-----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, NQlhs3GdGGm66WgA6xyoAhw1dfV8CP5qHyW8cCmDtMKd/lroab8nuGRNoROdk9CS 0U7Ejq8b8BA9ScwORgyirg== 0000096638-98-000011.txt : 19981028 0000096638-98-000011.hdr.sgml : 19981028 ACCESSION NUMBER: 0000096638-98-000011 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19981027 SROS: NASD 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: 98731560 BUSINESS ADDRESS: STREET 1: P.O. BOX 844 STREET 2: WELSH & MCKEAN ROADS CITY: SPRING HOUSE STATE: PA ZIP: 19044 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 PRESS RELEASE 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 27,1998 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 Item 5. Other Events On October 27, 1998 Advanta Corp. (the "Company" or "Advanta") announced that its net income for the third quarter of 1998 was $15 million, or $0.58 per share on a diluted basis for its Class A and Class B shares combined. This represents an increase of $5.5 million, or 59% from the net income of $9.5 million that was reported in the second quarter of this year. Advanta also announced that it closed the quarter in a strong cash position with approximately $400 million of unrestricted cash and equivalents at the parent and approximately $485 million in unrestricted cash and equivalents at its two banks after paying down approximately $170 million in long term debt this quarter. Additionally, the Company had a strong capital position with equity, including capital securities, of approximately $667 million. Advanta also announced that beginning in the fourth quarter of this year, it expects to report income for its mortgage business that is essentially equal to that of a portfolio lender, rather than the front-ended income typically reported through gain on sale accounting. Since gain on sale accounting is required under generally accepted accounting principles for securitizations structured as sales, the Company will accomplish this change by increasing its use of on balance sheet funding and decreasing its degree of reliance on securitizations structured as sales. This will include greater use of deposit funding through the Company's two banks and the use of other funding sources which are accounted for as debt. Because of the Company's strong liquidity position, significant tangible net worth and its past success in raising deposits at its banks, it is in a position to make this change. The Company is now revising its previous guidance on fourth quarter earnings. Under the new method, Advanta expects net income in the fourth quarter of this year to be approximately $4 million, which translates into 1998 full year net income from its ongoing Mortgage and Business Services businesses of approximately $35 million. Operations The Company continued to increase loan production at its mortgage and business services units. Loans originated by these businesses were approximately $2 billion this quarter and total managed receivables expanded to $8.9 billion at the end of the quarter. Advanta Mortgage originated $1.6 billion in new loans during this quarter bringing originations for the nine months ended September 30, 1998 to $4.0 billion. Advanta Mortgage closed the quarter with managed receivables of $7.5 billion and a contract servicing portfolio of $7.6 billion. Advanta Business Services originated $350 million in business credit card receivables and $95 million in lease receivables this quarter and closed the quarter with a portfolio of loans and leases of $1.4 billion. The Company's operating expenses this quarter totaled $80.2 million, or 3.73% of average managed receivables down from 3.86% last quarter. Liquidity Advanta was highly liquid at September 30, 1998. After paying down approximately $170 million of Medium Term Notes which matured, the Company had approximately $400 million in unrestricted cash and equivalents at the parent and $485 million of unrestricted cash and equivalents at its two banks. The Company had financed with parent and bank funds loans totaling $939 million that were on the books awaiting sale or settlement. At September 30, 1998, the Company had available $881 million in unused warehouse lines and Commercial Paper conduit facilities. Importantly, the Company also has the ability to fund its business through its two FDIC insured