##### 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 1934for the quarterly period ended June 30, 2005or
 o
    
    Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934for the transition period from ______ to _______
 Commission File Number 0-14120
 Advanta Corp.
  Delaware
    
    23-1462070(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 
 
  þ o
  þ o
   o o
   Class A
    
    Outstanding at August 2, 2005Common Stock, $.01 par value
    
    9,606,862 sharesClass B
    
    Outstanding at August 2, 2005Common Stock, $.01 par value
    
    18,645,207 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
    
    
    23Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    46Item 4.
    
    Controls and Procedures
    
    
    46PART II -
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    47Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    47Item 6.
    
    Exhibits
    
    
    47Exhibit Index
    
    
    49COMPUTATION 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)
 June 30,
    
    
    December 31,(In thousands, except share amounts)
    
    2005
    
    
    2004ASSETSCash
    
    $
    30,801
    
    
    $
    35,565Federal funds sold
    
    
    314,193
    
    
    
    298,677Restricted interest-bearing deposits
    
    
    2,058
    
    
    
    2,946Investments available for sale
    
    
    242,114
    
    
    
    184,240Receivables, net:Held for sale
    
    
    464,126
    
    
    
    377,158Other
    
    
    349,172
    
    
    
    328,872Total receivables, net
    
    
    813,298
    
    
    
    706,030Accounts receivable from securitizations
    
    
    396,922
    
    
    
    244,362Premises and equipment, net
    
    
    16,083
    
    
    
    17,958Other assets
    
    
    201,793
    
    
    
    191,451Assets of discontinued operations, net
    
    
    2,495
    
    
    
    11,695Total assets
    
    $
    2,019,757
    
    
    $
    1,692,924LIABILITIESDeposits
    
    $
    976,131
    
    
    $
    825,273Debt
    
    
    241,279
    
    
    
    265,759Subordinated debt payable to preferred securities trust
    
    
    103,093
    
    
    
    103,093Other liabilities
    
    
    202,987
    
    
    
    106,605Total liabilities
    
    
    1,523,490
    
    
    
    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  21,773,637
shares in 2005 and 21,537,061 shares in 2004
    
    
    217
    
    
    
    215Additional paid-in capital
    
    
    272,397
    
    
    
    258,223Unearned restricted stock
    
    
    (4,391
    )
    
    
    (9,460
    )Unearned ESOP shares
    
    
    (9,777
    )
    
    
    (9,930
    )Accumulated other comprehensive loss
    
    
    (313
    )
    
    
    (261
    )Retained earnings
    
    
    286,171
    
    
    
    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
    
    
    496,267
    
    
    
    392,194Total liabilities and stockholders equity
    
    $
    2,019,757
    
    
    $
    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
    
    
    Six Months Ended(In thousands, except per share amounts)
    
    June 30,
    
    
    June 302005
    
    
    2004
    
    
    2005
    
    
    2004Interest income:Receivables
    
    $
    23,198
    
    
    $
    19,583
    
    
    $
    48,172
    
    
    $
    36,976Investments
    
    
    4,081
    
    
    
    1,375
    
    
    
    7,265
    
    
    
    2,791Other interest income
    
    
    3,566
    
    
    
    4,276
    
    
    
    7,587
    
    
    
    8,878Total interest income
    
    
    30,845
    
    
    
    25,234
    
    
    
    63,024
    
    
    
    48,645Interest expense:Deposits
    
    
    7,690
    
    
    
    4,343
    
    
    
    14,138
    
    
    
    8,835Debt and other borrowings
    
    
    3,738
    
    
    
    4,213
    
    
    
    7,586
    
    
    
    8,963Subordinated debt payable to preferred
securities trust
    
    
    2,290
    
    
    
    2,290
    
    
    
    4,579
    
    
    
    4,579Total interest expense
    
    
    13,718
    
    
    
    10,846
    
    
    
    26,303
    
    
    
    22,377Net interest income
    
    
    17,127
    
    
    
    14,388
    
    
    
    36,721
    
    
    
    26,268Provision for credit losses
    
    
    8,603
    
    
    
    10,494
    
    
    
    19,047
    
    
    
    20,005Net interest income after provision for
credit losses
    
    
    8,524
    
    
    
    3,894
    
    
    
    17,674
    
    
    
    6,263Noninterest revenues:Securitization income
    
    
    30,066
    
    
    
    32,627
    
    
    
    60,462
    
    
    
    65,167Servicing revenues
    
    
    12,819
    
    
    
    12,499
    
    
    
    25,418
    
    
    
    24,632Gain on transfer of consumer credit card
business (See Note 11)
    
    
    0
    
    
    
    0
    
    
    
    67,679
    
    
    
    0Other revenues, net
    
    
    34,419
    
    
    
    28,779
    
    
    
    62,232
    
    
    
    55,533Total noninterest revenues
    
    
    77,304
    
    
    
    73,905
    
    
    
    215,791
    
    
    
    145,332Operating expenses
    
    
    62,251
    
    
    
    59,896
    
    
    
    124,871
    
    
    
    118,090Income before income taxes
    
    
    23,577
    
    
    
    17,903
    
    
    
    108,594
    
    
    
    33,505Income tax expense
    
    
    9,195
    
    
    
    7,071
    
    
    
    21,542
    
    
    
    13,234Income from continuing operations
    
    
    14,382
    
    
    
    10,832
    
    
    
    87,052
    
    
    
    20,271Gain, net, on discontinuance of mortgage and
leasing businesses, net of tax
    
    
    3,965
    
    
    
    160
    
    
    
    3,965
    
    
    
    160Net income
    
    $
    18,347
    
    
    $
    10,992
    
    
    $
    91,017
    
    
    $
    20,431Basic income from continuing operations per
common shareClass A
    
    $
    0.53
    
    
    $
    0.42
    
    
    $
    3.32
    
    
    $
    0.78Class B
    
    
    0.56
    
    
    
    0.44
    
    
    
    3.38
    
    
    
    0.83Combined
    
    
    0.55
    
    
    
    0.43
    
    
    
    3.36
    
    
    
    0.82Diluted income from continuing operations
per common shareClass A
    
    $
    0.49
    
    
    $
    0.39
    
    
    $
    3.02
    
    
    $
    0.73Class B
    
    
    0.50
    
    
    
    0.40
    
    
    
    3.04
    
    
    
    0.76Combined
    
    
    0.50
    
    
    
    0.40
    
    
    
    3.03
    
    
    
    0.75Basic net income per common shareClass A
    
    $
    0.68
    
    

    $
    0.42
    
    
    $
    3.47
    
    
    $
    0.79Class B
    
    
    0.71
    
    
    
    0.45
    
    
    
    3.53
    
    
    
    0.84Combined
    
    
    0.70
    
    
    
    0.44
    
    
    
    3.51
    
    
    
    0.82Diluted net income per common shareClass A
    
    $
    0.63
    
    
    $
    0.40
    
    
    $
    3.15
    
    
    $
    0.74Class B
    
    
    0.64
    
    
    
    0.41
    
    
    
    3.18
    
    
    
    0.76Combined
    
    
    0.64
    
    
    
    0.41
    
    
    
    3.17
    
    
    
    0.76Basic weighted average common shares
outstandingClass A
    
    
    8,821
    
    
    
    8,794
    
    
    
    8,816
    
    
    
    8,790Class B
    
    
    17,433
    
    
    
    16,172
    
    
    
    17,071
    
    
    
    15,891Combined
    
    
    26,254
    
    
    
    24,966
    
    
    
    25,887
    
    
    
    24,681Diluted weighted average common shares
outstandingClass A
    
    
    8,821
    
    
    
    8,794
    
    
    
    8,816
    
    
    
    8,790Class B
    
    
    20,013
    
    
    
    18,329
    
    
    
    19,843
    
    
    
    18,046Combined
    
    
    28,834
    
    
    
    27,123
    
    
    
    28,659
    
    
    
    26,836
 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
    
    $
    91,017Other comprehensive income (loss):Change in unrealized
appreciation (depreciation)
of investments, net of tax
benefit (expense) of $28
    
    
    (52
    )Comprehensive income
    
    $
    90,965Preferred and common cash
dividends declaredExercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3,744Stock option exchange program
stock distributionStock-based nonemployee
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135Tax benefits from stock-based
compensation and ESOP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,227Issuance of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    174Amortization of restricted stockForfeitures of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (1,349
    )ESOP shares committed to be
released
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    243Balance at June 30, 2005
    
    
    
    
    
    $
    1,010
    
    
    $
    100
    
    
    $
    217
    
    
    $
    272,397
 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
 UnearnedRestricted
    
    
    AccumulatedStock
    
    
    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
    
    
    
    
    
    
    
    
    
    
    91,017
    
    
    
    
    
    
    
    91,017Other comprehensive income (loss):Change in unrealized
appreciation (depreciation)
of investments, net of tax
benefit (expense) of $28
    
    
    
    
    
    
    (52
    )
    
    
    
    
    
    
    
    
    
    
    (52
    )Comprehensive incomePreferred and common cash
dividends declared
    
    
    
    
    
    
    
    
    
    
    (6,618
    )
    
    
    
    
    
    
    (6,618
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,747Stock option exchange program
stock distribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    328
    
    
    
