##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 þ
    
    Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
 for the quarterly period ended June 30, 2006
 or
 o
    
    Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
 for the transition period from  to
 Commission File Number 0-14120
 Advanta Corp.
  Delaware
    
    23-1462070(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 
 
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
 o þ
  o o
   Class A
    
    Outstanding at August 3, 2006Common Stock, $.01 par value
    
    9,606,862 sharesClass B
    
    Outstanding at August 3, 2006Common Stock, $.01 par value
    
    18,585,732 shares




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##### 



TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Consolidated Balance Sheets (Unaudited)
    
    
    3Consolidated Income Statements (Unaudited)
    
    
    4Consolidated Statements of Changes in Stockholders Equity (Unaudited)
    
    
    5-6Consolidated Statements of Cash Flows (Unaudited)
    
    
    7Notes to Consolidated Financial Statements (Unaudited)
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    48Item 4. Controls and Procedures
    
    
    48PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    49Item 1A. Risk Factors
    
    
    49Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    50Item 4. Submission of Matters to a Vote of Security Holders
    
    
    51Item 6. Exhibits
    
    
    52Exhibit Index
    
    
    54Advanta Management Incentive Program VIForm of Advanta Corp. Stock Award Grant Document (AMIP VI)Computation of Ratio of Earnings to Fixed ChargesCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
  ADVANTA CORP. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS (Unaudited)
 June 30,
    
    
    December 31,(In thousands, except share amounts)
    
    2006
    
    
    2005ASSETSCash
    
    $
    37,893
    
    
    $
    34,109Federal funds sold
    
    
    417,676
    
    
    
    355,057Restricted interest-bearing deposits
    
    
    1,459
    
    
    
    1,333Investments available for sale
    
    
    153,209
    
    
    
    219,782Receivables, net:Held for sale
    
    
    577,670
    
    
    
    474,881Other
    
    
    468,161
    
    
    
    389,012Total receivables, net
    
    
    1,045,831
    
    
    
    863,893Accounts receivable from securitizations
    
    
    293,668
    
    
    
    450,001Premises and equipment, net
    
    
    15,869
    
    
    
    16,901Other assets
    
    
    174,940
    
    
    
    186,327Total assets
    
    $
    2,140,545
    
    
    $
    2,127,403LIABILITIESDeposits
    
    $
    1,163,262
    
    
    $
    1,070,572Debt
    
    
    210,623
    
    
    
    226,856Subordinated debt payable to preferred securities trust
    
    
    103,093
    
    
    
    103,093Other liabilities
    
    
    142,608
    
    
    
    211,445Total liabilities
    
    
    1,619,586
    
    
    
    1,611,966Commitments and contingenciesSTOCKHOLDERS EQUITYClass A preferred stock, $1,000 par value:Authorized,
issued and outstanding  1,010 shares in
2006 and 2005
    
    
    1,010
    
    
    
    1,010Class A voting common stock, $.01 par value:Authorized
 200,000,000 shares; issued  10,041,017
shares in 2006 and 2005
    
    
    100
    
    
    
    100Class B non-voting common stock, $.01 par value:Authorized
 200,000,000 shares; issued  22,154,551
shares in 2006 and 21,918,569 shares in 2005
    
    
    222
    
    
    
    219Additional paid-in capital
    
    
    288,550
    
    
    
    276,231Nonvested shares
    
    
    0
    
    
    
    (1,148
    )Unearned ESOP shares
    
    
    (9,413
    )
    
    
    (9,622
    )Accumulated other comprehensive loss
    
    
    (774
    )
    
    
    (678
    )Retained earnings
    
    
    333,924
    
    
    
    298,472Treasury stock at cost, 434,155 Class A common shares in
2006 and 2005; 4,289,011 Class B common shares in 2006
and 3,162,019 Class B common shares in 2005
    
    
    (92,660
    )
    
    
    (49,147
    )Total stockholders equity
    
    
    520,959
    
    
    
    515,437Total liabilities and stockholders equity
    
    $
    2,140,545
    
    
    $
    2,127,403
 See Notes to Consolidated Financial Statements
 3




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##### Table of Contents



ADVANTA CORP. AND SUBSIDIARIES
 
 CONSOLIDATED INCOME STATEMENTS (Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(In thousands, except per share amounts)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Interest income:Receivables
    
    $
    30,139
    
    
    $
    23,198
    
    
    $
    59,066
    
    
    $
    48,172Investments
    
    
    5,973
    
    
    
    4,081
    
    
    
    11,332
    
    
    
    7,265Other interest income
    
    
    4,399
    
    
    
    3,566
    
    
    
    8,381
    
    
    
    7,587Total interest income
    
    
    40,511
    
    
    
    30,845
    
    
    
    78,779
    
    
    
    63,024Interest expense:Deposits
    
    
    11,858
    
    
    
    7,690
    
    
    
    22,166
    
    
    
    14,138Debt and other borrowings
    
    
    3,331
    
    
    
    3,738
    
    
    
    6,689
    
    
    
    7,586Subordinated debt payable to preferred
securities trust
    
    
    2,290
    
    
    
    2,290
    
    
    
    4,579
    
    
    
    4,579Total interest expense
    
    
    17,479
    
    
    
    13,718
    
    
    
    33,434
    
    
    
    26,303Net interest income
    
    
    23,032
    
    
    
    17,127
    
    
    
    45,345
    
    
    
    36,721Provision for credit losses
    
    
    10,145
    
    
    
    8,603
    
    
    
    19,429
    
    
    
    19,047Net interest income after provision for
credit losses
    
    
    12,887
    
    
    
    8,524
    
    
    
    25,916
    
    
    
    17,674Noninterest revenues:Securitization income
    
    
    29,686
    
    
    
    30,066
    
    
    
    63,264
    
    
    
    60,462Servicing revenues
    
    
    15,329
    
    
    
    12,819
    
    
    
    29,011
    
    
    
    25,418Other revenues, net
    
    
    42,297
    
    
    
    34,419
    
    
    
    77,273
    
    
    
    62,232Gain on transfer of consumer credit
card business (See Note 12)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    67,679Total noninterest revenues
    
    
    87,312
    
    
    
    77,304
    
    
    
    169,548
    
    
    
    215,791Operating expenses
    
    
    62,736
    
    
    
    62,251
    
    
    
    122,375
    
    
    
    124,871Income before income taxes
    
    
    37,463
    
    
    
    23,577
    
    
    
    73,089
    
    
    
    108,594Income tax expense
    
    
    14,423
    
    
    
    9,195
    
    
    
    28,139
    
    
    
    21,542Income from continuing operations
    
    
    23,040
    
    
    
    14,382
    
    
    
    44,950
    
    
    
    87,052Gain on
discontinuance of mortgage and leasing businesses, net of tax
    
    
    738
    
    
    
    3,965
    
    
    
    738
    
    
    
    3,965Net income
    
    $
    23,778
    
    
    $
    18,347
    
    
    $
    45,688
    
    
    $
    91,017Basic income from continuing operations
per common shareClass A
    
    $
    0.84
    
    
    $
    0.53
    
    
    $
    1.63
    
    
    $
    3.32Class B
    
    
    0.87
    
    
    
    0.56
    
    
    
    1.69
    
    
    
    3.38Combined
    
    
    0.86
    
    
    
    0.55
    
    
    
    1.67
    
    
    
    3.36Diluted income from continuing
operations per common shareClass A
    
    $
    0.78
    
    
    $
    0.49
    
    
    $
    1.51
    
    
    $
    3.02Class B
    
    
    0.79
    
    
    
    0.50
    
    
    
    1.52
    
    
    
    3.04Combined
    
    
    0.79
    
    
    
    0.50
    
    
    
    1.52
    
    
    
    3.03Basic net income per common shareClass A
    
    $
    0.86
    
    
    $
    0.68
    
    
    $
    1.65
    
    
    $
    3.47Class B
    
    
    0.90
    
    
    
    0.71
    
    
    
    1.72
    
    
    
    3.53Combined
    
    
    0.89
    
    
    
    0.70
    
    
    
    1.69
    
    
    
    3.51Diluted net income per common shareClass A
    
    $
    0.81
    
    
    $
    0.63
    
    
    $
    1.53
    
    
    $
    3.15Class B
    
    
    0.81
    
    
    
    0.64
    
    
    
    1.55
    
    
    
    3.18Combined
    
    
    0.81
    
    
    
    0.64
    
    
    
    1.54
    
    
    
    3.17Basic weighted average common shares
outstandingClass A
    
    
    8,854
    
    
    
    8,821
    
    
    
    8,850
    
    
    
    8,816Class B
    
    
    17,945
    
    
    
    17,433
    
    
    
    18,026
    
    
    
    17,071Combined
    
    
    26,799
    
    
    
    26,254
    
    
    
    26,876
    
    
    
    25,887Diluted weighted average common shares
outstandingClass A
    
    
    8,854
    
    
    
    8,821
    
    
    
    8,850
    
    
    
    8,816Class B
    
    
    20,459
    
    
    
    20,013
    
    
    
    20,666
    
    
    
    19,843Combined
    
    
    29,313
    
    
    
    28,834
    
    
    
    29,516
    
    
    
    28,659
 See Notes to Consolidated Financial Statements
 4




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##### Table of Contents



ADVANTA CORP. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited)
 Class A
    
    
    Class A
    
    
    Class B
    
    
    AdditionalComprehensive
    
    
    Preferred
    
    
    Common
    
    
    Common
    
    
    Paid-In($ in thousands)
    
    Income (Loss)
    
    
    Stock
    
    
    Stock
    
    
    Stock
    
    
    CapitalBalance at December 31, 2004
    
    
    
    
    
    $
    1,010
    
    
    $
    100
    
    
    $
    215
    
    
    $
    258,223Net income
    
    $
    110,429Other comprehensive income (loss):Change in unrealized
appreciation (depreciation)
of investments, net of tax
benefit (expense) of $224
    
    
    (417
    )Comprehensive income
    
    $
    110,012Preferred and common cash
dividends declaredExercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    6,100Stock option exchange program stock
distributionStock-based nonemployee
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124Excess tax benefits from stock
based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,800Issuance of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    222Amortization of nonvested sharesForfeitures of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (1,811
    )ESOP shares committed to be released
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    573Balance at December 31, 2005
    
