##### 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 March 31, 2006
 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
    
    23-1462070(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 
 
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
 o þ
  o o
   Class A
    
    Outstanding at May 2, 2006Common Stock, $.01 par value
    
    9,606,862 sharesClass B
    
    Outstanding at May 2, 2006Common Stock, $.01 par value
    
    18,894,811 shares




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##### 



TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Consolidated Balance Sheets (Unaudited)
    
    
    3Consolidated Income Statements (Unaudited)
    
    
    4Consolidated Statements of Changes in Stockholders Equity (Unaudited)
    
    
    5-6Consolidated Statements of Cash Flows (Unaudited)
    
    
    7Notes to Consolidated Financial Statements (Unaudited)
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    39Item 4. Controls and Procedures
    
    
    39PART
II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    40Item 1A. Risk Factors
    
    
    40Item 5.
Other Information
    
    
    40Item 6. Exhibits
    
    
    40Exhibit Index
    
    
    42STOCK REPURCHASE AGREEMENTCOMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGESCERTIFICATION OF CEO PURSUANT TO SECTION 302CERTIFICATION OF CFO PURSUANT TO SECTION 302CERTIFICATION OF CEO PURSUANT TO SECTION 906CERTIFICATION OF CFO PURSUANT TO SECTION 906
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
  ADVANTA CORP. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS (Unaudited)
 March 31,
    
    December 31,(In thousands, except share amounts)
    
    2006
    
    2005ASSETSCash
    
    $
    35,340
    
    
    $
    34,109Federal funds sold
    
    
    369,693
    
    
    
    355,057Restricted interest-bearing deposits
    
    
    1,463
    
    
    
    1,333Investments available for sale
    
    
    208,405
    
    
    
    219,782Receivables, net:Held for sale
    
    
    545,152
    
    
    
    474,881Other
    
    
    420,854
    
    
    
    389,012Total receivables, net
    
    
    966,006
    
    
    
    863,893Accounts receivable from securitizations
    
    
    273,444
    
    
    
    450,001Premises and equipment, net
    
    
    16,155
    
    
    
    16,901Other assets
    
    
    170,133
    
    
    
    186,327Total assets
    
    $
    2,040,639
    
    
    $
    2,127,403LIABILITIESDeposits
    
    $
    1,057,903
    
    
    $
    1,070,572Debt
    
    
    215,032
    
    
    
    226,856Subordinated debt payable to preferred securities trust
    
    
    103,093
    
    
    
    103,093Other liabilities
    
    
    126,986
    
    
    
    211,445Total liabilities
    
    
    1,503,014
    
    
    
    1,611,966Commitments and contingenciesSTOCKHOLDERS EQUITYClass A preferred stock, $1,000 par value:Authorized, issued and outstanding  1,010 shares in
2006 and 2005
    
    
    1,010
    
    
    
    1,010Class A voting common stock, $.01 par value:Authorized  200,000,000 shares; issued  10,041,017
shares in 2006 and 2005
    
    
    100
    
    
    
    100Class B non-voting common stock, $.01 par value:Authorized  200,000,000 shares; issued  22,052,595
shares in 2006 and 21,918,569 shares in 2005
    
    
    220
    
    
    
    219Additional paid-in capital
    
    
    279,037
    
    
    
    276,231Nonvested shares
    
    
    0
    
    
    
    (1,148
    )Unearned ESOP shares
    
    
    (9,517
    )
    
    
    (9,622
    )Accumulated other comprehensive loss
    
    
    (744
    )
    
    
    (678
    )Retained earnings
    
    
    316,666
    
    
    
    298,472Treasury stock at cost, 434,155 Class A common shares
in 2006 and 2005; 3,162,019 Class B common shares in
2006 and 2005
    
    
    (49,147
    )
    
    
    (49,147
    )Total stockholders equity
    
    
    537,625
    
    
    
    515,437Total liabilities and stockholders equity
    
    $
    2,040,639
    
    
    $
    2,127,403
 See Notes to Consolidated Financial Statements
 3




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##### Table of Contents



ADVANTA CORP. AND SUBSIDIARIES
 
 CONSOLIDATED INCOME STATEMENTS (Unaudited)
 Three Months Ended(In thousands, except per share amounts)
    
    March 31,2006
    
    2005Interest income:Receivables
    
    $
    28,927
    
    
    $
    24,974Investments
    
    
    5,359
    
    
    
    3,184Other interest income
    
    
    3,982
    
    
    
    4,021Total interest income
    
    
    38,268
    
    
    
    32,179Interest expense:Deposits
    
    
    10,308
    
    
    
    6,448Debt and other borrowings
    
    
    3,358
    
    
    
    3,848Subordinated debt payable to preferred
securities trust
    
    
    2,289
    
    
    
    2,289Total interest expense
    
    
    15,955
    
    
    
    12,585Net interest income
    
    
    22,313
    
    
    
    19,594Provision for credit losses
    
    
    9,284
    
    
    
    10,444Net interest income after provision for credit losses
    
    
    13,029
    
    
    
    9,150Noninterest revenues:Securitization income
    
    
    33,578
    
    
    
    30,396Servicing revenues
    
    
    13,682
    
    
    
    12,599Other revenues, net
    
    
    34,976
    
    
    
    27,813Gain on transfer of consumer credit card
business (See Note 11)
    
    
    0
    
    
    
    67,679Total noninterest revenues
    
    
    82,236
    
    
    
    138,487Operating expenses
    
    
    59,639
    
    
    
    62,620Income before income taxes
    
    
    35,626
    
    
    
    85,017Income tax expense
    
    
    13,716
    
    
    
    12,347Net income
    
    $
    21,910
    
    
    $
    72,670Basic net income per common shareClass A
    
    $
    0.79
    
    
    $
    2.82Class B
    
    
    0.82
    
    
    
    2.85Combined
    
    
    0.81
    
    
    
    2.84Diluted net income per common shareClass A
    
    $
    0.73
    
    
    $
    2.54Class B
    
    
    0.74
    
    
    
    2.55Combined
    
    
    0.73
    
    
    
    2.55Basic weighted average common shares outstandingClass A
    
    
    8,846
    
    
    
    8,812Class B
    
    
    18,107
    
    
    
    16,705Combined
    
    
    26,953
    
    
    
    25,517Diluted weighted average common shares outstandingClass A
    
    
    8,846
    
    
    
    8,812Class B
    
    
    20,876
    
    
    
    19,670Combined
    
    
    29,722
    
    
    
    28,482
 See 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, 2004
    
    
    
    
    
