424B3 1 w38851ce424b3.txt ADVANTA CORP. PRICING SUPPLEMENT OCTOBER 10, 2000 1 Pricing Supplement dated October 10, 2000 Rule #424(b)(3) (To Prospectus dated April 6, 2000) File No. 333-33136 ADVANTA CORP. For use only by residents of: CA, CO, CT, DE, FL, GA, KS, MA, MD, MN, NJ, NY, OR and PA ADVANTA INVESTMENT NOTES
PRINCIPAL AMOUNT PRINCIPAL AMOUNT $5,000 - $49,999 $50,000 PLUS Annual Annual Percentage Percentage Term Interest Rate Yield* Interest Rate Yield* ---- ------------- ---------- ------------- ---------- 91 days 8.16% 8.50% 8.16% 8.50% 6 month 9.85% 10.35% 10.08% 10.60% 12 month 10.44% 11.00% 10.66% 11.25% 18 month 10.53% 11.10% 10.75% 11.35% 24 month 10.89% 11.50% 11.11% 11.75% 30 month 10.93% 11.55% 11.15% 11.79% 48 month 10.97% 11.59% 11.20% 11.85% 60 month 11.02% 11.65% 11.24% 11.89%
REDIRESERVE VARIABLE RATE CERTIFICATES**
Annual Percentage Tier Interest Rate Yield* ---- ------------- ---------- $100 to $4,999 5.25% 5.39% $5,000 to $24,999 8.25% 8.60% $25,000 to $49,999 8.50% 8.87% $50,000 plus 8.75% 9.14%
Minimum Investment $5,000 RECENT DEVELOPMENTS On October 9, 2000 Advanta Corp. (the "Company" or "Advanta") announced that, on a preliminary basis, the Company estimates that net income for the third quarter will be approximately $8 million or approximately $0.32 per share on a diluted basis for Class A 2 and Class B shares combined. Operating earnings per share, on a diluted basis, for the third quarter are expected to be approximately breakeven. The results for the third quarter have been impacted primarily by a slower than anticipated turnaround of the Company's leasing business, lower mortgage origination volume due to continued implementation during the quarter of processes required by the regulatory agreements, and strengthening of reserves for the Company's business credit card unit due to the maturing and growth of this portfolio as well as regulatory factors and considerations. Advanta expects to release its final earnings results for the third quarter on Tuesday, October 24, 2000. Earnings for the third quarter are expected to include approximately $23 million of provisions and charges consisting of the following items: (i) a charge of approximately $10 million due to continued charge-offs largely concentrated within certain unprofitable segments of the leasing business from prior periods; (ii) an increase of approximately $10 million in reserve coverage for the Company's business credit card unit, of which approximately $6 to $8 million is attributable to a change in the methodology for calculating on-balance sheet reserves for this business which the Company is undertaking as a result of recent discussions with the Federal Deposit Insurance Corporation ("FDIC") relating to the implementation of the agreement between Advanta Bank Corp. and the FDIC that was previously disclosed on June 2, 2000 and the remainder of which is attributable to the maturing and growth of this portfolio; and (iii) a $3 million charge in the Company's insurance business relating to a large policy claim settled during the quarter. Excluding these items, earnings per share for the third quarter would have been in the area of $1.23 per share on a diluted basis. Similarly, operating earnings for the third quarter would have been substantially higher excluding these items. The Company has pursued aggressive remedial initiatives in the leasing business, including the addition of experienced leadership to oversee collections. The Company has also implemented its plan to discontinue lease originations from the unprofitable segments of the broker channel and improve the yields on new originations. In addition, the Company is actively pursuing strategic alternatives for the leasing business, including its possible divestiture. The Company also announced that it is revising its outlook for the remainder of the year. Although the Company anticipates moderate improvement in results for the fourth quarter, it expects pro forma operating results for the second half of the year will be below its previously announced estimates of between $0.90-$1.10 per share because it anticipates that the factors impacting third quarter results for the mortgage and leasing businesses will continue into the fourth quarter. Because the Company is in the process of evaluating strategic alternatives for its mortgage and leasing businesses, it is not in a position to provide specific guidance for the remainder of the year at this time. The Company will update its progress on the evaluation of strategic alternatives at its October 24 conference call. In addition, the Company announced that it has received notice that one of its largest mortgage subservicing clients will move aspects of its servicing in-house and will terminate its subservicing contract with the Company effective during the fourth quarter. The Company expects to collect a termination fee, which will partially offset the financial impact of the cancellation of this contract. 