-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OarkMk7xxL1ekP92dwfIQYz1hS0tiesi6D9muubNWZTxaNQkGyjJODWTtKDrISYv kUmc9cHFpZeBYIPvjlt+hw== 0000893220-99-001211.txt : 19991027 0000893220-99-001211.hdr.sgml : 19991027 ACCESSION NUMBER: 0000893220-99-001211 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991026 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19991026 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVANTA CORP CENTRAL INDEX KEY: 0000096638 STANDARD INDUSTRIAL CLASSIFICATION: PERSONAL CREDIT INSTITUTIONS [6141] IRS NUMBER: 231462070 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-14120 FILM NUMBER: 99734180 BUSINESS ADDRESS: STREET 1: P.O. BOX 844 STREET 2: WELSH & MCKEAN ROADS CITY: SPRING HOUSE STATE: PA ZIP: 19477 BUSINESS PHONE: 2156574000 MAIL ADDRESS: STREET 1: BRANDYWINE CORPORATE CENTER STREET 2: 650 NAAMANS ROAD CITY: CLAYMONT STATE: DE ZIP: 19703 FORMER COMPANY: FORMER CONFORMED NAME: TSO FINANCIAL CORP DATE OF NAME CHANGE: 19880306 FORMER COMPANY: FORMER CONFORMED NAME: TEACHERS SERVICE ORGANIZATION INC DATE OF NAME CHANGE: 19850812 8-K 1 ADVANTA CORPORATION FORM 8-K 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): October 26, 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 ----------------- 2 Item 5. Other Events ------------ 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 3 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 4 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 5 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. 6 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. 7 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 8 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 EX-99 2 SELECTED SUMMARY FINANCIAL DATA 1 Exhibit 99 ADVANTA CORP. SUPPLEMENTAL CONSOLIDATING INCOME STATEMENT (IN THOUSANDS)
THREE MONTHS ENDED SEPTEMBER 30, 1999 --------------------------------------------------------------------- ADVANTA ADVANTA ADVANTA LEASING BUSINESS MORTGAGE SERVICES CARDS OTHER (a) TOTAL -------- -------- -------- -------- -------- 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 ======== ======== ======== ======== ========
(a) Other includes the insurance and venture capital divisions. -more- 2 ADVANTA CORP. RECONCILIATION TO PORTFOLIO LENDER EARNINGS FORMAT (IN THOUSANDS)
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 --------- --------- --------- --------- --------- 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 --------- --------- --------- --------- ---------
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- 3 ADVANTA CORP. HIGHLIGHTS ($ IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED ----------------------------------------------------------------------- PERCENT CHANGE SEPTEMBER 30, JUNE 30, SEPTEMBER 30, FROM 1999 1999 1998 PRIOR QUARTER ORIGINATIONS ------------ ------------ ----------- ------------- 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
-more- 4 ADVANTA CORP. HIGHLIGHTS (CONTINUED) ($ IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED -------------------------------------------------------------------- PERCENT CHANGE FROM SEPTEMBER 30, JUNE 30, SEPTEMBER 30, PRIOR 1999 1999 1998 QUARTER ------------- ------------- -------------- ----------- 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%
(A) Assumes conversion of the Class B Preferred Stock for periods prior to September 1999. -Statistical Supplement Available Upon Request- -----END PRIVACY-ENHANCED MESSAGE-----