banks. During this quarter, Advanta Mortgage completed three securitizations with an aggregate principal balance of $1.1 billion. In addition, the Company sold $109 million in whole loans and increased its portfolio of loans held in off-balance sheet Commercial Paper conduit facilities and other off-balance sheet facilities by approximately $530 million. Securitization Income in the Third Quarter Advanta Mortgage recognized $56 million in gains resulting from the securitization and sale of its receivables. In this quarter, in accordance with Advanta's practice of regularly reviewing and, where appropriate, adjusting the gain receivable ("IO Strip") assumptions for its experience, the Company recognized a pretax charge against third quarter earnings of $17 million. Prepayment rate assumptions used in valuing the Company's IO Strip were revised to 29% for fixed rate loans, 37% for intermediate rate loans and 43% for ARMs. At the end of the second quarter the prepayment assumptions were 27% for fixed rate loans, 33% for intermediate rate loans and 39% for ARMs. Advanta Business Services recognized $12.8 million in securitization income which included approximately $3.6 million in gains from the securitization of $78 million of leases. The remainder represents excess servicing income received from business card loans. Credit Quality Net managed charge-offs for home equity loans were 0.56% this quarter compared to 0.61% last quarter. The combined over 30 day delinquency rate for home equity and auto loans of 7.16% was slightly above the 6.86% for the last quarter. Net managed charge-offs on business credit card loans of 5.79% this quarter were better than the 6.57% last quarter as a result of the changes in underwriting standards that were implemented over a year ago. For the lease portfolio, net managed charge- offs of 2.29% this quarter were comparable to the 2.26% rate experienced last quarter. The combined over 30 day delinquency rate for business loans and leases was 5.83% this quarter compared to 5.22% last quarter due to temporary timing differences. Advanta is a highly focused financial services company with 2,600 employees, over $11 billion in managed assets and $7.6 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 Press Release 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. Form 8-K Advanta Corp. October 27, 1998 Item 7. Financial Statements and Exhibits. (c) Exhibits: The following exhibits are filed as part of this Report on Form 8-K. 27 Financial Data Schedule. 99 Selected Summary Financial Data. Form 8-K Advanta Corp. October 27, 1998 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 27, 1998 Form 8-K Advanta Corp. October 27, 1998 Index to Exhibits Exhibit Number Per Item 60l of Regulation S-K Description of Document 27 Financial Data Schedule. 99 Selected Summary Financial Data Exhibit 99 Advanta Corp. Highlights Supplemental Consolidating Income Statement (in thousands) Three Months Ended September 30, 1998 Advanta Advanta Business Mortgage Services Other Total (A) Revenues: Gain on sale of receivables $38,494 $12,781 $ $51,275 Interest income 28,663 9,726 11,915 50,304 Servicing revenues 26,082 4,595 30,677 Imputed interest 4,895 4,895 Other 1,291 8,000 840 10,131 Total revenues 99,425 35,102 12,755 147,282 Expenses: Operating expenses 59,175 19,961 1,103 80,239 Interest expense 22,070 5,180 11,915 39,165 Provision for credit losses 3,724 2,690 6,414 Total expenses 84,969 27,831 13,018 125,818 Income before income taxes 14,456 7,271 (263) 21,464 Provision for income taxes 4,337 2,181 (79) 6,439 Net income $10,119 $ 5,090 $ (184) 15,025 (A) Other includes the insurance and venture capital divisions. Advanta Corp. Highlights ($ in thousands, except per share data) Three Months Ended Percent Change September 30, June 30, September 30, from ORIGINATIONS (A) 1998 1998 1997 Prior Quarter Direct $ 483,290 $ 382,242 $ 219,837 26.4% Broker 162,531 106,188 62,096 53.1 Conduit 584,418 376,145 332,460 55.4 Corp. Finance 320,871 324,484 292,500 -1.1 Auto 18,593 58,356 42,633 -68.1 Total Advanta Mortgage loans $ 1,569,703 $ 1,247,415 $ 949,526 25.8% Leases $ 95,344 $ 74,352 $ 84,567 28.2% Business cards 349,645 348,222 294,001 0.4 Total leases and business cards $ 444,989 $ 422,574 $ 378,568 5.3% SECURITIZATION/SALES VOLUME (A) Advanta Mortgage $ 