##### 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, 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
  o þ o
 o þ
  o o
   Class A
    
    Outstanding at November 2, 2006Common Stock, $.01 par value
    
    9,606,862 sharesClass B
    
    Outstanding at November 2, 2006Common Stock, $.01 par value
    
    19,056,158 shares




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##### 



TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATION
    
    
    3Item 1.
    
    Financial Statements
    
    
    3Consolidated Balance Sheets (Unaudited)
    
    
    3Consolidated Income Statements (Unaudited)
    
    
    4Consolidated Statements of Changes in Stockholders Equity (Unaudited)
    
    
    5-6Consolidated Statements of Cash Flows (Unaudited)
    
    
    7Notes to Consolidated Financial Statements (Unaudited)
    
    
    8Item 2.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    51Item 4.
    
    Controls and Procedures
    
    
    51PART II OTHER INFORMATION
    
    
    52Item 1.
    
    Legal Proceedings
    
    
    52Item 1A.
    
    Risk Factors
    
    
    52Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    54Item 6.
    
    Exhibits
    
    
    55Exhibit Index
    
    
    57COMPUTATION 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)
 September 30,
    
    December 31,(In thousands, except share amounts)
    
    2006
    
    2005ASSETSCash
    
    $
    84,851
    
    
    $
    34,109Federal funds sold
    
    
    332,000
    
    
    
    355,057Restricted interest-bearing deposits
    
    
    1,180
    
    
    
    1,333Investments available for sale
    
    
    160,083
    
    
    
    219,782Receivables, net:Held for sale
    
    
    719,430
    
    
    
    474,881Other
    
    
    462,280
    
    
    
    389,012Total receivables, net
    
    
    1,181,710
    
    
    
    863,893Accounts receivable from securitizations
    
    
    490,632
    
    
    
    450,001Premises and equipment, net
    
    
    15,103
    
    
    
    16,901Other assets
    
    
    162,226
    
    
    
    186,327Total assets
    
    $
    2,427,785
    
    
    $
    2,127,403LIABILITIESDeposits
    
    $
    1,222,903
    
    
    $
    1,070,572Debt and other borrowings
    
    
    260,010
    
    
    
    226,856Subordinated debt payable to preferred securities trust
    
    
    103,093
    
    
    
    103,093Other liabilities
    
    
    293,190
    
    
    
    211,445Total liabilities
    
    
    1,879,196
    
    
    
    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  23,252,007
shares in 2006 and 21,918,569 shares in 2005
    
    
    233
    
    
    
    219Additional paid-in capital
    
    
    301,221
    
    
    
    276,231Nonvested shares
    
    
    0
    
    
    
    (1,148
    )Unearned ESOP shares
    
    
    (9,308
    )
    
    
    (9,622
    )Accumulated other comprehensive loss
    
    
    (350
    )
    
    
    (678
    )Retained earnings
    
    
    348,406
    
    
    
    298,472Treasury stock at cost, 434,155 Class A common shares in
2006 and 2005; 4,290,789 Class B common shares in 2006
and 3,162,019 Class B common shares in 2005
    
    
    (92,723
    )
    
    
    (49,147
    )Total stockholders equity
    
    
    548,589
    
    
    
    515,437Total liabilities and stockholders equity
    
    $
    2,427,785
    
    
    $
    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
    
    Nine Months Ended(In thousands, except per share amounts)
    
    September 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Interest income:Receivables
    
    $
    34,062
    
    
    $
    26,663
    
    
    $
    93,128
    
    
    $
    74,835Investments
    
    
    7,195
    
    
    
    5,003
    
    
    
    18,527
    
    
    
    12,268Other interest income
    
    
    4,671
    
    
    
    3,627
    
    
    
    13,052
    
    
    
    11,214Total interest income
    
    
    45,928
    
    
    
    35,293
    
    
    
    124,707
    
    
    
    98,317Interest expense:Deposits
    
    
    13,861
    
    
    
    9,342
    
    
    
    36,027
    
    
    
    23,480Debt and other borrowings
    
    
    3,499
    
    
    
    3,670
    
    
    
    10,188
    
    
    
    11,256Subordinated debt payable to preferred
securities trust
    
    
    2,289
    
    
    
    2,289
    
    
    
    6,868
    
    
    
    6,868Total interest expense
    
    
    19,649
    
    
    
    15,301
    
    
    
    53,083
    
    
    
    41,604Net interest income
    
    
    26,279
    
    
    
    19,992
    
    
    
    71,624
    
    
    
    56,713Provision for credit losses
    
    
    9,202
    
    
    
    11,232
    
    
    
    28,631
    
    
    
    30,279Net interest income after provision for
credit losses
    
    
    17,077
    
    
    
    8,760
    
    
    
    42,993
    
    
    
    26,434Noninterest revenues:Securitization income
    
    
    26,232
    
    
    
    31,797
    
    
    
    89,496
    
    
    
    92,259Servicing revenues
    
    
    16,777
    
    
    
    12,785
    
    
    
    45,788
    
    
    
    38,203Other revenues, net
    
    
    40,188
    
    
    
    31,857
    
    
    
    117,461
    
    
    
    94,089Gain on transfer of consumer credit
card business (See Note 13)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    67,679Total noninterest revenues
    
    
    83,197
    
    
    
    76,439
    
    
    
    252,745
    
    
    
    292,230Operating expenses
    
    
    65,932
    
    
    
    58,715
    
    
    
    188,307
    
    
    
    183,586Income before income taxes
    
    
    34,342
    
    
    
    26,484
    
    
    
    107,431
    
    
    
    135,078Income tax expense
    
    
    13,222
    
    
    
    10,329
    
    
    
    41,361
    
    
    
    31,871Income from continuing operations
    
    
    21,120
    
    
    
    16,155
    
    
    
    66,070
    
    
    
    103,207Gain (loss), net, on discontinuance of
mortgage and leasing businesses, net of tax
    
    
    0
    
    
    
    (12,299
    )
    
    
    738
    
    
    
    (8,334
    )Net income
    
    $
    21,120
    
    
    $
    3,856
    
    
    $
    66,808
    
    
    $
    94,873Basic income from continuing operations
per common shareClass A
    
    $
    0.75
    
    
    $
    0.58
    
    
    $
    2.38
    
    
    $
    3.88Class B
    
    
    0.81
    
    
    
    0.61
    
    
    
    2.50
    
    
    
    3.97Combined
    
    
    0.79
    
    
    
    0.60
    
    
    
    2.46
    
    
    
    3.94Diluted income from continuing
operations per common shareClass A
    
    $
    0.71
    
    
    $
    0.54
    
    
    $
    2.22
    
    
    $
    3.55Class B
    
    
    0.73
    
    
    
    0.56
    
    
    
    2.26
    
    
    
    3.58Combined
    
    
    0.73
    
    
    
    0.55
    
    
    
    2.25
    
    
    
    3.57Basic net income per common shareClass A
    
    $
    0.75
    
    
    $
    0.12
    
    
    $
    2.41
    
    
    $
    3.56Class B
    
    
    0.81
    
    
    
    0.15
    
    
    
    2.52
    
    
    
    3.65Combined
    
    
    0.79
    
    
    
    0.14
    
    
    
    2.48
    
    
    
    3.62Diluted net income per common shareClass A
    
    $
    0.71
    
    
    $
    0.12
    
    
    $
    2.25
    
    
    $
    3.26Class B
    
    
    0.73
    
    
    
    0.14
    
    
    
    2.28
    
    
    
    3.29Combined
    
    
    0.73
    
    
    
    0.13
    
    
    
    2.27
    
    
    
    3.28Basic weighted average common shares
outstandingClass A
    
    
    8,862
    
    
    
    8,829
    
    
    
    8,854
    
    
    
    8,821Class B
    
    
    17,887
    
    
    
    17,901
    
    
    
    17,979
    
    
    
    17,350Combined
    
    
    26,749
    
    
    
    26,730
    
    
    
    26,833
    
    
    
    26,171Diluted weighted average common shares
outstandingClass A
    
    
    8,862
    
    
    
    8,829
    
    
    
    8,854
    
    
    
    8,821Class B
    
    
    20,167
    
    
    
    20,409
    
    
    
    20,498
    
    
    
    20,033Combined
    
    
    29,029
    
    
    
    29,238
    
    
    
    29,352
    
    
    
    28,854
 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
    
    $
    66,808Other comprehensive income (loss):Change in unrealized
appreciation (depreciation)
of investments, net of tax
benefit (expense) of ($177)
    
    
    328Comprehensive income
    
    $
    67,136Preferred and common cash
dividends declaredExercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    8,279Stock-based nonemployee
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115Stock-based employee compensation
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,747Excess tax benefits from
stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,161Issuance of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    (7
    )Amortization of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,588Forfeitures of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (319
    )Reclassification of nonvested
shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,148
    )Treasury stock acquiredESOP shares committed to be
released
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    574Balance at September 30, 2006
    
    
    
    
    
    $
    1,010
    
    
    $
    100
    
    
    $
    233
    
    
    $
    301,221
 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
    
    
    
