##### 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 June 30, 2008

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
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
   o o
   Class
    
    Outstanding at August 4, 2008Class A Common Stock, $.01 par value per share 
Class B Common Stock, $.01 par value per share
    
    14,410,133 shares
31,313,384 shares




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##### 



TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATION
    
    3Item 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
    
    48Item 4.
    
    Controls and Procedures
    
    48PART II OTHER INFORMATION
    
    49Item 1.
    
    Legal Proceedings
    
    49Item 1A.
    
    Risk Factors
    
    49Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    52Item 6.
    
    Exhibits
    
    53Exhibit Index
    
    55MASTER SERVICES AGREEMENTCOMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGESCERTIFICATION OF CEO, SECTION 302CERTIFICATION OF CFO,SECTION 302CERTIFICATION OF CEO, SECTION 906CERTIFICATION OF CFO, SECTION 906
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
  ADVANTA CORP. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS (Unaudited)
 June 30,
    
    
    December 31,(In thousands, except share amounts)
    
    2008
    
    
    2007ASSETSCash
    
    $
    87,230
    
    
    $
    90,228Federal funds sold
    
    
    1,060,750
    
    
    
    872,587Investments available for sale
    
    
    689,559
    
    
    
    223,500Receivables, net:Held for sale
    
    
    129,301
    
    
    
    275,679Other
    
    
    656,542
    
    
    
    714,989Total receivables, net
    
    
    785,843
    
    
    
    990,668Accounts receivable from securitizations
    
    
    440,138
    
    
    
    349,581Premises and equipment, net
    
    
    17,986
    
    
    
    16,893Other assets
    
    
    213,528
    
    
    
    220,915Total assets
    
    $
    3,295,034
    
    
    $
    2,764,372LIABILITIESDeposits
    
    $
    2,098,689
    
    
    $
    1,651,737Debt
    
    
    226,427
    
    
    
    220,848Other borrowings
    
    
    25,000
    
    
    
    25,000Subordinated debt payable to preferred securities trust
    
    
    103,093
    
    
    
    103,093Other liabilities
    
    
    246,021
    
    
    
    177,913Total liabilities
    
    
    2,699,230
    
    
    
    2,178,591Commitments and contingenciesSTOCKHOLDERS EQUITYClass A preferred stock, $1,000 par value:Authorized,
issued and outstanding  1,010 shares in
2008 and 2007
    
    
    1,010
    
    
    
    1,010Class A voting common stock, $.01 par value:Authorized
 200,000,000 shares; issued  14,410,133
shares in 2008 and 2007
    
    
    144
    
    
    
    144Class B non-voting common stock, $.01 par value:Authorized
 200,000,000 shares; issued  32,799,604
shares in 2008 and 29,618,641 shares in 2007
    
    
    328
    
    
    
    296Additional paid-in capital
    
    
    245,274
    
    
    
    238,416Unearned ESOP shares
    
    
    (8,576
    )
    
    
    (8,785
    )Accumulated other comprehensive loss
    
    
    (3,849
    )
    
    
    (1,674
    )Retained earnings
    
    
    398,894
    
    
    
    393,795Treasury stock at cost, 1,563,736 Class B common shares
in 2008 and 2007
    
    
    (37,421
    )
    
    
    (37,421
    )Total stockholders equity
    
    
    595,804
    
    
    
    585,781Total liabilities and stockholders equity
    
    $
    3,295,034
    
    
    $
    2,764,372
 See accompanying notes to consolidated financial statements.
 3




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ADVANTA CORP. AND SUBSIDIARIES
 
 CONSOLIDATED INCOME STATEMENTS (Unaudited)
 Three Months Ended
    
    Six Months Ended(In thousands, except per share amounts)
    
    June 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Interest income:Receivables
    
    $
    37,750
    
    
    $
    34,070
    
    
    $
    66,880
    
    
    $
    69,637Investments
    
    
    7,954
    
    
    
    8,809
    
    
    
    17,886
    
    
    
    16,491Other interest income
    
    
    9,565
    
    
    
    4,679
    
    
    
    16,550
    
    
    
    9,785Total interest income
    
    
    55,269
    
    
    
    47,558
    
    
    
    101,316
    
    
    
    95,913Interest expense:Deposits
    
    
    23,600
    
    
    
    17,361
    
    
    
    45,519
    
    
    
    33,898Debt and other borrowings
    
    
    4,120
    
    
    
    3,955
    
    
    
    8,028
    
    
    
    7,663Subordinated debt payable to preferred
securities trust
    
    
    2,317
    
    
    
    2,317
    
    
    
    4,634
    
    
    
    4,634Total interest expense
    
    
    30,037
    
    
    
    23,633
    
    
    
    58,181
    
    
    
    46,195Net interest income
    
    
    25,232
    
    
    
    23,925
    
    
    
    43,135
    
    
    
    49,718Provision for credit losses
    
    
    30,327
    
    
    
    11,806
    
    
    
    58,709
    
    
    
    21,889Net interest income after provision for
credit losses
    
    
    (5,095
    )
    
    
    12,119
    
    
    
    (15,574
    )
    
    
    27,829Noninterest revenues:Securitization income
    
    
    4,608
    
    
    
    22,766
    
    
    
    21,605
    
    
    
    46,277Servicing revenues
    
    
    24,365
    
    
    
    22,541
    
    
    
    50,457
    
    
    
    42,917Other revenues, net
    
    
    65,350
    
    
    
    47,996
    
    
    
    131,918
    
    
    
    90,477Total noninterest revenues
    
    
    94,323
    
    
    
    93,303
    
    
    
    203,980
    
    
    
    179,671Operating expenses
    
    
    81,752
    
    
    
    68,777
    
    
    
    151,240
    
    
    
    135,579Income before income taxes
    
    
    7,476
    
    
    
    36,645
    
    
    
    37,166
    
    
    
    71,921Income tax expense
    
    
    3,461
    
    
    
    13,933
    
    
    
    14,789
    
    
    
    27,761Income from continuing operations
    
    
    4,015
    
    
    
    22,712
    
    
    
    22,377
    
    
    
    44,160Gain on discontinuance of mortgage
and leasing businesses, net of tax
    
    
    0
    
    
    
    1,022
    
    
    
    0
    
    
    
    1,022Net income
    
    $
    4,015
    
    
    $
    23,734
    
    
    $
    22,377
    
    
    $
    45,182Basic income from continuing
operations per common shareClass A
    
    $
    0.06
    
    
    $
    0.52
    
    
    $
    0.48
    
    
    $
    1.02Class B
    
    
    0.12
    
    
    
    0.56
    
    
    
    0.58
    
    
    
    1.09Diluted income from continuing
operations per common shareClass A
    
    $
    0.06
    
    
    $
    0.50
    
    
    $
    0.48
    
    
    $
    0.96Class B
    
    
    0.11
    
    
    
    0.51
    
    
    
    0.56
    
    
    
    1.00Basic net income per common shareClass A
    
    $
    0.06
    
    
    $
    0.55
    
    
    $
    0.48
    
    
    $
    1.04Class B
    
    
    0.12
    
    
    
    0.59
    
    
    
    0.58
    
    
    
    1.12Diluted net income per common shareClass A
    
    $
    0.06
    
    
    $
    0.52
    
    
    $
    0.48
    
    
    $
    0.99Class B
    
    
    0.11
    
    
    
    0.54
    
    
    
    0.56
    
    
    
    1.02Basic weighted average common shares
outstandingClass A
    
    
    13,380
    
    
    
    13,331
    
    
    
    13,374
    
    
    
    13,324Class B
    
    
    27,142
    
    
    
    28,039
    
    
    
    27,082
    
    
    
    27,887Diluted weighted average common shares
outstandingClass A
    
    
    13,380
    
    
    
    13,331
    
    
    
    13,374
    
    
    
    13,324Class B
    
    
    28,629
    
    
    
    31,343
    
    
    
    28,436
    
    
    
    31,258
 See accompanying notes to consolidated financial statements.
 4




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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, 2006
    
    
    
    
    
    $
    1,010
    
    
    $
    151
    
    
    $
    351
    
    
    $
    308,051Effect of applying the provisions
of FIN No. 48 (See Note 13)Net income
    
    $
    72,050Other comprehensive income (loss):Unrealized appreciation
(depreciation) of investments,
net of tax benefit (expense)
of $830
    
    
    (1,542
    )Actuarial gain (loss), net of
tax benefit (expense) of ($84)
    
    
    156Comprehensive income
    
    $
    70,664Preferred and common cash
dividends declaredExercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    6,630Stock option exchange program
stock distributionEmployee stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,448Nonemployee stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )Excess tax benefits from stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,743Issuance of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    (3
    )Amortization of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,834Forfeitures of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (116
    )Treasury stock acquiredTreasury stock retired
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    (63
    )
    
    
    (93,101
    )ESOP shares committed to be
released
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    951Balance at December 31, 2007
    
    
    
    
    
    $
    1,010
    
    
    $
    144
    
    
    $
    296
    
    
    $
    238,416Net income
    
    $
    22,377Other comprehensive income (loss):Unrealized appreciation
(depreciation) of investments,
net of tax benefit (expense)
of $1,171
    
    
    (2,175
    )Comprehensive income
    
    $
    20,202Preferred and common cash
dividends declaredExercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15Employee stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,922Tax deficiency from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (606
    )Issuance of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    (32
    )Amortization of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,480ESOP shares committed to be
released
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79Balance at June 30, 2008
    
    
    
    
    
    $
    1,010
    
    
    $
    144
    
    
    $
    328
    
    
    $
    245,274
 See accompanying notes to consolidated financial statements.
 5




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ADVANTA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(Unaudited)  continued
 AccumulatedOther
    
    
    
    
    
    
    
    
    
    TotalUnearned
    
    Comprehensive
    
    Retained
    
    Treasury
    
    Stockholders($ in thousands)
    
    ESOP Shares
    
    Income (Loss)
    
    Earnings
    
    Stock
    
    EquityBalance at December 31, 2006
    
    $
    (9,204
    )
    
