Advanta Accepts Proposal to Sell Mortgage Business and Reports Third Quarter Results.Business Editors SPRING HOUSE, PA--(BUSINESS WIRE)--Oct. 24, 2000 Advanta Advanta is an American banking company. Currently, it controls two banks, Advanta Bank Corp and Advanta National Bank. The banking corporation is not associated with Advanta Energy Corp., an energy consulting practice based in California. Corporation (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :ADVNB; NASDAQ:ADVNA ADVNA Advanta Corporation (stock symbol) ) announced today that it has accepted a proposal to sell its Mortgage business to a major financial institution in a cash transaction for a price in excess of book value and is negotiating an agreement with this party. Under the terms of the proposal, the Company expects to receive proceeds that will result in excess liquidity when added to the Company's existing cash and equivalent position. As a result, the Company intends to use a portion of this liquidity to pay off all institutional medium term notes currently outstanding. The Company also intends to seek shareholder approval for the transaction. While there can be no assurance that a definitive agreement will be reached and a number of items remain to be negotiated, if the transaction is consummated con·sum·mate tr.v. con·sum·mat·ed, con·sum·mat·ing, con·sum·mates 1. a. To bring to completion or fruition; conclude: consummate a business transaction. b. under the terms of the proposal, it will result in the sale of virtually all mortgage assets which represent 33% of owned assets at September September: see month. 30, 2000. Until the agreement is signed, the Company will make no further updates to its disclosures related to the sale or use of proceeds other than those made in this press release and the Company's conference call scheduled for 9:00 am today. Advanta also indicated that the initial due diligence Research; analysis; your homework. This term has caught on in all industries, because it sounds so "wired." Who would want to do analysis or research when they can do due diligence. See wired. has been completed with respect to its leasing business and bids are being solicited from interested parties. Advanta also announced today its final results for the third quarter of 2000. Net income for the quarter was $15.7 million, or $0.62 per share on a diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. basis for Class A and Class B shares combined. Pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. was $464,000, or $0.02 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. As previously announced, results for the quarter include $23 million of provisions and charges which consist of a charge of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $10 million in the leasing business due to continued charge-offs largely concentrated within certain unprofitable segments of this business from prior periods; an increase of approximately $10 million in reserve coverage for the business credit card unit, approximately $6 to $8 million of which strengthened on-balance sheet reserves and is attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to a revision of the methodology for estimating loan losses as a result of recent discussions with the Federal Deposit Insurance Corporation Federal Deposit Insurance Corporation (FDIC), an independent U.S. federal executive agency designed to promote public confidence in banks and to provide insurance coverage for bank deposits up to $100,000. relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the implementation of the agreement between Advanta Bank Corp. and the FDIC FDIC See: Federal Deposit Insurance Corporation FDIC See Federal Deposit Insurance Corporation (FDIC). that was previously disclosed dis·close tr.v. dis·closed, dis·clos·ing, dis·clos·es 1. To expose to view, as by removing a cover; uncover. 2. To make known (something heretofore kept secret). on June June: see month. 2, 2000, with the remainder due to the maturing and growth of this portfolio; and a charge of approximately $3 million in the 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 $1.53 per share on a diluted basis and operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before for the third quarter would have been $0.58. Advanta also provided a growth outlook for its Business Card operations for 2001. Next year, Advanta plans to grow its managed business credit card receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed by 30% to 50%. Guidance for Advanta Corp. will be provided upon the resolution of the strategic alternatives process and will include the Company's strategy to achieve a targeted efficiency ratio upon the conclusion of the strategic alternatives process. "Advanta is one of the nation's largest issuers of MasterCard MasterCard Worldwide (NYSE: MA) is a mutinational corporation based in Purchase, NY in the United States. Throughout the world, its principal business is to process payments between the banks of merchants and the banks of purchasers that use its "Mastercard" branded debit- and business credit cards to small businesses," said Dennis Dennis is a male first name derived from the Greco-Roman name Dionysius meaning "servant of Dionysus", the Thracian god of wine, which is ultimately derived from the Greek Dios (Διος, "of Zeus") combined with Nysos or Nysa (Νυσα), where the