    $
    1,010
    
    
    $
    100
    
    
    $
    215
    
    
    $
    258,223Net income
    
    $
    110,429Other comprehensive income (loss):Change in unrealized
appreciation (depreciation) of
investments, net of tax benefit
(expense) of $224
    
    
    (417
    )Comprehensive income
    
    $
    110,012Preferred and common cash
dividends declaredExercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    6,100Stock option exchange program
stock distributionStock-based nonemployee
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124Excess tax benefits from stock
based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,800Issuance of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    222Amortization of nonvested sharesForfeitures of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (1,811
    )ESOP shares committed to be
released
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    573Balance at December 31, 2005
    
    
    
    
    
    $
    1,010
    
    
    $
    100
    
    
    $
    219
    
    
    $
    276,231Net income
    
    $
    21,910Other comprehensive income (loss):Change in unrealized
appreciation (depreciation) of
investments, net of tax benefit
(expense) of $36
    
    
    (66
    )Comprehensive income
    
    $
    21,844Preferred and common cash
dividends declaredExercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    2,366Stock-based nonemployee
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44Stock-based employee compensation
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    624Excess tax benefits from
stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    787Amortization of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50Forfeitures of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (92
    )Reclassification of nonvested
shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,148
    )ESOP shares committed to be
released
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    175Balance at March 31, 2006
    
    
    
    
    
    $
    1,010
    
    
    $
    100
    
    
    $
    220
    
    
    $
    279,037
 See Notes to Consolidated Financial Statements
 5




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ADVANTA CORP. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited)  continued
 Nonvested


    
    AccumulatedShares
    
    Other
    
    
    
    
    
    
    
    
    
    Total& Unearned
    
    Comprehensive
    
    Retained
    
    Treasury
    
    Stockholders($ in thousands)
    
    ESOP Shares
    
    Income (Loss)
    
    Earnings
    
    Stock
    
    EquityBalance at December 31, 2004
    
    $
    (19,390
    )
    
    $
    (261
    )
    
    $
    201,772
    
    
    $
    (49,475
    )
    
    $
    392,194Net income
    
    
    
    
    
    
    
    
    
    
    110,429
    
    
    
    
    
    
    
    110,429Other comprehensive income (loss):Change in unrealized appreciation
(depreciation) of investments, net of tax
benefit (expense) of $224
    
    
    
    
    
    
    (417
    )
    
    
    
    
    
    
    
    
    
    
    (417
    )Comprehensive incomePreferred and common cash dividends
declared
    
    
    
    
    
    
    
    
    
    
    (13,729
    )
    
    
    
    
    
    
    (13,729
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,105Stock option exchange program stock
distribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    328
    
    
    
    328Stock-based nonemployee compensation
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124Excess tax benefits from stock- based
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,800Issuance of nonvested shares
    
    
    (222
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Amortization of nonvested shares
    
    
    7,633
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,633Forfeitures of nonvested shares
    
    
    900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (912
    )ESOP shares committed to be released
    
    
    309
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    882Balance at December 31, 2005
    
    $
    (10,770
    )
    
    $
    (678
    )
    
    $
    298,472
    
    
    $
    (49,147
    )
    
    $
    515,437Net income
    
    
    
    
    
    
    
    
    
    
    21,910
    
    
    
    
    
    
    
    21,910Other comprehensive income (loss):Change in unrealized appreciation
(depreciation) of investments, net of tax
benefit (expense) of $36
    
    
    
    
    
    
    (66
    )
    
    
    
    
    
    
    
    
    
    
    (66
    )Comprehensive incomePreferred and common cash dividends
declared
    
    
    
    
    
    
    
    
    
    
    (3,716
    )
    
    
    
    
    
    
    (3,716
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,367Stock-based nonemployee compensation
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44Stock-based employee compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    624Excess tax benefits from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    787Amortization of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50Forfeitures of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (92
    )Reclassification of nonvested shares
    
    
    1,148
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0ESOP shares committed to be released
    
    
    105
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    280Balance at March 31, 2006
    
    $
    (9,517
    )
    
    $
    (744
    )
    
    $
    316,666
    
    
    $
    (49,147
    )
    
    $
    537,625
 See Notes to Consolidated Financial Statements
 6




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ADVANTA CORP. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Three Months Ended($ in thousands)
    
    March 31,2006
    
    2005OPERATING
ACTIVITIES  CONTINUING OPERATIONSNet income
    
    $
    21,910
    
    
    $
    72,670Adjustments to reconcile net income to net cash provided by
operating activities:Investment securities (gains) losses, net
    
    
    (708
    )
    
    
    1,040Depreciation and amortization
    
    
    1,641
    
    
    
    1,964Stock-based compensation expense
    
    
    626
    
    
    
    3,679Provision for credit losses
    
    
    9,284
    
    
    
    10,444Provision for interest and fee losses
    
    
    2,038
    
    
    
    2,603Change in deferred origination costs, net of deferred fees
    
    
    (839
    )
    
    
    (5,494
    )Change in receivables held for sale
    
    
    (606,161
    )
    
    
    (31,601
    )Proceeds from sale of receivables held for sale
    
    
    535,890
    
    
    
    0Change in accounts receivable from securitizations
    
    
    176,557
    
    
    
    (1,674
    )Excess tax benefits from stock-based compensation
    
    
    (787
    )
    
    
    0Change in other assets and other liabilities
    
    
    (65,148
    )
    
    
    18,933Net cash provided by operating activities
    
    
    74,303
    
    
    
    72,564INVESTING
ACTIVITIES  CONTINUING OPERATIONSChange in federal funds sold and restricted
interest-bearing deposits
    
    
    (14,766
    )
    
    
    (30,774
    )Purchase of investments available for sale
    
    
    (211,887
    )
    
    
    (150,875
    )Proceeds from sales of investments available for sale
    
    
    204,140
    
    
    
    76,667Proceeds from maturing investments available for sale
    
    
    19,730
    
    
    
    27,577Change in receivables not held for sale
    
    
    (42,325
    )
    
    
    (33,845
    )Purchases of premises and equipment, net
    
    
    (891
    )
    
    
    (634
    )Net cash used in investing activities
    
    
    (45,999
    )
    
    
    (111,884
    )FINANCING
ACTIVITIES  CONTINUING OPERATIONSChange in demand and savings deposits
    
    
    19,021
    
    
    
    (4,868
    )Proceeds from time deposits
    
    
    129,915
    
    
    
    136,000Payments on time deposits
    
    
    (168,002
    )
    
    
    (86,649
    )Proceeds from debt
    
    
    4,280
    
    
    
    9,870Payments on debt
    
    
    (16,472
    )
    
    
    (23,366
    )Change in other borrowings and cash overdraft
    
    
    3,793
    
    
    
