Advanta Corp. Q1 2008 Earnings Call Transcript

Advanta Corp (ADVNB)

Q1 2008 Earnings Call

April 30, 2008, 9:00 am ET

Executives

Amy Holderer - Vice President of Investor Relations

Dennis Alter - Chairman and Chief Executive Officer

Bill Rosoff - Vice Chairman and President

Phil Browne - Chief Financial Officer

Analysts

Scott Valentin - FBR Capital Market

Sameer Gokhale - KBW

Chris Brenler - Stifel Nicolaus

Lee Calfo - Boenning & Scattergood

Monica Gabel - Goldmann Sachs

Michael Cohen - Geneva Capital

Lynn Bracken - Bracken Capital

Howard Amster - Private Investor

Cyrus Sadiq - [Peter Hill]

Presentation

Operator

Good day everyone and welcome to the Advanta First Quarter 2008 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Amy Holderer. Please go ahead Ma'am.

Amy Holderer – Vice President of Investor Relation

Good morning and welcome to our conference call today. This is Amy Holderer, Vice President of Investor Relations. Joining me today are Dennis Alter, Chairman and CEO; Bill Rosoff, President; and Phil Browne, CFO. During our call this morning, we will share comments regarding our first quarter 2008 performance and then we'll take questions from analysts and institutional investors. (Operator Instructions).

Our discussion today will include the use of managed receivable data and other non-GAAP financial measures. Our press releases and statistical supplements are available at our website advanta.com in the Corporate Info section. These documents provide a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures and a description of why we believe the non-GAAP financial measures are useful to investors.

In addition, some of our comments today are forward-looking and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements involve risks and uncertainties, which may affect the company's business and prospects, including economic, environmental, competitive, governmental, technological, social, political, and other factors discussed in the Company's press releases, as well as in the Company's 10-K, 10-Qs, and other documents filed with the Securities and Exchange Commission.

Now, I will turn the call over to Dennis.

Dennis Alter - Chairman and Chief Executive Officer

Good morning and thanks for joining us. We reported this morning that in the first quarter of '08 we earned $0.44 per combined diluted share. This includes $0.28 per share of after-tax income attributable to Visa's March high IPO.

Now in credit, our credit losses in delinquencies continued to rise this quarter. You can see this in our monthly trust data and we see the results of this everyday as we work to reduce the rates and collect our money. This is a very difficult environment. Consumer delinquencies are at levels not seen for almost two decades. We are part of this macro phenomenon, but we don't take too much comfort in that. We have our own book and our own business to run. We are not hiding behind what's happening to every other card issuer in the country.

This past quarter, our annualized managed net credit losses increased to 6.43% of average managed receivables. And our managed 30-day plus and 90-day plus delinquency rates ended the quarter at 5.3% and 2.46% respectively. These rates are obviously very disappointing to us.

In ’07 we have been substantially below the average loss and delinquency rates for small business issuers in the surveys in which we participate. This year our losses are now up the average and our delinquencies have moved closer to the averages but are still below them. This means that our losses in delinquencies have risen recently at a faster pace then the averages. We are aware of this and are working to slow the pace and to begin to reduce it.

The deterioration of our credit performance is not isolated to a particular segment of our portfolio or vintage or geographic area. Unfortunately, we continue to see increases in delinquency throughout the portfolio; although there are some areas that are worse than others. For example, compared to a year ago, we've seen large 30-day plus delinquency rate increases in Florida and California.

Together these states make up about 24% of our receivables which is more or less equal to the concentration of small businesses in these states as reported by the SPA. At March 31^st, the average delinquency rate for these states was about 1.3 times higher than the portfolio average versus a year ago when they were slightly below the portfolio average.

More rapid and greater decreases in home values in these states and many individual weak local economies have added to the affect of the current national recession.

You may recall in the fourth quarter I spoke to you about rising trends in early bucket delinquencies in the later quarter of '07. This is the category of delinquency that precedes the reported 30 day pass through. In addition to normal seasonal improvement we have seen some modest improvement in these early delinquencies in March and so far in April. However, we do not consider this a trend, that’s just data points for now. As we see the results of the next few months this is something more than a temporary anomaly. We are small compared with our competitors. We believe this is an advantage in our being able to focus our resources on opportunities and respond quickly from market openings. This is served as real well in an invest grow mode. I believe we will service well in this environment. While this is the difficult period, we’ve redirected our best employee towards reducing our losses and delinquencies. Our senior leadership, our middle managers and non-exempt folks are focused prudently on the current difficulties, and how we can overcome them. We can be focus and effective on opportunities and we can be focus and effective on problems and then I assure you we are focused on this problem.