    
    
    
    
    
    
    
    66,808
    
    
    
    
    
    
    
    66,808Other comprehensive income (loss):Change in unrealized
appreciation (depreciation)
of investments, net of tax
benefit (expense) of ($177)
    
    
    
    
    
    
    328
    
    
    
    
    
    
    
    
    
    
    
    328Comprehensive incomePreferred and common cash
dividends declared
    
    
    
    
    
    
    
    
    
    
    (16,874
    )
    
    
    
    
    
    
    (16,874
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,286Stock-based nonemployee
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115Stock-based employee compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,747Excess tax benefits from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,161Issuance of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Amortization of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,588Forfeitures of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (319
    )Reclassification of nonvested shares
    
    
    1,148
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Treasury stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43,576
    )
    
    
    (43,576
    )ESOP shares committed to be released
    
    
    314
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    888Balance at September 30, 2006
    
    $
    (9,308
    )
    
    $
    (350
    )
    
    $
    348,406
    
    
    $
    (92,723
    )
    
    $
    548,589
 See Notes to Consolidated Financial Statements
 6




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##### Table of Contents



ADVANTA CORP. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Nine Months Ended($ in thousands)
    
    September 30,2006
    
    2005OPERATING ACTIVITIES  CONTINUING OPERATIONSNet income
    
    $
    66,808
    
    
    $
    94,873Adjustments to reconcile net income to net cash used in
operating activities:(Gain) loss on discontinuance of mortgage and leasing
businesses,
net of tax
    
    
    (738
    )
    
    
    8,334Investment securities gains, net
    
    
    (4,623
    )
    
    
    (76
    )Depreciation and amortization
    
    
    4,443
    
    
    
    5,538Stock-based compensation expense
    
    
    7,131
    
    
    
    5,419Provision for credit losses
    
    
    28,631
    
    
    
    30,279Provision for interest and fee losses
    
    
    6,551
    
    
    
    6,660Change in deferred origination costs, net of deferred fees
    
    
    (3,405
    )
    
    
    (8,905
    )Change in receivables held for sale
    
    
    (1,436,404
    )
    
    
    (849,398
    )Proceeds from sale of receivables held for sale
    
    
    1,191,855
    
    
    
    782,281Change in accounts receivable from securitizations
    
    
    (40,631
    )
    
    
    (388,676
    )Excess tax benefits from stock-based compensation
    
    
    (10,161
    )
    
    
    0Change in other assets and other liabilities
    
    
    96,654
    
    
    
    150,693Net cash used in operating activities
    
    
    (93,889
    )
    
    
    (162,978
    )INVESTING ACTIVITIES  CONTINUING OPERATIONSChange in federal funds sold and restricted interest-bearing
deposits
    
    
    23,210
    
    
    
    (2,122
    )Purchase of investments available for sale
    
    
    (497,787
    )
    
    
    (329,945
    )Proceeds from sales of investments available for sale
    
    
    492,335
    
    
    
    199,342Proceeds from sale of other investments
    
    
    2,440
    
    
    
    0Proceeds from maturing investments available for sale
    
    
    67,839
    
    
    
    72,181Change in receivables not held for sale
    
    
    (105,045
    )
    
    
    (59,300
    )Purchases of premises and equipment, net
    
    
    (2,634
    )
    
    
    (2,429
    )Net cash used in investing activities
    
    
    (19,642
    )
    
    
    (122,273
    )FINANCING ACTIVITIES  CONTINUING OPERATIONSChange in demand and savings deposits
    
    
    41,644
    
    
    
    7,449Proceeds from time deposits
    
    
    495,428
    
    
    
    449,210Payments on time deposits
    
    
    (405,231
    )
    
    
    (162,198
    )Proceeds from issuance of debt
    
    
    20,971
    
    
    
    19,050Payments on debt
    
    
    (32,612
    )
    
    
    (56,512
    )Change in cash overdraft and other borrowings
    
    
    83,125
    
    
    
    13,438Proceeds from exercise of stock options
    
    
    8,286
    
    
    
    5,179Excess tax benefits from stock-based compensation
    
    
    10,161
    
    
    
    0Cash dividends paid
    
    
    (16,874
    )
    
    
    (10,169
    )Treasury stock acquired
    
    
    (43,576
    )
    
    
    0Net cash provided by financing activities
    
    
    161,322
    
    
    
    265,447DISCONTINUED OPERATIONSNet cash provided by operating activities of discontinued
operations
    
    
    2,951
    
    
    
    22,166Net increase in cash
    
    
    50,742
    
    
    
    2,362Cash at beginning of period
    
    
    34,109
    
    
    
    35,565Cash at end of period
    
    $
    84,851
    
    
    $
    37,927
 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)
 September 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
    
    Nine Months EndedSeptember 30, 2006
    
    September 30, 2006Decrease in income before income taxes
    
    $
    (1,045
    )
    
    $
    (2,747
    )Income tax benefit
    
    
    402
    
    
    
    1,057Decrease in income from continuing
operations
    
    
    (643
    )
    
    
    (1,690
    )Decrease in net income
    
    
    (643
    )
    
    
    (1,690
    )Decrease in basic and diluted
earnings per combined share
    
    $
    (0.02
    )
    
    $
    (0.06
    )
 Accounting for Transfers of
Financial Assets  An Amendment of FASB Statement No. 140
 Accounting for Certain Hybrid Financial
Instruments Accounting for Derivative Instruments and
Hedging Activities Application of Statement 133 to Beneficial Interests in
Securitized Financial Assets
 Accounting for Servicing of Financial Assets
 9




---



##### Table of Contents



Accounting for Uncertainty in Income
Taxes  an Interpretation of FASB Statement No. 109
 Fair Value Measurements.
 Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans  An Amendment of FASB Statements No. 87, 88, 106 and
132(R)
 Considering the Effects of Prior Year Misstatements when Quantifying Misstatements
in Current Year Financial Statements
 10




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##### Table of Contents



Note 3) Investments Available for Sale
  September 30, 2006
    
    December 31, 2005Amortized
    
    Fair
    
    Amortized
    
    FairCost
    
    Value
    
    Cost
    
    ValueU.S. Treasury and government
agency securities
    
    $
    26,104
    
    
    $
    25,841
    
    
    $
    51,399
    
    
    $
    50,677State and municipal securities
    
    
    7,714
    
    
    
    7,716
    
    
    
    4,730
    
    
    
    4,716Corporate bonds
    
    
    8,514
    
    
    
    8,387
    
    
    
    10,593
    
    
    
    10,445Asset-backed
securities (1)
    
    
    39,853
    
    
    
    39,833
    
    
    
    39,352
    
    
    
    39,266Equity
securities (2)
    
    
    10,431
    
    
    
    10,303
    
    
    
    10,374
    
    
    
    10,301Money market funds
    
    
    61,388
    
    
    
    61,388
    
    
    
    104,272
    
    
    
    104,272Other
    
    
    6,617
    
    
    
    6,615
    
    
    
    105
    
    
    
    105Total investments available for sale
    
    $
    160,621
    
    
    $
    160,083
    
    
    $
    220,825
    
    
    $
    219,782
 
 (1)
    
    Includes mortgage-backed securities.(2)
    
    Includes venture capital investments of $1.4 million at September 30, 2006 and $1.2
million at December 31, 2005. The amount shown as amortized cost represents fair value
for these investments. Note 4) Receivables
  September 30,
    
    December 31,2006
    
    2005Business credit card receivables
    
    $
    1,198,550
    
    
    $
    879,468Other receivables
    
    
    7,700
    
    
    
    8,007Gross receivables
    
    
    1,206,250
    
    
    
    887,475Add: Deferred origination costs, net of deferred fees
    
    
    25,412
    
    
    
    22,007Less: Allowance for receivable lossesBusiness credit cards
    
    
    (48,740
    )
    
    
    (44,323
    )Other receivables
    
    
    (1,212
    )
    
    
    (1,266
    )Total allowance for receivable losses
    
    
    (49,952
    )
    
    
    (45,589
    )Receivables, net
    
    $
    1,181,710
    
    
    $
    863,893
 11




---



##### Table of Contents



Note 5) Allowance for Receivable Losses
  2006
    
    2005Balance at January 1
    
    $
    45,589
    
    
    $
    50,478Provision for credit losses
    
    
    28,631
    
    
    
    30,279Provision for interest and fee losses
    
    
    6,551
    
    
    
    6,660Gross principal charge-offs:Business credit cards
    
    
    (27,298
    )
    
    
    (31,394
    )Other receivables
    
    
    (4
    )
    
    
    (4
    )Total gross principal charge-offs
    
    
    (27,302
    )
    
    
    (31,398
    )Principal recoveries:Business credit cards
    
    
    2,692
    
    
    
    2,297Net principal charge-offs
    
    
    (24,610
    )
    
    
    (29,101
    )Interest and fee charge-offs:Business credit cards
    
    
    (6,209
    )
    