    (3,627
    )Proceeds from exercise of stock options
    
    
    2,367
    
    
    
    1,047Excess tax benefits from stock-based compensation
    
    
    787
    
    
    
    0Cash dividends paid
    
    
    (3,716
    )
    
    
    (3,069
    )Net cash (used in) provided by financing activities
    
    
    (28,027
    )
    
    
    25,338DISCONTINUED OPERATIONSNet cash provided by operating activities of discontinued
operations
    
    
    954
    
    
    
    6,173Net increase (decrease) in cash
    
    
    1,231
    
    
    
    (7,809
    )Cash at beginning of period
    
    
    34,109
    
    
    
    35,565Cash at end of period
    
    $
    35,340
    
    
    $
    27,756
 See Notes to Consolidated Financial Statements
 7




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ADVANTA CORP. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (IN THOUSANDS EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
 March 31, 2006
(Unaudited)
  Note 1) Basis of Presentation
    Note 2) Recently Issued Accounting Standards
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for
Stock-Based Compensation  Transition and Disclosure Accounting for Stock Issued to Employees
 8




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Accounting for Transfers of Financial
Assets  An Amendment of FASB Statement No. 140
 Accounting for Certain Hybrid Financial
Instruments Accounting for Derivative Instruments and Hedging
Activities, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets
 Accounting for Servicing of Financial Assets
 9




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##### Table of Contents



Note 3) Receivables
  March 31,
    
    December 31,2006
    
    2005Business credit card receivables
    
    $
    982,251
    
    
    $
    879,468Other receivables
    
    
    7,705
    
    
    
    8,007Gross receivables
    
    
    989,956
    
    
    
    887,475Add: Deferred origination costs, net of deferred fees
    
    
    22,846
    
    
    
    22,007Less: Allowance for receivable lossesBusiness credit cards
    
    
    (45,580
    )
    
    
    (44,323
    )Other receivables
    
    
    (1,216
    )
    
    
    (1,266
    )Total allowance for receivable losses
    
    
    (46,796
    )
    
    
    (45,589
    )Receivables, net
    
    $
    966,006
    
    
    $
    863,893
 Note 4) Allowance for Receivable Losses
  2006
    
    2005Balance at January 1
    
    $
    45,589
    
    
    $
    50,478Provision for credit losses
    
    
    9,284
    
    
    
    10,444Provision for interest and fee losses
    
    
    2,038
    
    
    
    2,603Gross principal charge-offs:Business credit cards
    
    
    (9,059
    )
    
    
    (11,221
    )Principal recoveries:Business credit cards
    
    
    975
    
    
    
    802Net principal charge-offs
    
    
    (8,084
    )
    
    
    (10,419
    )Interest and fee charge-offs:Business credit cards
    
    
    (2,031
    )
    
    
    (2,501
    )Balance at March 31
    
    $
    46,796
    
    
    $
    50,605
 Note 5) Securitization Activities
  March 31,
    
    December 31,2006
    
    2005Retained interests in securitizations
    
    $
    187,679
    
    
    $
    183,391Amounts due from the securitization trust
    
    
    32,254
    
    
    
    212,766Accrued interest and fees on securitized
receivables, net(1)
    
    
    53,511
    
    
    
    53,844Total accounts receivable from securitizations
    
    $
    273,444
    
    
    $
    450,001
 (1)
    
    Reduced by an estimate for uncollectible interest and fees of $6.9 million at March
31, 2006 and $7.0 million at December 31, 2005.
 10




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##### Table of Contents



Three Months EndedMarch 31,2006
    
    2005Average securitized receivables
    
    $
    2,957,309
    
    
    $
    2,548,739Securitization income
    
    
    33,578
    
    
    
    30,396Discount accretion
    
    
    3,982
    
    
    
    4,021Interchange income
    
    
    33,714
    
    
    
    27,331Servicing revenues
    
    
    13,682
    
    
    
    12,599Proceeds from new securitizations
    
    
    535,890
    
    
    
    0Proceeds from collections reinvested
in revolving-period securitizations
    
    
    1,683,802
    
    
    
    1,671,645Cash flows received on retained
interests
    
    
    77,628
    
    
    
    60,166Key assumptions:Discount rate
    
    
    8.71% - 10.14
    %
    
    
    8.22% - 11.27
    %Monthly payment rate
    
    
    22.75% - 25.00
    %
    
    
    21.77% - 23.06
    %Loss rate
    
    
    4.25% -   4.90
    %
    
    
    5.75% -   6.79
    %Interest yield, net of interest
earned by noteholders
    
    
    8.86% -   9.95
    %
    
    
    10.84% - 11.28
    %
   March 31,
    
    December 31,2006
    
    2005Discount rate
    
    
    8.91% - 10.14
    %
    
    
    8.71% -   9.81
    %Monthly payment rate
    
    
    22.75% - 25.00
    %
    
    
    23.37% - 25.00
    %Loss rate
    
    
    4.45% -   4.90
    %
    
    
    4.25% -   4.68
    %Interest yield, net of interest
earned by noteholders
    
    
    8.86
    %
    
    
    9.95
    %
   11




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##### Table of Contents



Effect on estimated fair value of the following hypothetical
changes in key assumptions:Discount rate increased by 2%
    
    $
    (3,267
    )Discount rate increased by 4%
    
    
    (6,397
    )Monthly payment rate at 115% of base assumption
    
    
    (1,715
    )Monthly payment rate at 130% of base assumption
    
    
    (2,964
    )Loss rate at 110% of base assumption
    
    
    (3,024
    )Loss rate at 125% of base assumption
    
    
    (7,560
    )Interest yield, net of interest earned by noteholders,
decreased by 1%
    
    
    (6,795
    )Interest yield, net of interest earned by noteholders,
decreased by 2%
    
    
    (13,590
    )
  Managed receivable data
  March 31,
    
    December 31,
    
    March 31,2006
    
    2005
    
    2005Owned business credit card receivables
    
    $
    982,251
    
    
    $
    879,468
    
    
    $
    783,916Securitized business credit card receivables
    
    
    3,045,600
    
    
    
    2,880,401
    
    
    
    2,565,085Total managed receivables
    
    $
    4,027,851
    
    
    $
    3,759,869
    
    
    $
    3,349,001Receivables 30 days or more delinquent:Owned
    
    $
    26,335
    
    
    $
    23,595
    
    
    $
    27,507Securitized
    
    
    91,029
    
    
    
    87,610
    
    
    
    110,069Total managed
    
    
    117,364
    
    
    
    111,205
    
    
    
    137,576Receivables 90 days or more delinquent:Owned
    
    
    11,637
    
    
    
