-----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, Q2gGryAWN2wI2qfeVVHe5wERlXuZLgU7DC2Mk4gBUDLb21iA/nWngSiDw9Qm5Ewx Xn3NDS2Ovu4lY03eIoCUJg== 0000893220-99-000852.txt : 19990728 0000893220-99-000852.hdr.sgml : 19990728 ACCESSION NUMBER: 0000893220-99-000852 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990727 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990727 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: 99670837 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 FORM 8-K ADVANTA CORP. 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): July 27, 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 July 27, 1999 Advanta Corp. (the "Company" or "Advanta") reported net income for the second quarter of 1999 of $12.3 million, or $0.49 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. The improvement in net income from the net operating income of $10.2 million, or $0.40 per share, reported last quarter resulted primarily from continued decreases in operating expenses at the Company's mortgage and leasing businesses and improved yields in the business credit card portfolio. Reported results this quarter included additional pretax gains of $9.3 million predominantly associated with the previously announced sale by Advanta Partners of its interest in JDR Holdings. Also impacting results was a reduction in the Company's Interest Only Strip ("IO Strip") of approximately $10 million which strengthened the balance sheet. This quarter, Advanta continued its previously discussed initiatives to increase profits, and optimize cash flow and returns on invested capital. In addition, the Company began implementing a new automated sales and underwriting system at its mortgage business, began pilot testing a new origination and automated decisioning system to take business credit card applications over the Internet, and took significant steps to refine processes at Advanta Leasing resulting in cost efficiencies. Highlights on the Company's operations this quarter follow. COMPANY ACHIEVES LOWER EXPENSE RATIO - ------------------------------------ The Company's vigorous implementation of cost reduction measures continues to yield benefits. Advanta's operating expense ratio for the quarter of 3.25% was lower than the 3.47% reported in the first quarter of this year and significantly lower than the 3.90% in the fourth quarter of 1998. Total pretax operating expenses for the quarter were $82.2 million, approximately 4.9% below operating expenses of $86.4 million reported last quarter and 11.0% below operating expenses of $92.4 million reported in the fourth quarter of 1998. Total managed receivables for the Company's businesses at the end of this quarter were $10.06 billion, an increase of 1.2% from $9.95 billion at March 31, 1999 and an increase of 25.2% from $8.04 billion at June 30, 1998. ADVANTA MORTGAGE - LOWER EXPENSES FUEL PROFIT GROWTH - ---------------------------------------------------- Advanta Mortgage reported pro forma net income from operations of $7.6 million for this quarter on a basis that is essentially the same as a portfolio lender. This compares to net income of $5.8 million reported by this business in the first quarter of 1999 and net income of $2.5 million reported by this business in the fourth quarter of 1998. The 3 increase in net income this quarter was primarily due to lower operating expenses and higher servicing revenues. Advanta Mortgage's net income of $1.5 million reported this quarter is approximately $6.1 million less than a portfolio lender would have reported because it includes a $10.0 million decrease, before taxes, in the Company's IO Strip which reduced earnings and strengthened the Company's balance sheet. In addition, the Company's IO Strip decreased by $21 million as a result of hedging activities which had no impact on current earnings. The IO Strip and CMSR at June 30,1999 were $247.1 million compared to $271.9 million reported at the end of last quarter and $283.5 million reported at December 31, 1998. Advanta Mortgage maintained the lending margin improvements that were accomplished last quarter and continued its focus on originating loans from its direct to consumer and broker channels. The weighted average yield of mortgage