-----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, VYDwfBhkGB3PmYZEg+aGJw46ASqG7q35F9zPo0+le9FYRKGgqXJCIWKeoBKDl063 BtRkcdbXnnJVI1iP8lJfPw== 0000096638-95-000022.txt : 19951119 0000096638-95-000022.hdr.sgml : 19951119 ACCESSION NUMBER: 0000096638-95-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14120 FILM NUMBER: 95589354 BUSINESS ADDRESS: STREET 1: 650 NAAMANS RD STREET 2: BRANDYWINE CORP CTR CITY: CLAYMONT STATE: DE ZIP: 19703 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 10-Q 1 Form 10Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 1995 or [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______ to _______ Commission File Number 0-14120 Advanta Corp. (Exact name of registrant as specified in its charter) Delaware 23-1462070 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Brandywine Corporate Center, 650 Naamans Rd., Claymont, DE 19703 (Address of Principal Executive Offices) (Zip Code) (302) 791-4400 (Registrant's telephone number, including area code) ____________________________________________________________________ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ * Applicable only to issuers involved in bankruptcy proceedings during the preceding five years: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No ____ * Applicable only to corporate issuers: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class A Outstanding at November 1, 1995 Common Stock, $.01 par value 17,477,272 shares Class B Outstanding at November 1, 1995 Common Stock, $.01 par value 23,977,263 shares Table of Contents Page Part I - Financial Information Item 1. Financial Statements Consolidated Condensed Balance Sheets 3 Consolidated Condensed Income Statements 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Part II - Other Information 27 ADVANTA CORP. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in thousands) September 30, December 31, 1995 1994 ASSETS (Unaudited) Cash $ 43,723 $ 43,706 Federal funds sold and interest-bearing deposits with banks 591,890 352,902 Investments available for sale 445,650 318,759 Loan and lease receivables, net: Available for sale 570,311 573,076 Other loan and lease receivables, net 1,173,645 1,406,378 Total loan and lease receivables, net 1,743,956 1,979,454 Premises and equipment, net 36,832 33,219 Amounts due from credit card securitizations 170,554 144,483 Other assets 317,263 240,525 Total assets $3,349,868 $3,113,048 LIABILITIES Deposits $1,461,036 $1,159,358 Debt and other borrowings 1,103,711 1,403,128 Other liabilities 149,910 108,872 Total liabilities 2,714,657 2,671,358 STOCKHOLDERS' EQUITY Class A preferred stock, $1,000 par value: authorized, issued and outstanding -- 1,010 shares in 1995 and 1994 1,010 1,010 Class B preferred stock, $.01 par value: authorized -- 1,000,000 shares; issued -- 25,000 shares in 1995 0 0 Class A common stock, $.01 par value: authorized -- 200,000,000 shares; issued -- 17,474,272 shares in 1995 and 17,347,468 in 1994 175 173 Class B common stock, $.01 par value: authorized -- 200,000,000 shares; issued -- 23,911,887 in 1995 and 23,131,498 in 1994 239 231 Additional paid in capital, net 275,012 176,465 Retained earnings, net 358,906 263,811 Less: Treasury stock at cost, 5,855 Class B common shares in 1995 (131) 0 Total stockholders' equity 635,211 441,690 Total liabilities and stockholders' equity $3,349,868 $3,113,048 See Notes to Consolidated Condensed Financial Statements ADVANTA CORP. AND SUBSIDIARIES CONSOLIDATED CONDENSED INCOME STATEMENTS (In thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 (Unaudited) (Unaudited) Interest income: Loans and leases $ 44,218 $ 32,050 $130,787 $ 99,029 Investments 12,264 7,300 33,658 20,346 Total interest income 56,482 39,350 164,445 119,375 Interest expense: Deposits 18,731 11,091 48,037 35,011 Other debt 22,791 11,528 67,166 29,943 Total interest expense 41,522 22,619 115,203 64,954 Net interest income 14,960 16,731 49,242 54,421 Provision for credit losses 10,603 5,750 28,111 28,013 Net interest income after provision for credit losses 4,357 10,981 21,131 26,408 Noninterest revenues: Gain on sale of credit cards 0 0 0 18,352 Other noninterest revenues 136,221 97,202 381,293 266,136 Total noninterest revenues 136,221 97,202 381,293 284,488 Operating expenses: Amortization of credit card deferred origination costs, net 19,283 12,717 51,401 27,364 Other operating expenses 67,013 53,313 196,907 161,700 Total operating expenses 86,296 66,030 248,308 189,064 Income before income taxes 54,282 42,153 154,116 121,832 Provision for income taxes 19,368 15,386 55,019 44,384 Net income $ 34,914 $ 26,767 $ 99,097 $ 77,448 Earnings per common share $ .81 $ .65 $ 2.35 $ 1.88 Weighted average common shares outstanding 43,133 41,192 42,125 41,095 See Notes to Consolidated Condensed Financial Statements ADVANTA CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Nine Months Ended September 30, 1995 1994 OPERATING ACTIVITIES (Unaudited) Net income $ 99,097 $ 77,448 Adjustments to reconcile net income to net cash provided by operating activities: Proceeds from sales/securitizations of receivables 3,129,521 1,656,566 Equity securities gain (3,844) 0 Purchase of mortgage/lease portfolios (202,014) (129,900) Principal collected on mortgages 21,240 17,352 Mortgages made to customers (385,497) (337,215) Depreciation and amortization of intangibles 7,665 5,712 Provision for credit losses 28,111 28,013 Change in other assets and amounts due from credit card securitizations (79,585) (22,940) Change in other liabilities 53,963 28,899 Gain on securitization of mortgages and leases (28,821) (20,013) Net cash provided by operating activities 2,639,836 1,303,922 INVESTING ACTIVITIES Purchase of investments available for sale (1,771,828) (1,560,723) Proceeds from sales of investments available for sale 1,217,497 662,896 Proceeds from maturing investments available for sale 435,495 901,248 Change in fed funds sold and interest-bearing deposits (224,864) (61,374) Change in credit card receivables, excluding (2,228,764) (1,241,494) sales Change in premises and equipment (10,975) (12,783) Excess of cash collections over income recognized on direct financing leases 18,432 14,458 Equipment purchased for direct financing lease contracts (170,247) (111,399) Net change in other loans (1,825) (3) Net cash used by investing activities (2,737,079) (1,409,174) FINANCING ACTIVITIES Change in demand and savings deposits (39,428) 68,431 Proceeds from deposits sold 30,018 0 Proceeds from sales of time deposits 798,227 290,799 Payments for maturing time deposits (487,139) (598,530) Change in repurchase agreements/other borrowings (330,455) 164,450 Proceeds from issuance of subordinated debt 35,206 22,027 Payments on redemption of subordinated debt (43,098) (44,051) Proceeds from issuance of medium-term notes 185,039 217,774 Proceeds from issuance of notes payable 416,006 2,300 Repayment of notes payable (550,983) (9,787) Proceeds from issuance of stock 93,228 3,836 Cash dividends paid (9,361) (6,867) Net cash provided