    10,837
    
    
    
    12,775Securitized
    
    
    40,131
    
    
    
    40,223
    
    
    
    51,318Total managed
    
    
    51,768
    
    
    
    51,060
    
    
    
    64,093Nonaccrual receivables:Owned
    
    
    11,710
    
    
    
    11,476
    
    
    
    11,658Securitized
    
    
    41,002
    
    
    
    42,828
    
    
    
    46,754Total managed
    
    
    52,712
    
    
    
    54,304
    
    
    
    58,412Accruing receivables past due 90 days or more:Owned
    
    
    10,447
    
    
    
    9,479
    
    
    
    11,139Securitized
    
    
    36,003
    
    
    
    35,063
    
    
    
    44,361Total managed
    
    
    46,450
    
    
    
    44,542
    
    
    
    55,500Net principal charge-offs for the
year-to-date period ended March 31 and
December 31:Owned
    
    
    8,084
    
    
    
    44,865
    
    
    
    10,419Securitized
    
    
    27,095
    
    
    
    155,618
    
    
    
    35,270Total managed
    
    
    35,179
    
    
    
    200,483
    
    
    
    45,689
 12




---



##### Table of Contents



Note 6) Selected Balance Sheet Information
  March 31,
    
    December 31,2006
    
    2005Net deferred tax asset
    
    $
    58,929
    
    
    $
    64,923Investment in Fleet Credit Card Services, L.P.
    
    
    32,095
    
    
    
    32,095Investment in preferred securities trust
    
    
    3,163
    
    
    
    3,093Intangible assets
    
    
    36
    
    
    
    3,040Other
    
    
    75,910
    
    
    
    83,176Total other assets
    
    $
    170,133
    
    
    $
    186,327
  March 31,
    
    December 31,2006
    
    2005Accounts payable and accrued expenses
    
    $
    29,345
    
    
    $
    28,018Current income tax payable
    
    
    21,508
    
    
    
    17,048Business credit card business rewards liability
    
    
    20,959
    
    
    
    20,658Business credit card cash back rewards liability
    
    
    5,363
    
    
    
    4,506Accrued interest payable
    
    
    11,817
    
    
    
    5,414Amounts due to the securitization trust
    
    
    4,510
    
    
    
    105,917Liabilities of discontinued operations, net
    
    
    967
    
    
    
    509Other
    
    
    32,517
    
    
    
    29,375Total other liabilities
    
    $
    126,986
    
    
    $
    211,445
  Note 7) Commitments and Contingencies
  13




---



##### Table of Contents



Note 8) Capital Stock
  Three Months EndedMarch 31,2006
    
    2005Class A Common Stock
    
    $
    0.1134
    
    
    $
    0.0945Class B Common Stock
    
    
    0.1361
    
    
    
    0.1134
   Note 9) Stock-Based Compensation
  Nonvested Shares
  14




---



##### Table of Contents



Three Months EndedMarch 31, 2006WeightedAverage GrantNumber of
    
    Date Fair(Shares in thousands)
    
    Shares
    
    ValueOutstanding at January 1
    
    
    811
    
    
    $
    8.56Issued
    
    
    0
    
    
    
    0Vested
    
    
    0
    
    
    
    0Forfeited
    
    
    (13
    )
    
    
    9.16Outstanding at March 31
    
    
    798
    
    
    $
    8.55
  Stock Options
  15




---



##### Table of Contents



Three Months EndedMarch 31, 2006WeightedWeighted
    
    
    
    
    
    AverageNumber
    
    Average
    
    Aggregate
    
    Remainingof
    
    Exercise
    
    Intrinsic
    
    Contractual(Shares in thousands)
    
    Options
    
    Price
    
    Value
    
    LifeOutstanding at January 1
    
    
    4,986
    
    
    $
    11.37Granted
    
    
    63
    
    
    
    32.86Exercised
    
    
    (147
    )
    
    
    16.16Forfeited
    
    
    (22
    )
    
    
    16.89Expired
    
    
    0
    
    
    
    0Outstanding at March 31
    
    
    4,880
    
    
    $
    11.48
    
    
    $
    123,908
    
    
    5.2 yearsOptions exercisable at
March 31
    
    
    3,586
    
    
    $
    10.31
    
    
    $
    95,241
    
    
    4.2 years
   Three Months Ended
    
    Three Months EndedMarch 31, 2006
    
    March 31, 2005Expected dividend yield
    
    
    4.79
    %
    
    
    3.14
    %Expected life (in years)
    
    
    5.0
    
    
    
    5.0Expected volatility
    
    
    40.35
    %
    
    
    53.70
    %Risk-free interest rate
    
    
    4.40
    %
    
    
    3.76
    %
  16




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##### Table of Contents



Three Months EndedMarch 31, 2005As Reported
    
    Pro FormaStock-based employee compensation expense for
stock option plans, net of related tax effects
    
    $
    0
    
    
    $
    901Net income
    
    
    72,670
    
    
    
    71,769Basic net income per common shareClass A
    
    $
    2.82
    
    
    $
    2.79Class B
    
    
    2.85
    
    
    
    2.82Combined
    
    
    2.84
    
    
    
    2.81Diluted net income per common shareClass A
    
    $
    2.54
    
    
    $
    2.51Class B
    
    
    2.55
    
    
    
    2.53Combined
    
    
    2.55
    
    
    
    2.52
 Note 10) Segment Information
  AdvantaBusinessCards
    
    Other(1)
    
    TotalThree months ended March 31, 2006Interest income
    
    $
    32,810
    
    
    $
    5,458
    
    
    $
    38,268Interest expense
    
    
    10,024
    
    
    
    5,931
    
    
    
    15,955Noninterest revenues
    
    
    81,338
    
    
    
    898
    
    
    
    82,236Pretax income
    
    
    35,293
    
    
    
    333
    
    
    
    35,626Total assets at beginning of period
    
    
    1,362,133
    
    
    
    765,270
    
    
    
    2,127,403Total assets at end of period
    
    
    1,280,102
    
    
    
    760,537
    
    
    
    2,040,639Three months ended March 31, 2005Interest income
    
    $
    28,866
    
    
    $
    3,313
    
    
    $
    32,179Interest expense
    
    
    8,521
    
    
    
    4,064
    
    
    
    12,585Noninterest revenues
    
    
    70,865
    
    
    
    (57
    )
    
    
    70,808Gain on transfer of consumer
credit card business
    
    
    0
    
    
    
    67,679
    
    
    
    67,679Pretax income
    
    
    18,417
    
    
    
    66,600
    
    
    
    85,017Total assets at beginning of period
    
    
    994,194
    
    
    
    698,730
    
    
    