    
    (6,684
    )Balance at September 30
    
    $
    49,952
    
    
    $
    51,632
 Note 6) Securitization Activities
  September 30,
    
    December 31,2006
    
    2005Retained interests in securitizations
    
    $
    209,104
    
    
    $
    183,391Amounts due from the securitization trust
    
    
    224,211
    
    
    
    212,766Accrued interest and fees on securitized
receivables, net (1)
    
    
    57,317
    
    
    
    53,844Total accounts receivable from securitizations
    
    $
    490,632
    
    
    $
    450,001
 
 (1)
    
    Reduced by an estimate for uncollectible interest and fees of $7.5 million at
September 30, 2006 and $7.0 million at December 31, 2005. 12




---



##### Table of Contents



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Average securitized
receivables
    
    $
    3,388,784
    
    
    $
    2,751,024
    
    
    $
    3,191,071
    
    
    $
    2,669,677Securitization income
    
    
    26,232
    
    
    
    31,797
    
    
    
    89,496
    
    
    
    92,259Discount accretion
    
    
    4,671
    
    
    
    3,627
    
    
    
    13,052
    
    
    
    11,214Interchange income
    
    
    40,038
    
    
    
    33,197
    
    
    
    112,879
    
    
    
    92,918Servicing revenues
    
    
    16,777
    
    
    
    12,785
    
    
    
    45,788
    
    
    
    38,203Proceeds from new
securitizations
    
    
    121,591
    
    
    
    391,606
    
    
    
    1,191,855
    
    
    
    782,281Proceeds from collections
reinvested in revolving-period securitizations
    
    
    2,003,338
    
    
    
    1,339,654
    
    
    
    5,466,735
    
    
    
    4,379,824Cash flows received on
retained interests
    
    
    66,270
    
    
    
    82,140
    
    
    
    236,480
    
    
    
    222,869Key assumptions:Discount rate
    
    
    8.90%  10.43
    %
    
    
    8.22%   9.48
    %
    
    
    8.71%  10.43
    %
    
    
    8.22%  11.27
    %Monthly payment rate
    
    
    21.91%  24.07
    %
    
    
    22.29%  25.00
    %
    
    
    21.91%  25.00
    %
    
    
    21.77%  25.00
    %Loss rate
    
    
    3.70%   4.57
    %
    
    
    5.15%   6.21
    %
    
    
    3.70%   4.90
    %
    
    
    5.15%   6.79
    %Interest yield, net of
interest earned by
noteholders
    
    
    7.60%   8.03
    %
    
    
    10.42%  10.91
    %
    
    
    7.60%  9.95
    %
    
    
    10.42%  11.28
    %
   September 30,
    
    December 31,2006
    
    2005Discount rate
    
    
    8.90%   9.92
    %
    
    
    8.71%   9.81
    %Monthly payment rate
    
    
    21.91%  24.07
    %
    
    
    23.37%  25.00
    %Loss rate
    
    
    3.70%   4.07
    %
    
    
    4.25%   4.68
    %Interest yield, net of interest earned by
noteholders
    
    
    7.60
    %
    
    
    9.95
    %
   13




---



##### Table of Contents



Effect on estimated fair value of the following
hypothetical changes in key assumptions:Discount rate increased by 2%
    
    $
    (3,835
    )Discount rate increased by 4%
    
    
    (7,498
    )Monthly payment rate at 110% of base assumption
    
    
    (1,080
    )Monthly payment rate at 125% of base assumption
    
    
    (2,460
    )Loss rate at 110% of base assumption
    
    
    (2,951
    )Loss rate at 125% of base assumption
    
    
    (7,379
    )Interest yield, net of interest earned by noteholders,
decreased by 1%
    
    
    (7,977
    )Interest yield, net of interest earned by noteholders,
decreased by 2%
    
    
    (15,954
    )
  14




---



##### Table of Contents



Managed receivable data
  September 30,
    
    December 31,
    
    September 30,2006
    
    2005
    
    2005Owned business credit card receivables
    
    $
    1,198,550
    
    
    $
    879,468
    
    
    $
    822,821Securitized business credit card receivables
    
    
    3,449,366
    
    
    
    2,880,401
    
    
    
    2,781,397Total managed receivables
    
    $
    4,647,916
    
    
    $
    3,759,869
    
    
    $
    3,604,218Receivables 30 days or more delinquent:Owned
    
    $
    29,081
    
    
    $
    23,595
    
    
    $
    27,324Securitized
    
    
    96,240
    
    
    
    87,610
    
    
    
    100,650Total managed
    
    
    125,321
    
    
    
    111,205
    
    
    
    127,974Receivables 90 days or more delinquent:Owned
    
    
    13,182
    
    
    
    10,837
    
    
    
    12,479Securitized
    
    
    43,911
    
    
    
    40,223
    
    
    
    45,387Total managed
    
    
    57,093
    
    
    
    51,060
    
    
    
    57,866Nonaccrual receivables:Owned
    
    
    12,492
    
    
    
    11,476
    
    
    
    13,006Securitized
    
    
    42,520
    
    
    
    42,828
    
    
    
    48,674Total managed
    
    
    55,012
    
    
    
    54,304
    
    
    
    61,680Accruing receivables past due 90 days or more:Owned
    
    
    11,870
    
    
    
    9,479
    
    
    
    10,291Securitized
    
    
    39,493
    
    
    
    35,063
    
    
    
    37,339Total managed
    
    
    51,363
    
    
    
    44,542
    
    
    
    47,630Net principal charge-offs for the year-to-date
period ended September 30 and December 31:Owned
    
    
    24,606
    
    
    
    44,865
    
    
    
    29,097Securitized
    
    
    83,127
    
    
    
    155,618
    
    
    
    109,467Total managed
    
    
    107,733
    
    
    
    200,483
    
    
    
    138,564Net principal charge-offs for the three months
ended September 30 and December 31:Owned
    
    
    9,002
    
    
    
    15,768
    
    
    
    10,075Securitized
    
    
    29,399
    
    
    
    46,151
    
    
    
    35,873Total managed
    
    
    38,401
    
    
    
    61,919
    
    
    
    45,948
 15




---



##### Table of Contents



Note 7) Selected Balance Sheet Information
  September 30,
    
    December 31,2006
    
    2005Net deferred tax asset
    
    $
    40,322
    
    
    $
    64,923Investment in Fleet Credit Card Services, L.P.
    
    
    32,095
    
    
    
    32,095Current income taxes receivable
    
    
    9,721
    
    
    
    0Investment in preferred securities trust
    
    
    3,163
    
    
    
    3,093Other
    
    
    76,925
    
    
    
    86,216Total other assets
    
    $
    162,226
    
    
    $
    186,327
  September 30,
    
    December 31,2006
    
    2005Amounts due to the securitization trust
    
    $
    122,141
    
    
    $
    105,917Accounts payable and accrued expenses
    
    
    29,483
    
    
    
    28,018Business credit card business rewards
liability
    
    
    23,536
    
    
    
    20,658Business credit card cash back rewards
liability
    
    
    6,504
    
    
    
    4,506Accrued interest payable
    
    
    22,276
    
    
    
    5,414Current income taxes payable
    
    
    19,480
    
    
    
    17,048Liabilities of discontinued operations, net
    
    
    1,485
    
    
    
    509Other
    
    
    68,285
    
    
    
    29,375Total other liabilities
    
    $
    293,190
    
    
    $
    211,445
  Note 8) Other Borrowings
  Note 9) Commitments and Contingencies
  16




---



##### Table of Contents



Note 10) Capital Stock
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Class A Common Stock
    
    $
    0.2125
    
    
    $
    0.1134
    
    
    $
    0.5384
    
    
    $
    0.3213Class B Common Stock
    
    
    0.2550
    
    
    
    0.1361
    
    
    
    0.6461
    
    
    
    0.3856
   17




---



##### Table of Contents



Note 11) Stock-Based Compensation
  Nonvested Shares
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Compensation expense
    
    $
    4,397
    
    
    $
    1,341
    
    
    $
    4,269
    
    
    $
    5,233Income tax benefit
    
    
    1,693
    
    
    
    523
    
    
    
    1,643
    
    
    
    2,041
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Total fair value of vested shares
    
    $
    68
    
    
    $
    0
    
    
    $
    22,780
    
    
    $
    20,157
 18




---



##### Table of Contents



Nine Months EndedSeptember 30, 2006WeightedAverage GrantNumber of
    
    Date FairShares
    
    ValueOutstanding at January 1
    
    
    811
    
    
    $
    8.56Granted
    
    
    706
    
    
    
    36.36Vested
    
    
    (597
    )
    
    
    8.68Forfeited
    
    
    (66
    )
    
    
    14.11Outstanding at September 30
    
    
    854
    
    
    $
    31.03
 Stock Options
   Three Months Ended
    
    Nine Months EndedSeptember 30, 2006
    
    September 30, 2006Compensation expense
    
    $
    1,045
    
    
    $
    2,747Income tax benefit
    
    
    402
    
    
    
    1,057
  19




---



##### Table of Contents



Nine Months EndedSeptember 30, 2006WeightedWeighted
    
    
    
    
    