Alter, Chairman and Chief Executive Officer. "Our plans are to continue to enhance this very profitable business, leveraging our information based strategic skills and resources to offer targeted credit card and other products to the expanding small business market." Pretax income pretax income Reported income before the deduction of income taxes. Pretax income is sometimes considered a better measure of a firm's performance than aftertax income because taxes in one period may be influenced by activities in earlier periods. for Advanta Business Cards was $14.2 million this quarter after the $10 million increase in the on-balance sheet allowance for loan losses, as compared to pretax income of $9.2 million for the third quarter of 1999. The asset quality of the Business Card portfolio was consistent with the Company's expectations and after increasing the allowance, reserves as a percent of owned receivables increased to 6.7% at September 30, 2000 while charge-offs for the quarter were 4.8% on an annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. basis. Based on the average net charge-offs for the quarter, the on-balance sheet allowance for business credit card losses represents 16 months of charge-off Eliminate or write off. The term charge-off is used to describe the process of removing from the records of a company something that was once regarded as an asset but has subsequently become worthless. coverage. Managed receivables for Advanta Business Cards at the end of the quarter were $1.5 billion, as compared to $1.4 billion at June 30, 2000 and $930 million at September 30, 1999. On a basis that is essentially the same as a portfolio lender, net income for Advanta Mortgage was $813,000 as compared to $8.6 million for the quarter ended September 30, 1999. The decrease year on year is substantially due to lower mortgage origination Origination The process through which a mortgage lender creates a mortgage secured by some amount of the mortgagor's real property. Notes: Also known as loan origination, everyone must go through the origination process when securing a mortgage for a piece of real volume as a result of continued implementation during the quarter of processes required by the agreements between the Company's bank subsidiaries and their regulators and the maintenance of an infrastructure commensurate com·men·su·rate adj. 1. Of the same size, extent, or duration as another. 2. Corresponding in size or degree; proportionate: a salary commensurate with my performance. 3. with normal mortgage volumes. The Company anticipates fourth quarter mortgage origination volume to be in line with the third quarter's originations. During the quarter, the Company securitized securitized Of, related to, or being debt securities that are secured with assets. For example, mortgage purchase bonds are secured by mortgages that have been purchased with the bond issue's proceeds. approximately $1 billion of mortgage loans. Net income for Advanta Mortgage and for the Company was higher than its preliminary estimates for this quarter due to higher than expected mortgage securitization Securitization The process of creating a financial instrument by combining other financial assets and then marketing them to investors. Notes: Mortgage backed securities are a perfect example of securitization. May also be spelled as "securitisation. income. At September 30, 2000, Advanta National Bank ("ANB ANB American National Biography ANB American National Bank ANB Alaska Native Brotherhood ANB Arab National Bank ANb Agoraphobic Nosebleed (band) ANB Amarillo National Bank (Texas) ") was in compliance with the increased capital ratios required by the agreements with its regulator regulator, n the mechanical part of a gas delivery system that controls gas pressure that allows a manageable flow of drug vapor to escape. regulator see reducing valve. . As anticipated, the Company achieved these ratios through a combination of decreasing the assets at ANB and making aggregate capital and other investments in ANB of approximately $70 million. Advanta generated approximately $14 million of cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses , after considering key mortgage non-cash income and expense items and the cash impact of mortgage loan originations The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. . During the quarter, the Company completed its first public business credit card securitization. At the end of the quarter, the Company financed, with parent and bank funds, loan receivables on its books totaling $921 million and ended the quarter with over $750 million in total liquidity. At September 30, 2000, the Company had available approximately $1.1 billion in unused warehouse lines and commercial paper conduit conduit /con·du·it/ (kon´doo-it) channel. ileal conduit the surgical anastomosis of the ureters to one end of a detached segment of ileum, the other end being used to form a stoma on the facilities. Advanta management will hold a conference call with analysts and institutional investors Institutional Investor A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. today, October October: see month. 