    
    
    
    
    $
    1,010
    
    
    $
    100
    
    
    $
    219
    
    
    $
    276,231Net income
    
    $
    45,688Other comprehensive income (loss):Change in unrealized
appreciation (depreciation)
of investments, net of tax
benefit (expense) of $51
    
    
    (96
    )Comprehensive income
    
    $
    45,592Preferred and common cash
dividends declaredExercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3,944Stock-based nonemployee
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73Stock-based employee compensation
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,702Excess tax benefits from
stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,503Amortization of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    165Forfeitures of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (293
    )Reclassification of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,148
    )Treasury stock acquiredESOP shares committed to be released
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    373Balance at June 30, 2006
    
    
    
    
    
    $
    1,010
    
    
    $
    100
    
    
    $
    222
    
    
    $
    288,550
 See Notes to Consolidated Financial Statements
 5




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##### Table of Contents



ADVANTA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(Unaudited)  continued
 Nonvested
    
    
    AccumulatedShares
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    Total& Unearned
    
    
    Comprehensive
    
    
    Retained
    
    
    Treasury
    
    
    Stockholders($ in thousands)
    
    ESOP Shares
    
    
    Income (Loss)
    
    
    Earnings
    
    
    Stock
    
    
    EquityBalance at December 31, 2004
    
    $
    (19,390
    )
    
    $
    (261
    )
    
    $
    201,772
    
    
    $
    (49,475
    )
    
    $
    392,194Net income
    
    
    
    
    
    
    
    
    
    
    110,429
    
    
    
    
    
    
    
    110,429Other comprehensive income (loss):Change in unrealized
appreciation (depreciation)
of investments, net of tax
benefit (expense) of $224
    
    
    
    
    
    
    (417
    )
    
    
    
    
    
    
    
    
    
    
    (417
    )Comprehensive incomePreferred and common cash
dividends declared
    
    
    
    
    
    
    
    
    
    
    (13,729
    )
    
    
    
    
    
    
    (13,729
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,105Stock option exchange program
stock distribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    328
    
    
    
    328Stock-based nonemployee
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124Excess tax benefits from stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,800Issuance of nonvested shares
    
    
    (222
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Amortization of nonvested shares
    
    
    7,633
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,633Forfeitures of nonvested shares
    
    
    900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (912
    )ESOP shares committed to be released
    
    
    309
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    882Balance at December 31, 2005
    
    $
    (10,770
    )
    
    $
    (678
    )
    
    $
    298,472
    
    
    $
    (49,147
    )
    
    $
    515,437Net income
    
    
    
    
    
    
    
    
    
    
    45,688
    
    
    
    
    
    
    
    45,688Other comprehensive income (loss):Change in unrealized
appreciation (depreciation)
of investments, net of tax
benefit (expense) of $51
    
    
    
    
    
    
    (96
    )
    
    
    
    
    
    
    
    
    
    
    (96
    )Comprehensive incomePreferred and common cash
dividends declared
    
    
    
    
    
    
    
    
    
    
    (10,236
    )
    
    
    
    
    
    
    (10,236
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,947Stock-based nonemployee
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73Stock-based employee compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,702Excess tax benefits from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,503Amortization of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    165Forfeitures of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (293
    )Reclassification of nonvested shares
    
    
    1,148
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Treasury stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43,513
    )
    
    
    (43,513
    )ESOP shares committed to be released
    
    
    209
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    582Balance at June 30, 2006
    
    $
    (9,413
    )
    
    $
    (774
    )
    
    $
    333,924
    
    
    $
    (92,660
    )
    
    $
    520,959
 See Notes to Consolidated Financial Statements
 6




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##### Table of Contents



ADVANTA CORP. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Six Months EndedJune 30,($ in thousands)
    
    2006
    
    
    2005OPERATING
ACTIVITIES  CONTINUING OPERATIONSNet income
    
    $
    45,688
    
    
    $
    91,017Adjustments to reconcile net income to net cash provided by
(used in) operating activities:Gain on discontinuance of mortgage and leasing businesses,
net of tax
    
    
    (738
    )
    
    
    (3,965
    )Investment securities gains, net
    
    
    (3,532
    )
    
    
    (185
    )Depreciation and amortization
    
    
    3,092
    
    
    
    3,770Stock-based compensation expense
    
    
    1,647
    
    
    
    4,027Provision for credit losses
    
    
    19,429
    
    
    
    19,047Provision for interest and fee losses
    
    
    4,201
    
    
    
    4,154Change in deferred origination costs, net of deferred fees
    
    
    (3,856
    )
    
    
    (10,228
    )Change in receivables held for sale
    
    
    (1,173,053
    )
    
    
    (477,643
    )Proceeds from sale of receivables held for sale
    
    
    1,070,264
    
    
    
    390,675Change in accounts receivable from securitizations
    
    
    156,333
    
    
    
    (152,560
    )Excess tax benefits from stock-based compensation
    
    
    (7,503
    )
    
    
    0Change in other assets and other liabilities
    
    
    (47,083
    )
    
    
    100,710Net cash provided by (used in) operating activities
    
    
    64,889
    
    
    
    (31,181
    )INVESTING
ACTIVITIES  CONTINUING OPERATIONSChange in federal funds sold and restricted interest-bearing
deposits
    
    
    (62,745
    )
    
    
    (14,628
    )Purchase of investments available for sale
    
    
    (356,529
    )
    
    
    (253,727
    )Proceeds from sales of investments available for sale
    
    
    385,941
    
    
    
    152,976Proceeds from maturing investments available for sale
    
    
    38,106
    
    
    
    42,982Change in receivables not held for sale
    
    
    (98,923
    )
    
    
    (33,273
    )Purchases of premises and equipment, net
    
    
    (2,052
    )
    
    
    (1,846
    )Net cash used in investing activities
    
    
    (96,202
    )
    
    
    (107,516
    )FINANCING
ACTIVITIES  CONTINUING OPERATIONSChange in demand and savings deposits
    
    
    37,501
    
    
    
    (1,289
    )Proceeds from time deposits
    
    
    297,735
    
    
    
    284,067Payments on time deposits
    
    
    (255,398
    )
    
    
    (140,440
    )Proceeds from issuance of debt
    
    
    9,214
    
    
    
    15,343Payments on debt
    
    
    (26,096
    )
    
    
    (40,235
    )Change in cash overdraft
    
    
    11,537
    
    
    
    9,546Proceeds from exercise of stock options
    
    
    3,947
    
    
    
    3,747Excess tax benefits from stock-based compensation
    
    
    7,503
    
    
    
    0Cash dividends paid
    
    
    (10,236
    )
    
    
    (6,618
    )Treasury stock acquired
    
    
    (43,513
    )
    
    
    0Net cash provided by financing activities
    
    
    32,194
    
    
    
    124,121DISCONTINUED OPERATIONSNet cash provided by operating activities of discontinued
operations
    
    
    2,903
    
    
    
    9,812Net increase (decrease) in cash
    
    
    3,784
    
    
    
    (4,764
    )Cash at beginning of period
    
    
    34,109
    
    
    
    35,565Cash at end of period
    
    $
    37,893
    
    
    $
    30,801
 See Notes to Consolidated Financial Statements
 7




---



##### Table of Contents



ADVANTA CORP. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (IN THOUSANDS EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
 June 30, 2006
(Unaudited)
  Note 1) Basis of Presentation
    Note 2) Recently Issued Accounting Standards
 Statement of
Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock-Based Compensation  Transition and Disclosure Accounting for Stock
Issued to Employees
 8




---



##### Table of Contents



Three Months Ended
    
    Six Months EndedJune 30, 2006
    
    June 30, 2006Decrease in income before income taxes
    
    $
    (1,078
    )
    
    $
    (1,702
    )Income tax benefit
    
    
    415
    
    
    
    655Decrease in
income from continuing operations
    
    
    (663
    )
    
    
    (1,047
    )Decrease in net income
    
    
    (663
    )
    
    
    (1,047
    )Decrease in basic and diluted
earnings per combined share
    
    $
    (0.02
    )
    
    $
    (0.04
    )
 Accounting for Transfers of
Financial Assets  An Amendment of FASB Statement No. 140
 Accounting for Certain Hybrid Financial
Instruments Accounting for Derivative Instruments and
Hedging Activities Application of Statement 133 to Beneficial Interests in
Securitized Financial Assets
 9




---



##### Table of Contents



Accounting for Servicing of Financial Assets
 Accounting for Uncertainty in Income
Taxes  an Interpretation of FASB Statement No. 109
 Note 3) Investments Available for Sale
  June 30, 2006
    
    
    December 31, 2005Amortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueU.S. Treasury and government
agencies securities
    
    $
    36,102
    
    
    $
    35,616
    
    
    $
    51,399
    
    
    $
    50,677State and municipal securities
    
    
    5,879
    
    
    
    5,781
    
    
    
    4,730
    
    
    
    4,716Corporate bonds
    
    
    8,539
    
    
    
    8,328
    
    
    
    10,593
    
    
    
    10,445Asset-backed securities(1)
    
    
    39,640
    
    
    
    39,542
    
    
    
    39,352
    
    
    
    39,266Equity securities(2)
    
    
    9,862
    
    
    
    9,562
    
    
    
    10,374
    
    
    
    10,301Money market funds
    
    
    48,443
    
    
    
    48,443
    
    
    
    104,272
    
    
    
    104,272Other
    
    
    5,934
    
    
    
    5,937
    
    
    
    105
    
    
    
    105Total investments available for sale
    
    $
    154,399
    
    
    $
    153,209
    
    
    $
    220,825
    
    
    $
    219,782
 
 (1)
    
    Includes mortgage-backed securities.(2)
    
    Includes venture capital investments of $775 thousand at June 30, 2006 and $1.2
million at December 31, 2005. The amount shown as amortized cost represents fair value
for these investments. 10




---



##### Table of Contents



Note 4) Receivables
  June 30,
    
    
    December 31,2006
    
    
    2005Business credit card receivables
    
    $
    1,062,249
    
    
    $
    879,468Other receivables
    
    
    7,381
    
    
    
    8,007Gross receivables
    
    
    1,069,630
    
    
    
    887,475Add: Deferred origination costs, net of deferred fees
    
    
    25,863
    
    
    