    $
    (288
    )
    
    $
    359,813
    
    
    $
    (92,723
    )
    
    $
    567,161Effect of applying the provisions of FIN No.
48 (See Note 13)
    
    
    
    
    
    
    
    
    
    
    (6,103
    )
    
    
    
    
    
    
    (6,103
    )Net income
    
    
    
    
    
    
    
    
    
    
    72,050
    
    
    
    
    
    
    
    72,050Other comprehensive income (loss):Unrealized
appreciation (depreciation) of
investments, net of tax benefit (expense) of $830
    
    
    
    
    
    
    (1,542
    )
    
    
    
    
    
    
    
    
    
    
    (1,542
    )Actuarial gain (loss), net of tax benefit
(expense) of ($84)
    
    
    
    
    
    
    156
    
    
    
    
    
    
    
    
    
    
    
    156Comprehensive incomePreferred and common cash
dividends declared
    
    
    
    
    
    
    
    
    
    
    (31,965
    )
    
    
    
    
    
    
    (31,965
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,637Stock option exchange program
stock distribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    388
    
    
    
    388Employee stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,448Nonemployee stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )Excess tax benefits from stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,743Issuance of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Amortization of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,834Forfeitures of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (118
    )Treasury stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38,257
    )
    
    
    (38,257
    )Treasury stock retired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93,171
    
    
    
    0ESOP shares committed to be
released
    
    
    419
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,370Balance at December 31, 2007
    
    $
    (8,785
    )
    
    $
    (1,674
    )
    
    $
    393,795
    
    
    $
    (37,421
    )
    
    $
    585,781Net income
    
    
    
    
    
    
    
    
    
    
    22,377
    
    
    
    
    
    
    
    22,377Other comprehensive income (loss):Unrealized appreciation
(depreciation) of investments,
net of tax benefit (expense) of $1,171
    
    
    
    
    
    
    (2,175
    )
    
    
    
    
    
    
    
    
    
    
    (2,175
    )Comprehensive incomePreferred and common cash dividends declared
    
    
    
    
    
    
    (17,278
    )
    
    
    
    
    
    
    (17,278
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15Employee stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,922Tax deficiency from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (606
    )Issuance of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Amortization of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,480ESOP shares committed to be
released
    
    
    209
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    288Balance at June 30, 2008
    
    $
    (8,576
    )
    
    $
    (3,849
    )
    
    $
    398,894
    
    
    $
    (37,421
    )
    
    $
    595,804
 See accompanying 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 EndedJune 30,($ in thousands)
    
    2008
    
    2007OPERATING
ACTIVITIES  CONTINUING OPERATIONSNet income
    
    $
    22,377
    
    
    $
    45,182Adjustments to reconcile net income to net cash (used in)
provided by operating activities:Gain on discontinuance of mortgage and leasing businesses,
net of tax
    
    
    0
    
    
    
    (1,022
    )Investment securities gains, net
    
    
    (32,328
    )
    
    
    (2,345
    )Depreciation and amortization
    
    
    3,284
    
    
    
    2,936Stock-based compensation expense
    
    
    7,402
    
    
    
    5,509Provision for credit losses
    
    
    58,709
    
    
    
    21,889Provision for interest and fee losses
    
    
    10,418
    
    
    
    5,027Change in deferred origination costs, net of deferred fees
    
    
    7,251
    
    
    
    (1,299
    )Change in receivables held for sale
    
    
    (421,647
    )
    
    
    (632,526
    )Proceeds from sale of receivables held for sale
    
    
    318,025
    
    
    
    756,340Change in accounts receivable from securitizations
    
    
    (90,557
    )
    
    
    (9,680
    )Tax deficiency (excess tax benefits) from stock-based
compensation
    
    
    606
    
    
    
    (6,432
    )Change in other assets and other liabilities
    
    
    112,888
    
    
    
    44,885Net cash (used in) provided by operating activities
    
    
    (3,572
    )
    
    
    228,464INVESTING
ACTIVITIES  CONTINUING OPERATIONSChange in federal funds sold and restricted interest-bearing
deposits
    
    
    (188,163
    )
    
    
    (429
    )Purchase of investments available for sale
    
    
    (766,585
    )
    
    
    (555,902
    )Proceeds from sales of investments available for sale
    
    
    392,017
    
    
    
    467,433Proceeds from sales of other investments
    
    
    32,231
    
    
    
    0Proceeds from maturing investments available for sale
    
    
    155,260
    
    
    
    44,070Change in receivables not held for sale
    
    
    (17,931
    )
    
    
    (147,972
    )Purchases of premises and equipment, net
    
    
    (4,368
    )
    
    
    (4,274
    )Net cash used in investing activities
    
    
    (397,539
    )
    
    
    (197,074
    )FINANCING
ACTIVITIES  CONTINUING OPERATIONSChange in demand and savings deposits
    
    
    (1,934
    )
    
    
    24,276Proceeds from issuance of time deposits
    
    
    738,926
    
    
    
    275,725Payments for maturing time deposits
    
    
    (313,444
    )
    
    
    (289,496
    )Proceeds from issuance of debt
    
    
    36,740
    
    
    
    14,272Payments on redemption of debt
    
    
    (32,629
    )
    
    
    (17,010
    )Change in cash overdraft and other borrowings
    
    
    (10,433
    )
    
    
    (3,026
    )Proceeds from exercise of stock options
    
    
    15
    
    
    
    6,031Cash dividends paid
    
    
    (17,278
    )
    
    
    (15,525
    )(Tax deficiency) excess tax benefits from stock-based
compensation
    
    
    (606
    )
    
    
    6,432Treasury stock acquired
    
    
    0
    
    
    
    (14,439
    )Net cash provided by (used in) financing activities
    
    
    399,357
    
    
    
    (12,760
    )DISCONTINUED OPERATIONSNet cash (used in) provided by operating activities of
discontinued operations
    
    
    (1,244
    )
    
    
    162Net (decrease) increase in cash
    
    
    (2,998
    )
    
    
    18,792Cash at beginning of period
    
    
    90,228
    
    
    
    35,055Cash at end of period
    
    $
    87,230
    
    
    $
    53,847SUPPLEMENTAL DISCLOSURESIncome taxes paid, net
    
    $
    5,951
    
    
    $
    10,139Interest paid
    
    
    17,625
    
    
    
    16,790
  See accompanying notes to consolidated financial statements.
 7




---



##### Table of Contents



ADVANTA CORP. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
 June 30, 2008
(Unaudited)
  Note 1) Basis of Presentation
    Note 2) Recently Issued Accounting Standards
 Fair Value Measurements Effective Date of FASB Statement No. 157
 8




---



##### Table of Contents



The Fair Value Option for Financial
Assets and Financial Liabilities
 Accounting for Collateral Assignment Split-Dollar
Life Insurance Arrangements.
 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, Consolidation of Variable Interest Entities,
 Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities Earnings Per
Share
 9




---



##### Table of Contents



Note 3) Investments Available for Sale
  June 30, 2008
    
    December 31, 2007Amortized
    
    Fair
    
    Amortized
    
    FairCost
    
    Value
    
    Cost
    
    ValueU.S. Treasury and government
agency securities
    
    $
    219,862
    
    
    $
    219,935
    
    
    $
    18,416
    
    
    $
    18,469State and municipal securities
    
    
    19,468
    
    
    
    19,331
    
    
    
    18,554
    
    
    
    18,651Corporate bonds
    
    
    0
    
    
    
    0
    
    
    
    7,525
    
    
    
    7,499Asset-backed securities:Credit card asset-backed securities(1)
    
    
    250,000
    
    
    
    250,064
    
    
    
    0
    
    
    
    0Mortgage and home equity line of credit-backed
securities
    
    
    34,709
    
    
    
    28,703
    
    
    
    40,234
    
    
    
    37,340Equity securities(2)
    
    
    7,857
    
    
    
    7,702
    
    
    
    8,066
    
    
    
    8,021Money market funds
    
    
    163,458
    
    
    
    163,458
    
    
    
    133,159
    
    
    
    133,159Other
    
    
    366
    
    
    
    366
    
    
    
    361
    
    
    
    361Total investments available for sale
    
    $
    695,720
    
    
    $
    689,559
    
    
    $
    226,315
    
    
    $
    223,500
 (1)
    
    Amounts at June 30, 2008 represent AdvantaSeries Class A notes issued in our
securitizations and purchased by one of our bank subsidiaries. Includes $100 million
of AdvantaSeries 2008-A1 and $150 million of AdvantaSeries 2008-A3.(2)
    
    Includes venture capital investments of $265 thousand at June 30, 2008 and $413
thousand at December 31, 2007. The amount shown as amortized cost represents fair
value for venture capital investments.  Less Than 12 Months in an
    
    12 Months or Longer in anUnrealized Loss
    
    Unrealized LossPosition
    
    Position
    
    TotalGross
    
    
    
    
    
    Gross
    
    
    
    
    
    GrossUnrealized
    
    Fair
    
    Unrealized
    
    Fair
    
    Unrealized
    
    FairAmount
    
    Value
    
    Amount
    
    Value
    
    Amount
    
    ValueU.S. Treasury and
government agency
securities
    
    $
    (1
    )
    
    $
    10,580
    
    
    $
    0
    
    
    $
    0
    
    
    $
    (1
    )
    
    $
    10,580State and municipal
securities
    
    
    (137
    )
    
    
    11,531
    
    
    
    (57
    )
    
    
    1,603
    
    
    
    (194
    )
    
    
    13,134Mortgage and home
equity line of
credit-backed
securities
    
    
    (77
    )
    
    
    3,197
    
    
    
    (5,940
    )
    
    
    25,152
    
    
    
    (6,017
    )
    
    
    28,349Equity securities
    
    
    (155
    )
    
    
    7,145
    
    
    
    0
    
    
    
    0
    
    
    
    (155
    )
    
    
    7,145Total
    
    $
    (370
    )
    
    $
    32,453
    
    
    $
    (5,997
    )
    
