##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 þ
    
    Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2009
 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
  o o
  Large accelerated filer o   
    Accelerated filer þ
    Non-accelerated filer o
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ
   o o
   Class
    
    Outstanding at November 2, 2009Class A Common Stock, $.01 par value per share 
Class B Common Stock, $.01 par value per share
    
    14,410,133 shares
29,756,469 shares




---



##### 



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)
    
    
    5Consolidated 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
    
    
    29Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    51Item 4. Controls and Procedures
    
    
    51PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    52Item 1A. Risk Factors
    
    
    52Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    58Item 6. Exhibits
    
    
    59Exhibit Index
    
    
    61COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGESCERTIFICATION OF CEO, SECTION 302CERTIFICATION OF CFO, SECTION 302CERTIFICATION OF CEO, SECTION 906CERTIFICATION OF CFO, SECTION 906
  2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
  ADVANTA CORP. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS (Unaudited)
 September 30,
    
    
    December 31,(In thousands, except share amounts)
    
    2009
    
    
    2008ASSETSCash
    
    $
    29,555
    
    
    $
    31,716Federal funds sold
    
    
    208
    
    
    
    32,277Interest-bearing deposits
    
    
    1,172,179
    
    
    
    1,595,138Investments available for sale
    
    
    242,841
    
    
    
    977,245Receivables, net:Held for sale
    
    
    0
    
    
    
    0Other
    
    
    734,133
    
    
    
    414,844Total receivables, net
    
    
    734,133
    
    
    
    414,844Accounts receivable from securitizations
    
    
    168,467
    
    
    
    301,118Premises and equipment, net
    
    
    11,481
    
    
    
    16,762Other assets
    
    
    139,033
    
    
    
    215,945Total assets
    
    $
    2,497,897
    
    
    $
    3,585,045LIABILITIESDeposits
    
    $
    2,082,899
    
    
    $
    2,541,406Debt
    
    
    141,478
    
    
    
    206,598Other borrowings
    
    
    0
    
    
    
    50,000Subordinated debt payable to preferred securities trust
    
    
    92,290
    
    
    
    103,093Other liabilities
    
    
    149,269
    
    
    
    176,587Total liabilities
    
    
    2,465,936
    
    
    
    3,077,684Commitments and contingenciesSTOCKHOLDERS EQUITYClass A preferred stock, $1,000 par value:Authorized, issued and outstanding  1,010 shares in 2009 and 2008
    
    
    1,010
    
    
    
    1,010Class A voting common stock, $.01 par value:Authorized  200,000,000 shares; issued  14,410,133 shares in 2009 and 2008
    
    
    144
    
    
    
    144Class B non-voting common stock, $.01 par value:Authorized  200,000,000 shares; issued  31,390,494 shares in 2009 and
32,776,722 shares in 2008
    
    
    314
    
    
    
    328Additional paid-in capital
    
    
    248,939
    
    
    
    250,042Unearned ESOP shares
    
    
    (8,091
    )
    
    
    (8,367
    )Accumulated other comprehensive loss
    
    
    (4,344
    )
    
    
    (13,447
    )(Accumulated deficit) retained earnings
    
    
    (168,525
    )
    
    
    315,072Treasury stock at cost, 1,679,008 Class B common shares in 2009 and 1,563,736
Class B common shares in 2008
    
    
    (37,486
    )
    
    
    (37,421
    )Total stockholders equity
    
    
    31,961
    
    
    
    507,361Total liabilities and stockholders equity
    
    $
    2,497,897
    
    
    $
    3,585,045
 See accompanying notes to consolidated financial statements.
 3




---



##### Table of Contents



ADVANTA CORP. AND SUBSIDIARIES
 
 CONSOLIDATED INCOME STATEMENTS (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In thousands, except per share amounts)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Interest income:Receivables
    
    $
    28,248
    
    
    $
    31,031
    
    
    $
    63,208
    
    
    $
    97,911Investments
    
    
    2,035
    
    
    
    10,556
    
    
    
    11,585
    
    
    
    28,442Other interest income
    
    
    110
    
    
    
    9,422
    
    
    
    23,394
    
    
    
    25,972Total interest income
    
    
    30,393
    
    
    
    51,009
    
    
    
    98,187
    
    
    
    152,325Interest expense:Deposits
    
    
    21,321
    
    
    
    22,227
    
    
    
    70,370
    
    
    
    67,746Debt and other borrowings
    
    
    2,390
    
    
    
    4,197
    
    
    
    7,870
    
    
    
    12,225Subordinated debt payable to preferred securities trust
    
    
    2,181
    
    
    
    2,317
    
    
    
    6,780
    
    
    
    6,951Total interest expense
    
    
    25,892
    
    
    
    28,741
    
    
    
    85,020
    
    
    
    86,922Net interest income
    
    
    4,501
    
    
    
    22,268
    
    
    
    13,167
    
    
    
    65,403Provision for credit losses
    
    
    56,993
    
    
    
    28,994
    
    
    
    133,605
    
    
    
    87,703Net interest income after provision for credit losses
    
    
    (52,492
    )
    
    
    (6,726
    )
    
    
    (120,438
    )
    
    
    (22,300
    )Noninterest revenues (losses):Securitization income (loss)
    
    
    3,490
    
    
    
    (8,673
    )
    
    
    (235,434
    )
    
    
    12,932Servicing revenues
    
    
    11,688
    
    
    
    24,483
    
    
    
    50,588
    
    
    
    74,940Gain on extinguishment of debt
    
    
    0
    
    
    
    0
    
    
    
    8,557
    
    
    
    0Other revenues, net
    
    
    3,767
    
    
    
    37,226
    
    
    
    53,117
    
    
    
    169,144Total noninterest revenues (losses)
    
    
    18,945
    
    
    
    53,036
    
    
    
    (123,172
    )
    
    
    257,016Operating expenses
    
    
    45,826
    
    
    
    81,937
    
    
    
    204,049
    
    
    
    233,177Income (loss) before income taxes
    
    
    (79,373
    )
    
    
    (35,627
    )
    
    
    (447,659
    )
    
    
    1,539Income tax expense (benefit)
    
    
    (2,888
    )
    
    
    (16,369
    )
    
    
    34,800
    
    
    
    (1,580
    )Net income (loss)
    
    $
    (76,485
    )
    
    $
    (19,258
    )
    
    $
    (482,459
    )
    
    $
    3,119Basic net income (loss) per common shareClass A
    
    $
    (1.89
    )
    
    $
    (0.51
    )
    
    $
    (11.90
    )
    
    $
    (0.04
    )Class B
    
    
    (1.89
    )
    
    
    (0.48
    )
    
    
    (11.89
    )
    
    
    0.07Diluted net income (loss) per common shareClass A
    
    $
    (1.89
    )
    
    $
    (0.51
    )
    
    $
    (11.90
    )
    
    $
    (0.02
    )Class B
    
    
    (1.89
    )
    
    
    (0.48
    )
    
    
    (11.89
    )
    
    
    0.06Basic weighted average common shares outstandingClass A
    
    
    13,443
    
    
    
    13,393
    
    
    
    13,430
    
    
    
    13,380Class B
    
    
    27,117
    
    
    
    27,217
    
    
    
    27,145
    
    
    
    27,127Nonvested Class B
    
    
    2,891
    
    
    
    4,030
    
    
    
    3,447
    
    
    
    3,061Diluted weighted average common shares outstandingClass A
    
    
    13,443
    
    
    
    13,393
    
    
    
    13,430
    
    
    
    13,380Class B
    
    
    27,117
    
    
    
    27,217
    
    
    
    27,145
    
    
    
    28,205Nonvested Class B
    
    
    2,891
    
    
    
    4,030
    
    
    
    3,447
    
    
    
    3,061
 See accompanying notes to consolidated financial statements.
 4




---



##### Table of Contents



ADVANTA CORP. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited)
 Class A
    
    
    Class A
    
    
    Class B
    
    
    AdditionalComprehensive
    
    
    Preferred
    
    
    Common
    
    
    Common
    
    
    Paid-In($ in thousands)
    
    Income (Loss)
    
    
    Stock
    
    
    Stock
    
    
    Stock
    
    
    CapitalBalance at December 31, 2007
    
    
    
    
    
    $
    1,010
    
    
    $
    144
    
    
    $
    296
    
    
    $
    238,416Net loss
    
    $
    (43,823
    )Other comprehensive income (loss):Unrealized appreciation (depreciation) of investments, net
of tax benefit (expense) of $6,172
    
    
    (11,462
    )Actuarial gain (loss), net of tax benefit (expense) of $161
    
    
    (299
    )Currency translation adjustment
    
    
    (12
    )Comprehensive loss
    
    $
    (55,596
    )Preferred and common cash dividends declaredExercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85Employee stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,437Nonemployee stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Excess tax benefits from ESOP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    341Issuance of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34
    
    
    
    (34
    )Amortization of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,729Forfeitures of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (27
    )ESOP shares committed to be released
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99Balance at December 31, 2008
    
    
    
    
    
    $
    1,010
    
    
    $
    144
    
    
    $
    328
    
    
    $
    250,042Net loss
    
    $
    (482,459
    )Other comprehensive income (loss):Unrealized appreciation (depreciation) of investments:Other-than-temporary impairment losses for which a
portion has been recorded in earnings, net of tax
benefit (expense) of $1,119
    
    
    (2,077
    )Other investments, net of tax benefit (expense) $(6,020)
    
    
    11,180Comprehensive loss
    
    $
    (473,356
    )Preferred and common cash dividends declaredEmployee stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,406Excess tax benefits from ESOP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    298Issuance of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    (5
    )Amortization of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,342
    )Forfeitures of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19
    )
    
    
    (232
    )Treasury stock acquiredESOP shares committed to be released
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (228
    )Balance at September 30, 2009
    
    
    
    
    
    $
    1,010
    
    
    $
    144
    
    
    $
    314
    
    
    $
    248,939
 See accompanying notes to consolidated financial statements.
 5




---



##### Table of Contents



ADVANTA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited)  continued
 Accumulated
    
    
    (AccumulatedOther
    
    
    Deficit)
    
    
    
    
    