    22,007Less: Allowance for receivable lossesBusiness credit cards
    
    
    (48,450
    )
    
    
    (44,323
    )Other receivables
    
    
    (1,212
    )
    
    
    (1,266
    )Total allowance for receivable losses
    
    
    (49,662
    )
    
    
    (45,589
    )Receivables, net
    
    $
    1,045,831
    
    
    $
    863,893
 Note 5) Allowance for Receivable Losses
  2006
    
    
    2005Balance at January 1
    
    $
    45,589
    
    
    $
    50,478Provision for credit losses
    
    
    19,429
    
    
    
    19,047Provision for interest and fee losses
    
    
    4,201
    
    
    
    4,154Gross principal charge-offs:Business credit cards
    
    
    (17,272
    )
    
    
    (20,393
    )Other receivables
    
    
    (4
    )
    
    
    (4
    )Total gross principal charge-offs
    
    
    (17,276
    )
    
    
    (20,397
    )Principal recoveries:Business credit cards
    
    
    1,668
    
    
    
    1,371Net principal charge-offs
    
    
    (15,608
    )
    
    
    (19,026
    )Interest and fee charge-offs:Business credit cards
    
    
    (3,949
    )
    
    
    (4,378
    )Balance at June 30
    
    $
    49,662
    
    
    $
    50,275
 Note 6) Securitization Activities
  June 30,
    
    
    December 31,2006
    
    
    2005Retained interests in securitizations
    
    $
    206,291
    
    
    $
    183,391Amounts due from the securitization trust
    
    
    30,502
    
    
    
    212,766Accrued interest and fees on securitized
receivables, net(1)
    
    
    56,875
    
    
    
    53,844Total accounts receivable from securitizations
    
    $
    293,668
    
    
    $
    450,001
 
 (1)
    
    Reduced by an estimate for uncollectible interest and fees of $7.6 million at June 30,
2006 and $7.0 million at December 31, 2005. 11




---



##### Table of Contents



Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005Average securitized
receivables
    
    $
    3,222,380
    
    
    $
    2,707,045
    
    
    $
    3,090,577
    
    
    $
    2,628,329Securitization income
    
    
    29,686
    
    
    
    30,066
    
    
    
    63,264
    
    
    
    60,462Discount accretion
    
    
    4,399
    
    
    
    3,566
    
    
    
    8,381
    
    
    
    7,587Interchange income
    
    
    39,127
    
    
    
    32,390
    
    
    
    72,841
    
    
    
    59,721Servicing revenues
    
    
    15,329
    
    
    
    12,819
    
    
    
    29,011
    
    
    
    25,418Proceeds from new
securitizations
    
    
    534,374
    
    
    
    390,675
    
    
    
    1,070,264
    
    
    
    390,675Proceeds from collections
reinvested in revolving-period securitizations
    
    
    1,779,595
    
    
    
    1,368,525
    
    
    
    3,463,397
    
    
    
    3,040,170Cash flows received on
retained interests
    
    
    92,582
    
    
    
    80,563
    
    
    
    170,210
    
    
    
    140,729Key assumptions:Discount rate
    
    
    8.91%  10.43
    %
    
    
    8.22%   9.85
    %
    
    
    8.71%  10.43
    %
    
    
    8.22%  11.27
    %Monthly payment rate
    
    
    22.07%  25.00
    %
    
    
    21.91%  25.00
    %
    
    
    22.07%  25.00
    %
    
    
    21.77%  25.00
    %Loss rate
    
    
    4.00%   4.90
    %
    
    
    5.40%   6.61
    %
    
    
    4.00%   4.90
    %
    
    
    5.40%   6.79
    %Interest yield, net of
interest earned by
noteholders
    
    
    8.03%   8.86
    %
    
    
    10.84%  10.91
    %
    
    
    8.03%  9.95
    %
    
    
    10.84%  11.28
    %
   June 30,
    
    December 31,2006
    
    2005Discount rate
    
    
    9.11%  10.43
    %
    
    
    8.71%   9.81
    %Monthly payment rate
    
    
    22.07%  24.07
    %
    
    
    23.37%  25.00
    %Loss rate
    
    
    4.00%   4.57
    %
    
    
    4.25%   4.68
    %Interest yield, net of interest earned by
noteholders
    
    
    8.03
    %
    
    
    9.95
    %
   12




---



##### Table of Contents



Effect on estimated fair value of the following
hypothetical changes in key assumptions:Discount rate increased by 2%
    
    $
    (3,971
    )Discount rate increased by 4%
    
    
    (7,763
    )Monthly payment rate at 115% of base assumption
    
    
    (2,620
    )Monthly payment rate at 130% of base assumption
    
    
    (3,771
    )Loss rate at 110% of base assumption
    
    
    (3,200
    )Loss rate at 125% of base assumption
    
    
    (8,001
    )Interest yield, net of interest earned by noteholders,
decreased by 1%
    
    
    (8,001
    )Interest yield, net of interest earned by noteholders,
decreased by 2%
    
    
    (16,001
    )
  13




---



##### Table of Contents



Managed receivable data
  June 30,
    
    
    December 31,
    
    
    June 30,2006
    
    
    2005
    
    
    2005Owned business credit card receivables
    
    $
    1,062,249
    
    
    $
    879,468
    
    
    $
    828,724Securitized business credit card receivables
    
    
    3,323,869
    
    
    
    2,880,401
    
    
    
    2,685,504Total managed receivables
    
    $
    4,386,118
    
    
    $
    3,759,869
    
    
    $
    3,514,228Receivables 30 days or more delinquent:Owned
    
    $
    25,482
    
    
    $
    23,595
    
    
    $
    26,085Securitized
    
    
    90,987
    
    
    
    87,610
    
    
    
    100,283Total managed
    
    
    116,469
    
    
    
    111,205
    
    
    
    126,368Receivables 90 days or more delinquent:Owned
    
    
    12,560
    
    
    
    10,837
    
    
    
    12,798Securitized
    
    
    45,008
    
    
    
    40,223
    
    
    
    49,583Total managed
    
    
    57,568
    
    
    
    51,060
    
    
    
    62,381Nonaccrual receivables:Owned
    
    
    11,824
    
    
    
    11,476
    
    
    
    12,286Securitized
    
    
    42,938
    
    
    
    42,828
    
    
    
    47,612Total managed
    
    
    54,762
    
    
    
    54,304
    
    
    
    59,898Accruing receivables past due 90 days or more:Owned
    
    
    11,266
    
    
    
    9,479
    
    
    
    10,985Securitized
    
    
    40,436
    
    
    
    35,063
    
    
    
    42,500Total managed
    
    
    51,702
    
    
    
    44,542
    
    
    
    53,485Net principal charge-offs for the year-to-date
period ended June 30 and December 31:Owned
    
    
    15,604
    
    
    
    44,865
    
    
    
    19,022Securitized
    
    
    53,728
    
    
    
    155,618
    
    
    
    73,594Total managed
    
    
    69,332
    
    
    
    200,483
    
    
    
    92,616Net principal charge-offs for the three months
ended June 30 and December 31:Owned
    
    
    7,520
    
    
    
    15,768
    
    
    
    8,603Securitized
    
    
    26,633
    
    
    
    46,151
    
    
    
    38,324Total managed
    
    
    34,153
    
    
    
    61,919
    
    
    
    46,927
 14




---



##### Table of Contents



Note 7) Selected Balance Sheet Information
  June 30,
    
    
    December 31,2006
    
    
    2005Net deferred tax asset
    
    $
    57,262
    
    
    $
    64,923Investment in Fleet Credit Card Services, L.P.
    
    
    32,095
    
    
    
    32,095Investment in preferred securities trust
    
    
    3,093
    
    
    
    3,093Other
    
    
    82,490
    
    
    
    86,216Total other assets
    
    $
    174,940
    
    
    $
    186,327
  June 30,
    
    
    December 31,2006
    
    
    2005Accounts payable and accrued expenses
    
    $
    31,598
    
    
    $
    28,018Business credit card business rewards
liability
    
    
    22,165
    
    
    
    20,658Business credit card cash back rewards
liability
    
    
    5,996
    
    
    
    4,506Current income tax payable
    
    
    21,095
    
    
    
    17,048Accrued interest payable
    
    
    15,087
    
    
    
    5,414Amounts due to the securitization trust
    
    
    4,840
    
    
    
    105,917Liabilities of discontinued operations, net
    
    
    1,444
    
    
    
    509Other
    
    
    40,383
    
    
    
    29,375Total other liabilities
    
    $
    142,608
    
    
    $
    211,445
  Note 8) Commitments and Contingencies
  15




---



##### Table of Contents



Note 9) Capital Stock
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005Class A Common Stock
    
    $
    0.2125
    
    
    $
    0.1134
    
    
    $
    0.3259
    
    
    $
    0.2079Class B Common Stock
    
    
    0.2550
    
    
    
    0.1361
    
    
    
    0.3911
    
    
    
    0.2495
   Note 10) Stock-Based Compensation
  16




---



##### Table of Contents



Nonvested Shares
   Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005Compensation expense (benefit)
    
    $
    (86
    )
    
    $
    213
    
    
    $
    (128
    )
    
    $
    3,892Income tax
(benefit) expense
    
    
    33
    
    
    
    (83
    )
    
    
    49
    
    
    
    (1,498
    )
   Six Months EndedJune 30, 2006WeightedAverage GrantNumber of
    
    
    Date FairShares
    
    
    ValueOutstanding at January 1
    
    
    811
    
    
    $
    8.56Granted
    
    
    0
    
    
    
    0Vested
    
    
    (595
    )
    
    
    8.58Forfeited
    
    
    (45
    )
    
    
    9.41Outstanding at June 30
    
    
    171
    
    
    $
    8.27
 Stock Options
  17




---



##### Table of Contents



Six Months EndedJune 30, 2006WeightedWeighted
    
    
    
    
    
    
    AverageAverage
    
    
    Aggregate
    
    
    RemainingNumber of
    
    
    Exercise
    
    
    Intrinsic
    
    
    ContractualOptions
    
    
    Price
    
    
    Value
    
    
    LifeOutstanding at January 1
    
    
    4,986
    
    
    $
    11.37Granted
    
    
    923
    
    
    