Now I would like to touch on a few other key measures of our business. During this quarter we required about 67,000 new customers. This is about 30% lower than the same quarter last year. As we’ve indicated our plan is to acquire substantially fewer in customers in '08 that we did in '07.

Transaction volume for the quarter totaled $3.4 billion which was comparable to the first quarter of '07, underneath this there were two dynamics. Purchases grew and balance transfers declined. The growth in purchases came from having more customers in a year ago, but as we saw late in the fourth quarter, customer purchase activity began to soften and has continued a little soft this quater. The decrease in balance transfers resulted as anticipated from our lower new account volume and some tighter line assignments at acquisition.

At quarter end, managed receivables were modestly lower than the $6.3 billion at the end of last year. This resulted from a combination of fewer new accounts over the past three quarters, lower transaction value than in the fourth quarter and higher charge offs.

Finally, I would like to give you an update on the off shoring products we began in early '07. After more than a year of testing and review, we’ve decided to offshore significant portion on the number our business processes. We satisfied with the quality of our offshore partner, resources and results. We believe that higher off shoring as we’ve planned we can significantly reduce the operating cost related to these business processes in future years by over $15 million a year. We expect to reach this run rate by the later of '09.

Now, Phil will update you on the details of our financial. Phil?

Phil Browne – Chief Financial Officer

Thanks Dennis. As Dennis mentioned our results in this quarter included a benefit from Visa’s execution of its I/O. We realized $13.4 million from the redemption of about 314,000 where 39% of Class B Visa shares and $5.5 million related to the relief contingency reserves recorded in 2007 associated with litigation matters between Visa and third parties.

In addition to this, Advanta business cards earned pretax income of $10.8 million. Included in business cards first quarter results, our few specific items that I would like to point out for you.

First we increased our allowance for credit losses on principle receivables by $12.1 million. This is primarily result of higher delinquencies and roll rate in the own portfolio. The diluted after tax earnings per combined share equivalent for this charge was $0.18. Our allowance for receivable loss hast ended the quarter at 8.3% of our own receivables. Also, we increased the value of our retained interest in securitization by $4 million. You may recall the last quarter these assets were written down by $17.2 million. The current quarter's valuation included an increased in estimated cash flows from our interest asset, partially offset by the impact of higher market credits on or above our retained interest .Stated on an earnings per share basis this increase after tax earnings by $0.06. The adjustment at the interest reflect estimated lower funding cost and higher yield partially offset by higher credit net loss estimate.

Lastly, as Advanta business Corp’s pre tax results for the first quarter include a $4.6 million gain associated with the sale of the portion of our Master Card Class B shares. This is equivalent to $0.07 share per combined diluted share on a after tax basis. At quarter end the market value of our unsold Master Card shares was approximately $14.7 million. Total remaining 73,000 Master Cards shares and almost 500,000 Visa shares are carried on our balance sheet at zero.

Consistent with our expectation, manage net interest yield expanded nicely from last quarter as a result of the lower funding rate and higher customers interest rate partially offset by charge off one collected interest, our manage net interest margin grew by 77 basis point to 8.04%.

Total operating expenses for the quarter were up slightly from the fourth quarter of 2007. We are currently looking at value added customer focus initiative as well as initiative to enhance our competitive position in small business market when the economy turns around. These costs in combination with the initial off shoring cost and receivables that are not drowning as in the past are expected to result in somewhat higher operating expense ratios to remainder of this year.

We continue to maintain a conservative liquidity position which include $1.3 billion of cash and liquid investments and $1.4 billion of AAA capacity inside our securitization structure.

During the quarter, we grow our deposits at Advanta Bank ending the quarter with $ 1.9 billion outstanding. To maintain maximum funding flexibility, we continue to keep a pulse on securitization at the funding option. However, between the cash and liquid investment on hand along with the ability to raise additional deposits, we don’t have to use securitization for this year funding needs. This is without taking a count of our additional ability to access at that window. The only securitize that will make economic sense for us to do so. As the pacing, our securitization maturities for 2008 are heaviest in the second quarter. If we don’t securitize, we would of course anticipate that our level of cash and liquid investment will decline somewhat, but we would expect to continue to have a strong liquidity position.