1,508,537 $ 1,215,097 $ 922,927 24.1% Leases and business cards 105,613 135,426 90,766 -22.0 Total securitization/ sales volume $ 1,614,150 $ 1,350,523 $ 1,013,693 19.5% AVERAGE MANAGED RECEIVABLES (A) Advanta Mortgage loans $ 7,085,359 $ 6,208,526 $ 4,233,530 14.1% Leases and business cards 1,380,195 1,340,936 1,135,803 2.9 Other loans 17,704 14,785 37,450 19.7 Total average managed receivables $ 8,483,258 $ 7,564,247 $ 5,406,783 12.1 Total average serviced receivables $16,490,158 $15,898,544 $13,541,695 3.7% ENDING MANAGED RECEIVABLES (A) Mortgage loans $ 7,454,791 $ 6,646,001 $ 4,582,133 12.2% Total serviced mortgage loans 15,050,208 14,818,228 13,525,696 1.6 Leases and business cards 1,415,806 1,377,316 1,200,748 2.8 Other loans 17,763 17,649 37,321 0.6 Total managed receivables $ 8,888,360 $ 8,040,966 $ 5,820,202 10.5 Total serviced receivables $16,483,777 $16,213,193 $14,763,765 1.7% KEY IO ASSUMPTIONS Assumed Prepayments Rates Fixed 29% 27% ARMs 43% 39% Intermediate 37% 33% Assumed loss rate 95bp 95bp Assumed discount rate 14% 14% (A) Excludes consumer credit card business. Advanta Corp. Highlights ($ in thousands, except per share data) Three Months Ended Percent Change from EARNINGS Sept. 30, June 30, Sept. 30, Prior 1998 1998 1997 Quarter As a % of average managed receivables (A): Operating expenses 3.73% 3.86% 3.30% -3.4% Charge-offs 1.35 1.49 5.39 -9.4 Earnings per common share $ 0.58 $ 0.35 $ 0.95 65.7 Diluted earnings per share 0.58 0.35 0.92 65.7 Return on average common equity 10.59% 6.37% 21.27% 66.2% COMMON STOCK DATA Weighted average common shares used to compute: Earnings per common share 24,482 24,523 42,875 -0.2% Diluted earnings per share 24,514 24,702 46,115 -0.8 Ending shares outstanding (B) 26,021 25,368 44,305 2.6 Stock price: Class A High $22.750 $26.250 $37.500 -13.3 Low 9.375 19.250 26.188 -51.3 Closing 12.875 21.938 29.125 -41.3 Class B High 20.563 24.250 36.500 -15.2 Low 8.250 17.500 24.750 -52.9 Closing 10.500 19.875 27.250 -47.2 Cash dividends declared Class A 0.063 0.063 0.110 0.0 Class B 0.076 0.076 0.132 0.0 Book value per common share 20.39 20.32 18.04 0.3 (A) Includes consumer credit card business (where applicable). (B) Includes the repurchase through September 30, 1998 of 372,000 Class A shares for the Company's ESOP. Through October 23, 1998, the Company had repurchased 309,800 Class B shares and 1,002,500 Class A shares under its stock buy back program including 947,500 Class A shares for its ESOP. ADVANTA CORP. Guidance Information ($ in millions) Note: All data relates to the managed portfolio unless otherwise noted Updated as of October 27, 1998 Ending Receivables Advanta Mortgage $8,000 to $9,000 Mortgage Loans Serviced for Fee $7,000 to $8,000 Advanta Business Services $1,500 to $1,800 Revenue Assumptions Advanta Mortgage: Gain on sale (as a % of receivables securitized or sold) 3.80% to 4.20%(A) Servicing fee income (as a % of average serviced receivables) 55 bps to 65 bps Advanta Business Services: Securitization income (as a % of leases securitized and business credit card loans originated) 2.25% to 2.75% Fee income 3.50% to 4.50%(A) IO Strip Valuation Assumptions as of September 30, 1998: Assumed Prepayment Rates Fixed 29.0%(A) ARMs 43.0%(A) Intermediate 37.0%(A) Assumed loss rate 95 bps Assumed discount rate 14% Net Charge-Off Ratios Advanta Mortgage 80 bps to 90 bps (A) Advanta Business Services 400 bps to 450 bps Operating Expenses 3.60% to 3.90% Equity/Managed Assets(B) 5.00% to 6.00%(A) Segment Net Income Advanta Mortgage Approx. $25(A) Advanta Business Services Approx. $10 Net Income 4th Quarter Approx $4(A) Note: The above information reflects the Company's good-faith estimates of certain preliminary projected results for 1998. This information is subject to various risks and uncertainties, as described in the accompanying press release. (A) Indicates modification to previous guidance (B) Equity includes Capital Securities EX-27 2 FINANCIAL DATA SCHEDULE
9 1000 9-MOS DEC-31-1998 SEP-30-1998 80214 373556 302800 186923 573762 0 0 882466 19153 3370623 1284929 1187365 230847 744557 0 1010 265 566207 3370623 99922 71116 0 171038 62747 80189 28102 47220 5411 419077 432269 432269 0 0 443282 15.80 14.88 1.41 38561 36 0 0 137773 53995 6685 19153 15419 0 3734
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