loans originated by the Company's direct to consumer channels this quarter was 12.41% compared to 12.13% last quarter. In addition to benefiting from higher yields on newly originated loans, the Company's overall portfolio yields are increasing as loans originated from direct channels, which typically have better yields, make up a larger portion of the total portfolio. Originations from the direct to consumer channels represented 56.1% of total originations this quarter compared to 56.3% in the prior quarter and 30.6% in the second quarter of 1998. Loans originated through direct to consumer channels represented approximately 37.1% of the total portfolio at June 30, 1999 compared to 28.9% at the same time last year and 34.6% at the end of the first quarter of this year. Mortgage loan originations of $727.7 million were slightly higher than originations of $716.5 million last quarter. Originations from direct to consumer channels of $407.9 million were relatively flat compared to originations of $403.2 million in the first quarter, while originations from brokers increased by 39.3% from the prior quarter. Wholesale originations by the Company's Conduit and Corporate Finance channels decreased reflecting the Company's willingness to reduce volume levels in order to purchase loans with appropriate profitability characteristics. Advanta Mortgage's sub-serviced portfolio increased to $9.4 billion at the end of this quarter from $8.9 billion at the end of last quarter. Credit quality trends remain consistent with the Company's experience. However, due to the increase in the average age of the portfolio from 14 months at the end of the prior quarter to 17 months at June 30, 1999, the Company experienced increases in charge-off and delinquency rates. This seasoning of the Company's portfolio is associated with slower portfolio growth. The net managed charge-off rate for home equity loans was 0.66% this quarter compared to 0.51% reported last quarter and the over 30 day delinquency rate was 8.54% compared to 8.00% reported last quarter. 4 ADVANTA BUSINESS CARDS REPORTS HIGHER YIELDS - -------------------------------------------- Advanta Business Cards reported net income of $5.6 million this quarter compared to $4.0 million last quarter. The increase resulted from significant improvements in portfolio yields. The average yield on the Company's business credit card portfolio, including fee income, increased this quarter to 21.72% from 20.36% last quarter due to increases in rates and higher fee income. A decrease in the net managed charge-off rate on business credit card loans from 5.61% last quarter to 5.22% this quarter also contributed to the increase in net income. Managed receivables for Advanta Business Cards at the end of the quarter were $886 million, up 6.5% from last quarter and 16.4% from the same quarter last year. ADVANTA LEASING SERVICES - EXPENSE REDUCTION LEADS TO HIGHER PROFITS - -------------------------------------------------------------------- Advanta Leasing Services reported net income of $1.5 million this quarter, a significant increase from net income of $0.8 million that was reported last quarter. The increase in net income was caused primarily by a decrease in operating expenses resulting from the Company's ongoing program to improve processes at the leasing business and from expense reduction measures that were implemented toward the end of the first quarter. Operating expenses decreased from $8.81 million last quarter to $7.47 million this quarter. The Company originated $113.4 million in lease receivables this quarter and closed the quarter with a managed portfolio of leases of $744 million. This represents an increase of 6.1% from managed lease receivables of $701 million last quarter. Over 30-day delinquencies improved considerably this quarter to 7.33% from 8.38% last quarter. The net managed charge-off rate for Advanta Leasing Services of 3.23% this quarter was slightly higher than the 2.94% reported last quarter. ADVANTA REPORTS CONTINUED POSITIVE OPERATING CASH FLOW - ------------------------------------------------------ Advanta had positive operating cash flow of approximately $26.8 million this quarter after considering key non-cash income and expense 