##### Table of Contents



UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 þ
    
    Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
 for the quarterly period ended September 30, 2005
 or
 o
    
    Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
 for the transition period from ___ to ___
 Commission File Number 0-14120
 Advanta Corp.
  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    23-1462070
(I.R.S. Employer
Identification No.)
 
 
  þ o
  þ o
  o þ
   o o
   Class A
Common Stock, $.01 par value
    
    Outstanding at November 1, 2005
9,606,862 shares
 Class B
Common Stock, $.01 par value
    
    Outstanding at November 1, 2005
18,733,183 shares




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TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Consolidated Balance Sheets (Unaudited)
    
    
    3Consolidated
Income Statements (Unaudited)
    
    
    4Consolidated Statements of Changes in Stockholders Equity (Unaudited)
    
    
    5-6Consolidated Statements of Cash Flows (Unaudited)
    
    
    7Notes to Consolidated Financial Statements (Unaudited)
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    51Item 4. Controls and Procedures
    
    
    51PART
II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    52Item 6. Exhibits
    
    
    52Exhibit Index
    
    
    54COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGESCERTIFICATION OF CEO PURSUANT TO SECTION 302CERTIFICATION OF CFO PURSUANT TO SECTION 302CERTIFICATION OF CEO PURSUANT TO SECTION 906CERTIFICATION OF CFO PURSUANT TO SECTION 906
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 ADVANTA
CORP. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS (Unaudited)
 September 30,
    
    December 31,(In thousands, except share amounts)
    
    2005
    
    2004ASSETSCash
    
    $
    37,927
    
    
    $
    35,565Federal funds sold
    
    
    302,284
    
    
    
    298,677Restricted interest-bearing deposits
    
    
    1,461
    
    
    
    2,946Investments available for sale
    
    
    242,201
    
    
    
    184,240Receivables, net:Held for sale
    
    
    444,275
    
    
    
    377,158Other
    
    
    360,138
    
    
    
    328,872Total receivables, net
    
    
    804,413
    
    
    
    706,030Accounts receivable from securitizations
    
    
    633,038
    
    
    
    244,362Premises and equipment, net
    
    
    14,902
    
    
    
    17,958Other assets
    
    
    183,483
    
    
    
    203,146Total assets
    
    $
    2,219,709
    
    
    $
    1,692,924LIABILITIESDeposits
    
    $
    1,134,846
    
    
    $
    825,273Debt
    
    
    229,158
    
    
    
    265,759Subordinated debt payable to preferred securities trust
    
    
    103,093
    
    
    
    103,093Other liabilities
    
    
    252,117
    
    
    
    106,605Total liabilities
    
    
    1,719,214
    
    
    
    1,300,730Commitments and contingenciesSTOCKHOLDERS EQUITYClass A preferred stock, $1,000 par value:Authorized,
issued and outstanding  1,010 shares in
2005 and 2004
    
    
    1,010
    
    
    
    1,010Class A voting common stock, $.01 par value:Authorized
 200,000,000 shares; issued  10,041,017
shares in 2005 and 2004
    
    
    100
    
    
    
    100Class B non-voting common stock, $.01 par value:Authorized
 200,000,000 shares; issued  21,854,017
shares in 2005 and 21,537,061 shares in 2004
    
    
    218
    
    
    
    215Additional paid-in capital
    
    
    274,761
    
    
    
    258,223Unearned restricted stock
    
    
    (2,614
    )
    
    
    (9,460
    )Unearned ESOP shares
    
    
    (9,699
    )
    
    
    (9,930
    )Accumulated other comprehensive loss
    
    
    (610
    )
    
    
    (261
    )Retained earnings
    
    
    286,476
    
    
    
    201,772Treasury stock at cost, 434,155 Class A common shares in
2005 and 2004; 3,162,019 Class B common shares in 2005
and 3,186,647 Class B common shares in 2004
    
    
    (49,147
    )
    
    
    (49,475
    )Total stockholders equity
    
    
    500,495
    
    
    
    392,194Total liabilities and stockholders equity
    
    $
    2,219,709
    
    
    $
    1,692,924
 See Notes to Consolidated Financial Statements
 3




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##### Table of Contents



ADVANTA CORP. AND SUBSIDIARIES
 
 CONSOLIDATED INCOME STATEMENTS (Unaudited)
 Three Months Ended
    
    Nine Months Ended(In thousands, except per share amounts)
    
    September 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Interest income:Receivables
    
    $
    26,663
    
    
    $
    21,915
    
    
    $
    74,835
    
    
    $
    58,891Investments
    
    
    5,003
    
    
    
    1,796
    
    
    
    12,268
    
    
    
    4,587Other interest income
    
    
    3,627
    
    
    
    4,139
    
    
    
    11,214
    
    
    
    13,017Total interest income
    
    
    35,293
    
    
    
    27,850
    
    
    
    98,317
    
    
    
    76,495Interest expense:Deposits
    
    
    9,342
    
    
    
    4,791
    
    
    
    23,480
    
    
    
    13,626Debt and other borrowings
    
    
    3,670
    
    
    
    4,159
    
    
    
    11,256
    
    
    
    13,122Subordinated debt payable to preferred
securities trust
    
    
    2,289
    
    
    
    2,289
    
    
    
    6,868
    
    
    
    6,868Total interest expense
    
    
    15,301
    
    
    
    11,239
    
    
    
    41,604
    
    
    
    33,616Net interest income
    
    
    19,992
    
    
    
    16,611
    
    
    
    56,713
    
    
    
    42,879Provision for credit losses
    
    
    11,232
    
    
    
    11,658
    
    
    
    30,279
    
    
    
    31,663Net interest income after provision for
credit losses
    
    
    8,760
    
    
    
    4,953
    
    
    
    26,434
    
    
    
    11,216Noninterest revenues:Securitization income
    
    
    31,797
    
    
    
    31,410
    
    
    
    92,259
    
    
    
    96,577Servicing revenues
    
    
    12,785
    
    
    
    12,382
    
    
    
    38,203
    
    
    
    37,014Gain on transfer of consumer credit card
business (See Note 12)
    
    
    0
    
    
    
    0
    
    
    
    67,679
    
    
    
    0Other revenues, net
    
    
    31,857
    
    
    
    26,867
    
    
    
    94,089
    
    
    
    82,400Total noninterest revenues
    
    
    76,439
    
    
    
    70,659
    
    
    
    292,230
    
    
    
    215,991Operating expenses
    
    
    58,715
    
    
    
    58,091
    
    
    
    183,586
    
    
    
    176,181Income before income taxes
    
    
    26,484
    
    
    
    17,521
    
    
    
    135,078
    
    
    
    51,026Income tax expense
    
    
    10,329
    
    
    
    6,921
    
    
    
    31,871
    
    
    
    20,155Income from continuing operations
    
    
    16,155
    
    
    
    10,600
    
    
    
    103,207
    
    
    
    30,871Gain (loss), net, on discontinuance of
mortgage and leasing businesses, net of
tax
    
    
    (12,299
    )
    
    
    0
    
    
    
    (8,334
    )
    
    
    160Net income
    
    $
    3,856
    
    
    $
    10,600
    
    
    $
    94,873
    
    
    $
    31,031Basic income from continuing operations per
common shareClass A
    
    $
    0.58
    
    
    $
    0.40
    
    
    $
    3.88
    
    
    $
    1.18Class B
    
    
    0.61
    
    
    
    0.43
    
    
    
    3.97
    
    
    
    1.26Combined
    
    
    0.60
    
    
    
    0.42
    
    
    
    3.94
    
    
    
    1.24Diluted income from continuing operations
per
common shareClass A
    
    $
    0.54
    
    
    $
    0.37
    
    
    $
    3.55
    
    
    $
    1.10Class B
    
    
    0.56
    
    
    
    0.38
    
    
    
    3.58
    
    
    
    1.14Combined
    
    
    0.55
    
    
    
    0.38
    
    
    
    3.57
    
    
    
    1.13Basic net income per common shareClass A
    
    $
    0.12
    
    
    $
    0.40
    
    
    $
    3.56
    
    
    $
    1.19Class B
    
    
    0.15
    
    
    
    0.43
    
    
    
    3.65
    
    
    
    1.27Combined
    
    
    0.14
    
    
    
    0.42
    
    
    
    3.62
    
    
    
    1.24Diluted net income per common shareClass A
    
    $
    0.12
    
    
    $
    0.37
    
    
    $
    3.26
    
    
    $
    1.11Class B
    
    
    0.14
    
    
    
    0.38
    
    
    
    3.29
    
    
    
    1.15Combined
    
    
    0.13
    
    
    
    0.38
    
    
    
    3.28
    
    
    
    1.13Basic weighted average common shares
outstandingClass A
    
    
    8,829
    
    
    
    8,803
    
    
    
    8,821
    
    
    
    8,794Class B
    
    
    17,901
    
    
    
    16,479
    
    
    
    17,350
    
    
    
    16,088Combined
    
    
    26,730
    
    
    
    25,282
    
    
    
    26,171
    
    
    
    24,882Diluted weighted average common shares
outstandingClass A
    
    
    8,829
    
    
    
    8,803
    
    
    
    8,821
    
    
    
    8,794Class B
    
    
    20,409
    
    
    
    19,303
    
    
    
    20,033
    
    
    
    18,468Combined
    
    
    29,238
    
    
    
    28,106
    
    
    
    28,854
    
    
    
    27,262
 See Notes to Consolidated Financial Statements
 4




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##### Table of Contents



ADVANTA CORP. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited)
 Class A
    
    
    
    
    
    Class B
    
    AdditionalComprehensive
    
    Preferred
    
    Class A
    
    Common
    
    Paid-In($ in thousands)
    
    Income (Loss)
    
    Stock
    
    Common Stock
    
    Stock
    
    CapitalBalance at December 31, 2003
    
    
    
    
    
    $
    1,010
    
    
    $
    100
    
    
    $
    206
    
    
    $
    245,295Net income
    
    
    $44,741Other comprehensive income (loss):Change in unrealized
appreciation (depreciation)
of investments, net of tax
benefit (expense) of $175
    
    
    (324
    )Comprehensive income
    
    
    $44,417Preferred and common cash
dividends declaredExercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    8,489Modification of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196Stock option exchange program
stock distributionStock-based nonemployee
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    482Issuance of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    5,427Amortization of restricted stockForfeitures of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (1,887
    )ESOP shares committed to be
released
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    221Balance at December 31, 2004
    
    
    
    
    
    $
    1,010
    
    
    $
    100
    
    
    $
    215
    
    
    $
    258,223Net income
    
    
    $94,873Other comprehensive income (loss):Change in unrealized
appreciation (depreciation)
of investments, net of tax
benefit (expense) of $188
    
    
    (349
    )Comprehensive income
    
    
    $94,524Preferred and common cash
dividends declaredExercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    5,174Stock option exchange program
stock distributionStock-based nonemployee
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    186Tax benefits from stock-based
compensation and ESOP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,384Issuance of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196Amortization of restricted stockForfeitures of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (1,806
    )ESOP shares committed to be
released
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    404Balance at September 30, 2005
    