    
    TotalUnearned
    
    
    Comprehensive
    
    
    Retained
    
    
    Treasury
    
    
    Stockholders($ in thousands)
    
    ESOP Shares
    
    
    Income (Loss)
    
    
    Earnings
    
    
    Stock
    
    
    EquityBalance at December 31, 2007
    
    $
    (8,785
    )
    
    $
    (1,674
    )
    
    $
    393,795
    
    
    $
    (37,421
    )
    
    $
    585,781Net loss
    
    
    
    
    
    
    
    
    
    
    (43,823
    )
    
    
    
    
    
    
    (43,823
    )Other comprehensive income (loss):Unrealized appreciation (depreciation)
of investments, net of tax benefit
(expense) of $6,172
    
    
    
    
    
    
    (11,462
    )
    
    
    
    
    
    
    
    
    
    
    (11,462
    )Actuarial gain (loss), net of tax
benefit (expense) of $161
    
    
    
    
    
    
    (299
    )
    
    
    
    
    
    
    
    
    
    
    (299
    )Currency translation adjustment
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    (12
    )Comprehensive lossPreferred and common cash dividends declared
    
    
    
    
    
    
    
    
    
    
    (34,900
    )
    
    
    
    
    
    
    (34,900
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85Employee stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,437Nonemployee stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Excess tax benefits from ESOP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    341Issuance of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Amortization of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,729Forfeitures of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29
    )ESOP shares committed to be released
    
    
    418
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    517Balance at December 31, 2008
    
    $
    (8,367
    )
    
    $
    (13,447
    )
    
    $
    315,072
    
    
    $
    (37,421
    )
    
    $
    507,361Net loss
    
    
    
    
    
    
    
    
    
    
    (482,459
    )
    
    
    
    
    
    
    (482,459
    )Other comprehensive income (loss):Unrealized appreciation (depreciation)
of investments:Other-than-temporary impairment
losses for which a portion has been
recorded in earnings, net of tax
benefit (expense) of $1,119
    
    
    
    
    
    
    (2,077
    )
    
    
    
    
    
    
    
    
    
    
    (2,077
    )Other investments, net of tax benefit
(expense) $(6,020)
    
    
    
    
    
    
    11,180
    
    
    
    
    
    
    
    
    
    
    
    11,180Comprehensive lossPreferred and common cash dividends declared
    
    
    
    
    
    
    
    
    
    
    (1,138
    )
    
    
    
    
    
    
    (1,138
    )Employee stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,406Excess tax benefits from ESOP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    298Issuance of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Amortization of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,342
    )Forfeitures of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (251
    )Treasury stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65
    )
    
    
    (65
    )ESOP shares committed to be released
    
    
    276
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48Balance at September 30, 2009
    
    $
    (8,091
    )
    
    $
    (4,344
    )
    
    $
    (168,525
    )
    
    $
    (37,486
    )
    
    $
    31,961
 See accompanying notes to consolidated financial statements.
 6




---



##### Table of Contents



ADVANTA CORP. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Nine Months EndedSeptember 30,($ in thousands)
    
    2009
    
    
    2008OPERATING ACTIVITIES  CONTINUING OPERATIONSNet (loss) income
    
    $
    (482,459
    )
    
    $
    3,119Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:Investment securities gains, net
    
    
    (1,138
    )
    
    
    (36,714
    )Gain on extinguishment of debt
    
    
    (8,557
    )
    
    
    0Amortization of discount on investment securities
    
    
    (2,041
    )
    
    
    (684
    )Depreciation and amortization
    
    
    5,130
    
    
    
    5,261Impairment of assets
    
    
    5,328
    
    
    
    0Other-than-temporary impairment losses on investment securities
    
    
    7,011
    
    
    
    0Stock-based compensation (benefit) expense
    
    
    (1,187
    )
    
    
    7,826Provision for credit losses
    
    
    133,605
    
    
    
    87,703Provision for interest and fee losses
    
    
    27,173
    
    
    
    15,422Change in deferred origination costs, net of deferred fees
    
    
    4,586
    
    
    
    12,198Change in receivables held for sale
    
    
    (125,000
    )
    
    
    (356,679
    )Proceeds from sale of receivables held for sale
    
    
    125,000
    
    
    
    318,025Change in accounts receivable from securitizations
    
    
    132,651
    
    
    
    (67,531
    )Change in amounts due to the securitization trust
    
    
    3,924
    
    
    
    63,745Change in other assets and other liabilities
    
    
    53,259
    
    
    
    122,120Net cash (used in) provided by operating activities
    
    
    (122,715
    )
    
    
    173,811INVESTING ACTIVITIES  CONTINUING OPERATIONSChange in federal funds sold and interest-bearing deposits
    
    
    455,028
    
    
    
    (147,142
    )Purchase of investments available for sale
    
    
    (1,076,638
    )
    
    
    (1,414,221
    )Proceeds from sales of investments available for sale
    
    
    1,214,618
    
    
    
    655,633Proceeds from sales of other investments
    
    
    0
    
    
    
    37,659Proceeds from maturities and paydowns of investments available for sale
    
    
    634,872
    
    
    
    543,179Change in receivables not held for sale
    
    
    (484,653
    )
    
    
    13,371Purchases of premises and equipment, net
    
    
    (885
    )
    
    
    (6,373
    )Net cash provided by (used in) investing activities
    
    
    742,342
    
    
    
    (317,894
    )FINANCING ACTIVITIES  CONTINUING OPERATIONSChange in demand and savings deposits
    
    
    (38,327
    )
    
    
    3,358Proceeds from issuance of time deposits
    
    
    503,599
    
    
    
    916,828Payments for maturing time deposits
    
    
    (956,732
    )
    
    
    (610,258
    )Proceeds from issuance of debt
    
    
    22,717
    
    
    
    49,710Payments on redemption of debt
    
    
    (89,426
    )
    
    
    (51,360
    )Change in cash overdraft and other borrowings
    
    
    (62,284
    )
    
    
    (11,830
    )Proceeds from exercise of stock options
    
    
    0
    
    
    
    85Cash dividends paid
    
    
    (1,138
    )
    
    
    (26,107
    )Excess tax benefit from stock-based compensation
    
    
    0
    
    
    
    804Treasury stock acquired
    
    
    (65
    )
    
    
    0Net cash (used in) provided by financing activities
    
    
    (621,656
    )
    
    
    271,230Effect of foreign exchange rates on cash
    
    
    0
    
    
    
    (8
    )DISCONTINUED OPERATIONSNet cash used in operating activities of discontinued operations
    
    
    (132
    )
    
    
    (1,252
    )Net (decrease) increase in cash
    
    
    (2,161
    )
    
    
    125,887Cash at beginning of period
    
    
    31,716
    
    
    
    90,228Cash at end of period
    
    $
    29,555
    
    
    $
    216,115SUPPLEMENTAL DISCLOSURESIncome tax (refunds) payments, net
    
    $
    (7,209
    )
    
    $
    8,646Interest paid
    
    
    27,635
    
    
    
    32,583
 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)
 September 30, 2009
(Unaudited)
  Note 1) Basis of Presentation and Current Operating Environment
      8




---



##### Table of Contents



Note 2) Subsequent Event
 Reorganizations.
    9




---



##### Table of Contents



Note 3) Recently Issued Accounting Standards
  .
     10




---



##### Table of Contents



Note 4) Investments Available for Sale
  September 30, 2009
    
    
    December 31, 2008Amortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueU.S. Treasury and government agency securities
    
    $
    8,910
    
    
    $
    8,932
    
    
    $
    312,112
    
    
    $
    313,209State and municipal securities
    
    
    15,461
    
    
    
    15,421
    
    
    
    18,015
    
    
    
    17,064Corporate bonds(1)
    
    
    9,991
    
    
    
    10,031
    
    
    
    0
    
    
    
    0Commercial paper
    
    
    0
    
    
    
    0
    
    
    
    8,796
    
    
    
    8,799Asset-backed securities:Credit card
asset-backed securities(2)
    
    
    72,392
    
    
    
    70,221
    
    
    
    291,919
    
    
    
    281,601Mortgage and home equity line of credit-backed securities
    
    
    22,293
    
    
    
    17,875
    
    
    
    32,692
    
    
    
    22,467Equity securities
    
    
    8,073
    
    
    
    8,197
    
    
    
    8,245
    
    
    
    8,191Money market
funds(3)
    
    
    111,797
    
    
    
    111,797
    
    
    
    325,548
    
    
    
    325,548Other
    
    
    367
    
    
    
    367
    
    
    
    367
    
    
    
    366Total investments available for sale
    
    $
    249,284
    
    
    $
    242,841
    
    
    $
    997,694
    
    
    $
    977,245
 
 (1)
    
    Amounts represent investments in Citibank N.A. FDIC GTD
Temporary Liability Guaranty Program(2)
    
    Amounts represent AdvantaSeries Class A notes issued in our securitizations and purchased by
one of our bank subsidiaries.(3)
    
    Money market funds at September 30, 2009 include investments in Federated Prime Cash
Obligations Fund of $48.5 million, Dreyfus Cash Management Fund of $38.9 million, and
Blackrock Liquidity Funds TempFund of $22.8 million.   11




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2009
    
    
    September 30, 2009Total other-than-temporary impairment losses (unrealized and realized)
    
    $
    (2,244
    )
    
    $
    (10,207
    )Portion of pretax (gain) loss recognized in other comprehensive income(1)
    
    
    1,826
    
    
    
    3,196Net impairment losses recognized in income(2)
    
    $
    (418
    )
    
    $
    (7,011
    )
 
 (1)
    
    Represents the non credit component impact of the other-than-temporary impairment losses on
available for sale debt securities.(2)
    
    Represents the credit component of the other-than-temporary impairment losses on available
for sale debt securities.  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30, 2009
    
    
    September  30, 2009Beginning Balance
    
    $
    (6,593
    )
    
    $
    0Additions for credit impairments recognized on securities not previously impaired
    
    
    (103
    )
    
    
    (7,011
    )Additions for credit impairments recognized on securities previously impaired
    
    
    (315
    )
    
    
    0Ending Balance
    
    $
    (7,011
    )
    