    $
    26,755
    
    
    $
    (6,367
    )
    
    $
    59,208
  10




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##### Table of Contents



Note 4) Receivables
  June 30,
    
    December 31,2008
    
    2007Business credit card receivables
    
    $
    850,925
    
    
    $
    1,031,607Other receivables
    
    
    7,711
    
    
    
    7,330Gross receivables
    
    
    858,636
    
    
    
    1,038,937Add: Deferred origination costs, net of deferred fees
    
    
    13,020
    
    
    
    20,271Less: Allowance for receivable lossesBusiness credit cards
    
    
    (84,611
    )
    
    
    (67,368
    )Other receivables
    
    
    (1,202
    )
    
    
    (1,172
    )Total allowance for receivable losses
    
    
    (85,813
    )
    
    
    (68,540
    )Receivables, net
    
    $
    785,843
    
    
    $
    990,668
  Note 5) Allowance for Receivable Losses
  2008
    
    2007Balance at January 1
    
    $
    68,540
    
    
    $
    50,926Provision for credit losses
    
    
    58,709
    
    
    
    21,889Provision for interest and fee losses
    
    
    10,418
    
    
    
    5,027Gross principal charge-offs:Business credit cards
    
    
    (43,272
    )
    
    
    (21,325
    )Other receivables
    
    
    (2
    )
    
    
    (1
    )Total gross principal charge-offs
    
    
    (43,274
    )
    
    
    (21,326
    )Principal recoveries:Business credit cards
    
    
    1,147
    
    
    
    1,986Net principal charge-offs
    
    
    (42,127
    )
    
    
    (19,340
    )Interest and fee charge-offs:Business credit cards
    
    
    (9,727
    )
    
    
    (4,767
    )Balance at June 30
    
    $
    85,813
    
    
    $
    53,735
 11




---



##### Table of Contents



Note 6) Securitization Activities
  June 30,
    
    December 31,2008
    
    2007Retained interests in securitizations
    
    $
    228,450
    
    
    $
    213,077Amounts due from the securitization trust
    
    
    116,750
    
    
    
    48,452Accrued interest and fees on securitized
receivables, net(1)
    
    
    94,938
    
    
    
    88,052Total accounts receivable from securitizations
    
    $
    440,138
    
    
    $
    349,581
 (1)
    
    Reduced by an estimate for uncollectible interest and fees of $22.5 million at June
30, 2008 and $17.3 million at December 31, 2007.  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Average securitized
receivables
    
    $
    5,063,349
    
    
    $
    4,581,666
    
    
    $
    5,206,692
    
    
    $
    4,368,446Securitization income
    
    
    4,608
    
    
    
    22,766
    
    
    
    21,605
    
    
    
    46,277Discount accretion
    
    
    9,565
    
    
    
    4,679
    
    
    
    16,550
    
    
    
    9,785Interchange income
    
    
    57,799
    
    
    
    49,207
    
    
    
    113,244
    
    
    
    91,621Servicing revenues
    
    
    24,365
    
    
    
    22,541
    
    
    
    50,457
    
    
    
    42,917Proceeds from new
securitizations(1)
    
    
    193,325
    
    
    
    398,682
    
    
    
    318,025
    
    
    
    756,340Proceeds from collections
reinvested in revolving-
period securitizations
    
    
    2,581,177
    
    
    
    2,681,748
    
    
    
    5,133,254
    
    
    
    5,065,732Cash flows received on
retained interests(2)
    
    
    112,651
    
    
    
    79,731
    
    
    
    192,586
    
    
    
    164,487Key assumptions:Discount rate
    
    
    17.20%  
18.70
    %
    
    
    8.15%    
 9.76
    %
    
    
    12.21%  
18.70
    %
    
    
    8.15%    
 9.84
    %Monthly payment rate
    
    
    18.79%  
20.46
    %
    
    
    19.36%  
23.10
    %
    
    
    18.79%  
20.46
    %
    
    
    19.36%  
23.10
    %Loss rate
    
    
    7.85%  
10.12
    %
    
    
    3.85%    
 4.35
    %
    
    
    6.20%  
10.12
    %
    
    
    3.70%    
 4.35
    %Interest yield, net of
interest earned by
noteholders
    
    
    11.36%  
12.29
    %
    
    
    7.29%    
 7.33
    %
    
    
    8.79%  
12.29
    %
    
    
    7.29%    
 7.33
    %
 (1)
    
    Amounts reported for the three and six months ended June 30, 2008 exclude $250 million
related to notes issued in our AdvantaSeries 2008-A1 and AdvantaSeries 2008-A3
securitizations that were purchased by one of our bank subsidiaries and are classified
as investments available for sale on the consolidated balance sheet.(2)
    
    Amounts reported for the three and six months ended June 30, 2008 exclude $389
thousand of interest on AdvantaSeries 2008-A1 and AdvantaSeries 2008-A3 notes that is
classified as interest income on the consolidated income statements.   12




---



##### Table of Contents



June 30,
    
    December 31,2008
    
    2007Discount rate
    
    
    17.68%  
18.70
    %
    
    
    13.25%  
15.28
    %Monthly payment rate
    
    
    18.99%  
20.46
    %
    
    
    19.34%  
20.46
    %Loss rate
    
    
    8.80%  
10.12
    %
    
    
    6.20%     7.13
    %Interest yield, net of interest earned by
noteholders
    
    
    12.29
    %
    
    
    8.79
    %
   Effect on estimated fair value of the following
hypothetical changes in key assumptions:Discount rate increased 200 basis points
    
    $
    (3,249
    )Discount rate increased 400 basis points
    
    
    (6,407
    )Monthly payment rate at 110% of base assumption
    
    
    (1,851
    )Monthly payment rate at 125% of base assumption
    
    
    (3,888
    )Loss rate at 110% of base assumption
    
    
    (11,635
    )Loss rate at 125% of base assumption
    
    
    (29,088
    )Interest yield, net of interest earned by noteholders,
decreased 100 basis points
    
    
    (13,217
    )Interest yield, net of interest earned by noteholders,
decreased 200 basis points
    
    
    (26,435
    )
  13




---



##### Table of Contents



Managed business credit card receivable data
  June 30,
    
    December 31,
    
    June 30,2008
    
    2007
    
    2007Owned business credit card receivables
    
    $
    850,925
    
    
    $
    1,031,607
    
    
    $
    1,133,198Securitized business credit card receivables
    
    
    5,225,773
    
    
    
    5,315,421
    
    
    
    4,856,001Total managed receivables
    
    $
    6,076,698
    
    
    $
    6,347,028
    
    
    $
    5,989,199Receivables 30 days or more delinquent:Owned
    
    $
    49,894
    
    
    $
    42,424
    
    
    $
    27,115Securitized
    
    
    294,432
    
    
    
    229,808
    
    
    
    136,468Total managed
    
    
    344,326
    
    
    
    272,232
    
    
    
    163,583Receivables 90 days or more delinquent:Owned
    
    
    25,001
    
    
    
    19,204
    
    
    
    13,466Securitized
    
    
    145,715
    
    
    
    105,577
    
    
    
    68,424Total managed
    
    
    170,716
    
    
    
    124,781
    
    
    
    81,890Nonaccrual receivables:Owned
    
    
    10,670
    
    
    
    10,104
    
    
    
    9,155Securitized
    
    
    68,719
    
    
    
    59,131
    
    
    
    47,416Total managed
    
    
    79,389
    
    
    
    69,235
    
    
    
    56,571Accruing receivables past due 90 days or more:Owned
    
    
    22,684
    
    
    
    17,213
    
    
    
    12,249Securitized
    
    
    131,977
    
    
    
    94,139
    
    
    
    62,360Total managed
    
    
    154,661
    
    
    
    111,352
    
    
    
    74,609Net principal charge-offs for the year-to-date
period ended June 30 and December 31:Owned
    
    
    42,125
    
    
    
    41,589
    
    
    
    19,339Securitized
    
    
    190,391
    
    
    
    178,173
    
    
    
    76,197Total managed
    
    
    232,516
    
    
    
    219,762
    
    
    
    95,536Net principal charge-offs for the three months
ended June 30 and December 31:Owned
    
    
    25,819
    
    
    
    11,542
    
    
    
    9,556Securitized
    
    
    104,638
    
    
    
    53,572
    
    
    
    41,115Total managed
    
    
    130,457
    
    
    
    65,114
    
    
    
    50,671
 Note 7) Other Assets and Liabilities
  June 30,
    
    December 31,2008
    
    2007Net deferred tax asset
    
    $
    35,613
    
    
    $
    38,147Investment in Fleet Credit Card Services, L.P.
    