    AverageAverage
    
    Aggregate
    
    RemainingNumber of
    
    Exercise
    
    Intrinsic
    
    ContractualOptions
    
    Price
    
    Value
    
    LifeOutstanding at January 1
    
    
    4,986
    
    
    $
    11.37Granted
    
    
    939
    
    
    
    37.30Exercised
    
    
    (693
    )
    
    
    11.99Forfeited
    
    
    (77
    )
    
    
    21.49Expired
    
    
    0
    
    
    
    0Outstanding at September 30
    
    
    5,155
    
    
    $
    15.86
    
    
    $
    108,463
    
    
    5.3 yearsOptions exercisable at
September 30
    
    
    3,467
    
    
    $
    10.44
    
    
    $
    91,741
    
    
    3.8 years
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Aggregate intrinsic
value of stock
options exercised
    
    $
    9,972
    
    
    $
    2,380
    
    
    $
    15,795
    
    
    $
    6,363Weighted average
grant date fair
value of options
granted
    
    $
    7.08
    
    
    
    N/A
    *
    
    $
    10.05
    
    
    $
    9.19
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Expected dividend yield
    
    
    4.43
    %
    
    
    N/A
    *
    
    
    4.26
    %
    
    
    3.14
    %Expected life (in years)
    
    
    4.0
    
    
    
    N/A
    *
    
    
    5.3
    
    
    
    5.0Expected volatility
    
    
    29.50
    %
    
    
    N/A
    *
    
    
    38.76
    %
    
    
    53.60
    %Risk-free interest rate
    
    
    4.90
    %
    
    
    N/A
    *
    
    
    4.98
    %
    
    
    3.79
    %
 
 *
    
    N/A  Not Applicable 20




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##### Table of Contents



Three Months Ended
    
    Nine Months EndedSeptember 30, 2005
    
    September 30, 2005As
    
    Pro
    
    As
    
    ProReported
    
    Forma
    
    Reported
    
    FormaStock-based employee compensation
expense for stock option plans,
net of related tax effects
    
    $
    0
    
    
    $
    516
    
    
    $
    0
    
    
    $
    1,933Net income
    
    
    3,856
    
    
    
    3,340
    
    
    
    94,873
    
    
    
    92,940Basic net income per common shareClass A
    
    $
    0.12
    
    
    $
    0.11
    
    
    $
    3.56
    
    
    $
    3.49Class B
    
    
    0.15
    
    
    
    0.13
    
    
    
    3.65
    
    
    
    3.58Combined
    
    
    0.14
    
    
    
    0.12
    
    
    
    3.62
    
    
    
    3.55Diluted net income per common shareClass A
    
    $
    0.12
    
    
    $
    0.11
    
    
    $
    3.26
    
    
    $
    3.19Class B
    
    
    0.14
    
    
    
    0.12
    
    
    
    3.29
    
    
    
    3.23Combined
    
    
    0.13
    
    
    
    0.11
    
    
    
    3.28
    
    
    
    3.22
 21




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##### Table of Contents



Note 12) Segment Information
  AdvantaBusinessCards
    
    Other(1)
    
    TotalThree months ended September 30, 2006Interest income
    
    $
    38,639
    
    
    $
    7,289
    
    
    $
    45,928Interest expense
    
    
    11,743
    
    
    
    7,906
    
    
    
    19,649Noninterest revenues
    
    
    81,832
    
    
    
    1,365
    
    
    
    83,197Pretax income from continuing operations
    
    
    33,737
    
    
    
    605
    
    
    
    34,342Three months ended September 30, 2005Interest income
    
    $
    30,173
    
    
    $
    5,120
    
    
    $
    35,293Interest expense
    
    
    10,169
    
    
    
    5,132
    
    
    
    15,301Noninterest revenues
    
    
    76,295
    
    
    
    144
    
    
    
    76,439Pretax income (loss) from continuing
operations
    
    
    26,564
    
    
    
    (80
    )
    
    
    26,484Nine months ended September 30, 2006Interest income
    
    $
    105,899
    
    
    $
    18,808
    
    
    $
    124,707Interest expense
    
    
    32,167
    
    
    
    20,916
    
    
    
    53,083Noninterest revenues
    
    
    249,274
    
    
    
    3,471
    
    
    
    252,745Pretax income from continuing operations
    
    
    106,494
    
    
    
    937
    
    
    
    107,431Total assets at beginning of period
    
    
    1,362,133
    
    
    
    765,270
    
    
    
    2,127,403Total assets at end of period
    
    
    1,678,626
    
    
    
    749,159
    
    
    
    2,427,785Nine months ended September 30, 2005Interest income
    
    $
    85,679
    
    
    $
    12,638
    
    
    $
    98,317Interest expense
    
    
    26,574
    
    
    
    15,030
    
    
    
    41,604Noninterest revenues
    
    
    221,282
    
    
    
    3,269
    
    
    
    224,551Gain on transfer of consumer credit
card business
    
    
    0
    
    
    
    67,679
    
    
    
    67,679Pretax income from continuing operations
    
    
    67,336
    
    
    
    67,742
    
    
    
    135,078Total assets at beginning of period
    
    
    994,194
    
    
    
    698,730
    
    
    
    1,692,924Total assets at end of period
    
    
    1,464,751
    
    
    
    754,958
    
    
    
    2,219,709
 
 (1)
    
    Other includes venture capital operations as well as investment and other
activities not attributable to the Advanta Business Cards segment. Note 13) Gain on Transfer of Consumer Credit Card Business
  22




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##### Table of Contents



Note 14) Income Taxes
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Income tax expense
attributable to:Continuing operations
    
    $
    13,222
    
    
    $
    10,329
    
    
    $
    41,361
    
    
    $
    31,871Discontinued operations
    
    
    0
    
    
    
    (7,863
    )
    
    
    462
    
    
    
    (5,328
    )Total income tax expense
    
    $
    13,222
    
    
    $
    2,466
    
    
    $
    41,823
    
    
    $
    26,543
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Current:Federal
    
    $
    (5,189
    )
    
    $
    3,349
    
    
    $
    12,341
    
    
    $
    15,119State
    
    
    1,611
    
    
    
    370
    
    
    
    4,552
    
    
    
    2,378Total current
    
    
    (3,578
    )
    
    
    3,719
    
    
    
    16,893
    
    
    
    17,497Deferred:Federal
    
    
    16,824
    
    
    
    6,841
    
    
    
    24,580
    
    
    
    14,140State
    
    
    (24
    )
    
    
    (231
    )
    
    
    (112
    )
    
    
    234Total deferred
    
    
    16,800
    
    
    
    6,610
    
    
    
    24,468
    
    
    
    14,374Total income tax
expense
attributable to
continuing
operations
    
    $
    13,222
    
    
    $
    10,329
    
    
    $
    41,361
    
    
    $
    31,871
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Statutory federal income tax
    
    $
    12,020
    
    
    $
    9,270
    
    
    $
    37,601
    
    
    $
    47,278State income taxes, net of
federal income tax benefit
    
    
    1,031
    
    
    
    636
    
    
    
    2,886
    
    
    
    2,244Nondeductible expenses
    
    
    137
    
    
    
    247
    
    
    
    459
    
    
    
    734Compensation limitation
    
    
    85
    
    
    
    110
    
    
    
    151
    
    
    
    330Gain on transfer of consumer
credit card business
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (12,347
    )Change in valuation allowance
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (6,393
    )Other
    
    
    (51
    )
    
    
    66
    
    
    
    264
    
    
    
    25Income tax expense attributable
to continuing operations
    
    $
    13,222
    
    
    $
    10,329
    
    
    $
    41,361
    
    
    $
    31,871
   23




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##### Table of Contents



September 30,
    
    December 31,2006
    
    2005Deferred tax assets
    
    $
    66,319
    
    
    $
    79,452Deferred tax
liabilities
    
    
    (25,997
    )
    
    
    (14,529
    )Net deferred tax asset
    
    $
    40,322
    
    
    $
    64,923
  September 30,
    
    December 31,2006
    
    2005Alternative minimum tax credit carryforwards
    
    $
    22,248
    
    
    $
    26,060Business credit card rewards
    
    
    10,514
    
    
    
    8,807Deferred revenue
    
    
    (9,855
    )
    
    
    0Allowance for receivable losses
    
    
    9,630
    
    
    
    18,400Deferred origination costs, net of deferred fees
    
    
    (9,033
    )
    
    
    (7,345
    )Unrealized venture capital investment losses
    
    
    5,523
    
    
    
    5,934Incentive and deferred compensation
    
    
    3,308
    
    
    
    5,029Securitization income
    
    
    (2,624
    )
    
    
    (3,849
    )Capital loss carryforwards
    
    
    2,570
    
    
    
    4,476Other
    
    
    8,041
    
    
    
    7,411Net deferred tax asset
    
    $
    40,322
    
    
    $
    64,923
   24




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##### Table of Contents



Note 15) Discontinued Operations
  Three Months EndedSeptember 30, 2006
    
    September 30, 2005Advanta
    
    
    
    
    