    1,692,924Total assets at end of period
    
    
    1,050,228
    
    
    
    763,015
    
    
    
    1,813,243
 (1)
    
    Other includes venture capital operations as well as investment and other
activities not attributable to the Advanta Business Card segment.
 Note 11) Gain on Transfer of Consumer Credit Card Business
  17




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##### Table of Contents



Note 12) Income Taxes
  2006
    
    2005Current:Federal
    
    $
    6,336
    
    
    $
    3,463State
    
    
    1,350
    
    
    
    1,177Total current
    
    
    7,686
    
    
    
    4,640Deferred:Federal
    
    
    5,966
    
    
    
    7,317State
    
    
    64
    
    
    
    390Total deferred
    
    
    6,030
    
    
    
    7,707Income tax expense
    
    $
    13,716
    
    
    $
    12,347
  2006
    
    2005Statutory federal income tax
    
    $
    12,469
    
    
    $
    29,756State income taxes, net of federal income tax
benefit
    
    
    919
    
    
    
    1,019Nondeductible expenses
    
    
    171
    
    
    
    281Compensation limitation
    
    
    33
    
    
    
    110Gain on transfer of consumer credit card business
    
    
    0
    
    
    
    (12,347
    )Change in valuation allowance
    
    
    0
    
    
    
    (6,393
    )Other
    
    
    124
    
    
    
    (79
    )Income tax expense
    
    $
    13,716
    
    
    $
    12,347
   March 31,
    
    December 31,2006
    
    2005Deferred tax assets
    
    $
    73,541
    
    
    $
    79,452Deferred tax
liabilities
    
    
    (14,612
    )
    
    
    (14,529
    )Net deferred tax asset
    
    $
    58,929
    
    
    $
    64,923
 18




---



##### Table of Contents



March 31,
    
    December 31,2006
    
    2005Alternative minimum tax credit carryforwards
    
    $
    23,012
    
    
    $
    26,060Allowance for receivable losses
    
    
    18,787
    
    
    
    18,400Business credit card rewards
    
    
    9,213
    
    
    
    8,807Deferred origination costs, net of deferred fees
    
    
    (7,665
    )
    
    
    (7,345
    )Unrealized venture capital investment losses
    
    
    5,819
    
    
    
    5,934Capital loss carryforwards
    
    
    4,344
    
    
    
    4,476Securitization income
    
    
    (3,394
    )
    
    
    (3,849
    )Incentive and deferred compensation
    
    
    2,373
    
    
    
    5,029Other
    
    
    6,440
    
    
    
    7,411Net deferred tax asset
    
    $
    58,929
    
    
    $
    64,923
   19




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##### Table of Contents



Note 13) Calculation of Earnings Per Share
  Three Months EndedMarch 31,2006
    
    2005Net Income
    
    $
    21,910
    
    
    $
    72,670Less: Preferred A dividends
    
    
    (141
    )
    
    
    (141
    )Net income available to common stockholders
    
    
    21,769
    
    
    
    72,529Less: Class A dividends declared
    
    
    (999
    )
    
    
    (830
    )Less: Class B dividends declared
    
    
    (2,576
    )
    
    
    (2,098
    )Undistributed net income
    
    $
    18,194
    
    
    $
    69,601Basic net income per common shareClass A
    
    $
    0.79
    
    
    $
    2.82Class B
    
    
    0.82
    
    
    
    2.85Combined(1)
    
    
    0.81
    
    
    
    2.84Diluted net income per common shareClass A
    
    $
    0.73
    
    
    $
    2.54Class B
    
    
    0.74
    
    
    
    2.55Combined(1)
    
    
    0.73
    
    
    
    2.55Basic weighted average common shares outstandingClass A
    
    
    8,846
    
    
    
    8,812Class B
    
    
    18,107
    
    
    
    16,705Combined
    
    
    26,953
    
    
    
    25,517Dilutive effect ofOptions Class B
    
    
    2,207
    
    
    
    1,876Nonvested shares Class B
    
    
    562
    
    
    
    1,089Diluted weighted average common shares outstandingClass A
    
    
    8,846
    
    
    
    8,812Class B
    
    
    20,876
    
    
    
    19,670Combined
    
    
    29,722
    
    
    
    28,482Antidilutive sharesOptions Class B
    
    
    63
    
    
    
    49
 (1)
    
    Combined represents income available to common stockholders divided by the combined
total of Class A and Class B weighted average common shares outstanding.
 20




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  OVERVIEW
  ($ in thousands, except per share data)2006
    
    2005Pretax income:Advanta Business Cards
    
    $
    35,293
    
    
    $
    18,417Other(1)
    
    
    333
    
    
    
    66,600Total pretax income
    
    
    35,626
    
    
    
    85,017Income tax expense
    
    
    13,716
    
    
    
    12,347Net income
    
    $
    21,910
    
    
    $
    72,670Per combined common share, assuming dilution
    
    $
    0.73
    
    
    $
    2.55
 (1)
    
    Other for the three months ended March 31, 2005 includes a $67.7 million pretax gain
on transfer of consumer credit card business.
   CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  21




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##### Table of Contents



ADVANTA BUSINESS CARDS
  Three Months Ended($ in thousands)
    
    March 31,2006
    
    2005Average owned receivables
    
    $
    929,795
    
    
    $
    779,176Average securitized receivables
    
    $
    2,957,309
    
    
    $
    2,548,739Cardholder transaction volume
    
    $
    2,733,922
    
    
    $
    2,176,809New account originations
    
    
    82,617
    
    
    
    44,781Average number of active accounts(1)
    
    
    649,384
    
    
    
    577,301Ending number of accounts at March 31
    
    
    921,841
    
    
    
    786,967
 (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 months ended March 31.
   Three Months Ended($ in thousands)
    
    March 31,2006
    
    2005Net interest income on owned interest-earning
assets
    
    $
    22,786
    
    
    $
    20,345Noninterest revenues
    
    
    81,338
    
    
    
    70,865Provision for credit losses
    
    
    (9,334
    )
    
    
    (10,419
    )Operating expenses
    
    
    (59,497
    )
    
    
    (62,374
    )Pretax income
    
    $
    35,293
    
    
    $
    18,417
   22




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##### Table of Contents



INTEREST INCOME AND EXPENSE
    23




---



##### Table of Contents



INTEREST RATE ANALYSIS AND AVERAGE BALANCES
 Three Months Ended March 31,2006
    
    
    2005Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average($ in thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateInterest-earning assets:Owned receivables:Business credit cards(1)
    
    $
    929,795
    
    
    $
    28,828
    
    
    
    12.57
    %
    
    $
    779,176
    
    
    $
    24,845
    
    
    