    $
    (7,011
    )
   12




---



##### Table of Contents



Less Than 12 Months in
    
    
    12 Months or Longer inan Unrealized Loss
    
    
    an Unrealized LossPosition
    
    
    Position
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueState and municipal securities
    
    $
    0
    
    
    $
    0
    
    
    $
    (191
    )
    
    $
    6,284
    
    
    $
    (191
    )
    
    $
    6,284Credit card asset-backed security
    
    
    0
    
    
    
    0
    
    
    
    (2,172
    )
    
    
    70,221
    
    
    
    (2,172
    )
    
    
    70,221Mortgage and home equity line of credit-backed
securities
    
    
    0
    
    
    
    0
    
    
    
    (6,298
    )
    
    
    10,285
    
    
    
    (6,298
    )
    
    
    10,285Other securities
    
    
    (1
    )
    
    
    34
    
    
    
    0
    
    
    
    0
    
    
    
    (1
    )
    
    
    34Total
    
    $
    (1
    )
    
    $
    34
    
    
    $
    (8,661
    )
    
    $
    86,790
    
    
    $
    (8,662
    )
    
    $
    86,824
 Note 5) Receivables
  September 30,
    
    
    December 31,2009
    
    
    2008Business credit card receivables
    
    $
    833,050
    
    
    $
    505,578Other receivables
    
    
    8,097
    
    
    
    8,583Gross receivables
    
    
    841,147
    
    
    
    514,161Add: Deferred origination costs, net of deferred fees
    
    
    0
    
    
    
    4,586Less: Allowance for receivable lossesBusiness credit cards
    
    
    (105,829
    )
    
    
    (102,700
    )Other receivables
    
    
    (1,185
    )
    
    
    (1,203
    )Total allowance for receivable losses
    
    
    (107,014
    )
    
    
    (103,903
    )Receivables, net
    
    $
    734,133
    
    
    $
    414,844
   Note 6) Allowance for Receivable Losses
  2009
    
    
    2008Balance at January 1
    
    $
    103,903
    
    
    $
    68,540Provision for credit losses
    
    
    133,605
    
    
    
    87,703Provision for interest and fee losses
    
    
    27,173
    
    
    
    15,422Gross principal charge-offs:Business credit cards
    
    
    (133,152
    )
    
    
    (66,836
    )Other receivables
    
    
    (7
    )
    
    
    (2
    )Total gross principal charge-offs
    
    
    (133,159
    )
    
    
    (66,838
    )Principal recoveries:Business credit cards
    
    
    3,527
    
    
    
    1,872Net principal charge-offs
    
    
    (129,632
    )
    
    
    (64,966
    )Interest and fee charge-offs:Business credit cards
    
    
    (28,035
    )
    
    
    (14,847
    )Balance at September 30
    
    $
    107,014
    
    
    $
    91,852
  13




---



##### Table of Contents



Uniform
Retail Credit Classification and Account Management Policy
 Note 7) Securitization Activities
      14




---



##### Table of Contents



September 30,
    
    
    December 31,2009
    
    
    2008Amounts due from the securitization trust
    
    $
    158,417
    
    
    $
    65,041Accrued interest and fees on securitized receivables, net(1)
    
    
    4,448
    
    
    
    110,476Retained interests in securitizations
    
    
    5,602
    
    
    
    125,601Total accounts receivable from securitizations
    
    $
    168,467
    
    
    $
    301,118
 
 (1)
    
    Reduced by an estimate for uncollectible interest and fees of $63.7 million at September 30,
2009 and $31.0 million at December 31, 2008.  Three Months Ended
    
    Nine Months EndedSeptember  30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Average securitized receivables
    
    $
    2,615,209
    
    
    $
    5,030,299
    
    
    $
    3,600,505
    
    
    $
    5,147,465Securitization income (loss)
    
    
    3,490
    
    
    
    (8,673
    )
    
    
    (235,434
    )
    
    
    12,932Discount accretion
    
    
    110
    
    
    
    9,422
    
    
    
    23,394
    
    
    
    25,972Interchange income
    
    
    (80
    )
    
    
    58,267
    
    
    
    78,602
    
    
    
    171,511Servicing revenues
    
    
    11,688
    
    
    
    24,483
    
    
    
    50,588
    
    
    
    74,940Proceeds from new securitizations
    
    
    0
    
    
    
    0
    
    
    
    125,000
    
    
    
    318,025Proceeds from collections reinvested in revolving-
period securitizations
    
    
    0
    
    
    
    2,860,791
    
    
    
    2,867,245
    
    
    
    7,994,045Cash flows received on retained interests(1)
    
    
    570
    
    
    
    64,637
    
    
    
    113,066
    
    
    
    257,223Key assumptions:Discount rate
    
    
    N/A
    
    
    
    17.68%  27.36
    %
    
    
    39.33%  66.60
    %
    
    
    12.21%  27.36
    %Monthly payment rate
    
    
    N/A
    
    
    
    18.99%  22.50
    %
    
    
    19.17%  22.20
    %
    
    
    18.79%  22.50
    %Loss rate
    
    
    N/A
    
    
    
    8.60%  12.37
    %
    
    
    14.54%  21.96
    %
    
    
    6.20%  12.37
    %Interest yield, net of interest earned by
securitization noteholders
    
    
    N/A
    
    
    
    12.29%  13.73
    %
    
    
    13.62%  15.06
    %
    
    
    8.79%  13.73
    %
 
 (1)
    
    Amounts reported for the three and nine months ended September 30, 2009 exclude interest on
AdvantaSeries Class A notes that is classified as interest income on the consolidated income
statements.  15




---



##### Table of Contents



Managed business credit card receivable data
  September 30,
    
    
    December 31,
    
    
    September 30,2009
    
    
    2008
    
    
    2008Owned business credit card receivables
    
    $
    833,050
    
    
    $
    505,578
    
    
    $
    726,652Securitized business credit card receivables
    
    
    2,128,247
    
    
    
    4,511,650
    
    
    
    4,863,634Total managed receivables
    
    $
    2,961,297
    
    
    $
    5,017,228
    
    
    $
    5,590,286Receivables 30 days or more delinquent(1):Owned
    
    $
    107,333
    
    
    $
    52,997
    
    
    $
    51,661Securitized
    
    
    268,490
    
    
    
    425,271
    
    
    
    314,740Total managed
    
    
    375,823
    
    
    
    478,268
    
    
    
    366,401Receivables 90 days or more delinquent(1):Owned
    
    
    26,512
    
    
    
    24,132
    
    
    
    24,531Securitized
    
    
    65,368
    
    
    
    188,424
    
    
    
    148,182Total managed
    
    
    91,880
    
    
    
    212,556
    
    
    
    172,713Nonaccrual receivables(1):Owned
    
    
    26,974
    
    
    
    9,688
    
    
    
    11,194Securitized
    
    
    70,151
    
    
    
    85,277
    
    
    
    72,398Total managed
    
    
    97,125
    
    
    
    94,965
    
    
    
    83,592Accruing receivables past due 90 days or more(1):Owned
    
    
    24,075
    
    
    
    22,166
    
    
    
    22,203Securitized
    
    
    58,996
    
    
    
    170,876
    
    
    
    133,710Total managed
    
    
    83,071
    
    
    
    193,042
    
    
    
    155,913Net principal charge-offs for the year-to-date period ended September 30 and
December 31(1):Owned
    
    
    129,625
    
    
    
    89,056
    
    
    
    64,964Securitized
    
    
    630,847
    
    
    
    449,964
    
    
    
    314,694Total managed
    
    
    760,472
    
    
    
    539,020
    
    
    
    379,658Net principal charge-offs for the three months ended September 30 and
December 31(1):Owned
    
    
    34,094
    
    
    
    24,092
    
    
    
    22,839Securitized
    
    
    152,951
    
    
    
    135,270
    
    
    
    124,303Total managed
    
    
    187,045
    
    
    
    159,362
    
    
    
    147,142
 
 (1)
    
    Effective June 2009, due to the closure of our customers accounts to future use, our
charge-off policy for contractually delinquent business credit card accounts changed to
charge-off an unpaid receivable no later than the end of the month in which it becomes and
remains past due 120 cumulative days from the contractual due date. Our previous policy was to
charge-off an unpaid receivable no later than the end of the month in which it became and
remained past due 180 cumulative days from the contractual due date. We had additional net
principal charge-offs associated with the change in charge-off policy in June 2009 of $25.1
million on owned receivables and $110.2 million on securitized receivables, for an aggregate
of $135.3 million of additional net principal charge-offs on managed receivables. Note 8) Other Assets and Liabilities
  September 30,
    
    
    December 31,2009
    
    
    2008Investment in Fleet Credit Card Services, L.P.
    
    $
    32,095
    
    
    $
    32,095Receivable from third party (see Note 11)
    
    
    28,155
    
    
    
    0Current income taxes receivable
    
    
    26,097
    
    
    
    4,962Cash surrender value of insurance contracts
    
    
    17,838
    
    
    
    17,264Prepaid assets
    
    
    12,530
    
    
    
    23,279Securities sold receivable
    
    
    3,789
    
    
    
    33,620Investment in preferred securities trust
    
    
    3,302
    
    
    
    3,093Net deferred tax asset
    
    
    2,255
    
    
    
    71,219Other
    
    
    12,972
    
    
    
    30,413Total other assets
    
    $
    139,033
    
    
    $
    215,945
 16




---



##### Table of Contents



September 30,
    
    
    December 31,2009
    
    
    2008Liability for unrecognized tax benefits
    
    $
    37,400
    
    
    $
    38,659Accrued interest payable
    
    
    36,593
    
    
    
    15,472Accounts payable and accrued expenses
    
    
    33,308
    
    
    
    31,781Cash back rewards liability
    
    
    14,036
    
    
    
    23,174Amounts due to the securitization trust
    
    
    9,367
    
    
    
    5,443Liabilities of discontinued operations
    
    
    1,503
    
    
    
    1,635Current income taxes payable
    
    
    726
    
    
    
    681Business rewards liability
    
    
    276
    
    
    
    30,563Cash overdraft
    
    
    0
    
    
    
    12,284Other
    
    
    16,060
    
    
    