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 from direct channels. This quarter, origination fees collected by the Company exceeded premiums and broker fees paid by approximately $13.5 million. This positive cash flow was offset by a net investment in subordinated trust assets of $37.9 million. This investment is consistent with the structure of the Company's securitizations and results primarily from the growth in the Company's managed receivables during 1998. The Company's use of deposit funding at its two FDIC-insured banks for its lending activities continues to bolster liquidity at the parent and at the Company's banks. After paying down approximately $47 million of Medium Term Notes and other parent debt this quarter, the Company had approximately $437 million in unrestricted cash and equivalents at the parent compared to $429 million at March 31, 1999. At the end of the quarter, the Company had approximately $934 million of unrestricted cash and 5 equivalents at its two banks. In addition, the Company had financed, with parent and bank funds, loan receivables on its books totaling $1.1 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 2,400 employees, approximately $12.4 billion in managed assets and approximately $9.4 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. July 27, 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. July 27, 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 July 27, 1999 8 Form 8-K Advanta Corp. July 27, 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. HIGHLIGHTS SUPPLEMENTAL CONSOLIDATING INCOME STATEMENT (IN THOUSANDS)
THREE MONTHS ENDED JUNE 30, 1999 -------------------------------------------------------------- ADVANTA ADVANTA ADVANTA LEASING BUSINESS MORTGAGE SERVICES CARDS OTHER (a) TOTAL -------- -------- -------- -------- -------- REVENUES: Gain on sale of receivables $ 28,416 $ 4,942 $ 7,758 $ $ 41,116 Interest income 30,534 2,725 7,785 18,157 59,201 Servicing revenues 25,001 1,526 3,522 30,049 Other 861 4,489 8,528 11,306 25,184 -------- -------- -------- -------- -------- Total revenues 84,812 13,682 27,593 29,463 155,550 -------- -------- -------- -------- -------- EXPENSES: Operating expenses 56,133 7,465 11,148 7,433 82,179 Interest expense 21,820 2,689 2,851 15,957 43,317 Provision for credit losses 2,364 908 4,135 7,407 Minority int. in inc. of consolidated sub 1,865 155 200 2,220 -------- -------- -------- -------- -------- Total expenses 82,182 11,217 18,334 23,390 135,123 -------- -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 2,630 2,465 9,259 6,073 20,427 Income tax expense 1,122 979 3,694 2,320 8,115 -------- -------- -------- -------- -------- NET INCOME, AS REPORTED $ 1,508 $ 1,486 $ 5,565 $ 3,753 $ 12,312 ======== ======== ======== ======== ======== PRO FORMA NET OPERATING INCOME, WITH RESULTS OF ADVANTA MORTGAGE REPORTED AS A PORTFOLIO LENDER $ 7,558 (b) $ 1,486 $ 5,565 $ (1,887)(c) $ 12,722 ======== ======== ======== ======== ========
(a) Other includes the insurance and venture capital divisions. (b) Adjusted to reflect the after-tax effect on earnings of the decrease in the Interest Only Strip. (c) Adjusted to reflect the after-tax gain associated with the sale of an Advanta Partners investment. -more- 2 ADVANTA CORP. HIGHLIGHTS RECONCILIATION TO PORTFOLIO LENDER EARNINGS FORMAT (IN THOUSANDS)
THREE MONTHS ENDED JUNE 30, 1999 --------------------------------------------------------------------------------------- ADVANTA PROFORMA ADVANTA MORTGAGE AS REMAINING MORTGAGE AS PRO FORMA PORTFOLIO BUSINESSES PRO FORMA REPORTED ADJUSTMENTS LENDER [f] CONSOLIDATED ----------- ----------- ----------- ---------- ------------ REVENUES: Gain on sale of receivables $ 28,416 $ (28,416)[a] $ $ 12,700 $ 12,700 Interest income 30,534 175,799 [b] 206,333 28,667 235,000 Servicing revenues 25,001 (8,846)[c] 16,155 5,048 21,203 Other 861 861 15,001 [f] 15,862 ------- ------- -------- ------- -------- Total revenues 84,812 138,537 223,349 61,416 284,765 ------- ------- -------- ------- -------- EXPENSES: Operating expenses 56,133 1,883 [d] 58,016 26,046 84,062 Interest expense 21,820 114,970 [b] 136,790 21,497 158,287 Provision for credit losses 2,364 11,684 [e] 14,048 5,043 19,091 Minority interest in income of consolidated subsidiary 1,865 1,865 355 2,220 Unusual charges ------- ------- -------- ------- -------- Total expenses 82,182 128,537 210,719 52,941 263,660 ------- ------- -------- ------- -------- INCOME BEFORE INCOME TAXES 2,630 10,000 12,630 8,475 21,105 Pro forma income taxes 1,122 3,950 5,072 3,311 8,383 ------- ------- -------- ------- -------- PRO FORMA NET INCOME $ 1,508 $ 6,050 $ 7,558 $ 5,164 $ 12,722 ------- ------- -------- ------- --------