    12.93
    %Other receivables
    
    
    7,743
    
    
    
    99
    
    
    
    5.18
    
    
    
    9,959
    
    
    
    129
    
    
    
    5.24Total receivables
    
    
    937,538
    
    
    
    28,927
    
    
    
    12.51
    
    
    
    789,135
    
    
    
    24,974
    
    
    
    12.83Investments(2)
    
    
    499,619
    
    
    
    5,363
    
    
    
    4.30
    
    
    
    516,046
    
    
    
    3,188
    
    
    
    2.47Retained interests in securitizations
    
    
    180,836
    
    
    
    3,982
    
    
    
    8.81
    
    
    
    162,727
    
    
    
    4,021
    
    
    
    9.88Interest-earning assets of
discontinued operations
    
    
    0
    
    
    
    0
    
    
    
    0.00
    
    
    
    14,756
    
    
    
    358
    
    
    
    9.72Total interest-earning
assets(3)
    
    
    1,617,993
    
    
    $
    38,272
    
    
    
    9.56
    %
    
    
    1,482,664
    
    
    $
    32,541
    
    
    
    8.87
    %Noninterest-earning assets
    
    
    482,908
    
    
    
    
    
    
    
    
    
    
    
    271,144Total assets
    
    $
    2,100,901
    
    
    
    
    
    
    
    
    
    
    $
    1,753,808Interest-bearing liabilities:Deposits
    
    $
    1,072,928
    
    
    $
    10,308
    
    
    
    3.90
    %
    
    $
    841,786
    
    
    $
    6,533
    
    
    
    3.15
    %Debt
    
    
    221,448
    
    
    
    3,357
    
    
    
    6.15
    
    
    
    260,380
    
    
    
    3,898
    
    
    
    6.07Subordinated debt payable to
preferred securities trust
    
    
    103,093
    
    
    
    2,289
    
    
    
    8.88
    
    
    
    103,093
    
    
    
    2,289
    
    
    
    8.88Other borrowings
    
    
    97
    
    
    
    1
    
    
    
    4.77
    
    
    
    0
    
    
    
    0
    
    
    
    0.00Total interest-bearing
liabilities(4)
    
    
    1,397,566
    
    
    $
    15,955
    
    
    
    4.62
    %
    
    
    1,205,259
    
    
    $
    12,720
    
    
    
    4.27
    %Noninterest-bearing liabilities
    
    
    176,131
    
    
    
    
    
    
    
    
    
    
    
    115,864Total liabilities
    
    
    1,573,697
    
    
    
    
    
    
    
    
    
    
    
    1,321,123Stockholders equity
    
    
    527,204
    
    
    
    
    
    
    
    
    
    
    
    432,685Total liabilities and stockholders
equity
    
    $
    2,100,901
    
    
    
    
    
    
    
    
    
    
    $
    1,753,808Net interest spread
    
    
    
    
    
    
    
    
    
    
    4.94
    %
    
    
    
    
    
    
    
    
    
    
    4.60
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    5.59
    %
    
    
    
    
    
    
    
    
    
    
    5.42
    %
 (1)
    
    Interest income includes late fees for owned business credit card receivables of $1.9
million for the three months ended March 31, 2006 and $1.7 million for the three months
ended March 31, 2005.(2)
    
    Interest and average rate for tax-free securities are computed on a tax equivalent
basis using a statutory rate of 35%.(3)
    
    Includes assets held and available for sale and nonaccrual receivables.(4)
    
    Includes funding of assets for both continuing and discontinued operations.
 24




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PROVISION AND ALLOWANCE FOR RECEIVABLE LOSSES
    25




---



##### Table of Contents



March 31,
    
    December 31,
    
    March 31,($ in thousands)
    
    2006
    
    2005
    
    2005Consolidated  OwnedAllowance for receivable losses
    
    $
    46,796
    
    
    $
    45,589
    
    
    $
    50,605Receivables 30 days or more delinquent
    
    
    26,335
    
    
    
    23,646
    
    
    
    27,589Receivables 90 days or more delinquent
    
    
    11,637
    
    
    
    10,837
    
    
    
    12,775Nonaccrual receivables
    
    
    11,710
    
    
    
    11,476
    
    
    
    11,658Accruing receivables past due 90 days or more
    
    
    10,447
    
    
    
    9,479
    
    
    
    11,139As a percentage of gross receivables:Allowance for receivable losses
    
    
    4.73
    %
    
    
    5.14
    %
    
    
    6.38
    %Receivables 30 days or more delinquent
    
    
    2.66
    
    
    
    2.66
    
    
    
    3.48Receivables 90 days or more delinquent
    
    
    1.18
    
    
    
    1.22
    
    
    
    1.61Nonaccrual receivables
    
    
    1.18
    
    
    
    1.29
    
    
    
    1.47Accruing receivables past due 90 days or more
    
    
    1.06
    
    
    
    1.07
    
    
    
    1.40Net
principal charge-offs for the year-to-date period ended March 31 and December 31
    
    $
    8,084
    
    
    $
    44,870
    
    
    $
    10,419As a percentage of average gross receivables
(annualized):Net principal charge-offs for
the year-to-date period  ended March 31 and December
31
    
    
    3.45
    %
    
    
    5.32
    %
    
    
    5.28
    %Business
Credit Cards  OwnedAllowance for receivable losses
    
    $
    45,580
    
    
    $
    44,323
    
    
    $
    49,292Receivables 30 days or more delinquent
    
    
    26,335
    
    
    
    23,595
    
    
    
    27,507Receivables 90 days or more delinquent
    
    
    11,637
    
    
    
    10,837
    
    
    
    12,775Nonaccrual receivables
    
    
    11,710
    
    
    
    11,476
    
    
    
    11,658Accruing receivables past due 90 days or more
    
    
    10,447
    
    
    
    9,479
    
    
    
    11,139As a percentage of gross receivables:Allowance for receivable losses
    
    
    4.64
    %
    
    
    5.04
    %
    
    
    6.92
    %Receivables 30 days or more delinquent
    
    
    2.68
    
    
    
    2.68
    
    
    
    3.51Receivables 90 days or more delinquent
    
    
    1.18
    
    
    
    1.23
    
    
    
    1.63Nonaccrual receivables
    
    
    1.19
    
    
    
    1.30
    
    
    
    1.49Accruing receivables past due 90 days or more
    
    
    1.06
    
    
    
    1.08
    
    
    
    1.42Net principal charge-offs for the year-to-date
period ended March 31 and December 31
    $
    8,084
    
    
    $
    44,865
    
    
    $
    10,419As a percentage of average gross receivables
(annualized):Net principal charge-offs for
the year-to-date period ended March 31 and
December 31
    