    328Stock-based nonemployee
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135Tax benefits from stock-based compensation
and ESOP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,227Issuance of restricted stock
    
    
    (174
    )
    
    
    
    
    
    
    
    
    

    
    
    
    
    
    0Amortization of restricted stock
    
    
    4,615
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,615Forfeitures of restricted stock
    
    
    627
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (723
    )ESOP shares committed to be released
    
    
    154
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    397Balance at June 30, 2005
    
    $
    (14,168
    )
    
    $
    (313
    )
    
    $
    286,171
    
    
    $
    (49,147
    )
    
    $
    496,267
 See Notes to Consolidated Financial Statements
 6




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##### Table of Contents



ADVANTA CORP. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Six Months Ended($ in thousands)
    
    June 30,2005
    
    
    2004OPERATING ACTIVITIES  CONTINUING OPERATIONSNet income
    
    $
    91,017
    
    
    $
    20,431Adjustments to reconcile net income to net cash provided by
(used in) operating activities:Gain, net, on discontinuance of mortgage and leasing
businesses, net of tax
    
    
    (3,965
    )
    
    
    (160
    )Investment securities gains, net
    
    
    (185
    )
    
    
    (49
    )Depreciation and amortization
    
    
    3,770
    
    
    
    4,948Stock-based compensation expense
    
    
    4,027
    
    
    
    4,474Provision for credit losses
    
    
    19,047
    
    
    
    20,005Provision for interest and fee losses
    
    
    4,154
    
    
    
    4,539Change in deferred origination costs, net of deferred fees
    
    
    (10,228
    )
    
    
    4,572Change in receivables held for sale
    
    
    (477,643
    )
    
    
    (110,782
    )Proceeds from sale of receivables held for sale
    
    
    390,675
    
    
    
    95,361Change in accounts receivable from securitizations
    
    
    (152,560
    )
    
    
    5,475Change in other assets and other liabilities
    
    
    100,710
    
    
    
    (52,313
    )Net cash provided by (used in) operating activities
    
    
    (31,181
    )
    
    
    (3,499
    )INVESTING ACTIVITIES  CONTINUING OPERATIONSChange in federal funds sold and restricted interest-bearing
deposits
    
    
    (14,628
    )
    
    
    44,619Purchase of investments available for sale
    
    
    (253,727
    )
    
    
    (370,058
    )Proceeds from sales of investments available for sale
    
    
    152,976
    
    
    
    381,461Proceeds from maturing investments available for sale
    
    
    42,982
    
    
    
    1,983Change in receivables not held for sale
    
    
    (33,273
    )
    
    
    (33,950
    )Purchases of premises and equipment, net
    
    
    (1,846
    )
    
    
    (3,788
    )Net cash (used in) provided by investing activities
    
    
    (107,516
    )
    
    
    20,267FINANCING ACTIVITIES  CONTINUING OPERATIONSChange in demand and savings deposits
    
    
    (1,289
    )
    
    
    (2,433
    )Proceeds from time deposits
    
    
    284,067
    
    
    
    247,040Payments on time deposits
    
    
    (140,440
    )
    
    
    (272,702
    )Proceeds from debt
    
    
    15,343
    
    
    
    13,942Payments on debt
    
    
    (40,235
    )
    
    
    (49,430
    )Change in other borrowings and cash overdraft
    
    
    9,546
    
    
    
    5,823Proceeds from exercise of stock options
    
    
    3,747
    
    
    
    5,531Cash dividends paid
    
    
    (6,618
    )
    
    
    (4,919
    )Net cash provided by (used in) financing activities
    
    
    124,121
    
    
    
    (57,148
    )DISCONTINUED OPERATIONSNet cash provided by operating activities of discontinued
operations
    
    
    9,812
    
    
    
    33,441Net decrease in cash
    
    
    (4,764
    )
    
    
    (6,939
    )Cash at beginning of period
    
    
    35,565
    
    
    
    26,941Cash at end of period
    
    $
    30,801
    
    
    $
    20,002
 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)
 June 30, 2005
(Unaudited)
  Note 1) Basis of Presentation
     8




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Stock-based employee
compensation expense
for stock option
plans, net of related
tax effectsAs reported
    
    $
    0
    
    
    $
    119
    
    
    $
    0
    
    
    $
    119Pro forma
    
    
    516
    
    
    
    686
    
    
    
    1,417
    
    
    
    1,132Net incomeAs reported
    
    $
    18,347
    
    
    $
    10,992
    
    
    $
    91,017
    
    
    $
    20,431Pro forma
    
    
    17,831
    
    
    
    10,425
    
    
    
    89,600
    
    
    
    19,418Basic net income per
common shareAs reportedClass A
    
    $
    0.68
    
    
    $
    0.42
    
    
    $
    3.47
    
    
    $
    0.79Class B
    
    
    0.71
    
    
    
    0.45
    
    
    
    3.53
    
    
    
    0.84Combined
    
    
    0.70
    
    
    
    0.44
    
    
    
    3.51
    
    
    
    0.82Pro formaClass A
    
    $
    0.66
    
    
    $
    0.40
    
    
    $
    3.41
    
    
    $
    0.75Class B
    
    
    0.69
    
    
    
    0.43
    
    
    
    3.48
    
    
    
    0.80Combined
    
    
    0.68
    
    
    
    0.42
    
    
    
    3.46
    
    
    
    0.78Diluted net income
per common shareAs reportedClass A
    
    $
    0.63
    
    
    $
    0.40
    
    
    $
    3.15
    
    
    $
    0.74Class B
    
    
    0.64
    
    
    
    0.41
    
    
    
    3.18
    
    
    
    0.76Combined
    
    
    0.64
    
    
    
    0.41
    
    
    
    3.17
    
    
    
    0.76Pro formaClass A
    
    $
    0.61
    
    
    $
    0.38
    
    
    $
    3.11
    
    
    $
    0.70Class B
    
    
    0.62
    
    
    
    0.39
    
    
    
    3.13
    
    
    
    0.73Combined
    
    
    0.62
    
    
    
    0.39
    
    
    
    3.13
    
    
    
    0.72
 Note 2) Recently Issued Accounting Standards
  9




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Note 3) Investments Available for Sale
  June 30, 2005
    
    
    December 31, 2004Amortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueU.S. Treasury and government
agencies securities
    
    $
    67,455
    
    
    $
    66,832
    
    
    $
    69,402
    
    
    $
    68,917State and municipal securities
    
    
    3,262
    
    
    
    3,281
    
    
    
    3,329
    
    
    
    3,370Corporate bonds
    
    
    7,690
    
    
    
    7,674
    
    
    
    12,308
    
    
    
    12,259Asset-backed securities
    
    
    31,972
    
    
    
    32,004
    
    
    
    4,358
    
    
    
    4,398Equity securities(1)
    
    
    15,211
    
    
    
    15,317
    
    
    
    14,626
    
    
    
    14,677Money market funds
    
    
    116,898
    
    
    
    116,898
    
    
    
    80,509
    
    
    
    80,509Other
    
    
    108
    
    
    
    108
    
    
    
    110
    
    
    
    110Total investments available for sale
    
    $
    242,596
    
    
    $
    242,114
    
    
    $
    184,642
    
    
    $
    184,240
 (1)
    
    Includes venture capital investments of $5.9 million at June 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
  June 30,
    
    
    December 31,2005
    
    
    2004Business credit card receivables
    
    $
    828,724
    
    
    $
    730,483Other receivables
    
    
    8,876
    
    
    
    10,280Gross receivables
    
    
    837,600
    
    
    
    740,763Add: Deferred origination costs, net of deferred fees
    
    
    25,973
    
    
    
    15,745Less: Allowance for receivable lossesBusiness
credit cards
    
    
    (48,966
    )
    
    
    (49,190
    )Other receivables
    
    
    (1,309
    )
    
    
    (1,288
    )Total allowance for receivable losses
    
    
    (50,275
    )
    
    
    (50,478
    )Receivables, net
    
    $
    813,298
    
    
    $
    706,030
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Note 5) Allowance for Receivable Losses
  2005
    
    
    2004Beginning balance at January 1
    
    $
    50,478
    
    
    $
    48,454Provision for credit losses
    
    
    19,047
    
    
    
    20,005Provision for interest and fee losses
    
    
    4,154
    
    
    
    4,539Gross principal charge-offs:Business credit cards
    
    
    (20,393
    )
    
    
    (20,169
    )Other receivables
    
    
    (4
    )
    
    
    (3
    )Total gross principal charge-offs
    
    
    (20,397
    )
    
    
    (20,172
    )Principal recoveries:Business credit cards
    
    
    1,371
    
    
    
    1,402Other receivables
    
    
    0
    
    
    
    4Total principal recoveries
    
    
    1,371
    
    
    
    1,406Net principal charge-offs
    
    
    (19,026
    )
    
    
    (18,766
    )Interest and fee charge-offs:Business credit cards
    
    
    (4,378
    )
    
    
    (4,901
    )Balance at June 30
    
    $
    50,275
    
    
    $
    49,331
 Note 6) Securitization Activities
  June 30,
    
    
    December 31,2005
    
    
    2004Retained interests in securitizations
    
    $
    175,173
    
    
    $
    162,473Amounts due from the securitization trust
    
    
    169,056
    
    
    
    31,075Accrued interest and fees on securitized
receivables, net(1)
    
