at
December 31, 1999 as compared to $283.5 million reported at December 31, 1998.
Advanta Mortgage again increased its lending margin despite increases in market
interest rates. The weighted average yield of mortgage loans originated in the
fourth quarter increased by 72 basis points. The Company has successfully used
technology and its information based strategy to increase marketing efficiency
which resulted in increased effectiveness in direct customer acquisitions.
Direct originations represented 68% of total originations this quarter compared
to 65% in the prior quarter and 37% in the fourth quarter of 1998. At year end,
loans originated through direct to consumer channels represented approximately
42% of the total portfolio as compared to 32% at December 31, 1998.
Consistent with traditional fourth quarter seasonality and the increase in the
average age of the portfolio to 21 months at the end of 1999 from 20 months at
September 30, 1999, the over 30 day delinquency rate was 8.63% as compared to
7.93% reported last quarter. This increase was less than the seasonality
increase reported for the fourth quarter of 1998. The net managed charge-off
rate for home equity loans was 1.08% this quarter compared to 0.86% reported
last quarter, reflecting seasoning of the portfolio.
Advanta Mortgage's sub-serviced portfolio increased to $11.9 billion at the end
of this quarter from $10.5 billion at the end of the third quarter.
ADVANTA BUSINESS CARDS - HIGHER PROFITS FUELED BY NEW ACCOUNTS AND SALES VOLUME
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Advanta Business Cards reported net income of $7.3 million this quarter compared
to $6.0 million last quarter. The increase resulted from growth in the number of
accounts and receivables, continued improvements in portfolio yields, higher
interchange income from increased merchandise sales during the quarter and lower
charge-offs. The average yield on the Company's business credit card portfolio,
<PAGE> 4
including fee income, increased substantially due to increases in rates and
higher fee income. Account originations increased approximately 150% this
quarter as compared to the three months ended September 30, 1999, and
receivables grew at an annualized rate of 35% during the second half of 1999.
Approximately 10% of accounts added this quarter were originated entirely online
through Advanta's website (which provides instant, real time decisioning) as
compared to 2% in previous quarters. Managed receivables for Advanta Business
Cards at the end of the quarter were $1.04 billion.
The credit quality of the business card portfolio improved again this quarter as
the net managed charge-off rate decreased to 3.94%, reflecting a decrease in
total charge-offs this quarter as compared to last quarter. Over 30 day
delinquencies increased less than the Company expected to 3.70% at year end as
compared to 3.42% last quarter; the increase was due to traditional fourth
quarter seasonality.
ADVANTA LEASING SERVICES - CONTINUED GROWTH IN MANAGED PORTFOLIO
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For 1999, Advanta Leasing Services reported net income of $3 million, reflecting
the focus of the new management team on efficiency and productivity initiatives.
As expected, Advanta Leasing reported a net loss this quarter of $386,000,
resulting from lower securitization income. During the first quarter of 2000,
Advanta Leasing will begin to change its strategic focus from less profitable
broker originations to more profitable vendor and direct originations. The
Company also anticipates that Advanta Leasing's results for the first quarter of
2000 will be about break even as it begins to implement these strategic changes,
with the benefits of these efforts to be recognized for the full year 2000 and
thereafter.
Advanta Leasing closed the year with a managed lease portfolio of $796 million,
an increase of 18.7% from the $670 million reported at December 31,1998. Lease
receivables originated this quarter increased to $117.7 million from $112.6
million originated last quarter. Advanta Leasing's over 30 day delinquencies
were 8.76% this quarter as compared to 8.30% last quarter. The net managed
charge-off rate for Advanta Leasing was 4.22% this quarter as compared to 3.76%
reported last quarter.
COMPANY MAINTAINS EXPENSE RATIO
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Advanta's operating expense ratio for the quarter was 3.30% as compared to the
3.24% reported in the third quarter of this year. The Company's disciplined cost
control resulted in an operating expense ratio for 1999 of 3.31% as compared to
3.59% for the full 1998 fiscal year. Total managed receivables for the Company's
businesses at the end of 1999 were $10.2 billion, an increase of 4.6% from $9.8
billion at the end of 1998.
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ADVANTA IMPROVES OPERATING CASH FLOW
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Advanta generated cash flow from operations of approximately $33.6 million this
quarter, an increase of 9.0% over the prior quarter, after considering key
non-cash income and expense items and the cash impact of mortgage 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, mortgage loan origination fees collected by the Company
exceeded premiums and broker fees paid by approximately $18.8 million. In 1999,
the Company generated positive operating cash flow before investments in
subordinated trust assets of approximately $107 million, an increase of over
$175 million from the prior year.
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 approximately $500
million in total liquidity after increasing its on-balance sheet loan portfolio
by approximately $517 million and paying approximately $90 million of Medium
Term Notes and other parent debt maturities during the quarter. At year end, the
Company had financed, with parent and bank funds, loan receivables on its books
totaling $1.5 billion and had available approximately $1.2 billion in unused
warehouse lines and Commercial Paper conduit facilities.
Advanta management will hold a conference call today, January 25, 2000, at 9:00
am Eastern time. Investors will have the opportunity to listen to the call live
over the Internet through Vcall at 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.