    37.33Exercised
    
    
    (281
    )
    
    
    14.04Forfeited
    
    
    (50
    )
    
    
    19.67Expired
    
    
    0
    
    
    
    0Outstanding at June 30
    
    
    5,578
    
    
    $
    15.45
    
    
    $
    114,305
    
    
    5.6 yearsOptions exercisable at
June 30
    
    
    3,856
    
    
    $
    10.45
    
    
    $
    98,312
    
    
    4.2 years
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Aggregate intrinsic
value of stock
options exercised
    
    $
    3,310
    
    
    $
    2,768
    
    
    $
    5,823
    
    
    $
    3,983Weighted average
grant date fair value
of options granted
    
    $
    10.19
    
    
    $
    9.06
    
    
    $
    10.10
    
    
    $
    9.19
  18




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Expected dividend yield
    
    
    4.22
    %
    
    
    3.16
    %
    
    
    4.26
    %
    
    
    3.14
    %Expected life (in years)
    
    
    5.4
    
    
    
    5.0
    
    
    
    5.4
    
    
    
    5.0Expected volatility
    
    
    38.82
    %
    
    
    52.49
    %
    
    
    38.93
    %
    
    
    53.60
    %Risk-free interest rate
    
    
    5.02
    %
    
    
    4.12
    %
    
    
    4.98
    %
    
    
    3.79
    %
  Three Months Ended
    
    
    Six Months EndedJune 30, 2005
    
    
    June 30, 2005As
    
    
    Pro
    
    
    As
    
    
    ProReported
    
    
    Forma
    
    
    Reported
    
    
    FormaStock-based employee compensation
expense for stock option plans,
net of related tax effects
    
    $
    0
    
    
    $
    516
    
    
    $
    0
    
    
    $
    1,417Net income
    
    
    18,347
    
    
    
    17,831
    
    
    
    91,017
    
    
    
    89,600Basic net income per common shareClass A
    
    $
    0.68
    
    
    $
    0.66
    
    
    $
    3.47
    
    
    $
    3.41Class B
    
    
    0.71
    
    
    
    0.69
    
    
    
    3.53
    
    
    
    3.48Combined
    
    
    0.70
    
    
    
    0.68
    
    
    
    3.51
    
    
    
    3.46Diluted net income per common shareClass A
    
    $
    0.63
    
    
    $
    0.61
    
    
    $
    3.15
    
    
    $
    3.11Class B
    
    
    0.64
    
    
    
    0.62
    
    
    
    3.18
    
    
    
    3.13Combined
    
    
    0.64
    
    
    
    0.62
    
    
    
    3.17
    
    
    
    3.13
 19




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##### Table of Contents



Note 11) Segment Information
  AdvantaBusinessCards
    
    
    Other(1)
    
    
    TotalThree months ended June 30, 2006Interest income
    
    $
    34,450
    
    
    $
    6,061
    
    
    $
    40,511Interest expense
    
    
    10,400
    
    
    
    7,079
    
    
    
    17,479Noninterest revenues
    
    
    86,104
    
    
    
    1,208
    
    
    
    87,312Pretax income (loss) from continuing
operations
    
    
    37,464
    
    
    
    (1
    )
    
    
    37,463Three months ended June 30, 2005Interest income
    
    $
    26,640
    
    
    $
    4,205
    
    
    $
    30,845Interest expense
    
    
    7,884
    
    
    
    5,834
    
    
    
    13,718Noninterest revenues
    
    
    74,122
    
    
    
    3,182
    
    
    
    77,304Pretax income from continuing operations
    
    
    22,355
    
    
    
    1,222
    
    
    
    23,577Six months ended June 30, 2006Interest income
    
    $
    67,260
    
    
    $
    11,519
    
    
    $
    78,779Interest expense
    
    
    20,424
    
    
    
    13,010
    
    
    
    33,434Noninterest revenues
    
    
    167,442
    
    
    
    2,106
    
    
    
    169,548Pretax income from continuing operations
    
    
    72,757
    
    
    
    332
    
    
    
    73,089Total assets at beginning of period
    
    
    1,362,133
    
    
    
    765,270
    
    
    
    2,127,403Total assets at end of period
    
    
    1,383,766
    
    
    
    756,779
    
    
    
    2,140,545Six months ended June 30, 2005Interest income
    
    $
    55,506
    
    
    $
    7,518
    
    
    $
    63,024Interest expense
    
    
    16,405
    
    
    
    9,898
    
    
    
    26,303Noninterest revenues
    
    
    144,987
    
    
    
    3,125
    
    
    
    148,112Gain on transfer of consumer credit
card business
    
    
    0
    
    
    
    67,679
    
    
    
    67,679Pretax income
    
    
    40,772
    
    
    
    67,822
    
    
    
    108,594Total assets at beginning of period
    
    
    994,194
    
    
    
    698,730
    
    
    
    1,692,924Total assets at end of period
    
    
    1,232,863
    
    
    
    786,894
    
    
    
    2,019,757
 
 (1)
    
    Other includes venture capital operations as well as investment and other
activities not attributable to the Advanta Business Cards segment. Note 12) Gain on Transfer of Consumer Credit Card Business
  20




---



##### Table of Contents



Note 13) Income Taxes
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Income tax expense
attributable to:Continuing operations
    
    $
    14,423
    
    
    $
    9,195
    
    
    $
    28,139
    
    
    $
    21,542Discontinued operations
    
    
    462
    
    
    
    2,535
    
    
    
    462
    
    
    
    2,535Total income tax expense
    
    $
    14,885
    
    
    $
    11,730
    
    
    $
    28,601
    
    
    $
    24,077
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Current:Federal
    
    $
    11,194
    
    
    $
    8,307
    
    
    $
    17,530
    
    
    $
    11,770State
    
    
    1,591
    
    
    
    831
    
    
    
    2,941
    
    
    
    2,008Total current
    
    
    12,785
    
    
    
    9,138
    
    
    
    20,471
    
    
    
    13,778Deferred:Federal
    
    
    1,790
    
    
    
    (18
    )
    
    
    7,756
    
    
    
    7,299State
    
    
    (152
    )
    
    
    75
    
    
    
    (88
    )
    
    
    465Total deferred
    
    
    1,638
    
    
    
    57
    
    
    
    7,668
    
    
    
    7,764Income tax expense
attributable
to continuing operations
    
    $
    14,423
    
    
    $
    9,195
    
    
    $
    28,139
    
    
    $
    21,542
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Statutory federal income tax
    
    $
    13,112
    
    
    $
    8,252
    
    
    $
    25,581
    
    
    $
    38,008State income taxes, net of
federal income tax benefit
    
    
    936
    
    
    
    589
    
    
    
    1,855
    
    
    
    1,608Nondeductible expenses
    
    
    151
    
    
    
    206
    
    
    
    322
    
    
    
    487Compensation limitation
    
    
    33
    
    
    
    110
    
    
    
    66
    
    
    
    220Gain on transfer of consumer
credit card business
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (12,347
    )Change in valuation allowance
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (6,393
    )Other
    
    
    191
    
    
    
    38
    
    
    
    315
    
    
    
    (41
    )Income tax expense attributable
to continuing operations
    
    $
    14,423
    
    
    $
    9,195
    
    
    $
    28,139
    
    
    $
    21,542
  21




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##### Table of Contents



June 30,
    
    
    December 31,2006
    
    
    2005Deferred tax assets
    
    $
    72,116
    
    
    $
    79,452Deferred tax
liabilities
    
    
    (14,854
    )
    
    
    (14,529
    )Net deferred tax asset
    
    $
    57,262
    
    
    $
    64,923
  June 30,
    
    
    December 31,2006
    
    
    2005Allowance for receivable losses
    
    $
    20,036
    
    
    $
    18,400Alternative minimum tax credit carryforwards
    
    
    18,984
    
    
    
    26,060Business credit card rewards
    
    
    9,856
    
    
    
    8,807Deferred origination costs, net of deferred fees
    
    
    (8,715
    )
    
    
    (7,345
    )Unrealized venture capital investment losses
    
    
    6,083
    
    
    
    5,934Incentive and deferred compensation
    
    
    3,768
    
    
    
    5,029Capital loss carryforwards
    
    
    3,107
    
    
    
    4,476Securitization income
    
    
    (2,624
    )
    
    
    (3,849
    )Other
    
    
    6,767
    
    
    
    7,411Net deferred tax asset
    
    $
    57,262
    
    
    $
    64,923
   22




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##### Table of Contents



Note 14) Discontinued Operations
  Three and Six Months EndedJune 30, 2006
    
    
    June 30, 2005Advanta
    
    
    
    
    
    
    AdvantaAdvanta
    
    
    Leasing
    
    
    Advanta
    
    
    LeasingMortgage
    
    
    Services
    
    
    Mortgage
    
    
    ServicesPretax gain on
discontinuance of
mortgage and leasing
businesses
    
    $
    500
    
    
    $
    700
    
    
    $
    4,500
    
    
    $
    2,000Income tax expense
    
    
    (193
    )
    
    
    (269
    )
    
    
    (1,755
    )
    
    
    (780
    )Gain on discontinuance
of mortgage and leasing
businesses, net of tax
    
    $
    307
    
    
    $
    431
    
    
    $
    2,745
    
    
    $
    1,220
  23




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##### Table of Contents



Three Months Ended June 30,
    
    
    Six Months Ended June 30,Advanta
    
    
    Advanta Leasing
    
    
    Advanta
    
    
    Advanta LeasingMortgage
    
    
    Services
    
    
    Mortgage
    
    
    Services2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Basic gain on
discontinuance
of mortgage
and leasing
businesses, net
of tax, per common
shareClass A
    
    $
    0.01
    
    
    $
    0.10
    
    
    $
    0.02
    
    
    $
    0.05
    
    
    $
    0.01
    
    
    $
    0.11
    
    
    $
    0.02
    
    
    $
    0.05Class B
    
    
    0.01
    
    
    
    0.10
    
    
    
    0.02
    
    
    
    0.05
    
    
    
    0.01
    
    
    
    0.11
    
    
    
    0.02
    
    
    
    0.05Combined
    
    
    0.01
    
    
    
    0.10
    
    
    
    0.02
    
    
    
    0.05
    
    
    
    0.01
    
    
    