    
    32,095
    
    
    
    32,095Investment in preferred securities trust
    
    
    3,093
    
    
    
    3,093Other
    
    
    142,727
    
    
    
    147,580Total other assets
    
    $
    213,528
    
    
    $
    220,915
  14




---



##### Table of Contents



June 30,
    
    December 31,2008
    
    2007Amounts due to the securitization trust
    
    $
    70,673
    
    
    $
    9,258Liability for unrecognized tax benefits
    
    
    39,773
    
    
    
    39,495Business rewards liability
    
    
    30,767
    
    
    
    29,768Cash back rewards liability
    
    
    10,341
    
    
    
    9,590Accounts payable and accrued expenses
    
    
    30,375
    
    
    
    31,563Cash overdraft
    
    
    13,560
    
    
    
    23,993Current income taxes payable
    
    
    7,548
    
    
    
    2,464Liabilities of discontinued operations
    
    
    1,723
    
    
    
    2,967Other
    
    
    41,261
    
    
    
    28,815Total other liabilities
    
    $
    246,021
    
    
    $
    177,913
 Note 8) Deposits
  June 30,
    
    December 31,2008
    
    2007Demand deposits
    
    $
    8,263
    
    
    $
    8,874Money market savings
    
    
    83,481
    
    
    
    84,804Time deposits of $100,000 or less
    
    
    1,031,792
    
    
    
    867,263Time deposits of more than $100,000
    
    
    975,153
    
    
    
    690,796Total deposits
    
    $
    2,098,689
    
    
    $
    1,651,737
  Year Ending December 31,2008
    
    $
    751,7702009
    
    
    924,5062010
    
    
    199,3562011
    
    
    50,5672012 and thereafter
    
    
    80,746
 Note 9) Commitments and Contingencies
  15




---



##### Table of Contents



Note 10) Capital Stock
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Class A Common Stock
    
    $
    0.1771
    
    
    $
    0.1771
    
    
    $
    0.3542
    
    
    $
    0.3188Class B Common Stock
    
    
    0.2125
    
    
    
    0.2125
    
    
    
    0.4250
    
    
    
    0.3825
 Note 11) Stock-Based Compensation
   WeightedAverage PriceNumber of
    
    at Date ofShares
    
    IssuanceOutstanding at January 1
    
    
    1,098
    
    
    $
    19.35Granted
    
    
    3,224
    
    
    
    7.94Vested
    
    
    (189
    )
    
    
    23.72Forfeited
    
    
    (45
    )
    
    
    22.16Outstanding at June 30
    
    
    4,088
    
    
    $
    10.12
    16




---



##### Table of Contents



Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Compensation expense
    
    $
    3,398
    
    
    $
    1,542
    
    
    $
    4,480
    
    
    $
    2,833Income tax benefit
    
    
    1,573
    
    
    
    586
    
    
    
    1,782
    
    
    
    1,093
  WeightedWeighted
    
    
    
    
    
    AverageAverage
    
    Aggregate
    
    RemainingNumber of
    
    Exercise
    
    Intrinsic
    
    ContractualOptions
    
    Price
    
    Value
    
    LifeOutstanding at January 1
    
    
    7,782
    
    
    $
    14.11Granted
    
    
    1,811
    
    
    
    9.06Exercised
    
    
    (3
    )
    
    
    5.35Forfeited
    
    
    (96
    )
    
    
    27.06Outstanding at June 30
    
    
    9,494
    
    
    $
    13.02
    
    
    $
    2,776
    
    
    5.5 yearsOptions exercisable at June 30
    
    
    5,987
    
    
    $
    10.05
    
    
    $
    2,776
    
    
    3.4 years
   Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Compensation expense
    
    $
    1,501
    
    
    $
    1,430
    
    
    $
    2,922
    
    
    $
    2,581Income tax benefit
    
    
    695
    
    
    
    543
    
    
    
    1,162
    
    
    
    996Weighted average
fair value of
options granted
    
    $
    2.00
    
    
    $
    9.69
    
    
    $
    1.96
    
    
    $
    9.85
  17




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##### Table of Contents



Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Expected life (in years)
    
    
    5.4
    
    
    
    5.7
    
    
    
    5.3
    
    
    
    5.7Expected volatility
    
    
    52.80
    %
    
    
    33.11
    %
    
    
    52.46
    %
    
    
    33.57
    %Risk-free interest rate
    
    
    3.04
    %
    
    
    4.55
    %
    
    
    2.99
    %
    
    
    4.57
    %Expected dividend yield
    
    
    9.24
    %
    
    
    4.86
    %
    
    
    9.35
    %
    
    
    4.86
    %
 Note 12) Segment Information
  AdvantaBusinessCards
    
    Other(1)
    
    TotalThree months ended June 30, 2008Interest income
    
    $
    47,227
    
    
    $
    8,042
    
    
    $
    55,269Interest expense
    
    
    21,828
    
    
    
    8,209
    
    
    
    30,037Noninterest revenues
    
    
    93,983
    
    
    
    340
    
    
    
    94,323Pretax income from continuing operations
    
    
    7,474
    
    
    
    2
    
    
    
    7,476Three months ended June 30, 2007Interest income
    
    $
    38,655
    
    
    $
    8,903
    
    
    $
    47,558Interest expense
    
    
    13,149
    
    
    
    10,484
    
    
    
    23,633Noninterest revenues
    
    
    90,737
    
    
    
    2,566
    
    
    
    93,303Pretax income from continuing operations
    
    
    35,824
    
    
    
    821
    
    
    
    36,645Six months ended June 30, 2008Interest income
    
    $
    83,243
    
    
    $
    18,073
    
    
    $
    101,316Interest expense
    
    
    40,026
    
    
    
    18,155
    
    
    
    58,181Noninterest revenues
    
    
    190,184
    
    
    
    13,796
    
    
    
    203,980Pretax income from continuing operations
    
    
    18,257
    
    
    
    18,909
    
    
    
    37,166Total assets at beginning of period
    
    
    1,518,810
    
    
    
    1,245,562
    
    
    
    2,764,372Total assets at end of period
    
    
    1,405,657
    
    
    
    1,889,377
    
    
    
    3,295,034Six months ended June 30, 2007Interest income
    
    $
    79,204
    
    
    $
    16,709
    
    
    $
    95,913Interest expense
    
    
    26,455
    
    
    
    19,740
    
    
    
    46,195Noninterest revenues
    
    
    175,063
    
    
    
    4,608
    
    
    
    179,671Pretax income from continuing operations
    
    
    70,635
    
    
    
    1,286
    
    
    
    71,921Total assets at beginning of period
    
    
    1,495,544
    
    
    
    917,594
    
    
    
    2,413,138Total assets at end of period
    
    
    1,526,802
    
    
    
    954,919
    
    
    
    2,481,721
 (1)
    
    Other includes investment and other activities not attributable to the Advanta
Business Cards segment. In addition, pretax income in the six months ended June 30,
2008 includes a $13.4 million gain on the redemption of Visa Inc. shares and the
benefit of a $5.5 million decrease in Visa indemnification reserves. 18




---



##### Table of Contents



Note 13) Income Taxes
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Income tax expense
attributable to:Continuing operations
    
    $
    3,461
    
    
    $
    13,933
    
    
    $
    14,789
    
    
    $
    27,761Discontinued operations
    
    
    0
    
    
    
    643
    
    
    
    0
    
    
    
    643Total income tax expense
    
    $
    3,461
    
    
    $
    14,576
    
    
    $
    14,789
    
    
    $
    28,404Effective tax rate
    
    
    46.3
    %
    
    
    38.0
    %
    
    
    39.8
    %
    
    
    38.6
    %
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Current:Federal
    
    $
    7,678
    
    
    $
    9,673
    
    
    $
    10,274
    
    
    $
    16,014State
    
    
    381
    
    
    
    1,224
    
    
    
    810
    
    
    
    2,347Total current
    
    
    8,059
    
    
    
    10,897
    
    
    
    11,084
    
    
    
    18,361Deferred:Federal
    
    
    (4,587
    )
    
    
    3,065
    
    
    
    3,668
    
    
    
    9,361State
    
    
    (11
    )
    
    
    (29
    )
    
    
    37
    
    
    
    39Total deferred
    
    
    (4,598
    )
    
    
    3,036
    
    
    
    3,705
    
    
    
    9,400Income tax expense attributable
to continuing operations
    
    $
    3,461
    
    
    $
    13,933
    
    
    $
    14,789
    
    
    $
    27,761
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Statutory federal income tax
    
    $
    2,616
    
    
    $
    12,826
    
    
    $
    13,008
    
    
    $
    25,172State income taxes, net of
federal income tax benefit
    
    
    405
    
    
    
    1,047
    
    
    
    703
    
    
    
    1,981Compensation limitation
    
    
    299
    
    
    
    256
    
    
    
    398
    
    
    
    437Nondeductible expenses
    
    
    512
    
    
    
    (139
    )
    
    
    652
    
    
    
    199Other
    
    
    (371
    )
    
    
    (57
    )
    
    
    28
    
    
    
    (28
    )Income tax expense
    
    $
    3,461
    
    
    $
    13,933
    
    
    $
    14,789
    
    
    $
    27,761
  June 30,
    
    December 31,2008
    
    2007Deferred tax assets
    
    $
    57,343
    
    
    $
    62,351Deferred tax liabilities
    
    
    (21,730
    )
    
    
    (24,204
    )Net deferred tax asset
    
    $
    35,613
    
    
    $
    38,147
 19




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##### Table of Contents



June 30,
    
    December 31,2008
    
    2007Deferred revenue
    
    $
    (14,574
    )
    
    $
    (15,138
    )Rewards programs
    
    
    14,388
    
    
    
    13,775Federal tax benefit of state tax positions
    
    
    11,146
    
    
    
    11,028Receivable losses
    
    
    6,719
    
    
    
    8,506Incentive and deferred compensation
    
    
    6,693
    
    
    
    6,169Deferred origination costs, net of deferred fees
    
    
    (4,621
    )
    
    
    (7,167
    )Visa indemnification
    
    
    2,269
    
    
    
    4,194Securitization income
    
    
    1,993
    
    
    
    3,393Unrealized venture capital investment losses
    
    
    246
    
    
    
    148Capital loss carryforwards
    
    
    0
    
    
    
    4,248Other
    
    
    11,354
    
    
    
    8,991Net deferred tax asset
    
    $
    35,613
    
    
    $
    38,147
 Accounting for Uncertainty in
Income Taxes  an Interpretation of FASB Statement No. 109,
 Balance at December 31, 2007
    
    $
    17,732Additions based on tax positions related to the
current year
    
    
    462Additions for tax positions of prior years
    
    
    104Reductions for tax positions of prior years
    
    
    (1,061
    )Settlements
    
    
    (114
    )Balance at June 30, 2008
    
    $
    17,123
     20




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##### Table of Contents



Note 14) Discontinued Operations
  Three and Six Months EndedJune 30, 2008
    
    June 30, 2007Advanta
    
    
    
    
    
    AdvantaAdvanta
    
    Leasing
    
    Advanta
    
    LeasingMortgage
    
    Services
    
    Mortgage
    
    ServicesPretax gain on
discontinuance of mortgage
and leasing businesses
    
    $
    0
    
    
    $
    0
    
    
    $
    800
    
    
    $
    865Income tax expense
    
    
    0
    
    
    