    
    52,693
    
    
    
    50,814Total accounts receivable from securitizations
    
    $
    396,922
    
    
    $
    244,362
 (1)
    
    Reduced by an estimate for uncollectible interest and fees of $8.8 million at June 30,
2005 and $9.2 million at December 31, 2004.
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Average securitized receivables
    
    $
    2,707,045
    
    
    $
    2,532,885
    
    
    $
    2,628,329
    
    
    $
    2,524,208Securitization income
    
    
    30,066
    
    
    
    32,627
    
    
    
    60,462
    
    
    
    65,167Discount accretion
    
    
    3,566
    
    
    
    4,276
    
    
    
    7,587
    
    
    
    8,878Interchange income
    
    
    32,390
    
    
    
    28,801
    
    
    
    59,721
    
    
    
    54,745Servicing revenues
    
    
    12,819
    
    
    
    12,499
    
    
    
    25,418
    
    
    
    24,632Proceeds from new securitizations
    
    
    390,675
    
    
    
    0
    
    
    
    390,675
    
    
    
    90,000Proceeds from collections
reinvested in
revolving-period securitizations
    
    
    1,368,525
    
    
    
    1,633,689
    
    
    
    3,040,170
    
    
    
    3,257,245Cash flows received on retained
interests
    
    
    80,563
    
    
    
    68,208
    
    
    
    140,729
    
    
    
    134,890
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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Key assumptions:Discount rate
    
    
    8.22% -  9.85
    %
    
    
    10.98% - 13.13
    %
    
    
    8.22% - 11.27
    %
    
    
    10.98% - 14.33
    %Monthly payment rate
    
    
    21.91% - 25.00
    %
    
    
    20.63% - 22.25
    %
    
    
    21.77% - 25.00
    %
    
    
    20.63% - 22.25
    %Loss rate
    
    
    5.40% -  6.61
    %
    
    
    6.70% -  8.20
    %
    
    
    5.40% -  6.79
    %
    
    
    6.70% -  8.47
    %Interest yield, net
of interest earned
by noteholders
    
    
    10.84% - 10.91
    %
    
    
    12.36% - 13.47
    %
    
    
    10.84% - 11.28
    %
    
    
    12.36% - 13.84
    %
   June 30,
    
    
    December 31,2005
    
    
    2004Discount rate
    
    
    8.33% -  9.48
    %
    
    
    9.79% - 11.27
    %Monthly payment rate
    
    
    22.29% - 25.00
    %
    
    
    21.77% - 22.65
    %Loss rate
    
    
    5.40% -  6.21
    %
    
    
    5.90% -  6.79
    %Interest yield, net of interest earned by
noteholders
    
    
    10.91
    %
    
    
    11.28
    %
   Effect on
estimated fair value of the following hypothetical changes in key assumptions:Discount rate increased by 2%
    
    $
    (2,233
    )Discount rate increased by 4%
    
    
    (4,392
    )Monthly payment rate at 115% of base assumption
    
    
    (2,131
    )Monthly payment rate at 130% of base assumption
    
    
    (3,640
    )Loss rate at 110% of base assumption
    
    
    (3,108
    )Loss rate at 125% of base assumption
    
    
    (7,769
    )Interest yield, net of interest earned by noteholders,
decreased by 1%
    
    
    (5,755
    )Interest yield, net of interest earned by noteholders,
decreased by 2%
    
    
    (11,510
    )
  12




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Managed receivable data
  June 30,
    
    
    December 31,
    
    
    June 30,2005
    
    
    2004
    
    
    2004Owned business credit card receivables
    
    $
    828,724
    
    
    $
    730,483
    
    
    $
    549,862Securitized business credit card receivables
    
    
    2,685,504
    
    
    
    2,564,147
    
    
    
    2,546,777Total managed receivables
    
    $
    3,514,228
    
    
    $
    3,294,630
    
    
    $
    3,096,639Receivables 30 days or more delinquent:Owned
    
    $
    26,085
    
    
    $
    28,287
    
    
    $
    25,493Securitized
    
    
    100,283
    
    
    
    107,546
    
    
    
    123,123Total managed
    
    
    126,368
    
    
    
    135,833
    
    
    
    148,616Receivables 90 days or more delinquent:Owned
    
    
    12,798
    
    
    
    13,638
    
    
    
    13,309Securitized
    
    
    49,583
    
    
    
    51,770
    
    
    
    63,980Total managed
    
    
    62,381
    
    
    
    65,408
    
    
    
    77,289Nonaccrual receivables:Owned
    
    
    12,286
    
    
    
    11,393
    
    
    
    10,081Securitized
    
    
    47,612
    
    
    
    43,114
    
    
    
    48,966Total managed
    
    
    59,898
    
    
    
    54,507
    
    
    
    59,047Accruing receivables past due 90 days or more:Owned
    
    
    10,985
    
    
    
    12,233
    
    
    
    11,677Securitized
    
    
    42,500
    
    
    
    45,981
    
    
    
    56,111Total managed
    
    
    53,485
    
    
    
    58,214
    
    
    
    67,788Net principal charge-offs for the year-to-date
period ended June 30 and December 31:Owned
    
    
    19,022
    
    
    
    39,936
    
    
    
    18,767Securitized
    
    
    73,594
    
    
    
    170,024
    
    
    
    90,827Total managed
    
    
    92,616
    
    
    
    209,960
    
    
    
    109,594Net principal charge-offs for the three months
ended June 30 and December 31:Owned
    
    
    8,603
    
    
    
    10,721
    
    
    
    9,854Securitized
    
    
    38,324
    
    
    
    38,457
    
    
    
    44,640Total managed
    
    
    46,927
    
    
    
    49,178
    
    
    
    54,494
 Note 7) Selected Balance Sheet Information
  June 30,
    
    
    December 31,2005
    
    
    2004Net deferred tax asset
    
    $
    70,827
    
    
    $
    70,260Investment in Fleet Credit Card Services, L.P.
    
    
    32,095
    
    
    
    32,095Investment in preferred securities trust
    
    
    3,093
    
    
    
    3,093Intangible assets
    
    
    3,047
    
    
    
    3,360Other
    
    
    92,731
    
    
    
    82,643Total other assets
    
    $
    201,793
    
    
    $
    191,451
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June 30,
    
    
    December 31,2005
    
    
    2004Amounts due to the securitization trust
    
    $
    79,569
    
    
    $
    4,493Accounts payable and accrued expenses
    
    
    33,511
    
    
    
    33,091Business credit card business rewards
liability
    
    
    18,683
    
    
    
    16,872Business credit card cash back rewards
liability
    
    
    3,430
    
    
    
    2,817Current income tax payable
    
    
    23,317
    
    
    
    16,068Accrued interest payable
    
    
    11,669
    
    
    
    3,310Other
    
    
    32,808
    
    
    
    29,954Total other liabilities
    
    $
    202,987
    
    
    $
    106,605
  Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Decrease in other revenues
    
    $
    (1,050
    )
    
    $
    (900
    )
    
    $
    (1,700
    )
    
    $
    (1,400
    )Decrease in net income
    
    
    (641
    )
    
    
    (545
    )
    
    
    (1,037
    )
    
    
    (850
    )Amount per combined diluted share
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.04
    )
    
    $
    (0.03
    )
 Note 8) Commitments and Contingencies
  14




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##### Table of Contents



Note 9) Capital Stock
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Class A Common Stock
    
    $
    0.113
    
    
    $
    0.095
    
    
    $
    0.208
    
    
    $
    0.158Class B Common Stock
    
    
    0.136
    
    
    
    0.113
    
    
    
    0.250
    
    
    
    0.189
 16




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##### Table of Contents



Note 10) Segment Information
  AdvantaBusiness
    
    VentureCards
    
    Capital
    
    Other(1)
    
    TotalThree months ended June 30, 2005Interest income
    
    $
    26,640
    
    
    $
    1
    
    
    $
    4,204
    
    
    $
    30,845Interest expense
    
    
    7,884
    
    
    
    34
    
    
    
    5,800
    
    
    
    13,718Noninterest revenues
    
    
    74,122
    
    
    
    1,256
    
    
    
    1,926
    
    
    
    77,304Pretax income from continuing
operations
    
    
    22,355
    
    
    
    1,222
    
    
    
    0
    
    
    
    23,577Three months ended June 30, 2004Interest income
    
    $
    23,735
    
    
    $
    0
    
    
    $
    1,499
    
    
    $
    25,234Interest expense
    
    
    8,590
    
    
    
    86
    
    
    
    2,170
    
    
    
    10,846Noninterest revenues
    
    
    73,115
    
    
    
    0
    
    
    
    790
    
    
    
    73,905Pretax income (loss) from
continuing operations
    
    
    17,998
    
    
    
    (95
    )
    
    
    0
    
    
    
    17,903Six months ended June 30, 2005Interest income
    
    $
    55,506
    
    
    $
    1
    
    
    $
    7,517
    
    
    $
    63,024Interest expense
    
    
    16,405
    
    
    
    72
    
    
    
    9,826
    
    
    
    26,303Noninterest revenues
    
    
    144,987
    
    
    
    215
    
    
    
    2,910
    
    
    
    148,112Gain on transfer of consumer credit
card business
    
    
    0
    
    
    
    0
    
    
    