    16,895Total other liabilities
    
    $
    149,269
    
    
    $
    176,587
  CumulativeDecember 31,
    
    
    Nine Months Ended
    
    
    September 30,
    
    
    Costs2008
    
    
    September 30, 2009
    
    
    2009
    
    
    IncurredAccrual
    
    
    Costs
    
    
    
    
    
    
    Accrual
    
    
    as of SeptemberBalance
    
    
    Incurred
    
    
    Payments
    
    
    Balance
    
    
    30, 2009Outsourcing of business processes
    
    $
    418
    
    
    $
    2,307
    
    
    $
    2,319
    
    
    $
    406
    
    
    $
    3,220Reduction in workforce- first quarter of 2009
    
    
    0
    
    
    
    9,780
    
    
    
    9,372
    
    
    
    408
    
    
    
    9,780Reduction in workforce- third quarter of 2009
    
    
    0
    
    
    
    8,135
    
    
    
    4,628
    
    
    
    3,507
    
    
    
    8,135Total
    
    $
    418
    
    
    $
    20,222
    
    
    $
    16,319
    
    
    $
    4,321
    
    
    $
    21,135
 17




---



##### Table of Contents



Note 9) Deposits
  September 30,
    
    December 31,2009
    
    2008Demand deposits
    
    $
    17,946
    
    
    $
    6,832Money market savings
    
    
    29,105
    
    
    
    78,546Time deposits of $100,000 or less
    
    
    824,030
    
    
    
    1,101,002Time deposits of more than $100,000
    
    
    1,211,818
    
    
    
    1,355,026Total deposits
    
    $
    2,082,899
    
    
    $
    2,541,406
  Year Ending December 31,2009
    
    $
    577,4292010
    
    
    873,5582011
    
    
    265,4552012
    
    
    36,0252013
    
    
    283,381
  Note 10) Debt and Other Borrowings
  September 30,
    
    
    December 31,2009
    
    
    2008RediReserve variable rate demand certificates (4.50%-4.65%)
    
    $
    5,403
    
    
    $
    10,76991 day retail notes, fixed (7.23%-7.70%)
    
    
    134
    
    
    
    1,8626 month retail notes, fixed (7.70%-8.62%)
    
    
    1,670
    
    
    
    4,47912 month retail notes, fixed (6.06%-10.44%)
    
    
    21,350
    
    
    
    40,11714 month retail notes, fixed (10.44%-11.56%)
    
    
    1,976
    
    
    
    018 month retail notes, fixed (5.97%-8.39%)
    
    
    2,810
    
    
    
    6,62024 month retail notes, fixed (5.45%-11.38%)
    
    
    18,851
    
    
    
    19,00030 month retail notes, fixed (5.50%-9.53%)
    
    
    3,574
    
    
    
    4,92936 month retail notes, fixed (5.59%-9.99%)
    
    
    8,029
    
    
    
    11,25748 month retail notes, fixed (5.12%-9.35%)
    
    
    5,931
    
    
    
    8,55860 month retail notes, fixed (5.59%-10.89%)
    
    
    41,442
    
    
    
    63,90284 month retail notes, fixed (6.30%-9.99%)
    
    
    4,573
    
    
    
    6,167120 month retail notes, fixed (6.77%-10.44%)
    
    
    24,748
    
    
    
    27,075Other retail notes, fixed (0.00%-9.53%)
    
    
    987
    
    
    
    1,863Total debt
    
    $
    141,478
    
    
    $
    206,598
   Year Ending December 31,2009
    
    $
    23,9272010
    
    
    38,2212011
    
    
    22,6252012
    
    
    13,1972013 and thereafter
    
    
    43,508
   18




---



##### Table of Contents



Note 11) Commitments and Contingencies
      19




---



##### Table of Contents



Note 12) Capital Stock
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Class A Common Stock
    
    $
    0.0000
    
    
    $
    0.1771
    
    
    $
    0.0200
    
    
    $
    0.5313Class B Common Stock
    
    
    0.0000
    
    
    
    0.2125
    
    
    
    0.0250
    
    
    $
    0.6375
    Note 13) Stock-Based Compensation
   WeightedAverage GrantNumber of
    
    
    Date Fair(Shares in thousands)
    
    Shares
    
    
    ValueOutstanding at January 1
    
    
    4,052
    
    
    $
    9.95Granted
    
    
    500
    
    
    
    1.19Forfeited
    
    
    (1,886
    )
    
    
    9.28Outstanding at September 30
    
    
    2,666
    
    
    $
    8.78
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Compensation expense (benefit)
    
    $
    348
    
    
    $
    (723
    )
    
    $
    (3,593
    )
    
    $
    3,757Income tax benefit (expense)
    
    
    122
    
    
    
    283
    
    
    
    (1,258
    )
    
    
    (1,301
    )
 20




---



##### Table of Contents



WeightedWeighted
    
    
    
    
    
    
    AverageAverage
    
    
    Aggregate
    
    
    RemainingNumber of
    
    
    Exercise
    
    
    Intrinsic
    
    
    Contractual(Shares in thousands)
    
    Options
    
    
    Price
    
    
    Value
    
    
    LifeOutstanding at January 1
    
    
    9,393
    
    
    $
    12.89Granted
    
    
    95
    
    
    
    3.36Forfeited
    
    
    (1,626
    )
    
    
    17.20Outstanding at September 30
    
    
    7,862
    
    
    $
    11.88
    
    
    $
    600
    
    
    6.6 yearsOptions exercisable at September 30
    
    
    6,272
    
    
    $
    10.75
    
    
    $
    0
    
    
    6.2 years
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Compensation expense(1)
    
    $
    0
    
    
    $
    1,129
    
    
    $
    2,406
    
    
    $
    4,050Income tax benefit
    
    
    0
    
    
    
    (463
    )
    
    
    842
    
    
    
    (1,403
    )Weighted average fair value of options granted
    
    
    N/A
    
    
    $
    1.60
    
    
    $
    0.14
    
    
    $
    1.95
 
 (1)
    
    Compensation expense for the three and nine months ended September 30, 2009 includes a $1.1
million benefit from a change in the estimate of the number of options expected to vest. Note 14) Regulatory Developments
   21




---



##### Table of Contents



Note 15) Segment Information
  Note 16) Gain on Extinguishment of Debt
  Note 17) Income Taxes
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September  30,2009
    
    
    2008
    
    
    2009
    
    
    2008Current:Federal
    
    $
    (2,736
    )
    
    $
    (1,804
    )
    
    $
    (29,422
    )
    
    $
    8,470State
    
    
    (152
    )
    
    
    1,004
    
    
    
    160
    
    
    
    1,814Total current
    
    
    (2,888
    )
    
    
    (800
    )
    
    
    (29,262
    )
    
    
    10,284Deferred:Federal
    
    
    0
    
    
    
    (15,034
    )
    
    
    62,491
    
    
    
    (11,366
    )State
    
    
    0
    
    
    
    (535
    )
    
    
    1,571
    
    
    
    (498
    )Total deferred
    
    
    0
    
    
    
    (15,569
    )
    
    
    64,062
    
    
    
    (11,864
    )Income tax expense (benefit)
    
    $
    (2,888
    )
    
    $
    (16,369
    )
    
    $
    34,800
    
    
    $
    (1,580
    )
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Statutory federal income tax
    
    $
    (27,781
    )
    
    $
    (12,469
    )
    
    $
    (156,681
    )
    
    $
    539State income taxes, net of federal income tax benefit
    
    
    (1,123
    )
    
    
    100
    
    
    
    (5,241
    )
    
    
    803Valuation allowance
    
    
    28,082
    
    
    
    0
    
    
    
    195,831
    
    
    
    0Difference in estimated full year rate and year-to-date actual rate
    
    
    (2,403
    )
    
    
    (3,557
    )
    
    
    0
    
    
    
    (3,557
    )Compensation limitation
    
    
    44
    
    
    
    (217
    )
    
    
    132
    
    
    
    181Nondeductible expenses
    
    
    193
    
    
    
    (101
    )
    
    
    512
    
    
    
    551Other
    
    
    100
    
    
    
    (125
    )
    
    
    247
    
    
    
    (97
    )Income tax expense (benefit)
    
    $
    (2,888
    )
    
    $
    (16,369
    )
    
    $
    34,800
    
    
    $
    (1,580
    )
  22




---



##### Table of Contents



September 30,
    
    
    December 31,2009
    
    
    2008Deferred tax assets
    
    $
    266,647
    
    
    $
    90,373Deferred tax liabilities
    
    
    (68,561
    )
    
    
    (19,154
    )Net deferred tax asset before valuation allowance
    
    
    198,086
    
    
    
    71,219Valuation allowance
    
    
    (195,831
    )
    
    
    0Net deferred tax asset
    
    $
    2,255
    
    
    $
    71,219
  September 30,
    
    
    December 31,2009
    
    
    2008Net operating loss carryforwards
    
    $
    97,607
    
    
    $
    0Receivable losses
    
    
    59,759
    
    
    
    6,892Cancellation of indebtedness income, net
    
    
    (26,635
    )
    
    
    0Alternative minimum tax credit carryforwards
    
    
    22,451
    
    
    
    0Federal tax benefit of state tax positions
    
    
    10,554
    
    
    
    10,982Incentive and deferred compensation
    
    
    8,627
    
    
    
    8,388Deferred revenue
    
    
    (8,347
    )
    
    
    (14,519
    )Rewards programs
    
    
    5,009
    
    
    
    18,796Pricing strategies restitution
    
    
    3,130
    
    
    
    0Unrealized investment losses
    
    
    2,255
    
    
    
    7,157Securitization income
    
    
    (1,960
    )
    
    
    21,590Visa indemnification
    
    
    1,565
    
    
    
    2,062Deferred origination costs, net of deferred fees
    
    
    0
    
    
    
    (1,652
    )Other
    
    
    24,071
    
    
    
    11,523Net deferred tax asset before valuation allowance
    
    
    198,086
    
    
    
    71,219Valuation allowance
    
    
    (195,831
    )
    
    
    0Net deferred tax asset
    
    $
    2,255
    
    
    $
    71,219
   September 30,
    
    
    December 31,2009
    
    
    2008Balance at January 1
    
    $
    16,106
    
    
    $
    17,732Additions based on tax positions related to the current year
    
    
    0
    
    
    