    AdvantaAdvanta
    
    Leasing
    
    Advanta
    
    LeasingMortgage
    
    Services
    
    Mortgage
    
    ServicesPretax loss on
discontinuance of
mortgage and
leasing businesses
    
    $
    0
    
    
    $
    0
    
    
    $
    (20,162
    )
    
    $
    0Income tax benefit
    
    
    0
    
    
    
    0
    
    
    
    7,863
    
    
    
    0Loss on
discontinuance of
mortgage and
leasing businesses,
net of tax
    
    $
    0
    
    
    $
    0
    
    
    $
    (12,299
    )
    
    $
    0
 Nine Months EndedSeptember 30, 2006
    
    September 30, 2005Advanta
    
    
    
    
    
    AdvantaAdvanta
    
    Leasing
    
    Advanta
    
    LeasingMortgage
    
    Services
    
    Mortgage
    
    ServicesPretax gain (loss) on
discontinuance of mortgage
and leasing businesses
    
    $
    500
    
    
    $
    700
    
    
    $
    (15,662
    )
    
    $
    2,000Income tax (expense) benefit
    
    
    (193
    )
    
    
    (269
    )
    
    
    6,108
    
    
    
    (780
    )Gain (loss) on
discontinuance of mortgage
and leasing businesses, net
of tax
    
    $
    307
    
    
    $
    431
    
    
    $
    (9,554
    )
    
    $
    1,220
  25




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##### Table of Contents



Three Months Ended September 30,
    
    Nine Months Ended September 30,Advanta
    
    Advanta Leasing
    
    Advanta
    
    Advanta LeasingMortgage
    
    Services
    
    Mortgage
    
    Services2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005Basic gain (loss) on discontinuance of mortgage and leasing businesses, net of tax, per common shareClass A
    
    $
    0.00
    
    
    $
    (0.46
    )
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.01
    
    
    $
    (0.37
    )
    
    $
    0.02
    
    
    $
    0.05Class B
    
    
    0.00
    
    
    
    (0.46
    )
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.01
    
    
    
    (0.37
    )
    
    
    0.02
    
    
    
    0.05Combined
    
    
    0.00
    
    
    
    (0.46
    )
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.01
    
    
    
    (0.37
    )
    
    
    0.02
    
    
    
    0.05Diluted gain (loss) on discontinuance of mortgage and leasing businesses, net of tax, per common shareClass A
    
    $
    0.00
    
    
    $
    (0.42
    )
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.01
    
    
    $
    (0.33
    )
    
    $
    0.01
    
    
    $
    0.04Class B
    
    
    0.00
    
    
    
    (0.42
    )
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.01
    
    
    
    (0.33
    )
    
    
    0.01
    
    
    
    0.04Combined
    
    
    0.00
    
    
    
    (0.42
    )
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.01
    
    
    
    (0.33
    )
    
    
    0.01
    
    
    
    0.04
 26




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##### Table of Contents



Note 16) Calculation of Earnings Per Share
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Income from continuing operations
    
    $
    21,120
    
    
    $
    16,155
    
    
    $
    66,070
    
    
    $
    103,207Less: Preferred A dividends
    
    
    0
    
    
    
    0
    
    
    
    (141
    )
    
    
    (141
    )Income from continuing operations
available to common stockholders
    
    
    21,120
    
    
    
    16,155
    
    
    
    65,929
    
    
    
    103,066Gain (loss), net, on discontinuance
of mortgage and leasing businesses,
net of tax
    
    
    0
    
    
    
    (12,299
    )
    
    
    738
    
    
    
    (8,334
    )Net income available to common
stockholders
    
    
    21,120
    
    
    
    3,856
    
    
    
    66,667
    
    
    
    94,732Less: Class A dividends declared
    
    
    (1,879
    )
    
    
    (999
    )
    
    
    (4,833
    )
    
    
    (2,843
    )Less: Class B dividends declared
    
    
    (4,759
    )
    
    
    (2,552
    )
    
    
    (11,900
    )
    
    
    (7,185
    )Undistributed net income
    
    $
    14,482
    
    
    $
    305
    
    
    $
    49,934
    
    
    $
    84,704Basic income from continuing
operations per common shareClass A
    
    $
    0.75
    
    
    $
    0.58
    
    
    $
    2.38
    
    
    $
    3.88Class B
    
    
    0.81
    
    
    
    0.61
    
    
    
    2.50
    
    
    
    3.97Combined (1)
    
    
    0.79
    
    
    
    0.60
    
    
    
    2.46
    
    
    
    3.94Diluted income from continuing
operations per common shareClass A
    
    $
    0.71
    
    
    $
    0.54
    
    
    $
    2.22
    
    
    $
    3.55Class B
    
    
    0.73
    
    
    
    0.56
    
    
    
    2.26
    
    
    
    3.58Combined (1)
    
    
    0.73
    
    
    
    0.55
    
    
    
    2.25
    
    
    
    3.57Basic net income per common shareClass A
    
    $
    0.75
    
    
    $
    0.12
    
    
    $
    2.41
    
    
    $
    3.56Class B
    
    
    0.81
    
    
    
    0.15
    
    
    
    2.52
    
    
    
    3.65Combined (1)
    
    
    0.79
    
    
    
    0.14
    
    
    
    2.48
    
    
    
    3.62Diluted net income per common shareClass A
    
    $
    0.71
    
    
    $
    0.12
    
    
    $
    2.25
    
    
    $
    3.26Class B
    
    
    0.73
    
    
    
    0.14
    
    
    
    2.28
    
    
    
    3.29Combined (1)
    
    
    0.73
    
    
    
    0.13
    
    
    
    2.27
    
    
    
    3.28Basic weighted average common shares
outstandingClass A
    
    
    8,862
    
    
    
    8,829
    
    
    
    8,854
    
    
    
    8,821Class B
    
    
    17,887
    
    
    
    17,901
    
    
    
    17,979
    
    
    
    17,350Combined
    
    
    26,749
    
    
    
    26,730
    
    
    
    26,833
    
    
    
    26,171Dilutive effect ofOptions Class B
    
    
    2,128
    
    
    
    2,009
    
    
    
    2,196
    
    
    
    1,924Nonvested shares Class B
    
    
    152
    
    
    
    499
    
    
    
    323
    
    
    
    759Diluted weighted average common
shares outstandingClass A
    
    
    8,862
    
    
    
    8,829
    
    
    
    8,854
    
    
    
    8,821Class B
    
    
    20,167
    
    
    
    20,409
    
    
    
    20,498
    
    
    
    20,033Combined
    
    
    29,029
    
    
    
    29,238
    
    
    
    29,352
    
    
    
    28,854Antidilutive sharesOptions Class B
    
    
    919
    
    
    
    0
    
    
    
    632
    
    
    
    17
 
 (1)
    
    Combined represents income available to common stockholders divided by the combined
total of Class A and Class B weighted average common shares outstanding. 27




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##### Table of Contents



OVERVIEW
  Three Months Ended
    
    Nine Months Ended($ in thousands, except per share data)
    
    September 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Pretax income (loss):Advanta Business Cards
    
    $
    33,737
    
    
    $
    26,564
    
    
    $
    106,494
    
    
    $
    67,336Other (1)
    
    
    605
    
    
    
    (80
    )
    
    
    937
    
    
    
    67,742Total pretax income
    
    
    34,342
    
    
    
    26,484
    
    
    
    107,431
    
    
    
    135,078Income tax expense
    
    
    13,222
    
    
    
    10,329
    
    
    
    41,361
    
    
    
    31,871Income from continuing
operations
    
    $
    21,120
    
    
    $
    16,155
    
    
    $
    66,070
    
    
    $
    103,207Per combined common share,
assuming dilution
    
    $
    0.73
    
    
    $
    0.55
    
    
    $
    2.25
    
    
    $
    3.57
 
 (1)
    
    Other for the nine months ended September 30, 2005 includes a $67.7 million pretax
gain on transfer of consumer credit card business.    28




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  ADVANTA BUSINESS CARDS
  Three Months Ended
    
    Nine Months Ended($ in thousands)
    
    September 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Average owned receivables
    
    $
    1,114,122
    
    
    $
    819,870
    
    
    $
    1,014,566
    
    
    $
    775,582Average securitized receivables
    
    $
    3,388,784
    
    
    $
    2,751,024
    
    
    $
    3,191,071
    
    
    $
    2,669,677Cardholder transaction volume
    
    $
    3,094,702
    
    
    $
    2,513,752
    
    
    $
    8,860,117
    
    
    $
    7,137,071New account originations
    
    
    85,392
    
    
    
    57,974
    
    
    
    254,407
    
    
    
    172,799Average number of active
accounts (1)
    
    
    724,705
    
    
    
    604,486
    
    
    
    687,159
    
    
    
    590,607Ending number of accounts at
September 30
    
    
    1,037,161
    
    
    
    846,472
    
    
    
    1,037,161
    
    
    
    846,472
 
 (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.  29




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##### Table of Contents



ProjectedActual at
    
    Estimate at
    
    Percentage($ in thousands)
    
    December 31, 2005
    
    December 31, 2006
    
    IncreaseOwned receivables
    
    $
    879,468
    
    
    $
    1,143,000
    
    
    