    67,679
    
    
    
    67,679Pretax income from continuing
operations
    
    
    40,772
    
    
    
    143
    
    
    
    67,679
    
    
    
    108,594Total assets at beginning of period
    
    
    994,194
    
    
    
    5,801
    
    
    
    692,929
    
    
    
    1,692,924Total assets at end of period
    
    
    1,232,863
    
    
    
    6,660
    
    
    
    780,234
    
    
    
    2,019,757Six months ended June 30, 2004Interest income
    
    $
    45,584
    
    
    $
    0
    
    
    $
    3,061
    
    
    $
    48,645Interest expense
    
    
    17,713
    
    
    
    174
    
    
    
    4,490
    
    
    
    22,377Noninterest revenues
    
    
    143,377
    
    
    
    32
    
    
    
    1,923
    
    
    
    145,332Pretax income (loss) from continuing
operations
    
    
    34,663
    
    
    
    (1,158
    )
    
    
    0
    
    
    
    33,505Total assets at beginning of period
    
    
    754,953
    
    
    
    10,471
    
    
    
    933,020
    
    
    
    1,698,444Total assets at end of period
    
    
    780,492
    
    
    
    10,518
    
    
    
    724,743
    
    
    
    1,515,753
 
 (1)
    
    Other includes investment and other activities not attributable to
reportable segments. Total assets in the Other segment include assets of
discontinued operations. 17




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Note 11) Gain on Transfer of Consumer Credit Card Business
  Note 12) Income Taxes
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Income tax expense
attributable to:Continuing operations
    
    $
    9,195
    
    
    $
    7,071
    
    
    $
    21,542
    
    
    $
    13,234Discontinued operations
    
    
    2,535
    
    
    
    105
    
    
    
    2,535
    
    
    
    105Total income tax expense
    
    $
    11,730
    
    
    $
    7,176
    
    
    $
    24,077
    
    
    $
    13,339
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Current:Federal
    
    $
    8,307
    
    
    $
    0
    
    
    $
    11,770
    
    
    $
    0State
    
    
    831
    
    
    
    379
    
    
    
    2,008
    
    
    
    899Total current
    
    
    9,138
    
    
    
    379
    
    
    
    13,778
    
    
    
    899Deferred:Federal
    
    
    (18
    )
    
    
    6,488
    
    
    
    7,299
    
    
    
    11,940State
    
    
    75
    
    
    
    204
    
    
    
    465
    
    
    
    395Total deferred
    
    
    57
    
    
    
    6,692
    
    
    
    7,764
    
    
    
    12,335Income tax expense
attributable
to continuing operations
    
    $
    9,195
    
    
    $
    7,071
    
    
    $
    21,542
    
    
    $
    13,234
 18




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Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Statutory federal income tax
    
    $
    8,252
    
    
    $
    6,266
    
    
    $
    38,008
    
    
    $
    11,727State income taxes, net of
federal income tax benefit
    
    
    589
    
    
    
    379
    
    
    
    1,608
    
    
    
    841Gain on transfer of consumer
credit card business
    
    
    0
    
    
    
    0
    
    
    
    (12,347
    )
    
    
    0Change in valuation allowance
    
    
    0
    
    
    
    0
    
    
    
    (6,393
    )
    
    
    0Nondeductible expenses
    
    
    206
    
    
    
    165
    
    
    
    487
    
    
    
    333Compensation limitation
    
    
    110
    
    
    
    126
    
    
    
    220
    
    
    
    175Other
    
    
    38
    
    
    
    135
    
    
    
    (41
    )
    
    
    158Income tax expense attributable
to continuing operations
    
    $
    9,195
    
    
    $
    7,071
    
    
    $
    21,542
    
    
    $
    13,234
   June 30,
    
    December 31,2005
    
    2004Deferred tax assets
    
    $
    85,815
    
    
    $
    81,947Deferred tax
liabilities
    
    
    (14,988
    )
    
    
    (11,687
    )Net deferred tax asset
    
    $
    70,827
    
    
    $
    70,260
  June 30,
    
    December 31,2005
    
    2004Net operating loss carryforwards
    
    $
    11,596
    
    
    $
    156,381Valuation allowance
    
    
    0
    
    
    
    (145,745
    )Alternative minimum tax credit carryforwards
    
    
    22,219
    
    
    
    15,187Allowance for receivable losses
    
    
    20,823
    
    
    
    21,618Deferred origination costs, net of deferred fees
    
    
    (8,771
    )
    
    
    (5,233
    )Unrealized venture capital investment losses
    
    
    8,100
    
    
    
    9,304Business credit card rewards
    
    
    7,739
    
    
    
    6,891Deferred and incentive compensation
    
    
    3,437
    
    
    
    6,925Securitization income
    
    
    (2,624
    )
    
    
    (2,624
    )Capital loss carryforwards
    
    
    1,966
    
    
    
    1,399Other
    
    
    6,342
    
    
    
    6,157Net deferred tax asset
    
    $
    70,827
    
    
    $
    70,260
  19




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##### Table of Contents



Note 13) Discontinued Operations
  Three and Six Months EndedJune 30, 2005
    
    June 30, 2004Advanta
    
    
    
    
    
    AdvantaAdvanta
    
    Leasing
    
    Advanta
    
    LeasingMortgage
    
    Services
    
    Mortgage
    
    ServicesPretax gain (loss) on
discontinuance of mortgage
and leasing businesses
    
    $
    4,500
    
    
    $
    2,000
    
    
    $
    (2,770
    )
    
    $
    3,035Income tax (expense) benefit
    
    
    (1,755
    )
    
    
    (780
    )
    
    
    1,094
    
    
    
    (1,199
    )Gain (loss) on
discontinuance of mortgage
and leasing businesses, net
of tax
    
    $
    2,745
    
    
    $
    1,220
    
    
    $
    (1,676
    )
    
    $
    1,836
  20




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##### Table of Contents



Three Months Ended June 30,
    
    Six Months Ended June 30,Advanta
    
    Advanta Leasing
    
    Advanta
    
    Advanta LeasingMortgage
    
    Services
    
    Mortgage
    
    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
    
    $
    0.10
    
    
    $
    (0.07
    )
    
    $
    0.05
    
    
    $
    0.07
    
    
    $
    0.11
    
    
    $
    (0.07
    )
    
    $
    0.05
    
    
    $
    0.07Class B
    
    
    0.10
    
    
    
    (0.07
    )
    
    
    0.05
    
    
    
    0.07
    
    
    
    0.11
    
    
    
    (0.07
    )
    
    
    0.05
    
    
    
    0.07Combined
    
    
    0.10
    
    
    
    (0.07
    )
    
    
    0.05
    
    
    
    0.07
    
    
    
    0.11
    
    
    
    (0.07
    )
    
    
    0.05
    
    
    
    0.07Diluted gain
(loss),
net, on
discontinuance
of mortgage
and leasing
businesses, net
of tax,
per common shareClass A
    
    $
    0.10
    
    
    $
    (0.06
    )
    
    $
    0.04
    
    
    $
    0.07
    
    
    $
    0.10
    
    
    $
    (0.06
    )
    
    $
    0.04
    
    
    $
    0.07Class B
    
    
    0.10
    
    
    
    (0.06
    )
    
    
    0.04
    
    
    
    0.07
    
    
    
    0.10
    
    
    
    (0.06
    )
    
    
    0.04
    
    
    
    0.07Combined
    
    
    0.10
    
    
    
    (0.06
    )
    
    
    0.04
    
    
    
    0.07
    
    
    
    0.10
    
    
    
    (0.06
    )
    
    
    0.04
    
    
    
    0.07
  June 30,
    
    December 31,2005
    
    2004Lease receivables, net
    
    $
    5,672
    
    
    $
    15,577Other assets
    
    
    702
    
    
    
    1,093Liabilities
    
    
    (3,879
    )
    
    
    (4,975
    )Assets of discontinued operations, net
    
    $
    2,495
    
    
    $
    11,695
  21




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##### Table of Contents



Note 14) Calculation of Earnings Per Share
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Income from continuing operations
    
    $
    14,382
    
    
    $
    10,832
    
    
    $
    87,052
    
    
    $
    20,271Less: Preferred A dividends
    
    
    0
    
    
    
    0
    
    
    
    (141
    )
    
    
    (141
    )Income from continuing operations
available to common stockholders
    
    
    14,382
    
    
    
    10,832
    
    
    
    86,911
    
    
    
    20,130Gain, net, on discontinuance
of mortgage and leasing businesses,
net of tax
    
    
    3,965
    
    
    
    160
    
    
    
    3,965
    
    
    
    160Net income available to common
stockholders
    
    
    18,347
    
    
    
    10,992
    
    
    
    90,876
    
    
    
    20,290Less: Class A dividends declared
    
    
    (1,014
    )
    
    
    (856
    )
    
    
    (1,844
    )
    
    
    (1,407
    )Less: Class B dividends declared
    
    
    (2,535
    )
    
    
    (2,028
    )
    
    
    (4,633
    )
    
    
    (3,371
    )Undistributed net income
    
    $
    14,798
    
    
    $
    8,108
    
    
    $
    84,399
    
    
    $
    15,512Basic income from continuing
operations per common shareClass A
    
    $
    0.53
    
    
    $
    0.42
    
    
    $
    3.32
    
    
    $
    0.78Class B
    
    
    0.56
    
    
    