by financing activities 97,260 110,382 Net increase in cash 17 5,130 Cash at beginning of period 43,706 31,162 Cash at end of period $ 43,723 $ 36,292 See Notes to Consolidated Condensed Financial Statements ADVANTA CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in thousands) September 30, 1995 1) In the opinion of management, the accompanying audited and unaudited consolidated condensed financial statements contain all adjustments necessary to present fairly the financial position of Advanta Corp. and Subsidiaries as of September 30, 1995 and December 31, 1994, the results of their operations for the three and nine month periods ended September 30, 1995 and 1994, and their cash flows for the nine month periods ended September 30, 1995 and 1994. The results of operations for the three and nine month periods ended September 30, 1995 are not necessarily indicative of the results to be expected for the full year. Certain prior period amounts have been reclassified to conform with current year classifications. With respect to operating expenses, the Company is including the amortization of credit card deferred origination costs, net of deferred fees, in operating expenses rather than as a component of interest income as these net costs are linked to the privilege period of the cards and not to the credit card receivables. 2) Investments available for sale include securities that the Company sells from time to time to provide liquidity and in response to changes in the market. Debt and equity securities classified as available for sale are reported at market value. Unrealized gains and losses on these securities (except those held by the Company's venture capital unit, Advanta Partners LP) are reported as a separate component of stockholders' equity and included in retained earnings. Changes in the fair value of Advanta Partners LP investments are reported in noninterest revenues as equity securities gains or losses. 3) Loan and lease receivables available for sale represent receivables currently on the balance sheet that the Company generally intends to sell or securitize within the next six months. These receivables are reported at the lower of book or fair market value. 4) Loan and lease receivables on the balance sheet, including those available for sale, consisted of the following: September 30, December 31, 1995 1994 Gross loan and lease receivables $1,722,437 $1,964,444 Add: Deferred origination costs, net of deferred fees 61,779 56,627 Less: Reserve for credit losses (40,260) (41,617) Loan and lease receivables, net $1,743,956 $1,979,454 Number of Accounts: Credit cards 311,638 337,662 Other loans and leases 10,117 14,034 Total 321,755 351,696 Receivables and accounts serviced for others consisted of the following: September 30, December 31, 1995 1994 Receivables: Credit cards $6,828,152 $4,808,257 Mortgage loans 1,501,649 1,203,226 Leases 258,445 179,310 Total $8,588,246 $6,190,793 Number of Accounts: Credit cards 4,045,623 3,490,354 Mortgage loans 28,109 24,668 Leases 54,623 35,537 Total 4,128,355 3,550,559 5) The Company accounts for credit card origination costs under Statement of Financial Accounting Standards No. 91, "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases" ("SFAS 91"). This accounting standard requires certain loan and lease origination fees and costs to be deferred and amortized over the life of a loan or lease as an adjustment to interest income. Origination costs are defined under this standard to include costs of loan origination associated with transactions with independent third parties and certain costs relating to underwriting activities and preparing and processing loan documents. The Company engages third parties to solicit and originate credit card account relationships. Amounts deferred under these arrangements were $49.4 million and $35.2 million in the first nine months of 1995 and 1994, respectively. The Company amortizes deferred credit card origination costs under Issue 93-1 of the Emerging Issues Task Force ("EITF Issue 93-1") of the Financial Accounting Standards Board regarding the acquisition of individual credit card accounts from independent third parties. EITF Issue 93-1 stated that credit card accounts acquired individually should be accounted for as originations under SFAS 91 and EITF Issue 92-5. Amounts paid to a third party to acquire individual credit card accounts should be deferred and netted against the related credit card fee, if any, and the net amount should be amortized on a straight line basis over the privilege period. If a significant fee is charged, the privilege period is the period that the fee entitles the cardholder to use the card. If there is no significant fee, the privilege period should be one year. Direct origination costs incurred related to credit card account originations initiated after EITF Issue 93-1 are deferred and amortized over 12 months. Costs incurred for originations which were initiated prior to EITF Issue 93-1 will continue to be amortized over a 60 month period as was the practice prior to the EITF 93-1 consensus. The Company records excess servicing income on credit card securitizations representing additional cash flow from the receivables initially sold based on the repayment term, including prepayments. Prior to the EITF Issue 93-1 consensus, net gains were not recorded at the time each transaction was completed as excess servicing income was offset by the write-off of deferred origination costs and the establishment of recourse reserves. Subsequent to the prospective adoption discussed above, excess servicing income has been recorded at a lower level at the time of each transaction, and is predominantly offset by the establishment of recourse reserves. The lower level of excess servicing income corresponds with the discontinuance of deferred origination cost write-offs upon securitization of receivables. During the "revolving period" of each securitization, income is recorded based on additional cash flows from the new receivables which are sold to the securitization trust on a continual basis to replenish the investors' interest in trust receivables which have been repaid by the credit cardholders. 6) The following table shows the changes in the reserve for credit losses for the periods presented: Nine Months Ended Year Ended September 30, December 31, 1995 1994 Balance, beginning of period $ 41,617 $ 31,227 Current provision 28,111 34,198 Transfer of recourse reserves to on-balance sheet reserves 1,100 11,485 Net charge-offs (30,568) (35,293) Balance, end of period $ 40,260 $ 41,617 7) At September 30, 1995 and December 31, 1994, the Company had $170.6 million and $144.5 million, respectively, of amounts due from credit card securitizations. These amounts include excess servicing, accrued interest receivable and other amounts related to these securitizations and are net of recourse reserves established. A portion of these amounts is subject to liens held by the providers of credit enhancement facilities for the respective securitizations. 