Advanta (http://www.advanta.com) is a highly focused financial services company
with over 2,600 employees, approximately $12.0 billion in managed assets and
approximately $11.9 billion in assets serviced for third parties. Advanta
provides consumers and small businesses with innovative products and services
including 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.
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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)
factors that affect consumer debt; (3) competitive pressures; (4) the level of
delinquencies and charge-offs; (5) the rate of prepayments; (6) interest rate
fluctuations; (7) the level of expenses; (8) managed and sub-serviced
receivables volume; (9) the timing of the securitizations of the Company's
receivables; (10) the effects of government regulation; (11) relationships with
significant vendors and customers; (12) the amount and cost of financing
available to the Company; and (13) 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.
January 25, 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.
January 25, 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
------------------------
Elizabeth H. Mai, Senior Vice President,
Secretary and General Counsel
January 25, 2000
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Form 8-K Advanta Corp.
January 25, 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
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Exhibit 99
ADVANTA CORP.
SUPPLEMENTAL CONSOLIDATING INCOME STATEMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, 1999
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ADVANTA ADVANTA
ADVANTA LEASING BUSINESS
MORTGAGE SERVICES CARDS OTHER (a) TOTAL
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REVENUES:
<S> <C> <C> <C> <C> <C>
Gain on sale of receivables $ (16,567) $ 1,464 $ 12,372 $ 0 $ (2,731)
Interest income 32,151 3,325 10,222 14,828 60,526
Servicing revenues 27,112 1,685 3,668 0 32,465
Other 1,048 4,541 11,377 (10,753) 6,213
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Total revenues 43,744 11,015 37,639 4,075 96,473
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EXPENSES:
Operating expenses 55,072 7,671 14,711 8,293 85,747
Interest expense 22,611 2,880 4,496 9,160 39,147
Provision for credit losses 7,586 947 6,107 0 14,640
Minority int. in inc. of consolidated 1,865 155 200 0 2,220
subsidiary
Unusual charges (b) 0 0 0 10,000 10,000
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Total expenses 87,134 11,653 25,514 27,453 151,754
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INCOME (LOSS) BEFORE INCOME TAXES (43,390) (638) 12,125 (23,378) (55,281)
Income tax expense (benefit) (17,140) (252) 4,789 (59,233) (71,836)
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (26,250) $ (386) $ 7,336 $ 35,855 $ 16,555
========= ========= ========= ========= =========
PRO FORMA NET OPERATING INCOME, WITH
RESULTS OF ADVANTA MORTGAGE
REPORTED AS A PORTFOLIO LENDER $ 8,961 (c) $ (386) $ 7,336 $ (835)(d) $ 15,076
========= ========= ========= ========= =========
</TABLE>
(a) Other includes the insurance and venture capital divisions, and the
writedown of assets associated with the Corporate Finance business which
was previously curtailed.
(b) Unusual charges include additional costs associated with products exited
in the first quarter of 1998.
(c) Adjusted to reflect the after-tax effect on earnings of Advanta Mortgage
essentially the same as a portfolio lender. See "Reconciliation to
Portfolio Lender Earnings Format" schedule.
(d) Adjusted to exclude additional costs of $10 million pretax ($6.1 million
after tax) associated with products exited in the first quarter of 1998,
the $12 million pretax charge ($7.3 million after tax) to writedown assets
associated with the Corporate Finance business which was previously
curtailed and the $50 million tax benefit related to the former consumer
credit card business.
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ADVANTA CORP.
RECONCILIATION OF ADVANTA MORTGAGE TO
PORTFOLIO LENDER EARNINGS FORMAT [g]
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, 1999
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ADVANTA
ADVANTA MORTGAGE AS PRO FORMA
MORTGAGE AS PRO FORMA PORTFOLIO REMAINING PRO FORMA
REPORTED ADJUSTMENTS LENDER BUSINESSES CONSOLIDATED
[g]
-------- ----------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Gain on sale of receivables $(16,567) $16,567 [a] $ 0 $ 13,836 $ 13,836
Interest income 32,151 187,142 [b] 219,293 28,375 247,668
Servicing revenues 27,112 (8,034) [c] 19,078 5,353 24,431
Other 1,048 0 1,048 17,165 18,213
-------- -------- -------- -------- --------
Total revenues 43,744 195,675 239,419 64,729 304,148
-------- -------- -------- -------- --------
EXPENSES:
Operating expenses 55,072 1,873 [d] 56,945 30,675 87,620
Interest expense 22,611 119,804 [b] 142,415 16,536 158,951
Provision for credit losses 7,586 15,798 [e] 23,384 7,054 30,438
Minority interest in income of
consolidated subsidiary 1,865 0 1,865 355 2,220
-------- -------- -------- -------- --------
Total expenses 87,134 137,475 224,609 54,620 279,229
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES
(43,390) 58,200 [f] 14,810 10,109 24,919
Income tax expense (benefit) (17,140) 22,989 5,849 3,994 9,843
-------- -------- -------- -------- --------
NET INCOME (LOSS) $(26,250) $ 35,211 $ 8,961 $ 6,115 $ 15,076
-------- -------- -------- -------- --------
</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. This amount is net of the increase
in the on-balance sheet provision resulting from the Company's decision
to reduce securitization volume and increase its on-balance sheet
mortgage loan portfolio.