To monitoring the securitization market we saw that in the mid March securitization investors would bear us. Particularly in light of mark-to- market losses and continuing spread expansion. Since then turn of the market has been better, but as we all know that turn can be very volatile. Credit spreads remain historically wide. We will continue to evaluate securitization as a funding option, but like I said we are not committed to doing anything within this year. Next, I would like to turn the call over to Bill.

Bill Rosoff - Vice Chairman and President

Thanks Phil. The only short of it is that we continue to be working through a very difficult and uncertain economy and markets. However, we still expect to be profitable for `08 and to pay our quarterly dividend that is present level for the year. We also mention in the last quarter we expected to discuss the possibility of stock buyback authorization with the board, and we are having those discussions although, nothing has been concluded yet.

Essentially, our focus as we are doing everything we can to minimize risk today and provide civility and opportunities for the long term. Now, let’s take your questions.

Question-And-Answer Session

Operator

(Operators Instruction). And we will go first to Scott Valentin with FBR Capital Market.

Scott Valentin

Good morning thanks to taking my questions. Few questions, first, is there any change in customer behavior regarding the line usage and then payment rates and then a second question, given seasonality of credit card asset qualities at the back half of the year showed more weakness, is that consistent with your outlook? Thank you.

Phil Browne

I'll take first Scott, the customer behavior. We are not seeing anything significant in line utilization in the portfolio in fact it’s pretty darn steady. On payments, I think consistent with what we've been saying recently, payment rates are a little softer in the first quarter than they had been which continues a modest transit, you know, it was there in the latter half of last year. Seasonality in the performance of the portfolio is hard to say Scott. I mean, there wasn't a lot of seasonality over the last couple of years with post B.K. reform and a very, very good credit environment overall. And as Dennis mentioned the very early indicators and how to think about them on the entry buckets and I think other than that I don't have a lot to add.

Operator

Thanks. We'll move to Sameer Gokhale at KBW.

Sameer Gokhale

Hi good morning. Just had a few questions, the first one was, you know, in terms of the MasterCard gain? I didn't see that mentioned in the press release and I know you had referenced that number being included in the results for this quarter, it had been included last quarter, but just if you can clarify the difference in the presentation between the Visa gains this quarter versus the MasterCard gains and the difference in the line, that will be helpful? The other question I had was just to get some clarification on the transaction volume growth, you know 1.4% year-over-year. I know you talked about the decline in balance transfer volumes and soft mean purchase volume, but would you straight out those two components on a year-over-year basis so we can see those – and then the last question I had was, can you give us some more clarity in terms of underwriting on new accounts, what specifically you have changed there given that historically you were focused more on the kind of prime, super-prime customer segment in terms of FICO scores, but have you done anything on top of that to kind of tighten up your underwriting standards? Thank you.

Phil Browne

Sameer, I'll start with the MasterCard and Visa. Visa is not included, if you look at the segment disclosure in business cards. That's because it is predominantly from our old consumer business that's pre-1998. So, that's reported in the non-business card segment. The share impact – the share gains reported in other revenues and the reversal of the contingency reserves consistent with that being reported in expenses when we put them up is reported as a reversal of expenses in this quarter. So that's the geography on the Visa. On the MasterCard, consistent with what we've done in the past, that is related to our business card operation and that's reported in other revenues in the business cards segment.

Dennis Alter

On the underwriting, I think we've mentioned on the last call, we had done and we're continuing to make underwriting certainly focussed on prime and super-prime customers that we're trying acquire. But we are definitely changed underwriting to take into account of what we're seeing. So in different industry segments and different geographies, we're trying to look forward based on what we're seeing -- just as a general manner where we see customers with certain profiles or prospects with certain profiles that have where we'd project higher losses then we'd be comfortable with at this point because of what we've seen more recently, we either wouldn't approve them or we'd give somebody who we would approve as a one-on-one a smaller line.

In addition to that, we've – and I think we've also mentioned this, and that's a continuing process, we've also closed accounts and cut lines where we're seeing things, and sometimes cut lines to approximately with the outstanding balances where we see performance inconsistent with what we would have expected and where we're not comfortable. These were just examples.

Phil Browne

I thank Sameer to wrap up your questions on the transaction volume consistent with what we've previously said; sales were up in the first quarter compared to the comparable quarter the prior year by somewhere in the neighborhood of 11 to 12%. Balance transfers, however, were off quite a bit, well up over $100 million which consistent with the comments we made, smaller, lower account origination volumes, federal line assignments, it's a typical condition in this type of environment. So that offset a good part of the sales, merchandise sales increase.