    0
    
    
    
    (309
    )
    
    
    (334
    )Gain on discontinuance of
mortgage, and leasing
businesses, net of tax
    
    $
    0
    
    
    $
    0
    
    
    $
    491
    
    
    $
    531
   21




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##### Table of Contents



Note 15) Calculation of Earnings Per Share
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Income from continuing operations
    
    $
    4,015
    
    
    $
    22,712
    
    
    $
    22,377
    
    
    $
    44,160Less: Preferred A dividends
    
    
    0
    
    
    
    0
    
    
    
    (141
    )
    
    
    (141
    )Income from continuing operations
available to common stockholders
    
    
    4,015
    
    
    
    22,712
    
    
    
    22,236
    
    
    
    44,019Gain on discontinuance
of mortgage and leasing businesses,
net of tax
    
    
    0
    
    
    
    1,022
    
    
    
    0
    
    
    
    1,022Net income available to common
stockholders
    
    
    4,015
    
    
    
    23,734
    
    
    
    22,236
    
    
    
    45,041Less: Class A dividends declared
    
    
    (2,369
    )
    
    
    (2,396
    )
    
    
    (4,737
    )
    
    
    (4,276
    )Less: Class B dividends declared
    
    
    (6,408
    )
    
    
    (6,165
    )
    
    
    (12,400
    )
    
    
    (11,108
    )Undistributed net income (loss)
    
    $
    (4,762
    )
    
    $
    15,173
    
    
    $
    5,099
    
    
    $
    29,657Basic income from continuing
operations per common shareClass A
    
    $
    0.06
    
    
    $
    0.52
    
    
    $
    0.48
    
    
    $
    1.02Class B
    
    
    0.12
    
    
    
    0.56
    
    
    
    0.58
    
    
    
    1.09Combined(1)
    
    
    0.10
    
    
    
    0.55
    
    
    
    0.55
    
    
    
    1.07Diluted income from continuing
operations per common shareClass A
    
    $
    0.06
    
    
    $
    0.50
    
    
    $
    0.48
    
    
    $
    0.96Class B
    
    
    0.11
    
    
    
    0.51
    
    
    
    0.56
    
    
    
    1.00Combined(1)
    
    
    0.10
    
    
    
    0.51
    
    
    
    0.53
    
    
    
    0.99Basic net income per common shareClass A
    
    $
    0.06
    
    
    $
    0.55
    
    
    $
    0.48
    
    
    $
    1.04Class B
    
    
    0.12
    
    
    
    0.59
    
    
    
    0.58
    
    
    
    1.12Combined(1)
    
    
    0.10
    
    
    
    0.57
    
    
    
    0.55
    
    
    
    1.09Diluted net income per common shareClass A
    
    $
    0.06
    
    
    $
    0.52
    
    
    $
    0.48
    
    
    $
    0.99Class B
    
    
    0.11
    
    
    
    0.54
    
    
    
    0.56
    
    
    
    1.02Combined(1)
    
    
    0.10
    
    
    
    0.53
    
    
    
    0.53
    
    
    
    1.01Basic weighted average common shares
outstandingClass A
    
    
    13,380
    
    
    
    13,331
    
    
    
    13,374
    
    
    
    13,324Class B
    
    
    27,142
    
    
    
    28,039
    
    
    
    27,082
    
    
    
    27,887Combined
    
    
    40,522
    
    
    
    41,370
    
    
    
    40,456
    
    
    
    41,211Dilutive effect ofOptions Class B
    
    
    1,125
    
    
    
    2,910
    
    
    
    1,114
    
    
    
    2,935Nonvested shares Class B
    
    
    362
    
    
    
    394
    
    
    
    240
    
    
    
    436Diluted weighted average common
shares outstandingClass A
    
    
    13,380
    
    
    
    13,331
    
    
    
    13,374
    
    
    
    13,324Class B
    
    
    28,629
    
    
    
    31,343
    
    
    
    28,436
    
    
    
    31,258Combined
    
    
    42,009
    
    
    
    44,674
    
    
    
    41,810
    
    
    
    44,582Antidilutive sharesOptions Class B
    
    
    4,955
    
    
    
    1,542
    
    
    
    4,437
    
    
    
    1,072Nonvested shares Class B
    
    
    1,566
    
    
    
    0
    
    
    
    1,401
    
    
    
    0
 
 (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



Note 16) Fair Value of Financial Instruments
 Fair Value Hierarchy
  
    
    Level 1  Quoted prices for identical instruments in active markets accessible at
the measurement date.
    
    Level 2  Quoted prices for similar instruments in active markets; quoted prices
for identical or similar instruments in markets that are not active; and valuations
in which all significant inputs are observable in active markets. Inputs are
observable for substantially the full term of the financial instrument.
    
    Level 3  Valuations derived from one or more significant inputs that are unobservable.
 Determination of Fair Value
  Investments Available for Sale
  Retained Interests in Securitizations
  23




---



##### Table of Contents



Assets and Liabilities Measured at Fair Value on a Recurring Basis
  QuotedPrices inActive
    
    SignificantMarkets for
    
    Other
    
    SignificantIdentical
    
    Observable
    
    UnobservableInstruments
    
    Inputs
    
    Inputs(Level 1)
    
    (Level 2)
    
    (Level 3)
    
    TotalInvestments available for sale:U.S. Treasury and government
agency securities
    
    $
    206,223
    
    
    $
    13,712
    
    
    $
    0
    
    
    $
    219,935State and municipal securities
    
    
    0
    
    
    
    19,331
    
    
    
    0
    
    
    
    19,331Asset-backed securities:Credit card asset-backed
securities
    
    
    0
    
    
    
    250,064
    
    
    
    0
    
    
    
    250,064Mortgage and home equity
line of credit-backed
securities
    
    
    0
    
    
    
    4,056
    
    
    
    24,647
    
    
    
    28,703Equity securities
    
    
    7,437
    
    
    
    0
    
    
    
    265
    
    
    
    7,702Money market funds
    
    
    163,458
    
    
    
    0
    
    
    
    0
    
    
    
    163,458Other
    
    
    0
    
    
    
    366
    
    
    
    0
    
    
    
    366Retained interests in
securitizations
    
    
    0
    
    
    
    0
    
    
    
    228,450
    
    
    
    228,450Total assets measured at
fair value
    
    $
    377,118
    
    
    $
    287,529
    
    
    $
    253,362
    
    
    $
    918,009
 Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis
 Asset-Backed
    
    Retained Interests
    
    EquitySecurities
    
    in Securitizations
    
    Securities
    
    TotalFair value at January 1, 2008
    
    $
    33,989
    
    
    $
    213,077
    
    
    $
    413
    
    
    $
    247,479Unrealized gain (loss)(1)
    
    
    0
    
    
    
    4,000
    
    
    
    (2
    )
    
    
    3,998Unrealized loss in other
comprehensive income
    
    
    (3,077
    )
    
    
    0
    
    
    
    0
    
    
    
    (3,077
    )Purchases, sales, issuances,
settlement, net
    
    
    (6,265
    )
    
    
    11,373
    
    
    
    (146
    )
    
    
    4,962Transfers in and/or out of Level 3
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Fair value at June 30, 2008
    
    $
    24,647
    
    
    $
    228,450
    
    
    $
    265
    
    
    $
    253,362
 
 (1)
    
    Unrealized gains or losses on retained interests in securitizations are included
in securitization income on the consolidated income statements. Unrealized gains or
losses on venture capital investments are included in other revenues on the
consolidated income statements. 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
    
    Six Months Ended($ in thousands, except per share data)
    
    June 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Pretax income:Advanta Business Cards
    
    $
    7,474
    
    
    $
    35,824
    
    
    $
    18,257
    
    
    $
    70,635Other(1)
    
    
    2
    
    
    
    821
    
    
    
    18,909
    
    
    
    1,286Total pretax income
    
    
    7,476
    
    
    
    36,645
    
    
    
    37,166
    
    
    
    71,921Income tax expense
    
    
    3,461
    
    
    
    13,933
    
    
    
    14,789
    
    
    
    27,761Income from continuing
operations
    
    $
    4,015
    
    
    $
    22,712
    
    
    $
    22,377
    
    
    $
    44,160Per combined common share,
assuming dilution
    
    $
    0.10
    
    
    $
    0.51
    
    
    $
    0.53
    
    
    $
    0.99
 
 (1)
    
    The six months ended June 30, 2008 include a $13.4 million gain on the redemption of
Visa Inc. shares and the benefit of a $5.5 million decrease in Visa indemnification
reserves.   25




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##### Table of Contents



Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities Earnings Per
Share
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  26




---



##### Table of Contents



ADVANTA BUSINESS CARDS
  Three Months Ended
    
    Six Months Ended($ in thousands)
    
    June 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Average owned receivables
    
    $
    1,164,748
    
    
    $
    1,248,235
    
    
    $
    1,081,939
    
    
    $
    1,266,466Average securitized receivables
    
    $
    5,063,349
    
    
    $
    4,581,666
    
    
    $
    5,206,692
    
    
    $
    4,368,446Customer transaction volume
    
    $
    3,471,711
    
    
    $
    3,692,780
    
    
    $
    6,909,824
    
    
    $
    7,081,845New account originations
    
    
    26,269
    
    
    
    102,937
    
    
    
    93,363
    
    
    
    199,718Average number of active
accounts(1)
    
    
    939,700
    
    
    
    894,610
    
    
    
    947,042
    
    
    
    871,781Ending number of accounts at
June 30
    
    
    1,305,288
    
    
    
    1,255,557
    
    
    
    1,305,288
    
    
    
    1,255,557
 
 (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.   Three Months Ended
    
    Six Months Ended($ in thousands)
    
    June 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Net interest income on owned
interest-earning assets
    
    $
    25,399
    
    
    $
    25,506
    
    
    $
    43,217
    
    
    $
    52,749Noninterest revenues
    
    
    93,983
    
    
    
    90,737
    
    
    
    190,184
    
    
    
    175,063Provision for credit losses
    
    
    (30,295
    )
    
