Printer Friendly

Advanta Reports Second Quarter Profits; Results On Track.

SPRING HOUSE, Pa.--(BUSINESS WIRE)--July 27, 1999--

Advanta Corporation (NASDAQ:ADVNA;ADVNB;ADVNZ) today announced 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.

"Advanta's earnings this quarter continue to reflect our focus and aggressive steps to increase profits and optimize cash flow," said Dennis Alter, Advanta's Chairman and Chief Executive Officer. "We are committed to the strategy we outlined for 1999, to improve lending margins, manage operating expenses and emphasize the direct channel of our mortgage business while we profitably expand our business card and leasing activities."

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 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.

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


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 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 Press Release contains forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected.

The most significant among these risks and uncertainties are: (1) factors that affect consumer debt; (2) competitive pressures; (3) the level of delinquencies and charge-offs; (4) the rate of prepayments; (5) the level of expenses; (6) the timing of the securitizations of the Company's receivables; and (7) the ratings on the debt of the Company and its subsidiaries.

Additional risks that may affect the Company's future performance are detailed in the Company's filings with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q.


 Advanta Corp.
 Supplemental Consolidating Income Statement
 (in thousands)

 Three Months Ended June 30, 1999

 Advanta Advanta
 Advanta Leasing Business
 Mortgage Services Cards Other (a) Total
 --------- --------- -------- --------- -----

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
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
 ------- ------- ------- ------- --------

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.

 Advanta Corp.
 Reconciliation to Portfolio Lender Earnings Format
 (in thousands)

 Three Months Ended June 30, 1999

 Mortgage as Pro Forma
 Reported Adjustments
 ----------- -------------

Gain on sale of receivables $ 28,416 $(28,416) (a)
Interest income 30,534 175,799 (b)
Servicing revenues 25,001 (8,846) (c)
Other 861
 Total revenues 84,812 138,537

Operating expenses 56,133 1,883 (d)
Interest expense 21,820 114,970 (b)
Provision for credit losses 2,364 11,684 (e)
Minority interest in income of
 consolidated subsidiary 1,865
Unusual charges
 Total expenses 82,182 128,537

Income before income taxes 2,630 10,000
Pro forma income taxes 1,122 3,950
Pro forma net income $ 1,508 $ 6,050

 Advanta Proforma
 Mortgage as Remaining
 Portfolio Businesses Pro Forma
 Lender (f) Consolidated
 ---------- ---------- -------------

Gain on sale of receivables $ $ 12,700 $ 12,700
Interest income 206,333 28,667 235,000
Servicing revenues 16,155 5,048 21,203
Other 861 15,001 (f) 15,862
 Total revenues 223,349 61,416 284,765

Operating expenses 58,016 26,046 84,062
Interest expense 136,790 21,497 158,287
Provision for credit losses 14,048 5,043 19,091
Minority interest in income of
 consolidated subsidiary 1,865 355 2,220
Unusual charges
 Total expenses 210,719 52,941 263,660

Income before income taxes 12,630 8,475 21,105
Pro forma income taxes 5,072 3,311 8,383
 ----------------- -------------------
Pro forma net income $ 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

(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

(f) Adjusted to exclude the gain associated with the sale of an
 Advanta Partners investment.

 Advanta Corp.
 ($ in thousands, except per share data)

 Three Months Ended
 June 30, March 31, June 30, from
ORIGINATIONS 1999 1999 1998 Prior
------------ -------- -------- -------- ----------
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
 loans $727,689 $716,453 $1,247,415 1.6

Leases $113,384 $109,836 $74,352 3.2%
 cards 471,239 400,428 348,222 17.7

 Mortgage $635,896 $634,147 $1,215,097 0.3%
Leases 105,909 95,574 72,636 10.8
 cards 0 24,248 62,790 -100.0
 -------- -------- --------
 sales volume $741,805 $753,969 $1,350,523 -1.6

 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
 cards 866,732 822,852 739,654 5.3
Other loans 17,019 17,820 14,784 -4.5
 -------- -------- --------
Total average
 receivables 9,981,532 9,824,255 $7,597,975 1.6
Total average
 ables $19,182,200 $18,404,342 $15,898,544 4.2

 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
 cards 886,237 832,086 761,576 6.5
Other loans 17,187 17,093 17,649 0.5
 -------- -------- --------
 ables $10,063,547 $9,948,775 $8,040,966 1.2
 ables $19,503,442 $18,859,606 $16,213,193 3.4

 Balance(A) $ 271,876 $ 283,521
 IO on sales,
 net 38,529 31,297
Hedge impact (20,819) (3,614)
 related to
 auto loans 0 (7,828)
 expenses 2,507 1,472
 income 7,970 11,118
 reserves (10,000)
Cash received (42,966) (43,217)
Other, net (26) (873)
 -------- --------
 balance 247,071 271,876

(A) Includes reclassification of amounts due from Trustee

 Advanta Corp.
 ($ in thousands, except per share data)

 Three Months Ended
 June 30, Mar. 31, June 30, Prior
 1999 1999 1998 Quarter
 --------- --------- -------- --------

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

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
 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-
COPYRIGHT 1999 Business Wire
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1999, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
Printer friendly Cite/link Email Feedback
Publication:Business Wire
Geographic Code:1USA
Date:Jul 27, 1999
Previous Article:Integrated Healthcare Changes Name to Triangle Multi-Media Limited.
Next Article:Bowater Announces Financial Results for the Second Quarter of 1999, Status of the Sale of Its Operations in Maine and the Acquisition of a New...

Related Articles
Advanta Reports First Quarter Profits.
Advanta Reports Fourth Quarter and Full Year 1999 Results; Owned Loan Portfolio Grows 54% Over Third Quarter.
Advanta Reports 59% Increase in First Quarter Results.
Advanta Announces Objective to Increase Shareholders' Value of Mortgage and Leasing Businesses.
Advanta Comments On Second Quarter Pro Forma Operating Results.
Advanta Business Cards Reports On Track Results; Achieves ROA of 2.0%.
Advanta Reduces Deposit Liabilities by $389.7 Million.
Advanta Reports On-Track Business Card Results.
Advanta Welcomes Stockholders to Annual Meeting; Schedules Second Quarter Earnings Conference Call.
Your partner's role: complementing your association's capabilities.

Terms of use | Privacy policy | Copyright © 2019 Farlex, Inc. | Feedback | For webmasters