    
    
    
    
    $
    1,010
    
    
    $
    100
    
    
    $
    218
    
    
    $
    274,761
 See Notes to Consolidated Financial Statements
 5




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##### Table of Contents



ADVANTA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited)  continued
 Unearned
    
    AccumulatedRestricted Stock
    
    Other
    
    
    
    
    
    
    
    
    
    Total& Unearned
    
    Comprehensive
    
    Retained
    
    Treasury
    
    Stockholders($ in thousands)
    
    ESOP Shares
    
    Income (Loss)
    
    Earnings
    
    Stock
    
    EquityBalance at December 31, 2003
    
    $
    (23,629
    )
    
    $
    63
    
    
    $
    167,783
    
    
    $
    (49,621
    )
    
    $
    341,207Net income
    
    
    
    
    
    
    
    
    
    
    44,741
    
    
    
    
    
    
    
    44,741Other comprehensive income (loss):Change in unrealized
appreciation (depreciation)
of investments, net of tax
benefit (expense) of $175
    
    
    
    
    
    
    (324
    )
    
    
    
    
    
    
    
    
    
    
    (324
    )Comprehensive incomePreferred and common cash
dividends declared
    
    
    
    
    
    
    
    
    
    
    (10,752
    )
    
    
    
    
    
    
    (10,752
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,497Modification of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196Stock option exchange program
stock distribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    146
    
    
    
    146Stock-based nonemployee
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    482Issuance of restricted stock
    
    
    (5,430
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Amortization of restricted stock
    
    
    7,740
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,740Forfeitures of restricted stock
    
    
    1,473
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (416
    )ESOP shares committed to be released
    
    
    456
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    677Balance at December 31, 2004
    
    $
    (19,390
    )
    
    $
    (261
    )
    
    $
    201,772
    
    
    $
    (49,475
    )
    
    $
    392,194Net income
    
    
    
    
    
    
    
    
    
    
    94,873
    
    
    
    
    
    
    
    94,873Other comprehensive income (loss):Change in unrealized
appreciation (depreciation)
of investments, net of tax
benefit (expense) of $188
    
    
    
    
    
    
    (349
    )
    
    
    
    
    
    
    
    
    
    
    (349
    )Comprehensive incomePreferred and common cash
dividends declared
    
    
    
    
    
    
    
    
    
    
    (10,169
    )
    
    
    
    
    
    
    (10,169
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,179Stock option exchange program
stock distribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    328
    
    
    
    328Stock-based nonemployee
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    186Tax benefits from stock-based compensation
and ESOP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,384Issuance of restricted stock
    
    
    (196
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Amortization of restricted stock
    
    
    6,147
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,147Forfeitures of restricted stock
    
    
    894
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (914
    )ESOP shares committed to be released
    
    
    232
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    636Balance at September 30, 2005
    
    $
    (12,313
    )
    
    $
    (610
    )
    
    $
    286,476
    
    
    $
    (49,147
    )
    
    $
    500,495
 See Notes to Consolidated Financial Statements
 6




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##### Table of Contents



ADVANTA CORP. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Nine Months Ended($ in thousands)
    
    September 30,2005
    
    2004OPERATING
ACTIVITIES  CONTINUING OPERATIONSNet income
    
    $
    94,873
    
    
    $
    31,031Adjustments to reconcile net income to net cash used in
operating activities:Loss (gain), net, on discontinuance of mortgage and leasing
businesses, net of tax
    
    
    8,334
    
    
    
    (160
    )Investment securities (gains) losses, net
    
    
    (76
    )
    
    
    2,008Depreciation and amortization
    
    
    5,538
    
    
    
    7,382Stock-based compensation expense
    
    
    5,419
    
    
    
    7,033Provision for credit losses
    
    
    30,279
    
    
    
    31,663Provision for interest and fee losses
    
    
    6,660
    
    
    
    7,044Change in deferred origination costs, net of deferred fees
    
    
    (8,905
    )
    
    
    7,041Change in receivables held for sale
    
    
    (849,398
    )
    
    
    (256,606
    )Proceeds from sale of receivables held for sale
    
    
    782,281
    
    
    
    95,361Change in accounts receivable from securitizations
    
    
    (388,676
    )
    
    
    13,790Change in other assets and other liabilities
    
    
    150,693
    
    
    
    (49,019
    )Net cash used in operating activities
    
    
    (162,978
    )
    
    
    (103,432
    )INVESTING
ACTIVITIES  CONTINUING OPERATIONSChange in federal funds sold and restricted interest-bearing
deposits
    
    
    (2,122
    )
    
    
    121,146Purchase of investments available for sale
    
    
    (329,945
    )
    
    
    (483,670
    )Proceeds from sales of investments available for sale
    
    
    199,342
    
    
    
    485,781Proceeds from maturing investments available for sale
    
    
    72,181
    
    
    
    4,481Change in receivables not held for sale
    
    
    (59,300
    )
    
    
    (60,893
    )Purchases of premises and equipment, net
    
    
    (2,429
    )
    
    
    (4,063
    )Net cash (used in) provided by investing activities
    
    
    (122,273
    )
    
    
    62,782FINANCING
ACTIVITIES  CONTINUING OPERATIONSChange in demand and savings deposits
    
    
    7,449
    
    
    
    (3,269
    )Proceeds from time deposits
    
    
    449,210
    
    
    
    394,431Payments on time deposits
    
    
    (162,198
    )
    
    
    (360,818
    )Proceeds from debt
    
    
    19,050
    
    
    
    21,127Payments on debt
    
    
    (56,512
    )
    
    
    (69,577
    )Change in other borrowings and cash overdraft
    
    
    13,438
    
    
    
    19,753Proceeds from exercise of stock options
    
    
    5,179
    
    
    
    7,638Cash dividends paid
    
    
    (10,169
    )
    
    
    (7,830
    )Net cash provided by financing activities
    
    
    265,447
    
    
    
    1,455DISCONTINUED OPERATIONSNet cash provided by operating activities of discontinued
operations
    
    
    22,166
    
    
    
    45,287Net increase in cash
    
    
    2,362
    
    
    
    6,092Cash at beginning of period
    
    
    35,565
    
    
    
    26,941Cash at end of period
    
    $
    37,927
    
    
    $
    33,033
 See Notes to Consolidated Financial Statements
 7




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##### Table of Contents



ADVANTA
CORP. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
 September 30, 2005
(Unaudited)
  Note 1) Basis of Presentation
     8




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##### Table of Contents



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Stock-based
employee
compensation
expense for stock
option plans, net
of related tax
effectsAs reported
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    196Pro forma
    
    
    516
    
    
    
    575
    
    
    
    1,933
    
    
    
    1,784Net incomeAs reported
    
    $
    3,856
    
    
    $
    10,600
    
    
    $
    94,873
    
    
    $
    31,031Pro forma
    
    
    3,340
    
    
    
    10,025
    
    
    
    92,940
    
    
    
    29,443Basic net income
per common shareAs reportedClass A
    
    $
    0.12
    
    
    $
    0.40
    
    
    $
    3.56
    
    
    $
    1.19Class B
    
    
    0.15
    
    
    
    0.43
    
    
    
    3.65
    
    
    
    1.27Combined
    
    
    0.14
    
    
    
    0.42
    
    
    
    3.62
    
    
    
    1.24Pro formaClass A
    
    $
    0.11
    
    
    $
    0.38
    
    
    $
    3.49
    
    
    $
    1.12Class B
    
    
    0.13
    
    
    
    0.41
    
    
    
    3.58
    
    
    
    1.21Combined
    
    
    0.12
    
    
    
    0.40
    
    
    
    3.55
    
    
    
    1.18Diluted net income
per common shareAs reportedClass A
    
    $
    0.12
    
    
    $
    0.37
    
    
    $
    3.26
    
    
    $
    1.11Class B
    
    
    0.14
    
    
    
    0.38
    
    
    
    3.29
    
    
    
    1.15Combined
    
    
    0.13
    
    
    
    0.38
    
    
    
    3.28
    
    
    
    1.13Pro formaClass A
    
    $
    0.11
    
    
    $
    0.35
    
    
    $
    3.19
    
    
    $
    1.05Class B
    
    
    0.12
    
    
    
    0.36
    
    
    
    3.23
    
    
    
    1.10Combined
    
    
    0.11
    
    
    
    0.36
    
    
    
    3.22
    
    
    
    1.08
 Note 2) Recently Issued Accounting Standards
   9




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##### Table of Contents



Note 3) Investments Available for Sale
  September 30, 2005
    
    December 31, 2004Amortized
    
    Fair
    
    Amortized
    
    FairCost
    
    Value
    
    Cost
    
    ValueU.S. Treasury and government
agencies securities
    
    $
    49,762
    
    
    $
    49,008
    
    
    $
    69,402
    
    
    $
    68,917State and municipal securities
    
    
    4,521
    
    
    
    4,516
    
    
    
    3,329
    
    
    
    3,370Corporate bonds
    
    
    11,634
    
    
    
    11,557
    
    
    
    12,308
    
    
    
    12,259Asset-backed securities(1)
    
    
    29,786
    
    
    
    29,715
    
    
    
    4,358
    
    
    
    4,398Equity securities(2)
    
    
    13,850
    
    
    
    13,818
    
    
    
    14,626
    
    
    
    14,677Money market funds
    
    
    133,481
    
    
    
    133,481
    
    
    
    80,509
    
    
    
    80,509Other
    
    
    106
    
    
    
    106
    
    
    
    110
    
    
    
    110Total investments available for sale
    
    $
    243,140
    
    
    $
    242,201
    
    
    $
    184,642
    
    
    $
    184,240
 (1)
    
    Includes mortgage-backed securities.(2)
    
    Includes venture capital investments of $4.6 million at September 30, 2005 and $5.3
million at December 31, 2004. The amount shown as amortized cost for venture capital
investments represents estimated fair value for these investments.
 Note 4) Receivables
  September 30,
    
    December 31,2005
    
    2004Business credit card receivables
    
    $
    822,821
    
    
    $
    730,483Other receivables
    
    
    8,574
    
    
    
    10,280Gross receivables
    
    
    831,395
    
    
    
    740,763Add: Deferred origination costs, net of deferred fees
    
    
    24,650
    
    
    
    15,745Less: Allowance for receivable lossesBusiness credit cards
    
    
    (50,365
    )
    
    
    (49,190
    )Other receivables
    
    
    (1,267
    )
    
    
    (1,288
    )Total allowance for receivable losses
    
    
    (51,632
    )
    
    
    (50,478
    )Receivables, net
    
    $
    804,413
    
    
    $
    706,030
 10




---



##### Table of Contents



Note 5) Allowance for Receivable Losses
  2005
    
    2004Beginning balance at January 1
    
    $
    50,478
    
    
    $
    48,454Provision for credit losses
    
    
    30,279
    
    
    