    
    (11,806
    )
    
    
    (58,677
    )
    
    
    (21,889
    )Operating expenses
    
    
    (81,613
    )
    
    
    (68,613
    )
    
    
    (156,467
    )
    
    
    (135,288
    )Pretax income
    
    $
    7,474
    
    
    $
    35,824
    
    
    $
    18,257
    
    
    $
    70,635
  27




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##### Table of Contents



28




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##### Table of Contents



INTEREST INCOME AND EXPENSE
 Three Months Ended
    
    Six Months Ended($ in thousands)
    
    June 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Interest income
    
    $
    55,269
    
    
    $
    47,558
    
    
    $
    101,316
    
    
    $
    95,913Interest expense
    
    
    30,037
    
    
    
    23,633
    
    
    
    58,181
    
    
    
    46,195
    29




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##### Table of Contents



INTEREST RATE ANALYSIS AND AVERAGE BALANCES
 Three Months Ended June 30,2008
    
    
    2007Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average($ in thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateInterest-earning assets:Owned receivables:Business credit cards(1)
    
    $
    1,164,748
    
    
    $
    37,662
    
    
    
    13.01
    %
    
    $
    1,248,235
    
    
    $
    33,976
    
    
    
    10.92
    %Other receivables
    
    
    7,739
    
    
    
    88
    
    
    
    4.55
    
    
    
    7,567
    
    
    
    94
    
    
    
    5.02Total receivables
    
    
    1,172,487
    
    
    
    37,750
    
    
    
    12.95
    
    
    
    1,255,802
    
    
    
    34,070
    
    
    
    10.88Investments(2)
    
    
    1,361,904
    
    
    
    7,956
    
    
    
    2.31
    
    
    
    665,063
    
    
    
    8,812
    
    
    
    5.25Retained interests in
securitizations
    
    
    217,629
    
    
    
    9,565
    
    
    
    17.58
    
    
    
    228,231
    
    
    
    4,679
    
    
    
    8.20Total interest-earning
assets(3)
    
    
    2,752,020
    
    
    $
    55,271
    
    
    
    8.05
    %
    
    
    2,149,096
    
    
    $
    47,561
    
    
    
    8.85
    %Noninterest-earning assets
    
    
    463,773
    
    
    
    
    
    
    
    
    
    
    
    302,064Total assets
    
    $
    3,215,793
    
    
    
    
    
    
    
    
    
    
    $
    2,451,160Interest-bearing liabilities:Deposits
    
    $
    2,058,064
    
    
    $
    23,600
    
    
    
    4.61
    %
    
    $
    1,365,927
    
    
    $
    17,361
    
    
    
    5.10
    %Debt
    
    
    220,235
    
    
    
    3,482
    
    
    
    6.36
    
    
    
    225,831
    
    
    
    3,953
    
    
    
    7.02Subordinated debt
payable to preferred
securities trust
    
    
    103,093
    
    
    
    2,317
    
    
    
    8.99
    
    
    
    103,093
    
    
    
    2,317
    
    
    
    8.99Other borrowings
    
    
    26,543
    
    
    
    638
    
    
    
    9.51
    
    
    
    110
    
    
    
    2
    
    
    
    5.27Total interest-bearing
liabilities
    
    
    2,407,935
    
    
    $
    30,037
    
    
    
    5.01
    %
    
    
    1,694,961
    
    
    $
    23,633
    
    
    
    5.59
    %Noninterest-bearing
liabilities
    
    
    208,683
    
    
    
    
    
    
    
    
    
    
    
    166,296Total liabilities
    
    
    2,616,618
    
    
    
    
    
    
    
    
    
    
    
    1,861,257Stockholders equity
    
    
    599,175
    
    
    
    
    
    
    
    
    
    
    
    589,903Total liabilities and
stockholders equity
    
    $
    3,215,793
    
    
    
    
    
    
    
    
    
    
    $
    2,451,160Net interest spread
    
    
    
    
    
    
    
    
    
    
    3.04
    %
    
    
    
    
    
    
    
    
    
    
    3.26
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.69
    %
    
    
    
    
    
    
    
    
    
    
    4.47
    %
 
 (1)
    
    Interest income includes late fees for owned business credit card receivables of
$2.1 million for the three months ended June 30, 2008 and $2.3 million for the same
period of 2007.(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. 
 30




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Six Months Ended June 30,2008
    
    
    2007Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average($ in thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateInterest-earning assets:Owned receivables:Business credit cards(1)
    
    $
    1,081,939
    
    
    $
    66,693
    
    
    
    12.40
    %
    
    $
    1,266,466
    
    
    $
    69,419
    
    
    
    11.05
    %Other receivables
    
    
    7,535
    
    
    
    187
    
    
    
    4.98
    
    
    
    7,619
    
    
    
    218
    
    
    
    5.78Total receivables
    
    
    1,089,474
    
    
    
    66,880
    
    
    
    12.34
    
    
    
    1,274,085
    
    
    
    69,637
    
    
    
    11.02Investments(2)
    
    
    1,283,034
    
    
    
    17,890
    
    
    
    2.76
    
    
    
    630,508
    
    
    
    16,494
    
    
    
    5.21Retained interests in
securitizations
    
    
    219,315
    
    
    
    16,550
    
    
    
    15.09
    
    
    
    229,517
    
    
    
    9,785
    
    
    
    8.53Total interest-earning
assets(3)
    
    
    2,591,823
    
    
    $
    101,320
    
    
    
    7.83
    %
    
    
    2,134,110
    
    
    $
    95,916
    
    
    
    9.04
    %Noninterest-earning assets
    
    
    483,092
    
    
    
    
    
    
    
    
    
    
    
    301,634Total assets
    
    $
    3,074,915
    
    
    
    
    
    
    
    
    
    
    $
    2,435,744Interest-bearing liabilities:Deposits
    
    $
    1,914,739
    
    
    $
    45,519
    
    
    
    4.78
    %
    
    $
    1,355,056
    
    
    $
    33,898
    
    
    
    5.04
    %Debt
    
    
    217,955
    
    
    
    6,923
    
    
    
    6.39
    
    
    
    226,661
    
    
    
    7,660
    
    
    
    6.81Subordinated debt
payable to preferred
securities trust
    
    
    103,093
    
    
    
    4,634
    
    
    
    8.99
    
    
    
    103,093
    
    
    
    4,634
    
    
    
    8.99Other borrowings
    
    
    25,881
    
    
    
    1,105
    
    
    
    8.45
    
    
    
    111
    
    
    
    3
    
    
    
    5.27Total interest-bearing
liabilities
    
    
    2,261,668
    
    
    $
    58,181
    
    
    
    5.17
    %
    
    
    1,684,921
    
    
    $
    46,195
    
    
    
    5.52
    %Noninterest-bearing
liabilities
    
    
    218,033
    
    
    
    
    
    
    
    
    
    
    
    169,151Total liabilities
    
    
    2,479,701
    
    
    
    
    
    
    
    
    
    
    
    1,854,072Stockholders equity
    
    
    595,214
    
    
    
    
    
    
    
    
    
    
    
    581,672Total liabilities and
stockholders equity
    
    $
    3,074,915
    
    
    
    
    
    
    
    
    
    
    $
    2,435,744Net interest spread
    
    
    
    
    
    
    
    
    
    
    2.66
    %
    
    
    
    
    
    
    
    
    
    
    3.52
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.35
    %
    
    
    
    
    
    
    
    
    
    
    4.70
    %
 
 (1)
    
    Interest income includes late fees for owned business credit card receivables of
$3.9 million for the six months ended June 30, 2008 and $4.8 million for the same
period of 2007.(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. 
 31




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##### Table of Contents



PROVISION AND ALLOWANCE FOR RECEIVABLE LOSSES
 Three Months Ended
    
    Six Months Ended($ in thousands)
    
    June 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Provision for credit losses
    
    $
    30,327
    
    
    $
    11,806
    
    
    $
    58,709
    
    
    $
    21,889Provision for interest and fee losses
    
    
    6,057
    
    
    
    2,581
    
    
    
    10,418
    
    
    
    5,027
   32




---



##### Table of Contents



June 30,
    
    December 31,
    
    June 30,($ in thousands)
    
    2008
    
    2007
    
    2007Business
Credit Cards  OwnedAllowance for receivable losses
    
    $
    84,611
    
    
    $
    67,368
    
    
    $
    52,525Receivables 30 days or more delinquent
    
    
    49,894
    
    
    
    42,424
    
    
    
    27,115Receivables 90 days or more delinquent
    
    
    25,001
    
    
    
    19,204
    
    
    
    13,466Nonaccrual receivables
    
    
    10,670
    
    
    
    10,104
    
    
    
    9,155Accruing receivables past due 90 days or more
    
    
    22,684
    
    
    
    17,213
    
    
    
    12,249As a percentage of receivables:Allowance for receivable losses
    
    
    9.94
    %
    
    
    6.53
    %
    
    
    4.64
    %Receivables 30 days or more delinquent
    
    
    5.86
    
    
    
    4.11
    
    
    
    2.39Receivables 90 days or more delinquent
    
    
    2.94
    
    
    
    1.86
    
    
    
    1.19Nonaccrual receivables
    
    
    1.25
    
    
    
    0.98
    
    
    
    0.81Accruing receivables past due 90 days or more
    
    
    2.67
    
    
    
    1.67
    
    
    
    1.08Net principal charge-offs for the year-to-date
period ended June 30 and December 31
    
    $
    42,125
    
    
    $
    41,589
    
    
    $
    19,339Net principal charge-offs for the three months
ended June 30 and December 31
    
    
    25,819
    
    
    
    11,542
    
    
    
    9,556As a percentage of average receivables
(annualized):Net principal charge-offs for the
year-to-date period ended June 30 and
December 31
    
    
    7.79
    %
    
    
    3.39
    %
    
    
    3.05
    %Net principal charge-offs for the three months
ended June 30 and December 31
    
    
    8.87
    
    
    
    3.96
    
    
    