    30.0
    %Securitized receivables
    
    
    2,880,401
    
    
    
    3,745,000
    
    
    
    30.0
    %Managed receivables
    
    $
    3,759,869
    
    
    $
    4,888,000
    
    
    
    30.0
    %
  Three Months Ended
    
    Nine Months Ended($ in thousands)
    
    September 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Net interest income on owned
interest-earning assets
    
    $
    26,896
    
    
    $
    20,004
    
    
    $
    73,732
    
    
    $
    59,105Noninterest revenues
    
    
    81,832
    
    
    
    76,295
    
    
    
    249,274
    
    
    
    221,282Provision for credit losses
    
    
    (9,202
    )
    
    
    (11,275
    )
    
    
    (28,681
    )
    
    
    (30,297
    )Operating expenses
    
    
    (65,789
    )
    
    
    (58,460
    )
    
    
    (187,831
    )
    
    
    (182,754
    )Pretax income
    
    $
    33,737
    
    
    $
    26,564
    
    
    $
    106,494
    
    
    $
    67,336
    30




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##### Table of Contents



INTEREST INCOME AND EXPENSE
    31




---



##### Table of Contents



INTEREST RATE ANALYSIS AND AVERAGE BALANCES
 Three Months Ended September 30,2006
    
    
    2005Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average($ in thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateInterest-earning assets:Owned receivables:Business credit cards (1)
    
    $
    1,114,122
    
    
    $
    33,968
    
    
    
    12.10
    %
    
    $
    819,870
    
    
    $
    26,546
    
    
    
    12.85
    %Other receivables
    
    
    7,732
    
    
    
    94
    
    
    
    4.82
    
    
    
    8,609
    
    
    
    117
    
    
    
    5.39Total receivables
    
    
    1,121,854
    
    
    
    34,062
    
    
    
    12.05
    
    
    
    828,479
    
    
    
    26,663
    
    
    
    12.77Investments (2)
    
    
    543,148
    
    
    
    7,198
    
    
    
    5.19
    
    
    
    574,156
    
    
    
    5,007
    
    
    
    3.42Retained interests in
securitizations
    
    
    207,912
    
    
    
    4,671
    
    
    
    8.99
    
    
    
    168,581
    
    
    
    3,627
    
    
    
    8.60Interest-earning assets
of discontinued
operations
    
    
    0
    
    
    
    0
    
    
    
    0.00
    
    
    
    4,871
    
    
    
    83
    
    
    
    6.79Total interest-earning
assets (3)
    
    
    1,872,914
    
    
    $
    45,931
    
    
    
    9.72
    %
    
    
    1,576,087
    
    
    $
    35,380
    
    
    
    8.90
    %Noninterest-earning assets
    
    
    369,859
    
    
    
    
    
    
    
    
    
    
    
    529,863Total assets
    
    $
    2,242,773
    
    
    
    
    
    
    
    
    
    
    $
    2,105,950Interest-bearing liabilities:Deposits
    
    $
    1,201,061
    
    
    $
    13,861
    
    
    
    4.58
    %
    
    $
    1,041,578
    
    
    $
    9,342
    
    
    
    3.56
    %Debt
    
    
    213,312
    
    
    
    3,483
    
    
    
    6.48
    
    
    
    235,023
    
    
    
    3,668
    
    
    
    6.19Subordinated debt
payable to preferred
securities trust
    
    
    103,093
    
    
    
    2,289
    
    
    
    8.88
    
    
    
    103,093
    
    
    
    2,289
    
    
    
    8.88Other borrowings
    
    
    1,171
    
    
    
    16
    
    
    
    5.52
    
    
    
    243
    
    
    
    2
    
    
    
    3.69Total interest-bearing
liabilities
    
    
    1,518,637
    
    
    $
    19,649
    
    
    
    5.14
    %
    
    
    1,379,937
    
    
    $
    15,301
    
    
    
    4.40
    %Noninterest-bearing
liabilities
    
    
    190,079
    
    
    
    
    
    
    
    
    
    
    
    224,292Total liabilities
    
    
    1,708,716
    
    
    
    
    
    
    
    
    
    
    
    1,604,229Stockholders equity
    
    
    534,057
    
    
    
    
    
    
    
    
    
    
    
    501,721Total liabilities and
stockholders equity
    
    $
    2,242,773
    
    
    
    
    
    
    
    
    
    
    $
    2,105,950Net interest spread
    
    
    
    
    
    
    
    
    
    
    4.58
    %
    
    
    
    
    
    
    
    
    
    
    4.50
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    5.57
    %
    
    
    
    
    
    
    
    
    
    
    5.05
    %
 
 (1)
    
    Interest income includes late fees for owned business credit card receivables of $2.3
million for the three months ended September 30, 2006 and $1.8 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. 32




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##### Table of Contents



Nine Months Ended September 30,2006
    
    
    2005Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average($ in thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateInterest-earning assets:Owned receivables:Business credit cards (1)
    
    $
    1,014,566
    
    
    $
    92,847
    
    
    
    12.24
    %
    
    $
    775,582
    
    
    $
    74,465
    
    
    
    12.84
    %Other receivables
    
    
    7,638
    
    
    
    281
    
    
    
    4.92
    
    
    
    9,200
    
    
    
    370
    
    
    
    5.37Total receivables
    
    
    1,022,204
    
    
    
    93,128
    
    
    
    12.18
    
    
    
    784,782
    
    
    
    74,835
    
    
    
    12.75Investments (2)
    
    
    514,692
    
    
    
    18,536
    
    
    
    4.75
    
    
    
    549,060
    
    
    
    12,280
    
    
    
    2.95Retained interests in
securitizations
    
    
    194,721
    
    
    
    13,052
    
    
    
    8.94
    
    
    
    168,456
    
    
    
    11,214
    
    
    
    8.88Interest-earning assets
of discontinued
operations
    
    
    0
    
    
    
    0
    
    
    
    0.00
    
    
    
    9,584
    
    
    
    600
    
    
    
    8.34Total interest-earning
assets (3)
    
    
    1,731,617
    
    
    $
    124,716
    
    
    
    9.61
    %
    
    
    1,511,882
    
    
    $
    98,929
    
    
    
    8.73
    %Noninterest-earning assets
    
    
    448,217
    
    
    
    
    
    
    
    
    
    
    
    420,739Total assets
    
    $
    2,179,834
    
    
    
    
    
    
    
    
    
    
    $
    1,932,621Interest-bearing liabilities:Deposits
    
    $
    1,132,588
    
    
    $
    36,027
    
    
    
    4.25
    %
    
    $
    935,035
    
    
    $
    23,606
    
    
    
    3.38
    %Debt
    
    
    215,469
    
    
    
    10,160
    
    
    
    6.30
    
    
    
    247,371
    
    
    
    11,324
    
    
    
    6.12Subordinated debt
payable to preferred
securities trust
    
    
    103,093
    
    
    
    6,868
    
    
    
    8.88
    
    
    
    103,093
    
    
    
    6,868
    
    
    
    8.88Other borrowings
    
    
    701
    
    
    
    28
    
    
    
    5.30
    
    
    
    82
    
    
    
    2
    
    
    
    3.68Total interest-bearing
liabilities (4)
    
    
    1,451,851
    
    
    $
    53,083
    
    
    
    4.89
    %
    
    
    1,285,581
    
    
    $
    41,800
    
    
    
    4.35
    %Noninterest-bearing
liabilities
    
    
    197,413
    
    
    
    
    
    
    
    
    
    
    
    176,948Total liabilities
    
    
    1,649,264
    
    
    
    
    
    
    
    
    
    
    
    1,462,529Stockholders equity
    
    
    530,570
    
    
    
    
    
    
    
    
    
    
    
    470,092Total liabilities and
stockholders equity
    
    $
    2,179,834
    
    
    
    
    
    
    
    
    
    
    $
    1,932,621Net interest spread
    
    
    
    
    
    
    
    
    
    
    4.72
    %
    
    
    
    
    
    
    
    
    
    
    4.38
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    5.53
    %
    
    
    
    
    
    
    
    
    
    
    5.05
    %
 
 (1)
    
    Interest income includes late fees for owned business credit card receivables of $6.2
million for the nine months ended September 30, 2006 and $4.9 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 in the nine
months ended September 30, 2005. 33




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PROVISION AND ALLOWANCE FOR RECEIVABLE LOSSES
   34




---



##### Table of Contents



September 30,
    
    December 31,
    
    September 30,($ in thousands)
    
    2006
    
    2005
    
    2005Consolidated  OwnedAllowance for receivable losses
    
    $
    49,952
    
    
    $
    45,589
    
    
    $
    51,632Receivables 30 days or more delinquent
    
    
    29,156
    
    
    
    23,646
    
    
    
    27,324Receivables 90 days or more delinquent
    
    
    13,182
    
    
    
    10,837
    
    
    
    12,479Nonaccrual receivables
    
    
    12,492
    
    
    
    11,476
    
    
    