    31,663Provision for interest and fee losses
    
    
    6,660
    
    
    
    7,044Gross principal charge-offs:Business credit cards
    
    
    (31,394
    )
    
    
    (31,448
    )Other receivables
    
    
    (4
    )
    
    
    (3
    )Total gross principal charge-offs
    
    
    (31,398
    )
    
    
    (31,451
    )Principal recoveries:Business credit cards
    
    
    2,297
    
    
    
    2,233Other receivables
    
    
    0
    
    
    
    4Total principal recoveries
    
    
    2,297
    
    
    
    2,237Net principal charge-offs
    
    
    (29,101
    )
    
    
    (29,214
    )Interest and fee charge-offs:Business credit cards
    
    
    (6,684
    )
    
    
    (7,510
    )Balance at September 30
    
    $
    51,632
    
    
    $
    50,437
 Note 6) Securitization Activities
  September 30,
    
    December 31,2005
    
    2004Retained interests in securitizations
    
    $
    162,329
    
    
    $
    162,473Amounts due from the securitization trust
    
    
    418,077
    
    
    
    31,075Accrued interest and fees on securitized
receivables, net(1)
    
    
    52,632
    
    
    
    50,814Total accounts receivable from securitizations
    
    $
    633,038
    
    
    $
    244,362
 (1)
    
    Reduced by an estimate for uncollectible interest and fees of $8.0 million at
September 30, 2005 and $9.2 million at December 31, 2004.
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Average securitized receivables
    
    $
    2,751,024
    
    
    $
    2,513,053
    
    
    $
    2,669,677
    
    
    $
    2,520,462Securitization income
    
    
    31,797
    
    
    
    31,410
    
    
    
    92,259
    
    
    
    96,577Discount accretion
    
    
    3,627
    
    
    
    4,139
    
    
    
    11,214
    
    
    
    13,017Interchange income
    
    
    33,197
    
    
    
    28,613
    
    
    
    92,918
    
    
    
    83,358Servicing revenues
    
    
    12,785
    
    
    
    12,382
    
    
    
    38,203
    
    
    
    37,014Proceeds from new securitizations
    
    
    391,606
    
    
    
    0
    
    
    
    782,281
    
    
    
    90,000Proceeds from collections reinvested
in revolving-period securitizations
    
    
    1,339,654
    
    
    
    1,594,478
    
    
    
    4,379,824
    
    
    
    4,851,723Cash flows received on retained
interests
    
    
    82,140
    
    
    
    68,397
    
    
    
    222,869
    
    
    
    203,287
 11




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##### Table of Contents



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Key assumptions:Discount rate
    
    
    8.22% -   9.48
    %
    
    
    10.33% - 13.13
    %
    
    
    8.22% - 11.27
    %
    
    
    10.33% - 14.33
    %Monthly payment rate
    
    
    22.29% - 25.00
    %
    
    
    20.67% - 22.55
    %
    
    
    21.77% - 25.00
    %
    
    
    20.63% - 22.55
    %Loss rate
    
    
    5.15% -   6.21
    %
    
    
    6.30% -   7.37
    %
    
    
    5.15% -   6.79
    %
    
    
    6.30% -   8.47
    %Interest yield, net
of interest earned
by noteholders
    
    
    10.42% - 10.91
    %
    
    
    12.19% - 12.36
    %
    
    
    10.42% - 11.28
    %
    
    
    12.19% - 13.84
    %
   September 30,
    
    December 31,2005
    
    2004Discount rate
    
    
    8.22% -   9.38
    %
    
    
    9.79% - 11.27
    %Monthly payment rate
    
    
    23.13% - 25.00
    %
    
    
    21.77% - 22.65
    %Loss rate
    
    
    5.15% -   5.92
    %
    
    
    5.90% -   6.79
    %Interest yield, net of interest earned by
noteholders
    
    
    10.42
    %
    
    
    11.28
    %
  12




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##### Table of Contents



Effect on estimated fair value of the following
hypothetical changes in key assumptions:Discount rate increased by 2%
    
    $
    (2,371
    )Discount rate increased by 4%
    
    
    (4,644
    )Monthly payment rate at 115% of base assumption
    
    
    (1,778
    )Monthly payment rate at 130% of base assumption
    
    
    (3,097
    )Loss rate at 110% of base assumption
    
    
    (2,897
    )Loss rate at 125% of base assumption
    
    
    (7,241
    )Interest yield, net of interest earned by noteholders,
decreased by 1%
    
    
    (5,624
    )Interest yield, net of interest earned by noteholders,
decreased by 2%
    
    
    (11,249
    )
  13




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##### Table of Contents



Managed receivable data
  September 30,
    
    December 31,
    
    September 30,2005
    
    2004
    
    2004Owned business credit card receivables
    
    $
    822,821
    
    
    $
    730,483
    
    
    $
    709,991Securitized business credit card receivables
    
    
    2,781,397
    
    
    
    2,564,147
    
    
    
    2,511,030Total managed receivables
    
    $
    3,604,218
    
    
    $
    3,294,630
    
    
    $
    3,221,021Receivables 30 days or more delinquent:Owned
    
    $
    27,324
    
    
    $
    28,287
    
    
    $
    29,552Securitized
    
    
    100,650
    
    
    
    107,546
    
    
    
    112,674Total managed
    
    
    127,974
    
    
    
    135,833
    
    
    
    142,226Receivables 90 days or more delinquent:Owned
    
    
    12,479
    
    
    
    13,638
    
    
    
    14,305Securitized
    
    
    45,387
    
    
    
    51,770
    
    
    
    54,354Total managed
    
    
    57,866
    
    
    
    65,408
    
    
    
    68,659Nonaccrual receivables:Owned
    
    
    13,006
    
    
    
    11,393
    
    
    
    11,342Securitized
    
    
    48,674
    
    
    
    43,114
    
    
    
    43,531Total managed
    
    
    61,680
    
    
    
    54,507
    
    
    
    54,873Accruing receivables past due 90 days or more:Owned
    
    
    10,291
    
    
    
    12,233
    
    
    
    12,774Securitized
    
    
    37,339
    
    
    
    45,981
    
    
    
    48,122Total managed
    
    
    47,630
    
    
    
    58,214
    
    
    
    60,896Net principal charge-offs for the year-to-date
period ended September 30 and December 31:Owned
    
    
    29,097
    
    
    
    39,936
    
    
    
    29,215Securitized
    
    
    109,467
    
    
    
    170,024
    
    
    
    131,567Total managed
    
    
    138,564
    
    
    
    209,960
    
    
    
    160,782Net principal charge-offs for the three months
ended September 30 and December 31:Owned
    
    
    10,075
    
    
    
    10,721
    
    
    
    10,448Securitized
    
    
    35,873
    
    
    
    38,457
    
    
    
    40,740Total managed
    
    
    45,948
    
    
    
    49,178
    
    
    
    51,188
 14




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##### Table of Contents



Note 7) Selected Balance Sheet Information
  September 30,
    
    December 31,2005
    
    2004Net deferred tax asset
    
    $
    73,100
    
    
    $
    70,260Investment in Fleet Credit Card Services, L.P.
    
    
    32,095
    
    
    
    32,095Investment in preferred securities trust
    
    
    3,163
    
    
    
    3,093Intangible assets
    
    
    3,044
    
    
    
    3,360Assets of discontinued operations, net
    
    
    0
    
    
    
    11,695Other
    
    
    72,081
    
    
    
    82,643Total other assets
    
    $
    183,483
    
    
    $
    203,146
  September 30,
    
    December 31,2005
    
    2004Amounts due to the securitization trust
    
    $
    109,338
    
    
    $
    4,493Accounts payable and accrued expenses
    
    
    25,519
    
    
    
    33,091Business credit card business rewards
liability
    
    
    19,850
    
    
    
    16,872Business credit card cash back rewards
liability
    
    
    3,905
    
    
    
    2,817Current income tax payable
    
    
    20,851
    
    
    
    16,068Accrued interest payable
    
    
    19,008
    
    
    
    3,310Liabilities of discontinued operations, net
    
    
    304
    
    
    
    0Other(1)
    
    
    53,342
    
    
    
    29,954Total other liabilities
    
    $
    252,117
    
    
    $
    106,605
 (1)
    
    Includes $17 million of amounts payable related to litigation. See Note 9.
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Decrease in other revenues
    
    $
    0
    
    
    $
    0
    
    
    $
    (1,700
    )
    
    $
    (1,400
    )Decrease in net income
    
    
    0
    
    
    
    0
    
    
    
    (1,037
    )
    
    
    (850
    )Amount per combined diluted share
    
    $
    0
    
    
    $
    0
    
    
    $
    (0.04
    )
    
    $
    (0.03
    )
 Note 8) Deposits
  September 30,
    
    December 31,2005
    
    2004Demand deposits
    
    $
    4,113
    
    
    $
    5,466Money market savings
    
    
    12,416
    
    
    
    3,614Time deposits of $100,000 or less
    
    
    603,604
    
    
    
    469,733Time deposits of more than $100,000
    
    
    514,713
    
    
    
    346,460Total deposits
    
    $
    1,134,846
    
    
    $
    825,273
 15




---



##### Table of Contents



Year Ended December 31,2005
    
    $
    130,5012006
    
    
    644,0632007
    
    
    231,1952008
    
    
    42,3082009 and thereafter
    
    
    70,250
 Note 9) Commitments and Contingencies
    16




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17




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##### Table of Contents



Note 10) Capital Stock
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Class A Common Stock
    
    $
    0.113
    
    
    $
    0.095
    
    
    $
    0.321
    
    
    $
    0.252Class B Common Stock
    
    
    0.136
    
    
    
    0.113
    
    
    
    0.386
    
    
    
    0.302
 Note 11) Segment Information
  Advanta Business
    
    VentureCards
    
    Capital
    
    Other(1)
    
    TotalThree months ended September 30, 2005Interest income
    
    $
    30,173
    
    
    $
    4
    
    
    $
    5,116
    
    
    $
    35,293Interest expense
    
    
    10,169
    
    
    
    41
    
    
    
    5,091
    
    
    
    15,301Noninterest revenues
    
    
    76,295
    
    
    
    (43
    )
    
    
    187
    
    
    
    76,439Pretax income (loss) from continuing
operations
    
    
    26,564
    
    
    
    (80
    )
    
    
    0
    
    
    
    26,484Three months ended September 30, 2004Interest income
    
    $
    25,916
    
    
    $
    1
    
    
    $
    1,933
    
    
    $
    27,850Interest expense
    
    
    9,224
    
    
    
    85
    
    
    
    1,930
    
    
    
    11,239Noninterest revenues
    
    
    72,641
    
    
    
    (2,058
    )
    
    
    76
    
    
    
    70,659Pretax income (loss) from continuing
operations
    
    
    19,668
    
    
    
    (2,147
    )
    
    
    0
    
    
    