    
    3.48
    %
    
    
    5.37
    %
    
    
    5.35
    %
 SECURITIZATION INCOME
  Three Months EndedMarch 31,($ in thousands)
    
    2006
    
    2005Securitization income
    
    $
    33,578
    
    
    $
    30,396Interest income (discount accretion)
    
    
    3,982
    
    
    
    4,021Interchange income
    
    
    33,714
    
    
    
    27,331Servicing revenues
    
    
    13,682
    
    
    
    12,599Total
    
    $
    84,956
    
    
    $
    74,347
  26




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Managed Receivable Data
  27




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Managed Financial Measures and StatisticsAdvanta
    
    
    
    
    
    
    
    
    
    AdvantaBusiness
    
    GAAP
    
    Securitization
    
    Business
    
    Managed($ in thousands)
    
    Cards GAAP
    
    Ratio(1)
    
    Adjustments
    
    Cards Managed
    
    Ratio(1)Three Months Ended March 31, 2006Net interest income
    
    $
    22,786
    
    
    
    8.21
    %
    
    $
    66,385
    
    
    $
    89,171
    
    
    
    9.18
    %Noninterest revenues
    
    
    81,338
    
    
    
    29.29
    
    
    
    (37,990
    )
    
    
    43,348
    
    
    
    4.46Provision for credit losses
    
    
    9,334
    
    
    
    3.36
    
    
    
    28,395
    (2)
    
    
    37,729
    
    
    
    3.88Average business credit
card interest-earning
assets
    
    
    1,110,631
    
    
    
    
    
    
    
    2,776,473
    
    
    
    3,887,104Three Months Ended March 31, 2005Net interest income
    
    $
    20,345
    
    
    
    8.64
    %
    
    $
    70,868
    
    
    $
    91,213
    
    
    
    10.96
    %Noninterest revenues
    
    
    70,865
    
    
    
    30.09
    
    
    
    (35,598
    )
    
    
    35,267
    
    
    
    4.24Provision for credit losses
    
    
    10,419
    
    
    
    4.42
    
    
    
    35,270
    (2)
    
    
    45,689
    
    
    
    5.49Average business credit
card interest-earning
assets
    
    
    941,903
    
    
    
    
    
    
    
    2,386,012
    
    
    
    3,327,915As of March 31, 2006Ending business credit
card receivables
    
    $
    982,251
    
    
    
    
    
    
    $
    3,045,600
    
    
    $
    4,027,851Receivables 30 days or
more delinquent
    
    
    26,335
    
    
    
    2.68
    %
    
    
    91,029
    
    
    
    117,364
    
    
    
    2.91
    %Receivables 90 days or
more delinquent
    
    
    11,637
    
    
    
    1.18
    
    
    
    40,131
    
    
    
    51,768
    
    
    
    1.29As of December 31, 2005Ending business credit
card receivables
    
    $
    879,468
    
    
    
    
    
    
    $
    2,880,401
    
    
    $
    3,759,869Receivables 30 days or
more delinquent
    
    
    23,595
    
    
    
    2.68
    %
    
    
    87,610
    
    
    
    111,205
    
    
    
    2.96
    %Receivables 90 days or
more delinquent
    
    
    10,837
    
    
    
    1.23
    
    
    
    40,223
    
    
    
    51,060
    
    
    
    1.36As of March 31, 2005Ending business credit
card receivables
    
    $
    783,916
    
    
    
    
    
    
    $
    2,565,085
    
    
    $
    3,349,001Receivables 30 days or
more delinquent
    
    
    27,507
    
    
    
    3.51
    %
    
    
    110,069
    
    
    
    137,576
    
    
    
    4.11
    %Receivables 90 days or
more delinquent
    
    
    12,775
    
    
    
    1.63
    
    
    
    51,318
    
    
    
    64,093
    
    
    
    1.91
 (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, the three months ended March 31,
2006 includes a $1.3 million unfavorable valuation adjustment to retained interests in
securitizations as an increase to provision for credit losses.
 SERVICING REVENUES
  28




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OTHER REVENUES
 Three Months Ended($ in thousands)
    
    March 31,2006
    
    2005Interchange income
    
    $
    44,393
    
    
    $
    35,696Business credit card cash back rewards
    
    
    (9,513
    )
    
    
    (6,044
    )Business credit card business rewards
    
    
    (4,604
    )
    
    
    (4,751
    )Balance transfer fees
    
    
    1,644
    
    
    
    1,029Cash usage fees
    
    
    823
    
    
    
    871Other business credit card fees
    
    
    852
    
    
    
    791Investment securities gains (losses), net
    
    
    708
    
    
    
    (1,040
    )Other, net
    
    
    673
    
    
    
    1,261Total other revenues, net
    
    $
    34,976
    
    
    $
    27,813
     GAIN ON TRANSFER OF CONSUMER CREDIT CARD BUSINESS
  29




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OPERATING EXPENSES
 Three Months Ended($ in thousands)
    
    March 31,2006
    
    2005Salaries and employee benefits
    
    $
    23,289
    
    
    $
    25,854Amortization of deferred
origination costs, net
    
    
    11,948
    
    
    
    7,947External processing
    
    
    5,941
    
    
    
    5,148Marketing
    
    
    3,607
    
    
    
    6,940Equipment
    
    
    2,617
    
    
    
    2,816Professional fees
    
    
    2,577
    
    
    
    3,649Occupancy
    
    
    2,139
    
    
    
    1,877Credit
    
    
    1,093
    
    
    
    1,273Other
    
    
    6,428
    
    
    
    7,116Total operating expenses
    
    $
    59,639
    
    
    $
    62,620
    30




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##### Table of Contents



LITIGATION CONTINGENCIES
  INCOME TAXES
  ($ in thousands)2006
    
    2005Income tax expense
    
    $
    13,716
    
    
    $
    12,347Effective tax rate
    
    
    38.5
    %
    
    
    14.5
    %
  31




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OFF-BALANCE SHEET ARRANGEMENTS
   Three Months EndedMarch 31,($ in thousands)
    
    2006
    
    2005Average securitized receivables
    
    $
    2,957,309
    
    
    $
    2,548,739Securitization income
    
    
    33,578
    
    
    
    30,396Discount accretion
    
    
    3,982
    
    
    
    4,021Interchange income
    
    
    33,714
    
    
    
    27,331Servicing revenues
    
    
    13,682
    
    
    
    12,599Proceeds from new securitizations
    
    
    535,890
    
    
    
    0Proceeds from collections reinvested in
revolving-period securitizations
    
    
    1,683,802
    
    
    