8) Selected Balance Sheet Information Other Assets September 30, December 31, 1995 1994 Excess mortgage servicing rights $ 95,397 $ 73,223 Prepaid assets 70,167 33,895 Accrued interest receivable 48,254 39,353 Investments in operating leases 11,124 13,123 Deferred costs 11,035 9,500 Excess servicing - leasing 9,102 5,949 Due from trustees - mortgage 8,394 6,295 Goodwill 5,062 5,318 Other real estate owned 4,294 4,564 Current and deferred federal income taxes 0 18,658 Due from trustees - leasing 2,580 2,010 Other 51,854 28,637 Total other assets $317,263 $240,525 Other Liabilities September 30, December 31, 1995 1994 Deferred fees and other reserves $33,066 $ 42,855 Accounts payable and accrued expenses 27,202 31,380 Accrued interest payable 36,916 10,640 Current and deferred federal income taxes 10,142 0 Current and deferred state income taxes 8,509 6,813 Other 34,075 17,184 Total other liabilities $149,910 $108,872 9) Income tax expense reflects an effective tax rate of approximately 35.7% for the three and nine month periods ended September 30, 1995, compared to 36.5% for both comparable 1994 periods. The Company accounts for income taxes under the Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Income tax expense consisted of the following components: Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 Current: Federal $10,210 $12,106 $42,298 $42,582 State 1,329 790 4,847 5,286 Total current 11,539 12,896 47,145 47,868 Deferred: Federal 7,667 2,791 7,138 (3,433) State 162 (301) 736 (51) Total deferred 7,829 2,490 7,874 (3,484) Total tax expense $19,368 $15,386 $55,019 $44,384 The reconciliation of the statutory federal income tax to the consolidated tax expense is as follows: Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 Statutory federal income tax $19,014 $14,739 $53,956 $42,640 State income taxes 969 317 3,629 3,402 Tax-free income (227) (289) (821) (858) Other (388) 619 (1,745) (800) Consolidated tax expense $19,368 $15,386 $55,019 $44,384 The net deferred tax asset is comprised of the following: September 30, December 31, 1995 1994 Deferred taxes: Gross assets $70,638 $ 78,602 Gross liabilities (61,850) (52,344) Total deferred taxes $ 8,788 $ 26,258 The Company did not record any valuation allowances against deferred tax assets at September 30, 1995 and December 31, 1994. The tax effect of significant temporary differences representing deferred tax assets and liabilities is as follows: September 30, December 31, 1995 1994 SFAS 91 $(21,087) $(20,034) Loan losses 26,821 14,965 Mortgage banking income 2,296 10,174 Securitization income (34,278) (28,949) Leasing income 29,979 42,473 Other 5,057 7,629 Net deferred tax asset $ 8,788 $ 26,258 10) The Company has adopted several management incentive plans designed to provide incentives to participating employees to remain in the employ of the Company and devote themselves to its success. Under these plans, certain eligible employees were required and others were given the opportunity to elect to take portions of their anticipated or "target" bonus payments for future years in the form of restricted shares of common stock. The restricted shares are subject to forfeiture should the employee terminate employment with the Company prior to vesting. The shares become unrestricted over time, which can be accelerated if certain performance criteria are met. At September 30, 1995, a total of 1,335,447 shares issued under these plans were subject to restrictions and were included in the number of shares outstanding. These shares are considered common stock equivalents in the calculation of earnings per common share. Deferred compensation of $21.8 million and $14.2 million related to these shares of restricted stock is reflected as a reduction of equity at September 30, 1995 and December 31, 1994, respectively. 11) In April 1994, the Company, through its subsidiary, Colonial National Bank USA ("Colonial National" or the "Bank"), reached an agreement with NationsBank of Delaware, N.A., to sell certain credit card customer relationships which at that time represented approximately $150 million of securitized credit card receivables (less than 4% of the Company's managed credit card receivables as of June 30, 1994). In the second quarter of 1994, the Company recorded an $18.4 million pretax gain on the sale related to the value associated with the customer relationships. In addition, the Company deferred a portion of the proceeds related to the excess spread of the receivables over the remaining life of the securitization trust, which terminated in the second quarter of 1995. These proceeds were recognized as securitization income over the related period. While the accounts related to these customer relationships were transferred to NationsBank upon termination of the securitization trust, these accounts were serviced by Colonial National at market rates until the systems conversion to NationsBank was completed, which occurred in July 1995. 12) On August 21,1995,in a public offering, the Company sold 2,500,000 depositary shares each representing a one-hundredth interest in a share of Stock Appreciation Income Linked Securities ("SAILS"). The SAILS constitute a series of the Company's Class B Preferred Stock, designated as 6 3/4% Convertible Class B Preferred Stock, Series 1995 (SAILS). Proceeds from the offering, net of underwriting discount, were approximately $90 million. The Company will use the proceeds of the offering for general corporate purposes, including financing the growth of its subsidiaries. 13) The following table shows the calculation of earnings per common share: Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 Net income $34,914 $26,767 $99,097 $77,448 less: preferred dividends 0 0 (141) (141) Net income available to common shares $34,914 $26,767 $98,956 $77,307 Average common stock outstanding 39,811 38,985 39,669 38,838 Common stock equivalents 3,322 2,207 2,456 2,257 Weighted average common shares outstanding (in thousands) 43,133 41,192 42,125 41,095 Earnings per common share $ .81 $ .65 $ 2.35 $ 1.88 ADVANTA CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Net income for the three months ended September 30, 1995 was $34.9 million, an $8.1 million or 30% increase from the $26.8 million reported for the third quarter of 1994. Earnings per share for the third quarter of 1995 were $.81, a 25% increase from $.65 per share for the same period last year. The third quarter 1995 earnings per share figure reflects a 5% increase in shares primarily due to the issuance of mandatorily convertible preferred stock in August 1995 (see Note 12 of Notes to Consolidated Condensed Financial Statements). Earnings increased in the third quarter of 1995 primarily as a result of a 58% increase in average managed receivables, partially offset by an approximate 17% contraction in the managed net interest margin, reflecting the Company's growth strategy of utilizing low introductory rate pricing on credit cards. The Company continues to securitize