    13,006Accruing receivables past due 90 days or more
    
    
    11,870
    
    
    
    9,479
    
    
    
    10,291As a percentage of receivables:Allowance for receivable losses
    
    
    4.14
    %
    
    
    5.14
    %
    
    
    6.21
    %Receivables 30 days or more delinquent
    
    
    2.42
    
    
    
    2.66
    
    
    
    3.29Receivables 90 days or more delinquent
    
    
    1.09
    
    
    
    1.22
    
    
    
    1.50Nonaccrual receivables
    
    
    1.04
    
    
    
    1.29
    
    
    
    1.56Accruing receivables past due 90 days or more
    
    
    0.98
    
    
    
    1.07
    
    
    
    1.24Net principal charge-offs for the year-to-date
period ended September 30 and December 31
    
    $
    24,610
    
    
    $
    44,870
    
    
    $
    29,101Net principal charge-offs for the three months
ended September 30 and December 31
    
    
    9,002
    
    
    
    15,769
    
    
    
    10,075As a percentage of average receivables
(annualized):Net principal charge-offs for the year-to-date
period ended September 30 and 
December 31
    
    
    3.21
    %
    
    
    5.32
    %
    
    
    4.94
    %Net principal charge-offs for the three months
ended September 30 and 
December 31
    
    
    3.21
    
    
    
    6.18
    
    
    
    4.86Business Credit Cards  OwnedAllowance for receivable losses
    
    $
    48,740
    
    
    $
    44,323
    
    
    $
    50,365Receivables 30 days or more delinquent
    
    
    29,081
    
    
    
    23,595
    
    
    
    27,324Receivables 90 days or more delinquent
    
    
    13,182
    
    
    
    10,837
    
    
    
    12,479Nonaccrual receivables
    
    
    12,492
    
    
    
    11,476
    
    
    
    13,006Accruing receivables past due 90 days or more
    
    
    11,870
    
    
    
    9,479
    
    
    
    10,291As a percentage of receivables:Allowance for receivable losses
    
    
    4.07
    %
    
    
    5.04
    %
    
    
    6.12
    %Receivables 30 days or more delinquent
    
    
    2.43
    
    
    
    2.68
    
    
    
    3.32Receivables 90 days or more delinquent
    
    
    1.10
    
    
    
    1.23
    
    
    
    1.52Nonaccrual receivables
    
    
    1.04
    
    
    
    1.30
    
    
    
    1.58Accruing receivables past due 90 days or more
    
    
    0.99
    
    
    
    1.08
    
    
    
    1.25Net principal charge-offs for the year-to-date
period ended September 30 and December 31
    
    $
    24,606
    
    
    $
    44,865
    
    
    $
    29,097Net principal charge-offs for the three months
ended September 30 and December 31
    
    
    9,002
    
    
    
    15,768
    
    
    
    10,075As a percentage of average receivables
(annualized):Net principal charge-offs for the year-to-date
period ended September 30 and December 31
    
    
    3.23
    %
    
    
    5.37
    %
    
    
    5.00
    %Net principal charge-offs for the three months
ended September 30 and 
December 31
    
    
    3.23
    
    
    
    6.23
    
    
    
    4.92
 35




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##### Table of Contents



SECURITIZATION INCOME
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,($ in thousands)
    
    2006
    
    2005
    
    2006
    
    2005Securitization income
    
    $
    26,232
    
    
    $
    31,797
    
    
    $
    89,496
    
    
    $
    92,259Interest income (discount
accretion)
    
    
    4,671
    
    
    
    3,627
    
    
    
    13,052
    
    
    
    11,214Interchange income
    
    
    40,038
    
    
    
    33,197
    
    
    
    112,879
    
    
    
    92,918Servicing revenues
    
    
    16,777
    
    
    
    12,785
    
    
    
    45,788
    
    
    
    38,203Total
    
    $
    87,718
    
    
    $
    81,406
    
    
    $
    261,215
    
    
    $
    234,594
   36




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##### Table of Contents



Managed Receivable Data
  37




---



##### 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
September 30, 2006Net interest income
    
    $
    26,896
    
    
    
    8.14
    %
    
    $
    63,784
    
    
    $
    90,680
    
    
    
    8.06
    %Noninterest revenues
    
    
    81,832
    
    
    
    24.76
    
    
    
    (34,385
    )
    
    
    47,447
    
    
    
    4.21Provision for credit losses
    
    
    9,202
    
    
    
    2.78
    
    
    
    29,399
    (2)
    
    
    38,601
    
    
    
    3.43Average business credit
card interest-earning
assets
    
    
    1,322,034
    
    
    
    
    
    
    
    3,180,872
    
    
    
    4,502,906Three Months Ended
September 30, 2005Net interest income
    
    $
    20,004
    
    
    
    8.10
    %
    
    $
    71,653
    
    
    $
    91,657
    
    
    
    10.27
    %Noninterest revenues
    
    
    76,295
    
    
    
    30.87
    
    
    
    (35,780
    )
    
    
    40,515
    
    
    
    4.54Provision for credit losses
    
    
    11,275
    
    
    
    4.56
    
    
    
    35,873
    (2)
    
    
    47,148
    
    
    
    5.28Average business credit
card interest-earning
assets
    
    
    988,451
    
    
    
    
    
    
    
    2,582,443
    
    
    
    3,570,894Nine Months Ended
September 30, 2006Net interest income
    
    $
    73,732
    
    
    
    8.13
    %
    
    $
    194,680
    
    
    $
    268,412
    
    
    
    8.51
    %Noninterest revenues
    
    
    249,274
    
    
    
    27.48
    
    
    
    (108,053
    )
    
    
    141,221
    
    
    
    4.48Provision for credit losses
    
    
    28,681
    
    
    
    3.16
    
    
    
    86,627
    (2)
    
    
    115,308
    
    
    
    3.66Average business credit card
interest-earning assets
    
    
    1,209,287
    
    
    
    
    
    
    
    2,996,350
    
    
    
    4,205,637Nine Months Ended
September 30, 2005Net interest income
    
    $
    59,105
    
    
    
    8.35
    %
    
    $
    215,472
    
    
    $
    274,577
    
    
    
    10.63
    %Noninterest revenues
    
    
    221,282
    
    
    
    31.25
    
    
    
    (106,005
    )
    
    
    115,277
    
    
    
    4.46Provision for credit losses
    
    
    30,297
    
    
    
    4.28
    
    
    
    109,467
    (2)
    
    
    139,764
    
    
    
    5.41Average business credit card
interest-earning assets
    
    
    944,038
    
    
    
    
    
    
    
    2,501,221
    
    
    
    3,445,259As of September 30, 2006Ending business credit card
receivables
    
    $
    1,198,550
    
    
    
    
    
    
    $
    3,449,366
    
    
    $
    4,647,916Receivables 30 days or more
delinquent
    
    
    29,081
    
    
    
    2.43
    %
    
    
    96,240
    
    
    
    125,321
    
    
    
    2.70
    %Receivables 90 days or more
delinquent
    
    
    13,182
    
    
    
    1.10
    
    
    
    43,911
    
    
    
    57,093
    
    
    
    1.23As 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 September 30, 2005Ending business credit card
receivables
    
    $
    822,821
    
    
    
    
    
    
    $
    2,781,397
    
    
    $
    3,604,218Receivables 30 days or more
delinquent
    
    
    27,324
    
    
    
    3.32
    %
    
    
    100,650
    
    
    
    127,974
    
    
    
    3.55
    %Receivables 90 days or more
delinquent
    
    
    12,479
    
    
    
    1.52
    
    
    
    45,387
    
    
    
    57,866
    
    
    
    1.61
 
 (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 $3.5 million in the nine months ended September 30,
2006 are included as increases to provision for credit losses. 38




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##### Table of Contents



SERVICING REVENUES
  ($ in thousands)
    
    2006
    
    2005Three months ended September 30
    
    $
    16,777
    
    
    $
    12,785Nine months ended September 30
    
    
    45,788
    
    
    
    38,203
  OTHER REVENUES
 Three Months Ended
    
    Nine Months Ended($ in thousands)
    
    September 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Interchange income
    
    $
    52,835
    
    
    $
    42,891
    
    
    $
    148,445
    
    
    $
    119,325Business credit card cash back rewards
    
    
    (12,244
    )
    
    
    (9,297
    )
    
    
    (32,609
    )
    
    
    (22,539
    )Business credit card business rewards
    
    
    (5,394
    )
    
    
    (5,021
    )
    
    
    (15,442
    )
    
    
    (15,354
    )Balance transfer fees
    
    
    1,639
    
    
    
    1,246
    
    
    
    4,972
    
    
    
    3,891Investment securities gains (losses), net
    
    
    1,091
    
    
    
    (109
    )
    
    
    4,623
    
    
    
    76Cash usage fees
    
    
    732
    
    
    
    780
    
    
    
    2,409
    
    
    
    2,438Earnings on investment in Fleet Credit
Card Services, L.P.
    