    714Additions for tax positions of prior years
    
    
    971
    
    
    
    104Reductions for tax positions of prior years
    
    
    (947
    )
    
    
    (1,989
    )Settlements
    
    
    (1,123
    )
    
    
    (455
    )Unrecognized tax benefits
    
    $
    15,007
    
    
    $
    16,106
  23




---



##### Table of Contents



Note 18) Calculation of Earnings Per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    (76,485
    )
    
    $
    (19,258
    )
    
    $
    (482,459
    )
    
    $
    3,119Less: Preferred A dividends
    
    
    0
    
    
    
    0
    
    
    
    (141
    )
    
    
    (141
    )Net income (loss) allocable to common stockholders
    
    
    (76,485
    )
    
    
    (19,258
    )
    
    
    (482,600
    )
    
    
    2,978Less: Class A dividends declared
    
    
    0
    
    
    
    (2,370
    )
    
    
    (269
    )
    
    
    (7,107
    )Less: Class B dividends declared
    
    
    0
    
    
    
    (5,787
    )
    
    
    (684
    )
    
    
    (17,319
    )Less: Nonvested Class B dividends declared
    
    
    0
    
    
    
    (672
    )
    
    
    (44
    )
    
    
    (1,540
    )Undistributed net income (loss)
    
    $
    (76,485
    )
    
    $
    (28,087
    )
    
    $
    (483,597
    )
    
    $
    (22,988
    )Basic net income (loss) per common shareClass A
    
    $
    (1.89
    )
    
    $
    (0.51
    )
    
    $
    (11.90
    )
    
    $
    (0.04
    )Class B
    
    
    (1.89
    )
    
    
    (0.48
    )
    
    
    (11.89
    )
    
    
    0.07Diluted net income (loss) per common shareClass A
    
    $
    (1.89
    )
    
    $
    (0.51
    )
    
    $
    (11.90
    )
    
    $
    (0.02
    )Class B
    
    
    (1.89
    )
    
    
    (0.48
    )
    
    
    (11.89
    )
    
    
    0.06Basic weighted average common shares outstandingClass A
    
    
    13,443
    
    
    
    13,393
    
    
    
    13,430
    
    
    
    13,380Class B
    
    
    27,117
    
    
    
    27,217
    
    
    
    27,145
    
    
    
    27,127Nonvested Class B
    
    
    2,891
    
    
    
    4,030
    
    
    
    3,447
    
    
    
    3,061Dilutive effect of Options Class B
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,078Diluted weighted average common shares outstandingClass A
    
    
    13,443
    
    
    
    13,393
    
    
    
    13,430
    
    
    
    13,380Class B
    
    
    27,117
    
    
    
    27,217
    
    
    
    27,145
    
    
    
    28,205Nonvested Class B
    
    
    2,891
    
    
    
    4,030
    
    
    
    3,447
    
    
    
    3,061Antidilutive shares Options Class B
    
    
    8,104
    
    
    
    9,435
    
    
    
    8,573
    
    
    
    5,188
 24




---



##### Table of Contents



Note 19) Fair Value of Financial Instruments
  September 30, 2009
    
    December 31, 2008Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueFinancial assets:Cash
    
    $
    29,555
    
    
    $
    29,555
    
    
    $
    31,716
    
    
    $
    31,716Federal funds sold
    
    
    208
    
    
    
    208
    
    
    
    32,277
    
    
    
    32,277Interest-bearing deposits
    
    
    1,172,179
    
    
    
    1,172,179
    
    
    
    1,595,138
    
    
    
    1,595,138Investments available for sale
    
    
    242,841
    
    
    
    242,841
    
    
    
    977,245
    
    
    
    977,245Receivables, net
    
    
    734,133
    
    
    
    666,677
    
    
    
    414,844
    
    
    
    498,468Accounts receivable from securitizations
    
    
    168,467
    
    
    
    168,467
    
    
    
    301,118
    
    
    
    301,118Accrued interest receivable
    
    
    6,922
    
    
    
    6,922
    
    
    
    5,353
    
    
    
    5,353Financial liabilities:Demand and savings deposits
    
    $
    47,051
    
    
    $
    47,051
    
    
    $
    85,378
    
    
    $
    85,378Time deposits
    
    
    2,035,848
    
    
    
    2,084,722
    
    
    
    2,456,028
    
    
    
    2,493,258Debt
    
    
    141,478
    
    
    
    132,033
    
    
    
    206,598
    
    
    
    203,077Other borrowings
    
    
    0
    
    
    
    0
    
    
    
    50,000
    
    
    
    50,000Subordinated debt payable to preferred securities trust
    
    
    92,290
    
    
    
    4,615
    
    
    
    103,093
    
    
    
    5,656Accrued interest payable
    
    
    36,593
    
    
    
    36,593
    
    
    
    15,472
    
    
    
    15,472
  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
   25




---



##### Table of Contents



Cash,
Federal Funds Sold, Interest-Bearing Deposits, Accrued Interest Receivable, Other Borrowings and Accrued Interest Payable
  Investments Available for Sale
  Cost Method Investments
  Receivables, Net
  Accounts Receivable from Securitizations
   Demand and Savings Deposits
  Time Deposits
  26




---



##### Table of Contents



Debt
  Subordinated Debt Payable to Preferred Securities Trust
  Assets and Liabilities Measured at Fair Value on a Recurring Basis
  September 30, 2009QuotedPrices 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
    
    $
    8,932
    
    
    $
    0
    
    
    $
    0
    
    
    $
    8,932State and municipal securities
    
    
    0
    
    
    
    15,421
    
    
    
    0
    
    
    
    15,421Corporate bonds
    
    
    0
    
    
    
    10,031
    
    
    
    0
    
    
    
    10,031Asset-backed securities:Credit card asset-backed securities
    
    
    0
    
    
    
    0
    
    
    
    70,221
    
    
    
    70,221Mortgage and home equity line of credit-backed securities
    
    
    0
    
    
    
    4,340
    
    
    
    13,535
    
    
    
    17,875Equity securities
    
    
    8,151
    
    
    
    0
    
    
    
    46
    
    
    
    8,197Money market funds
    
    
    111,797
    
    
    
    0
    
    
    
    0
    
    
    
    111,797Other
    
    
    0
    
    
    
    367
    
    
    
    0
    
    
    
    367Retained interests in securitizations
    
    
    0
    
    
    
    0
    
    
    
    5,602
    
    
    
    5,602Total assets measured at fair value
    
    $
    128,880
    
    
    $
    30,159
    
    
    $
    89,404
    
    
    $
    248,443
 December 31, 2008QuotedPrices 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
    
    $
    306,309
    
    
    $
    6,900
    
    
    $
    0
    
    
    $
    313,209State and municipal securities
    
    
    0
    
    
    
    17,064
    
    
    
    0
    
    
    
    17,064Commercial paper
    
    
    0
    
    
    
    8,799
    
    
    
    0
    
    
    
    8,799Asset-backed securities:Credit card asset-backed securities
    
    
    0
    
    
    
    0
    
    
    
    281,601
    
    
    
    281,601Mortgage and home equity line of credit-backed securities
    
    
    0
    
    
    
    5,065
    
    
    
    17,402
    
    
    
    22,467Equity securities
    
    
    8,068
    
    
    
    0
    
    
    
    123
    
    
    
    8,191Money market funds
    
    
    325,548
    
    
    
    0
    
    
    
    0
    
    
    
    325,548Other
    
    
    0
    
    
    
    366
    
    
    
    0
    
    
    
    366Retained interests in securitizations
    
    
    0
    
    
    
    0
    
    
    
    125,601
    
    
    
    125,601Total assets measured at fair value
    
    $
    639,925
    
    
    $
    38,194
    
    
    $
    424,727
    
    
    $
    1,102,846
 27




---



##### Table of Contents



Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis
 Mortgage andHome Equity Line
    
    
    Credit Card
    
    
    
    
    
    
    Retainedof Credit-Backed
    
    
    Asset-Backed
    
    
    Equity
    
    
    Interests inSecurities
    
    
    Securities
    
    
    Securities
    
    
    Securitizations
    
    
    TotalFair value at January 1, 2009
    
    $
    17,402
    
    
    $
    281,601
    
    
    $
    123
    
    
    $
    125,601
    
    
    $
    424,727Discount accretion
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    23,394
    
    
    
    23,394Realized loss(1)(2)
    
    
    (7,011
    )
    
    
    0
    
    
    
    0
    
    
    
    (147,698
    )
    
    
    (154,709
    )Unrealized gain (loss)(2)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    44,466
    
    
    
    44,466Unrealized loss in other comprehensive income (loss)
    
    
    5,749
    
    
    
    8,146
    
    
    
    (53
    )
    
    
    0
    
    
    
    13,842Purchases, sales, issuances, settlements, net
    
    
    (2,605
    )
    
    
    (219,526
    )
    
    
    (24
    )
    
    
    (40,161
    )
    
    
    (262,316
    )Transfers in and/or out of Level 3
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Fair value at September 30, 2009
    
    $
    13,535
    
    
    $
    70,221
    
    
    $
    46
    
    
    $
    5,602
    
    
    $
    89,404
 
 (1)
    
    Realized loss includes $7.0 million of other-than-temporary impairment losses on mortgage and
home equity line of credit-backed securities.(2)
    
    Realized or unrealized gains or losses on retained interests in securitizations are included
in securitization income (loss) on the consolidated income statements.  28




---



##### Table of Contents



OVERVIEW
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,($ in thousands, except per share data)
    
    2009
    
    2008
    
    2009
    
    2008Pretax income (loss)
    
    $
    (79,373
    )
    
    $
    (35,627
    )
    
    $
    (447,659
    )
    
    $
    1,539Income tax expense (benefit)
    
    
    (2,888
    )
    
    
    (16,369
    )
    
    
    34,800
    
    
    
    (1,580
    )Net income (loss)
    
    $
    (76,485
    )
    
    $
    (19,258
    )
    
    $
    (482,459
    )
    
    $
    3,119Diluted net income (loss) per common share:Class A
    
    $
    (1.89
    )
    
    $
    (0.51
    )
    