[f] Represents the impact of substantially reduced securitization volume as
well as the increase in off-balance sheet reserves and discount rate on
existing retained interests from securitizations.
[g] The remaining businesses are adjusted to exclude the $7.3 million after
tax charge to write down assets associated with the Corporate Finance
business which was previously curtailed, additional costs of $6.1 million
after tax associated with products exited in the first quarter of 1998
and the $50 million tax benefit related to the former consumer credit
card business.
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<TABLE>
<CAPTION>
ADVANTA CORP.
HIGHLIGHTS
($ IN THOUSANDS)
THREE MONTHS ENDED
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PERCENT CHANGE
ORIGINATIONS DECEMBER 31, SEPTEMBER 30, DECEMBER 31, FROM
1999 1999 1998 PRIOR QUARTER
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<S> <C> <C> <C> <C>
Direct $ 441,299 $ 368,654 $ 506,819 19.7%
Broker 154,840 125,204 128,285 23.7
Conduit 47,486 66,952 388,594 -29.1
Corp. Finance 960 6,505 330,677 -85.2
Auto 0 0 6,298 0.0
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Total Advanta Mortgage loans $ 644,585 $ 567,315 $ 1,360,673 13.6%
Leases $ 117,677 $ 112,615 $ 99,797 4.5%
Business cards 605,097 484,727 399,080 24.8
SECURITIZATION/SALES VOLUME
Advanta Mortgage $ 163,542 $ 746,893 $ 1,124,060 -78.1%
Leases 105,300 106,953 89,105 -1.5
Business cards 35,942 257,750 24,024 -86.1
------------ ------------ ------------ ------------
Total securitization/sales volume $ 304,784 $ 1,111,596 $ 1,237,189 -72.6%
AVERAGE MANAGED RECEIVABLES
Mortgage loans $ 8,261,925 $ 8,278,435 $ 7,705,545 -0.2%
Auto loans 93,189 111,357 224,515 -16.3
Leases 766,871 741,571 638,399 3.4
Business cards 974,025 906,032 789,220 7.5
Other loans 17,643 17,322 17,866 1.9
------------ ------------ ------------ ------------
Total average managed receivables $ 10,113,653 $ 10,054,717 $ 9,375,545 0.6
Total average serviced receivables $ 21,239,095 $ 20,029,536 $ 17,123,098 6.0%
ENDING MANAGED RECEIVABLES
Mortgage loans $ 8,299,685 $ 8,260,900 $ 8,074,295 0.5%
Auto loans 83,851 101,045 210,951 -17.0
Leases 795,643 780,653 670,240 1.9
Business cards 1,040,114 930,009 814,734 11.8
Other loans 21,930 17,478 17,862 25.5
------------ ------------ ------------ ------------
Total managed receivables $ 10,241,223 $ 10,090,085 $ 9,788,082 1.5
Total serviced receivables $ 22,142,890 $ 20,573,310 $ 18,066,410 7.6%
IO AND CMSR ROLLFORWARD
Beginning balance $ 245,551 $ 247,071
Retained IO on sales, net 3,701 35,600
Hedge impact (201) (1,513)
Transaction expenses 0 2,796
Interest income 14,030 11,209
Cash received (44,365) (49,974)
Additional reserves (10,439) 0
Other, net 0 362
------------ ------------
Ending balance $ 208,277 $ 245,551
</TABLE>
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ADVANTA CORP.
HIGHLIGHTS (CONTINUED)
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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PERCENT
CHANGE
FROM
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, PRIOR QUARTER
1999 1999 1998
----------------- ----------------- ------------------ ---------------
EARNINGS
<S> <C> <C> <C> <C>
As a % of average managed receivables:
Operating expenses 3.30% 3.24% 3.90% 1.9%
Charge-offs 1.80 1.59 1.45 13.1
Basic earnings per common share $ 0.67 $ 0.57 $ 0.16 17.5
Diluted earnings per common share $ 0.66 $ 0.55 $ 0.16 19.7
Return on average common equity 11.45% 9.98% 2.98% 14.7
COMMON STOCK DATA
Weighted average common shares
used to compute:
Basic earnings per common share 24,611 23,413 23,185 5.1%
Diluted earnings per common share 25,139 23,990 23,194 4.8
Ending shares outstanding 27,344 27,086 25,643 1.0
Stock price:
Class A
High $ 20.375 $ 23.938 $ 14.875 -14.9%
Low 14.625 14.625 7.125 0.0
Closing 18.250 14.625 13.250 24.8
Class B
High $ 15.875 $ 19.125 $ 12.000 -17.0
Low 10.438 11.375 5.250 -8.2
Closing 14.063 11.750 11.063 19.7
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) $ 23.14 $ 22.65 $ 22.19 1.7%
</TABLE>
(A) Assumes conversion of the Class B Preferred Stock for periods prior to
September 1999.
-Statistical Supplement Available Upon Request-