Operator

Next we'll move to Chris Brenler at Stifel Nicolaus.

Chris Brenler

Hi, thanks good morning. Actually a followup on Sameer’s question a little bit differently. You mentioned in the credit discussion that you didn’t see any sort of geography or vintage responsible for the deterioration, but, as I look at your numbers relative to what your competitors – the deterioration is I think, is a lot more significant and lot more steep in the last, three to six months. So, as sort of strikes at the core of your business model which is the small business focus, what exactly is the small business customer? What have you learned in the last six months about places where you may have had underwriting decisions that were incorrect and assumptions that were incorrect that held you kind of good perform? Any detail you can give us on what changes you’ve made? Well my concerns is for all the discussion would be, how many of these modest discussion was actually businesses that are real businesses, how many are latest consumers with that have the small business on the side, is there any differentiation you see sort of by employee base, if you can talk that all in terms of the deterioration you have seen recently. And the second question would be, as you manage the portfolio, and one thing I like what the credit card business is, as you can manage it pretty actively when you see things change. What are you doing on the -- or how actively you have been on pricing side, and aggressively taking up, what you think you’ve made underwriting mistake or if you think you may have too low, how aggressive are you being in ratcheting up yields and taking down lines in the portfolio as it season and some of these issues becomes clear, and have that have any impact on your metrics, and I know in the past some card companies when you take those steps, it does actually cause an initial jump in delinquencies when you require some, but it actually has a longer term benefit that we may not be seeing yet. If you could address those questions, I appreciate it. Thank you.

Bill Rosoff

This is Bill, on the first, I think couple of points, what Dennis alluded in the fact of how we relate to other small business issuers in the small business portfolios, and I think he said that we're in the losses, we’re now on the average we have been substantially below and delinquencies were still below, but not as much below. I think what that indicates is that small business portfolios, for various issues are performing and have by most anecdotal information in the past differently the consumer portfolios. So I think the appropriate comparison we think for us is how we’re doing compare to other people in the small business market. Where again historically, those insight that you see losses in delinquencies early in a period and come out of it earlier, whether that's true, I don't know. The-- in terms of managing the portfolio, I think I alluded to the kinds of things we're doing on a credit side. And on the pricing side, we historically look very carefully and regularly at the risk profile of the customers, and our projection of what we think the losses will be a obviously in this environment, and again I think we alluded to you last time, the signs of a worsening credit to say at least are up and therefore the appropriate pricing for those people is up and we actively look at that and take action.

Dennis Alter

Just on the other part of your question, on whether these are small business people or just consumers fully 70-75% of our approved customers, we get at acquisition records from a business grow D&D or others. So that’s vast majority or have reported businesses of that size as you know, and as we said many times the basis of credit is based on the consumer credit information primarily, although the businesses weighted in its primarily consumer credit information based underwriting decision are the fact that not everyone has reported at DNV or another business bureau, it does not mean they’re not a legitimate business as you would know from personal experience.

Operator

We will go next to Lee Calfo at Boenning & Scattergood.

Lee Calfo

Good morning. Two questions this morning. One would be on the pilot programs that you spoke about achieving a 50 million I believe run rate by the end of ’09. Is there going to be any special charges leading up to that or is it implementing that that we’re going to pop in there? And number two, on the dividend and share buy back, what factors are you most heavily weighting when you look at the continuation of dividend policy or buying back stocks? I would assume its credit driven, but as good as anything else that goes into that as you look at your liquidity because the securitization if you don’t do any this year playing to your ability to feel as you want to continue to dividend and buy back stock? Thank you.

Bill Rosoff

On the off shoring pilot whether there would be any charge. We do expect charges as we go along and those charges have incorporated in the statement I made in about that we expect to profitable this year. In this dividend and stock buy back I don’t think the key thing is securitization, I think factors are among others the things that we have talked about in the past between the fact that in bad times one wants to be as liquid – having liquidity as we are and the opportunity that a stock buy back would present and we have to balance those factors and the board does.

Operator

We will go next to Monica Gabel of Goldmann Sachs.

Monica Gabel

Hi good morning. Its pretty good and nice mean progression in the last quarter. What is your expectation for name going forward?