    $
    (11.90
    )
    
    $
    (0.02
    )Class B
    
    $
    (1.89
    )
    
    $
    (0.48
    )
    
    $
    (11.89
    )
    
    $
    0.06
    29




---



##### Table of Contents



30




---



##### Table of Contents



SUBSEQUENT EVENTS
 Reorganizations.
    31




---



##### Table of Contents



CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  RESULTS OF OPERATIONS
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,($ in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net interest income
    
    $
    4,501
    
    
    $
    22,268
    
    
    $
    13,167
    
    
    $
    65,403Noninterest revenues (losses)
    
    
    18,945
    
    
    
    53,036
    
    
    
    (123,172
    )
    
    
    257,016Provision for credit losses
    
    
    (56,993
    )
    
    
    (28,994
    )
    
    
    (133,605
    )
    
    
    (87,703
    )Operating expenses
    
    
    (45,826
    )
    
    
    (81,937
    )
    
    
    (204,049
    )
    
    
    (233,177
    )Pretax income (loss)
    
    $
    (79,373
    )
    
    $
    (35,627
    )
    
    $
    (447,659
    )
    
    $
    1,539
     32




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,($ in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Average owned receivables
    
    $
    702,036
    
    
    $
    858,331
    
    
    $
    646,849
    
    
    $
    1,006,859Average securitized receivables
    
    $
    2,615,209
    
    
    $
    5,030,299
    
    
    $
    3,600,505
    
    
    $
    5,147,465Customer transaction volume:Merchandise sales
    
    $
    (5
    )
    
    $
    2,940,685
    
    
    $
    3,847,791
    
    
    $
    8,835,663Balance transfers
    
    
    0
    
    
    
    97,304
    
    
    
    108,647
    
    
    
    457,393Cash usage
    
    
    0
    
    
    
    249,489
    
    
    
    409,741
    
    
    
    904,246Total customer transaction volume
    
    $
    (5
    )
    
    $
    3,287,478
    
    
    $
    4,366,179
    
    
    $
    10,197,302New account originations
    
    
    0
    
    
    
    18,581
    
    
    
    4,509
    
    
    
    111,944Average number of active accounts(1)
    
    
    441,902
    
    
    
    897,138
    
    
    
    634,593
    
    
    
    929,640Ending number of accounts at September 30
    
    
    394,454
    
    
    
    1,206,580
    
    
    
    394,454
    
    
    
    1,206,580
 
 (1)
    
    Active accounts are defined as accounts with a balance at month-end. Active account
statistics do not include charged-off accounts. The statistics reported above are the average
number of active accounts for the three and nine months ended September 30.  INTEREST INCOME AND EXPENSE
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,($ in thousands)
    
    2009
    
    2008
    
    2009
    
    2008Interest income
    
    $
    30,393
    
    
    $
    51,009
    
    
    $
    98,187
    
    
    $
    152,325Interest expense
    
    
    25,892
    
    
    
    28,741
    
    
    
    85,020
    
    
    
    86,922
   33




---



##### Table of Contents



INTEREST RATE ANALYSIS AND AVERAGE BALANCES
 Three Months Ended September 30,2009
    
    
    2008Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average($ in thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateInterest-earning assets:Owned receivables:Business credit cards(1)
    
    $
    702,036
    
    
    $
    28,164
    
    
    
    15.92
    %
    
    $
    858,331
    
    
    $
    30,940
    
    
    
    14.34
    %Other receivables
    
    
    8,290
    
    
    
    84
    
    
    
    4.05
    
    
    
    7,739
    
    
    
    91
    
    
    
    4.71Total receivables
    
    
    710,326
    
    
    
    28,248
    
    
    
    15.78
    
    
    
    866,070
    
    
    
    31,031
    
    
    
    14.25Investments(2)
    
    
    1,721,115
    
    
    
    2,035
    
    
    
    0.47
    
    
    
    1,744,834
    
    
    
    10,556
    
    
    
    2.37Retained interests in securitizations
    
    
    5,183
    
    
    
    110
    
    
    
    8.48
    
    
    
    212,239
    
    
    
    9,422
    
    
    
    17.76Total interest-earning assets(3)
    
    
    2,436,624
    
    
    $
    30,393
    
    
    
    4.95
    %
    
    
    2,823,143
    
    
    $
    51,009
    
    
    
    7.17
    %Noninterest-earning assets
    
    
    408,987
    
    
    
    
    
    
    
    
    
    
    
    394,888Total assets
    
    $
    2,845,611
    
    
    
    
    
    
    
    
    
    
    $
    3,218,031Interest-bearing liabilities:Deposits
    
    $
    2,341,003
    
    
    $
    21,321
    
    
    
    3.61
    %
    
    $
    2,011,206
    
    
    $
    22,227
    
    
    
    4.40
    %Debt
    
    
    155,739
    
    
    
    2,390
    
    
    
    6.09
    
    
    
    225,334
    
    
    
    3,565
    
    
    
    6.29Subordinated debt payable to preferred securities trust
    
    
    92,290
    
    
    
    2,181
    
    
    
    9.45
    
    
    
    103,093
    
    
    
    2,317
    
    
    
    8.99Other borrowings
    
    
    1
    
    
    
    0
    
    
    
    0.70
    
    
    
    25,195
    
    
    
    632
    
    
    
    9.82Total interest-bearing liabilities
    
    
    2,589,033
    
    
    $
    25,892
    
    
    
    3.97
    %
    
    
    2,364,828
    
    
    $
    28,741
    
    
    
    4.84
    %Noninterest-bearing liabilities
    
    
    188,852
    
    
    
    
    
    
    
    
    
    
    
    266,532Total liabilities
    
    
    2,777,885
    
    
    
    
    
    
    
    
    
    
    
    2,631,360Stockholders equity
    
    
    67,726
    
    
    
    
    
    
    
    
    
    
    
    586,671Total liabilities and stockholders equity
    
    $
    2,845,611
    
    
    
    
    
    
    
    
    
    
    $
    3,218,031Net interest spread
    
    
    
    
    
    
    
    
    
    
    0.98
    %
    
    
    
    
    
    
    
    
    
    
    2.33
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    0.73
    %
    
    
    
    
    
    
    
    
    
    
    3.14
    %
 
 (1)
    
    Interest income includes late fees for owned business credit card receivables of $1.4 million
for the three months ended September 30, 2009 and $1.9 million for the same period of 2008.(2)
    
    Includes federal funds sold, interest-bearing deposits and investments available for sale.(3)
    
    Includes assets held and available for sale and nonaccrual receivables. 34




---



##### Table of Contents



Nine Months Ended September 30,2009
    
    
    2008Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average($ in thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateInterest-earning assets:Owned receivables:Business credit cards(1)
    
    $
    646,849
    
    
    $
    62,959
    
    
    
    13.01
    %
    
    $
    1,006,859
    
    
    $
    97,633
    
    
    
    12.95
    %Other receivables
    
    
    8,217
    
    
    
    249
    
    
    
    4.06
    
    
    
    7,604
    
    
    
    278
    
    
    
    4.89Total receivables
    
    
    655,066
    
    
    
    63,208
    
    
    
    12.90
    
    
    
    1,014,463
    
    
    
    97,911
    
    
    
    12.89Investments(2)
    
    
    2,011,495
    
    
    
    11,585
    
    
    
    0.76
    
    
    
    1,438,091
    
    
    
    28,446
    
    
    
    2.60Retained interests in securitizations
    
    
    64,686
    
    
    
    23,394
    
    
    
    48.22
    
    
    
    216,939
    
    
    
    25,972
    
    
    
    15.96Total interest-earning assets(3)
    
    
    2,731,247
    
    
    $
    98,187
    
    
    
    4.80
    %
    
    
    2,669,493
    
    
    $
    152,329
    
    
    
    7.60
    %Noninterest-earning assets
    
    
    485,100
    
    
    
    
    
    
    
    
    
    
    
    440,656Total assets
    
    $
    3,216,347
    
    
    
    
    
    
    
    
    
    
    $
    3,110,149Interest-bearing liabilities:Deposits
    
    $
    2,430,550
    
    
    $
    70,370
    
    
    
    3.87
    %
    
    $
    1,947,129
    
    
    $
    67,746
    
    
    
    4.65
    %Debt
    
    
    175,439
    
    
    
    7,316
    
    
    
    5.58
    
    
    
    220,433
    
    
    
    10,488
    
    
    
    6.36Subordinated debt payable to preferred securities trust
    
    
    98,938
    
    
    
    6,780
    
    
    
    9.14
    
    
    
    103,093
    
    
    
    6,951
    
    
    
    8.99Other borrowings
    
    
    20,958
    
    
    
    554
    
    
    
    3.49
    
    
    
    25,651
    
    
    
    1,737
    
    
    
    8.90Total interest-bearing liabilities
    
    
    2,725,885
    
    
    $
    85,020
    
    
    
    4.17
    %
    
    
    2,296,306
    
    
    $
    86,922
    
    
    
    5.05
    %Noninterest-bearing liabilities
    
    
    197,687
    
    
    
    
    
    
    
    
    
    
    
    222,105Total liabilities
    
    
    2,923,572
    
    
    
    
    
    
    
    
    
    
    
    2,518,411Stockholders equity
    
    
    292,775
    
    
    
    
    
    
    
    
    
    
    
    591,738Total liabilities and stockholders equity
    
    $
    3,216,347
    
    
    
    
    
    
    
    
    
    
    $
    3,110,149Net interest spread
    
    
    
    
    
    
    
    
    
    
    0.63
    %
    
    
    
    
    
    
    
    
    
    
    2.55
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    0.64
    %
    
    
    
    
    
    
    
    
    
    
    3.27
    %
 
 (1)
    
    Interest income includes late fees for owned business credit card receivables of $3.7 million
for the nine months ended September 30, 2009 and $5.8 million for the same period of 2008.(2)
    
    Includes federal funds sold, interest-bearing deposits and investments available for sale.(3)
    
    Includes assets held and available for sale and nonaccrual receivables. 35




---



##### Table of Contents



PROVISION AND ALLOWANCE FOR RECEIVABLE LOSSES
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,($ in thousands)
    