a majority of its receivables and report the performance of the securitized receivables as noninterest revenues. Noninterest revenues increased $39.0 million, or 40%, to $136.2 million in the third quarter of 1995 from $97.2 million in the comparable 1994 period. This increase was due to the 58% increase in average securitized receivables. Disciplined cost management reduced the operating expense ratio to 2.7% of average managed receivables in the third quarter of 1995, compared to 3.4% in the third quarter of 1994. For the nine months ended September 30, 1995, net income was $99.1 million, a 28% increase over the $77.4 million for the comparable year earlier period. Earnings per share for the nine months ended September 30, 1995 increased 25% to $2.35 from $1.88 for the comparable 1994 period. NET INTEREST INCOME Net interest income for the third quarter of 1995 decreased $1.7 million, or 11%, to $15.0 million from $16.7 million for the same period of 1994. This resulted from a decline in the owned net interest margin to 2.35% for the third quarter of 1995 from 3.71% for the third quarter of 1994, partially offset by an $814 million increase in average interest earning assets. The lower owned net interest margin resulted from a significant increase in the proportion of credit card receivables earning low introductory rates, reflecting the success of the Company's marketing campaigns. The credit cards earning introductory rates reprice upwards after an introductory period of up to one year. Due to the substantial volume of new low introductory rate credit cards being originated in 1995, it is not anticipated that the net interest margin will widen in the last quarter of 1995. A large number of credit cards will reprice upwards in the first quarter of 1996. Most of the receivables on those credit cards will have been securitized, and consequently, the enhanced revenues on those receivables will be recorded primarily as increased noninterest revenues (securitization income) and will not affect the owned net interest margin, although it is expected that they will positively impact the managed net interest margin. The following table provides an analysis of both owned and managed interest income and expense data, average balance sheet data, net interest spread (the difference between the yield on interest earning assets and the average rate paid on interest-bearing liabilities), and net interest margin (the difference between the yield on interest earning assets and the average rate paid to fund interest earning assets) for the three and nine month periods ended September 30, 1995 and 1994. Average owned loan and lease receivables and the related interest revenues include certain loan fees. INTEREST RATE ANALYSIS
Three Months Ended September 30, 1995 1994 Average Yield/ Average Yield/ Balance (1) Interest Rate Balance (1) Interest Rate On-balance sheet Credit cards $1,526,171 $ 37,705 9.88% $1,115,229 $ 28,200 10.11% Mortgage loans 193,336 4,706 9.66 88,125 1,751 7.88 Leases 77,295 2,116 10.95 66,042 2,256 13.66 Other loans 5,951 110 7.33 3,679 70 7.55 Gross receivables 1,802,753 44,637 9.89 1,273,075 32,277 10.13 Investments (2) 894,524 12,546 5.57 610,034 7,726 5.03 Total interest earning assets $2,697,277 $ 57,183 8.46% $1,883,109 $ 40,003 8.48% Interest-bearing liabilities $2,532,780 $ 41,522 6.45% $1,716,698 $ 22,619 5.18% Net interest spread 2.01% 3.30% Net interest margin 2.35% 3.71% Off-balance sheet Credit cards $6,430,565 $3,699,734 Mortgage loans 1,384,683 1,147,447 Leases 251,568 146,020 Total average securitized receivables $8,066,816 $4,993,201 Total average managed receivables $9,869,569 $6,266,276 Managed Net Interest Analysis (3): Interest earning assets $9,127,842 $274,090 12.00% $5,582,843 $170,863 12.24% Interest-bearing liabilities $8,963,345 $145,365 6.46% $5,416,432 $ 76,243 5.60% Net interest spread 5.54% 6.64% Net interest margin 5.64% 6.79% (1)Includes assets held and available for sale and nonaccrual loans and leases. (2)Interest and average rate for tax-free securities computed on a tax equivalent basis using a statutory rate of 35%. (3)Combination of owned interest earning assets/owned interest-bearing liabilities and securitized credit card assets/liabilities.
INTEREST RATE ANALYSIS
Nine Months Ended September 30, 1995 1994 Average Yield/ Average Yield/ Balance (1) Interest Rate Balance (1) Interest Rate On-balance sheet Credit cards $1,441,478 $ 111,840 10.34% $1,115,515 $ 86,410 10.33% Mortgage loans 172,889 11,946 9.24 113,924 7,112 8.35 Leases 84,567 7,970 12.57 54,982 5,909 14.33 Other loans 5,396 290 7.19 3,698 205 7.41 Gross receivables 1,704,330 132,046 10.33 1,288,119 99,636 10.32 Investments (2) 802,324 34,752 5.77 605,270 21,638 4.77 Total interest earning assets $2,506,654 $166,798 8.87% $1,893,389 $121,274 8.54% Interest-bearing liabilities $2,381,647 $115,203 6.40% $1,736,875 $ 64,954 4.94% Net interest spread 2.47% 3.60% Net interest margin 2.73% 3.95% Off-balance sheet Credit cards $5,788,039 $3,202,809 Mortgage loans 1,302,537 1,087,963 Leases 218,204 134,819 Total average securitized receivables $7,308,780 $4,425,591 Total average managed receivables $9,013,110 $5,713,710 Managed Net Interest Analysis (3): Interest earning assets $8,294,693 $763,649 12.28% $5,096,198 $463,533 12.13% Interest-bearing liabilities $8,169,686 $400,044 6.51% $4,939,684 $195,126 5.25% Net interest spread 5.77% 6.88% Net interest margin 5.85% 7.02% (1)Includes assets held and available for sale and nonaccrual loans and leases. (2)Interest and average rate for tax-free securities computed on a tax equivalent basis using a statutory rate of 35%. (3)Combination of owned interest earning assets/owned interest-bearing liabilities and securitized credit card assets/liabilities.
MANAGED PORTFOLIO DATA The following table provides selected information on a managed basis, as well as a summary of the effects of credit card securitizations on selected line items of the Company's consolidated income statements as of and for the nine months ended September 30, 1995 and 1994. Nine Months Ended September 30, 1995 1994 Balance sheet data: Average managed receivables $ 9,013,110 $5,713,710 Managed receivables 10,310,682 6,641,892 Total managed assets 11,938,114 7,627,457 Managed net interest margin (on a fully tax equivalent basis) 5.85% 7.02% As a percentage of gross managed receivables: Total loans 30 days or more delinquent 3.0% 2.9% Net charge-offs 2.2% 2.4% Effects of credit card securitizations on: Net interest income $ (312,009) $ (212,087) Provision for credit losses 109,059 68,165 With respect to the above information on the effects of credit card securitizations, net interest income represents the amount by which net interest income would have been higher had the securitized receivables remained on the balance sheet. In addition, provision for credit losses represents the amount by which the provision for credit losses would have been higher had the securitized receivables remained as owned and the provision