    3.06
 33




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SECURITIZATION INCOME
   Managed Receivable Data
  34




---



##### Table of Contents



Managed Financial Measures and StatisticsAdvanta
    
    
    
    
    
    
    
    
    
    AdvantaBusiness
    
    GAAP
    
    Securitization
    
    Business Cards
    
    Managed($ in thousands)
    
    Cards GAAP
    
    Ratio(1)
    
    Adjustments
    
    Managed
    
    Ratio(1)Three months ended June 30, 2008Net interest income
    
    $
    25,399
    
    
    
    7.35
    %
    
    $
    120,008
    
    
    $
    145,407
    
    
    
    9.34
    %Provision for credit losses
    
    
    30,295
    
    
    
    8.77
    
    
    
    104,638
    (2)
    
    
    134,933
    
    
    
    8.67Noninterest revenues
    
    
    93,983
    
    
    
    27.19
    
    
    
    (15,370
    )
    
    
    78,613
    
    
    
    5.05Average business credit card
interest-earning assets
    
    
    1,382,377
    
    
    
    
    
    
    
    4,845,720
    
    
    
    6,228,097Three months ended June 30, 2007Net interest income
    
    $
    25,506
    
    
    
    6.91
    %
    
    $
    74,990
    
    
    $
    100,496
    
    
    
    6.90
    %Provision for credit losses
    
    
    11,806
    
    
    
    3.20
    
    
    
    41,115
    (2)
    
    
    52,921
    
    
    
    3.63Noninterest revenues
    
    
    90,737
    
    
    
    24.58
    
    
    
    (33,875
    )
    
    
    56,862
    
    
    
    3.90Average business credit card
interest-earning assets
    
    
    1,476,466
    
    
    
    
    
    
    
    4,353,435
    
    
    
    5,829,901Six months ended June 30, 2008Net interest income
    
    $
    43,217
    
    
    
    6.64
    %
    
    $
    229,856
    
    
    $
    273,073
    
    
    
    8.68
    %Provision for credit losses
    
    
    58,677
    
    
    
    9.02
    
    
    
    186,391
    (2)
    
    
    245,068
    
    
    
    7.79Noninterest revenues
    
    
    190,184
    
    
    
    29.23
    
    
    
    (43,465
    )
    
    
    146,719
    
    
    
    4.67Average business credit card
interest-earning assets
    
    
    1,301,254
    
    
    
    
    
    
    
    4,987,377
    
    
    
    6,288,631Six months ended June 30, 2007Net interest income
    
    $
    52,749
    
    
    
    7.05
    %
    
    $
    143,195
    
    
    $
    195,944
    
    
    
    6.95
    %Provision for credit losses
    
    
    21,889
    
    
    
    2.93
    
    
    
    76,197
    (2)
    
    
    98,086
    
    
    
    3.48Noninterest revenues
    
    
    175,063
    
    
    
    23.40
    
    
    
    (66,998
    )
    
    
    108,065
    
    
    
    3.84Average business credit card
interest-earning assets
    
    
    1,495,983
    
    
    
    
    
    
    
    4,138,929
    
    
    
    5,634,912As of June 30, 2008Ending business credit card
receivables
    
    $
    850,925
    
    
    
    
    
    
    $
    5,225,773
    
    
    $
    6,076,698Receivables 30 days or more
delinquent
    
    
    49,894
    
    
    
    5.86
    %
    
    
    294,432
    
    
    
    344,326
    
    
    
    5.67
    %Receivables 90 days or more
delinquent
    
    
    25,001
    
    
    
    2.94
    
    
    
    145,715
    
    
    
    170,716
    
    
    
    2.81As of December 31, 2007Ending business credit card
receivables
    
    $
    1,031,607
    
    
    
    
    
    
    $
    5,315,421
    
    
    $
    6,347,028Receivables 30 days or more
delinquent
    
    
    42,424
    
    
    
    4.11
    %
    
    
    229,808
    
    
    
    272,232
    
    
    
    4.29
    %Receivables 90 days or more
delinquent
    
    
    19,204
    
    
    
    1.86
    
    
    
    105,577
    
    
    
    124,781
    
    
    
    1.97As of June 30, 2007Ending business credit card
receivables
    
    $
    1,133,198
    
    
    
    
    
    
    $
    4,856,001
    
    
    $
    5,989,199Receivables 30 days or more
delinquent
    
    
    27,115
    
    
    
    2.39
    %
    
    
    136,468
    
    
    
    163,583
    
    
    
    2.73
    %Receivables 90 days or more
delinquent
    
    
    13,466
    
    
    
    1.19
    
    
    
    68,424
    
    
    
    81,890
    
    
    
    1.37
 
 (1)
    
    Ratios are as a percentage of average business credit card interest-earning assets except
delinquency ratios which are as a percentage of ending business credit card receivables.(2)
    
    Includes the amount by which the 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. In addition, a favorable valuation adjustment to
retained interests in securitizations of $4.0 million in the six months ended June 30, 2008
is included as a decrease to provision for credit losses. 
 35




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##### Table of Contents



SERVICING REVENUES
  ($ in thousands)
    
    2008
    
    2007Three months ended June 30
    
    $
    24,365
    
    
    $
    22,541Six months ended June 30
    
    
    50,457
    
    
    
    42,917
  OTHER REVENUES
 Three Months Ended
    
    Six Months Ended($ in thousands)
    
    June 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Interchange income
    
    $
    70,627
    
    
    $
    62,130
    
    
    $
    136,275
    
    
    $
    117,364Cash back rewards
    
    
    (16,082
    )
    
    
    (15,346
    )
    
    
    (30,665
    )
    
    
    (28,746
    )Business rewards
    
    
    (6,944
    )
    
    
    (6,007
    )
    
    
    (13,526
    )
    
    
    (11,939
    )Investment securities gains, net
    
    
    14,315
    
    
    
    1,355
    
    
    
    32,328
    
    
    
    2,345Balance transfer and cash
usage fees
    
    
    1,858
    
    
    
    3,182
    
    
    
    4,864
    
    
    
    6,144Other business credit card fees
    
    
    1,196
    
    
    
    1,127
    
    
    
    2,105
    
    
    
    2,352Other, net
    
    
    380
    
    
    
    1,555
    
    
    
    537
    
    
    
    2,957Total other revenues, net
    
    $
    65,350
    
    
    $
    47,996
    
    
    $
    131,918
    
    
    $
    90,477
    36




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##### Table of Contents



OPERATING EXPENSES
 Three Months Ended
    
    Six Months Ended($ in thousands)
    
    June 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Salaries and employee benefits
    
    $
    31,118
    
    
    $
    26,246
    
    
    $
    59,646
    
    
    $
    52,344Amortization
of deferred origination costs, net
    
    
    9,247
    
    
    
    12,852
    
    
    
    20,191
    
    
    
    25,719External processing
    
    
    9,220
    
    
    
    7,007
    
    
    
    17,465
    
    
    
    13,707Marketing
    
    
    8,165
    
    
    
    4,075
    
    
    
    13,401
    
    
    
    7,310Professional fees
    
    
    6,058
    
    
    
    2,978
    
    
    
    11,649
    
    
    
    6,883Equipment
    
    
    3,729
    
    
    
    2,730
    
    
    
    6,961
    
    
    
    5,325Credit
    
    
    3,425
    
    
    
    1,157
    
    
    
    5,452
    
    
    
    2,447Occupancy
    
    
    2,578
    
    
    
    2,343
    
    
    
    5,049
    
    
    
    4,645Fraud
    
    
    1,525
    
    
    
    2,217
    
    
    
    3,557
    
    
    
    3,685Postage
    
    
    1,522
    
    
    
    1,531
    
    
    
    3,129
    
    
    
    2,925Visa indemnification
    
    
    0
    
    
    
    0
    
    
    
    (5,501
    )
    
    
    0Other
    
    
    5,165
    
    
    
    5,641
    
    
    
    10,241
    
    
    
    10,589Total operating expenses
    
    $
    81,752
    
    
    $
    68,777
    
    
    $
    151,240
    
    
    $
    135,579
   37




---



##### Table of Contents



CONTINGENCIES
  38




---



##### Table of Contents



INCOME TAXES
  Three Months Ended
    
    Six Months Ended($ in thousands)
    
    June 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Income tax expense
    
    $
    3,461
    
    
    $
    13,933
    
    
    $
    14,789
    
    
    $
    27,761Effective tax rate
    
    
    46.3
    %
    
    
    38.0
    %
    
    
    39.8
    %
    
    
    38.6
    %
   DISCONTINUED OPERATIONS
  39




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##### Table of Contents



OFF-BALANCE SHEET ARRANGEMENTS
   Three Months Ended
    
    Six Months Ended($ in thousands)
    
    June 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Average securitized receivables
    
    $
    5,063,349
    
    
    $
    4,581,666
    
    
    $
    5,206,692
    
    
    $
    4,368,446Securitization income
    
    
    4,608
    
    
    
    22,766
    
    
    
    21,605
    
    
    
    46,277Discount accretion
    
    
    9,565
    
    
    
    4,679
    
    
    
    16,550
    
    
    
    9,785Interchange income
    
    
    57,799
    
    
    
    49,207
    
    
    
    113,244
    
    
    
    91,621Servicing revenues
    
    
    24,365
    
    
    
    22,541
    
    
    
    50,457
    
    
    
    42,917Proceeds from new securitizations(1)
    
    
    193,325
    
    
    
    398,682
    
    
    
    318,025
    
    
    
    756,340Proceeds from collections reinvested
in revolving-period securitizations
    
    
    2,581,177
    
    
    
    2,681,748
    
    
    
    5,133,254
    
    
    
    5,065,732Cash flows received on retained
interests(2)
    
    
    112,651
    
    
    
    79,731
    
    
    
    192,586
    
    
    
    164,487
 
 (1)
    
    Amounts reported for the three and six months ended June 30, 2008 exclude $250 million
related to notes issued in our AdvantaSeries 2008-A1 and AdvantaSeries 2008-A3
securitizations that were purchased by one of our bank subsidiaries and are classified
as investments available for sale on the consolidated balance sheet.(2)
    