    2009
    
    2008
    
    2009
    
    2008Provision for credit losses
    
    $
    56,993
    
    
    $
    28,994
    
    
    $
    133,605
    
    
    $
    87,703Provision for interest and fee losses
    
    
    6,903
    
    
    
    5,004
    
    
    
    27,173
    
    
    
    15,422
    Uniform Retail
Credit Classification and Account Management Policy Credit Card Lending Guidance
 36




---



##### Table of Contents



Uniform
Retail Credit Classification and Account Management Policy
  September 30,
    
    December 31,
    
    September 30,($ in thousands)
    
    2009
    
    2008
    
    2008Allowance for receivable losses
    
    $
    105,829
    
    
    $
    102,700
    
    
    $
    90,657Receivables 30 days or more delinquent
    
    
    107,333
    
    
    
    52,997
    
    
    
    51,661Receivables 90 days or more delinquent
    
    
    26,512
    
    
    
    24,132
    
    
    
    24,531Nonaccrual receivables
    
    
    26,974
    
    
    
    9,688
    
    
    
    11,194Accruing receivables past due 90 days or more
    
    
    24,075
    
    
    
    22,166
    
    
    
    22,203As a percentage of receivables:Allowance for receivable losses
    
    
    12.70
    %
    
    
    20.31
    %
    
    
    12.48
    %Receivables 30 days or more delinquent
    
    
    12.88
    
    
    
    10.48
    
    
    
    7.11Receivables 90 days or more delinquent
    
    
    3.18
    
    
    
    4.77
    
    
    
    3.38Nonaccrual receivables
    
    
    3.24
    
    
    
    1.92
    
    
    
    1.54Accruing receivables past due 90 days or more
    
    
    2.89
    
    
    
    4.38
    
    
    
    3.06Net principal charge-offs for the year-to-date period ended September 30 and
December 31
    
    $
    129,625
    
    
    $
    89,056
    
    
    $
    64,964As a percentage of average receivables (annualized)
    
    
    26.72
    %
    
    
    9.62
    %
    
    
    8.60
    %Net principal charge-offs for the three months ended September 30 and December 31
    
    $
    34,094
    
    
    $
    24,092
    
    
    $
    22,839As a percentage of average receivables (annualized)
    
    
    19.43
    %
    
    
    14.09
    %
    
    
    10.64
    %
 SECURITIZATION INCOME (LOSS)
  July 2009
    
    Aug. 2009
    
    Sept. 2009
    
    July 2008
    
    Aug. 2008
    
    Sept. 2008Monthly excess spread percentages
    
    
    (8.72
    )%
    
    
    (5.40
    )%
    
    
    (9.13
    )%
    
    
    4.39
    %
    
    
    6.42
    %
    
    
    4.47
    %
   ($ in thousands)
    
    2009
    
    2008Three months ended September 30
    
    $
    3,490
    
    
    $
    (8,673
    )Nine months ended September 30
    
    
    (235,434
    )
    
    
    12,932
  37




---



##### Table of Contents



SERVICING REVENUES
  ($ in thousands)
    
    2009
    
    2008Three months ended September 30
    
    $
    11,688
    
    
    $
    24,483Nine months ended September 30
    
    
    50,588
    
    
    
    74,940
  GAIN ON EXTINGUISHMENT OF DEBT
  38




---



##### Table of Contents



OTHER REVENUES
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,($ in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Investment securities gains (losses), net:The Reserve Primary Fund
    
    $
    1,384
    
    
    $
    (1,042
    )
    
    $
    524
    
    
    $
    (1,042
    )Other-than-temporary impairment losses
    
    
    (418
    )
    
    
    0
    
    
    
    (7,011
    )
    
    
    0Visa Inc.
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    13,408MasterCard Incorporated
    
    
    0
    
    
    
    5,428
    
    
    
    0
    
    
    
    24,251Venture capital investments
    
    
    0
    
    
    
    0
    
    
    
    (53
    )
    
    
    (2
    )Other
    
    
    667
    
    
    
    0
    
    
    
    667
    
    
    
    99Investment securities gains (losses), net
    
    
    1,633
    
    
    
    4,386
    
    
    
    (5,873
    )
    
    
    36,714Customer referral fees
    
    
    1,487
    
    
    
    0
    
    
    
    2,544
    
    
    
    0Business rewards
    
    
    191
    
    
    
    (7,580
    )
    
    
    (13,700
    )
    
    
    (21,106
    )Cash back rewards
    
    
    (30
    )
    
    
    (30,718
    )
    
    
    (22,421
    )
    
    
    (61,383
    )Interchange income (loss)
    
    
    (71
    )
    
    
    67,822
    
    
    
    88,933
    
    
    
    204,097Earnings on investment in Fleet Credit Card Services, L.P.
    
    
    0
    
    
    
    843
    
    
    
    94
    
    
    
    938Balance transfer and cash usage fees
    
    
    0
    
    
    
    1,338
    
    
    
    1,488
    
    
    
    6,202Other business credit card fees
    
    
    173
    
    
    
    904
    
    
    
    981
    
    
    
    3,009Other, net
    
    
    384
    
    
    
    231
    
    
    
    1,071
    
    
    
    673Total other revenues, net
    
    $
    3,767
    
    
    $
    37,226
    
    
    $
    53,117
    
    
    $
    169,144
     39




---



##### Table of Contents



OPERATING EXPENSES
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,($ in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Salaries and employee benefits
    
    $
    18,015
    
    
    $
    24,028
    
    
    $
    65,285
    
    
    $
    83,674External processing
    
    
    6,156
    
    
    
    11,207
    
    
    
    24,128
    
    
    
    28,672Credit
    
    
    3,885
    
    
    
    6,079
    
    
    
    16,325
    
    
    
    11,531Professional fees
    
    
    2,959
    
    
    
    6,616
    
    
    
    11,746
    
    
    
    18,265Deposit insurance
    
    
    2,942
    
    
    
    636
    
    
    
    6,672
    
    
    
    1,151Occupancy
    
    
    2,529
    
    
    
    2,680
    
    
    
    7,553
    
    
    
    7,729Equipment
    
    
    2,434
    
    
    
    3,645
    
    
    
    10,230
    
    
    
    10,606Fraud
    
    
    1,704
    
    
    
    1,554
    
    
    
    5,654
    
    
    
    5,111Insurance
    
    
    1,670
    
    
    
    912
    
    
    
    3,584
    
    
    
    2,400Visa indemnification
    
    
    (1,418
    )
    
    
    1,636
    
    
    
    (1,418
    )
    
    
    (3,865
    )Marketing
    
    
    1,186
    
    
    
    9,820
    
    
    
    12,900
    
    
    
    23,221Telephone
    
    
    897
    
    
    
    1,107
    
    
    
    3,083
    
    
    
    2,838Postage
    
    
    842
    
    
    
    1,535
    
    
    
    3,820
    
    
    
    4,664Travel and entertainment
    
    
    793
    
    
    
    1,487
    
    
    
    2,465
    
    
    
    3,350Impairment of assets
    
    
    0
    
    
    
    0
    
    
    
    5,328
    
    
    
    0Amortization of deferred origination costs, net
    
    
    0
    
    
    
    6,865
    
    
    
    3,728
    
    
    
    27,056Restitution associated with pricing strategies
    
    
    0
    
    
    
    0
    
    
    
    19,000
    
    
    
    0Other
    
    
    1,232
    
    
    
    2,130
    
    
    
    3,966
    
    
    
    6,774Total operating expenses
    
    $
    45,826
    
    
    $
    81,937
    
    
    $
    204,049
    
    
    $
    233,177
   40




---



##### Table of Contents



41




---



##### Table of Contents



CONTINGENCIES
      42




---



##### Table of Contents



INCOME TAXES
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,($ in thousands)
    
    2009
    
    2008
    
    2009
    
    2008Income tax expense (benefit)
    
    $
    (2,888
    )
    
    $
    (16,369
    )
    
    $
    34,800
    
    
    $
    (1,580
    )Effective tax expense (benefit) rate
    
    
    (3.6
    )%
    
    
    (46.0
    )%
    
    
    7.8
    %
    
    
    (102.7
    )%
    OFF-BALANCE SHEET ARRANGEMENTS
   43




---



##### Table of Contents



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,($ in thousands)
    
    2009
    
    2008
    
    2009
    
    2008Average securitized receivables
    
    $
    2,615,209
    
    
    $
    5,030,299
    
    
    $
    3,600,505
    
    
    $
    5,147,465Securitization income (loss)
    
    
    3,490
    
    
    
    (8,673
    )
    
    
    (235,434
    )
    
    
    12,932Discount accretion
    
    
    110
    
    
    
    9,422
    
    
    
    23,394
    
    
    
    25,972Interchange income
    
    
    (80
    )
    
    
    58,267
    
    
    
    78,602
    
    
    
    171,511Servicing revenues
    
    
    11,688
    
    
    
    24,483
    
    
    
    50,588
    
    
    
    74,940Proceeds from new securitizations
    
    
    0
    
    
    
    0
    
    
    
    125,000
    
    
    
    318,025Proceeds from collections reinvested in revolving-period securitizations
    
    
    0
    
    
    
    2,860,791
    
    
    
    2,867,245
    
    
    
    7,994,045Cash flows received on retained interests
    
    
    570
    
    
    
    64,637
    
    
    
    113,066
    
    
    
    257,223
   44




---



##### Table of Contents



MARKET RISK SENSITIVITY
  September 30,
    
    December 31,2009
    
    2008Estimated percentage increase (decrease) in net interest income on owned assets:Assuming 200 basis point increase
    
    
    1.2
    %
    
    
    334
    %Assuming 200 basis point decrease
    
    
    (0.1
    )%
    
    
    62
    %
   LIQUIDITY, CAPITAL RESOURCES AND ANALYSIS OF FINANCIAL CONDITION
   45




---



##### Table of Contents



September 30, 2009
    
    
    December 31, 2008($ in thousands)
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Deposits
    
    $
    2,082,899
    
    
    
    89
    
    
    $
    2,541,406
    
    
    
    75Debt
    
    
    141,478
    
    
    
    6
    
    
    
    206,598
    
    
    
    6Other borrowings
    
    
    0
    
    
    