for credit losses been equal to charge-offs. The effects on both net interest income and the provision for credit losses described above are netted and included in other noninterest revenues in the Consolidated Condensed Income Statements. PROVISION FOR CREDIT LOSSES The provision for credit losses for the third quarter of 1995 totalled $10.6 million compared to $5.8 million for the comparable period of 1994. The provision increased $4.8 million primarily due to the Company's desire to maintain a targeted level of reserve coverage of impaired assets on credit cards. For the nine month period ended September 30, 1995, the provision for credit losses was $28.1 million, flat with the nine months of 1994. The owned impaired asset level was $36.6 million or 2.1% of receivables at September 30, 1995 down from $47.2 million or 3.5% of receivables a year ago. The higher 1994 level was due to the repurchase of approximately $50 million of nonperforming mortgage loans from the securitization trusts during the first nine months of 1994. In connection with these repurchases, the Company also transferred $12 million of off-balance sheet recourse reserves to on-balance sheet reserves. These repurchases increased the owned impaired asset level while having no impact on either the level of managed impaired assets or the provision for credit losses (see also Asset Quality below). At September 30, 1995, approximately $13 million of the loans that had been repurchased during 1994 remained on the balance sheet as either nonperforming loans or other real estate owned. ASSET QUALITY The reserve for credit losses is maintained for on-balance sheet receivables. The reserve is intended to cover credit losses inherent in the owned loan portfolio. With regard to securitized assets, anticipated losses and related recourse reserves are reflected in the calculations of securitization income, amounts due from credit card securitizations and other assets. Recourse reserves are intended to cover all probable credit losses over the life of the receivables securitized. The Company periodically evaluates its on-balance sheet and recourse reserve requirements and, as appropriate, effects transfers between these accounts. The reserve for credit losses on a consolidated owned basis was $40.3 million or 2.3% of receivables at September 30, 1995 compared to $41.6 million or 2.1% of receivables at December 31, 1994 and $47.2 million or 3.5% of receivables at September 30, 1994. The consolidated reserve coverage of impaired assets was 110.1% at September 30, 1995 up from 96.1% at year end 1994 and 100.0% at September 30, 1994. On the total managed portfolio, impaired assets were $127.6 million or 1.2% of receivables at September 30, 1995, compared to $102.4 million or 1.3% of receivables at December 31, 1994 and $92.9 million or 1.4% of receivables at September 30, 1994. The 30 day and over delinquency rate on managed credit cards was 3.0% at September 30, 1995, slightly higher than the 2.9% at September 30, 1994. On the total owned portfolio, impaired assets were $36.6 million or 2.1% of receivables at September 30, 1995, compared to $43.3 million or 2.2% of receivables and $47.2 million or 3.5% of receivables at December 31, 1994 and September 30, 1994, respectively. The total managed charge-off rate for the nine months of 1995 was 2.2%, down from 2.3% for the full year of 1994 and 2.4% for the nine months of 1994. The charge-off rate on managed credit cards was 2.5% for the nine months of 1995, flat with the full year of 1994 and down from 2.6% for the comparable 1994 period. The charge-off rate on managed mortgage loans was .9% for the nine months of 1995, down from 1.7% for the comparable 1994 period. The charge-off rate on consolidated owned receivables was 2.4% of average receivables for the nine months of 1995, down from 2.6% for the full year of 1994 and 2.5% for the year ago period. The charge-off rate on owned credit cards was 2.3% for the nine months of 1995, compared to 1.9% for the full year of 1994 and 2.0% for the comparable 1994 period. The following tables provide a summary of impaired assets, delinquencies and charge-offs, as of and for the year-to-date periods indicated. September December September 30, 31, 30, CONSOLIDATED - MANAGED 1995 1994 1994 Nonperforming assets $ 73,515 $ 61,587 $ 60,917 Accruing loans past due 90 days or more 54,120 40,837 31,986 Impaired assets 127,635 102,424 92,903 Total loans 30 days or more delinquent 305,118 220,390 193,009 As a percentage of gross receivables: Nonperforming assets .7% .8% .9% Accruing loans past due 90 days or more .5 .5 .5 Impaired assets 1.2 1.3 1.4 Total loans 30 days or more delinquent 3.0 2.7 2.9 Net charge-offs: Amount $148,445 $139,676 $102,556 As a percentage of average gross receivables(annualized) 2.2% 2.3% 2.4% CREDIT CARDS - MANAGED Nonperforming assets $ 20,328 $ 14,227 $ 13,199 Accruing loans past due 90 days or more 53,893 40,721 31,860 Impaired assets 74,221 54,948 45,059 Total loans 30 days or more delinquent 194,457 133,121 107,325 As a percentage of gross receivables: Nonperforming assets .2% .2% .3% Accruing loans past due 90 days or more .7 .6 .6 Impaired assets .9 .8 .9 Total loans 30 days or more delinquent 2.3% 2.0% 2.1% Net charge-offs: Amount $134,020 $115,218 $ 84,500 As a percentage of average gross receivables(annualized) 2.5% 2.5% 2.6% MORTGAGE LOANS - MANAGED Nonperforming assets $ 50,050 $ 44,678 $ 46,006 Total loans 30 days or more delinquent 82,472 65,966 68,914 As a percentage of gross receivables: Nonperforming assets 3.0% 3.3% 3.5% Total loans 30 days or more delinquent 4.9 4.9 5.3 Net charge-offs: Amount $ 10,385 $ 20,709 $ 15,448 As a percentage of average gross receivables(annualized) .9% 1.7% 1.7% LEASES - MANAGED Nonperforming assets $ 3,137 $ 2,682 $ 1,712 Total loans 30 days or more delinquent 27,732 20,972 16,507 As a percentage of receivables: Nonperforming assets .9% 1.0% .7% Total loans 30 days or more delinquent 8.1 7.9 7.1 Net charge-offs: Amount $ 4,053 $ 3,747 $ 2,602 As a percentage of average receivables (annualized) 1.8% 2.0% 1.8% September December September 30, 31, 30, CONSOLIDATED - OWNED 1995 1994 1994 Reserve for credit losses $40,260 $41,617 $47,190 Nonperforming assets 25,744 31,949 38,323 Accruing loans past due 90 days or more 10,834 11,354 8,865 Impaired assets 36,578 43,303 47,188 Reserve as a percentage of impaired 110.1% 96.1% 100.0% assets As a percentage of gross receivables: Reserve 2.3% 2.1% 3.5% Nonperforming assets 1.5 1.6 2.8 Accruing loans past due 90 days or .6 .6 .7 more Impaired assets 2.1 2.2 3.5 Net charge-offs: Amount $30,568 $35,293 $24,519 As a percentage of average gross receivables(annualized) 2.4% 2.6% 2.5% CREDIT CARDS - OWNED Reserve for credit losses $27,640 $27,486 21,628 Nonperforming assets 4,109 3,502 2,910 Accruing loans past due 90 days or more 10,607 11,238 8,739 Impaired assets 14,716 14,740 11,649 Reserve as a percentage of impaired 187.8% 186.5% 185.7% assets As a percentage of gross receivables: Reserve 1.9% 1.6% 1.9% Nonperforming assets .3 .2 .3 Accruing loans past due 90 days or more .7 .6 .8 Impaired assets 1.0 .9 1.0 Net charge-offs: Amount $24,961 $22,688 $16,335 As a percentage of average gross receivables(annualized) 2.3% 1.9% 2.0% MORTGAGE LOANS - OWNED (1) Reserve for credit losses $ 2,334 $ 5,164 $ 9,046 Nonperforming assets 20,895 27,379 34,930 Reserve as a percentage of impaired assets 11.2% 18.9% 25.9% As a percentage of gross receivables: Reserve 1.4% 3.6% 6.2% Nonperforming assets 12.2 19.2 24.1 Net charge-offs: Amount $ 4,696 $11,689 $ 7,580 As a percentage of average gross receivables(annualized) 3.6% 9.7% 8.9% LEASES - OWNED Reserve for credit losses $ 1,182 $ 1,076 $ 1,278 Nonperforming assets 740 1,068 483 Reserve as a percentage of impaired assets 159.7% 100.7% 264.6% As a percentage of receivables: Reserve 1.4% 1.2% 1.9% Nonperforming assets .9 1.2 .7 Net charge-offs: Amount $ 924 $ 914 $ 598 As a percentage of average receivables (annualized) 1.5% 1.5% 1.5% (1) Beginning March 1994, the Company initiated a program for repurchasing nonperforming assets from the securitized portfolios (see "Provision for Credit Losses"). NONINTEREST REVENUES Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 Gain on sale of credit cards $ 0 $ 0 $ 0 $ 18,35 2 Other noninterest revenues: Credit card securitization income 43,818 38,210 130,553 107,131 Credit card servicing income 30,572 18,554 83,371 47,690 Credit card interchange income 23,258 18,109 64,808 48,684 Income from mortgage banking activities 15,886 9,780 38,033 26,572 Leasing revenues, net 9,733 5,151 27,628 15,531 Insurance revenues, net 7,138 3,149 19,413 9,115 Equity securities gain 375 0 4,178 0 Other 4,24 13,309 11,41 5,441 9 3 Total other noninterest revenues $136,221 $97,202 $381,293 $266,13 Total noninterest revenues $136,221 $97,202 $381,293 $284,48 For the third quarter of 1995, noninterest revenues increased 40% to $136.2 million from $97.2 million for the same period of 1994. Credit card securitization income increased $5.6 million or 15% to $43.8 million as a result of a 74% increase in average securitized credit card receivables partially offset by a contraction in the net interest margin. For the 1994 periods, securitized interchange income has been reclassified from credit card securitization income to credit card interchange income. Credit card interchange income, which represents approximately 1.4% of credit card purchases, increased $5.2 million to $23.3 million. Credit card servicing income increased $12.0 million due to higher securitized balances. Leasing revenues, net, increased $4.6 million to $9.7 million primarily due to a 72% growth in average securitized lease receivables from the comparable quarter of 1994. Insurance revenues, net, were $7.1 million for the third quarter of 1995, up from $3.1 million for last year's third quarter. This growth is due to the successful marketing of insurance products in the credit card, mortgage and leasing businesses. For the nine month period ended September 30, 1995, noninterest revenues rose to $381.3 million from $284.5 million for the comparable 1994 period, a 34% increase. This improvement resulted primarily from an 81% growth in average securitized credit card receivables and increased securitization activity with respect to mortgage banking and leasing, partially offset by 1994's gain on the sale of credit card customer relationships. OPERATING EXPENSES Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 Amortization of credit card deferred origination costs, net $19,283 $12,717 $51,401 $27,364 Other operating expenses: Salaries and employee benefits 29,124 21,913 80,186 63,936 External processing 7,739 6,133 20,018 16,139 Marketing 5,584 3,443 19,867 21,803 Postage 4,683 3,069 13,413 8,822 Professional fees 4,248 2,583 9,813 6,159 Credit card fraud losses 3,957 4,306 12,483 12,550 Equipment expense 3,244 2,379 8,951 6,725 Telephone expense 3,000 2,413 8,354 6,010 Occupancy expense 2,462 2,254 6,727 6,117 Credit and collection expense 2,286 2,293 6,762 5,728 Other 686 2,527 10,333 7,711 Total other operating expenses $67,013 $53,313 $196,907 $161,700 Total operating expenses $86,296 $66,030 $248,308 $189,064 The amortization of credit card deferred origination costs, net, increased from $12.7 million for the third quarter of 1994 to $19.3 million for the third quarter of 1995. This increase resulted primarily from amortization related to the $76.5 million of credit card origination costs that have been deferred since the third quarter of 1994. Costs incurred for credit card originations initiated after May 1993 are being amortized over 12 months, rather than pursuant to the previous policy of 60 months. Total other operating expenses of $67.0 million for the three months ended September 30, 1995 increased 26% from $53.3 million for the same period of 1994. Other operating expenses as a percentage of average managed receivables were 2.7% for the third quarter of 1995, down from 3.4% in the comparable 1994 period. The increase in total other operating expenses is attributable, in part, to a 28% increase in the number of employees from 1,744 at September 30, 1994 to 2,226 at September 30, 1995 to effectively service the current and anticipated account growth. Other expenses, including marketing, external processing, postage and telephone expense showed increases consistent with the increase in the number of credit card accounts managed. For the first nine months of 1995, total operating expenses increased 31% to $248.3 million from $189.1 million for the same 1994 period. Average managed receivables grew 58% over the same period of time. Other operating expenses as a percentage of average managed receivables were 2.9% for the nine months ended September 30, 1995, down from 3.8% for the nine months ended September 30, 1994. As a result of continued investments in developmental initiatives, the Company entered into a joint venture agreement with The Royal Bank of Scotland ("RBS"), for the purpose of issuing credit cards in the United Kingdom. This new company, RBS Advanta, first began issuing bankcards in October 1995. LIQUIDITY AND CAPITAL RESOURCES The Company's goal is to maintain an adequate level of liquidity, both long- and short-term, through active management of both assets and liabilities. During the first nine months of 1995, the Company, through its subsidiaries, securitized $2.3 billion of credit card receivables, $492 million of mortgage loans and $118 million of equipment lease receivables. Cash generated from these transactions was temporarily invested in short-term, high quality investments at money market rates awaiting redeployment to pay down borrowings and to fund future credit card, mortgage and lease receivable growth. At September 30, 1995, the Company had approximately $570 million of loan and lease receivables and $446 million of investments available for sale which could be sold to generate additional liquidity. The debt securities of Advanta Corp. achieved