    0.11
    
    
    
    0.02
    
    
    
    0.05Diluted gain
on
discontinuance
of mortgage
and leasing
businesses,
net of tax,
per common
shareClass A
    
    $
    0.01
    
    
    $
    0.10
    
    
    $
    0.01
    
    
    $
    0.04
    
    
    $
    0.01
    
    
    $
    0.10
    
    
    $
    0.01
    
    
    $
    0.04Class B
    
    
    0.01
    
    
    
    0.10
    
    
    
    0.01
    
    
    
    0.04
    
    
    
    0.01
    
    
    
    0.10
    
    
    
    0.01
    
    
    
    0.04Combined
    
    
    0.01
    
    
    
    0.10
    
    
    
    0.01
    
    
    
    0.04
    
    
    
    0.01
    
    
    
    0.10
    
    
    
    0.01
    
    
    
    0.04
  June 30,
    
    
    December 31,2006
    
    
    2005Lease receivables, net
    
    $
    57
    
    
    $
    1,158Other assets
    
    
    368
    
    
    
    413Liabilities
    
    
    (1,869
    )
    
    
    (2,080
    )Liabilities of discontinued operations, net
    
    $
    (1,444
    )
    
    $
    (509
    )
  24




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##### Table of Contents



Note 15) Calculation of Earnings Per Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Income from continuing operations
    
    $
    23,040
    
    
    $
    14,382
    
    
    $
    44,950
    
    
    $
    87,052Less: Preferred A dividends
    
    
    0
    
    
    
    0
    
    
    
    (141
    )
    
    
    (141
    )Income from continuing operations
available to common stockholders
    
    
    23,040
    
    
    
    14,382
    
    
    
    44,809
    
    
    
    86,911Gain on discontinuance
of mortgage and leasing businesses,
net of tax
    
    
    738
    
    
    
    3,965
    
    
    
    738
    
    
    
    3,965Net income available to common
stockholders
    
    
    23,778
    
    
    
    18,347
    
    
    
    45,547
    
    
    
    90,876Less: Class A dividends declared
    
    
    (1,955
    )
    
    
    (1,014
    )
    
    
    (2,954
    )
    
    
    (1,844
    )Less: Class B dividends declared
    
    
    (4,565
    )
    
    
    (2,535
    )
    
    
    (7,141
    )
    
    
    (4,633
    )Undistributed net income
    
    $
    17,258
    
    
    $
    14,798
    
    
    $
    35,452
    
    
    $
    84,399Basic income from continuing
operations per common shareClass A
    
    $
    0.84
    
    
    $
    0.53
    
    
    $
    1.63
    
    
    $
    3.32Class B
    
    
    0.87
    
    
    
    0.56
    
    
    
    1.69
    
    
    
    3.38Combined(1)
    
    
    0.86
    
    
    
    0.55
    
    
    
    1.67
    
    
    
    3.36Diluted income from continuing
operations per common shareClass A
    
    $
    0.78
    
    
    $
    0.49
    
    
    $
    1.51
    
    
    $
    3.02Class B
    
    
    0.79
    
    
    
    0.50
    
    
    
    1.52
    
    
    
    3.04Combined(1)
    
    
    0.79
    
    
    
    0.50
    
    
    
    1.52
    
    
    
    3.03Basic net income per common shareClass A
    
    $
    0.86
    
    
    $
    0.68
    
    
    $
    1.65
    
    
    $
    3.47Class B
    
    
    0.90
    
    
    
    0.71
    
    
    
    1.72
    
    
    
    3.53Combined(1)
    
    
    0.89
    
    
    
    0.70
    
    
    
    1.69
    
    
    
    3.51Diluted net income per common shareClass A
    
    $
    0.81
    
    
    $
    0.63
    
    
    $
    1.53
    
    
    $
    3.15Class B
    
    
    0.81
    
    
    
    0.64
    
    
    
    1.55
    
    
    
    3.18Combined(1)
    
    
    0.81
    
    
    
    0.64
    
    
    
    1.54
    
    
    
    3.17Basic weighted average common shares
outstandingClass A
    
    
    8,854
    
    
    
    8,821
    
    
    
    8,850
    
    
    
    8,816Class B
    
    
    17,945
    
    
    
    17,433
    
    
    
    18,026
    
    
    
    17,071Combined
    
    
    26,799
    
    
    
    26,254
    
    
    
    26,876
    
    
    
    25,887Dilutive effect ofOptions Class B
    
    
    2,254
    
    
    
    1,885
    
    
    
    2,230
    
    
    
    1,881Nonvested shares Class B
    
    
    260
    
    
    
    695
    
    
    
    410
    
    
    
    891Diluted weighted average common
shares outstandingClass A
    
    
    8,854
    
    
    
    8,821
    
    
    
    8,850
    
    
    
    8,816Class B
    
    
    20,459
    
    
    
    20,013
    
    
    
    20,666
    
    
    
    19,843Combined
    
    
    29,313
    
    
    
    28,834
    
    
    
    29,516
    
    
    
    28,659Antidilutive shares
Options Class B
    
    
    913
    
    
    
    2
    
    
    
    488
    
    
    
    25
 
 (1)
    
    Combined represents income available to common stockholders divided by the combined
total of Class A and Class B weighted average common shares outstanding. 25




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##### Table of Contents



OVERVIEW
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,($ in thousands, except per share data)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Pretax income (loss):Advanta Business Cards
    
    $
    37,464
    
    
    $
    22,355
    
    
    $
    72,757
    
    
    $
    40,772Other(A)
    
    
    (1
    )
    
    
    1,222
    
    
    
    332
    
    
    
    67,822Total pretax income
    
    
    37,463
    
    
    
    23,577
    
    
    
    73,089
    
    
    
    108,594Income tax expense
    
    
    14,423
    
    
    
    9,195
    
    
    
    28,139
    
    
    
    21,542Income from continuing
operations
    
    $
    23,040
    
    
    $
    14,382
    
    
    $
    44,950
    
    
    $
    87,052Per combined common share,
assuming dilution
    
    $
    0.79
    
    
    $
    0.50
    
    
    $
    1.52
    
    
    $
    3.03
 
 (A)
    
    Other for the six months ended June 30, 2005 includes a $67.7 million pretax gain on
transfer of consumer credit card business.    26




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  ADVANTA BUSINESS CARDS
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,($ in thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Average owned receivables
    
    $
    997,754
    
    
    $
    727,253
    
    
    $
    963,962
    
    
    $
    753,071Average securitized receivables
    
    $
    3,222,380
    
    
    $
    2,707,045
    
    
    $
    3,090,577
    
    
    $
    2,628,329Cardholder transaction volume
    
    $
    3,031,493
    
    
    $
    2,446,510
    
    
    $
    5,765,415
    
    
    $
    4,623,319New account originations
    
    
    86,398
    
    
    
    70,044
    
    
    
    169,015
    
    
    
    114,825Average number of active
accounts(1)
    
    
    687,912
    
    
    
    589,751
    
    
    
    668,814
    
    
    
    583,950Ending number of accounts at
June 30
    
    
    978,517
    
    
    
    822,773
    
    
    
    978,517
    
    
    
    822,773
 
 (1)
    
    Active accounts are defined as accounts with a balance at month-end. Active account
statistics do not include charged-off accounts. The statistics reported above are the
average number of active accounts for the three and six months ended June 30. 27




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##### Table of Contents



Projected Estimate at December 31, 2006Actual atDecember 31,
    
    
    Low End
    
    
    Percentage
    
    
    High End
    
    
    Percentage($ in thousands)
    
    2005
    
    
    of Range
    
    
    Increase
    
    
    of Range
    
    
    IncreaseOwned receivables
    
    $
    879,468
    
    
    $
    1,055,000
    
    
    
    20.0
    %
    
    $
    1,143,000
    
    
    
    30.0
    %Securitized receivables
    
    
    2,880,401
    
    
    
    3,457,000
    
    
    
    20.0
    %
    
    
    3,745,000
    
    
    
    30.0
    %Managed receivables
    
    $
    3,759,869
    
    
    $
    4,512,000
    
    
    
    20.0
    %
    
    $
    4,888,000
    
    
    
    30.0
    %
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,($ in thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Net interest income on owned
interest-earning assets
    
    $
    24,050
    
    
    $
    18,756
    
    
    $
    46,836
    
    
    $
    39,101Noninterest revenues
    
    
    86,104
    
    
    
    74,122
    
    
    
    167,442
    
    
    
    144,987Provision for credit losses
    
    
    (10,145
    )
    
    
    (8,603
    )
    
    
    (19,479
    )
    
    
    (19,022
    )Operating expenses
    
    
    (62,545
    )
    
    
    (61,920
    )
    
    
    (122,042
    )
    
    
    (124,294
    )Pretax income
    
    $
    37,464
    
    
    $
    22,355
    
    
    $
    72,757
    
    
    $
    40,772
   28




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##### Table of Contents



INTEREST INCOME AND EXPENSE
    29




---



##### Table of Contents



INTEREST RATE ANALYSIS AND AVERAGE BALANCES
 Three Months Ended June 30,2006
    
    
    2005Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average($ in thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateInterest-earning assets:Owned receivables:Business credit cards(1)
    
    $
    997,754
    
    
    $
    30,051
    
    
    
    12.08
    %
    
    $
    727,253
    
    
    $
    23,074
    
    
    
    12.73
    %Other receivables
    
    
    7,440
    
    
    
    88
    
    
    
    4.75
    
    
    
    9,047
    
    
    
    124
    
    
    
    5.50Total receivables
    
    
    1,005,194
    
    
    
    30,139
    
    
    
    12.03
    
    
    
    736,300
    
    
    
    23,198
    
    
    
    12.64Investments(2)
    
    
    500,829
    
    
    
    5,975
    
    
    
    4.73
    
    
    
    556,340
    
    
    
    4,085
    
    
    
    2.91Retained interests in
securitizations
    
    
    195,118
    
    
    
    4,399
    
    
    
    9.02
    
    
    
    173,997
    
    
    
    3,566
    
    
    
    8.20Interest-earning assets
of discontinued
operations
    
    
    0
    
    
    
    0
    
    
    
    0.00
    
    
    
    9,233
    
    
    
    159
    
    
    