    Amounts reported for the three and six months ended June 30, 2008 exclude $389
thousand of interest on AdvantaSeries 2008-A1 and AdvantaSeries 2008-A3 notes that is
classified as interest income on the consolidated income statement.   NoteholderPrincipal
    
    Coupon
    
    Scheduled End of($ in thousands)
    
    Balance
    
    Type
    
    Revolving PeriodAdvantaSeries:2008-A1
    
    $
    125,000
    
    
    Floating
    
    January 31, 20092008-A2
    
    
    122,000
    
    
    Fixed
    
    January 31, 20092008-A3
    
    
    150,000
    
    
    Floating
    
    May 31, 2009
 40




---



##### Table of Contents



Noteholder
    
    End of Revolving
    
    Noteholder($ in thousands)
    
    Principal Balance
    
    Period
    
    Payment DateSeries 2001-A
    
    $
    300,000
    
    
    January 2008
    
    April 2008AdvantaSeries:2005-A4
    
    
    150,000
    
    
    December 2007
    
    February 20082005-A1
    
    
    250,000
    
    
    March 2008
    
    May 20082005-D1
    
    
    20,000
    
    
    April 2008
    
    June 2008
   Noteholder
    
    Expected End of
    
    Expected Noteholder($ in thousands)
    
    Principal Balance
    
    Revolving Period
    
    Payment DateAdvantaSeries:2005-C1
    
    $
    100,000
    
    
    July 2008
    
    September 20082005-A3
    
    
    250,000
    
    
    September 2008
    
    November 20082006-A2
    
    
    250,000
    
    
    December 2008
    
    February 2009
  41




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##### Table of Contents



Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, Consolidation of Variable Interest Entities,
  MARKET RISK SENSITIVITY
  June 30,
    
    December 31,2008
    
    2007Estimated
percentage increase (decrease) in
net interest income on owned assets:Assuming 200 basis point increase
    
    
    24
    %
    
    
    20
    %Assuming 200 basis point decrease
    
    
    (20
    )%
    
    
    (16
    )%Estimated percentage increase (decrease) in
net interest income on securitized
receivables:Assuming 200 basis point increase
    
    
    (8
    )%
    
    
    (11
    )%Assuming 200 basis point decrease
    
    
    12
    %
    
    
    15
    %Estimated percentage increase (decrease) in
net interest income on managed assets:Assuming 200 basis point increase
    
    
    (3
    )%
    
    
    (7
    )%Assuming 200 basis point decrease
    
    
    7
    %
    
    
    11
    %
 42




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##### Table of Contents



LIQUIDITY, CAPITAL RESOURCES AND ANALYSIS OF FINANCIAL CONDITION
    43




---



##### Table of Contents



June 30, 2008
    
    December 31, 2007($ in thousands)
    
    Amount
    
    %
    
    Amount
    
    %Off-balance sheet securitized
receivables(1)
    
    $
    4,820,022
    
    
    
    61
    %
    
    $
    5,173,404
    
    
    
    67
    %Deposits
    
    
    2,098,689
    
    
    
    27
    
    
    
    1,651,737
    
    
    
    21Debt
    
    
    226,427
    
    
    
    3
    
    
    
    220,848
    
    
    
    3Other borrowings
    
    
    25,000
    
    
    
    0
    
    
    
    25,000
    
    
    
    0Subordinated debt payable to preferred
securities trust
    
    
    103,093
    
    
    
    1
    
    
    
    103,093
    
    
    
    1Equity
    
    
    595,804
    
    
    
    8
    
    
    
    585,781
    
    
    
    8Total
    
    $
    7,869,035
    
    
    
    100
    %
    
    $
    7,759,863
    
    
    
    100
    %
 (1)
    
    Excludes our ownership interest in the noteholder principal balance of securitizations
that are held on-balance sheet.    44




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##### Table of Contents



VALUATION OF FINANCIAL INSTRUMENTS
 Fair Value Measurements
 45




---



##### Table of Contents



CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
  46




---



##### Table of Contents



(1)
    
    factors affecting our net interest income on owned and securitized
receivables, including fluctuations in the volume of receivables and
the range and timing of pricing offers to customers;(2)
    
    competitive pressures, including product development and pricing,
among financial institutions;(3)
    
    political conditions, social conditions, monetary and fiscal policies
and general economic and other environmental conditions, including the
impact of the disruption in the capital markets, the deterioration of
the U.S. economy and potential for further deterioration and
disruption, that affect the level of new account originations,
customer spending, delinquencies, charge-offs, and other results of
operations;(4)
    
    factors affecting fluctuations in the number of accounts or receivable
balances, including the retention of customers after promotional
pricing periods have expired, changes in terms on their accounts, or
changes in programs or product offerings;(5)
    
    interest rate and credit spread fluctuations;(6)
    
    factors affecting our level of costs and expenses, including those
associated with the implementation of our offshoring initiatives such
as the effects of changes in severance and related costs, changes in
the timing for completion of our planned workforce reduction and other
difficulties associated with the implementation of our offshoring
initiatives due to, among other things, disruption in our business and
operational delays associated with new systems, processes and changes
in personnel;(7)
    
    funding decisions and the potential timing of the securitizations of
our receivables;(8)
    
    government regulation, including the effects of restrictions and
limitations imposed by banking laws, regulators, and examinations and
the effects of, and changes in, statutes, the level of regulatory
scrutiny, regulatory requirements or regulatory policies, guidance,
interpretations and initiatives, including mandatory and possible
discretionary actions by federal and state regulators;
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(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, acquisition, production,
testing and marketing of products and 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 the debt of Advanta Corp. and its subsidiaries;(15)
    
    the effects of changes in accounting policies or practices as may be
required by changes in U.S. generally accepted accounting principles;(16)
    
    the impact of litigation and legal, regulatory, administrative or
other claims, investigations or proceedings including judgments,
settlements and actual or anticipated insurance recoveries for costs
or judgments;(17)
    
    the proper design and operation of our disclosure controls and
procedures; and(18)
    
    the ability to attract and retain key personnel.
  
   
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PART II  OTHER INFORMATION
 
   
   Legislative, regulatory and other legal developments may affect our business operations and
ability to generate new accounts.
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® ®
   Changes in accounting may affect our reported earnings and results of operations.
 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities Consolidation of Variable
Interest Entities, .
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Our strategic, contractual and other relationships with third parties expose us to risks
that may disrupt our business operations and adversely affect our results of operations and
financial condition.
  
    
    If any third party providing services critical to our business were to
fail or become insolvent, or if we were unable to renew expiring
agreements with such parties on mutually acceptable terms, our
business operations, results of operations and financial condition
could be adversely impacted.
    
    To the extent these third party relationships involve or depend on the
transfer of knowledge related to our business for their success, we
may be exposed to risks associated with misappropriation or misuse of
intellectual property or confidential information, including
information that is proprietary to us or to our customers.
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
    
    If the third parties do not perform as anticipated or if they default
on their obligations, we may not realize the intended benefits of
these relationships, including the expected productivity, cost or
expense improvements.
    
    In the event of a default or termination, our agreements with third
parties may take an extended period of time to unwind or resolve and,
under certain circumstances such as early termination, may require us
to pay substantial termination fees, which could adversely affect our
business operations, results of operations and financial condition.
    
    If our relationships with third parties include indemnification
provisions or obligations, we may be required, under specified
circumstances, to indemnify the other parties for certain losses they
incur in connection with the products or services they provide to us.
In the event we are obligated to make payments to third parties under
indemnification or other obligations for losses of third parties, it
could adversely affect our results of operation and financial
condition. For further discussion see Note 11 to the consolidated
financial statements in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2007.
    
    If our relationship is with a third party located outside of the
United States, we may be exposed to international economic, political
and other risks that could adversely affect our business, including,
instability in international political and economic conditions,
different intellectual property laws and protections and difficulty in
administering and enforcing our policies and procedures in a foreign
country, any of which could adversely affect our results of operations
and financial condition.
 
  (a)
    
    Advanta Corp. held its Annual Meeting of Stockholders on June 11, 2008.
 (b)
    
    The directors whose terms continued after the meeting who were not elected at the meeting
are: Dennis Alter, Dana Becker Dunn, Olaf Olafsson, William A. Rosoff and Michael Stolper.
 (c)
    
    The following proposals were submitted to a vote of stockholders.The election of three directors to hold office until the 2011 Annual Meeting of Stockholders.
 NOMINEES
    
    VOTES FOR
    
    VOTES WITHHELDMax Botel
    
    
    8,115,388
    
    
    
    3,907,141Thomas P. Costello
    
    
    10,941,247
    
    
    
    1,081,282Ronald Lubner
    
    
    8,383,238
    
    
    
    3,639,291
 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, 2008:
 FOR
    
    AGAINST
    
    ABSTAIN
    
    BROKER NON-VOTES11,751,458
    
    
    30,356
    
    
    
    240,715
    
    
    
    0
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ExhibitNumber
    
    Description of Document10.1
    
    Master Services Agreement by and between Advanta Bank Corp. and Genpact
International LLC, Hungarian Branch, dated March 15, 2007, and amendments (Portions of
this exhibit have been omitted pursuant to a confidential treatment request and this
information has been filed separately with the SEC).12
    
    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
  Advanta Corp.(Registrant)By
    
    /s/ Philip M. BrowneSenior Vice President andChief Financial OfficerAugust 8, 2008By
    
    /s/ David B. WeinstockVice President andChief Accounting OfficerAugust 8, 2008
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EXHIBIT INDEX
 Manner ofExhibit
    
    Description
    
    Filing10.1
    
    Master Services Agreement by and between Advanta Bank Corp. and
Genpact International LLC, Hungarian Branch, dated March 15, 2007,
and amendments (Portions of this exhibit have been omitted
pursuant to a confidential treatment request and this information
has been filed separately with the SEC).
    
    *12
    
    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. 55