investment-grade ratings from the nationally recognized rating agencies in 1993. These ratings have allowed the Company to further diversify its funding sources. As a result, in 1994 the Company obtained revolving credit facilities totaling $255 million from a consortium of banks and $200 million in money market bid lines. In the second quarter of 1995, the Company's revolving credit facilities were consolidated into one facility and doubled in size to $510 million. The Company may also sell up to $325 million of medium-term notes as needed. In April 1994, the Company, through its subsidiary, Colonial National Bank USA, reached an agreement with NationsBank of Delaware, N.A., to sell certain credit card customer relationships which at that time represented approximately $150 million of securitized credit card receivables (less than 4% of the Company's managed credit card receivables as of June 30, 1994). While the accounts related to these customer relationships were transferred to NationsBank upon termination of the securitization trust in the second quarter of 1995, these accounts were serviced by Colonial National at market rates until the systems conversion to NationsBank was completed, which occurred in July 1995. On August 21, 1995, in a public offering, the Company sold 2,500,000 depositary shares each representing a one-hundredth interest in a share of Stock Appreciation Income Linked Securities ("SAILS"). The SAILS constitute a series of the Company's Class B Preferred Stock, designated as 6 3/4% Convertible Class B Preferred Stock, Series 1995 (SAILS). Proceeds from the offering, net of underwriting discount, were approximately $90 million. The Company will use the proceeds of the offering for general corporate purposes, including financing the growth of its subsidiaries. On September 29, 1995, the Company's subsidiaries, Colonial National Bank USA and Advanta National Bank, established a $2.25 billion bank note program, pursuant to which these banks may issue an aggregate of $2 billion of senior bank notes and $250 million of subordinated bank notes. These notes may have maturities ranging from seven days to fifteen years from date of issuance. Subsequent to quarter end, Advanta National Bank issued $175 million of senior notes under this program. INTEREST RATE SENSITIVITY Interest rate sensitivity refers to net interest income variability resulting from mismatches between asset and liability indices (basis risk) and the effects which these changes in market interest rates have on asset and liability maturity mismatches (gap risk). The Company attempts to minimize the impact of market interest rate fluctuations on net interest income and net income by regularly evaluating the risk inherent in its asset and liability structure, including securitized assets. This risk arises from continuous changes in the Company's asset/liability mix, market interest rates, the yield curve, prepayment trends and the timing of cash flows. Computer simulations are used to evaluate net interest income volatility under varying rate, spread and volume projections over monthly time periods of up to two years. Beginning in the first quarter of 1995, the Company's credit card marketing efforts were weighted heavily towards variable rate cards priced at a spread over LIBOR rather than a spread over the prime rate. The Company believes that this shift will prospectively reduce the basis risk to which the Company has been subject as the result of maintaining credit card portfolios indexed to the prime rate while funding certain on-balance sheet liabilities and securitizing a majority of the credit card receivables at a spread over LIBOR. In managing its interest rate sensitivity position, the Company periodically securitizes, sells and purchases assets, alters the mix and term structure of its funding base, changes its investment portfolio and short-term investment position, and uses derivative financial instruments. Derivative financial instruments are used for the express purpose of managing exposure to changes in interest rates and, by policy, are not used for any speculative purposes (see discussion under "Derivatives Activities"). The Company has primarily utilized variable rate funding in pricing its credit card securitization transactions in an attempt to match the variable rate pricing dynamics of the underlying receivables sold to the trusts. Variable rate funding is also used on the balance sheet as well, in support of unsecuritized receivables which carry variable rates. Although credit card receivable rates are generally set at a spread over a floating rate index, they often contain interest rate floors. These floors have the impact of converting the credit card receivables to fixed rate receivables in a low interest rate environment. In addition, the Company at times offers fixed rate pricing to consumers for the introductory rate period of its credit cards. In instances when a significant portion of credit card receivables are at fixed rates or their contractual floors, the Company may convert part of the underlying funding to a fixed rate by using interest rate hedges, swaps, collars and fixed rate securitizations. In pricing mortgage and lease securitizations, both fixed rate and variable rate funding are used depending upon the characteristics of the underlying receivables. Additionally, basis risk exists in on-balance sheet funding as well as in securitizing credit card receivables at a spread over LIBOR when the rate on the underlying assets is indexed to the prime rate. The underlying liability or coupon on a securitization is often indexed to LIBOR, and LIBOR does not perfectly correlate to movements in the prime rate. The Company measures the basis risk resulting from potential variability in the spread between prime and LIBOR and incorporates such risk into the asset and liability management process. During 1994, $425 million in prime-LIBOR corridors were executed in order to provide protection against narrowing of these spreads. During the first nine months of 1995 there were no additional prime-LIBOR corridors executed. Interest rate fluctuations affect net interest income at virtually all financial institutions. While interest rate volatility does have an effect on net interest income, other factors also contribute significantly to changes in net interest income. Specifically, within the credit card portfolio, pricing decisions and customer behavior regarding convenience usage affect the yield on the portfolio. These factors may counteract or exacerbate income changes due to fluctuating interest rates. The Company closely monitors interest rate movements, competitor pricing and consumer behavioral changes in its ongoing analysis of net interest income sensitivity. DERIVATIVES ACTIVITIES The Company utilizes derivative financial instruments for the purpose of managing its interest rate and foreign currency exposure. The Company has a number of mechanisms in place that enable it to monitor and control both market and