    6.87Total interest-earning
assets(3)
    
    
    1,701,141
    
    
    $
    40,513
    
    
    
    9.53
    %
    
    
    1,475,870
    
    
    $
    31,008
    
    
    
    8.41
    %Noninterest-earning assets
    
    
    450,066
    
    
    
    
    
    
    
    
    
    
    
    454,174Total assets
    
    $
    2,151,207
    
    
    
    
    
    
    
    
    
    
    $
    1,930,044Interest-bearing liabilities:Deposits
    
    $
    1,122,365
    
    
    $
    11,858
    
    
    
    4.24
    %
    
    $
    919,543
    
    
    $
    7,731
    
    
    
    3.37
    %Debt
    
    
    211,736
    
    
    
    3,320
    
    
    
    6.29
    
    
    
    246,990
    
    
    
    3,758
    
    
    
    6.10Subordinated debt
payable to preferred
securities trust
    
    
    103,093
    
    
    
    2,290
    
    
    
    8.88
    
    
    
    103,093
    
    
    
    2,290
    
    
    
    8.88Other borrowings
    
    
    824
    
    
    
    11
    
    
    
    5.04
    
    
    
    0
    
    
    
    0
    
    
    
    0.00Total interest-bearing
liabilities(4)
    
    
    1,438,018
    
    
    $
    17,479
    
    
    
    4.87
    %
    
    
    1,269,626
    
    
    $
    13,779
    
    
    
    4.35
    %Noninterest-bearing
liabilities
    
    
    183,379
    
    
    
    
    
    
    
    
    
    
    
    177,314Total liabilities
    
    
    1,621,397
    
    
    
    
    
    
    
    
    
    
    
    1,446,940Stockholders equity
    
    
    529,810
    
    
    
    
    
    
    
    
    
    
    
    483,104Total liabilities and
stockholders equity
    
    $
    2,151,207
    
    
    
    
    
    
    
    
    
    
    $
    1,930,044Net interest spread
    
    
    
    
    
    
    
    
    
    
    4.66
    %
    
    
    
    
    
    
    
    
    
    
    4.06
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    5.43
    %
    
    
    
    
    
    
    
    
    
    
    4.68
    %
 
 (1)
    
    Interest income includes late fees for owned business credit card receivables of $2.0
million for the three months ended June 30, 2006 and $1.4 million for the same period
of 2005.(2)
    
    Interest and average rate for tax-free securities are computed on a tax equivalent
basis using a statutory rate of 35%.(3)
    
    Includes assets held and available for sale and nonaccrual receivables.(4)
    
    Includes funding of assets for both continuing and discontinued operations. 30




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##### Table of Contents



Six Months Ended June 30,2006
    
    
    2005Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average($ in thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateInterest-earning assets:Owned receivables:Business credit cards(1)
    
    $
    963,962
    
    
    $
    58,879
    
    
    
    12.32
    %
    
    $
    753,071
    
    
    $
    47,919
    
    
    
    12.83
    %Other receivables
    
    
    7,591
    
    
    
    187
    
    
    
    4.97
    
    
    
    9,500
    
    
    
    253
    
    
    
    5.37Total receivables
    
    
    971,553
    
    
    
    59,066
    
    
    
    12.26
    
    
    
    762,571
    
    
    
    48,172
    
    
    
    12.74Investments(2)
    
    
    500,228
    
    
    
    11,338
    
    
    
    4.51
    
    
    
    536,304
    
    
    
    7,273
    
    
    
    2.70Retained interests in
securitizations
    
    
    188,017
    
    
    
    8,381
    
    
    
    8.92
    
    
    
    168,393
    
    
    
    7,587
    
    
    
    9.01Interest-earning assets
of discontinued
operations
    
    
    0
    
    
    
    0
    
    
    
    0.00
    
    
    
    11,979
    
    
    
    517
    
    
    
    8.63Total interest-earning
assets(3)
    
    
    1,659,798
    
    
    $
    78,785
    
    
    
    9.55
    %
    
    
    1,479,247
    
    
    $
    63,549
    
    
    
    8.64
    %Noninterest-earning assets
    
    
    478,458
    
    
    
    
    
    
    
    
    
    
    
    366,777Total assets
    
    $
    2,138,256
    
    
    
    
    
    
    
    
    
    
    $
    1,846,024Interest-bearing liabilities:Deposits
    
    $
    1,097,783
    
    
    $
    22,166
    
    
    
    4.07
    %
    
    $
    880,879
    
    
    $
    14,264
    
    
    
    3.27
    %Debt
    
    
    216,565
    
    
    
    6,677
    
    
    
    6.22
    
    
    
    253,648
    
    
    
    7,656
    
    
    
    6.09Subordinated debt
payable to preferred
securities trust
    
    
    103,093
    
    
    
    4,579
    
    
    
    8.88
    
    
    
    103,093
    
    
    
    4,579
    
    
    
    8.88Other borrowings
    
    
    463
    
    
    
    12
    
    
    
    5.02
    
    
    
    0
    
    
    
    0
    
    
    
    0.00Total interest-bearing
liabilities(4)
    
    
    1,417,904
    
    
    $
    33,434
    
    
    
    4.75
    %
    
    
    1,237,620
    
    
    $
    26,499
    
    
    
    4.31
    %Noninterest-bearing
liabilities
    
    
    193,147
    
    
    
    
    
    
    
    
    
    
    
    152,647Total liabilities
    
    
    1,611,051
    
    
    
    
    
    
    
    
    
    
    
    1,390,267Stockholders equity
    
    
    527,205
    
    
    
    
    
    
    
    
    
    
    
    455,757Total liabilities and
stockholders equity
    
    $
    2,138,256
    
    
    
    
    
    
    
    
    
    
    $
    1,846,024Net interest spread
    
    
    
    
    
    
    
    
    
    
    4.80
    %
    
    
    
    
    
    
    
    
    
    
    4.33
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    5.51
    %
    
    
    
    
    
    
    
    
    
    
    5.05
    %
 
 (1)
    
    Interest income includes late fees for owned business credit card receivables of $3.8
million for the six months ended June 30, 2006 and $3.1 million for the same period of
2005.(2)
    
    Interest and average rate for tax-free securities are computed on a tax equivalent
basis using a statutory rate of 35%.(3)
    
    Includes assets held and available for sale and nonaccrual receivables.(4)
    
    Includes funding of assets for both continuing and discontinued operations. 31




---



##### Table of Contents



PROVISION AND ALLOWANCE FOR RECEIVABLE LOSSES
    32




---



##### Table of Contents



June 30,
    
    December 31,
    
    June 30,($ in thousands)
    
    2006
    
    2005
    
    2005Consolidated  OwnedAllowance for receivable losses
    
    $
    49,662
    
    
    $
    45,589
    
    
    $
    50,275Receivables 30 days or more delinquent
    
    
    25,482
    
    
    
    23,646
    
    
    
    26,167Receivables 90 days or more delinquent
    
    
    12,560
    
    
    
    10,837
    
    
    
    12,880Nonaccrual receivables
    
    
    11,824
    
    
    
    11,476
    
    
    
    12,286Accruing receivables past due 90 days or more
    
    
    11,266
    
    
    
    9,479
    
    
    
    11,067As a percentage of receivables:Allowance for receivable losses
    
    
    4.64
    %
    
    
    5.14
    %
    
    
    6.00
    %Receivables 30 days or more delinquent
    
    
    2.38
    
    
    
    2.66
    
    
    
    3.11Receivables 90 days or more delinquent
    
    
    1.17
    
    
    
    1.22
    
    
    
    1.54Nonaccrual receivables
    
    
    1.11
    
    
    
    1.29
    
    
    
    1.47Accruing receivables past due 90 days or more
    
    
    1.05
    
    
    
    1.07
    
    
    
    1.31Net principal charge-offs for the year-to-date
period ended June 30 and December 31
    
    $
    15,608
    
    
    $
    44,870
    
    
    $
    19,026Net principal charge-offs for the three months
ended June 30 and December 31
    
    
    7,524
    
    
    
    15,769
    
    
    
    8,607As a percentage of average receivables
(annualized):Net principal charge-offs for the year-to-date
period ended June 30 and December 31
    
    
    3.21
    %
    
    
    5.32
    %
    
    
    4.99
    %Net principal charge-offs for the three months
ended June 30 and December 31
    
    
    2.99
    
    
    
    6.18
    
    
    
    4.68Business
Credit Cards  OwnedAllowance for receivable losses
    
    $
    48,450
    
    
    $
    44,323
    
    
    $
    48,966Receivables 30 days or more delinquent
    
    
    25,482
    
    
    
    23,595
    
    
    
    26,085Receivables 90 days or more delinquent
    
    
    12,560
    
    
    
    10,837
    
    
    
    12,798Nonaccrual receivables
    
    
    11,824
    
    
    
    11,476
    
    
    
    12,286Accruing receivables past due 90 days or more
    
    
    11,266
    
    
    
    9,479
    
    
    
    10,985As a percentage of receivables:Allowance for receivable losses
    
    
    4.56
    %
    
    
    5.04
    %
    
    
    5.91
    %Receivables 30 days or more delinquent
    
    
    2.40
    
    
    
    2.68
    
    
    
    3.15Receivables 90 days or more delinquent
    
    
    1.18
    
    
    
    1.23
    
    
    
    1.54Nonaccrual receivables
    
    
    1.11
    
    
    
    1.30
    
    
    
    1.48Accruing receivables past due 90 days or more
    
    
    1.06
    
    
    
    1.08
    
    
    
    1.33Net principal charge-offs for the year-to-date
period ended June 30 and December 31
    
    $
    15,604
    
    
    $
    44,865
    
    
    $
    19,022Net principal charge-offs for the three months
ended June 30 and December 31
    
    
    7,520
    
    
    
    15,768
    
    
    
    8,603As a percentage of average receivables
(annualized):Net principal charge-offs for the year-to-date
period ended June 30 and December 31
    
    
    3.24
    %
    
    
    5.37
    %
    
    
    5.05
    %Net principal charge-offs for the three months
ended June 30 and December 31
    
    
    3.01
    
    
    
    6.23
    
    
    
    4.73
 33




---



##### Table of Contents



SECURITIZATION INCOME
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,($ in thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Securitization income
    
