Advanta
| Company type | Private |
|---|---|
| Industry | Banking, Financial services |
| Predecessor | TSO Financial (prior to 1988) |
| Founded | 1951 |
| Defunct | 2009 |
| Fate | Filed for Chapter 11 bankruptcy; FDIC receivership of Advanta Bank Corp. |
| Headquarters | Upper Dublin Township, Pennsylvania (planned headquarters project) , United States |
Area served | United States |
Key people | Dennis Alter (CEO from 1971) |
| Products | Personal loans, consumer credit cards, small business credit cards |
Number of employees | Approximately 1,000 (2004); below 200 (2009) |
Advanta (known as TSO Financial prior to 1988) was a U.S.-based banking enterprise that controlled both Advanta Bank Corp and Advanta National Bank. (It is distinct from Advanta Energy Corp., a California-based energy consulting firm.)
Expansion
Established in 1951 with the mission to offer personal loans specifically for educators, Advanta came under the leadership of CEO Dennis Alter starting in 1971. At that point, the company had a workforce of 30 and operated solely within Pennsylvania, Florida, and Delaware. Its primary focus was on fixed-payment lending, without owning any banks or participating in mortgage lending activities.
By the early 1990s, Advanta's assets had surged to $25 billion, positioning it as the sixth-largest issuer of consumer credit cards in the United States, serving approximately seven million cardholders. In 1999, the company divested this credit card division to refocus its efforts on serving small business clients.
In 2003, Advanta reported earnings of $28.2 million and ranked as the third-largest small business credit card issuer nationwide. By 2004, its employee count had grown to around 1,000, primarily located near Philadelphia and Salt Lake City.
At the start of 2006, Advanta managed assets totaling $4.9 billion and generated nearly $400 million in annual revenue. Its credit card offerings were tailored toward entrepreneurs and small enterprises with fewer than ten employees and annual revenues below $3 million.
Challenges
In December 2008, developer Liberty Property Trust suspended plans for a $55 million Advanta headquarters project in Upper Dublin Township, Pennsylvania. By February 2009, Advanta disclosed a fourth-quarter loss of $43.8 million attributed to credit losses. This prompted reductions in dividends and expenses alongside layoffs affecting 300 staff members. Credit card interest rates were increased substantially regardless of individual credit ratings. By mid-March 2009, the company’s stock price plummeted from nearly $30 to just 24 cents per share.
On May 11, 2009, Advanta announced it would cease new charges on its credit cards by June 10 due to early amortization of funding instruments that eliminated access to additional capital. The company also sought to repurchase senior notes at discounts ranging from 65% to 75% of their face value.
By late May 2009, Advanta expedited the closure of all one million small business credit card accounts by June 1 and withdrew entirely from the credit card market. In June, regulatory authorities blocked a planned discounted repurchase of $1.4 billion in senior debt notes.
In July 2009, the FDIC mandated that Advanta stop accepting federally insured deposits and ordered repayment of $35 million related to improperly denied cashback bonuses and account repricing. The company reduced its workforce by half, bringing employee numbers below 200. By July 20, defaults on its credit card portfolio reached an unprecedented rate nearing 57%.
Reports surfaced in late July criticizing questionable investment notes promoted through newspaper advertisements; however, the company's website for these investment offerings was no longer operational.
On August 10, following a second-quarter loss of $330 million, Advanta revealed intentions to pursue new business strategies.
During August and September 2009, charge-off rates showed improvement from previous highs while delinquency rates experienced a modest increase.
In October 2009, a class action lawsuit was initiated against Advanta representing investor interests.
By May 2010, numerous complaints from business credit cardholders had been filed with regulatory bodies including the Federal Trade Commission and Better Business Bureau in Utah.
Bankruptcy
Advanta initiated a Chapter 11 bankruptcy filing on November 8, 2009. Subsequently, on March 19, 2010, Utah authorities took control of Advanta Bank Corp., appointing the Federal Deposit Insurance Corporation (FDIC) as the receiver. The FDIC projected the impact on its Deposit Insurance Fund to be roughly $635.6 million due to the bank's failure.
Reorganization
To manage Advanta Bank depositors' ACH transactions, the FDIC coordinated with Zions National Bank. Meanwhile, Cardworks Servicing, LLC, based in Pittsburgh, Pennsylvania, assumed responsibility for servicing remaining credit card balances. Reports emerged from some clients about unauthorized payments being applied to accounts, allegedly to reaffirm debts and restart the statute of limitations on defaults.
On November 2, 2010, Advanta Corp. along with its related debtors approved a comprehensive financial restructuring plan. By February 2011, initial distributions were executed under the Joint Plan involving Advanta Corp., AC Trust, ASSC Trust, and Advanta Finance Trust. At that time, Advanta National Bank retained $100 million in cash and cash equivalents alongside approximately $138 million in senior retail investment notes, continuing its banking operations within the United States. Advanta Bank Corp. maintained a loan and credit card portfolio valued at $2.7 billion across 360,000 customers.
On November 4, 2011, AC Trust commenced Chapter 5 preferential transfer recovery proceedings in the Delaware District Court.
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