    0.44
    
    
    
    3.38
    
    
    
    0.83Combined(1)
    
    
    0.55
    
    
    
    0.43
    
    
    
    3.36
    
    
    
    0.82Diluted income from continuing
operations per common shareClass A
    
    $
    0.49
    
    
    $
    0.39
    
    
    $
    3.02
    
    
    $
    0.73Class B
    
    
    0.50
    
    
    
    0.40
    
    
    
    3.04
    
    
    
    0.76Combined(1)
    
    
    0.50
    
    
    
    0.40
    
    
    
    3.03
    
    
    
    0.75Basic net income per common shareClass A
    
    $
    0.68
    
    
    $
    0.42
    
    
    $
    3.47
    
    
    $
    0.79Class B
    
    
    0.71
    
    
    
    0.45
    
    
    
    3.53
    
    
    
    0.84Combined(1)
    
    
    0.70
    
    
    
    0.44
    
    
    
    3.51
    
    
    
    0.82Diluted net income per common shareClass A
    
    $
    0.63
    
    
    $
    0.40
    
    
    $
    3.15
    
    
    $
    0.74Class B
    
    
    0.64
    
    
    
    0.41
    
    
    
    3.18
    
    
    
    0.76Combined(1)
    
    
    0.64
    
    
    
    0.41
    
    
    
    3.17
    
    
    
    0.76Basic weighted average common shares
outstandingClass A
    
    
    8,821
    
    
    
    8,794
    
    
    
    8,816
    
    
    
    8,790Class B
    
    
    17,433
    
    
    
    16,172
    
    
    
    17,071
    
    
    
    15,891Combined
    
    
    26,254
    
    
    
    24,966
    
    
    
    25,887
    
    
    
    24,681Dilutive effect ofOptions Class B
    
    
    1,885
    
    
    
    1,339
    
    
    
    1,881
    
    
    
    1,282Restricted stock Class B
    
    
    695
    
    
    
    818
    
    
    
    891
    
    
    
    873Diluted weighted average common
shares outstandingClass A
    
    
    8,821
    
    
    
    8,794
    
    
    
    8,816
    
    
    
    8,790Class B
    
    
    20,013
    
    
    
    18,329
    
    
    
    19,843
    
    
    
    18,046Combined
    
    
    28,834
    
    
    
    27,123
    
    
    
    28,659
    
    
    
    26,836Antidilutive sharesOptions Class B
    
    
    2
    
    
    
    239
    
    
    
    25
    
    
    
    244
 
 (1)
    
    Combined represents income available to common stockholders divided by the combined
total of Class A and Class B weighted average common shares outstanding. 22




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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
    
    Six Months Ended($ in thousands)
    
    June 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Pretax income (loss):Advanta Business Cards
    
    $
    22,355
    
    
    $
    17,998
    
    
    $
    40,772
    
    
    $
    34,663Venture Capital
    
    
    1,222
    
    
    
    (95
    )
    
    
    143
    
    
    
    (1,158
    )Other(1)
    
    
    0
    
    
    
    0
    
    
    
    67,679
    
    
    
    0Total pretax income
    
    
    23,577
    
    
    
    17,903
    
    
    
    108,594
    
    
    
    33,505Income tax expense
    
    
    9,195
    
    
    
    7,071
    
    
    
    21,542
    
    
    
    13,234Income from continuing
operations
    
    $
    14,382
    
    
    $
    10,832
    
    
    $
    87,052
    
    
    $
    20,271Per combined common share,
assuming dilution
    
    $
    0.50
    
    
    $
    0.40
    
    
    $
    3.03
    
    
    $
    0.75
 
 (1)
    
    Other for the six months ended June 30, 2005 includes a $67.7 million pretax gain on
transfer of consumer credit card business.    23




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  ADVANTA BUSINESS CARDS
  Three Months Ended
    
    Six Months Ended($ in thousands)
    
    June 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Average owned receivables
    
    $
    727,253
    
    
    $
    583,581
    
    
    $
    753,071
    
    
    $
    567,617Average securitized receivables
    
    $
    2,707,045
    
    
    $
    2,532,885
    
    
    $
    2,628,329
    
    
    $
    2,524,208Cardholder transaction volume
    
    $
    2,446,510
    
    
    $
    1,994,647
    
    
    $
    4,623,319
    
    
    $
    3,916,580New account originations
    
    
    70,044
    
    
    
    26,187
    
    
    
    114,825
    
    
    
    65,322Average number of active accounts(1)
    
    
    589,751
    
    
    
    585,519
    
    
    
    583,950
    
    
    
    588,063Ending number of accounts at June 30
    
    
    822,773
    
    
    
    780,415
    
    
    
    822,773
    
    
    
    780,415
 
 (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 six months ended June 30.  24




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##### Table of Contents



Projected Estimate at December 31, 2005Actual atDecember 31,
    
    Low End
    
    Percentage
    
    High End of
    
    Percentage($ in thousands)
    
    2004
    
    of Range
    
    Increase
    
    Range
    
    IncreaseOwned receivables
    
    $
    730,483
    
    
    $
    898,500
    
    
    
    23.0
    %
    
    $
    971,500
    
    
    
    33.0
    %Securitized receivables
    
    
    2,564,147
    
    
    
    2,725,500
    
    
    
    6.3
    %
    
    
    2,982,500
    
    
    
    16.3
    %Managed receivables
    
    $
    3,294,630
    
    
    $
    3,624,000
    
    
    
    10.0
    %
    
    $
    3,954,000
    
    
    
    20.0
    %
  Three Months Ended
    
    Six Months Ended($ in thousands)
    
    June 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net interest income on owned
interest-earning assets
    
    $
    18,756
    
    
    $
    15,145
    
    
    $
    39,101
    
    
    $
    27,871Noninterest revenues
    
    
    74,122
    
    
    
    73,115
    
    
    
    144,987
    
    
    
    143,377Provision for credit losses
    
    
    (8,603
    )
    
    
    (10,654
    )
    
    
    (19,022
    )
    
    
    (20,067
    )Operating expenses
    
    
    (61,920
    )
    
    
    (59,608
    )
    
    
    (124,294
    )
    
    
    (116,518
    )Pretax income
    
    $
    22,355
    
    
    $
    17,998
    
    
    $
    40,772
    
    
    $
    34,663
    25




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##### Table of Contents



VENTURE CAPITAL
  Three Months Ended
    
    Six Months Ended($ in thousands)
    
    June 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net interest expense
    
    $
    (33
    )
    
    $
    (86
    )
    
    $
    (71
    )
    
    $
    (174
    )Realized losses
    
    
    (372
    )
    
    
    0
    
    
    
    (755
    )
    
    
    0Unrealized gains, net
    
    
    1,598
    
    
    
    0
    
    
    
    940
    
    
    
    32Noninterest revenues
    
    
    30
    
    
    
    0
    
    
    
    30
    
    
    
    0Operating expenses
    
    
    (1
    )
    
    
    (9
    )
    
    
    (1
    )
    
    
    (1,016
    )Pretax income (loss)
    
    $
    1,222
    
    
    $
    (95
    )
    
    $
    143
    
    
    $
    (1,158
    )
  INTEREST INCOME AND EXPENSE
   26




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27




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##### Table of Contents



INTEREST RATE ANALYSIS AND AVERAGE BALANCES
 Three Months Ended June 30,2005
    
    2004Average
    
    
    
    
    
    Average
    
    Average
    
    
    
    
    
    Average($ in thousands)
    
    Balance
    
    Interest
    
    Rate
    
    Balance
    
    Interest
    
    RateInterest-earning assets:Owned receivables:Business credit cards(1)
    
    $
    727,253
    
    
    $
    23,074
    
    
    
    12.73
    %
    
    $
    583,581
    
    
    $
    19,459
    
    
    
    13.41
    %Other receivables
    
    
    9,047
    
    
    
    124
    
    
    
    5.50
    
    
    
    11,073
    
    
    
    124
    
    
    
    4.51Total receivables
    
    
    736,300
    
    
    
    23,198
    
    
    
    12.64
    
    
    
    594,654
    
    
    
    19,583
    
    
    
    13.25Investments(2)
    
    
    556,340
    
    
    
    4,085
    
    
    
    2.91
    
    
    
    438,478
    
    
    
    1,378
    
    
    
    1.25Retained interests in
securitizations
    
    
    173,997
    
    
    
    3,566
    
    
    
    8.20
    
    
    
    149,998
    
    
    
    4,276
    
    
    
    11.40Interest-earning assets
of discontinued
operations
    
    
    9,233
    
    
    
    159
    
    
    
    6.87
    
    
    
    45,629
    
    
    
    1,142
    
    
    
    10.01Total interest-earning
assets(3)
    
    
    1,475,870
    
    
    $
    31,008
    
    
    
    8.41
    %
    
    
    1,228,759
    
    
    $
    26,379
    
    
    
    8.62
    %Noninterest-earning assets
    
    
    454,174
    
    
    
    
    
    
    
    
    
    
    
    280,109Total assets
    
    $
    1,930,044
    
    
    
    
    
    
    
    
    
    
    $
    1,508,868Interest-bearing liabilities:Deposits
    
    $
    919,543
    
    
    $
    7,731
    
    
    