    17,521Nine months ended September 30, 2005Interest income
    
    $
    85,679
    
    
    $
    5
    
    
    $
    12,633
    
    
    $
    98,317Interest expense
    
    
    26,574
    
    
    
    113
    
    
    
    14,917
    
    
    
    41,604Noninterest revenues
    
    
    221,282
    
    
    
    172
    
    
    
    3,097
    
    
    
    224,551Gain on transfer of consumer credit
card business
    
    
    0
    
    
    
    0
    
    
    
    67,679
    
    
    
    67,679Pretax income from continuing
operations
    
    
    67,336
    
    
    
    63
    
    
    
    67,679
    
    
    
    135,078Total assets at beginning of period
    
    
    994,194
    
    
    
    5,801
    
    
    
    692,929
    
    
    
    1,692,924Total assets at end of period
    
    
    1,464,751
    
    
    
    5,410
    
    
    
    749,548
    
    
    
    2,219,709Nine months ended September 30, 2004Interest income
    
    $
    71,500
    
    
    $
    1
    
    
    $
    4,994
    
    
    $
    76,495Interest expense
    
    
    26,937
    
    
    
    259
    
    
    
    6,420
    
    
    
    33,616Noninterest revenues
    
    
    216,018
    
    
    
    (2,026
    )
    
    
    1,999
    
    
    
    215,991Pretax income (loss) from continuing
operations
    
    
    54,331
    
    
    
    (3,305
    )
    
    
    0
    
    
    
    51,026Total assets at beginning of period
    
    
    754,953
    
    
    
    10,471
    
    
    
    933,020
    
    
    
    1,698,444Total assets at end of period
    
    
    939,704
    
    
    
    8,591
    
    
    
    650,955
    
    
    
    1,599,250
 (1)
    
    Other includes investment and other activities not attributable to
reportable segments. Total assets in the Other segment include assets of
discontinued operations.
 18




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##### Table of Contents



Note 12) Gain on Transfer of Consumer Credit Card Business
  Note 13) Income Taxes
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Income tax expense (benefit)
attributable to:Continuing operations
    
    $
    10,329
    
    
    $
    6,921
    
    
    $
    31,871
    
    
    $
    20,155Discontinued operations
    
    
    (7,863
    )
    
    
    0
    
    
    
    (5,328
    )
    
    
    105Total income tax expense
    
    $
    2,466
    
    
    $
    6,921
    
    
    $
    26,543
    
    
    $
    20,260
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Current:Federal
    
    $
    3,349
    
    
    $
    9,712
    
    
    $
    15,119
    
    
    $
    9,712State
    
    
    370
    
    
    
    1,147
    
    
    
    2,378
    
    
    
    2,046Total current
    
    
    3,719
    
    
    
    10,859
    
    
    
    17,497
    
    
    
    11,758Deferred:Federal
    
    
    6,841
    
    
    
    (3,463
    )
    
    
    14,140
    
    
    
    8,477State
    
    
    (231
    )
    
    
    (475
    )
    
    
    234
    
    
    
    (80
    )Total deferred
    
    
    6,610
    
    
    
    (3,938
    )
    
    
    14,374
    
    
    
    8,397Income tax expense
attributable
to continuing operations
    
    $
    10,329
    
    
    $
    6,921
    
    
    $
    31,871
    
    
    $
    20,155
 19




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##### Table of Contents



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Statutory federal income tax
    
    $
    9,270
    
    
    $
    6,132
    
    
    $
    47,278
    
    
    $
    17,859State income taxes, net of
federal income tax benefit
    
    
    636
    
    
    
    437
    
    
    
    2,244
    
    
    
    1,278Gain on transfer of consumer
credit card business
    
    
    0
    
    
    
    0
    
    
    
    (12,347
    )
    
    
    0Change in valuation allowance
    
    
    0
    
    
    
    0
    
    
    
    (6,393
    )
    
    
    0Nondeductible expenses
    
    
    247
    
    
    
    431
    
    
    
    734
    
    
    
    764Compensation limitation
    
    
    110
    
    
    
    209
    
    
    
    330
    
    
    
    384Other
    
    
    66
    
    
    
    (288
    )
    
    
    25
    
    
    
    (130
    )Income tax expense attributable
to continuing operations
    
    $
    10,329
    
    
    $
    6,921
    
    
    $
    31,871
    
    
    $
    20,155
   September 30,
    
    December 31,2005
    
    2004Deferred tax assets
    
    $
    86,364
    
    
    $
    81,947Deferred tax
liabilities
    
    
    (13,264
    )
    
    
    (11,687
    )Net deferred tax asset
    
    $
    73,100
    
    
    $
    70,260
  September 30,
    
    December 31,2005
    
    2004Net operating loss carryforwards
    
    $
    1,896
    
    
    $
    156,381Valuation allowance
    
    
    0
    
    
    
    (145,745
    )Alternative minimum tax credit carryforwards
    
    
    24,623
    
    
    
    15,187Allowance for receivable losses
    
    
    21,077
    
    
    
    21,618Business credit card rewards
    
    
    8,314
    
    
    
    6,891Deferred origination costs, net of deferred fees
    
    
    (8,198
    )
    
    
    (5,233
    )Unrealized venture capital investment losses
    
    
    5,447
    
    
    
    9,304Capital loss carryforwards
    
    
    4,984
    
    
    
    1,399Deferred and incentive compensation
    
    
    4,339
    
    
    
    6,925Securitization income
    
    
    (2,624
    )
    
    
    (2,624
    )Other
    
    
    13,242
    
    
    
    6,157Net deferred tax asset
    
    $
    73,100
    
    
    $
    70,260
  20




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Note 14) Discontinued Operations
  Three Months EndedSeptember 30, 2005
    
    September 30, 2004Advanta Leasing
    
    
    
    
    
    Advanta LeasingAdvanta Mortgage
    
    Services
    
    Advanta Mortgage
    
    ServicesPretax loss on
discontinuance of
mortgage and
leasing businesses
    
    $
    (20,162
    )
    
    $
    0
    
    
    $
    0
    
    
    $
    0Income tax benefit
    
    
    7,863
    
    
    
    0
    
    
    
    0
    
    
    
    0Loss on
discontinuance of
mortgage and
leasing businesses,
net of tax
    
    $
    (12,299
    )
    
    $
    0
    
    
    $
    0
    
    
    $
    0
 21




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##### Table of Contents



Nine Months EndedSeptember 30, 2005
    
    September 30, 2004Advanta Leasing
    
    
    
    
    
    Advanta LeasingAdvanta Mortgage
    
    Services
    
    Advanta Mortgage
    
    ServicesPretax gain (loss) on
discontinuance of mortgage
and leasing businesses
    
    $
    (15,662
    )
    
    $
    2,000
    
    
    $
    (2,770
    )
    
    $
    3,035Income tax (expense) benefit
    
    
    6,108
    
    
    
    (780
    )
    
    
    1,094
    
    
    
    (1,199
    )Gain (loss) on
discontinuance of mortgage
and leasing businesses, net
of tax
    
    $
    (9,554
    )
    
    $
    1,220
    
    
    $
    (1,676
    )
    
    $
    1,836
   Three Months Ended September 30,
    
    Nine Months Ended September 30,Advanta Mortgage
    
    Advanta Leasing Services
    
    Advanta Mortgage
    
    Advanta Leasing Services2005
    
    2004
    
    2005
    
    2004
    
    2005
    
    2004
    
    2005
    
    2004Basic gain (loss), net, on discontinuance of mortgage and leasing businesses, net of tax, per common shareClass A
    
    $
    (0.46
    )
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    (0.37
    )
    
    $
    (0.07
    )
    
    $
    0.05
    
    
    $
    0.07Class B
    
    
    (0.46
    )
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00
    
    
    
    (0.37
    )
    
    
    (0.07
    )
    
    
    0.05
    
    
    
    0.07Combined
    
    
    (0.46
    )
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00
    
    
    
    (0.37
    )
    
    
    (0.07
    )
    
    
    0.05
    
    
    
    0.07Diluted gain (loss), net, on discontinuance of mortgage and leasing businesses, net of tax, per common shareClass A
    
    $
    (0.42
    )
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    (0.33
    )
    
    $
    (0.06
    )
    
    $
    0.04
    
    
    $
    0.07Class B
    
    
    (0.42
    )
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00
    
    
    
    (0.33
    )
    
    
    (0.06
    )
    
    
    0.04
    
    
    
    0.07Combined
    
    
    (0.42
    )
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00
    
    
    
    (0.33
    )
    
    
    (0.06
    )
    
    
    0.04
    
    
    
    0.07
  September 30,
    
    December 31,2005
    
    2004Lease receivables, net
    
    $
    2,444
    
    
    $
    15,577Other assets
    
    
    511
    
    
    
    1,093Liabilities
    
    
    (3,259
    )
    
    
    (4,975
    )(Liabilities) assets of discontinued
operations, net
    
    $
    (304
    )
    
    $
    11,695
 22




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23




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##### Table of Contents



Note 15) Calculation of Earnings Per Share
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Income from continuing operations
    
    $
    16,155
    
    
    $
    10,600
    
    
    $
    103,207
    
    
    $
    30,871Less: Preferred A dividends
    
    
    0
    
    
    
    0
    
    
    
    (141
    )
    
    
    (141
    )Income from continuing operations
available to common stockholders
    
    
    16,155
    
    
    
    10,600
    
    
    
    103,066
    
    
    
    30,730Gain (loss), net, on discontinuance
of mortgage and leasing businesses,
net of tax
    
    
    (12,299
    )
    
    
    0
    
    
    
    (8,334
    )
    
    
    160Net income available to common
stockholders
    
    
    3,856
    
    
    
    10,600
    
    
    
    94,732
    
    
    
    30,890Less: Class A dividends declared
    
    
    (999
    )
    
    
    (830
    )
    
    
    (2,843
    )
    
    
    (2,237
    )Less: Class B dividends declared
    
    
    (2,552
    )
    
    
    (2,081
    )
    
    
    (7,185
    )
    
    
    (5,452
    )Undistributed net income
    
    $
    305
    
    
    $
    7,689
    
    
    $
    84,704
    
    
    $
    23,201Basic income from continuing
operations per common shareClass A
    
    $
    0.58
    
    
    $
    0.40
    
    
    $
    3.88
    
    
    $
    1.18Class B
    
    
    0.61
    
    
    
    0.43
    
    
    
    3.97
    
    
    
    1.26Combined(1)
    
    
    0.60
    
    
    
    0.42
    
    
    
    3.94
    
    
    
    1.24Diluted income from continuing
operations per common shareClass A
    
    $
    0.54
    
    
    $
    0.37
    
    
    $
    3.55
    
    
    $
    1.10Class B
    
    
    0.56
    
    
    
    0.38
    
    
    
    3.58
    
    
    
    1.14Combined(1)
    
    
    0.55
    
    
    
    0.38
    
    
    
    3.57
    
    
    