credit risk from these derivatives activities. At the broader level, all derivatives strategies are managed under the hedging policy approved by the Board of Directors that details the use of such derivatives and the individuals authorized to execute derivatives transactions. All derivatives strategies must be approved by the Company's senior management (President, Chief Financial Officer and Treasurer). As part of this approval process, a market risk analysis is completed to determine the potential impact on the Company from severe negative (stressed) movements in the market. By policy, derivatives transactions may only be used to manage the Company's exposure to interest rate and foreign currency risk and may not be used for speculative purposes. As such, the impact of any derivatives transaction is calculated using the Company's asset/liability model to determine its suitability. Procedures and processes are in place to provide reasonable assurance that prior to and after the execution of any derivatives strategy, market, credit and liquidity risks are fully analyzed and incorporated into the Company's asset/liability and risk measurement models and the proper accounting treatment for the transaction is identified. As of September 30, 1995 and December 31, 1994, all of the Company's derivatives were designated as hedges or synthetic alterations and were accounted for as such. The following table summarizes by notional amounts the Company's derivative instruments: September 30, December 31, 1995 1994 Interest rate swaps $ 823,835 $ 459,735 Interest rate options: Caps written 1,310,000 1,100,000 Caps purchased 220,000 110,000 Corridors/Collars 575,000 425,000 Forward contracts 251,319 39,000 Total notional amount $3,180,154 $2,133,735 The notional amounts of derivatives do not represent amounts exchanged by the counterparties and, thus, are not a measure of the Company's exposure through its use of derivatives. The amounts exchanged are determined by reference to the notional amounts and the other terms of the derivatives contracts. PART II - OTHER INFORMATION Item 2. Changes in Securities. (a) The Company's Restated Certificate of Incorporation was amended August 15, 1995 by the filing with the State of Delaware of a Certificate of Designations, Preferences, Rights and Limitations of the Company's 6 3/4% Convertible Class B Preferred Stock, Series 1995 (Stock Appreciation Income Linked Securities (SAILS)) (the "SAILS"), authorizing 28,750 shares of the SAILS. The SAILS rank on a parity with the Company's Class A Preferred Stock with respect to payment of dividends and distribution of assets upon liquidation. The SAILS rank senior to the Company's Class A Common Stock and Class B Common Stock (collectively, the "Common Stock") and therefore the SAILS are preferred over the Common Stock with respect to payment of dividends and distribution of assets upon liquidation. (b) See Item 2(a) above. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. The following exhibits are being filed with this Report on Form 10-Q: Exhibit Number Description of Document 3 Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 4.1 to Pre-Effective Amendment No. 1 to the Company's Registration Statement on Form S-3 (File No. 33- 53475), filed June 10, 1994), as amended by the Certificate of Designations, Preferences, Rights and Limitations of the Company's 6 3/4% Convertible Class B Preferred Stock, Series 1995 (Stock Appreciation Income Linked Securities (SAILS)) (incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K dated August 15, 1995, filed the same date). 4.1 Specimen of 6 3/4% Convertible Class B Preferred Stock, Series 1995 (Stock Appreciation Income Linked Securities (SAILS)) Certificate (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated August 15, 1995, filed the same date). 4.2 Deposit Agreement, dated as of August 15, 1995, among Advanta Corp. and Mellon Securities Trust Company and the Holders from Time to Time of the Depositary Receipts Described Therein in Respect of the 6 3/4% Convertible Class B Preferred Stock, Series 1995 (Stock Appreciation Income Linked Securities (SAILS))(with form of Depositary Receipt as an exhibit thereto) (incorporated by reference to Exhibit 4.10 to the Company's Current Report on Form 8-K dated August 15, 1995, filed the same date). 27 Financial data schedule (incorporated by reference to Exhibit 27 to the Company's Current Report on Form 8-K dated October 18, 1995, filed the same date). (b) Reports on Form 8-K. (b)(1) A Current Report on Form 8-K, dated August 15, 1995, was filed by the Company setting forth certain exhibits to the Company's Registration Statement on Form S-3 (No. 33-60419) for the purpose of incorporating such exhibits by reference into such Registration Statement. No financial statements were filed as an exhibit to this Form 8-K. (b)(2) A Current Report on Form 8-K, dated October 18, 1995, was filed by the Company setting forth the financial highlights of the Company's results of operations for the period ended September 30, 1995. A Financial Data Schedule was included as an exhibit to this Form 8-K. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. Advanta Corp. (Registrant) November 10, 1995 By /s/David Wesselink Senior Vice President and Chief Financial Officer November 10, 1995 By /s/John J. Calamari Vice President, Finance and Principal Accounting Officer EXHIBIT INDEX Exhibit Description 2 Inapplicable. 3 Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 4.1 to Pre-Effective Amendment No. 1 to the Company's Registration Statement on Form S-3 (File No. 33-53475), filed June 10, 1994), as amended by the Certificate of Designations, Preferences, Rights and Limitations of the Company's 6 3/4% Convertible Class B Preferred Stock, Series 1995 (Stock Appreciation Income Linked Securities (SAILS)) (incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K dated August 15, 1995, filed the same date). 4.1 Specimen of 6 3/4% Convertible Class B Preferred Stock, Series 1995 (Stock Appreciation Income Linked Securities (SAILS)) Certificate (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated August 15, 1995, filed the same date). 4.2 Deposit Agreement, dated as of August 15, 1995, among Advanta Corp. and Mellon Securities Trust Company and the Holders from Time to Time of the Depositary Receipts Described Therein in Respect of the 6 3/4% Convertible Class B Preferred Stock, Series 1995 (Stock Appreciation Income Linked Securities (SAILS))(with form of Depositary Receipt as an exhibit thereto) (incorporated by reference to Exhibit 4.10 to the Company's Current Report on Form 8-K dated August 15, 1995, filed the same date). 10 Inapplicable. 11 Inapplicable. 15 Inapplicable. 18 Inapplicable. 19 Inapplicable 22 Inapplicable. 23 Inapplicable. 24 Inapplicable. 27 Financial data schedule (incorporated by reference to Exhibit 27 to the Company's Current Report on Form 8-K dated October 18, 1995, filed the same date). 99 Inapplicable. -----END PRIVACY-ENHANCED MESSAGE-----