24, 2000, at 9:00 am Eastern time. The call will be broadcast simultaneously for the public over the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the through http://www.advanta.com or http://www.vcall.com. To listen to the live call, please go to the web site at least fifteen minutes early to register, download To receive a file transmitted over a network. In any communications session, "download" means receive, and "upload" means send. The download/upload often implies a big/little scenario, in which data is being downloaded from the "big" server into the "little" user's computer. , and install any necessary audio software. For those unable to listen to the live broadcast, replays will be available shortly after the call on the Vcall site. Advanta (www.advanta.com) is a highly focused financial services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. company with over 2,700 employees, servicing approximately $25 billion of assets, including approximately $12 billion in managed assets and approximately $13 billion in assets serviced for third parties. Advanta provides consumers and small businesses with targeted financial products and services, including non-conforming mortgages A non-conforming mortgage is a term in the United States for a residential mortgage that does not conform to the loan purchasing guidelines set by the Federal National Mortgage Association /Federal Home Loan Mortgage Corporation (Fannie Mae and Freddie Mac). , business credit cards, equipment leases, insurance and deposit products. The Company is also one of the largest servicers of non-conforming mortgages for third parties in the country. Advanta has leveraged its first-class direct marketing and information based expertise to develop state-of-the-art data warehousing See data warehouse. data warehousing - data warehouse and statistical modeling tools that identify potential customers and new target markets. Advanta created one of the first automated au·to·mate v. au·to·mat·ed, au·to·mat·ing, au·to·mates v.tr. 1. To convert to automatic operation: automate a factory. 2. underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. and sales engines in the non-conforming mortgage industry. The Company also offers its customers and business partners a broad range of self-service financial solutions and other services on the Internet. Advanta was named one of the 500 Most Admired ad·mire v. ad·mired, ad·mir·ing, ad·mires v.tr. 1. To regard with pleasure, wonder, and approval. 2. To have a high opinion of; esteem or respect. 3. Companies in America America [for Amerigo Vespucci], the lands of the Western Hemisphere—North America, Central (or Middle) America, and South America. The world map published in 1507 by Martin Waldseemüller is the first known cartographic use of the name. in FORTUNE Magazine's most recent annual survey. In June 2000, American Banker American Banker is a daily newspaper covering the financial services industry. Founded in 1835 and based in New York, American Banker's 70 reporters and editors in six cities monitor developments and breaking news affecting banks. ranked Advanta Bank Corp. third among the top 100 community banks in the nation in terms of return on average assets. This Press Release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. 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) the Company's managed net interest margin; (2) competitive pressures; (3) factors that affect the level of delinquencies and charge-offs, including a deterioration de·te·ri·o·ra·tion n. The process or condition of becoming worse. of general economic conditions; (4) the rate of prepayments Prepayments Payments made in excess of scheduled mortgage principal repayments. ; (5) interest rate fluctuations; (6) the level of expenses; (7) managed and sub-serviced receivables volume; (8) the timing of the securitizations of the Company's receivables; (9) the level of insurance policy renewals; (10) the effects of government regulation, including restrictions and limitations imposed by banking laws, regulators, examinations, and the agreements between the Company's bank subsidiaries and their regulators; (11) relationships with significant vendors, business partners and customers; (12) the amount and cost of financing available to the Company; (13) the ratings on the debt of the Company and its subsidiaries; (14) the ability to attract and retain key personnel and customers; and (15) the results of the evaluation of strategic alternatives, including the completion of a definitive agreement and the closing and timing of any transaction. 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 Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. and its Quarterly Reports on Form 10-Q Form 10-Q See 10-Q. .
Advanta Corp.
Supplemental Consolidating Income Statement
(in thousands)
Three Months Ended September 30, 2000
---------------------------------------------------
Advanta Advanta
Advanta Business Leasing
Mortgage Cards Services Other(a) Total
-------- -------- -------- ------- --------
Revenues:
Interest
income $ 37,186 $ 24,007 $ 3,894 $15,442 $ 80,529
Securitization
income (loss) 35,236 19,195 (5,563) - 48,868
Servicing
revenues 33,717 3,525 1,813 - 39,055
Other
revenues,
net (607) 18,340 4,554 (1,844) 20,443
-------- -------- -------- ------- --------
Total
revenues 105,532 65,067 4,698 13,598 188,895
-------- -------- -------- ------- --------
Expenses:
Operating
expenses 63,237 23,715 9,049 1,926 97,927
Interest
expense 24,240 10,035 3,308 14,422 52,005
Provision for
credit
losses - 16,806 4,193 - 20,999
Minority int.