    1.13Basic net income per common shareClass A
    
    $
    0.12
    
    
    $
    0.40
    
    
    $
    3.56
    
    
    $
    1.19Class B
    
    
    0.15
    
    
    
    0.43
    
    
    
    3.65
    
    
    
    1.27Combined(1)
    
    
    0.14
    
    
    
    0.42
    
    
    
    3.62
    
    
    
    1.24Diluted net income per common shareClass A
    
    $
    0.12
    
    
    $
    0.37
    
    
    $
    3.26
    
    
    $
    1.11Class B
    
    
    0.14
    
    
    
    0.38
    
    
    
    3.29
    
    
    
    1.15Combined(1)
    
    
    0.13
    
    
    
    0.38
    
    
    
    3.28
    
    
    
    1.13Basic weighted average common shares
outstandingClass A
    
    
    8,829
    
    
    
    8,803
    
    
    
    8,821
    
    
    
    8,794Class B
    
    
    17,901
    
    
    
    16,479
    
    
    
    17,350
    
    
    
    16,088Combined
    
    
    26,730
    
    
    
    25,282
    
    
    
    26,171
    
    
    
    24,882Dilutive effect ofOptions Class B
    
    
    2,009
    
    
    
    1,897
    
    
    
    1,924
    
    
    
    1,488Restricted stock Class B
    
    
    499
    
    
    
    927
    
    
    
    759
    
    
    
    892Diluted weighted average common
shares outstandingClass A
    
    
    8,829
    
    
    
    8,803
    
    
    
    8,821
    
    
    
    8,794Class B
    
    
    20,409
    
    
    
    19,303
    
    
    
    20,033
    
    
    
    18,468Combined
    
    
    29,238
    
    
    
    28,106
    
    
    
    28,854
    
    
    
    27,262Antidilutive sharesOptions Class B
    
    
    0
    
    
    
    10
    
    
    
    17
    
    
    
    166
 (1)
    
    Combined represents income available to common stockholders divided by the combined
total of Class A and Class B weighted average common shares outstanding.
 24




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  OVERVIEW
  Three Months Ended
    
    Nine Months Ended($ in thousands, except per share data)
    
    September 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Pretax income (loss):Advanta Business Cards
    
    $
    26,564
    
    
    $
    19,668
    
    
    $
    67,336
    
    
    $
    54,331Venture Capital
    
    
    (80
    )
    
    
    (2,147
    )
    
    
    63
    
    
    
    (3,305
    )Other(1)
    
    
    0
    
    
    
    0
    
    
    
    67,679
    
    
    
    0Total pretax income
    
    
    26,484
    
    
    
    17,521
    
    
    
    135,078
    
    
    
    51,026Income tax expense
    
    
    10,329
    
    
    
    6,921
    
    
    
    31,871
    
    
    
    20,155Income from continuing
operations
    
    $
    16,155
    
    
    $
    10,600
    
    
    $
    103,207
    
    
    $
    30,871Per combined common share,
assuming dilution
    
    $
    0.55
    
    
    $
    0.38
    
    
    $
    3.57
    
    
    $
    1.13
 (1)
    
    Other for the nine months ended September 30, 2005 includes a $67.7 million pretax
gain on transfer of consumer credit card business.
     25




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  ADVANTA BUSINESS CARDS
  Three Months Ended
    
    Nine Months Ended($ in thousands)
    
    September 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Average owned receivables
    
    $
    819,870
    
    
    $
    646,934
    
    
    $
    775,582
    
    
    $
    594,249Average securitized receivables
    
    $
    2,751,024
    
    
    $
    2,513,053
    
    
    $
    2,669,677
    
    
    $
    2,520,462Cardholder transaction volume
    
    $
    2,513,752
    
    
    $
    2,125,757
    
    
    $
    7,137,071
    
    
    $
    6,042,337New account originations
    
    
    57,974
    
    
    
    24,578
    
    
    
    172,799
    
    
    
    89,900Average number of active
accounts(1)
    
    
    604,486
    
    
    
    578,162
    
    
    
    590,607
    
    
    
    584,991Ending number of accounts at
September 30
    
    
    846,472
    
    
    
    770,195
    
    
    
    846,472
    
    
    
    770,195
 (1)
    
    Active accounts are defined as accounts with a balance at month-end. Active account
statistics do not include charged-off accounts. The statistics reported above are the
average number of active accounts for the three and nine months ended September 30.
 26




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##### Table of Contents



Projected Estimate at December 31, 2005Actual at
    
    Low End($ in thousands)
    
    December 31, 2004
    
    of Range
    
    Percentage Increase
    
    High End of Range
    
    Percentage IncreaseOwned receivables
    
    $
    730,483
    
    
    $
    823,000
    
    
    
    13
    %
    
    $
    873,000
    
    
    
    20
    %Securitized receivables
    
    
    2,564,147
    
    
    
    2,801,000
    
    
    
    9
    %
    
    
    3,081,000
    
    
    
    20
    %Managed receivables
    
    $
    3,294,630
    
    
    $
    3,624,000
    
    
    
    10
    %
    
    $
    3,954,000
    
    
    
    20
    %
  Three Months Ended
    
    Nine Months Ended($ in thousands)
    
    September 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Net interest income on owned
interest-earning assets
    
    $
    20,004
    
    
    $
    16,692
    
    
    $
    59,105
    
    
    $
    44,563Noninterest revenues
    
    
    76,295
    
    
    
    72,641
    
    
    
    221,282
    
    
    
    216,018Provision for credit losses
    
    
    (11,275
    )
    
    
    (11,698
    )
    
    
    (30,297
    )
    
    
    (31,765
    )Operating expenses
    
    
    (58,460
    )
    
    
    (57,967
    )
    
    
    (182,754
    )
    
    
    (174,485
    )Pretax income
    
    $
    26,564
    
    
    $
    19,668
    
    
    $
    67,336
    
    
    $
    54,331
   27




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##### Table of Contents



VENTURE CAPITAL
  Three Months Ended
    
    Nine Months Ended($ in thousands)
    
    September 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Net interest expense
    
    $
    (37
    )
    
    $
    (84
    )
    
    $
    (108
    )
    
    $
    (258
    )Realized gains (losses), net
    
    
    171
    
    
    
    104
    
    
    
    (584
    )
    
    
    104Unrealized gains (losses), net
    
    
    (282
    )
    
    
    (2,162
    )
    
    
    658
    
    
    
    (2,130
    )Noninterest revenues
    
    
    68
    
    
    
    0
    
    
    
    98
    
    
    
    0Operating expenses
    
    
    0
    
    
    
    (5
    )
    
    
    (1
    )
    
    
    (1,021
    )Pretax income (loss)
    
    $
    (80
    )
    
    $
    (2,147
    )
    
    $
    63
    
    
    $
    (3,305
    )
  28




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##### Table of Contents



INTEREST INCOME AND EXPENSE
    29




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##### Table of Contents



INTEREST RATE ANALYSIS AND AVERAGE BALANCES
 Three Months Ended September 30,2005
    
    
    2004Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average($ in thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateInterest-earning assets:Owned receivables:Business credit cards(1)
    
    $
    819,870
    
    
    $
    26,546
    
    
    
    12.85
    %
    
    $
    646,934
    
    
    $
    21,777
    
    
    
    13.39
    %Other receivables
    
    
    8,609
    
    
    
    117
    
    
    
    5.39
    
    
    
    10,427
    
    
    
    138
    
    
    
    5.24Total receivables
    
    
    828,479
    
    
    
    26,663
    
    
    
    12.77
    
    
    
    657,361
    
    
    
    21,915
    
    
    
    13.26Investments(2)
    
    
    574,156
    
    
    
    5,007
    
    
    
    3.42
    
    
    
    439,067
    
    
    
    1,802
    
    
    
    1.62Retained interests in
securitizations
    
    
    168,581
    
    
    
    3,627
    
    
    
    8.60
    
    
    
    149,998
    
    
    
    4,139
    
    
    
    11.03Interest-earning assets
of discontinued
operations
    
    
    4,871
    
    
    
    83
    
    
    
    6.79
    
    
    
    32,173
    
    
    
    807
    
    
    
    10.04Total interest-earning
assets(3)
    
    
    1,576,087
    
    
    $
    35,380
    
    
    
    8.90
    %
    
    
    1,278,599
    
    
    $
    28,663
    
    
    
    8.92
    %Noninterest-earning assets
    
    
    529,863
    
    
    
    
    
    
    
    
    
    
    
    283,244Total assets
    
    $
    2,105,950
    
    
    
    
    
    
    
    
    
    
    $
    1,561,843Interest-bearing liabilities:Deposits
    
    $
    1,041,578
    
    
    $
    9,342
    
    
    
    3.56
    %
    
    $
    680,457
    
    
    $
    4,951
    
    
    
    2.89
    %Debt
    
    
    235,023
    
    
    
    3,668
    
    
    
    6.19
    
    
    
    275,627
    
    
    
    4,297
    
    
    
    6.20Subordinated debt
payable to preferred
securities trust
    
    
    103,093
    
    
    
    2,289
    
    
    
    8.88
    
    
    
    103,093
    
    
    
    2,289
    
    
    
    8.88Other borrowings
    
    
    243
    
    
    
    2
    
    
    
    3.69
    
    
    
    256
    
    
    
    1
    
    
    
    1.89Total interest-bearing
liabilities(4)
    
    
    1,379,937
    
    
    $
    15,301
    
    
    
    4.40
    %
    
    
    1,059,433
    
    
    $
    11,538
    
    
    
    4.34
    %Noninterest-bearing
liabilities
    
    
    224,292
    
    
    
    
    
    
    
    
    
    
    
    128,761Total liabilities
    
    
    1,604,229
    
    
    
    
    
    
    
    
    
    
    
    1,188,194Stockholders equity
    
    
    501,721
    
    
    
    
    
    
    
    
    
    
    
    373,649Total liabilities and
stockholders equity
    
    $
    2,105,950
    
    
    
    
    
    
    
    
    
    
    $
    1,561,843Net interest spread
    
    
    
    
    
    
    
    
    
    
    4.50
    %
    
    
    
    
    
    
    
    
    
    
    4.58
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    5.05
    %
    
    
    
    
    
    
    
    
    
    
    5.33
    %
 (1)
    
    Interest income includes late fees for owned business credit card receivables of $1.8
million for the three months ended September 30, 2005 and $1.5 million for the three
months ended September 30, 2004.(2)
    
    Interest and average rate for tax-free securities are computed on a tax equivalent
basis using a statutory rate of 35%.(3)
    
    Includes assets held and available for sale and nonaccrual receivables.(4)
    
    Includes funding of assets for both continuing and discontinued operations.
 30




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##### Table of Contents



Nine Months Ended September 30,2005
    
    
    2004Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average($ in thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateInterest-earning assets:Owned receivables:Business credit cards(1)
    
    $
    775,582
    
    
    $
    74,465
    
    
    
    12.84
    %
    
    $
    594,249
    
    
    $
    58,483
    
    
    