    1,671,645Cash flows received on retained
interests
    
    
    77,628
    
    
    
    60,166
  32




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Noteholder Principal
    
    Scheduled End of($ in thousands)
    
    Balance
    
    Revolving PeriodAdvantaSeries Class A (2006-A1)
    
    $
    200,000
    
    
    February 28, 2007AdvantaSeries Class A (2006-A2)
    
    
    250,000
    
    
    May 31, 2008AdvantaSeries Class B (2006-B1)
    
    
    100,000
    
    
    November 30, 2008AdvantaSeries Class D (2006-D1)
    
    
    15,000
    
    
    May 31, 2010
    Scheduled
    
    ExpectedNoteholder
    
    End of Revolving
    
    Noteholder($ in thousands)
    
    Principal Balance
    
    Period
    
    Payment DateSeries 2003-B
    
    
    300,000
    
    
    March 31, 2006
    
    June 20, 2006Series 2003-D
    
    
    400,000
    
    
    August 31, 2006
    
    November 20, 2006
  Accounting for Transfers of Financial
Assets  An Amendment of FASB Statement No. 140
 33




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Accounting for Certain Hybrid Financial
Instruments Accounting for Derivative Instruments and Hedging
Activities, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets
 Accounting for Servicing of Financial Assets
 34




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MARKET RISK SENSITIVITY
  March 31,
    
    December 31,2006
    
    2005Estimated percentage increase (decrease) in net interest
income on owned receivables:Assuming 200 basis point increase in interest rates
    
    
    10
    %
    
    
    13
    %Assuming 200 basis point decrease in interest rates
    
    
    (8
    )%
    
    
    (11
    )%Estimated percentage increase (decrease) in net interest
income on securitized receivables:Assuming 200 basis point increase in interest rates
    
    
    (10
    )%
    
    
    (9
    )%Assuming 200 basis point decrease in interest rates
    
    
    12
    %
    
    
    12
    %Estimated percentage increase (decrease) in net interest
income on managed receivables:Assuming 200 basis point increase in interest rates
    
    
    (4
    )%
    
    
    (3
    )%Assuming 200 basis point decrease in interest rates
    
    
    6
    %
    
    
    5
    %
   35




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LIQUIDITY, CAPITAL RESOURCES AND ANALYSIS OF FINANCIAL CONDITION
    March 31, 2006
    
    December 31, 2005($ in thousands)
    
    Amount
    
    %
    
    Amount
    
    %Off-balance sheet securitized
receivables(1)
    
    $
    2,935,705
    
    
    
    61
    %
    
    $
    2,771,505
    
    
    
    59
    %Deposits
    
    
    1,057,903
    
    
    
    22
    
    
    
    1,070,572
    
    
    
    23Debt
    
    
    215,032
    
    
    
    4
    
    
    
    226,856
    
    
    
    5Subordinated debt payable to preferred
securities trust
    
    
    103,093
    
    
    
    2
    
    
    
    103,093
    
    
    
    2Equity
    
    
    537,625
    
    
    
    11
    
    
    
    515,437
    
    
    
    11Total
    
    $
    4,849,358
    
    
    
    100
    %
    
    $
    4,687,463
    
    
    
    100
    %
 (1)
    
    Excludes our ownership interest in the noteholder principal balance of securitizations
(subordinated trust assets) that are held on-balance sheet and classified as retained
interests in securitizations.     36




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CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
   37




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##### Table of Contents



(1)
    
    factors affecting our net interest margin, including fluctuations in
the volume of receivables and the range and timing of pricing offers
to cardholders;(2)
    

competitive pressures, including product development and pricing,
among financial institutions;(3)
    

political conditions, social conditions, monetary and fiscal policies
and general economic and environmental conditions that affect the
level of new account originations, customer spending, delinquencies
and charge-offs;(4)
    

factors affecting fluctuations in the number of accounts or
receivable balances including the retention of cardholders after
promotional pricing periods have expired;(5)
    

interest rate fluctuations;(6)
    

the level of expenses;(7)
    

the timing of the securitization of our receivables;(8)
    

the effects of government regulation, including restrictions and
limitations imposed by banking laws, regulators, and examinations;(9)
    

effect of, and changes in, tax laws, rates, regulations and policies;(10)
    

effect of legal and regulatory developments, including changes in
bankruptcy laws and regulations and the ultimate resolution of
industry-related judicial proceedings relating to the legality of
certain interchange rates;(11)
    

relationships with customers, significant vendors and business
partners;(12)
    

difficulties or delays in the development, production, testing and
marketing of products or services, including the ability and cost to
obtain intellectual property rights or a failure to implement new
products or services when anticipated;(13)
    

the amount and cost of financing available to us;(14)
    

the effects of changes in accounting policies or practices as may be
required by changes in U.S. generally accepted accounting principles;(15)
    

the impact of litigation, including judgments, settlements and actual
or anticipated insurance recoveries for costs or judgments;(16)
    

the proper design and operation of our disclosure controls and
procedures; and(17)
    

the ability to attract and retain key personnel.
 38




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39




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PART II
 OTHER INFORMATION
 
   
   
   
   ExhibitNumber
    
    Description of Document10.1
    
    Tournament Class Membership Purchase Agreement, dated as of February 7, 2006
between Advantennis Corp. and WTA Tour, Inc. d/b/a Sony Ericsson WTA Tour10.2
    
    Stock Repurchase Agreement, entered
into as of May 9, 2006, by and among Advanta Corp., Dennis Alter,
Dennis J. Alter, Trustee U/I/T dated December 15, 2003 and Dennis J.
Alter, Trustee U/I/T dated May 24, 200412
    
    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
 40




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

Chief Financial OfficerMay 9, 2006By
    
    /s/ David B. WeinstockVice President and

Chief Accounting OfficerMay 9, 2006
 41




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##### Table of Contents



EXHIBIT INDEX
 Manner ofExhibit
    
    Description
    
    Filing10.1
    
    Tournament Class Membership Purchase Agreement, dated as of
February 7, 2006 between Advantennis Corp. and WTA Tour, Inc.
d/b/a Sony Ericsson WTA Tour
    
    *10.2
    
    Stock Repurchase Agreement, entered
into May 9, 2006, by and among Advanta Corp., Dennis Alter, Dennis J.
Alter, Trustee U/I/T dated December 15, 2003 and Dennis J. Alter,
Trustee U/I/T dated May 24, 2004
    
    **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
    
    **32.1
    
    Certification of Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
    
    **32.2
    
    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
    
    ***
    
    Incorporated by reference to Exhibit 10.1 to Current Report on
Form 8-K filed February 13, 2006.**
    
    Filed electronically herewith
 42