in inc. of
consolidated
sub. 1,744 309 167 - 2,220
-------- -------- -------- ------- --------
Total
expenses 89,221 50,865 16,717 16,348 173,151
-------- -------- -------- ------- --------
Income (loss)
before income
taxes 16,311 14,202 (12,019) (2,750) 15,744
Income tax
expense
(benefit) - - - - -
-------- -------- -------- ------- --------
Net income
(loss) $ 16,311 $ 14,202 $(12,019) $(2,750) $ 15,744
======== ======== ======== ======= ========
(a) Other includes insurance operations and investment activities
not attributable to other segments.
Advanta Corp.
Reconciliation of Advanta Mortgage to
Portfolio Lender Earnings Format
(in thousands)
Three Months Ended September 30, 2000
------------------------------------------------------
Advanta
Advanta Mortgage
Mortgage as a Pro Forma
as Pro Forma Portfolio Remaining Pro Forma
Reported Adjustments Lender Businesses Consolidated
-------- ----------- -------- ---------- ------------
(f) (f)
Revenues:
Interest
income $ 37,186 $199,420(a) $236,606 $ 43,343 $279,949
Securitization
income 35,236 (35,236)(b) - 13,632 13,632
Servicing
revenues 33,717 (13,324)(c) 20,393 5,338 25,731
Other
revenues,
net (607) - (607) 21,050 20,443
-------- --------- -------- -------- --------
Total
revenues 105,532 150,860 256,392 83,363 339,755
-------- -------- -------- -------- --------
Expenses:
Operating
expenses 63,237 1,920(d) 65,157 34,690 99,847
Interest
expense 24,240 135,354(a) 159,594 27,765 187,359
Provision for
credit
losses - 28,575(e) 28,575 20,999 49,574
Minority interest
in income
of
consolidated
subsidiary 1,744 - 1,744 476 2,220
-------- -------- -------- -------- --------
Total
expenses 89,221 165,849 255,070 83,930 339,000
-------- -------- -------- -------- --------
Income (loss)
before
income
taxes 16,311 (14,989) 1,322 (567) 755
-------- -------- -------- -------- --------
Income tax
expense
(benefit) - 509 509 (218) 291
-------- -------- -------- -------- --------
Net income
(loss) $ 16,311 $(15,498) $ 813 $ (349) $ 464
-------- -------- -------- -------- --------
Footnotes for pro forma adjustments:
(a) Represents the adjustment to interest income and interest
expense as if the securitized mortgage loans were still owned
by Advanta and remained on the balance sheet for the period
presented.
(b) Represents the reclassification of net gains or losses
recognized on the sale of mortgage loans for the period.
(c) Represents the reclassification of servicing revenues on
securitized mortgage loans for the period presented.
(d) Represents the reclassification of securitization costs
incurred by Advanta.
(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 income tax expense to normalized rate of 38.5%.
Advanta Corp.