    13.15
    %Other receivables
    
    
    9,200
    
    
    
    370
    
    
    
    5.37
    
    
    
    11,791
    
    
    
    408
    
    
    
    4.62Total receivables
    
    
    784,782
    
    
    
    74,835
    
    
    
    12.75
    
    
    
    606,040
    
    
    
    58,891
    
    
    
    12.98Investments(2)
    
    
    549,060
    
    
    
    12,280
    
    
    
    2.95
    
    
    
    458,299
    
    
    
    4,599
    
    
    
    1.32Retained interests in
securitizations
    
    
    168,456
    
    
    
    11,214
    
    
    
    8.88
    
    
    
    149,998
    
    
    
    13,017
    
    
    
    11.57Interest-earning assets
of discontinued
operations
    
    
    9,584
    
    
    
    600
    
    
    
    8.34
    
    
    
    46,895
    
    
    
    3,475
    
    
    
    9.88Total interest-earning
assets(3)
    
    
    1,511,882
    
    
    $
    98,929
    
    
    
    8.73
    %
    
    
    1,261,232
    
    
    $
    79,982
    
    
    
    8.46
    %Noninterest-earning assets
    
    
    420,739
    
    
    
    
    
    
    
    
    
    
    
    308,948Total assets
    
    $
    1,932,621
    
    
    
    
    
    
    
    
    
    
    $
    1,570,180Interest-bearing liabilities:Deposits
    
    $
    935,035
    
    
    $
    23,606
    
    
    
    3.38
    %
    
    $
    662,241
    
    
    $
    14,159
    
    
    
    2.86
    %Debt
    
    
    247,371
    
    
    
    11,324
    
    
    
    6.12
    
    
    
    288,602
    
    
    
    13,318
    
    
    
    6.16Subordinated debt
payable to preferred
securities trust
    
    
    103,093
    
    
    
    6,868
    
    
    
    8.88
    
    
    
    103,093
    
    
    
    6,868
    
    
    
    8.88Other borrowings
    
    
    82
    
    
    
    2
    
    
    
    3.68
    
    
    
    194
    
    
    
    2
    
    
    
    1.56Total interest-bearing
liabilities(4)
    
    
    1,285,581
    
    
    $
    41,800
    
    
    
    4.35
    %
    
    
    1,054,130
    
    
    $
    34,347
    
    
    
    4.35
    %Noninterest-bearing
liabilities
    
    
    176,948
    
    
    
    
    
    
    
    
    
    
    
    155,327Total liabilities
    
    
    1,462,529
    
    
    
    
    
    
    
    
    
    
    
    1,209,457Stockholders equity
    
    
    470,092
    
    
    
    
    
    
    
    
    
    
    
    360,723Total liabilities and
stockholders equity
    
    $
    1,932,621
    
    
    
    
    
    
    
    
    
    
    $
    1,570,180Net interest spread
    
    
    
    
    
    
    
    
    
    
    4.38
    %
    
    
    
    
    
    
    
    
    
    
    4.11
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    5.05
    %
    
    
    
    
    
    
    
    
    
    
    4.83
    %
 (1)
    
    Interest income includes late fees for owned business credit cards receivables of $4.9
million for the nine months ended September 30, 2005 and $4.3 million for the nine
months ended September 30, 2004.(2)
    
    Interest and average rate for tax-free securities are computed on a tax equivalent
basis using a statutory rate of 35%.(3)
    
    Includes assets held and available for sale and nonaccrual receivables.(4)
    
    Includes funding of assets for both continuing and discontinued operations.
 
 31




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##### Table of Contents



PROVISION AND ALLOWANCE FOR RECEIVABLE LOSSES
     32




---



##### Table of Contents



($ in thousands)
    
    September 30,
    
    December 31,
    
    September 30,2005
    
    2004
    
    2004CONSOLIDATED  OWNEDAllowance for receivable losses
    
    $
    51,632
    
    
    $
    50,478
    
    
    $
    50,437Receivables 30 days or more delinquent
    
    
    27,324
    
    
    
    28,369
    
    
    
    29,634Receivables 90 days or more delinquent
    
    
    12,479
    
    
    
    13,638
    
    
    
    14,305Nonaccrual receivables
    
    
    13,006
    
    
    
    11,393
    
    
    
    11,342Accruing receivables past due 90 days or more
    
    
    10,291
    
    
    
    12,233
    
    
    
    12,774As a percentage of gross receivables:Allowance for receivable losses
    
    
    6.21
    %
    
    
    6.81
    %
    
    
    7.00
    %Receivables 30 days or more delinquent
    
    
    3.29
    
    
    
    3.83
    
    
    
    4.11Receivables 90 days or more delinquent
    
    
    1.50
    
    
    
    1.84
    
    
    
    1.99Nonaccrual receivables
    
    
    1.56
    
    
    
    1.54
    
    
    
    1.57Accruing receivables past due 90 days or more
    
    
    1.24
    
    
    
    1.65
    
    
    
    1.77Net principal charge-offs for the year-to-date
period ended September 30 and December 31
    
    $
    29,101
    
    
    $
    39,943
    
    
    $
    29,214Net principal charge-offs for the three months
ended September 30 and December 31
    
    
    10,075
    
    
    
    10,729
    
    
    
    10,448As a percentage of average gross receivables
(annualized):Net principal charge-offs for the year-to-date
period ended September 30 and December 31
    
    
    4.94
    %
    
    
    6.26
    %
    
    
    6.43
    %Net principal charge-offs for the three months
ended September 30 and December 31
    
    
    4.86
    
    
    
    5.86
    
    
    
    6.36BUSINESS
CREDIT CARDS  OWNEDAllowance for receivable losses
    
    $
    50,365
    
    
    $
    49,190
    
    
    $
    49,126Receivables 30 days or more delinquent
    
    
    27,324
    
    
    
    28,287
    
    
    
    29,552Receivables 90 days or more delinquent
    
    
    12,479
    
    
    
    13,638
    
    
    
    14,305Nonaccrual receivables
    
    
    13,006
    
    
    
    11,393
    
    
    
    11,342Accruing receivables past due 90 days or more
    
    
    10,291
    
    
    
    12,233
    
    
    
    12,774As a percentage of gross receivables:Allowance for receivable losses
    
    
    6.12
    %
    
    
    6.73
    %
    
    
    6.92
    %Receivables 30 days or more delinquent
    
    
    3.32
    
    
    
    3.87
    
    
    
    4.16Receivables 90 days or more delinquent
    
    
    1.52
    
    
    
    1.87
    
    
    
    2.01Nonaccrual receivables
    
    
    1.58
    
    
    
    1.56
    
    
    
    1.60Accruing receivables past due 90 days or more
    
    
    1.25
    
    
    
    1.67
    
    
    
    1.80Net principal charge-offs for the year-to-date
period ended September 30 and December 31
    
    $
    29,097
    
    
    $
    39,936
    
    
    $
    29,215Net principal charge-offs for the three months
ended September 30 and December 31
    
    
    10,075
    
    
    
    10,721
    
    
    
    10,448As a percentage of average gross receivables
(annualized):Net principal charge-offs for the year-to-date
period ended September 30 and December 31
    
    
    5.00
    %
    
    
    6.38
    %
    
    
    6.56
    %Net principal charge-offs for the three months
ended September 30 and December 31
    
    
    4.92
    
    
    
    5.94
    
    
    
    6.46
 33




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##### Table of Contents



SECURITIZATION INCOME
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,($ in thousands)
    
    2005
    
    2004
    
    2005
    
    2004Securitization income
    
    $
    31,797
    
    
    $
    31,410
    
    
    $
    92,259
    
    
    $
    96,577Interest income (discount accretion)
    
    
    3,627
    
    
    
    4,139
    
    
    
    11,214
    
    
    
    13,017Interchange income
    
    
    33,197
    
    
    
    28,613
    
    
    
    92,918
    
    
    
    83,358Servicing revenues
    
    
    12,785
    
    
    
    12,382
    
    
    
    38,203
    
    
    
    37,014Total
    
    $
    81,406
    
    
    $
    76,544
    
    
    $
    234,594
    
    
    $
    229,966
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,($ in thousands)
    
    2005
    
    2004
    
    2005
    
    2004Interest income
    
    $
    99,235
    
    
    $
    90,108
    
    
    $
    287,033
    
    
    $
    275,261Noninterest revenues
    
    
    8,802
    
    
    
    8,163
    
    
    
    24,457
    
    
    
    26,343Interest earned by noteholders
    
    
    (27,582
    )
    
    
    (13,739
    )
    
    
    (71,561
    )
    
    
    (36,446
    )Servicing fees
    
    
    (12,785
    )
    
    
    (12,382
    )
    
    
    (38,203
    )
    
    
    (37,014
    )Net principal charge-offs
    
    
    (35,873
    )
    
    
    (40,740
    )
    
    
    (109,467
    )
    
    
    (131,567
    )Total securitization income
    
    $
    31,797
    
    
    $
    31,410
    
    
    $
    92,259
    
    
    $
    96,577
  34




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##### Table of Contents



Managed Receivable Data
    35




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##### Table of Contents



INCOME STATEMENT MEASURES AND STATISTICSAdvanta Business
    
    GAAP
    
    Securitization
    
    Advanta Business
    
    Managed($ in thousands)
    
    Cards GAAP
    
    Ratio(1)
    
    Adjustments
    
    Cards Managed
    
    Ratio(1)Three Months Ended September 30, 2005Interest income
    
    $
    30,173
    
    
    
    12.21
    %
    
    $
    99,235
    
    
    $
    129,408
    
    
    
    14.50
    %Interest expense
    
    
    10,169
    
    
    
    4.11
    
    
    
    27,582
    
    
    
    37,751
    
    
    
    4.23Net interest income
    
    
    20,004
    
    
    
    8.10
    
    
    
    71,653
    
    
    
    91,657
    
    
    
    10.27Interchange income
    
    
    42,891
    
    
    
    17.36
    
    
    
    0
    
    
    
    42,891
    
    
    
    4.80Securitization income
    
    
    31,797
    
    
    
    12.87
    
    
    
    (31,797
    )
    
    
    0
    
    
    
    0Servicing revenues
    
    
    12,785
    
    
    
    5.17
    
    
    
    (12,785
    )
    
    
    0
    
    
    
    0Business credit card rewards
    
    
    (14,318
    )
    
    
    (5.79
    )
    
    
    0
    
    
    
    (14,318
    )
    
    
    (1.60
    )Other revenues, net
    
    
    3,140
    
    
    
    1.26
    
    
    
    8,802
    
    
    
    11,942
    
    
    
    1.34Total noninterest revenues
    
    
    76,295
    
    
    
    30.87
    
    
    
    (35,780
    )
    
    
    40,515
    
    
    
    4.54Provision for credit losses
    
    
    11,275
    
    
    
    4.56
    
    
    
    35,873
    (2)
    
    
    47,148
    
    
    
    5.29Risk-adjusted revenues
    
    
    85,024
    
    
    