    3.37
    %
    
    $
    639,793
    
    
    $
    4,526
    
    
    
    2.85
    %Debt
    
    
    246,990
    
    
    
    3,758
    
    
    
    6.10
    
    
    
    286,473
    
    
    
    4,389
    
    
    
    6.16Subordinated debt
payable to preferred
securities trust
    
    
    103,093
    
    
    
    2,290
    
    
    
    8.88
    
    
    
    103,093
    
    
    
    2,290
    
    
    
    8.88Other borrowings
    
    
    0
    
    
    
    0
    
    
    
    0.00
    
    
    
    324
    
    
    
    1
    
    
    
    1.30Total interest-bearing
liabilities(4)
    
    
    1,269,626
    
    
    $
    13,779
    
    
    
    4.35
    %
    
    
    1,029,683
    
    
    $
    11,206
    
    
    
    4.37
    %Noninterest-bearing
liabilities
    
    
    177,314
    
    
    
    
    
    
    
    
    
    
    
    118,143Total liabilities
    
    
    1,446,940
    
    
    
    
    
    
    
    
    
    
    
    1,147,826Stockholders equity
    
    
    483,104
    
    
    
    
    
    
    
    
    
    
    
    361,042Total liabilities and
stockholders equity
    
    $
    1,930,044
    
    
    
    
    
    
    
    
    
    
    $
    1,508,868Net interest spread
    
    
    
    
    
    
    
    
    
    
    4.06
    %
    
    
    
    
    
    
    
    
    
    
    4.25
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    4.68
    %
    
    
    
    
    
    
    
    
    
    
    4.97
    %
 
 (1)
    
    Interest income includes late fees for owned business credit card receivables of $1.4
million for the three months ended June 30, 2005 and 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. 28




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Six Months Ended June 30,2005
    
    2004Average
    
    
    
    
    
    Average
    
    Average
    
    
    
    
    
    Average($ in thousands)
    
    Balance
    
    Interest
    
    Rate
    
    Balance
    
    Interest
    
    RateInterest-earning assets:Owned receivables:Business credit cards(1)
    
    $
    753,071
    
    
    $
    47,919
    
    
    
    12.83
    %
    
    $
    567,617
    
    
    $
    36,706
    
    
    
    13.00
    %Other receivables
    
    
    9,500
    
    
    
    253
    
    
    
    5.37
    
    
    
    12,481
    
    
    

    270
    
    
    
    4.36Total receivables
    
    
    762,571
    
    
    
    48,172
    
    
    
    12.74
    
    
    
    580,098
    
    
    
    36,976
    
    
    
    12.82Investments(2)
    
    
    536,304
    
    
    
    7,273
    
    
    
    2.70
    
    
    
    468,020
    
    
    
    2,797
    
    
    
    1.19Retained interests in
securitizations
    
    
    168,393
    
    
    
    7,587
    
    
    
    9.01
    
    
    
    149,998
    
    
    
    8,878
    
    
    
    11.84Interest-earning assets
of discontinued
operations
    
    
    11,979
    
    
    
    517
    
    
    
    8.63
    
    
    
    54,338
    
    
    
    2,668
    
    
    
    9.82Total interest-earning
assets(3)
    
    
    1,479,247
    
    
    $
    63,549
    
    
    
    8.64
    %
    
    
    1,252,454
    
    
    $
    51,319
    
    
    
    8.22
    %Noninterest-earning assets
    
    
    366,777
    
    
    
    
    
    
    
    
    
    
    
    314,715Total assets
    
    $
    1,846,024
    
    
    
    
    
    
    
    
    
    
    $
    1,567,169Interest-bearing liabilities:Deposits
    
    $
    880,879
    
    
    $
    14,264
    
    
    
    3.27
    %
    
    $
    653,032
    
    
    $
    9,208
    
    
    
    2.84
    %Debt
    
    
    253,648
    
    
    
    7,656
    
    
    
    6.09
    
    
    
    295,161
    
    
    
    9,021
    
    
    
    6.15Subordinated debt
payable to preferred
securities trust
    
    
    103,093
    
    
    
    4,579
    
    
    
    8.88
    
    
    
    103,093
    
    
    
    4,579
    
    
    
    8.88Other borrowings
    
    
    0
    
    
    
    0
    
    
    
    0.00
    
    
    
    162
    
    
    
    1
    
    
    
    1.30Total interest-bearing
liabilities(4)
    
    
    1,237,620
    
    
    $
    26,499
    
    
    
    4.31
    %
    
    
    1,051,448
    
    
    $
    22,809
    
    
    
    4.36
    %Noninterest-bearing
liabilities
    
    
    152,647
    
    
    
    
    
    
    
    
    
    
    
    161,544Total liabilities
    
    
    1,390,267
    
    
    
    
    
    
    
    
    
    
    
    1,212,992Stockholders equity
    
    
    455,757
    
    
    
    
    
    
    
    
    
    
    
    354,177Total liabilities and
stockholders equity
    
    $
    1,864,024
    
    
    
    
    
    
    
    
    
    
    $
    1,567,169Net interest spread
    
    
    
    
    
    
    
    
    
    
    4.33
    %
    
    
    
    
    
    
    
    
    
    
    3.86
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    5.05
    %
    
    
    
    
    
    
    
    
    
    
    4.58
    %
 
 (1)
    
    Interest income includes late fees for owned business credit cards receivables of $3.1
million for the six months ended June 30, 2005 and $2.8 million for the six months
ended June 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. 29




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##### Table of Contents



PROVISION AND ALLOWANCE FOR RECEIVABLE LOSSES
      30




---



##### Table of Contents



June 30,
    
    December 31,
    
    June 30,($ in thousands)
    
    2005
    
    2004
    
    2004CONSOLIDATED  OWNEDAllowance for receivable losses
    
    $
    50,275
    
    
    $
    50,478
    
    
    $
    49,331Receivables 30 days or more delinquent
    
    
    26,167
    
    
    
    28,369
    
    
    
    25,605Receivables 90 days or more delinquent
    
    
    12,880
    
    
    
    13,638
    
    
    
    13,421Nonaccrual receivables
    
    
    12,286
    
    
    
    11,393
    
    
    
    10,193Accruing receivables past due 90 days or more
    
    
    11,067
    
    
    
    12,233
    
    
    
    11,677As a percentage of gross receivables:Allowance for receivable losses
    
    
    6.00
    %
    
    
    6.81
    %
    
    
    8.80
    %Receivables 30 days or more delinquent
    
    
    3.11
    
    
    
    3.83
    
    
    
    4.57Receivables 90 days or more delinquent
    
    
    1.54
    
    
    
    1.84
    
    
    
    2.39Nonaccrual receivables
    
    
    1.47
    
    
    
    1.54
    
    
    
    1.82Accruing receivables past due 90 days or more
    
    
    1.31
    
    
    
    1.65
    
    
    
    2.08Net principal charge-offs for the year-to-date
period ended June 30 and December 31
    
    $
    19,026
    
    
    $
    39,943
    
    
    $
    18,766Net principal charge-offs for the three months
ended June 30 and December 31
    
    
    8,607
    
    
    
    10,729
    
    
    
    9,857As a percentage of average gross receivables
(annualized):Net principal charge-offs for the year-to-date
period ended June 30 and December 31
    
    
    4.99
    %
    
    
    6.26
    %
    
    
    6.47
    %Net principal charge-offs for the three months
ended June 30 and December 31
    
    
    4.68
    
    
    
    5.86
    
    
    
    6.63BUSINESS CREDIT CARDS  OWNEDAllowance for receivable losses
    
    $
    48,966
    
    
    $
    49,190
    
    
    $
    47,981Receivables 30 days or more delinquent
    
    
    26,085
    
    
    
    28,287
    
    
    
    25,493Receivables 90 days or more delinquent
    
    
    12,798
    
    
    
    13,638
    
    
    
    13,309Nonaccrual receivables
    
    
    12,286
    
    
    
    11,393
    
    
    
    10,081Accruing receivables past due 90 days or more
    
    
    10,985
    
    
    
    12,233
    
    
    
    11,677As a percentage of gross receivables:Allowance for receivable losses
    
    
    5.91
    %
    
    
    6.73
    %
    
    
    8.73
    %Receivables 30 days or more delinquent
    
    
    3.15
    
    
    
    3.87
    
    
    
    4.64Receivables 90 days or more delinquent
    
    
    1.54
    
    
    
    1.87
    
    
    
    2.42Nonaccrual receivables
    
    
    1.48
    
    
    
    1.56
    
    
    
    1.83Accruing receivables past due 90 days or more
    
    
    1.33
    
    
    
    1.67
    
    
    
    2.12Net principal charge-offs for the year-to-date
period ended June 30 and December 31
    
    $
    19,022
    
    
    $
    39,936
    
    
    $
    18,767Net principal charge-offs for the three months
ended June 30 and December 31
    
    
    8,603
    
    
    
    10,721
    
    
    
    9,854As a percentage of average gross receivables
(annualized):Net principal charge-offs for the year-to-date
period ended June 30 and December 31
    
    
    5.05
    %
    
    
    6.38
    %
    
    
    6.61
    %Net principal charge-offs for the three months
ended June 30 and December 31
    
    
    4.73
    
    
    
    5.94
    
    
    