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. [f] Adjusted to exclude the gain associated with the sale of an Advanta Partners investment. -more- 3 ADVANTA CORP. HIGHLIGHTS ($ IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED ------------------------------------------------------------------ PERCENT CHANGE JUNE 30, MARCH 31, JUNE 30, FROM ORIGINATIONS 1999 1999 1998 PRIOR QUARTER - ------------ -------- --------- -------- -------------- Direct $ 407,880 $ 403,204 $ 382,242 1.2% Broker 152,533 109,538 106,188 39.3 Conduit 153,575 181,835 376,145 -15.5 Corp. Finance 13,701 16,773 324,484 -18.3 Auto 0 5,103 58,356 -100.0 ----------- ----------- ----------- Total Advanta Mortgage loans $ 727,689 $ 716,453 $ 1,247,415 1.6 Leases $ 113,384 $ 109,836 $74,352 3.2% Business cards 471,239 400,428 348,222 17.7 SECURITIZATION/SALES VOLUME - --------------------------- Advanta Mortgage $ 635,896 $ 634,147 $ 1,215,097 0.3% Leases 105,909 95,574 72,636 10.8 Business cards 0 24,248 62,790 -100.0 ----------- ----------- ----------- Total securitization/sales volume $ 741,805 $ 753,969 $ 1,350,523 -1.6 AVERAGE MANAGED RECEIVABLES - --------------------------- Mortgage loans $ 8,263,300 $ 8,114,144 $ 6,021,777 1.8% Auto loans 140,560 198,321 220,477 -29.1 Leases 693,921 671,118 601,283 3.4 Business cards 866,732 822,852 739,654 5.3 Other loans 17,019 17,820 14,784 -4.5 ----------- ----------- ----------- Total average managed receivables 9,981,532 9,824,255 $ 7,597,975 1.6 Total average serviced receivables $19,182,200 $18,404,342 $15,898,544 4.2 ----------- ----------- ----------- ENDING MANAGED RECEIVABLES - -------------------------- Mortgage loans $ 8,293,166 $ 8,212,797 $ 6,394,835 1.0% Auto loans 122,836 185,621 251,166 -33.8 Leases 744,121 701,178 615,740 6.1 Business cards 886,237 832,086 761,576 6.5 Other loans 17,187 17,093 17,649 0.5 ----------- ----------- ----------- Total managed receivables $10,063,547 $ 9,948,775 $ 8,040,966 1.2 Total serviced receivables $19,503,442 $18,859,606 $16,213,193 3.4 IO AND CMSR ROLLFORWARD - ----------------------- Beginning Balance (A) $ 271,876 $ 283,521 Retained IO on sales, net 38,529 31,297 Hedge impact (20,819) (3,614) Write-down related to auto loans 0 (7,828) Transaction expenses 2,507 1,472 Interest income 7,970 11,118 Additional reserves (10,000) Cash received (42,966) (43,217) Other, net (26) (873) ----------- ----------- Ending balance 247,071 271,876
(A) Includes reclassification of amounts due from Trustee -more- 4 ADVANTA CORP. HIGHLIGHTS ($ IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED ---------------------------------------------------------- PERCENT CHANGE JUNE 30, MAR. 31, JUNE 30, FROM 1999 1999 1998 PRIOR QUARTER -------- -------- -------- -------------- EARNINGS - -------- As a % of average managed receivables: Operating expenses 3.25% 3.47% 3.73% -6.3% Charge-offs 1.46 1.36 1.49 7.4 Earnings per common share $ 0.49 $ 0.25 $ 0.35 96.0 Diluted earnings per share 0.49 0.25 0.35 96.0 Return on average common equity 8.94% 4.54% 6.37% 96.9 COMMON STOCK DATA - ----------------- Weighted average common shares Used to compute: Earnings per common share 23,163 23,087 24,523 0.3% Diluted earnings per share 23,373 23,178 24,702 0.8 Ending shares outstanding 25,445 25,310 25,368 0.5% Stock price: Class A High $18.250 $15.188 $26.250 20.2% Low 9.625 10.313 19.250 -6.7 Closing 18.063 11.063 21.938 63.3 Class B High $14.750 $12.313 $24.250 19.8% Low 7.594 7.750 17.500 -2.0 Closing 13.563 8.938 19.875 51.7 Cash dividends declared Class A $ 0.063 $ 0.063 $ 0.063 0.0% Class B 0.076 0.076 0.076 0.0 Book value per common share (A) $ 22.51 $ 22.41 $ 21.26 0.4%
(A) Assumes conversion of the Class B Preferred Stock. -Statistical Supplement Available Upon Request- -----END PRIVACY-ENHANCED MESSAGE-----