    34.41
    
    
    
    0
    
    
    
    85,024
    
    
    
    9.52Average business credit
card interest-earning
assets
    
    
    988,451
    
    
    
    
    
    
    
    2,582,443
    
    
    
    3,570,894Average business credit
card receivables
    
    
    819,870
    
    
    
    
    
    
    
    2,751,024
    
    
    
    3,570,894Net principal charge-offs
    
    
    10,075
    
    
    
    4.92
    
    
    
    35,873
    
    
    
    45,948
    
    
    
    5.15Three Months Ended September 30, 2004Interest income
    
    $
    25,916
    
    
    
    13.01
    %
    
    $
    90,108
    
    
    $
    116,024
    
    
    
    14.69
    %Interest expense
    
    
    9,224
    
    
    
    4.63
    
    
    
    13,739
    
    
    
    22,963
    
    
    
    2.91Net interest income
    
    
    16,692
    
    
    
    8.38
    
    
    
    76,369
    
    
    
    93,061
    
    
    
    11.78Interchange income
    
    
    35,986
    
    
    
    18.06
    
    
    
    0
    
    
    
    35,986
    
    
    
    4.56Securitization income
    
    
    31,410
    
    
    
    15.77
    
    
    
    (31,410
    )
    
    
    0
    
    
    
    0Servicing revenues
    
    
    12,382
    
    
    
    6.21
    
    
    
    (12,382
    )
    
    
    0
    
    
    
    0Business credit card rewards
    
    
    (10,056
    )
    
    
    (5.05
    )
    
    
    0
    
    
    
    (10,056
    )
    
    
    (1.27
    )Other revenues, net
    
    
    2,919
    
    
    
    1.47
    
    
    
    8,163
    
    
    
    11,082
    
    
    
    1.40Total noninterest revenues
    
    
    72,641
    
    
    
    36.46
    
    
    
    (35,629
    )
    
    
    37,012
    
    
    
    4.69Provision for credit losses
    
    
    11,698
    
    
    
    5.87
    
    
    
    40,740
    (2)
    
    
    52,438
    
    
    
    6.64Risk-adjusted revenues
    
    
    77,635
    
    
    
    38.97
    
    
    
    0
    
    
    
    77,635
    
    
    
    9.83Average business credit
card interest-earning
assets
    
    
    796,932
    
    
    
    
    
    
    
    2,363,055
    
    
    
    3,159,987Average business credit
card receivables
    
    
    646,934
    
    
    
    
    
    
    
    2,513,053
    
    
    
    3,159,987Net principal charge-offs
    
    
    10,448
    
    
    
    6.46
    
    
    
    40,740
    
    
    
    51,188
    
    
    
    6.48
 (1)
    
    Ratios are as a percentage of average business credit card interest-earning assets
except net principal charge-off ratios, which are as a percentage of average business
credit card receivables.(2)
    
    Includes the amount by which credit losses would have been higher had the securitized
receivables remained as owned and the provision for credit losses on securitized
receivables been equal to actual reported charge-offs.
 36




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##### Table of Contents



INCOME STATEMENT MEASURES AND STATISTICSAdvanta Business
    
    GAAP
    
    Securitization
    
    Advanta Business
    
    Managed($ in thousands)
    
    Cards GAAP
    
    Ratio(1)
    
    Adjustments
    
    Cards Managed
    
    Ratio(1)Nine Months Ended September 30, 2005Interest income
    
    $
    85,679
    
    
    
    12.10
    %
    
    $
    287,033
    
    
    $
    372,712
    
    
    
    14.42
    %Interest expense
    
    
    26,574
    
    
    
    3.75
    
    
    
    71,561
    
    
    
    98,135
    
    
    
    3.79Net interest income
    
    
    59,105
    
    
    
    8.35
    
    
    
    215,472
    
    
    
    274,577
    
    
    
    10.63Interchange income
    
    
    119,325
    
    
    
    16.85
    
    
    
    0
    
    
    
    119,325
    
    
    
    4.62Securitization income
    
    
    92,259
    
    
    
    13.03
    
    
    
    (92,259
    )
    
    
    0
    
    
    
    0Servicing revenues
    
    
    38,203
    
    
    
    5.40
    
    
    
    (38,203
    )
    
    
    0
    
    
    
    0Business credit card rewards
    
    
    (37,893
    )
    
    
    (5.35
    )
    
    
    0
    
    
    
    (37,893
    )
    
    
    (1.47
    )Other revenues, net
    
    
    9,388
    
    
    
    1.32
    
    
    
    24,457
    
    
    
    33,845
    
    
    
    1.31Total noninterest revenues
    
    
    221,282
    
    
    
    31.25
    
    
    
    (106,005
    )
    
    
    115,277
    
    
    
    4.46Provision for credit losses
    
    
    30,297
    
    
    
    4.28
    
    
    
    109,467
    (2)
    
    
    139,764
    
    
    
    5.41Risk-adjusted revenues
    
    
    250,090
    
    
    
    35.32
    
    
    
    0
    
    
    
    250,090
    
    
    
    9.68Average business credit
card interest-earning
assets
    
    
    944,038
    
    
    
    
    
    
    
    2,501,221
    
    
    
    3,445,259Average business credit
card receivables
    
    
    775,582
    
    
    
    
    
    
    
    2,669,677
    
    
    
    3,445,259Net principal charge-offs
    
    
    29,097
    
    
    
    5.00
    
    
    
    109,467
    
    
    
    138,564
    
    
    
    5.36Nine Months Ended September 30, 2004Interest income
    
    $
    71,500
    
    
    
    12.81
    %
    
    $
    275,261
    
    
    $
    346,761
    
    
    
    14.84
    %Interest expense
    
    
    26,937
    
    
    
    4.83
    
    
    
    36,446
    
    
    
    63,383
    
    
    
    2.71Net interest income
    
    
    44,563
    
    
    
    7.98
    
    
    
    238,815
    
    
    
    283,378
    
    
    
    12.13Interchange income
    
    
    103,074
    
    
    
    18.47
    
    
    
    0
    
    
    
    103,074
    
    
    
    4.41Securitization income
    
    
    96,577
    
    
    
    17.30
    
    
    
    (96,577
    )
    
    
    0
    
    
    
    0Servicing revenues
    
    
    37,014
    
    
    
    6.63
    
    
    
    (37,014
    )
    
    
    0
    
    
    
    0Business credit card rewards
    
    
    (29,505
    )
    
    
    (5.29
    )
    
    
    0
    
    
    
    (29,505
    )
    
    
    (1.26
    )Other revenues, net
    
    
    8,858
    
    
    
    1.59
    
    
    
    26,343
    
    
    
    35,201
    
    
    
    1.51Total noninterest revenues
    
    
    216,018
    
    
    
    38.70
    
    
    
    (107,248
    )
    
    
    108,770
    
    
    
    4.66Provision for credit losses
    
    
    31,765
    
    
    
    5.69
    
    
    
    131,567
    (2)
    
    
    163,332
    
    
    
    6.99Risk-adjusted revenues
    
    
    228,816
    
    
    
    40.99
    
    
    
    0
    
    
    
    228,816
    
    
    
    9.80Average business credit
card interest-earning
assets
    
    
    744,247
    
    
    
    
    
    
    
    2,370,464
    
    
    
    3,114,711Average business credit
card receivables
    
    
    594,249
    
    
    
    
    
    
    
    2,520,462
    
    
    
    3,114,711Net principal charge-offs
    
    
    29,215
    
    
    
    6.56
    
    
    
    131,567
    
    
    
    160,782
    
    
    
    6.88
 (1)
    
    Ratios are as a percentage of average business credit card interest-earning assets
except net principal charge-off ratios, which are as a percentage of average business
credit card receivables.(2)
    
    Includes the amount by which credit losses would have been higher had the securitized
receivables remained as owned and the provision for credit losses on securitized
receivables been equal to actual reported charge-offs.
 37




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##### Table of Contents



BALANCE SHEET MEASURES AND STATISTICSAdvanta Business
    
    GAAP
    
    Securitization
    
    Advanta Business
    
    Managed($ in thousands)
    
    Cards GAAP
    
    Ratio(1)
    
    Adjustments
    
    Cards Managed
    
    Ratio(1)As of September 30, 2005Number of business
credit card accounts
    
    
    846,472
    
    
    
    
    
    
    
    N/A
    
    
    
    846,472Ending business credit
card receivables
    
    $
    822,821
    
    
    
    
    
    
    $
    2,781,397
    
    
    $
    3,604,218Receivables 30 days or
more delinquent
    
    
    27,324
    
    
    
    3.32
    %
    
    
    100,650
    
    
    
    127,974
    
    
    
    3.55
    %Receivables 90 days or
more delinquent
    
    
    12,479
    
    
    
    1.52
    
    
    
    45,387
    
    
    
    57,866
    
    
    
    1.61Nonaccrual receivables
    
    
    13,006
    
    
    
    1.58
    
    
    
    48,674
    
    
    
    61,680
    
    
    
    1.71Accruing receivables past
due 90 days or more
    
    
    10,291
    
    
    
    1.25
    
    
    
    37,339
    
    
    
    47,630
    
    
    
    1.32As of December 31, 2004Number of business
credit card accounts
    
    
    777,943
    
    
    
    
    
    
    
    N/A
    
    
    
    777,943Ending business credit
card receivables
    
    $
    730,483
    
    
    
    
    
    
    $
    2,564,147
    
    
    $
    3,294,630Receivables 30 days or
more delinquent
    
    
    28,287
    
    
    
    3.87
    %
    
    
    107,546
    
    
    
    135,833
    
    
    
    4.12
    %Receivables 90 days or
more delinquent
    
    
    13,638
    
    
    
    1.87
    
    
    
    51,770
    
    
    
    65,408
    
    
    
    1.99Nonaccrual receivables
    
    
    11,393
    
    
    
    1.56
    
    
    
    43,114
    
    
    
    54,507
    
    
    
    1.65Accruing receivables past
due 90 days or more
    
    
    12,233
    
    
    
    1.67
    
    
    
    45,981
    
    
    
    58,214
    
    
    
    1.77As of September 30, 2004Number of business
credit card accounts
    
    
    770,195
    
    
    
    
    
    
    
    N/A
    
    
    
    770,195Ending business credit
card receivables
    
    $
    709,991
    
    
    
    
    
    
    $
    2,511,030
    
    
    $
    3,221,021Receivables 30 days or
more delinquent
    
    
    29,552
    
    
    
    4.16
    %
    
    
    112,674
    
    
    
    142,226
    
    
    
    4.42
    %Receivables 90 days or
more delinquent
    
    
    14,305
    
    
    
    2.01
    
    
    
    54,354
    
    
    
    68,659
    
    
    
    2.13Nonaccrual receivables
    
    
    11,342
    
    
    
    1.60
    
    
    
    43,531
    
    
    
    54,873
    
    
    
    1.70Accruing receivables past
due 90 days or more
    
    
    12,774
    
    
    
    1.80
    
    
    
    48,122
    
    
    
    60,896
    
    
    
    1.89
 (1)
    
    Ratios are as a percentage of ending business credit card receivables.
 SERVICING REVENUES
  ($ in thousands)
    
    2005
    
    2004Three months ended September 30
    
    $
    12,785
    
    
    $
    12,382Nine months ended September 30
    
    
    38,203
    
    
    
    37,014
  38




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OTHER REVENUES
 Three Months Ended
    
    Nine Months Ended($ in thousands)
    
    September 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Interchange income
    
    $
    42,891
    
    
    $
    35,986
    
    
    $
    119,325
    
    
    $
    103,074Business credit card cash back rewards
    
    
    (9,297
    )
    
    
    (6,451
    )
    
    
    (22,539
    )
    
    
    (18,135
    )Business credit card business rewards
    
    
    (5,021
    )
    
    
    (3,605
    )
    
    
    (15,354
    )
    
    
    (11,370
    )Balance transfer fees
    
    
    1,246
    
    
    
    952
    
    
    
    3,891
    
    
    
    3,341Cash usage fees
    
    
    780
    
    
    
    756
    
    
    
    2,438
    
    
    
    2,324Other business credit card fees
    
    
    802
    
    
    
    831
    
    
    
    2,244
    
    
    
    2,122Investment securities gains (losses), net
    
    
    (109
    )
    
    
    (2,057
    )
    
    
    76
    
    
    
    (2,008
    )Earnings on investment in Fleet Credit
Card Services, L.P.
    