    0
    
    
    
    50,000
    
    
    
    1Subordinated debt payable to preferred securities trust
    
    
    92,290
    
    
    
    4
    
    
    
    103,093
    
    
    
    3Equity
    
    
    31,961
    
    
    
    1
    
    
    
    507,361
    
    
    
    15Total
    
    $
    2,348,628
    
    
    
    100
    %
    
    $
    3,408,458
    
    
    
    100
    %
  46




---



##### Table of Contents



47




---



##### Table of Contents



VALUATION OF FINANCIAL INSTRUMENTS
  .
    48




---



##### Table of Contents



49




---



##### Table of Contents



CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
   (1)
    
    our ability to comply with the cease and desist orders and regulatory agreements and the
risk of further regulatory enforcement or other actions if we are not able to comply;(2)
    
    our ability to implement new business activities and opportunities or pursue strategies
for maximizing our capital and our liquidity measures, including, if applicable, our ability
to obtain regulatory approval for any of the foregoing;(3)
    
    our ability to continue as a going concern and the effects of
our filing for bankruptcy protection on Advanta Corp. and the
interests of our creditors, equity holders and other constituents;(4)
    
    political conditions, social conditions, monetary and fiscal policies and general
economic and other environmental conditions, including the impact of the ongoing disruption
in the capital markets and deterioration of the U.S. economy, as well as the potential for
further deterioration and disruption, and the impact of these factors on delinquencies,
charge-offs, the
 50




---



##### Table of Contents



value of and ability to realize expected returns on our investments, our future business
opportunities and other results of operations;(5)
    
    the impact of early amortization and closing of our customers accounts on delinquencies,
charge-offs, payment rates and cash flows from receivables;(6)
    
    interest rate and credit spread fluctuations;(7)
    
    our ability to achieve our expected level of operating cost reductions;(8)
    
    factors affecting our level of liquidity, including our ability to access adequate
sources of funding and our ability to monetize our investments;(9)
    
    factors affecting our ability to implement our plans to limit our credit loss exposure
and strengthen our capital and our liquidity measures;(10)
    
    government regulation of banking and finance businesses, including the effects of and
changes in the level of scrutiny, regulatory requirements and regulatory initiatives,
certain mandatory and possibly discretionary actions by state and federal regulators,
restrictions and limitations imposed by banking laws, regulators, examinations and reviews,
and the effects of, and changes in, regulatory policies, guidance, interpretations and
initiatives and agreements between us and our regulators;(11)
    
    effect of, and changes in, tax laws, rates, regulations and policies;(12)
    
    effect of legal and regulatory developments relating to the legality of certain business
methods, practices and policies of credit card issuers and the ultimate resolution of
industry-related judicial proceedings relating to the legality of certain interchange rates;(13)
    
    relationships with customers, significant vendors and business partners;(14)
    
    our ability to identify, develop and implement new business opportunities and activities,
including difficulties or delays in the development, acquisition, production, testing and
marketing of products and services, the ability and cost to obtain intellectual property
rights or a failure to implement new products or services when anticipated;(15)
    
    factors affecting our net interest income;(16)
    
    the performance of the securitized receivables, including credit losses, yields and
payment rates, that may impact the returns earned on our sellers interest in the Advanta
Business Card Master Trust and the AdvantaSeries Class A note held in our investment
portfolio;(17)
    
    the effects of changes in accounting policies or practices as may be required by changes
in U.S. generally accepted accounting principles;(18)
    
    the impact of the purported securities fraud and ERISA class action lawsuits filed during
October 2009 and other litigation, and the impact of legal, regulatory, administrative or
other claims, investigations or proceedings including judgments, settlements and actual or
anticipated insurance recoveries for costs or judgments; and(19)
    
    the proper design and operation of our disclosure controls and procedures.
  
   
     51




---



##### Table of Contents



PART II  OTHER INFORMATION
 
   
   We filed for protection under
chapter 11 of the Bankruptcy Code on November 8, 2009. There is no
guarantee that we will successfully emerge from bankruptcy.
  •
  
  our ability to prosecute, confirm and consummate a plan of reorganization
which has not yet been proposed as of the date of this filing;  •
  
  actions and decisions of our creditors and other third parties who have
interests in our chapter 11 proceedings may be inconsistent with our plans;  •
  
  our ability to obtain Bankruptcy Court approval with respect to motions
in the Chapter 11 proceedings from time to time;  •
  
  risks associated with the potential for prolonged chapter 11 proceedings,
including the risk that amounts available for distribution to stakeholders will
be reduced;  •
  
  our ability to retain management and other key employees;  •
  
  our ability to maintain contracts that are critical to our
operations;  •
  
  risks associated with transactions outside the ordinary course of
business being subject to prior approval of the Bankruptcy Court; and  •
  
  risks associated with third parties seeking and obtaining court approval
to terminate or shorten the exclusivity period for us to propose and confirm a
plan of reorganization, to appoint a chapter 11 trustee or to convert the
chapter 11 bankruptcy to a chapter 7 proceeding.   52




---



##### Table of Contents



Our ability to continue as a going concern depends on our ability to develop and successfully
implement a new business plan and become profitable in the future.
 Advanta Bank Corp. may be subject to
additional regulatory or enforcement actions and could ultimately be placed
into conservatorship or receivership.
 Advanta Bank Corp. recently consented to cease and desist orders issued by the FDIC and the UDFI
that place restrictions on the operations and activities of Advanta Bank Corp. and may limit our
ability to pursue new business opportunities through Advanta Bank Corp. If Advanta Bank Corp. is
not able to comply with the requirements of the cease and desist orders it could have a material
adverse effect on our business, financial condition and results of operations.
   We have incurred net losses in recent quarterly periods and expect to incur losses in future
periods.
 53




---



##### Table of Contents



Negative trends and developments in economic conditions and the financial markets have adversely
impacted our business, results of operations and financial condition.
  Legislative, regulatory and other legal developments may affect our business operations and our
results of operations.
   54




---



##### Table of Contents



We are subject to regulation by a number of different regulatory agencies and authorities,
including bank regulatory authorities, which have broad discretion to take actions that could
affect the manner in which we conduct our business, and could adversely affect our results of
operations and our financial condition.
    We have recently stopped originating new business credit card accounts and receivables.
 55




---



##### Table of Contents



Market conditions and other factors beyond our control could negatively impact the availability and
cost of funding for our operations.
    Certain rules adopted by federal bank regulators could, if applicable to us, impact our business
practices and have a negative impact on our business and our results of operations.
 56




---



##### Table of Contents



Our earnings may not be sufficient to cover our fixed charges which may impact our ability to make
future principal and interest payments on our indebtedness.
 Our Class A Common Stock and
Class B Common Stock could be delisted if we fail to satisfy the NASDAQ
listing rules and requirements.
    Recent changes in our organization, including a significant reduction in our workforce, could
impact the effectiveness of our internal control system
  57




---



##### Table of Contents



(a)
    
    None.(b)
    
    None.(c)
    
    The table below provides information with respect to all purchases of equity
securities by us during the period from July 1, 2009 through September 30, 2009.
Shares are in thousands.
 ISSUER PURCHASES OF EQUITY SECURITIES
 (d)MaximumNumber (or(c)Total Number
    
    Approximateof Shares
    
    Dollar Value of(a)Total
    
    
    
    
    
    Purchased as
    
    Shares) That MayNumber of
    
    
    
    
    
    Part of Publicly
    
    Yet Be PurchasedShares
    
    (b)Average Price
    
    Announced Plans
    
    Under the PlansPeriod
    
    Purchased
    
    Paid per Share
    
    or Programs
    
    or ProgramsClass A Preferred Stock:7/1/09-7/31/09
    
    
    0.0
    
    
    
    N/A
    *
    
    
    0.0
    
    
    
    0.08/1/09-8/31/09
    
    
    0.0
    
    
    
    N/A
    *
    
    
    0.0
    
    
    
    0.09/1/09-9/30/09
    
    
    0.0
    
    
    
    N/A
    *
    
    
    0.0
    
    
    
    0.0Subtotal Class A
Preferred Stock
    
    
    0.0
    
    
    
    N/A
    *
    
    
    0.0
    
    
    
    0.0Class A Common Stock:7/1/09-7/31/09
    
    
    0.0
    
    
    
    N/A
    *
    
    
    0.0
    
    
    
    0.08/1/09-8/31/09
    
    
    0.0
    
    
    
    N/A
    *
    
    
    0.0
    
    
    
    0.09/1/09-9/30/09
    
    
    0.0
    
    
    
    N/A
    *
    
    
    0.0
    
    
    
    0.0Subtotal Class A Common
Stock
    
    
    0.0
    
    
    
    N/A
    *
    
    
    0.0
    
    
    
    0.0Class B Common Stock:7/1/09-7/31/09
    
    
    0.0
    
    
    
    N/A
    *
    
    
    0.0
    
    
    
    0.08/1/09-8/31/09
    
    
    0.0
    
    
    
    N/A
    *
    
    
    0.0
    
    
    
    0.09/1/09-9/30/09
    
    
    17.2
    
    
    $
    0.45
    
    
    
    0.0
    
    
    
    0.0Subtotal Class B Common
Stock
    
    
    17.2
    
    
    $
    0.45
    
    
    
    0.0
    
    
    
    0.0Total
    
    
    17.2
    
    
    $
    0.45
    
    
    
    0.0
    
    
    
    0.0
 
 *
    
    N/A  Not Applicable 58




---



##### Table of Contents



ExhibitNumber
    
    Description of Document12
    
    
    Computation of Ratio of Earnings to Fixed Charges31.1
    
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
 59




---



##### Table of Contents



SIGNATURES
  
 By
    
    /s/ Philip M. Browne

Philip M. BrowneSenior Vice President and Chief Financial Officer
(Principal Financial Officer)November 9, 2009
 60




---



##### Table of Contents



EXHIBIT INDEX
 Manner ofExhibit
    
    Description
    
    Filing12
    
    
    Computation of Ratio of Earnings to Fixed Charges
    
    *31.1
    
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    
    *31.2
    
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    
    *32.1
    
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
    
    *32.2
    
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
    
    *
 
 *
    
    Filed electronically herewith. 61