Phil Browne

Good morning Monica. I‘ll address your question. We did have net interest margin expansion and I think consistent with the comments that we’ve made in the past. We expect that to continue throughout the year. The items driving it you know Bill just really responded to a question on risk base pricing initiatives and we have the acquisitions that really - the higher acquisitions in prior years that are coming off of introductory pricing as we talked about for some time which is going to contribute to net interest margin expansion also. And then we will have to see where rates have moved. Obviously rates have moved down nicely in the beginning of the year. Hopefully we will get some good news today and we will see where things go forward on that.

Operator

Next we will move to Michael Cohen of Geneva Capital.

Michael Cohen

Hi guys thank for taking my question. In (inaudible) your comment you expect to remain profitable for the full year. Does that mean we can expect you will be profitable each and every quarter? And is that inclusive or exclusive of the Visa gains?

Bill Rosoff

Quite Michael we are still – we haven’t given guidance in the past and this year we have not really given guidance of quarterly earnings. So we are making a statement about the full year. When we said it in November that we weren’t going to give guidance anything was prudent at that point and we’re still very – still we expected to be profitable which were the only thing we said we didn’t applause it beyond that, and we don’t applause it beyond that now. So it’s -- as to what line items are in there? Among all those things Master Card and Visa give us a lot balance sheet strength, provide flexibility strengthen reserving and adding to reserves, that’s a good thing for us and same thing if you are off shoring pacing, if we wanted to accelerate it or vary it. So what we really saying is we would be profitable, we will have a GAAP profit.

Operator

Next we will go to Lynn Bracken at Bracken Capital.

Lynn Bracken

Hey guys in terms of the choice of pulling back the underwriting. Is that more a function of your cautiousness on the economy or that the fact to account for I think that your, your charge offs and losses are running a little bit higher than what you had expected, and this one followup there. Is that more – it seems like there is a more of a function not the underlying businesses i.e. what you are doing, whether you are in construction or real estate types products that were getting hit the hottest, but more of a function of geography. Why you think the credit losses are higher. Thank you.

Bill Rosoff

I think the – let me take the last part first I can remember it most easily. I think Dennis mentioned in his comments that the most reserve and going so up across the board, but with this geographic issues -- I am sure there is geographic issues with us and similarly with industries. Mainly, if somebody reminds.

Phil Browne

Yeah, I will take a shot at the first part Bill, that’s okay. You know, I would say the changes in underwriting that we’ve mentioned a couple of times really have to do with the classic credit card industries rising the current environment, you know, whatever that environment is, whether it’s segment, whether it’s geographic, it is not really attracting something that we found in underwriting models you know, we haven’t identified anything that looks “like a mistake.” So, it’s really just addressing the current environment appropriately.

Operator

We will move to Howard Amster a Private Investor.

Howard Amster

Hi, congratulations based on a pretty good quarter. I have a couple of questions. Can you tell us what the market value of the Visa and Master Card stock is worth, and how you could possibly access that that, that’s one question. The other question is you spoke about your net interest margins increasing, but if you look at the net interest income for last year March and this year, it actually went down and I just wondered if you could comment on that or was there anything other than the press release on the earnings that you have that we don’t break that out?

Phil Browne

Yeah a couple of things, however, this is Phil, l nice to hear from you. A couple of things, I again will check the price on these securities I know I still have lining Master Card was up a bunch yesterday, so you will forgive me for not having that as of today market price I mentioned Master Card was $14.7 million at the end of the quarter, but a 73,000 shares of Master Card of 500,000 shares of approximately 500,000 or little less of Visa. So folks can check the market prices as of today for that. The Visa shares are restricted as our good of the Master Card shares are going to have a redemption here in second quarter, again that’s the right term. On the net interest margin, Howard, we have to be careful to look at the managed net interest margins to statistics. On page 2 of the statistical supplement, we have those, and/or this quarter 8.04% as I mentioned. The net interest margin for the December quarter was 7.27% and for the first quarter of last year was 7.02%. So we’ve had decent net interest margin increases on both sequential and comparable period of the prior year basis.

Operator

Next we will move to Cyrus Sadiq at [Peter Hill].

Cyrus Sadiq

Hi, I was wondering if you could please help me understand, I think the second comment you made was that I guess that before your delinquencies were lower than the average small business and now delinquencies are much closer to the average. I guess I was wondering how – where the dynamics of that occur, and I guess if you’re performing better than the average, surely the average would have also gotten worse or if that is not the case, why did the rate of change of your delinquencies increases such a much faster pace than the average small business?