    6.75
 31




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##### Table of Contents



SECURITIZATION INCOME
  ($ in thousands)
    
    2005
    
    2004Three months ended June 30
    
    $
    30,066
    
    
    $
    32,627Six months ended June 30
    
    
    60,462
    
    
    
    65,167
  Managed Receivable Data
  32




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##### Table of Contents



INCOME STATEMENT MEASURES AND STATISTICS
 
 AdvantaAdvanta
    
    
    
    
    
    
    
    
    
    BusinessBusiness
    
    GAAP
    
    Securitization
    
    Cards
    
    Managed($ in thousands)
    
    Cards GAAP
    
    Ratio(2)
    
    Adjustments
    
    Managed
    
    Ratio(2)Three Months Ended June 30, 2005:Interest income
    
    $
    26,640
    
    
    
    11.82
    %
    
    $
    97,056
    
    
    $
    123,696
    
    
    
    14.41
    %Interest expense
    
    
    7,884
    
    
    
    3.50
    
    
    
    24,105
    
    
    
    31,989
    
    
    
    3.73Net interest income
    
    
    18,756
    
    
    
    8.32
    
    
    
    72,951
    
    
    
    91,707
    
    
    
    10.68Noninterest revenues
    
    
    74,122
    
    
    
    32.90
    
    
    
    (34,627
    )
    
    
    39,495
    
    
    
    4.60Provision for credit losses
    
    
    8,603
    
    
    
    3.82
    
    
    
    38,324
    (3)
    
    
    46,927
    
    
    
    5.47Risk-adjusted revenues(1)
    
    
    84,275
    
    
    
    37.40
    
    
    
    0
    
    
    
    84,275
    
    
    
    9.82Average
business credit card interest-earning assets
    
    
    901,250
    
    
    
    
    
    
    
    2,533,048
    
    
    
    3,434,298Average
business credit card receivables
    
    
    727,253
    
    
    
    
    
    
    
    2,707,045
    
    
    
    3,434,298Net principal charge-offs
    
    
    8,603
    
    
    
    4.73
    
    
    
    38,324
    
    
    
    46,927
    
    
    
    5.47Three Months Ended June 30, 2004:Interest income
    
    $
    23,735
    
    
    
    12.94
    %
    
    $
    92,046
    
    
    $
    115,781
    
    
    
    14.86
    %Interest expense
    
    
    8,590
    
    
    
    4.68
    
    
    
    11,373
    
    
    
    19,963
    
    
    
    2.56Net interest income
    
    
    15,145
    
    
    
    8.26
    
    
    
    80,673
    
    
    
    95,818
    
    
    
    12.30Noninterest revenues
    
    
    73,115
    
    
    
    39.87
    
    
    
    (36,033
    )
    
    
    37,082
    
    
    
    4.76Provision for credit losses
    
    
    10,654
    
    
    
    5.81
    
    
    
    44,640
    (3)
    
    
    55,294
    
    
    
    7.10Risk-adjusted revenues(1)
    
    
    77,606
    
    
    
    42.32
    
    
    
    0
    
    
    
    77,606
    
    
    
    9.96Average
business credit card interest-earning assets
    
    
    733,579
    
    
    
    
    
    
    
    2,382,887
    
    
    
    3,116,466Average business credit card
receivables
    
    
    583,581
    
    
    
    
    
    
    
    2,532,885
    
    
    
    3,116,466Net principal charge-offs
    
    
    9,854
    
    
    
    6.75
    
    
    
    44,640
    
    
    
    54,494
    
    
    
    6.99
 (1)
    
    Risk-adjusted revenues represent net interest income and noninterest revenues, less
provision for credit losses.(2)
    
    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.(3)
    
    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.
 33




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##### Table of Contents



INCOME STATEMENT MEASURES AND STATISTICS
 
 AdvantaAdvanta
    
    
    
    
    
    
    
    
    
    BusinessBusiness
    
    GAAP
    
    Securitization
    
    Cards
    
    Managed($ in thousands)
    
    Cards GAAP
    
    Ratio(2)
    
    Adjustments
    
    Managed
    
    Ratio(2)Six Months Ended June 30, 2005:Interest income
    
    $
    55,506
    
    
    
    12.05
    %
    
    $
    187,798
    
    
    $
    243,304
    
    
    
    14.39
    %Interest expense
    
    
    16,405
    
    
    
    3.56
    
    
    
    43,979
    
    
    
    60,384
    
    
    
    3.57Net interest income
    
    
    39,101
    
    
    
    8.49
    
    
    
    143,819
    
    
    
    182,920
    
    
    
    10.82Noninterest revenues
    
    
    144,987
    
    
    
    31.47
    
    
    
    (70,225
    )
    
    
    74,762
    
    
    
    4.42Provision for credit losses
    
    
    19,022
    
    
    
    4.13
    
    
    
    73,594
    (3)
    
    
    92,616
    
    
    
    5.48Risk-adjusted revenues(1)
    
    
    165,066
    
    
    
    35.83
    
    
    
    0
    
    
    
    165,066
    
    
    
    9.76Average business credit card
interest-earning assets
    
    
    921,464
    
    
    
    
    
    
    
    2,459,936
    
    
    
    3,381,400Average business credit card
receivables
    
    
    753,071
    
    
    
    
    
    
    
    2,628,329
    
    
    
    3,381,400Net principal charge-offs
    
    
    19,022
    
    
    
    5.05
    
    
    
    73,594
    
    
    
    92,616
    
    
    
    5.48Six Months Ended June 30, 2004:Interest income
    
    $
    45,584
    
    
    
    12.70
    %
    
    $
    185,153
    
    
    $
    230,737
    
    
    
    14.93
    %Interest expense
    
    
    17,713
    
    
    
    4.93
    
    
    
    22,707
    
    
    
    40,420
    
    
    
    2.62Net interest income
    
    
    27,871
    
    
    
    7.77
    
    
    
    162,446
    
    
    
    190,317
    
    
    
    12.31Noninterest revenues
    
    
    143,377
    
    
    
    39.96
    
    
    
    (71,619
    )
    
    
    71,758
    
    
    
    4.64Provision for credit losses
    
    
    20,067
    
    
    
    5.60
    
    
    
    90,827
    (3)
    
    
    110,894
    
    
    
    7.17Risk-adjusted revenues(1)
    
    
    151,181
    
    
    
    42.13
    
    
    
    0
    
    
    
    151,181
    
    
    
    9.78Average business credit card
interest-earning assets
    
    
    717,615
    
    
    
    
    
    
    
    2,374,210
    
    
    
    3,091,825Average business credit card
receivables
    
    
    567,617
    
    
    
    
    
    
    
    2,524,208
    
    
    
    3,091,825Net principal charge-offs
    
    
    18,767
    
    
    
    6.61
    
    
    
    90,827
    
    
    
    109,594
    
    
    
    7.09
 (1)
    
    Risk-adjusted revenues represent net interest income and noninterest revenues, less
provision for credit losses.
 (2)
    
    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.
 (3)
    
    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.
 34




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##### Table of Contents



BALANCE SHEET MEASURES AND STATISTICS
 
 Advanta
    
    
    
    
    
    
    
    
    
    AdvantaBusiness
    
    GAAP
    
    Securitization
    
    Business
    
    Managed($ in thousands)
    
    Cards GAAP
    
    Ratio(1)
    
    Adjustments
    
    Cards Managed
    
    Ratio(1)As of June 30, 2005Number of business
credit card accounts
    
    
    822,773
    
    
    
    
    
    
    
    N/A
    
    
    
    822,773Ending business credit
card receivables
    
    $
    828,724
    
    
    
    
    
    
    $
    2,685,504
    
    
    $
    3,514,228Receivables 30 days or
more delinquent
    
    
    26,085
    
    
    
    3.15
    %
    
    
    100,283
    
    
    
    126,368
    
    
    
    3.60
    %Receivables 90 days or
more delinquent
    
    
    12,798
    
    
    
    1.54
    
    
    
    49,583
    
    
    
    62,381
    
    
    
    1.78Nonaccrual receivables
    
    
    12,286
    
    
    
    1.48
    
    
    
    47,612
    
    
    
    59,898
    
    
    
    1.70Accruing receivables past
due 90 days or more
    
    
    10,985
    
    
    
    1.33
    
    
    
    42,500
    
    
    
    53,485
    
    
    
    1.52As 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 June 30, 2004Number of business
credit card accounts
    
    
    780,415
    
    
    
    
    
    
    
    N/A
    
    
    
    780,415Ending business credit
card receivables
    
    $
    549,862
    
    
    
    
    
    
    $
    2,546,777
    
    
    $
    3,096,639Receivables 30 days or
more delinquent
    
    
    25,493
    
    
    
    4.64
    %
    
    
    123,123
    
    
    
    148,616
    
    
    
    4.80
    %Receivables 90 days or
more delinquent
    
    
    13,309
    
    
    
    2.42
    
    
    
    63,980
    
    
    
    77,289
    
    
    
    2.50Nonaccrual receivables
    
    
    10,081
    
    
    
    1.83
    
    
    
    48,966
    
    
    
    59,047
    
    
    
    1.91Accruing receivables past
due 90 days or more
    
    
    11,677
    
    
    
    2.12
    
    
    
    56,111
    
    
    
    67,788
    
    
    
    2.19
 (1)
    
    Ratios are as a percentage of ending business credit card receivables.
 SERVICING REVENUES
  ($ in thousands)
    
    2005
    
    2004Three months ended June 30
    
    $
    12,819
    
    
    $
    12,499Six months ended June 30
    
    
    25,418
    
    
    
    24,632
  35




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##### Table of Contents



OTHER REVENUES
 Three Months Ended
    
    Six Months Ended($ in thousands)
    
    June 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Interchange income
    
    $
    40,738
    
    
    $
    35,513
    
    
    $
    76,434
    
    
    $
    67,088Business credit card cash back rewards
    
    
    (7,198
    )
    
    
    (5,933
    )
    
    
    (13,242
    )
    
    
    (11,684
    )Business credit card business rewards
    
    
    (5,582
    )
    
    
    (4,295
    )
    
    
    (10,333
    )
    
    
    (7,765
    )Balance transfer fees
    
    
    1,616
    
    
    
    962
    
    
    
    2,645
    
    
    
    2,389Investment securities gains, net
    
    
    1,225
    
    
    
    0
    
    
    
    185
    
    
    
    49Earnings on investment in Fleet
Credit Card Services, L.P.
    