3 On August 2, 2000 Advanta announced results for the second quarter of 2000. Pro forma operating income was $16.6 million, or $0.65 per share on a diluted basis for Class A and Class B shares combined, reflecting income for Advanta Mortgage that is essentially the same as a portfolio lender and excluding carrying value adjustments made pursuant to agreements with the Office of the Comptroller of the Currency (the "OCC") that were announced on July 31, 2000 and discussed below. While pro forma operating income for the Company was up 30% year on year before the carrying value adjustments, the Company reported a net loss for the quarter of $192.7 million or $7.64 per share. This was largely because Advanta National Bank ("ANB") recorded a $214 million non-cash charge resulting from a reduction in the carrying value of its retained interests in mortgage securitizations and a $22 million non-cash charge reflecting an increase in mortgage loan loss reserves. On July 31, 2000, the Company announced that its bank subsidiary, ANB, had concluded discussions and signed an agreement with the OCC regarding the carrying value of ANB's retained interests in mortgage securitizations and allowance for loan losses. For ANB's June 30 Call Report, the agreement provides that the retained interests be calculated based on an 18% discount rate on the interest-only strip ("I/O") and subordinated trust assets, a 15% discount rate on the contractual mortgage servicing rights ("CMSR"), a prepayment rate that represents the average prepayment experience for the six months ended February 29, 2000 and cumulative loss rates as a percentage of original principal balance of 6% on closed end mortgage loans and 8% for HELOC (open end) mortgage loans. Consistent with the agreement, ANB recorded a $214 million non-cash charge to reduce the June 30 carrying value of its retained interests in mortgage securitizations. Also pursuant to the agreement with the OCC, ANB recorded a $22 million non-cash charge to increase its allowance for loan losses at June 30, 2000. These non-cash adjustments are reflected in results for the second quarter, as discussed above. The agreement announced on July 31, 2000 also contains provisions regarding the use of similar assumptions for the calculation of the carrying value of the residual assets in future periods. Beginning with the third quarter of 2000, the agreement requires ANB to maintain its allowance for loan losses at a level of at least 5.38% of the unpaid principal balance of all loans owned by ANB or reported on its books, less any loans held for sale. On June 2, 2000, the Company announced that its banking subsidiaries, ANB and Advanta Bank Corp. ("ABC"), had each reached agreements with their respective bank regulatory agencies, primarily relating to the banks' subprime lending operations. The agreements outline a series of steps to modify processes and formalize and document certain practices and procedures for the banks' subprime lending operations. The agreements establish temporary asset growth limits at ANB and deposit growth limits at ABC. In addition, the 4 agreements contain restrictions on taking brokered deposits at ANB and require that as of September 30, 2000, ANB maintain capital ratios at the same levels as March 31, 2000. As described above, the agreements also required the Company to change its charge-off policy for delinquent mortgages to 180 days and modify its accounting processes and methodology for its allowance for loan losses and valuation of residual assets. On May 17, 2000 the Company announced that it is evaluating strategic alternatives to maximize shareholder value of its Mortgage and Leasing businesses. Although there are no specific actions contemplated at this time, these strategic alternatives could include the sale of, or strategic alliances or partnerships in respect of, all or a portion of the Company's mortgage loan origination, mortgage servicing or equipment leasing businesses. AN OFFER CAN ONLY BE MADE BY THE PROSPECTUS DATED APRIL 6, 2000, IN CONJUNCTION WITH THIS PRICING SUPPLEMENT. SEE "RISK FACTORS" BEGINNING AT PAGE 7 OF THE PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES AND REDIRESERVE CERTIFICATES. THE NOTES AND REDIRESERVE CERTIFICATES REPRESENT OBLIGATIONS OF ADVANTA CORP. AND ARE NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENTAL OR PRIVATE ENTITY. * The Annual Percentage Yield assumes all interest reinvested daily at the stated rate. * The interest rate we pay on any particular RediReserve Certificate depends on the tier into which the holder's end-of- the-day balance falls. We will not pay interest on a RediReserve Certificate for any day on which the end-of-the-day balance is less than $100. Interest rates and annual percentage yields for each tier may change from week to week and will apply to outstanding RediReserve Certificates. We currently set the interest rates each Sunday and they are effective through Saturday. Interest rates for each one week period, currently commencing on Sunday, will be at least equal to the rate on the thirteen week U.S. Treasury Bill auctioned on the immediately preceding Monday less one percent (1%). FOR MORE INFORMATION CALL 1-800-223-7074