    $
    29,686
    
    
    $
    30,066
    
    
    $
    63,264
    
    
    $
    60,462Interest income (discount
accretion)
    
    
    4,399
    
    
    
    3,566
    
    
    
    8,381
    
    
    
    7,587Interchange income
    
    
    39,127
    
    
    
    32,390
    
    
    
    72,841
    
    
    
    59,721Servicing revenues
    
    
    15,329
    
    
    
    12,819
    
    
    
    29,011
    
    
    
    25,418Total
    
    $
    88,541
    
    
    $
    78,841
    
    
    $
    173,497
    
    
    $
    153,188
   34




---



##### Table of Contents



Managed Receivable Data
  35




---



##### Table of Contents



Managed Financial Measures and StatisticsAdvanta
    
    
    
    
    
    
    
    
    
    
    AdvantaBusiness
    
    
    GAAP
    
    
    Securitization
    
    
    Business Cards
    
    
    Managed($ in thousands)
    
    Cards GAAP
    
    
    Ratio(1)
    
    
    Adjustments
    
    
    Managed
    
    
    Ratio(1)Three Months Ended
June 30, 2006Net interest income
    
    $
    24,050
    
    
    
    8.06
    %
    
    $
    64,511
    
    
    $
    88,561
    
    
    
    8.39
    %Noninterest revenues
    
    
    86,104
    
    
    
    28.87
    
    
    
    (35,678
    )
    
    
    50,426
    
    
    
    4.78Provision for credit losses
    
    
    10,145
    
    
    
    3.40
    
    
    
    28,833
    (2)
    
    
    38,978
    
    
    
    3.69Average business credit
card interest-earning
assets
    
    
    1,192,872
    
    
    
    
    
    
    
    3,027,262
    
    
    
    4,220,134Three Months Ended
June 30, 2005Net interest income
    
    $
    18,756
    
    
    
    8.32
    %
    
    $
    72,951
    
    
    $
    91,707
    
    
    
    10.68
    %Noninterest revenues
    
    
    74,122
    
    
    
    32.90
    
    
    
    (34,627
    )
    
    
    39,495
    
    
    
    4.60Provision for credit losses
    
    
    8,603
    
    
    
    3.82
    
    
    
    38,324
    (2)
    
    
    46,927
    
    
    
    5.47Average business credit
card interest-earning
assets
    
    
    901,250
    
    
    
    
    
    
    
    2,533,048
    
    
    
    3,434,298Six Months Ended
June 30, 2006Net interest income
    
    $
    46,836
    
    
    
    8.13
    %
    
    $
    130,896
    
    
    $
    177,732
    
    
    
    8.77
    %Noninterest revenues
    
    
    167,442
    
    
    
    29.07
    
    
    
    (73,668
    )
    
    
    93,774
    
    
    
    4.63Provision for credit losses
    
    
    19,479
    
    
    
    3.38
    
    
    
    57,228
    (2)
    
    
    76,707
    
    
    
    3.78Average business credit card
interest-earning assets
    
    
    1,151,979
    
    
    
    
    
    
    
    2,902,560
    
    
    
    4,054,539Six Months Ended
June 30, 2005Net interest income
    
    $
    39,101
    
    
    
    8.49
    %
    
    $
    143,819
    
    
    $
    182,920
    
    
    
    10.82
    %Noninterest revenues
    
    
    144,987
    
    
    
    31.47
    
    
    
    (70,225
    )
    
    
    74,762
    
    
    
    4.42Provision for credit losses
    
    
    19,022
    
    
    
    4.13
    
    
    
    73,594
    (2)
    
    
    92,616
    
    
    
    5.48Average business credit card
interest-earning assets
    
    
    921,464
    
    
    
    
    
    
    
    2,459,936
    
    
    
    3,381,400As of June 30,
2006Ending business credit card
receivables
    
    $
    1,062,249
    
    
    
    
    
    
    $
    3,323,869
    
    
    $
    4,386,118Receivables 30 days or more
delinquent
    
    
    25,482
    
    
    
    2.40
    %
    
    
    90,987
    
    
    
    116,469
    
    
    
    2.66
    %Receivables 90 days or more
delinquent
    
    
    12,560
    
    
    
    1.18
    
    
    
    45,008
    
    
    
    57,568
    
    
    
    1.31As of December
31, 2005Ending business credit card
receivables
    
    $
    879,468
    
    
    
    
    
    
    $
    2,880,401
    
    
    $
    3,759,869Receivables 30 days or more
delinquent
    
    
    23,595
    
    
    
    2.68
    %
    
    
    87,610
    
    
    
    111,205
    
    
    
    2.96
    %Receivables 90 days or more
delinquent
    
    
    10,837
    
    
    
    1.23
    
    
    
    40,223
    
    
    
    51,060
    
    
    
    1.36As of June
30, 2005Ending business credit card
receivables
    
    $
    828,724
    
    
    
    
    
    
    $
    2,685,504
    
    
    $
    3,514,228Receivables 30 days or more
delinquent
    
    
    26,085
    
    
    
    3.15
    %
    
    
    100,283
    
    
    
    126,368
    
    
    
    3.60
    %Receivables 90 days or more
delinquent
    
    
    12,798
    
    
    
    1.54
    
    
    
    49,583
    
    
    
    62,381
    
    
    
    1.78
 
 (1)
    
    Ratios are as a percentage of average business credit card interest-earning assets except
delinquency ratios which are as a percentage of ending business credit card receivables.(2)
    
    Includes the amount by which the credit losses would have been higher had the securitized
receivables remained as owned and the provision for credit losses on securitized receivables
been equal to actual reported charge-offs. In addition, unfavorable valuation adjustments to
retained interests in securitizations of $2.2 million in the three months ended June 30, 2006
and $3.5 million in the six months ended June 30, 2006 are included as increases to provision
for credit losses. 36




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##### Table of Contents



SERVICING REVENUES
  ($ in thousands)
    
    2006
    
    
    2005Three months ended June 30
    
    $
    15,329
    
    
    $
    12,819Six months ended June 30
    
    
    29,011
    
    
    
    25,418
  OTHER REVENUES
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,($ in thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Interchange income
    
    $
    51,217
    
    
    $
    40,738
    
    
    $
    95,610
    
    
    $
    76,434Business credit card cash back rewards
    
    
    (10,852
    )
    
    
    (7,198
    )
    
    
    (20,365
    )
    
    
    (13,242
    )Business credit card business rewards
    
    
    (5,444
    )
    
    
    (5,582
    )
    
    
    (10,048
    )
    
    
    (10,333
    )Investment securities gains, net
    
    
    2,824
    
    
    
    1,225
    
    
    
    3,532
    
    
    
    185Balance transfer fees
    
    
    1,689
    
    
    
    1,616
    
    
    
    3,333
    
    
    
    2,645Cash usage fees
    
    
    854
    
    
    
    787
    
    
    
    1,677
    
    
    
    1,658Earnings on investment in Fleet
Credit Card Services, L.P.
    
    
    819
    
    
    
    1,033
    
    
    
    819
    
    
    
    1,033Other business credit card fees
    
    
    753
    
    
    
    651
    
    
    
    1,605
    
    
    
    1,442Other, net
    
    
    437
    
    
    
    1,149
    
    
    
    1,110
    
    
    
    2,410Total other revenues, net
    
    $
    42,297
    
    
    $
    34,419
    
    
    $
    77,273
    
    
    $
    62,232
    37




---



##### Table of Contents



GAIN ON TRANSFER OF CONSUMER CREDIT CARD BUSINESS
  OPERATING EXPENSES
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,($ in thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Salaries and employee benefits
    
    $
    24,014
    
    
    $
    26,301
    
    
    $
    47,303
    
    
    $
    52,155Amortization of deferred
origination costs, net
    
    
    11,711
    
    
    
    9,940
    
    
    
    23,659
    
    
    
    17,887External processing
    
    
    6,182
    
    
    
    5,483
    
    
    
    12,123
    
    
    
    10,631Marketing
    
    
    4,150
    
    
    
    5,157
    
    
    
    7,757
    
    
    
    12,097Professional fees
    
    
    2,918
    
    
    
    2,853
    
    
    
    5,495
    
    
    
    6,502Equipment
    
    
    2,371
    
    
    
    2,697
    
    
    
    4,988
    
    
    
    5,513Occupancy
    
    
    2,332
    
    
    
    2,007
    
    
    
    4,471
    
    
    
    3,884Credit
    
    
    1,380
    
    
    
    1,408
    
    
    
    2,473
    
    
    
    2,681Other
    
    
    7,678
    
    
    
    6,405
    
    
    
    14,106
    
    
    
    13,521Total operating expenses
    
    $
    62,736
    
    
    $
    62,251
    
    
    $
    122,375
    
    
    $
    124,871
  38




---



##### Table of Contents



LITIGATION CONTINGENCIES
  39




---



##### Table of Contents



INCOME TAXES
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,($ in thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Income tax expense
    
    $
    14,423
    
    
    $
    9,195
    
    
    $
    28,139
    
    
    $
    21,542Effective tax rate
    
    
    38.5
    %
    
    
    39.0
    %
    
    
    38.5
    %
    
    
    19.8
    %
   Accounting for Uncertainty in Income
Taxes  an Interpretation of FASB Statement No. 109
 40




---



##### Table of Contents



DISCONTINUED OPERATIONS
   OFF-BALANCE SHEET ARRANGEMENTS
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,($ in thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Average securitized receivables
    
    $
    3,222,380
    
    
    $
    2,707,045
    
    
    $
    3,090,577
    
    
    $
    2,628,329Securitization income
    
    
    29,686
    
    
    
    30,066
    
    
    
    63,264
    
    
    
    60,462Discount accretion
    
    
    4,399
    
    
    
    3,566
    
    
    
    8,381
    
    
    
    7,587Interchange income
    
    
    39,127
    
    
    
    32,390
    
    
    
    72,841
    
    
    
    59,721Servicing revenues
    
    
    15,329
    
    
    
    12,819
    
    
    
    29,011
    
    
    
    25,418Proceeds from new securitizations
    
    
    534,374
    
    
    
    390,675
    
    
    
    1,070,264
    
    
    
    390,675Proceeds from collections
reinvested in revolving-period
securitizations
    
    
    1,779,595
    
    
    