    
    1,033
    
    
    
    400
    
    
    
    1,033
    
    
    
    1,000Cash usage fees
    
    
    787
    
    
    
    805
    
    
    
    1,658
    
    
    
    1,568Other business credit card fees
    
    
    651
    
    
    
    688
    
    
    
    1,442
    
    
    
    1,291Other, net
    
    
    1,149
    
    
    
    639
    
    
    
    2,410
    
    
    
    1,597Total other revenues, net
    
    $
    34,419
    
    
    $
    28,779
    
    
    $
    62,232
    
    
    $
    55,533
     
 *
    
    MasterCard® is a federally registered service mark of MasterCard International, Inc.
 36




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##### Table of Contents



GAIN ON TRANSFER OF CONSUMER CREDIT CARD BUSINESS
  OPERATING EXPENSES
 Three Months Ended
    
    Six Months Ended($ in thousands)
    
    June 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Salaries and employee benefits
    
    $
    26,301
    
    
    $
    23,276
    
    
    $
    52,155
    
    
    $
    45,707Amortization of deferred
origination costs, net
    
    
    9,940
    
    
    
    8,796
    
    
    
    17,887
    
    
    
    18,133External processing
    
    
    5,483
    
    
    
    5,137
    
    
    
    10,631
    
    
    
    10,356Marketing
    
    
    5,157
    
    
    
    6,209
    
    
    
    12,097
    
    
    
    9,470Professional fees
    
    
    2,853
    
    
    
    3,675
    
    
    
    6,502
    
    
    
    7,923Equipment
    
    
    2,697
    
    
    
    2,738
    
    
    
    5,513
    
    
    
    5,726Occupancy
    
    
    2,007
    
    
    
    1,996
    
    
    
    3,884
    
    
    
    4,577Credit
    
    
    1,408
    
    
    
    1,481
    
    
    
    2,681
    
    
    
    3,072Travel and entertainment
    
    
    871
    
    
    
    956
    
    
    
    2,299
    
    
    
    1,709Other
    
    
    5,534
    
    
    
    5,632
    
    
    
    11,222
    
    
    
    11,417Total operating expenses
    
    $
    62,251
    
    
    $
    59,896
    
    
    $
    124,871
    
    
    $
    118,090
  37




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##### Table of Contents



LITIGATION CONTINGENCIES
  38




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##### Table of Contents



INCOME TAXES
  Three Months Ended
    
    Six Months Ended($ in thousands)
    
    June 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Income tax expense
    
    $
    9,195
    
    
    $
    7,071
    
    
    $
    21,542
    
    
    $
    13,234Effective tax rate
    
    
    39.0
    %
    
    
    39.5
    %
    
    
    19.8
    %
    
    
    39.5
    %
   DISCONTINUED OPERATIONS
  39




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OFF-BALANCE SHEET ARRANGEMENTS
   Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,($ in thousands)
    
    2005
    
    2004
    
    2005
    
    2004Average securitized receivables
    
    $
    2,707,045
    
    
    $
    2,532,885
    
    
    $
    2,628,329
    
    
    $
    2,524,208Securitization income
    
    
    30,066
    
    
    
    32,627
    
    
    
    60,462
    
    
    
    65,167Discount accretion
    
    
    3,566
    
    
    
    4,276
    
    
    
    7,587
    
    
    
    8,878Interchange income
    
    
    32,390
    
    
    
    28,801
    
    
    
    59,721
    
    
    
    54,745Servicing revenues
    
    
    12,819
    
    
    
    12,499
    
    
    
    25,418
    
    
    
    24,632Proceeds from new securitizations
    
    
    390,675
    
    
    
    0
    
    
    
    390,675
    
    
    
    90,000Proceeds from collections
reinvested in revolving-period
securitizations
    
    
    1,368,525
    
    
    
    1,633,689
    
    
    
    3,040,170
    
    
    
    3,257,245Cash flows received on retained
interests
    
    
    80,563
    
    
    
    68,208
    
    
    
    140,729
    
    
    
    134,890
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##### Table of Contents



Noteholder PrincipalBalance at
    
    Scheduled End of($ in thousands)
    
    June 30, 2005
    
    Revolving PeriodAdvantaSeries Class B 2005-B1
    
    $
    100,000
    
    
    June 30, 2009AdvantaSeries Class A 2005-A1
    
    
    250,000
    
    
    August 31, 2007AdvantaSeries Class D 2005-D1
    
    
    20,000
    
    
    September 30, 2007
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##### Table of Contents



MARKET RISK SENSITIVITY
  June 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
    
    
    (9
    )%
    
    
    (4
    )%Estimated percentage increase (decrease) in securitized
net interest income:Assuming 200 basis point increase in interest rates
    
    
    (8
    )%
    
    
    (6
    )%Assuming 200 basis point decrease in interest rates
    
    
    15
    %
    
    
    14
    %Estimated percentage increase (decrease) in managed net
interest income:Assuming 200 basis point increase in interest rates
    
    
    (2
    )%
    
    
    (1
    )%Assuming 200 basis point decrease in interest rates
    
    
    8
    %
    
    
    9
    %
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LIQUIDITY, CAPITAL RESOURCES AND ANALYSIS OF FINANCIAL CONDITION
   June 30, 2005
    
    December 31, 2004($ in thousands)
    
    Amount
    
    %
    
    Amount
    
    %Off-balance sheet securitized
receivables(1)
    
    $
    2,574,076
    
    
    
    59
    %
    
    $
    2,462,220
    
    
    
    61
    %Deposits
    
    
    976,131
    
    
    
    22
    
    
    
    825,273
    
    
    
    20Debt
    
    
    241,279
    
    
    
    6
    
    
    
    265,759
    
    
    
    7Subordinated debt payable to
preferred securities trust
    
    
    103,093
    
    
    
    2
    
    
    
    103,093
    
    
    
    2Equity
    
    
    496,267
    
    
    
    11
    
    
    
    392,194
    
    
    
    10Total
    
    $
    4,390,846
    
    
    
    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.
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##### Table of Contents



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 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)
    
    factors affecting the value of investments that we hold;(9)
    
    the effects of government regulation, including restrictions and
limitations imposed by banking laws, regulators, and examinations;(10)
    
    effect of, and changes in, tax laws, rates, regulations and policies;(11)
    
    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;(12)
    
    relationships with customers, significant vendors and business partners;(13)
    
    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;(14)
    
    the amount and cost of financing available to us;(15)
    
    the ratings on our debt and the debt of our subsidiaries;(16)
    
    revisions to estimates associated with the discontinuance of our mortgage
and leasing businesses;(17)
    
    The effects of changes in accounting policies or practices as may be
required by changes in U.S. generally accepted accounting principles;(18)
    
    the impact of litigation, including judgments, settlements and actual or
anticipated insurance recoveries for costs or judgments;(19)
    
    the proper design and operation of our disclosure controls and procedures;
and(20)
    
    the ability to attract and retain key personnel.
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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 (a)
    
    Advanta Corp. held its Annual Meeting of Stockholders on June 15, 2005 (the Annual
Meeting).(b)
    
    Not required.(c)
    
    The following proposals were submitted to a vote of stockholders.The election of two directors to hold office until the 2008 Annual Meeting of Stockholders.
 NOMINEES
    
    VOTES FOR
    
    VOTES WITHHELDMax Botel
    
    
    8,169,389
    
    
    
    477,336Ronald Lubner
    
    
    8,170,390
    
    
    
    476,335
 The proposal to ratify the appointment by the Board of Directors of KPMG LLP as the Companys
independent registered public accounting firm for the fiscal year ending December 31, 2005:
 FOR
    
    AGAINST
    
    ABSTAIN
    
    BROKER NON-VOTES8,606,347
    
    
    39,861
    
    
    
    517
    
    
    
    0
  
 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
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SIGNATURES
  
 By
    
    /s/ Philip M. BrowneSenior Vice President andChief Financial OfficerAugust 5, 2005
 By
    
    /s/ David B. WeinstockVice President andChief Accounting OfficerAugust 5, 2005
 48




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##### Table of Contents



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
    
    *
 
  49