Bill Rosoff

First, the basis of what we said surveys we participate in I think Dennis alluded too. The average of the small business issuers has definitely grown up as hours. The Y hours since we have substantially lower and our delinquencies are still below the closer to the average and our losses at the average. We have grown up more recently as a something we are diligently working on, trying to get. It’s not something we have a real answer to and I'm not sure it’s -- totally that would be free.

Operator

(Operator Instruction). We have a follow-up from Scott Valentin with FBR Capital Market.

Scott Valentin

Thank you for taking my follow up questions. First whatever pretty strong to us was your non-interest income revenue line and given the slow the growth there, it’s rolling growth in transaction volume. We are just curious as to what drill that increase given it probably was an interchange, was it over limit or late fees? And the second question would be on the regulatory issue, there has been more talk about the Fed taking action putting on I guess, proposal to limit some practices such as risk based pricing and things like that. Maybe you can speak to any impact they have going forward?

Bill Rosoff

Scott let me speak to the regulatory. We've read the same things you have read. We have not seen any proposed regulation as proposed or certainly not anything that’s been promulgated yet. We can't speculate on what they might be and what an effect of the hypothetical might be on us. We will be interested to see what they actually are and after negotiation and lobbing by everyone in the industry I suspect how they ultimately are released and regulated. We just can't speak to that at this time. We don't have of anything

Phil Browne

Scott on the non interest revenues the trends are consistent really if you look at the fourth quarter dollar amount of non-interest revenue on a managed basis about 70.5 million compared to 68 million in this quarter. That pretty much jives with the transaction volume trends that we previously spoke about. Compared to the comparable prior period of the prior year it largely has to do with the growth and whether we have a MasterCard gain or not part of the principal drivers there.

Operator

And next we will go to the follow up from Lynn Bracken of Bracken Capital.

Lynn Bracken

Guys just to follow-up on my question. Do you have any particular concentrations within industry sector at this point in terms the underwriting? And are you cutting back in certain areas as well?

Bill Rosoff

Our book is spread pretty much representative throughout the country and throughout (inaudible) or industry or mix depending on what level you want to go into it. There may be slightly more or less in one region or one area than another but there is no heavy weighting toward anyone industry or for that amount of geographic area. So it’s pretty well distributed through out industry. It’s a pretty good barometer of the national small business activity, for better or worse it’s a pretty good representative of it.

Operator

And next we will go to a follow up from Cyrus Sadiq at Peter Hill.

Cyrus Sadiq

Could you please remind us what percentage of your portfolio is of construction real estate related? And second question would be after that industry what industry would you be sort of most concerned about, are you seeing upticks in delinquencies in any other sector after construction real estate? Thank you.

Phil Browne

Construction is approximately 13% obviously that's the whole rolled up segment. There are a lot of different components of that summarized industry segment. And the real estate is been kind of an eclectic industry segment, real estate finance and insurance, and that’s about 8%. And again as Dennis mentioned these track pretty consistently with the small business economy.

Operator

And next we will go to Micheal Cohen of Geneva Capital.

Micheal Cohen

Hi, just wondering can you talk a little about sort of as you look forward what percent of the balance sheet of your portfolio will be on balance sheet, I know it particularly on the slide this quarter, and I assume the reserve policy as a percentage of the on balance sheet loans and kind of where we envision, the reserves on balance sheet ratio going over the next several quarters and even out in '09?

Phil Browne

Yeah Mike, that's a little bit of a difficult item to anticipate right now. We've obviously prepared ourselves as we've been as clear as we can be, not to do – not have to do securitization if it’s not economic for the company or if the market just continues to be disrupted. So we could have somewhat of an increase on balance sheet overall funding. The rate that I mentioned, the approximately 8% or a little bit more than 8% reserve to receivables is a managed ratio. But and looking at the potential outcomes of how we're going to fund the business, different options there which we're very well positioned for, we've incorporated those in the comments that Bill made about maintaining the profitability for the year.

Operator

And at this time we have no further questions. I'll turn the conference back over to management for any or closing remarks.

Amy Holderer

Okay, before we wrap up today, let me remind you that a recording of today's call will be available for the next 90 days at our website, advanta.com, or at investorcalendar.com. In addition afternoon today, you can access the recording by phones for the next week by calling 888-203-1112 and referring to pass code 3854251. Let me close the call with a final reminder that I can be reached at 215-444-5335. Thank you for joining us this morning.

Operator

And that does conclude today's conference. Again thank you for your participation.

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