    1,368,525
    
    
    
    3,463,397
    
    
    
    3,040,170Cash flows received on retained
interests
    
    
    92,582
    
    
    
    80,563
    
    
    
    170,210
    
    
    
    140,729
 41




---



##### Table of Contents



Noteholder Principal
    
    Scheduled End of($ in thousands)
    
    Balance
    
    Revolving PeriodAdvantaSeries Class A (2006-A1)
    
    $
    200,000
    
    
    February 28, 2007AdvantaSeries Class A (2006-A2)
    
    
    250,000
    
    
    May 31, 2008AdvantaSeries Class A (2006-A3)
    
    
    250,000
    
    
    September 30, 2008AdvantaSeries Class A (2006-A4)
    
    
    300,000
    
    
    August 31, 2010AdvantaSeries Class B (2006-B1)
    
    
    100,000
    
    
    November 30, 2008AdvantaSeries Class D (2006-D1)
    
    
    15,000
    
    
    May 31, 2010AdvantaSeries Class D (2006-D2)
    
    
    25,000
    
    
    September 30, 2010
    42




---



##### Table of Contents



Noteholder
    
    End of Revolving
    
    Noteholder($ in thousands)
    
    Principal Balance
    
    Period
    
    Payment DateSeries 2003-A
    
    
    400,000
    
    
    November 2005
    
    February 2006Series 2003-B
    
    
    300,000
    
    
    March 2006
    
    June 2006
  Accounting for Transfers of
Financial Assets  An Amendment of FASB Statement No. 140
 Accounting for Certain Hybrid Financial
Instruments Accounting for Derivative Instruments and
Hedging Activities, Application of Statement 133 to Beneficial Interests in
Securitized Financial Assets
 Accounting for Servicing of Financial Assets
 43




---



##### Table of Contents



MARKET RISK SENSITIVITY
  June 30,
    
    
    December 31,2006
    
    
    2005Estimated percentage increase (decrease) in net interest
income on owned receivables:Assuming 200 basis point increase in interest rates
    
    
    9
    %
    
    
    13
    %Assuming 200 basis point decrease in interest rates
    
    
    (6
    )%
    
    
    (11
    )%Estimated percentage increase (decrease) in net interest
income on securitized receivables:Assuming 200 basis point increase in interest rates
    
    
    (8
    )%
    
    
    (9
    )%Assuming 200 basis point decrease in interest rates
    
    
    11
    %
    
    
    12
    %Estimated percentage increase (decrease) in net interest
income on managed receivables:Assuming 200 basis point increase in interest rates
    
    
    (3
    )%
    
    
    (3
    )%Assuming 200 basis point decrease in interest rates
    
    
    5
    %
    
    
    5
    %
   44




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##### Table of Contents



LIQUIDITY, CAPITAL RESOURCES AND ANALYSIS OF FINANCIAL CONDITION
    June 30, 2006
    
    
    December 31, 2005($ in thousands)
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Off-balance sheet securitized
receivables(1)
    
    $
    3,199,473
    
    
    
    62
    %
    
    $
    2,771,505
    
    
    
    59
    %Deposits
    
    
    1,163,262
    
    
    
    22
    
    
    
    1,070,572
    
    
    
    23Debt
    
    
    210,623
    
    
    
    4
    
    
    
    226,856
    
    
    
    5Subordinated debt payable to preferred
securities trust
    
    
    103,093
    
    
    
    2
    
    
    
    103,093
    
    
    
    2Equity
    
    
    520,959
    
    
    
    10
    
    
    
    515,437
    
    
    
    11Total
    
    $
    5,197,410
    
    
    
    100
    %
    
    $
    4,687,463
    
    
    
    100
    %
 
 (1)
    
    Excludes our ownership interest in the noteholder principal balance of securitizations
(subordinated trust assets) that are held on-balance sheet and classified as retained
interests in securitizations.    45




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##### Table of Contents



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




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##### Table of Contents



(1)
    
    factors affecting our net interest income on owned and securitized
receivables, including fluctuations in the volume of receivables and
the range and timing of pricing offers to cardholders;(2)
    
    competitive pressures, including product development and pricing,
among financial institutions;(3)
    
    political conditions, social conditions, monetary and fiscal policies
and general economic and environmental conditions that affect the
level of new account originations, customer spending, delinquencies
and charge-offs;(4)
    
    factors affecting fluctuations in the number of accounts or
receivable balances including the retention of cardholders after
promotional pricing periods have expired;(5)
    
    interest rate fluctuations;(6)
    
    the level of expenses;(7)
    
    the timing of the securitization of our receivables;(8)
    
    the effects of government regulation, including restrictions and
limitations imposed by banking laws, regulators, and examinations;(9)
    
    effect of, and changes in, tax laws, rates, regulations and policies;(10)
    
    effect of legal and regulatory developments, including changes in
bankruptcy laws and regulations and the ultimate resolution of
industry-related judicial proceedings relating to the legality of
certain interchange rates;(11)
    
    relationships with customers, significant vendors and business
partners;(12)
    
    difficulties or delays in the development, production, testing and
marketing of products or services, including the ability and cost to
obtain intellectual property rights or a failure to implement new
products or services when anticipated;(13)
    
    the amount and cost of financing available to us;(14)
    
    the ratings on the debt of Advanta Corp. and its subsidiaries;
 47




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##### Table of Contents



(15)
    
    the effects of changes in accounting policies or practices as may be
required by changes in U.S. generally accepted accounting principles;(16)
    
    the impact of litigation, including judgments, settlements and actual
or anticipated insurance recoveries for costs or judgments;(17)
    
    the proper design and operation of our disclosure controls and
procedures; and(18)
    
    the ability to attract and retain key personnel.
  
   
    48




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##### Table of Contents



PART II  OTHER INFORMATION
 
   
    Legislative and regulatory developments may affect our business operations and ability to
generate new accounts.
 ® ®
  49




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##### Table of Contents



Actions by bank regulatory authorities as well as federal and state legislatures could
affect the manner in which we conduct our business and our financial condition.
  
  (a)
    
    None.(b)
    
    None.(c)
    
    The table below provides information with respect to all purchases of equity
securities by us during the period from April 1, 2006 through
June 30, 2006. All shares reported in the table below are shares of Class B Common Stock.
 (d)Maximum Number (or(c)Total Number of
    
    
    Approximate Dollar(a)Total
    
    
    
    
    
    
    Shares Purchased
    
    
    Value of Shares) thatNumber of
    
    
    (b)Average
    
    
    as Part of
    
    
    May Yet Be PurchasedShares
    
    
    Price Paid
    
    
    Publicly Announced
    
    
    Under the Plans orPeriod
    
    Purchased
    
    
    per Share
    
    
    Plans or Programs
    
    
    Programs4/1/06 
4/30/06
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    
    05/1/06 
5/31/06
    
    
    1,126,992
    (A)
    
    $
    38.61
    
    
    
    0
    
    
    
    06/1/06 
6/30/06
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    
    0Total
    
    
    1,126,992
    
    
    $
    38.61
    
    
    
    0
    
    
    
    0
 
 (A)
    
    In May 2006, Advanta Corp. repurchased 995 thousand shares of Class B Common Stock
beneficially owned by its Chairman and Chief Executive Officer for $38.5 million. In
May 2006, in connection with the vesting of shares related to the 2005 performance year
for Advanta Corp.s management incentive program, 132 50




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##### Table of Contents



thousand vested shares with a market value of $5.0 million were withheld from certain
employees (including officers) to meet Advanta Corp.s minimum statutory tax
withholding requirements. 
  (a)
    
    Advanta Corp. held its Annual Meeting of Stockholders on June 14, 2006 (the Annual
Meeting).(b)
    
    Not required.(c)
    
    The following proposals were submitted to a vote of stockholders.The election of three directors to hold office until the 2009 Annual Meeting of Stockholders.
 NOMINEES
    
    VOTES FOR
    
    VOTES WITHHELDOlaf Olafsson
    
    
    7,969,407
    
    
    
    555,629William A. Rosoff
    
    
    7,884,348
    
    
    
    640,688Michael Stolper
    
    
    8,258,011
    
    
    
    267,025
  FOR
    
    AGAINST
    
    ABSTAIN
    
    BROKER NON-VOTES8,306,048
    
    
    83,750
    
    
    
    135,238
    
    
    
    0
 (d)
    
    Not required.
 51




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##### Table of Contents



ExhibitNumber
    
    Description of Document10.1
    
    Stock Repurchase Agreement, entered into as of May 9, 2006, by and among
Advanta Corp., Dennis Alter, Dennis J. Alter, Trustee U/I/T dated December 15,
2003 and Dennis J. Alter, Trustee U/I/T dated May 24, 2004 (incorporated by
reference to Exhibit 10.2 to Advanta Corp.s Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 2006)10.2
    
    Advanta Management Incentive Program VI adopted April 17, 2006*10.3
    
    Form of Advanta Corp. Stock Award Grant Document (AMIP VI)*12
    
    Computation of Ratio of Earnings to Fixed Charges31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Management contract or compensatory plan. 52




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##### Table of Contents



SIGNATURES
  
 By
    
    /s/Philip M. BrowneSenior Vice President andChief Financial OfficerAugust 8, 2006By
    
    /s/David B. WeinstockVice President andChief Accounting OfficerAugust 8, 2006
 53




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##### Table of Contents



EXHIBIT INDEX
 Manner ofExhibit
    
    Description
    
    Filing10.1
    
    Stock Repurchase Agreement, entered into May 9, 2006, by
and among Advanta Corp., Dennis Alter, Dennis J. Alter, Trustee
U/I/T dated December 15, 2003 and Dennis J. Alter, Trustee U/I/T
dated May 24, 2004
    
    *10.2
    
    Advanta Management Incentive Program VI adopted April 17, 2006
    
    **10.3
    
    Form of Advanta Corp. Stock Award Grant Document (AMIP VI)
    
    **12
    
    Computation of Ratio of Earnings to Fixed Charges
    
    **31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
    
    **31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
    
    **32.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    **32.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    **
 
 *
    
    Incorporated by reference to Exhibit 10.2 to Advanta Corp.s Quarterly Report on
Form 10-Q for the period ended March 31, 2006.**
    
    Filed electronically herewith. 54