    
    0
    
    
    
    0
    
    
    
    1,033
    
    
    
    1,000Other, net
    
    
    565
    
    
    
    455
    
    
    
    2,975
    
    
    
    2,052Total other revenues, net
    
    $
    31,857
    
    
    $
    26,867
    
    
    $
    94,089
    
    
    $
    82,400
     *
    
    MasterCard® is a federally registered service mark of MasterCard International, Inc.
 39




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GAIN ON TRANSFER OF CONSUMER CREDIT CARD BUSINESS
  OPERATING EXPENSES
 Three Months Ended
    
    
    Nine Months Ended($ in thousands)
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Salaries and employee benefits
    
    $
    21,605
    
    
    $
    22,970
    
    
    $
    73,760
    
    
    $
    68,677Amortization of deferred
origination costs, net
    
    
    11,526
    
    
    
    8,013
    
    
    
    29,413
    
    
    
    26,146External processing
    
    
    5,587
    
    
    
    4,993
    
    
    
    16,218
    
    
    
    15,349Marketing
    
    
    4,327
    
    
    
    5,527
    
    
    
    16,424
    
    
    
    14,997Equipment
    
    
    2,713
    
    
    
    2,718
    
    
    
    8,226
    
    
    
    8,444Professional fees
    
    
    2,494
    
    
    
    3,203
    
    
    
    8,996
    
    
    
    11,126Occupancy
    
    
    1,995
    
    
    
    1,922
    
    
    
    5,879
    
    
    
    6,499Credit
    
    
    1,355
    
    
    
    1,338
    
    
    
    4,036
    
    
    
    4,410Travel and entertainment
    
    
    1,049
    
    
    
    1,521
    
    
    
    3,348
    
    
    
    3,230Other
    
    
    6,064
    
    
    
    5,886
    
    
    
    17,286
    
    
    
    17,303Total operating expenses
    
    $
    58,715
    
    
    $
    58,091
    
    
    $
    183,586
    
    
    $
    176,181
   40




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LITIGATION CONTINGENCIES
  41




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INCOME TAXES
  Three Months Ended
    
    Nine Months Ended($ in thousands)
    
    September 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Income tax expense
    
    $
    10,329
    
    
    $
    6,921
    
    
    $
    31,871
    
    
    $
    20,155Effective tax rate
    
    
    39.0
    %
    
    
    39.5
    %
    
    
    23.6
    %
    
    
    39.5
    %
   42




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DISCONTINUED OPERATIONS
    OFF-BALANCE SHEET ARRANGEMENTS
  43




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,($ in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Average securitized receivables
    
    $
    2,751,024
    
    
    $
    2,513,053
    
    
    $
    2,669,677
    
    
    $
    2,520,462Securitization income
    
    
    31,797
    
    
    
    31,410
    
    
    
    92,259
    
    
    
    96,577Discount accretion
    
    
    3,627
    
    
    
    4,139
    
    
    
    11,214
    
    
    
    13,017Interchange income
    
    
    33,197
    
    
    
    28,613
    
    
    
    92,918
    
    
    
    83,358Servicing revenues
    
    
    12,785
    
    
    
    12,382
    
    
    
    38,203
    
    
    
    37,014Proceeds from new securitizations
    
    
    391,606
    
    
    
    0
    
    
    
    782,281
    
    
    
    90,000Proceeds from collections
reinvested in revolving-period
securitizations
    
    
    1,339,654
    
    
    
    1,594,478
    
    
    
    4,379,824
    
    
    
    4,851,723Cash flows received on retained
interests
    
    
    82,140
    
    
    
    68,397
    
    
    
    222,869
    
    
    
    203,287
   Noteholder
    
    
    End of Revolving
    
    
    
    Noteholder($ in thousands)
    
    Principal Balance
    
    
    Period
    
    
    
    Payment DateSeries 2002-A
    
    $
    300,000
    
    
    March 31, 2005
    
    June 20,
2005Series 2003-C
    
    
    300,000
    
    
    May 31, 2005
    
    August 15,
2005Series 2000-C
    
    
    400,000
    
    
    July 31, 2005
    
    October 20,
2005Series 2003-A
    
    
    400,000
    
    
    November 30, 2005
    
    February 21,
2006(1)
 
 (1)
    
    Expected noteholder payment date. 44




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##### Table of Contents



Noteholder
    
    
    Scheduled End of($ in thousands)
    
    Principal Balance
    
    
    Revolving PeriodAdvantaSeries Class A
(2005-A1)
    
    $
    250,000
    
    
    August 31, 2007AdvantaSeries Class A (2005-A2)
    
    
    225,000
    
    
    September 30, 2009AdvantaSeries Class B (2005-B1)
    
    
    100,000
    
    
    June 30, 2009AdvantaSeries Class C (2005-C1)
    
    
    100,000
    
    
    December 31, 2007AdvantaSeries Class D (2005-D1)
    
    
    20,000
    
    
    September 30, 2007
     45




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MARKET RISK SENSITIVITY
  September 30,
    
    December 31,2005
    
    2004Estimated percentage increase (decrease) in owned net
interest income:Assuming 200 basis point increase in interest rates
    
    
    14
    %
    
    
    12
    %Assuming 200 basis point decrease in interest rates
    
    
    (10
    )%
    
    
    (4
    )%Estimated percentage increase (decrease) in securitized
net interest income:Assuming 200 basis point increase in interest rates
    
    
    (7
    )%
    
    
    (6
    )%Assuming 200 basis point decrease in interest rates
    
    
    12
    %
    
    
    14
    %Estimated percentage increase (decrease) in managed net
interest income:Assuming 200 basis point increase in interest rates
    
    
    (1
    )%
    
    
    (1
    )%Assuming 200 basis point decrease in interest rates
    
    
    6
    %
    
    
    9
    %
  46




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LIQUIDITY, CAPITAL RESOURCES AND ANALYSIS OF FINANCIAL CONDITION
   September 30, 2005
    
    
    December 31, 2004($ in thousands)
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Off-balance sheet securitized
receivables(1)
    
    $
    2,683,501
    
    
    
    58
    %
    
    $
    2,462,220
    
    
    
    61
    %Deposits
    
    
    1,134,846
    
    
    
    24
    
    
    
    825,273
    
    
    
    20Debt
    
    
    229,158
    
    
    
    5
    
    
    
    265,759
    
    
    
    7Subordinated debt payable to
preferred securities trust
    
    
    103,093
    
    
    
    2
    
    
    
    103,093
    
    
    
    2Equity
    
    
    500,495
    
    
    
    11
    
    
    
    392,194
    
    
    
    10Total
    
    $
    4,651,093
    
    
    
    100
    %
    
    $
    4,048,539
    
    
    
    100
    %
 
 (1)
    
    Excludes our ownership interest in the noteholder principal balance of securitizations
(subordinated trust assets) that are held on-balance sheet and classified as retained
interests in securitizations.   47




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48




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49




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FORWARD-LOOKING STATEMENTS
  (1)
    
    our managed net interest income including changes resulting from
fluctuations in the volume of receivables and the range and timing of pricing
offers to cardholders;(2)
    
    competitive pressures, including product development and pricing, among
financial institutions;(3)
    
    political conditions, social conditions, monetary and fiscal policies and
general economic and environmental conditions that affect the level of new
account originations, customer spending, delinquencies and charge-offs;(4)
    
    factors affecting fluctuations in the number of accounts or receivable
balances including the retention of cardholders after promotional pricing periods
have expired;(5)
    
    interest rate fluctuations;(6)
    
    the level of expenses;(7)
    
    the timing of the securitization of our receivables;(8)
    
    the effects of government regulation, including restrictions and
limitations imposed by banking laws, regulators, and examinations;(9)
    
    effect of, and changes in, tax laws, rates, regulations and policies;(10)
    
    effect of legal and regulatory developments, including changes in
bankruptcy laws and regulations and the ultimate resolution of industry-related
judicial proceedings relating to the legality of certain interchange rates;(11)
    
    relationships with customers, significant vendors and business partners;(12)
    
    difficulties or delays in the development, production, testing and
marketing of products or services, including the ability and cost to obtain
intellectual property rights or a failure to implement new products or services
when anticipated;(13)
    
    the amount and cost of financing available to us;(14)
    
    the ratings on our debt and the debt of our subsidiaries;(15)
    
    revisions to estimates associated with the discontinuance of our mortgage
and leasing businesses;(16)
    
    The effects of changes in accounting policies or practices as may be
required by changes in U.S. generally accepted accounting principles;(17)
    
    the impact of litigation, including judgments, settlements and actual or
anticipated insurance recoveries for costs or judgments;(18)
    
    the proper design and operation of our disclosure controls and procedures;
and(19)
    
    the ability to attract and retain key personnel.
  50




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
   51




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PART
II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 6. EXHIBITS
  ExhibitNumber
    
    Description of Document12
    
    Computation of Ratio of Earnings to Fixed Charges31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 52




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SIGNATURES
  
 By
    /s/ Philip M. BrowneSenior
Vice President and

Chief Financial OfficerNovember 8, 2005By

/s/ David B. WeinstockVice
President and

Chief Accounting OfficerNovember 8, 2005
 53




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EXHIBIT INDEX
 Manner ofExhibit
    
    Description
    
    Filing12
    
    Computation of Ratio of Earnings to Fixed Charges
    
    *31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
    
    *31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
    
    *32.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    *32.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    *
 
 *
    
    Filed electronically herewith. 54