Highlights
(in thousands)
Three Months Ended
-------------------------------------------------------
Percent
Change
From
September 30, June 30, September 30, Prior
ORIGINATIONS 2000 2000 1999 Quarter
------------ ----------- ----------- ----------- -------
Direct $ 233,149 $ 301,393 $ 368,654 -22.6%
Broker 80,974 198,277 163,720 -59.2
Other
indirect - 3,238 34,941 -100.0
----------- ----------- ----------- ------
Total
Advanta
Mortgage
loans $ 314,123 $ 502,908 567,315 -37.5
Business
credit
cards $ 881,215 $ 900,381 $ 484,727 -2.1
Leases 70,814 88,437 112,615 -19.9
SECURITIZATION/SALES
VOLUME
--------------------
Advanta
Mortgage $ 1,028,221 $ 477,238 $ 746,893 115.5%
Business
credit cards 136,050 0 257,750 N/M
Leases 70,093 126,960 106,953 -44.8
----------- ----------- ----------- ------
Total
securitization/sales
volume $ 1,234,364 $ 604,198 $ 1,111,596 104.3%
AVERAGE MANAGED
RECEIVABLES
---------------
Mortgage
loans $ 8,269,866 $ 8,413,993 $ 8,278,435 -1.7%
Business
credit cards 1,472,729 1,319,434 906,032 11.6
Leases 796,375 802,661 741,571 -0.8
Auto loans 53,160 67,105 111,357 -20.8
Other loans 24,250 19,939 17,322 21.6
----------- ----------- ----------- ------
Total average
managed
receivables $10,616,380 $10,623,132 $10,054,717 -0.1%
Total average
serviced
receivables $23,722,992 $24,000,185 $20,029,536 -1.2%
ENDING MANAGED
RECEIVABLES
--------------
Mortgage
loans $ 8,185,378 $ 8,381,881 $ 8,260,900 -2.3%
Business
credit
cards 1,529,784 1,428,732 930,009 7.1
Leases 794,825 820,265 780,653 -3.1
Auto loans 47,094 56,796 101,045 -17.1
Other loans 26,080 21,689 17,478 20.2
----------- ----------- ----------- ------
Total
managed
receivables $10,583,161 $10,709,363 $10,090,085 -1.2%
Total
serviced
receivables $23,299,071 $24,360,406 $20,573,310 -4.4%
IO AND CMSR
ROLLFORWARD
-----------
Beginning
balance $ 85,272 $ 206,538 $ 247,071
Retained IO
on sales, net 42,840 33,819 38,396
Hedge impact 4,358 (2,913) (1,513)
Interest
income 17,991 21,409 10,618
Cash
received (32,705) (36,552) (49,383)
Additional
reserves - (234,200) -
Other, net - - 362
----------- ----------- -----------
Subtotal 117,756 (11,899) 245,551
Reclass
of IO
reserves
to
subordinated
trust assets (21,802) 97,171 -
----------- ----------- -----------
Ending
balance $ 95,954 $ 85,272 $ 245,551
----------- ----------- -----------
Advanta Corp.
Highlights (continued)
(in thousands, except per share data)
Three Months Ended
-----------------------------------------------------
Percent
Change
From
September 30, June 30, September 30, Prior
2000 2000 1999 Quarter
------------ --------- ------------ ------
EARNINGS
As a % of average
managed
receivables:
Operating
expenses 3.44% 3.37% 3.24% 2.1%
Charge-offs:
New
methodology(a) 2.45 2.69 -8.9
Prior
methodology 1.86 1.59
Efficiency ratio 65.52 62.01 62.13 5.7
Basic earnings
(loss) per
common share $ 0.62 $ (7.64) $ 0.57 N/M
Diluted earnings
(loss) per
common share $ 0.62 $ (7.64) $ 0.55 N/M
Return on
average
common
equity 14.76% (142.13)% 9.98% N/M
COMMON STOCK DATA
-----------------
Weighted average
common shares
used to compute:
Basic earnings
per common
share 25,259 25,232 23,413 0.1%
Diluted earnings
per common
share 25,326 25,232 23,990 0.4
Ending shares
outstanding 27,222 27,237 27,086 -0.1
Stock price:
Class A
High $13.563 $21.000 $23.938 -35.4
Low 10.688 10.875 14.625 -1.7
Closing 11.250 12.188 14.625 -7.7
Class B
High 10.188 15.125 19.125 -32.6
Low 7.500 7.750 11.375 -3.2
Closing 8.141 8.500 11.750 -4.2
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 16.81 16.08 22.65 4.6
(a) Beginning in the second quarter of 2000, charge-off and
delinquency statistics reflect the adoption of new charge-off
policies for mortgage loans and leases. Mortgage loans are
generally charged-off at the earlier of foreclosure or 180 days
delinquent. The previous policy was the earlier of foreclosure or
12 months delinquent. Leases are generally charged-off at 121
days delinquent, however the timing of the delinquency
measurement was changed from mid-month to month end in the second
quarter of 2000. Cumulative catch-up adjustments included in
second quarter charge-off amounts are not annualized when
calculating the annualized charge-off rate under the new
methodologies.
- Statistical Supplement Available at http://www.advanta.com -
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