    
    0
    
    
    
    0
    
    
    
    819
    
    
    
    1,033Other business credit card fees
    
    
    912
    
    
    
    802
    
    
    
    2,517
    
    
    
    2,244Other, net
    
    
    617
    
    
    
    565
    
    
    
    1,727
    
    
    
    2,975Total other revenues, net
    
    $
    40,188
    
    
    $
    31,857
    
    
    $
    117,461
    
    
    $
    94,089
     39




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##### Table of Contents



GAIN ON TRANSFER OF CONSUMER CREDIT CARD BUSINESS
  OPERATING EXPENSES
 Three Months Ended
    
    Nine Months Ended($ in thousands)
    
    September 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Salaries and employee benefits
    
    $
    23,869
    
    
    $
    21,605
    
    
    $
    71,172
    
    
    $
    73,760Amortization of deferred
origination costs, net
    
    
    11,984
    
    
    
    11,526
    
    
    
    35,643
    
    
    
    29,413Marketing
    
    
    7,895
    
    
    
    4,327
    
    
    
    15,652
    
    
    
    16,424External processing
    
    
    6,077
    
    
    
    5,587
    
    
    
    18,200
    
    
    
    16,218Professional fees
    
    
    3,216
    
    
    
    2,494
    
    
    
    8,711
    
    
    
    8,996Equipment
    
    
    2,351
    
    
    
    2,713
    
    
    
    7,339
    
    
    
    8,226Occupancy
    
    
    2,340
    
    
    
    1,995
    
    
    
    6,811
    
    
    
    5,879Credit
    
    
    1,423
    
    
    
    1,355
    
    
    
    3,896
    
    
    
    4,036Other
    
    
    6,777
    
    
    
    7,113
    
    
    
    20,883
    
    
    
    20,634Total operating expenses
    
    $
    65,932
    
    
    $
    58,715
    
    
    $
    188,307
    
    
    $
    183,586
  40




---



##### Table of Contents



LITIGATION CONTINGENCIES
  41




---



##### Table of Contents



INCOME TAXES
  Three Months Ended
    
    Nine Months Ended($ in thousands)
    
    September 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Income tax expense
    
    $
    13,222
    
    
    $
    10,329
    
    
    $
    41,361
    
    
    $
    31,871Effective tax rate
    
    
    38.5
    %
    
    
    39.0
    %
    
    
    38.5
    %
    
    
    23.6
    %
    Accounting for Uncertainty in Income
Taxes  an Interpretation of FASB Statement No. 109
 42




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##### Table of Contents



DISCONTINUED OPERATIONS
    43




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##### Table of Contents



OFF-BALANCE SHEET ARRANGEMENTS
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,($ in thousands)
    
    2006
    
    2005
    
    2006
    
    2005Average securitized receivables
    
    $
    3,388,784
    
    
    $
    2,751,024
    
    
    $
    3,191,071
    
    
    $
    2,669,677Securitization income
    
    
    26,232
    
    
    
    31,797
    
    
    
    89,496
    
    
    
    92,259Discount accretion
    
    
    4,671
    
    
    
    3,627
    
    
    
    13,052
    
    
    
    11,214Interchange income
    
    
    40,038
    
    
    
    33,197
    
    
    
    112,879
    
    
    
    92,918Servicing revenues
    
    
    16,777
    
    
    
    12,785
    
    
    
    45,788
    
    
    
    38,203Proceeds from new securitizations
    
    
    121,591
    
    
    
    391,606
    
    
    
    1,191,855
    
    
    
    782,281Proceeds from collections
reinvested in revolving-period
securitizations
    
    
    2,003,338
    
    
    
    1,339,654
    
    
    
    5,466,735
    
    
    
    4,379,824Cash flows received on retained
interests
    
    
    66,270
    
    
    
    82,140
    
    
    
    236,480
    
    
    
    222,869
   NoteholderPrincipal
    
    Coupon
    
    Scheduled End of($ in thousands)
    
    Balance
    
    Type
    
    Revolving PeriodAdvantaSeries Class A (2006-A1)
    
    $
    200,000
    
    
    Fixed
    
    February 28, 2007AdvantaSeries Class A (2006-A2)
    
    
    250,000
    
    
    Floating
    
    May 31, 2008AdvantaSeries Class A (2006-A3)
    
    
    250,000
    
    
    Fixed
    
    September 30, 2008AdvantaSeries Class A (2006-A4)
    
    
    300,000
    
    
    Floating
    
    August 31, 2010AdvantaSeries Class B (2006-B1)
    
    
    100,000
    
    
    Floating
    
    November 30, 2008AdvantaSeries Class B (2006-B2)
    
    
    125,000
    
    
    Floating
    
    October 31, 2010AdvantaSeries Class D (2006-D1)
    
    
    15,000
    
    
    Floating
    
    May 31, 2010AdvantaSeries Class D (2006-D2)
    
    
    25,000
    
    
    Floating
    
    September 30, 2010
   44




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##### 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
 45




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MARKET RISK SENSITIVITY
  September 30,
    
    December 31,2006
    
    2005Estimated percentage increase (decrease) in net interest
income on owned receivables:Assuming 200 basis point increase in interest rates
    
    
    10
    %
    
    
    13
    %Assuming 200 basis point decrease in interest rates
    
    
    (3
    )%
    
    
    (11
    )%Estimated percentage increase (decrease) in net interest
income on securitized receivables:Assuming 200 basis point increase in interest rates
    
    
    (7
    )%
    
    
    (9
    )%Assuming 200 basis point decrease in interest rates
    
    
    16
    %
    
    
    12
    %Estimated percentage increase (decrease) in net interest
income on managed receivables:Assuming 200 basis point increase in interest rates
    
    
    (2
    )%
    
    
    (3
    )%Assuming 200 basis point decrease in interest rates
    
    
    11
    %
    
    
    5
    %
   46




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LIQUIDITY, CAPITAL RESOURCES AND ANALYSIS OF FINANCIAL CONDITION
    September 30, 2006
    
    December 31, 2005($ in thousands)
    
    Amount
    
    %
    
    Amount
    
    %Off-balance sheet securitized
receivables (1)
    
    $
    3,324,971
    
    
    
    61
    %
    
    $
    2,771,505
    
    
    
    59
    %Deposits
    
    
    1,222,903
    
    
    
    22
    
    
    
    1,070,572
    
    
    
    23Debt and other borrowings
    
    
    260,010
    
    
    
    5
    
    
    
    226,856
    
    
    
    5Subordinated debt payable to preferred
securities trust
    
    
    103,093
    
    
    
    2
    
    
    
    103,093
    
    
    
    2Equity
    
    
    548,589
    
    
    
    10
    
    
    
    515,437
    
    
    
    11Total
    
    $
    5,459,566
    
    
    
    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.    47




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CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
  48




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(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;
 49




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(13)
    
    the amount and cost of financing available to us;(14)
    
    the ratings on the debt of Advanta Corp. and its subsidiaries;(15)
    
    the effects of changes in accounting policies or practices as may be
required by changes in U.S. generally accepted accounting principles;(16)
    
    the impact of litigation, 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.
  50




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51




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PART II  OTHER INFORMATION
 
   
    Legislative and regulatory developments may affect our business operations and ability to
generate new accounts.
 ® ®
 
 *
    
    VISA® is a registered service mark of Visa International, Inc.**
    
    MasterCard® is a federally registered service mark of MasterCard International, Inc. 52




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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.
  53




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(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, 2006 through September 30, 2006. All shares
reported in the table below are shares of Class B Common Stock.
 (d)Maximum Number(c)Total Number
    
    (or Approximate(a)Total
    
    
    
    
    
    of Shares
    
    Dollar Value ofNumber of
    
    
    
    
    
    Purchased as
    
    Shares) that May YetShares
    
    (b)Average
    
    Part of Publicly
    
    Be Purchased UnderPurchased (In
    
    Price Paid
    
    Announced Plans
    
    the Plans orPeriod
    
    Thousands)
    
    per Share
    
    or Programs
    
    Programs7/1/06  7/31/06
    
    
    1.2
    (A)
    
    $
    35.90
    
    
    
    0
    
    
    
    08/1/06  8/31/06
    
    
    0.0
    
    
    
    N/A
    *
    
    
    0
    
    
    
    09/1/06  9/30/06
    
    
    0.6
    (B)
    
    $
    34.00
    
    
    
    0
    
    
    
    0Total
    
    
    1.8
    
    
    $
    35.26
    
    
    
    0
    
    
    
    0
 
 (A)
    
    In July 2006, in connection with the exercise of employee stock options, 1,180
shares were withheld to meet
Advanta Corp.s minimum statutory tax withholding requirements.(B)
    
    In September 2006, in connection with the vesting of shares for a retiring
employee pursuant to Advanta Corp.s management incentive program, 598 shares were
withheld to meet Advanta Corps minimum statutory tax withholding requirements. 
 *
    
    N/A  Not Applicable 54




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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 55




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SIGNATURES
  
 By
    
    /s/ Philip M. BrowneSenior Vice President andChief Financial OfficerNovember 8, 2006By
    
    /s/ David B. WeinstockVice President andChief Accounting OfficerNovember 8, 2006
 56




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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. 57